Reviews in 2018
Published on 9 November 2018
Interim CEO Anu Kankkunen:
Silmäasema’s net sales grew during the third quarter, but the growth was slower than before and was not on the level anticipated. Our total net sales increased due to the opening of new stores and the eye clinic in Oulu, but our like-for-like net sales decreased in both reporting segments. We cannot be satisfied with this, even though fluctuation in the sales level is part of the nature of the sector. The last quarter has started with strong sales, so far the growth in October–November has been more than 10 percent.
The slow performance of net sales was also adversely affecting profitability in the review period. The Group’s adjusted EBITDA was behind last year both in Q3 and in the first nine months of 2018. With the expansion of our network, our expenses have increased as planned, but our net sales have not grown at a sufficient rate in relation to the expenses, even though our new stores continue to develop in the right direction. Lower like-for-like net sales are also weakening profitability. The second quarter of 2017 was exceptionally strong, particularly in terms of profitability, which is part of the reason for the development of the figures in January–September 2018 in relation to the comparison period.
We opened two new optical retail stores in Finland in August–September, but as we announced earlier, we are now focusing more on improving the net sales and profitability of our existing network than expanding the network. During the review period we started looking into measures that will enable us to accelerate productiveness and profitability. The work is still in progress and the impact of any measures are only likely to be visible in our results starting from next year. We have also continued planning the information system renewals related to Silmäasema’s development programme.
September the Board of Adjustment partly annulled the Tax Administration’s decision regarding the value added taxation of Silmäasema Optiikka Oy. Regarding the rejected appeals for adjustment, Silmäasema has appealed against the decision to Administrative Court. Due to the Board of Adjustment’s decision, the tax returns entered in the third quarter income statement have a clearly positive impact on Silmäasema’s result and cash flow for the 2018 financial year. However, the decision will not change the company’s outlook as Silmäasema has eliminated the impact of the change in value added tax deduction practice when reporting the adjusted EBITDA and adjusted operating result, and it will also eliminate the impact of the returned value added tax items.
Silmäasema’s outlook for 2018 remains unchanged. We estimate that our net sales will grow compared to the previous year and that our adjusted EBITDA will be 9–13% of net sales. However, our adjusted EBITDA for the full year will be closer to the lower end of this range.
Published on 17 August 2018
CEO Pasi Kohmo:
The development of Silmäasema’s net sales did not meet expectations during the first half of 2018. Our total net sales increased due to the opening of new stores and the eye clinic in Oulu, but our comparable net sales decreased. Our sales were lower than expected in both reporting segments, particularly in the second quarter, even though changes in the level of sales are part of the nature of the industry.
The slow development of net sales was also reflected in profitability. With the expansion of our network, our expenses have increased as planned, but our net sales have not grown at a sufficient rate in relation to the expenses, even though our new stores continue to develop in the right direction. This is the main reason for the decrease in our adjusted EBITDA and profitability. The decrease is enhanced by the fact that the second quarter of 2017 was very strong, particularly in terms of profitability. In the second quarter of 2018, profitability was also burdened by a weaker campaign structure in optical retail, as well as a higher proportion of cataract surgeries at our eye clinics and lower prices in comparison with the corresponding period last year, due to campaigns.
This year, we have opened a new eye clinic in Oulu and have expanded our optical retail store network with six stores in Finland and one store in Estonia. In line with our growth strategy, we continue to seek suitable new store locations for Silmäasema, but we estimate that our growth in Finland will be markedly slower than it has been in recent years. Now our focus is more strongly on improving the net sales and profitability of our existing network.
In June, the Finnish Government further specified its proposal for the Freedom of Choice Act for social and health services. The amendments were related to a longer transition period for the implementation of freedom of choice, among other aspects. The final content and implementation of the act will determine its effects on freedom of choice with regard to cataract surgeries. However, with the population ageing and the need for cataract surgeries continuously increasing, we believe that the number of cataract surgeries carried out in the private sector will continue to grow before the finalised law comes into effect. This is due to the service vouchers that have already been taken into use and the pilot projects related to the Freedom of Choice Act.
We announced earlier this year that we are in the process of starting a development program that will last for about two years. The program includes changes to operating models and the renewal of information systems. It focuses on improving existing operating models and increasing profitability with new operating methods and information system solutions that support these methods. During the second quarter, we started planning the information system renewals related to the development program. To accelerate our profitability development, we have decided to find out whether it is possible to implement the development program earlier than planned with regard to changes in operating models that are not dependent on information system renewals. We intend to focus on changes that could accelerate productivity and profitability.
Silmäasema’s outlook for 2018 remain unchanged. We estimate that our net sales will grow compared to the previous year and that our adjusted EBITDA will be 9–13% of net sales. However, after the first half of the year it seems that our adjusted EBITDA for the full year is more likely to be closer to the lower end than the higher end of the range.
Published on 17 May 2018
CEO Pasi Kohmo:
Silmäasema continued its planned growth during the first quarter of 2018 and net sales grew 4.1% to EUR 30.9 million. We opened a new eye clinic in Oulu and expanded our optical retail store network with three stores in Finland and one store in Estonia. At the end of March 2018, Silmäasema had a total of 145 own stores in Finland and Estonia, which is, in fact, 18 more stores than at the end of March 2017. Taking into consideration the rapid growth of the network and the investments required to achieve this growth, we are satisfied with the fact that in this period of considerable growth, adjusted EBITDA remained at the same level as the previous year.
In practice, the increase in net sales came from new stores that were opened in 2017–2018, stores acquired through company and business acquisitions and from the new eye clinic that was opened in Oulu in February 2018. Like-for-like net sales decreased by 2.4%. A large part of the decline is due to the timing of Easter this year, which was between the end of March and the beginning of April.
The gross profit improved due to the net sales growth, improvement in purchase prices and the optical retail sales structure that was better than in the comparative period. On account of a rise in fixed costs, mainly personnel and rent costs, the adjusted EBITDA was, however, at the same level as the previous year. A significant share of the increase in costs came from the costs of the optical retail stores that were acquired and opened in Finland in 2017 and from the costs related to operating as a listed company. There were hardly any of these types of costs in the comparative period. In addition, the review period’s fixed costs include costs related to, among others, the development of our organisation and network, and these costs will not be permanent.
Relative profitability weakened slightly from the previous year, which is mainly due to the large number of optical retail stores that were opened over the years 2016–2018. As a whole these stores reduced the relative profitability of the entire Group. New units have previously, on average, reached their normal profitability level in one to two years from start-up, but there can be significant variation in the development of individual stores. However, the profitability of stores acquired in Finland in 2017 through business acquisitions is already close to the target level. We are continuing our persistent work to ensure that the new stores reach their target level for profitability. The overall profitability of the rest of the store network was at a good level.
The net sales of the Eye Clinics segment increased slightly, mainly due to the new eye clinic that was opened in Oulu. The opening of the clinic was successful, and we now have a truly nationwide chain of eye clinics. While the number of cataract surgeries remained at the previous year’s level, the number of refractive surgeries increased from the comparative period and the previous quarter. Though we are pleased with the trend in the number of refractive surgeries during the early part of the year, it is difficult to predict the level of future demand both in refractive and cataract surgeries.
The Finnish Government submitted its proposal for the Freedom of Choice Act for social and health services to Parliament on 8 March 2018. The final content and implementation of the act will determine its effects on freedom of choice with regard to cataract surgeries. Silmäasema is committed to the goals of the Government’s health and social services reform and regional government reform. We believe that the increasing freedom of choice will support the development of cost-efficient and equal eye healthcare services. The legislative reform is an opportunity for us if it increases the number of cataract surgeries in the private sector. However, our financial targets are not dependent on or tied to this reform.
We announced earlier this year that we are in the process of starting a development program, which will last about two years, that involves changes to operating models and the renewal of information systems. The program focuses on the improvement of existing operating models and increasing profitability with new operating methods and information system solutions that support these methods. The program will generate costs while it is ongoing but procurements related to the program are likely to be booked as capital expenditure. During the first months of the year we have selected a partner through competitive bidding to design the information system renewals related to the development program. We will provide regular reports on the progress of the development program in our financial reports.
We complemented our outlook for 2018 in April, after the review period. We estimate that our net sales will grow compared to the previous year and that our adjusted EBITDA will be 9-13% of net sales.
Published on 7 March 2018
CEO Pasi Kohmo:
The year 2017 was a period of significant changes for Silmäasema. The Silmäasema chain grew by 19 stores, and our operations became international, with the acquisition of the Tallinna Optika chain in Estonia in January. In June, Silmäasema was listed on the main list of Nasdaq Helsinki.
During the year, Silmäasema expanded more rapidly than ever before in its history. We expanded our network of locations in line with our long-term growth strategy, and our comparable net sales grew. This rapid growth had a negative effect on our full-year profitability. However, overall, I am pleased with the company’s achievements in 2017. According to the results of an extensive consumer survey conducted in early 2018, Silmäasema has become the most widely trusted optician’s in Finland. In my opinion, this is an indication of the high-quality work carried out by our employees for our customers.
Our full-year net sales increased by 16.8% to EUR 118 million, and our comparable net sales grew by 3.5%. However, our adjusted EBITDA decreased by 1.6% to EUR 11.8 million. Profitability was burdened by the large number of optical retail stores acquired and opened in 2016 and 2017, with their profitability level developing more slowly than expected. In addition, the fourth quarter in the eye clinics business was clearly weaker than expected. In their early stages of operation, new stores’ results are burdened by costs related to the start-up of operations and the achievement of strong market positions, among other factors. On average, new stores reach their normal profitability level in one to two years from start-up. With regard to stores opened in 2016 in particular, the normalisation of the profitability level seems to be taking closer to two years from start-up. With regard to some stores, this development has been slowed down by unfinished infrastructure projects in progress nearby, among other factors.
As a whole, the fourth quarter of the year was disappointing for us, even though our Optical Retail and Eye Healthcare segment continued to increase its net sales significantly, and the profitability of new units improved. In terms of overall profitability, however, we did not reach our target level. In optical retail, net sales and profitability vary significantly between quarters within the year and in comparison with the previous year, depending on the efficiency and effectiveness of Silmäasema’s and its competitors’ sales promotion measures.
The net sales of the Eye Clinics segment decreased in the fourth quarter in comparison with the corresponding period in the previous year, mainly due to there being fewer refractive surgeries. Apart from normal variation, we have not identified any specific reason for the decrease in the number of surgeries, and the market situation does not seem to have weakened. According to our observations, the number of refractive surgeries has begun to increase again in early 2018.
The Finnish Government is preparing the final proposal for the Freedom of Choice Act for social and health services. The final content and implementation of the act will determine its effects on freedom of choice with regard to cataract surgeries. Silmäasema believes that the increasing freedom of choice supports the development of cost-efficient and equal eye healthcare services. The legislative reform is an opportunity for us if it increases the number of cataract surgeries in the private sector. However, our financial targets are not dependent on or tied to this reform.
Silmäasema works to continuously improve its operations and provide its customers with new products and services more productively. To best meet the productivity requirements and our customers’ needs for services in the future, we must continuously evaluate and develop our operations. This year, we are in the process of starting a significant development programme that involves changes to operating models and the renewal of information systems. Over the next two years, we will implement investments and changes that will enable the introduction of entirely new service and operating models in the near future. These investments and changes are related to the company’s key systems, such as cash register, patient information and reporting systems.
In 2018, we are continuing our work to implement Silmäasema’s growth strategy. During January and February, two stores were added to our chain in Finland and one in Estonia, and a new eye clinic was opened in Oulu. We continue to improve our profitability towards the company’s target level. The good general economic situation and the development of private consumption will lay a solid foundation for the optical trade in 2018. The demand for refractive surgeries has picked up, and the demand for cataract surgeries is supported over the short and long terms by population ageing. Based on these aspects and other factors, we expect that Silmäasema’s growth and development will continue in 2018.