Loomis AB (publ)

Thank you very much. Good morning, everyone, and welcome to the fourth quarter and full year 2024 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 Q4 and full year performance before taking questions. Let's start the presentation by turning on to slide number two. We had a strong finish to the year in Q4 in both revenue and operating income. We achieved revenues above 7.9 billion Swedish krona with growth across our three reporting segments and all business lines. Acquisitions have limited impact to the total growth, whereas currency effects had a negative impact. We achieved an organic growth of 8%. The demand for our solutions continues to be high, and we have had double-digit growth for the automated solutions, international and Lumiste business lines. It is reassuring to see positive development for the international business line, which has had cyclical challenges over the past year. The situation with U.S. increasing tariffs has brought additional one-time volumes in the quarter. While we do not yet see that the business is back to where it was, it was a good quarter. It's also worth highlighting that this is the first quarter that CHEMA is included in the organic growth. after having been with the group since October 23. The operating income surpassed one billion Swedish kronor for the fourth quarter, which is our highest ever. We increased our operating margin to 12.9 percent, reflecting margin expansion in both regions. The U.S. segment delivered a robust performance driven by a combination of volume growth and increasing margin. In Europe and Latin America, we have continued with implementation of restructuring programs, and I'm pleased to see progress in terms of margin recovery. I'm confident that we will see the effect of these initiatives as we move into 2025. The operating cash flow for the quarter was very strong. For the isolated quarter, the cash conversion rate was 123%. 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 112%. During the quarter, we repurchased about 590,000 shares for a value of 200 million Swedish kronor. In total, during 2024, we have repurchased close to 2.6 million shares for a value of 800 million Swedish kronor. The Board of Directors has proposed a record high dividend of 14 SEC per share to the annual general meeting, corresponding to a value of 959 million. This is a 12% increase compared to the dividend in prior year. The proposed dividend amounts to 60% of the earnings per share for 2024, which is in the upper range of our dividend policy. In November, we held the Capital Markets Day and shared our strategic priorities and targets for 2025-2027. Our focus on revenue growth and operating margin remains crucial, while our commitment to reducing CO2 emissions and workplace injury rates aligns with broader sustainability goals. I will come back to our presented targets later during this presentation. Let's then 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 continued, and we reached our highest quarterly revenue and EBITDA. We had a double-digit growth within the automated solutions and international business lines, which had a positive contribution to the bottom line. Our operating margin increased to 12.1%, which is strong improvement compared to prior year. As you may remember, the profitability in prior year was impacted by currency headwinds, operational challenges within the FX line of business, as well as acquisition-related costs. Throughout the year, we have focused on increasing our profitability and we remain motivated moving forward. We have taken actions for operational efficiency within our European segment and continue to execute on our communicated restructuring plan, which is why you see restructuring charges in the quarter. Some benefits are seen already in the fourth quarter, but we expect more to come in 2025. For the full year, segment Europe and Latin America reported revenues of close to 15 billion Swedish krona and an operating margin of 11.1%. Let's turn to the next page, over to the U.S. The U.S. segment delivered another strong quarter, reporting record revenues exceeding 4 billion, with growth across all business lines. Organic growth reached 4.7%, driven primarily by volume increases while price adjustments also contributed positively. All business lines experienced year-over-year growth. Notably, the automated solutions business, including SafePoint, achieved double-digit growth for yet another consecutive quarter, and we continue to see a robust pipeline ahead. The continued implementation of operational efficiency programs were positive drivers to the increase in operating margin compared to the previous year. These programs have resulted in higher service quality, allowing the segment to capture higher volumes without increased staffing needs, and the operating margin increased to 16.6%. The higher proportion of revenue coming from automated solutions has also contributed positively to the margin. For the full year, Segment US reported record high revenues of close to 16 billion Swedish krona and an operating margin of 15.6%. Let's turn to the next page and talk about Loomis Pay. Loomis Pay delivered a strong performance in the fourth quarter, generating $31 million in revenue and surpassing $1.8 billion in transaction volumes. The acquisition of Hostel Tactile earlier this year, with its locally tailored POS solutions, has positively contributed to our growth. I'm confident that standing strategic partnerships is the right path forward. Our focus remains on leveraging these established POS solutions as the foundation for introducing Loomis' unique all-in-one payment solution in new markets. By partnering with or acquiring companies with a strong local offer and integrating them with our payment gateway and cash handling solutions, we are well positioned for scalable growth. From 2025, the segment Loomis Pay will be renamed segment SME Pay and will, in addition to revenue from Loomis Pay, also include revenue within other business lines from new SME customers. Loomis Pay will continue to be a reported business line within this segment. 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 initiatives are moving forward. During 2024, work has been ongoing to prepare the organization for the corporate sustainability reporting directive. Our double materiality analysis has provided insight to the focus areas and targets for the upcoming strategic period. With a well-defined sustainability agenda, we are committed to leading the way in sustainability within the industry. 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 fourth quarter in prior year. We will, of course, continue to strengthen our proactive measures for our employees' well-being. As we mentioned earlier this year, we have committed to the science-based target initiative to set carbon reduction targets in line with climate science. Our CO2 reduction targets for 2027 within scope one and two have been developed in accordance with this methodology. We are in the progress of setting our scope three targets, and we'll communicate these once we have submitted and validated by the SBTI. Let's turn to the income statement slide, where I will start by highlighting our revenue growth. The growth for the quarter was very solid with growth across all segments and business lines. We have costs classified as items affecting comparability in the quarter, which relate to impairments of goodwill and intangible assets, a provision for a communicated legal case in Denmark, as well as costs related to the ongoing restructuring in Europe and Latin America. We can see that the financial net is largely in line with the level in the previous year. While our financial expenses have decreased as a result of declining interest rates, we similarly see a decline in our interest income as well. It is worth reminding you that while the majority of our financing has variable rates, our leasing liabilities tend to have fixed interest rates. The monetary losses from hyperinflationary economies have also increased in the fourth quarter compared to prior year. For the full year 2024, our effective tax rate is lower compared to the previous year. A key driver of this decrease is a tax credit related to the EVs rollout in the US, which we expect to be non-recurring. Moving on to the next slide, I just wanted to highlight our performance in relation to our history. Looking at our results in a longer perspective, you can see that we have consistently delivered a strong financial performance over time, except for the impact of COVID-19 in 2020 and 2021. As you can see, we have a stable business model that has shown to be resilient over time. In 2024, we've generated about 30 billion Swedish kroner in revenue, and we've reached 12% in operating margin. Over a 10-year period, we have generated a revenue figure of close to 9%. Looking ahead, we will continue to drive our growth by prioritizing recurring revenues, and increasing margins by a structured approach to gain operational efficiencies.

Moving on to the next slide to summarize our performance in relation to our committed target. We have made significant progress in the last three years, and I'm proud to conclude

we have achieved all four of our strategic targets for the strategic period 2022-2024. Following our strong performance in the fourth quarter, we have exceeded our growth expectations, where our revenue CAGR currently adjusted over the past three years is 11.8%. On the operating margin side, just a couple of months ago at our Capital Markets Day, we highlighted that while the margin target was within reach, Achieving it would be highly challenging. With a strong finish to the year and solid Q4 results, we closed 2024 within our operating margin target range, achieving an operating margin of 12%. It's also encouraging to see the solid progress we've made on our ESG targets. Regarding the reduction of emissions, we have exceeded our target by achieving a 20% reduction despite the strong growth of our business. And lastly, keeping our employees safe is a top priority, and we are proud to have significantly reduced workplace injury rates over the past three years by 23%. After wrapping up a successful 2024 strategic period, I'm excited about the journey ahead. I would like to remind you of the targets we presented at the Capital Markets Day a couple of months ago. Our four strategic targets for the 2025-2027 strategic period are an average compounded annual growth rate of 5% to 7%, an evident margin of 12% to 14% being at the top mid-range at the end of the strategic period, a reduction of 32% of CO2 emissions compared to 2019, and a reduction of 10% of work injury rates compared to 2024. I remain confident in our business and that we are well positioned to deliver on our strategic priorities and targets for 2025 to 2027. Before heading to Q&A, I would like to summarize our year and the fantastic performance we have had. We continue to see a solid organic growth for the group in 2024, driven by both increased volumes and price increases. Thanks to growing revenues and strong focus on operational efficiency, our margin increased in both the U.S. and Europe. We remain committed to further enhancing margins in the European and Latin American region. Our strong quarterly performance resulted in record high revenue and operating income for the full year 2024. Revenue for the year surpassed 30 billion Swedish krona with an operating margin of 12%, and we met all of our four financial targets for the strategic period ending in 2024. The cash flow from operating activities was more than 4 billion for the year, which in relation to the operating income was 112%. As we mentioned at our Capital Markets Day, we are confident that we should be able to maintain an operating cash flow in relation to EBITDA of above 90% during the upcoming strategic period on an annualized basis. Our strong cash conversion gives us the capacity to both invest in our business and distribute returns to our shareholders. During 2024, we distributed more than $1.6 billion through this corner to shareholders for the annual dividend and share purchases. The Board of Directors has also announced a proposed dividend of 14 Swedish kronor per share, which amounts to a record 959 million kronor to be distributed to shareholders in May. Our capital allocation priorities remain, and we aim to use our capital in the best way to generate returns. This includes making the needed investments in our business, distributing 40% to 60% of our net income to shareholders annually through the annual dividend, and also making value-driven acquisitions. If we have excess funds or do not see the acquisition opportunities in the short term arise, we have to continue to distribute additional funds to shareholders through share repurchases. During the year, we reduced our workplace injuries by 14% compared to the previous year, and we also reduced our CO2 emissions by 3%. Our commitment to be leading within sustainability in our industry is unwavering, and we are dedicated to find new ways to improve our CO2 emission reductions. 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. We have a strong finish to the year and our strategic period. I look forward to the next three years to deliver on our communicated strategic priorities and targets for 2025 to 2027. With that, I'm done with my summary for the fourth quarter and full year of 2024. So let's turn to Q&A. Operator, we are now open.

Ladies and gentlemen, we are now beginning 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. One moment for the first question, please. And the first question comes from Johnson Simon from ABG Sundar Collier. Please go ahead.

Thank you and good morning all. So first on the margins and in the US, how much of the improvements would you say is related to general efficiency gains and how much is the product mix, i.e. more automated solutions?

I think all the efficiency projects that we're doing there have a bigger weight than just increasing the weight of the automated solutions within all our revenue.

All right, thank you. And turning to Europe, I think I guess the question is how much of the profitability initiatives have come through so far? I mean, have you sort of taken the low-hanging fruit here, or should we expect more gains in the coming quarters?

We talked about this in the past. I mean, we're expecting more to come in 2025. We talked about a 30% increase compared to what the costs have been coming in 2025. 70% of that coming in 2025. So we do expect the margins to increase. Okay, so you stick to that 30% split? Yes. Yeah. Thank you. And can you also maybe explain a bit more about the different moving parts in organic growth in Europe and Latin America? You know, you talked about the tariff one-offs in international. How much was that? And you also mentioned growth in emerging markets. How much of that was inflation-driven, you would say? I mean, we don't disclose the hyperinflation of those small countries. We talk about Argentina. But if we look at the growth, I mean, we've had some of these growths in our automated solutions. It is true that Chima is now considered as organic since we incorporated them in 2023, October. we had a double-digit growth in automated solutions, and then the rest was international business, as we spoke. All right. Thank you. And one last question from me, and you talked about it a bit here in the call, but can you add some more flavor on the capital allocation decisions? mainly regarding buybacks and acquisitions. We should think about that near term here. It sounds like the base case is that you will not do any more buybacks here. No, that's not right. I mean, what we're saying is that our capital allocation strategy remains the same. We're going to keep investing in the business. We have a dividend policy. We are very active. We're going to be active on the M&A side. And if that M&A doesn't come up really near term, we will continue to share buybacks. All right. And near term, do you mean in coming like three to six months, or are you thinking about potential acquisitions? Yeah, that's right. Three to six months. Thank you. That's all for me. Thank you.

And the next question comes from Suhani Varanasi from Goldman Sachs.

Please go ahead.

Hi, good morning. Thank you for taking my questions. Just a couple from me, please. I think in your prepared remarks, you talked about some one-time benefits from tariffs. Can you maybe provide some more color on what happened, and can you help quantify the level of the benefits that you saw on growth in Q4? The second one is on margins. It came in quite strong in Q4, especially in Europe. How should we think about group margins in one Q and for the full year? Can we expect continued improvement year over year? And maybe just if I have the time, working capital has probably been quite strong for two years now, despite the strong top line. How should we understand the movements in working capital linked to different verticals and business lines? Does the strength in automated solutions help you achieve better working capital in the cash flow statement? Thank you.

Let's see if I can start. I mean, there were several questions there. Let's see if I can recap them. And then I'll pass along to Johan so that he can talk about the working capital. But when it comes to international, I mean, the situation with the U.S.

increasing tariffs has brought additional one-time volumes in the quarter. We also have a new facility in the U.S. mainly dedicated to our storage business. So although international is not back yet, it has been a good quarter. So we do see light in the tunnel. Hopefully this business line will have better business climate in 2025. Regarding the margins as well, How should we think about this for one QNF 2025 full year? Yeah, we talked about this two months ago, and no change has been made there. I mean, we talked that during this strategic period, we were going to be between 12% and 14%, and we stick to that. On an annual basis, we will be within that range. and then end up at the main top of the park at the end of the city. So we stick to that when it comes to sanitation as well. Thank you. All right. You asked about working capital. First off, I do want to highlight that the most important piece around our cash flow is actually how we were able to increase our operating results and that we're continuing to rationalize our cash expense. But then within working capital, I mean, there's no major movements right now. And, you know, I see further opportunities to keep that in control. We just don't have the typical things. We also have a bit of a cash stock in this business that we can optimize. Thank you.

Then the next question comes from KJ Bonnevier from D&B Market. Please go ahead.

Good morning, Ericsson and Jenny. Congratulations to Stolich Institute 2024, no doubt. And a couple of questions from here. First, looking at all this, one of them came through in the call. Just to detail, just thinking about what you did in Loomis today, what you did in the UK, who will write on a similar kind of thing. The business logic, so to say, that you see between the different. All right, so as Ritz alluded to in explaining the quarter and its summary, I mean, the UK goodwill topic is part of our annual impairment testing, so that's normal business, I would say.

And then you had the... I can step into the LDS one. So as we explained in the Capital Markets Day, one of the changes that we've done in our Loomis-based strategy is not to continue developing ourselves, the POS side of the business. And it's more about reaching out, having partnerships, or even being active in the M&A on that side. which would allow us to adapt locally to the different local requirements in the new countries where we would expand.

And maybe the last one is around the legal case in Denmark that has been ongoing for a number of years. and what happened in the quarter was that we were granted a leave when it comes to the appeal to the Supreme Court for a part of that claim but not the other one, and then hence we decided to come up with a starting estimate for that claim that we did not get a leave for in terms of appeal.

Did that explain the one-off items? Excellent. Makes full sense. And on the new SME pay part of it, is there any revenues that are to be restated from the other business segment into Lumis Pay SME as you go forward, or is this just forward-looking kind of change? Not really as we see it right now because what we're going to do is that we're going to allocate new sales to SMEs towards that segment and not restating prior year sales. Excellent. And you mentioned, Rich, that good progress in the U.S., no doubt, when you look Do you see a market that is driving this when you see growth in all the different verticals for the moment? Or is it due to taking market share? As we explained in previous quarters, we still keep taking market share. And that's the same situation in this quarter. But a lot of changes there. Excellent. And looking at Europe, you mentioned getting back towards historical kind of a performance. What are the main building blocks? Obviously, a couple of years back that operation were up towards 14% margin, so it's still a big gap to get back to that level. Is that a relevant level to start with? And then what are the building blocks, basically? That's a relevant level, and the building blocks, I mean, one of them is all the work that we've been already doing on looking into these efficiency programs in the different countries. After that, it's going to be, as we talked in the capital market day, a strategy around where we should be or where we should not be, where we can be profitable or not. And based on that, we will try to rise to the margin that we had in the past. Excellent. And, Johan, you mentioned that tax rates obviously had a positive impact on the EV part in the U.S. What would be your guidance for this year, and maybe also on CapEx, what would be your guidance? It's obviously hard to say. It depends a bit around what happens to these EV initiatives under Trump's leadership. Obviously, we expect it to be slightly higher than what we had at the end of the year.

let's say mid-range, you know, mid-28 something, I think it's a good starting point. In terms of CapEx, obviously it can vary by quarter, but as we talked about in the capital market, we expect this to be, you know, at 5% of sales or in that range. And, yes, we were a bit higher in Q4, but, again, we don't measure this on a quarterly basis. We will continue to rationalize.

Excellent. Thank you very much and all the best out there.

Thank you very much.

As a reminder, anyone who wishes to ask a question may press star and one at this time. And the next question comes from Victor Lindeberg from Carnegie Investment Bank. Please go ahead. Yes. Good morning.

Thank you. Starting on Europe. I noticed you had quite solid growth across most countries, both Sweden, France, looking at Spain.

But one country that actually stands out is the UK. According to my estimates here, you grew by about 20% organically in that country. First question here, what is behind this growth? And second, looking at the impact from Turkey and Argentina as having an impact on the entire segment growth, could you single out the impact from those high inflation countries together with the U.K.? ? I'll take the UK one and leave the hyperinflation countries to you one. But on the UK side, I mean, it's just new customers coming in. We have important customers coming in in that country and that has brought the world to a new start. We've been very reactive on the sales side in that case. That's clear. And just before, Johan, creating a good contract portfolio for the company in 12 months and in the UK, thinking about the run rate and growth. It was not Yeah, that's correct. And on the hyperinflation question, typically we don't report the figures excluding hyperinflation because this keeps varying depending on the inflationary development in a couple of these countries, etc. And certainly in on the group level and slightly more on the UL level. But I'm not going to call out the number because it keeps varying between quarters. Okay. Just to clarify, I think you were pretty straightforward there on the buyback and why or why not. But more formally, you have in the past been issuing press releases. when you intend to do buybacks for the coming quarter. I'm not sure that's a regulatory requirement, more of a FYI, nice to know. But if you were to continue to buy back shares going forward, will you continue to do these buybacks these press releases, or would you also consider just to do it ad hoc without letting the market? We will continue with the press releases. Okay.

But assuming in on cash in transit, according to my numbers, you are now at zero growth in the quarter. So FX suggested it seems that you're flattening out after having been at 1% to 2% in the recent quarters. So just to understand, is this end market volume being flattish, competition, or perhaps cannibalization within your business lines as you're growing faster in some of the other segments in the U.S.? So just to understand the flattish development there.

I think it's a mix of all the things that you just mentioned. But, I mean, the comps are getting more complicated. I mean, we're all-time high all the time, and – The comparables are very difficult. I think there's still room to grow, but you do have a certain part of the business moving into automated solutions as well. So it's a mix of all the things you mentioned.

Okay. I'm looking at the net debt evolution. It was up sequentially compared to Q3, and your leasing assets are growing by 25%.

whereas your cash flow was obviously strong. But just to single out how come the leasing assets grow this much, and obviously then is that the main driver for the net debt being up despite solid cash flows in the quarter? It is true that it is increasing. As you know that we have quite a big amount of lease debt in the U.S. And given the exchange rate development, we get quite a big impact from that year end. So almost half of that is related to FX. actually the other one is actually more rhythm by catch-up effect around our lead schedules in the u.s okay thank you from my side you had some good with impairments And this is not the first time you have good will impairments, although not being sizable. We're also talking about M&A going forward now, maybe more active than what it has been in the past two, three years. Just to understand the rationale for this impairment, is this a reflection of the end market growth outlook, maybe operational performance, or just simply discount factor that to this goodwill impairment? Good to know, just to understand the M&A potential going forward or the risks associated with that. I think related to the UK, It's a pretty standard exercise that we're doing. Obviously, all of the effects that you explained here around the WAC, et cetera, has contributed to that impairment from a UK goodwill perspective. On the Loomis-Pay side, it's different, right, and more aligned to what Eric was explaining about the strategic exchange around how we develop or not the POS ourselves. And should that lesser internal development of R&D and maybe R&D depreciation now in LumiSpace suggest better bottom line development just statically from this environment and the change of your strategy? That is correct. Yeah, you're right.

Is there any quantification on this, call it static impairment, that we could be, that we could elaborate on?

Tenths of millions or just minor single-digit millions, the quarter that we should be mindful of here?

I don't have any numbers right with me here, Victor. We can follow up that offline.

All right. Thank you.

Ladies and gentlemen, this was the last question. And now I would like to turn the conference back over to Aritz Larea for any closing remarks.

Thank you very much all for listening in. Please reach out if you have any follow-up questions. Bye-bye.