Bang & Olufsen A/S
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Bang & Olufsen A/S
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Ladies and gentlemen, welcome to the Bang & Olufsen Financial Statements. [Operator Instructions] Today, I'm pleased to present CEO, Kristian Teär. Speakers, please begin.
Good morning, everyone, and thank you for joining the call today. My name is Kristian Teär, and I'm the new CEO of Bang & Olufsen. Today, I also have our CFO, Nikolaj Wendelboe, with me on the call. As you know, last night, we adjusted our financial outlook for the full year based on the estimated financial results for the second quarter and after reassessing our estimates for the remainder of the financial year. This morning, I will go through the main reasons behind the outlook adjustment. And after that, we will open up for questions. Please note that we will still publish our financial report covering the first 6 months of the year as planned on January 14, 2020, where we will also host a webcast, we will go into greater detail on the financial performance.So if we move to Slide 3, where I shared my first observations. When I said, yes to become CEO of Bang & Olufsen, I knew I also said yes to lead the turnaround we have now started. From my point of view, we are in a commercial crisis. We don't sell enough of our products and the reason is that we are not succeeding with our sales and marketing execution from a variety of perspectives. I spent a great deal of my first 2 months in the company meeting with everyone from employees, retail and brand partners to end consumers to fully understand our business and our challenges. What they all told me confirmed my initial analysis. Therefore, we need to make a fundamental change of the sales and marketing efforts, and we need to create a culture in which we are closer to customers and partners. We have already started this journey.For too long, Bang & Olufsen has expected that the brand was great enough and the products so good that they practically sold themselves, but having great products is not enough. We need to support with strong sales and marketing efforts. We need to stand on both product leg and sales leg to succeed, and we don't do that today. That's why I ordered in November to change the organization to strengthen our global sales focus and initiate 7 new sales and marketing initiatives, which I expect will help us to deliver on our expectations for the second half of the year. I have a strong background in sales and marketing, and I've made several turnarounds with positive outcome. That's also why I'm confident that we will succeed with this and realize the potential of Bang & Olufsen, and we have a good starting point. We have a strong brand and great products. We already have several new products in our pipeline, and we have many dedicated employees and partners all over the world. If we move to Slide 4, Q2 lower than expected and we have adjusted our outlook. We have not yet finalized our financial figures. These will be published as planned in our financial report for the first 6 months on January 14. However, based on preliminary estimates, revenue in the second quarter declined by 31% in local currencies. We had expected revenue to decline due to the move to retail-driven model from our wholesale model.Furthermore, the new business model for Beovision Harmony TV, where the partner sourced the screens directly from LG, means that we are missing some revenue compared to the TV launches in the past.Revenue in September and October was as expected. So the miss in revenue was related to November sales. Revenue in November was still higher than in October and September, but we had expected a higher uplift in sales to retail partners ahead of Christmas. As a reaction, new initiatives have already been launched, and we will launch more to improve sales and marketing performance. I will elaborate further on this on the next slides. The decline in revenue had an adverse effect on our EBIT margin which, adjusted for special items, was negative by approximately 10%. On the positive side, we did see progress on several of our strategic initiatives. We had a strong focus on our cash flow development and managing our working capital. We, therefore, succeeded in generating an estimated positive free cash flow of DKK 32 million and improved our cash position with DKK 23 million. So we, by the end of the quarter, had DKK 298 million in cash.Based on the performance for the second quarter of the year and our updated estimate for the second half of the year, we have adjusted our full year outlook. We now expect to see revenue for the full year decline between 13% and 18%, resulting in an EBIT margin before special items of minus 4% to minus 9% and a negative free cash flow between DKK 100 million and DKK 150 million. I will elaborate further on the outlook later in my presentation.Given the situation we are in, we have decided to host a Capital Markets Day in April. I will also give more information on this at the end of the presentation.So if we move on to Slide #5, where I will elaborate further on the main development in the second quarter. As I mentioned on the previous slide, the miss in the quarter was related to the month of November whereas both September and October were in line with what we had expected.Firstly, sales to consumers has not been satisfactory. This again highlights our urgent need to improve our sales performance. The consequence of the unsatisfying sales to consumers is that certain partners have not reduced their inventory enough. This, again, has led to sales in unauthorized channels. On the market side, we have seen an increased competition on to wireless earphones, which had an adverse effect on our sales. We have entered this category, and this is still a strong category for us globally, and we continue to develop and improve our road map here.Finally, our sales execution in connection with product launches have been too slow and not focused enough on the products. It was -- it is, however, not only bad news, as we have seen progress on some of our strategic priorities. Last year, we launched very few new products and it has been a key priority to launch more products this year. In quarter 2, we launched the products we had planned for, which is important. The reception in the market of our new TV, Beovision Harmony and our new soundbar, BeoSound Stage, has been positive. And we have a pipeline of products to be launched in the second half of this financial year. The very important step of becoming retail-driven is dependent on our ability to monitor sell-out to end consumers. We're working in terms of this, and the majority of our European monobrand stores are now supplying sell-out data to us. We are verifying all the data to ensure that we can actually draw conclusions based on this input. And at this point, 44% of our European monobrand stores are supplying data that we can use for analysis. This number has been growing continuously over the recent period. Finally, we have seen positive free cash flow in the quarter. Last year, free cash flow was impacted negatively by the development in our net working capital, which increased significantly due to sales and production misalignment. In the first half of this year, our goal was to reduce our net working capital, which we have achieved. For instance, we managed to further reduce our inventory and significantly reduced our overdue receivables where we in Q1 have seen an increase. This was done through proactively working with our partners. If we move to Slide #6, where we look at key initiatives for the second half of this fiscal year. There are several activities planned for the second half.Firstly, we need to successfully launch the new products we have in the pipeline. We have, in Q2, delivered the products we planned, but I think we can achieve much better results if we launch the products in combination with a more product-focused marketing activation than we have seen recently. To successfully support our sales, I see need to start strengthening our local retail execution resources as well as lift our overall sales and marketing competencies.We also need to establish a new sales -- we also need to establish new sales programs as well as improve our distribution network with our partners, and we are already working on these initiatives as well.So if we go to Page #7, the outlook -- adjusted outlook for the fiscal year. Based on the financial results for the second quarter and the expectations for the remainder of the year, we now have a new outlook for 2019 and '20.Revenue for the full year is now expected to decline with 13% to 18% in local currencies where we previously expected a single-digit growth. As mentioned before, the expectations are, among others, based on assumptions related to the initiatives I just went through, which includes successful product launches and strengthened sales and marketing execution. Consequently, the lower revenue forecast compared to previously means that EBIT margin, excluding special items, is expected to be between minus 4% and minus 9% where we previously expected EBIT margin to be higher than last year.Given the financial performance we have seen, we have an increased focus on cost. Free cash flow is now expected to be negative by DKK 100 million to DKK 150 million compared to the previous expectation of a positive free cash flow for the full year. We will continue to have a strong focus on cash flow development and our net working capital. And we, therefore, expect a positive free cash flow for the second half of the year.So turning to Page #8. Given the situation we are in and the changes that we have to make, having a close dialogue with the Board of Directors, decided that we will prepare a 3-year plan which will be presented at the Capital Markets Day in April.You may wonder why we're waiting until the beginning of April with the Capital Markets Day. There are several reasons for this. And for the full company plan, we are not in a panic mode, and we need to develop a solid plan and anchor it with our key stakeholders, and we don't want to have this presented in the mid of the third quarter. The strategic correction remains unchanged. We will strengthen and broaden our go-to-market to survive as a company. And I have already mentioned that this requires a fundamental change in our sales and marketing effort. We need, as a company, to be much closer to our consumers and partners and to the opportunities that we see in each and every market. Our 3-year plan will include new initiatives like an increased consumer focus, new sales activities, more frequent and better executed product launches and cost initiatives. I would, at this point, not go into any great detail on these initiatives, but I just want to convey that we understand the urgency needed to turn this around. And in the meantime, ahead of the Capital Markets Day, we will be working vigilantly with the short-term execution. And that concludes my presentation, and we will open up for questions.
[Operator Instructions] Our first question comes from the line of Poul Jessen of Danske Bank.
Kristian, welcome to the company. I guess that there are some challenges ahead, at least to create credibility again. Now coming back to the initial comment about your first, what is now 70 days or so in the company. Could you say a little more about what actually you see as the base for the future and where they are really away from -- or what were the biggest disappointments when you digged into the company? And what you build on going forward? That's the first one.
Yes. Thank you, Poul, and thank you for the warm welcome greetings as well. When I joined, I knew I was coming into a turnaround situation. So that is not new to me. What I have done over the first, basically, 2 months is to, like I said, spend a lot of time with partners, customers, employees. And it's clear that we have a very, very strong brand. Our products are also good, but unknown to many, and the awareness of our products, we haven't been able to convey that in many of the markets where we're operating. So -- and one of the reasons for that is, of course, we've had very many layers in our sales and marketing organizations, and we haven't been close enough to our customers and to our partners and engaged enough with them to create awareness of the great products that we have.So as I'm sure you're aware, we already delayered the organization a month ago. Now the regions, the 3 regions are reporting directly to me, and we will continue to put much more focus into sales and marketing like I just described. And I think that is good news in terms of -- it's easier to fix sales and marketing than to fix brand and to fix products.We also have, which is encouraging, like I said, we have launched 2 products that are very good and well received. But of course, we have had too few launches over Q1 and Q2. And we have, for the second half in Q3 and Q4, many more product launches, which should, of course, help the growth and will also help us to create buzz and awareness around the brand and around the products and also help our partners in that way to sell more.So a lot of work to be done in sales and marketing. It's not changed, like in 1 day. So even though we have started with many initiatives, it will take a bit more time before we see the full effect on them. But I can assure you that we are working full speed ahead of strengthening sales and marketing and making sure that we create awareness for our products in our key markets together with our key partners.
But when you look at it, was the state of the company much worse than you were shown when you accepted the job? Or was it more or less as expected?
I don't think I've seen anything that was worse than I expected. I've been in similar industries like this before. And of course, I had done my due diligence and I had read the annual reports very thoroughly, like I think you are all doing as well. The change that we are doing in terms of moving to sell-out and measuring sell-out is absolutely the right one to do. The inventory division is maybe taking a bit longer than I had expected it to do. That is the right activity to do, and we'll continue to work with inventory depletion. And that's obviously something that has been growing up over years, and didn't happen overnight. So it will take us some time to deplete that as well, but we are doing the right activities now.
So then before handing over to others for any question on the November shortfall, can you put a little more comments on that? Is it more or less fully related to the earphone or the ear-aid getting tough competition from, for instance, the AirPods or is it more broadly based?
It's -- #1 is related to that. We stopped the sell-in activities, and we're moving to sell-out activity. So we monitor actually what is sell-in, and we don't want to feel inventory in the channel up in any way. So by monitoring that, we obviously sell-in less than we did last year or even the year before that. So that's the right activity to do it again. And of course, sell-out is a bit delayed, so we don't see that fully, but we definitely didn't sell-in too much.The second thing is that we had expected some of the end-of-life deals that did not materialize that we were hoping for, moved over to this quarter. So it's a rollover from Q2 to Q3 in some businesses. And that's -- and then, of course, we had a -- November is the biggest sell-in month as well where we had the toughest comparable, and we didn't meet that one.
And our next question comes from the line of André Thormann of ABG.
Welcome, Kristian. So first of all, in terms of the performance of Harmony in the quarter, I mean, I understand you said it has been tough, but at the same go, the message readout is slower execution than expected, so can you elaborate a bit on the performance of new products and especially Harmony?
I think first of all, we launched them on time in the quarter. So both Harmony and Stage the days we had announced were met, and we are pleased as well with the numbers that we have sold so far. So definitely has met expectations. And Harmony, it is obviously a big-ticket item, so it takes a little bit longer to sell it in retail. Customers come in, look at it, come back and buy it later. It has done well. We had some supply issues because many of our customers bought several covers to be able to cater for wooden panel speaker or a fabric cover speaker. So we, unfortunately, run out of some of them. So we had some supply issues that we corrected in the mid of the month of December. But overall, well received from the dealers, well received from the consumers. And it's also meeting our own expectations. Then now it is Christmas sales. So the final verdict when it comes to sell-out to consumers is going to be assessed when we move into next quarter and in January when we had -- when we present quarter 3 when we had the Christmas sales numbers completed. But so far, I think, very good and satisfactory.
Okay. So just to be fully sure, this less positive development in November than expected, that is not related to new products performance at all?
No.
Okay. And then the next one, in terms of this internal goal you have of DKK 0.5 billion in net deposits. I mean now you, of course, you adjust your guidance and free cash flow downwards. But the -- I mean what is your view on this? Is there anything specific you are considering in terms of how to land that minimum expectation of cash?
Yes, so good question. So first of all, of course, we are pleased that we have a positive cash flow and we keep on monitoring that very, very thoroughly. And I think also by having reduced the full year outlook, we will -- that will enable us to have an even tighter control on our supply forecast. And obviously, they're not driving inventory in any way in the negative sense. Then, we have a goal, as you know, and I will let Nikolaj elaborate what our final cash position in relation to that goal, what that means. Nikolaj?
Yes. So you can say, by the end of Q2, our cash position is DKK 298 million gross, which, of course, is a little bit less net. So of course, there is a way to the DKK 500 million to go. The DKK 500 million is a target that the Board of Directors have set. We maintain that target. And that's what we -- that's where we are working towards. But obviously, with the outlook for this year, this target will not be achieved by the end of this financial year. But it's not the same, it is not the target that we want to achieve in the future. In the short term, we have the cash position that we need in order to run the business. So if you are alluding to any claims on doing a capital raise in the future, that is not anything we have on the table right now.
Okay. And then since you elaborated a bit on the cash flow, because I understood that the receivables, at least you expected that they would increase more, and that is naturally affected by the lower sales. But in terms of the inventory, how has that developed? Because when you reported the Q1, at least how many [indiscernible] that wasn't calculated into the inventory? So why didn't you get -- or did you get a negative effect from that on your working capital?
So we will elaborate more on the details at the call in January, but the positive effect on net working capital that we've seen in Q2 is related both to inventory and receivables. And from the receivables part, of course, you have the receivables when you sell this, but we've actually lower receivables also from the way we tighten governance around credits and also from the way we are working on reducing overdue balances.
Okay, okay. And then my next question, in terms of this 44% you mentioned on the sell-out insight of European monobrand stores, I mean, I, at least, maybe I have misunderstood, thought that you had more visibility about what was going on in the monobrand stores. So I mean, what is this on a global level? Is this below what you see in the European monobrand stores or...
So I would like to be very clear on this because I think I've tried to reset the expectation on this one over the past few calls. We had a data gathering from our partners, monobrand and multibrand. And we have a quite high percentage of partners supplying data to us. But that is not the same as having visibility because we need to validate the numbers and make sure that what we get in is something we can actually trust on -- trust is validated going at least 6 months back in time before we will make analysis on it.So the number of 44% of monobrand dealers in Europe, that is the amount of data that we actually trust. So that is the amount of data where we will actually make conclusions. And we, of course, we're going to get that number up to a global number, that, of course, will increase over time.
Okay. So it's just to be fully sure, so the numbers you have reported in the previous, I think, 2 quarters on sell-out that is based on only the data you can validate, right? So about half of the monobrand stores and maybe less?
We have not reported on sell out data in, you can say, the new way of gathering data from our partners. When we reported sell-out data in the previous quarters, it has been based on data points and a very aggregate way of reporting sell-out data to us. And that's also been quite clearly stated in those presentations. So the move we are doing now is going from sort of very high level input on sell-out data to getting detailed weekly information on sell-out [ for SKU ]. And that is where we have 44% visibility from monobrand in Europe at the moment.
All right. All right. And then maybe 1 last thing because I hear, at least from you, Kristian, that this is mostly a marketing issue, and I understand that you have -- that there has been a lot of these branded spaces that have been started. Has this not been successful? I mean hasn't it really been started yet? Can you elaborate on that?
So we had a very extensive rollout plan for upgrading stores and moving stores and introducing new stores. And then, of course, also to have branded spaces in our multibrand partners. In November, we were delayed on the execution of many of those. So we didn't manage to upgrade as we had planned and hoped for. We're catching up in the month of December with that rollout. And that's one of the things that I'm not satisfied with when I look at our performance in the quarter that I'm referring to, our efforts in sales and marketing and where we need to be better on execution.So yes, we did not meet our targets on that. Then we have signs from stores that have been upgraded that we are doing well, and it is delivering improvement -- improved results, but I would not conclude on everything at this point in time, even though after the store is upgraded, there is a lot of activities that needs to take place in terms of training of staff in terms of doing local market activation and to build local plans together with the store owners on the next couple of months. And just because we have readdressed the store, we are not ready with that transition. So it's good early signs, but we are not completed yet. And I will come back after this quarter with more data points because then we have done more and we have more insight, and we have also concluded the total transformation.
Okay. And then maybe one last one. Just in terms of your picture on cost, Kristian, do you think that there is a lot to do on this as you view the business now on the cost?
Yes. I think that we will try to continue to build products and continue to invest in sales and marketing, but I think we need to put the cost in the right place. And obviously, I will always be diligent on how we can cost things down and how we can be more efficient. And there are certain areas, for sure, where we have room, I think, to improve, and we're working through that right now as well, and we'll have that ready in the next couple of weeks in terms of where and how we will do it. And then, of course, execution as well will take a little bit longer, but I think we will start to get a general idea on where we have too much. But we will continue to invest in products and in sales and marketing.
But the guidance this year, that's dependent on cost cutting, right? Or...
We'll come back to that. I don't know that yet. So I will ask you to please wait until we come to January. I have some ideas that we had already from the beginning, and we will work through that now before I make any commitment, but I think we can.
Just to be fully sure on the guidance and minus 4% to minus 9% EBIT margin, that's dependent on that you execute cost cutting for the current year?
We have put in some cost improvements, and we have taken some costs out, for sure. I will not elaborate on what it is, but we have taken cost out to get to the guidance. That's correct.
And we have a follow-up from Poul Jessen of Danske Bank.
Yes. Coming back to second half product launches. Now that you are more or less lowering the revenue for the second half by DKK 400 million to DKK 500 million or in that range, and you still talk about that the full year is dependent on successful launches of the upcoming products, has the performance in the second quarter led you to reduce the potential sale of those upcoming products? For instance, a new earphone, assuming that it will be more tough given that the E8 has now come down? Or has something been taking off the table or what's going on there that you don't see any impact at all from the new products in the second half?
So we have several -- thank you for the question, Poul. So we have several product launches for the second half. We have adjusted them down a little bit, not much, but we're trying to be a little bit more prudent in terms of the revenue that they will bring, not because we don't believe in them, but just to be a bit more prudent for the second half. That's all I think I will say at this point in time on that.
Okay. Then just adding to what André said about cost cutting, if I assume that you have a gross margin more or less at the same level as you had second -- last year in the second half and given your guidance, then your OpEx costs have to come down by some EUR 50 million plus in the second half. We -- is it their marketing spend or can we not have any comments on where that money should come from because there's quite a lot based on the OpEx line, in general?
We've been -- I don't want to give you any specific details, but I can tell you so much, where we believe we can say, we will be able to do that without disturbing our product development nor our sales and marketing. And -- because if we start cutting kind of cost widely, then we have another problem in terms of execution on road map or execution in sales and marketing. So I think we need to be a little bit smarter on how we spend our money and a little bit more as well aligned on how we spend our money. And by doing that, I think we will get a bigger impact from the investments we do in both products in market and also internally in admin and G&A. But I would refrain from, even though I have more details to elaborate at this point in time.
Okay. And then given the inventories, which you say has come down from the close to EUR 600 million end of August, the majority of those we've earlier been told that, that was On-the-go products. And as I assume On-the-go has had a very tough quarter, there must still be lots of On-the-go products in the inventories, and with new products coming to the market, most likely quite soon, are there -- are you seeing any risk of discounting those or writing down inventories going forward?I assume that you can't discount that much given the guidance you've given for the second half, so kind of what you did in the first quarter.
Yes. So we definitely want to get out on the discounting, so we're trying to definitely do that and get [ the optimal ] price -- get more price stability in the market. Product phase-in and phase-outs are always, for any company, complicated and needs to be carefully orchestrated. I don't see immediately any concern in how we do our phase-in and phase-out. We just need to time it right and then do it right in the different geographies that we are working with. But it is a thing that needs to be carefully planned and executed and, of course, we don't want to end up with inventory nor any discounting. So that's what our plans are built on and based on, and what we try to achieve.
Okay. And then I don't know how much you want to talk about the strategy only, while you talk about fundamental change to sales and marketing, and it has been recently commented by the company that focus in stores were moving from number of stores and -- to more branded space, more luxury, more focused on sales per square meter at the retailers, but if revenues are coming down, as it were in November, then revenue per square meter might get to a point where it has no interest for the retailer to offer those branded spaces. Have you any views on -- for now on if you believe that you are getting a much too narrow distribution by having closed down a lot of point of sales in the last 18 months?
So I think that the strategy direction is the right one. And I think we have closed down dealers that, yes, were not profitable for us or where the business didn't make any sense. I don't think that, that was wrong in any way. I think also we need to distinguish between what is our sales and what is actually the retailer sales because from the old wholesale model, we still have -- when you do year-on-year comparisons, you have a skewed picture on what is wholesale and what is actually retail sales. And now we focus on supporting our retailers in selling out more with more marketing activities. We've been creating more awareness, and we have many, many strong partners that have great-looking stores in monobrand space and have upgraded them. They need more support on marketing, that's clear. They need more support in awareness, that's clear. We also have, which I think we haven't capitalized on just yet, more opportunities in the consumer electronic space or in the multibrand stores and in department stores.We do get positive signs and signals from many of these store owners and companies that we deal with as well where we see a possibility to expand our footprint. So from that point of view, I think we have more opportunity. We, of course, need them to do -- and take these opportunities in the right way and prioritize them in the right way because we also -- even though we have a big brand and we have big products, we are still a quite small company. So one of the activities going forward is to have a more whole and focused approach on sales and marketing together with our partners so that we can do the full 360 execution and also fire on all cylinders in whether it is monobrand, multibrand, B2B or any of the other new initiatives that we are doing.So I leave you with that for the time being, and I'm happy to come back in January and then in the Capital Markets Day to elaborate more on this.
Okay. Then you're right that in the report from yesterday announcement that you are maintaining the strategic direction of the company, but you adjust the go-to-market approach. Can you be more specific on what of the earlier communicated strategy is unchanged? What elements will not be touched?
I think it's good to have the monobrand stores that we have built up and that we have put in place. That's a great asset that we have that nobody else from that perspective have, and we will continue certainly to have that and to support our monobrand partners. There's no change in that. I think also when it comes to luxury lifestyle, I think that is also good for us in terms of crafting our own space, our own blue ocean where we are able to sell products that our competition is not -- they don't have the credentials for, they don't have the heritage for in doing. But at the same time, we, of course, also need to have product on a lower price point so that we get new consumers on board -- new generations of consumers on board. So the breadth and the width of the portfolio and the touch points with the different consumers' needs to be broadened to one extent with the multibrand stores, but it comes more -- so I think that's kind of that go-to-market model we will not change rather than expand, if anything else, but then we need to add more and more go-to-market -- we have more and more go-to-market opportunities and marketing opportunities that we need to connect to that.
Okay. And then you also say that you need more products coming to the market that are more steady flow, is that to accelerate what has already been decided? Or is that just to comment that now that you have the 2 platforms that, that is sufficient? Or do you needed more steady flow products coming?
I think we need -- I mean we can see there is a clear relation between new products and sales growth. So it's absolutely something that we focus on. And [indiscernible] and his team is focusing on to build more new products and better new products as well and products that are more in demand. So the platforms will definitely help us in doing that. And then overall, our fitness level on spending projects internally needs to be better. We're doing good progress here, but we can still be more fit in that respect. And whether we launch products at the end of the day or not, that is a different story. But I think we're well underway to become fitter. We are not where we want to be in the fitness level just yet, and that will give us a capability to bring more products out in a faster pace going forward. But I'm happy with what I have for the second half year right now. And of course, myself and the Board are evaluating constantly if we can do more products and what would make sense for us to do. But we need to find a balance between what is product and sales and marketing spend as well to get the right effect and effectiveness out in retail and in the channel.
And given your experience from earlier companies like Logitech and others, do you believe that, that R&D resources to deliver on that strategy are sufficient given your size?
Sorry, I didn't understand. Can you say again?
Sorry?
I didn't understand the question. I didn't hear the question properly. Can you say it again?
You had -- you have experience from the consumer electronics industry from the past and, therefore, you have an idea on what's needed to do R&D to deliver products, and I was just thinking, with B&O now having R&D spend in the range of DKK 300 million a year, is that sufficient to deliver on the flow of products that you would like going forward? Or do they have to invest more?
Okay. Thank you. I got it. I think we have a good team in R&D. We have a lot of great people. And the R&D budget currently, I think, will enable us to do what we want to do. I don't see a constraint on that. Going forward, we may want to partner up with technology partners on certain areas and we want to do certain areas on our own. So I think that comes back as well to the kind of 3-year plan and how do we make most effective, efficient use of our R&D spend, what do we do in-house, and how do we partner with others, and there's a whole lot of ways we can work -- the way we can work or directions we can take on this. But so far, I'm happy. I'm not worried about that. If you ask me if that keeps me awake at night? No. I think the product side has been good and what we have been doing. We certainly want to do more and get a more efficient machinery and get more fit, like I said. But on the level, I'm currently happy.
Okay. And then the final question for me. The cash position end of year, if I take your cash flow guidance, and I would assume you have a gross cash position of DKK 300 million, DKK 350 million end of year. We normally have a negative cash flow in Q1 and potentially also in Q2, if you have grown. Do you believe that balance sheet and the cash position is sufficient to make you through these tough quarters?
I do, but I will let Nikolaj elaborate more in detail on exactly where we are and what we want to share at this point in time.
Yes. I think, Poul, we -- as I said before, we think we have sufficient cash flow for the short term. And we are not planning detail for next year at the moment. That will be part of what you will hear on the Capital Markets Day, of course, how we proceed the future of the company. So I think that would be something we can talk about at that point in time.
Okay. But you must assume that you, every year, have a negative cash flow in Q1. And you typically have it in Q2 as well, as you build up receivables by growing into the Christmas season. So you must be standing at a lower level by the end of first half next year?
But we don't give any guidance for that at this point in time, but we will be managing our cash in a very prudent way and look after it in a very prudent way.
And as there are no further questions at this time, I'll hand back to Kristian for the closing comments.
Well, so thank you, everybody, for taking your time to listen to us today. And then I'm looking forward to seeing you, of course, in January as well and share even more, and then also wish you merry Christmas and good holiday season. So thank you very much, everybody.