PANDORA Company Presentation - finansanalytiker.dk •PANDORA is a leading brand and significant...

7 JUNE 2012 DDF PRESENTATION 1

DDF PRESENTATION 7 June 2012

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


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AGENDA


AGENDA

• Facts about PANDORA

• SWOT-analysis

• Value drivers

• Cash flow from operations

• CAPEX

• Financing

• Q&A

CONTROLLING THE ENTIRE VALUE CHAIN DUE TO VERTICALLY INTEGRATED BUSINESS MODEL

Design and product development

Low cost and scalable

Procurement and production

”Asset light” yet controlled

Distribution and marketing

Showcase brand

Strategic use of stores

Consistently relevant design


• PANDORA established in 1982

• Bracelet launched in 2000

• Affordable luxury – genuine materials

• Present in +65 countries across six continents

• More than 10,000 stores selling PANDORA

• World’s 2nd largest jewellery company

KEY FINANCIALS FY 2010/11

7 JUNE 2012 5 DDF PRESENTATION

1 Including revaluation of CWE earn-out provision of DKK 511 million in 2011

P&L, CF (% change Y/Y)

FY 2011 FY 2010

Revenue (DKKm) Change

6,658 -0.1%

6,666 92.6%

EBITDA (DKKm) Change

2,281 -15.0%

2,684 70.7%

Net Profit (DKKm)1

Change 2,037 8.9%

1,871 86.2%

Free cash flow (DKKm) Change

1,670 20.3%

1,388 21.3%

Dividend per share (DKK) Change

5.50 10%

5.00 n.a.

MARGINS

CASH CONVERSION, ROIC, DEBT

FY 2011 FY 2010

Gross Margin 73.0% 70.9%

EBITDA Margin 34.3% 40.3%

EBIT Margin 30.9% 36.2%

FY 2011 FY 2010

Cash conversion1 82.0% 74.2%

ROIC 34.7% 42.7%

NIBD (DKKm) NIBD to EBITDA

209 0.1

1,102 0.4


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


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


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


SWOT 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

VALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS


Working Capital

• Working Capital level has increased in the past years – mainly driven by an increase in Inventory

• Inventory increase explained by • Increased sales • Increased service levels required due to

higher proportion of branded sales environment

• 2011 increase partially explained by time-lag effect from adjusting production to lower demand

• Soaring gold and silver prices • Higher proportion of retail due to forward

integration of previously independent distributors in AUS and GER

2009 2010 2011

Inventories 433 1,272 1,609

Trade receivables 622 834 900

Trade payables 106 245 288

Working capital 949 1,861 2,221

% of Revenue 27% 28% 33%

Gold and silver

Gold DKK / OZ 5,730 7,916 9,046

Gold Index 2009 100 138 158

Silver DKK / OZ 88 172 162

Silver Index 2009 100 195 184

Did you know ? 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



0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

500

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1500

2000

2500

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Inventory

Inventory/Sales

• Inventory gone up in fixed numbers, but the development has been less dramatic when compared to revenue

• Strong seasonality in inventory

• Build-up in Q1-Q3 • Reduction in Q4

• Other factors with impact on inventory levels

• New Logistic setup with centralized

warehouses and logistics planning to give long term efficiencies

• In Q1 12, Stock Balancing Campaign increases own Inventory temporarily – until Pandora sends to external re-melting

Working Capital - Inventory




PANDORA Cash Conversion Cycle vs peers:

• 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)

Peer Group Cash Conversion Cycle

295316

CCC DPO

63

DSO

42

DIO

PANDORA Cash Conversion Cycle

330 332

CCC DPO

59

DSO

61

DIO

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding

0%

10%

20%

30%

40%

50%

60%

70%

Tiffany Swatch Georg Jensen Pandora

NWC/Revenue 2011



Trade Receivables • Typical between 10%-16% of revenue

depending of season • Start up credits for new franchises extend the

TR Balance Trade Payables • No credit terms on gold and silver – TP balance

is mainly on POS material and non-strategic procurement

• More coordinated procurement, resulting in increase in TP

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

200

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1,000

1,200

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Trade Receivables Trade Payable

TR/Revenue TP/Revenue

Working Capital – Receivables & Payables

VALUE DRIVERS (2/3) – CAPITAL EXPENDITURE


• 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

CAPEX


VALUE DRIVERS (3/3) – FINANCING


FINANCING

Interest rate coverage:

• Virtually debt free end of 2011 means no need for

interest rate coverage

Currency risk management (assets):

• Currency risks from balance sheet items or

ownership interests in foreign subsidiaries are

generally not covered

• The main currency risk on the balance sheet impact

of PANDORA's main markets U.S. (USD), Europe

(EUR) United Kingdom (GBP) and production

facilities located in Thailand (THB)

Capital structure and policies:

• PANDORA targets an average dividend pay-out ratio

of approximately 35% of our consolidated net profit

for the year

DKK million 2011 2010 2009

Net interest bearing

debt 209 1,102 2,151

NIBD/EBITDA 0.1 0.4 1.4

RAW MATERIAL HEDGING

Hedging of gold and silver:

• Based on a rolling 12-month production plan the

policy is for Group Treasury to hedge

• 100% of the risk 1-3 months forward,

• 80% of the risk 4-6 months forward,

• 60% of the risk 7-9 months forward, and

• 40% of the risk 10-12 months forward


QUESTIONS AND ANSWERS


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