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Earnings Call Transcript

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the doValue Financial Results as of March 31, 2020, Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Fabio Ruffini, Investor Relator of doValue. Please go ahead, sir.

[Fabio Ruffini, executive]

Good morning, everyone. Thanks for joining the conference call on our first quarter 2020 results. As usual, attending the call are management team of doValue: Mr. Andrea Mangoni, CEO of the group; and Ms. Manuela Franchi, CFO. We will begin with a few key messages for the quarter and then follow with a more detailed review of the financials before beginning with the Q&A session.

With this, I hand it over to Andrea. Thank you.

[Andrea Mangoni, executive]

Thank you, Fabio, and good morning, everyone. Today's conference call takes place in a positive yet only transitional period of coping with COVID. In most of Europe, restriction to economic activity are starting to reduce to transition to a more normal workflow. Our results show growth in earnings and cash flow because of the Altamira integration, positive organic performance in Italy and deep cost cutting to address the economic plan.

Complex credit management dealing with large secured corporate position, the focus of doValue, relies heavily on the judicial system and on an ecosystem of services which include public land registries, notaries and real estate brokers. All of this has been distracted progressively since the end of February, before the complete lockdown and is only starting to slowly reopen in all jurisdiction. We stayed safe and operational, working 100% from remote. Collections continued to benefit from the backlog of existing procedure and cash held in court from all their auctions and rulings, but the ability of initiating new legal actions is more limited. There was a limited impact in the first quarter, which is seasonally less relevant, and we expect most of the impact to be in Q2, in line with our peers in the industry. After that, we expect that the extrajudicial activity to recover more rapidly, with business returning to a normalized level of activity between the end of Q3 and Q4.

In this context, we are preserving cash and liquidity by skipping this year's dividend payment. We had implemented a company-wide cost-saving plan, already producing result in terms of growing the cash position month after month. This will allow us to emerge stronger from the temporary external shock and really to help our clients invest in the next market cycle for loans in real estate asset.

Not all credit servicer, we believe, will come out of this moment in the same shape. The divide between sound and risky business models will likely increase.

In short, we would like to leave you with 3 main messages today. The first quarter was operationally solid with growth brought by the integration with Altamira, 1 new investor mandate won and a positive organic performance in Italy, the most severely hit market by coronavirus. We are responding to the crisis by cutting costs, safeguarding the company's balance sheet and building a cash position. We have more than EUR 170 million cash in hand plus EUR 75 million under uncommitted lines and only about EUR 90 million debt payment coming from the next 12 months, even after the closing of FPS.

Lastly, the strategic relevance of the FPS acquisition for us is confirmed. And in just few days, we expect to be able to finalize the acquisition. Our clients are all ready to help us grow and develop the Greek business, and we are in good shape to be a dominant player in winning the mandates currently in the market.

Turning to Page 2, a few words on our lockdown issues that affected our industry. Part of what you may call our supply chain has been stopped, and we count on a rapid recovery from June onward to try and make up for the lost time as quickly as possible. I must say that the team at doValue has responded very positively to the current circumstances while being extra careful in handling the most difficult cases of borrowers facing unprecedented, difficult times. We are closely monitoring the various measures of the government potentially affecting the industry and the timing at which the various courts will restart pushing forward our case all the way to setting up new auction dates. Despite us being able to work from remote with high effectiveness, it will be important to see the first data points this month and next about how quickly the legal and real estate activity resumes.

What we are seeing so far after April is broadly consistent with a scenario of negative impact being concentrated in the second quarter of the year, and we expect materially better condition from the end of the third quarter.

On Page 3, a market update. As compared with the February earnings call, today, we are seeing another stable approach by most market participants trying to bake the new scenario in their cash flow and return expectations. Against this backdrop, we have observed no cancellations in portfolio sale or securitization processes. Activity continues with the commitment of banks and investors. We are actually seeing the new projects come to the market. Banks are likely seeing a further increase in NPE after the next 12 months and would like to avoid to accumulate additional NPEs on top of an already high level compared to new average in our countries where we operate.

Besides the positive news coming out of Spain with a new EUR 1.1 billion of investor portfolio, confirming the strengths of Altamira in independent servicing, the most positive recent developments come out of Italy. We are competing for several opportunities, nearly all of them with size above the EUR 1 billion mark in the form of GACS securitization, outsourcing opportunities and even structured transaction involving banks' platforms. This is both for NPL and UTP. The current environment is such that these are likely to close before Q3, but they are very important for tax incentives to banks in the form of DTA conversation into tax credit, which only apply for deal closing by year ahead. We stayed positive, and the current mix of deal that we are working on is in line with our recovery expectation. Timing, of course, will be pushed to year-end into 2021.

Greece is another area where a few large projects with important clients will close by year-end. Again, if only 2 of this project will close by Q4, we will be ahead of our expectations of the November 2019 business plan.

On Page 4, a quick comment on the NPE trend that we experienced after the 2008 financial crisis and what it would mean for us today. It's early days, however. This is little taught among banks, analysts and practitioners that the NPE levels are expected to go up. Banks have mostly disposed most of their internal work health unit, and the servicing industry is concentrating. So the new cycle represents an opportunity for doValue. The severity and time concentration of the crisis is unprecedented, with double-digit GDP contraction expected this quarter and is not, although it's not only the financial as the previous crisis. Current relief measures are temporary and short-term, and many sector of economic activity will face a new reality in the post-COVID world.

Banks globally are increasing their loan loss provisions, and recent commentary from the first quarter earnings season in Italy points out -- points to about 10% of the loan books being potentially hit by the new macro scenario based on an analysis of the loan book exposure to sectors such as tourism and retail.

Even with our cautioned scenario of projecting a 1% to 3% growth in the NPL books of Italian banks only, at least EUR 60 billion of new NPEs will be created. Analysts estimate a similar amount in Spain, while various sources point to at least EUR 10 billion to EUR 15 billion extra NPE in Greece. Fewer servicer will emerge stronger from the current crisis, but the market may present an opportunity to provision servicer, especially to doValue, given its independent model and focus on Southern Europe.

Lastly, a comment on our financial position, solid and growing from year-end 2019 into May. This is a structural feature of our business model, a solid client base with no credit risk from profitability, low CapEx and net working capital needs. Besides our cash at hand, we can count on untapped revolving credit facility for EUR 50 million today and some EUR 75 million not needed in our base-case scenario for 2020.

Against this, very limited, the financial commitments, since only the Altamira acquisition facility and not the FPS one, envisage an amortization of debt. So even after the FPS acquisition, we have only the cash-out for about EUR 90 million in the next 12 months. Although we will share a new set of target with the market later in the year, our sensitivity scenario do not translate into a liquidity risk. It will -- even in the worst case. We are acting on every level to make sure the company emerges stronger from this extraordinary moment and can support clients into the next market cycle.

With this, I will leave to Manuela.

[Manuela Franchi, executive]

Thank you, Andrea, and good morning, everyone. The main financial indicators for the quarter show material year-on-year growth coming both from organic performance and the acquisition of Altamira.

On AUM, as we will see in the following slide, we benefit from the onboarding of the Alpha Bank portfolio for EUR 4.3 billion, a threefold growth in forward flow agreements and, most importantly, 1 servicing new agreement in Spain, confirmed as the most established NPE market for investor transactions.

Revenues were up 55% to EUR 84 million, sustained by the larger consolidation perimeter and the positive development of NPL in Italy ex one-off indemnity of last year. NPLs, in general, were more resilient to COVID in the first quarter, where the REO business was more impacted. But we expect it to restart quick after the reopening of the commercial channels in Spain and courts across the countries. The resilience of our revenue is sustained by base fees, among the highest in the industry at 37% of total revenue. The cost base grew only as a result of the acquisition, but it's actually lower in organic terms, as we will detail later on. We are tackling every cost line with extraordinary measures in order to reduce such amount. EBITDA was up 21% to EUR 19.5 million, where higher G&A, as expected, resulted in a net result which is at breakeven.

Cash flow generation continue to be sustained and not impacted by the current extraordinary conditions, as we saw with Andrea's comments. In the quarter, there was a positive net working capital move of about EUR 8 million on top of growth in EBITDA. So net debt reduced to EUR 233 million as of March and that we will see later to EUR 200 million at April, thanks to positive working capital dynamics, bringing leverage below 1.2x at April 2020.

Moving to Page 8. We show the change in assets under management. We are currently pleased with having completed the onboarding of a large complex portfolio out of Cyprus, which marks the beginning of a long-term partnership with Eurobank. Also, early 2020, with a negative macro outlook, already produced a spike in forward flows, growing more than 3x year-on-year, an important defensive feature of our business model. Our commercial efforts, moreover, resulted in winning a new portfolio in Spain, which will be onboarded in Q3. That testifies to our ability to be a trusted partner to top investors, who come back to us for every new portfolio they acquire. In particular, this is a EUR 1.1 billion portfolio, which brings an additional EUR 700 million AUM.

Traditionally, we report our AUM with only the actively managed positions. So this new mandate goes on top of our reported figures of EUR 134.8 billion in March. There were no portfolio sales by a client in the quarter, while collections stood at around EUR 900 billion -- sorry EUR 0.9 billion, EUR 900 million. In pro forma terms, the most impacted areas of our business from the lockdown in place were those of real estate sales. There is an inability to close transaction, which is already being lifted. So we expect it to restart fairly quickly from this -- from the end of this quarter.

On Page 9, our updated statistics on the portfolio. These are fairly in line with the year-end 2019 figures, with the inclusion of the Alpha portfolio pushing up our exposure in the market. Average ticket size, security and diversification are confirmed at the best levels in the industry.

Next on Slide 10. This shows the details of our top line, highlighting the difference between the gross and net revenue as well as the different type of fees. In our business plan, we share 2 goals here: One, to reduce outsourcing fees by insourcing more and to rely more on base fee, providing defense in a time of volatility. On the left side, the growth in outsourcing fee is linked to use of real estate brokers by Altamira, especially when it comes to REO sales. Pro forma for the acquisition, you would see that NPL outsourcing fees are lower by 1%. And we count on doing more on this front this year. Such fees are also linked to collections. So we'll move based on the collection trends.

To the right side, this fee has gone up to 37% of total revenue, and both the volume of our international operations and its higher level of average fee materializes in the P&L. Besides the Altamira contribution, here, the doValue Hellas contract with the full system events provide further support. This feature of our business will be even stronger after the closing of the acquisition of FPS.

Turning to costs on Page 11. We wanted to provide a glimpse into all we are doing to protect the value of bottom line in this environment. The most notable example of our cost-cutting effort is the significant reduction in HR variable costs, down from 14% to only 4% of total HR costs in the quarter. As you know, this is linked to the collections trend primarily. So it's linked to that effect. This shows that despite a new operational leverage, there are important areas of variability within our cost base, and they can be accessed very quickly.

Another area of the saving results from the positive and quick acceptance of the doValue team of remote working. Productivity is very high, and overheads are reduced mainly in terms of IT management costs, real estate costs and other expenses. We are also taking advantage in Italy of governmental support schemes for payroll costs. We reached an agreement with the unions, and our P&L will reap benefits starting from the Q2, while no monetary reduction will have to be suffered by the employees of doValue.

Despite all of this, there is no doubt that the coronavirus resulted in a slowdown of activity starting from March with an impact on our margins. Let us bear in mind, though that on an organic basis, so excluding the one-off indemnity of EUR 8 million booked in Q1 '19, EBITDA margin is actually up from 17% to 23%. Indemnity fees are a typical feature of credit servicing. But last year, in 1 quarter, there was one unusual concentration, as we pointed out in the past. So it's helpful to strip out results from that event.

On Page 12, we show a breakdown of collections and key items by P&L by market. Despite the extra costs of coronavirus being distributed unevenly, with Italy and Spain the most affected, several lockdowns measures were enacted across the board in Southern Europe since March. Today's collections are performing better than what we have assumed in our base case for COVID.

Broadly speaking, in terms of collections, we saw judicial collection being less affected, since cash held by courts from previous closed procedures continued to be distributed or accelerated in distribution. Extrajudicial collections reduced as the court lockdown creates an incentive and ways to close amicably and the REO sales being more difficult due to the impossibility of visiting properties and officially closing transactions. Given this, the slowdown -- rather the postponement of collection into later in the year and 2021 had a moderate impact on our geographies.

At the same time, we acted on the cost base fairly equally across the group, and some markets resulted in EBITDA margin around group average.

On Page 13, we provide more detail around our working capital and net debt. We continue to see cash flow generation coming from net working capital mostly due to structural client shifts from banks to investors. This amounted to EUR 8 million in the first quarter of the year. On this front, I'm happy to confirm that even going into May, we are seeing no sign of stress on payment flows from our clients, which are primarily banks of first rank and SPVs.

On the bottom of the chart, the trend in our net financial position, which is reduced on the back of growing liquidity at EUR 134 million in March and EUR 168 million in April. Using this latest data point, our leverage would down from 1.3x at year-end '19 to 1.2x today. We are running stress scenarios to include severe negative impact from coronavirus from Q2 onward. But under none of those would we run into a liquidity issue, also considering EUR 75 million in available committed revolving credit facilities.

Finally, Slide 14, a closer look at cash flows. We generated EUR 6 million of free cash flow in the order with a slight increase in CapEx linked to IT infrastructure. As you might recall, we had transferred some of the investment from '19 to this year due to the shift in programming of the project. Besides the positive growth in EBITDA and support coming from net working capital, the operating cash flow is temporarily affected by a variety of other items, which are typically gradual swings in the other assets and liabilities. Although we paid, for example, not corporate income taxes, we recorded an increased balance of indirect tax credits while recording a reduced -- a reduction in the April liabilities. HR incentive scheme are also included in this line, as they are below EBITDA in our P&L, so they're added back, and other items, including the balance of accruals and prepayments.

Overall, it's fair to say that especially from a business development and cash flow and cost perspective, the first quarter results are quite solid. The servicing markets will see increasing volume as early as in 2021, and doValue has all the assets in place to capitalize on that.

This concludes my remarks, and we are now ready for your questions. Thank you.

[Operator]

[Operator Instructions] The first question is from Mr. Luigi Tramontana of Banca Akros.

[Luigi Tramontana, analyst]

In fact, I have only one question, which is related to your net financial position. I understand that you don't have any liquidity stress, given that your clients are paying regularly, that you have low cash needs for your operations, and that your EBITDA is still positive. However, at the end of this month, you're going to take up another EUR 250 million, more or less, debt to acquire FPS. My question is, are you ready to make any statement regarding your net debt-to-EBITDA ratio at the end of Q2? Is it going to be above or below 3x? And to manage this ratio, are you eventually negotiating any revision in payments to Eurobank relating to the FPS transaction or negotiating any waiver related to the debt you acquired with Altamira?

[Manuela Franchi, executive]

Thanks, Luigi. On our Q2 expectation, based on base case, we will not trigger the 3x. However, we are in a constant dialogue with our banks also because as you know, our relationship banks are financing the FPS acquisition. So we feel comfortable that if the need comes at a later stage, that will not be an issue to -- on the covenant side, given that, obviously, we have appointed this potential extraordinary case stress test in our conversation already.

[Operator]

The next question is from Borja Ramirez of Citi.

[Borja Ramirez Segura, analyst]

I have one question, if I may. So your collections during the quarter were affected by the lockdown. And I would like to ask if it would be possible to provide more details on the impact of the lockdown on collections by country.

[Manuela Franchi, executive]

Disruption by COVID

[Audio Gap]

February, early March in Northern Italy. So the impact from the quarter was meaningful since most collections are in March, and this relates, as I said, mostly to the Italian part.

As relates the first full month of lockdown, collections are lower than March, and they are -- saw across all countries. So the effect that you asked for -- across countries has been in this quarter less relevant across the 30 days of March for all countries, apart from Italy. On the other side, while on the Italian front there has been pretty significant positive impact on the judicial collection due to the fact that the judges and the courts have asked to distribute cash in the quarter, on Spain, you had the impact of the real estate sales, which has been driving the end of March and April performance more significantly. So you will see that in the second quarter, we expect an impact which will be stronger on Spain rather than Italy due to this additional effect. While on the extrajudicial front, both countries performed pretty similarly. We expect, as said, on the judicial front, Spain to recover more quickly than Italy, given that the opening of the courts in Italy is -- has just started. But the timing is different for each quarter. And therefore, some will have a lower effect. While in Spain, as soon as they reopen, the impact is the same in all places. And there is no differentiation. For Greece, the impact is -- will follow a trend which is probably more similar to the Italian one, where the lockdown has instead started later than in the Italian market. And probably, the recovery will be a little bit faster than the Italian market. Current scenario is broadly in line, so with our base case of an improving trend in the latter part of Q3 into Q4, which will benefit also from the additional flows that you have seen, are pretty significant, especially in the Spanish markets. So overall, there are stronger effects on collection but more positive effects on the flows in Spain for the Q2. While in Italy, it's probably the opposite effect.

[Operator]

The next question is from Andrea Lisi of Equita.

[Andrea Lisi, analyst]

Several question on my side. The first one is on real estate in Spain. You have said that it is difficult obviously to complete sales in this period. I want to ask you, how are you paid for this kind of business? If a percentage of the value of real estate asset you sold or a simple flat flee, on the basis of the fact that you were able to sell because I imagine that also, there will be a drop in the real estate market valuation? So maybe this could have a negative impact. Also, after that, the lockdown is over also -- even because it will be much harder to complete the disposal, I think. And if you can elaborate on which percentage of total Spain revenues the real estate disposals accounts. .

The second question is obviously a comment by you on the rumors that we are reading on newspapers on possibility that the auctions in Italy can be postponed for another, I don't know, 6 months. Obviously, it's not only rumors, but that -- if you can provide a comment on -- in case this will be the reality. And just some another -- some question on the -- what you reported. Can you tell us -- I see that you made EUR 6 million of CapEx in the first quarter. If you can tell us for which are those CapEx -- for which was the reason behind this CapEx and if you can provide a guidance for the full year? And if -- are EUR 15 million D&A per quarter is a reasonable estimate also for the next quarters?

[Manuela Franchi, executive]

Thank you, Andrea. On real estate in Spain, as you can see from a chart on Page 9, the REO business represents 14% of GBV and a smaller percentage of the revenue. So there are 2 effects on this, which we mentioned before. One is, given the costs and another year closed, so obviously, the transfer of the property was not possible. Now that the courts are reopening, transactions which were in the pipeline, which just needed the transfer of the property, will happen. So on that front, the backlog will materialize as soon as the courts are opened. And they are opening as we speak.

Second point is there is the impact of the higher flows. So in the increase in the flows you have seen here, a large portion of it is related to real estate. So the impact of potentially lower prices will partially be offset by the additional volumes.

And last, there was also a reference of -- to the possibility to close transactions because the people were -- didn't have a chance to visit the property. And this is also being lifted as we speak because the lockdown is now to an end. Obviously, these are all the elements that allow us to think positively about how the real estate will progress vis-à-vis with the month of April, which was the main one impacted.

The secondary market in REO in Spain is currently active. There is an investor interest. As you have seen, there was a deal that was closed at the end of March and was focused on a real estate mortgage book. And there are other, around EUR 1 billion REO secondary transaction in the pipeline in the market. This is to close the point on REO in Spain. On the point -- Andrea will comment on the auctions.

[Andrea Mangoni, executive]

On your second question, I think it's important to see the specific of the new degree, in terms of these measures being applicable to all procedure or only to a subset of private individuals and primary residences. In which case, it would have a negligible impact on our operation. In any case, an important point is such measures, if enacted for a prolonged period of time, may create a systemic problems to banks. So we do not think that such a scenario is likely as of today.

[Manuela Franchi, executive]

Regarding your question on CapEx, you might recall that last year, we gave a guidance of around EUR 10 million CapEx due to the transfer of the platform -- of the 2 NPL management platform in Italy to only 1, and we closed with a significantly lower amounts at year-end. We had mentioned that it was not that we canceled projects, but we are keen to do this project because we really believe it's going to add efficiency to our systems. Actually, we want to be ready for the next phase with the system, which are the best one to perform in a very quickly -- quick manner all the activities. So this is just the transfer of what we were supposed to do in 4Q of 2019 to the first part of 2021. It's -- this is also linked to another project that we have mentioned. On the REO development project in Spain, in Italy and in Greece, you know that it was one of the pillar of the business plan that we presented. We are going ahead with that. And actually, by the end of June, we will have the IT platform in place in both countries to be able to start the activity as it comes and be ready to grab the opportunities on the REO side in these countries.

In terms of D&A for the year, we are -- we have enough -- obviously, the D&A is composed by 2 parts. One are the contracts of Altamira for around EUR 40 million amortization, and then there is an additional amount related to the other D&A lines for a total comprehensive of the first loss of around just below EUR 70 million.

[Operator]

The next question is from Andreas Markou of Berenberg.

[Andreas Markou, analyst]

I have a few. The first one is on your collection rates, on your collection rate expectations post the lockdown period. So what do I mean is, when the courts actually open, the real estate market will start again. But I think it's fair to assume that we will see a slowdown in the liquidity in the markets due to the GDP slowdown in general. So what kind of collection rate would you expect in Italy, let's say, for H2 this year and H1 next year? Also, maybe relevant to your historical collection rates going back into the crisis mode?

[Andrea Mangoni, executive]

Considering the current situation, it's a little bit difficult giving you a guidance on our result for year-end in terms of collections and collections rates. But I think impact on the second quarter of the pandemia will be quite negative. And starting from Q3, collections will recover, and we currently foresee collection 25% or 30% down for year-end. In terms of collection rate, I can tell you probably will be around 2% for Italy, sorry.

[Andreas Markou, analyst]

Okay. Maybe just thinking for next year as well because obviously, next year, you won't have the lockdown, well as far as we know, for the moment being. But the real estate market is expected to slow down. So would you expect the collection rate to remain at 2% for next year? Or what's your thought and experience from past collection rates? Will it impact or no?

[Fabio Ruffini, executive]

Yes. So thanks. Our experience is improvised guidance because of -- across the previous 2 downturns in Italy, we saw a fairly limited drop in collections, consistent at the worst point in time with the figure that Andrea shared, and then a fairly rapid recovery. This crisis is a bit different. It's very concentrated, and it's very sudden with very deep drops in GDP. But at the same time -- so this flows into our expectations as well. So we are seeing today 2021 reduced as compared with what we were expecting at the beginning of the year. But let us say, the expectations that we see today for '20 and '21 are broadly consistent with a scenario which is in line with what the market expects today, the progressive recovery coming from the end of Q3, Q4 better but still not where Q4 would have been before COVID, and 2021 not going up previously versus -- as compared with previous expectations. So still, let's say, a very conservative or in a more conservative scenario also for 2021 is what we are seeing today because we want to stay cautious, despite the fact that April and May are in line with our base case, despite the fact that forward flows are going up and despite the fact that the pipeline is very active. So data points that we have today are consistent with our base case, but our base case by design has elements of conservativeness for 2021 as well.

[Andreas Markou, analyst]

Okay. Maybe just moving on to the pipeline. So you mentioned this is quite strong across your geographies. What do you see as risks for several of these deals not closing this year or even next year or even being postponed given the situation?

[Andrea Mangoni, executive]

I think the current pipeline, it's important in terms of numbers of project and size of the project itself. And the impact of the pandemia will be a postponement of the project until the last quarter of this year, not to next year, 2021.

[Manuela Franchi, executive]

Also, we need to recall that, obviously, the banks today benefit from doing transaction this year. So they can absorb a part of the additional loss they would have recorded before due to eventually lower prices they can afford today with the tax benefits. And if they wait, they will lose that. But also, the pile of NPLs will increase significantly. So the approach we are seeing from our clients, if they prefer to rather continue and to settle their transactions and to be prepared for the new NPLs, which are already coming in, rather than leaving the problem there and adding an additional problem on top of the existing one to add. It's true that, obviously, the regulators across Europe have given some relief. But if you look through the measures, they are not waiving some important condition regarding calendar provisioning, so on and so forth, just because they need to protect also the future balance sheet of the banks. And banks cannot go back to the levels they were after the previous crisis.

[Andreas Markou, analyst]

Okay. And now moving to FPS. So you obviously confirmed that you intend to close the deal by end of May. I've been reading that you were initially supposed to close last month, then you've been negotiating with FPS for changing the terms, for example, lengthening the forward flow agreements, the time period and also increasing the base fees you will be receiving from Eurobank. Can you confirm that these discussions are indeed ongoing? And also that you do, in fact, have strong conviction that you will close by the end of this month, given that there have been a couple of delays?

[Manuela Franchi, executive]

Andreas, we always pointed out to May. So apart from what the press might be saying, we are going ahead with our plan, and we are confident that we'll close by the end of May. The transaction will have some better terms than we had anticipated. Obviously, we want to describe these better terms at the time of the announcement we will do at closing and relate to the actual business sense of the SLA, which is the main agreement we sign, rather than to the cost of the transaction. This is because, obviously, in the current environment, we have tried to further safeguard the profitability of the company that we are acquiring in 2020 and '21 but also for the longer term. And then from 2021, as expected, and even before actually, the banks and the system in Greece expects much more flows. So net-net, the impact of the new arrangement should be NPV positive for the overall business. But as I said, we can only give more details at the time of the actual closing.

[Andreas Markou, analyst]

Okay. And a final question from my end is on your working capital change. Can you maybe give us a bit of details as to what happened this quarter?

[Manuela Franchi, executive]

Andreas, if you look to Page 16, the trend in working capital is actually positive of EUR 8 million. And on top of that, we had an additional payments of our clients in the month of April that has further improved the working capital dynamic by -- around an additional EUR 30 million. That's why we said that the net financial position at the end of April was going down to around EUR 200 million from the EUR 230 million at the end of Q1. Maybe you are referring to the other adjustments that are separate from the working capital. Is that what you were referring to?

[Operator]

[Operator Instructions]

[Andreas Markou, analyst]

Yes. Apologies. Yes. So I'm referring to the changes in net working capital, so the EUR 8 million.

[Manuela Franchi, executive]

That is a structural improvement in the sense that, as you have noticed, since '18, we have been moving more from banks to investors. So the improvement of the payment time for the investors is quite significant. The payment cascade is usually every month, while banks pay within 90 days. So shifting 1/3 of the portfolio from banks to investors, we had a 60-40 at the ideal time, and we are now almost the opposite. That really made that difference in the positive net working capital effect.

[Andrea Mangoni, executive]

And Andreas, considering the dynamic of our working capital, the impact of the crisis will be 0, I mean, on our working capital.

[Manuela Franchi, executive]

One of the measures we -- to refer to your previous question, we have been focusing also for the FPS acquisition in the working capital. So you might remember that we said that we had better working capital dynamic than we currently have for banking clients in FPS, and this will be further announced by the additional features we are discussing for the closing.

[Operator]

The next question is from Gurjit Kambo of JPMorgan.

[Gurjit Kambo, analyst]

Just a couple of questions. Firstly, on the outsourcing of functions, I think you indicate that in the second quarter, you're going to be looking at outsourcing some of the IT functions, et cetera. I just want to understand, what sort of magnitude of sort of savings are you expecting? And is there going to be a period where you may have dual costs of running perhaps sort of 2 systems? So that's the first question on the outsourcing of functions.

And then just secondly, on the pricing, and I guess in this sort of competitive environment you're currently seeing, are you seeing any sort of changes in pricing, trying to get a little bit more perhaps aggressive currently with what's going on? So just a little bit on just the broader environment around competition in the markets.

[Manuela Franchi, executive]

On the outsourcing contracts, we were already expecting for 2020 a reduction of the IT running cost due to the migration to 1 platform. Let's say that the outsourcing agreement, we will further announce that saving because it will allow us to reduce even more the IT cost on top of the savings we had indicated there to be adding because of that migration. It's a relevant number for the IT cost. Obviously, in the overall cost base of the group, might not be as significant. But if we focus only on IT cost, it's a relevant number.

[Andrea Mangoni, executive]

And on the pricing, we are not currently under pressure in terms of fee because our perception is the buyer are postponing the transactions because of the difference between bid and ask. But right now, for the pipeline we showed you before, we are not under pressure in terms of fees. The investor are not pushing for having a lower fees, both fixed and variable, right now.

[Operator]

[Operator Instructions] The next question comes from Filippo Prini of Kepler.

[Filippo Prini, analyst]

Two brief question from my side. The first one is on the flow agreement, EUR 1.3 billion in the first quarter this year. Even considering the new perimeter that will add in the coming quarters, could you give an indication of flow agreement throughout the year, if you can expect for even, in next year, also in terms of perimeter, large numbers starting in the region of EUR 3 billion, EUR 4 billion, maybe EUR 5 billion?

And the second question is on the -- what is reported in the newspaper on a possible moratorium -- moratoria on the gaps included in the [ oncoming ] decree, if you have any comment on that for your business?

[Manuela Franchi, executive]

Yes. So on the flow agreements, we are conscious also here. We have seen an impact, an important impact in Q1. We do not feel comfortable in saying that it will be 3x than expected for the full year. Although last year, we closed to a very significant level of new collections. So -- and -- but we pointed out last year that the guidance was a smaller amount for 2020. We expect to do more than the initial guidance that was below last year closing, but we don't feel today to give a specific indication on how much bigger it will be. It depends also on the next quarter and the effect that the banks will take, for example, in Italy on how they reclassify certain assets from performing to nonperforming, so if they take a more conservative, more prudent approach or less prudent approach, based on some freedom they have from the regulator. And this is the main driver, obviously, of '20 eventually. For '21, we have given an indication of the macro size of the additional flows in other markets in -- at the beginning of the presentation. And we think that obviously, proportional to our market share, we might grab that additional amount that can be split between '20 and '21, depending on the banks substituted to record them.

[Andrea Mangoni, executive]

And on the impact of the moratoria, I think we -- current relief measures in place mostly impact primary residences and retail loans and are temporary in nature. We understand these are extraordinary times and are being extra careful in our daily contacts with borrowers. So there may be a temporarily slowdown in some of the forward flows. But after the moratoria is lifted, we expect there will be a significantly higher stock of NPEs, and we can help managing that.

My second point is, I would like to stress that collections are only postponed, not lost. And my last point on this is, we are seeing several credit fund increasing the fundraising over the past few weeks, with the aim of taking advantage of better pricing. Now more than ever, we are the most independent credit servicer, so ideally positioned to take advantage of that. All in all, I do not think the moratoria is or will be relevant problem for doValue.

[Filippo Prini, analyst]

Just if I may, a brief follow-up on the first question, your initial guidance of flow agreement. Am I remembering correct that it was EUR 2 billion?

[Fabio Ruffini, executive]

Yes. Correct. We -- in the business plan, we guided for about EUR 2 billion, which is a reduction as compared with 2019. As you know, given that 2019 had the impact of the Popular inflows from Santander. So yes, we do expect to do better than that in the current environment. Yes, that's right.

[Operator]

[Operator Instructions] Mr. Ruffini, at this time, there are no questions registered.

[Fabio Ruffini, executive]

Okay. I wish to thank you for participating in the call. Have a good rest of the day.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.