Prosegur Compañía de Seguridad, S.A. ($PSG)

Good day, and thank you for standing by. Welcome to the Prosegur Q1 2026 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Cristina Casado. Please go ahead.

Good afternoon, and welcome to the Prosegur First Quarter 2026 Results Presentation Webcast. Before we start, I would like to remind you that this presentation has been prerecorded and that it will be available on our corporate website. I will now hand you over to our CFO, Maite Rodríguez.

Good afternoon, and thank you all for your presence. We are pleased to present a strong first quarter with our main financial and operational indicators showing year-over-year increase and enhancement. This is clearly evidenced in our cash generation throughout the period. A special highlight to the performance of our security business is needed as it continues to outperform and contributing to both results and cash generation. With this good start, we are confident that we are on the right track to comply with our main objective of generating value for our shareholders. Now with all this in mind, let's deep dive into the most significant aspects of the period. Our top line grew by 1.5% compared to the same period of last year. And as it has been the case for some time now, was fully driven by organic growth. Indeed, the later went up to 8% without considering the negative FX impact, mainly stemming the Argentinian peso and the U.S. dollar. As per the sustainability of the metric, it can be seen that all regions grew with a special highlight in the APAC region, where cash volumes continue to increase at very healthy levels. The same is true for the U.S.A., country where our security business is currently focused. As for profitability, EBITDA stood at EUR 87 million, pretty much in line with the previous year. As we shall later see, this is entirely due to cash business, which was negatively impacted by the macroeconomic environment and country mix dynamics. Our security business for its part, outperformed last year's results, marking a 12.7% increase in EBITDA, driven by best-in-class operational execution and a clear commitment to geographic diversification. For our Alarms business, as we will see, we are strategically focused on enhancing the profitability of new customer acquisitions. As outlined at the Alarms Capital Market Day, we have shifted our growth strategy towards quality growth, prioritizing lower churn and faster payback on acquisition costs. Thanks to an efficient working capital management and keeping infrastructure CapEx under control, operating cash flow totaled EUR 8 million compared with a negative EUR 19 million that we generated last year. It's good to highlight that the EUR 27 million of additional cash were generated with virtually the same EBITDA, demonstrating the strong commitment of all business units to cash generation in order to reduce debt. As always, our main premise is to continue growing but always being mindful of leverage. Not only we reduced EUR 28 million in total net debt, but our leverage ratio stands at a healthy 2.4x level relative to EBITDA. Besides, our financial debt is both well structured in the long run and cheap. We are confident that going forward, our leverage ratio should continue to go down, considering the seasonality of our cash generation throughout the year. I would like to mention a few relevant highlights in the period. From a debt perspective, the EUR 600 million cash business bond was fully paid and amortized. At the same time, we entered into a EUR 60 million loan agreement with European Investment Bank to finance specific initiatives related to digitalization of our operations. With this latest transaction, our debt is refinanced for the coming years with more than 60% at fixed rates, providing balance sheet stability and resilience against potential unforeseen impacts stemming from the current geopolitical environment. Finally, for your awareness, we have decided to integrate our cyber business into our security business. We believe this is a natural step as the former will help expand the later current product suite, creating mutual synergies in a build-to cycle. Let's now turn to Slide 2, where I would like to deep dive into our sales and EBITDA figures. As said, total sales during the first quarter increased by 1.5% over last year, reaching EUR 1.3 billion. Discounting for the FX effect, almost the entire growth was organic, evidencing our strict policy when it comes to passing through inflation to prices. At the same time, volumes continue to grow, both in our most traditional businesses without exception and most importantly, in our transformation products. Turning to geographic sales diversification. Rest of the World continues to be the main growth driver, which is a natural outcome given the inclusion of both the U.S. and APAC regions. As this trend continues to consolidate and we see no factors that should [ hider ] it, it is expected to have a positive impact on the overall sustainability of the group. Latin American performance was primarily affected by the impact of currency devaluation and its effect on the geographic mix. Moving on to profitability. EBITDA reached EUR 87 million, broadly in line with last year. The EBITDA margin remained stable at 6.8%. Let's now turn to our full P&L that, as it can be seen, showed a remarkable increase compared to last year. The performance all the way down to EBIT will be thoroughly explained when we discuss the performance of each business. However, as it can be seen, the drivers of the net income enhancement are both financial results and accrued taxes. As for the former, the increase is mainly explained by better FX results compared to the previous year. Going further down to accrued taxes, the astonishing close to 480 basis points reduction in the effective rate should be highlighted. The rationale behind this reduction is twofold. On the one hand, we have better results in all individual geographies. And on the other, negative results stemming from hyperinflation, accounting and dividend upstreaming were significantly reduced. All the above led to a consolidated net profit of EUR 33 million, achieving a 15.2% higher year-over-year. Let's now turn to cash generation during the period. As it can be seen, following the historical seasonality of the business, free cash flow reduced in negative EUR 32 million, that is EUR 22 million higher with respect to the previous year. As mentioned earlier, after adjusting for volumes sold, our cash generation capacity can be considered stronger than in 2025. This is evidenced when we take a closer look to the working capital requirements line. Indeed, compared to last year, it decreased by EUR 23 million, driven primarily by our efforts to reduce DSO. Net financial debt reached EUR 1.4 billion, resulting in a total net debt-to-EBITDA ratio of 2.4x. It's worth highlighting that both the terms and the structure of our debt is very healthy with an average cost at 2.9% with a high percentage of our debt at fixed rates, providing protection against any macroeconomic uncertainty for the coming years. I would like to remark the EUR 28 million reduction in net debt achieved despite the typical first quarter seasonality, underscoring our strong commitment to deleveraging. We expect this positive trend to continue throughout 2026. That's all from me for now. I will now turn the presentation over to our Head of Investor Relations, Juan Ignacio Galleano, who will give you more detailed information on the development of the specific business areas.

Thank you very much, Maite. Let's now have a look at the results of each business line covering the main performance indicators and most relevant aspects of the period. Starting with our cash business, I would like to reinforce the 3.2% of organic growth that we achieved during the first quarter. This increase comes not only as a result of rapidly passing through cost increase to prices, but more importantly, volumes continue to grow, albeit at different paces depending on the region. That is why our diverse geographic footprint plays an outstanding role. Indeed, in the APAC region, volumes are growing at a healthy pace, compensating more mature countries where volumes remain quite stable. The depreciation of main currencies resulted in a 6.6% reduction when measured in euros, meaning that total sales will have increased by almost 10% should the currencies have remained the same. When it comes to profitability, EBITDA was negatively impacted by the macroeconomic situation in Argentina. At the same time, it's worth remembering that the comparable base is especially demanding this quarter as the first quarter of 2025 results in Argentina were developed under a context favored by the tax amnesty. At a cash flow level, operating cash flow reached EUR 18 million, EUR 6 million higher than last year. This increase is mainly explained by working capital requirements as DSO were reduced. It is also worth noting that CapEx remained under strict control. Transformation products continue to favorably evolve, evidenced in the 36.4% of actual share of total sales. We are certainly benefiting from all CapEx deployed in both cash today and the ForEx business. Needless to say, increasing the percentage in the context of higher sales deserves even more credit. Let's now turn to our Security business, which continues to show a solid and positive evolution over time. Total revenues reached EUR 685 million with the organic share reaching 9.6%. This is mainly driven by our volume-based strategy that leads to operating leverage, our capacity to pass through inflation to prices and the outstanding performance of the operation in the U.S. The U.S. indeed has become the second largest country by revenue in the first quarter. And although pricing still needs to be reviewed in other markets, this is a positive indicator of its growth potential. All the above, coupled with enhanced efficiencies, absenteeism management and operating leverage resulted in total EBITDA reaching EUR 19 million, 13% higher compared to the same period of last year. This is by every means impressive considering the volume-led nature of the business. Margins for their part continued to increase, reaching 2.8% during the first quarter. However, the increase will be less significant over the course of the year. Nevertheless, -- we expect to maintain a positive margin improvement trend driven by rigorous operational management and double-digit growth in key countries. Cash generation deserves special mention. Indeed, we've already reached breakeven in the first quarter, something unthinkable years ago. This evidently put us in the right track to achieve another year of strong cash generation. Among the reasons behind such an increase, we should highlight higher sales with higher gross margins, coupled with an enhanced treasury management evidenced by a sharp reduction in DSOs. It is also important to highlight that we are now reaping off the benefits of the investments made in technology in recent years, enabling our guarding service to deliver differentiated added value to clients through their technological components. Let's now turn to the Alarm business, where in line with what we anticipated at our last Investor Day, we are pursuing a stricter control with the new clients that we are incorporating with the only objective of increasing returns and thus reducing paybacks. Let me go through the strategy in detail as it has a direct impact on the operating indicators in the quarter. The first thing we've decided to do is to increase the acquisition price. This is the amount that every new client must to pay to partially cover the acquisition cost, mainly materials and labor. The idea behind this is twofold. On the one hand, to reduce the net acquisition cost, which has, as you can tell, a direct and positive correlation with payback. On the other hand, the acquisition price is significant and relevant variable when explaining churn rate. Indeed, the more the client pay upfront, less inclined to churn he or she will be, other things equal. This naturally has another relevant impact in reducing payback periods. The other thing that we've done has to do with internal process, but it's worth explaining it as it accounts for the increase in churn rate, at least in [ RoW ]. Indeed, we've reduced by 30 the number of days of late payment after which a client is deemed at risk, triggering the cancellation of the service. This led to an increase in what we call involuntary churn, which drove the total churn rate to 13%. Having explained the new business model, let's now deep dive into the performance of the main financial and operational indicators. Our client base totaled 1.1 million, marking an 8.9% increase year-over-year. In our row business, the reduction in the number of new clients is mainly due to the increase in the acquisition price, as we already mentioned. ARPU in Row was negatively impacted by the depreciation of the Argentinian peso and by the fact that last year, we anticipated much of the yearly price increase into the first quarter. Nevertheless, service margins increased by 2 basis points, up to 50%. In the case of [ MPA ], both ARPU and service margins increased 3.5% and 17.4%, respectively, indicating a very good and healthy performance. As for the acquisition costs, the increase in both cases has to do with a deliberate strategy of increasing marketing expenses. As thoroughly explained in our last Investor Day, following a push strategy sets the virtuous cycle in motion, leading to a multiplication effect. At the same time, in the case of [ RoW ], it is also true that following our already mentioned strategy, the number of new clients were reduced, thus impacting in our ability to dilute fixed costs. Let's now turn to the following slide to see how all these indicators merge into recurring cash flow. In the charts above, what we are showing is the 12-month rolling recurring cash flow of both Prosegur Alarms and MPA. The one on the right side clearly indicates that the generating cash flow capacity of the 2 businesses combined for Prosegur stands at EUR 67 million, 9.6% lower year-over-year. The reason of the decline has to do with row, particularly due to the higher registered involuntary churn due to the new policy and higher acquisition costs. This concludes our analysis of the performance of each business line for the first 3 months of the year. Thank you all for your attention. I will now hand the microphone back to our CFO, Maite Rodriguez, for his closing remarks.

Thank you very much, Juan Ignacio. To finish today's presentation, let me go through some relevant news that I want to share with you. Indeed, we continue to deliver on our strategic priorities across both sustainability and innovation. The recent upgrades in our [ MSCI ] and [ EcoVadis ] rating highlight our progressive track record, increasing ESG maturity and reinforce our commitment. As mentioned before, in parallel, we have bolstered our capital structure through a EUR 60 million fixed rate loan from the European Investment Bank, marking our second partnership with the institution. These funds are strictly earn market to drive our digital transformation and [ R&D&I ] projects, ensuring we remain at the forefront of the industry while meeting the highest international standards. To conclude, the first quarter confirms the strength and resilience of our business model. We delivered solid operations performance, maintaining a stable profitability despite macroeconomic headwinds with broad-based growth across regions and particularly a strong momentum in security. At the same time, cash generation has significantly improved, allowing us to reduce net debt even in a seasonally weaker quarter, clearly demonstrating the group's enhanced focus on cash discipline and balance sheet strength. Our financial position remains robust, supported by a well-structured debt profile, a high proportion of fixed rate financing and reinforcing liquidity, providing resilience in the current macro and geopolitical environment. Strategically, we continue to execute on our key priorities, improving the quality of growth in alarms, driving operational excellence in security and advancing our transformation through technology and digitalization. The integration of cyber into security is a clear step in this direction, strengthening our value proposition and unlocking additional synergies. Looking ahead, we remain firmly focused on disciplined growth, sustained margin improvement and a strong cash generation with a continued commitment to deleveraging and long-term value creation for our shareholders throughout 2026. This was all on my side for this results presentation. I would like to thank you all once again, and we are now open for Q&A. Thank you very much.

[Operator Instructions] We will now take our first question from the line of Manuel Lorente from Santander.

So probably my first question is regarding the underlying extremely supportive top line growth on security, whether you can give us a little more information regarding its geographic split or its split of volume versus prices or even the underlying growth, excluding the, let's say, the consolidation from cybersecurity? And my second question is whether you can explain again this, let's say, momentary increase in churn rates from this voluntary churn new policy.

Thank you, Manuel. In relation to your first question about the growth of security, I think that the most remarkable growth is coming from U.S.A. It's also doing very well in Spain. But in Spain in U.S.A., we are doing -- we are growing double digits. So it's mainly coming from there. In terms of volume and prices, now we are at the beginning of the -- in the first Q. So now we are -- in some countries, depending on the country, in some countries, we are in 50-50. In other ones, we are 100-0. It depends. But in average, it's 50 -- sorry, 40-60, 60 price, 40 volumes. And in terms of how much is coming from cybersecurity, it's 0. So the EBITDA of cyber this month -- this quarter was 0. But we are very happy of how security is evolving, not just because of the double-digit growth of USA, but also because of the cost pass-through into prices that we are also doing very well. And here, the growth in security, as all you know, goes very slowly because it's a volume company, as I always said. And we will continue on the same track, and that's also a very, very positive thing. And also the cash generation that it's the first time that in the first quarter, although we didn't pass 100% of the cost into prices, we are in a breakeven in [ cash ]. So that's a very good news. And in relation to your second question about the increase in the involuntary churn rate, we -- Juan Ignacio explained it in the presentation, but I'm going to split it a little bit again just in case someone didn't get it. And that's why I appreciate your question, Manuel, because here, we have changed our strategy. From one side, we have increased the acquisition price has increased. So that means that the more the client pay upfront, the less inclined to churn will be. So that is going to -- in the future, it is going to reduce our churn rate, and it's going to improve our payback. But now we are in the -- let's say, in the worst scenario because we will have to wait to have a very good quality of portfolio in the future with that good churn rate that will come because of increasing the acquisition cost -- the acquisition prices, sorry. But we are also very -- have changed the involuntary churn policy. So what we have done is we have decreased 30 days of late payment after which a client is considered at risk, triggering the cancellation of the service. So that means that we are going to have a higher churn than expected -- and that's why if we compare it even with the guidance that we did in the Capital Market Day, we are higher in terms of churn rate, but mainly it's coming because of that, because of changing this policy, trying to be more strict in what we internally consider risk BTC. So in this sense, what we think is that for year-end, we are not going to have a very -- a higher churn than one that we have now. So we will just have good news in that sense. But now we have just adopted the new policy. So we have like this kind of a one-off in the BTC. And that's why the churn has also been increased.

So let's say that the churn rate has increased because a combination of 2 things. First is this technical thing, so to speak, as the days of clients has diminished by 30 days. And then we have the strategic shift, let's say, from a more premium type of clients and increasing the upfront payments, blah, blah, blah, blah. So let's say that the technical churn increase, I agree with you that it might be something that might last for a shorter period of time. But the, let's say, the more strategical shift on the policy of the company, you also believe that it might end up the year with a similar churn rate in the rest of the world than in 2025. Is that soon? Or we might see some, let's say, we might need a little bit more time to adjust the combination of those 2 factors.

It's going to take time. For example, in the second Q, you will see that the churn is not going to decrease. But in the third and fourth Q, it will decrease because the sales force also needs to be used to try to sell now at the beginning, remember that we used to sell in some countries at 0 cost, and now we have increased that at front amount. So that needs sense and they need to be adapted to this new commercial strategy. And that's why first Q and second Q are going to be hard in that sense. Third Q and fourth Q, we will start observing the first results of this new strategy. So for your -- for your model, if I will have to put a churn rate for year-end should be in the case of [ RoW ] between 12, yes 12 something in the case 12 something. And in the case of [ MPA ] between 9% and 10%, something like that.

We will now take the next question from the line of Alvaro Bernal from Alantra.

I have a couple. The first one is in Security, I'm sorry to go back again. I just want to confirm if you see the organic growth levels being maintained throughout the year? Because if so, logically, the FX hit will be lower from now on, especially when comparing the U.S. and therefore, growth rates should be significantly higher. And I just wanted to confirm that. And then also in Security, I was surprised by the comment that Juan Ignacio made that you expect the EBITDA growth to be less significant throughout the year. If you can develop on this, it would be very helpful. That's my first question. And then the second one is just if you can give us a bit more disclosure on the others EBITDA line. Last year, by differences, we could see EUR 8 million. This year, it has been EUR 12 million. And I just wanted to know the breakdown a bit better. I'm guessing it's alarms that has been driving the improvement, but a bit of disclosure would be helpful.

Thank you, Alvaro, for your questions. In relation to security business, -- now the growth was 9.6%. For the year-end, it's going -- I think that it's going to be slightly smaller than that figure. But we will have -- we will be on this good trend of increasing the relative margin and the margin that we have now. But the organic growth is -- I think that it's not going to be so that number. I think that will be in a lower number. In terms of how it's going to do in the -- I guess you were saying also about the growth of the year. I guess that you were speaking about security or -- so if it's that on the question, what I already have mentioned will be in the same trend, positive trend. And for the group level, we will -- we are very close with what the consensus is saying. And in relation to your second question, the others in the EBITDA is coming from the other business lines, the Alarms, [ AVOS ] and the overhead.

Sorry. Yes. exactly. I know that it is corporate, the [ PGA ], AVOS and alarms, but if you can just let us know what has driven the improvement when you compare year-on-year because it has gone from [ 8 ] to [ 12 ]. And I just want to know if it's going to -- if it's being driven by the PGA, which we saw that it was volatile last year, and there was a rebalancing in Q4. And basically, I want to be able to know if this is going to be the same this year or if there is an underlying improvement in some other place, for example, alarms?

Okay. Understood, Alvaro. No, it's mainly coming from [ MPA ] because the service margin has improved. So that has made -- I do not have exactly the figure of [ MPA ], but I know that it has been bigger. So it's -- even the that it's around EUR 2 million. So it's mainly coming from MPA.

We will now take the next question from the line of Carlos Torres from CaixaBank BPI.

I've got 3, if I may. First, could you share the cost of the EUR 60 million financing secured with the European Investment Bank or at least indicate whether it's above or below your current average cost of debt? I think it was 2.9%. I mean just to clarify, I don't see it booked in the balance sheet yet. Should we think of this as an incremental debt or as a refinancing of the prior EUR 50 million facility once it goes into the balance sheet? That's the first one. Second, on cash flow, you mentioned a healthy leverage ratio of [ 2.4 ] that should decline throughout the year. Do you have a target in mind, perhaps closer to 2x? Or alternatively in absolute terms, after the roughly, I think, EUR 36 million increase in net debt this quarter, should we expect positive free cash flow by year-end? Yes, third one, also a follow-up on alarms. Last year, you mentioned that acquisition costs should normalize or even decrease in 2026. Now you mentioned higher marketing expenses. So how should we think of this line going forward?

Thank you, Carlos. In relation to your first question about the new -- the refinancing debt that we have with the European Investment Banking, the cost is 3.2%, and it's done for the next 6 years. In relation to -- and it's not new debt, it's refinancing with a higher amount. In terms of the second question about the cash flow, we are now in 2.4x. For year-end, we do not expect in absolute terms to decrease it. But yes, in relative terms. What I mean is that, that 2.4 should decrease because the cash flow -- the business cash flow for this year should be higher than last year, much higher than last year, mainly coming because the DSO, we are really doing well. That's why even in this first Q, you could observe a very good working capital that mainly is coming from an improvement in DSO because what it used to happen in the past was that we were good in DSO, but with a very high effort at year-end, but now we are doing that effort every month. And also coming from the stock that in the case with the new strategy that we are having in Alarms, we are -- the growth of alarms is going slower. So that means that I am not going to need so much stock, and that will also improve my cash flow. So in that sense, and that's why in relative terms, we should decrease it. It will always depend also in the volume of security that now security is a very good cash contributor for the group. But if we grow a lot in the last 2, 3 months of the year, sometimes because of the volume, we also have an impact in our working capital. But it should be a much better cash flow than last year and with a very good management in working capital, and that's why in relative terms should decrease. And in terms of the subscriber acquisition cost of the alarms, -- we are investing in marketing. We are increasing a lot that expense. And with -- again, with this new strategy, we are growing less. So we have less scalability in our SAC. So that's why the [ SAC ] is also increasing from one side because we are not having that scalability and from the other one, because we are keeping the marketing investment.

[Operator Instructions] There are no further questions at this time. I would now like to turn the conference back to Maite Rodriguez for closing remarks.

Thank you very much for attending this presentation. If you need further information, please contact our Investor Relations development, who is open to talk to you at any time. Have a nice day.

This concludes today's conference call. Thank you for participating. You may now disconnect.