Synsam AB (publ) (SYNSAM) Earnings Call Transcript

Good morning, and welcome to the Q1 2023 earnings conference call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Martin Daniels, Deputy CEO; and Per Hedblom, CFO. Please go ahead, gentlemen.

Thank you, and good morning, everyone. We are happy to present the Q1 2023 results for Synsam Group. And let us start off with a summary. Net sales amounted to about SEK 1.4 billion and with a very strong growth of 19%, we are continuing to drive a strong top line growth even in this challenging market. Also very positive to see that the gross margin has now stabilized following up an improved Q4 compared to Q2 and Q3 of last year, and we're now at a good level of 76.6%. The growth, very strong during the quarter, as mentioned, and the underlying like-for-like growth, i.e., the stores that we had coming into 2022 during the quarter amounted to 14%. We're also seeing that the activities that we started in the cost reduction and efficiency program is starting to create some results during the quarter where the EBITDA margin now grew from below 20% in the last quarter to now above 22%. Again, we're seeing that the subscription model, the broad offering that we have in the marketplace and our strong offering customer reception in store is paying off also in this quarter, and that's very good to see. If we go into a segment overview and deep dive a bit into each market, we can conclude that Sweden, who has been the engine, the largest market, is continuing to show very strong growth figures during the quarter. And also that, that growth is translated into a very strong EBITDA result during the quarter, up by almost 30% compared to last year. Denmark, which has been, during the last year, struggling a bit from a very tough overall market condition now growing into a very strong like-for-like and organic growth numbers. And also here, very good to see that, that growth is translated into an improved EBITDA, growing from SEK 61 million to SEK 79 million. Norway. Also here, we're seeing a strong growth driven by an underlying strong double-digit like-for-like growth. Here, we're not seeing that we're happy with the EBITDA development. We are taking action to improve that, both in terms of cost initiatives, but also a change in the leadership and management structure in that country. We are seeing that a lot of the things that have been successful in other markets, for example, in Sweden, are being implemented in Norway. And with time, we expect that to also transfer into EBITDA growth. Finland, of course, driven by a strong growth in the store network, is massively growing during the quarter. And also here, despite having a lot of new stores in ramp-up mode, we're seeing that being translated into an earnings growth, fairly substantial in terms of percentage growth versus last year. So all in all, 3 out of the 4 markets are showing both strong growth and -- on top line and on the EBITDA. Norway, strong growth on top line, but some more actions are going to be needed to grow the EBITDA. If we are looking into what is driving this growth across the markets, it is very much the same initiatives that we are focusing on also bearing fruit during Q1. It is, of course, the people meeting our customers in each and every one of our stores, it's the broad offering, ensuring that also in these turbulent times where consumers have less money to spend or they're more cautious that we have offerings that are relevant depending on the size of the wallet and also other needs that may change. We're seeing that the subscription, again, is attractive also in these turbulent times. And then, of course, also the store network, which has been growing fairly substantially in the last years. During the quarter, we also opened up stores. And for those of you who met us in big cities, you will recognize an experience like the one you're seeing here on the page, big visibility, flagship stores, huge stores with an enormous range. Two destinations where a lot of people travel from neighborhood to neighborhood to visit these stores. And that is, of course, a fraction of our network. More importantly and also to put our growth numbers in terms of new stores into perspective is what we're looking like outside of the big cities. And actually, where a lot of the growth in terms of new stores are coming from. This picture is much more truthful in the sense that these are the new stores we're opening. Actually, at the lower right, you're seeing Söderköping, a small city in Sweden, which is our latest new store addition. And these stores, these places or villages or cities, they are not the major cities in the Nordics. There are cities where you will have 10,000 to 20,000 inhabitants, and where these people have not been able to purchase or meet us in a store because we were not present there. And this is really representative for our growth going forward and also in the last couple of years. The majority are coming from these type of cities where there is no Synsam store in the nearby location. And that's why we see a lot of white space going forward in these types of cities. We can, with our model, with the subscription, actually make a good business in these small cities, where historically, with a fairly similar offering to competitors, opticians would not open new stores in places like this. But with the transformation of Synsam, we can actually compete and win in these cities. So that's a somewhat of a deep dive, but relevant to understand our growth and how we can actually deliver almost 20% growth in the market like this. If we double-click a bit into just some examples of these new stores and look into both big city locations and also smaller cities, we -- you saw a couple of pages back Synsam Norrmalmstorg and Synsam Hötorget, 2 flagship stores in Stockholm. Norrmalmstorg, SEK 57 million sales and SEK 17 million EBITDA is actually delivering some 30% EBITDA. Hötorget is also a flagship store in Stockholm, opened almost 15 months ago is selling SEK 28 million and EBITDA SEK 6 million. So you're seeing the ramp-up here, the effect where the EBITDA for Hötorget is 20% roughly and Norrmalmstorg is at 30%. If you look at some stores like Synsam Täby, row 5 here, actually an expansion of an existing store in Täby Centrum outside of the Stockholm city. We have been able to grow that business fairly substantially by expanding the store size and also here, you're seeing a 40%-plus EBITDA margin. Going into the smaller cities, for example, Tierp in the middle here, selling for SEK 11 million and delivering SEK 4 million EBITDA, that's also close to 40% EBITDA. So these smaller cities, even though they're not going to reach the SEK 50 million sales, they can be very profitable. Also the Roskilde example just being live for 4 months, selling for SEK 5 million and SEK 1 million EBITDA, actually 20% EBITDA in the first 4 months, fairly impressive, I think, from our end. And with that, I will hand over to Per to go through the financial development.

Thank you, Martin. If we look at some details of development. First and foremost, organic growth, 17.5% like-for-like 14%. That means we are benefiting from our fast rollout of new stores. We had 37 new stores in 2022, but not only because like-for-like growth, which excludes stores which have not been opened 12 months is 40% and that means we're strong in this market. We also have had a stable gross margin compared to fourth quarter. As you may recall that we had a somewhat lower gross margin in Q2 and Q3 last year due to cost expansion from vendors. We have acted upon that. At the same time, we want to maintain our position as being value for money -- providing value for money. So we believe we have a stable and good gross margin right now. OpEx-wise, we have been effective, of course, by the large number of store openings we made last year, 5 openings this year, by the way, it's Q1 so far. Since we are in the ramp-up phase, the new stores have somewhat higher OpEx to sales compared to the rest of the group during the ramp-up phase. Also, the production facility -- production and innovation center we established in Östersund in August has impacted us. It's also in a ramp-up phase and according to plan, it affected us negatively by SEK 6 million this quarter compared to SEK 2 million a year ago on EBITDA level, but that's according to our plan on how to ramp this facility up. On the other hand, the cost and restructuring program has helped us. We would deliver 10% in Q1 and we are on plan. So that has helped us keeping OpEx at a reasonable level and of course, being positive during this quarter. One of our growth drivers is, of course, Synsam Lifestyle, growing with 27% compared to Q1 last year, that is faster, of course, than the rest of the group and growing strongly in all markets, Sweden, Denmark, Norway and Finland. Finland 66%, actually, but that's also an effect of a lot of new store openings. And as we have said before, and it has been proven, we believe that the subscription is even more relevant to our customers in times of economic uncertainty where the consumers can also distribute their costs over time. And we have now roughly a little bit more than 50% of sales is Lifestyle last 12 months until Q1 2023. Not just sales, but also growing number of customers. We have far more than 0.5 million now, and we've grown by 31,000 in the last quarter only and 123,000 in the last year since Q1 2022. We have also focused a lot on -- as we've done before as well on maintaining a low churn. We're never satisfied, but this is, we believe, quite low churn of 2.17%, in line with the previous quarters. And that's a figure we're monitoring very closely. Should not forget the contact lens subscription, which has been successful several years now, growing actually by 40% LTM Q1 versus LTM a year ago. And we have now SEK 255 million is contact lens subscription. So a smaller, of course, business than Lifestyle but growing very, very fast. It affects -- the gross margin, to some extent, was lower gross margin. When it grows compared to rest of the business, it's a negative effect on gross margin, but it's a positive EBITDA contributor. So we like lens subscription a lot. Cost and restructuring program, as we have said before, should deliver SEK 102 million in 2023. We are on track and are past, of course, beyond Q1. And now in Q2, we're going to deliver SEK 25 million. And this cost and restructuring program is proceeding according to plan. Longer term, if you look back a few years, we have grown significantly. The pandemic year 2020 being an exception, but we grow then as well positively. We now are 14% growth LTM Q1 compared to a year ago. And we have reached SEK 5.5 billion in sales. Profit-wise, we -- LTM-wise, we're, of course, had a strong quarter, high EBITDA than 2022 LTM-wise, SEK 1.241 billion now and 22% gross margin, a little bit more than 22.3%. And we have a goal of 25% EBITDA margin and that's what we're striving for. So we are not satisfied with 22.3%. But the cost and restructuring program, our growth and other initiatives has the -- has the goal of reaching 25%, which is our financial goal. That's important to underline. Cash flow-wise, it's been a strong cash flow quarter with SEK 257 million in cash flow from operating activities. It was negative last year. And if you look just at the quarter, not comparing with last year, this was the effect before changes in working capital, which helped us and SEK 26 million in working capital and resulting is SEK 257 million in cash flow from operating activities. Furthermore, our investment activities has been reduced somewhat compared to last year, and we opened -- I mean, we focus on, of course, opening new stores, but not -- we're holding back a bit now this quarter and first half year regarding store openings and focusing a lot instead on upgrading and moving stores, which has the best -- we do what is best for the EBITDA at each and more opportunities we have in each quarter. And now we see we should really upgrade and move more stores. So we opened 5 in the quarter, but we moved several more. And this has had an impact positive on the cash flow, less investments. Also the production facility in Östersund, we're beyond the large investment phase, which was 2022. We will have some more investments, but on a little lower level. So the production facility will not generate as much investments as before. This, in combination help us also cash flow-wise compared to last year. We're report in quarter IFRS 16. That means that leasing is put on the balance sheet and has affected us regarding net debt. Regardless, we have a somewhat lower net debt than at year-end, SEK 2.919 billion compared to SEK 2.969 billion at year-end. This increase since last year, which was SEK 2.635 billion last year Q1, but SEK 153 million of the increase since Q1 2022 is due to leasing liabilities that is rents for premises, basically. And we also -- if you come back to last year, we have made dividends last year as well, which has affected, of course, the net debt. We have seen though that the leasing liabilities have been quite stable since new year, actually declined in a few million from December to March, actually. These lease liabilities for some -- it can be useful sometimes to look at the pre-IFRS 16 way of looking at net debt, just to make -- to reduce -- to calculate the impact of leasing. And then we see that without the IFRS 16 leasing, we would have had SEK 2.028 billion in net debt, an increase since last year, but not as much as with leases. And also there, if you look at pre-IFRS 16, we would have reduced the net debt from SEK 2.073 billion December 2022 to SEK 2.028 billion in March 2023. Store network. We talked about that. So we opened 5. We merged 4 stores. So the number of stores was reduced through that by 4, minus 4 plus 5 equals net 1 additional store during the quarter. And we are now about 539 (sic) [ 537 ] stores throughout the Nordics. And we have won an award. That's good for that -- our work is viewed well upon, but we're never satisfied. So it's a good thing to get an award, but we continue to develop our business and we are never satisfied. With that, I hand over to Martin again.

Thank you, Per. Okay. To summarize the quarter, we saw very strong organic growth and result, growing. Actually, the strongest ever growth in the first quarter for Synsam ever. Profitability measures EBITDA increased in 3 out of the 4 segments. We also have a plan that we are delivering on for improving in Norway. The subscription business, as Per went through growing faster than the overall company. So that continues to be a strong growth driver, again, with a very low churn. So customers are generally happy in the program. We focus a lot on making sure that in these turbulent times for consumers, we do have relevant and affordable options and solutions for our customers. We're also seeing that the gross margin with the adjustments that we've made in the past, has stabilized. So we are able to manage the high inflation environment in that aspect. Also, we're focusing a lot internally on the cost and restructuring program to, again, manage the cost base in this environment. We are seeing that, that is progressing according to plan and according to the targets that Per went through. And most importantly, all of this summarizing into seeing some growing market share, which with the model with no churn in the subscription program, we think is a very good proxy for further and future positive development for Synsam. And with that, we conclude our presentation and I open up for questions.

[Operator Instructions] Gentlemen, there are no questions over the phone.

Okay. Unless there are any questions, we thank you for listening in. And as we said, we think this was a strong quarter for Synsam. However, it's a tough market, and we're continuing to focus on our priorities every day, and we look forward to meeting you next time. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.