EuroEyes International Eye Clinic Limited (1846) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to EuroEyes 2024 Annual Results Presentation. It is my pleasure to introduce to you the management joining us today. Dr. Jörn Jörgensen, Chairman, Executive Director and Chief Executive Officer; Dr. Markus Braun, Executive Director and Chief Financial Officer. [Operator Instructions] May I now pass the time to Dr. Jörgensen to start the presentation first, please?

Yes. Good morning, everybody, here from Hamburg from our headquarter, where I'm going today to present our annual 2024 final number. I'm sitting here with Dr. Braun, and we will try to let you through what happened last year in 2024.

Next slide, please.

Next slide. Next slide. Next slide, yes, please. Good. 2024 had a challenging year, political and also economical. Financial challenging is there always something with something spillover until a clinic group like us who are doing elective surgery. Let's say it in this way, it has something to do with consumer confidence and money. All our patients are paying their fee or our salaries out of the pocket. So it will always have something. However, we did it fantastic. I'm very happy. And I'm going to show you these numbers today. You have here on the first slide as we had record revenue of HKD 715 million. And in all three biggest markets, U.K., China and Germany, we grew. And we had especially a growth in the lens exchange surgery. You will hear that through my presentation that surgery is this what, let's see, made us to grow, made us to earn money worldwide, not only by us, but China, by our competitors in the U.K., in the U.S. Laser vision correction has been a tough year, down some 10%, 20%. And this has something to do with younger people aged 18 to 30, they have less money. They are always most affected by a crisis like we have now that see the consumer confidence spill over to young people first, whereas people who have presbyopia, that's in the group of 45, 50, they are not so affected. And this is the reason that we saw we are growing. And I'm very happy about that. Next one. Next page, please. We also -- for Germany, Germany is a very mature market. And I need again here to say in 2024, it was mainly organic growth. The next growth -- the growth for new clinics as the organic growth in existing clinic, the growth from new clinics came mainly in the end of 2024. But what we saw a growth, and this was, of course, again, supported here by presbyopia. And this is what we see that they can compensate a little for the lack we see in laser vision correction. And next one, we had...

Next slide, please.

We opened in Germany last year two new clinics. We opened in Wiesbaden, that's a city next to Frankfurt. We opened that clinic, and we also opened in Kiel, our new clinic. It was ready. The first was ready in the middle of 2024 and the other one in October 2024. But I can say they are already breakeven. So you can see it has already a positive cash flow. So it went very quickly. We used to say in good old days, we need 1 year for such clinic to get cash -- positive cash flow. But here, we did it within, yes, very few months. So we are very happy about that. And it shows it will take off and contribute a lot to a positive EBIT and to also the growth in 2024. We already see that. The next slide. And also greater China, when you see here China, everybody of you guys know about China has been a tough year, economical, less growth and property crisis and consumer confidence crisis. So everybody have had a tough year in China, but we managed to grow. And we are very happy about that, that you can say we are growing also under some tough times. And we are sure also for 2025, it will be even better. We have done here in the last three months, a lot about marketing. We will get a general marketing manager for whole China. And we will do here what we will do, we will do much more in local marketing. We will do much more in autonomy of the needs of our clinics so that they are not directed from Beijing or from Shanghai only, but they have there. So this is something we will see and we already see that affect the market, and we already see that is very good. So I'm positive for China, especially in treatment of presbyopia. Next slide, please. Also in innovation, Greater China this year we'll launch in the field of laser vision correction from the company called Carl Zeiss, SMILE Pro. It's a new version of the Smile laser vision correction where you do it more fast, you do it more precise, you have a better centration and it seems a better result. What is good here, we will be among the first one to launch in the market in China in Shanghai and in Beijing. And what is even better, we have already had this technology for the first six years in Europe. So our doctors, our staff, they know this technology. And we are very good to put it on the market while all Chinese clinics, of course, first need to deal with this new technology. The next slide, please. Yes, U.K., here, we also have a very positive thing. From last year, we had our Brompton Road clinic, a new clinic, which we opened for one year ago, a little more. And it's next to Harrods. It's a very prestigious clinic, a very -- it's a retail clinic. And in this market in U.K., high, high competition, and we already have breakeven. That's also something which is surprising for us. We didn't expect that will grow so quickly. But we see it again. It's lens surgery. And although we have very high cost in form of lease and other things of the construction, we managed now to have breakeven in February. We will have the same in March and probably also in April. So it looks very good. It looks -- it's growing. We have a fantastic team there, and they are good, they are motivated and it's an international market, the London market. So it's like [indiscernible]. And our other clinic, London Vision Clinic, you have seen the numbers last year, they were struggling mostly because London Vision Clinic is a clinic for laser vision correction. And this is a clinic which always be affected very much when you have a downturn generally globally in laser vision correction, the young people and they will be affected. We see the U.S., China, Europe, worldwide, Scandinavian laser vision correction is down. And therefore, we also saw that in London. However, what we can say, we did something. The team did something. We managed to really get down with the costs, which were too high. We have especially staff costs, which we see in the beginning of the year with 50% of revenue and now we are down in 30%. So you can see the beginning of this year here, also London Vision Clinic is very profitable. So it's a good way, and we will push forward a second place from London Vision Clinic as they really get foot also on the lens market. Until now, until beginning of last year, they were only a clinic for laser vision correction, but they are also now going into the cataract market, going into multifocal [indiscernible]. And we also expect also this year here, we are working that to open up a third clinic also in London. And we will, for the end of this year, try to integrate these two clinics much more. They will still be two separate entities, two different brands, but we will internally try to also save cost on management and on staff costs while we could share many of these resources together. Next one. Yes. Here again, we have an aging population. We have aging population in China, in the U.S., everywhere. And when we have an aging population, you will have more presbyopia. And this is you can see the [ICA] who have been following us the last 4 to 5 years, they know all of them, presbyopia have been the main topic. So you can see the trend is your friend. We had the right thing to do in our things we are -- we have been growing. You see the CAGR here of about 14%. And you also see the revenue in totally when we only have laser 27%, whereas ICL and lens as a lens surgery is more than 70%. So this is what the right way go. We have the technology, we have the surgeon and we have the experience and we have the knowledge. So it was the right way to go. Next one. Yes, here, again, our clinic worldwide. We have 34 clinics. We have all but Hong Kong is profitable. So we are a healthy clinic. We have no debt. We have a high cash flow, and we have a lot of cash on account. So we are also able to grow also by M&A, and you will hear more about that. And now I'll give the word over to Dr. Braun. He will go more in details with our financial numbers.

Yes. Thank you very much. Next slide, please. next Slide. Yes. As Dr. Jörgensen already mentioned, even in the difficult market environment, we were able to grow revenue-wise, although it was only a slight growth to HKD 715 million. Our adjusted EBITDA and also our adjusted net profit suffered here on the one hand because of the fact that with the difficult market environment and inflation and all that, our costs were slightly increasing. And in the second aspect, as Dr. Jörgensen already mentioned, we have four clinics in the ramp-up phase. They are reaching breakeven now end of the year, beginning of 2025. But for the full year 2024, they were dragging on our results with an adjusted EBITDA now at HKD 240 million and EBITDA margin of 33.6% and our adjusted net profit at HKD 100 million or adjusted net profit margin of 14%. If we go to the next slide, please. In our 5-year development, you see that we have grown since our IPO each and every year, have a revenue CAGR of 11% since 2020. And we are having really a resilient performance even though we have a weaker consumer confidence, especially in our laser procedures, but they are very well made up by our strength in presbyopia and our geographical coverage. So please, let's go to the next slide. Germany is now contributing roughly 54% to our global revenue, China at 20% and the U.K. at 16%. We expect for 2025 that this will change a little bit, especially with the ramp-up of the Knightsbridge clinic so that the U.K. market share of our revenue will increase. And even though in the past, we always profited from our global coverage there, we only saw like one market being a little bit weaker. I still believe that even though in the world we are now that we have problems in Asia with the reduced GDP growth in China, where we have problems in Germany or in Europe with inflation with the war in Ukraine, we still profit from our wide coverage and we're able to increase our revenue because of that coverage. Next slide, please. I will go into the countries a little bit more. In Germany, we have seen that the presbyopia treatment supported our revenue growth where the revenue from lens exchange rose 3%, ICL rose by 4%, and that offset largely the decline in laser surgery. In addition, we have FreeVis Mannheim and also Wiesbaden that also contributed to our revenue development. And with our EBITDA margin, we are still over 40%. We are at 41%, which is one of the strongest margins in our business also compared to our peers. So Germany has done okay. From a CFO perspective, I'm always looking for better performance. But I think in the market environment, that's quite okay. And we have the promising start of Wiesbaden and Kiel, our two new clinics, which have already reached a positive EBITDA beginning of this year. And we are really looking forward to these two clinics further ramping up and contributing to our results. Next slide, please. For China, we see even bigger effect from the lens exchange surgery, which grew actually by 23% year-over-year. And by that, largely offsetting the revenue decline from myopia procedures. And this type of surgery now represents like 23% -- 62% of total revenue of the country. And so we are still market leader in lens exchange surgery, and it remained relatively stable compared to the economic uncertainties we see in China. Perhaps a little bit on our Hong Kong. Please go back on our Hong Kong clinic. Hong Kong clinic, we have experienced some problems from a regulatory perspective, and we took swift action to resolve these problems. But as we are working on resolving that, it slowed down our ramp-up in Hong Kong. And therefore, we are expecting that the Hong Kong clinic is growing now as we have, I hope, resolved most of the issues so that we are now fully operative again and are also able to cater to the consumers. But there will be slower growth in Hong Kong than what we have seen perhaps in Wiesbaden and Kiel or at LEC so that we are hoping for, but are not certain that we will reach EBITDA breakeven perhaps end of the year, but most likely or more likely in 2026. Next slide, please. Dr. Jörgensen already said a little bit about the U.K. market. So let me reiterate that we have grown 12% in revenues there, mostly coming from the launch of our new clinic in Knightsbridge, where we are very happy with the development with the team there that they have reached EBITDA breakeven in February this year. That is in line with what we told in the beginning of last year that we expected LEC to reach breakeven at end of the year or Q1 2025. So happy that they have actually achieved that. And the numbers for surgery numbers for March and April look quite promising. So I'm really happy with the performance there. And for London Vision Clinic, Dr. Jörgensen already said that we have closer look now at London Vision Clinic, work very closely with the management team there to -- on the one hand, to adjust their cost structure where they had quite high [indiscernible] and we were able during the year 2024 to reduce a lot of staff and to come to a better revenue salary margin and also with some marketing activities, we also adjusted that. So that LVC is picking up with better marketing, with the addition of lens surgery to their portfolio. And we also see that in the mixture of the total surgery types in the U.K., where the part of lens exchange now is at 13% with LEC being primarily a lens clinic and refractive now down to 48%. And I would expect that during the year, this mixture will become closer to the mixture we also see on the group level. Next slide, please. For Denmark, we have already said during our half year figures that the first was very difficult with the Aarhus clinic being closed for renovation and also intense competition, especially in the Copenhagen market from Sweden, but also from other clinics within Denmark. So with the reopening of Aarhus and our adjustments to the marketing and our adjustment to our competitors, although we were not able to make up for what we lost in the first half, we were at least able to increase a little bit in the second half to reduce our decline to 18% year-over-year. When I look at the first surgery numbers now in 2025, we see that they are back on track and that they are improving. So I strongly believe they will contribute to our group-wide growth in 2025. Next slide, please. With that shift from laser to lens-based surgery, we also see that actually our revenue -- our surgery numbers were decreasing. That's also something we announced during the year with [indiscernible] surgery numbers. But that's coming from the fact that we do less laser surgeries, but on the other hand, have an increase in the lens surgery, which is a more expensive surgery. And that's the reason why you can see this mixture on the one hand, decrease of our total number of surgeries, on the other hand, increase of our revenue. And with the decreased number -- total number of surgeries, we also see that our utilization rate is going down. Next slide, please. From a cost perspective, I think our cost ratios remain low. With the addition of the new clinics, we see that our salaries and doctors' fees ratio is going up because they don't contribute so much revenue to the group compared to the salaries and cost structure we see. Same depreciation going up because of the new clinics. Raw materials and consumables, despite the inflation we see worldwide, we were able to keep that at a very low level. We increased our marketing spend slightly being now at 11.3% of the revenue. And our administrative expense ratio is up, but there is a special effect from the goodwill impairment on Vision Clinic driving up to HKD 115 million in total. Next slide, please. Overall, as Dr. Jörgensen also said, we are a cash-rich business. We have a very healthy cash flow. We have a very healthy balance sheet with HKD 650 million cash at hand. You see a decrease that's mainly coming from the fact that we have a share repurchase program ongoing since middle of last year, and we have spent roughly HKD 50 million on the repurchase of shares on the open market. On the operating cash flow side, you see the strength of our business with a stable operating cash flow of around HKD 200 million. Okay. Thank you very much. And now Dr. Jörgensen for EuroEyes outlook and strategies.

Yes. Let me try to recap a little what has been said so far. The market worldwide in laser vision correction is down, not only by us, but worldwide in the U.S., which has been one of the biggest market so far. It's been down 15% to 20%. So this is what we see in our numbers -- in our number of surgery, but as Dr. Braun said, our revenue is up. And this is also because we are shifting to more 45-plus people, the people who come today. So it was the right trend. And also remarkably to say we were able this year, beginning of this year, to higher prices per lens surgery about 7%. And we don't see any effect of that. The market take that, and we naturally also explain that for -- we have cost, we have higher staff costs and so on. So this is what we see. What we also see, of course, in the market we have seen so far was it takes longer to build up in clinic, construction or surgery licenses. Yes, it's a long bureaucratic way in Germany and also in the U.K. And therefore, it has drained a little cost. You need to have staff, you need to have instruments and all these things in place. So -- but anyway, we had an EBITDA of 41%. And I think this is remarkable, and this is a high cash flow. And I think this is really fantastic. We are seeing a turnaround in London, in London Vision Clinic and also in the new LEC clinic. And we are seeing even of new clinics, and we have a strategy in China. I can only say -- I just come this morning here from China. I have been in China the last week. I can only say it's a fantastic market for us. We are a high-end group. We are specialized on people. Let's see who can afford it. So -- and I can only say it is a big, big market. And we have no foreign competitor. We have local one. We are different. And I think it's a big market. And therefore, we decided to push in marketing for every [indiscernible] market offline and also online, a little red book. And also branding issue, we have employed a countrywide marketing manager, a very good one, who will come on board very soon. And so we are going to put in local market teams in every city. Say it another way, Shanghai cannot make marketing for Shenzhen. They need to do it themselves. And so also in the M&A activity, as we said last time, there are several things going on. And I think you will hear me this year about that. We are much further now in the process. It's something which takes time, also a due diligence process and all these things. So -- but it is in track, and you will hear more about that. So we can -- I think Dr. Braun and me can only -- we are very positive for the market. We are very positive for our product line. I'm sure laser vision correction will come again. It's down really at the lowest in the U.S. as it has been for a long time. It has been down to the U.S. the last three years, but it will come a turnaround again, and let's wait and see. But our product line is in these times a very good product line and this is something we are not dependent on authority money or insurance money. All what you have been seeing here is out-of-the-pocket money. It's very healthy. So very confident. Many thanks.

Okay. Then let's move on to the Q&A session.

[Operator Instructions] Our first question comes from [indiscernible]. What is the company's business composition in 2024? And can you please share some latest performance in Europe?

I think I tried to always give a little bit of outlook on the primary -- on the figures now in January and February. We see a good performance in Germany. We see an increase at LEC, increase at London Vision Clinic. So right now, the first month and also with the third month with March with the surgery numbers, we are quite confident that we'll see a good development in 2025. But the other hand, there is a high insecurity coming from the macroeconomic situation with the tariffs of the U.S.A., how they would affect worldwide market, how is the development in China. What about the war in Ukraine? So these overall macroeconomic problems are still in place. So we are very cautious about giving a future outlook, but Q1 looked quite good.

Our second question is from [indiscernible]. Could you please comment specifically on the second half performance? It appears that all regions, except Denmark, have experienced significant declines compared to both first half and second half of 2024 in terms of both revenue and EBITDA as well as EBITDA margin. What is your current view on when the trough will be reached? And in communication over the past 24 months, you said that your business is resilient. Why is this not reflected in the second half numbers? Also, can you please update on the use of the IPO proceeds?

Yes, second half of 2024 was slightly weaker than the first half of 2024, especially coming to the year-end. I think we have seen an effect here from the actions in the U.S., which made a lot of people more cautious about how they spend their money. And again, as I said, I think Q1 2025 looks quite okay. So it's not something where we see a total downward actually going on. And from a 24-month perspective, yes, I think we are resilient because when you look at our numbers from a revenue perspective, also from the EBITDA perspective, from the margins perspective, taking into account the four new clinics, which are in their ramp-up phase, I think we have shown high resilience and that we have performed quite well in this very difficult economic situation, which nobody would have expected like two years ago. Do you want to add something? No. Okay.

The next question is from [indiscernible]. how long will it take for the Hong Kong clinic to breakeven?

Hong Kong is a difficult market. I said in my presentation, it's only right now where we are losing money. We have been -- we have a fantastic clinic in the Russell Street, but we have had problem with the market. We have had problem with the communication. We have -- let's see -- we needed to adapt what we are doing in Europe and China to the Hong Kong market. We need also to put that into social media and what it has been. And this has been taking time, and it's difficult. We are not -- it's many things which is not allowed and you need to do it in this special way what is allowed over there. Therefore, we needed to take down our present marketing and we needed to create something new, and this has cost us some time. So it's a difficult market, but we are now on track and we are pushing. And it's also for the lens surgery market, I'm not talking about the lasers market, laser vision correction in Hong Kong is also very, very difficult. Then you see on the lens market like cataract, you have waiting one to two years waiting on to get a cataract extraction. You have a lot of people who are 45 plus. So we will need to address what -- how we can put that on the market in the form of market in China, in Hong Kong that people know we are in the Russell street. So this has been taking time. And yes, that's Hong Kong.

Management also mentioned that the company has ample cash reserve. Are there any expansion plan for 2025? And which regions will be prioritized for new clinic openings? This is the first question.

Well, we are looking overall, as I said last year to the half year intermediate results that we had in August last year. And these projects we work on that time, they are the top line by us. So you will see something coming in this year and this is something we are working on, we have the cash. So they definitely play a big role by us right now. And this -- we have the cash to go in there. We have the expertise. It's also laser vision correction and especially lens. So this is -- it's a new market.

Additionally, the London and Hong Kong flagship clinics established last year are steadily progressing towards breakeven. Which services have demonstrated the fastest revenue growth? And is the breakeven anticipated to be achieved this year? What are the key factors influencing this time line?

I think it's -- when you take the London market, it has been a fantastic management team over there, doctors team. And we are growing. And I'm very proud that we [indiscernible] which are surrounded by so many high-end and good competitors that we really managed to grow there. And this is what we see now in lens surgery. And I believe it's for that. It's international. It's people for the whole world. They are collected over there in the city, and they all need what we have, good surgery, experience and trifocal lenses. They wish to get rid of glasses. That's what we are seeing. So word of mouth is going right now. And of course, we are also doing a lot on social media. You probably -- all of you have been on our web page in London LEC and seeing our social media in product education, videos and product education. I can say it, I'm myself very surprised asking patient over there, where do you know us from? Well, you are a star. So in good old days, we needed to do 20,000 operations before getting a star in a new country. Today, it looks like we can do that with 10 very good spots where we product education, branding and reviews of former patients. So I think this mixture, what we have found out what is all of our knowledge, our company knowledge, how to get patients. This is something we will implement in China. We will implement also in Europe, what we have learned over there. In Hong Kong, it's difficult to implement while you have local law. When we go in other country, what you will hear about this year, too, we will also implement them. It's the same mechanism to do it. So it's also a big structure what we mean while have. But on our web page, go on our social media, you can see how we today try to do product education and also to brand ourselves.

[Operator Instructions] Our next question is from [indiscernible]. Are there any guidelines for the company's operational targets in 2025?

Of course, we will grow. I don't know if Dr. Braun, maybe you can say more there?

Well, we don't give explicit guidelines for 2025, especially in light of the difficult situation, but I would expect that we will see an increase of low single digit -- or high single digit, sorry, low double digit on the revenue side. And the -- that margins will increase again from where we are today, especially in light of the new clinics contributing not only to the revenue line, but with having reached breakeven besides the Hong Kong clinic also from the bottom line.

Well, maybe I can say it also here to factor in also that we talk a little about the future. You guys probably are more interested in the future. We can say in London, we got -- we really managed to solve the problem what we saw in the end of the year in London Vision Clinic that was low EBITDA. We had also negative EBIT in London Vision Clinic. We managed to solve that. I mentioned before, we had 50% staff revenue rate, and now we are down about 30%. So we managed to do that in a good way. And we have a lens surgeon in Vision Clinic now, and they are doing more and more lenses, cataract also and high-end cataracts and also then multifocal lenses. And about we saw breakeven in February in LEC, and we see that in April, and we see that in March. So that's very good. And China, yes, China is coming out. I think China, you will see in lens surgery. There, it's not -- you should not focus on the number of eye operations. You should focus on -- we get RMB 80,000. From RMB 80,000 to RMB 120,000 for two eyes lens surgery multifocal in China, it's almost double to what we have here in Europe. So it's very profitable. And it seems like we have got a very good fix on the market there, and I'm very happy about that. So although we have Trump, although we have Ukraine and Putin, which drags on the consumer confidence, it seems like a group of our patients who take our products, they are not so obsessive on these areas.

Our next question is from [ Daniel Winter ]. Based on current market cap, after backing out 2024 year-end cash, shares are valued at around 3x EBITDA. How does this compare to valuation you see in your M&A pipeline?

Well, a very good question. We are extremely cheap on the market. It probably has something to do with Hong Kong and the liquidity in the Hong Kong market, the foreign [indiscernible] is out of the Hong Kong market. So I don't think you will see many clinics who are dealing 2x to 3x EBITDA. So what we can say, of course, we are going -- or will buy, it is a higher valuation. When we go into the European market or the U.S. market or other markets around in Europe, you see a market cap or a company valuation is lying between 8 to 12, 8 to 10x EBIT. So it's much more expensive. But Dr. Braun and me, we are not looking at this market cap. We are not sitting and watching that. It's like it is. We have good numbers. We don't have any debt. We have a high cash flow. We have been buying back our own shares. And so I'm sure it will change. I think it's a big chance right now. So I'm very confident.

Thank you, management. As there are no further questions, would management like to share a few remarks before we conclude the meeting?

No, I'm happy and many thanks for being here today, and I hope to meet you all in person one of the next time we are in Hong Kong. So try to contact with our Cassie, our IR. She will always be available for you when you have questions or you can also reach out to us for meetings and so on. But many thanks for today.

Thank you. This concludes our presentation today. Should you have any questions later on, please feel free to contact us. Thank you for your participation. You may disconnect. Thank you.