Ladies and gentlemen, thank you for standing by, and welcome to the Prosegur Q1 2022 results presentation conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Antonio de Cárcer, Head of IR. Please go ahead, Antonio.
Good afternoon, and welcome to the presentation of the Prosegur results for the first quarter of 2022. This presentation will last around 30 minutes, followed by an open Q&A session. This webcast will be hosted by our group CFO, Maite Rodriguez, and myself. Prior to starting, I would like to remind you that this presentation has been prerecorded, and that it will also be available to download on our corporate webpage. I will now hand you over to our CFO, Maite Rodriguez.
Good afternoon, everyone, and thank you for attending this presentation. I am very pleased to share with you today the results corresponding to the first three months of 2022. The set of results we are presenting today can be considered very positive, reflecting a substantial increase in both revenue and profitability and clear evidence of the recovery of our business model as market conditions get back to normal. Allow me please to guide you through the main highlights of the period, both in qualitative and quantitative terms. The most significant highlights of the period is the extraordinary almost 18% growth in turnover achieved by the group. Most of it during the last month of the quarter, when normal activity has been resumed in many countries and the restrictions imposed by the COVID pandemic have largely been lifted.
As you will see later in this presentation, all business lines and regions have reported a strong positive organic growth, in double digits in most cases, reflecting a generalized recovery across all units. The increase in turnover comes mainly from the reactivation of markets, but also from the positive effect that an inflationary economy imposes on our cash-in-transit business, which take advantage of increased volumes of cash in circulation and faster cash flow velocity, not only in emerging economies, but to some extent, also in mature ones. Macroeconomics has also been favorable in terms of currency exchange, with very little exchange rate effect to be reported. Therefore, our ability to pass on inflation to market in all business lines has become evident.
EBITDA has also improved by 19% along these same lines, showing a positive incremental trend that will become more evident in the second half of the year once the traditional adverse seasonal effect on margins is corrected. Speaking of seasonality, I would like to remind you that the yearly seasonality experienced by our profitability is often amplified by inflation. As the cost differential increases during the period, it is passed on to the market through price increases. All this extraordinary growth has also implied a significant variation in our working capital consumption. This, as you will see, together with the end of all the stimulus and support programs put in place by certain governments during the pandemic, has had a noticeable impact on our cash flow generation in the quarter. During this quarter, we have also performed three new M&A operations.
All of them are in the cash business. We have acquired two traditional cash-in-transit operators in Germany and a major banking correspondent agent in Ecuador, altogether providing nearly EUR 30 million in revenues for the year, and with a very promising outlook in terms of margin once fully integrated. Finally, another significant milestone achieved during the period has been the recent issuance of a Eurobond aimed at refinancing the current bond held at group level, which will become due in early 2023. This new issuance has been a very efficient operation in which market demand almost doubled the offering, and in which the outcome is a EUR 500 million senior unsecured note of seven-year maturity with a final coupon of 2.5%.
A great outcome considering the current highly volatile interest rate conditions, which our company has successfully navigated by leveraging its solid credit fundamentals and rating at the right time in the market. Let's now have a look at the full P&L of the period, which is as follows. Revenues have totaled EUR 947 million. This represents an excellent 17.9% growth with respect to the same period in 2021. Stemming from a global 16% pure organic growth, plus an additional 1.6% generated by M&A effects in the period has had a minor positive impact. Broken down by region, we can see that all areas have shown a very good performance. Mostly LATAM, where volumes are now above pre-pandemic levels in some countries.
Rest of the world, where our North American operations in security have grown by more than 50% in the period. Europe, on its part, also presents a remarkable growth rate of almost 8% above the region's nominal GDP. As for profitability, EBITDA and EBIT have also grown incrementally with similar and higher levels than revenues, slightly increasing margins some basis points above previous years' levels. Moving down the P&L, we can see an increase in financial expenses that corresponds mainly to the accounting effect derived from exchange differences on intercompany loans as a result of currency appreciation, and therefore does not have a counterpart in cash. This has also happened with the tax rate, affected by hyperinflationary and other pure accounting rules, all in all, resulting in a final net profit of EUR 14 million.
I would like to take an additional minute to emphasize once again the extraordinary turnover recovery that all our businesses have experienced in this period. As you can see in the chart, our two main businesses' lines have organically growth well above 2019 comparable levels, as has also happened in Alarms, Cipher, and AVOS. This excellent performance has come about thanks to a reactivated demand that is evenly distributed along all markets, but also to the increased volumes of cash in circulation derived from inflation. This, in turn, highlights our capacity to transfer inflation costs to market, and how quickly volumes can recover when market conditions normalize. This is expected to be the trend throughout the year. Also note how our profitability benefits from it as our operational density increases with volume.
With regard to profitability, EBITDA has grown by 19.1% to EUR 60 million, increasing our margin to 6.3%. This is a very good result considering we are in the low side of our profit seasonality, and that much of this profit has been earned during the last month of the quarter, whereas the first two months were still affected by the negative effects of the pandemic. From a business by business perspective, we can appreciate that cash has made an extraordinary improvement in margin recovery, having obtained a higher result than the one obtained in the same quarter in the previous two years, showing a steady progress that will be maintained as the year advances.
Security, on its part, remains under a certain profitability pressure, mainly arising from the impact of Omicron, costs, workforce, and productivity during the first two months of the quarter, the termination of some government job-keeping aids received mainly in the U.S. during the pandemic, and the cost of the strong commercial effort we are making in the North American market. An effort that is quickly bearing fruit as the revenues of security in the U.S. have grown by more than 50% compared to Q1 in 2021. We remain optimistic about margin recovery in security. In fact, if we subtract the effect of the subsidies received in 2021, EBITDA in Q1 2022 has grown by more than 11%.
Alarms continues improving its year-on-year profitability, both in Prosegur Alarms and in MPA, whose EBITDA per SAC per client has reached 44.2% and 55.8% respectively. Finally, although not shown in the chart, both our new business lines, AVOS and Cipher, have also maintained and improved their profitability levels. Let us now move to analyze cash flow generation in this first quarter. On the cash flow statement, we can see that operating cash flow shows a decrease compared to the same period last year, mainly driven by two different factors. On the one hand, the increase in working capital due to higher volumes of sales and inventory stockpiling to ensure the supply chain.
On the other hand, the evolution of provisions and other non-cash items is related to the termination of all the stimulus and support programs put in place by some governments during the pandemic, which allowed certain tax payments to be deferred. Additionally, this year, we had an exceptional volume of outgoing cash from payments as a result of the labor adjustments accrued last year after the labor regulatory changes in Argentina and the digital transformation. It is worth mentioning that DSO performance continued to be one of the main focus points of Prosegur, evidenced by the fact that the quarter average of this KPI in 2022 is in line with the good level figures of the first quarter of 2021. However, when it comes to CapEx, the investment is still low compared to pre-pandemic figures.
Although I would like to point out the positive performance of client CapEx, which had reached more than 50% of the total figure by the end of March 2022. Besides, as stated in the capital market day held almost a year ago, infrastructure CapEx is kept well under control, accounting for a very low percentage over the sales of the group. Finally, variations in treasury stock and other are mainly driven by customer cut-offs and the exceptional positive impact last year related to ransomware incident back in 2019, together with the recent investment made in organic growth in companies which are consolidated by the equity method. Looking now at the group's financial position, total net debt at the end of March 2022 amounts to EUR 933 million.
Regarding net financial debt, the increase of EUR 102 million during the quarter is almost fully explained by the already mentioned one-off reduction in working capital and provisions and other non-cash items. In any event, in terms of leverage, Prosegur continues to have a moderate net debt to EBITDA ratio of 2.4x , below current bank covenant of 3.5x . When it comes to pure cost of debt, Prosegur managed to keep it at such a low level, thanks to the efficient management of financial costs together with a constant assessment and adjustment of the debt needs. As for the balance sheet, it is worth mentioning the reclassification to the short- term of the bond whose maturity is due in February 2023. Prosegur has already successfully refinanced this Eurobond at holding level in the month of April.
Despite the complex macro conditions, Prosegur has issued a EUR 500 million Eurobond, reaching a low coupon of 2.5% for seven years. This issuance managed to extend the corporate debt maturity to 2029, and added to its 1.5x over subscription, is clear evidence of Prosegur's excellent access to the capital markets, even in the toughest conditions. I will now hand over the presentation to our Head of Investor Relations, Antonio de Cárcer, who will give you more detailed information on the development of the specific business areas, as well as some additional information on our ESG progress and achievements.
Thank you very much, Maite. Let's now take a look at the results of each activity line, covering the main performance indicators of each one. Starting with cash, the main highlights of the period are the significant recovery of volumes of cash in circulation in all our footprint, especially during the last month of the quarter. Cash continues to be the most popular and used payment method in most of countries, and as the pandemic effects fade, volumes of cash in circulation continue growing at rates similar to those in the past decade. In terms of revenue recovery, we already have several countries at pre-pandemic levels, mostly in LATAM, while Europe and Asia appear to be catching up very quickly.
Not only have volumes grown by nearly 90% in the quarter, but the same has happened to profitability, which has grown by 60%, boosted by the operational leverage as we gradually gain back route and client density. Also underpinned by the positive impact of the strong efficiency measures taken during the crisis, and by the positive acceleration effect that inflation generates in this activity, both in volumes and in prices. M&A has also been a growth contributor in the period, as we have acquired two traditional cash-in-transit companies in Germany and one large new products operator in Ecuador, as has already been mentioned.
Regarding new products, another remarkable fact of the period is the strong growth that all these new solutions and services have reported, growing more than twice as fast as the traditional services and proving their adaptability and convenience to clients regardless of the economic context. In the charts that summarize the facts I've mentioned, we can see that revenues have grown by almost 19%, totaling EUR 411 million. Nearly all growth is of purely organic nature, as M&A represents less than 1% and currency impact has been virtually negligible, accounting for only a 0.3% deduction on the final revenue figure. As mentioned earlier, new products continue growing and now represent more than 23% of revenues. These solutions have increased their sales by more than 57% on a year-on-year basis.
This comes principally from the Cash Today small business solutions and from the Corban or banking correspondent agent business line, which is expanding very steadily in several countries in LATAM. EBITDA has grown by more than 60% to peak at EUR 55 million in the quarter, and EBITDA margin recovered from 9.9% in Q1 2021 to 13.3% in 2022. In this context, cash margins in Q1 are now above the equivalent quarters in 2021 and 2020, when margins reached 12.7%. The security business has also experienced solid revenue growth during this first quarter.
A large share of this growth has hailed from the U.S. operations, a market where Prosegur has grown by more than 50% in this first quarter. Excellent news, given the fact that during the pandemic, it was one of the most affected markets due to a large exposure to the aviation industry. It is now growing at a very fast rate in other key customer industries, such as logistics, retail, and large data center security. Additionally, during March, there has been a strong reactivation of many large sport events and high-capacity social events. This is an area in which Prosegur has a very broad client base, and where our range of the remote monitoring technologies are renowned for their high efficiency and competitive cost in comparison to traditional guarding services, thus expected to generate a significant margin contribution throughout the year.
Labor cost increase transfer to market is progressing with normality, although we are still in the low part of the season. Seasonality means that we have already increased our cost base by raising salaries in line with the collective bargaining agreements in each country, and that cost has not yet been fully transferred to the market. Full transferring normally is finished on the second half of the year, usually with a retrospective application in the tariffs. Nevertheless, the actual percentage of progression is faring slightly better than in previous years, and we do not expect to have major issues when completing this process that might even have some potential gains. Profitability and security is still recovering from the labor and productivity and extraordinary level of absenteeism brought out by the Omicron virus during the first two months of the year, especially in Brazil.
Moreover, margins has also been affected by the termination of the job keeping aid that the U.S. government was applying during the pandemic. As mentioned earlier, total revenue growth in security has been 15.5%. Revenues reached EUR 469 million and were classified into an excellent 13.7% organic growth rate, a small 0.3% inorganic from the acquisitions made in the U.S. last year, and also by a positive 1.6% additional FX coming from the greatly increased weight of our U.S. operations in the geographical mix. As for new products, this is also worth noting that our remote monitoring SOC solutions, along with the mobile guarding, remote aerial operations, and some other new services that comprise the new products line, have grown by almost 30%.
Pure technology sales have also increased by 25% in comparison to traditional guarding that has increased revenues by 10%. This is a very good indicator of the acceptance of this new model of security services and has become the cornerstone of our business development in the U.S. On the profitability side, as mentioned before, the main causes of EBITDA decrease are both the loss of the subsidies perceived during 2021 in the U.S. aviation business, which still has not recovered its previous levels, and the persistence during the first two months of the year of the increased absenteeism caused by Omicron. Nevertheless, as Maite Rodríguez indicated in her introduction, if we isolate the effect of the perceived subsidies, we can observe that the recurring underlying EBITDA is improving in 2022 by more than 11%.
We firmly believe that this positive gradual trend will accelerate over the coming months, with inflation costs continuing to be passed to market and expanding our new products in mature markets. Let's switch now to Prosegur Alarms and Movistar Prosegur Alarmas. Growth continues to be very strong. MPA has added more than 35,000 new contracts to its client base in Q1, accounting for approximately a 50% increase over the same period in 2021. Similarly, Prosegur Alarms has also expanded its contracts base by adding more than 10,000 new clients in the quarter. A very good achievement, which from now on will be supported by the new commercial partnership entered into with Santander Portugal, as well as by the partnership created with Telefónica in Colombia.
MPA, on its part, continues expanding its sales force, having increased the number of sales representatives by more than 35% since the acquisition of Prosegur Soluciones. Commercial infrastructure has also grown through the incorporation of nearly 2,500 points of sale, the Santander branch offices, to the already existing 1,000 from Telefónica itself. As for technology and new products, both entities report a massive growth of their intelligent platform called SMART, which now covers close to 80% of new clients. This new platform provides the clients with home video surveillance capabilities on their mobile phones, as well as the possibility to manage several different events on the alarm based on artificial intelligence, such as user face recognition and event classification and prioritization, among others.
In fact, as reported by MPA during the first quarter of this year, the number of clients actively interacting with the remote video platform of their home alarms grew by more than 65%. Looking at both the business and financial KPIs of the two companies, it is clear that the total client base has grown in both entities in respect to the closing of 2021, now reaching a total of 724,000 connections. Churn rate has increased in MPA in the first quarter as a foreseeable result of all the strong commercial efforts and campaigns executed during the end of the year and Christmas season. This will tend to stabilize during the rest of the year as new sales coming from less aggressive campaigns that now include client permanence in the contract are replacing the lost clients.
On Prosegur Alarms side, churn has decreased by 90 basis points, which is solid proof of the capacity of the business to recover following the lifting of the pandemic restrictions, able to maintain the good customer scoring level. The experience at ARPU has been along similar lines. While in MPA it has decreased as a result of the aggressive commercial policies applied by the end of 2021, within the scope of Prosegur, it has grown by a significant 13.6%, proving the extraordinary capability of this business to transfer inflation to customers. Cash flow generation has also improved in Prosegur by more than 24%, and both MPA and Prosegur have grown their EBITDA pre-SAC margins, reaching 55.8% and 44.2% respectively.
On the revenue side, Prosegur Alarms has earned EUR 43 million in the quarter, showing a solid 17.6% organic growth, and only affected by the negative inorganic impact of the sale to Telefónica of the commercial network known as Prosegur Soluciones, plus some additional negative effects coming from the large customer base we operate in LATAM. Looking now at our business process outsourcing unit, AVOS, we can see that revenues have grown by more than 30%, reporting EUR 21 million and delivering a total gross profit of EUR 6 million, which implies a growth of almost 16% over Q1 2021.
In terms of margin, AVOS has been slightly affected by the effects of the Omicron crisis that has had an impact in terms of labor and productivity on the traditional BPO front office side of the business, as it is more labor-intensive than the technology side. Technology solutions, or AVOS Tech, now represent close to 30% of sales. AVOS Tech is a brand-new designation of the broad portfolio of services fully based on technology that AVOS is now offering to its corporate clients. These new services range from pure software product selling, such as specialized anti-money laundering regulation compliance software or integrated insurance company management platforms, to more complex services, such as cloud services for business continuity or Microsoft Cloud migration services, or even higher specialized services such as big data analytics and hyper assessment tools for any type of business or client industry.
A highly sophisticated product portfolio that has been expanded to Latin America through our recent acquisition in Chile, and that will continue doing additional M&A during the rest of the strategic plan period. Now, to conclude the business lines review, let's briefly look at the performance of Cipher, our cybersecurity unit. In the first quarter of the year, Cipher has increased its revenues by 11.5% and its gross margin by 23%. Strong performance arising from a deep restructuring project consisting of the technological platform integration and internal processes alignment of all our eight security operation centers all over the world.
This major technology upgrade will not only enable better margins to be generated from more streamlined and global procedures, but it will also allow Cipher to promote seamless and more complex services to our clients, irrespective of their geographical location and on a 24-hour, 365 days a year service provision model, thus generating high recurrent services that will improve revenues in the short- term. A good example of this is the signing of a very large contract with a major financial institution in Portugal to provide PCI DSS certification to all credit card transactions made with that entity for any credit card supplier, either at ATMs or retail points of sale.
Additionally, Cipher is also entering the business to consumer model through the creation of a marketplace to provide online cybersecurity services to private individuals and the small and medium-sized businesses, which uses our intellectual property algorithms and is already live and providing service to clients. This concludes our analysis of the performance of each business line in this third quarter of the year. Now, I would like to briefly comment on our ESG performance. Today, I would like to share with you the outcome of the first year of application of our new ESG master plan for 2021 and 2023, and tell you about the main achievements of our company in this regard during 2021. The list is long and not exhaustive, so I would like to steer your attention to what we consider are the most significant achievements.
On the sustainability side, the most relevant one could be the launching of a decarbonization plan to offset the equivalent CO2 emissions generated by the company in Europe, and subsequently, the obtention of the eco or zero environment category in 440 vehicles of our operational fleet. Additionally, we have deactivated 334 inefficient armor vehicles. In terms of social, we have obtained a significant reduction of the rate of health and safety incidents of our employees by 4.2% compared to the 2% we defined as target for 2021. We have also increased the number of training hours we provide to all our employees through the Prosegur University global training platform by 66%.
On the governance side, we have fully implemented the Empowered Women program with the participation of 100% of women with management responsibility at corporate or other levels of the organization with outstanding performance assessments. These are only some examples of all the milestones achieved during 2021 in our ESG program. The full list can be viewed on our corporate website on the ESG section. We will continue reporting all the milestones as we reach them in our quarterly market communications. Thank you for your attention. I will now hand the floor back to our CFO, Maite Rodriguez, for her closing remarks.
Thank you very much, Antonio. To wrap up this first quarter results presentation, I would like to summarize the following key takeaways. The whole group has achieved excellent revenue growth in the first three months of the year. This is a sustainable trend that shows the ability of our business model to quickly recover from adverse situations, as well as the solidity of its fundamentals. Turnover has stemmed from market demand, driven by the economic reactivation, but also taking advantage of the current macroeconomic environment, where inflation has a positive effect, which our sales teams successfully managed to pass on to the market. We expect this situation to continue, hopefully supported by the stable Forex and the positive seasonality that normally affects the business in the second half of the year.
Profitability is recovering fast in cash and will also be showing a positive gradual progression in security as we continue gaining market share in key strategic markets, and our new technology solutions continue growing faster than traditional guarding services. We have been active in M&A during the first quarter of the year and intend to continue doing so throughout the rest of the year, focusing on new products and with new opportunities in different business areas. We are also very satisfied with the solidity of our balance sheet, which seems to show sufficient strength to tackle any opportunity, and with a renewed debt structure, thanks to the recent bond issuance that shifts our debt maturities to a comfortable long- term with very good conditions obtained in a very difficult interest rate environment.
Finally, we remain confident that the good results we have presented today are the starting point of a solid recovery of the company to pre-pandemic levels. That is all on my part. Thank you very much for your attendance, and I will now gladly take any questions you may have.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, if you wish to ask a question, please press star one on your telephone. Your first question comes from the line of Miguel González from JB Capital. Please ask your question.
Yes. Hi. Thanks for taking my question. I have two. The first one is, you said that so far you were able to pass through higher costs in tariffs. In security, I wonder if you expect salary increases and how you expect to cope with this or whether you have already taken some measures to mitigate this effect. Also, I don't know if you could guide us, maybe on the evolution of security margins you expect to see throughout the year, so whether you think of recovery maybe in the second half of the year or do you see a limited potential for improvement? My second question is, well, you said that cash flow this quarter was affected by some tax payments that were deferred last year.
Could you give us the impact of this item in the cash flow for this quarter? I don't know if this is one-off in this quarter or so we expect a similar figure in the coming quarters. Thank you.
Thank you, Miguel, for your question. In relation to security business, we are passing through salaries. As you know, the first Q and second Q, we are closing all the collective bargaining agreement. We are doing well in all those pass-through. But as you know, with a high inflation, the cost of those salary increase are in our P&L, but we are not still having the pass-through to prices. Even during the second Q of the year, we will still having more impact in those salary increases. But we are happy how we are dealing with those price transfers and how we are also closing the collective bargaining agreement.
In relation to how security business margins are going to evolve in the future or in this year, 2022, we expect to be above 3%. You have to know that last year we had the jobkeeping program for the aviation industry in USA, and we have suffered from Omicron, and we are also investing in USA. So those two US costs are going to leave the margin. We are not going to achieve that 4% that we had in 2021, but for sure we will be above that 3%. In relation to the cash flow, yes, there were some incentives put in place by some government, mainly in Germany and in South America.
All the amount totals around EUR 13 million. Yes, it's a one-off that, when we compare with the last year, we don't have it.
You're not expecting any impact in the coming quarters, just in this quarter? Just like last time.
No, no, absolutely not, no.
Okay.
Just that one.
Thank you.
There isn't anything else.
Perfect. Great. Thank you.
Your next question comes from the line of Enrique Yáguez from Bestinver Securities. Please ask your question.
Good afternoon, Maite and Antonio, and thank you for the presentation. I have three questions. The first one is just a quick follow-up of the security margins. Do you think that they have reached a bottom this quarter? What kind of improvements should we expect over the next few months, or will it be concentrated just in the second half of the year? Secondly, also regarding the security business, I was surprised to see that your main competitor in security highlighted especially Spain due to high performance or strong performance. You didn't mention in the presentation what kind of evolution did Spain have in the security business in the first quarter? Something special or some kind of change in, you know, your competitive environment from this competitor?
Finally, regarding the alarms business, I don't know if you could provide a target for or at least some guidance about the net subscriber base that you would like to achieve at the end of the year, and what contribution do you expect for from the partnerships in Colombia and Portugal in terms of net subscribers? Thank you very much.
Thank you, Enrique, for your questions. In answering your first question about security margins, we have room for improvement this year. It will come mainly in the second half of the year. As you know, we have the typical seasonality with the transfer prices, with the prices that we transfer to our customers. The answer is yes, we should increase our margins, and we should have an improvement quarter- by- quarter. Second quarter, it is not going to be when we are going to achieve that 3% or three-point-something percent, but yes, we will achieve it in the third and fourth quarter.
Answering to the question in relation regarding Spain and security, the answer is that the month of March has been a very good month, mainly because we are recovering all the big events like football and other type of big events. Yes, we have a very good last month, but January and February or mid-February, it was affected by Omicron. We have there some unproductivities, so that we didn't. The margin was a little bit impacted because of it, but the sales were doing really well. We were happy coming from the side of volume, but the Omicron and unproductivities for January and February were still high, but in March, we have normalized them.
In answering your third question in relation to alarms business, we expect to continue to have a positive growth. We have, as you know, MPA from one side and the rest of the world from the other one. For the rest of the world, we expect to continue to have a positive NTC for this year. What means that all economies are recovering their pre-pandemic level situation, so we should have a positive NTC, what we didn't have last year. For this year, we are happy, and we are very positive in that regard. In MPA, we at least think that we should be quite at least the floor should be what we had, the increase that we had for last year.
Thank you.
Thank you. Your next question comes from the line of Francisco Ruiz from BNP Paribas Exane. Please ask your question.
Hi, good afternoon, Maite, Antonio. Sorry to insist on the margins on security. My first question is if you could give us a split of how much the margin have suffered because of the delay of the pricing because of inflation, and how much is because of the high level of absenteeism at the beginning of the year. The second question also on this is if we take into account that the mix of the product has improved, you know, to more technology and new products, but the margin excluding the subsidies remains the same. So what are the reason for that, and what should make you be as positive as to double the margins from now to the year-end, apart from the seasonal effect?
The last question is on the US security business. You could give us an idea of what's the level of profitability of the US business, and if you continue with the aim of growing inorganically in this market, or there has been some delays on this expansion. Thank you.
Thank you, Francisco , for your questions. I'm going to start with the last one, with the US, because I didn't get it yet very well, the second one, I think. In relation to the US, growth and the level of profitability, and now we are doing 2022, this first Q, we are not achieving the break even, mainly because we are investing in commercial effort and so that it is going to increase our market share. As you know, we really did well in volume during this quarter. We expect to even improve our internal budget for 2022 in volume. This investment and the aviation weight in total sales, it still has an important weight.
As far as we start increasing in other type of customers like retailers or logistics, we will start increasing our margins and also with that volume, the costs are going to be neutralized. For this year we are positive in volumes. I can tell you that we are not going to achieve the break-even for this year in USA, but we are going to do it very well in volumes. That is our target. Going back to the first question, I think that I don't know if you make one or two questions because we hear you like very lowly.
I guess that your question was about how the technology is impacting in margins and how the Omicron or other different impacts has impact in our margins. Omicron had.
My question, Maite, was first if you could give us what has been the impact on the one hand of the lack of repricing yet of the contract of inflation and also the absenteeism. Okay? The second question.
Yes.
Was looking at the improvement of the business mix, okay, so you have higher sales from technology and from new products versus the traditional product in security, and excluding the subsidies, the margin is not improving. What are the reason for that?
Okay, understood. Thank you, Francisco . The absenteeism or what we call unproductivities, it's around EUR 3 million for this first Q. Here in security margin for understanding this first Q security margin, you have to consider like four different points. On one hand we have this unproductivities impact around EUR 3 million. We have the already mentioned investment in U.S. We also have the job keepings grants that we receive from U.S. that are around EUR 8 million that are not the year we have zero. On the other hand, aviation industry is not recovering or is still not in the normalized levels.
Fourthly, we have the transfer pricing impact where, for example, in each country is completely different, but for example in Spain, we have transferred 100% of the cost even a little bit more. But in other countries, for example, in Argentina, we have started the first part of the year and we have the cost, but we didn't pass, we just passed like 17% of the prices. But in Brazil, we are in the middle of the negotiation of our collective bargaining agreement. So there is a huge mismatch there. That's why Q1 in security, it will also happen in Q2, transfer pricing is impacting the margin.
In macroeconomic situations as in the one that we are living now with high inflation, those impacts are higher. Of course, in the second half of the year they will be neutralized, but till then we are not going to observe them. In relation to the business mix with technology and traditional guarding, we are really working harder. We are even investing in SOCs, not only in Spain, also in Miami, in Argentina. We trust in that model. We know that we have to continue growing together with the customer and we are sure that we will bear fruit very soon.
Okay. Thank you very much.
Thank you. Your next question comes from the line of Pedro Alves from CaixaBank. Please ask your question.
Hi, Maite. Good morning. Three questions, please. First one, if you could give us a breakdown of your organic growth in the quarter between volumes and pricing, and your expectation of this split for the full year. Secondly, this MPA reduction in prices and the increase in churn rates, could you just elaborate a little bit more on this and give your expectations in terms of ARPU for the full year? Thirdly, not really a question, more to get your thoughts on your valuation, which seems definitely low for historical standards. I was wondering if you are considering to take some actions in the future to at least narrow this valuation gap at Prosegur holding company.
We know, for instance, that you have been quite vocal about the hidden value of your alarms business. Could you eventually consider some kind of spin-off or value crystallization through a similar transaction like you did with Telefónica? Any thoughts on this in evaluation of the holding company would be helpful. Thank you.
Thank you, Pedro, for your question. In relation to volume and pricing, as you know, this part of the year, volume is always higher than prices. During the second half of the year, the mix will change. But now we are quite similar, but we are like 50-50, a little bit more volume. As always, there isn't any kind of difference if we compare to this same situation with the first Q of last year or other years.
Coming back to your second question, the prices of MPA or the ARPU has decreased mainly because all the aggressive commercial campaigns and promotions that we did during Christmas and last year. This ARPU decrease as far as the number of connections is going to increase, those commercial promotions are going to have less effect in our ARPU. What we expect is now during this year, that ARPU should continue in the same level, but as far as we have started having more and more connections, the new promotions are going to have less weight on the total ARPU figure. It will gradually started improving, not during this year.
The year we will have a small increase, but not something significant. If you can repeat the third question, please.
Yes, Maite. The third question was more about the valuation, which is depressed at the holding company at Prosegur. And because you have been quite vocal about the potential value of the alarms business, which has not been priced in by the market, if you consider in the future some kind of operation for alarms business, like assets rotation, value crystallization of this unit, like you did with Telefónica, for instance.
Okay. Yes, where we are, we are analyzing a lot of different partnerships with different, not only telco, banks and even insurance companies, for all the rest of the world alarms. I can't tell you anything else, but yes, we are looking at plenty of different options and we are open to plenty of different deals.
Okay. Thank you very much.
Thank you. As a reminder to ask a question, please press star one on your telephone. Your next question comes from the line of Álvaro Lenze from Alantra Equities. Please ask your question.
Hi. Thanks for taking my questions. The first one would be regarding the US. I understand that you no longer have the fiscal stimulus, but last year you were indicating that this stimuli were just offsetting the lack of volumes, especially in the airport business or airport-related business. If I look at US traffic or at least North American traffic, it seems to have recovered quite significantly. So how come the recovery in volumes in air traffic has not translated into a recovery in your own volumes in the airport business, which should in principle allow for a recovery in profits or at least maintain the same level of profits as you have with the fiscal stimulus? My second question would be regarding your commercial strategy in the, again, in the US.
You have mentioned that you are being quite aggressive on the commercial front. I would like to know how confident are you or why are you confident that once you stop being this aggressive, you will retain those clients and that we will not have some profitability issues as we have seen in Spain or in Brazil in the past, where you have had to execute a client restructuring or a portfolio restructuring to eliminate loss-making accounts and how this will not be a problem in the case of the United States. Something similar with the alarms business. We have seen ARPU decline, which I understand that the strong commercial activity and the discounts may have affected negatively, but we have also seen an increase in churn.
Why are you expecting that this commercial discounts will be diluted and not that clients will just churn out of your client base as the promotions finalize? Thanks.
Thank you, Álvaro, for your questions. In relation to answering your first question, you have to bear in mind that the lack of volumes in airports that we mentioned last year we are still having those lack of volumes, mainly because we are in airports where international flights are not being done. We are in L.A., we are in LaGuardia, where those international flights are over. So when they come back, we will start providing the service, but now they are not providing the service. So that's the answer. In relation to the second one, what you say, like, the commercial study that we are having in U.S. here, you have to consider that when I say investment in USA, we have two parts.
One, maybe that we are quite aggressive on our prices, but the big one is that we are really investing in our sales force. We are hiring plenty of people and that is decreasing, of course, our margin. If you analyze the gross margin of AVOS is not so bad, but I am of course including all the costs that AVOS is having. In terms of the churn of MPA in alarms business, here you have to consider that like around six or seven months ago with those aggressive commercial promotions, we didn't have any kind of permanency. But now since last, I think that five, six months, we are starting having long-term contracts of one year.
The churn should be improving during the year because those aggressive and those Christmas campaigns where we didn't ask the new customers to have any kind of permanent. They are over.
Okay, thank you very much.
As a reminder, to ask a question, please press star one. As there are no further questions in the queue, that will conclude today's Q&A session. I would now like to turn the call over to Mrs. Maite Rodriguez for any additional or closing remarks.
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