This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

Loomis AB (publ)
5/6/2024
Thank you very much. Good morning everyone and welcome to the first quarter presentation for LUMIZ. My name is Aritz Larrea and I'm the CEO of LUMIZ. With me here today I have our CFO, Joanne Wilsby and Jenny Bostrom, our head of sustainability and investor relations. I will begin by giving a brief review of our Q1 business performance and an overview of our results before taking questions. Let's start the presentation by turning to slide three. Starting with an overview of the market development and how the trends relate to our business, we had a solid performance during the quarter. We continue to see high demand for cash handling automated solutions and we have a strong growth within SafePoint in both the US and Europe. This is our second quarter with Chima in the group and I'm pleased to see how well they have integrated. Chima had a strong performance in the quarter with positive sales synergies. While many of our business lines had revenue growth in the quarter, we did see a cyclical volume decline in international and the FX businesses. As we have communicated since the third quarter last year, we have seen that the higher interest rate environment and metal pricing impacted demand for storage and transportation of cash and valuables, which has a negative impact on the international business line. Similarly, the high metal prices impacted the gold trading within our FX business. We are witnessing an increase in global conversations around the significance of having access to cash due to the present geopolitical environment and growing cybersecurity risks. I would like to highlight that in the global payments report for 2024, it was called out that cash remains relevant amid economic uncertainty. We will continue to support society with providing efficient and sustainable payment flows. We're also pleased to see an increase in interest from many stakeholders when it comes to our work within sustainability. I'm pleased to see that our sustainability metrics are trending in the right direction and we are exceeding the targets set out for the strategic period ending this year. I will share some more details of our progress later in the presentation. Let's move on to the next page where we have the highlights for the quarter. We had a strong, solid revenue growth in the quarter and achieved a revenue of about $7.2 billion with growth for all three segments. Including the currency impact and acquisitions, revenues increased .5% in the quarter compared to prior year and the organic growth was 6.3%. Chima contributed to the group's revenues with close to 3%. Changes in currency rates had a negative impact on revenue. We recorded double digit growth for our automated solutions even when excluding Chima. Our commitment to growing and developing our offer of automated solutions is an important part of our strategy. Our operating margin was .4% in the quarter and the performance across the business was mixed. The U.S. segment had a great performance with volume growth and also successfully continued to implement operational efficiencies. Europe and Latin America had a more challenging start to the year and actions are on the way for margin recovery. The calendar effect with less days in March due to the timing of Easter had a negative impact of close to 1% in operating margin for Europe and Latin. Allow me to further address these drivers in more detail later when we run through the segments. The operating cash flow for the quarter was impacted by a temporary buildup of stock on foreign currency which will be reversed in the next quarter. If we exclude the temporary buildup, the cash conversion ratio would have been 78%. Due to timing between the quarters, it is more relevant to look at this metric over a 12-month basis and then the cash conversion was a strong 89%. We have repurchased 700,000 shares in the share repurchase program as we announced yesterday. The board of directors has resolved to repurchase shares for an amount of up to 200 million Swedish kronor in the second quarter. The annual general meeting yesterday resolved on the cancellation of close to 4.3 million treasury shares that are held by Lumis. Following completion of the transaction, the total number of outstanding shares in Lumis will amount to 71 million shares. In April, we obtained a triple B investment credit rating with stable outlook from standard and pushed global ratings. I'm proud that our fundamentally strong cash flow generation and financial position have been recognized with this rating. This rating provides us with additional flexibility in the financial markets going forward. Let's then turn to the next stage and address our reporting segments beginning with Europe and Latin. The positive trend in revenue growth in Europe and Latin continued where we did have a solid quarter. Price increases as well as growth from emerging markets were the main contributors to the organic growth. I would like to highlight that while we have been raising prices, they have not yet been fully implemented in the quarter. The annual price negotiations are ongoing, although not as expected. Chiba had a strong performance in the quarter and I'm pleased to see that they are integrated well in the group with positive sales synergies. Also, our automated solutions with SafePoint and Recyclers had a double digit growth on a standalone basis as well. The present macro climate with high pricing on precious metals, especially gold, as well as interest rates have negatively impacted our ethics and international businesses. It is too early to say when the cyclical impact will trend back. However, we hope to see it reverse during the second half of the year. Our primary goal for 2024 is to improve and increase our profit margins. Recovering our margin in the Europe and Latin segment will require both efficiency gains and also restructuring strategies. Let's turn to the next page over to the U.S. The U.S. business is more than 50 percent of our business and we keep delivering strong performance in this market. The cash handling business in the U.S. is a growing market and we are well positioned as the outsourcing of cash continues. Revenue and operating income were record high in local currency. While there was a slight negative impact from changes in the U.S. dollar against the Swedish corona, revenue reached 3.8 billion with a continued increase in recurring revenues. Our organic growth was above 6 percent and includes a significant volume growth. I want to highlight that the automated solutions business with SafePoint achieved double digit growth for the first quarter in a row and we see a strong pipeline ahead. Our revenue related to automated solutions and ATMs increased to 45 percent of our U.S. revenue, which is margin equity. We reported a strong operating margin of 15.1 percent thanks to our volume growth and our work on operational efficiency. The labor market trends have also been beneficial compared to prior year. Let's turn to the next page and talk about Loomis-Tay. Also for Loomis-Tay, we had a strong revenue growth in all markets compared to the previous year and revenues amounted to 16 million Swedish kronor. The sequential decline compared to the fourth quarter follows the normal seasonality pattern in the food and beverage market. Transaction volumes increased compared to the same quarter last year and the fourth quarter and reached 1.3 billion Swedish kronor. During the quarter, we acquired a Spanish POS provider with a broad distribution network across Spain, which will accelerate our growth journey in Spain. Let's turn to the next slide where I will share a couple of highlights on our progress on our sustainability initiatives. We can see that our sustainability-related projects are moving forward and we are clearly on track towards reaching our sustainability targets for the strategic period. Keeping our employees safe and minimizing the risk of injuries is one of our most important responsibilities. Therefore, I'm pleased to share that we have succeeded in further reducing the injury frequency rate during the year and will continue to strengthen our proactive measures for our employees' well-being. Even with our strong organic growth, we have successfully decreased our carbon emissions from fuel consumption and energy use in absolute terms. On a rolling 12-month basis, we have by the end of Q1 2024, reduced our emissions by close to 19 percent compared to our 2019 baseline. This should be put into context that we have had an organic growth of 16 percent during this period. Our investment in a lighter and electrified fleet, smarter route planning systems and technology will contribute to further emission reductions going forward as well. Although the implementation of the Corporate Sustainability Reporting Directive may be delayed in Sweden, we are continuing with our efforts to set our ambitions and targets for the next strategic period. Let's turn to the income statement slide where I will start by highlighting the strong growth rate, where our real growth excluding currency is about 9 percent. We also have some costs associated with the restructuring plan in Europe and Latin America. In general, we continue to be delayed with the restructuring and you can anticipate the remaining portion of the restructuring plan to be recorded in our income statement during the second half of the year. I would also like to highlight that the increase in net financial items is largely a result of increased interest rates. We see the entire impact of the prior interest rates crisis in our finance net for the quarter since, as you are aware, the majority of our borrowing has variable rates. Moving on to the next slide to summarize our performance, we continue to see a solid organic growth for the group. It is important to remember that when we announced our growth target for the strategic period, we always stated that growth would be higher at the beginning of the period with the COVID recovery. Thanks to growing revenues and structured work on improving our operational efficiency, our margin increased in the U.S. As I touched upon earlier, there is more to do in terms of margin recovery within Europe and Latin and this is a high priority for the year. In terms of new mispay, both transaction volumes and revenues wrapped up this year and I'm positive that our efforts and investments in new mispay will continue to generate results. While we did have some timing effects in the quarterly cash flow, the cash conversion ratio on a rolling 12-month basis was strong and we have the capacity to continue to make both strategic and value-creating acquisitions and distribute return to our shareholders. Our capital allocation priorities remain and we aim to use our capital in the best way to generate returns and create value for our shareholders. The board of directors has decided to continue with share repurchases in the second quarter in addition to the dividend of 12.5 Swedish per share that will be paid out later in May. The annual general meeting has decided to cancel about 4.3 million treasury shares as well. Lastly, we're making progress within our climate-related sustainability initiatives and in transportation by close to 4% compared to the level of last year. As we get more and more electric vehicles on the road and further work on optimizing our routes, we are decreasing our emissions for transportation despite growing our business volumes. As I mentioned before, keeping our employees safe and minimizing the risk of injuries is one of our most important responsibilities. While we're seeing our efforts having the desired effect, we can never be done here and we will continue to strengthen our proactive measures for our employees' safety. Our investment in a lighter vehicle fleet is thus twofold. With new innovations and higher security features, we can both further improve the safety of our co-workers while also reducing emissions. Before opening up the Q&A session, I wanted to share that we will be hosting a Capital Markets Day on November 13th. We will share the details at a later point in time but for now save the date. With that, I'm done with my summary of the first quarter of 2024 so let's turn to Q&A. Operator, we are now open to questions please.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on their Hadstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star N2. Participants are requested to use only headsets while asking a question. Anyone who has a question may press star N1 at this time. Our first question comes from Victor Lindenberg with Carnegie. Please go ahead. Good morning and thank you for
taking my question. I have a couple of questions from my side, maybe some more detailed ones starting on effects in Europe where you give us the number of the effects being a negative 5% year over year. Just to try to understand here, given your bulk of your business being euro denominated and adding to that some Swiss as well as sterling pound exposure, all these currencies are actually plus when looking year over year. So there must be a very, very meaningful impact coming from other markets such as Argentina and Turkey then but you also give us the impact from Argentina. So I'm just trying to understand and maybe you can share some more details on the segment split here because I seem to be quite off when trying to model the effects on Europe and how the countries tie together here or if you have changed your definition on effects as of recently. So maybe I have missed that as well. But starting on that, I have a question from my side. I have a question from my side.
Hi Victor, your money here. Sure, we have not changed any classification so we can start with that. I mean the impact that you see is largely to do with the devaluation of the Argentinian piece though that happened in December. If you disregard that, the currency impact would be a lot flatter as you indicate. Besides that, you also have some depreciation in emerging markets like Turkey, Syria, etc. contributing to that number. In terms of your modeling, these two countries represent less than two and a half percent group revenues just to give you an indication.
Yeah, I think that's what I have in my model as well. So maybe we can take something of that offline later on but then I understand there's no changes. And relating to that, is there a meaningful mix effect when you look at different profitability in different countries where some countries may have grown or shrunk year over year? So looking beyond the effects and the national businesses that you highlighted being headwinds here, are there any meaningful mix changes where high margin countries have derailed or vice versa?
No, no. I mean the normal suspects are the ones that we always talk about. We've got Germany as loss making of course but there's no other big changes. I mean the biggest effect is the international business. That is big in Switzerland. It's important also in the UK and it's important in Germany and that's where it's impacting most.
And maybe I was just saying in his summary that the sort of margin impact of the less working days as well. If you didn't test that.
Yeah and I suspect that one we should just reverse for Q2 and the margin impact on calendar.
No, that's not the case. I mean we don't have more working days in Q2 compared to prior year. So did you have,
because you had an extra day in February this year as well but I thought it was more the timing effect of Easter that was the for you but you have less working days in absolute terms in Europe you mean?
Yes.
Okay got it. Looking at your European safe point rollout and I try to strip out how much is organic. Trying to strip out SEMA and it looks to me that you're growing very nicely organically in safe point Europe. I'm looking at somewhere in the range of 25 percent year over year and accelerating from the levels you were at back in Q3 further accelerating Q4 or is that maybe a bit off or is it ballpark where you see your numbers organically for safe point Europe?
I think you're correct. I think now all the efforts that we've been doing for a while and we've been receiving questions about hey when would this look like the US and we've always explained that that's impossible. Nevertheless, we have been making a lot of efforts in previous quarters and now that's paying off. So we are seeing a big uptick in safe point in Europe. So I think you spot on.
Okay cool. That's very comforting to see. Can you give us some more details on countries or parts of Europe where you've been more successful or where you see the growth taking off now? Is many many customers or few large ones just to get some more color on the success of the rollout?
It's not large customers. I think it could be in the US. We got many customers and in different countries. We don't have a specific country. Obviously the bigger ones have a bigger business and a bigger increase but it's just spread all over the European countries.
Okay and I guess the million-dollar question here is also now when you have a positive mix change when looking at the business it should actually suggest margins coming up and not at least year over year but you seem to be obviously hampered by the international segment and also effects being cyclically under pressure but do you agree with the thesis that you should be seeing a good margin expansion underlying if you were to exclude the cyclically soft factors or is the margin in automated solutions and these adjacent business not as good as it has been in the US?
No no no no no. I think you're spot on. It's as good. I think the only thing that you would miss and the only thing that I would add to your summary is that the price increases where we were expecting to catch up from the delay that we have since the inflation was too high in 2022. It's not being as we expected the price increase this year and I'm saying we're covering the cost that we're having but we're not catching up in that sense so that's the only part of all the activities we had to to recover margins that is not covering our expectations. The rest is what it is. We're expecting as you say international ethics business to turn around and come back in the second half of the year and we have the restructuring plans and then programs ongoing as well and she might be in margin equity as we explained in the past so all that is is helping but price-wise we still have some work to do.
Got it that's clear. I'll get back in line for now. Thank you Victor.
As a reminder if you wish to raise a question you may press star and one. Our next question comes from Carl-Johan Bommabia with TNB. Please go ahead.
Yes good morning Eritz and Joanne. Looking at the development and maybe the lagging that you now see in Europe do you still feel good about the trust to 14 percent margin range for this year?
We said 12 to 14 at the end of the year. As I said now to Victor I think the only part that we are a bit behind is the that price increase is not pulling our expectations but we're still working hard. It's going to be difficult but we're still working hard to reach that 12 percent at the end of the year.
Excellent and when you talk about the strong pipeline for safe points in the US operation obviously it looks exceptionally good. Are there any big clients still that are looking for this on a rollout basis or is it more SME kind of clients that are the ones driving the business at this stage?
No you got very big clients looking at these solutions as well. I mean you still have the SMEs as well but you got big clients at the same time.
Excellent and just on I noticed in the annual report that the cost of risk went up quite a lot during last year and obviously you had your situation in Montreal and we saw Garda having problems in their California operation. Is there a risk that the cost of risk will remain on an elevated level over the next kind of years looking at the new kind of environment out there?
No I would say I mean the only thing we could highlight here is that the trend of the steps that we've had in the US has been very high in the past year and the first quarter at least the beginning of the quarter didn't start well either. It's easing down I think it will get better but we don't see a forecast of the cost of risk increasing in the future.
Good to hear and Joe congratulations to the BBB rating. I saw that your credit say spreads shrunk quite dramatically on it. How much do you see your financial cost can come down on this improved rating?
Honestly KJ I haven't made an estimate of that right now. Obviously it's very beneficial with some short term sort of benefits of this but it's mainly going to impact our refinancing activities when we get into an H2 I would say.
And how do you see your maybe update me on how you see the spreads for the moment and where it might go?
Yeah I don't have that right in front of me KJ let's follow that one up separately so you get a correct answer okay.
No props no props thank you very much and all the best out there.
Thank
you.
Ladies and gentlemen this was our last question.
Thank you very much for listening in please reach out if you have any follow-up questions. Thank you. Excuse
me gentlemen we have a last minute registration from the line of Victor Widenberg. Thank you.
Thank you. Just following up on the FX business if you could maybe help us a bit more with some color on the impact of the cycle and if there is any inventory revaluation or mark to market changes that sort of hurt the profitability now or if this is more operational in the sense if you understand my question.
It's completely operational.
Okay so there should not be an imminent removal of something in that sense then I understand. And how looking at your you know your crystal ball on this obviously macro being a bit slow but your predictability or visibility in this business in the coming weeks months and quarters how can if you can plan for this business to maybe improve margin levels from here.
You're focusing on the FX business sorry Victor right.
Yes yes yes the FX business.
You know that we were we have a restructuring ongoing that we talked about in the previous quarter and as you say I don't have a crystal ball I don't know when the gold price and the precious metals price is going to go down so it's very difficult to predict. We do expect things to ease down a little bit in the second half of the year and that's when we expect that to come back because as you know I mean those type of activities are very margin critical for us.
Yeah but when you look at it over time this is maybe more a high level question on strategic initiatives being a core part of LUEMIS or not giving the volatility and now being a bit under pressure and also the difficulty in planning from your side. Do you consider this to be a core asset of LUEMIS and that it has synergies with the rest of the business that is tangible?
Yes with no doubt.
Okay and maybe a final one looking at LUEMIS pay it's a small business but looking at your transaction volumes and your revenues it seems to be that your conversion rates are coming down a bit sequentially. There should not be too much seasonality I guess in conversion rates how much revenue comes to European L versus the transaction but is there a mix change here or that there is a bit of a pricing pressure or how should we read that number?
Not that I know of we don't we have no pricing pressure there I would have to look into that but I think the main effect was the seasonality that's how I view it but let us take a look and we can come back to you on that one.
Okay yeah no I just I noticed it was up in Q1 last year versus Q4 that's why I struggle to see the seasonality effect.
It could be the Q1 last year we could have a one-off but let us check that and come back to you.
Yep yes that's great and just the final maybe send from me when just be mindful of it maybe how you phrase your wording on structural challenges that can be misinterpreted quite a lot in the market given that cash is the yesterday on what that actually meant given that you mean Germany and some of the other structural measures taken rather than your facing headwinds from a more end market perspective being a bit mindful and maybe helping each other here on that.
Thanks for the input and thank you very much. I'll take that into account.
Thanks guys. Ladies and gentlemen this was our last question.
Thank you again very much for listening in and again reach out if there are any follow-up questions. Thank you very much. Bye bye.