Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Prosegur Compania De Seguridad SA (PGCSF, Financial) reported a 6.9% increase in total annual sales, reaching EUR2.3 billion, highlighting solid operating performance.
- The company's security business saw a 30% increase in EBITDA, driven by enhanced operating efficiencies and sustainable growth.
- Technology sales in the security business continue to grow, contributing to higher margins despite the temporary impact on cash flow.
- The alarm business showed strong results with service margins increasing by 10% and 12% in Prosegur Alarms and MPA, respectively.
- Net financial debt is structured with a healthy average cost of 2.8%, with over 70% at a fixed rate and long-term maturity, ensuring financial stability.
Negative Points
- The cash business was negatively impacted by the depreciation of the Argentine peso and restructuring costs in the Australian operation.
- Total EBITDA decreased by 3% compared to the same period last year, primarily due to investments in the ForEx business and FX dynamics.
- Net income decreased by 22% to EUR28 million, driven by a sharp increase in financial results due to hyperinflation effects in Argentina.
- Cash flow generation was temporarily impacted by fewer operating days and higher technology sales, leading to increased DSO.
- The leverage ratio remains high at 2.8x, with expectations to reduce it to around 2.5x by the end of the year, indicating ongoing financial pressure.
Q & A Highlights
Prosegur Compania De Seguridad SA (PGCSF) Q2 2024 Earnings Call Highlights
Q: Can you provide a breakdown of the strong growth in the security segment by geography and discuss its sustainability?
A: The significant growth in the security segment is primarily driven by the USA, Argentina, and Spain. We expect this positive trend to continue into the second half of the year, with accumulated margins at least matching last year's figures. The growth is volume-based, and we anticipate an increase in EBITDA margin year-over-year. (Maite Rodriguez Sedano, CFO)
Q: How sustainable is the growth in security given its impact on free cash flow?
A: While growth in security requires cash flow, particularly for working capital in the technology business, we are focusing on high-margin customers. This year, we are prioritizing margin growth over immediate cash flow, but we still expect positive cash flow from the security business. (Maite Rodriguez Sedano, CFO)
Q: The current leverage of 2.8x seems high. How do you see this evolving?
A: The leverage is temporarily high due to seasonality. By year-end, we expect it to be around 2.5x or better, driven by improved cash flow generation. (Maite Rodriguez Sedano, CFO)
Q: Can you explain the discrepancy between EBITDA and negative operating cash flow in the security segment?
A: The gap is due to higher Days Sales Outstanding (DSO) in the technology segment, which temporarily affects cash flow. This is a temporary effect, and we expect to collect these amounts in the coming months. (Maite Rodriguez Sedano, CFO)
Q: What is your strategic approach for the AVOS Tech division?
A: AVOS Tech is not our main focus currently. We are concentrating on our three main business lines. We are not planning to sell AVOS Tech; it remains part of our portfolio. (Maite Rodriguez Sedano, CFO)
Q: How do you see the second half of 2024 evolving compared to the second half of 2023?
A: We expect a strong second half, driven by positive trends in our alarm and security businesses and effective price reviews in the cash business. We anticipate higher figures than current consensus estimates. (Maite Rodriguez Sedano, CFO)
Q: How much of the financial leverage reduction depends on working capital reversal in the security segment?
A: The security business is expected to achieve at least EUR7 million in positive cash flow, including CapEx. A significant portion of the leverage reduction will come from working capital improvements. (Maite Rodriguez Sedano, CFO)
Q: Is the EUR50 million one-off payment in Australia a permanent feature?
A: The AUD 50 million payment is a one-off. However, we are working on establishing new tariffs, which may have a lasting positive impact. (Maite Rodriguez Sedano, CFO)
Q: How confident are you in maintaining your credit rating given the recent outlook downgrade by S&P?
A: We are confident that our financial metrics will improve by year-end, and we expect the outlook to return to stable. S&P considers our Telefonica shares as cash flow, which supports our financial position. (Maite Rodriguez Sedano, CFO)
Q: What is the impact of hyperinflation accounting in Argentina on your financials?
A: The impact is due to the change in net monetary position in Argentina. This is expected to continue, driven by positive cash flows from our operations there. (Maite Rodriguez Sedano, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
