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.