Ladies and gentlemen, thank you for standing by, and welcome to the Prosegur Cash third quarter 2021 results presentation conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Miguel Bandrés, Head of IR. Please go ahead, Miguel.
Thank you. On behalf of the Prosegur Cash team, I would like to welcome you to our 2021 third quarter results review that will be led by our CFO, Javier Hergueta, and myself. We estimate it will last around 25 minutes, and during this time, we will try to address the main events that have taken place in the quarter that are driving our performance. At the end of the call, we'll open the floor for a Q&A session, where we'll try to address all the questions you might have. Should we not get to respond to all points today, we'll be pleased to answer those remaining on an individual basis with each of you. I wish to thank you all for your attendance and remind you that this presentation has been pre-recorded and is available via webcast on our corporate webpage.
Now, before turning the call over to Javier, let me comment some relevant news regarding cash during the quarter that range from how it is considered by society, how important its role is in assuring economic activity despite technical breakdowns, or how crucial it is in bringing stability and credibility to the financial system. First, I'd like to share the view of almost 90% of Spaniards that believe cash payments should be warranted. GAD3, a highly reputed polling company, revealed in a survey carried out in September 2021 by Denaria, a cash defense platform, that the defense of cash is something transversal in Spanish society. 95% of Spaniards perceive cash as being very important, a figure much higher than that of other payment methods.
It's considered essential for the most vulnerable groups in society, and 83% of the population totally opposes the acceptance of only card payments. Second, the ever harsher and more frequent network crashes of major digital platforms stress the importance of protecting the mix of payment systems. Servimedia, Spanish news agency, showed the vulnerability of the system and the dependence of excessive digitization to such failures. Several incidents in the past months, such as messaging networks and systems crashes, like in June, PayPal, Amazon, Twitter or Financial Times freezes, or the fire in a data storage center in July, affecting multiple operations in different continents, underlie the unreliability of the system in terms of business and economic continuity. Third, on a different note, a U.S. Senator and former Wyoming Treasurer, Cynthia Lummis, warns that stablecoins should be backed by cash.
U.S. Senator Lummis said stablecoin reserves should be 100% backed by cash and cash equivalents, and banks or money market funds should become issuers. Lastly, I'd like to mention that cash in circulation increased in the Eurozone in the first year of the pandemic. Increase in precautionary demand for cash more than offset the decline in transactional demand, stressing the relevance cash has in the trust of all the economic agents. At the beginning of the pandemic, fears about the role of cash in the transmission of COVID-19 reduced its use as a means of payment. However, an ECB study subsequently confirmed that it's safe to use cash despite COVID-19. Moving forward, today's agenda is as follows. We'll start reviewing the highlights of the period. Then we will discuss our performance and the dynamics in the different regions where we operate.
After, we'll follow with a summary of our financials. Last, we will conclude underlining some key takeaways, and we'll of course respond to the questions that might have arisen during the webcast. I'll now turn the call over to Javier, who'll review the key highlights in the quarter.
Thank you, Miguel, and good morning to everyone. In today's Q3 results presentation, I would like to underline the constant and steady improvement in our main indicators as we had foreseen in our previous calls, and that show a very positive trend in our performance. Regarding activity recovery, after hard lockdowns in Q1 across several countries and Q2 recovery signs, Q3 recovery is being confirmed across all geographies, save for Asia Pacific, whose last lockdowns in Melbourne and Sydney have been lifted in October. In relation to sales and margin comeback, the activity recovery mentioned before is showing our figures both at sales and margin levels.
Sales have climbed 12% quarter-over-quarter, while EBITDA has increased in the same period by a very remarkable 40%, meaning 250 basis points in margin, and thus underlining the importance and impact of the economic recovery, our sales efforts, and as well, efficiency plans. This improvement implies almost doubling last year's quarter-over-quarter underlying EBITDA enhancement and is the highest Q3 versus Q2 increase in the last five years. When it comes to transformation progress, relentless new product growth, + 15% quarter-over-quarter, is overtaking the overall good + 12% sales performance and driving new product share over total sales at a solid 21%, increasing penetration in 50 basis points versus the previous quarter and proving the commitment we have as a company to transforming our business model.
In relation to financial discipline, free cash flow generation reached EUR 37 million in the quarter, a healthy +42% improvement on Q2. This discipline has been recognized by S&P, whose BBB and a stable outlook grade rating we have renewed. Also, to remark our commitment to corporate governance, I would as well want to stress out our commitment, and in this line, we are very proud of having been distinguished with ISS's G++ highest mark. In this slide, I would like to share some very relevant points regarding our current performance, but most importantly, underline an important setting for the future. Firstly, we see that in all of our footprint, hard lockdowns are coming to an end.
Both LATAM and Europe have seen, as pandemic numbers have been reduced, that hard measures ended, and in fact, the last major confinements in the Asia-Pacific region were eased throughout October. At the same time, COVID-19-related restrictions in terms of opening hours, restaurants and nightlife attendance limitation or major concentrations such as major sporting events, are being increasingly softened. While the above is happening, there is a growing underlying inflationary trend in all regions. Such a dynamic is positive for our business as it increases the amount and velocity of cash in circulation. Lastly, though COVID-19 has taken an evident toll on GDP expectations narrowing, the above-mentioned openings are speeding up growth, and such an inertia is narrowing the expected gap versus pre-pandemic growth projections, according to the OECD.
In this slide, we have two different charts showing, on a year-to-date basis, the evolution of both our local growth and our performance in terms of profitability. The top graph shows that our top line growth in constant currency terms in Q3 has continued the pattern set in Q2, confirming a positive trend in line with the increased economic activity in most of our footprint. We can see the cumulative growth year to date accelerating to 4.5% in the nine months in 2021, well above the already positive cumulative growth of 3.1% experienced in the first half of the year. By geographies, I would like to note the change quarter and quarter of this year.
The acceleration is notable in Latin America, improving its overall sales in euro terms in Q3 by 14% versus Q2, while in Europe, the improvement is also remarkable, reaching a 13% increase quarter-on-quarter. Asia-Pacific, still impacted by the above-mentioned restrictions in the quarter, shows a quarter-on-quarter descent in euros of -8%. In the lower graph, it's very important to stress the solid performance of underlying margins that improve +100 basis points versus first half, showing, as well, both the improvement of economic activity and the delivery of our sales growth and efficiency programs. I would as well like to remark, as in the prior page, that framing this performance improvement into the future, it takes place in an environment that seems positive, with continuously easing restraints, projected economic growth and its inherent higher consumption and rising inflation.
This is clearly a point that merits a special mention, transformation. As you know, this is a key pillar to our future strategy, and in the quarter, we have seen it experience a solid growth. If we look at year-to-date figures, the increase versus last year is up to 11%, which climbs up to 15% if we look at the performance in Q3 versus the previous Q2. When we look at the share of new products over total sales, their share increased by a remarkable 315 basis points versus nine months of the previous year and by 50 basis points versus Q2 in 2021. All this improvement is despite Q1's AVOS divestment. If we isolate such event, then year-on-year growth would be 28% and close to 500 basis points increase in terms of penetration.
Important as well to note that we remain firm in our commitment to invest in digital transformation that we deem is and will prepare us best for the future. On this front, we have invested EUR 60 million year to date, an increase of 36% versus last year. As economies keep on opening, we are confident our new products will keep on posting solid growth as customers are more and more willing to buy into them. I would like to turn over to Miguel so he can share the key aspects of each of our regions.
Thank you, Javier. In Latin America, the region that accounts for 65% of total sales. With a continuously improving restriction situation, we see that after a Q2 over Q1 growth in euro terms of 4%, this trend has accelerated to over 14% in Q3 over Q2. On a year-to-date basis, sales amount to EUR 708 million, a 5% decline on 2020. It's important, however, to break down this figure that includes an improvement in organic terms that reaches 6.6%. Inorganic growth by 3% and the still lagging currency that has a negative impact of close to 15%. Special attention must be paid to the transformation line, where we see that new products in the quarter have reached EUR 64 million, growing by.
Considering year-to-date figures, they total EUR 164 million, growing by over 28% versus 2020. Such a new product growth implies that their share over total sales has climbed by 510 basis points from 17.1% to 2021's 23.2%, reflecting both the push of our strategic Redpagos investment as well as the delivery of our organic sales strategy. If we turn to Europe, we continue to see a positive sales trend quarter-on-quarter when factoring out the AVOS divestment. Last quarter showed a remarkable 16% organic growth versus the same period one year ago, explained by the reopening of some markets late in the quarter.
This Q3 has shown that consumption has continued its gradual recovery, and sales versus Q2 climbed by 13.5% to EUR 104 million in the July-September period. When comparing the isolated Q3 versus 2020, we as well see an organic recovery of +1.6%. In year-to-date terms, sales totaled EUR 294 million, narrowing to -8.8% the gap versus 2020, when almost all Q1 was lockdown-free and where AVOS was still being consolidated. Ex AVOS divestment, the drop is a mere -1.1%, down from -2.5% three months ago, so the catch-up continues. New products year-to-date for the region reached EUR 53 million, implying a 16.9% growth year-on-year ex AVOS.
With this growth, their share over total sales reached 17.9% of total revenue. The penetration ex AVOS increased by a significant +210 basis points. When reviewing the performance of our Asia Pacific region, we have to take into account that it has suffered still strong restrictions in the quarter due to its vaccination and pandemic control policies. Still, two major areas, Sydney and Melbourne, were under lockdowns at the end of Q3. We must note that both have been lifted during October. Despite the aforementioned, year-to-date figures versus 2020 show a 12% increase and reached EUR 80 million, being half of that growth organic driven and with M&A accounting for 4.5%. On an isolated quarter basis, sales summed to EUR 25 million, an 8% decline over Q2 this year, driven by the aforementioned restrictions.
New products year-to-date amounted to EUR 14 million, which is a 74% increase on last year. In the isolated quarter versus Q1 2021, new products have barely descended by 2% in the mentioned restricted environment. In terms of new product share of total sales climbed to 17.8%, a substantial 640 basis points improvement on 2020. These are the key events regarding our regional behavior. Thank you now, and I'll hand it over to Javier, who will summarize the financials.
Thank you, Miguel. On the financial side, we see continuous improvement both in absolute and relative terms, resulting both from the economic activity improvement and the commercial and efficiency measures in place. Starting with the revenue line, total sales reached EUR 1,082 million, 5% less than in the same period of 2020, meaning we are closing the gap versus prior quarters, that gap being 10.3% at the end of June. This figure results from organic growth that is now climbing up to 4.4%, inorganic that reaches a positive 0.1%, and a lessening negative FX impact of -9.5%.
When we compare these figures versus June year-to-date results, we improve in each line versus back then when we had organic 3.5%, inorganic of -0.4%, and currency depreciation of -13.3% respectively. On a comparison versus 2020, the improvement in Q3 standalone in euro terms is of +5.9%. On the margin side, reported EBITDA reached EUR 141 million, representing 13% of sales. This implies a 140 basis points relative improvement versus 2020 and a 6.3% growth from the prior year.
The underlying EBITDA margin for the first nine months, figure that excludes the capital gains derived from divestments and the 2020 efficiency plans investments, resulted in EUR 121 million, reaching 11.2% of sales, implying a 40% improvement quarter-over-quarter, up to EUR 50 million EBITDA and an improvement of 250 basis points quarter-over-quarter in terms of relative margin. This performance metric, still impacted by the comparable base, the different mix of services, and the currency headwinds versus 2020, continues to improve constantly and narrowing the gap versus 2020. Below EBITDA, financial results reached net cost of EUR 34 million as the lower FX gains have more than offset the lower interest expenses. Our effective tax rate for the period is the result of a worse fiscal mix and higher corporate taxes in several geographies.
Bottom line, net consolidated profit reached EUR 40 million, EUR 9.4 million in the quarter, representing 3.7% over sales. Regarding cash generation, our free cash flow reached EUR 102 million, thanks to a remarkable EUR 37 million generation in the quarter. This rate implies that our implied free cash flow yield is at a very attractive 8% considering our last 12 months free cash flow and our current enterprise value. The year-on-year variation of the provisions and other items caption is mainly explained by both the benefits from the tax COVID deferrals and the provisions related to the restructuring programs fading away. CapEx of EUR 13 million in the quarter remains contained in line with the CapEx control measures in place and implies a CapEx reduction of 8% versus nine months 2020 down to EUR 42 million.
Working capital variation quarter- on- quarter amounts to EUR 6 million, keeping maximum focus on the active working capital management in the context of rising sales. Below the free cash flow line, M&A payments resulted in EUR -10 million and was the combination of cash outflows from deferred payments related to the new M&A, and proceeds received from the AVOS disposal. Lastly, the dividend and the treasury stock line incorporate the payment of the first three installments of our dividend in January, April, and July, and the share buyback program that was in place up to the beginning of Q3. All in all, we continue prioritizing our cash flow generation, which remains strong and solid along the period.
If we review now our total net debt, which on top of our net financial position includes the deferred payments coming from former acquisitions, our treasury stock, and the IFRS 16 related debt, it has increased by EUR 31 million in the quarter, mainly due to treasury stock amortization. As of September 2021, total net debt amounted to EUR 711 million, representing a EUR 4 million reduction when we compare it to a year ago and already incorporating the aforementioned buyback program amortization. Our leverage ratio remains stable versus 2020 and at 2.5x . Relevant to note that our debt maturity profile has not undergone any significant change and therefore we do not have any major refinancing needs until 2026.
It is important as well to highlight that we have been confirmed S&P's BBB rating with stable outlook that backs our financial discipline measures and recognizes its health. In this last slide, I would like to share with you my summary of the third quarter that can be noted in the following points. First, once again, the very important proven resilience of our business model with organic growth recovering in those regions where consumption has been allowed to flow back. Sales year-on-year growth in local terms have accelerated up to 4% accentuating the resilience of the business as economic activity reactivates. Important to note as well that inflation is rising across the board, which will create a positive context for further future growth in our business.
To add to the continued reopening of economies, we have to underline the efforts of our commercial teams in driving new business for our company. Second, and as well helping promote the top line, is the continued delivery of the new products line, helping drive our transformation effort. As we can see, new products in the period year to date have grown by 11% compared to last year, gaining 310 basis points of share of total revenue. This point shows the delivery of our innovative solutions and the good reception they are having by our customers, both existing and the ones that are joining our client base as a result of adopting new solutions. Next, thirdly, I would like to mention the performance of our profitability margins.
The positive trend experienced in Q2 versus Q1 with the underlying EBITDA improving by 50 basis points has been expanded in Q3 up to 250 basis points, reaching EUR 50 million. That is a noteworthy 40% improvement over the prior quarter. This figure shows the effort not only on the top line, but as well the results of the multiple efficiency programs underway. Also, to highlight the result of our financial discipline as we have been able to generate EUR 37 million free cash flow in the quarter, and EUR 102 million year to date, and maintain our net debt flat while amortizing treasury stock. Such a behavior has been recognized by S&P renewing our BBB with a stable outlook rating. Lastly, I would like to stress the importance we pay to corporate governance.
Our commitment to governance-related initiatives has allowed us to be recognized with the highest G++ level from ANR. Thank you all for the attention, and we will now be pleased to begin with the Q&A session.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. First question comes from the line of Enrique Yáguez from Bestinver Securities. Please ask your question.
Good morning, everybody, and thank you for taking my questions. I have three of them. First of all, I would like to have some feedback about what kind of organic recovery do you foresee in this fourth quarter, taking into account the gradual reopening of the economy, especially in the Asia-Pacific region. Secondly, if you could provide more details about the tax rates increases seen in Q2 and Q3. When do you expect to normalize, and at which levels do you expect to normalize this tax rate? Finally, regarding the Cash Today initiative, I don't know if you could provide some visibility about what kind of growth do you foresee in the number of installed devices after the reopening of the activity?
How is the joint venture with Santander working? Thank you very much.
Good morning, Quique. We'll take the three questions one by one. On the first one on the organic recovery, I must say that we've been recovering organically on a sequential basis since the beginning of the year, and that's still the case. We're seeing that month by month happening in the business. Of course, you have the exception of Australia with the lockdowns in Q3, but the general trend is for a sustained recovery month-over-month. In fact, I would say that we are seeing, if you compare to 2019 figures, I mean, we're seeing that in Latin America we are over, on local currency basis, we are over 2019 figures on a run rate right now.
In Asia-Pacific, we are around that figure despite the lockdowns, thanks to the commercial efforts that we've been undertaking. In Europe, despite the hard lockdown that has been suffered in 2021, in the first part of the year, we are getting closer to that and up to 90% of the 2019 figures. That's what we are seeing so far, and we expect that recovery trend to continue in Q4. In the case of Asia-Pacific that you were mentioning before, of course, the reopening should be helping us, and we are starting to see it already, now that Sydney and Melbourne, for instance, have been eased during the month of October.
In the last weeks we're starting to see that recovery happening, and we expect that trend will continue going forward in all the geographies in Q4. Secondly, in relation to the tax rate, I would say that the increase is due to a worse mix, meaning that those countries with lower interest rates are still on the improving curve and therefore are weighing less into the total mix. There's an increase in the tax rate in several jurisdictions. Part of this is really a one-off item.
I must say, for instance, the recent increase in tax rate in Argentina implies that we have to reevaluate some of the items in our balance sheet, which is a one-off impact that should be diluted and will not happen anymore any further in the future. On the other hand, I would say that the improvement expected in our results should naturally reduce the rate itself because European countries generally have lower tax rates and those are on a clear improvement trend right now and should be gaining weight into the results. Also the same happens with the case of AOA, I mean, where we should be reducing the losses in Australia gradually up to the breakeven at some point in time. That should naturally reduce the tax rate itself.
On the third question, around Cash Today, we are seeing again the good signals of recovery on the reopening. The retail sector is pretty much more active right now. We are seeing, despite the hard lockdowns that we've suffered in some geographies, over 20% increase in the number of installed devices, on a 12-month perspective. That meaning that there's an acceleration, compared to that figure in the last months of the year. In the case of the Santander specifically that you were asking, that is referred to Spain. There we are seeing that the joint efforts with Santander are helping us double the rhythm of new installations in the country.
Thank you very much.
Question comes from the line of Álvaro Lenze from Alantra Equities.
Hi, thanks for taking my questions. I have two, if I may. First, I wanted to know if you could provide some more detail on the evolution of margins. If we look at the Q3, we can see, although we have a quarter-on-quarter improvement in margins due to probably seasonality, margins are still down year-on-year, even though revenues are up and revenues from Latin America are up, which is your highest margin region. I wanted to understand how this margin decline is explained, whether this is higher IT costs or some other decline in local margins that we are missing. My second question would be regarding your cash flows. If you could clarify what the other cash outflows are on the last line of your cash flow statement. Thanks.
Good morning, Álvaro. On the first question, yeah, we're seeing an improvement quarter-over-quarter, so that is narrowing the gap versus last year, so we expect that trend to continue. When you compare it to the previous year, I would say that on an accumulated basis, this is affected quite notably by the fact that we are comparing against a 2020 with the first quarter still being pre-COVID. So that is somehow affecting the comparison when you do it on accumulated basis.
which is part of the explanation for the accumulated basis, but also on the isolated quarter that you were mentioning, we have tough comparable base on some of the items that we carried out last year, like the services in some of the countries related to the distribution of the aids, linked to COVID, which are more profitable than the average in nature. Those are things affecting the comparable base. On top of that, we have a higher IT cost related to the digital transformation, which I think we mentioned in the presentation already, which is also creating part of the difference. I think it's an addition of the different elements that explains the difference itself.
In relation to the others line in the cash flow, I think we've spoken about this several times already in the previous quarters. It's exactly the same thing that we've mentioned. It has to do with the cut-off impact on the cash certification to clients in some jurisdictions that we account for in our books, and therefore that creates a difference which varies daily, depends on the level of cash being processed every day. As we compare versus the closing of the year, which is the peak season in terms of activity, that creates some temporary difference, which tends to be neutralized throughout the year. But that's business as usual. We've been reporting that the same way at all times and it's nothing different from that.
It's something that you will see that, quarter by quarter creates a difference because of the seasonality and sometimes it depends on, for instance, if Easter is at the end of the quarter or after the quarter, so that creates part of the difference itself. On a general basis, broadly speaking, that tends to neutralize at the year-end because then we compare Christmas period versus Christmas period. That's a temporary difference that tends to neutralize.
Okay, thank you very much.
Your next question comes from the line of Miguel González from JB Capital.
Yeah. Hi, good morning. Thank you for taking my question. At its third quarter results, Brink's said, labor shortages and inflationary pressures in the U.S. were affecting short-term performance. My question is, how are you dealing with this? You usually negotiate collective agreements in LATAM after summer, so could we assume you made the inflation pass through to clients already in the third quarter? Or should we expect a higher pricing in the fourth quarter and hence an increase in margins? Thank you.
Hi, Miguel. We are dealing with this in the ordinary course of business because as you know, the price review is something that takes place during the second half of the year. We do it on different tranches. I mean, we first negotiate with the unions, then we agree with the clients and apply that retrospectively, and then there's a second round for that. We are at the same level that we typically are by this moment of the year, and there's nothing abnormal on that. Basically, we are passing through the inflation cost and that part of it is in the Q3 and part of it is in the Q4, but that's the normal course of the price review process that takes place every year.
I would say that there's nothing abnormal on that despite the higher inflation in cost.
Okay, thank you.
Our next question comes from the line of Beltrán Palazuelo from Santalucía AM.
Hello, good morning, Javier and Miguel. Thank you for the presentation. Just regarding the margins, you said in Latin America you already were, let's say, in volumes over, let's say, pre-2019. In Asia Pacific, the same, and in Europe you were already 90%. When I see your margin improvement, when is the business plan if things keep improving and economies keep reopening and when do you think the, let's say, margins of, let's say, pre-COVID of around 18% EBITDA should. What is the business plan? That's the first question. My second question is, your two competitors, Brink's and Loomis both, have seen their share price and let's say the recovery performance of their business have announced buybacks even where the share price is worse.
Any new plans of Prosegur Cash on keeping implementing, let's say, the buybacks to really reflect that you see the business in the future will be better than today. Then in M&A, what things are you, let's say, evaluating? Where are you seeing opportunities, new geographies, actual geographies? Those are my three questions.
Good morning, Beltrán. How are you? I'll cover the three questions. The first one on the margin evolution, yeah, we said that we are over the 2019 figures in Latin America in local currency terms. Of course, then when it comes to euros, you have the FX impact there, which creates an impact and a difference in the mix itself. We see that it's improving quarter by quarter, and that's a reality. We expect that to keep happening again in relation to the foreseen figures in the future. I will refer myself to what we stated in the Capital Markets Day presentation, where we were guiding to a 14%-16% EBITDA margin for 2023.
We expect that way up to 14%-16% to happen gradually from the moment now up to 2023. Further than that, I mean, we were calling for 18%-19% in 2030. At some point in time, I mean, we would be reaching the reference that you are mentioning. In terms of the buybacks, we finish our programs already, the second of them in early Q3, so there's no program right now in place. I think that the next decision to be taken around the shareholder remuneration is for the board of directors to happen in December around the dividend payments.
I think that they will be, as they have always been, sensitive to all the different elements on the table. Based on that, they will evaluate all the alternatives they may have and decide in the best manner possible as they've done in the past with the flexible approach that they demonstrated last year. That's the main milestone, I would say, in the short term around the shareholder remuneration. On the M&A pipeline, we have opportunities under execution right now, and we expect things to evolve and some of them to be executed and closed in the coming months.
As we have stated during the 2021 year already, I think that the mix is much more skewed towards transformation onto new products. A lot of opportunities coming in the new products space and we are executing those ones that we believe that create more value for us. Then to a lesser extent, I think there might be some component of opportunistic bolt-on in the traditional business in some of the geographies where we can still further consolidate our market share. Both of them are there, and I would be expecting some of those deals to happen in the coming quarters.
Okay. Thank you very much for the answers.
That will conclude today's Q&A session. I would now like to turn the call back to Mr. Javier Hergueta for any additional or closing remarks.
Well, thank you all for taking your time and attending the call. In any case, you know that our Investor Relations team remains available for any further queries you may have. I just wish you to stay safe and speak to you again at the full year results. Thank you all and goodbye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.