Good morning, everyone, and welcome to the conference call for Pandora's Q4 results. I'm John Bäckman from the Investor Relations team. I'm joined here in Copenhagen by our CEO, Alexander Lacik, and our CFO, Anders Boyer, and the rest of the IR team, Kristoffer Malmgren and Adam Fuglsang.
Thanks, John, and welcome everyone who are joining the call today. As you already know from our pre-release of the results in January, we had a record revenue and sell-out in Q4. We're very pleased that the growth was of high quality, broad-based, and profitable. I want to start today by expanding a bit on this. Our growth was driven by our largest platform Moments and by solid online performance. Moments had another strong quarter, growing 12% compared to Q4 of 2019. Online revenue nearly doubled versus 2019.
The growth was also profitable, delivering a 25% EBIT margin in 2021, which is up 5 percentage points from 2020. This exceeded the guidance, and in absolute terms, EBIT was up 50% versus 2020. Q4 is by far our biggest quarter. Looking around us, we can definitely note that competitive activity is picking up as market conditions continue to stabilize. Despite this, we delivered strong profitable growth. Our model is clearly working and Pandora is well-placed for future growth.
EBIT margin is expected to be in a range of 25% to 25.5%. This is driven by top-line growth turning into operating leverage. We also reconfirm the targets from our Capital Markets Day of 5% to 7% CAGR growth and 25% to 27% EBIT margin. Please note two things here.
Here, we are improving the omni-channel experience to offer consumers a more personalized path to purchase journey. Our online channel is already seeing phenomenal performance, so the starting point is very strong. Additionally, we have started to test launch our new store concept. It's early days, but the results so far are promising. The fourth and last growth pillar is about growing our core markets. We're going to increase and optimize our network and expect to open 50 to 100 concept stores in 2022.
We aim at being a low-carbon business, drive circularity principles in everything we do, and act as an example of what it means to be inclusive, diverse, and fair. Our objective is to halve carbon emissions across the full value chain by 2030 and to be a net zero carbon business by 2040. We've taken important new steps last year by announcing climate targets which are approved by the Science Based Targets initiative.
We also introduced new bags and boxes that are easier to recycle with less plastic content and a 60% lower carbon footprint. To foster an inclusive, diverse, and fair culture, we have launched a comprehensive strategy addressing gender and underrepresented groups. We will not only be working within our own organization, but also evolve the way we market our products and the partners that help us bring our brand to our consumers.
We keep innovating Moments to activate the platform and generate solid outcomes. Last quarter, we told you how Moments wearing occasions, such as key rings and bag holders, drove incremental revenue. In Q4, we tested engraving in selected stores across Italy, U.S., and Canada. In Italy, we also tested online engraving with very good results. I would also want to highlight Timeless, our second-largest core platform, which delivered DKK 4 billion in revenue in 2021, up almost DKK 1 billion from prior year.
We've reached a high single-digit market share of the lab-created diamond market. This is encouraging for the future rollout. In 2022, we will start the sequential global rollout, and we will tell you more about this closer to the launch dates. Next slide, please. The relaunch of Pandora ME attracted very large interest in social media, and so far, after only one quarter, we see that Pandora ME is off to a promising start.
During the Christmas period, we experienced a high level of claimed gifting, which may suggest parents buying to their children. We will need a few more quarters to understand the exact impact on our core target, the Gen Z. Midterm, we continue to target a minimum 5% share of business from Pandora ME. Next slide, please. Now let's have a look at our core markets.
We know that there's a lot of interest in what happens to revenue growth in 2022 due to the very strong growth rate in the U.S. last year. Therefore, we'll share a brief insight into January trading. Organic growth in January was 23%. You should remember, though, that we had 30% of our stores closed, prior year, so it's an easier comp.
Importantly, when comparing to external market data, such as Mastercard SpendingPulse, we see that Pandora outgrew the market in 2021. The jewelry market has historically grown 3% per year. In 2021, it grew 35% to 40% versus 2019, and Pandora grew 51%, so we outgrew the market by 10 to 15 points.
It is probably noteworthy that China only represented 2% of our Q4 revenue, therefore having a very marginal impact on group numbers. The traffic continued to be significantly impacted by COVID-19 restrictions, even though stores were formally open. Therefore, we further delayed the planned investment in repositioning the brand in China into 2022.
The reason in Q4 was that we put some extra firepower behind the Pandora ME launch while ensuring strong support for the base business. Once new initiatives like Pandora ME reach more of a steady state, marketing investment should come in line with the going levels. Given the high gross margin levels, return on investment is very good, even at slightly elevated investment ratios.
We can only speculate about the reasons for this, but the restrictions around physical retail and the consequent traffic declines paired with generally lower category advertising spend are likely drivers. As you know, we use search volume as a proxy for initial customer engagement. Our global share of search was close to 30% of the Google searches for branded jewelry.
The investments we've made during the pandemic, especially in our internal capabilities, will continue to cement our leading position. Next slide, please. Before I hand it over to Anders, I want to comment on our digital results. We have a strong digital foundation, and investments in digital continue to drive growth. Our online revenue almost doubled versus 2019.
Very strong numbers proving Pandora has the right model to cater for our customer needs. Now I'll hand it over to Anders to take you a bit more in detail through the numbers.
Thank you, Alexander. Please go to slide 17. You already heard about that we set record-breaking revenue and had a solid EBIT margin in Q4. On this slide, I'll rather focus on a couple of the other financial highlights. Our gross margin was unchanged versus Q4 of last year, just around 76%.
This year in 2022, we do plan to continue to build inventory to mitigate potential disruptions in the supply chain, and this will pull the net working capital closer to the zero mark. It's also worth noting that our leverage is still very low despite the shareholder cash returns we've made in 2021.
Capital distribution to shareholders are by law limited to the free reserves in the parent company. That's not new. The free reserves by the end of last year amounted to 7.5 billion DKK in the parent company. When you combine that with the lower net working capital and our asset-light business model, it currently impacts the possibility to increase leverage into the upper part of the leverage range, saying sort of above 1.1 times EBITDA in leverage.
Finally, I would like to highlight that our ROIC, return on invested capital, was 59% in 2021, and that the full year earnings per share doubled compared to 2020. Let's go to slide 18 and the revenue bridges. These are the bridges for the quarter for Q4. In the top bridge we are comparing to the clean base back in 2019 without any pandemic impact, and in the lower bridge it's a year-over-year bridge.
There's a box called takeovers, with 1 point of impact both versus 2019 and versus 2020. That impact is stores where we have taken them over typically at the end of the franchise contract, with no payment of goodwill. Then afterwards we continue operating them directly in Pandora. That's the same as opening up new stores, and it counts in organic growth.
On here we are showing the EBIT margin bridge, and the key message is that on this slide is what we have shown in the dotted box in the middle of the bridge. First of all, our operating leverage is unchanged, and it still sits there in the Q4 EBIT margin bridge.
There's actually a number of comments I want to make on this slide. The first point is that with our growth guidance for 2022, and combining that with the reconfirmation of our growth target back from the Capital Markets Day, we are sending a couple of signals today that we firmly believe that Pandora is back on a growth track.
In the lower end of the range of the guidance, the 3 points of growth, we have assumed a low single digit negative impact from COVID-19 on trading, so specifically in this year. For the U.S., we expect in the lower end of the guidance that the general overall U.S. jewelry market will decline by up to 20%.
In the top end of the range, to the right of that box below the bridge, we assume no to limited negative impact from the pandemic on the trading this year. For the U.S., we still expect the overall U.S. jewelry market to decline. Let's call that around 10 points down, while Pandora U.S. will deliver around flat organic growth in 2022.
That sits within that high single digit growth number. All of this is obviously sort of directional, indicative only. There's many ways to deliver on this guidance. There's many ways to Rome, but hopefully it gives you a flavor of our thinking about the performance for this year.
We have done for the last several quarters. Last but not least, it should be recalled that even though the U.S. may be declining mid- to high-single-digit% in 2022, it still corresponds to a low- to mid-teens% CAGR versus 2019. On the EBIT margin, next slide, 2022.
There is a lot of debate in the media about cost inflation, and in general, we are not that exposed to inflationary pressure across the P&L. There is of course something on freight as an example, and also in pockets of employee costs. We expect that continued cost savings will mitigate that inflationary pressure, and that's why you don't see that as a separate negative building block on the bridge on this slide.
We reconfirm the growth target despite the fact that the base in 2021 revenue ended much stronger than expected. As Alexander also mentioned, it means that today we raised the absolute revenue target for 2023 to between DKK 27 billion and DKK 28.1 billion, as you can see to the right in the bridge here.
On slide 24, we went back to the Capital Markets Day presentation in September, then we picked up this slide again, because we wanted to talk about earnings per share for a second. At the Capital Markets Day, we said that earnings per share is set to grow in the high teens% in 2022 and in 2023, and we wanted to repeat that message today.
As Alexander mentioned upfront, we are continuing the cash distribution to our shareholders, and we have ample liquidity at low leverage per share dividend in 2023, and that's equivalent to the 2% yield based on the share price at the end of last year, and in line with our capital allocation guideline that we communicated at the CMD. On top here, we also announced a new share buyback program amounting to DKK 3.3 billion with—
Thanks, Anders. Well, to summarize, Q4 was a record revenue quarter for us, and the growth was of high quality, as I said, driven by Moments and online. It was broad-based with growth in all key markets except China, and profitable, demonstrating that there is strong operating leverage in our model.
All in all, very strong ending of the year that clearly showed the strength of our operating model, and we're looking forward to 2022 with great confidence. Now we're ready for the Q&A session, and I will say up front, the one of the more popular question is when I'm gonna launch Brilliance and in which country.
Our first question comes from the line of Frederik Iversen from ABG Sundal Collier. Please go ahead. Your line is now open.
Thank you very much. Good morning, Alexander and John. First the question on Brilliance, and I won't ask about the launch dates. You say 40% online share in the U.K. which is in line with the other categories. Can you confirm that the online margins for Brilliance is significantly higher given that AOV is, like, 10 times higher than the average?
Sorry, I'm not sure I follow your logic. Why would it be different? The consumer price is the same.
Right, the average order value is ten times higher than the average, so the unit economics should be quite strong when it comes to the Brilliance online business.
The 40% that we are mentioning is revenue. It's not from a unit perspective.
The share of business?
Yeah. The 40% of Brilliance revenue is online, like for our overall revenue. The sort of classic Pandora online revenue is 40% of our business as well in U.K.
Yeah, no, I got that. Maybe we can discuss it offline instead, as it might be a bit technical. Never mind. I'll skip that question and, you know, jump to the other one. On the assumption for the markets excluding the U.S., if I do my math correct, it seems like you're assuming 22 versus 19 growth somewhere between 3% to 5%, which seems very prudent to me.
Yeah. I'm just making that math as well on my own. One thing you should remember in that number there's also China. Sits in that. That obviously drags it down somewhat in that number. I think if you look at the high single digit year over year rather than on a three-year comparison, the high single digit obviously include the tailwind from COVID-19. If you call that just in round numbers, 5 points of tailwind, then you say then it's only, let's say, up to 4 points on top of that, which I think you could argue that that should be achievable.
Yep. Yep. I agree. Thank you very much. That's my questions.
Our next question comes from the line of Anne-Laure Bismuth from Exane BNP Paribas. Please go ahead. Your line is now open.
Yes. Good morning. It's Antoine Belge at Exane BNP Paribas. Two questions. First of all, regarding the U.S. markets, is it possible for you to quantify the sales uplift that you're going to get from buying back a greater number of stores in the U.S. and that shifting from wholesale to retail?
If we look at the other, like, 65% of your business, which countries you think have really a basis of comparison effect, you know, due to COVID or underperformance? I think we could leave aside maybe China, but I'm thinking maybe about LatAm and you know, part of Europe. Which are the markets where it's quite the opposite to the U.S., you have really easy comps?
I'm sorry, I'm just having a bit of a technical issue here. Antoine, this is Anders. I can start on the first one, on the U.S. market and the sales uplift. That does not count in the organic growth, that piece, unless we don't pay any goodwill. You've probably seen that there has been some news out there that we have made a letter of intent with one partner in the U.S., and that would not count as organic growth, but only in the total revenue growth in the U.S. It is true on the store openings.
The way to think about the guidance for 2022 is that the U.S. is a big chunk of that of the store openings that we are planning for this year. If you think about that 1% to 2% of network expansion for the overall group, let's call that DKK 250 million to DKK 500 million, and quite a decent chunk of that is U.S.
Okay.
In terms of easier comps.
It's probably gonna come from Europe and the first half of the year, where we had more of the store closures last year.
Percent of the stores on average closed in Q1 of last year. That was to a large extent Europe. When you look at on the quarterly growth profile, I think you should expect that Q1, at least from a comp perspective, is easier than the remaining quarters.
Okay. With regards to European markets, they are the one that are, you know, in your top seven. Because you still have, like, 25% which is in, you know, other than the top seven. Within that it seems that the basis of comparison of the two-year stack wasn't that great in 2021. That's why I mentioned LATAM, but was just saying that there are also other European markets in that 25%.
Yeah. I think the biggest market in that European market in that bucket would be Spain. That falls just out of the top markets that we are communicating. There's also Spain as a big one. Then Eastern Europe or Poland is a fairly big market that falls into that bucket as well.
Thank you very much.
Our next question comes from the line of Lars Topholm from Carnegie. Please go ahead. Your line is now open.
Yes, hello, guys. A couple of questions on my behalf as well. One goes for the U.S. where you are seeing a normalization in January, which means flattish. Of course I do understand if you open stores, you will get some U.S. growth from that. Still if I look at comps, your comps in the U.S. will be significantly harder, especially over summer and early autumn.
Is it based on expectations to specific product releases such as Brilliance and a new collaboration on top of Disney and Harry Potter and Star Wars, or is it because of better execution, or what do you see driving that? And then to your 2023 targets, which you specify, which I think is great. In the original targets, there was a contingency on top of the growth targets.
On the first one, I mean, I'm not gonna get into specifics, but of course it's driven by the business plan, which we have in place. Largely speaking, that I think is the biggest explanation-
Really.
Yeah. Specifically on the store openings, it's still a pipeline that's being built up, so there's little impact from store openings yet. I think the majority we will see in general from the second quarter onwards on store openings. We are assuming in the midpoint of the guidance that the U.S. growth will slow down a little bit further on a year-over-year comparison.
Okay.
On the 2023 contingency obviously upside still sits there. You can argue that we've eaten a little bit into it given the headstart we've got in 2021 with fast U.S. growth. It still sits up there, and you can say it's also part of the reason why we can reconfirm the targets despite having a much stronger 2021 base.
If we got into 2023 and both U.S. keeps being on fire, China has not just stabilized but started growing. Pandora Brilliance is something that can be measured as part of revenue. Pandora ME has become a platform. Pandora Moments continues growing. If all of that happens at the same time, then you start sort of realizing the contingency next year. I think we shouldn't rely on that.
You can calculate it in different ways, but you can say that if we deliver 3 points of growth this year in the low end of the guidance, then we should deliver at least 7% organic growth next year to get to the low end. I think that's an acceleration. I think it should also be kept in mind that if we deliver 3% this year, that's because we have had a Q1 headwind of COVID-19.
I think the range to think about next year, if it's 3%-6% this year, will be 6%-8% next year to deliver a 5%-7% CAGR. So an acceleration, but where COVID-19 could be part of it if that materializes here in the first part of 2022.
To sum this up, of course, none of us knows exactly what will happen in 2023. In terms of those targets, they're not in your mindset more or less conservative when they were when you announced them back at the Capital Markets Day?
I think. If I can start out here, and then I'll look at my boss and see whether he agrees to what I'm saying. I think on the one hand, we are now getting, what is that? 10 months into 8 months after we announced the Phoenix strategy initially. Now we have executed on it, and we can see that some things are working.
I think from that point, I think it feels more solid. Obviously you can argue that given that we ended up much higher in 2021 than getting to the high end of the 5% to 7% growth range, you can argue has become a little bit tougher because it's the same percent, but it's on a DKK 1.1 billion higher starting point.
Net-net, I think I'll say that given that we are executing quarter by quarter, most of what we have of the growth drivers are working, I think it feels a little bit more comfortable.
Thank you very much for taking my questions.
Our next question comes from the line of Anne-Laure Bismuth from Exane BNP Paribas. Please go ahead. Your line is now open.
Yes. Hi. I have two questions. The first one is on the launch of the newer concept store. You mentioned that it was still at the early stage and you launched it in Q4 and Q1. Where did you launch this new concept store? Where do you plan to launch it in 2022? How many concept stores do you plan to roll out the new concept store format?
Do you plan to be at the top end of the 13% to 15% percentage of group sales in 2022? Do you plan to be at the top end of the range around 15%? Thank you very much.
Hi. We have launched three stores. One in Milan, one in London, Enfield, and one in Guangzhou in China, which was launched at the very end of December. We have three. Of course, the China one is very early days, but the other two were launched to essentially, we wanted to pressure test them in peak.
A spread of countries to continue testing it. 3 + 10. On the basis of those, we have a plan for Q3 to start a global rollout, but that's obviously dependent on whether we can confirm the early reads from the stores. We should remind ourselves when we retried the previous attempt, we initially also had very good positive results.
The fear was also that the way it was organized in the previous edition, we had some difficulties with selling new collections. This iteration that we have out there now, that's one of the, let's say, most important aspects, is on one hand, be able to deal with the traffic volume at peak, and the other one is that new collections will be much easier to identify, you know.
The big kind of component of that is media spend, and that, of course, we didn't do given the conditions. Right now, I'm also not keen on spending that money, simply put, because of this zero tolerance policy that is still prevailing. The conditions are very unpredictable in terms of if I spend the money, I actually don't know whether that city is gonna be open or not tomorrow.
This all depends on when we can actually pull the trigger on the plan. The way to think about the plan, which we continue to keep working on, is more of a China for China. In terms of assets, it's now shot exclusively with Chinese talent. It's shot in China. The core idea of the concept is still the Pandora, the global Pandora.
I don't know. If that's the case, then we would relatively quickly go to market with our plan. It kind of sits in the drawer, but I'm just sitting on it for now.
Thank you.
Our next question comes from the line of Elena Mariani from Morgan Stanley. Please go ahead. Your line is now open.
Hi, good morning. I've got two questions as well. The first one is on the moving parts between gross margin and EBIT margin in your guidance for fiscal year 2022 and 2023. Based on what you have disclosed today, is it fair to assume that you know, the embedded gross margin guidance for 2022 implies at least a 50 basis points decline year on year, given the headwinds that you're experiencing on the commodity side?
If you decide to spend that money, that's gonna be incremental. This is overall question number one. Question number two is more on the top line into 2022. You were very kind to give us a sort of indication of what you expect across the various regions.
That was a clever way to ask two questions, Elena. It's Anders here. I'll start out on the first piece on the gross margin and EBIT. I think from now on until all the way to 2023, it's fair to assume that the gross margin will be roughly flattish, give and take.
A little bit of headwind this year, a little bit of tailwind in 2023 on the gross margin. Like in prior years, we don't actually see any big underlying structural changes to the gross margin as a roughly odd change. That also means that what drives the EBIT margin both this year and next year will mainly be changes in the OpEx ratios and leverage on the OpEx base, not so much this year, but more next year.
We do have included some investments in China in the guidance for this year. Exactly how we play it out and the pocket of media money that we are sitting on, what goes to China, what goes to other opportunities that might look more attractive, that's something that we play quite dynamically as we go.
That is included in the guidance. We remain at an elevated level on freight costs as an example. It's not a very big part of our P&L, but it has some impact, and we assume that continues unchanged. We have assumed that there are some pockets of salary costs around the world where levels are also increasing more than what we have seen historically.
But it's a bit more in the business-as-usual category, and that's why we haven't talked, fortunately for us, but it's a bit more like business as usual. Then, yeah, on—
Channel mix.
On channel revenue, yeah.
I mean, the online seems to be migrating depending on whether the stores are open or closed. What we can say is there is a permanent higher ratio of online transactions in a couple of the markets which used to be very low, namely Italy, France, Australia. U.K. seems to kind of have nudged up just a touch.
Yeah, then the shift to say now that we have less COVID impact in 2022 will probably result mean that the online share of revenue will be flattish to a bit down, as you say, compared to. I think that's one dynamic.
Perfect. That was very clear. Thank you very much.
The next question comes from Martin Brenøe from Nordea. Please go ahead. Your line is open.
Hi, Alexander and Anders. Congratulations with another set of solid results. I have 2 questions, if I may. First of all, you have had a solid start to the year. By your assessment, how much of that is driven by promotional activity in the beginning of the month, and how much is driven by sales up to Valentine's Day, if you can say anything about that?
Hence, adjusting for this, you would have an EBIT margin above 26% already in 2022. What's sort of holding you back from lifting the low end of your EBIT margin guidance for 2023? Thanks.
I mean, I can take the first one. From a promotional intensity standpoint, it is similar to prior year. I say similar because the mix was a little bit different. We had more stores closed, but then it happened online, end of January. This is not the major driver of the results.
Yeah. On the EBIT margin, it's true that we're already in the low end of that range. Oh, sorry, starting with the China investment. That is in the guidance for 2022, and you could think about it as around DKK 200 million as what it takes to get that repositioning of the brand going.
I think what's quite important for us is that we want a couple of points here. One is that we want to keep flexibility to invest in driving the top line. Now we have done a little bit of test launch of Brilliance in the U.K. As we go broader, we want to make sure that we have sufficient muscle and room to push media behind new platforms.
Everything else equal, I guess bottom line is that the with the development that we've seen since the Capital Markets Day in September, the higher end rather the low end of the 25% to 27% range EBIT margin next year has become less likely. I guess that's one way to put it.
A little bit too early to talk about where yet.
Thank you. Makes sense. Very clear.
Our next question comes from the line of Kristian Godiksen from Nykredit. Please go ahead. Your line is now open.
Yes, hello. Perhaps a bit of a boring question, but Anders, could you tell us a little bit what is happening to your net financials in Q4? Could you give us any input for what would be reasonable to expect in 2022, assuming flat currencies, from here? That would be my question. Thank you.
It's not a boring question at all. It's okay. It's actually quite a natural, I think, question to ask. On a normal day, our net financials are quite limited. We have a bit of interest costs, but these days, with very low interest rates, it doesn't have a lot of impact.
If the foreign exchange rates go up, like the pound recently, the operational sort of day-to-day transaction when we sell products in the UK, the higher FX impact, and that goes into EBIT as part of normal consolidation of the numbers. That's what we see in Q4.
Specifically in Q4, from memory, we had around DKK 250 million FX gain above EBIT from the pure translation. We have DKK 167 million or DKK 170 million. I'm just looking at my colleagues here. DKK 167 million of losses on FX contracts below the line.
Okay, great. Thank you very much.
Our next question comes from the line of Grace Smalley from JP Morgan. Please go ahead. Your line is now open.
Hi. Thank you. This is Grace Smalley from JP Morgan. Two questions from me, please. Firstly on inflation, I guess more from the consumer perspective, how do you expect your consumer to react to the current cost of living and inflation concerns, perhaps across your different regions, and how you see that impacting demand for jewelry and then Pandora in particular?
Hi. I mean, it's anybody's guess on what's gonna end up with consumer sentiment. I would say that currently you would read that into the 3% to 6% organic growth guidance. That's our view, if you want the number on it.
Than others. If is that gonna repeat itself? You know, time will tell. I don't think it's gonna be a huge drama, if I'm perfectly honest. At least that's not what the Pandora brand has experienced in the past. Now, in terms of promotional activity, if we back up the tape, you know, during the, let's call it the bad days around here a few years back, then we were doing, I don't know, 230 days a year with promotions.
The strategy has been the same through the program now and then continues for now is we kind of put the bet around the big key trading periods being Valentine's Day, Mother's Day, you know, Black Friday and the Christmas trading. Those are the big windows in which, you know, we play to win.
We took some cleanup activity this last fall, both in U.S. and France and a few places where you know, we juiced it a little bit last year when we came out of the pandemic closures. That's been cleaned up during this fall. I think current levels are probably a good steady state level for me.
Great. Thank you very much.
Our next question comes from the line of Daria Nasledysheva from Goldman Sachs. Please go ahead. Your line is now open.
Thank you for taking my question. My question broadly relates to Q1, and you've put out a fairly strong growth figure for January. I was just thinking about how we should think about that as we go through the following months of the quarter.
Related to that, as we head into Valentine's Day, how are you looking at that relative to last year and versus 2020? Is there anything we should be aware of in terms of differences in strategy? Thank you.
I mean, first of all, I think we need to be very careful of providing, you know, detailed monthly guidance going forward. I'll leave, you know, whatever verbiage Anders would like to put on that. When it comes to Valentine's Day, I think last year we had a very strong Valentine's Day.
I think the way to think about the comp base specifically in Q1, and exactly as you said it, we should be careful. There's always tons of explanations when you go down to look at things on a weekly basis or monthly basis.
Okay.
Our next question comes from the line of Thomas Chauvet from Citi Research. Please go ahead. Your line is now open.
Thank you, and good morning, Alexander and Anders. Thomas Chauvet from Citi. Two questions, please. The first one on Brilliance. I guess the positive were several pretty high ASP at GBP 500, self-purchase gifting, new categories with rings.
That would be close to 2 percentage points organic growth impact. Is Brilliance included in your 3% to 6% organic growth guidance? Perhaps the low end of guidance at +3% assumes almost no impact of Brilliance, maybe because of a delayed rollout.
I can start off on brilliance. I think that, first of all, I mean, we designed this initiative to appeal to self-purchasers and, let's call them millennials and Gen X. What we have on a positive note, we have probably got a bit more gifters than we had initially anticipated versus self-purchasers, but we still got a good chunk of self-purchasers.
Going into only this year in U.K., that's an area which we need to improve and going into the rollout markets, that's definitely something which we will pay a great deal more attention to just to talk about something. In terms of your speculation, the only thing I will say, and I'll repeat myself, it's gonna be a sequential global rollout.
Thanks so much for the question on the tax rate. There's three smaller buckets that contribute to why the tax guidance for this year is a point higher than what we previously have said. One is that there's new regulation that says that costs in Panama that's incurred by a Danish company cannot be deducted.
There's, if I dare, can I be allowed to say that, a bit of strange tax regulations in China that means that you cannot deduct marketing expenses that exceed 15% of revenue in China. We do plan, without revealing too much, to spend more than 15% of China revenue on media, on marketing.
It's not a sort of easy fix. China should disappear again over time. It might be that we can go back to the 22% to 23% over time. The question mark there, that's the new OECD 15% minimum tax rules coming into effect and how that plays out, because that might impact the lower effective tax rates that we have in Thailand and have had for the last many years.
Because in by far the most countries where we operate, we are above that 15% already. It's only Thailand, where we have a special setup.
Thank you, Anders.
Thank you. Our next question comes from the line of Lars Topholm from Carnegie. Please go ahead. Your line is now open.
Yes, just a brief additional household question. Your lease obligations are down by a little over DKK 400 million. I wonder if that gives any indications of how sales and distribution costs are going to develop going forward, please.
Yeah, that's a good line of thinking, Lars. There's a couple of questions in that. It shouldn't impact our sales and distribution costs as such because the bigger part of the decreases are related to that we're getting more flexible leases.
Having said that, I think going back to the cost inflation discussion that we've touched upon a couple of times today, this is one of the areas where we see the opposite effect currently, where we actually have been able to take rentals down in the leases that have been up for negotiation this year.
On the ones that we are negotiating, it's a decent reduction, so which might mean that over time it could be a bit more visible in the P&L actually, if we continue at that rate of reductions on the leases that we are renegotiating.
Yeah. It also varies.
Sorry, Alexander.
No, but I mean, this, the kind of the success of these lease negotiations vary wildly between countries. Like, if you take U.S., it almost goes the other way around because that market has been on fire.
That leads to two follow-ups on that topic. In this exercise of potentially renegotiating all leases, how many % of the store base have you had discussions with, and how many are still left to talk with? Then to your response, Anders, what is a decent reduction in your view?
Yeah, I knew that was coming. But on average our store leases are five year-ish sort of, and then we break options in between. If everything was linear, it would be sort of a fifth every year, but it's been. I actually can't remember that number, but somewhat less than that in 2021.
From memory, we renegotiated 200 contracts.
Yeah. So yeah. It is. Now the answer to your second question is never enough. I hope I have a lot of landlords listening to this call, yeah. That's one answer. The other answer is that we would like to change the setup, so you know, move a bit more to variable components versus the fixed components.
Versus in the past, we were locked in for a long, long period of time, or break lease clauses were bad for us. So that we can respond in catchment areas where, you know, traffic is moving elsewhere or we make different choices. Maybe we need larger stores or whatever it may be. So it's not only about the kind of rental cost as such. So I think that's probably too one-dimensional versus the business case for us.
It's correctly understood that these negotiations could be sort of a factor reducing cost inflation, not just from 2021 to 2022, but also in the years after.
Yeah. That's a reasonable assumption on a like for like basis. We'll open new stores, et cetera, that goes the other way. Obviously.
Sure. Of course.
On the same store basis, that's a reasonable assumption.
Yeah.
Thank you very much, guys.
Thank you. We currently have no further questions. I will hand back to the speakers for any final remarks.
Okay. Thank you very much for all your good questions. I knew the brilliance was hidden in there, Lars. I did note that. Don't worry. We enjoy these sessions with you guys, and of course, on the back of the results which we brought to the table today, it's a little bit, you know, it's a good place to be for Pandora. We're looking forward for the year and then speak to all of you know, soon, in different forms. Thank you very much for today.
Thank you.