Earnings Call: Q1 2024

May 17, 2024

Welcome everyone to Sensen Group's Q and A session as we release the interim report for the Q1 2024 this morning. My name is Frida Laim, and I'm Head of Investor Relations at Sensen Group and will moderate this Q and A. I'm joined today by our CFO, Per Heerblom and our COO, Jim Enstrom. Those of you watching this live, you are welcome to ask a question in the YouTube chat, and we will try to answer as many questions as possible during this session. We have also our analysts from Citi joining us. So I would like to hand over to Veronika Dubajova. Welcome Veronika and welcome with your questions. Hi, good morning and thank you guys for taking my questions. Maybe we can just start big picture. If you could give us some insight into the consumer behavior that you are seeing across the various markets that you're in. Just curious if you feel that there's been any change through the first quarter and as you've moved into April May, if you can describe the type of behavior you're seeing in terms of volume and value per purchase, that would be great. Well, it's I can start, maybe you can fill in, Jemi. We I mean, up until the Q1, we do not really see any changes in consumer behavior compared to Q4 really. I mean, there's a lot of talk, of course, about effects of interest rate reductions so forth. They had not appeared in Q1. So I would say the consumer sentiment in generally in Nordic region as we understand it, is quite similar and also what we can notice in our industry. So I wouldn't say any meaningful shifts compared to Q4. Rather, we still see sort of a willingness to get good deals to look for affordable alternatives as a continued strong trend. You want to add anything, Ymir, to that? No, no, I agree. And I think also our industry, of course, we have this medical dynamics. So the customers are coming for their eye examinations. And of course, that also helps our business as well and consumer flow is continuing basically. So very similar to Q4. That's very helpful. Thank you. And then maybe sort of as we dive into the lifestyle part of the business, specifically, any changes you are seeing there in consumers' willingness to bundle and join the subscription program? And do you think the current economic environment is a tailwind or a headwind to the lifestyle program specifically? No, no. We see a similar development also in the Q1. And we have seen over the past year that the subscription model has had sort of a tailwind in the sense that it is for many consumers, it's a secure and safe alternative in instead of paying sort of a onetime cost for Para Spectacles, it's a predictable monthly fee. And we see that this goes across consumer groups or segments. And that is continuing also now in Q1. Very helpful. And before we dive into some of the countries, maybe just a final big picture question. Obviously, this Q1 was unusual in terms of the timing of Easter. You called that out a little bit in your press release this morning. Just curious what you think the impact of Easter timing was and whether it differed region by region? Well, I would say the meaningful effect we see in Norway. And that's why we point out Norway specifically. For the rest of the group, of course, there's an effect, but we don't see it as large enough to quantify. And I mean, there are holidays throughout the year in various countries. So we don't specify the effects of these every year. But the meaningful effect is on Norway. And we can see I mean, we had positive growth in Norway in Q1, although this we had this timing effect of Easter. But I mean, a few percentage points, I would say, effect on organic growth in Norway from Easter indeed. Yes. And I mean, this is in Norway, they have a tradition where they basically celebrate Easter a bit more, and they also are often going on the to the counterhomes and so on the weeks before. So it is sort of a stronger impact in Norway than in the other regions and also, I think, in most countries in Europe. Okay. That's helpful. But when we look outside of Norway, would you say the impact was negligible? Or there is still maybe 100 basis points of headwind there for Easter even in the other regions? I mean, it's for the other countries, it's like one day in a quarter. So I mean, of course, you can say sort of 100 basis points. I mean, that's if you just divide it by number of days. But it's difficult to quantify because you don't know sort of if people sort of come in earlier and pick up those spectacles anyway in days before. So I wouldn't just mathematically equate it with 100 basis points. But you can make the calculation, of course. Okay? There. Okay. Very helpful. Thank you. And then I mean certainly versus our expectations, the growth that particularly stood out as very impressive in Q1 was sweetened. And I'm just curious if you can maybe talk through some of the drivers there and what is it that's helping sustain this high single to low double digit growth in this market continuously for you? Please, Thor? Yes. But I think overall, it's the strategy basically that we have in place. And we see that this works very well in Sweden, both the greenfield strategy, the lifestyle strategy, but also having this strong positions in each and every city basically in where we are, and that makes the customer comes to us. So we do a lot of the right things in Sweden. And this is what really creates sort of this continuous growth. I don't know if you want to add something, Per. No, no. It's following the strategy. Also, we start to see early effects of the iVIEW implementation as well. Okay. And then obviously that's helpful. And would you say that you think the growth in Sweden is durable from here for the remainder of the year? How should I put it? We have a strong position in Sweden. We have so much more to do. Even though we have a strong position, we talk a lot about establishing ourselves in smaller cities. And as we have said in the presentation, that's an area where we see strong potential. We strongly believe that we have not at all reached any kind of situation regarding lifestyle. So a lot longer very long runway regarding lifestyle, which is successful in Sweden. So we see strong potential for continued strong growth. Whether that will materialize or not, I cannot go into details for the rest of the year. But we are very positive regarding Sweden and the position we have. Excellent. And then conversely, obviously, the Denmark growth rate has been impacted negatively for a number of quarters now. Just curious how you feel about when we might see a return to growth on a sustainable basis given the changes around the credit regulations and rules there? Yes. And yes, of course, we are taking measures and they are starting to show effects already. So we have a positive outlook for Denmark for the full year indeed. Okay. And so you are seeing clear signs of improvement there, would you say now? Yes. We see a clear signs of improvement in Denmark, yes. Okay. Okay. That's helpful. I don't have any specific questions on the other two markets unless there is something you would like to flag in terms of anything notable that you saw in the Q1? Well, I would like to highlight Finland, which is still performing very positively. And I mean, it's like you're getting used to it. So you sometimes you forget that Finland is a very strong performer. And yes, want to underline that? Yes. Well, we will get to Finland because I think you're absolutely right. Maybe we can actually I can ask this question now, which is the revenue performance in Finland was really impressive. We were a big negatively surprised by profitability development. So I don't know Per, if you can talk a little bit to that and just discuss the pulls and pushes to the margin in the quarter for Finland. Yes. It's very much in U. S. Establishments in Finland. I mean, we are pushing very much for growth like for like and organic. And we have a goal of establishing large number of stores in Finland. We follow that plan. And of course, when we have that large number of openings, it has an impact. But it's according to plan. We see it a strong performance to have a stable EBITDA in SEK1 1,000,000 in this quarter. That's helpful. And maybe just remind us, Perry, in terms of your expectations, when you do open a new store, what kind of time is it taking you in Finland to get to a breakeven point, 1, and 2, to your profitability in line with the region? Yes. I mean Finland is not very much different from the rest of the Nordics. So we say EBITDA positive in within 6 months, of course, varying by location and reaching sort of maturity, you might say, after 24 months. That's sort of what the goals we have for the group. And Finland is not different from the rest of the Nordics in that respect. We have followed the same establishment model as we have in the rest of the group. Very clear. Thank you. And then maybe another financial question that we have and I got asked by a couple of investors this morning, it's just the gross margin trajectory and to what extent was product mix an important driver in Q1? And as you look forward to the rest of the year, what would your expectations for gross margin be? I can just talk about the drivers first. I mean, what we see is an effect of if you compare to Q1 last year. This lifestyle effect when we get higher fees from our finance partners due to higher interest rates compared to a year ago, That effect has an impact. And we want to mention that quite a large part of that reduction is due to such an effect. And then we have the mix effects of high proportion of contact lens subscription and online as well, as you mentioned. Additionally, some campaigning, which we have done for tactical reasons. If you look I mean, if you look forward, I mean, I would say that the interest rate development is quite interesting. And the impact of on gross margin would, of course, be smaller if interest rates will stabilize and being reduced, of course. So that would be a positive factor on gross margin indeed if interest rates came down and thereby also finance fees from finance partners. Otherwise, it's quite tricky to actually predict. We want to be value for money operator to ensure that our customers can find attractive offerings in our stores. So I mean, we believe the gross margin is at a reasonable level, I would say. Do you want to add anything? No, I agree. Okay. Are you raising prices this year similarly to what you did last year? Or do you feel that there is less room for that given that inflation is moderating? Well, our the way we've done this is that we have had to adapt our pricing to consumers in line with price increase that we've gotten from vendors. I mean, we have not tried to gain extra from this inflation environment. We want to be a value for money have a value for money offering. So that means when inflation comes down and there is less price pressures from vendors. We would not then try to raise prices to consumers just to increase gross margin. That's not what we do. We really to keep the value for money offering is very important to us. So we I mean, we are quite reactive when it comes to price adjustments to consumers, reactive depending on what input prices we get. So lower inflation would mean more moderate increases, yes. Yes. And any what we hear from some of the large frame and lens suppliers is that they're still raising prices this year. Is that something you're seeing on your end from a sort of input cost perspective? Well, it's their ambition, of course, to raise prices, and we try to negotiate on all fronts. So we will, of course, try to mitigate any such attempts during the year. So we will see what happens in these discussions. Okay. Very clear. And then obviously, one of the things that matters for your mix is Sun, and we are heading into the second quarter, which is a strong quarter for the Sun business. What are your expectations here? What are you seeing initially at this point in time? Yes. I mean, of course, it's a bit weather dependent. And I mean, April was a bit cooler than normal. May has now been quite sunny. So we, of course, will hope for a sunny June July as well, I would say. And I mean, last year, it was, of course, July August was rainier than normal in the Nordics. So regarding the sand sales, of course, that will depend a bit on the weather. Okay. Very clear. Thank you. I don't really have anything else kind of short term, but maybe just to refresh your obviously longer term as we think about the expansion plans that you've communicated as part of your midterm guidance. If I remember it correctly, we had 9 store openings in Q1. Just curious how you feel about the pace through the rest of the year? And maybe if you can just remind us which regions in particular are key for you from a new store perspective? Yes. I mean, we exactly we communicated, yes, like 9 stores in Q1 and 14 to 16 including human units for Q2 is to 12 to 14, sorry, 2014. 12 to 14 including units for Q2. So with just for the half year, we are very well on track to reach if you would divide the €90,000,000 by €30,000,000 per year. But I mean, we have strong ambitions for the year. So we will continue expanding the new stores throughout 2024. But we are at quite fast rate now in Q2, indeed, we are. And regionally from a regional perspective, Per, what are the 12% to 14% in the second quarter? Where will they be concentrated? Instead of going into such detail, I would say that over the year for the full year, I mean, most establishment, it's reasonable to assume that they will be in Finland and Sweden as well, complemented by Norway. And to a smaller extent in Denmark, where we focus more on moving stores and upgrading. Okay. Very, very helpful. And then as we move further down the P and L, obviously, from a margin perspective, maybe just give us an update on how the cost efficiency programs are going and sort of I know you don't guide us from the margin for the year, but as you think about 2024 versus the midterm ambition, how does 2024 differ from that midterm margin ambition that you have for the business? Yes. I hope I understand the question right. So I will try to give an answer and you'll see if it corresponds to your question. We I mean, there are 2 programs. The intent of these were to mitigate the effects of inflation, the increased costs. And these the effects we communicated are gross effects. So for 2024, we have the difference then gross effect of Programme 1 between the 102,000,000 we had with 23,000,000 and then 129,000,000 for 2024. So that delta is, of course, additional cost effect saving effects in 2024, plus the Program 2, which we have communicated, very correct, 94 percent for 24%. And these are gross effects. And we have not said that we will have net effects. However, we saw in Q4 that we actually had net effects of the program, which was very positive. And I would say that we have had the same experience, no big change compared to Q4, meaning some positive net effects in Q1. But for the full year, I cannot give any guidance on net effects for the cost programs, but they are progressing according to plan. Okay. Okay. That's helpful. And I guess my second question, Per was I don't know if you'll answer this, but obviously when I look at the midterm ambition that you have, how would you expect 2024 to be different from the midterm margin that you've communicated? I guess, what are the pulls and pushes for margin this year relative to 2026? Relative to 2026? Well, so I mean, you've talked about this 25% adjusted EBITDA margin in the midterm, right? And I'm just trying to understand would you expect 2024 to be slightly worse than that, slightly better than that? What are maybe some of the positives that you have in 2024 versus that midterm ambition? And what are some of the headwinds that you have in 2024 versus that midterm ambition? If you can talk through those to the extent that you're comfortable? Well, no, it's too close to being forecast. And midterm does not necessarily mean exactly 2026 either, but it's we have a midterm guidance, and we are our ambition is, of course, to reach our financial goals in the midterm and to take such measures that we reach them. I mean, we the meaning the purpose of our financial goals is to show communicate that EBITA margin and growth is important that we these are our ambitions medium term. Whether we will sort of what we will achieve in 2024 is too much of a forecast, unfortunately. We have ambitions regarding growth. And we see that the initiatives we take to achieve growth is paying off. We've seen that in Q1. And we continue to be a growth company with a strong eye on EBITA margin. That's so not the answer we looked for, but I cannot give any more precise forecast. Understood. Look, I had to try. Frida, I don't know I don't know if you have any questions that others have submitted. I'm kind of towards the end of my list. So I want to make sure if there are other questions that there is an opportunity for those to be answered. Yes. Thank you, Marika. Yes, we have one question from the chat. So cost and efficiency measures in Sweden have made a big impact on the mortgage side. Can you translate this best practice to the other countries? This is I mean, the cost of efficiency program is a group initiative. So they are transferred to all countries already. And in Sweden, we have seen I mean, that's one impact, of course, is of the cost program on the margin. I want to one should remember as well that the increased EBITA margin is not just the cost program. We do have an effect of operational leverage. When we grow and we see that we're growing quite a lot, we get positive effects because we don't have to add as much costs as we grow in revenue. That's an effect, I should remember, as well. So it's not like we start the cost program in Sweden, we rolled it out. We rolled it out in the group at the same time. Thank you. Great. Anything else? Any additional question, Veronika, before we wrap up? I am all good, and we can give folks the last couple of minutes back. But thank you guys for the update this morning, and congratulations on an impressive start to the year. Thank you. So before we wrap up, any final words you would like to add? No. I mean, thank you for the call. And I think what we want to communicate is that we believe in our strategy, and we will continue, of course, to pursue this year in the same way and always continue to try to improve our customer offering and also the strategy execution in all markets. So we look forward to the continued work over there. Thank you. So a big thank you to Per and Jimmy. Thank you for all that have been watching this slide. See you next time.