DDF PRESENTATION 7 June 2012
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DDF PRESENTATION
7 June 2012
1 7 JUNE 2012 DDF PRESENTATION
DISCLAIMER Certain statements in this presentation constitute forward-looking statements. Forward-looking statements are statements (other than statements of historical fact) relating to future events and our anticipated or planned financial and operational performance. The words “targets,” “believes,” “expects,” “aims,” “intends,” “plans,” “seeks,” “will,” “may,” “might,” “anticipates,” “would,” “could,” “should,” “continues,” “estimate” or similar expressions or the negatives thereof, identify certain of these forward-looking statements. Other forward-looking statements can be identified in the context in which the statements are made. Forward-looking statements include, among other things, statements addressing matters such as our future results of operations; our financial condition; our working capital, cash flows and capital expenditures; and our business strategy, plans and objectives for future operations and events, including those relating to our ongoing operational and strategic reviews, expansion into new markets, future product launches, points of sale and production facilities; and Although we believe that the expectations reflected in these forward-looking statements are reasonable, such forward- looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: global and local economic conditions; changes in market trends and end-consumer preferences; fluctuations in the prices of raw materials, currency exchange rates, and interest rates; our plans or objectives for future operations or products, including our ability to introduce new jewelry and non-jewelry products; our ability to expand in existing and new markets and risks associated with doing business globally and, in particular, in emerging markets; competition from local, national and international companies in the United States, Australia, Germany, the United Kingdom and other markets in which we operate; the protection and strengthening of our intellectual property, including patents and trademarks; the future adequacy of our current warehousing, logistics and information technology operations; changes in Danish, E.U., Thai or other laws and regulation or any interpretation thereof, applicable to our business; increases to our effective tax rate or other harm to our business as a result of governmental review of our transfer pricing policies, conflicting taxation claims or changes in tax laws; and other factors referenced in this presentation. Should one or more of these risks or uncertainties materialize, or should any underlying assumptions prove to be incorrect, our actual financial condition, cash flows or results of operations could differ materially from that described herein as anticipated, believed, estimated or expected. We do not intend, and do not assume any obligation, to update any forward-looking statements contained herein, except as may be required by law or the rules of NASDAQ OMX Copenhagen. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this presentation 2 7 JUNE 2012 DDF PRESENTATION
AGENDA
AGENDA
• Facts about PANDORA
• SWOT-analysis
• Value drivers
• Cash flow from operations
• CAPEX
• Financing
• Q&A
3 7 JUNE 2012 DDF PRESENTATION
CONTROLLING THE ENTIRE VALUE CHAIN DUE TO
VERTICALLY INTEGRATED BUSINESS MODEL
• PANDORA established in 1982 • Present in +65 countries across six continents
• Bracelet launched in 2000 • More than 10,000 stores selling PANDORA
• Affordable luxury – genuine materials • World’s 2nd largest jewellery company
Design and Procurement Distribution Strategic use
product development and production and marketing of stores
Consistently Low cost and scalable ”Asset light” yet Showcase brand
relevant design controlled
4 7 JUNE 2012 DDF PRESENTATION
KEY FINANCIALS FY 2010/11
P&L, CF (% change Y/Y) MARGINS
FY 2011 FY 2010 FY 2011 FY 2010
Revenue (DKKm) 6,658 6,666
Gross Margin 73.0% 70.9%
Change -0.1% 92.6%
EBITDA (DKKm) 2,281 2,684
EBITDA Margin 34.3% 40.3%
Change -15.0% 70.7%
Net Profit (DKKm)1 2,037 1,871 EBIT Margin 30.9% 36.2%
Change 8.9% 86.2%
CASH CONVERSION, ROIC, DEBT
Free cash flow (DKKm) 1,670 1,388
Change 20.3% 21.3% FY 2011 FY 2010
Dividend per share (DKK) 5.50 5.00 Cash conversion1 82.0% 74.2%
Change 10% n.a.
ROIC 34.7% 42.7%
NIBD (DKKm) 209 1,102
NIBD to EBITDA 0.1 0.4
1 Including revaluation of CWE earn-out provision of DKK 511 million in 2011
5 7 JUNE 2012 DDF PRESENTATION
SWOT ANALYSIS (1/4)
STRENGTHS
• PANDORA is a leading brand and significant player in the charms/bracelet category
• Charms/bracelet category shows long-term growth
• Geographical diversification vs. regional competitors – more than 10,000 retailers selling PANDORA
• Strong foothold in North America – probably the most competitive market globally
• Backward integration – world class production facility in Thailand
• Asset light franchise model – low CAPEX as percentage of sales
• High stock turn and thus above average store traffic created by PANDORA products
• Highly cash generative
• Clear positioning with genuine jewellery product offering only – long-term brand equity protection
6 7 JUNE 2012 DDF PRESENTATION
SWOT ANALYSIS (2/4)
WEAKNESSES
• Organisation navigating in a complex environment
• PANDORA: A product of multiple mergers in the past five years (AUS, GER, US and Thailand Production) –
systems integration high on agenda
• Wholesale model means less inside knowledge to e.g. sales-out than with a retail model
• Narrow product focus – approx. 90% of revenue generated within charms/bracelet category
• Some consumers not owning the brand are unaware of genuine nature of products
7 7 JUNE 2012 DDF PRESENTATION
SWOT ANALYSIS (3/4)
OPPORTUNITIES
• Branded environment in jewellery sector is gaining momentum
• Several geographies offer further growth potentials, in particular:
• Asia (CHN, JPN, etc)
• Russia, Italy and France
• US – particularly West coast is virtually virgin territory
• New store openings in developed markets still viable
• Upgrading of existing stores
• Product diversification
• Online sales potential
8 7 JUNE 2012 DDF PRESENTATIONSWOT ANALYSIS (4/4)
THREATS
• High(er) raw material prices (primarily gold and silver)
• PANDORA – as leading brand within bracelet/charms – must always lead the innovation to stay in front
• Competition is real and broadly defined
• Copying of PANDORA products needs constant surveillance and swift handling
• Retail environment in some markets characterised by heavy discounting as consumers seeks value deals
under challenging macroeconomic trading conditions
• Private label has appetite for the charms/bracelet segment
• Approx. 90% of revenue generated within the charms/bracelet segment
9 7 JUNE 2012 DDF PRESENTATIONVALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS
Working Capital 2009 2010 2011
• Working Capital level has increased in the past Inventories 433 1,272 1,609
years – mainly driven by an increase in Inventory Trade receivables 622 834 900
Trade payables 106 245 288
• Inventory increase explained by Working capital 949 1,861 2,221
• Increased sales
% of Revenue 27% 28% 33%
• Increased service levels required due to
higher proportion of branded sales
environment
• 2011 increase partially explained by time- Gold and silver
lag effect from adjusting production to Gold DKK / OZ 5,730 7,916 9,046
lower demand Gold Index 2009 100 138 158
• Soaring gold and silver prices
• Higher proportion of retail due to forward Silver DKK / OZ 88 172 162
integration of previously independent
Silver Index 2009 100 195 184
distributors in AUS and GER
10 7 JUNE 2012 DDF PRESENTATIONVALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS
2500 45%
Working Capital - Inventory
40%
2000
• Inventory gone up in fixed numbers, but the 35%
development has been less dramatic when 30%
1500
compared to revenue 25%
20%
1000
• Strong seasonality in inventory 15%
500 10%
• Build-up in Q1-Q3 5%
• Reduction in Q4 0 0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2010 2010 2010 2010 2011 2011 2011 2011 2012
• Other factors with impact on inventory levels
Inventory
• New Logistic setup with centralized Inventory/Sales
warehouses and logistics planning to give
long term efficiencies Did you know ?
• In Q1 12, Stock Balancing Campaign
increases own Inventory temporarily –
until Pandora sends to external re-melting
PANDORA has launched a number of new
products, designed to use less raw materials and
more labor to keep raw material and inventory
cost down
11 7 JUNE 2012 DDF PRESENTATIONVALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS
PANDORA Cash Conversion Cycle vs peers: PANDORA Cash Conversion Cycle
330 61 59 332
• Days Inventory Outstanding (DIO) slightly higher
than peers
• Days Sales Outstanding (DSO) is close to 50%
higher than the peer group, due to our
wholesale model
• Days Payable Outstanding (DPO) is shorter than
peers due to strong backward integration (gold
and silver are paid cash) DIO DSO DPO CCC
NWC/Revenue 2011 Peer Group Cash Conversion Cycle
70% 316 42 63 295
60%
50%
40%
30%
20%
10%
0%
Tiffany Swatch Georg Jensen Pandora DIO DSO DPO CCC
Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding
12 7 JUNE 2012 DDF PRESENTATIONVALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS
1,200 20%
Working Capital – Receivables & Payables
18%
1,000
Trade Receivables 16%
• Typical between 10%-16% of revenue 800
14%
depending of season 12%
• Start up credits for new franchises extend the 600 10%
TR Balance
8%
400
6%
Trade Payables
• No credit terms on gold and silver – TP balance 4%
200
is mainly on POS material and non-strategic 2%
procurement - 0%
• More coordinated procurement, resulting in Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2010 2010 2010 2010 2011 2011 2011 2011 2012
increase in TP
Trade Receivables Trade Payable
TR/Revenue TP/Revenue
13 7 JUNE 2012 DDF PRESENTATIONVALUE DRIVERS (2/3) – CAPITAL EXPENDITURE
CAPEX
• CAPEX level has historically been approx. 3% of
revenue (excl. acquisitions) – DKK 300m guided
for 2012
• Majority of investments in expansion of
production capacity finalized
• IT investments to improve processes and reduce
inventory levels and strengthen management
information
• Part of CAPEX for 2012 also includes e.g. “key
money” in opening Own & Operated stores in
key locations in line strategy
14 7 JUNE 2012 DDF PRESENTATIONVALUE DRIVERS (3/3) – FINANCING
FINANCING DKK million 2011 2010 2009
Net interest bearing
Interest rate coverage: 209 1,102 2,151
debt
• Virtually debt free end of 2011 means no need for
NIBD/EBITDA 0.1 0.4 1.4
interest rate coverage
Currency risk management (assets):
• Currency risks from balance sheet items or RAW MATERIAL HEDGING
ownership interests in foreign subsidiaries are
generally not covered Hedging of gold and silver:
• The main currency risk on the balance sheet impact • Based on a rolling 12-month production plan the
of PANDORA's main markets U.S. (USD), Europe policy is for Group Treasury to hedge
(EUR) United Kingdom (GBP) and production • 100% of the risk 1-3 months forward,
facilities located in Thailand (THB)
• 80% of the risk 4-6 months forward,
Capital structure and policies:
• 60% of the risk 7-9 months forward, and
• PANDORA targets an average dividend pay-out ratio
of approximately 35% of our consolidated net profit • 40% of the risk 10-12 months forward
for the year
15 7 JUNE 2012 DDF PRESENTATIONQUESTIONS AND ANSWERS 16 7 JUNE 2012 DDF PRESENTATION
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