Pandora A/S Ord

Good morning, everyone, and welcome to the conference call for Pandora's full year 2023 results. I'm Bilal Aziz from the Investor Relations team, and I'm joined here by CEO Alexander Lachik, CFO Anders Boyer, and the IR team. As usual, there will be a Q&A session at the end of the call. Today, we do have a hard stop at quarter past 12 CET, so if you could limit yourself to two questions at a time, that would be great. Please pay notice to the disclaimer on slide 2 and turn to slide 3. I will now turn to Alexander.

Thank you Bilal and welcome everyone. As I'm sure most of you are aware, following a strong Q4, we already pre-announced our results on Jan 7, where we gave some selective details. Here I'm going to focus on the big picture of what we achieved through the year and dive into some of the drivers a bit more. First, we had a solid 23% with organic growth of 8% and like-for-like growth of 6%. We also ended the year on a good note with organic growth of 12% and like-for-like of 9%. You won't need reminding that the external environment remained challenging throughout the entire year. The reason we were able to deliver ahead of our previous guidance was simply that our investments into Phoenix, our strategy, are paying off. you can perhaps see that most clearly through the strengthening of our brand. We are clearly attracting more consumers and the very strong growth you see in, for instance, Timeless is a testament to the ongoing transformation into becoming a full jewelry brand. Also, in this inflationary environment, We've continued to demonstrate a rock-solid P&L structure. You'll see our gross margins reached another record high in Q4 and ended fully at 2023 above last year's. This clearly underpinned solid EBIT margins at 25% in line with our guidance, whilst we scaled up investments into the business through the year. Finally, our asset light model helped convert this into cash as we delivered very strong cash conversion for the full year. Therefore, once again, we have announced today a sizable cash returns to our shareholders of 5.5 billion DKK. So in conclusion, 2023 was a good example of where Phoenix is taking us. Solid growth, sustainably high margins, very strong cash flow, which comes back to our shareholders. Now, let's move to slide four, please. I'm proud to say that our financial performance goes hand in hand with driving our sustainability ambitions. We have quite an ambitious agenda, but we continue to make big strides across all aspects of the three major strategic priorities that you can see on the slide. I want to highlight one thing in particular within our circular innovation pledge. where we said we would shift completely to recycled silver and gold in the crafting of our jewelry by 2025. As some of you may have seen from the announcement last week, I'm proud to say that we've already achieved this target one year ahead of the plan. From December 23, we are only purchasing recycled gold and silver, which is an amazing achievement. You also would have noticed that this week we announced that once again, we were awarded the highest A ranking from CDP. Clearly, our sustainability does not stop here, and we look forward to making further progress on our agenda in the years to come. Slide five, please. For 2024, our guidance is for organic growth of 6% to 9%. It is very early on in the year and we've taken into consideration a number of factors as we've constructed this guidance. This includes our strong brand momentum, but equally the external environment. The latter still remains highly uncertain, so we continue to remain mindful of a still fragile consumer environment. We will, as usual, update you as we move through the year. Our EBIT margin guidance is the same as it was in 2023 at around 25%. We can clearly see the increased investments we're making into the Phoenix strategy are yielding positive results. So we will continue with this strategy of investing in future and current growth whilst maintaining our already high margins. I'll give a few words on current trading. We started Q1 well. In the first five weeks, our like for like is up high single digit percentage levels versus the same period last year. This is a good start and we're still being helped by the strong brand momentum witnessed since mid of last year. However, I will repeat what I said in Q3 last year, that over the past few quarters, we have seen some benefit from, for example, even stronger execution on paid and earned media, elevated social media buzz and better search engine execution. Whilst it's clearly part of our marketing strategy to drive that, you should not think of those aspects as being repeatable every single quarter. We will also not be afraid to dive into our business to continue the promotional detox, where we see an opportunity to further strengthen the brand for the long term. So in that regard, I mentioned in Q3 that the underlying run rate of our like-for-like growth was probably closer to healthy mid-single-digit levels. And this is also what we've included in our targets at the CMD in October of last year. When you take in the expected still weak macro environment, that's also what we have reflected in our full year guidance for 2024. And we should keep this in mind. Next slide, please. Now, before we talk a bit more about Q4 performance, I wanted to just recap on some promises we made just over two years ago at the Capital Markets Day back in 2021. Some of you may remember that was the start of our Phoenix strategy, and we said we would target an organic growth CAGR of 5% to 7% until 2023. We've ended up at delivering 7.5%, of which a healthy 5 percentage points come from like-for-like growth. This clearly comes across a very tough macro backdrop. At the same time, we also met our EBIT margin target ending at 25%. This is despite the inflation environment and significantly scaling up investments into our business as we prepare for the next chapter of Phoenix. So overall, this is a tangible reminder of what the strategy is delivering as we now enter the next phase of our journey. So next slide, please. This brings me nicely onto the next leg of our journey. I'll expand on some aspects later, but the performance we delivered in 23, and particularly in the second half, is a reflection of the momentum we see across our four strategic pillars, which you can see depicted on the slide. Some of the initiatives are already having a positive impact. In Q4 in particular, all four pillars came together to drive strong performances across the key trading events of Black Friday and Christmas. I mentioned last year that those are very competitive occasions, and we certainly don't take anything for granted, but it was very pleasing to see how well we executed in our biggest and most important quarter of the year. Now let's get into some specifics of that. Next slide, please. Some of you may remember from last year how Mary Carmen, our Chief Marketing Officer, spoke about being unmissable as a brand. Executing that across the busiest and most competitive period of the year is something that we're very proud of. Our like-for-like performance in Q4 in large part was driven by consistent driving good brand heat, which in turn drove a notable uptick in traffic across stores and online. You can see on the slide what some of that looked like. We were the lead sponsor at the British Fashion Awards in London and also used various means to amplify our brand message across the globe. This included the Sphere in Las Vegas with a stunning immersive display. Finally, Q4 was also the quarter where we launched our Loves Unboxed holiday campaign. Some of you may remember that from the CMD last year, but this was the new look and feel of the brand, which aims to significantly dial up the brand desirability. It was great to see a good reaction to the campaign, and that leads me nicely on to the next slide. As part of our refreshed marketing strategy presented last year, we highlighted how we would be looking to restage the brand early in this year. The core purpose of this is to really change the perception of the brand into a full jewelry brand. This is a step change of how we will be delivering our messages to consumers. Earlier this year, we've already started that journey, and on this slide, you can see a small sample of our new and exciting ad campaign, which features some of our new global brand ambassadors. The new brand campaign centers around the banner of Be Love, and this will be a multi-season campaign. What you see here is just a small sample, but we will be driving consistent communication through the entire year to take our brand desirability to the next level. Do keep an eye out for our communication materials. Next slide, please. By collection, our core offering continued to be solid for the entire year and delivered a healthy 4% like-for-like growth in Q4. We spoke about the great performance of the studied chain for the entire year, and since September last year, we added new variations. These continue to drive solid incremental revenue into Q4. Within our core, I pay close attention to our carriers, such as the studied chain, because this really underpins our future charm business due to its captive nature. The performance of the study chain therefore reads encouragingly for the vast universe of our charms into the future. You can also see the breadth of our products we have in our core offering in this slide, and they all perform particularly well over the holiday period. I wanted to highlight Pandora Me, which had a very successful year, delivering a solid 6% like for like in the quarter and double digits for the full year. Next slide, please. Now, as you can see on this slide, our fuel with more strategy continues to work very well. We are bringing more consumers into the brand, and they are really exploring the full breadth of the beautiful jewelry we offer. After a very strong 23, Timeless is now nearly a fifth of our entire business. Momentum here continued to be strong in the quarter with 31% like-for-like growth. I know some of you may wonder what product exactly is driving that, but it's really quite broad-based across categories where we still today have rather low market shares. Secondly, it's not really the way we think about the business. We sell Timeless as a collection, an idea, not only individual products. And the former is how you create a stronger brand. Now, of course, there will be products that create more buzz than others. And as you can see on the slide, the tennis bracelet went viral on social media channels, which drove good momentum for us in many markets. For diamonds, we continue to be encouraged with the trend. So let's talk about that on the next slide. In Q3, you'll remember that we expanded our lab-grown diamond assortment, which now spans across four collections and is available across six countries. Since then, we've continued to see good build-up of momentum in the collection. This was the first full holiday season where we had our wide offering, and it was very encouraging to see that Pandora's lab-grown diamonds is performing well on the key gifting occasions. To put this in context, across all our collections during peak trading times, we typically have one transaction every three minutes. The dynamics in diamond selling ceremony are, as you know, slightly different. In that context, we are also encouraged with the performance. We do have an ambition that by 2026 to generate at least a billion DKK of revenues from this segment. And with our expanded collection, we made a good start to this. Next slide, please. Once again, I want to quickly highlight our personalization capabilities. They're continuously driving incremental like-for-like growth, and engraving is a fantastic example of that. You can see on the slide how much buzz was created through engraving in 23. We scaled up our offering quite quickly across nearly 850 stores. This is an instant service we offer in our stores and truly resonates with our brand ideology, jewelry with a meaning. It's obviously win-win for us, and we're excited to expand our offering this year. Next slide, please. Now, we ended the quarter with a strong like-for-like growth of 9%. Before I dive into the markets, I just want to take a step back and highlight our like-for-like growth trajectory. As you can see, we've been delivering mid-single-digit like-for-like growth consistently when you look at it over a longer timeframe. And that comes across a quite weak macroeconomic backdrop. which we've been able to navigate really well. Clearly, our strategy is working. When we lift our sightline a touch, we can see a long runway ahead of us for like-for-like growth opportunities. We've listed some of them on this slide. We obviously don't control what happens in the broader macro, and whilst that can have short-term impacts, you can be assured that we'll continue to look to grow our market share and look to drive growth in the branded jewelry category. I'll remind you that our global market share remains only around 1.3%. And we have built a strong, agile organization which centers on the largest jewelry brand in the world. So those are pretty good ingredients, and you will see us thrive through economic cycles to come. Now, let's get into the markets for Q4. Let's start with our biggest market, the US, which delivered 10% like for like, another good sequential improvement. Like in Q3, the U.S. continued to benefit from our brand initiatives driving increased traffic. That also came through all our collections, which was great to see. Overall performance continued to be way down, but that of our partner stores, and we continue, obviously, to work with them. Next slide, please. The performance in our key European market was broadly stable at 5% lack for lack. Germany continued to build on a very strong brand momentum and delivered a whopping 39% like-for-like growth. Again, this was broad-based across all collections. This will naturally moderate at one point in time, but the underlying business remains in very good shape and one of the good examples of the mid- to long-term growth opportunities I was referring to. In UK and Italy, the performance continued to remain resilient despite the weak consumer backdrop. We continue to believe we're building share despite staying broadly flat in like-for-like growth. Finally, in France, it was another solid quarter with the brand initiatives coming to the fore. Like in the US, our overall performance in France continued to be weighed down by weakness in our partner channels. Next slide, please. Now, in China, a performance of minus 11 like-for-like fell short of our expectations. Whilst we have seen some positive signs in Shanghai following the brand relaunch, the recovery has been modest and not helped by the macro environment. We've taken the next steps in our journey here and have appointed David Allen as the new GM of the region. Some of you may remember that David brings valuable long-term Pandora experience, so we will look to leverage that as we seek to build our brand even stronger. In Australia, we continue to be impacted by the weak consumer sentiment, which continues to impact the partner channels in particular. Finally, on rest of Pandora, we delivered 16% like for like growth. And as expected, we saw some normalization of growth of a very strong comparative base. And you should expect that to continue into 2024. However, as we've said, this is a collection of many countries with good runway ahead. So the fundamentals remain sound and solid. As a general comment, I will also highlight that we are a truly global brand. That naturally means through the years you will see different growth pictures between our markets, with some naturally slowing whilst others accelerating. That's just part and parcel of having a wide and strong global portfolio. Next slide, please. I just wanted to give a quick word on our network expansion plans. We met our guidance for net openings and saw a 4% positive revenue impact from our new stores in 2023. The financial KPIs of the stores are in line with what we've always expected, and this continues to be a very accretive revenue stream. Therefore, you should not be surprised to see that we will push ahead again further in 2024 and target 100 to 175 openings as we begin our journey of opening a total of 400 to 500 stores between now and 2026. This is through a combination of concept stores and shopping shops. Next slide, please. Tied to our network, we opened 55 stores of our new store concept, Evoke 2.0. For those of you who might not have seen this yet, it's a fundamental redesign of the classic Pandora store with a vision of presenting Pandora as a full jewelry brand and elevating brand desirability. I strongly recommend you to visit to see the difference for yourself. I always said we had to test the new store concept over peak trading periods, and I'm very happy to report that over Black Friday and Christmas, we saw very good performance across the new stores. This was an important milestone, and we will continue to move ahead with our ambitious rollout plans here in 2024 with further openings. And on that note, I'll hand it over to Anders for a closer look at the numbers.

Thank you, Alexander, and good morning, everyone. And please turn to slide 22. Alexander has already commented on our top-line performance, but what you can see here on this slide is how the good top-line performance feeds nicely down through our P&L and all the way down to cash flow and the other financial KPIs. Once again, I'll highlight our strong gross margin. It was almost at 80% in Q4 and reaching another record high of 79.3%. And I might be repeating myself from prior quarters, but again, this is driven by strong underlying foundations. There's no one-offs that makes the gross margin so high. It's just a continuation of our gross margin journey over the past few years where we've continuously been able to drive improvements. You'll hear Alexander shortly inviting you to a site visit at our crafting facilities in Thailand and I strongly recommend you to join the visit to really understand some of the driving forces behind why we can operate at this high gross margin level. You can also see in the table that our working capital position improved from last year, ending at just under 2% of revenue. As expected, this was held by our inventory, which ended the year broadly flat in absolute terms and thereby down one percentage point when you measure it in percent of revenue. And we are very satisfied with the inventory position going out of 2023, both in terms of composition and in terms of the inventory level measured as a percent of revenue. And of course, a flat inventory in a growing business helps the cash conversion, which ended 2023 in a strong position at 78%. And as expected, after peaking in the third quarter, our leverage fell back towards the midpoint of our targeted year-end net debt to EBITDA range of between half a turn and 1.5 turns. In 2024, you should expect a similar pattern for our leverage, which will again peak as we exit the third quarter before falling back in Q4 due to normal seasonality. Next slide, please. Now, here on slide 23, let's take a closer look at the revenue performance in the quarter. Alexander has already covered the like-for-like growth, so I'll just cover some other aspects. First of all, we saw another strong contribution of 4 points from network expansion in the quarter, and this takes the total revenue growth from network expansion to around 1 billion in 2023. And this is profitable growth, as you know, the annual EBIT margin on this incremental revenue continue to be north of 30% EBIT margin already in the first year of the life of the new stores. Secondly, we continue to see a small drag in our growth of minus one point from the bucket that we call sell-in and other That's in line with our expectations and in line with the third quarter. This includes, among others, a low selling to partners, other points of sale, including multi-brand stores, which keeps performing relatively weaker. Then go to the next slide, please. On the EBIT margin. our performance played out as we expected, both for Q4 and for the full year. And as you can see from the bridge, the Q4 margin benefited from cost facing, and that's the largest of the grey buckets in the bridge. And as you will remember, this was a drag on the performance in the first three quarters of the year. The second gray bucket from the left is plus 20 basis points, and it includes the net effect of operating leverage and the investments that we are making. As we highlighted at the CMD, we are investing in current and future growth opportunities as part of the Phoenix strategy, and as you can see on the top line, it's playing out quite well. For the full year, our margin ended at 25%, and that's in line with the guidance for the year. Now then, let's move on to slide 26 and the guidance for 2024. We are targeting another year of solid growth with an organic growth between 6% and 9%. And within this, we are targeting a like-for-like growth of between 3% and 5%. But let me give you a few points that will help you frame our thinking about 2024. As Alexander showed earlier on, the like-for-like CAGR in our business since 2021 has been around 5%. And looking all the way back to 2019, we are at a 4% like-for-like CAGR. And in 2023, we clearly seen good momentum across our strategic initiatives, and we got lots of growth opportunities ahead of us. So we are going into 2024 with a good track record. We're going into 2024 with momentum, and we're going into 2024 with a strong portfolio of growth initiatives. And as you've seen, we also started the year with good trading during the first five weeks. But this doesn't mean that you can just use the 9% like-for-like seen in Q3 and Q4 last year as the new baseline or run rate of the company. There are three other factors which draw somewhat in the other direction and which we have also taken into account in our guidance. First of all, we saw a particularly strong brand momentum during the second half of 2023. There are several good drivers behind this, but keeping such brand momentum is not a linear journey, and it's not something we assume can be repeated every quarter. And that's one of the things to keep in mind, particularly in the second half of 2024. Secondly, as Alexander also mentioned, then growth in the rest of Pandora will continue to normalize off tougher comparatives. We have lots of growth opportunities in all the countries sitting in this bucket, but we cannot and do not expect to be able to grow at the 16% like-for-like level that we saw in 2023. And then finally, we are still conscious of the macroeconomic situation and the broader weak consumer backdrop. And the low end of our guidance accounts for a weakening of the macroeconomic climate. So if I sum up, our message is that we ended 23 with momentum. We started 2024 in a good place and we have many growth initiatives in the pocket. So we guide for another year with a solid 6 to 9% growth, despite the fact that the macro environment is not great and consumers are likely to remain under pressure. And then go to the next slide, please. On the EBIT margin, We are targeting for another year of strong profits with an EBIT margin of around 25%. In this connection, I want to reiterate the message that we gave at the Capital Market Day last year. We have plenty of growth opportunities ahead of us. And in order to capture these fully, we have been and will continue to scale up investments across the organization. And this includes putting proper investments behind areas such as the restating of the brand and the roll out of our Evoke 2.0 store concept. As always, our investment remains quite flexible and we are able to adjust accordingly depending on the growth outcome. We have laid out the building blocks for the marketing guidance on this slide and we are of course happy to dive into that if you have any questions. There is one thing that we wanted to highlight regarding the quarterly facing of our margins this year. As you know, the restating of our brand has already started and the investment in this will impact the Q1 margin relative to last year due to the marketing spend, which comes with the kickoff. And then go to the next slide, please. On this slide, we have shown some of the other guidance parameters for 24. Alexander has already covered the stall openings. I just want to highlight our effective tax rate, which we expect to be between 24% and 25%. And the increase from 24% last year reflects, among others, the introduction of the new OECD minimum tax rules, which I believe you are all aware of. Also, finally, we expect our net financial expenses to land somewhere between 950 million and a billion Danish kroner. And that's an increase of around 200 million kroner versus last year. And that's mainly a function of higher interest rates on a slightly higher debt in absolute terms, as well as a higher interest element of our store leases. Then please go to the next slide. I'll finish off talking a little bit about cash returns. You all know that we have quite fundamentally changed how we run Pandora over the past five years. But that's one thing that has remained constant at Pandora all the way back from the beginning. And that's the cash generating ability of the business and our approach in returning all of that back to shareholders. And one way to illustrate how much cash Pandora has generated for the last 10 years is what you see at the bottom of the slide here. And here we have shown the evolution of the share count since 2012. And you can see that we have bought back and canceled nearly 35% of the share capital since 2012. So it should come as no surprise that we will continue to be consistent and return significant cash again here in 2024. For 2024, we are announcing a total cash returns of 5.5 billion. And that includes an increased dividend per share of 18 kroner per share and a newly announced share buyback of 4 billion, which is starting tomorrow. And with that, I'll hand it back to Alexander.