Bang & Olufsen (Copenhagen:BO) Q1 2027 Earnings Call

0:01 At this time, I would like to welcome everyone to this Bang & Olufsen presentation for Q1 2026-27. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be on listening mode throughout the presentation, and afterwards, there will be a question and answer session. I'd now like to hand it over to Head of Investor Relations, Kristina Høinde-Hefting. Kristina, over to you. Kristina Høinde- Thank you. Hello, everyone, and thank you for joining today's webcast, which is a week earlier than planned. With me today is our CEO, Gianfilippo Testa, who joined in August 26, and our CFO and COO, Nicolai Bellembo. They will take you through the Q1 performance.

0:46 Please pay attention to the disclaimer on slide two and move to slide three. I will now hand over to Gianfilippo. Thank you, Kristina. Hello, everyone. I am Gianfilippo Testa. It is good to meet you here at this conference call in connection with the trading statement for the first quarter of the 26-27 financial year. I have now been with Ben Olufsen for almost a couple of months and I am thrilled to be here. Bengen Olufsen is a distinctive brand with a century-long heritage, a strong culture of innovation, and a unique position at the intersection of technology, design, and craftsmanship. It is an honor to be now working closely with the board of directors, the leadership team, employees, partners, and clients around the world to build on this deep strength and unlock Bengen Olufsen's full potential.

1:45 We have established our new executive leadership team with Nicolai and with Jesper Hessel who will join soon as chief commercial officer and deputy CEO to contribute unfolding Regen Olufsen full potential. Let's please move to the next slide. The Q1 results show that the strategy is moving the business in the right direction. We are indeed seeing progress in the branded channels and our wind cities are delivering a double digit sell-out growth, leading to an overall improved gross margin. However, certain areas of the business still require more attention and consistent execution. The store footprint has been improved significantly over the past couple of years.

2:35 But there is still more to do to improve our productivity across all channels. We need to look at our client experience across all brand touchpoints to ensure a consistent approach with the right tone of voice to drive demand and conversion. Since January 26, the business has evolved the commercial operating model and we have significantly improved the coordination of marketing planning and investments, retail execution and product launches. Our operating model is now better equipped to support our targeted market positioning and we will improve it even further going forward. We will elaborate on our plans in connection with the H1 report in January 27.

3:24 Let's please move to the next slide. Let me take you through the business highlights of the quarter before I hand over to Nicolai to cover the Q1 performance in more detail. During the quarter we opened stores in key locations and I want to highlight two here. In June we opened our largest store in Asia Pacific at Scott Square in Singapore. This was a relocation and the first with our cultural store concept in Southeast Asia. The store has been off to a good start. And in August we opened our third store of 260s per meter in Palo Alto in California and this completed the three planned California openings alongside our San Francisco and the West Hollywood flagship stores.

4:15 On the product side, we launched our Biosystem 3000C Dune Gray Edition, launched under the Re-Created Classics program. Finally, we announced our new brand ambassador in July. John Legend, the American multi-platinum musician, producer and Emmy, Grammy, Oscar and Tony-winning artist was appointed Global Brand Ambassador. We are very excited about this partnership and looking forward to the collaboration in the coming years. With that, I will hand over to Nicolai. Thank you, Gianfilippo. I will now go into more detail on our Q1 numbers. So let's move to slide number seven.

5:05 Starting with sell-out. Like for like, sell-out grew by 7%. and our branded channels grew by 14% with double digital growth across all three channels. The multi-brand channels reported decline year on year. We are pleased to see the progress in our branded channels. The decline in e-tail was mainly due to a generally changed purchasing pattern at Amazon Prime Day. In addition, we have deliberately reduced our promotional activity on the platform Lowering both the level of discount and the number of products included. We did this to support our brand positioning. Looking at the regions. In EMEA, the like-for-like sell-out grew by 6%, supported by our branded channels, in particular company-owned stores and monobrand, multibrand and e-tail both declined by double digits.

6:00 In the Americas, like-for-like sellout declined by 2%. The branded channels grew by a double digit, while e-tail declined by a double digit, which more than offset the growth from company-owned stores and e-commerce in particular. In APAC, like-for-like sellout grew by 14%. Branded channels grew by a double digit, supported by growth across the channels. MutuGrant delivered high double-digit growth, while e-tail saw a single-digit decrease. Finally, our win cities delivered 19% collective seller growth with growth in all five cities in the index. That is the ninth consecutive quarter of double-digit growth. Please move to the next page.

6:47 Turning to group performance. Revenue grew by 2.2% in local currencies and by 2.5% in reported revenue to 530 million. The growth was driven by APAC, which grew by 11.5% in local currencies across all channels, while EMEA and the Americas both declined. Within branded channels, revenue grew by 9.9% in local currencies and 10.5% in reported revenue. Company-owned stores and our own e-commerce both delivered double-digit growth, and the monobrand channel reported single-digit growth. Revenue from ETA declined by a double-digit for the reasons I described a moment ago.

7:32 In terms of product categories, revenue from the stage category grew by 9% and revenue from flexible living grew by 16%. Revenue from the undergo category declined by 19%, reflecting lower sales in the ETL channel. Gross margin continued its positive trajectory, improving to a record high 59.4%, up 0.7 percentage points year-on-year. The development was driven by a shift in product mix towards higher margin products, further margin expansion in the undergo category, and a higher share of licensed income in band partnering and other activities where the gross margin was 95.4%. EBIT margin before special items was negative 4.3% compared to negative 5.2% in Q1 last year.

8:24 The improvement was driven by the higher revenue level and the improved gross margin, which was partly offset by run-off and timing of cost. Special items were immaterial in the quarter at positive 1 million. Looking at the regions, EMEA reported revenue of 226 million, a decline of 3.6% in local currencies. Revenue from branded channels grew by 1.2% in local currencies, driven by company-owned stores and monobrand. The gap between sell-out and sell-in was mainly due to reduced inventory levels with our partners and the changes we are doing to our retail network. The gross margin in EMEA was 50.6%, down 3.4% from 53.9% last year.

9:17 The underlying margin development was positive. This was more than offset by a higher level of indirect production costs absorbed over a lower revenue base for the region. In the Americas, revenue was 62 million, a deep sign of 1.4% in local currencies. Revenue from branded channels grew by 49.5% in local currencies, driven by double-digit growth across the channels. This was offset by high double-digit declines in the enterprise channel and in retail. The gross margin in the Americas was 51.7%, up 12.4 percentage points from 39.3% last year. This reflects the non-recurring of the U.S.

10:02 tariff costs that affected the margin in Q1 last year, which drove a significantly stronger margin in the on-the-go category, together with a shift in product mix toward higher margin products. In APAC, revenue was $177 million, an increase of 11.5% in local currencies, with branded channels up 16.3% in local currencies. Revenue from China increased by 10.3% year on year, equivalent to a growth of 2.9% in local currencies. Revenue from South Korea increased by a single digit, and revenue from Hong Kong by double digits. The gross margin in APAC was 60.2%, up 0.4% from 59.8% last year, with gross margin improvements across all product categories.

10:53 Finally, forebend partnering and other activities revenue was 65 million, an increase of 4.1% in local currencies driven by licensed income from the TCL partnership. The gross margin was 95.4% compared to 93.2% in Q1 last year on a relatively higher share of licensed income. The partnership with TCL is ramping up as planned and in September We announced a new vertical bringing audio by Bang & Olufsen to selected Motorola flagship mobile devices. Please move to the next slide. On cash flow and working capital. Free cash flow for the quarter was positive at 6 million compared to negative 135 million in Q1 last year.

11:41 That is an improvement of 141 million reflecting a higher EBITDA, lower CABEX and a release of net working capital during the quarter. It is also the third consecutive quarter with a positive free cash flow. Net working capital decreased to 313 million from 349 million at year end. Inventories ended the quarter at 438 million up 20 million mainly related to memory chips. CABEX investments were 54 million compared to 58 million in Q1 last year. Cash were 123 million, while net available liquidity was 80 million compared to 94 million at year end. The development since year end was driven by financial activities.

12:29 Capital resources were 330 million compared to 344 million at year end. Year end 25-26 has been adjusted for more accurate reflection of the capital resources available to the company. Please move to the next page. Turning to the outlook for the financial year, we maintained our guidance for 26-27. Revenue growth in local currencies is expected to be in the range of 1-5%. EBIT margin before special items is expected to range from 1-3%. Free cash flow is expected to be in the range of 25 million to 100 million. Capital expenditure is expected to be around 270 to 310 million, with the year-on-year increase driven by retail investments and product development.

13:23 Capacity costs excluding special items are expected to be broadly flat compared to 2025-26. Q1 is seasonally our smallest quarter. And as for 7 July, we assume three or more product launches during the year, with the remaining launches no earlier than the fourth quarter. As such, the year is skewed more towards the end of the year than usually. On memory chips, The supply constraints we described in July persists, and the cost impact remains partly mitigated by the price adjustments implemented on July 1st, with an expected net impact on the gross margin of around 0.5% and a cash impact of around 45 million, both included in the outlook.

14:14 And with that, we will open up for questions. Thank you. We now start the question and answer session. If you do wish to ask a question, you will need to press 5 star on your telephone keypad. To withdraw a question, press 5 star again. There will be a brief pause for questions to be registered. Our first question comes from the line of Paul Jessen from Danske Bank. Please go ahead, your line will be unmuted. Yes, thank you, and welcome to you, Gianfilippo. First question is for you. I know you've been there for, what is it, one and a half months, a little bit, about that. But could you give some, put some words on what you've seen, what you think should be focused on yourself, that execution have to have more attention.

15:16 So, just a little favor on what you've learned so far. Thank you for your warm welcome. I see full potential to be unlocked in Olufsen and this goes with what we shared already in the presentation. As you see the focus on the right channels where the client can really have the right experience and meet in a way the brand in the right way is paying off. So, when I mentioned in my statement that we need to better execute and there is more potential to be unlocked, is actually referring on giving the client the right environment to meet the brand in a consistent, in a coherent way.

16:07 And this goes with everything we are working on as we speak. And then, of course, I'm learning a lot in this month and a half. I've been speaking to my colleagues, partners, clients and, you know, that's where I'm in this moment. Thanks for your question. Okay, thank you. Then we must take more later on. Question on the US where you say that you grow 50% in the monobrand channel and then you still only grow 1%. for the region and the quarter. Nicolai, could you put some flavor on what's the difference? I know about the ECOM, but what's the difference in this huge difference in performance apart from the ECOM?

17:00 Yeah, so when you look at things, Paul, first of all, when you look at the revenue performance in the Americas, we've had solid growth in our cocoa stores. We've had solid growth in the monobrand channel, also partly because we have opened up stores that were not in the comparison figures. So that's, of course, also driving revenue up from those stores. And then what goes in the other direction is ETail, as we just talked about. ETail is basically an Amazon Prime Day that goes actually for both Europe and the U.S., but as ETail has traditionally been a bigger share of the revenue in the U.S., when we've seen an Prime Day that has been very low, lower than expected actually, Then it has quite a negative impact on the overall growth numbers in Americas.

18:04 And then on enterprise, last year we had some significant enterprise deals, especially with Genesis, that we have not been repeating this year. So these two factors together is offsetting the growth in the branded channels. So on the reported numbers it's partly or it's both supported by LA and San Francisco. They of course supported us development in the monoband channel which is also the new stores in California. But when you say that the owner and operator is leaving, does that mean if we just ignore California, then it's the New York business that is the clear outperformer here?

18:58 So when we say owner and operator, then it's only New York, of course, because this is the only place in the US where we have our own stores. But here we're also seeing high double-digit growth. Yeah. So they are the ones outperforming versus the other near to 20 stores. They are outperforming the other stores also in sell-out, yeah. They are. Okay. Then on memory, you have set aside 40 million on the cash. I was just wondering how much have you already managed on the shelves on memory versus what you have there as an ambition. We have, as I said, our inventory is increasing 20 million, so this is what we have on the shelves so to speak.

19:51 It has not had a big P&L impact yet, because the memory chips have not hit the COX at this point in time, but will come later. From a cash perspective it will be less than a quarter of the full year cash impact that we have seen in Q1. So I would say between 5 and 10 million DKK in cash impact. So out of the 40 million you have to... The main of that is about one quarter of that. There is a time lag between when you receive the product and put it on inventory and when you pay your supplier. That's why there is an imbalance where cash impact comes later than inventory impact.

20:50 So the 20 million delta was mainly on Related to the memory. Yeah, mainly related to the memory, yeah. Another question on the Motorola, could you put a little more color on that? They are selling, I checked, they have about 5% of the global market, mainly in the U.S. How much or how much a share of the Motorola product line-up, are you going to come and address for your partnership with them? It's a smaller share of the full line-up because it's only in the high-end form that we are in.

21:44 We are expecting some positive impact from this partnership this year, not a lot, and then we expect it to ramp next year. We don't necessarily expect it to ramp to the same level as we would have seen from a TCL agreement because it is in the high end of the really, really top-end models that we are in. So this is probably what we can say at this point in time. But when it will be sometime in the future at peak volumes, is it then a material number into your account? I'm just comparing to Ford or what HP were in the past.

22:29 If Ford and HP in the past is what we call material, then it will not be material. But I think from the overall license income projections that we have, then it's still a decent contribution. Okay, I'll step back for now. Thank you. Thank you, Paul. Next up is Neufled from Carnegie. Please. Good morning, and thank you for taking my questions, and welcome on board to Gianfilippo.

23:16 So, my first question would be on your gross margin for the APAC region. Could you talk about the Material jump that you presented for the gross market in the APAC, what's behind that? Secondly, could you talk about if ETL will remain a headwind to your growth here in the next three quarters of this fiscal year? And then finally, could you elaborate a little bit more on your store pipeline in terms of store openings? Thank you. Thank you for your welcome as well. I will take the last two questions and I will start with those. Concerning detail and actually the two questions, the second and the third question for me are in a way can be combined into what we do for distribution.

24:09 I think the job we, the team, we started to do already that we need to push forward is to re-qualify our distribution. When I say re-qualify, means making sure that the brand positioning match the quality of the traffic in our distribution. So obviously eTailor is a channel that is more promotional driven and as we are working to reduce the promotion led business which is as you see paying off in having a better margin more qualified let's say top line revenue in our branded channel obviously the detail is not going to be the channel where the growth is going to come from When we go to the distribution itself, the number of stores, we are not planning as it stands to do more business opening more stores, but focusing more in the like for like, bringing again better execution in the distribution that is already in place.

25:18 These are my answers to the two questions. Then I let Nikolai reply to the first one. Yeah, on gross market in the APEC region, which is growing, it's down to basically mix of channels and mix of products, so the growth in the region is driven by The branded channels is driven by our Kogo stores in Hong Kong of course, but also the Monobrand channel in the rest of the region. And then we've also done this discounting on e-tail in APAC as well, especially for the June 18 event. So that's the underlying reasons for the improvement in APAC.

26:13 Great, thank you. And finally, can you just talk about the growth that you recorded in China? To what extent is that driven by your internalization of distribution in China, and when will that year-on-year phase out? That effect is phased out now, so the growth in China is not attributed to the takeover of Tmall, the growth in China is attributed to development in Monobrand and MultiBrand for that matter. Okay, great, thank you. Thank you, Niels. And we do have a follow-up from the line of Paul.

27:00 Your line will be unmuted. Yes, thank you. That's for you. It's on the comment that we made that you have made an adjustment for the capital resources by end of last year. Can you give a few words on what actually you have changed here? Yes. We have just made a true reflection of what is the underlying capital resources for the company. It consists of our cash position. plus our net bond position that we are having, plus our available recurring credit facility that has not been drawn.

27:52 And these three figures together amount to 330 million, which is the right way of looking at the capital resources for the company. and what have you eliminated? We had in the annual report adjusted the available RCF basically in the wrong way so we adjusted it more than what was correct given that the draw that we had on the RCF was changing over the quarter in Q4 and that we didn't reflect in the right way. Okay, thank you. That's all for me.

28:45 Thank you, Paul. And it was five stars to ask a question. There will be a brief pause for questions being registered. As no one else was lined up for questions, I'll now hand it back to the speakers for any closing remarks. Thank you for your interest in Megan Olufsen and for joining today's webcast. I look forward to engaging with you in the coming weeks and months. If you have any follow-up questions, please do not hesitate to reach out to our investor relations team. Thank you and have a good day.