Earnings Call: Q3 2017

Nov 8, 2017

Welcome to the Q3 presentation from Numis. These are the headlines and the content from the stage and from the web and from the telephone. And during the Q and A, I will invite the CEO of the company, Anders Hocker, to join me here on stage. Operating margin of 13.4%, which is actually the highest margin in the single quarter ever. EPS was at $4.93 91% in the quarter. And also during the quarter, we acquired InterMarketing, which is a Finnish company. I'll talk a bit more about that later. We are very much on our way to hit the financial targets we have for 2017 on above the bracket we have put for 2017. And then as many of you know, we have presented a new strategy or an updated strategy and new financial targets. I'll talk a bit more about that even though it's public. And I come back to many of these points during my presentation today. So in Loomis, we're obsessed with margins. This is one way of showing the margin development. As you can see on a rolling 12 month basis, we're now at 12.1%. And it's actually the first time ever we're above 12% on a rolling 12 basis. And if you compare it to Q2, we were at 11.9 percent when looking at the 12 month rolling. So actually taking quite a step up in terms of margin development. We can look at the margin like this. So here you see the different Q3 during the last couple of years. And as you can see, we take a big jump upwards, 13.4% in the quarter. And as I said, it's the highest margin ever in the quarter. And there are, of course, many factors behind that development. We have then the number of save points, which is generating sales and profit. We have increased of European countries like U. K, but also from the acquisition in Denmark and many more. Let's look at the different segment and start off by United States and looking at the organic growth, which was at 8% lines CIT growing by 5.1 percent CMS 8.1% and SAIP point 20% or 20.1%. So all parts are growing. We are taking market share. We are gaining new contracts and we have a very good momentum in the U. S. Business. And that's very nice to see and very encouraging to see for the future. If you then look at the SafePoint development, we have now year to date installed 21,500 or 600 safes. In the quarter, we installed 9 19 compared to 12 70 the same quarter last year. So it's actually a bit slower. As you can see, the growth is still there coming from SafePoint, so growing 20% as I mentioned. So year to date, we are at 2,555 installed Save Points. And as you can imagine, that's not the pace we need to there's been quite a lot of flooding going on in U. S, in Texas, in Florida, but especially in Puerto Rico. So we have been spending a lot of time of repairing, replacing damaged safes, and that's been the focus. And also on top of that, I mean, the customers are very much focused on sort of getting back getting you back in order and that's they don't want to discuss sort of new contracts, anything like So I expect a good Q4. We have major lots of requests from our customers. So I see this as a short term effect. And long term, we should be moving our way to reach 10,000 a year at a later stage. We have actually refreshed one of the bigger contracts in the U. S. So it's a company called seller sales, which is one of the big independent mobile operator and mobile phone operators in the U. S. And we have refreshed over 500 and over 500 safes. And of course, that's not sort of included in the numbers. But still, that's a sign that the companies, our customers like the concept, they like to continue, and they like to renew their safes. So all in all, I think that we're on a good way to improve SafePoint further. However, 'seventeen will not be up to our plans. Looking at the operating margin. We have, as I said, growth in all our business lines. So there's a lot of efficiency coming from route density, but also that we have been able to digest all the volume we got from the Bank of America contract in Safepoint business. So that's very encouraging to see. We in the quarter, we have a limited impact of the hurricane season in terms of profitability and sales. We have quite a big impact on the SafePoint installations. But we expect that we'll see some kind of effect in Q4. It's a bit early to say. Just to mention that Puerto Rico is actually one of our more important areas. We have $1,000,000 in revenue, U. S. Dollars in revenue each month in Puerto Rico, and it's quite an important safe point area, as I mentioned. So looking at the numbers, I mean, still a lot of households without power. Many bank branches are closed. Running water is still scarce. So there's a lot of repair to be done in the country as such and then, of course, influencing us to some extent. Also like to mention when it comes to United States that we have now a strategy, of course, to grow in the U. S. And we are now in 2018 making quite some investment to capture that growth, to simulate that growth. So we're going to invest even more in salespeople when it comes to SafePoint, so key count salespeople to further drive growth in SafePoint. We're going to update or continue to update the margins in the same pace we have seen today. But it's to be able to handle future growth. So that's on U. S. Also looking at the CMS part of the business, we can see that that's still on a very healthy level, 33%. As I said, CMS grew by 1.8.1% in the quarter. So it's of course, in the sense that we have very nice growth in countries like Turkey, 30% Argentina, 65%. We are growing in the U. K. Actually for the 5th month 5th consecutive month. We had a 10% growth in Portugal, and we're also growing in Spain, a couple of percentage points. So that's very nice to see. Sweden growing due to the note and coin exchange program, which is now actually ends. We're seeing quite some tougher competition in France, also lower prices. So France is actually declining. And of course, that's our 2nd biggest country in Lumi. So that has an effect on the totality, of course. So also what we have said, the underlying volume is declining in the Nordic countries. We've said that many times. There's no change except them for the very nice to see that U. K. Is continuing to improve in terms of profitability. And that's been going on for quite some time. So that's very nice to see. And we also see that the integration of the Danish business, the Belgian business is going very much according to plans. And also capital words on Intermarketing. Intermarketing was a company we bought in the quarter and now we're rolling out that concept to many different Loomis countries around, especially Europe, especially Nordic countries, but also in Europe. And I think that's working very well, and hopefully, we see some good effect. Before, there is still a weak demand in the market in general, especially when it comes to flow of goods coming out in and out of India. And in this quarter, we had a negative growth of 7% versus 2% the same quarter last year. And of course, even though there is very nice profitability or gross margin on these services, if we don't have the volume I mean the fixed costs are there. And then also adding the local U. K. Operation, taking care of risk operations and so on. And the Loomis International people focusing much more on the sales and customer management. And in the U. S, actually we're putting together Loomis International and the part we bought some years ago called LSL, which is also an international business, putting that together in one piece and having that reporting to the regional President in U. S. To get the synergies and scale in place. So a lot of things happening on the structure part within Loomis when it comes to Loomis International. Financials, I think I've been through the most important things. I'd like to just mention that we had a onetime capital gain last year, selling off the general cargo business, which is, of course, affecting the EPS. But correcting for that, we had also, on the margin, doing 12.1%. So that's nice to see when we're ending 'seventeen to 'twenty one. So the new target on the top line is €24,000,000,000 and that should be the plan is that it should be split fifty-fifty. And as I have said many times, if we don't do any major acquisition that's diluting the margins, we should be at 14% by the end of the policy or the plan here. And last but not least, we have now introduced a number of sustainability targets. So syrup work that, as I said, is a new target, which we are quite proud of, 2%. So that's A few questions. First, you mentioned, I think, also more so maybe in the report than your comment here that Europe was helped by the Swedish replacement of cash. And I got the impression when I read the report that you're kind of warning that that period is kind of ending. But my question is really is let that question go to Anders. Yes. You're correct. In the big picture, it did not have a significant impact, but it had an You're correct there. In the big picture, it did not have a significant impact, but it had an impact for Sweden, in particular, during the quarter. Or is that correct? Did I understand correctly or That's correct. Then the other question was on France, where you're suffering from well, two questions on France. As you know, is your view on them. Are they reasonable or are they irrational or competitive? And second question is, obviously, should we expect a large cost for the restructuring measures you take there now? I'll answer the first question and then I'll let Anders answer the second one. I mean, a couple of big tenders coming out and then everybody gets a bit nervous. And we think that we didn't want to go lower on price and that's why we lost a bit of business. So if that's a sort of a rational competitor or not, I don't want to judge that. But there was a price pressure in the market during these tender when 3, 4 tenders are on the table. But now we are focusing very much on sort of rightsizing the French business, but also actually also fine answer the second question. I think we're quite used to the situation in most of the European countries that the contracts come and go. So we're quite quick to adapt to the new situation. So we are prepared in France. So I don't think that it will have a major impact on the margins going forward. So on the cost side, I think we can expect that, that will be quick, but it will have more of an impact on the organic growth in France, obviously. Okay. And then maybe the final question, if you know there's so many countries. But have you any view on what portion is price increase and what portion is volume decline in that number? I think it's we prefer not to comment on that because it's a difficult calculation. But obviously, it's a combination of both, and we have to be very strict in our price increase programs that we need to cover our costs. But to split the revenue piece is just too complicated. So then let's move on to the telephone conference. Operator, do we have any questions on the line? That's the question on SafePoint. In the second quarter, you said you sold, I think it was 2,000 units during the quarter. And I think it was 1,000,000. The installation also due to the fact that customers in general and specifically in these areas I talked about don't want to have any new indications and also delay in customer negotiations. So these are the three things actually affecting the number of sales points installed, new installations. But what was the gross installation in the quarter? I guess you had a negative impact in this space being impacted by the hurricanes. We don't I mean, if you say gross installations, I mean, then you can take into account installations. But obviously, we did a lot of installations, but that's not counted in the number, of course, as we have chosen to measure it. The what's really important and what makes the difference? Thank you. And your next question is coming from the line of Peter Testa. Please go ahead. Hi. Thank you. Just to complete on the safe point in U. S, can you give some sort of sense as to the signing rate and whether you feel outside of Puerto Rico that the U. S. Market has sort of returned to normal in terms of negotiations, installation pace and so on? I think that I expect it to a bit of recovery in Q4, as I said. I think we are not fully up to speed where we want to be in Q3 Q4 either. So I think that there's like customer negotiation, number of how the pipeline looks like, the backlog, etcetera, etcetera. I think that we have a plan to install 10,000 by the end of strategy year during a single year and we stick to that very much. Okay. But I understand you lost time in Q3, but I was wondering whether the run rate did sort of come back closer to normal ex Puerto Rico in Q4? It's more back to normal, but it's not to be better, but not really up to the speed we want to see. But maybe then from Q1 forward, we'll see we get up to normal speed again or the speed we should have. Okay. And then on SafePoint Europe, which wasn't much comment today, I was wondering if you had any views on the pace at which you could start to bring that on in, say, not necessarily this year, but also in 2018, just giving some thoughts as to that, especially related to your comments in France, for example. No. I think that we see a lot of activity in Loomis. We are, as I said, building up the sales force still. Many of the salespeople are now in place. We have solved some issues we had around the provisional credit, selling and installing in some of the countries. France is one example. Spain is one another example where we actually sell and install at decent bits. As always in Europe, a bit of a scattered picture, but we're moving absolutely into the right direction. Okay. And then the last question was just if you had any thoughts on pipeline of new business in North America. Any comments can make on whether that had been affected by hurricane or whether you feel any comments you want to make on the cloud? But nothing that we like to highlight. I think that when things happen like the hurricane, I mean, the one being affected immediately is the SafePoint business. When it comes to CIT, of course, there are a couple of days when the routing starts again. But if you get water into Safepoint, it's really destroyed. You have to change it. So the big impact is really very much on the Safepoint. And we have discussions with a lot of CMS, CIT customers, but Thank you for the answers. Thank you. Your next question is coming from the line of KJ Bonavier. Please go ahead. Yes, good morning. I think you answered all my questions on SafePoint already. So I'll jump to intermarketing instead, and that's obviously adding another type of retail solution to your portfolio. It sounds like you're already in phase for exporting it over your footprint. Or is there a lot of customization or market? Software is needed. But we are very much up and running already. We had a big kickoff with all the sales people in Europe. So I'll but then it's we need to talk to the customers, convince them and so on and so forth. So that will take some time. And some updates when he has a separate company and not integrating that into the local Loomis countries, keeping it as a separate company to keep that sort of creativity entrepreneurship within that company, but up to a good start I would say. And I guess should we It's the same principle as SafePoint. And actually we can combine these two offers in to some customers as well. So it's a good synergy between SafePoint. So it's so it's the same and then you have a contract of several years. We expect also the stickiness to be the same as in SafePoint. So when you go into these solutions, you stay with them. So it's very much sort of comparable to selling SafePoint. And now we're building up that competence within our the growth or the growth in operating margin in North America flattening out at the current level? Or do you see still that net net there will be an expansion opportunity also in the margin even taking on these extra costs? I think within the strategy period, there is definitely an opportunity for a margin expansion. And I still think that 2019, it will not expand as much as it has done historically simply because we will now move more into an investing phase when it comes to future revenue growth. Excellent. Thank you for clarification. We don't seem to have any more questions. Another one from the line of Mike Holm. Please go ahead. Yes. Also just a follow-up on the organic growth in Europe. I mean, I think we were all surprised by you at the latest 3 years. Now, I mean, 1 month later, you come in under that interval you indicated back then. Why that swing back to more of 1% to 3% for the coming years considering that the Nordic markets now are declining and you will not have the deposit? Turkey, for instance, Argentina, Spain will continue to grow. We also so that's one reason that the big countries will continue to grow. I think that Turkey for instance, just to mention that, it's a big country. We can get bigger and there's a lot of underlying growth. So that's one element. The other element is that we will planning to add new services, taking into marketing as one example, that will support the growth. SafePoint is in our Okay. And why wasn't that the case then in Q3? I guess, I mean, Turkey and Argentina was growing nicely, and it's a larger proportion than last year. I mean, it's not sort of a long term structural thing. I think that France will go back come back to 0 or positive 23% as well represents for a longer period. Just looking at an individual quarter is that are particular for each country. So I'm sure there will be certain quarters where there will be 0 growth, but there will also be some And what's rather than given the historical term, but we can leave it there. Just on the U. S. Margin, just a clarification. I mean, you expect basically it to improve by 2. Is that right? Is that how should we communicate? We should not interpret this as flat. We expect I mean, it's the ambition is still to grow the margins on a year by year basis, but more expansion towards the later part of the Okay. Any more questions here from the floor? No. Then I say thank you very much and have a nice day.