Bang & Olufsen A/S
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Bang & Olufsen A/S
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Welcome to the Bang & Olufsen Interim Report Fourth Quarter 2019/2020. [Operator Instructions] Today, I'm pleased to present CEO, Kristian Teär. Please begin.
Thank you. Good morning, everybody, and apologies for being a few minutes late, and thank you for joining the call. With me today, I have our CFO, Nikolaj Wendelboe. And as you all saw today, we'll talk about our short-term strategic initiatives. We have also invited Christian Birk, our Head of Marketing and Digital and Customer Experience; and Christoffer Poulsen, Head of Product Management, who will be available for the Q&A session. As you know, our original plan was to host a Capital Markets Day tomorrow. I've really been looking forward to presenting our thinking for the next couple of years as well as presenting my team, who will be driving these changes as we are making to the business. And what we could, of course, not plan for was the world being impacted by a global pandemic. This has impacted our financial outlook and has furthermore created a lot of uncertainty. Therefore, given these extraordinary circumstances we are in, we will today focus more on the short-term activities, but we will also inform you about the strategic direction for the future. Before we come to the strategic update, we would like to quickly go through the financial performance for Q3. On March 13, we published our preliminary numbers. We had to revise our currency exposure, and our revenue declined by 14% in local currencies instead of 12% as stated in our preliminary numbers. Reported revenue remains unchanged compared to preliminary numbers of DKK 613 million. Just to restate what we said on March 13, Q3 was overall as we had expected. China was the first country to be impacted by COVID-19, and we did see an impact in the last part of the quarter related to in-store traffic, whereas online sales and business-to-business was as expected throughout the quarter. Product availability from production partners was only marginally impacted by COVID-19 in Q3. The EBIT margin before special items was positive with 0.3% in the quarter, which is encouraging. Likewise, we delivered a positive free cash flow for the quarter, driven by both development in EBITDA as well as the net working capital. We maintain the guidance announced on March 13, and I will now turn over to Nikolaj, who will go through the financials in greater detail.
Thank you, Kristian, and please turn to Page 5. As Kristian said, revenue was DKK 613 million in Q3, which was a decline of 14% compared to last year, and the decline in revenue was overall as expected. Although COVID-19 start spreading in late December, it only had a marginal impact on our performance, where revenue was also supported by product launches. On the positive side, Western Europe was in line with last year, and our brand partnering activities grew by 27%, still reflecting the increase in revenue from brand licensing from our long-term partners. Gross margin declined by 5.3 percentage points and 2.7 percentage points, if we exclude the effects of currency hedges. The decline compared to last year was primarily driven by sales end-of-life products at lower prices and higher logistics costs. EBIT margin before special items was 0.3%. The margin was impacted by a decline in revenue and lower gross margin, whereas capacity costs were lower and therefore, offset some of the negative effects from lower sales. That bring us to earnings after tax, which was negative by DKK 275 million, the result was impacted by an impairment charge relating to our deferred tax assets. The impairment chart reflects that we have decided to use a more conservative assessment of the deferred tax assets. It's important for me to stress that this has no cash effect for company. Please turn to Page 6. Revenue declined in all 3 regions, but different factors in each region contributed to the decline. Across all regions, the Staged category is on par, all growing compared to last year, which is explained by the launch of Staged and Harmony. Also across region, the decline was primarily in the On-the-go category related to headphones and earphones impacted by our consolidation of multibrand points of sale.Please turn to Page 7. Our capacity cost declined in the quarter, which was related to development cost and distribution marketing costs. Development costs declined by DKK 18 million compared to the same period last year. DKK 10 million reflected lower amortizations. Incurred development costs were down by DKK 9 million. This was due to timing of expenses and does not reflect a change or reduction in activity level. Distribution and marketing declined by 16%. As we also talked about, in the second quarter, we have focused part of our marketing spend towards upgrading in-store fixtures and execution and these costs are capitalized. Our administration costs grew by DKK 3 million. This was due to DKK 3 million special items related to our cost reduction program. Please turn to Page 8. The total CapEx was DKK 53 million in Q3, which was DKK 17 million higher than last year. CapEx reflected both the development of new products and technology and investments into store fixtures. We continue to see a reduction in net working capital and is now at DKK 366 million. We succeeded again in Q3 in delivering a positive free cash flow of DKK 39 million due to the improved net working capital position and positive EBITDA. Finally, the net cash position was DKK 102 million. Excluding the effect of leasing-related interest-bearing liabilities, the net cash position was DKK 285 million. By the end of the third quarter, our cash position were DKK 327 million, and we strengthened our cash position by DKK 29 million in the quarter. And with that, I would like to hand the word back to you, Kristian.
Thank you, Nikolaj. So if you look at our outlook then for 2019 and 2020, our outlook is unchanged compared to the outlook published on March 13. The outlook reflects the increased uncertainty with COVID-19 that has happened in the world. We will see negative effects of temporary store closures and quarantine measures. We are, of course, working with different mitigating activities. This includes applying for government relief packages as well as collaborating with our partners. We will adapt our sales and marketing activation between offline and online to support local market conditions as COVID-19 develops. We have maintained our plans for product launches in Q4. We have not been materially impacted by production constraints so far, but COVID-19 is, of course, a risk in this respect as well, and some uncertainty thus remains. Finally, we expect to see an increased overdue debtors following the temporary store closures and reduced traffic because of COVID-19. Based on these assumptions, we maintain our guidance as stated before. And now, I would like to move into our strategy update. So if you change the page and go to the next page. What we have done with the strategy is a strategy that will bring B&O safely into the future. Following our disappointing financial performance for the first half of 2019 and '20, we decided to launch a strategy process. The purpose was to uncover symptoms and root causes for our poor performance and to design solutions for a turnaround in the short to medium term. While past years of transformation at Bang & Olufsen have gradually built a strong and scalable business model, fundamental issues remain unsolved. And scaling the current business without resolving fundamental issues comes at the risk of diminishing returns on our growth investments. Our new strategic direction therefore materializes in 2 lanes. Lane 1 outlines how we intend to fix the basics in our core business to restore a healthy and profitable profit and loss statement. Lane 2, describes how we will reorientate our business towards a more focused growth.If we move on to next slide, I've decided, because we could not meet, that you would meet my team that I have put in place to embark on this journey. And we have extended and expanded the group leadership team to 12 members, and you can see all the members here as well. We have also included our regional managers into the group leadership team to get closer to the customers and get closer to our business. We have also appointed a new Head of Europe, who will start 1st of May, and his name is Jorge Aguiar. At the same time, we have broken out omnichannel out of the combined organization, Omichannel and Europe, and Arnaud will continue to lead that organization. We have also included product management, which is an important function, into the group leadership team. We have consolidated marketing in the one function under Christian Birk. The other functions remain the same. But by doing these changes, I believe we have created a very, very strong leadership team that will execute on this strategy that I will now lay out for you. If we move to the next slide, what you know that we have already started on doing is strengthening our sales organization. And I said when I'm joined that we needed to strengthen sales and marketing and we started to do that already immediately by removing a layer in the headquarter function, by removing Brand and Markets. We also have taken further steps in Europe where we have broken 4 clusters into 7 clusters. We have appointed to a new European leader and we have appointed 3 other cluster leaders. The new leader for the U.K. has been announced yesterday as well, and the remaining leaders will be announced in due course. We will also in these key European markets, build a full organizational team with all functions, being capable of executing on monobrand as well as multibrand and as well as on digital as well as on B2B. So by putting a complete team in place for sales and marketing in our key markets, we will believe we will have a better outcome and a more successful outcome. We have also as announced previously, started a cost reduction program. And we have announced that we target for next year to save DKK 175 million. And we are already executing on this, and we have, unfortunately then, had to lay off 115 employees, and we have announced that, which is sad but is necessary to get the cost in level with our revenues. We are mainly doing this in administration and we're doing this by simplifying the organization and by taking it out in nonproduct-related spend, so to continue to keep a strong product development organization, continue with product management and continue with the strong sales and marketing organization. And I already mentioned that we have flattened the organization, and we are making a bigger group leadership team.Then due to corona, we have decided to accelerate our digital efforts. As you know, we have already had the digital in our strategy, and digital is an important part of everybody's -- and all companies' strategy these days. And we also have digital as a very important portion of our strategy. Now we are accelerating that, and we're going to do more digitally in the countries where our offline business is currently closed. And there is a lot of things that we can do still, and the way that we activate our -- the customer base that we have and the way that we interact with new customers, we're going to do it digitally instead. So we are ramping that one up and accelerating this work.If we move to the next slide, we still have issues to fix, and we have divided them up into 5 issues that you can see here. We need to get closer to our consumers. We need to understand our consumers, and we need to support our consumers better. And we are putting a new CRM program in place, and we are changing some of our policies, together with our monobrand partners, on how we serve and how we better can serve our consumers. And we are also revisiting some of our products to see how we can improve the user experience further and make a better and a much simpler user experience. Also -- we have an amazing brand, the brand is well-recognized by everybody, but we haven't fully realized the potential of the brand. We have not been very clear and specific on who our target audiences and the target personas are. We have, in the new strategy, identified clearly 4 target personas that our marketing will target, our product development will target, our sales and marketing will target. So we will get some alignment around the activities that we do toward these 4 personas. And we will come back to who they are and what they are. Retail, monobrand and multibrand. We still have more potential in retail. We know from the stores that we have upgraded into our new store concept that we do get growth. And we are continuing that journey when it comes to monobrand stores by moving stores into the right locations, making them in the right size with the right outfit and with the right assortment and with the right training. We know we can get growth from monobrand retail. Also multibrand will continue to play an important role. We similarly have proof points here that when we do multibrand right and when we put the right resources in place, we do get return on investment and also our partners do get return on investment. So we'll continue that journey and we will primarily focus on the focus markets that we'll come back to in a second and put a full resource team with the right competencies in to go and do that. Then also on the product side. We will, for next year, launch more products than what we have done in recent years, which is encouraging, and we are working hard on that product road map. We have, in the past, missed, time-wise, some of the big trends that have been happening on the product side. And we aim to catch up with that. And of course, be more on par with when big trends are happening in the market. And by understanding technology and by working together with technology partners, I think we have a good chance of doing that. Then, like I already said, we have put a new organization -- a new organizational structure in place, both in the headquarters, but also in the key markets, and we will continue to strengthen our local organizations, our sales and marketing organizations, our product development organization and product management organization and support, primarily again, the key markets. So if we move away to next slide. You will see that we have -- actually, also a lot of good things that has happened to us over the last 10 years that we will continue to build on. We have, when we launched Play, actually become a younger brand and we have started to target the younger audience. And they're fully aware of our products. We have had great success over the last couple of years in China, and with the Chinese luxury consumer. And we intend to continue to build on that success in China. And as you will see as well, China is, and will be, one of our key priority markets. We also have, as you know, amazing products, and we have had amazing designed products and crafted products and sound products. In the past, many of these products were wired but we have been going through this transition now of making more and more of our portfolio wireless and more and more of our portfolio is software-feature defined and we have a strong software team in place and we will continue to strengthen that software team and build on that. And we have, today, 2 platforms that we're using across our product portfolio, and the product balance that we have recently have launched is launched on this new software platform that will enable us to launch products faster and with higher quality and with a better and a consistent user experience going forward. We have been fortunate to have a monobrand network and our own distribution. We will continue to work with our own distribution with the right partners, win in the right places and strengthen them. But in parallel, of course, as well, continue with multibrand, with lifestyle stores and make a big effort on the digital side. And as you know from previous calls we have had, we will continue with a sell-out-focused model. We will not sell-in unless there's demand for the product. Then we also have, and we have created over the years, an asset-light operating model, which is serving us well, gives us flexibility to ramp costs down but also to ramp production capacity up and we have some good partners here, and we'll continue to work with them when it comes to our operating model and production model. If you move to the next slide, you can see some of our strong and solid foundation that we are standing on, everything built on craft and design and sound performance. And we have -- and we are the only one who have a global luxury brand in the consumer electronic space. And we will continue to be that luxury brand in the consumer electronic space. And we are recognized for that worldwide, which is a fantastic asset for us and also fantastic opportunity to continue to build on, and I'll come back to that a little bit later. We also have some really amazing and iconic products. And we have, this year, launched some amazing products. We still have some amazing products to be launched for this year. But also for next year then, we have a very solid and strong product road map that is better than this year and more products than this year but also than in many previous years. And we also do have in-house capabilities that are unique in terms of sound understanding, in terms of sound labs and in terms of capabilities in acoustics that nobody else has. And we will, of course, continue to build on these capabilities, and that is enabling us to make and amazing designs and use amazing materials that still sounds really, really good. And then we know from the proof points and from the assessments that we have done, that our model is actually scalable, and that is good news for us. And we, of course, will continue to scale our business as we move forward. Then -- finally then, when we are a consumer-centric company. We put the consumers in the center of everything we do. We'll continue to do that. And with a new marketing organization and with product management being onboard, we will be able to build strong and better products for the future and better experiences for the future for these 4 specific consumer segments that we have defined.If we move to the next slide, our future aspiration is to regain strength and fast. The first wave in this, and that is where we have spent a lot of time and we will continue to spend a lot of time, it's to get back into black, it's to make money. And we haven't made money up till now in recent quarters, and we will have to make sure that we do make money. And the efforts that we have done since I joined has been to strengthen, of course, our sales and marketing, but now we have also taken cost out, and we will become a more efficient organization by doing that, and we will balance our cost side with our revenue side. And when we don't make any money, the only priority is to make money. Also then in this work, it comes to fixing basics and setting a solid baseline in place and a solid basement in place, and we will come back to that on the subsequent slides as well. This is part of our core focus for the remaining part of this year and also well into next year. To make money, to become back to profitability. I will not give an outlook how quickly this can happen, but you can rest assured that we are putting in all our efforts we can to make this happen as quickly as we can. When that is done, then, of course, we will continue to grow our business and good news is that our business is scalable. And we know that we have the capability of growing the business. And then if we look even further out, we know that we are playing in an industry that is growing. Both the consumer electronic industry is growing, our -- the luxury industry is growing and by being in the combination of these 2 industries, we have a possibility to grow with the market and faster than the market. So in these 3 waves is how we're going to execute the strategy. So if we come back to -- move to the next slide and we start looking at what we actually are then doing, short-term for the next 12 months and maybe beyond that even, is to execute on this strategy house that you see. And if you allow me to walk you through this house from the bottom-up, it is, like, I said, it starts with the basement. We need to control the controllables, have a cost base that is matching the revenue base that we foresee. And with the adjustments that we have announced and with the cost and the fitness program that we have executed and are executing on, we believe we have found that equilibrium. Then it's about focus because we can't be everywhere for everybody anytime. So we have decided to focus on countries and customers and partners where we have high probability to find money, so time-to-money, effort-to-money, probability-to-money and also where we have had strongholds in the past where our brand is the strongest and where we have the distribution and where we then, quickest, can gain traction -- regain traction for our business. We have decided to focus on 6 European markets that you can see there. So it's Denmark, it's Germany, it's France, it's U.K., it's Switzerland and it's Spain. And in these 6 countries, we will invest and we will execute fully on the strategy, fully on monobrand, fully on multibrand, fully on digital, fully on B2B and win these countries first before we move on with the same full efforts into all other countries. There are other countries, of course, where we do business today that are not mentioned among these 6. And we will continue to do business with these countries. And we will continue to serve them but where we really will focus on executing our strategy will be on these 6 markets, plus China, which I will come back to. Then it's about products, and I already said, I feel very good about the product portfolio that we have developed during this year that we have in front of us. But there are certain things that we want to do better in the product portfolio as well. And we're working hard on those improvements, predominantly in the user experience. And also to make sure that our products are launched at the right time, 4 seasons with the right quality and, of course, are sold with the right marketing and with the right sales force. I also feel good about that. And as I've said, we have more launches ahead of us than we have had this year, so I also feel good about that. Then on the fourth floor in this house, we have China. And we have been doing very, very well in China over many years. And China will continue to be an important part for anybody in luxury and anybody in consumer electronics. And for us then, being in both of these spaces, China will continue to play an important role. And we will double down on our efforts to build an organization locally in China, but also the way that we support them from headquarters and from other support functions. Then on the fifth floor in this house, we have our brand partnering business and brand licensing business. That is a business that is doing very well. We -- as Nikolaj and I said, we grew 27% in Q3 and we have long-term contracts in place with many of our partners here, and we will continue to develop the partnerships that we have. But we also have, which is very encouraging, engaged with many other opportunities for brand partnering and brand licensing. We have, over the last couple of quarters, developed a very strong funnel for new brand partnering and brand licensing that we will come back and tell you about more in due time when the contracts have been finally approved for publication. So those are the 4 -- 5 floors in the house. Then the sixth floor, we have -- it's not really on the attic, but it's almost on the attic. We have brand marketing and sales that of course would cut across all the other floors in making sure that we do sales and marketing properly and that we use our brand strengths properly. The online platform and the few digital, I already spoke about. That is, of course, key, and we will accelerate that now in corona times. And then it's all about people, and it's all about having the right talent and the right people in place and we have strengthened our organization. Then you see 3 more growth opportunities outside here and we have lot of opportunities outside the house as well. But we need to prioritize them, and we have prioritized them into B2B and large B2B opportunities. We are working in the telecom space. The telecom providers are looking -- are already present in the living rooms, and we're looking to being part of their living room experience and we're working with some of the world's biggest telecom operators here. We are pursuing the U.S., in case you wondered what happened with the U.S., but we have realized that we need to find a partner to be able to scale the U.S. And there are a few big partners out there that many of the other brands in the consumer electronic space are using that is offering the services to us in terms of fulfillment, in terms of distribution, in terms of sales and marketing, and we are engaging with these partners now to help us to grow in the U.S., but also to help us to be efficient and effective in the other parts of the world where we are not focusing our own effort. Then we have the high-net-worth individuals. People with a lot of money that we have not particularly targeted in the past, and we will put in extra effort and we have understood on how the purchasing process is happening with these individuals and therefore, we will, of course, adapt accordingly and make sure that we are present in the places and -- -- with proper marketing and marketing programs in place to address the opportunity that we see without the high net worth individuals. So that is the short term, and that is really to get back into black, to make money and to set a solid foundation. Then the long-term strategy, if we move to the next slide, is happening in parallel. And of course, the impact -- some of these impacts will take a long time to execute on. We have, as I said, identified 4 consumer target segments that we're going to address. It has been well researched. This work has been going on for a while. And they are the Gen Z of the world, which is the new, younger target audience. We have a lot of Gen Zs in China, we have a lot of luxury Gen Z customers in China, and we also know that these luxury Gen Z customers are coming to Europe and are shopping in Europe. So we will target them. We have the careerists. We have the well-established. Those are -- already many of them are our customers today, and we will continue to serve them, but we have defined them into 2 different personas. And then we have the high-net-worth individuals that we have really not specifically targeted before as the fourth target persona. So that is what we're going to build products for, develop products for, experiences for and do our sales and marketing for. If we move to the next slide, you will see that we will keep our 3 use cases. We will keep On-the-go. We will keep Flexible Living and we will keep Staged. What we will do, however, is that we will add 3 more capabilities to these use cases. We will start to offer much more limited editions and much more bespoke opportunities. When our customers, and we know that there's a request from this customer segment to have bespoke products, and they appreciate limited edition products. It's also good for us to do special editions and limited editions for channel differentiation when we go to monobrand and multibrand. And we have amazing capabilities in Struer and in the world when it comes to doing crafts -- craftsmanship in aluminum and in wood that nobody else can, that we haven't fully utilized that we'll start to utilize across these 3 product categories. We will also put a Beo classic program in place. There's a lot of interest on our older products and keep them alive. Also from longevity and from a sustainability point of view, this has been much requested, and our products have a much longer life span than any other consumer electronics. And many of our customers want them updated and want them refurbished and we will, with the program in place, offer that type of services as well. So in summary, for the products portfolio -- sorry, in summary, we move to distribution. We will continue to work with monobrand, multibrand and e-commerce. And we will focus on, like I said, certain markets for this. We will continue to make sure that we have stores in the right place, to have the right store staff training and that we are able to look after our customers fully in all those focused countries that we're going for, both for multibrand, monobrand, and e-commerce. And we're putting those resources in place as we speak. Then if we move to the capabilities that we have that will help us to win and that we will differentiate with. We will continue to be differentiated by design, sound and craftsmanship. Those are unique capabilities that has formed our past and will form our future. But we will add to that, limited editions, a classical program, a bespoke program and continue to work with, and we have interesting opportunities for more brand collaborations that we will announce going forward. We also have an influencer program and key opinion leader program that we're putting in place that will help us to drive sales. And then of course, do special appearances in terms of pop-ups and PUS collaborations. So this will help our portfolio to differentiate and, of course, our products to win against competition. So if we turn to the final slide. So in summary, what we are going to do over the short period of time and then that will also take us into the future, is to make sure that we make money, that we have a cost due that is sized to the revenues that we foresee. We have, as I already said, put many efforts and already many activities in place for this with new organizations, with new people, with new talent. We're focusing on 7 key countries where we're going to build our capabilities up to the full extent. We have more and better products coming, and we know what insights on the current portfolio are and we know what the insights for the future consumers are, and we will continue to build products for that. And then we have an amazing brand that is recognized across the world, that will give us, I would say, a unique opportunity to continue to work with big partners in the technology space, which we're already doing; in the distribution space, to help us to win in new territories and win new markets; and also of course, then for brand partnering and brand licensing, where we will add value to the products and to other brands that we will continue collaboration with. So in summary, those are the 4 things that we will do long-term and that will bring us back to growth and profitability. So that concludes my strategic directional update. And we are now ready to take your questions.
[Operator Instructions] Our first question comes from the line of André Thormann of ABG.
Just to start off. I mean in terms of the strategy on these 7 key markets, I hope I don't overlook it, but what about U.S.? That's not part of it and why?
Thank you, André. Thank you for your question. I'm sorry if I skipped through too quickly. If you look on the house slide, you will see that the growth opportunities that we have, there is an American flag in strategic partnerships. We will continue to work with the current partners that we have in U.S. We have monobrand stores. We just opened our SoHo store. We have multibrand partners with Neiman Marcus and with Hudson's and airport. We will continue to do that. The challenge we have in the U.S. is a huge opportunity for us. It's also a huge continent and to scale that and to get scale quicker, we believe we need to find a partner that will help us to scale the U.S. market. Good news is that this is what most companies are doing. This is also what Apple did in the beginning when they launched their iPhone back in 2007. They founded a telecom carrier that became their partner and the go-to-market model and they scaled by doing that. This is also the way they currently operate in the U.S. They are not doing all of the work themselves even though they are one of the biggest companies in the world. So we have been and are in talks with many of the big distribution partners that are present in the North American market, and in the global market for that matter as well. And we are currently exploring ways of partnering with them to get full leverage of the U.S. market. And to be able to grow quicker there. Otherwise, if we, as a small company, would go and do that all by ourselves, it will be a very costly exercise and would take very long period of time. So good news is there seems to be many who are interested in partnering with us and helping us to get our products out to the American consumers as well. And that's why they're not in the house, but they're in the separate ring in the middle.
Okay, okay. Yes, and in terms of the brand partnering, I mean is there anything more specific to say about that? Is it primarily new partners? Or is it to -- do you see further potential within your existing partners? I mean can you give some more -- small flavor on what you see there?
So we have a few very good partnerships already, and many of those are long-term partnerships. And we'll continue to expand those partnerships. And I will not announce anything here, but of course, when we have contracts to announce, we will do that. But we have been working with, like I said, in a very diligent way with our brand partnering team on a sales funnel, and we are in contact with many big global players who have an interest in the capabilities that we have in terms of sound tuning, in terms of understanding sound and then of course, also that have an interest in using our name to show that they have an enhanced sound performance in their products. And we will disclose those contracts when they are disclosed, so to speak. But there is a funnel, and we're very happy about that. And that will continue to be a strategic cornerstone in our strategy going forward. That's what I will say about that today.
Okay. But in the -- I -- if the Q3 numbers, I mean which increased these assets 26% or 27%, did anything especially happened there? Was it just the existing portfolio of partners?
No. The existing portfolio of partners also has drove that, so they sold more. They were successful, and we have teamed up with products that they have that were successful, and that's why we got growth.
Okay. And maybe then the last about strategy. In terms of this target on younger people, primarily in Asia, I mean does that -- looking at the slides, it seems that you focus more on these On-the-go products in Asia. Is there any consideration in terms of pricing of products in the strategy? Or will that remain as unchanged in...
So I'll introduce you to my new team member, Christian Birk, who is heading up marketing, who will be able to answer both your questions on Gen Z and pricing.
So thank you for the question, André. So specifically for the younger segment, what we do see, as Kristian referenced, is there is huge growth in luxury around Gen Z segment in China. We definitely intend to make sure that we have our share of that. We see our products resonate with Gen Z also in China, and we see the majority of Chinese luxury purchases are actually also made outside of China, which is how it affects, you can say, also our European and North American operations. Why we called it out specifically here is because this specific segment live in a different world than some of our other segments. And so we are installing efforts both on the marketing side and channel side to make sure that we are present in front of those segments at the right channels where they interact currently.On pricing specifically, we -- I don't think announcing any sort of pricing specifics here as part of strategy, but what we do see is that our brand resonates with this audience. There is definitely a willingness to pay in the Gen Z segment when it comes to our products. And so we have not sort of made any, you can say, reflections beyond the fact that we really want this segment and there seems to be an appreciation for our brand and our products in this segment, and we want to chase that opportunity even further than what we do today.
Just to understand here. In terms of the younger crowd in China, the primary focus to target, and that is On-the-go products, right?
Yes, that is correct.
Okay. And then I mean you previously mentioned that the competition on at least headsets is -- it's very hard, the competition. And for example, if we see launches from Bose, the Bose 700 and 719 (sic) [ 791 ]. Can you mention some more about what you will do to target this? Is it purely to announce new products? Or what is it?
I think what we see interesting in our brand versus some of the competition in the industry is we're not just delivering great sound capabilities. We're also delivering a lot of other capabilities that this segment really buys into. And so our craftsmanship, our designs, our appreciation for sustainability are things that resonates with this audience. So from that perspective, what we see, and we talk to quite a few of them, is there seems to be a great match between what we offer and what they ultimately want to bring into their lives in terms of luxury accessories and personal accessories, which goes beyond just a great headset.
Don't you also see that the competitors are focusing increasingly more on design in On-the-go products?
We see there is an appreciation for design, for sure. And everyone wants to make this a key differentiator, you can say, and there is an appreciation also within the audience that this is part of the buying decision. We just feel that this has been part of our DNA for the last 95 years, and we have a great starting point for delivering on a design proposition that takes us ahead of competition specifically around that.
Okay, okay. And then maybe on some other matters. Just in terms of this cost program, these 150 -- 115 employees, primarily in the support functions, they also spoke about it in the call a week ago. Just to be sure, how many employees do you have in support functions and so on?
Thank you for the question. I'll let Nikolaj answer that question.
Yes. So thanks, André. Well, when we define support functions here, it's not about only people in finance and HR and IT because, obviously, then we would be back to have 0 people in those functions. So support functions here need to view in a broader sense. So this is also other support functions that we have in the company that are more sort of internal focused in terms of some of the functions we have around. Product support, for instance. Internal sales support for all our markets. So all the functions that have that administrative nature, but throughout the company.
Kristian, I mean is there a number on all of these employees?
I don't have a gross number now on all those employees. For the specific ones, you can say we have taken out. But to give you an example, from sort of what you would call traditional support functions, finance, IT, HR, where we have had sort of the hardest look, we are reducing with a little more than 1/3 of the employees in those specific functions.
Yes. So to help a little bit more here. It's on IT, it's on HR, it's on communications, it's on legal and on finance, in those functions predominantly that we're taking these positions out.
Employees in finance, IT and HR has been reduced?
[ Unfortunately, yes. ]
Okay, okay, cool. And also just to be sure. This cost program, I mean in terms of cost lines, where is it primarily that the cost will be reduced? Was that an admin cost? Or is it also in cost of goods sold or is it...
So that will be primarily in admin cost, but it will also be on distribution costs from the logistics side of things. And then there will also be a smaller part in cuts. But that is more related to the Phase 2 of the program, which we are initiating now, as we also spoke about in the last call. So what we did, last week, in terms of taking our people is hitting the cap cost line, administration costs, distribution costs primarily.
Thank you, André. We need to see if there are questions from the rest of the audience as well. So let's go to the next question.
We have one further question in the queue, and that's from the line of Poul Jessen of Danske Bank.
Yes. I have a large number of questions. Just to be certain about the strategic direction because there's been some back-and-forth in the past when we have -- when Tony moved whilst through the Play segment to become more volume gain. When we have Henrik Clausen who was more to the luxury end, and cycling price points and so on. So where is your balance now? Just to get it clear. Is it luxury? Or do you also see the volume on On-the-go segment? Or how do you want to position it?
I'll take that, and so we will be luxury in consumer electronics, but at different price points. So I've been talking about good, better, best. But good is, of course, already on the premium side or just above premium, but we will have products in -- that are accessible for most consumer electronic buyers, but we will not go mainstream. We will be a little bit higher than that in terms of the positioning. But good, better, best can serve as a picture to mentally see that in front of you. Then we will continue in all 3 categories. So we will continue in Play, we will continue in Flex, and we'll continue in Staged. A little bit of rationale for that is when we look at the assets that we have and we look at what I said before, time-to-money, effort-to-money, probability-to-money, we have a huge customer base, a loyal customer base that we need to continue to serve, and many of them go to our monobrand network and purchase from the monobrand network. There, one of the critical components for the monobrand network is to have, of course, Staged products and to have screen products and to have speaker products. And therefore, mono will be critical, Staged will be critical for that. What we have not been successful with in the past in the monobrand network due to price variations and due to price inconsistencies is that they've had a bit more difficulty in selling the Play series that has been then mainly going online and going in multibrand. But by having different editions and by having more differentiation in terms of editions, we will help the monobrands to get customers to buy things in their stores on Play as well. Then on the growth side. When we move to China, that is part of the strategy. We have high hopes and high expectations on Play in China. But also in order to be that iconic and desirable brand in China, we build that brand based on Stage and on the Stage products and on the high-end products and on the luxury products that is what making our Play series a more desirable than anybody else in the consumer electronics space. So we'll continue with all 3.
Have you made any assessment about what's the value size in the markets that you're addressing on the segments where you're going focused?
Yes. So if you look at it from overall world market perspective, both in consumer electronics and in luxury, there is, number one, those are huge billion-dollar markets. So our share is, of course, very, very small, which is giving us, I think, a big opportunity, and a big potential. But if you look at those, you see the fastest-growing one is in headsets when it comes to consumer electronics. The other segments are big as well and also growing, which is good for us. And then if you look at luxury, the biggest luxury segment growing is home luxury. So also speaks for having a Staged portfolio. And well, that's all I would say about that. For the time being, Birk has something he wants to add.
Maybe just to add on quantifying the size of the 4 segments. We know that there will be people that might not directly fit into these 4 boxes that will buy our products moving forward. But we have quantified the number of these people in the 4 segments across our core markets and we believe there is enough of them for us to fulfill our growth ambitions. And so just wanted to add that beyond the sort of the luxury category, consumer category, we have done the quantification of the audience and sized that up and believe that's sufficient to fulfill our growth ambitions.
Okay. Just a clarification. You mentioned 6 markets in Europe and then China. But all of the cases, you say 6 plus 2. The 2, is that the U.S.?
So it is 6 plus China, predominantly. Then you have Korea as well that we are also focusing on. We're doing well in South Korea and our products are doing well there, so we'll continue on that as well. But yes, 6 plus China is what I mistakenly said. But it's Korea as well, South Korea.
So 6 plus 2. It's on slide 22, where you say 6 plus 2.
Yes. Korea is there.
Wouldn't there be a pressure for you to succeed in some way in the U.S.? I start thinking about both Ford and HP to continue their royalty partnerships, they must have a B&O brand in the U.S., to align to be compared to -- or can you succeed in the U.S. or continue those 2 partnerships without a successful U.S. presence?
Fair question. And we will continue in the U.S. the way we are doing currently, right? So we opened the flagship store in SoHo, which is an amazing, I think, experience store and carries our brand well in New York. We're about to open a few more stores in the U.S. as well. But to scale it up to any big-size scale faster, that's what we have picked it out of the house and put it into the circles, and it requires special effort, it requires partnership to get to it scale. And we are spending resource and we are spending efforts, and we are looking into partnerships, like I said, on how we will be able to scale in the U.S. So it's very much on the target list, but we yet have not cracked the equation to justify the spend for the U.S. right now versus the investment that I can do in the 6 plus 2 other countries. But we are on the case and we are talking to many -- and I'm talking to many of the partners over there on how we actually we'll set up a strategic partnership on B2B that is nationwide, on distribution that is nationwide and, of course, on the product side, as well in brand partnering.
And I'm just following through your strategic slides. So you showed that you are getting a, very soon, a new Head of Europe or EMEA. And I just saw him on LinkedIn, he's coming from Logitech.I was just wondering or curious about when you pitched to get someone joining B&O from another company like Logitech, what's your pitch? Is that the good brand opportunities because it must be challenging looking at your own position, B&O's right now to take people out of highly or well-run company and then move to B&O at this time. So what's the pitch there?
So B&O has an amazing brand strength and the history and the products that we have is one good reason for people to be joining. But I think the other thing is -- more importantly, is when these qualified people assess where we are and what we want to do and how they can help, they believe in it, like I did when I joined. I believe we have an amazing opportunity when we do the things in the right way and get the right people in the right teams in the right places. And that's what Jorge believes as well. But I'll let him answer the question himself when he starts 1st of May.
Okay. Then on Slide 15, you talk about the consumers where you have lost a core consumer in the past. And I think over the last 5, 8 years when I've been traveling with the CEOs and executives, and we have spoken about B&O as a business case and a long term survival, then most of these were B&O customers on both radio and TV. They all left because they said, it became too expensive. Also because that Sonos was seen as an easier product and so on. So what will make you relevant for this? I assume that could be a target group that as a customer that you get the executives and that's highly important. Currently, there at Bose, they've found alternatives.
I think there's 2 probable reasons. One is the sales and marketing and the targeting towards these people because we haven't talked to them. The other thing is what you also point out is, of course, user experience and simplicity and how our products are working. But I'll let to Christoffer take the second part. But sales and marketing is one and the targeting of marketing is one and then improvement in product usability and simplicity is one. But I'll let Christoff add in.
To add here, we can say we continue to see a demand from, especially the high-net-worth individuals for our most immersive expenses, and that's why we continue to invest and develop in this product category. Furthermore, we have added new propositions to the portfolio. And the latest here in the nature of Beosound Stage which is the soundbar that we launched in the autumn. And on this product, we see a strong comeback in terms of customers we have lost, who's actually buying into the brand again here, plus we see an interest from new customers. So we will balance the portfolio when it comes to the stage, well-established and high-net-worth individual segments in terms of meeting both the needs of the existing base. So our fans and all of those fans who left us, we give them a reason to come back. I think Beosound Stage is a good example of how we address this.
No, I'm talking about Staged. Are you willing to give any indications of the volumes that you have been shipping on that one? Because personally, I believe that could be a blockbuster but I have no clue of how much is your selling numbers.
So we won't disclose the numbers. But I think Nikolaj said in the earnings release that we have, you can see, the overall category how Staged is doing there.I think we need to let -- is there anybody else asking questions? We need to see if there are some more questions. But thank you for all those questions.
We have one final follow-up in the queue, and that's from the line of André Thormann of ABG.
Just to continue in terms of -- in the press release, it says that you're considering your capital structure. I mean can you elaborate a bit more on what your thoughts is on capital structure in this situation?
Yes, would do. So given all the uncertainty that is around there and the business risks that we see of course, the increasing uncertainty, and we are looking into all aspects of our finances and balance sheet in how we can strengthen our position. It goes to cost, it goes to capital, it goes to, yes, basically the whole contingency of what the world is going through. So capital is a part of that contingency as well. And I will not elaborate more on it, but we're looking at all aspects of capital.
And then on monobrand stores. Just honestly, it looks like you're closing 8 monobrand stores during the quarter and then you have taken over the store in Copenhagen airport. Why have you taken over the store?
So Copenhagen Airport is a strategic location for us. It's, first of all, our home country and coming back to what we want to express in terms of experiences and show our heritage and show our products and show the future for the consumers and the target segments that we just talked about, Copenhagen Airport is a fantastic opportunity for us to do that. The previous store was more a transactional store where we sold products, and we are building more of an experience store in Copenhagen right now. So that's why we're taking it over. And I need to end here with having the final question on -- and if we -- there's a final question from Poul.
And we'll take the final question from Poul Jessen, Danskebank.
The final question. It's a short one because it has replaced Capital Markets Day, this one. No I was -- let me just take a technical one. You mentioned that you should have access to software and IoT and that's the core part of the strategy for the multibrand and everything else, I believe. Do you have access to partnership on all the platforms? And I think here it's Spotify, Connect, Apple, Amazon, Google. And then we also know that Sonos has been making a lot of noise that other companies are violating their IP rights on multiple [ surviolates ]. Do you have what's necessary to deliver a full complete product as of today?
I'll let Christoff take that question. I would probably say no comment on that one or we don't elaborate on that one. But I'll let Christoff have a chance as well.
Yes, I cannot go in details on all the points here. What I can say is that we have, over the last year, basically been upgrading our entire Flexible Living portfolio with AirPlay 2 compatibility. And we see ourselves as a very strong player in terms of being a strong citizen in the ecosystems around us. We will continue to focus on convenience and simplicity, and that's been part of our agnostic approach to how you can use our products.
Okay. I think we need to close here. Thank you, everybody, for taking your time and listening. And it was difficult to do this for us, and I'm sure for you as well on just a webcast like this and I really would have hoped to -- could have had a chance to meet face-to-face to do the Capital Markets Day. As you may have seen from the announcement, it was -- we have postponed it, but until further notice. So hopefully, we will be able to come back and have a proper Capital Markets Day, where we can share what we're doing and meet in person. But thank you for listening and thank you for taking your time.