Good morning, everybody, and welcome to the second quarter presentation of Loomis. My name is Patrik Andersson, and I am the new CEO since beginning of May. Today, we are going to talk about these points. We are going to go through the highlights of Q2 2016, of course. We are going to look more in detail into the segments, the financials, of course, and there is a possibility to ask questions. We look at the quarter 2 2016, we had organic growth of 6% versus 1% in the same quarter last year. We had the highest organic growth since the IPO in 2008. We had very encouraging growth in all segments, especially then to mention United States with a growth of 13%, which is impressive, of course. We have continued positive development in several countries, Spain, for instance, Turkey, and Argentina.
When it comes to the operating margin, we had a margin of 10.7%, which is 0.6% better than the same quarter last year. We had margin improvements in all segments, and we had increased revenue from especially CMS and SafePoint in the United States. As always, we work on the efficiency, and we see that giving results in the different areas of the business. EPS improved by 21% to SEK 3.81 versus SEK 3.14 in the same quarter. We also divested the general cargo piece of our international business on July 1st. I will come back to several of these points during the presentation. Two slides first on the margin, this slide is showing the operating margin development in Q2 in the single quarter since 2009. As you can see, in Q2 2016, we had the highest margin in a Q2 ever.
We should mention, or I should mention on this slide that in Q2 2015, we had a ramp-up of the Bank of America volumes in the United States, which of course, had an influence on that margin that year. We look at the margin development in a different way, and here we are showing the rolling 12 months development of the operating margin, and that is measured by the end of Q2 every year. We see that it has been a steady and growing margin development year by year. This is very much according to the plan and to the strategy we have set out some years ago.
We look at the more underlying parts of the business, we can see that when we are looking at the branches and the development of the branches, this is very important for us that we improve the efficiency of the branches. We have about 400 branches in Loomis or more than 400 branches, and I would say that these are very much in the center of the company. If you are a branch manager, you have a huge responsibility for your branch and for the profitability. We are measuring performance on a regular basis when it comes to the branches. We also very much incentivize the people working in the branches and other people, of course as well, when it comes to the performance of the branches.
As you can see from this slide, we had actually the highest number of performing branches since the IPO in 2008. We had only 12% non-performing branches and 88% performing branches. I expect this to continue as Q3 and Q4 actually are best quarters when it comes to efficiency. Especially here, we can see that branches in the U.S., in the U.K., and France have improved during this quarter. If we then turn into the different segments, let's start with Europe. We can conclude that we had an organic growth of 1%, which is about the same level as we had last year. There is a good development in, for instance, Spain, which is back on a growth track after some years of non-growth. Some factors behind this is, of course, the macroeconomic situation in Spain is improving.
We are taking retail customer contracts, and we're also developing SafePoint in a very positive way in Spain. Another country which I like to mention is, of course, Turkey. Turkey is growing very fast. More than 50%. I think it was 55% in the quarter. We are continuously picking up new contracts in Turkey. Just a few comments on Turkey as it's been in the headlines during the last couple of weeks, is that our operation in Turkey is working as always. There's no impact, basically, on the operation, nor the one we're having internally Turkey or the international one, so transport going in and out of Turkey. This state of emergency that's running right now, it's not impacting us at all, actually. We actually saw a demand for cash increasing in the beginning of this coup attempt.
Now, when it comes to long-term perspective, I don't dare to speculate how that is. We are monitoring that, of course, on a regular basis. When it comes to the Nordic countries, we had, as we have reported before, a slight negative development of the volume. Here we are working very hard on getting the efficiency in place when it comes to efficiency in terms of routes, but other aspects as well. When it comes to SafePoint in Europe, we're seeing more and more interest and demand from our customers through Europe. I would say that this is very much close to my heart, that we're going to develop this business even further. We see now good development in countries like Spain, France, and Sweden, but here we will put even more emphasis on this in the quarters and the years to come.
We now put up a dedicated project leader, which is working closely with the different countries to develop this business even further. When it comes to the margin, the margin improved by 0.7% to 12.9. Of course, as always, there is a strong focus on efficiency in the European countries. That's been very successful in this quarter. It is also very satisfying to see that U.K. business is improving. Even though we are not at the end, but we see quarter by quarter that the business is picking up. We have better quality when it comes to the operation. We have better service to our clients. We have a better efficiency when it comes to running our branches, et cetera. That's very encouraging to see. As I said, we're not at the end yet. There is more work to be done.
A couple of comments on U.K. when it comes to Brexit. As we have said in the report, our operations in the U.K. is very much a local one, so we're not transporting anything in or out. We have a couple of Swedes there, then the rest is U.K. people. We don't expect or don't see any effect on the Brexit on that right now. When it comes to our international business, which I will talk a bit more about later, it could be that the turmoil around the situation when it comes to trade between Europe and U.K., that could be beneficial. It's too early to say right now, when, as with Turkey, we're monitoring the situation very carefully. When it comes to the U.S., we had a growth of 13% versus 5% in the same quarter last year.
What's encouraging is that all business lines in the U.S. are growing. CMS, CIT, and SafePoint. As I said, we took over several contracts this time last year, and we're fine-tuning that volume, getting more efficiency out of that, which is also behind the margin improvement. SafePoint is continuing to develop in a positive direction. We had a growth of over 22% in the quarter, but also the CIT business is growing about 7%. Operating margin increased by 1% to 11.2%. Of course, as you understand, the increased share of CMS and SafePoint is driving that margin expansion. Also the work on the cost control and the efficiency, of course. With this growth rate we have in the U.S., the challenge is very much to hire and train people.
That's our biggest headache right now, to get the right people on board and to train them in a proper way. When it comes to the CMS share in the U.S., there is no surprise that it's growing, and it's now on a 34% level. As I said, it's helping us to expand the margins, and this will continue, as I expect. Some words around SafePoint in the U.S. We have now, in this quarter, installed about 1,300 safes. They are installed, not sold, or both sold and installed in the quarter. We have now a total of 17,200 safes and more than 2,000 customers and 170 provisional credit banks. We have a pipeline of customers we are working on a regular basis, and we expect them to sell about 5,000 safes a year in the U.S.
There are, as communicated earlier, about 300,000 points which are suitable to have a SafePoint. There is much more work to be done, of course, on this, which is very encouraging. As we see it, we are now selling the majority of the safes in the U.S. market. International. Just a couple of words on the international business. This is a somewhat different business from the rest. It's impacted by politics, by macroeconomic events, of course, and also stock exchange movements, for instance. That has both a negative and a positive, sometimes a very positive impact on the business. As the word says international, it goes very much across country lines and border lines. Here the thing is that we are working very much on getting this synchronization between the local business and the international working.
We have made a lot of progress, but there's some work still to be done. If you look at that business, we saw actually, in the quarter, a higher demand for transports of notes and precious metals. For instance, that gold was taken from Asia back to U.K. U.K. is acting as clearing house or the banks, or the central bank is acting as a clearing house for gold. We also saw some very much activity around the pre-Brexit when it comes to wholesale sales of notes, for instance. These kind of events is impacting the business. We see, however, that the demand for gold deliveries to India is still on a lower level due to the import taxes that is impacting the business. The higher volume in this business increased the margin to 5.5% in the quarter.
As some of you at least have read, we have now divested the general cargo piece of the international business on July 1. Apart from making a one-off positive of CHF 9 million, I think that this is now giving us even better opportunity to work on the interface between the local countries international and focusing on what we really want to develop, which is the storage and transportation of precious metals, art, and notes. We have now even more time to work on that, and that the one-off positive will be reported in Q3. Statement of income. I've been through many of the points, but just to highlight that we had organic growth in the quarter of 6%. We had a margin of 10.7%, and the earnings per share increased by 21% to SEK 3.81. In 2014, four financial targets were communicated internally and externally.
These you see on the slide, which is then the revenue, which should increase to SEK 17 billion by 2017. The EBIT margin or the EBITA margin should be between 10%-12% during the period, and the debt gearing should be maximum three times, and the dividend should be between 40%-60% of net income. These targets have been very much sort of in the center of the company, both on a daily basis, but also on a quarterly and a yearly basis, and many people have worked along these targets. My task is, of course, to deliver on these targets until end of 2017. Now we will start a process to develop an updated strategy and new financial targets beyond then 2017. That work will start immediately after the summer.
I expect to be able to have a capital markets day somewhere mid-second half 2017. By that slide and by that information, I hand over to questions, and maybe we should start with some questions from the floor.
Hi there, Staffan Åberg from Handelsbanken. First question on disposing the general cargo operation. Were there any cost synergies between general cargo and international service? For example, did you split offices or vehicles, et cetera?
There were, of course, some synergies when it comes to the back-office functions and so on and so forth. I cannot go into detail how much that was, of course, but some things were there, and we're now supplying services to the buyer, to Rhenus when it comes to IT, when it comes to accounting and things like that for a period of six months. That will still supply, but after that will end.
On that deal, how much of the 6% organic growth we saw in international service in Q2 was driven by the general cargo operation?
To some extent, a bit was from general cargo. They did better. However, the majority comes from international. Both parts did well.
All right. You consolidated Cardtronics in the beginning of Q3 last year. The European sales should be impacted by the additional sales from that acquisition. In Q2, Cardtronics had sales of SEK 176 million which translates to 2% top-line boost that should come in this quarter. However, looking at your numbers, you had a real growth of 2% and organic growth of 1%. What am I missing here?
I think that if you talk about U.K., it's quite a volatile market right now. Many contracts up for grabs, many contracts renegotiated, that is, of course, impacting the situation. We win some contracts, we lose some contracts. We have to renegotiate the price in some contracts. That's impacting the top line in the U.K.
Okay. I still don't understand how it makes up the 2% real growth. You had a 2% contribution for Cardtronics and a 1% organic growth.
Yeah. Maybe you should fill in, Anders, that is the net of all the contracts and all the deals we have made. That's the way it looks. Anders, do you have any comments on that?
The 1% difference is the acquisition of the Cardtronics retail business. That's acquired growth in Q2 and not organic.
Okay. The total sales for Cardtronics suggest you would have a two percentage points top line boost.
On the?
You had sales of SEK 176 million from Cardtronics.
That's 2%. It only impacted this quarter by 1%.
I'm not sure exactly that I can tie up the number, you could have rounding differences in there, and it's not as easy as one plus one.
Finally, on Europe, excluding Turkey and Argentina, what would you say the organic growth for Europe was?
We don't split it like that, in general terms, you can say that we have very high growth in Turkey and Argentina, as you say. We are quite stable in many of the sort of core European countries, and we have a slight decline in the Nordic countries. That's quite obvious. That's the way it is.
Yeah. Okay, thank you.
Hi, thank you. Henrik Nilsson from Nordea Markets. In the international business or general cargo that you're selling now, is there a different seasonality we should expect going forward now?
I would say, the international business is, as I tried to explain, quite volatile. I think that we have to expect some kind of volatility in the piece we have still left. That was the same with the general cargo piece we sold off, that were quite volatile, impacted by macroeconomic events, art exhibitions and things like that. There is more volatility in that business, yes.
Okay, moving on to the U.S. You had a very solid margin trend there, to be honest, I had expected even more given the past few strong quarters. Is there anything in the numbers here that is weighing on the profitability?
I think that if you're growing at a pace like we are doing, it costs quite a lot to start up new contracts, hiring people, training them. You don't get the efficiency right away. That's what I tried to highlight when I talked about U.S., that is costing something in terms of efficiency and so on.
Staying in the U.S., underlying organic growth of 14%, very strong. It's starting to feel like thin air here. Do you have a backlog to support this kind of high level of growth going forward? Can you guide us here? It's
Talking about U.S., we expect U.S. to grow, of course. At what pace? It's very difficult to say. We don't know if new contracts, when it comes to CMS, will be outsourced. That's one thing. We don't know at what pace we can take contracts from other competitors. You say we'll grow, but at what pace? It's depending on these bigger contracts coming out, how our competitors are doing. That's the best answer I can give you right now.
Thank you.
[Inaudible]. First question on U.K. You sounded cautiously optimistic on the margin development there, and you had a good quarter in U.K. Is it fair to assume these improvements to stay on and be a good delta for the coming quarters?
Our expectation is, of course, that we will continue to develop the U.K. business. We had some ups and downs during the past year, we are a bit cautious, we expect to develop U.K. even further, yes. Are there risks? Yes, there are, of course, but there is more to be done in the U.K. Yeah, there is.
Also a follow-up on the question about the U.S. margin. Historically, previous management has talked about the difference in terms of the mix of the business, CMS and CIT being the main explanation for margins being higher in Europe. Now, looking at trailing 12 months, it's not a major difference in terms of mix, and still the European margins is 150, 160 basis points higher.
Is that related to Cost to grow?
Yeah.
Is that a fair assumption?
Yeah, that's a fair assumption. In Europe, we have had many quarters to fine-tune the volumes, if you understand. That's still in the progress in the U.S., that we sort of take new contracts growing, but it takes some time to get the maximum profitability or the optimal profitability out of that. That's right, yeah.
My final question is regarding M&A. Could you comment on what the pipeline looks like, what you believe is reasonable in what geographies you want to strengthen your position, potential size of any targets, et cetera, your thoughts on that topic?
First of all, of course, there's been a lot of discussions on M&A. It's very high on the agenda, of course, and it's very high on my agenda and everybody's agenda. I think that there are 3 types, or at least 2 types of M&A activities we like to look at very much. It's of course to get into new countries, which have the right setup and so on. We're looking at the Latin America, for instance, can we do more there? Can we look at Asia? We are looking at those geographies where we don't have a base right now. That's one thing. We shouldn't forget that there is also opportunities to make acquisitions in countries where we're present, which we actually can sort of drive efficiency even further because we have an operation and one plus one equals three.
we look at all those aspects. When it comes to M&A, as you know, it takes two to tango. Sometimes there is a bit of emotions involved when it's a family company. It's not that easy always together, but certainly very high on the agenda, yes.
One more. Could we also do a question on the Nordics then?
Yeah.
You mentioned a slight decline, could you just give us your thinking about the price and volume development? I've seen that it seems like you raised prices quite significantly to mitigate the drop in revenues. I guess it's also a risk that you accelerate the volume drops by raising prices too much. What are your thoughts around that?
Yeah, that's a good question. That's what we're discussing all the time, what is the optimal level. At the same time, because it's more expensive for us and then we need to increase prices, there is also a limit to how far you can go, of course. We're very cautious on that balance. I think that we have struck the right balance right now, yeah. I think so.
You don't see an accelerated volume?
I don't see As of right now, as I can see, that is not an issue. There are other issues when it comes to the volume decline and then prices, I would say.
Thank you.
Viktor Lindeberg from Carnegie. Question on the U.S. business and looking at the ATMs in the U.S., there's regulation or mandatory change coming into ATMs that they should be upgraded in October later this year. I guess this mostly goes for the retail part of the ATMs, but it's quite costly. I heard about $3,000 per upgrade, and potentially the retailers are not that eager to do this. Is this something you've heard about? What do you think about this? Should we see this as an incremental negative, perhaps, for the CIT volumes? How important is this ATM CIT for you in the U.S.? Just to understand that.
Yeah. They didn't bring that up. I expect that that's not high on the agenda. Maybe Anders knows more about that, but I don't know. It was not on the meetings with the U.S. team, not on the agenda, so I guess that's not high on their agenda either. That's the only thing I can say. As they see it, there's no major impact, no.
All right. That's clear. Also following up on Henrik's question regarding the growth in the U.S., it's now double-digit, but in light of the Bank of America volumes now being in for basically one year, I guess comps year-over-year would be much more difficult. Going forward for the second half of this year, would it not be quite prudent to assume that this growth rate will slow down dramatically? Just to understand, perhaps this is more of a question for Anders.
Maybe Anders, you have a go at this one.
That's a very correct analysis. It will be hard to defend the growth rates, I would expect, in Q3 and Q4. I still think that we will have good growth in the U.S., the comparables, of course, become much more challenging because those volumes now will be organic and not-
Okay, thanks. Final nitty-gritty question from me. Looking at Turkey now, it's been growing quite nicely. How big of a portion of the European business would you estimate this is?
It's not that big.
Are you talking 5% or?
No, less than 5%.
Okay.
Yeah.
Thanks.
Just a short one from me. Out of the roughly 1,300 SafePoint you installed this quarter, how many of those did you lease?
That's a question for you, Anders, this one.
Less than half.
Any more here from the floor? No. Let's move on to the telephone conference operator. Do we have any questions?
Oh, thank you. Just as a reminder, star one for people on the telephone line to ask a question. There are no questions at this time. Once again, it's star and one if they wish to do so.
No questions?
There are no questions coming through. Please continue.
Okay. Thank you.
A last question on the cost pressure in the U.S. business. You mentioned problems finding the right people.
That's a mitigating factor to grow, but what's the risk of significant wage increases, basically, on the back of this?
As we see it, the U.S. economy, when it comes to labor, is doing quite well. It's, in the sense that it's quite difficult to find people and train them, of course. Then in some states, there it's been implemented as minimum wage levels. What we have to do is, one thing is, of course, to make the operation more efficient, but we have to raise the prices, and that's what we're doing. There's no other way out. We need to raise the prices when it comes to when things like a minimum wage increase. That's what we do. In many other contracts, we have written that. In some contracts, we haven't, so then we have to negotiate that, but there's no way out. No.
A quick follow-up on that. Of the growth rate in the U.S. now of 14%, can you tell us how much of that is just inflation related to raising wages?
Looking at Anders again, the main majority is really underlying growth in CMS, CIT, and SafePoint. There is a bit of an effect, I don't have that number, it's not pumped up by price increases, not at all. It's an underlying business doing well. Yeah.
Thank you.
Thank you. Follow-up from Viktor at Carnegie. Patrik, you've now been with the company for basically one quarter.
Yeah.
Can you share some thoughts on your findings and what you think? If you were to mention, I give you two positives and two negatives, and you don't turn the negative into a positive. What is your findings so far of Loomis as a company, and what you think about this?
I've been traveling around, meeting a lot of people, meeting a lot of customers, and I've been around a lot. I see a very strong operational-driven company when it comes to really focus on your everyday activities, getting the best out of the people, the best out of the business. It's amazing to see, and it's very much KPI-driven, performance-driven culture. It's very much a cost culture, which is incredible. Good management. I met a lot of really good managers, good people. I think that also that we are focused on what we're doing. We're doing this. This is what we do, CMS, CIT, SafePoint, and whatever. That is giving us an edge. We're really a focused company. On the negative side, there is no negative. There are more opportunities.
I think that what I mentioned before, there's more to be done when it comes to international business, get that even stronger. As you saw from the figures, it's pointing in the right direction, of course, but there is a bit more to be done. That's a clear opportunity. Another opportunity is SafePoint in Europe, as I mentioned. We can be better at driving that out, but that's not weaknesses in a sense, but it's more like opportunities, I would say. Yeah.
All right. Thanks.