Prosegur Compania de Seguridad SA

MAD:PSG

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Prosegur Q1 2022 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 Carcer, Head of IR. Please go ahead, Antonio.

[Antonio de Cárcer, executive]

Good afternoon, and welcome to the presentation of the Prosegur results for the first quarter 2022. This presentation will last around 30 minutes, followed by an open Q&A session. This webcast will be hosted by our Group CFO, Maite Rodriguez, and myself.

Prior to starting, I would like to remind you that this presentation has been pre-recorded and that it will also be available to download on our corporate web page.

I will now hand you over to our CFO, Maite Rodriguez.

[Maite Sedano, executive]

Good afternoon, everyone, and thank you for attending this presentation. I am very pleased to share with you today the results corresponding to the first 3 months of 2022. The set of results we are presenting today can be considered very positive, reflecting a substantial increase in both revenue and profitability, and clear evidence of the recovery of our business model as market conditions get back to normal.

Allow me please to guide you through the main highlights of the period, both in qualitative and quantitative terms. The most significant highlight of the period is the extraordinary almost 18% growth in turnover achieved by the group. Most of it, during the last month of the quarter, when normal activity has been resumed in many countries and the restrictions imposed by the COVID pandemic have largely been lifted.

As you will see later in this presentation, all business lines and regions have reported a strong positive organic growth, in double-digit in most cases, reflecting a generalized recovery across all units. The increase in turnover comes mainly from the reactivation of markets, but also from the positive effect that an inflationary economy imposes on our Cash in Transit business, which take advantage of increased volumes of cash in circulation and faster cash flow velocity, not only in emerging economies, but to some extent also in matured ones.

Macroeconomics has also been favorable in terms of currency exchange with very little exchange rate effect to be reported. Therefore, our ability to pass on inflation to market in all business lines has become evident.

EBITDA has also improved by 19% along these same lines, showing a positive incremental trend that will become more evident in the second half of the year once the traditional adverse seasonal effect on margins is corrected.

Speaking of seasonality, I would like to remind you that the yearly seasonality experienced by our profitability is often amplified by inflation. As the cost differential increases during the period, it is passed on to the market through price increases. All these extraordinary growth has also implied a significant variation in our working capital consumption. And this, as you will see, together with the end of all the stimulus and support programs put in place by certain governments during the pandemic, has had a noticeable impact on our cash flow generation in the quarter.

During this quarter, we have also performed 3 new M&A operations, all of them are in the cash business. We have acquired 2 traditional cash in transit operators in Germany and a major banking correspondent agent in Ecuador. All together providing nearly EUR 30 additional million in revenues for the year and with a very promising outlook in terms of margin once fully integrated.

Finally, another significant milestone achieved during the period has been the recent issuance of Euro bond aimed at refinancing the current bond held at Group level, which will become due in early 2023. This new issuance has been a very efficient operation in which market demand almost doubled the offering and in which the outcome is EUR 500 million senior unsecured rate of 7-year maturity with the final coupon of 2.5%, a great outcome considering the current highly volatile interest rate conditions, which our company has successfully navigated by leveraging its solid credit fundamentals and rating at the right time in the market.

Let's now have a look at the full P&L of the period, which is as follows: Revenues have totaled EUR 947 million. This represents an excellent 17.9% growth with respect to the same period in 2021, stemming from a global 16% pure organic growth, plus an additional 1.6% generated by M&A. FX in the period has had a minor positive impact.

Broken down by region, we can see that all areas have shown a very good performance, mostly LatAm where volumes are now above pre-pandemic levels in some countries. And rest of the world, where our North American operations in security, have grown by more than 50% in the period. Europe on its part also presents a remarkable growth rate of almost 8% above the region's nominal GDP. As for profitability, EBITDA and EBIT have also grown incrementally with similar and higher levels than revenues, a slightly increasing margins some basis points above previous year's levels.

Moving down the P&L, we can see an increase in financial expenses that corresponds mainly to the accounting effect derived from exchange differences on intercompany loans as a result of currency appreciation, and therefore does not have a counterpart in cash. This has also happened with the tax rate affected by hyperinflationary and other pure accounting rules, all in all, resulting in a final net profit of EUR 14 million.

I would like to take an additional minute to emphasize once again the extraordinary turnover recovery that all our businesses have experienced in this period. As you can see in the chart, our 2 main businesses lines have organically grown well above 2019 comparable levels as has also happened in Alarms, Cipher and AVOS. This excellent performance has come out, thanks to our reactivated demand that is evenly distributed along all markets but also to the increased volumes of cash in circulation derived from inflation. And this in turn highlights our capacity to transfer inflation cost to market and how quickly volumes can recover when market conditions normalize. This is expected to be the trend throughout the year. Also note how our profitability benefits from it, as our operational density increases with volume.

With regard to profitability, EBITDA has grown by 19.1% to EUR 60 million, increasing our margin to 6.3%. This is a very good result considering we are in the low side of our profit seasonality and that much of this profit has been earned during the last month of the quarter, whereas the first 2 months were still affected by the negative effects of the pandemic.

From a business-by-business perspective, we can appreciate that cash has made an extraordinary improvement in margin recovery, having obtained a higher result than the one obtained in the same quarter in the previous 2 years, showing a steady progress that will be maintained as the year advances.

Security on its part remains under a certain profitability pressure, mainly arising from the impact of Omicron cost workforce and productivity during the first 2 months of the quarter, the termination of some government job-keeping aids received mainly in the U.S. during the pandemic, and the cost of the strong commercial effort we are making in the North American market, an effort that is quickly is bearing fruit as the revenues of security in the U.S. have grown by more than 50% compared to Q1 in 2021.

We remain optimistic about margin recovery in security. In fact, if we subtract the effect of the subsidies received in 2021, EBITDA in Q1 2022 has grown by more than 11%. Alarms continues improving its year-on-year profitability both in Prosegur Alarms and in MPA, whose EBITDA Pre SAC, per client has reached 44.2% and 55.8% respectively. And finally, although not shown in the chart, both our new business lines AVOS and Cipher have also maintained and improved their profitability levels.

Let us now move to analyze cash flow generation in this first quarter. On the cash flow statement, we can see that operating cash flow shows a decrease compared to the same period last year, mainly driven by 2 different factors. On the one hand, the decrease in working capital due to higher volumes of sales and inventories stockpiling to ensure the supply change. On the other hand, the evolution of provisions and other non-cash items is related to the termination of all the stimulus and support programs put in place by some governments during the pandemic, which allowed certain tax payments to be deferred.

Additionally, this year, we had an exceptional volume of outgoing cash from payments as a result of the labor adjustments accrued last year after the labor regulatory changes in Argentina and the digital transformation. It is worth mentioning that DSO performance continue to be one of the main focus points of Prosegur, evidenced by the fact that the quarter average of this KPI in 2022 is in line with a good level figures of the first quarter of 2021. However, when it comes to CapEx, the investment is still low compared to pre-pandemic figures. Although, I would like to point out the positive performance of client CapEx, which had reached more than 50% of the total figure by the end of March 2022. Besides as I stated in the Capital Market Day held almost a year ago, Infrastructure CapEx is kept well under control, accounting for a very low percentage over the sales of the Group.

And finally, variations in treasury stock and other are mainly driven by customer cutoffs and the exceptional positive impact last year related to ransomware [ in StanPac ] in 2019, together with the recent investment made in inorganic growth in companies which are consolidated by the equity method.

Looking now at the group's financial position, total net debt at the end of March 2022 amounts to EUR 933 million. Regarding net financial debt, the increase of EUR 102 million during the quarter is almost fully explained by the already mentioned one-off reduction in working capital and provisions and other non-cash items. In any event, in terms of leverage, Prosegur continues to have a moderate net debt-to-EBITDA ratio of 2.4x, below current bank covenants of 3.5x.

When it comes to pure cost of debt, Prosegur managed to keep it at such a low level, thanks to the efficient management of financial costs, together with a constant assessment and adjustment of the debt needs.

As for the balance sheet, it is worth mentioning the reclassification to the short-term of the bond whose maturity is due in February 2023. Prosegur has already successfully refinanced this Euro bond at holding level in the month of April. Despite the complex macro conditions, Prosegur has issued a EUR 500 million Euro bond reaching a low coupon of 2.5% for 7 years. This issue has managed to extend the corporate debt maturity to 2029 and added to its 1.5x of our subscription is clear evidence of Prosegur's excellent access to the capital markets even in the toughest conditions.

I will now hand over the presentation to our Head of Investor Relations, Antonio de Carcer, who will give you more detailed information on the development of the specific business areas, as well as some additional information on our ESG progress and achievements.

[Antonio de Cárcer, executive]

Thank you very much, Maite. Let's now take a look at the results of each activity line covering the main performance indicators of H1. Starting with cash, the main highlights of the period are the significant recovery of volumes of cash in circulation in all our footprint, especially during the last month of the quarter. Cash continues to be the most popular and used payment method in most of countries and as the pandemic effects fade, volumes of cash in circulation continue growing at rates similar to those in the past decade.

In terms of revenue recovery, we already have several countries at pre-pandemic levels, mostly in LatAm while Europe and Asia, appear to be catching up very quickly. Not only have volumes grown by nearly 90% in the quarter, but the same has happened to profitability, which has grown by 60% boosted by the operational leverage as we gradually gain back route and client density. But also underpinned by the positive impact of the strong efficiency measures taken during the crisis, and by the positive acceleration effect that inflation generating this activity both in volumes and in prices.

M&A has also been a growth contributor in the period, as we have acquired 2 traditional cash in transit companies in Germany and one large new products operator in Ecuador, as has already been mentioned.

And regarding new products, another remarkable fact of the period is the strong growth that all these new solutions and services have reported, growing more than twice as fast as the traditional services and proving their adaptability and convenience to clients regardless the economic costs.

In the chart that summarizes the facts I've mentioned, we can see that revenues have grown by almost 19%, totaling EUR 411 million. Ideal growth is of purely organic nature as M&A represents less than 1% and currency impact has been virtually negligible, accounting for only a 0.3% deduction on the final revenue figure.

As mentioned earlier, new products continue growing and now represent more than 23% of revenues. These solutions have increased our sales by more than 57% on a year-on-year basis. This comes principally from the Cash-Today small business solutions and from the CORBAN, our banking correspondent agent business line, which is expanding very steadily in several countries in LatAm.

Finally, EBITDA has grown by more than 60% to peak at EUR 55 million in the quarter, and EBITDA margin recovered from 9.9% in Q1 '21 to 13.3% in '22. In this context, cash margins in Q1 are now above the equivalent quarters in 2021 and 2020 when margins reached 12.7%.

The security business has also experienced solid revenue growth during this first quarter. A large share of this growth has hailed from the U.S. operations, a market where Prosegur has grown by more than 50% in this first quarter. Excellent news given the fact that during the pandemic, it was one of the most affected markets due to our large exposure to the aviation industry, but it is now growing at a very fast rate in other key customer industries, such as logistics, retail and large data center security.

Additionally, during March, there has been a strong reactivation of many large sport events and high-capacity social events. This is an area in which Prosegur has a very broad client base and where our range of the remote monitoring technologies are renewed for their high efficiency and competitive cost in comparison to traditional guarding services. That's expected to generate a significant margin contribution throughout the year.

Labor cost increased transfer to market is progressing with normality, although we are still in the low part of the season. Seasonality means that we have already increased our cost base by raising salaries in line with the collective bargaining agreements in each country and that cost has not yet been fully transferred to the market. Full transferring normally is finished on the second half of the year usually with a retrospective application in the tariffs.

Nevertheless, the actual percentage of progression is faring slightly better than in previous years. We do not expect to have major issues when completing this process, that might even have some potential gains. Profitability in security is still recovering from the labor and productivity and extraordinary level of absenteeism brought out by the Omicron virus during the first 2 months of the year, especially in Brazil. Moreover, margins has also been affected by the termination of the job-keeping aid that the U.S. government was supplying during the pandemic.

As mentioned earlier, total revenue growth in security has been 15.5%. Revenues reached EUR 469 million and were classified into an excellent 13.7% organic growth rate, a small 0.3% inorganic from the acquisitions made in the U.S. last year, and also by a positive 1.6% additional FX coming from the greatly increased weight of our U.S. operations in the geographical mix.

As for new products, it is also worth noting that our remote monitoring stock solutions, along with the mobile guarding, remote aerial operations and some other new services that comprise the new products line have grown by almost 30%. Pure technology sales have also increased by 25% in comparison to traditional guarding that has increased revenues by 10%. This is a very good indicator of the acceptance of this new model of security services and has become the cornerstone of our business development in the U.S.

On the profitability side, as mentioned before, the main causes of EBITDA decrease are both the loss of the subsidies perceived during 2021 in the U.S. aviation business, which still has not recovered its previous levels, and the persistence during the first 2 months of the year of the increased absenteeism caused by Omicron. Nevertheless, as Maite Rodriguez indicated in her introduction, if we isolate the effect of the perceived subsidies, we can observe that the recurring underlying EBITDA is improving in 2022 by more than 11%, and we firmly believe that this positive gradual trend will accelerate over the coming months with inflation costs continue to be passed to market and expanding our new products in mature markets.

Let's switch now to Prosegur Alarms and Movistar Prosegur Alarmas. Growth continues to be very strong. MPA has added more than 35,000 new contracts to its client base in Q1 accounting for approximately a 50% increase over the same period in 2021. Similarly, Prosegur Alarms has also expanded its contracts base by adding more than 10,000 new clients in the quarter. A very good achievement, which from now on will be supported by the new commercial partnership entered into with Santander Bank in Portugal, as well as by the partnership created with Telefonica in Colombia. MPA on its part continues spending in sales force, having increased the number of sales representatives by more than 35% since the acquisition of Prosegur Soluciones. Commercial infrastructure has also grown through the incorporation of nearly 2,500 point of sales. The Santander branch offices to the already existing 1,000 from Telefonica itself.

As for technology and new products, both entities report the massive growth of their intelligent platform called SMART, which now covers close to 80% of new clients. This new platform provides the clients with home video surveillance capabilities on their mobile phones, as well as the possibility to manage several different events on the alarm based on artificial intelligence, such as user face recognition and even classification and prioritization amongst others. In fact, as reported by MPA during the first quarter of this year, the number of clients actively interacting with a remote video platform of their home alarms grew by more than 65%.

Looking at both the business and financial KPIs of the 2 companies, it is clear that the total client base has grown in both entities in respect to the closing of 2021 now reaching a total of 724,000 connections. Churn rate has increased in MPA in the first quarter as a foreseeable result of all these strong commercial efforts and campaigns executed during the end of the year and Christmas season. This will tend to stabilize during the rest of the year as new sales coming from less aggressive campaigns that now include client permanence in the contract are replacing the lost clients.

On Prosegur Alarms side, churn has decreased by 90 basis points, which is solid proof of the capacity of the business to recover following the lifting of the pandemic restrictions, able to maintain the good customer scoring level. The experience at ARPU has been along similar lines, while in MPA, it has decreased as a result of the aggressive commercial policies applied by the end of 2021 within the scope of Prosegur, it has grown by a significant 13.6%, proving the extraordinary capability of this business to transfer inflation to customers. Cash flow generation has also improved in Prosegur by more than 24% and both MPA and Prosegur have grown their EBITDA Pre SAC margins reaching 55.8% and 44.2% respectively.

On the revenue side, Prosegur Alarms has earned EUR 43 million in the quarter, showing a solid 17.6% organic growth and only affected by the negative inorganic impact of the sale of Telefonica of the commercial network known as Prosegur Soluciones plus some additional negative effects coming from the large customer base we operate in LatAm.

Looking now at our business process outsourcing unit, AVOS, we can see that revenues have grown by more than 30%, reporting EUR 21 million and delivering a total gross profit of EUR 6 million, which implies a growth of almost 16% over Q1 in 2021. In terms of margin, AVOS has been slightly affected by the effects of the Omicron crisis that has had an impact in terms of labor and productivity on the traditional BPO front office side of the business as it is more labor-intensive than the technology side.

Technology Solutions or AVOS Tech now represent close to 30% of sales. AVOS Tech is a brand new designation of the growth portfolio of services fully based on technology that AVOS is now offering to its corporate clients. These new services range from pure software product selling such as a specialized anti-money laundering regulation compliance software or integrated insurance company management platforms to more complex services such as cloud services for business continuity or Microsoft Cloud Migration services or even high specialized services such as big data analytics and hyper assessment tools for any type of business or client industry. A highly sophisticated product portfolio that has been expanded to Latin America to our recent acquisition in Chile and that will continue doing additional M&A during the rest of the strategic plan period.

Now to conclude the business lines review, let's briefly look at the performance of Cipher, our cybersecurity unit. In the first quarter of the year, Cipher has increased its revenues by 11.5% and its gross margin by 23%. Strong performance arising from a deep restructuring project consisting of the technological platform integration and internal processes alignment of all our 8 Security Operation Centres all over the world. This major technology upgrade will not only enable better margins to be generated from more streamlined and global procedures, but it will also allow Cipher to promote seamless and more complex services to our clients irrespective of their geographical location and on a 24-hour, 365 days a year service provision model, thus generating high recurring services that will improve revenues in the short term. A good example of this is the signing of a very large contract with a major financial institution in Portugal to provide PCI/DSS certification to all credit card transactions made with that entity for any credit card supplier either at ATMs or retail points of sale.

Additionally, Cipher is also entering the business to consumer model through the creation of a marketplace to provide online cybersecurity services to private individuals and the small and medium-sized businesses, which uses our intellectual property algorithms and is already live and providing service to clients.

This concludes our analysis of the performance of each business line in this first quarter of the year. Now I would like to briefly comment on our ESG performance.

Today, I would like to share with you the outcome of the first year of application of our new ESG master plan for 2021 and 2023, and tell you about the main achievements of our company in this regard during 2021. The list is long and not exhaustive, so I would like to steer your attention to what we consider are the most significant achievements.

On the sustainability side, the most relevant one could be the launching of a decarbonization plan to offset the equivalent CO2 emissions generated by the Company in Europe and subsequently, the obtention of the ECO or ZERO environment category in 440 vehicles of our operational fleet. Additionally, we have deactivated 334 inefficient armored vehicles.

In terms of social, we have obtained a significant reduction of the rate of health and safety incidents of our employees by 4.2% compared to the 2% we defined as target for 2021. We have also increased the number of training hours we provide to all our employees through the Prosegur University Global Training platform by 66%.

And on the governance side, we have fully implemented the #EmpoweredWomen program with the participation of 100% of women with management responsibility at corporate or other levels of the organization with outstanding performance assessments. These are only some examples of all the milestones achieved during 2021 in our ESG program. The full list can be viewed on our corporate website on the ESG section. We will continue reporting other milestones as we list them in our quarterly market communications.

Thank you for your attention. I will now hand the floor back to our CFO, Maite Rodriguez, for her closing remarks.

[Maite Sedano, executive]

Thank you very much, Antonio. To wrap up of this first quarter result presentation, I would like to summarize the following key takeaways: The whole group has achieved excellent revenue growth in the first 3 months of the year. This is a sustainable trend that shows the ability of our business model to quickly recover from adverse situations as well as the solidity of its fundamentals. Turnover has stemmed from market demand driven by the economic reactivation but also taking advantage of the current macroeconomic environment where inflation has a positive effect, which our sales team successfully managed to pass on to the market. We expect this situation to continue, hopefully, supported by the stable ForEx and the positive seasonality that normally affects the business in the second half of the year. Profitability is recovering fast in cash and will also be showing a positive gradual progression in security, as we continue gaining market share in key strategic markets and our new technology solutions continue growing faster than traditional guarding services.

We have been active in M&A during the first quarter of the year and intend to continue doing so throughout the rest of the year, focusing on new products and with new opportunities in different business areas. We are also very satisfied with the solidity of our balance sheet, which seems to show sufficient strength to tackle any opportunity, and with our renewed debt structure, thanks to the recent bond issuance that sits our debt maturities to a comfortable long-term with very good conditions obtained in a very difficult interest rate environment. Finally, we remain confident that the good results we have presented today are the starting point of a solid recovery of the company to pre-pandemic levels.

That is all on my part. Thank you very much for your attendance and I will now gladly take any questions you may have.

[Operator]

[Operator Instructions] Your first question comes from the line of Miguel Gonzalez from JB Capital.

[Miguel González Toquero, analyst]

I have 2. The first one is, you said that so far you were able to pass through higher cost in tariffs. In security, I wonder if -- do you expect salary increases? And how -- do you expect to go with this or whether you have already taken some measures to mitigate this effort? And also I don't know if you could guide us maybe on the evolution of security margins. Do you expect to see throughout the year, so whether you think of recovery mainly in the second half of the year or do you see unlimited potential for improvement?

And my second question is, well, you said that the cash flow this quarter was affected by some tax payments that were deferred last year. So could you give us the impact of this item in the cash flow for this quarter? And I don't know if this is a one-off in this quarter or should we expect a similar figure in the coming quarters?

[Maite Sedano, executive]

Thank you, Miguel, for your question. In relation to security business, we are passing through salaries as you know, the first Q and second Q we are closing all the collective bargaining agreements and we are doing well in all those pass-through, but as you know, in -- with a high inflation, the cost of those salary increase are in our P&L, but we are not still having the pass-through to prices, and even during the second Q of the year, we will be still having more impact in those salary increases. But we are happy how we are dealing with those price transfers and how we are also closing the collective bargaining agreement.

In relation to how security business margins are going to evolve in the future or in this year 2022, we expect to be above 3%, you have to know that last year, we have the job-keeping program for the aviation industry in USA, and we had suffered Omicron and we are also investing in USA. So those 2 U.S. costs are going to leave the margin, not -- we are not going to achieve that 4% that we had in 2021, but for sure we will be above that 3%.

And in relation to the cash flow, yes, we -- there were some incentives put in place by some government, mainly in Germany and in South America, and all the amount totals around EUR 13 million and, yes, it's a one-off that when we compare with the last year, we don't have it, so.

[Miguel González Toquero, analyst]

You are not expecting any impact in the coming quarters, just in this quarter? Just with…

[Maite Sedano, executive]

No, no, no. Absolutely not. No. Just that one. We have -- there isn't anything else.

[Operator]

Your next question comes from the line of Enrique Yaguez from Bestinver Securities.

[Enrique Yáguez Avilés, analyst]

I have 3 questions. The first one is just a quick follow-up of the security margins. Do you think that they have reached a bottom in this quarter? What kind of improvements should we expect over the next few months or will be concentrated just in the second half of the year?

Secondly, also regarding this security business, I was surprised to see that your main competitor in security highlighted especially Spain due to its high performance, or strong performance, but you didn't mention in the presentation. What kind of evolution did Spain have in the security business in the first quarter? Is something special or some kind of change in competition environment from this competitor?

Finally, regarding the Alarms business. I don't know if you could provide a target on this, some guidance about the net subscriber base that you would like to achieve at the end of the year? And what contribution do you expect from the partnerships in Colombia and Portugal in terms of net subscribers?

[Maite Sedano, executive]

Thank you, Enrique, for your questions. In answering your first question about security margins, we have room for improvement. This year, you will -- it will come mainly in the second half of the year. As you know, we have the typical seasonality with the transfer prices, the prices that we transferred to our customers. So the answer is, yes, we should increase our margins and we should have an improvement quarter-by-quarter. Second quarter, it's not going to be when we are going to achieve that 3% or 3-point-something percent, but yes, we will achieve it in the third and fourth quarter.

Answering to the question regarding Spain on security, the answer is that the month of March has been a very good month, mainly because we are recovering all the big events like football and other type of big events. So yes, we have a very good last month. But January and February or mid-February, it was affected by Omicron. So we have there some unproductivities, so the margin was a little bit impacted because of it, but the sales were doing really well. So we weren't happy coming from the side of volume, but the Omicron and unproductivities for January and February were still high but in March, we have normalized them.

And in answering your third question in relation to Alarms business, we expect to continue to have positive growth. We have, as you know, MPA from one side and the rest of the world from the other one. For the rest of the world, we expect to continue to have a positive BTC for this year, which means that all economies are recovering their pre-pandemic level situation, so we should have a positive BTC, what we didn't have last year. So for this year, we are happy and we are very positive in that regard. And in MPA, we -- at least, we think that we should be quite at least -- the flow should be what we had -- the increase that we had for last year.

[Operator]

Your next question comes from the line of Francisco Ruiz from BNP Paribas Exane.

[Francisco Ruiz, analyst]

Sorry to insist on the margins on security. My first question is, if you could give us the split of how much the margin has suffered because of the delay of the pricing because of inflation and how much is because of the high level of absenteeism at the beginning of the year?

The second question also on this is, if we take into account that the mix of the product has improved, not more technology and new products, but the margin excluding the subsidies remains the same. So what are the reasons for that and what should you -- what should make you be as positive as to double the margins from now to the year-end apart from the seasonal effect?

And the last question is on the U.S. security business. So you could give us an idea of what's the level of profitability of the U.S. business. And if you continue with the aim of growing inorganically in this market or there has been some delays on this expansion?

[Maite Sedano, executive]

Thank you, Paco, for your questions. I'm going to start with the last one with the U.S., because I didn't get very well the second one, I think. In relation to the U.S. growth and the level of profitability, now we are -- during 2022 this first Q, we are not achieving the breakeven, mainly because we are investing in commercial effort and so that it is going to increase our market share.

As you know, we really did well in volume during this quarter. We expect to -- even to improve our internal budget for 2022 in volume, but these investments and the aviation weight in total sales still has an important weight. So as far as we start increasing in other type of customers like retailers or logistics, we will start increasing our margins. And also with that volume, the costs are going to be neutralized. So for this year, we are positive in volumes. I can tell you that we are not going to achieve the breakeven for this year in USA, but we are going to do it very well in volumes, that is our target.

Going back to the first question. I think that -- I don't know if you make one or 2 questions because we heard you like very, very slowly, but I guess that your question was about how the technology is impacting in margins and how the Omicron or other different impacts has impact in our margins. So Omicron had…

[Francisco Ruiz, analyst]

My question, Maite, was, first, if you could give us what has been the impact on the one hand of the lack of repricing yet of the contract of the inflation and also of the absenteeism, okay. And then the second question was looking at the improvement of the business mix, okay, so you'll have higher sales from technology from new products versus the traditional product in security and excluding the subsidies, the margin is not improving. So what are the reasons for that?

[Maite Sedano, executive]

Okay. Understood. Thank you, Paco. The absenteeism or what we call unproductivities, it's around EUR 3 million for this first Q and -- but here in security margin for understanding this first Q security margin, you have to consider like 4 different points. On one hand, we have this unproductivities impact around EUR 3 million. We have the already mentioned investment in USA. We also have the job-keeping grants that we received from U.S. that are around EUR 8 million that are not -- that this year, we have 0. But on the other hand, aviation industry is not recovering or is still not in the normalized levels and fourthly, we have the transfer pricing impact where, for example, in Spain, in each country, it's completely different.

But for example in Spain, we already have transferred 100% of the cost even earlier with more. But in other countries, for example, in Argentina, we have started the first part of the year and we have the cost, but we didn't pass -- we just passed like 17% of the prices. But in Brazil, we -- even we are not -- we are in the middle of the negotiation of our collective bargain agreement. So there is a huge mix there, and that's why first Q in security and it will also happen in second Q, price transfer is impacting to the margin and in macroeconomic situations has, in the one -- that we are leading now with high inflation, those impacts are higher. Of course, in the second half of the year, they will be neutralized but till then, we are not going to observe them.

And in relation to the business mix with technology and traditional guarding, we are really working hard there. We are even investing -- not investing in stocks, not only in Spain, also in Miami, in Argentina, and we trust in that model. We know that we have to continue growing together with the customer and we are sure that we will bear -- that we are going to bear fruits very soon.

[Operator]

Your next question comes from the line of Pedro Alves from CaixaBank.

[Pedro Alves, analyst]

3 questions, please. First one, if you could give us a breakdown of your organic growth in the quarter between volumes and pricing and your expectation of the split for the full year. Secondly, this MPA reduction in prices and increase in churn rate, could you just elaborate a little bit more on this and give your expectations in terms of ARPU for the full year?

And certainly, not really a question, more to get your thoughts on your valuation, which seems definitely low for historical standards. I was wondering if you are considering to take some actions in the future to at least narrow this valuation gap with possible holding company, we know, for instance, that you have been quite vocal about the hidden value of your Alarms business. So could you eventually consider some kind of spin-off or value crystallization through a similar transaction like you did with Telefonica? Any thoughts on this in the valuation of the holding company would be helpful.

[Maite Sedano, executive]

Thank you, Pedro, for your question. In relation to volume and pricing, as you know, this part of the year, always volume is higher than prices. And during the second half of the year, it -- the mix will change. But now we are quite similar, but we are like 50-50, a little bit more volume, but as always, there isn't any kind of expect -- difference if we compare to the same situation with the first Q of last year or other years.

Coming back to your second question, the prices of MPA or the ARPU has decreased, mainly because of the commercial campaigns and promotions, the aggressive commercial campaigns and promotions that we did during Christmas and last year. This ARPU decrease as far as the number of connections is going to increase, those commercial promotions are going to have less effect in our ARPU. So what we expect is now, during this year, that ARPU should continue in the same level. But as far as we've started having more and more connections, the new promotions are going to have less weight on the total ARPU figures. So it will gradually start improving not during this year. This year we will have a small or a little -- a small increase, but not something significant.

And if you can repeat the third question, please?

[Pedro Alves, analyst]

Yes, Maite. The third question was more about the valuation which is depressed at the holding company at Prosegur. So -- and because you have been quite vocal about the potential value of the Alarms business, which has not been priced in by the market, if you consider in the future some kind of operation for Alarms business like asset sortation, value crystallization of this unit like you did with Telefonica, for instance?

[Maite Sedano, executive]

Okay. Yes. So what -- here we are analyzing a lot of different partnerships with different, not only Telco banks and even insurance companies for all the rest of the world Alarms. I can't tell you anything else. But yes, we are looking plenty of different options and we are open to plenty of different deals.

[Operator]

[Operator Instructions] Your next question comes from the line of Alvaro Lenze from Alantra Equities.

[Alvaro Lenze Julia, analyst]

The first one would be regarding the U.S. I understand that you no longer have the fiscal stimulus but last year, you were indicating that these stimuli were just offsetting the lack of volumes, especially in the airport business -- airport-related business. But if I look at the U.S. traffics or at least North American traffics, it seems to have recovered quite significantly. So how come the recovery in volumes in air traffic has not translated a recovery in your own volumes in the airport business, which should in principle allow for a recovery in profits or at least maintain the same level of profits as you had with the fiscal stimulus?

My second question would be regarding your commercial strategy in the -- again in the U.S. You have mentioned that you are being quite aggressive on the commercial front. So I would like to know how confident are you or why are you confident that once you stop being this aggressive you will retain those clients and that we will not have some profitability issues as we have seen in Spain or in Brazil in the past where you have had to execute the client restructuring or portfolio restructuring to eliminate loss-making accounts and how this will not be a problem in the case of the United States?

And something similar with the Alarms business. We have seen ARPU decline, which I understand that the strong commercial activity and the discounts may have affecting negatively. But we have also seen an increase in churn. So why are you expecting that these commercial discounts will be diluted and not that clients will just churn out of your client base as the promotions finalize?

[Maite Sedano, executive]

Thank you, Alvaro, for your questions. In relation to answering your first question, you have to bear in mind that the lack of volumes in airports that we mentioned last year, there, we are still having those lack of volumes, mainly because we are in airports where international flights have not been banned. We are in LaGuardia, where those international flights are over. So when they come back, we will start providing the service. But now, they are not providing the service. So that's the answer.

In relation to the second one, what you mean -- what you say like the commercial study that we are having in U.S., here, you have to consider that when I say investment in USA, we have 2 parts. One, maybe that we are quite aggressive on our prices, but the big one is that we are really investing in our sales force. We are hiring plenty of people and that is decreasing, of course, our margin. If you analyze the gross margin of U.S., it's not so bad, but I am, of course, including all the costs that U.S. is having.

And in terms of the churn of MPA in Alarms business, here, you have to consider that like around 6 or 7 months ago, with those aggressive commercial promotions, we didn't have any kind of permanence, but now, the last I think the 5, 6 months, we are starting having long-term contract of one year. So the churn should be improving during the year because those aggressive and those Christmas campaigns where we didn't ask the new customers to have any kind of permanence they have -- they are over.

[Operator]

[Operator Instructions] As there are no further questions in the queue, that will conclude today's Q&A session. I would like to turn the call over to Ms. Maite Rodriguez for any additional or closing remarks.

[Maite Sedano, executive]

Thank you very much for attending this presentation. And if you need further information, please contact our IR department who is open to help you at any time. Have a nice day.

[Operator]

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.