Bang & Olufsen a/s

At this time, I would like to welcome everyone to this Bang & Olufsen webcast presentation. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be on listen-only mode throughout the presentation, and afterwards, there will be a question-and-answer session. I would now like to introduce CEO Christian Ter and CFO Nirav Venbo. Christian, you may now begin.

Hello, everyone, and thank you for joining the call. With me today, as always, is our CFO, Nicolai Wendelbo. As reported during our last webcast, we are now publishing trading statements for Q1 and Q3 instead of a full quarterly report. Today, I will begin by outlining our key highlights for the past quarter and providing an overview of our business performance as it aligns to our strategy. Following that, Nicolai will take us through the financials and our outlook in more detail before we open the session for questions. So please move to slide three. Let us begin by looking at Q1 performance highlights. After our full year 24-25, which was our best year within the last two decades, and covered our efforts to successfully rebuild a solid foundation and ensure a resilient business, we have been moving forward according to plan. Therefore, our focus for Q1 has been on investments for future profitable growth with particular attention to retail excellence, marketing, and product development. In Q1, we continued to post a record high gross margin of 58.7%. Then our company-owned stores and e-commerce posted double-digit growth. Revenue fell 4% in local currencies due to monobrand partners reducing inventories. We continue to see positive momentum in key areas. including growth in like-for-like sell-out and strong demand across our four wind cities, which posted collectively sell-out growth of 16%. We continue our strategic execution with the addition of new wind cities throughout this financial year as we look to accelerate this successful approach. We ended the quarter with a free cash flow of minus 135 million and an EBIT margin of minus 5.2%, both of which were driven by our strategic investments, scaling up our resources and general seasonality, as well as low network capital at year end. Please move to the next slide. Moving into a strategy update and how we have been continuing to move our luxury timeless technology strategy forward. So let's move further one slide again. We stayed focused on opportunities for long-term growth, including optimizing our retail footprint, enhancing our product portfolio, and elevating brand awareness and brand equity. Retail excellency has remained one of our highest priorities, and during Q1, we continue to open an uplift experience in a number of our stores. Notably, this included the opening of a partner store in Andorra, while our store within Harrods in London went through an extensive upgrade to our new and revitalized luxury store concept design. We are planning for more openings during this financial year. During the quarter, we have been laying the groundwork for these upcoming openings, with preparations for a new company-owned store in Paris, expected within 2025-2026, and three stores in California, as part of our ongoing efforts to establish a solid presence on the US West Coast. These stores are also due to open with this financial year, and in the meantime, our products have been on display in high-end design and furniture stores in West Hollywood and in San Francisco. All of this work reflects the positive opportunities we continue to see in the US despite the tariffs. As part of our ongoing retail footprint optimization strategy, we have closed 14 stores during the quarter, while focusing on uplifting the stores where we see increased potential. More broadly, our channel development We took over the online flagship store on the e-tail platform Tmall in China in April 2025, thereby operating the two largest e-tail platforms in China directly this quarter. During the quarter, we have also been preparing for the announcement of our upcoming launch of Bill Grace, our new earpiece within wearable sound, which will be delivered to our clients towards the end of quarter two. These new earpieces are nothing short of extraordinary. They have been born from our relentless pursuit of perfection in every detail of the development process. Inspired by fine jewelry to ensure a sculptural design and a luxury feel that can be an extension of our client style. They also achieve sound excellence through our innovation in audio miniaturization. Our goal has been to challenge the status quo and bring something completely unique to the market by marrying an impeccable highest performance sound experience with a new level of intricate craftsmanship and beauty, all built into a sophisticated aluminum design and fully developed in-house. Perfecting this complex product marks a true milestone. We're glad to have seen strong pre-order levels since our announcement. Preparations for our centenary, particularly in product development and marketing teams, are well underway, and we look forward to celebrating everything that we at Bang & Olufsen have stood for since 1925. Beautiful sound, unrivaled craftsmanship, and timeless luxury. More brand moments to honor this 100-year legacy are coming. Nikolaj, I will now hand over to you to take us through the numbers.

Thank you, Christian. Now please move to page 7. I'll begin with our like-for-like sellout, which reported 1% growth for the group. Looking at the regions, like-for-like sellout declined by 5% in EMEA. Lower footfall impacted the monobrand stores across most markets, while the company-owned stores and e-commerce reported growth. totaling a single-digit decline for the branded channels. The multibrand and e-tail channels reported like-for-like seller growth after years of work to reset the channels. In the Americas, like-for-like seller grew by 18%. Branded channels combined reported a double-digit increase with growth across channels. Seller growth from e-tail also increased double-digit. Like-for-like sellout in APAC grew by 5%. This was mainly driven by growth across monobrand and company-owned stores. The multi-brand channel reported like-for-like seller growth, but sellout in the e-tail channel declined due to more extensive campaigns last year where the e-tail was run by our partner. For our win cities, New York, London, Paris and Hong Kong, combined seller growth was 16%. We are pleased to report double-digit growth rates and are adding more cities to the concept in the coming period. As Christian mentioned, we have three stores opening in California this year, which will be in West Hollywood, in San Francisco, and Palo Alto. We expect that these openings will fuel growth in the Americas, and in addition, we are planning to open our company-owned stores in Tokyo. We have initiated the first phase of development for our upcoming wind cities, Los Angeles, San Francisco, and Tokyo, to further enable accelerated growth in these cities. Please go to the next page. Moving to group revenue and margins for Q1. Our revenue declined by 4% in local currencies, mainly due to a lowering of inventory levels in most markets. Revenue from our branded channels declined by 10% in local currencies, while our company-owned stores and e-commerce reported double-digit growth. The Monobrand channel was impacted negatively in all regions, and I will come back to this in a moment. In terms of product categories, revenue for the Stage and Flexible Living category decreased, reflecting the revenue development in the monoband channel. Revenue from the Undergo category increased, supported by H100 and the launch of A1 3rd generation in May 2025. We are pleased to continue the positive trajectory of the gross margin and once again report a record high level reaching 58.7% for the quarter, which is 3.5% above last year's level. This was also supported by currency movements of the dollar, which positively impacted the gross margin by 0.5%. Improvements were seen across product categories and largely driven by price increases and the T-Mall takeover in China. 1 May 25 we implemented global price increases which was followed by additional adjustments for the US market in June 25 in response to changes in tariffs. Finally, the EBIT margin was negative 5.2%, which was driven by strategic investments and scaling up of resources aligned with strategic direction, especially in sales, marketing and retail. Please turn to the next page. Now looking at the results on regional level, EMEA reported revenue of 234 million which was a decline of 7% in local currencies compared to Q1 last year. We saw positive traction for our company-owned stores and e-commerce with double-digit growth, while the monoband channel on the other hand declined double digits as we are seeing reduced inventory levels among our partners. The gross margin rose to 53.9% from 48.9% in Q1 last year and improvements were seen across all categories. For Americas, revenue was 62 million, which was a decline of 3% in local currencies. Revenue from branded channels declined mainly driven by the monobrand stores, as we saw lower footfall and partners being hesitant in terms of replenishment due to general uncertainty introduced after tariff announcement. The gross margin was 39.3% compared to 51.3% in Q1 last year. Net of price increases, tariff payments had a negative impact on the gross margin in Americas. The decline was also impacted by change in product mix towards undergo products and marketing related product sales. For the APAC region, revenue was 159 million, which was a decline of 2% in local currencies. Revenue from China grew by 6% in local currencies. Excluding one partner, revenue from a monobrand channel increased. In addition, the e-tail channel reported strong double digital growth, which was highly driven by the fact that we in April 25 took over the online flagship store on the e-tail platform, Tmall. and thereby converting from wholesale to retail revenue. While we continue to see good seller attraction in South Korea, revenue declined due to high inventory levels with our partner. Gross margin in the APAC region was 59.8%, an increase of 5.8 percentage points compared to Q1 last year. The increase was driven by improvements across product categories and supported by the mentioned changes for Tmall. Looking at the performance for brand partnering and other activities, revenue was 62 million, which was a 4% increase in local currencies compared to last year. The development was driven by increased license income from automotive. The ramp-up of TCL continued as planned. Rayneo, a subsidiary of TCL, announced an audio partnership with Bang & Olufsen. This development extends the existing relationship with TCL to include AR glasses, and integration of our audio technology into Rayneo's AR glasses is planned for this financial year. We continue to pursue expansion of existing partnerships and new partnerships in line with the strategic direction. The gross margin from band partnering and other activities was 93.2% compared to 89.3% in Q1 last year, driven by a relatively higher share of license income. Please move to the next page. Before concluding on the outlook for the year, I will go through the balance sheet items. Free cash flow was negative 135 million for the quarter. Reflecting strategic investments and general seasonality. Networking capital came from a low level at year-end and increased by 100 million to 316 million at the end of Q1. Inventories increased by 27 million during the quarter to 474 million. In addition, we increased our capex investments to 58 million compared to 39 million in Q1 last year. Net available liquidity was 198 million compared to 139 million at the end of Q1 last year and 350 million at year end. Finally, capital resources were 448 million compared to 299 million at the end of Q1 last year and 600 million at year end. Now please turn to the next page. So moving to the outlook for the financial year 2025-2026. We are staying focused on the next steps of strategic acceleration to drive future profitable growth by continuing to monitor challenging macroeconomic developments and geopolitical uncertainties. As we have previously mentioned, our challenge development plan includes an ambitious plan for store openings, uplifts, relocations and closings in 2025-2026. We expect these initiatives to drive future growth. In addition, we expect new product launches to drive growth in the second half of this financial year. We maintain the full year outlook, which is as follows. Revenue growth is expected to be in the range of 1 to 8%. EBIT margin before special items is expected to range from minus 3% to plus 1%. And free cash flow is expected to be in the range of minus 100 million to zero. Finally, we continue to monitor the development in tariff changes and take the necessary mitigating actions. We do not see any significant changes at this point compared to the assumptions when the outlook was communicated in July. Further details on our assumptions for the outlook can be found in the annual report. To conclude, we remain on track with our strategic execution and investments and will continue our efforts towards excellence in retail, marketing and product development. We will now move on to the Q&A session. Please move to the next page.

If you do wish to ask a question, you will need to press 5 star on your telephone. To withdraw a question, press 5 star again. There will be a brief pause while questions are being registered. Our first question comes from the line of Nils Leth from Carnegie. Please go ahead. Your line is now unmuted.

Good morning. First question, to what extent would you say that applying hesitance among your store owners was explained by preparations for upcoming product launches here in the coming quarters and to what extent was it explained by weak end user demand or expectations for weakening end user demand. That's my first question. My second question would be on tariffs in quarter one. Could you quantify the effect of tariffs in this quarter? Thank you.

So I think it's a mix on the first question. Our monobrand channel, especially what we call the legacy monobrand channel in EMEA, where we have the biggest transformation going on in terms of retail excellence ahead of us, is also the channel that is mostly reliant on new products introductions. And we haven't had any new products introductions in Q1. We now have launched Grace here in the middle of September, but with real financial effect coming from November 17th, when the products are shipped to our clients. So that is, of course, part of the explanation for why they are low on replenishment. The other thing is, as we also said, is that the sell-out in the monobrand channel has been lower in Q1 this year compared to Q1 last year. last year as we have seen lower footfall in the store. So it's a combination. For us it's important to stay focused on doing the retail transformation that we are doing across the board and we can see In the cocoa stores and in the wind cities where we are further ahead with the retail transformation that here we are seeing double digit growth. So this is what we have to continue to focus on. In terms of tariffs in Q1, the tariff payment is approximately 6 million Danish.

And you previously provided a guidance on tariffs for the fleet of, if I remember correctly, 40 million. Would that still...

Yes, that's still in that range that we are expecting. Of course Q1 being a lower quarter, you have less tariff payments and then of course there's also a product mix impact to tariff payments that is leading us to maintain around 40 million for the full year.

And is tariff cost fully compensated for by price increases?

On a global scale, they are. On the U.S. specifically, there is a, on a gross margin perspective, a net-net negative impact. Gross profit is more flattish.

Great. I'll jump back in the queue.

Thank you, Niels. And as a reminder, press five stars to ask a question. There will be a new brief pause while new questions are being registered. And we have a follow-up from Nils. Please go ahead, Nils. Okay.

In that case, I'll just continue here. Could you just talk about when you expect to recognize the revenue from the new products that you are expecting to present here in the in the next couple of quarters. So you mentioned earlier that new products would affect your second half, but shouldn't we expect any revenue from new products here in the second quarter? And in terms of free cash flow, I presume that payments will first hit your cash flow in the second half. So that free cash flows here in the second quarter would also be negatively affected by the timing of these product launches. Thank you.

Yeah, I think it's a good analysis that you're making, and obviously when we launch Biograce here, 23rd of September, with pre-orders and shipment going out from 17th of November, there will be some Q2 revenue to a product like Bill Grace, but of course the bulk of revenue from that product will come in Q3 and Q4, and that's why we are skewed towards the second half of the year when it comes to impact from product introductions in this financial year. And of course it also has an associated impact on timing of free cash flow.

does that mean that we should expect negative free cash flow in quarter two?

Well, we don't guide on quarters, but I think your analysis was good.

And then perhaps just a question on the progression of these growth investments running here over the next few years. So to what extent Are you ramping up the growth investments as planned for, or are you holding back given the global macroeconomic uncertainty?

I can start with that one, Nils. No, we're not holding back. We're executing according to our plan, and we try to actually do it as fast as we can because we have so many positive signs from the places and cities where we have implemented the new store concepts and where we are doing the Wind City concept with marketing and of course with the products as well. So from our point of view, it's to try to do it as fast as possible, but it takes time. To build a retail network, to upgrade the retail network, we obviously need to find new locations. We need to find agreements with landlords. We need to make the store designs, et cetera. So that's one time-consuming piece, but we are on track with that. Of course, there's many other things related to this retail. excellence as well, which relates to training, store staff, expansion, et cetera. And, of course, those are quicker and taking place in parallel with all of this. But we are not holding anything back. We are executing according to the plan that we have laid out.

So if we think of your OPEX expansion idea, As far as I remember, your plan was to increase OPEX by, was it 150 million this year, if I remember correctly? And you increased OPEX year-on-year by 17 in this first quarter compared to quarter one of last year. So you would say that you're still on track to expand your OPEX by the number that I just mentioned for this fiscal year?

Yeah, so we are on track on that and I think one of the things to take into mind is that the biggest part of our marketing spend is coming in Q2 and especially this year in connection with the centenary. events and celebrations, our Q2 spend is going to be probably higher than normal from that perspective. So that's why we are only sort of 17 million of the way in the first quarter.

And could you just remind us how many stores are under your ownership as of now?

13.

And why would you expect to end this fiscal year?

Yeah, so we would probably add two this fiscal year under our own ownership. If we're lucky, three, but it's a little bit on timing on finding the right locations in the cities that we're working in. We have a location secured in Paris that is going to open soon and in New York that will be at the end of the year and then we are looking into Tokyo, Ginza area, but whether we will make it at the end of the year or not is a little bit up to timing on the project that we have there.

In addition to that we have a few LOIs secured as well for other locations, but still pending contract negotiations.

And then just finally, how should we think of your brand partnering revenue progression here for the coming quarters? You have a few moving parts here, some partnerships running off and some new partnerships coming in. So how should we think about the coming quarters?

Yeah, I think overall the development is going to be, compared to Q1, stable quite a little bit on the growth trajectory towards the end of the year as we get more and more ramp up of TCL. Compared to last year on the licensing income, as we said, all the time is going to be flattish this year, as we have the HP TCL transition, but then we're going to be lower on the product sales this year in the brand partner segment than what we were last year. So I think net-net, year-on-year, the revenue is going to be lower, the gross market is going to be higher, and it's basically developing as planned.

Great. Thank you so much. I'll jump back in queue.

Thank you, Niels. And we have Paul Jessen from Danske Bank. Please go ahead. You're now going to be unmuted.

Yes, thank you. I have a quick question about the U.S. You said that on the go was very strong due to campaigns and there were lower footfall into the branded stores. I was just thinking, do you have any indication now about the price increases you did? Is that keeping people out or is it the general spending levels that keep people out of the stores?

So I can start. We have good sell-out in the U.S. We actually have double-digit growth in sell-out in the U.S. And the on-the-go category thing that you're referring to is an enterprise deal that we have done that was done on prior price levels in a contract that we are honoring and fulfilling.

Okay, so even though that you talk about lower footfall to the branded stores, then you have increasing sell-out? Correct. Okay. How you handle that San Francisco and Los Angeles is going to be win cities when you report the like-for-like sell-out? Does that mean that they will enter the numbers from Q3 next year of this financial year and the sellout numbers.

In the Wind City reporting, they will enter the numbers when they have a full cycle, when they are like for like. So it depends a little bit, of course, on exactly the timing of the openings, which would be like, yeah, here, Q3 most likely. So that's how you would see it.

So it will be in the like-for-likes allowed from Q3 26-27.

Yes, that would be a good assumption.

Because there are no stores now. Yeah. Okay. The gross margins on the go, that's H100 and A1 that is taking the gross margins up.

Yes, H100, A1, 3rd gen as well, and generally working with our price stability, also what we've seen in retail in China, where we've taken over T malls, also improving our on-the-go margins as we go from wholesale to retail, and especially are selling out at full prices in that channel as well now. So there are many factors impacting it.

How much is the impact from T-mode? Is that the majority on this one?

That is something I have to come back to in the APAC now, but it is a significant contributor. But on group level, I have to come back exactly on that.

No, it's just received 40 pluses, a new normal. You had no comment on that? No.

But of course we are moving the gross margin in the upwards direction and we are continuing to do that and as we talked about many times on the longer term the overall target is to also beat the 60% mark over the years and of course in order to do that on the go has to move upwards as well. So We're definitely getting in that direction.

And it's also helped by the launch of Bill Grace.

Yeah, but that's not in the current numbers. And then about new products launches. You say it's going to impact H2. Shouldn't we expect that they will be launched within this quarter?

to have something at the anniversary yeah that's a good assumption but we will not comment on that as we never do but of course we want to make a fantastic anniversary so we have announced Grace obviously now and we are proud about that and it's an amazing product from all aspects so you have to be patient Paul and wait and see what's coming for the anniversary

No, it's just because you say H2. I would assume that if you launch this quarter and be there before the anniversary, then there should be a number of sell-in display products, which would then have an impact on those revenue and margins in the second quarter.

That depends on when in the quarter is coming, obviously, and what the numbers are. But there will be sell-in when we announce a new product. That's always the case.

Then about the royalty extension to Rayneo, is that one which we should see as significant? Of course, it depends on the expectations that TCL has on it. But shouldn't it be seen as a niche product? at this stage in AR glasses.

It's not going to be significant in our numbers, especially not this year, since it's coming late in the year. But of course it's a display of our licensing technology opportunities and how we're expanding our partnership with a company like TCL and their subsidiaries. And we're working on more exciting things to come. So as we said, the target is over the years again to grow this category compared to where we are today on the licensing business outside automotive.

And then I have two more. In Bitcoin Capital, 100 million edition, you have 27 million from inventories. Is it receivables going down because of the decline in sales or is it payables going down before you get major deliveries of new products?

Payables is going down and other liabilities is actually the main contributing factor, which is a normal thing in Q1, which is related to building up liabilities on performance-based payment for the entire organization that is then being realized in the first quarter. So that has a big impact. And then you have, of course, as I said, payables to our suppliers going down, and then you have inventories a little bit up. So that's the mix that gets you to the $100 million.

Okay, and the final one. Could you repeat the terrorist impact in Q1 that you mentioned?

Approximately six million Danish.

Six? Yeah. Okay. That was all for me.

Thank you. Thank you, Paul. And as a final reminder, press five star to ask a question. As no one else has lined up for questions in this call, I'll now hand it back to the speakers for any closing remarks.

Thank you very much for joining today and for your questions. If you have any additional questions, don't hesitate to reach out to our fantastic IR department and they will help you out.