Bang & Olufsen A/S
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Earnings Call Transcript

Earnings Call Transcript
2019-Q1

from 0
Operator

Ladies and gentlemen, welcome to the Bang & Olufsen interim report first quarter 2018/'19.[Operator Instructions] Today, I am pleased to present Henrik Clausen, President and CEO; and Anders Aakær Jensen, CFO.Speakers, please begin your meeting.

H
Henrik Clausen

Thank you. And good morning, and thank you for joining the call.As mentioned in the introduction, I'm here with Anders and Malene from the finance team, plus John Mollanger, Head of Brand and Markets in Bang & Olufsen.We will use the, as all know, standard procedures, so I'll do an intro, spend a bit of time reflecting back on last quarter's introduction of strategy and then specifically in the context of the ongoing transformation of the retail network in across all regions. And then Anders will do a deeper dive on the financial. And then we plan to leave time for questions in the end, as usual.So I suggest that we move to Slide 4 in the pack and overall highlights for the quarter. I think the short version is that the quarter is or was in line with expectations. And a couple of pointers: revenue 2% growth driven by Asia and specifically China. At previous call and before, we guided at a lower run rate from a growth perspective first half of the year. We see that, we'll be back to that, as expected. And therefore, the guidance will remain for full year growth. From an EBIT point of view, it's worth noticing that, for the first time at least the last 10 years, we've delivered a positive EBIT for the quarter. So it's a quite dramatic improvement compared to last year. And then I think most importantly, for us that is, so the solidization or the substantiation of the new operating model is kicking in, in a substantial way and both driving margins and efficiencies in the operations, which are obviously key now embarking on the growth agenda going forward.And then finally, as alluded to, I will come -- will be back to the details, but we keep outlook for the year of the 10% growth and the margins between 7% and 9%. But I'll come back with a little bit more detail end of the call.So let's move on to next slide, Slide 5. At the previous call following Q4, we introduced and spent quite a lot of time walking through the strategy of the company. And a couple of reflections here. And first is, since last call, we've -- and so it's a large system gone live. Of course, the strategy is not a complete redirection from where we're coming from, but it's definitely a clarification and specification of direction and primarily driven by the positioning of the brand as a luxury and lifestyle brand, with the vision of becoming most desired. So it sort of stipulates the ambition for the company, but what we've done over the last few months, we've entertained most of our key partners both from a distribution and brand and technology space. And the reflection back from that is that it solidifies or makes us, say, quite confident now that we directionally are in the right spot and that the partners we have that are engaged with us around our business sees the positioning as right. And so we feel a strong support out there. It doesn't mean that there are no challenges; that we are not going through a very, let's say, significant transformation specifically in sales and distribution, but for us that creates the comfort moving forward.The plan is not to do a deep dive in the strategy. I just want to reemphasize some of the elements because I think we're going to come back to them in more details when we talk numbers and we talk changes happening at the regional level, but I think the key elements is associated with brand. Again here I think the key positioning of the brand across the portfolio will be as a luxury-lifestyle brand based on our heritage, strengths, capabilities. And there is no doubt that that's the relevant positioning going forward. And of course, that has quite clear indications on how we drive product innovation, distribution and how we build competencies going forward.From a portfolio point of view, we will operate and drive the business focusing on 3 core use cases, which are On-the-go, flexible and Staged. And based on the feedback from channels and brand partners, it makes sense. And it makes sense in terms of maneuvering across channels and creating affinity with customers across, and we see the development in the categories sort of evolving as planned.From a competence point of view, we reorganized following Q4, so moving -- and we moved into a functional organization. We made quite a lot of progress now. And so the teams across are sort of -- are getting into shape. I think that we'll spend a little bit of time on some of the specific recruitment leaders, but I think that we have a solid team on ground. I think the key question will obviously be what's happening on CTO and CFO recruits. I think we are in the final phases there, and I feel confident that we will have strong additions to the team coming onboard towards the end of the year, maybe early next year. So all in all, there's strong confidence now in the organizational setup both leadership and competence-wise.And then I'll move on and spend a bit more time on distribution, sales and distribution; and the impact of the business both short but medium term as well. So I suggest we move to next slide, which is Slide 6, in the pack.And for Asia, I think, as we alluded to it last call, we feel that we've been on a good track over the last, say, 12 to 18 months, starting where you're getting a solid team in place a couple of years ago; building competencies on the ground out of Shanghai; gaining control with the digital platforms, specifically branded presence on Tmall and gaining control on Taobao and some of the other digital platforms.And then we've made sort of a significant next step over last or the recent few months, where we have engaged in our 5 key partners across the key regions for China that will, one, take over what remains of company-owned and operated stores and at the same time have committed to in a structured way build retail presence along the lines of the direction of the brand hand in hand with the digital platforms that we have established already. That process has been quite well executed. Partners are onboard. And we actually see a positive impact on the business already being created now moving into the second quarter and rest of the year. On top of that, we are engaging more directly in activation of the brand on ground with these partners, different on -- ground activities; and specific select versions of products, like the P2 cooperation with a British -- or a Chinese movie celebrity, [ BJT ], but we will see more along the routes of local execution and, of course, building on the brand equity but leveraging and adapting for specific execution in China and rest of Asia.I think for other markets we've got a team in place now for Japan, a small team but local management team, that will drive the business and engage directly with our key partners for Japan. And we have strong expectations that, that will drive and fuel the business on ground in Japan going forward. And for Australia and New Zealand, so to conclude a process that's been going on for some quarters finding a new partner to drive our business in Australia and New Zealand, and that partner is now in place and on ground and will execute the business from Q2 onwards. So that, with the strengthening of the presence in Japan and the momentum in China, puts us in a strong position for driving the business going forward in Asia.I'll just allude to some of the points that will be key going forward. And from the monobrand perspective, it will be engaging now with the partners that we have on ground and gradually build stores, and it is happening as we speak. So store build-out will be a combination of pop-ups, some mono and then more specific branded space in departments and airports. And we already see the first couple of manifestations coming up, as you see on the right hand on the slide, with the airport store in Hangzhou and the pop-up in Xi'an but more to come along those directions. And then as I mentioned, we will start fuel the new network now with more on-ground execution and firepower from a marketing and spend point of view.So net-net, Asia is in a good mode and, as earlier indicated, the region where we've moved fast and where we've moved longest in terms of executing on the new direction from a brand and distribution point of view.So let's move on to Americas and specifically U.S. At last call, we talked about U.S. as being a place of reset, and that's definitely happening, I mean, not only in first quarter but in last quarter of last year. We've gone through quite a lot of changes in terms of setup in U.S. It's something inspired by how we've managed to get our hands around Asia and specifically China. We have established a strong U.S. team now based in New York. We got a new MD in place a couple of month ago. So we feel now that we have the firepower on ground in New York to drive and drive the transition that obviously is happening and need to happen in U.S.So what has been going on the last few quarter is closure of quite a number of nonperforming multibrand stores. We have reduced number of monobrand stores quite dramatically in U.S. We are now down to a hardcore partner network of a handful of partners working with us specifically on the West Coast and Boston. And we are taking a stronger lead on the execution on ground in New York based on our own local presence. And at the same time, we have gone through quite a lot of cleanup in all the channels, B2B and customer integration. So a fundamental reset of the setup. And we feel that we've -- we're through that. And I'll come deeply back to how we're [ now ] going to build sales and distribution capacity based on the foundation we have now, but we feel that we are through that phase. And that's why we've remained and kept our outlook for the guidance for the year on U.S. The U.S. or Americas will grow plus 20%. And of course, that needs to stay -- start to kick in from Q2 onwards, with an acceleration towards end of the year, but we feel confident that we've now made the moves that we need to make from a reset of the setup.And before moving a little bit now ahead and looking into rest of the year, I just want to emphasize that we are starting to activate some of the brand partner relationships and collabs more actively in U.S., definitely more to come. There's a couple of examples here, with one being the collab with David Lynch. We did a special edition covering a few of our products. It was launched in U.S. We've done collaborations with Sotheby and other like-minded brands. And we have engaged closer with HP from a marketing on-ground execution point of view specifically leveraging the part of their portfolio where we see the strongest linked and the strongest equity.And so moving forwards, what's the plan for North America? At the core of the plan is a -- what are now targeted rollout, rebuild of a monobrand network. U.S. -- or New York will be key focus. We have our own presence. We have our own -- only company-owned and operated store left in U.S. We will keep that, and we'll use that as the foundation for establishing a stronger presence in New York's. And the plan will be to open, first, one flagship store and then a few more stores at the East Coast towards end of the year; and use that to build sort of gravitation around branded, monobranded, stores going forward. We've engaged now closely with our West Coast partner, and we'll start to create a cluster or a more solid cluster in Southern California. And we're engaging now for partnership opportunity in Northern California, Northern -- Northeast -- or Northwest of U.S. And we feel that we have a good momentum here, but of course, executing well on those specific priorities will be key for the team going forward.As I mentioned, we have largely completed the clean-off of the nonperforming multibrand stores. Part of the strategy now is to go much more direct with partners and specifically bigger partners like Amazon and Best Buy. We've already now established a direct model, where we will be more focused, specifically for Best Buy, on being in the right stores with the right execution; and same for Amazon, being much more targeted in terms of what we do with Amazon on their platform. So we feel that we now have a foundation for working much more effective with those key partners, but at the same time we are starting to activate all the lifestyle channels, so you'll see more in terms of presence in key department stores. And specifically in New York, you'd see ours much more present in airports. And you see, across-the-board, airports as an important vehicle or an important destination for customers buying our products. So you see more of that already kicking in, in U.S. and toward -- throughout the next couple of quarters and specifically at the East Coast. And then you'll see a stronger activation of partnerships on ground. And of course, we have the benefits of quite a significant portion of our key partners have a strong presence in U.S. So HP will be one example, but we will see examples of much more hardcore execution on ground, marketing, brand marketing and cooperation with Ford and like-minded collab partners.So net-net, we now feel right positioned from '18 and aligned now of partner perspective. And that makes us confident that executing now on the strategy going forward centered around luxury and lifestyle will enable us to deliver the growth around -- or above 20%, as we've indicated earlier on.I'm not going to deep dive on South America, but the truth is South America has been a little bit a white spot for Bang & Olufsen for a while. And we are now engaging with a partner to establish at least the basic multibrand but branded presence in South America, and obviously that's going to help fuel growth for the rest of the year as well. So net-net, we feel that we are getting in a robust base from an execution point of view in U.S., but obviously growth needs to kick in from Q2 onwards, and that's the expectation.Then I want to move on to EMEA, on next slides. I think first reflection on highlights will be a reflection on the feedback from key partners across Europe and specifically partners in the branded space. I think the good news has been that consistent feedback from the partners that we would have considered key to not only retain momentum but building momentum from a monobrand perspective have been reacting quite very positively to the direction that we've set as a brand. And I'll go a little bit back to numbers later when Anders deep dives, but what we've seen is that the monobrand network has actually held up quite well in the transition phase, actually driving significant revenue across categories and actually do that in Q1 as well. So it makes us confident now that we've engaged with the partners the right way. We all know that we will go through quite significant changes in the branded network. There will be quite a lot of relocation. There will be quite a lot of consolidation ongoing, but we have partners onboard to help secure that transformation and transition over the next 1 to 2 years or so. So we feel that's been a good start.When it comes to the network overall. [ Pilot ] engagement with a partner. We have continued the process of pruning nonperforming parts of the network, as mentioned. And so we have closed down a number of stores, and we have sort of been directly engaged with partners in the context of change of ownership for the stores. So we actually feel that we are sort of gaining momentum in terms of the transition of the European branded store network. On multibrand, we are going through a significant change in the network.And if we look to sort of numbers and performance for the quarter. I mean here we deliver 2%, but the key impact sort of in a negative way would be from the transition that's happening right now in the third-party network in Europe. So what we are doing here is that we are closing down nonperforming or tail-end part of the network. And at the same time, we are embarking on a journey where we go much more direct with the individual retailer and now specifically Amazon . Just like for U.S., we have engaged in a direct relationship with our distributor, but looking forward we will see that happening across-the-board for key retailers, that we will establish a direct relationship, part for efficiency but much more to ensure the right execution of the brand at retail level. And part of that re-strategy for those partners will be to focus on fewer point of sales but better quality and higher performance per point of sale. That process is ongoing but definitely the key change or the key -- a key challenge from a transition point of view.If we look a bit ahead and from a monobrand perspective, as I indicated earlier, we feel that we have identified and we have engaged with key partners who are going be core of the network going forward. So we feel that we have a process there that's in control and manageable. It doesn't mean that we'll not add new partners. We will, but the core of the network is sound. And we are making good progress. From a multibrand perspective, we are now in a process of going direct with all key retailers, as I said. So more will come here. We started with Amazon, but other partners will be engaged in a direct way going forward. You will still see some cleanup of nonperforming, other change or point of sales within retail chains. In parallel to that, we will start fuel execution on ground with the right partners more solidly, namely be back to what we already alluded to now with the brand direction in place and the right response from right partners. We start to build more solid on-ground execution. And you see a couple of example on the right-hand side where we've engaged across Europe, but here are few examples from Amsterdam and Paris where we use different and start to introduce different formats on ground for executing the brand here. And the example will be the pop-ups, but we're doing a major step-up in other channels, just like we see for U.S., that are more lifestyle oriented. And we feel we have good progress in that plan.And again, that links to a reconfirmation of the overall ambition for the year of growth in EMEA of more than 5% but definitely quite a lot of change going on and TPR and specifically in the first quarter and into second. But then we feel that plans are well executed and we are in control what needs to happen, and therefore we feel confident that we will be able to deliver the growth that we have predicted for the full year.And just want to spend 2 minutes on Slide 5 (sic) [ 9 ]. From a brand perspective, again we feel that the positioning of the brand is reconfirmed. We're not for dramatically changing the brand equity or the positioning, but we're definitely going to fuel a more consolidated view of the brand. And we are bringing that into the market from a communication point of view and from a change point of view, but I think the key point is actually making sure that that translates into on-ground execution in the regions, where there will be common denominators but there will be a lot of local [ adoption execution ] that reflects the different needs in U.S. versus China versus Europe. But the position is clear, and we will execute along the lines of the luxury-lifestyle positioning.From a key hires perspective, I've sort of alluded to the fact that we feel we now have the right structure in place, that functional setup that works for purpose. And we have, since we talked last, added an American Head of U.S. -- or North America. We feel confident that we've got the right guy in place. And same for Europe. And we've added another key member to John's team, which is Head of Design, sort of a U.S. residents that has just moved here and will -- part of John's team and part of engaging around design and brand as part of sort of the manifestation of the lifestyle and luxury positioning. So overall we think we've been able to attract the right caliber of competencies, and they are on ground now.I will not spend so much time today, but from a competence point of view, we have deep dived [ less ] on the building the digital competencies that we believe are critical for the future. The plan is to launch a new web commerce digital engagement platform early next year, so we're investing there. We [ can start within there ]. We're building the competency that that's going to need to drive that going forward, and that project is in good progress. And the same goes for the technical platforms that support the product range that we have in the market right now, where we see quite a lot of changes going on.From a product launch perspective, I just want to allude to the Beosound Edge that we launched at IFA in Q1 since that was sort of the most recent and major manifestation of the brand and our ambition level on products. And I think it was great to see that we launched a product that received quite a lot of rewards but at the same time recognized for what we like to be recognized for, a combination of strong innovation, strong design perspective but at the same time unique and strong acoustic performance. So it's -- sets the direction for the aspiration and the ambition that we will have in the connected audio space going forward. And therefore, you'll see a constant update not only from a product but from a technology point of view in that space. Beosound 1 and 2 are now being enabled from a Google Voice assistant point of view, so suggests the direction where we're taking, where we are going to embed in a consistent way the major ecosystems in our platforms.And on top of that, we are again aligned with the positioning around luxury-lifestyle; working on special editions, stronger, more on-brand relationships with partners. And sort of the LG V35 Signature Edition is one example of working with a brand with the right ambition level in terms of product manifestation.So I think I'll leave it at that. And then over to you, Anders.

A
Anders Aakær Jensen

Thank you much. Thank you very much, Henrik.So I'm on Page #11 now. And before I deep dive into the finance numbers, I just want to appreciate that we are going from one type of reporting where we used to have the Bang & Olufsen business unit and the Bang & Olufsen play business unit and then moving into looking at the financial figures in a different way. So I truly appreciate that there are guys here on the call that are now looking into your calculations and spreadsheets and trying to figure out how the reporting is matching where we come from and where we're moving, so just want to say the direction on where we're moving and then a little bit about the process.So how we look at the Bang & Olufsen company now is through primarily the regions, as Henrik has been just walking through. So we're going to manage and working the company through the different regions, and therefore we're going to report on the different regional categories, the revenue, the gross margin. And over time, so within this financial year, we're going to also report what is the EBIT level for the different regions. In parallel with that or on top of that, we are still going to report the revenue that we are achieving through the sales channels that we have and also within the different product categories. In that view, you have -- you can slice and dice revenue from a lot of different angles, and you can look at how and where we are earning the profitability on behalf of the company.So what we did, we have shared with you some historical comparison figures. And we have sent that out. So that's one thing. We have Malene here and her team backing up. So all detail questions that arise here, obviously we're going to support you as much as we can, bridging from where we come and where we're heading. And I suggest, if there are very detailed questions that you're still sitting with, that potentially we do not take it at this call, but please reach out. And then we will engage directly with each of you in bridging just from where we come and where we're heading.So with that, moving into the financial highlights. Henrik just alluded to some of the conclusions here on the call, but what I'm going to just walk through in a little bit more detail is obviously the revenue development of 2% in the quarter; and then what Henrik talked to as the -- you can say, the results of an efficient business model, so an improvement of 12 percent points on the EBIT or DKK 70 million EBIT improvement compared to last year; and then also the balance sheet and the cash flow development for the first quarter.So let me start by looking into the revenue development on Page #13. So we talked about here the 2% growth.And if we start with the regions, we see EMEA with a decline compared to last year of 9%. So what's behind those numbers? Obviously, going through the transition that Henrik spent some time on here and particularly in the monobrand, where we're basically changing the way that we go to market. We are signing up a new, you can say, business channel platform going much more direct and in that way managing also the partnerships that we have currently. That has obviously an impact here in the first quarter. So we see the impact. And we actually also talked to that impact in the fourth quarter, so that's an ongoing transition, where we are now coming to a much more, you can say, completed situation. And we are looking into building those, you can say, more solid and future-forward-looking channels within the multibrand for Q2 and moving on. But that obviously have an impact when we compare to last year, and that is one of the, you can say, biggest reason when we look into EMEA. I could talk for long about comparison figures to last year, launch of Eclipse, launch of BeoLab 50, which are obviously very expensive products that we launched into the channels in the entire company, primarily in Europe and EMEA, in the Q1, Q2. So if we set that aside, combine it with the conversations that we have had with the partners, monobrands, as Henrik was talking to, is actually performing quite well in the first quarter.If we go to Americas and we compare like-for-like with the first quarter last year. We have closed a significant number of wholesale partners compared to that quarter. We have closed 3 of our own COCO stores compared to the quarter, so obviously there is both a retail impact and there is a wholesale impact as we started the transformation of North America 12 month ago. So where we are now, we want to be where China is or where Asia is. We want to start to build that new platform. And as Henrik was talking about then looking into the coming quarters in terms of creating revenue, we are now checking those steps as China has been taking here over the last 6 to 12 months. But overall, that has an impact for the quarter, here for the first quarter of a decline from DKK 58 million to DKK 41 million, a decline of 29%. I think important to notice here we do expect that growth will be coming in Q2. And obviously, this has no change to the outlook for the full year.When we then look into Asia. So Asia is where you can say, I think, using the term "getting ready for the next phase." We have been over the last 18 months growing significantly in China, and we have been doing that on a business model that we have now added to. So what we have added is 5 more large professional partnerships and divided up primarily China mainland with those partners. And we're moving in here, building assets on ground. So we are building brand via partnerships, via activities and via how we are introducing products in the market but also together with these partners, building physical assets on grounds, locations that are going to, you can say, substantiate our growth ambitions in Asia moving forward. So that's the -- you can say, the explanation for the development of Q1 growth in China building on the good growth momentum that we already have established but also, in parallel with that, signing up new partnerships and then moving into the next phase in China.So what we see here then is that, when we look then at revenue by the channel, then the storyline adds very well up, as we can see that we have growth in the monobranded channel, again despite the fact that we actually introduced quite significant new products in the same quarter last year. And we see that -- from a channel point of view that our multibrand is where we are now resetting and we see the impact in those numbers. And that's kind of how things add up with the regional developments and the channel developments that we see. Have in mind here that, when we look then into the product categories, On-the-go category is a growing category. It's where we have quite a lot of the momentum. As we have seen, we are growing 18%. We are growing from DKK 216 million to DKK 256 million. And that is, you can say, despite of resetting multibrand, which actually is carrying quite a lot of the On-the-go products, we are still able here to grow that category significantly. When we then look into the Staged category, this is where you then see the impact as I talked about earlier. And you can say, Flexible Living, from a percentage point of view, it's a double digit. From a nominal point of view, it's DKK 10 million. It's a small quarter. And we have good plans in progress here when we are looking into Q2 and onwards.So overall, you can say a net-net 2% growth for the quarter but quite a lot of different granularities when we look into both the regional development but also the channel development and in the different, you can say, growth categories that we're onboarding here in this new financial year.With that, I'm going to move into Page #14 and just talk through the gross margin development. And just reflecting back what I and what we communicated when we launched, you can say, the annual report and our guidance and outlook for this year that, quite a big of our EBIT improvement, you should expect to see from a positive development in the gross margin. And what we see here in a small quarter here in the first quarter, we see a 4 percent point increase, and that is just as we expected. That's just equal to what we communicated, so in that regard we are very much spot on.What is the main driver of that? Obviously, what we worked on here in the operating model going through this transition, working with each of the different product categories is an improvement product by product, margin by margin. So that is kicking in. It's kicking in, in the Staged category. It's kicking in, in the Flexible Living and in On-the-go. So this is you can say that part is a part of the explanation. The other part is obviously a mix. There is both a mix explanation in product groups which is actually unfavorable as we are growing more in On-the-go category, where we are slightly below in terms of the [ urge ]. And we are on region also having a different region development. Then on a positive side, there is, you can say, a positive impact from Brand Partnering, as we've also talked about earlier.But net-net, the solidity that we wanted to see and that we've been building on in new -- in this new, you can say, operating model is kicking off with a 4% increase.Going into the different regions, we can see that EMEA is growing at the same rate. The explanation are the same. It's about the products, and it's about the channel mix here within the different countries. And when we then look into Americas, we only -- or we can see here that we have a development that is declining. So what is then that reason here? The reason is closing COCO in U.S. compared to that same quarter last year, where we will have the retail margin have a large impact to the financial numbers and the financial figures. So that's one of the primary reasons here that we look into. And then it's a part of also closing some of the wholesale where we have products, primarily within the states currently with good margins. So we have deliberately reset that, but that product mix is also, you can say, impacting the gross margins that we have in Americas.Then when we move into Asia and we see the development of 1.2 percent points. That's a large increase in On-the-go, so there's a product mix that is impacting here which is, you can say, the primary driver of the gross margin development in Asia. When we then look at other, which is the aluminum, which is Brand Partnering and other small items, then we see that there is a favorable impact of further Brand Partnering license income in the first quarter.And net-net, that's -- that adds up to where we actually expected to be for the first quarter but also where we expected to see margins for the remaining part of the year.Then I turn into Page #15, just going to talk about the capacity costs. So as we talked about here, we were expecting overall to see a flat development in our capacity cost net-net in percent of revenue for the full year. What we have seen in the first quarter is the ability to grow the company while we are still, you can say, decreasing overall costs. The primary reason for the costs is -- decreasing here in the first quarter is the large impact from development. So the development activities are no, you can say, less than it was before, but now we're just operating in a different model and that have a significantly impact. As you can see, development costs is going from DKK 114 million to DKK 78 million and net-net to DKK 57 million for the first quarter compared to DKK 109 million last year.So a couple of things to remember here. Last year, we introduced BeoLab 50 and BeoLab Eclipse, hence we had quite a significant R&D expense in the first quarter. We also had quite a significant capitalization. And hence there is both an impact on, you can say, delta on the capitalization but also delta in the accrued development costs for Q1, which is a primary, you can say, reason for net-net going from DKK 114 million last year to DKK 78 million this year. So that is the primary explanation. What we have still done in this quarter is that we have invested in the brand. We have invested in the markets. We are still on that journey that we communicated. We want to now take much more control of the brand; and support the markets and our partnerships even more, that being our monobranded partner, our multibranded partner or, Henrik were talking to, other kind of partnerships that we are joining up with. So we still have that ambition. And you're going to expect to see a significantly increase of costs when we move into the second quarter supporting our go-to-market strategy, when we compare the cost band that we have in Q1.So we are still on track, but obviously we're happy to see that our costs are very well, you can say, under control here for the first quarter.Then I turn into Page #16 and net working capital. Net working capital, I would say, is at a satisfying level. What we have communicated is it's going to be between 5% and 7%. We are here around 6%. We can see that we have an impact of inventories declining because of the sales that we have done, receivables increasing, but the biggest impact is payables are decreasing. So there are some seasonality here which we are actually seeing each Q1, so that's on par with what we expected. When we look into our investments, you will see what I've been talking about. From R&D development, you can also see that -- here on the investment sides that a large portion of our CapEx last year was the Eclipse and the BeoLab 50; and then compared to this year, significantly different numbers in terms of how our investments are looking for Q1.So net-net, cash flow is improving compared to last year with DKK 54 million, going to minus DKK 105 million from negative DKK 159 million. And what we have communicated in terms of cash flow remains.So net-nets, you can say that's -- that the combination of being in control of our costs, growing our top line and significantly improving our gross margin has led to at the bottom line our EBIT improving by 12 percent points, an improvement of DKK 70 million. And as Henrik said, since 2007/'08, this is now the first time that we're actually able to deliver. Even though it's a small number, but -- we're able to deliver positive EBIT for the first quarter.So before I just hand over again to him, I just want to remind everybody that, after the Annual General Assembly, we concluded that we would initiate a share buyback program of DKK 485 million. And that was started just after the general annual assembly. And year-to-date, we have achieved 11% of the total program, DKK 54 million, and it's running according to the schedule.So with that last comment here, Henrik, I'm just going to hand over to you. And then take us through the outlook for the remaining part of the year.

H
Henrik Clausen

Okay, thank you, Anders. Okay, thanks.And recognizing that Anders and I have spent quite a lot of time on going through the deck, but we felt that was important. I mean there's no change in strategy, but of course, the implications on and understanding the details is important, so I hope you appreciate that we've actually done the deep dives to give you that insight.I think, if I net-net sum up of what's happened since we launched the strategy. We feel a strong confirmation from our partners. I mean technology partners, brand partners, sales and distribution partners. This is exactly what they've been looking for from Bang & Olufsen and they are with us on the journey, so that's a good thing. And we execute as planned. And quite a lot of things going on both from a platform and technology point of view but of course specifically from a retailer distribution transformation, where we feel in good control. And I think the best way is probably -- to express that is probably to just confirm the outlook for the year.So we stand by a group outlook of more than 10% growth for the full group, growth in EMEA of 5% and Americas 20%. So Q1 being a bit special and impacted by the transformation. And of course, we confirm that we see a good momentum coming out of Q1 for Asia that will transcend into the rest of the year. Brand Partnering, no new. We will see a moderate growth compared to last year. And from a margin level, we feel very confident that we will be able to deliver in a range of 7% to 9%. And therefore, the cash flow target of more than DKK 100 million.So I think -- with that, I think we leave the last part of the call for questions.

Operator

[Operator Instructions] First question is from the line of Poul Jessen from Danske Bank.

P
Poul Ernst Jessen
Senior Analyst

I have a few questions. First, about China. You have now sold the remaining stores in China. One question, is Sparkle Roll among the ongoing partners? And secondly, what will the impact be in Q2 of taking out the retail revenue share of the China. So that's just to get an indication of what we have to subtract there. Then I've also seen that you have started signing a lot of deals with -- or at least there's been 3 so far with airlines, has shown that more marketing point of view for the right customer segment, but could you elaborate a little on what you see in that kind of partnerships? And then there has been a settlement in the report on the EBIT level. Could you also say a little about that?

A
Anders Aakær Jensen

All right. So perhaps I could start. I can start with the last point here. There is a reference here. You're alluding to other income of DKK 23 million in the report. This is primarily related to an old legal case and a conclusion on that case. It's in reality nothing to do with the ongoing business. And we're just happy to move on and have settled that old case, so -- and I'm not in a position to communicate any further on that. I think what's important to notice is it's not really related to what we're doing as of today. And I don't expect that we'll see other kind of those settlements moving forward. So that was one thing that you asked about China. Is Sparkle Roll still a part of the setup? Yes, Sparkle Roll is still a part of the setup. Obviously we -- what we have done is that we have divided China into different regions. So there's a slightly different role, but we're working extremely close, obviously, with Sparkle Roll. They have been a key partner for us in the whole transformation in China, and they will continue to be that both on e-com platforms but also on physical manifestations in China. In terms of...

H
Henrik Clausen

Just to clarify that. I mean so they will be one of more partners now. So from a geography point of view, they will focus in on the region around Beijing when we talk physical retail. And then on top of that, as Anders alluded, they will play a role in terms of how we execute our branded space in a digital and therefore specifically Tmall perspective. And on top of that, we've now added 4 new regional partners to have a more balanced approach to China going forward.

A
Anders Aakær Jensen

The last part, about what's the retail number impact for Q2. So obviously I don't know yet what the revenue is in Q2. We have not communicated specific numbers of what is the retail impacts, but what I can say is that within our guidance for Asia it is included that we would sign up with the new partners. So that has been included in our guidance. I cannot come with further specific details. We may come back with some more updates later on, but for now I cannot give further details. And then about the air flights, I think, John...

H
Henrik Clausen

[indiscernible] airport retail.

A
Anders Aakær Jensen

Yes, airport...

J
John Mollanger

Yes. I think it's about airport retail and in line with the positioning of the luxury-lifestyle proposition but also the transformation on a distribution platform model. Travel retail represent both the combination of a faster traffic, a more qualified traffic and the proximity of our luxury brands, which does and have already translated into better conversion rates and higher average selling price. So that is a confident strategy that you will validate on our 3 core regions.

P
Poul Ernst Jessen
Senior Analyst

So a follow-up on the airlines. I saw that you have American, Singapore and Malaysian airlines signed up. Will we see a lot more of these coming going forward?

J
John Mollanger

I don't think you'll see a lot more. We'll remain selective but, again, in line with the positioning. They represent a very solid platform for a community of both luxury and business travelers and therefore a good touch point and a good exposure for both leveraging awareness and transforming equity into transaction.

P
Poul Ernst Jessen
Senior Analyst

Okay. Then just final, just a small follow-up on this China sell-off of the distribution. Will there be a capital gain in Q2 on selling off the stores?

A
Anders Aakær Jensen

No, there will not be any capital gains in Q2. We have discontinued our reporting on underlying performance and reported performance. Obviously within the numbers you have an odd number in operating income, but obviously transaction costs and handing over is including in what we reported now. We just feel that it's not at a level where it's significant any longer. So all, you can say, settlements and costs are embedded into the reporting now. And there is not any gain to be report in Q2.

Operator

And the next question is from the line of Jesper Ilsoe from Nordea.

J
Jesper Ilsoe
Analyst of Healthcare

It's another question on the Q4 -- Q1 performance as such. It's more a question on the free cash flow guidance. I know you have unchanged free cash flow guidance of more than DKK 100 million, but it's just you have delivered DKK 85 million last year. You have increased earnings, so why do you only say that it's more than DKK 100 million in free cash flow this year? It's just whether or not there's anything we should take into consideration given the current levels or levels in full year last year, just more of a household question.

A
Anders Aakær Jensen

I think -- so I think that's a fair reflection. So last year, we guided that we would deliver more than 0, and we delivered DKK 85 million. And this year, we're saying we're going to deliver more than DKK 100 million, so -- and then of course, when you do the math, how much more than DKK 100 million should it be? I think, when we are in a position to be more specific and feel it's needed, we will be, but for the time being, we feel confident that we keep the guidance of more than DKK 100 million.

J
Jesper Ilsoe
Analyst of Healthcare

Just a follow-up, if it's possible. Then so what's the moving parts? Is it only net working capital that you're mostly concerned about given that you haven't updated it yet?

A
Anders Aakær Jensen

Obviously net working capital and how we close each quarter. That's -- there tends to be quite some volatility within that. That will be one thing. But also how we go to market; how we are going to, you can say, how have our hand on the plate together with the partners. And coinvests with some our partnerships may also impact our CapEx and therefore our cash flow. So obviously there will be moving parts here. And I think, as I said, when we feel time is ready, we will be more specific, but for now we keep the guidance.

Operator

[Operator Instructions] And we have a follow-up from the line of Poul Jessen from Danske Bank.

P
Poul Ernst Jessen
Senior Analyst

On the FX, on the gross margin, I was just thinking. Given that you have a huge exposure to the U.S. dollar and that has been moving quite a lot the recent year, what's the FX impact and the gross margin improvement in Q1? Then I don't know if you want to quantify but the sell-in of the Eclipse and the BeoLab 50 last year, just to see what's the underlying performance this quarter, if you want to give an indication there. And then finally, on multibrand, which I believe is still third-party retailing, you have minus 10% in the third party. You had 20%-plus throughout last year. You have 6% less stores, so what's the underlying performance then? If I subtract Staged out of the monobrand, then non-Staged products should be increasing close to 90%. I know that Tmall is part of that, but is it the monobrand stores that really outperforms the multibrand distribution on the what we earlier called Staged product -- sorry, play products?

A
Anders Aakær Jensen

Okay. So at least I will start with the first two then on the gross margin. So what we have concluded here is, you can say, we have FX contracts in place. And I cannot give you specific, but of course, as we have communicated earlier, a part of the positive development is U.S. dollars here. And that impacts the profitability across the border, as we are buying most of our products in U.S. dollar. On the selling-in impact last year for BeoLab 50 and Eclipse, the revenue last year was DKK 70 million, 7-0. And then of course, it's always an artificial exercise what is going rate and what's selling and how do you do that, but I can share the specific number. The number was DKK 70 million, 7-0. The multibrands...

P
Poul Ernst Jessen
Senior Analyst

[ That was structured ] sell-in or sell-out?

A
Anders Aakær Jensen

Sell-in.

P
Poul Ernst Jessen
Senior Analyst

Okay.

H
Henrik Clausen

[ And starts now ].

A
Anders Aakær Jensen

And then that's it. And then on multibrand, Henrik, you want to...

H
Henrik Clausen

I mean just a quick reflection because I think, all the details and the breakdowns, I think, we -- or we should spend a little bit more time on sort of outside the call, but sort of overall the conclusion is right that branded stores key in across the portfolio. And that includes On-the-go as a portfolio as well. So the positive development in On-the-go is supported by a strong branded network, which of course is important looking ahead.

P
Poul Ernst Jessen
Senior Analyst

But the minus 10% in multibrand. And you have 6% less stores, and I would assume that those stores which you net has closed down are the lowest-performing stores. Is it possible to give a little more insight into what's going on in the multibranded then?

J
John Mollanger

Yes. Without diving too deep in that: I think your insight on what is sell-in and what is sell-out is an indication. So we are performing a much deeper dive on sell-out performance, also accelerating that in our branded space. And we are being extremely selective on the [ multibrand-phase shelves ] that are driving the most revenues at sell-out levels. So what is to expect is we'll continue strengthening insights of our sell-out performances. And you will also see a strengthening of the On-the-go portfolio, including on our monobrand. I think that's where I would stop for now.

H
Henrik Clausen

Yes. And then, Poul, of course, I think trying to understand what's going on, I think, looking at the doors, I mean, it's not going to give you full insight because there are so many changes happening in terms of quality of doors, new branded space coming up which are TPRs but very different from where we came from and at the same time a pruning happening in some of the larger distributor networks. So I think that requires sort of a little bit of a deeper dive of -- and I think we should be -- we should have that as a bit of a separate discussion.

Operator

And there are currently no further questions registered, so I'll hand the call back to the speakers for any closing comments. Please go ahead.

H
Henrik Clausen

Okay. I'll say thank you all for joining. Thank you for staying slightly more disciplined than Anders and I. So we managed the call in a -- in 1 hour. And again, we recognize that quite a lot of things sort of are new, at least from a reporting point of view. I think the good thing is that the strategy is not new, and we confirm the direction we're taking as a company. And we confirm the outlook for the year.So thanks for joining, and have a good day.