Good morning. My name is Patrik Andersson. I am the CEO of Loomis, and today with me here on the call, I have Anders Haker, who is the CFO of Loomis. Welcome to the first quarter presentation. This is the content of today's presentation. We turn to page two. We go through the highlights of the quarter. We look at the different segments. We take you through the financials, and of course, at the end, we have the Q&A session where both myself and Anders will ask any questions you might have. Let's turn to page three, these are the highlights of the quarter. I will come back to many of them during the next couple of slides. Just to summarize, we had a real growth of 8%, which we think is solid and good.
We had an organic growth rate of 3% versus 3% last year. We had a very strong growth in the U.S., we have a bit weaker growth or actually a negative growth in Europe, that is due to the workday impact due to Easter mainly, also some other effects. The operating margin was at 10.5%, if you compare it to last year, it was a bit down, that is due to restructuring costs in France and Sweden, also due to fewer working days. At the end of the P&L, we can see that EPS improved 10% to SEK 4.22 versus SEK 3.85 last year, the operating cash flow was at 57%. We have, in the beginning of the year, done two acquisitions. We talked about that during the Q4 presentations, it is worth mentioning again that we acquired Kötter in Germany.
It is the number three player in the German market. We are very happy to enter one of the biggest cash countries in Europe, of course. We also acquired Sequel, a diamonds and jewelry business, which is based in New York, that is now going to be integrated into our business in the United States. We have also won a new contract in France. We will talk a bit more about that at a later stage, it is encouraging to see that our strategy to offer more value-added products and move up the value chain, as we say, offering more complex products or services with more technology, is working. I turn to page four, where we have a look at the operating margin. As I mentioned before, the operating margin was at 10.5%.
As you can see, we had in 2017 a really big jump in the first quarter from 9.3% to 10.8%. Of course, that is a very high benchmark, we will talk more about the composition of the margin in a couple of slides later here. I turn to page five, looking at the operating margin from a different angle. Here it is the 12-month rolling operating margin, it ended at 12.5, which is 12.1, excuse me, which is exactly the same number as we had when we went out of 2017. I go to page six, here you can see the different segments we are going to talk about: USA, Europe, international. I turn to page seven, talking a bit about organic growth in the U.S., which was very strong, 8%. We had growth in all lines of business.
In CIT, we grew by 4%, in CMS, we grew at 7%, SafePoint, as you can imagine, we had a very strong growth, 18%, and that's then adding up to 8% in total. SafePoint accounting now for 13% of the total revenue, up 1 percentage point versus same quarter last year. We are increasing volumes and market share. We see that we are winning smaller and more mid-sized customers and contracts. That's helping us also on the profitability side because it's quite easy to assimilate that volume into our existing branches, and it's not sort of disturbing the efficiency of the branches that much that bigger contract is doing. We're also gaining volume from existing customers where we today have a split contract with one of our competitors, and we see that some of that volume is coming to us.
We also have a strong pipeline of new potential customers that we're negotiating with. On the top-line side, a very good quarter in the U.S. If we then turn to page number eight and looking at the SafePoint sales. SafePoint sales, as I mentioned, we are now at 23,655 SafePoints installed. Again, let me be really clear on this. What we measure is the new net installed or net installed SafePoints. We had 880 new installed in the quarter, that's a bit lower than the run rate we want to have. On the other hand, we had 855 refreshed or extended contracts where we have an existing customer which is having the concept.
They have had it for some years, they want to sort of extend and continue with the contract, which in itself is a very good thing because that proves the efficiency and the stickiness, if you like, of the concept. What we're doing right now is we are expanding or extending the sales organization in all aspects to be able to continue to push SafePoint in the U.S. We have a very strong pipeline of new customers and the customers we are negotiating with. We have good hopes for 2018. We are now over 2,700 customers and more than 200 provisional credit banks. We are now gaining even more momentum on the U.S. market when it comes to SafePoint. I turn to page nine, looking at the margin. Margin was then up to 14% in the quarter, up from 12.6%.
We have, of course, increased share of high-margin services. We are doing more SafePoint, more CMS, that in itself is of course pushing the margin. Also we have economies of scale due to higher volumes in CMS and more SafePoint units, of course. Also improved efficiency when it comes to CIT, higher density, better efficiency when it comes to routing and so on. Also we have a continued focus on branch efficiency, we see that many of our large branches are improving their profitability due to the facts that I mentioned before, the better mix, but also the higher volume. Many of our U.S. branches are performing on a very high level. We are continuing to increase investments into facilities, into IT, to be able to continue to grow and to handle higher volumes also in the future.
I'll turn to page 10, just looking at one of the points I just mentioned, that CMS volumes are increasing, and as a percentage of the total, it's now up to 33%. You can see that the trend has been growing since 2008, actually. This is very encouraging to see, of course. I turn to page 11. Talking about Europe, we had organic growth of minus 1% versus plus 1% last quarter. We see that many of our European countries are performing very well when it comes to the top line. We have Spain, which is growing despite having less working days. Portugal is also growing 7%. Turkey is growing 26%. Argentina is growing 57%. Actually now we can add Austria to one of the countries growing more than 5% in the quarter.
I would also like to mention U.K., which is, even though on a lower level, continue to grow. Many of the European countries are growing at a good speed. We have also positive developments when it comes to SafePoint in Europe. We are selling more and more SafePoints. We have been careful with mentioning the number, but we have especially positive development in France and Spain, where the concept is now gaining momentum. That's very much in line with the strategy to really push SafePoint also in Europe. We had a negative workday impact as we have less invoicing days, and that is especially when it comes to big countries like France, but also other European countries having a negative impact. In France, we had lower volumes due to the contract losses. I've been talking about that a lot during the last calls or quarters.
We are now working a lot with, of course, to meet that challenge, and we're doing a lot of progress. Also, when it comes to Sweden, we have lower volumes, and that's because we had last year the note and coin exchange program, which we are now meeting. Of course, that creates a big jump down when it comes to the revenue in Sweden. The operating margin was at 9.6% versus 11.4%. Again, as I mentioned, the negative workday impact is of course then also impacting the margin and the profitability. We have quite substantial restructuring programs in France and in Sweden. Just to give you a couple of numbers, we are reducing the workforce in France with 150 FTEs. We are reducing the workforce in Sweden with 140, and we are a good way through those programs as we speak.
We think that by the end of the summer, by the end of Q2, we should be regaining momentum from those programs. If you adjust for the workday impact, restructuring cost, and also the acquisition in Germany which is then diluting the margins, at least right now, the margin in Europe is in line with last year. If we turn to page 12 and look at the international business, the organic growth was 0% versus plus 2% last year. We see that at least the markets for cross-border transport, the forwarding business, is more stabilized now than it was during 2017. We also see a positive trend for the storage business. We stored gold and other valuables for our customers, and we see that is now picking up again.
I'm happy to say that the operating margin was improving in the quarter to 7.7% versus 4.6% the same quarter last year. The improvement is really driven by the storage business. Also we have a better mix when it comes to shipments of forwarding business in general. The better margin, better deals with the forwarded businesses we're doing. Also we have worked a lot with the costs when it comes to international, we see also the effect of better cost management. We have a number of integration projects as we have mentioned before in the U.K. and U.S., and they are going according to plan where we really combined international business in the local Loomis operations and we're really happy to see that is working out fine.
We also have a lot of activities when it comes to the D&J business which we are now pushing a lot especially when it comes to United States. I turn to page 13, we are looking at the financials, I turn to page 14 directly. Here you see the P&L basically, just wanted to mention two parts of that revenue of SEK 4,486,000,000 and a real growth of 8%. That is important for us as we have now a target to reach SEK 24 billion by 2021. We have also to grow inorganically so that for me at least a good and encouraging number to see that the total business is growing. Finally at the bottom we see that the EPS is growing at 10%. Those are the things worth mentioning when it comes to the P&L.
That's basically it for me and I leave it to Q&A. Operator do we have any questions on the line?
Yes. For the participants over the phone line, if you wish to ask a question please press star one on your telephone and wait for your name to be announced. To cancel your request, you may press the hash key. We've got the questions here. The first one is from the line of Aymeric Poulain. Please ask your question.
Yes, good morning. Thank you for taking my questions. There are four questions, if I may. The first one is on the margin uplift in the U.S., very strong display in the first quarter. How sustainable do you think this progression is, especially given some of the investments you mentioned on the sales and marketing side? That's the first question. Also on the SafePoint, you said there was a bit of slower pace of installation in the last few quarters. Could you reiterate your plan for 2018 in terms of the run rate of this investment and also in terms of the CapEx spend that it involves.
On the U.S. again, G4S obviously has given some color on the impact of some of their CASH 360 cash recyclers in terms of savings for some of their key customers. I wondered if some of these big box retailers are adopting this machine, how impactful it could be for your CIT business going forward in the U.S. Last but not least on the European side, you mentioned a number of factors impacting the margin and the organic growth. You did not quantify them, so could you provide a more clear quantification of the calendar effect and all the other moving parts affecting the European margin please?
Okay. I'll start off. How sustainable is the U.S. margin? To be totally frank with you, what they have performed during the first quarter is a bit above our expectation. The underlying business in the U.S. is stronger than we anticipated to put it like that. I have said before that we should see not as much margin expansion in the U.S. as we've seen previously. It's a bit too early to change that right now, our take is that the underlying business for Loomis in the U.S. is stronger than we anticipated. Let me just put it like that. The other point is SafePoints. We still are of the opinion that we can make 5,000 SafePoints this year, net new installations. We haven't changed that.
We have a very strong pipeline of customers now that needs to be contract signed and everything, we still think that target is doable. I'll leave it to Anders to talk about the CapEx in a short while. Just to mention the recyclers and the 360, you're right, there is a demand for these type of recyclers in the U.S. market and we have of course seen that, so we are actually launching our own recycling concept by the end of this year to follow our customers, to meet the needs of our customers. I think that is a natural part to extend our offering when it comes to intelligent machines from SafePoint to recyclers. We should know that the customers for recyclers are a bit different. It's bigger retailers, which have a certain amount of cash.
It's a slightly different customer profile than the SafePoint customers. I'll leave the CapEx question and the EU margin question to Anders, who will answer that.
Yeah. Okay. Thank you, Patrik. When it comes to the SafePoints and the CapEx program in the U.S., it will not have a significant impact on our cash flow since most of the new SafePoints in the U.S. are leased, we are on a leasing program, it does not have an impact on the cash flow. I'm not saying that all of them are leased, but the clear majority are leased. When it comes to the drop of the European margins, we're not going into the details exactly of the restructuring programs and how much they cost. What we want to communicate is really that the underlying business in Europe is progressing according to plan and is at least on the same level as last year or even better.
That means that you basically need to back out France and Sweden and as well the less working days in Europe. Also what Patrik mentioned when he went through the slides, that acquisition we made in Germany is margin dilutive, that has an impact as well. Underlying is still around 11.4% for the first quarter.
Given the fact the calendar effects, for example, will reverse in Q2, you don't provide any color on the reversal effect that we may have to expect for Q2?
No, we don't do that, but it's going to help the margins, of course, in Q2.
Okay, thank you.
The next question, it's from the line of Michael Holm. Please ask your question.
Yes, hello. First, a question on the U.S. Back on the Capital Markets Day last year, you showed a slide that basically pick-up rates, inflation-adjusted was moving upwards. Could you comment a bit about this further in terms of price increases? Is that a main driver of the margin uplift currently?
Anders, take it.
We are working very strongly with having efficient price increase programs in the U.S., it's related to that we believe that if we can deliver good quality and keep the customers happy, they will as well be willing to pay premium prices for our services. That's, of course, part of the organic growth, we will not go into the details exactly how much that is contributing. We need to as well to cover up the underlying wage inflation which we currently have in the U.S., and I think we're doing a fine job there. We are protecting the margin and actually boosting the margins by increasing quality and thereby increasing the prices as well.
Could you say something about the dynamics on when this is happening? Is it normal that it happens in the beginning of the year that you raise the annual price, or is it more customer by customer?
No, it's on an annual basis, Michael, it happens usually 1st of January each year.
Okay.
For all the customers. That's a general rule of thumb.
Okay. I guess it's fair to assume that you will have a quite nice tailwind for the coming three quarters from this price increase system.
Yeah, that will continue.
Okay.
You should bear and just to add some more flavor on that in the U.S. it works on the wage inflation that when you have annual increases, it's on a contract-by-contract basis. That's not always correlated to the 1st of January, which is the case in other countries, for instance.
Okay. Just a clarification on Europe, the restructuring that you have done in Sweden and France over the latest two quarters, are they now finalized?
Not yet. As I said, we are about 75%-80% through those programs. We have some more to be done during the next couple of months when it comes to reducing the workforce at least. In Sweden also, we have announced that we're going to close down a number of branches, and that's been announced, but it's also going to take place. There are several activities, and we're 75%-80% through that, I would say.
Okay. Thank you.
Thank you. The next question, it is from the line of Daniel Thornton. You may ask your question.
Yes. Thanks. I can start off with two questions regarding the market share gains in the U.S. Is that mainly from Brinks or any smaller competitors leaving the market? Secondly, Yeah, you can talk first.
I will take that. I have a short memory, so it is better I take it one by one. No. When it comes to market share, it is quite clear that we are taking market shares from our biggest competitor, G4S and Brinks. That is at least our opinion of it. That is what we see. Those are the two main competitors we are taking market shares from.
Okay, that is fine. Then the Swedish situation. Did you say reducing 140 people in Sweden?
Yes, I did. I'll give you the exact number.
Yeah.
In the-
That is around 20% of total employees in Sweden. Is that the range you expect volumes to decline roughly in the coming two years? Or can this be margin-enhancing if volumes hold up better?
That's a good question. I think that short-term, there are two aspects. One aspect is that we are reducing to meet just the difference now in volume versus when we have the note and coin exchange program. The other element of that is that we see through our European colleagues in the center of excellence and also benchmarking the Swedish business, that we can improve even further. I think that we should keep our margins in Sweden, or even, as you say, increase the margins in Sweden.
Okay. That's a good answer. Regarding the French situation, Brinks, they commented that they targeted 12% margin in France already in 2019. Is that even possible given what you thought about their pricing last summer? Did you miss something in the procurement process?
I should be very careful to comment on their plans and activities. I just can say that France is a tough market when it comes to competition, but also in terms of to restructure the business with strong unions, et cetera. I think that we have been quite successful in the last couple of years to be able to handle that. I don't want to comment on the Brinks plans and activities, no.
Okay, a final one regarding SafePoint, the 880 net installment in the quarter. How was that during the quarter? How was March and end of March?
I think that it was quite even over the months, I would say, in the quarter. Just looking through my memory here, that's what I see at least. It was quite even over the quarter.
Okay. Thank you very much.
Thank you once again. To ask a question, you may press star one on your telephone. The next question, it is from the line of Karina Almgren. You may ask your question.
Yes. Hi, can you hear me?
Yes.
Yes, just a clarification. You are writing in the report that the margin in Europe would have been flat year-on-year, excluding the calendar effect, acquisitions and extraordinary items. Are you referring to the restructuring in France and Sweden when you say extraordinary items?
Yes. Correct.
Okay. Then a couple of more questions. What was the oil price increase impact on the organic growth in the U.S., also, how do you see that the margins are going to be for recyclers when you start to provide them?
The fuel price impact on the organic growth was less than 1%.
Okay.
It was positive. When it comes to the recyclers, we believe in that concept strongly, that long-term, we should be up to the same margins as we have on the SafePoint.
Okay.
In the U.S., this is a new product for us. I think it will take some time to get full efficiency in how we work with the machines and how we can build it into our current structure. Long-term, it's no different from the SafePoint.
Okay, great. Thank you.
Thank you. The next question is from Henrik Moby. Please ask your question.
Hi. Good morning. Thank you for taking my questions. Just a clarification on the restructuring. You mentioned 140 people being laid off in Sweden. Was that in Q2 alone, or was that what is planned for the overall or throughout the program?
It was for the total program. That will be ended during Q2. That's the total program for the restructuring in Sweden.
Okay. Just coming back to this restructuring program at all, when you take the decision to go ahead with it, aren't you supposed to provision for all of that and take the margin impact immediately in that quarter? If you now have decided to, or you know that you've done 75%-80% of the restructuring and some of that will happen in real life in the third quarter, or in the second quarter, but you know that it will happen. Didn't that impact the margin already in this quarter then?
No, I mean, the accounting rules here is that you can only provide for it when you have a definitive and signed agreement with the workforce. As we do on this on a gradual basis, it's not happening on a specific date. It's a program that goes on for quite some time. You basically make agreements with each individual.
Okay.
When you sign that agreement, that's basically when you provide for the cost.
Understood. Thank you. A couple of more questions from my side, please. As you state, you're winning market shares from competitors in the U.S., and that is despite these price hikes. To me, it sounds like an indication that you're still very competitively priced. Would you say that these market share gains combined with price hikes gives you further confidence to continue to raise prices further going forward?
There are two components of the price. One is, of course, to forward wage inflation to our customers. That's one part. Of course, we like to take a bit more if we can, but that's based on quality. I think that the key factor is the type of quality or the high quality we provide, that makes it possible to increase prices a bit beyond wage inflation. I think that our quality is really good, so I think that we can continue to increase prices beyond the wage inflation. Yes.
Okay, thank you. If you look at your gearing now is approaching levels that are very low from an historical perspective. During the year, at least on my estimates, you'll be coming down to pretty much all-time lows. Two questions on the back of that. Firstly, how's the pipeline on M&A developing? What are your expectations for the coming quarters and years? Secondly, you've been keeping a fairly consistent payout ratio around 50% of EPS, but you're allowed to go up to 60 according to your financial targets. How should we view dividend or the potential for share buybacks going forward?
Just to start with the last part, we are not planning to have any share buybacks. We're not planning to have any extra dividend. If we move up to 60, that remains to be seen. I don't have any view on that right now. The main point is that we want to use that war chest, if you want, to buy companies. We are working very much with that. We have made some acquisitions. We actually made acquisitions for SEK 600 million since we announced the strategy on the Capital Markets Day. We are continuing to work with a number of cases, and the pipeline has actually been increasing when it comes to interesting targets. I'm confident that we will reach the target for M&A, which we have set to SEK 3.5 billion by 2021.
That money is going to be used for that, nothing else really.
Okay. Thank you.
Thank you. The line of Michael Holm wishes to ask a question again. Your line is now open.
No, Henrik asked my final question, so that's fine.
Okay, there are no further questions at this time, sir. Please continue.
Okay. Thank you very much for listening in. I wish you all a great day and a nice weekend. Thank you very much.
Thank you. That concludes our conference for today. You may all disconnect. Thanks all for participating.