Bang & Olufsen (Copenhagen:BO) Q4 2026 Earnings Call

0:00 Welcome to this Arnhem Olufsen annual report twenty twenty five-twenty six. 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. I would now like to introduce Interim CEO and CFO, Nicolas Levenebo. Nikolai, you may now begin.

0:32 Hello everyone and thank you for joining today's webcast. I will start by taking you through the highlights of the past year and provide an overview of the developments across the business. I will then walk through the financial performance with focus on the fourth quarter as well as our outlook for the coming year before we open the line up for questions. Please move to Slide three. Let us begin by looking at our full year performance and how the financial year progressed. In twenty twenty five-twenty twenty six we continued to drive transformation improving our retail network and operating model while adapting to a challenging macroeconomic environment. The financial year twenty five-twenty six marked our centenary, a proud milestone celebrating our legacy and century long commitment to sound, design and craftsmanship while shaping the future as a global leader in luxury audio.

1:27 We delivered another record high gross margin and the highest gross profit in eight years and we advanced in key strategic initiatives. During the first half of the year, we launched three product innovations. The earpieces, Bill Grace showcased Bang and Olufsen at its best and a strong commercial performance that validated market demand. In parallel, the introduction of the readout program reinforced our dealership and circular design and sold out monthly drops confirmed strong client interest. In contrast, the launch of the BioSound Bar BioSound Premier was challenged and highlighted improvements were needed in the commercial operating model. We ended the year with a clear ambition to continue investing in the development of the business.

2:15 As the year progressed external market conditions became more challenging than expected and that in combination with sales of BioSound Premier being significantly lower than anticipated, we adjusted our full year outlook in March 26. At the same time, we withdrew our midterm ambitions through 2028. All in all, revenue for the year was 2,500,000,000 corresponding to a decline of 1.6% in local currencies in line with the adjusted outlook. EBIT margin before special items was negative 0.5% and free cash flow was negative $141,000,000 The development in EBIT margin before special items was impacted by the planned strategic investments in retail optimization, development of the product portfolio and marketing investments.

3:03 In Q2, we had extraordinary marketing cost of around $38,000,000 for activation across the globe celebrating our centennial. During the second half of the financial year, we adjusted elements of our strategic execution and implemented efficiency and cost measures. This also included an adjustment of the cost base and I will come back to these topics later in the presentation. Finally, and as stated in our annual report, the board expects to announce a permanent CEO during Q1 twenty six-twenty seven and today we will have no further comments regarding this topic. Please move to the next slide. During the year we launched three product innovations. In November 25 we launched the Peelgrace earpieces.

3:51 Peelgrace marks a new expression of Bang and Olufsen in ear design crafted from hand polished aluminum and built in our proprietary Amadeus software platform. The product was well received and sales performance has been strong driving double digit growth in the earphone revenue. In December 25 we launched Vuosan Palmier adding a soundbar to the portfolio designed for TVs from 42 inches and above and centered on spatial audio and system connectivity. The sales performance of BioSound Palmier was lower than anticipated and the product was relaunched in March 26 with two additional colorways with improved in store display and at revised lower price point. Sales performance improved during Q4 although still at a lower than expected level.

4:38 In October 25, we launched a real out program offering expected, refurbished and certified pre owned products with a Bang and Olufsen warranty through our own e commerce channel. The launch was successful Across eight monthly drops from October to May, all products sold out before the next drop and some were sold out within twenty four hours. In addition to our new product innovations, we also presented our outdoor product in development, the speaker Bill Sound Haven expected to launch in 2017. This offering underpins our vision to provide fully integrated solutions for our clients' homes bringing the Bang and Olufsen experience from indoors to outdoors. Please move to the next page.

5:24 In addition to our product innovations, we also engaged in several product collaborations which in addition to being revenue drivers also cements our brand presence in different parts of the world. This year we engaged with three partners and launched limited editions of selected products. The partners were Tokyo based design studio Fragment Design, the Korean based global artist G Dragon and the British based design house Bollibarc. Throughout the year we cemented our global brand presence through a curated program of marketing activations, collaborations, partnerships, cultural initiatives and centenary celebrations reinforcing our brands positions at the intersection of craftsmanship, innovation and culture. The program was activated globally spanning window takes over in Harrods in London, digital out of home activations in Times Square, New York and our centennial exhibition one hundred Years and Counting which premiered in Shanghai and attracted more than 10,000 visitors alongside activities in Copenhagen, Tokyo, Hong Kong, London and many other cities worldwide.

6:34 A reinterpretation of one of our most iconic speakers from 2015, the Bill of 90 was introduced in five et alge anniversary editions. All featured distinctive materials and color expressions by preserving our signature acoustic excellence. The collection was unveiled through activations across global cities including London and San Francisco creating immersive experiences to combine sound design and storytelling to elevate client engagement and emotional connections with our brand. Please move to the next slide. Our WinCity concept was implemented in Tokyo, San Francisco and Los Angeles increasing the total number of active WinCities to seven by year end. The WinCities delivered double digit seller growth of 18% while further elevating the brand experience.

7:24 We are pleased to report double digit WinCity seller growth for eight consecutive quarters. Our latest brand equities results also support this. The direction was further supported by flagship openings in Paris, San Francisco and Los Angeles. We continue our ambitions retail plan in the coming year. In addition to these openings, we expanded our presence with the opening of a new store in Hamburg and by upgrading the first two stores in Asia to a culture store concept. Across our network we are strengthening our position in high potential locations by relocating selected stores and opening new sites in key cities and districts while closing underperforming locations that are not aligned with our brand ambition. In parallel, we are enhancing our distribution model through closer collaboration with like minded mono brand partners combining the strengths of company owned stores with a strong partner network.

8:19 We're improving store productivity by driving consistency in retail execution. This includes optimized visual merchandising and store design, focused sales training and a more structured approach to clienteling. As a result, we aim to deliver increasingly personalized client experiences and drive engagement across our global network through a clearly defined and seamless client journey. To support the client journey throughout the store network we're implementing a new retail IT platform to replace current systems. In twenty six-twenty seven the platform will be rolled out across all company owned stores and the first two stores have been piloted during the last month. In summary, during the year we made more than 65 retail footprint adjustments and our ambitions for the coming year are as ambitious.

9:10 Now please turn to the next slide. To secure continued investment in the development of the business for future profitable growth we have in the second half of the financial year adjusted elements of our strategic execution and implemented efficiency and cost measures. In addition to the retail focus I have just outlined on the previous page, the adjustments initiated covers both go to market and product development. We are evolving our commercial operating model and has significantly improved the coordination of marketing planning and investments, retail execution and product launches during the second half of this financial year. We expect this to enhance our go to market execution across both existing products and new launches. Entering 2627 our operating model is better equipped to support our targeted marketing position.

10:01 At the same time, we are reallocating our cultural partnerships towards music in line with our ambition to deliver beautiful sound and elevating our heritage and brand distinctiveness. I'm pleased that we have recently signed an agreement with a global brand ambassador which we will announce shortly. We have revised our product development model and had amongst others rebalanced the use of external suppliers while sharpening our focus on core strengths and improving speed and cost efficiency. This will enable us to better serve aspirational clients in future offerings without compromising our strong gross margin. The changes made ensure we're able to prioritize continued investments and transformation and we trust the new ways of working will be effectively led by our newly appointed Chief Product Officer, Jani Jagoffsen and Chief Marketing Officer, Peter In the last part of the year changes have been made to simplify the organization and focus efforts on strategically important areas.

11:02 Efficiency measures have reduced our underlying cost base and includes amongst many initiatives a rightsizing of the organization. This has resulted in a workforce reduction across the organization of around 60 people corresponding to around 5% of the total number of employees. Saying goodbye to dedicated and talented people is certainly not easy and we do so with gratitude for the valuable contributions. All in all, with the changes introduced during the last six months, we have cleaned up, we have regrouped and we have put the company in a better position to drive long term profitable growth. I will now go further into the details on our Q4 numbers if you move to the following slide. Starting with sell out, we delivered positive like for like growth of 11% at group level.

11:54 This led to a full year like for like sell out growth of 4%. For the quarter positive seller growth was reported across regions and 13% growth was reported for our branded channels. For both EMEA and Americas like for like seller grew by 4%. Branded channels reported growth in both regions driven by company owned stores. Sellout reported from the e tail channel declined in both regions. It is encouraging to see positive like for like sellout while revenue growth in these two regions was negative. In general the difference between sell out and sell in was caused by inventory depletion among our partners. For APAC sell out grew by 28% and like for like sellout for China grew by 14%.

12:41 The strong growth in the region was in general reflecting growth across all channels and supported by double digit growth in branded channels. In addition, double digit sellout growth was reported for e tail and multi brand in China as our own operations delivered improved commercial impact on JD and Tmall. As highlighted earlier, our active win cities consisting of New York, London, Paris, Hong Kong and now Tokyo continue to perform strongly delivering double digit sellout growth for the eighth executive quarter. Please move to the next page. Turning to group performance, revenue decreased by 3.1% in local currencies while reported revenue declined by 3.8%.

13:27 While the sales performance of BioSound Premier improved after the relaunch and price adjustment, its performance continued at lower than expected level and was the primary reason for the decline. In terms of channel performance, the decline was driven by the mono brand channel in EMEA. Within branded channels, revenue declined by 3.7% in local currencies. While our company owned stores delivered double digit growth, it was more than offset by the performance in the mono brand channel. E commerce was largely on par with last year. Gross margin continued its positive trajectory improving to 58.7% in Q4, up 2.9 percentage points year on year. A refund of paid U. S. Tariffs had a positive impact of $20,000,000 Overall gross margins improved across regions.

14:17 EBIT margin before special items was 5.7% reflecting the high quality of revenue and a positive impact of the mentioned $20,000,000 from tariff refunds. Special items related to EBIT amounted to negative $30,000,000 mainly comprising the reorganization announced during the quarter. Please turn to the next page. Product revenue declined by 2.7% in local currencies. In EMEA and Americas revenue declined by 11.95% in local currencies respectively. In APAC, revenue increased by 15.5% in local currencies driven by strong momentum in China especially for e tail and continued growth across branded channels in the entire region. Gross margin improved across regions.

15:04 In The Americas, gross margin was 78.5% in the quarter. This reflected tariff refund of $20,000,000 related to The U. S. Tariffs. When excluding the refund the gross margin was 50.1% which was an increase of 1.4 percentage points compared to last year. In APAC we continue to see a positive effect on the gross margin from the direct operation of the Tmall flagship store which had a positive impact of around one percentage point on the gross margin for the APAC region. Finally, revenue from brand partnering and other activities declined year on year. HP license income was discontinued as expected and TCL will decline year on year due to quarterly fluctuations.

15:49 The TCL partnership is ramping up as planned on a full year basis. Please move to the next slide. Turning to cash flow and working capital. Free cash flow for the quarter was positive of $5,000,000 reflecting improved operating performance and a lower level of operational investments partly offset by working capital developments. Net working capital increased by $78,000,000 to $349,000,000 driven by lower payables and higher receivables with the receivables increase related to The U. S. Tariff fund and higher sales in Q3 than in Q3. Inventories ended the quarter at $418,000,000 down by $33,000,000 compared to the end of Q3. That decrease reflects our continued focus on inventory management and is partly offsetting the effect of payables and receivables and net working capital.

16:45 Capital resources amounted to $294,000,000 at the end of the quarter compared to $262,000,000 at the end of After $294,000,000 capital resources, the available liquidity was $94,000,000 which is $18,000,000 lower than the end of last quarter. While available liquidity decreased the undrawn portion of our committed credit facility rose by $50,000,000 during the quarter which led to an increase of $32,000,000 in capital resources. Now please move to the next page. Before presenting outlook for twenty six-twenty seven I would like to give a better detail on how we currently see the memory chip situation impacting our business. Memory chips or more specific DDR4 ramps are currently facing critical supply constraints driven by sustained demand growth from AI and data center applications.

17:36 At the same time three of our four suppliers have scaled back a cease DVR4 production to prioritize higher margin DVR5 capacity. This dynamic is tightening overall memory supply and materially constrained global production capacity. We are in the process of securing supply to cover production and maintain operations for products where DDR4 RAM are required and we have initiated the development of an upgraded MOSFET hardware platform. The impact on cost is partly mitigated by price adjustments July 1, reducing the net impact on the gross margin to approximately 0.5% at this point. An expected cash impact of around 35,000,000 to $45,000,000 is included in the outlook for next year.

18:24 And let's move to the next page. Turning to the outlook for the full financial year. While uncertainty persists in the external environment, our differentiated strategy and ongoing transformation position as well for the future. Our focus remain on executing our strategy through improving our go to market operating model, implementing our new product development methods, reshaping our retail execution footprint and continue to focus on prudency on cost, CapEx and cash management. Revenue growth is expected to be in the range of 1% to 5%. EBIT margin before special items is expected to range from 1% to 3% and the free cash flow is expected to be in the range of $25,000,000 to 100,000,000 Our recent prioritizations and efficiency measures have allowed us to fund continued investments in the business while managing the overall cost base. In twenty six-twenty seven that investment goes into a retail network both new openings and the upgrades of existing stores, the rollout of our new IT platform for retail and our product pipeline.

19:34 As a result, we expect capital expenditure to increase to around $270,000,000 to $310,000,000 while capacity costs are expected to remain broadly flat compared to twenty five-twenty six. On retail specifically, we expect a positive contribution next year from openings and upgrades. The plan we laid out in 'twenty four, 'twenty five is unchanged and remains the right one though some openings have taken longer to execute than originally planned. That phasing is reflected in our expectations. At the same time, we continue to be affected by market uncertainty. On tariffs and the outlook for The U. S. Market in particular we are currently seeing some hesitance and caution among our mono brand partners. The broader geopolitical backdrop including the wars in Ukraine and in The Middle East adds that uncertainty.

20:24 On a related note, The U. S. Tariff refund has not yet been received so there's a cash timing effect still to come. Finally on products, within our outlook we assume the launch of three or more products during the financial year. The first, the recreated Classic was launched in June and we expect the remaining product launches no earlier than the fourth quarter impacting seasonality over the year. And with that, I will open up for questions. Thank To withdraw your question, you may do so by pressing 5 again.

21:09 We will have a brief pause while questions are being registered. As a reminder, please press 5 to ask a question.

21:55 We will have a brief pause while questions are being registered. The first question comes from the line I'm sorry, comes from the line of of Paul Paul Jensen Jensen from Danske Bank. Please go ahead. Your line will now be unmuted. Thank you for taking my question. Thank you for taking my questions. I have a few one. If you come back to the

22:33 organizational changes you made in May, can you put a little more color on what you changed and in what kind of functions that you have taken out the 60 positions?

22:48 Yes. Most certainly. If I should take that question immediately. So it's fairly broad based so we've been looking

23:09 at our strategy and prioritizing to continue to invest and have the right level of capacity in the areas of retail execution, our cocoa stores that we're opening more, we'll see more headcounts coming in. So, we have reduced across the board in sort of the more backend related functions. We have reduced also as part of our so that's in administration of course. We have reduced across some of our product development function as part of our new way of working with developing products where we will use our or have decided to use external suppliers in a different way.

23:57 So we're also reducing the number of headcounts in parts of our product development organization.

24:04 And then we are as part of reviewing our go to market operating model we have adjusted specifically on the marketing side on a number of positions globally. So

24:20 it's quite broad based across the company. A question on product development. You're changing the way you're using external partners. Does does it mean that you are doing more external partnerships now than doing in house development? Why? It means that we are adjusting on specific product offerings especially within the Bluetooth category. We are adjusting the split of work between our in house development functions and the development functions of the partners. And we're doing that

25:08 because we want to achieve a faster development cycle in Bluetooth products and we want to achieve lower cost of developing

25:19 and our analysis have shown us that if we adjust the split of work between us and our suppliers, we will be able to achieve this. Has this temporary meant that you had longer development processes? I'm just thinking about the Haven. I think earlier it was indicated that it would come to the market this year, and I would say '27. So I think Haven is is not a due to No. So Haven is not a is is really not a very good example of that because it's a different type of product. But if we look at the Bluetooth category which includes headphones, earphones and Bluetooth speakers, here we have

26:12 seen quite long development cycles in our in house development model and this is what we want to shorten in the future.

26:23 If we then come to the European market, has the is the business as usual what we have seen the last twelve months, or has there been any changes during the last quarter? And also, I can see now you have reduced number of European brand restore from two eighty to two twenty over two years. Where do you see it flattening out before you'll have a net increase or a stable situation? No. I expect for the coming years that we will still see a small decrease in the European store network. Net net, we will not reduce with as many stores as we have done this year but there will still be a little bit of a reduction.

27:12 But at the same time we are also

27:15 opening next year flagship stores in really, really key locations across the world the world, but especially also in Europe. So so we will have a much stronger network during when we are looking one year ahead than we have today.

27:38 And the market sentiment?

27:40 Sentiment in Europe is is has been challenging for the for the for the most of of of this financial year. It's still very centered around the sort of Northern Central European countries, the DACH region and Germany specifically have been challenging.

28:03 The Nordics has not been easy. As I said before UK outside London has also not been easy where we see better traction in Southern Europe. So that has not changed materially in in the fourth quarter.

28:22 Okay. So it's business as usual for the last twelve months? Broadly, it's business as usual.

28:31 Okay. Then about the new IT platform that you're gonna roll out in stores, you say 27, that's couple stores, then you still have more than 300 where it's not to be ruled out. When will it be I guess it's not voluntary, so when will it be across all stores?

28:52 And secondly, what is it gonna give you all new opportunities? So first of all on the timing, we will probably roll it out to the most important markets first. So, we are taking probably a staggered approach to rolling out. So, we focus on the high potential markets and key partners in rolling it out.

29:27 We are doing COCO as I said this year in 2026, 2027 and then we will after that and after having taken our own medicine and make sure that the platform works exactly as it should we will roll out to the monobrand partners afterwards. What it will give us is one point of sale system across the stores. It will give us one unified CRM system across the stores. It will enhance operations in the stores so the store staff will use much less time on admin work and can spend more time on client facing work. It will enable

30:11 proper CRM and clienteling activities in stores as we will have a much more unified view on all our clients. And it will also enable

30:23 when we have it rolled out to the mobile brand partners seamless reporting of the important key metrics that we need to have in order to run a retail and luxury business. For instance sell out inventory data,

30:40 traffic data, CRM data, client data. So it will create a basis for really professionalizing the retail operations of our business. Final question from my side on the guidance. You narrow the you say there is still a high uncertainty, but you narrowed the revenue growth range to a spread of four points from earlier six to 10 points in previous years. How should we look at this? You're more certain or you just take the conservative view and give the range then, potentially,

31:20 it could be better? Or how should we look at you saying that you have continued high uncertainty but you narrow the range? Yeah. I mean, we felt it was the right thing to to to be more precise in our information to the market with the wide range that we had in the past. We also received some feedback

31:45 on having a very wide range. So we have been diligent in doing our estimations for the coming year and would like to be as precise as possible for letting our investors and shareholders know what we're expecting for the next year. And in the recent years, we've seen that your partners have reduced inventories. What kind of assumption do you put in on the difference between sell in and sell out in in that outlook? Is it stable inventory in the channel or is it still on lower inventory? Yeah. Our assumptions sort of in the outlook is focusing on the sellout performance and with a stable inventory. That's our key

32:39 assumption in in making that assessment. And then a final one just for clarification. You say that the RAM impact would be half a percent points on your gross margin. That's about 12,000,000. But you have a cash flow impact of $4.35 to 45,000,000 so what's the difference here? The difference is that what we are working on right now is to secure enough supply for the next two years at one go. So it's kind of buying an insurance on the supply of RAM so we have ample time to develop a new hardware platform that is not constrained by DDR4 RAMs.

33:27 So that's why the cash flow impact is bigger than the margin impact. Another element to the margin impact is that we also increased our prices here July 1, which covers around half of the sort of gross impact on the elevated cost for this year in the COGS. Okay. Thank you. You're welcome. The next question comes from the line of Nils Led from D and T Carnegie. Nils, please go ahead. Your line will now be unmuted.

34:36 And and also hello, can you hear me? Yes, now we hear you. We hear you. Okay. Go ahead. Thank you. So my first question is on the effect of store closures in fiscal twenty twenty seven. Can you talk about what is the expected effect of store closures in the coming year? You recorded a negative effect of minus 1.5 percentage point in fiscal twenty twenty six. Also, would you have any material receivables buildup in your balance sheet related to the stores that you have closed? I have a few more questions, but Patrick, we can start here. Yeah. So we we expect the effect from store closures next year to be smaller than the impact that we've seen this year because we are closing few stores.

35:34 So less than the 1.5% which is an all else equal calculation assuming that the revenue is not picked up elsewhere. So it will be smaller next year. That's our assumptions. We do not have any material provisions for store closures on the balance sheet. We have a pretty good model of how we handle these closures without incurring any kind of losses on bad debtors. Okay. And then secondly, can you talk about your assumptions behind tariff payments for fiscal twenty twenty seven? Have you included any reoccurrence of tariffs to The U. S. In your guidance for 2027?

36:25 And would you still have tariff refunds that you will book in fiscal twenty twenty seven as you did here in quarter four? So our assumption is that we the tariff refund is booked in quarter four and we'll have a cash effect next year. We have not included an expectation to get additional tariff refunds. It's not impossible that there will be more to come but the process on next tariff refunds is much more complicated because it's around some rules they have in The US around the timing of when you incurred the tariffs and the longer it dates back the more complicated it is to get the returns.

37:19 Our expectation of tariffs for next year is more or less falling back to the expectations or to the tariff situation before Liberation Day in April. So these IEEPA tariffs avoid but it is still a minor tariff on certain products from China in the area as and I'll just double check. But as I recall it's around 7.5% that we're paying on certain tariffs products. We did that. We've done that basically since the current president's first presidential term because those tariffs were never removed under Biden. So it's in a way, it's back to business as usual.

38:10 And then finally, could you just talk about the phasing of growth and profitability in the year to come? Do you expect normal seasonality or some kind of back end loading? How does that look like? We expect back end loading maybe to a higher degree than normal. And the reason for that, as I said, the product launches that we still have to come are planned for the fourth quarter, so late in the year. And that will, of course, have an impact on on seasonality. And how about the the cost reductions that you have implemented in quarter four?

38:58 Is that gonna feed into fiscal twenty seven? Yeah. So they are they are feeding in from from well, more or from from the beginning. We we will see probably the biggest impact on the distribution cost line as a lot of the cost reduction lies within within sales and marketing as we've taken a number of initiatives that is beyond the headcount reduction within this area to really optimize our spending in sales and marketing in relation to a new go to market operating model.

39:51 Great. Thank you. As no one else has lined up for questions in this call, I will now hand it back to Nicolas for closing remarks. Well, thank you all for your interest in Bang and 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 and have a good day.