Prosegur Cash SA

MAD:CASH

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the Prosegur Cash First Quarter 2020 Results Presentation. [Operator Instructions] I must advise you the conference is being recorded today, and I would now like to hand the call over to Pablo De La Morena.

[Pablo De La Morena Arranz, Investor Relations Director]

Thank you. On behalf of all the Prosegur Cash team, we would like to welcome you to our 2020 first quarter results review. We also hope that all of you and your families are safe and healthy in this difficult environment. As customary, this presentation will be led by Javier Hergueta, our Chief Financial Officer, and myself. We estimate it will last around 0.5 hour. And during this time, we will try to address the most significant events that took place during the reference period. At the end of the call, we will open the floor for a Q&A session where we will try to answer any remaining doubts with as much detail as possible. In case we do not get to you -- to all your questions today, we would be pleased to answer those on individual calls with each of you. I wish to thank you all for your attendance and remind you that this presentation is also available via webcast on our new corporate web page. Now before turning the call over to Javier, let me try to address some of the hot topics that are circulating out there in the press or in the media regarding cash usage. First, I would like to emphasize that the value of cash in circulation continued to grow regardless of the degree of economic development of the countries. According to official statistics coming from different central banks, such as the Fed or the ECB, cash demand increased in March and during the first week of April. This phenomenon, which has historically happened during past recessions, could be explained by cash value [ extra ] function and by the fact that it allows a more exhaustive control of personal spending compared to other means of payment. Second, just to remark what different international organizations such as the BIS and public health agencies such as the OMS have already stated regarding the potential COVID viral transmission through bank notes and coins. Scientific evidence suggests that although the virus can survive on surfaces, the probability of transmission via bank notes is low when compared with other frequently touched plastic or stainless steel objects such as debit and credit cards terminals or PINs pads. In this sense, it has been proved that COVID-19 could last up to 3x longer in other surfaces than cash. Third, I would like to mention that the adequate availability of cash is crucial for the functioning of the economy, as Fabio Panetta, Executive Board member of the ECB, reminded us. Even in normal times, 3/4 of consumers' transactions in the Euro area are made in cash. Cash thus remains the dominant mean of payment for consumers and is of fundamental importance for the inclusion of socially vulnerable citizens such as elderly or lower-income groups. In developed country economies like the U.S., cash remains the primary payment method for at least 1/4 of the Americans who are unbanked or underbanked. And this percentage, as you can imagine, is much higher in developing economies.Finally, as a result of the essential role of cash in our economies, just to mention the support it has received from different central banks, as you can see in the slide, which are promoting not only the trust in cash, but also its universal acceptance. Moving forward, today's agenda is as follows. We will start discussing the main highlights of the period. Then, we will review the performance of our different regions. And finally, we'll summarize our financials and make some closing remarks before moving to the Q&A session. I will now turn the call over to Javier, who will cover the most relevant topics today.

[Javier Hergueta Vázquez, Chief Financial Officer]

Thank you, Pablo, and good morning to everyone. Today, we are presenting our 2020 first quarter results, a period negatively impacted by the COVID-19 appearance and a higher-than-initially expected currency devaluation. From an operational point of view, we started suffering the economic effects of the virus in our Asia Pacific operations, moving then to Europe in early March and affecting Latin America by mid-late March. Also, the unfavorable foreign exchange movements have eroded our consolidated results as most of our reported currencies sharply depreciated against the euro during the month of March. As a result, our sales growth in local terms reached 9% in the quarter while our EBITA margin ended in 12.7%. Organic growth remained above the 7% mark while inorganic growth has been partially offset by the deconsolidation of France and Mexico. In addition, the volume reduction resulting from the lockdown measures has penalized our profitability. Both the implications of the COVID-19 pandemic for our business and our response will be analyzed in greater detail in the next slide. We have completed 3 acquisitions in Latin America by the end of February. We have entered Ecuador, a country where cash is deeply rooted in the society, through the acquisition of the leading player in the cash-in-transit market. We have also reinforced our leadership position in traditional business in Brazil and added a small company to our Colombian operations. The total invested amount in these 3 transactions was close to EUR 80 million. Half of it has already been disbursed while the remaining part has been booked as deferred payments, increasing our total net debt position at the end of the quarter. Complementary to our M&A activity, just to mention that we completed our portfolio management strategy initiated a year ago with the divestment of our Mexican operations. New products now. Our new solutions have proven to be more resilient to the COVID-19 pandemic, and their more defensive profile allowed them to perform better in this tough context and keep posting healthy growth rates. By the end of March, new services represented 18.2% of our sales, which is a remarkable increase of 17% versus last year absolute figure. To conclude, let me stress our financial discipline. Our ability to generate cash, combined with a moderate leverage ratio and a more-than-comfortable debt maturity profile, will allow us to navigate this unprecedented time with significant leeway. Analyzing the implications of the COVID-19 pandemic more deeply, we must recognize the enormous effort from all our employees, especially the ones who are in the forefront, ensuring the continuity of our business. Therefore, I would like to strongly emphasize how thankful we are to all of them for their very deep commitment and sacrifice during this difficult time. Although the lack of mobility resulting from the lockdown measures adopted in March has lowered our services from financial institutions and retail businesses, the fact that we have been recognized as an essential service for the society in all of our geographies has assured certain level of activity. This means that our operations, although not at full capacity, were all running and are running consistently, guaranteeing the quality of service to all our customers. As a result, our sales in the month of March dropped 11% as the solid performance of new services and the positive temporary increases in ATMs and essential retail services were not able to fully offset the activity reduction in other verticals of the traditional business. We expect this trend to continue and increase during the second quarter of the year as the lockdown measures have been intensified in most of our footprint. Therefore, we anticipate a trough of sales between 20% and 25% during the months of April and May. From thereon, although it is hard to forecast, we are assuming a gradual recovery of volumes and productivity as the pandemic slows, the different economies reopen, allowing higher mobility and the consumer spending and our efficiency plans unfold. We are closely monitoring the evolution of the crisis and taking several actions to eliminate operational risk and minimize its economic impact in our operations. We have created a dedicated response team that allowed us to quickly react to the impacts derived from the pandemic. We have implemented preventive measures to ensure the health and safety of all of our employees and clients and contingency plans to guarantee the sustainability and maximum quality of our operations at all times. We are following the guidelines issued by the different public health agencies, and we have reinforced our health and safety protocols, increased our investments in protective measures and enabled the telecommuting to protect our employees. We are keeping a fluid dialogue with our customers and been flexible to adapt our operations to their different needs and contingency plans, and all this to guarantee the continuity of all our customer services. We are also cooperating with several governments and local authorities in the communities where we operate to help them to mitigate the effects of the pandemic. Also, during the months of March and April, we have implemented some initiatives to adapt our cost structure to the current activity levels to preserve our cash generation and to protect our balance sheet. Among the first ones, I would highlight the nonrenewal of temporary contracts, the overtime management, the salary and headcount reductions and the downsizing of discretionary expenses. Some of these measures are temporary in nature, allowing us to adapt our cost base to the existing levels of activity, while some others will become structural and will help us to achieve more efficiencies and be better prepared for facing any future challenges and capturing new growth opportunities.Regarding the cash flow generation and balance sheet protection, we are being proactive in managing efficiently our DSO and DPO and prioritizing and postponing CapEx investments. On the other hand, we have also improved our debt maturity profile by extending our Australian syndicated facility to 2023, and we have withdrawn most of our backup facility lines to guarantee our access to liquidity. On top of this, and resulting from the current uncertainty, we are using a scenario-planning approach to ensure our readiness to deploy additional measures if the situation does not evolve as we expected. Before moving to the next slide, let me share with you our belief that as a resilient company, we will emerge stronger from this crisis and better prepared to capture opportunities for new growth and additional earnings. Now let me explain to you why we have this positive view on new opportunities coming up in the world after COVID-19. First, we understand that the company will resume the path of growth and so will consumption. Second, we remain very confident in our footprint, especially in emerging markets, where half of the population is still underbanked. It is not just that in the short time people rely on cash to preserve its wealth or that cash continues to be essential in many places. It is also about the longer-term opportunity that a higher degree of bankarization might represent for us in some countries. And we believe that when this happens, we will be in an unbeatable position to capture it. Third, we believe that the new normal will accelerate the outsourcing trend as our main customers will need to adjust their cost and minimize their asset base to maintain or improve their profitability. Our track record in the new solutions space is very positive, and we believe that we can keep growing both organically and inorganically through further engagement with banks and retailers. Last but not least, just to remind you that in previous recessions, the increase of cash in circulation and the lack of safety and security propelled the demand for our services. Now I will leave the word to Pablo, who will walk you through the different dynamics of our regions.

[Pablo De La Morena Arranz, Investor Relations Director]

Thank you, Javier. In Latin America, our sales reached EUR 272 million, being the result of a double-digit local growth of almost 16% that partially mitigates the negative combined effect of the strong currency depreciation against the euro and the hyperinflationary accounting in Argentina. Organic growth exceeded the 10% mark and was slightly better than the one reported a year ago as most of our countries continued the positive trend shown during the last quarter of 2019 until March when the lockdowns began to impact the normal course of our operations. Inorganic contribution resulting from the M&A activity executed during 2019 and the beginning of 2020 was somewhat above 5%. The execution of the integrations and the synergies associated to the new companies have slowed down as a result of the COVID-19 pandemic. We expect to resume our cruising speed when the situation gets back to normality.Moving to the new products. I would like to point out that our sales increased by 20% versus last year in euro terms, up to EUR 49 million, representing 18.2% of our total Latin American sales, an increase of 360 basis points versus last year. Moving to Europe. Our sales ended in EUR 118 million, a decrease somewhat below the 5% mark, which is mainly explained by the deconsolidation of our French operations. Organic growth in the region remained above 2%, and the comparison versus the previous year was mainly affected by the COVID-19 impact in March. Our new product sales ended in EUR 25 million, representing 21% of our European sales, an increase of 12% versus the figures posted a year ago. Europe's continued to be the region where new solutions have the highest penetration. To conclude the regional summary, let's review our performance in Asia Pacific. Our sales amounted EUR 26 million, an increase of 1% versus a year ago. The positive contribution from the Philippines and Indonesia slightly offset the negative ForEx impact and the evolution of Australia. Also in Australia, the unusual circumstances resulting from the COVID-19 have caused the delay of the tenders that were about to go to the market during the first half of the year. New products increased by 6% in absolute terms, increasing its penetration to 5.5%. And this is in line with our strategy to promote this sort of solutions in the region. This is all regarding the performance of our different regions. I will now hand you over to Javier, who will summarize the financials.

[Javier Hergueta Vázquez, Chief Financial Officer]

Thank you, Pablo. Starting with the top line. Total sales reached EUR 415 million, a 4% less than the previous year. This is the result of a total negative impact of minus 13% coming from the combination of currency depreciation and the effect of applying IAS 29 and 21, partially offset by the contribution of our organic and inorganic growth of 9%. Organic growth remained solid in most of our countries until February, while the inorganic growth has been reduced by the deconsolidation of France and Mexico, as previously explained. On the profitability side, our EBITA margin reached EUR 53 million, representing 12.7% of our sales. This difference in margin was the result of a variety of factors such as the lower volumes resulting from the lockdowns that forced us to restructure our operations; the margin dilution derived from the recent acquired companies; and the sharp devaluation of most of our currencies, especially the Brazilian real, the Colombian, the Uruguayan and the Chilean peso. Below the EBITA line, our financial results posted net expenses of EUR 2 million and were affected by some noncash items. Higher interest expenses coming from deferred payments and FX-related costs were partially offset by higher gains from foreign currency positions. As a result, our net consolidated profit ended the period in EUR 28 million, which represents a margin close to 7%, something remarkable under the current circumstances. Regarding cash generation, let me underline that our free cash flow reached EUR 23 million by the end of March, while our cash conversion ratio remained in line with 2019 figures at 79%. M&A payments reached EUR 30 million versus the EUR 19 million reported a year ago. This figure is a combination of cash outflows from deferred payments and new M&A and cash inflows related to the disposal of our Mexican operations. To conclude, just to point out that CapEx and working capital figures that amounted EUR 16 million and EUR 31 million, respectively, were in line with our traditional seasonality and did not yet reflect the impact of the protective measures we have discussed at the beginning of the presentation. Let me now make some comments regarding our total net debt, which, on top of our net financial position, includes not only the deferred payments coming from former acquisitions and the treasury stock but also the IFRS 16-related debt. As of March 2020, our total net debt amounted to EUR 757 million, resulting in a total net debt-to-last 12-month EBITDA ratio of 1.9x. The higher net financial position and the deferred payments increase resulting from M&A executed in the period explain the gap versus the figures reported at the end of last year. As already mentioned, we feel more than comfortable with our current debt maturity profile as the bulk of our debt is concentrated in 2025 and 2026. In addition, at the end of April, we have lengthened even further our debt average maturity period by extending our Australian syndicated facility to 2023.Before moving to the Q&A, let me make some closing remarks as conclusions. First, I would like to remark our rapid reaction to the COVID-19 pandemic. We have deployed a dedicated response team and shifts the mindset of all the organization in a record time. Therefore, we are confident that with the measures that we have implemented and the positive attitude of all our staff, we will be able to successfully overcome this abnormal situation. Second, I would like to reaffirm our deep commitment with the health and safety of our employees and customers and the quality of our operations. And this commitment, this obligation, is also extended to the communities where we operate. We continue cooperating with different governments and local authorities and allowing them to leverage on our logistics capabilities to minimize the pandemic effects. Finally, our financial prudence, as you can see in our long-term debt profile, has allowed us to focus on the adoption of several measures that will not only reinforce our agility but also will allow us to capture growth opportunities regardless of the future scenario. This is all on my side. Thank you all for the attention, and I will now be pleased to begin with the Q&A session.

[Operator]

[Operator Instructions] Your first question comes from the line of Francisco Ruiz of Exane.

[Francisco Ruiz, Research Analyst]

I have 2 questions. The first one is -- as well as you have given us an idea of the performance of sales between April and May, can you give us an idea of margin evolution, taking into account this measure that you are taking in costs? And also, you could give us an idea of what you expect in terms of working capital and CapEx for the full year.The second question is on Germany. Well, Germany has managed the crisis better than other countries. So could you give us an idea of the performance of this region, both in Q1 and also in April and May, to -- I mean, to realize what could happen in the other regions once the lockout -- lockdown is lifted?

[Javier Hergueta Vázquez, Chief Financial Officer]

In relation to your first question with regards to the April and May margin forecast, you need to take into consideration that is a mix of not only higher sales decline coming from the lockdown measures, which we have been estimating in that 20% to 25% range, but also the fact that the cost initiatives are starting to show their effects because there is some time lag between when we take the decision and when we implement it. So the impact of those will happen or start to happen during the month of April and May. So overall, we still have to see the final outlook for all that. There might be some one-off effects due to the restructuring processes and all that kind of stuff. But so far, what we are seeing is that the business, given the tough context, remains in good shape and generating decent margins in that context. And we'll have a better output when we have the full picture by that time. But so far, we're generating healthy margins and positive free cash flow for that period. In relation to the working capital and CapEx. In terms of the working capital, on the first quarter, it has been affected somehow by the FX. But looking forward, I think we could expect some intra-year impact due to the current context. But when you compare that at year-end period, what we would expect is for it to be somehow normalized. So there will be -- I mean, assuming that there's going to be a recovery in the second half of the year, you should be on a normalized basis at the end of the year. And that consumption being higher or lower than what it was last year will depend on the exact revenue figures for the last months of the year, but that's what we will assume for that. And in terms of the CapEx, I think we should split that into what we call client CapEx and our infrastructure CapEx. In terms of the client CapEx, whatever we will invest will depend directly on the underlying level of activity and level of recovery. On the infrastructure CapEx, which is something that depends more on our decision on that, I think we have a clear target in mind of reduction, which we understand that could be around 50% reduction on that infrastructure part of the CapEx, if you want.And in terms of the evolution in Germany. So far, what we've seen is that the lockdown measures in Germany have not been as strong as they have been in some other parts of Europe. So in that front, there should be -- or you should be viewing it on a less impact from that side. But basically, it's a reduction in the traditional services, which you know that represent the bulk majority of the activity in Germany, where there's more transport and less cash processing. So that's what we've seen, and that's more or less what we are starting to see. Although by the time that the lockdowns are starting to relax, we're perceiving certain improvement in the level of activity.

[Francisco Ruiz, Research Analyst]

And Javier, could you give me an idea of how much is the infrastructure CapEx versus total CapEx, please?

[Javier Hergueta Vázquez, Chief Financial Officer]

Yes. That represents more or less around 60% of our total CapEx based on last year figures.

[Operator]

The next question comes from the line of Miguel González of JB Capital Markets.

[Miguel González Toquero, Analyst]

Three questions on my side. The first one is about the situation in Argentina. I know that from a cash flow perspective, you usually don't repatriate cash in the first quarter. But I just wanted to know if you still have a mechanism in place to repatriate cash during the year and if you expect this situation may deteriorate given the debt renegotiation process. My second question is regarding the measures implemented to combat the COVID-19. As we have seen in the presentation, you took several measures on labor and other costs, but I just wanted to know if you could be more specific about that. If you could give us an indication about what are your forecasts on cost savings from these measures either for the year or the first semester, that will be helpful. And my third question is about the money carriers in the first quarter. I don't know if you could give us an indication of the EV-sales multiple base.

[Javier Hergueta Vázquez, Chief Financial Officer]

In relation to the first question, the situation in Argentina, we would say that up until the pandemic started to show effects, we were under the new government in that context, which was where the business was performing strongly. Now what we're seeing is that Argentina has one of the deepest lockdown measures throughout the world. But even though, again, the business remains strong because you know that cash is -- has been declared -- or cash services have been declared essential services, so that gives us a support on certain level of activity happening at the place. If you look more at the macro environment, what we are seeing right now is that the debt renegotiation process seems to be making some progress. So they have extended the deadlines, which seems to be a good signal with the bondholders, and the IMF is supporting that. And on the other hand, given this pandemic effect, it looks like the government is trying to phase that through some increase in the monetary base that will create additional inflation, so to say. So any of those 2 are positive for our business and highlight our resilient profile in that kind of context. So we would expect that the business will remain strong going forward. In terms of the cash repatriation, you were right. We generally don't repatriate at the beginning of the year. And as we anticipated in previous conference calls, we did not anticipate any need for any cash repatriation until the second part of the year, and that's where we are right now. So we took some local debt last year, and our main effort now in terms of cash deployment is on debt repatriation -- sorry, debt repayment. And moving forward, I mean, there are different alternatives as we've always said, in order to decide what to do with the cash. So different CapEx initiatives, potential investments in different type of assets, local M&A, so on and so forth. And the cash repatriation is always another alternative where you can use the existing ways in the market. So that's what we are looking at right now for the moment where we will have excess cash to decide what to do with it, which will be later in the year. In terms of the measures that we have taken, just to give you some flavor in terms of the labor cost, which represents 50% of our sales, the mix is clearly biased towards direct employees. So that gives us -- or gives you more an idea of the level of flexibility that we can reach. And to give you a flavor, what we can say is that around 1/3 of the total staff is under some kind of initiative right now. So the impact of that, I mean, will depend on the length of the pandemic, and we are trying to be as flexible as we can and try to adapt ourselves as much as possible to the activity levels at all times. And in terms of the other costs, it happens more or less the same. I mean it's hard to say any target or figure because a significant part of that depends on the level of activity. So we are applying measures on fleet. Travel costs are freeze right now, so no third-party services and so on and so forth. But in terms of maintenance, fuel, that kind of stuff, at the end of the day, it's pretty much linked to the level of activity. So we're taking the measures but what we are trying is for that to be, as we said, as flexible as we can. And in terms of the M&A in the quarter, on the 3 transactions that we've made, as we mentioned, that represents an enterprise value investment of around EUR 80 million, more or less. In terms of the embedded multiples, I think it's fair to say that, that is pretty much in line with the onetime sales multiples that we've seen in our M&A activity in the last periods.

[Operator]

[Operator Instructions] Your next question comes from the line of Manuel Lorente of Mirabaud.[Operator Instructions] Your next question comes from the line of [ Flavia Carvalho ] of BBVA.

[Unknown Analyst]

I have a question regarding the dividend. Have you taken any decision on the dividend payment for the rest of the year?

[Javier Hergueta Vázquez, Chief Financial Officer]

In relation to the dividend, as you know, our dividend for this year was approved back in December 2019. Half of it has already been paid, so the 2 tranches out of 4. So it's just 50% of it that is remaining. So on that front, I mean, and given it is -- has already been approved and we are strongly committed to the shareholder retribution (sic) [ distribution ] and there's a commitment that we are going to honor in all cases, we're looking at different alternatives for that remaining 50% to try to optimize the cash flow impact of it, but nothing has been decided yet on that front. But we will be, for sure, honoring the commitment with the shareholder.

[Operator]

Next question comes from the line of Matija Gergolet of Goldman Sachs.

[Matija Gergolet, Equity Analyst]

Three questions from my side. Firstly, in terms of, say, COVID-19 on extra cost and impact on productivity, how do you quantify, say, what has been the increase in costs for you from just additional, say, safety measures, whether it is masks where you have to buy or just -- anyway, just some extra costs in your system? And also, how are you thinking about the COVID-19 social distancing impact in productivity? Has there been any change there? Any substantial change? Secondly, I mean, you commented on general trends like in April -- March, April and May. Could you give us some color about, say, the extreme scenarios that you have had in your -- basically in your countries, i.e., which countries -- or, say, what has been, say, the worst decline that you have seen? And maybe, why do you think that has happened in some of the countries where you are working? And what, on the other hand, has been the lowest decline that you have seen? I think it will be useful for us to understand, compare and contrast. There's clearly a big debate in the market about it and to what extent will cash come back. And then thirdly, just a small thing on the numbers. You mentioned you have made the disposal of your Mexican subsidiary. I just missed the number. For how much was that sold? If you could repeat that, please.

[Javier Hergueta Vázquez, Chief Financial Officer]

On your first question about the COVID impact on additional costs, so we've been making purchases of materials, that kind of stuff, which will be accrued all over the period. But I think you could take as reference that all those things might represent between EUR 1 million to EUR 2 million, roughly speaking, on this procurement for all this kind of stuff and additional costs. On social distancing impacts on productivity, what we would say is that in terms of our operations, we are taking the strongest sanitary measures possible. So we are working under the full respect to all the recommendations from the sanitary authorities. And so far, what we are seeing is that, that is not materially affecting the productivity levels on that side. And even in the cash centers, I mean, we are taking all measures, and I would say that the impact of it is -- in terms of sanitary impact is even less. So we don't really anticipate any material effect coming from that. In terms of the countries that have been most affected by the pandemic, I would say that the hardest lockdowns that we've suffered so far are in Spain. So we think we've seen the worst happening because the volumes are starting to recover now that the lockdown is relaxing. But I would say that in the toughest times, we were around the 40% volume market, if you want, which does not mean sales. It's just volumes. Just take that into consideration. But that was in the strongest part of the lockdown. It's not what we are seeing now where we're seeing a recovery. And in terms of the Mexican transaction. The pricing impact, if you want, or the net debt impact of it will be over EUR 5 million, slightly over the EUR 5 million mark.

[Matija Gergolet, Equity Analyst]

And which countries were the least impacted? I know in terms of Brazil, they didn't have like a proper lockdown or has it somewhere but not everywhere, or Germany. What type of, say, level of declines have you seen there at the peak?

[Javier Hergueta Vázquez, Chief Financial Officer]

Well, there are different lockdown measures in a lot of places. I mean, we are in over 20 countries. So some of them have not even adopted lockdown measures, in Latin America, for instance, Central America so far. So I think we could say that some of them might not even have been impacted by that so far.

[Operator]

Next question comes from the line of Yin Wu of M&G Investments.

[Yin Wu;M&G Investments,Credit Analyst]

Can you hear me, please? Hello?

[Javier Hergueta Vázquez, Chief Financial Officer]

Yes. Hi, we can hear you.

[Yin Wu;M&G Investments,Credit Analyst]

All right. Just really a quick question really. Given that M&A seems to be continuing at the moment, could you maybe give us some indication of how you feel your -- or give some color about your thinking around the credit rating? And just in the near term, are there -- is there any much -- is there very much M&A left in the pipeline that you're considering as well?

[Javier Hergueta Vázquez, Chief Financial Officer]

Well, in terms of the credit rating, I'd say that we are pretty comfortable with where we are right now. So we are -- as we said, we're quite conservative, I mean, on our financial approach. So our long-term debt profile is quite remarkable. And at the same time, we're a strong cash generator. So all in all, makes us feel quite comfortable with the status of our credit rating.So in terms of our M&A pipeline, as you probably know, I mean, we give a guidance -- or our existing guidance on the long term is of investing EUR 50 million to EUR 150 million per year. We are quite comfortable with that target range for the time being. So I would say that yes, there are opportunities in the pipeline, although you might be anticipating some slowdown on that. But there will be, I would say, a greater focus in the opportunities linked to the new normality after the COVID-19 period. So we understand that there will be several outsourcing opportunities, and we are being proactive to try to capture the best ones or in the best terms possible. So that's where our focus will be right now in terms of the M&A going forward right now.

[Operator]

The next question comes from the line of Chirag Vadhia.

[Chirag Vadhia, Research Analyst]

I just wanted to get a bit more of an understanding as to how you're seeing the new normality post COVID in terms of the reopening, cash usage generally and how these trends are expected to move going forward.

[Javier Hergueta Vázquez, Chief Financial Officer]

So in relation to your question about the new normality, so what we would broadly expect when the reopening comes is that our volumes will convert to where they were prior to the lockdowns. In terms of the cash usage, I would say that so far, what we are seeing is that cash in circulation, according to official statistics, has increased, although it's true that we've seen a reduction in volumes directly coming from the lockdown measures. But that reduction in volumes is pretty similar to what we see from official statistics in other payment methods. So the underlying understanding of all that from our perspective is that cash is not losing market share against others. So the moment the reopening intensifies and there's more activity overall in the system, what we would expect is to be where we were prior to the pandemic. That's our view.

[Chirag Vadhia, Research Analyst]

And on social distancing as well, do you see this having any potential impact on maybe route density or the way that you have people in your bands and how that could impact the company?

[Javier Hergueta Vázquez, Chief Financial Officer]

Well, hard to anticipate in all countries what's going to happen. But as we said, I mean, so far, we are adopting the strongest measures and all of the recommendations from the authorities, and we are not seeing any material impact in terms of the productivity. But if there is any change in the recommendations and all that, of course we will be working on that front as well.

[Operator]

Next question comes from the line of Mirabaud.

[Manuel Lorente, Analyst]

Three questions, if I may. The first one is regarding the phasing of the impacts from the COVID throughout the year. You have stated that you're seeing the second quarter volumes dropping by 20% to 25% -- or sorry, revenues dropping 20% to 25%. Is that on a local currency? On a reported terms? And whether you can give us some more granularity between the trends -- different trends between Europe and Latin America. And also on the phasing throughout the year, when you are referring to this gradual recovery for the second half, that means, for example, that at the end of the year, you should expect similar levels then to 4 quarters last year, for example? That was a reasonable assumption. Or this is more, let's say, a best-case scenario? My second question is regarding the -- your repatriation scheme from Argentina throughout the year. Does the event of default of Argentina change? Anything about the technicality of this, I don't know, in terms of further financial expenses of repatriation or to being even more difficult as repatriation? And my final question is on the cash flow statement. It appears you have pretty large EUR 32 million cash outflow in the other line. Can you give us some indication of what is that?

[Javier Hergueta Vázquez, Chief Financial Officer]

Several questions, so we'll take them one by one. On the first one about the sizing of the COVID impact throughout the year, the 20% to 25% reference we're making is in total sales in euro terms, and that's for the months of April and May, not for the whole quarter. I mean if things go as expected, we will anticipate that there should be some improvement throughout the quarter. In terms of the 4 quarter, we would assume that the sales level for that time should be in line with last year assuming this gradual recovery and that by the end of the year, I mean, we are back into normality. So that will be our view on that.In terms of the repatriation scheme, as we said, I mean, is there's nothing on that front right now because there are no repatriation needs from Argentina until the later part of the year. But in terms of your questions about the soft default, we don't see any change from a technical perspective on the options or available options for cash repatriation. In terms of the embedded costs, we will have to see whenever it comes the time because that will depend on the FX, interest rates, so on and so forth. So a lot of moving pieces which are changing every day. But on the back of it, I mean, nothing really changes from a technical perspective. I'm trying to answer your question. And in terms of the last question on the others line on the cash flow, that has to do with some temporary cut-off effects coming from the certification of our cash balances to clients. That's business as usual. It's fully traceable. Nothing new. It's just that we allocated there because we're trying to avoid volatility in our free cash flow. It's basically something that happens every day. So there's a small time lag when we count the money and certificate it to the clients, and that changes every day. That is broadly neutral on a full year basis. It's just that it has seasonal effects because it depends pretty much on the level of activity, so it makes it vary quarter-by-quarter. And also calendar effects, for instance, depending on when Easter comes, it's Q1, Q2, wherever it is, but it's just a very -- cut-off effect, which is neutral on a full year basis. And it's business as usual. Nothing new.

[Operator]

[Operator Instructions] We have no further questions at this time. Please continue.

[Javier Hergueta Vázquez, Chief Financial Officer]

All right. So thank you for attending and taking the time to be here today with us. I hope to speak back to all of you in our Q2 results presentation. In the meantime, we hope that you stay safe. And as you know, our Investor Relations team is available for any further clarifications you may need. So thanks once again for attending and hope to hear you soon again.

[Operator]

That concludes the conference for today. Thank you for participating, you may all disconnect.