Annual Report (ESEF) • Jul 6, 2022
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Download Source FileUntitled Annual Report 2021/22 Page — 2 Overview Annual Report 2021/22 Table of Contents Visit bang-olufsen.com Investor.bang-olufsen.com Be friends @bangolufsen #bangolufsen Overview At a glance Letter from the Chair and the CEO Bang & Olufsen’s brand platform Strategy & outlook Strategy Strategy execution Business model Risk management Results Key events Key figures Financial review ESG & sustainability Governance Corporate governance Remuneration Board of Directors Executive Management Board Shareholder information Q4 results Consolidated financial statements Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Notes Parent company financial statements Statements Notes Reports Management’s statement Page — 2 P age — 3 Overview Annual Report 2021/22 Overview Bang & Olufsen At a glance 1,100 Employees 70 Markets DKK 2.9bn Revenue Listed on NASDAQ Copenhagen Bang & Olufsen is a luxury audio brand founded in 1925 in Struer, Denmark, by Peter Bang and Svend Olufsen whose devotion and vision remain the foundation for the company. For nearly a century, Bang & Olufsen has been pushing the boundaries of audio technology and the company continues to be at the forefront of acoustic innovation. REVENUE SPLIT PRODUCT CATEGORIES Staged Immersive stereo music listening and cinematic viewing experiences. Flexible Living Connected sound for any room in an omni, stereo or multipoint set-up. On-the-go Products designed for travel, performance and urban life (work in and around the home) 47% 10% 33% 10% Region Brand Partnering & other activities Asia Americas EMEA 41% 22% 27% 10% Product category Brand Partnering & other activities On -the-go Flexible Living Staged Page — 4 Overview Annual Report 2021/22 Financial Highlights 2021/22 Profitability Revenue development Cash flow Gross margin 45.3% 2.0pp YoY EBIT margin bsi 1.8% 0.4pp YoY Group revenue, DKK 2,948m 12% YoY (10% in LC) EMEA 5% YoY growth (4% in LC) Asia 12% YoY growth (8% in LC) Americas 61% YoY growth (55% in LC) Staged 19% YoY growth Flexible living 13% YoY growth On-the-go 4% YoY growth Free cash flow, DKK -172m 291m YoY Available liquidity, DKK 301m 292m YoY * Before special items ** Local currencies 43.3 45.3 202021 202122 38 54 202021 202122 119 -172 202021 202122 593 301 202021 202122 Page — 5 Overview Annual Report 2021/22 Sustainability Highlights of the year Launched the world’s 1st Cradle-to-cradle certified consumer electronics device 50 years is the time between the launch of the Beosystem 72-22 in 2022 and the original launch of the Beogram 4000 in 1972. The Beosystem 72-22 allows the vinyl from the 1972 Beogram 4000 to be streamed via modern Beolab 18 speakers 20.8 GWh was consumed in our global operations in Our Danish energy footprint increased by 3% 30% of B&O employees have been with the company for more than 10 years ~20,000 repairs and refurbishments completed at our repair 2022 is the year we joined the Science Based Targets Initiative committing to science-based climate action in line with a 1.5°C scenario future across our whole value chain Page — 6 Overview Annual Report 2021/22 This was another year of solid progress for Bang & Olufsen despite strong headwinds. We grew revenue by 10% in local currencies to DKK 2,948m, which was in line with our guidance at the beginning of the year. We also improved our EBIT margin before special items to 1.8%. This was just below our original guidance of 2-4%. We delivered a negative free cash flow of DKK 172m. This was unsatisfactory, and not in line with our initial expectations of a free cash flow between DKK 0 and 100m. As communicated in our adjusted outlook in May, this development was mainly due to the extensive lockdowns in China, which resulted in lower sales and increasing inventory. Driving continuous improvements and building robustness This year, we entered the second phase of our strategy where we place emphasis on building robustness. We are doing this by making dedicated investments in, for example, our brand, sales, product innovations, go-to- market strategies, and people. The customer experience has been front and centre of all these investments as we continue to work towards our long-term ambition of becoming a love brand. To grow significantly in the future, we need to expand awareness of our brand and our products to a larger audience. To that end, we invested more in sales and marketing and applied new strategies to capture the attention of our target audiences. More frequent and targeted digital and influencer campaigns, combined with local events and global partnerships like with Williams Racing, have helped us grow our brand and customer base. We also launched an ambitious go-to- market pilot in London, testing a 360-degree brand activation across channels and in focused areas of the city. Successes from the “Win London” project included sell-out growth of 103% from our monobrand stores in London. We will be looking to apply this model to other key cities around the world in the coming year. All in all, we grew our registered customer base by 31% in 2021/22. In our six core European markets, we continued to improve like-for-like sell-out, which grew by 14%. The two core Asian markets grew by 5%, despite the extended lockdowns in China from March to June, which impacted sales. In 2021/22, we deployed more local sales and marketing people to build stronger local relationships in our core markets. The monobrand channel continues to be a key part of experiencing the Bang & Olufsen brand and our products. We are encouraged by the increased investments in our stores and in activations made by our partners. In 2021/22, we continued to invest more in digital activation to build a stronger omnichannel experience. This fuelled our online sales, where we once again had strong sell-out growth – both in our eCommerce channel and among etailers. We also grew our licensing business. We extended the agreement with our long- standing partner HP, and we added new brand Juha Christensen Chair Kristian Teär CEO LETTER FROM THE CHAIR AND THE CEO Double-digit revenue growth and improved profitability despite headwind s Page — 7 Overview Annual Report 2021/22 licensing partners and brand collaborations. All in all, we grew our brand partnering business by 10% in local currencies. We see many opportunities to expand our business in this area, and in 2021/22 we strengthened the team with new capabilities to help us unleash our full potential in this space going forward. In 2020/21, we had a high number of product launches. With a strong portfolio in place, this year we focused on improving the customer experience through software updates. Introducing stereo pairing for products like Beosound Balance was one of the key launches and a feature that was very well received by our customers. We also launched Beolink, our proprietary multiroom system, on our most recent product platform. This was a milestone release from both an experience and a longevity perspective, enabling our customers to connect products from the 1980s to our present and future innovations. Product longevity is at the heart of Bang & Olufsen, and in 2021/22 we became the first consumer electronics company to have a product Cradle-to-Cradle certified when our Beosound Level speaker received bronze level certification. This is the most ambitious product circularity standard in the world. It underlines our ambition to lead and inspire the industry towards a more circular, regenerative future by building long- lasting luxury technology products. Our longevity focus goes beyond new products. Through software upgrades and our new Product Health Centre, we are able to remotely help customers and proactively solve issues. Since January 2022, we have serviced more than 100,000 customers. In 2021/22, we invested more in our people and facilities. We attracted many new talents within areas such as software, marketing, design, and sales, and we invested in our global locations to create a better working environment. COVID-19 had a major impact on our people as many were forced to work from home for extended periods, especially in China. We continue to be amazed by the resilience of our colleagues, and we were pleased to see that our people engagement score improved by four points, ending at 77. To support a diverse and inclusive workplace, we introduced several initiatives. For example, we established a Diversity, Equity & Inclusion Council to help us identify actions and drive progress, and we have already seen several positive outcomes of this work. We did not, however, achieve our gender diversity target for senior managers, and we will strive to continue to improve on our Diversity, Equity and Inclusion agenda in the coming years. In 2021/22, we launched a set of new company core values, which will be integral to our efforts to build the best workplace for the best people. A year of extraordinary events For the world, Bang & Olufsen, our colleagues and partners it was also a year with many unforeseen events and headwinds. Our business was highly impacted by the global component shortage and logistics challenges, and we had to absorb DKK 220m in additional costs above normal level to ship our products and source components. Russia’s invasion of Ukraine in February shocked everyone, and we stand with the international community in condemning the war. We immediately stopped all sales to Russia and Belarus, and we continue to help our Ukrainian retail partner and his family. We want to take the opportunity to thank our colleagues for their desire to support those affected by the invasion. Through a company fundraiser we raised more than DKK 200,000 towards humanitarian aid provided by the Danish Red Cross. As already mentioned, the COVID-19 lockdowns in China from March to June had a considerable impact on our sell-out in that market, and this meant that in May we had to adjust our financial outlook. Since the autumn, we have also seen increasing inflation, which has grown further following the war. This has not materially impacted our results. However, our retailers are indicating lower in-store footfall, and we continue to monitor consumer sentiments as uncertainty and inflation grow. Despite these challenges, we achieved double-digit growth and improved our profitability for the second year in a row, and we did it with fewer product launches compared to previous years. These achievements are a testament to the improved robustness of our business. We now have a stronger ecosystem of products with great potential and better go-to-market strategies and execution. Building a future-proof Bang & Olufsen The past year, we have demonstrated that we have built a more robust Bang & Olufsen. This is perhaps more important than ever given today’s uncertain environment, and we will maintain that focus for the coming year. We will, however, also start to reorient ourselves towards the future. For decades, Bang & Olufsen has brought magical sound experiences to its customers. That will not change. But we believe that the sound experiences of the future will have to incorporate a range of new technologies, platforms and designs that offer customers the opportunity to listen, create and share sound in an ecosystem of seamlessly connected products. We will begin to reorient Bang & Olufsen towards that future. We also believe that the sound experiences of the future will be built to last beyond the average lifetime for a technology product. Today, we are taking the first small step towards that future with our new ESG & Sustainability strategy, which has product longevity at its heart. Designing for longevity has always been a hallmark of Bang & Olufsen, and our heritage of long- lasting, quality products shows that we understand longevity throughout the entire product lifecycle. With Page — 8 Overview Annual Report 2021/22 our new strategy, we will strengthen that focus to become an even more sustainable company and we will commit to new ambitious long-term sustainability targets to drive progress. In the future, Bang & Olufsen will continue to pioneer magical sound experiences that are designed for life with the ultimate goal of changing how people hear, see and feel the world. A special thanks to our colleagues and partners Our colleagues and partners continued to amaze us with their entrepreneurial spirit, care, and passion for Bang & Olufsen and our customers. We would like to extend our gratitude to all of them for their work this year and their continued commitment to the company. Juha Christensen Kristian Teär Chair CEO Page — 9 Overview Annual Report 2021/22 Bang & Olufsen Reorienting towards a new future WHAT WE STRIVE TO DO WHY WE EXIST HOW WE WORK Magical Sound. Designed for Life. Our vision connects our past with an exciting future. It guides us in our efforts to become a luxury technology company that humanises technology and moves culture for a better world around us. To change how we all hear, see and feel the world. At Bang & Olufsen we change how we all hear, see and feel the world. We will only have succeeded when we have liberated the moment in our customers’ everyday lives. Be Entrepreneurial. Show Love. Create Magic. Our core values define who we are, what we stand for, and how we act towards one another. They are deeply rooted in our DNA and in our never-failing will to create only the best. Our values reflect the true essence and special mentality of our company; the entrepreneurial imagination that so profoundly summarises our culture. Page — 10 Strategy & outlook Annual Report 2021/22 Strategy Strategy execution Business model Risk management Strategy & outlook Strategy & outlook Annual Report 2021/22 Page — 10 Page — 11 Strategy & outlook Annual Report 2021/22 Strategy The second phase of transformation — A year of building robustness Another year of transformational efforts has strengthened the business. Despite a challenging operating environment, the company continued to reap the benefits of its strategy execution , delivering on many of its commercial and operational ambitions. The company moved into the next phase of its three-waved transformational roadmap, a year of stre ngthening the business to become more robust. The strategy house informed strategic priorities throughout the year, to realise the ambitions of i) securing a more robust foundation for future growth, ii) strengthening the model for scale, and iii) seizing three pillars of growth. P age — 12 Strategy & outlook Annual Report 2021/22 Progress on strategy execution Registered customers in the B&O App Pillars of growth European core markets Asian core markets Strategic partnerships 14% Sell-out growth Solid performance across most channels. Win London project delivered 103% YoY sell -out growth from monobrand . Focus on customer experience. Solid results from pilot with in -field VIP service team in France, and insourcing of Danish service centre. 5% Sell-out growth Sell -out impacted by COVID-19 lockdowns in China. China grew 1% and South Korea 19%. Restructured customer service with new service centre in Shanghai. Go -to market model solidified, replacing thre e of four distribution partners and expanding digital footprint. 4 New partnerships 10% growth from Brand Partnering & other activities. New partnerships. Hybrid work with Cisco. Combined sound and streaming for telecom providers with Sagemcom, Verizon and SK Broadband. Model for scale Product innovations Amplify demand Accelerate digital ecosystem 7 Product innovations Five products launched and two significant software releases, Beolink and Stereo pairing. Focus on longevity with Beolink, connecting old, current and future products, and Beosound Level, the world ’s first Cradle-to-Cradle certified speaker. 31% Customer growth Higher average ownership, with 37% growth in number of customers owning two or more products. Improved brand awareness; three new brand ambassadors and partnership with Williams Racing. Follower base on SoMe grew 68% and 27m people reached through influencers and celebrities. 12% Growth in eCom Own eCommerce launched in Japan, South Korea, Singapore and Australia. Increased website traffic, conversion rate and average basket size. Robust foundation Be the best place for the best people Improve profitability 77 Employee score Engagement score improved 4 points and improved perception score of managers. New p eople-centric initiatives launched such as a structured talent acquisition set-up and a Diversity, Equity and Inclusion council, and others were boosted, e.g. a Leadership Accelerator programme. 1.8% EBIT margin before special items Profitability improved despite headwinds through price increases, less discounts and bonuses, optimisation of production planning and logistics, and establishing a distribution centre in the US. Page — 13 Strategy & outlook Annual Report 2021/22 To secure a robust foundation, the company continued its profitability focus initiated with the cost programme in 2020. The company’s EBIT margin before special items improved by 0.4pp compared to last year despite headwind from increased supply chain cost and lockdown in China. The profitability improvement was partly driven by revised pricing, optimised logistics particularly in China and the US, and new incentive structures for multibrand and monobrand partners. To accommodate for component scarcity, the company focused on reengineering some products to reduce its dependency on scarce components. In addition to its profitability-related activities, the company pursued its ambition of becoming the best place to work for the best people. People-centric initiatives were launched throughout the year such as a structured talent acquisition set-up and a Diversity, Equity and Inclusion council, while other initiatives were enhanced such as a Leadership Accelerator programme growing key talents of the company. Improvements in the employee NPS for the year proved that the people agenda and initiatives create impact. The company will maintain its focus on securing a robust foundation going forward, placing high emphasis on redesigning the operating model to make it fit for current purpose and the long-term future. To strengthen the model for scale, the company continued its efforts to build a portfolio that is fit for the future. While delivering on the ambition for the year of seven new product innovations, the real impetus however was to build an ecosystem of seamlessly connected products with uncompromising customer experiences. Connecting the full portfolio unleashes potential for customers to buy and instal more Bang & Olufsen products for complete sound systems. Launches throughout the year consequently included both new product- and new software propositions, as well as continued software upgrades to improve product experience. These were proactively pushed to customers in the company’s app-based digital Product Health Centre. To enable the ecosystem ambition, the company initiated a significant capability ramp-up, particularly in platform and software engineering capabilities. This will continue in the year ahead. Furthermore, an important milestone was reached with the launch of the world’s first cradle-to-cradle certified speaker, Beosound Level, setting the standard for how audio products can be built more responsibly and for long-lasting lifespans. Lastly, the company leveraged its distinct craftsmanship capabilities through the launch of a Bespoke programme for product personalisation. The programme specifically targets high net worth individuals in select markets. To amplify customer demand, the company worked programmatically to boost brand awareness and brand equity. Through accelerated use of influencers and celebrities, the brand reached more than 27 million people during the year, and the brand’s follower base across social media platforms grew by almost one million. This was augmented further by the Williams Racing partnership. With i) a cumulative TV audience of 1.5 billion, ii) an average audience per Grand Prix of more than 70 million, making it the fastest-growing sports league in terms of follower growth, and iii) the outperformance of all other sports in the digital arena, Formula 1 holds significant potential for increasing brand awareness. In addition, the partnership is expected to ensure brand relevancy for the target audience, through events and activations with the Williams Racing team. Monobrand store events in Barcelona and Monaco respectively demonstrated benefits from the partnership in the form of increased store sales, and Williams Racing-focused Instagram stories together with Twitter updates yielded comparatively high numbers of views and impressions. Another vehicle for demand amplification was the first steps in a new, refreshed and forward-looking brand expression. Several new brand videos posted as reels on social media enjoyed record-breaking organic reaches. The new brand expression will continue to be executed and implemented across communication and sales channels. The company has set an ambition of becoming a customer love brand, reflected in the onboarding of new customers, selling more to existing customers and keeping the customer base happy and loyal. For the fiscal year 2021/22, new registered customer growth reached 31% and the company grew the number of customers owning two or more products by 37%. Ambitions for customer base growth and average ownership growth for the fiscal year were thus met. The company’s digital ecosystem was further strengthened as planned. The company launched own eCommerce in South Korea, Singapore, Japan and Australia and improved performance across many areas. The Bang & Olufsen eCommerce site had more tracked visitors, increased conversion rate and grew average order value year-on-year. The organic social media reach increased by 39% to a total of 41 million people. To seize potential in key pillars of growth, the company continued its focus and resource allocation for winning in its six European and two Asian core markets, and for exploring strategically relevant and commercially attractive partnership opportunities. The European core markets delivered 14% sell-out growth, with sell-out performance lifts across all key channels. Strategy house execution Page — 14 Strategy & outlook Annual Report 2021/22 To build robustness in the monobrand channel, a thorough structural assessment identified performance improvement potential with several partners and concluded on the termination of 38 stores in EMEA. The terminations will be effective early in the financial year 2022/23, and the network will be in better shape to deliver strong brand experiences for the future. The multibrand channel also saw structural changes, with the ultimate aim of lifting the quality and viability of the multibrand network. While channel sell-out grew 30% year-on-year, the company took back inventory to ensure right-sized and relevant inventory with select partners in Switzerland and Germany respectively. Additionally, the company continued to improve in- store experience through the roll-out of a new product display system designed for enhanced customer experience, and for collecting and feeding back real- time data. The company implemented its Win London plan throughout the year. The concept and commercial execution proved impactful. Sell-out from monobrand stores in London grew by 103% year-on-year. Brand awareness, customer base and repurchase also increased significantly compared to last year. The London execution continues into the new financial year, and the concept is planned to scale to other select cities. In the quest to become a love brand, efforts to improve customer experience were undertaken throughout the year. An in-field VIP service team was launched in France, and the company insourced its Danish service centre operations to ensure consistent high-quality customer support. The company continuously assesses customer satisfaction and expects to launch more improvement initiatives in the year ahead, potentially scaling the VIP concept and service centre insourcing to other markets. Sell-out in the two Asian core markets grew by 5%. In China, sell-out grew by 1%. The adverse impact of COVID-19 related lockdowns resulted in a 28% decline in sell-out in Q4. The company worked to solidify its go- to-market model by replacing three out of four multibrand partners and expanding the WeChat channel to include eCommerce and a VIP customer platform. The company also appointed Lay Zhang as brand ambassador along with programmatic onboarding and promotion of 40 other key opinion leaders. The Lay Zhang partnership was particularly successful on Chinese social media. The best- performing post for the year was with Lay Zhang reaching close to one million accounts, 90% of which were non-followers. Additionally, the company restructured its customer service setup in the market by establishing a customer service centre in Shanghai, with the ultimate aim of ensuring a high-quality, consistent end-to-end customer experience. In South Korea too, the company bolstered its go-to- market model, with sell-out increasing by 19% year-on- year. With the reopening of a brand flagship store in Seoul, the opening of Bang & Olufsen eCommerce and strengthening of the service set-up, the company delivered growth across multiple parameters. Strategic brand partnerships remained a core priority throughout the year to drive up brand awareness and new customer acquisition. Revenue from new agreements drove up the financial performance in 2021/22. Four new partners were onboarded in the course of the year. The partnership with Cisco, announced earlier in the year, tapped into the hybrid work trend accelerated by COVID-19, and partnerships with telecom service providers Verizon, Sagemcom and SK Broadband brought the brand into new living rooms and increased brand presence in more channels through Verizon’s distribution network. Furthermore, the company expanded its Harman collaboration with the luxury car brand Genesis. The company will continue its partnership focus in the future to expand brand reach and drive revenue. Page — 15 Strategy & outlook Annual Report 2021/22 Delivering on the robustness ambition – and beyond Despite turbulence and sustained headwind throughout the fiscal year, results proved that the strategy continues to work. The ambition of the second phase of the transformation was to deliver profitable growth measured more specifically in revenue growth, positive EBIT, launch of planned new product and platform innovations, and customer base growth. While external factors challenged operations throughout the fiscal year, the company managed to grow and develop according to plan. With total revenue growth of 10% in local currencies, growth in EBIT margin before special items of 0.4pp, the launch of seven, planned product innovations, and 31% customer base growth, the company is confident that the strategy has created impact both commercially and operationally. In today’s uncertain environment, robustness is more important than ever, and so is a long-term lens on the company’s value-creation logic. Several macro forces at play are influencing society, capital markets and industries as well as consumer behaviour. These forces are likely to redefine the competitive arena of consumer electronics and luxury in the decade ahead. While the company will continue to build business robustness, it will also orient itself towards a new future. Bang & Olufsen has been bringing about magical sound experiences for decades – it is in the company’s DNA. And it is what the future continues to be about – albeit designed for a new reality. In the future, sound experiences will be created through new technology, platform logics, and designs that are in tune with both the past and the future. They will offer customers new opportunities for listening, creating and sharing sound. The sound experiences of the future will be built to last – and built from responsible operations. This will enable customers to have more sustainable sound experiences that last longer than an average technology cycle. The future will also be about moments of immersion and emotion no matter how and where customers interact with Bang & Olufsen. In a world of uncertainty and information overload such moments will be a true luxury and will ultimately change how people hear, see and feel the world. In the future, Bang & Olufsen will continue to pioneer Magical Sound Designed for Life which will guide strategic priorities in the years ahead. Page — 16 Strategy & outlook Annual Report 2021/22 Business model THE BANG & OLUFSEN BRAND Since 1925, Bang & Olufsen has been designing the future, creating unconventional excellence for delightful living. In an ever-changing world, we believe innovative design and technology continue to change how we all hear, see and feel the world. CUSTOMER TARGETING The target audience is defined as Design & Music Lovers , with a particular focus on four distinct customer segments: Generation Z, Careerist, Well-established, and VHNWI. DESIGN & CREATION Designing and creating innovative products at Bang & Olufsen begins with a vision, rooted in perspectives on how emerging and existing technology creates new opportunities, and how customer patterns create new demands. MANUFACTURING Asset-light manufacturing model focused on driving efficiency. Renowned inhouse aluminium processing enables us to develop unique components and bespoke solutions. Other parts of the manufacturing process are undertaken by ODMs and production partners. VALUE CREATION Bang & Olufsen strives to deliver iconic, reference-class products that integrate seamlessly with past, present and future technologies and endure and retain value. The company strives to create value for Design & Music Lovers through its brand and product propositions, for shareholders through diligent and consistent development of the company, and for society by being a responsible employer locally and globally. SALES Multichannel go-to-market model builds brand experiences across physical and digital channels, reaching customers where they wish to engage. Physical retail includes company owned stores, partner owned monobrand stores, and multibrand stores. Digital channels include own eCommerce and etailers and new SoMe based digital channels. CUSTOMER ACTIVATION Brand and marketing activities are designed for the target audience and specific customer segments. Customer awareness, consideration and loyalty are boosted through demand creation activities across physical and digital channels. * Very High Net Worth Individuals ** Original Design Manufactur er Page — 17 Strategy & outlook Annual Report 2021/22 The company has identified the following key risks, which could potentially threaten Bang & Olufsen’s ability to meet its financial targets, execute on its strategy, or maintain its licence to operate. However, this is not an exhaustive list of risks associated with the business. Additional risks not mentioned here – such as climate-related and some geopolitical risks – may also have an adverse effect on the business. These are monitored on a regular basis and, if deemed necessary, risk assessments are made locally to determine adequate mitigating actions. Furthermore, there are internal operational risks that will impact the company if they materialise. The company has assessed that these have a low probability of materialising. Risk management SUPPLY CHAIN DISRUPTION Description In the aftermath of the COVID -19 pandemic, scarcity of raw materials and components has led to significant cost inflation. Furthermore, lockdowns in China have resulted in logistics issues that have caused delays and challenges i n both sales and supply, particularly in some regions in Asia. Risk As a consequence of both the geopolitical turmoil and the global scarcity of components and raw materials, Bang & Olufsen may experience increased costs and issues related to availabili ty of key components and raw materials. The potential consequences could be a shortage of available products, impacting the ability to fulfil orders and thereby meet revenue and growth targets. Furthermore, the company’s profitability may be adversely impa cted by cost inflation. Mitigating actions 2022/23 Revisit the operating model to secure supply, review manufacturing alternatives based on geographical location, and prioritise with suppliers to maximise available stock. In the short term, safety stoc k will be reestablished and selected products will be redesigned to de -risk the supply base. IT SECURITY Description Bang & Olufsen’s business depends to a large and increasing degree on reliable and secure IT systems. Risk If the company fails to protect its IT infrastructure, key systems and products against security incidents, the potential consequences could be unavailability of services, unintended disclosure of confidential data or sensitive personal data or loss of business -critical data. This could negatively affect Bang & Olufsen's competitive position, damage its reputation and/or result in fines. Mitigating actions 2022/23 Continu e and launch several network initiatives to further strengthen security of IT systems. Furthermore, updated cyber security awareness training courses will be conducted in combination with intensified monitoring of IT services and responsiveness. SECURING FUTURE TALENTS Description The executing of the Bang & Olufsen strategy is highly dependent on its employees. It is essential to make the necessary recruitments and retain key employees to execute on the strategic direction and to build a solid talent base for future growth. Risk The company may not be able to attract and retain employees within certain competency areas in a timely manner, or to retain key employees, especially in a time of low unemployment. If the company is not able to fill and maintain key positions, this could impact strategy execution and operations. Mitigating actions 2022/23 Develop an Employee Value Proposition linked to the new company culture to attract new employees. The new company culture will create a sense of belonging and boost motivation. The company will continue to push the D iversity, Equity and Inclusion agenda to ensure a collaborative workspace to further drive engagement and innovation. The company will enhance learning opportunities, motivate performance for growth and celebrate through events. Moreover, the company will enhance collaboration and co-creation across geographies and departments, while introducing a talent initiative. Page — 18 Strategy & outlook Annual Report 2021/22 PRODUCTS FOR THE FUTURE Description Bang & Olufsen ’s success depends on its ability to continuously strengthen its product portfolio to cater for consumer trends and ensure innovative designs and technological solutions for the future. Risk If the company is not able to execute on its product roadmap in a timely manner, potential consequences could be missed market opportunities, or failing to meet consumer demands and expectations, impacting the ability to create a sustainable business in the future and to meet growth targets. Mitigating actions 2022/23 The company is in the process of developing its future innovation direction, including future innovation choices in line with the overall corporate strategy. Furthermore, the company is assessing improvements to the development process to e nsure alignment to the new direction. SECURING FUTURE GROWTH IN CORE MARKETS Description The company has identified eight core markets, six in Europe and two in Asia. The company’s growth targets depend on Bang & Olufsen’s ability to execute on its strategy in these markets and secure continued growth. Risk There is a risk that the company may be unable to determine the right growth strategy for the top six markets in EMEA, including how to grow the multibrand channel to create the necessary robustness for scaling. Furthermore, there is a risk that the company may be unable to define a model for optimising own eCommerce in balance with eTail. Moreover, recession risk together with the logistics and planning risk caused by lengthy lockdowns in China are hampering both demand and supply. If these elements are not mitigated, this will have a negative impact on growth targets. Mitigating actions 2022/23 Target defined customer groups by enhancing cooperation with the monobrand netwo rk, and strengthening cooperation with key multibrand partners, while developing B2B, eTail and eCommerce to ensure a balanced channel mix. Page — 19 Strategy & outlook Annual Report 2021/22 The outlook for unusually high uncertainty related to consumer sentiment due to high inflation, rising interest rates and the war in Ukraine, which has increased the risk of recession. Furthermore, there is higher geopolitical uncertainty and risk related to current and potential future regional COVID-19 related lockdowns in China. The company plans to continue its investments in strategy execution, but the timing and size of these investments will be adjusted based on the development in the markets. Revenue growth Revenue growth is expected to be between -4% to 5%. The expectation is subject to the following assumptions: • China expected to be impacted by regional lockdowns in Q1 and partly Q2. • Launch of more than six product innovations, including relaunch of Beosound Emerge. • Improved product availability compared to 2021/22. • No impact on product availability due to geopolitical or COVID-19 related lockdowns. • No major COVID-19 related lockdowns in the second half of the year. EBIT margin before special items EBIT margin before special items is expected to be between -2% to 3%. In addition to the company's assumptions regarding revenue growth, the expectations are based on the following assumptions: • Cost of goods sold is expected to be impacted by the inflationary pressure currently experienced in the market, but the pressure on sourcing components through spot buys is expected to decline in the second half of the year. • Continued investments into marketing and product development. • Exchange rates against DKK, including in particular USD, CNY and EUR, in line with current exchange rate levels, overall. Free cash flow Free cash flow is expected to be DKK -50m to DKK 100m. In addition to the company's assumptions regarding revenue growth and EBIT margin before special items, the company's expectations regarding free cash flow are based on the following assumptions: • Improved net working capital. • CAPEX related to product and retail development as well as IT. Sensitivities The outlook for 2022/23 is subject to unusually high uncertainty related to consumer sentiment due to high inflation, rising interest rates and the war in Ukraine, which has increased the risk of recession. Furthermore, there is higher geopolitical uncertainty and risk related to current and potential future regional COVID-19 related lockdowns in China. Outlook for 2022/23 Safe harbour statement The report contains statements relating to the expectations for future developments, including future revenues and operating results, as well as expected business-related events. Such statements are subject to uncertainty and carry an element of risk since many factors, some of which are beyond Bang & Olufsen's control, may cause actual developments to deviate significantly from the expectations expressed in this report. Without being exhaustive, such factors include general economic and commercial factors, such as market and competitive matters, supplier issues and financial issues in the form of foreign exchange, interest rates, credit and liquidity risk. Revenue growth in local currencies (%) 10 -4 to 5 EBIT margin before special items (%) 1.8 -2 to 3 Free cash flow (DKKm) -172 -50 to 100 Page — 20 Results Annual Report 2021/22 Key events Key figures Financial review ESG & sustainability Results Results Annual Report 2021/22 Page — 20 Page — 21 Results Annual Report 2021/22 Q1 Sports collection B&O released a sports collection made up of Beosound A1 and Beoplay E8 Sport in an anthracite oxygen colour. Key design details are accentuated with oxygen blue to provide a contrast to the black anthracite colour. Beovision Contour 55’’ B&O introduced Beovision Contour in a 55” screen size. It delivers an all -in-one TV and music experience thanks to sound technology based on the award -winning Beosound Stage. Saint Laurent collaboration T he designer Anthony Vaccarello curated a new limited edition Beosound Edge. B&O and HP renew partnership B&O and HP Inc. renewed their existing partnership for three more years, with options to extend it for up to two more years. Since 2015, B&O and HP have had a close collaboration where HP sells select computers co -branded with and sound-tuned by B&O. B&O x Trent Alexander -Arnold B&O entered a multi -year collaboration with the Liverpool FC and England footballer Trent Alexander -Arnold. The announcement of the partnership followed the launch of the company’s sports collection, comprising the Beosound A1 portable speaker and E8 Spo rt true wireless earphones. B&O partners with Sagemcom B&O has developed the built-in loudspeaker in Sagemcom’s new home entertainment unit, the Video Soundbox™. The unit device integrates all the latest technologies within video, audio, OTT and voice services. The product targets service providers such as telecom and TV cable operators. The product has so far been sold to Vodafone in Spain, Totalplay in Mexico and Telecom Italia. Bang & Olufsen Key events Page — 22 Results Annual Report 2021/22 Q2 Beosound Level Cradle -to-Cradle Certified B&O’s Beosound Level was the first ever consumer electronics product to be Cradle to Cradle Certified®. B&O is also among the first companies to have received certification under the new Cradle-to-Cradle Certified Version 4.0 standard. Beosound Level has been designed with a modular approach, making it easy to maintain, service and repair. This extends its lifetime substantially beyond industry standards. Once it reaches its end -of-useful-life point, Beosound Level supports a resource -efficient circulation process because of ease of disassembly and use of high - quality materials, including post -consumer recirculated polymer materials for structural components. Launch of Beoplay EQ earphones Beoplay EQ are the company’s first true wireless earphones with Adaptive Active Noise Cancellation. Stereo pairing B&O introduced stereo pairing for Beosound Balance, Level and Emerge through an over -the-air software update. The new software allows two identical speakers to act as a single set of speakers. Placed at the same height they offer a more immersive sound e xperience. This adds a completely different dimension. Lay Zhang as global brand ambassador Chinese musician Lay Zhang is B&O’s first global brand ambassador. Combining contemporary Chinese and Western pop music, Lay Zhang successfully promoted the launc h of several new products during product launches in China. Upgrade kit for Beogram 4000 series B&O has developed a service kit for its Beogram 4000 series. This makes it possible for everyone who owns a vintage Beogram turntable (available for Beogram 4000, 4002, 4004 and 6000) to restore and refurbish it as well as seamlessly connect it to modern speakers. Product upgrades are performed as a service solution, where B&O -certified engineers disassemble and thoroughly inspect each turntable to make sure it can meet the high standards for classic products. Page — 23 Results Annual Report 2021/22 Awards for Beoplay Portal Beoplay Portal received a very positive review in Trusted Reviews, and in October was awarded ‘Best Wireless Headphones Editor’s Choice Award 2021’. Trusted Reviews wrote: “Practically perfect in every way, the Beoplay Portal delivers on almost all fron ts” and added “the win is particularly impressive given the sheer number of competing wireless headphones to appear this year.” Beoplay Portal also received a Platinum award from T3. Among many highlights, the reviewer was impressed by the immersive sound, the quality and materials, and the fact that Portal also delivers top -notch sound quality and design. B&O official partner of the Race of Champions World Final Starting with the 2022 ROC "SNOW + ICE" event in Pite Havsbad, Sweden, Bang & Olufsen made a collection of headphones, Bluetooth speakers and custom products for ROC drivers and VIPs, along with best -in-class equipment to support the eROC competition – an event that attracts many of the top players in global esports. New colours for Beoplay H95 B&O’s flagship headphones, Beoplay H95, were launched in two new colours, Navy Blue and Chestnut. New features in the B&O App B&O launched a Setup Overview in the B&O App, transforming Product Health Centre into an interactive, at - home troubleshooting tool that is easy for all customers to understand and engage with. The Setup Overview includes a ‘Product Status’ screen that vi sualises detailed Wi-Fi product information, available streaming services, software information, a how -to- optimise Wi -Fi feature, and a setup FAQ library. Girls’ Day in Science The company participated in the Danish nationwide campaign ‘Girls’ Day in Science’. The purpose of the day is to inspire young female students to consider studies within the field of science, technology, engineering and mathematics. Senior high school students visited B&O in Struer, where they met with female specialists who gave them an introduction to scientific career paths in B&O. Partnership with SERHANT. B&O has equipped conference rooms, meeting spaces and common areas with a range of vanguard speakers and TVs to complement the design at SERHANT.’s headquarters in NYC. SERHANT. is Ryan Serhant’s real estate brokerage. Ryan Serhant is also known as one of the main stars of the TV series Million Dollar Listing. SERHANT. has intimate knowledge of the high -end real estate market and the interior desig n space, and Ryan Serhant caters to the same audiences. New HP conferencing system B&O has custom -tuned HP Presence, which is HP’s new suite of conferencing products, to deliver the best possible sound performance. B&O has also embedded its room c ompensation software into the products, making the sound setup easy and simple – no matter where the system is placed. Page — 24 Results Annual Report 2021/22 c Bespoke programme launched B&O launched its Bespoke programme under the banner “Dream it. Own it.”. It allows purchasers to customise their products and choose colours and materials to create something unique. Every bespoke product is finished at the company’s Factory 5 in Struer, Denmark. Nordic Ice Collection B&O’s Nordic Ice Collection features a curated selection of products in a serene, Scandinavian colour palette consisting of contrasting cool and warm tones for the holiday season. B&O and Cisco partner to create luxury business headset As part of the company’s ambitions within B2 B, B&O and Cisco unveiled B&O Cisco 980. This is a luxury business headset that pairs B&O’s design, craftsmanship and sound with Cisco’s integrated meeting controls, Adaptive Active Noise Cancellation and frictionless IT management capabilities to ensure l ong- lasting, secure communications. Hybrid work has increased the need for high -quality multifunctional headsets as remote workers seek to reduce background noise from remote workspaces or simply enjoy music. SK Broadband launches partnership with B &O SK Broadband launched AI Sound Max, a complete set -top box that combines artificial intelligence with advanced audio technology from B&O. The AI Sound Max soundbar has been tuned by B&O’s sound engineers. Furthermore, B&O has worked closely with SK Broadband’s suppliers to develop the audio architecture. Beolink Multiroom B&O expanded its proprietary multiroom ecosystem, Beolink, to all Wi -Fi products. The Beolink ecosystem delivers a unique customer experience. Beolink makes it possible both to link new and older Wi -Fi products and to share audio sources in one unified system. This provides synchronised music in multiple rooms, including total control and simple operation through Touch to Join, Two Way Join and Expand. Moreover, the Beolink integration allows consumers to control all speakers and their home using the Beoremote Halo. Page — 25 Results Annual Report 2021/22 Beoplay Portal for PC, PlayStation and mobile gamers B&O launched a new edition of the wireless gaming headphones Beoplay Portal. The new edition is fully compatible with PC and PlayStation consoles and mobile device gaming. This marks a substantial expansion in connectivity across world -leading platforms. The new edition comes with a wireless dongle, and b attery life has been improved, offering up to 42 hours of playtime. Q3 Collaboration with CLOT B&O and fashion brand CLOT collaborated to create a limited - edition Beosound A1 speaker. The aluminium grill surface is tinted in a bright metallic red and the CLOT logo is printed onto the speaker grill. CLOT is a fashion label from Hong Kong that links East and West through thoughtfully designed apparel and goods. Verizon launches soundbars made in collaboration with B&O Verizon introd uced two premium soundbars featuring built -in on- demand streaming and B&O’s signature sound. The soundbars are sold to Verizon customers in the US. Moment Collection launches in China B&O launched the Moment Collection in China to celebrate the Chine se New Year on 1 February 2022. The collection features four products. New partnership with luxury carmaker Genesis B&O entered a partnership with Genesis, a new luxury car brand. Genesis is a highly progressive luxury Korean carmaker, a member of the Hyundai Motor Company Group. The system received an iF Design Award 2022 for Best Car Audio System. Beosystem 72-22 To celebrate the 50th anniversary of the Beogram 4000 Series turntables, B&O created 30 limited -edition units of this music system exclusively for the US and Canada. The system is part of the Classics Initiative. The fully integrated music system include s a Beogram 4000 Series turntable originally designed by Jacob Jensen in 1972, matching Beolab 18 speakers, and a Beoremote Halo. Each component is connected through a central hub within the solid wood walnut gift box the system arrives in. The cabinet can be repurposed for use as a turntable stand, with storage for records, wireless connectivity hub, and Halo remote charging station. All units were sold on the first day. Page — 26 Results Annual Report 2021/22 Caroline Wozniacki newest brand ambassador Caroline Wozniacki, as Brand Ambassador, and her husband, former NBA All -Star David Lee, will work closely with the Danish luxury brand as she transitions from her athletic career to more lifestyle -focused pursuits, includ ing projects such as custom designing a new family home in Miami. Q4 Beosound A1 DUNE Crafted Edition Beosound A1 DUNE Crafted Edition is designed by Danish industrial designer Cecilie Manz. The unique gradient design was created by hand, blending two colours through a unique anodising process developed especially by B&O experts. One hundred pieces wer e made and they all sold out within a week. Partnership with Williams Racing B&O and Williams Racing announced a multi -year agreement. In addition to the Bang & Olufsen logo adorning the FW44, Williams and B&O will work together to create impactful, immersive and multi-sensory customer and fan experiences. This will happen globally across Bang & Olufsen branded stores, at Williams Racing facilities trackside at various Grand Prix races, and at the Williams Racing headquarters in Grove, Oxfordshire, in the UK. Formula 1 is followed in 170 countries and reaches an average of 87 million viewers per race or 1.5 billion viewers per season. Beosound Level wins iF Design Award 2022 Gold Beosound Level was awarded the iF Design Award 2022 Gold for the best portable HiFi music system. Among other features, Beosound Level was praised for being developed and built for a long lifespan with its Cradle to Cradle certificate. The iF Design Aw ard is the oldest independent design seal in the world. Beoplay EX launched Beoplay EX is the latest addition to B&O’s wearable audio portfolio. With astounding sound, adaptive ANC and a fully waterproof design, Beoplay EX is B&O’s most versatile true wireless earphone model to date. The earphones have 9.2 mm speaker drivers, the biggest ever used for a true -wireless in-ear device by B&O. This results in a significant upgrade in the power of each audio moment, without compromising on comfort. Page — 27 Results Annual Report 2021/22 (DKK million) 2021/22 Income statement Revenue 2,948 2,629 2,036 2,838 3,285 45.3 43.3 41.1 48.5 43.6 EBITDA 257 203 -146 248 397 EBIT before special items* 54 38 -304 59 122 -8 -19 -43 - - EBIT 46 19 -347 59 122 -54 -52 -20 -26 -5 Earnings before tax (EBT) -8 -33 -367 33 117 Earnings for the period -30 -23 -576 19 81 Financial position Total assets 2,518 2,276 1,776 2,462 2,921 Share capital 613 613 432 432 432 Equity 1,100 1,133 832 1,419 1,709 Cash 162 178 215 492 1,155 Available liquidity 301 593 215 492 1,371 Net interest-bearing deposit 111 361 -7 420 985 Net working capital 335 189 313 395 100 * The adjusted EBIT figure is used for year-on- DKK - and (DKK million) 2021/22 Cash flows Cash flows from operating activities 76 297 -80 -131 248 Operational investments -248 -178 -154 -141 -163 Free cash flow -172 119 -234 -272 85 Cash flows from investing activities -239 -623 -154 -141 -163 Cash flows from financing activities 145 293 -43 -391 -9 Cash flows for the period -18 -33 -277 -663 76 Key figures 10 31 -29 -15 2 9.0 8.4 -5.1 8.7 12.1 8.7 7.7 -7.2 8.7 12.1 1.8 1.4 -15.0 2.1 3.7 1.6 0.7 -17.1 2.1 3.7 -1.2 -1.0 -15.2 0.8 2.8 19.3 14.3 -26.1 2.0 11.9 -2.7 -2.1 -28.4 1.4 4.7 Full-time equivalents at end of period 1,073 947 899 957 1,028 Stock related key figures DKK -0.2 -0.2 -14.1 0.5 1.9 -DKK -0.2 -0.2 -14.1 0.5 1.9 -67.6 -168.6 -1.7 109.8 76.2 24.0 21.8 49.8 69.5 76.1 24.0 21.8 49.8 69.4 76.1 Key figures Page — 28 Results Annual Report 2021/22 Development in 2021/22 In 2021/22, the company started working with the second phase of the turnaround strategy, which was focused on building robustness. The focus was on leveraging the already strong product portfolio established during the previous year by launching further product upgrades. The company increased its investments into demand creation and local marketing activities. In London, the company tested the effects on demand and sales of using a targeted marketing and demand effort. The results from this pilot are very positive. The company also continued its focus on brand awareness by engaging with brand ambassadors and influencers and through partnerships like Williams Racing. The company extended its agreement with HP and expanded its licensing business with new partnerships. The new partnerships helped mitigate the dependence on PC sales and the automotive industry, both of which have been adversely affected by component shortages. The company managed to invest more in building robustness, despite facing significant adverse market conditions throughout the year. These included continued higher than normal costs for securing components for the company’s products, and rising inflation, further exacerbated by Russia’s war against Ukraine. Lastly, the spread of COVID-19 in China resulted in extended lockdowns in key regions and cities in the last months of the financial year. The year was characterised by continued component scarcity and higher costs as well as continued pressure on logistics. The combined component and logistics costs were DKK 220m above the normal level, equivalent to an increase of DKK 155m compared to last year. The total impact on product gross margin was approx. 8% equivalent to an increase of approx. 6pp compared to last year. In the previous year, the company established a component sourcing taskforce. This team has been working diligently to optimise availability of components to ensure production and deliveries to customers. However, some products had extended delivery times and the company had to temporarily stop production of Beosound Emerge in order to prioritise components for other products. Logistics costs remained above the normal level, but the company successfully mitigated some of the costs by changing production planning and shipping more by rail and sea. Financial review Revenue amounted to DKK 2,948m, equivalent to 12.1% growth (10% in local currencies), and came from both product sales and Brand Partnering & other activities. The company managed to achieve double -digit growth despite being impacted by component shortages throughout the year and extended COVID- 19 lockdowns in China in the last months of the year. both the company’s investments in building robustne ss but also logistics and component costs amounted to DKK 220m, which was an increase of DKK 155m compared to last year, or a 5pp negative impact on the margin. The results show the strength of the strategy and the resilience that has been created in the company. DKK 172m. It was adversely impacted by extended COVID -19 lockdowns in China in the last months of the year, which led to an increase in working capital following the delay in sales and subsequent inventory increase. Page — 29 Results Annual Report 2021/22 Revenue Group revenue was DKK 2,948m. This was equivalent to 12.1% growth compared to last year or 10% growth in local currencies. The growth was attributed to both product sales and Brand Partnering & other activities, both growing 10% in local currencies. The increase in Brand Partnering & other activities was related to licensing income. This was supported by new partnerships, especially driven by the cooperation with Cisco and the launch of the Bang & Olufsen Cisco 980 headphone for hybrid work. Product sales increased across all regions and product categories. The three regions EMEA, Americas and Asia grew by 4%, 55% and 8% respectively in local currencies. The growth in Asia was adversely impacted by the extended lockdowns in China in Q4. Overall, demand remained positive, with like-for-like sell-out growing by 13% delivered by all product categories, regions and across all channels. Sell-out was adversely impacted by COVID-19 related lockdowns in Q4. Sell-out in China declined by 28% in Q4 as a consequence of lockdowns. The growth was especially driven by the monobrand channel, digital channels and B2B. The number of monobrand stores was reduced by net 12 to 444. This was mainly related to stores in Russia and Belarus. In 2021/22, the company completed a thorough assessment of the monobrand network and partners. The assessment identified 38 stores to be closed, and this will be finalised in 2022/23. Driving online sales remained a core focus throughout the year. Total online sales (eCommerce and eTail) accounted for around 20% of total product sales. The company’s eCommerce channel grew by 12% compared to last year. The growth was adversely impacted in the second half of the year by temporary price inconsistency on select products following the company’s price increases early January. While sell-out from multibrand increased compared to last year, reported revenue from the multibrand channel declined. This was due to high comparables as last year the company onboarded new distribution partners in EMEA leading to high initial sell-in. The multibrand channel in EMEA, was furthermore impacted negatively by products taken back by the company, as improved sell-out and partner inventory insight identified some older slow-moving On-the-go products at a few multibrand partners in Germany and Switzerland. As these products did not sell out as expected, it was decided to make controlled product returns primarily during Q2. The multibrand channel grew in both Americas and Asia. Overall, sales continued to be negatively impacted by supply constraints arising from the worldwide scarcity of electronic components. Staged category Revenue grew by 19.2%, which was mainly related to speakers, including Beolab 28, which was launched in Q4 of 2020/21. Revenue from TVs declined compared to last year. Last year, revenue was supported by revenue from TV screens related to the first generation of Beovision Eclipse and the launch of Beovision Contour 48’’. This year, TV screens were sourced directly by retail partners for the entire TV portfolio. Excluding screen-related revenue last Revenue by segment, DKKm Revenue by category, DKKm 1295 1360 190 307 878 983 266 298 EMEA Americas Asia Brand Partnering & other activities 202122 202021 1002 1196 584 658 777 796 266 298 Staged Flexible Living On-the-go Brand Partnering & other activities 202122 2020 21 Monobrand Multibrand Points of sale -- -- -- -- EMEA 340 349 1,715 1,637 Americas 26 26 2,466 2,456 Asia 78 81 942 979 Total 444 456 5,123 5,072 Page — 30 Results Annual Report 2021/22 year, growth in the Staged category would have been approx. 3pp higher. A number of the company’s Staged products were impacted by component shortages, which had an adverse effect on sales. The company has during the year adjusted prices on most of its Staged products. Some price increases were tactical - on products that the company has assessed that a higher price point can be maintained – while other adjustments were due to the cost inflation experienced in the market. Overall, the price increases had a positive impact on growth. Compared to last year, sell-out was up by 14%. Flexible Living category Revenue grew by 12.8%. The growth was driven by Beoplay A9 as well as the company’s most recently launched products, Beosound Balance and Beosound Level. The growth suffered from component scarcity, which had a significant impact on products based on the previous product platforms, e.g. Beosound 1 and 2 and Beoplay A9. Furthermore, last year the company launched Beosound Emerge, which together with other recent product launches replaced Beoplay M3 and M5. Due to component scarcity, components used for Beosound Emerge were prioritised for other products, and the product range was consequently narrower than last year. The company adjusted prices on several Flexible Living products to accommodate for the cost inflation experienced. The price increases supported revenue growth compared to last year. Demand for Flexible Living products remained solid, and sell-out grew by 14% compared to last year. On-the-go category Revenue grew by 2.5%. The growth was driven by Americas, whereas EMEA and Asia declined. EMEA was impacted by high comparables especially in the second half of the year. Asia was impacted by the extended COVID-19 related lockdowns in Q4. Portable speakers delivered a solid double-digit growth rate, driven by both existing and new products. The company’s newest portable speaker, Beosound Explore, delivered the biggest contribution to growth. Revenue from earphones and headphones was adversely impacted by the high comparables in EMEA and lockdowns in China. In Q4, the company launched its newest earphone, Beoplay EX. Due to the lockdowns in China, the launch was both delayed and reduced to fewer launch colours than planned. Compared to last year sell-out grew by 9%. Gross profit Gross profit amounted to DKK 1,336m, equivalent to a gross margin of 45.3% (FY 20/21: 43.2%). The higher gross margin was driven by product sales, which improved by 2.4pp to 39.7%. The gross margin from Brand Partnering & other activities declined by 1.2pp to 95.2%. The improved gross margin from product sales was supported by both higher product margins and a favourable shift in product mix towards Staged and Flexible Living. All product categories were impacted by increasing component costs. The company successfully mitigated part of the logistics costs increase by moving production of certain products between Europe and China, to reduce freight costs. The company also shifted logistics to rail freight. However, the rail line between China and Europe runs through Russia and Ukraine, and due to the war in Ukraine, the company had to increase the use of air freight in the second half of the year resulting in higher costs. The combined costs for components and logistics were DKK 220m above normal level, and DKK 155m higher than last year. The total impact on product gross margin was approx. 8%, equivalent to an increase of approx. 6pp compared to last year. The company adjusted the prices on select products during the year. The price adjustments were based on a combination of tactical assessments and to mitigate cost inflation. The price adjustments were mainly related to the Staged and Flexible Living categories, which have a lower price elasticity. The margin was positively impacted by lower discounts and bonuses compared to last year. The increase in gross margin from the Staged category was mainly due to price increases and changes in product mix. Furthermore, the category margin benefitted from GROSS MARGIN 2021/22 Staged 45.1% 44.0% Flexible Living 46.8% 47.8% On-the-go 26.0% 20.8% Products, total 39.7% 37.3% Brand Partnering & other activities 95.2% 96.4% Total 45.3% 43.3% Page — 31 Results Annual Report 2021/22 the fact that the company no longer sells TV screens, which instead are sourced directly by the retail partners. The margin on Flexible Living declined by 1pp to 46.8%, which was mainly due to the increase in component and logistics costs. The margin improvement in the On-the-go category was mainly related to earphones, which benefitted from higher margins on new products launched in 2021/22. Capacity costs Capacity costs were DKK 1,290m compared to DKK 1,120m last year. This represented an increase of 15%. The increase related to sales and marketing and product development and reflected the company’s strategy execution as part of the second wave of its strategy – building robustness. Development costs increased by DKK 21m to DKK 279m. Incurred development costs increased DKK 41m compared to last year and the incurred development cost ratio increased by 0.2pp to 11.1%. The increase in incurred development cost was related to platform upgrades and investments in the product roadmap. Furthermore, the company hired additional resources, especially within software and platform development. Distribution and marketing costs increased by DKK 149m to DKK 875m. The increase was related to higher marketing costs, hiring of sales and marketing resources, and warranty provisions, driven by increased customer focus. The increase in marketing costs was mainly driven by local marketing activities and activation. The ratio of marketing to revenue for the year increased by 0.5pp to 8.6%. Administrative costs were DKK 136m, which was at the same level as last year, leading to a reduction in the cost ratio of 0.5pp to 4.6%. In 2021/22, the Group incurred higher costs related primarily to HR and ESG initiatives offset by lower provisions for employee bonuses. Special items within capacity costs amounted to DKK 5m (2020/21: DKK 15m) and were primarily related to garden leave for an Executive Management Board member who left the company. In 2020/21, special items related primarily to specific consultancy costs in respect of the cost reduction programme. EBIT EBIT before special items was DKK 54m (2020/21: DKK 38m), corresponding to an EBIT margin before special items of 1.8% compared to 1.4%. The margin improvement was related to revenue growth in combination with improved gross margin and cost control. EBIT was DKK 46m (2020/21: DKK 19m), corresponding to an EBIT margin of 1.6% (2020/21: 0.7% last year). Net financial items Net financial items were an expense of DKK 54m (2020/21: DKK 52m expense). The increase primarily related to an increase in exchange rate adjustments and fair value adjustments of securities, offset by increased interest income from banks. Earnings Earnings before tax were a loss of DKK 8m (2020/21: DKK 33m loss). Income tax was an expense of DKK 22m (2020/21: income of DKK 10m). The increased income tax was primarily related to interest limitation rules and adjustments to prior years. A full description can be found under the section recovery of deferred tax assets in note 2.5. Cash flow Free cash flow was an outflow of DKK 172m (2020/21: DKK 119m inflow), which was a decrease of DKK 291m compared to last year. This was in general a result of an increase in net working capital and operational investments, partly offset by improved earnings. Cash flows from operating activities were DKK 76m (2020/21: DKK 297m). The decrease was driven by the change in net working capital of DKK -148m (2020/21: DKK 126m), offset by the improved EBITDA, which increased by DKK 54m to DKK 257m. Cash flows from operational investments were an outflow of DKK 248m (2020/21: DKK 178m outflow). Investments were primarily related to the product roadmap and continued development of product platforms. Investments in tangible assets increased following investments in retail development and the company’s aluminium factory. The net inflow from financial investments was DKK 9m (2020/21: DKK -445m) and related to securities. Last year, the company invested DKK 445m net of its excess cash in bonds in order to reduce the impact of negative interest rates. The bonds are recognised under securities in the statement of financial position and presented as cash flow from investing activities in the statement of cash flows. Cash flows from financing activities were DKK 145m (2020/21: DKK 293m). To maintain short-term financial flexibility, the company uses repo transactions, which enables it to access liquidity on an intra-day basis. At the end of the year, the company had borrowed DKK 276m via repo transactions. Cash flows from financing activities were also impacted by the purchase of own shares amounting to DKK 37m (2020/21: DKK 42m) and a one-off payment of holiday pay provision of DKK 34m. Last year, the company executed a rights issue with net proceeds of DKK 359m. The cash position at the end of the year was DKK 162m (31 May 2021: DKK 178m). Page — 32 Results Annual Report 2021/22 Total available liquidity was DKK 301m (31 May 2021: DKK 593m). This was made up of cash and securities totalling DKK 577m (31 May 2021: DKK 613m) less DKK 276m (31 May 2021: DKK 20m) in bank loans related to repo transactions. Net working capital Net working capital increased during the year by DKK 148m to DKK 335m (31 May 2021: DKK 187m). Net working capital to the last 12 months' revenue increased by 4.2pp to 11.4% (2020/21: 7.2%). The ratio was up driven by the lockdowns in China at the end of the year, which resulted in higher than expected inventory levels. Inventories increased by DKK 260m to DKK 629m. The increase during the year was due to timing of supply and the lockdowns in China. The increase was partly related to raw materials and component spot buys. Trade receivables decreased by DKK 41m to DKK 397m. Trade receivables decreased year on year as a result of collection efforts and lower performance in Q4 2021/22 than in the prior year driven by the lockdowns in China. Extended credit declined to 3% of revenue (2020/21: 6%). Trade payables increased by DKK 79m to DKK 581m, driven by higher activity towards the end of the year and timing. Other liabilities decreased by DKK 14m, primarily due to lower provisions for employee bonus. Net interest-bearing deposits/debt Net interest-bearing deposit decreased by DKK 250m during the year to DKK 111m (31 May 2021: DKK 361m). The decrease was mainly due to investments in intangible and tangible assets of DKK -248m (2020/21: DKK -178m), offset by a positive cash flow from operational activities of DKK 76m (2020/21: 297m). Purchase of treasury shares of DKK 37m (2020/21: DKK 42m) also reduced net interest-bearing deposits together with repayment of lease liabilities of DKK 36m (2020/21: DKK 40m) and settlement of other liabilities relating to a one-off payment to the Danish Holiday Fund of DKK 34m. For further details, see note 6.1. Page — 33 Results Annual Report 2021/22 Revenue Revenue was DKK 1,360m (2020/21: DKK 1,295m), which was 5% higher than last year (4% in local currencies). Compared to last year, sell-out increased by 14% driven by most channels and all three product categories, with the biggest increases in the Staged and On-the-go categories. The war in Ukraine resulted in the closure of all stores in Russia and Belarus. It had an immaterial effect on the financial performance in EMEA. The growth was driven by the monobrand channel, eTail and B2B. The growth in the monobrand channel was driven by the company owned stores, in particular. The multibrand channel was adversely impacted by high comparables, as the company benefitted from onboarding of new distribution partners last year. The multibrand channel was also impacted negatively by products taken back by the company, as improved sell- out and partner inventory insight identified some older slow-moving On-the-go products at a few multibrand partners in Germany and Switzerland. As these products did not sell out as expected, it was decided to make controlled product returns primarily during Q2. The company’s eCommerce channel declined by 4%. In the second half of the year, growth was adversely impacted by temporary price inconsistency on select products following the company’s price increases early January. The six core markets accounted for approx. 65% of revenue in the region. The six markets declined by 0.3% (2% in local currencies). The UK, France and Spain delivered solid double-digit growth rates. The decline was related to Denmark, Switzerland and Germany. Germany and Switzerland were impacted by the above-mentioned controlled product returns, while the decline in Denmark was mainly related to the multibrand channel. The growth was driven by the Staged category, which grew by 16.0%. The growth was mainly driven by speakers. Revenue from TVs declined due to the transition to retail partners sourcing screens directly from LG. Excluding the effect of screen sales last year, growth in the Staged category would have been approx. 25%. Revenue from Flexible Living grew by 0.8% compared to last year. Beoplay A9 and the company’s most recently launched products, Beosound Level and Beosound Balance, delivered solid growth rates. Component scarcity adversely impacted availability of products on the old product platform. Revenue from On-the-go declined by 13.9%, which was related to earphones and headphones. Bluetooth speakers delivered solid growth compared to last year. Gross profit Gross profit amounted to DKK 573m, equivalent to a gross margin of 42.2%. This represented a 2.4pp increase over last year. The increase was driven by price increases and change in product mix, partly offset by higher logistics and component costs. EMEA Revenue DKK 1,360m (DKK 1,295m) Growth in local currencies 4% (27%) Share of Group revenue 46% (49%) Gross margin 42.2% (39.8%) Revenue by product category, % 60% 54% 17% 18% 23% 28% 2122 2021 Staged Flexible Living On-the-go Page — 34 Results Annual Report 2021/22 Revenue Revenue was DKK 307m (2020/21: DKK 190m), corresponding to a 61% increase (55% in local currencies). Compared to last year, sell-out grew by 28%, especially driven by monobrand, eTail and eCommerce. The growth was driven by all sales channels. Revenue from etailers and the company's eCommerce platform grew by close to 60%, accounting for around 37% of revenue. Revenue from the Staged category increased by 35.9%, driven by both TVs and speakers. The company’s newest speaker, Beolab 28, saw particularly high demand and was the best-selling Staged speaker in 2021/22. Revenue from the Flexible Living category increased by 40.8% year-on-year. The growth was seen across most speakers. However, the growth was adversely impacted by component scarcity. This impacted availability of products on the old product platform and led to a narrowing of the product offering as production of Beosound Emerge was temporarily suspended. Revenue from On-the-go increased by 91.1% related to portable speakers, earphones and headphones. The growth was attributed to stronger execution across channels. Gross profit Gross profit amounted to DKK 108m, equivalent to a gross margin of 35.1%. This represented a decline of 3.2pp on last year. The decline in gross margin was mainly attributed to the shift in product mix towards the On-the-go category. Furthermore, the margin was adversely impacted by higher logistics and component costs. Americas Revenue DKK 307m (DKK 190m) Growth in local currencies 55% (42%) Share of Group revenue 10% (7%) Gross margin 35.1% (38.3%) Revenue by product category, % 29% 34% 19% 22% 52% 44% 2122 2021 Staged Flexible Living On-the-go Page — 35 Results Annual Report 2021/22 Revenue Revenue was DKK 983m (2020/21: DKK 878m), corresponding to a 12% year-on-year increase (8% in local currencies). Sell-out was up by 8%, driven by all three product categories and across all channels. The development in revenue and sell-out was adversely impacted by extended COVID-19 related lockdowns in China in the last months of the financial year. In Q4, sell- out declined by 28% in China. The two core markets, China and South Korea, grew by 1% in local currencies. Growth in China was negative by 5%, impacted by the above-mentioned lockdowns. South Korea delivered solid growth of 37%. Revenue from the Staged category grew by 24.0% year- on-year. Growth was driven by almost all Staged speakers. Revenue from the Flexible Living category grew by 18.1% year-on-year. The growth was adversely impacted by component scarcity and availability of some products and some colour and material variants. Beoplay A9 and Beosound Level delivered the highest growth compared to last year. Revenue from the On-the-go category decreased by 2.2% compared to last year. The decline was related to earphones, whereas both headphones and portable speakers delivered double-digit growth. Gross profit Gross profit amounted to DKK 371m, equivalent to a gross margin of 37.7%. This represented a 4.2pp increase compared to last year. The increase was mainly related to a favourable shift in product mix towards higher-margin products, partly offset by higher logistics and component costs. Asia Revenue DKK 983m (DKK 878m) Growth in local currencies 8% (43%) Share of Group revenue 34% (34%) Gross margin 37.7% (33.5%) Revenue by product category, % 29% 27% 38% 35% 33% 38% 2122 2021 Staged Flexible Living On-the-go Page — 36 Results Annual Report 2021/22 Revenue Revenue amounted to DKK 298m (DKK 266m). This represented a 12% increase (10% in local currencies). Licence fee revenue grew by 6%, driven by revenue related to the automotive industry as well as new licensing partnerships. The growth was partly offset by declining income related to PC sales. Licensing income accounted for 81% of total revenue in Brand Partnering & other activities. Product-related revenue from brand partnerships and aluminium manufacturing for third parties grew by 52%. This was mainly driven by product collaborations, including with Cisco, and the launch of the Bang & Olufsen Cisco 980 headphones. This launch supports the company’s B2B ambition for select products. Gross profit Gross profit amounted to DKK 284m. This was equivalent to a gross margin of 95.2%, down by 1.2pp compared to last year. The decline was related to the increase in product sales within this segment, which drove down the overall margin. Brand Partnering & other activities Revenue DKK 298m (DKK 266m) Growth in local currencies 10% (11%) Share of Group revenue 10% (10%) Gross margin 95.2% (96.4%) Page — 37 Results Annual Report 2021/22 strong progress on its ESG and sustainability agenda and launched a new strategy to lead and inspire a movement towards a more circular, regenerative future. Bang & Olufsen has published a full ESG and sustainability report for 2021/22 on its environmental, social and governance performance. The report outlines the company’s new ESG and sustainability strategy, initiatives and targets, and progress against the company’s 2020/21 ambitions and the results achieved in the financial year. In addition, it outlines the outlook for the financial year 2022/23 and beyond. The full report is available at https://on.beo.com/esg-sustainability-2022. The report has been prepared in accordance with GRI Reporting Standards: Core option and is compliant with sections 99a, 99b, 99c and 107d of the Danish Financial Statements Act and the EU Taxonomy regulation. The report and the accompanying GRI Index and ESG & Sustainability Data Accounting Principles are available on Bang & Olufsen’s website: https://corporate.bang- olufsen.com/en/sustainability/policy. ESG & sustainability at Bang & Olufsen Pioneering technology innovations and design thinking is in Bang & Olufsen’s DNA, and the company has an unparalleled history of creating enduring magical experiences through beautifully crafted, long-lasting products. In this way, the company continues to push the boundaries in a consumer electronics industry that is known for built-in obsolescence. Today, products that Bang & Olufsen colleagues crafted 50 years ago are still playing beautiful music and bringing joy to customers. Bang & Olufsen’s new ESG and sustainability ambition underlines the company’s commitment to longevity, durability, circularity and upgradeability.. Bang & Olufsen wants to lead and inspire a movement towards a circular, regenerative future by creating long-lasting luxury technology products and experiences – from the first customer to the last. The company believes that Bang & Olufsen can play an important role in the transition towards a regenerative, circular economy by focusing on customers keeping the company’s products for longer and encouraging sustainable purchasing patterns. That is why the new sustainability ambition and strategic framework address ESG and sustainability with longevity at the heart. The strategy is rooted in science and aligned to the UN Sustainable Development Goals. It connects the company to the most important challenges for stakeholders, and the world, and focuses on where Bang & Olufsen can have the greatest impact as a company and a brand. It underlines Bang & Olufsen’s commitment to the principles of responsible business, as outlined in the UN Global Compact charter, which the company became a signatory to in 2022. The strategy demonstrates Bang & Olufsen’s ambition to make a positive impact for the company’s employees, customers, shareholders and society in general while operating in a way that respects planetary boundaries. To ensure there is progress on this agenda towards 2025, the company has identified ambitious targets related to product longevity and circularity, science-based climate action, and diversity, equity and inclusion. The company has mapped the strategy and these targets to the UN Sustainable Development Goals to ensure alignment with the 2030 agenda, which aims to achieve sustainable development in terms of peace, people, and prosperity. Bang & Olufsen’s ESG and sustainability strategy is embedded in the company’s business strategy. Overall responsibility for both lies with the Board of Directors and the Executive Management Board. Bang & Olufsen’s wider Global Leadership Team has the operational responsibility for achieving the company’s sustainability targets. More information on Bang & Olufsen’s ESG and sustainability activities and approaches can be found in the company’s ESG and sustainability report. ESG & sustainability Page — 38 Results Annual Report 2021/22 Activities and results for 2021/22 The year presented a breakthrough in terms of validating the company’s modular and longevity approach to product development and design. The company delivered the world’s first ever consumer electronics device that has achieved certification according to the demanding cradle-to-cradle certification for product circularity and material health. Beosound Level achieved this certification in September 2021. In May 2022, this contributed to Beosound Level winning a prestigious iF design award in Berlin where the longevity and circularity attributes of the product were praised. As part of Bang & Olufsen’s Recreated Classics programme, the company launched a new upgrade service kit, which makes it possible for everyone who owns a vintage Beogram turntable to have it restored and refurbished and to seamlessly connect it to modern speakers. This demonstrates how the principles of circularity and modularity have enabled the company to design products for longevity and make them relevant beyond their first lifecycle. Customers are being inspired to service, repair and upgrade their audio products so that they can enjoy a lifetime of music with the products they love. In January 2022, the company celebrated 40 years of industry-leading Multiroom audio by introducing Beolink Multiroom technology for products on the company’s latest product platform. The automatic software update provides timeless connectivity between the past, present and future by connecting devices from as far back as 1986 to today. The connectivity spans different technologies and music formats. The update offers value to customers by giving them the freedom to upgrade and expand their collections, with the goal of ensuring a lifetime of music. Progress was also made across the Environmental, Social and Governance agendas. With the company’s environmental impacts increasing across energy consumption, emissions and waste production due to higher order volumes for products and construction activities at the company’s headquarters in Struer, Bang & Olufsen decided to phase out the use of fossil fuels in manufacturing and will source renewable electricity for its Danish operations from 2022/23 onwards. This is expected to lead to 100% renewable electricity across the company’s global operations by 2024/25. Bang & Olufsen supports start-ups via its partnership with Sound Hub Denmark in Struer. In collaboration with Sound Hub Denmark and local universities, Bang & Olufsen has been hosting an Innovation Summer Camp for many years that targets university-level engineering and acoustics students from around the world. The camp, which is back after being cancelled during the COVID-19 pandemic, is planned for summer 2022, when there will be added focus on sustainability and longevity in product design. Bang & Olufsen’s Executive Management Board consists of three members. These include one female (33%) and one member with an international background (33%). The company’s Board of Directors consists of ten members, including four employee-elected representatives. Four board members are female (25%) and three have international backgrounds (33%). Of the shareholder-elected members of the Board, 33% are female and 50% have an international background. The Board of Directors believes that members should be chosen for their overall competencies and recognises the benefits of a diverse Board with respect to experience, culture and gender. It was also an important year for Bang & Olufsen in terms of transparency. 2021/22 was the first year in which the company published ESG data in the ESG Factsheet. It was also the first year the company received review assurance from an independent third-party auditor on important ESG KPIs. The company’s performance against 2021/22 strategic ambitions as outlined last year is shown below. The company accomplished ten out of 12 targets for 2021/22. Page — 39 Results Annual Report 2021/22 Review of 2021/22 progress The as outlined last year, is shown below. AMBITION / ACTIVITY RESULTS 2021/22 Environmental impact Continue to work to minimise greenhouse gas footprint in buildings and own logistics system through targeted initiatives Partly accomplished Determine the company's greenhouse gas footprint according to the Greenhouse Gas Protocol (Scopes 1-3) and set target for becoming climate neutral Partly accomplished Scopes 1 and 2 reported; Scope 3 partially completed Expand longevity and circularity product programmes to support the company's commitment to create more sustainable products and increase transparency across the value chain Accomplished Responsible employer Increase focus on good employee experiences throughout employee journeys Accomplished Establish a Diversity, Equity & Inclusion Council Accomplished Ensure a fair, non-biased recruitment process with the right composition of gender, age, cultural background and competencies Accomplished * ssions was therefore only partly accomplished ** Scopes target was AMBITION / ACTIVITY RESULTS 2021/22 Role in society Develop partnership with Sound Hub Denmark and Danish Sound Cluster to support innovators and development of STEM education Accomplished Maintain a focus on community engagement and stakeholder dialogue, including supporting STEM education Accomplished Continue efforts to explore the impact of sound on people’s health and well-being through research programmes Accomplished Responsible employer Include relevant ESG statements in Business Conduct & Ethics Policy and People & Diversity Policy and set relevant compliance metrics Accomplished Continue work with embedding compliance even more into our day- to-day operations and implement structured training programmes Accomplished Report on internal speak-up setup (whistleblowing system) Accomplished Page — 40 Results Annual Report 2021/22 In the coming year, the company will focus on delivering across a number of important topics, in order to support its longevity champion ambition. ESG & sustainability outlook 2022/23 Theme Outlook Longevity • Certification of more products according to the cradle-to-cradle methodology, including Beosound Emerge • Begin integrating cradle-to-cradle criteria into the design and development process Environmental Impact • Undertake a Scope 3 inventory of value chain greenhouse gas emissions and use this to set Science Based Targets • Standardise and extend waste and recycling management programmes • Begin a Lifecycle Assessment process for products to ensure the data needed to quantify the impact of material choice in product development • Eliminate natural gas as a fuel at the company’s manufacturing site • Source renewable electricity across the operational footprint, achieving at least 100% of electricity consumed in operations according S ocial Responsibility • Analyse and review compensation across dimensions and, if deemed necessary, make actions regarding equal pay for equal work • Enhance ownership of the Diversity, Equity and Inclusion (DEI) agenda across the organisation by connecting DEI targets to functional business reviews and leadership KPIs • Ensure successful delivery of the 2022 Innovation Summer Camp in Struer in collaboration with several Danish universities • Pursue the ambition to establish a residential college in Struer for better geographical distribution of STEM education in Denmark Governance and Integrity • Continue to engage with the organisation to ensure there is up-to-date knowledge and high awareness of the different topics covered by the Business Ethics and Conduct Policy, including face-to-face training for senior management on compliance and ethics topics • Continue our important work on materials, including exploring how the company can improve incrementally on the sourcing side, for example through collaboration with industry on standards and traceability or through certification • • Work with high-risk supply chain partners to investigate non-compliances in their third-party audits Page — 41 Governance Annual Report 2021/22 Corporate governance Remuneration Board of Directors Executive Management Board Shareholder information Governance Governance Annual Report 2021/22 Page — 41 Page — 42 Governance Annual Report 2021/22 Bang & Olufsen has a two-tiered management structure. In accordance with current practice in Denmark, responsibility is divided between the non-executive Board of Directors and the Executive Management Board, which are independent of each other. The Board of Directors determines the overall strategy and supervises Bang & Olufsen's activities, management and organisation, while the Executive Management Board is in charge of the day-to-day management. Members of the Executive Management Board do not serve on the Board of Directors. The company's Board of Directors and Executive Management Board constantly strive to ensure transparency and accountability by building trusting relationships with shareholders, customers, suppliers and employees as well as the local communities in which the company operates. Compliance with the Recommendations on Corporate Governance Bang & Olufsen is subject to the Recommendations on Corporate Governance as updated in December 2020 (the Recommendations), prepared by the Danish Committee on Corporate Governance. The Board of Directors regularly reviews Bang & Olufsen's corporate governance framework and policies in relation to the Recommendations and any relevant statutory requirements, and continuously assesses the need for adjustments. At 31 May 2022, Bang & Olufsen was following all Recommendations. Bang & Olufsen has prepared a detailed Corporate Governance Report in accordance with Section 107b of the Danish Financial Statements Act. The report includes a description of the composition of the Board of Directors and its work over the past year as well as a description of the main elements of the company's internal control and risk management system. The Corporate Governance Report can be found at https://on.beo.com/corporate- governance-2022. Board of Directors The Board of Directors currently has ten members, six of whom are elected by the shareholders. Four Board members are elected by the employees in accordance with the Danish Companies Act. The shareholder-elected members are elected for terms of one year, while employee representatives are elected for terms of four years in accordance with current legislation. All shareholder-elected members are independent. Normally, between eight and ten Board meetings are held each year, with ad hoc meetings being held if necessary. In 2021/22, 13 meetings were held. The Board of Directors believes that members should be chosen on the basis of their overall competencies, and also recognises the benefits of Board diversity in respect of experience, cultural background and gender. Each year, the Board of Directors considers the skills and competencies that should be represented on the Board of Directors on the basis of a recommendation from the Nomination Committee. These skills are described in detail in the company's Corporate Governance Report. For more information about individual Board members, including skills and competencies possessed by each Board member, see the section 'Board of Directors' on pages 46-49. Board committees and Advisory Board The Board of Directors has established five committees: a Remuneration Committee, a Nomination Committee, an Audit Committee, a Technology Committee and a Strategy Committee. The committees are tasked with preparing decisions and recommendations for assessment and approval by the Board of Directors. The committees report to the Board of Directors. Each Corporate governance Board meeting and committee attendance Board meetings attended Remuneration Committee Audit Committee Nomination Committee Technology Committee Strategy Committee B Juha Christensen (Chair) Albert Bensoussan (Vice Chair) Anders Colding Friis Jesper Jarlbæk Tuula Rytilä Brian Bjørn Hansen A Britt Lorentzen Jepsen A Dorte Vegeberg A Søren Balling A A: Employee-elected B: two-day Page — 43 Governance Annual Report 2021/22 committee has detailed terms of reference setting out its most important tasks and responsibilities. The tasks and work of the committees are described in more detail in the Corporate Governance Report. Furthermore, the Board of Directors has established a China Advisory Board to (i) ensure that trends and learnings from China are captured and (ii) provide guidance and support to the Chinese part of the business in order to support the growth trajectory in China. Board evaluation process The Chair of the Board of Directors conducts an annual Board self-assessment and review of the Board's performance, addressing the effectiveness of the Board, the processes supporting its work, individual Board members' contributions, the Chair's performance, and the cooperation with the Executive Management Board. The assessment is conducted by way of each individual Board member and member of the Executive Management Board anonymously completing a comprehensive online questionnaire, which is then summarised by an external consultant. Ratings and comments are consolidated and shared with the Board of Directors followed by a Board discussion on potential improvements. The Chair also conducts a personal interview with each of the members of the Board of Directors to collect detailed feedback and input on the Board's performance and improvement areas. The Chair presented the results of the evaluation to the Board of Directors in July 2022. According to the conclusion of the evaluation, the Board of Directors identified certain areas for improvement within the following areas: • Increase focus on structured succession planning. This has also been an observation in previous years. However, as the organisation has been significantly changed and many managers in leadership positions have been replaced during the year, the succession planning process has not been materially improved yet. • Local market visits. • Allocation of more time for interaction with managers from different levels in the organisation Steps are being taken to achieve improvements within these areas and a new set of annual wheels has been prepared to cater for these areas of improvement. The Chair has held individual meetings with each member of the Board of Directors to review their performance. The Chair has reviewed performance with each member of the Board of Directors and provided each member with feedback on their performance. Risk management The purpose of Bang & Olufsen's risk management programme is to protect the business and the brand. This is achieved by identifying key risks and mitigating these to an acceptable level. The company regularly assesses the extent to which individual risks are acceptable, and the extent to which these risks can be reduced to ensure an acceptable balance between risk and return. The risk management process sets out a systematic approach to identify, evaluate and monitor key risks. A number of risk management tools and templates have been developed to lay the foundation for risk management and ensure a structured approach to managing risks across the company. These include: • risk management guidelines • risk governance structure • annual wheel The risk management guidelines set out the company's approach to risk management, the risk management process, the governance structure, and roles and responsibilities. A full description of risk governance is available on the company's website at https://investor.bang-olufsen.com/risk-management. To contain risks within acceptable limits, the company continuously identifies, prioritises, assesses, mitigates, monitors and reports on risks. This includes discussions with the Executive Management Board and relevant stakeholders to evaluate identified risks on the basis of potential impact and probability. These discussions during the year enable a proactive approach to adapting business processes and controls to meet, manage or mitigate such risks, or to prevent potential increases in the current level of exposure. Risk identification and assessment are conducted annually to identify and assess key risks based on the following: • analysis of internal and external information and data • interviews with the Executive Management Board and other key stakeholders, focusing on their fields of expertise and the company in general • analysis and consolidation of identified risks based on potential impact and probability • process for validation of identified risks by the Executive Management Board, including analyses and prioritisation to establish the company's risk profile • biannual discussions with the Audit Committee The assessment takes into account the potential impact and probability of each key risk. The impact relates to three dimensions: financial exposure, reputational damage, and licence to operate. The purpose of the risk management process is to protect the company, meaning its reputation, people, business potential and assets. The risk management process is thus designed to identify and assess material risks associated with the business and its strategic direction. The focus is on monitoring, managing and mitigating risks while leveraging on related opportunities. Page — 44 Governance Annual Report 2021/22 Tax Policy The company has prepared a Tax Policy, which has been approved by the Board of Directors. More information is available in note 2.5 and the company’s Tax Policy, which is available on the company’s website at https://investor.bang-olufsen.com. Data Ethics Policy The company has prepared a Data Business Conduct and Ethics Policy including data ethics in accordance with section 99d of the Danish Financial Statements Act. The policy is available on the company’s website https://on.beo.com/data-ethics-2022. Remuneration The remuneration of the Board of Directors and the Executive Management Board is designed to support the company’s strategic goals and promote value creation for the benefit of the company's shareholders and other stakeholders. Remuneration levels must ensure that the company is able to attract, motivate and retain highly qualified members to both the Board of Directors and the Executive Management Board. The company's Remuneration Policy is reviewed annually by the Remuneration Committee and the Board of Directors. The remuneration policy and the full remuneration report for the financial year 2021/22 can be found at https://on.beo.com/remuneration-2022. Board of Directors The remuneration of members of the Board of Directors comprises a fixed annual base fee and fixed annual supplementary fees for the Chair, the Vice Chair, and members and chairmen of permanent committees. Members of the Board of Directors do not receive incentive-based remuneration. To align the interests of the Board of Directors with the company's shareholders, each member of the Board elected by the general meeting is obliged to invest in shares issued by the company not later than 12 months after the date of the member's election to the Board, for an amount at least corresponding to the annual base fee paid to an ordinary member of the Board according to the most recent annual report, and to keep such shareholding for as long as the individual is a member of the Board. Remuneration of the Board of Directors 2021/22 ( DKK thousand) Annual fee Remuneration Committee Nomination Committee Audit Committee Technology Committee Strategy Committee China Advisory Board Total 2021/22 Total 2020/21 Juha Christensen 1,050 95 95 95 59 1,393 1,069 Albert Bensoussan 525 100 59 684 406 Jesper Jarlbæk 350 75 300 59 784 499 Anders Colding Friis 350 75 75 59 559 414 350 75 50 475 404 Tuula Rytilä 350 75 425 356 Brian Bjørn Hansen A 350 350 285 Britt Lorentzen Jepsen A 350 350 285 Dorte Vegeberg A 350 350 285 Søren Balling A 350 350 285 Joan Ng Pi O B - - 75 Mads Nipper B - - 66 Total 4,375 245 245 400 170 236 50 5,720 4,429 A Employee-elected B Page — 45 Governance Annual Report 2021/22 Executive Management Board Members of the Executive Management Board are entitled to annual remuneration in accordance with the remuneration policy. The remuneration may consist of the following fixed and variable components: • Fixed base salary, including pension contribution • Variable remuneration consisting of (i) non-share- based cash bonus and/or (ii) share-based remuneration • Termination and severance payments • Customary non-monetary employment benefits • Extraordinary incentive grants, including an extraordinary short-term cash-based retention programme The individual composition of remuneration is determined with a view to contributing to the company's ability to attract and retain competent key employees while ensuring that the Executive Management Board has an incentive through variable remuneration to create added value for the benefit of the company's shareholders. For detailed information on remuneration, see notes 3.2 and 3.3 and the remuneration report for 2021/22, which is available at https://investor.bang- olufsen.com. Page — 46 Governance Annual Report 2021/22 Board of Directors JUHA CHRISTENSEN Danish, born 1964 Chair since 2020 Joined (until): 2016 (202 2) Independent Committee memberships Remuneration Committee Technology Committee Nomination Committee Strategy Committee ALBERT BENSOUSSAN French, born 1959 Vice Chair since: 2020 Joined (until): 2020 (202 2) Independent Committee memberships Audit Committee Strategy Committee ANDERS COLDING FRIIS Danish, born 1963 Joined (until): 2018 (202 2) Independent Committee memberships Nomination Committee Remuneration Committee Strategy Committee JESPER JARLBÆK Danish, born 1956 Joined (until): 2011 (202 2) Independent Committee memberships Audit Committee Nomination Committee Strategy Committee Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Competencies Luxury lifestyle, omnichannel, retailing and marketing Brand management Consumer electronics knowledge Key market insights Partnership management Innovation, digitalisation & technology Stakeholder relations & ESG Consumer product supply chain New product introduction International management & strategy development Risk management Finance & accounting Corporate governance of listed companies Competencies Luxury lifestyle, omnichannel, retailing and marketing Brand management Consumer electronics knowledge Key market insights Partnership management Innovation, digitalisation & technology Stakeholder relations & ESG Consumer product supply chain New product introduction International management & strategy development Risk management Finance & accounting Corporate governance of listed companies Competencies Luxury lifestyle, omnichannel, retailing and marketing Brand management Consumer electronics knowledge Key market insights Partnership management Innovation, digitalisation & technology Stakeholder relations & ESG Consumer product supply chain New product introduction International management & strategy development Risk management Finance & accounting Corporate governance of listed companies Competencies Luxury lifestyle, omnichannel, retailing and marketing Brand management Consumer electronics knowledge Key market insights Partnership management Innovation, digitalisation & technology Stakeholder relations & ESG Consumer product supply chain New product introduction International management & strategy development Risk management Finance & accounting Corporate governance of listed companies Directorships and other offices CM Star Global, Inc. and associated subsidiaries, CloudMade Holdings Limited and associated subsidiaries VC Directorships and other offices VC Adorisa Group SA, Lugano, Switzerland O CEO and founder of AB Consultants Paris Directorships and other offices CM VC Goodwings ApS BM Chr. , Augustinus Fonden Directorships and other offices CM Able ApS, A- Catacap Management ApS, DanBAN FAIF ApS and related Polaris III Invest Fonden, Tjommi ApS BM O JJ 2021 Holding ApS Chair Chair ■ Competencies possessed by Board member Page — 47 Governance Annual Report 2021/22 M. CLAIRE CHUNG Chinese, born 1968 Joined (until): 2019 (202 2) Independent Committee memberships Remuneration Committee TUULA RYTILÄ Finnish, born 1967 Joined (until): 2019 (202 2) Independent Committee memberships Technology Committee BRIAN BJØRN HANSEN Danish, born 1972 Employee-elected Joined (until): 2015 (2023) Not independent Committee memberships - BRITT LORENTZEN JEPSEN Danish, born 1991 Employee -elected Joined (until): 2019 (2023) Not independent Committee memberships - Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Competencies Luxury lifestyle, omnichannel, retailing and marketing Brand management Consumer electronics knowledge Key market insights Partnership management Innovation, digitalisation & technology Stakeholder relations & ESG Consumer product supply chain New product introduction International management & strategy development Risk management Finance & accounting Corporate governance of listed companies Competencies Luxury lifestyle, omnichannel, retailing and marketing Brand management Consumer electronics knowledge Key market insights Partnership management Innovation, digitalisation & technology Stakeholder relations & ESG Consumer product supply chain New product introduction International management & strategy development Risk management Finance & accounting Corporate governance of listed companies Competencies • Senior Business Manager, Head of CI and B2B North America Competencies • Global Logistics, Consultant Directorships and other offices BM Delsey O CEO of Ignae Advisory Board Member, Shilling Founders Fund Directorships and other offices O Corporate Vice President at Microsoft in Seattle Directorships and other offices - Directorships and other offices - Chair Chair ■ Competencies possessed by Board member Page — 48 Governance Annual Report 2021/22 DORTE VEGEBERG Danish, born 1972 Employee -elected Joined (until): 2019 (2023) Not independent Committee memberships - SØREN BALLING Danish, born 1971 Employee -elected Joined (until): 201 7 (2023) Not independent Committee memberships - Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Competencies • Radio and electronics worker, Production Competencies • Production Manager, Mechanics Directorships and other offices - Directorships and other offices BM Øster Hjerm Bygningsartikler Chair Chair ■ Competencies possessed by Board member Page — 49 Governance Annual Report 2021/22 Executive Management Board KRISTIAN TEÄR Swedish, born 1963 Chief Executive Officer Employed since 8 October 2019 NIKOLAJ WENDELBOE Danish, born 1975 Executive Vice President & Chief Financial Officer Employed since 1 May 2019 LINE KØHLER LJUNGDAHL Danish, born 1978 Executive Vice President & Chief Legal Officer Employed since 1 January 2015 Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Bang & Olufsen shares, year-end: Competencies • MSc from The Royal Institute of Technology in Stockholm • Executive programme at Columbia University, USA Competencies • MSc Econ (cand.polit.) from University of Copenhagen Competencies • Executive MBA from Copenhagen Business School • Master in Law (LL.M) from Copenhagen University Directorships and other offices BM International Tennis Hall of Fame & Museum Directorships and other offices BM GomSpace Group AB CM Sparkle ApS BM O Director NWE Invest ApS Directorships and other offices BM BM Chair Chair Page — 50 Governance Annual Report 2021/22 The share price declined by 49.6% in impacted by the turmoil in the financial markets in the second half of the sector was especially impacted, driven by higher inflation, rising interest rates, the war in Ukraine, and lockdowns in China. The extended lockdowns in China also had an adverse impact on the company’s sales in the last quarter, and the company had to adjust its outlook on 10 May 2022. During the year, the share price declined by 49.6% to DKK 16.64 on 31 May 2022. The decline was especially driven by turmoil in the financial markets, which were characterised by high volatility. The development was heavily impacted by higher uncertainty as the markets faced a rapid increase in inflation and interest rates since autumn 2021 as well as continued challenges related to component scarcity. The uncertainty was further exacerbated by the war in Ukraine from 24 February 2022 and extended lockdowns in China from late March 2022. Technology and retail-related shares were especially impacted by this development. The Nasdaq OMX MidCap index, which Bang & Olufsen is part of, was more resilient but still declined by 4.0%. Shareholder composition At the end of the financial year 2021/22, the company had around 31,000 shareholders. This was at the same level as a year earlier. In terms of share capital, the shareholder base was predominantly Danish. It increased by 8pp, reaching 68% of the share capital. At the end of the year, the company had three major shareholders each owning more than 5%. On 31 May 2022, the company owned treasury shares equivalent to 2.6% of the share capital, with the purpose of hedging the AGM-approved long-term combined performance and restricted share programme. Shareholder information Share price development 1 June 2021 to 31 May 2022 0 5 10 15 20 25 30 35 40 21 21 21 21 22 22 OMX MidCap (rebased) The Bang & Olufsen share Stock exchange NASDAQ Copenhagen A/S Identification code (ISIN) DK 0010218429 Closing price (DKK) 16.64 32.14 24.5 Market value (DKKm) 2,055 3,944 1,054 Average daily turnover (DKKm) 11.8 13.8 8.0 Shares issued 122,772,087 122,772,087 43,197,478 Treasury shares 3,249,522 2,112,372 2,317,014 Earnings per share (DKK) -0.2 -14.1 -168.6 -1.7 Page — 51 Governance Annual Report 2021/22 Capital structure The capital structure is reviewed continuously with due consideration for Bang & Olufsen's financial performance and strategic developments, including investment requirements and shareholder interests. In May 2022, the company extended its existing credit facility by another two years and increased it by DKK 50m to DKK 150m. On 31 May 2022, the company’s combined capital resources, consisting of available liquidity and the undrawn part of the credit facility, amounted to DKK 433m. The Board of Directors proposes that no dividends be paid for the financial year 2021/22 as the company continues to invest in its strategy execution and building robustness. Furthermore, uncertainties related to COVID- 19 and consumer demand remain high, and this is also reflected in the company’s outlook for 2022/23. Investor Relations activities Bang & Olufsen aims to maintain an open and constructive engagement with the market and to be perceived as reliable and transparent by ensuring that relevant and accurate information concerning the Group is made available to the market in due time. In addition to publishing financial results and other company announcements, Bang & Olufsen's Executive Management Board and Investor Relations use webcasts, roadshows, conferences and conference calls as their primary channels of communicating with stakeholders. Investor Relations is responsible for maintaining the day- to-day engagement with current and potential shareholders as well as with sell and buy-side analysts. Information about analyst coverage, and access to investor-related materials and conference calls can be found at https://investor.bang-olufsen.com. Shareholder composition, 31 May 2022 68% 13% 6% 13% Denmark UK & Ireland US Other Financial calendar 2022 18 August Annual General Meeting Bang og Olufsen Allé 1 7600 Struer Denmark Deadline for subjects and proposals to the agenda 7 July 2022 5 October Interim report Q1 2022/23 2023 11 January Interim report Q2 2022/23 13 April Interim report Q3 2022/23 6 July Annual report 2022/23 Major shareholders, 31 May 2022 Three shareholders have notified Bang & Olufsen that they hold more than 5% of the company’s share capital. More than 10%: • Sparkle Roll (Denmark) Limited • Arbejdsmarkedets Tillægspension More than 5%: • Chr. Augustinus Fabrikker Aktieselskab Page — 52 Q4 results Annual Report 2021/22 Q4 results Q4 results Annual Report 2021/22 Page — 52 Page — 53 Q4 results Annual Report 2021/22 For definitions, see note 8.7. Q4 key financial highlights Q4 YTD (DKK million) 2021/22 2021/22 Income statement Revenue 698 776 2,948 2,629 EMEA 330 377 1,360 1,295 Americas 85 60 307 190 Asia 185 275 983 878 Brand Partnering & other activities 98 64 298 266 48.2 41.1 45.3 43.3 EMEA 44.8 39.7 42.2 39.8 Americas 39.4 31.2 35.1 38.3 Asia 35.0 32.2 37.7 33.5 41.0 36.1 39.7 37.3 Brand Partnering & other activities 92.8 94.4 95.2 96.4 EBITDA 65 61 257 203 EBIT before special items 12 15 54 38 EBIT 11 7 46 19 -1 -8 -8 -19 -21 -14 -54 -52 Earnings before tax (EBT) -10 -7 -8 -33 Earnings for the period -25 1 -30 -23 Financial position Total assets 2,518 2,276 2,518 2,276 Share capital 613 613 613 613 Equity 1,100 1,133 1,100 1,133 Cash 162 178 162 178 Available liquidity 301 593 301 593 Net interest-bearing deposit 111 361 111 361 Net working capital 335 187 335 187 Q4 YTD (DKK million) 2021/22 2021/22 2020/21 Cash flows Cash flows from operating activities -97 96 76 297 Operational investments -93 -62 -248 -178 Free cash flow -190 34 -172 119 Cash flows from investing activities -88 -56 -239 -623 Cash flows from financing activities 123 -142 145 293 Cash flows for the period -62 -102 -18 -33 Key figures -12 109 10 31 9.4 8.9 9.0 8.4 9.3 7.9 8.7 7.7 1.7 1.9 1.8 1.4 1.6 0.9 1.6 0.7 -1.2 -1.0 -1.2 -1.0 19.3 14.3 19.3 14.3 -2.7 -2.1 -2.7 -2.1 Full-time equivalents at end of period 1,073 947 1,073 947 Stock-related key figures DKK -0.2 0.0 -0.2 -0.2 -DKK -0.2 0.0 -0.2 -0.2 -81.2 3,878.0 -67.6 -168.6 5.8 6.4 24.7 21.8 5.8 6.4 24.7 21.8 Page — 54 Q4 results Annual Report 2021/22 Revenue Group revenue declined by 10.1% (-12% in local currencies) to DKK 698m (Q4 2020/21: DKK 776m). The decline was related to Asia and EMEA, whereas Americas and Brand Partnering & other activities delivered strong growth. Brand Partnering & other activities grew by 52.7% (50% in local currencies), driven by both brand licensing income and brand partnerships. Revenue from product sales decreased by 15.1% (18% in local currencies). The decline was mainly related to Asia, which was impacted by extended COVID-19 related lockdowns in China and by high comparables in EMEA. Americas continued the high growth momentum from previous quarters, delivering 35% growth in local currencies. Component scarcity continued to adversely impact growth. In Q4, the company launched its new earphone, Beoplay EX. Due to the lockdowns in China, the company had to delay the launch, and the product was launched in fewer colours than originally planned. Compared to last year, sell-out grew by 1%. Sell-out was adversely impacted by COVID-19 related lockdowns in China in Q4. Sell-out in China declined by 28% compared to last year. Staged Revenue declined by 5.1%, mainly related to TVs, whereas speaker sales achieved double-digit growth compared to last year. The decline in revenue from TVs was partly related to last year’s launch of Beovision Contour 48’’, which Q4 financial review Revenue in Q4 declined by 10.1% (-12% in local currencies) due to -19 related lockdowns in China and high comparables in EMEA. Americas maintained the growth momentum from previous quarters. Gross margin increased 7.4pp, driven by higher margin on products, supported by pri ce increases on select products and a reduction in discounts and bonus payments. The quarter was further impacted by less spot buys expensed compared to prior quarters due to timing and reduced inventory provision for spare parts. Q4 YTD GROSS MARGIN 2021/22 2021/22 Staged 45.3% 41.9% 45.1% 44.0% Flexible Living 47.5% 45.3% 46.8% 47.8% On-the-go 29.9% 21.2% 26.0% 20.8% Products, total 41.0% 36.1% 39.7% 37.3% Brand Partnering & other activities 92.8% 94.4% 95.2% 96.4% Total 48.2% 41.1% 45.3% 43.3% Page — 55 Q4 results Annual Report 2021/22 included screen sales. This year, revenue did not include any TV screen revenue. The increase in speaker sales was driven by all speakers, with Beolab 90 and Beolab 50 contributing the highest percentage growth. Furthermore, revenue was positively impacted by price increases implemented since Q4 of last year. Compared to last year, sell-out was up by 12%,and maintained the solid performance from previous quarters. Flexible Living Revenue declined by 29.1%. The decline was partly related to component scarcity, which impacted availability of certain products, but also resulted in a temporary narrowing of the Flexible Living product range. Last year, revenue in Asia was impacted by large B2B deals. Sell-out declined by 7% compared to last year. The category was adversely impacted by component scarcity. On-the-go Revenue declined by 19.6%. The decline was related to earphones and headphones, whereas portable speakers delivered solid growth, mainly driven by Beosound Explore and Beolit 20. The decline in revenue from earphones was partly due to high comparables. Last year, revenue was lifted by inventory clearing of Beoplay E8 3 rd Gen in advance of the launch of Beoplay EQ. The decline in revenue from headphones was partly related to high comparables. Last year, the company launched Beoplay HX and Beoplay Portal, and revenue was lifted by launch quantities sold to retail partners. Sell-out declined by 5% compared to last year, which was related to lockdowns in China, whereas both EMEA and Americas delivered solid growth rates. Gross profit Gross profit increased by 5% to DKK 337m. This was equivalent to a gross margin of 48.2%, which was 7.1pp better than last year. The gross margin on products increased by 4.9pp to 41.0%. The gross margin was positively impacted by price increases implemented since Q4 of last year and less use of discounts and bonuses. Furthermore, last year the margin was negatively impacted by large B2B deals in China, inventory clearing of Beoplay E8 3 rd Gen in advance of new product launches, and passthrough of screens sold during the launch period of Beovision Contour 48’’. Higher component and logistics costs adversely impacted product margin by around 9pp, which was 3.5pp more than Q4 of last year. Lastly, the company’s continued focus on longevity and the Classics programme lowered inventory provision for spare parts and had a positive impact on gross profit for the quarter. Capacity costs Capacity costs amounted to DKK 326m (Q4 2020/21: DKK 312m), corresponding to an increase of 4%. Development costs were DKK 64m, which was DKK 8m or 11% lower than Q4 of last year. The decrease was driven by higher capitalisation. Incurred development costs increased by 34% to DKK 103m (Q4 2020/21: DKK 77m), reflecting platform upgrades and investments in the product roadmap. Distribution and marketing costs were DKK 225m, corresponding to an increase of 11% compared to Q4 of last year. The increase was related to higher marketing costs. Administrative costs were stable at DKK 37m (Q4 2020/21: DKK 37m). Revenue by segment, DKKm Revenue by category, DKKm 377 330 60 85 275 185 64 98 EMEA Americas Asia Brand Partnering & other activities Q4 202122 Q 4 202021 294 281 190 134 228 185 64 98 Staged Flexible Living On-the-go Brand Partnering & other activities Q4 202122 Q 4 202021 Page — 56 Q4 results Annual Report 2021/22 EBIT EBIT before special items was DKK 12m, equivalent to a margin of 1.7% (Q4 2020/21: 1.9%). EBIT was DKK 11m (Q4 2020/21: DKK 7m), which corresponded to an EBIT margin of 1.6% (Q4 2020/21: 0.9%). The improvement was primarily related to less special items in 2021/22. Cash flow Free cash flow was DKK -190m (Q4 2020/21: DKK 34m). The negative free cash flow was primarily related to the increased working capital of DKK -148m (Q4 2020/21: DKK 45m), resulting in operating cash flows of DKK -97m (Q4 2020/21: DKK 96m) and cash flows from investing activities of DKK-93m (Q4 2020/21: DKK -56m). The lockdowns in China at the end of the year contributed to a higher net working capital, where particularly inventory levels increased. Financing activities generated a DKK 128m cash flow (Q4 2020/21: DKK -142m). The cash flow related to repo transactions, which were used to access liquidity on an intra-day basis for short-term liquidity planning. For the full year, this amounted to a net repo loan of DKK 276m (31 May 2021: DKK 20m). EMEA Revenue Revenue in EMEA was DKK 330m (Q4 2020/21: DKK 377m). This represented a 12.6% decrease compared to last year (-14% in local currencies). The decline was partly related to high comparables as last year was supported by late deliveries of products that had been postponed from previous quarters due to component scarcity. Sell-out was up by 8% compared to last year, mainly driven by the Staged and On-the-go categories. The eCommerce channel, together with etailers, accounted for around 10% of revenue in EMEA. Revenue from the Staged category declined by 3.6% compared to the same quarter of last year. The decline was mainly related to high comparables and component shortages. Revenue from Flexible Living decreased by 28.6% compared to last year. The category was impacted by component shortages and a narrower product portfolio due to prioritisation of key components between products. In Q2, the company decided to temporarily stop production of Beosound Emerge and prioritise components for other products. Revenue from On-the-go declined by 22.1%. The decline was mainly related to high comparables from headphones as the company launched Beoplay HX and Beoplay Portal in Q4 of last year. Gross profit Gross profit amounted to DKK 146m. This was equivalent to a gross margin of 44.8%, which was 5.1pp higher than last year. Americas Revenue Revenue in Americas was DKK 85m (Q4 2020/21: DKK 60m), corresponding to a 41.1% increase (35% in local currencies). Sell-out was up by 34% compared to last year, driven by all product categories and especially related to monobrand, eTail and eCommerce. Growth was driven across all channels except multibrand, which last year was lifted by the renewed partnership with BestBuy. The monobrand channel delivered strong growth. Revenue from etailers and the company's eCommerce platform grew by 50%, accounting for approx. 33% of revenue in Americas in Q4. Revenue from the Staged category increased by 73.2% compared to last year. Both existing and new products drove growth in Q4. Speakers experienced the highest growth across all products. Revenue from Flexible Living was up by 39.3% compared to last year, driven by most core products, in particular Beoplay A9. Revenue from On-the-go grew by 24.5%. Growth was driven by portable speakers and earphones. Headphones declined, mainly due to high comparables with the launch of Beoplay HX and Beoplay Portal in Q4 of last year. Gross profit Gross profit amounted to DKK 31m. This was equivalent to a gross margin of 39.4% compared to 31.2% in the same quarter of last year. Asia Revenue Revenue in Asia was DKK 185m (Q4 2020/21: DKK 275m), corresponding to a 32.7% decrease (-34% in local currencies). The decline was mainly related to the extended COVID-19 related lockdowns in China, and it had an adverse impact on all product categories. Furthermore, last year the Flexible Living category was also driven by large B2B deals, and the On-the-go Page — 57 Q4 results Annual Report 2021/22 category was impacted by inventory clearing of Beoplay E8 3 rd Gen in advance of the launch of Beoplay EQ. The lockdowns also impacted sell-out negatively. Sell- out in Asia declined by 12% driven by China which declined by 28%. Gross profit Gross profit amounted to DKK 69m. This was equivalent to a gross margin of 35.0%, which was 2.8pp higher than in Q4 of last year. Brand Partnering & other activities Revenue amounted to DKK 98m (Q4 2020/21: DKK 64m). This represented a 52.1% increase compared to Q4 of last year (50% in local currencies). Growth was driven by brand licensing income, co- branded products and aluminium manufacturing for third parties. Licensing income grew by 40% and accounted for 74% of revenue in Brand Partnering & other activities. The growth was attributed to both the automotive industry and PC sales. The growth was also supported by the company’s new brand licensing partnerships. Product revenue from the company’s brand partnerships and other activities grew significantly. This was driven particularly by new partnerships, including with Cisco, and the launch of the Bang & Olufsen Cisco 980 headphones. Gross profit Gross profit amounted to DKK 91m. This was equivalent to a gross margin of 92.8%, which was 1.6pp lower than last year. The decrease related to the growth in product- related income and aluminium production for third parties. Page — 57 Page — 58 Consolidated financial statements Annual Report 2021/22 Income statement Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Notes Consolidated financial statements Consolidated financial statements Annual Report 2021/22 Page — 58 Page — 59 Consolidated financial statements Annual Report 2021/22 (DKK million) Notes 2021/22 Revenue 2.1 2,948 2,629 Production costs 2.2, 2.3, 2.4 -1,612 -1,490 Gross profit 1,336 1,139 Development costs 2.2, 2.3, 2.4 -279 -258 Distribution and marketing costs 2.2, 2.3, 2.4 -875 -727 Administrative costs 2.2, 2.3, 2.4 -136 -135 Operating profit/(loss) (EBIT) 46 19 Financial income 6.5 11 6 Financial expenses 6.5 -65 -58 -54 -52 Earnings before tax (EBT) -8 -33 Income tax 2.5 -22 10 Earnings for the year -30 -23 Earnings per share 8.2 -0.2 -0.2 Diluted earnings per share (EPS- 8.2 -0.2 -0.2 (DKK million) Notes 2021/22 Earnings for the year -30 -23 Items that will be reclassified subsequently to the income statement: Foreign exchange adjustments of foreign entities 16 4 Fair value adjustments of derivatives -13 -25 Value adjustments of derivatives reclassified in Revenue 25 7 Production costs -6 2 Tax on other comprehensive income 2.5 -1 3 Other comprehensive income for the year, net of tax 21 -9 Total comprehensive income for the year -9 -32 Income statement 1 June – 31 May Statement of comprehensive income 1 June – 31 May Page — 60 Consolidated financial statements Annual Report 2021/22 Assets (DKK million) Notes 31-05-22 -- Goodwill 42 41 Acquired rights and software 57 41 Completed development projects 97 110 Development projects in progress 138 76 Intangible assets 5.1 334 268 5.1 215 180 Right-of-use assets 5.2 108 120 Tangible assets 323 300 Non-current other receivables 27 24 Deferred tax assets 2.6 77 87 Total non-current assets 761 679 Inventories 4.1 629 369 Trade receivables 4.2 397 438 Tax receivable 2.6 37 32 Other receivables 89 92 Prepayments 28 32 Securities 6.1, 6.2 415 435 Cash 6.1, 6.2 162 178 Assets held for sale 5.3 - 21 Total current assets 1,757 1,597 Total assets 2,518 2,276 Equity and liabilities (DKK million) Notes 31-05-22 -- Share capital 6.4 613 613 Translation reserve 32 16 Reserve for cash flow hedges -5 -10 Retained earnings 460 514 Total equity 1,100 1,133 Lease liabilities 6.2, 6.3 95 117 Pensions 3.4 12 14 Deferred tax 2.6 6 7 Provisions 6.6 41 39 Mortgage loans 6.3 58 61 Non-current other liabilities 4.3 21 16 Total non-current liabilities 233 254 Lease liabilities 6.2, 6.3 39 24 Mortgage loans 6.3 4 4 Bank loans 6.1, 6.2 276 20 Provisions 6.6 56 49 Trade payables 6.2 581 502 Tax payable 2.6 17 31 Other liabilities 4.3, 4.4 212 259 Total current liabilities 1,185 889 Total liabilities 1,418 1,143 Total equity and liabilities 2,518 2,276 Statement of financial position Page — 61 Consolidated financial statements Annual Report 2021/22 (DKK million) Notes 2021/22 Earnings before tax (EBT) -8 -33 54 52 211 184 Operating profit(/loss) before depreciation, amortisation and impairment (EBITDA) 257 203 Other non-cash items 17 -5 Change in net working capital 4.4 -148 126 Interest received 11 6 Interest paid -28 -23 Income tax paid -33 -10 Cash flows from operating activities 76 297 Purchase of intangible non-current assets -181 -134 Purchase of tangible non-current assets -68 -50 Sublease payment 3 7 Other cash flows from investing activities -2 -1 Operational investments -248 -178 Free cash flow -172 119 Purchase of securities 6.1 -447 -495 Sale of securities 6.1 456 50 Financial investments 9 -445 Cash flows from investing activities -239 -623 (DKK million) Notes 2021/22 Repayment of lease liabilities 6.1, 6.3 -36 -40 Repayment of mortgage loans 6.1, 6.3 -4 -4 Proceeds from loans and borrowings 6.1, 6.3 712 472 Repayment of loans and borrowings 6.1, 6.3 -456 -452 Purchase of treasury shares 6.4 -37 -42 Capital increase 6.4 - 359 Settlement to other liabilities 6.3 -34 - Cash flows from financing activities 145 293 Cash and cash 178 215 2 -4 Change in cash and cash equivalents -18 -33 Cash and cash equivalents, closing balance 162 178 Available liquidity 6.1 301 593 Statement of cash flows 1 June – 31 May Accounting policies The cash flow statement shows the cash flows from operating, investing and financing activities for the year, the year’s changes in cash and cash equivalents as well as cash and cash equivalents at the beginning and end of the year. Cash flows from operating activities are calculated according to the indirect method as earnings before tax adjusted for non - cash operating items, changes in working capital, payments of financial items and income taxes paid. Cash flows from investing activities comprise payments in connection with acquisitions and disposals of intangible assets, property, plant and equipment, acquisitions and disposals of securities in regards to repo, and other non- current assets. Cash flows from financing activities comprise changes in the size or composition of share capital and related costs, the raising of loans including repo, as well as repayment of interest-bearing debt including lease liabilities. Cash and cash equivalents comprise cash at bank and in hand. Page — 62 Consolidated financial statements Annual Report 2021/22 Statement of changes in equity 1 June – 31 May ( DKK million) Share capital Translation reserve Reserve for cash flow hedges Retained earnings Total Equity 1 June 2021 613 16 -10 514 1,133 Earnings for the year - - - -30 -30 Foreign exchange adjustments of foreign entities - 16 - - 16 Fair value adjustments of derivatives - - -13 - -13 Value adjustments of derivatives reclassified in Revenue - - 25 - 25 Production costs - - -6 - -6 Income tax on items that will be reclassified to the income statement - - -1 - -1 Comprehensive income for the year - 16 5 -30 -9 Share-based payments - - - 13 13 Acquisition of own shares - - - -37 -37 Equity 31 May 2022 613 32 -5 460 1,100 Equity 1 June 2020 432 12 3 385 832 Earnings for the year - - - -23 -23 Foreign exchange adjustments of foreign entities - 4 - - 4 Fair value adjustments of derivatives - - -25 - -25 Value adjustments of derivatives reclassified in Revenue - - 7 - 7 Production costs - - 2 - 2 Income tax on items that will be reclassified to the income statement - - 3 - 3 Comprehensive income for the year - 4 -13 -23 -32 Cancellation of shares -23 - - 23 - Reduction of share capital -205 - - 205 - Rights issue 409 - - - 409 Costs related to rights issue - - - -50 -50 Share-based payments - - - 13 13 Tax related to the LTI programme - - - 3 3 Acquisition of own shares - - - -42 -42 Equity 31 May 2021 613 16 -10 514 1,133 Page — 63 Consolidated financial statements Annual Report 2021/22 1. Basis of reporting Basis of reporting Critical accounting estimates and judgements Changes in accounting policies 2. Operations Revenue and operating segments Costs Government grants Special items Tax 3. Staff costs, share-based payments and pensions Staff costs Remuneration of management Share-based programmes Pension and similar retirement obligations 4. Net working capital Inventories Trade receivables Contract assets and liabilities Net working capital 5. Invested capital and equipment Right-of-use assets Assets held for sale 6. Capital structure and provisions Net interest- Financial instruments by category Mortgage loans and lease liabilities Capital structure and share capital Financial items Provisions 7. Financial risk management Financial risks Sensitivity analysis Derivative financial instruments 8. Other disclosure requirements Fees to auditors Earnings per share other financial commitments Related parties Events after the reporting period Companies in the Bang & Olufsen Group Key figure definitions Notes Consolidated financial statements Page — 63 Page — 64 Consolidated financial statements Annual Report 2021/22 1.1 Basis of reporting Basis of preparation Bang & Olufsen is a Danish company listed on Nasdaq Copenhagen. The Group reports in accordance with the rules and principles for accounting class D. The Annual Report is published on 6 July 2022 and will be presented to the shareholders for approval at the Annual General Meeting. The Group's consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies. The accounting policies set out below have been used consistently with respect to the financial year and comparative figures, except as described in note 1.3 regarding changes in accounting policies. Applying materiality Significant items are presented individually in the financial statements as required by IAS 1. Items that are not individually significant but support the understanding of Bang & Olufsen's business model and performance in the reporting period are also presented in the financial statements. Currency The Group's consolidated financial statements are presented in Danish kroner (DKK). Figures are rounded to the nearest DKK million, unless otherwise stated. Basis of consolidation The consolidated financial statements are prepared as a consolidation of the financial statements of the Parent Company, Bang & Olufsen A/S, and its subsidiaries in accordance with the Group's accounting policies. All intra-group income, expenses, shareholdings, balances and dividends are eliminated on consolidation. The accounting items of subsidiaries are included in full in the consolidated financial statements. Translation of foreign currency A functional currency is determined for each of the Group’s reporting entities. The functional currency of the Parent Company is Danish kroner (DKK). Transactions denominated in currencies other than the functional currency are considered transactions denominated in foreign currencies. On initial recognition, transactions denominated in foreign currencies are translated to the functional currency at the exchange rates at the transaction date. Differences arising between the exchange rates at the transaction date and at the date of payment are recognised as financial income or expenses. Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the reporting date. The difference between the exchange rates at the reporting date and at the date at which the receivable or payable arose or the exchange rate in the latest consolidated financial statements is recognised as financial income or expenses. On recognition in the consolidated financial statements of entities with a functional currency other than the presentation currency (DKK), the income statement and statement of cash flows are translated at the exchange rates prevailing at the transaction date, and the statement of financial position is translated at the exchange rates prevailing at the reporting date. Differences arising from the translation of the opening balance of equity of foreign entities at the exchange rates prevailing at the reporting date, and on translation of the income statement from the transaction date to the reporting date, are recognised in other comprehensive income and attributed to a separate translation reserve in equity. iXBRL reporting Bang & Olufsen A/S has filed the Annual Report in the new European Single Electronic Format (ESEF), an XHTML format that can be displayed in a standard browser. eXtensible Business Reporting Language (iXBRL) complies with the ESEF taxonomy included in the ESEF regulation and has been used to tag the primary statements and other financial information within the Annual Report. The file has been uploaded to the website together with the Annual Report. Section 1 Basis of reporting Page — 65 Consolidated financial statements Annual Report 2021/22 When applying the Group’s accounting policies, management is required to make a number of accounting judgements and estimates and to make assumptions about the carrying amounts of certain assets and liabilities and recognised revenue and costs, which cannot be derived directly from other sources. Significant judgements are made when assessing development projects, right-of-use assets, deferred tax assets, inventories, trade receivables and provisions. Management bases its estimates and judgements on historical experience and other relevant factors that are believed to be reasonable under the given circumstances. The actual outcome can differ from these estimates. Estimates and the underlying assumptions are reviewed on a continuous basis. Changes made to accounting estimates are recognised in the financial period in which the change takes place and future financial periods if the change affects both the period in which the change takes place and future financial periods. The direct revenue impact of the war in Ukraine was not significant as revenue related to Russia, Ukraine and Belarus accounted for only around 1% of total revenue in 2021/22. There were no receivables or cash accounts in these countries. Management assessed both the overall supply situation and consumer demand in relation to the war in Ukraine and concluded that the financial impacts consequently do not require significant judgements. In Q4, stores in China and Hong Kong were temporarily closed due to COVID-19 related lockdowns. Some of the Group’s production partners were also impacted, but with only limited effect on performance in EMEA and Americas. The estimates of the Group’s operations and the valuation of its asset base and liquidity position are based on a thorough judgement of potential COVID-19 related impacts. Estimates, which include all of the above, were updated at 31 May 2022 to assess the recoverability of the asset base, including development projects and deferred tax assets. Recoverability of trade receivables and inventory value was also assessed and the expected consequences of COVID-19 are reflected in these assessments. There is an inherent risk that the estimates and judgements made could change due to future escalation of the war in Ukraine and new COVID-19 outbreaks and lockdowns. Future changes in estimates and judgements may have an impact on the Group’s results and financial position. Critical accounting estimates and judgements are described under the sections to which they relate. Note Critical accounting estimates and judgements Estimate/judgement Extent of subjectivity Estimate -down Estimate Estimate Estimate Right-of- early termination of underlying contracts Estimate Estimate Extent to which accounting estimates and judgements are based on subjectivity and business practice: 1.2 Critical accounting estimates and judgements Page — 66 Consolidated financial statements Annual Report 2021/22 The Group has adopted all new or amended standards (IFRS) and interpretations as adopted by the EU and effective for the financial year starting on 1 June 2021, including: • Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7 – Phase 2 • Amendment to IFRS 16, Leases – COVID 19-Related Rent Concessions – Extension As the amendment to IFRS 16 Leases has been assessed to have no material impact on the consolidated financial statements, the Group has chosen not to implement this amendment. The implementation of the other new or amended standards and interpretations has also been assessed and had no material impact on the financial statements. New or amended IFRS standards and interpretations not yet applicable within the EU The IASB has issued a number of new standards and amendments not yet in effect or endorsed by the EU and therefore not relevant for the preparation of the 2021/22 consolidated financial statements. The Group expects to implement these standards when they take effect. None of the new standards issued is currently expected to have any significant impact on the consolidated financial statements when implemented. 1.3 Changes in accounting policies Page — 67 Consolidated financial statements Annual Report 2021/22 Revenue and operating segments Costs Government grants Special items Tax Section 2 Operations Annual Report 2021/22 Page — 68 Consolidated financial statements Annual Report 2021/22 2021/22 2020/21 (DKK million) EMEA Americas Asia Regions, total Brand Partnering & other activities All EMEA Americas Asia Regions, total Brand Partnering & other activities All Revenue by segment Revenue 1,360 307 983 2,650 298 2,948 1,295 190 878 2,363 266 2,629 Production costs -787 -199 -612 -1,598 -14 -1,612 -779 -117 -584 -1,480 -10 -1,490 Gross profit 573 108 371 1,052 284 1,336 516 73 294 883 256 1,139 Gross margin 42.2% 35.1% 37.7% 39.7% 95.2% 45.3% 39.8% 38.3% 33.5% 37.3% 96.4% 43.3% amortisation and impairment -1,079 -933 Depreciation and amortisation -211 -184 Impairment of non-current assets - -3 -54 -52 Earnings before tax (EBT) -8 -33 (DKK million) Staged Flexible Living On-the-go Products, total Brand Partnering & other activities All Staged Flexible Living On-the-go Products, total Brand Partnering & other activities All Revenue by product category Revenue 1,196 658 796 2,650 298 2,948 1,002 584 777 2,363 266 2,629 Production costs -657 -351 -590 -1,598 -14 -1,612 -559 -305 -616 -1,480 -10 -1,490 Gross profit 539 307 206 1,052 284 1,336 443 279 161 883 256 1,139 Gross margin 45.1% 46.8% 26.0% 39.7% 95.2% 45.3% 44.0% 47.8% 20.8% 37.3% 96.4% 43.3% 2.1 Revenue and operating segments Page — 69 Consolidated financial statements Annual Report 2021/22 Group revenue was DKK 2,948m, which was equivalent to growth of 12.1% compared to last year or 10% growth in local currencies. The growth was attributed to both product sales and Brand Partnering & other activities, both growing 10% in local currencies. The increase in Brand Partnering & other activities was related to licensing income supported by new partnerships and new brand partnerships, especially driven by the cooperation with Cisco and the launch of the Bang & Olufsen Cisco 980 headphone for hybrid work. Product sales increased across all regions and product categories. The three regions, EMEA, Americas and Asia, grew by 4%, 55% and 8% respectively in local currencies. The growth in Asia was adversely impacted by the extended lockdowns in China in Q4. Channels The growth was especially driven by the monobrand channel, digital channels and B2B. The number of monobrand stores was reduced by net 12 to 444, which was mainly related to stores in Russia and Belarus. In 2021/22, the company completed a thorough assessment of the monobrand network and partners. The assessment identified 38 stores to be closed, which will be finalised in 2022/23. While sell-out from multibrand increased compared to last year, the reported revenue from the multibrand channel declined. This was due to high comparables as last year the company onboarded new distribution partners in EMEA, leading to high initial sell-in. Furthermore, in EMEA this channel was impacted negatively by products taken back, as improved sell-out and partner inventory insight identified some older slow-moving products at a few multibrand partners. The channel grew in both Americas and Asia. Categories Revenue within the Staged category grew by 19.2%, which was mainly related to speakers. A number of the company’s Staged products were impacted by component shortages, which had an adverse effect on the sales. Revenue from TVs declined compared to last year as last year, revenue was supported by revenue from TV screens related to the launch of e.g. Beovision Contour 48’’. This year, TV screens were sourced entirely by retail partners. Excluding screen-related revenue last year, growth in the Staged category would have been approx. 3pp higher. Within the Flexible Living category revenue grew by 12.8%. The growth was driven by Beoplay A9 as well as the most recently launched products, Beosound Balance and Beosound Level. The growth suffered from component scarcity, which had a significant impact on products based on the previous product platforms, e.g. Beosound 1 and 2 and Beoplay A9. The company adjusted prices on several Flexible Living products to accommodate for the cost inflation experienced. The price increases supported revenue growth compared to last year. Revenue for the On-the-go category grew by 2.5%. The growth was driven by Americas, whereas EMEA and Asia decreased. EMEA was impacted by high comparables, especially in the second half of the year. Asia was impacted by the extended COVID-19 related lockdowns in Q4. Portable speakers delivered a solid double-digit growth rate, driven by both existing and new products. The company’s newest portable speaker, Beosound Explore, delivered the biggest contribution to growth. Revenue from earphones and headphones was adversely impacted by the high comparables in EMEA and lockdowns in China. In Q4, the company launched its newest earphone, Beoplay EX. Due to the lockdowns in China, the launch was both delayed and reduced to fewer launch colours than planned. 2021/22 2020/21 (DKK million) Revenue Share of Revenue Share of Denmark (domicile) 247 8% 269 10% China 596 20% 568 22% Germany 195 7% 196 7% UK & Ireland 209 7% 165 6% USA & Canada 301 10% 185 7% Switzerland 99 3% 142 5% South Korea 138 5% 100 4% Hong Kong 66 2% 51 2% France 95 3% 83 3% Spain 51 2% 42 2% Brand Partnering & other activities 298 10% 266 10% Rest of world 653 23% 562 22% Total 2,948 100% 2,629 100% 2.1 Revenue and operating segments (continued) Page — 70 Consolidated financial statements Annual Report 2021/22 Accounting policies Revenue recognition Revenue from contracts with customers comprises sale of goods, licence fees and royalty income. Revenue from the sale of goods is recognised at the point in time when control of the goods is transferred to the customer, which generally takes place on delivery. For contracts providing the customer with a right of return within a specified period, the Group considers the timing of recognition. Licence fees and royalty income are recognised when earned according to the terms of the licence agreements. Depending on the type of contract, licence fee revenue is recognised over time or at a point in time. In general, all revenue is recognised at a point in time – both for product sales and licen sing income. A refund liability is recognised for products expected to be returned. The estimate for returned products is based on historical experience and expecta tions. Based on knowledge of the nature of returns, it is not considered highly probable that a material reversal of cumulative revenue recognised will occur. Provisions for rebates and discounts granted to customers are recognised as a reduction in revenu e. Revenue from contracts with customers is measured at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods. Amounts disclosed as net revenue exclude discounts, VAT and other duties. The Group considers whether contracts include other promises that constitute separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price, the Group considers the effects of variable consideration. No element of financing is deemed present. Variable consideration The Group grants or pays various discounts and fees depending on the nature of the customer and business. Customer discounts comprise invoice discounts, volume and activity-related discounts, including specific campaign prices, and other discounts. Discounts arise from sales transactions where the customer receives an immediate reduction in the selling price. This includes cash discounts and incentives for early payments. Volume and activity- related discounts is a broad term covering incentives for customers to sustain business with the Group over a longer period of time and may be related to a current campaign or a sales target measured by volume or total value. Accounting policies Operating segments Segment information has been prepared in accordance with the Group’s accounting principles and follows the Group’s management structure and the internal management reporting used by the Executive Management Board to evaluate results and resource allocation. The geographical allocation of revenue and non-current assets is based on Bang & Olufsen's domicile and the largest contributors to Group revenue. Non-current assets (DKK million) 2021/22 EMEA 587 485 Americas 70 94 Asia 27 13 Total 684 592 *Non- Of which DKK DKK 2.1 Revenue and operating segments (continued) Page — 71 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Breakdown by function: Production costs 1,612 1,490 Development costs 279 258 Distribution and marketing costs 875 727 Administrative costs 136 135 Total 2,902 2,610 Specification: Materials and consumables 1,483 1,387 Staff costs 777 691 Other costs 253 205 211 184 Marketing costs 178 143 Total 2,902 2,610 Depreciation, amortisation and impairment 112 90 58 53 Impairment - 3 Right-of- 41 38 Total 211 184 Depreciation, amortisation and impairment relate to: Production costs 40 38 Development costs 97 81 Distribution and marketing costs 66 58 Administrative costs 8 7 Total 211 184 In 2021/22, total operating expenses recognised in the income statement increased by DKK 292m to DKK 2,902m, corresponding to an increase of 11%. The increase reflected the increase in revenue and strategy execution. Production costs increased during the year in line with the overall trend in activity. There was an increase in component and logistics costs, and also cost inflation started to increase. Distribution and marketing costs increased by DKK 149m to DKK 875m. The increase was related to higher marketing costs, hiring of sales and marketing resources, and warranty provisions driven by higher activity. Administrative costs were DKK 136m, in line with last year. In 2021/22, the Group incurred higher costs related to HR and ESG initiatives, offset by lower provisions for employee bonuses. 2.2 Costs Accounting policies Production costs Production costs comprise wages, consumption of inventory and indirect costs (including salaries, depreciation, amortisation and impairment losses) incurred for the purpose of generating revenue for the year. Development costs Development costs that do n ot meet the criteria for capitalisation as defined in note 5.1 are recognised in the income statement as development costs along with amortisation and impairment losses on capitalised development projects. Distribution and marketing costs Distribution and marketing costs comprise costs relating to sales and distribution of the Group’s products. These include salaries for sales personnel, advertising and exhibition costs, and depreciation, amortisation and impairment losses. Costs in subsidiaries that are responsible exclusively for the sale of the Group’s products are also allocated to distribution and marketing costs. Administrative costs Administrative costs comprise costs related to administrative personnel, management, office costs, and depreciation, amortisation and impairment losses. Page — 72 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Development costs Incurred development costs before capitalisation 328 287 Of which capitalised -138 -106 Incurred development costs after capitalisation 190 181 Capitalisation (%) 42.0% 36.8% Total amortisation and impairment losses on development projects 89 77 Development costs recognised in the consolidated income statement 279 258 Incurred development costs before capitalisation ratio (% of revenue) 11.1% 10.9% Development costs increased by DKK 21m to DKK 279m as a result of hiring of additional resources, especially within software and platform development. Incurred development costs were DKK 41m higher than last year, reflecting platform upgrades and investments in the product roadmap. Capacity costs A breakdown of capacity costs as presented in the income statement is provided below. It comprises development costs, distribution and marketing costs and administrative costs. Capacity costs consist of functional costs, depreciation, amortisation and impairment as well as other operating income and expenses. (DKK million) 2021/22 Development costs 279 258 Distribution and marketing costs 875 727 Administrative costs 136 135 Total 1,290 1,120 (DKK million) 2021/22 Government grants 1 0 Breakdown by function: Production costs - -1 Development costs - -1 Distribution and marketing costs 1 2 Administrative costs - - Total 1 0 Government grants in 2021/22 related primarily to grants in China and Hong Kong. In 2020/21, government grants consisted of adjustment of Danish COVID-19 packages of DKK -3m and grants in China and Hong Kong of DKK 3m. Accounting policies Government grants are recognised when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. The grant is deducted in reporting the related cost on a systematic basis over the periods that the related costs for which it is intended to compensate are expensed. A grant that is a compensation for costs already incurred is recognised in profit or loss for the period in which it becomes receivable. 2.2 Costs (continued) 2.3 Government grants Page — 73 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Executive Management Board 4 1 Restructuring costs and severance 2 2 Consultants 2 16 Total 8 19 Production costs 3 4 Development costs 3 10 Distribution and marketing costs 1 4 Administrative costs 1 1 Total 8 19 In 2021/22, special items amounted to DKK 8m (2020/21: DKK 19m). Special items in 2021/22 related primarily to garden leave for an Executive Management Board member who left the company. Special items in 2020/21 related primarily to specific consultancy costs in respect of the cost reduction programme. 2.4 Special items Accounting policies Special items consist of expenses related to restructuring or structural changes that the Group does not consider to be a part of its ordinary operations such as redundancies, specific consultancy costs and transitioning costs in connection with the offshoring of back-office functions. Page — 74 Consolidated financial statements Annual Report 2021/22 Tax for the year Tax on profit was DKK 22m in 2021/22 against DKK -10m in 2020/21. The effective tax rate was -272.0% in 2021/22 against 28.8% in 2020/21. The effective tax rate was primarily affected by significant non-deductible costs related to the Danish interest limitation rules and adjustments to prior years related to the Danish tax credit rules and withholding tax without credit exemption. A detailed overview can be found on the next page. Tax recognised in other comprehensive income relates to changes in the fair value of derivative financial instruments used as cash flow hedges and is recognised in retained earnings. 2.5 Tax Accounting policies Income tax Income tax comprises current tax and changes in deferred tax for the year, including changes as a result of tax rate changes. The tax expense relating to the profit/loss for the year is recognised in the income statement, while the tax expense relating to items recognised in other comprehensive income is recognised in the statement of comprehensive income. 2021/22 2020/21 ( DKK million) Income statement Other comprehensive income Total tax Income statement Other comprehensive income Total tax Tax for the year Current tax 18 - 18 18 - 18 Change in deferred tax during the year -6 1 -5 -24 -3 -27 Change in deferred tax as a result of change in tax rate - - - -1 - -1 Adjustments to tax for prior years 10 - 10 -3 - -3 Total 22 1 23 -10 -3 -13 Page — 75 Consolidated financial statements Annual Report 2021/22 2.5 Tax (continued) 2021/22 2020/21 % Total DK DE UK CH FR ES CN US Other Total Effective tax rate for the year Calculated tax on result for the year before tax 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% Non-deductible costs and non-taxable income -129.4% -11.6% - -0.1% - - - 30.0% 40.0% -0.9% 2.5% Deviating tax rates in foreign subsidiaries -21.3% - 3.5% -3.0% 3.4% 3.0% 3.0% 3.0% 5.0% -4.2% -8.2% Changes in tax rates 5.3% - - - - 15.9% - - - -6.1% 3.2% Adjustments to prior periods -125.2% -9.5% 5.3% - -17.6% 54.5% 4.7% 1.4% 13.5% -7.8% 9.3% Impairment of deferred tax assets 3.3% - - - - -26.4% - - - - 0.0% Other -26.7% -2.4% - - - - - - 0.1% - 0.0% Effective tax rate for the year -272.0% -1.5% 30.8% 18.9% 7.8% 69.0% 29.7% 56.4% 80.6% 3.0% 28.8% 2021/22 2020/21 (DKK million) Total DK DE UK CH FR ES CN US Other Total Tax expense for the year Calculated tax on result for the year before tax -1.8 -19.9 2.4 0.9 0.7 0.2 0.3 9.4 1.9 2.3 -7.4 Non-deductible costs and non-taxable income 10.5 10.4 - - - - - 0.1 - -0.1 2.8 Deviating tax rates in foreign subsidiaries 1.7 - 0.4 -0.1 0.1 - - 1.3 0.4 -0.4 -0.9 Changes in tax rates -0.4 - - - - 0.2 - - - -0.6 -1.1 Adjustments to prior periods 10.2 8.5 0.6 - -0.5 0.6 0.1 0.6 1.2 -0.8 -3.1 Impairment of deferred tax assets -0.3 - - - - -0.3 - - - - - Other 2.2 2.2 - - - - - - - - - Tax expense for the year 22.1 1.2 3.4 0.8 0.3 0.7 0.4 11.4 3.5 0.4 -9.7 Page — 76 Consolidated financial statements Annual Report 2021/22 Country by country The Group acknowledges the important role that taxes play for public finances and in developing effective, accountable and transparent societal institutions as expressed in UN Sustainable Development Goal 16.6. As a part of being more transparent on corporate taxes, the Group discloses specific country-by-country data for focus markets. Deferred tax At 31 May 2022, net deferred tax assets amounted to DKK 71m (31 May 2021: DKK 80m). The decrease reflected net operating tax loss, provisions and other assets/liabilities, e.g. share-based payments. Deferred tax assets have been recognised based on expected earnings in the foreseeable future. The assessment takes into account the possibility of utilising losses in each relevant jurisdiction. Deferred tax assets totalled DKK 77m (31 May 2021: DKK 87m), of which DKK 43m related to the Group’s jointly taxed companies in Denmark, DKK 10m related to China, and DKK 9m to the US, whereas the remaining DKK 15m related to other foreign legal entities in the Group. Tax loss carryforwards at 31 May 2022 amounted to DKK 10m (31 May 2021: DKK 19m). The Group's tax policy is available on the Group’s website 2.5 Tax (continued) Income tax accrued Income tax paid 19% 15% 2% 4% 0% 2% 49% 0% 9% DK DE UK CH FR ES CN US Other DKK 18m 6% 8% 0% 1% 0% 1% 76% 5% -3% DK DE UK CH FR ES CN US Other DKK 33m Assets Liabilities Net assets (DKK million) 31-05-22 -- 31-05-22 -- 31-05-22 -- Deferred tax Non-current assets 32 30 6 7 26 23 Inventories 17 - - - 17 - Receivables - 3 - - - 2 Provisions 4 10 - - 4 10 Tax loss carryforwards 10 19 - - 10 19 Other 14 25 - - 14 26 Total 77 87 6 7 71 80 (DKK million) DK DE UK CH FR ES CN US Country-by-country data, focus markets Total revenue 1,272 1,163 1,172 646 503 308 534 1,896 FTE 790 14 30 8 16 12 55 30 -90 11 4 3 1 1 43 9 Page — 77 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Change in deferred tax, net during the year Non-current assets 3 7 Inventories 17 -3 Receivables -2 -1 Provisions -7 10 Tax loss carryforwards -9 5 Other -11 14 Total -9 32 At 31 May 2022, the value of unrecognised deferred tax assets amounted to DKK 309m. Of this amount, DKK 265m related to Denmark, DKK 35m to the US, and DKK 9m to other legal entities abroad. A total of DKK 235m related to tax loss carryforwards. DKK 196m of the tax loss carried forward can be utilised indefinitely. The unrecognised deferred tax assets have been assessed on a prudent approach. The deferred tax asset will be recognised as income as they are utilised or when there is convincing evidence that they will be utilised in the foreseeable future. 2.5 Tax (continued) Critical accounting estimates and judgements Accounting policies Deferred tax assets In 2019/20 , management performed an impairment test of the deferred tax asset and recognised an impairment of DKK 265m. This year, no impairment charges or reversals of impairment charges were recognised. Based on the Group’s satisfact ory performance and its continued strategy work, management revisited the carrying amount of the tax asset based on expected positive earnings and concluded that the amount was appropriate as of 31 May 2022. The Group recognises deferred tax assets, in cluding the tax base of tax loss carryforwards, if it is assessed that the respective tax assets can be offset against positive taxable income in the foreseeable future (3 -5 years). This assessment is based on budgets and business plans for the following y ears, including planned business initiatives. Deferred tax assets are tested annually and are only recognised if they are likely to be utilised. Deferred tax Deferred tax on all temporary differences between the carrying amount and the tax base of assets and liabilities is measured using the balance sheet liability method. No recognition is made of deferred tax on temporary differences relating to amortisation or depreciation of goodwill, properties and other items if disallowed for tax purposes. Such temporary differences arose on the date of acquisition without affecting the results or taxable income. In cases where it is possible to calculate the tax value according to different taxation rules, deferred tax is measured on the basis of the planned use o f the asset or the settlement of the liability. Deferred tax assets, including the tax base of tax loss carryforwards, are recognised as other non-current assets at the expected value of their utilisation, either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal tax entity and jurisdiction. Deferred tax assets and tax liabilities are offset if the entity has a legally enforceable right to offset current tax liabilities and tax assets or intends either to settle current tax liabilities and tax assets on a net basis or to realise the assets and liabilities simultaneously. Deferred tax is measured according to the tax rules and at the tax rates applicable in the relevant countries at the reporting date and when the deferred tax is expected to materialise as current tax. The change in deferred tax as a result of changes in tax rates is recognised in the income statement. Page — 78 Consolidated financial statements Annual Report 2021/22 Staff costs Remuneration of management Share-based programmes Pension and similar retirement obligations Section 3 Staff costs, share- based payments and pensions Annual Report 2021/22 Page — 79 Consolidated financial statements Annual Report 2021/22 3.1 Staff costs Accounting policies Wages and salaries, social security contributions, leave and sick leave, bonuses and non -monetary benefits are recognised in the financial year in which services are rendered. The cost of share -based payments, which are expensed over the vesting period o f the programme according to the service conditions, is recognised in staff costs and equity. Termination benefits are recognised at the time an agreement between the Group and the employee is made, and no future service is rendered by the employee in exchange for the benefits. Allocation of staff costs, % 22% 21% 26% 23% 40% 41% 12% 15% 202122 202021 Administrative costs Distribution and marketing costs Development costs Production costs (DKK million) 2021/22 Wages and other remuneration 693 626 Share-based payments 13 13 Pensions 40 35 Other social security costs 31 17 Total staff costs 777 691 Average number of employees 1,033 889 Staff costs relate to: Production costs 173 142 Development costs 199 158 Distribution and marketing costs 314 288 Administrative costs 91 103 Total staff costs 777 691 Page — 80 Consolidated financial statements Annual Report 2021/22 Total remuneration to the Executive Management Board amounted to DKK 43m. This represented a decrease of DKK 8m compared to 2020/21. Total remuneration showed a decrease compared to the prior year. This was primarily driven by two factors (i) lower short and long-term incentive payout as the performance for the financial year 2021/22 did not meet the same payout level as prior year, and (ii) no termination or severance payments. For 2021/22, the financial performance reached certain targets, and both the cash bonus and share bonus programmes will result in pay-outs in the fiscal year 2022/23. With a view to ensuring retention of the members of the Executive Management Board, the Board of Directors decided in July 2020 to establish an extraordinary special short-term cash-based retention programme covering the financial years 2020/21 and 2021/22. The programme is subject to requirements of continued service and satisfactory people review ratings, and was established with the aim of stabilising the Executive Management Board during the turnaround of the company and until the long-term incentive programmes (LTIP) had been fully implemented as a retention mechanism. The Executive Management Board also accepted a temporary voluntary fee reduction of 20% last year – from June 2020 to August 2020 – as part of the company's COVID-19 initiatives. Overall, fees were at the same level due to timing of members entering and leaving the Executive Management Board. No termination or severance payments were made in 2021/22. Termination and severance payments paid in 2020/21 primarily related to a change of management in Asia. The terms of notice of the members of the Executive Management Board are consistent with normal market conditions (up to 24 months). Board of Directors In 2021/22, the Board of Directors received total remuneration of DKK 6m (2020/21: DKK 4m). Last year, the Board of Directors accepted a temporary voluntary fee reduction of 20% from June 2020 to August 2020 as part of the company's COVID-19 initiatives. The full remuneration report for the financial year 2021/22 can be found at https://investor.bang-olufsen.com. 3.2 Remuneration of management 2021/22 2020/21 ( DKK million) Board of Directors Executive Management Board Other key employees Board of Directors Executive Management Board Other key employees 6 16 22 4 16 21 Pensions - 1 2 - 1 1 Bonus - 21 20 - 27 24 Termination and severance payments - - - - - 5 Total 6 38 44 4 44 51 Share-based payments - 5 3 - 7 3 Total remuneration 6 43 47 4 51 54 Page — 81 Consolidated financial statements Annual Report 2021/22 Matching share programmes (MSP) recalibrated The Board of Directors implemented matching share programmes (MSP) for 2018/19 and 2019/20 as a variable component of compensation to the Executive Management Board and key employees. Participants were given the opportunity to purchase shares in Bang & Olufsen A/S, which after three years of ownership entitled them to receive 1 to 5 matching shares for each share purchased, depending on specific performance criteria being met. In 2020, the Board of Directors resolved to recalibrate the two programmes for selected employees still employed by the Group. Consequently, the KPIs for the programmes were reset and the potential number of shares that participants were entitled to receive was reduced for both programmes. The programmes were thus modified with a right for participants in the new part of the programme to receive up to 2 shares (previously 4 shares) under the 2018/19 programme and up to 4 shares (previously 5 shares) under the 2019/20 programme. The vesting period remained unchanged. For the MSP, it is a condition that the employee must not have resigned before vesting. The accounting value is the value of the maximum number of matching shares to be granted times the likelihood of the shares vesting. The value is adjusted on a timely basis until vesting. Both programmes have now ended and 2 shares were paid out for the 2018/19 programme and 2.75 shares for the 2019/20 programme. In accordance with market practice, the recent rights issue involved the issuance of new shares in the company at a discount to market price. The Board of Directors has consequently resolved to compensate certain participants still employed by the Group for the dilutive effect of the rights issue by granting them the right to receive cash compensation of DKK 12.49 per matching share they actually realise under the programmes. In total, DKK 0.2m has been paid out for the 2018/19 programme and DKK 3.3m for the 2019/20 programme. The total costs for the MSP in 2021/22 were DKK 2m (2020/21: DKK 1m), which includes both the cost of the shares and the cash compensation. 3.3 Share-based programmes Programme Performance period Average share price at grant date Executive Management Board Other key employees Maximum number of shares in programme Maximum market value at launch (DKK million) Number of shares exercised Accumulated cost recognised (DKK million) Award date Remaining time to vesting (months) - 11.99 2,208 17,672 19,880 0 17,680 0 - - 11.99 295,820 86,400 382,220 5 263,189 3 3 Total 298,028 104,072 402,100 5 280,869 3 Page — 82 Consolidated financial statements Annual Report 2021/22 Long term incentive programmes (LTIP) Pursuant to Bang & Olufsen A/S’s Remuneration Policy, the Board of Directors has resolved to allocate restricted shares under Bang & Olufsen A/S’s Combined Performance and Retention Share Programmes to the Executive Management Board, key employees, and certain other employees. Two-thirds of the restricted shares are performance shares that are eligible for vesting in equal tranches over three financial years, depending on the level of achievement of certain KPIs defined by the Board of Directors for each performance year. The remaining shares are retention shares, which are subject to the participants’ continued employment and satisfactory people review ratings. The retention shares also vest in three equal tranches over the period. Each financial year has a maximum payout of index 200 depending on the level of achievements made. Any vested restricted shares will be released after the Annual General Meeting's adoption of the Annual Report at the end of the third financial year for each programme, with the provision that vesting and release may be accelerated in case of certain extraordinary events. The programmes are accounted for on an accrual basis over the three-year vesting period. The value of each programme is adjusted on a timely basis until vesting based on the likelihood that certain KPIs will be met. The costs for the LTIP programmes for the year were DKK 11m (2020/21: DKK 12m). Total costs related to all the share-based programmes have been recognised as staff costs and amounted to DKK 13m for the year (2020/21: DKK 13m). Number of shares Performance period Average share price at grant date Maximum market value at launch (DKK million) Accumulated cost recognised (DKK million) Estimated remaining maximum value to be expensed (DKK million) Award date Exercise date Programme start date - 12.93 2,242,954 45 16 12 02.10.2020 Aug 2023 - 33.11 1,579,994 74 9 37 12.07.2021 Aug 2024 Total 3,822,948 119 25 49 Page — 83 Consolidated financial statements Annual Report 2021/22 Long term incentive programmes (LTIP) - continued The table below summarises the maximum outstanding shares within the programmes. Bang & Olufsen A/S has purchased a limited number of treasury shares to cover the obligation for the outstanding shares. The holding of treasury shares totalled 3,244,692 shares on 31 May 2022 (31 May 2021: 2,112,372 shares). Accounting policies Share -based programmes in which the Executive Management Board and selected other key employees are given the right to receive shares in the Parent Company (equity-settled programmes) are measured at the fair value of the equity instruments at grant date and recognised in the income statement as part of staff costs during the period when the employees become entitled to buy the shares. The existing share- based programmes give Bang & Olufsen A/S an option to settle in cash. However, as it is expected that the programmes will be settled in shares, they will be accounted for as equity-settled programmes. Shares outstanding Executive Management Board Other employees Total 2021/22 1,301,181 1,689,968 2,991,149 Shares granted during the year 345,353 700,586 1,045,939 Shares lapsed during the year - - 214,140 - 214,140 Total number of shares outstanding 1,646,534 2,176,414 3,822,948 2020/21 - - - Shares granted during the year 1,301,181 1,689,968 2,991,149 Total number of shares outstanding 1,301,181 1,689,968 2,991,149 Page — 84 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Amount recognised in the income statement Defined contribution plans 42 35 Defined benefit plans - - Total pension amount charged to the income statement 42 35 Amount recognised in the balance sheet Wholly unfunded defined benefit plans 3 3 Wholly or partly funded defined benefit plans 17 19 Present value of defined benefit obligation 31 May 20 22 Fair value of plan assets -8 -8 Defined benefit plan obligation 31 May 12 14 (DKK million) 2021/22 Present value of future payments 17 19 Fair value of plan assets -8 -8 Actuarially calculated net obligation 9 11 Wholly unfunded defined benefit plans 3 3 Defined benefit plans 31 May, net 12 14 Actuarial assumptions 2.5% 1.2% 2.0% 1.5% 2.0% 1.5% The Group's defined benefit plans are managed by independent pension funds. None of the plan assets are connected to any of the Group companies. The defined benefit plans in Germany are partly funded through an independent pension fund. 3.4 Pension and similar retirement obligations Accounting policies As an employer, the Bang & Olufsen Group participates in pension plans according to normal practice in the countries in which the Group operates. The majority of the pension plans operated by the Group are defined contribution plans. The only exceptions are defined benefit plans operated in Germany. Under defined contribution plans, the Group recognises pension contributions, which can either be a fixed amount or a fixed percentage of the monthly salary in the income statement as they are paid to separate independent companies. Any unpaid contributions are recognised in the financial position as other liabilities. Once the contributions have been paid, the Group has no further obligations and the risk re lated to the value of the pension insurance at retirement lies with the individual employee. Under defined benefit plans the Group has an obligation to pay a fixed amount or a fixed percentage of the salary at retirement. This means that the Bang & Olufse n Group carries the risk of any changes in the actuarially calculated capital value of the pension plans. The present value of the future benefits that employees are entitled to is calculated annually. The present value is calculated based on a number of assumptions relating to the future development in salary levels and interest, inflation and mortality rates. The present value of the defined benefit obligation net of the fair value of the plan assets is recognised in the balance sheet as a pension liability. The costs of defined benefit plans are recognised in the income statement and include service costs as well as net interest based on actuarial estimates and the financial outlook at the beginning of the year. Changes in assumptions as well as differences between the expected and the realised return on plan assets are classified as actuarial gains and losses. Such gains and losses are recognised in other comprehensive income in the period in which they arise. If a defined benefit plan constitutes a net asset, the asset is recognised only if it offsets future refunds from the plan or will lead to reduced future payments to the plan. Page — 85 Consolidated financial statements Annual Report 2021/22 Inventories Trade receivables Contract assets and liabilities Net working capital Section 4 Net working capital Annual Report 2021/22 Page — 86 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Inventory before write-downs 714 450 Write-downs -85 -81 Total 629 369 Raw materials 30 39 Work in progress 20 19 Spare parts 63 39 Finished goods 488 272 Prepayments for goods 28 - Total 629 369 Cost of sales recognised in production costs 1,483 1,387 Prepayments for goods is related to spot buys driven by component scarcity. Critical accounting estimates and judgements Accounting policies A specific assessment of the need for write-downs for obsolescence of inventories is made based on an assessment of the future sales potential. The assessment takes into account expected technological developments and expected service periods. The provision is primarily related to finished goods and spare parts. The applied principles are unchanged compared to the prior year. Inventories are measured at the lower of cost price according to the FIFO principle and net realisable value. The cost price of raw materials, consumables and purchased goods comprises the acquisition price including delivery costs. The cost price of finished goods and work in progress comprises costs of materials and direct labour plus indirect production costs. Indirect production costs include indirect materials and wages, maintenance and depreciation on plant and machinery, factory buildings and other equipment used in the production process as well as costs of factory administration and management. The net realisable value of inventories is calculated as the expected selling price less costs of completion and costs necessary to make the sale. 4.1 Inventories Page — 87 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 456 496 -58 -73 Impairment losses recognised -7 -6 Realised impairment losses 2 6 Reversed impairment losses 4 15 -59 -58 Trade receivables at 31 May 397 438 Receivables are recognised when control has been transferred as the consideration to be paid is reasonably assured. Receivables are generally due within 30-60 days and all receivables are consequently classified as current. The price specified in the contract is not adjusted for any financing element as payment terms never exceed 12 months. While realised losses are immaterial and low still, the Group has continued to assess the impact from COVID-19. This has not led to increased impairment on receivables for the year. Realised losses remain within the expected range. 31-05-22 31-05-21 (DKK million) Amount Impairment Amount Impairment Maturity analysis: Amounts not due 356 -1 362 - - - 5 - Past due 8 - 31 -1 2 - 15 - 2 - 7 -1 88 -58 76 -56 Trade receivables 456 -59 496 -58 See note 7.1 for details about credit risk associated with trade receivables. Critical accounting estimates and judgements Accounting policies The allowance for expected credit losses for trade receivables is based on historical credit loss experience combined with forward -looking information on macro-economic factors affecting credit risk. Management continues to assess credit risks in order to ensure that credit risk never exceeds the recognised write -down on trade receivables. For a further description of credit risk, see note 7.1. Changes in impairment are presented in the table above. On initial recognition, trade receivables are measured at fair value and subsequently at amortised cost less loss allowance for expected credit losses. Trade receivables comprise sale of goods and services and income from licences. Other receivables comprise VAT receivables, loans to partners, interest receivables and derivatives. The Group applies the simplified approach to measure expected credit losses. This entails recognising a lifetime expected loss allowance for all trade receivables. Loss rates are determined based on grouping of trade receivables sharing the same characteristics. Impairment of trade receivables is recognised in distribution and marketing costs in the income statement. 4.2 Trade receivables Page — 88 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Trade receivables 397 438 Right-of-return assets 8 3 Total contract assets 405 441 Deferred income - non-current 14 15 Deferred income - current 7 4 Refund liabilities 15 6 Total contract liabilities 36 25 * Right-of-return assets have been recognised ** Deferred income and refund liabilities has been recognised Generally, trade receivables are recognised at the same point in time as revenue and invoicing. Payment terms vary within different customer segments due to local and specific agreements. In some cases, the Group receives upfront payments which are deducted in the actual invoicing. The income from the associated contract is recognised over time, resulting in contract liabilities. Right-of-return assets and the associated refunds refer to a few multibrand customers. Deferred income consists of prepayments from customers. Deferred income mainly constitutes revenue related to the licence agreement with Harman (brand licensing income from car audio products). This includes deferred revenue from future licensing income. 4.3 Contract assets and liabilities Accounting policies Contract assets and liabilities The refund liability for estimated sales returns is recognised when there is historical experience or when a reasonably accurate estimate of expected future returns can otherwise be made. The income effect recognised is the gross margin of the expected returns. Changes to right -of-return assets and refund liabilities are recognised gross in the income statement, i.e. as both revenue and cost of sales. Deferred income comprises payments received related to revenue in subsequent financial years. Deferred income is measured at cost price. Licensing income is recognised at a point in time based on products produced. No costs to obtain contracts with customers were capitalised as part of contracts with customers either in 2021/22 or previous years. This is common practice in the Group. Page — 89 Consolidated financial statements Annual Report 2021/22 (DKK million) 31-05-22 -- Change Inventories 629 369 -260 Trade receivables 397 438 41 Other receivables 88 90 2 Prepayments 28 32 4 Trade payables -581 -502 79 Other liabilities -212 -225 -13 Deferred income - non-current -14 -15 -1 Total 335 187 -148 * Other receivables were adjusted for financial receivables related to leases of DKK DKK ** DKK Due to pay- Net working capital increased during the year by DKK 148m to DKK 335m (31 May 2021: DKK 187m). Trade receivables decreased year over year as a result of collection efforts and lower performance in Q4 2021/22 than the prior year, driven by the lockdowns in China. Trade payables increased by DKK 79m, driven by higher activity towards the end of the year and timing. Inventories increased during the year due to the lockdowns in China and timing of supply. The increase was partly related to finished goods and component spot buys. Other liabilities decreased by DKK 13m, primarily due to lower provisions for employee bonus. Change in net working capital, DKKm 4.4 Net working capital Accounting policies Prepayments Prepayments comprise incurred costs related to subsequent financial years. Prepayments are measured at cost. Other liabilities Other liabilities mainly comprise provisions for employee- related costs, VAT and deferred income. Other liabilities are measured at cost. Page — 90 Consolidated financial statements Annual Report 2021/22 plant and equipment Right-of-use assets Assets held for sale Section 5 Invested capital Annual Report 2021/22 Page — 91 Consolidated financial statements Annual Report 2021/22 ( DKK million) Goodwill Acquired rights and software Completed development projects Development projects in progress Intangible assets Land and buildings Plant and machinery Other equipment Leasehold improvements and equipment under construction Property, plant and equipment Cost 63 144 639 59 905 275 719 115 26 36 1,171 Adjustment to prior year - - - - - -19 - - - - -19 Additions - 28 42 64 134 6 12 7 2 23 50 Disposals - - -156 - -156 - -4 - -6 - -10 Completed development projects and assets - 3 47 -47 3 2 9 - 17 -31 -3 63 175 572 76 886 264 736 122 39 28 1,189 Additions - 39 16 122 177 2 15 13 1 41 72 Disposals - - -38 - -38 - -1 -7 -4 - -12 Reclassification from asset held for sale to land and buildings - - - - - 84 - - - - 84 Completed development projects and assets - - 60 -60 - 2 21 1 6 -30 - Exchange rate adjustments 1 - - - 1 - - 2 3 - 5 At 31 May 2022 64 214 610 138 1,026 352 771 131 45 39 1,338 Depreciation, amortisation and impairment -19 -121 -541 - -681 -192 -675 -98 -20 - -985 Adjustments to prior year - - - - - 19 - - - - 19 Amortisation and depreciation - -13 -77 - -90 -9 -28 -11 -5 - -53 Impairment losses -3 - - - -3 - - - - - - Disposals - - 156 - 156 - 4 - 6 - 10 -22 -134 -462 - -618 -182 -699 -109 -19 - -1,009 Amortisation and depreciation - -23 -89 - -112 -10 -32 -10 -6 - -58 Disposals - - 38 - 38 - 1 6 3 - 10 Reclassification from asset held for sale to land and buildings - - - - - -63 - - - - -63 Exchange rate adjustments - - - - - - - -2 -1 - -3 At 31 May 2022 -22 -157 -513 - -692 -255 -730 -115 -23 - -1,123 Carrying amount At 31 May 2022 42 57 97 138 334 97 41 16 22 39 215 41 41 110 76 268 82 37 13 20 28 180 5.1 Intangible assets and property, plant and equipment Page — 92 Consolidated financial statements Annual Report 2021/22 Impairment Recognised impairment No impairment was recognised in 2021/22. In 2020/21, an impairment loss of DKK 3m related to distribution in Brazil was recognised. Impairment test of goodwill The carrying amount of goodwill amounted to DKK 42m (31 May 2021: DKK 41m) and related to the distribution network in the Netherlands. The impairment test was carried out with the activities in the Netherlands considered as the cash generating unit. The recoverable amount was based on value in use and estimated using input from local and Group management. The test included a five-year budget period followed by a terminal period. Key assumptions applied in the impairment test were expected revenue, gross margin, capacity cost, discount rate and growth rate in the terminal period. Sensitivity tests of key assumptions were carried out. These showed gross margin, WACC and the growth rate to be the assumptions with the largest impact on value in use. In the test, a growth assumption of 1.5% (2020/21: 1.5%) and a discount rate of 7.5% were applied (2020/21: 7.5%). The impairment test showed headroom from value in use to the carrying amount. Management is of the opinion that the assumptions applied are sustainable. 5.1 Intangible assets and property, plant and equipment (continued) Page — 93 Consolidated financial statements Annual Report 2021/22 Critical accounting estimates and judgements Development projects Development costs are capitalised only after the technical and commercial feasibility of the project has been established. In connection with the capitalisation of development costs, the expected useful life of the product is determined. Management has assessed that the amortisation period is usually 2 to 6 years. Management also makes assumptions when assessing the possible impairment of development projects. The applied principles are unchanged from the prior year. Development projects amounted to DKK 235m at 31 May 2022 (31 May 2021: DKK 186m). The main additions in the 2021/22 financial year were development projects relating to product development. Cost Intangible assets and property, plant and equipment are initially recognised at cost and subsequently measured at cost less accumulated amortisation or depreciation and impairment losses. Cost comprises the purchase price and costs directly attributable to the acquisition until the date when the asset is available for use. The cost of self-constructed assets comprises direct and indirect costs of materials, components, subsuppliers, wages and salaries, and capitalised borrowing costs on specific or general borrowings attributable to the construction of the asset. Research and development costs are recognised in the income statement as incurred. Development costs are recognised under development projects in progress if the costs are expected to generate future economic benefits. Where individual components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. Subsequent costs, for example in connection with replacement of components of property, plant and equipment, are recognised in the carrying amount of the asset if it is probable that the costs will result in future economic benefits for the Group. The replaced components are derecognised from the statement of financial position and recognised as an expense in the income statement. Costs incurred for ordinary repairs and maintenance are recognised in the income statement as incurred. Useful life, amortisation, depreciation and impairment losses Useful life and residual value are determined at the acquisition date and reassessed annually. If the residual value exceeds the carrying amount, depreciation is discontinued. Amortisation and depreciation are recognised on a straight-line basis over the expected useful life of the assets, taking into account any residual value. The expected useful life and residual value are determined based on past experience and expectations of the future use of assets. Goodwill with an indefinite life is not amortised but instead tested for impairment on an annual basis. Development projects, acquired rights and software, land and buildings, plant and machinery, other equipment and leasehold improvements are tested for impairment whenever there is any indication that the recoverable amount may be lower than the carrying amount. Depreciation is calculated on the basis of the cost less the residual value and impairment losses. Amortisation and depreciation are recognised under cost of sales, distribution and marketing expenses, and administrative expenses. Expected useful lives are as follows: 5.1 Intangible assets and property, plant and equipment (continued) Accounting policies Asset class Useful life Goodwill No amortisation. Tested for impairment on an annual basis Development projects (under construction) Amortised from time of completion - Projects under construction are tested for impairment annually Development projects (completed) 2-6 years, or remaining term of intellectual property right if shorter Acquired rights and software 2-6 years, or remaining term of intellectual property right if shorter Land and buildings Land: None Buildings: 40 years Installations: 10 years Plant and machinery Single-purpose production tools: 3-6 years Other plant and machinery: 8-10 years Other equipment Other equipment: 3-10 years Leasehold improvements Leasehold improvements: Over lease term, max. 10 years Property, plant and equipment under construction None Page — 94 Consolidated financial statements Annual Report 2021/22 ( DKK million) Land and buildings Other equipment Total Costs At 1 June 2020 170 11 181 Additions 23 1 24 Remeasurements -12 -1 -13 Terminations -5 -4 -9 176 7 183 Additions 11 2 13 Remeasurements 16 - 16 Terminations -2 -3 -5 At 31 May 2022 201 6 207 Depreciation, amortisation and impairment At 1 June 2020 -29 -4 -33 Depreciation -34 -4 -38 Terminations 4 4 8 -59 -4 -63 Depreciation -38 -3 -41 Terminations 2 3 5 At 31 May 2022 -95 -4 -99 Carrying amount At 31 May 2022 106 2 108 117 3 120 Repayment of lease liability amounted to DKK 36m in 2021/22 (2020/21: DKK 40m). Expenses relating to low-value leases were insignificant. (DKK million) 2021/22 Amounts recognised in the income statement: Interest expenses -6 -7 Short-term leases -2 -5 Income from subleases 3 7 Lease liabilities Non-current 95 117 Current 39 24 Total lease liabilities 134 141 5.2 Right-of-use assets Critical accounting estimates and judgements Individual right -of-use assets and the corresponding liabilities are highly impacted by the estimated lease term and the discount rate, where the underlying contracts can be prolonged or terminated early. Leases mainly comprise stores, office buildings, cars and other equipment. The average incremental borrowing rate applied to the lease liabilities on 31 May 2022 was around 4.9% (31 May 2021: 4.9%). Page — 95 Consolidated financial statements Annual Report 2021/22 Estimated useful life at 31 May 2022 can be summarised as follows: Asset class Useful life Stores The lease term for stores is assessed to be up to 10 years depending on an internal store rating based on location, revenue and earnings. Office buildings 1 -10 years Other equipment The life is equal to the non -cancellable lease term and extensions are not considered for these. Accounting policies Leases are recognised as right-of-use assets with the corresponding liability at the time the asset is available for use by the Group. Assets and liabilities arising from a lease are measured on a present value basis. Right -of-use assets are recognised at the commencement date of the lease when the asset is available for use. Right -of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right -of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, lease payments made at or before the commencement date, less any lease incentives received. Rig ht-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight -line basis. When a sublease is classified as a finance lease, the right -of-use asset is derecognised as a right-of-use asset and recognised as a l ease receivable under other receivables. An assessment is made at each reporting date of whether there is any indication that a right -of-use asset may be impaired. If any such indication exists, an impairment test for the relevant CGU is carried out. Leas e liabilities comprise expected fixed payments throughout the expected lease term (including options to extend the lease when exercise is reasonably certain), less any lease incentives. Payments relating to services are not included in lease liabilities. Some property leases contain variable payment terms linked to sales generated from a store. Variable lease payments that depend on sales are recognised in profit or loss in the period in which the condition that triggers those payments occurs and are not included in the lease liability. In calculating the present value of lease payments, the incremental borrowing rate at the lease commencement date is used, because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in lease term or a change in lease payments. Lease costs for low value assets and short-term leases are recognised as operating expenses on a straight-line basis over the lease term. As of Q2 2021/22, “the Farm”, previously used as the headquarters in Struer, was no longer for sale and was used for own purposes. The building has consequently been reclassified to land and buildings under property, plant and equipment and depreciated accordingly. 5.2 Right-of-use assets (continued) 5.3 Assets held for sale (DKK million) 31-05-22 -- Land and buildings - 21 Total - 21 Accounting policies Assets classified as held for sale comprise assets of which the value is highly probable to be recovered through a sale within 12 months rather than through continued use. Assets classified as held for sale are measured at the lower of the carrying amount at the time of classification as held for sale or at market value less costs to sell. The carrying amount is measured in accordance with the Group's accounting policies. No depreciation is recognised subsequent to the reclassification of an asset as held for sale. Held for sale assets are presented in a separate line in the statement of financial position. Previous periods have not been restated. Page — 96 Consolidated financial statements Annual Report 2021/22 Net interest-bearing Financial instruments by category Mortgage loans and lease liabilities Capital structure and share capital Financial items Provisions Section 6 Capital structure and provisions Annual Report 2021/22 Page — 97 Consolidated financial statements Annual Report 2021/22 Net interest-bearing deposit/(debt) consists of interest-bearing assets less interest-bearing debt. Interest-bearing assets consist of securities, cash, sublease and finance lease receivables. Interest-bearing debt consists of mortgage loans, bank loans, lease liabilities, and from Q2 2020/21 also the part of the Danish holiday pay provision for “Lønmodtagernes Feriemidler”. The Group has placed the majority of its cash in Danish mortgage bonds, all with an AAA S&P rating to minimise negative interest. To maintain short-term financial flexibility, the Group uses repo transactions, whereby the Group can access liquidity on an intra-day basis if needed by lending bonds to its bank in return for cash, while committing to a reverse transaction at a predetermined date in the future. Bonds are presented as securities on the balance sheet as ownership of the bonds remains with the Group during the term of the repo. The obligation to return cash for bonds under such repo transactions is recognised as short-term bank loans. At 31 May 2022, repo transactions amounted to DKK 276m (31 May 2021: DKK 20m). Net interest-bearing deposit amounted to DKK 111m (31 May 2021: DKK 361m). The decrease was mainly due to the negative free cash flow of DKK 172m (2020/21: positive DKK 119m). Change in net interest bearing deposit/(debt), DKKm 31 May 2021 Cash flows from operating activities Cash flows from operational investing activities Purchase of own shares Remeasurements of lease liabilities and other adjustments 31 May 2022 (DKK million) 31-05-22 -- Mortgage loans (non-current) -58 -61 Mortgage loans (current) -4 -4 Bank loans (current) -276 -20 Lease liabilities (non-current) -95 -117 Lease liabilities (current) -39 -24 Other current liabilities - -34 Interest-bearing debt -472 -260 Finance lease receivables (non-current) 4 6 Finance lease receivables (current) 2 2 Cash (current) 162 178 Securities (current) 415 435 Interest-bearing assets 583 621 Net interest-bearing deposit/(debt) 111 361 Only the interest-bearing part of Other current liabilities has been included in net interest- Net available liquidity was DKK 301m (31 May 2021: DKK 593m), consisting of cash and securities offset by repo transactions. (DKK million) 31-05-22 -- Cash (current) 162 178 Securities (current) 415 435 Bank loans (current) -276 -20 Available liquidity 301 593 In addition to the Group’s available liquidity, the Group held a revolving credit facility of DKK 150m (31 May 2021: DKK 100m) with its primary bank. 6.1 Net interest-bearing deposit/(debt) Page — 98 Consolidated financial statements Annual Report 2021/22 (DKK million) 31-05-22 -- Non-current other receivables 27 24 Trade receivables 397 438 Other receivables 89 92 Cash 162 178 Financial assets at amortised cost 675 732 Securities 415 435 Fair value through income statement 415 435 Derivatives used for hedge accounting 9 1 Fair value through other comprehensive income 9 1 Financial assets 1,099 1,168 Other current liabilities - 34 Mortgage loans 62 65 Bank loans 276 20 Lease liabilities 134 141 Trade payables 581 502 Financial liabilities at amortised cost 1,053 762 Derivatives used for hedge accounting 18 16 Fair value through other comprehensive income 18 16 Financial liabilities 1,071 777 The fair value is approximately equal to the carrying amount for all financial assets and liabilities. Hedge accounting is only related to the management of foreign exchange rate risk. ( DKK million) Less than one year Between one and five years More than five years Total Carrying amount Contractual maturity analysis for financial liabilities 31-05-22 Mortgage loans 4 13 45 62 62 Lease liabilities 45 90 15 150 134 Bank loans 276 - - 276 276 Trade payables 581 - - 581 581 31-05-21 Mortgage loans 4 14 47 65 65 Lease liabilities 37 83 27 147 141 Bank loans 20 - - 20 20 Trade payables 502 - - 502 502 6.2 Financial instruments by category Page — 99 Consolidated financial statements Annual Report 2021/22 Accounting policies Financial assets include loans, receivables, securities and cash. Loans and receivables are initially recognised at fair value, including direct transaction costs, and subsequently measured at amortised cost using the effective interest method. For trade receivables, the l oss allowance is measured in accordance with IFRS 9 applying a provision matrix to calculate the minimum impairment, which includes impairment for not -due receivables. For other receivables and loans, a write -down is made for expected losses based on speci fic individual or Group assessments. Financial liabilities are initially recognised at fair value less transaction costs and subsequently measured at amortised cost using the effective interest method, whereby transaction costs and any premium or discount are recognised as financial expenses over the term of the liabilities. Securities comprise bonds that are measured at market value on an ongoing basis in conformity with the Group’s investment policy. Changes in market value are recognised in profit/(loss) for the year as financial income and expenses. Purchase and sale of securities are recognised at the settlement date. For listed securities, market value equals the market price, and for unlisted securities, market value is estimated based on generally accepted valuation methods and market data. Divested securities where repurchase agreements have been made at the time of sale are recognised in the balance sheet at the settlement date as if the securities were still held (Level 1). The amount received is recognised as a liability, and the difference between the selling price and the purchase price is recognised in profit/(loss) for the year over the term as interest. The return on the securities is recognised in profit/(loss) for the year. Page — 100 Consolidated financial statements Annual Report 2021/22 The Group has a mortgage loan with a three-year interest refinancing period. During 2021/22, no extraordinary repayments were made on the mortgage loan. The mortgage loan was most recently refinanced in 2019/20 at -0.4% plus contribution margin, providing an annual percentage rate of 1.0%. 6.3 Mortgage loans and lease liabilities Accounting policies Financial liabilities, including mortgage loans, are initially recognised at fair value less transaction costs and subsequently measured at amortised cost using the effective interest method, whereby transaction costs and any premium or discounts are recognised as financial expenses over the term of the loans. 31-05-22 -- (DKK million) Nominal interest value Year of maturity Carrying amount Carrying amount Terms and repayment schedule -0.4% 2040 62 65 Total loans 62 65 (DKK million) -- Financing cash flow Additions and remeasurements Reclassifi- cations -- Financing cash flow Additions and remeasurements Reclassifi- cations 31-05-22 Terms and repayment schedule Lease liabilities 179 -40 2 - 141 -36 29 - 134 Long-term borrowings 65 - - -4 61 - - -4 58 Short-term borrowings 4 -4 - 4 4 -4 - 4 4 Settlement to other liabilities 34 - - - 34 -34 - - - Bank loans - 20 - - 20 256 - - 276 Total 282 -24 2 - 260 182 29 - 472 Page — 101 Consolidated financial statements Annual Report 2021/22 Number Nominal value (DKK million) % of share capital 2021/22 2021/22 2021/22 Treasury shares 2,112,372 2,317,014 11 23 1.8 5.4 shares - -2,273,449 - -23 - -5.3 Acquired in connection with long-term incentive programme 1,150,000 2,068,807 6 11 0.9 1.7 Granted share-based programme -17,680 - 0 - - - 31 May 3,244,692 2,112,372 17 11 2.7 1.8 All treasury shares are owned by Bang & Olufsen A/S. (DKK million) 2021/22 Share repurchases for the year 37 42 The capital structure consists mainly of equity and working capital financing. The Group capital structure also includes minor mortgage financing of the HQ buildings in Struer. It is the objective of Bang & Olufsen's capital management to ensure shareholders the best possible return on their investment in Bang & Olufsen, while ensuring that Bang & Olufsen will be able to meet all existing and future commitments. In addition to the Group’s capital structure, the Group holds a revolving credit facility of DKK 150m (31 May 2021: DKK 100m) with its primary bank. During 2021/22, the Group purchased 1,150,000 shares totalling DKK 37m to hedge the Combined Performance and Retention Share Programme for 2021/22. The Group holds a total of 3,244,692 treasury shares for the purpose of hedging the value of its share-based programmes. For details of monetary transactions, see the statement of changes in equity. 6.4 Capital structure and share capital Accounting policies Dividend Dividend is recognised as a liability at the time it is approved by the Annual General Meeting. Treasury shares Acquisition and selling prices for treasury shares and dividend received on these shares are recognised dire ctly in equity under retained earnings. Translation reserve The translation reserve in the consolidated financial statements comprises exchange rate differences that occur when translating foreign subsidiaries’ financial statements from their functional currency into the Group’s presentation currency. On disposal of net investments, the exchange rate differences on the individual investment are recognised in the income statement. The reserve is a distributable reserve. Reserve for cash flow hedges Reserve for cash flow hedges comprises accumulated changes in the fair value of derivative financial instruments that qualify for hedging of future cash flows, where the hedged position has not yet been realised. The changes in fair value are transferred to the income statement when the hedged positions are realised. Page — 102 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Interest income from banks 10 6 Other financial income 1 - Financial income 11 6 Interest expenses to banks -16 -16 Other financial expenses -6 -11 Fair value adjustments of securities -12 -7 Interest expenses on lease liabilities -6 -7 -25 -17 Financial expenses -65 -58 Financial items, net -54 -52 Financial income and expenses related to securities are measured at fair value. Financial income and expenses related to the remaining financial assets and liabilities are not measured at fair value. Accounting policies Financial income and expenses include interest, fair value adjustment of securities, foreign currency gains and losses and impairment of securities, payables and foreign currency transactions as well as amortisation of financial assets and liabilities, including lease liabilities. Furthermore, realised and unrealised gains and losses on derivative financial instruments that cannot be classified as hedging contracts are included. 6.5 Financial items Page — 103 Consolidated financial statements Annual Report 2021/22 ( DKK million) Warranty and fairness Employee anniversary benefit Other provisions Total 54 2 36 92 Provisions in the year 46 0 4 50 Provisions used during the year -33 0 -21 -54 67 2 19 88 Provisions in the year 52 0 6 58 Provisions used in the year -36 0 -13 -49 At 31 May 2022 83 2 12 97 Maturity analysis for provisions - 34 2 5 41 - - - - Non-current provisions 34 2 5 41 Due within one year 49 0 7 56 At 31 May 2022 83 2 12 97 Provisions for warranty and fairness of DKK 83m were recognised at 31 May 2022 (31 May 2021: DKK 67m) to cover expected warranty and fairness claims. The size and timing of the provisions are based on previous experience of the level and timing of repairs and returns. Other provisions of DKK 12m (31 May 2021: DKK 19m) related primarily to restructuring and legal provisions. Critical accounting estimates and judgements Bang & Olufsen repairs or replaces products that do not function satisfactorily both within the warranty period or in certain situations after the warranty period. Consequently, provisions made are for future repairs and returns. Provisions are made based on historical data for repairs and returns and based on management’s judgements. Future repairs and returns may differ from the historical pattern, but management has assessed that the estimate of provisions is reasonable and appropriate. The Group provides 2-5 years of warranty on certain products and is therefore committed to repairing or replacing products that do not function satisfactorily. Some products are repaired after the end of the warranty period, and a provision is made regarding such potential fairness claims. Accounting policies Provisions comprise provisions for warranty, provisions for fairness and other provisions. Provisions for warranty are obligations to repair products within the warranty period, whereas provisions for fairness are obligations to repair products after the end of the warranty period. Provisions are recognised when there is a legal or constructive obligation as a result of events in the financial year or previous years, and it is probable that an outflow of financial resources will be required to settle the obligation. Provisions are measured at the present value of the expected expenditure required to settle the obligation. 6.6 Provisions Page — 104 Consolidated financial statements Annual Report 2021/22 Financial risks Sensitivity analysis Derivative financial instruments Section 7 Financial risk management Annual Report 2021/22 Page — 105 Consolidated financial statements Annual Report 2021/22 The Group has global activities that expose it to a range of financial risks. The Group has centralised the management of financial risks. The overall objectives and policies for the Group’s financial risk management are outlined in a Treasury guideline. Financial risk management is carried out by the Group Treasury department. Foreign exchange rate risk The Group’s presentation currency is DKK, but the majority of its activities and investments are denominated in other currencies than DKK. Consequently, there is a substantial risk of exchange rate fluctuations having an impact on the Group’s reported results. The Group is subjected to transaction risk related to sales and purchases in foreign currencies, and translation risk when translating foreign entities into the Group’s presentation currency. In 2021/22, 92% of the Group's revenue (2020/21: 89%) was in foreign currencies. Entities in Functional currency Change during Eurozone EUR -0.05% China CNY 8.02% US USD 4.14% UK GBP 4.95% Switzerland CHF 2.60% Changes in exchange rates increased revenue by 3.0% in 2021/22 (2020/21: decreased by 2.0%). The Group is primarily exposed to currency risks related to the net inflow of CNY and the net outflow of USD. Due to DKK being pegged to EUR, the risk from EUR is considered to be low. According to the Group’s Treasury guideline, up to 75% of the expected exposure is hedged using mainly FX forward contracts. The Group only hedges commercial exposures and does not enter into derivative positions or transactions for trading or speculative purposes. The Group does not hedge balance sheet items (translation risk). 7.1 Financial risks 40% 20% 15% 8% 7% 3% 7% EUR CNY USD DKK GBP CHF Other Page — 106 Consolidated financial statements Annual Report 2021/22 Interest rate risk The Group's exposure to interest rate risk is considered to be limited and is subjected to ongoing evaluation and monitoring in accordance with the Treasury policy. The Group does not hold material levels of long-term interest- bearing debt, but in the current macroeconomic environment the Group’s interest-bearing assets are impacted negatively. Increasing macroeconomic uncertainty and high inflationary pressure impact the market value of the Group’s holdings of Danish mortgage bonds negatively, and as interest rates are increasing fast, the market value of the Group’s bond portfolio is decreasing. The Group's interest-bearing assets mainly consisted of bank deposits and securities. Bank deposits, which totalled DKK 162m (2020/21: DKK 178m), yield interest in the short-term money market, but as the Group had positive bank deposits mainly in DKK and EUR throughout the financial year, this resulted in a negative deposit interest rate. Securities, which totalled DKK 415m (2020/21: DKK 435m), consisted of a portfolio of bonds primarily held for maturity. The bond portfolio is recognised at fair value; hence the Group is exposed to an interest rate risk during the maturity of the bonds. During 2021/22, the value of the bond portfolio decreased by DKK 12m due to market value adjustments of the underlying bonds. Interest-bearing debt consisted of bank loans of DKK 276m (2020/21: DKK 20m); mortgage debt of DKK 62m (2020/21: DKK 65m), with a floating rate that is fixed until March 2023; and lease liabilities of DKK 134m (2020/21: DKK 141m). At the end of the financial year, the Group's net interest-bearing deposit totalled DKK 111m (2020/21: DKK 361m), corresponding to 4% of the total financial position (2020/21: 16%). See note 6.1 for further details on net interest-bearing deposit/(debt). Credit risk The Group is exposed to risks associated with commercial and financial counterparties. Financial instruments are entered into with counterparties with investment grade ratings. Similarly, the Group uses reputable insurance companies with investment grade ratings for insuring receivables. Credit risk associated with trade receivables is managed centrally based on fixed procedures and guidelines. Credit limits are set as deemed appropriate for the individual customer, considering current local market conditions and individual risk profiles. To reduce credit risk, all commercial counterparts are subject to ongoing financial evaluation. The Group mainly utilises credit insurance to mitigate its credit risk, and 42% of total trade receivables were insured via credit insurance as of 31 May 2022. The Group has a limited number of large key partners, which constitutes a concentration risk on receivables. Top 5 debtors accounted for 34% of total trade receivables (2020/21: 38%). The nature of the Group’s business involves a few major key partners and several smaller important partners. Concentration risk is monitored closely and mitigated via credit insurance. Top 5 debtors are all long-standing partners with a good payment history and low credit risk. For trade receivables, Bang & Olufsen applies the expected credit loss prescribed by IFRS 9. To measure the expected credit loss, trade receivables are assessed individually for credit risk characteristics and ageing of the receivable. In accordance with IFRS 9, not-due trade receivables are also tested for impairment. See note 4.2 for further details on trade receivables. During 2021/22, the Group did not experience any significant bad debt losses directly related to COVID-19, nor any losses of significance in general. As a consequence of the Russian invasion of Ukraine, the Group immediately stopped all activities in Russia and focused on reducing risk and exposure due to the initial invasion and economic sanctions imposed. As a result, the Group did not experience any losses related to this event, nor will it experience any losses as all exposures have been eliminated. 7.1 Financial risks (continued) Page — 107 Consolidated financial statements Annual Report 2021/22 Liquidity risk Liquidity is managed centrally by Group Treasury and continually assessed. It is the objective to ensure that sufficient financial resources are available where and when needed. At 31 May 2022, cash and cash equivalents amounted to DKK 162m (2020/21: DKK 178m). Including securities and repo, available liquidity amounted to DKK 301m (2020/21: DKK 593m). The Group has a committed revolving credit facility with its main bank as part of its capital and liquidity readiness. The facility was only partially drawn and only utilised for extending bank guarantees etc. to third parties. The credit facility was refinanced in May 2022, in which the commitment was increased to DKK 150m (31 May 2021: DKK 100m) and with an extended duration of two years plus an option for one additional year. Commodity risk The Group is mainly exposed to commodity risk through its energy consumption and purchase of raw materials. Macroeconomic events during 2021/22 affected commodity risk so that instead of being mainly a price risk it was both a price and a supply risk. The largest exposure to changes in the market price of raw materials is from the purchase of aluminium. The total purchase of aluminium raw material corresponded to approximately 5% of the Group’s production costs (2020/21: 3%). The Group is mitigating the price and supply risk by purchasing aluminium in larger quantities to provide better price stability and ensure a sufficient supply of aluminium to meet production requirements. During 2021/22, the Group had an increased focus on energy risk, as energy markets were affected by macroeconomic events. The Group has taken several precautionary measures to manage energy risk, e.g. by starting to switch from natural gas to green electricity to mitigate both price and supply risk. The Group does not mitigate commodity risk using financial derivatives or contracts but mitigates its commodity risk through pricing and ordering agreements with key suppliers. 7.1 Financial risks (continued) Page — 108 Consolidated financial statements Annual Report 2021/22 Interest rate sensitivity A one percentage point increase in the interest rate is estimated to have an effect of a negative DKK 3.3m on financial items (2020/21: negative DKK 6.0m). The effect is mainly driven by securities, which consist of a portfolio of fixed and floating rate bonds. Increased interest from floating rate bonds would drive a DKK 2.4m increase (2020/21: DKK 3.0m), offset by a fair value adjustment of a negative DKK 6.0m (2020/21: negative DKK 10.0m). The effect from other interest-bearing debt and deposits would be DKK 0.3m (2020/21: DKK 1.0m), mainly driven by bank deposits. The estimate is calculated on an all-else-equal basis and assumes a parallel change in all relevant yield curves. Exchange rate sensitivity The effects on revenue and earnings are derived from changes in selected currencies compared to average annual rates. The effect on equity is derived from changes in the 31 May 2022 closing rates for selected currencies. The estimates on an unhedged basis are presented below. 7.2 Sensitivity analysis 2021/22 2020/21 ( DKK million) Increase Revenue Earnings before tax Equity before tax Revenue Earnings before tax Equity before tax USD 5.0% 22 -17 5 18 -24 4 GBP 5.0% 10 8 2 8 6 1 CNY 5.0% 30 30 11 28 26 10 CHF 5.0% 5 5 2 7 7 2 Other 5.0% 11 9 0 6 6 1 Total 78 35 20 67 21 18 Page — 109 Consolidated financial statements Annual Report 2021/22 Derivative financial instruments comprise primarily foreign exchange contracts used to hedge the foreign exchange risk related to unrecognised future transactions. The value adjustments from forward contracts affect the income statement on a monthly basis throughout the hedging period. For information on financial risks and management of those risks, see note 7.1. Derivatives contracted by the Group to hedge the foreign exchange risk related to future transactions are specified below: 7.3 Derivative financial instruments 31-05-22 31-05-21 ( DKK million) Net exposure Hedging period Average hedging rate Fair value Contract value Net exposure Hedging period Average hedging rate Fair value Contract value Foreign exchange forward contracts USD Negative 12 months 6.56 7 154 Negative 12 months 6.18 -4 236 GBP Positive 12 months 8.70 0 73 Positive 12 months 8.42 -1 70 CHF Positive 12 months 7.04 -1 43 Positive 12 months 6.77 0 54 CNY Positive 12 months 0.98 -13 279 Positive 12 months 0.91 -9 241 SGD Negative 12 months 4.93 0 20 Negative 12 months 4.67 0 15 Total -7 569 -14 616 Foreign exchange swaps - - - 28 - - -1 -13 0 11 - 6 0 10 - 13 - - - -4 - - - 2 - - - -2 -2 35 - - 0 -4 - - Total -2 52 -1 30 Derivatives for hedging -9 621 -15 646 Page — 110 Consolidated financial statements Annual Report 2021/22 The fair value of derivative financial instruments is recognised in the statement of financial position as follows: (DKK million) 31-05-22 -- 9 1 -18 -16 Total -9 -15 The fair value is based on observable market data and is part of level 2 in the fair value hierarchy. Level 1: Listed prices (unadjusted) in active markets for identical assets and liabilities Level 2: Input, other than listed prices on level 1, which is observable for the asset or liability either directly (as prices) or indirectly (derived from prices) Level 3: Input for the asset or liability is unobservable and not based on market data input The derivatives are not traded on an active market based on quoted prices but are individual contracts. The fair value of these assets is determined using valuation techniques that apply market data such as exchange rates, credit risk and volatilities. Accounting policies Derivative financial instruments are recognised on the trading date at fair value and subsequently measured at fair value at the reporting date. The fair value of derivative financial instruments is recognised under other receivables or other financial lia bilities, respectively, in the statement of financial position. The effective portion of changes in the value of derivative financial instruments designated to hedge highly probable future transactions is recognised in other comprehensive income until the hedged transactions are realised. When realised, the accumulated gains/losses are transferred to the items under which the hedged transactions are recognised. The ineffective portion of hedge transactions and changes in the fair values of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as financial income or expenses. 7.3 Derivative financial instruments (continued) Page — 111 Consolidated financial statements Annual Report 2021/22 Fees to auditors Earnings per share Contin and other financial commitments Related parties Events after the reporting period Companies in the Bang & Olufsen Group Key figure definitions Section 8 Other disclosure requirements Annual Report 2021/22 Page — 112 Consolidated financial statements Annual Report 2021/22 (DKK million) 2021/22 Statutory audit 3.2 3.2 Other assurance services 0.1 0.2 Other services 0.6 1.4 Total 3.9 4.8 Fees for services other than statutory audit of the financial statements provided by EY to the Bang & Olufsen Group mainly consist of fees related to ad hoc projects. 2021/22 -30 -23 Average number of shares outstanding 122,772 122,772 Dilutive effect of average outstanding shares - - effect 122,772 122,772 Earnings per share (EPS), DKK -0.2 -0.2 Earnings per share, diluted (EPS-D), DKK -0.2 -0.2 8.1 Fees to auditors 8.2 Earnings per share Page — 113 Consolidated financial statements Annual Report 2021/22 Bang & Olufsen Group has issued guarantees in an amount of DKK 89m (2020/21: DKK 93m). The guarantees mainly relate to a rent obligation related to the formerly owned Czech production facility and bank guarantees. Mortgage and securities Land and buildings were mortgaged for an amount of DKK 62m (2020/21: DKK 65m) as security for DKK 62m of the Group’s mortgage loan (2020/21: DKK 65m). Other tangible assets relating to land and buildings are included in mortgage loans. The carrying amount of the Group’s mortgaged land and buildings was DKK 97m (2020/21: DKK 103m). When entering into repo transactions with its bank, Bang & Olufsen uses a proportional part of its securities as collateral against the repo transaction with the bank. At 31 May 2022, repo transactions amounted to DKK 276m. The Group has pledged inventories and debtors as security for its committed credit facility with its bank via a Danish first priority floating charge (in Danish: virksomhedspant) amounted to DKK 100m, and a Dutch floating charge over its finished goods inventory located in the Netherlands. Legal and arbitration proceedings In the ordinary course of its business, the Group is and will from time to time become involved in discussions, disputes and legal proceedings, including claims relating to e.g. commercial counterparties, employees, intellectual property infringement or violations and other business-related disputes. The results of such disputes and legal proceedings may be hard to predict, and the Group’s assessment of relevant disputes and proceedings may change as they unfold. The Group expenses legal fees as incurred and records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavourable outcome to any material legal matter may result in damages being awarded, injunctions and/or termination of product lines, all of which could have financial implications exceeding any provisions made and thus an adverse effect on the Group’s business, operating results, cash flow and financial position. The Group is currently engaged in discussions involving claims against the Group regarding alleged infringements of third-party rights in relation to specific jurisdictions and specific ranges of the Group’s present and past products and features and technologies included therein. The Group is also a party to claims involving the termination of certain retail partners in some jurisdictions. Such claims are not uncommon in the industry, and the Group addresses and defends itself against such claims as part of its ordinary course of business, assisted by external advisors where necessary. While by their nature such claims could potentially have a significant adverse effect on the Group in case of an unfavourable outcome, it is the Group’s current expectation that none of these claims will have such an effect. 8.3 Contingent liabilities, collateral and other financial commitments Page — 114 Consolidated financial statements Annual Report 2021/22 The Bang & Olufsen Group has no related parties with control over the Group and no related parties with significant influence other than key management personnel – mainly in the form of the Board of Directors, the Executive Management Board and other key management personnel. Board of Directors, Executive Management Board and other key management personnel No significant transactions were made in 2021/22 other than ordinary remuneration, as described in notes 3.2 and 3.3, and sales of products on employee terms and conditions. Other transactions No transactions with related parties took place. As described in the company's outlook for the financial year 2022/23, Bang & Olufsen is facing higher than normal risks and uncertainties. These are factors such as the duration of the COVID-19 pandemic, and the potential impact in the company's different geographical markets and on supply chain and logistics, currently especially related to China. Furthermore, Russia’s war against Ukraine could potentially impact consumer demand in some countries. Inflation has also increased, leading to higher input prices in day-to-day operations. The company is working actively to mitigate these implications, but there may be a financial impact from these risks. Except as described above or elsewhere in this annual report, no events have occurred in the period from the balance sheet date until the presentation of the financial statements that materially affect the assessment of the consolidated financial statements. 8.4 Related parties 8.5 Events after the reporting period Page — 115 Consolidated financial statements Annual Report 2021/22 8.6 Companies in the Bang & Olufsen Group Company name Domicile Currency Share capital in local currency Bang & Olufsen Number of undisclosed subsidiaries Denmark (domicile country) DKK 613,860,435 DKK 156,000,000 100.0% Bang & DKK 3,000,000 100.0% DKK 7,500,000 100.0% EMEA Bang & Olufsen AS NOK 3,000,000 100.0% Bang & Olufsen Svenska AB SEK 4,150,000 100.0% Bang & EUR 1,022,584 100.0% Bang & Olufsen AG CHF 200,000 100.0% EUR 1,744,148 100.0% GBP 2,600,000 100.0% 2 Bang & Olufsen France SAS EUR 3,585,000 100.0% 1 EUR 1,803,036 100.0% EUR 10,000 100.0% EUR 942,000 100.0% Bang & EUR 18,000 100.0% Americas USD 34,000,000 100.0% 3 Asia SGD 2 100.0% Bang & CNY 67,000,000 100.0% Bang & Olufsen Limited HKD 1,000,000 100.0% Bang & Olufsen Japan KK JPY 10,000,000 100.0% Bright Future International Limited Hong HKD 1 100.0% CNY 955,696 100.0% Page — 116 Consolidated financial statements Annual Report 2021/22 8.7 Key figure definitions Item Key figures and ratios Definition EBIT Earnings before interest and tax (result before financial items and income taxes) EBIT before special items EBIT margin EBIT as a percentage of revenue EBIT margin before special items EBIT before special items as a percentage of revenue EBITDA EBITDA before special items EBITDA margin EBITDA as a percentage of revenue EBITDA margin before special items EBITDA before special items as a percentage of revenue Gross margin Gross profit as a percentage of revenue Growth in local currencies Organic growth in local currency excluding acquisitions and divestments and foreign exchange rates Earnings per share (EPS) Diluted earnings per share Result attributable to DKK Incurred development costs ratio Incurred development costs before capitalisation as a percentage of revenue Operating expenses Capacity costs Capacity cost ratio Capacity costs as a percentage of revenue Net interest- Current and non-current interest-bearing loans and borrowings less interest-bearing receivables and cash Available liquidity ansactions Free cash flow Cash flow from operating activities less cash flow from operational investments Invested capital Working capital Current assets less current liabilities (excluding interest-bearing items and provisions) Working capital ratio Average working capital LTM (latest twelve months) as a percentage of revenue Page — 117 Consolidated financial statements Annual Report 2021/22 Alternative performance measures The Group assesses its performance using a variety of alternative performance measures that are not defined under IFRS. A reconciliation from these alternative performance measures to the nearest IFRS measure is presented below. Growth in local currencies Growth in local currencies reflects the underlying performance of the Group. As such, this excludes the impact of acquisitions or divestments and foreign exchange movements. Below is a reconciliation from the movement in reported revenue according to IFRS. (Percentage) 2021/22 Revenue growth (according to P&L) 12 29 Foreign exchange -2 2 Growth in local currencies 10 31 Operating performance In addition to measuring the Group’s financial performance based on its operating result, EBIT and EBITDA before special items are also used. We consider EBITDA to be a useful measure because it approximates the underlying performance by eliminating depreciation and amortisation. The adjusted EBITDA figures are used in order to be comparable year over year, due to the implementation of new accounting standards and the elimination of special items that are not comparable year over year. (DKK million) 2021/22 EBIT 46 19 211 184 EBITDA 257 203 8 19 EBITDA before special items 265 222 EBIT 46 19 8 19 EBIT before special items 54 38 8.7 Key figure definitions (continued) Page — 118 Parent company financial statements Annual Report 2021/22 Income statement and statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Notes Parent company financial statements Page — 118 Parent company financial statements Annual Report 2021/22 Page — 119 Parent company financial statements Annual Report 2021/22 (DKK million) Notes 2021/22 Revenue 3 513 400 Production costs 4, 5, 6 -49 -46 Gross profit 464 354 Development costs 4, 5, 6 -265 -248 Distribution and marketing costs 4, 5, 6 -227 -212 Administrative costs 4, 5, 6 -121 -113 Operating profit/(loss) (EBIT) -149 -219 Income from investment in subsidiaries 860 - Financial income 9 12 5 Financial expenses 9 -65 -61 -53 -56 Earnings before tax (EBT) 658 -275 Income tax 10 19 64 Earnings for the year 677 -211 Total comprehensive income for the year 677 -211 Distribution of profit/(loss) for the year: Reserve for development costs 38 40 Retained earnings 639 -251 Total 677 -211 Income statement and statement of comprehensive income 1 June – 31 May Page — 120 Parent company financial statements Annual Report 2021/22 Assets (DKK million) Notes 31-05-22 -- Acquired rights 50 32 Completed development projects 97 110 Development projects in progress 138 76 Intangible assets 11 285 218 11 81 53 Right-of-use assets 12 13 16 Tangible assets 94 69 Investment properties 36 36 Investment in subsidiaries 607 607 Deferred tax assets 10 32 47 Total non-current assets 1,054 977 Trade receivables 55 33 Tax receivable 181 133 Interest-bearing receivables from subsidiaries 245 - Other receivables 42 9 Prepayments 12 6 Securities 415 435 Cash 0 0 Assets held for sale 15 - 21 Total current assets 950 637 Total assets 2,004 1,614 Equity and liabilities (DKK million) Notes 31-05-22 -- Share capital 17 613 613 Reserve for development costs 208 170 Retained earnings 56 -559 Total equity 877 224 Lease liabilities 12, 18 7 10 Deferred tax 10 13 - Provisions 2 1 Mortgage loans 58 61 Non-current other liabilities 15 15 Total non-current liabilities 95 87 Lease liabilities 12, 18 7 6 Mortgage loans 18 4 4 Bank loans 20 761 294 Interest-bearing debt to subsidiaries 20 47 753 Trade payables 20 121 126 Provisions 6 5 Other liabilities 86 115 Total current liabilities 1,032 1,303 Total liabilities 1,127 1,390 Total equity and liabilities 2,004 1,614 Statement of financial position Page — 121 Parent company financial statements Annual Report 2021/22 (DKK million) Notes 2021/22 Earnings before tax (EBT) 658 -275 53 56 Income from investment in subsidiaries -860 - 122 97 Operating profit/(loss) before depreciation, amortisation and impairment (EBITDA) -27 -122 Other non-cash items -4 10 Change in net working capital -95 -4 Change in interest-bearing receivables from subsidiaries -245 37 Change in interest-bearing debt from subsidiaries -706 -22 Interest received 12 5 Interest paid -34 -43 Income tax paid - 6 Cash flows from operating activities -1,099 -133 Purchase of intangible non-current assets -170 -129 Purchase of tangible non-current assets -19 -9 Income from investment in subsidiaries 860 - Operational investments 671 -138 Free cash flow -428 -271 Purchase of securities -447 -495 Sale of securities 456 50 Financial investments 9 -445 Cash flows from investing activities 680 -583 (DKK million) Notes 2021/22 Repayment of lease liabilities 18 -6 -6 Repayment of mortgage loans 18 -4 -4 Proceeds from loans and borrowings 18 923 746 Repayment of loans and borrowings 18 -456 -452 Purchase of own treasury shares -37 -42 Capital increase - 359 Cash flows from financing activities 420 601 0 116 Exchange rate adjustment, cash and cash equivalents -1 -1 Change in cash and cash equivalents 1 -115 Cash and cash equivalents, closing balance 0 0 Statement of cash flows 1 June – 31 May Page — 122 Parent company financial statements Annual Report 2021/22 ( DKK million) Share capital Reserve for development costs Retained earnings Total Equity 1 June 2021 613 170 -559 224 Earnings for the year - 38 639 677 Comprehensive income for the year - 38 639 677 Share-based payments - - 13 13 Purchase of own shares - - -37 -37 Equity 31 May 2022 613 208 56 877 Equity 1 June 2020 432 130 -466 96 Earnings for the year - 40 -251 -211 Comprehensive income for the year - 40 -251 -211 Cancellation of shares -23 - 23 - Reduction of share capital -205 - 205 - Rights issue 409 - - 409 Costs related to rights issue - - -50 -50 Share-based payments - - 13 13 Tax related to LTI programme - - 3 3 Purchase of own shares - - -36 -36 Equity 31 May 2021 613 170 -559 224 Statement of changes in equity 1 June – 31 May Page — 123 Parent company financial statements Annual Report 2021/22 Accounting policies Critical accounting estimates and judgements Revenue Staff costs Development costs impairment Government grants Special items Financial items Tax plant and equipment Right-of-use assets Investment properties Impairment of non-current assets Assets held for sale Investments in subsidiaries Share capital Mortgage loans and lease liabilities Share-based payments Financial instruments by category Fees to auditors appointed by the General Meeting and other financial commitments Related parties Events after the reporting period Notes Page — 123 Page — 124 Parent company financial statements Annual Report 2021/22 Bang & Olufsen A/S is a Danish company. The company reports in accordance with the rules and principles for accounting class D. The Annual Report is published on 6 July 2022 and will be presented to the shareholders for approval at the Annual General Meeting. The financial statements of Bang & Olufsen A/S for 2021/22 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for listed companies. Accounting policies are unchanged from last year and identical to the accounting policies for the Group, with the following exceptions: Accounting policies different from the Group Investments in subsidiaries Investments in subsidiaries are measured at cost. If the cost exceeds the recoverable amount, the carrying amount is reduced to this lower amount. Gains or losses on sale of investments in subsidiaries are calculated as the difference between the carrying amount of the sold investment and the fair value of the proceeds from the sale. Dividends Dividends from investments in subsidiaries are recognised when the final right to receive the dividends is established. This is typically at the time of the Annual General Meeting’s approval of the distribution of dividend from the company in question. Dividends are recognised as a liability at the time of their approval by the Annual General Meeting. Investment properties Investment properties are held to earn rental income or capital appreciation. Investment properties consist of a number of properties that are owned for the purpose of renting them mainly to other Group companies. Investment properties are measured at cost less accumulated depreciation and impairment losses. Investment properties are depreciated on a straight-line basis over 40 years. Changes in accounting policies The description in note 1.3 to the consolidated financial statements regarding new standards issued effective for the 2021/22 Annual Report fully covers the Parent Company as well. 1 Accounting policies Page — 125 Parent company financial statements Annual Report 2021/22 When applying the Parent Company's accounting policies, management is required to make a number of accounting assessments and estimates and to make assumptions about the carrying amounts of certain assets and liabilities and recognised revenue and costs, which cannot be derived directly from other sources. Significant judgements are made when assessing development projects and deferred tax assets. Management bases its estimates and assumptions on historical experience and other relevant factors that are believed to be reasonable under the given circumstances. The actual outcome can differ from these estimates. Estimates made and the underlying assumptions are reviewed on a continuous basis. Changes made to accounting estimates are recognised in the financial period in which the change takes place and future financial periods, if the change affects both the period in which the change takes place and future financial periods. For further accounting estimates and judgements regarding the war in Ukraine and the COVID-19 situation in China, please see note 1.2 to the consolidated financial statements. The following accounting estimates and judgements are assessed to be material for the parent company financial statements. Development projects Development costs are capitalised only after the technical and commercial feasibility of the projects has been established. In connection with the capitalisation of development costs, the expected useful life of the products is determined. Management has assessed that the amortisation period is usually 2-6 years. Deferred tax assets Deferred tax assets are recognised in the balance sheet at the value the asset is expected to be realised at, either by set-off against deferred tax liabilities or as net tax assets to be offset against future positive taxable income. At each balance sheet date, an assessment is made of whether it is probable that sufficient taxable income will be generated in future, so that the deferred tax asset can be utilised. (DKK million) 2021/22 Geographical breakdown: Denmark 384 285 Rest of world 129 115 Total 513 400 Breakdown by nature: Sale of services - 12 Royalty 445 326 Rental income 68 62 Total 513 400 2 Critical accounting estimates and judgements 3 Revenue Page — 126 Parent company financial statements Annual Report 2021/22 (DKK million) 2021/22 Wages and other remuneration 318 300 Share-based payments 13 13 Pensions 23 19 Other social security costs 3 3 Total staff costs 357 335 Staff costs relate to: Production costs 29 31 Development costs 156 120 Distribution and marketing costs 87 90 Administrative costs 85 94 Total staff costs 357 335 Average number of employees 400 352 All pension costs relate to defined contribution plans. Pension contributions, which can either be a fixed amount or a fixed percentage of the monthly salary, are recognised in the income statement as they are paid to independent pension insurance companies. Any unpaid contribution is recognised in the balance sheet as a liability. Once the contributions have been paid, the company has no further obligations and the individual employee carries the risk for the value of the pension insurance at retirement. See note 3.2 to the consolidated financial statements for further information about the remuneration of the Board of Directors, the Executive Management Board and other key employees. (DKK million) 2021/22 Incurred development costs before capitalisation 314 277 Of which capitalised -138 -106 Incurred development costs after capitalisation 176 171 Capitalisation (%) 43.9% 38.1% Total amortisation and impairment losses on development projects 89 77 Development costs recognised in the income statement 265 248 4 Staff costs 5 Development costs Page — 127 Parent company financial statements Annual Report 2021/22 (DKK million) 2021/22 Depreciation, amortisation and impairment 103 80 9 8 3 3 Right-of- 7 6 Total 122 97 Depreciation, amortisation and impairment relate to: Production costs 8 7 Development costs 95 79 Distribution and marketing costs 12 5 Administrative costs 7 6 Total 122 97 (DKK million) 2021/22 Government grants - 4 Breakdown by function: Production costs - 1 Development costs - 1 Distribution and marketing costs - 1 Administrative costs - - Financial expenses - 1 Total - 4 No government grants were received in 2021/22. Government grants in 2020/21 were related to Danish COVID-19 packages of DKK 4m. 6 Depreciation, amortisation and impairment 7 Government grants Page — 128 Parent company financial statements Annual Report 2021/22 (DKK million) 2021/22 4 1 Restructuring costs and severance 2 2 Consultants 2 16 Total 8 19 (DKK million) 2021/22 Production costs 3 4 Development costs 3 10 Distribution and marketing costs 1 4 Administrative costs 1 1 Total 8 19 Special items consist of expenses related to restructuring or structural changes that Bang & Olufsen does not consider to be a part of its ordinary operations such as redundancies and specific consultancy costs. (DKK million) 2021/22 Interest income from banks 9 4 Interest income from subsidiaries 1 1 Other financial income 2 - Financial income 12 5 Interest expenses -29 -18 Interest expense to subsidiaries -15 -25 Interest expenses on lease liabilities -1 - -20 -18 Financial expense -65 -61 Financial income and expenses related to securities are measured at fair value. Financial income and expenses related to the remaining financial assets and liabilities are not measured at fair value. 8 Special items 9 Financial items Page — 129 Parent company financial statements Annual Report 2021/22 (DKK million) 2021/22 Tax for the year Current tax -44 -56 Change in deferred tax during the year 8 -7 Adjustments to tax for prior years 17 -1 Total -19 -64 2021/22 2020/21 % DKKm % DKKm Effective tax rate for the year Calculated tax on result for the year before tax 22.0% 145 22.0% -61 Non-deductible costs and non-taxable income -27.8% -183 0.7% -2 Adjustments to prior periods 2.7% 17 0 -1 Other 0.3% 2 -0.1% - Effective tax rate for the year -2.8% -19 23.0% -64 Assets Liabilities Net assets (DKK million) 31-05-22 -- 31-05-22 -- 31-05-22 -- Deferred tax Non-current assets - - 13 2 -13 -2 Tax loss carryforwards 6 19 - - 6 19 Other 26 30 - - 26 30 Total 32 49 13 2 19 47 For the assessment of the future utilisation of deferred tax assets, see note 2.5 to the consolidated financial statements. (DKK million) 2021/22 Change in deferred tax, net during the year Non-current assets -11 -22 Tax loss carryforwards -13 13 Other -4 19 Total -28 10 At 31 May 2022, the net deferred tax asset totalled DKK 19m (31 May 2021: DKK 47m). The decrease of DKK 26m was mainly due to a decrease in tax loss carryforwards. 10 Tax Page — 130 Parent company financial statements Annual Report 2021/22 11 Intangible assets and property, plant and equipment ( DKK million) Acquired rights Completed development projects Development projects in progress Intangible assets Land and buildings Other tangible assets Property, plant and equipment Cost 113 639 59 811 110 95 205 Additions 23 42 64 129 - 3 3 Disposals - -156 - -156 - - - Completed development projects and assets 3 47 -47 3 - -5 -5 139 572 76 787 110 93 203 Additions 32 16 122 170 - 16 16 Disposals - -38 - -38 - - - Reclassification of assets from assets held for sale to land and buildings - - - - 83 - 83 Completed development projects and assets - 60 -60 - 1 -1 - At 31 May 2022 171 610 138 919 194 108 302 Depreciation, amortisation and impairment -104 -541 - -645 -58 -84 -142 Amortisation and depreciation -3 -77 - -80 -6 -2 -8 Disposals - 156 - 156 - - - -107 -462 - -569 -64 -86 -150 Reclassification of assets from assets held for sale to land and buildings - - - - -62 - -62 Amortisation and depreciation -14 -89 - -103 -7 -2 -9 Disposals - 38 - 38 - - - At 31 May 2022 -121 -513 - -634 -133 -88 -221 Carrying amount At 31 May 2022 50 97 138 285 61 20 81 32 110 76 218 46 7 53 Page — 131 Parent company financial statements Annual Report 2021/22 ( DKK million) Land and buildings Other equipment Total Costs 7 6 13 Additions - 1 1 Remeasurements 14 - 14 Terminations - -1 -1 At 31 May 2021 21 6 27 Additions 2 2 4 Terminations - -2 -2 At 31 May 2022 23 6 29 Depreciation, amortisation and impairment -4 -2 -6 Depreciation -4 -2 -6 Terminations - 1 1 At 31 May 2021 -8 -3 -11 Depreciation -5 -2 -7 Terminations - 2 2 At 31 May 2022 -13 -3 -16 Carrying amount At 31 May 2022 10 3 13 13 3 16 See note 18 for a maturity analysis for lease liabilities. (DKK million) 2021/22 Amounts recognised in the income statement: Interest expenses -1 - Lease liabilities Non-current 7 10 Current 7 6 Total lease liabilities 14 16 Repayments of lease liabilities amounted to DKK 6m in 2021/22 (2020/21: DKK 6m). Expenses relating to short- term and low-value leases were insignificant. 12 Right-of-use assets Page — 132 Parent company financial statements Annual Report 2021/22 (DKK million) Cost 166 Additions 6 Completed assets 2 174 Additions 3 Completed assets 0 At 31 May 2022 177 Depreciation and impairment -135 Depreciation during the year -3 -138 Depreciation during the year -3 At 31 May 2022 -141 Net book value At 31 May 2022 36 36 Investment properties consist of a number of properties that are owned for the purpose of renting them to other Group companies and, to some extent, external parties. All investment properties are located in Struer, Denmark, and are used for production, warehousing and offices. Due to the size and type of the buildings and the location of the investment properties, there is no active market for these, and it is consequently not possible to estimate their fair value, since the fair value is completely dependent on the Group companies' continued use of the properties. Independent valuers have not been used. There are no contractual obligations to purchase, construct or develop investment properties. Rental income of DKK 68m was received from investment properties in 2021/22 (2020/21: DKK 62m). Directly attributed operating expenses were DKK 26m (2020/21: DKK 25m). Investment properties are leased to the subsidiaries. The lease term is 3-34 months. According to the existing leases, rental income of DKK 15m will be received in the three months that are included in the lease term. 13 Investment properties Page — 133 Parent company financial statements Annual Report 2021/22 Intangible and tangible assets – impairment losses during the year No impairment losses were recognised in 2021/22 or 2020/21. The assessment of the recoverable amount of intangible assets is based on calculations of the value in use of the assets. The value is calculated based on the expected future cash flows from the assets based on the budgets approved by management over the expected lifetime of the assets, and a discount rate before tax of 7.5% (2020/21: 10.0%). Financial assets – impairment losses during the year No impairment losses were recognised on non-current financial assets in 2021/22 or 2020/21. There were no assets held for sale at 31 May 2022. The building included in assets held for sale at 31 May 2021 was also presented as held for sale for the Group. See note 5.3 to the consolidated financial statements. 14 Impairment of non-current assets 15 Assets held for sale Page — 134 Parent company financial statements Annual Report 2021/22 (DKK million) 31-05-22 -- 600 600 7 7 Total 607 607 At 31 May 2022, investments in subsidiaries amounted to DKK 607m (31 May 2021: DKK 607m). There were no acquisitions or disposals in 2021/22 (2020/21: none). See note 8.6 to the consolidated financial statements for an overview of Group companies. At 31 May 2022, the share capital consisted of 122,772,087 shares (31 May 2021: same) with a nominal value of DKK 5 each. Each share entitles the holder to one vote. No shares carry special rights. There are no limitations to transferability and no voting restrictions. All shares are listed on Nasdaq Copenhagen. Number Nominal value (DKK million) % of share capital 2021/22 2021/22 2021/22 Treasury shares 2,112,372 2,317,014 11 23 1.8 5.4 shares - -2,273,449 - -23 - -5.3 Acquired in connection with long-term incentive programme 1,150,000 2,068,807 6 11 0.9 1.7 Granted matching shares programme -17,680 - 0 - - - 31 May 3,244,692 2,112,372 17 11 2.7 1.8 All treasury shares are held by Bang & Olufsen A/S. At 31 May 2022, the following investors had reported holdings of more than 5% of Bang & Olufsen A/S’s share capital: 16 Investments in subsidiaries 17 Share capital Major shareholders, 31 May 2022 Three shareholders have notified Bang & Olufsen that they hold more than 5% of the company’s share capital. More than 10%: • Sparkle Roll (Denmark) Limited • Tillægspension More than 5%: • Chr. Augustinus Fabrikker Aktieselskab Page — 135 Parent company financial statements Annual Report 2021/22 31-05-22 -- (DKK million) Nominal interest value Year of maturity Carrying amount Carrying amount Terms and repayment schedule Fixed- -0.4% 2040 62 65 Total loans 62 65 The company had a mortgage loan with a three-year interest refinancing period. No extraordinary repayments were made on the mortgage loan in 2021/22. In 2020/21, the interest on mortgage loans was refinanced at -0.4% plus a contribution margin, providing an annual percentage rate of 1.0%. 19 Share-based payments The matching share programmes described in note 3.3 to the consolidated financial statements are issued by Bang & Olufsen A/S. The majority of the matching shares are granted to employees in Bang & Olufsen A/S. An amount of DKK 13m (2020/21: DKK 13m) was recognised in the year as part of staff costs. 18 Mortgage loans and lease liabilities (DKK million) -- Financing cash flow Additions and remeasurements Reclassifi- cations -- Financing cash flow Additions and remeasurements Reclassifi- cations 31-05-22 Terms and repayment schedule Repayment of lease liabilities 8 -6 14 - 16 -6 4 - 14 Long-term borrowings 65 - - -4 61 - - -4 58 Short-term borrowings 4 -4 - 4 4 -4 - 4 4 Bank loans - 294 - - 294 467 - - 761 Total 77 284 14 - 375 457 4 - 837 Page — 136 Parent company financial statements Annual Report 2021/22 (DKK million) 31-05-22 -- Trade receivables 55 33 Interest-bearing receivables from subsidiaries 245 - Cash 0 0 Financial assets at amortised cost 300 33 Securities 415 435 Fair value through income statement 415 435 Financial assets 715 468 Mortgage loans 62 65 Bank loans 761 294 Lease liabilities 14 16 Interest-bearing debt from subsidiaries 47 753 Other liabilities - 20 Trade payables 121 126 Financial liabilities at amortised cost 1,005 1,274 ( DKK million) Less than one year Between one and five years More than five years Total Carrying amount Contractual maturity analysis for financial liabilities 31-05-22 Mortgage loans 4 13 45 62 62 Bank loans 761 - - 761 761 Lease liabilities 7 8 - 15 14 Interest-bearing debt to subsidiaries 47 - - 47 47 Trade payables 121 - - 121 121 31-05-21 Mortgage loans 4 14 47 65 65 Bank loans 294 - - 294 294 Lease liabilities 6 12 - 18 16 Interest-bearing debt to subsidiaries 753 - - 753 753 Trade payables 126 - - 126 126 See note 7.1 to the consolidated financial statements for a description of the Group's management of financial risks. 20 Financial instruments by category Page — 137 Parent company financial statements Annual Report 2021/22 (DKK million) 2021/22 Statutory audit 0.1 0.1 Other assurance services 0.1 0.1 Other services 0.4 1.3 Total 0.6 1.5 Fees for services other than statutory audit of the financial statements provided by EY mainly consist of fees related to ad hoc projects. The Bang & Olufsen Group has issued guarantees totalling DKK 89m (2020/21: DKK 92m). The guarantees mainly relate to a rent obligation related to the former Czech production facilities and bank guarantees. Bang & Olufsen A/S has provided guarantees concerning the continuous operation and payment of liabilities in 2021/22 for some of its subsidiaries. Bang & Olufsen A/S is taxed jointly with the Danish companies in the Bang & Olufsen Group. As the management company, Bang & Olufsen A/S has unlimited as well as joint and several liability together with the other jointly taxed companies for Danish taxes and VAT related to the jointly taxed companies. Legal and arbitration proceedings See note 8.3 to the consolidated financial statements. Mortgages and securities See note 8.3 to the consolidated financial statements. 21 Fees to auditors appointed by the General Meeting 22 Contingent liabilities, collateral and other financial commitments Page — 138 Parent company financial statements Annual Report 2021/22 Bang & Olufsen A/S has no related parties with control of the Group and no related parties with significant influence other than key management personnel – mainly in the form of the Board of Directors, the Executive Management Board and other key management personnel. Board of Directors, Executive Management Board and other key management personnel No significant transactions were made in 2021/22 other than ordinary remuneration, as described in notes 3.2 and 3.3 to the consolidated financial statements, and sales of products on employee terms and conditions. Associates and subsidiaries Transactions with subsidiaries included the following: (DKK million) 2021/22 Purchase of services – subsidiaries 38 26 Rental income – subsidiaries 68 60 Income from investment in subsidiaries 860 - Royalty income – subsidiaries 317 225 Bang & Olufsen A/S had receivables from subsidiaries of DKK 245m (2020/21: DKK 0m) and payables of DKK 47m (2020/21: DKK 753m). All receivables and payables with subsidiaries fall due within one year. The carrying amount is expected to be a reasonable approximation of the fair value. No impairment was identified in subsidiaries in 2021/22 or 2020/21. Other transactions Bang & Olufsen A/S has issued guarantees for its related parties, see note 16. None of the guarantees is expected to result in any losses. No other transactions with related parties took place. As described in the company's outlook for the financial year 2022/23, Bang & Olufsen is facing higher than normal risks and uncertainties. These are factors such as the duration of the COVID-19 pandemic, and the potential impact in the company's different geographical markets and on supply chain and logistics, currently especially related to China. Furthermore, Russia’s war against Ukraine could potentially impact consumer demand in some countries. Inflation has also increased, leading to higher input prices in day-to-day operations. The company is working actively to mitigate these implications, but there may be a financial impact from these risks. Except as described above or elsewhere in this annual report, no events have occurred in the period from the balance sheet date until the presentation of the financial statements that materially affect the assessment of the financial statements of Bang & Olufsen A/S. 23 Related parties 24 Events after the reporting period Page — 139 Reports Annual Report 2021/22 Management’s statement Reports Reports Annual Report 2021/22 Page — 139 Page — 140 Reports Annual Report 2021/22 The Board of Directors and the Executive Management Board have today discussed and approved the Annual Report of the Bang & Olufsen Group and the Parent Company for 2021/22. The Annual Report has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and further requirements in the Danish Financial Statements Act. In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group’s and the Parent Company’s assets, liabilities and financial position at 31 May 2022, and of the results of the Group’s and the Parent Company’s operations and cash flows for the financial year 1 June 2021 – 31 May 2022. In our opinion, the Management’s review includes a fair review of the development in the Group’s and the Parent Company’s operations and financial matters, of the result for the year, and of the Group’s and the Parent Company’s financial position in general, as well as a description of the significant risks and uncertainty factors pertaining to the Group and the Parent Company. In our opinion, the Annual Report of Bang & Olufsen A/S for the financial year 1 June 2021 to 31 May 2022 with the file name reports\52990018KGR3ILFDNJ20-2022-05-31-en.xhtml has been prepared, in all material respects, in compliance with the ESEF Regulation. We recommend that the Annual General Meeting approves the Annual Report. Struer, 6 July 2022 Management’s statement Executive Management Board: Kristian Teär CEO Nikolaj Wendelboe EVP, CFO Line Køhler Ljungdahl EVP, CLO Board of Directors: Juha Christensen Chair Albert Bensoussan Vice Chair Anders Colding Friis Brian Bjørn Hansen Britt Lorentzen Jepsen Dorte Vegeberg Jesper Jarlbæk M. Claire Chung Søren Balling Tuula Rytilä Page — 141 Reports Annual Report 2021/22 To the shareholders of Bang & Olufsen A/S Report on the audit of the Consolidated Financial Statements and Parent Company Financial Statements Opinion We have audited the consolidated financial statements and the parent company financial statements of Bang & Olufsen A/S for the financial year 1 June 2021 – 31 May 2022, which comprise income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and notes, including accounting policies, for the Group and the Parent Company. The consolidated financial statements and the parent company financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. In our opinion, the consolidated financial statements and the Parent company financial statements give a true and fair view of the financial position of the Group and the Parent Company at 31 May 2022 and of the results of the Group's and the Parent Company's operations and cash flows for the financial year 1 June 2021 – 31 May 2022 in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. Our opinion is consistent with our long-form audit report to the Audit Committee and the Board of Directors. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the "Auditor's responsibilities for the audit of the consolidated financial statements and the parent company financial statements" (hereinafter collectively referred to as "the financial statements") section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. To the best of our knowledge, we have not provided any prohibited non-audit services as described in article 5(1) of Regulation (EU) no. 537/2014. Appointment of auditor We were initially appointed as auditor of Bang & Olufsen A/S for the financial year 2012/13. We have been reappointed annually by resolution of the general meeting for a total consecutive period of 10 years up until the financial year 2021/22. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the financial year 2021/22. These matters were addressed during our audit of the financial statements as a whole and in forming our opinion thereon. We do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled our responsibilities described in the "Auditor's responsibilities for the audit of the financial statements" section, including in relation to the key audit matters below. Accordingly, our audit included the design and performance of procedures to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements. Revenue recognition from sale of goods Revenue is recognised when control of the goods has been transferred to the customer and is measured at the fair value of the expected consideration to be received, less rebates, discounts, sales taxes, duties and expected sales returns. We refer to Note 2.1 Revenue and operating segments of the consolidated financial statements. Revenue recognition was a significant matter in our audit due to the estimates and judgements necessary by Management in respect of timing of transfer of control to the customers and completeness and measurement of rebates and discounts. Our procedures included considering the appropriateness of the Group’s accounting policies in relation to revenue against applicable accounting standards, performing analytical procedures over rebates and discounts in relation to revenue and testing provisions for rebates and discounts by inspecting supporting documentation including customer contracts on sample basis. We have applied data analytics on sales and performed sample testing of sales transactions close to the balance sheet date as well as credit notes issued after the balance date to verify whether those transactions were recognised in the correct period and at correct amounts. Valuation of deferred tax assets The Group has recognised deferred tax assets of DKK 77 million as at 31 May 2022 (31 May 2021: DKK 87 million) Independent auditor's report P age — 142 Reports Annual Report 2021/22 of which DKK 10 million relate to tax loss carry forwards and DKK 67 million relate to temporary differences. The Group has recognised the deferred tax assets to the extent that the realisation of the related tax benefits through future taxable profits are probable within a foreseeable future. We refer to Note 2.5 – Tax of the consolidated financial statements. This area was significant to our audit due to the amount of the recognised deferred tax assets as well as the inherent uncertainty related to Management’s estimates in forecasting future taxable profits, including expectations for future revenue and margin developments. Our audit procedures included evaluating Management’s assumptions for forecasting future taxable profits by assessing Management’s underlying business plans, comparing previous forecasts to actual results and testing consistency between the forecasts used in the measurement of deferred tax assets against the long-term forecast and business plans of the Group. Further, we evaluated the sensitivity of the impairment model for deferred tax assets. Furthermore, we assessed the adequacy of the disclosures in Note 2.5 - Tax of the consolidated financial statements against applicable financial reporting standards. Statement on the Management's review Management is responsible for the Management's review. Our opinion on the financial statements does not cover the Management's review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the Management's review and, in doing so, consider whether the Management's review is materially inconsistent with the financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether the Management's review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that the Management's review is in accordance with the financial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the Management's review. Management's responsibilities for the financial statements Management is responsible for the preparation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, Management is responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in preparing the financial statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit conducted in accordance with ISAs and additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. Page — 143 Reports Annual Report 2021/22 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Parent Company's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Management's use of the going concern basis of accounting in preparing the financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and contents of the financial statements, including the note disclosures, and whether the financial statements represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent company financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on compliance with the ESEF Regulation As part of our audit of the financial statements of Bang & Olufsen A/S we performed procedures to express an opinion on whether the annual report for the financial year 1 June 2021 – 31 May 2022 with the file name reports\52990018KGR3ILFDNJ20-2022-05-31-en.xhtml is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: • The preparing of the annual report in XHTML format; • The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for financial information required to be tagged using judgement where necessary; • Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human readable format; and • For such internal control as Management determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: • Testing whether the annual report is prepared in XHTML format; • Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; Page — 144 Reports Annual Report 2021/22 • Evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements; • Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified; • Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and • Reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report for the financial year 1 June 2021 – 31 May 2022 with the file name reports\52990018KGR3ILFDNJ20-2022-05-31-en.xhtml is prepared, in all material respects, in compliance with the ESEF Regulation. Aarhus, 6 July 2022 EY Godkendt Revisionspartnerskab CVR no. 30 70 02 28 Henrik Kronborg Iversen State Authorised Public Accountant mne24687 Morten Friis State Authorised Public Accountant mne32732 Page — 145 Reports Annual Report 2021/22 -7600 Struer, Tel. +45 9684 1122, www.bang-olufsen.com, Reg. number: 41257911 Annual reportAuditor's report on audited financial statementsParsePort XBRL Converter2021-06-012022-05-312020-06-012021-05-312022-08-18Anders Ørjan Jensen52990018KGR3ILFDNJ20Bang & OlufsenReporting class D41257911Bang & Olufsen Allé1DK-7600Struer+4596841122www.bang-olufsen.comhttps://corporate.bang-olufsen.com/en/sustainability/policyhttps://corporate.bang-olufsen.com/en/sustainability/policyStruer2022-07-06Kristian TeärPresident & CEONikolaj WendelboeCFOLine Køhler LjungdahlJuha ChristensenChairmanAlbert BensoussanVice ChairmanAnders Colding FriisBrian Bjørn HansenBritt Lorentzen JepsenDorte VegebergJesper JarlbækM. Claire ChungSøren BallingTuula Rytilä52990018KGR3ILFDNJ2041257911Bang & OlufsenBang & Olufsen Allé 1DK-7600 StruerOpinionBasis for OpinionAarhus2022-07-06Henrik Kronborg IversenState Authorised Public Accountantmne2468730700228EY Godkendt RevisionspartnerskabMorten FriisState Authorised Public Accountantmne3273230700228EY Godkendt Revisionspartnerskab52990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember52990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember152990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember252990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember352990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember152990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember252990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember352990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember452990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember552990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember652990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember752990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember852990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember952990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember1052990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember152990018KGR3ILFDNJ202021-06-012022-05-31cmn:ConsolidatedMember252990018KGR3ILFDNJ202021-06-012022-05-3152990018KGR3ILFDNJ202020-06-012021-05-3152990018KGR3ILFDNJ202022-05-3152990018KGR3ILFDNJ202021-05-3152990018KGR3ILFDNJ202020-05-3152990018KGR3ILFDNJ202021-05-31ifrs-full:IssuedCapitalMember52990018KGR3ILFDNJ202021-06-012022-05-31ifrs-full:IssuedCapitalMember52990018KGR3ILFDNJ202022-05-31ifrs-full:IssuedCapitalMember52990018KGR3ILFDNJ202021-05-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990018KGR3ILFDNJ202021-06-012022-05-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990018KGR3ILFDNJ202022-05-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990018KGR3ILFDNJ202021-05-31ifrs-full:ReserveOfCashFlowHedgesMember52990018KGR3ILFDNJ202021-06-012022-05-31ifrs-full:ReserveOfCashFlowHedgesMember52990018KGR3ILFDNJ202022-05-31ifrs-full:ReserveOfCashFlowHedgesMember52990018KGR3ILFDNJ202021-05-31ifrs-full:RetainedEarningsMember52990018KGR3ILFDNJ202021-06-012022-05-31ifrs-full:RetainedEarningsMember52990018KGR3ILFDNJ202022-05-31ifrs-full:RetainedEarningsMember52990018KGR3ILFDNJ202020-05-31ifrs-full:IssuedCapitalMember52990018KGR3ILFDNJ202020-06-012021-05-31ifrs-full:IssuedCapitalMember52990018KGR3ILFDNJ202020-05-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990018KGR3ILFDNJ202020-06-012021-05-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember52990018KGR3ILFDNJ202020-05-31ifrs-full:ReserveOfCashFlowHedgesMember52990018KGR3ILFDNJ202020-06-012021-05-31ifrs-full:ReserveOfCashFlowHedgesMember52990018KGR3ILFDNJ202020-05-31ifrs-full:RetainedEarningsMember52990018KGR3ILFDNJ202020-06-012021-05-31ifrs-full:RetainedEarningsMember52990018KGR3ILFDNJ202020-06-012021-05-31cmn:ConsolidatedMember52990018KGR3ILFDNJ202022-05-31cmn:ConsolidatedMemberiso4217:DKKiso4217:DKKxbrli:sharesxbrli:pure
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