Prosegur Compañía de Seguridad, S.A. (PSG) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Prosegur Q2 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, Investor Relations Director. Please go ahead.

Good afternoon, and welcome to the Prosegur first half 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 Rodriguez.

Good afternoon, everyone, and thank you for joining us today. We are pleased to present Prosegur results for the first half of 2026. As highlighted throughout this presentation, the group sustained a solid growth trajectory with revenues benefiting from a strong organic performance and a supportive foreign exchange environment. Net consolidated profit increased by nearly 6% year-on-year, reflecting both the resilience of our business despite macroeconomic headwinds and the strong operational execution across our business lines. These results reinforce our confidence in the strategy we are executing and in our ability to continue delivering sustainable value for our shareholders. Looking ahead, we expect the second half of the year to be characterized by strong cash flow generation and continued progress in reducing leverage, further strengthening the group's financial position. Moving now to the key highlights of the period, I would like to underline 4 main messages: growth, profitability, cash flow and recent business developments. First, on growth, revenue reached EUR 2.6 billion, increasing by 5.2% year-on-year. This performance was supported by a strong organic growth above 7%, with sales growing across all regions. A more favorable FX environment compared with previous periods has made the resilience and quality of our underlying businesses more visible. Looking ahead, we expect this positive FX trend to continue throughout the second half of the year and potentially become even more supportive. Second, on profitability, EBITA stood at EUR 167 million, slightly down by 1.8% year-on-year. Within this evolution, Cash delivered an EBITDA improvement of 1.3% and Security continued to show a solid performance increase not only year-on-year but also quarter-on-quarter. Alarms benefited from the stronger contribution of MPA, while also reflecting the impact of the ongoing optimization of its customer portfolio, in line with a strategy focused on building a higher quality customer base that we introduced during our Q1 2026 results presentation and the Alarms Capital Market Day. Although this represents a decline compared to last year, the key message is that total net cash flow improved, supported by several factors, including efficient tax management and strict CapEx control. Working capital was temporarily impacted by strong business volumes, particularly in Security USA, where organic growth was close to 30%. This also had a temporary effect of leverage. However, the group remains focused on its gradual deleveraging strategy. Finally, in terms of recent development, Alarms, as Cristina will explain in more detail later, continues to strengthen its commercial strategy focused on building a higher quality customer base. At the same time, AVOS Tech is expanding its service ecosystem, including the rollout of insurance solutions in Latin America. In addition, this period is especially relevant for Prosegur as we celebrate the group's 50th anniversary, 50 years being PRO. Let me now provide some additional detail on revenue and profitability performance during the first half of the year. Starting with sales. As mentioned earlier, total revenues increased by 5.2% year-on-year with a strong organic growth of 7.3% and a significant better foreign exchange environment. Importantly, growth was broad-based across the portfolio and across geographies. Looking at the regional breakdown, Europe increased by 4.1%, Latin America by 4% and Rest of the World showed the strongest performance growing by 13.2%, highlighting the strength and diversification of our business model. Moving to profitability. The EBITA margin stood at 6.4% versus 6.9% in the prior year period. The decline was mainly driven by a business mix effect as Security, our fastest-growing business, operates with lower margins than the group average as well as by the ongoing optimization of the Alarms portfolio and the one-off costs related to the Prosegur's 50th anniversary celebrations. Looking at the individual businesses, Cash continued to show resilience with its EBITA margin in the second quarter, improved by more than 30 basis points year-on-year despite a challenging market environment. Security remained the standout performer within the group with particularly strong momentum in the United States. This confirms the success of our strategy focused on profitable growth and operational excellence. In Alarms, revenues increased by 12% year-on-year. The service margin was broadly stable with a limited decline of 0.7%, while underlying profitability continued to improve, excluding the macroeconomic impact of Argentina. Overall, despite some temporary headwinds in specific markets, the group continues to deliver a healthy balance between growth and profitability, which gives us confidence in the market consensus expectations for the full year. Let me now walk you through the main highlights of our income statement for the first half of 2026. As discussed in the previous slide, revenues increased by 5.2% year-on-year with a strong organic performance across the group. At the EBITDA level, profitability remained resilient, demonstrating the strength of our operational model despite a challenging macroeconomic environment in some markets. EBITA stood at EUR 167 million compared to EUR 170 million in the first half of last year. As a result, the EBITA margin was 6.4% versus 6.9% in the prior year period. This evolution reflects the different performance dynamic across our businesses. Below EBITA, financial expenses also remained under control at EUR 37 million, reflecting our disciplined financial management despite the higher interest rate environment. One of the most relevant messages is the continued improvement in our tax efficiency. Our effective tax rate decreased by 368 basis points year-on-year from 45.5% to 41.8%. This improvement is the result of a solid tax strategy, supported by a better earnings mix across geographies and ongoing optimization initiatives. Thanks to this improvement in tax efficiency, together with a strict control of financial expenses, net income increased to EUR 57 million. This represents growth of 5.5% at the consolidated net income level, reaching EUR 57 million. In summary, while operating profitability remained broadly stable, the combination of a strong cost discipline, improved tax management and financial control allowed us to further increase net profit and continue creating value for shareholders. Let me now elaborate on cash flow generation and the evolution of our net debt position during the first half of the year. Starting with the operational cash flow, the year-on-year deterioration is largely explained by the temporary impact of working capital, affected by the strong increase in business volumes, particularly in Security USA. While this had a short-term impact on cash generation, it reflects the strong commercial momentum of the business and should, therefore, be viewed as a consequence of growth rather than a deterioration in operational quality. Furthermore, the line item, provisions and other noncash items was affected by the stronger performance of equity-accounted investments, mainly Australia and MPA. As these entities are accounted for under the equity method rather than fully consolidated, their improved earnings require an accounting adjustment, while their cash generation is not reflected in the group's consolidated net debt. Cash tax payments were lower during the period, reflecting the benefit of our increasingly diversified geographic mix. We are generating a greater proportion of earnings in countries with lower effective tax rate, while also making use of tax loss carryforwards from prior years as profitability has improved. At the same time, interest payments remained stable despite the interest rate environment. In terms of CapEx, we remain focused on operational efficiency. Including acquisitions, dividend payment and other cash movements, total net cash flow was negative EUR 58 million, showing an improvement compared with the negative EUR 72 million recorded in the first half of 2025. When it comes to net debt, the increase was mainly driven by the temporary working capital effect that I mentioned earlier. As a result, our net debt-to-EBITDA ratio stood at 2.5x. While leverage increased slightly during the period, we view this as a temporary effect and remain fully committed to our gradual deleveraging strategy with a clear improvement expected by year-end. Finally, I would like to highlight the strength of our debt profile. The average cost of debt remains low at just 3.1%. 64% of our debt is fixed rate and the average maturity stands at a comfortable 3.7 years. These metrics underpin a solid financial position and provide us with the flexibility to continue investing in growth while maintaining our commitment to reducing leverage over time. That's all from me for now. I will now hand over to Cristina Casado, our Investor Relations Director, who will provide a more detailed overview of the performance and key developments across our business units.

Thank you very much, Maite. Let's now take a closer look at the performance of our businesses, focusing on the key financial and operational indicators as well as the main drivers behind the results achieved during the period. Let me now start with Prosegur Cash, which once again demonstrated the resilience of its business model, delivering stable revenues and profitability despite a challenging environment while significantly improving cash generation. Reported sales were essentially flat year-on-year at EUR 1,001 million, while on a like-for-like basis and excluding the AVOS divestment, sales increased by 0.7% in euro terms. It is important to highlight that the transformation products continue to gain relevance within the business. These solutions represented close to 36% of total revenues during the period and grew by 4.7% year-on-year, confirming the success of our strategy to increase its weight in the revenue mix. Turning to profitability. EBITDA increased by 1.3% year-on-year, while EBITA reached EUR 111 million with an EBITA margin of 11.1%, which remained at healthy levels despite a complex business environment. In fact, if we look specifically at the second quarter, the EBITA margin remained broadly stable, improved by more than 30 basis points year-on-year. This performance reflects both the growing contribution of transformation products and the positive impact of the efficiencies initiatives implemented over the recent years, which continue to support operating leverage and productivity improvements across the business. Finally, cash generation was one of the highlights of the period. Operating cash flow increased by 15%, reaching EUR 53 million. This improvement was mainly driven by disciplined working capital management, once again demonstrating the strong cash-generating capabilities of the business. Overall, Prosegur Cash continues to move in the right direction. Let me now turn to Prosegur Security, which once again delivered a strong set of results and remained the group's main growth engine during the first half of the year. Revenue increased by 7.5% year-on-year, driven by strong organic growth of almost 9%. This performance reflects the successful execution of our commercial strategy and the positive momentum across our key markets. In particular, the United States and Iberia were the main growth drivers during the period. North America has now become the group's second largest contributor to Security revenues and profitability, delivering organic growth of around 30%. Current commercial momentum indicates that the U.S. business is well positioned to continue delivering strong organic growth in the second half of the year, underscoring the market's considerable growth potential. Turning to profitability, EBITA increased by 12.7%, reaching EUR 45 million. EBITA margin improved from 3% to 3.2%, continuing the gradual upward trend we have seen over the recent quarters. This improvement reflects the successful implementation of our Hybrid Security model, which combines manned guarding with technology-enabled solutions. In addition, the pricing review across most geographies have been well executed and continue to contribute positively to margin expansion. When comparing the year-on-year figures, please bear in mind that since January 2026, Cipher has been integrated into Security business. As we have mentioned previously, Security's strong volume growth had a temporary impact on working capital requirements. Consequently, operating cash flow amounted to EUR 2 million during the period compared with EUR 11 million in the first half of 2025. However, it is important to stress that this evolution is fairly linked to growth, particularly in the United States rather than to any deterioration in the underlying business fundamentals. Security remains a highly cash-generative business, and we expect working capital dynamics to normalize over time. Let me now move on to Prosegur Alarms, where we continue to prioritize profitable growth, customer quality and long-term value creation over pure volume expansion as the cornerstone of our strategy. As anticipated during our first quarter presentation, one of the measures introduced under our new strategy was to reduce by 30 days the period after which a customer in areas is classified as at a risk, triggering the cancellation process. During the second quarter, this policy was further strengthened in order to build a healthier customer portfolio with limited exposure to insolvency risk. As part of this process, customers with more than 90 days of overdue payments has been excluded from the reported customer base with the specific threshold depending on customer tenure. This adjustment explains the decline in Prosegur Alarms' customer base as of June 2026. It is important to highlight that this proactive initiative, which only affects Prosegur Alarms, has been implemented in line with our cash-focused strategy. As we explained during our Capital Markets Day, our new strategy is centered on delivering healthy profitable growth while maintaining very short customer payback periods. Through this approach, we aim to transform Prosegur Alarms into a strong cash-generating business for the group, both in the short and the long term. Our executive performance will also be evaluated under this new strategy. As a matter of fact, the voluntary disconnection reflected in the BTC will be carried out gradually, giving us the opportunity to reengage with customers and improve their payment behavior. The same approach applies to the stalled equipment, which will be recovered, refurbished and reused. Although a write-off impact has been recognized in the P&L as a prudent measure, we expect to recover part of this value over time. Our objective is for this to remain a one-off accounting impact on the P&L with no cash impact as we expect to recover the outstanding receivable over time. Having explained the rationale behind the customer base adjustment, let us now take a closer look at the performance of the main financial and operational indicators. Starting with our customer base, total connection increased by 3.9% year-on-year, reaching more than 1 million customers. This growth is particularly noteworthy considering the portfolio cleanup carried out in Prosegur Alarms and further underscores the strong momentum of Movistar Prosegur Alarmas, whose customer base continues to grow at a rate of around 9% to 10%. In line with the strategic plan's focus on customer quality and sustainable long-term profitability, the number of new customer additions during the period was lower than in the same period last year. At the same time, churn remained under control, excluding the impact of the portfolio optimization initiatives. Over the medium term, these measures are expected to further improve customer retention, reflecting the benefits of our quality-focused growth strategy. ARPU showed positive underlying trends, particularly at Movistar Prosegur Alarmas, driven by lower commercial discounts and pricing review. Excluding the foreign exchange impact from Argentina, Prosegur Alarms' ARPU also exhibited a positive trend. From a profitability perspective, service margins remained at healthy levels, exceeding 60% at Movistar Prosegur Alarmas and approaching 50% at Prosegur Alarms. Once again, excluding Argentina, service margin showed a positive year-on-year trend. Regarding acquisition margins, the pressure observed in the recent period has persisted mainly due to the lower scalability and reduced capacity to dilute fixed costs. To probably reverse this trend, our plan to align customer acquisition costs with the new commercial offering has been launched. This plan includes measures such as the introduction of more disciplined commercial policies, which includes requiring an upfront payment from new customers. These measures discourage the acquisition of lower quality customers while encouraging this acquisition of higher quality ones. Lastly, I would like to highlight the remarkable 53% year-on-year increase in upfront revenue, which clearly demonstrates the positive impact of the quality-focused strategy implemented over recent quarters. Let's now turn to the next slide to see how these trends translate into recurring cash flow. The charts present the 12-month rolling recurring cash flow generated by Prosegur Alarms and Movistar Prosegur Alarmas. As shown in the graph on the right, the combined cash-generating capacity of both businesses reached EUR 72 million. While this represents a 5.6% year-on-year decline, the evolution is largely explained by the performance of Prosegur Alarms, where the proactive portfolio optimization measures implemented during the period led to a lower customer base, together with a temporary increase in customer acquisition costs. If we combine Prosegur Alarms, and 50% of Movistar Prosegur Alarmas, total volume service cash increased by 8.7%, reaching EUR 193 million compared with EUR 178 million in the previous year. This is one of the takeaways from today's presentation. Despite the optimization of the customer portfolio, the underlying value generated by Alarms business continues to grow at a healthy pace. In other words, we are not simply pursuing growth in the number of customers. We are focusing on creating a more valuable customer base capable of generating higher recurring cash flows and stronger returns over the long term. This completes our analysis of the group's business line for the first half of the year. Thank you for your attention. I will now turn the call back over to our CFO, Maite Rodriguez, for her closing remarks.

Thank you very much, Cristina. Before opening the floor for questions, let me briefly review the main messages we would like you to take away from today's presentation. Overall, the group delivered another solid set of results in the first half of 2026. Revenues increased by 5.2%, supported by a strong organic growth across our businesses and a more favorable foreign exchange environment compared with previous periods. From a profitability perspective, EBITA was affected by changes in the business mix, but the underlying trends remain positive. Looking at each business individually, Prosegur Cash continued to advance its transformation strategy with transformation products now accounting for approximately 36% of revenues. At the same time, profitability remained resilient, while operating cash flow improved by 15% year-on-year. Security once again delivered the strongest performance, driven by the United States and Iberia. EBITA grew by 12.7%, supported by continued margin expansion resulting from the successful execution of our Hybrid Security model and pricing initiatives. In Alarms, we remain focused on customer quality and long-term value creation. Movistar Prosegur Alarmas continued to perform strongly, while the proactive optimization of the Prosegur Alarms portfolio is delivering a healthier customer mix, a higher quality customer base and improved service profitability. From a cash flow perspective, all of our businesses continue to demonstrate a strong cash-generating capabilities, and we remain focused on improving cash conversion and reducing leverage over time. In summary, we continue to execute our strategy successfully across all businesses. We are combining growth, profitability and disciplined capital allocation while strengthening the quality of our revenues and enhancing the long-term value of the group. With this, we have come to the end of this first half of 2026 results presentation. Thank you very much for your attention, and we will now be pleased to take your questions.

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

My first question probably is on the margin side. You mentioned that especially in Q2, margin was conditioned by certain mix effects, fine, and other more one-off issues, including the optimization of the customer base in Prosegur Alarms and the impact on the 50th anniversary. So can you quantify a little bit what has been the impact in the quarter, whether we should expect further impacts in coming quarters?

Thank you, Manuel, for your questions. You are right. The margins have decreased this second quarter, mainly because you really explained it better than me because of the mix of the business effect, mainly because of securities growing and has a lower margin, because of the ongoing optimization of the Alarms portfolio that amounts around EUR 4 million, and in the future and there is some one-offs related to the 50th anniversary. In terms of further impact, we do not expect more one-offs coming from the 50th anniversary, no one-offs or nothing else coming from the customers' portfolio optimization. And here, from those EUR 4 million that is a write-off in P&L, it's 4-point something. In terms of cash flow, we think that finally it's going to be lower than 2% of the total cash generation that we generate in a year. So that means that we think that we are super covered in that sense. So it's not going to be more than EUR 1 million, EUR 2 million. So this means that this impact on our P&L, it's a one-off and it's something that even maybe during the year, we could recover it, but we will see. We are optimistic in that sense, but I prefer to be conservative because we need to continue and to be fully committed with our new policy in terms of what we are going to consider churn and what we are not going to consider. So we don't expect more impact. We just expect -- it's a quite conservative adjustment, but we wanted to continue managing the company like that and even to managing our directors even incentives or bonuses like that. And we are going to keep this strategy on trying to grow with very, very good quality growth in Alarms and -- because that's going to be even -- I don't know if this year, but next year, we will see for sure, this is going to make us have a very good cash flow generation coming from the Alarms business. So answering again to your question, we are -- we don't expect any kind of negative impact in the rest of the year in terms of margin, and we are in line with the consensus, and we -- I am super comfortable that we are going to achieve the consensus.

Okay. And I think, Maite, you also mentioned that, okay, fine, H1 free cash flow has been conditioned by several issues, but we should clearly improve the working -- sorry, the free cash flow generation on the second half of the year, achieving a lower net debt levels. So my question is, okay, this free cash flow improvement on the second half is going to be cash earnings related, so better EBITDA for whatever reason? Or it's also be conditioned by some of the, let's say, other issues that has been involved in the free cash flow of the semester, mainly the working capital and the, let's say, higher provision levels on the adjustment of the result.

Manuel, in relation to the cash flow, the answer is in terms of this adjustment, this write-off is going to have an impact in the second half of the year, yes, but not higher than EUR 2 million. That's the answer. But you have to take in consideration that now we have a very big impact coming from the working capital of the growth of USA that is even more than 30% in this quarter. We have the seasonality that is very typical from our business. So this, as you know, mainly the big cash flow we generated in the second half. And we are going to have a good cash generation so that we could -- that's why when I was saying that the 2.5x net debt-to-EBITDA that we have temporarily now, it's not the ratio that we are going to have in the full year. So the worst, worst, worst scenario is going to be the last one like 2.4x, but that's like the worst scenario that we are going to have. So I'm also optimistic in that sense.

Okay. And just my final question, sorry. We have seen a significant working capital effort mainly from the U.S., okay? But to some extent, I'm a little bit surprised of the magnitude of the working capital effort in the second quarter because U.S. has been growing for several quarters now. So the extraordinary working capital is the normal consequence of a really, really extraordinary -- sorry, an extraordinary growth in the quarter in the U.S. or it is also related to any other more specific or technical issues regarding the go-to-market of the company in that area?