Operator

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. I would now like to introduce CFO and Interim CEO, Nikolaj Wendelboe.

Nikolaj, please begin.

Nikolaj Wendelboe

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 23, we published preliminary Q3 figures and adjusted the outlook for the financial year '25/'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 midterm financial ambitions towards '27-'28. I'll come back to the outlook details later in the presentation.

Despite positive like-for-like sell-out growth across the group, supported by continued strong performance in our branded channels and in Win 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 Premiere.

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 end, we relaunched Beosound Premiere with 2 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, Beo Grace reported good performance in line with expectations. And last week, we also added a new colorway to the portfolio, the Honey Tone, 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 HafenCity District. Finally, and as stated in the announcement on March 23, 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 MixC 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 relaunch of Beosound Premiere, which was communicated mid-March. The initial market response to Beosound Premiere 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.

Premiere 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 Premiere.

Premiere is now offered in 2 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 Premiere 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-out.

We delivered positive like-for-like growth of 1% at group level, marking the sixth consecutive quarter of like-for-like sell-out 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 Premiere 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. E-tail reported a double-digit decline as part of decreasing promotional activities.

In APAC, like-for-like 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 e-tail.

Our active Win Cities, consisting of New York, London, Paris, Hong Kong and now Tokyo and San Francisco continued to perform strongly, delivering double-digit sell-out growth for the seventh 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 Premiere 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 softer performance in monobrand and e-commerce.

Looking at product categories, Flexible Living delivered strong performance with high single-digit revenue growth across most figures, while the staged category also grew modestly during the quarter. This was partly offset by a decline in On-the-go, primarily reflecting a strong launch-driven 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 9 months. This reflects a favorable product mix and channel mix as well as continued margin expansion across categories.

EBIT margin before special items 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 DKK 19 million, mainly comprising reorganization activities and severance costs of DKK 27 million, of which DKK 21 million was related to the severance package for the former CEO.

In addition, DKK 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 DKK 38 million of interest received in connection with the above-mentioned ruling.

This led to total special items of positive DKK 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, driven 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 Tmall flagship store. Finally, revenue from Brand Partnering and other activities declined year-on-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 DKK 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 DKK 19 million to DKK 270 million, driven primarily by a reduction in inventory levels, while year-on-year comparisons continue to reflect higher inventory and receivables earlier in the year. Inventory declined by DKK 36 million compared to the end of Q2, reflecting lower inventories following elevated levels earlier in the financial year.

Capital resources amounted to DKK 262 million at the end of the quarter compared to DKK 267 million at the end of Q2. Of the DKK 262 million capital resources, available liquidity was DKK 112 million, which is DKK 5 million lower than at the end of last quarter.

Now please move to the next page. Turning to the outlook for the full financial year.

As communicated in our company announcement on March 23, we have adjusted our outlook for '25, '26. This was mainly due to the weak sales performance of Beosound Premiere.

In addition, armed conflicts, geopolitical tension and economic uncertainty have intensified and are expected to impact the rest of the financial year. Consequently, 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%.

EBIT margin 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 DKK 200 million to minus DKK 150 million. This includes the cash flow received in March related to a favorable customs ruling, the 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 midterm 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 nonnegotiable. 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 midterm ambitions, we had announced the assumption that annual CapEx will increase by around 30% to 40% compared to the level in '24, '25. The current CapEx outlook for '25, '26 of around DKK 290 million assumes the lower end of that range.

Capacity cost was expected to increase by DKK 100 million to DKK 200 million yearly during the period. The current outlook is expected to be around DKK 100 million.

And with that, I will now open the session for questions.

Operator

The first question is from the line of Poul Jessen from Danske Bank.

Poul Jessen

Just first, a very short one. When you mentioned the capacity investments of DKK 100 million, when you look beyond the current year, are you still planning on DKK 100 million to DKK 150 million?

Or are you going to the low end for all the years? Or is it too early to comment on?

Nikolaj Wendelboe

Yes. Thanks, Poul.

Well, right now, our focus is to manage the sort of operating environment we are in right now and to strengthen our commercial execution and to ensure a healthy balance in our financials. And 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, of course, 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.

Poul Jessen

And when you say a more prudent 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 and the opening of stores?

Or why are you holding back?

Nikolaj Wendelboe

So obviously, when we originally announced our midterm 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, which is the first year of that original plan, has not materialized as expected, we have to scale back on the investments in all of the areas.

The precise sort of prioritization discussion, I think I will not disclose in this forum. But of course, it impacts our investment plan broadly.

Poul Jessen

So it's across the board. Then you mentioned about the Premiere launch that was 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 you are changing?

I would have assumed this has been on the agenda for the last several years to optimize these 3 dimensions. So what failed given that you could totally misinterpret the demand for the product at the price point?

Nikolaj Wendelboe

Yes. I think what we have seen with the launch of Premiere is that our commercial operating model machine is not in as good a state as we want it to be.

So this is a key focus area for us. I think the Beosound Premiere 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 show, 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. It didn't—the price point was set higher than what was, in reality, the intention of our portfolio structure.

And that we are correcting now.

Poul Jessen

That 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 in placing in stores and marketing and pricing?

Nikolaj Wendelboe

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

Poul Jessen

Final one for me at this time. San Francisco, it opened, I think it was late November.

So that means you had it for 3 months in this reporting. Have you any indication on traffic success or how it's been received and so on?

Are you happy with the performance?

Nikolaj Wendelboe

Yes, we're happy with the performance. San Francisco is following our plans right now.

And the local team is in full swing of building up the local market in the San Francisco area. And when we open our 2 next stores in California, both in 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.

Operator

The next question is from the line of Niels Leth from BNP Carnegie.

Niels Granholm-Leth

Firstly, could you talk about special items for quarter 4? Would you expect any additional special items in the last quarter of this fiscal year?

Secondly, can you talk about your pricing policy from here on? Should we expect that the lessons learned with the Premiere 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, et cetera? How far are we in the phasing out of some of these contracts?

Nikolaj Wendelboe

Yes. So let me start with the pricing policy.

What we learned with Beosound Premiere 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, with more dream products at 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 Premiere 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 sentiment at the moment. But on the other hand, there will also be, I would assume, a risk of seeing price increases that we will do to adjust for 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 more be pricing in that sort of tactical pricing increases we will see in the future, I think, at least the way the world is right now.

On special items for Q4, 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 the HP phasing out, which is phased out now—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 2 contracts together. And 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 a product margin and not licensing margins.

Niels Granholm-Leth

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

Nikolaj Wendelboe

Yes, we are reliant on memory chips in our products. In all our products, we are reliant on memory chips of different nature and of different complexity.

So I can confirm that.

Niels Granholm-Leth

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

Nikolaj Wendelboe

Yes, that will have an impact on our gross margin. Whether it will be significant, it 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.

We are 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.

Niels Granholm-Leth

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

Nikolaj Wendelboe

Well, the freight cost typically is part of our cost of goods sold, part of our landed costs in our P&L. Yes, 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 DKK 100 million in freight costs 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 are particularly hitting freight costs on airplanes. And I think what we've seen in the last quarter is probably an extra cost of around DKK 500,000, maybe DKK 1 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.

Niels Granholm-Leth

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

Nikolaj Wendelboe

Yes. So our Middle East revenue, when we talk about the countries that are sort of in the conflict zone—which sort of includes Israel and Saudi Arabia and the Emirates as some of the main areas for business—we are having roughly DKK 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 makes it hard to ship to that region.

So as long as this conflict persists, it will have a negative impact on our numbers.

Niels Granholm-Leth

We have a follow-up question from Poul Jessen from Danske Bank.

Poul Jessen

Just following up on the Middle East, what is the direct impact? Are there any indirect ones, meaning that we could see higher sales in London or Paris or wherever?

Nikolaj Wendelboe

Yes. It's—I mean, not measurable, 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 Harrods. So there is definitely, yes, a mechanism there.

But whether it will be a material positive for us, I think it's too early to conclude on.

I think on the contrary, I think there'll probably be more likely a negative effect on the sort of world economy and consumer sentiment, and especially in Asia where the conflict is making it difficult to get hold of necessities, it could also impact sort of the general economic environment in Asia. So we've 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.

Poul Jessen

Okay. Then on tariffs, some discussions about how they are handling the steel and aluminum content on the tariffs to the U.S.

that is changing from a 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 U.S.?

Nikolaj Wendelboe

To the best of our knowledge right now, we are not impacted. And the reason for that is that the tariffs are always linked to HS codes and product codes.

And so before you start talking about the aluminum thing, you need to be in the right HS 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 HS codes, but it's something that we're, of course, following.

Poul Jessen

So no impact for now?

Nikolaj Wendelboe

Not right now.

Poul Jessen

Okay. Then the U.S., where you had a minus 16% like-for-like sales.

Is that because of the high base a year ago? Or can you give some color on what's happening there?

If you look at all the luxury brands that have reported in recent days, the U.S. has been the strongest quarter for them.

Nikolaj Wendelboe

Yes. But I think there are 2 things.

First of all, in our company-owned 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.

that are in the like-for-like. So that's, of course, excluding San Francisco.

But another main point is that, as part of our strategy, we're doing less and less promotional activities in the e-tail channel also in the U.S. So Amazon sales are down, and that is taking the like-for-like sales down quite a lot, as we are still pulling back promotional activities in e-tail to support our brand strategy.

Poul Jessen

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

Nikolaj Wendelboe

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

Poul Jessen

Okay. So it's not Tmall that is exclusively driving it?

Nikolaj Wendelboe

It's not Tmall that is doing it alone, no, it's not just Tmall.

Operator

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

Nikolaj Wendelboe

Well, 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.