DDF PRESENTATION 7 June 2012

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DDF PRESENTATION 7 June 2012
DDF PRESENTATION

             7 June 2012

1   7 JUNE 2012            DDF PRESENTATION
DDF PRESENTATION 7 June 2012
DISCLAIMER

Certain statements in this presentation constitute forward-looking statements. Forward-looking statements are statements
(other than statements of historical fact) relating to future events and our anticipated or planned financial and operational
performance. The words “targets,” “believes,” “expects,” “aims,” “intends,” “plans,” “seeks,” “will,” “may,” “might,”
“anticipates,” “would,” “could,” “should,” “continues,” “estimate” or similar expressions or the negatives thereof, identify
certain of these forward-looking statements. Other forward-looking statements can be identified in the context in which
the statements are made. Forward-looking statements include, among other things, statements addressing matters such as
our future results of operations; our financial condition; our working capital, cash flows and capital expenditures; and our
business strategy, plans and objectives for future operations and events, including those relating to our ongoing
operational and strategic reviews, expansion into new markets, future product launches, points of sale and production
facilities; and
Although we believe that the expectations reflected in these forward-looking statements are reasonable, such forward-
looking statements involve known and unknown risks, uncertainties and other important factors that could cause our
actual results, performance or achievements or industry results, to differ materially from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important
factors include, among others: global and local economic conditions; changes in market trends and end-consumer
preferences; fluctuations in the prices of raw materials, currency exchange rates, and interest rates; our plans or objectives
for future operations or products, including our ability to introduce new jewelry and non-jewelry products; our ability to
expand in existing and new markets and risks associated with doing business globally and, in particular, in emerging
markets; competition from local, national and international companies in the United States, Australia, Germany, the United
Kingdom and other markets in which we operate; the protection and strengthening of our intellectual property, including
patents and trademarks; the future adequacy of our current warehousing, logistics and information technology operations;
changes in Danish, E.U., Thai or other laws and regulation or any interpretation thereof, applicable to our business;
increases to our effective tax rate or other harm to our business as a result of governmental review of our transfer pricing
policies, conflicting taxation claims or changes in tax laws; and other factors referenced in this presentation.
Should one or more of these risks or uncertainties materialize, or should any underlying assumptions prove to be incorrect,
our actual financial condition, cash flows or results of operations could differ materially from that described herein as
anticipated, believed, estimated or expected.
We do not intend, and do not assume any obligation, to update any forward-looking statements contained herein, except
as may be required by law or the rules of NASDAQ OMX Copenhagen. All subsequent written and oral forward-looking
statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary
statements referred to above and contained elsewhere in this presentation

2   7 JUNE 2012                                         DDF PRESENTATION
DDF PRESENTATION 7 June 2012
AGENDA

                           AGENDA

    • Facts about PANDORA

    • SWOT-analysis

    • Value drivers

             • Cash flow from operations

             • CAPEX

             • Financing

    • Q&A

3    7 JUNE 2012                           DDF PRESENTATION
DDF PRESENTATION 7 June 2012
CONTROLLING THE ENTIRE VALUE CHAIN DUE TO
VERTICALLY INTEGRATED BUSINESS MODEL
    • PANDORA established in 1982                                        • Present in +65 countries across six continents

    • Bracelet launched in 2000                                          • More than 10,000 stores selling PANDORA

    • Affordable luxury – genuine materials                              • World’s 2nd largest jewellery company

       Design and                  Procurement                        Distribution                 Strategic use
       product development         and production                     and marketing                of stores

    Consistently                  Low cost and scalable              ”Asset light” yet             Showcase brand
    relevant design                                                  controlled

4     7 JUNE 2012                                         DDF PRESENTATION
DDF PRESENTATION 7 June 2012
KEY FINANCIALS FY 2010/11

                           P&L, CF (% change Y/Y)                                                                   MARGINS

                                                       FY 2011                 FY 2010                                     FY 2011       FY 2010

    Revenue (DKKm)                                           6,658               6,666
                                                                                                  Gross Margin                73.0%        70.9%
    Change                                                   -0.1%               92.6%

    EBITDA (DKKm)                                           2,281                2,684
                                                                                                  EBITDA Margin               34.3%        40.3%
    Change                                                 -15.0%                70.7%

    Net Profit (DKKm)1                                       2,037               1,871            EBIT Margin                 30.9%        36.2%
    Change                                                    8.9%               86.2%
                                                                                                           CASH CONVERSION, ROIC, DEBT
    Free cash flow (DKKm)                                   1,670                1,388
    Change                                                  20.3%                21.3%                                     FY 2011       FY 2010

    Dividend per share (DKK)                                   5.50                5.00          Cash conversion1             82.0%        74.2%
    Change                                                     10%                  n.a.

                                                                                                 ROIC                         34.7%        42.7%

                                                                                                 NIBD (DKKm)                    209         1,102
                                                                                                 NIBD to EBITDA                 0.1           0.4
1 Including revaluation of CWE earn-out provision of DKK 511 million in 2011

5     7 JUNE 2012                                                                    DDF PRESENTATION
DDF PRESENTATION 7 June 2012
SWOT ANALYSIS (1/4)

                                                      STRENGTHS

    • PANDORA is a leading brand and significant player in the charms/bracelet category

    • Charms/bracelet category shows long-term growth

    • Geographical diversification vs. regional competitors – more than 10,000 retailers selling PANDORA

    • Strong foothold in North America – probably the most competitive market globally

    • Backward integration – world class production facility in Thailand

    • Asset light franchise model – low CAPEX as percentage of sales

    • High stock turn and thus above average store traffic created by PANDORA products

    • Highly cash generative

    • Clear positioning with genuine jewellery product offering only – long-term brand equity protection

6    7 JUNE 2012                                      DDF PRESENTATION
DDF PRESENTATION 7 June 2012
SWOT ANALYSIS (2/4)

                                                   WEAKNESSES

    • Organisation navigating in a complex environment

    • PANDORA: A product of multiple mergers in the past five years (AUS, GER, US and Thailand Production) –
      systems integration high on agenda

    • Wholesale model means less inside knowledge to e.g. sales-out than with a retail model

    • Narrow product focus – approx. 90% of revenue generated within charms/bracelet category

    • Some consumers not owning the brand are unaware of genuine nature of products

7    7 JUNE 2012                                    DDF PRESENTATION
DDF PRESENTATION 7 June 2012
SWOT ANALYSIS (3/4)

                                                        OPPORTUNITIES

    • Branded environment in jewellery sector is gaining momentum

    • Several geographies offer further growth potentials, in particular:

            • Asia (CHN, JPN, etc)

            • Russia, Italy and France

            • US – particularly West coast is virtually virgin territory

    • New store openings in developed markets still viable

    • Upgrading of existing stores

    • Product diversification

    • Online sales potential

8    7 JUNE 2012                                          DDF PRESENTATION
SWOT ANALYSIS (4/4)

                                                         THREATS

    • High(er) raw material prices (primarily gold and silver)

    • PANDORA – as leading brand within bracelet/charms – must always lead the innovation to stay in front

    • Competition is real and broadly defined

    • Copying of PANDORA products needs constant surveillance and swift handling

    • Retail environment in some markets characterised by heavy discounting as consumers seeks value deals
      under challenging macroeconomic trading conditions

    • Private label has appetite for the charms/bracelet segment

    • Approx. 90% of revenue generated within the charms/bracelet segment

9    7 JUNE 2012                                       DDF PRESENTATION
VALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS

                       Working Capital                                                    2009     2010    2011

     • Working Capital level has increased in the past               Inventories          433    1,272    1,609
       years – mainly driven by an increase in Inventory             Trade receivables    622      834      900
                                                                     Trade payables       106      245      288
     • Inventory increase explained by                                Working capital     949    1,861    2,221
           • Increased sales
                                                                      % of Revenue        27%      28%      33%
           • Increased service levels required due to
             higher proportion of branded sales
             environment
           • 2011 increase partially explained by time-                                       Gold and silver
             lag effect from adjusting production to                 Gold DKK / OZ       5,730 7,916 9,046
             lower demand                                            Gold Index 2009       100     138       158
           • Soaring gold and silver prices
           • Higher proportion of retail due to forward              Silver DKK / OZ       88      172      162
             integration of previously independent
                                                                     Silver Index 2009    100      195      184
             distributors in AUS and GER

10    7 JUNE 2012                                     DDF PRESENTATION
VALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS

                                                                    2500                                                     45%
                       Working Capital - Inventory
                                                                                                                             40%
                                                                    2000
     • Inventory gone up in fixed numbers, but the                                                                           35%
       development has been less dramatic when                                                                               30%
                                                                    1500
       compared to revenue                                                                                                   25%
                                                                                                                             20%
                                                                    1000
     • Strong seasonality in inventory                                                                                       15%

                                                                     500                                                     10%
                   • Build-up in Q1-Q3                                                                                       5%
                   • Reduction in Q4                                    0                                                    0%
                                                                               Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1
                                                                              2010 2010 2010 2010 2011 2011 2011 2011 2012
     • Other factors with impact on inventory levels
                                                                                                   Inventory
                   • New Logistic setup with centralized                                           Inventory/Sales

                     warehouses and logistics planning to give
                     long term efficiencies                                   Did you know ?
                   • In Q1 12, Stock Balancing Campaign
                     increases own Inventory temporarily –
                     until Pandora sends to external re-melting
                                                                              PANDORA has launched a number of new
                                                                              products, designed to use less raw materials and
                                                                              more labor to keep raw material and inventory
                                                                              cost down

11   7 JUNE 2012                                           DDF PRESENTATION
VALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS

       PANDORA Cash Conversion Cycle vs peers:                                                    PANDORA Cash Conversion Cycle
                                                                                                330            61            59     332
       • Days Inventory Outstanding (DIO) slightly higher
         than peers
       • Days Sales Outstanding (DSO) is close to 50%
         higher than the peer group, due to our
         wholesale model
       • Days Payable Outstanding (DPO) is shorter than
         peers due to strong backward integration (gold
         and silver are paid cash)                                                              DIO           DSO           DPO     CCC

                           NWC/Revenue 2011                                                      Peer Group Cash Conversion Cycle
     70%                                                                                        316            42            63     295
     60%
     50%
     40%
     30%
     20%
     10%
     0%
                 Tiffany       Swatch       Georg Jensen       Pandora                          DIO           DSO          DPO      CCC

                           Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding

12     7 JUNE 2012                                                       DDF PRESENTATION
VALUE DRIVERS (1/3) – CASH FLOW FROM OPERATIONS

                                                                  1,200                                                  20%
           Working Capital – Receivables & Payables
                                                                                                                         18%
                                                                  1,000
     Trade Receivables                                                                                                   16%
     • Typical between 10%-16% of revenue                          800
                                                                                                                         14%
       depending of season                                                                                               12%
     • Start up credits for new franchises extend the              600                                                   10%
       TR Balance
                                                                                                                         8%
                                                                   400
                                                                                                                         6%
     Trade Payables
     • No credit terms on gold and silver – TP balance                                                                   4%
                                                                   200
       is mainly on POS material and non-strategic                                                                       2%
       procurement                                                   -                                                   0%
     • More coordinated procurement, resulting in                          Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1
                                                                          2010 2010 2010 2010 2011 2011 2011 2011 2012
       increase in TP
                                                                               Trade Receivables        Trade Payable

                                                                               TR/Revenue               TP/Revenue

13   7 JUNE 2012                                      DDF PRESENTATION
VALUE DRIVERS (2/3) – CAPITAL EXPENDITURE

                         CAPEX

     • CAPEX level has historically been approx. 3% of
       revenue (excl. acquisitions) – DKK 300m guided
       for 2012

     • Majority of investments in expansion of
       production capacity finalized

     • IT investments to improve processes and reduce
       inventory levels and strengthen management
       information

     • Part of CAPEX for 2012 also includes e.g. “key
       money” in opening Own & Operated stores in
       key locations in line strategy

14   7 JUNE 2012                                    DDF PRESENTATION
VALUE DRIVERS (3/3) – FINANCING

                           FINANCING                                 DKK million                    2011   2010      2009
                                                                     Net interest bearing
     Interest rate coverage:                                                                        209    1,102    2,151
                                                                     debt
     • Virtually debt free end of 2011 means no need for
                                                                     NIBD/EBITDA                     0.1     0.4      1.4
       interest rate coverage

     Currency risk management (assets):

     • Currency risks from balance sheet items or                                  RAW MATERIAL HEDGING
       ownership interests in foreign subsidiaries are
       generally not covered                                          Hedging of gold and silver:

     • The main currency risk on the balance sheet impact             • Based on a rolling 12-month production plan the
       of PANDORA's main markets U.S. (USD), Europe                     policy is for Group Treasury to hedge
       (EUR) United Kingdom (GBP) and production                            • 100% of the risk 1-3 months forward,
       facilities located in Thailand (THB)
                                                                            • 80% of the risk 4-6 months forward,
     Capital structure and policies:
                                                                            • 60% of the risk 7-9 months forward, and
     • PANDORA targets an average dividend pay-out ratio
       of approximately 35% of our consolidated net profit                  • 40% of the risk 10-12 months forward
       for the year

15    7 JUNE 2012                                        DDF PRESENTATION
QUESTIONS AND ANSWERS

16   7 JUNE 2012        DDF PRESENTATION
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