Prosegur Compania de Seguridad SA
MAD:PSG
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Prosegur Compania de Seguridad SA
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Thank you for standing by, and welcome to the Prosegur First Quarter 2021 Results Presentation Conference call. [Operator Instructions] 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 Prosegur First Quarter 2021 Results Presentation. This presentation is expected to last around 30 minutes, followed by an open Q&A session to cover any doubts and inquiries you may have. As usual, this webcast will be hosted by Antonio Rubio, Prosegur's CFO; Maite Rodríguez, Finance Director; and myself. Prior to starting, I would like to remind you that this presentation has been prerecorded and that it will also be available for downloading our corporate web page.I will now hand you over to our CFO, Antonio Rubio.
Good afternoon, everyone, and thank you for attending this presentation. The results we are presenting today are very good. Despite the harsh conditions still imposed by the COVID pandemic, all business lines continue showing a very strong resiliency profile, improving as the situation gradually comes back to normal, and only affected by the general slow performance of the Global economy.As you will see on the presentation, all businesses have performed with similar trends as the one seen on the last months of 2020, with significant improvements in profitability in some of them and keeping revenue volumes as high as possible, given the fact of the persistence of lockdowns and confinements in several of the countries of our footprint. Nevertheless, a quite satisfactory outcome with some noticeable highlights that I will now comment in more detail. First, I would like to drag your attention to the fact of the strong negative comparable effect we are having this quarter. Q1 in 2020 was very little affected by the negative effects of the pandemic as it started on the last 2 weeks of March, while in a position, they have been present on the full 3 months of this reported quarter. This has been especially intense in Europe, where both Portugal and Germany had suffered the most severe confinements as well as partially also in Spain. Taking this into account, we are proud to state the strong resiliency of all our business that have been able to withstand this situation with minor losses, making us confident of a fast recovery as soon as the situation normalizes. Cash has noticeably increased the penetration of their new products by more than 300 basis points. And this will only get better as they have signed a strategic commercial agreement with Santander in Spain. To commercialize the automated Cash processing machines now rebranded as Cash Today in all mid- and small size commerce clients of the bank. Security, on its side, continues improving its margins in line with the strong positive trend we saw last year, followed by the increased assistance of our integrated security solutions, and also help by a very successful cost increase transferred to price that is currently progressing faster than the normal average of the season. Alarms, on its side, has reported a decrease of churn rate of more than 100 basis points as sales activity tends to struggle back to normal, covering the installed base reduction inflicted by the COVID and showing positive increase by the last days of the quarter. On the ESG side, we have launched a renewed sustainability director plan that I will comment in more detail later, while we also have seen how our ESG ratings on different valuation agencies continue improving over previous years, of course. 2021, we'll also see a full reactivation of all our investment in digital transformation that were put on hold during the pandemic, as they are the cornerstone of the future evolution of the group, both in terms of internal efficiencies and new product lines evolution. And finally, we have completed the acquisition of the added value outsourcing services division, or AVOS, from our cash subsidiary. This acquisition announced some months ago, will allow this promotion of new business line to expand into a greater type of clients, reserving more dedicated resources and investment and becoming together with cybersecurity, another fast-growing and expanding business to complete our service offering to market. Moving now to the most relevant indicators of the period. We foresee that revenues have totaled EUR 803 million, keeping an almost right profile in organic terms when compared to Q1 in 2020, a major achievement, if we take into consideration the strong negative comparable effect already mentioned and the severity of the pandemic impact in Europe during the past 3 months. Output of this excellent performance can be seen in Ibero-America, where organic growth has been positive by almost 3% despite the harsh conditions. Negative inorganic growth coming from the divestment in Security France and the deconsolidation of the Spanish Alarms, together with the translational effect of the currency, continue being the 2 main drivers of the revenues drop down. On the profitability side, margin improvement continues, even in a quarter that normally presents a weaker profile due to seasonality. The EUR 50 million EBITDA figure that calls for a margin improvement of nearly 100 basis points is an excellent experience of the strength of the business model that improves profitability in all lines with a solid section of cash, still under the temporary negative effects of the pandemic. $22 million of operating cash flow is another remarkable outcome, matching the pre-COVID cash flow levels of the same quarter in 2020, and evidencing the excellent result of the cash protection measures and working capital improvement policies implemented during the crisis. Digital transformation initiatives have been a key element to support this outcome. And therefore, we are now beginning the global phases on this development to ensure all countries benefit from it. This will drive an additional investment effort in the coming years, of which we are sure we'll obtain very good returns in terms, not only of better cash flow generation but increased profitability and greater product and market penetration. Finally, on the balance sheet side, we maintained our solid liquidity profile and comfortable leverage ratios, with no significant variations over the previous reported figures in full year 2020 results. And as you know, in April, we have closed the shares buyback program related to the employees' compensation plan, and we have resumed the program initiated by the end of last year aimed to capital reduction. Now after these highlights, let's have a closer look to the P&L of this first quarter of 2021 that looks as follows: As mentioned, total revenues in the period had reached EUR 803 million, keeping an almost flat organic growth, despite the strong comparable effect and suffering mainly from the adverse FX and the negative inorganic growth deriving from the exit of France and the still present deconsolidation of the Spanish Alarms. Looking at the breakdown of revenues by region, we see that Europe is the area that has received the worst of the impact, with an almost 20% drop down in sales, deriving from the severe lockdowns still present in Germany and to some extent, in Portugal and Spain, but also from the divestment in France that was still reported in our Q1 2020 revenues figure. Ibero-America has obtained a positive local currency result up to 3.5%, deriving from the combination of positive organic growth and the M&A transactions done in Ecuador, Brazil and Colombia. A good proof of the resiliency of all business lines in that region, that is only affected by the negative currency translation effect. And finally, rest of the world also presents a negative comparable effect, as its 2 main contributors, U.S.A. and Australia are respectively still under the growth limitation imposed by COVID and the high competitive market conditions present in Australia. Coming down to EBITDA level, we see a minor impact as a positive result of all the profitability protection measures implemented, reporting an excellent increase in EBITDA margin of 100 basis points, totaling EUR 87 million in absolute terms. Similar positive trend can also be appreciated at EBITDA margin level that grows to 6.3%. And the same happened at EBIT. Our net profit level. having, [indiscernible] has grown an outstanding 47.9%, thanks to our reduced financial results and minorities. An excellent global outcome, demonstrating the imminent good shape of all our activities that evidents no structural damages at all, despite the harsh temporary macro conditions we are still living in. Let's move now to review the profitability on the period, both in consolidated and individual business line terms. ARPU level, we see that EBITDA has reached EUR 50 million, coming from EUR 53 million on the same period last year, a very good outcome given the reduction seen in revenues that generates a margin improvement close to 100 basis points and totals a solid 6.3% EBITDA margin. This good result comes mainly from the excellent margin improvement obtained in both Security and Alarms that has been able to offset the temporary margin decrease seen in cash. Security delivered an outstanding EBITDA 75% improvement, rising from EUR 8 million in Q1 2020 to EUR 14 million in this quarter. Reasons for this excellent result come from the combination of increased sales of higher profitability services and the beneficial effects of the client portfolio utilization made during 2020. Also, to minor extent, we continue benefiting from the job-keeping aids put in place by the U.S. government. Thus, EBITDA margin in the security activity has rising from 1.6% in Q1 2020 to 3.4% in this year, aligning itself with the results of the full year. And showing, again, another quarter, the structural nature of this margin expansion. Looking at Cash. EBITDA margins is still suffering the negative effects that lockdowns imposed on the transported volumes. Our efforts have been made to adapt the cost base. But being the situation of temporary nature there is a certain limit of the adjustment we can apply that creates some over capacity situation. We are confident that as volumes came gradually back to normal, profitability on the business in parallel will also recover to the pre-pandemic levels. And finally, Alarms EBITDA PreSAC has also grown in both Prosegur and Movistar Prosegur Alarmas perimeters. The compound EBITDA PreSAC margin of both companies now sits at 46.3% in opposition to 43.2% in Q1 last year. This is all on my side for now. I will now hand the presentation over to Antonio de Cárcer, who will provide you with more detailed information on the performance of each individual business line. I will join you again at the end of the presentation for my closing remarks and the Q&A.
Thank you, Antonio. We will now have a look on the breakdown of revenue structure and main profitability drivers of each activity as well as some other relevant key performing indicators. Starting with Cash, we see that local currency growth has remained almost flat in comparison with the previous quarter in 2020. The combination of a 2.3% drop down organic revenue and a positive 1.5% coming from the M&A transactions made in Ecuador, Colombia and Brazil, leaves an almost even local currency result in comparison with the previous quarter in 2020. This is a very solid result. If we take into account the strong adverse situation experienced this quarter due to the severe confinements in Europe versus the same period last year when pandemic effects were only present during the last 2 weeks of the quarter. And thus, it makes evidence the extraordinary resiliency of this business, whose organic growth has been positive still in LatAm despite the situation. In euro terms, the main negative impact of Cash results comes again from the translational currency effect that generates a negative 16% impact. Very remarkable. On the other hand, is the strong growth experimented by the new products, mainly in the cash automation machines that has shifted upwards more than 300 basis points and now represents more than 22% of the total sales figure. This excellent trend will be reinforced in the close future by the recent alliance signed with Banco de Santander that is creating a bundled offering geared to small and medium commerce clients, in which all the financials products the bank offers will be supported through the installation of these machines whose branding name has now been changed to CASH TODAY. To restate the benefit that for a small shop or commerce can have the fact of having their daily collections accounted in real-time with no errors, and credited in their bank account without the delays and risk of having to carry them manually to the bank. CASH TODAY product range is another benefit of the innovation developed by our digital transformation project. And in this regard, now that the pandemic effect seems to begin to ease down, Cash will reactivate all the investments in this area, to guarantee a continuous flow of new services that will help improve profitability and expand market share. On the profitability side, the negative effect of the COVID situation is still present as the reduction of volumes transported because of confinements has a temporary negative effect on margins that we expect to fade away when volumes recover. And hence, EBITA has experienced a reduction of EUR 34 million, coming from the EUR 53 million in Q1 2020. To present a more realistic figure of the underlying profitability, reported EBITA in cash is being free of the capital gains obtained from the transaction of selling AVOS division to Prosegur. And I would like to remind you that this transaction has no impact at consolidated level in Prosegur as we already consolidate 100% of cash results in our group accounts. Moving now to Security business. We also appreciate similar effects on the pandemic in the revenue profile as the ones that are seen in Cash. Organic growth deflates by 4.8%, driven by the adverse comparable effect that takes into account the cancellation of many large event services and air transportation services that were still in place during the 2/3 of the same quarter in 2020, in addition to the obvious slowdown of the general economy that is still present in several countries. Negative inorganic only refers to the exit of France that was still present in our P&L during the first Q in 2020, while currency impact has a minor negative effect that in Cash has now since the addition of our U.S.A. operations and some additional ones recently started in U.K., Security business footprint is gradually gearing towards countries with low volatile currencies. Regarding U.S.A., the activity remains under the effects of the still reduced operations in the airport sector, although beginning to recover, while the expansion of integrated security solutions in that country is gaining more speed as we are focusing them into specialized market solutions, such as retail, transportation nodes or data centers that are sectors with high demand of this type of technology-based services, in which we have quite a strong and innovative offering. Coming into the new products, they continue growing with similar intensity as in previous quarters, and now reached 36% of the total revenues figure. As we stated in previous presentations, COVID crisis has fueled the penetration of integrated security solutions, oriented towards safety and business continuity, helping our clients to develop COVID-free environments, but they have also served to consolidate the increased use of remote monitoring services on the traditional security side of the business. And therefore, we have now a solid platform to deliver a full 360 degrees coverage of all our client security needs, either physical safety or business continuity. Finally, looking at profitability, we would like to remark the excellent 75% increment experienced by our EBITA in comparison to last year. This extraordinary increment comes mainly from the increased penetration of higher-margin solutions and the optimization of our client portfolio, leaving low profitable contracts and converting them into the integrated solutions model, in combination with the additional help received in the U.S. in the form of job-keeping aids during the pandemic that have allowed us to maintain the expected profitability of some contracts, even though they were being reducing volumes that did not compensate the whole losses. This altogether leads to a very good 3.4% EBITA margin, in line with the one obtained by the closing of fiscal year 2020, and a good indication of the structural improvement that the profitability of the Security business line has experienced since more than 1 year ago. Let's look now at the Alarms business, whose main indicators are as follows: Installed base has recovered almost all the connections lost during the pandemic. As you know, one of the main negative effects of the confinements and lockdown was the inability to perform presential sales activity. And therefore, we saw a reduction of nearly 10,000 connections on the year coming from the existing churn rate that also suffered an increment, mostly on the commercial clients. During Q1 2021, this situation has partially is down and normal sales activity has resumed in many countries, although the 2 main contributors, Portugal and Argentina are still under COVID restrictions. Nevertheless, the restarted sales activity has been able to nearly compensate the connection loss and the current installed base figure of 350,000 clients almost matches the figure with which we closed the year 2020. This means our commercial teams have been able to compensate the churn rate of clients with new connections. These good results comes from the combination of reduced churn rate that now sits 160 basis points below of what it was at the end of the year, but also from the accelerated sales activity, we have been able to perform in all those countries where sales restrictions have been eliminated. Movistar Prosegur Alarmas, the Spanish JV created with Telefónica has continued delivering strong growth ratios. And even though the situation in Spain is still partially complicated, they have generated 17,000 new net additions to their contract base that now reaches almost 268,000 clients. This meaning more than 60,000 new clients in the last 12 months of operations, half of them during full COVID lockdown phases. At the closing of Q1 2021, the total joint connection base of both Prosegur and MPA exceeds 620,000 connections. Revenues in Prosegur Alarm have grown organically by more than 20%. Being this a strong proof of the exceptional capability, this business has to update price to market despite the harsh macro conditions. And this growth has only been negatively affected by the inorganic deconsolidation of the Spanish Alarms that during the first 2 months of 2020 were still under Prosegur perimeter, and an additional 11.8% coming from foreign currency effect. Another positive information relates to ARPU that despite the instead commercial efforts to reduce churn and retain clients has been kept almost untouched, losing barely any sense in Spain that will be soon recovered as the situation stabilize and there is no such need to do extra efforts on attracting clients. Finally, on the profitability and cash flow generation side of the business, we are happy to state that EBITDA PreSAC margin has continued improving in both companies, and the compound figure of both now reaches 46.3%. EBITDA PreSAC in MPA has moved from EUR 13 million to EUR 15 million, while in Prosegur, it has dropped from EUR 15 million to EUR 14 million. Being this fully explained by the fact that during the first 2 months of Q1 of 2020, we were still consolidating all the revenues from Spain, and hence, the difference. For the same reason, cash flow generation on Prosegur side has also moved from EUR 14 million to EUR 13 million, while subscriber acquisition cost has been reduced due to the strong sales stagnation induced by the pandemic that was, again, not fully present during the first months of 2020. To conclude with the evolution of the different activities, I would like now to briefly introduce you to Cipher and AVOS, the 2 newly separated business lines that also form a distinctive part of our value creation model. Cipher is a multi industry award winning business line, specialized in cybersecurity services clients. Currently servicing more than 1,000 clients in 14 countries, including U.K. and U.S., Cipher provides a full suite of monitoring and on-site services aim to prevent, detect and intervene against all sorts of cyberattacks on our client premises, as well as to support them on the provision of cyber intelligence services and risk analysis. AVOS or Added Value Outsourcing Services is a BPO business unit that we have recently acquired from our cash subsidiary. Initially developed as a business process outsourcing platform for banking and financial institutions, AVOS has rapidly become the fast-growing platform that develops its own intellectual property technology solutions to provide legal advisory, back-office support, assets operations, remote banking, help desk and several other specialized services to currently more than 70 large B2B clients. As you can appreciate, both divisions have a high growth potential, leveraging from the big and high quality current client base of Prosegur, but at the same time, both are very capable to expand to new clients and geographies on their own resources. Volume-wise, both units have demonstrated a fast-growing attitude. And even though the current revenue stream may seem tiny when compared to the rest of the other group businesses, the 2 of them face a normals addressable markets with highly competitive advantage based on our own technology IP. On the profitability side, also Cipher and AVOS present very interesting margins that rank on the high end of the respective industries. We will keep you updated with wider detail on the economics and business models of both companies as now they have become a regular part of our Investor Relations equity story. That was all on my side related to the evolution and performance of our principal business lines. I will pass the word to our Finance Director, Maite Rodríguez, who will cover the main financial parameters of these first 3 months of 2021 results.
Thank you very much, Antonio. Good afternoon, everyone, and thank you very much for attending this presentation. Let's now have a closer look at our cash flow statement, debt structure and balance sheet. Starting with the cash flow statement, the most remarkable aspect is a strong operating cash flow generation of EUR 22 million, matching the level of the same period of the previous year. In this regard, Prosegur shows another worthy EBITDA to cash conversion ratio higher than 28%, after normalizing the accounting impact of the IFRS 16, which implies an improvement of 260 basis points comparing to the first quarter of 2020. This accomplishment is especially notable since the first 3 months of 2021 were affected by the pandemic. While during the first quarter of 2020, the health crisis was hardly present as the confinements started by mid-March 2020 onwards. Looking at the main variations, it is worth mentioning the outstanding evolution of working capital. This has been achieved. Thanks to the constant DSO optimization, active management of customer risk and the drop in sales due to the lockdowns. Here, I would like to take the opportunity to highlight how digital transformation initiatives put in place in the past are now bearing fruit in this field, enhancing the collection process across the whole group. In this context, one of the new goals is going, one is step ahead in BPO, optimizing as much as possible the suppliers' payment period. Regarding provisions and other noncash items, its decline is driven by a mix of effects, mainly the indirect tax delay in Argentina during the first quarter of 2020, to accelerate the cash rotation as a currency hedge measure, together with top management incentive program payment made in 2021. Coming now to CapEx. It still remains at a low level due to the volume reduction in all businesses and the cut down of non-crucial investments. The reconsolidation of MPA affects CapEx drop as well. As far as M&A is concerned, during 2021, there has not been any new transaction. Therefore, the reported cash flow refers only to deferred payments. This is mainly related to BPO companies acquired back in 2019. Dividend payments include the first installment of Prosegur and Prosegur Cash, both done in cash in January 2021. And finally, looking at treasury stock and others, the variation between the first quarter of 2020 and 2021 is mainly explained by the investment made last year acquiring own shares. In combination with the impact of the Spanish Alarm business, this consolidation performance back in March 2020. In summary, Prosegur keeps proving its resilience and strong cash generation capability, coping with the toughest of environment with active management, quick response to changing environment and envisioning the digital transformation as the key tool to face the future. Looking now at the group's financial position. At the end of March 2021, total net debt amounted to EUR 995 million, including both deferred payments of EUR 88 million and treasury stock at market price of EUR 48 million. If we furthermore include additional IFRS 16 related debt of EUR 95 million, total net debt reaches EUR 1,090 million. Regarding net financial debt, when compared to December 2020, due to an appreciate a moderate rise explained by ordinary course of business, together with dividend payment, inorganic growth and share buyback program. Consequently, the first quarter of 2021 leverage ratio shows a temporary slight increase up to 2.6x. In this regard, I would like to remark that this is a timely situation, entirely driven by the transitory decline in the result, mainly due to FX and COVID crisis. Please, bear in mind that for this calculation, we are using last 12 months EBITDA, which was fully impacted by the health crisis initiated in March 2020. In fact, taking pre-COVID EBITDA levels in account, the ratio will be in the range of 2x. In a sense, the leverage level will gradually improve as soon as the global situation goes back to normal, a reality which we are getting closer to every day. Thanks to positive evolution of vaccine programs, particularly in Europe. As additional information, I would like to highlight that Prosegur remains below the current banking covenants of 3.5x. In relation to cost of debt, our group's average keeps evolving positively with a reduction of 11 basis points when compared to the same period last year. This is the best proof of the financial efficiencies our corporate treasury department has achieved, constantly adjusting and resizing the debt structure to precisely meet the financial needs of the group. To conclude our financial information review, let's now have a look at our consolidated balance sheet. In general, there haven't been any significant changes during the first quarter of 2021. Once again, the most remarkable aspect is the solid and stable balance sheet Prosegur historically shows. When it comes to maturity profile, we are proud to confirm that more than 80% of our financial liabilities are considered of long-term nature. In terms of liquidity, it is worth mentioning the outstanding firepower Prosegur has, which currently covers more than 75% of the main indebtedness, which will mature over the next 5 years. Indeed, during the first 3 months of the year, there has been a partial cancellation of syndicated debt, expanding the available credit lines. Treasury is still wise, as Antonio mentioned before, the share buyback program that is currently in place, has -- as I proposed, the acquisition of own shares that eventually will amortize. This program will resume in April 2021 after finalizing the previous one, devoted to employees' compensation plan. This is all on my side. I would like now to return the presentation back to our CFO, Antonio Rubio, who will share with you an update on our ESG initiatives and his final remarks.
Thank you very much, Maite. Having incorporated ESG information as part of our customary reporting to market, I would like to take today's opportunity to present our new sustainability director plan that has recently been approved and signed by our Board. Framed within our strategic plan, '21-'23, ESG stands out as one of the pillars of the future development of our group. And therefore, in this newly revised plan, we have included several initiatives that will reinforce our commitment with sustainability and will better handle ESG culture in all procedures and processes in Prosegur. As the plan will be of general availability to be consulted, I would like to briefly indicate some noticeable goals and directives we had included on it: First, there is a very aggressive plan to reduce our carbon footprint with the ambition to complete 10 years ahead of the Paris Agreement objectives. This is becoming fully carbon neutral in 2040. This decarbonization plan has already begun in Prosegur with a project to compensate all carbon emissions made in Europe through our waste management process put in place in Brazil that up to now has already avoided the emission of 2.5 million tons of CO2. Another directive of the new plan states a direct link of the compensation packages of both top management and general employees of the group to specific goals related to ESG, effective in this year. On the health and safety side, we have also instructed a very ambitious update of our H&S plan '21-'23, as most important project has become the zero accidents goal, which we intend to reduce labor accidents and casualties to 0. Lastly, being conscious of the growing importance that ESG scores are having almost to the investor community, I'm very proud to state the excellent improvement of our ESG ratings and experiences, as long as we continue proactively engaging with the most relevant third-party ESG proxies and indexes. As you can see on the chart, our latest scorings, awarded by the agents, we sustain an proactive directional engagement, award Prosegur a very good rating, positioning our ESG practices well above the average. And in some of them, representing Prosegur as the one of the best representatives of our industry globally. We will continue, of course, trying to improve in all of them. And we are really confident that this new plan we are announcing today will surely help to increase this positive precision. Now for my closing remarks, I would like to summarize this first quarter results with the following ideas. In terms of profitability, we continue delivering global margins expansion. Despite the temporary situation of Cash, and this trend pretends to be accelerated by the successful partnerships and alliances we are developing. This applies not only to the case of alliance where our joint venture with Telefónica has already proven to be a major success. But also enlarging with this concept to other activities like the agreement recently signed with Santander to distribute the Cash Today solutions into their SMB client base or some other interesting partnerships we will be embarking in the months to come. New products in all activities are becoming a new solid cornerstone of growth. Both Cash and Security are now a considerable part of their revenues coming from them, and their effect on profitability in the case of Security is also noticeable. AVOS and Cipher will also have a significant role in the midterm future growth of the company, as they both add significant growth speed with very interesting margins. We strongly believe they will become a noticeable part of our profit pool over the coming years.Regarding our digital transformation strategy, the excellent results we have obtained from its initial stage reassurance and it's important as a pillar of our future development. Digital transformation will lead the evolution, not only of our internal processes efficiencies, but also will play a major role on the creation of new products and services. And therefore, we are now initiating the process of the global deployment of all the applications. This will require investments that are already budgeted with the confidence that this effort will have a very positive account, both in terms of market share gain and profitability increase. And finally, I would like to comment on the general positive reaction that our company is presenting to the still present COVID-19 crisis. All our business lines present very high degrees of tolerance to those effects. And now as the pandemic effects began to soften and we are getting closer to the pre-COVID levels, we are confident that our traditional growth trends in all activities will stabilize and come back to normal in record time. All 3 businesses have demonstrated a very fast capability to recover from the pandemic effects. And we are very confident that returning to pre-COVID levels will be feasible with no lag as the global situation continues evolving positively. Finally, I would like to take the opportunity of today to invite you all to our next Capital Market Day that will take place next 29th of June. We plan to provide you with a broad overview of our goals and ambitions for our new strategic plan and also wider detail on our innovation projects, new products and transformation goals. This event will be held virtually and you will very soon receive a formal invitation to register.I want to thank you all again for your attendance to this presentation. And now I will gladly take all your questions and comments. Thank you very much.
[Operator Instructions] Your first comes from the line of Francisco Ruiz from Exane.
I have three questions. The first question is if you could give us an indication of how much from the Security margin is due to the subsidies in the U.S. and in Singapore? The second question is mainly a housekeeping question. So first is that if the SAC that you published in the presentation is just your SAC is not included in Movistar Prosegur Alarmas? And the second one is if you are going to start publishing both Cipher and AVOS separately to other units? And the last question is on the cash flow. Because if we look at the cash flow from you and from Cash, there is a negative free cash flow generation on everything except the Cash business of around EUR 37 million, probably if I am not doing a wrong calculation. So could you explain to us why this cash flow is so negative?
Thank you for your questions. About the subsidies in security in the U.S. and Singapore, you have to take into consideration that this money is coming from our commitment to maintain our employees in the airline companies. So we need to pay at the same time their salaries. So all in all, the effect in the P&L is neutral. And it's representing what would be the normal profitability of activity in the case that will be operate in these airports. In any case, in this quarter, the impact globally is EUR 7 million. A reminder that this is not a compensation for nothing. It's coming -- that we are, at the same time, paying salaries. And consequently, we are having more or less the normal margin that we will have in this operation with the airline companies. About the information we are providing in this quarter is our intention, and we provide further explanation of reporting system in the Capital Market Day to provide this information about the SAC, about the separation of Cipher and AVOS. And although we are providing this information about SAC together with Movistar Prosegur Alarmas, our own business, in our P&L, you know that the impact of the Movistar Prosegur Alarmas is negligible because it's incorporated only the net result in the bottom line. About the cash flow, you're absolutely right. The first quarter in the year, usually very negative in terms of cash flow because we are paying the full collective bargaining agreement, salaries increase and the process of passing through this increasing cost to customer is taking some months. This year, we are in a better position than other years that we have receiving a very positive attitude of our customer to assess these cost increases. And consequently, although in the rest of the business, as you know, is better than in the first quarter last year or in the year '19. So all in all, we are very satisfied about the performance of the cash flow this quarter. Considering that the main driver that we had in our hands that this DSO is improving as had been in the full year 2020.
Your next question comes from the line of Miguel González from JB Capital.
I got two, please. First, I don't know if you could provide the digitalization cost in this quarter and whether you can give us how much you expect for the full year? And also when you expect investment in digitalization to finish? And my second question relates to ESG plan announced. If you could provide an indication of what could be the CapEx plan to improve the ESG metrics and get to the carbonization plan.
I was speaking -- excuse me. About the cost of digital transformation, we are in many plans that we called digital transformation. In the Capital Market Day, we will elaborate a little bit more on the [indiscernible] impact in the P&L or in the cash flow. In this quarter, it's more or less EUR 5 million in addition to the normal expense in IT.About ESG, we have been working many years ago in many initiatives, for example, because to provide hybrid armor vehicle of full electrified one means an investment of many years of R&D. But for example, the cost to compensate of the emission in Europe is more or less EUR 100,000. So this is the cost of this initiative this quarter, for example. So we had the intention of maintaining all the working lines we were in the past about different initiatives related to our infrastructure. And today, we don't have a separate line in the CapEx. But I think your question is very interesting. And probably we will organize our reporting. We're providing this information in the future. What I can tell you is that you will not see nothing significant in terms of CapEx or OpEx because we are not doing nothing new or extraordinary. We are only maintaining what we have done in the past, but reporting better to market and to the rest of the stakeholders.
Your next question comes from the line of Beatriz Rodriguez from GVC Gaesco.
Just is two questions. The first one is regarding the Security business. Could you give us information about the situation and evaluation of the activity in Brazil? And the other one is regarding the Alarm business and taking into account the positive evolution of Movistar Prosegur Alarmas. Will you consider replicating what happened in Spain between Telefónica and Prosegur in other countries in the short term?
Thank you for your questions. We are very satisfied and very happy about our landing in the U.S. market. We consider that it's a huge opportunity. Now we are adding new talent to the team. New commercial plans, new customers, of course, new or better strategic approach. So we are very happy with the performance. And we reiterate that one of the main topics in the Capital Market Day, whole optimistic our expectation in the rest for the future. You know that the U.S. market is in an extraordinary consolidation process. Now there are 2 big monster in the country. And we -- with only USD 200 million of revenue, we are in the Tier 2 companies. Probably we are -- we are in the level of the 2, 3 companies that are in the third position in the U.S. market. There is a fantastic opportunity in the new tenders that are opening and we're very optimistic. And the attitude of the U.S. government supporting our -- the businesses with this kind of grant is a demonstration that is a nice business market to invest. About Brazil, the situation in our company that we have been in from many years in a permanent restructuring process in Brazil. We crossed the breakeven line last year in terms -- also in terms of cash flow, we remain with this policy and this trend. In this moment, in Brazil, there is also a consolidation process and company is going to public. For us is an opportunity also for the technification of the [indiscernible] position in the market. You know that in the past, when we landed in the Brazilian market, we were probably the single company, fully compliant with the collective bargaining agreement, paying properly salaries, taxes, social security with more big professional companies in the market is -- we are creating altogether a better market to compete, and we remain optimistic about the future of the Brazilian security market. And about Alarms, we are very happy with the joint venture with Telefónica. Both companies are providing with the joint venture the best of each one. The commercial performing is going really, really well and above our expectations. We are incorporated in the year of pandemic with really severe confinements in Spain with the demand -- real impossibility for closing the door of our customers. We have add more than 60,000 new connections that means too much [indiscernible] for the traditional commercial capacity that we have alone in Spain. So we are really satisfied of this kind of joint venture between 2 industrial companies. And of course, we are exploring the opportunities to these alliances in other markets. Of course, with Telefónica, our first priority potential partner. But as you know, Telefónica is not present in all the markets where we have today Alarm business, but we are exploring another alternatives for joint ventures because it's clear that when 2 industrial companies are putting together their industrial capacities, the result is better than what they can perform separately. A joint venture is the ideal formula for creating this enormous amount of added value.
And your next question comes from the line of Pedro Alves from CaixaBank.
Just a couple of questions. Firstly, if you could share the trends of the Cash division during this last month of April across your geographies? How does it stand compared to pre-COVID levels? The second one on Security. Just if you could guide us on the pace of recovery over the next quarters, considering that this division usually has a lag effect of the economic cycle at least takes more time than the Cash division to recover. Assuming that we go through a period in H2 where a decent level of population is vaccinated, should we expect something like a high single-digit organic growth in the second half? And then still on Security regarding to the margin, which was quite notable, the improvement in the first quarter, even with this top line decline. So as the pandemic gets under control, are you comfortable with assuming a mid- single-digit rate of EBIT margin for the full year?
One thing is we have a Capital Market Day in 2 months and another is to change our policy about guidance with this level of accuracy. Nevertheless, let me to share with all of you that we are quite satisfied about the performance in this first quarter. Because it's a clear demonstration of the rebound capacity of all our business lines. We have suffered like other industry or less than the majority because we have maintained the pandemic our cash flow generation capacity, and we have defended our profitability and even we have maintained our plans for M&A and innovation as so. Clearly, the recovery in Cash in Europe has suffered more because you know the confinements and lockdowns in Germany, Portugal and Spain. And in Germany and Spain suffering even extraordinary winter storm during 2 weeks with the impact in the mobility and in the commercial economy activity. But clearly, as soon as the recovery is arriving to the economy, clearly, the normal trend activity volumes are recovering. And in April, clearly, we have seen this signal of recovery that we will report in the second quarter. About security, the rebound is clearly there. We have tougher year without any starting event, without Rock in Rio. But we had 3 months in Madrid reopening, we had the now in Madrid in this very moment. And as soon -- at this extraordinary event, we'll recover the rhythm, we will recover productivity. So we consider that we maintain this trend quarter-by-quarter of the last year of improving the profitability in our Security business. So I can't provide you with this precise and accurate guidance, but what we can tell you is that we're optimistic about the performance in the second quarter. Clearly, we'll have a rebound effect as we have seen in this first quarter. And third, the expansion in the margins in Security will continue along the year.
[Operator Instructions] Our next question comes from the line of Manuel Lorente from Mirabaud.
My first question is on the agreement together with Banco Santander on CASH TODAY, whether you can give us any reference about your expectations coming from this agreement, just to give an idea of the order of magnitude of the potential benefits for the company.
Manuel, I have been in the presentation of my colleagues, I think they didn't provide this guidance. But what I can tell you is we are very satisfied with the agreement with Santander. It's not a joint venture like the Movistar Prosegur Alarmas or with Telefónica. But clearly, the product is wonderful. This cash machine for back office are the future of the cash management probably in the most developed economies. But it's something new for many small and medium business. So to go together with a bank like Santander, being the old bank who is providing the commercial advice to the customer, okay, this machine is good for you. And at the same time, the bank is providing the new accounting date. When they are putting the money, winning the machine. So commercially, it's 100% better offering. During the test phase, for example, there was a panel of 64 customers offering if they would have had this kind of machine and 64 of them accepted. But -- about the commercial performance today, although we are in the early stages of the process, we are waiting the kind of assets in term of volume and a demand in the growth that we have seen in the last year, very similar at what had happened with Alarms in Spain with Telefónica.
Okay. And in terms of Alarms, you are referring to 160 basis points improvement in churn rate to what level, sorry?
Manuel, the churn rate level today, that is not normal, so -- but it's coming down from the extraordinary level that we have suffered in the pandemic, it is 11%. But we are awaiting improvement in the following quarters as the normal situation will recover. Can you imagine that? Not in families in domestic alarms in -- in the small amount of businesses in the severe lockdowns and confinements, many of them disappeared. But now coming to normal, we are enjoying a very high-quality portfolio. Now we are unlevering. We suffer more than 12% rate 9 months ago, and we are waiting to approach to our traditional level close to 10%.
Okay. And probably my final question on the financial charges. We have seen a big jump on this quarter versus last quarter of last year, there has been any issue there? And what we should expect going forward?
Manuel, the financial costs are in line with last year. The amount in one single quarter can be affected by hyperinflation accounting or by seasonality. But in any case, I always say to the IR department to call you to elaborate a little more about the detail of quarterly financial expenses.
That will conclude today's Q&A session. I would now like to turn the call back to Mr. Antonio Rubio for any additional or closing remarks.
So once again, thank you very much to all of you for attending this conference call. We have the feeling that we are at the beginning of the end of this tragedy that we have suffered. Once again, I like to remember of our colleagues, friends and relatives that suffered during this period. I want to remark how proud we are about the performance of our colleagues on the ground during this very difficult months. Thank you very much for your attendance. And we will see you all in our Capital Market Day on June 29, where we would elaborate with many hours of time, all this very interesting subject about the future innovation and digitalization of Prosegur. Thank you very much.