Bang & Olufsen a/s

Welcome to Bang & Olufsen's Interim Report for the third quarter of 2025-26. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be in a listen-only mode throughout the presentation, and afterwards there will be a question-and-answer session. To ask a question, please press 5 star. I would now like to introduce CFO and Interim CEO, Nikolaj Venelbo. Nikolaj, please begin.

Hello everyone and thank you for joining today's webcast. I will start by taking you through the highlights of the third quarter and give an overview of the commercial developments across the business. I will then walk through the financial performance for the quarter as well as our updated outlook for the year, before we open the line for questions. Now please move to slide 3. On March 23rd, we published preliminary Q3 figures and adjusted the outlook for the financial year 2025-26 due to lower than expected Q3 sales and the expected impact from increased geopolitical tension and economic uncertainty in the remainder of the financial year. We also withdrew our mid-term financial ambitions towards 2027-28. We will come back to the outlook details later in the presentation. Despite positive like-for-like seller growth across the group, supported by continuous strong performance in our branded channels and in wind cities, revenue came in lower than expected in Q3. This was due to a significantly lower than anticipated performance of our newly launched soundbar Beosound Premier. As we stated in March, we are in the process of strengthening our commercial operating model specifically the coordination between marketing investments, retail execution and product launches. This is not only a near-term priority. We believe this is key to unlocking Bang & Olufsen's full potential over the medium and long term. Following quarter ends, we re-launched Belsam Premier with two new colorways and at a revised price point. While it's too early to conclude, we have seen improvements in the product sales since relaunch. I would also like to mention that the newly launched earpieces Bureau Grace reported good performance in line with expectations, and last week we also added a new colorway to the portfolio, the Honeytone, which is a rose gold version in addition to the natural aluminum version. During the quarter, we continued to expand our retail footprint with the opening of our largest ever flagship store in San Francisco featuring the culture store concept. as well as a new culture store in Shenzhen and a new store in Hamburg's Hafen City district. Finally, and as stated in the announcement on March 23rd, the CEO search is progressing as planned and the board expects to announce a permanent appointment in the coming months. Today, we have no further comments regarding a new CEO. Please move to the next slide. I would like to add some details on a few important retail openings during the quarter. As mentioned in January, we reached an important milestone in December with the opening of our partner-operated flagship store in Union Square in San Francisco. The store features our culture store concept and is the largest Bang & Olufsen store globally with retail space of around 350 square meters. In Hamburg, we opened a new 250-square-meter store in the dynamic and vibrant HafenCity district. The store represents an upgraded retail presence in a strategically important location. We also opened our first culture store in China at the Nixxi Luxury Mall in Shenzhen, which marks an important milestone in the evolution of our retail concept in China. These openings reflect our continued focus on improving both the quality and relevance of our physical network and supports our ambition to elevate the brand experience in key metropolitan areas and markets globally. Please move to the next page. During the quarter, we prepared the re-launch of Beosau Premier, which was communicated mid-March. The initial market response to Beosau Premier was significantly below our expectations. This has been an important learning and a good example of how our go-to-market operating model needs improvement. The launch has reinforced the need for better alignment between product launch, retail execution and marketing investments. Premier has been repositioned at a lower price point with a price reduction of around 20%, placing it more naturally within the soundbar category and in our portfolio logic. The relaunch strengthens the overall portfolio architecture with a clear separation between our vision offerings, namely the Beovision Harmony, the Beosound Theater and the Beosound Premier. Premier is now offered in two new colorways, the black anthracite and the gold tone, which we expect will have a positive impact on sales. As I mentioned earlier, the sales performance of Premier has been positively affected by the launch, but it's still too early to judge the success of the product. Please move to the next slide. I'll now move into the financial performance for the quarter and the outlook for the year. So please move to the next slide. Starting with sell-off, we delivered positive like-for-like growth of 1% at group level, marking the sixth consecutive quarter of like-for-like sell-off growth. Looking across our regions, we saw a mixed picture during the quarter. In EMEA, like-for-like sell-out declined by 8%, partly due to the performance of Beosound Premier and a generally weaker consumer sentiment in larger parts of Europe. Company-owned stores continued to perform well with double-digit growth, while e-commerce and monobrand stores declined, resulting in an overall slight decline across branded channels. Multi-brand and e-tail reported declines, which was driven by launch effects last year, in addition to less promotional activities this year. In the Americas, like-for-like sell-out declined by 16% overall. Here we are also seeing lower consumer sentiment in response to the economic uncertainty. Within branded channels, performance was more resilient, with a low single-digit decline supported by double-digit growth in company-owned stores. retail reported double-digit decline as part of decreasing promotional activities. In APAC, life-for-life sell-out increased by 28% and in general we are seeing positive momentum in the region across most markets with double-digit growth across branded channels and growth in both multi-brand and retail. Our active win-sitters consisting of New York, London, Paris, Hong Kong and now Tokyo and San Francisco continue to perform strongly, delivering double-digit sell-out growth for the 7th consecutive quarter, driven primarily by company-owned stores. Please move to the next page. Turning to group performance. Revenue increased by 1.3% in local currencies, while reported revenue declined by 1.7%. Beosound Premier contributed less to the top-line development during the quarter than we had anticipated, which in particular had an adverse effect on our monobrand channel. Within branded channels, revenue grew by 1% in local currencies. This was driven by continued double-digit growth in company-owned stores, which more than offset software performance in monobrand and e-commerce. Looking at product categories, Flexible living delivers strong performance with high single-digit revenue growth across most speakers, while the stage category also grew modestly during the quarter. This was partly offset by a decline in on-the-go, primarily reflecting strong long-term streaming comparable from last year, end-of-life sales of EX, as well as decreasing promotional activities in certain channels. Gross margin continued its positive trajectory and improved to 57.5% in Q3, an increase of 2.1 percentage points year-on-year and 3.3 percentage points for the first nine months. This reflects a favorable product mix and channel mix, as well as continued margin expansion across categories. Avid margin before specializes was 1.9%, reflecting the lower than expected revenue performance. In terms of special items, we had both positive and negative items impacting the quarter. Special items related to EBIT amounted to minus 19 million, mainly comprising reorganizational activities and several costs of 27 million, of which 21 million was related to the severance package for the former CEO. In addition, 8 million of proceeds received in connection with a favorable ruling on an old dispute with the Danish Customs Authority had a positive impact. Special items related to earnings before tax comprised an additional 38 million of interest received in connection with the above-mentioned ruling. This led to total specific items of positive 19 million. Please turn to the next page. Product Revenue increased by 3.1% in local currencies. In EMEA and Americas, revenue declined by 1.1% and 3.2% in local currencies respectively. In APAC, revenue increased by 14.3% in local currencies, given by strong momentum in China and continued growth across branded channels in the region. Gross margin improved across regions, in particular APAC supported by the transition to direct operations of the T-Mall flagship store. Finally, revenue from brand partnering and other activities declined year-in-year. This was primarily driven by declining revenue from the Cisco partnership compared to last year. And please move to the next slide. Turning to cash flow and working capital. Free cash flow for the quarter was positive at $22 million, reflecting operational performance and working capital developments, as well as a relatively lower level of investments during the quarter. Net working capital decreased by 19 million to 270 million, during primarily by reduction in inventory levels, while year-on-year comparisons continue to reflect higher inventory and receivables earlier in the year. Inventory declined by 36 million, compared to the end of Q2, reflecting lower inventories following elevated levels earlier in the financial year. Capital resources amounted to 262 million at the end of the quarter, compared to 267 million at the end of Q2. Of the 262 million capital resources, available liquidity was 112 million, which is 5 million lower than at the end of last quarter. Now please move to the next page. Turning to outlook for the full financial year. As communicated in our company announcement on March 23rd, we have adjusted our outlook for 2025-26. This was mainly due to the weak sales performance of Beosound Premier. In addition, armed conflicts, geopolitical tension and economic uncertainty have intensified and are expected to impact the rest of the financial year. Revenue growth in local currencies is now expected to be in the range of minus 3 to 0% compared to the previous range of 1 to 5%. Ape and market before special items is now expected to be in the range of minus 3% to minus 1%. This reflects the adjusted revenue outlook. Free cash flow is now expected to be in the range of minus 200 million to minus 150 million. This includes the cash flow received in March related to a favorable custom ruling, a case dating back to 2006, as well as severance costs related to the former CEO. Excluding these items, the underlying cash flow development reflects both the adjusted earnings outlook and the continued focus on inventory and working capital management during the second half of the year. Overall, while the outlook reflects a more cautious view on the remainder of the financial year, our strategic direction remains unchanged. We are focused on strengthening the commercial discipline and execution, which includes ensuring that marketing investments, retail execution, and product launches are better aligned going forward. In connection with the adjusted outlook, we withdrew the mid-term financial ambitions covering the period through 27-28. In the short term, we are tightening the discipline around capital allocation and capacity costs. securing a sound financial foundation remains non-negotiable. This means we are sharpening execution and prioritization across the business with clear choices on where and how we deploy capital and capacity. In our mid-term ambitions, we had announced the assumption that annual capex would increase by around 30-40% compared to the level in 2024-2025. The current KBX outlook for 2025-2026 of around 290 million assumes the lower end of that range. Capacity cost was expected to increase by 100 to 200 million yearly during the period. The current outlook is expected to be around 100 million. And with that, I will now open the session for questions.

Thank you. If you do wish to ask a question, please press 5 star on your telephone keypad. To withdraw your questions, 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 Yessen from Danske Bank. Please go ahead. Your line will now be unmuted.