Pandora A/S Ord

Good morning, everyone, and welcome to the conference call for Pandora's Q4 results. I am John Beckman from the new investor relations team. I'm here with our CEO, Alexander Latsik, our CFO, Andrew Spoyer, and the rest of the investor relations team, Christopher Malmgren and Mikkel Johansson. There will be a Q&A session at the end of the call. As usual, please limit yourselves to two questions at a time and get back into the queue if you have additional questions. Please pay notice to the disclaimer on slide two. And then turn to slide three. Alexander, please go ahead.

Thank you, John. And welcome to your first announcement at Pandora. We are really excited to have you on board. I would also like to welcome everyone that are joining us for the call today. As already announced in January trading update, we finished 2020 the same way we started the year with a strong performance. While we haven't fully turned around, we clearly see that the brand is turning around. We initiated Program Now two years ago. The objective was to stabilize the top line while maintaining industry-leading margins. I think we have sufficient evidence to say that we're now delivering towards those objectives, even though COVID-19 has muddied the waters somewhat last year. Q4 delivered positive organic growth despite the lockdowns and other related limitations. We had prepared ourselves thoroughly for the peak trading period and it's safe to say that this work paid off. UK and Germany were most affected in the period yet delivering a very strong performance. Five out of our seven key markets generated positive sellout growth in the quarter. The only exceptions were Italy and China, which we'll come back to. Our online business grew 104% and accounted for a third of the sales. While we are happy about the strong performance in Q4, COVID-19 continues to cloud the visibility. With around 30% of our physical stores now temporarily closed, it creates elevated uncertainty about 2021, which we will also return to later in the guidance section. Next slide, please. Our turnaround program now has been running for two years and is nearing its completion. The benefits of the new operating model were evident in Q4, with very tangible progress throughout the entire value chain. One example is a significant improvement in product availability across all trading channels, something we had big troubles with in the prior year. A more data-based approach and focus on top 500 DVs definitely supported a very high level of customer service. Our brand continues to gather momentum. There are a few key drivers behind this like more distinct and relevant advertising, continued strong media investments, significantly smarter targeting, strong progress in merchandising and overall a much stronger organization. These things manifest themselves in higher brand interest, increased traffic, and strong conversion rates, ultimately driving broad-scale sell-out growth. The cost reset program has reached the targeted run rate savings of 1.6 billion Danish kroner, and this has been instrumental in funding the turnaround journey. We are step by step getting ready to switch gears from turnaround and closing gaps to once again focus on healthy growth. We are working on this in the background and defining the road ahead and will at a later point in the year share our long term plans. Our belief is that the core business still holds plenty of lucrative opportunities for growth. But as I said, we'll come back to this further down the line. Please turn to slide six and the business update section. With program now nearly completed, I want to highlight some of the major milestones we've achieved. To increase brand relevance, we've spent significant resources to better understand our customers, thus generating stronger insights. This has been done both through traditional research, but also to a larger degree than ever before using data and analytics to fuel our personalization efforts, specifically online. We're constantly expanding our marketing toolbox, more precision in our targeting efforts, as well as using analytics and smart algorithms to optimize our digital marketing investments. In the last two years, we have transformed our marketing approach and are step-by-step becoming far more sophisticated. I wanted to comment on the situation in China. First of all, I'd like to iterate or reiterate that this remains a top corporate priority. The opportunity is significant and based on the research we've conducted, the Pandora proposition has every right to succeed. We are committed to fixing the fundamentals and go about this in a methodical way. As mentioned in the past, the first phase was to get a strong team in place and secondly to ensure strong operational discipline. We consider this to be in a really good place now. The next phase is to turn the strategic insights into qualified and tangible plans. Finally, it will come down to excellence in execution. Our view is that those things will materialize during 2021 and expect results to come through next year. So we're building this step by step. In terms of brand access, we accelerated the rollout of our omnichannel capabilities in Q4. So by now we have rolled out Click and Collect to over 400 concept stores in the US and UK and consider these two markets to be complete. We also rolled out Endless Isle across most other key markets. Next slide, please. As I said, Program Now has visibly improved the foundation of Pandora and will continue to do so. Taking a step back, the journey started with a shift in momentum in Q4 2019, followed by a positive like-for-like in Jan-Feb of 2020. In March, as we all know, COVID started to have a material negative impact. We quickly adapted to those challenges, and this is important. Our underlying business kept on improving. An example of this was Germany, that had a shorter lockdown than many other countries and quickly came back into positive territory. We initiated a major reorganization in the second quarter, and in a strange way, the pandemic actually forced this in place quicker than one would normally expect. We started reaping tangible benefit from this as early as in Q3, with significant improvement in sellout growth, followed by positive growth already in Q4. Next slide, please. It is clear that we're maintaining our industry-leading brand position. The evidence of the momentum continues to be manifested both in terms of unaided brand awareness as well as Google searches. On unaided awareness, we're number one in five out of seven key markets in Q4 and ranked second in the US. During our peak trading period in Q4, one third of all branded jewelry searches on Google was on Pandora, well ahead of competition that were approximately around 10%. Next slide, please. The momentum was visible in Q4 with positive sellout growth in 5 out of 7 markets as I mentioned. The only exceptions were Italy and China. Our largest market, the US, delivered a 22% sellout growth and accounted for a quarter of Pandora's total global revenue in the quarter. The strong performance was driven by heavy media investments, high product availability, successful execution of key trading events and utilization of omnichannel features, such as curbside delivery, for instance. Our next biggest market, the UK, delivered positive growth despite the lockdowns in physical stores. by leveraging strong online capabilities. Italy ended in a negative sell-out growth. In reality, the C19 restrictions had a much bigger impact than the 8% shown here, as many shops were open partially in the week, but closed during the weekends where we conduct the majority of the sales. And the 8% only includes stores closed for a full week. So with 30% of stores closed, if we count each day, and online being a relatively small business in Italy, the minus 12% sellout is easier to understand compared to the other markets. As expected, China is still underperforming in Q4 and is not expected to improve in the short term. Next slide, please. The challenge in Q4 was how to deal with the peak trading in light of the restrictions. To do this, we had prepared ourselves thoroughly. We accommodated peak traffic into physical stores through a combination of initiatives, such as virtual queues, pop-up stores and remote shopping assistance, to mention a few. We stretched peak trading periods for Black Friday and Christmas over longer time than usual through promotional tactics and media planning. We redirected traffic by promoting the online store and the omnichannel service. We doubled the online capacity that we've spoken about before, leading to a doubling or 50% up on traffic online and eventually leading to triple digit growth. The social distancing battle plan proved successful with high conversion rates and some of the initiatives will obviously continue as part of normal business going into this year. Next slide, please. In the third quarter, we talked about how we were stepping up our efforts on data-driven growth. Email marketing, for example, has historically not been a big source of revenue growth for Pandora. With the efforts that we made recently and the strengthening of our organization in this area, revenue from email marketing now contributed to a meaningful 300 million Danish kroner in Q4, which is more than double the prior year. This is a step in the right direction and there's plenty more potential in this space. Next slide, please. So let me share some of the other facts on our digital results in Q4. The page loading time was under three seconds, a 40% improvement since the start of the year. And it's a well-known fact that the speed site totally correlates with conversion rates. So we therefore continue to invest in this space. Best in class is around two seconds, which is obviously the next phase that we're looking to reach. Our online conversion rate was up 30% year-on-year, and the conversion improved for most of the steps during the customer acquisition funnel, from traffic through to sales. The most recent initiatives to improve conversion included improved size guides, 3D imaging, virtual try-on, and buy-now-pay-later with things like Klarna and Afterpay. So lots of continuous improvements leading to strong results, and we expect more in this space to come. Please turn to page 13. This is an important slide and addresses a question which I'm sure many of you have. How to interpret the plus 1% sellout growth in Q4? What's the underlying performance, you might ask? First of all, we are very satisfied about the sellout being in positive territory. That is a major milestone for Pandora given the recent years. In order to understand the performance in the quarter, it's important to look at two opposing factors resulting from the pandemic. First, the lockdowns leading to lost revenue in physical stores, with part of that recovered online. Secondly, a shift in general consumer demand away from traveling and experiences, for instance, directed instead towards, amongst others, gifting and jewelry and other discretionary purchases. When trying to assess our underlying performance, we don't have data showing what the net impact of those two factors are in Q4. We do have general market credit card data from the US, which would indicate that a temporary shift in demand was material, but clearly less than the growth Pandora delivered in the US. We unfortunately don't have similar data from other markets, but aggregated market data from various sources do indicate that Pandora overall performed better in Q4 than the market in general, which suggests that we gained market share in most of our bigger markets, except China, of course. Please turn to page 14. We are preparing ourselves for another uncertain quarter with more lockdowns. Pandora will continue to be socially responsible by creating safe environments for our store staff and for customers. A key driver of the improved sales numbers have been a better balance between driving the core and new innovations. We understand those drivers very well and remain focused on this. In addition, we also ensure that there are strong plans in place for key trading moments. In Q1, those would be Valentine's Day, Chinese New Year's and Mother's Day in the UK. The performance will to some extent depend on the impact of potential lockdowns in those countries. As always, we're planning for the worst, yet hoping for the best. Flexibility and agility will again be key, and Pandora will, to the extent possible, continue the successful initiatives from the social distancing battle plan from Q4. I will now hand it over to Anders for further dive into our numbers. Please take it away. Thank you, Alexander.

We go to slide 15. As Alexander already mentioned, then the cost savings run rate target of 1.6 billion kroner has been delivered by the end of 2020. That means there will be another 350 million kroner incremental savings cost reductions in 2021 from the savings that we have already realized during 2020. And we have decided that the cost reset team continues as part of normal business when program now comes to an end. And that's because we still see good opportunities to take out costs. But it is too early to talk about where and how much. But obviously, all of the low hanging fruits have been done already. Then if you go to slide 17, please, then that slide 17 sums up the financial performance and mostly repeats what is already being said elsewhere in the presentation. So I just want to mention two things. And the first, I want to mention that the 4% organic growth last quarter was the first quarter with positive organic growth since the fourth quarter of 2017. So the first quarter in three years with a positive organic growth. And secondly, I would like to mention that the operating working capital ended in negative by the end of last year. And that's the lowest level that we've ever seen in the company. So minus 2% of revenue was where we landed when we exited 2020. And we go to the next slide, slide 18. So let's just have a short look at the drivers between the revenue growth in Q4. First of all, the changes in the store network had a negative impact of around minus one percentage points due to AD permanent store closures. And then our selling to the wholesale partners was boosted by the phasing from the third quarter into the fourth quarter, which we also talked about back in the third quarter announcement back in November. And you will probably recall that there was an equivalent negative impact in the third quarter of 2020. And then there's a bucket here in the bridge saying 2.5% support from channel mix and other. And this comes partially from wholesale revenue converting to online revenue. especially of course in the markets impacted by lockdowns. And then it comes partially from higher freight income in our online business. And freight income is not included in the sellout, but it obviously counts as part of the overall revenue growth. And if you go to slide 19, please. The EBIT margin was quite strong in a difficult environment in the fourth quarter with headwinds both from foreign exchange, higher silver prices as well, and also some non-recurring costs. And I'll start by commenting on the second pink box, the one called non-recurring and COVID-19 costs. And this includes, among others, that we had to have or decided to have full staffing in the stores to manage the social distancing, even though revenue in the stores in the fourth quarter was down 23% compared to 19%. And then we also had some non-recurring costs related to a write-off of an old design right that we had on the books. And this goes into our cost of goods sold in the fourth quarter. So in total, there were some two percentage points margin impacts, which you can consider non-recurring in the quarter. And that means that the underlying EBIT margin was therefore roughly the same level as in the fourth quarter of 2019, excluding these non-recurring costs and excluding the headwind from foreign exchange and silver prices. And as you can also see here, we continue to reinvest our cost savings into driving the top line. And for example, we made significant investments in additional online capacity, as Alexander mentioned, and improved online customer service. And then it's also important for us to stress that the last pink box to the right, the restructuring costs, those restructuring costs under program now were completed in Q4 and there will be no further restructuring costs reported separately from 21 onwards. And then if you go to the next slide, please, slide 20. Then, as already mentioned, we generated a strong free cash flow in the fourth quarter and 2020 thereby became the second year in a row with a cash conversion above 100. And the good cash conversion is not the least result of very good progress in driving down the working capital. And within the working capital, we saw very good progress in driving receivables and day sales outstanding. And day sales outstanding for the wholesale business ended at 23 days by the end of last year. And for our entire business, including our own retail stores and online business, day sales outstanding was only 10 days by the end of last year. So we don't consider a negative operating working capital as sustainable, and we do plan, for example, to increase inventories during 2020. Having said that, there is no doubt that we have structurally improved the working capital level compared to where we were just a few years back. Then please turn to slide 22 and the financial guidance section. The first two bullets on slide 22 are important, and I'll just read out the second one. In the absence of COVID-19 impact, Pandora would guide for slightly positive organic growth in 21 versus 19. And that is an important milestone for us after almost three years of revenue decline. The problem is, of course, that 21 will be impacted by the pandemic. We don't know for how long and to what extent, but there will be an impact. There is an impact as we speak. So to be transparent in our thinking about the underlying performance and the impact and duration of COVID-19 on the reported numbers, we provide both the official guidance as well as what we think it would look like without the pandemic. And as you can see to the bottom right here on this slide, excluding COVID-19, then Pandora would have guided for organic growth above 14 and an EBIT margin of above 23. And that plus 14% number is obviously difficult to relate to because 2020 was impacted by the pandemic. But as you can see then this guidance is equivalent to a slight positive organic growth versus 2019 also. But there will be an impact from the pandemic in 2021 also, and we currently assume that the pandemic will be a six percentage points drag on revenue this year. And as you can see on the top right, this takes our official guidance on organic growth down to above 8% and an EBIT margin of above 21%. I hope this is a clear and a helpful way of framing our guidance and thinking about 2021. If we then go to the next slide, here we have spelled out our thinking about the revenue guidance in more detail. And on the top, we show how we think about the guidance versus 2020, and then at the bottom, how we think about it versus 2019. And I hope those two bridges are self-explanatory. But let me just put a few words on the key assumptions behind the guidance. We assume that an average of 25% of the fiscal stores will be temporarily closed during the first half of the year. And we are currently just around 30% of the stores being closed. And that's what drives the 6% drag on revenue for the full year and which you can see here in the second last building block on the bridge. And this impact will be seen in the first half of the year is our assumption and for the first half of the year it will be a 16% drag on revenue. And then for the second half of 2021, we do not assume any material store closures due to the pandemic, but there might be some store restrictions that will still have some limited impact on operations. And then we turn to the next slide, please. As you can see here, in the large black building block to the left, Pandora's business model still has significant positive operating leverage when revenue goes up. And we've seen that from a negative angle during the last couple of years, but it also works the other way around when revenue goes up. But in the overall EBIT margin guidance this leverage is less visible due to the expected temporary impact from the pandemic, but also from higher commodity prices. And indirectly in this bridge, you can also see that we expect to keep reinvesting the cost reset, cost reductions in driving the top line and the business. So the 350 million kroner run rate cost reductions I mentioned earlier on will be reinvested in driving the top line and not least within digital. so we're guiding for an EBIT margin above 21 and excluding the pandemic we would have guided above 23 and then capex for the year we expect to be between 1 and 1.2 billion and we don't expect any major changes to the overall store network footprint there will be some closures some openings but no major changes and then the next slide please cash distribution. We ended 2020 with a solid financial position. Our leverage was 0.5 times EBITDA, and that is in the very low end of our capital structure policy. And we expect to continue to be highly cash generative this year. And we also have ample liquidity to initiate cash distribution, as you can see in the gray box to the left here. Having said that, given the uncertainty caused by the pandemic, we think it's appropriate and prudent to await further certainty about the pandemic before initiating cash distribution. We are after all currently in a situation where only a third of our stores are fully open without any restrictions at all. But in order to get ready for a potential distribution later in 2021, later this year, we will be asking shareholders at the upcoming AGM in March to authorize us to distribute an extraordinary dividend of up to 15 kroner per share later this year. And we already have the authority to initiate a share buyback in due course from the shareholders. And with that, I will leave the word to Alexander again.

Thank you Anders. So before heading into the closing remarks, I want to highlight our exciting product lineup for Q1. In January, we launched Pandora Colors, a broad range collection with all product categories available in various colors. In February, we have Valentine's coming up, which is always an important event for us and where we believe we have a strong lineup focused on symbols that represent love, as you can imagine. And in March, we're launching a new spring collection, which brings a fresh connection to the world around us. Please turn to the final slide. So, our performance in Q4 marked a material improvement and Pandora returned to positive growth despite COVID-19 lockdowns. This means that we're approaching the end of the turnaround and Pandora is preparing to shift gears from turnaround to growth. This is visible in our guidance where we're guiding for positive underlying growth in 2021, excluding the impact from C19. When it will be directly visible in the reported numbers obviously depends on the development of the pandemic. And finally, as Anders mentioned, we continue to be highly cash generative and will resume cash distribution once the pandemic is under more control. With those final remarks, we'll now open for the Q&A session. Operator, please go ahead.

If you wish to ask an audio question, you may do so by pressing 01 on your telephone keypad. If you wish to restore your question, You may do so by pressing 02 to cancel. Once again, please press 01 on your telephone keypad if you wish to ask an audio question. There'll be a brief pause after each of your questions to be registered. This question comes from Edouard Aubin from Morgan Stanley. Please go ahead.

Yeah, good morning, Alexander and Anders. So two questions for me, maybe the first one on current trading, if I may, if you could please give us an update of how, you know, you traded year to date. And I think, you know, related to that consensus about expecting about 9% growth in Q1, if you thought that was achievable, given that you just mentioned, Anders, that you're expecting a double digit drag on revenues from store closure. And my second question is on China. Sorry, just to come back on that. But I understand that you've made some comments in the past about the perception of the brand, which was not the right one perceived as a mainstream jewelry brand. And also you made some comments about management changes. But could you please come back to the core of the issue and why, Alexander, you're confident that you could return to growth this year? Thank you so much.

Hi, it's Anders here. I can start off on the first question about current trading. We don't want to provide exact numbers on the current trading, but obviously, compared to the fourth quarter, we are sitting with significantly more store closures. 10% on average in the fourth quarter, now just around 30% being closed. And obviously that has an impact. But I think what we can go as far and say about general trading is that there's no structural changes compared to what we've seen in the past. But of course, the reported numbers will be impacted when you have almost a third of our stores in full lockdown. So the picture is pretty much the same that we're seeing going into the new year and trading in line with our guidance.

Hi, Edward. In relation to China, we can talk a lot about this. And if you want to hook up on a separate call, I'm happy to do that. But in brief, this traces back to how the brand was launched in China back in 2015 and very much tried to mimic the general approach that the Pandora brand was taking outside of China, essentially trying to go from only focusing on the charms and bracelets and trying to be a full-scale brand And that's kind of how it was then portrayed in the Chinese market, which meant essentially, you know, you went in without any particular point of difference. And that now plagues us because as we conduct market research, which we do continuously across the key markets, we can see that the understanding of what Pandora as a brand represents in China is very different from pretty much every other market that we research in. So that's one issue. Then what we did, this is now some six to nine months back, we took the global positioning of the brand and did both qualitative and quantitative research concept testing with Chinese consumers in various clusters, various geographies. in order to see whether the positioning, the original positioning, actually was meaningful. And all the research that was conducted came back with a very clear thumbs up. Yes, once we understand the concept, we like it. It's distinctive, it's different, and it's interesting for me with a high purchase interest. So that's what kind of makes me very strong in my opinion that this brand definitely has a role to play. And in fact, if you think about it purely from a cultural standpoint, symbols are even more pronounced in those Asian cultures maybe than in many of the Western cultures where we've been successful. So that is the kind of key point that we need to address.

Okay, thank you. Our next question comes from from the city. Please go ahead.

Hi, and good morning, Alexander and Anders. I have two questions, please. One on charm performance. Now, we have had two consecutive quarters where charms are kind of underperforming bracelets. Do you see any structural shift in the consumer shopping behavior in terms of wearing less charms per bracelet? Because this, in a way, kind of affects the collectability proposition of charms, which I think is key to the brand. And second, on the full price sales evolution, you gave some interesting statistics during Q2 that about 80% of group revenues in June and July came from full price sales versus 60% a year ago. So I just wanted to get an update there. Has that ratio improved further through 2020? Thank you.

Okay, how to answer this properly? I don't see that there's a structural, if anything, there's a structural positive change. So if we take Australia as a point in case, in the fourth quarter, they actually increased the number of charms sold per bracelet. So when they execute the strategy, then we can see tangible results. If you look at the drivers of the U.S. business, for instance, I mean, we had strong progress on rings, which is not unsurprising because rings as a percentage of the categories is slightly higher in the U.S. versus Europe. But fundamentally, the strong underlying growth comes from the moment's platform. So that's all in a good place. Then it will vary from quarter to quarter when we push certain collections that sit underneath the platforms. But broadly speaking, this is what keeps pushing the business forward. Then on the full price-sales ratio... I don't have those stats handy. The only thing which I could say is that comparing to last year, you remember we did a big cleanup of the assortment where we went from memory somewhere around 1800-1900 DVs down to 1300-1400 give or take. That, of course, ended up with a lot of things that we put on the sale. And in particular, in the end of season sale of prior year, that was a big proportion. Going into this year, we had a lot less to put on sale because we've been managing our inventory position much better. So the actual end of season sale was half sales. The size of last year. So if I look at that, then just by, you know, arithmetically, my full price sales has to be a higher proportion of. But also let's not forget that what happened this year was that in UK in particular, which sits in the Q4 numbers. their stores were closed. So the online performance on sale was, I think it was down something like 10% versus prior year. But of course the sale event is a bigger, let's say, relative exercise in the physical stores. And when they're closed, of course that has an impact. So it's the analysis. There are so many moving parts. I can't really, you know, speak to it like we did last time around when the period you're referencing because it was a more clean base to read from. So I have a few things going on. But generally speaking, end of season sale is going to continue being a smaller portion of our activity because we're just managing the merchandising much, much more professional than we've done in the past. That was kind of like the, you know, say, get out of jail card if you didn't manage your assortment well. But we are now more sophisticated than we used to be. So I think that's going to be less of an impact going forward.

Got it. Thank you.

Our next question comes from Lars Topman from Carnegie. Please go ahead.

Yes, congrats with a great finish to a very strange year. I have a couple of questions. With all respect to your revenue guidance bridge, I don't completely understand it because I understand you're assuming sell-out will grow by at least 3%, but isn't it fair to assume that if your own online strategy works, you will capture more of that sell-out value in 2021 than you did in 2019? I mean, on my numbers, you captured around 72% of the 19 sell-out value. And each additional 1% you catch would actually boost your growth by 140 bps mathematically. So where is that, what you say, increased capture of retail value in the equation, assuming you'll have a higher online share in 2021 than in 2019? That was the first question. The second question is on your network and capital. So presumably when you have a bigger online share of sales, there's no trade receivable in that. So I just wonder if you strip that out of the equation, where would your network and capital position be? Thank you.

Lars, it's two very relevant questions. And on the revenue bridge, if you look at it, that impact versus 2020, it's most likely going to be the other way around, given that we saw an elevated share of online business in 2020, which depending on how the virus pans out, could result in that it will be some of that pickup is shifting back to become, so rather than being our sellout, then it becomes sell-in to the wholesale partners. I think that would be a likely outcome.

That I understand, Anders, but compared to 2019 is my question. Clearly in 2021, you should capture more than in 2019.

Yeah, and it's a completely relevant question. We've had discussions also internally about that. I think there's no doubt that the online share of business is going to be higher in 2021 than in 2019. Was it 13-14% in 2019? But how much higher? That is a question. But of course, you're right that if we see a more permanent and structural high shift towards online business, then that will be supportive of the organic growth also versus 2019. We're baked into this when we're saying that we see sell-out growth of more than 3%, having that in there, but exactly how that plays out. But we do assume that there will be some, that we will have a higher share of online business in 2021, but I'll be hesitant to be specific on how much exactly that plays out, but definitely higher than what we saw in 2019, but not at the 2020 level. I don't know whether that is helpful.

But just to understand you absolutely correctly, Anders, so if network development is minus one and if sellout is plus three, then your reported revenue should grow more than 2% if we look from 19 to 2021 and strip out COVID-19. Is that correct?

I just need to understand your line of thinking is a network development.

So I take your bridge on slide 23, 2021 versus 19. So you have network minus one, sell out plus three. And that gives you organic growth of two. But my question, just to make sure, that organic growth should be higher than just taking network development and then adding the sellout growth because of this channel dynamics.

Yeah, and that is why with that piece, the second part of that bridge we're calling is sell-out growth in own channels and sell-in to partners. So it is a mix of the two. So the above 3% is not sell-out growth only. It includes the impact of that. So it's sell-out growth in our own stores and online and then sell-in to the partners, which obviously underneath that includes a change in the mix of channels.

So what is the sell-out assumption then?

Yeah, I think, again, I'll do it in two steps because versus 2020, I think it's likely that the sellout could be at or maybe a little bit above organic growth because obviously in 2020... Actually, Anders, I'm more interested in from 2019 to 2021 because then we don't have to... analyze what is and what isn't covered 19. so from 19 to 2021 what is the sellout growth assumption yeah the way that i would i would look at so i can do so so i can do my my own math with this the way that i would look at it there i think the way i would look at it there is to say that if you look at the the 2020 actuals then organic growth was so roughly a percentage point a little bit more than a percentage point above sellout. And I think that that's the way when you look at it on the two-year bridge, I think you should think about the sellout will be a little bit below the organic growth guidance on a two-year basis because we saw that organic growth being a bit above sellout in last year in 2020.

But now you go from organic growth and say what that means in sellout. I would like to go the other way. I mean, I assume your assumption is a sellout growth and I want to calculate what that means for organic growth. But maybe we can take it offline.

Yeah, but in that equation, obviously also comes that if you go all the way back to 19, we had a hard hit on selling to the partners as part of the commercial reset. And that has an impact when we go into 2020 as well. So that, of course, it starts with sell-out and then you have to look at what do you think about changes in the market. inventories in the channel and then changes in the channel mix as such and then you're getting to the organic growth but I think in short we'll say that if we're guiding versus 19 and forgetting COVID-19 for a while above 2% organic growth and the sellout is likely going to be a little bit on that two year basis the sellout a little bit lower.

Okay, so if you grow sellout 3%, I'm right that the organic growth should be higher than the sellout when we adjust for network development.

On a two-year basis, yeah.

Yeah, fantastic, thanks. And then on trade receivables and what networking capital would look like if you didn't have this big increase in online share revenue. If you have the math.

Yeah, I think one way to answer it is that our receivables in our own channels is close to zero. And that's actually also an area that has improved during 2020. We're getting the DSOs in our online business quite nicely down. I think it's one of the notes into the annual report. You can actually also see that. the absolute receivables are down even though revenue online and in our own channels is up so that there is an impact there so saying if some of that shifts back again and converts into wholesale revenue then that by itself will have a negative impact on the working capital okay

Thank you very, very much, guys.

Our next question comes from Magnus Jensen from SCB. Please go ahead.

Thank you for taking my question, Magnus. Yeah, I have two questions. One related to your score network. So you closed 80 stores in 2020, which I guess a lot must have been due to COVID-19. And since that will continue into 2021, why would you then not expect further closings? That was my first question. And then the other question is in terms of your sort of indirect guidance for 2021, if we exclude COVID-19, where you say that you expect revenue two percentage point higher than in 2019, and then a margin above 2023. If we compare that to your guidance you gave for 20, where you said that you would have revenue 3% to 6% lower than 19 and still a margin above 23, that doesn't really compute to me that you would not expect a higher margin now with 2% going higher revenue. I know there's something about commodities that have a negative impact, but on the other hand, you've done a significant cost savings in the meantime. So why would you not expect a higher margin with 2% point higher revenue compared to 19 now?

That's my question. Thank you.

Hi, Magnus. It's Anders here. On the first question about the store closures, the 80 store closures that we've done in 2020 is actually not very much related to COVID-19. It's something that we've done anyways with those closures. The reason that we are ending with more net closures in the year than what we guided, we guided around 50 net closures, It's not because we've closed more, but because we have not opened new. Because we had originally planned to open more stores, not least in China and Latin America, but we sort of pushed that out a bit. So if you look at the store network that we have, it's still very, very profitable. The four-wall EBIT margin in the stores is obviously below what it was in 2019, but it's still in the mid-30s on average. And of course, then there's a distribution around that. But despite the revenue reduction, I think it's 30% down our revenue in the physical stores in the full year, if I recall. record right from memory, it's still an EBIT margin in the 30s. So that's also leading into why we are guiding for this year that the net-net no big changes in the store network. And then on your other question, I understand why you're asking about that. And there's two main differences. And the one is, as you also say, much higher silver prices. I guess when we made the guidance a year back or so, the silver prices were still in the high teens, something like that. And compared to that, we will have 150 basis points headwind this year in 2021 from the higher levels. from the higher silver prices and then the other piece is in it that we are investing all the money that we're taking out of the business in in cost reset and a bit more we are reinvesting back into building a company that can generate sustainable top line growth it is our number one priority so the cost reset savings is funding most of the journey but we are investing a bit more than that in the top line because that we see as our focus point to get to that point not being stupid of course we have to be careful about how we spend the money but the biggest piece is the silver prices

okay that's clear thank you our next question comes from anne from hsvc please go ahead yes good morning so i have two questions as well so i just want to come back on the on the current trading please Is it possible to comment on the performance for the month of January? And only comparing the future performance of Q4, is it possible to give a bit more of colors about your performance for the month of January? And my second question is about the stock closure. So on average, in Q4, it was around 10%. And at the end of January, it's around 30%. I perfectly understand and I know the shutdown of big markets such as the UK or Germany, but where is the data coming from, please? Thank you very much.

On the current trading, I think we can't provide further comments than what we have. And it's out of a principle. It's not because something is happening and then I'm indirectly maybe saying something anyways. But it's just out of a principle that we shouldn't comment on the first couple of weeks of the year. But I can repeat that there's no structural changes. Apart from that, we have 20 percentage points more stores closed than what we had back in the fourth quarter. And that obviously can't help that that's not visible in the numbers. And then on the store closures, we actually started out back in February last year doing that a little bit unscientifically in an Excel sheet as you sometimes do that kind of stuff online. And as it became clear that this is something that will keep on, we do it in a system, store by store, and we're tracking that every Friday at our weekly operating meeting and looking at where we are. So it's data that we get in from each of our stores around the world and from our partners, how many are closed.

Thank you.

Our next question comes from Christian Rom from Nordea. Please go ahead.

Hi, Alexander and Anders. Thank you for taking my questions. I have two. First, I'd like to, if you could elaborate a bit more on your guidance for organic growth excluding COVID-19. So when we look back over the last two, three quarters, The period where you were arguably less or least impacted by COVID-19 was in sort of early autumn, where you delivered the organic growth rates roughly of 6% to 8% relative to 2019 levels. So my question is, why are you only assuming organic growth of above 2% versus 2019 levels in this sort of excluding COVID scenario. The assumption I would imagine would be that you continue to see improvement in the brand momentum. And then my second question is to the guidance for the impact of COVID-19. So as I read your guidance commentary, you say you expect or you assume 25% of stores closed during the first half will translate into a 16 percentage point drag on organic growth. That would imply sort of a multiplier of around 0.6 times. Is that sort of a number we can work with also to understand how the first months of the year develops as we track your store closures.

Thank you.

Christian, thank you for the two questions. On the guidance, a couple of comments. One is that it is deliberate that we are making an open-ended guidance, which is, I know that it's usually easier to work with a range or a number, but it is deliberate that we are guiding with an open-ended guidance. Both because there's a lot of moving parts. There's always a lot of moving parts in the business, but that's even more so this year with COVID-19 and how that plays out macroeconomic development, government support packages that we saw in many places in 2020. How does that play out in 2021, et cetera, et cetera. So I think the important fixed point for us is to say, We believe and dare guide, so to speak, that we are back on delivering underlying growth after a couple of years of revenue decline. How much that will be above the 2%, with the 2% being the low end of the guidance, so open in the guidance range, we'll see. We are still... turning around. We are getting closer to say that we can put a program now behind us. We are still turning around combined with a situation where the world is shaking up by additional factors. I hope that helps you a bit. One way to think about it is when you have a market that goes into lockdowns. Let's just, as a sake of example, say we have a market that goes into lockdown, 80% of the revenue is coming from stores and 20% from online, just as an example. Then obviously as a starting point, you're losing the 80 in revenue because the stores are closed. And then as an average, what we have seen during the pandemic with very different numbers between markets, quite different numbers depending as during wave one and two and three, but roughly that a third of that revenue that we miss online is recovered in the, sorry, a third of that revenue that we miss in the physical stores is recovered online. And that's what leads you to the 16% revenue impact in the first half of the year. And on that 16% revenue loss in the first quarter, I think you'd probably be likely, we can all guess about the pandemic impact, but likely a bit bigger impact in the first quarter. and a bit less impact in the second quarter from the pandemic as such. But we'll see how exactly that plays out. But our internal assumption would be there would be a little bit more stores closed than the 25% during the winter, spring, and then a little bit less during late spring, early summer.

But we will see. Okay, thank you very much.

Our next question comes from Frederick Iverson from ABG. Please go ahead.

Many thanks. First, I want to come back to e-commerce a little bit. How do you plan for that channel next year and maybe also onwards given what we saw in 2020? I guess you reached maximum capacity over the latter part of the year. So just curious on your thoughts on that.

It depends on from what angle you approach this question. As we've said before, if you look at the channel shift, let's say that a customer moving from one channel to the other, we are kind of agnostic where the transaction actually falls. And there's been some windfall because we have, of course, picked up some of the revenue that would normally have gone through So from that standpoint, the actual transaction point is not such a relevant measurement point. It's one we report on because it's easy to understand, but from a commercial standpoint, it's not the major point. The transaction is an outcome of all the activities that happen before you get there. So our focus is on that side. And that's why we keep talking a lot about the investments we make in digital capabilities, meaning not just logistics, but also the marketing efforts we do and the kind of improvements we keep making on the sites, our targeting efforts. And that's a full-on focus on that because we do think we can eke out a competitive advantage in that space. So I think that's how I would think about it. But from a financial standpoint, it doesn't have a major impact at this stage of the game. That may change in the future, but right now we don't see that.

Got it. Thanks, Alexander. And the other question from my side is on the rent levels and what you see and expect on that side. I guess that's a quite significant part of your operating expenses.

Let us answer that in two ways. On the first hand, with lower traffic everywhere in physical retail, I think it's obvious that we need to have a conversation with the landlords across the globe on what a model should look like. Because, of course, part of the rent we pay is because they provide traffic to us. If the traffic isn't there, then I think the model needs to be questioned. On that basis, of course, we've then had plenty of conversations, and you can see some of those kind of rent reliefs or concessions seeping through in the numbers. But I think there are two topics there. One is what's kind of the retail landscape going to look like going forward? And obviously, at the current traffic levels, we have to have a conversation on that. on what this landscape should look like. And secondly, as I said, maybe Anders can give some context on what has actually been achieved in the last year in the numbers.

Yeah, as you, I think we have mentioned that before, but when we made the reorganization back in March last year, then a dedicated network management team was established, a new global team, and we're already seeing the first results of that from many angles, both on the rent level as such, but also the split between fixed and variable rents. leases, the magnitude of break clauses, everything that helps giving flexibility in our operations. And one of the ways that you can see some of that impact is we've looked at, and it's a little bit technical, but it may help you to look at the progress is the right of use assets that sits on our balance sheets. have gone down from, and that's the technical way of saying that the number for the capitalized value of all of our store leases around the world has gone down by 1 billion kroner during 2020 from 4 billion to 3 billion, which is obviously quite a big amount of money. So it's something that's... We have a lot of focus on and still see opportunities. And you can also see in the roadshow presentation that we just went through on the cost piece, one of the bigger buckets of the 1.6 billion corona cost reductions is coming from the stores and within that a quite decent piece from the lease renegotiations.

Thanks, that's helpful. Would you just care to remind us of the share of stores that you have on turnover-based terms?

Yeah, it's been around... A third of the stores have been on variable rent in the past. And the reason I'm hesitating a little bit when I answer is that... There's a variable rent, but often then in those agreements, there can be a minimum rent still. So if the revenue in a store drops a lot, then the threshold kicks in. But around that level, and that is obviously... But combined with that, I think when you look at it from a risk perspective, you also should keep in mind that usually our store leases are not that long. And often, even though we might have a five-year contract, we still often have a break clause in between. So in giving us some optionality to get out of the agreement. So in general, so what... the couple of years I've been here, we haven't seen situations where we have been locked up in a long time in a store that we want to get out of. We actually have quite some flexibility, even though we are operating or owning 1,400 stores across the world.

Great. That helps. Thanks, Anders.

And our next question comes from Omar Saad from Evercore. ISI, please go ahead.

Thanks for taking my question. Great quarter. I was hoping you could tell me, can you guys tell if it's new customers in the fourth quarter driving your demand or is it existing customers? I don't know if the e-commerce is so much higher that you have more data on who the customers are driving your business. That would be helpful to start.

I don't have that data yet. And again, the situation is versus what? Because we have a slightly different composition due to the store closure. So I will have to come back when we have mined, especially the December data.

Okay. Okay, that's fair. Is the fact that rings and bracelets outperform charms, is that insightful? Or is the fact that moments uh was the strongest within charms you know it despite harry potter and star wars and pandora me and some of these other uh lines that you've launched is are is there are there Takeaways we can glean from those insights?

I think the key takeaway is that what's underpinning the strong progress is the moments platform. And then, of course, then we might launch, you know, we have birthstone rings, for instance, that are picking up stronger in some markets like the UK, for instance. But they seem to be more topical. It's the same with Star Wars had a phenomenal share of business in the US and Australia, much weaker in China. So it's like it's not all, you know, one size fits all in a way. But I think that the key takeaway is the growth is underpinned by the moments platform fundamentally. And then U.S. has a slightly different composition if you look at the category mix, where rings in general has a slightly higher proportion than we see in other countries. So there we also see that the rings have made strong progress in the U.S. But generally speaking, the key point for me is that the focus is on moments platform, and that is what drives this business forward the most.

Yeah. Okay. Yeah. And so in the U S on rings and bracelets, you're saying that the rings and bracelets is a higher percentage of the mix in the U S and that drives the overall number or within the U S rings and bracelets, it's becoming a much higher piece of the mix.

No, what I'm saying is that the category in the U S the rings has a higher proportion than we see in other markets. So when we do a good job on rings in the U S then of course we get the benefit of the fact that we kind of, let's say we pick, pick part of that market better.

I get it. Thank you. Thank you. Good luck. Our next question comes from Klaus Kiel from Accredits. Can I please have your question?

Yes, hello. Two questions from my side as well. First of all, we talked quite a lot about your network and capital development. And I also believe that you said something like it has been structurally But do you have any input to where we should expect your net working capital ratio to be, let's say mid-term? And secondly, if I look at your EBIT bridge guidance for 21, then you have this negative drag due to no government support and no rent concessions. But maybe I'm not understanding it. correctly, but then you just say that you have actually renegotiated quite a lot of your leases and you're doing a great job there. So in other words, how will this representation become a negative in 2021? Thank you.

Klaus, it's Anders here. Maybe starting out with the last one first, and that's a relevant question, and maybe that could have been spelled out clearer. The piece that we have included there in that bucket called no government support or rent concessions are the rent concessions that were specifically related to COVID-19. So especially during the wave one, we approached landlords and said, Stores are closed. Let's have a chat about how we split the cost of that. And that's, to be precise, 112 million kroner. That was a one-off, purely COVID-19 lockdown-related saving that will... has disappeared, again, was specifically negotiated mainly during the first wave back in the second quarter of last year. Now, then you can say, well, stores are closed now in UK, Germany, other markets. There might be new rent concessions that we have managed to negotiate this year. that might might be i don't expect that we will see it to the same level as we did last year where i think everything was new 80 of our stores were closed if you go back into april last year um And so, after all, it is a different situation. But if you go a little bit further to the right in that bridge, then the second last bucket is called cost actions and government support. And in that, we have assumed that we can do a little, that's a half a percentage point uplift, have assumed that that's something that we can do, but not to the extent what we saw back in 2020. But this is one of the elements that we have to see how it... how it plays out, also how it plays out with government support packages. I don't think that the governments that we saw giving support to businesses last year will necessarily do it this year as well. Some will, some won't. But that is one of the elements of uncertainty in the margin for this year. But then on the network and capital, if you go back... Two years, I guess we were in double-digit net working capital and percent of revenue. Then it was down to minus three, end of 19, and then minus two by the end of last year. And if you go back, roll back a year, we got the same question. And then I think we answered, well, we can probably operate the business with a high single-digit percent of revenue, working capital and a high single-digit. That's a little bit far away from where we are now. And I think we have made some structural improvements during the year. But I think we can operate the company with working capital in the mid-single-digit percent of revenue, which is still significantly down compared to where we were a couple of years ago. But mid-single-digit, I think, is a good guess. Our inventories are... were too low going out of last year. And in a business like ours with very high gross margins and products that if you are smart, most of them have almost an indefinite lifetime, but it's definitely a long lifetime. It can easily be quite expensive to have too low inventories.

Right. Thank you very much.

Thank you. Our next question comes from Chiara Bassettini from JP Morgan. Please go ahead.

Good morning. Thank you for taking my questions. I also have to firstly, I would like to come back to your comment on potentially the shift of wallet towards jewelry and other discretionary categories potentially helping you, I guess. Or how are you thinking about this as we're going into 2021 and you're still factoring in the first half being impacted by lockdowns and potentially then therefore benefiting from this ongoing trend. Do you factor this in at all in your guidance or how are you thinking about this? I know it's difficult to quantify, but an insight on that would be very helpful. And the second question is on your marketing budget for 2021. How are you thinking about marketing growth in 2021 versus 2020? And in the medium term, where do you see marketing as percentage of sales? One sales have actually stabilized from 2022 onwards, the marketing as percentage of sales. Thank you.

I'll start with the last one because that's the easiest one to quantify. And it's consistent to what I've said before. We think that a level somewhere between 13 and 50 percent of revenue is a sufficient level to keep driving the growth of the brand. And as I've also said, it might fluctuate up or down a point depending on the year and depending on the initiative. schedule etc but there I think is a reasonable level but within that then what we continuously do and I mentioned in one of the slides was to try to optimize the spend and the more sophisticated we are the better we can target the consumer the less waste we have I mean that's pretty obvious and that waste If identified, I will keep reinvesting. So over time, I hope to keep getting more bang for the buck as we move forward. And then on the wallet shift, I don't think this has had a major impact because it's incredibly difficult to quantify anything. And the funny thing is, if we compare, let's say, the two or three waves of pandemic, we've actually seen some different behaviors in each wave. So you cannot just say what happened in wave one, I can just overlay and model on wave two and wave three. There seem to have been other factors driving up and down. The one unknown right now for me is what happens to unemployment rates or do people get more nervous here after Christmas, you know, depending on what goes on in the marketplace. So that might be a much bigger implication than wallet shift. Using a bit of stats, going back to, we've pulled out some data from that Altagamma does this study that Bain does. And if you look at what happened after the financial crisis in 2009, you saw that the whole luxury market as such contracted a bit, but actually rebounded quite fast. So on the assumption that there was actually a contraction globally last year, if we model on the basis of what happened 10 years ago, one would expect that to kind of normalize. Now, the one factor which doesn't really play heavy in our equation is travel retail. Contrary to many other luxury players, which are heavily influenced by what goes in travel retail, for Pandora, this is not a big factor. So, you know, to conclude on your question is we have not made a major factor of this in our assumptions for the budget of this year.

Understood. Thank you. Sorry, just a follow up on your marketing comment. I guess 13 to 15 percent is on a more normalized level of sales from 2022 onwards, right?

But if I'm not mistaken, that's kind of where we landed in 2020 as well, give or take.

But I guess, or maybe if I ask it in another way, how are you thinking about the growth of marketing in 2021 versus 2020? So just looking at marketing rather than as percentage of sales.

I mean, in all honesty, this is also a moving feast. We are learning as we go. So if I look at a very concrete example, three years ago, if you looked at the kind of media, because it's not just about the spend, it's also where I spend it and how I spend it, which is actually becoming now a bigger factor than it used to be. But again, back up the tape, look at the US. They only had what I call broad reach advertising, which is namely TV, essentially to support the Christmas trade. What we've now shifted to is much more of an always-on type of model. And we can see that it's paying dividends to be top of mind, not just the four weeks of the year, but actually throughout the year. And that, I actually think, is what's underpinning the very strong results we see in a couple of markets. So now, as we've gone into lockdowns, we've shifted some of that spend into digital. And then when the markets reopened, then we shifted back. So it is a bit of a moving feast. So that's why I say the 13 to 15 range seems to be a good level. But then within that, how we spend the money and using data to be smarter about the targeting is going to be a moving feast. You know, long are the days gone when I started in marketing, when essentially you developed a TV ad and you went to the TV station, you bought 30 weeks of TV and then your marketing was jobless. Now it's much more fragmented. It moves around. We see new platforms evolving. So this is much more of a it's more sophisticated if you want to be good in this space. So so I think that the 13 to 15 percent globally is a good number. There are a couple of markets which are well behind that curve still. which we're looking to kind of see how you move them up the curve, etc. But from a modeling standpoint, if that's what you're asking for, 13% to 15% I think is a decent level. Then we just need to be clever about optimizing underneath.

Understood. Thank you very much.

Thank you. Our next question comes from Piera Danima from RBC. Please go ahead with your question.

Morning, everyone. Thank you. Two questions as well, please. If I could maybe just come back to charms performance. I appreciate your comment that moments is driving the growth and the recovery. But I just wanted to understand, you know, is there still kind of a key area of focus? And as you think about 2021, are you prioritizing narrowing the growth differential between charms and the other categories? And perhaps what's changed in 2020 maybe related to channel shift that has led to a few percentage points of relative underperformance in that category, which is still half of your revenue base. And then secondly, just in terms of customer demographics, just wanted to understand, you know, I think you touched on it before that you're more sophisticated in the way you go to market and data capture and using data. You perhaps just give us an indication of how your customer demographic has changed since you've driven an improvement in your top line? Are you seeing younger customers coming into the brand? What's the mix between returning versus new customers, et cetera? That would be very helpful. Thank you.

So just to be clear, where we are most sophisticated is in the U.S., because that's where we have a high degree of data capture or higher degree of data capture than elsewhere. So I think a lot of the commentary we provide is born out of that data set. And then, of course, we can kind of somehow triangulate that this is relevant in other markets as well that have similar kind of dynamics to the U.S., just to kind of put that out there. And on your second question first, on the customer demographic, we don't necessarily see a shift in the demographic as such. And I keep reminding people of that. When we talk about targeting, we don't go after the traditional demographics as targeting. There are other things that we chase. We don't see that it's shifting materially younger. When we introduced Pandora Me, that was by design appealing to a younger audience. So in the periods where we drive Pandora Me, then we of course see a slightly different shift, but that's by design. But let's say the underlying demographic remains as it has been. And of course, everything I just said doesn't apply for China because there, in general, there is a much younger audience than we see elsewhere in the world. But that has, you know, other reasons behind it because the older generations didn't accessorize to the same degree as maybe our parents didn't. kind of pass that on to the younger generations. And on charms performance, I'm not sure I understand your question. What's changed with regards to channel shift? I mean, if your question is, if there's a, sorry, you know, clarify your question. Maybe it's better before I answer it.

Yes. Sorry if I wasn't there. It's just that, you know, when you relaunched the brand, you were able to narrow the or improve the charms relative growth rate to be in line with group. But through 2020, it's diverged and it's slightly underperforming again. At the time, back in late 2019, I think you guys were saying that charms is central to the overall product proposition. It's half of the revenue basis where you generate the lifetime value of the customer in terms of repeat purchasing. I just want to understand what perhaps has changed through 2020 and how much of a focus it still remains to get it back to in line or even above the group growth rate.

First of all, the way we think about it is not charms isolated. The way I think about it is on the platform, which is moments. And moments represent roughly 70% of our revenue base. So if that 70% isn't humming, then I have a big headache. which was one of the issues when I came to the business two years ago. We were facing spending too much energy on, let's say, the other segments. So the focus remains on the Moments platform. And that has not really materially shifted. I mean, again, it depends country by country. So if I look at the larger markets, there we actually see a very strong progress on the Moments platform. So, you know, I don't really see that there's anything that's fundamentally shifted. That is our core focus, is to keep pushing the Moments platform as the number one priority.

Okay, so maybe if I just read between the lines in your comments, is it fair to say then that you're slightly more category agnostic than perhaps you previously suggested? It's all about the platform and the categories within that on an equal weighting and wherever the customer shops, and that that's absolutely fine.

I mean, for instance, we don't see a different behavior depending on whether they go online or offline. It's the same customer, same customer behavior that just shifts kind of trading platform. But from what we want to focus on is most definitely to keep the moments platform alive and well. then of course underneath there we have different collections of of charms etc so you can categorize them in in you know in love charms or people charms or family charms what what have you there we kind of keep uh playing around with those but but fundamentally it's the moments platform that is the kind of main main engine here thank you that's great thank you

There appears to be no further questions, so I'll hand back to the speakers for any further remarks.

Well, thank you, everyone. As I said, 2020 was a quite tumultuous year for all of us, both from a personal standpoint as well as from a business standpoint. I think Pandora did perform very well. We're quite pleased with at least the anecdotal evidence that we've built market share in our key markets. China still remaining an opportunity, as it were, and quite hopeful that we will turn that around. And on that note, I wish you a good year and see you next quarter if not earlier than that. Thank you.