Loomis AB (publ)

Thank you very much. Good morning, everyone, and welcome to the fourth quarter presentation for Loomis. My name is Saritz Larrea, and I'm the CEO of Loomis, and with him here today, I have Christian Ackerby, our CFO. I will give a short overview of the fourth quarter and then open up for questions. Let's start the presentation by turning to slide three. Despite the current economic uncertainties, we continue seeing volumes increasing. Even in the face of sharp price rises and rising interest rates, consumers show resilience. International tourism has been showing good indications of revival since travel restrictions were loosened and lifted, which is supporting our FX business, as well as domestic business, since tourists tend to use cash. Despite that the tourism industry has not yet recovered from pre-pandemic levels, Our FX business has surpassed those levels in 2022. We're sure that the reopening of China, the tourism industry will keep recovering, which will bring us new opportunities for revenue growth. The outsourcing trend has continued this quarter, where our automated solutions business shows strong organic growth. With the combination of our front office solutions together with the back office ones, including SafePoint and recyclers, we have the best proposition for the merchants to run their business more efficiently while being able to concentrate on their customers. As a result of our solid balance sheet and ability to generate cash flow, we will also concentrate on inorganic expansion in the three business areas, core, adjacent, and room is pay. Let's move on to the next stage, where we have the highlights for the quarter. This has been the best fourth quarter ever, both for revenue and operating profit. When it comes to revenue, we reached 6.7 billion Swedish kronor, which is not only the highest revenue for a fourth quarter, but also the second highest quarterly revenue ever. The revenue has been mainly supported by strong organic growth in all segments and favorable currency movements, mainly driven by a strong US dollar versus the Swedish krona. Organic growth keeps being strong with close to 12% in the quarter. As I mentioned, open societies and increased travel have supported our growth. It has been our fifth consecutive quarter with higher organic revenue than before the pandemic. When it comes to the operating margin, that was at 11.2%. This margin has been positively impacted by the increased volumes and the efficiency measures initiated during the pandemic, but negatively by challenges in the labor market as well as the inflationary pressure on the cost base. Our cost conversion was at 80% for the quarter and 87% for the full year. Despite the increase in accounts receivable due to our strong growth, we have been able to keep our day's sales outstanding stable. Let's turn to the next page. Here you can see how the revenue and the margin have developed over time. We have had a steady increase in our revenue throughout the year, and revenue of 6.7 billion is close to 1.4 billion higher than Q4 2019. Of this increase, more than 900 million is real growth. In the fourth quarter, we achieved an 11.2 operating margin in line with the prior year. It's a very good margin considering the headwind we have been facing during the year with high inflation, supply chain issues, and challenges on the labor market. Excluding Louisville, the margin was 11.8%, which brings us close to pre-pandemic levels. Let's have a look at our segments. We turn to the next page and start with Europe and Latin. The positive trend in Europe and Latin America continued, where we had another strong quarter. Regarding revenue, we were at 3.2 billion, with organic growth of 9.7%, with good development in all countries. The operating margin is at 10.3%, supported mainly by the increasing volumes and tourism increasing, but impacted negatively by inflationary pressure on cost base and employee shortages. Turning now to the next stage and focusing on the trend of both revenue and margin, we see that the actual growth was at 16% when looking at the top line trend. From the beginning of 2021, we have seen a positive recovery expanding quarter by quarter in our main markets. Regarding the operating margin, as I have already mentioned, it's been impacted by a challenging market and the impact of inflation. We did see these impacts already earlier this year, and the sequential decline follow normal seasonality pattern, where we have a much lower margin in fourth quarter compared with the third quarter, and that is also what we see this year. As we have mentioned many times before, there is a time lag between the impact of cost increases and the price increase to our customers that is key to protect our margins. Let's turn to the next page over to the U.S., The strong momentum continues in the U.S. business. Revenue was at 3.6 billion with continued increase in recurring revenue. Our revenue related to automated solutions and ATM represents 43% of our U.S. revenue. As a point of reference, in the fourth quarter 2019 revenue related to automated solutions amounted to 15% of our U.S. revenue. And in the fourth quarter of 2022, it represents 20% of our revenue. And this increase has taken place at the same time as our revenue in the U.S. has recorded an organic growth of 27% in total. Organic growth was at 14.3% in the quarter, with our automated solutions business growing above 20% compared to all-time high numbers in the prior year. As we've mentioned in our previous quarterly presentations, the labor shortages and supply chain issues we had in the U.S. market impacted our margins during the first half 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 15%, showing an improvement versus the prior quarter. 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, all to continue providing high-quality service, which is key to keep gaining market share. 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 are benefiting from a positive FX impact, but we reach all-time high revenue figures in local currency once again. Regarding the operating margin, we improved the prior year's number by 0.8 percentage points, continuing the margin improvement we expected to see during the second half of the year. In 2023, we will keep focusing on recruitment and retention as well as on efficiency to keep improving our margins. Let's turn to the next stage and talk about Loomis Pay. We keep seeing transaction volumes keep increasing as we move ahead. For the quarter, the increase was 52%. Over time, there is a strong correlation between increasing transaction volumes and revenues. However, from quarter to quarter, this can vary. For the full year, transaction volumes increased with 82% and organic revenue with 86%. We see that the business has gradually grown during the year, and by the end of the fourth quarter, Loomis Pay has doubled the number of customers compared to the first quarter. The Loomis Pay solution was introduced in Spain at the end of the quarter, and in the following quarters we will concentrate there while tailoring our offering to the demands of our customers. We see a very positive response from the Spanish retailers and use their suggestions to enhance and adapt our solution to the Spanish market. Turning to the next slide, we see our continued initiatives for a sustainable business. Here we have the ambition to continue being the leading sustainable business partner within the industry, which means constantly working to reduce the environmental impact of our operations, as well as being a responsible employer and contributing to the societies where LUIS operates. As presented previously, we have structured our sustainability initiatives into three focus areas, environmental, social and governance. During 2022, we have successfully reduced emissions from transportation and energy compared to the 2019 baseline. This has been possible thanks to switching to lighter vehicles, continued improvement in route optimization, start the journey to utilize hybrids and electric vehicles, as well as installation of solar panels in branches. We have continued to invest in vehicles with higher security features and installed telematics to promote safer driving and minimize injuries. Within operations, trainings in risk management take place on a regular basis to ensure the safety of our employees and our customers. Lastly, LUMIES has zero tolerance for bribery and corruption, and our code of conduct is an essential in what we do. The training in the code of conduct is conducted annually for all employees. Let's look more at the details of our environmental initiatives on the next slide. We have made a commitment to reduce the carbon emissions from our business and have set out to lead the transformation in the industry. I would like to highlight a couple of achievements from the year. First of all, although our sales have surpassed the levels of 2019, we have successfully decreased our carbon emissions from transportation and energy compared to 2019. As you know, 2019 is the baseline for both our target to reduce emissions by 15% in 2024 as well as the target with our sustainability-linked bonds to reduce emissions by 20% in 2025. In 2022, we have approximately tripled the number of electric vehicles and hybrid vehicles in our fleet across the global organization. We have also increased the capacity of own energy production with solar panels installed in multiple Spanish branches, with a plan to expand this further during the 2023. Similar initiatives are ongoing in other branches and countries. With the order of 150 new armored electric vehicles for the U.S. market recently announced to be delivered in 2023, we have taken a significant step. I look forward to presenting even more examples and data points of our sustainability initiatives in the annual and sustainability report with which we published in the beginning of April. Let's turn to the income statement slide where we have highlighted the net financial items and monetary losses due to hyperinflation adjustments related to Turkey and Argentina. It's important to highlight here as well that both in a quarter and full year, we have achieved the highest earnings per share ever. Moving on to the next slide, I just wanted to summarize our fourth quarter performance. To summarize, we had a strong quarter across segments. We had a great organic growth both in Europe-Latam and in the U.S., where we had the strongest organic growth year. The good trend on margin improvement continues in the U.S., while Europe and Latam have had a challenging quarter due to labor market challenges and the pressure of inflation and costs. We expect this to revert when the price increases take effect this year. And transaction volumes keep increasing in Loomis Pay, which we have just launched in Spain, where we have high expectations due to the merchant's feedback. Moving on to the last slide, I would like to summarize the record year we had in 2022. Our revenue of more than 25 billion is the highest ever. The second highest year in terms of revenues was 2019, where we had a record revenue of approximately 21 billion. Of this increase, over 3 billion Swedish kronor is related to real growth, and the rest is currency effects. The organic growth of 14.4% in the full year is also the highest organic growth in a single year. The operating margin continues to improve to 10.8%, with an operating profit of 2.7 billion, which is also the highest operating profit ever. Cash conversion continues to remain strong, and the 87% for the full year is in line with the 80 to 90% that we expect to achieve over long term. There have been many milestones achieved in 2022. We started the year by presenting the new strategic period and targets of our Capital Markets Day in spring, targets that are still valid and we are confident that we will reach. From a capital allocation point of view, we have distributed over 1.2 billion to shareholders in 2022 through the annual dividend and share repurchases. The Board of Directors has resolved to continue to risk purchase of shares during Q1, and has proposed a dividend of 12 Swedish kronor per share for the financial year 2022. With the strong cash conversion, we continue to keep a balanced net debt EBITDA, and during the year we have refinanced close to 3 billion of our credit facilities, including the refinancing announced last week. Before I end this presentation, I would like to thank our customers, employees, suppliers, shareholders, and other partners for our collaboration during the year. I look forward to what we will achieve together in 2023. With this, let's turn to Q&A. Operator, we are now open to questions, please.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by 1 at this time. One moment for the first question, please. Our first question is from Kate Carpenter of Bank of America. Please go ahead.

Hi, everyone. Thanks for taking my question. Two on Loomis Pay. So now that you've launched in Spain, could you just give a bit more color around how we should think about the revenue growth prospects for 2023 and also operating costs just given the dilutive impact that it does have to group margins? And then also it looks like there was a change in leadership within Loomis Pay, so just wondering if you could give a bit more color around that and whether that has any impact on the strategy going forward. Thanks.