Loomis AB (publ)

Ladies and gentlemen, welcome to the LUMI-SABE Q1 2025 Report Conference Call. I am Moira, the Calls Call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Aritzal Larea, President and CEO. Please go ahead.

Thank you very much. Good morning everyone and welcome to the first quarter presentation for LUMIES. My name is Aritzal Larea and I am the CEO of LUMIES. With me here today, I have our CFO Jovan Wilsby and Jenny Boschrom, our Head of Sustainability and Investor Relations. I will start by providing a quick summary of our Q1 performance before taking questions. Let's start the presentation by turning to slide two. LUMIES had a solid start to the year with organic revenue growth of .4% in the first quarter. We achieved revenues above $7.6 billion through this corona, with growth across our three reporting segments. Notably, our international business line performed exceptionally well and we also saw double digit growth in our automated solutions and FX business lines. Acquisitions had a limited impact on total growth, while currency effects had a slight positive impact. A favored business mix and increased efficiency resulted in an improved operating margin of 11.6%, up from .4% in the prior year. We have successfully grown the business while reducing our employee count, supporting this margin expansion. Our operating cash flow this quarter was exceptionally strong. In the first quarter, operating cash flow represented 112% of our EBITDA, and over the past 12 months, our cash conversion reached 124%. This performance was driven by improvements in working capital, optimized capital expenditures, and higher EBITDA. Our robust cash conversion enables us to invest in our business and distribute return to our shareholders. As we announced yesterday, we have signed an agreement to acquire borrows in the US. The company offers digital and on-site first and second line maintenance services for among others, ATMs, SmartSafe, and kiosks. I will present the acquisition in more detail later in the presentation. Our capital allocation priorities remain focused on generating returns. This includes investing in our business, distributing 40 to 60% of our net income to shareholders annually through dividends, and making value-driven acquisitions. We will also continue to distribute additional funds to shareholders through share repurchases. Yesterday, the Annual General Meeting approved the Board's proposal for a dividend of 14 SEC per share, totaling a record 959 million krona to be distributed to shareholders in May. The AGM also decided to cancel 2.5 million of the repurchased treasury shares. Following this cancellation, the total number of shares in LUEMIS is 68.5 million. Additionally, the Board of Directors announced the decision to repurchase additional shares for up to a value of 200 million krona during the second quarter. Now let's turn to the next page and address our reporting segments, beginning with Europe and Latin America. Our European and Latin American segments had a mixed start to the year, with overall revenue increasing to 3.6 billion, reflecting organic growth of 4.1%. Our international business line delivered a strong performance this quarter, driven by speculation around tariffs. However, revenue from automated solutions declined slightly compared to the prior year, as we're comparing it to exceptionally strong performance from CHEMA during the same period last year. Changes in exchange rates negatively impacted our total growth. While our exports plans for CHEMA to the US have been temporarily paused due to ongoing uncertainties, we remain confident in the long-term potential of this growth initiative. Despite a challenging macroeconomic climate that has affected consumer spending and cash circulation, we increased our operating margin to 9.3%, up from 8.8%. This improvement reflects our continued focus on profitability. We're taking actions for operational efficiency within our European segment and continue to execute on our communicated review of the European and Latin American portfolio, which is why you see restructuring charges in the quarter. You can expect slightly higher cost of restructuring in 2025 than in 2024. Let's turn to the next page, over to the US. The US segment delivered another strong quarter, reporting record revenues exceeding $4 billion, with growth across most business lines. Organic growth reached 4.9%, driven primarily by volume increases. This strong performance was driven by several key factors. Most business lines grew compared to the previous year, except for APM, which was flat year over year. High demand for cross-border valuable transportation and storage within the international business line has had a positive impact on the growth in the quarter. 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 volume growth within the automated solutions and international business lines, combined with the previously implemented efficiency programs within CIT and CMS, led to a record high operating income of $679 million corona and a strong operating margin of 16.6%. These programs have resulted in higher service quality, allowing the segment to capture higher volumes without increased staffing needs. Let's turn to the next page and talk about our new reporting segment, SME Pay. As of the first quarter, the segment LewisPay has been renamed segment SME Pay, and in addition to revenues from LewisPay, also include revenue within other business lines from new small and medium-sized enterprise customers. Even in a more digital world, cash remains essential, especially for underserved communities. We are committed to maintaining strong cash infrastructure while also expanding digital solutions. By combining both, we help small and medium businesses accept cash and embrace digital tools. Our new reporting segment reflects our growth ambition with our bundled solutions. Revenue from the digital payments of LewisPay continues to be reported as the LewisPay business line, while cash-related revenue from the bundled solution is reported into either CIT, CMS, and SME Pay. We are committed to providing cash-related revenue for business or automated solutions. Revenue for the quarter amounted to $30 million, and we saw solid revenue growth with increased transaction volumes within the LewisPay business line compared to Q1 2024. We are still in early stages, and digital payments within the LewisPay business line stand for most of the segment's revenue. However, I am confident that we will continue to see growth from cash-related business lines as well as we advance with our bundled solutions. Now let's move on to the next slide where I will share a few highlights on our progress with our sustainability initiatives. Our sustainability-related initiatives are progressing well. Throughout 2024, we have been preparing the organization for the Corporate Sustainability Reporting Directive. We published our CSRD-inspired report at the beginning of April and continue to strengthen our sustainability reporting with the ambition to be the leading sustainable partner in our industry. One of our key initiatives is reducing emissions from our vehicle fleet. Following a successful pilot program, we have committed to fully transitioning our entire fleet in the region in France to HVO biofuel. By switching to HVO, we would reduce our Scope 1 emissions without needing to replace our existing fleet of armored vehicles. This change is also beneficial from a resource efficiency and Scope 3 perspective. We will continue to look for similar solutions in other regions as well. I am also proud to announce that this quarter we have adopted the United Nations Women's Empowerment Principles. This reaffirms our commitment to promoting gender equality in our industry and providing an inclusive work environment. I firmly believe that empowering our employees is not just important, it is essential. This commitment applies to all employees at LUEMIS. We are dedicated to fostering an environment where ambition is met with opportunity, ensuring equal support, recognition, and pathways for growth for all employees at every level of our organization. Now let's move on to the income statement slide, where I will start by highlighting our revenue growth. The growth of the quarter was very solid, with increases across all segments. However, as mentioned earlier, performance varied among the different business lines. We have costs classified as items affecting comparability in the quarter, which relate to the ongoing restructuring in Europe and Latin America. We can see that the financial net has declined slightly compared to the previous year. Now financial expenses have decreased because of decline in interest rates, and the monetary losses from hyperinflationary economies are lower in the quarter compared to the same period in the previous year. It is worth reminding you that while most of our financing has variable rates, our leasing liabilities tend to have fixed interest rates. Moving on to the next slide, I just wanted to highlight our performance in relation to our history. Since the onset of COVID, we have consistently maintained strong financial performance, continuing the positive trajectory established before the pandemic. We have a stable and resilient business model that has proven its strength over time. On a rolling 12-month basis, we generated over 30 billion Swedish Krona in revenue and achieved an operating margin of 12.2%. Looking ahead, we will continue to drive our role by prioritizing recurring revenues and increasing margins through a structured approach to gain operational efficiencies. This is why we are taking decisive action to restructure the business, ensuring we are well positioned for the future. Our organization has a proven track record of us efficiently managing macro challenges by leveraging our robust risk management and decision-making processes. Our current assessment is that our core business remains unaffected by the introduction of tariffs. Ahead of the announced tariffs, we experienced a surge in demand for across-border logistics and storage solutions for gold and precious metals. Given recent developments and the uncertainty surrounding tariff implementation, it is difficult to predict how this situation will develop over time, but we expect these flows to be of one-timer character. Before I open up for Q&A, I am pleased to share more information on our announced acquisition of Borrows. The acquisition aligns with our strategy to grow our business through value-adding acquisitions that strengthen our services surrounding our ATM and automated solutions. Borrows delivers comprehensive services across a wide range of device types in the US and Canada. The company is a manufacturing agnostic, ensuring that its solutions and services are adaptable to various types of ATMs, automated solutions and kiosks. The acquisition of Borrows strengthens our ability to provide first and second line maintenance in the US market. With a total workforce of approximately 600 employees, of which the majority are service technicians, Borrows has established itself as a leading player in the industry across the US and Canada. In 2024, the company reported revenues of US$107 million. Together, we will offer comprehensive full-service solutions within ATM and automated solutions. This will enable us to provide more services to existing customers and expand our addressable market, thereby capturing a higher market share. We have cross-selling opportunities and by leveraging our combined customer base and also gaining better control of the service supply chain, we position ourselves for profitable growth. Our adjacent services have been instrumental in our growth journey and we are committed to continuing this trajectory. I am confident in our business and our journey ahead. With that, I am done with my summary of the first quarter, 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 telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from Simon Johnson from ABG San Jose Collier. Please go ahead.

Thank you and good morning all. I have a few questions on the report and then a bit on the acquisition. First here for the US, I just wonder if you view the strengths here in Q1 as any kind of one-off. I know you mentioned international that had an impact for example. The question is was that material in any way? Otherwise, should we view it as you have taken another step up in margins here in the US?

Good morning Simon. It's not a one-off. Just consider it international for the US market represents like 4% of the revenue. So it did have a positive impact but it's a step up as you're saying.

Okay great. Thank you for that. Turning to Europe, I think it was a bit softer than expected on the margin side and you also call it mixed performance. Can you give us an update on how the restructuring initiatives are progressing? I think you launched the plan back in 2023 if I'm right. You said last year that there's more to do and now you say that you expect higher restructuring costs this year compared to last. So where would you say you are today compared to when you started and how much is realized and how much is still potential?

The first thing we need to consider here is that the first quarter in Europe and Latin is seasonality-wise the weakest quarter. So when you compare to Q1 2024 our margin is actually up in .5% points. We had one less working day in 2025 compared to 2024 and we're in the middle of price negotiations still which is a gradual process. I think that in many markets Q1 was affected by weaker consumer confidence and we also had the tariffing impacting on the TEMA exports to the US aside from comparing to a strong Q1 2024 TEMA last year. When it comes to restructuring it's an ongoing process. We've mentioned this in the past. We talked about Germany. We had issues there in the past with changes in management and we had strikes at the end of the year. Now we are actually capable of executing the plans that we have and so far so good. We will continue adapting the structure of our countries to the new normal business so no changes there.

Is it fair to assume that you are struggling with some of the same initiatives? Of course you have also identified new potential initiatives but is it more that you are...

Sorry, I wouldn't say struggling. It's just that some of them have been delayed. That's all.

Alright, but you have also identified some more savings opportunities. Is that correct? Yes, that's correct. Right, thank you. It's nice to see also that you kept your word on that we should see more about buybacks and M&A here before the summer that you delivered on yesterday. But on burrows, I mean you haven't shared any historical performance for the company as what I can see at least. Has the company had solid growth historically or is it more stable or can you give us any flavors on that?

They have, historically they have had a very solid growth and they are in the middle now of a transition to traditional services to more digital and remote services. And I think there is a huge opportunity there to keep growing the business especially bundled with the ATM services that we provide today.

And when you talk about bundling and all that, is it that you want to create new services or can you see that you have some overlaps already that you can make savings from? Or how should we view that and what is the underlying rationale?

We have overlaps already but the acquisition of burrows, I think the main thing is that it strengthens Loomis' ability to provide first and second line maintenance to our customers and to future new customers as well.

Ok, so mainly new services to existing customers if that's correct?

Yes.

And in terms of margins, it looks to be dilutive on group level here at least initially. Over time, do you think it could be accretive?

Over

time we

are sure that it's going to be margin equity.

Ok, thank you. That's all for me. Thank you.

The next question comes from Swazini Varanasi from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my question. I just have one please. I think you mentioned that the exports of CHEMA to the US are being affected by tariffs. Can you maybe help us understand what your original plan was for using CHEMA in the US and how that's changing today maybe in terms of growth or margin prospects? Thank you.

I think we mentioned about this in the past that originally in the US we had two main providers for automated solutions and those two providers were acquired by a competitor in the US. So looking for that BCP plan is when we acquired the CHEMA in Italy. With the increased tariffs, I mean the price of the goods being exported from Italy to the US, the goods were going to be more expensive. That makes you less competitive. We're waiting to see where that is going to end and then adjust our pricing to the current market in the US. Originally we started with the recycler's solution in the US, but we're also planning on exporting samples to the US as well. And

you don't see if tariffs persist for longer or for the next one year, 12 months, we don't know how long it's going to last, right? Does that have any implications to your growth or profitability of safe points in the US?

No, we will just have to adjust our cost and adapt to the... So it won't be any... I understand.

Thank you.

The next question comes from Victor Lindeberg from Carnegie. Please go ahead.

Yes, thank you for following up on the CHEMA US question here. Can you quantify approximately how much of the revenue in Europe or safe point Europe that relates to CHEMA sales?

Not really at this moment. We've just delayed the start of that export initiative.

I think, Victor, I think that the main impact in Europe has been, first of all, the one less working day that we had. And then, I mean, when you look at the comps versus prior year, I think CHEMA had an exceptionally strong Q1 last year, as I mentioned.

On Europe, looking at the items affecting comparability now being a bit on the high relative to my expectations, you mentioned Sweden, Germany, and also France. I think Sweden, we can relate to that. You have a contract expiration in a couple of months. Germany has been ongoing for quite some time. And just to understand, given the revenue scope of that business, it must be quite dramatic costs that you have taken out and continue to take out. Can you just help us understand what are you doing in Germany and maybe any flavor on Sweden?

Sure. So starting with Germany, Victor, I mean, we had initially, when we announced that we were going to start restructuring plans there, we had management issues with changes in management at the beginning. And that delayed the whole program, the whole plan. After that, if you remember, end of last year, all the industry had a strike issue at the end of the year. And that also delayed our restructuring plans. I think we're now full speed on the plans there and we will start seeing the benefits of that moving forward. Sweden, as you said, it's a one customer. I mean, just bear in mind that Sweden as a whole represents 3% of the total revenue. So that doesn't have a huge impact on us. And then when we talk about France, I mean, we've got three French banking groups that they are going to start to roll out their shared cash machines in rural areas to better serve places that don't have any other ATM options. So this would mean that the number of ATMs will reduce. And as a result of that and changing the market, we need to adapt to all that.

And that last part on France must be a quite meaningful portion of your total one of cost in this quarter. And can you adjust your cost base structurally to this change the number of ATMs in the market or is this something we need to be mindful of that? This is a one way road with ATMs out there being in a shrinking mode going forward. So that you will have to take gradual grips in France as we go down.

So two questions. First one is, yes, France is the majority of the IAC. That's one. And then take for granted that we can adjust the cost accordingly.

Okay. Looking at the Spanish power outage effect now a couple of days, weeks ago, it did change cash behavior quite dramatically. And you also commented on that. Is it too early to say that? Do you see any structural client behavior changes here or is this going to be a bit of a temporary boost going into Q2 now with Spain as maybe benefiting a bit from this? Or was this just a one off in your book?

I think it's still early stages to talk about that. What I can say is that the recent blackout in Spain highlights the critical importance of preserving cash as part of the country's essential infrastructure. I do think it will change a little bit the behavior on the population and people are more aware on how important cash is. I was there when all this happened and you could all see that cash was the only thing working out there.

Got it. I have a couple of questions on the boroughs as well but I can come back in the call and get back into Q2.

Okay. Thank you,

Victor. As a reminder, if you wish to register for a question, please press star and 1 on your telephone. The next question comes from Bometier from BMP. Please go ahead. Mr. Bometier, your line is open. You can proceed with your question. Your line is open. You can proceed with your question, Mr. Bometier.

Oh, sorry. I thought I heard something completely different. Not my name. Sorry about that. Good morning, Eritz, Johan and Jenny. Just a couple of questions on borough, if I may. Could you give us some sort of baseline for where that company comes in from a profited point of view? I also see that you have quite a huge potential earn out in that transaction. What are the milestones that need to be met for that payout?

To try to clarify things a little bit, what I can tell you is that if you include that earn out and they achieve that earn out, that would bring the multiple down. It would be way lower than 6.5.

And what kind of game plan is it that needs to be executed to do that?

I mean, I talked about the transition plan that they have to more remote services, but you need to look into the combination together with LUVIS and the cross-selling that's going to take place there.

Excellent. And just on the tariff thing, and when you look at the SEMA effect, potential effect on automated solution, is that something that you were planning for in 2026 and 2025 was going to be a transition year where you faced out the old supplier? Or how should we see it, given that you're also talking about the very encouraging pipeline there?

One thing that needs to be clear, EJ, and that is we're not facing out the actual supplier. We're just having secondary suppliers. We've always had, that was our intention, to have a BCP solution in the US. That's the first thing. The second thing is, I mean, obviously it's early stages. We identified the needs that the US team had regarding automated solutions, and we fabricated a plan that was going to start in 2025.

Excellent. Looking forward to see the execution on boroughs. That sounds interesting if you can reach that full payout then, and all the best out there.

Thank you very much, EJ. Thank you.

Once again, to ask a question, please press star and one on your telephone. The next question comes from Victor Lidenberg from Carnegie. Please go ahead.

Yes, thank you. And following up on the boroughs acquisition, I think you had, you mentioned 10% EVDA margin simplistically on this business last year, and that's quite a bit lower than Lumi's group. But can you share the EVDA margin as of last year, or at least a proxy so that we can model something for 2025, 2026? And in addition to that, you mentioned that you expect it to be accretive to margins. Just curious to see how this can be. Is it a very different DNA profile, so depreciation and monetization profile? Or is it simply taking out costs in having cost overlaps with your existing operation? Starting there.

Let me start on those questions and maybe Ritz wants to complement. In terms of DNA, if you look historically, they've been running at somewhere between 5% and 6% of sales. And obviously when you look at how we will drive margins upwards, you need to start out and think about that. We have a very strong organization in the US which are ready to take on acquisitions and how they collaborate and drive new additional business through cross-selling, how we bring things on the inside now with maintenance work, opportunities and different kinds of addressable markets. And then on top of that, you obviously have the normal synergy opportunities if you think about supporting functions and so forth. So that's how we think about going forward with

this. Let me just add one thing, Victor. I think it's important to understand that we are a boroughs customer today, directly and also indirectly. And there are some cost overlaps there that we need to solve.

That's clear. And I'm just curious on that. The synergies, as you mentioned, you're a client. So I guess you may also have some other synergies here in light of who else they serve in the market or is it simply just upside opportunity on cross-selling?

I think that

you already served your own internal, call it existing client base, and now you will replace that.

I think it's both. I think it's both of them. So we got those cost overlaps are being a direct customer or indirect customer as well. But at the same time, the cross-selling gives us huge opportunities on selling a bundled solution to our actual customers and boroughs actual customers as well that might not be our customers today.

And fundamentally, we get better control of the service supply as well.

That's clear. And two final questions on boroughs. Who is selling the company? And can you share any bigger clients of boroughs by name?

It's a private equity. We don't want to disclose more details. And the main customers are obviously big banks, IADs, and retailers with the automated solutions. And then manufacturers. And manufacturers, sorry.

Got it. Thank you so much. That's all for me.

Thank you, Victor.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Arita Lavea from Any Closing Remarks.

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