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.

Thanks, Anders. Now, before I wrap up, I want to come back to the site visit that Anders just mentioned. So last year at the Capital Markets Day, we mentioned that one of our major competitive advantages was our manufacturing sophistication and scale. And to bring that to life and show you exactly what we meant by that, we would like to invite you to our crafting facilities in Thailand in June. to really get your head around why we have been able to carve out a competitive edge and sustain industry-leading gross margins. I really recommend you to join us if you have an opportunity. We'll follow up with more details in due course, but do get in touch with Bilal or the IR team if you have any questions. Now then, to finally wrap up, So we're seeing a good momentum around all our strategic initiatives, none more so than our brand, which is really resonating with consumers. This, of course, helped us deliver a very strong 2023 and in particular with a strong performance over Q4. We have completed the shift to 100% recycled silver and gold and set the bar for sustainability in our industry. For 2024, we look ahead with confidence and target another year of solid and profitable growth A core part of our equity story is consistent cash returns, like Anders just spoke about. We've stuck to that with the announcement of another sizable return. And with that, I think we can move to Q&A.

We will now start the question and answer session. If you do wish to ask questions, please press five star on your telephone keypad. If you wish to record, you may do so by pressing five star again.

There will be a brief pause while questions are being registered. The first question will be from the line of Grace Smalley from Morgan Stanley.

Please go ahead. Your line will now be unmuted.

Hi, good morning. Thank you very much for taking my questions. I guess first on Alexandra on marketing, with the new 2024 brand campaign now launched, could you maybe comment on the initial reaction you've seen from consumers from the new campaign. I know I appreciate it's early, so maybe even commenting on some of the feedback you got when you were testing the campaign and how that feedback varies between your core consumer and a new consumer that you're trying to recruit to the brand. And then secondly, my follow-up would just be, given these marketing investments near term and as what is the guidance embedded for marketing as a percentage of sales for both the full year and also for Q1, And given the brand restaging and the strong marketing investment in Q1, what is the kind of level of margin contraction we should expect in Q1 EBIT margin? Thank you very much.

I think it's a week that it's been up, so it's probably a little bit on the early side. We pick up a few commentaries on social media and so forth, but it's really not something to comment broadly on. More importantly, though, the qualification of the campaign obviously was very, very strong. We do a thorough job before we put these things out there, and in particular this time around, it's not just you know, the run of the mill ad campaign. This is about restaging the brand. So it took almost a year to actually get us to this point. So it's tested very, very well. And in particular, what we're focused on is to drive consideration on the brand. So as I've spoken to some of you in the past, it's easy to shout. I notice you, but it doesn't mean I like you. So what we have, we already have a very high aided brand awareness. So what we're trying to do with this is to turn that high aided. I mean, typically it's 90%, 95% in most markets. So we're trying to drive that into actually considering the brand versus just knowing about the brand. And those scores were very encouraging when we did the testing.

And thanks, Grace, for the question on marketing. A couple of thoughts there. It will be quite visible in Q1. There will be a couple of points of increase in the marketing as a percent of revenue. So in percentage terms, that means a significant double-digit increase in marketing spending in Q1. But that is not going to flow through fully to an equivalent impact on the EBIT margin, because there will be somewhat better gross margin, some operating leverage, but of course, net-net, there will still be an EBIT margin of... decline of a size that we thought it was worthwhile mentioning it up front, but not the full, let's call it 300 basis point of increase in the marketing as a percent of revenue. For the full year, it would be much more balanced, but you should still expect the marketing to increase more than revenue for the full year still. So let's call that Of course, depending on how the year plays out, but just to give you some direction of how it could play out, let's think about the marketing that could be 30, 40 basis points higher as a percent of revenue for the full year. That's a lot dramatic, but still something.

Okay, very helpful. Thank you. Thank you, Grace. The next question will be from the line of Thomas Chaubert from Citi.

Your line will now be unmuted.

Good morning, Alexander and Anders. Two questions, please. The first one on the margin bridge 2024, thanks for presenting that very useful slide. The 30 bps margin compression from OPEX leverage net of investment, which explains why margins are not expanding this year, Is it based on the midpoints of your 3 to 5% like-to-like guidance, you know, plus 4, and would plus 3 or plus 5, or hopefully you'll do much more than 5, for the year lead to maturely different outcomes? And secondly, on Timeless, Alexander, you explained how excited you are about this segment. just over 15% of group sales. They contributed to about half of your 6% group LFL last year, and there's 20% LFL even stronger in the fourth quarter. Would you expect Timeless to outperform even more this year, given all the product initiatives, the restaging of the brand into a full jewelry offering, and how do you ensure that the success of Timeless doesn't end up cannibalizing moments LFL which as we all know is growing but it was a relatively modest growth last year. Thank you.

Thomas, I can start out answering the first question on the margin price. Yes, the minus 30 basis points is based on the midpoint of the guidance and in a way I could stop there but I think I'll maybe just give a couple of more comments to the that exact element of the EBIT margin bridge. If you go back to the CMD, there was a kind of a principle that we tried to communicate on how to think about operating leverage and And just reiterating that we want, the way to think about the EV margin for 2024, so being flat versus 2023, is that we want to make sure that we have enough firepower to keep driving the top line. So enough firepower to drive all across the growth vectors, being the brand heat, restating of the brand, making sure that we get position as the go-to brand for lab-grown diamonds, the brand relaunch in China, the rollout of Evoque 2.0 and potentially also putting some more power behind driving traffic into the stores and online, should the macro turn out weaker than what it is today. And on top of that, if I should have put a little bit more data behind the investments that we're doing in 2024, that so offsets the operating leverage, then as three or four pockets. One is media that we just spoke about. The thing about that being, let's say, at 30-40 basis points of margin headwind for the year. Depreciations will be going up in 2024. Let's call that 150 million Danish kroner, so that's 50 basis points on the margin. And that comes, as some of you know, that we have been doing very little on store refurbishments, basically all the way back since 2018. Now Evoque 2.0 is ready and we're putting full speed as fast as we can go behind that from a CAPEX perspective. But given that we have done very little refurbishment for five years, there will be a depreciation impact in the P&L this year. Then we are investing behind the growth pillar that we call personalization, that includes a strengthening of the online experience that we have, that probably goes, let's call that 25-30 basis point of margin or investment that goes into that. And then finally on digital and sustainability, if I put that in there, that's another 25-30 basis point of some incremental investments. And that goes across our ERP preparations and early rollout. mobile point-of-sale systems in the store workforce management system so we can manage our stores even even better and then there's also small incremental cost of going of driving us ourselves forward on the sustainability agenda including recycled silver and you may have seen the the announcement last I think it was last week, that the total annual cost, that's not all incremental, but the total cost of being 100% recycled on silver and gold is to the tune of 10 million US, so 70 million Danish kroner. There was a longer answer that maybe it was intended to top us, but I hope it's helpful anyways.

Now we spoke for so long, I even forgot what the question was.

Timeless. The contribution of timeless to group and whether this would cannibalize moments at some point if it becomes so successful.

So if you remember way back when, when we talked about these kind of ECPs or our segmentation model of the market, the one thing which we've been very particular about is when we enter additional collections, that we actually make sure that the collections fulfill a different consumer need. So you're kind of trying to sort out a different occasion of usage. And that is kind of how we try to try to maximize the separation of that purchase act so one doesn't cannibalize the other. So that's kind of strategically how we craft all of these collections to have enough separation while still kind of sit under the umbrella of the Pandora brand. So if you think about Pandora Me is again something quite different in, you know, not least from an aesthetics standpoint. Timeless is a completely different type of jewelry occasions that you're trying to serve. So that's at least the strategic intent. Can we print another 20-30% growth on Timeless? If I said yes, then you would immediately start doing back calculation saying everything else is going to decline and you're like for like it's either rubbish or you're not sane. So if you go back to the capital markets day, we said that moments would probably occur, would probably grow, you know, let's call it low single digits to mid single digit type of in the strategy period, right? And then the other collections, obviously, in order to get to this kind of group, like for like that's higher, will have to grow at the higher clip. So now exactly what that is each year is dependent a bit on the initiative focus, et cetera, et cetera. So, yes, Timeless has to grow faster than Timeless. then moments that, you know, that was true last year and will have to be true going into this year as well. And looking kind of what we have in the bag, then I'm quite confident that's going to be the case again. So I hope that gives some color to your question.

Thank you. And can you say whether the time list is still going at a steady extent, like in the fourth quarter in January, against obviously tougher comps, or is it normalizing now?

No, I mean, I don't think we've ever guided on particular collections. So, you know, then I would have to ask you to look at what we said at the Capital Markets Day. That gives you a, you know, generic sense of how we think about it.

Thank you.

Thank you so much. The next question will be from the line of Ben Radarmaden from Goldman Sachs. Please go ahead. Julian, I'll be unmuted.

Good morning, Alexander and Anders. Thanks very much for the question today. I've had two, if that's okay. My first one was just on gross margins. you guys have reached a record level during the period. And in the past, you've spoken about how you kind of see gross margins settling in around the high 70s. But I'm interested, after the fourth quarter and some of the mixed benefits from the fuel with more segment, whether you think you can rebase margins more towards the 80% level if we look forward. And then secondly, just on the US and the strong performance there, can you maybe just talk to the drivers of that performance whether we think about market growth or share gains. Thanks.

Thanks for that. On the gross margin, it remains a very good story. I think we'll still point towards the very high end of the 70s as a good way to think about the gross margin going into this year, going into 2024. I think eventually, if everything else remained constant, you might even get very close to 80%. But that, I think, would require the element of inventory buyback. You know, when we buy back a store from a partner, there's a temporary drag on the gross margin. That was 50 basis points for the calendar year 2023, and you should expect pretty much the same level this year, maybe even a touch higher. But once that sort of cycles out, and that's not going to be this year and not next year either, then if everything else remains constant, you might even see 80% in some quarters.

And then if we move to the U.S., I mean, U.S., like many other markets, the key driver when you kind of, let's say, peel the onion, is traffic. It's driven by traffic. And of course, Part of this traffic is the underlying good work that we've been doing for quite some time. The other piece is this a bit more topical TikTok trends and whatnot. Part of it is, you know, we've changed the methodology on how we try to win search, which is clearly working really well for us. There is a bit of halo probably from the investment on diamonds. Not everybody that comes to the shop to buy the diamonds end up buying a diamond, but we know that we drive more awareness and more consideration for the brand when we've had the investments behind diamonds. It is not helped by the market conditions at all. So the U.S. market has been very tough in the back half. So this is pure market share gain. And actually through the back end of the year, we accelerated that delta versus the market based on the data points we've seen so far. I have not yet seen the December data, but up until November, that was certainly true. And given that, you know, we finished very strong, I have no doubt that it will have continued into December. But as I said, I don't have that data set in front of me yet. So... Excellent.

Thanks very much.

Thank you, Ben. The next question will be from the line of Lars Topham from Carnegie. Please go ahead. Your line will be unmuted.

Thanks. Congrats with a good quarter. A couple of questions on my side. One is on the storage pension. In your guidance, you attribute 3% to 4% growth from this. If I just take the facing of your store openings last year, and then assume 25 new concept stores per quarter this year, and 10 new shop-and-shops this year, and then assume average sales are completely flat. I get a number closer to 6%, and of course it could be because you are assuming a very back-and-loaded facing, but I just wonder if you can put some comments on that. Then a second question, so you have a situation where where you, of course, are underperforming the Pandora-owned stores for several reasons, I'm sure. Wouldn't the logical conclusion be to roll up the entire franchise network simply by not extending franchise agreement when they come up for renewable? And if that is the case, can you put some comments to the maturity profile of your franchise agreements if you pursue a complete roll-up, when would you no longer have franchise stores? Thanks.

Hi Lars, and thank you for the question. I think it's well spotted that depending on the timing of the opening of the stores in 24 we might even get above the 3-4% range and you are probably also right that the 3% is I would assume that we will be very back-end loaded, maybe even the 4% we're still assuming that we'll be somewhat back-end loaded in the facing of the stores as we saw in 2023. We're trying to make it more smooth this year because it is a fairly big time consumer for the organization. So it's better to do it a little bit more smooth through the year. And if we succeed that there might be an upside to the network expansion top line.

Yeah, just to build on that. There are plenty of markets where normally the change of contracts happen after the summer. So that's typically, historically, the reason why we've been more back-end loaded. Now, we're trying to smooth it out, as Anders said. But if you look through the years, well, when we've done this type of work, then it's more tilting towards the back half. So that's one question. On your other question, as you know, we have always said that we don't have an aggressive or we don't have active – acquisition policy when the contracts come up for renewal we'll take a look at it if it makes sense we'll take it back if not then we renew but you would have noticed then in the last you know periods we have taken back more than we have renewed if I think about The typical contract is five years. There are some which are longer and there are some which actually, given the local regulations, don't have any time frame on them. Because simply put, if the contract is fulfilled, then it renews automatically. And then you would have to get into a conversation with an active contractor. acquisition debate in order to buy them back, which so far we haven't really done. There's been instances where, you know, the franchise partners have knocked on our door and say that we want to engage in a conversation, and we always do. So right now, when they expire, yeah, we look at it. In the meantime, we try to, you know, motivate the franchise partners to, you know, to perform better. So that's as much as I would say now.

Just a small follow-up to that, Alexander. So if you say a typical contract runs for five years, since you haven't renewed that many in recent years, is it fair to say the average maturity is a lot less than five years?

Well, arithmetically, yes.

Okay. Thanks.

Thanks for taking my questions.

Thank you, Lars. The next question will be from the line of Audran Belch from BNP. Your line will be unmuted.

Yes, hi, it's Antoine at BNP Exxon. Two questions. First of all, I'd like to come back on the U.S. market outlook. Especially, do you expect the like-for-like to be above or below the average of the company in 2024? And so in the 3% to 4% contribution from your store, how much of that will happen in the U.S.? And also a bit on what would be the share of the U.S. in the forward integration. And my second question is about the online business. You know, how did – what are the trends recently? And, you know, how do you see that business going forward? It's – It seems to be a channel that, generally speaking, is a bit, I would say, consolidating. And I also should share a comment about how its profitability has evolved versus the average of the company. Thank you.

Okay. We don't guide on individual markets. We did it, what, two years ago? But there were some very particular reasons why. So we're not getting into that conversation. I think that the U.S. market, I mean, it continues to be a tough market. There is no doubt. And we have been in a good position where we gain market share. But that's as much as I would say share of network expansion and forward integration is.

Yeah, I can take that one, Antoine. On the network expansion, I'll probably divide it into the concept stores and shop and shop, because it's quite a different picture. On shop and shop, which is the easier one, then it's almost entirely a Latin America story, with the store openings that we are planning, the 25 to 50 this year. On concept stores, it's much more balanced. On an individual country basis, U.S. is the biggest, but we actually do see store openings or planned store openings this year quite well across countries. Also, if you look at Europe, there will be store openings in a number of different markets there, also in some of the own markets and partner markets in Asia you will see opening so it's much more balanced on the concept stores but again just repeating the US is in absolute terms where we open up the most concept stores in 24 and on the forward integration Yeah, it's also to quite an extent a North America story, US and Canada, but there will also be a number of other markets where we do it, but the bigger piece is in North America on forward integration. Yeah, and then you had a question about the franchise market. There was a question on Econ as well. And the question on franchise performance, you've seen the numbers. There's been quite a consistent difference for a long time in the life-to-life between our own stores and partner stores. We've taken quite a number of initiatives to try to narrow that gap. But it... hasn't really moved the needle to a large extent, and you can see that in the Q4 numbers, where we still have a seven-point like-for-like gap. Fortunately, the partners have been in positive like-for-like both in Q3 and Q4 as a global number, which obviously helps, but it's still a seven-point gap here in Q4, which of course hurts us a bit. spending quite some energy to try to narrow the gap, but I don't think you should expect that we can narrow it in 24 either, or eliminating that gap.

And then on e-com, I think we landed a touch above 20% e-com as a percent of our global business. If you go back, and this is pre-pandemic, where you had a bit of a more stable economy, Then it looked like it moved a few points every year. And that's probably how I would predict it for the future as well. After the pandemic, we now, of course, settled at a very different level. Before the pandemic, 30% of our business was done on e-com. Now I think it was landed at 22, if my memory serves me right. And it seems to have stabilized around that level. So going forward, yeah, it may move a point or two annually. So, you know, draw out the line 10 years from now, yes, it's going to be a number closer to 30 than 20 for sure. But I don't see it moving much faster than that. And part of the reason is, as we've said in the past, is People like to come down and look at the jewelry. They want to try it on, see if it fits. Ring sizes in particular is a bit more cumbersome to order online, for instance. And a large portion of our customers are guys that simply need help. to to with that gift purchase so and they you know predominantly go into the stores so i don't see that changing uh radically at least so it's quite slow and then from a profitability standpoint if you do the let's say vertical or channel pnl if you may it's not vastly different whether the transaction falls in in our e-commerce channel versus our retail channel as we've always said and we're fortunate versus many other people that that have this situation that we're quite agnostic to where the transaction ends up falling. If you're a grocery retailer, they have a very different point of view on this, of course, because it hurts quite a bit if you move it across to e-commerce trading. And we don't massively care about that. I think, as I've always said, the right question is, you know, how do you get more people into the funnel than where you conclude the transaction, I think is a little bit less important in our case. So, yeah.

Thank you very much.

Thank you, Antoine. The next question will be from the line of Anna Laura Dismuth from HSBC. Please go ahead. Your line will be unmuted.

Yes. Hi. Good morning, Alexander and Anders. So two questions. The first one is about pricing. So in the building blocks of the EBIT margin in 2024, it stated that the inflationary impact is expected to be offset through price increases and efficiency. Do you plan to do another price increase in 2024 and by how much? And the second question is about the new stock concept, so the new Evoque 2.0. So you opened 55 stores in 2023, so we know the target for 2026, but how many are planned for 2024, please? And what is the sales uplift linked to the new Evoque 2.0 concept, please? Thank you.

Do you want to take the pricing one? Yeah, I can take that.

I think high-end law, the way to think about pricing in 2024 is along the lines of what we said at the Capital Market Day was between 1% and 2% price increase as an average across the portfolio. So that's a 20 to 40 basis point of margin support based on an elasticity of 1%.

I think we're planning up to 175 POS, of which 75 to 125 are concept stores, the rest are kiosks, but they're all Evoke POS. Maybe not in LATAM. I need to take that step back. So a few of the kiosks are going to be in Evolution, actually. But all the concept stores are going to be Evoque most certainly. So between 75 and 125 for the year. The sales uplift, I think it's a little bit early because we landed a lot of the 55 in Q4. So a very short period. But so far what we've seen is they're at least parity to what we would expect from an Evo store and actually a little bit better. But I think the number of stores is still not enough to give you a big number because then immediately you're going to stick into your models and forward and tell me that my like-for-like numbers are too low. But it's a positive outcome so far.

Thank you.

Thank you, Anne-Laura. The next question will be from the line of Michael Rasmussen from Danske Bank. Please go ahead. Your line will be unmuted.

Yeah, thank you. Just a couple of quick follow-ups here. So you mentioned you had a good sequential momentum in that base during the fourth quarter. Can you add a bit more color on that? More specifically, was that just gifting or was it also self-purchases driving that sequential improvement or was it simply the product availability? So that's my first question. My second question is on what happened in Germany. It seemed like it was very much your digital media model that's contributing to the growth, the hyper growth in Germany. Are there any other markets where you can replicate this or was simply just the German market, so to say, underinvested in digital? Thank you.

so on LGD the way to think about it is that we initially as you know we had like 36 or 37 DVs I'm talking about the US specifically now and then essentially we added another three collections on top of that so all of a sudden you had much more variation to choose from and then what you can say we see that the run rate more or less doubled from one day to the other. I think that's the main conclusion. I have not seen any data that would suggest that the split between self-purchase and gifting has changed from what we had in the past. So we probably need to let it run for a few more months before we can say anything more conclusive on that. And Germany, what happened in Germany? I mean, so Germany is... First of all, I think it's important to remember that Germany still is what we would call a low penetrated market from a Pandora standpoint. And therefore, there is more runway than in, let's say, Italy or UK, where we've been present with high market shares for a much longer period of time. So I think that's That's one thing. The other one is I would argue that the competitive context in Germany is a little bit less intense than France, as an example. There's more competition in, let's say, in the middle-priced luxury where we play. Can we replicate this elsewhere? I mean, I think Turkey, if we kind of forget about this hyperinflation situation in Turkey... That is another market where I think probably we have a similar context in terms of not that many branded players in the middle. Our brand seems to resonate super well, and clearly we have not invested properly in this market for many years. So I think that could be an interesting one. That's probably the one that comes closest to mind of, let's say, larger geographies. Brazil is interesting, but there we have a local competitor that is doing a good job. But we still think that that's an interesting one for us. Canada is probably another one where there could be quite some runway. This has been a market which we probably haven't put our full attention to up until let's say, last year. So that could hold quite some interesting prospects for the future. And then we have all of Asia, you know, the South Korea, Japan, and India, whenever we get there. Those will also be markets which would have similar characteristics to the one in Germany, I'd say. So there's plenty to work with for the next five to ten years for us to be worried about.

Great. Thank you very much, and well done, guys. Thank you.

Thank you, Michael. As a reminder, please press five star to ask questions. The next question will be from the line of Christian Dordicken from SEV. Please go ahead. Your line will be unmuted.

Thank you. So I'll start with the two questions. Maybe firstly, could you comment on if you can give a split on growth that is coming from new customers and from existing customers where you get a higher share wallet? That would be my first question. And then secondly, what are just interesting here, what are the key points you look at when you evaluate your performance on becoming the full jewelry brand that is your ambition? Thank you.

Okay, let's start with the second one. I mean, ultimately, it's about delivering total growth for the brand, right? So the guidance that we have given you for the years to come, That, you know, including the composition of that growth, as I mentioned, what we believe to be coming from the core versus the others. I think you have it all wrapped in that. And that's really what we're looking at. I'd be looking at things like overall brand penetration. then whether they come in on timeless or moments ultimately doesn't really matter that much. Of course, we have to be very, very precise in order not to drop the ball on the core. So that's why we always say internally when we kind of speak to our troops here is like moments first and then sequential growth on the other stuff is really the way you need to go. Also not to repeat the mistakes from the past. I think those are the main points. And of course, then we have some metrics around the brand, but now we're getting into very detailed conversations around brand awareness, consideration. Desire, as such, is quite difficult to measure. I think that's a composition of a number of different things. And then the other question was around split on new versus existing. Yeah, so we have data, but it's – so the data set we have is essentially – A third can be identified as new, and the way we qualified it is that somebody hasn't purchased for the last 12 months. And then, of course, it falls in the bucket of a repeat customer, so they've been in there down the last 12 months. And then we have unidentified customers. And the data we have now is a third, a third, a third. So it's difficult to make bombastic statements on one way or the other because of that last third, which is unidentified. But roughly half and half is new versus, as I said, people that are repeating within the year. then the way they behave is pretty much the way our portfolio splits. So because the large proportion of our business is in core, that's also where in absolute terms they come in at a similar clip. Now, percentage-wise, of course, you will get very different rates. But in absolutes, and this is not, you know, that's as expected somehow. So if you have a large base, you need to cycle that, then percentage-wise it's not going to grow that much. But in absolute, it's important for the total growth of the business. So I don't know if that's helpful, but that's kind of what I have.

No, definitely. It was maybe just a follow-up on both of them. I think maybe lastly, so on another point, So, how has this evolved? Do we have data on, and is this as expected based on, you say, the new marketing campaigns and also on the new product category, sorry, designs? And maybe following up on that, when you mentioned that becoming the full degree brand, you didn't mention any, that you looked at the split of the product categories. You mentioned in the report that brings the count of 20.5 sales during the quarter. Is that not a data point you're looking at?

It's a very sophisticated question, and I would take a bit more time to untangle it. I think the key point for me is that I keep an eye on the total brand penetration. That's really what matters. If I can't grow my brand penetration, that suggests that I'm just switching people from one thing to the other, and I'm not getting the incremental revenue growth. That would be a bad outcome. So last year, for instance, we saw that brand penetration grew across all our key markets, which is then, of course, then that traffic increase translates into incremental growth. And that's really what the strategy is all about. So for me, that's the one measure which I look at more than anything else. The other ones are more like diagnostics that I look at. So, for instance, there's a big debate here historically to talk about share of business. So if you use the share of business as a success metric, you could indeed see that, well, share of business on Timeless went up, but it came at the expense in Absolute on something else. And that is a bad outcome. That's why looking at this growth in Absolute revenue growth is really the way to look at it. So I look at brand penetration. I look at the growth by collection in Absolute. That's what success looks like.

And maybe on the latter point, so is it as expected on the split on the existing customers and new customers? Is that as you had expected?

As I said, when you have such a big anchor as moments in your brand promise, you will get the – if I get 10 customers coming in, yeah, I will get five or six of them to come in on moments, and then the rest is going to split on the other ones. So it kind of follows that logic.

And that's a good thing, just to be clear.

Yeah. Thank you. Thank you, Christian.

The next question will be from from RBC. You will now be unmuted.

Okay, thank you for speeding me in at the end. I have two, please. The first is just around regional growth contribution. Obviously, while we're looking ahead, the 6% to 9% organic growth, do you have any foresight in terms of which regions you expect to grow faster than others? If we look at the 23 performance, you know, the growth is led predominantly by the rest of Pandora markets, as well as Germany, and then the U.S. would be the top three. Just curious about how you see that, the regional growth progressing in 2024. And then the second question is just a clarification point. I think, Anders, you said that the year one EBIT margin of new stores for one EBIT margin is 30%. So they ramp up very quickly from a profitability perspective. Could you just remind us what the EBIT margin is for the existing portfolio on a steady state basis, the for one EBIT margin, just so we can do some maths around that? Thank you.

Thanks Perel, I'll start with the last question first, I did say north of 30, but if you go back to the CMD or maybe earlier quarter, I can't remember, we also said that you would see the run rate of the new stores getting to 35 to 40 percent. But if you look at the existing store network, we are in the mid 40s and that goes both for 22 and 23, mid 40 percent EBITDA if you take everything all existing. stores and store formats within our own network it's mid 40s in terms of EBIT margin so the new stores will be starts at 30 gets to 35 to 40 as a run rate on average so there is a pick up to come the on the regional growth I think a couple of things to call out and just repeating what we've said already, but Germany and the rest of Pandora have obviously been big growth drivers in 2023. We expect both of them still to add to the growth, but I will say obviously not to the point or to the extent that they've done in 2023 with very, very high double-digit growth rates. On the other hand, if you look back at 2023, we had U.S. being at quite low growth rates in the first half of the year. That, of course, gives an easier comp in the first half of 2023. and 24. And similarly, as you know, some of the other key markets had a difficult start of the year, being in negative light, like Italy, Australia, France as well, actually, during the first couple of quarters. So the composition of the growth will be somewhat different in 2024 compared to what we saw last year. I hope that's helpful.

Yes, thank you.

And we now conclude. Thank you very much, everyone, for the time. Any concluding remarks, Alexander?

No. I mean, as I said, we're very proud and pleased with what we delivered last year and looking forward to another interesting year. So thank you for the attention.