Ladies and gentlemen, thank you for standing by, and welcome to the Nine Months twenty twenty Prosegur Keshe Results Presentation. At this time, all participants are in a listen only mode. There will be a presentation followed by question and answer session. I must advise you the call is being recorded today on Thursday, 11/05/2020. And I would now like to hand the presentation over to your speaker today, Javier Hagetra.
Please go ahead.
Thank you. On behalf of all the Persever Gas team, we would like to welcome you to our twenty twenty third quarter results review. We also want to extend our best wishes to all the people who during these months have been directly or indirectly affected by the pandemic. As customary, this presentation will be led by Javier Ergeta, our Chief Financial Officer and myself. We estimate it will last around twenty minutes.
And during this time, we will try to address the main events that took place during the reference period. At the end of the call, we will open the floor for a Q and A session, where we will try to answer any remaining doubts. In case we don't get to all your questions today, we would be pleased to answer those on individual calls for each of you. I wish to thank you all for your attendance and remind you that this presentation has been prerecorded and is available webcast on our corporate website. Now before turning the call over to Javier, let me comment some relevant news regarding the use of cash.
First, I would like to point out that a coalition of 51 consumer privacy and civil rights groups in The US has sent a letter to senators Kevin Kamer, Bob Manender, and representative Donald Payne Junior expressing support for the Payment Choice Act. Let me recall you that this bill make it unlawful for a retailer to refuse to accept cash for the good of services, post signs, or notice stating that cash payment is unaccepted or charge a higher price to a customer who pays by cash. According
to
these organizations, paying in cash should be everyone's right and businesses that refuse to accept this matter of payment would face well deserved acquisition of discrimination. And this is not an isolated event as European consumers forced to limit or even to eliminate cash in some countries. Its use continues to increase, albeit retarded by the acceleration growth of various means of electronic payments. And this is, according to Mr. Fame, because cash plays an important role for various societal groups depending on the level of development in each country.
Third, just to highlight one of the latest statements from the risk bank governor. Last October, Mr. Inks called for stronger legal protection for cash as he acknowledged that this means of payment still fulfills important functions today. He mentioned that cash offer a safe alternative to commercial bank money, that cash works well when the electrical or digital infrastructure is down and that it is also works for those who are digitally excluded. Finally, just a quick comment on Mrs.
Lagarde's vision on payments in a digital world. ECB President gave a speech at the Deutsche Bank Conference on Online Banking, where she recognized that cash remains the most common way to pay with cash payments accounting for 73% of all physical retail payments in 2019. She also remarked that like many central banks, the ECB is investigating the benefits and risk of a central bank digital currency and that no decision has been made so far. In this regard, she emphasized that digital euro would not replace cash as the euro system will continue to ensure that all citizens always have access to banknotes. A digital euro, in any event, would be a complement to, not a substitute for cash.
Moving forward, today's agenda is as follows. We will start discussing the main highlights of the period. Then we will review the performance of our different regions. And finally, before moving to the Q and A session, we will summarize our financials and make some closing remarks explaining the way we are adapting to the new reality. I will now turn the call over to Javier, who will cover the most meaningful topics today.
Thank you, Pablo, and good morning to everyone. Today, we are presenting our third quarter results, a period marked by the progress in the execution of the different measures implemented to counter the pandemic and to adapt our organization to the new macroeconomic environment. We continued prioritizing the safety of our employees and the quality service to our customers, while we remain adjusting our cost structure to protect our margins and working to preserve our financial strength. As a result, our profitability kept progressing during the period and our free cash flow generation reached an impressive amount of €129,000,000 exceeding by 15% the figures posted a year ago. Let me comment now on our sales and margin evolution in more detail.
Our sales growth in local terms reached 1.3%, while our recurrent EBITA margin improved to 13.8% in the first nine months of the year. Despite the tough environment, organic growth remained slightly positive, and our inorganic growth accelerated to 1.7 due to the M and A activity during the year and the lower wave of the French divestment. Further payments during the quarter, thus reducing the amount of our fewer financial commitments. And this is something that you will appreciate in our cash flow generation and net debt position over the period. Regarding transformation, I would like to remark that our new solutions, which represented 18.2% of our total sales, continued to outperform the traditional business.
Although the lockdowns have limited the retailers' activity, which has temporarily slowed down the sale of these sort of solutions, the reported figure at the September represents a meritorious increase of two twenty basis points compared to the previous year. Our main solutions, focused in the retail automation and the outsourcing services, continue to gain weight within our sales mix. Finally, let me stress one more time our financial soundness. The business resiliency and the cash protection initiatives implemented at the onset of the pandemic keep yielding positive results and allowed us to post a strong free cash flow figure of EUR 129,000,000 and to reduce our total net debt versus the previous quarter. In addition, last October, we completed our annual revision with S and P with no changes in our credit rating profile, which remain at BBB without stable outlook and therefore investment grade.
Now I will give the word to Pablo, who will walk you through the different dynamics of our regions.
Thank you, Javier. Latin America where the COVID-nineteen and the currency depreciation continue to negatively impact the comparison versus last year, our sales reached €746,000,000 a 15% drop versus the same period in 2019. However, the organic growth for the period remained positive at 6.3% despite the selective lockdowns in certain countries and the tough comparison versus 2019 due to the nonrecurring volumes captured in Argentina a year ago. The positive organic contribution was also complemented by our M and A activity that add another 3.5. This inorganic effort was partially offset by the divestment of our Mexican operations.
Finally, and in relation to the new products, I would like to highlight that our sales keep growing at double digit rates in local currency and amounted to €128,000,000 This figure represented at 17.1% of our total Latin American sales, a 100 basis point improvement versus the 16.1% posted a year ago. Moving to Europe, our sales ended in €322,000,000 a decrease of 16% versus last year, which is fully explained by the lockdowns and the deconsolidation of France. Having said this, we have observed that the impact of the pandemic during the quarter has been less severe than in previous months due to the higher degree of mobility. As a result, our volumes have improved and partially recovered since the true reach during April and May. New product sales ended in €71,000,000 represented 22.1% of our European sales, an increase of 4% versus last year figures.
Our SmartCash and ABO solutions have been the major contributors to this improvement. Let's read now our performance in Asia Pacific. Our sales amounted €71,000,000 a decrease of 9% versus a year ago, a figure negatively affected by the lockdowns implemented to counter the pandemic. During the quarter, we transitioned the volumes under the new contracts into our existing network. This process is well advanced and is evolving according to our expectations.
To conclude the regional summary, let me comment on the new products that increased by 96% in absolute terms as a result of the new ATM business in Australia. New solutions reached 8,000,000 and represent 11.4% of the sales of the region, almost doubling the figures posted a year ago. I will now hand you over to Javier, who will summarize the financials.
Thank you, Pablo. Starting with the top line, total sales reached $1,140,000,000 euros a 14.8% less than the previous year. This is the result of a total negative impact of minus 16% coming from the combination of currency depreciation and the effect of applying IFRS '29 and 2021, partially offset by the positive contribution of our local growth of 1.3%. Organic growth remained slightly positive, which was remarkable if we considered that selective lockdowns remain in place in certain countries and that the comparable base versus the previous year was challenging, as Pablo has already explained. Inorganic growth, partially diluted by the consolidation of France and Mexico, accelerated to 1.2% due to the M and A activity accomplished earlier in the year.
On the profitability side, our reported EBITA margin ended in EUR 133,000,000, representing 11.6% over sales. Despite the fact that our accumulated profitability continued affected by: first, the sharp devaluation of emerging currencies second, the lower volumes resulting from the COVID-nineteen lockdowns and third, the €25,000,000 incurred to restructure operations, the gradual recovery of our operational leverage, together with our cost adjustments, have helped us offsetting a very significant part of the overall effect. But let me explain in greater detail our underlying operating performance by focusing on the charts placed at the right hand side of the slide. Our recurrent EBITA margin, metric that excludes the capital gains derived from our divestments in 2019 and the restructuring costs in 2020, reached EUR 158,000,000 and thirteen point eight percent over sales, narrowing the gap versus last year to a decrease of 24.5% on absolute figures and 180 basis points in relative terms. These results implied another margin sequential improvement during the third quarter of the year, which has narrowed the gap versus the first quarter of the year by more than 50%.
And this is another proof of our solid execution under a tough environment. Below the EBITA line, our financial results posted net expenses of €28,000,000 attached below last year figures. Higher interest expenses resulting from the increase of our net debt position in subsidiaries, deferred payments and FX related costs were more than offset by the profits on foreign currency transactions. Our tax rate for the period reached 53.1%, being the temporary increase the result of the geographic mix, non deductible losses and the hyperinflation accounting in Argentina. As a result, our net consolidated profit ended the period in EUR 42,000,000, which represents a margin of 3.7%.
Regarding cash generation, let me underline that our free cash flow reached EUR 129,000,000 by the September, which means a 15% increase versus last year and an implied free cash flow yield of 14% if we considered our last twelve months free cash flow and our current enterprise value. Our cash conversion ratio also improved to 77%, up from the 76% reported in 2019. Provisions and other items have been benefited from tax payment deferrals in some countries due to the COVID-nineteen, although to a lesser extent than in the previous quarter. CapEx and working capital figures reflected the rationalization of our investments as well as the thorough management of our working capital. As a result, our CapEx investments have been reduced by 35% versus last year and the working capital outflow reported earlier in the year has been completely recovered.
And this is a significant milestone compared to last year figures. M and A payments reached EUR 100,000,000 and were a combination of cash outflows from deferred payments and new M and A and cash inflows related to the disposal of our Mexican operations. As explained earlier in the call, we have made some deferred payments during the quarter that allowed us to reduce the total amount of our commitments. Finally, the dividend and the treasury stock lines incorporated the results of the dividend reinvestment program and share buyback program, both implemented in early June. As to the reinvestment program for the fourth tranche of the dividend payment, just to note that 80% of the shareholders have chosen shares instead of cash.
Let me now make some comments regarding 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. As of September 2020, our total net debt amounted to EUR $714,000,000, a EUR 23,000,000 sequential reduction versus the figures reported in June and a EUR 43,000,000 decrease since the beginning of the pandemic in March. Our financial discipline is allowing us to continue deleveraging in absolute terms despite the harsh environment and the restructuring cost incurred in the first half of the year. To conclude, let me highlight that during the month of October, we have completed our annual revision with the Standard and Poor's without any changes in our credit rating, which remains at BBB with a stable outlook. Before moving to the Q and A, let me share with you some final remarks as my conclusions.
Since the outbreak of the pandemic, we have been taking several steps to guarantee the rapid transition and adaptation of our company to the new macroeconomic reality. First, and from a commercial point of view, our teams have captured additional services in all our regions that have partially mitigated the lower volumes resulting from the COVID-nineteen. Second, and from a cost perspective, we have also frozen most of our discretionary expenses and restructured our operations to achieve further efficiencies and adapt our structure to the current activity levels. As a result of these initiatives, as shown in the graphs on the right side of the slide, our recurrent EBITDA dropped 18% during the first nine months of the year, a decrease quite in line with the one reported in our sales, meaning that we have been very successful in reducing and making more variable our cost base. And all these without giving up our commitment with innovation and the digital transformation.
We continue allocating resources and accelerating our investments in these areas, not only to be better prepared to address fewer challenges, but also to capture new growth opportunities. Finally, we have implemented some initiatives to preserve our cash generation and to protect our balance sheet. In this sense, we have been very proactive in managing efficiently our working capital, we have optimized our maintenance CapEx and we have launched a dividend reinvestment program. And as we can also see in the slide, these actions allowed us to improve our free cash flow generation by 15 despite the lower results and to reduce our total net debt in more than EUR 40,000,000 since the beginning of the pandemic. I firmly believe that these measures will allow us to navigate the crisis and strengthen the agility of the company in order to emerge stronger and ready to capture fewer growth opportunities.
To conclude, let me recognize once again the enormous effort from all our employees and emphasize how thankful we are to all of them for the very deep commitment and sacrifice during this difficult time. This is all on my side. Thank you all for the attention, and I will now be pleased to begin with the Q and A session. Thank you.
Please press the star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel that request, you can use the hash key. So once again, if you wish to ask a question, please press the star and one on your telephone keypad. Your first question today comes from the line of Miguel Gonzalez, JB Capital Markets.
Hi, good morning everyone. Few questions, if I may. The first one, I wonder if you could give us an indication of what is currently your level of activity in Argentina and Brazil compared to 2019. Then on full year outlook, I don't know if you could give us an indication of how you see the last quarter. Will you see an improvement compared to the third quarter or again deterioration of the due to the new components?
And last on dividend, I don't know if you could give us an indication on the dividend for next year if you could lower the payout going directly for an discrete dividend or applying the new reinvestment program. I don't know, any indication on the dividend will be helpful. Thank you.
Good morning, Miguel. Starting with your first question on the current levels of activity in Argentina and Brazil. I would say that as you've seen in the figures, I mean, we've been posting accumulated positive organic growth for the nine months period. Having said that, in last quarter, in the third quarter, there have been impacts coming from the comparable base. So what I would say is that if you exclude the impacts from the comparable base and you also take into consideration the fact that the lockdowns in in in Argentina, especially, have been lasting for almost seven months already and remain still in place.
And that has also brought as a consequence some transitory delay in the price review mechanics. If you take all that into consideration, the underlying normalized behavior of the activity remains positive in both countries, in Brazil and Argentina. And we would be expecting that to remain the same in the fourth quarter on the back of in Argentina. And then there's some release of the lockdowns starting to take place right now together with high inflation and increase in the monetary base. So that macroeconomic scenario should be, backing us on this assumption.
And, in the case of Brazil as well, summertime should be helping on the fight against the pandemic. And then on top of that, the actual macro situation in the country where you have FX evaluated but without any inflation should rebalance one way or another, I mean, or in terms of the FX appreciation or higher inflation or should be acting as an engine for the macro in the country, which most analysts now forecast as recovering in the short term and being stronger. So we expect in both countries that this trend remains and reinforces in the short term. On the second question on the outlook, it's hard to say on Q4 right now given the uncertainty. Assuming that there were no further major impacts from lockdowns or the FX, I would say that we should be continuing on the trend of improving our EBITDA quarter by quarter.
But we have to monitor very closely the evolution of the pandemic. In Europe, it looks like, the second wave is rising, but we need to see what measures are taken by the different governments, while in LatAm, probably the summertime will be helping to offset partially the impacts of the pandemic. So we will keep a close eye on all those. But as I said, I mean, that everything is under the usual course of business, we should be keeping the trend of gradual improvement. And in relation to the dividend, it's too early to say.
I mean, it's a decision that the Board of Directors has to take in December. They have all the options in the table, and we will see how how it goes, I mean, in December. I think we we we need to look at that based on the actual situation and environment by that time, and and we'll see how the board decides that when taking on consideration all the different elements by that moment. Thank you.
And the next question comes from the line of Manuel Laurent from Medall.
Hello. Good morning. My first question is regarding regarding the sales sequential improvement quarter on quarter. Can you give us the split between organic, inorganic and FX of the trends of the Q3 stand alone, please?
Hi, Ronald. Yes. I think or I guess you're referring to the overall impacts in Q3.
Mhmm.
So so on that basis, I think you can you can probably get the math on your on your side. But just to try to to facilitate that, When we said that the local currency terms, I mean, positive component was around, you know, close to 0% to 1%. Then on the quarter on the isolated quarter perspective, you should be assuming that the inorganic part of it is contributing between 1.5% to 2%, more or less. And then the rest is the organic portion, and the FX has reduced. Its impact in Q3 is now more around 10%, roughly speaking.
So I hope that helps.
Okay. Because doing those math will imply roughly a negative organic evolution on the quarter, which I believe it might be due to the stricter lockdowns in Latin America as European conditions more or less and hopefully are easy? Is that the way of seeing?
Well, I think it has a lot to do with my answer to the earlier question. If you at it by regions, meaning Europe, there's an improvement in the sense of, deceleration of the sales decrease coming from the COVID. While in Latin America, you have to consider the comparable base impact from last year together with the longer lockdowns and certain delay in the price reviews. So if you exclude all those three elements, the underlying normalized behavior of the business remains positive.
Okay. And maybe just one final question on the free cash flow. It has been a consumption of roughly €10,000,000 on the provision and other items line. Is that the consumption from the workforce development plan announced last quarter? Or is there any other issue?
Yes. I think there are different elements playing into that picture. But if you're comparing that versus figures posted on the first half, I would say that basically you have less deferred payments than in the first half. And also the normal course of business according to IFRS 16 and that kind of of items that are also reflected under that caption. That is is it has to do basically with those those two elements, most of it.
Okay.
Thank you.
You're welcome.
Your next question comes from the line of Francisco Rui from Exane.
Hello. Good morning to both of you. I have some questions. First one is is for a follow-up on the on the margin improve That for what is normalized tax rate for for I don't know if it's coming quarter or coming year. The third question is on the buyback.
Certainly, you are halfway to to reach the the target, but the stock continues to be at very low levels. Are you considering increasing the scope of this buyback program?
Good morning, Paco.
I will try to address the different questions. On the first one on margin improvements, I would say that there's a mix of both things. I mean, of course, the restructuring programs are starting to play its role and starting to deal with some impact, but still are on the execution curve. And on Q3, we're not yet fully deployed and not at run rate in terms of impact. So we can say that still the organic component of that plays a deeper role into Q3.
Going forward, as we said, I mean, there's a lot of uncertainty right now on the evolution of the pandemic into different geographies. So I think that, as we said before, I mean, we feel that if you look at the EBITDA in absolute terms, so far, Q3 has represented an improvement versus Q1, Q2. And on a normalized scenario, we would expect that to be the same for Q4. So in terms of margins, should be more or less the same taking into consideration I mean, same, I mean, improvement trend taking into consideration the deeper execution of their restructuring programs. So on the short term, I think that's our view right now that scenario.
In terms of the tax, I think that under a normalized scenario, again, I mean, we are over the pandemic effect and therefore these different elements that we mentioned before are, not in the picture anymore, then I think we should think of it, to something converging more to what we had, before. So historically, we've been around 35, 36%. And on a longer term basis, a normalized view should drive us back to that reference, if you want. And then on the buyback, we are executing the program in line with what we anticipated at the beginning of it. So roughly I mean, I think we've been doing that already for around four months, more or less, four or five months.
I would say around one third of the program is already executed up to now. And, for the time being, we feel that, we are comfortable and fine with with the way this is going, and, we will analyze any potential, you know, renewals or, increases when it comes, but not right now. I mean, I think that that up to now, we we have still room ahead of us, I mean, to keep executing the plan execution. So so that's what we will be focusing on for for the shortest term. Okay.
Thank you very much.
Thank you. Once again, ladies and gentlemen, that's the star in one if you have any more questions. We have no more questions at this time, sir, if you wish to continue.
Great. So thank you all for sharing your time with us. As you know, our Investor Relations team remains available for any further questions you may have. Hope to speak back to you on the full year results presentation. And in the meantime, just take care and stay safe.
Thanks again.
We do have one late question. Did you wish to take that, sir, or would you wish to take that offline?
Yeah.
Don't worry. I think we can take it offline since we are already
That does conclude your call for today. Thank you all for participating, and you may now