Bang & Olufsen A/S
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Bang & Olufsen A/S
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Ladies and gentlemen, welcome to the Bang & Olufsen interim report for third quarter 2017 to '18.Today, I am pleased to present Henrik Clausen, President and CEO; and CFO Anders Aakær Jensen.[Operator Instructions] Speakers, please begin.
Thank you. And first of all, thank you for all joining the call this morning.This is Henrik Clausen speaking. And next to me, I've got Anders Aakær, my CFO; and then the rest of the team. And we will do today as we usually do, go through the presentation relatively swift and [ to the point ] and then allow time for or at least ample time for questions in the end of the presentation.So I suggest that we move to Page 4 in the presentation, the overview. So headline is satisfactory growth. We've been growing 10%, double digit, for the quarter. In local currency, that corresponds to 13%. And we'll be back to regional developments, but the result was to a large extent driven by the strong growth in PLAY and specifically in China, reflecting sort of a positive development in the structure and setup for that region. EBIT of the underlying business was DKK 50 million, corresponding to a 6% EBIT for the quarter. And speaking about profitability: Profitability is obviously driven by top line growth but to a large extent by the fact that we now start to see significant impacts to the changes in the operating model that we have implemented. And I'll come a little bit back to that later, talking about where are we in the context of our working relationships with the new strategic partners.So with that, we are well on track to achieve the full year targets. We'll go a little bit back to the some minor clarifications and adjustments to the previous targets in the end of the presentation, but this has been a solid quarter pointing in the right direction for the company going forward.Then we move to next page, Slide 5. I just want to share a few reflections on the regional development, starting off with Greater China. And maybe just a quick reflection: We've -- at least on previous calls and in other conversations with some of you individually, we've talked a lot about the supply chain and the business system and transformation. And the fact of the matter is that we're -- there's been an equally big need for a transition change from a distribution go-to-market retail perspective across the regions and all linking back to the brand position Bang & Olufsen being a lifestyle, luxury brand; and ensuring a consistent execution around channels.And for Greater China. And first of all, we see, of course, the potential in the region, so the -- and the relevance of the brand in our portfolio obviously kicks through when you see the development in the numbers, but there are a couple of other things that are worth noticing. And we made quite significant progress on the digital distribution sides. I mean, of course, specifically third-part (sic) [ third-party ] digital in China. And so managing JD, Tmall, Taobao in a much more consistent way has helped fuel the business and pointing it in the right direction going forward. And as the next phase, we are now engaging with partners, regional partners, to support the strengthened retail experience on the digital side with an enlarged footprint on the retail side. So good progress in China, and we expect that progress to continue.For North America, you can say the last period 6 to 12 months has been a lot about rebaselining the distribution setup. And I think we've been through a process where we have reduced our branded retail footprint quite significant, to the point where we think where we have a relatively clean base that we will start to build from digitally, Amazon; Best Buy, physical. We are feel -- we feel we are in a good spot now in terms of how to develop those relationships going forward. And at the same time, we're starting to add more lifestyle-type partners, specifically travel; and more -- [ building those more streams ], other types of partners that would kick in and complement our portfolio going forward. So the expectation is -- and on top of that, we have reconfigured our U.S. team. So moved to U.S. -- or to New York, so we have a strong local team. They're now similar to what we have in China, in Shanghai for China, driving the business going forward. So the expectation is that we will grow in U.S. for this year, but that growth will kick off more significantly moving into the next year based on having rebaselined the distribution setup.For Europe, as you're probably all aware, we have more of legacy in terms of existing distribution and retail structure, specifically branded retail and specifically for U.K. or -- and Germany/the DACH region. The process of, say, revamping the network, which is actually not only physical distribution but ensuring that we have the right setup for third-party retail which is part digital, i.e. Amazon, and other channels, has been ongoing for some time. And that process will still be ongoing for the coming period, and there will still be indications of that moving into next year. So there's a bit of phasing that I think is worth noticing overall on the transformation on the retail side. That is reflecting -- reflected in where the growth is realized currently and how you should see growth being generated going forward, but overall we feel that we're from a transformation on the retail side, front-end side on a good track and complementing the transition that's been happening on the back-end supply chain and production side.Then moving to the next slide, Page 6, I wanted to share a few reflections on product platforms/partners, link it back to what I talked about earlier. We'll just start with the portfolio.We feel that we have a strong portfolio in the market now across the business. New products like the H8i and the H9i are performing very well, same with the relatively newly launched Eclipse TV and the BeoLab 50 and the E8 in-ear [indiscernible]. And at the same time, some of our core existing products that's been on the market for some time, like the BeoSound 1 -- BeoSound 2, the A1, Beoplay A9 and Beoplay H5 is still managing and still strong in the markets. So we feel that we have a good lineup of products. And parallel to the individual products and launches and keeping products alive within the markets, we've been working quite consistently now on ensuring a more consistent experience across products, across platforms, across the 2 business units. And we are making good progress there. And it links a little bit to the next point, on technology partnerships.So we feel, from a portfolio point of view, the way we deliver the portfolio, the experience, the consistency across, we're making big strides ahead now, which is obviously important for driving the growth going forward. On top of that, we have been developing our overall business and working on our supply chain, and I just wanted to share a few reflections here. So a couple of things that's been going on. One thing is we're moving for -- from a -- towards a more -- a less-proprietary environment where we to a large extent leverage the global ecosystems now. And that's why you've seen we've intensified our cooperations with Google, both for Google Voice assistance and Google Cast; and the same with Apple for AirPlay. So it's a reflection of we see the development that happens in the home on connectivity as a positive enabler of our business going forward. And therefore, we're engaging much more heavily with these partners, and you've seen a lot of recent announcements reflecting that. You should expect to see more. At the same time, from a technology production point of view, we have executed a couple of relatively big transformational partnerships over the last 6 to 12 month, and I just want to mention the key ones here.So LG, with the launch of the Eclipse TV recently. We effectively moved into a new operating model on TV production where we concentrate on the sound and connectivity part and the TV experience both from a driver and from a screen technology point of view. It's driven entirely by LG. And we've been successfully getting high-quality products out based in that relationship, and we expect to expand and develop our relationship with LG going forward based on that. And from a production point of view, we sold our assembly factory to Tymphany recently. And Tymphany is, by the way, I think a key partner for the pay -- PLAY portfolio based on their production facilities in Southeast Asia. So again here that partnership is coming together in a good way. And overall, you see that the changes we made now; and the move we made towards a more outsourced, a more partner-oriented approach to production is starting to kick in quite significantly on the bottom line, so reflecting a more scalable, agile setup on the supply chain side.So net-net we feel that we are in a good spot from a product point of view. We see the changes that we made on supply chain and the partnerships that we've engaged in both on the ecosystem side and on that production technology sides are kicking in as expected and planned. And from a market point of view, we see good traction, right traction in China and opportunities for positive development there. And we are getting very ready in U.S. to take the next step based on the revamp on the setup. And then for Europe, we will still be working through restructuring the distribution in the next periods, but net-net that leaves us to a performance and an outlook that is consistent with what we've guided on.So over to you, Anders, on the details.
Thank you very much, Henrik.So what I would like to do now is just go through the financial highlights and some of the details behind our financial performance here in the third quarter and year-to-date.So let's all move to the Page #8, where we see the financial highlights. As Henrik was saying from the beginning here, we realized a 10% growth; and measured in local currency, a 13% growth, which is on par with what we have guided for the year and also our expectations here for the third quarter. So all in all, a result that is pointing in the direction that we are looking into. I'll deep dive a little bit more on the revenue data on -- from a gross margin point of view, we are on par with what we have said earlier, so a little bit above the 40% marks this quarter, 41%. Compared to last year, there is a drop of 1.6 percent points. And there are specific reasons for that, that I just want to put extra words to just in a little bit here.As Henrik was saying, the whole operating model and our cost structure is moving in the direction that we have planned. So we're decreasing costs while we in parallel are increasing the revenue. And that formula is leading to an increased EBITDAC in the quarter, DKK 38 million, which were compared to last year. So net-net, a little bit more than DKK 100 million EBITDAC for the quarter and an EBIT result of DKK 50 million versus DKK 18 million last year. So all in all, a good, positive development in the profitability of the company, also resulting in a free positive cash flow of positive DKK 34 million.But let's move on now to Page #9 and just go a little bit into the sales results. So if we look at it from a business unit point of view, the third quarter, Bang & Olufsen business unit realized more or less flat development, a slight decline of 1%. Measured in the local currency, it's a small increase of 2%. And year-to-date, the segment is 4% growth for the first 9 months. So it's obviously the -- a quarter that's characterized with what Henrik was talking about, the launch of the relationship with LG, the Eclipse TVs. Our BeoLab 50's a great offering in terms of our speaker program and at the same time also affected by the continued transformation that we're doing in the retail network.When we look into the B&O PLAY business segment. We have a growth here of 25%. Local currency is 28%. And we are realizing now in the quarter revenue just around DKK 400 million. It's growth that is supported heavily and strongly by obviously the product portfolio that we have, products that's been in the market for some time and obviously also a product like E8 and the product H89 (sic) [ H8i ] and H9i that have been launched in Q2. And we see very good traction on these products.If we then deep dive into the regions, we can see here that the growth is more or less coming from China. And that is not, as Henrik was saying, a coincidence. There has been a lot of changes ongoing here over the last 12 to 18 months in China setting up both the e-com channels, the different regions in China and our partnerships; and building a strong momentum there. So that is what we have realized here in the third quarter, and good to see that we continue the growth that we have done so far year-to-date in China. The rest of the regions are more or less on par with where we were last year. Henrik talked to the reasoning in North America. When we look into Europe: Obviously, we have seen good tractions on our TVs that we're bringing to the market. And at the same time, we've been going through a process where we are looking into now a restructuring of the -- of Europe's setup that Henrik was also alluding to. So all in all, we are on par with what we expected here for the third quarter.Let's move to Page #11 and look at the gross margin.So let's just jump immediately to the thing or the number here that sticks out because there is a number of 34.7% versus last year 39.4% for the B&O PLAY margin here in the third quarter. So there are a couple of specific reasons for that. So when we some years ago started B&O PLAY, we have grown the market. We have grown the partnerships. We have expanded globally. We have set up a lot of contracts that have supported that journey that we have so far, but we're also now a different size of a company. We're in a different position. And it has been a joy from our side to look into some of these partnerships that we've started up to kind of reset the commercial agreements so we make sure that -- when we build the future growth in these areas, that we have the right setup that can support that growth. And in that context, we have decided to make some, you can say, one-off settlements that is protecting the future and also just taking into account that we've had partnerships for some years and we need to find a common way forward. That in particular have had an impact, a onetime settlement cost, here in the third quarter. It's not something that we expect moving forward, so we expect to be at the same levels, as previously communicated, for the fourth quarter and moving on. On top of that, we're also mentioning here that there has been some cleanups. There will also -- always be cleanups, but obviously when we're launching new products like new headphones, we will need to manage our inventory in a smart way, making sure that we optimize the full end-to-end value chain here. And in that context, that's also had a small impact on the margin.From an Bang & Olufsen point of view, we are a couple of percent points ahead of last year. That is also, you can say, the journey with LG, with our partnerships. That is good to see, that we see this positive development here. So all in all, we are, with the Bang & Olufsen margin, where we expect it to be.From a cost point of view, the formula of, you can say, transforming the business into a model where we work through partnerships is paying off in the sense that we are still capable of growing the business double digit and at the same time reducing our cost in this quarter by 4 percent points. That is the results of a lot of the initiatives that we have done in terms of changing the operating model, changing how deep we are in the value chain. At the same time, we are investing in sales and marketing, in particular where we have the growth and driving the brand moving forward in these areas. So within these numbers, there's still actually quite a good growth in driving and developing the market.When we then look into the product development and our focus on innovation. So just because that we're working with partners, it doesn't mean that we do not keep that same focus and same momentum. We just do it in a different way. In this quarter, you will see that we are realizing incurred development costs that are somewhat lower than what we have done earlier. That will continue, that number. We will also start to see, moving ahead, that depreciation will start to decrease from the fourth quarter and moving forward. And that's part of that transition that we are moving into, that we do the development and we tap into technologies with partners, making sure that we bring to the market the great, innovative products, but we do it in a different and smart way. And that's the impact on our numbers starting to show a little bit of here in the third quarter but will be more visible moving forward.So just want to make sure that we just spend a little bit time here understanding that impact in the third quarter.Then on the last slide here in terms of the financial, on Page 13, you will see that our cash flow is positive for the quarter. So there's a good relation between a positive EBIT and a positive cash flow, something about the health. At the same time, you can also see that our net working capital have increased from the second quarter through the third quarter. Obviously, this is driven by the fact that we are still growing the top line significantly. And behind these numbers is the fact that our receivables is the main driver of increased net working capital.I think, with that, Henrik, I'm going to leave over here the last part, in terms of the outlook, to you.
Yes. Thank you.So we move to Slide 15, and I just want to highlight sort of a few adjustments compared to outlook presented after last quarter.And we now guide growth about 10%. And previously, we have communicated around 10%. And that's obviously a reflection of the year-to-date growth, which is about 10%; and are underlining and are in alignment from the company's point of view that we will continue growth into Q4. And therefore, naturally we will be the -- above the 10% growth rate, so we don't expect to see a slowdown for the rest of the year. So that's one reflection still based on the assumption that PLAY will grow more than 20% compared to last year; and that the Bang & Olufsen business unit will be relatively flat, until now year-to-date approximately 4% but it will be in the flattish ballpark for the full year. And then we have made a slight adjustment to the guidance on the brand partnering side, where we previously guided in a range from DKK 160 million to DKK 200 million. And we now said that, that expectation is that will be within the low end of that range.And maybe just to share a few reflections on that. And overall, we find that the relationship with existing partners, specifically LG, HARMAN and HP, are moving in the right direction from a couple of points. One thing is financially we are on target and on plan, and we see opportunities for developing those partnerships over time. The other point and the other priority has been to engage in a dialogue with the partners more strategically around brand and positioning: maybe back to what I said earlier, the obvious need to be very, very clear on the positioning of Bang & Olufsen as a lifestyle and a luxury brand; and then usual benefits, a company and from a partner perspective, of driving that direction. And what we see here, as you know, is a positive response, so we feel that we are in a good spot with current partners both on financial and for opportunities of developing the relationships the right way more strategically going forward.So we can say, "So what's the reason for being slightly less bullish from a range point of view?" And a couple of reflections on that is that there are obviously ongoing discussions around new opportunities both with existing and new and not only one new partners. There will potentially be more partners; smaller, bigger deals going forward. But there's one specific larger deal that we've not concluded and will not conclude with a significant impact this fiscal year. And therefore, we have decided to guide more prudent for the full year. But again, overall we feel that the way we've positioned the brand partnering relationships within our business and moving in the right direction.A little bit long clarification, but since this has been a question that's been raised quite frequently, and I know there is quite a lot of interest around the role of brand partnering, I just want to make sure that, that clarification was there.And that means for the rest of the guidance on profitability, on EBITDAC we keep the guidance around between 8% to 10% for full year; EBIT around 3%, on a good track with the 6% that we delivered for Q3. And we expect the free cash flow for the full year on the positive side.So I think with that, we'd -- we'll conclude the formal walk through the presentation. And let's just leave the space open for questions.
[Operator Instructions] Our first question comes from Kristian Godiksen of SEB.
A couple of questions from my side. First of all, could you please confirm that -- the DKK 60 million in development cash costs in the third quarter here, is that then -- is that the run rate one should expect going forward and also in the coming years per quarter? And secondly, if you could give maybe a bit of flavor on the potential size of the license income on a full year basis for this potential new partner. And is this only a postponement, or is there something else one should be aware of? And then thirdly, if you could elaborate a bit on the store setup both regarding B1 and third-party retailers in size of numbers and in your strategy in regarding Greater China and also North America. And then I have a smaller follow-up question, but we can take that afterwards.
So let me start with the first one. So we are not giving a specific guidance on what will be the development costs for each quarter and moving forward, but you are right to include the fact that we will have a lower base than -- next year and in the following years than what we have in this year, also if you look year-to-date. What you can also look into is that -- I think we communicated that last time. It's that the ratio, the capitalization ratio, will be around 30%. This quarter, it's a little bit abnormal low, but overall it will be around 30% in terms of capitalization. But I cannot give a specific detail whether it's DKK 60 million in the coming quarters, but you have to assume that the current development costs will decline.
But is there something specific in this quarter and last quarter? Because in first quarter, it was DKK 110 million, so it's a big difference than my model whether it's...
Yes, yes, yes, absolutely. So remember that, in the first quarter, we have launched the Eclipse TV and we launched the BeoLab 50. And we also communicated at that time that the incurred development cost was higher than it would be in the coming quarters. So -- and that's what we see now, that we have a level here. And in this quarter, it's DKK 18 million lower than it was in the same quarter last year. So in that development that you see here year-over-year, and that's where you have to be a little bit careful, Kristian. It's that looking into a quarter can be a little bit difficult, but when you look year-over-year, there will be a decline next year on the development costs.
Yes, in absolute terms, but I was more thinking about the magnitude because, as you say, there is quite a large fluctuations between the quarters because, last year, you also had quarters of also plus DKK 100 million. And then you -- it was also in the 60s, 80s; and the year before, the same. So -- and it seems like sometimes Q4 is larger than other quarters. I can't see why that should be the case. I guess that's just coincidences...
No. That's based on launch. So that will only be based on launch time. And we have had launch of TVs actually in either Q4 or Q1 over the last couple of years, so that has been primarily driven by that. What you can say here is that in the previous operating model we have incurred significantly more of the investment. Therefore, the bumps or the changes that you see in the quarters have been high. Moving forward, most of our development is through partnership. Therefore, those kind of jumps will be much smaller, but they will always be there because there's a timing related to when you have your product development go into the market.
Okay, but on the DKK 60 million here this quarter then, is there -- are you developing anything less -- are you developing on less products than in a normal quarter? Just to get a feel for this new level. Is this a new level? Because that's just taken around DKK 20 million lower per quarter on average compared to last year. Is that the run rate? And how far in the process, how many years can you continue to lower your cash costs? Or are you basically through? Because as I remember, back in with the LG deal, you made that. Then you said it will ramp up gradually over the time you launch the LG TVs. And I guess it's there is still some way to go on that, so I guess it's just still carrying on going forward. Or...
So I think, as I said, Kristian, we will not give a specific number. We've been through the transformation. And there is not big things that will move the number significantly. So I can't give the specific numbers.
Okay, okay.
I'll just do a quick reflections on brand partnering. I think I was quite thorough in the way I walked through, so I don't think I have a lot to add. And the comment on the specific transaction was, and I covered them, it's not -- I mean there was one potential transaction that's not concluded. So that's it. That's where we are. It's not concluded. It will not be concluded this year, and therefore we will not add any sort of revenues associated with that potential transaction. And how it's going to play out is obviously it's going to play out based on where it's concluded and in what form or shape. So you will have to stay curious on that for a little bit more. And then I think, for me, and I think I made that comment -- and we see the future development of brand partnering. You should see that as a continuation of the relationships with existing partners. That's the expectation, so that -- there will be development within the context both in scope and approach. And you will see all the partnerships be manifested over time, be -- it might be smaller or bigger in nature, but that's where we are now. So no new guidance. We've been specific on this year. I will clarify it, where we will be, by end of the year based on what I just said. And then we can have the conversation, moving into next year, on how we set the targets and ambition as part of wrapping up the full year and setting ambitions going forward. And in terms of the number of stores, we've been through a process where we have to reduce the number of stores, be they across-the-board. It's happened in China. It's happened in U.S., and it's happened in Europe. And that's happening not as an explicit exercise of reducing number of stores, but it happened in the context of ensuring that the stores we have, have the right performance and right quality not only from our point of view but from the store owners' and the partners' point of view. So that will be an ongoing process, but at the same time, we are now getting much more clarity in terms of where do we need from -- not only from a store, physical store, but from an overall channel structure, where do we need to be longer term. The -- part of that will be discussions with partners. I think I alluded to the fact that for China specifically we feel like we are in good control on the digital space. And that's obviously absolutely key in China, but at the same time, we are specifically engaging now with regional partners that will take -- will be part of the step-up you would see on the physical side. Similar discussions are ongoing right now for Europe and U.S. So we're not guiding more specifically here, but I would sort of commit to the fact that, when those discussions are concluded towards, say, end of the year, we'll use the opportunity communicating after Q4 much more explicitly around how we see not only stores, physical stores, branded stores, but see them in the overall context of channels and split going forward by region.
Okay. Just if I may, just 2 quick follow-ups. I think, first of all, on the potential brand partnering, yes, just wondering. And fair enough you can't give any flavor on the number, but is it more confidence whether -- your view, whether this is just a postponement? Or there is something more structural...
I don't have more comments to that, Kristian. I think I've been quite explicit about that. I think that brand partnering as a business evolves the way we like to see it in the context of the overall business. And the only reason why we spend a little bit more time on that was because we have had a specific discussion around one potential partnership, but that's not overriding the overall strategy of the company.
Sure. No, no, I -- that wasn't what I alluded to, but fair enough. On the distribution development, I guess, 16 stores. You have indeed 1 on North America. That doesn't seem very ambitious. Is that where the potential partners could accelerate that opening stores? Or how would you...
I think you'll see in our -- I think across-the-board we see a potential for creating physical mono-branded setups, largely in partnerships with professional retail players. We definitely see that across-the-board. I think as -- we've said that the priority has been, in the short to medium term, to ensure the quality. And what couldn't stand, we had let go. So you can see that we've been through quite a significant, you can say, cleanup both in U.S. and frankly in China as well as part of Europe. And that process will still be ongoing, but we are pretty far in China and U.S., so the conversation is now on how do we more target it, build up, where we are further ahead in China, so we can have a more broad-based approach to China. Even though China is a big place, we sort of we know the 6 regions that we know and how we want to approach and what kind of partners we want to engage with. For U.S. you will see a more targeted approach. So when we re-baseline, which is happening as we speak, we will see a more focused approach coming to America which will be more West and East Coast based. And then we will build up from that. And that's where you will see the initial expansion on the retail side, not dramatic but gradually building up.
Okay. And that will also include B1 stores. Or will that also only be third-party retailers?
It will require -- it will involve branded, mono-branded, stores. Okay, let's move on.
And our next question comes from Poul Jessen of Danske Bank.
A few questions and also some follow-ups on Kristian here about the brand partnering. I was just wondering. If you move down to the low end of your guidance, is then underlying performance of your brand partnering which is below what you look for? Or are there any upfront payments from the new partner? Is that -- as there is a difference of DKK 40 million from the top to the low end of that range. Second question is on China. The partnership with Sparkle Roll assume that you've also recognized that there is a lot of turmoil around Sparkle Roll right now. Can you elaborate a little on how important that is for your Chinese business despite a real partnership? Or is it more or mainly an online market for you now? And then thirdly, on the guidance you gave for the Bang & Olufsen part where you maintained the flattish performance. Despite moving down on the royalty side, you are actually seeing a little more-than-expected positive development in the product business of the Bang & Olufsen than earlier.
Let me just walk through on -- I mean I -- again I'll reiterate what I said around brand partnering. I actually feel that we are in a healthy spot there. I mean there are no changes on assumptions on our side on running business with the key partners, no. And I would actually say that, the quality of the conversations around where we want to take the business, because this is not only about license revenues, it's about doing the right things and explore the cooperation much more on brand going forward, we are quite aligned, and to the fact that having specific discussion of what that means in terms of how we're going to drive the business at the market level as well. So I feel that that's acting in a very healthy space. So that will be my overall comment. And I think that the conversation we have with potential new partners, I think, are where they frankly should be now based on the insights we have; and again, are healthy, strategically right and on brand. So that will be my conclusion. So overall we feel that we are comfortable with the role of brand partnering in the business and that we are now doing the right things with both existing and potential new partners. On Sparkle Roll, and I mean Sparkle Roll for us -- is it's one of our partners. And I alluded to the fact that for China we will have a combination of partners for online, digital and physical distribution. I think we've -- and you'll see Sparkle Roll as part of that mix going forward. We are happy, and I'm sure that they are happy, with the relationship we have, but they will be one of more partners focusing on specific parts of the Chinese geography going forward. And on guidance, I will say overall we feel that we are, for the Bang & Olufsen business, where we should be, so no bigger changes now. So it's a combination of what you would call the product business and the brand partnering business. It's still largely at the level with what we thought when we guided. So we stick to our guidance around flattish for the total business for the year.
And we have a follow-up question from Kristian Godiksen of SEB.
It was just the follow-up one on the [indiscernible] part where -- should we expect an improvement in the gross margin going forward? And within the Bang & Olufsen, as -- is it only the Eclipse that's being produced by Tymphany? And will there be a ramp-up now that it is being produced by Tymphany? How do you see that play out?
I should take that. So what we have seen actually throughout the year is that we have improved the margins in the Bang & Olufsen segment. And we have also improved our margins in TVs and digital solution. That was the formula forward. And I think now we are at a level here where that is a sustainable level that you see for Bang & Olufsen also moving forward. There are no particular, you can say, additional guidance on the gross margin for Bang & Olufsen. We've communicated that earlier, that we believe that we will be around the 40% for the full year; and we are tracking on that part. And a part of that equation is obviously that Bang & Olufsen is improving compared to last year, which we have delivered here in the first 3 quarters. And moving forward, Kristian, that's the level. And that's the guidance we can give right now.
And our next question comes from Michael Rasmussen of ABG.
Three questions. I would like to start up by asking into the working capital. Just structurally, is there anything from either the LG or -- and/or symphony (sic) [ Tymphany ] deal that is going to change the net working capital as we move in during the course of '17, '18; and also as we move forward? And another question on working capital: Structurally, is there anything changing in terms of as you move from more wholesale revenues to more retail revenues? I mean, can you isolate those 2 impacts? Because obviously I know that your net working capital is impacted by campaigns and so on, but if you could just add a little bit more flavor on that. My second question is going back on the brand partner income. Is the share of license revenue up or down in the B&O segment quarter-over-quarter? And my final question is on the Bang & Olufsen segment also. Is the sales of Eclipse still moving ahead of expectations in the third quarter?
So let me just take the first one on the net working capital. So net working capital, we do not expect -- if I understand the question right, then you're saying is the partnerships with LG and Tymphany in the future going to impact how we look at net working capital. And the answer is no because we have set up the business. And it's now 12 months, you can say, running business with LG, with Tymphany in terms of how that's set up. So if you just go a little bit back, historically we have moved from 3, 4 years ago around 30% net working capital in percent of revenue down to below 20%, down to the level of 12% to 14%. And here recently we have said that we will be within the range 5% to 7% net working capital, and that's the level where we expect it to be. And there are no, you can say, other elements right now that are changing that part. You were then asking to -- and perhaps I just need to understand it because you were saying that we're moving from wholesale to retail. It's just...
I actually meant the other way around.
Yes, okay, super, super. Yes. So it is such a small impact of stores that we own ourselves today, so we don't foresee any change overall on the net working capital percentages here, no.
Okay, so -- but how do you then explain the move? Because revenues are down on a sequential basis, but working capital is worse in the third quarter. Any specifically in terms of some campaigns that you can highlight or something?
So we will always run campaigns. We have had a very high second quarter. We have had a very high third quarter. And there will always be campaigns, and we see these as a natural development in the receivables.
And just a quick comment, I mean, on TVs that we alluded to, yes. I think that, based on the campaign activity, based on we've seen, that business developed, develops as planned or, I mean, slightly better, but it's not sort of a dramatic difference to what we had thought and expected. And we see sort of a natural progressing -- progression, so the TV plays the role we had expected in our portfolio and does that on a continuous basis moving into the next couple of quarters. So I think that's the guidance. And there was a question about brand partnering. There will be no more details around that, I think, we've guided overall. We made the clarification now in terms of where we are in the range. And I have talked about the overall health of the business and the fact that we are at the same time managing license revenues and ensuring that the way we develop those relationships, our own brand, in the right way going forward.
[Operator Instructions] As there are no further questions, I will hand back to our speakers for their closing comments.
Yes. This is Henrik again, yes. Well, I just want to say thank you again for participating in the call. Thanks for good and fair questions. Hopefully, we provide a bit of additionally guidance, if not everything you wanted, but -- and thanks again. And overall we are sort of left with a quarter that we think in -- is in a significant step in the right direction. And yes, we're looking forward to talk to you all after fourth quarter.Thank you very much, and have a nice day.