Synsam AB (publ)

Welcome everyone to Synström Group's Q&A session as released a year-end report for 2024 this morning. My name is Frida Leim and I'm Head of Investor Relations at Synström Group and the moderator of this Q&A. Today I'm joined by our CFO Per Hedblom and our CCO Jimmie Engström. Those of you watching this live can ask your question in the YouTube chat, and we will try to answer as many questions as possible. We have also our analyst from Citi joining us, so I would like to welcome and hand over to Yang Yang from Citi. Welcome, Yang.

Thanks, Frida, and thank you guys for hosting the call and allowing me time to ask questions. I guess if I could just start out the sessions with the questions to both the CFO and the CEO, what are you seeing in terms of the consumer environment across different geographies, you know, exiting 2024 and entering 2025? And I know we ask this question every single quarter, but it is a good idea to have a state of the union on where people are at.

Yeah. Now, 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 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 lower lowering rates? Or are you assuming in your budgeting, for example, that the consumer environment remains 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 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 a percentage of sales is 53% in the group. the lifestyle subscription 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 don't 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. How do you, Jimmy, elaborate?

Yeah, exactly. We now exceed 700,000 lifestyle customers by the end of Q4. And that is, of course, a sizeable 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.

Thank you. And just to 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 two years? Well,

The 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, 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 the growth rate. I mean, in the Q4 in 24 of 4%, even though we actively move customers from the cash business lifestyle, so the cash business shouldn't be forgotten. It's important as well.

Okay, understood. Thank you. 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 call out both cash and also lifestyle contributions. How are you thinking about the prospect of these two 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, you know, the growth the network upgrade that we are continuously doing, but then also, as you point out, the legislation impact 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, with regards to Denmark specifically, you called out still, you know, intensely competitive market, but you also mentioned weaker consumer markets. Just a little bit of a technicality. Are you seeing sequentially weaker market in Q4 versus Q3? Or are you seeing, you know, unchanged consumer market in Denmark specifically?

Oh, no, it's more unchanged and challenging, not sequentially worsening, no.

Okay. Okay. And also, you mentioned that since I view is in is still in the process of being rolled out, especially in Sweden, Norway, and that it will be completed in 2025. So two 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 question is, are you already seeing benefits coming in from seeing some IV rollout so far?

Yeah, I mean, regarding the status of Synsa, my view, 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 started an implementation 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 sense of my view, 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 will take before you fully implement SynSAM in those two countries?

Finland and Denmark are in the test phase. So that means we will see what we will do there. We haven't communicated any rollout plans in these two countries. It's a test.

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

The thing is, what I mean, one part implementation is the infrastructure and so forth. The other part, next phase, is the training of our colleagues and the implementation of the processes. When we mean it can be implemented during 2025, it means that the second part will be finished, the training and the process implementation. so that this will be functioning in Sweden and Norway fully. 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 would say, by increasing capacity and making our customers happier and shorten waiting times and so forth, reducing costs for optician consultants, but there will remain a cost regarding the license.

Okay, makes sense. And is there a way for us to quantify the headwinds from since some ivy rollout so far and I'm just trying to think of what would be the incremental toe in once we're through that by the end of 2025.

Yeah 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 bleed it out we just know we develop we are using more resources but it's We think we will notice 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 2020, 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 five to seven new stores? Is it sort of the phasing that we can times four to get to the full year number or will it be front end loaded or back end loaded?

Yeah, exactly. We communicate what we expect for the quarter. That's correct. But we also communicate the 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 the overall goal of 90 stores remain for this year period, the pace would be somewhat lower in 2025 and 2026.

Okay. And just for modeling purpose, is it sensible to just expect that, you know, the store opening 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 on 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?

I think in terms of assortment and the mix, there is slight differences, but in general, it's the same assortment. 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.

uh so um no big difference is there okay um and also when it comes to sort of store upgrades um how do you think about the pace of store upgrades that you're looking to do in 2025 as compared to 24. exactly we we um um

We still see continued potential regarding store upgrades, so we haven't seen a slowdown in upgrades, although we had one specific quite large upgrade in 24, whether we have such large upgrades or not, we'll see, but there's 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 2025, will it be something that continue the 2024 trends or will it look slightly different because you don't have another sort of large upgrading plan?

Exactly. I mean, what we have said, we have said that the... level of maintenance capex if you look at the sort of you know the expansion capex has new stores maintenance capex that is both sort of keeping existing source in shape and upgrading that's in maintenance capex and i mean the the the level of maintenance capex has been between 160 200 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 year, that interval plus inflation is normal for us, I would say.

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

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, reduced levels. 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 business decision on this all the time. And so far it has resulted in inventories increasing in total. Want to add, Jim, on that?

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 adjust the EBITDA margin for 2025? What are the key considerations that we need to have in mind at this point in time? Or, you know, where do you see as the biggest delta between the margin drivers of 2024 versus 2025?

Well, I mean... I'll start with what we've already said. We have cost programs ongoing and the purpose is to balance out cost increases. However, if these cost increases would not arise, there is a potential for a better OPEX position, I would say. Gross margin, I mean, there are so many different drivers, so I want to instead reiterate the drivers. I mean... In lifestyle, if we get more prolongings as a share total, that will help us in improving gross margin, technically. Also, if we increase the share of houseplants, 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 improve mix effect, but that depends, of course, on the economy in total. And then, as always, we want to 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 need to be and want to have a value for money offering to consumers. 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 if it's not just in the cost program, it can be day-to-day operations. So we try to create opportunities to get better economies of scale all the time.

Okay, understood. And thanks for a detailed answer. I guess for the last few questions that I have, I'm going to ask you on since I'm hearing, because I feel that we don't actually spend tons of time talking about it. Maybe the first thing is, can you just give us an update of how many since I'm 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.

Since I'm hearing it's a new area for us and there is still in a pilot phase and the pilot continues. So we opened up one 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 kind of synergies do you have as an optical retailer running hearing aid stores?

This is a typical bundle that we see across the globe in many countries but that has not been 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 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 order to have a hearing aid. And I think what these spectacles could do could do is to reduce the stigma a little bit and also ensure that more people of younger ages want to take care of the potential hearing problems that they have. With all new technology, it's very interesting to follow and we see that it could be interesting also for us.

Understood. Well, I think that that takes me to the end of my question list today. Thank you guys for for the time and I'll pass it back to Frida.

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

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

Thanks. The 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 to ensure that the customers are satisfied with their subscription. And that's a day-to-day operation which takes time and where we I believe we are quite good, but we can improve in certain areas. Do you want to add anything?

No, exactly. But I think overall, we think the churn is relatively stable and moves in line with what you can expect from the business. But I think worth mentioning is that when a customer churns from a lifestyle program, it does not necessarily mean that they churn from Synsam. A lot of them, of course, remain with Synsum 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, Benjamin, anything you'd like to add?

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 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're welcome to email the question to the email address below and we will make sure to get an answer. Thank you and see you next time.