doValue S.p.A. (DOV) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the doValue Full Year 2020 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. [ Danielle Delaceta ], Investor Relator of doValue. Please go ahead, sir.

Good morning, everyone, and thank you for joining the conference call on doValue 2020 results. Also attending this call from the management team of doValue are Mr. Andrea Mangoni, CEO of the group; Mrs. Manuela Franchi, General Manager and Group CFO; and myself from the IR team. Mr. Mangoni will start with a strategic overview of the 2020 results and the digital environment in which doValue operates, while Mrs. Franchi will dig deeper into the financials. Then we will be happy to take your questions. With that, let me hand the call over to Andrea Mangoni, our CEO.

Thank you, [ Danielle ], and good morning, everyone. As always, a primary goal of this call is to help you understand how we look at our business model and give you an update on our growth strategy in establishing doValue as the leading independent servicer with a full asset-light model. We will begin with a look back at our performance in 2020. 2020 was an unprecedented year for doValue in terms of challenges and opportunities as we continue to execute on our organic and external growth plan, delivering sound financial results and reaching the important milestones despite the impact of the COVID-19 pandemic. When the pandemic was in its early stages, our prior investments in technology and compliance enabled us to quickly provide the safe working condition for our colleagues without any businesses downside and maintained full operational capabilities. Let me point out how 2020 has been one of our best years on record when it comes to AUM growth, exceeding the -- our full year guidance for both new businesses forward flows and leading at a record high GBV of EUR 161 billion when considering the signed contracts to be onboarded. As you remember, our target was set in November 2019. So it does not include any quality impact. New mandates intake shows that banks are acting proactively to address current and potential NPL issues, accelerating their deleverage and derisking plans ahead of the new wave of NPLs, while new GBV coming from long-term forward flow contract has proven robust and over our expectation despite several moratory and state support measure in all of the market where we are present. In fact, in Spain where moratoria had expired year-on-year, our subsidiary, Altamira, has already registered a strong inflow in the second half of the year. This lead us to foresee a positive backdrop for services in terms of new flow due to a challenging environment for banks and SMEs borrowers, starting from the second half of 2021, when most of the moratoria and support scheme are expected to end. At that point, a professional servicer like doValue can play a pivotal role. When it comes to financials, after a difficult start of the year when legal services were shut down, preventing doValue to perform certain servicing activity, for example, through judicial process or real estate brokers sales, following the progressive lift of restriction measures, we were able to post 2 strong quarters, say, the second half of the year with continuous sequential growth and an EBITDA ex NRI of around EUR 125 million for the full year and a strong operating cash flow generation of EUR 118 million. We have kept our balance sheet in a very strong position, even after accounting for an important acquisition in a year of declining collection such as 2020. On the back of a sound financial structure, the Board of Director will propose at the shareholders' meeting a dividend distribution of 100% payout ratio out of reported net income ex NRI of EUR 20.8 million, subject to verification on financial covenants on distribution. This will still leave us with financial headroom for the company to consider potential deals for in-market consolidation or diversification opportunities across growth sectors, such as fintech, big data and proptech sectors, also considering there is strong deleveraging profile that we expect for the first Q 2021. In terms of priority, COVID-19 has shown how important it is to have a streamlined IT operation. Altamira is now fully integrated, and the integration of doValue Greece is on track. We have already achieved the significant savings and flexibility, thanks to doChange project, which is the outsourcing of IT and back-office activity in Italy to IBM. Now we are targeting even more savings with the unification of our [ in-countries ] IT platform. On Page 3, we show a focus on the pipeline of new AUM coming from forward flow and new servicing mandates. The shock caused by COVID will have long-lasting consequences for the industry. And the rising pile of NPE will require a professional industrialized approach to management of NPEs, surely with the involvement of structured services. With forward flow in place in 4 important countries whose economies have been hit hard by the pandemic, doValue is best positioned to receive a fair share of the new wave of NPL in the next months without an additional commercial effort. This trend is already clear in the EUR 4.3 billion (sic) [ EUR 4.4 billion ] of new AUM coming from our long-term forward flow contracts, which have shown a better-than-expected trend in Spain, chiefly due to flows from Santander, which accounted for almost half of 2020 flows, where moratoria has expired in second half of 2020. Our major clients, with which we have historical forward flow contracts, are already booking provisions proactively for loan standard moratoria, which are now classified as Stage 2. Although the ECB and EBA are relaxing some capital requirements in a countercyclical way that's sustaining the economy with significant and conventional monetary instruments, we are focused on the asset quality of a financial institution as strong. That's why banks keep on carrying out their derisking process with important transactions, leveraging on our constructive market. We are professional investors and during that -- to deploy capital in the NPE class, especially in Southern Europe, notwithstanding COVID macroeconomic impact. We are confident that being #1 in Southern Europe, with top servicer ratings and having a diversified client base with the top NPE and real estate investors in the regions, means doValue is idly positioned [ in there to be one of the ] servicer in the upcoming transactions. 2020 new mandate intake closed on the high note of EUR 11.8 billion new AUM, well above targets of EUR 7 billion to EUR 9 billion. It's a clear proof of this. The Hellenic Region was the most dynamic market with the onboarding of a EUR 4.2 billion (sic) [ EUR 4.3 billion ] Alpha Bank Cyprus portfolio, the EUR 2.6 billion Icon portfolio and the EUR 650 million Marina portfolio, both from Bain Capital, followed by Italy with 3 important mandates: first, GACS securitization in the market with a focus on leasing asset with UniCredit; a GACS securitization with Iccrea; and the first corporate multibank UTP mandate in the market, which will serve as a platform for future wave of UTP from originating bank participating to the fund. So when it comes to innovative deal structure, doValue has been able to consistently affirm it's market leadership. As you can see on Slide 2, the pipeline for servicing mandates is very solid across all markets. There are a few large mandates we are working on, especially in Greece, Italy and Cyprus, and several midsized ones in Spain. Moving to key financial results on Slide 4 here. Let me stress how our business model has produced a strong set of result with growing revenues and a slightly declining EBITDA in a year where we closed -- or significant reduction of court activity has a strong impact on collection and hence revenues. Thanks to a solid level of fixed fee, in particular, in Greece and Spain, and the reduction of variable cost, we managed to limit the decrease of EBITDA margin to 9 percentage points from 39% to 30% ex nonrecurring items. Let me remind you that the reduction in collection of 2020 will not result in any case in a loss of revenues but will just translate in a stronger backlog of collection after 2020 and higher GBV, on which base fees are calculated. Also the net income, ex nonrecurring items, has proven resilient despite higher financial charge and large perimeter due to acquisition. I would like to stress that the quality of our earnings is solid and with an impact of volatile items, such as valuation of financial assets and goodwill impairments, much lower than our listed peers. This is thanks to our asset-light models where we don't buy portfolio and we take a very conservative approach when it comes to accounting for acquisition. We allocated much of our purchase price to SLA contract, which depreciates in a predictable and planned way. This nonmonetary item was 300...

[ 38 ].

Yes. 15 -- 38 -- sorry, EUR 38.6 million back in 2020, out of a total D&A for EUR 73.7 million (sic) [ EUR 62.6 million ]. Moving to Slide 5. I would like to point out how our solid set of operating and economic performance have translated in a very strong cash flow generation and sound balance sheet. We generated EUR 338 million (sic) [ EUR 394 million ] of operating cash flow over the last 4 years, with EUR 127 million returned mainly through dividend. On top of this, the Board of Directors yesterday proposed to distribute 21 -- 28 -- EUR 20.8 million dividend, which is 100% payout calculated on net income ex NRI. This is much higher than our minimum dividend policy of 65% payout on net income ex NRI, also considering the fact that last year, we decided not to distribute cash in a very uncertain environment when COVID was starting to spread uncontrolled and the outlook was very uncertain. Our leverage ratio on a pro forma basis is at 2.7, which -- EUR 411 million net debt. This is after aiming an aggregate gross debt of EUR 680 million in the last 2 years to complete 2 landmark deals such as Altamira and doValue Greece. And after accounting for a compressed EBITDA into COVID, we are confident that a higher EBITDA in 2021 with the same cash conversion rate will allow to reach a leverage ratio at or below 2.4. This will allow us to support both our dividend policy and our M&A strategy while keeping a strong liquidity position of over EUR 200 million where, when considering RCF and cash available, will help important refinancing needs in the next 4 years. I know M&A is a very hot topic in our sector. So let me anticipate your questions and state that we will continue to carry out M&A with a very prudent approach, considering deals only if they're accretive EPS-wise and keeping leverage with 3x limit on a year-end basis. After we completed our geographical diversification, we will focus in market consolidation opportunities and diversification in higher growth contiguous sectors such as fintech, proptech and big data. On Slide 6, I would like to give you a status update on the 2020-2022 business plan operating objective, focusing on real estate cost, IT and HR. As you can see, we delivered most of the points, both from a revenue and cost initiative standpoint, with COVID accelerated our plan on cost side, especially for initiative related to HR costs. Smart working and real estate efficiencies as well as implementation of IT platform having used the most of lockdown to accelerate on some of those when business was undergoing a quieter period. Some of these initiatives may become a structural change whose benefit will continue post 2020. Since the onset of the pandemic, our top priority was to ensure the health and safety of all of our people and stakeholders. Unfortunately, with courts completely closed and [ prepared for this ] collections strategy based on action of underlying real estate security underwent a sudden stop, with a material impact in second Q and part of 3Q. After 2 -- second Q restrictions, measures become more targeted to light-risk activities, keeping open and functioning essential services and businesses, real estate and legal servicing among them. This has sure helped in the number of collection awarded on our portfolio, which has picked up from low on first Q, returning to a pace of less 4 -- minus 4 -- minus 50% in Italy comparing to the previous year. This trend has been unaffected by the imposition of new lockdowns in the context of COVID 2, a proof that we are probably past the severe destructions seen second Q 2020. As several vaccines have been deployed, we have seen a clear outlook for economic activity go back to the so-called new normal and recap of a lower collection in 2020 to the following periods, but we will retain IT flexibility and work from homes program for our employees to facilitate a more streamlined and adaptable operation after COVID. With this, let me hand over to Manuela and dig deeper on our financials.

Thank you, Andrea, and good morning, everyone. I would characterize that 2020 results as satisfactory in the context of very challenging market condition, confirming the resilience of our business model. GBV has reached EUR 158 billion, making us the clear #1 independent servicer in Southern Europe. The pipeline, as mentioned by Andrea, is strong, and we are very well positioned to capture new flows from both new and existing clients. Revenues are up 15% to EUR 418 million, sustained by progressive improvement in collection, a growing proportion of base fee at 36% and the larger consolidation perimeter. The cost base is reducing on a pro forma basis. And on a reported basis, we continue to reduce variable HR costs and tackle all other variable costs. EBITDA ex NRI kept growing, reaching EUR 125 million with -- sequential improvement in EBITDA margin, resulting in 30% for the full year compared to 27% for the first 9 months. Of course, results were impacted by very weak first half in relative terms due to the effect of the full lockdown. Cash flow generation continues to be strong, with EUR 120 million of operating cash flow, 105% of cash conversion and leverage limited at 2.7x net debt to pro forma EBITDA on a reported basis. Overall, we confirm the financial highlights published in February, with one change related to the reported net income, impacted by provision of our potential tax liabilities. Let me explain a little bit more this situation. In the context of the tax inspection conducted by the Spanish tax authorities on Altamira Asset Management Holding, the legal entity used by the previous shareholder of Altamira, Apollo, Adia and the Canadian pension plan, and not part of doValue Group, Altamira Asset Management, for fiscal years 2014 and 2015 -- Altamira has been informed by the Spanish officials of a different approach by the Spanish tax authority in the calculation of the tax base compared to the one followed by the company at the time based on the existing legislation at the time, mainly regarding the fiscal deductibility of expenses and financial charges incurred by Altamira Asset Management and Altamira Holding following the acquisition of Altamira by the holding and by Banco Santander. As part of the above-mentioned tax inspection, new risk profile has come out in the estimate of past tax liability of Altamira, which following a discussion with the Spanish tax authorities on March 28 (sic) [ 24 ], doValue was able to quantify in terms of financial and economic impact. The Spanish tax authority has shown willingness to reach an agreement to completely settle the tax liability without interest or penalties, which would entail an overall cash outflow of EUR 34 million to be paid in third Q. The agreement is subject to certain conditions, which will be confirmed in the following months. On the financial and economic impact of this event, these circumstances have led doValue to increase provision, noncash, already paid -- already in 2020 by EUR 29.2 million. Both items have been earmarked as nonrecurring items in the consolidated accounts since they refer to exceptional events occurred before the acquisition of Altamira by doValue and to a different interpretation by tax authorities consequent to a change in law, which was after the structuring of this transaction. doValue points out that although the formalization of settlement has not been completed, it deems this amount adequate to face entirely any liability arising by the tax inspection for 2014 and '15 as well as subsequent recalculation of the tax base for the period 2016 to '19. At the time of its acquisition of Altamira from Altamira Holding, doValue protected the risk from contingent liability, including tax liability, by obtaining the representation and warranties from the seller and complementing them with a specific insurance company on reps and warranties. Therefore, against of the overall amount related to the tax inspection before mentioned, doValue will claim a full indemnity from the insurance policy underwritten at the time. With the implied full recoverability of these cash outflows, whose impact on P&L will be registered as a gain when they will be paid by the insurance or the seller, the cash-out expected in 2021 related to the settlement of the tax inspection is funded by an adequate level of available cash and does not entail issue for the maintenance of any existing financial covenants. Moving now to Page 10. We describe the moving parts of our GBV. On the positive side, we have added EUR 4.4 billion to GBV coming from forward flow, automatic transfer of NPL and early arrears coming to us each month from our main 4 banking partners. Precious and defensive feature of our model more than double our yearly target of EUR 2 billion. EUR 8.6 billion of GBV from new mandates made up of the Alpha Bank mandate won in '19, new asset portfolio won in Spain and Portugal, the recent UTP win in Italy, Iccrea GACS and the first leasing GACS with UniCredit. The doValue Greece acquisition brought in more than EUR 26 billion and mandates currently in the onboarding phase for another EUR 3.2 billion, composed by Icon and Marina portfolios in Greece and Cyprus, respectively. Collection were at EUR 4.2 billion (sic) [ EUR 4.3 billion ], picking up pace in the third quarter, while write-offs were EUR 5.6 billion and sales by banking clients at EUR 3.4 billion, in line with the continuous actions to improve asset quality. In conclusion, group gross book value under management continues to develop positively, sustaining our future cash flow. And we already signed additional mandates in the first Q, which we will announce in the next weeks whether we will reach the EUR 1 billion mark. On Slide 11, we summarize the key diversification of our AUM. Year after year, we achieve greater diversification by market, asset class and client while maintaining the distinctive features of being one of the most secure corporate portfolio in the industry. We now cover all of the most attractive markets in Europe while also being diversified. In our client base, you find there the top systemic banks and investors in the region. So this should translate in the ability by doValue to capture a significant portion of the new mandates in the market. On Page 12, we look at the main components of revenue. On the left-hand side, outsourcing fees are up due to the new perimeter of consolidation and the use of real estate brokers in REO servicing. On a pro forma basis, for NPL, they're actually reducing since we are insourcing more. On the right-hand side, we highlight the key point of our business model. Base fee are up more than 2x in absolute terms and from 22% to 36% in relative terms. This is a trend which began in Q1 '20 and depends on our exposure to markets such as the Iberia region and the Hellenic Region with much higher average fees. Variable fees are down as a percentage of total revenue due to the temporary reduction in collections impacted by lockdown, but they increased materially in third Q. Going forward, this revenue component will progressively regain its weight. But in the meantime, we can rely on this fee and ancillary revenue as a source of stability. A focus on cost on Page 13. We have built an operating platform based on skilled asset managers and a scalable IT platform, meaning that our IT cost base is mostly fixed. We want to be ready to deploy operating leverage since we expect market volumes to grow. But in the meanwhile, we look for sources of efficiency everywhere we can. On a stand-alone basis, that is excluding the effect of the greater consolidation perimeter for the inclusion of FPS, every key cost has reduced. HR costs are down as a percentage of total costs, and its variable component stood at 6% versus 14% in 2015 -- sorry '19. As to our outsourcing partnership with IBM, it's yielding its first results, implying lower IT costs, increasing the impact in 2021. Moreover, we have reduced our resilience on real estate and co-working space, something that at least impact will be structured. On Slide 14, the main result by geographic area, although we already commented on the collection and operating environment by region. Collection rates are holding up despite the coronavirus disruption, with the structural differences, which always have been present, linked to the different efficiency levels of the judicial system as well as the double positive impact in the third Q due to the market recovery post lockdown and the traditional 4Q seasonality effect. EBITDA margin improved materially from the second to the third quarter of the year, and finally, even more in the 4Q. We are seeing sign of normalization everywhere as the measures put in place in October to limit the spread of coronavirus are much less invasive than in the April-May period and are not materially slowing the recovery of collection. One key element stemming from this slide is the accretive contribution of doValue Greece to group margin. In the region, we are already at 40% EBITDA margin and expect to grow from there, in line with our acquisition business plan and supported by the higher-than-average proportion of base fee. Next, the working capital and balance sheet on Page 15. Working capital has come down by about EUR 23 million to date, notwithstanding the greater revenues. As we stressed in the past, this is a positive feature of our operation we believe to be structural, sustained by the client shift towards investors and international expansion in Greece, where a proportion of our fees are prepaid. Regarding the net debt, I would highlight that leverage is developing in line with our expectation, and the current covenant set provides for room to manage even in an adverse coronavirus scenario into 2021. Net debt at 2020 end include a temporary effect of the purchase of notes of EUR 21 million, which have sold in the first month of 2021, bringing a net position in line with year-end market estimates. Our sources of funding are well diversified between the bank and the bond markets with limited near term cash outlays and other financing needs, which there's a clearly, in the appendix to the presentation, where there are a further [indiscernible] and the positive details. Finally, a comment on net debt on Page 16. Just [indiscernible] the strong free cash flow generation at EUR 87 million. Our business model is highly cash generative. Leverage does come down very quickly as the Altamira acquisition demonstrated, and FPS acquisition is showing. Capital expenditure model is supporting also limited CapEx even in a year of high investments, like 2020, with EUR 20 million higher than our historical leverage but in line with the expectation when we completed the integration of the group system and continue to work with upgrades. The impact on the overall cash flow has been small. 2021 should already see total CapEx coming down to our historical leverage, irrelative spend to our sales. Finally, I would like to flag that the equity investment and divestments, of course, include the cash outlay for doValue Greece and the financial asset investment in the notes. You might remember Cairo for a [ EUR 14 million. ] And the project we mentioned before, projects related for EUR 21 million. The latter with a very temporary impact, but also cash in from other investments, which are beginning to win the result. With this, I conclude my remarks and we can open the floor to questions. Thank you, everyone.

[Operator Instructions] The first question is from Borja Ramirez with Citi.

I have a couple of quick questions, if I may. Firstly, if you could kindly provide some guidance regarding AUM inflows in 2021. I think -- I may have misunderstood, but I think it was mentioned that EUR 1 billion mark could be achieved in the short term? And my second question is regarding your -- the electronic NPL platform is -- which seems very interesting. I would like to check if you could provide some more details on the volume of transactions that are happening and also the potential for growth.

Yes. Certainly, Borja. On the inflow for 2021, we reiterate our guidance, pre-COVID, of around EUR 2 billion for the group in terms of future flow and EUR 7 billion to EUR 9 billion of additional new mandates. We would like to update this guidance, hopefully, for the better at the end of the second Q. This is because we would like to confirm that the moratoria would actually expire in June and also the position of single banks. As you might have noticed, some banks have decided on their own to continue some moratoria measures for their clients for a longer period. In relation to the new contracts already booked, I confirm that it's just below EUR 1 billion, which we will confirm with a separate press release as soon as we achieved around that level. Obviously, this is -- it will allow [ such classes ]. So both NPL and the UTP, where our assets to [indiscernible] is successfully, including already the second and third wave of additional flows and is moving towards in a fourth wave. In terms of the platform you are referring to, you -- I think you are referring to the doLook platform, which is a JV between our company and Debitos, which is a European platform specialized in selling credit. And this has been deployed in Italy with a cooperation between us and them, and that successfully closed around EUR 100 million of sales in the last 8 months, and with a very good pipeline for the next 6 months already active. And this is a very good result because in Italy, you might have seen in the market other comparable platform, which also have announced sales, and they are on the lower end compared to the numbers I just mentioned. We believe that the JV that has also expanded to Greece will allow us not only to increase collection in the local markets, but also to add an additional revenue stream coming from this specific business. So all in all, very good results on that front.

The next question is from Andrea Lisi with Equita.

Several question on my side. The first one is on the distribution of the dividend. Just to understand better which are the risks that are related to the distribution, you said that to verify the fact that there are no conditions, no covenant, nonregion covenants on the debt, if you can provide more color on that. Then the second question related to the dividend as well. We have seen that this year that, obviously, was particular and considering the fact that the previous year you have not paid any dividend. But in this year, you have reached a payout of 100%. Just wondering if you have the possibility to -- if you're thinking about changing your dividend policy on the upside in the sense of above the minimum level of 65%. Then the third question is on the collections. We are aware of the fact that the environment is much better than in 2020, but not yet normalized. And so what are your expectations in terms of collection for 2021? And in relation to that, which impact are you seeing on moratoria now in Italy, but also in Spain and Greece, where we have a bit less view on that market? Then a question on M&A. You have talked about the possibility to expand on new verticals like [ Intesa ] that and so on. Just wondering if you find some integration with your current business or if it is a complete something or completely different in order to diversify. The -- sorry for another question. One is on the depreciation, the MD&A. If you can tell -- you can guide us on a level that you expect for the following year. And very last 2 questions. The first one is, if you can -- you have any update on the SAREB contract? And if you can tell us which is the amount of revenues and EBITDA generated by SAREB in a normal environment. And the very last one is, I see in the cash flow statement that you -- in the fourth quarter, we have a change in other assets and liabilities for EUR 28 million. If you can tell us what they're referring to. Sorry for many questions.

Okay. Andrea, I'll take them one by one. In terms of distribution of dividends, you need to distinguish in financing packages between the default, obviously, covenants, which, in our case, are significant [indiscernible] 4x and post-COVID. And the level for the distribution of dividend, which obviously [ backstage ] at a lower level. So we need -- at the time of distribution, all these steps are measured. And we feel confident that there will be no issue of distribution, but we need to highlight, obviously, that there are conditions as in all financing with banks. So this is the point there. All the details of our...

Sorry. Just to be a little bit more aggressive. Risk related to the dividend payment right now, it's close to 0. So we have some covenants, as Manuela said before, but we will stay significantly below the covenant itself. So the risk is extremely limited, I can say, 0.

Confirmed. In terms of the dividend payout, obviously, we know our status policy. And we always said, we don't want to pay extraordinary dividends for the moment as we want to devote the extraordinary distribution to growth. So in the bond between our minimum [ 65 ] and [ 100 ], we decided to position us on the higher end, also taking into account that, obviously, the -- there has been a significant reduction in the net income this year due to the impact on EBITDA. So we felt the management that we had to -- it was important also for our investor to go on the upper end of the boundary that we have given ourselves. In terms of collection compared to this year, we are seeing a significant improvement. To give you an indication, it's probably going to be around 30% to 40% more than the 2020 figures as benchmark for the full year. In terms of moratoria in Italy and in Greece, we feel that the governments might lead now to banks to take measures, eventually to postpone the end of the moratoria rather than them postponing the deadline. So the deadline of June seem a real deadline and -- both in Italy and Greece, but we would like to have official confirmation. As you have noted, in 2020, this has not made an impact on our flows, which have still been doubled than expected. But it's important that any upside from our EUR 2 billion mark, that is the business plan indication needs to be confirmed also in the light of the new situation that will evolve with the moratoria. And in terms of M&A, I can confirm that the verticals we are looking at are not business which are different or not -- don't have a linkage with the current one. We always look to things we know already in sectors which are similar or have a connection to our sector. So that from this acquisition, we can have 2 benefits. One is to improve our business model, adding new layers of revenue to the existing platform. Second, to diversify in sectors, which we have a knowledge about, and where we see potential growth of higher dimension compared to our sector. You know that all the areas we have mentioned have a very high-growth dynamic that is different from the traditional [ NT ] management. In terms of delay, this year, we will have an amortization of contract for the current perimeter of around just below EUR 50 million, obviously, including also the Eurobank contract, which has been added. For a total D&A, which is, anyhow, in the region of the level that -- of last year. So not above the total amount that you have already seen, despite the inclusion of Eurobank. This is because, obviously, the amortization of other contracts has been going down over time. And then you may want to comment on the SAREB renegotiation.

Yes. I think the SAREB renegotiation will kick off in short. The current management of SAREB is -- decided to reduce the number of the player for probably 2 -- 3 or 2. We are we quite positive on our contract. Because first of all, we are continuously proving our performance on the SAREB portfolio in terms of collections. And secondly, because if you compare our performance, we see performance of our competitor. Our performance is first class. So the contract, in our view, is not at risk renegotiation. Renegotiation will be tough because the removal of the IR contract set precedent in terms of lower fees, et cetera, et cetera, but we really believe we can offset the hypothetical effect of fee reduction with a significant increase in volume. This is the first point. The second point is, I think, SAREB is aware of the potential negative impact of a strong fee reduction on the performance of the service because the experience of the last year, 9 months, was extremely difficult in terms of performance. So I think, at the end, the approach of SAREB to our negotiation will be slightly different. But a part of this, I think our impressive increase in the performance over the last year can allow us to offset hypothetical fee reduction with more volume and best performance.

On the last point, if I understand correctly your question, Andrea, you're referring to the change in other assets and liabilities, which moved from minus [ 23 ] to plus [ 6.5 ] between '19 and '20. This is related to -- specifically the anticipation of fees by Eurobank that -- Euro is one of the big features of our contract to Eurobank where they pay a beginning of the year, the fees and the [indiscernible] for the quarters as well. And therefore, this is a feature that we will keep structurally for all the following years. So this is the main driver of the difference between the negative number historically and the positive that we have in '20 going forward.

Next question is from Nicholas Binda with Intermonte.

Several questions on my side. The first one is looking at 2021, if you confirm that consensus is broadly aligned with your expectation. And if you could provide some update of some results about the trend in the first quarter. And sorry for that, but I missed the answer of your expectation about the D&A in 2021. So if you could repeat? Then the second one is on the tax assessment. Is it correct to assume that in 2021, you registered a windfall gain of about EUR 34 million and no impact in the financial position? And finally, we spoke about M&A in the services industry. But looking at banking sector consolidation, is it correct that in the current environment, you could have more upside than some risk given the fact that you have currently forward flow agreement with UniCredit and Credit Agricole Italia that is currently involved in the offer of Credito Valtellinese? And could you remind us the duration of the -- that you -- forward flow agreement?

So that's been from your last question, yes, you have -- you are right. We have the same view on the reconciliation, and we think we can leverage on the UniCredit forward flow. Contract, the expiring date of the contract itself is 2025 plus a run-off. So we are positive on the impact, the consolidation process underway amongst the Italian banks on our business and on our perspective. So on the tax question, I will leave the floor to Manu.

Yes. I'll go to the remaining 3 questions you had on the accounts. We feel that the consensus is reasonable. And the trend in Q1 is in line with our budget expectation. In terms of D&A, we mentioned that the overall amount for 2021 is similar to 2020. So it's not higher, although it includes the full year of Eurobank amortization. So on the contract side, the component is around EUR 50 million of amortization, and the remainder being other amortization related to other items of the asset side. This is because while Eurobank kicks in, the other amortization for the other contract is reducing over time. On the tax asset, we keep a conservative approach in the sense that we will -- are assuming of a larger perspective. A cash outlay at the time of the exit, at the time of the payment, which we assume to be in the third Q, when we have finalized the agreement with the tax authority and the potential gain when the settlement with insurance will happen, but we tended not to budget for the gain, extraordinary gains, until this is reported. So I would suggest for you to do the same.

Okay. Just a follow-up, if I may. So the insurance policy gain could be in 2022. So in 2021, you could have a cash out and then a cash in, in 2022? Is it better?

Eventually, it's possible. Obviously, we will try to do everything in 2021. But yes, in theory, good deals in 2022 that's why we don't budget for this event. We budget with the negatives. So we don't budget the positives because they are extraordinary events in nature.

The next question is from Andreas Markou with Berenberg.

All my questions have been answered.

The next question is from Julia Varesko with JPMorgan.

I have a few kind of almost follow-up questions on what has been asked already. So thank you for providing some indication of the outlook for collections and the ramp-up next year and also kind of an idea of how Q1 is progressing, is that it's in line with your budget. But could you just expand a little bit on these 2 points and give us an idea of the phase of the ramp-up throughout the year between Q1 towards Q4? Will this be a year with maybe exaggerated seasonality if we're still in somewhat not fully normalized conditions in Q1 of 2021? So just an idea of the ramp-up in the collection phase through the year would be very helpful. Could you also please provide an indication of anything we should incorporate into the net interest forecast for next year, if there's anything to bear in mind? And then another question I had is on, again, it's quite a top level. On operating leverage that you have within the business, how much spare capacity and scalability is there at present as it stands now? And when do you think you might need to start maybe hiring -- increasing hiring? That's it for now.

On the dynamic of the collections this year, I think, first of all, we are experienced in gradual back to normal. So in terms of projections, we foresee for the year the historical seasonality of our collections. In terms of collections in absolute term, so starting from the second half of last year and from the evidence we have from the collection during this Q, the first Q, this year, we are positive enough because the increase we see in the auction is significant. And I think, it would be material in the second half of the year. So all in all, same seasonality, historical seasonality. But we are positive because the sign-off of the back to normal in terms of collection are significant.

On the unit interest for example, maybe I would mention 2 points. While on the bond, obviously, we have fixed [ the bond ] over life. On the bank facility, we have an amortization schedule. So obviously, every 6 months, we pay a portion, 10% of the original amount, so EUR 41 million is [ EUR 0.5 million ], so [ 83 ] over the year. So every time we go down, obviously, we pay less interest because the portion is disappearing. Therefore, I expect net interest to go down from a pro forma 2020 figures for the specific quarter. I wouldn't include any income on the cash, given the current condition of banks. On the operating leverage, we have worked on the systems and to make them fully scalable. So we don't see, in terms of OpEx, higher IT cost related to new business. Actually, we work for the -- lowering them. IBM is an example, but also the combination of platform into less platform mix, their arm in costs are lower. In terms of people, it's the same approach. We have been working to give them better instruments so that the time to work on a single file is lower. It decreases by a significant amount with new capabilities. We have estimated that is upside between 20% and 30%. This means that if you spend less time on a single file, you can manage most file at the same time. So we don't see a topic of capacity even with the new flows coming on board. Obviously, when you have massive portfolio to mortgage, and it is more typical for markets like Greece or Cyprus, there is an adding effort if you are a portfolio, which are of significant size. And there are some in the markets as we speak, which are led by big portfolio sales by banks, which are different from Eurobank. And we are competing for this portfolio. So in case, we were awarded those, there would be additional item to do for sure. But we are talking about significant size.

[Operator Instructions] The next question is from Andreas Markou with Berenberg.

Actually, I have a follow-up servicing question, if you can mention anything about this. So according to press, you are bidding for a rather large portfolio in Greece, which is about EUR 6 billion to EUR 7 billion. Do we have any -- can you maybe tell us when we will be able to hear if you want servicing of this portfolio because my understanding that the process is quite advanced? Will it be in the next couple of months in Q2? Hello?

Andreas, yes. Yes. So on the frontier project -- the project, it's an important and sizable project. So the process is a long run, and we -- I think the final decision of NBG, National Bank of Greece, will be in June, not before June.

[Operator Instructions] There are no more questions registered at this time.

Thank you very much, and have a good easter.

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