Prosegur Compania de Seguridad SA

MAD:PSG

Earnings Call Transcript 2018-Q1

[Operator]

Good day, and welcome to the Prosegur Q1 2018 Results Presentation. Today's call is being recorded. At this time, I would like to turn the covers over to Mr. Antonio de Cárcer. Please go ahead, sir.

[Antonio de Cárcer]

Good afternoon, and welcome to Prosegur's first quarter 2018 results presentation. This presentation will be led by our CFO, Antonio Rubio; our Capital Market Director, Christoph Schoofs, and myself. Within approximately 30 minutes, we'll provide you with our views of the most available business evolution indicators of the period, together with the financial statements of this third quarter of the year. I would like to remind you that at the end of this presentation, we will open the lines for a Q&A session, and that the printed materials will remain available for download on our corporate website. Please note that this presentation has been prerecorded and that there might be a slight delay in the slides presentation. Now I would like to hand over the presentation to our CFO, Antonio Rubio.

[Antonio Rubio Merino, Chief Financial Officer]

Thank you, Antonio, and welcome, everyone, to this webcast. The figures we're about to present reflect very greatly the strength of our company and its strong capability to generate solid outcome. [ Even ] with the adverse currency exchange environment with this past quarter has had a less favorable impact on our top line. Nevertheless, as you will see during this presentation, the results we have achieved are very good and very much in line with the continued improvement, both in growth and profitability initiated 5 years ago. You can appreciate that the most relevant facts of the first 3 months of the year are fully related to business performance. Revenues have grown by 8% in pure organic terms. It proves that our current footprint is still delivering sound results. It confirms, furthermore, that despite currency volatility, I believe America is a generation that generates stable growth and whose macroeconomic dynamics remain beneficial to our business. This is also evident by the excellent 9.9% EBITDA margin achieved during the period, recovering our historical [indiscernible] margins of 10% was part of the commitment towards the market we had stated 6 years ago, and we are proud to say we're honoring it. Adding improvement has been driven not only by the good performance of all our business lines but also by the strong line back office operations, which continue to increase efficiencies without compromising the quality of services provided. In this contest, our digital and transmission projects are all making progress according to our plans, and we expect to see further profitability gains in the coming years. I am also happy to state that our Alarms activity has kept growing at a similar rate here compared to last year, adding 13,000 new connections to our installed base. This represents a significant 16% growth rate in terms of net additions. We consider these to be excellent figures as they position us amongst the fastest-growing alarm companies in the world. To summarize these introductions, I would like to emphasize that even in case of increased adverse currency impact during the rest of the year, we remain fully committed to growing our business, both in organic and inorganic terms as well as increasing profitability even further. Let's now move to straight to our consolidated P&L that, as you can see, is fully in line with the statements I have just made on the previous slide. Consolidated revenues have totaled EUR 1,008 million, implying a decrease of 5.5% versus the first quarter 2017. With this -- that evidence, that effect of less favorable currency exchange rates. We're also comparing against the first quarter of last year which was, as you already know, one of the strongest quarters of our history in terms of revenues. EBITDA of EUR 153 million also reflects the FX impact. Back to [indiscernible] investment. As with an increase of only 20 basis points, it has remained almost flat, implying 70 basis points of margin improvement. The same dynamics apply to our EBIT, that reached EUR 99 million, increasing our EBITDA margin to an excellent 9.9%. As previously mentioned, it is almost equal to our previous years margins and more importantly, the outlook for the coming years remains positive. The financial results is also starting to show efficiency gains after the debt restructuring successfully completed at the beginning of the year. In benefits, furthermore, from our proactive cash marketing approach, which, amongst other things, focuses on continuously repatriating excess capability. That rate also stays within our normal range. And finally, net profit as shown an excellent 10.1% growth, reaching EUR 63 million. This is a very positive outcome at net profit level, with cash being improving consistently quarter-by-quarter over the past 4 years. Less now break down revenues by material, region and business line. Green chart at the top of the slide shows the organic growth in local currency reached 7.8%, and our organic growth through M&A contributed an additional 0.8%. This total growth of 8.6% is very solid, especially considering that top line growth in countries with high currency deflation tends to become more challenging. Therefore, we think, it's worth highlighting that growth in local currency terms has achieved excellent figures in virtually all our business lines and geographies. The chart on the lower half of the slide show that both Europe and IberoAmerica have grown in local currency terms by 4.4% and 12.3%, respectively, both exceeding their corresponding nominal GDP growth rates. Only the Asia [indiscernible] Africa region has experienced a decrease in revenues coming from the loss of a relevant contract in Australia last year whereby this loss will be compensated throughout the year by the addition of new clients. If we move on to the different business lines, you can appreciate that all of them have constantly achieved strong revenues growth in local currency terms. Road rates range from 5.3% in security, now including Brazil, where growth has been mainly driven by Europe to growth exceeding 20% in allowance that maintains the high price in [ sales efforts ]. The cash activity also reports an excellent growth of 10.5% in local currency. Demonstrating the strong opportunity, our current LatAm and European footprint still represents. Furthermore, it proves that no matter the level of maturity of a given economy, cash management is still highly demanded service anywhere. If we break down our profitable figures by business line, we see similar dynamics to the ones we have just seen at revenue level. First, let us state, once again, our satisfaction with the excellent 9.9% global margin obtained during the period. As previously mentioned, we are steadily recovering our historic profitability levels with margins of 10%. We are convinced that based on the new organizational structure focused on both product innovation and efficiencies, we will be able to increase those margins even beyond historical levels over the next year. We're analyzing margins by business line. We see that both reported activities have improved. Cash has experienced a slight increase, reaching an EBIT margin of 19.6%. Activities overall, flat evolution is the result of higher profitability driven by new solutions. On the one hand, a headwinds of activities with weaker performance such as France on the other hand, which almost compensate each other. [ Activity ] was now also fully into this Brazil has significantly improved this margin to 2.8%, having achieved a positive 7.7% EBIT growth in absolute terms. This EBIT not only the post of profitability that the new technology cash solution contributes to the business but also the positive impact from Brazil's operation that keep improving at the same level of speed shown last year. Lastly, before concluding this first part of the results presentation, I would like to take a couple of minutes of your time to review, in more detail, the relation between adverse currency exchange effects and our overall profitability dynamics. The chart on the slide indicates clearly the strong seasonal profile of our EBIT and how, over the last 4 years, it has continuously improved while looking not only isolated quarters but also at full aggregated years. It also demonstrates the exceptional performance of last year, first 2 quarters, that we already explained in previous webcast. 2017 has been one of our most successful years in terms of results, where especially, first and second quarters exceeded the historic average by far. Moreover, it's easy to appreciate how this trend returned back to more normal levels during the second half of the year. During this full year period, we have also witnessed a stable performance in terms of organic revenues, with growth rates between high single and low double digits. At the same time, the group's profitability has still improved, as you can see, irrespective of continuous volatility of currencies, which are lacking a clear trend year-over-year and do not have any noticeable impact on margins. Profitability in our industry is driven by several macro factors and market conditions that tend to represent jointly in emerging economies or regions, being [indiscernible] America the most relevant of our [indiscernible]With currency volatility might add a certain LatAm concern around our performance, this can be considered as somewhat misleading interpretation. The different economies and market conditions that compose Hispanic America had proven, over the last 2 decades, perform the most profitable and fastest-growing geography in the world. Also supported by an increasing socio-political instability that this is consolidating gradually in all the regions that are less underlying economic conditions. We believe that this trend will continue in the future. Consequently, we remain confident that our fundamental growth and profitability capabilities remain intact despite the apparent currency headwinds. This is all my side for now. I'll now hand over the presentation over to Antonio de Carcer, who will provide you with further information on the performance of each business line during the first quarter of the year. And I will join you again at the end of the presentation for the closing remarks and the Q&A.

[Antonio de Cárcer]

Thank you, Antonio. We will now cover some more detailed information on the breakdown of sales by nature in each business lines as well as some additional insights on the main drivers of the profitability improvement and other key performing indicators. Starting with a [indiscernible] cash, the most relevant fact we would like to highlight is the excellent 9.0% organic growth achieved during the period. If we add an additional 1.5% growth coming from M&A, we'll reach a solid double-digit figure versus last year results that fully reflects the resilience of our business, combined with strong fundamentals. Growth has been driven by the increased logistic operations in Ibero-American as well as the higher penetration of the new added value outsourcing services in all geographies. Despite the momentary weak situation in France, the activity keeps demonstrating its strength and positive performance capabilities, even in less favorable environments. At the same time, cash is undoubtedly the business line with the biggest exposure to adverse effects conditions as the majority of its operations are located in LatAm. Total revenues of this third quarter have experienced a negative impact derived from currency depreciation of 18.1%, reaching EUR 450 million. As far as profitability is concerned, the business continues to improve its margin, now representing 19.6% of sales. Just like the top line, this margin improvement is driven mainly by the combination of both increased sales of new services and products and by the increased logistic operations, primarily in Latin America. Moving on to security. We see similar dynamics as the ones just described in cash. The most noticeable aspect of this result is that we have included Brazil again in our consolidated statements. As the country is slowly coming back to normal and our business is making good progress, we think that presenting security again as a whole provides a more realistic feature of the activities' overall health and its promising evolution. Organic growth, including Brazil, amounted to 5.3% versus Q1 2017, very much in line with our expectations and above the weighted nominal GDP growth of our footprint. Keep in mind that we are still highly focused on profitability, and thus, we are still being very cautious about entering into new client contracts whenever we see a risk that they might not exceed our minimal return thresholds. Under the same philosophy, we'll continue carefully reviewing existing contracts in all countries in order to further optimize overall conditions. The main focus is not only on more cost-efficient solutions that are beneficial to our clients but also in achieving higher margins to our company. Looking at the global profitability of the business, we can see that we are reaching the margin protection objectives as per our previous guidance, given that the margin insecurity, again including Brazil, has experienced a significant improvement, both in absolute and relative terms. Our EBIT grew by 7.7% reaching EUR 14 million, while our margin improved by 30 basis points to 2.8%., a very satisfactory outcome that reflects improvement provided by our new integrated security solutions as well as the effectiveness of our margin protection measures, especially in weaker economies. Finally, looking now at the allowance business, let's cover the main relevant facts of the first quarter of 2018. The speed of growth in net additions to our claims base has continued at similar pace when compared to last year's as we have included a 13,000 new connections, implying a 16% net growth. This is broadly line with the 17-plus percent growth during the full calendar year of 2017. Sales in local currency still grew at the same high-level digit rate seen in previous years, whilst currency depreciation has also had an adverse effect in alarms since our biggest client of all in the Ibero-American region is located in Argentina. Nevertheless, even with the negative FX impact of 13.6%, sales have increased by almost 7% in consolidated euro terms. Currency headwinds have also had some impact on ARPU, which is slightly declined in euro terms. We do not consider this to be any major concern since ARPU continues improving in local currency terms. And as you can see in the chart, it is the underlying trend over previous years continues being positive despite currency volatilities. That was all on my side regarding the evolution and performance of our different business lines. I will now hand over the presentation to our Capital Markets Director, Christoph Schoofs, who will cover the main financial parameters of our Q1 results.

[Christoph Schoofs]

Thank you very much, Antonio, and good afternoon, everyone. I will now briefly comment on our cash flow statement, net debt position as well as the balance sheet. If you look at the cash flows statement, you can appreciate a decline in reported operating cash flow, when compared to the first quarter last year. The difference is mainly driven by a deterioration of working capital. This decline is primarily attributable to a delay in collections that can be explained by the following 2 factors: First, the main milestones of the spin-off of our Brazilian securities business were accomplished at year end 2017, spilling over into the first quarter of this year; and second, there was a pure calendar effect since the end of quarter fell on a Saturday in the middle of the Easter holidays. However, we consider this impact to be or purely temporary nature, which we expect to normalize during the next months. And we remain fully committed to optimizing our DSO. As far as interest payments are concerned, the decrease of EUR15 million is linked to the payment of the bond coupon, which, last year, was paid at the end of March, and this year, only at the beginning of April. Finally, the lower tax payment explained to a large extent by the reimbursement of Spanish withholding tax is set off by the change in provisions and other noncash items. In terms of cash flow from investment and financing activities, the main deviation comes from the impact of the proceeds of the IPO of possible cash back in March 2017. Apart from that, CapEx remains almost flat, and the increase in dividend payment is driven by a cash outflow of withholding tax in relation with the extraordinary dividend paid in December 2017. On a pro forma basis, if we exclude one-off items like the IPO proceeds and the Brazilian spinoff, normalized total net cash flow this quarter remains stable versus last year. At the end of first quarter of 2018, total net debt amounted to EUR 261 million, including both deferred payments of EUR 29 million and treasury stock of EUR 118 million. Despite the fact that net financial debt has increased by EUR 98 million since December 2017, reaching EUR 350 million, the Group remains with the remarkably low leverage ratio of 0.7x, still far below our conservative internal covenant of 2.5x. Therefore, the group is currently in an extremely comfortable and sound financial situation and very well positioned for potential M&A opportunities, given our existing unused facilities. I would also like to draw your attention to the low average cost of debt of 2%, which is in line with last year. However, we expected to decrease gradually going forward as the optimization of a recent refinancing process is starting to materialize. Finally, looking at [ process ] consolidated balance sheet, you can appreciate 3 main changes when comparing this year's first quarter to December 2017. First, the tangible fixed asset line is impacted by the implementation of the IFRS regarding capitalization of the alarms cost, which has become mandatory since January 2018. Second, the amount of cash is considerably higher as a result of the recent issuance of a EUR 700 million bond at parent company level. Most of the proceeds are still being held within the group since they're expected to be gradually deployed in the organic and inorganic growth of the alarms and security business. Third, and this is also directly linked to the aforementioned bond issuance, our debt maturity profile has improved significantly, shifting the majority of our debt to noncurrent liabilities. Please bear in mind that at the beginning of April, the former bond at holdco level of EUR 500 million was repaid, considerably reducing our short-term financial liabilities. This is all in my side regarding the financial statements of the group. I would now like to hand the position back to our CFO, Antonio Rubio, who will share with you his final conclusions and remarks.

[Antonio Rubio Merino, Chief Financial Officer]

Thank you, Christoph. Before my closing remarks, I would like to take the opportunity to touch briefly on geographical expansion and the organic growth strategy. After restructuring the organization into a model by business plans, we have established different plans and strategies according to the drivers and specific demands of each activity. In this contest, we are now focusing on 3 differentiated approaches that will mark our M&A activity over the coming months and years. Alarms in organic growth will be focused primarily on increasing density. While organic growth is reaching its maximum speed, selective M&A in existing geographies will help the increase the number of connection in those countries where our portfolio is still relatively small, drawing us to reach operational leverage break even sooner. This approach would permit us to increase margins, driven by higher economies of scale. Regarding Security, our aim is to accelerate the transformation of the business, increasing the technological part of the missing world countries. In order to achieve this objective, we plan to acquire selected technology companies in different geographies of our current footprint while, at the same time, we're also [ deciding ] to dedicate some effort to increasing our penetration in the cybersecurity space. This strategy will be achieved by a combination of traditional M&A and capital venture deals, but a few investments have recently been executed. Finally, as far as the cash business is concerned, we maintain our ability to increase density in the geographies where we are already present, while proactively exploring new territories, mostly in the eastern part of the world, looking for attractive opportunities to gain significant market shares in new emerging economies. Inorganic expansion has always been a key strength of Prosegur, and we expect to give [indiscernible] results, just like we have successfully done in the recent past. And now from a closing remarks, I won't myself too much what has already been stated in this presentation. Our business performance continues to evolve positively despite less favorable currency conditions as we are benefiting from one of the most profitable footprints in our industry, combined with a very efficient business model. Profitability is expected to increase as we improve our value proposition in all business lines and continue recovering from this severe recession our security business has suffered in Brazil. In addition, we will continue to further drive efficiencies in all support units. Our mobile, based on centralized services centers is becoming a true best practice in some geographies, not only for us but also for our clients. Hence, the continuous optimization of all of our back office activities has also begun an additional source of profitability. Finally, as previously stated, we are committed to supporting an organic growth of all business lines through our qualified strategy of M&A operations that is currently touching all areas and that, according to our expectations, may bring some interesting news over the coming months. Thank you very much to all of you for attending this presentation. I will now be delighted to answer any questions you may have.

[Operator]

[Operator Instructions] We will now take our first question from Gonzalo Sanz of Miraboard.

[Gonzalo Sanz Martín, Research Analyst]

Two questions from my side, please, and both are regarding the Alarms business. The first one could be -- just to clarify. According to my estimates, there has been a significant margin expansion in this business. Is this margin expansion explained by the aforementioned capitalization effect? And the second one could be regarding the churn ratio. In this results, this ratio is not included in the presentation. Could you give us some more color about this performance, please?

[Antonio Rubio Merino, Chief Financial Officer]

On your first question, it's true that we are applying the IFRS 15, but already -- if there's any in the balance sheet because we are capitalizing some cost in the EBIT line. There is obviously [indiscernible] because we're having the same process for amortization on the cost that hasn't capitalized. So what is true is you know that profitability in Alarms business is very close to density. So we are growing our platforms in our present footprint. We have room for further improvement in the margins in this business. On the churn rate, it's true that we presented the figure in our last presentation for being absolutely confident to everybody that churn rate remains very similar to the last reported 10.6% with our own methodology. What happened in the last month is, fortunately, we had more information in the market today about the performance of the different important leaders in our industry. And if you compare their range between 6% reported for some of these important players, more than 12% reported by other. We -- in our opinion, true information is not one portfolio has the double of value of the other one is that they are applying a different methodology, no? So we wouldn't provide the market with misleading information about the quality of our portfolio. We consider that our economic methodology is very conservative so we should not expect any mad news about the churn rate. But we prefer to analyze internally the methodology applied by our competitors for providing a right comparable to the market, no? But in any case, it's normal that when you're growing in the accelerated way, we're growing in the last 2 years, you can increase your churn rate, but you shouldn't expect significant change in the churn rate in the next time. It will probably be at the end of the year.

[Operator]

We will now take our next question from Raj Kumar of HSBC.

[Rajesh Kumar, Analyst]

This is Rajesh Kumar from HSBC. Just on the Alarms capitalization policy under IFRS 15, how are you applying it? You're applying it retrospectively to all the prior year costs and then computing the amortization? Or are you starting the capitalization from now and then applying the amortization on the assets created thereon? And also if you could give us the underlying margin for the Alarms [indiscernible] under the new methodology, that would be quite helpful.

[Antonio Rubio Merino, Chief Financial Officer]

On the first question, we are applying the IFRS 15 since the 1st of January this year, without any reciprocity effect. And the impact in the P&L is already negligible. About our margins in the Alarms business, when we can use, say, information to compare with our competitors with the same size, in the same market, we have the same profitability of our competitors. So it's only a matter of size, so we consider that in those countries where we are growing more than our competitors, we have room for further improvement in the margins [indiscernible].

[Rajesh Kumar, Analyst]

Understood. And what are the margins overall for the division, excluding the head office cost, of course?

[Antonio Rubio Merino, Chief Financial Officer]

You remember, in terms of P&L, purely accounting, we are mostly breakeven. That's what we have said in the past year, no? So we are not analyzing the profitability in terms of the EBIT margin of the whole business, but in the operational margin for acquisition operations. That is the standard in the market. And we are in very healthy levels, amplifying the historical margins.

[Rajesh Kumar, Analyst]

So you've -- let me put it just slightly different. Can you give us the amount of cost capitalized in the Alarms business in the quarter?

[Antonio Rubio Merino, Chief Financial Officer]

Rajesh, I have said to you that, it's really negligible. We had capitalized in this quarter less than EUR 5 million. And we are incorporating the amortization of a part of the -- in the P&L. So at EBIT level, the impact is nil.

[Operator]

We will now take our next question from Francisco Ruiz of Exane.

[Francisco Ruiz, Research Analyst]

I have 3 questions. The first one is regarding the net cash flow of calculation that Christoph has done, which said that, excluding this one-off effect, it would be flat. So could you give us some light on what are the effects line-by-line, meaning in working capital and in calendar effect et cetera? The second question is on the guidance on security. So assuming that Brazil is adding something, security X Brazil is reducing the margins this quarter. Could you give us an explanation for that? And what is your expectation for the full year? And finally, on provisions, if you look at the customer statement, there has been EUR 15 million lower provisions this quarter. Is there have to do something with Brazil? Or is there other effects?

[Antonio Rubio Merino, Chief Financial Officer]

On the cash flow, it's true that the figure this quarter is poor. Mainly, it's a consequence of 2 effects: First, the calendar effect. We have the Holy Week, the Holy Saturday on the last day of the month. So the worst possible scenario for having delays in payments. So we had an effect of that. We will compensate in the following quarter. And the other effect is coming from the IPO process. We had segregated activity of Security and Cash in Brazil and all the documentary required to properly invoice and to properly paid by the customer is very complicated. And we have 7% delay. Probably, there is EUR 20 million of delay in this payments, we will recover in the second quarter. So our guidance for the cash flow for the rest of the year remain positive on improving the cash flow of last year. Our security, we are improving in Brazil, and we are improving in all the markets. Probably, the effect in the margin, the single negative effect in the margin in this quarter is coming from Spain. And it's also something seasonal. We have a wonderful portfolio of projects in the security activity in technology, but we have somewhat some delay in the execution, biased towards the second half of the year. But we are confident that we will improve our profitability in Security in all the countries this year. We will see a good number in the Security at end of the year. And my provisions is purely accounting. You know that -- how sensitive is our cash flow. Only if you had to understand payroll, extraordinary between 1 month. And in country, you have an effect, but nothing significant and nothing related to provision coming from any activity.

[Operator]

We will now take our next question from Juan Ros of BBVA Bank.

[Juan Ros Padilla, Chief Analyst]

Four, if I may. First one is related with the unallocated overhead costs this quarter. I don't know if you can provide us with the figure. second is regarding the ARPU. Its headline is declining 5% year-on-year. Maybe you can provide us or give us some color regarding the X FX ARPU evolution. Then also on Alarms, regarding the 17% BTC growth you're posting, maybe you can give us a split between the growth rates between Europe and Latin America. Finally, I think you're -- I believe you're restructuring some of your business in Latin America -- Security businesses in Latin America, trying to switch from one-off projects to more recurring business. Maybe can you provide us some color on this, maybe an update if you're getting already this more recurring contracts?

[Antonio Rubio Merino, Chief Financial Officer]

On the overhead costs, what I -- we can tell you is that we are releasing then -- we are working with all the support units, say, in permanent efficiency plans. We are quite satisfied with the permanent reduction in actual terms, also in percentage terms, no? About the ARPU, obviously, it's very effective by the depreciation of the currency when we are analyzing in euro terms. But in local terms, we are increasing ARPU in almost all Europe. About the BTC growth, I'm happy to tell you that we are growing in a very [ selective ] way in LatAm but also in Spain and Portugal. But the security portfolio, you know that the transformation in this industry is very complicated. We are leading this transformation in Ibero-America. We are increasing the percentage of technology incorporating the -- in the bundle by product we are offering to our customers. We are growing, probably not in the accelerated way we would like, but in the space as it is. And what I can tell you is that we are leading this transformation.

[Operator]

We will now take our next question from Philip Richards of Goldman Sachs.

[Philip Richards, Associate]

Most of my questions have been answered, except for one. It looks like organic growth in Security slowed sequentially in the first quarter compared to the fourth quarter of last year. Is that explained by your selectivity on new contracts? Or are there any other drivers?

[Antonio Rubio Merino, Chief Financial Officer]

I thank you for this question. We remain being very selective about the new customer, no? We -- since many years ago, we -- in Security, we are selective about profitability and not about volume. We are incorporating our portfolio, only profitable customers, no? And we are leading others that are not so profitable, no? So in volume, we are happy to say that we are not losing customer we want to maintain. We are reducing our portfolio of nonprofitable customers.

[Operator]

We will now take our next question from Sylvia Barker of Deutsche Bank.

[Sylvia Pavlova Barker, Research Analyst]

A couple of questions on Security, and just one going back to provisions, please. So on security, could you maybe just tell us the 5.2%, kind of, is driven mainly by Europe, which countries would you highlight doing particularly well? And then within Brazil, what was the organic growth, if you could disclose that? And then similarly, on the profitability, it sounds like, well, what happened in Brazil and the excluding Brazil, I guess, will be the easy question? And then where do you think you might be heading to by the end of the year? And then finally, just going back to the provisions point, obviously, yesterday, on the [indiscernible] cash call, the point was made around labor provisions in Brazil in particular and how those are likely to be stepping down as we go through the year. Could you just give a few of how material that might be as an impact?

[Antonio Rubio Merino, Chief Financial Officer]

On Security, we consider that we are almost finished of our process of restructuring and planning for full optimization. So we are expecting growth in volumes in all, and probably, at the end of the year, also in Brazil, no? In Brazil, the situation remains special, no? And we are transforming completely our activity there, no? We are -- now we are beginning to work in technology, in our activity where the country was absolutely stopped during the last 3 years, no? And in some countries, say, we will see changes in some important contracts. So -- but we'll consider that the volume probably, at the end of year, will grow slightly in all geographies, including Brazil, and with an improving profitability that is our guidance, no? And on provisions, it's true that the labor law in Brazil has changed. In the first months of the year, we have seen some impact, and the reduction was significant in the number of claims, and also in the average amount of the claims. But it's very soon to consider that this is a trend that we can extrapolate to the rest of the year. For us, in our -- in both our businesses in Cash and in Security and obviously, into the narrow margin we have in Brazil, labor cost is something important. But it's too soon to consider that this is a trend that we can extrapolate into the P&L. This week, I will be traveling to Brazil again for understanding better on the ground for what is happening behind this change. Labor pains, the [ cost of travelistas ] in Brazil is an industry with thousands and thousands of lawyers involved and unions and activities, you know, that with EUR 4 million new claims per year, no? And the first impact of the law have been very positive. And we would like to be sure in the following months what will happen, no? But in this moment, we can't say that you will see something significant in the P&L within this year.

[Sylvia Pavlova Barker, Research Analyst]

Okay, great. So the release in the first quarter, that was not related to these claims necessarily?

[Antonio Rubio Merino, Chief Financial Officer]

No, no. it's purely accounting, some interest rate and some payroll within 1 month and other. It's purely accounting.

[Operator]

[Operator Instructions] We will now take our next question from Manuel Coelho of Caixabank.

[Manuel Dias Coelho, Analyst]

Just a follow-up question in Alarms and your strategic targets. So just any visibility when do you expect to reach cruising speed stage? And what that could mean in terms of targets in terms of scale and then in the terms of number of connections? And yes, even and if you have such kind of targets, of course, that could be achieved in terms of acquisitions. Could you expect the shifting in the short-term?

[Antonio Rubio Merino, Chief Financial Officer]

Listen, Manuel, In Alarms, we have said in other presentations, overall our market is absolutely underpenetrated, even in Spain and Portugal with that significant penetration is less than 10% of household, so in the U.S. is 28%, no? So the market remains in the making. And we had room for further growth even in an accelerated way more than 10% in Spain or Portugal, no? And imagine if we extrapolate to the rest of our market, say, in Argentina, Chile, Peru or Columbia, the penetration is less than 3% or 1%. It's 1% in the case of Columbia, no? So the market is in the making, we don't have any limit in our world. Met our capacity for generating a healthy machine, hiring, training, deploying people and maintaining their commercial productivity in the [indiscernible] we like, maintaining beyond control the churn rate. And with acquisitions, it's a matter of -- it's density, no? We're not thinking in a big acquisition, the eruption of the private equity industry, in acquisitions, in the land business today is moving the market over multiples that are not affordable for us. So when we are thinking in organic growth in Alarms, we have many projects in the pipeline. We are thinking in medium and a small portfolio, very complementary to the -- our present footprint and in those markets where we are present today with the intention of gaining density and scale and improving margin and the profitability.

[Operator]

As there are no further questions, I would now like to pass the call back to Mr. Antonio Rubio for final remarks.

[Antonio Rubio Merino, Chief Financial Officer]

Thank you. As you know, the first part of this presentation was usually -- is recorded, no? When we recorded this 2 days ago, the exchange rate was different, no? But we have maintained the same streak because we maintained our same statement about the resiliency that Prosegur had demonstrated historically against any negative environment in terms of foreign exchange, no? We have suffered in the last 24 hours a depreciation -- additional depreciation of 10% in Argentinian peso. But in any day, we consider that our teams in LatAm are able to translate the inflation that will be correlated to this devaluation, passing through it to the market. And consequently, we maintain our optimism that in this year, as a minimum, we will repeat the same level of profitability achieved last year that I would like to remember you that was the best year in the history of Prosegur. Thank you very much for attending this presentation, and the team of IR will be absolutely open to answer any further questions you can have. Thank you very much. Have a nice weekend.

[Operator]

Thank you. This does include the Prosegur Q1 2018 Results Presentation. We thank you for your participation today. You may now disconnect.