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Ladies and gentlemen, thank you for standing by, and welcome to the Worldline Q1 2020 Revenue Conference Call. [Operator Instructions] I must advise that this conference is being recorded today, Thursday, 23rd of April, 2020. And I would now like to hand the conference over to your first speaker today, Chairman and CEO, Gilles Grapinet. Thank you. Please go ahead, sir.
Many thanks, operator. Ladies and gentlemen, good morning. This is Gilles Grapinet speaking. Thank you for attending the Worldline conf call today on our first quarter 2020 revenue which takes place, of course, in the very particular context for all of us and for most of the companies around the world related to the COVID-19 crisis. And let me start, of course, by expressing my hopes that everyone around you on this call could stay safe and healthy over the past months. I'm going to share this presentation, as usual, with Marc-Henri Desportes, our Deputy CEO; and Eric Heurtaux, our group CFO. I will start by commenting the current COVID-19 context and the way Worldline could adapt quickly to it, as well as the highlights of the quarter. Then Eric will develop in detail the revenue performance for Q1 and our updated 2020 objective based on a new COVID-19 economic and sanitary scenario. After Eric, Marc-Henri will take the floor to present the first quarter commercial developments, a focus on the exceptional 2020 action plan put in place to protect our margin and also some interesting first observations regarding recent trends and long-term perspective for cashless payment and the payment industry at large. Finally, I will come back to conclude before starting, as usual, our Q&A session. Moving forward, let me start my presentation by telling you that I am extremely proud that Worldline was able to adapt so fast and so quickly to the new COVID-19 business context. We have activated very early, and actually as soon as February in Europe and January in Asia, our business continuity plan, which enabled us to ramp up very efficiently remote working rates as the crisis developed. As a result, today, we are in a position to report that we could ensure everywhere flawless operations while quasi-100% of our staff could safely work from home. In addition, Worldline sales force could stay fully mobilized and could remain in constant dialogue with our customers. Also as many of you know, we conducted during this very bizarre period an intense communication with the investors community from mid-March in order to provide as much clarity as possible on this new and unforeseen business context at the moment where you had legitimately many questions around its impact on the payment industry. Lastly, as Marc-Henri will comment later in detail, we have immediately initiated strong actions to adapt our cost base to these new business perspectives. I would like to share some highlights about the Q1 and first highlight of the quarter is our revenue performance, of course. As a matter of fact, the start of the year was very strong for Worldline in January and February. It is why, despite the March impact of the confinement policies in our key countries, you can see that the Q1 organic revenue growth could stay in positive territory at plus 2%. This also illustrates the resilience of our business model, thanks notably to the growth of our Financial Services division, which has partially offset the strong mechanical slowdown in Merchant Services activities due to the lockdown of the nonessential retail activities, more or less everywhere in Continental Europe. Second highlight is related to the very satisfactory execution of our strategic initiatives. Our fundamental belief here is that the COVID-19 situation is severe but temporary in nature. Consequently, we kept an unchanged focus on the execution of all our elements of our long-term strategy. It is why I'm particularly pleased to report that significant progresses could be made on all fronts, with notably the signature of a new, major, very large long-term outsourcing contract with UniCredit. And with the small bolt-on acquisition of GoPay, a high growth company, which will reinforce our e-com positioning in Central Europe. And talking, of course, about major strategic priorities, we kept an unchanged focus on the preparations for the closing of our acquisition of Ingenico, which we target to finalize during the third quarter, as previously announced. Lastly, given the disruption created by the COVID-19 pandemic to our economies and despite the remaining uncertainties on how we will collectively get back to a fully normalized situation, we have modeled our best visibility as of today on its potential impact on the rest of the year 2020 for our business. Eric will present our underlying assumptions and scenario in more details in a minute. And on this basis, we now expect the 2020 financial performance to be broadly comparable with the one reached in 2019 for revenue, OMDA rate and free cash flow conversion. As I mentioned sooner, the most important priority of the last quarter, beyond protecting the health of our employees, was to progress fast with the Ingenico teams towards the closing of our transaction which is expected during the third quarter of 2020, as communicated previously. In particular, we are particularly happy to have jointly reached many milestones. All regulatory filings or pre-filings for the required transaction approvals with respect to regulatory clearances, foreign investment clearances or antitrust are now completed or under discussion with the regulators, in line with our initial plan. The French social process was successfully conducted and notably, the opinion of Ingenico's worker representative body was received on time. The bridge financing for the acquisition has also been completed. In parallel, preliminary activities to prepare for the integration have now started, in line with the Worldline day 1 readiness product methodology that you know very well, supported by a joint governance process in place, involving senior management from both companies. Before leaving the floor to Eric for the financial part of the presentation, I would like also to highlight our very concrete and numerous actions toward merchants that we initiated right at the start of the confinement and store lockdown measures in our key geographies. Somehow, this is part of our social responsibility program to support our societies in these challenging times and in particular, to support our merchant communities when they suffer. It's why we mobilized ourself very quickly to see how we could help them as quickly as possible, and in particular, the most impacted merchants to adapt their businesses to this unexpected crisis. Our sales forces did engage immediately to propose, for example, mobile point-of-sale terminals to enable them to do home deliveries. We also gave them access to many -- and we also gave access to many small merchants to new and very fast online payment solutions so they could at least initiate, for some of them, some e-com activities and maintain a part of their revenue flows. We also actively participated in many national campaigns with the banks most of the time to upgrade contactless payment limits everywhere. We also launched, as you can see on the screen, nationwide advertising campaigns to promote contactless payment and safer ways to pay. Last, in many cases, we also offered specific temporary pricing schemes to small merchants to support them when they are totally out of operation during the confinement periods. Thank you for your attention. And Eric, the floor is now yours.
Thank you, Gilles, and good morning to all of you. As usual, let me start by presenting to you the Q1 2019 numbers I will use in my presentation. As you know, we measure our performance at constant scope and foreign exchange rates. There was no change in scope this quarter compared with Q1 last year. Foreign exchange rate effects, that you can read on the FX column, correspond mainly to the appreciation of the Swiss franc and the depreciation of the Argentinian peso. This brings constant scope revenue for Q1 2019 at EUR 563.7 million. Before going into further detail by global business line, just an overview of our revenue performance for the first quarter. Worldline revenue has been growing by 2% organically in Q1 to reach EUR 574.8 million, supported by a strong performance of the first 2 months of the quarter, continuing on the positive trends of end of 2019. All 3 business lines contributed to the revenue growth. No major change in our revenue distribution, with Merchant Services at 46% of total revenue, followed by Financial Services at 39% and Mobility & e-Transactional Services at 15%. Let me now detail these numbers by global business line. Starting by Merchant Services, for which revenue reached EUR 267.2 million in Q1, improving organically by EUR 1 million or 0.4%. After a double-digit growth recorded during the first 2 months of the year, the business line was impacted from March by the overall lockdown measures on nonessential retail adopted in all key geographies where the group operates. In that context, growth for Merchant Payment Services grew slightly during the first quarter, which is a result of contradictory developments. On the one hand, as you know, we have observed an unprecedented reduction in transaction volumes in sectors massively impacted by the confinement measures such as tourism, event-related businesses, restaurants, petrol retail and general retail. But on the other hand, this decrease of transaction was nonetheless partly compensated by much higher transaction volumes with food retailers and drugstores and more online transactions for businesses not impacted by COVID-19, such as online entertainment and goods delivery. Overall, acquiring transaction volume has decreased by more than 30% since mid-March compared with the same period last year. Regarding payment terminals. Sales slightly decreased but were overall resilient, thanks to higher demand for mobile POS needed for deliveries and to a newly launched VALINA unattended payment terminal. Lastly, Merchant Digital Services grew slightly as well, partly thanks to higher business with French retailers on click-and-drive and click-and-collect types of solutions. Let me comment now on our payment processing activities. Revenue in Financial Services reached EUR 223 million, improving organically by EUR 8.8 million or 4.1%. As expected, this business line showed an overall resilience in the current economic context, thanks to recurring payment flows to newly signed large outsourcing contracts and to ongoing project activity with banks and financial institutions. Specifically, revenue for account payments was not affected by COVID-19 and recorded a solid double-digit growth primarily fueled by higher account-based payment transactions, and the ramp-up of large contracts such as Commerzbank and the newly announced large long-term outsourcing contract with UniCredit in Germany and Austria. Not only digital banking was unaffected negatively by the current crisis develop -- environment, but on top benefited from the strong authentication requests for e-commerce transactions, coupled with higher volumes on e-brokerage. Issuing processing revenue was quasi stable. It has been slightly impacted by COVID-19, but these impacts were offset by the ramp-up of OP contract in Finland, by the slight increase in number of cards managed and by the 8% growth in number of issuing transactions, starting to reflect very early signal of stronger usage of cards for low-value and contactless payments. Lastly, as expected, acquiring processing revenue slightly decreased. Indeed, that division was the most impacted by the COVID-19 as number of transactions processed for local acquirers decreased sharply from March. Turning now to MeTS. Revenue in that division reached EUR 84.6 million, improving organically by EUR 1.3 million or 1.6% compared to last year. Trusted digitization revenue grew double digits, thanks to higher business with various governmental entities, notably in France and Latin America. Revenue in e-consumer and mobility declined mostly due to less projects and value-added device resale. E-ticketing revenue remained quasi stable despite being the most impacted by the COVID-19 situation. Indeed, the division suffered from lower ticketing volumes and revenue in the United Kingdom at the very end of the quarter, while benefiting from the continued development of Tap 2 Use contracts and in particular, from the set-up phase of new platforms. Now I would like to comment in the current COVID-19 context, our strong financial liquidity. Indeed, Worldline enjoys excellent short and long-term liquidity position as well as a BBB stable rating from S&P. Please also note that none of our debt instrument is subject to covenant. Let me remind you that end of December last year, the indebtedness of the company was limited to EUR 641 million, corresponding to a 2019 net debt to OMDA leverage ratio below 1.1x. The gross cash position was EUR 500 million, and the commercial paper program was used only for a limited amount of EUR 63 million, which was reimbursed in Q1. The revolving credit facility of EUR 600 million was undrawn and still remains today fully available. Our long-term debt consists in 2 bonds issued in the context of the acquisition of equensWorldline minority interest in 2019, maturing, respectively, in 2024 and 2026. Lastly, regarding the financing of the Ingenico transaction. I am happy to confirm that the bridge financing is secured with a pool of 8 banks, for an amount of up to EUR 2.6 billion and up to a maximum duration of 2 years after expected closing. As a consequence, Worldline is well positioned to face this COVID-19 crisis without any difficulty to expect on its cash situation. Let me now present to you an update on our new 2020 guidance, adapted to the new COVID-19 concept. This new guidance is based on the following post-confinement scenario. During Q2, we anticipate that activities will remain severely restricted in our key geographies with lockdown of nonessential retail and strict confinement and/or social distancing measures maintained during most of the quarter. For H2 2020, we based our scenario on a very gradual lift of government constraints. Concretely, in our modeling, it means that general retail and domestic activity would reopen and would benefit from a progressive increase of domestic payment flows. International travel, tourism and related businesses are anticipated to be very limited during the whole semester. All key convention and events are expected to be postponed to 2021 as well. In no case, we foresee a full return to pre-COVID trends before 2021 at best. In spite of all those restrictions and based on these important hypothesis, we believe that Worldline can achieve a full year 2020 financial performance broadly in line with the one achieved in 2019. In terms of revenue, the group expects for the full year to be flat or slightly decreasing organically. The group expects an OMDA rate on a comparable basis, around 25%, circa the same percentage than 2019. Last, the group targets circa the same cash conversion percentage, free cash flow to OMDA than 2019, excluding Ingenico transaction acquisition costs. Thank you for your attention. Marc-Henri will now comment on the Q1 commercial and operational performance.
Thank you, Eric, and good morning to you all. I will start my presentation by highlighting the growth of some of our key business indicators in Q1 and their evolution during the month of March with the rise of the COVID-related lockdown. As you can see, despite the special context, the Financial Services business line demonstrated a strong resilience with, in particular, strong transaction volumes recorded on numerous platforms. For example, account-to-account transaction which grew by 8% in Q1 and even slightly higher in March, showing that this category of payments is not significantly impacted by government measures. Online payments [indiscernible] with a strong growth of plus 40% altogether for ACS, trusted authentication and wallet transaction in Q1 with activities remaining very well-oriented in March with the number of transactions growing by 31% despite the lockdown measures.In issuing processing, the numbers of cards managed increased slightly, and the overall Q1 volumes grew -- growth was 8% for the quarter despite a decline in March, thanks to a very good start of the year. In Merchant Services, commercial acquiring transaction grew overall by 8%. As Eric said earlier, since the start of the confinement and lockdown measures, volumes have dropped by more than 30%. As a result, the volume decrease for the full month of March was minus 9%. As far as the e-com acquiring transactions are concerned, they grew 32% in Q1 and 19% in March. Overall, there is visible impact, but differentiating strongly from one type of activity turnover and the trend through April and the coming weeks of reopening will be monitored very closely as it is an unprecedented situation. Let me now comment on the commercial activity of the quarter. We had a very good commercial activity in Q1. And I can confirm that our large clients remain available despite the confinement context for sales discussion and processes of tender. With them, we do not observe a slowdown of sales engagement at this stage. And I must say, we are pleasantly surprised by their ability to adapt. I would like to focus here on 4 of the most emblematic contract announced in Q1. In Merchant Services, we have been selected to provide the one commercial payment solution to Subway restaurants across several European countries, including POS and e-commerce acceptance. We will deliver to Subway and its franchise owners a full range of omnichannel solution, and in particular, a consolidated reporting of all payment flows regardless of their origin, as well as options for dynamic currency conversions and post advertising capabilities. We consider it as a major proof point of the relevance of our pan-European omnichannel offer. In Financial Processing, Worldline announced end of February, the signing of a very large, long-term strategic partnership with UniCredit. We will be responsible for the processing of all SEPA payments, instant payments, multicurrency, domestic and high-value payments transactions for UniCredit subsidiaries in Austria and Germany. This is a major outsourcing contract and it follows in time, but not in size the one of Commerzbank we announced in 2018. It is a new proof point of the relevance of our payment outsourcing value proposition not only as a provider, but also as a true long-term partner, bringing innovation, price competitiveness and guaranteed regulatory compliance. Also in Financial Processing, Worldline has signed through Brinks a large ATM transaction management contract for BPCE, in which the group will manage approximately 300 million transactions per year on circa 11,000 ATM over 10 years. This contract illustrates perfectly Worldline's strategy to expand in the ATM transaction management market, which is currently consolidating and evolving towards more outsourcing. Lastly, in MeTS, Worldline has been selected by SYTRAL, Lyon's region public transport operator, to implement its Tap 2 Use solution, enabling travelers to buy and validate their journey by using their EMV cards. That solution, which includes validators, ticketing back office and payment acceptance further confirms Worldline's leadership in deploying open payment solution for public transport operators. For each global business line of Worldline, these deals are at the core of our strategy, and they are demonstrating that our products and solutions are perfectly positioned to satisfy client needs. On the M&A fronts, we announced today the bolt-on acquisition of GoPay, the leading online collecting PSP for small and medium businesses in Czech Republic. GoPay currently serves 9,000 e-shop, mostly in Czech Republic, but also with a presence in Slovakia and Poland. Its value proposition is based on a quick access to high-quality payment collecting engine, fit for the needs of small businesses and offering an extensive range of local payment means. This acquisition is of course an excellent move to further develop our online collecting activity in the fast-growing Eastern Europe market. This also strengthens our market position in the Czech Republic with the -- and the strong partnership already established with Komercni Banka. Financially speaking, as you can see on the slide, GoPay is a fast-growing business with an excellent profitability, which is expected to further increase, thanks to the industrial synergy we intend to put in place. This acquisition is made in 2 steps. We will first acquire 53% of GoPay in Q3 and have a right to purchase the remaining 47% from the current owner and manager in Q2 '22 -- in Q1 '22, sorry. The price paid for this acquisition correspond to an acquisition multiple below, in fact, well below Worldline's current multiple. Now in this exceptional COVID-19 context, as you can imagine, we launched without delay a strong action plan to adapt Worldline to its new environment. Let me first remind you that thanks to the resilience of our operating model and our digital culture, we could massively home work, which allow us to adapt smoothly to the progressive lifting of government restrictions in the future. So we do not have any noticeable issue of people not able to work or any problem of blocked operation. It is our level of transaction that is low and require adaptation of the cost base. So we did build a strong action plan to adapt our cost base immediately and with notably the following key actions: Implementation of holidays and restricted hours policies, freeze of new hirings, postponement of salary increases, renegotiation of supplier contracts, project portfolio review, stop of all discretionary spends. Commercial effort was maintained. We will focus on identifying new business opportunity with banks and merchants. The crisis generate new client needs that we are fulfilling, as Gilles has explained to you in the beginning of this presentation. But to support that, we have task force organized to develop and bring to the market these new ideas. Lastly, we keep a strong focus on monitoring merchant risks with a strong and continuous interaction with these customers. For travel-related activities, I remind you that the merchant risk is in most Continental European countries mitigated by several industry-specific factors, such as the existence of National Guarantee Funds System in complement to new regulation, imposing or enabling the use of vouchers in lieu of reimbursements. There are also new supportive international scheme policies. All this is securing the risk management. On top, of course, Worldline high-quality risk management teams that were in place have been further reinforced to add the additional [ capacity ] needed during this period, and we did not experience any noticeable default so far. To finish my presentation, I would like to highlight that the current COVID-19 is a true accelerator of cashless trends. You can see on the right of this slide, the list of countries where we operate that have already decided to increase the contactless payment limits. In most cases, limit has been doubled, and we believe that this will result in additional usage of contactless card and in-store mobile payments. We also observed a growing preference for e-payments in the current sanitary context. I'm sure you also saw signs or messages, as reflected on this side, in favor of noncash payments, even directly from the World Health Organization. And I -- it has consequences. I can give here for -- an example of a large Swiss retailer already recording plus 50%, 5-0, 50% card usage increase in its shops. This is the reason why we expect an acceleration of the transition from cash to noncash, in particular in the DACH region, where, as you know, we are market leaders. As the sanitary awareness is likely to last for months, even maybe more, we believe these changes in payment habits will remain post crisis. Thank you for your attention. I leave now the floor to Gilles for the conclusion.
Many thanks, Marc-Henri. As a matter of fact, 3 key takeaways for my conclusion. The first one is, as you could see, I think, through these slides and our comments, Worldline was able to adapt itself very, very quickly to this exceptional context. In particular, thanks to the remarkable mobilization and fighting spirit of our teams, we were able to ensure a complete business and perfect business continuity while protecting the health of everyone, and we have also immediately mobilized our management team to engage a very strong adaptation, temporary adaptation but strong, of our cost base. Second key takeaway is, as I say it sooner, we know this is only a temporary situation and we will collectively overcome it, no doubt about that. Nothing in the COVID-19 context will change the long-term dynamics of the electronic payment industry. As a matter of fact, on the contrary, as you could see with Marc-Henri's last slide regarding the foreseen structural acceleration of the shift toward a more cashless economy and world. Third key takeaway, it's why you can expect Worldline to keep fully unchanged, even in the middle of this enormous crisis, its efforts to deliver fully on all our strategic initiatives. We will become, soon, a much stronger group with the completed merger with Ingenico, with massive synergies, key reinforcement in geographies where cash displacement has even more potential and stronger online and e-com presence. We will keep, of course, in parallel, a vigilant attention once the deal is closed, on the potential new consolidation opportunities, which could be triggered in a few quarters by the development of this crisis and the evolution of the banks' strategies. And we will, of course, pursue building up a strong pipeline for further new payment outsourcing opportunities as we believe that banks will need more than ever to adapt their cost base and modus operandi to this very challenging environment. Thank you very much for your attention. I am now ready and happy with the team to take your questions.
[Operator Instructions] Your first question comes from the line of Josh Levin from Autonomous Research.
I have 2 questions. Last night, Ingenico announced that it's starting a new EUR 100 million cost-cutting program. To what extent should we view those new cost cuts by Ingenico as above and beyond the EUR 190 million of cost synergies you guided to when the deal was announced in early February? And then second, can you share any color in terms of what you're seeing in April so far relative to mid-March for each of your businesses?
Sure. Josh, glad to have you on this call. So regarding your first question regarding the program, I think I will ask maybe Marc-Henri to share with you our views about it. And we will also probably let Marc-Henri give you some colors on the early signs that we could see in April regarding -- which is still very early stage. But in a few countries, we start with some reopening or partial reopening of commerce. So please, if you can give a few colors.
Sure. Thank you, Josh. So indeed, Ingenico announced this COVID-related EUR 100 million cost optimization program. Bear in mind that we have dimensioned the program of cost synergies based on metrics of the combined cost base. Overall, combined cost base of Worldline and Ingenico together is in the range of EUR 4.1 billion, so you can already see that EUR 100 million in size is not so significant in comparison. This measure, we identified them as being primarily temporary to adapt to the COVID-19. It is an adaptation to a top line level that will come back over time and with better marginal contribution. And our synergy, as we have defined them in the plan, they are a result of combination of both groups. Combination is platform mergers, headquarter consolidation, real estate optimization, purchasing firepower combined, for example, and they cannot happen on a stand-alone basis. So from what we understand at this stage, we don't see any strong overlap between their plan and between our synergy ambitions. Now coming to very early signals of April. So we are talking about some real-time events. And so you can imagine it's more nuances than certainties. What we observed is that when reopening start to happen, business start to come back. Even with limited reopening, there are some positive evolution. The volumes are already a bit growing. So too soon to tell if it -- how exactly it will evolve, but it is there noticeable, visible. Both online, by the way because the online was also depressed probably by the mood of consumer at the beginning of the lockdown. So both online and in-store volumes, we tend to see an evolution, which is clearly in a range that is clearly visible. So I'm a bit cautious about not giving too much numbers or substance. But let's say, double-digit start of a move is something we start to see here.And we have this exposure to Austria, Czech Republic, that are countries that are having early changes and Germany as well since the beginning of this week, so it's really happening real time.
So they entered a bit sooner into the confinement policies and they get out a bit sooner. And so indeed, as Marc-Henri said, we observe that there is actually quite a good reactivity of the volume on the reopening of commerce, even if it does not come back to totally previous level. And what we have seen -- but as we monitor that, as Marc-Henri said, more or less daily as much as we can. Now of course, consolidating all these numbers from the platform is sometime a bit cumbersome. But fundamentally, we see that end of April is definitely better than the end of March, if I can phrase it that way. There is a clear -- yes, sure, go ahead.
So just to be clear, did Marc-Henri say that it's up double digit? Meaning it's off double digit?
No. It's up double digit versus the lowest point.
Versus the low? Fine.
So when Eric mentioned above 30% impact on volume, so versus this low point, now we see -- we start to see an evolution which is in the range of double digit, just -- so it's not catching up on the -- on what it was before, but it is evolving up again.
Our next question comes from the line of James Goodman from Barclays.
If I could ask you a little bit firstly, please, about the phasing of the year. So if you wrap some of those comments up into just an expectation of your range of the revenue contraction in Q2. And then as we look into H2, clearly, your guidance implies back to year-on-year growth in the second half. So just some additional specifics on the phasing, please? And then secondly, and it's related to that. But I just wonder if you could -- and then I'm sure you looked through the Ingenico presentation yesterday and of course, they have 3 fairly specific scenarios in place which result in reasonably pessimistic top line performance versus your own. The language is the same, it's fairly similar. So I'm just wondering if you contrast really your base assumptions versus Ingenico's so that we can think about how the 2 businesses might perform versus one another on a range of scenarios?
Hello, James, thank you for your questions. Eric will take the first one and before he takes the floor, indeed, what you have understood, but I think he will precise that, is that we consider, for the sake of being more on the safe side that Q2 should be as bad as you understood roughly that what we experienced end of March. So that is at least for the biggest part of Q2. And then a very progressive ramp up of the domestic flows, i.e., things that are not directly correlated with international travel, business travel and so on because we have no visibility on the reopening of the borders nor on the intent of consumers to actually travel again far away from their home countries. So this is this progressive ramp up that is, I think, on the basis of our sample scenario, primarily focusing on the recovery on local domestic flows and intra-European flows. Maybe you can give some more colors on what it means on the sequence, Eric, but remember that we don't give quarterly guidance, of course.
Yes, yes. So indeed, that's a fair point, Gilles. We do not give quarterly guidance now. You can, probably based on the information I communicated already, guesstimate what Q2 may look like. And there's also the information that Gilles gave you. But we have cautiously considered Q2 quite similar to the trend of the second half of March, knowing that in the second half of March the volumes in Merchant Services has been down by slightly more than 30%, it gives you a magnitude of what you can expect for Merchant Services, which is the most correlated to revenue. Then we started very well, and I insist on it. The beginning of the year was fantastic, very much in line, if not above the initial plan we built. And therefore, you can also see a magnitude of a gap in March that will be replicated in the full Q2. As we said also FS and MTS are more resilient. So you should not expect such a gap, as in Merchant Services, in those 2 business divisions. So Q2 will be affected. Q2 will be severely down. We, again, do not provide some detailed figures because there is many ways that could influence the exact Q2, in particular, the speed of the end of the lockdown. And the consumer attitude towards reopening of the stores. So we don't want to look overly pessimistic, but we factored a cautious estimation in our plan. For H2, we are progressively recovering, as Gilles mentioned, so that we reach towards the end of the year, December, beginning of next year, a normalized situation on domestic activity, excluding international travel and associated activities that is in our plan expected to remain quite low, if not very low in the full year 2020. So again, quite some uncertainty at this stage, but we believe that this plan is rather [ fluid ]. It does not contain the assumption of second confinement, general confinement all over the world. We remain on the optimistic side that things should not be as bad as they were in the last few weeks. But given this scenario, I think flat to slight decrease for the year is probably really anticipated.
And regard -- thank you, Eric. And regarding what Ingenico shared yesterday with you. As was said -- the first comment I would like to make here is that, of course, we were struck by the very good Q1 they could post actually given the context, this plus 4% was as a matter of fact, quite a good performance. I must also say that we have a shared vision with Ingenico. We discussed about, of course, the underlying scenario, how we see the progressive recovery in the core business activities that we have and the core geographies. And we have a fully shared vision on the central scenario of recovery and the progressive return to normal. And of course, we took good note of their own view about their progressive recovery, which seem to us fully consistent with our own vision of the market and their business profile, of course. And in particular, we took note of the fact that there is a strong comeback that is anticipated by Ingenico in all their scenarios to their organic growth rate of 4% to 6% as soon as the start of 2021 in all scenarios. So for us, all that looks consistent, to be frank, with what we know from the market and their business profile.
Next question comes from the line of Hannes Leitner from UBS.
Could you give us a little bit more details as Ingenico waived or canceled their dividend, are you readjusting the price to the initial offer price? And then the second question is regards Commerzbank and UniCredit implementations. Has the UniCredit already started or is there some delay expected as you have to be on the premises? I mean Germany is already soft opening as well as Austria. And the last thing is on Subway, maybe you can give there some colors also about the ramp-up. Is there some delay? Or should we expect that you can recoup the lost implementation hours, and we will see actually a stronger growth in Merchant Services come next year?
Many, thanks for your question. Marc-Henri will, I think, give you some more colors on the UniCredit ramp up and the Subway -- the start of Subway. Eric probably can also comment the first one. I'll just remind you that the offer was cum dividend, as it is customary to say. So meaning that we adjust when there is or there is not a dividend.
Yes, indeed, that's the key point. As the offer is confident, we will probably issue in the coming hours or through press release to indeed confirm that we will come back to the initial terms of the offer in term of price. Our offer was based on no dividend decision. Then we had the information that Ingenico would provide a dividend and therefore, we updated our offer. We need now to update it again to come back to the initial price.
It is mechanical. It is part of the agreement.
Regarding Commerzbank and UniCredit. So the UniCredit deal works have started and have started indeed full speed. A lot of the activity is to work on platform system. So it's IT, it start with IT work. And as we have explained, we are able to have 98% of our people operational and working from home. So they are doing the work from home and -- to prepare the next steps, which is already generating, as Eric alluded to, some revenues. So that -- from that point of view, no time is lost at all. And that should be maintained as when we will have more physical or teams coming together, it's more in the beginning of H2. So we don't expect to be in full lockdown situation at that moment. And so probably we should not observe a slowing down. And again, a lot of the work is being performed remotely. Regarding Subway, we also have some preparatory work that is ongoing in all the platforms that is not slowing down. Of course, installing or changing the payment devices inside restaurants cannot occur right now and will be linked to their own reopening. So that, we will see. But bear in mind that the Subway contract is a fantastic example of what we can achieve in Merchant Services. But in Merchant Services, contrary to Financial Services, all contracts are relatively small in size and small contributors to the overall growth and it is more the statistical dimension effect that is really creating the momentum. So it's not something that is really having a huge impact on the overall momentum of the year, and it is factored in the scenario Eric described to you.
Your next question comes from the line of Alexandre Faure.
I've got 2 questions. I mean 2 questions and a middle question, maybe. If I look at the contingency plan you outlined on Slide 19, it looks fairly similar to what Ingenico talked about last night and yet Ingenico expects about EUR 100 million of cost saves from a similar action. And I mean it looks like you're expecting more muted benefits for Worldline. So just wondering how we can reconcile the two? And as a follow-up on this, Eric, when you guide for a stable top line year-over-year, could expect some cost synergies with SIX, the benefits of the contingency plan. So why should we expect margin to be only flat and not up year-over-year? So that's sort of my first question. Second question, Gilles, is related to your last comment in the preparatory remarks around M&A that could restart once the Ingenico deal is closed. What should we have in mind? Would it be a consolidation between consolidators? Is it mostly after banks? Is it full-on M&A or other joint ventures in processing? Any sense you could share at this stage? Or is it too soon?
Sure, Alexandre, we'll answer the second one. Maybe, Eric, you want to deal with it? And Marc-Henri and Eric, you can...
Yes, yes, No, I can surely take the first one. So indeed, I think the contingency plan is quite straightforward and in some respects, similar to Ingenico. I think that we have sized the intensity of the action to indeed maintain basically the profitability versus last year. We don't want to harm the company too much when we believe that it will just be temporary and we should restart even faster if we did not damage too much the company. So that's the reason why we are probably in the same order of magnitude or a bit less than Ingenico, I would say, in the size of the plan that we have signed.
And maybe also in the duration of the plan. So we are concentrating our efforts in the first period, considering the comeback of the group, as you could see in our guidance model. We also have a business mix, particularly in FX, in which the activity remains higher. You saw the account payments. You saw the impact on the volumes. And so we have to dimension accordingly to the situation.
Yes. And on the second component of your question related to the stability of the guidance, including this contingency and the synergies. You just need to keep in mind that every euro used in revenue has a strong effect on the margin, as we have run a business where scale is very significant. And therefore, the marginal impact on profitability of EUR 1 lost in revenue is much higher than the average margin of the group. Hence, the need to have this contingency action in order to come back to this level of profitability.
So fundamentally, in the spirit of our plan, as you understand, from Marc-Henri's and Eric's comment is very simple. We have a temporary drop of top line, and we temporarily adapt our fixed cost base on top of what is coming mechanically for our variable cost adjustment. So the spirit is to really keep intact the capacity of the company to rebound very quickly and grab what we believe will be better growth potential ahead. I will come back probably on that at a later stage. Talking about M&A. Alexandre, indeed, when I'm looking at now, it is 11 years, more than that when I was with my time in Crédit Agricole, circa 15 years, as a matter of fact that I am an actor and even a very close witness, sometimes, of the evolution of the European payment industry and its consolidation trends. And if you remember, there are 2 structural factors that are dictating the trend and the long-lasting trend of consolidation in Europe. The first one is, you know very well, is the euro and the SEPA implementation and all what is coming with this enormous harmonization of the electronic payment regulatory framework and technical harmonization framework. So this one will, of course, stay there with or without COVID and has the same structural impact on the potential to consolidate the industry. And it has been already reinforced by new regulation, like instant payments, PSD2 that are absolutely all over the place the same. And we see even coming a potential new level of harmonization that you may have heard about, which is not decided yet, it is a different type of initiative called EPI or the European Payments Initiative, which would set a pan-European payment brand adopted by banks and, of course, stakeholders like ourself. And maybe one day, fully implemented on a pan-European basis, which would be, I believe, a next level of harmonization and probably once the investment are absorbed, a significant further operational leverage on the cost of operation. So this trend is there, will stay there and will further develop and go in one direction only. The second structural factor is the incredible scale effect of our industry, which is demonstrated every day. And particularly in crisis times, no need to tell you that the guys having the strongest muscles, the largest capacity to invest, are just stronger than the smallest platform. So I believe that these 2 trends will last for good. And then of course, we have had, sometimes, I would say, specific situation that have accelerated the long-term trend. It was the case after the financial crisis of '08 and '09 and '10 when banks were looking to really adapt their operating model to the new normal. And it may happen. And actually, we understand that banks are already starting also to project themself in a world where interest rates should stay low for a very long period of time, that there is no hope that there will be improved OpEx, improved profitability coming from the mechanical improvement of the -- an increase of interest rates, that there are new risks ahead like high level of provisioning that would come with the recession times. And we can tell you that there are already some banks mentioning that once they will have dealt with the peak of the crisis, the necessity for them to adapt, of course, their operating model to the confinement policies, the home working and so on, they will resume, and even accelerate some of them, their strategic thinking regarding what is their scope of operation. So we tend to believe that like any crisis, this will -- this one will generate further opportunities in which consolidation of payment has certainly a role to play. And we can think here indeed about 3 categories of potential things. And I'm not talking here just theoretically. We talk about things that we know are in the making or have been suspended for a few months during the crisis. Sale or divestment, total or partial, of merchant acquiring portfolio by certain bank in certain countries in Europe, which can be significant. And can be indeed processing partnership JV or even maybe divestment. And it may be, of course, a wider-ranging straight sale for cash of some payment assets. So we believe that 2021 will probably see significant level of activities once the big banks will have dealt with the 2020 crisis, which is, of course, keeping them also as you know, quite busy to support our economies and to also help the state to preserve, at the maximum possible, the economy of their nations, which is, of course, a fair priority in term of time allocation and energy allocation from the banks, we believe.
Your next question comes from the line of Sandeep Deshpande from JPMorgan.
I have a question regarding the trends you see. Firstly, I mean based on what you've said in your presentation, we can see your e-commerce transactions in March were much weaker than they were in the rest of the quarter. Do you have an explanation why this happened, that e-commerce was so weak in March? And then secondly, in terms of your exposure overall to different end markets, can you make an estimate on how much of your exposure is to some of these tourism-related end markets, airlines, hotels, duty-free shopping, not regular shopping, but duty-free shopping, et cetera. Because some of these end markets may not recover through the rest of this year as such to any significant extent.
Sandeep, thanks for your question. Marc-Henri, you want to take the first one, because of all the...
Yes. I can discuss on the -- on your question, indeed. On the e-commerce, I would say more broadly, so when we mentioned our ACS or trusted authentication transaction, it is what we do on the issuing side to help issuers under all the online activities of their cardholders. And it's interesting to see that at the beginning of the crisis and the lockdown, we observed a significant drop in the range of 10%, 20% drop in the -- compared to the previous weeks of activity. And even if it's only to see if it's a stable trend, we saw that that came back since through the month of April. So there has been, overall, a decrease in the online activity at the beginning of the lockdown that I believe is linked to the lack of visibility of people on whatever, even on delivery, some -- I guess, that some people have doubts about what will really work and what the future was made of. Now coming to our own e-commerce, there may be a dimension as well. We are still checking on the old sectorial analysis that there are some travel-related part of the business that has indeed gone down at that moment, which is not the most significant part of our activity, but was impacted. And if I come to the sectorial analysis of our portfolio, I don't have all details here, but what I can share with you is that when we look at travel and transportation in Worldline mix of Merchant Services, it is circa 5%. And the airlines, as such, they are less than 1% for mix of revenues. So you can see, it's not something so big. While food, for example, I'm not talking of restaurants here, I'm talking food retail, it's above 15%. So our global exposure to travel, I would say, is not huge. That's also behind the guidance we shared with you and the trajectory we have designed for H2. So I'm sorry not to have all the granular portfolio available to share, but you can see with these key elements what is our situation.
Your next question comes from the line of Laurent Daure.
I have 3 questions. The first is on your portfolio of clients and merchants and the risk associated with the current crisis, so do you have in mind -- I'm sure you can't name them, but a couple of clients that you see at risk and what kind of action are you taking today? The second one is probably for Eric, is -- on the cost side, can you split fixed versus variable? And more particularly, do you have to use the government aids on short-term unemployments? And also can you comment on the Visa scheme that went up in recent quarters, do you see them coming down and share the effort with Visa? And final question is, you commented on the difference between the local and international flows. Can you give us a split in terms of volume between the two?
Laurent, it is more than 3 question, as a matter of fact. I see that you are in good shape. No problem, of course, [indiscernible], happy to hear that anyway. So maybe we just take one out of the list immediately. We don't ask any government aid regarding temporary unemployment scheme in France. That's it. Eric, maybe you can -- maybe Marc-Henri, on the merchant risk?
Yes, on the merchant risk, I think, as I said, no significant noticeable default so far. It goes through a very intense action of the risk teams. When I say monitoring merchant situation, it's, in some cases, weekly, daily contact with merchants, including raising the level of bank guarantee or insurance levels. That's part of the business of risk management, it's normal. But overall, I remind you the overall framework in which we operate, we have the chance to have our activity mainly in Continental Europe. And in most of Continental Europe countries, they have put in place, for the travel industry, specific funds and we check one-by-one overall structure, what is their insurance coverage, what is the reinsurance situation and so on, to make sure that we are sufficiently protected. I mentioned as well that schemes are adapting their policy to take in consideration when looking at chargebacks, the fact that it is a result of a government decision or a government policy. So all this creates an environment which is limiting our level of risk, and we are looking at that on a very regular basis, and it is a situation that is very much under control. It is like everything in life and business. It is not an absence of risk, it is a risk managed, mitigated and controlled.
Absolutely. As far as the cost structure, Laurent, as you know, it varies a bit from one activity to the other. But the part of fixed cost is important in our business. That's the reason why we have this positive scale effect. As a rule of thumb, maybe you can take that on MS, when the revenue drop, it will flow into the margin for hopefully, 2/3. In FS, you can put even a bit more than this. Of course, part of what we call fixed cost in this split is people-related. And on the medium term, you can adapt those costs as well. That's also what we do with [ punctual ] action we take as part of our action plan in order to protect the profitability for this year. So I would say that would be the metric you should use in your model.
I think we -- and so I suppose that Marc-Henri also covered the Visa scheme-related question as part of your merchant risk?
On the scheme fees, what we see is that they are, overall, in the long-term rising. But some of the rise get suspended in front of the crisis. So I'm not talking about the decline. I'm more talking about the limited crisis.
I think there is an overall -- I mean all that is fairly recent, but over the last, I think, 6 weeks, we can say that the schemes have been also reactive to the situation based on the scheme rules that Marc-Henri mentioned. I'm putting in place a number of interpretations of the scheme rulebook of setting new rules like accepting vouchers in place of canceling the tickets. So you get for an event that has been postponed to next year, so you receive a voucher, and it clears the chargeback claim, for example, to a certain extent. And the second piece is the adaptation, of course, of some of the policies, like Marc-Henri mentioned, when it is government-related decision that is preventing the operator, the merchant to deliver the goods and the services, which is more or less falling into this category of decision, which is also clearly releasing some pressure. And the postponement of some fee increases is also participating to this willingness of the scheme to also adapt their policy and support the ecosystem into this very challenging times. So all that is rather positive, I must say.
And the domestic versus international on the flows?
On the flows, a bit difficult. I think one proxy that Marc-Henri gave a few minutes ago with the part related to travels illustrate also part of what is the volume, we -- that may suffer the most because, of course, this is the travel-related activities that is impacted mostly.
I'm not very comfortable to give an accurate answer to the question because what we -- we are covering Europe now nearly fully. And what will not be international may become domestic. What I mean by that? That someone that was doing tourism -- a German going for tourism in Spain may tomorrow remain in Germany for his summer holidays. So exactly how the distribution of international versus domestic will evolve, it's quite difficult to predict.
And so -- yes. So okay, Laurent, I think we covered your catalog. So I think we have time maybe for our last question because we are already overtime. So...
Your last question comes from the line of Robert Lamb from Citi.
I've got one quick two-parter on SMB and one on the SIX synergies. I realize there's a lot of focus on Ingenico at the moment. So in terms of the SMB exposure, we've had a lot of investor interest in terms of some color here. And obviously, that part of the market does have some natural churn in it. And I just wondered if because of the virus, you've seen any elevated levels of churn within the SMB merchant base? And related to that, you've noted a mix shift due to larger retailers that tend to be more, let's say, price-savvy. So is there any way -- can you help us understand has there been any kind of margin impact from this mix shift? And then in terms of the SIX synergies, you were meant to be getting a significant percentage this year in 2020. Has the virus impacted your ability at all to extract the synergies here?
Robert, Marc-Henri will take, I think, your 2 questions. I have just a general comment, which is I mentioned sooner in my presentation that we were extremely keen also to demonstrate to the large merchant communities in the key countries where we are a highly visible operator like in Switzerland, in Belgium, in Austria, and these countries, that we were not only operational, i.e., maintaining the business continuity flawlessly, but we were caring for the merchant community. It's why I mentioned all the initiatives that we took, for example, having particular relief program, to adapt our pricing scheme for a couple of months where the merchant is totally closed, for example. All this has been set, of course, to help, first and foremost, but also to demonstrate that we are the type of long-term partner a merchant should dream of having as a merchant acquirer. In the bad times, we are the nice guys. We are not rushing to get our cash. We understand they cannot operate. And basically, the payment terminal may be useless for a month or a couple of months if they are not allowed to open. Fair enough. We are here also to understand this situation. So it's connect to your attrition question, which is we, of course, want to demonstrate that we are the long-term partner that you do not leave for a couple of euros next month because someone is knocking at your door. And this is really, for me, an important philosophy of Worldline. We are part of this community. We are born within this community. Very often, not long ago, we were an extension of the banking community, sometimes seen as a national asset. And so it is important we behave right in this time. It is really something that goes a bit beyond the commercial interest. It is also a societal responsibility. But in the end, when you behave well, generally, it pays back also in business. And attrition, we expect should be managed properly like everything kept under control, even in this recessive time. Marc-Henri?
No, no. It's -- you said the most important elements. We monitor very closely our churn ratio throughout time. And after the SIX acquisition, on the overall and full portfolio, the numbers has always been very good. We are not losing market share on the smallest merchants. That's not what we have measured. And I must say the crisis in itself has also shown that some newcomers that were coming with very digital services do not have the same presence on the market when things tends to get a bit difficult. And the fact to be locally present, even with people working from home, is a very -- we have a very granular and local understanding of what is the country situation, which shops are allowed to operate, which ones are not allowed to operate, how to provide rental support, provide the mobile devices solution to secure home delivery, have specific campaigns, adapting the online offer for these small merchants that want to provide food delivery with online orders, all this, I mean is leveraging very much our local presence and our local ability to operate. And we get very regular feedback that it is well-taken and appreciated. If I add also what Gilles mentioned about the attitude to the community of merchants, adapting the pricing or the invoicing to their special situation when the crisis is particularly strong, so it's an investment for the future. It has an impact on our guidance. It's factored in our model, but it is clearly value-creative in the long term. And last but not least, we also work with federations of merchants, local federation in the various countries. And when there is, for example, a campaign to do on contactless payment, we are working hand-in-hand to spread the message and act through the crisis. All this is part of the action we do through the COVID environment. And as I said, we had no specific churn on smaller merchants before. And we don't expect the crisis to bring it. On the contrary, I think it will strengthen the ties with the merchant community in the various countries in which we operate.
Regarding the largest merchants, and in particular, the one that generally, as you mentioned, are the tough cookies when it come to price negotiations, which are the large retailers and in particularly, the large food retailers. And these days, these guys are just doing extremely well. They are just happy to have the platform up and running flawlessly, to have the full support of their acquirers. And believe me, their figures are damn good. So I hardly see these days for them any connection between their economic situation and their need to renegotiate anything, to be frank. And obviously, we have not at all such discussion these days. And so you had another question, Robert, which was related to our ability to execute the SPS, [ Florida ], as we call them, related synergies? So...
I can say a word about that. So it is one of the important pillars of our policies during the crisis, is to maintain the momentum of the synergies for the SPS integration. So all the integration-related meetings, projects, milestones are tightly maintained and monitored. I do that very personally myself. And to ensure that people are not giving up of any of the specific lines. And so overall, I would say, we are very much aligned with our plan, and we manage to maintain the momentum. And so the synergy ambitions and levels should not be compromised or damaged by the COVID crisis.
Many thanks, Marc-Henri. I think this is bringing us to the closing of this conf call. I would like first to thank all of you for being present with us this morning. It is an important day, of course, for our company, like for all other companies that have now to adapt to this incredible moment that will be, for sure, in the books of history and -- but -- the way the global economy has been facing this unforeseen challenge. I have 3 key messages for you guys to close, particularly after this Q&A session. Worldline is for -- clearly showing a very strong resilience, both internally and externally in the way we've been engaging with all the stakeholders around us during this period of time. As we just say, I just do really believe we did the right things internally to protect our staff, to put in motion all what is necessary to protect our financial profile as much as we can, but also to be as well in these challenging times with our communities around. Second, beyond the strong resilience and the strong short-term resilience, we will be much stronger in a few months' time, thanks to the merger with Ingenico, with massive synergies ahead to be extracted, which is just great to have because this is only depending on us and not on the context that we will face with a much bigger online and e-com presence and a bigger exposure to the more cash-intensive economies that are still to be conquered by electronic payment, like Germany, in a few months time. And in the end, we will be stronger in the world with more electronic payment and less cash, which I think is a very strong structural lever for further improvement of operational performance and undoubtedly, a very strong growth ahead once the dust of the COVID-19 impact will have settled.Many thanks for your attention. Looking forward on our next interaction and the following exchanges we may have on this Q1 discussion. And take care, and stay safe.
That does conclude our conference for today. Thank you for participating. You may all disconnect.