Loomis AB (publ) (LOOMIS) Earnings Call Transcript & Summary

Hello, and welcome to the Loomis Q2 2021 Report. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO, Patrik Andersson. Please begin your meeting.

Thank you very much. So good morning, everyone, and welcome to the second quarter presentation from Loomis. As said, I'm Patrik Andersson, CEO of Loomis. And with me here today, I have Kristian Ackeby, CFO; and Anders Haker, Chief Investor Relations Officer. I will give a short overview of the quarter and then open up for questions. So let's start the presentation and turn to the next page, which is the disclaimer. So we continue to the next page, which is about cash. So I will not repeat myself and go through all of these things again. But I get a lot of questions about cash and how it's used and how the payment landscape is looking in general and then cash in particular, and it's important for me to state that cash is the dominant payment method globally. And that has not changed during this pandemic. What I would like to highlight is the third bullet point on the market development, which I think is very interesting, and that is that ECB expresses strong -- so the European Central Bank expresses strong support for cash, and they have announced specific strategic targets. And what that is about, these 4 targets is, first of all, it's about efficient access to cash, so to support the supply and demand for cash in the Eurozone. And that's very important for us that we have the right circumstances to work under. And then the second bullet point, which is even more important, is that they will ensure that cash is a widely accepted payment method among all retailers in the Eurozone. And that is good news, and I'd like to send that signal also to authorities and politicians in other countries outside the European zone. And then there are 2 other points, which has more to do with the environmental friendliness of the cash and coins but also the design, but I'll leave that out. But I think that's important to state. And I would also like to state that after the recent cyber attacks in Sweden and in many other places, and now we're also with the natural disasters around the world, I think that shows that cash is needed and wanted but also in Sweden and other places. So let's turn to the next page, which is then -- which are then the highlights. So let me just go through a couple of them. So we have closed the acquisition of the Swiss Post in May, and the business complements well the Swiss Loomis business we have already, and then it gives us a boost when it comes to SafePoint. And in my view, Switzerland will be a very important country for Loomis in the coming years with that market position we're having. We are also working a lot with ESG or sustainability. And I'm happy to announce that we now have ordered additional 20 trucks in the U.S. to be used in our business. Real growth was at 23%. And of course, then the acquisitions made in Finland, in Sweden and in Switzerland is then, of course, pushing the real growth to 23%. Organic growth was at 70%, and we see, as we have said in the previous calls, that there are steady improvement month-by-month. And we also expect that volumes will improve further as more and more societies will open up. I mean last -- lately, it was U.K. that opened up this Monday. And we see a positive development, of course, in the U.S. We've seen that for a long time but also now in Europe, and that's really encouraging. Operating margin then landed at 9.6%, excluding Loomis paid to make the comparison. And we see margin expansion both in Europe and then, of course, also in U.S., as we've seen for some time. And then cash flow at 68%. Of course, we are now building up accounts receivable as organic growth is coming back. So that's quite natural. So let's turn to the next page, which is then the operating margin development. And as you can see, we are recovering from the low point we had in Q2 2020, and you see the margin then at 9.6%. So let's quickly turn to next page, which is then Europe. Of course, we mentioned the acquisitions. I will not go into all of that. The integration, which is, of course, very important for us to get the margins at the right place, is going according to plan. We have completed the acquisition of Nokas in Sweden. The integration in Finland and Switzerland is then going according to plan. The organic growth was at 14% in the quarter. And as I said, it's going better and better month-by-month. The quarter started not -- I wouldn't not say weak, but it started at a lower point. And then you can -- we experienced that the volumes came back month-by-month during the quarter. And of course, that's coming from less restrictions in societies. And then when the last restrictions are taken away, we will see even more volumes coming back. Operating margin is, for us, it's an important sign that we have the efficiency in the business that when the volume is coming back, we also see the margin coming back. And we saw that during the quarter. And of course, then we have the synergies in Sweden and Finland, which will help us. And of course, we have made huge cost reductions in Europe, and we also see that, that is, together with cost control, helping the margins. And all of these programs are now complete, and that would sort of strengthen the margins further. So if you summarize Europe, I think that, for some time, I've said that volumes will come back and with more volume to profitability. And I think that is exactly what we're seeing in Europe right now. So let's turn to the next page and going to U.S. It's another very, very strong quarter for the U.S. business. Organic growth, 20% versus minus 9, same quarter last year. And we're also growing substantially versus '19, which is really a signal of strength. And we are now having also growth in CIT, which we haven't had for some time. And also, of course, SafePoint continues to expand rapidly. We have now more than 20% organic growth in Q2, much more than previously. And I think that SafePoint will be another record year for this -- in 2021. And then we can see that SafePoint is now 18% of the total revenue. On top of that, we have seen this positive trend with the ATM business, and that is unchanged. So I think that all parameters now in the U.S. business on the top line is going in the right direction. When it comes to the margin, it's all-time high, 15.5% for second quarter, of course. And then you see the mix coming from SafePoint and ATM business, which have higher margins, but also the efficiency programs in all branches. And as you can see, of course, when more CIT volume is coming back, that has a bit of a diluting margin on -- diluting effect on the margins, but that, in itself, that's a very good sign. So all in all, I think that it's a very, very strong quarter in the U.S., and the business continues to perform. So let's turn to next page, and then talk a bit about Loomis Pay. We are now -- we have ambitious activity plans both in Sweden and Denmark. We launched in Denmark last year and in Sweden this year, and we continue to build up our sales efforts, marketing sales, optimizing the sales organization and also having a lot of dialogues with our customer how we can improve the offering and so on. So also, when it comes to the technology, I mean the technology is never ready. So we have also a couple of things ongoing when -- to improve the technology. So I think that, all in all, we are still in a buildup phase of Loomis Pay. We have very good customer response, and I was myself actually visiting a couple of customers who have the full package, so CIT, CMS, SafePoint and Loomis Pay. And it looks very, very good, and they're very happy with the offering. And we have stated many times that there is quite a big market in the Nordics, SEK 15 billion, and we remain very confident that the targets we have for 2023 and beyond are within reach. And we have in our plans to launch it further Nordic countries, of course, but then also moving with this concept into other European countries. And then we turn to next page, which is the statement of income, which is more a reference point. I think I mentioned all the important things right now. So let's turn to next page, and I say, operator, we now open up for questions. Thank you.

[Operator Instructions] The first question comes from the line of Daniel Thorsson from ABG.

Yes. So my first question is on Loomis Pay. Obviously, quite slow growth, a small decline from Q1, all the very low numbers. I mean, what's the main reason for that? Will it be a transactional-driven revenue model? What's the visibility going forward? How should we look at the ramp-up from now, basically?

I think that it's still in an early stage, as I said. We have taken some more time also to update the technology platform. And then you should see -- I mean these are more roundings right now for the time being. And the Danish model we had before was that we sold hardware upfront, and now we're moving into a transaction model, which is also takes some time to build up. So you should see the volumes or the transactions or the revenue should be sort of exponential in the coming quarters. So we're still in a buildup phase and a start-up phase, I would say, in Loomis Pay.

Okay. I see. But when you launched Loomis Pay last year, I think it was in September, did you expect back then that revenue should have been 0 in Q2, already 3 quarters after?

I mean I think that our focus for 2020 and 2021 was really to get the concept up running, the fine-tuning of the sales efforts, fine-tuning of the sales organization and marketing. And so that was our focus for 2020, 2021. And we didn't expect any substantial numbers actually coming from Loomis Pay.

Okay. Fair enough. Okay. So second question on the U.K. market. How is that playing out right now? Are you done with the cost reductions? And how are volumes developing? I remember they were down like 45% a couple of quarters ago. How is that going?

Yes. It's going much, much better. Volumes are coming back. The society is not still -- it opened up fully, I would say, a couple of days ago. So there's still some more volumes to come back. But overall, we see a good recovery in the U.K. We have done substantial cost reductions, and that's all done. So that's behind us. So we have a much, much better cost situation in the U.K. that should help us. So U.K. is trending absolutely in the right way.

The next question comes from the line of Karl-Johan Bonnevier from DNB Markets.

Yes. I'll continue on where you stopped on the U.K. If you look at -- could you give us some more color maybe also on Spain and France, what you are seeing there? Because I guess when I look at U.K., as you said, it seems to be recovering nicely and going up, whereas it still seems to be much lower in France. And obviously, you did the acquisition of the Prosegur business there as well. How do you see the French market playing out and the Spanish market?

We see growth in all our big countries. I mean if you look at Europe, we are dependent on a couple of bigger countries, and all of them are moving absolutely in the right direction. Also, both Spain, France, U.K., Switzerland has been very good all the time, I would say. So -- but these bigger countries are moving in the right direction. We have also -- we have -- France is now, I would say, 2-player market, which is also helping. And we have done a lot also. We talk a lot about cost reduction in the U.K., but I was visiting France 2 weeks ago, and they have done a lot on the cost side as well. So I think that in a country like France with so many branches such an infrastructure, you need to have a certain volume to be profitable. And that's what we see now, that we have lowered that level to become really profitable. And when the volumes come back in France, it will -- it looks -- it will look much, much, much better. So I'm quite confident for all the bigger countries in Europe, I would say.

And when you look at it, do you feel that France is the market that is lagging the most for you for the moment, where there should be, say, the biggest reopening opportunity still to come?

From a volume point of view, the lagging country is still U.K., still U.K., I would say. So I will not rank them. But U.K. is still there is more to be done on the volume side in U.K. But lagging, I would not say France. It's, I would say, U.K.

And finally, on France, to finish that off. Do you feel that you have the structure now in place that Prosegur's operation is fully integrated and you have everything on the one platform that you would like to have?

Yes. Yes, we have. And as I said, I visited France some time ago, and what they've done is they now integrated all the volumes from Prosegur. And basically, I mean more or less all the costs are gone from Prosegur. So we just added all the volumes of Prosegur, of course, then COVID impacted, and of course -- but landed that on the existing platform. So again, that shows -- that's an example how important it is to make these kind of acquisitions in existing countries. So I think it looks very good in France also from a market point of view. And it's quite interesting, if I may, 30 seconds. But we also see now, for instance, in France, opportunities. When many banks closed their ATM business and so on, we have a dialogue also with the municipalities around France that they would have like ATM or smaller bank, automated bank ATMs. I think that -- and then we're moving in with that. So that's also a new opportunity, for instance, in France opening up. So I think the COVID, that also -- we talk about a lot of the negative impact. But as I said, both in the U.S. but also in European currencies open up new possibilities, I would say.

Excellent. And looking at the process of now integrating the Swiss operation, is that a major event that is going to slide into 2022? Or are you thinking about that being basically completing during the second half of this year?

I think that most of the work will be done this year. Most of the work, I think that would be -- might be something next 2022 a bit, but most of it will be done in 2021. And I think that, that will also be another -- Switzerland will be a very good country for Loomis going forward, I'm sure. And will be margins -- very good margin volumes, of course, but also very good margins. I'm quite sure.

Excellent. And one final for me, if I may. I noticed the announcement last night from the Board of commencing share buyback as a capital allocation tool. Could you give us some guidance how you see share buyback as a capital allocation tool? Is it a certain gearing level you want to keep on the balance sheet? Or how would you work on this, say, going after this first attempt of SEK 150 million?

So I mean as we have said before, I think that what -- we have -- this is just another tool for us. I mean, first of all, we invest in the business and in acquisition and so on to grow the business, then we have the normal dividend and then we have this. So I think that it's -- of course, it has to do with capital structure. But you should also see that as a signal of strength, we think that we have been handling the COVID situation in a positive way with strong cash flows and so on. So it's also a signal that we're quite confident about the business. And this is also a sign of that, I would say. So there are multiple reasons for doing it, of course. And as I said, this is the first time Loomis is doing it. So we start with this, and then we'll see what would happen in the future.

And sometime in the future, you might announce a -- more targets for where you want to have the -- say, your gearing level and these kind of things. Is that multiple?

Yes. I mean, I think that we are still aiming for a Capital Markets Day quite soon, I would say, or relatively soon. And then, of course, then that will be, of course, on the agenda, how the capital structure will look like. So let me come back to that. Let us come back to that, of course.

The next question comes from the line of Johan Dahl from Danske Bank.

Just wondering on the European operations, if you could, in any way, describe sort of how June looked compared to April, for example, just to get a feel for the -- sort of how this inflection is looking for the European operations. And secondly, if you could just talk about the substantial cost savings. How much of that was realized in Q2? And what remains to be realized looking forward?

No. I mean I think it's a substantial difference between the first month of the quarter and the last in Europe. It's substantial. Of course, it has a bit of seasonality that June is a bit better. But it's a total -- I would say it's a massive change from first month to last month. So that is -- again, as I said, that is showing that the theory or what we have said before that when volumes come back, that -- first of all, volumes will come back and then also that will have an influence on the margin. So it's a substantial difference. I -- we have done -- apart from the, of course, the restructuring we're doing in Finland and in Switzerland, all the cost savings due to the pandemic should be over. And then I'll look at Kristian to confirm that to say something different. But in my view, it should be more or less done. What do you say, Kristian?

I'd say it's correct. We have completed the restructuring programs as such and will have full impact from the end of Q2. And taking that into consideration, it is, of course, important now that the volumes continue to grow to make sure that we see the positive impact here because it will be part of what is sort of the volume based in our business.

Okay. Are you able to say at all how close you were to SEK 1 billion in revenues in June in Europe?

We -- I don't have those exact numbers here right now, but I can assure you that both from a volume point of view, revenue point of view and market point of view, June was a really good month for Europe.

The next question comes from the line of Viktor Lindeberg from Carnegie.

I think actually some questions were answered, but maybe we can elaborate a bit further and continuing on Europe as June was a very good month. I suspect you also have a good start going into July and Q3, which is a seasonally important quarter for you guys. So in light of the positive trend and the cost savings now coming through, how do you think we should think about Q3? And also, more holistically, maybe longer-term margins in Europe post pandemic and the cost savings as such, do you think that you can accomplish or exceed the margin levels that you were operating at before? Or should we see higher levels in light of easing competition, stronger market positions, cost-saving initiatives bearing fruit, et cetera? If you could elaborate a bit.

No. I'll start with the last one. I think that we have -- we are now -- with the actions we have taken and what we expect when it comes to volume, we plan that the margin should come back to pre-COVID levels in -- as a first step in Europe. That's absolutely vital, and I'm quite sure we can achieve that. I think that when we -- when I look at June, then I'm quite sure that we'll come back to margins pre-COVID in Europe. And then the next step is to, of course, to develop those margins even further, and I'm sure we can do that as well. But that's more like a Capital Markets Day discussion, I would say, where that will end. And the reason for saying that is that, first of all, the cost level is in a different place. And second is that we will see that the mix is changing, less CIT, more CMS and then, as I said, more ATM business, more SafePoint business more Loomis Pay business. That is all -- and we see that in U.S. That has quite an impact on the margin. So I'm very optimistic about Europe, and I base that on what I've seen this quarter. So that -- then when it comes to Q3 and Q4, don't forget that Q3 last year was quite good. So be a bit careful now because then everything opened up. So we had a -- we thought that everything was over, and then we went into Q4. So Q3, we are meeting quite a good Q3. Keep that in mind. That's important. But the long run -- in the long run, I'm quite sure we'll get back to the same levels. I'm sure.

All right. Two more from my side. One nitty-gritty on group costs or other costs. It jumped a bit in the quarter to about SEK 50 million. Can you help us out with this new level? Or is it something in the numbers that we should be mindful of here?

So Kristian, can you take that, please?

Yes. So that is partly related to timing. You can see that in the first quarter, it was slightly lower; second quarter, slightly higher. But if you take the -- both of them together, you will have a good estimation about the quarterly costs longer term here for the year.

Okay. And on the buyback program, these programs, I guess, can be structured in different ways. So either you can outsource it fully or you can have an ad hoc mandate to your banking partner, and they would, of course, play out slightly differently. But just curious to understand this buyback program we launched now, will this be something that repurchases shares on a daily basis, fully outsourced, and it will fill the SEK 150 million mandate throughout the quarter? Or how will this be sort of structured?

Kristian, do you want to take that, please?

To -- of course. And to clarify, it's not a safe harbor agreement. So we have the options to treat it differently, and our intention is to spread it over the period.

[Operator Instructions] Next question comes from Johan Eliason from Kepler Chevreux.

Yes. I was just wondering, coming back to this announced share buyback program, you mentioned that it's a sign of strength of your balance sheet. But I mean you might also see it as a lack of M&A opportunity. I would have guessed that the M&A opportunities would be high now after this pandemic. How does it look like?

No. We don't see any -- this is not because we have less M&A opportunities, not at all. I think now, again, after the COVID, it will open up new opportunities. And we don't see this level of buyback any threat to any M&A activities. We have such a good, strong balance sheet. We can do many M&A, all the M&A activities we want. So it will not impact the M&A activities at all, no. So it's -- it doesn't affect that.

The next question comes from the line of Beltran Palazuelo from SANTALUCÍA.

Congratulations for a strong quarter. I have 2 questions. First of all is regarding the buyback. Could you elaborate a little bit more on what was the discussion of the Board of Directors to recommend the first buyback? Of course, you said organic growth in the business, acquisitions, dividend and buyback. What was the discussion and what you're actually targeting? And then regarding, well, it was asked, but you didn't go in much detail regarding the pipeline of M&A. If you could, let's say, put a little bit of detail on what we could expect, let's say, 18 to 24 months of acquisitions, regions, products. What are you looking for?

Yes. Thank you for the question. Yes, I think that we have had a discussion in the Board around the buyback program. I think there are 2 aspects of that. One is that we like -- we have such a strong balance sheet. We have such a strong position financially, and it's quite natural now to also include buyback programs as a part of that also to support the shareholders. So be more shareholder-friendly, if you like. So that's one aspect. And the second aspect, I think, for me is so important. I mean a year ago, I mean everything was shaky and volumes went down a bit and so on. Even though we had strong confidence in the business, we were not sure. It's also, for me, a sign that we now do this to show that we have things very much under control. We are very confident about the future for Loomis, and you should see that as a sign of strength. And then you can always debate you mean, the level and so on. I think the -- it's more like a signal also to the market. And to be honest, I think that many companies have done this program now during the last quarters and also our competitors. So this was quite natural to do it as well. But we wanted to wait a couple of months to see that everything was under control. And then on the M&A piece, I -- we still have the same focus as we have had before to buy companies' core business, CIT/CMS business in our core market, especially than Europe, also U.S., but more and more -- and Latin America, of course. But more and more, we see now opportunities for technology companies, to add technology into our ATM offering, to add technologies -- new technology to forecasting and so on. I think that we would see more a twist towards technology going forward. And that as you -- also with the acquisition we have done in the U.S. with Logic Path and things like that. So if anything, I see a twist towards more tech companies that will help us with our core offering, if anything. I stop here.

Okay. So maybe regarding M&A, could we see something, let's say, big or transformative before year-end? Or you never know when M&A operations close?

No. We never know. It's always M&A. It's always until the paper is signed, you never know. Everything can happen. But we have a good pipeline of different targets, which we are working with. So I think we have done -- if I count it since '17, '18 transaction or something like that, so we will continue on that path, for sure.

[Operator Instructions] We have no further questions, so I will pass back for any closing comments.

Yes. I would say thank you very much, and thanks for all good questions. And I wish you all a nice summer and, for some of you, some vacation. Thank you.

Thank you for attending. You may now disconnect your lines.