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

Ladies and gentlemen, welcome to the Loomis' Q3 2026 Report Conference Call. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Aritz Larrea, President and CEO. Please go ahead, sir.

Thank you very much, and good morning, everyone. Welcome to Loomis' Third Quarter 2026 Presentation. My name is Aritz Larrea, President and CEO of Loomis. Joining me here today are Tobias Hagglov, who took over as our CFO in September; and Jenny Bostrom, our Head of Sustainability and Investor Relations. I'll start with the highlights of the quarter and then take you through our segments and financial performance before we open the line for questions. We delivered a very strong third quarter with record high revenue, operating income and operating margin. Revenue exceeded SEK 8.1 billion with currency adjusted growth of 6.6%. Our International business line had another strong quarter, supported by continued demand for transportation and storage of precious metals and other valuables. We also delivered another quarter of double-digit growth in Automated Solutions as retailers continue to automate and outsource more of their cash handling. The strong development in International and Automated Solutions over several quarters is also gradually changing our business mix. These businesses are becoming a larger part of the group and increasing our diversification. This is very much in line with our strategic priorities. We increased our EBITA margin by almost 2 percentage points year-over-year to about 15%. This represents the highest margin in our history, and I'm pleased to see that the execution of our strategic priorities and the efficiency initiatives we have implemented continue to support margin expansion. On a rolling 12-month basis, our operating cash conversion was 84%. In the quarter, cash conversion was lower mainly due to higher working capital as we grow, particularly in Automated Solutions as well as some timing effects. Moving on, I would like to highlight our recent acquisitions, strengthening our footprint in Latin America, a region characterized by high cash usage and attractive long-term growth opportunities, which we highlighted at our Capital Markets Day. In July, we doubled our operations in the Argentina by acquiring Transportadora del Interior. We have now a presence in the Argentina's 3 largest and economically strongest regions. The acquisition has already had a positive impact on Loomis Argentina's performance in the quarter. Most importantly, in October, we completed the acquisition of Hermes Transportes Blindados, the most significant acquisition in Loomis' history. Hermes is the market leader in secure transportation and cash management in Peru. It has around 1,000 customers and more than 3,000 employees. In 2025, Hermes had a revenue of approximately SEK 1.2 billion. The enterprise value of SEK 4 billion corresponds to 6.6x adjusted EBITDA multiple for 2025. With that, let me turn to Europe and Latin America. Europe and Latin America delivered another solid quarter with revenue of almost SEK 3.8 billion and currency adjusted growth of 3.8%. International was the main growth driver, up more than 25% compared with last year as demand for transportation and storage of precious metals remained strong. We also saw good growth in Automated Solutions, while ATM returned to growth. However, our foreign exchange business slowed following a very strong third quarter last year. EBITA increased to SEK 510 million, and the margin improved to 13.4%, reflecting a favorable business mix and continued efficiency improvements. Let me now turn to the U.S. The U.S. delivered another very strong quarter. Revenue reached a record SEK 4.3 billion with currency adjusted growth of 8.4% and the organic growth was 8.1%. All business lines grew compared with last year, with particularly strong development in International and Automated Solutions. Higher fuel prices and the related price indexation also had a positive impact on the organic growth. International benefited from continued demand for cross-border transportation of precious metals and Automated Solutions delivered another quarter of double-digit growth. A good example of this momentum is our partnership with a large U.S. retailer, which plans to deploy Loomis SafePoint smart safes across its network of stores. Installations are already underway. This partnership illustrates the broader opportunity we see as large retailers increasingly automate and outsource their cash handling. The operating income increased to SEK 834 million, reflecting revenue growth, a favorable business mix, and the continued effects of our efficiency initiatives. The EBITA margin was above 19%, a new record for us. Now let me move to the SME and Pay segment. Revenue in SME/Pay increased to SEK 100 million in the quarter, with currency adjusted growth of 56%. More than half of the revenue came from cash-related services to small- and medium-sized businesses. As we have discussed before, Loomis Pay is moving from its previous point-of-sale platform to new locally tailored solutions. This transition has taken longer than expected and temporarily affected both revenue and profitability in the quarter. We expect the migration to be completed by year-end. Overall, the broader SME business is developing well. We are growing our customer base and seeing increasing interest in our combined cash and digital payment offering, including areas such as sport arenas and health care. I'm confident that our strategy to focus on SMEs is the right one, and we continue to -- our work to scale the business and improve profitability. Let me now turn to sustainability. We are advancing on our sustainability initiatives. Our new branch in Bordeaux is a good example of how sustainability and operational efficiency can go hand-in-hand. By bringing previously separate operations together, we have improved both operational efficiency and optimized our routes. The facility also incorporates renewable energy, electricity, HVO-powered vehicles and a water recycling system. Looking at our targets, we continue to reduce our Scope 1 and Scope 2 emissions despite business growth. On a rolling 12-month basis, they were almost 28% below our 2019 baseline. A key driver is the switch to biofuel, where HVO now accounts for close to 8% of our total fuel consumption. On health and safety, we have made progress towards our targets. But of course, this is an area where we are never done. Employee safety is our highest priority and remains top of mind. Lastly, strong governance is fundamental to being a sustainable company. During the quarter, we updated our anti-bribery and corruption policy, further strengthening our work in this important area. With that, let me turn to the income statement, where I'll begin by highlighting that we delivered both strong currency adjusted and organic growth and continue to improve profitability. This resulted in record high earnings per share of more than SEK 10, which is up 32% compared with the third quarter last year. During the quarter, we had restructuring costs related to efficiency measures in Europe. As we have discussed before, we continue to review our European branch network and see further opportunities to improve the efficiency of the organization. This work is ongoing, and we expect additional restructuring activity in the fourth quarter. Let me also briefly explain the timing effect from the Hermes acquisition. We issued a EUR 300 million bond in September, which means the additional financing cost was already included in the third quarter. However, we did not complete the acquisition until October. So at the end of September, we were still holding the proceeds in cash. This is why our net debt-to-EBITDA was at 1.52x at quarter end. Following the acquisition, leverage and financing costs will increase, but we expect to deleverage relatively quickly back below 2x net debt-to-EBITDA. Maintaining our investment-grade credit profile remains a key priority. With that, let's turn to the longer-term development. Looking at the longer-term development, we're making good progress against our strategic priorities. Growth has been strong and profitability has improved. We continue to position ourselves for long-term profitable growth, both organically and through acquisitions. On a rolling 12-month basis, our EBITA margin is 13.7% in the upper part of our 12% to 14% target range. We expect to remain there for the rest of the strategic period, which ends 2027. At the same time, we should not extrapolate the margin expansion of individual quarters. As you know, business mix will vary, and International, which has been particularly strong is a more cyclical business. We also see a competitive pricing environment with customers becoming more price conscious and the broader social and economic environment could lead to some cost pressure, including on labor costs. On the positive side, Hermes will be included in our reporting for the fourth quarter and will contribute to both revenue and profitability. Overall, we're very pleased with the performance and the progress we're making. We're delivering on the strategic priorities we set at our Capital Markets Day in 2024. I'm confident in our strategy and our ability to keep delivering profitable growth. This concludes my summary of the third quarter. Operator, we are now ready to take questions.

[Operator Instructions] And the first question comes from Jonsson Simon from ABG Sundal Collier.

I hope you can hear me. I want to start with the U.S. The impressive -- very impressive margins here again, I have to say. I think you said before that earlier this year that we should view the 18% level as sustainable. Now you are at 19%. So how should we think about 19% now then? Is it the case that -- should we still see this as a sustainable level? Or do you want to highlight any kind of one-off factors here contributing to the 19% level that could make that unsustainable for the U.S.?

So thanks for the question, Simon. The first thing is to say that we continue to see that strong development of the U.S. business. We saw all business lines growing, and particularly with Automated Solutions and the International business. We never disclosed the 18% that you're talking about. But one important thing to highlight here is that we have a limited upside as we have already completed our efficiency programs in the U.S. And as I commented in my script, I mean, we're starting to see price pressure coming from both competitors and customers. So I think it's good to consider that we will try to remain around that 19%.

All right. And then on the U.S., you also highlighted, I think you said you're rolling out SafePoint with a large retail customer. Is this something that has contributed here this quarter? Or is that something that will boost growth in the coming quarters? Or yes, what should we expect in terms of implications for what you said about that customer?

I mean, the rollout is ongoing, but I would say that you should expect impacts Q1 next year from that point.

All right. And you -- on that topic, you highlighted that working capital was increased here this quarter due to Automated Solutions. Is this part of building up for higher deliveries? And could that lead to working capital buildup in Q4 as well? Or was the increase in this quarter related to something else?

No, it's that, and you also need to consider that we are expanding Cima in the U.S. as well, and that requires -- there's a higher delivery time from Italy to the U.S. We need to build that inventory not only on the final product side, but also on the parts side in order for Burroughs to then afterwards do the maintenance of those machines.

Correct. So it will tie a bit more working capital there.

Got it. Then on Europe, you also had margin improvements. But I guess it's fair to assume that there was -- it continues to be largely driven by international, the mix effect from that business? Or would you say that you also are seeing improvements in the other line of business on the margin side?

I think it's not only International, it's also Automated Solutions that we had a very great quarter there. Just remember that on the other hand, we've had headwinds there on France with the ATM business. And also on the FXGS side, first of all, we decided to exit a non-profitable contract there on the FX side. And on the Gold side, the transactions have not been done that high. So those are several headwinds that have impacted the quarter. But I would say we've had an impressive quarter in Europe, just improving 50 bps our EBITDA margin.

All right. And I mean, related to the restructuring charges that you continue to take in Europe. And considering where you are in the sort of underlying business, excluding International and Automated Solutions in Europe on the margin side. Now when you're taking more, more charges, more initiatives on the restructuring side in Europe, is that because you have seen results of the previous restructurings? Or is it more like a continuation of the already -- what you're already doing that you're just prolonging those processes? Or I mean, can you explain a bit the results you've seen so far on the margin side from that?

We can summarize it as a continuation of the work that has been done. I mean, if you've seen part of the margin improvement comes from the previous restructuring that has been done. But this is an ongoing work. We haven't finalized yet the study of the European business, adapting it to the new normal business. So there's still work to be done, and you will see some restructuring costs as well coming in, in the next quarter.

I see. Then just a final one from me, if I may. It's on the capital allocation side in gearing. And you said that you reiterated that you expect a quick deleveraging here after the Hermes acquisition. Can you give any sort of broader outlook on like where -- how quickly it will be below 2x and what that means for your plans or opportunities for next year in terms of M&A and buybacks and the time line on that?

So if you recall, what we said is that we -- when doing the acquisition, we're going to be above 2x and that in less than 6 months, we expected that to be below the 2x. That's what we said. We could be a bit quicker on coming below 2x than 6 months. I think it's going to be quicker than that. And as you know, I mean, we have still a very strong balance sheet to continue with our M&A activity, and we have a healthy pipeline there as well. We just need to meet the needs of the sellers with our needs and our expectations of return of investments, and we will continue executing.

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

Just a couple from me, please. I just wanted to get your revenue to NCR Atleos in the U.S., if possible, please. If there are going to be changes in some of the contracts there, I just want to understand the risks to the business. Secondly, when we think about the margin expansion that you have seen because of International business, just wanted to check how much it has contributed to margins this year? And if it normalizes, what could be the unwind in '27?

Thank you, Suhasini. So the first thing, the Brink's, NCR, it's important to consider as we mentioned before that it's both a customer and a supplier of us. We don't see any immediate material impact for us. We've always said -- regarding ATM that we've always said that we are not interested in the manufacturing side of the business, but we see a lot of opportunities on the ATM services side. We've also commented around -- it's going to be a tough integration for Brink's. That's going to keep them occupied as well, and they're going to be very, very leveraged. So we see less competition when running our M&A activity. But no major material impact for us due to that acquisition from Brink's. And then regarding margin expansion, you know that, that we don't disclose or we don't guide you in the future. But I would just say trying to summarize that looking ahead, Automated Solutions remains a growth opportunity. And we still believe that International has an attractive long-term potential. I mean, one important thing there is that we have increased certain lines there -- lanes, sorry, and we have increased the capacity of storage as well. So we feel confident that International will behave well moving forward. And then one thing that you do need to consider is from Q4 onwards, we will -- Hermes will also contribute to both revenue and margin.

And the next question comes from Dan Heimer from SEB.

Two more questions from me as well. Maybe starting a little bit on U.S.A. I mean, fantastic performance from your U.S. team. In terms of the organic growth there, is it possible to split what, what is price, what is volume and fuel charges in that? I'm mostly interested in understanding what the volume component was in the U.S. organic now in Q3.