In 2019, Pandora delivered the first encouraging results of the turnaround programme, Programme NOW. 2020 will be the second year of the programme where Pandora will continue executing on the comprehensive turnaround initiatives. The results confirm the strategic direction of the programme but - inherently as part of a comprehensive turnaround - performance is expected to be volatile.
In 2020, Pandora expects to improve the growth momentum compared with 2019. The main objective is to improve the top-line growth. In order to do this, Pandora will invest as required while at the same time taking further steps to create a healthier foundation for long-term success.
The financial guidance does not include any impact from the coronavirus in China. In recent weeks, the coronavirus has led to an unprecedented decline in consumer traffic in China and Hong Kong. Due to the unpredictable nature of the situation, the full-year impact cannot be reasonably estimated at this point in time. In 2019, China and Hong Kong combined accounted for 10% of revenue.
Like-for-like is expected to be negative mid single-digit. The like-for-like is primarily driven by a further reduction of the promotional discounting activity and continued underlying weak performance in China (excluding additional negative impact from the coronavirus). An underlying improvement in most other markets is expected and - over the course of the year - some markets are expected to approach stabilisation.
Net store openings and net inventory changes in the wholesale channel are estimated to have negligible to slightly positive impact on revenue in 2020. The organic growth is consequently expected to be -3 to -6%, roughly in line with like-for-like.
2020 Revenue Guidance
As previously communicated, the 2020 EBIT margin before restructuring costs is expected to decrease compared with 2019. In 2020, the EBIT margin is expected to be above 23%, negatively impacted by higher raw material prices, a stronger THB against DKK and a deliberate decision to increase the investment level to drive the top-line. The continued cost reduction initiatives will impact the margin positively by 3pp while deleverage is expected to impact the margin negatively by 1.5 to 2.5pp based on negative mid single-digit like-for-like.
The quarterly phasing of the EBIT development is expected to be in line with 2019 with Q4 being by far the most profitable quarter of the year.
The restructuring costs related to Programme NOW are expected to amount to around DKK 1.1 billion compared to initial expectations of up to DKK 1 billion.
The increase is mainly related to the expanded scope of the cost reset initiative under Programme NOW. The restructuring costs predominantly relate to consultancy costs and costs of implementing cost reduction initiatives such as the IT transformation and manufacturing efficiencies.
The number of concept stores is expected to be roughly stable in 2020. Pandora will be opening new concept stores or other store formats in white space areas (mainly Latin America and China) while at the same time closing stores with low profit margins and stores with a high expected cannibalisation on nearby stores.
The effective tax rate in 2020 is expected to be 22-23%. Assuming current exchange rates versus the Danish kroner, growth reported in DKK is expected to be 0-1 pp higher than in local currency.
2020 EBIT margin guidance
2020 Financial Guidance
Organic revenue growth, %
-3% to -6%
EBIT margin excl. restructuring costs
Capital structure policy and cash distribution
In 2020, Pandora will continue to generate solid positive cash flow. CAPEX for the year is expected to be in the range of DKK 1.0-1.2 billion. This includes investments in Pandora’s physical stores, IT and continued optimisation of the crafting facilities in Thailand.
As a consequence of the expected cash generation and Pandora's capital structure policy, Pandora aims to distribute around DKK 3 billion to shareholders through dividend and share buybacks – even in a year with significant non-recurring restructuring costs. In order to accelerate the build-up of the future dividend capacity per share, Pandora will allocate a relatively larger share of the cash distribution towards share buybacks.
The ordinary dividend of DKK 9 per share is maintained leaving around DKK 2.1 billion for share buybacks. During 2020, the leverage is expected to temporarily exceed the threshold of the capital structure policy given the restructuring costs incurred and the inherent back-end loaded cash generation of Pandora.
Mid-term financial aspirations
Pandora’s aspiration for the mid-term horizon is to deliver sustainable positive organic growth and industry-leading profitability. Organic growth will be driven by low- to mid-single digit total like-for- like growth.