Loomis AB (publ) (LOOMIS) Earnings Call Transcript

Hello and welcome to the Loomis conference call. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO, Patrik Andersson. Please go ahead with your meeting.

Thank you very much. Good morning, and welcome to this call and the presentation of the new -- our new initiative Loomis Pay. As mentioned, my name is Patrik Andersson, I'm the CEO of the Loomis group. And with me here today, I have Kristian Ackeby, our CFO; Anders Haker, who is responsible for Investor Relations; and also Kristoffer Wadman, who is Chief Marketing Officer for Loomis Pay. I will start with a presentation. And after that, we will have -- we will open up for Q&A. So let's turn to the next slide, which is Slide #2. And despite being hit by the effects of COVID-19 during the second quarter, Loomis is launching Loomis Pay from a position of strength, as I see it at least. Since the IPO was more than 10 years ago, the development speaks for itself when it comes to financial and operational performance, as you can see from this slide. Just to recap, Loomis has a leading position in many countries. We're aiming to be #1 or #2, and we have now over 25,000 employees globally. And it's also worth mentioning that we have approximately 40,000 installed SafePoints globally, which, you will see later, is an important part of the puzzle when launching Loomis Pay. Let's turn to the next slide, Slide #3. Just going back a bit to the Capital Markets Day in 2017, already back at that point in time, we had a clear and transparent view on our strategy. So firstly, the core business, like CIT/CMS, SafePoint and then also transport and storage of valuables is and will build the base for Loomis also going forward. Loomis is and will be investing in the core business. I mean, still Loomis' cash is the foundation of Loomis. Cash is the foundation of Loomis. But secondly, we have now also added other services, what we call adjacent services, like FX, where we have now a company in France, but also business in many other countries. But we also recently signed a deal with an ATM provider in the Nordics. And thereby, we also increased the market potential and the scope for Loomis in the future, also including the margin opportunities. So for those who have seen this model, the further we go northeast in the model, the better we think the margins will be or they will be better. And now actually, we take the third step in this strategy and launching Loomis Pay. This is something that's been on the agenda since back in 2017. I've been talking a lot about during the last couple of years. So it's not about one of these elements, it's about all of these elements. And the starting journey of Loomis Pay was the establishment of the innovation center in Stockholm already in 2018. And the innovation centers spend a lot of time on building knowledge around noncash payments. We know a lot about cash payments and not so much about noncash payments, and what position Loomis should take in this value chain. We later acquired GoAppified, which is a Danish point of purchase company with both hardware and software. I'll come back to that a little bit later. At the same time, we continue to build knowledge and competence. We now have a full management team when -- and all necessary competence in place. And of course, one of the Loomis' strengths is the strong relationship with merchants in all our markets, and we can, with Loomis Pay, offer a unique full-service solution, combining both in cash and digital. Being in Sweden, we should remind ourselves, of course, that cash is the biggest payment method, and more than 70% of all payments in the euros. So below EUR 20, are made in cash. Let's turn also -- and also, finally, cash in circulation is growing both in Europe and the U.S., as I've said many times. And there is -- has never ever been so much cash in the world as it is right now. And cash payments are a vital part of the payment landscape. Let's turn to the next slide, Slide #4. So Loomis Pay will significantly increase the market potential for Loomis. So even though cash is a big and important payment method, the market for noncash payments is worth USD 1 trillion globally, with merchants and forecasted to grow CAGR at 6%. The markets in the Nordics have been early adopter -- adopters, as in many other aspects, when it comes to noncash payments. And the market and the volume is getting close to SEK 4,000 billion, the volume, the total volume of all transactions. 70% of that is in store. However, as everybody knows, e-commerce is growing. We will then focus on the SME segment, which is the small and mid-sized customers as a first step, and this segment in the Nordics is representing 33% of the volume, but 50% of the revenue potential. So careful estimate is that the market potential for a payment facilitator role, focusing on the SME segment, is more than SEK 10 billion in the Nordics. Let's then turn to the next slide, Slide #5. We will then start by launching Loomis Pay in Denmark during Q4 this year, but I'm actually happy to say that we already signed the first customers. We actually have 13 customers already now in the Copenhagen area. And this is the result of some test selling. Of course, before we go live, we do some test selling, and the response has been very positive. One of the reasons actually is the inclusion of the SafePoint concept in all of this. So that's very nice and promising. So we will start in Denmark. And after that, the rest of the Nordic countries, Sweden, Norway and Finland, will follow during 2021. But at the same time, we constantly are optimizing the service and the offering, of course, as we go. And as a next step, the plan is to roll out in further Loomis markets down the road. Within 5 years, Loomis Pay should have a revenue exceeding SEK 3 billion. The margin in this market is high and attractive, and we expect the margins to be above the levels we have for SafePoint. So we are following our strategy and the strategy model, as presented earlier, to add services with higher and higher margins. So let's then turn to next slide, which is actually the -- how we can present Loomis Pay in one sentence. And that is a complete one contract payment solution for merchants, I'll explain a bit more about that in the following slides. So let's turn to the next slide, Slide #7. So what is the problem we want to solve for the merchant, for our customers? Before we decided to launch Loomis Pay, we did a lot of market research to better understand the situation for the merchant. But our offer is also based on the knowledge we have gathered by physically visiting customers on a daily basis. We are out there every day talking to our customers, of course. What is quite clear and what we have understood is that the different payment types are increasing all the time. And there are a number of supplier across the payment landscape that the merchant needs to handle and relate to. And that is to be able to manage payments in-store and on the web. This takes time from the core task of a merchant, that is, of course, to sell -- to meet customers and sell the goods. And this slide, I will not go through all the details, but it gives an overview of the challenges for merchant and the issues that need to be managed. I think you understand the complexity. And this complexity is increasing all the time based on our research. Let's then turn to the next slide, which is Slide #8. And then to handle this complex situation is, of course, costing both time and money. And it's, for sure, impacting both the top and bottom line of the merchants. We know that based on our research. What we've also seen from that research is that SME merchant does always have the necessary knowledge and time to successfully navigate in the payment landscape. We also know that many merchants want to simplify the situation by decreasing complexity and the number of providers, especially when it comes to the number of settlements and contracts. As Loomis is regularly physically present, we will be able to support the merchant with spare part, but also new terminals, for instance, if that is [ good compare ]. We are out there with our trucks and vehicles all the time and can give good support. Let's then turn to next page, Slide #9. So this is, as you could see, the problem that Loomis wants to solve. And this slide, as you have in front of you, is illustrating the position Loomis will take. So we see how it looks today and also what we want to achieve tomorrow. So we will offer one contract, one contact, one settlement, and that is for all the payments, both in-store and then online. And that will offer a lot of positive benefits for the merchants. So let's turn then to next page. And if you start then to -- in the box at the left-hand of the slide, you can see that Loomis Pay is agnostic. So no matter how you choose to pay or which channel you choose to use, Loomis Pay provides full flexibility, all payments. Loomis Pay is the only player that can do this as we are able to handle cash, nobody else is really integrating cash in this solution. As I said, we will also integrate the SafePoint concept in this solution. And that will, of course, what we've seen also from the first reactions, is a very positive thing. Through the acquisition of GoAppified, we will offer state-of-the-art [ front ] and point-of-purchase devices, including software, which all are certified in all possible ways. When it comes to the gateway, we have multiple acquirer solution. We are routing payments to many different certified acquirers. And the solution includes user-friendly interface to provide merchants with transaction insights. Acquiring -- our solution is independent of acquirer and transaction will be routed to the most suitable already set by merchant. We don't want to compete with the banks in this space. And at the end of the process, Loomis Pay will settle and bundle all payments to the merchant's bank account. So this is the setup. Let's turn to next page. And here, you can actually see some photos of the Loomis Pay offering. And the two photos at the bottom of the slide are showing the mobile payment terminal. You have PAX A920 to the left and PAX E800 terminal to the right. And that is then point of sales used at point of sales, either a mobile version to the left or then a more fixed version to the right. And -- sorry, in the upper right-hand corner, you see the e-checkout solution for merchants and upper left, you see the photo from the merchant's own view of the Loomis Pay portal. So here, the merchant can follow all things that are happening with the payments. And here, all transaction can be monitored. So it's very simple and user friendly. All of this is, of course, now in place as we start. Let's then turn to next page, Slide 12. So the question is, of course, then why will Loomis be successful in this new space? One reason is that we have direct contact with 85,000 merchants in Nordics alone. And we meet these customers physically on a regular basis, sometimes many times a week. We have 25,000 employees globally that can support the launch in the field. We have more than 1,000 client-facing employees handling 2.3 million customer interactions per year in the Nordics. Our vehicles can have spare parts in terminals, for instance, so that the service level and the uptime for Loomis Pay can be very high. Finally, Loomis has had a great success with SafePoint, where we now have 40,000 as I mentioned before. And SafePoint has taught us a lot about launching new and complex services, but also that there is an appetite for new technology from Loomis among the customer base. So let's then turn to the next page, slide 13. Loomis Pay has actually been able to attract the necessary competence and experience. On this slide, you see the management team of Loomis. We have earlier announced recruitment of the Managing Director of Kristoffer Labuc, who is coming from Klarna. You see him to the left. He's coming from Klarna, one of the bigger fintech companies in Europe, and he has built the necessary knowledge and leadership to make Loomis Pay a success. However, the rest of the managed team has also extensive experience from payments and fintech from leading companies, as you can see from this slide. On top of that, we have been able to recruit senior sales and marketing people to Loomis Pay, both to the Loomis Pay headquarter in Stockholm, but also out in the Nordic countries. So each country in the Nordics we launch in will have the dedicated sales and marketing organization and resources for Loomis Pay. Let's then turn to the next slide, which is Slide #14. And here, I just want to summarize some of the key points. We will launch in Denmark this year and in the Nordic -- other Nordic countries during 2021. The next country out is actually Sweden. After that, more Loomis countries will follow. And in 5 years, we will [ have ] a turnover of SEK 5 billion with high and nice margins. We will have a positive result by 2023. And we will invest about SEK 100 million per year in product development, marketing, et cetera, during 2020 and up to 2022. And I would say that this is quite a cost-efficient way of building the offering, having looked at other possibilities. So this was my last slide. We are, of course, very excited to be able to present Loomis Pay to all of you. It creates many interesting business opportunities, I think, at least. So thank you for listening, and let's then turn to next page, at the same time as we -- operator, we now open up for Q&A.

[Operator Instructions] Our first question comes from the line of Thomas Graf from Handelsbanken.

Yes. Just if you could bring some -- talk a little bit about the current competition for this. What -- how will it evolve with the likes of Klarna and PayPal and so on? And what will be your role? And what are like current competitors in this?

Yes. I think that one thing is quite clear, that there is no one in the market today that is offering the bundle, all payment methods, including cash. Then there are a number of other players, some, as you mentioned, that are offering to bundle other solutions. And there are a number of players that are offering point of sales equipment. However, again, there is no one taking this position as we know. So that -- I don't know, Kristoffer, if you want to elaborate on that one.

Sure. No. To point it out, Patrik, we will most likely compete with POS and PSP providers. But this is a platform made for integration with other type of services related to the merchant. We believe that we will also be an attractive partner to many players in this landscape.

Okay. And with the 85,000 contacts you have now, when you talk about -- when you talk with them, what are sort of the current setup for them in this regard? They have many, many contracts with different solutions within. Maybe you handle the cash and another one for the online business and so on. So what are the current setup? And what will you -- sort of what current context will you push away with this? If you know what I mean.

No, that's right. I think that -- as I tried to show on one of the slides is that they have many different suppliers, they could be online, it could be point of sale, it could be a different payment method, it could be a lot of players. And we want to go to the merchant and be one point of contact. Then some of these players, of course, we like to push out, but many of them will be part of this ecosystem as well. But we will be the first point of contact for the customers and handle all these relationships for the merchant. That's our proposal.

Okay. And with the acquisition of GoAppified in Denmark then, so what will you be able to use from them now? And what will you need to complement sort of when you can launch the full solution? So what do you have, and what will you need more of?

Okay. So we have the [ acquisition for managing ] cash-related services and hardware in place out at the merchants already. With the POS solutions that we group again with the acquisition of GoAppified, we can strengthen our position further at the point of purchase. So that means that in-store will be able to accept all types of digital payments, both for cards, [ card PINs ] later on account to account and [indiscernible] based payments by means of cards, smartphones, et cetera. And then follow with that, we're also developing in-house, as Patrik mentioned, our own gateway as well as the web checkout. So we take -- strengthen our position at the merchant's frontend by means the acquisition of GoAppified.

And the next question comes from the line of Daniel Thorsson from ABG.

A very enthusiastic presentation, looks very interesting. If I can ask around your current customers, 85,000 you have, do you know if they have similar solutions in place now that you need to replace in terms of POS systems, for example?

Yes. Yes, that's right. I mean some of the -- so why do we have 85,000 customers? I think that it's coming from that -- before the banks signed direct contracts with the -- with these merchants handling the CIT and CMS with us. Now that interface is gone, that's why we have a direct contact to these merchants, which makes Nordics a good place to start, just having said that. I think that some of these customers, they have solutions in place, which are then running out. I mean the contract is expiring, maybe they're unhappy. Maybe they want to have a solution for both cash and other payments. But there could be a number of reasons to change. And I think that even though some of the -- them are in the middle of a contract, there are means to get out of the contracts, if they think that this one, this solution is better.

Okay. I see. And when you say SME as a client, can you give us some sense of what this typical client in terms of number of employees or transaction volumes? Is it a food store? Is it a hairdresser? What type of client would you like to target?

A very valid question. We define it as a merchant with a total revenue round about or tops SEK 15 million a year. That are. That range.

Okay. So SEK 15 million in revenue for their own business that you can address?

Yes. So that is not written in stone, but that's what we will target when we go to market now in Q4 and even 2021.

Yes. And it's covering all kinds of sectors, like restaurant, hairdressers, food retails?

Yes. We have actually -- we are targeting 6 different segments. Restaurants and bars is one. We're looking into convenience stores; we're looking into [ resorts and ] hotels, et cetera; looking into retail and transportation [ could impact ] business; and also health care and professional services, just as hairdressers that you mentioned.

Okay. Excellent. And then another one on the business model here, are you going to sell the product as a software service solution on a monthly subscription? You have, for example, percentage of the value as you see all of that?

It will be a mix of that, depending on what the relation between monthly subscription fee and transaction will vary depending on what type of package the merchant decides to go for, and if possible to tailor-made -- tailor-make this according to segments because it needs.

Okay. Do you think that we [indiscernible] from competitors today? Do they have a mix? Or do they usually have transaction-based? To my knowledge, they usually have transaction-based, but I could be wrong.

Yes, it varies from competitor to competitor. So there are both options will order some charge a large upfront for investments, some use revenue-based models. Some use subscription models. Or...

Okay. Okay. I see. And then finally, on the SEK 3 billion sales target in 5 years, I think I heard a question before, but does it require any more acquisitions? Or do you have the go-to-market -- organization is already in place? You have the cash solution, you have now the POS, and you will develop their own gateway in-house. So no more acquisitions needed to reach the target. Is that true?

No, not to reach this target. However -- so this is assuming what we have already today. However, of course, that we should not exclude that could be some kind of acquisitions to strengthen some areas. But we are good to go to the SEK 3 billion as we speak.

The next question comes from the line of [ Erik Olsen ] from Nordea Markets.

It's [ Erik Olsen ] at Nordea. I had a question. You signed an agreement with Westpay around a year ago for Payment Solutions. And I wonder how that comes into play now and going forward. I think it was a 4-year contract signed then.

Yes. It was -- that's right. That was in the early stage of this, and it was more for the operational business in Sweden and does not have a direct impact on this business case as you see. So it's more towards the Swedish market. It's more towards the Swedish operation. And it was a bit earlier in this respect. So that's not taken into account in this business case.

And the next question comes from the line of Johan Dahl from Danske Bank.

I was wondering, could you talk a little about this SEK 3 billion target that you're looking at? What does that basically mean in terms of customers, actually number of customers, et cetera, and penetration in your current base? Is it possible to talk about that a little bit?

Yes, that we can do that. I mean -- but we are just taking the Nordics as an example so you know the magnitude. Should be successful in Nordic, we assume, and that's not the total business case, but this is part, but just to give you an understanding, is that we will transform 20% of the existing customer base into this solution. So 20% of all the customers we have in the SME segment will be transferred or rather say they would like this -- to have this service. And then a couple of small percentage points from totally new customers. So that's what we have assumed in the business case for Nordics. But then when you go look out in Europe, it's much, much smaller numbers than that. But just to give you a flavor of what we think in the Nordics.

And in terms of -- I heard what you said regarding transaction-based and fee-based. But if you compare the visibility in these contracts compared to SafePoint, for example, what are the main differences? Or how are they similar?

No. I mean, SafePoint is a subscription. In -- I mean, the main thing which -- SafePoint is subscription, so we have a monthly fee, and that covers everything. Here, we have a subscription model, but also based on the volume of the transaction. So it's a bit different than SafePoint.

To what extent will you share revenues with the sort of partners that you've needed to enroll into this offering? And to what extent are revenues sort of ending up entirely [ at Loomis? ]

In this respect, we think that, of course, we want to keep most of the revenues as we provide the service. But of course, I think that everybody is starting to understand fintech. It's more about partnering up. It's more about creating some kind of ecosystem. In that respect, we are very much open to work with other players in in this field. And I think that, of course, there are some direct competitors, but there are many, many, many partners we can have. And we actually have been -- already been talking to a number of them as we speak.

Can you put some numbers to the organizations, Patrik, that will actually sell this, if you look just the -- how it looks today and where you expect this to be in perhaps 12 months' time?

So right now, we have about 50 people in Loomis Pay. Of course, many of them are consultants, working mostly now with the development work of the solution. Of course, it's ready to go, or in a couple of weeks, it's ready to go. But as we now move on, I think that we will strengthen more and more the sales and marketing organization both in the countries and here in Loomis headquarter. I think that one key element is, of course, to be able to, together with Loomis Pay people and the salespeople in Loomis to build up the merchant base. But I assume that we will, in a year or 2 years' time be, around 120 people about in the Loomis Pay organization about.