Welcome, everyone, to Sinsheim Group's Q and A session as we released the year end report for 2024 this morning. My name is Frida Lehm, and I'm Head of Investor Relations at Sinsheim Group and the moderator of this Q and A. Today, I'm joined by our CFO, Per Geert Blom and our CCO, Ine Engstrom. 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 analysts 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 a question to both the CFO and 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's just a good idea to have a state of the union on where people are at.
Yes. 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 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 e 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 2024?
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 of the consumer downturns because it 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, Fifty Eight Percent. 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 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.
That's more way to go. And over to you, Jimmy, elaborate.
Yes, exactly. I know. 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 25,000,000 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 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, 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 2024 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. 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 livestock contributions. How are you thinking about the prospect of these these two markets heading in 2025? I mean, especially in Denmark now that, you know, all the 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.
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 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. More unchanged and challenging, not sequentially worsening, no.
Okay. Okay. And also you mentioned that, since I'm IV 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 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 SYNTHAM iView rollout so far?
Yeah. I mean, regarding the status of SYNTHAM iView, 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 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 SYNSA MAiVIEW 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, Denmark, now that you're starting out, how long do you reckon it would take before you fully implement SYNTHAM in those two countries?
Well, Finland, Denmark, they are in the test phase. I mean, we so that means we will see what we will do there. We haven't communicated and 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, etcetera, do you expect that to, to essentially be over by the time you fully implement SIMSAM in Sweden, in Sweden and and Norway by the end of twenty twenty five? Or are we still expect this to be a headwinds even after 2025?
The thing is, with the what you mean I mean, one part implementation is the infrastructure and so forth. The other part, next phase is 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 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 license.
Okay. Makes sense. And is there a way for us to quantify the headwinds from since an IV 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 twenty twenty five.
Yeah. It's I mean, there are a couple of people employed in the project as such on center level, and 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. We can't just bid 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's all we can say. So there is an effect, but it's tricky to quantify it in this type of call.
Okay. 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 page 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 twenty twenty five, is anything between five to seven new stores?
Is it sort of the phasing that we can time us for 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 communicate that target of 90 stores between '24 and '20 '6 remains. And in '24, we took opportunity to establish 46 new stores, 40 in the quarter because there were so many good opportunities we choose to act upon. But since overall goal of 90 stores remain for the three 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, you know, the store opening should be evenly phased between '25 and '26 or, again, more in '25, less in the final year to get to the 90 numbers?
I would phrase it like this. There's no specific reason why 2526 should be different from each other. We don't know about that now, but we will act upon opportunities as they arise. So while having said that, that might change when we have a clear outlook on 2526, of course.
Okay. Makes sense. And, I also noticed that you have talked about the focus because 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, you know, 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 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. 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 2024?
Because I suppose Exactly. We still see continued potential going store upgrades. So we haven't seen a slowdown in upgrades, although in we had one specific quite large upgrade in 2024, while we have the Molok and neighbor, while 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 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?
Oh, yeah, 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 as new stores, maintenance CapEx that is both sort of keeping a system source in shape and upgrading, that's in maintenance CapEx. And I mean, the level of maintenance CapEx has been between SEK 160,000,000 and SEK 200,000,000 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's 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, reduce levels. On the other hand, we introduced 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 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 the amount then?
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 adjust the EBITDA margin for 2025? What are the key considerations that we need to have in mind at this point in time? And or, you know, where do you see us 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 they 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 just 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. 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 improve mix effect, but that depends, of course, on the economy in total.
And then as always, we want to be have value for money offering. 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 price value for money offering to consumers. So but we have a cost I mean, once again, on the cost program, that's a program, but we continuously monitor cost 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. And thanks for 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 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.
Yeah. No. I mean, since I'm hearing, it's a new area as you know for for us. And the 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 type of what kind of synergies do you have as sort of optical retailer running hearing aid stores?
No. I mean, this is a typical bundle that we see across the globe in in 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 so there is sort of a logic there that you can can bundle this together to to the customer and 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 we find these new innovations, of course, very interesting, and and we are following the progress also on on this, these types of of spectacles. And and I think what what is interesting with those is that it's also, of course, there is still a sort of a stigma in ordering to have a hearing aid. And and I think what these spectacles could do is to reduce the stigma a little bit and also ensure that more people also of younger ages want and want to take care of the sort of the potential hearing problems that they have. So, I mean, 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 takes me to the end of my question list today. Thank you guys for the time and I'll pass it back to Frida.
Thank you, Jan. 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. 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 the subscription. And that's a day to day operation, which take time and where we believe we are quite good, but we can improve in certain areas. We won't do anything in
No, exactly. But I think overall, we think the churn is relatively stable and most 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 the churn from ZYNZAM. So a lot of them, of course, remain with ZYNZAM as customers.
And which 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, Pernjim, 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, 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 Panjimi. 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 e mail the question to the e mail address below and we will make sure to get an answer. Thank you and see you next time.