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Bang & Olufsen A/S
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Ladies and gentlemen, welcome to the Bang & Olufsen Interim Report Second Quarter 2018 and '19. [Operator Instructions] Today, I am pleased to present Henrik Clausen, President and CEO; and Marlene Richter, Senior Director for Group Finance and Strategy. Speakers, please begin your meeting.
Good morning, everyone, and thank you for joining our call today. We are here to present the Q2 interim report. With me in the room, I have John Mollanger, VP of Markets; and Marlene Richter, Senior Director for Global Finance and Strategy; and Claus Højmark, Director of Brand and Market Operations.So please move to Slide 3. We will start with the highlights for the quarter, where I'll take you through the key elements that impacted us during the second quarter and the progress made across regions and product categories. Then Marlene will take us through the details of the financial results. I will then finish off by taking you through our outlook for the rest of the year. And after that, we will open for questions. So please move to Slide 4. Revenue for the second quarter was DKK 909 million, corresponding to a decline of 9% or 7% if we adjust for local currency developments. Although we had expected a back-end-loaded year with lower growth in Q1 and Q2, this was significantly lower than we've anticipated.Revenue in the quarter was fully impacted by the ongoing transformation of the sales and distribution network and challenges related to the global monobrand logistics setup. I'll explain this in further details in the following slides.The EBIT margin was 9.9%. It was an increase of 1.6% [ compared ] to Q2 last year. The fact that we improved our profitability despite the decline in revenue underlines the strength on our changed operating model, with an outsourced supply chain and where we leverage technology partners.Based on this performance and our assessments on how this would impact the second half of the financial year, we issued a revised revenue outlook on 19th December. We communicated that revenue for 2018/'19 is expected to be at the same level as 2017/'18, where we previously expected to grow more than 10%. The outlook for the EBIT margin and free cash flow remained unchanged.Let's move on to Slide 5. We chose to revise revenue outlook for the year due to a combination of unexpected issues that adversely impacted us towards the end of Q2, as well as our assessment of how the second half of the year will be impacted by some of those issues. I'll highlight these 3 key issues. Firstly, the roll-out speed of a new multibrand retail setup was slower than we anticipated and the ability to sustain momentum with key partners in the existing setup was weaker than expected. This adversely impacted the second quarter and will also impact the second half of the financial year, particularly third quarter. Looking at the adjustments we made for the full year, this has the largest impact. Therefore, I'll dive deeper in this on the next slide. Secondly, the challenges with the logistics setup also had a significant negative impact. As we've previously communicated, a key element in our strategy is to globalize our logistics setup to mirror our growth regions. At the beginning of Q2, we started the transition to outsource our logistics setup, the global monobrand distributor to our international logistic partner, UPS, based in Central Europe. However, contrary to expectations, [ this setup ] did not establish well-functioning and stable operations during the quarter. This was due to unforeseen IT breakdowns and capacity issues, among other issues. This resulted in significant delivery issues, especially towards the end of Q2, where we have a large part of our sales, and therefore, also a heavy pressure on our logistics setup. This impacted performance and revenue across all regions at both we and our retail partners, and we're spending more time on these issues than selling products and servicing customers.We have worked with our logistic partner to address the issue and ensured a more stable and well-functioning logistic operations. Therefore, we now believe that the issue has been resolved moving into third quarter.Thirdly, the change on master dealers, specifically in Australia and New Zealand, is more challenging than expected. We changed the distributor during Q2 as the previous distributor is not performing as expected. That meant the closure of 8 stores. With the on-boarding of a new master dealer within the process of reestablishing our own business in those markets, we will combine the multibrand and monobrand business under one umbrella. We estimate that the issue in New Zealand and Australia amounted to a loss in revenue around DKK 35 million to DKK 40 million in Q2. With the new market dealer in place, we now expect to regain momentum in the market in the second half of the year. In conclusion, the impact of these challenges on our full year outlook is approximately split 50-50 percent between Q2 and second half.I'll now elaborate more on the multibrand transition and how we are addressing the unforeseen challenges we faced. So please move on to Slide 6. The transformation of the multibrand retail has resulted in the biggest deviation in our expectations for 2018/'19. And we'd like to explain to you what our plans are and how we are progressing, and at least why we're comfortable that we are moving in the right direction.Firstly, we have decided to prioritize luxury-lifestyle multibrand retail. Essentially, this means that we need to expand our presence in retail where consumers are looking for a luxury-lifestyle product offering. This will particularly be in department stores, travel retail, selected consumer electronics and e-tailers. During the second quarter, we have seen evidence that this is the right direction for us going forward. No matter whether they have seen it in markets in the U.S., [indiscernible] in Spain, and Italy [indiscernible] or travel retailers in Asia, they are all very open to engage with us. Furthermore, the new point of sales we have opened proved to be able to sell our products, also the product with a higher price tag, such as the Beoplay A9. At the same time, we have closed more than 1,000 nonperforming multibrand stores. They mainly consisted of stores from 3 larger retailers. 1/3 were telecom retail stores, 2/3 were consumer electronics stores. Closing these stores had a very minor revenue impacts on the quarter of DKK 4 million to DKK 5 million. The second element in our strategy is to ensure a more branded execution in the retail stores. In short, this means that we want to get away from being a few products on the shelf to becoming more branded and visible. This can be done through branded wall fixtures, a branded space or through a shop-in-shop solution. Also here, we have the evidence that this works. The branded space that we did open and upgrade during Q2 realized 7 to 10x the sellout revenue at the point of sales compared to an average consumer electronics store. Furthermore, as retailers were upgrading from being shelf to branded space, like we -- as an example what we did with Neiman Marcus stores in the U.S., we saw an immediate pickup in revenue. However, the speed at which we managed to open these new spaces did not live up to our expectations. We believe that now we are moving into the low -- the retail low season, and has specific plans for key retailers, we'll be able to accelerate. Furthermore, we were also encouraged by the fact that some of those that opened in Q2 are now coming back to us already. And once we roll the brand spaces out, add more on the point of sales.The third element of our multibrand strategy is to engage more directly with specific points of sales also. Historically, we have leveraged distributors when it comes to the direct engagement with the point of sale. We've asked the distributors to do the training, visual merchandising, as well as the governance of retailers to ensure that they live up to our brand standards in the store. This is a scalable model and means that you can reach significant amount of store with little effort. However, what we saw was that this resulted in inconsistent in-store execution, which in turn has resulted in low relevant -- low revenue in [ other ] managed stores and a negative impact on the brand experience. As we have engaged directly with key retailers during the second quarter, we have been relatively surprised by the state of many of the point of sales. This means that we had a bigger challenge in cleaning up and upgrading than we had anticipated. On top of this, we have spent a significant amount of effort managing logistics issues and not supporting our retailers to develop their business. To solve this, we refocused our own ground area retail managers so they now engage with the key multibrand retail stores. Furthermore, we have strengthened our in-house skills in luxury-lifestyle retailing with new additions to our team, including a new VP for omnichannel who has extensive experience on luxury-lifestyle retailers. And then finally, the fourth and last point regarding our multibrand retailer relates to the way we work with distributors. We want to continue to work with distributors around the world. However, we wish to change the way this collaboration works. Going forward, we will primarily use distributors for retail accounts where the distributor has a scale advantage and/or where the retailer has a complex structure. In other words, manage more retailers where our products are relevant and who we want to continue to collaborate with. Here, we will continue to use distributors as full service providers. There will also be larger retailers where the retail infrastructure is fragmented. Here, we engage directly with the retailer, but continue to use the distributor as the logistics provider. During Q2, we were adversely impacted by this transition in the way we worked with the distributors. As you know, we have struggled with this for a few quarters. However, we were negatively surprised by the state of the current multibrand network and our ability to drive sales through the existing distributor setup, especially in the crucial high-season month of November. As we've now clarified the role of our distributors and controllership to the retailers, we firmly believe that this could become less of an issue in the second half of the financial year.I'll now go through the performance and progress of each of our 3 markets and outline the concrete impact of the issues mentioned and our key initiatives for the second half of the year. So please move to Slide 7. In EMEA, revenues declined by 3% in Q2. While we saw positive progress on several of our key strategic initiatives, the unforeseen challenges with our logistics setup and the effect of the sales distribution transformation had an adverse impact on revenue growth, as I explained on the previous slides. In EMEA, our efforts to transform the multibrand channel towards more luxury-lifestyle retail, such as department stores and airport stores, continued in Q2. As a consequence, we closed 662 low-performing multibrand stores. Approximately half of these were telecom retailers and half were smaller consumer electronic stores. In addition, we began to open new and stronger retail sales points. To support building a brand awareness, we also opened pop-up stores in selected locations, including one in Amsterdam and one in Paris. We are also completing the rollout of the new monobrand contract in Europe. This is a crucial element in our sales and distribution transformation areas. It enable us to deliver a more consistent consumer experience and gives us more product flexibility across both mono and multibrand channels. As an example, this gives us the opportunity to sell Flexible Living products in department stores like Le Bon Marché in Paris or similar locations.Looking into the second half of the year, our focus will be on regaining growth momentum in a more direct multibrand retail setup and continue to create strong clusters in key urban areas. We have strong plans in place for key retailers to grow more direct, and we will continue to implement shop-in-shop concepts and branded spaces and we expect to open more than 10 new monobrand stores in key cities. With those plans in place, we believe that we can return to growth in the second half of the year and realize revenue in EMEA for this fiscal year on par with last year. This will not be enough to compensate for the adverse impacts that have affected us, and therefore we will not be able to deliver growth of about 5% for '18/'19 as we've previously communicated. And please move on to Slide 8. In Asia, we saw a decline in revenue of 7%, 6% if we adjust for local currency development. Even though Asia was adversely impacted by the transformation of the sales and distribution network, as already highlighted, the decline in revenue in Asia was mainly caused by the change in partner setup in Australia and New Zealand, which consequently resulted in limited revenues from those countries during the quarter. We now have one master deal in place that will drive multi and monobrand distribution going forward. End of Q2, our new partner opened the first monobrand store in Sydney and more stores are planned to be opened in the second half of the year. We're encouraged by the development in both the Greater China region and Japan, where we realized double-digit growth for each during the quarter.In China, our 5 new monobrand partners are all performing well and we're expanding the monobrand footprint as expected. In Q2, we opened 5 new monobrand stores in Mainland China, and our efforts to create a strong and brand-consistent consumer experience in the online and multibrand stores also progressed well. We continue to shut down low-performing multibrand stores in line with our overall strategy, while opening several pop-up stores and branded spaces, as illustrated on the slide. Just recently, we also launched the [ Piano Black ] special edition for this region, which has been very well received. Once again, we saw a strong performance on [ Signature Edition ] in China, where we grew revenue by around 50%. In the second half of the year, we expect to open 10 new monobrand stores in China and 7 new pop-up stores in luxury malls to help build brand awareness and drive revenue. In New Zealand and Australia, we expect to establish 3 to 4 new monobrand stores and more than 30 pop-ups and brand spaces.Despite strong traction on our key strategic initiatives across the region, we expect a moderate decline in revenue in the second half of the financial year. This is mainly due to the adverse impact of the transition from company-owned to partner-owned monobrand stores. Without these effects, we would, despite impact from Australia and New Zealand and the overall transformation in the store retail and distribution network, have grown our business in Asia overall. This means that we now expect revenues for the full year to be at the same level as last year. Previously, we guided revenue growth of about 10% for '18/'19.Then we move on to Slide 9. Revenue in Americas declined by 30% in Q2, 31% in local currency. As in EMEA, America was heavily impacted by the transition of the logistics setup by multibrand transformation, as well as the rebuilding of the custom integrator setup. While the performance was not satisfactory, we made progress with several key areas during -- within several key areas during Q2. We opened more than 10 new branded spaces in department stores during the quarter. As mentioned earlier, we already had a very positive revenue impact in selected department stores. In early December, we also preopened our new flagship store in SoHo, New York, as a pop-up.We have established strong plans with key department stores, such as Neiman Marcus and Holt Renfrew, and travel retailers in Q2. We expect to have a positive impact on multibrand revenue in the second half of the year, with more than 20 planned openings in new and existing department stores. We continued to shut down nonperforming multibrand stores in line with our strategy to progress the channels towards luxury lifestyle, reducing the number of stores by 300.For the second half of the year, we have planned selected monobrand store openings in the U.S. and Canada, including the company-owned flagship store in SoHo, New York, and we will also roll out several new stores across New York. In Q2, we also entered a new partnership in South America to help drive our multibrand expansion in the region, and we expect the partnership to materialize and increase revenues during Q3.We expect revenue to grow more than 20% in the second half of the year, driven by the momentum of the roll-out of mono and multibrand in key urban areas as well as in travel retail. This will take us to a full year revenue at the same level as last fiscal year. Previously, we guided revenue growth of about 20% for '18/'19.Then let's move on to Slide 10. Our 3 product categories performed in line with our expectations. However, all the categories were affected by the unforeseen issues mentioned earlier in the presentation. The logistics issues mainly impacted Staged and Flexible Living, while On-the-go and Flexible Living were affected by the sales and distribution transformation. Staged revenue declined 23% in Q2. While there was an inverse impact from the logistics issues, both BeoVision Eclipse and Horizon and the BeoLab speaker series performed on par with last year. During the quarter, we also launched the BeoLab 50 and BeoVision Eclipse and Piano Black. The performance of those product was, however, not enough to compensate for the decline in revenue performance with the older and unprofitable platforms, which we decided to discontinue into 2017/'18, specifically the Avant TVs and BeoVision 14. This was as expected and we are confident that we have a strong offering in this category and a solid pipeline, also with upcoming innovations within sound [ position ].Revenues in Flexible Living grew by 27%. The increase was driven by our latest multiroom speaker, Beosound Edge, Beoplay A9, as well as Beosound 1 and 2. During the quarter, we launched the Bronze Collection, Google Voice Assistant was introduced, and Beosound 1 was upgraded with a charger dock functionality and launched in a Piano Black special edition. During Q2, we also made AirPlay 2 available for both new and old speakers, and we now offer our customers 3 different multiroom technologies: AirPlay 2, Google Chromecast and Beolink Multiroom. On-the-go declined by 4%. Again, this was adversely impacted by the transformation in the multibrand retail. Our key head and earphone products such as Beoplay E8, H9i and Beoplay E6 showed growth compared to the same quarter last year despite the issue in the third party retail network. During the quarter, we launched our popular E8 in a new permanent color. And just last week, we announced the E8 2.0, which offers wireless charging, new design and longer battery life among other things.Please move on to the next slide. So Marlene, will you please take over?
Thank you. Let's move on to Page #12. As we have already talked in detail about the revenue development in the quarter, I will now complete all the details again. However, just to recap, we had a 9% decline in revenue compared to Q2 last year. And adjusted for currency developments, revenue declined 7%. This means that revenue declined by 5% in the first half of the year. And when adjusting for currency developments, this corresponds to a decline of 4% for the first half of the year. As we just explained, all regions have been impacted by the transformation of the sales and distribution network as well as the logistics challenges.I'm sure you all have noticed that we also have a decline in other category in the regions. This was due to a decline in revenue related to the aluminum components we produce for third parties, currency hedges, as well as other unallocated revenue. In regards to brand partnering, revenue in Q2 was largely unchanged compared to last year.In terms of revenue development by channel, the logistics issues mainly impacted the monobrand channel, while the transformation of the sales and distribution network mainly impacted the multibrand channel. Please also notice that during the quarter, we have transferred some former multibrand distributors to master dealers. This is done to create a simpler and more aligned approach to selected markets. In total, this means that we have transferred approximately DKK 20 million to DKK 25 million in revenue from the multibrand channel into the monobrand channel.Let's go to Page 13. We start with the gross margin. The gross margin for the quarter improved by 6 percent points to -- 47.2% sorry. This was a result of improved product profitability; currency development, especially from the U.S. dollar; and finally, the channel mix. The gross margin improved across all channels, but especially Americas showed a significant increase. This was due to an inventory write-down last year. However, this only had a minor impact on the overall group gross margin improvements. If we then go to capacity cost. Capacity cost declined by 2%, which means that they are more or less stable as a percent of revenue compared to last year. The change we have made to our operation model resulted in a significant decline in development cost compared to last year. We have been able to do this without compromising the level and speed of innovation, but the costs are now carried by our technology partners and we pay for them through our gross margin. Our distribution and marketing costs increased as expected. This reflects that we continue to invest in building brand awareness, as well as transforming our sales and distribution channels. Please also note that administrative cost includes a DKK 10 million impairment related to an administration building in Struer. All employees in this building has been moved to our new Innovation Lab. The administration building will be set for sale.Then go to the EBIT line. In the second quarter, we realized an EBIT of DKK 90 million compared to an EBIT of DKK 83 million last year. This corresponds to an EBIT of -- of an EBIT margin of 9.9% compared to 8.3% last year. Please also note that in Q2 this year included an impairment, as I just spoke about before, of DKK 10 million, but Q2 last year was positively impacted by DKK 18 million related to nonrecurring other income. Adjusted for this, the EBIT improvement would have been DKK 28 million higher than we have reported today.Let's go to Page 14. We start with net working capital. Net working capital was DKK 391 million at the end of second quarter, corresponding to a 12% of a 12 months rolling revenue. This is quite a significant increase compared to last year level and we reported in previous quarters as well. The net working capital was adversely impacted by the high revenue in November and the decision to extend credit terms to retailers, as Henrik just told about, to ensure a more stable flow of orders to mitigate the issues we were facing with our logistics setup. We expect this level to normalize during the second quarter -- or the second half of the year. In relation to CapEx, in the quarter, the CapEx increased compared to the same quarter last year due to investment in new platform, such as our new e-comm platform, which we will launch during spring this year, and new product platforms in general as well. The decrease in net working capital impacted the free cash flow. The free cash flow was negative by DKK 84 million compared to the positive DKK 44 million last year. Looking ahead, we expect the free cash flow to be improved by a normalization of the net working capital as well as through the earnings in the second half of [ fiscal ] year.That was it for the financial highlights. So now I would like to hand the word back to Henrik for the outlook for the financial year and some closing remarks.
Thank you, Marlene, and let's move on to Slide 16. To summarize on our outlook for the 2018/'19 results, we now expect revenue to be at the same levels as in 2017/'18, this goes to the group as well as for the regions. This implies that we will regain growth momentum during the second half of the year. In EMEA, we believe that we can realize revenue for this fiscal year on par with last year, though we will not be able to deliver growth of about 5% as previously communicated. In Asia, we expect a moderate decline, as mentioned, in revenue in second half of the year. This means that the revenues for the full year will be at the same level as last fiscal year. Previously, we guided revenue growth of about 10% for '18/'19. In Americas, we expect revenue to grow more than 20% in the second half of the year, and we now expect revenue for the full year to be at the same level as last fiscal year. Previously, we guided revenue growth of about 20% for '18/'19. For brand partnering, we continued to expect that we will deliver moderate growth for the year. We continue to keep close eye on our cost and make sure that we fuel the engine and develop the business. So we continue to expect that our capacity cost will be stable as a percentage of revenue. This as well has continued year-over-year improvements in gross margin. It means that we continue to expect an EBIT margin of between 7% and 9%, as previously communicated, as well as a free cash flow of more than DKK 100 million.Then let's move to Page 17 for closing remarks. So before we open for questions from the audience, I would like to share a few remarks regarding our overall strategy and 3 outlook. We know that the revenue shortfall this year has raised concerns with you regarding the traction of our business. However, while we, as a company, as a management team, are disappointed with the revenue performance, we expect that we will regain momentum in the second half of this fiscal year. It will mean that we are back on the 10% growth trajectory again for next year. As you know, we operate with 4 strategic focus areas which we must deliver on to realize the projected growth. When it comes to the brand, we continued to see strong consumer appetite for our products and continue to see high willingness to collaborate from retailers, brand partners and technology partners. For us, this is a clear indication that we continue to have a very strong and attractive brand, and very strong and attractive proposition.In terms of products and innovation, we have strong and well-performing products in the market now. We have a close cooperation with global technology partners, which we have also shown through the new technologies we have introduced in our products in Q2. And finally, we are confident about the product pipeline we have for the coming years across all 3 product categories.In terms of sales and distribution channels, all the evidence which I've shared earlier in the presentation shows that the transformation is both right and needed. And finally on our 4th strategic focus area, competencies and process, we have built more solid processes and strengthened our competencies significantly. During the first 6 month, we have made several key hires. And in December, we announced 2 new members of my management team, which I believe will be strong additions. So we now have a very strong organization in place across regions and functions. All in all, these things combined, believe our -- lead us to believe that our strategy is definitely right and the initiatives we're taking will lead us back on track over the coming quarters.So that takes us to the end of the presentation, and we are now ready to answer your questions.
[Operator Instructions] And the first question is from the line of Jesper Ilsoe from Nordea.
Just a few questions from my side, mostly related to the sales outlook. So first, so what makes you confident on your future sales outlook? So you guide for more than 10% revenue growth next year and the year after that, but -- so why will it be higher than 10% in the next 2 years? Why not only, say, 5%? So how straightforward do you see it to be 10% revenue growth each year given your current strategic focus? That's the first question. Second one, so what do you see is your biggest risk on your sales outlook going into next year? So now you think that you'd had these issues, but you had resolved most of them. You know it's a problem. So what is the biggest risk on your sales and revenue going into next year?
Jesper, it's Henrik. I mean, like, the first comment would be the changes we are driving through now across regions in the sales and distribution network, we feel confident we will create growth momentum already in the second half of the year. We have indicated where we see progress, so the expectation is that the growth momentum will return in fourth quarter based on the changes that we are going through in sales and distribution. And that means compared to our existing business plan and the 3 outlook, we feel that we have a sales and distribution set out that's at par with our expectations. So the delay would be more be associated with the take-up this year and not associated with the coming years. From a risk point of view, we feel that we have a strong portfolio of products. And if you look to our pipeline in all 3 use cases, we look more than solid. So if you just talk risk, then the risk would be associated with our ability to carry through the existing plans in sales and distribution in second half. And we feel that we have substantiated plans based on what we just went through, and the experiences and the progress we've made in Q2.
The next question is from the line of Poul Jessen from Danske Bank.
Actually, the question is about the monobrand and the logistics. I think you said that it has been sorted out. Does that mean that when we get into the second half of current quarter, then the logistics are full on track? That's at least what we hear from the franchisees. And then second, on the multibrand part, you talk about store execution of new partners and that they would ramp up. Does that mean that you have the agreements and it's a question of getting more space, ramping up the revenue on the individual partners and not to get new partners? And also, on the multibrand, you say revenue recognition was weaker. Will a few existing distributors, combining that will get the products you have launched in the recent 12 months, it's not on par with what we see or saw in the previous years. Are they lacking newness or new product to put into the stores?
Poul, it's Henrik. I'll address the first question around logistics and then let John answer you with the questions on the sales and distribution side. And yes, you are right, at least the feedback you get from the franchisees now reflects what we see. It's no doubt that November was a very, very challenging month. And with very sort of intense cooperation with the UPS management, first to stabilize the situation and manage the logistics towards the end of the month, I think we can say that we managed to stabilize. But we've spent the last couple of weeks or the first couple of weeks into December creating some more robust plans going forward, both on IT, process and capacity. So what we saw in December were that we were back on track and saw that -- and delayed deliveries and now the -- so we were on top of the issue and we believe that we now have the capacity and the scalability in place to drive the revenues we need to drive for the rest of the quarter. So yes, we feel confident now that we are on top of that issue. John?
For the second part of your question. In terms of our activity towards multibrand, the goal actually is not necessarily to have more spaces, but to be more selective for the right spaces that will yield the bigger revenue and sell-out performance. And what that means is, essentially, to focus on micro markets and focus on branded executions, be it, as Henrik's explanation earlier, having branded fixtures all the way down to potentially shop-in-shop executions. So that actually is the objective. Then for the last part of your question, did we actually lack products when it comes to the performance of multibrand. We don't think so. We think, however, that our desire and strategy to be more direct in the relationship has caused the distributors to be more cautious on their selling activities, resulting in that shortage.
Okay. Just taking on the launch of new products, just I don't know if you are coming with anything at the CES except from a charging pad for the E8. But looking at what we've seen from others like LG coming with a TV that can come out from a sound bar, and we've seen others coming up with the audio coming from the glass, that can be from lens or from the screen, from the TVs and others. Are you have asset -- or are you fully confident in the amount of the R&D you're putting aside or that you can keep track with the competition here?
I mean, first of all, Poul, bringing back to what I said earlier, yes, we feel now -- I mean, we think we have the right operating model. And the operating model is not only about selling modules, but ensuring scalability and access to platforms and technologies. We definitely think that we have the right setup now and we feel that we are investing what we need to do per use case. We have launched the Edge and we have done significant updates to all our other core propositions in the market. And if we look to the pipeline, maybe not moving into CES, but for the next 6 month plus, we feel confident that we have a strong lineup that will fuel the growth moving into next year. Maybe, John, you can -- can you comment a little bit around the way we work on product and product life cycle as well has changed and, of course, have had a quite positive impact on our performance on existing portfolio in this year and will set direction for how we manage that going forward?
Sure. So just to add to Henrik's comment. And again, not being too specific on CES, I think there will be 3 things that we will continue to strive for. One is the notion of focused innovation. You will continue seeing exciting things on the 3 categories. The second thing is the ability to sustain a life cycle management approach to existing platforms. And we start to have tangible evidence that this is the right strategy. If I look, for instance, on sellouts of our Flexible category, with strong performance of products that were unveiled more than a year ago, I'm thinking Beosound 1, 2, for instance. And the third thing that you will see us do, and you mentioned it yourself, is some functional use case improvement again on existing platforms, e.g. the charging pad and the adequate and upgraded performance of the new E8.
[Operator Instructions] And next question is from the line of Poul Jessen from Danske Bank.
Okay. Coming back to the monobrand stores, you said in EMEA that you have finalized the contracts, so updated the contracts as you're talking about earlier this year. Does that mean that this restructuring of -- or building clusters of partners in specific areas, that has been completed or is that still ongoing?
So this is, of course, still ongoing. And I think the contract part is relative, but not all of the answer for your question. What it means is that we are very close to 100% of completion rate for this new distribution contract, of which the main objective was to modernize the setup, but also on-board partners to qualitative criteria on the way we go to market. So that is a key component of that new distribution strategy. And we are very satisfied with the rate of completion, as we speak. Again, very close to 100%.
Okay. And I have 3 questions left. Coming to the products, you talked about a setback in the Bluetooth speakers. I was wondering why we have earlier seen that Logitech had a material decline in their Bluetooth speaker sales, and they referred to the growth of digital assistants. What's happening? Is it the same that you are seeing?
I mean, John, you can comment as well. Of course, one impact is driven by the changes in the sales and distribution network. There's no doubt, I mean, that channel and such primarily drives On-the-go where we operate today, and that has impact both on the headphones, earphones and the Bluetooth speakers. And so the underlying growth of the overall headphone and earphone categories is still strong enough to compensate for that. So you can safely [ arrive ] that the growth overall in the Bluetooth category is lower. But for us, specifically, it gets oversteered by the fact that the impact is so significant from the changes in sales and distribution. John, do you have any specifics there? From a category point of view, do we have any insights on the Bluetooth speakers that we can share here on?
No, not much to add. I think the only thing that I would mention is that there is a way to look at that by functional features, e.g. voice enabled, e.g. Bluetooth compared to WiFi. We tend to look at categories also of another angle, which is the use case in which you see relevance for massively portable Bluetooth executions.
Okay. And on the lower sale of aluminum, which you spoke about in dollar. I know it's small numbers, but is that an impact of the weaker total growth or weaker total revenues? Or is it the partners where you have been delivering aluminum so that they are beginning to in-source? Is it structural? Is it related to the overall performance in the quarter?
We have indicated that -- I mean, without being more specific than that, that the drop is associated with sales to third parties. I think that's your answer.
Yes, but does that mean that they are in-sourcing?
We cannot comment specifically on our partners' strategies. But it is -- the drop overall in that category is associated with sales of aluminum components to third parties.
Okay. And then a final question that's more technical one. Taking the monobrand stores that you have, you have moved a lot of or a count of stores quite significantly from EMEA to APAC. You also talked that you have changed the setup of these. But how can it change geographically? You have added about 60 in APAC and taking that out of EMEA, what's changed here?
Poul, Claus here. That change is a simple mistake in our Q2 -- Q1 report. As you know, we transitioned to a new regional setup, so the -- and by doing that, there was an error in the allocation of the store count. So there is nothing structurally [ true ] into that. It's a simple error in the Q1 report.
And there are currently no further questions registered, so I'll hand the call back to the speakers for any closing comments.
Okay. I will just say thank you for joining the call. Yes, I hope you got the answers that you needed. But of course, we'll be available after the call and over the next few days and weeks for further discussions and supporting discussions. So please have a nice day, and thank you for joining our call.