Pandora A/S

Morten Eismark - IR Allan Leighton - CEO Peter Vekslund - CFO

Michael Rasmussen - ABG Lars Topholm - Carnegie Chiara Battistini - JPMorgan Kristian Godiksen - SEB Stephanie D'ath - Bank of America Patrick Setterberg - Nordea Analow Jaman - HSBC Frans Høyer - Jyske Bank

Thank you and welcome to Pandora’s Conference Call following the release of our Q4 2014 Full Year Results distributed through the wires this morning at 8:00 A.M. The presentation for this call, as well as the full version of Pandora’s annual report for 2014 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, Peter Vekslund. In accordance with the agenda on Slide 2, Allan will go through a few Q4 and full year highlights as well as the guidance for 2015 followed Peter who will talk you through the Q4 numbers in more detail.

Finally, Allan will conclude the presentation and we’ll be happy to take your questions. Before handing over to Allan, I kindly ask you to pay close attention to the disclaimer on Page 3.

Allan, please go ahead.

Good morning everyone and what a great morning it is. If you could turn to slide four I want to start off by giving you the headlines for Q4.

Q4 was our strongest quarter ever revenue was up 14.4%, 35.6% in local currency. Our EBITDA was up 52.6% and our cash conversion was 169%.

Our concept stores fueled by existing store like for like and the power and the quality of the new stores that we opened during the year and close to DKK1 billion in Q4 and we continue to have like for like growth in all our major markets. Our product offer has never been more relevant and more fashionable or more affordable.

The quality of our net worth is in the best shape ever our execution of retail level has improved significantly and this supported by market leading share invoice in Q4 fueled by outstanding Q4 performance. If you turn to slide five, we’ll talk a bit more about the full year 2014.

The record seven numbers in Q4 caps a very successful 2014 for Pandora with revenue growing 32.5% to DKK11.942 million. And despite some noticeable currency move at the end of the year the revenue growth for the full year in local currency was almost the same at 32.7%.

Revenue growth for the year was driven by all geographies supported by strong growth in particular charms and rings. The rings category increased to 117% and in the year did more than 1 billion in revenue we set as our target and precisely did DKK1.2 billion but primarily was driven by a very relevant product portfolio as well as strong marketing and in store focus which continued into 2015.

During Q4 we launched the Christmas collection which was very well received by the consumer and in North America we launched the new Disney products which received equally well. As part of our strategy we continue to expand our branded network with particular focus on concept stores.

During 2014 we opened 310 new concept stores to bring our total to 1,410. The revenues from concept stores increased by 51.4% and now represent 56.4% of our total revenue a number we aim to increase going forward.

Sales out which I’ll return to in a couple of slides continue to be positive and as was in the case in 2013 we’ve been able to generate positive like-for-like sales in all four reported markets in all four quarters of the year. EBITDA for the year was DKK4.3 billion an increase of 49% compared to 2013 and the EBITDA margin was 36%.

This margin improvement was primarily driven by tailwind from the gross margin of around 4% driven by lower commodity prices. The increase in profitability led to a free cash flow of almost DKK4 billion for the year this was double the DKK2 billion of last year.

And finally we completed our 2.4 billion share buyback program during the year as part of our effort to return cash to shareholders. If you turn to slide six this talks a bit more about the regional development in Q4.

As for the full year all the geographic regions contributed with strong growth in the fourth quarter actually all reported geographies showed 30% growth or more by Germany. Americas which represented 39% of revenue was up 43.5% in Q4 as was held by percent of tailwind from currencies the U.S.

alone was up 30% and 20% in local currency and have its strongest quarter ever with revenue for the first time of more than DKK1 billion. Revenue in the U.S.

is driven by combination of strong like for like and the network growth we’ve added 38 high quality new concept stores in the U.S. in 2014 to a total 315 stores.

Driven by the growth from the new like for like stores total retail sales in the U.S. were in the high teens.

As mentioned our new Disney products were launched in North America in November and added meaningful revenue for the quarter. Initial feedback has been good and all those early days it appears that Disney products are a successful addition to our product portfolio.

In other Americas, Canada continues to be the key driver. Although being a relatively developed market we continue to see increasing demand for our products.

Revenue in Canada increased in a maiden 64% for the quarter and for the year represented around 7% of group revenue, the Disney products were also launched in Canada. Other America as in the last three quarters was helped by the increase in Brazil which you would remember as of Q1 '14 had been moved from other Europe.

This added another 74 million for the quarter and added a 171 million for the full year. Revenue from Europe representing 46% of the revenue was up 33.3% for the quarter driven by primarily the UK, Italy, France and Russia.

The UK continues to perform extremely well and although a highly penetrated market our revenue grew 28.2% in local currency for the quarter. Revenue from Germany increased 3% for the quarter and as we have said many times before we're in a transition phase and revenue will continue to be volatile.

But as announced in January is part of the resetting of the business in Germany we have entered into an agreement to assume a number of leaseholds in Germany of great sites where we plan to open owned and operated stores in 2015. We currently successfully assumed roughly two-thirds of these leaseholds and all expected 78 leases should be wrapped up around March at the latest.

Revenue from both Italy and France increase by more than 50% for the quarter driven by an improved network and healthy like for like growth. For the full year, Italy and France represented around 25% and 15% respective of revenue from other Europe.

Revenue in Russia was up 34% for the quarter and although we are currently operating in a more challenging business and consumer environment, we continue to see good demand for our products. During the fourth quarter, we opened 10 new concept stores in Russia, like for like sales-out growth as in Q3 was lower compared to earlier in the year and previous years and revenue from Russia in 2014 represented about 15% of revenue from other Europe and around 5% of the company.

Revenue from Asia-Pacific represented about 15% of revenue for the quarter and increased about 57.3%. Primary drivers have been Australia and Hong Kong.

Revenue from Australia amazingly was up 31.3% or 30.4% in local currency. The growth driven by a combination strong like for likes expansion and enhancement of our store network and in 2014 we added 12 new concept stores in Australia to bring the total to 90 in the country.

Other Asia-Pacific increased by more than 100% for the quarter with Hong Kong being the largest contributor growth. Revenue from Hong Kong which is a top ten jewelry market in the world increased by more than a 100% compared to Q4 last year.

We now have 16 owned and operated stores in this market of which 8 opened in 2014. Most of these are now performing on power with our best sales entity stores in the group.

Of the other markets in the region Malaysia, South Korea, Taiwan as well as China contributed well to the growth of the region in the quarter and this morning you have seen that announcement on China. If you turn to slide 7 it's about sales-out.

The positive like-for-like rates continued in the fourth quarter across all four major markets and continue to be driven by the newness in our stores, increase awareness through the local marketing campaigns as well as our continued focus on improving in-store execution across the markets on a day-in-day-out basis. All major markets announcing positive like-for-like eight quarters in a row, which is a very strong performance by any standard.

Like-for-like sales-out growth in the U.S was 4.7% positive and that still varies across the region. The growth in the Northeast, where we've been processing to refresh the network has improved, but still is negative.

All the other major U.S regions grew with high single-digit like-for-like rates or more and the West Coast is strongly double-digit. Sales-out growth in Australia and the UK were exceptional driven by a very positive reception of Christmas, which hit the stores in the quarter as well as the Autumn collection which we launched in late August.

Like-for-like in Germany continues to be driven by our operated stores which for the quarter increased 6% while the franchisee stores continued to be negative. If you turn to slide 8, this is about newly launched products and new products continued to perform well.

And roughly half of our sales in are coming from new products. And this continues to be created by product launches in the last 12 months.

In terms of sales-out the demand is equally strong. During the quarter, we launched a Christmas collection which was very well received and in North America we simultaneously launched the Disney products and that was previously mentioned launched in all the concept stores in the region but also the Disney theme parks and Disney online.

Based on the initial success, we plan to launch more Disney products already as part of our spring summer collections for '15. Essence, which we like talk about a lot, which we launched more than a year ago continues to show really encouraging performance in the UK, Italy and Asia-Pacific once the market expansions has been really successful.

If you turn to slide 9 this takes you through to what we would like to do in terms of dividend share buyback. As you know and Q4 is a classic example of this our business model generates a significant amount of cash.

And in line with our capital structure policy we return any net cash to our shareholders. For the financial year 2013 we paid out a dividend of DKK6.5 per share and we bought back own shares to a value of DKK2.4 billion.

At our upcoming Annual General Meeting the Board of Directors intends to propose to our shareholders that the company share capital should be reduced by cancelling the shares purchased in the program, and clearly that excludes any shares that we need to cover our auction programs. Following our strong 2014 and our confidence in ’15 and beyond, we significantly increased our expected payout to our shareholders.

The board has decided to approach the AGM a dividend of DKK9 to be paid after 24 this will be an increase of 38% on last year. The board has also opted to initiate a share buyback program of up to DKK3.9 billion those launched today and finalized before the end of 2015.

This is an increase of 63% to the share buyback program in 2014. And the share buyback program, the mechanics are basically making the same as last year run a Safe Harbor well on a weekly basis in addition to announcement in respect to the transactions made and that will keep everybody posted on the progress of the program.

If we then move to slide 10 which is the financial expectations as in 2014, 2015 we focus on much the same thing driving our top line growth by increasing sales at existing stores, by growing total retail sales out and by expanding our store network primarily by adding additional concept store in high quality locations to the network. The revenue for 2015 is expected to be more than DKK14 billion with the two growth drivers network and like for like expected to contribute equally.

Guiding for 2015 some tailwind from currency use today’s FX rates and you take a look at the phrasing you can expect the tailwind somewhere in the 3% to 5% range for the full year. The EBITDA margin expect to increase from 36% in 2014 to around 37% in 2015 and our EBITDA margin continues to be tempered by investment in infrastructure, investing beyond our growth.

The increase includes an expected gain from lower hedged commodity prices compared to ’14 probably in that 1% to 2% range again we’ve got a number of infrastructure and IT projects which we need to put in place. CapEx, as we flagged before, will step up this year and for the next couple of years this year which we’ve been around DKK800 million this is really all about developing the facilities out in Taiwan investments in our distribution network we’ve also got the accelerated expansion in Germany, in China and Japan and we’ve got some significant IT investments.

We expect CapEx next two years to stay around this level as we continue to invest in the same areas. And finally we expect to open more than 300 new concept stores in 2015 including around 60 new owned and owned that’s 60 net new O&O in Germany related to business leaseholds that we mentioned earlier.

And the geographic split of the remaining concept stores roughly will be similar to what we’ve seen this year, tax rate will be around 20% those are bit of a headline of ’14 and some guidance on ’15. I hand you over now to Peter who will give you bit more detail on the financials.

Peter?

Thanks Allan and please turn to slide 11. Strong revenue growth across all regions led to a total revenue growth of 40.4% to a total of 3.961 million in local currency revenue increased by 35.2%.

Volumes increased by 22.1% and average sales price increased to DKK145 million from DKK126 million a year ago. The average selling price increase was primarily driven by an increased share of revenue coming from rings as well as the shift in channel mix with more revenue now coming from our owned and operated stores.

From a product by product basis prices have been kept virtually unchanged throughout the year. Revenue growth was distributed evenly between like for like sales in and network expansion.

Revenue from concept stores increased by nearly DKK1 billion and represented 62% of our revenue for the quarter up from 54% in the same quarter last year. The development is in line with our strategy of focusing on branded sales channels and concept stores in particular.

Please turn to slide 12. Now turning to the development in our distribution network.

Total number of point of sale increased by 65 compared to Q314 to a total number of 9,906 points of sales globally. During the quarter we added 103 new concept stores and a net total of 202 branded points of sale.

The majority of the concept stores openings in the quarter were in Europe and Americas with Russia, UK and U.S. being the largest contributors.

During the quarter Pandora added 33 owned and operated concept stores to the network including 10 in Germany, 8 in France and 4 in Hong Kong. In the last 12 months the number of unbranded points of sales has been reduced by more than 900 stores primarily in Germany, Italy the Netherlands, the North markets as well as some of our distributor markets.

And please turn to page 13, both our core categories are continuing to perform well. Revenue from charms increased by 35.1% compared to the same period last year while revenue from silver and gold charms bracelets was up 18%.

The categories together represent 78.8% which is a decrease from 83.6% a year ago primarily due to the strong performance [in this]. The lower growth in bracelets compared to earlier quarters should probably be seen in the light of more than 200% growth in the other bracelets category if you exclude leather bracelets.

Rings increased 112.6% for the quarter and represented 9% of total revenue in Q4. The revenue from rings continues to be driven by the improved offering as well as increased marketing activities focusing on rings.

Particularly Australia and the UK have seen a strong contribution from rings but actually most markets are increasing their share of revenue generated from rings. Revenue from rings is lower compared to the third quarter which is due to the fact that rings is less preferred Christmas present compared to charms.

Other Jewelry increased 64.4%, the growth was driven by most subcategories including revenue from earrings and necklaces both increasing around 50% compared to the same quarter last year. Other bracelets had a strong quarter and increased including our leather bracelets around 80% driven by several new bracelets launched in the second half of '14.

Please turn to page 14. Gross profit was 2.835 million compared to 1.918 million in the same period last year resulting in a gross margin of 71.6% in Q4 compared to 86% last year.

The increase in gross margin for the quarter compared to Q4 '13 was driven by lower hedge prices on commodities. Excluding our hedging and the time lag effects from our inventory the underlying gross margin in Q4 '14 would have been approximately 74% based on average gold and silver market prices for the quarter.

And with the same assumptions a 10% deviation in quarterly average gold and silver prices would impact our gross margin by approximately 1 percentage points. Please turn to page 15.

Operating expenses for the quarter were 1.454 million versus 1.027 million in Q4 '13 representing 36.7% of revenue in Q4 versus 36.4% in Q4 last year. Sales and distribution expenses were 645 million an increase of 31.4% compared to Q4, last year and corresponding to 16.3% compared to 17.4% Q4 last year.

The nominal increase in sales and distribution expenses were mainly driven by higher revenue; an increased number of Pandora owned stores as well as costs related to the expansion of our e-commerce platform. Marketing expenses were 455 million compared to 273 million in Q4 '13, corresponding to 11.5% of revenue compared to 9.7% in Q4 of '13.

The increase was due to targeted investments in higher PR and media activity focusing on our core categories and obviously also on the Christmas collection and in the North America the new Disney products. Administrative expenses for the quarter increased and was 354 million representing 8.9% of revenue, compared to 9.3% in Q4 of '13.

The increase in administrative cost was primarily due to higher IT costs and an increased headcount. Now please turn to slide 16.

Looking at the regional EBITDA margins, the EBITDA for Q4 '14 increased by increased by 52.7% to 1.444 million resulting in an EBITDA margin of 36.5% compared to 33.5% last year. The EBITDA margin for Americas for the quarter was 35.8% and down 1.8 percentage points compared to the same quarter last year despite a positive gross margin impact on the regional margin.

Americas margin for the quarter was negatively impacted by approximately 2 percentage points due to the acquisition of the 22 concept stores Hannoush in the U.S. The initial inventory in the stores were acquired by Pandora at wholesale prices which had a short-term negative impact on margins as we only capture the retail market upon the acquired inventory.

As in the three previous quarters the inclusion of Brazil in other Americas as opposed to previous other Europe had a negative impact of around 1 percentage points for the fourth quarter. And finally we saw an increase in the marketing expenses in the quarter.

The EBITDA margin for Europe increased by from 40.4% in Q4 of '13 to 44.5% in the current quarter. The increase was primarily driven by the improved gross margin.

The EBITDA margin for the Asia Pacific region improved 14.6 percentage points to 53.3% for the quarter. The improvement was primarily driven by leveraging from increasing revenue in the region, as well as the improved gross margin.

Now please turn to Slide 17. For the quarter, net financial income amounted to a loss of DKK$122 million of which DKK$29 million was an exchange rate loss primarily due to exchange rate translations of intercompany balances.

The offices was the case in Q4 ’13 where we had a net gain of 23 million. The remaining 93 million was primarily related to losses on FX and commodity contracts.

Income and expenses were 252 million in Q4 ’14 implying an effective tax rate of 20% in line with our guidance. Reported net profit increased by 36.3% to 1.7 billion in Q4 ’14 compared to a net profit of 739 million in Q4 ’13.

Please turn to slide 18, operating working capital at the end of Q4 ’14 corresponding to 16.7% of the preceding 12 months revenue compared to 20.5% at the end of Q4 ’13 and 24.9% at the end of Q3 ’14. Inventory was 1.684 billion at the end of Q4 corresponding to 14.1% of the preceding 12 month revenue compared to 19.7 in Q3 this year and 16.5 in Q4 last year.

The increase is mainly due to higher revenue as well as higher inventory in our own and operated stores due to an increase in the number of O&O stores including the additional inventory which was transferred to Pandora at the end of the quarter. Current inventory is at a relatively low level and we expect inventory as a percentage of revenue to increase going forward.

Trade receivables was 1.110 billion at the end of Q4 corresponding to 9.3% of preceding 12 months revenue compared to 12.3% in Q3 ’14 and 9.9% at the end of Q4 last year. The decrease compared to the 3.14 is primarily due to a very strong cash collection following the Christmas day sales.

Trade payables at the end of the quarter were 804 million compared to 539 million at the end of Q4 ’13 and 758 million at the end of Q3. In Q4 2014 Pandora’s CapEx was 176 million primarily related to the opening of O&O stores and movement in offices?

Investments and intangible assets were 60 million mainly related to global IT project. And finally we have a net cash cost deposition at the end of the year of 1.121 billion corresponding to a net interest bearing debt to EBITDA of minus 0.3 compared to 0.2 at the end of Q4 2013.

And with this I’d like to hand back to Allan to conclude the presentation.

Thank you, Peter. So if we go to slide 19 this so the summary of 2014 revenues up 32.5, 310 new concept stores, gross margin 70.5, EBITDA margin 36, free cash flow 3868 conversion 125, dividend increase proposed at 38% to DKK9 per share our guidance for ’15 more than 14 billion EBITDA margin at 37 and a share buyback program of DKK3.9 million an increase 63% compared to 2014.

So that’s the summary we said that we’ll give you some sort of structural way to think about the future if you go to slide 20 that gives you bit of a heads up on that and this will give you some idea about we’re thinking about the framework for the future in the next three years and what the sort of driving idea was of the company will pay. And the first one is to enhance and grown out on our product platform, continue to do what we’ve been doing.

Secondly this increase and constantly refresh the quality of store network. Without any doubt this refreshment and increasing of our store network have a big impact on our business.

We continue to do that. There is an opportunity we believe to develop a significant omnichannel business which is in just the online business of how we connect our base within our membership and our wish list to how we trade online.

Fourth really is really where the money is beginning to go when you look and we got to build an infrastructure that support our growth and we’ll continue to do that. And finally as you can see from the day the China thing is really all about now to get a scale business in Asia.

And that is all the five sort of things that you should think about how we’re driving the business forward. So anyway that concludes our presentation and I think we’ll open it up for Q&A.

And once again, a fantastic performance guys. Three questions please.

First of all, on your US like-for-like performance versus the underlying market. Can you give us a little bit of kind of a bridge on -- rank the reasons, I would say, for this great performance in the US?

Second question, in relation to also the slide on medium to long-term future framework that you mentioned, how should we think in terms of e-commerce? Now, you're online in seven markets I believe in Western Europe.

Should we see any potential launch in the US and in Australia this year, and built into your guidance, are there any impacts from growth in e-commerce? If you could add a little bit of detail on that please.

The final question being on the concept store openings, how large part of the concept store openings that you've guided for -- whether that's 275 or 300, I couldn't fully understand that -- will be China and what is the revenue base in China when China goes O&O in July? Thank you.

Okay, Michael thank you we will sort of work our way through that. I think the U.S and there are number of factors I mean clearly the quality of that network is improving and we saw a bit of that in come through in the like-for-like the stores that have been opened in the previous year going into for like-for-like and that would be the first point.

And I think the second point is clearly Hannoush bringing although that business is still negative like-for-like it's improved a lot so that had obviously did have an impact and clearly and all we have done so far in those stores is all about inventory and training of our people, so you have got a bit of an impact from that. And generally Disney -- we are not trying to – we won’t Disney, but Disney is being very good.

And as you know that was only the concept stores it wasn't anywhere else and I think that's clearly had an impact in terms of where we were. And I would say execution in the U.S has kept up a lot in the last 12 months and I think we've seen that come through.

And then finally as you can see the number I love the most in this report is the 11% spend on marketing I have been trying to do this for years. And there was a lot of marketing support for our brands across all the markets but in the U.S.

And then of course without any doubt reviving the Christmas product, the Autumn collection again was better than it was in the previous year. See a combination of those things that I think are all fueling in and that’s what's driven that performance.

So that's where we're on the U.S. On e-com we said early days still I think UK is really the only market that we can really see up from because we've been trading from a year or so.

And the UK over that in Q4 was ahead of the 10% we've always talked about and so that’s a really encouraging site. And we're seeing all the things that we've seen in the U.S high conversion in the UK -- high conversion rates, very low returns has continued male bias and not a lot of cannibalization.

So I think we feel good about it. When we and if we when because we will do when we go in the Australia and the U.S and any other markets we sort of talk about it how do we go along this we sort of go inside these things in advance but as I said to you before all the markets have been working on how they go online and the question has always been asked and they have got to be out to prove that they can provide the fabulous service that we've been able to provide in all the other markets and to me that's the underpinning issue.

And then on concept stores the 300 there is an element of the thinking of China in that as you see we made that announcement this morning. I would say that we may be looking somewhere in the range of 15 to 20 concept stores in China in the second half of the year this year as we start to establish ourselves.

I think the thing about the concept stores we think is a very important point is that those two things it's not just the number of concept stores it's the quality of them. And I referred to the U.S we look at -- we clearly look at for like-for-like sales-out that's very important for us business we've been starting to look at total retail sales-out too which clearly encompasses all of the new stores and the sales-out from those new stores.

And there is no doubt that the stores that we have opened in the last couple of years because of their quality and quality of those rotations really make a big difference to in sales-out in the year. So hopefully that answers your three questions.

So just understanding the revives of the plus 17% of revenue growth that you guys saw doesn't really include any growth in the e-commerce in '15 or?

It does include some growth in e-commerce in '15, yes it does.

Yes, I would also like to applaud you for a very strong Q4. I have a couple of questions.

One is actually continuing where Michael left on the guidance, because if I understood you correctly, Allan, you have 3% to 5% currency tailwind and if I look at adding 300 concept stores, your average concept store count should be up by 24%. If they generate 60% of revenue, that alone should add 14% to the revenue.

And then combining that with the currency effect actually brings you to DKK14 billion. So my question is, are you not factoring in any same-store sales growth or what am I missing here?

Question number two is on China and maybe also Japan. So I understand the strategy for this year, but is it possible to add some flavor on where you see these markets, say, 3-4 years down the road, maybe in terms of number of concept stores, which existing market should we compare it to?

And then a final question if I may on the US dollar impact on your earnings. Are you naturally short dollar?

How does it actually affect earnings? I know it's a positive for revenue, but if you can comment on impact on gross margin and EBIT level I'd be happy.

Thank you very much.

I’ll get that first Peter will cover the U.S. dollar piece.

I think on this guidance we would have been saying we said equally network and like for like growth and everybody does that calculation to get to where we get to I think I am suffice to say we feel comfortable with the guidance that we’ve given it does assume some like for like growth it does assume some clearly some network growth and it does assume some movement in terms of our currency. But we like to give you the constituent part of it but that would be like in essence we’re pretty happy with the guidance that we've given based on where we’re coming from.

But I am not missing any negative particular influence, am I?

Lars you never missed anything so I don’t think you’ll be missing anything on this occasion either.

Thank you.

The second thing is on China where is it going to give you I think that we’ve spent really the last 18 months understanding how to do businesses in China and we took a lot more control on the stores that we’ve got there I think we’ve really up to as we always do the sort of execution merchandizing piece then what have we learned I mean the most important thing we’ve learned is the product is hugely acceptable and very successful and for us that’s the fundamental piece there is a probably [revenue] and EBITDA interestingly of the top 100 spending lines in China 90 of them would be in the top 100 spending lines across the world and generally the top 100 lines across the world first are very much the same. So, the best sellers are very much the same where there is a difference it tends to be a bit in color and a bit in size and much more early and much more colorful and clearly and smaller sizes.

We’ve really focused on East Coast and I think that’s where we’ll start in the tier one and tier two cities on the East Coast. And as we talked about before we’ll build city by city and build the brand at the back of that and then see where we go to so I can see it’s really spending a couple of years at least on the East Coast tier one tier two cities and then I think we’ll move a bit more and do bit more central and the west.

We’re building a head office down there we’re being Shanghai, we’ve appointed some to run the business we’re building our team down there. So we’ll be doing all of those things.

I think in terms of guidance where you get to, I'm very loathe to do this. You know that we -- what we do is we look now every market we look every city and we clock where we want to be and that’s made a big difference in the quality of output.

So, we will go one store a time because that’s how we build the business and the way to think about it so also getting it couple of 100 plus stores down in China and that maybe a good benchmark to think about over the next few years.

Thanks.

Yes, and the question regarding the U.S. dollar we’ve actually included in our annual report on page 56 a table with sensitivity analysis on the currency and in that we have the impact of an exchange rate increase of 10% on the dollar we have an impact on both revenue and EBITDA and that’s a positive impact from both revenue and EBITDA Lars you should bear in mind that the buyback is close impact to the U.S.

dollar so at the EBITDA level it is financially hedged you could say we have a zero impact on EBITDA.

Thank you very much.

Also bear in mind that we hedged our cash flows not our P&L so all the hedging gains and also into financial items.

And my congratulations as well. Great set of numbers and guidance and cash returns.

Just a couple of questions from me please -- that are left. One is on the differentials of gross margin on -- in your owned and operated stores versus your franchise stores.

As I see this is becoming a gross margin driver. So as you continue to increase your exposure to O&O stores, I was wondering what the differential in gross margin is there please?

And then the marketing spend step up that we see in Q4 of 11.5% of sales, I was wondering if this is the level that we should consider as sustainable going forward or more the 10% we used to look at in the past please?

Chiara its Allan. So can you just repeat that last question I didn’t get it?

Sorry. On the marketing spend as percentage of sales, historically you have always guided to roughly 10% of sales.

In Q4 we have seen a huge step up in terms of marketing spend. So I was wondering if this 11%, 11.5% is more of a sustainable level going forward compared to the 10% you usually were guiding to please.

As said I'll do them in reverse order. On the marketing thing I still think 10% is a very good proxy.

As you know -- if you have been listening to me for a few years we never get to 10% and I have always -- that has always infuriated me because I think it's a big piece of competitive edge. And within -- in a way in which if you look at our P&L and the way our business is structured we should be able to invest that sort of money and we should be doing it.

And at Christmas we did and we did it a bit more and as I said earlier on I think it had a big impact in terms of driving brand awareness and driving traffic. But I think go forward number all around that 10% is good place to be we've always been that it will be maybe up and down by quarter but as I say all I have the numbers in this the number I like the most was about that we actually managed to spend the money driving the brand which is what we are here to do.

Absolutely.

And the second thing is in terms of on operated stores. And what we tend to look at on an EBITDA margin basis related to that on a gross margin basis and because clearly you have got -- you have operating cost in owner operated stores you don't have in the franchise stores you fill in for the people.

And we're very comfortable with our owner operated stores and the EBITDA margin that they are making as they go into majority. And so we think on balance that they have a positive revenue effect the EBITDA margins are very similar to our concept stores, our franchise stores but clearly the EBITDA cash is significant lower.

A couple of questions from me. I was wondering the gross margin -- the underlying gross margin for Q4 of around 74%, is that also impacted from the Hannoush of around 2% for Americas and are there other items which I need to adjust for making it normalized just as in Q3 regarding the re-melting?

That was the first question. The second question, I was wondering what your plans are regarding -- to handling the depreciation of the ruble going into 2015 regarding price increase and how much will you share the pain with the master dealer?

And lastly, you stated that you -- that we should expect that inventories should go up from this level. I was wondering if you could give some -- a bit more flavor what are the magnitudes.

Yes, thank you.

Hey I will Henry will do the gross margin thing. As far as the ruble and I will get to that, I mean so first of all the ruble has no impact on us we bill in Euros, so from a financial perspective we have no -- what happens to the ruble has no impact on us except for way it does truly have an impact is on consumer.

And so the ruble impact for us is not a financial in terms of currency it's more what's it doing to the consumer in Russia and as you know it's not being good in general terms. And we're actually relatively pleased with our Russian business because we continue to trade there, we continue to grow there, we are probably one of the few not the only brand that is growing in Russia, we have bank guarantees as to make sure we get our payment.

We are still investing it could be in the region of 0.5 a point of margin impact in terms of our investment in that market, we still continue to do that. And we have put some prices up not really many about 25% of the range picked selectively to try and help the situation.

Business our acquisition in Russia just it doesn't change -- we see it as a market it's a very good market for us in the mid and long-term and we will just continue to ride out and make sure that we take advantage of the situation and I think that's what we're trying to do today. Do you want to comment anything on?

Yes on the gross margin, you are right the naked gross margin up 74 which is excluding any hedging. It's calculated as we normally do, we have not made any adjustments for Hannoush or anything else.

To give you a hint you can probably calculate it as we have disclosed the Hannoush impact in Q4 on the regional EBITDA margin for Americas. Do you want to comment on inventory in terms of what level I mean more likely we have got actually historical levels -- I think will be the way to think about it …

Yes inventory quite low at the end of Q4 1.7 billion and that is very low so you should not see that as the level going forward, you should expect an increase in that. So more to where we have been historically on and which is the way to think about it I think.

Just a few follow-up questions. So but in regards to Q4 what about the re-melting, are there anything else we should be aware of besides the Hannoush.

And then just also coming back to the Russian answer just relating to we're seeing the depreciation of the ruble being very significant I think it's down from currency prices around 34% year-over-year so I guess I know I am aware that you bill in Euros to the master dealer but how about holding back prices from here -- for him I guess in Q4 I was under this impression that you would -- you shared some of the pain with the master dealer in order for him or not to raise prices equivalent to what the ruble has depreciated what if the -- what is your expectation for ’15 here?

What we do, we have a very close dialog with our Russian partner and agree on prices and so on. We had split the team on the group and that has an impact of around 0.5 percentage points in Q1 ’15 and that is as far as we are looking ahead on price in Russia and that assumes the price I say and that’s what we [build] our investments so we split the paying across the [indiscernible] margin roughly plus or minus 0.1-0.2 and we put some prices up but the majority prices we’ve held.

So really our position is not changed our position is we want to grow in this market we’re taking advantage I think of the fact that everybody else is pricing up big time to hold their position and so we’re still growing in that market which I think is pretty unique. We’re taking a long term view.

Okay. And just finally regarding -- any other things -- items you should adjust for in Q4, re-melting or anything, on the underlying gross margin?

I am looking at Peter and he is shaking his head so I think that is no.

Congratulations on the strong set of results. And my first question is regarding your EBITDA guidance of 37% for 2015.

Given the hedging -- I mean the benefit from lower raw material prices, you probably have at least 100, and if not, 150-200 basis points tailwind from lower raw material prices. Where do you therefore see higher OpEx given you only assume 100 basis points expansion?

Is it most coming from A&P or mostly distribution and selling? And I also noticed in terms of the benefit from raw material prices you used to say 1 to 2 points for a 10% deviation in commodity, which is now only 1 point.

So that would be my first question. My second question -- please -- relates to the percentage coming from your owned and operated stores.

So it's up to 22%. Where do you see that going in 2015 and onwards?

And then if you could please quantify the benefit from Disney in the US sell-out. That would be hugely useful.

And on rings if you could give us an indication of how much it represents as a percentage of sales in Australia and the UK please? Thank you.

Okay, there is a lot there we’ll do them in reverse order and I’ll try and to be right. Rings I think is 15% in the UK and [indiscernible] have around 20 in Australia so there is around that numbers.

And we’re very pleased with that business [indiscernible] the business built from nowhere moving to the right place exactly what we’re going to do. Second thing is on Disney we do not quantify it too early we’ll wait and see I’ve been suffice to say that we’re very pleased with it and as I pointed out earlier it was clearly one of the factors of that the significant outperformance in the U.S.

versus of those retailers. The own and operated the own and operated shares of business will grow and reason to grow is because China will be initially set up that way the new stores come through during the course of the year.

And Germany, where we will hopefully get this 60-odd new owned, they’ll be in operated stores so it’s going to grow as the share of our business in the short-term. And remember we use it to do really strategically as we are in Germany and also in places like China we use it in the cities to build the brand and then back off the franchise of the whole thing.

So it will continue to grow. We don’t have a problem with that because the profitability of the businesses are very strong from an EBITDA percent perspective of course in terms of cash generation from the EBITDA that the revenues are so big because of the quality of locations is very positive impact on our P&L.

The other way we sort of think about it and if you look for the year in Q4 we’re about 22% of our business was un-operated and the way we also sort of think about it is we look at it as a percent of retail sales. So basically divide the number by two and it gives you a pretty good idea about what it is of our retail sales so it’s about 10% of our retail sales so I feel pretty comfortable about that.

So own will grow it’s very profitable it’s been a huge amount of cash it gives us quality locations and strategically we use it. But we sort of talk about it in two ways shared total business and what it is in terms of share retail.

As far as our EBITDA is concerned you’re right we got a couple of points of tailwind which is really good and we got a lot of tailwind in terms of our commodities but we’ll continue to invest in the business and we’re knocking it for one quarter or one month or one year we’re here for long time. And there are things that we need to investing in our business in terms of our infrastructure, in terms of people and great example being Asia.

If you look at the EBITDA some huge EBITDA growth year-on-year Asia 14 points whatever it was and that's because the growths were ahead of the infrastructure. So we'll put infrastructure in to support it.

So here we have got a couple of points and one of it will come through and one of it will invest back into the business because that's what great businesses do.

And regarding the transform 1 percentage points to 2 percentage points benefit towards only 1 percentage points from the lower commodity prices why? Is that not impacting to the same extent as previously?

We're saying it's a 1 percentage points to 2 percentage points it's.

But it's only 1 percentage points right now in the latest presentation?

Yes.

So is it one to two or is it one?

It's what we've put in there it's the 1% that one.

Okay. And why is that down from one to two?

Because that's our latest view on where it is and it's not a linear development on that so you cannot -- it goes with the phasing and the volume, yes.

Okay. And just to sort of come back on your answer regarding profitability of your owned and operate stores rates of course accretive in terms of absolute EBITDA generation but in terms of margins it is basically flat?

No we look at it in terms of gross margin but we don't look at it by EBITDA margin -- we run the business by EBITDA margin and EBITDA margins of our owned and operated stores was strong and from a cash perspective also very, very strong.

But the EBITDA margin on average of owned and operated stores that's high as your gross margin?

If you look at the well it depends which way you are trying to calculate. You are fixated on gross margin and...

No EBITDA is fine and on EBITDA margin level?

EBITDA margin is the same but of course there is an larger cash EBITDA on our owned and operated stores and that we like, yes.

Yes, so then the EBITDA margin is as high in your owned and operated stores?

Yes EBITDA margin is as high and in some cases higher in our owned and operated stores and we generate huge amounts of cash from them, so that’s very, very positive very, very significant.

Congratulations -- what a good set of numbers -- as well from me. A couple of questions.

The first one is how should we think about the product mix for 2015? Will it stay similar to the one we saw in 2014 or should we expect the Charms category to come further down?

Secondly, I can almost sense that you are saying that you've been taking market shares in US in the fourth quarter. Could you confirm that?

And my last question is regarding the share buyback program. Will that be fully funded by your free cash flow in 2015 or will you reduce -- or will you be willing to reduce your net cash position?

In the reverse order is yes it will be fully funded, yes we have increased market share in the U.S and yes the mix is very similar to this year. And let me just elaborate on the share buyback we ended 2014 with 1.1 billion in cash and we have a capital structure policy of a net interest bearing debt to EBITDA of 0 to 1.

And with a share buyback we have proposed and we have put in place we will -- that would put up into our capital structure policy -- in line with our structure policy, yes.

So congratulation for the very good set of numbers. So just a few questions regarding Germany.

So the completion of the improvement of the network should be completed by end of 2015? My second question is regarding Rings.

What is the percentage of sales of Rings in the US and do you plan to be focused on Rings in other areas than in UK and Australia going forward? And when do you plan to have a positive like-for-like on the Northeast in US to have like-for-like back in positive territory?

Many thanks.

On the Northeast like-for-like and as soon as possible is your answer and we're working hard on that. And the first of the -- because remember in the Northeast on Hannoush it has improved a lot actually and but it's largely just as I said being because we are executing things better, we got better in inventory.

We have not actually done very much to the stores, so we actually now start to physically change some of the stores so that I think will have an impact on Hannoush. So as soon as possible is the answer to get it back to like-for-like.

The Rings in the U.S we still see as a big opportunity. It is close to group average, I don’t want to give you the number but it will be pretty close to the average performance in the rest of the market.

And I think you'll see quite a lot of focus in the U.S. on rings this year I think that’s what we’ll tend to see from that.

And as far as G&A concerned we’re clearly taking these stores from -- this is a very big strategic move and it’s going to take a lot of work this year that’s a lot of stores to convert and we got a separate team a very good plan to enable to do it but I think that we will start to have the network from the beginning of next year in shape that we can really start to trade as we’ve traded the rest of the countries. I think it’s a very important move for Germany it gives us a bit of a lead in terms we really get the right size because you can see where we’re in the right size in our own and operated stores we can get good like for like out of the business so we know that the product is going to work which is always being the quality of the network and we’ll fix this.

So I think you’re not going to see very much from Germany this year because we’re going to just to be fixing it but it’s a big fix and you will start to see the real benefit of Germany in ’16 and ’17.

Just on the owned or operated stores and the strategy behind that, could you talk about the pros and cons of pursuing owned or operated strategy more wholeheartedly? And could you also talk about the -- I understand it's still early days for the Disney collection.

I understand the product is actually in Canada as well -- I didn't realize. But you're going to do more new products under this collection in the spring.

Could you talk about the plans going forward for that whole issue?

I’ll go in reverse so the ESSENCE we’re quite pleased with progress we’re sort of quietly under the radar supporting the markets building in my view if we can get that sometime during the course of this year to be 5% or 6% of the sales that’d be a really good place to be. It is that in a number of market is still got a bit of a way to go there is and if you go relatively new markets where clearly we’ve been building the businesses on Moments before we move into ESSENCE so I think we’re quietly pleased with ESSENCE and going about building that business in a pretty unfussy way.

Japan as you know we’ve entered into a new arrangement we’re starting to establish a bit of our own team down there we will open some more concept stores in Japan this year I see Japan is slow but it’s a great market it’s a very difficult market it’s a very shopping shop driven market which to be honest is not something we have great success there and real estate is very expensive and therefore that tempers our ability to put retail space down. So I think we can grow in Japan and we will grow in Japan but I think that it is a slow and with some difficultly and we’ll make progress on it.

Disney I think we had 45 DVs that we put in design directions 629 in the concept store 16 in the Disney sites and things like that and they’ve done well and we’re pleased with it and then in the spring summer collection I think of this year there would be roughly the same number of additional DVs going in so what’s in there has done really well and then we’ll refresh it in our collections. And as we thought it would this is Disney this is one of the biggest brands in the world and it strikes a real chord with U.S.

consumers and we saw that’s what happened and that’s what’s happen.

And geographically any other plans geographically for the Disney collection?

No, at the moment I mean we got it for the Americas and at the moment that’s where we’ll be I mean I think that’s pretty good at where [indiscernible] and I know I think we’re doing that. Owned and operated I think we think about whole heartedly maybe not quite how we’re doing it.

It is -- to me owned and operated we have a strategic role in -- it has a strategic role in the business. It’s role is in markets where we’re building the business you set up in O&O and then you build a franchise business off the back of that and then some of those you move some of those O&O to franchise so that’s the sort of strategic reason for it.

The second strategic move is because our P&L is really improved so much in the last few years and our ability to get a AAA site in the major cities is we have the P&L that enables us to do that which we didn’t have as much two-three years ago and retail is very simple business we got great products and get great size and we build that great products and they’ve got better which is now getting greater size. So, in my view the other strategic models of O&O is where those rents are so expensive franchisees don’t take them but we can within our P&L this is the profitability of our model then there is the big strategic AAA size in major cities that we will operate an owned and operated because the franchisee couldn’t perform in reality.

And then the third chunk is really where we taking things over in market a lot of our distributor markets we’re build up owned and operated and therefore when we take them on they can come owned and operated for us and we have an ability over time to franchise some of those but places like Brazil [indiscernible] that has a big impact on in terms of what we’re doing Germany where we’ve had a real strategic issue in terms of quality and network the only way we’re going to be able to develop our business is build an owned and operated business and then clearly the BiBa acquisition which is very opportunistic and strategically very good then that will be clearly build and owned and operated business. So we think about it on those three strategic plans and what it comes to it comes to when you think about it that way around.

But we’ve been out and really work on the profitability of them as I said earlier that was profitable at that concept stores at EBITDA percent margin but the revenue in those stores is significantly better. so, we’re coming at it on those three fronts.

Good. All right.

Everyone, thank you very much. Have a good day.

We’ll definitely going to have one. Thanks a lot.

Bye.