Bang & Olufsen a/s

Hello everyone and welcome to this interim report for the third quarter 2023-24. For the first part of this call, all participants will be 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. I will now hand the call over to CEO Christian Theer.

Hello everyone and thank you for joining the call. With me today as always is our CFO Nikolaj Wendelbo. Together we will go through the numbers and highlights from our Q3 interim report and we will give an update on how we are progressing with our strategic transition. After our presentation we will open up for questions. Please move to slide four. We are pleased to once again deliver profit and a record high gross margin for the quarter. This is an outcome of our strategic focus to improve the customer experience in our branded channels, strengthen our luxury positioning and to ensure product excellence across our portfolio. The continuous improvement of our gross margin is also enabling our shift away from non-luxury multi-brand doors towards branded channels, closing more than 2,000 multi-brand doors in the last 12 months. This is important because with our branded channels, we can give our customers the full B&O experience, ensure better price stability and strengthen the brand equity. The prioritization of higher quality revenue is deliberate. However, this strategic transition will take time, but it will help us to build a more resilient business and create profitable growth for Bang & Olufsen in the long term. During the quarter, we saw lower demand in some of our key markets. On a group level, sell-out was down 2%. This was primarily due to Europe, where we saw a decline of 13%. In APAC, we had strong sell-out growth of 23%. However, this was against a low comparable from last year. The macroeconomic conditions in China and in some markets in Europe mean that our revenue performance will be lower than expected. Like other luxury companies, we do not expect significant improvement in the Chinese economy in the near future. Consequently, we adjusted our revenue outlook on March 17th. We kept our guidance for EBIT and free cash flow. However, we narrowed the range for both. Please turn to the next slide. We delivered a revenue of 614 million in the quarter. This corresponds to a decrease of 3% compared to Q3 of last year. If we look at our product revenue, this was flat in local currencies. Our gross margin increased to 53.2%. This is a 10 percentage point increase compared to last year. This is attributed to a normalization of component and logistic costs, as well as our strategic transition, where we have strong pricing focus and a positive change in both channel and product mix. In quarter three, EBIT before special items was 11 million. This is an improvement of 54 million compared to Q3 of last year and an increase of 8.6 percentage point. The free cash flow was positive, accounting to 5 million for the quarter. This progress enabled us to deliver the best nine-month EBIT result in half a decade. Please turn to the next slide. If you turn to our luxury timeless technology strategy, we are making progress with implementation. Over the past year, we have seen a significant brand awareness boost from our marketing activities, particularly from our partnership with Scuderia Ferrari. In Q3, we were therefore pleased to extend that agreement by another two years. It remains a key priority for us to increase the visibility of the Bang & Olufsen brand and build stronger relationships with our customers as this increases the likelihood of conversion and recommendation of our brand. The Ferrari partnership is helping us to achieve just that. If we look at our customer data, we onboarded 5% new customers and grew number of customers owning two or more products by 5%. At the end of October, we launched the Beolab 8. This versatile speaker gained strong traction in quarter three and sales performance was in line with expectations. Beolab 8 supplements the existing portfolio very well and will enable us to drive even more attachment sales across the portfolio. During the quarter, we also made improvements to our product platforms and our app, enhancing the overall customer experience significantly. As mentioned, we are doubling down on our branded channels as we believe this will be key to our growth ambition in the long term. In Q3, we made structural changes in our channel network and setup to improve the retail experience. We opened a flagship store in London in December. We relocated our Copenhagen airport store and upgraded it based on our new store concept. and we continue to work with our monobrand partners to enhance the experience across the network through refurbishments, training and events. Furthermore, we continued implementing our Wind City concept in London, Paris and New York. In addition to opening our flagship store in London, we introduced a pop-up store in Paris. In London, sell-out was down 11%. However, our two stores at Harrods and Selfridges delivered good performance. The decline in sell-out was mainly due to the limited end-of-life inventory in Bister Village, which is our store in this outlet village. In Paris, sell-out declined by 32%. This was expected as we began our transition in the city to ensure that we build a more sustainable setup for the future. We have now changed our organization and we're working closer with our retail partner in Paris to improve the store experience and our joint activations. In New York, sell-out grew by 2%. We continue to drive activations out of our Soho store, which caters to local design and music lovers, and our Madison store, which opened in November, is off to a good start. In January, we also announced an exclusive partnership with Waldorf Astoria Residences, and aim to offer their customers a luxury experience with the historic framework of the hotel. Future residents of the new 375 luxury condominiums can purchase their home fully furnished as part of an existing turnkey furniture program, which will also include a full suite of audiovisual products from Bang & Olufsen. And with that, I would like to hand over to you, Nicolai.

Thank you, Christian. Now, please turn to page number eight. We're looking at sellout first here. Sellout in the Q3 declined by 2% compared to the same period last year. This is primarily reflecting softer demand in Europe, but what is also reflected in the numbers is the fact that we made some end-of-life deals last year to reduce our inventory levels, and if we exclude these end-of-life products, sell-out actually grew no single digit on group level compared to Q3 of last year. Across regions, flexible living grew by 12%, on-the-go grew by 2% and the stage category declined by 10%. In general, we don't see like-for-like sellers being impacted negatively by price increases. Like-for-like sell-out in EMEA decreased by 13% year-on-year. Except for e-commerce, the decline was reported across channels and categories and mainly driven by monobank stores, reflecting the weak consumer sentiment in Europe. Sell-out in the Americas fell by 7%. Company-owned stores grew during the period with monobrand and e-commerce declining. Monobrand declined due to poor performance in a single material geographic market and a change of setup in this area has been initiated. Excluding this market, monobrand reported growth compared to Q3 of last year. Multibrand declined significantly due to the discontinuing of a number of stores in that channel. Like-for-like sellout in APAC grew by 23%, driven by seller growth in China of 36%, though coming from a low level last year due to the change in the country's COVID-19 policy in December 2022. Seller growth in the region was reported across all product categories. Please move to the next slide where we will take a look at revenue. Revenue for the quarter was 614 million and declined 3% in local currencies compared to Q3 of last year. Product revenue decreased by 1.6 percentage points and was flat year-on-year in local currencies. This was lower than expected and I will go more into details on product revenue in the next slide. In terms of channels, the development was driven by reported low single-digit growth in branded channels offset by a decline in multi-branded channels. Our brand partnering and other activities declined by 16.3% against last year, corresponding to a 17% decline in local currencies. This was mainly driven by reduced license income from the automotive industry as the industry slowly recovered from factory strikes in the US. Also, license income from HP declined as expected. Now turn to the next page. In EMEA revenue declined by 12.2% or 12% in local currencies to 293 million due to softer demand in Europe. Looking at the first 9 months of 23-24, revenue from branded channels combined increased 4%. We continued to optimize the channel network and the number of monobrand stores were reduced by 18 year on year. Revenue for multi-brand and e-tail decreased significantly. The number of multi-brand stores in EMEA was reduced by 131 since last year, and we have limited the assortment available on e-tail platforms and in the multi-brand channel. In Americas, reported revenue was 70 million, a decline of 4% in reported revenue, or growth of 1% in local currencies. The ramp-up of our collaboration with Genesis reported strong performance and revenue in the enterprise channel had significant double-digit growth in the year. Performance by the company-owned stores was largely on par and Monobrand had a small decline. Revenue from the ETL channel was reduced significantly while Multibrand was on par at a low level year-on-year. This continuing the partnership with T-Mobile and Verizon consequently reduced the channel by 2,214 stores over the past 12 months. Revenue in APAC was 180 million, corresponding to a 24.1% increase of 27% in local currencies. Revenue from China increased 33% or 45% in local currencies and accounted for around 47% of total APAC revenue. Revenue from our Monobank channel increased double-digit. The ETL channel increased significantly due to low comparisons in Q3 last year, and multi-brand reported modest growth. For the Stage category, revenue increased by 2% to 285 million. Biolab Speakers was reporting a strong performance, driven by the launch of Biolab 8 in October, and overall the category increased despite the strong performance last year of Biothem Theatre. For the flexible living category, revenue declined by 2% to 105 million. This was partly offset by a strong performance of Beosound A5 launched in April last year, as well as higher average selling prices. For the on-the-go category, revenue declined by 5% to 153 million. This development was mainly driven by a few end-of-life deals made on headphones and earphones last year, and also the optimization of the multi-brand channel affected this category negatively for the quarter. Overall, our categories were positively impacted by improved average selling prices. Now please turn to the next page. So our gross margin increased by 9.6 percentage points to 53.2%. In Q3 of last year, extraordinary supply chain costs adversely impacted the margin by approximately 5 percentage points, but also in line with our strategy, we improved our gross margin by a change in product and channel mix, as well as price increase that we implemented in last year. In addition, the gross margin in the on-the-go category was impacted by a few larger deals on headphones and earphones to reduce end-of-life inventories. So the strong gross margin, compared with our focus on maintaining a lean cost base, also contributed to continued improving our EBITDA. Year-to-date, we delivered an EBITDA of 221 million compared to 35 million last year. The EBIT margin before special items was 1.8%, an increase of 8.6 percentage points from Q3 of last year. We are pleased to also report a positive EBIT for the fourth quarter in a row. Now please turn to the next page. Total capacity costs were 318 million and 5% below Q3 of last year as we continue to maintain a lean cost base. Development costs were 72 million against 86 million last year. It was driven by lower incurred costs and higher capitalizations compared to last year. Distribution and marketing costs were 217 million and largely on par with last year, and the admin expenses decreased by 4 million to 29 million, mainly driven by lower advisory costs. Special items for 3 million against 15 million last year. This year's special items were related to a reorg in our marketing area, while last year's level was due to a general restructuring in line with our focus on a lean cost base. Now please turn to the next page. Net working capital increased by 11 million during the quarter to 297 million. Net working capital to the last 12 months revenue was 11.5% and largely in line with previous quarters. Inventories increased by 9 million during the quarter as a consequence of the lowered unexpected sales. We continue our focus on inventory management and since year end we have reduced our inventory by 30 million. Trade receivables decreased by 45 million to 320 million. The decrease was driven by lower sales in Q3 compared to Q2. Sales with extended credit remains at a very low level. Trade payables decreased by 27 million to 424 million mainly related to timing of our supply. Please turn to the next page. Free cash flow was positive 5 million against 33 million last year. Development since last year was driven by reduced cash flow from operating activities related to net working capital, where we saw a large net working capital reduction last year. Capital expenditures were 48 million, which was an increase of 4 million compared to last year, driven by the increase in tangible investments, which was related to our new flagship store in London. Overall investments were primarily with intangible assets and related to new products and platforms. Capital resources consisting of available liquidity and available drawing right on our revolving credit facilities stood at 318 million, down 5 million from Q2. Our available liquidity was 158 million at the end of the quarter, consisting of cash and securities offset by repo transactions. And with that, I would like to hand the word back to Christian.