Good morning, everyone, and thank you for joining the first quarter presentation from Loomis. As mentioned, my name is Patrik Andersson. I am the President and CEO of Loomis, and with me here today I have Kristian Ackeby, who is our Chief Financial Officer, and also Anders Haker, Chief Investor Relations Officer. We start the presentation and turn to next page, which is page two, and the highlights of the quarter. I will go through them here, but also come back to some of the bullet points later in my presentation. We had recent acquisitions. As mentioned before, Ziemann, we acquired the Ziemann company in Germany in January 2019, that gives us a very good presence in the German market. We also recently announced that we are buying Prosegur Cash in France, which turns the French market into actually a two-player market.
The real growth in the quarter was 5%, that is driven by the acquisition we made in Chile Valores, and the France acquisition of the FX company, CPoR. The organic growth was at 2%, we are seeing increased growth in Europe. We also see that the U.S. growth in the quarter was impacted by less workdays, but also restructuring program we have for the international business. I will talk more about that later. Operating margin was 11.3%, and we see that the effects we have from the restructuring programs in Europe is paying off, we also see more coming from those programs in the coming quarters. We see also somewhat negative effect on the business from the Yellow Vests activities in France. We have integration restructure of Loomis International in the U.S., which is actually impacting the result positively. As I said, I come back to that.
Improved EPS by 19% in the quarter, here is also included SEK 33 million capital gain from the sale of the Artcare business, which we do not see as core for Loomis. Operating cash flow was at 31% in the quarter. We turn to next page, which is page number three. Here you see a slide of the operating margin development over the quarters. I just want to highlight that this is actually the best or all-time high quarter in a single Q1 ever in the history of Loomis. I think that is a good picture showing the strength of the business. We have a all-time high quarter with or without the IFRS effects. Let us turn then to next page, which is page number four, and the U.S. business.
We had in the U.S. an organic growth of 2%, that is impacted by less workdays and less invoicing days in the country. We also, as I mentioned, we have restructuring of the international business in the U.S. As some of you remember, we integrated the international business and the domestic business into one, we have decided to take out or stop less profitable international business, mainly in supplying or handling transport and storage of diamonds and jewelry for fairs. These contracts have not been very profitable, that business we have closed down. We have also closed two branches, which are mainly focused on the international business. Having said that, we also see that SafePoint business continues to develop positively. I have a slide on that separately later on. We have actually also then added a recycler concept to our product portfolio.
Recyclers means that it's bigger machines with technology that are focusing on mid and large-sized retailers. These concepts, they are recycling the cash in-store before it's then taken out by us or some of our competitors. It's a more limited opportunity in comparison with SafePoint, but we think it's a very good fit with our business in the U.S., and I would say the interest is on a high level. Let's turn to next page five, and talk about SafePoint. Right now we have about 28,200 installations in the U.S. markets, and the revenue growth was very strong in the quarter, 14%. We had 1,253, to be exact, new installations in the quarter. A very good pace when it comes to installation of SafePoint.
The retention rate continues to be very high, if a customer has chosen this concept, they stick to it. We should also remember that we have now a very big installed base. That means we need to pay much more attention to keep that base, to keep the existing clients. That's why we also mention now the number for the refreshes, so extended contracts during the quarter, 324. That number is hopefully going up quarter by quarter. All in all, a very good SafePoint quarter, and the pipeline of new contracts continues to be very good and to be substantial. Let's turn to next page, which is page six, and talk a bit about the operating margin. As I mentioned before, actually the impact of the restructure of the international business is already somewhat visible in the margin numbers.
I have to say that the margin on this level is, for us, it's a very strong sign of a good business in the U.S. We had a very strong quarter one last year, and now we're topping that, and for me, that's a really good sign. The underlying CIT CMS margins are stable compared to last year, which again, is very good. We continue to focus on branch efficiency and further improvements are expected. We are doing really well on the efficiency side, supported by new software, new technology which is sort of helping the internal efficiency. A very strong margin in the U.S. Let's turn to next page, which is page seven, and talk a bit about Europe.
The real growth in the quarter was 6%, and the acquisitions, as I mentioned, in Chile Valores, and the CPoR Devises business is adding to the real growth. We are integrating these businesses as we speak, and these integrations are going very much according to plan. We also see that organic growth has now taken a big step up. We are growing by 2% in the quarter, and I would say there is good contribution from all countries in Europe, but I'd like to mention some of them. Latin America, so Chile and Argentina, Spain is doing very well, Turkey is doing well, Belgium and Austria. As I said, all countries in Europe are doing really well this quarter.
Operating margin ended at 10.8%. We have positive impact from the restructuring programs that we have finished in France and Sweden. We see very good effects. I think that we will see further effects to be realized in the coming quarters. As I said, we have some negative effects from the Yellow Vests in France, but not as much as we had in Q4. Still, especially on Saturdays, it's difficult to do service in some of the major cities. It's difficult to get to the stores to pick up the cash, and so on. That's not a big problem, but it's a bit disturbing the business. We have efficient programs in many countries, the day-to-day operational efficiency programs, and that's ongoing and working very well.
We see also positive effects on the margin from the acquisition of the French FX business. We are now integrating that business with the French business. We have plans now to expand that FX business also to other countries in Europe, but more about that in a later presentation. Let's turn to next page, which is page number eight, and just have a short look at the statement of income. We see that just two main highlights, the margin 11.3% versus 10.5% last quarter or actually Q1 2018, and earnings per share growing 19% in the quarter. Let's turn to next page, which is page number nine, and just to inform about a capital markets update that we're doing in London, September 5. It's a shorter, more condensed capital markets day, just a couple of hours.
The intention is to give an update on where we stand in terms of how we're doing compared to the financial targets we have until 2021, but also talk about the markets, how they are developing, and talk about how we are developing the business, but also highlighting some new, exciting business possibilities we have in the future. We will send a separate invitation in short. We turn to page number 10, and I say, operator, we are now open up for questions, please.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone keypad and wait for the automated message advising you your line is open. Please clearly state your first and last name before you ask your question. If you wish to cancel your request, please press Star and two. Once again, that is Star and one to ask a question and Star and two to cancel the request. Thank you. We will now take our first question. Please go ahead. Your line is now open.
Hello. It's Emmett Pula from Kepler Cheuvreux. I have a few questions. First on the U.S. organic growth. Could you give us the quantification of the calendar effect and the discontinuation of international business on the organic sales? We can see most of the sales growth has come from SafePoint, but the rest is flat. Just to get a sense of what the underlying trend, that would be helpful. You also talk about the recyclers. What timing should we assume in terms of the impact and also in terms of the model? How should we look at it given the SafePoint is a relatively CapEx-light business here. You have a hardware that can be a bit more costly. There's also probably some cannibalization effect. Just to understand the mechanics of your cash recycling business in the U.S. and the potential impact in the coming quarters.
Last, on the European margin, you considered a typo, which is a fairly high margin, and you mentioned some of the traction in the restructuring in France and Sweden. Could you give us an idea of how high you believe the European margin could end up the year at, please? Thank you.
All right. I'll start. Just come back to the growth, underlying growth in the U.S. We had two effects basically, which I mentioned. Let me just explain that. We have the less working days. That's quite clear what that is. We have the restructuring on the LI business. I think that one part of the LI business is of course, the effect on the bottom line or the top line when you take out contracts, but also it's taken a bit of management attention on that business because we really want to turn that around quickly. One part is the financial impact or the figures and numbers, but also taking a bit of management attention. That's one thing.
I think that we also see in the quarter there was not that many new contracts. SafePoint is fine, but on the CMS side, there were less contracts out on the market. I would expect the underlying growth would be around between 4% and 5%. It's very difficult to judge that, but just to give you a number, between 4% and 5%.
Sorry, just to be clear, that's including SafePoint contribution?
Everything, yeah.
Yeah. Okay.
Everything. Recyclers, we have had a full focus on the SafePoint concept for a long time, but now added, I think a very good recycling concept. I think that we will see the pilots now during a couple of quarters. I think that if there's any effect, it should come by Q3, but mostly Q4. There are actually quite a limited cannibalization because I think that the big retailers, they are not so keen on the SafePoint concept. I mean, the really big ones. They're going for more recycling concept or other concepts. I think that there are limited cannibalization. However, the market potential is also limited. It's not as big as the 400,000 possibility for SafePoints. But I think that that's a good opportunity for us. European margins, I don't want to speculate too much on where we end up.
What I like to say is that we are in a good momentum in Europe when it comes to margin. We will increase margin, and we will come back after a, let me say, a softer 2018. Stop from my side.
Okay. Thank you.
Thank you. We will now take our next question.
Yes, good morning. This is Kalyan Bonavia from DNB Markets. Just looking at the two pending acquisition of Ziemann and Prosegur Cash French operation, how do you see that playing out the competitive authorities, and when do you think it hopefully can be cleared?
When it comes to Ziemann, we have just received information that the competition authorities would like to make a more thorough investigation, which is absolutely according to our plans. That's what we expected because it's a quite big acquisition, and it's changing the market dynamics in Germany. That's exactly according to our plans. I would guess my estimate is somewhere in Q3, we will get some kind of answer from the competition authorities in Germany, but it's going absolutely according to plans. What they will say, it's hard to say, of course, but some kind of reply we will get approximately in Q3. When it comes to Prosegur, it's slightly different because that acquisition doesn't have to be approved by the competition authorities. The thing is there that it needs to be a negotiation or talks with the unions.
I think that will happen in the next month or two. I would expect in summertime, July, August, somewhere around that time, that we will be able to start the integration in France.
When you look at, you basically have completed your own right-sizing of your legacy operation in France. How are your relations with the unions to take this to the next level?
We have very good relations in France. It's not an easy country to make changes, to be honest, we have very good relations with the unions. We have a very good plan. We know exactly what we want to do in France, I shouldn't speculate too much, but I don't see too many obstacles in that respect.
I noticed that you had quite a large working capital tie-up in the quarter. Is there any particulars in there, or is something that will normalize over the year?
I'll hand that over to CFO Kristian here.
We have a timing effect coming partly from very positive in Q4 that we then mention also with the salaries that was paid out in beginning of January rather than late December, related to U.S. and France mainly. That could estimate that to approximately SEK 100 million. You also have an accounts receivable, partly related then of course to that we are growing our business, that you have on a separate line. If we also look in the other working capital, we have an impact from that we have acquired gold actually to our CPoR operation. We believe that is a good business to do. This time it was more beneficial for us to do the hedging without the credit line, so rather with other financial instruments. That's why you get the impact in working capital. That should be seen as a timing effect.
If we look at this over, say, a rolling 12-month period, is there any change to the underlying fundamentals of you having, say, a negative working capital as total in the operation over time?
No significant change. I would not say that we see that. If we look into the cash flow in % of operating EBITDA last 12 months, we are at close to 85%.
Excellent. If you look at also the cash flow statement, how did you see IFRS 16 playing out in those numbers?
Yeah. IFRS 16, we have implemented then of course then from January 1st. You have a positive impact on EBITDA line of SEK 13 million. You have a positive on depreciation of SEK 130. That's also when you adjust for that, you get the relation one to one depreciation CapEx. That then give you the positive impact on the operating activities. You have the negative from financial net included in the minus SEK 43, you have the minus SEK 25, then you have the remaining part in change in interest-bearing debt.
If you take it, the total impact on the cash flow statement is same when you come down to bottom line, it's a question where the items basically turned out.
Yeah. Exactly. Should not have any impact on the cash flow.
Excellent. Patrik, I think I saw you stating that you still see an outlook for SafePoint reaching 5,000 net installs during the year. Is that correct?
Yeah.
The pipeline for that?
No, we spoke to our U.S. colleagues a week ago, something like that, I think they say that there's never been as much activity ever in the SafePoint world in the U.S. as it is right now. I cannot promise anything, of course, but we have good hopes and good plans for 5,000 SafePoints this year. Yes.
Excellent. Just final question for me. Looking at SafePoint Europe, any progress?
Yeah, we're doing progress. Absolutely. We're doing good. We continue on the path that we have discussed. Very good progress in France, actually, Spain, Austria, Switzerland. The mainland Europe is doing quite well on the SafePoint side. We continue to roll it out in all countries as we speak. Also Sweden, actually. Sweden is one of the countries where we do really good on SafePoint. Systembolaget, 7-Eleven, to mention a couple of customers in the Swedish market have installed it. We're doing really well.
Excellent. Thank you very much.
Thank you. We will now take our next question. Please go ahead. Your line is now open.
Yes, hi. This is Carina Almgren from Handelsbanken. Could you maybe tell us what your market share is going to be in France with Prosegur Cash, and how big you would be compared to Brink's?
It's a good question. If you take out CPoR, I think the relationship is like 47 for us and 53, 52 for Brink's. They're slightly bigger. Actually a bit more, I would say. Maybe 46, 54, something like that. If you add in CPoR, okay, the game changes a bit. Still, if you look at the pure CIT CMS, they are somewhat bigger than we are. The main point is that it's going to be a two-player market. Just a year ago or so, it was a four-player market. Both with Themis and Prosegur Cash. I think that it's a good indication for the market that we can expect a more stable market for actually our second biggest market. I think it's positive.
Okay. Sounds good. I don't know if I missed this, could you quantify the calendar impact on the organic growth in the U.S.?
It's very difficult to quantify. What I said is there are two main things that impacted this, international, I said, and the days. Just to give you a number, everybody's asking about the number. As I said, I think that underlying, if you take out these two effects, we will be around between 4% and 5% growth.
Okay. You couldn't even tell us which of these impacts were bigger?
The days impact is bigger, of course. The days impact.
Okay. Great. Thank you. My last question would be regarding SafePoint rollout. You expect to install approximately 5,000 units this year. Do you still think you're able to come up to 10,000 in 2021? Would that be a linear increase, so maybe around 7,500 in 2020, or how do you see your rollouts progressing?
Yeah, that would be the plan. I think that we still have 10,000 installations in our plans, in our heads. I think that to break the 5,000 would be great, a big step, we need to step up big time. I think that what I'd like to say is that there is a good momentum in the market. There are quite a number of bigger contracts out for grab when it comes to SafePoint. The underlying momentum in the market for SafePoint, or a big step change in SafePoint is there. We just need to grab that opportunity. All aspects of getting to 10,000 is there. Yes.
Okay. Do you think you need to make more investments and to scale up your organization even further, like you did last year? Do you think you have the capacity now to reach 10,000?
No, I think we have the capacity. Of course, maybe slight changes when it comes to increases, when it comes to installation people, so service people. That's not the main point. I think that 2019, as I mentioned, we did quite a number of investment into people, into IT, in customer service and things like that. That should be done already.
Okay, great. Thank you. That was all for me.
Thank you. Once again, ladies and gentlemen, if you do wish to ask a question, please press star and one on your telephone keypad and wait for your line to be opened. If you wish to cancel that request, please press star and two. Thank you. We will now take our next question. Please go ahead. Your line is now open. Hello, caller. Your line is now open. Thank you. We will now take our next question.
Anyone here?
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Hi, can you hear me now?
Yeah.
Yeah. Hi, it's Henrik Mosebach from Nordea. Sorry about that. Coming back to organic growth in the U.S., to my understanding, it is related to somewhat weaker client retention rate in the quarter, and I guess that means that you've been less successful in renegotiating than what we've been used to. Can you please elaborate around why retention is weaker? Who are you losing to? Why? Are your price levels too high? What's behind this?
I wouldn't say customer retention is lower. I think that what we have seen is the two effects I'm talking about. Also, we have not seen bigger contracts or mid-size contracts coming into the portfolio. I think that's the big explanation this quarter, and that goes in bumps. This quarter was the feeling from the pipeline was not as good as previous quarters. I think that in a total picture, we're not losing. Always there is a churn in the portfolio, a small churn. You lose some, you win some, that's nothing abnormal from before.
Okay, great. Thank you. Staying in the U.S., even after adjusting for IFRS 16, it seems like the margin improved significantly and surprised me positively. What do we read into that, really? Are you done with strengthening the various parts that you needed strengthening a couple of quarters ago and now ready to let leverage come through again? What was it in the U.S. that drove this kind of strong improvement?
That's a good question. I think that it was actually a bit surprising, to not surprise him. It was a positive for us that the margin was on that level. I think that what we see is that we have now, first of all, we have rolled out the IT system we call Track and Trace, which we have used in many European countries, really tracking all aspects of the CIT, especially the CIT process, but also CMS process. Adding a lot of possibilities to optimize routes, you can optimize the staffing, you can have more control over the supply, and so on and so forth. That's one aspect. I think that also our CEO in the U.S., he's been working in Spain for many years and taking a lot of that knowledge how to drive efficiency into the U.S. operation. There are other explanation as well.
I think that what we can expect also for the future is that we see more efficiency coming through in the U.S. business. What is a bit a contradiction is sometimes when you have a bit less growth, it gives you an opportunity to work more on the efficiency because you don't have to onboard a lot of new volume, new customers. Sometimes it's good to have a bit less growth to be able to improve the margins. That's what you see also a bit in the quarter.
Okay, good answer. One last question from me, please. On the other hand, organic growth in Europe surprised me positively. You mentioned a few markets that have been driving that, like last time, Spain, Turkey, Austria, et cetera. What type of revenues were the main drivers behind that? Is it international operations? I don't know, strong portfolio development, or is it growth in existing contract? Is it SafePoint, CMS? I think you know what I'm getting at.
Yeah. What we see is we have now a very stable platform in many of these countries, which is meaning that we have very good quality, we have good staffing and so on. We're adding new customers, new volumes, both in terms of CI-- it varies a bit by country by country. In some countries, it's CMS, some countries CIT, some it's both, but also SafePoint. All these three elements are actually contributing, but it varies a bit from country to country. You also see that existing customers is giving more volumes to us. You usually have a contract, you split it 50/50 between two suppliers, 60/40 maybe. Over time, those contracts go more and more in our favor. That's what you see.
If you see a country like Spain, for instance, still growing in a very healthy rate in a very mature market. That's, of course, that the economy is doing well, but it's also that we are gaining market share, more retailers outsourcing to us and so on and so forth. That's very positive to see.
Thank you very much.
Thank you. Once again, ladies and gentlemen, that is star and one if you wish to ask a question. We will now take our next question. Please go ahead. Your line is now open.
Yes, hi. Daniel from ABG. Can you hear me?
Yep.
Excellent. Do you expect the underlying U.S. organic growth to remain at these levels or to improve during the year already in 2019?
As I said, I think for us, it's very clear to state that nothing has changed in the U.S. when it comes to the SafePoint potential or the CMS potential. Nothing has changed. We have been growing very healthy over the last couple of years or quarters. One or two, some quarters will be maybe a bit below what we expect, but in the long term, we should be able to grow between 5% and 10%. Nothing has changed in that respect.
Okay, excellent. A question on France. Where are we today in terms of organic growth? Has it flattened out? Is it growing?
It's flat-ish, I would say. We had also some less working days in France, if you take that out, that effect, it's flat, which I think it's a sign that the business is stabilizing. Flat, yeah.
Okay, that's good. Just a final one on CapEx. As a result of some restructuring going on both in Europe and the U.S., do you expect CapEx to sales to differ from the historical average of some 7%? Is that still a valid figure?
We have no significant changes on the CapEx. I think what we will try to do is to, of course, continue to guide you on how much will be related to leasing, so it will be easier for you to follow. We have approximately 6%-7% of sales as depreciation, and CapEx is not an unrealistic number.
Okay, that's great.
Thank you. There are no further questions at this time. Please continue.
All right. Thank you very much for joining the conference call. I wish you all a very nice weekend. Thank you very much.