Good day, and thank you for standing by. Welcome to the Prosegur Q3 2023 results presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Antonio de Cárcer. Please go ahead.
Good afternoon, and welcome to the Prosegur webcast presentation for the ninth month's results of 2023. The presentation is expected to last around 30 minutes and will be followed by an open Q&A session. This webcast will be hosted by our group's CFO, Maite Rodríguez, and our new Head of Investor Relations, Juan Ignacio Galiano .
As many of you already know, this is my last results webcast communication, as I'm retiring from active duty in the days to come. It has been an absolute pleasure to have had the opportunity to interact with you all over the past 12 years, and I will definitely miss this amazing company and its magnificent professionals. I thank you all very much for your patience and understanding. Now, I will hand over to our CFO, Maite Rodríguez.
Thank you very much, Antonio. We will also miss you a lot, and thank you for introducing these results for the last time. Good afternoon, everyone. Let's have a close look at the results of Prosegur for the first nine months of the year 2023. Results that continue to be good in the wake of the trend of excellent growth and increased profitability observed throughout the year.
Let's start this presentation by reviewing the most significant milestones of the period. During the third quarter, we continued to experience sustained growth in all our different business units. This explains the good performance that we have achieved on a year-to-date basis. Indeed, sales registered a 7% year-over-year increase, reaching EUR 3.4 billion.
Volume growth, mainly in our security and cash businesses, coupled with a fast and efficient pass-through from inflation to prices, were the main reasons behind the increase, despite the depreciation of local currencies. As we always point out, this is good testament to the fact that when operating efficiently, harsh economic scenarios with inflation and FX depreciation can be very positive for our businesses.
This being particularly true in the case of the cash business. Moving on to profitability, on a consolidated basis, EBITDA increased by 12.4%, resulting in an efficiency improvement of close to 500 basis points. This rise in margins is mainly due to the remarkable performance of our security business, coupled with solid results in our cash and alarm businesses.
As has been the case for many years now, innovation is at the top of our priorities, as we know for a fact that it paves the way for a more diversified and, hence, sustainable growth. Accordingly, new products in our cash business continue to gain more relevance and reach 29.7% of total sales, 5 percentage points higher compared to the same period last year.
The same is true for the security business, where the increase in sales of hybrid solutions went up by 11%. However, it's worth highlighting that when it comes to this business, the golden rule is to gain scale in an efficient way, and that's where all our efforts are focused right now.
Thanks to efficient cash management, the higher profitability achieved has led to higher cash generation, with a total of EUR 47 million improvement into the same period last year. As always, our main premise is to continue growing, but forever mindful of leverage.
Overall, net debt stands at a prudent level relative to EBITDA, and the fact that S&P renewed our rating has proven us right. Let's now turn to slide 2, where I would like to dive deep into our sales figures. As I mentioned earlier, total sales during the first nine months reached EUR 3.4 billion, 7% higher year-over-year.
Disregarding the FX effect, almost all our growth has been organic. Clear evidence on how efficient we have been in managing the various businesses across all regions, despite specific macroeconomic headwinds. We continue to enhance sales diversification, with Europe's share increasing against LATAM.
This is another angle from which to assess the sustainability of our operations. I want to underscore what I said a moment ago regarding how we have managed to overperform in every single business area. The bar chart at the bottom of the slide speaks for themselves. Indeed, we have achieved organic growth in the range of 25%-53% in our three main business units.
The case of Cipher is even more impressive, since we have managed to fully reverse last year's performance and start growing organically. We will go into more detail on identifying the drivers behind this growth in subsequent slides. Let's now move on to review profitability. On a year-to-date basis, total EBITDA was EUR 234 million, EUR 26 million, or 12.4% higher compared to last year.
Once again, all businesses registered higher profits, with the only exception of AVOS Tech, that was adversely affected by anticipated earn-outs. Our security business was the one with the highest growth, mainly driven by our strategy that combined higher selling volumes together with an agile pass-through from inflation to prices and enhancement of cost structure. Even more relevant is the fact that U.S. was one of the main regions behind the increase.
After years of investing and pursuing an aggressive commercial strategy, the U.S. has achieved the highest gross margin of the business line and is now delivering positive results at EBITDA level, if we isolate the strong commercial expansion cost already percent. This is extremely promising going forward, and is a game changer, considering the target market and the fact that margins are higher in the region.
Moving on to our cash business, we have had a great third quarter, hitting EUR 77 million in EBITDA, with margins increasing to close to 15%, 90 basis points higher compared to the same period last year. These results were mainly driven by increased volumes, coupled with a fast pass-through of inflation to prices, resulting in solid organic growth.
In addition, the higher share of new products and outstanding performance of our recently acquired Forex business positively contributed towards profit generation. Our alarm business presented solid results, with pre-SAC EBITDA growing by 6.8% in Prosegur Alarms and an extraordinary 22.6% in MPA. As we shall later see, the performance of every relevant indicator in alarms moved in the right direction, pointing to an increase in value per customer.
This is the case for both MPA, our operation in Spain, and for Prosegur Alarms in the rest of the world. Let's now move ahead and analyze our consolidated P&L. As already stated, total sales were EUR 3.4 billion, with organic growth reaching 32.4%. This growth translated into a 12.4% increase in EBITDA, highlighting our operating efficiencies that benefit from increased scale in all areas. The positive trend is reversed at the profit before tax level.
This is primarily explained by the negative financial results deriving from: the negative accounting impact coming from IFRS 29, as the net monetary position of Argentina was positive as of September 31st, expenses related to IFRS 16, higher interest expenses as interest rates went up, and finally, higher cost to upstream dividends.
It's worth noting that the mentioned IFRS 29 impact is the most significant one and is non-cash in nature. When it comes to income tax, and as a result of various initiatives that we have been implementing throughout the year, the effective tax rate for the first nine months of the year dropped to 53.1%, equal to a reduction of 240 basis points year-over-year.
If we exclude the non-cash IFRS 29 effects, the effective tax rate should be 44.9%. Finally, all this leads to a bottom line of EUR 51 million after deducting minority interest. I would like to focus now on cash generation, which has been quite impressive, resulting in a 29% increase in operating cash flow.
This has been mainly due to the combined effect of better operating results captured by EBITDA, cash flow management improvements, which derives in better DSO, and a EUR 16 million reduction in paid taxes, as we are consuming carry-forward tax losses from past years.
At the same time, there has been a significant increase in provisions and other non-cash items, mainly due to a calendar effect that resulted in the deferral of EUR 15 million in VAT. Further down, we can see that investment in CapEx partially offset the higher operating cash flow. Two things are worth mentioning here. On the one hand, 80% of the increase was what we call client CapEx. This will naturally result in higher future sales and margins. And on the other, infrastructure CapEx, as a percentage of sales, registered a slight decrease compared to last year.
Dividends paid followed a similar trend to taxes paid. Indeed, part of 2023 dividends were advanced during 2022, which explains the big drop this year. Regarding the EUR 22 million increase in treasury stock and others, this was mainly driven by the deconsolidation effect of the Australian subsidiary on cash balances, which includes the funding of the working capital requirement until December 2023.
Lastly, the EUR 45 million difference in the exchange rate line is explained by a combination of factors that include, on the one hand, the negative impact of the increased cost to dividends upstreaming in some regions, coupled with the nominal depreciation, mainly of the Argentine peso. To wrap up the consolidated financial overview, let's now discuss the company's financial position.
Net financial debt slightly increased, reaching EUR 1.3 billion, resulting in a total net debt to EBITDA ratio of 2.4 times versus 2.3 of the previous quarter. This effect comes mainly from the deconsolidation of Australia. We are optimistic as we expect this ratio to reduce by year-end, following the standard seasonality in cash generation of the group.
It's worth highlighting that both the terms and the structure of our debt is very healthy, with an average cost of 2.7% and over 70% at fixed rate and long-term in nature, maturing in 2026 and 2029. Finally, I'm also proud to underscore this statement by mentioning the recent renewal of our BBB stable credit rating by S&P. That's reassuring the market of our investment grade qualification, as has been the case over this past 12 years.
That's all from me for now. I will now turn the presentation over to our Head of Investor Relations, Juan Ignacio Galleano, who will give you more detailed information on the development of the specific business areas.
Thank you very much, Maite, and thank you all for being here. I'm delighted to greet you and look forward to meeting you all personally in the upcoming months. Let's now have a look at the results of each business line, covering the main performance indicators and the most relevant aspects of the period for each one.
Starting with our cash business, I would like to begin by highlighting that the merger with Armaguard Group is now fully complete. As already stated in past calls, this marks a major milestone as it confirms the strategic relevance of our service to society. Financial indicators of the business during the first nine months of the year have been strong, with total sales reaching EUR 1.5 billion and EBITDA, EUR 206 million, in both cases, 5.7% higher than last year.
Third quarter dynamics mostly explain the year-to-date performance, with EBITDA margins increasing from 14 to 14.9%. Enhanced efficiencies in the operation, coupled with the higher share of new products driven by Forex, Cash Today, and Corban, mainly explain the increase. I would really like to highlight the increasing relevance of new products in both sales and margins, as this is a clear testament to how they contribute to diversifying results, thus making them more sustainable.
It's worth pointing out that the reason why the EBITDA margin remains flat is fully due to the first quarter dynamics, where margins were impacted by the seasonality stemming from the Forex business, which, as you know, is an activity that tends to concentrate cash flow generation during the second half of the year. Moving on to the security business, it's clear that this has been the highlight of the quarter.
We are reaping the benefits of our focus on accelerating scalability and enhancing efficiencies by having a lean structure. When it comes to revenue growth, the organic share reached 26%, reflecting two aspects. First, how agile we have been in passing through inflation to prices, fully offsetting the FX impact, and secondly, the remarkable performance of the business is achieving in the US.
All this has positively contributed to profitability, having registered a 25% increase in EBITDA, amounting to a total of EUR 45 million. Innovation continues to be at the forefront of our strategy, and this is evidenced by the 11% increase in sales of hybrid solutions. However, the share as a percentage of total sales remains flat, and this is only natural since our focus is on scalability.
Indeed, it's crystal clear to us that the only way to achieve sustainable growth going forward is by increasing volumes in an efficient fashion. Let's now turn to the alarm business, where once again, we have delivered outstanding results. As can be seen, every relevant KPI performed better when compared to the same period of the previous year. Our client base totaled 854,000, marking a 9% increase year-over-year.
Growth dynamics were somewhat different between MPA and Prosegur Alarms. Whereas as we continue showing a significant growth in Prosegur Alarms, having added 47,000 new clients during the first 9 months of the year, we have voluntarily reduced the aggressiveness of sales campaign in MPA to protect and enhance business performance indicators.
This had a direct positive impact in both churn rate, which fell from 14%-12%, and ARPU, as the share of discounts was significantly reduced in line with the strategy. Nevertheless, MPA achieved sustainable levels of growth, adding nearly 77,000 new clients to their base. As for Prosegur Alarms, both metrics continue to be solid, with churn standing at 11% and ARPU increasing by 4% to 39 EUR.
All these effects allow us to generate value on a per-client basis. Indeed, for MPA, pre-tax EBITDA reached 24 EUR per client, while in Prosegur Alarms, we reached 18 EUR, marking a 9% increase year-over-year. To conclude this results overview, let's briefly examine AVOS Tech and Cipher.
AVOS Tech's sales grew by 8.4% during the first nine months of the year, driven by the strong performance of their SISnet solution, a specialized management tool for insurance companies. As we explained in the previous quarter, the commercial success of this technology led to a higher payout of the earn-outs agreed upon during its acquisition two years ago.
This increase in earn-out was settled in the second quarter and is responsible for the temporary reduction in AVOS Tech's EBITDA, which amounted to EUR 4 million in the first nine months of the year, representing a 6.44% margin. As for Cipher, sales reached EUR 11 million, showing an increase of nearly 6% compared to 2022, and recovering a positive growth trend on the back of the recently launched cybersecurity solution, xMDR, that is being widely accepted....
xMDR is an innovative automation solution for detecting and responding to cyber threats. It is based on proprietary AI and machine learning, providing our clients with a comprehensive global protection service against attacks. It can identify threats before they fully materialize and activate protective systems in advance.
Gross margin still remains affected by the platform investments made in this business unit, having reached EUR 3 million. This concludes our analysis of the performance of each business lines for the first nine months of the year. Thank you all for your attention. I will now hand the microphone back to our CFO, Maite Rodríguez, for her closing remarks.
Thank you very much, Juan Ignacio. Let me now share with you my closing thoughts on the most relevant conclusions of this results presentation. Overall, as we have seen during the presentation, all businesses reported enhanced operating efficiencies and strong results. Organic growth rates have been able to fully offset the FX impact across the regions, resulting in higher margins and profitability.
In our cash business, main highlights have been, first, the good performance in our Forex business. Second, the sustained diversification with new products, particularly, Cash Today. And third, our continued efficiencies in the cash in transit business. As for security, we have reported an outstanding performance with higher volumes and operational scalability that have resulted in increased margins. We are very optimistic about the future growth in the U.S., since this is a promising market with lots of opportunities.
All this growth has been achieved without jeopardizing our solid leverage position. Net debt to EBITDA continues to be at a very low and sustainable level, and the terms of our financial debt are highly attractive. To wrap up this presentation, it's worth mentioning the inclusion of Prosegur in the IBEX ESG Mid Cap Index.
This is clear validation of our full commitment to reducing the environmental footprint, to generating quality jobs, and to good corporate governance, among other goals. This was all on my side for this results presentation. I would like to thank you all again for your attendance, and now I will be happy to take any questions you would like to ask.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile a Q&A roster. Once again, it's star one and one if you wish to ask a question. We will now take the first question. Coming from the line of Enrique Parrondo from JB Capital. Please, go ahead.
Hi, good morning. First of all, many thanks, Antonio, for your help throughout the last years, and I wish you the best for the future to come. Now, related to the presentations, I have two questions, if I may. The first one, maybe you went through it, through the presentation, but I did not get it clear. It was on, if you could give us some color on the moving parts behind the positive contribution of close to EUR 38 million from adjustments to result on the cash flow. And on the second one, on security margins.
The division has performed quite well in the last two quarters, and I was wondering if you could maybe share your thoughts on where could it be margin stand next year, especially if we consider more moderate investments and growth in the U.S. market. Thank you.
Thank you very much, Enrique, for your questions. Regarding the first question about the movements in the line of others in the cash flow, they are mainly related with... I guess, as you are comparing 3Q last year with 3Q this year.
And in this case, the main movement in this item is related to the deconsolidation of the Australian subsidiary that we have done with because of the merger that we have done with Armaguard. And you have to consider there also, that apart from the deconsolidation, we also have it include the funding of the working capital requirements until December 2023. So that's the if you add both effects, is exactly the difference that you have between years.
In relation to the second question, about the guidance in relation to the EBITDA for 2024, we are going to continue on the same trend, if we split it in the different businesses that we have. In cash, we are going to be focused on new products, on maintaining the margins that we have and the same tendency or trend of growth. In security, we are going to be more focused, not so much on the scalability, growing in sales, more focused on achieving a higher margins and on the cash flows. In alarms, we will be, our main target is to increase the number of connections.
As you know, as we have been speaking about during the last years, we are also still focused on different alliances. They are processes that goes very slow, but we are still very focused on that... and also in improving the margins of churn rate, ARPU, and the rest of the main KPIs that we use in the alarm business.
So the EBITDA for 2024 should be better than the one that we are going to publish for year-end 2023, and with the same time of growing trend. In terms of debt, it's going to be also another of our main goals, because with the increase in the interest rates, we are also still very focused on that.
Great. Thank you.
Thank you. Once again, as a reminder, if you wish to ask a question, please press star one and one on your telephone keypad. That's star one and one if you wish to ask a question. There are no further questions on the phones. Please continue. Sorry, we do have one question. From the line of Miguel Medina from Mirabaud. Please go ahead.
Yeah, good afternoon. Just two questions. Can you hear me okay?
Yes.
Perfect. Okay. First question, you mentioned, in the case of financial expenses, the cost of upstreaming dividends, I guess, from Argentina to Spain. Is that because the exchange rate that you apply to calculate the EBITDA is very different from the effective exchange rate that you have to use to upstream those dividends from Argentina to Madrid? And if you could just give us an idea of the gap between the two. And then, the second question is on the US market, in which, you know, obviously, results are improving significantly.
The story in the past was that it was a profitable market, in the sense that the gross margin on the contracts was very attractive and one of the highest within the security portfolio. And that you were over time diluting the fixed cost and the, you know, the cost of expanding the network, et cetera. Is that still the same story? Or you have realized that the gross margin on the new contracts is even better than you had in your original business plan?
Thank you, Miguel, for your questions. In relation to the first one, about the upstreaming dividends, you are right. It's fully related to the cost that we have to invest for repatriating the cash that is generating in Argentina.
And how it works is, it depends on the market. So, that's why I can't give you the exact cost, but it's just, you can just observe how the market works, and sometimes it's one percentage, and other times it's another percentage. But how it works is that you have... You buy bonds with Argentinian pesos, and you sell them in U.S. dollar, and that's the mechanism how we repatriate the funds here in Spain.
And that, that gap, and you explained it perfectly, that gap is the one that we have to book it in our financial expenses. In relation to the second question, yes, we with the U.S. market, we are even surprised.
We thought that the gross margins were. We have an idea of the gross margins that the rest of our competitors have in USA. But it is true that the margins are, we are having even a better margin, but it's mainly not because of the market, mainly because of the type of product that we are offering to the market.
Because, as you know, we have been working hard in the hybrid security solutions, where we mix technology and traditional guarding, and those type of products are not so common in USA. So, we have a very, very good product, and that's why our margins are higher.
So I think that it's not something that you can extend into the rest of the market, but yes, that we have a good opportunity to continue growing in USA with very, very good margins. So that's why USA will be one of our main focus in the security business for 2024. And now we are working on the business plan for the next two years. And USA for sure is going to be one of the game changers in this plan.
Okay. Thank you very much, and congratulations to both Antonio and Juan Ignacio.
Thank you, Miguel. Thank you. There are no further questions at this time. Please continue.
I would like to thank you all again for your attendance. If you need further information, please contact our investor relations department, who is open to help you at any time. Antonio, thank you very much for everything you have given and taught us over the last few years. It has been a real pleasure to work with you. I wish you all the best. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.