Bang & Olufsen a/s

Ladies and gentlemen, welcome to the Bang & Olufsen Interim Report for Q2 2022-23. For the first part of this call, all participants are in a listen-only mode. Afterwards, there will be a question and answer session. To ask a question, please press 5 star on your telephone keypad. This call is being recorded. Today, I am pleased to present CEO Christian Thier. Speaker, please begin.

Hello, everyone, and thank you for joining the call. As always, I have Nikolaj Vendelbo, our CFO, with me today. I will begin by going through the financial highlights for our second quarter, followed by an update on how we're progressing on our strategy. Here I will also share a little more about our sharpened strategic direction. Nikolaj will take us through the financials, then I will conclude the presentation part before opening up for questions. So if we move to the next slide. We achieved 6% growth in the second quarter, despite the macroeconomic headwinds that continued to impact us and the global economy. Product sales grew by 2%. Our Americans region delivered a record quarter in terms of revenue, and we had a strong product sales in EMEA, while our Asia region, where the continued lockdowns due to COVID-19 meant lower in-store footfall and activity. Our latest soundbar, BioSound Theater, has been well received by customers and reviewers, and we also delivered growth in our on-the-go category. We saw a very positive performance in our brand partnering business, driven by both existing and new partnerships. The results in the second quarter reflect the resilience of our diverse business model and the breadth of our portfolio. Sellout declined by 3%. This development was driven by both EMEA and Asia, partly offset by a good performance in the U.S., We also delivered positive EBIT and free cash flow despite the headwinds we faced in the quarter. We continue to see solid progress on our strategic initiatives which I will elaborate more on in the next slides. Our turnaround is progressing well and to ensure that we stay on track, we are prepared for the future, we are sharpening our strategic direction and I will also get back to this in a few minutes. We maintain our outlook. However, we now expect it to be at the lower end of the range due to macroeconomic developments and the unusually high uncertainty we still face. So if you please move to the next slide. Sellout declined by 3%, which was driven by the performance in EMEA and Asia, with Asia being impacted mainly by the lockdowns in China. In EMEA, our sellout declined by 6%. Several markets delivered sellout at the same level or higher than Q2 of last year, while others are more materially impacted by weaker consumer demand. So we're not seeing the same picture across the whole EMEA when it comes to sellout. If you look at our channels, the sellout decline was mainly related to monobrand, while our company-owned stores performed well. Multibrand and e-tail also delivered healthy sellout growth. Sellout picked up significantly in November with a very good performance during the big retail events like Black Week, especially with the on-the-go category. Sellout in Asia declined by 1%. This was driven by China while we saw solid sellout growth in the other Asian markets. The decline was mainly driven by states with flexible living on par with last year. In on-the-go, we had a higher sellout compared to last year, and overall, we have seen the on-the-go category perform well in Q2. in the americas we delivered nine percent sellout growth compared to q2 last year the growth was driven by our own stores the monobrand network and e-tail channel the growth was coming from states and on the go while we saw flexible living decline so please move to the next slide In Q2, the six core markets in Europe outperformed the rest of EMEA when it comes to sellout, with sellout declining by only 1% compared to 6% for the rest of EMEA. Four of the six core markets delivered a sellout performance which was at the same level or better than Q2 last year. Sellout in Denmark declined more than 10%, but it reflects that we in Denmark have a broader customer base than we have in the other markets. Sellout in the two Asian core markets declined by 5%, and this was mainly due to the performance in China. China was negatively impacted by lockdowns and COVID-19, and this has resulted in a lower footfall in retail. This has led us to scale down our marketing activities. If you look at South Korea, sellout grew compared to last year. This is the first time we comment on the US as a core market. We delivered a solid performance, as I also mentioned before. Our partner opened a new monobrand store in San Francisco, and we have a roadmap for opening more stores in key areas as part of a monobrand expansion that we're planning with our network of partners. We also expanded our partnership with Origin Acoustics and we now offer a full range of products to their customers. They have good access to people in our target segments with their custom installation business and we see this as a great opportunity to further expand our business in Americas. Finally, we continue to see progress with our Wind City concept. In Q1, we announced that we will do Paris and New York as the next two cities. We have now completed the customer segmentation in both cities, and based on that, we are now beginning to plan for the targeted customer activation that has proven successful in London. In London, we have continued our activities. In 2023, we will open a flagship store in Mayfair in London and in Soho, New York, we have built a Be Your Home experience. The Be Your Home setup will enable us to showcase the full Be Your Home experience for our target audiences and drive further sales of especially states and the flexible products. Please turn to the next page. For the first six months of the year, we have expanded our customer base by 13%. In addition, we also continue to see more repeat purchases, and the number of customers who own two or more products grew by 12%. We want our customers to build an ecosystem of Bang & Olufsen products, and we are encouraged to see that customers are growing their B&O systems. This is a result of our improved brand and marketing efforts and the improved portfolio of connected products we have built over the last couple of years. We saw a positive trend in our engagement with customers. The number of newsletter subscribers increased further in Q2, and the duration of visits to our corporate websites continued the positive development seen in previous quarters. The launch of BioSound Theatre drove more traffic to our website, supported by social media posts. We have had a lot of activations driven by the launch of BioSound Theatre, both when it comes to physical events and online promotions. Please turn to the next page. Unlike any other audio company, Bang & Olufsen has the capabilities to create special editions and bespoke solutions. And in Q2, we executed several activations to showcase these capabilities for customization for our target audiences. BioPlay A9 has become an icon in our product portfolio, remaining one of the best selling products. This year, we celebrated the A9's 10th anniversary, which we marked with the concept of Art of A9 that you can also see illustrated on this slide. We commissioned a series of designs by leading artists working across the field of art, design and music to customize the canvas cover. In China alone, we had more than 60 million views on Weibo in the first few days. In Miami, we attended an event during the Art Basel fair. Here we revealed bespoke products created for very high net worth individuals. We have shown some of the products here, which were gold plated. We had more than 200 special guests attending the event. Please turn to the next page. Our turnaround is progressing well. Since the launch of our turnaround strategy in April, we have improved the business foundation and financials performance on many important parameters. We have delivered growth in all markets and categories. We have increased our customer base and average product ownership. We have improved our product portfolio significantly with the many awards and positive reviews also confirming. We have demonstrated that we can charge a premium for our products and achieve better price consistency across channels. Our retail partner satisfaction has increased and improved the balance between supply and demand. Our marketing metrics have improved and we have a proven win-city strategy. We are doing the right things and we will continue to build on that. So move to the next slide. Building on our learnings from the past two years, we are now sharpening our direction to ensure that we stay on track and are prepared for the future. We want to deliver on a proposition of luxury, timeless technology. That means cementing our position within luxury, enhancing our focus on circularity and creating timeless products and leveraging technology to offer our customers more spatial and personalized sound. We believe it will enable us to differentiate further, help us to prioritize our investments and support our growth ambitions even in a challenging macroeconomic environment. That also means that we move even further away from the mainstream consumer electronic markets towards the bigger and more lucrative luxury market. Only we can do that with our incredible heritage and unique capabilities within sound design and craftsmanship. And we believe that the global megatrends with expansion of 5G, the need for personalization, the rise of next generation audio and sustainable consumption, just to name a few, will play to our unique strengths and help us to grow. If we move to the next slide. We are the biggest player within luxury audio today, but we see the market potential to be much bigger. We have identified more than 200 million affluent design and music lovers in our core markets across our four customer segments, very high net worth individuals, young millennials and well-established and careerists. As communicated in Q1, we are refocusing our brand and marketing activities, especially towards the younger customer generation and the very high net worth individuals. The next generation of Bang & Olufsen customers are affluent young millennials and Gen Zs, and we need to stay relevant to these audiences to drive growth. The very high net worth individual segment is a perfect fit for our products and services. And today we see a massive untapped potential for this group. In addition, targeting and winning these two segments will have a strong effect on adjacent target audiences. Gen Z and young millennials will define what is cool in demand, while the high net worth individuals will define what constitutes contemporary luxury. Winning them will elevate the visibility and exclusivity of our brand and help drive demand among the carrierists and well-established. If we move to the next page. We have already started this change of direction. As illustrated on this slide, we are making five shifts. We are reigniting our brand to become a culturally relevant brand and increase the awareness of the brand. Our collaborations with brands like Belluti and partners like Williams are increasing the knowledge and the desirability of our brand. We will continue to work with relevant brand ambassador partnerships and sponsorships to get reach and exposure to the right customer audience. We will continue to strengthen our brand, engage more directly and interactively with our audience and taking a more active role in culture. We will activate our unique heritage further as this is also our license to operate in luxury and a key differentiator for us in consumer electronics. Secondly, we are building a seamless connected product portfolio and enabling our customers to bridge the past, present and future product icons. Today our portfolio is very strong. We see desire for our products and growth across our categories and we have improved our product net promoter score. We continue to build for a product ecosystem and expanding on our platform strategy. Everything we ship runs on one of the two software platforms. This enables our products to connect seamlessly, both when it comes to our current portfolio, our classic products and the products of the future. Through software updates, upgrades and services, we can continue to improve the experience and extend the lifetime of the product. Our design engineers are creating the product platform of the future that will enable modularization, product versioning, customization and personalization of products for different use cases. This will help us to build for scale. We will create propositions for our target audiences across the categories we currently cover. We focus more on developing propositions for our younger audience and full solutions for the very high net worth individuals. We will therefore also expand our bespoke offerings to other categories. We will recreate the relaunch and more icons of the past as we have done with Biogram 4000C. In addition, we are committed to getting all products we start developing from 2022-2023 cradle-to-cradle certified, and we continue developing our modular design capabilities to allow for product repair and upgradability on both the hardware and software side. The third shift listed here is creating magical moments across touchpoints. We have diverse and resilient channel footprint and our aim is to continue to work to build superior and consistent experiences on par with luxury peers across monobrand, multibrand, e-tail, e-commerce and own stores. Our own e-commerce platform is increasingly important as this is a channel of commerce and a place to experience the brand. Our own stores are also an important way for us to bring the ultimate brand and product experience to our customers. The goal is to evolve the ecosystem of channels to ensure that we deliver consistent brand experiences. We have started this work. Last year, we terminated select monobrand partners to ensure a high-quality brand experience and we recently announced the opening of a new company-owned flagship store in London. The fourth shift is winning in key global cities. Through our WinLondon project, we have validated a go-to-market approach for global cities like London that function as hubs for cultural and commercial exchange. As communicated in Q1, we have decided to expand our WinCity concept Our efforts in London are still ongoing, and as I mentioned before, we are progressing well in New York and Paris. We have developed a roadmap of key cities to include in the coming years. With a dedicated team and documented approach, we will now work to expand our concept further and ensure that best practices are shared across the future city projects. The fifth and final shift is exploring existing and new adjacent opportunities. Our brand partnerships is of great importance to us, both in terms of commercial value and as a driver of brand awareness and customer acquisition. We will explore further business and brand opportunities in this area in the future. We will also continue our business-to-business efforts, tapping into the hybrid work trend, where the demand for multipurpose and high-quality audio devices plays to our strengths, and our enterprise certifications will help us penetrate this market further. We are also expanding our presence in the high-end hospitality segment, representing an ideal environment for our products and their exposure to our target audiences. With our sharpened direction, we are orienting Bang & Olufsen to an even more unique position in the marketplace. We are building on the great progress we have made the past two years with our turnaround, our 97 years of amazing heritage and the global mega trends we see. We believe this positioning will enable us to differentiate ourselves further, help us prioritize our investments and support our growth ambitions, even in a challenging macroeconomic environment. And with that, I would like to turn over to you, Nikolai. Thank you, Christian.

Please turn to page 15. Reported revenue was 859 million, which is a growth of 6% compared to last year, or 2% in local currencies. Compared to Q2 of last year, we have benefited from currency tailwind, especially related to the US dollar. The growth in reported revenue was driven by both product revenue and our brand partnering activities. Reported revenue from products grew by 1.7%. This was equivalent to a decline of 2% in local currencies. A withdrawal from Russia and Belarus had a negative effect of approximately 1%. As in previous quarters, regional lockdowns in China and thus lower footfall had a negative effect on revenue in Q2. Revenue in China dropped 23% in local currencies. In Europe, we continued to experience cautions regarding inventory replenishment from our partners. However, the launch of BFM Theater had a positive impact on our performance in Q2. We delivered a strong growth from brand partnering and other activities. 58% reported growth and 47% in local currencies. The main driver was related to our partnership with Cisco and the ramp up of production. We have benefited from this in the first half of the year and expected to normalize at a lower level in the second half of the year. Additionally, license income also continued to grow compared to Q2 of last year. This is predominantly driven by the automotive industry, which had a backlog of orders that are now being produced. Please turn to the next page. EMEA posted 9.1% growth despite the negative effect from our withdrawal from Russia and Ukraine. Excluding this effect, revenue grew nearly 12%. Our company-owned stores have in past quarters continuously delivered solid growth and this trend continued in Q2. Our multibrand channel also delivered solid growth, however, on the back of low comparables from last year, where we took back slow-moving products from a few partners. Our monobrand channel declined compared to last year. The loss of Biosound Theater had a positive effect on reported revenue, but lower overall sell-out in combination with continued caution and inventory replenishment impacted sales negatively. Reported revenue in Americas grew by 17.3%. However, adjusted for the currency tailwind, Americas was flat compared to Q2 of last year. We saw a solid performance across several channels. The Monobrand channel was driven by the Stage category and was also positively impacted by the launch of Biosan Theatre. We also saw solid growth from the e-tail channel. November was especially strong and we sold out of several products during Black Week. And we saw the same development in our own e-commerce channel. Our expanded partnership with Origin Acoustics also lifted revenue in Q2. The development in Asia reflected the lockdowns in China and lack of sell-out. Revenue was therefore 12.9% lower than last year, or 16% in local currencies. The biggest impact was in the staged and flexible living categories. The undergo category, on the other hand, delivered a solid growth of 15%. Overall, global product growth was driven by our on-the-go category, which was up by 26%, and related to both earphones and headphones. We continue to see a very strong performance of Beoplay EX, and we have seen that pricing has remained stable since the launch, also during the big consumer moments in November. The growth in headphones was partly related to the sale of a larger quantity of headphones, and we have reduced our inventory of products with shorter life cycles. The stage category grew 2%, which was driven by the launch of Bioshock Theatre. On the rest of the portfolio, we saw lower volumes than in Q2 of last year. Flexible living faced the biggest decline driven by the performance in EMEA and Asia. Across all three regions, we saw a decline in volume compared to last year. For both the states of flexible living categories, we had an offsetting effect from higher average prices driven by the price increases that we have implemented since Q2 of last year. Please turn to the next page. Gross margin was stable at 44.4%. There were several factors impacting gross margin in the quarter. The strong growth from the higher margin brand partnering activities compared to product sales had a positive impact on group gross margin in the quarter. The gross margin was adversely impacted by a shift in product mix with on-the-go accounting for a larger share of sales. Furthermore, the on-the-go margin was impacted negatively by the sale of headphones mentioned before as part of our efforts to reduce inventory of products with shorter life cycles. The sale of headphones had a negative impact on gross margins 1.7 percentage points. Finally, the margin was positively impacted by a lower fixed cost to revenue ratio, which, however, was more than offset by currency developments, impacting gross margin negatively by 2.2% compared to last year. The EBIT margin was positive 1.5%, which was 1.9% lower than Q2 of last year. Compared to last year, it was positively impacted by the increase in gross profit, but offset by an increase in capacity cost driven by both product development and distribution and marketing costs. the currency development had a combined negative impact on EBIT margin of approximately 1.5%. Hence, adjusted for the inventory depletion and currency development, our EBIT margin was better than Q2 of last year. Please turn to the next page. Total capacity cost increased 11%. This was driven by development cost and sales and marketing activities. The growth was partly related to the full year effect of the competencies and resources we have added since Q2 of last year. Development costs grew by 21%. The increase was attributed to a combination of higher incurred costs and lower capitalizations. Distribution and marketing costs increased by 10% compared to last year. This was equivalent to a ratio of 29.7% of which 9.6 percentage points was related to marketing activities. The increase was mainly driven by higher costs in the three regions. Administrative expenses were at the same level as Q2 of last year. Please turn to the next page. Net working capital increased by 10 million and was at the same level as in the beginning of the year. Throughout the fiscal year, we have worked to improve our working capital. The working capital ratio is still at the elevated level from year end, but we have a better composition. Reduced our inventory by 56 million in Q2. More importantly, the reduction was mainly on on-the-go products with shorter life cycles, and we therefore have a healthier inventory composition. Trade receivables increased by 49 million, which was driven by high revenue in the quarter. Compared to Q2 of last year, we have lower receivables and we have a lower trade receivables ratio. Trade payables increased by 16 million in Q2. The increase was driven by timing of incoming supply. As communicated in Q1, we have adjusted our production plans due to the elevated inventory level. Compared to Q2 of last year, trade payables were 74 million lower and thus reflecting the actions we have taken. Please turn to the next page. Free cash flow was positive 1 million compared to 11 million last year. The decline was mainly due to the decline in EBITDA and other non-cash items, partly offset by changes in net working capital, which last year was negative 26 million. income tax also had a positive impact on free cash flow the capital expenditures were 53 million which was at the same level as q2 of last year with the same split between intangible and tangible investments intangible investments mainly related to the new products and our new product platforms Finally, capital resources consisting of available liquidity and available drawing right on our revolving credit facilities stood at 307 million. The decline in the quarter was mainly related to repayment of lease liabilities and currency losses on cash and cash equivalents. With that, I would like to hand the word back to Christian.

Thank you, Nicolai. So please turn to page 22. As I said in the beginning, we maintain our outlook for the year. However, we now expect it to be in the lower end of the range on revenue, EBIT margin before special items and free cash flow. The assumptions are broadly the same as previously. The main change is regarding the normalization in China. With China now departing from their zero COVID policy in December, we are now expecting a normalization of demand during Q4. The visibility remains low and we continue to face an unusually high uncertainty. So please turn to the next page. So to recap, we grew revenue by 6%. We delivered positive EBIT margin and positive free cash flow despite challenging macroeconomics. We deliver strong growth from our brand partnering activities. Sellout in Americas was solid, but sellout in both EMEA and Asia was adversely impacted by consumer sentiment and lockdowns for China specifically. We continue to grow our customer base and equally important, we see more customers expanding their Bang & Olufsen systems with more products, which is a key part of our strategy. We have learned a lot from the first years with our turnaround strategy, and we have now sharpened our direction. And finally, as I just said, we maintain our outlook for the year, but we now expect it to be in the lower end of the range. And with that, we would like to open up for questions.

Welcome to the Q&A segment. To ask a question, please press five star on your telephone keypad. To withdraw your question, please press five star again. The first question is from the line of Paul Jensen from Danske Bank. Go ahead. Your line will now be unmuted.

Yes, thank you and congratulations with a good quarter. I have a few questions. First on the guidance, I would like to think the change that you move to the low end is that a postponement of normalization in china from the third to fourth quarter that's one part and then in general what kind of macroeconomic or recession have you built into the second half of your guidance thank you paul the first question yep should we take that one answer now or shall you do all your questions maybe then No, you can answer. I'll check the other ones afterwards.

Yeah, so obviously China and China opening up is a change. And it also is early to say exactly on how that will play out and what will take place in China. But we expect, like we said in Q4, to come back and we expect that we will be able to trade in China then. Generally speaking as well there's a lot of uncertainty in the macroeconomic situation and we don't know how that will play out so we remain cautious for that reason.

But that is included in the guidance that there is a worsening recession in the first half of the year?

Yes.

Okay, then coming back to operations, the UK, of course, you've done very well in London for quite some time. But also when we look into the UK market, the economy in general looks more and more chaotic. Can you say something about what you see in London and how you see the rest of the country? Because your business is not only London.

So good question. We see London is working and it continues to work, which is very positive. So the Wind City strategy and the Wind London strategy and the learnings and insights that we have implemented is continuing to deliver. So I think that's very positive. We also see, which is maybe a little bit more unexpected as well, there is a spillover even outside of London because of those activities. So we have certainly managed to create brand awareness and by doing the activities in London that is helping also our monobrand partners and our business outside of London. That's all I can say at this point in time on that.

Yeah, thank you. And part of a follow-up on that one, we've already discussed the sensitivity of B&O now versus earlier on the general economics. And I think your comments have been that you see the company as less sensitive because you're addressing people who might not be that impacted by a weaker economy. But you're right in the report about states that you see declining volumes in the quarter, but that is then compensated by higher prices. I was just wondering that you must see fewer, as you say, low volumes. So there must be some kind of impact from less people buying the products.

So what is difficult to say is that there are many parameters obviously playing in and we have very different situations in different markets when it comes to if you take Denmark that we specifically call out as well where we have a broader probably customer base than we are targeting in London and in London in particular we know when we're focusing on a target audiences that that works. the shift and turnaround is of course not completed in terms of all aspects from marketing and reaching our target audiences so we are impacted I think a bit differently in different markets but then again we feel confident about the fact where we do have the change executed and to a fuller extent execute that it actually works. But we are in this transition, so that's why we see some inconsistencies in the numbers. Nicolai, you want to add anything?

Yes, I think important point here is when we look at, for instance, our cocoa stores globally, they are performing generally very very good in the quarter in all the markets where we have cocoa stores so it clearly shows that when we execute in the right way demand is there for our products and growth potential is there okay and then just the quantification for you

Nicola, about the headphones that you made a batch sale in Europe. Can you quantify that?

Yeah, so it's approximately, what is it around? Yeah, 12 million is in revenue impact in the quarter.

20 million. I was just wondering if you have an impact on the gross margin or not? 12?

12, yeah.

Can that give a gross margin impact of 3% for the EMEA region?

It has a gross margin impact of 1.8% on the group. So yeah, around 3% on the EMEA region.

Yeah. Okay. I thought it was much more that you had to have.

Okay, thank you. I'll step back and have further questions later. Thank you, Paul. The next question is from the line of Benjamin Silverstone from ABG Sundial. Your line will now be unmuted.

Thanks much. I hope you're well. My first question is related to the stage segment. Would it be possible to just give an indication of how much the theater launch impacted this segment in the quarter? And also perhaps a comparison of how the launch of theater has been going versus when you launched the staged soundbar. And my second question is in terms of the sharpening of the strategic direction. You mentioned now that you have identified roughly 200 million people who would be the ideal target audience for your brand. Could you give some indications on how you're going to be addressing those and what a potential timeline would be for when you would have the optimal setup to target this audience? Thank you.

yeah so on the on this theater soundbar it was definitely a and and significant and important launch in the quarter we had revenue in the quarter of more than 100 million of the product so that's of course a big contributor to the growth but there's also been Of course, cannibalization on some of the other TV products in the portfolio. So I would say the net impact on revenue is more in the area of 40 to 50 million impact it has on the quarter. Compared to the launch of the Stage soundbar, I can't remember the numbers, but when we compare, for instance, to the BeoLab 28 launch, which I do recall, here we have an impact that is roughly 50% bigger because this is a product that comes out broader than the speaker does. So...

uh definitely an important part of the uh of the quarter thank you on your second question so to start off we have strengthened our marketing team so we have added new capabilities and competences in market communications in market insights and in social media so when it comes to reaching these 200 million of the target audiences in the core markets we will continue to do what we have already shared in terms of being present in places where we meet these target audiences and direct our marketing efforts much more focused and sharpen the communication as well of course towards them and hire new brand ambassadors and continue that work because we know that that has also been working so Formula One is obviously a great platform for us but we're also expanding into other areas throughout the next six months.

Thank you Christian. Just to get a better understanding these 200 million that you are now having identified How much of a change is that going to have on the way that you carry on the strategy going forward? It's just to understand whether or not these 200 million people have been identified now properly or you already have an idea before. So how much news is this actually?

I think that first of all we haven't quantified it before so this is the first time we quantified it and we have done the math on where they are and obviously then as well it's about now finding them and targeting them so that's new that we have them quantified. I think also the work that we have been doing during the turnaround and in the different phases has given us much more insight on the different target audiences and how to reach them. And we have been able to then obviously as well prepare for a sharpening messaging and to be present in events like we did Go To Art Basel. We did events with the Art of A9. And we know when we do these events and we meet these people that we sell out on what we are showcasing. The Art of A9 event we did in LA, we sold everything we had on display there. So we know that that works. Now, of course, we need to scale it in different places. And as we are in a turnaround situation still, and as we are also mindful of our So our money and how we spend the money, we adjust our activity level to what we actually can afford as well. So we're going to continue like we said in London as we do and we're going to go to New York and we're going to do Paris. and we'll probably do a few things in addition to that that I will not name here but for us it's clear what we're going to do to get to them and it's about what we're doing with the inside team as well mapping out where they live and where they spend their time and what they are interested in and how to reach them so The Insight team plays an important role in this and the strengthening of the Insight team that we have done as well is going to help us to find them.

Thank you so much, Christian. One last follow-up question in terms of the, now you mentioned you have the actual data and you map 200 million people, you have the numerical data. Are there any core markets that are proportionally having a higher percentage of these 200 million people versus what they should have given the population size of the country? Do you think we should look at some of the countries more specifically?

I'm sure we have that data I don't have that answer on top of my head but we're not changing the nine core markets because we do that but again we have mapped out like we announced before as well the cities that we're going to do this in so we will continue to follow the city strategy and we have announced two more cities and of course we have a list of cities where we know that our target audiences are and that's going to be announced when we announce it

All right, perfect. Thank you so much, New Line Christian. Thank you, Benjamin. The next question is from the line of Nils Lett from Carnegie. Your line will now be unmuted. Thank you and good morning.

First question on the number of company-owned stores. Can you remind us how many of the B&O stores across the world that you would now be the owner of and what are your plans for expanding the number of company-owned stores going forward? Secondly, could you help us understand the effect of lower freight costs in the quarter? and also the effect of lower component cost in the quarter. I think I'll stop here and get back with more questions if possible. Thank you.

Let me start with the cocoa stores and Nikolaj will come back with the other question on components. We have 11 cocoa stores to date and we have announced the 12th one, which is Mayfair in London. And we know that that is working. And also, like we announced today, the march towards luxury, timeless technology. We believe that there will be more Cocoa Stores to cement the experience and to be able to showcase everything that we are doing. So there will be more to come, but of course, as well on a more cautious and selective basis. One of the reasons for picking New York and for picking Paris as the next cities is because we do have cocoa stores in both those places. We have two in New York and we have one in Paris and we have also two monobrand partners in Paris. But I expect more cocoa stores as we move forward over the next couple of years. Nikolaj, the other question.

yeah so on a lower component cost so the margin impact this quarter is uh is zero um because we still have the components that we are compared to previous so to speak is is zero percent um so there's no change in the relative impact of components in this quarter We expect to see that in the coming quarters. But we had cost in Q2 of last year as we have in Q2 of this year. So it's more or less the same margin impact that it has. But we are not buying new components at the moment. So from a forward-looking perspective, it will have a positive impact on margins.

and about the end on freight.

Yeah. So freight is also improving in Q2. We are having more freight on ships than on sea, than on air, and rates are also going down. So there is a small improvement in the margin from freight cost in the quarter. And we also expect that we can see further improvements on this going forward.

Right. Can you talk about the effect of average selling prices in this quarter compared to the same quarter of last year? And then you mentioned in the report that I think your sellout was positive in November, if I remember correct. Could you talk about how the sellout has evolved in December? Thank you.

Yeah, so the first on average selling prices, so they are up compared to last year due to the price increases that we've done. So it has had a positive impact on revenue, all else being equal. On the bottom line, the impact of average selling prices going up is sort of eaten up by cost increases and inflation increases in production costs. So we're not talking about extra component buying procurement here, but just inflation on production. So the bottom line impact of the adversarial price is actually more or less zero. On sellout, yes, we had positive sellout trends in November and we are seeing a good progression of that also in December. where retailers have had some good weeks during Christmas and New Year as well and have followed sort of the plan that was made and also been reducing the inventories during the high season as we normally see. So the pattern has been as expected and again our cocoa stores have done particularly well in December. So it's more or less been according to plans. The channels in December is China, just as it was in Q2. And even though they opened up again during December and went away from the zero COVID policy, it's actually created de facto a more severe lockdown in December because of infection spreading so fast.

But given the guidance you have, I guess it's fair to assume that the sellout in the second half would end up around zero.

Yeah, so our guidance is based on the current sellout trends that we are seeing. So we're expecting that to continue. And that's why we are also guiding in the lower end of the range, because total sellout globally is slightly negative at the moment compared to the year before. So that's where we're basing it on.

Great, thank you.

Thank you, Niels. As a reminder, please press five star on your telephone keypad to ask a question. To withdraw your question again, please press five star once again. The next question is... From the line of Paul Jessen from Danske Bank, your line is now unmuted. And that's a little follow-up.

Okay, now it's unmuted. A follow-up to Nils about channel inventories. How do you see those at the moment by end of November? Are they normalized or are you still having to reduce channel inventories?

On a global scale, channel inventories are normalized. They are always high at the end of Q2, because this is where you see the ramp up for the Christmas season. And then they've been coming down again in December, just as we've seen in previous years. So there's no sort of surprises in that. Again, the only area where things are not normal is China, where there is still too much on inventory because of the low sellout that we've seen in China.

Okay, and then I was just wondering about this Art Basel in Florida. You have 200 guests. Can you say something? I was just wondering what's the conversion of guests towards sales? Is it high or is it low? Are people just coming looking or can you give some insights into how it actually turns out?

Yeah, no, I definitely do that. So we met them at the private event in adjacency to the Art Basel fair as such. And at the first evening, we presented the company in our vision strategy for 30 very high net worth individuals on the billionaire of dollars scale. and obviously the brand intrigued them and somebody had already a few of them had lost the touch with the brand and we reconnected with the brand then the second day we were part of a bigger event where we had like we say 200 people also very high net worth individuals where we showcased Biolab 90s in a limited edition type of execution that we did in plated gold and meshed steel instead of fabric that rendered a very, very good interest. And also the Biolab 90s has in general got a good interest in And we got quite a few leads through these two days. Too early to say exactly what the conversion will be because it takes a little bit of time to convert. But we're pleased with the lead generation we got. And also in these cases, many of these folks have several homes so we know from one customer who were present there that he wanted to equip all his four homes with Biolab 90s and Bang & Olufsen products so a little bit too early to say exactly what conversion will be but we're pleased with the lead generation we got and the position of the brand we got and we also sold at the event we have launched and showcased e10 in customized hand-built type of colors with engraving that we're building for by hand in struver and those had a really really big interest so now you can start to get them in different colors this is still a small volume that we produce we make quite a yeah a few pieces per month because they're hand built but we make them in in colors and different colors and that also rendered a very very high interest and we sold quite a few of those at the event okay thanks and finally can you also put some additional color on the enterprise segment which you are in the process of building up and thereby the

a cooperation with Cisco?

Yeah, so the Cisco, first of all, if you take the enterprise segment, it has been taking a while for us to get the certifications in place, unfortunately. And now we have Zoom done and we are well underway to get the Teams certifications as well. And that has been two prerequisites. to really scale it but that is happening now and has happened and is happening and so we expect that to continue to grow and then when it comes to hospitality we have landed several luxury hotels already with products and theater has been doing well as well, some with existing hotels and some with new hotels as well. We haven't published the names yet, so I'm just a bit hesitant to say who they are, but really, really high-end, luxurious hotels and the suites are being equipped with B&O theater and screens and other products. And we're building up that pipeline as well with more hospitality. And that is, of course, also not reflected in in the sell-out numbers because we sell directly to an enterprise business. So we have high hopes for that and to continue to grow that business on both headphones, earphones and hospitality business. And it did well in terms of numbers in the quarter as well. I don't know if Nikolaj wants to give any further updates on the numbers, but we had a good development year over year on the enterprise B2B segment.

Oh, yeah, well, I enterprise grew as supposed to, but I think the big the big chunk is lying ahead of us when we launch products in the segment when when these certifications are ready. So, so I think the potential is still lying in front of us compared to what we have delivered so far.

And Cisco Business is also going well. So we're pleased with that development and it's growing.

Okay. And then finally on gaming in general, how is that actually moving the Xbox version that was not a success? How is it when you've moved into the PS5 and PC market?

So that has been a disappointment as such. And also with the new direction that we have when it comes to luxury timeless technology, we need to evaluate if that makes any sense from our perspective. The product platform that we're using is, of course, the same that we're using in the Biocom and in the enterprise segment. So from that point of view, we have dual or triple use case for it as well. But we need to evaluate how we proceed in the gaming area.

Okay, that's all for me.

Thanks.

Thank you, Paul. As there are no more questions, I will now hand it back to the speaker for any closing remarks.

Thank you everybody for joining today and for all your questions. If you have any more questions, feel free to contact me or Nikolaj or the IR department. I wish you all a good day. Thank you.