36•GOVERNANCEANDMANAGEMENT
PANDORAANNUAL REPORT2014
FLUCTUATIONS INRAWMATERIAL PRICES
An increase in silver or gold pricesmay have an adversematerial effect onPANDORA’s business.
Description
Status
Rawmaterialsmake up the largest part of theGroup’s cost
of sales. Our products aremainlymade of silver and gold,
hence thesemetals account for a significant part of the cost
of sales. An increase in silver or gold prices could therefore
increase cost of sales significantly.
PANDORA’s financial policy requires that exposure to raw
material price fluctuations ismitigated, and theGroup
uses financial instruments tohedge both silver and gold
exposure.TheGroup hedges approximately 100%, 80%,
60% and 40%of the risk for the following 1-3months,
4-6months, 7-9months and10-12months respectively.
Actual production candeviate from the 12month rolling
productionplan. In case of deviations, the realised
commodity hedging ratio candeviate from the estimated
hedging ratio.
Since PANDORAneeds to stay in the affordable luxury
segment, it may not be possible to transfer this increased
cost to end consumers, as jewellery competeswithother
fashion, leisure and entertainment products for consumers’
discretionary expenditure.
These 12-month rolling hedges, combinedwith the time lag
from inventory turnover, mean that we can take rawmaterial
prices into account when selecting themainmaterials touse
in upcoming product launches.
PRODUCTRISK
We are dependent on the performance of launched new collections throughout the year. A large part of our revenue is
drivenby products launched in the last year.
We have a high exposure to theCharms &Bracelets category as it accounts for a significant part of revenue reported.
Description
Status
Our ability to achieve future goals is dependent on our
ability to develop products alignedwithmarket trends and
consumers’ preferences.
To provide consumers with new and contemporary
products, we have seven product launches a year.
When developing new collections, we use data from
various sources, including trendspotters, external global
design talent and our in-house designers, to ensure that our
designs are alignedwithmarket trends.
In addition, we use a data retail insight system to
determine how to structure our collections.We also
apply product life cyclemanagement, sales-out data and
portfolio analysis to ensure that we deliver the optimum
split between category, drops, metal and design into the
right pricing points.
