Bang & Olufsen a/s

Welcome to the Bang & Olufsen AAS Interim Report Q1 2021 for 2022. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Today I'm pleased to present Christian Tehr. Please go ahead with your meeting.

Hello, everyone, and thank you for joining the call where we will present the results of our first quarter for the year. If we move to slide number three, I will begin by going through the financial highlights and progress on our strategy execution in Q1. Our CFO, Nicolai, will then take you through the financials in more detail. Finally, I will briefly go through the outlook before opening up for questions. As usual, our head of marketing, digital and customer experience, Christian Birk, is with us and will take part in the Q&A session later. If we move to slide four, please. For the first time since the financial year 2007 and 2008, we managed to deliver positive EBIT before special items and positive free cash flow following a growth in revenue of 44% compared to last year. We're pleased with the results delivering 666 million in revenue, a positive EBIT margin before special items of 1.4% and 21 million in free cash flow. The fact that we managed to do this for the first time in 14 years is a testament to the effects of our turnaround plan, which we continue to execute on in Q1. The performance was broad-based across regions, product categories, and distribution channels, and driven by continued demand with solid double-digit sell-out growth. However, component scarcity and logistical challenges continue to impact our business negatively, and we could have delivered better results had we not been impacted by longer delivery times and higher costs. Our component sourcing and supply task force, which we established last year, has been able to secure many of the components needed to meet demand, but we still have longer delivery times on certain products and components are still bought at much higher prices than normal. We maintain our outlook for the year. There is a high uncertainty and low visibility related to component and logistical challenges for the year. So if you move to the next page, please. We have continued to execute on the second phase of our turnaround. As we said last time, we have simplified our strategy house from last year. The strategy house is constructed in three levels. The first level is a robust foundation with a focus on people, processes and profitability. The second level is developing a model for scale. And the third layer is our continued focus on growth pillars. I will, on the next pages, highlight some of the results from Q1. So if we move to the next page, please. The first level of our house is aimed for securing a strong business backbone by improving profitability and making Bang & Olufsen the best place to work for our people. On profitability we benefit from the full run rate of the cost reduction program completed last year. We also see the effects of price increases which have now been fully implemented and thus positively affecting our performance. Finally, we have been assessing the logistic setup. To improve profitability, we are now producing BioPlay A9 in EMEA and APAC to have a better alignment between where we produce and where we sell. We will continue this work on more products in the coming quarters. We continue to lift the capabilities in Bang & Olufsen, and in Q1, we hired 85 new employees. More than 60% of the new hires are within product development, particularly for our software and engineering teams. Almost 20% are new hires in our market to support our commercial growth ambitions. Please move to the next page. The second level of our house ensures we have a proven and scalable growth formula. Here we strive for the three things combined, continuously launching great product, platform and software innovations, executing impactful sales and marketing, and continue developing the go-to-market model. with a strong focus on continued to strengthen our digital ecosystem, more specifically to improve our e-commerce platform while we're making proactive use of customer data for more targeted campaigns and better customer experience. Firstly, we continue building a product portfolio that is fit for the future. In Q1, we launched three product innovations as part of our full-year roadmap. We launched a 55-inch version of BioVision Contour, which completes our TV offering. We now have three TV offerings with BioVision Contour, Eclipse and Harmony, overlapping each other in size and our soundbar, which fits all TVs. We also launched our new earphones BeoPlay EQ with adaptive active noise cancellation. This was an important update to our earphone category and they have been well received in the market. We also released a software update to our new product platform enabling stereo pairing of BeoSound Balance, Level and Emerge. The fact that we can upgrade several products on our new platform with one software update proves the strengths on our new product platforms and we're building an ecosystem where customers will be enticed to buy more and more B&O products. Finally, we released a sports collection on Biosound A1 and Bioplay E8 Sport. The sports collection was part of our sports promotion during quarter one. We brought attention and awareness to the Bang & Olufsen brand as we partnered with Strava, which is a social network for athletes on a sports challenge. More than 100,000 people participated and ran almost five million kilometers combined. We saw an increase of newsletter sign-ups following this campaign. We also partnered with Liverpool Football Club and England footballer Trent Alexander-Arnold, who showcased the benefits of using Bang & Olufsen products for sports to his 5.7 million social media followers. Trent Alexander Arnold is part of our influencer strategy. In Q1, we announced a partnership with Chinese celebrity musician Lei Zhang, who is our first global brand ambassador. The activation of this initiative was planned with the launch of Beoplay EQ in China. Lei Zhang has an impressive reach and his promotion of Beoplay EQ received more than 500 million impressions. Locally in the markets, we also work with influencers and have more than 50 influencers showcasing our products. To succeed, we need to increase our customer base and we grew this by 7.5% during the quarter. Our ambition is to grow our customer base by a double-digit figure this year and Q1 was a strong start to achieving that goal. We continued to accelerate our digital ecosystem. We managed to grow our own e-commerce platform by 20%. Late in Q1, we also launched our own e-com platform in Japan. When we did our sports campaign, we experienced a doubling of page views and also recorded visitors staying longer on our site. Finally, we made feature updates to our B&O app. For instance, we have made it easier to troubleshoot through the app if customers have issues. So let's move to the next page, please. The third level of our house is where we concentrate our go-to-market resources. Our core markets are delivering the majority part of the absolute growth to our business. The successful execution of our strategy, driving demand, traffic and executing better in our channels has been key contributors to the performance seen in our first quarter. In our six European core markets, we grew by 37% in local currencies. The stage and flexible living categories drove most of the growth. The Monobrand channel is by far the biggest distribution channel in the core European markets, and this channel delivered the biggest absolute growth. But we're also seeing good traction on our other channels, and our ETH channel more than doubled compared to Q1 last year. In multi-brand we have started to roll out our new active display concept called BioCube. This provides a significant improvement to the customer experiences as the user interface allows customers to browse and discover B&O products. Customers are able to browse and try different products on top. It provides us with data about the usage and what customers prefer. this enables us to improve the customer experience even further in our two asian core markets revenue grew by 17 last year revenue was positively affected by orders delayed from q4 of the previous year adjusting for phasing of orders last year growth would have been just over 30 percent The flexible living category continues to experience strong demand and is driving a large part of the overall growth in the two Asian core markets. And as mentioned before, the launch of Beoplay EQ together with our global brand ambassador, Lei Zhang, boosted relevance and brand awareness with the Chinese audience. We could see that the launch of Beoplay EQ in Asia had more traction than when we launched Beoplay E8 third generation, and this is very encouraging. We expanded our strategy partnerships in Q1. We continued our partnership with HP with a three-year contract with an option for two additional years. We will be adding new resources to our brand partnership department to ensure strong collaboration with our partners. We also announced our partnership with Sashemcom. We have together with Sashemcom developed a built-in loudspeaker for the new home entertainment unit, the Video Soundbox. It integrates the latest technology with video, audio and voice services and its targeted telecom and TV cable operators. It has also so far been sold to Vodafone in Spain and Total Play in Mexico. Finally, we continue the collaboration with Saint Laurent, launching a limited edition Biosound H, thereby driving awareness to our brand. So if you please move to the next page. Our success as a seller of luxury audio technology products sets high demands to the products we have in the market. In that respect, I wanted to briefly highlight some of the reviews we have received on our new AirFone Beoplay EQ. These strong reviews are again a testament to our ability to develop products that are recognized for its sound design and craftsmanship. And with that, I would like to turn over to Nikolaj, who will take you through the financial developments in Q1. Thank you, Christian.

Now please turn to page 11. Compared to Q1 last year, revenue increased by 44% in local currencies. The growth came from a 48% growth from our product sales and a 9% growth from brand partnering and other activities. Company scarcity impacted growth negatively, both within product sales and brand partnering. The 48% growth from product sales was driven by all channels, regions and product categories and led by improved channel performance. Our product category has delivered strong double digital growth with flexible living peaking at 87% growth compared to Q1 last year. Beoplay A9 continues to see high demand but also new products like Beosound Level are in high demand. The growth from the stage category was mainly driven by the speaker portfolio. The revenue from TVs was at the same level as Q1 last year, which was due to the negative impact from our transition from selling TVs including screens to selling the sound center only and having partners sourcing screens directly from LG. Adjusting for this, TV sales experienced a solid double-digit growth in Q1. In Q1, the Stage category is the category that has impacted the most by supply constraints. Portable speakers, headphones and earphones all contributed to the 48% growth in the Undergo category. Headphones more than doubled in sales driven by Beoplay H95 and Portal, which were both launched after Q1 last year. It was also a broad-based growth across the regions, with Americas nearly doubling, growing 97% in local currencies. The growth in Americas was especially driven by the partnerships with Verizon and Best Buy. Please turn to the next page. I would like to briefly talk about the development in our product gross margin. Last year, we started to talk about the negative effects on both growth and earnings. Despite the added cost for logistics and components, we have succeeded in improving the product gross margin over the past two years, as shown on this page. The main levers that have driven this development are less end-of-life sales over the period, less discounting and improved product mix with a greater share of staged and flexible living products. More recently, price increases and a better fixed cost-to-revenue ratio has contributed as well. This development has been an important contributor to improved financial performance and adjusting for the cost impact of the current global supply chain challenges, product growth margin would have been approximately 5% higher in the past two quarters. Please turn to the next page. We delivered our fourth consecutive quarter with positive EBIT margin, despite Q1 being seasonally the smallest quarter. The increase was driven by revenue growth in combination with the improved gross margin and less capacity cost relative to revenue. The gross margin improved by 2% driven by a 4.4% improved product gross margin, partly offset by brand partnering accounting for less gross profit relative to revenue. As Christian said earlier, we haven't delivered positive EBIT margin before special items in the first quarter since financial year 2007-08. Please turn to the next page. We are investing more into the business, which contributed to the 22% growth in capacity cost compared to last year. However, we are benefiting from the operational leverage of our business and our capacity cost to revenue ratio declined by almost 8 percentage points to 43.8%. Looking across the different cost categories, you can see that our development costs are up by 15% year-on-year related to investments in platform upgrades and our product roadmap. The incurred development costs thus grew by 11% to 72 million. Distribution and marketing costs grew by 29% year-on-year. This increase was related to investments in more resources, higher warranty provisions due to the revenue growth, and lastly, the costs are impacted by the full-year effect of monobrand stores that we took over during last year. Despite investing more, the cost-to-revenue ratio improved by 3.2% this point. Our administrative cost increased by 7%, whereas the cost to revenue ratio declined by 1.6% at this point. Now please turn to the next page. Q1 was also the fourth consecutive quarter with positive free cash flow. Free cash flow was positive 21 million, which was 83 million better than Q1 last year. The free cash flow was driven by the development in EBITDA, which reached 59 million of 54 million better than last year. Net working capital was overall stable, increasing 4 million in Q1. We did however see larger movements in the different working capital posts. Trade payables grew by 131 million due to higher production and we managed to increase our inventory by 84 million. This was due to timing of supply and was related to both finished goods, materials and components which we are sourcing directly in the market. Our receivables grew by 33 million, mirroring the revenue growth. Lastly, other liabilities declined by 82 million, which among others was due to payment of employee bonuses related to last year's financial performance. The net working capital ratio to revenue declined to 6.7%. Capital expenditure was 26 million, which was in line with Q1 last year and mainly related to intangible assets. Our available liquidity was at the end of August $608 million, which was a further improvement compared to May 31st. And with that, I would like to hand the word back to Christian.