Good day, and thank you for standing by. Welcome to the Prosegur Q2 2023 results presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Antonio de Cárcer, Head of IR. Please go ahead.
Good afternoon, and welcome to Prosegur 2023 first half resource webcast presentation. The presentation will last around 30 minutes and will be followed by an open Q&A session. This webcast will be hosted by our Group CFO, Maite Rodríguez, and myself. Before we begin, I would like to remind you that this presentation has been pre-recorded and that it will also be available to download on our corporate website. I will now hand over to our CFO, Maite Rodríguez.
Good afternoon, everyone, thank you very much for your attention. The good results we are presenting today cover the first six months of 2023, and demonstrate a persistent growth trend in our most relevant business lines. The quickest way to summarize the performance of Prosegur in this first half of the year is an extraordinary organic growth in sales, exceeding those of Q1, and resulting in substantial growth in EUR terms of nearly 10% in comparison with last year. Coupled with a higher increment in profitability in all PNL lines, an excellent increase in cash flow generation. This all came with some more positive details that I would like to share with you in this presentation. Without further ado, let me go through a brief summary of the main highlights of the period.
Starting with the strong organic sales growth, which is close to 27%, and comes from an overall improvement in the main business lines. The breakdown of growth in local currency for each business unit has been 37.8% for cash, 20.7% for security, and an extraordinary 42.2% for alarms. An exceptional result on the back of higher volumes of cash in circulation, accelerated penetration of new solutions, and increased sales efforts in all geographical areas. In inorganic terms, we are pleased to announce that the Australian antitrust authorities have granted their approval for the merge project of Prosegur Cash with the country's main cash in transit operator.
This decision is based on an understanding of the importance of proper and widespread cash distribution in the country as a guarantee of social inclusion for society as a whole, and it represents an excellent opportunity for improvement and growth for both companies. In terms of profitability, the EBITDA has grown by more than 16% compared to the same period last year, despite the negative impact of currency exchange rates, which has also increased during this period. This proves our capability of sustaining growth, even in the most challenging situations. This significant improvement in profitability continues to be supported by the positive impact of inflation on our business, and an efficient transfer of cost increases to prices, which has once again been executed quickly and without negative effect.
Another notable aspect of the period has been the substantial increase in operating cash flow, close to 100%, resulting from improved efficiency in working capital management. This excellent result has allowed us to maintain a moderate and stable leverage level, which has been able to support the strong organic growth without increasing debt. Lastly, regarding innovation, the most significant events include the sharp increase in the sale of new products in cash, which experienced a record quarter. This has benefited from the introduction of the new Forex currency exchange service. The global launch of the new xMDR cybersecurity management platform also took place. This advanced automation solution for detecting and responding to cybersecurity attacks is quite exclusive and has been very well received by our clients.
Let us now analyze the financial results for this first quarter in more detail, starting by looking at the evolution of our revenues. Sales in euros have grown by 9.7%. As mentioned earlier, this result stems from extraordinary organic growth of close to 27%, accompanied by an additional 2.1% inorganic growth, resulting from last year's acquisition of the global currency exchange operator, from now on, Forex. Organic growth has been consistent across all business lines, except for Cipher, which is still adjusting its client portfolio to the newly offered services. I would like to highlight the remarkable organic growth reported by cash, security, and alarms, which significantly surpassed the figures from the same period in 2022. This growth is not only due to an excellent process of tariff updates, but also to a noticeable increase in the client demand....
This fact becomes evident when analyzing growth by geographical areas. It is clear that all regions report growth well above their corresponding GDP and inflation rates, surpassing the equivalent growth reported in the same period in 2022 and in Q1 2023. Lastly, it is also worth mentioning the increased currency impact observed during the second quarter of the year, driven by the combined depreciation of several LatAm currencies in correlation with a slight depreciation of the US dollar, to which most of our different currency trades before being converted into euros. Nevertheless, the excellent organic growth reported was able to overcome this situation, and as we will see on the following slide, profitability has also done the same.
Moving on to profitability, we can observe that the group's EBITDA has totaled EUR 150 million, representing a 16.3% increase compared to the first half of the previous year. This also implies a 5.8% increase in the last quarter compared to Q1 2023, as the seasonal effects seen in the first quarter of the year have been neutralized. Prosegur Cash still shows a certain negative seasonal effect. However, its profitability for the last quarter was at 13.7%, improving by 120 basis points compared to Q1 2023. Security significantly improved its profitability to 2.4%, representing a 3% margin in the second quarter. This good improvement is driven by growth in the USA and the swift and efficient transfer to market of inflationary cost increases.
Prosegur Alarms and Movistar Prosegur Alarmas also increased their EBITDA pre-SAC very notably. In MPA, due to improved client retention and reduced commercial offers. On the margin level, in MPA, the EBITDA pre-SAC margin increased significantly to 55.2%, while Prosegur Alarms maintained a stable level, while still temporarily affected by the ongoing transfer of operational costs to the market. Lastly, AVOS Tech's EBITDA was affected by the one-time inclusion of higher earn-outs agreed upon for the commercial success of its SISnet solution, which have been incorporated in this quarter. Now, let's move on to analyzing the income statement for the first half of the year, which is as follows. During the first half of 2023, there was an extraordinary organic growth in sales of 26.8%, which was close to 30% in the last quarter.
EBIT reached EUR 133 million, with a growth of 17.8% and a margin of 6.1%, compared to 5.7% in the same period last year. Financial interest amount to EUR 40 million, primarily due to the refinancing of a EUR 700 million bond at an interest rate of 1%, which mature in March. It has been replaced by a EUR 500 million bond at 2.5%, a very attractive rate when compared to the current rise in interest rates. Additionally, under the financial interest heading, a purely accounting impact was recorded as a result of the negative effects, effect of some intercompany operating loans.
Finally, the tax rate slightly dropped to 53.9%, resulting in a net profit of EUR 43 million, an 8.1% increase compared to the previous year, mainly due to the improvement in the earnings before taxes. Analyzing the group's cash flow, we observe a remarkable 95.5% increase in operating cash generation. This outstanding outcome is the result of careful working capital management, which effectively offset the significant sales growth and enabled the handling of client CapEx increments without impacting the group's debt level. In this regard, it should be noted that client CapEx has risen to 51% of total investments during this quarter. This is a positive indication of the significant progress made by our new cash products and alarms within our product offering, which incorporate advanced technology components.
Furthermore, infrastructure CapEx has reduced its shares in the overall mix, now standing at 2% of total sales. This reduction is attributed to the efficiency policies and global cost adjustments implemented since the pandemic. Overall, these excellent results decisively contributes to the group's gradual deleveraging policy while maintaining the necessary investments to ensure and support the project growth. To conclude the financial analysis of these results, let's review the group's balance sheet and debt position. The group's net financial debt has slightly decreased compared to the first quarter, maintaining a moderate leverage ratio of 2.3x net debt EBITDA. This is a very positive outcome, considering the significant increase in organic growth and client CapEx, which has been financed without increasing debt, thanks to the excellent cash generation during the period.
The average cost of the group's debt stands at 2.5%, indicating a very comfortable position, especially considering that 72% of our debt is a fixed interest rate, and the main maturities are scheduled for 2026 and 2029. Overall, the company boasts a very strong balance sheet that can support both current and future robust growth. I will now turn the presentation over to our Head of Investor Relations, Antonio de Cárcer, who will give you more detailed information on the development of the specific business areas.
Thank you very much, Maite Rodríguez. Let's now have a look at the results of each activity line, covering the main performance indicators and the most relevant aspects of the period for each one. Starting the analysis with Prosegur Cash, the most relevant facts of the period lie in the extraordinary organic growth of 33% reported. This growth has been consistent across all regions, significantly surpassing inflation rates and GDP growth. The company has capitalized on inflation and strongly supported its growth with new products. This organic growth is complemented by an additional 4.8% inorganic growth, resulting from the acquisition of ChangeGroup. However, it is impacted by a significant translational currency effect of approximately 27%, leading to a result of EUR 979 million, thus representing a growth rate of close to 11%.
It is important to highlight that despite the strong negative currency effect, the business continues to demonstrate the ability to achieve superior organic growth while maintaining a good double-digit growth in euro terms. The second important piece of news from the period has been the approval by the Australian Competition Regulator of the merger between Prosegur Cash and the leading operator in the market. This milestone is crucial and could lead to a significant improvement in the region's profitability profile, while reaffirming the importance of cash in society, as this has been the main rationale of the Australian Government to support this project. Regarding the profitability of Cash in the first half of the year, the consolidated EBITDA has grown by 7.1%, totaling EUR 129 million, with an EBITDA margin of 13.2%.
Although slightly affected by seasonal effects, it reflects a significant improvement in the last quarter, with the EBITDA margin reaching 13.7%. Lastly, it is worth highlighting the excellent progression of new products, which now account for over 29% of sales and have shown an impressive growth of 38% compared to the same period in 2022, totaling EUR 284 million in sales, and making it the best quarter reported to date. Shifting our focus to the security business, we observe that sales have reached a total figure of EUR 1,072 million. This represents a growth of 9.3% compared to the first half of 2022. This growth stems from an outstanding 20.7% organic growth, partially offset by a negative currency effect of 11.4%.
The sales growth of security in the first half of 2023 has been remarkable in all countries, particularly due to advancements made in Spain and the USA. The commercial growth is accelerating in these regions, thanks to innovative hybrid security proposals and Prosegur's increasing positioning as a global operator focused on high-demand clients. Our expansion focus remains on North America, where we have extended the target of opening new branches to a total of 20 this year to cater the growing client demand. Regarding profitability, security continues the trend of margin recovery that began after the pandemic. During this period, it shows excellent EBITDA growth of over 23%, reaching EUR 23 million in the first half, and reporting an EBITDA margin of 2.4%.
This notable margin improvement arises from an effective process of passing cost increases to prices across all geographical areas, combined with higher demand for advanced solutions, incorporating more technology, and enabling better scalability of investments in remote monitoring centers. The strong commercial progress in the United States has also contributed to this improvement. Specifically, the United States now clearly leads in gross margin generation in the security business, with its EBITDA results only affected by the substantial investments in commercial expansion being made in the country, which are gradually absorbing more clients. Lastly, concerning innovation, hybrid security solutions continue to gain a good penetration rate, serving more than 30% of the total client portfolio. The integration of various security business continuity and employee and customer protection services consistently enhance the value we deliver to our clients.
Now turning to the Alarms business, we can observe how virtually all business indicators show positive performance in the first half. The total client base is at 835,000 connections, a 10% increase compared to the same period last year, supported by the addition of 81,000 new clients in the first half, and reinforced by the optimization of the churn rate experienced in both units. The number of new sign-ups for Prosegur Alarms accelerates growth over 27%, while in MPA, the growth has been intentionally reduced to optimize operational indicators, although it still remains significantly high, contributing more than 51,000 new clients in the first half of the year. The positive outcome of this reduced growth rate is remarkable in terms of both churn rate and profitability. In MPA, the churn rate dropped from 14% to 13%.
The ARPU increased by more than 10%, reaching EUR 37 per client per month, or EUR 40 if we normalize the commercial discounts after the offering period. For Prosegur Alarms, the churn rate remains stable at 11%, with barely any variation, and the ARPU continues to improve by 6.7% above the strong improvement seen in the previous year, taking advantage of the alarms business ability to quickly adjust prices to inflation. In terms of profitability, both units report increases in their EBITDA pre-SAC, representing an improvement of over 17% for MPA and 5% for Prosegur Alarms. This positions the EBITDA pre-SAC margins at 43.1% for Prosegur Alarms, at an excellent 55.2% for Movistar Prosegur Alarmas.
Lastly, Prosegur Alarms sales during the six-month period have reached EUR 92 million, showing an extraordinary organic growth of over 42%, and highlighting the robust pricing capability of this business. However, this growth is affected by a strong negative currency effect, as most of the alarms in this unit are located in Latin America. Overall, the sales growth in EUR stands at a positive 2.5%. To conclude with this product line's results overview, let's briefly examine AVOS Tech and Cipher. AVOS Tech sales grew by 11.9% during the first half of the year, driven by the strong performance of the SISnet solution. SISnet is a specialized management tool for the insurance companies, experiencing high demand within the insurance sector in Spain and several Latin American countries.
This commercial success of this technology led to a higher payout of the earnouts agreed upon during this acquisition two years ago. This increase in earnouts was settled in the second quarter and is responsible for the temporary reduction in AVOS Tech's EBITDA, which totaled EUR 3 million in the first half, representing a 7% margin. As for Cipher, sales reached EUR 7 million, showing a slight decrease of 5.2% compared to 2022. The gross profit also totaled EUR 1.8 million, maintaining a margin of 26.6%. Despite being below the growth threshold, the results indicate a clear recovery for Cipher if we consider what was reported in Q1. It's worth mentioning the global launch of the new xMDR platform by Cipher in the early second quarter. xMDR is an innovative automation solution for detecting and responding to cyber threats.
It is based on a proprietary artificial intelligence and machine learning system, providing our clients with a comprehensive global protection service against attacks. It can identify threats before they fully materialize and activate protective systems in advance. This highly advanced and exclusive solution is gaining strong traction in the market and is largely responsible for Cipher's significant improvement this year's Q2 over Q1. This concludes our analysis of the performance of each business line for the first half of the year. Thank you for your attention. I will now hand the microphone back to our CFO, Maite Rodríguez, for her closing remarks.
Thank you very much, Antonio. Let me now share with you my closing thoughts on the most relevant conclusions of this results presentation. We are very pleased to see how the positive progression observed in the first quarter of the year has continued and even intensified during the second quarter. The extraordinary organic growth reported by our major lines of business has far surpassed the inflation and GDP growth rates of all the regions. Although the adverse effects of exchange rates have increased during this period, they have been offset by excellent sales and volume growth. Cash has continued to show exceptional performance, especially in LatAm, and security has also reported a significant increase, primarily in the USA and Europe. Alarms have also grown significantly in all regions at rates higher than expected.
The group's profitability continues to show a positive trend, with growth outpacing sales despite the adverse effect of exchange rates. New products are gaining traction, with Cash experiencing a record quarter, thanks to the Cash Today and Corban solutions. Furthermore, the new ChangeGroup service is already generating positive profitability. In the security segment, there has also been a notable increase in client adoption by hybrid security solutions, which has positively impacted margins. Regarding the balance sheet, the strong cash generation in the first half has allowed us to address the increase in client CapEx without any rise in the group's debt. This is a very significant outcome, the result of meticulous working capital management, which has led to a reduction of DSO.
In summary, we believe that today's good results are an excellent indicator of the group's strong commercial progression across all business lines, and they allow us to anticipate a second half of the year with very similar growth dynamics that will continue to enhance organic profitability, as observed in recent quarters. That's all from me. Thank you once again for attending this presentation, and I'm delighted to answer any questions you may have now.
Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, it is star 11 if you wish to ask a question. Please stand by while we compile a Q&A roster. We will now take the first question. From the line of Enrique Yaguez from Bestinver Securities. Please go ahead.
Good morning, Maite and Antonio. I have three questions. The first one is regarding the margins from alarms. The EBITDA margin has fallen from roughly 7% in the first half of last year to 3% this first half, despite the improvement in the ARPU and in the EBITDA pre-SAC. What are the reasons for this margin contraction? Sorry. Secondly, a question that I should ask, Prosegur Cash Management, is regarding the integration of your Australian business with Armaguard. I don't know if you could give us some impact, quantitative impact, about what you expect from this acquisition, EBITDA, free cash flow, synergies expected as well. Finally, regarding M&A.
I know that you said that, we shouldn't expect so many acqui- or many acquisitions this year, because the objective is to reduce financial leverage. My question is, after, you know, once the integration with Armaguard will be completed, do you foresee any opportunities, to grow i-in, in other businesses, mainly in security? Thank you.
Good morning, Enrique, and thank you for your question. In relation to your first question about the EBIT margin or EBITDA margin, the decrease of-
EBITDA.
EBITDA, okay. EBITDA margin, yes. The EBITDA pre-SAC margin has decreased mainly because we are, there are still some pending effects coming from the cost pass-through, and it's something temporary. Even though the ARPU of this year has, like, 10 basis points decreased, we also have an impact coming from there. We are not worried about it, it's something seasonal, and as you know, we, we can't pass through cost in, in the alarm business every month. It's something that we do it just in a, in one point of the year or in two, three points of the year, depending on the country, and that makes the decrease of the EBITDA.
There is also a very, very small impact coming from the, from the investment in the SMART platform, but it's very, very, very small, misleading impact. In relation to your second question, we are very, very happy because of the positive answer coming from the antitrust authorities in Australia. All the conditions coming from this approval are described on the ACCC web page. You can see even the definition of the what's going to happen with the prices and things like that. We will have positive impact in our EBITDA.
We are also going to have positive impact in our cash flow, not in our debt, because, as you know, when we are going to deconsolidate this Australia, we will have to also to remove all the operative cutoffs that are around, like EUR 30 or, yes, around EUR 30 more million now in September. The cash flow will be improved, the EBITDA will be improved. We are very, very happy, because in the medium long term, it is an important milestone to, not just for Prosegur, but also for the full cash-in-transit sector. Basically, because a developed country government has approved the merge of the main two players of the market. What means that they understand the importance of our business and how it is completely essential for the population and society.
This opens a huge window also in other developed countries like, like Europe. We are very, very happy, and I think that it's going to be, as I said, an important milestone, not just for Prosegur, but also for the, for the sector. Coming back also to the type of synergies that we are going to have, the main impacts are going to come because we are going to close several both. An important impact, and the main impact is going to come from there. Moving to the third question in relation to the future M&A for the rest of the businesses. We are very, very focused on the organical growth in security, so we do not expect to increase in M&A terms.
It's going to be basically organic growth. In cybersecurity and in AVOS, we are also with the new solutions, and we, we've seen that in AVOS we are trying to implement the solutions that we have in Spain, in Chile and in other countries. In the countries where we are and not with M&A, it's going to be also organical. Also, the same thing will happen with the cybersecurity business. In cash, we just today, we are going to close a deal in Germany. From now on, the only M&A acquisition that we expect is the one that we are going to close today, and nothing very significant for the rest of the year.
Thank you, Maite. What, what is the acquisition in Germany? Is, is it expected to be closed today? It is, I assume that it's a bolt-on acquisition, isn't it?
No, it will be announced in the, in the... If it's not, maybe tomorrow or the next day.
Okay.
You will, you will know about it.
Thank you, Maite.
Thank you. We will now take the next question from the line of Juan Ros Padilla from ODDO BHF.
Hello, good morning. Thank you, Maite and Antonio, for the presentation. Just have a follow-up question regarding your comments on the Armaguard deal. Saying that you, you were making a positive reading because of the, you know, the Australian government allowing the merger between number one, number two in the market. Is there? You were mentioning, after that, you were mentioning Europe. Is there any market in Europe that you, you think that you could, at some point in the future, think about merging number one and number two in that country? What, what's your feeling on how, how the European Commission will deal, will deal with that? Do you think the European Commission will, will go for it or not? Thank you.
Thank you, Juan, for your question. In terms of Europe, the... I have no idea what the antitrust authorities of Europe would say if we do something similar in Europe. No idea. I think that it's an important milestone, what has happened in Australia, because we have an example, no? At least we know what the antitrust authorities of Australia know and consider about these type of deals. In terms of Europe, I think that we will have to, we will have to see what happens even in the market in the future, no? I have no answer to your question in relation of what could happen with the antitrust authorities in Europe.
A market, even if, you know, without talking about a potential approval, is there a market that you think that could use of a merger between the number one, number two in, in that cash-in-transit market?
there, there is... I think that, for example, in, in, in, if, if we speak, for example, in Germany or in other countries where we are, we are just in three, in three countries: in Portugal, Spain and Germany. If you... For example, I remember the first time when we bought the first acquisition in Germany, that the antitrust authorities in Germany, they didn't allow us to, to acquire the, the full, customer portfolio that that company had at that moment. Now, like years later, we are acquiring a lot of different companies in, in, in Germany. The antitrust authorities, I think that they are also very aware of the necessity and the, essential business that we provide to the population and society. They, they are allowing us to, to, to, to buy, other, other different small, competitors.
If you, if your question is, are you expecting to have a huge merge between you and main competitors in other European countries? The answer is no, we are not expecting that, now. But if the antitrust authorities, maybe they are more open to hear, I think that the answer could be yes. Yes.
Thank you. As a reminder, if you wish to ask a question, please press star one and one on your telephone. That's star one one, if you wish to ask a question. There are no further questions at this time. I would now like to turn the conference back to Maite Rodríguez for closing remarks.
Thank you very much for your attention, and if you need further information, please contact our investor relations department , who is open to help you at any time. Have a nice day, and wish you all a happy summer.
That does conclude our conference for today. Thank you for participating. You may now disconnect.