Silmäasema Oyj's Financial Statement Release for 1 January -31 December 2017

Silmäasema Oyj's Financial Statement Release for 1 January -31 December 2017

Silmäasema Oyj
Stock Exchange Release
7 March 2018 at 8:00 a.m. EET

Silmäasema's strong growth continued

October-December 2017 in brief:

• Net sales increased by 12.8% from October-December 2016, amounting to EUR 30.9 million (27.4).
• Comparable net sales grew by 0.4%.
• The adjusted EBITDA decreased by 31.3% and was EUR 2.8 million (4.0), or 9.0% of net sales (14.8%).
• The adjusted operating result was EUR 1.4 million (2.8).

January-December 2017 in brief:

• Net sales increased by 16.8% from 2016 and amounted to EUR 118.3 million (101.3).
• Comparable net sales grew by 3.5%.
• The adjusted EBITDA decreased by 1.6% and was EUR 11.8 million (12.0), or 9.9% of net sales (11.8%).
• The adjusted operating result decreased by 9.7% to EUR 6.5 million (7.2).
• Silmäasema made 13 company and business acquisitions and invested EUR 6.7 million in them.
• Cash flow from business operations amounted to EUR 5.0 million (4.3).
• The net debt to adjusted EBITDA ratio on 31 December 2017 was 2.9 (4.9).
• Profit for the period includes EUR -4.9 million of special items outside ordinary course of business
• The Board of Directors proposes that no dividend will be paid for the fiscal year 2017.
• Outlook for 2018: Silmäasema's net sales are estimated to grow compared to the previous year.

 The figures in parenthesis represent comparable data from 2016, unless otherwise stated.
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Key figures

*) Silmäasema presents both its adjusted EBITDA and adjusted operating result, which have been adjusted for significant unusual items. Such items in the review period include expenses related to the listing of the company and the changed treatment of value added tax.

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.

The Board of Directors' proposal for the distribution of profits

On 31 December 2017, the parent company's distributable funds totalled EUR 41,097,220.60, including the profit for the period, which is EUR -1,174,200.48.

The Board will propose to the Annual General Meeting on 11 April 2018 that no dividend will be paid for the fiscal year 2017.

Outlook for 2018

Silmäasema's net sales are estimated to grow compared to the previous year.

In 2017, Silmäasema's net sales were EUR 118.3 million.

Basis for the outlook

The competitive situation in optical retail continues to be tough. However, Silmäasema's net sales are expected to increase, mainly due to new optical retail stores to be opened or acquired in 2018, as well as sales growth with regard to stores opened in 2016 and 2017. Silmäasema has identified several possible locations for optical retail stores in different parts of Finland. However, the number of stores to be established or acquired during the year is difficult to predict. It depends on successful business acquisition negotiations, the local market situation and the availability of suitable business properties, among other factors. In addition, the good general economic situation and the favourable development of private consumption are expected to support demand in optical retail.

The ageing population and Finns' increased investment in health and well-being are factors that are expected to increase the demand for optical retail and eye healthcare services. This trend is expected to support the development of the net sales of Silmäasema's Eye Clinics segment in 2018. Its net sales are also expected to increase because of sales growth as a result of opening the eye clinic in Oulu in February 2018.

Near-term business risks and uncertainties

Silmäasema's strong growth strategy increases its business risks. Opening new stores and finding the most suitable business locations, as well as company acquisitions, require careful preparation and strong expertise in integration. The growth strategy will continue to require skilled personnel and investment in organisational development and key persons. Learning new things and managing profitable growth require special attention to motivating and target-oriented leadership, and to the development and controlled implementation of new operating models. In 2018, the company will be starting a significant development programme that involves changes to operating models and the renewal of information systems. The development programme involves uncertainty in terms of the amount and timing of costs and investments. The project will tie up resources, which may have temporary effects on the company's business operations.

Silmäasema has strongly expanded its network of stores in recent years. In the early stages, the profitability of new stores is burdened by investments in the start-up of operations and the achievement of a strong market position. New stores typically reach their normal level of profitability in one or two years, but this involves uncertainty.

The profitability level of optical retail may vary between quarters within the year and in relation to the comparison period, due to variations in the structure of sales. The factors affecting the structure of sales, such as the effectiveness of Silmäasema's and its competitors' sales promotion measures, may be difficult to predict.

The competition in eye surgery has moved closer to regular consumer markets. Silmäasema must be able to adapt its business models in a more demand- and consumer-oriented direction. Silmäasema monitors the changes in the market and continuously observes its competition, among other measures. Highly competent healthcare professionals lay the foundation for the operations of Silmäasema's Eye Clinic segment. Its growth and success depend on the company's ability to recruit and keep the best experts in the field.

Silmäasema participates in competitive bidding processes organised by public hospital districts looking to partner with private service providers in the treatment of eye diseases. The competitive bidding processes and their results always involve uncertainty. However, the results of individual bidding processes are not expected to have a significant effect on the Group as a whole.

Silmäasema uses various information systems in its business operations. The critical role of the systems is analysed, and risks are minimised as part of risk management. In addition, Silmäasema is currently carrying out and planning several significant information system projects. The risks involved in information system projects are minimised by meticulous project management, among other measures. The company is in the process of starting a development programme to renew most of its information systems over the next two years. The project concerns at least cash register, patient information and reporting systems, as well as category management and digital services for customers. Healthcare involves patient liabilities, which are mainly borne by doctors. The company has prepared for these risks with appropriate liability insurance policies. The company protects itself against other damage risks with statutory insurance policies and with optional insurance policies related to property, disruption of business and certain responsibilities, among other aspects.

Structural changes in the public sector and changes in healthcare regulation may impact Silmäasema's business operations. The total impact of the planned health and social services reform and other changes in the organisation of social and healthcare services in Finland are difficult to predict. Policy alignments may affect Silmäasema's profitability and growth prospects. However, more than 90 per cent of Silmäasema's net sales come from operations such as the sales of spectacles, contact lenses and refractive surgeries, which are already provided through free competition. These activities are not directly dependent on the health and social services reform that is currently being planned. The reform is estimated to impact this portion of net sales only slightly.

Audiocast and conference call for investment analysts and press

A briefing for investment analysts and the press will be arranged on Wednesday, March 7, 2018 at 10:30 AM Finnish time (EET) through a live audiocast combined with a conference call. The briefing will be hosted by CEO Pasi Kohmo and CFO Anu Kankkunen. Link to the audiocast is available at http://company.silmaasema.fi/investors  

Conference call numbers:
Finland  +358 (0) 981 710 495
UK          +44 (0) 203 194 0552
USA        +1 855 716 1597
Sweden +46 (0) 856 642 702

Recording of the audiocast and conference call as well as Finnish audiocast presentations will be later available on the company's website https://company.silmaasema.fi.

Calendar for 2018

AGM                                                                       11 April 2018
Interim Report January-March                         17 May 2018
Half Year Financial Report                                17 August 2018
Interim Report January-September               9 November 2018

SILMÄASEMA OYJ

Board of Directors

For further information, please contact:

CEO Pasi Kohmo, tel. +358 50 331 7015, pasi.kohmo(a)silmaasema.fi

CFO Anu Kankkunen, tel. +358 50 669 69, anu.kankkunen(a)silmaasema.fi

Head of Communications and Investor Relations Tuukka Hirvonen, tel. +358 50 416 7700, tuukka.hirvonen(a)silmasema.fi

Silmäasema is a Finnish company, which offers all products and services for optical retail and eye healthcare nationwide. Silmäasema is the largest private eye clinic provider in Finland offering eye surgeries and the second largest optical retail chain. The Silmäasema chain has over 150 stores and 14 eye clinics in Finland as well as ten stores in Estonia. The Silmäasema chain employs close to 1,000 eye healthcare professionals. Silmäasema Group's net sales were 118.3 million euros in 2017 and adjusted EBITDA was EUR 11.8 million.