Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Q1 2023 report of Loomis AB. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press Star followed by one on your telephone keypad. Please press the Star key followed by zero for operator assistance. I would now like to hand the conference over to Aritz Larrea, President and CEO. Please go ahead.
Thank you very much. Good morning, everyone, welcome to the Q1 presentation for Loomis. My name is Aritz Larrea, and I'm the CEO of Loomis. With me here today, I have Johan Wilsby, our CFO, and Jenny Boström, our Head of Investor Relations. I will give a short overview of the quarter and then open up for questions. Let's start by the presentation by turning to slide three. We had a solid start to the year. The business in Europe and LATAM was supported by continued organic growth, and in the United States, we saw growth across all business lines, and we believe our high-quality services will continue to gain market share. Although there are signs that inflation, energy prices, and supply chains are stabilizing, it is apparent that the macroeconomic uncertainties are having an effect on society around us.
Despite the uncertainties, we have seen volumes increasing. We are monitoring how the changing environment may impact both our business and our customers and will adapt the operations as needed. I would also like to highlight that equal access to cash and payments is an increasingly important issue globally. We see more discussions around the world on the importance of access to cash. We have a fundamental role in supporting central banks to ensure that cash is available and payment flows are functioning. Cash continues to be a common means of payment and important from an inclusivity perspective. I'm proud of the part that we play in society. Let's move on to the next page where we have the highlights for the quarter.
When it comes to revenue, we reached SEK 6.8 billion, which is the highest revenue ever. We achieved record revenues for all three segments. The revenue has been mainly supported by volume growth. Price increases to customers as well as favorable currency movements have also contributed. Organic growth keeps being strong with close to 12% in the quarter. The performance was strong for both the U.S. as well as Europe and LATAM. When it comes to the operating margin, that was at 10.5%. The margin was positively impacted by increased volumes and implemented price increases. Negatively by a higher cost base. Finally, our cash conversion was at 100% for the quarter. Despite the increase in accounts receivable due to our strong growth, we have been able to keep our day's sales outstanding stable.
Let's turn to the next page. Here you can see how the revenue and the margin have developed over time. We have had a steady increase in our revenue since the beginning of 2021. Including the currency impact, revenues increased 20% in the quarter compared to prior year. For the quarter, we achieved an operating margin of 10.5%, which is 1.4 percentage points higher than prior year. Let's have a look at our segments. We turn to the next page and start with Europe and LATAM. The positive trend in Europe and Latin America continued where we had another strong quarter. We achieved double-digit organic growth and reached record high revenues of SEK 3.3 billion. The operating margin is at 9.5%, supported mainly by the higher volumes.
Also important to consider is that the full impact of the implemented price increases and negotiations have not been realized in the quarter. Therefore, we have initiated a restructuring plan mainly related to Germany. Total cost for this program is estimated to SEK 50 million-SEK 60 million and will be recorded as items affecting comparability. During the Q1 , we have recorded SEK 12 million of the total estimated cost. Turning on to the next page and focusing on the trend of both revenue and margin, we see that the actual growth was at 16% when looking at the top line trend. From the beginning of 2021, we have seen a positive recovery expanding quarter by quarter in our main markets.
The operating margin increased 0.8 percentage points compared to Q1 last year. Looking at the last 12 months, the margin is 10.9%. As I have already mentioned, the margin was affected by a higher cost base where the impact of the annual price increases have not been fully realized in this quarter. The majority of the price negotiations have now been finalized, which we should see have effect in the next quarter. Let's turn to the next page over to the U.S. The strong momentum continues in our U.S. business. Revenue was at SEK 3.6 billion, which continued increase in recurrent revenue. Our revenue related to automated solutions and ATM representing 43% of our U.S. revenue.
Organic growth was at 12.5% in the quarter, with our automated solutions business with SafePoint achieving double-digit growth for the Q9 in a row. We continue to see improvements in the labor market, we're still facing a high turnover in the US, which requires an extraordinary effort to continue recruiting and training new employees. All to continue providing high quality service, maintaining our service level is key to keep gaining market share. We achieved a strong operating margin of 13.9% despite the impact of recruitment and training related costs. The operating income reached SEK 500 million. Moving on to the next page and focusing on the trend of both revenue and margin. We see the exceptional US business revenue trend during the last two years.
We are benefiting from a positive FX impact. We reached all-time high revenue figures in local currency once again, and Q1 2023 is 30% higher than Q1 2020 from an organic point of view. Regarding the operating margin, we improved the prior year's numbers by 0.9 percentage points. We have successfully hired more employees to support our growth, and the related costs for recruitment and training temporarily impacted the margin for the quarter. We will keep focusing on recruitment and retention as well as on efficiency to keep improving our margins. In most recent statistics publicly available, the indication is that labor market should ease up somewhat but remains to be seen. Let's turn to the next page and talk about Loomis Pay. Also for Loomis Pay, we had a strong revenue growth in all markets.
Notably, we also increased revenue compared to the Q4 despite the seasonality effects. We keep seeing transaction volumes keep increasing as we move ahead. From the quarter, the increase was 90%. Over time, there is a strong correlation between increase in transaction volumes and revenues. However, from quarter-to-quarter, this can vary. The Loomis Pay solution, which was launched in Spain at the end of last year, is progressing as planned, and we are continuing to tailor the offer to the customer demands. In the coming quarters, our main focus will be on growing the business in Spain, but also growing in the Nordics. We see our continued initiatives for a sustainable business.
We strive to reduce the carbon emissions from our business, and with the order of 150 new armored electric vehicles for the U.S. market that we announced in February, we have taken a significant step. Here in the image, you can see one of these electric vehicles on the streets of New York. I would also like to highlight that we have made a commitment to the New York City Department of Environmental Protection to be completely emissions free in New York City by the end of 2025. As a result of this pledge, they have also granted us a variance against idling penalties, which is important since we are unable to turn off vehicles while on route for security concerns.
I'm proud that we are leading the transformation in the industry, and it is a strength that we are finding the initiatives to reduce our carbon footprint that are interlinked with the business needs. Loomis has a zero tolerance for bribery and corruption. Our anonymous whistleblower hotline, Loomis Integrity Line, has, since its inception in 2010, been an important tool to ensure compliance with our code of conduct. I strongly believe in promoting a culture where everyone is encouraged to speak up, and I'm therefore pleased to share that we have continued to develop the Integrity Line and introduced an update in the quarter. Let's turn to the income statement slide, where we have highlighted the items affecting comparability, which are related to the restructuring plan I commented on earlier. The increase in net financial items is largely a result of the increased interest rates.
The majority of our financing is in variable rates. The monetary loss from hyperinflation was at about the same level in this quarter as the same period the prior year. It's important to highlight here as well that we have achieved the highest earnings per share for a Q1 and the second highest earnings per share ever. Moving on to the next slide, I just wanted to highlight our performance in relation to our history. As you can see, also on a rolling 12-month basis, we have achieved record revenues and with a continued improvement to our margins and now at 11.1% to be viewed in relation to our target for the strategic period of 12%-14%, we are on the right track. Let's now move to slide 14 to summarize the Q1 .
We achieved record revenues with double-digit organic growth for both Europe, Latin, and in the U.S. Secondly, we increased the margins for both Europe, Latin, and the U.S. compared to Q1 2022. Thirdly, transaction volumes keep increasing in Loomis Pay. While we are still in early phases after the launch in Spain at the end of last year, where we have high expectations due to the merchants' feedback and our unique offer. With that, I'm through with my presentation, so let's turn to Q&A. Operator, we're now open to questions, please.
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star followed by 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by 1 at this time. Your first question is from Viktor Lindeberg with Carnegie. Please go ahead.
Good morning. Thank you for taking my questions. I have a couple of questions, both on the numbers, as well as maybe from diving into your annual report. Starting on the restructuring in.
In Europe, in Germany, when looking at this program, what is it in Germany that you aim to address? Is it predominantly employees, you want to shut down, reshuffle branches, or just to understand what's happening in Germany? Second, you mentioned that it's not only Germany. What other markets and initiatives are you aiming to do in this SEK 50 million cost frame here? Starting on that, maybe continuing up with a few more after that.
Good morning, Viktor, and thank you for your question. I think the first important thing to say is that we are constantly driving to make our operations more efficient. As we said, the majority of the restructuring plan is for Germany. Unfortunately, we cannot speak much about that. We're in actual negotiations with the unions there, I cannot comment much about that. Regarding other countries, it's the normal work we constantly do to drive and try to be more efficient, that's all. Nothing major there.
Okay. I think as of the past couple of weeks, the U.S. market has been sort of shaken up by the smaller regional banks being seemingly under pressure, at least judging by the stock prices, but maybe fundamentally things can move fast in a bank. Just to get a sense of your exposure in the FIG segment in the U.S. and any discussions you may have had or anecdotes you want to share on the back of this elevated uncertainty with regards to what's going on in the U.S. now.
All I can tell you about the U.S. is, I mean, we never comment on specific customers, but in general, the turbulence that we're seeing has low or no impact in our business, both when it comes to revenue and balance sheet. We are seeing gradually a high demand in the bank business in the U.S., so no or very low impact that we have in that side.
Okay. Maybe moving to Europe and more physical distress in the sense that France has been a market that may have been or could be affected by what's going on now. People walking the streets with riots and some strikes on the back of the pension reform being implemented. You have a big operation in France. Have you seen any impact on your operation in the numbers when we look at Q1? Is there anything going on now in Q2 that we should be mindful of, given that it's your biggest market in Europe?
No impact at all in our business, in Q1. We don't expect any impact in Q2 either.
Good. Good. All right. I'll pause for that then and move back into the line and come back later.
Thank you, Viktor. Thank you.
Thank you. Your next question is with Daniel Thorsson with ABG. Please go ahead.
Yes, thank you very much. Good morning, Aritz. First one, a question on LoomisPay. The previous target, obviously not relevant today, but that was 3 billion SEK sales in 2025, and that is taken away. How do you see the potential in the product here in the coming years? Can you give us some more flavor on the growth trajectory and the plans growing in markets and then also potentially launching in new markets?
As of now, I mean, we do not have any specific external targets for Loomis Pay, as we explained in our Capital Markets Day. Of course, we do follow Loomis Pay on specific KPIs internally. You're not the first one to ask us for this and to require this, and I think that short term, we'll probably start sharing some external KPIs so that you can follow the business in a better way.
Okay. If I rephrase it a little bit, what do you think is the potential penetration you can achieve with your customers? If you take a mature market like Sweden, for example, can you penetrate the customer base up to 20%, or is 5% only potential or 80% over time? How do you really think about that regarding the product features and competition?
Daniel, we're sorry that we don't disclose those numbers now.
Fair enough. I also had a question on Germany. I heard your responses on Viktor's question. Why has Germany been loss-making? I mean, it is a cash-intensive market. Is it only because you are too small or any other reasons?
I think first of all, we're small and regional, and I would say local there. Secondly, I mean, perhaps we were expecting more outsourcing from the financial institutions that didn't arrive. As we do always, I mean, we try to restructure and to adapt to the revenue levels that we have, as we've done in other countries like the U.K., for example, in the past.
Yeah. Okay, I see. My final question is maybe for the board, but this was the Q1 for a couple of years, or at least several quarters, that we don't get buybacks, going into the next quarter. Is it any reason for that that we should be aware of? Is it potentially some M&A you're looking at instead? Can you give some flavor?
Look, the only thing I can tell you here is that we continue to focus on shareholder distribution and capital allocation. I mean, if there's gonna be buybacks in the future or not, I cannot tell you specifically now. Today we got the space to do both our M&A and then buybacks together with the dividend. Not much more I can tell you. I mean, that's a board decision, obviously.
Yeah. I know. Okay, thank you very much. That's all for me.
Thank you, Daniel.
Thank you. Your next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.
Yes. Good morning, Aritz and Christian. I noticed your comment in the report about taking market share in the U.S. Is that a consequence that you now see as you are at the better balance between, say, the business opportunities you have and the employment level you have in your organization?
Not just that. I think the higher service quality that we offer is also appreciated by our customers. It is true that, I mean, during the Q1 , we managed to hire a net 300 people as well, and that will help us to keep growing in the U.S. market.
I remember earlier you said, you indicated that you were basically thinking, saying no to new contracts as you struggle to find the employees to handle extra volumes. Is that a better balance now?
That's better balanced. Yeah, no doubt. No doubt. You can see that by, with the double-digit, organic growth that we're having.
Exactly. and which, I noticed you have a strong, obviously, continued development on the, on the SafePoint side, but, which other parts of the business do you see that you are capturing market share in?
I think, I mean, maybe I wouldn't just name SafePoint as such. It's all the automated solutions. We have recycler business there, we have front office machines as well. That on one side. I see that there's also a huge possibility on the ATM side as well.
I also saw that you found a small acquisition in the international logistics operation in the U.S. How do you see that fitting in?
No, that has integrated really well. I mean, it was a small opportunity. It complements perfectly okay with the international business service offering that we have, and so far so good. Yep.
AIB, what's their specialty?
It's, low-value package, services.
Is this your first venture into that, or is that something you already are doing or in the?
No-
say, in the legacy business?
We've already been doing that in the legacy business, yeah. It's nothing new.
Just to I didn't see it in the notes from the AGM yesterday. Was the bought back shares canceled or are they kept in inventory?
No, they are still kept. They haven't been canceled.
They haven't been canceled. Okay. The 10% mandate was renewed, I guess, so.
Correct. Yeah.
Excellent. Thank you very much, and all the best out there.
Thank you very much, K.J.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. We have a follow-up from Viktor Lindeberg. Please go ahead.
T hank you. Um, I, I'm looking at Europe and, the country mix. Y ou have , probably, quite good support from the growth in Argentina, Chile, and, and Turkey when looking at the segment of Europe, as they probably outpace the group , call it structurally. Um, but, but that I think also maybe begs the question, as these are , CIT markets to, to a larger extent, and, and you're also not very sizable in terms of market position in, Chile, for instance, um, is this dilutive to, to the margin in Europe structurally, when you grow faster in these countries?
No, I think it's stable. I mean, you need to consider that, Argentina and Chile could mean 3% of our total revenue, and that would have been stable.
Okay. They are not growing faster than the group?
Yeah. They are growing faster than the group, but the impact being a 3% of the total revenue is not that much.
Okay. You agree that they have a lower profitability, so maybe in the longer run.
No, no. No, no. It's the same... They have the same profitability as the rest of the countries. They're an average there.
Okay. On the organic development in Europe, it was maybe the last quarter where you have comparabilities from COVID restrictions, so call it in that sense, a bit easy comps in Q1. Yet you have negative organic growth in the U.K. and also in Switzerland, so -4%, -8% from my estimations here. Can you elaborate on why these markets are falling that much behind?
I mean, it's different cases and important to understand here is when you are having those price negotiations with customers, sometimes you could lose certain volumes, especially in customers where you're not making as much profit as you expected. That would be one thing. If we focus a little bit in Switzerland, I mean, there has been an effect in within the international business in the banknote volumes business that we were managing. It's very volatile, and it has gone down a little bit, but nothing glaring, and we expect that to come back again.
Also, Viktor, the assumptions you had there on the negative organic growth, it sounded a little bit high on the high-end sun-side. I think you need to capture the currency movements as well.
Yes, that's adjusted for currency movements, but maybe we have different currencies in our models there. Okay, good point there, Christian. Maybe coming into Loomis Pay then, I was looking at your annual report, and it seems that your gross losses, they expanded in 2022 despite you growing sales. Just to understand the dynamics in the cost of goods sold in that business and also the OpEx, are there meaningful one time or off or investments in the COGS?
What sales level would you need to be at break even on gross profit level? Is that anything you can share with us?
I mean, we short-term, we're not looking at being break even. Again, it's a new business for us. It's a perfect complement for our actual business. What we're focused now is in trying to grow the business. As I said before, I mean, we've got a very good acceptance, not just in the Nordics, but also in Spain. It's a bit early stage still in Spain. We're adapting, and that is something that we will have to do. It's not that we have a final product. Every time we launch in a different country, we need to adapt to that different country, and that has certain costs as well. I don't know. That's all I can tell you about Loomis Pay.
I think that, yeah, I mean, that obviously makes sense on the bottom line. For you to have a business case to start with, you need to find the path to at least having gross profit break even, right? How are you confident in that you actually will at any point-?
I'm.
Earnings. How what trajectory? We're not talking to a point in time more , indicative levels required. If you need to tailor- make the product for each market, how sort of will you become profitable on group at, any point in time?
I'm very, very comfortable with this. I mean, you need to understand that this is just a start-up. We started in the Nordics, mainly Denmark and Sweden, and we need to scale up. That's the opportunity we have with all those different countries where we already have presence in and where cash is still a key component when it comes to payments in those countries. I'm very confident on this. We cannot disclose any numbers on what we're expecting to be break-even points and all that. I can tell you we're very confident, and I fully believe that this is a perfect complement to our service offerings today.
Okay. Maybe more than a technical question. I don't know if this is for Christian, on the COGS, what is in the COGS in Loomis Pay that is sort of not that scalable in the shorter term now that... Is it investments or is it basically, the sharing with the clients in the initial phase of the contracts, or just to understand why COGS are going up much in light of the limited top line growth?
Yeah. I think this is also related to how the structure is like. It's mentioned here that you come from a start-up to a scale-up, that means that your income statement also on the gross margin side will look a little bit different. I think you're partly referring now to the annual report, and I don't have that in front of me now, maybe we can have a look separately, you and I.
Yeah. Yeah, absolutely. I appreciate that. Maybe looking then at your ATM revenue model. Can you just remind us a bit? I think, at least some investors are quite interested in understanding the, dynamics of this, how it works from , service delivery to profit or revenue recognition in your business and just to see how that fits in. Just an update on that.
Sorry, I'm not sure I understood the question?
Yes. To remind us of ATM, how much of a volume-based revenue is there in that business and how much of that is, call it, certain fixed fees, in the contracts or in the service delivery?
It, it's, I think it differs a lot. I mean, the ATM, the ATM business is related to all different kinds, and we have different ways of selling this service. I think if you look into the total ATM concept, we do everything from a full service, we have our own ATMs, to the first one, we have the simplest CIT. If you look into the business as such and look into how we have had it historically, when you look into CIT and CMS, it's relatively, you could say, it's a bigger portion of CIT in ATM compared to SafePoint. But otherwise from that, it's, it differs a lot from the different offering we do to the customers.
Okay. I was just also mindful of that. You call that a recurring revenue, but it seems if it's CIT, it could be quite variable in that sense.
it's not that you cannot... Yeah.
You Viktor, you also need to consider here, what's not CIT, and we're talking about monitoring, those ATMs and forecasting those ATMs. That is recurring revenue.
Yes, that portion of it. Correct. Right. Yeah.
I think it's also there, Viktor, important to have in mind that even if you have a CIT contract in an ATM, you don't change it for tomorrow.
For sure. Yeah. final question from my side is actually, I think you provided a very good chart in the presentation when looking at the longer term development on slide 13. I'm looking at that from the U.S. perspective. there has in the past been a super good correlation in margin development when you've been expanding margins, going into the pandemic the past five, seven, eight years, thanks to , higher value added services and CMS and SafePoint outs growing. Call it a structural improvement in the margin there over a number of years.
Yes, just now, looking where we are on rolling 12 months and also in Q1, it seems that is now decoupling quite a lot when looking at profitability, and also how you sort of outpace on the, on the higher margin business in terms of growth with SafePoint not least. I think that sort of begs the question, how much are you investing in the business, and how much are you taking volume and maybe market share at the expense of margins? Because it's decoupling quite a bit here in recent history here.
Victor, when it comes to margins, I mean, we stick to what we said at the Capital Markets Day, that we will be between an EBITDA margin between 12% and 14%. Now you do need to consider when we're comparing to years before 2019, we didn't have Loomis Pay and the impact that Loomis Pay has in our margins today. We still believe we're committed to achieving that between 12% and 14% there. The rest it's a bit of a mix depending on what you're talking about, where you're talking about. I mean, in the U.S. we might be reducing a little bit our margins to capture more market share.
I think we will continue the same recovery we had in last year, this year as well. Remember last year we started Q1 with hiring a net of 600 new employees, and we committed to increasing those margins throughout the year. I would expect the same this year as well.
Okay. If then that correctly understood that when you sacrifice a bit of margin for growth, it's a double whammy on the return on capital given that the growth is largely coming from more asset heavy services, as SafePoint for instance.
No, I mean, SafePoint in us it's not asset heavy. I mean, we lease those safes. That would not be the case.
It might actually also be the other way around. If you look into our CapEx in recent period of time and also now in Q1, it's lower than our historical average of 6%-8%. That is sort of what we see now. We said it at the Capital Markets Day, that when we can get leasing for SafePoint and A-ATM, it's relatively asset light. You should also see that our return is improving.
Okay. Isn't that captured by IFRS 16, that you actually include leasing in the P&L? Am I misunderstand you?
No, yeah, you include that in that, in that calculation. If you assume that in your DCF as a cash out, that's sort of for your way of calculating the DCF.
Okay, great. Okay. I just see that. I understand, recent years. Okay, thanks. I'll get back in line.
Thank you, Viktor.
Thank you. There are no further questions at this time. I'll now hand back to Aritz Larrea for closing remarks.
Thank you very much. Thank you very much for listening in. All great questions. Take care. Bye-bye.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.