Loomis AB (publ)

Thank you very much. Good morning, everyone, and welcome to the third quarter presentation for Loomis. My name is Harith 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'll start by providing a quick summary of our Q3 business performance and outcomes before taking questions. Let's start the presentation by turning to slide number two. We had a strong quarter in terms of both revenue and operating income. We achieved revenues above 7.6 million Swedish krona, with growth across our three reporting segments and most business lines. Acquisitions had a positive impact on our revenue, while the changes in currency rates had a negative impact, mainly due to the strengthening of the Swedish krona against the US dollar, euro, and Argentinian peso. We achieved an organic growth of 5.5% despite continued cyclical headwinds in the international business line. The demand for cash handling automated solutions continues to be high, and we have double-digit growth for automated solutions in both the U.S. and Europe, even when excluding FEMA. During the quarter, the company achieved a strong operating margin of 12.9%, reflecting margin expansion in both regions. The U.S. segment delivered a robust performance, driven by a combination of volume growth and continued margin improvement. In Europe and Latin America, the implementation of restructuring programs has encountered some delays. For example, industry-wide strikes in Germany have hindered progress on certain initiatives. While the company remains committed to actively addressing these challenges, these delays have made it more difficult to achieve the full-year operating margin target of 12 to 14 percent. The operating cash flow for the quarter was very strong. For the isolated quarter, the cash conversion rate was 134%. As we have mentioned in previous quarters, 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 very strong at 122%. In September, we issued our inaugural EU bond of 300 million under the EMTN program that was also linked to our updated sustainability-linked finance framework. As we announced during the quarter, we are strengthening our management team ahead of the upcoming strategic period 25 to 27. Alejandro Colominas has been appointed president and CEO of Loomis Europe and Latin America as of January next year. Alejandro is currently the CEO of Loomis Spain and regional vice president for Spain, Latin America, and Turkey, where he has led the company's expansion and success in these regions. At the same time, our current Europe and Latin American president, George Lopez, will take on the newly implemented role of group COO, where he will drive operational excellence across the organization. I look forward to collaborating with both in their new positions. This quarter, we repurchased about 593,000 shares for a value of 200 million Swedish krona, demonstrating our continued commitment to shareholder value we announced yesterday a new share buyback program for the fourth quarter. The Board of Directors has authorized the repurchase of up to 200 million Swedish kronor worth of shares during this 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 in EBITDA. Our operating margin increased to 12.4%, which is a solid margin, but as I touched upon earlier, we expected more from the region in this quarter. As you see as well, changes in exchange rates during the quarter had a negative impact on the total growth. If we adjust for the FX impact, all of our business lines showed growth apart from international. Our automated solutions with SavePoint and Recyclers had a double-digit growth on a standalone basis, and Chima that has now been part of Loomis for a year had a positive contribution to the business line. As we mentioned in connection with the second quarter, we are reviewing our operations throughout the region to make sure we have best positions for future growth. The goal of this analysis is to pinpoint the optimal footprint, capacity, and competencies required for success. We have continued to execute the restructuring program, which is why you see restructuring charges in the quarter. but the benefits of the program in some countries have been delayed. Let's turn to the next stage over to the U.S. We had yet another strong quarter for the U.S. Our organic growth was 4.4% and is largely driven by volume growth. Adjusted for the impact of the currency effect, all business lines grew apart from international, which was down compared to prior year. I want to highlight that the automated solutions business with StatePoint achieved a double-digit growth for yet another quarter in a row, and we see a strong pipeline ahead. We reported a strong operating margin of 16.1%, up significantly from 14.2% in prior year. This is driven by a strong volume growth in addition to our continued efforts to further optimize efficiencies in the organization. Let's turn to the next page and talk about Louis State. Also for Loomis Day, we had a strong revenue growth in all markets compared to the previous year and quarter. Revenues amounted to 32 million SEK and transaction volumes surpassed 2 billion Swedish kroners. The Spanish POS provider that we acquired earlier this year, Hostel Tactile, has a positive contribution to the performance. 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. We have committed to the science-based targets initiative to set carbon reduction targets in line with climate science, and in July, we updated our sustainability-linked finance framework in accordance with this methodology. I'm proud that a second-party opinion provider has deemed our targets to be both very strong and highly ambitious. By continuing to integrate carbon emission reduction targets in our financing, we further strengthen our sustainability commitments. Keeping our employees safe and minimizing the risk of injuries continues to be one of our most important responsibilities. Therefore, I'm also pleased to see a continued reduction in the injury frequency rate compared to the third quarter in prior year. We will, of course, continue to strengthen our proactive measures for our employees' well-being. Let's turn to the income statement slide, where I will start by highlighting our revenue growth. The organic growth for the quarter was very solid, but as I've touched upon, the total revenue was impacted by the changes in exchange rates. I would 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 is with variable rates. The net monetary losses have, however, decreased compared to prior year. We estimate that we will receive a tax credit related to EVs rollout in the U.S., and therefore, we see a lower effective tax rate in the quarter. On the bottom line, we therefore see a positive EPS trend as well. Moving on to the next slide, I just wanted to highlight our performance in relation to our history. As you can see, also on a 12-month basis, we have achieved record revenues and a strong continued improvement in our margins. Even while the operating margin has improved, we'll find it challenging to meet the operating margin target that we set for the strategic period. This is mainly due to the slightly lower than expected profitability in the European and Latin American region in this quarter, caused by delays in some of our restructuring activities. 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 dedicated work on improving our operational efficiency, our margin increased in both the U.S. and Europe. We will continue to work on bringing the margins up in the European and Latin American region. The cash conversion ratio, both for the quarter and 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. In the third quarter, we repurchased shares for 200 million Swedish krona, and the Board of Directors has decided to continue with the share repurchases for the same amount also in the fourth quarter. Our commitment to reducing emissions is unwavering, and we are dedicated to finding new ways to improve. That is why we are investing in new vehicles with advanced safety features and technology. This upgrade not only protects our employees, but also helps us reduce our environmental impact. Before turning to Q&A, I want to remind you all of the Capital Markets Day that we will be hosting in London in two weeks, where the group management team will join me in presenting our future strategic direction. and targets for 25 to 27. We will at the venue be showcasing our automated solutions and digital offer. Please don't forget to register if you intend to attend the event in person. The Capital Markets Day will also be live streamed, so you can follow online. I look forward to seeing as many of you as possible on November 13th. With that, I'm done with my summary of the third 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 and 1 on their touchstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to move yourself from the question queue, you may press star and 2. Anyone who has a question may press star and 1 at this time. Hello and good morning everyone.

I have a few questions on the margin in Europe and Latam. You mentioned some delays in the restructuring initiatives, but did you still see an incremental improvement from the initiatives you made in Q2 or how should we view that? Are you saying that you expected to be able to achieve the margin target if it wasn't for the delays? And lastly, given the delays, when do you see the full impact of the initiatives you have taken so far?