Synsam AB (publ) (SYNSAM) Earnings Call Transcript & Summary

Welcome, everyone, to Synsam Group's Q&A session as we release the year-end report for 2024 this morning. My name is Frida Leim, and I'm Head of Investor Relations at Synsam Group and the moderator of this Q&A. Today, I'm joined by our CFO, Per Hedblom; and our CCO, Jimmy Engström. [Operator Instructions] We have also our analyst from Citi joining us, so I would like to welcome and hand over to Giang Nguyen from Citi. Welcome, Giang.

Thanks, Frida. And thank you guys for hosting the call and allowing me time to ask question.

I guess, if I could just start out the sessions with a question to both the CFO and the CEO. What are you seeing in terms of the consumer environment across different geographies exiting 2024 and entering 2025? And I know we ask this question every single quarter, but it's just a good idea to have a state of the union on where people are at.

Yes. No, I mean, we see also in the Q4 a bit of a cautious consumer still but, of course, where we see also the interest decreases now coming into the economy. So going into 2025, we hope for a positive, more positive, consumer, as the household income will increase.

And when you think of your internal budget setting in the company, what is the assumption for the macro backdrop? Are you actually factoring in an improvement, seeing that we have lowering rates? Or are you assuming in your budgeting, for example, that the consumer environment remain stable as we have seen towards the back end of '24?

Well, we don't comment on our internal budgets, but what we've done is we have introduced, as we mentioned, cost-saving programs. The third program was launched last year, with effect 2025, in order to handle a potentially worse economic environment. However, as was mentioned, we are hopeful for an improvement, but of course, it remains to be seen.

Okay, got it. And related to that, I know we have been talking about the lifestyle subscription business as sort of a beneficiary of the consumer downturns because it provides you with a stickier customer base. Could you give us an overview of where you are right now with regard to the penetration rates of the lifestyle subscription business in your broader business mix? And how does it look like in different geographies?

Well, if you mean percentage of sales, it's 53% in the group, the lifestyle subscriptions sales, of total sales; the highest in Sweden, 58%; and then half in Finland; and slightly below half in Norway and Denmark, if that was your question. But that's not really penetration. It's like we -- if we took, look at sort of our potential going forward, we strongly believe that we have not at all penetrated a large part of the customer base. There's more way to go. I hand over to you, Jimmy, to elaborate.

Yes, exactly, no. And I mean we now exceed 700,000 lifestyle customers by the end of Q4. And that is, of course, a sizable number of customers. And we see that the customers of the lifestyle program are very satisfied, but in Scandinavia there are 25 million people living, approximately, so we still see plenty of room for further runway for the subscription business.

And just 2 follow-up on that, please. So the first thing is I know you have just mentioned that there's further runway, but is there a sort of a ceiling or an -- aspirations that you are trying to get towards? So that's question number one. And then the following -- the follow-up, number two, is that, going forward, do you expect the growth within the subscription business to be faster or the same or perhaps lower than what we have seen in the last 2 years.

Well, thing is we maintain our financial goals regarding organic growth, 8% to 12% in the medium term. And lifestyle, we expect, will be an important part of that growth journey, so instead of talking about how it will increase or otherwise, it's we stick to the financial goals, 8% to 12% in total. And it's not just only the lifestyle subscription business. Our cash business is important as well, which we point out, with a growth rate, I mean, in Q4 in '24 of 4%, even though we actively move customers from the cash business to lifestyle. So the cash business shouldn't be forgotten. It's important as well.

Okay, understood. And maybe now if we go into the different regions or different geography, starting with -- I'll just group Sweden and Denmark together. Very, very good results. And you called out both cash and also lifestyle contributions. How are you thinking about the prospect of these 2 markets heading in 2025? I mean especially in Denmark now that all the legislation headwinds are in the base. What have you seen with regards to improvement in your own businesses following various initiatives that you have rolled out? And where do you expect this to go to in 2025?

No. I mean in Denmark we have, as you point out, taken a lot of actions during the last year. And we see the results from that. And in Denmark, a lot, of course, has to do with the network upgrade that we are continuously doing but then also, as you point out, the legislation impact from -- on the lifestyle business, but we see a solid growth in Denmark now and a good prospect for 2025.

And I noticed in the press release in -- with regard to Denmark specifically, you called out still intensely competitive market, but you also mentioned weaker consumer market. Just a little bit of a technicality: Are you seeing sequentially weaker market in Q4 versus Q3? Or are you seeing unchanged consumer market in Denmark specifically?

No, no. It's more unchanged and challenging, not sequentially worsening, no.

Okay, okay. And also you mentioned that Synsam EyeView is in -- is still in the process of being rolled out, especially in Sweden and Norway; and that it will be completed in 2025, so 2 questions on this. The first thing is can you give any indications of exactly when in 2025 are you looking to complete the implementation. And the second questions is are you already seeing benefits coming in from Synsam EyeView rollout, so far.

Yes. I mean, regarding the status of Synsam EyeView, at the moment, we have it rolled out in all stores in Norway, and about half of them in Sweden. And our plans for this year is to complete the rollout also in Sweden, to have it implemented in all stores, but we also have as -- started implementations on selected stores also in Finland and Denmark. But one can say that, since launch, we have now conducted more than 100,000 eye examinations in the Synsam EyeView, on top of the more traditional eye examinations. So it is already a contributor, but we are still in a rollout and ramp-up phase. And as we have mentioned before, one part is to install the technology, but the biggest part is to train the certified optician assistants and then to implement a new way of working in all stores. And that is what we are underway now.

And with regard to Finland and Denmark, now that you're starting out, how long do you reckon it would take before you fully implement Synsam in those 2 countries?

Well, Finland and Denmark, they are in the test phase. I mean we -- so that mean -- we will see what we will do there. We haven't communicated any rollout plans in these 2 countries. It's a test.

Okay. And when it comes to the sort of the double cost situations or costs of optician trainings, et cetera, do you expect that to essentially be over by the time you fully implement Synsam in Sweden in -- and Norway by the end of 2025? Or are we -- still expect this to be a headwind even after 2025?

The thing is with the -- what we mean -- I mean one part of implementation is the infrastructure and so forth. The other part, next phase, is training, yes, of our colleagues, yes, and the implementation of the processes. When we mean it can be implemented during '25, it means that the second part will be finished, the training and the process implementation; that this will be functioning in Sweden and Norway fully, yes. And that means that the sort of extra costs will not be present after we have fully implemented regarding this training and the process development. However, important, the infrastructure, we have license costs for this which will remain, but the benefits very much outweighs the cost, we will say, by increasing capacity and making our customers happier and shortened waiting times and so forth, reducing costs for optician consultants, but there will remain costs regarding license.

Okay, makes sense. And is there a way for us to quantify the headwinds from Synsam EyeView rollout, so far? I'm just trying to think of what would be the incremental tailwind once we're through that by the end of 2025.

Yes. It's -- I mean there are a couple of people employed in the project as such on central level. And that's one cost, but the larger cost, which is -- we can't really quantify, is the training and the process development of this in the stores because it's so integrated in the total operation. You can't just split it out. We just know we are using more resources, but it's -- we think we will notice when this -- in the costs when this is implemented. That all, we can say. So there is an effect, but it's tricky to quantify it in this type of call.

Okay, I understand. Now moving to the topic of perhaps new stores opening. I guess the first question is that, thinking about 2025 now, are you looking to continue a very strong pace of store openings that we have already seen in 2024. Or are you going to sort of have a slower pace of store opening? Because as we see with -- sort of the outlook for the first quarter of 2025 is anything between 5 to 7 new stores. Is it sort of the phasing that we can times 4 to get to the full year number? Or will it be front-end loaded or back-end loaded?

Yes, exactly. We communicate what we expect for the quarter. That's correct, but we also communicated that target of 90 stores between '24 and '26 remains. And in '24, we took opportunity to establish 46 new stores in the quarter because there were so many good opportunities which we choose to act upon, but since overall goal of 90 stores remain for the 3-year period, the pace would be somewhat lower in '25 and '26.

Okay. And just for modeling purpose, is it sensible to just expect that the store openings should be evenly phased between '25 and '26; or again, more in '25, less so in the final year, to get to the 90 numbers?

I would phrase it like this. There is no specific reason why '25 and '26 should be different from each other. We don't know about that now, but we will act upon the opportunities as they arise. So while having said that, that might change when we have a clear outlook of '25, '26, of course.

Okay, makes sense. And I also noticed that you have talked about the focus of opening of -- new stores being opened. That would be to improve your presence in smaller towns. And you also benefit from lower rents there. Is there a difference in terms of the product mix that you can sell in a smaller town versus in bigger city or, like, the capitals, for example? And whether the locations will have any implications on the regional or the geographical margins that you can generate going forward.

The -- I think, in terms of assortment and the mix, there is a -- we have slight differences, but in general it's the same assortment. And what we see and what we always try to do is to build the best store in every town. And that is something that we sort of customize on each individual store level basically. And so no big differences there.

Okay. And also, when it comes to sort of store upgrades, how do you think about the pace of store upgrades that you're looking to do in 2025, as compared to '24? Because...

Exactly. We still see continued potential regarding store upgrades. So we haven't seen a slowdown in upgrades, although in -- we had one specific quite large upgrade in '24. Whether we have -- the mall of Scandinavia. And whether we will have such large upgrades, not, we'll see, but there is still quite a potential of upgrading stores throughout the company.

Okay. I think where I'm trying to get to is when you think of -- and I appreciate that you mentioned there was a big upgrade in 2024. When you think of the investment rate, also the inventory levels, at the group level for '25, will it be something that continue the 2024 trends? Or would it look slightly different because you don't have another sort of large upgrade in plan?

Yes, exactly. We -- I mean, what we have said, we have said that the level of maintenance CapEx, if you look at the sort of -- the expansion CapEx, that's new stores. Maintenance CapEx, that is both sort of keeping existing stores in shape and upgrading. That's maintenance CapEx, yes. And I mean the level of maintenance CapEx has been between 160 million and 200 million roughly. That's -- I mean that's a quite normal level for us; and then of course, inflation on that. So we don't see that it's -- we haven't deviated from that interval really for a long time. And we still have the same kind of business ambitions going forward, so that kind of maintenance CapEx level is -- that we have now and had last years, that interval plus inflation, is normal for us, I would say.

Okay. And how do you think about the inventory levels?

Yes. I mean we keep a close eye on inventory levels. And we have projects to ensure that we on a like-for-like basis, so to say, reduce levels, yes. On the other hand, we introduce new assortments. We expand the store areas. We expand the number of SKUs in the stores, which is a part of our growth strategy. It's a central part of our growth strategy, to have a good assortment of frames in the stores. And therefore, we don't have as a goal to reduce inventory levels just for the sake of reducing. We take a sort of a business decision on this all the time, and so far, it has resulted in inventories increasing in total. Do you want to add, Jimmy, on that?

Okay...

No, no. I think, I mean, going back to the point that we want to have the best store in town in every town and in every mall. And of course, an essential part of that is also to have an attractive assortment, so it's always something that we balance, but we do this on a case-by-case basis in every single town and every mall.

Okay, understood. And my next question is on your -- how do you see the building blocks to gross margin and adjusted EBITDA margin for 2025. What are the key considerations that we need to have in mind at this point in time? And -- or where do you see is the biggest delta between the margin drivers of 2024 versus 2025?

Well, I mean, I'll start with what we've always said. We have cost programs ongoing. And they -- the purpose is to balance out cost increases. However, the -- if these cost increases would not arise, there is a potential for a better OpEx position, I will say. Gross margin, I mean, there are so many different drivers, so I just -- I want to instead reiterate the drivers. I mean, in lifestyle, if we get more prolongings as a share of total, that will help us in improving gross margin, technically. And also, if we increase the share of house brands, that will increase gross margin, as we said before. Mix effects can move in different directions. And that can be quite large, so that, we can't really foretell. It depends also, I mean, very much how the glass quality -- lens quality which the customers would select. In a better economic environment, it might be that customers would choose better-quality lenses -- and then improved mix effect, but that's depends, of course, on the economy in total. And then as always, we want to be -- have value-for-money offerings, so we will ensure that we have a good offering for the consumers. We don't chase gross margin just for the sake of it. We have -- we need to be and want to be -- have a value-for-money offering to consumers, yes, so -- but we have a cost -- I mean, once again on the cost program: That's a program, but we continuously monitor costs and look day-to-day on how to improve our cost position even though we -- even if it's not just in the cost program. It can be day-to-day operations, so we want -- we try to create opportunities to get better economies of scale all the time.

Okay, understood. I guess, for the last few questions that I have, I'm going to ask you on Synsam Hearing because I feel that we don't actually spend a -- tons of time talking about it. Maybe the first thing is can you just give us an update of how many Synsam Hearing stores out there. How does sort of the margin profile of these look different or not different compared to your main optical stores? And then I will have a follow-up after that.

Yes, no. I mean Synsam Hearing is a new area, as you know, for us. And the -- it's still in a pilot phase, and the pilot continues. So we opened up 1 more new unit in Q4, so we now in total have 11 of these hearing units, but it is a new area. And we are elaborating with the operating model and -- to see that we find the right recipe. And so far, it has been promising, but we are continuously evaluating.

What type of, what kind of synergies do you have as sort of a optical retailer running hearing aid stores?

No. I mean this is a typical bundle that we see across the globe, in many countries, but that has not been sort of the case in Scandinavia so much before. But of course, there are clear synergies because, typically if you are elderly and in need of hearing aid, you typically also have a vision correction need, needing spectacles. So there is sort of a logic there that you can bundle this together to the customer and to offer a more comprehensive solution.

Okay. And I suppose you have been following the news of a -- I mean, sort of spectacle-based hearing aid solutions. Do you have a view on that? And when and if they come to the Nordics region, would you be happy to be a stockist of such a product?

No. I mean we find these new innovations, of course, very interesting. And we are following the progress also on these types of spectacles. And I think what is interesting with those is that it's also -- of course, there is still a sort of a stigma in -- to have a hearing aid. And I think what these spectacles could do is to reduce this stigma a little bit; and also ensure that more people, also younger ages, want and -- want to take care of sort of the potential hearing problems that they have. So I mean, with all of new technologies, it's very interesting to follow. And we see that it could be interesting also for us.

Understood. Well, I think that takes me to the end of my question list today. And I'll pass it back to Frida.

Thank you, Giang. We have also a couple of questions from the YouTube chat, and the first one is regarding our cash flow. And the question is if -- what drove the low level of payables in Q4.

Well, it's sort of depending on the due date for invoices, basically. Sometimes they, these invoices, have a due date after a quarter and sometimes before the quarter, so it can differ between quarters. This was a quarter where we paid down payables, basically. That's the short answer.

Thanks. And second question is, "What are you doing to mitigate the marginal increasing trend in churn?"

I mean the most important thing is, of course, a customer meeting where -- to ensure that we -- that the customers are satisfied with their subscription. And that's a day-to-day operation which take time and where we believe we are quite good but we -- where we can improve in certain areas. Do you want to add anything, Jimmy?

No. Exactly, but I think overall we think the churn is relatively stable and mostly in line with our -- with what you can expect from the business. But I think worth mentioning is that, when a customer churn from lifestyle program, it does not necessarily mean that they churn from Synsam. So a lot of them, of course, remain with Synsam as customers.

And we also follow customer satisfaction very closely. And it is high, and that's encouraging as we see it.

Thank you. It's time to wrap up, but before we do so, Per, Jimmy, anything you would like to add?

No. I think we can summarize that we are very proud of our achievements in 2024 and the fourth quarter. And it has been a more challenging year and still we are performing at these levels. And it is, after all, a record year and stable growth in line with our strategy and financial targets. So we also see improved profitability. And I think, when we conclude, we see that we have built a strong platform that we are continuously developing and that we can also benefit further from going forward.

Thank you. A big thank you to Per and Jimmy. Thank you to all of you watching this live. If you have a question you have not received an answer of today, you are welcome to e-mail the questions to the e-mail address below. And we will make sure you get an answer. Thank you and see you next time.