Loomis AB (publ)

Thank you very much. Good morning, everyone, and welcome to the third quarter presentation for Loomis. My name is Aritz Larrea, and I'm the president and CEO of Loomis. And with me here today, I have Kristin Akerby, our CFO, and Jenny Bostrom, our head of investor relations. I will give a short overview of the third quarter and then open up for questions. Let's start the presentation by turning to slide three, market trends. Our strong performance continued during third quarter, despite the current economic uncertainties. We have seen volumes coming back after the pandemic lockdowns, and our revenues are increasing in every country we operate in. Retail sales keep growing, and we still see a resilient consumer who continues to spend. We have commented in the past quarters and in our last Capital Markets Day on how important outsourcing is for our future growth, both from a retail and a financial institution perspective. The outsourcing trend has continued this quarter, where our automated solutions business shows continued strong organic growth. With the easing and lifting of travel restrictions, international tourism continued to show strong signs of recovery, positively impacting RFX business. Although the tourism sector is not back to pre-pandemic levels, RFX business has fully recovered, and we expect there to be new revenue growth opportunities as the sector recovers. As we have proven, Loomis has a strong history of navigating macroeconomic and geopolitical uncertainties. The basic need for cash and payment solutions is vital in our society, and here Loomis has a central role in the payment ecosystem. Let's move on to the next page where we have the highlights for the quarter. This has been the best quarter ever for Loomis. When it comes to revenue, we had all-time high figures with $6.7 billion. This is mainly supported by continued strong organic growth and, in addition, also favorable currency movements, primarily driven by a strong U.S. dollar versus a Swedish krona. Organic growth keeps showing strong, with 15.5 percent in the quarter. As I mentioned, open societies and increased travel have supported our growth. It has been our fourth consecutive quarter with higher organic revenue than pre-pandemic. And from a revenue perspective, it is clear that we now have the pandemic behind us. When it comes to the operating margin, this reached 12.5%. We see that the increased volumes and the efficiency measures initiated during the pandemic are paying off. In the third quarter, we also have a positive seasonality impact from the European segment. Our cash conversion is at 108 for the quarter, 87% year-to-date, despite the increase in accounts receivable due to our strong growth this year, we have been able to offset it with other measures. As announced earlier this year, Bjorn Sugar was appointed President and CEO for Loomis U.S. and took office during the third quarter. We continued repurchasing our shares during the quarter, and now the board announced a new mandate to continue acquiring shares during the fourth quarter. Let's turn on to the next stage. Here we can see how revenue and margin have developed over time. Regarding revenue, we can see in the chart how we are well above pre-pandemic levels. Compared to the prior year, we have had more than 31% growth, and half of that is organic growth. Margin-wise, we have improved our margin with 110 bps compared to the prior year, which brings it up to 13.1%, excluding Loomis Pay, which is overall in line with pre-pandemic levels. This, despite the headwind we currently face with high employee turnover and supply chain issues. Turning to the next page and starting with the segments, we start with Europe and Latin. The positive trend in Europe and Latin America continues. We have had a strong quarter, both revenue and margin-wise. Regarding revenue, we were 3.25 billion, with organic growth of 16.4%, with strong development in all countries. This segment is now back at pre-pandemic levels. The operating margin is at 13.4%, supported mainly by the increase in volumes and tourism, but also due to the measures taken during the pandemic to optimize the infrastructure. Turning on to the next page and focusing on the trend of both revenue and margin, we see that the reported growth was at 20.7% when looking at the top-line trend, and the vast majority is organic growth. We have seen the recovery expanding monthly when societies have been opened. Regarding the operating margin, despite the impact of inflation and supply chain issues, we have increased by 2.3 percentage points year over year, bringing it up to 13.4%. This improvement has been possible thanks to the strong revenue growth and the efficiency plans we have in place. Let's turn to the next page over to the U.S., The strong momentum continues in the U.S. business. Revenue was at 3.5 billion, with ATM and SafePoint representing close to 43% of our revenue. Organic growth was at 15.2% in the quarter, with our automated solutions business growing above 20% compared to all-time high numbers in the prior year. As we mentioned in our previous quarterly presentations, the U.S. market's labor shortages and supply chain issues impacted our margins during the first semester of the year. We were confident that once the U.S. labor market improved, we were going to be able to increase our operating margins. This quarter, our operating margin was at 13.8%, showing an improvement versus the second quarter of 2022. Although we see improvements in the labor market, we're still facing a high turnover in the U.S., which requires an extraordinary effort to continue recruiting and training new employees to continue providing high-quality service. Turning on to the next page and focusing on the trend of both revenue and margin, we see the exceptional U.S. business revenue trend during the last two years. We had a high FX impact again, but we are at all-time high revenue, even in local currency. Loomis US only showed negative organic growth in the second and third quarter of 2020. All other quarters have recorded positive organic growth. We keep working on efficiency, and although the supply chain issues we suffered have impacted our efficiency plans, we expect margins to continue improving in the last quarter of the year. Let's turn to the next page and talk about Loomis Pay. Transaction volumes keep increasing in Loomis Pay in our existing markets. We continue to move ahead in building the sales organization in the countries we have launched to support further growth. We continue investing money, time and effort into the Loomis Pay platform to adapt it to the local markets we launch. As we mentioned in our previous quarter results presentation, we have started to pilot the solution in Spain, a country with a great potential in the SME market. We can already say that the biggest customer we have signed so far in Loomis Pay is a Spanish customer. This shows the potential that the Spanish market can have for us. We expect the official launch in Spain in Q4. Turning to the next slide, we see our continued initiatives for a sustainable business. We continue lowering Lumis' carbon footprint and dependency on fossil fuels by introducing more sustainable vehicles and optimizing our routes. We added new electric vehicles on the road in the third quarter, despite the supply chain issues, and more vehicles will be added during Q4. We do see that the supply chain issues that impacted our business in the past are easing, and this will allow us not only to reduce the carbon footprint, but also complement the efficiency programs we have in place. To support the safety of our employees, we're also investing in vehicles with additional safety features, thus keeping them safer from traffic and helping them avoid collisions and impacting others. During this quarter, we have also updated and rolled out our code of conduct and anti-bribery training, which is part of our annual updates. Let's turn to the income statement slide, highlighting the net financial items and monetary losses due to hyperinflation adjustments in both Turkey and Argentina. I would also mention here that earnings per share of 6.9 Swedish krona are the highest in a single quarter. Moving on to our last slide, I want to summarize the quarter's highlights. To summarize, all-time high revenue and operating profit in this quarter, great organic growth both in Europe and the U.S. Significant increase in our operating margins brings us close to the all-time high margin we had in 2019 third quarter, despite the challenging market environment. And I'm through with my presentation, so we can turn to Q&A operator. We are now open to questions, please.

Ladies and gentlemen, we will now begin with the question and answer session. If you'd like to ask a question, you may press star followed by one on your telephone keypad. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question is from the line of Karl-Johan Bonnevier with D&B Markets. Please go ahead.

Yes, good morning, Eritz and Christian. Just starting off with the employee turnover and supply chain challenges that you mentioned, it would be Great to have an understanding which markets you feel the biggest, say, pressure on these kind of things for the moment and how you see it might be easing going into Q4 and into 2023.