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MIL:DOV

Earnings Call Transcript

[Alberto Goretti, executive]

Good morning, and welcome to doValue Q1 2023 Results Conference Call. I'm Alberto Goretti, Head of IR at doValue. And I'm here in Rome today with Manuela Franchi, our newly appointed Group CEO; and Davide Soffietti, Group Deputy CFO. Together, we will cover the main group and market development since the beginning of the year, as well as the financial performance for the first quarter. At the end of the presentation, we will be happy to take any questions that you might have.

Let me now hand over to Manuela to get started.

[Manuela Franchi, executive]

Thank you, Alberto. It's a great pleasure and honor for me to present our first 1Q 2023 results as acting CEO for the doValue Group. As you all know, I've been a key member of the management team of doValue since its IPO, and actively contributed with growth and development over the last few years, both organically and through acquisitions. I also had the privilege of being in constant dialogue with financial analysts and investors, and the regular feedback you have provided to me over the years has been extremely valuable.

I've been recently entrust by the Board to take the role of acting CEO on the back of the departure of Andrea Mangoni, and I feel a huge sense of responsibility as well as excitement in taking on this assignment. I'd like to thank the Board for its trust and I would also like to thank Andrea for his precious mentorship and guidance over the years.

I'm very aware of the challenges and opportunities that are in front of us. You can be assured that I will do my best to provide the group with continuity as well as to accelerate the company development. Taking into account that to the company behind us, and no other changes had happened so all our CEOs and management team is fully committed to our year-end results.

Let's now get started with the presentation. On Page 3, in Q1, the company has delivered results which are in line with our budget. Our performance has been particularly resilient also considering the macro slowdown, as well as some specific external factors that have affected the first 3 months of the year, in particular, in the Hellenic Region and Iberia.

The current inflationary environment, which led also to substantially higher financing costs for both households and SME has had some impact on our collection performance, as common to other players in the industry. This is also compounded by general slowdown in cost activity in Italy after the acceleration in auctions in post-COVID in 2021 and in the first part of '22.

In Spain, the quarter was affected not only by the direct portfolio of boarding, which limits comparability with last year, but also by the costs, which has influenced the recovery activity for 2 of the 3 months of the year. In Cyprus, the election that was held in February had a collateral effect of making foreclosure more visible, which impacted our NPL activity in the country, particularly compensating the strong reactivity.

All in all, in this context, we delivered EUR 101 million of gross revenue and EUR 30 million of EBITDA. The group has also delivered a growth of 42% in cash flow from operation year-on-year, something that we are quite proud of, also considering the seasonality of our business. Net debt has increased in Q1, mainly due to the normal seasonality of our business as well as the higher tax paid in the quarter. But financial leverage remains at the -- in line with the end of the year and much below our target of up to 3x.

Please bear in mind that we have EUR 4 billion of GBV already secured that will be onboarded during 2023 and will further support the revenues for the remainder of the year. Lastly, let me recall you on the excellent performance of the ESG front, with the MSCI ESG rating upgrade to AAA in March.

Moving now to Page 4. The key message here is that we have managed to overcome a few specific market challenges that have affected the quarter and might weigh also on the coming quarters. In general, our geographic diversification has [ sold ] us to weather well some country-specific themes, furtherdemonstrating the value of adding expanded beyond our domestic markets over the years.

In Italy, the market has seen a reduction in auction activity in the last few months, which is a reversal of the post-COVID acceleration when course was through the pile of cases which had accumulated post lockdown. Source activity is now normalized. We have reacted in this environment by improving our internal efficiency and an implemented [indiscernible] at group level in record time, and pursuing a high degree of in-sourcing versus the past.

In Greece, the market environment remains particularly strong, with the country likely to reach investment grade level in the coming quarters. But the regulatory uncertainty around the rule of services in the up-scheme negatively weighted on the first 2 weeks of the year. In addition, elections are going to be held in 2023 in Greece, with the expectation of a material slowdown of cost activity. In this environment, we are executing our planned pipeline of disposal of NPL portfolio on behalf our clients. So all the elements, which are on our control.

In Cyprus, election were held in February and this had a marginal negative effect on the ability to perform foreclosures. Despite all this, in Greece and Cyprus, our REO business continues to perform very well. In Spain, a strike of the courts affected 2 months, and the second wave has already started. In addition, the fact that the majority of the NPL flow from commercial bank services are related to government ICO loans, makes the recovery activity of services more complex than other.

Having said that, in Spain, doValue continues to restructure its business with positive evidence of the turnaround already visible in the month of March and April. Our key clients in Spain continue to appreciate our performance and we are certain that we continue to perform ahead of other services deployed by them.

Moving now to Page 5. In terms of GBV, clearly, the trend year-on-year has been dominated by the offboarding of the SAREB portfolio and some disposal made by our clients. The collection trajectory at group level is actually positive year-on-year, excluding SAREB, strongly supported by the activity in the Hellenic Region as well as productivity improvement deriving from the doTransformation plan.

More in details, our GBV stands at EUR 120 billion at the end of March, flat compared with the end of 2022. Collections stood at EUR 1.1 billion in Q1 '23, a growth of 6%, excluding SAREB. The collection trajectory in Italy has mirrored the trajectory in GBV, despite the deterioration in the auction activity and in general, macro slowdown, which has pushed household and SME towards [ digital ] route as opposed to formidable settlement. In fact, the general increase in financing cost has made a refinancing option less viable in general terms.

In the Hellenic Region, collection outperformed significantly the trajectory of GBV despite the regulatory uncertainty that affected Greece in January and the election held in Cyprus, which have limited the foreclosure activity. In Iberia, the loss of SAREB had a meaningful impact on collection, a factor which was compounded by the court strike. Nevertheless, excluding SAREB, our collection has grown by 3% year-on-year and we continue to be top rated by our clients. This is a result of all the productivity efforts done by the team.

Moving now to Page 6. I wanted to give you an update on doTransformation. As you recall, the program is key for the group on both revenue and cost. The main objective revolves around: first, the ability to extract more revenue per unit of GBV managed; second, announcing productivity to lower cost per GBV managed; third, upgrading the operating model to reduce cost breakeven point; and fourth, strengthening our human capital.

I'm very proud of the stats achieved by this program, which are in line with the expectations. On the cost side, a lot of work is being done to streamline our operations and IT backbone. And on some key [indiscernible], we are very well advanced. For example, our service model has been 95% implemented. We have also completed the rollout of 90% of our applications, and infrastructure and security [indiscernible] is 70% completed. This should already provide an uplift to EBITDA margin by reducing OpEx related operations from 10% to 7% of total already in 2023.

Also, let me remind you that our transformation program is characterized by a balance between centralized operation and local one, thus avoiding duplication of cost and full control of our delivery. In general, we have also been extremely careful and reasonable in planning investments for the doTransformation program, reducing the overall planned expenditure and investment by EUR 10 million compared to the original plan.

Moving to Page 7. The doTransformation program, coupled with the restructuring of our operations in Iberia and an ordinary fee reduction in Italy, has already produced a 20% reduction in OpEx in the last 15 months, of which 15% was achieved in the last 6 months. Clearly, Italy and Iberia are strong components of such reduction, which shows [indiscernible] the respective movements in FTEs. And for Italy partially the release of the FCO provision related to invested share-based remuneration.

The departure of our CEO will continue to build a positive support to our P&L for the first month to come in terms of HR cost. Further cost and [indiscernible] reduction can be expected for the rest of 2023 in all countries due to higher operating efficiencies.

Moving to Page 8. [indiscernible] is the development of very active secondary market for NPL portfolio in Greece. This is something that was already planned at the inception of the HAPS securitization, and it also functions to achieving our collection targets. In particular, we are taking advantage of this also by trying to preserve as much as we can the servicing mandate of disposal.

As you know, we have already been very successful in completing Project Virgo and Project Souq, where we preserve the servicing mandates from yields and [indiscernible], respectively. In fourth Q '22, we also completed Project Frame on behalf of Bain Capital. We are currently in the market with few other trades, such as Heliopolis, Suez and Gemini, which should complete by the end of '23. In addition, the reperforming market transaction are also gaining traction, and we are preparing various portfolio for such trade.

A similar market is expected to develop in Italy and Spain, considering that the bulk of the NPE stock is currently held by investors or securitization vehicles, as opposed to a few years ago when the bulk of the software was still in that balance sheet.

Moving now to Page 9. The pipeline has grown by EUR 6 billion in the last 3 months, currently standing at EUR 58 billion. This is all related to existing NPE portfolio, but not taking into account the very probable increase in NPE production by banks in the coming quarters. It's important to note that the pipeline contains some very large government-sponsored transactions, such as the EUR 12 billion Project GLAM in Italy and the EUR 5 billion Project Ariadne in Greece.

Please note that regarding future NPE production, we have already seen a 17% increase year-on-year on the forward flow, which we received from our banking partners, and believe that this is a signal of increased NPE production already taking place. On the product innovation side, the pipeline has further grown in the last 3 months, now also incorporating some projects on [indiscernible] loans in Italy as well as brokerage fees model in Greece.

All in all, we remain extremely focused on pushing the boundaries of our product offer with the aim of increasing relevance for our clients, broadening our reference market and sustaining our revenues and EBITDA in the medium to long term. This is key for us as the NPL and UTP markets have now reached a certain level of maturity, and we need to continue pursuing additional growth revenues.

To wrap up on ESG on Page 11, there are some details around our retail upgrade by MSCI, which is now rating doValue at AAA since March 2023. We continue to pursue our sustainability plan, working on ESG objectives for 2023 after having successfully completed all our objectives in 2022. The areas of work was, for us, the level of engagement of our employees as well as training for our workforce. In addition, we will carry out, in 2023, a holistic sustainability assessment of all our suppliers in the 3 core countries in which we operate.

Now let me hand over to Davide to cover the financials in more details.

[Davide Soffietti, executive]

Thank you, Manuela, and good morning to all of you. I am Davide Soffietti, Deputy CFO for the group and CFO for the [ Italian ] business. For those that don't know me, I have been with doValue since the beginning of 2016, covering different roles in finance, and was I also part of the team that led the IPO of the company in 2017. I have worked in the financial service industry for more than 20 years, also covering the financial valuation and monitoring of NPL portfolio as well as due diligence process for the acquisition of new portfolios and servicing products.

I have met in person or in video calls some of you during our recent roadshows, and I'm looking forward to work with all of you on regular bases in the coming quarters. So let's get started.

Moving to Page 13, we have here a summary of the financials for the quarter. As already mentioned by Manuela, the quarter was in line with our expectations, and partially affected the normal seasonality of our business, the current market slowdown in Europe and some other exogenous factors. GBV has remained stable since the beginning of the year, while it declined by 21% year-on-year, mainly reflecting the offboarding of SAREB portfolio in the second half of 2022.

Our collection performance year-on-year has proven to be more resilient than the corresponding decline in GBV. In particular, sustained by strong performance in the Hellenic Region in the quarter. Overall, collection stood at EUR 1.1 billion in the first quarter.

In general, given the growing importance of the secondary transaction, we expect the collection profile to become more lasting, and in the case of 2023, more concentrated towards the second half of the year. The collection rate stands at 4.1% as of the end of March, in line with the level reported at the end of 2022.

Gross revenues declined by 23% year-on-year to EUR 101 million, a trend in line with the decline in GBV, which was in good part due to the off-boarding of the SAREB portfolio as well as due to some weakness in the collection performance on NPL portfolios in Italy. As a reminder, the Spanish activity in the first quarter of 2023 was affected also by the court strike, which impacted the whole of the month of February and March.

In general, the operating environment is likely to continue to be affected by these exogenous factors for the rest of the year. That's why we have been extremely proactive in managing our cost base in order to achieve our budget for the quarter. Thanks to that, EBITDA declined in line with gross revenues year-on-year to EUR 30 million, [indiscernible] for risk adjust and the noncash impact of fair value movement drove the net income decline, which, for Q1 '23, is a touch above breakeven.

In terms of financial position, we generated a strong cash flow from operations in Q1. which actually grew by 42% year-on-year, but the impact of taxes paid in the quarter mainly drove our net [ EBITDA ] [indiscernible] compared to the year end 2022. Financial leverage is stable at 2.2x and remains in the low part of our target range of 2 to 3x. As a reminder, we have ample liquidity of more than EUR 250 million, if you take it into account both our cash position as well as the amount of undrawn committed line.

Moving to Page 14. Here, we present the components of forward GBV movement in the first quarter. Forward flows amounted to EUR 900 million, with strong inflows from euro banking risk. Forward flows has increased by 17% year-on-year, which we read as a sign of a new wave for the flows, starting on the back of the macro blowdown experienced in 2022 and still ongoing.

On top of that, in the quarter, we had more than EUR 1.4 billion of new mandates. In particular, the Souq portfolio in Greece, which we now manage on behalf of Intrum, some UTP portfolios in Italy contributed into the Efesto Fund, as well as another midsized mandates in Spain. As already mentioned, collection stood at EUR 1.1 billion in the quarter, and the split between collections and write-off remained in line with leverage at 56% to [ 46% ].

Disposals amounted to EUR 700 million in the quarter and mainly related to Souq portfolio, which was sold on behalf of Cairo I and Cairo II [indiscernible] securitization vehicles. As a reminder, we have already won EUR 4 billion of mandate, which has not yet been onboarded. This will positively contribute to revenues in the latter part of the year. The impact of this relates to 2 projects in the Hellenic Region, Project Sky in Cyprus and Project Frontier II in Greece.

Moving now to Page 15. Here is a more detailed breakdown of our gross revenues by region. Gross revenues declined in aggregate by 23% year-on-year to EUR 101 million. As you can see, the bulk of the decline in gross revenue is related to Iberia, where the off-boarding of the third quarter, coupled with the negative effect of the court strike has resulted in a decline of 56% year-on-year.

In Italy, the trends declined by 20% year-on-year mainly due to a slowdown in the NPL, partially compensated by the growth of our UTP business. Ancillary revenues in Italy declined also by [ 20% ] year-on-year, partially affecting the more lumpy nature of the revenue, [indiscernible] around these activities.

In Hellenic Region, gross revenues declined marginally by 2% year-on-year as strong growth in NPL and REO business were more than compensated by a nominal decline in the [ UTP ] revenues, which, in Q1 '22, were positively impacted by the release of the [indiscernible] provision, thanks to better-than-expected performance. Also activity in Cyprus in Q1 '22 was impacted positively by a specific one-off item deriving from a successful long-term fee negotiation, making the comparison with Q1 '23 more difficult.

We continue to optimize and reduce our outsourcing activity, both leveraging on different portfolio mix post [ SAREB ], with lower relativity as well as in-sourcing some activities in Italy. Outsourcing fees declined both in absolute terms and as a percentage of gross revenue, positively contributing to sustaining our EBITDA margin.

Moving to Page 16. We continue to proactively and effectively manage our cost base, both in terms of personnel costs as well as IT and SG&A. OpEx declined by 20% year-over-year to EUR 62 million. The reduction in cost does not yet match the reduction in revenues, meaning that we still have more work to do in the coming quarter. We are confident that also through our doTransformation program and further [ FTE ] reductions, we will be able to achieve our target cost structure and EBITDA margin.

In terms of HR costs, this declined both in Italy as well in Iberia, in particularly, as we have continued our restructuring cost of SAREB. Personnel cost all increased in the Hellenic Region mainly due to the increase on the back of the onboarding of the Frontier portfolio. Other operating cost declined at different rates across the 4 regions. In particular, in Iberia,, such costs were more than half in Q1 2023 compared to Q1 '22. In Iberia, the doTransformation program is particularly advanced and was boosted by the non-renewal of the SAREB contract.

Moving now to Page 17. EBITDA declined by 23% year-on-year to [ EUR 30 million ], and the reduction of revenues, both, partially compensated by the reduction in outsourcing costs and operating expenses, further demonstrating our ability to timely manage our cost base. As I mentioned, in terms of EBITDA, we landed in line with our 2023 budget. Overall, we are satisfied with these results, also considering the various exogenous factors which negatively impacted our operational environment in the quarter.

The EBITDA decline was most pronounced in Iberia, where the current restructuring plan produced results from the second quarter forward. We do not exclude a further cost optimization in EBITDA in 2023 as the cost structures to meet to adjust to new reality in terms of GBV in the region. In Italy, the contraction in EBITDA was approximately [ EUR 30 million ] year-on-year, while in the Hellenic Region, the contraction was more modest at 8%.

Moving to Page 18. Here, you have a summary of our regional performance on various key metrics. We are particularly satisfied of our production performance in the Hellenic Region at close to EUR 400 million. It's also retracted in the collection rate in the region. All in all, the group collection rate remained stable at 4.1% versus year end. Our EBITDA at group level continues to be strong, [indiscernible] supported by the performance in the Hellenic Region, which made almost 90% of our EBITDA in the quarter.

Moving to Page 19. Net income was affected in the first quarter by decline in EBITDA, a marginal increase in customary provision for risk and charge and the noncash impact of fair value impacts, partially compensated by the reduction in taxes and minorities. Nonrecurring items were equal to 0, above EBITDA and stood at approximately EUR 4 billion below EBITDA, related to the redundancy provision.

Moving to Page 20, we are satisfied with the positive increase in cash flow from operation recorded in Q1 2023. As mentioned by Manuela, we are very proud of this achievement considering the customary seasonality of our business, which normally sees a weaker top line in the first quarter against a general stable cost based throughout the year.

The cash flow from operation generated in Q1 2023 was absorbed by higher taxes, mainly related to the payment schedule adopted in Greece and also the interest costs, which are [indiscernible] over the year. The [indiscernible] of the tax and interest base amounts to [ EUR 25 million ] in Q1 '23, and around close to 90% of our EBITDA minus CapEx.

As mentioned, this is normally the context of the seasonality of our business across the different quarter of the year. We are particularly satisfied with the effort we have made in managing working capital, which in the quarter has absorbed only EUR 1 million of cash. In addition, the debt and other asset and liabilities has normalized to EUR 6 million in the quarter, mainly reflecting lease, redundancy in payments. All in all, the quarter saw approximately EUR 3 million of cash.

Moving to Page 21. Our financial structure remains conservative and sound, with more than EUR 250 million of liquidity, split between EUR 120 million of cash and EUR 150 million of undrawn credit lines. Also, please note, we have never grown our FCF in size, and we are not planning to do so as our operations are fully self-funded and our leverage is low. Also, our next bond maturity is in 2025, which means we do not have to worry for the time being about the overall increase in interest rates.

Our bonds have generally traded better than the sector and of the overall high yield market, a demonstration of [ pertinence ] of our capital-light traded servicing model. Finally, on this point, our current 2025 bond stays at 5% coupon, and secondary trading plus indication from investment banks point towards a possible marked increase by 200 to 250 basis points upon a possible refinancing. Therefore, changing only marginally our weighted average cost of debt.

Financial leverage stood at 2.2x at the end of March, broadly stable compared to the end of December and still at the lower part of our leverage range target of 2 to 3x. Our current financial position allow us to pursue M&A, update our strategy for organic growth as priority.

Thanks for your attention, and let me now hand over to Manuela for final remarks.

[Manuela Franchi, executive]

Wrapping up our presentation. On Page 23, we wanted to provide you with cost reduction we are implementing in order to support our performance in 2023. We are working hard to deliver 2023 in line with our budget, which, as mentioned previously, is broadly in line with the current consensus.

In a nutshell, we expect onboard EUR 4 billion of GBV already secured and this will support revenue generation for '23. In addition, we will continue to execute our sound secondary sales in Greece to match the [ apps ] business plan targets, also with the aim of retaining the servicing mandates. Lastly, we have already initiated some discussions with key investors to renegotiate fees upwards to allocate more fairly the value creation between investor and services.

On the cost side, we will continue insourcing some of the activities traditionally performed by our external network, and we will continue our inorganic cost reduction program in Iberia. In addition, the doTransformation program will soon start with savings in terms of cost related to operation as it did for IT costs. Lastly, as mentioned, we have continued to work on cash conversion from EBITDA in 2023 as demonstrated by the better working capital dynamics achieved already in Q1. We are currently performing in line with our budget, and despite the market headwinds, we are confident of the delivery of the plan for this year.

Thank you very much for your attention. Let's now open the floor to questions.

[Alberto Goretti, executive]

Thank you, Manuela. [Operator Instructions] I think we can take the first question from Simonetta Chiriotti, Mediobanca.

[Simonetta Chiriotti, analyst]

You have mentioned that overall results are in line with the budget. Do you confirm that the budget is to deliver revenues and EBITDA roughly in line with the previous year? And looking at what happened in the first quarter, this means that in the rest of the year, you should deliver some growth on the EBITDA level? So do you think that this is possible considering the level of the assets, especially in Spain?

And remaining on Spain, do you think that the recent acquisition of Haya by Intrum changes the competitive landscape? And do you see room for M&A in that market? Or are you interested in M&A in that market in the coming months?

[Alberto Goretti, executive]

Simonetta, I'll cover the first question. So yes, we are confident that we'll be able to make our budget target for the year, which are roughly in line with consensus in terms of gross revenues and EBITDA. And in particular, in EBITDA, which is probably going to be in line with what we [ predicted ] last year.

As Manuela mentioned, there are several factors that are supporting this assumption. First of all, GBV that we already secured, will be onboarded. This all GBV in the Hellenic Region, so it's good fees and profitability, and to be onboarded mid-2023 will support revenues for the year.

Then as Davide mentioned, the seasonality effect that we usually have has been exacerbated this year by the timing of the disposals that we are planning to do in Greece, meaning that the year will be a bit more backloaded this year compared to previous years. And we are keeping a very strong target of preserving also the servicing markets for the future, which will support also our performance in 2024 and onwards.

On the cost side, as mentioned by Manuela, there's in-sourcing activity and also some in-sourcing that we are doing on the REO side in Spain. And as said, we carry on focusing on personnel costs, both in Iberia and in Italy. And on top of that, there's the doTransformation program, which is progressing very well and we should start to yield tangible results from mid-2023 onwards.

[Manuela Franchi, executive]

On your second question, Simonetta, we don't believe that the transaction announced yesterday is changing the competitive landscape in the sense that it's a consolidation of the interim platform. But vis-a-vis external clients, we have, again, in terms of new contracts, significant market share in terms of potential additions. Also because the team has been focusing on improving the performance on the existing portfolio, and this is obviously the first signal they recognized. Also, the products we are exporting to Spain are unprecedented and are not happening for the other competitors.

So vis-a-vis investor clients, we see a positive trajectory. And vis-a-vis [ bank ] lines, as we have demonstrated in the last 6 months, we have done already pilots with -- and launched projects. So we went beyond the pilot phase with 2 of the other major banks, which are also working with our competitor, but are exiting our competitors. In terms of M&A, yes, we are interested as we were before in potential M&A in the region to add volume to our structure, which can load more volumes as we said.

[Simonetta Chiriotti, analyst]

Another question, if I may. So basically, the trajectory is to reach an EBITDA in line with last year, first quarter -- since first quarter. What about the second quarter, do you think that like a catch-up in profitability will be already visible in the second quarter or everything is postponed to the second part of the year?

[Alberto Goretti, executive]

The only thing that we can say around the second quarter is around the normal seasonality of our business. Our cost structure in terms of HR, but also that this interest rate is pretty much stable across the year, while our revenues are very strong in Q2 and in Q4, normally. So certainly, if you look at the past, it used to be stronger in Q1?

[Manuela Franchi, executive]

Also, considering this year, the effect of the sales, which are more back-end loaded. So probably this effect of a stronger Q4, vis-a-vis the others, is more stronger this year than in the past. But all in all, the normal seasonality applies.

[Alberto Goretti, executive]

Take the next questions from Eleni Ismailou at Axia Ventures.

[Eleni Ismailou, analyst]

Congratulations for the set of results. I just have a couple of questions. So firstly, could you please specify the asset class of the performing loans you see in Greece? And also, what counterparties do you see in secondary deals? Is it like banks or funds?

[Alberto Goretti, executive]

I think we missed your first question. But on the second one, the counterparties are investors. So the trade -- the 3 trade that we did in Greece were coming out of 2 half securitization and 1 portfolio. The 2 half securitization portfolio is going to Intrum and ENEOS. ENEOS is a specialized financial investors, and Intrum you now who they are. And the third one was with [indiscernible].

[Manuela Franchi, executive]

Maybe to address this type of better -- this type of trades in the Greek market. This is not only common to us, it's common to all the services in the market. There have been a lot of apps in the last 3 years, and the investor in this portfolio has been programming already in the business plan presented to the rating agency and to the government some sales during this period. So we are carrying out this transaction as well as others. And the benefit of the sales is both booking and sales fee for the transaction as well as maintaining the services that [indiscernible] to the same level.

[Alberto Goretti, executive]

So maybe, Eleni, you can repeat the first question, that will be helpful.

[Eleni Ismailou, analyst]

Yes. So the first question was whether you could specify the asset class of the performing loans you see in Greece.

[Manuela Franchi, executive]

Yes. In Greece, is mostly obviously the category of the UTP and earlier [indiscernible] loan, where we -- I mean, we're able to propose restructuring solution and new financing -- back these loans to the performing status. As such, they can be sold, booking portfolio and securitization format to banks or investors which are different from the originator.

This type of transaction has been happening usually in Anglo-Saxon world in the past, and the team is trying to replicating this further. But we are having a similar project in Italy for this portfolio, which are in the high part of the nonperforming status, in the sense that they are almost performing, and especially on the more residential books.

[Alberto Goretti, executive]

Okay. I think we can take the next set of questions from Andrea Lisi at Equita.

[Andrea Lisi, analyst]

The first one is on Greece. I see that the collection was quite strong here above last year level, but the revenues were lower, especially servicing revenues. So just to understand here the dynamic, the correlation between collection and the servicing revenues, there is some pressure on fees or there is a mix that has affected there and what we can expect for the rest of the year.

The second is on Spain. You said that you're interested in M&A. But apart from M&A, what can you do to become more profitable in Spain again? Because with this size in terms of GBV, it seems that it's harder to be profitable. And the question about Italy is about the personnel costs that dropped significantly year-on-year. Just to understand a bit better what happened and if it is something that is sustainable. And last one, the level of CapEx we have to spend for the rest of the year, given that in the first quarter, they were really low.

[Alberto Goretti, executive]

Andrea, I will take the first question. The collection in Q1 '23 was supported by the Souq sales, excluding Souq recollection were plus 5%. But as I already mentioned, the [indiscernible] [ 122 ] in the region in Greece, we had a one-off item related to the [indiscernible] increase, that excluding that items, the collection, the revenues are more in line with Q1 2022. These happens, as I mentioned, all [indiscernible] we have the same situation where the first Q 2022, we had the one-off items related to the negotiation we had with one of our key clients that was very successful, and we have advantage to 2022. So excluding that item, the fee revenues will be in line with the past.

[Manuela Franchi, executive]

Just to clarify this last point, basically, we had booked in first Q '22, also the better fees renegotiated for '21. Because the renegotiated -- renegotiation ended the beginning of '22, but it was on the year before.

On the second question on profitability spend. Obviously, when we think we are going to be profitable and this year, this is without M&A. Because our strategy is without M&A. Taking into account that the exit cost of the personnel, which we experienced last year and will complete by first Q will have, during this year, all the running effect. So the fact that almost 200 people, have actually the cost base will have a full effect, obviously, full next year, but a significant one already this year. This is the first factor.

Second factor, the Spanish team has been successful in exploiting and developing all the new systems, which obviously are more efficient one, but also are able to deliver not only lower cost, running costs, but also a higher productivity. In fact, you have seen that already in the first Q, the collection rate at SAREB has increased.

Last, obviously, there is an effort on the general cost to go down. And on the outsourcing costs, most of them were driven by the SAREB contract. By exiting it, there is much more efficiency and less legacy related to the network, which is something the team is working on.

So the profitability of Spain is not driven by M&A, but could be announced by M&A. On the personnel cost in Italy, there are sustainable elements to continue it forward. In the first Q, one element weighted, which is the release of the provisions for the stock component of the [ CEO ] package, but is packaged also some comments to the remuneration policy was considered expenses. And therefore, in the new scenario will be more at market terms. And this will create a running saving that we will bring with us going forward.

On top of that, we will continue to have savings obviously related to the exit program as we are doing efficiencies on the personnel as we continue. On the CapEx side, we have communicated in the plan last -- at the end with the results of 2022, it was EUR 27 million CapEx for 2023. And this is in line with our expectations. So you have seen less in Q1 '23 because taking into account that the deployment of the [ stock ] was a major event, which is changed the way of reporting of all the functions in the group. So the team has been really focusing on that deployment. The first Q results were already on top for all the countries. That's why we load investments in the first Q to focus the team, IT team, the transformation team on these specific efforts, but we confirm our budget for '23.

[Andrea Lisi, analyst]

One last follow-up, if I may, is about free cash flow generation. So if I'm not wrong, you stated that 2022 would have been an year of kind of stabilization, while strong acceleration in 2023. Do you confirm it? Or there is something new there?

[Alberto Goretti, executive]

Yes, we can confirm it. We can also in the first quarter was very positive, it was all absorbed by the tax paid related to the previous year and then interest rates that are quite constant quarter by quarter. So also in Q1, we can confirm that the 2023 will be very positive from a cash flow generation. And we are also working to improve work on the working capital dynamics.

Okay. I see no further question in the queue. So thank you, everyone, and have a good day. Sorry, I think some questions just appeared. Maybe there are some follow-up questions. So let's take the first one from Tim Pedroni at Schroders.

[Timothy Pedroni, analyst]

Can I just ask quickly an update on the forward flow agreements with Santander UniCredit, because I remember they were due to expire in the next couple of years. Just if you can update us there.

And secondly, just a very broad question about whether you guys are considering valuing how to apply Generative AI kind of infrastructure in your business because I suppose you can gain a lot of efficiency by -- in the future years, rolling out that kind of technology? Just understanding if it's something you are considering and whether it be incremental into your efficiency plan, which you're clearly already delivering now?

[Manuela Franchi, executive]

Thanks, Tim. On the forward flow, these are going to finish in more than 2 years, in almost 3 years. And therefore, obviously, this discussion will keep progressing but at a low pace in the sense that there is no pressure from both parties to do it now because it will be an extension and no cost of these contracts. We think given the performance we are having with both our key clients, which is very strong both in Spain and in Italy. Obviously, in Italy on the NPL side, we don't compete with anybody, but they have their internal benchmark. On the Spanish side, we compete with the other 2 services. This gives us confidence that we will lengthen our contracts.

The second point is actually -- and thank you for this question. This is something we are very proud of. The transformation program is not just reducing application and reducing the landscape in terms of complexity and reducing cost. But it's very much innovation. So we did an example in the results of 2022 about text mining, which is only one case, where we track data from files of different nature, and we use them automatically to better collect and to predict. So the forward-looking predictive analytics is something we are extremely focused on at the moment. Because usually, this industry tends to predict using curves based on the past experience, less so on simulation of specific events of the future. So this is something we are working on and we are actually doing some proof of concept already in both in Italy and Spain.

On the second side, we think that, obviously, our data are a source of strength and wealth that we should use in a different way. And in that sense and in a more powerful way, not only for the internal activity as we said, to improve collection, but also the product for clients. Here, the effort has been to standardize, homogenize and use in a systematic way the data. And this is driving the projects around the data blocks [ form ] in Italy, the data warehouse and the enterprise data warehouse, which is the group one, where all the local data will be aggregated and used for this purpose.

[Timothy Pedroni, analyst]

Understood. Can I just ask a follow-up on the outsourcing costs. Just generally, is it fair to assume that the more you move from NPLs towards earlier years in UTP, the share of outsourcing cost can be reduced because basically, the outsourcing cost are more linked to [ courts ] sort of activities and exercises? Or it's not really the case, it's just -- it doesn't matter in the lines that you're working on in terms of allocating outsourcing costs versus your ability to insource?

[Manuela Franchi, executive]

If we didn't have extra capacity, which we create through the investment in a T&D operating efficiencies, I would agree with you. In the sense that, obviously, the UTP products are less -- use less outsourcing and are more done internally, also because there is more complex work to be done by the asset manager on the restructuring side.

Nonetheless, we are reducing our outsourcing costs on the traditional business, both NPL and REO, because we can use internal capacity of the asset managers which we free up, unless they exit, to do the activities that are done outside. So don't think about outsourcing as only [ lowest ] activity, but also broking and other type of professionals like similar to internal asset manager, but with some specialization, which we use outside, which when the internal ones are free, we can bring inside.

[Alberto Goretti, executive]

We can take a question from Filippo Prini at Kepler.

[Filippo Prini, analyst]

Just one question. Next to the confirmation of budget on EBITDA for this year. Are you confirming also the growth of the unit per share of 20% for this year?

[Alberto Goretti, executive]

I think that, that is part of our business plan target. It was one of the very clear pillars of the business plan. So we paid EUR 0.50 late 2021. We paid [ EUR 0.50 ] late 2022. And there's no reason to doubt that we're going to pay the EUR 0.72 for 2023. And this is further underpinned by the fact that we are working a lot on the cash flow conversion side in order to improve cash generation at the end of the year.

I think there's a follow-up question from Simonetta Chiriotti at Mediobanca.

[Simonetta Chiriotti, analyst]

A couple of follow-up questions. First, related to your last answer. Do you think that the buyback could make more sense with the [indiscernible] -- your assets to growing dividends? And the second question is on the 2 large contracts that could be awarded in the coming months, so GLAM and Ariadne. Could you give us an update of where we stand and when this will be awarded to market players?

[Manuela Franchi, executive]

Yes. On the first point, it's obviously a lever we will consider because we strongly believe that the current share price is undervalued. So -- and this was based on -- off of our business plan consideration. On the second 2, we have 2 different stories for the different projects. On the GLAM side, this is a project which has been approved by EU, has been discussed with the banks, the portfolio has been identified, which is quite sizable. And now I think the government is waiting to finalize the approvals.

I think it's also very much linked to the confirmation of the current CEO of AMCO, which was sponsoring this project, and was really the driver behind this project. And you know the renewal of the Board, as for all many of the state-owned companies is around this time, this month or the next month.

On Ariadne, I think -- we think that the process will start after the elections. Because obviously, it's a portfolio state-owned somehow through PQH, which is a vehicle created by the government for the [indiscernible] bankruptcy in Greece. And once the political situation is stabilized, they will kickstart.

Obviously, you know that on Ariadne, we have done a lot of work last year. We did final bids. So the process will probably be faster this year, although they will probably be splitting the portfolios at least in 2 parts to make it more interesting for more investors.

[Alberto Goretti, executive]

Okay. We see no further questions. So thanks a lot for your attention, and have a good afternoon. Bye-bye.