Bang & Olufsen A/S (BO) Earnings Call Transcript & Summary

Welcome to the Bang & Olufsen Q4 Annual Report 2020/'21. [Operator Instructions] Today, I am pleased to present Kristian Teär. Please begin your meeting.

Hello, everyone, and thank you for joining the call. It's great to have you with us today. After the travel restrictions have been lifted, we're finally sitting together again in our offices in Denmark. We have all been getting used to working remotely, but it's great to be back in office again. I will begin by going through the financial highlights and results of our strategy execution in 2021. Then our CFO, Nikolaj, will take you through the financials for Q4 and the year in more detail. After that, I will give you an update on the next phase of our strategy and go through the outlook before opening up for questions. Our Head of Marketing and Digital and Customer Experiences, Christian Birk, is also with us today and will take part in the Q&A session later on. So if we move on to Slide 4. We had a strong finish to the year. As you know, we released our estimated numbers on June 1, and our performance was within these estimates. We grew by 31% to DKK 2.6 billion. EBIT before special items was positive at DKK 38 million. And we delivered a positive free cash flow of DKK 119 million. Looking at our results, it's worth reminding ourselves that we started the year expecting DKK 2.2 billion in revenue, a negative EBIT before special items of around DKK 100 million and a negative free cash flow of around DKK 200 million. It's evident that our strategy is working despite all the headwind from the pandemic. We have completed the first phase of our turnaround by becoming profitable again. We have seen solid performance across the regions, channels and product categories. Within product categories, we have seen growth from both existing products and high demand for our new products. As in the past 2 quarters, the global component scarcity resulted in supply constraints. The components scarcity impacted margins negatively as prices increased and the subsequent supply constraints meant that we had to fly more of our products instead of using train or sea freight. I would like to use this opportunity to extend my thanks and gratitude to all our colleagues and partners around the world. They have shown their incredible expertise, resilience and passion throughout this extraordinary year with store closures, working remotely, challenges with supply and logistics while working to turn around the company. We're now ready for Phase 2 of our strategy where we will be focusing on building robustness, and I will go through what that second phase entails more in detail shortly. For '21 and '22, we expect to deliver another year with double-digit growth, building on the momentum from last year. At the same time, we expect to improve our EBIT margin before special items and deliver another year with positive free cash flow. So if you please turn to the next page. Our financial performance was driven by solid strategy execution despite the headwind from the pandemic. We saw solid growth in our 6 core European markets and 2 core Asian markets, which grew by 26% and 50%, respectively. These 8 markets account for 2/3 of our revenue from product sales. We have strengthened our local teams in all core markets, adding new capabilities to ensure better execution and to improve our sales and marketing. Since the start of the pandemic, we have focused on our digital capabilities, scaling our direct-to-consumer e-commerce and driving demand through existing and new customer propositions. We have made strong progress, and among others, we have seen our own e-commerce channel grow by 71%. We have reignited our marketing, and we have become more data and insight-driven. This has enabled us to improve our targeting and increased brand awareness in our target audiences. We have also seen a 53% increase in the number of registered customers, which is important to create stickiness and to improve the customer experience. Strong execution on our cost-reduction program has been essential for us getting back to profitability and invest in new capabilities to support revenue growth. Despite challenges arising from the component situation, we managed to exceed our ambition, achieving a run rate cost reduction of DKK 202 million compared to our target of DKK 175 million. Another cornerstone in our strategy was to make our product portfolio fit for the future. We managed to launch 14 products, a number of collaborations and released several software upgrades to existing products. In addition, we made strong progress with building our product platforms, which has significantly strengthened our product portfolio. Finally, we wanted to scale our business with partners, and we managed to add 7 brand and technology partnerships. To support our entry into gaming, we partner with Xbox and Astralis. Later in the year, we launched our gaming headphone Beoplay Portal, which was a key part in our entry into Best Buy in the U.S. We also engaged with new distribution partners in Europe and in the U.S. Our new partners are adding scale and execution power within multi-brand and the B2B space. All in all, we are in a stronger position as we enter the second phase of our strategy. And with that, I would like to turn you over to Nikolaj, who will take you through the financial development in Q4 and for the year.

Thank you, Kristian. Please turn to Page 7. Looking at Q4 compared to last year, we grew by 109% driven by product sales, which was up by 118% and brand partnering, which grew by 27%. These exceptional growth rates are, to a large extent, the result of the severe COVID-19 impact and major lockdowns we experienced in Q4 last year. To better understand the performance in the quarter, I will also focus on the development from Q3 to Q4. Q4 was a strong finish to the year. We maintained the growth momentum from the previous quarters, which we experienced across all regions and product categories and Q4 ended as the revenue-wise biggest quarter of the year. We managed to secure product deliveries by the end of the quarter, but sales continue to be adversely impacted by supply constraints related to component scarcity. We, therefore, still have a, larger-than-normal backlog going into Q1 of the current fiscal year. We saw our core channels performing well. Growth in the multi-brand channel was driven by the changed operating model for multi-brand in the core European markets and by the partnerships with Verizon and Best Buy in the U.S. If we look at our product categories, then the biggest absolute growth was in our Staged category. The growth was driven by more supplies and also by the launch of Beolab 28. There was a solid development across the portfolio in Flexible Living, partly driven by large B2B orders in China. Finally, the On-the-go category was positively impacted by high customer demand for Beoplay E8 third-gen in China and clearing on inventory as part of our product road map for '21/'22. Across all regions, we delivered quarter-on-quarter growth. The growth in Asia was primarily driven by the B2B orders and inventory clearing. Please turn to the next page. We delivered our third consecutive quarter with positive EBIT margin despite experiencing significant headwind from higher component and logistics costs. Compared to last year, our EBIT margin before special items increased substantially in both Q4 and for the full year as last year was impacted by the severe drop in sales due to lockdowns. Compared to last year, the increase was driven by higher product sales and a 1.7 percentage point better gross margin despite increased component logistics costs impacting gross margin negatively with 5.5 percentage points in the quarter. Compared to Q3, the EBIT margin declined by 3 percentage points to 1.9%. Component and logistic costs impacted product gross margin with 3 percentage points more in Q4 than in Q3. Furthermore, the EBIT margin was adversely impacted by higher capacity costs. Looking at gross margin per product category. Please be aware that we have revised the allocation key for product-related capacity cost in Q3. Compared to what we presented in Q3, the gross margin in the Staged category has increased to 44.6%, and Q3 gross margin in the On-the-go category has decreased to 23%. The gross margin in Flexible Living is largely unchanged. All product categories were impacted by higher component and logistics costs. The Staged category was furthermore negatively impacted by higher partner bonuses, reflecting the sales performance for the year. Flexible Living was impacted by the performance in B2B orders, and On-the-go was adversely impacted by the inventory clearing. Please turn to the next page. Capacity costs grew by 8% compared to last year. And excluding special items, capacity costs grew by 11%. However, Q4 last year was positively impacted by COVID-19 packages, reducing capacity costs by DKK 18 million. If we exclude this effect, then capacity costs grew by 4% compared to last year. We completed our cost-reduction program in Q4. We realized DKK 156 million in savings this year with a full year run rate of DKK 202 million. That means that we exceeded our target by DKK 27 million. The cost savings achieved in Q4 was driven by indirect procurement, retail and marketing initiatives and some product-related costs. Hence, our general cost level has overall been reduced throughout the year. Investments into sales, marketing, product development and provisions for employee bonuses are offsetting the cost reductions. Last year, bonuses were, to a large extent, canceled due to the lack of financial performance. Going into the different cost categories. We can see that our development costs are up by 9% year-over-year. This increase was related to last year's COVID-19 packages. Adjusting for this effect, costs were stable and incurred development costs were at the same level as last year. Distribution and marketing costs were again at the same level as last year if we exclude last year's COVID-19 packages. This reflects the positive benefit of the cost-reduction program, offset by higher employee bonuses, which I mentioned before. Our administration costs declined by 14%. However, excluding special items, administrative costs increased by 10%. This increase was again driven by bonus accruals. Please turn to the next page. Free cash flow was positive by DKK 34 million, which again was better than last year. Compared to Q3, free cash flow improved by DKK 26 million driven by net working capital improvements partly offset by higher investments. EBITDA was in line with Q3 of DKK 61 million. Net working capital declined by DKK 45 million in the quarter driven by reduced inventory, increased payables due to late delivery of products and partly offset by higher receivables due to higher sales towards the end of the quarter. Our inventory is at this point lower than we would ideally have it. We hope we can increase our inventory, which will also help us with more cost-efficient logistics. Capital expenditure was DKK 8 million higher than in Q3. Investments are mainly in intangible assets relating to product development and software platforms. Our available liquidity was, at the end of May, DKK 593 million, which is DKK 378 million more than a year ago. The increase was mainly related to the rights issue, which contributed DKK 359 million and our positive free cash flow for the full year. And with that, I would like to hand the word back to Kristian.

Thank you, Nikolaj. So if you please turn to Page 12. In our strategy launch last year, we outlined 3 phases of transformation with the aim of bringing the company safely into the future. We are now back in black and ready to proceed with the second wave, which is about building robustness in our business to make Bang & Olufsen resilient and ready for scalable growth. While we continue to drive profitable growth, we want to build robustness by improving our processes, putting the right systems and tools in place and strengthen our teams. We also want to create repeatability in what we do, building on best practices across our value chain from how we bring our products to life and on to how we win new customers and how we sell a second, a third and a fourth product to our current customers. It's about maturing what we do and how we do it, and it's about making it scalable. But our robustness ambitions is not only about fixing, optimizing or maturing internal element, it's also about connecting us much better to our existing and new customers. So please turn to the next page. We want to become a customer-loved brand. We want customers to know us, to love us, to buy our products, to stay with us and to share great stories about us. We want them to be emotionally connected with us. If we want to scale in the future, we need more than swift love affairs, we need everlasting love relationships. Our love brand ambition is intended to start the dedicated customer orientation across our business, and we want all our teams to adopt a clear customer mindset. Overall, we want to create a desire for customers and fans to engage with our brand and to own our products. To do so, we will need to understand how we can reach and serve them better. We want to give them an unparalleled experience in both physical and digital environments across all customer touch points. We also want our current customers to buy more products and expand their base of B&O products. Our product platform is a key enabler to ensure that the products work seamlessly and better together. We want our customers to hear, see and feel the full benefits of having multiple Bang & Olufsen products. Lastly, we want to make our customers happy and loyal brand advocates. We would like them to become ambassadors and advocates for our brand to their friends and their families. Ultimately, we believe this will help to create a strong pull effect for our brand, which, together with internal robustness building, will position well us for the third phase of our strategy. Please turn to the next page. With business robustness and love brand ambitions in mind, we have simplified our strategy house from last year. The house is now constructed in 3 levels: a robust foundation with focus on people, processes and profitability; the second phase is on developing a model for scale; and the third phase is for continued focus on growth pillars. I will now go through the different layers in our house. So if you move to the next page. The first level of our house is aimed for securing a strong business backbone. We want to further improve our profitability through value engineering and by finding smarter ways of constructing our products, also by continuing -- we had a jump here. Sorry for that. Also by continuing our strategic pricing efforts and by assessing our gross margin structure. Also, we want to become the best place to work for our people. Our people are our single most important ingredient for success, and we will continue building a purposeful workplace where our people and talent thrive. We will also strengthen our organizational capabilities by hiring more resources further to support our transformation. Please turn to the next page. The second level of our house ensures we have a proven and scalable growth formula. Here, we strive for 3 things combined: continuously launching a great product and platform innovations, executing impactful sales and marketing, and continue developing the go-to-market model. Firstly, we continue building a product portfolio that is fit for the future. We plan to launch more than 7 products and platform innovations for the year. We will expand software features and functionality and continue to build on and improve the platforms we already have in the market to support our longevity ambition. Ultimately, we want to create an ecosystem of seamlessly connected products with an uncompromised customer experience, and we are in full execution mode on this. Secondly, we want to amplify demand for our products and our brand. The Bang & Olufsen brand continues to be strong and distinct, yet we want to set a clear forward-looking brand direction that supports our love brand position. This will be translated into marketing across relevant platforms, for example, social media, and we will onboard brand ambassadors across the world to reach more customers. We will strengthen local marketing teams to accelerate our execution. We will also work with improving and reimagining our customer experience, both before, during and after purchase across channels and platforms. Lastly, we will accelerate our digital efforts further to build on the good momentum from last fiscal year and the growing online sales trends globally. Our digital ecosystem is a key component of our multichannel go-to-market model. We want to continue to inspire and engage with customers through digital experiences across platforms and channels. We will continue building digital assets and improving our e-commerce channels. Overall, we want to grow online sales and create a stronger balance between online and off-line experiences. Please turn to the next page. The third level of our house is where we concentrate our go-to-market resources. We will maintain our focus on resource allocation to winning in 6 European and 2 Asian core markets, which we're also focused on in the first phase of the strategy. We will continue our emphasis on strategic partnerships, attracting new and working more proactive with existing strategic partners. The extension of our HP partnership, which we announced last week, is a testament to this focus. With all of these efforts, we are starting to transition from back in black to the big red heart symbolizing our love for our customers and their love for our brand. Please turn to the next page. With our strategy in place, we're expecting to deliver solid performance across revenue, EBIT and free cash flow in '21/'22. We expect revenue to be between DKK 2.9 billion and DKK 3.1 billion, which is equivalent to another year with double-digit revenue growth. Growth will mainly come from products, and you should expect growth to be front-end loaded as we have tougher comparables in the second half of the year. It will also be in the first half of the year that we will see the biggest benefit from the products we launched in the second half of 2021. We plan to launch more than 7 product innovations, which will include both new products and software innovations to our existing portfolio. We have already launched Beovision Contour in a 55-inch version and stereo pairing to speakers on our new product platform. So we are already on our way with this ambition. Our customer focus also translates into our ambition for customer base growth. We expect to grow our customer base by another double-digit figure. Our EBIT margin before special items is expected to be between 2% and 4%, which is higher than what we achieved in 2021. The improvement is driven by the expected revenue performance and the full effect of our cost-reduction program. Adversely impacting the margin development is component and logistic costs, which we expect will remain at the level we saw in Q4. We will also be investing more in demand creation and product development. Finally, we will see the full year effect of the stores that we took over in 2021. Free cash flow is expected to remain positive this year and to be up to DKK 100 million. Cash flow is, of course, affected by the development in revenue and EBIT. Furthermore, we plan to invest more in product and retail development. For revenue, EBIT and free cash flow, our outlook is dependent on how the global component situation evolves. The outlook is based on assumptions that we will not see things worsening compared to what we saw in Q4, which relates to both availability of component and prices. Our guidance is also dependent on future lockdowns not having a materially different impact on our business than what we have experienced last year. We will still face a lot of uncertainty related to the pandemic, and we continue to work to mitigate for that. So if we move to the next page. We returned to profitability, completing the first phase of our turnaround. The second phase has commenced with the ambition to build robustness. We want to become a customer-loved brand to win more customers, get more repeat business and build more brand loyalty. We expect to deliver double-digit growth and improve profitability in '21/'22. And with that, I would like to open up for questions.

[Operator Instructions] Our first question comes from the line of Poul Jessen of Danske Bank.

Yes. And I have a few questions. First of all, more from looking at individual markets, but I was wondering if you could give some insight into what makes the different performance between the markets and here. I'm thinking about, if you look at Denmark, China, U.S., France, Spain, they are doing very, very well year-over-year performance for the full year. And on the other side, you have markets like U.K. and Germany growing single digits, where the others are growing between 30% and 60% year-over-year. Are there -- is it COVID-related and lockdown-related? Or are there any differences because traditionally, U.K. and Germany are large B&O markets? That's the first question.

Yes. So maybe I'll start, Poul, and then I'll pass on to Nikolaj as well. And I think you already alluded to parts of the answer. The markets are very different, and our go-to-market model is also quite different in different places. And in Germany, if you take that in particular, the multi-brand channel, and if you take one specific example, like MediaMarkt has basically been -- MediaMarkt has been shut down between December 16 and just reopened 5th of July. So that channel has been unavailable for us. And a similar case with the U.K., where also many of the monobrand partners and partners have had store closures. So I think that's part of the answer, COVID-related and different lockdowns and the different pandemic situations. Then of course, also our own go-to-market model and the strength in different channels is also a bit different across the different places. In the U.S., we are working with the monobrand partners and been doing so. We have expanded with Verizon, working with them and with Best Buy and with Amazon. So there, we have a different situation than we have in many of the other countries as well. And in China, we also have, of course, a different situation with a large portion of the sales going through Tmall and JD.com where it has also been open and where we also have strengthened, I think, our position over the last couple of months with the new management in place and also with focusing even harder on the digital side. But I'll give -- let Nikolaj give some flavor in addition to what I just said.

Yes. So I think the only thing I would add because it's correct that U.K. has been hard hit by the lockdowns. And Germany is actually performing well. The reason why you see different growth rates is that in Europe, e-commerce, own e-commerce has, in the past, been attributed to Germany in the way the e-commerce setup has been operationalized. And this year, we have actually split e-commerce out on the right countries. So that's why you see some differences in the growth rates between the countries. But Europe is Europe, so combined, the numbers are correct. So that's another explanation, Poul, on Germany.

Okay. Okay. Because Germany is one of your most important markets and they are clearly underperforming. So two other questions to the markets. China and the selling of end-of-life products within earphones, how much are we talking about in DKK for the quarter?

Maybe I'll start before I pass on to Nikolaj as well. So our digital efforts that we started with in February have started to create much more demand on E8. And we have seen that demand increasing and still increasing. And therefore, we have also, of course, shipped in more products as well. And then we're preparing for future product launches in China. But we have really good momentum on the E8 in China currently, in the sellout. And that's, of course, also why we did a larger sell-in in Q4. Nikolaj?

Yes. So if you compare -- if you look at the APAC or Asia growth from Q3 to Q4, roughly half of that growth number in absolute values is from the earphone sales and the good traction we have on the [indiscernible] in the market.

And that is at discounted prices?

That is at a small discounted prices, yes.

Okay. And the final one on the markets, U.S., you have an increase of 2,000 point-of-sales quarter-to-quarter. Is -- that can't be Best Buy only. What's going on there?

So we're expanding our partnership with both Best Buy and with Verizon, and Verizon is taking more products and kind of increasing the portfolio that they carry and also the point of distribution for the portfolio that they carry. So it's a combination of Best Buy and Verizon.

So Verizon is no longer online only?

No, that's correct.

Currently, we have one other line in the queue. [Operator Instructions] And our next question comes from the line of Benjamin Silverstone at ABG Sundal Collier.

Congratulations on the full year report. I have a few questions, if that's okay. The first question is in terms of the U.S., as Poul just mentioned before. In terms of this Best Buy, I was wondering if there is any sort of details you can give us on the Portal sales through Best Buy. How's Portal sales been compared to other headphone launches? And also if there's any indication of whether or not Best Buy will potentially be taking in a larger B&O assortment? That's the first question.

So maybe I start here as well. So we have, like we say, renewed our relationship and engagement with Best Buy and it has been very positive from a relationship point of view and the way that they want to distribute our products. And like you say, they have been a partner for Portal and the Portal products. And we're doing well with them. Portal is one of the products where we have struggled to meet the demand. And supply shortages have been affecting our sales, and we're working hard on actually, yes, sourcing more components on Portal. But it's one of the products where we have struggled to fulfill the needs and demands of the market.

Yes. So in addition to that, we know that they're selling out everything that they -- that we can give them at the moment on Portal. So the traction is super good. And I think we can also say that we are expanding with Best Buy with the new products, so they are taking in Explore as well as a product, both in online and in physical retail.

My second question is in terms of your guidance for next year. So obviously, you are assuming that the component and logistic costs will stay relatively similar to Q4 levels. How much sort of insight do you have into your forecasting? So in terms of contracts, have you already sort of settled on these prices for the next year? Or are they more quarterly running? Or how are you actually already now seeing next year's cost? So just to simplify that question. When you assume that these costs are going to stay at Q4 levels for next year, is that based on contracts already in place? Or how long is your forecasting period here?

Yes. So the assumption that component and logistic costs will stay at the same level as in Q4 throughout next fiscal year is partly based on contracts that we have for many of products and subsuppliers that we're working with, but partly also on assumptions of what pricing we need to go out and secure components on in what we call spot buys. So we know that in order to fulfill our supply chain, we need to go out and buy components on the spot market. And the pricing here is not fixed in any way, and it can be quite volatile. So this is an assumption in our outlook for the year. This component spot buys will not change compared to what we saw in Q4 on a per-unit basis. And that assumption is definitely associated with higher-than-normal uncertainty.

My last question will be in terms of your new strategic step to sort of build robustness. In terms of scalability, when we're looking at next year, if any, where do you see the most possibility to really build some more scale and also help the gross margin? If we look at this year, I mean, you have seen quite good growth in most segments except Staged. So just how should we look at that for next year? Are there any specific segments that you are looking at to have a higher potential for scalability in terms of better gross margins? Or how should we see that?

I'll start and then see if Nikolaj tags on. But we will continue to focus on the 8 core markets like 6 in Europe and the 2 in Asia. We know we have more opportunity there. We have opportunity in other places as well, but we have definitely not exploited all the opportunity in our core markets. And it goes across the channels to continue to build on monobrand, continue to build the multibrand, continue to work with e-tailers, continue with our own e-commerce and also with the enterprise and B2B space. So we're definitely not exhausted that -- not in terms of opportunity and not in terms of putting all resources and processes in place either. Then what is impacting us a little bit in making this past year a bit extraordinary is that we have lockdowns, we have supply challenges. Even though we kind of stayed firm to the strategy and the strategy is working, we make adjustments, and we have to rechange launches and marketing efforts. So I think we've demonstrated good agility, but also you don't get full traction of your efforts when you keep on adjusting and changing. So we expect to kind of continue to drive that focus for the next year as well in these markets and hope that the plans will be more stable for the next 12 months.

Yes. And I think I can add. And if you look at our -- if our gross margin has increased by from 41.1% to 43.3% last year compared to the year before, right? That's even though we've had headwinds on components and logistic costs this year of around 3 percentage points, right? So we are definitely on the right trajectory to work with our gross margin and get more profitability out of the products we're selling. And this is, of course, the journey that we will continue into next year. And we have a number of different things we're working on, pricing being one of them, as we talked about before. But also looking at our marketing structure with monobrand dealers and specifically, being quite focused on the way we are using discounts in our sort of campaigning and pricing and go-to-market model. So despite seeing headwinds still on component and logistic costs, we're also working diligently with things that will have a positive impact on the margin side during this year.

[Operator Instructions] Okay, Benjamin, seems no one's in front of you in the queue, so I'll reopen your line for further questions.

My last question was actually just in terms of your new product launches and your guidance here, too. So you mentioned that you're looking to introduce 7 new products or updates this year. I was just wondering if you could give us some nuances to this. Are they already in the pipeline? Or does this sort of, rough guidance, also account for some leverage or some room in terms of a potential quick new product launch, such as we saw with your, I think, with the Contour, which came from idea to launch within 6 months or something. So just how firm is this sort of 7 product launches? And which categories are you most interested in?

So it's a good question. But we say 7 plus, and 7 is the number, and then plus could mean something. But what we feel good about, if I give some more context to that, is that we did put out 14 products last year. And we have, as you know, most of these product launches last year was done on the new platform. And that platform is the same platform we're using for the 7 new launches that are coming out. So we're keeping on developing on those, and we keep on improving the user experience on those platforms, adding new features and functionality to, of course, the new products but also into the old products that have been launched before. So I feel we have a really, really strong portfolio in what was launched last year. And with the upgrade possibilities of software drops and also then supported by our positioning with longevity as well and making sure that our products stay current and new features are added, then we also, like we say in the strategy section of today, is that we want our products to become better together. So you buy one and then you will have a better experience if you buy the second one and the third one. So this simply seamlessly connected is something we're working on already. And of course, it will be announced in due time. But we're building this ecosystem of products up based on the same platform. And I think that will create more amazing experience, more amazing products. But it's really a tribute to the platforms that we are using and the capability of those platforms that will create the new customer experience for this year.

My last question is just sort of an understanding question. You mentioned the customer base growth where you wish to see double-digit growth, how is the customer base quantified internally?

Christian Birk will take that.

Thanks for the question, Benjamin. So we look in our customer base of registered users that come through our app, and we actually specifically look at people who have products associated with that. And as you also see in the annual report, we have had that as a huge focus this year, both to serve our customers -- existing customers in a better way, as Kristian pointed to, but also to attract more customers. Having said that, we also know that we have a lot more new customers that don't necessarily register in the app. And though the number we see here is what we track, but we have more customers out there and also attracted more customers than what we point to in this number.

And the final question is just a quick recap on what you mentioned, I think, last time in terms of these experience centers. Are there any updates to those?

No, but they're still part of the plan, and we're working on it. And we're searching for locations and evaluating locations but have not successfully locked anything in at this point in time.

And we've got a follow-up from Poul Jessen at Danske Bank.

I have a few questions. First, coming back to the component situation and the guidance, just what should be sure. You talk about spot prices, but the guidance you have given by up to 18% growth, the components needed for that, have they been secured? That's one part of it. And the second is the more financial one. On -- you have 5.5% headwind in Q4, close to 3% for the full year. How should we look at that for the coming year? Should we look at the 5.5% being the headwind in your guidance for the next year or in case that logistics come down or components improve, then it could be less?

Maybe I'll just start with a quick one on the components secured. We make long-term commitments together with our partners for our portfolio and for the components that believe are going to be in scarcity and critical, so we made those long-term commitments. But again, the world situation is also changing. So even though we have made a commitment, and we have received the confirmation back on that commitment, it doesn't necessarily mean that everything is going to play out the way that it has been planned. But we have certainly done all efforts on the long-term commitment. We're also looking at on how we can redesign and increase our agility on the B2B side as well of putting other components in place, should there be shortages. So I think we have done what we can do in that respect. I'll let Nikolaj answer on the cost side.

Yes. So on the sort of assumptions built in, in the outlook for next year, you could view the 5.5% sort of as the going rate of headwind that we'll also experience into next year. We do expect some improvements on the logistics side in the latter part of the year. So it's not 5.5% exactly. It's a little bit less, but it's in that area.

Okay. Then there is a comment about the provisions for warranties where you have extended the warranty period. Is that a material number?

Yes, it's a material number. It's above DKK 10 million.

And was that in the fourth quarter or throughout the year?

That was primarily in the fourth quarter due to extended warranty high sales. So the warranty is built on 12-month rolling sales. So when you have a quarter that's significantly higher than Q4 last year, then the ones you provision automatically increases.

Okay. And we're -- sell-in and sellout date, so is it fair to assume that they are equal in the quarter?

Yes, it's fair to assume that all sell-in and sellout that are consumer-facing is equal in the quarter. So from that aspect, you can assume that we have had, due to very late deliveries, we've had a number of speakers in the Beolab series and vision that came in very, very late in the quarter to our dealers. So they are selling out in June, but we can see that already. So there can be some differences over the cutoff date. But largely, they are in line. Yes.

Maybe just to add, Poul, on the warranty question in terms of product quality and the platform quality, we see significant improvement internally on number of faults that are coming with the new platforms and the new product launches. So that is definitely going in the right direction. So it's not anything that is arriving from that. It's on the contrary, getting better and better.

Okay. I have 2 questions. From the HP extension that you announced a few weeks ago, has there been -- you write in that message that it's on unchanged conditions. But has there been any thoughts about expanding to other products or a broader part of the HP product line? Or is it just business as usual?

We have ongoing conversations with HP on how we can work more together. I can't reveal, of course, any details on it. But first, let me say that we have a very, very good relation with them. And I think the expansion or extension of the agreement is a testimony to that as well. Now it's up to us to continue with that relationship building and grab the opportunities. I think there are many, many more opportunities together with HP that we see, but we will announce them in due course.

Yes. And is there anything to comment or add on a pipeline of other partnerships? I think a year ago, it was said that the guidance for last year was including potentially new partners. And I think that was not only the massage chair.

We have a pipeline of partnerships, and yes, we will announce them when we announce them, Poul. But we have also made quite some changes in this team and upgraded, I think, this team as well as such. So more to come here.

And then finally, about these digital ecosystems that you want to operate, I assume that it's going to be -- continue to be based on Apple and Google ecosystems. So what -- I don't know if it's too early to talk about, but what are we talking about? Is it your user interfaces on how I integrate products on my iPad or smartphone? Or what is -- what's going to change here?

I'll start, and then I'll pass over to Christian Birk as well. We will continue to work with other ecosystems, but we also want our own ecosystem, the B&O way. And since we have same platforms now across the portfolio, we have super interesting opportunities to build things and create our own ecosystem in addition to the other ecosystems that we will be part of. I'll let Christian Birk explain a little bit more as well.

Yes. Just adding to that, I think we, of course, look to how do we serve our customers better and what's needed to serve also the new customers that we're looking to attract. So we are definitely seeing this beyond the Apple and Google ecosystem given that we also have China and South Korea and other markets. That's a huge focus here. So what you should expect is exactly what Kristian pointed to. We'll continue to look at, if we want rich experiences for our customers, what integration is needed, both on the connectivity side, but also on things like voice assistance and more, and secondly, what from a market penetration perspective is needed beyond what we have today. And we have some really exciting opportunities to bring our own proprietary technologies to a new place, as Kristian alluded to. So both is critical focus areas for us.

But are you considering going all the way like Sonos and creating your own proprietary product?

Yes, we will build a Bang & Olufsen ecosystem.

Thank you. And as there are no further questions in the queue at this time, I'll hand back to our speakers for the closing comments.

Okay. So thank you, everybody, for joining today. But good having you here, and we're proud and pleased that we managed to close the year with back-in-black numbers. And now we're on to next quarter and the next year and try to grow that double digit and, of course, and do even better numbers. So thank you for joining, and see you soon again. Have a good summer.