Thank you, and, welcome to Pandora's conference call following the release of our Q1 2014 results, distributed through the wires this morning at 8 A.M. The presentation for this call, as well as the full version of the Pandora Q1 release, is available on pandoragroup.com/investor. My name is Morten Eismark from Pandora Investor Relations, and with me here today is CEO Allan Leighton and CFO Henrik Holmark. In accordance with the agenda on slide two , Allan will go through a few Q1 highlights, followed by Henrik, who will talk you through the Q1 numbers in more detail. Finally, Allan will conclude the presentation, and we'll be happy to take your questions. Before handing you over to Allan, I kindly ask you to pay close attention to the disclaimer on page three. Allan, please go ahead.
Thank you, Morten. If you can turn to slide four. Good morning. Q1 was serendipity, an inverse perfect storm. We brought revenue around DKK 2.6 billion and grew the top line by around 30% compared to the same quarter in 2013. During the quarter, we launched two new collections, Valentine's and Spring, and we also shipped the Mother's Day collection to our retailers, ensuring that our customers continue to see fresh products in our stores. Additionally, we also launched two additional sub collections consisting of letters and symbols, 46 charms, which also added a couple of percentage points to the top line. This, combined with the replenishment off the back of a very good Christmas period, resulted in strong top-line development in Q1.
We continue our focus on branded sales channels and opened 37 new concept stores, and now generate more than 84% of our revenue through branded channels. Of course, in the process, we've closed parts of the unbranded store network and will continue to do so, so that we can continue to match distribution to local purchasing patterns. With our strong focus on sell-out, we continue to be pleased that all four major markets, once again, experience continued positive Like-for-Like sales growth. Our EBITDA improved materially compared to last year, driven by leverage from a strong top line and tailwind from lower commodity prices compared to a year ago. Our free cash flow was strong, above DKK 1 billion for the quarter, driven by overall improved financial performance, as well as a one-off VAT repayment from Germany of approximately DKK 250 million.
We've upgraded our revenue guidance for the year to above DKK 10.5 billion to incorporate the impact of the strong Q1 sales performance. Our guidance also reflects our view that the revenue percentage growth levels will moderate during the year to go. Finally, we continue to return cash to our shareholders, and during the quarter, we bought back shares worth more than DKK 300 million on top of paying a dividend of 6.5 Danish kroner per share. Please turn to slide five. As mentioned, we continue to see solid growth across all regions in local currency, and I'm trying to... We'll give you a flavor of, of market by market.
The overall growth continues to be driven by an increasing demand for Pandora's newer products, most recently demonstrated by the very positive reception of the three collections shipped in Q1 2014: Valentine's, Spring, and Mother's Day. If we move to the markets, revenues from America was DKK 1.17 billion for the quarter, up 16% in local currency, with U.S. revenues up 9% in local currency. Over the next 12-15 months, we expect the U.S. business to operate within the 8%-10% sales in and 3%-5% sales out parameters we previously flagged, with some variance by quarter. As we invest to drive our West Coast business, establish a broader jewelry business, primarily by driving rings and freshening up our Northeast network. Outside the U.S., Americas was driven by revenue in Canada, which continues to perform very well.
Regarding revenue in Europe was more than DKK 1 billion, the region growing 48% in local currency. The U.K. showed very strong growth, driven by the replenishment of strong Christmas sales, our eStore and continued network upgrade. Germany continued on its bumpy recovery course, with our owner-operated stores growing strongly and franchise and multi-brand, not so. Our new network build plans are coming on well, with good pipelines for 2014 and 2015, and therefore we expect to close a large number of multi-brand doors in the second half. Italy, France, and Russia continue to progress well.
Our Russian business has seen no impact from the political climate in the region, and as the devaluation of the ruble has caused competition to increase prices, we've decided to give margin support to our partner to enable him to hold prices and thereby enhance even more our affordable luxury position and drive revenue and market share. As mentioned in the Q1 release, these three countries now generate more than 60% of revenue in other Europe, and revenue from other Europe was up by more than 55% of, for the quarter and generated almost 25% of the group's revenue. In Asia Pacific, revenue increased by an impressive 72% in local currency compared to Q1 last year.
The growth in DKK was 54%, heavily impacted by the unfavorable development in the Australian dollar.... The positive revenue development in local currency was again largely driven by continued performance in Australia, which saw a strong ring sales as well as in a number of strong performing smaller markets in the Asian region, which is now starting to make a meaningful contribution to group revenue. Turn to slide six. The Like-for-Like figures on this slide measure about 80% of Concept stores in the four countries. Remember that stores to be open for more than 12 months to be included in Like-for-Like sales. As was the case through 2013, our four major markets continued to show a positive development in Like-for-Like sell-out, and as you can see from the slide, all markets have now been in positive territory for six quarters or more in a row.
We still believe that newness in our stores, a really targeted marketing effort around our new 7-Drop Structure , and better in-store execution, have caused the consumers to buy more in our concept stores. Turn to slide seven. The commercial success of our new product launches continued to be evident across all markets. Our collections launched during the quarter were positively received by the consumers, and approximately a third of our sell-out were generated by products launched in the past 12 months. The 7-Drop approach is working both well and consistently. The success of our new products is a result of designing what is in demand by the end consumer and changing our product launch structure to provide more newness, as well as keeping focus on the right commercial price points. All drops following the changes in 7-Drop structure sold in and sold out well.
However, as I've always mentioned, and have mentioned for the past couple of quarters, and which is of equal importance, our older core products are also still selling out well, driven by the traffic. As you know, we launched the Pandora Essence Collection concept in November of last year. It's still very much in launch phase, and we continue to roll out the products in more countries and shops. During the quarter, we launched a new Essence bracelet, and we'll add some more charms to the collection during the year. Overall, the initial results are still encouraging, and we continue to build our marketing investments to build this concept over the next 12-15 months. If you please turn to slide eight.
As you saw from the release this morning, we've raised our revenue guidance to more than DKK 10.5 billion from the previously expected more than DKK 10 billion. This is basically a result of incorporating the better-than-expected first quarter, including a strong set of like-for-like figures, and the fact that we now expect to open more than 225 concept stores, up from more than 175. We've not changed our EBITDA margin guidance, which remains at approximately 35%. As we said in February, we will invest significantly in infrastructure in 2014, which includes investments in IT. As mentioned earlier in today's presentation, we intend to invest in our U.S., German, and Russian markets to develop our strategic midterm positions. We'll also start to build our infrastructure in China and Japan towards the end of the year.
CapEx and tax expectations unchanged at approximately DKK 550 million and 20%. And with that, I'll hand over to Henrik, who'll give you some more details on our financials. Henrik, please.
Thank you, Allan. Please turn to slide nine. Looking at the revenue development in Q1 2014. The total revenue for the quarter increased by 29.5% to DKK 2,592 million, excluding FX movements, revenue increased by 34%. The overall growth continues to be driven by an increasing demand for Pandora's newer products, as Allan spoke about before. For the quarter, around 50% of the sales were generated by products launched within the past 12 months, which is actually unchanged compared to Q1 2013. Volumes increased by 26.6%, and the average sales price increased slightly to DKK 131 from DKK 128 a year ago.
The increase was driven by product and channel mix, as the sales price for each individual product was unchanged, unchanged compared to Q1 2013. Provisions for returns at the end of Q1 2014 were in revenue value corresponding to approximately 8% of 12 month rolling revenue, compared to 9% at the end of Q1 2013. In Q1, more than 84% of our revenue came from the branded distribution, which is up from 79% last year. Please turn to slide 10. Looking at the development in our distribution network, the total number of points of sale decreased by 207 in Q1 2014, compared to Q4 2013, to a total of 10,072 points of sale globally.
During the quarter, we added 37 new concept stores, as Alan mentioned, and a net total of 47 branded points of sale. The majority of the concept store openings in the quarter were in Europe, with Russia being clearly the largest contributor. The decrease in the total number of stores is caused by our continuous focus on closing underperforming branded, unbranded stores across all regions in order to improve the quality of revenue and focus on branded store performance. As a consequence, the number of unbranded points of sale have been reduced by 560 stores in the past 12 months. Please turn to slide 11. As previously indicated, product launched in the past four months are selling well, both in sales in and sales out, and we're seeing an increase in revenue from products outside the traditional bracelet category.
In Q1 2014, revenue from charms increased by 22.4% compared to the same period last year, while revenue from silver and gold charm bracelets was up 21.9%. These categories now together represent approximately 81% of revenues, which is a decrease from around 86% a year ago, due to the strong performance from other categories. The strongest performance in other categories is seen in rings, which increased by 86.4% and represented 8.5% of total revenue in Q1 2014. This is a record for rings, driven by the improved offering, as well as increased marketing and generally improved focus on rings across our markets. Particularly Australia and the U.K. have seen a strong contribution from rings, but actually, most markets are increasing their share of revenue generated from rings.
The growth in the other jewelry category of 61.4% is supported by most sub-categories, but particularly, particularly the continued success for our Silver Bangle, although this is an easy, somewhat easy comparable, given that, the bangle was only launched in the U.S. in Q1 2013. Please turn to slide 12, which looks at the gross margin development for the quarter. Gross profit was DKK 1,791 million in Q1 2014, compared to DKK 1,314 million in the same period last year, resulting in a gross margin of 69.1% in Q1 2014, compared to 65.6% last year. The increase in gross margin for the quarter compared to Q1 2013 was driven by lower hedge prices on commodities.
Excluding hedging and the time lag effect from the inventory, the underlying gross margin in Q1 2014 would have been approximately 73%, based on average gold and silver market prices for the quarter. Under the same assumptions, a 10% deviation in quarterly average gold and silver prices would impact our gross margin by one to two percentage points. Please turn to slide 13. Operating expenses for the quarter were DKK 904 million, versus DKK 715 million in Q1 2013, representing 34.9% of revenue in Q1 2014, versus 35.7% in Q1 2013. The improvement is primarily driven by higher revenue. All regions contribute to the positive development, but particularly Europe and Asia Pacific have seen significant improvements.
Sales and distribution expenses were DKK 515 million, an increase of 31.3% compared to Q1 2013, and corresponding to 16% of revenue, compared to 15.8% in Q1 2013. The increase in sales and distribution expenses in absolute terms was mainly driven by higher revenue, an increase in the number of Pandora-owned stores, as well as costs related to the expansion of the e-commerce platform, which is now in five European countries. Marketing expenses were DKK 210 million, compared to DKK 193 million in Q1 2013, corresponding to 8.1% of revenue, compared to 9.6% in Q1 2013. Marketing expenses, as you may recall, are traditionally low in first quarter.
Administrative expenses for the quarter increased 35.4% to DKK 279 million, representing 10.8% of revenue, compared to 10.3% in Q1 2013. As we have previously flagged, we are investing more in our infrastructure during 2014, and the increase in administrative cost was primarily due to costs related to office relocations, as well as the anticipated higher IT costs we have flagged before. Please turn to slide 14. EBITDA for Q1 2014 increased by 45.7% to DKK 937 million, resulting in an EBITDA margin of 36.1%, compared to 32.1% in Q1 2013. The improvement in EBITDA, in EBITDA margin, is primarily due to an improvement in gross margin.
Leverage on the cost base, particularly in our new markets, is also contributing, but to a more limited extent. The EBITDA margin for Americas for the quarter was 44.3%. The improvement in margin from lower raw material prices was partially offset by increased marketing, as well as the inclusion of Brazil in other Americas, Brazil now being a direct distribution market. This had a slight diluting effect on margin of approximately 1 percentage point. The EBITDA margin for Europe increased from 34.6% in Q1 2013 to 39.8% for the current quarter. The increase was primarily driven by improved gross margin, as well as leverage on the cost base, an increase in revenue, and particularly the U.K. and the new markets, Russia, Italy, and France.
The EBITDA margin for the Asia Pacific region improved 14.5 percentage points to 50.3% for the quarter. The improvement was primarily driven by increasing revenue in the region, as well as improved gross margin. Please turn to slide 15. For the quarter, net financial expenses amounted to DKK 8 million, primarily related to exchange rate gains, more than offset by interest expenses and other related costs. Income tax expenses were DKK 175 million in Q1 2014, implying an effective tax rate of 20%, compared to 19% for Q1 2013. Reported net profit increased by 60.7% to DKK 704 million in Q1 2014, compared to DKK 438 million last year. Please turn to slide 16.
Operating working capital at the end of Q1 2014 corresponded to 19.3% of the preceding 12 months' revenue, which compares to 26.9% at the end of Q1 2013, and 20.5% at the end of Q4 2013. Inventory was DKK 1,574 million at the end of Q1 2014, corresponding to 16.4% of preceding 12 months revenue. The increase was in line with the growth in the business. Trade receivables increased to DKK 889 million at the end of Q1 2014, compared to DKK 724 million at the end of Q1 2013, an increase which is mainly due to higher revenue.
Other receivables decreased to DKK 548 million, from DKK 731 million at the end of Q4 2013, and this decrease was primarily due to the extraordinary repayment of VAT in Germany that Allan mentioned, an amount of DKK 259 million. An additional amount of approximately DKK 230 million is expected to be repaid, but is pending a VAT audit by the German authorities. Trade payables at the end of the quarter were DKK 613 million, compared to DKK 174 million at the end of Q1 2013. Part of this increase, compared to Q1 2013, is due to a reclassification of DKK 203 million made in Q3 2013 from other payables to trade payables relating to accrued expenses.
In Q1 2014, Pandora's CapEx was DKK 58 million, including investments in intangible assets of DKK 23 million, which mainly relates to key money in connection with the opening of some Pandora-owned stores, as well as IT investments. Total interest-bearing debt was DKK 25 million at the end of Q1 2014, compared to DKK 414 million at the end of Q1 2013. Cash and short-term deposits amounted to DKK 571 million at the end of Q1 2014, compared to DKK 222 million at the end of Q1 2013. Finally, net interest-bearing debt at the end of Q1 2014 was -DKK 546 million, corresponding to a net interest-bearing debt to EBITDA of -0.2 of the last 12 months EBITDA. With this, I'd like to hand back to Allan to conclude the presentation.
Thank you, Henrik. So if you go to slide 17, which really summarizes the quarter, revenue up 30%, gross margins up to 69.1%, EBITDA margin 36.1%, over DKK 1 billion free cash flow, revenue guidance upgraded to more than DKK 10.5 billion, and our share buyback is on track. If you go to 18, I've tried to summarize here what the key messages should be when you look at these numbers. I think the first one is that the revenue growth for the rest of the year will be strong, but it is gonna be at more moderated levels in terms of percentage growth going forward.
The second thing is the 7- Drop Structure, which has really been going for a year now, is working well and consistently. So this is something that's drummed in to the rhythm of the business, and is being executed well. Thirdly, that the franchisee demand remains very high. You know, you can see from the upgrade in Concept stores, we have lots of people wanting to take on the Pandora franchise. Fourthly, and I think very importantly, you can see that product diversification is really beginning to impact. You know, the broadening out into rings and other jewelry, you can now see beginning to have an impact on the business. And the really important thing is that that's happening at the same time that we're continuing to grow our core business.
Also, there's some geographical diversification beginning to unfold. Other Europe, Asia, U.K., really beginning to increase the share of our business. In fact, if you just take the U.K., other Europe, and other Asia Pacific, you know, it's nearly 45% of the revenue of the company. It was less than a third of the revenue of the company 12 months ago. And the strength of the business is now allowing us to invest back into the business strategically in a number of areas. Germany, we've talked about and is looking good. I think we can accelerate some of the work there. Russia, it's enabled us to be in a position where I think we can really, really grab affordable luxury and drive volume and share by our ability to hold our prices.
In China and Japan, which we've talked about before, the team down there will really start to build up the infrastructure for us to be able to, you know, attack in those markets, in the first half of next year. We want to build the infrastructure ahead of that. The same in the U.S., where we can invest in driving our business in the Midwest, broadening out our categories, and then also freshening up our network in the Northeast. So there are the messages that I'd like you to take from these Q1 results, not just what they mean for today, but what they also mean for us going forward. And with that, I conclude where we are, and we'd open it up for questions.
Thank you. If you would like to ask a question, please press star one on your telephone. Your first question comes from Lars Topholm from Carnegie. Please go ahead.
Yes, congrats with a great quarter. I do have a couple of questions. One is just implicitly on this 35% EBITDA margin guidance. You make 36.1% in Q1, and everything else equal, your gross margin should increase in Q2, Q3, and Q4 quite a bit due to lower silver prices. So I just wonder what you are seeing, which I don't see, which should make the full year margin end lower than the Q1 margin? Then a second question, unless it's too early to ask, can you put some more flavor on your plans for China? And maybe some ambition, you know, in the number of store openings. Are you gonna do this on your own or with partners, i.e., Russia set up, or how to see that?
And then, on a third question is, how much of your revenue today is from owned and operated stores? Thank you.
Okay, Lars, it's Allan. I'll sort of do those in reverse order, actually, because I can remember things backwards rather than forwards. So, owner operated revenue is just north of 10%, which is where we've always sort of talked it to be. And we're pretty happy with where that is. It sort of moves around a bit, depending on what we're doing in any one quarter. But we would be just north of 10%. We're quite happy where that is. In terms of China and Japan, too early to really tell you any great detail. As you know, we've been, as in a number of the markets, we've been looking at what our strategy should be there, both in China and Japan.
Kenneth Madsen, who's been down there, you know, built our Russian business, has been down there for six to nine months now. He's agreed with me, and we've agreed with the board what that strategy should be. And the most important thing is we're gonna try and get ahead this time in terms of making sure we build the infrastructure in there. So as the year unfolds, then we'll give you more information. I think the thing I wanted to flag here, which to a degree, goes into your, into your first question, is that we're gonna build that, build some infrastructure ahead of going into those markets. And that's really the answer to your, you know, your, your, your question on, on EBITDA guidance. There are a number of things that we, you know, are planned to do.
I think it is time and has been really for the last six months to, you know, invest in the business, to drive some of the things that are important to do. Our infrastructure has lagged both in IT to a degree in headcount and also, you know, a number of our offices now are smaller than we need them to be. And, you know, most of the major markets will move office. Plus, in Germany, as I said, in Russia and in the U.S., I think it's time to up the investment levels. And therefore, that's where we are, that's why we're guiding the EBITDA to be where it is.
It, the business at the moment gives us the opportunity to reinvest and invest ahead of the wave, and that's what we intend to do.
Okay, but Allan, you say that every year early on, don't you? And then, when the year has passed, then the EBITDA margin is higher than you indicate and the cost lower. Why is it different this time?
Well, first of all, at the beginning of the year, I don't say that, because I wasn't here a year ago to say it. But the reason I guess that it's different is that the business is in a different place. You know, the business is in a place where I think that we've stabilized the business, have been able to demonstrate that it is, you know, more than in recovery phase. Have begin to demonstrate in this quarter, particularly, that we can broaden out our business from just charms and bracelets, while continuing to grow that and broaden out into other product groups.
And also, as the point I made earlier on, is that there are a number of markets now, which we, if we fuel them correctly, can generate a lot of revenue, and therefore, you know, split our revenue across the world in a much more even way.
But then if your revenue were going to surprise and be better than your 10.5, would you then adjust up your expense spending accordingly, or would that give leverage on the EBITDA level?
Well, well, I think we'd face into that if and when it happens, Lars. You know, what we're-
Okay.
-giving you today, is our best view of the world, and that's why I particularly wanted to highlight some key messages here. Which is, you know, the business is looking at things slightly differently. i.e., with one eye now in very much looking at investing in its future, as well as, you know, one eye really focused on driving the business for today.
Perfect. Thanks, and again, congrats with a strong quarter.
Thanks, Lars.
Your next question comes from Chiara Battistini, from J.P. Morgan. Please go ahead.
Good morning. Hi, it's Chiara from J.P. Morgan. A couple of questions from me, please. First of all, on Australia, there was a big discrepancy actually, between the sell-in on 16% and the sell-out on 33%. So shall we expect big replenishment also in the coming quarters? So strong sell-in to in the quarters to come. Number two, on online. I see you started launching online also in the Netherlands, so I was wondering if you could give us more color. First of all, on how it's going in the recently launched markets, so France, Austria, and Germany, and if you could give us an update also on when to expect the U.S. to come. And finally, on the optics, and what to expect for the rest of the year.
If you could give us more color on marketing for the rest of the year. It was particularly low in Q1. Shall we expect a pickup in the coming quarters? And on the other hand, on the admin costs, if we should expect a percentage of sales to remain on Q1 levels? Thank you very much.
... Okay, Allan, again, I'll Henrik will do the OpEx question. I'll do online and then Australia. To be honest, it's too in Germany, France, and Austria, and I think it's the Netherlands, actually, it's too early to tell. It's very early on. And so you know, I'd say where we expect and very early. In the U.K., that business continues to be very good, very strong. You know, it's certainly around the levels that we would want it to be as share of revenue without being specific, and the continuation of what we've seen really for the last six or nine months, i.e., you know, very high conversion rates, very low returns, and you know, nearly a 50/50 male-female split.
So we're very encouraged by the U.K., but I always make the point to everybody that, you know, if we're gonna do well, the place we should do the wellest, if such a word exists, is in the U.K. because it's the most mature market online market in the world. And you know, lots of our types of businesses trade in the 10%-15% range. As far as the U.S., you know, we've not made a decision and won't be making a decision on when we go to the U.S. yet. As I said, online, on the online business, the most important thing is, you don't have to do it in a rush, you have to do it really well.
In any of the big markets, take the U.S., for example, the learning from the U.K. is you have to make sure that the operational customer service levels behind the front end are really, really working, which they are working incredibly well in the U.K., and clearly, that's something we would have to build in the U.S. before we did anything about it. As far as Australia is concerned, clearly, you've got to adjust for local currency, and we're not overly worried at all. We're not worried at all, actually, about the discrepancy between sell-in and sell-out.
I think the only thing that's notable in Australia, which has been, you know, in many ways, a standout business for us, is that, you know, the difference in performance between the concept stores, the branded stores, and the non-branded stores is becoming more significant. Which is, you know, a trend that we see everywhere, but is particularly strong in Australia, where David has really built those concept stores into being some sort of powerhouse. Do you want to comment on OpEx, Henrik?
Sure. But you basically have an implied sort of indication on OpEx expectations, given the fact that we are maintaining the EBITDA margin guidance on the 35% level. I think we've been pretty consistent on. If you look at the various cost types, we've been pretty consistent on sales and distribution in the 16%-18% range over the past four to six quarters. Marketing, we were around 10% last year. We've indicated that that's probably pretty much where it should be. But we also and then we indicated that we will invest back in the business in terms of particularly the infrastructure. And as you see in the admin that you also pointed to, has increased in Q1 as a percentage of revenue from 10.3 last year to 10.8.
In Q4, we sort of flagged that about one percentage point of the gross margin gain that we had, we intended to invest back into the business, so it's pretty in line, pretty much in line with what we communicated. So you should see that admin being sort of more of the new normal with Pandora. So that's the sort of overall comments.
Perfect. Thank you very much.
Your next question comes from Michael Rasmussen from ABG. Please go ahead.
Yes, hello, everybody. I'd like to start with a follow-up on online. First of all, in terms of Australia, can we see you guys going online in Australia before you go online in, for example, the U.S. market? And then secondly, I'd like to get you guys to add a few more comments to what you've done in Rings, and specifically in the U.K. and in Australia. First of all, have you started doing this in the U.S., and will this support growth in the coming quarters in the U.S., i.e., the share of Rings going up here as well as we've seen in the other markets?
And then I recall you talked about after Q4 2013 that Rings should be basically a DKK 1 billion turnover business in the medium term. But when I look at the DKK 200 million you did in the first quarter, it looks like this is happening already in 2014. So what is actually going better than expected in terms of Rings? Thank you.
Well, just Michael, it's Allan. Morning. There are two things, really. So on Australia, I mean, eventually, we will go to all markets online, and that's gonna be fact. The timing of that is flexible, actually. And that, as a point I made earlier on, I'm, you know, I've been in these businesses a long time, and I know how they work, and you have to have the infrastructure to support it. That is the fundamental thing. So in a strange way, what will decide the sequence of events will be how well and strong we think the infrastructure is set up. And, you know, clearly, we're looking at how that would be done in each one of the markets, but for me, that is the driver.
The sequence is driven by absolutely being able to deliver fabulous customer service, and because in the end, that's what counts. So that's what will decide the sequence of which we go. On Rings, you know, well, I think we mentioned this before. It is, we really took the success in Australia. And we did a big piece of work. It was a big piece of work, actually, a very simple piece of work, that just looked at what had Australia done to really drive that business? And it was all to do with focus, and it was all to do with how it was merchandised. It was all to do with how people were trained.
It was all to do with the, you know, gemstone of the birth, you know, ring of the month. And those simple, basic executional things is what we then have brought to certainly the U.K. and Australia. In fact, has moved on again on the back of that. And then I think also in the same way that we've done with charms and bracelets, without any doubt, the design team have done an incredible job with our rings. And the, again, the fashionability, affordability, relevancy of them is at a new state.
And so the combination of these basic disciplines and how we go to market, plus, the product, which is, I think in itself, has stepped up enormously, is what's driving the business. There are various stages of evolution I would describe it in the different markets. One of the opportunities for the U.S. now is to broaden out. The U.S. has been very much a charms and bracelets business, and built a very good charms and bracelets business. But what it needs to do now, and is one of the things that we're starting to invest in that market, is broaden out. And its next stage of evolution in terms of broadening out, will be into rings, but it's probably they're just starting it now.
I wouldn't envisage there'd be much of an impact until really Q3 or Q4. Because again, the most important thing is the discipline of getting all of these basic things in place before you go. So that's one of the things that, you know, we believe or in is that can move the U.S. on again is to enable it to do this. But I'd say slightly behind the game at the moment, largely because of its scale, but Scott and the team have got some programs in place, very similar to the U.K. and Australia, which will start to move in Q3 and Q4.
Allan, does the highest share of rings drive up the margins for you?
Drive up the?
The margins.
No, they're largely the same.
Okay. Thank you very much.
Your next question comes from Niels Leth from SEB. Please go ahead.
Yes, can you hear me?
Yeah, Niels, good morning.
Oh, good morning. First question is about your cash flow generation. Now you have this, this spectacular cash flow generation in quarter one. How should we think about your cash flow generation in the coming three quarters? Secondly, I have a question about your share buybacks. You only repurchased DKK 300 million worth of shares in quarter one. And of course, I'm aware that you first started after the full year report, but wouldn't you be a little bit behind your DKK 2.4 billion krone ambition for the full year? Thank you.
Well, I'll get Henrik to deal with the cash flow. On the buyback, you're right, we didn't start till later. We got DKK 300 million. Our intention is to do the DKK 2.4 billion, and we feel very confident that that's what we'll be able to do. So, that's where we are on the buyback. Do you want to comment on the spectacular cash flow?
Well, but, but you will see from the announcement, there was a significant part of that cash flow coming from a sort of one-off payment from the VAT in Germany, 25% cash flow, basically. And also the CapEx level in Q1, in share of more involved for the full year is fairly low. So that's basically the two factors that impact the cash flow for Q1. There's also an element around withholding tax on the dividend that we paid in Q1, which is not paid until Q2. However, that was the same last year, only that the amount this year is higher. So, I mean, there's nothing. For the full year, I mean, it's basically business as usual. And we are a highly cash generative company.
We have limited capital, and we will stay like that.
Could you just update us on the construction of your new production capacity in Thailand?
Yeah, I had a review with them last week, actually. So, I think there are three or four things to think about. I think the first thing is that we continue to get more, more juice from the orange, and that sort of moved on a little bit more because, of course, the night shifts have probably been in for six to nine months. And now, of course, the night shifts are actually much more productive than they were six to nine months ago. So we, you know, we even got juice from the juice, so that's been quite helpful. We will probably start to add some space on the existing facility, probably in Q4 of this year.
And we are still looking at a couple of sites which are a couple of hours outside of Bangkok, and we may or may not, we may or may not get them this year. I'd say on balance, we probably will. And the reason that we're having a slight think about which, what we actually what type of facility we need is because as we built our manufacturing strategy on, we're looking at a number of things, you know, as we broaden out, for example, rings, you know, do we need some specialization anywhere within our mix? You know, we probably need to get more in terms of stamping and plating capacity.
And we're looking at an idea which is called Supercasting, because, you know, casting is a big part of what we do, takes a lot of time. But there are some very interesting developments on Supercasting, which would enable you to do, you know, significantly more volume, throughput at about the same time span. So, moving on nicely, more juice in the orange. We'll certainly build out an existing site, probably will take one of the other two other sites, but very interesting development in how we really, as I described, professionalize our craft, in looking at some of these other areas, in manufacturing.
Making your manufacturing, converting your manufacturing to more Supercasting, would it make it more capital intensive and less labor intensive?
There'd be a bit, yeah, but marginally, I'd say. And it's more, it's more an efficiency driven thing. As you know, we, you know, we have a lot of people, and that's fine, but, you know, is this what I think would certainly more, it would be more labor efficient rather than necessarily more capital intensive.
Okay, thank you.
Your next question comes from Dan Wejse from Nordea. Please go ahead.
Yes, hello, Dan Wejse with a number of questions. You add the number of planned concept openings this year. What has changed? So why are you raising the number, and in which geographies? Then secondly, I know that gold stores are now back with revenue growth year on year after a somewhat soft Q4. Anything particular there? In other Asia Pacific, very positive to see that growth are coming in strongly. Are there some one-off elements to this number, or is it a pure growth number? And then lastly, you mentioned the sell-in and sellout for new products and adding, as I recall in the presentation, sell-in grew 50%, was 50% of revenue, whereas sellout was one third. Why is this difference between sell-in and sellout for new products?
Right, there's a number of questions there, Dan. So let me start with the concept. Now, first of all, on gold, there's nothing. I mean, it's just how it is, so there, there's nothing of significance there. In terms of concept, so what's driving it is clearly, you know, the markets have come forward with people, franchisees and locations that we now want to do and can do. Nothing, I mean, nothing's changed really, apart from the, you know, strength of the business. And you know, as I said to you before, I'm actually not in the numbers game, and I'd much rather have real focus on the quality of these sites, and these are all, you know, cracking sites.
So, you know, that's, you know, that's what's driving it, is just there's locations and franchisees and let's put things together because they're still under very rigorous criteria. Where would the increase be? Russia's a few of that. There's quite a few in exports, and the U.K. is the other key market in terms of, you know, where the increases come from, and then it's pretty spread. You know, there's 2s and 3s in a lot of the markets, but I'd say, export, U.K., and Russia, the three where more have come through. In terms of Asia, there's nothing new. I mean, the business is just really coming on nicely, and more than nicely, actually.
You know, even our stores in China are performing, you know, very, very well, and you can see that sort of coming through. Your question between the sell-in and sell-out, I think it's largely just a timing issue. And again, we're not particularly, you know, worried about that. It's the... And it'll largely be time. You'll always have a difference between the two, and it will oscillate from quarter to quarter, but it's not something we worry about. Stock levels, generally in retail, you know, we're very satisfied with.
In fact, you know, there's an argument in some markets that they may be slow, slightly lower, but so nothing new, it's just really a sort of timing issue. So did I answer all of your questions? Asia, gold, concept stores, difference between the new and old. Did I cover all those, Daniel?
Yeah, perfect, Allan. Maybe follow up on the number of stores. So you have previously stated that you were to do some decisions on China, potentially in Q4. So the increase is not reflecting a change in China? That would come on top of the-
Not, not at all.
view, besides that.
Not at all. I mean, there may be one or two of those in Hong Kong, but it's not China or Japan.
It's mainly fallen within the markets-
Yeah
... as I mentioned, and therefore in the sort of Europe, Europe region.
Core markets.
Okay, perfect. Thanks.
Thanks.
Your next question comes from Clemens Bomsdorf from Wall Street Journal. Please go ahead.
Yes, hello. Two questions. You were quite positive about Russia. First, you reported, of course, positive figures from there, but also for the future. Can you tell us something about, how many of the new stores you want to open will be located in Russia? And if you can't give a number, maybe at least you can say if it will be, the top three country or something like that. And secondly, you have a few shops in Ukraine as well. How did the business go there, during the crisis?
... Well, we don't give any numbers on Russia in terms of what percentage of the new stores would be. We've got more than 100 Concept stores in Russia today, and we're very pleased with the performance in Russia. And as we said, that we've seen no impact on our business. In fact, we actually see this as an opportunity, again, because of the way in which the, you know, the position the business is in. And so, I mean, the answer to both your questions is actually, we've seen little impact from the political situation on our business anyway.
Okay, thanks.
Your next question comes from Frans Høyer, from Jyske Bank. Please go ahead.
Thank you very much. You, your guidance implies a slowdown in the rest of the year, and I was wondering: if you look at the key drivers of growth in the first quarter, which of those factors is it that you foresee will be less potent in the rest of the year, please?
Well, I mean, first of all, you know, there's slowdowns and slowdowns. It's, you know, it's still double-digit and much in line with what we've always talked about when we talk about controlled growth, which has always been double-digit sales in growth, and, you know, in the range of 3%-5%, sales out. So in that sense, nothing's changed. I think Q1, as I described it, was serendipity, and there were a number of factors in Q1 that all came together. So, you know, if I think about Q1, the collections worked really well. We hope the collections work well going forward, so that'll be okay. However, we had additional collections in there of symbols and alphabets, and that won't occur in terms of going forward.
Clearly, we've got the e-store upside in the U.K., and with some element in the smaller markets. And as Henrik pointed out, we also have the bangle being only in U.S. a year ago and being in all the other markets today, and therefore, that won't occur. Plus, the one of the other big drivers is just, our Christmas sell-out last year was very, very strong. And therefore, a number of markets came into the year with their retailers with, you know, very low levels of stock, and that piece of replenishment has gone in. So the replacement piece won't be there, the bangle piece won't be there, and the additional collections won't be there.
And so that's why we believe, as we, as I described, the growth will moderate from 30s to something in the teens, which is exactly where we've always said the business will be.
Okay. And then just your view of the situation in Thailand, I'm talking the political situation and how you see it, any risks for your business as far as you're concerned?
The short answer is no. Clearly, we monitor it very closely. You know, we're been in Thailand a long time, and we're very close to what happens. We're some way out of where any issues have been. As I say, when I was there a couple of months ago, when the noise was much greater than it was today, it was, you know, there wasn't anything. So, you know, is there a risk? There always is. But is it a big risk in our view? No. And has anything changed significantly? No.
Okay. Thank you.
Your next question comes from Jordan Shlesberg, from MainFirst Bank AG. Please go ahead.
Hi, guys, just a few questions, most of which have been asked anyway because I'm so far near the back. But anyway, I wanted to understand how much of the share buyback was split between the market and your private equity minority owners. Secondly, I want to kind of ask a more specific question on Thailand, because, you know, things kind of are continuing as they are, nothing, you know, crazy is happening, but you may well see staff members joining these protests. So I wanted to kind of figure out, you know, what kind of plans you have in case you have kind of more absentees going forward from these protests?
Finally, on the web, the web shop, it's good to see that this is opening in a lot more demographics, but I noticed that there's still a sales block where you can go onto the Pandora website, create a bangle or bracelet, then you can't actually buy it. I think I flagged this up to you six, seven months ago, nothing's been fixed, so there, you know, you could be potentially losing sales here. I wondered why this was still there, considering the rollout has gathered steam.
Well, let me do them in reverse order. The last one, we don't have an idea about, but now you've raised it, we'll raise it, and we'll see what the answer is, and we'll let you know. In terms of Thailand, as the point I made before, is that actually we haven't seen any impact. Our people are actually very loyal, our absence rates are very, very low. And you know, we are very, very labor intensive, so you know, we've got thousands of people, so you'd have to have a really huge absence to make any impact on what happened in the business, and that's highly not just unlikely, improbable, I'd have thought.
So we, you know, we've been here before. I don't wanna sound complacent, but we have been here before. The team down there know exactly what they're doing, and, you know, we have different contingencies for different things. But as I say, our level of concern about what would happen to us in Thailand and the impact on any of our manufacturing is very, very close to zero. Stock buyback, do you want to just mention that?
Yeah, well, the private equity shareholder, they participate on a pro rata basis, which means that as they hold 10%, about 10% is bought from them.
Okay, perfect. Thanks very much, guys.
Your next question comes from Antoine Belge from HSBC. Please go ahead.
Yes, good morning. It's Antoine Belge at HSBC, and three questions. First of all, I think when you talk about Russia, you said that in order to help the retailers not increasing prices, you participated in terms of you know, helping them in terms of margin. Is it possible to see, tell us if this has a significant impact, and how much impact it had on your margin in the quarter? Second question is, I think when you mentioned the U.S., you mentioned some refreshing of the store base in the West Coast. Could you elaborate a little bit on this? And finally, a sort of more personal question for Allan, I think.
So a few months back when you stepped in as CEO, I think some investors saw that it would be a temporary solution. So could you maybe update us on that subject and how you see that aspect of things? Thank you.
Hey, guys, Antoine, let me start with Russia. Yeah, no, so just to be clear, you know, Russia is the net effect of the ruble devaluation means that nearly everybody who retails in Russia has put their prices up. We don't want to do that, and we see that as a real opportunity for us. And, so we have a very good relationship. That business, as you can see, is doing incredibly well. And, you know, the Concept Store growth in there has been pretty phenomenal. So we want to take advantage of this situation, and the way we can take advantage of it is not price up, and therefore, go more aggressively for revenue and for market share.
It'll probably cost us about 0.5 point, and we'll review it as we go through the year, depending on what happens to the ruble. But there's absolutely no impact in Q1.
This is a new agreement, made after Q1, so there's no impact on Q1.
In terms of the U.S., it wasn't about the West, it's actually about the Northeast. Our West, I would say now, probably our best network of stores is on the West Coast. And then, as we're beginning to get some real scale on the West Coast, then I think it's really important that we get behind that now. And so we've got. So that's what we'll do there. The Northeast is our oldest and most established part of the U.S., and it frankly needs refreshing. And you know, the corollary I use is between the U.S. and the U.K., is that the U.K. has now for the last two years, really, you know, freshened up, strengthened its network.
It's been very powerful, the impact of that. We've been working now for probably the last six months, looking at... We've done a major piece of work that looks at what is the growth we could get out of the U.S. if you take a three to five year view. Part of how we really... 'cause I think the U.S. is capable of another leap in terms of its growth, as we did in the U.K., but we're not gonna get it unless we invest in it. For too long, probably, we've been making too much money in the U.S.
The idea now is, as we start to build this, that we'll start with the Northeast, and we'll start to look at that network and how we can refresh that network with more branded, more new Concept stores and perhaps some owner-operated in there, too. So that's really what the idea is. As far as my own position is concerned, nothing's changed. You know, I said at the time that I'd be here for a duration, and that duration would be probably a minimum of two to three years, and certainly I wouldn't be doing anything, and I see one of the key things for me to do is to enable, you know, succession in this business.
So in terms of my own position, it hasn't changed at all, from where we started out 12 months ago.
Thank you.
Your next question comes from Jesper Christensen from Alm. Brand Markets. Please go ahead.
Just to talk to some of your initiatives on production in Thailand up. How soon-
Jesper, can you just, can you just speak up a little bit? We can't hear you very well.
Oh, sorry, yes. I'll try to speak louder. It was... My questions was mainly on Thailand. If we add all your initiatives up on the production facilities in Thailand, how should we expect those to affect cost in the short one and in the long run?
Well, the CapEx, our, our CapEx reflects the investment that we expect to make in Thailand, so that's where the CapEx is. The, the capital cost of these things is actually quite low, 'cause there's not lots of kit. You know, it, it's. This tends to be more people driven than it is anything else. So, the cost of our, the, the sort of, the cash costs, I think, are, is, is what you see. Clearly, the idea is, as we go forward, to become more efficient. I mean, we're, we're very efficient as we're very low cost. But, you know, my, my thing is that, you know, we, we, what it, you know, it doesn't matter what you do or how low cost you are, all the time you're looking for efficiency.
We trade that off with quality. Our quality is the fundamental thing to us. It's the thing we, you know, concern ourselves about the most. It's something that I think we've improved significantly over the last 12-18 months. We'll always have that trade-off. But in reality, we should have, you know, it's really all about giving us the capacity that we need for the future. I would expect some efficiency off the back of that, largely because clearly, what we're working now is more efficient than it was 12 months ago. But, you know, when you've got, you know, night shifts and things like that, they tend to be less effective and less efficient than when you work in days.
Thank you.
Your next question comes from Faisal Ahmad, from Handelsbanken. Please go ahead.
Yes, gentlemen. Faisal Ahmad from Handelsbanken and Capital Markets. Two questions from my side. Firstly, on Q1 growth, would it be fair to assume that, I mean, growth started really to surprise you towards the end of the quarter, since you're raising your guidance now, and I guess you weren't envisaging this 30% kind of growth back in February?
Absolutely.
Okay. The second question, that's really to your guidance and your guidance of growth moderating going forward. I mean, have you already seen this moderation happening in April and May?
Well, we never comment on current trading, clearly, and we clearly don't do that. But our guidance is based on, you know, what we expect to happen. And our guidance has always been that we've have this thing called controlled growth, and that's double-digit sales and growth, 3%-5% like for like, and we've always flagged that as, you know, where we expect the business to be. So our guidance is, as I say, really based on, we've taken the benefit, if that's the right word, of Q1. And then with some moderate addition, looked at the assumptions for the rest of the year, and that's how we get to the guidance we've got to.
May I just ask you, Allan, what's your visibility on this moderate growth? What can you see and what can't you see?
Well, we can see every day what our sales are. And so that's what we can see. But as I say, go back to our guidance is based on. I think our real guidance here is don't expect 30% growth for the rest of the year. That's the real guidance.
But it would include the usual kind of prudence, which you'd also included back in February. Is that a fair assumption?
Well, I can't comment on prudence or any of those other words. All I can do is comment on, you know, the guidance we give, is the guidance we give because it's our best view at that time.
Okay, perfect. Then the last question, you mentioned that you will be taking investments upfront in China and Japan. I mean, is that mainly referring to headcount? And what kind of headcount should we be expecting you to take on board on, on those two markets?
Well, it will be to do with headcount. As I said earlier on, I think when last asked the same question, perhaps in a different way, that we, you know, when we're cleaner, clearer, with our timing and of China and Japan building infrastructure, we may be a bit more specific than we are today. The important thing to do was, you know, a lot of questions about why we're not raising our EBITDA guidance. One of the major reasons we're doing that is we keep saying we're going to invest in our infrastructure, and we mean it. Part of that infrastructure will be China and Japan. Clearly, we intend to invest ahead of really any increase in sales.
So that's gonna go, that's gonna impact our margins.
Okay. Just a short follow-up on this, in this point. Is it fair to assume that you are investing more in your infrastructure than you were envisaging back in February?
No, not really. I think it's something you start with the plan for the year, and like every plan, largely, they don't survive, as the army say, "No plan survives the first engagement." And therefore, you adjust as you go. So, we, you know, we've always planned this level of investment, and, you know, that's what we'll continue to do. I think the general thing that people should take from this is that, you know, that's our intention. Now, our intention is to, you know, this business is very profitable and generates a lot of cash. And therefore, what we've got to do is make sure that we're building an infrastructure that can support the growth that not just the business has, but that it could have going forward.
Our infrastructure investment has always lagged our growth, and it's time for it to catch up, and in certain markets, to propel them again, the U.S. being a really good example, then we're gonna have to. We may have to invest ahead of the curve.
Okay, thank you very much.
Your next question comes from Michael Rasmussen from ABG. Please go ahead.
Yeah, hi. A quick follow-up in terms of your share buybacks. When you initially set the DKK 2.4 billion share buyback, had you assumed getting the potentially DKK 0.5 billion in VAT back from the German authorities? Or had you included half of that number or nothing from that number?
Well, we had expected during the year, without knowing the exact timing, that we would get this money back. If we hadn't, we would have had to basically write down that at the end of last year or sometime during last year. So that is included in our cash flow forecast. What we didn't know was the exact timing, because that's basically out of our control.
Great. Thank you very much, Henrik.
Your next question comes from Clemens Bomsdorf from Wall Street Journal. Please go ahead.
Yes, it's me again, and it's Russia again. You said that this agreement was made after Q1. Which agreement were you referring to? Is it that you and the franchisor shared the negative effect of the deterioration of the ruble?
Exactly.
Meaning in the first quarter, the franchisor had to burden the whole pain of it, because or he had to increase prices, but she wasn't allowed to do so?
No, they didn't, they didn't increase prices, and they took the portion, the share of it.
They didn't increase prices because you have an agreement that don't allow for increasing prices, that doesn't allow for increasing prices?
No.
Okay. Yep, thanks.
Thank you. There are no further questions. Please continue.
Good. Okay, thank you, everybody, for your questions and your support as usual, and we'll see a number of you hopefully over the next couple of days, and we look forward to it.