7/24/2024

speaker
Haritz Larrea
CEO

Thank you very much. Good morning, everyone, and welcome to the second quarter presentation for Loomis. My name is Haritz Larrea, and I'm the CEO of Loomis. With me here today, I have our CFO, Johan Wilsby, and Jenny Bostrom, our head of sustainability and investor relations. I will begin by giving a brief review of our business performance in the second quarter and an overview of our results before taking questions. Let's start the presentation by turning to slide number two. We had a record quarter in terms of both revenue and operating income. We achieved revenues above $7.6 billion through this corona, with growth across our three segments and most business lines. Acquisitions had a positive impact on our revenue, while the changes in currency rates had a negative impact due to hyperinflation currencies.

speaker
Johan Wilsby
CFO

We achieved an organic growth of $6. despite continued cyclical headwinds in the international business line. The demand for cash-handling automated solutions continues to be high, and we have had double-digit growth for automated solutions in both the U.S. and Europe, even when excluding FEMA. Our operating margin increased to 11%, with improved margins in both regions. The U.S. segment had a great performance with the combination of volume growth and continued focus on increasing operational efficiency. But I'm also pleased to see that our ongoing efforts to improve margins within the European and Latin region are starting to yield positive results. Allow me to further address these drivers in more detail later when we run through our segments. The operating cash flow for the quarter was very strong. Keep in mind that we did have a positive effect of the timing effect from the first quarter in these numbers as well. 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 92%.

speaker
Haritz Larrea
CEO

This quarter, we returned over 1 billion Swedish kronor to our shareholders through a combination of our annual dividend and our share repurchase program. We also permanently reduced the number of outstanding shares by canceling close to 4.3 million treasury shares. Demonstrating our continued commitment to shareholder value, we announced yesterday a new share buyback program for the third quarter. The Board of Directors has authorized the repurchase of up to 200 million Swedish kroner worth of shares during the period. Let's turn to the next page and address our reporting segments, beginning with Europe and Latin. The positive trend in revenue growth in Europe and Latin America continued, and we reached our highest quarterly revenue. Our operating margin increased to 11%, which is a substantial increase, both compared to the first quarter and to the previous year. Price increases, as well as growth from emerging markets, were the main contributors to the organic growth. Our automated solutions with SafePoint and Recyclers had a double-digit growth on a standalone basis, and Chima had a positive contribution to the business line performance as well. We're still seeing a continued decline for our international business. It's too early to say when this cyclical impact will trend back. However, we hope to see it reverse by the end of the year. We are actively examining our operations throughout the region to make sure we are best positioned for future growth. The goal of this analysis is to pinpoint the optimal footprint, capacity, and competencies required for success. As I mentioned earlier, we therefore booked additional restructuring charges in the quarter as part of this process. A key to reaching our margin target for 2024 is to recover our margin in Europe and Latin America. This would require both continued efficiency gains and restructuring strategies. Let's turn to the next stage over to the U.S., The U.S., that is more than 50% of our business, and we keep delivering strong performance in this market. The cash handling business in the U.S.

speaker
Johan Wilsby
CFO

is a growing market, and we are well positioned to increase our business. Revenue and operating income were our highest ever. Our organic growth was 5.9%. and includes a robust volume growth. All business lines grew apart from international, which was down compared to the past year. I want to highlight that the automated solutions business to the state point has achieved double-digit growth for yet another quarter in a row, and we see a strong pipeline ahead. We reported a strong operating margin of 15.2%, up significantly from 13.9% in prior year. This is driven by a strong volume growth in addition to our structured work on operational efficiency. Let's turn to the next page and talk about Also, volume of pay was a strong revenue growth in all markets compared to the previous year, and revenues amounted to 28 million. Transaction volumes increased both compared to the same quarter last year and the first quarter, and reached more than 1.8 billion Swedish krona. The Spanish POS provider that we acquired in the prior quarter has now been integrated into our operations. I would also like to share that we have a new partnership agreement for the Norwegian market. We'll turn to the next slide where we share a couple of highlights on our progress on our sustainability initiatives. towards reaching our sustainability targets for this strategic period.

speaker
Haritz Larrea
CEO

Keeping our employees safe and minimizing the risk of injuries is one of our most important responsibilities. Therefore, I'm pleased to see a sharp drop in the injury frequency rate compared to prior year and quarter. We will, of course, continue to strengthen our proactive measures for our employees' well-being. Even with a strong organic growth, we continue to decrease our carbon emissions from fuel consumption and energy usage in absolute terms. In June, we committed to the Science-Based Targets Initiative to set science-based emission reduction targets in line with the Paris Climate Agreement. I look forward to sharing these targets with you once they have been submitted and validated by the SBTI. Let's turn to the income statement slide, where I will start by highlighting The strong growth, where a real growth excluding currency, is close to 10%. As I mentioned, we have further restructuring costs with the restructuring plan in Europe and Latin America. We have also made the provision for the administrative fine that our Swedish subsidiary received from the SFSA. But I would also like to highlight that the increase in net financial items is largely a result of the increased interest rates, where the majority of our financing, as we mentioned before, is with variable rates. Moving on to the next slide, I just wanted to highlight our performance in relations with our history. As you can see, also on a rolling 12-month basis, we have achieved record revenues and with a continued improvement to our margins. Remember that the rolling 12 months includes the non-recurring items that occurred in the third quarter. While we have a way to go towards closing the gap for our margin target, we are working hard towards getting there. Moving on to the next slide to summarize our performance, we continue to see a solid organic growth for the group.

speaker
Jenny Bostrom
Head of Sustainability and Investor Relations

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.

speaker
Johan Wilsby
CFO

Thanks to growing revenues and dedicated work on improving our operational efficiency, our margin increased in both the U.S. and Europe. We will continue to work towards reaching our margin target at the end of the year. Cash conversion ratio both for the quarter and on a rolling 12-month basis was strong, and we have the capacity is to continue to make both strategic and value-creating acquisitions and distribute returns to our shareholders. Our capital allocation priorities remain, and we aim to use our capital allocation in the best way to generate returns and create value for our shareholders. In the second quarter, we distributed more than $1 billion to shareholders via the annual dividend and share repurchases. Additionally, we canceled close to 4.3 million treasury shares. The Board of Directors has decided to continue with share repurchases in the third quarter for the amount of up to 200 million Swedish kroner. As I mentioned before, keeping our employees safe and minimizing the risk of injuries is one of our most important responsibilities. While we have seen our efforts have been the decided 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 and more technologically advanced 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. As we further work on optimizing our routes, we are decreasing our emissions from transportation even as we grow our business volumes. Our commitment to the science-based targets initiative shows our dedication to keep reducing our carbon emissions.

speaker
Haritz Larrea
CEO

With that, I'm done with my summary of the second quarter of 2024. So let's turn to Q&A. Operator, we are now open to questions, please.

speaker
Operator
Operator

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Victor Linderberg with Carnegie. Please go ahead.

speaker
Operator
Operator

Thank you.

speaker
Victor Linderberg
Analyst, Carnegie

Looking at your cash flow statement I was just curious to see if you can elaborate a bit on the capex levels in the quarter and if you think this is a new steady state level relative to the past year or so or if there's something around the corner that we should be mindful of when that may pick up again. Second, looking at Sweden, you record negative organic development now after a quite strong period. But we know that the Bancomat contract will end at some point in the coming 12 months. And maybe if you could quantify timing and then quantum of how that should affect your Swedish business and maybe put that in a group perspective as well.

speaker
Johan Wilsby
CFO

Starting with those two, Capex and Sweden. Hi Victor, this is Johan. On capex levels, we typically don't plan on quarterly levels. So yes, we're slightly down in the quarter. I would expect over time that we keep optimizing this item. especially in relation to the revenues. So it's in the right direction, but we don't have a type of worker. Okay. Hello, Victor. This is Richard. Going now to your question around Sweden's bank amount. As you know, we never comment on specifics around our our relationship and contracts with the customers.

speaker
Haritz Larrea
CEO

But we constantly adapt our operations to the changing market conditions and in Sweden we will optimize the resources that we use to make the operations efficient.

speaker
Johan Wilsby
CFO

The important thing is that we remain committed to the Swedish market and our role in ensuring that cash is available and that the closed subcash are functioning in society. And we see it as positive that the Swedish banks want to support cash in society as well. Although it is important to also have in mind that the total revenues in Sweden amount for approximately 3% of the total revenue. Okay, thank you.

speaker
Operator
Operator

Maybe following up, I was a minute late into the call, so excuse me if you already touched upon this, but you mentioned in your CEO letter Are it about the consolidation of branches and the cost associated with that?

speaker
Johan Wilsby
CFO

Can you give us a bit more granularity on country level and if this is Swedish related to or more European and world-based? I can start by saying that it's not Swedish. And we don't go into specifics when we talk about the country.

speaker
Haritz Larrea
CEO

So we're taking a broad approach across the whole European and Latin region. So as I said, I mean, we're actively examining our operations throughout the region just to make sure that we are best positioned for future growth. The goal of all this analysis is to pinpoint, as I said, the optimal footprint capacity and competencies required for success. But again, it's not focused on Sweden, it's focused on all the European countries.

speaker
Victor Linderberg
Analyst, Carnegie

Okay, that's clear. Finally, before I get back in line on Europe and profitability, I think now you seem to be in a better position to have a better match on cost inflation and price adjustments now coming through, especially compared to last year when inflation was running high. How do you look upon the second half of this year on European prospects to defend and actually expand your margins now for the remainder? I mean, what, besides from what we already know about Germany and recovering the cyclically sensitive business in the international segment, is sort of driving this, if you think you will be accomplishing that? Maybe just to pinpoint a few. words on profitability there in Europe.

speaker
Haritz Larrea
CEO

Again, without going into specifics when it comes to countries, I mean we keep analyzing what needs to be done and the needed adjustments. I think you've seen some restructuring charges in items affecting comparability this quarter. I do expect to have additional restructuring charges in the following quarters as well. But as a summary, we do expect those savings to be around 30 to 40% higher than the cost going into the program. So that would mean a margin expansion in the following quarters.

speaker
Victor Linderberg
Analyst, Carnegie

Okay. Thank you. I'll get back in line.

speaker
Operator
Operator

Thank you.

speaker
Johan Wilsby
CFO

The next question comes from KJ Bonnevar. with D&B Markets. Please go ahead. Yes, good morning. First of all, congratulations to Solid Progress in Q2. And looking at some of the challenges you have still in international operations, do you feel that that's now stable or the low level, or how do you see that business developing? Yeah, I think it's stable on the low level. I mean, we've seen a slightly improvement versus Q1, Q2, but a very low increase, and we I still don't have the full visibility on when it's going to be back, but I don't expect it going down more than it has done already. And you mentioned in your initial comments that you see volume growth in quite a few segments. Could you elaborate a little on that? Where do you take market share? Where do you grow with the market? I think the most important one is when you see the automated solutions with double-digit growth, that is clear. The main difference is that when you talk about the U.S., you're talking about new customers coming in, you might be cannibalizing some CIT and CMS business.

speaker
Jenny Bostrom
Head of Sustainability and Investor Relations

So you do see Europe's CIT, CMS a little bit down, and automated solutions being up, while in the U.S. the main driver of growth is automated solutions.

speaker
Johan Wilsby
CFO

Excellent. And, Johan, maybe you can help me with some housekeeping questions. Looking at the financial net, how large is the IAS 2019 impact and the IFRS 16 impact on that? I don't have that big of a problem.

speaker
Unknown
Unknown

Me, right now, KGS, I can get back on that. But there's no big changes, really, depending on the interest rate in the quarter. So I'll get back as soon as I look it up, okay? excellent no problem and i also see that you mentioned now in the presentation lower effective tax rate what should we calculate with for this year and how do you see that developing going forward um i i see it compared to the beginning of the year now with a refreshed forecast and obviously there are different movements in different countries i see the the tax rate coming down slightly and you see in result of that in the quarter compared to q1 so Further than that, I can't sort of guide on right now.

speaker
Unknown
Unknown

About 25% or lower, that should be a good proxy at least.

speaker
Unknown
Unknown

No, no, not 20. We're 28 in the quarter, right? So not 25.

speaker
Unknown
Unknown

Okay, I'm adjusting for all the IICs to get to the underlying tax rates. Okay.

speaker
Unknown
Unknown

Okay. No, but you should think about the effective tax rate of 28% as a good proxy for right now.

speaker
Unknown
Unknown

Excellent. Thank you. All the best out there. Thank you very much, KJ.

speaker
Operator
Operator

Thank you. As a reminder, if you wish to register for a question, please press star and 1 on your telephone. We have a follow-up question from Victor Linderberg from Carnegie. Please go ahead.

speaker
Victor Linderberg
Analyst, Carnegie

Thank you.

speaker
Operator
Operator

Coming into the shorter-term trading and how maybe Q2 ended for you and how you see Q3 evolving so far? even though it's early days, it is a seasonally very important quarter for you. So maybe June could provide some insights on how we are trending now in the tourist season.

speaker
Johan Wilsby
CFO

Starting on that point. Thanks. Yeah, I mean, it's true that we've already involved all the challenges and we talked about the particular products or businesses hopefully coming back at the end of the year.

speaker
Haritz Larrea
CEO

But we shouldn't expect anything different to the normal seasonality that we had in previous years when it comes to the European market.

speaker
Johan Wilsby
CFO

and Latin region. So there's nothing that indicates that Q3 will not follow that seasonality pattern in Europe and Latin. Okay, good.

speaker
Operator
Operator

And on Loomis Pay, I think the acquisition contribution was a bit bigger than anticipated in the quarter. So can you elaborate a bit on what, is there one deviation on the growth coming from this acquired company, or is it simply just trending strongly when looking at the growth that this acquisition has on its own organic merits?

speaker
Johan Wilsby
CFO

I mean, Hosted Tactics, that's a POS that we acquired in Spain. They have annual revenues since 2013 of 1.5 million. And, of course, it's margin of credit compared to our business line. I don't know if you need anything else or... or you're asking for something else. We have a strong performance there in Spain. Things are looking good, but still early stages, and we have just integrated them. So it's a bit early to say how. Okay, yeah.

speaker
Victor Linderberg
Analyst, Carnegie

I was just looking at, I think you had about 8 million Swedish krona of contribution on top line from that acquisition, and just wondering if that is something we should annualize, because then it suggests more like 3 million euros of revenue run rate than the 1.5 you mentioned.

speaker
Unknown
Unknown

One additional thing on Hostel Tactile is that we integrated them in Q2, and we did that from 1st of March. So we actually have four months into the quarter.

speaker
Victor Linderberg
Analyst, Carnegie

Okay. Well, then that explains part of it.

speaker
Jenny Bostrom
Head of Sustainability and Investor Relations

Yeah.

speaker
Operator
Operator

Okay. Thank you.

speaker
Jenny Bostrom
Head of Sustainability and Investor Relations

Thank you, Victor.

speaker
Operator
Operator

Thank you. There are no further questions at this time. Members of the management, would you like to add any final comments?

speaker
Haritz Larrea
CEO

Yes. Thank you very much to all of you for listening in. Please reach out if you have any follow-up questions. I wish you all a happy summer vacations. Bye-bye.

speaker
Operator
Operator

Thank you. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Disclaimer

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.

-

-