Prosegur Cash SA

MAD:CASH

Earnings Call Analysis

Solid Organic Growth Despite Currency Headwinds

The company has delivered robust organic growth, particularly in new products, contributing significantly to improved profitability. Organic growth topped 38%, more than offsetting currency impact on earnings, which was mitigated by strong pricing discipline. Total revenue grew 5.7% to nearly EUR 1.5 billion, with a positive 2.4% growth in euros, excluding M&A, despite currency challenges. EBITDA rose by 5.7% to EUR 206 million, showing notable margin recovery due to operational leverage and new product evolution. New product sales surged by 27% to EUR 445 million, now representing 29.7% of total sales. However, consolidated profit dipped to EUR 63 million due to largely noncash financial results. The APAC region grew by 5%, despite a 6.8% negative impact from the merger of the Australian operation. Lastly, free cash flow was EUR 88 million, down EUR 20 million from the previous year.

Enhanced EBITDA Performance and Margin Recovery

The company witnessed a 5.7% improvement in EBITDA for the first 9 months of 2023, amounting to EUR 206 million, which is 13.7% of sales. This rise is attributed to a combination of operating leverage due to increased volumes and the success of new products, especially in the Forex business.

Strategic Growth Through New Products

New product sales soared by 27%, reaching EUR 445 million, which represents almost 30% of total sales. This growth is backed by the Forex business and a solid performance in other dynamic areas, indicating a robust transformation strategy.

Lower Net Profit Amid Noncash Financial Challenges

The company reported a decline in net consolidated profit to EUR 63 million, 4.2% of sales, primarily due to noncash financial results including hyperinflationary and deferred payments. However, tax expenses reflected an improved rate of 45.3% at EUR 52 million.

Free Cash Flow Decline but Solid Net Financial Position

The company's free cash flow experienced a drop to EUR 88 million, influenced by regulatory items from Q1 and investment in organic growth. Despite this, the net financial position remains strong at EUR 597 million.

Debt to EBITDA and Resilience in Challenging Times

Net debt to EBITDA ratio slightly increased to 2.2x, maintaining strict financial discipline. The company has demonstrated resilience with organic growth of 38.5% across all regions, despite currency fluctuations impacting profitability.

Future Outlook on Shareholder Returns and Inorganic Impacts

While share buyback programs and dividends post-2023 are subject to board decisions, the company upholds a commitment to shareholder remuneration. Mergers and acquisitions are expected to impart minor impacts on future sales reporting.

Clarifications on Interest Charges and Cash Flow

The company clarified that the EUR 72 million P&L interest charges include noncash items such as hyperinflationary accounting, IFRS 16 charges, and deferred payment charges related to inorganic growth. These account for the difference in cash flow interest payments.

Expanding Forex and Integration Initiatives

With the ForEx business in Australia remaining under the company's management, alongside ongoing operations in the Philippines and Indonesia, the business is strategically poised for consolidation. Additionally, the company anticipates post-2024 stability in cash flow statements following restructuring efforts.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Prosegur Cash Q3 2023 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 Bandrés, Head of IR. Please go ahead.

[Miguel Ángel Bandrés Gutiérrez, executive]

Good morning to everyone, and thank you very much for dialing into today's meeting. I want to welcome you to our 2023 Q3 results review to be led by our CFO, Javier Hergueta and myself. The presentation is scheduled to take 30 minutes or we will share the main events occurred in the first 9 months as well as the leverage behind the performance of our company.

Of course, we will start to review our main financials on our key results by begin. After the presentation, we will open a Q&A session, where we will address the questions you might have. Should we not get to respond 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.

To begin with and before passing on to Javier, I'd like to highlight several recent events and news regarding the world of cash that can give us an idea of some important developments around it. The topics covered go from a credit card failure in Uruguay to the ECB position on cash acceptance, the use of cash in Colombia or guarding a new and growing cyber scam.

Turning now to Page 2. In the first piece of news we can read from El País that the Uruguay's Geocom connection suffered an operational failure affecting more than 10,000 credit card payment transactions, letting cash as the only available method of payment. This is another important example of how important for the correct functioning of the economic activity, cash resilience is.

Moving on to the next news. In this case, from the Spanish Cadena Ser. It has the European Central Bank's attention to begin with the Phase II of the creation of the digital euro. As well, the ECB states that cash will remain the main mean of payment in the foreseeable future. These news underlines the will of the European Central Bank to preserve cash, while offering the digital euro. In the third news, we can read from El Colombiano about a study conducted by the Bank of the Republic of Colombia that found that 78.4% of total transactions in 2022 were accounted for in cash, making cash the most used payment method in the country.

Once again showing the preferred choice of citizens for Cash as they see in attributes that are not replicable in other payment means, in these aspects, amongst others, inclusion ability to manage expenses and control debt or personal data protection. Lastly, on citing Spanish newspaper La Vanguardia, we will learn about carding, a new cyber scam that is very fastly growing. This scam, it's based on the use of different techniques that allow for the theft of bank card data in order to carry out transactions with them.

The security for citizens' assets, as well as, it violation on their personal data, continue to be growing forces behind the support of cash as a mean of payment by multiple individuals across all countries. These news summary gives us a good touch point that ratifies how important cash is in society and have for several reasons, it's constantly supported by both cash users and regulators. Obviously, the support to the use of cash eventually results in our performance.

Now I will share with you today's agenda. First, Javier will review the highlights for the period. And then we'll review our P&L and our transformation strategy. After I'll share key developments by region, and then Javier will retake reviewing our cash flow and our debt evolution before leading 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, Miguel. I would like now to share with you the key points for the period that can be summarized as that of a very significant organic growth with a strong transformation while recovering margins. In a nutshell, organic growth has been very strong levered on both a strong core business and the good performance of new products. These 2 elements have been able to more than offset the impact in our figures due to currency effects.

Particularly new products contribute more and more to both the sales and the profitability of our venture, while overall margins have been consistently improving on the back of the good performance of our business. It's important to underline that net profit is notably affected by devaluation and hyperinflationary accounting that are to a greater extent of non-cash nature. Regarding currency impact, despite negative effects from different currencies, Argentina has had the lion's share. And to this extent, I would like to share some considerations.

First, the country had a 20% devaluation in August and despite such an effect we can see how our operating margins have improved across in the same period because all geographies have performed very strongly in general terms. And second, sudden currency changes are generally corrected over time. From a hyperinflationary accounting point of view in the short to midterm, thanks to the inflation itself that catches up with the valuation minimizing the impact on financial statements. And from a business perspective, in the longer term because our team that has proven historically resilient and successful in all circumstances, has a strong pricing discipline and is able to pass on cost increases to the market catching up with the valuation.

Regarding our net debt position, we see several onetime effects due to Australia, without which we would be seeing an leverage in the period. Going a bit into detail. The first interesting point to highlight is the fact that our total revenue has grown by 5.7% in the first 9 months of a deal. This is backed on a strong organic improvement of our business, climbing over 38% and showing the strength of our underlying business performance. As well, I would like to highlight the fact that the growth in euros, excluding M&A, is positive 2.4% in the period despite adverse currency headwinds, particularly in this last quarter. On the growth front, it is as well relevant to underline that all geographies have shown a solid double-digit organic growth.

Yeah. We move next to our profitability on EBITDA margins, we can see that we have reached a relative level of 13.7% of sales. This figure backed by a remarkable 14.9% in the third quarter, shows an improvement on Q3 2022 stand-alone, which I find particularly important and results in a constant improvement quarter-on-quarter throughout the year, leading to a catch-up in the accumulated figure. This profitability performance is the result of both the continued operating leverage that we have been able to extract on growing volume and the good performance of new businesses, especially a good third quarter outcome for the foreign exchange business.

Looking at new products, which you know are extremely relevant for us as we are sure they best prepare us into the future, they have reached a share of 29.7% of sales. This result in positive acceleration of new products well over 30% in the stand-alone quarter is heavily backed by the very good performance I just mentioned of our ForEx business as well as a constant and sequential improvement of our cash today solutions. Cash generation, which as you know, is very important for us, has totaled EUR 88 million year-to-date. This cash flow shows a constant improvement quarter-on-quarter despite financing strong organic growth of over 38% as we previously mentioned and the continued investment in growing the business through CapEx.

If we look at the third quarter stand-alone, free cash flow generation reaches EUR 53 million, very much in line with that achieved 1 year ago. After all these efforts, our resulting total net-debt over EBITDA stands at 2.2x, well beyond our internal threshold of 2.5x. Lastly, I would like to highlight that starting from September this year, we have completed the merger of our Australian business with Armaguard after this had been approved mid-June. And as well, it is very important to remark the renewal of our BBB stable rating by S&P, which certifies the solvency of our company as recognized by such a relevant firm.

Turning now to Page 4. I will share with you the key highlights from our profit and loss statement. Looking at our top line, we can observe that sales have reached almost EUR 1.5 billion implying an increase of EUR 81 million over the same period a year ago. That is an increase of 5.7% in the period. This growth is based on the solid performance of organic growth totaling 38.5%, which underlines with trust customers, put in our company across all geographies. M&A brings a positive 3.3% additional growth, helping our continuous transformation.

We must as well highlight the headwinds we found in the currency front in all our regions and particularly in Latin America. The total negative effect of currencies amounted to 36.1%. It is important to underline that despite these currency headwinds and netting off the positive effect of M&A, sales in euro terms accounted for a 2.4% positive improvement.

Going down to EBITDA, we see it has grown to EUR 287 million, a 4.5% improvement and reaches a relative level of 19.2% of sales, while depreciation in the period totaled EUR 81 million, a minimum EUR 1 million growth over the EUR 80 million shown last year. EBITDA has improved in the first 9 months of 2023 by 5.7% versus last year amounting to EUR 206 million, which is 13.7% of sales. This shows a very positive recovery of margins quarter-after-quarter, despite the mentioned effects of strong currency headwinds both on the country mix and the hyperinflationary accounting. This margin recovery is based fundamentally on operating leverage on the back of returning volumes as well as on the positive evolution of the new products, especially the ForEx business as the year progresses.

The financial result has reached EUR 72 million, up from EUR 32 million in 2022, driven to a significant extent by noncash items such as the increase of the accounting value of some of the liabilities in our balance sheet due to higher interest rates, higher IFRS 16 and deferred payments charges related to our inorganic activity and hyperinflationary accounting charges. These elements having an [ cash ] impact explained, why in our cash flow statement, interest payments are way lower than in our P&L.

Tax expenses summed EUR 52 million, representing a tax rate of 45.3%, which shows an improvement over past performance. These are results in a net consolidated profit of EUR 63 million, 4.2% of sales, when compared to last year, we see a decline that is driven largely the financial results that are set are mostly of a noncash nature.

Now turning to Page 5. We will review the highlights of our transformation strategy that once again delivers a significant growth, as shown both in absolute terms as well as in the share of sales that new products represent. We can observe total new product sales have reached EUR 445 million, EUR 95 million more than a year ago or a 27% improvement in relative terms. Our transformation and strategy execution continues to deliver. Penetration has improved climbing by 500 basis points in 1 year, and new product sales now account for 29.7% of total sales.

Looking at the third quarter, transformation sales reached another record of EUR 160 million that is 30.9% of total sales. The raise in new products has fundamentally been backed by the mentioned growth of the ForEx business, whose third quarter is the strongest one in the year, a sustainably strong cash today performance in all geographies and a continuously solid performance of CORBAN in Latin America. The growing trust customers deposit on our new product solutions reinforce our strategy and underlines how well positioned we are to face the future of the company with the most of confidence. And last, Miguel, to share our key developments on a regional basis.

[Miguel Ángel Bandrés Gutiérrez, executive]

Thank you very much, Javier. Turning to Page 6. We can first see our KPIs for Latin America. Our largest region, representing 63% of total sales with EUR 941 million. In this region, we see a strong organic sales growth of 50.9% propelled by a combination of a strong volumes in the region resulting from a high level of cash being used period with the effect of inflation, as you all know, has a positive impact on our business as it forces money to be moved faster, and a solid pricing discipline, which helps offsetting the impact of inflation on the cost increases.

On the flip side, currencies have continued to have a relevant negative impact in different countries of the region, making the FX effect reach 52.7%. This effect has been particularly adverse in recent months and M&A had a minor positive impact of 0.1% of total sales. New products have increased by 9% in the period, reaching EUR 286 million and more than netting of the negative impact currencies have on them as well the penetration has reached 30.4% of total sales, implying an improvement in the share of 310 basis points.

Moving on to Europe now. It's weight over total sales is of 30% being our second largest market. Total sales in the region reached EUR 451 million, EUR 89 million more than a year ago, that is a 25% increase. Relevant to Europe is the continuously strong organic growth that has reached 11.1%. This shows that volumes in the region consistently overtake the combined inflation rate, hence underlining the health of the business. As well, inorganic growth built an extra 14.6%, resulting from the change acquisition, strong performance and to a minor extent, the acquisition of WSN that is strengthening our presence in Germany. If we analyze the performance of our transformation strategy for the region, we can see a very significant advancement.

New product sales have doubled in the period as a result of a combination of both the inorganic cash flow related to the ForEx business as well as the very strong organic performance of both the former and that of Cash Today solutions. New products have increased by over 1,100 basis points and now represent almost 30% of total sales, in line with company-wide figures.

Now turning to Asia Pacific. We observed as well a very positive evolution. The region sales represent 7% of the company and reached EUR 106 million after having grown by 5% in euro terms despite having been affected by currency headwinds that are adversely impacted by 7.1%. This growth is sustained by on one side, a remarkable development of organic growth, reaching almost 19%. This growth shows for another quarter yet to come back of the business together with the achievements of our commercial strategy.

And on the inorganic front, we can see a negative impact of 6.8% due to the effect of the successful merge of our Australian operation from September, when we started to count for it under the equity method. This completes the formal process initiated over 1 year ago and that will enable us to provide complete and sustainable solutions to the country going forward.

To achieve that, we are already working in major restructuring and multiple initiatives that will be finalized within the next 9 to 12 months. New product sales reached EUR 24 million in the region, implying a 14.8% growth over the prior year and now representing 22.8% of sales. 200 basis points more than in 2022 and ratifying the resilience of our transformation strategy across all regions.

With this, we completed a regional view, and I'll turn over to Javier, so he can continue to share our financials.

[Javier Hergueta Vázquez, executive]

Thank you, Miguel. I will now review our cash flow and net debt evolution in Page 7. If we commence with the EUR 287 million EBITDA achieved in the period, provisions and other items impact by minus EUR 14 million. Income tax outflows reached a total EUR 50 million in the first 9 months of the year, EUR 21 million less than last year, showing the positive impact of multiple initiatives across together with the effect of advanced payments that took place last year in some geographies.

CapEx reached EUR 73 million, an increase of EUR 24 million from 1 year ago. Here, we can observe on one side, the impact of last year's slow start due to the Omicron period as well as the strong performance of customer CapEx fundamentally due to sustained cash today growth.

This shows our commitment to continue to transform our company and however, we see how the gap has narrowed by EUR 4 million from the EUR 28 million difference year-on-year at the end of the second quarter. Investments in working capital summed EUR 61 million, slightly above last year's figure by EUR 4 million and driven by the financing of our 38.5% organic growth, while implementing a strict and constant discipline to minimize its impact and the impact of FX evolution.

With this, we reached a free cash flow of EUR 88 million with a very positive evolution as the year advances, since 53 million of NIM have been generated in this last third quarter, a figure similar to the same quarter 1 year ago. These results in a EUR 20 million decrease in free cash flow over the EUR 108 million achieved in 2022. However, we must recall that for the entire 2023, we observed the impact of the exceptional regulatory items we carry from the first quarter of the year together with the business organic development financing, the sustained development of cash today and the afford mentioned normalization of CapEx expenditure in a post-Omicron comparison.

All these being accounted for results in a very significant cash performance from which to grow. Below free cash flow, interest payments reached EUR 2 million and deferred M&A-related payments from acquisitions, EUR 19 million. Next, shareholder compensation totals EUR 37 million as a result of combining both EUR 29 million in dividends year-to-date, with an additional EUR 8 million resulting from the execution of our share buyback program. The others line increased to EUR 73 million affected by fundamentally the one-offs in Australia related to the deconsolidation of the existing cash and the funding for further restructuring requirements of the Merge Australian entity. With all the above impacts, total net cash outflow reached EUR 42 million.

Looking at the evolution of our total net debt on the right-hand side of the page, we see it has reached EUR 808 million, which is a EUR 30 million increase over the figure reported 3 months ago and driven by the previously shared reasons. Our net financial position at the end of the third quarter amounted to EUR 597 million. Deferred payments due to M&A totaled EUR 126 million. IFRS-related debt remained at EUR 114 million, while Treasury stock increased by EUR 3 million in the quarter to a total EUR 29 million.

In terms of total net debt to EBITDA on a trailing 12-month basis, we reached 2.2x, a minimum increase of 0.1x after all the impact shared. I'm very much in line with that achieved in the last 5 quarters, proving and a strict financial discipline.

Now I want to bring the presentation to an end before taking any questions. And to that point, I will underline and remind some relevant elements to our environment and performance. The business continues to show its resilience with an underlying organic growth of 38.5%. And once again, showing double-digit organic growth across all geographies. This is particularly important, when we have sustained headwinds, particularly recently on the currency front that the company has been able to more than offset. Just a reminder note on this line is the fact that isolating M&A growth in euro terms expanded by 2.4%.

While looking at profitability, our EBITDA margins have recovered the levels we were at 1 year ago. This is particularly relevant for 2 reasons. First, because we saw a constant improvement quarter-after-quarter with a very strong third quarter stand-alone profitability. And second, because this occurs in an environment that I said has been quite adverse in terms of how currency impact has affected our country mix. We continue at a very strong pace on our transformation effort, presence of which new product sales now account for 29.7% of total revenue. And if we look at the third quarter stand-alone, their share is beyond 30%.

As said earlier, we are particularly happy with the performance of our ForEx acquisition as well as cash today in Corban, the later focused in the LatAm region. Cash flow has reached EUR 53 million in the quarter, taking the year-to-date figure to EUR 88 million. We must recall when comparing this figure with the one reported a year ago that we continue to invest in the organic growth of the business and in customer CapEx fundamentally for cash today.

Of this, whilst we maintain our leverage ratio at 2.2x, well within our internal comfort levels. Lastly, just recall the completion of the merge in Australia enabling us to accelerate the execution of the agreed plan that will transform our company there and its profitability profile in the next 12 months. And last but not least, the renewal of our BBB stable ratio by S&P that underscores the solvency and resiliency of our company.

With this being said, I would like once again to thank you for your attention, and we will be pleased to open the Q&A session.

[Operator]

[Operator Instructions] We will now take the first question. From the line of Enrique Yaguez from Bestinver Securities.

[Enrique Yáguez Avilés, analyst]

[indiscernible]. The first one is regarding shareholder remuneration, capital allocation and the question is if we should expect further share buybacks, when the current program will be over and completed probably at the end of November or December. Or if not, if we should expect an increase in the dividend.

Second, regarding the acquisition announced today in Germany. What is the value of this acquisition and what contribution should we expect, if you see further opportunities in this country going forward, taking into consideration that recently you have acquired several companies in Germany. And finally, I would like to have more details about the process of integration with Armaguard in Australia. I don't know if you could disclose what is the strength of the restructuring that you are implementing in this country, when this restructuring should be over? And what impact should we expect from this business in equity method in a year?

[Unknown Executive]

We'll take the 3 questions one by one. So the first one is related to the shareholder remuneration. In this front, and just say that the current buyback program remains in place until the end of December. And then whatever is going to happen there will depend on decisions at the Board level, which for sure will be, as it has always been the case very sensitive to all the different alternatives in terms of capital allocation. So it's too early to say whether or not there will be another share buyback program and what will happen to the dividend. But what I can definitely highlight here is that there's a various strong and genuine commitment with shareholder remuneration, since the time of the IPO and I think that in the current context, there's a very strong willingness to keep on that pace.

And therefore, whether it is in the form of dividend or in the form of share buybacks, I mean we should be seeing that same trend going forward and an increase in the shareholder remuneration is a reasonable scenario. Second to that, you were asking about the M&A in Germany. The WSN acquisition, I mean it's a deal that will be contributing around EUR 10 million to EUR 15 million in terms of sales. It's important for us especially because it's helping us consolidating our market share in the Northeast part of the country. In terms of value, I mean we've made an acquisition, which is well below the onetime sales that we typically see as an average in the industry.

So it should be quite value-enhancing despite the size of it. And going forward, I don't think there might be much more opportunities in the market. I think that with the acquisitions we've made we have completed well our footprint, and we are happy where we are right now. Nonetheless, if there will be anything else, we will be looking at it, but we're going to wait much more.

And the third one is related to the Armaguard integration. In terms of timing, as you were asking for, I think that the integration plan has just started and it's on track right now. So it should take around 9 to 12 months to fully execute it. And going forward, in terms of impact, I mean, what we will be expecting is that on a run rate basis and once that is executed, it will be providing us with an improvement margins, which could be over the 100 basis points reference. We'll be improving the tax rate as well. So in terms of EPS, it could be accretive by double digit and the same in terms of cash flow. During this 9 to 12 months, it will be impacted by the execution of the restructuring plan itself.

But for the time being, I mean there was a capital gain, a one-off capital gain in transaction, but we've booked a provision on more or less the same amount for the restructuring costs that will take place in the remaining part of 2023. So for 2023, I mean, there shouldn't be any relevant impact on that coming from the equity method because of the provision we booked in 2024, there might still be part of that, I mean, which I think should not be too significant, while we remain executing that, which I said will take 9 to 12 months from now.

[Operator]

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

[Francisco Ruiz, analyst]

I have also 3 questions. The first one is a follow-up on previous question. It's -- could you give us an idea of what is the remaining perimeter of your AOA division? I mean, what we should expect in terms of sales on EBITDA or EBITDA contribution for next year, excluding already Australia. The second question is regarding the interest charges. I mean you commented the fact that they are very high on P&L, very low in cash flow. But the difference is huge. Can you give us an idea of the breakdown on the P&L interest charges in order to have an idea of what is cash and what is noncash.

And last but not least, is on the orders on the cash flow, which is a recurring question. But I think in this case, you have already included the extraordinary items from this -- from the merger in Australia. Could you quantify for us how much of this EUR 73 million comes from this one-off?

[Javier Hergueta Vázquez, executive]

In relation to the first question, what remains in AOA, things that the Australian business will remain under the AOA region, but under the equity method from a consolidation perspective.

So that leaves you a picture for 2024, where you will see some impact from the inorganic perspective in terms of sales in the way we reported coming from the change of consolidation method, but on the organic side of it, as we provide that breakdown, you will see basically the impact is coming from the ForEx business in Australia, which still remains on our side. But also for the remaining countries there, basically Philippines and Indonesia because India is also accounted for under the equity method. So when it comes to EBITDA or EBITDA, the way we reported and you will see the performance of those countries. We were just mentioning plus the impact from the equity method contribution in Australia. So all that will be part of the EBITDA going forward. So I think that clarifies.

Second question on the interest charges and the comparison from P&L to cash flow, I think it's good that we spend a couple of minutes on this one to make sure that you fully understand that. So if we take the P&L charges, which amount to EUR 72 million, I mean there are several components there, part of which are noncash. So we have the impact from the hyperinflationary accounting, which is a noncash item itself. Then we have the ForEx impact, which is noncash as well. Only a portion of that is implicit in the net debt variation, but the remaining portion is noncash impact in all cases. And then the remaining is the pure financial cost.

So out of that financial cost, I mean, there's also a mix of things there. So part of that is IFRS 16 impact, which is included in the cash flow in the provision and other's lines. So it's not in the financial expenses in the cash flow. Part of that is the revaluation of balance sheet items, which is a noncash item itself. And part of that is as well M&A interest, which is either in the M&A caption or in the balance sheet variation of the deferred payments. So when it comes to the cash flow line, it is basically the net of the pure interest cost minus the financial income. And that net position is minus 2, which is what you see in the cash flow. So that makes the whole bridge between the EUR 72 million figure to the minus 2 in the cash flow. So I hope that clarifies. And with regard...

[Francisco Ruiz, analyst]

Javier, on that sense as there are other cash items included in other items like M&A or provision, could you quantify what is cash, what is non-cash out of the 72 we'd probably giving a detail, but...

[Javier Hergueta Vázquez, executive]

Yes, I would say that the pure financial cost is EUR 26 million. I think that is disclosing what we reported to the regulator today. So all these impacts that I'm referring to IFRS and M&A, whatever it is, is out of this 26. So I would say that in any case, all those are of a single-digit figure. So it's going to be around the EUR 5 million for IFRS 16 and another EUR 5 million for M&A, roughly speaking. So that gives you more or less the full background on it.

And then on the other line, okay, you're seeing there EUR 33 million. So as we said, I mean, there are one-offs related to the closing of the transaction in Australia. Without those one-offs, we will be more or less where we were last year, which is around the EUR 30 million figure mark, more or less which has to do with the business usual evolution of the cash certification from clients. So the one-off impact coming from Australia amounts to the difference, let's say, EUR 40 million roughly. And there, 60% of that comes from the deconsolidation or the change in accounting consolidation of the existing cash in Australia and the other 40% refers to the funding of the restructuring plan for Australia.

So all those 73 are composed as we described. But I would like to make a couple of remarks here, which I think are important. So the first one is that this is just an impact coming from the change in the accounting method. So all that cash remains in our Australian subsidiary, which is an important point and only the funding for the restructuring is likely to be consumed going forward as per the execution of the restructuring but as of today, all that cash remains in our Australian subsidiary.

And second, which I think is also good to keep in mind, is that this means that going forward, I mean, for 2024 onwards, we should have no more volatility in the other's caption in the cash flow, which I think will also simplify the reading of our cash flow statements going forward.

[Operator]

We will now take the next question from the line of Alvaro Bernal from Alantra.

[Alvaro Bernal, analyst]

Most of them have been answered already, but I'll elaborate regarding Australia, to some clarification with what you just mentioned. So we can basically extrapolate 40% of one-off going forward and the cash flow impact and the other question is, can you give us some visibility regarding the FX and inflation mix in LatAm for Q4? Thanks.

[Javier Hergueta Vázquez, executive]

Not very sure I understood the first question, but to try to keep it simple, I would say that I mean there's -- when you mean extrapolating, I don't see what you're referring for. If you're referring to the impacts on the full year basis for 2023, those EUR 73 million will be there. And going forward in this line, you should not see anything relevant. So it should be close to 0 from 2024 onwards. And then in relation to the inflation and FX impact, I mean, in LatAm. And I think when we look at it, I mean, it's different if you look at it on a short-term basis than on the longer-term one, I mean.

So I think that, of course, when there are very sharp hikes in the FX on a certain moment in time. I mean, it gives you an unbalanced picture, which, as we said during the presentation, tends to be corrected, both from the accounting perspective on a hyperinflationary basis through the inflation and from the business perspective through our pricing review efforts. But all in all, I mean, if you look at it altogether right now, I mean, what we are seeing is that the organic growth remains very high, but of course, when you look at it in the quarter, it has accelerated because of higher inflation.

So I think it probably hold all of it, I mean, you see this hike distorted in the short term because of the recent hikes we've seen, especially in Argentina. So I think that when you take Argentina out of the equation, which I think makes easier the reading of the numbers. What we're seeing is a strong growth, both in absolute terms and in organic terms. So I think that's a good reading of it.

[Operator]

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

[Enrique Yáguez Avilés, analyst]

Again, Javier, just a follow-up on [indiscernible] question regarding the financial cost. You said that pure financial costs in P&L were roughly EUR 26 million, excluding the ForEx impact, the precautionary impacts and this kind of noncash impact. While in cash flow, there is just an outflow of EUR 2 million. What is the difference between those EUR 26 million of pure financial cost in P&L and the EUR 2 million on cash flow?

[Javier Hergueta Vázquez, executive]

Happy to elaborate on that a bit further. I mean, when you take the EUR 26 million, and there's a mix of things there. So as I mentioned, you have IFRS 16 impact, which is in the region of EUR 5 million, then you have M&A interest as well, which can be around that mark. So around the EUR 5 million and the revaluation of balance sheet items, which is also between EUR 5 million, EUR 6 million, EUR 7 million. All those 3 are more or less on that region. So that leaves you net, let's say, which is composed of pure interest cost and financial income.

And that is what is at the end of the day, what you see in the cash flow thing. So that's the EUR 2 million. So basically, to put it the other way around, I mean, if you take the difference between the 26 and the 2 -- I mean, those 24 that is -- I mean the combined effect of those 3 elements that we were saying the IFRS 16, the revaluation of balance sheet items and the M&A interest, I mean those are all of them between EUR 5 million to EUR 7 million.

[Enrique Yáguez Avilés, analyst]

Okay. Okay. Understood. I thought that the M&A and the IFRS were in pure financial cost. And another question, if I may, in the third quarter, we have seen a sequential improvement in profitability. Where this improvement in profitably comes from Europe, from rest of the world with the consolidation of Australia?

[Javier Hergueta Vázquez, executive]

No, it's coming -- I mean, it's a general trend. So all countries are performing quite strongly on an individual basis. The deconsolidation of Australia, as I said before, I mean, is neutral there because the capital gain has been offset by a provision that we just booked for the restructuring costs. So that is having no impact itself. It's just the pure performance of the businesses. Of course, I mean, the seasonality of the ForEx business also helps in this front in the quarter. But I would say that it's all of the business performing strongly.

[Operator]

We will now take the next question from the line of Miguel Medina from [ Mirabaud ].

[Unknown Analyst]

Apologies if this question was made previously. It's just 2 questions. I'll take them one by one, if you don't mind. Both are related to Australia. Just to make sure that I understand the accounting, in Q3, you have basically consolidated just 2 months of the Australian operations and then because they were the contract was finalized in September, then that was from then on, it's going to be accounted as equity method. Is that right?

[Javier Hergueta Vázquez, executive]

Yes. Correct. So September already was accounted for under the equity method.

[Unknown Analyst]

The other bit, if I look at the balance sheet, the increase in the equity method assets, which shows a delta of roughly EUR 50 million versus December 2022. Is that more or less the value of the 35% stick in the joint venture?

[Javier Hergueta Vázquez, executive]

No, there's a net effect of several things there. I mean so the impact or the valuation of the 35% of the Australian subsidiary is higher than that. So there's a mix of impacts there. So you cannot get that straightforward conclusion.

[Unknown Analyst]

Okay. And then the second question, again, on Australia, just to make sure that I understand the regulatory environment, basically, during 3 years, you were able to increase prices, at the risk cap, which is, I believe, is inflation plus 7% or 7.5%. And then after 3 years, you are totally free to set your pricing policy. Is that correct?

[Javier Hergueta Vázquez, executive]

Yes, that is the case.

[Unknown Analyst]

And the synergies that, obviously, you're going to generate from this restructuring in the coming 9 to 12 months, that those are all for you. The regulator has not imposed any sort of clawback or anything in that sense? So basically, you -- that's all for the operator of the joint venture, and there are no caps on price increases after 3 years.

[Javier Hergueta Vázquez, executive]

Correct.

[Operator]

Thank you. There are no further questions at this time. I would like to hand back over to the speakers for final remarks.

[Javier Hergueta Vázquez, executive]

All right. So thank you all for taking the time and connecting to today's call. If you have any further questions, our Investor Relations team will be more than happy to take them going forward. And in any case, we will see all of you again in the Q4 results presentation. Thank you, and goodbye.

[Operator]

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