Welcome to the Pandora interim financial report for the second quarter for six months 2020. For the first part of the call, all participants will be in listen mode only, and afterwards there will be a question and answer session. Today, I'm pleased to present Michael Bjergby, Vice President, Investor Relations, Treasury, and Tax. Please go ahead.
Yes. Thank you, operator. Good morning, everyone. Welcome to the conference call for Pandora's Q2 results. My name is Michael Bjergby, and I'm heading up the investor relations team. With me today, here at the head office in Copenhagen, I have the usual team with me, CEO Alexander Lacik, CFO Anders Boyer, and the hardworking IR guys, Christian and Johan. The Q&A session will be at the end of the call. As usual, please limit your questions to two at a time. Pay notice to the disclaimer on slide two, and I'll jump quickly through that to slide number three and hand over to Alexander. Alexander, please.
Thanks, Michael. Good morning, everyone, and thanks for joining today. At our last earnings call, global economies were in the midst of an unprecedented situation with changes I think rarely seen before. The world is still very uncertain, and we have probably not seen the full consequences of COVID-19 yet. Sales recovery in the second quarter was faster than we expected, but we still expect a period with higher than normal uncertainty in the months to come. We managed Pandora through the crisis with the highest integrity and a long-term focus. Tough decisions had to be made to protect cash and profitability, but without compromising the health, safety, jobs, and our employees' salaries. When there's change, that also means there might be opportunity. I'm very proud of how this organization has shown agility and determination.
We have generated tremendous e-commerce growth, and we have found creative ways of operating while physical stores have been impacted. When markets reopened, all companies had to consider how aggressive they wanted to re-enter. We leaned more on the accelerator and less on the brakes. We're operating in a quite fragmented industry, and our scale advantage and P&L structure means that we can invest heavily in market share gains when opportunity arise, like the one we just experienced. Given the unusual circumstances, we are satisfied with the progress. Sell-out growth so far in quarter three is around - 10% versus last year. This has to be considered as reasonably strong, as a fair amount of stores are still closed. We're operating with reduced hours and with the limitations of social distancing. The sales recovery here in Q3 has not been as clear as in Q2.
We are seeing an effect of new surges and local lockdowns. Uncertainty continues to be high, which we will discuss in more detail later. Let's move to the next slide. Management attention is in a large extent on crisis management, long-term focus, and ambition to improve the fundamentals. Programme NOW is progressing as planned, successful initiatives have now become part of our normal routines. We are therefore re-scoping the focus of Programme NOW with fewer and sharper priorities for the final stretch. The new executive leadership team is in place operating in the new organizational structure which we implemented during the quarter. We can already see an effect on decision-making, cooperation, and best practice sharing globally. Fundamentally, we are as such moving in the right direction. The primary objective of the program is that we keep our brand relevant and exciting for consumers.
Despite the current disruptive environment, our key brand metrics are still indicating that the brand momentum is solid and improving. Please turn to the next section. The health and safety of our customers and employees have been, and remains our top priority during this pandemic. This had to be balanced with the need to protect cash and profitability. Of the number of different initiatives, I'd like to emphasize the work that we have done with UNICEF, a long-term partnership that we kicked off last year. During the C-19 pandemic, we have supported UNICEF in helping children and societies in developing countries where C-19 is a critical health risk because of the limited healthcare capacity. To raise awareness, we cooperated with the family of Bob Marley to re-record a very relevant song called "One Love," and we donated $1 million U.S. to the cause, matching the same amount from public donations.
Now turn to slide seven. During the second quarter, we made three significant decisions. First, we ensured to keep investing sufficient marketing efforts behind the brand momentum created during Programme NOW. Secondly, we decided to keep, in particular, store staff on the payroll and using the downtime to improve our selling skills and training and improving our knowledge about the products. Finally, we designed a comprehensive comeback plan for the day when markets would reopen. We have the financial muscle and P&L structure to increase spend across markets to build on the brand momentum and ultimately to win in the retail and gifting space. More recently, we've been preparing for the heavy trading season that's coming up.
Things like social distancing guidelines or even changed consumer behavior requires us to reconsider how we can offer both a safe and excellent consumer experience. We're currently running a track of 11 ideas and collect feedback across markets to come up with global best practices. The key thoughts range from how we can better serve consumers outside the ordinary store environment, for example, virtual shopping assistants, through to temporarily expanding floor space via pop-up stores, for instance. Please turn to the final slide of this section. Where are we today? Since March, physical stores opened faster than expected, with only around 10% of the stores closed by end of July. Recently, however, we have seen local COVID-19 surges and new local lockdowns leading to a small increase in closed stores. Currently, we're holding just above 10%.
As examples, we're temporarily closed in Victoria, Australia, and each week we find new places that are going up and down. The situation is still uncertain and somewhat unpredictable, and we monitor the development closely. Turn to slide 10 for some comments on the more fundamental development. Programme NOW was initiated in late 2018 to improve the health of Pandora. We have progressed well, but there's still work to be done. Several of the initiatives, such as the data-driven media spend are now rooted in normal day-to-day operations. The rescoped Programme NOW consists of three tracks instead of four. The commercial reset track has been taken out because promotional dependency is much lower, the inventory position and number of DVs or assortment is at a much healthier level, and we will keep it this way.
From a brand perspective, the updated initiatives focus on how to make spending even more effective. We have a special task in China, which I will come back to. Overall, I believe we have reached somewhat of an inflection point. We see early results of our initiatives, and now we will continue to push hard on the rescoped focus areas. Next slide, please. You know that I like this slide. These are important lead metrics that measures how our brand momentum develops. Despite COVID-19, we're having laser focus on the health of the brand. We decided to decrease the media investment during the lockdowns in traditional media, but we still managed to maintain a solid momentum. As expected, key brand metrics are impacted by the situation, but they still indicate a better momentum than before the relaunch.
We have already stepped up the media level again, close to pre-C-19 levels, and we will continue to invest hard for the remainder of the year since we know this drives our business. Go to the next slide. The exceptionally strong online growth of 176% speaks for itself. This is an important endorsement of the work that we are doing on digital. It is also an endorsement of other brand initiatives. We are, as a brand, able to excite our consumers to take them from offline to online. The improvement is driven by both higher traffic, but also higher conversion rates. Trends continue to be healthy in all the main markets, even after the physical stores have reopened. There is no doubt that online is going to be important in this last quarter of the year.
We are now increasing capacity to be able to handle significantly higher volumes than what we have been used to in the past. Go to slide 13, please. I wanted to provide you with some quick and encouraging data of our end of season sale running globally from week 22 through 30. Notice that this is partly Q2 and partly Q3. The clear direction or earning, if you may, is an increase of our full price sales compared to last year. There are two main drivers of this. First, our inventory position is generally speaking, very healthy, so we didn't have a lot of DVs that actually needed to be cleared out, and our full price products seem to resonate. Secondly, it shows our improved brand momentum. We can drive conversion rate with our brand proposition without using the promotional doping.
This is important given the competitive retail environment that we're experiencing in the reopening phase. Next slide, please. The strategic reorganization has taken us one step closer to finalized product development strategy. This is anchored with the newly established Global Business Units under Carla. One business unit, Moments and Collaboration, focuses on the core, rejuvenating the platform and making it exciting. The second business unit oversees all other product categories and upstream platform development efforts. What we've done since the brand relaunch has mainly been focused on getting our core back in shape. The Moments platform is almost 70% of the business, so it is critical. Again, this quarter, we saw that charms performed in line with the whole business. However, the Moments platform shall not be our only platform.
In the long run, we need more legs to stand on, and this means more consistent platform building, which could, for instance, build on concepts like Pandora ME. It also means innovations within other categories, not just me-too products, but long-term, well-invested concepts that can be unique and iconic in the industry. We will provide you with more information on the formal product development strategy when we're ready, but this is progressing at full speed right now. Flipping to slide 15. One of the things that has worked well both for our revenue and our brand is the collaborations and influencer work done since our relaunch. Harry Potter, Millie Bobby Brown, but also the work with our influencers and muses are injecting new energy and excitement into the brand.
We've recently activated Pandora ME in early July, which has led younger and new consumers alike to the brand. We have entered a new partnership with Lucasfilm, which entails 11 Star Wars charms and one Star Wars bracelet, which will be available from early October. We're very excited about this collaboration. Very cool charms of Chewbacca, Yoda, and the other legendary characters. The next slide will be the last from my side before I hand it over to Anders. We've all been discussing China in great details over the last year. China is the world's largest jewelry market, and Pandora has a market share of less than 1%. We're building a solid plan to change the direction. We're already in execution mode with Jack, our new China MD, leading the journey. Fixing fundamentals start with organization and culture. This is the enabler for any turnaround.
With increased capacity in the organization, we will start focusing on the functional execution, where we see a lot of low-hanging fruit. Low-hanging fruits in how we market our products, partners we choose for media, our merchandising approach, and finally, the online and retail experience. However, with improved operational performance, we're probably only a third of the way. The critical job is to build a brand. Pandora is not very well known in China, at least not for anything unique. In that sense, we're starting from a clean slate. We will not treat China very different from any other market. Pandora is the brand built on self-expression, collectibility, while being affordable. Consumer research in China has confirmed that our positioning is highly distinctive and relevant.
I don't expect this to be a quick fix, but I'm confident that we can get substantially bigger market share in China in the years to come. This concludes my review Programme NOW, and I will hand it over to Anders.
Thank you, Alexander, and good morning, everyone. Please turn to slide 17 and an update on the cost program. Since the outbreak of C-19, our approach to managing costs has obviously changed because the lower sales in the second quarter focus in the quarter has not just been on structural cost savings, but also on short-term cost management. This slide only shows the structural cost savings as part of the program and not the short-term C-19 related savings. We have, of course, taken many short-term cost measures in the second quarter, we've also continued to execute on optimizing the underlying cost structure of the business. We have progressed quite well across all cost pockets on this slide. Therefore, we today can reconfirm our runway target of DKK 1.4 billion by the end of 2020.
That means that we will see another around DKK 200 million also incremental cost savings things in 2021 compared to this year. Please turn to slide 19 and a short update on some of the second quarter numbers. As we already disclosed in early July, revenue and earnings were weak in the quarter, ironically, they were at the same time better than what we had originally expected. Seen in the light of the circumstances of C-19, there's three things that we want to emphasize. First, I just want to repeat that the online sales basically exploded to 176% growth in the second quarter. The reason I repeat this is that it's a critical fact, both in case of new lockdowns, but also for our long-term development and ambitions on the online business.
Secondly, the positive EBIT margin speaks to the resilience of our business, even during a one of a kind crisis like C-19. Last, cash flow was very positive and is also a testimony to the resilience of our business. This means that we ended the quarter with a quite conservative debt level. Please turn to the next slide and a breakdown of the revenue growth. Understanding the revenue development in the second quarter is all about C-19. You can see on the revenue bridge here that the decrease in organic growth of 38%, and that's the dark gray box, is purely a result of the decline in sell out following the C-19 outbreak. That's the large pink box saying - 39%. Obviously, we can't separate hot and cold water, and we don't know what the revenue would have been without C-19.
I think it's fair to say that most of the -39% in that pink column we can blame on C-19. Changes in the store network and forwards integrating had basically no revenue impact in the quarter. The overall second quarter revenue development is probably of less interest. I know it's of less interest, the interesting thing is what happened during the quarter and until today. Sell out growth did improve throughout the quarter from being around -70% back in March and until today, where, as Alexander says, we have in the last six weeks been around -10%. We'll talk a little bit more about that in the guidance section in just a minute. On a more technical note, I'll comment on the small +1% this box that says channel mix and other.
That's the difference between the organic growth and sell-out growth. Because some of you might have expected there will be a larger difference due to the channel mix of the sell-out. The reason why this is not the case is partly because we don't include sell-out data for multi-brand dealers in sell-out. Hence, as probably most of you know, they're not included in that sell-out number, that the -39%. They are obviously included in the organic growth, and this can then cause some differences. Secondly, some of our partners have naturally held back on their purchase orders in the second quarter in order to manage cash. On that latter point, we have seen that trend reversing in July, where there's been quite a healthy selling to our partners. Please turn to slide 21.
The main driver of the decrease in EBIT margin is clearly deleverage coming from the revenue decline, as per the first pink box here on the slide. We have managed OpEx quite effectively, I think, and ended with OpEx being 15% below last year. In that number, we have government subsidies in there, which reduce the OpEx by about DKK 110 million in the quarter. When we see a sudden and significant revenue drop like this, we can't avoid that the bottom line is hurt in the second quarter. The second pink box from the left is what we call non-recurring adjustment of production volumes. This is referring to the shutdowns of our productions in Thailand, which we decided to do to manage inventory during the quarter. That impacted cost of sales by around DKK 18 million or around 3 percentage points in the quarter.
This is a non-recurring effect, by the way. Excluding these non-recurring costs, the gross margin would have been around 78% in the quarter, and thereby a 2 percentage points increase compared to the second quarter of last year. Please turn to the next slide. We thought that it would be appropriate to include a few comments on the increase in raw material prices that we have seen recently. Our exposure to silver and gold combined was about DKK 1.5 billion last year. Based on a silver price of $28 per ounce, we will see a drag of around 4 percentage points on the gross margin compared to 2019. I know that the slide here says $25. That is the parting point, but I am just quoting the silver price as of this morning, which was just around $28.
As you probably know, we're hitting around 70% of the next 12 months use of silver, and combined with the time from when we use silver in production until it hits the P&L of two to four months. This means that the majority of the impact from the recent increase will not be seen until mid 2021. We will be benefiting a bit from the decrease in the Thai baht that we have seen during the first part of the year because half of our cost of sales is paid in Thai baht. As you can indirectly see on the slide here, the exposure to Thai baht was around DKK 2.5 billion in 2019. There's also other opportunities for us to improve the gross margin, and that's things that we would do despite the increase in metal prices.
That includes the cost reduction as part of Programme NOW, there's also other potential measures like product design, which can come into play in a situation like this. Net-net, the big increase in silver and gold prices is likely to have a negative impact on the margin from mid next year if the prices continue to be at this higher level. Please turn to the next slide, 23. In the second quarter, we were able to deliver a very strong positive cash flow despite a negative reported EBIT. This was driven by many different cash initiatives during the crisis, also a return of excess cash of two months' tax that we paid in 2019. Working capital ended at a record low, 2.8% of revenue, inventories have been managed, receivables decreased well in line with lower revenue in the quarter.
CapEx was also more than 40% below last year. As we have said during the last two quarters, we will see that working capital will increase during the second half of the year, not least in the third quarter, as we are stocking up ahead of the Q4 trading season. This will be a drag on the cash flow in the second half. Longer term, we still see that we can manage the company with a working capital level in the high single digit percent of revenue. Our leverage, the net interest bearing debt to EBITDA, was about 1.1 by the end of the quarter and well within our capital structure policy and far from the covenant threshold in our loan facilities. This finishes the second quarter review, and I'll now go to slide 25 and the guidance.
Today, we are seven and a half months into the year. There's no doubt that we can say that the uncertainty is reduced compared to three months ago, when we withdrew the guidance. With that said, the situation continues to be highly uncertain. Despite this elevated uncertainty, and in adherence with the governance rules for companies listed in Denmark, we have released a new guidance for 2020. The guidance is based on very specific assumptions. You can almost consider the guidance as one possible scenario for 2020, based on assumptions about C-19. There's five really important C-19 assumptions behind the guidance, as you can see here to the right on the slide. First of all, we assume that there will be no material lockdowns like what we saw during spring.
We do assume, however, that there could continue to be a few local lockdowns as we are currently seeing in Australia. Thirdly, we assume that the number of open stores will gradually increase and plus minus, essentially the whole network will be open by the end of the third quarter. Then we are assuming that the macroeconomic and consumer spending will not worsen materially compared to where we are now. Last, we are assuming that the social distancing will have a negative impact, not least in the fourth quarter in the physical stores. Based on these specific assumptions, we are guiding on the same parameters as before, and that means organic growth and the EBIT margin, excluding the structuring costs.
As you can see to the left here, the organic growth in 2020 is expected to be between -14% and -20%, and the EBIT margin is expected to be in the range of between 16% and 19%. We know that this is quite wide ranges, and we've chosen that deliberately because we would like to start wide, and then as the second half of the year progresses, we can narrow in the guidance. This also means that we may continue providing more regular updates to the market than we would do in a normal year, like what we did back in July 8th, when we came with a Q2 trading update. Moving on to slide 26. The interesting component of the guidance is what the full year guidance implies for the second half of the year. That's what we have shown here.
Organic growth is expected to be between -5% and -15% in the second half, with an EBIT margin being between 20% and 24%. The organic growth guidance compares to a sellout of revenue development so far in the third quarter of around -10%, and should be seen in the light of the current stalling of the gradual improvement that we saw until July, due to the renewed C-19 impact. July revenue development was slightly better than the -10%, and August so far has been slightly worse. We should stress that this is a very, very short time horizon to extrapolate too much on. The guidance should, just repeating that, also be seen in the light of our expectation that social distancing will have a negative impact on the business in the peak season in the fourth quarter. The question is just how much.
Please also note that the profitability will be skewed towards Q4 as usual, but likely even more this year than in prior years. We would also like to emphasize that in this scenario, with this guidance, we will continue to invest in the brand in the third and the fourth quarter, and we will continue to invest in building the organization during the last two quarters of the year. We would also like to mention that we see a high likelihood that our partners, our wholesale partners, that they will buy the Q4 stock as late as possible, given the C-19 uncertainty. This may lead to a shift of revenue from the third quarter into the fourth quarter, causing a phasing effect that will be negative for the third quarter and equally positive for the fourth quarter.
Finally, we have, as you can see to the right here, updated what we call the guidance building blocks, and we're just calling out two of those. As you can see here, we are narrowing the expectations for the net store closures and now expect around 50 closures net for the year. Then we are reducing our CapEx guidance again by another DKK 100 million to around DKK 0.6 billion, DKK 600 million for the year. With this, I'll leave the word to Alexander, and slide 27.
Thank you, Anders. Quarter two was a quarter which will not be forgotten from many different angles. I am very proud of how our organizations managed through a difficult period with the highest level of integrity. The sales recovery in the quarter has been very clear. I think Pandora's business model has proved its resilience, delivering positive EBIT margin and solid positive cash flow in the quarter. We're still executing on the underlying health of the business, Programme NOW has been re-scoped to reflect this. Finally, I think we're providing what I consider sensible financial guidance based on some very specific assumptions. On these remarks, we'll now open for the Q&A session. Operator, please.
Thank you. If you wish to ask an audio question on a telephone keypad, you may do so by pressing zero one. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Again, it's zero one on your telephone keypad if you wish to ask an audio question. Our first question comes from Lars Topholm, Carnegie. Please go ahead.
Yes. Two questions from my side. I do have more, but then I'll jump into line again. One of the tricky things is, of course, as you referred to, Anders, it's difficult to separate hot water from cold water. We're all curious what the real underlying trend is. Given what we're seeing in August, I assume lockdowns matter whether it's in a market where you have an in-store or where you don't have an in-store. Specifically on the run rate you're seeing in August of slightly worse than -10%, can you maybe give some color on which countries are locked down now and to what extent you're able to capture revenue online in those markets?
Maybe also give some color on the momentum in some of those markets that have not experienced new lockdowns like Continental Europe, maybe also some comments on U.S. if you see momentum improving there. Then a second question, which goes to your increased online share revenue. Again, in some of those markets that are more back to normal, what is the online share now compared to where it was before COVID-19? You have, of course, now been closing down some stores. In that context, what is your experience in terms of being able to keep the customer when you close down a store? If online is capturing a bigger share of revenue on a more permanent basis, which thoughts does that give you regarding the necessary size of your physical network? Thanks.
I can start off on your first question, Lars. I think what we have to zoom out and not get bogged down too much in what's happening in the last two or three weeks, because on that basis, it's frankly impossible to understand the momentum of the business. I would go as far back as when we started kind of turning the corner somehow in Q4 into January, February. I think we had a big pause button. We can see quite a linear comeback from the store closures to the store reopenings. There's obviously the mix shift between on and offline, which we'll talk more about. The way I look at it is the stalled, let's say, momentum in the first few weeks here is strictly speaking due to external factors.
Then trying to dissect this is very difficult because also if I compare to last year, the trading conditions, I mean, the environment is just different. It's quite a tough question to give a very precise answer on. I think when we look at it, we see that the momentum that we started gearing up behind Programme NOW, I would say as markets reopen, we kind of have the sensation that we're coming back on to that momentum. Of course, with these flare-ups like we see in Melbourne, for instance, or Belgium recently, and Hong Kong recently, it will have some short-term impact, and therefore, looking on it week by week might drive you to the wrong conclusions, quite frankly. I think we need to stay a little bit at a higher level. I don't know, Anders, if you have some more color to that.
Yeah. I think it's six weeks so far in the third quarter, we have to be quite careful and only a few weeks since the spikes of COVID-19 increased. I think one thing we can say that if you look at the -10% for the first six weeks of the third quarter, that comes in a period where around 10% of the stores being closed. We can't just say, well, that means that without those stores being closed, it would have been flat. I think a couple of points there where the stores that are where we see have closed currently is more skewed towards market where online is less than in our key markets, Latin America, Philippines, some Eastern European markets.
There's no doubt that it has an impact that will be bigger than if it had, so to speak, been the stores in the U.K. that was closed, where the online share of business is much bigger. Of the 10% negative sell-out in the first six weeks, it has an impact that with 10% of the stores being closed. Secondly, I think we should, as we have talked upon just recently, that China is an issue, and was that in the second quarter as well. If you sort of then use that to dissect the -10% for the first six weeks, you will get towards a point you're saying, well, that means that for the remaining markets, which is obviously includes the seven big markets that we report on, you're getting to a better number that is not -10%, but is better than that.
I think that's how.
Are any of them growing, Anders? Without being specific.
I think yes. I think we can say that there are some growing and some are not, but we will not put any precise numbers to that.
Online?
Second question, Lars. I think it's way too early to make any massive conclusions on the network. It is obviously a question which we look at closely. I think that the main decision we have made is to increase the capacity for the e-commerce. Essentially, already in the business to handle double the volume from what we had last year. I think that's the only major decision we've made so far. It is also clear that in places where we only have e-com, our sales as a total business is lower versus where you have e-com plus store. What the exact equation will look like, it's probably fair to say that in the future we'll have somewhat less physical stores than we have today. How many and how fast, I think we'll just have to monitor the situation.
I keep reminding people of that our network is quite light-footed in terms of the length of our lease contracts. The CapEx per individual store is not huge, so we can be quite fleet-footed if that is required. We'll keep coming back to this question when we get a bit more smarter about it, and of course, we will let you know.
Thank you very much for answering the questions.
Thank you. Our next question comes from Magnus Jensen, SEB. Please go ahead.
Hi, this is Magnus here. Thank you for taking my questions. Two questions from my side. The first one goes to the second half. In your report, you state that you had this out-of-stock situation in Q4 last year. How much of a tailwind could that be for Q4 this year? The second question is to your store concept. You've spent some time redeveloping your concept, but it sounds like on what you're saying, Alexander, that it has not really worked. Could you give some thoughts about what has gone wrong and also maybe what are some of the learnings you learned and what you plan on going forward with the new concept design for your concept stores? That's my two questions. Thank you.
I'm Anders. It's Anders here. On the first questions, without being too specific, and it's not because I don't want to answer it on the out-of-stock situation, but you know that it had an impact last year. I think we talked about that when we announced the full year numbers. When we tried to quantify it back then, I think we said it could be a couple of percentage points that it hit us last year because of out-of-stock situations. It give and takes some impact.
On the store concepts, when we set out to do this, we were expecting kind of what other specialty retailers would expect behind a refurb. You would expect, I don't know, a sales increase of, let's call it 10 percentage points, which we have received in some places and not in others. The picture has not really been conclusive. Before I push the button on what very likely might be one of the biggest CapEx investments I will be making when I'm running Pandora, I need more certainty. I think that's the point. We have some positive learnings about the store environment, the look and feel, and so that gets a big thumbs up from consumers in all the geographies that we've done.
We have also changed the way we merchandise in the stores, the idea behind that was to kind of drive conversion rates and basket size up. We have not really, at least not conclusively, been able to say that that way of merchandising has led to this contribution of driving sales. Kind of from a look and feel standpoint, yes, we could spend the money, but purely from a ROI standpoint, that looks like not the most attractive option in front of me. Next steps is, there's plenty of learnings. Of course, we have these stores up and running. We're not starting from scratch. We did plenty of consumer research, we know which pain points we're trying to address. It may also be that the execution might differ depending on the size, location, and let's say, mission of that trip.
We have some stores that are based more for tourism. We have some shops which are more kind of for the local shopper. It might not be just one solution that's going to cater to all tastes here. There's a new team that's set up. There's a new leader of that team that comes from the retail ops side. In the past, I think maybe we had a bit too many marketeers leading that work. We are now kind of balancing that out with some more operational thoughts. We're trying to marry kind of the good conceptual insights and experiences together with a bit more of a hard-nosed operating mindset so that we. Because the challenge is actually not so much when you have low traffic periods, then probably it makes
It can work. When you get into these big spikes like Mother's Day, Black Friday, Christmas shopping, when the volume of customers is of a very different nature, I think the current execution doesn't really cater for that to be operationally effective. We need to sort that out. We hope to have some new tests running, or at least some beta tests running by the end of this year, hopefully. We have some news coming early next year.
Thank you.
Our next question comes from Chiara Battistini, JPMorgan. Please go ahead.
Hello. Hi, thank you for taking my questions. The first one would be on your guidance for the second half of the year. Basically assuming this 10% decline continuing for the rest of the year too, at the same time assuming actually, potentially the situation continues to improve. Are you being conservative there in your assumptions, given the lack of visibility at the moment? Or are you also factoring in the fact that the base from last year starts getting tougher from September, as you start counting your brand relaunch last year? That would be the first question. The second question on silver, you talked about some mitigating actions to counteract the impact from the latest move of silver prices. Can you expand a little bit more on these mitigating actions, and would those also include price increases next year? Thank you.
Hi, Chiara, it's Anders here. The guidance for the second half of the year, it's a very valid question. I think we had spent quite some time about how you think about the guidance in an environment like this. I think a couple of reflections. I think one is that when we look at the trading for the first six weeks of the third quarter and combine that with the level of uncertainty and the 10% of the stores being closed, I think it is indicating that we are still underlying well on the way in our transformation. I think as was Lars Topholm we used, the tracing is difficult to separate hot and cold water. That's clear. We think that underlying, we are seeing good momentum.
Having said that, the business environment is, needless to say, highly uncertain, and I wanted to reflect that in the guidance. I think you should see the guidance as a reflection of the uncertainty in the market in general, and not as an uncertainty about Pandora and how we specifically perform. If the market is there, if the traffic is there on the streets, I think we're confident that our revenue will follow. If the traffic is not on the street, consumer demand is not there for C-19 reasons, then we will be impacted as well. We have decided to guide and round out the current performance of -10% as the midpoint. We both see a potential to end the second half, 5 percentage points better than where we are currently or 5% worse compared to where we are currently.
Maybe one way to talk about it is say, what would happen if we ended at the low point of the guidance, the - 16% organic growth for the second half of the year? That would be, again, maybe a consequence of external factors as we see it. First, it would be the current worsening of momentum that we see driven by C-19 surges and local lockdowns. We do not know how this will impact consumer sentiment. Obviously, that's a big unknown. Secondly, as we are going into the Q4 peak trading season, that will be impacted even more so by social distancing that won't compared to what we already are seeing. We are taking a lot of mitigating factors, as Alexander mentioned, but this is a new situation for us. We have not tried it before.
Nobody has tried it before, we just have to see how that plays out. Then on the comparison base, the Q4, as you know, last year is a more difficult comparison base than what we've seen so far this year, despite the out-of-stock situation that Magnus asked about just a second ago. The net fourth quarter is a more tougher comparison base compared to the first three quarters of the year.
I think we should also last, long answer here, but mention that the improvement that we've seen in the revenue development during the last months and also in the third quarter, we do not know if there was some type of rebound in consumer spending just after the lockdowns. Whether consumers redirected money saved for summer holidays, et cetera, traveling towards discretionary spending, and all of that, a lot of words here, ended up saying that we think that a reasonable guidance would be to guide around the current trading level. As mentioned, it's likely that we will keep updating the market as we progress, maybe also before the official Q3 trading statement is due in early November.
Silver.
Then, yeah, on silver. The silver prices have been almost stable, you can say, for seven, eight years compared to what's happened during recent weeks and months. When a massive increase in prices happens like what we've seen here, of course, you have to think very creatively. We can't give you a full answer yet, but I think net-net, it's fair to assume that there will be, even after mitigating actions, it will have an impact on the gross margin and EBIT margin, going one year forward, assuming that the prices remain at this hopefully elevated level. We are looking into all parameters of what drives the gross margin, including product mix, what kind of products that you are also promoting, and focusing on in our campaigns.
We are looking at product design, like what Pandora also did eight, nine years ago, when the silver prices were also high in 2011, I think it was. We are also looking at pricing, even though the way that we set prices is not a cost-plus based pricing. I think many of us know that painfully, that has been sort of experiments with increasing prices in the past with no success. Of course, we'll have to ask ourselves the question again, when you have such a massive increase in costs as we see here.
Thank you. Just to follow up on this last point, for the time being, you're not seeing yourself passing on this increase to your consumers for the time being?
I think, as Anders said, in the last few years, there's been a focus on the higher price point options in our assortment, which led to traffic and brand engagement to go down. I think we've learned a lesson now as a company twice in the past, so we're not going to jump into that trap. As Anders says, though, if prices remain at this level or even moves beyond, of course, like any sensible business, we'll have to take a look at it. I'm super sensitive to making sure that we remain an affordable option for people out there. You shouldn't read into this that we're just going to pass it on. There's going to be a lot of sweat before we get to that point.
Perfect. Very clear. Thank you very much.
Thank you. Our next question comes from Fredrik Ivarsson from ABG. Please go ahead.
Thank you. Hi, guys. Thanks for taking my questions. A couple of ones from me as well. Starting on the 8% like-for-like in the open stores you report. Obviously, that's driven by quite hefty growth in the e-store. Just curious on whether you'd be willing to give us a ballpark figure on how many stores that includes in that calculation. That's my first question. The second one on online, which obviously grew quite significantly. You're talking about securing some additional online capacity. I think, Alexander, that you said doubling capacity. Does that imply that you essentially assume 100% sales growth online in Q4? Thanks.
Thank you, Fredrik. To start with the first one, no, we will not provide the number of stores exactly included into this number because it is not a number that we believe that you should interpret on. Of course, you can see like in the U.K., the 12 first weeks were stores completely closed. In the last two weeks, they were open with reduced traffic. Of course, in that number, you'll have a significant like-for-like number around 100%. We don't think this is the right number to look at if you look at the underlying business. You should rather look at the number of stores that are closed now, 10% closed, and the - 10% and see how those compare. I think this would be a better way of trying to track the underlying business, even though this is difficult. Yeah.
We will refrain from commenting too much on this number as we don't think that it's meaningful, unfortunately. Anders, what do you think? Comment on number two.
I can take number two on online. We're doing a number of things to strengthen our e-commerce business. You go back, I don't know, a couple of years here, e-commerce was like a non-factor. Now it's most definitely a factor, actually did help the company quite a lot during Q2. On one hand, we are improving our ability to forecast online, because in the past, the forecasting error was you hovering a couple of points up or down. When the growth rate 10 doubles, it's just difficult to manage from a supply chain standpoint. That's one aspect. We also know that this surging in demand drove a lot of unhappy customers. We are also changing service providers and our own protocols to service customers better.
The third point is obviously we're going to redirect a bit more of our marketing investment towards the things we've now learned over the last, let's say, six months that drive the e-commerce trading harder. We'll push more towards digital drivers. To your final question on capacity. Yes, we're more than doubling the capacity. When the year started, we had a conversation on whether the budget for the year should be 10% growth on e-com or 30% growth. We ended up with now 176. You can imagine that the supply chain was nowhere near ready to deal with this. It's not an automated handling in the DCs. It's manual work. It's somebody going and picking small pieces together, putting it in an envelope and sending it off. You double that volume, you need more people.
That's the simple way to solve it right now. Whether we get into automation in the future, that's a different discussion. We are just gearing up to be ready. I'm not even sure that the 100% is going to be enough, to be perfectly honest. That's the most current conversation we're having internally. Some markets, it may be sufficient, some other, it may not. You cannot take that 100% to put in your Excel spreadsheets and say that's the e-commerce growth. I don't know. It's certainly going to be a lot more than it was last year, and that's how we're building it. I just hope that the 100% capacity that we're building right now is going to be sufficient.
That's perfect. Thanks.
Our next question comes from Anne-Laure Bismuth, HSBC. Please go ahead.
My two questions are, first, I would like to come back on the online performance, especially in comparison with the performance for the Q3 to date, so the - 10%. I just wanted to know if you can share more comments about the performance in online during that Q3 to date. I know it compares versus the 176% online with the new growth in Q2. My second question is about the partnership for the launch of the Star Wars collection on the 1st of October. What is your plan in terms of marketing? Do you plan to launch select events online? What do you plan in terms of partnership collaboration by your hand or next year? What is your plan in terms of product launches for Q4? Thank you.
On the online growth for the first weeks of the third quarter, I think what we can say is that it's below 176%, but it will still be a number that in a normal year that would be visible. Still significant growth, but obviously as the store openings are progressing, it comes down. It's still well above where we would normally be. That's also why, as Alexander said, that we're building capacity or buying this insurance premium, so to speak, building extra capacity to continue coping with that significant online growth for the rest of the year.
Okay. In terms of the partnerships, we divide now the marketing initiatives essentially in three size packages. Not very creative. It's either small or it's medium or it's large. You could think of the small packages as quite limited exposure in terms of windows and media. The large packages is full on national launch with TV and the rest of it, and Star Wars would fall in the latter category. That is going to be a very strong program. We also have the Harry Potter from last year to cycle, which was very successful. This initiative has tested in a similar way with consumer tests that we've done before. We have a lot of conviction that that is going to be another strong collaboration program. You had a question on the collaborations for next year.
We don't talk about s ome of this is in the works, so it's a bit sensitive. We normally do not disclose next year programs when it comes to the collabs. In terms of product launches, Star Wars is one of the key things that is coming in the back half. We also are going to make a big push behind the 20-year anniversary. You know we've been drip-feeding in these top charms each month. We're going to make a big push behind, I think it's in September, where the company then, or the brand actually turns 20 years officially. I think those are the main points, and then there's a few other bits and bobs, but that's probably what we're talking about in this environment.
Thank you.
Our next question comes from Frans Hoyer, Svenska Handelsbanken . Please go ahead.
Thank you very much. Question regarding Q2 and the full price like-for-like sales trends, if you are able to quantify that. I gather that Clearance sales were down significantly, and adjusting for that, your like-for-like in Q2 would have been better. Of course, not sure what clearance sales, how important were they in going into Q3 and Q4? Probably not much in Q4, I'd guess. Maybe you could talk about those issues.
Let's see. The numbers that we quoted in the presentation, as you said, they straddled Q2 and Q3. It's not a clear-cut quarter assessment. If I take that period, the overall sellout was flat, give or take, to last year. However, within that, we saw quite some shifts, which is the reason I mentioned it, because we had last year, I think we put something like 600 DSD on the clearance in the summer, and now we put, I think it was around 230 or 40. Significantly lower amount of DSD, which is obviously the result on one hand from the inventory management in general that we've been much more tight on. Secondly, we made an assortment reduction during last year, if you remember, w ent from 1,800 DSD to 1,200 DSD. Actually we have less crap in the tail.
Therefore, we should also expect that my need for these kind of clearance sales becomes less. Of course, I have the merchandising organization jumping up and down, being nervous about not hitting their target because any salesman, lots of discounts makes life easier for sales, but it's not necessarily what we want to do. Therefore, I was quite pleased to see that the volume was halved on what sold through on clearance. That was more than picked up or was picked up essentially by full price sales. From a health of the brand, that's brilliant because we're managing to convert people not on the basis of sales or clearance, but on full price. You can also do the math from a margin standpoint. It's obviously a lot more attractive to sell full price than clearance sales.
There's a number of different really important underlying health attributes to that period, which was the reason I mentioned it in the presentation.
Yeah. No, that makes sense. Thank you. You also mentioned that well, you are addressing the product development strategy, and there is a need to supplement the Moments concept with new concepts. Could you talk a little bit about that, what it is you want to add to the spectrum, so to speak, which Moments does not offer?
I think, if you look at my peers, my global peers in the same category globally, there's hardly any one of them that only lives of one major platform. Most of these companies, they have three, four, five or six different platforms, and these are kind of enduring platforms. They're there for years and years and years. Similar to Moments. You kind of hit a strike with consumers, and then you just need to keep it fresh, which is, I think, where Pandora went wrong. Somehow there was a belief that you couldn't keep Moments fresh, which is what I think the first job we have done here is to reinject energy into Moments, and consumers are responding, so that's brilliant. We now need to complement this with a few others, and we're a little bit too early in the curve for me to disclose anything.
When I have something interesting, then you can rest assured I will share that with you guys.
Okay. Thank you very much.
Thanks.
Our next question comes from Omar Saad from Evercore. Please go ahead.
Good morning. Thank you for taking my question. My first question, actually, I wanted to follow up on the last one. Maybe if you could expand a little bit on your product development. Sounds like a reorganization around the two different business units. Maybe a little bit of context why you're making these changes. What was broken in the product development process before? Is it something in the process itself? How should we think about how this will affect the kind of flow of product newness going forward? I have a follow-up on the loyalty program. Thanks.
You can look at this from many different ways. You can have a look at the organization, say, are the people good or bad? Actually, when I came in, it was, what, a year and a half ago? You just look at the outcomes, and you saw that from a results standpoint, our new innovation was not helping this company to drive growth. That became quite problematic because the whole organizational setup was geared to focus on new product innovation. If the outcome is that you don't get any growth, and the only thing the organization is kind of busy doing is trying to drive growth on that, there's something clearly wrong. There are a couple of other things which also led kind of to the reorganization that we put in place in April.
The core of this was to ensure that we have an organization that is much more working from the outside in. Meaning that we actually try to understand what consumers like or don't like or even try to second guess what they might like. For that, you need a different organizational setup. That's what this kind of GBU structure is there to do, is to essentially decipher what's going on from the outside with the help of both call and quant methods. Turn that into insights. From that, kind of filter that through a product strategy so that we kind of stay within the confines of what we think Pandora should be working on. That eventually then drops into the product development people and the creatives on that side of the fence.
In the past, you could probably characterize this by that this first filter wasn't even here. We didn't do any of that work. It was much more about the product development organization trying to sort out those questions. Arguably, they're good at creative, but they're not particularly analytical. That's what we've added, is a bit more science to the art, and then hopefully that combination of science and art is what's going to lead to better predictability in the numbers that we generate. Also that we deliver products that people are actually interested in. I think you can see some of the early inklings of this, looking at Pandora ME, for instance. I think that is based on some quite profound consumer insights, which has delivered some interesting results for us. We can do a lot more in that space, to give one example.
Did that answer your question?
Yeah, this is very helpful context. Thank you. Along those lines, if you think about the loyalty program, using data, adding science, as you mentioned, to the art. What role is the data and your loyalty program in terms of giving you consumer insights? Is that a big piece of it or are you doing other studies using consultants? Is there a way to ramp up that data analytics in terms of the product development process and those connections you have with consumers? Thanks.
There are a couple of different steps. One is when you're trying to just identify opportunities, okay? Loyalty means that you've already got them in the fold, and now I'm trying to figure out how more to do good things. Actually two quite different aspects of the whole puzzle. On the first piece, when it comes to generating new insights in terms of where to go with our product innovation, I think here we're using more, let's call it traditional methods to start with. There are tried and tested methods of how we approach this. Maybe not in the jewelry industry, but outside, I mean, the FMCG world that I come from, this is like bread and butter. We're just trying to take some of these methods, align them to the type of environment we're operating in, and then start running it.
On the other hand, when it comes to data, we announced, I think a few months back, that we are investing heavily in creating a data hub here in Copenhagen. In the past, we had small pockets of resources around the globe and knocked all of that down with the exception of China, because it's a different ecosystem there. Pulled all those resources into Copenhagen to create a tech hub here. These guys, they live and breathe off data. That data we will use in terms of being better merchants, in terms of the loyalty aspects that you were poking on. Eventually, I hope we'll also crack a method on how we can scrape those insights and use that for product development. There are quite few companies that are sort of mastering this today.
We have still some ways to go to finalize the building of the tech hub. I think in the future, you should expect that we will propel some of our insights through the data that we gather. We have an amazing touch point. I'm not sure that this is unique visitors, but we have roughly 500 million visitors to our stores, either off or online. Today, we actually only use a fraction of that data to drive this business, which is crazy if you think about it. We should really be able to be super precise on what we do. We come from a history of being quite analog, so this is not just to put the tech in. We also need the culture and the people that know how to maneuver in this new environment. That's the direction that Pandora is taking.
We want to lead in the tech space as a company.
Thank you.
Our next question comes from [Simpi Aggarwal] Citi. Please go ahead.
Hi. I have two questions, please. The first one on the level of marketing investments in second half. I understand that it will be up year-on-year. What is the level of spend we are talking here in your base case revenue scenario? The second one on gross margin. I'll come back to it.
On the level of marketing spending in the second half, I'm not saying that mixture will be above last year. In percentage, probably yes, percent of revenue. In absolute terms, I think you should more think about it as in line with last year. Remember last year going into Q3 and at least Q4, we were already upping our spending at that point in time.
The only other thing I would add to that is that media rates have changed somewhat this year due to COVID as well. Even if we spend DKK 100, you might actually get a bit more bang for the buck this year. Now, this varies country by country, varies by the media mix you have, of course, but that is something I'm driving very hard.
As I said in the presentation, COVID is a problem, but with problems also comes opportunities which you need to run hard after, and that's one of them that we're trying to chase.
Thank you. The second one on the gross margin. I understand that the second quarter gross margin was around 78%, if I strip out COVID-19 related restructuring charges. Given the impact from silver prices will not be felt in second half, do you think that's a sustainable level for second half?
On the gross margin going into the second half, we will be, and I'm also looking at Mr. Treasury here, Michael, but we will be having a higher silver price in Q3 and Q4 in the COGS than what we had last year. I think if we go back to the, I'm just thinking out here, going back to the guidance when we made that in fifth originally, we said that we would have a headwind from silver prices and the Thai baht of around 1.5 percentage points, and that's mainly coming in the second half of the year. Again, that's not coming from the recent price increases, but from what happened previously. In other words, answering your question more directly, I think there will be some headwind on the gross margin in the next couple of quarters comparing to the underlying gross margin in the second quarter.
Very good. Thank you.
Our next question comes from Lars Topholm from Carnegie. Please go ahead.
Yes, just a follow-up question regarding lease costs. I assume the current climate gives an opportunity to renegotiate leases. I wonder, to what extent you're doing that, what impact it has short term, but also if it has any long-term implications that are meaningful when looking at your sales and distribution costs going forward. Thank you.
I can start here. As part of the reorganization that was designed and implemented, we also established a global network management unit. There was a new Senior Vice President, a new role, with a gentleman who joined us there just before the summer holidays. The gentleman who has come into that role, he has done similar work in the past. I think long story short, that is clearly an opportunity to take a different approach to our leases, both from, I think, how they are structured, how do we think about what the fine print of the clauses in such an agreement, but also rent levels. Of course, with what happens currently in the world, and in retail for other companies as an opportunity to reduce that. That is part of it. We looked at slide 17 in our cost savings program.
There's some white space in the Harvard bowl on retail expenses, part of that is clearly on opportunities to lower our rent across the world. It will take time. Some you can renegotiate before the lease expires, some probably better off waiting until the lease expires. It will come step by step. As Alexander said, fortunately, we're not locked into 10-year leases, on average, it's fairly short-term leases that gives us an opportunity to step by step to realize those savings. We're not putting a number on yet, that's definitely an upside. We're spending around just DKK 2 billion per year on leases.
Yeah. I think one of the observations this team, the new team, had was that they probably think we should try to get into shorter leases even than we have currently. We have that flexibility. Also, coming back to your earlier question, Lars, on how we want to adjust the network. If we sit in too long leases, that of course, makes us less flexible. That might be worth for us in some locations to consider. I think we'll take a much harder stance as well in the lease negotiations. We might even ditch some locations in the negotiations in order to make sure that we actually get some more relief than what we've experienced with some people today. Yeah.
Thank you very much.
Thank you. Our next question comes from Piral Dadhania from RBC. Please go ahead.
Thank you. Morning, everybody. I was just wondering if you could help us understand the sort of mood amongst franchisee partners. Obviously, they've had significant store closures through the second quarter with no e-commerce offset. As you think about the structural shift of revenues from an offline environment to an online environment, how does that change the dynamic and the relationship between Pandora as the business and then the franchisee operators of physical stores? Any insight there would be most helpful. Secondly, just around some of the comments you made on current trading, which you say is running at -10%. Very encouraging to hear that improvement through the last few months. Are you seeing any big differences between your physical retail concept stores and wholesale or franchisee-operated concept stores, or even just across channels more regularly excluding e-commerce?
Just curious about whether any particular channel is under or over-performing as we go into the third quarter. Thank you.
What we saw was when the environments opened up, our stores performed better in the first couple of months even. We write that to the fact that we did not send our staff away. They were still on the payroll, largely speaking, whereas a lot of the franchisees obviously furloughed or terminated their people. It took them longer to get the teams back on. Whereas we value the fact that we have very experienced people in our stores, it takes quite some time to train people in this particular. It's not a very transactional way of selling that we do on Pandora. That seemed to have paid off quite nicely. Now, when we sit here today, broadly speaking, our partners perform at the same level as us. It just took them a while to catch up.
In terms of the franchise sentiment, clearly the cost structure of a franchisee versus a Pandora is very different. We carry a heavier fixed cost burden versus these guys. They have the lease, which to a large degree, many of them, like many retailers, didn't pay initially. They sent their staff home. We then also look at our receivables. They are paying the bills to us, which would suggest that at least they still stand. Quite a few of them have decent balance sheets from what we have gathered. Right now, I'm not getting a lot of phone calls, and in fact, I'm not getting a single phone call from franchise partners that are struggling. That's not to say that they aren't, but it hasn't reached that type of level.
Most of these people were shut down for six to eight weeks, so it looks like there is resilience to cover that type of a period, at least. Anders, if you have some additional perspective.
Just repeating, I think it's important not to look at the second quarter numbers and taking that as an interpretation that structurally that the partners is performing worse. Just repeating, in the third quarter so far, the stores have been performing the same no matter who operates them, whether it's us or our partners. Again, looking at our cash flow in the quarter, you can also see that despite the significant hit that we've all had in the second quarter, but the partners even more so because they are operating physical stores only. Our receivables have been brought down quite nicely. As Alexander said, they also have had cash and decent balance sheets.
Last, I think, in the prepared notes in the beginning of the call here, we also said that we've seen very nice selling coming into July in the start of Q3 here. Again, that's a pull from the partners and not something we're pushing in, but a pull from the partners seeing that we have good brand momentum, saw the good brand momentum in January, February of this year, but also seeing that we are actually doing better and doing quite well here coming out of the crisis in the second quarter.
Just the final technical addition to explain the numbers in Q2 was that the first markets that opened were China and Germany, and these are clear O&O markets, whereas the later or the sort of franchisee market, Italy and U.K., opened relatively late in the quarter.
Great. Thank you.
Our next question comes from Chiara Battistini from JPMorgan. Please go ahead.
Hi, thank you. Just a quick follow-up question. On your e-commerce performance in Q2, I was just wondering, and also according to the data that you see, do you think that your e-commerce performance was boosted or was supported by maybe taking market share within the gifting market, within the gifting options. Also given that maybe in other categories, the purchasing was less viable in a way. I was wondering if you took market share within gifting and how you see this evolving as the lockdowns have been lifted. Actually just a clarification also on your comment now on the sell-in in July being strong. Just wondering, was the sell-in July actually ahead of the sell-out, or was it in line with the sell-out in Q2? Thank you.
On your first question, whether we took market share gains in gifting. I just wish I had that data. That would be incredibly difficult. First of all, it's difficult to gauge e-commerce share performance to begin with. Amazon doesn't reveal it. Tmall, you can scrape it, but other than that, we have our own DTC, and of course, we don't share our DTC performance with anybody. In fact, there is no database which would help answer your question. I think I will only say that I wish I did, but I don't have any facts to back it up. We can't build a business on wishes.
Fair enough.
The second question, maybe I'll direct to Michael.
Yeah. No. Whether the sell-in was higher than sell-out, I think how you can see it in the numbers was that the organic growth was clearly better than the sell-out growth. As you would expect.
Sorry, that the organic growth was better than the sell-out growth?
Yes, exactly.
Understood. Thank you.
Thank you. There appears to be no further questions, so I'll hand back to our speakers for any other remarks.
First of all, thank you for joining us. As I said in my closing remarks, Q2 was truly strange. I know that a lot of your questions really are trying to decipher what is the underlying momentum of this brand, especially given the fact that we came out of, or are in the midst of a turnaround. We're doing our best to try to lay the land. Hopefully, things normalize and stabilize a bit, and then we can be a bit more precise on the momentum. We have some indicators that I mentioned that the brand seems to be healthy. Of course, everybody's taking a toll in Q2, but our sense is that we've come strong out of the gates in pretty much every market except China, as we've talked about.
I think we look to the future with some energy and passion and belief that the Programme NOW is going to continue yielding. I think on that note, we'll close the call. Thank you for listening.
Thank you.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.