Loomis AB (publ)

Thank you very much. Good morning, everyone, and welcome to the first quarter presentation for Loomis. As mentioned, I'm Patrick Andersson, CEO of Loomis, and with me here today, I have Christian Ackerby, CFO, and Anders Håker, who is the Chief Investor Relations Officer. I will give a short overview of the quarter and then open up for questions. So let's start the presentation and turn to the next page, and that is the disclaimer page. So let's quickly turn over to the next page. Usually, I do a couple of comments when it comes to the cash market, so I'm not going to go through all the points on this slide, but just a couple of comments from my side. Of course, we still see that cash in circulation continues to grow both in Europe, a lot in the US, as we have seen over the last quarters of years. The tragic war in Ukraine has increased the demand for cash in many countries. And we see that, for instance, the withdrawals from ATMs are increasing in several countries. And just to mention Sweden, as we're sitting in Sweden, withdrawals from ATM has increased by 30% in this country, and that goes for many countries across Europe. We also see an increasingly intense political discussion about the role of cash in society, and many politicians and lawmakers realize that it's important to protect cash in different aspects. And cash is important for many people around the globe, just not the vulnerable people, but everybody in the world. But most importantly, new opportunities open up, both in Europe and in the US. One very tangible example is Safepoint in the US. which grew by 21% in the quarter. But there are many more opportunities like this in all business line. And so we see over the last couple of years that cash has proven to be very resilient to the changes in the payment landscape. And being part of the cash industry, we are now stepping up a lot of activities to protect cash and give cash a voice in the payment landscape. So then we turn to the next page, which are the highlights of the quarter. But let me just start by emphasizing that when it comes to the revenue, this is the best quarter ever from, as I said, a revenue point of view, even though we had some impact from the pandemic in the quarter. During the quarter, revenue picked up very strongly by the end, so we see a gradual increase as restrictions were loosened up. That's number one. Number two, as some of you might have seen, we released a press release this morning, and we're going to continue to repurchase Lumishare up to 200 million until June 2022. and you should see that as a sign that we very much believe in the business and also the future prospects of Loomis. Now if I then go back to the slide and let's start from the beginning. We first of all have no business in Ukraine or Russia and therefore there is no direct impact on Loomis when it comes to business. However, we have supported the Ukrainian people with different supplies but also given a donation to the Red Cross in Ukraine. We have also now decided on a date when I step down and my successor Mr. Larria is taking over and that would be on the 23rd of May of this year, so in a couple of weeks. has made a really good job as a CEO of Loomis US, which has developed very strongly during the last couple of years. We have also set new targets. In March, we had a couple of market day, and I'm not gonna go through the targets, but also these targets reflect a very strong belief in the business of Loomis. We also have made the, sorry, when it comes to acquisition in Switzerland, This is the main driver for the acquired growth, and it's progressing very, very well. And as I've said many times, Switzerland will be one of the most important countries when it comes to business for Lumis in the coming years. Organic growth was at 15% in the quarter. We see that travel and tourism have not fully recovered, but we expect that to pick up, and that will, of course, positively affect volumes in all markets. And as some of you have been going to airports, you can see that for yourself that more people are traveling and then also using cash, of course, or our FX services. When it comes to the operating margin, that was on 10%, and we see, of course, that the increased volumes combined with all the efficiency measures we have done during The last couple of years is now paying off when it comes to the margin. Operating cash flow was at 34%, but then you should keep in mind that Q1 21 was positively impacted by lower activities when it comes to capital expenditure. So that's no major thing for us. Let's then turn to the next page. And then, here you see the slide showing a good illustration of how the margin has developed over time. We had a low point in Q2 2020, but we have then had a strong recovery after that. So, as I mentioned, excluding limits to pay, the margin was at 10% in Q1 2022. Let's turn to the next page. So, when it comes to the segment, let's start with Europe and LATAM. Overall, a strong quarter when it comes to both revenue and margin, I would say. When looking at the top line, real growth was at 21%, and as I mentioned, the acquisition in Switzerland is progressing very well. Organic growth was at 15%, so the positive growth, which started at the end or mid-21, continued quarter by quarter into the first quarter and expanded month by month, as I mentioned. We see that a very strong recovery in the main markets in Europe like France, Spain, etc. Organic revenue reached 91% of Q1 2019 levels, which then is an improvement with one percentage point. And as I said, the highest growth rate was reported in March. March was very strong, and so we see that it is a sequential improvement of the volumes during the month. Operating margin at 8.7%. So all the hard work we've done when it comes to cost and optimizing the infrastructure is now paying off as volumes are coming back. So we also see that the synergies from the acquisition in Switzerland also gives good positive results. Let's turn to the next page and over to the U.S. Overall, a very strong momentum in the U.S. business. Organic growth was at 15% in the quarter, and we are now at 121% of the Q1-19 levels. And we see that if you compare to Q4-21, that the level was at 114, so a strong momentum, as I said. All business lines are improving and expanding, and the positive trend is expected to continue. Safepoint, which is really important for us, of course, grew by 21%. And now accounts for 19% of the revenue in the US. When it comes to the operating margin, that was at 13% in the quarter. So we have, as I said a couple of times, some structural shortages of labor in the US market, which then temporarily reduces the margin. That has to do with increased overtime, increased salaries, and investment in people and personnel in the U.S. business. And you should see that as a sign that we are now getting ready for more growth in the U.S. and it's an investment into the business and people to be able to capture that growth and both grow organically and take market share. When it comes to price increases, I got a couple of questions on price increases yesterday. We are fully under control with price increases and compensate for all the cost increases we are receiving, and that is already done in the US market. Let's turn to the next page and talk a bit about Loomis Pay. We are moving ahead with Loomis Pay. We are now launched in Denmark, Sweden, Norway. We are building up the sales organization in these countries to see that volume is increasing day by day, week by week through our platform. The preparations for rollouts of Loomis Pay in one more major or in a major market in Europe is underway and the ambition is to launch in a quite a sizable market then in Q3 2022. And we are then investing quite a lot of money, time and effort into the platform of Women's Pay and I've seen it myself many times and it's really state of the art when it comes to both software and hardware and the customer reaction we get back is very positive. So next step for Loomis Pay is then to be launched in one country in Europe coming up. Let's turn to the next page, which is the P&L, which we have as a reference, and there are no points I'd like to add. I've been through it in my presentation. So let's then turn to the next page, which is Q&A. I'm through with my presentation. Operator, we now open up for questions, please.

Excuse me?

Yes. Yeah, we open up for questions now, please.

Yes. Just as a reminder, if you wish to ask a question, you need to press star and one on your telephone. And your first question comes from the line of Daniel Thorson from ABG. Please ask your question.

Yes, thank you very much. And first of all, thank you very much for the six years, Patrick. It has been very successful in all means, in my view, at least, both before the pandemic, in the pandemic, and also now after we see that in this report. So my first question is how should we think about the US margin throughout the quarter here? It sounds like growth started off slower in January, so the margin would reasonably be lower there and ended the quarter in March with a higher level. Is that expected to continue into Q2 here, and for how long time do you foresee the slightly lower margin?

Thank you all. First of all, thank you very much for the kind words. As you said, We, just to say how we see the U.S. market developing, we see we need Q2 to continue to invest in people, salaries, overtime, and especially train all the people that we have now taken on board. And that is taking some time to get that efficiency into the business. So I expect that Q2 will still be an investment quarter for the business in the US, and then after that we would see margins ticking up again. That's how I see it.

Excellent. That's helpful. A second question related to Q2 here and travel data and indications you see for tourism, etc. We are a month into the second quarter. We have Easter behind us in April. What have you seen throughout April? Have you seen much higher travel tourism FX related business in April versus last year of April or any data that we can rely on here to see that the recovery is continuing?

Yes of course we follow that but it's very difficult to make a comparison with last year it's a bit unfair because there was basically no activity last year during Easter but we see very much that we follow the number of flights and things like that and And we talk to our markets and our people in the different markets. And there is a high activity in April when it comes to traveling, when it comes to spending, a number of hotel nights booked. All of that is pointing in a positive direction for us, definitely.

Okay. And you see that across Europe and the U.S., I guess?

Yeah, all across the world, yeah. I mean, the activity in the U.S. has always been high, but, of course, the delta, the differences in Europe that we see that, you know, the economic activity is really picking up.

Excellent. And then the final question for Christian. Cash flow was a bit weak in the quarter. You mentioned it was seasonality and also lower capex levels last year. Anything we should keep in mind here on the cash flow in this quarter and also ahead in 2022?

For the cash flow in the quarter, seasonality is one factor. I mean, Q1 is usually weak. And last year, since we cut the CAPEX, we had a higher sort of percentage than we maybe normally have. To look into sort of one-time impact, you could say, I mean, accounts receivables are increasing, but DSO continues to be stable. So that is positive. When you look into negative one-time effect, we have timing in cash stock in this quarter impacting us approximately 100 million negatively. So that is one factor that should come back positively later on. But then on the other hand, we also have approximately 100 million in subsidies where we have delayed payments to governments of more or less the same amount. And that is due for payment later this year. So you can say that these one-time effects will be a washout later during the year.

Okay, that's clear. Thank you very much, both of you.

As a reminder, if you wish to ask a question, please press star and 1 on your telephone keypad. Your next question comes from the line of KJ Bonnevier from DNB Markets. Please ask your question.

Yes, good morning, Patrick and Christian. You very helpfully started to split up the business, as you indicated, in the business area, so on ATM, SafePoint, and CashState, or your international operation and all these parts. Could you just give us an idea about how the new business kind of breakdown corresponds to the old one? How did you report the ATM business before so it might be possible to create some sort of longer time series for us?

To draw the sort of bigger lines here to start with without getting into details, you can say, to simplify, you can say that safe point is to a large extent 50-50 CMS-CIT if we then simplify not including technology and so on. And if you look into ATM, you have a larger portion CIT currently in that structure. So I hope that can help you to sort of may allow to get back to the approximately 60% CIT and close to 30% CMS and 10% other. I hope that can help you to get the numbers right.

Excellent. And it's good to see that it also seems like SafePoint in Europe is moving quite nicely. Is that an effect of the Swiss acquisition and the impact of that, or is there anything else happening underlying?

It's both actually. I mean, SafePoint in Europe is growing, but from a much lower base than we have in US. But it's correct, like you said, this is also Swiss acquisition coming into these numbers, helping the numbers to grow faster than the average short of day that's improving their portion. But if you look into SafePoint also in Europe from an organic perspective, it's growing and growing well.

And when you look at the business model and how much you can charge for a save point in Europe compared to the U.S., is it about the same kind of monthly revenue you can get out of an installation?

Yeah, you should have the same maps when it comes to Europe and U.S., yes. Excellent.

And looking at coming back to the U.S. and the salary and overtime that affected you in the quarter, Do I understand it right that you now feel that you have basically the staffing that you need, but it's more of a question of optimizing and getting them into the operation, so there's not a lack of employees, if you put it like that, to the same degree as the States?

No, I think that, of course, there might be a couple of more people we need to recruit, but I think that when I spoke to the CEO in the U.S., he told me that we have added the last couple of months 800 people to the business. So it's a huge recruitment process. And I think that more or less, I mean, I guess some more people we need, but the bulk has come into the business. And now it's about training. It's about optimizing the routes. It's about getting the efficiency out of that. And also we see that we need to get what we call one-man vehicles, one-man trucks into the business to be able to get the efficiency as well. And so there are a number of activities that we're doing in the U.S. to get the efficiency up. But I think it's very, very important to say that these activities we do now is really to be able to continue the growth, continue to take market share, and especially also give the quality that the customers are asking for also in the market. So it's really an investment into the future, of course.

And going through your annual report, I noticed going through your cost structure that the personnel cost, that part of the cost structure, quite dramatically dropped during 2021 compared to the historic level. And obviously there was some other costs that probably balance it. Is there anything in the mix happening here or the way you are staffing your operation that is affecting those numbers?

I'm sorry, I don't have that number in front of me now. Maybe we can take that separately because we don't have any significant change in our structure that impacted. It can be from country to country and how the subsidies have played in and so on because both 2020 and 2021 have been impacted by subsidies in different ways as well. there might not be fully representative to look into the numbers for 2020 and 2021 when you look into the into the structures but maybe maybe we can have a look separately because i was not really prepared for that one okay now then one one final on the quarter obviously europe is seem to be coming out of of kobe to the different degrees

Which countries do you feel have come the furthest when you look at your footprints in Europe, where you can say the normalization has come the furthest compared to pre-COVID or something like that? And where do you still feel that is the biggest opportunity for normalization?

I think that we see quite a good improvement in all countries. Of course, to get to these figures we have right now, I mean, the big countries need to perform. And we see that happening in Switzerland. We see that happening in Spain, of course, and so on. The one where we're lagging a bit behind is actually UK for different reasons. There have been massive lockdowns and restrictions for a long period of time. So here we hope and expect the volumes to come back. But otherwise, we basically see a very good momentum in all our markets, I would say.

Good to hear, good to hear. And one final looking at the foreign exchange distribution operation also seems to be in good recovery. And I saw with the new breakdown that you had revenues in that line of about 250 million last year. Can you remember what that business was pre-COVID?

Pre-COVID, we were closer to 500, and now we also have slight mixed impact in that one. You can say we have more like repatriation volumes, which comes with a sometimes lower margin. So we need tourists to come back, so we get the margin we have when we are closer sort of to the consumer, which we are when we get, even if we are not B2C, we have businesses that are sort of closer to the customer, which brings higher margins.

You can say that March was also a tipping point for the FX business. Of course, we have been suffering in the FX business for two years, but really March was the tipping point, which is very much correlated to what I said before, that increased travel. We are not so dependent in that business unit or business line on business travelers. It's much more the tourism that needs to come back. So that's a good sign that things are getting at least slightly more or less back to normal, not fully yet, but more or less.

Excellent. Thank you very much, and good luck with your new ventures, Patrick.

Thank you very much, KJ.

Your next question comes from the line of Johan Dahl from Danske Bank. Please ask your question.

Yes, thanks. Good morning, gentlemen. Just two quick questions. Firstly, on Europe, you're talking about this 91% sort of recovery level pre-pandemic. If you take into account the sort of structural reductions that you've made primarily in the UK, where would that sort of percentage be taking that into account? And secondly, also, Patrick, on The U.S., you talked about the price hikes being successful, you know, you being able to compensate, et cetera, for increased costs. I'm just wondering, you know, inflation is running, you know, extremely high at the moment. We're seeing margin sloping sequentially in the U.S. I'm hearing what you're saying regarding these growth initiatives that they cost briefly, but what gives you the confidence to say sort of that these successful or these price hikes you've made in Q1 will actually be neutral to you guys from a cost perspective. I actually have a window, I guess, here in Q1 on prices.

Thanks. I'll start with the last question. I think we have done the biggest price increase ever in the history of the business in the U.S., and that has been very successful. Of course, we have sort of sort of taking also the security measures in in in that sense to to see that it should be it should be enough now you can you never know of course things can you know go but but what what we see now and we expect that price increase should be enough to cover cost inflation uh in all aspects so it's a major major price increase we have taken in q1 and that the first question uh i i i didn't really understand that but but Volumes in general are picking up in Europe over the quarter, and March was really, really strong, so it's picking up now. In the quarter, we're at 91%. Of course, in March, that was even higher. In the UK, it's much more about that we have sort of reduced the cost base quite dramatically in terms of number of people, number of vehicles, and number of branches. So the cost structure in the UK is much lower, I would say, than the previous And that goes in general for Europe. We've taken a lot of measures in many countries in Europe to take down the cost base. And that's what you see now that the volume is coming back, that you have an impact which is quite positive on the margin. So I don't know if that answers your question, but that's the situation.

Thanks, Patrick and Christian. And best of luck here, Patrick. Thanks. Thanks.

And your next question comes from the line of Johan Eliasson from Kepler. Please ask your question.

Yeah, hi, this is Johan at Kepler Sherwood. Just a question a little bit on your statement here that you've seen a structural decline of cash visibility in the Nordic market, but that doesn't really impact you. Can you sort of give us some insights on where in the Nordics is the volumes today versus where the pandemic was? Where is the margin sort of versus where other markets are, basically, to give us some comfort that this is not a weak region for you, basically.

That's right. I think that, to be honest, I think that we have had a structural decline in the Nordic countries for quite some time. Everybody knows that. But I don't think that that is sort of super increased during the pandemic. It's the same trend, basically, as we've seen the last couple of years. In any way, I mean, we have seen some positive effects now coming from the war in Ukraine. I mean, it's not positive in that sense, the war in Ukraine, but the impact on the discussion on how to protect cash, but also the withdrawals and the activity on cash in Sweden, for instance, but also the other Nordic countries. So that has an impact. So it's not like it should have changed pace in Sweden or in Nordics. It's the same trend we've seen for quite some time. Now, when it comes to the margins, I mean, we have very strong margins in the Nordics. And that is due to the fact that we have very strong market positions, of course, but also the fact that we have a good mix of quite a lot of CMS and other high margin services in the Nordic countries. And we have a very good cost base, I would say. So the Nordics when it comes to profitability in margin percentage terms is very, very good. And that is also a sign that in our business you can have a bit of decline,

that that doesn't mean that you cannot have good margins and that was received in nordics excellent and now in the uk you mentioned they are sort of a bit behind the other big markets in in recovery but isn't it also so that that maybe in the uk the acceleration to um to digital has has has been more significant on a structural basis so so we could have a nordic situation now going forward in in the uk which I wonder if it's as consolidated as the Nordics are.

I think that in Europe all markets will consolidate as we've seen in Switzerland and the Nordics and so on. That goes without saying. I mean, you cannot have a market in Europe with many competitors. That doesn't work over time. So markets will consolidate. It's too early to say about the UK. There are reports pointing towards what you say, but We also have other reports saying that the government and other parts trying to protect cash or doing a lot to protect cash. So it's a bit too early to say. I mean, the country that's been sort of least open after the pandemic is UK. So we need a couple of more months to see where it's all going.

And then finally, on outsourcing pipeline, I would have been guessing that we should see some acceleration by now. How is it looking? Are there more opportunities down the road today than, let's say, a year ago or so?

No, I think that that is what I was trying to say also in the beginning, that we see, if you take the US, for instance, I mean, more and more retailers now looking for efficiency, looking for SafePoint solutions, for instance, or other technology-based solutions like that. And that is one sign that the pandemic has sort of been speeding up these activities. And we also see the same thing when it comes to CMS outsourcing. that I think that is going to pick up again now. And that's why we're investing so much in the U.S. business now to be able to capture that growth. That will come, has come, and will come. And I think we're seeing the same trend in Europe, even though Europe was more affected by the pandemic, that more and more retailers, banks, ATM companies are looking at outsourcing, looking at efficiency, and we can be there to provide that efficiency.

Okay, excellent, many thanks.

Please press star one if you wish to ask a question. Your next question comes from the line of Ricardo Romiaty from One Investments. Please ask your question.

Yes, hi, good morning. Two questions, please. The first one, if you think of the U.S. margin excluding the business expansion cost, are these margins expected to be close to flat year-over-year in Q2 with the price increase fully implemented? And I will ask the other one separately, please.

Yeah, maybe Christian can.

I think when you look into the US margins, I think now if you compare it year on year, it's mainly related to sort of staffing combination of recruitment cost, overtime and so on. So that will overtime decrease and that means that the margins will increase again. And that will not happen. So if you compare quarter to quarter, you might not see the impact. But when you see the year sequentially, we expect the second half of the year to improve compared with the first half.

Okay. And maybe with your last point, can you please help us understand how quickly this new business flow will support sales? And you partly answered that that is mostly coming, maybe it is already coming apart in Q2, but mostly in the second half of the year.

Yeah, I would say that we need to get staffed. We need to get staffed. I mean, there's a great momentum in the U.S. business as we speak already, but I can say that if we had been fully staffed, that would be even higher. So we need to get staffed. We need to train our people. We need to get the trucks needed, and then we're ready to really, really capture the the potential which is in the U.S. market. But we need some more time on that. But as I said, it's a good momentum, really, really good momentum in the U.S. business.

Great.

Thanks a lot. We have no further questions. Please continue.

All right. That's it. That's all. Thank you very much for listening in and all good questions. Take care. Bye-bye.