Good morning, everyone, and thank you for joining this morning's call on our updated financial reporting structure, which we announced earlier today. My name is Magnus Jensen from Pandora Investor Relations team, and with me, I have Pandora's CEO, Anders Colding Friis, and CFO, Peter Vekslund. I'll now hand over to Anders, who will explain the rationale behind the decision to update our financial reporting structure, before Peter will then provide you some additional detail on the changes that have been made. We can then go to Q&A if you have any questions. Before handing over to Anders, I ask you to pay close attention to the disclaimer on page two. Anders, please.
Thank you, Magnus, and good morning to everyone. Today, we will provide you with an overview of our updated financial reporting structure and explain why we have decided to update our reporting. We are convinced that our updated approach to reporting will provide a clearer picture of Pandora's performance and the appropriate level of information to better understand the underlying drivers of our business. Our decisions have been informed by extensive analysis of our existing reporting structure, and we've also sought input from a number of sources and stakeholders. We've been pleased with the willingness to provide input during the process, and thank you very much for that. However, for obvious reasons, we've not been able to include all input.
If we did, the reporting structure would end up being way too extensive, and one of the most quoted requests have been to make our reporting more simple and accessible. Please turn to slide number three. To put the updated reporting into context, it is important to keep in mind the journey that Pandora is on. Pandora is a branded manufacturer at heart with a vertically integrated business model. This means that we are in control of the full value chain, including design, production, marketing, distribution, and increasingly, also, the retail space. Pandora has, over the course of the past couple of years, changed the channel mix, and a growing share of our revenue is generated through our owned and operated stores. We anticipate that this trend is set to continue.
Pandora owned and operated retail increases our control with our network and brand, and at the same time, it is financially sound as we recognize the full retail revenue and EBITDA, which typically amount to around 2.4 times the revenue and EBITDA that of a franchise store. The updated financial reporting structure is designed to better reflect this development. As illustrated in the chart, revenue from Pandora-owned stores has increased at an annual average growth rate of approximately 80% since 2012, and in 2016, represented 47% of reported revenue from concept stores. We anticipate that the revenue from our owned and operated stores will outgrow the reported revenue from our franchise stores from 2017 and onwards.
With these developments in mind, we now adjust our external reporting, so it is more appropriately reflects the underlying business performance and secure a strong alignment between our internal and external reporting. We keep our financial reporting structure under regular review to ensure that it remains current, relevant, and in line with peers. We are convinced that the changes we have made will enable investors and analysts of Pandora to more appropriately model our revenue performance. Please turn to slide number 4, where Peter will give you more details on the changes. Peter, please.
Yes, thank you, Anders, and good morning, everyone. The updated reporting structure has been designed to focus on our three distribution channels: owned retail, wholesale, and third-party distribution. Let us start with the most significant changes we have made to the disclosure, which provides an improved insight into the dynamics behind Pandora-owned retail revenue. With the updated reporting structure, we will provide like-for-like sales growth figures covering all Pandora-owned concept stores, including our e-stores, as well as growth related to network expansion and the acquisition of stores. Additionally, revenue from the e-store will be reported separately. As with all revenue streams disclosed in the updated format, we will provide growth both in local currency and in Danish kroner. We are convinced that this level of information allows for more detailed modeling of our retail revenue.
To further reduce complexity and improve accessibility, the metrics will be provided on a group level. For the wholesale channel, we will disclose group revenue and growth per store type. For our distributor channel, we will provide reported revenue and the growth. These changes, we will no longer provide group or regional like-for-like growth across ownership or regional revenue per store type. Please turn to slide 5. In addition to the structural changes that I've highlighted, we're making a number of additional adjustments to our reporting. First of all, we'll start to disclose reported revenue per market for our seven largest markets. The seven markets will be selected annually based on reported revenue in the latest financial year. This means that for 2017, we will disclose revenue on a quarterly basis for the U.S., U.K., Italy, France, Germany, Australia, and China.
For reference, these markets made up 71% of group revenue in 2016.... We'll of course provide growth figures in both local currency and in Danish kroner for these 7 markets. Historically, we have talked to like-for-like sales growth in larger markets, but these will not be included in the new reporting structure. However, to add flavor, we will provide like-for-like for our owned and operated concept stores in the U.S., including the e-store. We'll also make 2 smaller adjustments related to our product categories. We will stop reporting revenue for the subcategory called Moments and Essence Collection, and other jewelry will be split into 2, earrings, and then secondly, necklaces and pendants. Growth across all categories will be disclosed in both Danish kroner and local currency. Finally, we have decided to reduce the number of store types to 2, namely concept stores and other points of sales.
Other points of sales will include shop-in-shops and multi-brand stores. This change has been made to reduce the complexity of the reporting and to emphasize our focus on concept stores. I'll now hand the work back to Anders for a short comment.
First and foremost, thank you very much for listening. Before we open for questions, let me just address a question on our guidance that we have received from a number of you this morning. Guidance is, as written in the announcement, unchanged, and that is based on what we know today. So let me just repeat what we said in connection to the 4Q release. We expect revenue of DKK 23 billion-DKK 24 billion in 2017, with single-digit growth in the 1Q. Other than that, we are now ready for any questions that you have on the updated reporting format. Operator, please.
As a reminder, ladies and gentlemen, if you wish to ask a question at this time, please press star followed by the digit one on your telephone keypad. Please ensure that the mute function is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. We will now take our first question from Elena Mariani from Morgan Stanley. Please go ahead. Your line is open.
Hi, good morning, and thanks very much for the new reporting structure. My first question is regarding the like-for-like that you're going to provide. So obviously, we're losing some, you know, piece of information because we're just gonna have information related to your own retail network. And looking at the numbers that you've provided in 2016 and 2015, I mean, clearly, your retail network has meaningfully outperformed the third party, like the franchise stores. So I know this is more like a strategic question rather than, you know, strictly related to the reporting structure. But you know, clearly there has been some kind of valuation going on here, and then, you know, the underperformance of the franchisees is clear from the numbers that you've provided.
So what's your take on this? And, based on the current reporting structure, how should we expect, you know, the balance across the different channels to evolve over time? Do you have maybe some more specific targets for this rather than just the fact that, you know, your own retail concept stores' revenues are gonna continue to grow? And then, secondly, just a clarification on your reiteration, on the full year guidance. So, the indication you have provided today is, as of today, so it would include information that you have related to the 1Q and also on the first month, of the second quarter. Thank you.
Well, thank you for your questions. Let me start by the last one. The guidance is of today, so this is based on our knowledge today and always has to be when we send out a message. If you look at the development of our owned and operated stores, and I think that on a general level, I can say that we have said, and we're also saying this today, that we expect that part of the business to increase over time. And in 2017, it will be more than 50% of the revenue from our concept stores, and that is the reason why we think that the owned and operated like-for-like number is the relevant one.
We can also say that this is where one of the areas where we've looked at peers in the market, and this is actually the way that everybody else does it. We haven't been able to find anybody who does the like-for-like numbers we did before, so it's always about owned and operated retail.
Okay. Thank you.
You're welcome.
Thank you. The next question comes from Anne-Laure Bismuth from HSBC. Please go ahead. Your line is open.
Yes. Hi, good morning. It's Anne-Laure Bismuth from HSBC. I'm just wondering, can you remind me the share of online store in the group sales mix and, if you have a target that you can share with us? Thank you very much.
In terms of online, you could say the figures is all disclosed. We have also today released comparable figures for the last eight quarters with a detailed breakdown in the new reporting format. So that will allow everybody to adjust and prepare for the earnings release on the ninth of May.
... We, as such, don't have a target for the online share of business. However, I'm pretty sure that will increase over time.
Thank you.
Thank you. Our next question comes from Frans Høyer from Jyske Bank. Please go ahead, your line is open.
Yes, thank you very much. Really just a question regarding around the U.S. and the sort of deep restructuring of the distribution in the U.S. market that is going on at the moment, and combine that with slightly less, you could say, less complex visibility of what's going on in the States than, or in the Americas than we used to have. I just wanted to encourage you to help us understand the details of that restructuring as we move forward, and perhaps put it in context to the similar exercises you've done before in terms of upgrading the distribution to branded stores.
So, I'm hoping that the slight step back on the details of the American or the Americas operations, that you will help us and alleviate that by X-raying that development a little bit more, perhaps on slides as we move forward through the quarters. That's it.
Yes, thank you, and please rest assured that the U.S. is a thing we will comment and discuss more in connection with our Q1 reporting. We are not ready to start a discussion on that already now. Today is about our updated financial reporting structure. On the U.S. in general, we provide actually more information now, in the new-
Yeah
and updated format, because we give a specific number for revenue in the U.S. quarter by quarter. And in addition to that, we give the U.S. like-for-like number, including the eStore. And we believe this is a good basis for modeling revenue going forward.
I look forward to following that. Thank you.
Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, it's star one on your telephone keypad. We'll now take our next question from Poul Jessen from Danske Bank. Please go ahead, your line is open.
Yeah, hi there. Just a follow-up on the U.S., just to clarify, the Like-for-like you're gonna show for the U.S., is that your owned and operated only, or is it total U.S. Like-for-like? And if it is only owned and operated, how does it then weigh into the numbers that the online store then will be a material share of, of your owned and operated over there? And then when you show the U.S. including eStore going forward, could you at some time provide the history? Because we only have that number for the U.S. on the 4Q last year. Thank you.
Yes, thank you. In terms of the number, and the history you asked for, we, there has been a change with increased owned and operated stores in the U.S., and we believe as of Q1 2017 and going forward, we have a meaningful number of owned and operated stores to report on. However, going back, that number would not be overall meaningful. We, if you look at the concept stores and revenue in the U.S., then around 15%-20% is, owned and operated out of the total Concept Store base.
Thank you.
Yeah? That was all your questions, Paul?
No, it was more how does it then weigh in that you have an online store which is growing significantly, and then that must be a material share of your total U.S. revenue based on owned and operated then?
Yes, that is-
Skewing the growth rate to the upwards, indicating that the growth will be higher than what we see out of the physical stores then.
First of all, we see the two channels as supplementing each other, the physical concept stores and the eStore. In Q4, we in connection with our full-year reporting, we said that 10% of U.S. revenue was related to the eStore. So, based on that, I'm pretty sure you can all subtract and then get to a like-for-like number for physical stores only.
Okay. Thank you.
Thank you. Our next question comes from Klaus Kehl from Nykredit Markets. Please go ahead, sir, your line is open.
Hmm. Yes, good morning. Klaus Kehl from Nykredit Markets. A question related to your like-for-like growth and these eStores, and I guess you only include the eStores that has been opened for more than 12 months. So I, I was just wondering, is there any meaningful eStores as of today that is not included in these these numbers?
Yeah, I think that it is correct. We will only include them after 12 months. To your question, you can say that the China eStore is not included, if you look at the big part.
Okay, and that's the only important one that is not included, right now?
Right. There's also the Canada eStore, but eStore in Canada is somewhat smaller, but it is not included either.
...When will the China eStore be included? Or in other words, when did you open it? Was that in Q4 2016?
It was indeed. Yes, correct.
Okay, excellent. Thank you.
You're welcome.
Thank you. Our next question comes from Piral Dadhania from RBC Capital Markets. Please go ahead, your line is open.
Yeah, thank you, everyone. Good morning. I just wanted to confirm if we take the new disclosure for your like-for-like, as well as the, disclosure for your organic retail revenue growth. Just taking the 4Q of 2016, you have 40% organic revenue growth for retail, a 15% retail like-for-like. So the, the balance of say, you know, 25% is, is space contribution. Is that the right way to think about it and to model it going forward? Thank you.
Yes, overall, that's right. And on top of that, we also acquire franchise stores which roll into the number. But the right difference is space and acquisitions of franchise stores.
Okay, that's brilliant. Thank you.
You're welcome. That is the whole purpose of giving this, because it's a clear cut of the figures where you can actually reconcile the different components of our revenue growth.
Yep, yep, very clear. Perfect.
Thank you. Our next question comes from Chiara Battistini from JP Morgan. Please go ahead. Your line is open.
Hello, good morning. Thank you for taking my questions. I have two very quick ones. The first one is just to clarify on the number on the cost of the concept stores you will be reporting every quarter. Will you give, as you were giving before, the number of the total number of concept stores by market and the number of owned and operated stores by market, or just one of the two? And the other question I have is the reason why you discontinued the sales for the Moments bracelets and the ESSENCE collection bracelets. Is that because you're expecting further diversification into the bracelet category, and therefore, not just charm bracelets? Or any other reasons behind that, please? Thank you.
Yes, on your first question on concept stores, we have had and will still have an appendix in our company announcement outlining any market, so any country with more than 10 concept stores, and you will see a split of owned and operated and franchise stores, as well as openings. So there's full transparency in the numbers on concept stores. In terms of your question on the bracelets, you're right, we are diversifying the bracelet category, going from only having the simple charm carrying snake chain bracelet to now having a lot of different... And therefore, the current category of breaking out the Moments and Essence simply doesn't make sense anymore. We have a number of bracelets that carry charms, but also bracelets that doesn't carry charms.
Currently, some of those deliver and is included in other jewelry.
Okay.
So again, we mean this, this is providing a much clearer insight into our product categories.
Okay, that's perfect. Thank you very much.
You're welcome.
Thank you. There are no further questions in the phone queue at this time, but once again, ladies and gentlemen, it's star one to ask a question. Okay, we have a next one queued up now, and it's coming from Faisal Ahmad from SEB. Please go ahead. Your line is open.
Yes, gentlemen, this is Faisal Ahmad from SEB. Just a quick clarification question on your Q1 guidance. You, your official guidance was single digit revenue growth in Q1, but you also, in connection with the Q4, said that adjusted for one-offs, then it would have been double digit revenue growth in Q1. Is that still the case?
The simple answer is yes. We have said that in connection with our full year reporting, and that still stands.
Thank you very much. That's all.
Just to, so just to repeat that, single digit growth, excluding the one-offs, one-offs are around 5%. So excluding these one-off, growth would have been double digit.
Thank you.
Full year, still between DKK 23 billion and DKK 24 billion.
Thanks. That's all from my side.
Thank you.
Thank you. There is... The next question coming from Piral Dadhania from RBC Capital Markets. Please go ahead.
Yeah, thanks. Just a quick follow-up on Chiara's question. I was just curious if you're able to give us a split within bracelet of charm versus non-charm bracelets. You know, as we move to a clearer disclosure, that's a question we've been getting from investors. So I just wondered if you're able to give us that split at this time.
Yeah, we can certainly give insight into the number of different products in that category. So, say, the split of design variations, charm carrying and non-charm carrying, but not revenue. That detail will not go into.
Okay. Okay, thank you.
The next question comes from Klaus Kehl, from Nykredit Markets. Please go ahead.
Yeah, hello, and just a follow-up question on this new product category table. You now have earrings as a on its own, and well, I appreciate that that information, but I was just wondering is whether there's any particular reason why you you split out the earrings now?
Well, I think that, as you know, we are on a journey to become a full jewelry brand and manufacturer, and we've seen very good growth in both earrings but also in necklaces and pendants. To provide you a clear picture of the development of this, we thought it would be appropriate to give you those categories independently.
Okay, thanks.
Welcome.
Thank you. Next question comes from Elena Mariani, from Morgan Stanley. Please go ahead.
Hi. Sorry, just a quick follow-up from my side. In terms of profitability breakdown, are you gonna continue to provide the split of EBITDA by region only? Thank you.
Yes, we will continue to do that. And below revenue, you can say there will be no material changes to our disclosing format. That will remain unchanged.
Okay, thank you.
Thank you. There are no further questions in the phone queue at this time.