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.

Thank you for taking my question. Just First, a very short one. When you mention about the CapEx investment, not CapEx, capacity investments of the 100 million, when you look beyond the current year, are you still having 100 to 150, or are you going to the low end for all the years, or is it too early to come down?

Yeah, thanks, Paul. Well, right now our focus is to... to manage the operating environment we are in right now and to strengthen our commercial execution and to ensure a healthy balance in our financials. That's what we are focusing on. What it means for the longer term period, we can come back to at a later point in time. We will talk about the outlook for next year when we release our annual report. But other than that, I think the main event before we start talking about the future is the appointment of a new CEO.

And when you say more proven view on strategy execution, also taking the external events into account, What areas are you holding back on spending? Is it marketing? Is it product development? Or is it refocusing, opening up stores? Or where are you holding back?

So obviously when we originally announced our mid-term ambitions, we laid out an investment plan for both CAPEX and OPEX, which was focusing on retail investments, marketing investments, but also product investments. And given the performance of this year, that was the first year of that original plan, As expected, we have to scale back on the investments in all of the areas. The precise sort of prioritization discussion, I think it will not disclose in this forum, but of course it impacts our investment plan broadly.

So it's across the board. Ben, you mentioned about the premier launch. that significantly below you also had learnings. And it was, as I hear, the cooperation between product launch, marketing, and retail. Can you say something about what are you then changing? I would have assumed this has been on the agenda for the last several years to optimize these three dimensions. So what failed? given that you could totally misinterpret the demand for that product at the price point.

I think what we have seen with the launch of Premier is that our commercial operating model machine is not in a good a state as we want it to be in. So this is a key focus area for us. I think the BUSAO Premier is a good sort of example of what didn't work. To mention a few things, I mean the launch was late compared to hitting the right window from a market perspective. We didn't launch with full availability or in the full range of colors that we would like to offer to our clients. The positioning or the display of the product in the store. didn't tell the story around the product well enough, the marketing campaign surrounding it was not orchestrated well enough, and then finally the price was too high. The price point was set higher than what was in reality the intention of our portfolio structure. And that we are correcting now.

It gives me an impression that it failed more or less on all areas. So do you have any idea how it could fail on both the delay and placing in stores and marketing and pricing?

I think right now what we are focusing on is to take the learning from this and work on improving our go-to-market operating model and execution going forward, so we don't make the same mistakes twice.

Final one for me at this time, San Francisco, it opened I think it was late November, so for three months in this reporting. Have you any indication on traffic success, how it's been received and so on? Are you happy with the performance?

We are happy with the performance. San Francisco is following our plans right now. The local team is in full swing of building up the local market in the San Francisco area. When we open our two next stores in California, in both Palo Alto, which is closer to San Francisco, and then subsequently in West Hollywood, we think we have a good business opportunity in California. So that's really good. I mean, in the beginning when you open a new store, you sell mostly on-the-go products because you get more traffic in and you're building the pipeline for selling the bigger systems, which we expect will come into... our numbers in the coming quarters.

Okay. I'll step back and go back to the queue.

The next question is from the line of Nils Vett from DNP. Carnegie, please go ahead. Your line will now be unmuted.

Good morning, and thank you for taking my questions. Firstly, could you talk about special items for quarter four? Would you expect any additional special items in your last quarter of this fiscal year? Secondly, can you talk about your pricing policy from here on? So should we expect that the lessons learned with the Premier product will have any overall effect on your pricing policy? And then, thirdly, could you just give us a status for your brand partnering partnerships with HP, Cisco, etc.? How far are we in the phasing out of some of these contracts? Thank you.

Yep. So let me start with the pricing policy. So what we learned with Bills and Premier does not have any impact on our pricing strategy. Our pricing strategy is based on creating a portfolio logic where we have natural pricing steps between the different products in a category when you go from sort of the entry product to the core product to the high end as more dream products in the top of the pyramid and there's a logic that we want to maintain on the price gaps between these different products and that logic was not maintained in the Premier launch, so that's why we have corrected it. So it doesn't change our pricing policy. Generally on pricing, we are expecting to be more cautious on future price increases, given the consumer sentiments at the moment. But on the other hand, there will also be, I would assume, or there's a risk of seeing price increases that we will do to adjust for the increased production costs and increased input costs as geopolitical tensions will have an impact on inflation rates for what we are procuring as well. So it will be more the pricing and that sort of more tactical pricing increases we will see in the future, I think. At least that the world is right now. special items for Q4. I mean we don't guide on special items for Q4 so I will not comment further on that. And then finally on brand partnerships. What we see here in this financial year as we said all along is that the HP which is phased out now, I mean we don't have any revenue on HP in Q3, it's gone, but if you look at last year versus this year and take HP and TCL together, then we are flat from last year to this year in these two contracts together, then TCL will start creating growth in that part of our business for next year. When you look at the brand partnering segment, this quarter, the primary reason for us being lower than last year is due to Cisco, which is a product-related revenue with product margin and not licensing margins.

Great, thank you. Can you just remind us if you are reliant on any memory chips in your products?

Yes, we are relying on memory chips in our products. In all our products, we are relying on memory chips of different nature and of different complexity. So I can confirm that.

So price increases on memory chips, would that be visible on your gross margin going forward?

Yes, that will have an impact on our gross margin. Whether it will be significant is still too early to say. We have seen in the past quarter that specific memory chip types we have to pay more for. It's not a... significant event right now and we all reminded of what was the situation in 2021, 22, 23 with the big microchip crisis and semiconductor crisis where it had a huge impact. This is not what we are seeing right now. We are working very closely with our supplier to secure our production lines for the coming 12 months and we have pretty good success with that but there will be probably pockets where we will see increased prices and if it becomes sort of material to the numbers we will of course also inform the market around it.

And finally can you just remind us how much is freight cost of your total cost base of sales and how are you Are you exposed to freight rate increases?

Well, so the freight costs typically is part of our cost of goods sold, part of our landed costs in our P&L. Yeah, it's around, and this is of course going to be a little bit off the top of my head, so we probably have to come back on more precise numbers, but I think it's around 100 million. and freight cost that we have a year and right now we are seeing price increases due to the situation in the Middle East and increased fuel prices that is particularly hitting freight cost on airplanes and I think what we've seen in the last quarter is probably an extra cost of It's around 500,000, maybe a million. It's not significant at this point in time, but it's of course a risk that it could become worse, but it's not something we are seeing in the very short term.

And to talk about the Middle East, can you just remind us of your exposure to the Middle East?

Yeah. So our Middle East revenue... We talk about the countries that are sort of in the conflict zone, so that sort of includes Israel and Saudi Arabia and the Emirates as some of the main areas for business. We are having roughly 20 million per quarter in revenue. The biggest chunk of that is in the UAE, in the Emirates. and right now it's very difficult to transact in that region. So that is impacting us here in Q4 as we also said when we did the announcement in March. We actually know there are customers who still want to buy there and we have another challenge which is more related to freight that is hard to to ship to that region. So as long as this conflict persists, it will have a negative impact on our numbers.

Okay, thank you. We have a follow-up question from Paul Yessen from Danske Bank. Please go ahead, your line will now be unmuted.

Yes, thank you. Just following up on the Middle East issue, this was the direct impact. Are there any indirect ones, I mean, that could see higher stakes in London or Paris or wherever?

Yeah, I mean... Not admissible, probably not at the moment. I can come with some anecdotal stories around clients who normally live in the Middle East, who now are in London and who are buying more also of our products in London. So there is definitely a mechanism there, but whether it will be material positive for us, I think it's too early to conclude on. I think on the contrary, I think there will probably be more likely to have a negative effect on the world economy and consumer sentiment and especially in Asia where the conflict is making it difficult to get hold of. Necessities could also impact the general economic environment in Asia. We had a good quarter in Asia in Q3, but this is, of course, something that is worrying us a little bit, how this conflict is going to impact the world economy.

Okay. Then on tariffs, there are some discussions about how they are handling the steel and aluminum content. on the tariffs to the US that is changing from a direct value of steel and aluminum to changing to a full product value. Do you have any thoughts on that, if that's going to impact your exports to the US?

To the best of our knowledge right now, we are not impacted. And the reason for that is that the tariffs always links to HHS codes and product codes and so before you start talking about the aluminum thing you need to be in the right HHS code to be part of that scheme that they are talking about and it's unclear to us right now that we are part of those HHS codes but it's something that we are of course following so no impact by now Not right now.

Okay. Then U.S., where you had a minus 16% like-for-like sales. Is that because of the high pace a year ago, or can you give some color on what's happening there? If you look at all the luxury brands that has reported in the recent days, U.S. has been the strongest quarter for all of them.

Yeah, but I think there are two things. First of all, I mean, in our cocoa stores, we have done well in the U.S. Our monobrand channel has had a weak quarter based on less demand and less footfall in our monobrand stores in the U.S. in the US that are in the like for like so that's of course excluding San Francisco. But another main point is that we are as I said we have as part of our strategy we are doing less and less promotional activities in the ETL channel also in the US so our Amazon sales is down and that is taking the like-for-like sales down quite a lot, that we are still detracting promotional activities in retail to support our brand strategy.

Okay, and then the strong Chinese sales, how much is that impacted by the Tmall transition to your control?

That's impacting positively in China, but we have in general strong sell-out in China in all the channels, so it's taking its fair share of that growth.

Okay, so it's not Tmall that is...

It's not Timor that is doing the 29. No, no, it's not just Timor, no.

Okay, that was all from my side.

As there are no further questions from the telephone, I will hand it back to you, Nikolai, for any closing remarks.

Thank you everyone for your interest in Bang & Olufsen and for joining today's webcast. If you have any follow-up questions, please don't hesitate to reach out to our investor relations team. Thank you all and have a good day.