Bang & Olufsen A/S
CSE:BO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
8.3
10.88
|
| Price Target |
|
We'll email you a reminder when the closing price reaches DKK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Bang & Olufsen A/S
You don't have any saved screeners yet
Hello, everyone, and thank you for joining the call. Today, we'll present our Q3 results and give an update on how we are progressing with our strategy. And as usually, with me today I have our CFO, Nikolaj Wendelboe.
If we will move to the next slide, I will begin by going through the financial highlights of the quarter Q3. And then I will share how we are progressing with our strategy. Nikolaj will take us through the financials in more detail, and I will conclude the presentation part of the webcast by briefly going through our financial outlook. Then as usually as well we will open up for the Q&A part where you can ask questions.
If we will move to the next slide. We believe a 10% growth in local currencies, this was the seventh quarter with double-digit growth and we achieved this despite the ongoing supply chain challenges. This is showing the resilience of our people and partners and that we have managed the situation so far.
Our growth was driven by both product sales and our brand partnering activities. Product sales grew by 10%, mainly driven by our Staged category. The Staged category products are almost exclusively sold through our monobrand network and this performance underlines the importance of our monobrand network as a sales channel where you can experience the brand.
Sellout was positive, driven especially by the EMEA and the Americas. We are pleased to see that our efforts to strengthen consumer demand is resulting in improved sellout to our customers. We also grew our customer base and saw an increase in repeat purchases. The number of customers owning 2 or more product was growing significantly year-to-date.
We also grew our brand partnering activities, primarily due to the latest partnerships. Revenue from the new partners helped to mitigate decline in the automotive industry, which continued to be impacted by the global component scarcity.
The global supply chain challenges adversely impacted our growth and increased our product-related costs. In Q3 alone, we had extra costs for components and logistics of more than DKK 65 million. This is equivalent to a product gross margin impact of 9 percentage points.
If you look at the first 9 months of the financial year, it amounted to more than DKK 150 million in additional costs for components and logistics. We maintain our outlook, but we expect a headwind from the supply and logistics challenges to continue. We, therefore, expect the EBIT margin before special items and free cash flow to be in the low end of the range.
Since end of February, uncertainty has increased, inflation is rising. There is [war] in Europe following Russia's invasion of Ukraine and COVID-19 is spreading in China, resulting in lockdowns. This can impact our supply situation and consumer demand, and we continue to monitor this development closely.
If we move to the next slide, when Russia invaded Ukraine, we immediately stopped all sales and shipments to Russia and Belarus. Therefore, we did not need to take further actions to be compliant with the sanctions that followed. We don't have any direct affiliation with Russian partners as we are not sourcing from partners in that market. A few of our production partners had minor sub-suppliers in Russia, and they immediately changed to new non-Russian sub-suppliers. The sanctions against Russia can result in higher prices for some components and raw materials like aluminum and iron, but it's too early to conclude on the long-term effects.
Logistics is impacted. It's no longer possible for us to use the rail freight between Europe and China as it runs through Russia and Ukraine. We have, therefore, moved product to sea and to airfreight. This is not optimal from a cost or sustainability perspective, and we'll continue to look for alternatives.
We use gas for process heating at our aluminum factory in Struer. Following the innovation, we have decided to change this to an electric heat pump. We estimate the short-term repayment time and positive impact on our greenhouse gas emissions.
The COVID-19 lockdowns in China are also adding uncertainty. If we see prolonged lockdowns, it can impact both supply chain and consumer demand. We continue to monitor the situation and making plans for how to mitigate these challenges.
So please move to the next slide. We continue to progress with our strategy execution, building robustness and invest into our future. I want to highlight some key milestones for Quarter 3 on the following pages.
So if we move to the next slide. Since last time, we have been implementing strategic changes in our markets initially in the European and also increasingly in the Asian markets. For the core markets in both regions, we continue to see sellout growth. In the 6 European core markets, sellouts grew by 10% compared to last year, with a very strong performance from multibrand and etail, which grew by 28% and 76%, respectively.
The reported revenue declined by 10%, mainly due to high comparables in multibrand and supply constraints in Flexible Living. Last year, we on-boarded new distribution partners, and that resulted in a high growth in Q3 of last year.
If you look at the monobrand channel in our core markets in Europe, we delivered 10% growth. Etail was also a contributor to the growth, while our own eCom suffered from price inconsistency following our price increase in January.
In Q2, we shared initial data from the [win] London pilot. We continue to be very encouraged by the progress we see. Sellout growth from our company-owned stores grew by 80% compared to last year. We have also expanded the physical footprint with openings at Heathrow Airport, and we opened a pop-up store in shortage leading to up to Christmas. Our plan is to roll this concept out to more locations and more cities.
In the 2 core markets in Asia, we grew 28% in reported revenue, which was driven by most channels. Sellout was up 1% compared to last year. Sellout performance was impacted by lockdowns and by the transition to new distribution partners and timing of the Chinese New Year, which this year started earlier, because of the New Year celebration in the period with low trading activity, we had more days with low activity in Q3 than last year.
During Quarter 2 and Quarter 3, we transitioned to new distribution partners in China. We did that to ensure a stronger brand experience to support sellout and to enhance our brand protection. The new partner contracts include penalty schemes like we introduced in Europe last year for unauthorized sales. All but one of our previous distribution partners have been terminated and new partners on-boarded. The transition to new partners has a temporarily negative impact on sellout performance.
If we move to the next slide. We are pleased to see that our customer base continues to grow. In the first 9 months, our registered customer base grew by 25%. Just as encouraging is the increase of repeat purchases. The number of customers who own 2 or more products grew by 32% in the first 3 quarters.
Throughout the year, we have had to adjust our marketing activities to fit our product availability due to the shortages of components. In Q3, we ran a global headphone campaign across our channels supported by brand ambassadors and influencers. We registered an improved sellout performance on headphones following this campaign. This campaign also resulted in a significant uptick in both reach generated and the follower base across social media platforms. We also run a churn campaign retargeting customers who we have had not engaged with for some time and the other results have also been positive.
Finally, we have made further improvements to our e-commerce platform. The pain point for us has been the checkout functionality. Now, we have added Apple Pay and Google Pay in the European markets when we have seen customer satisfaction improve with our website. So please move to the next page.
In Quarter 3, we also launched a new addition of our gaming headphone, Beoplay portal for PC and PlayStation. The first edition was made for Xbox, and we have seen this work to expand its features. The headphone comes with faster and improved connectivity and compared to the first version, battery life has also been improved significantly. The initial reviews are positive, and with yet another strong gaming and PC headphone, we further strengthen our position in the fast-growing gaming market.
Beosystem 72-22 is part of our classic program. We created 30 limited edition Beogram 4000 turntables with matching Beolab 18 speakers as -- and also Beoremote Halo, and it all came in a solid wood gift box that turns into a cabinet. We have seen a strong interest in our classic program, and it shows our unique capabilities and the longevity of our products. Beosystem 72-22 was made exclusively for the North American market, and all the 30 systems were sold out within the first day. If you please move to the next page.
With our Bespoke and customized product offerings, we can provide our customers with unique propositions. In Q3, we continued our work to expand and scale this proposition in the markets, including a Bespoke pilot in selected markets. With significant marketing activation, we saw a consistent inflow of request for these services in Q3. The majority of the requests were customizations, which is a mix and match of existing colors, materials or finishes, while around 5% was for Bespoke solutions with our fully tailored products. This will be continued a key differentiator for us, and we will look to expand our offerings in the future. If we move to the next page.
We have added new brand licensing partners and brands. In December, Verizon launched the 2 sound bars to the customers in the U.S. Both sound bars have been audio tuned by us. Verizon has -- like everybody else, also been impacted by component scarcity.
Secondly, Harman on-boarded the luxury car brand Genesis. Genesis is sold in Korea, the U.S. and Europe. In addition to the great B&O sound, we also supplied the aluminum speaker covers, which we make at our factory in Struer.
Finally, Sagemcom has onboarded Telecom Italy to the video soundbox unit that we have also audio tuned. This is the third partner on-boarded this year, and it demonstrates the scalability of this partnership.
And with that, I would like to turn over to you, Nikolaj.
Thank you, Kristian. Please turn to Page 13. Our revenue grew by 10% in local currencies. Our reported growth was 11% as we had some tailwind from currency development. The growth was driven both by our product sales and brand partnering and other activities, which in local currencies grew by 10% and 9%, respectively. Components scarcity remains a detractor on our growth as it impacted product availability, as well as, license income related to the automotive industry.
As Kristian said earlier, we have expanded our brand licensing base during this year, and it has started to yield miserable results. In Q3, new licensing income mitigated the decline from the automotive industry. The 10% growth in product sales was driven by the Staged category. Growth from the Flexible Living category was negatively impacted by component scarcity. Growth from the On-the-go category was adversely impacted by high comparables in the EMEA region.
The growth in EMEA was impacted by the changes we have made to our distribution partner set up last year. Last year, EMEA experienced an increase in revenue for multibrand driven partly by the transition to new distribution partners. We therefore had high comparables, which led to a small decline in Q3 revenue in EMEA. However, if we instead focus on sellout performance, we experienced a solid growth compared to last year of 10%. The [opposite] has impacted our Asia region.
Here, we have been transitioning to new partners for the last couple of quarters, and we have changed all but one multibrand and etail distribution partner in China, as Kristian also mentioned. We have seen a steady performance on revenue growth, but our sellout performance has been impacted by the transition and by local COVID-19 lockdowns. Americas continued its strong growth trajectory, delivering 32% year-on-year growth. We also saw solid sellout performance with like-for-like sellout growing by 18%. Please turn to the next page.
Year-on-year, our reported product gross margin declined by 0.6 percentage points. Higher component cost is the reason for the decline, but there are several things that have offset part of the higher component costs. We have continued to see that the higher margin product categories have been accounting for a bigger part of sales. We have had less discounting compared to last year and price increases completed since last year have also had a positive impact. We also benefited from the currency development in Q3.
We have seen more products being impacted by component scarcity, especially Flexible Living products, which are built on earlier product platforms. The higher cost related to spot buyers of components amounted to DKK 65 million in the quarter, which was equivalent to 9 percentage points on the product gross margin of 6.5 percentage points higher than Q3 last year.
The mitigating actions we have made on logistics had a positive margin effect year-on-year by moving products to rail freight and relocating production between Europe and Asia. With the war in Ukraine, we can no longer use rail-freight between Europe and Asia. So unfortunately, we will see logistic cost increase in Q4 as some products will have to be transported by air again. Please turn to the next page.
Group gross margin declined by 0.9 percentage points. On the previous page, I explained the impact on product gross margin. We also had a lower margin from brand partnering and other activities, which was driven by higher activity from our aluminum factory related to production of speaker covers for the luxury car brand Genesis, which now features Bang & Olufsen speaker systems.
Higher component costs had a negative effect on all 3 product categories. The Staged and Flexible Living category was positively impacted by price increases that we have completed since Q3 of last year. For the Staged category specifically, last year was impacted by pass-through of screens when we launched Beovision Contour 48 inches, and that had a negative impact on gross margin on the Staged category of 2.5 percentage points. The margin decline was therefore bigger than what we see here, again, driven by higher component costs.
The margin from the On-the-go category improved compared to last year. That was driven by changes in product mix within the category, as well as, less discounting. Despite significant headwinds from components and logistic costs, which amounted to more than DKK 65 million, we delivered a positive EBIT margin before special items of 0.7%. The margin development also reflects the investments we are making to build robustness into our business, which are seen in higher capacity costs. The EBIT margin is further impacted by a true-up on warranty cost in Q3, which we consider to be a one-off cost in the quarter. Excluding the one-off expense, the EBIT margin before special items would be around 2%. Please turn to the next page.
Total capacity cost increased 19%. This was driven by our strategy and investments in building robustness into our business. The cost increase was mainly related to product development and sales and marketing, which are our core focus areas. On the other hand, administrative costs declined both absolutely and relatively compared with Q3 last year, as we remain focused on maintaining the improvements we achieved in last year's cost reduction program.
Development costs grew by 25%, mainly due to higher depreciations and relatively lower capitalizations compared to Q3 of last year. In absolute terms, capitalizations were at the same level. The incurred development costs grew by 8%. This growth was linked directly to strategy execution. We have [owed] last year, hired more employees to strengthen our engineering and software capabilities. And also, we continue to invest in both our product road map and our product platforms.
Distribution and marketing costs increased by 24%. The increase was related to investments in our local teams, marketing activities and to warranty cost. The increase in warranty cost was linked to our sales growth, but in Q3, it was also impacted by the one-off cost I mentioned before. We have strengthened our local teams in our core markets in Europe and Asia, as well as, in the U.S. We can see a very clear correlation between getting the right skills on-boarded and ensuring strong performance in the markets.
Marketing expenses are focused on demand creation and building the B&O brand as Kristian also mentioned. Our investments in marketing activities, therefore, increased both in absolute terms, as well as, relative to revenue. It has historically been at a too low level. Please turn to the next page.
Net working capital declined by DKK 30 million in Q3. The decline was driven by lower receivables and an increase in other liabilities. The reduction in receivable is normal following the high season in Q2, and the increase in other liabilities was mainly related to employee bonuses. On the other hand, our inventory grew mainly due to purchases of components and raw materials.
Our CapEx increased in the quarter, which again was a direct [resection], our strategic investment focus. The investments in intangible assets was related to our product and software platforms, as well as, IT systems to improve our core processes. The increase in tangible investments were mainly related to a retail development and expansion of the production capacity at our aluminum processing factory in Struer, again, 2 important levers in our strategy.
We came out of Q3 with a negative free cash flow of DKK 14 million, significantly impacted by the increase in component costs. The negative free cash flow was, of course, also due to a deliberate prioritization of investing into our strategy to build the robustness we need to continue growing B&O. Our cash position remains solid at DKK 511 million at the end of Q3.
And with that, I would like to hand the word back to Kristian.
Thank you, Nikolaj. Please turn to the next page. We maintain our outlook for the year, but expect our EBIT margin before special items and free cash flow to be in the low end of the range. This is due to the significantly higher component and logistic costs in Q3, which we expect will continue for a while.
On top of that, we see increased uncertainty related to number of events. Inflation is rising, there is a war in Europe following the Russia's invasion of Ukraine and COVID-19 is spreading in China, resulting in more and longer lockdowns. We do see a risk of that impacting both our supply situation and global consumer demand. Please turn to the next page.
So to recap, we delivered double-digit growth for the seventh consecutive quarter, and we delivered a positive EBIT margin despite headwind from component scarcity. Sellout was positive in all regions in Q3, underlining the good customer demand. Our customer base continued to grow. Repeat purchases grew as well with customers owning more than 2 products increasing. Component costs have continued to increase, which has materially impacted our margin. Unfortunately, we expect this to continue for a while. Finally, we maintain our outlook as mentioned, the uncertainty has increased due to higher inflation COVID-19 and the war in Ukraine.
And with that, we would like to open for questions for Nikolaj and myself.
[Operator Instructions] Our first question is from Poul Jessen of Danske Bank.
Question number one, that's what you addressed just about inflation, interest rates, speculation and so on. Can you -- when we look not only to this quarter, but also ahead because this is here to be for quite some time. Can you give us some insight into your considerations or thoughts on how you look at it, just back in history of your reports and seeing that when you were hit by a slowdown in earlier periods, if you go back to '03, then it was minus 15% on revenue, if you go back to the financial crisis, it was actually more than 40% down in the 2 years. So what kind of consideration are you doing looking into a potential headwind from or more headwind from the micro side?
It's, of course, a very difficult question to answer precisely. We are thinking about it, of course, and we are trying to figure out on what impact it could have on our business. And then, of course, also figuring out how effective our marketing can be. I think that the total addressable market that we have been able to address so far has been -- is much larger than what we have been able to target with our marketing activities.
So if we get our marketing right, I think there is a good chance and hope that we can mitigate some of these challenges that will arise from inflation and possible demand slow down. So that's what we're going to focus on looking at the marketing activities towards our target audiences. And also, we know, like we said and I said, the city strategy that we put in place has been working extremely well in London, and we're looking at on how we can expand that as well to really make sure that we find our customers in a much more effective way. And by doing that, of course, then try to mitigate any negative effects coming from inflation and other things that could affect demand. But it's very difficult to predict or say anything precisely on that at this point in time. I'll let Nikolaj add to see if he has anything further.
Yes. So I'll just add from a planning perspective, we obviously are considering how to be flexible in terms of how we plan things and how we also spend money and how we plan to spend money. I think for me -- we've seen high inflation in Q3 slowly with increasing interest rate as well, but it didn't really have a big impact in that point in time and on demand, as you can also see from our Q3 numbers. It has probably accelerated in the past couple of weeks. And it's too early for us to make a concrete assessment of how that impacts us. We need more data on that.
It was also to have more mindset. If on one hand, you could see -- conclude that you have such a low market share, and there's so much money out there among people who actually might have a limited impact from the headwind, and therefore, you could grow your share of wallet and because the pool is rather large or on the cost side that you are preparing to see the headwind and therefore, are cautious on the cost. So it's more how you balance those 2?
On the first one, Poul, that's exactly what we are intending to do with our marketing, obviously, even before kind of today's [word] situation, but that will be even more important to be more focused on that. And then it's too early again to say how our target audiences will react to all of this.
But the assumption is, of course, there that it still would make sense to keep on selling to them and they would be able to still afford and would like to invest into our products and will not be as much affected as maybe the general audience and public will be on the cost side as well, of course, we are thinking about how we can become more effective in what we do and how we operate right now, as you know, and as you have seen the thing that is really derailing us is the cost of components and the cost of the components that we buy on the spot market.
So should demand go down generally, which I think we see on many of the consumer electronic companies, of course, then there should also be an upside in component availability that we could capitalize on and get component costs down from that perspective. So it's a balancing act between the 2. And then, of course, the OpEx if need be is something we also have can consider. But at this point in time, like Nikolaj said, it's too early, and we are making our plans and looking into these 3 options.
Then a question to your strategy discussion on Page 9 in the report. You say that what you -- one reason is that -- is part of the -- your step towards a desired position in aspirational luxury. I was just thinking, is it a question of phasing on when you do what? Or are you, as a company, moving more towards the luxury part and then scaling down on the premium part? Or is it just a question of what -- when doing what?
We will be moving more towards the luxury and to the high-end premium part. But we're also going to do that by still having -- which has been the intention from the beginning of the strategy to have a lower price point, of course, as well or an enterprise point. But I think the opportunity that we see to make something that is like the best of the best and to continue to drive design materials and craftsmanship is where we see the biggest opportunity and the biggest appetite as well but not -- of course, not price ourselves completely out of the market either. So we will continue to sell our products in the 5 different channels that we have identified and we're currently selling them in, and as you know then, of course, to be successful there in multibrand. We need to have a value proposition that is attractive enough, both from capabilities on the product, but also pricing.
Final question from me for now is then on the implicit guidance for the fourth quarter, having DKK 6 million adjusted EBITDA in the third quarter, then you should [trouble] that one in the fourth quarter to get to the low end of your guidance, with headwind on logistics and closed down or locked down in Shanghai and Hong Kong and so on. Is that lower spending on marketing also in the fourth quarter that's going to drive the improved implicit guidance or earnings?
So when we look at the supply availability today and on the Staged category and the Flexible Living category, we believe that we will be able to fulfill the demand that we have planned for. And that's what we currently look like, which is positive as such. Then the uncertainty that we still have in that visibility is still high. And we saw that also last quarter where we -- in the beginning of the quarter felt we have pretty good availability. And then as we move through the quarter, the availability of supply and products tighten up and we're not able to fulfill all the demand that we saw in Quarter 3. I think we are in a better place today in order to be able to fulfill that demand, but it's still surrounded with uncertainty and things can change very quickly.
So do you see revenue in the fourth quarter being so strong that you can end in the other half of your revenue guidance?
We don't say that. We have been saying that we will end in the lower end. And I think also what we need to think about here is the Chinese lockdowns. We already had Chinese lockdowns in Quarter 3 with [indiscernible] being closed for a month basically in Quarter 3, there is 26 million people living there. So now Shanghai being closed, and we have our warehouses in Shanghai that we can't currently even access the supposed to open up next week. So those are the type of things that are our external factors that is really hard for us to control -- and that's what is making the uncertainty. But I think when we look at our own planning and our own execution, I think we have a fairly good grip of what we're going to do and how we're going to do it. But external factors is the challenge here Poul.
Maybe just to add, Poul, that first of all, year-to-date, we are at 1.9%. And then as I always said in my -- going through my slides here that we have this one-off in Q3 on the warranty side that we do not expect to come back in Q4, because it's a cleanup that we've done. So that's part of the explanation why we see Q4 also coming out better than Q3 from an EBIT margin perspective.
How big is that one-off?
Yes. So it's roughly DKK 10 million. And then of course, when you go to the details, where do you end in what end of the range? And can you go to the bottom; are you going to the top on revenue? I mean, just I think we just need to remember that the uncertainty factors that we are dealing with going into Q4 is even higher than what we had in the other quarters. In the other quarters, it was very much related to supply, supply, supply, [low] supply, and war in Ukraine rising inflation and China also having corona spreading. So is just much more difficult to work with all these different impacts in the ranges that we are talking about now. So that's why we are saying on EBIT and free cash flow that we expect to be in the lower end of the range right now.
Our next question is from Niels Leth of Carnegie.
First question on the availability of components. So can you talk about if you're seeing any signs whatsoever for the availability of components. And as far as I understand, approximately DKK 55 million out of the DKK 65 million in extraordinary high component and freight cost that you recorded in this quarter would come from your spot purchases of components. Can you just talk about whether we should expect the entire cost burden from spot purchases of components to disappear when that's not necessary anymore?
Maybe I'll start, Niels, and then I pass on to Nikolaj. Like I said -- when we look at the supply situation right now, I think we have some encouraging news and insights into what we can supply on the Staged category that has been constrained. The worry that we have is that, that will change, and it can change very quickly. So we know what we are planning for. And today, we have visibility of that. And I think that's better than it has been before, but it doesn't mean it's going to end that way.
And then my view on the -- yes, maybe to add to that, we have done a lot of work to mitigate to buy on the spot market and to buy different components as well and sourced, as you know, different components, [pin] compatible components or redesigned printed circuit boards to fit alternative components that are more available in supply.
We have also had task force at our partner sites to help them to really penetrate into not only kind of yield and also the first tier suppliers, but also into second-tier, third-tier suppliers to get much more insight into risks that we have. So I think we are in a better place when it comes to understanding it and having insights into it. But it can also very quickly change, because all of a sudden something is just gone that we had planned for. So that's my worry.
And I think over time, based on the activities that I just described, I think that the component cost will come down -- is going to come down, and maybe come down even quicker than we believe because if global demand is slowing down and if the bigger players, like some of them have already done are announcing that they're not going to produce as much. Obviously, those components that they have been locking up will come available for us. And then it comes back to the first point where we started with Poul's question when it comes to generating the demand from our customer base, which I think are more resilient to keep on buying even through difficult times. Nikolaj?
Yes. So on components in the short term, we should also just remember that the production that we are running with our partners now in terms of delivering for Q4 is with components where many of the spot buyers have been done already because there's a lead time and there also -- there are many components that you need to get into production, but some of them have been bought already. So we know that there is a high level of component cost to be expensed also in the short term. Then, of course, longer term, we would in a say, normalized world, meaning where we are not talking so much about sort of the current impact from inflation on the economy. We would probably expect that the components would continue for a while and then decline gradually in yes, 6 to 9 months to a lower level also because at that point in time, we would have been further in our work with reworking some of our products to other components that are easier to get.
But one thing is spot buyers and components. Another thing is that, of course, when we're seeing inflation right now and general input prices being increased on utilities, on aluminum, on iron, and leather. Then we are also seeing a general cost increases on our cost of goods sold in the coming year. So we might come into a situation where spot buyers are going down. To some extent, that's at least what we would hope it would do, but we will still see a general increase in our COGS due to the inflation. That is also, of course, impacting our production partners. And they're also looking to pass that cost on to us. So we are not -- so even if spot buyers would be to sort of a lesser impact in our numbers, we are not out of the woods in terms of looking at increasing production costs.
So just to understand, once availability of components gets back to normal, you would effectively be able to leave purchases of components back to your manufacturing partners so that these extra costs would disappear fairly quickly, but of course, you would suffer inflationary pressures from other sites?
So we will run into a more normal flow of operations, you can say, but we'll see it in inflation also on our cost of goods sold.
Just one more question on your number of employees. You added 18% more employees' year-on-year in this quarter. How do you see the year-on-year growth in terms of number of employees developing in the next few quarters?
Yes. So I think we -- in the short term, we don't expect sort of major increases in number of employees, because as one of the -- sort of mitigating actions to the uncertainty we've seen now. We're being a little bit cautious on the cost side. But longer term, we would see increased number of employees, especially within software development, especially within yes, design engineering and the part of the business where we are building technology and products for the future.
Our next question is from Benjamin Silverstone of ABG.
I hope you're well. My first question is in terms of Flexible Living. So basically, it's flat year-on-year. But due to the nature of the components scarcity, do you have any idea of how to sell out and sell-in is looking at the moment? So basically, the question is, are there enough stocks currently in the stores. And the next question is in terms of Staged. Obviously, you have a very impressive growth here of 25% in the quarter. Could you just give us an indication of how the price and volume split is driving the growth here?
Benjamin, good to meet you too. I'll pass the questions, I think on to Nikolaj on the -- we have the numbers, but I'm not sure what we're going to share with you.
On Flexible Living, we are seeing growth in sellout in the quarter, and we are seeing that in -- yes, in all regions, actually. So which, of course, indicating that there has been some stock in the channels to sellout even though the sell-in part has been with a negative growth, which is basically due to Beosound 2 and A9, which are the product on our former product platform, the AC platform. And that platform, we've had, especially in Q3, difficulties in getting components for. So that's part of the explanation for the sell-in. The other thing is that you have to remember that in Flexible Living, we are not selling the emerge speaker at the moment, also due to components where we're prioritizing the [multi] module for other speakers, balanced level and also to Staged speakers. So that, of course, has a year-on-year impact that you have in some way a product program that is a little bit narrow because the small speaker is actually not being produced at this point in time, where we -- for instance, in Q3 last year, we still had also the M5 and the M3 speaker in the program, which has discontinued. So that's one question.
On the Staged category, we are seeing growth. I think I would put it like that on both revenue and on volumes, especially in the Beolab speakers, where we are having a very high growth rate in Q3, both on -- both from a price perspective or the revenue part, but also from a volume part or unit part. So we are selling a lot more Staged speakers than we did a year ago.
[Operator Instructions] We have a follow-up question from Niels Leth of Carnegie.
Kristian, could you just explain to us this city concept? Or what's contained in this city concept, which have yielded -- seems to have yielded a pretty strong result in London?
So you refer to the [win] London project. We started that a while back in order to understand if we kind of fire on all cylinder in you defined -- well-defined geographical area where we believe we have lot of our target audiences, and basically then making sure that we market our products towards them in all the touch points, so basically 360 marketing. So we meet them, if you take shortage, which we know is the place where Facebook and Amazon and others have headquarters, European headquarters, where's a lot of [terrorists] living, so mapped out where the [terrorist] are. We map out where they work, where they live, where they spend the time. And then we started targeting them with our marketing activities. So that's why we did the pop-up store in shortage, met them there also why we have engaged with all the other target audience as well in the similar fashion where we have been doing activities together with brand partners.
In London, it could have been restaurant, it could have been beverages. We basically do marketing activities together with others to meet our target audience as well. And that has driven -- so really, really good sellout numbers for us and that we explained. And we know from the KPI metrics that we have now gathered as well that this is working and is working more effectively than when we look at the whole country as such because, again, we want to make sure we maximize the resources we have and the focus that we have. So we are now looking at taking that into other cities where we know that the GDP is high and where our target audiences are existing and then apply the same type of recipe basically to make sure that we do go and meet them where they are and spend time and do marketing towards them and then convert them as well.
So more focused concentrated execution of the strategy to fire on all cylinders on the multibrand and monobrand and eCom and marketing and social media marketing partnering. And for very little investments, we actually had this great uplift, which is very encouraging, I must say. And we will export that to other cities.
Can you briefly just talk about what would be the investments for such a campaign? And I presume you've had a pretty good return on this investment then...?
We'll not be able to give you any specific numbers and details, but it's very limited from that point of view. Of course, we spend more marketing money. Maybe Nikolaj has more details -- want to share more details, but it's limited in terms of what we have invested, redirected some of the marketing that we had intended already within the marketing budget towards these activities and then adding some money as well to be, for instance, visible in out of home on some of the tube stations in London, where we know that the [terrorists] are spending time and when they commute to work, we have bought billboards there as well. So there has been some more spend and but I don't have -- I don't know if we want to share the numbers at this point in time.
No. So we're not sharing the numbers, but in -- but it's less than DKK 5 million -- much less than DKK 5 million. So what has really been done is that they have been really prioritizing the way we spend marketing in London towards the activities that have a sort of a 360-degrees view on how to win the city and you can say, not even the city, but actually targeting specific areas of London where we know the target audience are living, are working are spending their time. So it's very effective -- that's also why you can't get us say this is the spend you need to do in other cities because all cities are different and have different logics of how they work and operate and then also how you should attack them compared to how our stores are placed and that kind of stuff. So -- but it's been a limited spend.
Great. And then just one more question. How much was the effect of the announced price increases in this quarter? And what will be the effect of the price increases in the coming quarter?
Yes. So we don't share sort of the specific impact of the price increase. But what you can see is that it has mitigating -- mitigated a lot of the margin impact that we have from extra component costs. So it's definitely been working as intended from an earnings perspective. So that's one thing. And then, of course, different products have different impact from the price increases that we've done over the past year. But of course, on a general note some of the growth percentages that we've seen in Q3 is definitely due to pricing. But I will not sort of say exactly how much that is.
We have a follow-up question from Poul Jessen of Danske Bank.
2 follow up, one is on the sanctions, which is for Russia -- outside Russia. Which could be in London, for instance, is that a significant or is it something just totally to be ignored a potential impact that they cannot be customers anymore?
I don't have any data to answer that question, Poul. I believe there are a few that we may miss that will not be able to buy. But I think we have a very international -- when we look at the customer database, for instance, from Harrods and from Selfridges, we have a very international mixed customer base there, and I wouldn't expect Russians to be of any majority in that customer base and not that I can recall at least.
And then the last one that's on the change of Chinese distribution. Can you recap or put a little more words on what actually you're changing out there was just previous setup?
Yes. So we're changing one of the distribution partners that we had for JD, where we believe we can do more and should have been doing more to a new partner that we think is better suited to drive the sellout in the fashion that we want to drive sellout. That's number one. Then the other thing as well, where we are changing partners is the one who are not compliant with the unauthorized sales that we see and reinforcing that harder. So I think we will get a better sellout focus and a better sellout focus not only on JD.com, but also on the other digital platforms with a new partner. I don't know if we have actually announced that new partner name yet or not. But I think we have higher expectations of that, and we're gearing up on the partner side and their capabilities.
Does this involve that there's been a change to relationships with Sparkle Roll?
Sparkle Roll, we have... Sparkle Roll will continue to be part of this. There is nothing -- they are not affected by these distribution changes. A good relation with them.
Thank you. There are no further questions at this time. So I'll hand back over to our speakers.
Yes. So then thank you for all your questions and for joining today. If you have any additional questions, of course, feel free to reach out to our IR department. And I wish you all a great day. Thank you.