Bang & Olufsen a/s

Hello and welcome to the Bang & Olufsen AS annual report 2021 to 2022. For the first part of this call, all participants will be in a listen-only mode and afterwards there will be a question and answer session. I'll now hand the floor over to our speaker, Christian Thier, CEO. Please go ahead.

Thank you. Hello, everyone, and thank you for joining the call. And with me today, I have our CFO, Nikolaj Vendelbo. I will begin by going through the financial highlights for the year. After that, I will recap on what we have achieved the past year with our strategy. Nikolaj will take us through the financials in more detail with a focus on quarter four performance. And I will conclude the presentation part of the webcast by presenting our financial outlook for the next financial year. After that, as always, we will open up for questions. We delivered 12% growth or 10% growth in local currencies. This was the second consecutive year with double digit growth. We grew both our product sales and brand partnering activities by 10%. The growth from product sales was achieved across regions and product categories. Sellout displayed a similar development with a 13 like-for-like growth, and again we saw higher sellout across all regions and product categories as well as most channels. This was also reflected in the growth in our registered customer base, which grew by 31%. We also saw an increase in repeat purchase rate with a 37% growth in customers owning two or more Bang & Olufsen products. We managed to improve our EBIT margin before special items while absorbing 220 million in additional supply chain costs. This would not have been possible to do before we started our turnaround and I think it's a testament to the resilience we have created. Free cash flow was also impacted by the extra costs for components and by the lockdowns in China, which in addition to the lost sales following the lockdowns, also resulted in an increase in our working capital. For the new fiscal year, we are facing an even greater uncertainty looking into next year. We still have supply challenges, we still have COVID-19 lockdowns in predominantly China, and we now see an increasing risk of recession due to the increased inflation and interest rates further impacting the war in Ukraine. While we have confidence in our strategy and abilities, we see a very high uncertainty in the macroeconomy affecting us and our outlook for the new fiscal year, thus subject to very high uncertainty, which we have reflected in the guidance. Sellout grew 13% like for like. That shows that demand for our products is there and we have strengthened how we reach our target audience. We have seen that when we run campaigns, we also see an impact on sellout. This is also information that we just a few years ago didn't have. It has been a very important step in our turnaround and getting that end consumer insight. Sellout for the year was, of course, negatively impacted by the lockdowns in China, which led to lower sellout growth in Asia. And because Asia has a higher share of on-the-go, it also impacted the sellout growth in that product category. EMEA delivered 14% sellout growth, mainly related to staging on-the-go, and Americas grew sellout by 28%, which was across product categories and channels, which we're, of course, very proud of. This year, we enter the second phase of our turnaround, which is about building robustness in our business. The strategy house shown here has guided our priorities and execution through the year. More specifically, our robustness ambition has been anchored in three levels, securing a robust foundation, building a model for scale and sizing our key pillars for growth. If we move to the next page, Starting with the foundation, we have come far in securing robustness. This year we managed to improve profitability. We grew EBIT before special items by 42%, which was equivalent to a margin improvement of 0.4 points to 1.8%. This was less than we had planned for, but unfortunately we faced significantly higher supply chain costs than anticipated. Nevertheless, we managed to absorb 220 million in additional supply chain costs and still improve our gross margin and EBIT margin. We also accelerated our people agenda. Our people are the single most important enabler for reaching our strategic ambitions. Throughout the year we continuously improved our employee engagement and we onboarded net more than 100 people to ramp up our capabilities and thereby strengthening our strategy execution in important areas such as software engineering. This testifies that our employee branding activities work and that we continue to strengthen our ability to attract talent. If we move to the next page. This year, we launched five products and two important software innovations. The five products are shown here on page and besides that the launch of the 55 inch version of BioVision Contour, the product launches were on the go products. We launched BioPlay EQ and later BioPlay EX replacing the previous BioPlay E8 family of earphones. Then we launched our gaming headphone Beoplay portal in a version designed for PlayStation. We now cover most of the gaming options from Xbox and PlayStation to PC and mobile devices. Finally, we launched a Beo Cisco 980 headphone targeting hybrid work. The highlight of this year was to continue to build an ecosystem of seamlessly connected products with uncompromising customer experiences. By connecting the full portfolio of products, we have made it much easier for customers to buy and install more Bang & Olufsen products and create complete sound systems in their homes. The new software proposition, as well as continuous software upgrades for improved product experiences, have been proactively pushed to customers in our digital app-based product health center. By enabling both old and new products to be connected in our proprietary BioLink multi-room system, we're extending the life of our products. It's a milestone release from an experience and from a longevity perspective. The second software launch was stereo pairing for speakers on our new platform. This has improved the use case and incentivizes customers to expand their B&O systems with more products. Lastly, we launched several limited edition versions and products in collaboration with other luxury brands, and we launched our Bespoke program. Bespoke provides an opportunity to deliver truly unique and personalized products that we know our customers like. If we move to the next page. We are pleased to report that our customer base continues to grow. Our registered customer base grew by 31%. Just as encouraging is the increase of repeat purchases. The number of customers who own two or more products grew by 37% in the first three quarters. This year, we have focused on getting our brand known to more people in our target audiences. To support this, we have made programmatic use of ambassadors, brand partners, and influencers. We now have five brand ambassadors with Lei Zhang, Carolina Wozniacki, Fernando Alonso, Trent Alexander-Arnold, and Ryan Serhant. We entered into partnership with Williams Racing. Formula One has 1.5 billion community TV viewers. We have also worked with several influencers and celebrities, which helped us to reach 27 million people this past year. All of these brand awareness tactics have also helped us to increase our direct social media followership, which was up 68% compared to last year. Our digital ambitions have continued to be in focus and we launched our own e-commerce platform in Japan, South Korea, Singapore and Australia this year. We succeeded in increasing our website traffic, conversion rates and average basket size on our e-commerce, which proves that our digital ecosystem efforts is paying off. If we move to the next slide. We saw solid sellout growth in our six European and two Asian core markets. Our brand partnering activities also delivered solid growth. In the six European core markets, sellout grew by 14% compared to last year, with a very positive performance across most channels. Our e-commerce platform was at the same level as last year, as we have seen some of the sales migrate to e-tailers in the second half of the year due to temporary price inconsistencies. Reported growth declined by 2%, and this was mainly related to high comparables last year, together with the controlled product returns, as we explained when we reported the Q2 results. Our WinLondon project continues to deliver strong results throughout the year. Sellouts from our company-owned stores in London more than doubled, which is an amazing accomplishment. We have also tested an in-field VIP service team in France, which has yielded very positive results. Our customer satisfaction has increased and we have validated that this also holds significant incremental sales opportunities. In Denmark, we started testing service center insourcing. The first customer reviews have shown a significant uplift in customer satisfaction. We will continue to monitor the service improvements and evaluate how we can expand on those experiences. In the two core markets in Asia, sellout grew by 5%. The performance reflected the lockdowns in China in the last two months of the year, which resulted in sellout in China growing just 1% as Q4 was down 28% year on year. South Korea, on the other hand, delivered 19% sellout growth compared to last year. We have been working to improve our setup in Asia throughout the year. We have restructured our customer service with a new service center in Shanghai. It has been well received and improved our customer satisfaction in the market. We also work to strengthen our go-to-market model. We replaced three of four distribution partner and expanded our digital footprint. Our e-commerce platform was launched in South Korea and we took direct ownership of our sales to JD.com. The last growth pillar is strategic partnerships. We grew 10% on strategic partnerships and other activities. This was driven by both higher brand licensing income as well as product partnerships. We onboarded four new brand partners. Together with Cisco, we delivered our first dedicated hybrid work headphone. We see great potential for Bang & Olufsen in this space, and it is something we will focus more on in the coming years. We also entered into the sector for telecom service providers with our partnership with Sachemcom, Verizon and SK Broadband. These partners bring our brand into new living rooms and increase our brand presence. Sachemcom's solution has so far been sold to Totalplay in Mexico, Vodafone in Spain and Telecom Italia in Italy. These new partnerships come on top of our existing partnerships with HP and Harman. We extended our partnership agreement with HP in July, and together with Harman, we onboarded the Korean luxury car brand Genesis. The sound system for that car won the If Design Award for Best Car Audio System. If we move to the next page, please. We made good progress on our sustainability efforts the past year, and we achieved several milestones that underline our commitment to product longevity. In October, our speaker Biosound Level received a bronze-level Cradle-to-Cradle certification. This is the world's most ambitious product circularity standard, and we were the first consumer electronic company to receive this. We also took several longevity initiatives aimed at both past, present and future products. Among others, we introduced BioLink MultiRoom on our latest product platform. This enables our customers to connect classic products to today's products and ensure that their products stay relevant for years to come. This year we expanded our classic program and made it possible to upgrade Biogram turntables and we significantly improved our service and software support to help our customers to keep their products playing and updated. In this year's sustainability report we have for the first time a short data for our scope 1 and 2 greenhouse gas emissions. Unfortunately, they revealed that our emissions have increased. This was mainly due to increased activity of our manufacturing site, Instruver. We will work to mitigate that in line with our new long-term targets for greenhouse gas emissions. We continue to see highly motivated employees. This year, we surpassed our people engagement score target of 75 ending at 77, which is in the high end when compared to other peers. We expect COVID-19 to continue to impact our business and our people. We maintain a strong focus on supporting all colleagues in managing this while also building a strong company culture centered around our new core values, which we recently launched. Today, we presented our new sustainability strategy. Designing for longevity has always been at the heart of Bang & Olufsen, and our heritage of long-lasting, high-quality products show we understand longevity throughout their entire lifecycle. With our new strategy, we will further enhance our longevity focus to become an even more sustainable company. This is our approach to circular economy, climate action, and good corporate citizenship. We will commit to new long-term sustainability targets to help us drive change and demonstrate our progress to the world. We want to set new standards for product longevity and circularity and our target is to have at least 10 of our products cradle to cradle certified within three years. And we're also looking to future development projects and here we aim to certify all of our own new product developments from now on. We want to take responsibility for our full value chain when it comes to greenhouse gas emissions to help drive climate action. Towards 24-25, we aim to achieve 100% renewable electricity in operations. In 22-23, we will also set an emission reduction target in line with the science-based targets initiative across scope one and two and three. And we will do that based on the full scope three inventory that we will complete this year. Our aim is to continue building product icons that can last a lifetime and beyond. We will do that through groundbreaking technologies, acoustic innovation, craftsmanship and design, while at the same time taking an even bigger responsibility for the entire product ecosystem. And with that, I will turn over to you, Nikolaj.

Thank you, Christian. Now, Christian covered the full year numbers, so I will focus in on the Q4 performance. Please turn to page 14. So, in Q4, reported growth declined by 10% to 698 million, corresponding to a 12% decline in local currencies as we had some tailwind from currency development. The decline was mainly related to the lockdowns in China. We also had high comparables in Q4 last year, as we had several product launches, and we also benefited from onboarding of new distribution partners in EMEA. The EMEA region declined by 14% in local currencies, and this was to a large extent impacted by the high comparables, but also by some supply shortages on specific products based on our previous product platforms and a temporary stop for production of Beosound Emerge. The 34% decline in the Asia region was caused by the lockdowns in China that were especially severe in April and May, causing Shanghai and Beijing to be almost completely impossible to do business in. The Americas region continued the growth trajectory from previous quarters with a 35% growth rate. The lockdowns had a significant impact on the performance in all product categories, but most noticeably in the undergo category. The stage category delivered the best performance with a decline of 5% compared to last year. The decline was partly due to last year's revenue being supported by screen sales. Revenue from stage speakers delivered double-digit growth in Q4. Flexible living declined by 29%. In addition to the impact from lockdowns in China and some supply constraints, the flexible living category was impacted by a narrower product range compared to last year as we had to temporarily stop production of builds on the merch that replaced build play M3 and M5. The undergo category declined by 20% and was mostly impacted by the lockdowns in China. The lockdowns also resulted in a delayed launch of our new Earphone Beoplay EX, and it was launched in less colors than planned. Please turn to the next page. Sellout in Q4 was 1% higher than last year. Sellouts were significantly impacted by the lockdowns in China, where sellout declined by 28%, resulting in a 12% decline in the Asia region as a whole. EMEA grew by 8% in Q4, which was mainly related to the stage and undergo categories. Sell-out in America grew by 34% across all product categories. The lockdowns in China had an adverse effect on sell-out performance across product categories, but most notably in the on-the-go category. Sell-out in the flexible living category was also impacted by the narrowing of the product range and supply shortage mentioned before. We are all pleased about the sell-out performance given the major challenges of a lockdown in our largest market. Please turn to the next page. The reported product gross margin was 41%, which was 4.9 percentage points higher than Q4 of last year. Last year was lower than normal, which you can also see in the graph. We continue to see a high impact from supply chain challenges. Compared to last year, the impact was additional 3.5 percentage points, and the total impact was 9% in the quarter. This was the same level as in Q3. The effect was more than 50 million in extra cost. Last year was impacted by large B2B deals, pass-through of screens, and inventory clearing of EH3 Gen, which we did in advance of launching BeoPlay EQ. In addition here too, we have improved the margin through price increases, we have improved the use of discounts compared to last year, and we had a positive impact from obsolescence as we could lower our inventory provisions for spare parts due to our longevity focus. Finally, we also had some currency tailwind benefiting us this year. Please turn to the next page. Year-on-year, the gross margin increased by 7.2% to 48.3%. The increase was partly driven by the growth in brand partnering and other activities, whereas revenue from product sales declined. The gross margin from products increased by 4.9%. I explained the effects leading to this increase on the previous page. In addition, The increase in the stage category was also attributed to last year being impacted by a pass-through of screen revenue, which we don't have this year. The flexible living category was impacted by B2B deals last year, as I also mentioned before. Finally, the increase in the on-the-go category was due to improved margins on several products, and then, as said, last year we cleared inventory of BU Play EH13. The EBIT margin before special items declined by 0.2% this point to 1.7% in Q4. The margin was positively impacted by the improved gross profit, which was up 5% despite the decline in revenue. Please turn to the next page. The total capacity cost increased 4%. This was driven by our strategy and investments in building robustness in our business. The reported cost increase was related to distribution and marketing, with the main effect related to both global and local sales and marketing activities. Our marketing cost ratio was 10.1% of revenue, which was 2.4% higher than last year. Development costs declined by 11%. The decline was related to higher capitalizations following our product development program and incurred development costs increased by 34%. We are investing more into platform upgrades, software development, and product innovations. Administrative costs were unchanged compared to Q4 last year. Please turn to the next page. Our net working capital increased by 148 million, which was mainly related to the lockdowns in China. Our inventory increased by 83 million as we lost sales in China. The lockdowns also restricted the access to our Shanghai warehouse. Trade payables declined by 121 million. Hence, the increase in inventories had largely been paid. Development was partly offset by The development was partly offset by lower trade receivables, which followed the license. A bit with a cold. KBX. to 93 million in Q4, which was the highest level this year. The increase was mainly related to intangible assets and was again related to the higher capitalizations I talked about before. Tangible investments were at the same level as last year and was mainly related to retail development. Free cash flow was negative by 190 million in the quarter. It was naturally heavily impacted by the lockdowns in China. It was impacted our profitability, but also led to the increase in net working capital. Free cash flow was also impacted by extra costs for spot buys with shorter payment terms. The development in free cash flow also had an impact on available liquidity, which declined to $301 million. Our combined capital resources included our revolving credit facility, which was $433 million at the end of the year. We have extended our credit facility and also increased it to $150 million. Furthermore, the credit facility is now linked to some of the ESG goals that we have just published today. And with that, I would like to hand the word back to Christian.

Thank you, Nicolai, and please turn to the next page. We have in the previous year worked with the uncertainty of COVID and regional lockdowns and also working with the supply chain pressure impacting logistics and component availability. We are now also facing significantly increased inflation and interest rates, which together with the war in Ukraine has increased the risk of a recession. It's impossible for us to firmly assess how it impacts consumer sentiment. This uncertainty also affects our outlook for the year. We expect revenues to be between 4% lower or 5% higher than 2021-22. It's based on several assumptions, some listed here on the page, among others that we will continue to see regional lockdowns in China in Q2 and partly Q2. The EBIT margin before special items also reflect uncertainty in revenue. We therefore expect it to be between minus 2% and plus 3%. We're still going to work with our strategy in which we invest in brand building, marketing, sales and product development. Free cash flow is obviously also sensitive to the development in sales. We expect free cash flow to be between minus 50 million and plus 100 million. We expect to benefit from a reduction in working capital this year. The outlook assumes continued investments in our business. However, we'll adjust timing and size of these investments based on development in the markets. If we move to the next page. So to recap, we deliver double-digit growth for the second consecutive year despite headwinds. This is a testament to our strategy and the changes we have implemented. Sellout was positive in all regions and across all product categories, underlining that we have continued to see solid customer demand. Our customer base continued to grow. Repeat purchases grew as well, with customers owning more than two products increasing. We managed to deliver positive EBIT margin before special items while also absorbing 220 million in extra supply chain costs. We also launched our new ESG and sustainability strategy, which is centered around the longevity. Lastly, while we have confidence in our strategy and abilities, uncertainty has increased and then impacts our outlook. In the year to come, we will continue to build robustness in our business. It is more important than ever, but we will also gradually launch new strategic initiatives that orient us towards the third phase of our turnaround. And with that, I would like to open up for questions for myself and Nikolaj, and I hope his cough is getting better.

Thank you. And if you do wish to ask a question, please press 01 on your telephone keypad now. And our first question comes from the line of Benjamin Silverstone from ABG. Please go ahead.

Thank you very much. And hi, I hope you are well. And thank you for taking my questions. I have three to begin with, if that's OK. The first one is regarding the brand and partnering. This is, it has been growing quite tremendously in Q4. And I was wondering if you can just please give a few more indication to what is the underlying drivers of this segment. And also if this is the new normal for this segment, that would be great to just get some additional info here. The second question is in terms of your strategic initiatives. So we hear about the win in London and see very great results of this one as well. I was wondering, Christian, if you could just give us a bit more nuances to how this growth has been developed. So is the growth coming from very high investments in London or is it more strategic changes that you have implemented there? which might also be possible to implement across your different different various markets across the world um so to solve the question is this something that we are able to or should expect you know to implement across more cities or is it more london specific um and then the last question is just in terms of your guidance i really respect that it is very difficult to set a guidance right now and there's a lot of uncertainty But could you just give us some more information on the price volume mix that you have put into your guidance for the growth? And just to get an idea of how much is going to likely be driven by price increases and how will the volumes actually develop? Thank you so much.

Maybe I start. Good to meet you here as well. And then I pass on to Nikolaj for some more details, maybe around the numbers. But if you take the brand partnering and the new customers that we have onboarded in brand partnering, They are expanding their footprint if you take such M-Com into more and more countries and selling their set-top box that we have audio tuned into more and more telecom operators. So of course we expect that business then to continue to grow as they onboard telcos. This onboarding takes some time because of course everybody needs to test everything and it needs to be verified before you roll out a high number of units. but that's that's an expectation for sure um then when it comes to to um verizon they're also still ramping up and growing and introducing the soundbars that we have done together with them into more and more places and and obviously as well still in the ramp phase um when it comes to to the pcs and automotive industry of course we are just following what is happening in the pc market and what is happening in the automotive market so we don't expect anything more than what is happening in those industries i think in generally speaking and then of course cisco as well which is a product sales and not a pure brand licensing business we expect that to continue to ramp as more and more customers become aware of that When it comes to your last question or London, if you take that one first, the London strategy has been working really well with marginal investments. So it is not like we have invested massively extra in marketing. We have done some marketing investments and some extra investments. But we have a good ROI on that and we have developed what we call then a playbook on how we're going to implement that further into other places. And we have a list of countries, cities identified where we want to take the same playbook and roll it out as we progress throughout Europe. the year and the last questions I'll pass on to Nicolai as well when we come into the guidance but it's difficult to make one you have to say that in general we are confident about our strategy and our plans but it's very very difficult to understand what will happen in the world given the situation we are in so we figured it's better to be a little bit prudent and take the foot off the gas pedal for for a little while while we do our turnaround than to storm ahead I hope Nikolai has his voice back. I think I have.

So just to elaborate a little bit on the brand partnering part, the big part of the growth that we're seeing is coming from license fees. I think that's actually growing by 40% compared to Q4 of last year in the quarter. And that is primarily driven by Harman and the car industry, which had a really difficult year the year before and in Q4 last year. So they are improving their business. I think they have better access to components now than what they had in the past. But as Christian also said, the new partnerships are beginning to be part of the growth driver. Even though the numbers are still not as big as, for instance, Harman, when they're coming from zero, it's quite a big significant contribution to growth. HP is also doing a little bit better, but we are still seeing PC sales being impacted in sort of the global industry right now. And then, of course, we expect the Cisco partnership to contribute to growth also in the coming year. So we should expect to see brand partnering, generally speaking, being on a higher level than in prior years due to all the activities that we have initiated. But of course, the general development in car industry and PC sales are still the driving force behind our band partnering sort of segment, because they are the two largest partners that we have. On price-volume mix, I think it's a combination for what we expect in next year, depending a little bit also on the product categories we are looking at. Obviously, volume is impacted here in the coming quarters by lockdowns in China and potentially also by the negative consumer sentiment that we have seen in Europe. And of course, the price increases that we've done over the past six months have a positive impact. But for... a number of product ranges we expect growth to come from a combination of price increases and volume increases so it really is a combination depending on the specific product category that we are we are looking at thank you very much christian and nicolai just a quick follow-up in terms of the guidance here you mentioned in your um

guidance adjustment in may that you are seeing a lower foot traffic for the european stores at least can you give us any indication of how this is developed in the first part of this month oh sorry of the quarter

We want to comment on the first month of this year, but we had a strong sellout, as you could see, in quarter four, despite seeing footfall decrease. And I think also this shows a little bit of resilience in how our Monobrand partners are dealing with this, because they have, of course, project sales, they have installation and deals that they have made a while back that they are, of course, delivering on. as well and it's going to be something we have to now observe to see if these project sales is kind of continue to fill up the funnel before we can say what type of impact it has Of course, we have now, which is good, we have several ways to reach our consumers. So we have the online channels, as you know, and we have B2B business that we're looking at. We have the product sales we're doing and then the footfall business. But it is less footfall in the stores and that's something we monitor closely and we will come back to.

Thank you very much, Christian. And thank you, Nikolaj.

And the next question comes from the line of Paul from . Please go ahead.

Thank you. I have a few questions as well. I'll just start where Benjamin has stopped, and that's the footfall. When you gave the update in May, you were commenting on March and April. Of course, you won't comment on June, but how did it then perform in May? Did it accelerate or was it stable, or what happened in May?

If I go first, it is the same level. We haven't seen a further decline than we saw in March, April. It's on the same level.

And it was mainly continental Europe.

Yes, correct.

The black markets.

Correct.

And did it weaken in the UK or was that continued strong?

So in the UK, I don't have the data on top of my head, but as we said in our WinLondon project, we have doubled the business. So we don't feel any of that if that has happened in London. On the other hand, the conversion might have been higher as well with fewer. It's really difficult to say, Paul, on that development. But we expect it, which I think is a prudent and right thing to do as well, to be coming down throughout the recession. That's at least also what we believe. But maybe not more than it currently has.

And then overall on the guidance for... for this year. When I read through the assumptions you put up, you have China, you have components and so on, but you don't mention recession overall. So what kind of assumption have you put into your guidance for this year on consumer spending?

Maybe we don't mention recession and use that word, but one of the big uncertainties is consumer sentiment that we are talking about. And the reason why we have a guidance that is sort of spanning across both negative and positive growth numbers is exactly due to the uncertainty that we see on China lockdowns one and then consumer sentiment slash recession in the coming quarters or in the coming year. So our assumption is that there will be some kind of impact short term, but it's very difficult to put the exact number to that impact in our numbers. And that's why we have a guidance that is quite wide because as Christian said, even though footfall has been lower in stores, sell out has still been good. and what what we still are not seeing is whether there's an impact from the lower foot footfall on coming you can see more project related sales installation business and that's that's that's that's that's an area where uncertainty is just extremely high right now and i think we just looked up we are actually mentioning recession Yeah, we are using the word recession, Paul. Sorry, go ahead.

I don't know what would take you to the high and to the low end then. Is that mainly based on consumer spending in general?

That's consumer spending and then the lockdowns in China. When will China normalize? And right now, our main assumption is that China will normalize in the fall. That's the key assumption that we have. If China lockdowns are prolonged more than this fall in a way that is significant to the business, then that's a breach of our main assumption in the outlook. If there is a Recession in Europe that really impacts also the spending on our products in a severe way then is also breaching our assumptions. So we tried to build in some room for things being difficult in the coming quarters. But there's of course a limit to how much room we have built in in minus four to plus five percent.

Okay. And if you compare to the previous three recessions we've had, you had a much larger impact on revenue than what you put in here. It's fair to assume that's because you see yourself having a much wider category exposure and then not only the stage. And you are geographically much more diversified now.

We believe we have a business that is much broader based than in previous recession that has hit Bang & Olufsen. We also believe we have the best product lineup that we've had in years. And then we have a lot of our sales distributed across regions and channels. And then I think finally, We have more transparency in the business, especially on the sell-out side and inventory in the channel. So we also believe we have shorter reaction times than what the company has had in the past to react when if markets are changing.

Final on the guidance, the FX impact, strengthening US dollar. Historically, you've had It's a negative for BNO when the US dollar is strengthened as you're sourcing in the US dollar and selling mainly in Europe. How should we look at that as you have more Chinese sales than also? Is it more neutralized than in earlier years?

I think relative to earlier years, the impact is overall low, also as we are growing the U.S. business and the China business. But the net-net impact on the bottom line of increased U.S. dollars is still negative.

Okay. Then you have the very strong R&D spend in the fourth quarter and your 100 million cash spend in the fourth quarter. We've earlier spoken about when capitalization and amortization should more or less equal. How should we expect that you have headwind from more amortization next year.

So overall, we are investing more in the company. We are investing more in building new products, building software specifically to build this ecosystem of products that work together, connecting the past, the present, and the future. And in our ideal scenario for the coming year, we would also increase investments and capitalizations further because we want to invest more in that. But... We need to be flexible in terms of how the market develops and how much or how little we are impacted of China lockdowns and potential recession on sales and cash flow to balance things out, which is why it's super difficult to be very precise on our capitalizations and investments for next year, because we can only do what we can afford to do given the market. But we should expect overall broadly to see that we are capitalizing at a higher rate than in previous years because we are investing more in our products.

And that means it's the 100 million we should use as a quarterly run rate?

It depends.

If we assume that your expectations... I think on average the 100 million is probably on the high side.

Capitalizations, I think the most interesting thing is to look at the incurred development cost development because we capitalize according to what we can capitalize when we are in development where in periods we are... spending less on development and more on earlier phases of of our pipeline or technology exploration so so that's why capitalizations will go up and down a little bit on where we on how our product roadmap looks so nine so 100 million is probably on the high side as sort of a a an average okay

Final question from my side, brand partnering coming back to the Cisco now being involved or included in the numbers. I would have assumed that when you take products into this line that you would have had a larger dilution of the margin, which is still quite strong for the fourth quarter. And if I do the math and assume that royalties is 100% margin, then you are on other. or the rest having a margin of 70% or so. How should we look at the other line within brand partnering? Should we look at the products having a margin like on the go segments or so?

Yes, roughly speaking, that's correct. So the products, the other part of brand partnering and other activities, there's aluminum sales, and then it's right now primarily our Cisco deal and a few co-labs that are brand partnering co-labs. But they're still a small sort of relatively part of the overall brand partnering and other activities. And the margin for those is roughly as on the go. I think that's a fair assumption to take.

Okay. Thank you.

Just as a final reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. Our next question comes from the line of Nils Nett from Carnegie. Please go ahead.

Good morning. Can you talk a little more about your growth drivers for your Americas segment in terms of product categories and sales channels? Secondly, could you talk about the facing of growth in the next fiscal year so i presume that we should expect fairly substantial negative growth in the beginning of the year because of the chinese lockdowns but would you feel more safe about positive growth in the second half just tell us a little bit about how you're thinking about the facing of growth and then finally Yeah. And then just finally, your assumptions for next year in terms of input and freight costs, you are reporting a nine percentage point hit win for the past year. So would you expect to recover? part of this 9% headwind in the coming year. Thank you.

Thanks, Nils. Maybe I start and do the general answer and then Nicolai can come back with more details. But in the US, we have had a broad-based growth. The retail business is doing good. Our monobrand partners are doing good and i think we have developed quite a good relation with them and they're also looking at now how they can expand their business so it's in in on the go category it's in in the flexible living category and in the stage category and in in the different channels that we have then of course as well like i said on the um horizon partnership as well we have have also accessories that we're part of that we are selling to them. So it's broad based.

So Amazon would not make up a substantial part of this growth?

No, it is. E-tail is a substantial part. Amazon is part of that. Absolutely. And China growth. We have done a lot of measures and team building, build teams and capabilities in China. So I think we are in a good place if the market is open. But as you know, when they completely lock it down, it's very difficult to operate. And we are looking at Asia overall then, if China would be in a lockdown sales-wise. So now we can... have contingency planning for other Asian markets if China would not open up. But of course it needs to open up, otherwise there will not be any growth. I'll leave the rest of the question to Nikolai.

Yeah, so on... First of all, on the growth part, I think we can all say besides China being impacted, the rest of Asia is actually doing very well. Southeast Asia, Australia, Japan, South Korea, Singapore. So that's definitely an area of growth as well. When it comes to... growth over the the year and what we expect obviously you can say that right now we are impacted by by lockdowns in china so that will impact growth in the first part of the of the financial year And then in the second half of the year, especially in Q4 next year, we should expect easier comparables if China has reopened, at least to some extent, because it was closed or locked down for two months of the Q4 that we just have experienced. So overall the expectation would be that growth would be lower here in Q1 and higher towards the end of the year. But it's very difficult also to predict how that will play out, especially in Q2 and Q3. Depending on the timing of a reopening in China, we are assuming, as I said before, that we will be able to do business again in the fall in China to a more normal level than what we are seeing now. And that should, of course, enable some growth in Q2 and Q3 as well. So especially Q1 and Q4 is where we will see major differences in the growth sort of distribution compared to normal. Then on spot buyers and freight costs and supply chain impact next year, I think from an overall sort of, if we take it sort of year by year and look at the overall financial impact, we actually expect the impact to be more or less the same. But it's distributed differently and the components of the impact is a little bit different. But financially, over a year, we expect it to be the same. So on spot buys that we have spent a lot of money on in the past year, we also expect that to continue in the first part of this year, especially because we know that we have spot buy components on our inventory that we need to expense in the products that we are building right now. So definitely in the first part of this financial year, we will see spot buys impacting. But in the second half of the year, we do sort of assume that the requirement for spot buys will ease both because of better availability of components, but also because we will have completed some of the rebuilding from products into new components that are easier to get access to. The countermeasure to that is, of course, general inflation rates. So all input costs have increased in price, and we're experiencing 10% to 15% price increases on energy, raw materials, etc., etc. So that was sort of... eat up the savings that we have on less spot buys will actually be eaten up by general inflation. That's our expectation. So we do believe that we will be significantly impacted again in the supply chain in the coming year. Freight cost is probably where we see some easing. So we are starting to put more and more back on ships instead of flying it. So that should yield some savings in the coming year.

Right, thanks. And if I may just add a question about your price adjustments. As far as I remember, you mentioned that you raised prices by an average of 8%, if I remember correctly, as of 1st of January. And I understand that prices have been adjusted again here as of June. So can you talk about how much prices have been adjusted this time around?

So in the June adjustment, it was not a general price increase across the board. It was selected products in the stage category and some in the flex. We didn't really touch on the go. So we increased prices with some of the products where we have higher pricing power. And that was an increase depending on product to product between 5% and 10%.

So the ASP effect would be 5% to 10% times the weight of the staged category.

It was not all products in the staged category. So on average for staged, it's closer to 5% than 10%.

Okay. Thank you.

And we have a follow-up question from the line of Benjamin Silverstone from ABG. Please go ahead.

Thank you very much, and thank you for taking a follow-up question. My first question is in terms of your work with influencers. So you have been very active and good at activating influencers, especially in Asia, where we also see a very strong growth from South Korea. I was wondering if you were able to comment a bit on the correlation that you might see internally between the activation of influencers and then revenue growth in these markets? And then perhaps share a bit on your next 12 months strategy in terms of how you think about new influencer activation and also social media presence. And the last question is in terms of this year's CapEx. So you do mention it can be scaled either up or down depending on the development. which is completely understandable. But all things equal, are you able to just share a bit about what retail product and IT developments you are looking at to sort of drive robustness this year? Thank you.

I mean, on the influencer side, I start. Yeah, we know it's working. So the awareness that we're creating and conversion we are creating with them is working. I don't have the numbers in front of me and can't tell you what that results in revenue unless Nikolai. has them and wants to share them but we will continue with that because it's a very cost effective way for us to reach our target audiences and it has been effective and we have also we have new folks on board with Kamel who has good experience on doing this as well so uh it will be it will be an important part going forwards um the other questions i will have to pass on to nicolai yeah so in terms of uh of of capex first of all yeah

Think of CapEx as being around last year in level, totally. When it comes to retail and IT investments and building robustness, retail is, of course, about stores. So it's about retail investments into stores. into our store network, both supporting our partners, but also building even stronger experiences in our own cocoa stores. So that's a focus area for the coming year. Within IT, it's sort of divided in two areas. One thing is on the digital side towards consumers and very much related to further investments in our stores. in our e-comm site and improving that and improving the connection between e-comm and other channels. And then on IT, it's more on some of the infrastructure of the company, the commercial infrastructure and the infrastructure in our IT systems where we I'm in a situation of having been underinvested for the past 10 years in IT infrastructure, and we are taking the first steps in improving that this year and will be a theme for the next years to come.

Thank you very much, Christian Nikolai. Appreciate it. Thanks, Benjamin.

And we have just one final up from Paul Yesen from Denskrank. Please go ahead.

Yes, thank you. It's just some small ones. The product launch, I should say, more than five products this year. Could you give an indication on the timing of these? Will it be second half, first half that we should see the new product? uh paul we typically don't comment i think on when they are coming um but there will be products spread out throughout the year okay second one you talk about completing the closure of monobrand stores by 38 this year is that a central europe or germany mainly

That was in Europe and EMEA predominantly. We haven't closed really anything in North America nor in Asia. So it is smaller reseller partners we have had in Germany and Switzerland and some in England as well. And yeah, so nothing in the other parts. And I don't think we have any plans to close in the other parts either. All right.

And then the final one, looking at your geographical distribution, which you disclosed more in the annual report, then you are growing strongly double-digit in more or less all markets, safe six, three, and that's Denmark, Germany, and Switzerland. I don't know, could you put more color on why these three are underperforming? Of course, Germany has some structural changes, but Denmark and Switzerland.

Yes, so that's correct. And we're not particularly pleased with that development to be upfront either. But we have had some challenges in Switzerland with the multi-brand development, as well as we have had in Germany on multi-brand and Denmark as well in multi-brand. And also we have had, as we said in Q2, We took some inventory back that we sold in too much, but we have some work to do. We put a new country manager in place in Denmark as well a while back. I think that will enhance and strengthen our presence in this market. We have many monobrand partners, though, that are doing very, very well as well. But there's more to do in Denmark, Germany and Switzerland, like you point out.

But the monobrand stores are doing well in all three markets.

We are doing good in monobrand. We have had some amazing growth rates in Germany and in Switzerland as well with our monobrand partners as we have had in Denmark. So it's more individual cases where it has failed.

Just to add on Denmark, in previous years, multi-brand reporting for Denmark actually included also business in Sweden, Norway, and also partly in Germany because the biggest distributor was located out of Denmark financially. But that has been changed this year to reflect the true revenue in each country.

So numbers are not fully comparable.

So it's not fully comparable, that's correct.

Okay, because I was just surprised because when you talk to franchises, then they, at least until quite recently, were talking about having had a fantastic year last year. And then you report minus 8%. I was just surprised.

I think the monobrand business generally in Europe has had a very good year.

Yeah. Okay. Thank you.

And I'll hand it back to the speakers.

Yeah, so final remarks from my side. So thank you all for joining. And if you have any further questions, don't hesitate to reach out and ask our IR department or Nicolai or myself. Thanks.