Bang & Olufsen a/s

Hello, everyone, and thank you for joining the call. Due to the COVID-19, we're not sitting together as we normally do, so this will be our first to be apart at different locations. Today, I will start by going through the highlights of the quarter and provide an update on how we are progressing on execution of our strategy. Afterwards, Nikolaj Vendelbo, our CFO, will take you through our financials in more detail. Then I will go through the outlook for 2021 before we open up for questions. Our head of marketing and digital customer experience, Christian Birk, is also with us today and will take part in the Q&A session later. So if we move to slide four, we announced the preliminary numbers for Q2 on December 15th, where we also communicated our increased outlook for the year. Those numbers are unchanged, with the exception of the Q2 growth in local currencies, which ended at 12% instead of 11%, as we had estimated in the preliminary numbers. Overall, we are pleased with the second quarter results. As communicated in December, we delivered a positive EBIT as well as a double-digit growth for the second consecutive quarter and a positive cash flow. We achieved growth in all regions and the results were primarily driven by strong execution on our key strategy priorities, successful product launches and higher consumer demand for home entertainment products. We did experience headwind related to COVID-19 with lockdowns impacting markets across the world, as well as higher logistics and component costs. I will go into more details on how we have worked to mitigate that on the next slide. An important part of making the company profitable again is our cost program, launched in March and with targeted annual savings of 175 million. I'm pleased that this program is progressing. We achieved a positive free cash flow of 139 million in Q2, and we go into Q3 with 582 million in available liquidity, which allows us to continue to execute on our strategy and get through the current wave of COVID-19. Based on our performance in the first half of our financial year, we increased our outlook in December. We now expect revenue to be between 2.3 billion and 2.5 billion. A bit before special items, we negative 50 million to positive 25 million and free cash flow to be between negative 50 million to positive 100 million. So please turn to the next page. We have seen COVID-19 impacting our business in three key areas during Q2. First, we have seen lockdowns in a number of our markets. By the end of Q2, 82 stores in France, United Kingdom, Belgium, among others, were closed, and currently 160 stores out of our 467 Monobrand stores are closed. Many stores can still transact and run installations, but it does, of course, impact daily operations. During Q2, we worked closely with our Monobrand partners to mitigate these challenges. We increased the focus on existing consumer base who already has a relationship with the local dealers. We significantly increased our digital efforts to increase awareness. And finally, we adjusted our e-commerce revenue sharing model in those markets impacted by lockdowns. Secondly, we saw a more unstable supply situation Scarcity on components in the consumer electronic industry led to higher prices on some components and problems meeting demand on some products, which was higher than anticipated. We also experienced challenges to production due to reduced labor capacity in regions severely impacted by COVID-19. We have increased our focus on supply chain management and added more resources internally to solve these together with our global supply partners. Thirdly, as other consumer brands, we were impacted by reduced global logistic capacity. To meet demand, we increased the use of air freight, which together with higher freight rates led to higher logistic costs. When the supply situation normalizes, we will again return to more sea and rail freight, which will help to bring costs down. There are still a lot of uncertainties related to COVID-19, and we do expect this global pandemic to impact our business in the coming quarters. We continue to work diligently with both retail and supply partners to mitigate the challenges related to this. If we move on to the next slide. We have shown our strategy house in previous earnings calls, but I want to re-emphasize that our strategy is and how we are executing on our strategy. Currently, we're in the first phase where our focus is on fixing the basics and becoming profitable again. With our current progress, which is also reflected in our outlook, we are within reach of being profitable this financial year. We still have a lot of work ahead, but I'm encouraged by the progress we have made both financially and in the underlying business, despite the challenges related to COVID-19. We have made significant improvements in many areas in Q2, and I will give you an update on some of those focus areas on the next couple of slides. If we move to the next slide, In our strategy, we have identified eight core markets where we want to win before we scale our business. In Europe, the six core markets realized 13% growth driven by Monobrand and our own e-commerce. Multi-brand stagnated, and this was mainly due to delays in some changes to strengthen the operating model, COVID-19 impacting travel retail, and a softer participation in Black Friday sales compared to last year. We have made changes to our multi-brand channel to ensure a stronger foundation for future growth. This included a new commercial framework as well as the onboarding of several new partners. Among others, we have onboarded both Ingram Micro and Techdata as new distribution partners in Europe. We expect this to improve our sales performance already in Q3 and Q4. Monobrand continue to perform well. To strengthen our relationship with the partners and to further improve sales, We completed a comprehensive partner survey during the quarter to strengthen our collaboration and partnership with the dealer network. This will now form the basis for future initiatives in this channel. In Q2, we also took over two monobrand stores in London to gain more control of the brand experience and ensure the right activation in the city as a whole. The stores are targeting the high net worth individual segment in particular, which is one of our key consumer segments. In the two Asian core markets, we grew revenue by 6%. Our sales in Asia has benefited from higher demand for home entertainment products as we have successfully adjusted our go-to-market approach to cater for this demand. As a consequence, the flexible living category grew more than 75% in the two core Asian markets in Q2. A large share of our revenue in Asia has historically been generated from on-the-go products. So in Asia, we were particularly challenged by the impact of COVID-19 on travel retail. We decided to make changes to the Greater China Region management in December to further accelerate the growth and strengthen our capabilities across the channels. We expect to add more resources to the team like we have done in Europe in the coming quarters to help realize the growth potential we see in China and South Korea, both short and long term. If we move to the next slide, please. Innovative products are the heart of Bang & Olufsen and it has been a key priority for us to maintain a high frequency of launches this financial year. We launched seven new or upgraded products in the first six months and that contributed to the positive development in our financial performance. The products have been well received by our consumers and many of them are best in class in their category and we expect to launch more than five new or upgraded products in the next two quarters to add to our already strong portfolio. In December, we launched the second generation Eclipse 65-inch TV. In Q2, we launched two new products, BeoRemote Halo and BeoVision Contour, two upgraded products in BeoVision 20 and BeoVision Eclipse second generation, as well as the Golden Collection to celebrate our 95th anniversary and the Rafa E8 Sports collaboration. The launch of Biovision Contour was a testament to our agile development capabilities. Since the launch of our strategy, part of our focus has been to launch a smaller size TV proposition to respond to second room and second home demand with a lower price proposition. This demand was highlighted also by our monobrand partners, and we are proud that we brought this product to market in a record-breaking short period of time. In Q2, we also revealed the first product in our classic editions program, the Biogram 4000C, which has been very well received among Bang & Olufsen consumers and highlighted the longevity of our products. The classic editions program is one of the three new product initiatives, which also include limited editions and bespoke programs that we have introduced to boost brand awareness and differentiation in the marketplace. The new technical platform first introduced in the Biosound Balance and Biosound A1 second generation continue to perform well in Q2. But we also released several software updates for our old platform. To improve the user experience on these platforms, we have added new features, solved known connectivity issues, and updated Apple Airplay and Google Cast software. We continue to see our products being rated best in class and receive awards. Our Biosound A1 second generation, which has already received several awards, got a five out of five star rating by WhatHiFi. In November, we received an honorary prize by Lead&Build in recognition of our ability to continue to innovate and bring new iconic products to the market, even after 95 years. So let's move to the next page. In line with our strategy, we continue to develop and launch several new initiatives in Q2 to further strengthen our digital platforms. On our own e-com platform, we continue to invest and expand the e-com functionality into our apps, social media platforms, and create retail network enablers like Click and Collect Pilot, now launched in the UK. With people facing restrictions due to COVID-19 lockdowns, our augmented reality or AR experience app allow customers to place our speakers and TVs in their home virtually. And we have seen increase in traffic to this app in Q2. We also launched a new functionality to now allow customers to try on their favorite headphone style virtually and place their orders directly through the app. Providing the best possible consumer and customer experiences is a significant focus for us. We now have an internally built system which, by combining a range of internal and external data sources, allows us to see where our customers are facing certain pain points. Related to that, we have built tools for customer services to diagnose product remotely and deploy any fixes needed. All of these initiatives help to serve our customers better. We see that this leads to higher performance on our own e-com, which grew by 74% compared to Q2 last year, but also to drive a better customer experience. And our data indicates increasing customer satisfaction across all product categories. And with that, I would like to turn over to you, Nikolaj, to take us through the financial development.

Thank you, Christian. Now, please turn to page 11. As Christian said, we have delivered our second consecutive quarter with double-digit growth, and this was also the first quarter with positive EBIT since we launched our new strategy. Revenue increased by 12% in local currency. Like in Q1, the revenue growth was related to home entertainment products and especially flexible living performed well, growing by 61% in the quarter. We saw this trend in all regions. All regions delivered year-on-year growth. Compared to last year, product launches had a positive effect on growth. In the stage product category, we did see a small decline in Q2 compared to last year. This decline was expected as we in Q2 last year launched a new TV, Real Vision Harmony, and our soundbar, Real Vision Stage, driving sell-in in that quarter. For the first half of the year, the stage category was up by more than 20%. Looking at our channels, the main driver behind the growth was the Monobrand channel, but also our online sales platform performed well. As Christian mentioned, our own e-commerce platform grew 74% and we are also seeing our e-tail partners growing. Revenue from the multi-brand channel declined in Q2, which was related to the work with changing the operating model of the channel in Europe that Christian mentioned before. Multi-brand is of course also impacted negatively by the decline in travel and lockdowns in certain countries as for example the UK. This impacted our on-the-go category. But it's important to mention that our newly launched products like BeoSound A1 second generation, BeoLid 20 and BeoPlay H95 are doing well and revenue from Bluetooth speakers and headphones increased compared to last year. Brand partnering and other activities grew by 13% in Q2. PC sales are still doing well, and furthermore, car manufacturing has normalized in the quarter. The gross margin increased by 2.1 percentage points. Last year, we made a provision for component liability, which had a negative impact on the margin that year of approximately 4 percentage points. Adjusting for this, we saw a decline in gross margin of approximately 2 percentage points. This was mainly due to higher component cost and logistic cost. Especially logistic cost increased as a result of more products being moved by air to ensure deliveries to partners in a situation with a tight supply chain. The cost was further accelerated by freight rates increasing following capacity being lower. The EBIT margin before special item increased by 13.9 percentage points to 4.1%. The improvement was driven by the revenue growth and the higher gross profit as well as lower capacity cost. The lower cost being a result of the cost reduction program yielding savings of 32 million in the quarter. Please turn to the next page. As I mentioned, all regions delivered year-on-year growth in Q2. Home entertainment products were the main driver, with all types of speaker categories growing, but especially flexible living products drove the growth. In EMEA, revenue grew by 13% in local currency. The monobrand and e-commerce channels were the main growth drivers. The multibrand channel was impacted negatively by the work with changing the operating model of the channel. The growth came from flexible living and on-the-go products. Flexible living was driven by most products in the category. Within on-the-go, the growth was driven by newly launched products like H95, Bivoli 20 and A1 second generation. The decline in the stage category was related to the TV portfolio and impacted by the product launches last year, and the decline was, as mentioned before, expected. Sales of speakers increased, but was restricted by availability of products due to the global company shortage in the industry. America has increased by 29% in reported figures, but 41% in local currency. The growth was seen across all channels and all product categories. The growth in the stage category was mainly driven by speaker sales, but again limited by product availability. Flexible living grew across most products in the category. It was also supported by some multibrand partners expanding the product range they offer to consumers. The on-the-go category grew in both speakers, headphones, and earphones, and mainly driven by newly launched products like A1 second generation, Bioli 20, H95, and E8 Sport. In Asia, revenue increased by 5% in local currency driven by flexible living and mainly related to the monoband channel. The growth in the flexible living category came from all speakers. As with the other regions, the decline in the stage category was related to TVs where speakers delivered growth. The decline in international travel activity impacted on-the-go. Because the on-the-go category accounts for relatively more in Asia than in other regions, the decline in international travel affects Asia relatively more. Finally, brand partnering and other activities grew by 16% in local currency. The increase was related to both HP and Harman, driven by PC sales and the normalization of car manufacturing. Please turn to the next page. Our capacity cost declined by 17% in the quarter and 14% excluding special items. We saw a cost decline in all three cost categories. The cost reduction program yielded 32 million in savings in Q2, bringing the total cost savings to 63 million in the first half of the year. The cost savings are mainly related to non-product related cost and headcount reductions in administrative functions. The savings in Q2 were only slightly more than in Q1. The reason for this is related to the supply chain challenges seen in Q2, which means that the cost reduction ambition on product-related cost was delayed. We have focused on securing supply and components, slowing down the work with reducing product-related cost. These temporary challenges have not changed our targeted cost savings. Our development costs declined by 14%. This was related to lower amortization, where the incurred development costs were 1% higher than last year, reflecting our continued focus on product development. Our distribution and marketing costs declined by 11% compared to last year. The decline was partly driven by the cost reduction program, but also postponement of planned in-store marketing activities due to COVID-19. Instead, we invested in building brand awareness and online activation. Finally, administration costs declined by 25 million or 45%. Excluding special items, administration costs declined by 9 million or 23%, which was mainly related to the cost reduction program. Please turn to the next page. CapEx was 12 million lower than in Q2 last year. The decline was mainly related to lower investments in retail due to COVID-19. Investments in product development and technology platforms were at the same level as last year. Our net working capital decreased by 108 million in the quarter, mainly driven by higher trade payables and other liabilities. Net working capital to the last 12 months revenue was 11.4%, which is 5.4 percentage points lower than Q2 last year. The increase in other liabilities was related to accruals on employee costs, taxes, VAT and holiday allowances. I will return to net working capital in a moment. Free cash flow was positive by 139 million, impacted by net working capital and EBITDA being positive 74 million compared to negative 22 million last year. We have introduced a new term in this quarter, namely available liquidity. We want to mitigate the effects of having a large cash position and facing negative interest rates. We have therefore invested 450 million in AAA rated Danish mortgage bonds. To maintain our financial flexibility, we enter into repo transactions whereby we can assess intraday financing if needed. By the end of Q2 we had borrowed 25 million. Available liquidity consists of cash and bonds minus repo borrowing. Our available liquidity position increased to 582 million in the quarter compared to 497 million by the end of Q1. We have in Q2 also purchased own shares for an amount of 42 million to hedge our share-based long-term incentive program. Please turn to page 15. Maintaining control with our working capital continues to be a very high priority for us. Inventory was at the same level as Q1, but significantly lower than Q2 last year. We have since Q2 last year reduced inventory with 142 million. With increasing demand experienced at the moment, we are ramping up production capacity with our partners. Trade payables increased to 481 million, which was 154 million higher than Q1. The increase was related to the ramp of production in Q2. Finally, our trade receivables increased to 417 million, mainly due to higher sales compared to Q1. Sales with the extended credit was 5% in revenue and related to new product launches and also the golden collection. Overdue trade receivables continues to be at a satisfactory level. And with that, I would like to hand it back to Christian.

Thank you, Nicolai. Before opening for questions, I will just briefly go through the outlook and the highlights, so please move to the next page. The outlook for 2021 is unchanged compared to the updated outlook presented on December 15th, when we increased our expectations for the year. The outlook for 2021 depends on numerous factors. I will not go through them all, but just highlight some of the main ones. I will refer you to the report for a full description of the assumptions. We expect revenue to be between 2.3 and 2.5 billion. We assume that the impact of COVID-19 in the second half of the year will not be materially different from what we saw in the first half. Furthermore, we expect to launch more than five new and upgraded products in the second half of the year. We expect the EBIT before special items to be between minus 50 million and plus 25 million. Component and logistic costs are expected to remain at the higher than normal level experienced in Q2. Finally, free cash flow is expected to be between minus 50 million and plus 100 million. The outlook on free cash flow reflects the revenue and EBIT expectations and CAP is expected to continue reflecting the product launch plan. So please turn to the next page. So to summarize, we had another strong quarter. First of all, the strategy we launched in April last year is working and our focus on core markets is paying off. We have launched seven new and upgraded products in the first half of the year, which have all been well received by the market. And we have planned to launch more than five new and upgraded products in the second half of the year, of which we already launched the first in December. We have onboarded new distribution partners in Europe and the US to strengthen the multi-brand and B2B performance. We have accelerated our efforts on digital and e-commerce, and it is progressing very well. This has also been one of the mitigating actions we have taken to mitigate the impact of COVID-19 and the lockdowns on our business. Our available liquidity increased further in Q2, and we are now at 586 million, driven by our performance on free cash flow. Finally, and before going to the Q&A, I just want to take the opportunity to again thank the whole B&O team, all our employees who have been working extremely hard on executing our strategy during these difficult and uncertain times. And with that, we will open up for questions.

Thank you. If you wish to ask an audio question, you may do so by pressing 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Once again, please press 01 on your telephone keypad if you wish to ask an audio question. There'll be a brief pause after you've made your questions to be registered. Our fourth question comes from Paul Jewison from Danske Bank. Please go ahead.

Just thank you and congratulations for the good performance so far this year. I have a few questions about the sourcing. There's both the component issue, but then I guess there's also the issues in Czech Republic with Corona. Right now, do you have an indication on how much the capacity has been reduced at the factory at Symphony? Secondly, how much missed sales you have had in the quarter due to lack of products. There are a number of products which are sold out. Second question is about the distribution agreements in Europe. If you could put some words on the tech data and the Ingram. What are they adding? What is changing? And also that on the Ingram agreement for the US. And then the final for now is on the TV. Can you elaborate on the impact from the change in business model where monobrand stores have to source it directly from LG on the TV? How much has that impacted the TV sales for either the first or second quarter or for the first half?

Thank you. Thank you, Paul. Maybe I start and then I will pass on to Nikolaj to fill in with further details. So if we start with the demand side, many of our products had higher demand than we expected, which is in the positive for us. And then, of course, then to be able to produce that, we have had challenges to find components and we have been working extremely hard to find the missing components and the team in procurement has had of course then headwind to mitigate this and to work with this but so far we have been able to meet our plans and continue to deliver according to our plans but we do recognize that it is difficult and we're of course working in headwind and we expect this difficulty to continue for a while. And we also have to pay, as we said, a bit more for the components than we normally would have to do to secure the capacity. Also on the capacity side, the factories and our partners have been able to perform despite the difficult times that they have had. And like you say, all symphony in Czech and Czech has been really hard hit in particularly that region. where Tymfany has a factory located, but they have also implemented a lot of initiatives to do tests and to have different shifts and making sure that people are not mixed together on different shifts. So they have been able actually to keep on the production, surprisingly, I would say, well, despite the challenges and also learned how to cope with it. We know that we have been sold out on quite a few products in the world because of high demand and because of component shortages. I can't give you and will not be able to give you a precise number, but the demand is continuously strong and we are working hard, of course, to fulfill that demand and to supply our customers with products. And we hope that we will be able to do so in quarter three. On tech data and Ingram Micro. So we have terminated our current partner for multi-brand in Europe. And we have assigned tech data and Ingram Micro to help us to do the fulfillment of multi-brand in Europe. It took a bit longer time to finalize these agreements than we would have liked. So we have a bit of delay in that execution. Then in addition to this, we have moved away from the kind of selling model. In the previous model, we had an upfront margin that we gave to the distributor, while as with Ingram and TechData, we work on a sellout allowance model instead. that will help us, I think, to perform much better and be much more focused on sell-out and provide the right experiences for our customers. We will also, and we have also, together with them, done the whole selling process and meeting with customers and starting to build customer relations and signed up several of the big multi-brand customers, that Ingram and TechData is, of course, already working with as well, also for our products. So we get scale from them, we get relationships from them, we get sell-out data from them and efficiency from them that we didn't get before, and also then with a new business model. Unfortunately, it took a bit of time, and the COVID-19 situation also didn't make it easier, but we're ready to go now in this quarter, so we're looking forward to that. On the TV business models and the TV sales, there's a mix of different things here that makes it quite complicated probably to explain. So I'll defer that to Nicolai to see if he can share any light on that. But as you know, we started to We don't include the revenue from screens anymore into our revenue because our partners are buying the screens directly from LG. Wireless, there's one exception for that, which is Contour, where we actually have bought on a temporary basis the screens in order to fulfill demand and be able to supply to our partners. But maybe Nikolai can give you more details on that. So I'll pass on to you, Nikolai. to add in anything that we may have missed and then we'll see whether Paul has further questions on this.

Yeah, thank you, Christian. And so on the TV side, I think the relevant question here is to look at the Vision Eclipse second generation that we launched in November, where we compared to last year with the first generation now have a different business model where the screens are sourced directly by the partners. And in Q2, that lost revenue. is approximately 10 million Danish. And of course, when we go into Q3 and Q4, that number will, of course, increase because then you have a full quarter impact in Q3 of that. But it's 10 million in Q2, Paul. So I hope that answers your questions.

And if you take the contour on top of that, that should also be taken in as the horizon was on the model, I guess.

The contour, as Christian said, contour is also going to be sourced by the partners, the screen. But for the first units that we are selling out in Q2, Q3, and partly Q4, but at least Q2 and Q3, We have actually purchased a number of screens directly from LG in order to secure supply because there was a global shortage of 48 inch screens in the market. So if we were going to launch this product effectively here in November, we had to go and secure the supply. So we did that. So actually the contour screens are part of our numbers in Q2. We didn't sell that many contours in Q2, so the numbers are quite small. We launched quite late in the quarter. But it is actually going through our books with no margin because it's a screen source directly from LG. So that will change to the new normal business model during Q3 and Q4.

Okay, thank you. And coming back to Christian on Europe and the distribution agreement, you also write about the headwinds from multi-brand stores and that you are changing the model there could you put a little more on is it reducing the number of retailers is it reducing the number of stores per retailer and how far are you in the changes there so if we start with we had a number of resellers too many resellers in

countries before that had been appointed by our master dealers in different countries we have for instance in switzerland terminated quite a few of them they didn't contribute significantly to to any revenue for us but were frequently discounting our products and selling them yeah in not satisfactory ways in terms of consumer experiences so we've terminated quite a few of those And then, like I said, on TechData and Ingram Micro, we have signed them up because they do deal with the bigger partners that we also want to deal with, like MediaMarkt, Elcorte Inglés, Fnac, Amazon and others. And they're helping us to fulfill that. But on a different model, like I said, where we basically give them more of a commission and then we control the sellout. margin and sellout allowance together with our partner at the end of the day when the sellout has been completed so this will give us a much more and higher focus on sellout with the right experiences and it took a while like i said and to put this in place so it's not like we we have kind of shut multi-brand partners down and are losing revenue because of that. I think on the contrary, we will see growth coming from this area with this new setup. We actually see it already being successfully implemented in Switzerland, but it also requires a rollout in Germany, France, Spain. There has been more lockdown as you know in the uk so the uk market is a little bit behind in this respect but we have seen good signs of this working and expect that to be executed now in quarter three okay thank you i'll step back and see if there are those good questions thank you thank you our next question come our next question comes from nielson from carnegie please go ahead

Yes, hello. So my first question would be about the corona lockdowns. So how many stores are currently closed and how many more weeks of lockdowns would you be able to tolerate in order to meet your guidance for the second half?

Thank you, Nils. I may start and then probably pass on to Christian Birk as well, who can share more insights on what we're doing to avoid what you just described. So we have 168 stores that are currently closed out of 468. But the difference this time compared to the first time around is that, like I said, they are still able to transact. They are working with their installed base. They are working on new leads generated from the digital efforts that we are doing and they are doing. And they're becoming, I think, more entrepreneurial in their way of selling and interacting with old customers and new customers. So therefore, we're not too concerned about the fact that they are closed as long as they can keep these installations up that they're currently able to do and they're currently able also to transact with them on the digital platforms that we have. But I'll let Christian Birk as well show a little bit more light on what we are doing to generate this awareness and convert new customers and old customers into sales despite the lockdown.

Thank you, Christian, and thanks for the question, Nils. So as Christian alluded to, we have a series of focus areas during the lockdown. A lot of these was actually connected to the original strategy. So I would say, first of all, to the question of how do we navigate and how do we activate, you can say, the wider channel network. We're doing very specific things across, you can say, digital initiatives, but also marketing initiatives. What we see is we have managed to grow for quite some quarters now the customer base, which we are incredibly pleased with. That is a growth of new customers into the Bang & Olufsen ecosystem. And beyond that, we, of course, focus on getting a dialogue with existing customers, both through a monobrand network, but also through our marketing efforts to get them exposed to our new exciting products and the existing portfolio that we think would be relevant for them. Secondly, we have done a lot on the new marketing direction as we announced in the strategy. We saw a need for a new brand and marketing direction and we really see that paying off now. All of our data is indicating that. We see a massive opportunity as you also saw in the flexible category that we are growing. People start realizing and we start communicating better that we actually can when you can connect several Bang & Olufsen speakers, you actually have a way greater experience. And that is also part of the reasons here. Simple things like previously people were looking for driving directions to certain stores when they were going there. We sort of have new tactics in place. So we expose them to phone numbers. We have very pragmatic initiatives like live chat and we have video sessions, other things coming up. So we want to ensure we can maintain the dialogues with our customers and onboard new customers despite the lockdown. And in our own humble opinion, we feel we have done that quite successfully in the previous quarter.

So with your new initiatives, what level of activity would stores be able to maintain on average moving to the click and collect and ship from store options while being in these lockdowns? Are they able to maintain like half of their normal business activity or what kind of success rate do you have with your new activities?

I think it's a very difficult question to answer because we have 468 partners and they're a little bit different but we know that some of our partners have had the best years months in a long, long, long, long period of time, maybe best ever. So I think it's a testimony to the products that we have built and the new marketing that we are doing. And then, of course, their own ability to still transact and operate during the lockdown. So I don't think it's like one answer. So some of them are doing really, really well despite this lockdown situation.

Okay, and then just a financial question here. Could you update us on how many of your stores are owned and operated by you? And what was the effect on your revenue growth from internalizing the ownership of some of your stores in the quarter?

Yeah, so maybe I'll start and then I'll pass on to you, Nicolai. So we added... Two stores, we actually have added three stores to our own CoCo, kind of only operated and controlled stores during the quarter. So I've added Harrods and we have added Selfridges in London and we have opened in Bicester. visitor village collection which is an outlet mall outside of london so we have those three in addition to the number we had before which i think was around six or seven if i'm not mistaken but you need to help me here nicolai with the exact

Yeah, so we have 10 company-owned, company-operated stores now. And to answer the question and the three additions that Christian just mentioned is the new additions here in Q2. To answer the growth question, so two of those stores are actually take over of stores from a partner. So on a like for like basis, so to speak, it's the same stores as we had previously. Of course, we believe that we are operating them a little bit better. That's why we took them over. And the business store was actually not open until December. So there's no impact on that in Q2.

Okay. And then just finally, what was the share of revenue coming from your own e-comm business in the quarter?

It was 3% from own e-comm.

So that's 3.0.

3.0%, yes.

Thank you.

Okay, thank you. Our next question comes from Benjamin Silverstone from ABG. Svendor Collier, please go ahead with your question. Thank you.

Hi, Kerstin. First, congratulations on the quarter. I have a quick follow-up question on Nilsson's question. regards to how the lockdowns are impacting the sales and you do mention now that your sales from e-commerce is roughly three percent but could you perhaps elaborate a bit on how you've seen for example the traffic to your web page going and i also know that you focused on social media so perhaps there's been some additional traffic coming from these sites as well um Lastly, I was wondering if you could perhaps give some nuances to the fact that you do have a large liquidity at the moment and low debt levels. Would it be possible for you to accelerate your strategy by increasing your cash burn and perhaps give some feedback on why this would not be a good idea, why this would be a good idea for you guys? Thank you.

So thank you, Benjamin, and thanks for the encouragement. Maybe start with Birk to share on what is happening on the digital side and the metrics that we are using, and Nikolaj to help as well with the numbers, and then I can give my perspective on your last question finally. So Christian Birk.

Yeah, thanks for the question, Benjamin. So we don't typically disclose traffic numbers externally, but to give you a few pointers and what's, of course, important when we talk about our e-com share to total revenue is a large part of our stage portfolio is not transacted on the e-com P&L, but is where we provide leads into our monobrand network. as such but we have seen a growth I would say when you look at a customer funnel from awareness the traffic we bring in evaluation people considering buying and to purchase numbers and of course the loyalty metrics we look at we have seen growth across all four aspects in the last quarter in terms of traffic we focus on a few different metrics here. One is the incremental traffic we managed to drive into our stores, into our digital touchpoints, could be our apps, social media touchpoints, our own bank. Again, we see growth across here, but more importantly, we also look at what's the growth we managed to gain in the market or in the categories. So we look at what's our share towards competition, basically. and and here we have also seen a great traction and stolen you can say eyeballs and market share from a marketing perspective in the last quarter okay thank you christian nicolai anything to add or shall i go to the last one no i think you can go directly to the last one christian

In the strategy, Benjamin, we outlined that we have this first get back to black and then create robustness and then start to scale. I think even though we have now made two quarters with growth, one quarter with positive EBIT and cash flow, it's too early to change to this robustness or scaling phase. I think we want to put third quarter and fourth quarter and a full year where we really feel that we have fixed the basics that still remains to be fixed. I think we have made a lot of progress in many, many areas, but there's also a lot of things that we still want to do before we really start to scale it and accelerate it. And I think as well, what we see in the strategy together with the current partners, together with the current footprint, that it is still possible to grow that quite significantly, and the products that we have and have announced new ones are doing very, very well. So I don't think there's an immediate kind of need either to do that in order to find the opportunities in the market. So a few more quarters in the back to black for sure, and then we'll – and we are constantly asking ourselves the same question, so make no mistake about it. But I think this is not the time. It's going to be a while before we get there. Hope that answers your questions, Benjamin. Yeah, thank you very much.

Maybe I can just add, Benjamin, that we're also stating clearly that we don't expect our cash flow in the second half of the year to be significant.

Thank you. Thank you. Our next question comes from Paul Joseph from Danske Bank. Please go ahead. Thank you.

I have a few follow-up questions. In China, you say that you have had a management change. I was just wondering if you also are planning any strategic or structural changes out there, or if they are underway, or if it's only the management that you're changing. Then on the brand partnership, you said, I think, when you gave the guidance for the full year, that it included expectations of additional partnerships to be signed this year. Is that still the case? On the own and operated stores, should we expect you planning to take over more stores in the future? And then finally, you mentioned that products launched in the last 12 months is one third of revenue. How has that been in the past? Is it increasing or is it more or less stable? Thank you. Now, the final one is you also had in the prospectus that the LG partnership should be or is expiring in the spring. Has that been extended or should we just see that as a normal procedure that it will be extended? Thank you.

Thanks, Paul. All very good questions. So maybe I start and then I'll talk to Nicolai when it comes to the revenue from new products. And I'll cover the LG questions before that as well. But on China, And on South Korea, we feel we have a lot of opportunity and we haven't been able to grow and accelerate that growth to the extent that we wanted to do. So therefore, we have changed the management there and we're bringing in additional resources on the commercial side, on the marketing side, on product management side and on the science side. We still maintain the same strategy in China, so there's nothing different from that perspective. We also will do pretty much what we have done, like I said in my webcast as well, the same things that we have done in Europe to strengthen with country managers and strengthen with account management that is knowledgeable from consumer electronics and from these local markets. So there is more resources going in there. At the same time, we have also kind of cleaned up a little bit in the regions because our operating structure was a bit different than our regional structure. So now we have three clear regions. So we have formed the Asia Pacific region and that's now headed up by Arnoa. who previously was doing omnichannel and comes from within the company. He previously had Eastern Europe and he had emerging markets as his responsibility in Japan. So in order to serve China and Shanghai to start with better, he has moved and relocated to Shanghai. And we are building up our regional hub in Shanghai. serve the Chinese market and the region in a better way and then by putting more resources in there and to accelerate the growth. At the same time, we have taken the omnichannel organization that we are now setting up in Europe predominantly and integrated that into our European organization and formed an EMEA organization. And the reason for doing that is to have more execution power and to execute faster on the whole retail experience and retail rollout and retail activities that we have planned for. Jorge is now, who has been heading up the six European markets, also now heading up EMEA. And all these resources are reporting in to him. And we have also made an Americas organization, a regional Americas organization, before Latin America was reporting into ANOA. in Copenhagen and now Latin America is reporting into RIC. So we have three distinctive kind of classical regions, AMR Americas, EMEA, Europe, Middle East and Africa, and then Asia Pacific with three leaders who are now going to scale that business and serve the customers locally in a better way. The country focus still remains the same. So we're not changing anything in terms of China, Korea is the main, main focus. That's where we're going to resource it first. and continue to accelerate digital there, continue to build monobrand stores, and, of course, continue with the e-com with Tmall and Yeidi.com, but also integrate the Chinese organization and the Asia organization more together with activities that we have been doing and executing in Europe. And then Arnaud will be really, really good on making sure that we get that same progress. in China and in Asia. On your second question, we have signed more partnerships in brand partnering, but because many of them are long-term partnerships, we are not allowed to announce them until they are announced. So I can't give you any more comment on that, but we have made progress here. And I think this is an area where We will, in due time, announce those partnerships. But we're doing well there. On cocoa stores and... I think we are served well by having partners and we're engaging more with our Morna brand partners. That's why also we did this quite extensive survey with 150 of our Morna brand partners to see on how we even get closer to them, work better together, capture more opportunities. And I think we have an amazing partnership network that we will continue to work with. What we are missing in some places, and that is on our agenda now, is to build a few experience centers where we can really demonstrate the whole B&O experience. And we want, of course, to have one in Asia, Shanghai. We want to have one in Copenhagen. And we want to have one in the Americas to start with. So that's on the agenda in terms of next steps in retail. And then we will also see when we announce more products that there will be different retail execution, more on the product by product side than complete revamping of stores, because I think we have already a lot of good things happening in retail. That's on how we're going to proceed with that. And with LG, we also have a very, very good partnership and a good dialogue. And I expect these agreements, like the other agreements that we have running, to continue and to be extended as normally, basically. So no change in those partnerships. We have a fantastic partnership with HP that we expect to... roll on with and extend and with Harman and LG as well. So that is more business as usual. And Nikolaj, then to the revenue from new product question that Paul also had.

Yeah, so Paul, I actually didn't quite catch the details in your question and Martin and I were sitting here discussing what you actually were asking about. So can you repeat, please?

The question, I think that you're right in the report, the one-third of revenue is generated by products launched the last 12 months. And the question is then, is the one-third is that stable up or down versus earlier, previous years, previous quarters?

I'm not able to make that recognition sort of in my head back. I think what we can say is that normally we say that approximately a quarter of our revenue in HearingQ2 is coming from products launched in the last 12 months.

right so so and i think that is a a figure that we see sort of quite stable on average over over the coming time as well okay thank you that's all for me thank you just as a quick reminder if you wish to ask an audio question you may do so by pressing zero one on your telephone keypad once again please press zero one on your telephone keypad if you wish to ask an audio question Our next question comes from Neil from Carnegie. Please go ahead.

Thank you. I have a few follow-up questions as well. Talking about your order backlog, I know it's a difficult thing to talk about in a company like yours, but can you give an estimate of the value of orders waiting to be delivered to end users among your B&O stores? And to what extent this is much higher than normal or where are we at this point? And secondly, could you also give us an update on the status of the component shortages? To what extent is it getting better or worse as we speak?

Thank you. So thank you, Nils. I could give you the precise number, but I will not. But I can say this much that it's significantly higher than we normally would have. on the order backlog. And we have quite a lot of orders that are waiting to be processed. But I will not disclose the number, but it's significantly better than it normally would be and has been historically as well. And on the component side, there is, like I said, a lot of work going on to meet the demand for the products. And so far, we have secured components to meet our plans that we have and to meet the guidance that we have given and outlook we have given so we are managing it but it also changes and corona and covid is difficult to predict but so far we are managing which i think is the most important thing and our procurement team is doing a good job and our production partners and our supply planning team and logistics teams are doing an amazing job as well to get the products to the consumers. So it's not without challenges, but we have managed and managed well, and I think we will continue to do that. Nicola, you want to add anything? Thanks.

No, I think maybe just to add, Niels, that we normally don't operate with backlogs in our line of business. So this is very much sort of consumer driven and we want to be in a position where we sell into our partners when they sell out to their consumers. So we have that link. So just the fact that we have a small backlog at the moment is significant. but it's a relative term as we don't have a backlog normally.

Okay, great. Thank you. Thank you. There appears to be no further questions, so I will hand back to the speakers for any more remarks.

Yeah, so thank you everybody for joining the call today and for all the questions that we have received. And I think we are proud about what we have achieved and what the organization has achieved and what all the employees are doing despite the difficult Corona times. And we are managing the business in a good way. So I wish you all a great day and thank you for joining.