Bang & Olufsen a/s

Welcome to the Bang & Olufsen AS interim report for the third quarter of 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'm pleased to present CEO Christian Ter and CFO Nicola Venenbo. Speakers, please begin.

Hello everyone and thank you for joining the call. As you heard with me today is our CFO Nikolaj Wendelbo. I will begin with the financial highlights of our full year followed by an update on how we are progressing on our strategic priorities. Nikolaj will take us through the financials in more detail for the fourth quarter and I will conclude the presentation part before opening up for questions. So move to slide five please. This was a challenging year marked by macroeconomic headwinds and the COVID-19 situation in China. This impacted our financial performance and contributed to a revenue decline for the full year of 6.6% in reported currencies or 8% in local currencies. Especially our product sales was impacted by these external factors and declined by 11%. The unexpected COVID-19 development in China was a major contributing factor. The strict regional lockdowns were followed by a sudden reopening, which led to a surge in infections. Overall, we saw a decline in China of 28%. The high uncertainty with the war in Ukraine, inflation, and higher interest rates impacted Americas and EMEA. We did deliver a 2% growth in Americas, but in EMEA, sales declined. Like-for-like sellout was relatively stable, with a slight decline of 2%, which is mainly due to China. We can see that the uncertainty is making our retail partners more cautious about replenishing their inventory. Brand partnering and other activities grew with 22% or 17% in local currencies. Our efforts in recent years to strengthen this area and to create a strong pipeline is paying off. Our gross margin ended at 44.2%, which was slightly lower than last year. A change in product mix towards lower margin products due to a reduction of inventory of products with shorter lifecycle was the main reason for the decline. I also want to highlight that we were still impacted by extraordinary component and logistic costs of around 160 million this year. Q4 was the first quarter with no impact from the extraordinary costs and that helped us to improve the gross margin and we expect to benefit from this in the coming year. Our EBIT margin was impacted by the lower revenue level and a decline in gross margin and was negative 3.8%. We improved our free cash flow by 152 million compared to last year. This is the third consecutive quarter we have generated a positive cash flow. For the year, the free cash flow was negative 20 million. We continued to progress with our strategic execution despite the headwinds. We have strengthened our brand. We have improved our portfolio and services significantly with seven new product innovations and our atelier additions. And we can see that our Wind City concept is working. In addition, our focus on growing our adjacent business areas is paying off. I will go more into details about this in the coming slides. If we move to the next slide. We continue to see relatively robust consumer demand, with the exception of China. While our revenue declined by 7%, like-for-like sellout only declined by 2%. In Asia, we saw a decline of 7%, and this was mainly driven by the lower demand in China. EMEA was almost flat, and Americas grew by 4%. Our company-owned stores grew by 10%, and overall monobrand sales sellout increased by 3%. I can add that sellout in Warner Brand in EMEA was on par with last year, but it varied significantly across countries, especially in the Northern European countries we saw the high uncertainty impacting customer demand. If you look at our product categories, our stage category declined by 1% in sellout, while the flexible living category declined by 12%. On the other hand, our on-the-go category increased by 2%. So please move to the next slide. In January, we presented our sharpened strategic direction. With our luxury timeless technology proposition, we want to build out our position in the luxury market, moving away from the mainstream consumer electronics industry. We believe this will enable us to differentiate further, help us to prioritize our investments and support our growth ambitions, even in a challenging macroeconomic environment. We're making five directional shifts to strengthen our luxury timeless technology proposition and win the hearts and minds of the more than 200 million affluent design and music lovers we have identified across our core markets. These are reigniting our brand to become a culturally relevant luxury love brand, Building a seamless connected product portfolio, bridging our past, present and future. Creating magical moments in connected touchpoints. Winning in key global cities. Exploring existing and new adjacent opportunities. Please move to the next slide. We made good progress with our strategic initiatives throughout the year, and I'll just highlight some of the achievements across our five shifts. In quarter three, we announced our partnership with Scuderia Ferrari for the 2023 Formula One season. Ferrari is one of the strongest luxury brands in the world and a perfect match for us as a company. With 445 million Formula One viewers a year, we expect this partnership to help us increase our global brand awareness. Also, we are hosting events and activations throughout the Formula One season to engage with the Ferrari and Formula One fans. We have also improved activations of our brand ambassadors, such as Formula One driver Fernando Alonso, who also is helping us to drive awareness and traffic to our offline and online stores. We have continued our efforts on Brand Reignite, standing out with more colors in marketing and putting more emphasis on brand marketing, most recently with our Sound for Vision avatar campaign, as you might have seen. This combined with our improved portfolio has helped us increase the number of customers registered in our app. We significantly strengthened our portfolio further this year. Among others, we have added seven new product innovations to our portfolio. We have launched several atelier editions of our products. We continued our work to build long-lasting and circular products, and in June, we received our second cradle-to-cradle certification for our flexible living speaker, Biosound Emerge. Finally, we continued to improve on our software platforms. More about that in the next slide. Another of our key focus areas to engage with our customers are giving the full brand experience, creating magical moments in all our touchpoints. We have done several things to improve this the past year. Among others, we have worked with our monobrand partners to enhance the in-store experience, also engaging more with our customers with relevant events. We now have stricter brand guidelines towards our retailers. This has also resulted in the discontinuation of several partners the past year who did not live up to our brand requirements. Our Wind City concept continued to track well with London and Paris up and running. Paris being the latest addition and in Q4, we saw a sellout growth of 24%. In London, the sellout growth was 15% supported by strong performance in our company-owned and monobrand stores. Marketing activities were particularly centered on the new product introductions, particularly our Biosound A5 and Biosystem 7223. Our company-owned store in Selfridges had the best quarter ever in Q4. We added New York during quarter four and we expect a positive trajectory in the new financial year. Finally, we continued our growth trajectory for adjacent businesses. In June 2022, we revealed the speaker bag made in collaboration with Balenciaga. The bag was available in limited quantities and sold out immediately. This was a massive success from an awareness perspective. The speaker bag got millions of views online and attracted coverage from media across the globe. We also launched our Ferrari product collaboration, which will be available in the first half of this financial year. These partnerships with like-minded brands around joint product propositions are crucial to amplify our brand and drive revenue, and we have a strong pipeline for the future. Our enterprise and hospitality business are growing, and we continue to see a positive trajectory for this business area. For enterprise, we achieved Microsoft Teams certification for our Beacom Portal headphone, and more products will follow soon. In hospitality, we're working closely with luxury hotels all over the world, and we see good and solid demand also going into 23 and 24. Please move to the next page. Building a bigger customer base and getting more customers to use the Bang & Olufsen app is important for us. In 2022-2023, we have expanded our customer base registered in the app by 25%. In addition, we also continue to see more repeat purchases and the number of customers who own two or more products grew by 27%. We want our customers to build an ecosystem of Bang & Olufsen products and we're 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 that we have built the past couple of years. We saw a positive trend in our engagement with customers. The number of newsletter subscribers increased further in quarter four, and the duration of visits to our corporate website continued the positive development seen in previous quarters. Please move to the next slide. In 2022-2023, we launched seven product innovations to strengthen our portfolio with the Soundbar Biosound Theatre and the portable speaker Biosound A5 among the key additions to our portfolio. We also updated two products, Biosound A9 and Biosound 2, to our new software platform Mozad. This underlines our ability to update our product icons and take them into the future. The launch of Biosystems 7223 was a testament to our ability to connect the past, present and future. A fully recreated Biogram 4000 combined with Bioremote Halo and Biolab 28 to deliver the ultimate record listening experience. We also presented the first Atelier edition. Our new in-house Atelier enables us to do customizations and limited editions, and we have successfully launched several color drops the past six months, which have attracted significant media coverage and online engagement. All editions have sold out almost immediately. Offering individual and bespoke solutions are critical for us to cater to the needs of our target audiences and is a core differentiator for us in the marketplace and helps us to drive awareness. Nobody else can make solutions like us and we will enhance our focus on this in the future. As mentioned, we have a strong brand and portfolio that caters not only for our private customers, but also business high-end hotels and brand partnering, among others. Underpinning our portfolio development is our proprietary software platforms, Baldwin and Mozart. These platforms will help us improve and create a seamless connected portfolio of products and improve the customer experience further moving forward. Please move to the next slide. For the first time this year, we have integrated our ESG and sustainability report into our annual report. Sustainability is also a core element in our corporate strategy, and we are pleased to report that we made good progress in this area 22-23. We continue to deliver on our longevity promise and create circular and long-lasting products. BioSound Emerge became our second product with a Cradle-to-Cradle certification, which is the world's most ambitious product circularity standard. This is a testament to our ambition to move away from the mainstream industry standard of short product life cycles and product obsolescence. We have now integrated the cradle-to-cradle principles into the development process and will continue our efforts to ensure that we have at least 10 products certified in 2024 and 2025. Also here, software platforms are important. They support our modular design approach and our ambition to build for a long product lifetime. These platforms enable us to utilize new technology and connect past, present and future products, ensuring the longevity of our product experiences. This year, we present the long-term climate targets. We aim to become net zero across the value chain in 2040 and to achieve our operational net zero targets in 26, 27. This year, we already made significant progress to reduce our operational emissions. Our own operational emissions is now running on 100% zero emission electricity. You can read more on how we are progressing on our longevity and EC targets in the annual report. And with that, I would like to hand over to you, Nikolaj.

Thank you, Christian. Now, please turn to page 13. Reported revenue in Q4 was 646 million, which is a decline of 7.5% compared to last year, or 10% in local currencies. Compared to Q4 of last year, our revenue has benefited from currency tailwinds especially related to the US dollar. The decline was driven by both product revenue and brand partnering and other activities. Revenue and product sales declined by 5.9% or 8% in local currencies. In the quarter, we saw both Europe and Americas being impacted by macroeconomic headwinds, which adversely impacted consumer behavior. In Europe in particular, our partners continued to be cautious with inventory replenishment as economic uncertainty continues to prevail. In addition, the recovery in China has been slower than expected and product sales in Asia was on par with last year, even though last year was affected by regional lockdowns. Looking at our channels, Monobrand increased slightly in the period, while company-owned stores were overall on par with last year. We saw good growth in the enterprise segment supported by our ramp-up of Origin Acoustics in America, which focused on custom installations. Our digital channels declined in the period, mainly due to focus on less discounting in our own e-commerce channel. Coming back to brand partnering. Our brand partnering and other activities declined by 16.1% against last year, corresponding to a 20% decline in local currencies. Q4 was impacted by lower license income from HP and the fact that in Q4 last year we had the launch order for Cisco. As we said last quarter, we have had tailwinds from Cisco and we do expect growth from the Cisco partnership to normalize going forward. The growth in license income from the automotive industry developed as expected. Please turn to the next page. EMEA saw a 6.3% decline in revenue or 6% in local currencies. As mentioned, our monobrand channel declined compared to last year due to caution among partners to replenish inventory. Our company-owned stores grew revenue by 10% in the period and monobrand was on par, whereas multibrand declined slightly. Revenue from digital channels declined due to pricing focus. Station-on-the-go declined in the period while flexible living increased. We saw good traction from our newly launched products, especially our Beosound 2 third generation and Beosound A5. Reported revenue in America has decreased by 16.2% or 23% in local currencies. The decline was across all channels, except enterprise, which includes our custom installations, and which delivered solid growth in the period and constituted 25% of revenue. Both company-owned stores and monobrand declined, reflecting generally lower consumer confidence on the backdrop of economic headwinds. Our expanded partnership with Origin Acoustics and Custom Installations contributed positively to revenue growth and this will continue to be a focus area together with our Wind City concept in New York. We saw solid growth from the e-tail channel, both within flexible living and on the go, supported by campaigns to fuel online traffic. Our own e-commerce channel declined slightly, yet we saw good growth from Beosound A9 and our flagship headphone H95. Revenue in Asia was unpowered last year, corresponding to a decline of 5% in local currencies. Last year, China was impacted by regional lockdowns. The development in revenue should be seen in the light of the slow economic recovery we have seen after the change in COVID-19 policy in December. Looking at the product categories, we saw the States category increased by 10% driven by BioVision Harmony and BioSound Theater. Flexible Living had a modest increase of 1% despite last year being impacted by some partners stocking up inventory. The Undergo category declined 6%. The category had high comparables from the launch of BioPlay EX in Q4 last year in Asia. BioPlay EX was launched in Asia in Q4 last year and in Q1 in the other regions. South Korea was impacted by excess inventory related to the regional lockdowns last year. Please turn to the next page. To give some highlight of our demand, I will go through the quarterly sellout figures. Overall, we see a relatively robust demand despite declining revenue. Sellout increased 7% in the quarter, mainly supported by good traction in China, which increased 50%. This, though, should be seen in the light of the regional lockdowns in the comparative period of last year. Sellout was positive across physical channels, and our company-owned stores grew 10% in the quarter. Our digital channels saw good growth in e-sale, while our own e-commerce declined in the period. In EMEA, sellout grew by 1%, but supported by our company-owned stores. Monobrand was on par with last year, while the digital channels declined. In Americas, sellout declined by 5% across the channels, except for e-tail. Company-owned stores were on par with last year, while Monobrand declined 3%. All product categories saw negative growth due to increased economic uncertainty in the U.S. As I mentioned, sellout in Asia grew by 30% across most channels, all product categories saw solid growth rates, state increased by 25%, flexible living by 8% and undergo by 53%. China grew 50% in sellout with positive traction across all channels and categories, though coming from a low comparable due to regional lockdowns last year. Looking at our product categories in general, all categories had good growth rates supported by the Chinese recovery and a low comparable. Please move to the next slide. Gross margin increased to 51.4% from 48.3% last year and 43.6% in Q3. For product sales, the gross margin on products increased by 4.9 percentage points to 45.9%. Low component spot buys affected the quarter, and freight cost was below last year. Freight cost adversely impacted product margin by around 1 percentage point in Q4 of this year compared with around 3 percentage points last year. In addition, Q4 of last year was positively impacted by a lower inventory provision for spare parts. Further, we delivered an improved gross margin on states and flexible living, partly due to price increases implemented. The gross margin for on-the-go decline compared to Q4 of last year yet ended at the highest level for the year. The gross margin from brand partnering and other activities was affected by our calculation with Cisco. The change in mix with relatively more product sales reduced gross margin in Q4 compared to the same period last year. Currency movements, in particular the US dollar, had an adverse impact on gross margin of approximately 1.3% this point. The EBIT margin before special items was positive 1.4% against 1.7% in Q4 of last year. The margin decline was related to the lower revenue. Please turn to the next page. Total capacity costs were 326 million and unparalleled last year. Development cost was 65 million against 64 million last year. Lower incurred development cost was offset by lower capitalization as fewer projects were capitalized. Distribution and marketing costs increased by 9 million to 234 million. The increase was mainly related to higher training, consultancy and warranty costs. The marketing ratio was 9.9% in Q4 compared to 10% in Q4 last year. Administrative expenses declined 10 million to 27 million as we had lower provisions for bonuses and lower advisory costs. Special items within capacity cost amounted to 17 million for the full year, mainly due to the restructuring in Q3, and Q4 was impacted by a cost to a garden leave for one key employee. Please turn to the next page. Net working capital decreased by 47 million from Q3. Throughout the fiscal year, we have worked on improving our working capital. The net capital ratio to revenue was 8.1% and declined compared to the elevated level at last fiscal year end of 11.4%. Inventory decreased by 59 million compared to the end of Q4 last year and was on level with end of Q3. At the end of Q4, no components purchased on the spot market remained on inventory, which contributed to a healthier inventory composition. Trade receivables decreased by 56 million compared to end of Q4 last year and increased by 14 million compared to end of Q3 due to a slightly higher revenue level and timing of payments. Compared to last year, we have increased our focus on cash collection. Sales with extended credit was 6% driven by the products we launched in Q4. Trade payables decreased by 16 million compared to last year driven by higher activity due to product launches and timing of payments. Please turn to the next page. Free cash flow was positive 27 million compared to negative 190 million last year. The significant improvement was mainly due to a reduced inventory of 130 million. We are pleased to report a positive free cash flow for the third consecutive quarter, and we improved the free cash flow by 150%. 2 million for the full year to a minus of 20 million. The capital expenditure was 69 million, which was 24 million below Q4 of last year and with a higher share of intangible investments. Finally, capital resources consisting of available liquidity and available drawing right on our revolving credit facilities stood at 384 million, up 56 million from Q3. The increase in the quarter was mainly related to an increased RCF commitment and the positive free cash flow. Available liquidity was 224 million compared to 208 million in Q3. And with that, I would like to hand the word back to Christian.

Thank you, Nikolaj. Please turn to page 24. We have in the previous year worked with the uncertainty of COVID-19 and regional lockdowns, and also working with the supply chain pressure impacting logistics and component availability. We are entering 2023 and 2024 with continued uncertainty, still facing high inflation environment and high increasing interest rates, and the war in Ukraine continues. That said, we expect improved performance compared to 22-23. We expect revenue growth to be between 0 and 9% in local currencies, EBIT margin between 0 and 6%, and the free cash flow of minus 50 million to plus 100 million. Our main assumptions for the outlook are listed on the slide. We have seen slow economic recovery in China and we expect the market conditions to improve in China in the next fiscal year. In addition, we expect the macroeconomic conditions in Europe and US also will improve during the year. We will continue our product innovations and expect the launch of six or more product innovations for the year. Lastly, I want to mention that the outlook assumes continued investment in our business. However, we will adjust timing and size of these investments based on the development in the markets. Please turn to the next page. If I should recap the year, we have had, I would say, this was the most challenging year marked by headwinds and COVID-19 challenges in China. We're not satisfied with the result, but we have the right strategy for the future, and we can see that our strategic initiatives are yielding results. Our product sales declined by 9.8%, but our brand partnering grew revenue by 22%. Gross margin declined overall, but we see improvements in quarter four and expect that to carry into 2023-2024. Like-for-like sellout declined by 2%, mainly due to the lack of market activity in China. This tells us that customer demand is relatively stable and that our retail partners are more cautious with replenishing their inventory. Despite challenging macroeconomics, we delivered positive cash flow for the third consecutive quarter. Our transformation is underway, but we are facing our strategic investments due to the high degree of uncertainty. This uncertainty also is reflected in our financial outlook for next year. We can see that what we are doing is working, and we will continue to execute in line with our luxury timeless technology proposition. And with that, I would like to open up for questions.

five star on your telephone keypad. To withdraw it, you can now do so by pressing five star again. There will be a brief pause while questions are being registered. The first question will be from the line of Paul Jessen from Danske Bank. Please go ahead. Your line will be unmuted.

Yes, thank you for taking the questions. I have a few. First on the guidance for 23-24, I was wondering what kind of expectations or assumptions have you done for channel inventories? Because they have now been down, I guess, two years and quite a lot last year. That's question number one.

Hi, Paul. Do you have more questions? Maybe fire them off and then we take them. As we go or OK, everyone.

Okay, maybe go ahead. Yeah, so but generally, we are not expecting channel inventory to increase during the year. It's part of the strategy and also moving into a more luxury position to keep inventory down. There's also a way of ensuring that we create and maintain price stability in the market. that we don't incentivize dealers to having to sell stuff they have on inventory. So we are not forecasting with increases sort of on a general level in channel inventory. We are forecasting based on demand expectations from consumers.

So your expectations of 0% to 9% growth is more or less than expected to be similar to your sell-out growth?

Of course, there can be fluctuations from quarter to quarter based on product launches that fills up with display units, et cetera, from time to time. But on an overall basis, our main assumptions is based on demand.

Okay. Then on the year and on the quarter that we've seen, can you comment on value performance because given your revenue growth, declined and you've had price increases as well. So on the three categories, can you say something about the volumes?

Nikolaj, it's probably a question for you.

Yes, we can say something around the volumes. So generally speaking, with the price increases, we have seen volume decreases. That's also why our revenue is overall down compared to last year. So volume is decreasing a little bit more. It depends a little bit on... the categories that you were looking in, but we've seen more value increases in this stage category and are still seeing better traction and volume on the go, especially with EX, which has also had fewer price increases. So a lot of the growth there is driven by that. And then of course, In flexible living, where we now have launched A5 and Biosound 2, in a new version, we're also seeing that impacting volume. So it's really a mix of price and volume development. But in general speaking, overall, revenue is down in the quarter compared to last year, where value is up because of price increases and volume is down. That's sort of the general picture.

Just taking, if you take one peer to you, I know it's a different segment. If you take sound industries with Marshall and they are growing 30 to 50% or so. And if you look at your on the go segment, then it's down during the year. What are the differences? between you and other segments is because you scale trade upwards and others and growth is in the lower end of the market. So what's the reason for that kind of huge differences in performance?

I don't think we have off the cuff. I don't think we have any analysis off the cuff, Paul, on what they are doing, what markets they are operating in, what channels they are operating. So I think we will need to come back on that and have a look, unless Nikolai has something on top of his head.

No, I think, I mean, in my view, when you look at the global industry for headphones, earphones, and consumer electronics, it's down. So that's the overall trend that we see, is that 2023 is a year of negative growth in consumer electronics, so generally speaking.

Hmm. And just for other micro observation, I've been traveling to London a few times recently, and I observed that B&O is no longer a brand being sold at Heathrow and Gatwick and so on. So have you made any changes to your go-to market on travel retail?

We have made some changes to travel retail. We have discontinued some of our partners that we have, and we are activating a new partner that is more in line with our luxury timeless technology. So there will be a new partner soon on the airport.

Does that mean that you are leaving multi-brands in the airport and go more for monobrand as you did in Copenhagen?

We will be more selective on multi-brand choices. Coming back to the luxury timeless technology positioning, we want to make sure that we have multi-brand partners. We will continue to have multi-brand partners, but we want to make sure that they are delivering the right customer experience and that they are representative for the brand values and the brand that we have as well and that has led to some changes but we still continue in multi-brand and there are many ways different multi-brands as well that we will be present in in different ways again that probably leads me to the brand partnering uh you have an agreement with ferrari this year and you mentioned ferrari as one of those who are giving you a lot of tailwind

on customer knowledge of the brand. How does it look when you look beyond 23? Do you have to renegotiate the partnership or is it just a one year partnership?

It's a one year partnership with Ferrari. The aim is to make it a long term partnership. We didn't have time to finalize everything around that when we did with the first year agreement. so the aim is definitely to have a long-term partnership with them but the agreement is not signed so it would be to jump the gun to say that that is going to happen but there's a good value fit there's a good value match Ferrari was according to brand finance again the most powerful brand in the world and we see across our territories and the cities where we operate as well and want to focus on that they have an extremely strong luxury positioning and they have a good customer base in those places so the aim is to have it renewed and the final question for me is that that's to your question the transformation that you've been ongoing for since you started in the company do you have any comments on

How many years will it still last before you are where you want to be? Or will they then just come new projects? So we still talk about transformation in three years.

I think it's a fair question, Paul. I think that what we have done now during the last 12 months working with the strategy is that we have really got a lot of insights to where we should be going and where we can win. I think if you go back to the first phase of the strategy to just make money and then get robustness and then scale, that wasn't as precise and as articulate as the current strategy is. So luxury timeless technology is where we are heading. And again, we believe with higher conviction than ever before that this is the right place for us to be, where we have our own blue ocean And there's nobody else really in there. And the more we move away into the luxury space, I think the more successful we will be. And looking at and following other brands who have done this journey themselves, we believe we can do that. Then having said that, I think we have had a really difficult year behind us now with the COVID lockdowns and the microeconomical challenges. And it is a transition that is not happening like digitally, it's going to take some time. But having said that, as well, I think we should see and start to see results from that transition, or journey, pretty soon, then we will not be complete with that journey for for quite some time. Because if you look at the other luxury brands, these are taking them some time to build it up, but the results should start coming from it. And that's also what we are, of course, indicating in the outlook.

Okay, thank you. That's all for me.

Thank you, Paul. The next question will be from the line of Neil Seth from Carnegie. Please go ahead. Good morning.

I have a few questions as well. Could you, to begin with, talk about the effect you experienced in quarter four from the termination of certain multi-brand distributorships and what kind of effect this could have in fiscal 23-24? That's my first question.

Maybe I start and I pass on to Nicolai, but we don't expect that to have any significant effect. We are terminating partners that are not either selling enough or living up to the brand promise and replacing them where applicable with new partners. a move from one to another and that might be a gap from that but we obviously expect the multi-brand channel to be a relevant channel for us going forward as well in a little bit different context than from the past in terms of maybe not having all the assortment and not having all the products but we don't expect that to to go away or or have a negative effect on the contrary positive effect nicola you want to add anything

No, I think you said it well, Christian.

And what was the effect in Q4?

I don't know if you disclosed that. Do we do that in Q4?

Not in details, but it's a limited effect. I think the biggest impact we have in Q4 on multi-brand is really slow traction in China in the multi-brand channel.

And have you finalized the restructuring of your Chinese multi-brand distributorships?

No, it still goes on. We still have some work to do.

Okay. Also, second question, could you talk about the effect of extraordinary warranty cost in fiscal quarter four and to what extent there would be any additional extraordinary warranty cost going into fiscal 2023-2024?

Yeah, so first of all, we don't sort of expect extraordinary warranty cost as a general thing. And I think the reason why you're seeing an elevated level of warranty cost in Q4 this year compared to Q4 of last year is due to some cleanup on some battery issues that we've had in older products. And then we are also on a general note starting to be a little bit more nice to our customers from a fairness perspective when they call in with products because we actually find that's a very good way of keeping customers happy. Sometimes to give them a better service when products are broken down, when they're out of warranty. So that's part of the cost as well. When you look at the full year warranty cost this year compared to last year, it's actually declining and relatively stable. And I will give you the number here. It's around 4% of revenue is our warranty cost. And I think that's also what we should expect going forward. We have, generally speaking, some elements that are moving in opposite directions. First of all, our quality is getting better and better, and that is impacting our warranty cost positively. But as I said, in the other direction, we are also increasing our fairness cost because that's a really, really good way, as I said, of improving customer service and keeping customers loyal to the brand. So around 4% of revenue, product revenue, should be sort of a guiding principle on warranty.

But is it correctly understood it was more than 4% in quarter four?

Yes, it was more than 4% in quarter four due to some... some adjustments. It's also a little bit technical in reality, Niels, because what happens is that we re-evaluate our entire warranty model once a year, and that can give rise to some adjustments on a full year basis as well. So I think for you, I would really advise to use the 4% if you want to use it in your models of product revenue. That's probably the safest thing.

Great, thank you. Do I remember correctly that quarter four is the quarter where you make provisions for bonuses to the dedicated B&O stores? And if so, were there any deviations from the normal level of provisions this quarter?

Not any major deviations. There was a little bit of a positive, sort of in our... Well, it depends on how you look at it, right? But it was a little bit positive from a gross margin impact perspective because, as you know, we are in the lower range of our overall guidance for the year. So we had hoped that the monobrand channel would have been a little bit higher, which would have then led to more bonuses being paid out. So depending on how you think of a positive impact, I'd probably rather have had the sales. But there was a small adjustment, but nothing significant, sort of in the overall picture.

Okay, great. And then just on your gross margin, looking at fiscal 23-24, leaving this year with more than 51% gross margin, is it realistic for you to maintain the gross margin above 50% for the coming year?

We expect to work with improving the gross margin. That's the aim. We like we have announced before as well. We aim to increase prices further and obviously do value engineering to take costs down. So the ambition is there.

So it was a really good gross margin in quarter four. And we hope that we can continue a level of around 50% going forward. But whether it will be sort of 51 plus as we did is probably a stretch, but we should definitely see an elevated level compared to what we had in all of last year.

So that would also leave you with the potential, I guess, Or to say it differently, I guess it means that your OPEX spending will grow faster than your revenue growth in fiscal 24. Is that correct and understood?

So there will be a growth in OPEX as well, and in a way it will grow faster, but that's also related to everything on bonuses. Because coming out of a year where we didn't meet our original outlook and guidance, of course our bonus payments are quite low. and we would plan for a more steady year next year. So that gives sort of a one-off impact on the cap cost, right? But if you look at, if you take that out of the equation and just look at more and what are we planning for from a cap cost perspective, we actually planning quite flattish, except from cost supporting the regions to deliver growth. So we will have more cost in the regions for marketing, activation, but also for staff in stores. We are opening a store in London that will also drive some cost, etc. So So there will be a real increase in cap cost in the regional cost base, and then the rest will basically be more technical on bonuses.

And are you planning for additional openings of company-owned stores during fiscal 24?

Yes, we have one store that is opening, that will open in the fall, and that is in London, New Bond Street. But that's the only concrete plan we have. There's some other plans around Copenhagen Airport, where we will need to move the stores because of renovation, and that also incurs cost, et cetera, to do that. But we have not any sort of concrete cocoa stores other than Bond Street in the plan right now. Paris is something we're looking at, but there's nothing concrete right now. But there might come something concrete. It's also depending a little bit on the opportunities that we get, because we need the right locations and they are hard to find.

And just to recap, so including the London store to open on Bond Street, how many stores will be company owned?

Including the London 11, I think. We are 11 today, and then we'll move to 12 with London.

Great. And then just finally, on your networking capital, would you expect your networking capital to, as a percentage of sales, to remain more or less unchanged in fiscal 24?

I think we will probably expect the overall net working capital rate to increase a bit. And that will mainly be driven by receivables as we're increasing our revenue and then accounts payables would go the other way. especially because we are trying to be as prudent as we can on producing at the moment in order not to stock up, of course, more than we need to, but also because we want to make sure that just as we are not seeing our dealers stocking up, we don't want to have a lot of inventory ourselves either. So I would expect it to increase to Yeah, maybe 10-ish percent of revenue.

Great. And then just finally, if I can find a tax rate for the coming year, do you expect to pay any taxes?

Oh, that's a good question. I mean, overall... We probably would expect to pay some taxes, but it depends a little bit on how we make the money in the different jurisdictions and where we have tax deductions that we can apply. So we'll probably pay taxes in some jurisdictions and not in others. Overall, I can't remember the number on the top of my head. We can come back to that maybe tomorrow, but there will probably be some tax payments.

Okay, thank you. Thank you, Nils. As there are no more questions, I'll hand it back to the speakers for any closing remarks.

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