Annual Report (ESEF) • Feb 4, 2021
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Download Source FileANNUAL REPORT 2020 46 Group 91 Management statement 92 Independent auditors’ report 4 At a glance 6 Letter to the shareholders 7 Executive summary 9 Five-year summary 10 2020 highlights 12 2021 nancial guidance 32 Corporate governance 36 Board of Directors 38 Executive Leadership Team 39 Shareholder information 16 Business model 17 Programme NOW 20 Industry trends 23 Sustainability 27 Managing risks 3 15 31 41 45 THE BIG PICTURE CORPORATE GOVERNANCE FINANCIAL REVIEW FINANCIAL STATEMENTS OUR BUSINESS CONTENTS 22 01 THE BIG PICTURE Pandora is the world’s largest jewellery brand. Known by more consumers and crafting more jewellery than any other brand in the industry, we provide aordable luxury to consumers in more than 100 countries. Made from high-quality materials and with endless possibilities for personalisation, millions of people around the world cherish and collect Pandora to express who they are and what matters to them. We give a voice to people’s loves. 44 THE BIG PICTURE MILLION VISITS TO OUR PHYSICAL AND ONLINE STORES 2020 DKK BILLION REVENUE 2020 UNRIVALLED CRAFTING FACILITIES in Bangkok and Chiang Mai, Thailand GROWTH IN ONLINE SALES POINTS OF SALE IN MORE THAN 100 COUNTRIES >650 2 >85 19.0 103% >7,000 PANDORA AT A GLANCE NO. JEWELLERY BRAND IN THE WORLD EMPLOYEES 26,000 MILLION PIECES OF JEWELLERY SOLD 2020 See more OF OUR SILVER AND GOLD IS FROM RECYCLED SOURCES saving us 20,000 tonnes CO 2 60% 55 THE BIG PICTURE For Pandora, 2020 was a paradox. On the one hand, the pandemic forced us to temporarily close most of our stores and revenue declined dramatically. Many commercial plans had to be cancelled or postponed, as focus shifted to protecting customers and employees. On the other hand, 2020 marked a milestone in the company’s turnaround. We are reigniting the desire for Pandora. The positive brand development that started towards the end of 2019 continued, as we cemented our position as a desirable and aordable luxury brand. The strategic initiatives under Programme NOW showed very strong results, and our share price increased 135%. Total shareholder return topped both the Danish C25 and the STOXX 600 Personal & Household Goods indices. We were able to leverage new consumer insights across the business and despite the disruption from COVID-19, our retail operations proved their resilience. This was particularly evident in our online stores. As social distancing put limits on physical retail, and brick- and-mortar stores had to close, we were able to recoup a lot of revenue thanks to our signicant investments in digital initiatives in recent years. Pandora’s online revenue doubled in 2020. We will continue to invest in our digital capabilities, omnichannel initiatives, and data analytics. These are core elements of the brand’s future, as we aim to stay relevant to dierent consumer groups while being very competitive in our go-to-market strategies. In 2020, we changed the way Pandora operates. We completed a strategic reorganisation to bring Pandora closer to consumers and ensure more consistent global execution of our product and market- ing concepts. The reorganisation has enabled faster decision-making and better collaboration. Our agility and operational excellence during the pandemic are solid evidence of the new organisation. Pandora also made great progress on the sustainability front in 2020. We committed to becoming carbon neutral in our own operations by 2025, reducing emissions in our full value chain in line with the Paris Agreement, and switching to using only recycled silver and gold in our products by 2025. These decisions will greatly benet the envi- ronment and have set a new standard for responsible production in the jewellery industry. We also extended our collaboration with UNICEF after having raised USD 3.4 million for vulnerable children in the rst year of the partnership. Some of the funds were directed to COVID-19 relief. We are now preparing a new chapter for Pandora. Programme NOW was launched in late 2018 as a two-year transformation programme with the main objective of halting the decline in revenue. It has changed the company, and the transformation is nearing its comple- tion. We look forward to presenting a new strategy and embarking on the next era for the company – an era of growth – in support of our aim to give a voice to people’s loves. We would like to thank all Pandora’s employees for their commit- ment, innovation and perseverance during a very challenging year. PETER A. RUZICKA Chair of the Board of Directors ALEXANDER LACIK President & CEO TURNAROUND NEARLY COM PLETE DESPITE GLOBAL CRISIS A review of 2020 can only begin with one topic. A terrible pandemic swept the world, upending lives and societies everywhere. The im- pact on individuals, communities, and businesses has been severe, and we all hope for brighter times in the new year. LETTER TO THE SHAREHOLDERS 66 THE BIG PICTURE SOLID PERFORMANCE AS BRAND STRENGTHENS EXECUTIVE SUMMARY Over the past two years, we have worked to transform our business with the Programme NOW initiatives and infuse new energy into the Pandora brand. Our strong performance during the pandemic and our high consumer engagement show that Pandora’s brand momentum continues to strengthen. The main commercial initiatives of Programme NOW kicked o with the brand relaunch on 29 August 2019. In Q4 2019, we saw the rst encouraging results, as like-for-like sales growth improved compared to the prior quarters of 2019. This trend continued in early 2020, where Pandora generated positive like-for-like in January and February (excluding China). In 2020, Pandora’s nancial results were severely impacted by COVID-19 and the temporary closures of most of our stores and reduced footfall in open stores. Despite the impact, Pandora generated 4% organic growth in Q4. It is clear that Pandora has taken signicant steps in 2020 towards the key objective of Programme NOW, stabilising the top-line after years of like-for-like revenue decline. Read more about Programme NOW on page 17 Since the outbreak of COVID-19, we have taken a number of steps to navigate through the crisis in a socially responsible way. We have prioritised a safe environment for employees and customers, and we have put in place all necessary measures to comply with local authorities’ guidelines on social distancing and other safety requirements. When stores were forced to close, we guaranteed full base pay for our employees. During the rst lockdowns in spring, Pandora took a number of steps to secure a very robust liquidity position and protect our protability as revenue declined. These measures enabled a strong commercial comeback when stores reopened after the lockdowns. The commercial plan was based on ensuring available and motivated store sta, actively managing fresh Online sales growth accelerated during the lockdowns inventory, and continuing a strong media and marketing push. These decisions produced encouraging results, as consumers returned to stores and Pandora has taken market share, exclud- ing China, in a highly fragmented industry. 77 THE BIG PICTURE Global sell-out growth (equivalent to like-for-like growth including temporarily closed stores) improved step by step from the low-point in April 2020. From November 2020, a wave of COVID-19 lockdowns in key European markets, including France, the UK and Germany, and restrictive retail guidelines in most other European markets had a negative impact on our performance in the important fourth quarter. The negative impact on performance from COVID-19 store restrictions ap- pears to have been (partially) oset by a non-recurring positive impact from reallocation of consumer spending away from travelling and services towards gifting and discretionary goods. Sell-out growth was -39% in Q2 2020, -2% in Q3 2020 and 1% in Q4 2020. The full-year ended at -12%. E-commerce has been a positive highlight in 2020 and a signicant driver of our resilient and robust performance. We relaunched our online business in 2019 and have been deliver- ing strong results ever since. Online sales growth accelerated signicantly during the lockdowns, as Pandora successfully steered customers from oine to online, generating 103% online sell-out-growth for the year. Digital initiatives will con- tinue to be prioritised and are considered core for the brand’s future. Brand momentum remains strong in a changed retail environment In Q4 2020, we took a number of actions to manage the busy holiday shopping in stores operating under social distancing requirements. These initiatives centred on three objectives: • Accommodate peak trac into physical stores through a com- bination of increasing available store space and decreasing transaction time in an already fast transaction environment. • Stretch peak trading periods over longer time through a combination of tactical promotions and managing media push. • Transfer trac from oine to online through digital oerings, media planning, and by providing other incentives for consumers to access the Pandora brand online. The initiatives were successful, and from mid-november to 31 December online transactions increased by 87% on last year. Financial performance Even though 2020 was an exceptionally challenging and unpredictable year, Pandora was still highly protable and cash-generative. The EBIT margin excluding restructuring costs was 20.4% and cash conversion including lease payments was 183%. This is testimony to the robustness and inherent nancial attractiveness of the business. Sell-out growth was -12% and organic growth -11%. Permanent store closures negatively impacted revenue by around 1% and adverse foreign exchange developments impacted revenue by -3%. Total reported revenue ended at DKK 19.0 billion (-11% growth in local currency compared with 2019). The two new Global Business Units, Moments and Collabs and Style and Upstream Innovation, generated sell-out growth of -13% and -12% respectively. The total share of business for Charms and Bracelets was 71%, in line with 2019 and continuing to be the core of Pandora business. Pandora will continue to invest in new designs and develop the product oering. Earnings before interest and tax (EBIT) excluding restructuring costs were DKK 3.9 billion in 2020. Restructuring costs amount- ed to DKK 1.2 billion. 1 Pandora does not own any of the premises (Land and buildings) where stores are operated. Pandora exclusively operates stores from leased premises. TOTAL SELL-OUT GROWTH % REVENUE BY CHANNEL DKKm NUMBER OF CONCEPT STORES 0 10 20202019 Q1 Q1Q2 Q2Q3 Q3Q4 Q4 2019 2019 Pandora online stores Pandora owned 1 Partner owned 11,399 1,397 2,782 1,373 7,687 21,868 2,770 REVENUE IN KEY MARKETS DKKm REVENUE IN GLOBAL BUSINESS UNITS DKKm 2020 2019 2020 2019 0 0 UK Italy Moments and Collabs France Germany US Australia China 2,000 6,000 4,000 12,000 6,000 18,000 7,943 5,483 5,583 19,009 2020 2020 1,382 1,308 2,690 Style and Upstream Innovation 88 THE BIG PICTURE Figures have been restated to reect the adoption of IFRS 15. Comparative gures have not been restated following the adoption of IFRS 16 Leases. Like-for-like excluding stores which have been temporarily closed in 2020 due to COVID-19 (2019: excluding Hong Kong SAR in Q3 and Q4 due to the extraordinary turmoil in the market). Excluding sale of treasury shares amounting to DKK 1.8 billion in Q2 2020. Proposed dividend per share for the year. Paid quarterly dividend per share for the period. For 2016 and 2017, Invested capital and NIBD have been restated due to immaterial reclassications. Consequently, NIBD to EBITDA and ROIC have been recalculated. DKK million 2020 2019 2018 2017 , 2016 , Key nancial highlights Organic growth, % 11% 8% 2% 11% NA Sell-out growth, incl. temporarily closed stores, % 12% 8% 4% 0% 8% Total like-for-like sales out, % 1% 8% 4% 0% 8% Gross margin excl. restructuring costs, % 765% 774% 743% 745% 751% EBIT margin excl. restructuring costs, % 204% 268% 282% 342% 365% Consolidated income statement (reported) Revenue 19009 21868 22806 22781 20281 Earnings before interest, tax, depreciation and amortisation (EBITDA) 4999 6148 7421 8505 7922 Operating prot (EBIT) 2684 3829 6431 7784 7404 Net nancials 190 1 151 117 246 Net prot for the period 1938 2945 5045 5768 6025 Financial ratios Revenue growth, DKK, % 13% 4% 0% 12% 21% Revenue growth, local currency, % 11% 6% 3% 15% 24% Gross margin (reported), % 756% 727% 743% 745% 751% EBITDA margin (reported), % 263% 281% 325% 373% 391% EBIT margin (reported), % 141% 175% 282% 342% 365% Eective tax rate, % 223% 231% 234% 248% 212% Equity ratio, % 37% 24% 33% 37% 44% NIBD to EBITDA excl. restructuring costs, x 05 11 08 06 03 Return on invested capital (ROIC), % 25% 27% 53% 68% 80% Cash conversion incl. lease payments, % 183% 133% 86% 68% 72% Operating working capital, % of last 12 months' revenue 21% 31% 112% 131% 137% DKK million 2020 2019 2018 2017 , 2016 , Stock ratios Total payout ratio (incl. share buyback), % 65% 147% 104% 99% 91% Dividend per share, DKK 90 90 90 90 Quarterly dividend per share, DKK 90 90 270 Earnings per share, basic, DKK 200 303 472 520 528 Earnings per share, diluted, DKK 199 301 470 518 525 Consolidated balance sheet Total assets 19984 21571 19244 17428 15321 Invested capital 10540 14268 12071 11369 9242 Operating working capital 391 684 2555 2988 2782 Net interest-bearing debt (NIBD) 3151 9019 5652 4855 2448 Equity 7389 5249 6419 6514 6794 Consolidated statement of cash ow Cash ow from operating activities 5975 6775 6624 6606 6531 Capital expenditure – total 491 822 1129 1388 1199 Capital expenditure – property, plant and equipment 369 556 753 946 828 Free cash ow incl. lease payments 4908 5075 5558 5294 5358 FIVEYEAR SUMMARY 99 THE BIG PICTURE HIGHLIGHTS Strategic reorganisation to build a world-class brand In 2020, we reorganised Pandora to move us closer to consumers. We brought local markets closer to our Global Oce by closing our three regional organisations, and we set up two global business units with product responsibility across the full value chain. We established a new retail centre of excellence to drive best practice across stores and improve merchandising, store development, planning and execution. Among other benets, the reorganisation has enabled faster decision-mak- ing and better collaboration in the company. This has improved supply chain management and mer- chandising and led to higher conversion rates. All jewellery to be made from recycled silver and gold To reduce carbon emissions and other harmful environmental and social impacts from mining, we announced that we will stop using newly mined silver and gold in our jewellery by 2025 and buy only from recycled sources. The emissions for recycled silver are one third compared to mined silver, while recycling of gold emits 600 times less carbon than mining new gold. In 2020, around 60% of our silver and gold was recycled. In summer 2020, Pandora funded UNICEF’s One Love campaign to prevent the pandemic from becoming a lasting crisis for children. As part of the campaign, the family of Bob Marley re-recorded 'One Love' – the iconic song with a universal message of love and solidarity. Pandora matched public donations to the campaign up to USD 1 million. In 2019, we formed a long-term partnership with UNICEF to help reach more than 10 million children and young people worldwide and provide them with opportunities to learn, express themselves and nd work in the future. In total, we raised USD 3.4 million for UNICEF in the partnership’s rst year. Silver is the most used material in Pandora jewellery, accounting for over half of all purchased product materials measured by weight. Pandora donates USD 1 million to UNICEF's COVID-19 response 1010 THE BIG PICTURE Launch of the Digital Hub In July 2020, we inaugurated the Digital Hub, a new oce space in Copenhagen that houses a group of almost 100 software engineers, user experience designers and web and data ana- lysts. The group is tasked with boosting Pan- dora’s digital presence, omnichannel expertise and use of data. Due to COVID-19, our digital capabilities were immediately in high demand, and we introduced a number of new solu- tions to create an exciting and safe shopping experience. These solutions included a Remote Shopping Assistant, a virtual try-on simulation, online queueing and appointment booking. Read more on page 14 Online sales set records Lockdowns and social distancing changed global retail dramatically in 2020. We had to temporarily close most of our stores during the year, but we were able to recoup a large part of the lost sales through our online stores. Online sales increased 103% in 2020 compared to 2019 to make up 29% of revenue. In Q2, online sales surpassed physical retail for the rst time ever, making up 52% of revenue in the quarter. Bringing the Star Wars galaxy to life through jewellery We launched a 12-piece capsule collection of Star Wars TM -inspired jewellery in collabo- ration with Lucaslm. The highly-anticipated line included a bracelet and charms featuring beloved Star Wars characters and symbols. The collection proved popular among consum- ers and accounted for 4% of total revenue in its rst month. The Child charm was the most popular piece, selling more than 100,000 pieces in December alone. ONLINE SALES GROWTH IN 2020 103% 1111 THE BIG PICTURE In the absence of COVID-19 impact, we would guide for slightly positive organic growth in 2021 versus 2019. However, we expect 2021 to be impacted by COVID-19 and performance therefore remains highly uncertain. Including an assumed -6% COVID-19 impact on organic growth in 2021, Pandora guides as follows for 2021: STABILISING THE TOPLINE In 2021, Pandora expects to reach an impor- tant milestone: returning to top-line growth after three years of decline. Ocial 2021 Guidance Excluding impact from COVID-19 Including impact from COVID-19 Organic revenue growth Above 14% Above 2% versus 2019 Above 8% Above 3% versus 2019 EBIT margin Above 23% Above 21% Excluding the assumed COVID-19 impact in 2021, the guidance represents 2% organic growth compared to 2019 and an EBIT margin above 23%. Revenue guidance The guidance is based on the assumption that approximately 25% of the stores will be temporarily closed during the rst half of 2021 and that organic growth will be negatively impacted by around -16% in the rst half (around -6% full year impact). For the second half of 2021, it is assumed that there are no signicant store closures and that COVID-19 related store restrictions will have limited impact. The guidance is also based on the assumption that the posi- tive impact seen in late 2020 from reallocation of consumer spending away from travelling and services towards gifting and discretionary goods was not larger than the negative impact from temporary store closures. Pandora expects China will remain a drag on total revenue growth in 2021 and that revenue in China in 2021 will be well below 2019. China remains top priority and a signicant growth opportunity for Pandora. FINANCIAL GUIDANCE FULL-YEAR 2021 ORGANIC GROWTH GUIDANCE BRIDGE 2020 revenue Network development Sell-out growth in own channels & sell-in to partners 2021 expectations pre COVID-19 impact 2021 incl. COVID-19 COVID-19 impact ~0% >14% ~-6% Above 14% Above 8% 2021 vs 2019 2019 revenue Network development Sell-out growth in own channels & sell-in to partners 2021 expectations pre COVID-19 impact 2021 incl. COVID-19 COVID-19 impact ~ -1% >3% ~ -5% Above 2% Above -3% 2021 vs 2020 1212 THE BIG PICTURE Average 2020 3 February 2021 FX ASSUMPTIONS AND IMPLICATIONS FX Rates FX rates 2021 Y-Y nancial impact USD/DKK 65422 61891 THB/DKK 02091 02060 GBP/DKK 83890 84378 CNY/DKK 09476 09582 AUD/DKK 45069 47129 REVENUE (DKKm) 200 to 250 EBIT (DKKm) 100 EBIT margin 05% Forward integration is expected to add around 1% to revenue in 2021. Furthermore we expect headwind from foreign ex- change rates of approximately -1% taking total revenue growth in DKK to above 8% in 2021. Protability guidance The 2021 EBIT margin is expected to be “above 21%” including negative COVID-19 impact of around 2pp . The building blocks in the guidance are illustrated by the bridge. It shows there is signicant positive operating leverage in the business model. In the EBIT margin guidance for 2021, however, this is not directly visible due to continued COVID-19 headwind and higher com- modity prices. The quarterly phasing of the EBIT-margin obviously depends on the COVID-19 development. As in prior years and in line with normal seasonality, Q4 is expected to be by far the most prot- able quarter of the year. 2021 Guidance – other parameters 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, the crafting facilities in Thailand as well as digitalisation and technology. No major changes to the overall concept store network is expected in 2021. The eective tax rate is expected to be 22-23%, in line with 2020. Capital structure policy and cash distribution Entering 2021, Pandora’s leverage is 0.5x EBITDA and thereby in the very low end of the capital structure policy. Based on the guidance, Pandora is – everything else equal and in the absence of cash distribution – likely to end 2021 with a leverage close to 0. This is a strong position to be in and would under normal circumstances allow for signicant cash distribution to the shareholders in 2021. Due to the unprecedented situation caused by the pandemic and the elevated uncertainty following this, Pandora will postpone further cash distribution until the pandemic is under sucient control. Pandora stresses that the capital structure policy is unchanged. While we await a more stable and predicta- ble situation, Pandora will preserve the cash and be ready to distribute it in an accelerated manner later on. In order to prepare for a potential re-initiation of cash distribution later in 2021, Pandora will ask the shareholders at the Annual General Meeting in March 2021 to authorise the Board of Directors to potentially pass one or more resolutions to distribute extraor- dinary dividends up to a total amount of DKK 15 per share until the next annual general meeting. FULL-YEAR 2021 EBIT MARGIN GUIDANCE BRIDGE %-point approximations EBIT margin 2020 2021 growth leverage No gov- ernment support or rent concessions Commod- ities, FX & other EBIT margin expectations pre COVID-19 Elevated COVID-19 risk Cost actions & government support 2021 EBIT margin guidance 20.4% ~5.5% Above 23% ~-2.5% ~-0.5% Above 21% ~-1.5% ~ -1.0% 2021 expectations before COVID-19 impact 1313 THE BIG PICTURE BUILDING FOR A DIGITAL FUTURE From strategy to impactful execution Pandora has moved fast on its digital transformation. Since the brand relaunch in 2019, we have completed a compre- hensive overhaul of our online stores and consolidated the technologies they run on, making it much easier to implement new features and update content. In key markets, Pandora has also launched several new omnichannel features, such as Click & Collect, and we have introduced personalised market- ing initiatives that are more relevant for each consumer. In 2021, Pandora will accelerate the digital journey, in particu- lar by building more capability in data science and engineer- ing and by further leveraging data and advanced analytics to drive growth. Our continued focus on creating great digital experiences for our customers will move Pandora to a digital leadership position in the industry. At Pandora, we have established a specialist digital unit at our headquarters in Copenhagen to boost our digital presence, omnichannel expertise and smart use of data. 20 dierent nationalities work at our new Digital Hub in Copenhagen. In 2020, almost 100 software engineers, user experience designers, web and data analysts, and other digital profes- sionals moved into the Digital Hub, a new oce space at our Copenhagen headquarters. They are tasked with progress- ing Pandora’s digital customer experience and driving sales through digital channels. The group will also strengthen Pandora’s ability to capture, analyse and apply customer data to enable better personali- sation of the customer experience. “Today’s consumer demands more personalised products, services and interaction. How we derive the benets from technology and data to create a great customer experience is key for us as a global brand. By making signicant investments in our technological capabilities, we will enhance the direct and meaningful connection with our customers,” says David Walmsley, Chief Digital & Technology Ocer. 1414 STORY 02 OUR BUSINESS BRAND ACCESS Consumers connect with us through more than 7,000 points of sale, 16 online stores, social media and other platforms – by far the largest distribution network in the industry. DESIGN Building on deep consumer insights and trend research, our design team adds creative inspiration for the launch of more than 400 new design variations each year. KEY RESOURCES VALUE CREATED BUSINESS MODEL Consumers In 2020, we had more than 650 million visits to our physical and online stores. Consum- ers wear our affordable luxury to express themselves and share their passions. We give a voice to people’s loves. Community We directly sustain tens of thousands of jobs at Pandora and our franchise part- ners, and we spent almost DKK 12 billion on goods and services in 2020, creating growth and jobs among our large network of suppliers. We pay corporate tax in the countries where we operate and are con- sistently among the ten largest taxpayers in Denmark. Employees We offer our employees a great and safe place to work and are focused on creating rewarding careers with high satisfaction and motivation. Investors In 2020, we paid an ordinary dividend of DKK 825 million and generated a total shareholder return of 145%. Brand Pandora is known by more consumers than any other jewellery company. Employees Our 26,000 talented employees work across a fully integrated value chain. Data & technology Our digital capabilities enable us to create an exciting and personal shopping experi- ence across all channels. Stakeholder relationships Our relationships with customers, business partners, suppliers and franchisees are key to the business. Financial resources Strong margins and high cash generation constitute a robust financial position. CRAFTING Our crafting capacity is the largest in the industry and provides flexibility and scal- ability. It enables us to craft hand-finished jewellery from precious metals at affordable prices. MARKETING We use data to reach specific audiences with customised messages across multiple channels. This results in unmatched brand awareness and high conversion rates. 1616 OUR BUSINESS Launch and leverage In 2018, Pandora conducted a company-wide health and e- ciency assessment. We had high brand awareness, a global retail footprint, great creative capabilities, and an unrivalled produc- tion setup. However, comparable sales (like-for-like) were in decline, and the brand was in need of rejuvenation. The ensuing turnaround plan, Programme NOW, was designed around four transformation objectives to create the needed stabilisation of the business: brand relevance, brand access, cost reset, and commercial reset. Brand relevance The brand relevance objective has focused on reigniting brand identity and enhancing the brand’s relevance and ability to excite consumers. In August 2019, we relaunched the brand with a clearer denition of the brand purpose and position. We stripped the Pandora brand back to its core, focusing on self-expression, collectability and aordability, and we signi- cantly increased our media and marketing investments. The brand relaunch showed encouraging results towards the end of 2019, and the brand momentum drove positive organic growth in January and February 2020. Then the global pandemic hit, but we continued to see encouraging results from our brand initiatives. As stores reopened after the lockdowns in spring, we used our strong nancial position to create addi- tional brand awareness by increasing media spend across all channels ranging from TV campaigns and digital ads to e-mail marketing. More personalised e-mails have performed particu- larly well, proving the eectiveness of data-driven marketing initiatives. Central to all these eorts has been an ambition to strengthen the focus on the brand’s core: aordable jewellery that allows for collectability and self-expression. Brand access Another key objective of Programme NOW was to improve consumers’ experience when they access the brand. Following the brand relaunch, we upgraded our online stores to our new PROGRAMME NOW We upgraded the online stores to the new visual improved navigation For two years, Programme NOW has set the direction for Pandora's turnaround, aiming to stabilise the top-line while maintaining our industry-leading protability. The programme is nearing its conclusion, and the company is preparing to enter the next phase. Since Q3 2020, we have been applying a new ”launch and leverage”-approach when launching products. Instead of short-lived launches, we ex- tend the lifecycle of new concepts by continuous- ly building upon them. The objective is to properly invest in successful product collections and to build long-term, recognisable platforms. AUGUST & SEPTEMBER We launched new collections with the focus as much on base products as newness in cam- paigns and merchandising. Reaching younger con- sumers with the Pandora ME collection in collabo- ration with actress Millie Bobby Brown. JULY We reactivated Pandora ME and the Harry Potter collaboration with new products 1717 OUR BUSINESS visual identity and signicantly improved website navigation, imagery, and check-out ow to enable a smoother and faster shopping experience. With the establishment of the Digital Hub in 2020, our digital initiatives have gained signicant momentum, beneting impor- tant aspects of the business such as faster code roll-out to sites, personalisation and stronger merchandising. The Digital Hub has also been instrumental in connection with the roll-out of new om- nichannel capabilities in the markets, such as Click & Collect and “BORIS” (Buy-Online-Return-In-Store). In the US, almost 300 stores now oer Click & Collect, and so do most of Pandora’s UK stores. To overcome some of the social distancing challenges in Q4, we ac- celerated the roll-out of “Endless Aisle” (Go-In-Store-Buy-Online) to cover major European markets and Australia. During 2019, we ran pilots of a new store design in our physical stores. Consumers appreciated the pilot, but overall sales perfor- mance did not match expectations. We have established a new team to drive our future store design concept. Their focus will be to optimise and redesign the in-store consumer journey. Cost reset The cost reset objective served to fund Programme NOW’s growth initiatives and support protability, particularly by reducing costs in production, stores, IT and administration. During 2019 and 2020, we have gradually raised our annual cost savings target from DKK 1.2 billion at the outset of the programme to DKK 1.6 billion. Exiting 2020, the target has been reached. The cost reset initiatives have been integrated into daily operations and will continue after Programme NOW. Commercial reset The Programme NOW analysis showed that excessive promotional activity up until 2018 had diluted Pandora’s brand equity and led consumers to wait for the next promotion instead of buying at full price. Additionally, too many new product introductions coupled with an immature merchandising process had led to a cluttered assortment presentation in stores and a build-up of inventory. The commercial reset initiative addressed these issues by sig- nicantly reducing non-value adding promotions and lowering inventory levels at franchise partners. This initiative has delivered a healthier promotional dependency, appropriate inventory levels at franchisees, and fewer products, leading to less complexity and more cost savings. The initiative was completed in 2019. From turnaround to growth In late 2018, we launched Programme NOW as a two-year trans- formation with the main objective of halting the revenue decline. Now, two years into the programme, Programme NOW has changed Pandora and delivered very strong results. Pandora has now built the foundation to embark on a new era of growth. Despite COVID-19 disruptions, the formal restructuring pro- gramme was completed in 2020. Consequently, there will be no further Programme NOW restructuring costs in 2021 and onwards. In 2021, we will continue to improve brand relevance and drive retail metrics leveraging the learnings from Programme NOW. We have initiated preparations for a new strategy, which we expect to launch during 2021. In 2021, we will continue to improve - vance and drive retail metrics leveraging the learn- ings from Programme NOW. New omnichannel features provide our customers with a seam- less shopping experience across physical and online stores. Programme NOW has reduced annual costs by DKK 1.6 billion. The savings are used to fund new growth initiatives. A simplified portfolio of products has reduced design and production costs while improving sales and inventories. FAST OMNICHANNEL ROLL-OUT Number of stores SIGNIFICANT COST RESET SAVINGS 400 4 0.8 0 0 0 600 6 1.2 800 8 1.6 2018 Q1'19 Q1'20Q2'19 Q2'20Q3'19 Q3'20Q4'19 Q4'20 20202019 Click & Collect Endless Aisle Realised run rate savings as percentage of 2020 revenue Cost savings target 1,000 10 1.8 % DKK 200 2 0.4 0 174 414 861 4 PRUNING OF PRODUCT ASSORTMENT Number of design variations 1,600 1,400 1,800 2018 20202019 2,000 1,821 1,916 1,448 1818 OUR BUSINESS INVESTING IN OUR PEOPLE AND ORGANISATION Building a high-performance organisation The new operating model led to a signicant strengthening of the organisation. We hired more than 800 colleagues globally, bringing new capability and competency to our transforma- tion. Additionally, we introduced a new global six-layered career band and title structure to drive transparency and facilitate career development, talent management and re- cruitment. “Our global restructuring has been a key component in deliv- ering our turnaround and preparing us for long-term growth. The changes have helped reduce organisational complexity, strengthen decision-making, and add critical capabilities and talents. It’s been a well-placed investment in growth and build- ing a leading organisation for top talent and professional devel- opment,” says Erik Schmidt, Chief Human Resources Ocer. Supporting store employees during lockdown At Pandora, we continued to invest in our employees during the pandemic. To protect the livelihoods of our store sta, we maintained normal scheduled base pay during lockdowns. This reects our commitment to people and also meant that Pandora was ready to capture demand when markets reopened. Building for the future, Pandora made signif- icant investments in our global organisation during 2020 with a new consumer-oriented operating model and a commitment to sup- port our more than 11,600 store employees by maintaining salaries when stores were closed during pandemic lockdowns. In the midst of the rst lockdowns, we launched our new operating model to bring Pandora closer to consumers and ensure faster and more consistent execution. The strategic reorganisation was a key component of Programme NOW, and we established two Global Business Units responsible for product performance all the way from early market research to nal sales. In addition, we removed the regional layer and grouped our more than 100 markets into ten clusters that report to the newly hired Chief Commercial Ocer, Martino Pessina. At the same time, we built stronger global functions at our Copenha- gen headquarters, including Marketing, Digital, Merchandising, Human Resources and Business Intelligence, and we optimised our crafting facilities in Thailand to support fast delivery. of the external hires for our global headquarters were digital talents from tech companies At our global head- quarters, we hired talent from more than 40 dierent countries employees were promoted as part of the strategic reorganisation Pandora has attracted top leaders from global consum- er goods companies, fashion brands and omnichannel retailers 19% 40 >200 9 OUT OF 10 in employee satisfaction score on how appropri- ately Pandora responded to the pandemic. 1919 STORY The business landscape is currently undergoing dramatic changes, some of which have been accelerated by COVID-19. Four major industry trends are of particular relevance to Pandora. TREND Data-driven personalisation One of the fundamental shifts in consumer behaviour is the demand for personalised products, services and interactions. As an example, more than 80% of Americans are willing to share personal information in exchange for a more personalised experience. In recent years, the retail industry has implemented more personalisation at consumer touchpoints across physical and online channels. Investments in machine learning and data analytics to increase the relevance of customer interactions are paying o. PANDORA’S RESPONSE By personalising our channels, we oer our customers a better experience and allow them to be more ecient in their search. In a UK trial, our personalised banners increased click-rates by 17% and the number of items added to the cart by 4%. Fur- thermore, Pandora’s machine learning algorithms help predict customer interests. Initial results from personalised campaign newsletters are very positive, showing a 60% revenue boost when compared to standard newsletters. TREND Acceleration of e-commerce COVID-19 has accelerated the ongoing shift to digital with more consumers choosing to shop from their homes. In 2020, global online retail sales increased by 30% in major European markets. Brands responded with digital innovations to bring the in-store experience online, such as virtual tting rooms aided by augmented reality and online shopping events. It is believed the changes will continue beyond the COVID-19 crisis, forcing companies to adjust their operating models to the new reality: 56% of consumers say they will continue to buy online and pick up in store after the pandemic. PANDORA’S RESPONSE At Pandora, we have invested signicantly in our digital capabilities in recent years. We have established the Digital Hub and upgraded our online stores. We have more than doubled our online order volume capacity. We are gradually rolling out new omnichannel features, such as Click & Collect, and we have also introduced a num- ber of other digital features such as chat bots and digital gifting tools. EMBRACING CHANGE INDUSTRY TRENDS 2020 OUR BUSINESS TREND Repurposing store space The high street environment continues to change and has also had to adapt to new social distancing and safety guidelines in 2020. Customers have become more purposeful when visiting stores leading to a decrease in shopping frequency and density, less patience for queues, and higher demand for an ecient experience. Further, store sta remain critical to the store experience. In a US consumer survey, 74% of responses tied a positive experience to a human interaction. While there has been a notable shift to online shopping due to COVID-19, physical retail is expected to continue to play a sig- nicant role in the way consumers shop in the future, and the pandemic could be a catalyst for change. For example, brands experiment with creating modular spaces that can be used for retail as much as for events. The look and feel of retail units is also seen to adapt to current consumer sentiments, convey- ing positivity through the use of colour and lights while also providing consumers with an escape from the everyday through immersion into utopian and retro worlds. PANDORA’S RESPONSE Because of COVID-19, we introduced a number of in-store initiatives during the year to minimise congestion. To speed up store service and queues, we implemented a faster check-out process, and we used digital services to engage with queuing custom- ers. This allowed customers to browse products, try ring and bracelet sizes, sign-up for Pandora Club, and start trans- actions while queueing. To handle trac peaks and reduce congestion outside our stores, we created tem- porary pop-up spaces and introduced virtual queuing apps. We also enabled customers to book store appointments, and we intro- duced a Remote Shopping Assistant. These can provide styling advice over video calls and add products to the customer’s online basket for checkout via pandora. net. The customer does not need to come to the store, but will still receive the same personal service. TREND Running the business, sustainably Consumers are increasingly loyal to brands with strong social and environmental proles. In many sectors, sales of more sus- tainable products are growing faster than sales of less sustaina- ble alternatives. In the jewellery industry, consumers care about companies’ environmental impact, supply chain traceability, working conditions and more. During 2020, the global pandemic generated even greater interest in social responsibility initia- tives, notably related to safeguarding the health and safety of customers, employees and local communities. PANDORA’S RESPONSE On many sustainability issues, Pandora has taken an industry lead by crafting jewellery responsibly and providing safe, healthy and rewarding working conditions. By 2025, we will be carbon neutral and use only recycled silver and gold in our prod- ucts. In 2020, we received the highest ranking in MSCI's annual sustainability rating for the fth consecutive year. We also improved our ranking from ‘moderate’ to ‘strong’ in Human Rights Watch’s annual rating of the jewellery industry. In 2020, we also continued our partnership with UNICEF to support children, espe- cially girls, around the world through education. Read more about our sustainability ambitions on page 23 In Q4, we launched a World Children's Day charm in support of UNICEF and children's rights. 2121 OUR BUSINESS PEAKSEASON TRADING MARKED BY COVID We also worked to stretch peak trading periods to avoid large crowds. In the US, Black Friday deals were accessible every Friday throughout the month of November. “We have shown our innovation, resilience and agility during this crisis. We were able to engage with our customers and make their shopping experience enjoyable despite the tough environment,” says Martino Pessina, Chief Commercial Ocer. The new initiatives proved successful and trading in November and December was strong. Despite COVID-19 and lockdowns, organic growth was positive in the fourth quarter. With a global pandemic and lockdowns in sever- al countries, Pandora entered the busiest time of the year with a range of new initiatives. November and December are key trading months for many brands – not least a brand like Pandora, where gifting makes up a large proportion of sales. In a normal year, Pandora generates almost 30% of annual revenue in those two months. The holiday season of 2020 was dierent. COVID-19 put new demands on retailers to handle hygiene and social distancing among the shopping crowds. To navigate these challenges in the best possible way, we in- troduced 11 initiatives in key markets to ensure a good shop- ping experience while keeping employees and customers safe. Among these initiatives were a Remote Shopping Assistant, enabling customers to talk to a sales assistant online. We also introduced virtual try-on – an augmented reality technology that enables online shoppers to view jewellery on their own hands and wrists. And we launched virtual queueing, where customers scan a QR code and are notied when it is their turn to enter a store, allowing them to do something else while waiting in line. A store assistant uses the Remote Shopping Assistant feature to guide a customer. 2222 STORY SUSTAINABILITY We strive to embed sustainability considerations across our business, from how we craft our high-quality jewellery to the workplace we oer our employ- ees. Reducing what we take from the planet, protecting our environment and respecting those touched by our business are key components of Pandora’s business success and simply the right thing to do. We continue to align our strategy with the United Nations (UN) Sustainable Development Goals, the UN Guiding Principles on Business and Human Rights, and the Paris Agreement. Using these pillars of the global sustainability agenda to guide us, we regularly review sustainability issues and complete a materiality assessment to ensure that we build a sustainable business and meet stakeholder expectations. Our strategic priorities Pandora’s sustainability strategy is multifaceted. We adopt strategies that will minimise our carbon footprint. We innovate to minimise the resources that we use in our products and recycle them to “close the loop”. And we strive to ensure that our employees and suppliers work in safe and fair conditions. We are committed to reducing our climate footprint and helping the jewellery industry make progress. Our strategic priorities Inclusive & fair culture Circular innovation We believe that these strategic priorities oer us the best op- portunity to increase our resilience and make us more attractive in the marketplace. They will also enable us to take the lead in guiding the jewellery industry towards greater sustainability performance and thus have a signicant eect on people and the planet. We also continue to make progress in fundamental areas of responsible business operations, such as water and waste management, responsible sourcing, health and safety, customer privacy, responsible marketing and business ethics. ⚘ 2323 OUR BUSINESS Low-carbon business We are committed to reducing our climate footprint and help- ing the jewellery industry to make progress as a whole. We will become carbon neutral in our operations by 2025 (Scope 1 and Scope 2) and will set a science-based target for reducing carbon emissions across the full value chain (Scope 3). We made great progress on this ambition in 2020, as we signicantly reduced Pandora’s carbon footprint by sourcing 100% renewable energy at our crafting facilities in Thailand. The crafting facilities account for approximately half of our energy consumption globally, and the switch to renewable energy lowered our emissions by more than 25,000 tonnes CO 2 e and put us on track to meet our carbon neutral target. The remaining emissions predominantly come from our more than 1,300 Pandora owned stores and more than 230 other points of sale. In 2021, we will evaluate renewable energy sources for our stores and continue to identify opportunities to increase energy eciency in both our stores and crafting facilities. For all remaining unavoidable emissions linked to our direct business activities, we will purchase carbon osets to meet our target of becoming carbon neutral. In 2020, we mapped our full value chain’s emissions (Scope 3). We are currently nalising our science-based target commit- ment to reduce these emissions in line with the Paris Agree- ment. We have engaged industry experts and suppliers to build a detailed understanding of the footprint of key materials and identify opportunities to reduce the associated emissions. At Pandora, we are committed to transparent reporting to aid investors and other stakeholders in their decision-making. In 2020, we responded to the CDP for the rst time and joined the list of over 1,500 organisations to support the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. We will neutral in our operations Circular innovation We strive to ensure that raw materials, used in both the craft- ing and manufacturing of jewellery and in the development of point-of-sales materials and in-store xtures, leave as little negative impact as possible on the environment, people and communities. This commitment is in line with our vision to adopt a circular approach to how we design, craft, source and oer our products. In 2020, we took steps to increase the use of recycled silver and gold in our products and committed to using only re- cycled silver and gold by 2025. This will reduce our carbon emissions, water usage and other environmental and social Gender equality We are an inclusive brand committed to advancing equality and diversity, for example through our partnership with UNICEF to fund programmes that support girls’ education and empowerment. Decent work and economic growth Across offices, stores and crafting, we strive to provide safe and healthy working conditions for more than 26,000 employees. Responsible consumption and production Circularity is central to how we design, craft, source and offer our products. For example, we use recycled metals in our products and the majority of our crafting waste is reused. Climate action We are intensifying our climate efforts by committing to become a carbon neutral company and set an emission reduction target in line with the Paris Agreement and best available science recommendations. Pandora and the Sustainable Development Goals We have assessed Pandora’s opportunities to support the Sustainable Development Goals (SDGs) and concluded that our business aligns most closely with four of these goals. In particular, we support SDG 12, Responsible Consumption and Production, by committing to use only recycled gold and silver in our products by 2025. Emissions from Pandora’s own operations, including crafting facilities, retail stores, oces, and distribution centers Emissions from electricity and heating used by Pandora Emissions from raw materials, packaging, transportation, franchise stores and other sources outside of Pandora’s own operations SCOPE 1 SCOPE 2 SCOPE 3 ⚡ 2424 OUR BUSINESS workplace. Our Supplier Policy and Suppliers’ Code of Conduct detail the ethical conduct our suppliers are expected to uphold within areas such as human and workers’ rights, business integ- rity and the environment. Pandora’s externally managed whistle- blower hotline enables employees and external stakeholders to anonymously raise concerns if they witness violations of legislation or our Code of Conduct. Supporting vulnerable youth through our UNICEF partnership Pandora’s long-term partnership with UNICEF supports the organisation’s eorts to reach more than 10 million children and young people and provide them with opportunities to learn, express themselves and nd work in the future. Through- out the rst year of the partnership, Pandora designed and marketed a series of jewellery pieces in support of UNICEF. We also engaged employees across our global organisation in our work for UNICEF. As a result, Pandora raised USD 3.4 million to UNICEF, including a USD 1 million donation to UNICEF’s Reimagine campaign, which seeks to respond, recover and reimagine a world currently besieged by the COVID-19 pandemic. impacts, as metals recycling requires fewer resources than mining new metals. In 2020, around 60% of our silver and gold was recycled 1 . This gure is revised down from the previously reported gure of around 70% for 2019, as increased trans- parency and more engagement with our suppliers have led to a better understanding of our recycled supply chain. To make a full shift to recycled silver and gold, Pandora is tak- ing an active role in engaging and developing the industry as well as our supplier base. We see this as necessary stakeholder engagement to help increase the availability of recycled silver and improve production standards and transparency in the value chain. More than 99% of the stones we use in our jewellery are man- made. Stones created in a laboratory have a signicantly lower environmental impact than mined stones. They lead to less environmental degradation and require less energy to produce. We also continuously work to reduce water usage and waste at our crafting facilities. The crafting of our jewellery gener- ates four main types of process waste: gypsum, glass, wax and rubber. In 2020, we managed to recycle or reuse 100% of these waste streams. Overall, 90% of all waste at our craft- ing facilities was recycled. We continue to look for ways to reduce waste. In addition, our crafting facilities consume over 970,000m³ of water and increasing water recycling is a key priority. In 2020, we recycled 16% of the water used at our crafting facilities. Inclusive & fair culture At Pandora, we are committed to fostering a culture of diversity and inclusion, and we strive to ensure that our employees and suppliers work in safe and fair conditions. In 2020, Pandora initiated a global listening and learning project to better understand where we stand in this context, and how we can work to ensure progress. Gender diversity Our Diversity Policy lays out gender diversity targets for the Board of Directors and for Senior Management, requiring no less than 40% representation for each gender. Pandora’s cur- rent gender split looks as follows: • On our Board of Directors, 75% of the members are women and 25% are men (six out of eight members are women). This is an increase of female representation since last year and above average for large publicly-listed Danish companies. • Our Executive Leadership Team has 12.5% women and 87.5% men (one woman out of eight members). With a clear majority of women on the Board of Directors and men on the Executive Leadership Team, our 40% targets were thus not met in 2020. Our primary focus during the turnaround of our business has been to ensure the necessary management capacity, irrespective of gender, to rapidly improve our growth trajectory. Ensuring diversity, in all shapes and forms, on our leadership teams will remain an area of particular focus going forward. A workplace respecting human rights Pandora’s Human Rights Policy states our commitment to the UN Guiding Principles on Business and Human Rights and the core conventions of the International Labour Organization. It describes how our employees are expected to respect human rights, including but not limited to freedom from discrimina- tion, the right to collective bargaining, and the right to a safe 1 Based on self-declared supplier data. Recycled silver and gold may contain mined by-products We are committed silver and of all waste at our crafting facilities was 90% 2525 OUR BUSINESS ONLY RECYCLED SILVER AND GOLD “Silver and gold can be recycled forever without losing their quality. Metals mined centuries ago are just as good as new. We want to do our part to build a more circular economy and pre- vent these ne metals from ending up in landlls,” says Chief Supply Ocer Jeerasage Puranasamriddhi. Silver recycling on a global scale Pandora is one of the largest silver buyers in the jewellery industry, and silver is the most used metal in our jewellery. Around 15% of the world’s silver is recycled, and much can be done to improve this situation. Recycling of consumer electron- ics is particularly low – in Europe only around 40% of electronic waste is recycled and in Asia only around 10%. By using only recycled silver and gold instead of mined metals, Pandora can save 37,000 tonnes CO 2 . This equates to more than the annual electricity use of 6,000 homes or driving 145 million km in a car. Have you ever wondered what happens to your old mobile phone after you get rid of it? Parts of it may end up in Pandora jewellery. Silver and gold used to be primarily for coins, jewellery and other household items. Today, these precious metals are also used in electronics and for industrial purposes, because they perform well compared to other metals. As the rst large jewellery brand, Pandora will stop using newly mined silver and gold and buy only from recycled sources by 2025. Quality forever Mining requires a lot of energy, so by using recycled metals we reduce greenhouse gas emissions. The emissions for recycled silver are one third compared to mined silver, while recycling of gold emits approximately 600 times less carbon than mining new gold. According to the World Economic Forum, there is 100 times more gold in a tonne of mobile phones than in a tonne of gold ore. 2626 STORY Our approach to risk management Pandora’s enterprise risk management is focused on identifying risks early, assessing them candidly, and taking actions to miti- gate them so they will not prevent the company from achieving its business objectives. We see a well-functioning risk man- agement process as key to maintaining and building Pandora’s position as the world’s largest jewellery brand. At Pandora, risk management is an enterprise-wide eort, with management teams across our value chain responsible for the continuous identication, assessment, mitigation, and report- ing of current and emerging risks. Pandora also has a dedicated Risk Management Policy. Pandora’s Chief Financial Ocer heads the company’s Risk Management Board, which consists of senior management representatives from across our value chain. Management teams are required to report their most signicant risks to the Global Risk Oce, along with assessments of those risks and MANAGING RISKS Pandora carefully monitors and assesses potential risks to the compa- ny on an ongoing basis. As a global brand with a fully integrated value chain, some of the key risks facing Pandora are brand relevance and supply disruption. an overview of implemented mitigations and next milestones. All risk assessments take into account the likelihood of an event and its potential impact on the business. The impact is quantied and assessed in terms of potential nancial loss or reputational damage. The Risk Management Board is assisted in its work by the Global Risk Oce, which serves as secretariat to the Board. The Global Risk Oce’s role is to review risks, support management on risk information, and consolidate the corporate risk prole contain- ing the company's key risks. The nal risk prole is reviewed by Executive Management, the Audit Committee, and the Board of Directors. The Board of Directors is ultimately responsible for assess- ing the nature and extent of risks associated with Pandora’s strategic direction and for the implementation of eective risk identication, assessment, and mitigation. Pandora’s risk management policy Pandora proactively manages risk to protect our people, assets and reputation and to minimise the risk of disruption to our continued value creation. This means that we: • utilise an eective and integrated risk management system while maintaining business exibility • identify and assess material risks associated with our business • monitor, manage and mitigate risks – and leverage related opportunities, where possible All risk assessments take into account the likelihood of an event and its potential impact on 2727 OUR BUSINESS Our key risks The Board of Directors considers the key risks that could threaten our business model or the future performance, solvency, or liquidity of Pandora. These key risks make up Pandora’s consolidated risk prole and do not represent all the risks associated with our business. Additional risks not presently identied or those currently deemed to be less material may also have an adverse eect on our business. Pandora’s consolidated risk prole and our responses to them are described in the following. Brand and product relevance Description As a large, global brand the strength and integrity of our brand is a fundamental asset. It is important that our product oerings remain relevant to our customers. Risk A lack of brand or product relevance constitutes a signif- icant business risk that could result in lower trac to our stores and online shopping sites and reduce our revenue. Mitigation • Consumer-centric innovation of new products, fuelled by more powerful customer insights. • Establishment of two Global Business Units. • Establishment of the Digital Hub. • Signicant additional investments in marketing. • Investments in data and analytical capabilities and technology. • Continued monitoring of trademarks and patents and ghting infringements. Read more about how we are building for a digital future on page 14 Brand access Description We sell our products globally and depend on a strong channel network and solid insights to engage with con- sumers in their preferred marketplace. A personalised and unique shopping experience is important for developing customer loyalty. Risk Not being able to engage consumers and provide them with a relevant omnichannel shopping experience can result in a decline in revenue. Mitigation • Investment in improving digital and omnichannel customer experiences. • Stronger focus on personalisation of shopping experiences across channels. • Launch of new initiatives and services connecting digital and physical store experiences, such as Click & Collect and Endless Aisle. • Mapping of current and potential future store locations to assess current store viability and potential areas for growth. • Development and testing of new store concept. Read more about our Programme NOW objectives on page 17 KEY RISKS 2828 OUR BUSINESS Pandemics, including COVID Description Continued COVID-19 outbreaks, or new pandemics, may have an eect on the economy in general, consumer be- haviour and demand. It may also require signicant invest- ments in and changes to Pandora’s operating model etc. Risk Pandemics can result in lower revenue and higher costs through store and crafting facility closures, labour short- ages, decreases in productivity, supply chain disruptions, and changes in the macroeconomic environment and consumer behaviour. Mitigation • Expansion of online capacity. • Introduction of new initiatives, such as curb side pickup, pop-up stores, and Click & Collect, aimed at making shopping safer for our customers. • Review of supply chain, including dependency on individual suppliers and own production facilities and distribution centres. Read more about new initiatives to tackle COVID-19 on page 22 Supply disruptions Description Procurement of raw materials and the ability to produce and distribute nished products are critical for meeting customer demand. Risk Lockdowns, breakdowns, political unrest, re, natural catastrophes etc. at Pandora’s or key suppliers’ sites may result in disruption of our supply chain and have a signi- cant impact on our nancial performance. Mitigation • Dual sourcing where feasible. • Buers of production components and nished goods. • Crafting at two separate locations in Thailand. • Engagement of external manufacturers to provide exibility. • Online distribution capacity has been ramped up. Talent attraction and succession Description Pandora needs highly talented and capable people across all functions and markets to drive growth and sustainable performance for our future. Risk Our employees are our most valuable asset. Failure to at- tract, develop and retain the right talent poses a signicant risk to our growth plans. Succession planning for leadership and critical roles is one of our biggest risks for sustainable performance and growth. Mitigation • Strengthening the global HR organisation. • Annual employee engagement survey. • Enhanced focus on employer branding. • Enhanced focus on key positions and succession planning. • Strengthening how we attract digital, operational, and functional talents to support our business priorities. Read more about our investments in the organisation and people on page 19 KEY RISKS 2929 OUR BUSINESS Facing up to environmental risks Across all of these trends runs a growing and widely acknowl- edged concern for the global environment, particularly in relation to climate change. We understand the need to prepare for the risks and opportunities that will arise from changing weather patterns, rising sea levels, and other climate impacts. We have taken initial steps and will expand on these in the future. As recommended by the Task Force on Cli- mate-related Financial Disclosures, we are inte- grating climate-change scenarios to identify short-, medium- and long-term risks in our production and supply chain to ensure a steady supply of our products. Market uctuations Description Our products are made of precious metals, mainly silver and gold. As a global business, Pandora has signicant revenue in USD, USD-related currencies and GBP. Our crafting facilities are based in Thailand and hence we have signicant net cost in THB. Risk Pandora is exposed to a weakening of the USD, USD-re- lated currencies and GBP and a strengthening of the THB and precious metal prices. Currency uctuations and increases in the price of precious metals can have a sig- nicant impact on the company’s nancial performance and cash ow. Mitigation • Hedging at least 50% of the combined commodity, exchange rate and interest rate risk. However, at least 70% of estimated annual commodity purchases must be hedged. Responsible business behaviour Description Pandora has a reputation for responsible business behav- iour. This reputation benets the company in several ways, from attracting new employees to acknowledging consumer concerns. Risk If Pandora violates legislation, disregards principles of good corporate citizenship, or fails to adhere to social or envi- ronmental standards, it could damage our brand, reputa- tion and nancial situation. Mitigation • Launch of a new Global Code of Conduct. • Mandatory ethics and compliance training. • Upgrading external access to our whistleblower hotline. • Responsible Supplier Programme, including training and vendor audits. • Recurring Responsible Jewellery Council certication. • Environmental, social, and governance reporting to ensure transparency. • Climate targets and other focused sustainability initiatives. • All taxes and charges are paid according to local laws and regulations in the countries where Pandora operates. IT security breaches Description Reliable IT systems and infrastructure are critical for the company’s ability to operate eectively. We also have a duty to safeguard the data of our customers and partners as well as our own information. Risk Breaches of IT security, caused by malware attacks for example, could have a severe impact on Pandora’s ability to maintain operations and, hence, its nancial stability. The disclosure of condential information could compro- mise the privacy of customers or other individuals. Mitigation • Ongoing security monitoring supported by incident-response teams. • Third-party vulnerability and security maturity assessments. • Cyber and information security awareness training and phishing tests to monitor response. Read more about our sustainability strategy on page 23 Read more about our nancial risks in note 4.4 KEY RISKS 3030 OUR BUSINESS 03 CORPORATE GOVERNANCE Management structure The corporate authority is divided between the Board of Directors (“the Board”) and Executive Management, existing independently of each other. The Board outlines the overall visions, strategies and objectives of Pandora’s business activi- ties and supervises the performance of Executive Management. The Board’s primary tasks are to ensure that Pandora has a strong management team, optimal organisational and capital structures, ecient business processes, transparent book- keeping and practices, and responsible asset management. Additionally, the Board oversees Pandora’s nancial develop- ment, related planning and reporting systems as well as internal controls and risk management. The Board has established Audit, Remuneration and Nomination committees and appoints members and chairs to these committees from within the Board. The committees’ terms of reference are disclosed on Pandora’s website — www.pandoragroup.com. Members of Executive Management are appointed by the Board. Executive Management is responsible for the day-to-day management and for the execution of Pandora’s strategy. CORPORATE GOVERNANCE Governance structure A CONNECTED ORGANISATION Fast execution and collaboration across clusters and global func- tions. The ten clusters report to the Chief Commercial Ocer. Members of the Executive Leadership Team are responsible for the day-to-day operations of their respective business areas while at the same time being part of the overall management of Pandora. Board of Directors Composition The composition of the Board is intended to ensure diversity of the Board’s competency prole enabling the Board to perform its duties eectively. The current competencies required and possessed by the Board are brand, consumer, retail, digital and e-commerce, IT and nancial insight, and experience with strat- egy development and transformation. The Board must consist of three to ten members and consisted of eight members as of 31 December 2020. All Board members are up for election every year and are elected at the General Meeting. The Board supervises Executive Management’s work and is for Pandora’s general and strategic direction Clusters Annual General Meeting Board of Directors Executive Management • North America • Latin America • Pacic • China • Rest of Asia • Western Europe • Southern Europe & MEA • Eastern Europe • Northen Europe • British Isles Executive Leadership Team 3232 CORPORATE GOVERNANCE Board self-assessment The Board conducts an annual self-assessment to monitor its performance and its cooperation with Executive Management. In 2020, the assessment was conducted in collaboration with an independent third party. The assessment comprised of a collective survey and interviews with each Board member individually. The topics included Board composition, nomination process, competencies, overboarding and Board culture. The assessment also included topics such as the Board’s involvement in risk and nancial management, con- trol and strategy, committee work and personal contributions. The report and conclusions of the assessment were shared with the Board and Executive Management, followed by a thorough discussion. The assessment identied that the Board continues to consist of individuals who possess relevant competencies and are engaged and well-prepared. The Board structure and committee work are eective and well-functioning, including interactions with Executive Management. Board activities in 2020 The Board held 14 Board meetings in 2020. Its primary focus was to handle and steer through the global COVID-19 crisis together with Executive Management, including securing the safety and well-being of Pandora’s employees and customers and protect- ing the business during the crisis. Furthermore, the Board spent considerable eorts to ensure sucient nancial and liquidity resources to withstand the ramications of shifting restric- tions aecting consumer behaviour and the retail environment. Finally, the Board oversaw the progress of Programme NOW as well as the execution of the strategic reorganisation announced in March 2020. • meet with Executive Management to review interim nancial reports; • review key accounting principles, signicant accounting esti- mates, key nancial risks and compliance with tax regulations; • monitor the adequacy and eectiveness of Pandora’s internal controls and risk management systems; • review Pandora’s whistleblower reporting system and whistleblower cases; • prepare a recommendation for the appointment of inde- pendent auditors, including evaluation of independence, competencies and compensation as well as conducting an audit tender; • review updates to the nancial reporting structure. Remuneration Committee In 2020, the members of the Remuneration Committee were Peter A. Ruzicka (Chair), Christian Frigast, Ronica Wang and Board of Directors Audit Committe Nomination Committee Remuneration Committee Peter A. Ruzicka 1414 – 33 77 Christian Frigast 1414 – 33 67 Andrea Dawn Alvey 1414 88 – 77 Birgitta Stymne Göransson 1414 88 – – Catherine Spindler (joined the Board on 11 March 2020) 1011 – – – Isabelle Parize 1414 88 – – Marianne Kirkegaard (joined the Board on 11 March 2020) 1111 – 33 – Ronica Wang 1414 – – 67 Per Bank (left the Board on 11 March 2020) 33 – – – John Peace (left the Board on 11 March 2020) 13 – – – * Chair ** Deputy Chair Audit Committee In 2020, the members of the Audit Committee were Birgitta Stymne Göransson (Chair), Andrea Dawn Alvey and Isabelle Parize. The Audit Committee reviews and assesses Pandora’s nancial reporting and audit processes and internal control systems, and evaluates the adequacy of control procedures. The main responsibilities of the Audit Committee are: • the nancial reporting process; • internal controls and risk management systems; • the independent audit. In 2020, the Audit Committee met eight times. Its main activities were to: • meet with the CFO and independent auditors to review the audited Annual Report 2019; Board meetings held in 2020 14 Meeting attendance 2020 3333 CORPORATE GOVERNANCE Andrea Dawn Alvey. The main responsibilities of the Remu- neration Committee are to: • prepare recommendations to the Board on the pay and remuneration policy applicable to the Board and Executive Management; • submit proposals to the Board for the remuneration packages of individual Board members and Executive Management; • monitor the overall operation of Pandora’s Short-Term and Long-Term Incentive Plans; • verify that the information on remuneration in the Annual Report and Annual Remuneration Report is true, accurate and adequate. The Remuneration Committee met seven times in 2020. Its main activities were to: • prepare the Remuneration Report 2019 and the Remuneration Policy to apply from the Annual General Meeting 2020; • review performance and recommend pay-out and vesting levels under the Short-Term and Long-Term Incentive Plans for prior years; • set appropriate metrics, Key Performance Indicators and moni- tor ongoing achievement under the Short-Term and Long-Term Incentive Plans for 2020; • benchmark Board fees and Executive Management remunera- tion in preparation for 2021. The Remuneration Report 2020 is available at our Investor website: pandoragroup.com/investor/corporate-governance/ remuneration-reports Nomination Committee In 2020, the members of the Nomination Committee were Christian Frigast (Chair), Peter A. Ruzicka and Marianne Kirkegaard. The main responsibilities of the Nomination Committee are: • continuous evaluation of the qualications and compe- tencies required of members of the Board and Executive Management; • nomination of candidates for the Board and Executive Management; • assessment of the Board; • assessment of the performance of Executive Management and the cooperation between the Board and Executive Management; • succession planning for top executive positions. In 2020, the Nomination Committee met three times and had a few additional ad-hoc exchanges relating to the Board assessment. Its main activities were to: • conduct a tender process and selection of the external assistance for the Board assessment; • prepare and conduct the Board assessment with external assistance in accordance with the Danish Corporate Governance Recommendations; • nomination of candidates for the Board; • assessment of the performance of Executive Management and the cooperation between the Board and Executive Management. Additional information The Corporate Governance Statement for 2020, cf. section 107b of the Danish Financial Statements Act, is available at our Investor website: pandoragroup.com/investor/corporate-gov- ernance/governance-statement Internal controls and risk management systems in relation to the nancial reporting process Responsibility for Pandora’s internal controls and risk man- agement systems in relation to the nancial reporting process rests with the Board and Executive Management. The purpose of these internal controls and risk management systems is to ensure that the nancial statements provide a true and fair view, free from material misstatements, and that the internal and external nancial statements are presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional requirements of the Danish Financial Statements Act. While the internal controls and risk management systems are designed and aim to ensure that material misrepresentation of assets, losses and/or signicant errors or irregularities and omissions in the nancial reporting are avoided, they provide no absolute assurance that all errors are detected and corrected. Internal controls and risk management systems are under continuous development and are described below. Control environment The Board has established an Audit Committee that assists the Board in supervising the nancial reporting process and the eciency of Pandora’s internal controls and risk management systems. The Audit Committee reviews signicant risks related to Pandora’s business, activities and operations as well as risks related to nancial reporting. The Audit Committee seeks to ensure that such risks are managed proactively, eciently and systematically. Executive Management is responsible for maintaining controls and an eective risk management system and ensuring neces- sary steps are taken to address the risks identied in relation to nancial reporting. The Remu neration Report 2020 our Investor See the Remuneration Report 2020 3434 CORPORATE GOVERNANCE In addition, an Internal Audit and Compliance Controlling (IACC) function helps Pandora accomplish its objectives by bringing a systematic and disciplined approach to evaluat- ing and improving the eectiveness of internal controls, risk management, compliance and governance processes. The IACC function assists Pandora’s Executive Management and the Audit Committee in identifying, avoiding and mitigating risks. The composition of the Board, the Audit Committee and Executive Management together with the IACC function ensure the availability of relevant competencies with respect to internal controls and risk management systems in relation to the nancial reporting process. Risk assessment The Board and Executive Management assess risks on an ongoing basis, including risks related to nancial reporting, and assess measures to manage, reduce or eliminate identied risks. The Audit Committee reviews selected high-risk areas on a frequent basis, including signicant accounting estimates and material changes to accounting policies. At least once a year, the Audit Committee oversees a review of current internal controls to determine whether they are eective in relation to the risks identied in the nancial reporting process. Control activities The Group Finance function reports to the Chief Financial Ocer (CFO). The controlling function within Group Finance is responsible for controlling the nancial reporting from the Pandora A/S and its subsidiaries, and monitoring compliance with relevant legislation on an ongoing basis. The company has adopted and dened an internal control framework that identies key processes, inherent risks and control procedures in order to secure appropriate account- ing processes. The control procedures include a variety of processes in order to prevent any misrepresentation, signif- icant errors, omissions or fraudulent behaviour. The control procedures are tested on an ongoing basis and reported to the Audit Committee. Information and communication The IACC function is present at all Audit Committee meetings and provides regular status updates to the committee. Further- more, the head of IACC has regular meetings with the CFO. This set-up ensures transparency and that communication is shared with the Audit Committee on a timely basis. The Board has adopted an Investor Relations policy that requires all commu- nication to stakeholders, including nancial reporting, to be conducted adequately, timely and openly – both internally and externally – and to be conducted factually and truthfully and in compliance with laws and applicable regulations. Monitoring Pandora’s internal controls and risk management systems, including the whistleblower function, are continuously moni- tored, tested and documented. The Audit Committee monitors internal controls and the risk management process to ensure that any weaknesses are eliminated and that any errors in the nancial statements identied and reported by the auditors are corrected, including controls or procedures implemented to prevent such errors. Pandora’s independent auditors are appointed for a term of one year at the Annual General Meeting following the recom- mendation of the Board. Prior to recommendation, the Board assesses, in consultation with Executive Management, the inde- pendence, competencies and other matters pertaining to the auditors. The framework for the auditors’ duties, including their remuneration, audit and non-audit services, is agreed annually between the Board and the auditors following the recommen- dation of the Audit Committee. Pandora’s internal controls and risk management monitored, tested and documented 3535 CORPORATE GOVERNANCE Peter A. Ruzicka Year of birth: 1964 Member since: 2019 Professional position: Non-executive board member. Non-executive functions: Member of the Boards in Aspelin Ramm Gruppen AS and AKA AS. Christian Frigast Year of birth: 1951 Member since: 2010 Professional position: Executive Chair and Partner of Axcel Management A/S. Non-executive functions: Chair of Aktive Ejere (Active Owners Denmark), EKF Danmarks Eksportkredit (Denmark’s Export Credit Agency) and Danmarks Skibskredit Holding A/S and Year of birth: 1957 Member since: 2016 Professional position: Non-executive board member. Non-executive functions: Chair of Industrifonden and Cinder Invest and member of the Boards of Elekta AB, LEO Pharma A/S and Enea AB. Competencies: Experience within areas such as con- sumer goods, retail execution, IT, digital, nancial insights and capital markets. Competencies: Vast operational experience with strategy execution and transformation as well as retail and brand optimisation on executive level. member of the Board of its sub- sidiary; Vice Chair of PostNord and Axcel Advisory Board; member of the Boards of Frigast A/S and Nissens A/S; adjunct professor at Copenha- gen Business School. Competencies: Experience within areas such as general management, capital markets, consumer sales and retail execution. Andrea Dawn Alvey Year of birth: 1967 Member since: 2010 Professional position: President of Kitabco Investments, Inc. Non-executive functions: None. Competencies: Experience within areas such as digital and e-commerce, global supply chain, IT and nancial insights. Birgitta Stymne Göransson BOARD OF DIRECTORS 3636 CORPORATE GOVERNANCE Catherine Spindler Year of birth: 1977 Member since: 2020 Professional position: CMO of Lacoste. Non-executive functions: None. Competencies: Experience within international brand strategy, digital transformation, and lifestyle apparel retail. Isabelle Parize Year of birth: 1957 Member since: 2019 Professional position: CEO of DELSEY Paris. Non-executive functions: Member of the Boards of Coty inc. and Air France-KLM S.A. Competencies: Operational experience in international retail and brand execution via omnichannel and digitally. Marianne Kirkegaard Year of birth: 1968 Member since: 2020 Professional position: CEO of CSM Bakery Solutions Non-executive functions: Member of the Boards of Fertin Pharma A/S, Salling Group A/S and AKK AB. Ronica Wang Year of birth: 1962 Member since: 2012 Professional position: Co-founder and Global Managing Partner of The InnoGrowth Group Ltd. Non-executive functions: Member of the Boards of GN Store Nord A/S and Hotelbeds Group. Competencies: In-depth international insight into the consumer market and experience of the complete value chain within large corporate multinationals. Competencies: Experience within areas such as fashion and jewellery, digital and e-commerce, retail strategy, global and cross-platform branding, sales & marketing. The Board members’ full CVs are available at pandoragroup.com BOARD OF DIRECTORS 3737 CORPORATE GOVERNANCE EXECUTIVE LEADERSHIP TEAM Erik Schmidt SVP, Chief HR Ocer Anders Boyer Executive Vice President & Chief Financial Ocer (CFO) Year of birth: 1970 Joined: 2018 Other functions: Member of the Executive Management Anders Boyer has 20 years’ experience in nance, business management and turnarounds. Prior to joining Pandora, Anders held positions as Chief Financial Ocer at Hempel and GN Store Nord, and Finance Director and subsequently Regional Director of ISS. From 2012 and until March 2018, he was a member of the Board of Directors of Pandora. Anders started his career at A.P. Moller- Maersk, where he worked for ten years. He has a Master of Science in Finance and Accounting from Copenhagen Business School, Denmark. Alexander Lacik President & Chief Executive Ocer (CEO) Year of birth: 1965 Joined: 2019 Other functions: Member of the Executive Management Alexander Lacik has more than 25 years’ experience from large global consumer goods companies. In addition, Alexander is a Board member of Swedish Match. Before joining Pandora, he was CEO of Britax Ltd., a British manufacturer of childcare products. He has also held CEO and senior management positions at Kasthall Golv & Mattor, Procter & Gamble and Reckitt Benckiser, where he held a number of positions, including head of Reckitt Benckiser North America. He has a Bachelor’s degree in Business Administration from the University of Växjö, Sweden. Stephen Fairchild SVP, Chief Product Ocer Carla Liuni SVP, Chief Marketing Ocer Martino Pessina SVP, Chief Commercial Ocer Jeerasage Puranasamriddhi SVP, Chief Supply Ocer David Walmsley SVP, Chief Digital & Technology Ocer The Executive Leadership Team members’ full CVs are available at pandoragroup.com 3838 CORPORATE GOVERNANCE SHAREHOLDER INFORMATION Capital structure and cash allocation Pandora’s capital structure serves to ensure that the company has sucient nancial exibility to pursue its strategic goals and preserve a stable nancial structure based on a strong balance sheet. Pandora’s capital structure policy is to maintain NIBD to EBITDA before restructuring costs between 0.5 and 1.5. Cash distribution suspended until there is further certainty on COVID-19 Pandora continues to be highly cash generative and has ample liquidity to initiate cash distribution to shareholders. Due to the unprecedented uncertainty caused by COVID-19, Pandora considers it appropriate and prudent to await further certainty about the pandemic before re-initiating cash distribution to the shareholders. At the Annual General Meeting in March 2021, Pandora will ask the shareholders to authorise the Board of Directors to potentially pass one or more resolutions to distribute extraordinary dividends of up to a total amount of DKK 15 per share until the next Annual General Meeting. In addition to being listed in Copenhagen, Pandora has a spon- sored level 1 American Depository Receipt (ADR) programme. The ADRs are traded in the US over-the-counter under the symbol PANDY. Further information regarding the ADR programme can be found on the Pandora Group website. In 2020, the lowest closing price for the Pandora share was DKK 195.2 on 16 March. The highest closing price was DKK 681 on 30 December 2020 (last trading day of 2020), corresponding to an increase of 135% compared to the end of 2019 (DKK 289.8). By the end of the year, the total shareholder return was 145%. Around 173 million Pandora shares were traded in 2020. The trading volume averaged around 699,000 shares per day. SHARE PRICE DEVELOPMENT 2020 DKK Pandora shares have been listed on the Nasdaq OMX Copenhagen stock exchange since 2010. Pandora is included in the blue-chip OMX C25 index and has around 40,000 registered shareholders. ANNUAL COMMITMENT DKK billion FY 2021 Proposed FY 2020 Actual FY 2019 Actual FY 2018 Actual FY 2017 Actual Dividend (ordinary + interim) 08 18 19 40 Nominal dividend per share, DKK 90 180 180 360 Share buyback programme 22 40 18 Total cash return 08 40 59 58 share price increase in 2020 135% 300 100 400 500 Jan Feb Mar May Jun Jul Aug Sep Oct Nov DecApr 700 800 600 200 3939 CORPORATE GOVERNANCE SHARE INFORMATION Exchange Nasdaq Copenhagen Trading symbols PANDORA Identication number/ ISIN DK0060252690 Number of shares 100,000,000 of DKK 1, each with one vote Share classes 1 GICS 25203010 Sector Apparel, Accessories & Luxury Goods Segment: Large ADR INFORMATION ADR trading symbol PANDY Programme type Sponsored level 1 programme (J.P. Morgan) Ratio (ADR:ORD) 4 ADRs : 1 ordinary share (4:1) ADR ISIN US 698 341 2031 Review of 2020 share buyback and dividends In 2020, Pandora paid out an ordinary dividend of DKK 9 per share. The total amount paid was around DKK 0.8 billion. The Board of Directors proposed a share buyback programme in 2020, under which Pandora would buy back own shares to a maxi- mum consideration of up to DKK 2.1 billion. As COVID-19 escalated throughout Q1 2020, leading to the closure of many of Pandora’s physical stores, the programme was suspended to strengthen the balance sheet during these uncertain and unprecedented times. Shareholders As of 31 December 2020, Pandora had three major sharehold- ers. BlackRock has disclosed holdings of voting rights amounting to 7.4% of the total outstanding voting rights while Parvus has disclosed holdings amounting to 5.1%. Additionally, Société Générale has disclosed holdings of voting rights through shares and nancial instruments amounting to 5.3%. As of 31 December 2020, the geographical split of institutional investors was: • Investors in Denmark held 9% of the share capital. • The largest share of international investors resided in the United Kingdoms (23% of share capital) and in the United States (22% of share capital). As of 31 December 2020, Pandora’s Board of Directors and Execu- tive Management held a total of 86,074 and 264,099 Pandora shares respectively, corresponding to 0.4% of the total share capital. Investor Relations The Executive Management is responsible for the existence of an Investor Relations (IR) function, which is responsible for ensuring compliance with Pandora’s Investor Relations Policy. IR reports directly to the Chief Financial Ocer. The purpose of Pandora’s IR activities is to ensure that relevant, accurate and timely information is made available to the capital markets to serve as a basis for regular trading and a fair pricing of the share. Prior to the announcement of interim and annual re- ports, a four-week silent period is in place. In addition, members of the Board of Directors and Executive Management are only al- lowed to trade shares in a four-week trading window following the announcement of interim and annual reports. Pandora will ensure that the company is perceived as visible, accessible, reliable and professional by the capital markets and that Pandora is regarded among the best relative to peers. This will be achieved by comply- ing with the rules and legislation for listed companies on Nasdaq OMX as well as Pandora’s internal policies. Company website The Pandora Group website (pandoragroup.com ) provides comprehensive information about the company, its activities, share performance and shareholders. Additionally, all company announcements, including interim and annual reports, as well as investor presentations, webcasts and conference call transcripts are made available on the website in due time. Furthermore, the website contains a constantly updated nancial and event calen- dar showing events and actions related to investors. A comprehensive list of the 21 analysts covering the Pandora share is maintained, including names, institutions and contact details. In 2020, Pandora paid out dividend of DKK 9 per share for a total of around DKK 11 Mar Annual General Meeting 04 May Interim Report Q1 2021 17 Aug Interim Report Q2/H1 2021 03 Nov Interim Report Q3/9M 2021 Financial calendar 2021 4040 CORPORATE GOVERNANCE 04 FINANCIAL REVIEW GROUP PERFORMANCE REVENUE BY SALES CHANNEL DKK million 2020 2019 Sell-out growth incl. closed stores Like-for-like sales-out Organic growth Growth in local currency Share of revenue FY 2020 Share of revenue FY 2019 Pandora owned retail 13426 14181 3% 10% 3% 2% 71% 65% - of which concept stores 7321 10619 30% 29% 39% 49% - of which online stores 5483 2782 103% 103% 29% 13% - of which other points of sale 622 780 22% 18% 3% 4% Wholesale 4949 6725 27% 13% 24% 25% 26% 31% - of which concept stores 2714 3843 26% 28% 14% 18% - of which other points of sale 2235 2882 21% 21% 12% 13% Third-party distribution 634 962 27% 13% 33% 33% 3% 4% Total revenue 19009 21868 12% 1% 11% 11% 100% 100% STORE NETWORK Number of points of sale 2020 2019 Growth Concept stores 2690 2770 80 - of which Pandora owned 1382 1397 15 - of which franchise owned 797 856 59 - of which third-party distribution 511 517 6 Other points of sale 4402 4657 255 2020 marked a milestone in Pandora’s turna- round with several strong signs that the ini- tiatives under Programme NOW are working. Pandora has experienced increased brand momentum, increased desire for the brand and has seen several digital and commercial initiatives paying o. Despite being a tough and uncertain year, Pandora came through 2020 in good shape. Pandora started the year with positive organic growth in January and February before a global pandemic swept the world forcing Pandora to temporarily close stores. Focus then shifted away from commercial plans and into protecting customers and employees. As Pandora was forced to temporarily close stores, demand shifted towards online sales where Pandora was able to successfully recoup signicant revenue thanks to the large investments in digital in- itiatives made in recent years. Pandora saw the initiatives drive an increased level of trac online, which together with a much stronger conversion rate saw online sales grow more than 100% compared with 2019. On the other hand, Pandora experienced a double digit revenue decline in the physical network. Trac into physical stores was down all year by high double digits, following the temporarily closed stores and social restrictions guidelines in most countries putting pressure on retail opera- tions. 2020 ended at -11% organic growth, as the online sales were not able to fully mitigate the lost revenue in the physical network, yet Pandora saw a sequential improvement during the year ending Q4 with 4% positive organic growth. Revenue by key market Pandora delivered a strong underlying performance in many of its key markets. Especially in the UK the large and mature online store secured a strong performance throughout the year despite lockdowns. Performance in the US was particularly strong in the second half of the year, when the commercial comeback and large share of voice delivered signicant results. Italy started the year well, but performance was impacted by store closures and lockdowns as Italian consumers have a clear preference for accessing the brand in physical stores. China continues to be structurally challenged. Revenue by product The two new Global Business Units, Moments and Collabs and Style and Upstream Innovation, generated sell-out growth of -13% and -12% respectively. The total share of business for Charms and Bracelets was 70%, in line with 2019 and continues to be the core of Pandora business. Store network development In 2020, Pandora closed net 80 of the concept stores due to a general pruning of the store network. The closed stores were performing unsatisfactorily, even before the lockdowns. Some store openings were delayed or put on hold due to COVID-19, particularly in Latin America and China. 4242 FINANCIAL REVIEW GROUP PROFITABILITY COST OF SALES AND GROSS PROFIT DKK million 2020 2019 Growth Share of revenue 2020 Share of revenue 2019 Revenue 19009 21868 13% 1000% 1000% Cost of sales 4475 4950 10% 235% 226% Gross prot excl. restructuring costs 14534 16919 14% 765% 774% Restructuring costs 159 1016 84% 08% 46% Total gross prot incl. restructuring costs 14375 15903 10% 756% 727% OPERATING EXPENSES DKK million 2020 2019 Growth Share of revenue 2020 Share of revenue 2019 Sales and distribution expenses 6234 6259 0% 328% 286% Marketing expenses 2717 2696 1% 143% 123% Administrative expenses 1702 2110 19% 90% 96% Total operating expenses excl. restructuring costs 10652 11065 4% 560% 506% Restructuring costs 1038 1009 3% 55% 46% Total operating expenses incl. restructuring costs 11691 12074 3% 615% 552% Protability Gross margin was slightly down compared with 2019 (-0.9%) mainly following negative impacts from higher silver prices, for- eign exchange rates and a higher share of online revenue, which was partially oset by continued cost reductions. OPEX excluding restructuring costs decreased by 4% compared with 2019 driven by cost measures during the lockdown peri- ods following an overall decision to protect cash and foreign exchange development favourably impacting OPEX by DKK 0.2 billion. In 2020, Pandora received DKK 225 million in govern- ment COVID-19 relief. We have deliberately continued to invest heavily in marketing to ensure continued strong brand momen- tum and share of voice, leveraging Pandora’s favourable cash position. The EBIT margin excluding restructuring costs ended at 20.4%, a very protable and healthy level despite signicant disruption from COVID-19. 4343 FINANCIAL REVIEW CASH FLOW AND INVESTMENTS DEVELOPMENT IN OPERATING WORKING CAPITAL DKK million 2020 2019 Growth Share of revenue 2020 Share of revenue 2019 Inventories 1949 2137 9% 103% 98% Trade receivables 870 1643 47% 46% 75% Trade payables 3211 3095 4% 169% 142% Total 391 684 157% 21% 31% Working capital The operating working capital ended historically low at -2% of revenue. As a result of successful negotiations with suppliers, trade payables developed favourably this year. Pandora does not consider the current level of working capital sustainable. In 2021, Pandora plans for a higher inventory level and expects lower trade payables resulting from the cessation of Programme NOW restructuring costs. SEGMENT PERFORMANCE REVENUE BY OPERATING SEGMENT DKK million 2020 2019 Sell-out growth Share of revenue 2020 Share of revenue 2019 Moments and Collabs 13059 15095 13% 69% 69% Style and Upstream Innovation 5950 6774 12% 31% 31% Total 19009 21868 13% 100% 100% The two new Global Business Units, Moments and Collabs and Style and Upstream Innovation, generated sell-out growth of -13% and -12% respectively. The share of business for Moments and Collabs was 69% in total, the same level as 2019. Despite a decline in all product categories due to the outbreak of COVID-19, the performance within each product category is satisfactory. We will continue to invest in new designs and develop the product oering. 4444 FINANCIAL REVIEW 05 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER CONSOLIDATED INCOME STATEMENT DKK million Notes 2020 2019 Revenue 21 19,009 21,868 Cost of sales 24 31 32 -4,634 -5,966 Gross prot 14,375 15,903 Sales, distribution and marketing expenses 22 24 31 32 -9,155 -9,305 Administrative expenses 22 24 31 32 -2,536 -2,770 Operating prot 21 2,684 3,829 Finance income 46 316 351 Finance costs 46 -507 -351 Prot before tax 2,494 3,829 Income tax expense 26 -556 -884 Net prot for the year 1,938 2,945 Earnings per share, basic (DKK) 42 20.0 30.3 Earnings per share, diluted (DKK) 42 19.9 30.1 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME DKK million Notes 2020 2019 Net prot for the year 1,938 2,945 Other comprehensive income: Items that may be reclassied to prot/loss for the year Exchange rate adjustments of investments in subsidiaries -609 226 Commodity hedging instruments: - Realised in net cost of sales 11 6 - Realised in net nancials -31 -16 - Realised in inventories -234 -55 - Fair value adjustments 490 83 Foreign exchange hedging instruments: - Realised in net nancials -49 -41 - Fair value adjustments 21 24 Tax on other comprehensive income, income/expense 26 -13 -27 Items that may be reclassied to prot/loss for the year, net of tax -416 200 Items not to be reclassied to prot/loss for the year Actuarial gain/loss on dened benet plans, net of tax 24 6 - Items not to be reclassied to prot/loss for the year, net of tax 6 - Other comprehensive income, net of tax -410 200 Total comprehensive income for the year 1,528 3,145 4646 FINANCIAL STATEMENTS ASSETS DKK million Notes 2020 2019 Goodwill 4,247 4,416 Brand 1,057 1,057 Distribution 1,110 1,140 Other intangible assets 529 831 Total intangible assets 31 6,943 7,445 Property, plant and equipment 32 2,054 2,585 Right-of-use assets 33 3,007 4,010 Deferred tax assets 26 764 675 Other nancial assets 244 290 Total non-current assets 13,012 15,006 Inventories 35 1,949 2,137 Trade receivables 36 870 1,643 Right-of-return assets 38 62 73 Derivative nancial instruments 44 45 351 187 Income tax receivable 83 467 Other receivables 745 1,004 Cash 2,912 1,054 Total current assets 6,972 6,565 Total assets 19,984 21,571 EQUITY AND LIABILITIES DKK million Notes 2020 2019 Share capital 41 100 100 Treasury shares 41 -93 -1,964 Reserves 750 1,167 Dividend proposed 42 - 836 Retained earnings 6,632 5,110 Total equity 7,389 5,249 Provisions 37 370 278 Loans and borrowings 43 44 2,066 7,962 Deferred tax liabilities 26 368 235 Total non-current liabilities 2,804 8,476 Provisions 37 29 53 Refund liabilities 38 654 753 Contract liabilities 38 82 71 Loans and borrowings 43 44 3,996 2,069 Derivative nancial instruments 44 45 119 115 Trade payables 44 3,211 3,095 Income tax payable 382 438 Other payables 44 1,317 1,251 Total current liabilities 9,790 7,846 Total liabilities 12,595 16,322 Total equity and liabilities 19,984 21,571 CONSOLIDATED BALANCE SHEET AT DECEMBER 4747 FINANCIAL STATEMENTS DKK million Notes Share capital Treasury shares Translation reserve Hedging reserve Dividend proposed Retained earnings Total equity 2020 Equity at 1 January 100 -1,964 1,112 54 836 5,110 5,249 Net prot for the year - - - - - 1,938 1,938 Other comprehensive income, net of tax - - -577 161 - 6 -410 Total comprehensive income for the year - - -577 161 - 1,944 1,528 Share-based payments 24 25 - 14 - - - 76 90 Purchase of treasury shares 41 - -431 - - - - -431 Sale of treasury shares 1 41 - 2,288 - - - -509 1,779 Dividend paid 42 - - - - -836 11 -825 Dividend proposed 42 - - - - - - - Equity at 31 December 100 -93 535 215 - 6,632 7,389 Dividend paid in 2020 relating to the 2019 results was DKK 9 per share, corre- sponding to DKK 825 million (2019: DKK 896 million). Furthermore, in 2019, DKK 860 million was paid as part of the commitment to pay bi-annual dividend in 2019 relating to the 2019 results. Due to the uncertainty from COVID-19 Pandora does not propose any dividend relat- ing to the 2020 results. For additional shareholder information about dividend, read more on page 39 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 2019 Equity at 1 January 110 -3,469 913 54 920 7,891 6,419 Net prot for the year - - - - - 2,945 2,945 Other comprehensive income, net of tax - - 199 1 - - 200 Total comprehensive income for the year - - 199 1 - 2,945 3,145 Fair value adjustments of obligation to acquire non-controlling interests - - - - - 19 19 Share-based payments 24 25 - 13 - - - -8 5 Purchase of treasury shares 41 - -2,583 - - - - -2,583 Reduction of share capital 41 -10 4,075 - - - -4,065 - Dividend paid 42 - - - - -1,794 38 -1,756 Dividend proposed 42 - - - - 1,710 -1,710 - Equity at 31 December 100 -1,964 1,112 54 836 5,110 5,249 On 5 May 2020, Pandora initiated an accelerated book-building for the sale of 8 million treasury shares, which was carried out on the same day, generat- ing approximately DKK 1.8 billion in net proceeds. 4848 FINANCIAL STATEMENTS DKK million Notes 2020 2019 Operating prot 2,684 3,829 Depreciation and amortisation 2,315 2,319 Share-based payments 25 70 20 Change in inventories -96 1,284 Change in receivables 869 -65 Change in payables and other liabilities 724 808 Other non-cash adjustments 47 -155 -20 Interest etc. received 3 13 Interest etc. paid -247 -178 Income tax paid 26 -192 -1,233 Cash ows from operating activities, net 5,975 6,775 Acquisition of subsidiaries and activities, net of cash acquired 34 -12 -148 Purchase of intangible assets -130 -272 Purchase of property, plant and equipment -374 -540 Change in other non-current assets 19 66 Proceeds from sale of property, plant and equipment 13 18 Cash ows from investing activities, net -484 -877 Acquisition of non-controlling interests -42 -311 Dividend paid 42 -825 -1,756 Purchase of treasury shares 41 -431 -2,583 Sale of treasury shares 41 1,778 - Proceeds from loans and borrowings 43 5,861 5,626 Repayment of loans and borrowings 43 -9,073 -6,088 Repayment of lease commitments 43 -839 -1,138 Cash ows from nancing activities, net -3,571 -6,250 Net increase/decrease in cash 1,920 -352 DKK million Notes 2020 2019 Cash at 1 January 1 1,054 1,387 Exchange gains/losses on cash -62 19 Net increase/decrease in cash 1,920 -352 Cash at 31 December 1 2,912 1,054 Cash ows from operating activities, net 5975 6775 - Interest etc. received 3 13 - Interest etc. paid 247 178 Cash ows from investing activities, net 484 877 - Acquisition of subsidiaries and activities, net of cash acquired 12 148 Free cash ow incl. IFRS 16 (excluding lease payments) 5747 6213 Free cash ow excl. IFRS 16 (including lease payments) 4908 5075 Unutilized committed credit facilities 44 6998 2345 The above cannot be derived directly from the income statement and the balance sheet. 1 Cash comprises cash at bank and in hand. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER ACCOUNTING POLICIES Cash flows from operating activities are presented using the indirect method. Cash flows in currencies other than the functional currency are translated at the average exchange rates for the month in question, unless these differ significantly from the rates at the transaction dates. 4949 FINANCIAL STATEMENTS Notes The notes are grouped into ve sections related to key gures. The notes contain the relevant nancial information as well as a description of accounting policies applied for the topics of the individual notes. Section 1 BASIS OF PREPARATION 51 1.1 Principal accounting policies 52 1.2 New accounting policies and disclosures 53 1.3 Management’s judgements and estimates under IFRS 54 Section 2 RESULTS FOR THE YEAR 55 2.1 Segment and revenue information 56 2.2 Programme NOW restructuring costs 59 2.3 Government grants 59 2.4 Sta costs 60 2.5 Share-based payments 61 2.6 Taxation 63 Section 3 INVESTED CAPITAL AND WORKING CAPITAL ITEMS 66 3.1 Intangible assets 67 3.2 Property, plant and equipment 71 3.3 Leases 72 3.4 Business combinations 74 3.5 Inventories 75 3.6 Trade receivables 75 3.7 Provisions 76 3.8 Contract assets and liabilities 77 Section 4 CAPITAL STRUCTURE AND NET FINANCIALS 78 4.1 Share capital 79 4.2 Earnings per share and dividend 80 4.3 Net interest-bearing debt 81 4.4 Financial risks 82 4.5 Derivative nancial instruments 85 4.6 Net nancials 86 4.7 Other non-cash adjustments 86 Section 5 OTHER DISCLOSURES 87 5.1 Contingent liabilities 88 5.2 Related parties 88 5.3 Fees to independent auditor 88 5.4 Events occurring after the reporting period 88 5.5 Companies in the Pandora Group 89 5.6 Financial denitions 89 CONTENTS 5050 FINANCIAL STATEMENTS BASIS OF PREPARATION SECTION 1 This section introduces Pandora’s accounting policies and signicant accounting estimates. A more detailed description of accounting policies and signicant estimates related to specic reported amounts is presented in the respective notes. The purpose is to provide transparency on the disclosed amounts and to describe the relevant accounting policy, signicant estimates and numerical disclosure for each note. Pandora’s accounting policies and accounting estimates 5151 FINANCIAL STATEMENTS Pandora A/S is a public limited company with its registered oce in Denmark. The Annual Report for the period 1 January – 31 December 2020 comprises the consolidated nancial statements of Pandora A/S and its subsidiaries (the Group) as well as separate nancial statements for the Parent Company, Pandora A/S. The Annual Report has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional requirements of the Danish Financial Statements Act. The Annual Report has been prepared on a historical cost basis, except for derivative nancial instruments, which have been measured at fair value. The Annual Report is presented in Danish kroner and all amounts are in million (DKK million), unless otherwise stated. Due to rounding, numbers presented throughout this report may not add up precisely to the totals and percentages may not precisely reect the absolute gures. After the reorganisation announced on 4 March 2020, the reportable segments have been reorganised as of Q2 2020 in two Global Business Units: Moments and Collabs and Style and Upstream Innovation. For information on segments, see note 2.1. As part of Pandora’s reorganisation, the cost of certain func- tions in the markets previously recognised under Administra- NOTE . PRINCIPAL ACCOUNTING POLICIES tive expenses is reclassied to Sales & Distribution expenses. This change has been applied prospectively from 1 January 2020 and the comparative gures have not been restated. The impact of the change in 2019 would have been an increase in Sales & Distribution expenses of approximately DKK 350 million and a corresponding decrease in Administrative expenses. Due to COVID-19, Pandora was entitled to government grants in 2020. These are recognised where there is reasonable assur- ance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as a deduction in reporting the related costs, for which it is intended to compensate, and over the time these costs are expensed. Apart from changes listed above and changes due to the imple- mentation of new or amended standards and interpretations as described in note 1.2 , accounting policies are unchanged from last year. ACCOUNTING POLICIES The overall accounting policies applied to the Annual Report as a whole are described below. The accounting policies related to specific line items are described in the notes to which they relate. The description of accounting policies in the notes forms part of the overall description of Pandora’s accounting policies. 2.1 Segment and reve- nue information 2.2 Programme NOW restructuring costs 2.3 Government grants 2.4 Staff costs 2.5 Share-based payments 2.6 Taxation 3.1 Intangible assets 3.2 Property, plant and equipment 3.3 Leases 3.4 Business combinations 3.5 Inventories 3.6 Trade receivables 3.7 Provisions 3.8 Contract assets and liabilities 4.2 Earnings per share and dividend 4.3 Net interest- bearing debt 4.5 Derivative financial instruments 4.6 Net financials Alternative performance measures Pandora presents nancial measures in the Annual Report that are not dened according to IFRS. Pandora believes these non- GAAP measures provide valuable information to investors and Pandora’s management when evaluating performance. Since other companies may calculate these dierently from Pandora, they may not be comparable to the measures used by other companies. These nancial measures should therefore not be considered to be a replacement for measures dened under IFRS. For denitions of the performance measures used by Pandora, see note 5.6. Consolidated nancial statements The consolidated nancial statements comprise the nancial statements of the Parent Company and its subsidiaries. Subsid- iaries are fully consoli dated from the date of acquisition, being the date on which Pandora obtains control, until the date that such control ceases. All intercompany balances, income and expenses, unrealised gains and losses and dividends resulting from intercompany transactions are eliminated in full. Functional and presentation currency The consolidated nancial statements are presented in Danish kroner, DKK, which is also the functional currency of the Parent Company. Each subsidiary determines its own functional cur- rency, and items recognised in the nancial statements of each entity are measured using that functional currency. Transactions and balances Transactions in foreign currencies are initially recognised in the Group entities at their respective functional currency rates NOTES 5252 FINANCIAL STATEMENTS prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange ruling at the reporting date. All adjustments are recognised in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Group companies with another functional currency than DKK The assets and liabilities of foreign subsidiaries are translated into DKK at the rate of exchange prevailing at the reporting date, and their income statements are translated at the ex- change rates prevailing at the dates of the transactions. Exchange rate adjustments arising on translation are recognised in other comprehensive income. On disposal of a foreign subsidiary, the component of other comprehensive income relating to that particular foreign operation is recognised in the income statement. Consolidated income statement The consolidated income statement is presented based on costs classied by function. Cost of sales comprises direct and indirect expenses incurred to generate revenue for the year, compris- ing raw materials, consumables, production sta, depreciation, amortisation and impairment losses in respect of production equipment. NOTE . PRINCIPAL ACCOUNTING POLICIES CONTINUED NOTE . NEW ACCOUNTING POLICIES AND DISCLOSURES Implementation of new or amended standards and interpretations Pandora has adopted all new or amended standards (IFRS) and interpretations (IFRIC) as adopted by the EU and which are ef- fective for the nancial year 1 January – 31 December 2020. The implementation of these new or amended standards and inter- pretations had no material impact on the nancial statements for the year apart from the amendment in IFRS 16. Amendment to IFRS 16 Leases On 28 May 2020, the IASB issued COVID-19-Related Rent Concessions – amendment to IFRS 16 Leases. The IASB amend- ed the standard to provide relief to lessees from applying IFRS 16 guidance on lease modication accounting for rent conces- sions arising as a direct consequence of the COVID-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a COVID-19 pandemic-related rent concession from a lessor is a lease modication. A lessee that makes this election accounts for any change in lease payments resulting from the COVID-19 pandemic-related rent concession the same way it would account for the change under IFRS 16 if the change was not a lease modication. The practical expedient applies only to rent concessions occurring as a direct consequence of the COVID-19 pandemic and only if all of the following conditions are met: • The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change Sales, distribution and marketing expenses comprise expenses related to the distribution of goods sold and sales campaigns, including packaging materials, brochures, wages and salaries and other expenses related to sales and distribution sta as well as depreciation, amortisation and impairment losses in respect of distribution equipment. Administrative expenses comprise expenses incurred in the year to manage Pandora, including expenses related to admin- istrative sta and depreciation, amortisation and impairment losses in respect of assets used in the administration. The allocation of amortisation and impairment losses from intangible assets is presented in note 3.1 and allocation of depreciation and impairment losses from property, plant and equipment in note 3.2. 5353 FINANCIAL STATEMENTS NOTE . MANAGEMENT’S JUDGEMENTS AND ESTIMATES UNDER IFRS SIGNIFICANT ACCOUNTING ESTIMATES In preparing the consolidated financial state- ments, Management makes various accounting estimates and assumptions that form the basis of the presentation, recognition and measure- ment of Pandora’s assets and liabilities. Determining the carrying amounts of some assets and liabilities requires estimates and assumptions concerning future events. Estimates and assumptions are based on historical experience and other factors, which Management assesses to be reasonable, but which by their nature involve uncertainty and unpredictability. These assumptions may have to be revised, and unexpected events or circumstances may occur. Pandora is subject to risks and uncertainties that may lead to actual results differing from these estimates, both positively and negatively. COVID-19 Due to the COVID-19 outbreak, Pandora has assessed the value of intangible assets and property, plant and equipment. Due to the change of operating segments, an impairment test was carried out in Q2 2020. No impair- ment was identified and the impairment test is still considered to include sufficient head- room. As there is limited visibility on the future COVID-19 development, Pandora will continue assessing the value of the assets including the terms of the leasing contracts and any gov- ernment grants. Pandora has also considered the recoverability of accounts receivable and the inventory value and has not identified any impairment write down. Specific risks for Pandora are discussed in the relevant sections of the Management’s review and in the notes. The areas that involve a high degree of judge- ment and estimation and are material to the financial statements are described in more detail in the related notes. 2.1 Segment and reve- nue information 2.2 Programme NOW restructuring costs 2.6 Taxation 3.3 Leases 3.5 Inventories 3.8 Contract assets and liabilities 4.4 Financial risks 5.1 Contingent liabilities NOTE . NEW ACCOUNTING POLICIES AND DISCLOSURES CONTINUED • Any reduction in lease payments aects only payments originally due on or before 30 June 2021 (for example, a rent concession would meet this condition if it results in reduced lease payments before 30 June 2021 and increased lease payments that extend beyond 30 June 2021) • There is no substantive change to other terms and conditions of the lease. Pandora decided to apply the practical expedient issued by IASB for all contracts with rent concessions occurring as a direct consequence of COVID-19 and where it meets all conditions of the practical expedient. The eect of the amendment and its impact on nancial statements are presented in note 3.3. 5454 FINANCIAL STATEMENTS RESULTS FOR THE YEAR SECTION 2 22.3% 1,938 REVENUE DKK million 2019: 21,868 19,009 NET PROFIT DKK million 2019: 2,945 EBIT MARGIN excl. restructuring costs 2019: 26.8% 20.4% EFFECTIVE TAX RATE 2019: 23.1% This section comprises notes related to the results for the year, including reporting segment disclosures, and provides additional information related to two of Pandora’s perfor- mance measures: revenue and EBIT. A detailed description of the results for the year is given in the Financial review section of the Management’s review. 5555 FINANCIAL STATEMENTS NOTE . SEGMENT AND REVENUE INFORMATION As part of Pandora’s reorganisation, the reportable segments have been reorganised as of Q2 2020 in two Global Business Units, each responsible for the end-to-end performance of products. One Global Business Unit will have the responsibility mainly for core collections, including Moments and Collabs, while the other Global Business Unit will drive the newer collec- tions and innovations. The comparative gures for 2019 have been restated to reect the new segments. The two operating segments include all channels relating to the distribution and sale of Pandora products. Both segments derive their revenue from the types of products shown in the product information. Management monitors the protability of the operating seg- ments separately for the purpose of making decisions about resource allocation and performance management. Segment results are measured as gross prot. As Programme NOW restructuring costs cannot be meaningfully allocated to segments, segment performance is measured and reported excluding restructuring costs. Segment information is recognised and measured in accordance with IFRS. INCOME STATEMENT BY GLOBAL BUSINESS UNIT DKK million Moments and Collabs Style and Upstream Innovation Group 2020 Revenue 13059 5950 19009 Cost of sales 3253 1381 4634 Gross prot 9806 4569 14375 Operating expenses 11691 Consolidated operating prot (EBIT) 2684 Prot margin (EBIT margin) 141% Restructuring costs 1197 Prot margin (EBIT margin) excl. restructuring costs 204% 2019 Revenue 15095 6774 21868 Cost of sales 4150 1816 5966 Gross prot 10945 4958 15903 Operating expenses 12074 Consolidated operating prot (EBIT) 3829 Prot margin (EBIT margin) 175% Restructuring costs 2025 Prot margin (EBIT margin) excl. restructuring costs 268% Two Business Units 5656 FINANCIAL STATEMENTS GEOGRAPHIC INFORMATION, REVENUE DKK million 2020 2019 UK 2960 2861 Italy 2021 2272 France 1154 1169 Germany 1014 963 Denmark 30 53 US 4505 4677 Australia 1120 1118 China 1261 1970 Other 4943 6786 Total revenue 19009 21868 GEOGRAPHIC INFORMATION, ASSETS DKK million 2020 2019 Germany 645 633 Denmark 1952 2155 US 1701 1816 Australia 443 449 Thailand 535 641 Other 1669 1751 Total intangible assets 1 6,943 7,445 Property, plant and equipment 2 2054 2585 Right-of-use assets 3 3007 4010 Deferred tax assets 764 675 Other non-current nancial assets 244 290 Current assets 6972 6565 Total consolidated assets 19984 21571 1 Allocation of intangible assets in the table above reects the country in which the assets were acquired in order to capture the values, including goodwill, in the functional currency in which it is denominated. This is dierent from the presentation in note 3.1 where goodwill is allocated in accordance with Management reporting and monitoring. 2 The crafting facilities in Thailand accounted for DKK 1,130 million (2019: DKK 1,331 million), corresponding to 55.0% of property, plant and equipment (2019: 51.5%). 3 Right-of-use assets mainly relate to stores and oces. REVENUE BY PRODUCT CATEGORY DKK million 2020 2019 Charms 9646 11395 Bracelets 3751 4216 Rings 2774 3113 Earrings 1319 1487 Necklaces & Pendants 1519 1658 Total revenue 1 19009 21868 Goods transferred at a point in time 18939 21799 Services transferred over time 70 70 Total revenue 19009 21868 1 Figures include franchise fees etc. of DKK 129 million (2019: DKK 87 million), which have been allocated to the product categories. REVENUE BY SALES CHANNEL DKK million 2020 2019 Pandora physical stores 7943 11399 Pandora online stores 5483 2782 Wholesale and third-party distribution 5583 7687 Total revenue 19009 21868 NOTE . SEGMENT AND REVENUE INFORMATION CONTINUED Revenue by product category of Pandora products does not dier materially between segments. Product oerings are also similar between segments and grouped into the collections. The use of sales channels for the distribution of Pandora jewel- lery depends on the underlying market maturity and varies with- in markets but is consistent when viewed between segments. 5757 FINANCIAL STATEMENTS NOTE . SEGMENT AND REVENUE INFORMATION CONTINUED SIGNIFICANT ACCOUNTING ESTIMATES Recognition and measurement of revenue is based on estimates and judgements relating to expected sales returns allowed to customers in most countries. These judgements can have a material impact on the timing and measurement of recognised revenue as well as the level of the refund liability. Reductions in revenue from expected sales returns is calculated based on historical return patterns and on a case- by-case basis for commercial reasons. ACCOUNTING POLICIES Retail sales – products Revenue from the sale of products through Pandora owned and operated stores is recognised when a store sells a product to the customer. Payment is usually due when the customer picks up the product in the store or the product is delivered from an on- line store. However, in some instances collection is delayed and a receivable recognised, see note 3.6 Trade receivables. A refund liability and a right-of-return asset are recognised for products expected to be returned, see note 3.8 Contract assets and liabilities. The estimate for returned products is based on historical experience and expectations. Based on knowledge of the nature of returns, it is considered highly probable that a sig- nificant reversal of cumulative revenue recognised will not occur. Provisions for rebates and discounts granted to customers are recognised as a reduction in revenue. The Group’s obligation to repair or replace faulty products is part of the standard terms and is therefore recognised as a contract liability, see note 3.8 Contract assets and liabilities. Revenue is further measured excluding sales taxes and duties when these are passed on to customers. Sales taxes and duties incurred on sales that are not recoverable from the local taxation authorities are reported gross as part of revenue and cost of sales. Wholesale and third-party distributors – products Pandora manufactures and sells jewellery to wholesalers and third-party distributors. Revenue is recognised when control of the products has been transferred to the wholesaler or third-par- ty distributor. Change of control of the products occurs when the products have been delivered to the wholesaler or distributor and no further obligation exists that can affect the transfer of control. Delivery has taken place when the products have been shipped to the location of the wholesaler or distributor and control of the goods has been transferred to the buyer. Revenue from the sale is recognised based on the price specified in the contract. Revenue is only recognised to the extent it is highly probable that a significant reversal will not occur. A refund liability and a right-of-return asset are recognised for products expected to be returned, see note 3.8 Contract assets and liabilities. The estimate for returned products is based on historical experience and expectations. Based on knowledge of the nature of returns in the wholesale and distributor channels, it is considered highly probable that a significant reversal of cumulative revenue recog- nised will not occur. Provisions for rebates and discounts granted to wholesalers and franchisees are recognised as a reduction in revenue. The Group’s obligation to repair or replace faulty products is recognised on a gross basis in the income statement as both a reduction in revenue and a decrease in cost of goods sold. This is due to the handling of warranty claims, which leads to replace- ments instead of repairs. Revenue is further measured excluding sales taxes and duties when these are passed on to customers. Sales taxes and duties incurred on sales that are not recoverable from the local taxation authorities are reported gross as part of revenue and cost of sales. When control has been transferred, a receivable is recognised as the consideration to be paid is conditional only on the passage of time. The price specified in the contract is not adjusted for any financing element as payment terms never exceed 12 months. 5858 FINANCIAL STATEMENTS NOTE . PROGRAMME NOW RESTRUCTURING COSTS Programme NOW Programme NOW costs are reported in the income statement within the cost types it relates to. Restructuring costs amounted to DKK 1.2 billion (DKK 2.0 billion in 2019). Restructuring costs impacted the income statement as follows: • Cost of sales, DKK 0.2 billion primarily related to optimisa- tion in production (2019: DKK 1.0 billion, primarily related to inventory buyback of DKK 0.6 billion and product portfolio optimisation of DKK 0.3 billion). • Operating expenses, DKK 1.0 billion, primarily related to or- ganizational restructuring (DKK 0.3 billion), IT transformation (DKK 0.2 billion) and consultancy expenses (DKK 0.4 billion) (2019: DKK 1.0 billion, primarily related to brand restructuring activities (DKK 0.2 billion), IT transformation (DKK 0.1 billion), accelerated amortisations (DKK 0.2 billion) and consultancy costs (DKK 0.4 billion)). Restructuring costs impacted marketing expenses by DKK 0.1 billion (2019: DKK 0.2 billion), sales and distribution expenses by DKK 0.1 billion (2019: DKK 0.2 billion) and administrative expenses by DKK 0.8 billion (2019: DKK 0.6 billion). SIGNIFICANT ACCOUNTING ESTIMATES Estimates mainly relate to judgement applied by Executive Management in distinguishing between restructuring and normal operation. ACCOUNTING POLICIES In 2019 and 2020, Pandora is restructuring the business under the programme name “Programme NOW” to restore long-term sustainable growth and protect profitability. The restructuring costs are significant non-recurring items assessed by Executive Management, making a distinction between normal operation and restructuring. As Programme NOW restructuring costs cannot be meaning- fully allocated to reportable segments, segment performance is measured and reported excluding restructuring costs. Pandora has received government subsidies of DKK 225 million as a result of the COVID-19 pandemic for operations mainly in Europe and Australia. The majority of the subsidies were relat- ed to employee retention and facility cost and included among others the government programmes “Job Retention Scheme” and “Business Rates Relief Scheme” in the United Kingdom, “JobKeeper Program” in Australia and “ERTE” in Spain. There are no unfullled conditions or other contingencies attached to the received subsidies. During the pandemic Pandora has retained all sta onboard, including store sta while stores were closed. The government subsidies partially fund the cost hereof. NOTE . GOVERNMENT GRANTS ACCOUNTING POLICIES Government grants are recognised where there is reasona- ble assurance that the grant will be received and all attached conditions will be complied with. Income from government subsidies as a result of COVID-19 pandemic were recognised as a deduction in the expense item to which they are intended to compensate. 5959 FINANCIAL STATEMENTS The Group’s pension plans are primarily dened contribution plans. Pandora has dened benet plans relating to employees in Thailand. The dened benet plans are recognised at the present value of the actuarially measured obligations. In 2020, these obligations amounted to DKK 74 million (2019: DKK 75 million). In 2020, the actuarial gain was DKK 6 million (2019: gain of DKK 0 million) recognised in other comprehensive income. DKK million 2020 2019 Total remuneration to Board of Directors 78 74 Certain Board members received a xed travel fee as compensation when attending Board meetings abroad in 2020. Total travel fee for 2020 amounted to DKK 1.0 million (2019: DKK 0.9 million). For further details, see the Remuneration Report available on the Pandora website. NOTE . STAFF COSTS DKK million 2020 2019 Wages and salaries 3581 3811 Pensions 178 166 Share-based payments 70 20 Social security costs 177 263 Other sta costs 472 553 Total sta costs 4478 4814 Sta costs have been recognised in the consolidated income statement: Cost of sales 913 1122 Sales, distribution and marketing expenses 2572 2816 Administrative expenses 993 876 Total sta costs 4478 4814 Average number of full-time employees during the year 22336 23736 DKK million Base pay Bonus Shares Benets Other Total Total remuneration to Executive Management 140 157 131 17 445 The above compensation includes DKK 1.2 million cost for bonus and DKK 1.0 million cost for shares related to the former executive management. Total remuneration to Executive Management 164 80 34 06 253 537 ’Other’ includes a sign-on bonus to Alexander Lacik of DKK 18.0 million, an amount of DKK 2.7 million (4 out of 9 months) related to a replacement reward to Anders Boyer, and DKK 4.7 million as part of a DKK 7.0 million cash bonus to Jeremy Schwartz, which was payable upon ending his service. For further details, see the Remu- neration Report available on the Pandora website. ACCOUNTING POLICIES Wages and salaries, social security contributions, leave and sick leave, bonuses and non-monetary benefits are recog- nised in the financial year in which services are rendered by employees of Pandora. Whenever Pandora provides long- term employee benefits, the costs are accrued to match the rendering of the services by the employees. Termination benefits are recognised at the time an agree- ment between Pandora and the employee is made and no future service is rendered by the employee in exchange for the benefits. 6060 FINANCIAL STATEMENTS Decisions to grant share-based incentive programmes are made by the Board of Directors in accordance with general guidelines on incentive pay for Pandora. The total cost related to share-based payments was DKK 70 million (2019: net cost of DKK 20 million). The programme for 2020 was recorded at target level as the target is expected to be met. The cost of share-based payments are included in sta costs. In the remaining vesting periods, an amount of DKK 95 million (2019: DKK 52 million) is expected to be recognised in respect of the current programmes. The weighted average remaining contractual life of performance shares at the end of the period was 2.9 years (2019: 2.1 years). For shares exercised in 2020, the average share price at the time of exercise was DKK 306. Long-term incentive programmes Each year, two incentive programmes are launched targeting ei- ther Executive Management or other employees. The calculated value of each programme is recognised over the vesting period (three years) based on the likelihood that programme targets will be met. For Executive Management, a further two-year holding period applies. NOTE . SHAREBASED PAYMENTS SHARES OUTSTANDING Executive Management Other employees Total Average exercise price per performance share, DKK Shares outstanding at 1 January 188413 502386 690799 42 Shares granted during the year 115491 446854 562345 Shares exercised during the year 32061 19079 51140 41 Shares lapsed during the year 42825 222548 265373 62 Shares outstanding at 31 December 229018 707613 936631 11 Shares outstanding at 1 January 101203 171768 272971 68 Shares granted during the year 118524 366868 485392 26 Shares exercised during the year 31314 31314 30 Shares lapsed during the year 36250 36250 51 Shares outstanding at 31 December 188413 502386 690799 42 6161 FINANCIAL STATEMENTS NOTE . SHAREBASED PAYMENTS CONTINUED NUMBER OF PERFORMANCE SHARES IN PANDORA A/S Expiry date Exercise price, DKK Shares 31 December 2020 Expected volatility Risk-free interest rate Maximum market value at launch (DKK million) Accumulated cost recognised (DKK million) Remaining value to be expensed (DKK million) Programme start date November 2018 1 2023 265 7865 43% 01% 2 2 March 2019 1 2022 265 260759 43% 06% 93 44 16 March 2019 1 2024 265 105662 43% 05% 27 12 4 July 2020 2023 000 446854 42% 06% 152 31 61 July 2020 2025 000 115491 42% 06% 36 9 15 Total number of performance shares outstanding 936631 310 99 95 1 Although technically structured as options for legacy Danish tax treatment reasons, the awards have the characteristics of Performance Share Units because the option exercise price is 1% of the share price. Assumptions The volatility of the shares is based on the historical volatility of the price of Pandora A/S’ shares. The risk-free interest rate is based on a Danish government bond with similar maturity. The dividend yield applied is equal to 4.5% for the 2020 pro- gramme and 5.9% for the 2019 programme and is based on the assumed future dividend over the vesting period and the share price on the date of the grant. Actual paid dividends may dier from the assumptions applied in the valuation of the market value. Given that the exercise price for one performance share equals up to 1% of the market price of one share at grant date, the fair value almost equals the market value of one share at grant date. The assumptions in the table therefore have very limited impact on the estimated fair value of performance shares granted. ACCOUNTING POLICIES Selected Pandora employees receive remuneration in the form of share-based payment transactions, whereby programme par- ticipants render services as consideration for equity instruments (“equity-settled transactions”). Equity-settled transactions The cost of equity-settled transactions with employees is meas- ured by reference to the fair value at the grant date. The calculat- ed fair values are based on either the Black-Scholes model or the Monte Carlo model according to the performance conditions of each programme. The cost of equity-settled transactions is recog nised as staff costs together with a corresponding increase in equity over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transac- tions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and Management’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or income for a period represents the movement in cumulative expenses recog- nised at the beginning and end of that period. 6262 FINANCIAL STATEMENTS INCOME TAX EXPENSE DKK million 2020 2019 Current income tax charge for the year 604 751 Change in deferred tax for the year 66 114 Impact of change in tax rates 2 1 Adjustment to current tax for prior years 52 29 Adjustment to deferred tax for prior years 68 47 Total income tax expense 556 884 Deferred tax on other comprehensive income 45 Corporate tax on other comprehensive income 32 27 Total tax on other comprehensive income 13 27 Income taxes Income tax expense Income tax expense was DKK 556 million in 2020, correspond- ing to an eective tax rate of 22.3% (2019: DKK 884 million, 23.1%) for the Group. The tax rate of 22.3% was negatively im- pacted by adjustments to previous years and paid withholding tax. The eective tax rate was reduced by non-taxable income in Thailand due to the Board of Investment agreements (BOIs). The corporate income tax rate in most of Pandora’s key markets is higher than the Danish tax rate of 22%, except for UK and Thailand. The eective tax rate (based on IFRS) per key market is illustrated in the table in the end of this note. RECONCILIATION OF EFFECTIVE TAX RATE AND TAX 2020 2019 % (DKK million) % (DKK million) Prot before tax 2494 3829 Corporate tax rate in Denmark, 22% 220% 549 220% 842 Deviation in foreign subsidiaries’ tax rates compared with the Danish rate 02% 5 10% 37 Deferred tax impact of change in tax rates 01% 2 00% 1 Non-taxable income and non-deductible expenses 13% 31 08% 31 Adjustment to tax for prior years 07% 16 05% 18 Non-capitalised tax assets, net 01% 2 01% 4 Withholding taxes 07% 17 03% 13 Eective income tax rate/income tax expense 223% 556 231% 884 NOTE . TAXATION SIGNIFICANT ACCOUNTING ESTIMATES Pandora is subject to income tax in the countries in which the Group operates, comprising various tax rates worldwide. Significant judgements are required in determining the ac- crual for income taxes, deferred tax assets and liabilities, and provision for uncertain tax positions. Provision for uncertain tax positions is measured according to IFRIC 23. As part of Pandora conducting business globally, tax and transfer pricing disputes with tax authorities may occur. Any unresolved disputes with local tax authorities are recognised as income tax payable/receivable based on the expected val- ue method or the most likely amount. Management believes that the provision made for uncertain tax positions is ade- quate. However, the actual obligation may deviate from this and is dependent on the result of litigations and settlements with the relevant tax authorities. ACCOUNTING POLICIES Income tax expense for the year comprises current tax and changes in deferred tax, including changes in tax rate, adjust- ment to prior years and changes in provision for uncertain tax positions. Tax is recognised in the income statement, except to the extent that it is related to items recognised in equity or othercomprehensive income. The tax rates and tax laws used to compute the amounts are those enacted or substantively enacted, by the reporting date, in the countries in which Pandora operates and generates taxable income. 6363 FINANCIAL STATEMENTS Deferred tax At the end of 2020, deferred tax assets amounted to DKK 764 million (2019: DKK 675 million) and deferred tax liabilities amounted to DKK 368 million (2019: DKK 235 million). Net de- ferred tax assets amounted to DKK 396 million (2019: DKK 440 million). Of the total deferred tax assets recognised, DKK 14 million (2019: DKK 3 million) related to tax loss carryforwards, the utilisation of which depends on future positive taxable income exceeding realised deferred tax liabilities. It is Management’s opinion that these tax loss carryforwards can be utilised. Tax assets not recognised, DKK 28 million (2019: DKK 30 million), relate to tax loss carryforwards that are not expected to be utilised in the foreseeable future. Tax losses that can expire amounted to DKK 14 million (2019: DKK 7 million). No deferred tax has been recognised in respect of entities’ earnings that are intended for distribution in the short term, as no tax will be payable on distribution. Only insignicant latent tax liabilities remained at 31 December 2020. These liabilities are not recognised as the Group is able to control this liability and it is considered probable that the liability will not crystallise in the foreseeable future. DEFERRED TAX DKK million 2020 2019 Deferred tax at 1 January 440 589 Exchange rate adjustments 15 4 Recognised in the income statement 2 161 Recognised in other comprehensive income 45 Recognised in equity, share-based payments 20 9 Impact of change in tax rates 2 1 Deferred tax at 31 December 396 440 Deferred tax assets 764 675 Deferred tax liabilities 368 235 Deferred tax, net 396 440 BREAKDOWN OF DEFERRED TAX DKK million 2020 2019 Intangible assets 612 616 Property, plant and equipment 6 5 Right-of-use assets 11 9 Current assets 792 840 Non-current assets and liabilities 197 199 Tax loss carryforwards 14 3 Deferred tax, net 396 440 NOTE . TAXATION CONTINUED ACCOUNTING POLICIES Deferred tax on all temporary differences between the car- rying amounts for financial reporting purposes and the tax base of assets and liabilities is measured using the balance sheet liability method. No deferred tax is recognised on temporary differences that arise from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transac- tion, affects neither accounting profit nor taxable profit or loss. The recognition of deferred tax assets includes the expected tax value of tax loss carryforwards to the extent that these tax assets can be offset against positive taxable income in the foreseeable future. The same applies to deferred tax assets related to investments in subsidiaries. Management has considered future taxable income and applied judge- ments to determine whether deferred tax assets should be recognised. Deferred tax assets and liabilities are measured according to current tax rules and at the tax rates expected to be effec- tive on elimination of the temporary differences. Deferred tax assets and liabilities are offset if the Group has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax relates to the same taxa- ble entity and the same tax authority. 6464 FINANCIAL STATEMENTS NOTE . TAXATION CONTINUED Tax policy Pandora is a large taxpayer and it is of great importance for Pandora to be a responsible taxpayer as well. This means that we focus on paying the correct amount of taxes at the right time in all countries where we do business. Pandora is commit- ted to ensuring compliance with the letter and spirit of tax laws in the markets in which we operate, while striving to maximise shareholder value in a responsible way. Pandora will not engage in aggressive tax planning and will only optimise the Group’s tax position in connection with the evolution of its operational, commercial and economic activities. Tax will be an outcome of the business strategy and will not drive business strategy. Pandora aims to minimise the level of tax risks at all times and actively seeks to identify, quantify, manage and monitor the tax position to ensure it will remain in line with the Group’s tax pol- icy. Pandora will refrain from unnecessarily complex tax set-ups, keeping a simple, business-aligned model that is well under- stood and based on in-depth analysis of tax and reputational impacts. Pandora will consider government-sponsored tax incentives where appropriate and in line with our code of conduct to support economic development, transfer of knowledge, job creation and maintaining good corporate citizenship. The Group tax policy, which has been approved by the Audit Commitee of Pandora, is available on www.pandoragroup.com. Paid income tax In 2020, Pandora paid DKK 192 million in income tax. Most of the tax payments are attributable to Pandora’s key markets shown in the table below. The signicant decrease in tax paid compared with previous years (2019: DKK 1,233 million) is caused by lower prot in general compared with 2019 as a result of COVID-19. The signicant decrease is further caused by a refund in Denmark (related to 2019) which exceed 2020 paid taxes of DKK 309 million resulting in a net refund of DKK 97 million (2019: 876 million which also included tax payments related to previous years). Tax paid, DKK million Eective tax rate, % 2020 2019 2020 Australia 47 74 37% China 18 2 16% Denmark 97 876 15% France 22 9 34% Germany 16 30 42% Italy 67 48 58% UK 33 21 27% USA 12 40 26% Thailand 27 18 4% Rest of the world 71 115 NA Total Group 192 1233 223% 6565 FINANCIAL STATEMENTS INVESTED CAPITAL AND WORKING CAPITAL ITEMS SECTION 3 491 10,540 OPERATING WORKING CAPITAL/ REVENUE 2019: 3.1% -2.1% INVESTED CAPITAL DKK million 2019: 14,268 CAPEX DKK million 2019: 822 The notes in this section describe the assets that form the basis for the activities of Pandora and the related liabilities. Operating working capital at the end of 2020 was -2.1% of revenue, compared to 3.1% at the end of 2019. Financial risks are described in note 4.4. WORKING CAPITAL DKK million Notes 2020 2019 Inventories 35 1949 2137 Trade receivables 36 870 1643 Trade payables 3211 3095 Operating working capital 391 684 Other receivables 807 1077 Current provisions 37 38 683 806 Net commodity derivatives 221 32 Other payables 1399 1281 Net working capital 1447 293 INVESTED CAPITAL DKK million Notes 2020 2019 Intangible assets 31 6943 7445 Property, plant and equipment 32 2054 2585 Right-of-use assets 33 3007 4010 Other non-current nancial assets 244 290 Non-current provisions 37 370 278 Net working capital 1447 293 Deferred tax, net 26 396 440 Currency derivatives 12 40 Income tax receivables/payable, net 299 29 Invested capital 10540 14268 In 2020 Pandora has updated the denition of Net working capital to include Commodi- ty derivatives and exclude Net tax payable. The 2019 gures has been restated to reect the change. 6666 FINANCIAL STATEMENTS DKK million Goodwill Brand Distri- bution Other intangible assets Total Cost at 1 January 4416 1057 1881 1705 9060 Acquisition of subsidiaries and activities 2 2 Additions 122 122 Disposals 274 17 291 Exchange rate adjustments 170 6 64 240 Cost at 31 December 4247 1057 1601 1747 8652 Amortisation and impairment losses at 1 January 741 874 1615 Amortisation for the year 30 296 326 Impairment loss for the year 82 82 Disposals 274 5 281 Exchange rate adjustments 6 28 33 Amortisation and impairment losses at 31 December 491 1218 1708 Carrying amount at 31 December 4247 1057 1110 529 6943 The impairment loss of DKK 82 million relates to scrapped software applications and design rights whose value in use has been estimated to be lower than the net book value. The loss is mainly included in cost of sales in the income statement. NOTE . INTANGIBLE ASSETS DKK million Goodwill Brand Distri- bution Other intangible assets Total Cost at 1 January 4278 1057 1879 2177 9391 Reclassication to right-of-use assets 454 454 Acquisition of subsidiaries and activities 59 1 59 Additions 266 266 Disposals 318 319 Exchange rate adjustments 80 2 34 116 Cost at 31 December 4416 1057 1881 1705 9060 Amortisation and impairment losses at 1 January 708 905 1613 Reclassication to right-of-use assets 209 209 Amortisation for the year 30 466 496 Disposals 304 304 Exchange rate adjustments 2 17 19 Amortisation and impairment losses at 31 December 741 874 1615 Carrying amount at 31 December 4416 1057 1140 831 7445 The majority of the intangible assets have been acquired through business combinations. Key money reclassied to right-of-use assets on 1 January 2019, see note 1.2. DKK million 2020 2019 Amortisation and impairment losses have been recognised in the income statement as follows: Cost of sales 105 52 Sales, distribution and marketing expenses 104 198 Administrative expenses 199 246 Total 408 496 6767 FINANCIAL STATEMENTS Goodwill Additions in 2020 relate to acquisitions of activities. Note 3.4 includes an overview of acquired goodwill for the year. Brand The ‘Pandora’ brand is the only brand of the Group that is capitalised in the nancial statements. It comprises a group of complementary intangible assets relating to the brand, domain name, products, image and customer experience related to products sold under the Pandora brand. The brand was ac- quired as part of the Pandora core business in 2008. Distribution Distribution includes distribution network and distribution rights. These are presented aggregated in 2020. The distribution network covers Pandora’s relations with its distributors. The main part of the distribution network was acquired with the Pandora core business in 2008. Distribution rights mainly relate to the distribution rights for Pandora products in North America. These were acquired with the American distributor in 2008 and the carrying amount at 31 December 2020 was DKK 1,034 million (2019: DKK 1,034 million). Other intangible assets Other intangible assets mainly comprise software. NOTE . INTANGIBLE ASSETS CONTINUED ACCOUNTING POLICIES All intangible assets are tested for impairment if there is any indication of impairment or at least annually. In addition, impairment testing of goodwill was per- formed in Q2 2020 after the change in the operating segments in Pandora. All the assumptions used are described on the following page. Goodwill Goodwill is initially recognised at the amount by which the purchase price for a business combina- tion exceeds the recognised value of the identifiable assets and liabilities acquired. Goodwill comprises future growth expectations, buyer-specific synergies, the workforce in place and know-how. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is not amor- tised, and impairment losses charged in previous years cannot be reversed. Brand Brand is initially recognised at cost based on the “Relief from Royalty” method, which is considered to have an indefinite useful life and is impairment tested annually. Distribution The distribution network is initially recognised at fair value based on an estimation of the costs the entity avoids by owning the intangible assets and not need- ing to rebuild the network (the cost approach). The distribution network is amortised over an expect- ed useful life of 15 years. The distribution rights for Pandora products in the North American market are measured based on a residual model, since the distribution agreement underlying the distribution rights is non- terminable. Consequently, the distribution rights are considered to have an indefinite usefullife. Other acquired distribution rights are initially recognised at cost based on the “Multi-period Excess Earnings” model and amortised over their expected useful lives. Other intangible assets Software is initially recognised at cost and amortised over 2-5 years. Amortisation is allocated to segments on a pro-rata basis based on the standard cost per segment. Impairment At each reporting date, Pandora assesses whether there is any indication that an asset may be impaired. If any such indication exists, or when annual impair- ment testing of an asset is required, Pandora estimates the recoverable amount of the asset. The recoverable amount of an asset is the higher of the fair value of the asset or cash-generating unit (CGU) less costs to sell and its value in use. The recov- erable amount is determined for the smallest group of assets that is independent from other assets or groups of assets. Where the carrying amount of an as- set or CGU exceeds its recoverable amount, the asset is written down to its recoverable amount. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. The most significant factors when assessing the po- tential need for impairment are: — decreasing revenue — decreasing brand value — changes to the product mix. The indicators above should be viewed in the context of Pandora’s relatively high margins and low asset base. The brand is applied and supported globally in all of the Group’s entities. The brand is maintained and preserved through common strategy and product development at Group level and marketing in the indi- vidual sales entities. The brand is consequently tested for impairment at Group level. Like the brand described above, goodwill is reported and managed internally at Group level. Due to the constraint in IAS 36 Impairment, goodwill is allocated to the grouped CGUs in the two operating segments for impairment testing purposes. It is Management’s opin- ion that this best reflects Pandora’s value creation. 6868 FINANCIAL STATEMENTS Method for impairment testing In the impairment test, the recoverable amount was compared with the carrying amount. The recoverable amount is based on a calculation of the value in use using cash ow estimates based on the budget for 2021 and expectations for the next three years. The long-term growth rate in the terminal period has been set so that it equals the expected long-term rate of ination. NOTE . INTANGIBLE ASSETS CONTINUED DISCOUNT RATES AND GROWTH RATES IN TERMINAL PERIOD Discount rate before tax Growth rate in terminal period Moments and Collabs 112% 2% Style and Upstream Innovation 113% 2% Group 113% 2% EMEA 102% 2% Americas 114% 2% Asia Pacic 129% 2% Group 109% 2% ALLOCATION OF INTANGIBLE ASSETS TO CGUS DKK million Goodwill Brand Distribution Moments and Collabs 2981 742 779 Style and Upstream Innovation 1265 315 331 Total 4247 1057 1110 EMEA 2545 Americas 972 1034 Asia Pacic 898 13 Group 1057 94 Total 4416 1057 1141 6969 FINANCIAL STATEMENTS Assumptions The calculations of the recoverable amounts of CGUs or groups of CGUs are based on the following key assumptions: Discount rates reect the current market assessment of the risks specic to each CGU or group of CGUs. The Group dis- count rates have been estimated based on a weighted average cost of capital for the industry. The rates have also been adjust- ed to reect the market assessment of any risk specic to each group of CGUs. The EBIT gures used in the impairment test are based on the budget for next year, prepared and approved by Management, and a forecast for the two subsequent years. The 2% growth rate applied is an estimate of the expected average ination in the terminal period. As such no real growth is applied to the terminal period when calculating the recover- able amounts. The EBIT margin in the budget of each group of CGUs is based on historical experience and expectations concerning: • revenue development taking into account development in network (stores, retail/wholesale share), product mix and market share as well as the COVID-19 impact on temporarily closed stores and online revenue growth • cost of sales based on raw materials consumption aected by mix of materials (stones, gold, silver and salaries) and average lagged hedge commodity prices at the time the budget is NOTE . INTANGIBLE ASSETS CONTINUED prepared. This includes also the potential impact of COV- ID-19 in the metal prices that has surged since Q2 2020 and the impact after the cost and commercial mitigating actions was considered • development in operating expenses • currency rates are based on actual rates at the time the budget is prepared. Net working capital in the budget for next year, relative to the revenue of each group of CGUs, is based on historical experi- ence and is maintained for the remainder of the expected lives. Net working capital thus increases on a linear basis as the level of activity increases. The impairment test of the Brand at Group level is based on the "Relief from Royalty" method. Due to the change of operating segments, an impairment test was carried out in Q2 2020. The impairment tests did not identify any need for impairment losses to be recognised. As there is limited visibility on the future COVID-19 develop- ment, Pandora will continue assessing the value of the assets. Based on sensitivity analyses, it is Management’s opinion that no probable change in any key assumptions would cause the carrying amounts of grouped CGUs or at Group level to exceed the recoverable amount. Even with a signicant reduction in growth rate and a decrease in discount rate, Management has not identied any impair- ment indicator. 7070 FINANCIAL STATEMENTS DKK million 2020 2019 Depreciation has been recognised in the income statement as follows: Cost of sales 241 165 Sales, distribution and marketing expenses 416 432 Administrative expenses 42 101 Total 699 698 NOTE . PROPERTY, PLANT AND EQUIPMENT DKK million Land and buildings Plant and equipment Assets under construction Total Cost at 1 January 1287 3591 33 4912 Additions 4 111 247 362 Disposals 34 146 180 Transfers 102 130 232 Exchange rate adjustments 121 225 5 351 Cost at 31 December 1238 3461 44 4742 Depreciation and impairment losses at 1 January 246 2081 2326 Depreciation for the year 136 563 699 Disposals 34 136 170 Exchange rate adjustments 25 142 167 Depreciation and impairment losses at 31 December 323 2366 2689 Carrying amount at 31 December 915 1095 44 2054 Cost at 1 January 1008 3148 122 4278 Acquisition of subsidiaries and activities 13 13 Additions 15 214 278 507 Disposals 7 120 128 Transfers 150 224 374 Exchange rate adjustments 122 112 7 241 Cost at 31 December 1287 3591 33 4912 Depreciation and impairment losses at 1 January 166 1478 1644 Depreciation for the year 62 636 698 Disposals 2 98 100 Exchange rate adjustments 20 64 84 Depreciation and impairment losses at 31 December 246 2081 2326 Carrying amount at 31 December 1041 1511 33 2585 ACCOUNTING POLICIES Property, plant and equipment is stated at cost, net of accu- mulated depreciation and accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life according to the table below. Asset Useful life Land Indenite Buildings 20-50 years Leasehold improvements Lease term Plant and equipment 3-5 years Other xtures and ttings 3-5 years 7171 FINANCIAL STATEMENTS NOTE . LEASES RIGHTOFUSE ASSETS DKK million 2020 2019 Property 2975 3972 IT 5 2 Cars 18 21 Other 10 16 Total right-of-use assets 3007 4010 Assets and liabilities related to leases. Amounts recognised in the balance sheet: Leases Pandora leases stores, various oces, oce equipment and cars. RECOGNISED DEPRECIATION AND IMPAIRMENT LOSSES ON RIGHTOFUSE ASSETS CHARGED TO THE INCOME STATEMENT FOR THE PERIOD JANUARY DECEMBER: DKK million 2020 2019 Property 1 1190 1105 IT 1 1 Cars 11 12 Other 5 7 Total depreciation and impairment losses on right-of-use assets for the period 1208 1125 LEASE LIABILITIES DKK million 2020 2019 Non-current 2066 2804 Current 993 1012 Total lease liabilities 3059 3816 Additions of right-of-use assets were DKK 817 million in 2020 (2019: DKK 522 million). Amounts recognised in the income statement: Lease liabilities are recognised in loans and borrowings. Costs recognised in the period for short-term and low-value leases were DKK 33 million (2019: DKK 30 million). Expenses are recognised on a straight-line basis. OTHER ITEMS RELATING TO LEASES DKK million 2020 2019 Interest income from sub-leases 1 1 Interest expense 97 106 Total interest for the period 96 104 COVID-19-related rent concessions of DKK 112 million have been recognised within sales and distribution expenses in the income statement in 2020. Rent of DKK 52 million has been deferred, meaning that rent payments have been postponed under agreements with land- lords. Overall nancing cash ow was positively impacted by DKK 164 million due to rent relief and rent deferrals. Total cash outow relating to leases was DKK 1,164 million (2019: DKK 1,643 million) for the period. This comprises of xed lease payments in scope of IFRS 16 of DKK 839 million (2019: DKK 1,138 million), variable lease payments of DKK 196 million (2019: DKK 371 million), interest paid of DKK 96 million (2019: DKK 104 million), and short-term and low-value leases of DKK 33 million (2019: DKK 30 million). Many of the Group’s property leases contain variable payment terms that are linked to the volume of sales made from leased stores according to normal market practice. In 2020, around 17% (2019: 23%) of the lease payments recognised in the income statement were variable rent. Pandora has estimated that a 1% increase in annual phys- ical store revenue would consequently result in a 0.7% (2019: 0.5%) increase in lease payments. The average usual store leases are ve years with a three to ve year option to extend in approximately 23% (2019: 23%) of current leases. Approxi- mately 20% of current leases are up for renegotiations in 2021. The estimated value of lease extensions that Pandora is not reasonably certain to exercise is around DKK 0.6 billion (2019: DKK 0.4 billion). 1 Including impairment losses of DKK 128 million due to revaluation of right-of-use assets in connection with COVID-19. 7272 FINANCIAL STATEMENTS NOTE . LEASES CONTINUED ACCOUNTING POLICIES Pandora applies a single recognition and measure- ment approach to all leases, except for short-term leases and low-value leases. Pandora recognises right-of-use assets at the com- mencement date of the lease when the asset is avail- able for use. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, lease payments made at or before the commencement date, key money, less any lease in- centives received. Key money is measured at cost and amortised over the term of the contract. Right-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. At each reporting date Pandora assesses whether there is any indication that a right-of-use asset may be impaired. If any such indication exists, Pandora carries out impairment testing for the relevant CGU. Pandora recognises lease liabilities at the commence- ment date of the lease, measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments less any lease incentives receivable. Some leases are exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. Payments relating to services are not included in lease liabilities. Some property leases contain variable payment terms that are linked to sales generated from a store. Variable lease payments that depend on sales are recognised in profit or loss in the period in which the condition that triggers those payments occurs and are not included in the lease liability. In calculating the present value of lease payments, Pandora uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change in the lease payments. Pandora applies the short-term lease recognition exemption to its short-term leases. Payments related to short-term leases and leases of low-value assets continue to be recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise some IT equipment and other office equipment. On 28 May 2020, the IASB issued COVID-19- Related Rent Concessions - amendment to IFRS 16 Leases. As a practical expedient, a lessee may elect not to assess whether a COVID-19 pandemic-related rent conces- sion from a lessor is a lease modification. Pandora de- cided to apply the practical expedient for all contracts with rent concessions occurring as direct consequence of COVID-19 and where all conditions of the practical expedient are met. SIGNIFICANT ACCOUNTING ESTIMATES When assessing the life of leases, Pandora considers the non-cancellable lease term and options to extend the lease where Pandora is reasonably certain to extend. Leases in Pandora mainly comprise stores, office buildings, cars, IT and other office equipment. Usual lease contracts for stores average five years with a three to five year option to extend in approximately 23% of current leases. The lease term for stores is assessed to be up to 10 years, depending on an internal store rating based on location, revenue and earnings. For office buildings, the lease term is usually five to 15 years. For other assets, the life is equal to the non-cancellable lease term, and extensions are not considered for these. The COVID-19 outbreak is deemed a significant change in the circumstances, which has led Pandora to re-negotiate store leases where possible. Pandora is renegotiating most of the lease contracts and does not intend to extend the existing contracts within existing terms. Pandora has also decided to execute termination options and communicated the decision to the landlords by sending termination letters. Both gave rise to the reassessment/reduction in the right-of-use assets by around DKK 0.4 billion. 7373 FINANCIAL STATEMENTS NOTE . BUSINESS COMBINATIONS Acquisitions in 2020 No acquisitions, to an extent of signicance to Pandora, were completed during 2020. Acquisitions after the reporting period No acquisitions took place after the reporting period. ACCOUNTING POLICIES Business combinations are accounted for using the acquisi- tion method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-con- trolling interests in the acquiree. For each business combination, the acquirer measures the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed. Subse- quent to initial recognition, goodwill is measured at cost less any accumulated impairment losses. As goodwill is reported and managed internally at Group lev- el, goodwill acquired should also be allocated to the Group. However, goodwill acquired is allocated to the grouped CGUs in the two operating segments for impairment testing purposes due to the constraint in IAS 36 Impairment. If any part of the cost of an acquisition is contingent on future events or performance, the cost is recognised at fair value at the time of acquisition. Changes to the fair value of the contingent payment is recognised in net financials in the income statement. Any changes to the fair value of obligations to acquire non-controlling interests (put options) are recognised directly in equity. ACQUISITIONS DKK million 2020 2019 Other intangible assets 1 Property, plant and equipment 4 13 Inventories 4 70 Assets acquired 8 84 Non-current liabilities 2 Other current liabilities 1 2 Liabilities assumed 3 2 Total identiable net assets acquired 5 82 Goodwill arising on acquisitions 2 59 Purchase consideration 7 140 Cash movements on acquisitions: Consideration transferred regarding previous years 1 , 2 5 12 Deferred payment (including earn-out) 5 Net cash ows on acquisitions 12 148 1 In 2019, consideration paid related to acquisitions was nal payment for acquired stores in the UK in the amount of DKK 10 million and in the US in the amount of DKK 2 million. 2 The deferred payment of DKK 5 million related to the store acquisitions in Mexico in 2019 is paid in 2020. 7474 FINANCIAL STATEMENTS DKK million 2020 2019 Raw materials and consumables 358 481 Work in progress 119 158 Finished goods 1392 1398 Point-of-sale materials 80 99 Total inventories at 31 December 1949 2137 Inventory write-downs at 1 January 837 539 Write-downs during the year 361 881 Utilised in the year 458 583 Inventory write-downs at 31 December 740 837 Write-downs Write-downs of inventories are recognised in cost of sales, DKK 312 million (2019: DKK 818 million), and operating expenses, DKK 49 million (2019: DKK 63 million). Write-downs include remelt costs. Remelting of goods (realised and unrealised) negatively impacted gross prot by DKK 110 million (2019: DKK 942 mil- lion, including costs related to product portfolio optimisation and inventory buyback from wholesale partners as part of the Commercial Reset under Programme NOW). Production overheads Production overheads are calculated using a standard cost method, which is reviewed regularly to ensure relevant NOTE . INVENTORIES ACCOUNTING POLICIES Inventories are valued at the lower of cost and net realisable value. Costs are accounted for on a first-in, first-out basis (FIFO). Besides raw materials, costs also include labour and a proportion of production overheads based on normal operating capacity, but excluding borrowing costs. Point-of-sale materials comprise purchase costs regarding equipment, displays and packaging materials etc. and are also accounted for on a FIFO basis. SIGNIFICANT ACCOUNTING ESTIMATES Estimates relating to write-downs are impacted by forecasting accurancy in the number of obsolete products whichs will need to be remelted. The impact from remelt is also influenced by development in the market prices of silver and gold. assumptions concerning capacity utilisation, lead times and other relevant factors. Net realisable value Net realisable value is based on the estimated selling price less estimated costs of completion and distribution. Alternatively, for inventories that are not expected to be sold, net realisable value is based on the remelt value of the reusable raw materials (primarily silver and gold). DKK million 2020 2019 Receivables related to third-party distribution and wholesale 600 1086 Receivables related to retail revenue sales 270 557 Total trade receivables at 31 December 870 1643 Ageing of trade receivables at 31 December Not past due 746 1419 Up to 30 days 124 184 Between 30 and 60 days 34 Between 60 and 90 days 4 Over 90 days 1 Total past due, not impaired 124 223 Total trade receivables at 31 December 870 1643 Development in impairment losses on trade receivables Impairment at 1 January 129 103 Additions 53 78 Utilised 11 10 Unused amounts reversed 44 43 Exchange rate adjustments 5 2 Impairment at 31 December 121 129 NOTE . TRADE RECEIVABLES 7575 FINANCIAL STATEMENTS Trade receivables are amounts due from the sale of goods sold in the ordinary course of business to wholesalers and distrib- utors or to landlords, malls or e-commerce providers respon- sible for the collection of cash on behalf of Pandora related to retail sales. While realised losses are immaterial and remain low, Pandora has applied an increased risk factor in light of COVID-19. The impairment on receivables has slightly decreased for the year. Realised losses remain within the expected range. Pandora applies the simplied approach to measure expected credit losses, using a lifetime expected loss allowance. In view of the low historical loss rates on receivables, adjusting these ACCOUNTING POLICIES Trade receivables are initially recognised at the amount of consideration that is unconditional unless they contain significant financing components, and consequently recog- nised at fair value. The Group holds trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. rates to reect current and forward-looking information on macroeconomic factors such as GDP and the unemployment rate that aect the ability of customers to settle receivables will not increase the risk of losses signicantly. The low risk is further supported by the compilation of receivables as these consist of a large population of immaterial amounts. Management continues to assess credit risks in order to ensure credit risk never exceeds the recognised write-down on trade receivables. For a further description of credit risk, see note 4.4 Financial risks. Changes in impairment are presented in the table on the previous page. NOTE . PROVISIONS DKK million 2020 2019 Provisions at 1 January 332 307 Additions in the year 142 180 Utilised in the year 26 102 Unused provisions reversed 33 64 Exchange rate adjustments 16 10 Provisions at 31 December 399 332 Provisions are recognised in the consolidated balance sheet as follows: Current 29 53 Non-current 370 278 Provisions at 31 December 399 332 Provisions Provisions include provisions for dened benet pension plans, obligations to restore leased property as well as other legal and constructive obligations. See note 5.1 for estimates relating to litigation. ACCOUNTING POLICIES Provisions are recognised when Pandora has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is recog- nised in the income statement net of any reimbursement. NOTE . TRADE RECEIVABLES CONTINUED 7676 FINANCIAL STATEMENTS NOTE . CONTRACT ASSETS AND LIABILITIES DKK million 2020 2019 Contract assets Receivables from sale of products, see note 3.6 870 1643 Right-of-return assets 62 73 Total contract assets 932 1716 Contract liabilities Prepayments from customers 10 7 Coupons, gift cards etc. 72 64 Refund liabilities 654 753 Total contract liabilities 736 824 ACCOUNTING POLICIES Pandora recognises a refund and warranty liability related to return rights provided to customers in most countries. A corresponding right-of-return asset is also included as part of contract assets. The value of the right-of-return asset is determined by how many of the returned products are expected to be sold. Remaining products are written down to remelt value together with returns covered by warranties. The refund liability for estimated sales returns is recognised when there is historical experience or when a reasonably accurate estimate of expected future returns can otherwise be made. The income effect recognised is the gross margin of the expected returns and the potential effect of writing down parts of the returned goods to remelt value. Changes to the right-of-return asset and refund liability are recog- nised gross in the income statement, i.e. as both revenue and cost of sales. Refund liability to cover warranty claims is based on expect- ed replacements provided for products still covered by warranty at the end of the period. The liability is recognised gross in the income statement, as both a reduction in rev- enue and in cost of goods sold. This is due to the handling of warranty claims, which lead to replacements instead of repairs. No costs to obtain contracts with customers have been cap- italised as part of contracts with customers either in 2020 or previous years. This is common practice in Pandora. SIGNIFICANT ACCOUNTING ESTIMATES In most countries, Pandora has provided return and warranty rights to customers. The handling of warranty claims leads to replacements instead of repairs. The recognised refund liabil- ity relating to return and warranty rights is assessed to a large extent on the basis of historical return patterns. DKK million Refund Warranty Total Liability at 1 January 428 325 753 Performance obligations to which consideration has been received 936 281 1217 Revenue recognised, included in the contract liability at 1 January 845 238 1084 Transfer between contract assets and liabilities 109 85 194 Exchange rate adjustments 27 10 38 Refund and warranty liability at 31 December 382 273 654 Liability at 1 January 553 316 869 Performance obligations to which consideration has been received 1214 399 1613 Revenue recognised, included in the contract liability at 1 January 1228 369 1596 Transfer between contract assets and liabilities 126 25 152 Exchange rate adjustments 15 3 18 Refund and warranty liability at 31 December 428 325 753 7777 FINANCIAL STATEMENTS MATURITY OF LOAN FACILITIES Undrawn revolving credit facilities 20222021 0 2 4 6 8 CAPITAL STRUCTURE AND NET FINANCIALS SECTION 4 This section includes notes related to Pandora’s capital structure and net nancials, including nancial risks (see note 4.4 ). As a consequence of its operations, investments and nancing, Pandora is exposed to a number of nancial risks that are monitored and managed by Pandora’s Group Treasury. Pandora uses a number of derivative nancial instruments to hedge its exposures to uctu- ations in commodity prices and similar. Derivative nancial instru- ments are described in note 4.5. Pandora’s capital structure policy is to maintain a leverage ratio (NIBD to EBITDA ratio) between 0.5 and 1.5 (excluding restructuring costs and including committed leases in accordance with IFRS 16). At 31 December 2020, the ratio excl. restructuring costs was 0.5x compared with 1.1x at 31 December 2019. The cash conversion was 183% in 2020 including committed leases payments compared with 133% in 2019. 0.5 — 1.5 NIBD to EBITDA ratio Pandora’s capital structure policy NET INTERESTBEARING DEBT DKK million 2020 2019 Loans and borrowings, non-current 5157 Lease liabilities, non-current 2066 2804 Loans and borrowings, current 3003 1057 Lease liabilities, current 993 1012 Other liabilities, current 41 Cash 2912 1054 Net interest-bearing debt 3151 9019 The undrawn committed facilities of DKK 7 billion underpins Pandora’s strong liquidity position 7878 FINANCIAL STATEMENTS At 31 December 2020, the share capital comprised 100,000,000 shares with a par value of DKK 1. No shares have special rights. In 2020, Pandora launched a share buyback programme under which Pandora expected to buy back own shares to a value of DKK 2.1 billion. The 2020 programme was suspended on 16 March due to the unprecedented COVID-19 circumstances. In 2020 Pandora bought 1,303,455 treasury shares, corresponding to a total purchase price of DKK 431 million. Of these 1,215,595 treasury shares corresponding to a total purchase price of DKK 412 million related to the 2019 share buyback programme, and 87,860 treasury shares corresponding to a total purchase price of DKK 19 million related to the 2020 share buyback programme. On 5 May 2020, Pandora sold 8,000,000 treasury shares through an accelerated book-building sale, generating approximately DKK 1.8 billion in net proceeds. Treasury shares All treasury shares are owned by Pandora A/S. Treasury shares include hedges for share-based incentive plans and restricted shares granted to the Executive Management and other employees. NOTE . SHARE CAPITAL SHARE CAPITAL Number of shares Nominal value (DKK) Balance at 1 January 100000000 100000000 Balance at 31 December 100000000 100000000 Balance at 1 January 110029003 110029003 Reduction of share capital 10029003 10029003 Balance at 31 December 100000000 100000000 TREASURY SHARES Number of shares Nominal value (DKK) Purchase price % of shares Balance at 1 January 7070524 7070524 1964356664 71% Used to settle performance shares 51140 51140 14363322 01% Purchase of treasury shares 1303455 1303455 430511739 13% Sale of treasury shares 8000000 8000000 2287762725 80% Balance at 31 December 322839 322839 92742356 03% Balance at 1 January 7825553 7825553 3469404257 71% Used to settle performance shares 31314 31314 12823609 00% Reduction of share capital 10029003 10029003 4075498431 91% Purchase of treasury shares 9305288 9305288 2583274447 93% Balance at 31 December 7070524 7070524 1964356664 71% 7979 FINANCIAL STATEMENTS NOTE . EARNINGS PER SHARE AND DIVIDEND DKK million 2020 2019 Prot attributable to equity holders 1938 2945 Weighted average number of ordinary shares 97048768 97250084 Eect of performance shares 374286 690799 Weighted average number of ordinary shares adjusted for the eect of dilution 97423054 97940883 Basic earnings per share, DKK 200 303 Diluted earnings per share, DKK 199 301 There have been no transactions between the reporting date and the date of completion of the Annual Report involving shares that would have signicantly changed the number of shares or potential shares in Pandora A/S. Dividend Due to the uncertainty from COVID-19 Pandora does not propose any dividend relating to the 2020 results. Declared dividend of DKK 9 per share, corresponding to DKK 825 million in 2019, was paid to the shareholders in 2020. No dividend was paid on treasury shares. Furthermore, in 2019 DKK 860 million was paid as part of the commitment to pay bi-annual dividend in 2019 relating to the 2019 results. Dividend paid has had no eect on the Group’s tax expense for the year. For additional shareholder information about dividend, read more on page 39 ACCOUNTING POLICIES Dividend proposed is recognised as a liability at the date of the adoption at the Annual General Meeting (declaration date). Bi-annual dividend is recognised as a liability at the declaration date. Distributable reserves Distributable reserves are based on the reserves of the parent company. When calculating the amount available for distribu- tion of dividend, treasury shares are deducted from distribut- able reserves. 8080 FINANCIAL STATEMENTS TOTAL LIABILITIES FROM FINANCING ACTIVITIES DKK million Financial liabilities 1 January Cash ows, net New leases Other Foreign exchange adjustments Financial liabilities 31 December Non-current borrowings 5157 2182 2976 Non-current lease liabilities 2804 588 1225 101 2066 Current borrowings 1057 1028 2976 1 3003 Current lease liabilities 1012 839 261 608 49 993 Total liabilities from nancing activities 10031 4050 849 617 150 6063 Non-current borrowings 6421 1263 5157 Non-current lease liabilities 3322 373 958 66 2804 Current borrowings 248 801 8 1057 Current lease liabilities 1082 1138 129 909 30 1012 Total liabilities from nancing activities 11073 1600 502 49 105 10031 includes the eect of the reclassication of the non-current portion of interest-bearing loans and borrowings, including lease liabilities, to current due to the passage of time, the eect of accrued but not yet paid interest on interest-bearing loans and borrowings, including lease liabilities, the upfront prepayment of lease liabilities and the eect of the lease modication & reassessment. The Group classies interest paid as cash ows from operating activities. NOTE . NET INTERESTBEARING DEBT ACCOUNTING POLICIES On initial recognition, interest-bearing debt and borrowings are measured at fair value less transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings are measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised and through the effective interest rate method. Amortised cost is cal- culated by taking into account any discount or premium at inception, and fees and other costs. Pandora has historically entered into put options with non-controlling interests of certain Group entities. The put option gives the non-controlling shareholder the right to sell its non-controlling interest to Pandora at a predefined exercise price, which is based on revenue. Financial liabilities relating to the acquisition of non-con- trolling interests are measured at fair value as if the put op- tions have already been exercised. The value is determined using the estimated present value of the expected cash out- flows required to settle the put options. The value is based on projected revenue and assuming that the put options will be exercised by the non-controlling interests at year end in the current financial year. Changes in the value of these lia- bilities as well as differences on settlement between actual cash outflows and expected cash outflows are accounted for as transactions directly in equity. All financial liabilities relating to the acquisition of non-controlling interests had been settled at the end of 2020. Subsidiaries whose non-controlling shareholdings are subject to put options are fully consolidated, i.e. with no recognition of a non-controlling interest. 8181 FINANCIAL STATEMENTS It is Pandora’s policy to hedge at least 50% of the combined commodity, exchange rate and interest rate risk. However, at least 70% of estimated commodity purchases must be hedged. The table below illustrates the sensitivity on 2020 revenue, EBIT and EBIT margin from exchange rates and commodity price movements. In addition, the sensitivity of assets and liabilities as of 31 December from currency movements is illustrated on the next page. Commodity price risk Raw material risk is the risk of uctuating commodity prices resulting in additional production costs. The most important raw materials are silver and gold, which are priced in USD. It is the policy of Pandora to ensure stable, predictable raw material prices. Based on a rolling 12-month production plan, the general policy is for Group Treasury to hedge at least 70% of the Group’s expected purchases. Purchases are hedged from 1 to 12 months forward with a hedge ratio target that decreases with time to maturity as illustrated in the table. Any deviation from the policy must be approved by the Audit Committee. Commodity hedging is updated at the end of each month or in connection with revised 12-months rolling production plans. Actual production may deviate from the 12-months rolling production plan. In case of deviations, the realised commodity hedge ratio may deviate from the estimated hedge ratio. The prot (loss) from commodity hedging goes to cost of sales as the hedges matures. For the fair value of hedging instruments, see note 4.5. Foreign currency risk Pandora’s presentation currency is DKK, but the majority of Pandora’s activities and investments are denominated in other currencies. Consequently, exchange rate uctuations may have a substantial impact on Pandora’s cash ows, prot (loss) and/ or nancial position in DKK. The majority of Pandora’s revenue is denominated in USD, CAD, AUD, GBP, CNY and EUR. The functional currency of subsidiaries is generally the local currency, and a substantial portion of Pandora’s costs relates to raw materials purchased in USD. As a consequence of its operations, investments and nancing, Pandora is exposed to a number of nancial risks that are moni- tored and managed by Pandora’s Group Treasury. To manage nancial risks, Pandora may use a number of nan- cial instruments, such as forward contracts, silver and gold swaps, currency and interest rate swaps, options and similar instruments within the framework of its current policies. Finan- cial risks are divided into commodity price risk, foreign currency risk, credit risk, liquidity risk and interest rate risk. NOTE . FINANCIAL RISKS 2020 2019 SENSITIVITY ANALYSIS ON EXCHANGE RATES AND COMMODITY PRICES 1 DKK million Change in exchange rate and commo- dity prices Revenue EBIT EBIT margin impact Revenue EBIT EBIT margin impact USD 10% 480 138 03% 577 112 00% CAD 10% 57 36 01% 67 42 01% AUD 10% 123 83 03% 112 68 02% GBP 10% 299 209 09% 286 186 06% EUR 1% 53 30 01% 65 28 01% CNY 10% 125 30 01% 197 78 02% THB 10% 227 12% 265 12% GOLD and SILVER 10% 124 07% 150 07% 1 Revenue and EBIT would have been impacted by the above amounts if exchange rates and commodity prices in 2020 had been higher than the realised exchange rates and commodity prices. The impact would have been the opposite if exchange rates and commodity prices had been decreasing with similar percentages. The analysis is based on the transaction currency. The analysis excludes the eects of hedging and time lag of inventory. 8282 FINANCIAL STATEMENTS Min Max COMMODITY HEDGE RATIO TARGET 4 – 6 MONTHS AHEAD 7 – 9 MONTHS AHEAD 10 – 12 MONTHS AHEAD 1 – 3 MONTHS AHEAD It is Pandora’s policy to hedge foreign currency risks related to the risk of declining net cash ows resulting from exchange rate uctuations. Pandora does not hedge balance sheet items or ownership interests in foreign subsidiaries. For 2021, 70% of the cash ows from the main currencies have been hedged based on a rolling 12-months liquidity forecast. Cash ows are hedged from 1 to 12 months forward with a hedge ratio that decreases with time to maturity. Foreign currency hedging is updated at the end of each month or in connection with revised 12-months rolling cash forecasts. The realised prot (loss) from exchange rate hedging goes to nancial items. The table below illustrates the currency revaluation impact in DKK million on net prot and changes in equity resulting from a change in the Group’s primary foreign currencies after the eect of hedge accounting. Credit risk Credit risk is primarily related to trade receivables, cash and unrealised gains on nancial contracts. The maximum credit risk related to nancial assets corresponds to the carrying amounts recognised in the consolidated balance sheet. It is Pandora’s policy for subsidiaries to be responsible for credit evaluation and credit risk on their trade receivables. In case of deviation from standard agreements, Group Treasury and/or the CFO must approve any signicant deviations from standard terms. Note 3.6 includes an overview of the credit risk related to trade receivables. Rating of trade receivables does not dier materi- ally either by type of customer or geographic location. The risk of further impairment is considered to be limited. Credit risks related to Pandora’s other nancial assets mainly in- clude cash and unrealised gains on nancial contracts. The cred- it risk is related to default of the counterparty with a maximum exposure corresponding to the carrying amount of the assets. Group Treasury is responsible for managing these credit risks. Liquidity risk Pandora’s cash conversion is high and Pandora maintains an adequate level of cash, debt and unutilised credit facilities to meet nancial obligations when due. Pandora’s liquidity risk is considered to be low. NOTE . FINANCIAL RISKS CONTINUED CURRENCY EXPOSURE FROM ASSETS AND LIABILITIES DKK million 31 December 2020 31 December 2019 Change in exchange rate Prot (loss) before tax Equity Prot (loss) before tax Equity USD 10% 118 36 149 203 CAD 10% 14 4 4 42 AUD 10% 2 35 16 34 GBP 10% 43 54 54 98 EUR 1% 2 31 18 15 THB 10% 52 121 28 330 CNY 10% 60 36 50 13 The movements in the income statement arise from monetary items (cash, borrowings, receivables and payables) where the functional currency of the entity diers from the currency that the monetary items are denominated in. The movements in equity arise from monetary items and hedging instruments where the functional currency of the entity diers from the currency that the hedging instruments or monetary items are denominated in. The impact would have been the opposite if ex- change rates had been decreasing by similar percentages. The analysis is based on the transaction currency. In addition, Pandora incurs costs denominated in THB. Changes in the exchange rate of these currencies versus DKK will result in changes to the translated value of future EBIT and cash ows. Pandora nances the majority of its subsidiaries’ cash require- ments via intercompany loans denominated in the local currency of the individual subsidiary. A devaluation of these currencies against DKK will result in a foreign exchange loss in the Parent Company. Exchange rate uctuations may lead to a decrease in revenue and an increase in costs and thus declining margins. In addition, exchange rate uctuations aect the translated value of the prots or losses of foreign subsidiaries and the translation of foreign currency assets and liabilities. 8383 FINANCIAL STATEMENTS REVENUE BREAKDOWN BY CURRENCY Other USD GBP EUR CAD CNY AUD 2019 5% 9% 3% 30% 13% 26% 14% 2020 6% 7% 3% 28% 16% 25% 15% LIABILITIES FALL DUE AS FOLLOWS DKK million Falling due within 1 year Falling due between 1 and 5 years Falling due after more than 5 years Total Non-derivatives Loans and borrowings 3033 3033 Lease liabilities 1079 1863 356 3298 Trade payables 3211 3211 Other payables 1317 1317 Contract liabilities 82 82 Derivatives Derivative nancial instruments 119 119 Total at 31 December 8841 1863 356 11060 Non-derivatives Loans and borrowings 1057 5157 6215 Lease liabilities 1094 2336 650 4080 Trade payables 3095 3095 Other payables 1210 1210 Contract liabilities 71 71 Derivatives Derivative nancial instruments 115 115 Fair value of obligation to acquire non-controlling interests (put-options) 41 1 41 Total at 31 December 6685 7494 650 14828 NOTE . FINANCIAL RISKS CONTINUED Pandora has revolving credit facilities of DKK 6,998 million com- mitted until May 2022 1 . Also, Pandora has a committed term loan of DKK 2,976 million maturing end-2021. Furthermore, Pandora has uncommitted credit facilities to ensure ecient and exible local liquidity management. The credit facilities are managed by Group Treasury. Pandora’s loan and credit agreements contain one nancial covenant that was amended during the renancing exercise in April 2020 to cater for potential COVID-19 impacts. The covenant was amended to 4.25x NIBD/EBITDA leaving material headroom before getting close to the covenant. Interest rate risk Interest rate risk is the risk of interest rate uctuations result- ing in changed interest rate payments and market value of the loan portfolio. At the reporting date, all interest-bearing loans and borrowings were based on oating interest rates. All else being equal, it is estimated that a general increase in interest rates by one percentage point would have no impact on prot before tax and equity, excluding tax eect (2019: DKK 75 million decrease). Contractual maturities of nancial liabilities The table to the right breaks the Group’s nancial liabilities down into relevant maturity groupings based on contractual maturities for: • all non-derivative nancial liabilities, and • net and gross settled derivative nancial instruments for which the contractual maturities are essential for an under- standing of the timing of the cash ows. The amounts disclosed in the table are the contractual undis- counted cash ows. Balances due within 12 months equal their carrying amounts as the impact of discounting is insignicant. The obligation of DKK 42 million to acquire non-controlling interests in Japan was settled in 2020. The following table includes the earn-out payment relating to Pandora Jewelry Central Western Europe A/S recognised at DKK 0 (2019: DKK 0). Based on the Group’s expectations for the future operation and the Group’s current cash resources, no other signicant liquidity risks have been identied. 1 Provided that Pandora extend or renance the term loan. 8484 FINANCIAL STATEMENTS Pandora uses a number of derivative nancial instruments to hedge its exposure to uctuations in commodity prices and exchange rates. Derivative nancial instruments include forward commodity contracts and forward exchange contracts. DKK million Assets Liabilities Carrying amount Hedge reserve, net of tax 2020 Commodities 231 10 220 206 Foreign exchange 120 108 12 9 Total derivative nancial instruments 351 119 232 215 2019 Commodities 55 23 32 23 Foreign exchange 132 92 40 31 Total derivative nancial instruments 187 115 72 54 Classication according to the fair value hierarchy The fair value at 31 December 2020 and 2019 of Pandora’s derivative nancial instruments was measured in accordance with level 2 in the fair value hierarchy (IFRS 13). Level 2 is based on non-quoted prices, observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). Pandora uses input from third-party valuation specialists to quote prices for unrealised derivative nancial instruments. The value of unrealised silver and gold instruments is tested against the prices observable at London Bullion Market Association (LBMA). The value of unreal- ised foreign exchange instruments is tested against observable foreign exchange forward rates. The value of nancial instruments recognised in other com- prehensive income is recycled from equity at the time the instrument is settled, i.e. within 12 months. Derivative nancial instruments that qualify for cash ow hedge accounting The hedges are expected to be highly eective due to the nature of the economic relation between the exposure and the hedge. The eective portion of the unrealised gain or loss on all hedg- ing instruments is recognised directly as other comprehensive income in the equity hedging reserve. The ineective portion is recognised in net nancials. The eective portion of the realised gain or loss on a commod- ity hedging transaction is recognised in Group inventories and subsequently to cost of sales whereas the ineective portion is realised in net nancials. NOTE . DERIVATIVE FINANCIAL INSTRUMENTS ACCOUNTING POLICIES Derivative financial instruments are initially recognised at fair value at the date on which a contract is entered into and are subsequently measured at fair value. For derivative financial instruments not traded in an active market, the fair value is determined using appropriate valuation methods. Such methods may include comparison with recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, or discounted cash flow analysis. Pandora has designated certain derivative financial instru- ments as cash flow hedges as defined under IFRS 9. Hedge accounting is classified as a cash flow hedge when the hedg- es of a particular risk is associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions. Pandora designates and documents all hedging relationships between commodity contracts and purchase transactions. The realised gain or loss on all forward exchange contracts is recognised in net nancials. The ineectiveness impact in net nancials is a gain of DKK 31 million (2019: gain of DKK 16 million). For information about risk management strategy, see note 4.4 Financial risks. 8585 FINANCIAL STATEMENTS OTHER NONCASH ADJUSTMENTS DKK million 2020 2019 Eects from exchange rate adjustments 52 48 Eects from derivative nancial instruments 91 61 Eects from IFRS16 rent relief 112 Other, including gains/losses from the sale of property, plant and equipment 4 7 Total other non-cash adjustments 155 20 NOTE . NET FINANCIALS CONTINUED NOTE . OTHER NONCASH ADJUSTMENTS FINANCE INCOME DKK million 2020 2019 Finance income from nancial assets and liabilities measured at fair value through the income statement: Fair value adjustments, derivative nancial instruments 149 121 Total nance income from derivative nancial instruments 149 121 Finance income from loans and receivables measured at amortised cost: Foreign exchange gains 160 214 Interest income, bank 6 7 Interest income, loans and receivables 1 9 Total nance income from loans and receivables 167 230 Total nance income 316 351 FINANCE COSTS DKK million 2020 2019 Finance costs from nancial assets and liabilities measured at fair value through the income statement: Fair value adjustments, derivative nancial instruments 68 63 Total nance costs from derivative nancial instruments 68 63 Finance costs from nancial liabilities measured at amortised cost: Foreign exchange losses 186 102 Interest on loans and borrowings 61 25 Interest on lease liabilities 97 106 Other nance costs 95 55 Total nance costs from loans and borrowings 439 288 Total nance costs 507 351 NOTE . NET FINANCIALS ACCOUNTING POLICIES Finance income and costs comprise interest income and expenses, realised and unrealised gains and losses on pay- ables/receivables and transactions in foreign currencies. For all financial instruments measured at amortised cost, interest income or expense is recognised using the effective interest rate, which is the rate that discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appro- priate, to the net carrying amount of the financial asset or liability. 8686 FINANCIAL STATEMENTS OTHER DISCLOSURES This section includes other statutory notes, which are of secondary importance to the understanding of the nancial performance of Pandora. SECTION 5 8787 FINANCIAL STATEMENTS NOTE . CONTINGENT LIABILITIES Litigation Pandora is a party to various legal proceedings with current business partners, authorities and other third parties, related to copyrights, marketing conduct and pricing. None of these proceedings is expected to have a material eect on Pandora’s nancial position or future earnings. Contractual obligations Pandora has entered into a number of long-term purchase, sales and supply contracts in the course of the Group’s ordinary business. Contractual obligations amounted to DKK 462 million (2019: DKK 436 million). Apart from the liabilities already recognised in the balance sheet, no signicant nancial losses are expected to be in- curred as a result of these contracts. Related parties with signicant interests At 31 December 2020, treasury shares accounted for 0.3% of the share capital (2019: 7.1%), see note 4.1. Other related parties of Pandora with signicant inuence in- clude the Board, Executive Management and their close family members. Related parties also include companies in which the aforementioned persons have control or signicant interests. Transactions with related parties As part of the share buyback carried out in 2020, Pandora pur- chased own shares from major shareholders. The shares were purchased at the volume-weighted average purchase price for the shares purchased under the share buyback programme in the market on the relevant day of trading. Pandora did not enter into any signicant transactions with members of the Board or the Executive Management, except for compensation and benets received as a result of their membership of the Board, employment with Pandora or share- holdings in Pandora. See notes 2.4 and 2.5. NOTE . RELATED PARTIES SIGNIFICANT ACCOUNTING ESTIMATES The factors taken into account when estimating a potential liability in connection with litigation include the nature of the litigation or claim. Other factors taken into account are the development of the case, the judgements and recommenda- tions of legal or other advisers, experience from similar cases, and Management’s decision on how the Group will react to the litigation or claim. DKK million 2020 2019 Fee for statutory audit 11 11 Other assurance engagements 1 1 Total audit related services 12 12 Tax consultancy Other services 1 0 Total non-audit services 1 0 Total fees to independent auditor 13 12 The costs are recognised in the consolidated income statement as administrative expenses. Pandora has implemented a policy regarding non-audit services provided by the auditor appointed at the Annual General Meeting. The policy states which services are allowed or prohibited. Other non-audit services include fees for advisory services including Programme NOW. All non-audit services have been approved according to the policy for non-audit services. NOTE . FEES TO INDEPENDENT AUDITOR NOTE . EVENTS OCCURRING AFTER THE REPORTING PERIOD No subsequent events have occurred after the balance sheet date that re- quired adjustment to or disclosure in the consolidated nancial statements. 8888 FINANCIAL STATEMENTS The table below shows information about the Group entities at 31 December 2020 Company Ownership Registered oce Date of consolidation OWNED BY PANDORA A/S Pandora Jewelry Argentina SRL 100% Argentina 27 September 2017 Pandora Jewellery Belgium NV 100% Belgium 13 April 2017 Pandora do Brasil Participações Ltda. 100% Brazil 24 October 2013 Pandora Jewelry Ltd. 100% Canada 7 March 2008 Pandora Jewelry Chile SpA 100% Chile 7 May 2017 Pandora Jewelry Colombia S.A.S 100% Colombia 17 January 2019 Pandora Int. ApS 100% Denmark 1 October 2009 Pandora Jewelry Central Western Europe A/S 100% Denmark 5 January 2010 Pan Me A/S 100% Denmark 16 January 2015 Pandora Taiwan A/S 100% Denmark 18 May 2018 Pandora Jewellery DMCC 100% Dubai 8 October 2014 Pandora Jewellery UK Limited 100% England 1 December 2008 Pandora Jewelry Finland Oy 100% Finland 1 January 2012 Pandora France SAS 100% France 25 February 2011 Pandora EMEA Distribution Center GmbH 100% Germany 5 December 2011 Pandora Jewelry Asia-Pacic Limited 100% Hong Kong 1 November 2009 Pandora Jewelry Limited 100% Ireland 10 January 2018 Pandora Jewelry Mexico Import, S.A. de C.V. 100% Mexico 4 April 2018 Pandora Jewelry Mexico, S.A. de C.V. 100% Mexico 8 March 2017 Pandora Jewelry Mexico Servicios, S.A. de C.V. 100% Mexico 8 March 2017 Pandora Jewelry Panama S.A. 100% Panama 5 July 2016 Pandora Jewelry Peru S.A.C 100% Peru 10July 2018 Pandora Jewelry Shared Services Sp. z.o.o. 100% Poland 7 February 2012 Pandora Jewelry CEE Sp. z.o.o. 100% Poland 1 March 2009 Pandora Jewelry Slovakia s.r.o. 100% Slovakia 6 September 2016 Pandora Jewellery South Africa Pty Ltd. 100% South Africa 31 January 2017 Pandora Jewellery Spain S.L 100% Spain 28 September 2017 Pandora Sweden AB 100% Sweden 4 November 2013 Pandora Production Co. Ltd. 100% Thailand 7 March 2008 Pandora Services Co. Ltd. 100% Thailand 15 October 2010 Pandora Jewelry Mücevherat Anonim Şirketi 100% Turkey 4 November 2013 Pandora Jewelry Inc. 100% USA 1 July 2008 Company Ownership Registered oce Date of consolidation OWNED BY OTHER COMPANIES IN THE PANDORA GROUP Pandora Österreich GmbH 100% Austria 23 May 2012 Pandora do Brasil Comércio e Importação Ltda. 100% Brazil 24 October 2013 Pandora Franchise Canada Ltd. 100% Canada 19 January 2011 Pandora Retail Canada Ltd. 100% Canada 4 February 2014 Pandora Jewelry CR s.r.o. 100% Czech Republic 2 December 2009 Panmeas Jewellery LLC 100% Dubai 16 January 2015 Pandora Jewelry GmbH 100% Germany 5 January 2010 Pandora Jewelry Hungary Ltd. 100% Hungary 2 June 2010 Pandora Italia SRL 100% Italy 23 May 2012 Pandora Jewelry B.V. 100% Netherlands 20 September 2010 Pandora Norge AS 100% Norway 17 August 2010 Pandora Jewelry Romania SRL 100% Romania 18 August 2011 Pandora Schweiz AG 100% Switzerland 6 December 2011 Pandora ECOMM LLC 100% USA 21 August 2014 Pandora Jewelry LLC 100% USA 7 March 2008 Pandora Franchising LLC 100% USA 1 November 2009 Pandora Ventures LLC 100% USA 10 May 2012 AD Astra Holdings Pty Ltd. 100% Australia 1 July 2009 Pandora Retail Pty Ltd. 100% Australia 1 July 2009 Pandora Jewelry Pty Ltd. 100% Australia 1 July 2009 Pandora Jewelry (Shanghai) Company Ltd. 100% China 4 February 2015 Pandora Jewelry Design (Beijing) Company Ltd. 100% China 1 March 2016 Pandora Jewelry Hong Kong Company Ltd. 100% Hong Kong 4 February 2015 Pandora Jewelry Japan Ltd. 100% Japan 29 October 2014 Pandora Jewelry Macau Company Ltd. 100% Macau 1 January 2016 Pandora Jewelry Singapore Pte. Ltd.. 100% Singapore 1 January 2016 Pandora Group has ve dormant companies, which have been omitted from the table. Pandora A/S has no dormant companies. NOTE . COMPANIES IN THE PANDORA GROUP 8989 FINANCIAL STATEMENTS Forward-looking statements The Annual Report contains forward-looking statements, which include estimates of nancial performance and targets. These statements are not guarantees of future performance and involve certain risks and uncertainties. Therefore, actual future results and trends may dier materially from what is forecasted in this report due to a variety of factors. Key figures and financial ratios stated in the consolidated financial statements have been calculated in accordance with the Danish Finance Society’s guidelines. Pandora presents the following alternative performance measures not defined according to IFRS (non-GAAP measures) in the Annual Report: Furthermore, a breakdown of ‘Operating working capital’, ‘Net working capital’ and ‘Invested capital’ is given on the section 3 front page. NOTE . FINANCIAL DEFINITIONS Revenue growth, % (The current year’s revenue - last year’s revenue) Last year’s revenue Revenue growth, local currency, % (The current year’s revenue at last year’s exchange rates - last year’s revenue) Last year’s revenue Gross margin, % Gross prot / revenue Eective tax rate, % Income tax expense / prot before tax Equity ratio, % Equity / total assets Payout ratio, % Dividends paid for the year / net prot Total payout ratio, % Dividends paid for the year plus value of share buyback / net prot EPS basic Net prot / average number of shares outstanding EPS diluted Net prot / average number of shares outstanding, including the dilutive eect of share options ‘in the money’ Retail like-for-like sales-out growth, % Sell-out revenue from Pandora owned concept stores and eSTOREs that have been owned and operated for more than 12 months relative to the same period last year Total like-for-like sales-out growth, % Sell-out revenue from concept stores and eSTOREs across all channels that have been operated for more than 12 months relative to the same period last year Sell-out growth, % Like-for-like not adjusted for tempo- rarily closed stores Organic growth, % Growth in revenue in local currency relative to the same period last year adjusted for the acquisition/divest- ment of distributors and franchisee stores (the eect of converting wholesale to retail revenue and vice versa) Restructuring costs Costs related to Programme NOW includes inventory buyback, optimisa- tion of product portfolio and product quality, brand restructurung, external consultants, IT transformation, etc. EBIT excluding restructuring costs Earnings before interest and tax (operating prot) excluding restructur- ing costs EBIT margin excluding restructuring costs, % EBIT excluding restructuring costs / revenue EBIT margin, % EBIT / revenue EBITDA Earnings before interest, tax, deprecia- tion and amortisation EBITDA margin, % EBITDA / revenue Capital expenditure (CAPEX) Purchase of intangible assets and prop- erty, plant and equipment for the year, excluding acquisitions of subsidiaries Days sales outstanding (DSO) Last three months of wholesale and third-party distribution revenue relative to trade receivables not adjust- ed for VAT receivables Return on invested capital (ROIC), % EBIT / invested capital including goodwill NIBD Loans, borrowings, capitalised leases and other liabilities relating to obligations to acquire non-controlling interests (current and non-current) less cash NIBD to EBITDA excl. restructuring cost NIBD / EBITDA excl. restructuring cost (rolling 12 months) Cash conversion incl. lease payments, % Free cash ow before acquisitions / EBIT 9090 FINANCIAL STATEMENTS The Board of Directors and the Executive Management have today discussed and approved the Annual Report of Pandora A/S for 2020. The Annual Report has been prepared in accordance with Inter- national Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. It is our opinion that the consolidated nancial statements and the Parent Company nancial statements give a true and fair view of the nancial position of the Group and the Parent Com- pany at 31 December 2020 and of the results of the Group's and the Parent Company's operations and cash ows for the nancial year 1 January – 31 December 2020. Further, in our opinion, the Management's review gives a fair review of the development in the Group's and the Parent Com- pany's activities and nancial matters, results of operations, cash ows and nancial position as well as a description of material risks and uncertainties that the Group and the Parent Company face. In our opinion, the annual report of Pandora A/S for the nan- cial year 1 January to 31 December 2020 with the le name PAND-2020-12-31.zip is prepared, in all material respects, in compliance with the ESEF Regulation. We recommend that the Annual Report be approved at the Annual General Meeting. Copenhagen, 4 February 2021 Executive Management Board of Directors Alexander Lacik Chief Executive Ocer Peter A. Ruzicka Chair Christian Frigast Deputy Chair Andrea Alvey Marianne Kirkegaard Birgitta Stymne Göransson Ronica Wang Isabelle Parize Anders Boyer Chief Financial Ocer STATEMENT BY THE EXECUTIVE MANAGEMENT AND THE BOARD OF DIRECTORS Catherine Spindler 9191 FINANCIAL STATEMENTS Our opinion We have audited the consolidated nancial statements and the parent company nancial statements of Pandora A/S for the nancial year 1 January – 31 December 2020, which comprise statement of comprehensive income, balance sheet, statement of changes in equity, statement of cash ows and notes, includ- ing accounting policies, for the Group and the Parent Company. The consolidated nancial statements and the parent company nancial statements are prepared in accordance with Interna- tional Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. In our opinion, the consolidated nancial statements and the parent company nancial statements give a true and fair view of the nancial position of the Group and the Parent Company at 31 December 2020 and of the results of the Group’s and the Par- ent Company’s operations and cash ows for the nancial year 1 January – 31 December 2020 in accordance with International Financial Reporting Standards as adopted by the EU and addi- tional requirements of the Danish Financial Statements Act. Our opinion is consistent with our long-form audit report to the Audit Committee and the Board of Directors. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those stand- ards and requirements are further described in the “Auditor’s responsibilities for the audit of the nancial statements” section of our report. We believe that the audit evidence we have obtained is sucient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and additional requirements applicable in Denmark, and we have fullled our other ethical responsibilities in accordance with these rules and requirements. To the best of our knowledge, we have not provided any prohibited non-audit services as described in article 5(1) of Regulation (EU) no. 537/2014. Appointment of auditor Subsequent to Pandora A/S being listed on Nasdaq OMX Co- penhagen, EY was appointed auditors of Pandora A/S on 8 April 2011. We were re-appointed annually at the general meeting for a total period of ten years up to and including the nancial year 2020. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signicance in our audit of the nan- cial statements for the nancial year 2020. These matters were addressed during our audit of the nancial statements as a whole and in forming our opinion thereon. We do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fullled our responsibilities described in the “Audi- tor’s responsibilities for the audit of the nancial statements” section, including in relation to the key audit matters below. Our audit included the design and performance of procedures to respond to our assessment of the risks of material mis- statement of the nancial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the nancial statements. INDEPENDENT AUDITORS' REPORT To the shareholders of Pandora A/S 9292 FINANCIAL STATEMENTS Statement on the Management’s review Management is responsible for the Management’s review. Our opinion on the nancial statements does not cover the Management’s review, and we do not express any form of assur- ance conclusion thereon. In connection with our audit of the nancial statements, our responsibility is to read the Management’s review and, in doing so, consider whether the Management’s review is materially inconsistent with the nancial statements or our knowledge obtained during the audit, or otherwise appears to be materi- ally misstated. Moreover, it is our responsibility to consider whether the Man- agement’s review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that the Management’s review is in accordance with the nancial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the Management’s review. Management’s responsibilities for the nancial statements Management is responsible for the preparation of consolidated nancial statements and parent company nancial statements that give a true and fair view in accordance with Internation- al Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act and for such internal control as Management determines is necessary to enable the preparation of nancial statements that are free from material misstatement, whether due to fraud or error. Our procedures in relation to revenue recognition and measurement of expected sales returns included consid- ering the Group’s accounting policies for revenue recog- nition, including those related to expected sales returns, and assessing compliance of policies with applicable accounting standards. We identified and assessed internal controls related to the timing of revenue recognition and measurement of expected sales returns. We tested the effectiveness of the Group’s internal controls in relation to calculation of expected sales returns and timing of revenue recognition. On a sample basis, we tested sales transactions taking place at either side of the balance sheet date as well as credit notes issued after the balance sheet date to assess whether those transactions were recognised in the correct period. We assessed the key assumptions applied by Management regarding expected sales returns based on our knowledge of the business and by reviewing the supporting documentation prepared by Management. Furthermore, we evaluated the disclosures provided by Management in the consolidated financial statements and the parent company financial statements to applicable accounting standards. Revenue and sales return Revenue is recognised when control of the goods has been transferred to the buyer and it is measured at fair value of the expected consideration to be received, less rebates, discounts, sales taxes, duties and expected sales returns. Revenue recognition and measurement of the related expected sales returns was a matter of most significance in our audit due to the inherent risk in the estimates and judgements which Management makes in the normal course of business as to timing of revenue and measurement of expected sales returns. Details on revenue recognition and expected sales returns are provided in sections 2.1 and 3.8 of the consolidated financial statements and in section 2.1 and 3.5 of the parent company financial statements, to which we refer. Taxation The Group has extensive international operations and in the normal course of business, Management makes judgements and estimates in determining the recognition of income taxes, deferred taxes and provisions for uncertain tax positions. In Thailand, the Group is subject to Board of Investment (BOI) agreements, where many, but not all, types of net income are tax-exempt, and therefore, changes in profit allocation could significantly impact the Group’s consolidated tax expense. On this basis, taxation was a matter of most significance in our audit. Additional details on income taxes are pro- vided in section 2.6 of the consolidated financial statements, to which we refer. Our procedures in relation to recognition of income taxes, deferred taxes and provisions for uncer- tain tax positions included assessing the Group’s processes for recording and continual re-assess- ment of provisions for uncertain tax positions. Our procedures also covered evaluating the assump- tions applied by Management in determining the recognition and measurement of income taxes and deferred taxes while taking into account relevant correspondence with relevant tax authorities. Our own tax specialists performed an assessment of the Group’s recognition of income taxes and deferred taxes, including correspondence with relevant tax authorities to consider the completeness of the tax provisions. In addition, we assessed the assump- tions used, taking into consideration our own tax specialists’ knowledge and experience. Further, we evaluated the disclosures provided by Management in the consolidated financial statements and the parent company financial statements to applicable accounting standards. Inventory The Group carries inventory in the balance sheet at the lower of cost and net realisable value. Significant management judgements are required with regards to valuation of inventories due to the uncertainty as- sociated with the estimate of slow-moving items and expected value of the reusable raw materials, as well as calculations of elimination of internal gain. Given the level of significant management judgements and estimates, inventory valuation was a matter of most significance in our audit. Additional details on the valuation of inventories are provided in section 3.5 of the consolidated financial statements and in sec- tion 3.4 of the parent company financial statements, to which we refer. Our procedures in relation to inventory valuation included assessing the Group’s processes related to inventory valuation including on a sample basis testing of direct costs related to raw materials, labour costs and attributable overhead costs incurred in the manufacturing process, recording of write-downs and understanding of the process for internal gain elimination. We challenged the basis for write-downs and performed analytical proce- dures to assess slow-moving items. We assessed the key assumptions applied by Management regarding items life-cycle status and expected value of the reusable raw materials based on our knowledge of the business, including initiatives under Programme NOW and on a sample basis tested the supporting documentation. Further, on a sample basis we test- ed the calculation of elimination of internal gain at group level. Furthermore, we evaluated the disclo- sures provided by Management in the consolidated financial statements and the parent company finan- cial statements to applicable accounting standards. DESCRIPTION OF MATTERCONSIDERATION OF THE MATTER IN THE AUDIT 9393 FINANCIAL STATEMENTS In preparing the nancial statements, Management is respon- sible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going con- cern basis of accounting in preparing the nancial statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the nancial statements Our objectives are to obtain reasonable assurance as to whether the nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and additional requirements applicable in Denmark will always detect a mate- rial misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inuence the economic decisions of users taken on the basis of the nancial statements. As part of an audit conducted in accordance with ISAs and additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the nancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sucient and appropriate to provide a basis for our opinion. The risk of not detecting a ma- terial misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropri- ate in the circumstances, but not for the purpose of express- ing an opinion on the eectiveness of the Group’s and the Parent Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting in preparing the nan- cial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signicant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related dis- closures in the nancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and contents of the nancial statements, including the note disclosures, and whether the nancial statements represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sucient appropriate audit evidence regarding the nancial information of the entities or business activities within the Group to express an opinion on the consolidated nancial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regard- ing, among other matters, the planned scope and timing of the audit and signicant audit ndings, including any signicant deciencies in internal control that we identify during our audit. We also provide those charged with governance with a state- ment that we have complied with relevant ethical requirements regarding independence, and to communicate with them all re- lationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with gov- ernance, we determine those matters that were of most signi- cance in the audit of the consolidated nancial statements and the parent company nancial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation pre- cludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequenc- es of doing so would reasonably be expected to outweigh the public interest benets of such communication. Report on compliance with the ESEF Regulation As part of our audit of the Consolidated Financial Statements and Parent Company Financial Statements of Pandora A/S we performed procedures to express an opinion on whether the annual report of Pandora A/S for the nancial year 1 January to 31 December 2020 with the le name PAND-2020-12-31.zip is prepared, in all material respects, in compliance with the 9494 FINANCIAL STATEMENTS Commission Delegated Regulation (EU) 2019/815 on the Euro- pean Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: • The preparing of the annual report in XHTML format; • The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for nancial information required to be tagged using judgement where necessary; • Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human read- able format; and • For such internal control as Management determines nec- essary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on wheth- er the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The proce- dures include: • Testing whether the annual report is prepared in XHTML format; • Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; • Evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements; • Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identied; • Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy, and • Reconciling the iXBRL tagged data with the audited Consoli- dated Financial Statements. In our opinion, the annual report of Pandora A/S for the nancial year 1 January to 31 December 2020 with the le namePAND-2020-12-31.zipis prepared, in all material re- spects, in compliance with the ESEF Regulation. Copenhagen, 4 February 2021 EY Godkendt Revisionspartnerselskab CVR no. 30 70 02 28 Henrik Kronborg Iversen State Authorised Public Accountant MNE no.: mne24687 Mikkel Sthyr State Authorised Public Accountant MNE no.: mne26693 9595 FINANCIAL STATEMENTS PANDORA A/S Havneholmen 17-19 DK-1561 Copenhagen V Denmark Phone: +45 36720044 CVR no.: 28505116 www.pandoragroup.com DESIGN: Kontrapunkt PHOTOGRAPHY: Kristian Holm, Peter Elmholt, Ture Andersen and Pandora 9696 9797 FINANCIAL STATEMENTS 2020 PARENT COMPANY INCOME STATEMENT DKK million Notes 2020 2019 Revenue 21 9626 9533 Cost of sales 4932 5994 Gross prot 4693 3539 Sales, distribution and marketing expenses 22 23 31 1160 934 Administrative expenses 22 23 31 2138 2261 Operating prot 1396 343 Dividends from subsidiaries 33 652 1321 Impairment of investments in subsidiaries 33 107 Finance income 45 379 678 Finance costs 45 511 234 Prot before tax 1915 2001 Income tax expense 25 291 212 Net prot for the year 1624 1789 STATEMENT OF COMPREHENSIVE INCOME DKK million Notes 2020 2019 Net prot for the year 1624 1789 Other comprehensive income: Items that may be reclassied to prot/loss for the year Commodity hedging instruments: - Realised in net cost of sales 11 6 - Realised in net nancials 1 1 - Fair value adjustments 2 13 Foreign exchange hedging instruments: - Realised in net nancials 49 41 - Fair value adjustments 21 24 Tax on other comprehensive income, hedging instruments, income/expense 25 5 5 Other comprehensive income, net of tax 16 20 Total comprehensive income for the year 1608 1769 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 9898 PARENT COMPANY ASSETS DKK million Notes 2020 2019 Intangible assets 31 2963 3091 Property, plant and equipment 51 50 Right-of-use assets 32 128 136 Investments in subsidiaries 33 6350 6304 Loans to subsidiaries 52 1010 1783 Other nancial assets 12 9 Total non-current assets 10514 11373 Inventories 34 420 714 Trade receivables 4 12 Receivables from subsidiaries 52 3700 3227 Right-of-return assets 35 204 235 Derivative nancial instruments 43 44 351 187 Income tax receivable 90 319 Other receivables 308 422 Cash 2211 347 Total current assets 7288 5463 Total assets 17802 16835 EQUITY AND LIABILITIES DKK million Notes 2020 2019 Share capital 41 100 100 Treasury shares 93 1964 Reserves 207 291 Dividend proposed 836 Retained earnings 6830 5568 Total equity 7044 4832 Provisions 34 Loans and borrowings 42 44 105 5277 Deferred tax liabilities 25 318 154 Total non-current liabilities 457 5430 Provisions 4 4 Refund liabilities 35 1438 1615 Loans and borrowings 42 44 3003 954 Derivative nancial instruments 43 44 119 115 Payables to subsidiaries 44 52 4361 2632 Trade payables 44 1135 1115 Other payables 44 242 138 Total current liabilities 10301 6573 Total liabilities 10758 12004 Total equity and liabilities 17802 16835 BALANCE SHEET AT DECEMBER 9999 PARENT COMPANY DKK million Notes Share capital Treasury shares Hedging reserve Other reserves 1 Dividend proposed Retained earnings Total equity 2020 Equity at 1 January 100 1964 25 266 836 5568 4832 Net prot for the year 1624 1624 Other comprehensive income, net of tax 16 16 Total comprehensive income for the year 16 1624 1608 Transfers 68 68 Share-based payments 24 14 68 82 Purchase of treasury shares 41 431 431 Sale of treasury shares 2 41 2288 509 1779 Dividend paid 836 11 825 Dividend proposed Equity at 31 December 100 93 9 198 6830 7044 Dividend paid in 2020 relating to the 2019 results was DKK 9 per share, corre- sponding to DKK 825 million (2019: DKK 896 million). Furthermore, in 2019 DKK 860 million was paid as part of the commitment to pay bi-annual dividend in 2019 relating to the 2019 results. Due to the uncertainty from COVID-19 Pandora does not propose any dividend relat- ing to the 2020 results. For additional shareholder information about dividend, read more on page 39. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 2019 Equity at 1 January 110 3469 45 486 920 9306 7398 Net prot for the year 1789 1789 Other comprehensive income, net of tax 20 20 Total comprehensive income for the year 20 1789 1769 Transfers 220 220 Share-based payments 24 13 9 4 Purchase of treasury shares 41 2583 2583 Reduction of share capital 41 10 4075 4065 Dividend paid 1794 38 1756 Dividend proposed 1710 1710 Equity at 31 December 100 1964 25 266 836 5568 4832 ¹ Other reserves include non-distributable reserves under Danish legislation relating to the capitalisation of projects developed in-house. ² On 5 May, Pandora initiated an accelerated book-building for the sale of 8 million treasury shares, which was carried out on the same day, generating approximately DKK 1.8 billion in net proceeds. 100100 PARENT COMPANY DKK million Notes 2020 2019 Operating prot 1396 343 Depreciation and amortisation 277 415 Share-based payments 24 43 10 Change in inventories 295 460 Change in intercompany receivables/payables 1588 710 Change in receivables 118 248 Change in payables and other liabilities 235 992 Other non-cash adjustments 46 478 300 Interest etc. received 65 171 Interest etc. paid 120 48 Income tax paid 124 728 Cash ows from operating activities, net 365 2377 Acquisitions of subsidiaries and activities, net of cash acquired 1 33 24 351 Purchase of intangible assets 113 64 Purchase of property, plant and equipment 13 24 Change in other nancial non-current assets 3 Dividends received 2 44 Cash ows from investing activities, net 152 394 DKK million Notes 2020 2019 Dividend paid 825 1756 Purchase of treasury shares 41 431 2583 Sale of treasury shares 41 1778 Proceeds from loans and borrowings 42 5921 5614 Repayment of loans and borrowings 42 4769 2890 Repayment of lease commitments 42 22 20 Cash ows from nancing activities, net 1651 1636 Net increase/decrease in cash 1864 347 Cash at 1 January 3 347 Net increase/decrease in cash 1864 347 Cash at 31 December 3 2211 347 Cash ows from operating activities, net 365 2377 - Interest etc. received 65 171 - Interest etc. paid 120 48 Cash ows from investing activities, net 152 394 - Acquisition of subsidiaries and activities, net of cash acquired 24 351 Free cash ow 292 2210 Unutilized committed credit facilities 4 6998 2345 The above cannot be derived directly from the income statement and the balance sheet. 1 Non-cash capital increases amounted to DKK 0 million (2019: DKK 1,339 million). 2 Non-cash dividends received amounted to DKK 652 million (2019: DKK 1,277 million). 3 Cash comprises cash at bank and in hand. 4 See note 4.4 to the consolidated nancial statements. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 101101 PARENT COMPANY Notes for the Parent Company The notes are grouped into ve sections related to key gures. The notes contain the relevant nancial information as well as a description of accounting policies applied for the topics of the individual notes. For some notes, reference is made to notes in the consolidated nancial statements. Section 1 BASIS OF PREPARATION 103 1.1 Principal accounting policies 103 1.2 New accounting policies and disclosures 103 1.3 Management’s judgements and estimates under IFRS 103 Section 2 RESULTS FOR THE YEAR 104 2.1 Revenue from contracts with customers 104 2.2 Programme NOW restructuring costs 104 2.3 Sta costs 105 2.4 Share-based payments 105 2.5 Taxation 106 Section 3 INVESTED CAPITAL AND WORKING CAPITAL ITEMS 107 3.1 Intangible assets 107 3.2 Leases 107 3.3 Investments in subsidiaries and business combinations 108 3.4 Inventories 108 3.5 Contract assets and liabilities 109 Section 4 CAPITAL STRUCTURE AND NET FINANCIALS 109 4.1 Share capital 109 4.2 Liabilities from nancing activities 109 4.3 Derivative nancial instruments 109 4.4 Financial risks 110 4.5 Net nancials 111 4.6 Other non-cash adjustments 111 Section 5 OTHER DISCLOSURES 111 5.1 Contingent liabilities 111 5.2 Related parties 112 5.3 Fees to independent auditor 112 CONTENTS 102102 PARENT COMPANY Under section 149 of the Danish Financial Statements Act, the consolidated nancial statements of Pandora (also referred to as the ‘Group’) represent an extract of Pandora’s complete annual report. This annual report of the parent company is an integrated part of the full annual report. This contains the statement from the Board of Directors and the Executive Directors as well as the independent auditor’s report. The nancial statements for the parent company show the nancial position, the result and the cash ow of Pandora A/S on a non-consolidated basis for the nancial year 1 January – 31 December 2020. Parent Company nancial statements The accounting policies of the Parent Company are unchanged from last year and identical to the accounting policies in Pan- dora’s consolidated nancial statements, with the following exceptions: Foreign currency translation Foreign exchange adjustments of balances accounted for as part of the total net investment in entities that have a func- tional currency other than DKK are recognised in prot for the year as net nancials in the Parent Company nancial statements. NOTE . PRINCIPAL ACCOUNTING POLICIES NOTE . NEW ACCOUNTING POLICIES AND DISCLOSURES New standards and interpretations The description in note 1.2 to the consolidated nancial statements regarding new standards issued eective for the Annual Report for 2020 fully covers the Parent Company as well except for the amendment to IFRS 16, which has not materially aected the results of the parent as leasing arrangements are limited to the Head Quarter in Copenhagen and contracts for cars and oce equipment. Derivative nancial instruments The eective portion of realised and unrealised gains and losses on all commodity hedging instruments is recognised as cost of goods sold, while the ineective portion of realised and unrealised gains and losses is recognised in net nancials. De- rivative nancial instruments are treated as economic hedging if the hedge accounting requirements in IFRS 9 are not met. Dividends from subsidiaries Dividends from investments in subsidiaries are recognised in the nancial year in which they are declared. Investments in subsidiaries Investments in subsidiaries are measured at cost in the Parent Company nancial statements. Impairment testing is carried out if there is any indication of impairment, as described in Pandora's consolidated nancial statements. The carrying amount is written down to the recoverable amount whenever the carrying amount exceeds the recoverable amount. If the Parent Company has a legal or constructive obligation to cover a decit in subsidiaries, a provision for this is recognised. NOTE . MANAGEMENT’S JUDGEMENTS AND ESTIMATES UNDER IFRS SIGNIFICANT ACCOUNTING ESTIMATES In the process of preparing the Parent Company financial statements, a number of accounting estimates and judge- ments have been made that affect assets and liabilities at the reporting date and income and expenses for the reporting period. Management regularly reassesses these estimates and judgements, partly on the basis of historical experience and a number of other factors in the given circumstances, see note 1.3 to the consolidated financial statements. 103103 PARENT COMPANY REVENUE BY SALES CHANNEL DKK million 2020 2019 Third-party distribution 9626 9533 Total revenue 9626 9533 REVENUE BY PRODUCT CATEGORY DKK million 2020 2019 Charms 4711 4775 Bracelets 2171 2143 Rings 1359 1261 Earrings 609 619 Necklaces & Pendants 776 735 Total revenue¹ 9626 9533 Goods transferred at a point in time 9626 9533 Total revenue 9626 9533 1 Figures include franchise fees of DKK 3 million (2019: DKK 5 million), which have been allocated to the product categories. NOTE . REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue by category of Pandora products does not dier materially between clusters. Revenue mainly comprises sales of jewellery to subsidiaries carrying out the distribution. All sales are thus intra-group sales. Contracts are generally 5-year distribution contracts. ACCOUNTING POLICIES Revenue is recognised when control of the products has been transferred to the subsidiaries. Change of control of the products occurs when the products have been delivered to the subsidiary and no further obligation exists that can affect the transfer of control. The Parent Company provides return rights to subsidiaries, which cover products received in sub- sidiaries for both returns and warranty, based on historical return rates and current return liabilities in subsidiaries. NOTE . PROGRAMME NOW RESTRUCTURING COSTS Programme NOW restructuring costs Programme NOW costs are reported in the income statement for Pandora A/S within the cost type it relates to. Restructuring costs amounted to DKK 0.9 billion in 2020 (DKK 2.2 billion in 2019). Restructuring costs impacted the income statement as follows: • Gross prot, DKK 0.0 billion (2019: DKK 1.3 billion related to sales return liability from subsidiaries regarding the product portfolio optimization, hereof DKK 0.7 billion in revenue and DKK 0.6 billion in cost of sales primarily related to inventory buyback). • Operating expenses, DKK 0.9 billion, primarily related to or- ganizational restructuring (DKK 0.2 billion), IT transformation (DKK 0.2 billion) and consultancy expenses (DKK 0.4 billion) (2019: DKK 0.9 billion primarily related to brand restructuring activities (DKK 0.1 billion), IT transformation (DKK 0.1 billion), accelerated amortisations (DKK 0.2 billion) and consultancy costs related to the launch and execution of Programme NOW (DKK 0.4 billion)). Restructuring costs impacted marketing expenses DKK 0.1 bil- lion (2019: DKK 0.1 billion), sales and distribution expenses DKK 0.1 billion (2019: DKK 0.2 billion) and administrative expenses DKK 0.7 billion (2019: DKK 0.6 billion). 104104 PARENT COMPANY SIGNIFICANT ACCOUNTING ESTIMATES Estimates mainly relate to the consultancy bonus accru- al which depends on the actual savings of the initiatives . Furthermore, Executive Management applies judgement in distinguishing between restructuring and normal operation. ACCOUNTING POLICIES In 2019 and 2020, Pandora is restructuring the business under the programme name “Programme NOW” to restore long-term sustainable growth and protect profitability. Restructuring costs are significant non-recurring items assessed by Executive Management, making a distinction between normal operation and restructuring. DKK million 2020 2019 Wages and salaries 570 391 Pensions 40 27 Share-based payments 43 10 Social security costs 3 8 Other sta costs 118 84 Total sta costs 774 521 Sta costs have been recognised in the income statement: Sales, distribution and marketing expenses 330 196 Administrative expenses 444 324 Total sta costs 774 521 Average number of full-time employees during the year 614 478 Key management personnel at Pandora A/S represent the same persons as key management personnel of the Pandora Group. For information regarding compensation of key management personnel of Pandora A/S, see note 2.4 to the consolidated nancial statements. The performance shares programmes described in note 2.5 to the consolidated nancial statements is issued by Pandora A/S. The value of shares granted to employees in the Parent Company’s subsidiaries is recognised in investments in subsid- iaries. As described in note 2.5 to the consolidated nancial statements, the costs related to share-based payments were DKK 70 million (2019: DKK 20 million), of which DKK 23 million related to subsidiaries (2019: DKK 16 million). NOTE . STAFF COSTS NOTE . SHAREBASED PAYMENTS NOTE . PROGRAMME NOW RESTRUCTURING COSTS CONTINUED 105105 PARENT COMPANY INCOME TAX EXPENSE DKK million 2020 2019 Current income tax charge for the year 160 427 Change in deferred tax for the year 124 217 Adjustment to current tax for prior years 54 4 Adjustment to deferred tax for prior years 61 2 Total income tax expense 291 212 Deferred tax on other comprehensive income 5 5 Tax on other comprehensive income 5 5 2020 2019 RECONCILIATION OF EFFECTIVE TAX RATE AND TAX % DKK million % DKK million Prot before tax 1915 2001 Corporate tax rate in Denmark, 22% 220% 421 220% 440 Non-taxable dividend income 75% 143 145% 291 Non-deductIble impairment expenses 12% 24 Other adjustments including adjustment to tax for prior years 04% 8 15% 30 Withholding taxes 03% 5 04% 9 Eective income tax rate/income tax expense 152% 291 106% 212 NOTE . TAXATION ACCOUNTING POLICIES Income tax Pandora A/S is taxed jointly with its Danish subsidiaries. These subsidiaries are included in the joint taxation from the date they are recognised in the consolidated financial statements and up to the date on which they are no longer consolidat- ed. The jointly taxed Danish companies are taxed under the on-account tax scheme. Further information is provided in note 2.6 to the consolidat- ed financial statements. DEFERRED TAX DKK million 2020 2019 Deferred tax at 1 January 154 386 Recognised in the income statement 185 219 Recognised in other comprehensive income 5 5 Recognised in equity, share-based payments 16 8 Deferred tax at 31 December 318 154 Deferred tax liabilities 318 154 Deferred tax, net 318 154 BREAKDOWN OF DEFERRED TAX DKK million 2020 2019 Intangible assets 542 565 Property, plant and equipment 9 9 Inventory 39 102 Provisions 277 304 Other assets and liabilities 23 4 Deferred tax, net 318 154 106106 PARENT COMPANY DKK million Goodwill Brand Distribution Other intangible assets Total Cost at 1 January 549 1044 1541 904 4038 Additions 114 114 Disposals 7 7 Cost at 31 December 549 1044 1541 1011 4144 Amortisation and impairment losses at 1 January 397 551 947 Amortisation for the year 30 175 205 Impairment loss for the year 32 32 Disposals 3 3 Amortisation and impairment losses at 31 December 427 755 1182 Carrying amount at 31 December 549 1044 1114 256 2963 Cost at 1 January 549 1044 1541 1110 4243 Additions 186 186 Disposals 390 390 Cost at 31 December 549 1044 1541 904 4038 Amortisation and impairment losses at 1 January 366 471 838 Amortisation for the year 30 346 376 Disposals 266 266 Amortisation and impairment losses at 31 December 397 551 947 Carrying amount at 31 December 549 1044 1144 354 3091 The impairment loss of DKK 32 million relates to scrapped software applications. The loss is included in administrative expenses. DKK million 2020 2019 Amortisation and impairment losses have been recognised in the income statement as follows: Sales, distribution and marketing expenses 88 182 Administrative expenses 149 195 Total 237 376 NOTE . INTANGIBLE ASSETS LEASE LIABILITIES DKK million 2020 2019 Non-current 105 119 Current 27 20 Total lease liabilities 132 140 Additions of right-of-use assets were DKK 14 million in 2020 (2019: DKK 5 million). Lease liabilities are recognised in loans and borrowings. The depreciation on right-of-use assets charged to the income statement for the period was DKK 23 million (2019: DKK 20 million). The interest expense for the period was DKK 1 million (2019: 1 million). Total cash outow relating to leases was DKK 23 million in 2020 (2019: DKK 21 million). NOTE . LEASES RIGHTOFUSE ASSETS DKK million 2020 2019 Property 120 132 Cars 8 5 Total right-of-use-assets 128 136 Assets and liabilities related to leases. Amounts recognised in the balance sheet: 107107 PARENT COMPANY NOTE . INVESTMENTS IN SUBSIDIARIES AND BUSINESS COMBINATIONS Result of annual impairment test As at 31 December 2020, the cost price of the investments in subsidiaries was tested for impairment. The impairment test identied impairment charges for 2020 amounting to DKK 0 million (2019: DKK 107 million). Key assumptions The impairment test has been based on the internal 2021 forecast and a forecast for the two subsequent years, and an applied discount rate in the range of 10%-24%. The growth rate applied is an estimate of the expected growth for each market in the terminal period, including the expected average ination. Dividend received In 2020, Pandora A/S received a total of DKK 0.7 billion in divi- dend from subsidiaries in Thailand. In 2019, Pandora A/S received a total of DKK 1.3 billion in divi- dend from subsidiaries in Thailand (DKK 0.8 billion), the UK (DKK 0.4 billion), and Denmark (DKK 0.1 billion). INVESTMENTS IN SUBSIDIARIES DKK million 2020 2019 Cost at 1 January 6411 4738 Additions 1 24 1690 Disposals 2 Additions relating to share-based payments 23 16 Cost at 31 December 6457 6411 Impairment at 1 January 107 Impairment for the year 107 Impairment at 31 December 107 107 Carrying amount at 31 December 6350 6304 1 in 2019, DKK 1.3 billion relates to the capital injection in US entity Pandora Jewelry Inc. DKK million 2020 2019 Finished goods 340 643 Point-of-sale materials 80 71 Total inventories at 31 December 420 714 Inventory write-downs at 1 January 336 181 Write-downs during the year 328 793 Utilised in the year 405 638 Inventory write-downs at 31 December 259 336 Write-downs of inventories are recognised in cost of sales, DKK 289 million (2019: DKK 761 million), and operating expenses, DKK 39 million (2019: DKK 32 million). NOTE . INVENTORIES The Programme NOW initiatives had a major impact on realised and unrealised remelt losses in 2019, especially assortment portfolio optimisation and the inventory buyback programme. For further details, see note 2.2 Programme NOW. 108108 PARENT COMPANY NOTE . LIABILITIES FROM FINANCING ACTIVITIES TOTAL LIABILITIES FROM FINANCING ACTIVITIES DKK million Financial liabilities 1 January Cash ows, net 1 New leases Other 2 Foreign exchange adjust- ments Financial liabilities 31 December Non-current borrowings 5157 2182 2976 Non-current lease liabilities 119 10 25 105 Current borrowings 933 933 2976 2976 Current lease liabilities 20 22 7 22 27 Total liabilities from nancing activities 6230 3137 17 3 3107 Non-current borrowings 6421 1263 5157 Non-current lease liabilities 134 5 20 119 Current borrowings 125 800 8 933 Current lease liabilities 20 20 1 19 20 Total liabilities from nancing activities 6700 483 6 1 8 6230 1 Cash ows from loans and borrowings in the statement of cash ows include internal loan movements. The eect was an inow of DKK 4,267 million in 2020 (2019: inow of DKK 3,187 million). 2 The ‘Other’ column includes the eect of the reclassication of the non-current portion of interest-bearing loans and borrowings, in- cluding lease liabilities, to current due to the passage of time, the eect of accrued but not yet paid interest on interest-bearing loans and borrowings, including lease liabilities, and the upfront prepayment of lease liabilities. The Group classies interest paid as cash ows from operating activities. NOTE . DERIVATIVE FINANCIAL INSTRUMENTS All hedging is carried out by Parent Company’s Treasury de- partment. As all instruments are also recorded in the Parent Company, all eects from nancial instruments are shown in note 4.5 to the consolidated nancial statements. DKK million 2020 2019 Contract assets Receivables from sale of products 2403 1668 Right-of-return assets 204 235 Total contract assets 2607 1903 Contract liabilities Refund liabilities 1438 1615 Total contract liabilities 1438 1615 Refund liabilities The Parent Company recognises a refund liability related to return rights provided to subsidiaries. A corresponding right- of-return asset is also included as part of contract assets. The value of the right-of-return asset is determined by how many of the returned products are expected to be sold. Remaining products are written down to remelt value. NOTE . CONTRACT ASSETS AND LIABILITIES See note 4.1 to the consolidated nancial statements. NOTE . SHARE CAPITAL 109109 PARENT COMPANY As a consequence of its operations, investments and nancing, Pandora A/S is exposed to a number of nancial risks that are monitored and managed by Pandora's Group Treasury. The company’s nancial risks and the management of these are in all material respects identical to the disclosures made in note 4.4 to the con solidated nancial statements, unless otherwise stated below. Credit risk The company’s credit risk also includes the risk related to receivables from subsidiaries. Contractual maturities of nancial liabilities The table below provides a breakdown of Pandora A/S’s nancial liabilities similar to note 4.4 to the consolidated nancial statements. LIABILITIES FALL DUE AS FOLLOWS DKK million Falling due less than 1 year Falling due between 1 and 5 years Falling due after more than 5 years Total 2020 Non-derivatives Loans and borrowings 3006 3006 Lease liabilities 28 94 12 135 Payables to subsidiaries 4361 4361 Trade payables 1135 1135 Other payables 242 242 Derivatives Derivative nancial instruments 119 119 Total at 31 December 8890 94 12 8997 2019 Non-derivatives Loans and borrowings 933 5157 6091 Lease liabilities 21 104 18 143 Payables to subsidiaries 2632 2632 Trade payables 1115 1115 Other payables 138 138 Derivatives Derivative nancial instruments 115 115 Total at 31 December 4955 5262 18 10235 NOTE . FINANCIAL RISKS 110110 PARENT COMPANY NOTE . OTHER NONCASH ADJUSTMENTS OTHER NONCASH ADJUSTMENTS DKK million 2020 2019 Eects from exchange rate adjustments 161 263 Eects from derivative nancial instruments 318 33 Other, including gains/losses from sale of property, plant and equipment 1 4 Total other non-cash adjustments 478 300 Litigation Pandora is a party to various legal proceedings with current business partners, authorities and other third parties, related to copyrights, marketing conduct and pricing. None of these proceedings is expected to have a material eect on Pandora A/S’s nancial position or future earnings. Contractual obligations Pandora A/S has entered into a number of long-term purchase, sales and supply contracts in the course of the company’s ordinary business. Contractual obligations amounted to DKK 461 million (2019: DKK 359 million). Apart from the liabilities already recognised in the balance sheet, the company does not expect to incur any signicant nancial losses as a result of these contracts. Other contingent liabilities Pandora A/S has issued letters of support in favour of certain subsidiaries. Furthermore, the company has issued guarantees totalling DKK 580 million at 31 December 2020 in favour of cer- tain subsidiaries related to securing local credit lines and rental agreements (2019: DKK 684 million). The company is jointly taxed with Danish subsidiaries. The com- pany is jointly and severally liable with other jointly taxed Dan- ish companies within the Group for income tax and withholding taxes due on or after 1 July 2012 in the joint taxation. NOTE . CONTINGENT LIABILITIES FINANCE INCOME DKK million 2020 2019 Finance income from nancial assets and liabilities at fair value through the income statement: Fair value adjustments, derivative nancial instruments 149 121 Total nance income from derivative nancial instruments 149 121 Finance income from loans and receivables measured at amortised cost: Interest income from subsidiaries 64 171 Foreign exchange gains 165 386 Total nance income from loans and receivables 230 557 Total nance income 379 678 FINANCE COSTS DKK million 2020 2019 Finance costs from nancial assets and liabilities measured at fair value through the income statement: Fair value adjustments, derivative nancial instruments 68 63 Total nance costs from derivative nancial instruments 68 63 Finance costs from nancial liabilities measured at amortised cost: Interest costs to subsidiaries 5 3 Foreign exchange losses 326 123 Interest on loans and borrowings 61 24 Interest on lease liabilities 1 1 Other nance costs 50 21 Total nance costs from loans and borrowings 443 171 Total nance costs 511 234 NOTE . NET FINANCIALS 111111 PARENT COMPANY DKK million Subsidiaries 2020 2019 Income statement: Sales to subsidiaries 9621 9525 Purchases from subsidiaries 4726 4876 Dividend 652 1321 Finance income 64 171 Finance costs 5 3 Total 5606 6138 Balance sheet: Loans to subsidiaries, non-current 1010 1783 Trade receivables from subsidiaries 2399 1657 Loans to subsidiaries, current 1301 1570 Right-of-return assets, related parties 204 235 Payables to subsidiaries 4361 2632 Refund liabilities, related parties 1438 1615 Total 885 997 Development in impairment losses on trade receivables Impairment at 1 January 25 40 Additions Unused amounts reversed 1 15 Impairment at 31 December 24 25 NOTE . FEES TO INDEPENDENT AUDITOR NOTE . RELATED PARTIES In addition to the related parties disclosed in note 5.2 to the consolidated nancial statements, related parties of Pandora A/S include the subsidiaries listed in the Group structure in note 5.5 to the consolidated nancial statements. The table to the left shows transactions entered into with related parties. DKK million 2020 2019 Fee for statutory audit 3 3 Other assurance engagements 1 Total audit related services 4 3 Other services 0 0 Total non-audit services 0 0 Total fees to independent auditor 4 3 The costs are recognised in the consolidated income statement as administrative expenses. 112112 PARENT COMPANY PANDORA A/S Havneholmen 17-19 DK-1561 Copenhagen V Denmark Phone: +45 36720044 CVR no.: 28505116 www.pandoragroup.com DESIGN: Kontrapunkt 113113 5299007OWYZ6I1E468432020-01-012020-12-315299007OWYZ6I1E468432020-01-012020-12-31cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-311cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-312cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-311cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-312cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-313cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-314cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-315cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-316cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-317cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-318cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-311cmn:ConsolidatedMember5299007OWYZ6I1E468432020-01-012020-12-312cmn:ConsolidatedMember5299007OWYZ6I1E468432019-01-012019-12-31cmn:ConsolidatedMember5299007OWYZ6I1E468432019-01-012019-12-315299007OWYZ6I1E468432020-12-315299007OWYZ6I1E468432019-12-315299007OWYZ6I1E468432020-01-01ifrs-full:IssuedCapitalMember5299007OWYZ6I1E468432020-01-012020-12-31ifrs-full:IssuedCapitalMember5299007OWYZ6I1E468432020-12-31ifrs-full:IssuedCapitalMember5299007OWYZ6I1E468432020-01-01ifrs-full:TreasurySharesMember5299007OWYZ6I1E468432020-01-012020-12-31ifrs-full:TreasurySharesMember5299007OWYZ6I1E468432020-12-31ifrs-full:TreasurySharesMember5299007OWYZ6I1E468432020-01-01ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember5299007OWYZ6I1E468432020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember5299007OWYZ6I1E468432020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember5299007OWYZ6I1E468432020-01-01ifrs-full:ReserveOfCashFlowHedgesMember5299007OWYZ6I1E468432020-01-012020-12-31ifrs-full:ReserveOfCashFlowHedgesMember5299007OWYZ6I1E468432020-12-31ifrs-full:ReserveOfCashFlowHedgesMember5299007OWYZ6I1E468432020-01-01PAN:ProposedDividendRecognisedInEquityMember5299007OWYZ6I1E468432020-01-012020-12-31PAN:ProposedDividendRecognisedInEquityMember5299007OWYZ6I1E468432020-12-31PAN:ProposedDividendRecognisedInEquityMember5299007OWYZ6I1E468432020-01-01ifrs-full:RetainedEarningsMember5299007OWYZ6I1E468432020-01-012020-12-31ifrs-full:RetainedEarningsMember5299007OWYZ6I1E468432020-12-31ifrs-full:RetainedEarningsMember5299007OWYZ6I1E468432020-01-015299007OWYZ6I1E468432019-01-01ifrs-full:IssuedCapitalMember5299007OWYZ6I1E468432019-01-012019-12-31ifrs-full:IssuedCapitalMember5299007OWYZ6I1E468432019-12-31ifrs-full:IssuedCapitalMember5299007OWYZ6I1E468432019-01-01ifrs-full:TreasurySharesMember5299007OWYZ6I1E468432019-01-012019-12-31ifrs-full:TreasurySharesMember5299007OWYZ6I1E468432019-12-31ifrs-full:TreasurySharesMember5299007OWYZ6I1E468432019-01-01ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember5299007OWYZ6I1E468432019-01-012019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember5299007OWYZ6I1E468432019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember5299007OWYZ6I1E468432019-01-01ifrs-full:ReserveOfCashFlowHedgesMember5299007OWYZ6I1E468432019-01-012019-12-31ifrs-full:ReserveOfCashFlowHedgesMember5299007OWYZ6I1E468432019-12-31ifrs-full:ReserveOfCashFlowHedgesMember5299007OWYZ6I1E468432019-01-01PAN:ProposedDividendRecognisedInEquityMember5299007OWYZ6I1E468432019-01-012019-12-31PAN:ProposedDividendRecognisedInEquityMember5299007OWYZ6I1E468432019-12-31PAN:ProposedDividendRecognisedInEquityMember5299007OWYZ6I1E468432019-01-01ifrs-full:RetainedEarningsMember5299007OWYZ6I1E468432019-01-012019-12-31ifrs-full:RetainedEarningsMember5299007OWYZ6I1E468432019-12-31ifrs-full:RetainedEarningsMember5299007OWYZ6I1E468432019-01-01iso4217:DKKiso4217:DKKxbrli:sharesPandora A/SDenmarkAktieselskabDenmarkCopenhagenCopenhagenPANDORA designs, manufactures and markets hand-finished and contemporary jewellery made from high-quality materials at affordable prices.Pandora A/SPandora A/SN/AAnnual reportAuditor's report on audited financial statementsParsePort XBRL Converter2020-01-012020-12-312019-01-012019-12-315299007OWYZ6I1E46843Pandora A/SReporting class D28505116Havneholmen17-191561Copenhagen VDenmark+4536720044www.pandoragroup.comhttp://pandoragroup.com/investor/corporate-governance/governance-statement22,33623736614478Copenhagen2021-02-04Alexander LacikChief Executive OfficerAnders BoyerChief Financial OfficerPeter A. RuzickaChairChristian FrigastDeputy ChairAndrea AlveyBirgitta Stymne GöranssonIsabelle ParizeMarianne KirkegaardRonica WangCatherine Spindler5299007OWYZ6I1E4684328505116Pandora A/SHavneholmen 17-191561 Copenhagen VOpinionBasis for OpinionCopenhagen2021-02-04Henrik Kronborg IversenState Authorised Public Accountantmne2468730700228EY Godkendt RevisionspartnerselskabDirch Passers Allé362000FrederiksbergDenmarkMikkel SthyrState Authorised Public Accountantmne2669330700228EY Godkendt RevisionspartnerselskabDirch Passers Allé362000FrederiksbergDenmark
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