Good day, and thank you for standing by. Welcome to the Prosegur Q3 2024 Results Presentation. At this time, all participants are in a listener-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 and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. We'd now like to hand the conference over to your first speaker today, Juan Ignacio Galleano. Please go ahead.
Good afternoon, and welcome to Prosegur Q3 2024 Results Presentation webcast. Before we start, I would like to remind you that this presentation has been pre-recorded and that it will be available on our corporate website. I will now hand you over to our CFO, Maite Rodríguez.
Good afternoon, and thank you all for your presence. We are excited to present Prosegur results for the nine months of 2024. As we shall see throughout the presentation, we continue to outperform in our main businesses, validating our growth strategy. We are thus optimistic to fully comply with the financial targets set for the fiscal year when it comes to EBITDA and cash flow generation. Let's now deep dive into the most significant milestones of the period. During the first nine months of the year, our main businesses continued to perform, resulting in EUR 3.6 billion in total annual sales. This represents a 6.4% increase year-over-year. The growth, which was purely organic and across all geographies, not only highlights the solid operating performance but also reaffirms our growth strategy going forward.
It's worth stressing that the figure increases to 7% when correcting for both sales from the Australian operation during the first nine months of 2023 and sales from the Indian operation during the second and third quarter of 2024. Moving to profitability, our Cash business continues to be impacted by the real depreciation of the Argentine peso and the Brazilian real. We continue growing, albeit at a slower pace, in our forex business, resulting in additional setup costs and operating expenditures. Just to get an idea, we opened over 50 new branches in the first nine months. We are pleased with the footprint that we have, and we are confident that we are now in a solid position that should translate into both increased EBITDA margins and cash flow generation in the year to come. Finally, we are still impacted by restructuring costs in our Australian operation.
Our Security business is once again in the spotlight as it continues to grow, this time marking a 20% increase year-over-year. EBITDA margin totaled 2.9% in the first nine months and reached an astonishing 3.2% during the third quarter. Every single country is EBITDA positive year to date, with an outstanding performance of Spain and the U.S.A.. As it has been the case in past quarters, positive results were mainly driven by enhanced operating efficiencies as we continue to grow in a very sustainable fashion. At the same time, our technology sales continue to increase on a yearly basis, further contributing to EBITDA generation. As we will later see, in our Alarm business, we continue with our systematic growth while keeping all main operating and financial indicators in line.
This is very well captured in the recurring cash flow metric as we reached EUR 59 million and EUR 36 million in MPA and Prosegur Alarms, respectively. We generated EUR 143 million in operating cash flow, mainly driven by a very efficient management of working capital as we managed to reduce DSO by one day. September proved to be a very strong month as we generated EUR 83 million, confirming once again the seasonal nature of our cash flows. We continue our investment in innovation, aware that it is the only way to achieve product diversification and thus a more sustainable growth path. In this line, transformation products in our Cash business already exceed 32% of total sales. Let's now turn to slide two, where I would like to deep dive into our sales figure.
As said, total sales during the first six months of the year reached EUR 3.6 billion, 6.4% higher year-over-year. It's clear that almost the entire growth was organic as a result of our efficiency in both passing through inflation to prices and, most importantly, growing volumes. This has been the case for all our main business units, where organic growth ranged from as low as 30% to as high as 92%. As for sales breakdown by geographies, we continue to deepen our geographic diversification as Europe share increases against that of LATAM. Moving now to profitability, total EBITDA reached EUR 237 million, marking a 1.2% increase compared to the same period of last year. As seen in the right-hand chart, except for our Cash business, all of our most significant businesses registered double-digit growth.
As previously stated, our Cash business performed well but was impacted by the restructuring costs associated with the merger of the Australian operation, coupled with the investments deployed in our forex business. Regarding the latter, and as it was already mentioned, we slowed down the growing pace during the third quarter as it's time now to consolidate the growth, reason why we are very optimistic for the upcoming future. As for the former one, we are confident that in the upcoming months, the implementation of the expected synergies will more than offset the restructuring costs, resulting in enhanced margins. At the same time, the real depreciation that currencies in LATAM suffered, specifically the Argentine peso and the Brazilian real, further contributed negatively in EBITDA. It's worth highlighting, though, that the Argentinian operation is being favored by a systematic increase in monetary aggregates, which naturally translates into higher volumes.
EBITDA growth in our Security business was quite impressive, proving us right with the strategy followed over the past years that can be easily summarized as follows: first, a strict discipline in passing through inflation to prices; second, a thorough control of absenteeism; third, operational leverage thanks to higher sales volumes; fourth, a controlled customer portfolio turnover; and finally, a lean operational structure. On the other hand, our Alarm business presented solid results, with service margins increasing 9% and 10% in Prosegur Alarms and MPA, respectively. As we shall later see, this translates into a significant increase in the cash generation capacity of the business, reaching highly attractive levels. Turning now to our P&L, it can be seen that every single line increased compared to the same period of last year, the only exception being financial results.
This only reaffirms what we have been explaining all the way through this presentation: the enhanced economic performance of our businesses. As the financial results, the main reason behind the increase has to do with the hyperinflation effect that went from -EUR 10.1 million to -EUR 23.9 million. As previously explained in our last earnings results, this is explained by the Security business in Argentina, as its net monetary position went from negative to positive as many of their financial debts were either paid off or capitalized. However, it must be remembered that the nature of this impact is non-cash. Indeed, financial results that have a direct impact in cash generation went down 30% year-over-year. The lower cost associated with dividend upstream has a lot to do with the decrease.
Further down the P&L, it can be seen that our tax rate went down 517 basis points, reaching 47.4%, which, together with higher EBIT generation, explains the 2.2% increase in net income. Let's now turn to cash generation. All the way down to operating cash flow, there are three lines that present significant differences compared to last year: provisions and other non-cash items, investment in working capital, and others. As per the former one, there is a EUR 51 million negative difference, mainly attributed to the fact that last year the VAT in Spain was paid in October, while the lease liability related to IFRS 16 increased, resulting in higher lease payments coming from forex business. Regarding the investment in working capital, not only was the negative calendar effect of June fully reverted, but we also managed to decrease DSO by one day year-over-year.
Finally, the sharp reduction in others is mainly attributed to the consolidation of the Australian operation during the month of September of last year. As per CapEx, total investment reached EUR 133 million, in line with the same period of last year. Infrastructure CapEx continues to be stable at 1.9% of total sales, while the reduction in expansion CapEx is explained by our strategy to lease Cash Today machines in some of the geographies where we operate in order to lessen our asset base and increase profitability. To wrap up the consolidated financial overview, let's now discuss the company's financial position. Net financial debt reached EUR 1.5 billion, resulting in a total net debt-to-EBITDA ratio of 2.6 x. Indeed, despite the increase in net debt in absolute terms, the leverage went down from 2.8 x to 2.6 x, driven by higher EBITDA generation.
This result put us in the right track to get to the 2.5 x that we targeted at the beginning of the year. It's worth highlighting that not only is our leverage position quite conservative, but also that both the terms and the structure of our debt are very healthy, with an average cost at 2.8% and over 70% at fixed rate and long-term in nature. That's all from me for now. I will now turn the presentation over to our Head of Investor Relations, Juan Ignacio Galleano, who will give you more detailed information on the development of the specific business areas.
Thank you very much, Maite. Let's now have a look at the results of each business line, covering the main performance indicators and the most relevant aspects of the period.
Starting with our Cash business, I would like to reinforce the 39% organic growth that we achieved during the first nine months of the year. This is a good testament that volume growth remains high at very healthy levels. At the same time, and as it was already pointed out, different geographic dynamics of sales growth resulted in a more sustainable diversification. Both EBITDA and EBITDA margin were negatively impacted by restructuring costs in our Australian operation, the investments deployed in our forex business, the FX impact in some of the geographies in which we operate, and by the seasonal deferment in price reviews. As previously stated, the remonetization process that is taking place in Argentina, evidenced by the systematic increase in monetary aggregates, is already translating into higher volumes and should be the case for the months to come.
Transformation products continue to gain share, exceeding 32% of total sales. As we always stress, this is of paramount importance every time it evidences product diversification. Operating cash flow reached EUR 142 million, as it was mainly affected by lower EBITDA generation, as the management in working capital continues to be highly efficient. Let's move now to our Security business, which continued to be the major highlight. Total revenues reached EUR 1.8 billion, with the organic share reaching a remarkable 33%. This is mainly driven by our volume-based strategy that leads to operating leverage and our capacity to pass through inflation to prices. All the above, coupled with enhanced efficiencies and operating leverage, resulted in total EBITDA reaching EUR 54 million, 30% higher compared to the same period of last year. Margins, for their part, reached 2.9%, marking a 21% increase when compared to the same period of last year.
Even more important is the fact that every geography registered positive EBITDA margins. Operating cash flow reached EUR 2 million, marking a remarkable 150% increase year-over-year. The enhanced financial performance, coupled with a strong discipline when it comes to working capital management, explained the increase. Indeed, DSO were reduced by one day compared to the same period of last year. Let's now turn to the Alarm business, where, once again, we delivered outstanding results. As it can be seen, all relevant KPIs continue to move in the right direction as we continue to grow. Starting with Prosegur Alarms, I would like to stress the outstanding organic growth, which speaks for our commitment and discipline in passing through inflation to prices. As said, our volume continues to increase, as reflected in total BTC that went from 377,000 to 404,000, marking a 10% increase.
Regarding the churn rate, RoW boasts a minor increase, mainly explained by Argentina in light of the significant pass-through of inflation to prices. Service margin went up from EUR 16 to EUR 18, despite the negative impact of the depreciation of the Argentine currency. Unitary acquisition costs went slightly down, reaching EUR 1,447 per BTC. This is mainly due to enhanced efficiencies and volume growth contributing to cost dilution, a higher share of what we call new channels, dealers, and commercial alliances, and the depreciation of the Argentine currency. Moving now to MPA, all metrics behaved as expected. Our ARPU, without including discounts, went up 4.5% from EUR 41 to EUR 42 per connection, while churn went down from 12% to 11%. Acquisition costs increased year-over-year, primarily explained by enhancements made at product level. Service margin resulted in a 10% increase, moving to EUR 22.
Finally, to wrap up our analysis on the Alarms business, we would like to comment on the recurring cash flow generated by the business, our star metric that is built, as already explained in past calls and during our analyst day, by the different pieces that we just explained in the previous slide. In the case of MPA, recurring cash flow more than doubled, reaching EUR 59 million as of September 2024. The operations of Prosegur Alarms, for their part, generated EUR 36 million, making up the EUR 66 million in cash flow that Prosegur, as a company, generated out of the Alarms business. This implies a 14% increase compared to the same period of last year. It is indeed a remarkable figure that brings to light the promising years ahead of us. This concludes our analysis of the performance of each business line for the first nine months of
the year.
Thank you all for your attention. I will now hand the microphone back to our CFO, Maite Rodríguez, for her closing remarks.
Thank you very much, Juan Ignacio. Let me now share with you my closing thoughts on the most relevant conclusions of this results presentation. On a consolidated basis, total sales increased 7%, without considering neither the sales in the Australian operation nor the Indian one for the Cash business. Even more important is the fact that this increase was widespread across all geographies and further enhancing both geographic and product diversification. That's making the entire operation more sustainable. In our Cash business, total EBITDA has been negatively impacted by temporary effects such as the restructuring cost in Australia and the additional setup cost in forex.
It's worth noting that these effects should be fully offset next year once projected synergies get fully materialized in the case of Australia and once the growth in forex is fully consolidated. The share of transformation products continued to increase, reaching 32% of sales. Moving to our Security business, we have presented strong results with EBITDA and EBITDA margins increasing 21% and 20%, respectively, compared to the same period of last year. More impressive is the 3.2% EBITDA margin that we reached during the third quarter. Our Alarm business presented solid results with increased service margins and cash generation. This is clearly captured by our recurring cash flow, which amounts to EUR 66 million, implying a 14% increase year-over-year, pointing to a strong cash generation. All this growth was achieved as we continue to be mindful of our leverage position.
We are confident that our leverage ratio will continue to fall as we generate cash flow during the last quarter of the year. At the same time, the good structure and low cost of our financial debt should not be overlooked to properly assess our financial position. Indeed, the average cost of our debt went down from 2.8% to 2.6% during the third quarter. This was all on my side for this results presentation. I would like to thank you all once again, and we are now open for Q&A.
Thank you. If you would like to ask a question, you'll need to press star, one, and one on your telephone and wait for your name to be announced. To withdraw your question, you can press star, one, and one again. Thank you. We'll now take our first question.
This is from the line of Enrique Yáguez from Bestinver Securities. Please go ahead.
Hi, good morning, Maite and Juan. I have three questions. The first two are related to the Security business. In security, we have seen a slight deterioration in the EBITDA margin in the quarter standalone. Just to ask, what is the reason? Is it a question of the mix of sales or some temporary effect? And second, also in the Security business, the stronger cash flow generation this quarter is very high compared with traditional standards. So it's related with some potential impact of working capital. And finally, if we deduct the impact of Prosegur Cash and Security in your operating profit in EBITDA, it seems that there is a positive impact of EUR 4 million in the quarter. The question is, what is the reason behind that?
Is it a reduction in corporate expenses or improvement in the EBITDA of Alarms? Thank you very much.
Thank you, Enrique, for your questions, and happy birthday. Regarding the first question.
Thank you, Maite.
You're welcome. Regarding the first question about the Security business, we have achieved 2.9% margin, which means that is for the 3Q isolated 3.2% of margin, which is quite high. And as you know, here we always have the seasonality coming from the passing through inflation to prices. So we are happy with the 3 Q margin because it is higher than previous quarters, but it's mainly because of the seasonality. And you were asking that it was lower, but I don't know if you were saying that it was lower comparing with because comparing with the previous quarters is higher.
It was lower on a year-on-year basis.
In the third quarter of last year, it was 3.3%. The trend was quite positive throughout the year, and in this quarter, we have seen a slight deterioration. So just the question is why it doesn't follow the same trend as in previous quarters of sequential improvement.
Yeah, okay. Perfect. Understood. No, it's just mainly because of the passing through inflation to prices. As you will see, for the fourth quarter, this doesn't mean that we are going to have a smaller margin in comparison to last year. No, it's going to be the opposite. We should be more or less with, at least with the margin that we have of 3.2% full year, I mean, in accumulated terms, that we achieved 3.2%. So we should be for the fourth quarter around that figure, and I think that above, for sure, that figure.
In relation to your second question about the strong cash flow generation, here we have a better management of the working capital. We have increased one day in comparison to last year. On the other hand, we also have the calendar effect that we, if you remember, 1 Q and 2 Q, both of them, they were impacted by the calendar. So now we do not have those impacts, and that's why the cash flow generation has been improved, also because of the good management of the working capital coming from that improvement in the DSO. We are also still controlling our infrastructure CapEx, so that also helps on this cash flow generation and even improving our leverage.
And going back to your third question about those four million, they are related with the overhead that we have improved, mainly because now we have a leaner structure, and we have been doing plenty of saves in that regard, and it's fully coming from there.
Okay. Thank you very much, Maite.
Thank you. Once again, if you would like to ask a question, please press star, one, and one on your telephone and wait for your name to be announced. And to withdraw your question, you can press star, one, and one again. Star, one, one if there are any questions. We have a question coming through. One moment, please. This is from Manuel Lorente Ortega from Santander. Please go ahead.
Hi. Good afternoon. I mean, my first question is about net debt levels by year-end.
Maite, I believe you mentioned that you were expecting lower net debt levels by the end of the year. Could you be more precise a little bit more in terms of whether the net debt to EBITDA levels will remain on this 2.6 x, or do you expect further cuts by year-end?
Thank you, Manuel, for your question. Yes, Prosegur is in the right way to get into the 2.5x net debt EBITDA ratio. That's our target for full year or for year-end. And I think that is achievable. I'm sure that we are going to achieve it. But I think that I would like to clarify in absolute terms that even though we are going to improve our ratio in relative terms, in this net debt EBITDA ratio, in absolute terms, we are not going to improve it. We will be a little bit above the last year's figure.
But for the next year, the absolute figure for the net debt for next year, for 2025, will be significantly smaller than the one that we are going to achieve in 2024. But for full year 2024, in absolute terms, the net debt will not increase in comparison to 2023. Yes, in relative terms, we will achieve that 2.5 x.
I see. And just a quick question regarding whether you can comment regarding 2025 expectations. Probably it's too early to give precise indications, but it would be great if you can share with us your initial thoughts regarding the different moving parts for next year. You have mentioned that you expect a significant improvement in the Cash business because of the combination of the different issues that have been affected recently in the business.
It's fair to say that you also expect some further additional margin improvement, for example, on the Security Business, or not really? Consolidated the pretty high current levels, it's a good starting point for next year. Thanks.
Thank you, Manuel. For 2025, we are going to start decreasing even, as you know, we have our plan, our first two years plan. As you know, we have two-plus years plan. And this first two years plan of the plan, we have our main one of our main goals is to decrease the debt. And that's why for 2025, we are going to reduce it. But it's mainly Cash Business will continue generating. As you know, it's a very good business for cash generation and will continue in the same way.
But here, the key is going to come from Security business because the margins will continue improving and will continue having the same trends as we have been observing during this year. And even not just in margins, but also in cash flow generation, which means that if this year the Security business is going to generate around EUR 7 million of cash flow for next year, we are really, really going even to more than double that figure. So that is going to be a game changer. Never in the past, we are going to generate so much cash flow, and that's why our debt is going to decrease. As you know, Alarm business is not going to change a lot because all the cash generation from Cash, we will reinvest it on growing. But yes, Security business. So that one is going to be the key.
And even, I guess, for the analyst, it's going to be something that should be quarterly deeply analyzed because that's going to be the key to reduce our net debt for 2025.
Okay. And just my final question, just a more, let's say, quality type of question. I saw that you announced last week the extension of some agreements with Prosegur Cash regarding internal actions between the two companies. Do you want to comment on anything regarding whether this is something that's relevant, irrelevant, non-event type of agreement, or something that we should consider going forward between the relationship of the two entities? Thank you.
Manuel, it's legal formality, business as usual. Even it's something that was done just because the legal department recommended to do it, but nothing relevant.
Okay. Thank you, guys.
Thank you. We'll now take our next question. Please stand by.
Next question from the line of Miguel González from JB Capital. Please go ahead.
Thank you. I just have one question. This is related to the acquisition cost in Prosegur Alarms. Could you explain what are the reasons you only saw a slight disappointment of this cost compared to a 7% decline in the first half of the year and why there is such a seasonality between the quarters? Because I believe acquisition costs were EUR 1,000 last quarter compared to EUR 1,400 in this quarter. Thank you.
Miguel, thank you for your question. Here, there are two main reasons. The first one is the effects impact that we have in the acquisition cost. And the other one is a kind of mix of all the different products.
As you know, when I mean with products, it's like you have there are a lot of things like the cost of equipment and publicity and all those things. So installation costs and those things. So sometimes we also have different costs because of the different agreements that we have closed with our suppliers. But there is nothing significant. It's mainly the mix of different costs and the effects impact.
Sorry, did you expect this cost to lower in the fourth quarter or to remain at similar levels?
Similar to what we have in this quarter.
Thank you. As a reminder, if there are any further questions at this time, please press star, one, and one on your keypad. Press star, one, and one for any further questions. There are no further questions coming through, so I will just hand back to the speakers if there are any closing remarks.
Thank you very much for attending this presentation. If you need further information, please contact our investor relations department, who is open to help you at any time. Have a nice day.
Thank you. This concludes the conference for today. Thank you for participating, and you may now disconnect. Speakers, please stand by.