Bang & Olufsen a/s

Welcome to Bang & Olufsen Interim Report for the third quarter 2024-2025 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. I will now hand the call over to your speakers. Please begin.

Hello, everyone, and welcome. Thank you for taking the time to join us today. Here with me is our CFO, Nikolaj Wendelbo. I will begin by outlining our key highlights and providing an overview of our business performance. Following that, Nikolaj will present a more detailed review of the financials, and I will then offer some closing remarks before we open the session for questions. Please move to slide four. Let us begin by looking at our Q3 performance. We are pleased with the performance in Q3. Revenue grew by 2%, led by EMEA and a strong performance in the Americas. We also achieved a record high gross margin of 55.4%, an EBIT margin of 3.8% and a positive free cash flow of 18 million. Like for like, sellout grew by 15%, driven by growth of 21% in branded channels. In addition, sellout growth for our win cities collectively grew by a substantial 36%. We are pleased to see growth in the areas our strategy is focused on. All in all, we are progressing as planned, and with only two months left of the financial year, we are narrowing the ranges within the original outlook. During the last few weeks, your political uncertainties have increased in light of the recently announced tariffs and the possibility of further tariff changes. What I will also stress is that while monitoring developments closely, and if needed, we will make adjustments accordingly, we are continuing our strategic transition by investing the proceeds of our recent capital raise in future profitable growth. Nikolaj will provide further details on this. so please move to the next page please in february we launched atelier inviting clients to co-create custom-made products with our master artisans instructor denmark this milestone celebrates our legacy of exceptional sound and craftsmanship while enabling personal expression through unique customizable creations A standout launch was our fifth collaboration with Saint Laurent, including 10 restored Biogram 4000 series turntables from the 1970s, each encased in solid circuit-cut wood, individually numbered and finished with refined aluminum. Please move to the next page. Moving to our channel development, where I'll take you through some of the highlights for the quarter. During the quarter, we signed agreements to open new partner stores in Milan, which opened on April 7th, and a new company-owned store in Paris, expected to open in the next financial year. In London, we have agreed to expand our Harrods store and upgrade it to our new store design. And in Zurich Airport, we have launched a pop-up store. Our expansion in the US is also continuing. In California, we plan to open three stores in the next financial year. The wind cities collectively reported sell-out growth of 36%, which comprises sell-out across channels in all cities. All cities reported growth. New York, London and Paris reported double-digit growth. New York was positively impacted by low comparables as one of stores was in ramp-up phase after beginning closed for relocation in October. 2023. Hong Kong reported single digit growth year on year. The solid growth rates underpin the planned expansions. In addition, we have initiated the first phase of the Wind City concept to support and accelerate growth in Los Angeles and Tokyo. In terms of multi-brand, we continue to be more selective with our distribution. In EMEA, we decided to discontinue our cooperation with selected multi-brand partners in accordance with our efforts to optimize our presence in the channel. We are pleased to see that the channel is supporting double-digit growth despite the reduction of more than 400 doors year on year. Finally, as part of the investment in future growth, we have initiated next steps towards operating Chinese Tmall online flagship store directly. By end of April, we will take over the online flagship store on the e-tail platform and hereby operating the two largest e-tail platforms in China directly. Please move to the next page. Before I hand over to Nikolaj, let me elaborate on our recent product launches. Our Beoplay 100 launched in September and continued to perform well in Q3, while the recently launched Beoplay 11 also got off to a good start. The Bang & Olufsen Atelier brings our luxury timeless technology strategy to life, offering clients a level of customization unmatched in the luxury audio space. Rooted in our heritage of craftsmanship and innovation, Atelier allows customers to co-create with master artisans in Struve, Denmark, blending iconic design with personal expression. Three offerings define the Atelier experience. Atelier bespoke for one-of-a-kind pieces made in direct collaborations with our artisans. Atelier Catalogue, offering over 500,000 combinations of fabric, wood and aluminum finishes. Atelier Editions, limited runs of iconic products reimagined with exceptional detail. The Atelier offering is commanding a price premium of 10% to 50%, which reflects the value of the true customization and craftsmanship, supporting higher margins while deepening brand desirability and loyalty. During the quarter, the Biolab 8 and Biosound Theatre received cradle-to-cradle certification at bronze level, bringing the total number of products with cradle-to-cradle certification in our product portfolio to five. Notably, BO Sound Theater is the first soundbar in the world to be cradle-to-cradle certified, highlighting our role in leading the movement towards more circular product designs and manufacturing. And in March 2025, Formula One season began with Ferrari's new F1 car once again carrying B&O branding, a symbol of our ongoing presence in global culture and performance. And with this, I will hand over to Nikolaj.

Thank you, Christian. Now please move to page number nine. So before we go into the financials, I want to give you a bit of detail on how we see the current tariff levels impacting our business. Bearing in mind, of course, that these days are a moving target. But we try to include also recent announcements on the tariff from China being increased to 104%. and of course the tariff of 20% on European products that was implemented also or announced last week. So please bear in mind that these numbers are estimates, but should indicate sort of the level that we are looking at. So year to date, our revenue in America was 240 million and around 13% of total revenue. And our production spans globally with the majority of production in China, Europe and a small share in Thailand. Looking at the America's revenue, we can estimate around a third of the sale from products produced in Europe and two thirds produced in China. which leads to an estimated cost impact of around 70 million on an annual basis or around 2.5 percentage points on the gross margin. The 70 million is of course calculated as all else being equal. Prior to the last tariff announcement of the additional 50% on the China tariff, the estimated cost impact was around 40 million or 1.5 percentage points on the gross margin. We have already mitigated some of this impact through price increases that will be implemented on May 1st. And at the same time, we are looking into further price adjustments to mitigate further, but we're also considering other handles, such as looking at the supply chain, logistics, and our general cost structure. And just to be clear, we do not have any production in the US. Please move to the next page. So let me now start by going through sellout for Q3. Our like-for-like sellout grew by 15% compared to last year. For branded channels, like-for-like sellout grew 21%, and for our wind cities, sellout grew by 36%, and we are pleased with the strong performance in sellout. Like-for-like sellout in EMEA grew by 18%. Branded channels all generated double-digit like-for-like seller growth, supported by successful campaigns. In EMEA, the monobrand channel improved inventory cycles during the quarter. Sellout in the Americas grew by 49%. The branded channels combined reported a high double-digit increase year-on-year, driven by solid growth in all channels. Company-owned stores were positively impacted by low comparables in Q3 last year due to ramp up after relocation in Q2-23-24, while the monobrand channel was positively affected by campaigns and the execution of project sales. Also note that the like-for-like seller growth excludes the California stores, while they are included in the comparison figures on revenue growth. For the APAC region, like-for-like sellout declined by 3%, driven by a double-digit decline in the ETL channel. The branded channels reported double-digit growth year-on-year, driven by growth across the channels. In China, like-for-like sellout declined by 13%. This was mainly due to a decline in the e-tail channel as sellout for the monobrand channel grew year on year. Excluding China, sellout in APAC experienced single-digit growth. Across regions, our stage category grew by 24%, while the flexible living category declined by 7% and the undergo category grew by 19%. This mainly reflected the change in channel mix towards our branded channels as well as new launches in the undergo category. Now please go to the next page. Reported revenue for the quarter was 631 million. This was an increase of 2% in local currencies compared to Q3 of last year and in line with our expectations. The increase in reported revenue related to an increase in product sales of 3% while brand partnering and other activities experienced a modest decline of 1 million to 70 million or minus 2% in local currencies. Breaking product revenue Down into categories, the stage category grew by 6%. Flexible living declined 8%. The decline was mainly due to declining APAC across products. Revenue from the flexible living category grew in EMEA and the undergo category increased by 7%. Grow was mainly driven by the successful launch of BeoPlay H100 and BeoPlay 11. The modest decline to 70 million in brand partnering and other activities was mainly due to an expected fall in license income from HP, partly offset by increased revenue from automotive. License revenue from TCL is ramping up as expected. Please turn to the next page. Let me go into more details on revenue per region. Revenue from the EMEA region grew 6% in local currencies and growth reported across all branded channels in the region and across most of the European markets. Moreover, average revenue per multi-branded store increased, with the channel reporting double digital growth combined with a reduction of more than $400 year-on-year. The gross margin was up 1.3 percentage points to 51%. In the Americas, a strong performance was driven by double digital growth across all branded channels and with fewer stores in the multi-branded channel year-on-year. As Christian mentioned, we continue with our US expansion plans. Revenue from the multibrand channel was very limited in absolute value and in line with the reduced presence of the channel in the US. The change in channel mix also contributed to an increased gross margin of 49.6% up from 45.9%. Revenue in APAC was 164 million, which was a decrease of 8% in local currencies. The APAC region reported negative growth mainly due to challenges in China, which declined 11% in local currencies and experienced negative growth in the e-tail channel. As Christian mentioned, we have initiated the next step in the planned structural change of the e-tail channels and will in the near future operate the T-mail flagship store directly in the same way as we are today operating JD.com ourselves. Revenue from our monobank channel in China grew year-on-year. Revenue from South Korea and Taiwan grew, while Japan declined due to currency impact. Adjusted for the currency impact, revenue from Japan grew year-on-year. Overall for the APAC region, the gross margin grew to 55.7% from 50.8%. Please move to the next page. On group level, The gross margin rose to a record high 55.4% and was up 2.2 percentage points compared to last year. The margin was positively impacted by improved gross margins across product categories and a change in product mix towards higher margin products. The reported gross margin has been above 50% for the past eight executive quarters, which strengthens the financial foundation for our strategic acceleration and for navigating the geopolitical turmoil. This quarter, The gross margin for brand partnering declined to 81.1% from 84.5% in Q3 of last year. Due to the change in mix between license and product sales, the level fluctuates across quarters depending on the underlying mix. In previous quarter Q2, we reported a gross margin of 94.4%. Avian margin before special items was 3.8% compared to 1.8% in Q3 last year. The improvement was driven by the higher reported revenue and gross margin and partly offset by higher capacity cost. Please turn to the next page. Moving on to capacity cost and networking capital. Capacity cost increased by 12 million year-on-year. Looking at the composition of the capacity cost, development cost increased by 6 million. The incurred development cost before capitalization ratio was 13.4% compared to 12% last year. Distribution and marketing cost decreased by 4 million and our marketing cost ratio was 6.5% compared to 8.6% last year. Administrative costs increased by 6 million driven by one-offs. Networking capital increased by 5 million during the quarter to 255 million. Trade receivables decreased by 79 million and payables decreased by 105 million due to seasonality and timing. Inventories decreased by 13 million during the quarter to 413 million. At quarter end, we reported the lowest inventory level in more than three years with an improved composition and aging profile within finished goods. Please turn to the next page. Free cash flow for Q3 was up 13 million to 18 million supported by increased cash flow from operating activities. CapEx was 59 million for Q3 and mainly related to new products and platforms. As mentioned before, the increased level is expected and going forward we expect further increases and with more retail related CapEx in the mix. Capital resources amounted to 552 million at the end of Q3, of which available liquidity was 372 million. This was driven by the directed issue of net 270 million received in December 2024. Please turn to the next page. To conclude, we will narrow the ranges within the outlook for the full year 2024-2025. Revenue growth is expected to be in the lower end of the minus 3 to plus 3% range due to persistent challenges in APAC. EBIT margin before special items is expected to be in the mid-range mainly due to the positive development of the gross margin. Finally, the free cash flow is expected to be in the higher end of the range mainly due to the development in networking capital and secondly timing of capex investments. As we have stated, 2024-25 is a transition year. With the proceeds from the capital raise, we can now initiate the investment program of our strategic execution according to our mid-term plan. This means that KB is expected to increase to around 250 million and capacity costs are expected to increase as well with around 100 million compared to 2023-24. And with those words, I will hand it back to Christian.

Thank you, Nikolaj. To sum up, we are pleased with the quarter's performance, which was according to our plans. We grew top line, generated record high gross margin and profit together with improved cash flow. We were also pleased to report positive momentum in terms of sellout of our strategic focus areas. The group's double-digit sellout growth of 15% was driven by 21% growth in branded channels. Finally, we reported sellout growth in our win cities of 36%. The EU political situation, including the recent announced tariffs and the possibility of further tariff changes, are increasing uncertainty. We have addressed today how we see short-term impact and will continue to monitor the development closely and adjust accordingly. Despite the increasing uncertainty, we continue our strategic transition by investing the proceeds of our recent capital raise in future profitable growth. We will now open up for questions.

Thank you. If you wish to ask a question, please press 5 star on your telephone keypad. To withdraw your question, you may do so by pressing 5 star again.

We will have a brief pause while questions are being registered. The first question is from the line of Paul Jessen from Danske Bank. Please go ahead. Your line will now be unmuted.

Yes, thank you for taking my questions. And actually, congratulations for a good Q3. Then we have to see how it continues. First question on the guidance on the cash flow. Nicola, you say high end, that means up to zero, but still negative. meaning that you'll have a material change in the fourth quarter. Can you put a little word on that? Is that the working capital that is going to turn materially negative in the fourth quarter?

Yeah, so in the fourth quarter, we expect, first of all, to continue our investments, both in OPEX and CAPEX, which impacts cash flow from operations negatively. And then we are also expecting some negative development in working capital. We are expecting that inventories will build up a little bit more from the very low level that we have now, especially because we are still building up on H100. and we will play 11. H100 has been sold out on our inventory also in Q3 and we want to build up some buffer on that as well. So that's the reason why we are expecting to come up worse in Q4 than we've seen in the past two quarters.

Okay, and then I don't know if it's possible about current trading and given the uncertainty, which is in the markets in general, store traffic and so on. Have you seen any material changes? And I know it's tariffs is one week old, but has your partner starting increasing inventories up to the speculation of tariffs or anything?

We have not seen any material changes over the past week, but it's really too early to say anything. I mean, when you woke up last, not this morning, but yesterday morning, suddenly we were talking about 104% for China, and the day before it was 50%. So I think we all are going to adjust to this and we are taking it nice and easy and slowly and making sure we are doing the right things and we're not panicking over it. And I think our partners are looking at it in the same way.

Okay. That's more on the strategy plan and the spending you should ramp up. I can see in the recent quarter that you have scaled down on marketing. Is that a one-off or are you going to be a little more slow on spending the money or are you keeping up on the plans as if nothing has changed?

No, we are keeping our plans, especially on marketing. We are spending less on marketing this year than in previous years, which has been on purpose. But we are expecting us to dial up the marketing spend in the next financial year as well. And right now we don't foresee any significant changes to that. Of course, being mindful that with everything that's going on in the world, we're looking at our general cost levels as well.

Coming to the tariffs, you have calculated the 70 million. That was quite close to my estimate. The base, just to help us looking forward when they move up and down, the cost base that we should calculate the tariffs on, the COGS, how much should we subtract from the reported COGS, more or less, to get the base on which we calculated, just to help us looking for one.

Yeah, but I'm probably not going to supply a lot of details on that, because it is not a straightforward calculation on calculating tariffs into the U.S., because it's not based necessarily on group COX levels. It's based on import prices into the U.S., but but generally speaking there's a lot of allocated costs into the Cox you look at a group level and and that of course you have to subtract from from the calculation so it is Yeah, how can I put it? From a relative perspective, sort of in percentages, we are talking double-digit reductions in percentages in sort of the face value of Cox that we are calculating tariffs on.

Okay. And the price increases you're going to announce or, I don't know, have you announced it or which will be implemented May 1st? Is that going to be on the US market only or are you doing on a broader base to not be too aggressive on the US consumers?

First of all, it's been announced to our partners that it will happen 1st of May, so they are aware. And it's a global price increase because we are, as we said many times, adjusting our prices two times a year globally. So what we did was actually moving forward a planned price increase into May in order to mitigate some of the tariff impact. So it's globally and on some products we are going a little bit higher in the US than the rest of the world due to tariffs.

So it's the August revision that is moved to May?

For now, it's the August revision that is moved to May, but given the latest announcements on tariffs, we are looking at whether we would want to do more on price increases, just as we are looking at other handles that we have in terms of our supply chain and our partners as well. So we are not going to take the full cost of this in B&O and preferably we're not going to take any of the cost. So all the parties in the value chain, so to speak, they will have to pay, sort of bear their part of the burden.

Okay, I'll step back and see if there are others having questions. Thank you.

The next question is from the line of Nils Leth from Carnegie. Please go ahead. Your line will now be unmuted.

Thank you. Again, on tariffs, could you talk about the timing of when the tariff hit will come? I suppose that you have some kind of inventory or your partners would have some kind of inventory in the U.S. so that... the actual tariff effect would first come a few months into your next fiscal year. Is that a correct assumption? And secondly, when it comes to your growth plan and growth strategy, so will there be any factor at all on your growth plan from these tariffs? Thank you.

So on the tariff timing, it's correct that the full impact will not be until next financial year, but there will be some impact in Q4. There are products that we will have to ship into the US in the remainder of Q4 also to fulfill our revenue projections for the quarter. but that's of course a little bit more limited and what we can handle right now with the price increases made first and within within the outlook that we have just narrowed in of course but there will be some minor impact in in q4 as well

Do you want to take a growth question? So if you look further, it's too early to say how all of this will play out. And we maintain our plans currently and we're going to execute on them. We believe we have a good plan. We have not a saturated market. On the contrary, we have a lot of potential in the market and we expect to continue to execute that, but it's too early to say if there are any changes to the midterm plans that we're doing. So we're monitoring, of course, also alternatives if things would become more challenging.

Okay, great. Thank you. So from many other companies that I cover, you kind of get the impression that as we have moved into this year, consumer sentiment has worsened and your growth rate has worsened. So would that also be the case in your industry and for your business that February was worse than January, March is worse than February and so on.

We also hear probably the same things as you are hearing in this respect that consumer sentiment in the US maybe in particular has weakened. We have not seen, like Nicolai also said, any signs of that in the few data points that we currently have. But of course, we are continuously monitoring that. I think one difference for us, though, is like I alluded to, we have a huge untapped potential and we have a low penetration probably compared to many others. So I think we have a better possibility of finding new ways to grow if we have to. But we have heard the same signals, but it's too early to say.

Great. And then just finally, you called out the change in the management of your e-tail channel. Is that going to have any effect on your price markup or your margins?

Yes, it will have a positive impact on our gross margin, sort of all of us being equal in the Chinese market. We will operate the Tmall flagship store directly and from that perspective we are getting the full retail price in as revenue where is today is is a wholesale price we are getting in as as our revenue and thereby we're also getting a high gross margin we will also have more cost to run the business as we are going to run marketing and operating the platform within our own cost base but net net it will have a positive impact next year in china on on both growth and a marked margin And I think more importantly in reality is that when we're operating the Tmall flagship store, which sort of is our branded e-com in China where we're not operating B&O.com directly, we're not operating at all in China, we have the Tmall flagship store instead. Together with JD.com, they've already taken over. We have an opportunity to also work much more with price stability in the Chinese markets, which is quite important for all of the channels.

So it means that you are relying less on Chinese, what you call it, kind of master distributors, so selling directly to those flagship stores, but even directly to

retailers such as jd yes so so jd we've been operating for yeah 18 months i think uh or something like that ourselves and now we are taking over team more flagship meaning that it's it's we're operating the platforms directly and not relying on a master dealer or distributor to do that. You're still relying on some service partners because of the fulfillment system that you have in China. It's very different from what we know in Europe and in the US. But our master dealers or partners in China will predominantly be focused on physical retail going forward.

So since you have taken over these flagship stores, I don't know how many that would be. Would you then also just remind us about the number of stores that would be in the ownership of B&O?

No, but the flagship stores are, this is two stores, it's JD.com with some sub-sites and it's a team of flagship stores. It's basically two online stores, broadly speaking. Then you have some sub-sites, etc. But it's two online stores.

Great. So in total, including the stores that you operate directly in Europe and North America, that would be 13 stores as far as I remember.

So today we are operating 13 physical cocoa stores, physical retail, but we don't classify this as physical retail stores. These are online stores. So this is more comparison with us having our bang and olsen.com site in Europe, in the US. in South Korea and Japan. We don't have Bang & Olufsen.com in China, but we have a Tmall flagship store. That's what it's called. It's called Tmall flagship store, but it's an online flagship store. And the way they are operated differs quite a lot from other retail stores that you would know from Europe. In the Tmall flagship store, you're actually operating your own branded space on the site.

Understood. Thank you. Next up, we have some follow-up from Paul Yesen. Please go ahead, Julian.

We'll now be unmuted.

Thank you. I was just lowering my hand because it was the same question I had. But just to follow up, we're all focusing on the U.S. right now and you said how do you look into China and Europe, which are getting the burden of this to something. Are you feeling that or should we just look at it as you're saying that you have a very small part of the market and your clients have less price sensitivity as the market in general? So what's your forward-looking plans for Europe and China?

So a good question, Paul, a big question. It is, of course, affecting everybody globally. There's no, I think, doubt around that. But how, we don't know just yet. And the measures that we are taking, whether they are directed towards the US market only or global measures, we don't know. And we will come back when we do the measures. We believe then again, though, that we have a good plan. We have a good strategy. We have a lot of things that is in our own control that we are going to continue to execute on that really doesn't change and to your point as well or to my previous point and your point we have untapped potential that we have not addressed at all that we're moving towards and we also believe that there is a high resilience on price increases from the target segments that we have, but it's too early to say at this point in time.

Apart from the price increases to come, you're also talking about looking at your operational structure and so on. Given that you've had a lot of change in the recent year and your overhead cost What opportunities do you have from here onwards to look at your openings?

So what we are doing, as you know, we are focusing more and more on cities. And we know the Wind City concept is working and has been, I think, most successful this quarter. So we're trying to copy that, of course, as much as we can. And one of the things is to have more resources locally in the cities that we have identified. We are continuing with expanding our sales and marketing organization locally in order to serve our customers better and of course to find the opportunities because we believe and see that that is working really really well. So that will continue obviously as well. To create more awareness, as Nicolai also said, we're going to up our marketing as we move forward as well to create more awareness and we're preparing for that at this point in time. When it comes to the cost and everything as well in regard to the tariffs, we're looking at Nicolai's point as well, several handles in terms of how we manage it, our suppliers manage it, our partners are managing it and how we... basically try to avoid to carry any of that on our own in our own P&L. But it's also very difficult to say at this point in time exactly how that will work out depending on what is happening in the world with the tariffs right now. But we believe we have still a lot of opportunity to execute on our strategy and that's what we are mainly focusing on and then adjusting accordingly as we see things changing.

And a smaller question, you're talking about the change in the partnership with Hyundai, making audio by Bang & Olufsen. Will that mean that you get a higher revenue per sold cars and you get it more integrated into your software solutions?

No, it will not mean a higher revenue per car per se. I cannot comment on the specific details of such an agreement. But in the logic and the hierarchy we have around how we are licensing our brand, audio by Bang & Olufsen is sort of the lowest tiering of our brand licensing framework. Bang & Olufsen, Standing Alone is the highest tier, and this is audio by Bang & Olufsen.

Okay, thank you.

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It does not seem like we have any more questions from the telephone.

I will hand it back to the speakers. Please go ahead.

Thank you, everybody, for joining the call today. So as always, if you have any further questions, don't hesitate to contact our IR department. Thank you.