Prosegur Compania de Seguridad SA

MAD:PSG

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Prosegur's Second Quarter 2021 Results Presentation. [Operator Instructions] I must advise you, this conference is being recorded. And I would now like to hand the conference over to your speaker today, Antonio de Cárcer, Head of Investor Relations. Please go ahead, Antonio.

[Antonio de Cárcer, Head of Investor Relations]

Good afternoon, and welcome to Prosegur First 6 Months 2021 Results Presentation. This presentation is expected to last around 30 minutes, followed by an open Q&A session. As customary, this webcast will be hosted by Antonio Rubio, Secretary General; Maite Rodríguez, Global 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 download. I will now hand you over to our Secretary General, Antonio Rubio.

[Antonio Rubio Merino, Chief Financial Officer]

Good afternoon, everyone, and thank you for attending this presentation. It's been probably 2 months presenting our Q1 results presentation. I just want to mention our 2021 Capital Markets Day. There has been a lot of information delivered to market in the past 8 weeks. And therefore, on today's presentation, there is not much additional information or new milestone to be addressed. And hence, we will present today a set of middle year results that are totally in line with our estimations and reflect both the gradual recovery of our activity as the pandemic effects are becoming softer, but also the traditional seasonal slowdown that our industry in general suffers during the second quarter of the year. In this regard, the results we are presenting today are good, very much in line with the market dynamics of each of our different geographies and with all business lines reporting margin improvement on a quarter-on-quarter basis. With time our activities quickly react to the improving market conditions, although as previously mentioned, is still under the seasonal slowdown. Typically coming from a period when all costs increased in each region has already been incorporated and it's a sequent transferring to prices is still in process. Prior to start analyzing the results, I would like to quickly recap on the main messages we exposed to market during our Capital Markets Day held at 30th June. As you may remember, during the event, we unfolded the main pillars of our strategic plan for 2021-2023, a plan that relies in the context of perform and transform. Meaning this, the ambition of our company to become a technology innovation leader in the industry, while at the same time, continue developing internal efficiencies and more streamline business process to R&D, not only increase revenue growth, but also improve profitability as well. We also gave to the market a comprehensive outlook of our goals, not only for the next 3 years, but also for the next decade, which we plan to grow to almost double revenues while improving our global margins to a mid-teens double-digit figure. We also restated to market our deep confidence in the Ibero-American region as one of the most promising and strong growing geographies to develop the security industry. LatAm is the region that gathers the most interesting growth dynamics of our industry. And this has been proven by our excellent track record over the past 10 years, and will be continued doing so in the years to come. Our digital transformation strategy was also put in value during the event. The rationale behind all of our investments and efforts to transform the company into a much leaner and efficient entity while at the same time, taking advantage of all the generated intellectual property to develop a near future array of new products that will become the main revenue generators of the group in the years to come. To summarize all the contents deployed during the event, I would like to restate the market guidance figures our CEO, Christian Gut, sated during his presentation. While the pandemic effects are still present in our society, we are confident that our plan will help us to sustain and increase growth almost covering our revenues in the long term. Gradually recovering profitability even above historical levels in the coming 10 years, maintaining our strong cash flow generation in the same levels of today, even though the higher use of technology will require bigger investments and hopefully adding an additional EUR 1 billion to EUR 1.3 billion of M&A also in the next 10 years with an accretive effect on our margins. We are fully confident on the accomplishment of these ambitious goals. With this concludes my introduction, but prior to moving into our present period results, I would like to draw your attention to one interesting macroeconomical factor that has been dragging markets attention in the past few weeks. Global inflation arise. As you may have noticed over the past month, there has been an increase in negative sentiment on all markets around the fear of a global inflation increase, both in emerging and mature economies. Prediction show that inflation will continue escalating not only in countries such as Argentina or Brazil, but also in regions like Europe or U.S., where it is expected to reach levels of close to 2% higher than 5%, respectively. In this uncertain environment, I would like to take the opportunity to remind you the positive effects that inflation can bring to our business. Increased inflation will call for higher volumes of cash in circulation in emerging markets, but also for faster velocity of cash movement in mature ones. Traditionally, this will probably drive into better margins for the Cash business as increased volumes will benefit from the ad valorem pricing structure in which the operator charge a 13 percentage of the value to business part. Security could also benefit from this situation as higher inflation usually calls for faster cost referring to prices in an industry, which is highly unionized and mostly driven by collective bargaining agreements. Besides that, as you can see on the third chart of the lower right corner, S&P Financial Economies foresees a good recovery of the main LatAm economies in the postpandemic era starting in early 2022. Although we remain prudent as it's still difficult to estimate whether these projections we began through on the stated dates, we firmly believe that the Ibero-American region represents a formidable growth opportunity for all our businesses and will continue growing and succeeding in those countries as we have been doing in the past 2 decades. Let's move now to our present 6-month result overview. I would like to invite our Global Finance Director, Maite Rodríguez to comment on them as she has now become the main responsible of all the group's financial information.

[Maite Rodríguez Sedano, Global Finance Director]

Thank you very much, Antonio, for your introduction. Looking at the most relevant indicators of the first half of 2021, we first see the revenues at consolidated level have reached EUR 1,637 million. This implies almost 3% organic growth and we are happy to state besides the accumulated negative drop down in respect to the same period in 2020. Our volumes in the past 2 months have shown a strong positive tendency, mainly in LatAm and rest of the world. While Europe is still below previous year due to the negative inorganic coming from the deconsolidation of Alarms in Spain and some still present negative effects of the pandemic, mostly in Germany and Portugal. We have also expanded our perimeter in new products through the acquisition of RedPagos, a leading operator of banking agencies in Uruguay. Our EBITDA has reached EUR 93 million, with margin improvements in both cash and security in respect to the previous year. And also showing an improvement in all businesses line in regard to first Q 2021, even considering that second Q is traditionally the weakest quarter in profitability terms due to adverse seasonal effects. Profitability in this quarter has also been affected by costs connected to digital transformation that, as we explained in our Capital Market Day, is now the main focus of the company to accelerate the development of new products and also obtain future margins improvement. Cash flow generation has been good, in line with normalized average of previous years and also maintaining the positive evolution of our working capital consumption, delivering a successful EUR 91 million operating cash flow, only visibly affected by the strong comparable effect versus same period in 2020. When all extraordinary cash protection measures implemented due to COVID crisis delivered a very high exceptional cash flow figure, which has now been normalized. And finally, in terms of liquidity and debt structure, there are no significant changes regarding the figures reported 2 months ago as we keep maintaining an excellent liquidity profile and our debt remains almost equal. Looking at our consolidated P&L, we can see how the revenues breakdown reflects the already mentioned 2.9% organic growth. With almost a noticeable inorganic effect as the deconsolidation of the Spanish Alarm is partially compensated with additional revenues of the new acquisition in Uruguay. And evidencing that adverse FX is the main explanation of the nearly 8% reduction in volumes. May I also remind you that all our figures are still under the negative comparable effect, comparing a semester fully influenced by the pandemic versus another one in the previous year that only had those negative effects in the second half. Looking at revenues by region, we can appreciate how both LatAm and rest of the world present good local currency growth, only erode in LatAm by adverse FX. While Europe still sustains a negative growth is still suffering from deflated volumes derived from lockdowns and confinement. EBITDA totaled EUR 171 million, showing a slight improvement in EBITDA margin over previous year. Even considering the negative comparable effect while EBITDA and EBIT totaled EUR 91 million and EUR 78 million, respectively. Financial results amount EUR 4 million, benefiting from the dividend received from the Telefónica shares, which this year was paid in June instead of July, and also from some beneficial exchange rate effects. Tax rate is strongly influenced by hyperinflationary accounting effects reached 61.4%. And finally, net consolidated profit grows by 16.2% to reach EUR 26 million in the first 6 months of 2021. Let's move now to analyze the profitability on the period, both in consolidated and individual business lines terms. As previously mentioned, EBITDA at group level has reached EUR 93 million coming from EUR 106 million in the same period in 2020. This implies a 12.3% reduction explained mainly by adverse comparable effect, lower volumes derived from COVID and the recent investment in digital transformation CapEx. On the other hand, looking at margins and profitability by main business lines, we can see that there is a slight margin recovery in cash that improves its margins both over same period in 2020, but also over the previous first quarter of the year, this has been a good indicator that the activity is coming gradually back to normal. On the Security side, EBITDA continues growing significantly, both in absolute and relative terms, reaching EUR 27 million and delivering a 3.4% EBITDA margin. This shows the good acceptance of the new integrated security solutions in market and how effectively they are increasing our margins quarter-by-quarter. On the Alarms side, on the contrary, there is a temporary contraction of the compound EBITDA Pre-SAC margin of the group. This is the combination of both Movistar Prosegur Alarmas in Spain and Prosegur in the rest of the world and comes mainly from the incurred extraordinary costs needed to fully reactivate the commercial structure after the pandemic and some one-off projects related to digitalization of the client support platform. To analyze now the results by independent business line. I will pass the call over to Antonio de Cárcer, who will provide you more detailed information on the performance of each individual business. I will join you again afterwards for the financial statement review.

[Antonio de Cárcer, Head of Investor Relations]

Thank you very much, Maite. 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 performance indicators. Starting with cash, we see a total revenue figure of EUR 692 million. Despite the adverse comparable effect versus first half of 2020, Cash has delivered a satisfactory 3.5% organic growth. This growth comes from both LatAm and Asia Pacific, while Europe still reflects the negative impact of the pandemic although with a noticeable improvement during the last stages of the second quarter. AVOS deconsolidation calls for a slight deterioration on the inorganic growth. And as you can see, the main negative impact on our top line comes from the adverse translational currency impact. New products continue growing very fast, and now they represent 21.4% of total cash sales, very remarkable figure taking into consideration the deconsolidation of AVOS that has been fully compensated by a strong growth of this type of solutions that in the Asia Pacific region have duplicated their penetration in respect to past year. Also on the new product side, it's worthy to note the recently closed transaction in Uruguay to acquire the main banking corresponding agent company in the country, RedPagos, that will reinforce our CORBAN bank business with more than 500 new offices in addition to the nearly 3,000 branches of CORBAN that Prosegur has currently operates in Latin America. Also important on the new product side, is the recent joint venture signed with Euronet to become the leading ATM operator in LatAm, a market with more than 300,000 ATMs whose strengths move very quickly to a full externalization of the service and in which Prosegur Cash aims to be the largest player. Looking now at profitability, we see a total EBITDA figure of EUR 70 million, still deflated in comparison to first half of 2020 due to our best comparable base but with increasing margins that have reached 10.2% in this first half of the year and that continue gradually expanding as the situation in Europe comes back to normal. Moving now to Security business. We also appreciate a very slight positive organic growth and a lesser negative FX impact. Security has kept on growing successfully in both Europe and U.S. while the situation in Ibero-America remains still slow due to our careful client portfolio optimization that calls for avoiding less profitable clients to protect margins. This leads to a total figure of EUR 826 million, and we expect to continue with this positive trend as we are still recovering from the nonproductive effect generated by the pandemic, such as the one seen on the airport industry in the U.S. that is now coming back normal or the stagnation suffered in the large event Security division, that is also gaining back speed and volume. New products continue expanding and now they represent 37% of sales, and their influence is now clearly being reflected in our margins. We continue increasing our safety and business continuity solutions in parallel with the traditional Security ones, all of them relying on a highly signified remote monitoring platform that is also gaining scale quarter-on-quarter.On the profitability side, it's very remarkable, the continuous profit and margin expansion the business unit is delivering. Moreover, if we consider that the second quarter of the year is usually the most affected by seasonality as we normally in this time of the year, have already fully incorporated this higher prices to our cost base and still not have transferred it to market. Taking this into account, the excellent 27.3% increment in EBITDA and its subsequent 3.3% EBITDA margin are a very good evidence of the structural improvement of our margins in Security. Driven by the increased penetration of new solutions, careful commercial policies when selecting clients and a strict control discipline that will continue being applied throughout the full strategic plan. Let's look now at the Alarms business, whose main indicators are as follows: Movistar Prosegur Alarmas has increased its client base in 38,000 new connections during the first 6 months of the year. This is quite remarkable. As you know, the pandemic imposed strong sales validation that was still present in the first months of the year. So it is foreseeable an even higher number of clients to be delivered in the second half of the year as now all efforts are put into rebuilding the sales infrastructure and gain as much client base as possible. Likewise, the Alarms base operated in the rest of the world by Prosegur has also improved their growth to almost cover the loss of clients generated by churn rate during the periods where selling new connections was not possible due to population confinements. This situation is quickly coming back to normal, and we will possibly end the year with positive growth on the installed base. Moreover, churn rate in Prosegur perimeter has again improved due to our new excellent client scoring model that obtains better qualified clients at the expense of a less aggressive growth rate. Organic group sales continues increasing by almost 24%, while negative inorganic from the deconsolidation of the Spanish Alarms base and negative FX rose the final results in euros to EUR 97 million on the reported semester. ARPU remains stable in Prosegur perimeter and has only been temporarily reducing NPA due to the additional cost of quickly rebuilding the commercial infrastructure and some aggressive client retention policies to capture the high sales season with the best position possible to address demand. This extraordinary effort has had an impact in profitability and hence, our consolidated EBITDA Pre-SAC margin has reduced from 48.3% to 45.7%, although we expect this to be recovered in the midterm as the incurred cost will become diluted gradually once the new generated sales becomes recurrent. Finally, Cash flow generation in Prosegur perimeter remains stable, maintaining the same proportion between generated cash and consumer subscriber acquisition cost. Only with the comparable difference versus previous year, in which we still incorporated the Spanish Alarms during the first months of 2020. Finally, to conclude with the evolution of the different activities, let's now have a look at the performance of both CIPHER and AVOS, our new business lines. CIPHER reports EUR 7 million revenues in the period with a reduction of 10% in respect of the first half of 2020. This is mainly explained by adverse FX as large part of our cybersecurity operations are based in LatAm, mainly in Brazil. But on the other hand, the gross margin has increased from 33% to 37%. AVOS on its side reports a very solid 16% growth year-on-year, totaling EUR 31 million and also increasing its gross profit by 8.6% to reach EUR 9 million. This implies a slight reduction on gross margin coming mainly from seasonal effects, but also from some restructuring costs related to the incorporation into Prosegur after acquisition from Cash. AVOS is now focusing on expanding their operations into other countries within the group's footprint and some efforts have been put in place into the M&A side whose results we expect will be announced any time soon. That was all on my side related to the evolution and performance of our principal business lines. I will pass the word back to Maite Rodríguez to cover the main financial parameters of this first 6 months of 2021 results.

[Maite Rodríguez Sedano, Global Finance Director]

Thank you very much, Antonio. I will now briefly comment on our cash flow statement, debt structure and balance sheet. When looking at the cash flow statement, the most remarkable aspect is the strong operating cash flow, exceeding the group's historical average, isolating the one-offs occurred back in 2020. In fact, the extraordinary 61% EBITDA to cash conversion ratio reached in the period is far above the metrics of the last 3 prepandemic years. This is a notable aspect since as many of you may already know, second Q is normally the toughest one because of the seasonality of our business, in which 60% of the total year cash flow is usually generated during the last 4 months of the year. Analyzing in detailed operating cash flow composition despite the positive evolution in working capital in this quarter, driven by the ongoing improvement in DSO, you can appreciate a strong comparable effect versus same period of last year. In this context, I would like to highlight 2 main areas. On the one hand, first half 2021 has been fully impacted by the sanitary crisis, while in 2020, pandemic effect started at the beginning of March being the first regular one, both in terms of volumes and activity. Consequently, EBITDA has dropped close to 7%, also affected by the adverse FX. On the other hand, during the second quarter of last year, Prosegur benefited from significant and nonrecurring tax deferral with a direct positive impact in provisions and other noncash items. As we explained back then, governments from different regions granted those tax aids to help corporate facing the pandemic. And as of today, most of them are not in place. As far as cash flow from investment and financing is concerned, I will briefly mention the major aspects occurred during the second quarter of the year. In terms of CapEx, infrastructure CapEx remains under control and as stated in Capital Market Day, represents 2% over sales. M&A wise, RedPagos acquisition was closed in June. As usual, part of the price has been paid in the moment of the acquisition, and the rest of the payment as deferred for 2022 and 2023. When it comes to dividends, both Prosegur and Prosegur Cash completed 3 out of 4 committed installments in April. Lastly, Prosegur has kept increasing its treasury stock stake through the share buyback program in place. Part of the cash out related to share buybacks has been offset with the inflow of the Telefónica dividend which last year was paid in July. Before ending the cash flow review, I would like to explain that we have included the Telefónica share to calculate the adjusted net debt, to be in line with the banking covenants calculation method. Looking now at the group's financial position at the end of June 2021, total net debt amounted to EUR 816 million, including deferred payment of EUR 115 million, treasury stock at market price of EUR 62 million and Telefónica shares of EUR 195 million. If we furthermore include additional IFRS 16 related debt of EUR 93 million, total net debt reaches EUR 909 million. Regarding net financial debt, it is worth mentioning its containment during the quarter, remaining almost flat when compared to March 2021, even after performed the inorganic growth operation in Uruguay, paid dividend and increased CapEx. Leverage-wise, Prosegur shows a moderate net debt-to-EBITDA ratio of 2.2x after including both IFRS 16 and Telefónica shares into the equation, far below the current banking covenant of 3.5x. Despite this comfortable situation, please bear in mind that for this calculation, we are using last 12 months EBITDA, which is fully impacted by the health crisis initiated in March 2020. Therefore, the leverage level will gradually improve as soon as the global situation goes back to normal, thanks to the positive evolution of vaccine programs, particularly in Europe. To conclude our financial information review, let's now have a look at our consolidated balance sheet. Apart from the incorporation of RedPagos, in general, there haven't been any significant changes during the second quarter of 2021. The most remarkable aspect is the solid and stable balance sheet Prosegur historically shows. Once again, our maturity profile is worth mentioning since more than 80% of our financial liabilities are considered of long-term nature. Liquidity is also one of our greatest strengths with the firepower that currently covers more than 75% of the main indebtedness, which will mature over the next 5 years. On top of that, the maturities of the major financial facilities are fairly separated along the years, avoiding the concentration of due date. Treasury stock wise, the share buyback program that is currently in place has, as proposed the acquisition of own shares that eventually will be amortized. This program was resumed in April 2021 after finalizing the previous one devoted to employees' compensation plan. This concludes my overview on the main financial indicators of the period. I will now give the presentation back to our Secretary General, Antonio Rubio for his comments on our ESG progress and his final conclusions and remarks.

[Antonio Rubio Merino, Chief Financial Officer]

Thank you very much, Maite. During the past Capital Markets Day, we extensively presented the main guidelines of our new sustainability plan for 2021, 2023 that is already in place and bearing fruit. We have been providing information on certain key aspects of that plan in previous calls, and will continue doing so regularly in future ones. But today, we would like to present you our social cash flow of the previous year 2020. Prosegur contributes significantly to the social and economic development of the communities in which it operates. Our business activity generates wealth through the creation of jobs, the payment of salaries, the contribution tax, the purchase of goods and services from suppliers, the distribution of dividends, the implementation of social programs, the development of environmental initiatives support to the value chain and investment in innovation. When we talk about how the company gets its revenues, I want to call the attention to the degree of integrity, respect for its stakeholders, transparency and ethical behavior that guides the way in which our company operates. In Prosegur, we rely on our ethical code or business principles. Thanks to them, we develop internal policies and internal procedures to embed ethical behavior within the day-to-day management. We are trying to work transversely and to involve all corporate areas and operating businesses. As you can see on the provided information, when we talk about how much value we generate to our stakeholders, with our business, social programs included. We're also talking about the positive business impact in the economy, technological and social development of the countries in which the company operates. It's our pride and honor to share with you this information that enlightens the measurable positive impact that our company has in the society, an impact that directly benefits nearly 150,000 employees and their families, more than 26,000 suppliers in 26 countries and several other stakeholders that take participation from those more than EUR 3.5 billion of generated economic value in 2020. Now for my closing remarks, I would like to summarize first half of the year results with the following ideas. We continue delivering positive organic growth. This growth is currently driven by Ibero-America and Rest of the World regions. While Europe is quickly catching up in the last months of the quarter have been better than expected in terms of recovery of volumes. Inflationary global trends can pose an interesting growth and margin expansion opportunity to our industry, and we have the best footprint and business dynamics to take advantage of it. Margins are recovering in Cash and continue expanding in Security, benefiting from the excellent acceptance of all our new products and solutions are experimenting in mature economies. We expect this excellent trend will continue, supported by additional M&A in different product lines and geographies, similar to what we had already done in Uruguay with the acquisition of RedPagos. But also through new partnerships and alliances like the ones signed with Telefónica in Colombia for the Alarm business or the recently announced joint venture with Euronet to create the largest independent ATM operator in Ibero-America. Our new 2 business lines, AVOS and CIPHER are beginning to unfold their value, showing an excellent profitability and growth profile that is still in its initial stages, that is consolidating very fast, making them 2 very promising future value generators. Lastly, our strict financial discipline continues generating good cash flow even in the actual complex environment.Net financial debt remains almost equal to the previous quarter, even taking into account the recent M&A and our infrastructure, CapEx stays below 2% of sales in line with our historical group's averages. We are very satisfied with the actual recovery dynamics of all our businesses, and hence, we reassure ourselves in the mid- and long-term guidance we provided to the market on our Capital Markets Day. With this, we have come to the end of this first half of 2021 results presentation. I wish to thank all for your attention, and now both Maite and myself will be glad to attend all your questions. Thank you very much.

[Operator]

[Operator Instructions]And your first question is from the line of Pedro Alves of CaixaBank BPI.

[Pedro António Alves, Research Analyst]

I have 2 questions, please. First, on Prosegur Cash. I was wondering what completed the level right now of volumes compared to pre-COVID levels, and your outlook for the second half, assuming obviously no further restrictions due to new variants? And my second question, in around just to understand a little bit better than the expectations of connections for the second half? So outside NPA, do you expect to grow the number of connections above the churn already this year? And in NPA, what is our best expectation for connections until December?

[Antonio Rubio Merino, Chief Financial Officer]

Pedro. In the case of the volumes in Prosegur Cash, we are measuring at the beginning of the year, we were very optimistic. And probably in terms of volume, the years of the pandemic have been more this year '21 and the year '20. But since the month of May, we are seeing a clear recovery in volumes in Prosegur Cash and this is one of the main reasons because we are very optimistic about the evolution in the rest of the year and somewhat playback mechanism process will develop in Latin America. And about the question of connections, Maite?

[Maite Rodríguez Sedano, Global Finance Director]

Pedro, for your question. In relation to the increase that we expect for the new connections in the Alarm business, as you know, in NPAs here in Spain, we have increased 38,000 connections during this first half of the year. And for the rest of the year, we think that we should be around 90,000, 100,000 connections. And for the rest of the group, we -- you can see a slight decrease mainly coming from the reactivation on sales after suffering from the reduction on the churn rate or the increase in the churn rate in the past. So now for the second half of the year, we expect also a slight increase in number of connections because now we have like a more normalized churn rate levels.

[Pedro António Alves, Research Analyst]

Can I just ask a follow-up? So my question on Cash. So you said that you are now quite optimistic for the rest of the year. And so given the, also the calendar of usual inflation transfer to prices, so should we expect a more meaningful margin improvement in the second half compared to the first half on a year-on-year basis, obviously?

[Antonio Rubio Merino, Chief Financial Officer]

Pedro. You know that the seasonality in our business is pushed in the second quarter of the year. And usually, as we an transfer the inflation to prices along the rest of the year, actually, we had an improvement in margins in the second half of the year, and we are waiting to repeat the seasonal effect this year, too.

[Operator]

Your next question is from the line of Brian Ruttenbur of Imperial Capital.

[Brian Ruttenbur]

Just a quick question about M&A in the U.S. On your Analyst Day, you talked about big plans to acquire. And I just want to hear what you have to say on -- in terms of valuations, what you're seeing out there given all the specs in the capital market raising that's happening in the security industry, especially in the U.S. What you're seeing in terms of valuations, anything changing? And when should we expect to start hearing about some of this M&A coming out of you guys? Is it in the next couple of months, by year-end, in the next 12 months? So kind of a 2-part question.

[Antonio Rubio Merino, Chief Financial Officer]

Brian, thank you for your question. We remain optimistic about the M&A in the U.S. The market remain irrational in many transactions. But in any case, we are analyzing and we are winning some transaction and probably we will offer you some press news sooner than later. But for the kind of companies we are looking for niche companies, technology with a high quality of portfolio, we are seeing opportunities, and you will see delivery in this area in the following weeks.

[Operator]

And your next question is from the line of Beatriz Rodriguez from GVC Gaesco.

[Beatriz Rodriguez Fernandez, Research Analyst]

Just one question. Regarding the Security businesses, could you give us information about the situation and evolution of the activity in Brazil?

[Maite Rodríguez Sedano, Global Finance Director]

Beatriz, now in Brazil, as you know, pre-COVID, we were in breakeven levels. Due to the COVID, we have been suffering from some unproductivity costs mainly because all the labor cost on the -- relation to the COVID were quite conservative. And now for the full year and for this second half of the year, we expect to have less unproductivity cost so that we should have a less impact in our margins coming from Brazil.

[Operator]

Your next question is from the line of Alvaro Lenze of Alantra Equities.

[Alvaro Lenze Julia, Research Analyst]

Questions. I have a couple of ones. Could you please tell us what the IT costs have been during this quarter and what should we expect for the second half? And secondly, on the Security business, I see that on H1, you indicate no inorganic impact in revenues despite the deconsolidation of France in which affected Q1 results? Or maybe you could provide more information on what the inorganic evolution or lack of evolution thereof, is driven by? And lastly, on your corporate tax rate if you could provide us some guidance on what the normalized rate should be for second half and going forward?

[Maite Rodríguez Sedano, Global Finance Director]

Alvaro, in terms of IT, I guess that you are asking for the total cost that we are going to invest in digital transformation. This first half of the year, we have accelerated this process. We had EUR 7 million more than last year. And for the rest of the year, we will continue going in the same level like 40%, 35% higher cost down or higher investment than last year. In terms of the tax level, the main impact in our tax rate is derived from the application of IAS-29 or hyperinflationary accounting policy, which it is merely an accounting impact. There is no cash impact. And the second main aspect that effect comes from the increase of the local tax rate in the different geographies like Spain and Argentina. For example, this last month, in June, local -- Argentinian local tax authorities have increased the local tax rate from 30% to 35%. So this also has made us to actualize retrospectively our inflationary effect. And additionally, we are not booking any deferred tax assets coming from losses, and we do have a very conservative policies in this respect and also has affected our tax rate in this model. But if we normalize all these previous assets, which would be around historical figures. And in relation to the inorganic growth for Security, we assume very soon, you are going to have notice about it. We are -- as we introduced in our Capital Market Day, we are very focused in U.S.A., and there will be some surprises regarding this matter.

[Alvaro Lenze Julia, Research Analyst]

A follow-up, if I may, but the thing is that on Q1, you reported a EUR 37 million negative impact from the deconsolidation in France in Q1 with no impact, I would assume that there is a EUR 37 million positive contribution from inorganic growth in Q2, whether this is correct or am I missing something?

[Maite Rodríguez Sedano, Global Finance Director]

No, no, it's correct. Yes, we don't have any kind of other deconsolidation effects in that matter.

[Operator]

[Operator Instructions] And we also have a request from the line of Manuel Lorente.

[Manuel Lorente, Analyst]

My first question is on security margins. If my numbers are correct, we have had a mute profitability progression on the quarter. Security margins in the first quarter were 3.4% and on the second quarter 3.2%. Whether you can give us some details of what is going on there and what do you expect for coming quarters?

[Antonio Rubio Merino, Chief Financial Officer]

Manuel, the reason is that we have explained the seasonality. In this moment, we had all the costs incorporated in our payroll mainly, and we are only in the half of the process of passing through this an increase to prices. But it's only a seasonal effect. We remain optimistic about the marketing expansion in security around the rest of the year.

[Manuel Lorente, Analyst]

So my second question is on the Alarms business then. If I'm correct, in this quarter or in the following quarter, we'll end up the initial promotional effort made by Movistar Prosegur Alarmas. So do you expect any churn deterioration going forward? Or like what are your thoughts about that potential migration in terms of price on clients and its potential implications in churn?

[Antonio Rubio Merino, Chief Financial Officer]

About Alarms, although we are -- our new commercial efforts are evident and the beauty of alliance with Telefónica. Now we are really happy because we have a figure of 300,000 connections in Spain, an increase of 50% of our previous customer base only in less than 1 year and in the year of the pandemic. Something that we are perceiving that despite these commercial campaigns, we are capturing this period of the year that usually is the period with more actions. Generally speaking, we -- this growth is without the generation of the churn rate and maintaining the high quality of our portfolio.

[Manuel Lorente, Analyst]

And maybe my final question on sequential improvement. Q3, what you are starting to see from Q3. It's a continuation of the, let's say, positive improvement that we have seen in the second quarter, can you give us some indication of where your purse inches about that quarter?

[Antonio Rubio Merino, Chief Financial Officer]

You know that we really -- we suffered a fifth wave in the pandemic and we hope that's the final one. But in any case, usually, Q3 is better than Q2 with almost all the price increase passed through to the customers. So we remain optimistic in the evolution of volumes also with these 2 effects -- or 3 effects considering seasonality too. We are waiting an improvement in margins in Q3 too.

[Operator]

Thank you. With that, we conclude today's Q&A session. I would now like to turn the call back to Mr. Antonio Rubio for any additional closing remarks.

[Antonio Rubio Merino, Chief Financial Officer]

Once again, thank you very much for attending this presentation in this really intense day in terms of presentation in Spain. So thank you very much for your attention, and we wish necessary and pressure holiday -- summer holiday in the northern hemisphere to all of you. So thank you very much again. And IR department will remain in contact with you if you need any further clarification. So thank you very much, and good holidays for all.

[Operator]

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