ANNUAL REPORT 2018/19

Bang & Olufsen A/S Bang & Olufsen Allé 1 DK-7600 Struer

Tel. +45 9684 1122 www.bang-olufsen.com Reg. number: 41257911

CONTENTS

CONTENTS OVERVIEW

About Bang & Olufsen	3
2018/19 at a glance	4
Letter to shareholders	5
Business model	7

GOVERNANCE

Corporate governance	41
Remuneration	43
Risk management	45
Board of Directors	51
Executive Management Board	55
The Bang & Olufsen share	56

STRATEGY & OUTLOOK

Strategy 9 Outlook for 2019/20 15

Q4 RESULTS

Q4 Key financial highlights	60
Q4 Financial review	61

FINANCIAL STATEMENTS

	Income statement	69
	Statement of comprehensive income	69
	Statement of financial position	70
	Statement of cash flow	71
	Statement of changes in equity	72
Notes		73
	Parent company financial statements	116
	Management's statement	132
	Independent auditor's report	133

RESULTS

22
23
34

ABOUT BANG & OLUFSEN

CONTENTS

ABOUT BANG & OLUFSEN

Bang & Olufsen is a global luxury lifestyle brand founded in 1925 in Struer, Denmark by Peter Bang and Svend Olufsen whose devotion and vision remains the foundation for the company.

The rich heritage built around the relentless determination to create products that push the boundaries of audio technology continues to place the company at the forefront of audio innovation. Today, every Bang & Olufsen product is still characterised by the unique combination of beautiful sound, timeless design, and unrivalled craftsmanship.

The company's innovative and progressive products are sold worldwide in Bang & Olufsen monobrand stores, online and in multibrand stores. The company employs around 900 people and operates in more than 70 markets. Bang & Olufsen's shares are listed on NASDAQ Copenhagen A/S.

BANG & OLUFSEN'S CORE CAPABILITIES

SOUND, DESIGN & CRAFTSMANSHIP

BEAUTIFUL SOUND

All products are created to deliver the most seamless and powerful sound experience no matter the circumstances – natural, authentic and as the artist intended, regardless of size or shape.

UNRIVALLED CRAFTSMANSHIP

Only materials of the highest quality are used in Bang & Olufsen products. From pearl-blasted aluminium, authentic leather, Scandinavian wood and the fabrics that cover the products, the company's commitment to craftsmanship is unique.

TIMELESS DESIGN

Design starts by seeking true innovation to make each product better. Innovation is the inspiration that drives form and expression and the end result is design that is performance-driven and magical.

2018/19 AT A GLANCE

2018/19 AT A GLANCE BUSINESS DEVELOPMENT

A difficult year, transitioning from a wholesale focus to a consumer centric approach. A slower than expected transformation of the go-to-market setup combined with fewer product launches resulted in a decline in revenue. However, the established asset-light operating model, based on strong partnerships enabled the company to lift gross margin and remain profitable.

REVENUE SPLIT

522 monobrand stores Fewer stronger cluster partners, ensuring better consistency in consumer experience and focusing on high-traffic locations close to related retail 4,782 multibrand Points of Sale Prioritising department stores, travel retail, selected consumer electronics shops and selected etailers that cater to consumers looking for luxury lifestyle products New eCom platform launched in EMEA and the Americas facilitating omnichannel features and driving on- and offline trafic Positive impact of more asset-light and agile operating model based on strong partnerships SOCIETAL CONTRIBUTION Partnered with Sound Hub Denmark to support 16 sound and technology startups, completed more than 10 initiatives to help and promote STEM competencies for young people and hosted the annual Innovation Camp for students all over the world Reduced CO2 emissions in own building portfolio by 6.5% through a number of energy savings initiatives 8% 8% & Other Activities Brand Partnering & Other Activities

REVENUE, GROSS 34% Staged 16% Flexible Living 42% On-the-go 51% EMEA 8% Americas REGION PRODUCT CATEGORY 33% Asia Brand Partnering

DKK MILLION

2,838

13.6%

48.5% 4.9pp

EBIT MARGIN

2.1%

1.6pp

MARGIN

LETTER TO SHAREHOLDERS

Dear shareholders,

This was a disappointing year for Bang & Olufsen. Due to difficulties related to the sales and distribution network combined with fewer product launches we failed to deliver on our expectations for the year and had to downgrade our financial guidance three times in the second half of the year.

Revenue declined 13.6% compared to last year and our EBIT margin dropped to 2.1%. Thanks to our asset-light operating model, the impact on our EBIT margin was partly mitigated by an improved gross margin of 48.5%. The shortfall in revenue adversely impacted our profitability and net working capital, which resulted in a negative free cash flow of DKK 272 million and consequently, the Board of Directors decided to terminate the ongoing share buyback programme after we had reached the minimum level for our net cash position.

The results are clearly not satisfactory. The strategic changes we have initiated are necessary for us to develop and sell innovative products to our consumers and deliver long-term profitable growth. However, we have underestimated the short-term execution risk related to the transition of the sales and distribution

network to a more retail-driven model. Furthermore, we released fewer new products than in previous years, which also impacted us.

A consumer-centric approach to our sales and distribution network

The Bang & Olufsen brand remains our most important asset and delivering the right consumer experience across all touchpoints is critical in order to build brand equity and deliver profitable growth.

For many years Bang & Olufsen has operated as a wholesale company. We have opened thousands of multibrand points of sale, often through distributors, but with

Ole Andersen Chairman Henrik Clausen President & CEO

little control of the consumer experience and channel performance. This created a potential risk of diluting the long-term value of our brand. During the year, we therefore closed down a number of non-performing points of sale with little recurrent sales and instead focused on retail segments that cater to consumers looking for luxury lifestyle products.

In order for Bang & Olufsen to be recognised as a luxury lifestyle brand, it is necessary to move to a more consumer-driven model. We need an omnichannel approach to our consumer interaction and will take ownership of the in-store and online brand experience in order to gain control the commercial decisions in

terms of where and how our products are presented to consumers.

We have not yet succeeded in this transition and recognise it is in large parts down to execution. We have not been fast enough in expanding our presence with targeted multibrand retailers nor have we opened enough new monobrand stores or shops-in-shop in high-traffic areas in key markets. In addition, we have been adversely impacted by high inventory levels at our retailers, which resulted in lower-than-expected revenue in our monobrand network, especially in EMEA. In the multibrand network, we saw third-party excess inventories moving to unauthorised channels at discounted prices,

significantly impacting the multibrand network in all regions.

To support a more consistent consumer experience going forward, we strengthened our contractual framework during 2018/19. This has already improved our ability to monitor sell-out data and retail inventory levels. It also enables us to monitor market misconduct, with the objective of significantly reducing issues with products in unauthorised channels going forward.

Furthermore, we have spent significant resources on building the organisation, strengthening the top management team as well as regional management teams which have had a temporary impact on the organisation's effectiveness. Lastly, we have invested significant resources in upscaling digital competencies which among other things has resulted in improved data insights supported by our new eCom platform launched In March.

A strong pipeline of products based on our core capabilities

We took a conscious decision to launch fewer new products in 2018/19 and support our product offering through reinvigorating exciting products by adding new technology or by offering a broader pallet of colours, materials and finishes. In hindsight, our product launch plan for 2018/19 proved to be inadequate.

One of our product innovations was to upgrade speakers to support multiroom functionality with Airplay 2 and several products now also feature Google Assistant. Early in the financial year, we launched our new Beosound Edge, a true manifestation of the company's core capabilities of sound, design and craftsmanship, which have received a number of prestigious design awards.

The merger of the B&O Play and Bang & Olufsen brands was an opportunity to align our product design line as well as developing a new technical platform, instead of working with separate platforms. Therefore, we have invested in the development of new cross-product platforms on which our future products will be based. This will make us more efficient, from both a product development and a financial performance point of view. We expect that this will also significantly improve our time to market and hence frequency in product launches.

We have already announced our new Beovision Harmony TV, which will be available in October 2019. This is the second TV model we have co-developed with LG and yet further testament to the efficiency of our partnership model. We have already seen strong reviews and solid consumer interest.

Expectations for 2019/20

In 2019/20, we expect to deliver single-digit revenue growth, an EBIT margin above the 2018/19 EBIT-margin of 2.1%, and a positive free cash flow. The outlook reflects that we believe that Bang & Olufsen has an untapped growth potential but also that there is a need for us to address several key challenges in 2019/20.

A key focus area will be the continuing transition of the sales and distribution network to a more consumer-driven model. This includes ensuring that inventories at retailers are normalised. The negative effect we saw in the second half of 2018/19 in particular is also expected to adversely impact our financial performance in the first part of 2019/20.

We expect to launch more products across all categories compared to last year. This will have a positive effect on revenue, though most products will be launched during the second half of the financial year and consequently impact in the fourth quarter is most significant. Ensuring successful launches combined with a more consumer-driven go-to-market approach based on insights will enable us to drive revenue and build brand equity in key markets.

Our employees are a key part of our ability to deliver on the transformation and expectations for 2019/20. A key priority for the year will therefore be to continue building capabilities, strengthen the organisation and simplify processes.

Skilled and motivated employees are crucial to succeed, and while we did manage to bring down the number of cases of stress-related absences in 2018/19, we saw a slight decline in overall employee engagement across the company. We are addressing this, and we want to express our sincere gratitude to each and every one of our employees, who have worked hard through a difficult year. Without their passion, pride and persistence, we will never be able to deliver on our strategy.

BUSINESS MODEL

Internal value streams

Partner-driven value streams

products flow to the rest of the portfolio. The asset-light operating model enables Bang & Olufsen to adapt to changes and makes operations and the financial performance more robust.

STRATEGY & OUTLOOK

BANG & OLUFSEN 8/136

STRATEGY

Bang & Olufsen aspires to become the most desired audio brand in the world. The company aims to strengthen its position as a luxury lifestyle brand through the continuous development of innovative products based on its core capabilities of sound, design and craftsmanship and a stronger consumer-centric approach. Based on an agile and asset-light operating model, the company expects to return to profitable growth in the coming financial year.

STRATEGIC THEMES

The company's strategy is centred around four strategic themes; Brand, Products & Innovation, Distribution & Channels and Competencies & Processes. Among the key priorities for the coming years is the ambition to continue to strengthen the company's position as a luxury lifestyle brand across all consumer touchpoints via a strong omnichannel focus. This includes improving brand and marketing communication, transitioning to a more retail-driven sales and distribution network, ensuring successful launches of upcoming products as well as simplifying internal processes.

BRAND

Luxury lifestyle positioning

Bang & Olufsen's aspiration is to become the most desired audio brand in the world. To achieve this, the company will continue to strengthen the luxury lifestyle positioning and continue to create innovative and progressive products based on its core capabilities of sound, design, and craftsmanship. Being a luxury brand entails putting the consumers experience at the centre of technology and ensuring meticulous attention to detail in products as well as in the broader consumer experience.

The products created will cater to the target consumers whose lifestyles involve prioritising curated experiences and appreciating the added value of superior sound, design and craftsmanship.

Strengthening brand equity

The Bang & Olufsen brand continues to be the company's biggest asset, and strengthening the brand awareness – especially in growth markets outside Europe – remains a key priority.

In 2018/19, the company started to operate under a single brand, Bang & Olufsen. This single-brand approach was gradually implemented during the year across marketing, product packaging, in-store visual merchandising, digital platforms and other touchpoints. The more unified execution has been well received by both brand partners and consumers and has ensured a more consistent consumer experience at all touchpoints.

Bang & Olufsen will continue to focus on building and driving brand awareness

across all touchpoints through added emphasis on improving content creation, a more localised go-to-market approach and insights-driven brand-building activities.

Leveraging brand partnerships and collaborations

In recent years, the company has entered into brand partnerships with some of the largest and most innovative companies in the world, such as HP, HARMAN and LG. Brand partnerships have become a key part of the business and a platform for exposing potential consumers to the brand and the core capabilities of Bang & Olufsen.

Brand partnering is an integral part of the company's strategy to drive brand awareness and provide access to complementary capabilities within technology. In addition to brand partnerships, Bang & Olufsen continues to engage in brand collaborations with like-minded brands and artists. In 2018/19, the company executed new collaborations with brands and artists such as RIMOWA and David Lynch that involved special product editions. Bang & Olufsen will continue to engage in these types of collaborations to develop as well as amplify brand experience and awareness.

PRODUCTS & INNOVATION

A consumer-centric approach

Bang & Olufsen has a consumer-centric approach to product development based on the company's core capabilities of sound, design and craftsmanship. Bang & Olufsen's focus is on launching innovative products that truly manifest

these core capabilities and cater to three main use cases:

On-the-go
Flexible Living
Staged

Strong product lifecycle management remains important for catering to the demanding requirements of the creative curators. This entails updates to colours, materials and finishes as well as ensuring that products are always innovative and have a leading position within their use cases.

The digital engagement with consumers is also a key driver of future growth. Therefore, Bang & Olufsen will ensure a consistent approach to the

way consumers interact with products through apps and different product platforms. To create the right consumer experience, all Bang & Olufsen products must emanate luxury in the way they are installed, used and serviced.

Future products will be based on technology ecosystems to ensure industry standard compatibility. In 2018/19,

PRODUCT CATEGORIES

ON - THE - GO	FLEXIBLE LIVING	STAGED
Products that are mobility based, built around nomadic use cases. This includes both immersive and social experiences	Products for consumers who want flexibility in use and placement in domestic settings	Products used in stationary settings for immersive listening or viewing experiences

Bang & Olufsen launched its first products with Google Assistant and Apple Airplay 2. The company also introduced wireless charging in its On-the-go category. In 2019/20, an upgraded technical product platform will be finalised, which will allow the company to develop all future products more efficiently – both in terms of innovation and financially.

DISTRIBUTION & CHANNELS

Targeted approach to driving retail The potential to increase brand awareness and market penetration remains significant in many markets. Therefore, the company will maintain the level of its marketing spend in the coming years. The spend will be a combination of digital activation as well as spending on asset creation, CRM and other key marketing activities – all for the purpose of manifesting the brand position as a luxury lifestyle brand and driving traffic and sales across all channels.

The company is focused on key metropolitan areas across all regions, aiming to achieve scale in building awareness. To emphasise and strengthen the brand position, the company will concentrate its brand activities in key trend cities like: London, New York, Paris, Shanghai and Tokyo. This includes plans to open a flagship store in each of these cities. The first flagship store opened as a pop-up in New York and is scheduled to fully open in 2019.

The company will strengthen brand consistency through an updated retail design at all retail touchpoints, including new retail concepts for the multibrand channel. The goal is to create a more unified visual expression of the company's brand positioning towards consumers.

The company operates in three different regions; EMEA (Europe, Middle East and Africa), Asia and the Americas.

In EMEA, the main focus is to create strong clusters of stores in key locations and enhance consistency across monobrand and multibrand retail and online channels. Within EMEA, Europe is the most penetrated market and has the highest brand recognition. A key priority in 2018/19 was the rollout of a new contractual framework to all European monobrand partners, creating a better foundation for a more consistent brand experience, terms & conditions and product merchandising. In addition, the new setup will enable better insights into sell-out performance, which is a prerequisite for becoming more retail-driven.

In Asia, focus will be on growing key countries through strong partnerships and based on the competent and focused local organisations established in those markets over the last two years. In 2018/19, five new monobrand partners were established in China and 19 new monobrand stores were opened in high-traffic locations. To support the growth in Japan, a new management team has been appointed to support a master dealer. A change of retail partner in Australia and New Zealand in 2018/19 had a significant negative effect on performance. The new partner is expected to develop this market further with new store openings over the coming years.

In the Americas, a new management team was onboarded in 2018/19 and a clean-up of the multibrand channel initiated, which meant large reductions of non-performing points of sale. The focus for the coming years will be to build presence in key urban areas across the USA and Canada.

Improving distribution and channels

The company is working towards creating a more seamless brand experience across both physical and digital channels. In addition, to ensure greater consistency of visual expression, the company is also implementing a stronger omnichannel focus on order fulfilment

and service. To become successful, it is a prerequisite that the company moves from a wholesale focus on "sell-in" to a more retail-driven "sell-out" focus.

Monobrand continues to play an essential role in the company's overall sales and brand positioning. To succeed and be profitable, this requires a distribution setup with fewer, but stronger partners that operate in clusters and have the scale to deliver a consistent consumer experience and drive an efficient retail business. A key driver for revenue growth in monobrand will be increased focus on Flexible Living and On-the-go products.

Multibrand stores that attract consumers searching for a luxury lifestyle product offering, such as department stores, airport retailers, selected consumer electronics retailers, and selected e-tailers drive significantly higher revenue per store and support a much more consistent brand experience than pure consumer electronics and telecom retail stores. Therefore, the multibrand retail presence is being prioritised towards these areas

and a more direct approach to multibrand including new retail concepts for the multibrand channel is being implemented. The level of direct engagement will depend on the multibrand partner. The company will engage directly with large key multibrand partners without the use of distributors. For tier two multibrand partners, Bang & Olufsen will engage with each partner but involve dedicated distributors in each market to support among others the logistics. A number of more opportunistic multibrand partners will be serviced through selected distributors.

A new e-commerce platform was launched in spring 2019. The company expects that this platform over time will enable increased e-commerce across all product categories and strengthen omnichannel features and functionality that ensure closer integration between on- and offline channels. The increased digital interaction is already impacting how the company operates as it has led to a deeper understanding of consumers and their needs and ensure real-time and more contextual consumer engagement.

CHANNEL OVERVIEW

COMPETENCIES &

PROCESSES

Reduce complexity and build capabilities in key areas

For the growth and profitability potential of the transformed operating model to materialise, it is essential that the company continues to strengthen its competencies within areas such as product creation and design, brand, retail execution, digital and software.

The company made several key senior management and key role recruitments within these areas in 2018/19, including Snorre Kjesbu, EVP and Head of Product Creation, and Nikolaj Wendelboe, EVP and CFO, who both joined the Executive Management Board during Q4 2018/19.

The company is also focused on strengthening the consumer-facing digital touchpoints, product platforms and Group IT infrastructure as part of the company's digital transformation. Ensuring a strong global supply chain will also be a priority for the coming years.

OUTLOOK FOR 2019/20

The company expects to deliver single-digit revenue growth, an EBIT margin above the 2018/19 EBIT margin of 2.1%, and positive free cash flow.

Revenue

The company expects to deliver single-digit revenue growth in 2019/20 at constant currencies.

For both the monobrand and multibrand channels, the focus will be on improving the distribution performance by continuing the transition of the sales and distribution network to a more consumer-driven model.

In the second half of 2018/19, revenue was negatively impacted by high inventories at retail level. The company's results are expected to be affected by the continuing efforts to normalise retailer inventories, especially in the first part of 2019/20. All regions will likely be affected, Asia most significantly.

Furthermore, the company expects the negative revenue performance by monobrand stores, especially in EMEA, in the second half of 2018/19 to continue into the first part of 2019/20, adversely impacting growth.

The revenue outlook is supported by several planned product launches, starting with the new Beovision Harmony TV, which as previously announced is scheduled for launch in October 2019. Product launches are expected to have a positive impact mainly in the second half of 2019/20 and especially in Q4.

Overall, revenue growth is expected to be negative in the first half of 2019/20, whereas the second half is anticipated to be supported by product launches.

EBIT margin

The company expects the EBIT margin to be above the 2018/19 EBIT margin of 2.1%.

The EBIT margin is expected to be lifted by higher revenue and a gross margin increase, excluding currency effects. Additionally, the implementation of IFRS 16, relating to leases, is expected to lift the EBIT margin by around 1 percentage point.

Compared to 2018/19, currency effects are expected to reduce the EBIT margin by 2 percentage points, primarily related to USD.

OUTLOOK 2019/20

	Actual 2018/19	Outlook 2019/20
Revenue growth	(13.6)%	Single-digit growth (constant currencies)
EBIT margin	2.1%	Above 2018/19
Free cash flow	DKK (272) million	Positive

Free cash flow

The company expects free cash flow in 2019/20 to be positive.

The company's net working capital position increased during 2018/19. It is the ambition to reduce the net working capital position in 2019/20, which would have a positive impact on cash flows. However, the free cash flow in the first half of 2019/20 is expected to be negatively impacted by the seasonality of the business.

In 2015, Bang & Olufsen sold its automotive business to HARMAN. The acquisition price included a prepayment, which has been gradually offset by licensing fees. It is expected that the

prepayment will be fully offset during Q2 2019/20, resulting in future licensing payments being fully cash positive to the company.

Furthermore, the implementation of IFRS 16 will have a positive effect on the free cash flow of approximately DKK 30 million.

Mid-term guidance

Due to the uncertainty related to the transition of the sales and distribution network to a more retail-driven model, the company has decided not to provide mid-term guidance for now.

Uncertainties

The outlook is based on the exchange rates prevailing at the date of announcement. The company's currency sensitivity is shown in note 6.2.

Furthermore, the expectations for the year are subject to the transformation of the retail setup and a subsequent improved performance of the sales and distribution network, as well as on the successful launch of a number of new products. Delays either in the transformation or in product launches would have an adverse impact on the company's financial performance.

The outlook excludes impacts from potential one-off aperiodic items.

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 among other things general economic and commercial factors, including market and competitive matters, supplier issues and financial issues in the form of foreign exchange, interest rates, credit and liquidity risk.

RESULTS

KEY EVENTS

July 2018 LG SIGNATURE EDITION SMARTPHONE

LG Signature Edition smartphone with audio tuned by Bang & Olufsen and sold with a pair of Beoplay H9i headphones.

August 2018

BEOSOUND 1 AND 2 WITH GOOGLE ASSISTANT

BeoSound 1 and 2 launched with Google Assistant. Advanced smart speaker functionality for controlling other smart home devices.

August 2018 BEOSOUND EDGE

Award winning Beosound Edge, a powerful wireless speaker with Active Bass Port, a ground-breaking acoustic technology.

August 2018

BEOPLAY E8 RACING GREEN The Beoplay E8 in British Racing Green from the world of car racing.

August 2018 BEOPLAY E8 PINK Beoplay E8 earphones launched in pink.

September 2018

AUTUMN/WINTER 2018 COLLECTION

Collection with a range of limited-edition headphones, speakers, and earphones in the colours Dark Plum, Terracotta, and Limestone.

September 2018

COLLABORATION WITH SINGAPORE AIRLINES

Singapore Airlines enhanced customer experience, making Beoplay H9i available to first class travellers.

September 2018

COLLABORATION WITH AMERICAN AIRLINES

American Airlines providing Beoplay H9i headphones to first and business class consumers.

September 2018 BEOPLAY E6 SAND Beoplay E6 earphone in sand colour.

October 2018 SPEAKER COLLECTION WITH ARTWORK BY DAVID LYNCH

A special edition speaker collection with artwork by David Lynch. The speaker collection featured selected images and details from the "War Between the Shapes" series, and from the "Paris Suite" lithographs.

October 2018 THE BRONZE COLLECTION

Limited-edition Bronze Collection of the most popular multiroom speakers with inspiration from the architectural and interior trends of using warm colours and contrasting materials.

Oktober 2018

HP SPECTRE FOLIO

Laptop made of genuine leather and incorporating a four-speaker audio experience tuned by Bang & Olufsen.

November 2018

BEOLAB 50 AND BEOVISION ECLIPSE IN PIANO BLACK

Beolab 50 and Beovision Eclipse in Piano Black adding a dynamic, balanced glossy surface and distinct details.

November 2018

BENTLEY CONTINENTAL CONVERTIBLE GT

Optional audio system for Bentley Continental Convertible GT seamlessly integrated into the car, while a 1,500watt Beocore amplifier, digital signal processing and 16 active speakers provide authentic sound.

December 2018 BEOPLAY A1 & E8 LATE NIGHT BLUE

Beoplay E8 and A1 Late Night Blue, part of the Special Edition Collection, with a wider collection of colour variants.

December 2018

POP-UP STORE OPENED IN NEW YORK

The new company-owned flagship store in SoHo, New York pre-opened as a pop-up.

January 2019 BEOPLAY E8 2.0

Second generation of the popular wireless earphones with improvements to the design as well as features requested by consumers, including Qi wireless charging and improved battery.

February 2019 LAUNCH OF NEW ECOM PLATFORM

New digital platform ensuring an improved consumer experience to help drive traffic to both on- and offline retail network.

February 2019 STARDUST BLACK SPECIAL EDITION

Beoplay A9, H9i and E8 in Stardust Black available in China to celebrate the Chinese New Year.

March 2019 SNORRE KJESBU APPOINTED AS HEAD OF PRODUCT CREATION & FULFILMENT

Snorre Kjesbu was named Head of Product Creation & Fulfilment and member of the Executive Management Board. He brings experience with product development, innovation and technology.

March 2019

SPRING/SUMMER 2019 COLLECTION: SCANDINAVIAN SUMMER

Collection for selected earphones, headphones and speakers and accessories with limited-edition colours including Clay, Pine and Sky.

March 2019

BANG & OLUFSEN AND RIMOWA EXPLORE THE LINK BETWEEN SOUND AND TRAVEL

Bang & Olufsen and RIMOWA created a pair of limited-edition Beoplay H9i headphones in warm light grey, housed in a signature RIMOWA aluminium case.

April 2019 MILAN DESIGN WEEK

Bang & Olufsen participated in Milan Design Week. Together with Dutch designer, Germans Ermičs, B&O created a unique speaker concept entitled "The Circle of Fifths", for Wallpaper*s exhibition 'Handmade' and the designer, Rossana Orlandi, showcased a selection of the Bronze Collection.

April 2019 BEOVISION HARMONY

Beovision Harmony was unveiled at Milan Design Week. With inspiration from the Capri series from the 1950s and 60s the two front speaker panels housing the sound system fan out and the screen rises to the perfect viewing height when turned on.

May 2019

NIKOLAJ WENDELBOE APPOINTED AS NEW CFO

Nikolaj Wendelboe was named CFO and member of the Executive Management Board. Nikolaj brings extensive financial and senior management experience.

May 2019 LAUNCH OF EARPHONES FOR AN ACTIVE LIFESTYLE

Beoplay E8 and E6 Motion include a range of silicon fins for a better fit during exercise. Exclusive to the two earphones, is the enhanced bass sound profile in the Bang & Olufsen app.

May 2019 BEOPLAY H9 WITH VOICE ASSISTANT

Beoplay H9 headphones with dedicated voice assistant button for Google Assistant or the default voice assistant on the streaming device. Increased playtime and new touch control details.

May 2019

4TH GENERATION BEOPLAY A9 WITH VOICE CONTROL

The fourth-generation Beoplay A9 features Google Assistant, Active Room Compensation, two additional full range drivers and a stronger streaming engine for faster performance.

May 2019

CHINA: 19 STORES OPENED IN LUXURY DEPARTMENT STORES

During 2018/19, Bang & Olufsen strengthened its retail presence in Mainland China with 19 new stores in key locations.

KEY FIGURES

BANG & OLUFSEN A/S – GROUP

(DKK million)	2018/19	2017/18	2016/17*	2015/16*	2014/15*	(DKK million)	2018/19	2017/18	2016/17*	2015/16*	2014/15*
Income statement:						Cash flow:
Revenue	2,838	3,285	2,954	2,633	2,356	– from operating activities	(131)	248	352	(5)	55
Gross margin, %	48.5	43.6	38.1	36.1	24.6	– from investment activities	(141)	(163)	(45)	(182)	858
Earnings before interest, taxes,						Free cash flow	(272)	85	307	(187)	913
depreciation, amortisation and						– from financing activities	(391)	(9)	(17)	(223)	233
capitalisation (EBITDAC)	170	291	25	(106)	(535)	Cash flow for the period	(663)	76	291	(409)	1,146
Earnings before interest, taxes,
depreciation and amortisation						Key figures:
(EBITDA)	249	397	199	46	(376)	EBITDA-margin, %	8.7	12.1	6.7	1.8	(16.0)
Earnings before interest and						EBIT-margin, %	2.1	3.7	(4.4)	(8.4)	(34.3)
tax (EBIT)	59	122	(129)	(202)	(807)	NIBD/EBITDA ratio	1.7	2.5	(6.9)	(10.2)	(36.1)
Financial items, net	(26)	(5)	(37)	(39)	(6)	Return on assets, %	0.8	2.8	(6.9)	(10.2)	(36.1)
Earnings before tax (EBT)	33	117	(166)	(242)	(803)	Return on invested capital,
Earnings for the year	19	81	(117)	(208)	57	excl. Goodwill, %	2.0	11.9	20.1	(4.1)	(41.5)
						Return on equity, %	1.4	4.7	(7.0)	(11.4)	3.2
Financial position:
Total Assets	2,462	2,921	2,847	2,832	3,449	Headcounts at the end
Share capital	432	432	432	432	432	of the year	957	1,028	1,169	1,734	2,015
Equity	1,419	1,709	1,586	1,725	1,921
Net interest-bearing deposit/						Stock related key figures:
(debt)	420	985	900	599	788	Earnings per share (EPS), DKK	0.5	1.9	(2.7)	(4.8)	1.3
Net working capital	410	100	27	319	261	Earnings per share, diluted
						(EPS-D), DKK	0.5	1.9	(2.7)	(4.8)	1.3

* The implementation of the new allocation model, see page 72, impacts gross margin, EBITDAC, EBITDA and EBITDAmargin for 2018/19 and 2017/18. Prior periods have not been adjusted.

For definitions refer to section 7.7.

Price/Earnings 109.8 76.2 (38.0) (13.3) 43.9 Revenue per share, DKK 69.5 76.1 68.4 61.0 54.6 Revenue per share, diluted, DKK 69.4 76.1 68.4 61.0 54.6 FINANCIAL REVIEW

FINANCIAL REVIEW

Group revenue declined by 13.6% (12% in local currencies) to DKK 2,838 million. Despite revenue being significantly lower than last year, the asset-light operating model lifted the gross margin to 48.5%, and EBIT remained positive at a margin of 2.1%

Business highlights

A key focus during the year was to establish a go-to-market setup capable of delivering a luxury lifestyle consumer experience across all touchpoints. This transformation has been slower than expected which in all regions had a negative impact on revenue. Therefore, the result for the year was unsatisfactory.

Within the monobrand channel, efforts were on creating cluster partners for the purpose of relocating existing stores or opening new stores in key urban and high-traffic areas. In addition, new contracts have been rolled out to all monobrand partners in Europe providing a stronger foundation for a consistent consumer experience, product merchandising and terms and conditions going forward.

In Australia and New Zealand, a change of distributor resulted in a restart of the market. This had a significant negative impact on performance during the year. The new master dealer is in the process of reopening the market and by the end of the financial year five monobrand stores were up and running. In China, five new monobrand partners were established and 19 new monobrand stores in high-traffic locations were opened.

To strengthen the operation, a new global logistical setup for monobrand stores was implemented. The logistics were working as expected in the second half of the year, but the transition had an adverse impact on performance in Q2 due to initial operational difficulties.

Within the multibrand channel, focus has been on prioritising the parts of the retail segment that cater to consumers looking for luxury lifestyle products, like high-end department stores, travel retail, selected consumer electronics shops and selected etailers. Consequently, the number of multibrand points of sale has been reduced significantly to 4,782.

A new eCom platform was launched at the end of February 2019. Initial experiences have been promising, with higher traffic on the website and a better conversion rate. The new platform will ensure an improved consumer experience and is expected to drive traffic to both the on- and off-line retail network.

Revenue

Group revenue declined in all segments and amounted to DKK 2,838 million, equivalent to a reduction of 13.6% (12% in local currencies) .

A slower transformation of the monobrand and multibrand sales and distribution network coupled with fewer product launches compared to last year were the main reasons for the decline. High inventory at retail level resulted in lower sales to both monobrand stores and the multibrand network and also caused an increase in products sold through unauthorised channels, which subsequently pressured retail prices. The company is monotoring market misconduct in order to mitigate going forward.

POINTS OF SALE

		Monobrand	Multibrand
(DKK million)	31 May 2019	31 May 2018	31 May 2019	31 May 2018

EMEA	405	448	2,566	3,673
Americas	26	26	751	1,479
Asia	91	91	1,465	1,553
Total	522	565	4,782	6,705

REVENUE PER SEGMENT (%)

Brand partnering & other EMEA Americas Asia

Staged

Revenue in the Staged category was DKK 967 million against DKK 1,334 million last year, corresponding to a decline of 27.5%. Staged products are primarily sold through the monobrand network and was hence impacted by the transformation of the channel, which has taken longer than expected.

In addition, there were no new product launches in the Staged category, whereas last year saw the launches of the Beovision Eclipse TV and the Beolab 50 speaker. Furthermore, revenue in 2017/18 was supported by sales of discontinued TV's.

Flexible Living

Revenue in the Flexible Living category grew by 11.0% to DKK 442 million. The launch of Beosound Edge in combination with good performances by Beoplay A9 as well as Beosound 1 and 2 were the main drivers of revenue growth in the category.

On-the-go

Revenue in the On-the-go category declined by 8.8% to DKK 1,200 million. The On-the-go portfolio is to a large extent sold through multibrand channels, and the category was adversely impacted by the slow pace of transformation in combination with third-party inventories sold through unauthorised channels pressuring retail prices.

Revenue was supported by the launch of the Beoplay E6 earphone and good performances by key head- and earphone products such as Beoplay H9 and Beoplay E8. The sales of Bluetooth speakers contracted in 2018/19, and the category was down by close to 35% compared to last year.

Brand Partnering & Other Activities Revenue from Brand Partnering & Other Activities amounted to DKK 229 million which was 3.8% less than last year.

The decline was primarily due to lower revenue from aluminium components produced for third parties. Revenue from brand partnerships was higher supported by both HP and HARMAN, with the latter being positively impacted by Bang & Olufsen being offered as an option in more car models.

Gross profit

Gross profit fell by 3.9% to DKK 1,377 million, while the gross margin grew to 48.5% from 43.6% last year. The improvement was seen in all segments except the Americas which was impacted by a one-off effect related to Beoplay Earset.

The Beoplay Earset did not perform as expected and to support sales, the retail

GROSS MARGIN PER CATEGORY	2018/19	2017/18

Staged	50.4%	44.1%
Flexible Living	50.8%	46.2%
On-the-go	37.7%	35.0%

REVENUE PER CATEGORY (%)

Brand partnering & other Staged Flexible Living On-the-go

price was subsequently reduced, which had a negative impact on gross margin.

The improved gross margin was seen across all product categories, primarily driven by developments in product mix and tailwinds from the US dollar in particular.

The gross margin from Brand Partnering & Other Activities was 92.6% compared to 84.0% last year. The margin improvement was mainly driven by Brand Partnering, which represented a larger share of the segment following the decline in revenue from the lowermargin aluminium production for third parties.

Capacity costs

Capacity costs were DKK 1,342 million compared to DKK 1,328 million last year, corresponding to an increase of 1.1%. Excluding depreciation and amortisation charges, capacity costs were up by 8.4%.

Distribution and marketing costs were DKK 875 million, corresponding to an increase of DKK 86 million over last year. The increase was related to activities to

drive brand awareness, strengthened digital platforms, and building capabilities within the company.

Administrative costs were DKK 146 million, up 16 million compared to last year. The increase was primarily related to a writedown of the value of the former head office in Struer which has been put up for sale.

Development costs declined by DKK 88 million to DKK 321 million compared to last year. The reduction was mainly related to a DKK 86 million drop in depreciation and amortisation charges.

Incurred development costs before capitalisation were DKK 269 million (of which DKK 79 million was capitalised) against DKK 297 million last year (of which DKK 106 million was capitalised). The drop in development costs was related to the first half of the year, whereas incurred development costs in the second half of the year were higher year on year, reflecting more products in the pipeline expected to be launched in 2019/20.

EBIT

EBIT was DKK 59 million against DKK 122 million last year, equivalent to an EBIT margin of 2.1% and 3.7% respectively. The margin decline reflects the lower revenue and higher capacity costs partly offset by the higher gross margin and lower depreciation and amortisation charges.

Net financial items

The Group's net financial items were an expense of DKK 26 million compared to an expense of DKK 5 million last year. The increase in net financial expenses was primarily related to foreign exchange rate developments and a one-off accumulation of interest on a provision related to a legal dispute.

Earnings

Earnings before tax amounted to DKK 33 million against DKK 117 million last year. Tax was DKK 14 million against DKK 36 million last year.

Earnings after tax amounted to DKK 19 million against DKK 81 million last year.

Cash flow

The free cash flow was negative at DKK 272 million (2017/18: positive by DKK 85 million). The development was related to the lower cash flow from operating activities coming from shortfall in revenue and change in net working capital partly offset by a lower negative cash flow from investing activities.

Cash flow from operating activities were negative by DKK 131 million (2017/18: positive by DKK 248 million). The decline was primarily related to the lower earnings and the change in net working capital which had a negative effect of DKK 310 million compared to a negative effect last year of DKK 74 million.

Cash flow from investing activities were negative by DKK 141 million (2017/18: negative by DKK 163 million). Investments in 2018/19 were primarily related to the new eCom platform, the new product platforms and other product developments, whereas the investment level last year in addition was affected by investments to establish the new innovation lab at the Struer head office.

Cash flow from financing activities were negative by DKK 391 million (2017/18: negative by DKK 9 million). The significant increase was due to purchase of treasury shares, amounting to DKK 279 million of which DKK 264 million was related to the share buyback programme launched in September 2018 and terminated on 26 March 2019. Further, the company made a repayment of one loan and an extraordinary instalment on another in a combined amount of DKK 97 million.

Net working capital

Net working capital amounted to DKK 410 million which was DKK 310 million higher than last year.

The main reason for the increase was inventory growth of DKK 244 million to DKK 596 million, which was predominantly an effect of the lower-than-anticipated sales during the year.

Trade receivables amounted to DKK 566 million and trade payables were DKK 710 million. Both increased by DKK 56 million during the year.

Net interest-bearing deposits

Net interest-bearing deposits amounted to DKK 420 million compared to DKK 985 million last year. In addition to the negative free cash flow, the change in net interest-bearing deposits was related to the share buyback programme.

The cash position at the end of the year was DKK 492 million.

Events after the end of the reporting period

Apart from the events recognised or disclosed in the consolidated financial statements, no events have occurred after the reporting period that are believed to be of importance to the consolidated financial statements.

EMEA

During the past year, the company put major efforts into upgrading the EMEA distribution structure. The transformation involves establishing fewer and stronger monobrand partners in Europe. A contractual framework was rolled-out to all European monobrand partners, creating a better foundation for a more consistent consumer experience, product merchandising and terms and conditions going forward.

The multibrand setup has changed significantly during 2018/19 with the closing of more than 1,000 non-performing points of sale. Direct distribution to large multibrand-retailers such as Amazon was initiated and pop-up stores were opened in selected cities, including Amsterdam and Paris. The transformation speed of the multibrand retail category was slower than expected

partially due to sales through unauthorised channels.

Revenue

Revenue in EMEA was DKK 1,459 million, which was 16.0% less than last year (15% in local currencies). Most of the largest markets in EMEA reported lower revenue including Denmark, Germany, Switzerland, United Kingdom and Ireland whereas Eastern Europe delivered double-digit growth.

Staged

The staged category is the biggest product group in EMEA and accounted for more than 50% of revenue in the region. Revenue from the Staged category was down 28% compared to last year due to the slower-than-expected transformation of the monobrand network through which Staged products

(DKK million)	2018/19	2017/18	Change
Revenue	1,459	1,737	(16.0%)
Growth local currency	(15%)	2%
Gross profit	672	687	(2.2%)
Gross margin	46.1%	39.5%	6.6pp

EMEA

Staged Flexible Living On-the-go

GROSS MARGIN 46.1%

(2017/18: 39.5%)

POINTS OF SALE

Monobrand: 405 (448)

Multibrand: 2,566 (3,673)

primarily are sold. Also, no new Staged products were launched during 2018/19, as opposed to last year when the Beovision Eclipse TV and the Beolab 50 speakers were launched. In addition, last year's revenue was to a higher degree supported by sales of discontinued TV models.

Flexible Living

Revenue was up by 19% compared to last year, driven by key products such as Beosound 1 and 2, Beoplay A9 and M5. In addition, the introduction of the Beosound Edge more than offset lower revenue from discontinued products such as Beoplay A6. The A9 continued to be the best-selling speaker in the Flexible Living category, and revenue from the product increased by approximately 15% compared to last year.

On-the-go

On-the-go revenue was down by 4% primarily related to Bluetooth speakers which saw close to a 25% reduction in sales year on year. Partly offsetting the decline were higher sales from headand earphones.

Growth in earphone and headphone revenue was mainly related to Beoplay E8 and Beoplay H9, as well as the introduction of Beoplay E6, partly offsetting loss of revenue from discontinued products.

Gross profit

Gross profit amounted to DKK 672 million, equivalent to a gross margin of 46.1% which was 6.6 percentage points higher than last year. The margin increase was driven by the improved margin on all product categories and partly offset by the On-the-go category accounting for a slightly higher share of the segment.

AMERICAS

The multibrand setup changed significantly during 2018/19 with the closing of non-performing multibrand points of sale. Multibrand distribution was developed with branded spaces opened in department stores such as Neiman Marcus, Holt Renfrew, Apple and Best Buy. The roll-out speed of the new multibrand retail setup was slower than expected and partially impacted by unauthorised sales of key On-the-go products.

New York City is being developed as direct retail, with a company-owned flagship store in SoHo, which opened as a pop-up store in December 2018.