Prosegur Cash, S.A. (CASH) Earnings Call Transcript & Summary

Good day and thank you for standing by. Welcome to the Prosegur Cash First Quarter 2025 Results Presentation. [Operator Instructions]. Please be advised that this conference is being recorded. I would now like to hand the conference over to our first speaker today, Miguel Bandres, Head of IR. Please go ahead.

Good morning to everyone and thank you for joining today's call. I'd like to welcome everyone to our 2025 Q1 to be done by our CFO, Javier Hergueta and myself. The presentation should take around 30 minutes, during which we will see key developments affecting our business and their influence in our performance. Then we'll move to our key financials, followed by our performance by region, as well as our transformation progress to finalize with some key conclusions. After we'll open the Q&A session. Should we not get to respond to everything today, we'll get back to you on any open topics on an individual basis. I want to thank you all for your attendance and remind you that this presentation has been prerecorded and is available via webcast on our corporate webpage at www.prosegurcash.com. Before handing over to Javier, I'd like to share some interesting and recent news regarding cash to go from the recommendation by the EU to its citizens to have an emergency kit including cash, the electricity outage in Spain, Portugal and France, the health of cash as a payment method in Colombia or the amount of euros carried by Spaniards in their wallets. All these different aspects indeed stress how relevant cash is in today's society for many different reasons, resilience, system continuity, inclusiveness or convenience amongst others. First, we can read from euronews.com. The call from the European Union to all its citizens to have emergency kits available in order to best weather major potential threats such as natural disasters, power outages or cyber-attacks. The main elements of including such kits being water, food and cash. These 3 would make sure citizens can move through the first critical 72 hours. It might look farfetched, but in today's ever increasing uncertain world, the disruption of everyday lives as we understand it is not only a threat, but a very clear reality. In such an environment, cash proves itself as a fundamental tool to assure that society can keep on moving properly, enabling everyone to transact securely and resiliently whilst avoiding chaos. The fact that the EU owes us cash in the same basket as food and water is a sufficient signal into how relevant it is. Next, I'm reading from El Mundo. We learned that the outage that took place in Spain, Portugal and Southern France last week had a huge impact on the usage of telephone lines, transportation networks and electronic payment systems as none of them were suitable or being used normally, provoking chaos and region. This sets a very good and recent example of cash being the safest, cheapest and most resilient payment method. Without its presence, looting is a very close danger to be aware of. The third piece of news comes from La Republica in Colombia. In it, we can read that economic think tank ANIF shows that the use of cash in 2024 grew by 20%. With this cash consolidates as the main chosen payment method by Colombians. Once again, its each unique features of resilience, privacy, security or ability to manage one's expenses place cash as a preferred payment method for Colombians. Last and coming from another think tank in this case Funcas from Spain shares that almost 60% of Spaniards use cash on a daily basis. Not only that, but they've increased by EUR 3 in 2024 the amount of cash they on average carry in their wallets to EUR 45. This reemphasizes cash as the most used and preferred mean of payment. The above news are clear examples of why both consumers and institutions, in this case, the European Union, show the relevance of cash for many of the already cited, unique and often impossible to replicate characteristics. After this brief news update, I will share today's agenda. Firstly, Javier will review the period's highlights and then he will share with us the key financials for the quarter, after which we'll update on our transformation developments. Then I'll share some key developments by region. And finally, we'll close with Javier's key takeaways and open the Q&A session. This being said, please, Javier, the floor is yours.

Thank you very much, Miguel. Good morning to everyone and thank you as well for joining our results webcast. We've just closed the first quarter of 2025 and I would like to highlight we have seen a very good sales growth with a solid margin increase. As well, we've been able to reduce our leverage when compared to one year ago. Going by parts and first turning to sales, they have increased by almost 10% in euro terms with a strong 13.3% organic growth showing the health of our underlying business. I would like to highlight the very positive progress of sales in our Asia Pacific region where sales have increased by over 150% year-on-year being the combination of a change of perimeter because of the consolidation of our Indian operations from April 1, 2024 together with an additional over 40% organic growth in the region in the period. In terms of EBITA margin, we've reached 11.8% of sales in relative terms, which implies an improvement of 110 basis points versus the one we attained one year ago. In absolute terms we've reached EUR 61 million, which is a 20.9% improvement in these first 3 months of the year. Going down the P&L when we look at net income, we show a very positive improvement of 35.1% versus Q1 2024. Next important block is that of transformation. These products now account for 33% of total sales implying a 130 basis points improvement over one year ago and have grown by 14.1% in the period. This underlines once again the success of our diversification and transformation strategy. In terms of cash generation, I'm pleased to note that our free cash flow in Q1 has totaled EUR 5 million while we have reduced last 12 months total net debt in absolute terms and we have maintained a stable leverage ratio of 2.3x. Important as well to underline that exchange rates have had a neutral impact in the period. Other elements to be considered are the improvement we've been assigned by MSCI upgrading us to BBB and recognizing our continuous delivery on the ESG front. And as well, we are pleased to announce the beginning of the Euronet JV operations in Latin America. We have recently launched our first 2 countries, Peru and Dominican Republic. I'm sure that these are only the beginning steps of what will be a very relevant business for us in the near future. I, as well, want to share that we are constantly monitoring the uncertain environment in the global economy derived from geopolitical tensions and we will react accordingly should the situation deteriorate. In any case, our business model is very resilient in uncertain environments and is decoupled from direct effects of the aforementioned tensions. In this line, it's important to highlight that Argentina an important country for us received a very substantial backing by the IMF 3 weeks ago that will help continue to stabilize the country. With all these measures in place, capital controls continue to loosen which is positive into the future. I will now turn to our key financials. First, I will review our profit and loss account. Sales for this first quarter totaled EUR 516 million, this is a 9.7% improvement as already stated over the first quarter of 2024. Breaking down our sales performance, we can see that organic growth has been of 13.3% with a good performance of both our Latin American and especially of our Asia Pacific region. Inorganic accounts for 4.3%, mainly driven by the consolidation of our Indian operations, whilst exchange rates have negatively impacted our sales by 8% driven by the performance of our Latin American currencies that are influenced by the U.S. dollar evolution. In terms of EBITDA, we have reached EUR 90 million in the period, which is an 11.1% improvement over the one experienced one year ago. In relative terms, it now accounts for 17.4% of sales showing the effect of additional efficiencies. Depreciation totals EUR 29 million in the period with which we reached an EBITA of EUR 61 million. This represents a very relevant improvement of 20.9% versus one year ago and in relative terms a margin of 11.8% of sales, 110 basis points more -- as I mentioned in the prior page. Amortization of intangibles are in line with last year totaling EUR 6 million resulting in an EBIT of EUR 55 million, 25.5% more than one year ago and 10.7% of sales. The financial result has increased by EUR 1 million reaching EUR 12 million leading to an earning before taxes of EUR 43 million. This is a very substantial improvement of 31.6% at EUR 10 million in absolute terms versus one year ago and represents 8.4% of sales. Taxes account for EUR 20 million, implying a 45% tax rate, which is 150 basis points improvement versus one year ago and with which we get to a net profit of EUR 24 million, 4.6% of sales and an improvement of 35.1% over last year. I'd like to highlight how as we go down the P&L, we can see that the relative improvement in each line only increases. With the above, we can see that EPS has improved to EUR 0.0155 in the quarter, a 30.2% improvement over one year ago and reflecting the good performance of the business for the benefit of our shareholders. If we go now to Page number 5, we can see both our cash flow and net debt position. Starting by our cash flow, we depart from an EBITDA as seen in Page 4 of EUR 90 million. From it, we deduct EUR 5 million in terms of provisions and other items and income tax outflow of EUR 21 million in the period. We have had EUR 18 million invested in CapEx these 3 months, being a substantial share of it directly related to our customers and with an overall significant reduction of EUR 4 million versus the one spent a year ago. It's important to underline that this year-on-year reduction in customer CapEx expenditure is mainly driven by both an increased efficiency in managing purchases as well as actively optimizing the stocks that has enabled us to reach more customers at a lower overall rate together with some delay in CapEx into coming quarters. The investment in working capital by financing the organic growth we have previously seen accounts for EUR 40 million in this first quarter. With this all, our free cash flow in the period totaled EUR 5 million, which implies an 80% conversion rate, which is 7 points better than the one we achieved one year ago. Interest payments totaled EUR 12 million, whilst we've had no M&A payments in the period. Treasury stock of the program we've been executing year-to-date totals almost EUR 4 million, whilst others totaled EUR 8 million. All these being considered, our total net cash flow implies an investment of EUR 18 million in Q1, which together with deducting the minimum EUR 1 million due to exchange rate leads to a net financial position at the end of the period of EUR 662 million. To this, and looking to the right-hand side of the page, we must add IFRS 16 debt of EUR 118 million, a practically unchanged deferred payments related to acquisition of EUR 124 million and deduct the EUR 11 million in treasury stock that we hold in our balance sheet to arrive to a total net debt amount of EUR 892 million at the end of the quarter. It is important to underline the very relevant reduction by EUR 13 million of our last 12 months net financial debt when compared to one year ago. This is a consequence of a lower seasonal variation in net debt in Q1 versus the one experienced in Q1 2024. With all this, our leverage ratio is of 2.3x, which is 0.5x better than one year ago. I would like to stress our focus towards managing our debt and assuring that the business continues to have a strong cash flow generating profile as we have been sharing in prior calls. Now I will review our transformation developments, where we can see we continue to perform strongly. Sales have continued to grow at double-digit rates and total now 1/3 of overall sales. Revenue belonging to these products in Q1 have reached EUR 170 million, which is a 14.1% growth over the one experienced one year ago, and the penetration over total sales has increased by 130 basis points to 33%. I'd like to underline that Cash Today and Forex continue to deliver most of the growth volume in this category. Both lines enjoy the full endorsement of our customers, which appreciate the solutions being provided in the form of increased sales. But as well, I'd like to recall again that we have recently launched operations in Latin America for our ATM joint venture with Euronet. It has been the result of a very strong collaboration between both companies that is now coming into reality in Peru and the Dominican Republic. Joining forces with a leading ATM operator as Euronet, together with our strong presence and knowledge of the region, we are sure, it is the only basis of a very strong business from which to grow and increase the customer base to serve. This will be, together with Corban, a leading growth lever going forward. With this, I would like to hand over to Miguel, so he can share with us the key highlights of our performance by region.

Thank you, Javier. I'll start with Latin America that accounting for 61% of total group sales is our main geography. In this first quarter, sales reached EUR 314 million, a 5.8% increase versus one year ago. This growth combines a strong 18.4% organic growth with a negative FX impact of 12.7%. The underlying business continues to perform strongly in the region, and we foresee this will be the case in the coming quarters. Turning to Transformation Products. They continue to as well grow strongly by EUR 12 million in the period -- or 12.7% to reach EUR 111 million. It's particularly relevant to mention that penetration of retail sales have climbed by 210 basis points. This growth has backed itself fundamentally on the growing acceptance of Cash Today solutions by our customers. As well, as Javier has mentioned in the prior page, we've just started operations on ATM networks, both in Peru and the Dominican Republic with our Euronet partners, which will be a tangible growth pillar into the future. Now turning the page to Europe, which accounts for 30% of total sales, we've delivered a growth below 1% to reach EUR 156 million. It's important to note that this sales performance has been affected by one-offs and calendar effects since the Easter period last year fell in Q1, while in 2025, it took place in April and as well by a slight variation in the number of working days. Looking at transformation, we can see that sales have grown by 5.1% to EUR 48 million and its penetration over total sales reached 30.9%, implying a 140 basis point improvement and showing that as well in this region, customers continue to favor our new solutions. The growth in new solutions continues to be levered on Cash Today and Forex. And lastly, we'll review the performance of Asia Pacific that accounts for 9% of group sales, a substantial improvement when we compare it to the 4% it represented only one year ago. Total sales increased by EUR 29 million, reaching EUR 47 million in the period, a 152.4% improvement. A very important part of this improvement, 110%, comes from the change in perimeter of our Indian operations, which we consolidate from April 1, 2024. As well, we have to note the very significant 43.3% organic growth in the region signaling its strength. Sales of Transformation Products now reached EUR 11 million in the region, which is 23.6% of total sales. However, if we isolate India, sales of these type of products have increased by 106% and reached 37.2% of penetration, which is very relevant. The performance of the region has been very strong, and we are confident that will continue in the coming quarters. Thank you all. And now I'll turn to Javier, so he can share his conclusions with us.

Thank you, Miguel. And now I would like to conclude with what are the key highlights for this first quarter in 2025. We've experienced a solid growth regarding our sales of close to 10% on one side, backed on a solid 13% organic growth. And on the other, with Asia Pacific growing over 150%, over 2/3 of it due to the consolidation of our Indian operations and with a very significant 40% coming from a straight organic growth in the region. Second, our profitability has seen a substantial improvement over the one we accounted for one year ago. Relative EBITA margin has reached 11.8% of sales, a very significant improvement of 110 basis points and totaling EUR 61 million. This is 20.9% better than one year ago. As we progress down the P&L, we see the improvement in net income to rise by 35.1% to EUR 24 million. A key pillar of both our present and our future transformation has increased by 14.1% and now accounts for 33% of total sales with new exciting opportunities starting to materialize in ATM networks in LatAm. Cash flow continues to be a top priority and this first quarter, despite being the slowest in the year and coming after a very strong performance at the end of 2024, has shown a positive generation of EUR 5 million. At the same time, we have been able to reduce our total net debt on a last 12 months basis. All this has resulted on remaining stable in terms of leverage at 2.3x with a 0.5x improvement year-on-year. Lastly, MSCI has recognized our ESG initiatives upgrading the company to BBB. As shown, 2025 has started on a good footing in the key different areas, organic growth, margins, transformation and cash flow, and we will work hard in the coming quarters to improve our profitability, always being vigilant on a very uncertain macro environment at a global level. Thank you very much for your attention. And now I would like to open the floor to any questions you might have.

[Operator Instructions] And now we're going to take our first question, and it comes from the line of Manuel Lorente from Santander.

My first question probably is on Argentina. The lift of some of all of the capital control restrictions, it has been clearly a good news. So I would like if you can share with us your thoughts regarding whether or not this might have an impact over your -- the technicality of your dividend repatriation or any update on Argentina will be great.

So on Argentina, as you have recently seen, we feel there's strong momentum in the country right now. The GDP for the first quarter has grown by 5%. The expectation for the coming quarter is to be higher than that, more on the mid- to high single-digit figure. The country has been backed by the IMF on a multibillion dollar deal and the capital controls have been lifted, as you were saying. So all in all, we think that, that will be good for the business because it will be good for the country itself. So we will be operating on a better context in economic terms and a more sustainable economy on the one hand. And on the other hand, in terms of the dividend repatriation that you were mentioning from 2025 onwards, so starting with the results generated in 2025, we will be able to repatriate those at the official exchange rate. So that will mean that there should be no repatriation cost at all going forward from that moment onwards. So that's also a piece of good news, but it's not only that. I mean, I think it's all around the economy and the performance of the business in the country that is really on a positive momentum right now.

Okay. And then my second question is then on the organic growth rate, that 13%, it will be great if you can share with us some granularity regarding the moving parts beneath that 13% maybe which part is pricing driven, which part is volume driven or there is a significant mix between the different geographies?

So on that front, roughly speaking, that 13% is a combination of pricing and volumes on a 60%, 40% basis approximately. On a regional basis, you have the breakdowns into the presentation. But basically, you have Latin America growing at a higher pace than that 13%. And you have also Australia at a very strong pace. And in the case of Europe, where we are very flattish in this first quarter, you need to consider certain calendar effects coming from Easter and the number of working days and some one-offs. So when you take those out, you would be achieving roughly a bit over 3% in terms of organic growth, which will be mainly volume driven. So that's more or less the mix and the openings per nature and per geography.

But for example, is it fair to say that, that 60-40 split, it's more or less the same between LatAm and Australia, for example. Maybe I was expecting, I don't know, LatAm to be a little bit more pricing driven because FX headwinds and the other geographies are more volume-driven or not, it's that 60-40 holds perfectly for the different regions?

When you look at LatAm, the 60-40 pattern is pretty much the same in the region as it is in the group as a whole. In the case of Asia Pacific, it is mainly volume itself. And in the case of Europe, as we said, I mean, when you look at it on a pro forma basis, that figure that I was mentioning of slightly over 3% will be mainly volume driven.

Now we go to our next question, and the question comes from the line of Enrique Yaguez from Bestinver Securities.

The first one is a follow-up question regarding the organic growth. I don't know if there has been some anticipation in the tariff pass-through in LatAm, and then also in Asia Pacific, just to understand the sharp increase in the organic growth. It is -- do you think it's sustainable and it is driven just by one geography? I mean, to have further color about how sustainable these rates are? And also in Europe, if you could give us some color about how it's performing in April, taking into consideration the calendar effect? The second question is on the recent joint venture agreement with Euronet. Could you quantify the expected impact in revenues? And the last question is just a question of the -- regarding the small decline in depreciation expenses, which at the end, expand your margin. It's just a question of the quarter or if there are any other explanation because I was expecting to remain flat or slightly higher this figure.

I'll try to take the questions one by one. In terms of the organic growth, I can confirm that there has been no tariff pass-through anticipation in the quarter. So it's following the seasonal pattern we always take. So nothing abnormal there. In the case of Asia Pacific that you were asking for, the figure is quite remarkable. So it's a combination of several factors. So we have all the countries performing strongly on an organic basis. And then on top of that, we also have some openings in the Forex business, which have been operating for the first time in Q1, which were not there in Q1 last year. Those ones will not be differential probably in the second half of the year. But in terms of the performance of the core business in all the countries in the region, that should remain strong throughout the year. So although not at probably 40-plus level, but we should be seeing very strong organic growth rates in Asia Pacific for the year as a whole. In the case of the joint venture with Euronet, which is your second question. First, I would like to clarify that this is being accounted for under the equity method. So it's not full consolidation under the JV agreement that we have with Euronet. In any case, right now, with the opening of those 2 countries, we are focusing on the rollout strategy in these 2 countries. So we expect to reach, let's say, roughly around 30 ATMs per country in full year '25 in this first phase, which should be more or less break-even on a run rate basis under these 2 countries, we think we could be reaching close to 250 ATMs in each of the countries. So that will be contributing to our EBITA, something around EUR 3 million to EUR 4 million more or less. And in a longer-term basis, we would expect to initiate the operations in another 2 or 3 countries more, so roughly achieving around 1,000 ATMs overall and therefore, an EBITA impact in our accounts, which will be around the EUR 5 million figure more or less. And in terms of the depreciation that you were asking for. I think there are FX impacts into that on the one hand so that makes it a bit slower than it was. And on the other hand, also lower impacts from hyperinflationary accounting. So I would say that we would expect the depreciation to remain in line with Q1 for the rest of the year. So as you were pointing out, that is also a factor helping us delivering increased profitability, and we would expect that to remain going forward throughout the year as a whole.

Thank you, Javier. And regarding the evolution of Europe in April?

Yes. Sorry, I missed that one. So we don't have the figures -- final figures for the month yet. But in terms of volumes, it has been better than it was. And also, we've had the Easter period in the month of April contrary to what happened last year. So it should be looking much better than what you've seen in Q1.

[Operator Instructions] And now we're going to take our next question, and it comes from the line of Alvaro Lenze from Alantra Equities.

The first one is whether you could explain what the one-offs in Europe have been? Are you still having troubles with the strikes in Germany? Or is it something else? Because I understand that the one-offs is not related to the calendar effect. Those are separate things. So if you could clarify that would be helpful because we have seen a slowdown in growth throughout 2024, and it seems to continue into 2025. So just to understand the actual underlying mechanics there. Second question is going back again to AOA region. The revenue contribution seems very, very high at EUR 47 million. It's higher than it was in Q4, and we are used to Q4 being the strongest. I don't know if there is a different seasonality in this region or if there has been some one-off effect? And then a clarifying question. If you open a shop, so to speak, of the currency exchange business in, say, Japan, is that accounted for within the AOA region or within Europe? So just to understand how the ChangeGroup business is reported.

In relation to your first question, when we were mentioning the one-off events in Europe, we were referring to a different event than the calendar effect or the Easter effect. So it's more related to a sale of certain Cash Today that took place last year, which has not been there in Q1 '25. So that will be roughly 1/3 of the total impact that I was quantifying before. And the rest will be more on the calendar effect. In relation to AOA, I would say that there are no one-offs in this Q1. So it's been strong itself on a recurring basis. As I said before, I mean, we have certain openings coming from the FX business, but the underlying activity in the core business and the other Transformation Products within the region are all in good shape, and there's nothing abnormal that we need to take into consideration here. And that links to your third question. So the openings in the FX business that are located in the Asian region are reported within the Asian region itself. All in all, is -- most of it is in the Europe region itself. But the portions we have in Asia Pacific, mainly being in Australia and to a much lesser extent in Latin America are reported in each of the specific regions where they are located.

That's very helpful. And a follow-up -- well, another question, if I may, just on Argentina. If you eventually get out of the capital controls, would you consider recurring to some leverage in the country and repatriate some extra cash and leave some debt in local currency there as a hedge as you used to do in the past because in the past, you used to have a better match of your debt with your revenue and profit exposure. It now seems that your debt is overexposed to euros.

In relation to Argentina, I must say that making use of leverage is not something new for us. So that's something we've been doing in the past in several occasions. So we've always tried to look for the most optimal windows in order to repatriate the cash. So sometimes, if we have the perception that it was a good moment for doing so, we've anticipated the repatriation of cash throughout some leverage in the country. It is not the case right now. I mean we don't have debt in local currency terms now, but it does not mean that we might not be doing that again going forward. So we will always be monitoring the context at all times. And should we feel that there's an opportunity to repatriate cash in advance and make use of leverage, we might be doing so. So as I said, it's not the case right now, but we don't doing that going forward.

[Operator Instructions] Dear speakers, there are no further questions for today. I would like to hand the conference over to your speaker, Javier Hergueta, CFO, for any closing remarks.

Thank you. First of all, thank you for taking the time today. In case there have been any remaining questions pending, as always, our Investor Relations team remains available. And in any case, I hope to speak back to all of you in the next Q2 results presentation. Thank you all.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.