Prosegur Cash SA

MAD:CASH

Earnings Call Transcript 2023-Q1

[Operator]

Good day and thank you for standing by, welcome to the Prosegur Cash Q1 2022 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Miguel Bandres, Head of Investor Relations. Please go ahead.

[Miguel Ángel Bandrés Gutiérrez, executive]

Good morning to everyone, and thank you very much for dialing to today's meeting. I want to welcome you to our 2023 Q1 results review that will be led by Javier Hergueta, our CFO; and myself.The presentation is scheduled to take around 30 minutes in which we'll update the main events that have taken place in these first 3 months, including main ESG developments as well as the drivers that lie behind our performance.We'll review our main financials and our performance by region. After the presentation, we'll have time for Q&A, where we will address the questions you might have. Should we not get to respond to all points today, we'll answer those remaining on an individual basis.I again want to thank you all for your participation and remind you that this presentation has been prerecorded and is available via webcast on our corporate web page at www.prosegurcash.com.As a start, and before passing on to Javier, let me highlight some recent key facts and news regarding cash that can give us an idea of some important developments in the field.The topics covered range from the high underlying inflation where we're in to the latest developments in the continued increase of cash in different markets, where there are almost 25 million households that are underbanked in the U.S.Turning to Page 2. We can first see a mention to an article on the Bank of International Settlements that states that after the release of key COVID restraining measures, cash in circulation as a percentage of GDP has returned to pre-pandemic levels, if not increased in fundamentally all markets.It's interesting as well, how it highlights the record level of such a developed market as Japan where cash circulation reaches 23.5% of its gross domestic product. In the end, it signals that cash circulation levels after this turmoil years is back to normal and thriving in different markets from very developed to those on the way of evolving.Regarding the next item, it's relevant to note the news citing information from Eurostat, where it highlights that core inflation in the Eurozone is at an all-time record of 5.7%. This is the inflation rate isolating some volatile prices, such as energy, food, alcohol, tobacco and provides a more precise diagnostic of price levels in the day-to-day economy.It is, as said, the highest inflation since the euro came to life and it as well portrays an idea of how sticky this inflation is proving to be. Not to say that this is an environment where cash usage thrives.Along the same lines, we can see from data released by the Bank of Spain, the sustained growth in cash withdrawals over the last 2 years. As we can see in the graph on the right-hand side of the page, we can observe a sustained growth of not only the number of withdrawals, but as well the amount of euros withdrawn that again, gives a very clear idea of the health of cash in this case in the Spanish market.And lastly, it's interesting to cite the report from the U.S. Federal Deposit Insurance Corporation, stating that there are close to 25 million households, either unbanked or underbanked in the United States. This implies that this part of the population relies on a very heavy manner on the use of cash to conduct the daily activities in the world's biggest economy.This pattern can be observed in different markets. For instance, in the European Union, according to the World Bank Findex and unbanked population exceeds 13 million adult citizens. This responds to different reasons from not meeting minimum balance requirements to lack of trust in banks, privacy concerns or unwillingness to pay high banking fees.This overview reflects a macroenvironment that is very positive towards cash and its usage, as is clearly shown in the actual figures.I will share with you today's agenda. First, Javier will review the highlights for the period, as well as the performance of our P&L and the delivery of our transformation strategy. After, I'll share the key elements of our performance by region, and then Javier will review our cash flow as well as our debt evolution. With that, we will lead to conclusions after which we'll open the Q&A session.This being shared, I would like to pass over to Javier, so he can walk us through the key highlights of the period.

[Javier Hergueta Vázquez, executive]

Thank you so much, Miguel. I would like now to share with you the main highlights of the period where one more quarter, we can see delivery of the continuous improvement of our activity as well as a relentless advancement into transformation of our company. But before diving into detail, I would like to sum up 3 very important elements.Number one, the environment in which we are conducting business is very positive for us and will likely remain as such. Key aspects that contribute to this environment are a world of ever-growing uncertainty, a sticky inflationary environment and conditions for raising interest rates, all of which resulting into a constant increase of volumes.Number two, our first quarter of 2023 is affected by 3 specific items, which we will explain more thoroughly in the presentation. The first one, one-off exceptional adjustments at cash flow level. The second, the hit in relative margins due to business seasonality, and the third one, an increase of financial expenses expected to stabilize.And Number three, the fact that despite these impacts in the first quarter, we are confident that we will be in line with consensus when looking at full year expectations.This being said, I would like to review first our top line, where as we can see in the first block, sales have increased by 16.2% showing on one side, a very solid performance on the back of strong volume growth and a steady pricing discipline, leading to an overall circa 30% organic growth. On the other side, I would like to highlight that all geographies have contributed to that improvement with double-digit organic growth figures.If we look at our profitability at the EBITDA margin line, we can see that for these first 3 months, it has reached 12.5% of sales, which implies an absolute growth of 9.2% versus the profit we reported 1 year ago.In this respect, we have to take into account that profitability has been affected by the seasonality of our new Forex business that follows a pattern in line with that of tourism and air traffic that tend to have a slower start of the year and which we are sure will recover as we are already seeing in April's volume activity. Also, the impact of the hyperinflationary accounting explains part of the margin evolution in the quarter.Next, it is particularly remarkable to see how our new products continue to climb and have reached 28.1% of sales, increasing our end of 2022 penetration. Here, I would like to remark 2 points.First, the fact that all geographies have contributed positively to the improvement of this line, both in absolute and in relative terms. And second, the strong performance of our new products, our transformation solutions where especially Cash Today, Corban and Forex have had a very strong performance. This being a clear example of the commercial execution capacity of our team on promoting sales of new products.Now turning to such an important line as free cash flow, we can see that we have generated a free cash flow of EUR 8 million. This is a significant amount taken into account that we have had to finance a solid organic growth we will later see, and as well, we have been affected by around EUR 10 million of extraordinary anticipated payments due to regulatory changes in some of our markets.And lastly, regarding our ESG commitment, in these first 3 months there are 2 new initiatives that are worthwhile sharing. The renewal of our Emission Offset Plan, which deepens our commitment to the environment in which we conduct business, specifically enabling us to compensate all CO2 emissions for European and Central American operations.And the approval by our Board of Directors of specific goals to the management team to assure that all interests are properly aligned in our target to foster the most responsible, sustainable and reputable company.Turning now to Page 4. I'd like to share with you the key developments from our profit and loss statement. First, if we look at sales, they have improved by EUR 66 million when we compare them to this quarter 1 year ago, reaching EUR 477 million and implying a net growth of 16.2%.Important to see, as a line in the chart on the right-hand side of the page, a very strong performance of organic growth of close to 30%. This shows the trust customers have on cash as a means of payment, how reliable they find it as we have heard from Miguel earlier on, and as well on the drive and delivery of our commercial strategy.Next, we see that inorganic has contributed positively with 5.1% of total sales, fundamentally driven by The Change Group acquisition we closed last summer. And lastly, we see a negative impact of foreign exchange of 18.6% due to the depreciation of some of the currencies within our footprint.If we look down to the EBITDA line, we can see that we have increased it from EUR 79 million to EUR 85 million, which is an improvement of 7.2%, reaching in relative terms, 17.8% of sales.Depreciation maintained at a level of EUR 25 million. And regarding EBITDA, we have achieved an improvement of EUR 5 million in the period, reaching EUR 60 million, which represents an increase of 9.2% versus 1 year ago and implies a margin of 12.5% of sales.When compared to 1 year ago we see a decline in relative performance of 80 basis points that is fundamentally driven mainly by the mentioned seasonality of The Change business that has its main cost structure in terms of rentals and part of personnel costs fixed with lower revenues driven by the fact that there are less people moving between countries, and to a lesser extent, the effect of currency devaluation.The financial result accounts for EUR 24 million, up from EUR 16 million 1 year ago, such gap being driven to a significant extent by noncash items. On one side, the increase in financial costs is explained by higher costs linked to deferred payments and other liabilities a larger M&A and IFRS 16 related charges due to the incorporation of Change Group to the perimeter.The recent hike of interest rates has limited impact given most of our debt is at fixed rates, and it also allows us to obtain better returns on our liquidity positions. And on the other side, when looking at FX-related expenses, we see part of those are of a nonrecurring nature and some of the elements there are noncash. All in all, you can see a much lower figure when referring to interest payments in our cash flow statement than the one in our P&L.Tax expenses account for EUR 15 million, resulting in a tax rate of 51.5%, which is affected by the nondeductible nature of some of our cost elements and which we are sure will reduce as the year progresses. This leads us to a net consolidated profit of EUR 14 million, that is 3% of sales. We are convinced that in the coming quarters, the seasonality effects will reverse and create an opposite effect and thus, we will see a constant improvement of our profitability both in absolute and relative terms.Going now to the next page, Page #5. I will update on the performance of our transformation strategy on which we continue to deliver at a very strong pace. We see that sales have climbed to EUR 134 million, up from EUR 95 million 1 year ago, resulting in a 41% growth. In absolute terms, it represents an increase of close to EUR 40 million in the period versus 2022.Equally or more important is that despite the solid growth of the core business, the penetration of new products over total sales has improved by a stunning 500 basis points from 23.1% 1 year ago to 28.1% at the end of the first quarter of 2023.I would like to underscore the strong performance of our main key solutions, Cash Today that enables our customers to digitize their cash operations, Corban that facilitates the access to financial services beyond the traditional banking branch infrastructure, and the newly incorporated Forex business, which is performing very well despite the aforementioned seasonality. As well, it is important to underline that new products are performing very, very strongly across all our geographies.In summary, we continue to deliver on our transformation strategy, both in absolute and relative terms, and we are confident that they will best position us for the future.I'll now pass over to Miguel so he can review our performance on a regional basis.

[Miguel Ángel Bandrés Gutiérrez, executive]

Thank you very much, Javier. I'll start by reviewing Latin America that is our most important region, accounting for 64% of the group sales. And with the macroenvironment, it's probably the most positive for our industry.In this region, we've experienced a very significant organic growth of 36.6%, reflecting the strength of volumes as well as our strict pricing discipline. Exchange rate has had an impact of 27.3%, driven fundamentally by Colombia and Argentina. And inorganic had a minor positive impact of 0.4% in inorganic sales.It's important to underline the extraordinary performance of new products that on an organic basis, have climbed by 22%, having added EUR 17 million to reach EUR 92 million this first quarter and improving the share of wallet over total sales by 300 basis points to 30.1%.Europe continues to consolidate as our second most relevant region with 28% of total sales. Important to note here the double-digit organic growth of plus 13% experienced on the back of returning volumes as consumers continue to show their confidence in cash and in our new solutions.New products have more than doubled from EUR 14 million to EUR 34 million, representing an increase of 140%, driven by the acquisition and growth of the Forex business, together with a very strong performance of our cash-based solutions. With this, new products in the region now account for 25.1% of total sales versus 13.8% 1 year ago.Last but not least, when we look at Asia Pacific, a region that accounts for 8% of group sales, very interesting developments have taken place. On one side, a very strong organic growth of 23.4%, driven by new contract wins, then FX had a moderately negative impact of close to 2% and inorganic growth accounted for a positive 1%.And lastly, new products in Asia Pacific have grown extraordinarily from EUR 5 million to EUR 8 million, which implies an increase of 52% and now account for 21.9% of sales, increasing its penetration by 330 basis points.This is our regional overview. And now I'd like to turn over to Javier, so he can proceed to explain us our cash flow and net debt performance.

[Javier Hergueta Vázquez, executive]

Thank you, Miguel. I'd like now to share with you, as said, first, our cash flow statement, which as anticipated, is affected by the regulatory changes in some countries due to which we had to advance the payment of certain concepts that account to around EUR 10 million.Departing from the EUR 85 million EBITDA for the period, provisions and other items account for EUR 4 million in line with last year's. Income tax outflows reached EUR 20 million in the period, as well in line with the figure reported last year.And when we look at CapEx, we can see that it has reached EUR 21 million, up from EUR 11 million 1 year ago. The main reason for this being that in 2022, the quarter started in the middle of the Omicron wave, and we decided to take an extra cautious view on investments until we had a clear outlook for the year, which led to an increasing level of CapEx in later quarters.In this 2023, on the other hand, with better visibility, we have started investing on a more stable basis, which we anticipate will likely remain at similar levels for the rest of the year as well as acknowledging the fact that our Cash Today solutions demand has continued to grow customer CapEx.Changes in working capital account for EUR 32 million, which is EUR 4 million more than 1 year ago, which is very reasonable taking into account that we've had to finance the continuous strong organic growth of the business, which has been significantly higher than in the same period of 2022.With this, after the close to EUR 10 million extraordinary advance payments, we reached a free cash flow of EUR 8 million, down from EUR 70 million 1 year ago. However, as we have explained, taking into account a more linear projected CapEx expenditure, the financing of the increase of our business, and the exceptional regulatory-driven adjustments, we are very proud of the cash flow generating ability in these first 3 months of the year.Below free cash flow, interest payments account for EUR 6 million and deferred M&A-related payments from acquisitions reached EUR 8 million.Next, the execution of our shareholder retribution scheme accounts for EUR 13 million, EUR 10 million of which are related to the dividend distributed that will total EUR 40 million in the year, 33% more than in the prior year. And the remaining EUR 3 million are due to the purchase of treasury stock as agreed in the general shareholder meeting that took place last year and by which the share buyback program was to be extended until the end of 2023.The others line, which is driven mainly by customer certifications that tend to net over time has had a negative impact of EUR 25 million, down from EUR 42 million 1 year ago. Taking all these items into consideration, our total net cash flow reached EUR 44 million outflow.If we look at the graph on the right-hand side of the page, we can see that our total net debt reached EUR 777 million, meaning an increase of EUR 48 million on the debt we had at the end of 2022 and completely in line with the seasonality pattern and the growth of the business.I would like to underline that our net financial position at the end of the first 3 months of 2023 accounted to EUR 568 million, which is pretty much the same or EUR 1 million lower to the one we had 1 year ago. This reflects our prudent debt management.Deferred payments due to M&A activity accounted to EUR 126 million, IFRS related debts at EUR 111 million and treasury stock totaled EUR 29 million.In terms of total net debt to EBITDA on a trailing 12-month basis, we are at 2.1x, a clear 0.3x lower than the ratio we shared 1 year ago, proving again our strict financial discipline.With this, I would like to turn to Page 8. Where to conclude, I want to underline the continuous improvement of our business while we constantly deliver our commitment to transforming the company. As I said earlier, we've posted a strong increase of sales of 16.2%, backed on organic growth of close to 30%. We have been able to reach an EBITDA margin that has grown by 9.2% versus the one achieved 1 year ago, and that represents 12.5% of sales.We have had a very good performance regarding transformation by which new products have grown by 41% or EUR 39 million in absolute terms and now represent 28.1% of sales. Cash flow, always important to us, has reached a level of EUR 8 million taking into consideration a more uniform CapEx investment than the one we carried on in 2022, the impact of EUR 10 million of extraordinary advanced payments due to regulatory changes in some jurisdictions and the financing of the already mentioned strong organic growth.And lastly, while driving our financials, we continue to be firm on our commitment to our ESG strategy as proven in this period by, on one side, the renewal of our Emission Offset Plan and on the other, by the establishment of clear ESG targets for the company's management.With this being said, I would like to thank you for your attention, and I will be pleased now to open the Q&A session.

[Operator]

[Operator Instructions] We will now take the first question, it comes from the line of Miguel Gonzalez Toquero from JB Capital Markets.

[Miguel González Toquero, analyst]

I got on 3. The first one on Argentina. We have seen a few weeks ago, a very aggressive depreciation of the blue dollar, which is obviously affecting the economic situation. And I believe with the election this year, this trend could continue. So I wonder if you could provide some visibility on how the performance in Argentina has been this quarter? And what's your expectation for the year? And how this could affect the whole group?Secondly, penetration of new products. You mentioned that increased like 4% compared to last year, which I believe it too help for some margin improvement. But the reality is that we haven't seen this improvement yet and margins in below the low part of the range you gave in the Capital Markets Day. So where will you see margins for this year? I mean, so we assume margins more in the low end of the guidance range you gave you in the Capital Markets Day? Or do you think you can improve throughout the year?And lastly, and I don't know if I missed it in the presentation, but you registered EUR 10 million negative impact from some regulatory changes. Is that a one-off or do you expect further impact in the year?

[Javier Hergueta Vázquez, executive]

Miguel, thank you for your questions. Starting with the first one on Argentina. We feel that the context in Argentina is uncertain because of the elections in the second half of the year. But nevertheless, it is a very good context for our business.I mean, we're seeing the monetary issuance in all-time high, inflation keeps being very high, and it's a context where it is key the experience and the quality of our management team. So we've been managing in this type of context for over 20 years on a successful manner. And this is thanks to our team in the region.We don't really expect a major devaluation throughout the year because this is an election year, as you pointed out. So we feel that this should help a minor effect into the FX than the one we've seen in the recent weeks.The performance of the business is really good. I mean we are doing our job properly in the pass-through of the price increases. And as I said, the context is good and the management is very experienced in these types of situations. So going forward, we would expect this good trend to move ahead throughout the rest of the year.In relation to the second question about new products and the impact it might have in terms of margins, I want to clarify the following when referring to margins, which is, I think, is important for all of us to bear in mind. If we excluded the impact from the seasonality of the Forex business from the hyperinflationary accounting, we would already be seeing an improvement in margins in Q1. So that's a fact that has already happened.On top of that, when we look at the rest of the year, when we look ahead of us, we should have a positive impact coming not only from the traditional seasonality of our core business, but also a reverse effect from the Forex business. So the same way the seasonality is now driving the margin, it should be pumping it up in the coming quarters. So overall, we are quite positive on that one.And on top of that, as you were mentioning, the new products are increasing their contribution and also increasing their profitability. So they're also playing a role on it.So all in all, on a run rate basis, and we will expect to be in the Capital Markets Day guidance within that 14% to 16% rate. And on top of that, and this is an extra, if you want. We have the potential deconsolidation of the Australian business, which should be also helping the margins on a recurring basis going forward. So we're quite positive on the Capital Markets Day guidance being met because of all the reasons that we just mentioned.And third, related to the EUR 10 million one-off, it is just due to a change in the regulatory landscape regarding some of the ongoing payments. I mean -- so some of the payments we have to do have been shortened in term. So that is something that has happened just at once in Q1, and there shouldn't be any additional impact going forward coming from them.

[Operator]

We will now take the next question. It comes from the line of Enrique Yaguez from Bestinver.

[Enrique Yáguez Avilés, analyst]

Just 3 questions. The first one is regarding the merger agreement with Armaguard. Could you provide an update about how is going the process, the time frame and the visibility on this regard? It will be appreciated.Second, in terms of cash flow, the negative impact of minus EUR 25 million in the line of others, just to check if it is related with the cash certification to [indiscernible]. And if that is the case, should we assume that after the merger agreement with Armaguard will be completed this volatility from this concept should be radically reduced?And the last question is regarding the CapEx. Do we extend the increase the CapEx in this quarter this is related to client CapEx for the cash today and you already mentioned it?

[Javier Hergueta Vázquez, executive]

Thank you for your 3 questions. On the first one on Australia, just to give you a heads up on where we are right now. I think we -- as we always say, we don't want to speculate too much on this. The ACCC who is the antitrust authority in Australia, is still doing their job. They're in the final phase of it. So we are collaborating with them as much as we can, but we still have to wait for a final outcome on it.But we are very positive on it. So we have a positive stand because we firmly believe the case is very solid. And this is the best option for the industry as a whole. So we are quite positive on it. And right now, we are expecting a final outcome in Q2. And then after that, we should be, assuming it is positive, completing the transaction early Q3. That's the most updated picture that we have on the table right now.In terms of the others, in the cash flow, which is EUR 25 million. Yes, as you're correctly pointing out, it has to do mainly with the temporary cut off from the cash certifications. And you're also right that after the consolidation of the Australian business on a recurring basis, we should have no further volatility coming from this effect in the others in our cash flow.In relation to CapEx, which was your third question, the client CapEx is growing year-on-year around 30% to 40% more or less, which is quite in line with the growth we are experiencing in our total installed base of Cash Today devices, which is the main component of our client CapEx. So that, I think, gives you a good flavor of the good shape that the Cash Today business is immersing, which we expect to be going forward in the coming quarters as well.

[Operator]

We will now take the next question. It comes from the line of Francisco Ruiz from BNP Paribas Exane.

[Francisco Ruiz, analyst]

I have 3 questions too. The first one is, given The Change is a -- it's a new business for us, if you could give us a little bit more clarity on the impact on this in the margin. You said that have contributed to around 5% of sales. Could you give us the seasonality impact and how much it has contributed to this quarter?The second question is on cash. I mean, seasonally the free cash flow has been lower this quarter. But you said that it's going to improve in the coming quarters. So probably your deleverage will be -- will continue.I have heard from the parent company that there is a restriction in terms of M&A in the future in order to deleverage the whole group, how it could be seen under the perspective of Prosegur Cash? I mean will you stop M&A? Will you remunerate more the shareholders? What you are going to do with the cash at the end of the day?And last but not least, you have started the conference call saying that this result, despite the seasonality, is in line with the consensus for the year-end. What -- could you give us the data that you have for consensus for this year?

[Javier Hergueta Vázquez, executive]

Thank you for your time and questions. In relation to The Change Group acquisition, just as a summary from what we said, when we closed the transaction, Change's -- the FX business all in all for us should be EUR 100-plus million business in terms of revenue, with margins being in line or slightly above the group average margins.Right now, what we are seeing is that despite the seasonal pattern of the business, I mean the contribution in terms of revenues is in line with that, and we also expect the margins to be in that range. As of today, of course, I mean they're not yet there in Q1, because of the seasonality, but they are doing some around mid-single-digit margins. So all in all, when it comes back to the drop in the margin that you've seen, the seasonality of The Change Group business should explain you more or less 2/3 of the margin drop in the quarter.In relation to the cash, in terms of M&A, I mean, there's no restriction probably speaking from our side. I mean, so we keep having an active spend on M&A, and we have opportunities in our pipeline. Having said that, I think we also mentioned that last time we spoke there should be some activity, but we don't expect any really major transaction happening. So there might be some M&A throughout the year, but probably nothing too disruptive, I would say.And in terms of shareholder remuneration, you know that as of today, we have paid half of the dividend that was approved back in December, which totals EUR 40 million in the year. That is 33% more than 1 year ago. And also, we are executing the share repurchase agreement, which was extended back in December. So now the total value of the program is EUR 25 million, and that's been executed more or less around 70% of it.So both things together have a combined yield as of today of around 5.5%, overall. You know that shareholder remuneration is at the forefront of our strategies, a very strong commitment from the moment of the IPO onwards, and that will be the case going forward.I think it's hard to say, I mean, which will be the next decisions in terms of shareholder remuneration because it's something that the governing bodies of the company will have to take in due course, which will happen far from now. But the principle of this strong commitment with the shareholder remuneration is firm and valid.And then in terms of consensus that you were asking for, I think that what we have compiled right now is sales a bit over the EUR 2 billion, with EBITDA around the EUR 280 million figure. That's what we think that on a normalized FX scenario should be repeatable. And we are quite comfortable with that, as we mentioned earlier in the presentation with the view that we have for the coming quarters right now.

[Operator]

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

[Alvaro Lenze Julia, analyst]

The first one is just to clarify, you have indicated that Change has had a, I assume, EBITDA margin of 5%, that would be up roughly EUR 1 million of contribution. That means that your EBITDA in euro terms, excluding M&A, has increased by roughly 7%. I wanted to know if you are seeing any margin pressure on a local basis, given that your euro revenues in LatAm have increased more than 10% in Europe, also more than 10% and in Asia Pacific, they have increased over 20%. So I don't know if all your regions are growing at double-digit rates in euro terms, excluding M&A? How come your EBITDA is only growing at mid-to-high single digits?

[Javier Hergueta Vázquez, executive]

Seeing the numbers on Change Group coming more or less as you're pointing out. So we said 5% operating margin. So it's around the EUR 1 million figure that you have in mind. So when it comes to the performance, excluding the M&A, what we have is an improvement in the profitability in all regions. So we are seeing better LatAm country-by-country basis. I mean, so locally, we are seeing an increase in profitability in the region.We are also seeing a better performance in Europe and also better performance in terms of Asia. Of course, I mean, the numbers that you're pointing out are on euros, I mean that 7% growth. So that explains part of why there's a gap between that 20% that you were mentioning and the performance in euro terms. But we are seeing a very good development in terms of profitability region by region on a local basis as you were asking for. So I can confirm that, that is the case all across the different geographies.

[Alvaro Lenze Julia, analyst]

But then how come your EBITDA is not growing at double, is it due to maybe, I don't know if it's Argentina that in euro terms is falling so much that it offsets the margin improvement everywhere else? Or -- because if you were actually growing your margins in every region, it's not reasonable that your EBITDA grows less than sales. It should at least grow at the same rate as your slowest growing region. And if your slowest-growing region is Latin America, it should be growing at double digits.

[Javier Hergueta Vázquez, executive]

Yes. As we were saying before, if you exclude the seasonality of the Forex business, so you take it out and then you take also the hyperinflation, the margin in the quarter has improved versus last year. So in terms of sales, we are growing 16% or over 16% in euro terms. And you have an underlying improvement in margins that makes you arise to higher growth in EBITDA because of the margin increase than what you have in sales.There's still some costs related to the M&A activity and some other things there that could help us improve even more. But just by taking out the Forex and the hyperinflation, the margin is already improving. But you cannot see that because of the 2 elements that we just mentioned.

[Alvaro Lenze Julia, analyst]

And another question. I don't know if you mentioned this, and I didn't catch it. But can you break down the net financial cost between actual interests and the impacts of FX? And how should we think about FX going forward in the financial result line?

[Javier Hergueta Vázquez, executive]

Yes. I think that information is in the filing that we reported today, so happy to disclose that for you. So when we look at pure financial cost, if you want, what we see out of the EUR 24 million is roughly EUR 10 million on that one. The increase year-on-year has to do part of it with The Change Group acquisition, which creates more M&A-related costs and more IFRS-related costs. And the rest has to do with the revaluation of the deferred payments and other liabilities in our balance sheet. So that explains the increase year-over-year in that specific line.And the rest, the other EUR 40 million is coming from the FX spend. And the way to see that going forward is that it is affected by nonrecurring items to a big extent. And then a significant part of that is noncash.And so when you look at it in the information that we disclosed in the filing today, you'll see that a big portion of that has to do with hyperinflationary accounting as well, which explains basically most of the delta year-on-year on the financial cost. So that is something that is nonrecurring in nature and that shouldn't be extrapolated going forward. And I think that should be the basis for understanding the future evolution of it in the rest of the quarters.

[Operator]

We will now take the next question. It comes from the line of Manuel Lorente from Mirabaud.

[Manuel Lorente, analyst]

My first question is on revenue indications for Latin American business for the second quarter. In the sense that in the first quarter, you have delivered a solid underlying growth offset by FX headwinds. But it's also fair to say that comps were easier on EUR 277 million. And there is a ramp-up on those comps. Q2 last year, you made EUR 324 million, which is actually below what you have reported on the first quarter. So it's another double-digit growth for the second quarter standalone, the right way to see the evolution of the business on this area? Or how we [ modelize ] going forward?

[Javier Hergueta Vázquez, executive]

Manuel, I think there's been a bit of a cutoff in the noise. I'm not sure we capture properly the question. Could you just summarize it?

[Manuel Lorente, analyst]

Yes. Basically, I was wondering regarding is that double-digit growth in Latin America, its valid for the second quarter given the fact that comps are getting tougher. You reported EUR 277 million in Q1 and in Q2 last year was already EUR 324 million.

[Javier Hergueta Vázquez, executive]

Yes. Got it now. Well, I would say that from an organic growth perspective, we feel that the business is performing very strongly. So in fact, there's an acceleration from previous quarters. So we are at 36.6% organic growth in Latin America, and we expect that good trend to move forward. Then when it comes to growth in euros, I mean, it's an old FX, and we don't have the crystal ball there, so it's hard to say how it will look like in terms of euros. But what we can say is that we feel the business is performing by strongly from an organic perspective.

[Manuel Lorente, analyst]

So do you believe that 36% organic is sustainable?

[Javier Hergueta Vázquez, executive]

We feel that it's very strong. I mean, I don't know if it will be 36% higher or lower, but it's really strong.

[Manuel Lorente, analyst]

And another question. You stated that EBITDA consensus of EUR 280 million. If you multiply the EUR 60 million reported in the first quarter, you reached well below that level. So that improvement throughout the year is a combination of higher operational leverage, are you pass through the crisis, the contribution from Change, [ easing ] of FX. Can you elaborate a little bit of this is the case or am I missing something that we should consider?

[Javier Hergueta Vázquez, executive]

Sure. I think we mentioned that before. So that's a combination of factors. I mean, there's seasonality typically in our core business. So we typically generate higher margins in later quarters and lower in the first quarter. But on top of that, you have the seasonal nature of the Forex business, which has the reverse effect in margin. So it is dragging the margin right now in Q1, but it should pump it up in the coming quarters as well. So that is on top of the seasonal nature of our core business.And then we have the new products, which are increasing their contribution so they wait more and more every quarter, and they are also improving their profitability. So that's also another source for EBITDA that helps us and makes us think that we will be in the consensus figure.And I think we also mentioned before that -- on top of that, I mean, we have the potential impacts from the deconsolidation in Australia on a run rate basis, which will for sure be beneficial for the EBITDA as well. But even without that, I mean, we are firmly convinced that we will be in the consensus figure for EBITDA.

[Manuel Lorente, analyst]

Because you have stated that the Change contribution for the whole year will be roughly EUR 100 million?

[Javier Hergueta Vázquez, executive]

We said that in terms of revenues, The Change Group will be around EUR 100 million, 100-plus and that it has operating margins in line or slightly above the group average margins. So that's why we say that if that is the picture on a full year basis, if they are contributing lower margins at the beginning, they should be contributing much higher margins in the second part of the year.

[Manuel Lorente, analyst]

But in terms of revenues, in the first quarter, it has contributed roughly EUR 20 million. So top line speaking, there is no seasonality?

[Javier Hergueta Vázquez, executive]

There is as well because what we're saying is that it will be contributing 100 plus. So it's -- that's more than just 20 times 4. So there's seasonality both in the activity level and the profitability because there's a high operating leverage as well coming from revenue in that business.

[Operator]

There are no further questions on the phone. I would like to hand back over to the speakers for closing remarks.

[Javier Hergueta Vázquez, executive]

All right. So thank you, everyone, for taking the time. You know that our Investor Relations team remains available for any further queries you may have and hope to hear you back again in our Q2 results presentation. Thank you, and goodbye to everyone.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now disconnect.