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Edited Transcript of GUNN.ST earnings conference call or presentation 6-Nov-19 8:30am GMT

Q3 2019 Gunnebo AB Earnings Call

GÖTEBORG Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Gunnebo AB earnings conference call or presentation Wednesday, November 6, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Henrik Lange

Gunnebo AB (publ) - President & CEO

* Susanne Larsson

Gunnebo AB (publ) - Group CFO and Head of Finance & IT

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Gunnebo AB Q3 Report. (Operator Instructions)

Today, I'm pleased to present CEO Henrik Lange. Speakers, please begin.

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Henrik Lange, Gunnebo AB (publ) - President & CEO [2]

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Okay. Ladies and gentlemen, hello and good morning. And today, we released our report for the third quarter 2019. And joining me today are, as usual, Susanne Larsson, our CFO; and Karin Wallström Nordén, SVP, Marketing, IR and Communications. And as this is my last quarterly call as CEO of Gunnebo, my successor, Stefan Syrén, is also present here today. And our quarterly call will, as usual, be done following the sequence of the slides in the presentation available on our website.

So we start talking on the first page then. In the third quarter, we had an all-time high order intake and strong sales of Entrance Control, which boosts the group growth in the quarter. And Entrance Control recorded SEK 500 million in order intake, and the sales are up 25% in the quarter. And looking at the order intake of the 3 quarters this year, we are actually 8% up on the full year of last year. So we have had a very strong order intake, which is also good for the coming quarters for Entrance Control.

The cost efficiency program which we launched is under implementation. I'll come back to that. The newly acquired Cominfo is fully consolidated into the Q3 numbers. And also in the third quarter, which has been a busy quarter, we have completed the rights issue successfully, bringing in SEK 363 million to strengthen our balance sheet. And then also as announced prior, Stefan will take over as CEO after me, and it was announced during November, and it's been decided that he's starting tomorrow. So today is my last day, and tomorrow, Stefan will take over the baton and run with Gunnebo.

If we then turn the page to the order intake. Order intake continued to grow in the third quarter by 11% or 8% in constant currencies or 4% as organic growth since we now have the effect of the announced acquisition as well. So the order intake, as I said, was an all-time high in Entrance Control of SEK 500 million, up 72% from last year, including first quarter of the order intake also from the recently acquired Cominfo. Order intake was also strong in Safe Storage with a 13% reported growth, mainly coming from a strong performance in the quarter in Asia. In Cash Management, that order intake contracted in the quarter by minus 24%, and I'll come back to that on the Cash Management a little bit. And then in Integrated Security, order intake contracted by 15%, and it's contracted in all regions in the quarter.

So what I want to continuously implement in way of working and the experience is good momentum in working with one dimension of business units with improved customer focus as a result.

Looking at the net sales, up 5% year-on-year in the quarter or 3% in constant currencies. Entrance Control then, being the main engine, had a sales growth of 20% -- 25%, or 21% in constant currencies. And so the sales grew then by 5%. And Entrance Control was higher up, 25%. And in Safe Storage, we grew by 8%, mainly due to the sales in Asia as I said. And in Cash Management, sales contracted in the quarter. As for Cash Management, we grew our sales to bank customers. We had a flat development to retail, whereas the sales in the projects through CITs were lower in the quarter. And in Integrated Security, sales grew in the Americas, whereas it's contracted in the other regions.

On the EBITA side then, we posted SEK 92 million EBITA, which is the same amount as we did for quarter 3 last year. And the EBITA margin was just below 7%. It was just above 7% last year, and so a slightly lower EBITA margin due to the product and project mix in the quarter. And really, the challenge that we have ahead of us is the cost issue mainly in Europe and also some certain costs which we are addressing in the cost efficiency program.

And regarding also the cost efficiency program, which we launched in quarter 2, last quarter, and that is progressing as planned. And the program consists of 2 main parts: structural changes due to the change into global business unit structure; and continued downsizing mainly in our European business. And costs will be taken in quarter 4 for the structural changes, and the related savings will have a full effect from year-end. And the continued downsizing in Europe has been mobilized and started to be implemented during the end of the quarter. Full cost of benefit of this part of the program will appear in the coming quarters. All in all, program is running as planned to give the full effect as from the second half of next year, as earlier communicated.

Cominfo then, the newly acquired Entrance Control. We had a top line impact of SEK 40 million in the quarter as it's been fully consolidated into Entrance Control. The profitability is in line with the BU margin. And the integration, progressing as planned. And I see this as a very good addition for Gunnebo, for our Entrance Control business, which will help us grow also in the coming quarters and years.

Now if we turn to the page of the underwritten rights issue of SEK 363 million, successfully completed. So this has been completed according to plan, and this rights issue has been used for the Cominfo acquisition and also to strengthen the balance sheet by reducing the net debt. Susanne will come back to that issue. And this improved financial strength will then pave for the implementation of our strategic plan in the new way of working.

And then on the changes to the group executive team. I've -- previously, it's been announced that I will be replaced by Stefan. But I'm reiterating again, it will be from tomorrow.

And then with the global business unit structure implemented, marketing and communications will be fully managed by the business units as of year-end 2019. And with this, the role of SVP Marketing and Communication will cease to exist, and Karin Wallström Nordén will therefore leave the group executive team at the end of the year and leave Gunnebo at the end of the first quarter next year. Now the investor relation responsibility will become part of the CFO function, and [Isabelle Junge] has been appointed as the IR responsible as from January 1, 2020. And with these changes, the group has changed into a leaner and more focused business unit structure, with a clear plan to deliver across the globe for the coming years, all in line with the strategy of the Gunnebo 2.0. So as from January 1 next year, the group executive team will be: Stefan, heading up the same, as the President and the CEO, in addition to his current responsibility as the business unit responsible for Safe Storage and Integrated Security; Robert Hermans will be Group Executive Vice President and also running the Entrance Control business; Christian Weisser, running the Cash Management business; Christian Carlsson, being responsible for HR; and Susanne Larsson, CFO. One of the -- Susanne will stay in her position, as earlier communicated, until latest March next year, and the replacement process for our new Group CFO is ongoing.

Now to summary of the quarter. As said, strong order intake, 11% up year-on-year, 8% in constant currencies. Net sales also up 5% reported. And EBITA then amounted to SEK 92 million. And we had a margin of just below 7%. And Susanne will go through the results in detail a little bit later.

Looking at the split for business units, we see a shift, if we look back to where we were in quarter 3 2018, Safe Storage is up 2% of the total. Entrance Control is up 2% of the total, whereas Cash Management and Integrated Security has gone down by 2%, for last quarter, of the total. Obviously, healthy margins in the Entrance Control business of 18% and Safe Storage running at about 7%. Cash Management has come down to 4%, but there's a lot of cooking. I'll come back to that. And the Integrated is lower single digit but an improvement from a negative margin at the same time last year.

Going now to Safe Storage, continued to deliver growth in both order intake and sales, mainly due to strong Asia in the quarter and the EBITA result of SEK 37 million and 7% margin, as I said. And I think it's interesting and good that looking back to the last quarters that we've seen a continued growth in this business, which has had -- was not the case before we started working in a focused way with the business unit structure.

And then in the quarter, apart from driving the business, focus has been on the planned cost efficiency measures, which have started, and then also changing the business model to indirect partnership model resulting in the new partnership in the U.K. I'll come back a little bit later on that.

Next on order intake highlights from both Europe, Africa and Asia. And we see this SafeStore Auto, the automated safes that we have, we have done good business in that in Germany and in China. We are working with our channel partners in the U.S. to improve our business with banks. In India, we have got good order intake for ATM safes. South Africa, we're also taking businesses. So a variety of good, new businesses. And then also from a marketing point of view, here, we have signed the partnership as the big highlight with Insafe in the U.K. And as part of the Safe Storage plan for Europe is to go more to an indirect model from selling directly and also find good partners and find partnerships where we can reach out to more customers and utilize our strong brand and portfolio of products in a better way to leverage and also make our fixed cost variable and have a greater partnership. We have background done now in the U.K. So from 1st of November, we signed with Insafe as being one of the major players and distributors of safes in the U.K., which will help us to sort of quickly learn and drive our strategy last quarter, the strategy for Europe of going indirect. And then we participated in various trade shows, et cetera, to improve the business and being seen in the market.

On Cash Management then, we had a weak result caused by the decline in sales in the quarter. Order intake in Americas increased, whereas it decreased in the other regions. And from a sales point of view, as I said, in the quarter, we grew sales to bank customers. We're flat to retailers, whereas the big, the main reason was due sales in the projects through CITs. EBITA was SEK 9 million and 4% margin, and we are addressing the situation, and we're both on the cost side but also developing existing and new partners to improve the performance in the coming quarters. And I feel confident with Christian and the team, there is a lot of interesting prospects that they're cooking that we shall see, that this level of business will improve going forward.

On the order intake point of view, we've taken orders for cash-in-transit companies in The Netherlands. Also the ATM service provider, Geldmaat, like Bankomat in Sweden, we have got the relationship with them and have been the key partner in their rollout. In Australia, we have also got good businesses for our newly released R8 machines but also a major order for other devices to retailers, et cetera. So good potential for the future. And on the marketing side, we have launched this new back-office machine, the R8, and it has been well received by the market. And we're also installing that in not only retailers and other facilities but also as a teller cash recycler within the bank segment. And then we launched other deposit systems under the Gunnebo brand, targeting smaller retail formats. And here, we have launched a lot of new products. We have a dedicated team in place. We have a clear plan of what we will do. And I think there's a lot of interesting potential business in the pipe as well. So I'm confident that the lower performance over the last quarters will also improve going forward.

And then coming to Entrance Control, being the star performer in the quarter. So the order intake, at an all-time high, SEK 500 million. And that, in relation to a turnover of SEK 1 billion, SEK 1.25 billion, is of course a strong order intake. And that also includes a quarter of the newly acquired Cominfo. Sales, also strong in the third quarter, up 25% as I said, and it was good in all regions. And Entrance Control continues to deliver very strong results with SEK 66 million EBITA, up -- 18% margin in the quarter. And of course, with a strong order book, we also feel confident that they will continue at this level for the coming quarters.

Business unit Entrance Control on the order intake. Office buildings, we have major projects won for Egyptian Armed Forces. But also in China, amended our gates to support at-work deliveries on robots, which is becoming increasingly popular. Airport segment, we continue to be successful and take big orders that we have done in U.S. with biometrics, also in China, which is new for us, where we have been more and publicly are doing some metros before. And Entrance Control for airport worldwide, winning many projects. And then in leisure and stadium segment, in Denmark, the largest chain of gyms, Fitness World, ordered our SpeedGates and also a public restroom company in Denmark -- or sorry, in The Netherlands.

And from a marketing highlight point of view, as mentioned, Cominfo is consolidated into the business unit's result as of Q3, adding SEK 40 million sales growth, and the integration of Cominfo is progressing as planned. And then the business unit participated at several trade shows for the airport segment and also has launched a virtual showroom. They have a very large showroom at the center in the U.K., where many customers come to visit, and now they've done a sort of a virtual showroom so that can be displayed for a larger audience.

Turning over to business unit Integrated Security. Order intake was down by 15%, and sales were down by 4%. Sales in the quarter grew in the Americas, whereas it was lower in the other regions. And structural measures and rightsizing continued and has the EBITA improve by SEK 6 million and was positive SEK 5 million in the quarter compared to a negative SEK 1 million last year. And the review of the various assets in Integrated Security is ongoing, as communicated earlier. And we're looking at how we can improve it going forward.

Some order intake highlights. In -- the Central Bank in Oman showed continued trust in Gunnebo and placed orders for electronic security and CCTV to be installed at its branches across the country. In Indonesia, we've taken orders for fire protection systems at their agribusiness. In Spain also, we have taken orders from several large service -- from several of the largest banks in the country for electronic security. And of course, deliveries of the new Gateway antennas, Store Protect ACE, has also been done based on the new launch of the new product. And in Brazil, we continue to upgrade solutions for loss prevention in existing stores as well as establishing new stores across the country where we are the main supplier in Brazil.

And marketing highlights, we have participated in trade shows in Brazil and also done things in other areas. And then the GBS Software-as-a-Service is now in full use by a customer running a large manufacturing plant in Sweden.

Then I hand over to Susanne to go through a little bit more in detail the result for the quarter. Susanne?

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Susanne Larsson, Gunnebo AB (publ) - Group CFO and Head of Finance & IT [3]

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Good morning, everyone.

So as Henrik said, the EBITA for the group amounted to SEK 92 million and was in line with last year. However, this quarter, EBITA includes a loss on associated companies of minus SEK 6 million. We recognized positive effects from volume, structure and currency.

However, this was offset by the overhead cost increase and loss on this associated company. The announced cost efficiency program is addressing the overhead cost of the group.

Amortization of acquisition-related intangible assets amounted to minus 5 lower savings due to the one-off impairment of minus SEK 10 million. IAC costs in the quarter amounted to minus SEK 14 million compared to plus SEK 12 million last year, of which half was related to the cost efficiency program that was in quarter 2. The remaining being finalization of previously initiated structural measures.

Last year included a SEK 21 million gain on the divestment on the noncore monitoring service business in Spain as well as structural charges. EBIT stands at SEK 75 million compared to SEK 88 million last year. If we would adjust for this quarter loss on associated companies and last year's gain on divestment offset by the impairment, the EBIT would have been SEK 81 million this quarter compared to SEK 77 million last quarter 3.

Turning page, we see growth on the EBITA of IAC. And as commented, the EBITA amounted to SEK 92 million for this quarter and last year. The main business difference compared to last year in quarter 3 was derived from an improvement in the Entrance Control, that Henrik talked about, as well as Integrated Security. However, this was offset by the drop in Cash Management.

Looking at year-to-date on a rolling 12, the year-over-year improvements remains in Integrated Security, while Cash Management remained weaker. Entrance Control as you might recall started off the year weaker explaining that it ended up at a similar level as last year. EBIT amounted to SEK 75 million compared to SEK 88 million last year and would have been SEK 81 million compared to SEK 77 million if we exclude the loss of associated company this year and the gain of sale of business net of impairment last year.

If you look at the EBITA bridge, explaining more from a cost component is that the business unit, we can see various effects in the EBITA. The sales growth is contributing with a SEK 35 year-over-year improvement in constant currency, and that had a positive impact in the quarter of SEK 9 million. Structure effect attained SEK 13 million, including effects from implemented productivity measures and the effects of divestments of business in Spain and the U.K. Currency effect was also positive where the translation effect was SEK 6 with SEK 0 transaction effect in the quarter. The negative minus SEK 28 million as we define other is mainly derived from an increased overhead cost base and loss on associated companies. And this is, again, where we're addressing this with a cost efficiency program, the one Henrik talked to earlier this year.

Year-to-date, had a negative EBITA development as well, and the pattern is the same. We have a positive sales growth, implemented productivity measures and currency benefits, however, offset that by overhead costs. That's what we're now addressing.

Turning page -- looking at what comes below the operating profit level now, we can see financial assets increased to minus SEK 17 million in the quarter compared to minus SEK 10 million last year. Year-to-date, the finance has increased to minus SEK 58 million. If you exclude the impact of IFRS 16 lease effect of minus 3 in the quarter, and minus 10 in the year-to-date, the increase is mainly caused by higher interest expense on external financing as well as bank fees. Taxes balances were minus SEK 19 million compared to minus SEK 22 million last year, corresponding to a tax rate of 33%. Year-to-date, the tax cost was minus SEK 55 million compared to minus SEK 65 million last year. The effective tax rate year-to-date was negatively impacted by the old tax case from 2012 that we lost and announced in the previous quarter, and that resulted in an additional SEK 10 million on tax costs. All in all, the net profit for the quarter ended at SEK 39 million, SEK 70 million year-to-date. Earnings per share was 0.50 in the quarter, 0.91 year-to-date. As the rights issue was completed in the very end of September, the weighted average of our shares were not impacted at quarter 3, and hence, the earnings per share has no impact from the rights issue.

Talking about cash flow. While 2018 results exclude discontinued operations that we divested last year, the cash flow still includes both the continuing and discontinued operations. Also to highlight, the net cash flow is not impacted by the IFRS 16 lease adoption. However, the operating cash flow includes an add-back of depreciation of operating lease, by reduced assets, offset by cash flow from financing activities.

So now the operating cash flow in the quarter was SEK 89 million compared to SEK 48 million last year. Year-to-date, it was SEK 125 million compared to SEK 81 million last year. Included in that operating cash flow, we have Other as an item, and that includes interest and other financial items paid, tax paid, pension paid as well as other norms of cash changes where the main change in the quarter is higher finance payments and tax paid and the noncash loss volatility in (inaudible). In the year-to-date number will have a net effect by the adjustment for the noncash profit of (inaudible) imported in our business.

The change in working capital in our continuing operations had a positive development during the quarter. The working capital changes were minus SEK 10 million compared to plus SEK 1 million last year. However, in the plus SEK 1 million last year, we had a discontinued operation effect that represented [31]. The change in working capital year-to-date improved similarly compared to last year if we exclude the discontinued operation.

Investing cash flow reflected an increased level of investment in the quarter compared to last year and included an upgrade investment in the U.S. production. Year-to-date 2019 included SEK [36] million of cash from the sale of a property in Portugal, while year-to-date last year included the proceeds from the sale of the facility in South Africa of SEK [13] million.

Finally, the free cash flow for the quarter ended at SEK 52 million compared to SEK 15 million last year and year-to-date, SEK 73 million compared to minus SEK 9 million last year. And we can see the growth of free cash flow and as just commented is down SEK 52 million for the quarter compared to SEK 15 million last year and year-to-date, SEK 73 million minus SEK 9 million. Quarter 3 was consequently significantly improved compared to the previous quarter 3.

The net debt, including pension liabilities of the group, amounted to close to SEK 2 billion at the quarter end and was decreased by SEK 59 million in the quarter. This decrease of SEK 59 million includes an increase in the pension of SEK 29 million. And that was caused fully by change in this this country's structure.

As you know, we used the last existing credit facilities for the payment of the acquisition of Cominfo in early July. The rights issue was completed successfully in the end of September and the proceeds from the completed new rights issue was used to repay the debt early October 2019. IFRS 16 leasing was implemented at year-end. And added SEK 264 million of financial liabilities on our opening balance sheet, of which SEK [240] million remain the liability of the quarter 3 end. The EBITA rolling 12 was 486, including IFRS 16 and the pro forma full year of Cominfo. The net debt, excluding pensions, divided by EBITA and net leverage improved from 3.4 last quarter to 3.2 at the end of this quarter.

Henrik?

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Henrik Lange, Gunnebo AB (publ) - President & CEO [4]

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Thank you, Susanne, and now coming to the group targets and outcome. As you know, we have 4 targets. And the first is the annual sales growth of 5% and then we had 3% in the quarter and we are at 3% for the full year of 2018. So I think that is a positive that we are growing. And it was even stronger on the order intake side.

Profitability, we made an EBITA margin of 6.7%, and we had 6.5% for the full year last year. And we had EBITA being about 10%, which we have maintained our strategic plan and with the implementation of the new way of working, we believe, over time that we should be able to meet this target.

Net debt-to-EBITDA of below 2.5, and we were at 3.2 at the end of the quarter, and we have strengthened the balance sheet with the rights issue and it's also a target that we should be able to achieve over time. And then the dividend of 30-50% of net profit last year.

Moving over to the financial calendar the quarter 4 report will happen on the 7th of February and then the Q1 and the AGM will be on the same day, which is new for us and that will be on April 21, 2020. And then also just the market that there will be a Meet and Greet with the new President as of tomorrow, Stefan Syrén. And on the 3rd of December 2019 in Stockholm, and there will be invitations you can reply to Karin and if you're interested to meet Stefan and hear his view on Gunnebo going forward.

So then summarizing the third quarter. It's been a quarter with full focus on rolling out our new business structure globally, and I'm satisfied with the new structure we have completed.

We continue to experience a strong order intake with a record in Entrance Control in the quarter, continue to grow our sales in Entrance Control and Safe Storage in the quarter where we grew EBITA as a result. We are happy to include Cominfo in the third quarter, and the integration is running as planned. We see good traction in order intake, and the customer focus as planned with a big shift into Gunnebo 2.0. The rights issue was implemented successfully and has added to strength in our balance sheet with reduced net debt in the quarter. And then (inaudible) around cost divisions have a major effect (inaudible) over the coming quarters.

And I also announced further group management changes leading to a new and leaner management team to be fully implemented by the year-end of 2019. And I am confident that all these changes with the new of way working will generate the profitable growth that we've been wanting to achieve over time. And then as our CEO, I thank you all for your support, and obviously, (inaudible) every success in the future. But before closing the meeting I thank you for calling in and listening and open up for any Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of [Sam Patel] from Carnegie.

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Unidentified Analyst, [2]

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So in terms of order intake, so what is driving that success, really? Are there specific products or even -- can you talk a little bit more about that, please?

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Henrik Lange, Gunnebo AB (publ) - President & CEO [3]

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Yes. The main driver of this, as I've said is on Entrance Control side, which has an all-time high. And as I've talked to you before on both the Entrance Control and on Cash Management is, of course, a project business. We see that we have taken several -- and we've been successful in the airport side over some time now. But in the quarter, we have got some of the big orders entered into the system for -- so that has an effect on the project side. It is not the level where we believe we want to be for going forward. So it's been a good quarter, and we're working on, on many projects and sometimes they land and sometimes they don't land, and this quarter, many on them landed. And on top of that, we have also the effect of Cominfo for this quarter, but mainly really from a strong order intake on the airport side and on that effect.

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Unidentified Analyst, [4]

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Okay. Great. And then also, on Cash Management, the EBIT margin trend have been quite negative for some time. So with the restructuring program that you are launching now, do you think that you will be able to turn that trend positive?

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Henrik Lange, Gunnebo AB (publ) - President & CEO [5]

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As I said, we are addressing, of course, the restructuring program that we have launched is predominantly addressing Safe Storage and Integrated Security, and to a small degree, the Cash Management side. They are working with the cost side. But I -- we're looking into the type of projects they're working on, and this is same thing to be the CIT. That is also a project-driven business. We have the launch of the new products. We are working with some new partners and with existing partners in new geographies, and I feel confident that it will be improving over the coming quarters based on cost management, but maybe more on the new launch of products and also on the focus -- the customer focus that we have in the business units.

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Unidentified Analyst, [6]

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Okay. And then finally, on the other costs where you had a sharp increase in overhead costs, is that more temporary issues that push up the other costs because you were saying that you were addressing it?

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Henrik Lange, Gunnebo AB (publ) - President & CEO [7]

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No. We are investing, and then we're gaining some momentum. I think the effects from the cost efficiency program you will see in this quarter and, to some degree, in the first quarter. The structure changes with dismantling the regional structures and on the management side to be able to lean the management that will happen in this quarter. So from quarter 1 next year, that is (inaudible). On the other part in Europe, Stefan is working hard, and we are gaining some momentum, but we don't see much effect of that in this quarter. The effect that we see is that we have gained momentum in what we will do during the coming quarters.

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Operator [8]

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(Operator Instructions) And we have a question from the line of Mark (inaudible) from (inaudible).

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Unidentified Analyst, [9]

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I'm [Mark] here. You talked about the Cash Management, being project business. I was just a little bit curious, you don't see any like structural change in the market for Cash Management? Or is it just your performance that has to be improved?

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Henrik Lange, Gunnebo AB (publ) - President & CEO [10]

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I don't see having (inaudible) these days over my tenure here as to is cash disappearing. Is this a trend. Will it go down? There are recent reports launched by others who suggest that that's not the case. (inaudible) looking in both value and volume of most currencies in the world is increasing. Interesting fact, that many of the Internet deliveries in Asia are actually paying in cash. So when you think of this one to go cashless, it is not going fully cashless. So -- and we see -- and we have, over the last couple of years, grown our Cash Management business in Scandinavia, which is the region, which is actually not decreasing its cash. So we see an easing where the move of cash is moving from bank into retailers. There's a shrinkage issue. There's a security issue at retailers. And the level of sophisticated Cash Management solutions at many retailers is low. So there is a promotion game that we are playing. And I think that with the focused business unit structure, we are also getting into some new partners, and I see that there is a prospect for a good development going forward.

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Operator [11]

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Thank you. And as there are no more questions just yet, I now hand back to our speakers for any closing comments.

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Henrik Lange, Gunnebo AB (publ) - President & CEO [12]

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Well then, once again, I thank you all. I thank you for your support and thank you for listening in today. And I wish you, Stefan and the group all the best, and I will monitor their performance as a shareholder going forward. So thank you all for calling in.

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Operator [13]

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This now concludes our conference. Thank you all for attending, and you may now disconnect.