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Ingenico Group SA (NYSE:ING)
Q1 2020 Earnings Call
Apr 22, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Ingenico Group Q1 2020 Revenue Call. My name is Rinkle and I will be your coordinator for today's event. Please note this conference is being recorded.

[Operator Instructions]

I will now hand you over to your host, Nicolas Huss, CEO of Ingenico Group to begin today's conference. Thank you.

Nicolas Huss -- Chief Executive Officer

Thank you. Good evening everybody or good afternoon and welcome to this conference call to discuss our first quarter 2020 revenue announced today. I am Nicolas Huss, the CEO of the Ingenico Group and I'm joined here today by Michel-Alain Proch our Group CFO, who will help me with the presentation. And also with us to participate to the Q&A session, we have Gabriel de Montessus, representing Retail and Matthieu Destot for B&A.

First, let me start briefly by saying that it is a very specific publication that we have today because of the COVID-19 outbreak that impacts in a way or another everyone. Let me take a moment to first say our thoughts go -- that also go out to those who have been directly affected by the virus. I truly hope that you and your families are well. I would also like to thank our clients for their support and finally, I would want to pass a huge thanks to our teams who have demonstrated in the last week their full engagement to our Company.

Now back to our Q1 publication. Michel and I are going to briefly walk you through the key highlights and performance of our two business units, Retail and B&A, but also give you a detailed update regarding the COVID-19 impact on the Group before of course taking your questions.

Moving now to Slide 3, I would like first to highlight the key operational events. So, with a global organic growth of 4%, our first quarter has been good and resilient in the current COVID-19 outbreak. Starting with retail, as you can see, the first quarter has shown a very strong start of the year, fully in line with our expectation, with a steady double-digit growth rate during the first two months and the half of the quarter on transactional activities and that in all business lines, leveraging the growth initiatives we have put in place over the past 18 months.

But the end of the quarter has started to be strongly impacted by the virus spread across the globe, the confinements put in place and by an overall drop in transactions. The situation has softened our performance and finally retail has delivered a 7% organic growth, which is still a strong performance in the current context. All in all, every one of the retail business lines are up organically between 6% and 8%, which is a good and consistent performance.

Regarding B&A in the middle of the shop, you will see that the activity has been resilient during the first quarter. Contrary to Retail, the virus outbreak has impacted the business unit over the quarter with Asia Pacific markets hurt at the beginning of the quarter and more specifically, China and after Europe and North America in March. But thanks to the global footprint of B&A, we have been able to deliver a 1% organic growth. This performance has been fueled by a strong 49% growth in North America, where our pipeline of projects built at the end of 2019 continued to deliver a steady dynamic. On top of that, we have been able to adapt quickly our supply chains, thanks to our Chinese exposure where we have seen the first sign of the COVID-19 effects very early in the year. And we used that experience to fuel bank and acquirers demand all across the quarter.

Finally at Group level, thanks to the Chinese footprint as I just said, we have implemented an early crisis management to track the COVID-19 evolution on a daily basis and taken, at the beginning of first quarter, the necessary measures to mitigate any potential impact on revenue on both business lines. Our first priority in that situation was of course to protect our employees. Then what we did is that we have put in place a strong and holistic action plan with a tight monitoring to preserve our profitability and cash generation. This action plan is already in execution and will deliver up to EUR100 million impact in 2020. But of course, Michel-Alain will tell you much more about it later in the presentation.

Last, our Fit for Growth plan is fully in motion and will execute all of the initiatives launched eight months ago. Based on the cautious approach, you will see that we have decided to temporarily postponing our EBITDA impact, the one related to retail revenue growth due to the current context. As you can see, our stock of the euro was completely in line with our initial trajectory, but that's everybody I suppose, the Group has been impacted by the COVID-19. Nevertheless we have quickly reacted, put in place internal actions to mitigate the impact and protect our profitability.

Now moving to Slide 4 to the key figures per business unit. Let me walk you through a quick summary of the key financial highlights for Q1 '20. As you can see, during the first quarter, we have delivered EUR658 million of revenues, representing a 4% organic growth. If we start again by retail first, you will see that its EUR341 million revenues up 7% organically and representing 52% of the Group revenues. Looking at the split by business line, we have SMB representing 18% of the total, 27% for Global Online, 27% for Enterprise and finally 28% for Payone.

On the more specific points, I would like to highlight that the enterprise organic growth restated from the strong positive impact of Healthcare Germany last year that you probably all remember had an organic trend of 16% in Q1, which is a very strong performance, consistent with the one that we observed last year.

B&A now. EUR318 million of revenue, up 1% organically at sales. And if you look again at the split by regions, we have 35% for EMEA, broadly stable, which in such a context is a good start of the year. Michel and I will come back to that, but at the end of February, the results were very strong. 32% in APAC and 15% for Latin America, both showing an organic decline, but contain despite the tough comparison basis in Q1 and the events that we all know. 18% for North America with a strong organic growth as mentioned.

So now let me provide some detail on our key business lines dynamic on the Slide 5. As already mentioned, all business lines performed according or above to our plan before the virus outbreak. Starting with SMB, which posted a 6% organic growth. The Q1 performance was above our expectations for the first two months of the quarter. But with the performance impacted in March by one, the effect of the lock down in some Nordic countries as well as in the Benelux regions, but also the slowdown of acquiring volumes. In that context, SMB has been able to pursue its expansion with a steady onboarding of another 4,000 merchants a month fueled by the online solution to subsidize in-store software activity and also the launch of the new merchant solution Pay by Link, which is a online payment solution fitting delivery and click and collect offering. SMB has also been able to deploy the two strategic channels that we initiated in 2019 with ISV deployment based on the Bambora Connect solution, both in Europe and in North America, that will a ramp up in H2. And the bundle solution offering rollout in Benelux as part of the fiscal growth plan.

Moving to Global Online, with an 8% organic growth, in Q1 transaction volume had strongly accelerated until mid-March with existing clients such as Electronic Arts or Valve. But the overall performance has not compensated the COVID-19 negative impact on the travel verticals in March and the global slowdown of transaction volumes. Just to highlight that point, Global Online performance mid-March was 15% growth derived from emerging regions such as Asia and Latin America, but does well from North America on the digital good and services vertical with a great impact of India. Lastly, in Global Online we have reinforced the current leadership with the arrival this month of Damien Perillat as the Head of Global Online, Damien being the former PayPal Managing Director for Western Europe. I'm really glad to welcome him in this new position as a member of Gabriel retail team and I'm convinced that he will play a key role in the growth acceleration profile of Global Online in the mid-term.

Moving to Payone now, at the bottom -- the top right of your slide, you will see that there is again a 6% organic growth. The Q1 performance has been impacted in the course of March with a minus 10% in net revenues by the lockdowns in the DACH region with a strong slowdown in transaction and acquiring volumes. To support the merchants in that period, Payone has launched #stayopen, a one-stop-shop new digital offering, providing online solution to small and medium instore merchants helping them stay alive. Despite that context, the conversion of saving banks and win of new direct SMB customers to the Payone payment solution continued with more than 1,000 merchant gains per month. Last, we stay convinced that the DACH region will remain fueled by the secular shift toward electronic payments. We have seen it quite frequently with a strong increase of card and contactless usage at shops, which remained open during the lockdown.

Finishing up with enterprise. I mentioned it's an 8% organic growth. The first quarter as been strong again with as mentioned a 16% organic growth, excluding the base effect of the Healthcare Germany activity last year. This strong performance has been driven by both transaction services and POS. The transaction services side has grown double-digit despite the marked slowed down in volumes and with a strong performance of our fiscal gateway transaction activity in Turkey. On the POS side, the quarter has been fueled by North America, benefiting from a steady renewal cycle among the large US retailer and the new open payment solution.

So now let's move on to Slide 6 and spend some time on B&A. Let me start with EMEA showing 1% organic decline. The region posted this 1% of organic decrease, which is above our expectation. The impact of the COVID-19 spread in Europe has generated some logistic issues in the month of March, after lock down of -- in most countries. For illustration, as mentioned earlier, at the end of February, EMEA was double-digit. Western Europe has shown a good dynamic mainly in France, Iberia and the DACH region and worse, not to see a key milestone in our transformation journey toward a more recurring revenue profile has been reached during this quarter when signing the first Terminal as a Service offering with a major European banking partner.

As expected, eastern Europe is back to growth after the plan engaged during the second half of last year. In Russia, though we have suffered from high comparison bases that Q1 '19 had benefited from strong commercial successes and it should continue to wait in the coming quarters on the overall performance. An another indication which is important, the APOS solution presented at the end of last year drives positive marks of interest from bank and acquirers that could lead to a meaningful revenue contribution for our -- by the end of this year.

Moving to APAC, with a 9% organic decline, the dynamic of the region came absolutely in line with our expectation, following the strong demand experienced in Q1. China revenue has been stable despite the lockdown of the country during the first quarter, benefiting from the end of year 2019 APOS orders delivered in March 2020. Southeast Asia came in softer on the back of a normalization in Indonesia, suffering from very high comparison basis. And India has been impacted in the last days of the quarter by the lockdowns implementation in the country, while the Pacific region is maintaining a good dynamic fueled by commercial successes and banks demand.

Regarding Latin America, a 6% organic decline. You have it at the bottom left of your slide, the performance is in line with our expectation with a Brazilian market normalizing after the strong dynamic seen in 2019. Despite a very high comparison basis, Ingenico Group has consolidated its market shares in the country, benefiting from a flexible production capacity to answer local acquirers demand. And in addition, it's worth noting that Columbia, Argentina and Peru are maintaining a good dynamic fueled by the contracts signed and a strong pipeline of projects.

Well, let me finish this page with B&A North America, which has shown an almost 50% organic growth, which is just amazing. The revenues from the region were very strong throughout the first quarter, with Canada being back to a normative level of activity after a challenging last year. And during this quarter, the US market has benefited from two main drivers. First, market share gains, mostly through our new ISV vertical and the development of our partner program, but also the second driver, a strong demand on the back of the EMV cycle renewals and some market share consolidation. The pipeline of projects remained strong in the first quarter and should be a solid basis for a continuous dynamic in Q2. Last, Mexico -- in terms of revenue, Mexico now report in North America and is stabilizing at a normative level.

After all of these operational detail, I would like to take a minute to make a step and highlight some initiatives that are important for us back in the current context, i.e our societal engagement in the COVID crisis. If you move to the Slide 7, you can see that we have taken several actions internally and externally regarding our societal engagement going through the crisis. First, I mentioned it was our first priority at the beginning of the crisis, we had to protect our employees. For that we have immediately applied all governmental recommended action such as all of the precautionary principle security distance between employees, [Indecipherable] product on premises and have been on the forefront of providing masks literally everywhere there is the an Ingenico employee on duty. This is where I realized once again how efficient is this company when it comes to logistics and delivery.

Secondly, our duty was of course to support our clients. And on the merchant side, we have launched an online solution at preferred prices across Europe to support instore merchants and help them to continue operating in the current lockdown environment. I mentioned briefly the German example, where we have launched the #stayopen solution in cooperation with ePages, the leading provider of online shop software in the cloud. The idea of this offering, which is interesting is that stationary retailers are forced to close their business temporarily due to the current situation, they can set up an online shop free of charge and not pay any for these until at least the end of June. If they have to keep their business shut for longer, the free offer will be extended. The free online shop can be ordered through Payone and Germanywide through the Sparkassen which are backing definitely this initiative.

As you all know, Ingenico is also at the forefront of the contactless limit increase that is now a reality in a lot of countries, more than 13 total. And it is facilitating the acceleration of electronic payments that would really happen post COVID. Not only we have started a global communication campaign to promote the use of contactless worldwide, but of course Ingenico also provided a lot of report [Phonetic] to make it happen.

There is one example that I like personally a lot, which is Hungary. In Hungary, we technically implemented the contactless payment as top of the emergency response to the pandemic situation. The limit has been multiplied by three to an equivalent of EUR42 that will allow to cover 90% of card present purchases taking cash away. And what we did is that we upgraded incredibly quickly more than 100,000 terminals on the market that is a -- of a size of 150,000 terminals altogether.

Regarding the society, we with the support of some of the large retailers, we also pushed on microDON, which is a micro gift solution to raise funds with the ultimate objective to provide and finance essential goods, food, sanitary product to caregivers and vulnerable people. And I was also blessed by some of our team's individual initiatives. For instance, the use of some free time from one of our employee to 3D print the visors for caregivers.

On top of that we have, of course, taken other measures highlighting our full engagement. Due to the situation, which could be considered as difficult for our employees, as we have put in place some home office and partial unemployment streams, we have decided to maintain 100% of full salary for our teams in this context. Then with the Board, we took the decision to decrease our compensation in the light of the virus outbreak with a 25% reduction from our own compensation on fixed and variable for the time of the partial unemployment, which is the exact sum that Bernard Bourigeaud our Chairman applied to himself for a fixed compensation, also during the time of partial unemployment. And on top of that, all of our Board of Directors have proposed a 25% reductions in their Board remuneration for the full year of 2020.

One last comment before I hand over to Michel-Alain, on the home working solution that has been put in place for everybody and is incredibly efficient, thanks to investment made on our IT teams in the frame of the fiscal growth plan, we now have more than 60% of our teams working remotely. As a very international company with physical presence like employees in almost 100 countries and covering 170 countries, we are very used to it and it's working incredibly well. These are only some examples and we do much more, but in the current virus crisis, I think the key point here is that all Ingenico teams are currently focused on top of the operational priorities to play their role in the society and to support all stakeholders.

Michel, if it's fine, will you, I will pass on to you to share more details on the outlook of Q1 and then a perspective on the full year of 2020.

Michel-Alain Proch -- Chief Financial Officer

Sure. Thank you, Nicolas, and good evening to all of you. It's obviously a very specific context. I'll try to explain you in the next few slides as precisely as possible the C19's impact on Ingenico and more importantly, how we reacted to it.

So, as mentioned by Nicolas, we had an early and strong response to the C19 virus spread. And while taking action to preserve the Group profitability and cash, we were always driven by the overall objective to preserve our strategic priorities in order to be able to accelerate revenue growth after the crisis. So here we have really three messages. First the Group positioning and transformation is fully on track, our medium-term trajectory is unchanged. And we are focused at managing the storm, while preserving the long-term strategic value of the Company. All Fit for Growth strategic initiative are maintained during the crisis and I will get into the detail of that in the next few slides. We want to be in a position to, as I was saying, reaccelerate post-crisis. On top, as Nicolas has already mentioned, we are completely focused on the manageable levers we have in our hand to mitigate revenue impacts related to C19. And for that, we have initiated early in the crisis a holistic action plan that aim at quickly adapting the cost structure, preserving Group profitability and cash generation. As Nicolas mentioned, this action plan will deliver EUR100 million impact in 2020, narrowing as much as possible the revenue impact with global objective to preserve our profitability.

So let's move to Slide 10 to explain you in more detail the phasing of our Q1 performance. So clearly on this slide -- clearly our Q1 has been quite peculiar with two different phases that are detailed in the slide. The first phase from January to mid-March, pre C19 and the second phase since mid-March when we experienced the impact of the crisis. So the first two months and half of the quarter were very strong with retail showing a growth in transaction value, up double digits and acquiring of 22%. All transaction based activities up a strong double-digit, averaging actually 13%. The POS pubs one in Enterprise, quite low, but as expected, deliveries materialized at the end of the quarter.

For B&A, an overall dynamism fully in line with our expectation, a strong dynamic North America throughout the quarter and EMEA double digits until end of February, which was fueled by banks and acquirers demand. The slight organic decline in Asia Pac and Latin America, as expected, mainly due to the high comparison basis that's for Latin America obviously and the C19 that's started early in China. So globally the start of the year was in the trajectory, even above our trajectory to reach our initial full-year '20 and mid-term outlook.

Now mid-March, we have clearly experienced a real change in trends due to C19 spread across Europe and North America with gradual confinements implementing in several countries. For retail, an overall drop of transaction in value down double-digits and minus 22% in acquiring with some verticals being much more affected as travel obviously and in-store and others like food, specialty retailers and even more digital goods and gaming providing traction. Due to that, we were overall down high double digits in the second part of March, and as Nicolas was saying, boiling down to an overall Q1 organic performance of 7%.

On B&A, in the second part of March, EMEA, which was double-digit, I was mentioning it at the end of February, has been strongly hit by the lockdown put in place by governments and logistic constraints. North America showed throughout March its strong dynamic, which is a reflect of the strong pipeline we built at the end of 2019. Latin America benefited in March of the flexibility and availability of its production capabilities. And finally, and that's a good news, Asia-Pacific restarted gradually in March.

Now let's switch to the next slide, Slide Number 11, which details the action plan we put in place to mitigate the C19 impact. So, as Nicolas already mentioned, I think an important message we have for you today, we were made very aware of the pandemic quite early in the quarter, with its impact in China, as you know, we have a large operation in China. So we implemented very early a cost mitigation plan that was first that addressing B&A and which was extended mid-February to the full company cost structure.

Obviously this plan is put in place on top of our Fit for Growth program. So if I first look at Fit for Growth, it is fully on track. All strategic initiative in 2020 has been maintained with both growth and cost action to continue. So you may remember that our initial EBITDA modeling was EUR45 million positive impact with EUR35 derived from cost initiative and EUR10 million from revenue initiative.

For the revenue initiatives being as an example, all out of SMB offering or international expansion of Global Online, because of the volatility of the revenue in the second semester, we have decided to exclude our updated -- from our updated EBITDA equation, the EUR10 million additional EBITDA impact derived from this revenue initiative, as we believe this will more happen at the end of 2020 or in 2021. So again, it doesn't mean at all that we stop this initiative, we are procuring them, but simply -- we were simply cautious on the EBITDA impact in 2020. So long and short, Fit for Growth will deliver EUR35 million EBITDA in 2020, that's our modeling,

So I'm not going into the detail of each initiative listed in the slide. You are already familiar with all of them and we will detail them in H1 publication. Now if I move on to the COVID-19 action plan that we launched, it will deliver an overall EBITDA impact of EUR100 million. It was launched as I was saying mid-February so it's already in full execution. It was in full execution, while entering Q2, that's very important. We followed in the design of this plan, three major guidelines. First, you will see in the next slide that we are forecasting a low point in Q2. So it was important for us that we would be able to decrease our cost base, sequentially Q2 on Q1. Second, again in the next few slide, you will see that we have modeled several scenarios for H2. We have set the magnitude of our plan to be able to absorb as much as possible the lost gross margin of the most conservative scenario you will see which we call Scenario 3. Our view is that it shows the recovery trajectory better. It is easier to lift restrictions in a better-than-expected environment than to impose more action in a worse-than-expected situation. Finally, none of the hundreds of action that makes this plan is touching our priorities. As I said, development of SMB, expansion of Global Online, Platform-as-a-Service for B&A, all these projects are untouched. Again, I'll let you read the detail of this plan, but let's put it this way, we are addressing all the line of our cost structure, which we present give or take EUR100 million [Phonetic] in between the EUR100 million from this plan and the EUR35 million of Fit for Growth, it's about 13% that we are extracting from our structure, again placing ourselves in the most conservative revenue scenario.

We are addressing labor cost obviously with full hiring freeze and partial unemployment in six countries and a few critical recruitment are approved directly and solely by Nicolas. We implemented very earlier full travel ban. Entering Q2, we implemented a 30% deduction on all external services. We saw strong decrease in subcontractor services. Again in terms of control, all external spend above EUR5,000 is approved either by me or by my two BU CFOs. In term of cash, we focused our capex on strategic priorities and obviously we are monitoring very closely receivables and exposure risk. So all in all, we expect to deliver EUR135 million of EBITDA impact in 2020 to mitigate the impact of the C19 on revenue and preserve as much as possible our profitability.

Now let's move on to the next slide, Slide 12 to explain you the phasing of the year 2020 based on the Q1 trading and hypothesis we have taken to build Q2 and H2. So first, we have built a set of hypothesis for the second quarter through a bottom-up analysis of our current trading platform by platform. Now that we have four [Phonetic] weeks in this crisis. So what we see is two-folded. First transaction volumes down 35% to 40%. We saw very large disruption by vertical and acquiring volumes down 30% in value and POS shipments are down 15% to 20%.

So to build now our view for the second semester, we took the following major assumption, which I think are very important. First, the staged end of confinements in Europe and the US from mid-May to June. Second, a progressive pickup in consumption, while stores reopen depending on sanitary constraints. Then a central travel scenario in which there is no international travel recovery before the end of 2020 and no new progressive pick-up on the regional travels and finally some potential short local reconfinements.

So, based on all of that, we think that Ingenico Q2 revenues should be down about 20% organically with 20% to 25% in retail and 15% to 20% in B&A. And that base in retail on the analysis of the transaction flow and in B&A on the shipments under PO we have in hand, you know that we have quite a good visibility for the next quarter.

So, now turning on H2 potential exit point and based on the above mentioned major business assumption, we have derived three following scenarios including different recovery curve. Scenario one, which is most optimistic is a return to the pre-COVID 4% to 6% organic growth guidance in Q4, leading to a mid-single organic decline in full-year '20, let's call it a V shape, it's a V shape with H2 being around a slight decrease in Q4 in the guidance. Scenario two, return to the pre-COVID organic growth in December 2020, leading to a mid-to-high single organic decline in the full-year 2020. It's a kind of U shape, if you want with Q3 being mid-double digit negative. And finally scenario three is the most conservative is a return to the pre-COVID organic growth in Q1 2021, leading to a high-single organic decline for the full-year 2020. It's a kind of L shape really with H2 being a couple of points more negative than H1.

So based on this modeling, all in all, we consider that the Group will be in a position to deliver a mid-to-high single organic decline in 2020. But we wanted to share with you how we have assessed, calculated, challenged this organic decline.

So now if I move to Slide 13 for the EBITDA impact and how we expect to mitigate this topline deviation. I think Slide 13 is a very important slide because it summarizes both our revenue modelling scenarios and our action. Beyond obviously the protection of our employees, which was our first priority, our main focus with Nicolas, Gabriel and Matthieu since the beginning of the crisis has been to protect the profitability and that result putting aside future growth driver.

So here you can see the building block of our EBITDA construction. I'm sure you remember the EUR606 million of EBITDA we published was last year. Taking out Healthcare that we disposed and the ForEx impact, it's EUR590 million, that's 29% -- say 21%. We first take into account the negative gross margin impact, we evaluate that at about 55% on the three scenarios that I just mentioned. Then the consequence of our action plan Fit for Growth of EUR35 million. As I mentioned, we did not stop the EUR10 million expected investments in the PPaaS in B&A to switch the business model throughout SaaS and recurring revenue. And then the new action plan that we call C19 action plan for EUR100 million and that we put in execution during the first quarter. So all in all, you see that this will allow the Group to deliver an EBITDA margin in 2020 better than in 2019. So, namely above 21%, whatever is a scenario of revenue is a range mid-to-high single-digit decline.

So, now let's move on to Slide 14 with the updated guidance. So summarizing the performance presented in the last slide. We expect now for the full year regarding the organic growth to deliver mid-to-high single-digit organic decline. Regarding the EBITDA, to deliver an EBITDA margin rate on net revenue above 21%, so above EBITDA in '19. Finally on the free cash flow conversion, we reiterate our conversion rate above 50%. Finally, in the context of this crisis and to be consistent with the partial unemployment measures we have taken, the Board of Directors have decided exceptionally not to propose a dividend this year. This proposal will be presented to the Annual General Meeting of shareholders on June 11, 2020.

Now I'd like to leave the floor to Nicolas for the conclusion.

Nicolas Huss -- Chief Executive Officer

Thank you Michel. So a quick conclusion if I could. Let me maybe end it strengthening the four key messages that I would like you to keep in mind. First, as you can see on the page, the resilience of the Group. Our Q1 is resilient and good despite the first impact of the virus spread as we have great assets, teams and clients.

The second one is around agility. We responded early to the pandemic spread with the quick implementation of our holistic action plan, which was complemented by the benefit of our already started Fit for Growth program that, you know, we launched last year. Growth today, as Michel and I explained, in full execution.

Third important point the execution. We will preserve and protect the Group profitability and cash generation, activating all internal levers available and also of course manageable. And the last point is about growth which you know is an obsession to us. So, we will overcome this situation without sacrificing our growth initiatives. I hope that you took that from Michel and I was very clearly, and this is true for both retail and B&A. And we will be ready to seize post-crisis opportunities thanks to these growth drivers. This strategy value is of course reinforced by the context of the Worldline deal.

Together with Worldline, we will create the European leader through a unique merger, we'd create value creation for our shareholders and an even better value prop for clients. As I said many times during this presentation, both management and our teams are really focused and committed on executing and delivering our objectives.

So if it's fine with you all, I will now pass on to open to the question that you may have.

Questions and Answers:

Operator

[Operator Instructions]

And the first question comes from the line of James Goodman from Barclays. James, please go ahead.

James Goodman -- Barclays -- Analyst

Yes, good evening everyone. Thanks very much for taking my questions. And if I could start with a quick clarification and then a couple of questions. The first one was just apologies if I missed it, and thank you for the detailed guidance that you've given. Did you say for the full year what the divisional growth guidance is implied within your mid-single-digit to high-single digit decline? And the questions are, please, in your most optimistic scenario, it still looks like you've got Q3 down high-single digit. That's probably close to 15%, 20% where you would previously have expected to be, but we're out of lockdown at that point. So, I guess my push back there would be is that not an overly conservative assumption for what is essentially your best case scenario? And then the final question please just wanted make sure I've understood the mechanics right around the strong cost saving program that you're putting in place, which is protecting the profitability. It looks like the above 21% margin is basically the worst-case scenario. The EUR100 million of savings, they look independent of the scenarios. So I'm just checking that's the case and therefore in the better scenario, it's actually you see perhaps even EBITDA up year-on-year despite the mid-single-digit decline in revenue in the best case scenario? Thank you.

Nicolas Huss -- Chief Executive Officer

Thank you very much James. Three important points, Michel and I will get it all for you. Divisional guidance question mark, Q3 down, is it conservative and then what about the cost savings mechanics?

Michel-Alain Proch -- Chief Financial Officer

Yes. So thank you, James for the question. So on the first point, we did not include into the new guidance the divisional trajectory because it's, as you may imagine James, it's already quite complicated to predict the second semester. But just to give some color, so basically we are saying a mid to high single digit. And you can count on retail to be in the full year a bit better than B&A, whatever I would say is the scenario, so that is the first point.

On Q3, I think you were right to ask it because basically our scenario is negative, which is double-digit, but not high-double digits. So, double-digits depending the scenario, it is a low or mid, but not high. So, apologies if you have misunderstood me, it was certainly my fault. And then related to 21%, so I mean you make the calculation and you'll see the level of comfort I would say we have into this guidance. As you know, it's our view with Nicolas that we prefer to be cautious in such a situation so I think the 21% is the floor? Yes. Can we do better? Maybe, that we are committing ourselves to be above 21%.

Nicolas Huss -- Chief Executive Officer

Thank you Michel.

James Goodman -- Barclays -- Analyst

Thanks.

Nicolas Huss -- Chief Executive Officer

If it's fine, we'll move to second question.

Operator

Yes, we have a next question from the line of Sandeep Deshpande from JPMorgan. Please go ahead.

Sandeep Deshpande -- JPMorgan -- Analyst

Yes, hi, I'm just trying to understand in terms of the cost savings that you've announced for the year, I mean EUR135 million. Is this included in that bottom end 25% -- or 21% EBITDA guidance or that this could be above? I didn't understand that earlier response to the question. And then my second question is, why is it that you are expecting the third quarter to see year-on-year decline in double digits, given that hopefully in stores will be opening up and you could go back to small growth, even if not any growth in the third quarter? Thanks.

Nicolas Huss -- Chief Executive Officer

Okay. So this one, again for you I guess Michel, it's on the same topics of cost saving and third quarter.

Michel-Alain Proch -- Chief Financial Officer

Yes, so on the 21% yes, I think what I want to be -- clearly that's all the entire cost savings spend being Fit for Growth that was already there, OK. But which is delivering EUR35 million and this new C19 action plan, a EUR100 million are included into this -- into the calculation of the 21%. So you will see that you take low, mid, high single-digit on our revenue, you apply a gross margin of 55%, you include this EUR135 million Sandeep and then you will see that anyhow we are above 21% of the EBITDA margin, which is for us important because it's better than last year.

Okay, in regards to the Q3, I think on the Q3 yet, there are a certain number -- we've taken three scenario, one in which we have a trajectory after the reopening, which is indeed getting better, but we have a pressure from the B&A. So altogether, we have a slight negative. Then a second scenario, which is roughly in the high-single and a third scenario, which is in the low-double. You can consider that as cautious, maybe it is, but again we prefer to be safe on the trajectory.

Sandeep Deshpande -- JPMorgan -- Analyst

And just one follow-up, regarding the Worldline deal, I mean, we don't know what Worldline results are yet, maybe they are similar to yours and given that the consideration is mainly in shares, I mean, what is the agreement that you have with that company? And does -- is there a chance that they will ask to renegotiate the agreement because of what is happening? There is a difference in how you're reporting revenues and they are reporting revenues.

Nicolas Huss -- Chief Executive Officer

No, I will let Michel-Alain, but the short answer is definitely, no. First of all, this is a strategic deal and second of all, I think we could have the discussion once we hear Worldline publication, which I guess is tomorrow. It doesn't seem at this stage probable or possible even that they would be a wrong decision. We feel very strongly that we have a very good strategic deal. Worldline has shown a great support and specifically Gilles Grapinet, the CEO, since the beginning of the crisis insisting several times in many, many opportunities on the strategic importance of this deal. So, we don't really think that what you are asking Sandeep is possible. Michel-Alain?

Michel-Alain Proch -- Chief Financial Officer

Thank you. Yes, first, to answer the second part, which is in term of reporting of revenue, we have exactly the same way of reporting -- of reporting revenues. So there is no difference. So secondly, that we've been working with the Worldline team together on pre-integration and transaction completion since 4th of February, obviously in the respect and context of the antitrust, but very actively, this question you have about the value never propped up. Clearly we are all together very much convinced of the strategic value of this deal. And last but not least Sandeep, I may want to add that in term of macro assumption, so I'm not talking about obviously the impact on our own business, which are specific to Worldline and to us that we cannot share obviously. But the macro assumptions, meaning reopening of the store, meaning the travel trajectory and so forth and so on has been shared with Worldline.

Sandeep Deshpande -- JPMorgan -- Analyst

Understood. Thank you very much.

Nicolas Huss -- Chief Executive Officer

Thanks a lot Sandeep. So, time of third question I guess.

Operator

Yes, we have our next question from the line of Adithya Metuku from Bank of America. Adithya, please go ahead.

Adithya Metuku -- Bank of America -- Analyst

Yeah, good afternoon, gents. Just one question from me. Just -- when we think about our pro forma models, I suppose in -- it's a question for Worldline tomorrow, but I wondered if you might be able to give any color on how the savings that you're putting in place, the EUR100 million will affect any synergies that they might be able to get out of Ingenico? Any color around that would be much appreciated. Thank you.

Nicolas Huss -- Chief Executive Officer

Michel?

Michel-Alain Proch -- Chief Financial Officer

Yes. So, Adithya it's a very, very good question and obviously one that I cannot answer in detail right now, because obviously we are not yet together. But what I can say that obviously such a plan, which is extracting a cost out of our P&L will allow Ingenico, while being merged into Worldline in the third quarter to come with an overall running cost base that is obviously lower than what we expected at the beginning of the year. Meaning that I don't think it's changing the amount of synergies, it's not me to answer this, I think it's more Gilles and Eric and Marc-Henri. But let's put it this way, we are doing our best to have the leaner cost structure while Worldline can get us in order to have the best possible integration.

Adithya Metuku -- Bank of America -- Analyst

Understood. Thank you.

Nicolas Huss -- Chief Executive Officer

Thank you very much. Do we have another question?

Operator

Yes, we have our next question from Francois from UBS. Please go ahead.

Francois -- UBS -- Analyst

Hi, thank you very much for the questions. I have two quick ones. It's a bit of follow-up on the synergies for Worldline, but EUR100 million, it's a big cost saving program. I mean you mentioned like 13% of opex, you did a review before, you had the cost savings already in plan. So this EUR100 million, what is it exactly? I mean I know you mentioned that labor cost, travel, but is there any particular area also that you are really cutting the cost?

And how do you make sure it doesn't impact your medium to long-term product, because I guess you would have cut the cost before that if you could. So I'm just curious about the magnitude of this cost saving program, just after one that you just finished. How do you make sure you don't impact your competitiveness basically? And the second one is on the saving. So how should we think about H1 versus H2 in this context, the cost savings? Are they going to be visible already meaningfully in H1? Just trying to understand like not to have a bad surprise in H1, when we see the EBITDA. So, would be great.

Nicolas Huss -- Chief Executive Officer

Okay, sorry, it seems that you're running the show today in China, so both of them would be for you I guess.

Michel-Alain Proch -- Chief Financial Officer

Okay. On the EUR100 million, obviously, it's a bit more than EUR100 million, but I think EUR100 million is what we think we have in our hand. In the phasing, let me explain you the phasing. The phasing is really coming from the most conservative scenario. We wanted to make sure that anyhow, we are figuring the levers to face what we call in the presentation, scenario three. Now our point of view and I've said it in the call but I think it's very important you listen to it, which is that obviously, if we see that we are in a V shape that would be great. We are in a V shape and travel is getting better and consumer actually getting back to the store quicker than what we expected. Maybe we will not do the full EUR100 million, because we don't need to do it, but it's fine. But we have put in place the different action that we shall meet if need be. So, that's the first point. The second point which is related to how have done not to hamper our future growth, it's not a top-down approach. It has been complete both on the process with Matthieu and Gabriel line by line and in which we have identified very clearly our strategic initiative in which basically we've put them and say, OK, this one, we don't touch at all, even if it's costing money, because we want to make sure that we are capturing the growth plus taxes. So, we have worked pretty much our run rate of cost. Nicolas, back to you.

Nicolas Huss -- Chief Executive Officer

Yes, maybe what is pretty important here is that we realize the magnitude of that, not of course to the full extent, but you may remember that China is where we have the biggest number of office. It's the biggest country in terms of employees. We have employees specific in Wuhan. So, we realized that something big was happening very early in the process, which means that as Michel was explaining, we did not rush to finding a solution mid-March, when Europe went into lockdown. We had plenty of time to stop ramping it up, looking at the different possibilities, understanding what should be done in order to keep the flexibility and be able to ramp up quicker when the volumes would go back. So for instance, only one example, not to bore you, but if you think about the contractors, we could have stopped a lot of the contractors work and stopped their contracts etcetera, we didn't go into that. Even for the one that are not employed by us, we kept them on the retainer, just to be certain that they would be ready to go through the door virtually or physically that they could be needed and that we would have the ability to ramp up again quickly. And it's the exact same process that we have for all the time. We have, I think, demonstrated over the past year and half that we have enough vision for growth and we constantly have had very strong results in terms of growth. So I wouldn't ask you to trust us, but I can assure that we are putting a lot of focus on that.

Maybe time for last question, I see that -- do we have another question?

Operator

Yes, we have our last question from the line of Henry Damiani from American Securities [Phonetic]. Henry, please go ahead.

Henry Damiani -- American Securities -- Analyst

Yes, good afternoon gents and thanks a lot for taking my question. Just a quick one regarding the transaction with Worldline. If you could give us some, I would say, feedback regarding where the process is standing regarding all the antitrust approval and I would say the communication you're having with Worldline especially regarding the fact that Ingenico due to, I would say, French politic decision and which is no more has decided to scrap its dividend. If this decision also has been taken, I would say, in line with Worldline point of view, if they are aware of it, even if it's only, I would say, Ingenico decision and Ingenico [Indecipherable] to do it. So just if possibly give us I would say [Speech Overlap].

Nicolas Huss -- Chief Executive Officer

Okay. So if it's fine with you, I'll start very quickly with the dividend, Michel will cover both the antitrust and Michel will give you an idea of how the transaction flow is going of the expense, of course with all of the team on both sides, quite a lot of time there. So the dividend decision has been taken of course by the Ingenico Board as it couldn't be any other way, you explained well that we followed -- of course the guidelines as we went through partial unemployment. Regarding Worldline, this is not something we have discussed specifically, but if I'm not mistaken, Worldline have been pretty consistent in not giving dividends since the IPO, might be wrong, please ask the question to Gilles tomorrow. Regarding the antitrust, everything is going absolutely smoothly and perfectly in line as is I would say the impression on the overall integration streams. Michel-Alain?

Michel-Alain Proch -- Chief Financial Officer

No, I think you said you said -- I mean we will obviously leave it to Worldline to give some color about all the different antitrust cycle, but we have very much mobilized with them working together in order to make that happen. And as of now, we are fully on track in term of regulatory antitrust, pre-integration, transaction completions, all this is green.

Nicolas Huss -- Chief Executive Officer

Okay, thanks a lot. So I think that we may, we have another question, which will be the last one, if it's on quarter one.

Operator

Yes. Last question is from the line of Adam Wood from Morgan Stanley. Adam, Please go ahead.

Adam Wood -- Morgan Stanley -- Analyst

Hi, good evening everyone, and thanks for taking the question. Appreciate you putting me at the end there [Phonetic]. Just very quickly, one of the risks in the acquiring business is obviously around the merchant risk that you take. Could you just say a little bit -- a little word on how you see that risk and how you are managing that through this year please? Thank you.

Nicolas Huss -- Chief Executive Officer

So of course Gabriel, you've been on hold for the moment. So we have a very, very accurate risk management process. So please go on and Michel-Alain has well part of it, if you want to say a word about it.

Gabriel de Montessus -- Executive Vice President, Retail Business Unit

Sure, thank you Nicolas. So first of all, and I think we've been quite vocal about this for the last 12 to 18 months. We've strengthened the team in terms of risk management, especially to fill up the acquiring portfolio in the last 18 months, I would say. So adding new competencies and especially in [Indecipherable] and as of today we consistently review our customer portfolio and have had a specific attention to all the travel verticals since 2018. We have had and continue to have to evolve on the strict bonding requirements for all merchants and obviously these conditions are even increasing given the COVID-19 context and especially with a specific focus on the travel industry. I guess today we don't see any material risk in our portfolio currently.

Nicolas Huss -- Chief Executive Officer

Thank you. I think that's very much along the line Michel and we constantly commented since -- when was it that we started? A year-ago, actually to make sure that we could optimally manage our portfolio. This cost us some cross points last year, but we're very happy that we did it and therefore we have a strong ongoing process and we are absolutely not letting the ball going away from our eyes.

Adam Wood -- Morgan Stanley -- Analyst

Thank you very much.

Nicolas Huss -- Chief Executive Officer

Thank you. So thank you all for your time and your attention and the questions, hopefully we will speak to you soon. Thanks a lot.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Nicolas Huss -- Chief Executive Officer

Michel-Alain Proch -- Chief Financial Officer

Gabriel de Montessus -- Executive Vice President, Retail Business Unit

James Goodman -- Barclays -- Analyst

Sandeep Deshpande -- JPMorgan -- Analyst

Adithya Metuku -- Bank of America -- Analyst

Francois -- UBS -- Analyst

Henry Damiani -- American Securities -- Analyst

Adam Wood -- Morgan Stanley -- Analyst

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