Thank you and good morning. Welcome to Pandora's conference call following the release of our full year and Q4 report distributed through the wires this morning at 8:00 A.M. The presentation for this call, as well as the full version of our Pandora's annual report 2012, is available on pandoragroup.com/investor. My name is Morten Eismark from Pandora Investor Relations, and with me here today is CEO Bjørn Gulden and CFO Henrik Holmark. In accordance with the agenda on slide two, Bjørn will go through a few 2012 financial highlights. Bjørn will also walk you through the company's evaluation of our capital structure and the implication for the proposed dividend, as well as the initiation of a share buyback program. After this, Henrik will go through the Q4 numbers in more details, after which Bjørn will conclude the presentation and will be happy to take your questions.
Before handing over to Bjørn, I kindly ask you to pay close attention to the disclaimer on page three. Bjørn, please.
Thank you, Morten. Good morning. Please turn to slide 4. 2012 was, as you all know, a difficult year with a lot of challenges. It was a year what we call resetting the business. That is why I'm happy to report full year numbers better than originally anticipated a year ago, and even slightly better than what we anticipated in early November when we released our Q3 report. We feel we have made progress. Full year revenue for the group was nearly DKK 6.7 billion, and EBITDA margin was very close to 25%. The latter in a year where our gross margin was comparably hurt by more than six percentage points, mainly from increasing gold and especially silver prices. As mentioned, 2012 has been a year of resetting the business.
We started the year with a clear strategy that included two major initiatives: realigning our product and pricing to get our collection right, and improving our retail stock by taking back slow-moving products and replacing them with commercial best-selling products. I think we have executed well on both initiatives. Our current pricing and assortments are much more commercial than in the past. The sell-in and sell-out of 2012 launches has been good. The stock balancing campaign that was concluded end of the year was well received by our retailers. It helped them get rid of poor-performing products. It freed up cash for them so they could get better merchandise in their stores. I'm also very happy to see that even in a difficult retail environment, our four major markets all have positive like-for-like sales out in the concept stores during Q4.
In 2012, we again achieved a very healthy cash flow, or what should we call it when we, in a year of resetting the business, generated a free cash flow of more than DKK 1.1 billion. This high level of cash flow was, in addition to our earnings, also achieved by good inventory management. I'm very proud of the fact that we managed to melt all the stock that we took back with the stock balancing campaign and managed to get our finished goods inventory down to DKK 1 billion. I think this is a very healthy sign. By the end of 2012, the board also concluded their analysis of Pandora's capital structure, which has resulted in two important decisions.
Firstly, the board has decided to propose to the AGM that a dividend of DKK 5.5 per share is to be paid out, corresponding to a payout ratio of 59%. Secondly, the board has also decided to initiate a share buyback program for up to DKK 700 million to be completed before end of 2013. Now, I would like you to turn to slide 5 and take you through the 2012 full financial headline figures. Please turn to slide 5. These numbers are, as I've said many times, impacted by the Stock Balancing Program conducted through the year. We had a revenue of DKK 6,652 million. We had a gross margin of 66.6%. We had an EBITDA of DKK 1,658 million, which gives us an EBITDA margin of 24.9%. Our net profit was DKK 1,151 million.
We had a cash conversion of 95.8%, and we had a net interest-bearing debt of negative DKK 183 million. And I think that's the first time that we have been cash positive. Given the importance of the stock balancing campaign that it had on our performance in 2012, I will quickly, and I promise you, for the last time, run through the conclusion of this campaign on the next slide, slide 6. As you will see from the Q4 box on the slide, we received no discontinued products from our retailers in Q4, but we shipped, pending from Q3, 10 million worth of best-seller products back to our retailers in this last quarter of the year. The campaign is now complete. Under the program, in total, we have received 609 million worth of discontinued products from our retailers, and we have shipped 609 of best-seller back to them.
As I said, there is none of this inventory on our balance sheet. It's all been melted to cash. Now, please turn to slide 7. Focus for the one-off Stock Balancing Program in 2012 was, of course, to improve retailer stock and turn. In order to reduce the risk of slow-moving excess stock at retailers going forward, we have implemented a number of initiatives. Firstly, by introducing more frequent drops, now 7 instead of 2, and smaller drops of new product launches. Secondly, by a more closely monitoring of daily sales out on a SKU level, helping us to secure balance between sales-in and sales-out. However, as a result of our business model and the fact that we are an affordable brand, we will have to discontinue products, and we will be clearing stock on a regular basis.
This will be done in three ways: sales campaigns on discontinued items twice a year, typically January and July-August; secondly, clearing of discontinued items through online as well as offline outlet channels; and the third way is to take back stock from retailers on an ongoing basis. Cost for the two first avenues is covered mainly by the retailers. Cost for the third avenue is carried by Pandora and is covered by our provision for discontinued items of DKK 416 million in gross margin value, corresponding to a healthy level of approximately 9% of 2012 revenue. So products being the most important factor for our future success, we ask you to move to slide eight. The strategy of focus on our core, meaning charms and bracelets, is paying off. The new collections at commercial price points are working well. Autumn and Christmas sold in well.
They sold out very well, and we now see high replenishment rates. Important is also to see that we are increasingly successful with our new ring collections, again at affordable retail prices between EUR 50-EUR 120. Anecdotally, the reception of the Valentine's drop in Q1 2013 has also been very encouraging. We will continue to work hard on our collections. For us, product is king, and we have very exciting new ideas and concepts in the pipeline for 2013 and going forward. Please turn to slide 9, where I will talk about what really excites us the most: like-for-like sales out development from our concept stores in our major markets. U.S. is again performing well and had positive like-for-likes, this time 7%, especially December with the Christmas business being extremely strong. U.K. had a very strong sales out quarter, with like-for-likes being up impressive 12%.
We all know how difficult the UK retail market has been. We are therefore very proud of this development. We feel that our new commercial product and better store execution are the reason for this success. Germany, again positive with 5%, confirming the positive trend in sales out in our Concept Stores. We have initiated many initiatives to improve the business in the German market but must admit that it will take time and consistent execution before it will positively impact the sales-in and our reported revenue. Australia finally shows what we have been waiting for for quite some time: growth, significant growth. Up 10% like-for-like in Q4 admittedly on EC comparables. In addition to better product and better execution in the stores, it is no doubt that the consolidation and cleanup in distribution is starting to pay off.
The like-for-like figures on this slide measure about 80% of the Concept Stores. Remember that a store has to be open for more than 12 months to be included in like-for-like sales. We believe that the current trend confirms that our new products and price structure is being well received by end consumer, and that our in-store execution has improved, and that we, in a general difficult retail environment, are performing reasonably well. In addition to these sales out numbers from our four markets, I would like to add that we are also very satisfied with how new markets have developed. Countries like Russia, Italy, and France have all performed better than anticipated, both in sales-in and in sales-out. Please now turn to slide 10, where I will present our financial guidance for 2013.
The FX tailwind we had in 2012 has, unfortunately, due to the depreciation of some major currencies, turned into headwind in 2013. Despite this, we expect to grow our revenue to about DKK 7.2 billion. We plan to achieve this controlled growth by continuing our like-for-like growth in our branded distribution and by increasing and improving our distribution in new and existing markets. We also expect to deliver EBITDA margin above 25% for 2013, and much better than what we delivered in 2012. Furthermore, we expect Capex around DKK 300 million and an effective tax rate for 2013 at approximately 19%. We do expect to open approximately 150 new Concept Stores. Please turn to slide 11, where I will take you through our capital structure.
This is a wordy slide, but the conclusion is that the board of directors, after their analysis, concluded that the leverage, or net interest-bearing debt, to EBITDA level of 0-1 times on a 12-month rolling basis is an optimal level for Pandora. In order to achieve this level of leverage, the board of directors aims to maintain a stable and then increasing nominal dividend per share using the 2011 dividend of DKK 5.5 per share as a reference and distribute any surplus capital through either buyback programs or as an extraordinary dividend. Please turn to slide 12, where you can see what this means for 2013. As a consequence of the new capital structure, the board of directors proposes a dividend of DKK 5.5 per share for 2012 and a share buyback program for up to DKK 700 million during 2013.
For the share buyback program, the majority shareholder Prometheus Invest has undertaken to participate in the program on a pro-rata basis. This will secure that the current free flow is not reduced. The board of directors intends to propose to Pandora shareholders at the annual general meeting in 2014 that Pandora's share capital be reduced by canceling the shares purchased under the program. Pandora may also use the share purchased under the program to meet obligation arising from employee share option programs. Please now turn to slide 13, where I will walk you through the mechanics of the program. The program will be implemented under the EU Safe Harbor regulation and will be up to DKK 700 million.
The program will end no later than the 31st of December 2013, and a maximum of 12,831,400 Pandora shares will be bought under the program, which, together with the company's holding of treasury shares of 182,925 shares, will equal 10% of the shares issued in Pandora. We will, to keep you posted on the progress of the program, issue a weekly announcement of transactions made. So with this, I would like to hand over to our CFO, Henrik Holmark, who will go into more detail with our Q4 numbers. Henrik.
Thank you, Bjørn. Please turn to slide 14, which shows our financial highlights for Q4 2012. Our Q4 2012 was, as Bjørn mentioned in the introduction, slightly better than anticipated when we reported our Q3 results. Revenue was DKK 2,174 million. Gross margin was 64.5%. EBITDA was DKK 534 million, with an EBITDA margin of 24.6%.
Net profit was DKK 421 million, down 24.1% from Q4 last year. However, adjusting for the change in the CWE earnout, the net result would be up 8.8% compared to same quarter last year. Cash conversion was 244.7%. And as Bjørn mentioned, we are cash positive at the end of 2012 with a net interest-bearing debt of -DKK 183 million and a net interest-bearing debt to EBITDA of -0.1% of the last 12 months' EBITDA. Please turn to slide 15. Overall revenue for Q4 2012 was slightly better than previously anticipated. Total revenue increased by 11.4% to DKK 2,174 million in Q4 2012 from DKK 1,952 million in Q4 2011.
Revenue was positively impacted by the generation of a larger proportion of revenue in owned and operated stores, strong revenue development in the UK, as Bjørn mentioned, other Europe and Australia as well, and a positive impact from currencies. Revenue was negatively affected by the development in Germany, shift of the Valentine's drop into Q1 2013 instead of historically in the fourth quarter, and a provision for buying back inventory in connection with the change of a distributor in Japan. Excluding FX movements, revenue increased by 6.9%, consisting of price decreases -3.8%, volume +14.1%, and market mix 1.3%, and finally, mixed effects of -4.7%. Our revenue from branded distribution in Q4 was 79.1% of the total revenue for the quarter.
From the chart in the bottom left of this slide, you clearly see the trend in increase in branded sales from being in the 60s in 2010 to now being close to 80% of our revenue, which is a result of our strategic focus on these channels. Please turn to slide 16, which looks at the revenue development by major geographies and markets. The geographical distribution of revenue in Q4 2012 was 43.2% for the Americas, 44.4% for Europe, and 12.4% for Asia-Pacific. All regions are positively impacted by currencies, and all regions are negatively impacted by the shift of Valentine's into Q1 2013. Revenue in America has increased by 6.3% in Q4 2012 versus Q4 2011. In local currency, the revenue increased by 1.5%. In the US oh, sorry. The US was up 5.3% in Q4 2012 versus Q4 2011, all 0.8% measured in local currency.
Other Americas were up 10.4%, with Canada as the largest contributor. In Europe, we experienced an increase in revenue of 24%, at 20.7% in local currency in Q4 versus Q4 2011, which is driven by the U.K. and Other Europe. Revenue in the U.K. increased by 11.6% versus Q4 2011, at 5% measured in local currency. Revenue in Germany decreased 16.3% in Q4 2012 compared to Q4 2011. As Bjørn mentioned previously, many initiatives have been put in action in Germany, and we are seeing an improvement in sales out of Concept Stores. However, it will take time before these initiatives impact our sell-in revenue. The category Other Europe increased by 70.5% in Q4 2012 compared to Q4 2011. As Bjørn mentioned, we are seeing a positive impact from new markets like Russia, Italy, and France. In Asia-Pacific, revenue decreased 7.2% in Q4 2012 compared to Q4 2011.
Excluding currency movements, the underlying revenue in the region decreased by 13.4% year-over-year. The revenue development was positively impacted by strong performance in Australia but more than offset by a negative one-off effect from buying back inventory in connection with the change of distributor in Japan. Reported revenue in Australia was up 15.7% year-over-year, whereas revenue increased 7.9% in local currency. In Australia, we experienced a positive trend as seen before, both in sales out and in sales-in, driven by the changes made to the distribution network as well as the success of new products launched during 2012. In the category other Asia-Pacific, which constitutes 1.2% of total group revenue, revenue was down 67.5% in Q4 2012 compared to the same quarter last year. We have terminated our arrangements with our former Japanese partner and simultaneously entered into a new agreement with Bluebell Japan Ltd.
As part of the termination, we will take back stock from the former partner estimated to be worth DKK 38 million in wholesale value, which is provided for at the end of 2012 and therefore negatively impacts the revenue in Q4. Excluding this effect, other Asia revenue decreased by 20% in Q4 2012 compared to Q4 2011, and the decline is mainly explained by fewer store openings and weaker sales-in in Q4 2012 compared to Q4 2011. Please turn to slide 17. This slide looks at the development in our distribution network. The total number of points of sales increased by 154 in Q4 2012 compared to Q3 2012 to a total of 10,374 points of sales globally. In the same period, Pandora added a net total of 297 branded points of sales. Of these, 72 were concept stores.
The largest contributors to Concept Store openings in Q4 were Russia, US, Italy, and Australia. Russia and Italy being a monster-talk performance of new Concept Stores, we believe, is a testament to the significant progress made in these two markets during 2012. While openings in new markets outside Asia continue with a positive momentum, we are in Asia, as we have previously mentioned, applying a more conservative and selective rollout approach. Please turn to slide 18. The product mix continues to be affected by the stock balancing campaign that we conducted during 2012. This goes both for the product mix for the full year 2012 and, in particular, the development within and between quarters, which has been affected. In Q4 2012, revenue from Charms increased by 15.1% compared to the same period last year, while revenue from silver and gold charm bracelets was largely flat.
These two categories together represent 84% of revenue, which is up from 80.2% in Q4 2011. The increase in charms is reflecting our focus on refreshing this category with the new products launched, mainly focusing on charms and rings. The charms launched with our autumn-winter 2012 collections have been very successful, with some of the charms based on only one quarter's of existence being on the top seller list for the full year 2012. Rings increased by 18.4% and represented 6.2% of total revenue in Q4 2012. The development in rings reflects the success of our introduction of new rings at attractive price points designed through our Ring Upon Ring concept. Please turn to slide 19.
Gross profit for Q4 was DKK 1,403 million compared to DKK 1,420 million in the same period last year, resulting in a gross margin of 64.5% in Q4 2012 compared to 72.7% same period last year. While currency effects and price changes almost eliminate each other, the remaining effect on gross margin comes from increasing raw material prices impacting by -7.1% and product and market mix with a positive impact of +1.3%. The price and mix effect includes a roughly 1 percentage point negative impact on gross margin due to the reintroduction of duty in the U.S. on silver imports from Thailand. A suspension of this duty was put in place following the tsunami in Thailand. It was subsequently extended a number of times but has now expired, as we mentioned, back in Q3.
Excluding hedging and the time lag effect from our inventory, the underlying gross margin in Q4 2012 would have been approximately 65% based on the average gold and silver prices for the quarter. That's the average spot prices for gold and silver. Under the same assumptions, a 10% deviation in quarterly average gold and silver prices would impact our gross margin by approximately 2-3 percentage points. Please turn to slide 20. Looking at the operational expenses, while revenue increased by 11.4%, our operating expenses decreased by 3.6% in Q4 2012 compared to same quarter last year. Distribution costs were largely flat. Sales and distribution expenses increased to DKK 393 million in Q4 2012 compared to DKK 307 million in Q4 2011, which is mainly driven by entrance in new markets and a higher share of owned and operated stores.
This is offset by marketing costs, which declined in line with expectations to DKK 293 million in Q4 2012 from DKK 392 million last year due to an unusually high level in Q4 2011. Administrative expenses decreased to DKK 231 million in Q4 2012 compared to DKK 246 million last year. From a ratio perspective, the OPEX ratio for Q4 is impacted by the fact that we have made an adjustment to return provisions in the balance sheet in line with what Bjørn previously mentioned around our approach to dealing with discontinued items. This mainly impacts Q4 and therefore also impacts the ratios for Q4. You will see the increase in provisions if you compare the balance sheet end Q3 and end Q4. And we have, end of year, provided some additional information in note 21 to the annual report, which shows a regional breakdown of the provision.
Remember that the provision made corresponds to the gross margin value of the anticipated returns. Please turn to slide 21. EBITDA for Q4 2012 increased by 1.9% to DKK 534 million, resulting in an EBITDA margin of 24.6%, down from 26.8% in Q4 last year. The reduction in EBITDA margin generally is driven by a lower gross margin, which is partly offset by a reduction in operating expenses relative to revenue. Furthermore, the overall as well as regional EBITDA margins are impacted by the increase to return provisions, which I just mentioned before. EBITDA margin in the Americas is furthermore impacted by the general decrease in gross margin as well as the full local impact of the reintroduction of import duties from Thailand, as previously mentioned. The EBITDA margin decline in Europe is affected by costs related to development of new markets.
The EBITDA margin in Asia-Pacific is positively affected by increase in revenue in Australia and negatively impacted by inventory takeback from the previous distributor in Japan. Unallocated costs were 6.8% of revenue in Q4 2012 compared to 12.9% in Q4 2011. Please turn to slide 22. Net financial income amounted to DKK 40 million in Q4 2012. Financial income is positively affected by DKK 51 million from an adjustment of the CWE earnout provision based on the revised outlook for Pandora Central Western Europe. Income tax expenses were DKK 105 million in Q4 2012, implying an effective tax rate of 20% for the quarter. The effective tax rate for the full year 2012 adjusted for the change in the CWE earnout was 19.4%, up from 17.9% in 2011. This is driven by a change in market mix, which also drives the expected tax rate for 2013.
Reported net profit decreased by 24.1% to DKK 421 million in Q4 2012 compared to a net profit of DKK 555 million in Q4 2011. Excluding the CWE earnout provision adjustment, Q4 2012 net profit increased by 8.8% to DKK 370 million compared to an adjusted net profit for Q4 2011 of DKK 340 million. Please turn to slide 23. In Q4 2011, we generated a free cash flow of DKK 1.03 billion, corresponding to a cash conversion of 244.7% compared to 167.6% in Q4 2011. The increase in cash conversion is affected by an improvement in our cash flow, primarily or significantly impacted by a reduction in our inventory levels from Q3 to Q4. Operating working capital at the end of Q4 2012 was 30.7 million of last 12 months' revenue compared to 33.4% of
Operating working capital at the end of Q4 2012 was 30.7% of last 12 months' revenue compared to 33.4% at the end of Q4 2011 and 42.3% at the end of Q3 2012. Inventory decreased significantly to DKK 1,380 million at the end of Q4 2012 from DKK 1,609 million at the end of Q4 2011 and decreased by DKK 604 million versus Q3 2012. The significant decrease in inventory levels can be explained by improved inventory management and remelting of obsolete inventory from the stock balancing campaign. And as Bjørn mentioned, everything taken back during the stock balancing campaign has been remelted by the end of 2012. The reduction from Q4 2011 is despite the gold and silver prices increasing more than 20%.
Trade receivables decreased to DKK 940 million in Q4 2012, corresponding to 14.1% of the preceding 12 months' revenue from DKK 982 million in Q4 2012, corresponding to 15.3% of preceding 12 months' revenue. In Q4 2012, we invested a total of DKK 67 million in property, plant, and equipment. The increase in investments in Q4 2012 was related to our factory in Thailand, moving forward investments in the innovation and design center at Pandora's production facilities in Bangkok. Total interest-bearing debt was DKK 158 million at the end of Q4 2012 compared to DKK 385 million at the end of Q4 2011. Cash and short-term deposits amounted to DKK 341 million at the end of Q4 2012 compared to DKK 176 million at the end of Q4 2011.
And finally, as previously mentioned, we are cash positive by the end of Q4 2012 with a net interest-bearing debt at the end of Q4 2012 of DKK -183 million, corresponding to 0.1x EBITDA. With this, I'd like to hand back to Bjørn to conclude the presentation.
Thank you, Henrik. Slight summary. Group revenue was DKK 6,652 million. Gross margin was 66.6%. EBITDA was DKK 1.658 billion. That's a margin of 24.9%. We can further say that the stock balancing campaign is completed. New products are continuing to do well. Revenue for 2013 expected to be about DKK 7.2 billion and EBITDA margin to be about 25%. We have proposed a dividend of DKK 5.5 per share. We have decided on a share buyback of up to DKK 700 million.
And finally, as I always say, our main focus continues to be on the consumer, the product, and sales out. So thank you. This concludes our presentation. Henrik and I would now like to open up for any question you might have. Operator.
Thank you. As a reminder, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. And the first question comes from Michael Rasmussen from ABG. Please go ahead.
Yes. Good morning, everybody. I'd like to start up with three questions. If we start on the EBITDA margin in the Americas, down approximately 10 percentage points year-on-year. And I see you put in one explanation, and that is these import duties from Thailand to the U.S., which you mentioned, Henrik.
Now, as I understand it, there are also some impacts by the change in provisions. On a group level, you changed provisions by DKK 227 million from Q3 into Q4. So could you tell us what the EBITDA margin in Q4 in the Americas would have been excluding these provisions? Then my second question, also relating to provisions and going forward, you mentioned the DKK 416 million was the total number in 2012. Now, can you just explain to us how this impacts your 2013 guidance, i.e., what is the isolated impact on the margins at EBITDA or at the gross level? And what is your thinking in terms of going forward? I mean, I fully understand why you say, "Okay, we don't want to go through a stock balancing program again.
This is the way we do it from now on." But just kind of what assumptions are you building into this going forward? And then my final question is on the gross margin in 2012 and Q4. You do mention that the underlying gross margin excluding hedging would have been 65%. After Q3, I think you gave us the number 67%. So why this change? And then what should we think going into 2013 on gross margin? Thank you very much.
Well, let me address your first question. EBITDA margin -10% in the U.S. As I mentioned, we provided some additional information on the provisions in the annual report, note 21, where you see the regional breakdown. If you look into that note, you would see that provisions related to Americas was DKK 317 million end of 2012, and it was DKK 200 million end of 2011.
The adjustment of provision was mainly made in Q4. That's the information I can give you regarding that, what the adjusted EBITDA margin would have been. We were not going to be talking about that. In terms of how that impacts our 2013 guidance, well, we have basically prepared our budgets for 2013 bottom-up based on market expectations. That's basically what we use in setting our guidance externally. We believe that 9% that we have in the provision level, end of 2012 is probably the appropriate level and healthy level for Pandora. We don't expect significant changes going forward to that overall provision level for the group.
But Henrik, sorry to interrupt. What I see in both 2011 and in 2012 is that you've utilized somewhat smaller amounts of your provisions.
So are you actually just building up your provisions some here on the balance sheet, or are you expecting that to grow in 2013? Or what's the thinking here?
Michael, if you look at what we utilized during 2013, you will see that we utilized DKK 281 during the year. So that means that we utilized the provision that was made during the year, and we've made some additional provisions sorry, that was made in the beginning of the year, and we've made some additional provisions during the year that were also utilized. So you see the total you see the detailed movements in the note to the annual report.
If I just could comment on that, I mean, I think it's important to understand that we are a consumer brand, an affordable brand, and we have to make sure that we cater for discontinued items to avoid having another one-off stock balancing campaign. So that's why we think that the provisions we made now are provisions that are needed, and it's one that underlines our strategy going forward, how we deal with discontinued items. And as we said, it's three different things. We will have sales campaigns, as other industries have, twice a year. We will sell in outlets. And then we will have to take back inventory, and that we have to provide for. So this is all to make sure that we have a controlled growth with a good quality of revenue and that we avoid the clogging that w e had before.
So we feel very good about the 9% level of provision being a good one.
On the gross margin, Michael, if you're satisfied on the provision the gross margin, you mentioned that the underlying gross margin goes from 67%-65%. We also mentioned in Q3 that a 10% change in gold and silver prices would impact by roughly 2 percentage points. And what you see is that the spot prices for Q4 is roughly actually 10% higher than the spot prices for Q3. So basically, the 65 is fully in line with what we write in Q3.
And how should we think about 2013? Because one thing is you changing your product structure towards more silver-based products, which as I understand it, have a higher structural gross margin. And then obviously, the swings in silver and gold prices, silver trending down towards the 28-29 dollars-pounds basis.
So how should we think on 2013?
Well, if you look at our hedging prices, you will see that we are hedged for 2013. So you can look at the prices that you have in the report. And the prices that you see now in the spot market will hit us for 2014.
And just to add to that, if you look at the hedge prices that we have, they are actually fairly close to the spot prices that we experienced in Q4. So that's an indicator for you.
All right. Thank you very much. Thanks.
Thank you. Next question is from Lars Topholm from Carnegie. Please go ahead.
Yes. First of all, congrats with a good Q4. A couple of questions. Going back to the provisions, just to make it absolutely clear. So in the course of 2012, you made new provisions of DKK 476 million.
You utilized a total of DKK 281 million. So the swing is DKK 195 million. And the provisions you made were 7.2% of revenue. In 2011, it was only 4.5% of revenue. So if your provisioning relative had been unchanged, your reported profit would have been DKK 180 million higher. Is that the correct way to look at this? And is the bulk of this deviation applicable to Q4?
Well, Lars, I mean, you can do the assumptions that you do in your modeling, and that's one way of looking at it. I think that's our only comment. We made major provisions in Q4. That is correct. That's why it had impact on Q4. But if you look on an annual basis, we think that the provision level we now have in the balance sheet is the right one.
Okay.
So going forward, I should expect that provisions made will be more or less in line with provision used?
That's the goal with taking provision, yes.
Okay. So if I look at what you actually used in 2012, that's roughly 4% of revenue. Does this mean that going forward, I should expect new provisions to be only around 4% of revenue?
No, Lars. I mean, don't forget in 2012, you also had a stock balancing campaign that was actually to clean up things where you hadn't taken a provision. So what we're doing now, we have a provision level of 9%. We should take care of all our problems going forward. So the current level that we believe is the right one is 9%. Of gross profit? No, 9% of revenue.
But in 2012, it was 7.2% of revenue?
Well, but then in addition, you had a stock balancing campaign, right? Okay.
So 9% of revenue going forward?
That's what we have provided for now. That's the provision. And as you know, the provision is the best guess what we need.
But you have DKK 416 million, and your revenue was DKK 6.6 billion. That's not 9%.
The revenue value of the DKK 416 million corresponds to roughly 9% of revenue. You need to gross it up from the gross margin up to revenue. Then you find the revenue number. And that's 9%.
Okay. Okay. Then on operating costs, Bjørn, I think after Q3, you mentioned that going forward, we should see leverage on operating costs from around the Q3 level and that in absolute terms, operating costs should more or less plateau, which of course means if you grow your revenue, they should decline in relative terms.
Is that still the case? Will we see cost leverage in 2013?
Well, I think what I said is that the increase in operating costs will start to level off. I said that we will, on the marketing side, actually try to spend the same amount but spend it better. And then I said that all the initiatives that we have taken have a cost to it. And these initiatives will end and be implemented by mid-2013. And then you should see the leverage. So you've seen our trend where the cost is starting to flatten out. And we hope to improve that going forward.
Oh, okie, dokie. Thank you very much.
Okay. Thank you.
Next question is from Klaus Madsen from Handelsbanken. Please go ahead.
Yes. Thank you. It's Klaus Madsen here. My first question relates to your Asian strategy, your decision to terminate your partnership in Japan.
Besides taking back inventory, is there any termination compensation involved in leaving this partnership that has any important or material impact in Q4? When should we expect the new distributor in Japan to be up and running? And then a more broad-based question on Asia and your Asian strategy, your APEC strategy outside Australia. Sten Daugaard has been spending considerable time in the region. When can we expect a more, you could say, committing strategy update on the region?
The transition from Verité to Bluebell is happening now. And Bluebell will be operational 1st of April. And the way this works is that all the stores that Verité had, Bluebell will take over, I would say, roughly half of them after a thorough analysis. We have transferred the stock or we haven't transferred yet.
We have provided for the stock in Q4 and will then take the stock back as our friends, Verité, closes down the stores. That stock will then again be sold to Bluebell as we go forward. There is no more cost in that transaction than normal running cost of opening new stores and running the operation. When it gets to the Asian strategy, Sten has been there for four months. The first result of that review is this change in Japan, which has been what should I say, a deep analysis and negotiation with many parties. We're actually very, very happy that this is happening. The other thing is that he has appointed a new president of Asia, Kenneth Madsen, who used to run our CEE. They together have put actually a full team together now in Hong Kong.
There are many, many key people that have been changed. The review is continuing. As we get the results of the review with action, then we will tell you about it like we're doing now with Japan. I think that's all I can say right now.
Right. Just to follow up on your IT systems, you've been implementing a point-of-sale system for some time. Is that completed or close to completion? Are you happy with the transparency you now get on the Concept Store channel?
I'll answer the latter part of that question. I have since now, I think, 8 weeks, our Retail Insight system where we see on a daily basis the sales out in the consultant SKU level with pictures. I'm very, very happy with that. I think that all people in the building are now looking at this system every day.
And we have discussions based on sellout as soon as the product hits the store. So I'm very, very happy with that system. And on that side, I actually feel like a retailer. So yes. When it gets to the rollout of other systems, I don't know if you want to say it, but there are many systems that have been rolled out and are being finalized. But maybe, Henrik, you would want to comment on that.
Well, as Björn mentioned, our retail monitoring system, so to speak, the Retail Insight that Björn mentioned, is fully operational and works to our great satisfaction. And basically, it's a pleasure opening that system every morning to see how the numbers look. So the other systems are basically the ERP rollouts that we've spoken about previously. We will roll out actually, we continue to improve the platform.
This is basically a continuous improvement process when you have systems like that. But all major system initiatives are all the major relevant system initiatives I've identified. And we're working on them and expect to complete the major parts during this year. We have a rollout, potential rollout in the future of the platform in the U.S. as well. But that's not scheduled for 2013. But that's something that we're looking at going ahead. It's not a critical issue for us getting them aboard in that platform. So system size, we're in pretty good shape and are continuing to improve.
And how will that play out on your operating costs in 2013? Should we expect pretty much flat costs as you've been alluding to earlier? Running the systems will basically balance the implementation costs, or will there actually be a decline in infrastructure costs?
Running the systems will replace the implementation costs. But you will see, as Bjørn mentioned previously, a more sort of a leveling off in the development in the cost base during 2013.
Right. Thank you very much.
Thank you. Next question is from Dan Friis from Nordea Markets. Please go ahead.
Yes. Hello. Could you elaborate shortly on the CapEx level? We are now at 4%. And we have seen relatively high levels. What is driving this 4% of minimum guidance in terms of CapEx? That was the first question. Second question is you mentioned Spain. And I've asked for it for a while. What is the status here? Is it that they're starting to rebalance their inventories again or reordering? Or is it better sellout? Please tell a bit on that. And then what was actually better in Q4 than what you initially expected? That was my three questions. Thanks.
Well, I can start with Q4. I think that the sellout that we had was actually better than what we expected. And even the sell-in in certain markets was better. So I think I personally got the confirmation that was a little bit, what should I say, more positive than I actually expected before we started Q4. The new product continued to do well. So I feel that all the things you hoped for but you were not sure about actually happened. So very happy with Q4. What was the question on Spain? Spain. So what's happening in Spain? Well, Spain is, as you know, going through very difficult times. And we start to see that the like-for-like sellout is kind of hitting a bottom. There has been some signs that there has been sparks or increases. We think our partner in Spain is the best one we can get.
Very, very happy with the way we distributed. We are in all the major department stores. We are in the right locations. But I think it's fair to say that the way the market has been, it's been very difficult to swim against it. I have the feeling that it's bottoming out. But I think that's more based on macroeconomics than really our performance on the micro level. I think that's all I can say about that.
And then DKK 300 million CapEx guided for 2013. Well, it's the same main elements as for 2012, basically, mainly related to our production facilities. It's related to some expected openings of own-and-operated stores. And it's IT or general infrastructure elements.
Okay. Then just following up on this own-and-operated stores, you plan to open 150 stores this year. How many of these are own-and-operated stores?
And then what is actually your thinking about that going forward? And what is the CapEx related to that? Is that key money or inventories, or what is that?
The strategy on own-and-operated has not changed. I mean, we use own-and-operated to establish ourselves in new markets in major cities. And the goal is to establish them and then franchise them off as we go. We say that about 10% of our store base could be own-and-operated. And there's no change in that. The investment in an own-and-operated store is, of course, key money, where that is. You typically have that in markets like France and to a certain degree also in Italy. Then it is furniture and actually installing the store. The inventory is not the CapEx because that's a stock. So there's no change in that. And the goal is not to change that strategy.
I've said this before. The luxury that we have is that because of our margin, when you look at double margin, both our retail margin and then our wholesale margin, of course, our stores are then also profitable, all of them, even in expensive locations. So it is a nice problem to have because many other brands have Concept Stores as image thing. And they're actually losing money on them. And we are not. So I'm very happy with the performance that we have in our own-and-operated stores. And we see that the improvements that we made are substantial in those stores because that's where we have one-to-one access right away when we implement something new in visual merchandising or in furniture. And so I'm very, very happy that we have those stores.
I think it's a fair assumption that we will keep the same level of proportion that we have now.
Okay. Then lastly, on these stores, of those that you opened this year, how many were stores that you took over from franchisees? And how many were brand-new stores?
I don't have that number. But the big proportion is, of course, new stores. I mean, the amount that we took over from franchisees are not that many. We even have started giving some back. Like in Australia, we just gave back 3 to franchisees. So there isn't any major takeover of franchisee stores currently.
Okay. Great. Thanks. Thanks.
Thank you. Next question is from Niels Leth from SEB. Please go ahead.
Hello. Can you hear me? Yep. And my first question is, again, on these provisions.
Would you just be able to confirm that all these provisions are booked under production costs in the group P&L?
Sorry. Yeah. Go ahead. Go ahead.
Secondly, would you also be able to confirm that your share buyback program has already started? And then thirdly, a question about more like the overall jewelry market. Do you have any stories, any anecdotal evidence of consumers trading down from more expensive brands to brands such as Pandora?
Start with the two first questions. The provisions, the number you have in the balance sheet is the gross margin value of the expected returns. The impact on the P&L is actually on two lines. So you have the revenue impact on the revenue line and the corresponding cost of sales impact on the cost of sales line. So that's the way this impact goes in the balance sheet and P&L.
Do you have the breakdown for quarter four?
Well, I have it. We haven't disclosed that. What we said is that the change from DKK 225 last year to DKK 416 this year is mainly in Q4. The provision in the balance sheet is the gross margin value. If you apply the sort of overall gross margin that we have, then you get a rough estimate of the corresponding revenue value. You can probably, by applying that, do some math to get pretty close to it. On the share buyback, yes, that is initiated today, as we have written in the announcement. It's a safe harbor program, as also mentioned in the announcement. It's basically not us sitting doing the transactions. It's someone else doing it under this program.
The indication from the industry on the macro level is impossible to give you.
We have the feeling that we in the major markets have actually performed better than the market. And that our retailers, in general, if you look at the major markets, are happy with us. And that's the feeling that I get confirmed both internally and externally. When it gets to the general trade and trading down, I don't have any indication of that, to be honest.
Okay. Thank you.
Thank you. Next question is from Kenneth Leiling from Danske Bank. Please go ahead.
Yes. Thank you. It's Kenneth Leiling here. First of all, could you just help remind me the impact from the changes in the U.S. in terms of this import duty? How big an impact was that for the gross margin in, well, the Americas region?
It's roughly 1 percentage point on group level and slightly more than 2% in sort of local impact.
Okay.
Did that have a full effect? Is that the effect in the quarter? So it has a full effect in the quarter. And then it's the same impact, of course, going forward?
Yes.
Okay. It only has a full effect when everything you sell are bought in that quarter, right?
Well, I mean, it will have a comparable effect in 2013 as it has in Q4. So you can apply that assumption.
Okay. No further deterioration, so to speak, in the gross margin of the U.S. because okay. Okay. Next question was one thing is the return provisions. But I can also see that the other current provisions went up by DKK 42 million versus last year. Is that also a Q4 change, that sort of DKK 42 million or so?
I don't have all those details with me. But there was a change in Q4.
But there was also a change in prior periods during the year. This is provisions for other things. So, I have to get back to that. So that's all. I don't have the full details with me on that, Kenneth. So we will have to get back on that.
Okay. Because when I just look at the numbers, it seems as if what you're saying, if I look at the total current provisions which went up by DKK 220 million in the fourth quarter and perhaps 40 of those could be in the other line, that would imply around DKK 180 million in earnings impact from this policy change from the return side. So I mean, am I missing something? DKK 180 million in gross profit in the fourth quarter from this change? Is that correct?
The full impact on Gross Margin for the year is the difference between the 416 and 225.
Yeah. But the 225 seem to have been pretty stable in the year up until Q3.
Yeah. And as we mentioned, the majority of that is in Q4.
Okay. And then I have to sort of add 50% in order to get the sales impact in the quarter. Was that what you were replying before?
Well, you can use basically the if you take the Gross Margin for the year, the 66.6. So that means that the provision value would be 66% of the corresponding revenue.
Yeah. Okay. Yeah. Okay. Next question is actually do you have further thoughts as to when, if you're ready to provide some operational targets for Pandora, how you look at it in the mid to long term? Do you think you're going to do that in 2013?
I think that the strategy that was laid out in 2011 or what we have to do continues also into 2013. It's still about execution. I think we are on the right way. So I don't think you should expect any mid-long-term guidance from us during 2013. No.
Okay. The last question is perhaps a little bit a tricky one for you, Bjørn. There's been some pretty, well, relatively detailed rumors in the market that you might be joining Puma as the CEO there. Could you give us your comment to those sort of indications or rumors? Thanks.
Well, I'm a happy and proud CEO of Pandora, not Puma and any other company. So I think that's all I have to say about that.
So you're saying those rumors are not true?
Yes.
Okay. Great. Thanks a lot for your help.
Thank you.
Next question is a follow-up from Lars Topholm. Please go ahead.
Yes, gentlemen. I'm extremely sorry. I have to ask more about these provisions. So the relative provision level you had in 2012 is the one we are seeing forward. But in 2012, it was clearly accelerated in Q4 compared to the other quarters. Now, if the underlying or unhedged gross margin in Q4 was 65%, isn't it fair to say that with the provision level we should see going forward, we should actually assume a gross margin 1-2 percentage points higher than 65% if the commodity prices from Q4 were applicable going forward?
Well, the adjustment to the provision does not impact the gross margin percentage. It impacts your absolute gross margin but not the percentage.
But gross profit would have been clearly higher in Q4 without these provisions, right?
In absolute terms, yes.
Would revenue have been higher without these provisions?
Of course. Yes. Because the provision, as mentioned, is the gross margin value of the expected returns. So in the P&L, it has an impact on the revenue line. It has an impact on the cost of sales line. Then the net impact on the gross margin line.
Okay. Okay. But then it's yeah. Okay. So absolute gross profit should be clearly better on a quarterly basis going forward than it is in Q4. Everything else equal.
That's your conclusion?
Yeah. But I want to hear what you say, guys, because there's so much uncertainty around this. So can you please is that conclusion fair?
We provided the guidance for 2013 expecting a revenue above DKK 7.2 billion and an EBITDA margin above 25%. I think that's as far as we can go in commenting on 2013.
Okay. Yeah. Okay.
It's not that helpful. But I understand that underlying revenue and underlying earnings would have been significantly higher if we apply the provision levels you see going forward. Okay. Thank you.
Thank you. We seem to have no further questions at this time. Gentlemen, please continue.
Okay, guys. Thank you very much. And I'm sure we will see each other over the next couple of days. Bye.