Bang & Olufsen a/s

Welcome to B&O Interim Report for the second quarter of 2024-25 presentation. 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, and I will now hand the call over to CEO Christian Therr and CFO Nikolaj Venelbo. Please begin.

Hello, everyone, and thanks for joining the first Centennial Year Call. With me today is our CFO, Nikolaj Wendelbo. I will start by talking you through our key highlights and business review. Nikolaj will take us through the financials in more detail, and I will conclude before we open up for questions. So please move to slide number four. Let us begin by looking at our Q2 performance. We delivered the second quarter in line with our plans and expectations. While the EMEA region and the Americas generated positive revenue growth year on year, we had a marginal decline in group revenue of 1% due to negative growth in China. In line with our strategic focus, we are pleased to report that our wind cities generated 24% sell-out growth and our branded channels generated sell-out growth of 5%. The gross margin increased to 53.7% and improved by 0.6 percentage points year on year. You may remember that we in Q1 reported a gross margin of 55.2%, which was record high. We did not expect a gross margin of that level for Q2, and we are pleased with a report at 53.7%. The level shows the progress we are making in building a robust financial foundation for the company. In September, we launched our new flagship headphone, H100. These are the best headphones we have ever created. During Q2, we also launched a new generation of our successful earphones, EX, the E11. Simultaneously, we have worked on preparing the acceleration of our strategy execution and making value-creating investments to realize our mid-term growth plan, which we announced in July. All in all, we are progressing as planned and we are also maintaining the outlook for the full year. This is another quarter where we see that the strategy is working. We see positive EBIT margin and we see positive cash flow and we grew where we wanted to grow. Please move to the next page. On 27 November 2024, we successfully completed a capital increase as a directed issue and private placement without pre-emptive rights for existing shareholders. The offering raised gross proceeds of 228 million through the issuance of 24,554,416 new shares at an offer price of 9.27 Danish kroner. We are encouraged by the interest from existing shareholders as well as new shareholders who participated in the offering. As we have communicated the proceeds are intended to fund our acceleration of the strategic execution and drive long-term profitable growth. Please move to the next slide. as we have communicated we will focus the investments on building brand awareness optimizing the retail network and we will continue to invest in our product portfolio for the retail network we have been in the preparation phase for a while with a strong global city focus and we can now accelerate our expansion plans For example, in California, where we are rebuilding a strong presence as we have found a new resourceful and experienced partner with whom we will open several flagship stores. We have more initiatives in the pipeline and we will share with you as we progress. As part of accelerating revenue growth, driving strategy implementation and enhancing the overall customer experience, we will be making some organizational changes. By mid-January 2025, the three regional sales functions will be consolidated into a single global sales function. In addition, we are establishing dedicated sales functions for new partnerships and hospitality. We're also adding more local sales and marketing resources into the key cities. These changes will enhance our focus on key cities and enable us to better serve our customers. Please move to the next slide. We have in Q2 continued to approve our store network before we speed up and make the planned investments. In EMEA, we have since Q2 of last year reduced our monobrand network in the region by 28 stores year on year to 270 stores at the quarter end. During the quarter, we expanded our presence in the Middle East with the opening of a monobrand store in Abu Dhabi. In Asia Pacific, the number of monobrand stores was reduced by three. We collaborate with numerous luxury monobrand partners across all regions to utilize the strength of combining our company-owned stores with the presence of strong partner-driven monobrand stores. Out of our now 13 defined global win cities, we are executing in four cities, New York, London, Paris, and Hong Kong. More will come and we expect cities like Los Angeles and Tokyo most likely be the next cities in execution as part of our wind city concept. In terms of performance for the ones in execution, the wind cities collectively reported sellout growth of 24%, which comprises sellout across channels in the cities. All cities reported growth. New York, London reported double-digit growth. Both company-owned stores in New York had good performance. Also, New York was positively impacted by low comparables as one of the stores were closed for relocation in October last year. London was positively impacted by the opening of the New Bond Street store in December 2023. Paris and Hong Kong reported single-digit growth year on year. We are pleased with the performance of 24% growth of our wind cities for the quarter. Please move to the next slide. Before I hand over to Nick Lai, let me elaborate on our recent product launches. As I mentioned, we launched our new flagship headphone H100 in September. It is the first headphone built on our proprietary software platform, the Amadeus platform. The higher price point compared to previous headphones not only reflects that H100 is the best headphone we have created to date, it also confirms our strategic direction of further strengthening our position in the luxury audio market. The sales performance of H100 got off to a really good start with demand exceeding all our expectations. In November 2024, we launched the E11, which is the next generation of the successful EX earphones. The E11 features improved acoustic performance thanks to enhanced active noise cancellation, more transparency and voice clarity. We continue to elevate the product experience for our existing products and create new best-in-class products. In terms of product collaborations, we also announced the second special edition Ferrari collection, revealing three new product collaborations, all from our staged category. With the made-to-order collection, Beng Olofsson has reimagined its Biolab 50 speaker, BioSound Theatre soundbar, and BioVision Theatre TV solution. The design integrates Ferrari's charcoal Grigio Corsa colorway combined with a striking shade of red to create an unmistakable connection to the motorsport icon and the first Ferrari collection launched in 2023. The first special edition comprised four products from our flexible living and on-the-go category. This was the Biosound 2 home speaker, the H95 headphone, the EX earphones and the portable speaker Biosound Explorer. The edition was in good demand and the products were sold out. As I mentioned, we will invest further in our product portfolio. We have a strong product portfolio today and we will keep on strengthening it across all categories. With this, I will hand over to Nikolaj. Thank you, Christian.

Now, please move to page 10. Let me start by going through sellout for Q2. Our like-for-like sellout was positive for the quarter and grew 1% compared to last year. If we exclude end-of-life deals made last year, sellout was higher and moved to the mid single digits. We are pleased to report that like-for-like sellout in our branded channels grew 5%. In terms of regions, like-for-like sell-out in EMEA was on par with last year. The branded channels grew, while multi-brand declined as expected. As Christian mentioned, we have reduced the number of multi-brand stores primarily in Germany, and for ETail we saw positive traction at the end of the quarter, which generated positive sell-out growth for the quarter. Sell-out in the Americas grew by 8%. Banded channels combined reported a double-digit increase, supported by double-digit growth in all channels. Company-owned stores delivered very satisfactory performance and were in addition positively impacted by low comparables as one store was closed for relocation in October last year. For the APAC region, like-for-like sellout declined by 1%. The branded channels reported growth driven by growth across the channels. Like-for-like sellout in the e-tail channel declined as expected as we have changed the setup. For the multi-brand channel, where we have also changed our focus towards travel retail, we saw only a modest decline in sellout due to positive traction from the travel retail network. Looking at China, like-for-like sellout declined 7%. The monobrand channel was on par with last year, excluding sellout from one partner. South Korea and Taiwan reported sellout growth, and Japan reported sellout growth in the branded channels. Across regions, our stage category grew by 9%, while the flexible living and on-the-go categories declined by 10% and 13% respectively. This reflects the change in channel mix towards our branded channels as wind of end of life deals made last year in the flexible living and on the go categories. Please go to the next page. Reported revenue for the quarter was 698 million. This was a decline of 1% in local currencies compared to Q2 of last year and in line with our expectations. Overall, product sales had a marginal decline. Breaking revenue down into categories, the stage category grew by 7%, flexible living declined 26%, mainly driven by end-of-life deal made last year in APAC and the launch of the Ferrari collection in Q2 of last year. The undergo category increased by 5% and was positively impacted by the successful launch of H100. Our brand partnering and other activities increased by 4% and was on par with last year in local currencies. The development was mainly driven by growth in license income from automotive, while license income from HP declined in line with our expectations and due to the expiry of the agreement as of June 2024. The new partnership with TCL, which we entered into in July, is ramping up as expected. Revenue from co-branded products declined year on year due to ramp up in Q2 last year. Please turn to the next page. Let me go more into details on product revenue per region. Revenue from the EMEA region grew 3% in local currencies and growth was reported across all branded channels in the region. The UK market and the German market are still challenged markets. We continued the transformation of the multi-brand distribution channels, thereby improving the underlying quality of revenue. Gross margin was up 0.8 percentage points to 49.3%. In the Americas, we saw a strong performance across channels and revenue increased 17% in local currencies to 86 million. The monobrand channel also grew despite having terminated all monobrand stores in California. As Christian mentioned, we continue with our US expansion and are rebuilding a strong presence in California. Revenue from the multi-brand channel was very limited in absolute value. This is in line with the strategic transformation to reduce our multi-brand presence. At the end of the quarter, we were present in 20 multi-brand stores across the Americas. The change in channel mix also contributed to increased gross margins for the Americas from 42.9% to 48%. Revenue in APAC was 182 million, which was a decrease of 13% in local currencies. Revenue from China declined 12.3% or 14% in local currencies and accounted for approximately 55% of total revenue in APAC. Revenue from our monobrand channel in China declined year on year. Excluding one partner, revenue from the channel was largely unchanged. As part of our strategic transformation in China, we implemented a structural change in the multi-brand setup and e-tail network and we saw increased revenue from both channels year on year. Revenue from Japan and Taiwan grew year-on-year, while South Korea was temporarily impacted by a planned simplification in the partner setup. Overall for the APAC region, the gross margin declined to 47.4% from 51.6%. This was mainly due to changes in product mix, but also impacted by the lower revenue level to absorb fixed production costs. Now please move to the next page. On group level, the gross margin rose to 53.7% and was up 0.6% compared to last year. Overall, the gross margin for product revenue was largely on par with last year. We have in recent quarters been positively impacted by both channel mix and product mix. We have been on an increasing trajectory for the past several quarters, and in Q1 we reached a record high gross margin of 55.2%. As we said when we announced the Q1 results, we didn't expect that level to continue for the coming quarters, and there will be fluctuations throughout the year. We are pleased with a level of just shy of 54% for Q2, and in general we expect the gross margin to increase over our mid-term period. This quarter, the gross margin for brand partnering rose to 94.4% from 87.9% in Q2 of last year. The margin increased due to the change in mix between license and product sales compared to Q2 of last year. Again, this level will also fluctuate across quarters depending on the underlying mix. EBIT margin before special items was 1.7% compared to 3% in Q2 last year. The improved gross margin was more than offset by increased development cost. Now please turn to the next page. Moving on to capacity cost and net working capital. Capacity cost increased by 12 million year-on-year. Looking at the composition of the capacity cost, development cost increased by 20 million, partly due to an increased level of incurred cost and partly due to less capitalizations. Distribution and marketing cost decreased by 12 million, and our marketing ratio was 9.3% compared to 10.6% last year. Administrative cost increased by 3 million, driven by one-offs. Net working capital decreased by 32 million during the quarter to 250 million. This was mainly driven by a reduction in inventories of 25 million during the quarter to 426 million. Overall, Finnish goods were improved in terms of composition and aging. Sales with extended credit were 2% and continued to be at a low level. Payables increased by 61 million and other short-term liabilities increased by 63 million to 189 million during the quarter, which was primarily driven by employee-related liabilities and VAT. Please turn to the next page. Free cash flow for Q2 was up 6 million to 30 million. The development since last year was driven by the improvement in networking capital. CapEx was at 54 million for Q2 and mainly related to new products and platforms. The level is expected to increase in the second half of the financial year and with more retail-related CapEx in the mix. Capital resources amounted to 390 million at the end of Q2, of which available liquidity was 159 million. This is excluding the capital raise of gross 228 million as we received the funds after closing of the quarter. Please turn to the next page. To conclude, we maintain the outlook for the full year 2024-2025, with revenue growth in local currencies from minus 3 to plus 3%, with an EBIT margin before special items from minus 2 to plus 1%, and free cash flow is expected from minus 100 to 0 million Danish kroner. As we have stated, 2024-25 is a transition year. With the proceeds from the capital raise, we can now initiate the investment programs of our strategic execution according to our mid-term plan. This means that capital is expected to increase compared to 2023-24, and capacity costs are expected to increase as well, as we will hire the right competencies to help us execute the plan. With those words, I will hand it back to Christian.