Pandora A/S Ord

Good morning, everyone, and welcome to the conference call for Pandora's full year 24 results. I am Bilal Aziz from the Investor Relations team, and I'm joined here by CEO Alison Olightick, CFO Anders Boyer, and the rest of the IR team. As usual, there will be a Q&A session at the end of the call. If you could kindly limit yourself to two questions at a time, that would be great. Please pay notice to the disclaimer on slide two and turn to slide three. I will now hand over to Alexander.

Thank you Bilal and welcome everyone. As usual, I'll start by highlighting some of the key takeaways for the year and Q4. If I take a step back, I think Pandora can be very proud of delivering another strong year. Through yet another year of quite tepid growth in many jewelry markets and consumer pressure, we've managed to drive our business forward. At the heart of this is the Phoenix strategy. Our mission is to build a full jewelry brand and attract more consumers to the brand. Therefore, you'll probably not be surprised to hear me say that we will continue on that course well into the future. Our results continue to demonstrate the robustness of our strategy in hard financial numbers. We've delivered 7% like-for-like growth for the full year and ended Q4 with a healthy 6%. Through the course of the year, you would have noted that we kept a very stable core. That's always the first priority and incredibly important. But then we draw faster growth in what we call fuel with more, underpinning our promise to ensure this brand becomes the one-stop shop for all type of jewelry. On profitability, I hope most of you will agree with me that any brand consistently delivering around 80% gross margins has a strong business model and is doing something right. And of course, this allows us to make ongoing investments into the business whilst maintaining very solid EBIT margins of, in this case, just over 25%, exactly in line with our guidance. We continue to demonstrate very high return on capital, which improved slightly this year. Again, a reflection of the very efficient business model. Finally, you can see how all the metrics fed into our strong earnings model with 17% EPS growth in the year. So all in all, a good performance in quite challenging markets. Now, let's look ahead. Can we move to slide four, please? For the 2025, we expect the overall consumer environment and macroeconomic situation to remain quite challenging. We have taken this into consideration in our guidance, but despite this headwind, we are guiding for organic growth of seven to 8%, of which we expect like for like growth of four to five. You can be assured that we'll keep pressing ahead with our Phoenix strategy. I want to note that we did indeed see some more intense promotional behavior from some of our competitors during the end of last year. a reflection of the challenging environment. That's not a game we're particularly playing and I do not expect, at least on the onset, the environment to be any easier. Therefore, I believe delivering these growth numbers with the current backdrop will be a great outcome. Our EBIT margin guidance, I'll let Anders comment on that in detail later. However, as a summary, there's two headlines here. First, we continue to invest in our brand. These are non-negotiable and value-accretive investments. And secondly, this year we're faced with significant external cost headwinds from commodity prices. Despite these, we are guiding for margins of around 24.5%, which again will be a good outcome. Now, I'll provide a few words on current trading. We've started the quarter pretty well with our like-for-like growth at high single-digit levels so far. I want to caveat this slightly with strong performance in our end-of-season sale, and recently we have seen consumers concentrate their shopping more around promotional events. Nonetheless, the underlying trends of the business remain healthy with a like-for-like closer to mid-single-digit levels, something reflected in our like-for-like guidance also for this year. Now let's move to slide five, please. I covered our financial performance earlier. This slide shows how we also managed to grow our business in a sustainable manner. Two important milestones in 24. We now craft all jewelry with 100% recycled silver and gold. and we now run entirely on renewable electricity throughout our operations. We are happy that these efforts are noted. For the third year in a row, we received an A-score from CDP, and we were ranked among the 100 most sustainable companies across sectors. We take our commitments here very seriously. Can we move to slide seven, please? I mentioned earlier how the Phoenix strategy has been driving us forward. On this slide, you can see the specific pillars of that. You usually hear me talk mostly about the brand because that's where everything starts. But I want to emphasize that all of the pillars are intertwined and we invest in all of them accordingly. Whether it's our new e-commerce platform or driving engraving, we are putting proper capital and resource behind each and every pillar here. We're building this company not just for the near term, but importantly for many years to come ahead of us. I've always said that good brands that remain relevant do two things well. First of all, they're consistent through time. And secondly, they invest through cycles. That's exactly what we have been and will continue to be doing. That brings me nicely on to the next slide. When you have solid foundations backed by a strong strategy, then you can continue to bring more and more consumers into your brand to drive solid like-for-like growth. As you can see here, we've demonstrated that quite consistently since the start of the Phoenix period in 2021, with a like-for-like CAGR of 6%. Now, every year is obviously different with various challenges these days, and whilst there may be fluctuations around the numbers, you can be sure that our pipeline for growth remains strong. Our market share in aggregate is still very small in a very fragmented industry. And we think jewelry as a category is a structurally exciting place to be. So as we continue to elevate the brand, we will certainly be looking to take at least our fair share of growth in the accessible market. Next slide, please. Let's start diving into some details of the Phoenix Strategy through 24 and Q4. As usual, I'll start with the brand and we show some examples here of our marketing efforts which are consistently driving the brand heat. In Q4, we drove a strong holiday campaign and centered it around our Be Love campaign that we launched earlier on in the year. The campaign continued to push ahead on our broader brand restaging, but this time also centered around the gifting period, for good reasons. Meanwhile, we remained active around big PR events during the quarter and were once again principal partner of the Fashion Awards in the UK. I also want to highlight here that our marketing efforts are not exclusive to TV or broader digital media. We are also investing in our stores, which remain pivotal to the consumer experience. You've heard me talk about our new store concept, but here you can also see how we utilized the front of our stores with a specific campaign that portrayed our distinct identity as a brand. Some of you have already had a chance to say hello to our new Chief Marketing Officer, Berta. For others, I'm sure there will be other chances through the year, and I'm really excited to have Berta on board. You can expect a continued laser focus on taking the Pandora brand to new heights. Next slide, please. As you probably know already, Pandora has a very strong e-commerce platform today. This became abundantly clear through the pandemic, but even since then, where it has driven significant like-for-like growth. But we don't rest on our laurels. As part of our mission to dial up brand desirability, we have been investing in this platform for a complete new look and revamp. The new platform brings the brand to life through a much more immersive experience. This is critically important given this is our largest brand window. We tested the new platform through Q4 in Italy and Canada with encouraging results, not only in commercial metrics but also the brand engagement. We will now be rolling the new platform out globally through the first half of the year in phases. The slide here doesn't do justice to the level of change that's taking place. So I do urge you to experience for yourself the before and after. I'm sure you'll see a tangible difference. Next slide, please. Let's now look at our two segments, Core and Fuel with More. As you know, our strategic aim is to be seen as a full jewelry brand, which essentially entails driving steady growth in the core whilst adding higher growth in Fuel with More. As a global brand, there will always be shifts between collections depending on consumer preferences, timing of new products, and specific marketing campaigns. That means that the in-year focus between collections will naturally vary. But the big picture message we look at is growing our strong core and fueling this with more. The specific collections that drive that growth in a given year is more a function of that. Now, you can see from this slide that our strategy is working. Within our core, we have seen very steady 2% like-for-like growth across both 23 and 24. This was also the case in Q4, where the new holiday collection on Moment's platform was particularly well received. Next slide, please. Our Fuel With More segment continues to grow quicker. Having achieved a very strong 14% like-for-like growth in 2023, we successfully managed to build on this with 22% like-for-like growth in the last year. That underpins that we are indeed engaging with more consumers across all our collections. For Q4, Fuel With More was still at double-digit levels of 13%, despite the very tough comp from the prior year. As I'm sure some of you will remember, we launched our brand new essence collection in the spring of 24, which carries an organic, natural and fluid design aesthetic where we didn't have much exposure previously. Since the launch, I'm happy to report that we are indeed trading well and importantly, attracting new consumers with the new collection. We will be looking to take this further in 25. Next slide, please. Here you can see a tangible example of our fourth pillar, personalization, and how that can sprinkle incremental solid like-for-like growth for us. Since last year, we've been seeing great success in our instant engraving services, and consumers love this personal touch. Therefore, we've continued to expand quite quickly here. 1,600 stores now offer the service, and we also have a very strong online offering across most of our major markets. As I previously said, this provides nice incremental growth for us and utilizes our current store and online infrastructure. Those are the benefits you earn and therefore can build on from your brand appeal. Now, let's discuss some of the markets in a bit more detail. Next slide. As usual, I'll start with our biggest market, the US, which delivered a very strong 9% like-for-like growth, another great quarter and actually a small acceleration. We believe this is driven by still strong brand momentum with our major KPIs moving in the right direction. This helped us thrive through the holiday season, and in particular, we had a good performance through Black Friday this year. Similar to the previous quarter, we are complementing the like-for-like performance with our network expansion in the US, with its ample white space. This has led to 13% organic growth in total for the quarter. Next slide, please. The performance in our key European markets did slow somewhat to 0% LFL in the quarter. However, one thing to keep in mind is in a broader European context, we actually saw 4% LFL growth. Of course, a large chunk of our European exposure is reported within the rest of Pandora. But let's just unpick the four markets on the slide here. First, growth in Germany remained very strong at 28% like-for-like growth. That's particularly strong when you account for the tough comparative from last year and driven by solid momentum and good traffic. As expected, this growth did normalize from the previous quarter and we expect more of that in 2025 as our growth moderates to more normal levels. In the UK, we saw particularly high promotional environment over the holiday period. likely prompted by the still weak economic backdrop. So in that context, a minus three like-for-like performance we see as okay. In Italy and France, we met some challenges and a like-for-like fell minus 10 and minus 14 respectively. Firstly, I want to highlight that our brand metrics remain healthy in both markets. However, we did see quite an intense promotional activity in the markets across the holiday period. And that's not a game we lead in, although we sometimes have to react. Therefore, that did impact our performance as seen. Nonetheless, we have crafted a plan ahead for these markets. As I said, whilst our brand metrics have remained healthy, but they are yet to translate into higher traffic growth, which is the most important metric for us. Therefore, we'll be investing even more into the brand to drive more local cultural relevancy. Next slide, please. In the rest of Pandora, we delivered another double-digit quarter of 11% like-for-like growth. This performance is still of a tough comp base, so remains strong in that context. As I mentioned in the previous slide, a big chunk of our other European exposure actually sits here. So, for example, Spain, Portugal, Poland, are very important and increasingly large markets for us. They all, alongside many other markets, draw very strong like-for-like growth in the quarter and will continue to invest in the brand in these markets. Elsewhere, we did see the expected normalization we mentioned in Turkey earlier in the year. That will also likely be a feature through 2025, so keep that in mind. Next slide, please. Finally, in China, we had minus 10% like-for-like growth, and performance remains challenging overall. We have been investing into the brand in Shanghai selectively since mid-2023, and we're now considering next steps. As part of that, we look to optimize the P&L and optimize the network in China, closing at least 50 underperforming stores. In Australia, we delivered minus four lakh for lakh growth with a broader macro environment still impeding us somewhat. We look to dial up our execution here to continue to drive the message of our full jewelry brand. Next slide, please. Here you can see the immense value we create from our network expansion. As the chart shows, since the start of Phoenix Strategy, on an isolated basis only, we've basically added 4 billion Danish kronor revenue to the group from expanding our network. Of course, as the stores mature after the 12 months and come into the like-for-like base, the total revenue impact is even higher. At the top of the slide, we show how attractive the economics of a new store opening is for Pandora. whether it's a concept store or a shopping shop. The revenue ramp up is incredibly quick in year one, and the full EBIT margin is in the range of 35 and 40%. Those are metrics hard to find elsewhere in the industry. So we will continue to expand on this journey ahead in 2025, where we target 75 to 100 total openings and an organic growth contribution of 3%. The number of concert store openings is impacted by the planned closures of stores in China this year, but this will have minimal impact on the organic growth as such. Next slide, please. Finally, before I hand it over to Anders, I wanted to give a quick update on the rollout of our new store format. I already mentioned earlier how our stores are a key part of our marketing and how we present the brand to consumers. Tied to that, you heard me talk about how we elevated our shop fronts for the holiday campaign. The key for Pandora is to do these things at scale and across markets in unison. That's where the new format will increasingly come in. For those of you that have seen the format, you will see that elevated in-store brand experience and Pandora clearly presented as a full jewelry brand. You won't need to be told that. You should be able to feel it. During the holiday season, we did also see how the execution in the new format is beginning to shine through. When you're executing on roughly four transactions per minute during the peak, every second counts. and we saw tangible examples over Christmas of how our teams in the new format were able to use the walls much more effectively with more selling stations. That's exactly the intention, and it was great to see another proof point in the busiest part of the year. Currently, we believe the new format offers a low single-digit like-for-like uplift relative to the old store format. So overall, we've continued to make quite good progress with the new format openings, which now stand at 425 so far. We're tracking well on our ambitious target by 2026. 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. Please turn to slide 21. Alexander already gave us a snapshot of the results, so I'll just take the chance here to look at the numbers from a big picture view instead. So the financial performance you saw in 2024 is actually a good example of our earnings model and our equity story, because when we drive solid top line growth, and maintain strong executions through all of the other P&L, balance sheet and cash flow lines, then the end result is significant excess cash for the shareholders and double-digit earnings per share growth. And that is the core of our equity story. And this is exactly what we set out to do with the Phoenix strategy and what we set out to do with the targets from the CMD back in 2023. One other KPI worth mentioning in the table here is the gross margin. We ended 24 with a record high gross margin of 79.8, and that's up 120 basis points year over year. And in Q4 specifically, our gross margin also remained strong with support from, among others, the price increases we made in October, which more than offset the headwind from commodities and a higher share of consumer shopping during the key trading events. I'll talk about our forward-looking expectation just in a minute on revenue and EBIT margin. But for 2012-25, I can tell you that we expect our gross margin to remain almost flat, just slightly down versus the 79.8% in 2024. And given the external hedge swings we are facing from commodities and FX of around 210 basis points, I think you'll agree with me that it would be a fantastic outcome. I also want to touch on our progress on working capital. And as you can see in the table here, we ended the year in negative, and that was a result of good execution across all aspects of working capital really, all the way from inventory through payables to receivables. There was some benefit from one-off factors that we expect to reverse in 2025, and working capital by the end of 2025 will therefore be at a slightly higher level, but still well below the CMD target and well below where we ended in 2022 and 2023. Next slide, please. So on this slide, we're breaking down the revenue growth in the quarter. And Alexander has actually already covered the key elements here. And I think the bridge is pretty straightforward and self-explanatory. So I'll just highlight the second purple bar. That's the network growth. which continues to be a fantastic revenue driver for us. It contributed five points of growth in the fourth quarter and actually for the full year as well, exactly in line with our guidance. Next slide, please. On the EBIT margin, our performance also played out in line with our expectations, and we saw a good margin expansion in Q4, and therefore we ended the full year at 25.2%. And as you can see in the dotted box, the underlying Q4 margin was slightly up, despite a 70 basis points drag from Commodity and FX. I should also just would like to give a comment on operating expenses in the quarter. As some of you might remember from the third quarter announcement, we stated that the increase in OPEX would be less pronounced here in Q4. And that's also exactly what's happened. And the total OPEX ratio in Q4 was actually slightly down versus last year. This is, among others, driven by a much lower increase in sales and distribution expenses compared to the first three quarters of 2024, as we had expected. The sales and distribution ratio is up only 40 basis points, and this 40 basis points is linked to the expansion of our store network, which is then more than offset through a higher gross margin and leverage on other OPEX lines. On marketing, the ratio was slightly down year over year in Q4, and that's simply phasing. On a full year basis, we did invest a significant amount with marketing expenses up 15% year over year and constituting just around 14% of revenue. And as some of you will know, that's at the midpoint of our guided 13 to 15% marketing spend as a percent of revenue. And then finally, I would like to highlight that we have been driving quite nice leverage on the admin expenses in 2024, with admin costs dropping from 8.5% of revenue in 2023 to 7.8% of revenue. Now, then let's move on to the guidance on slide 25. For 2025, we are targeting another year of solid growth, with organic growth being 7-8%. Let me just help you unpick some of the building blocks of that. On like-for-like, and that's the first purple bar in the bridge, we expect to deliver 4-5% growth. And that's within the CMD range that we gave back in 2023 of a 4% to 6% CAGR. The 45% is slightly lower than what we actually have delivered over the past two years. But we do see a need to factor in a continued weak macro and a continued weak consumer backdrop. And tied to that, as Alexander also mentioned, we did see the general shopping environment in Q4 getting more promotional. And we also factor that into our thinking. Against all of this, we will keep pushing ahead with our Phoenix strategy, and that also means that we will continue to invest behind the growth drivers such as the brand, creative development and our collections, the store network, the new e-commerce platform, and much more. So overall, given the current weak macro backdrop, we actually believe that 45% like-for-like performance would be a good outcome and in line with our CMD targets. And finally, we expect the contribution from network expansion to be 3%, and that's also in line with our CMD ambition. And before I move on, just to help you with some of your modelling, for Q1 specifically, we expect our life-like and organic growth to be at roughly similar level. And that's due to phasing of store openings, phasing of sell-in, a little bit of calendar impact in Q1. And this is going to be for Q1 only. And then from Q2 onwards, you will see a more normal gap between like-for-like and organic growth. Next slide, please. On the EBIT margin guidance, the big picture message really is that we will be facing quite significant headwinds from commodities and FX, a total of 210 basis points, as you can see in the bridge. But despite that, we are targeting to keep the margin broadly flattish, almost flattish, versus 2024 at around 24.5% EBIT margin. So let me comment on the building blocks that you see on this slide here. First of all, and this is about the second purple box, the operating leverage. As I just mentioned, we will continue to invest behind our strategy. It works and we will continue along the same path. And that's why we expect the net operating leverage to be broadly flat, like in recent years. Secondly, the combination of operating leverage from the expansion of the network, that's the first purple box, and the recent price increases and deficiencies, and that's the third purple box, they are combined expected to offset most of the headwind from commodities and foreign exchange, as you can see on the slide here. Lastly, as some of you will remember, we have initiated a broader cost program in response to the higher commodity prices. As you can see in the last building block, we expect the net impact of the program to be roughly neutral in 2025 specifically. And that means that the cost of running the program as well as implementation cost will be offset by savings generated already in 2025. And that brings me nicely on to the next slide, slide 27. Since the third quarter announcement, we have spent quite some time in the leadership team looking at what we can do to mitigate the surge in silver prices and the negative impact on the EBIT margin target for 2026. And we are happy to report that we are now in a position to reconfirm our EBIT margin target of 26-27%, despite a 270 basis point of headwind. As we show in the text box to the upper right here on the slide, then based on what we know today and based on a silver price of 30.5 dollars as of Jan 27, then we expect to be at the low end of the range. Before I dive into some of the specifics of our thinking and plans, we would like to emphasize two points. When external factors like this change, silver prices, commodities, then you can choose just to accept it and take down your target. Or you can choose to use this as an opportunity to look deep on how you operate. And this is this latter approach that we are taking. And secondly, I want to stress that we will at no point sacrifice any investment, which is the right thing to do for the long term, just to reach this target. So that brings me on to some of the specifics. As it stands today, relative to the CMD in October 2023, we are facing a 270 basis points of headwind to our EBIT margin target related to the movement of commodity prices and FX. And that's the two pink boxes that you see in the bridge here within the dotted square. As we mentioned back at the third quarter announcement, we are looking at two main buckets of mitigation. That's pricing and its cost. And then on pricing first. We did increase prices by 5% already in October last year, and we are happy to report that it went well with an elasticity of minus one or better in most places. And based on that, we will take further pricing action this year, and therefore we can now confirm the first 140 basis points of mitigation that we mentioned back in the third quarter announcement. And that's the first of the solid purple buckets here in the dotted box. On the cost side, we have external advisors working with us, and it's always nice to take a step back once in a while and reassess the way you do things. And our initial assessment suggests that there is indeed some opportunities to reduce costs. There's no one big major driver of that. It is rather across the entire value chain and across all of the different cost lines. But we do see opportunities across several areas, such as procurement, distribution, continued efficiencies in crafting, store operations, and other areas. So these cost savings, combined with any potential additional pricing in 2026. That sits as part of the shaded purple box showing 130 basis points of planned mitigation. It's somewhat early days here, and we will of course keep you updated as we begin to execute. So to sum up, our message is that at a silver price of 30.5 USD, we can confirm the CMD target of 26-27%. And the combination of the two shaded boxes that you can see on the bridge here, that's operating leverage to the left, and then the box called further mitigation to the right, that will likely lead us towards the low end of the range based on what we know today. Now, I know that as of this morning, the silver prices, and let me just double check where we are as we speak, 32.5 are just being whispered ahead across the table here, at a silver price of 32.5 rather than the 30.5 that's the basis for the bridge here. And that would, of course, change the math a little. But silver will keep going up and going down. But our message today is that since silver was at $16 just a few years back, we have been able to mitigate it. And today we confirm that we have actions in place to cover us till just around $31 per ounce. And then we will keep updating you as we go during 2025. Finally, I know that some of you will be thinking in terms of year-over-year margin development from 2025 to 2026, rather than the way that we show the bridge here, where we build versus the CMD target. And if you look at it year over year instead, what we say here today obviously implies a margin expansion next year of at least 150 basis points. And that is exactly the plan. And that margin expansion will be delivered through a combination of operating leverage, price increases and the cost program. So long story, but I hope it helps you understand our plans and thinking. And then please move on to the next slide. Finally, I just wanted to remind us all about the high cash returns, which has in fact been a feature of the Pandora story for over a decade. And these two graphs on the slide here, I think, illustrate it quite nicely. And this year is going to be no different. We ended 2024 with significant free cash flow generation, and we are returning all of that back. So tomorrow, we will start a new 4 billion kroner share buyback program, and we propose a dividend of 20 kroner per share, which is up just over 10% versus last year. And with that, I'll hand it back to Alexander.