Good Investing Talks - Is Gruppo Mutui Online the best Italian company? With Marco Pescarmona

Episode Date: June 2, 2021

I had the pleasure to discuss the history and potential of Gruppo Mutui Online with one of the founders of the company, Marco Pescarmona.

Hello, Marco. It's great to have you on from Italy. How are you doing today? I'm doing pretty well. Thank you. It's great to have you on as a CEO or also the owner of Kupamutui Online, a very interesting business from Italy, which I think is one of the most interesting business from Italy. I find that is interesting that I'm also invested there. So full disclaimer, always do your own work. And what I'm saying here, There is also, my interview is also done as partly a shareholder and I also have some critical questions, but I'm also a shareholder in Kupamutui online. So please do your own work. Maybe I want to start with a nice chart I did get from your investors presentation. It are the major milestones you have in the company. Let me share it. This is the one chart you

give. I hope you can see it. Well, this one chart you you give from your investor's presentation, and it shows the milestones and the success you have. But talking about success is also a bit boring. So maybe I want to start with the question, what were the crisis, the setbacks and the problems you experienced on the way building your business like this? Well, we had a good number of them. Actually, we got into a crisis right after we started because we set up the business. and launched it in year 2000.

It was the final year of what they later called the Internet bubble. It was very easy for us, in fact, to raise Sidmani to start the project. And then while we were working 14 hours a day on building the company and not really worrying too much about raising the next funding, All of a sudden, the internet bubble burst, and it was impossible for quite a while to raise money for this type of activity. And that almost killed us between the end of 2000 and the year 2001. So the first thing that we suffered was the fact that we were in internet business

at the wrong moment, a bit too late. Then we managed to, you know, with a lot of effort to raise some money, by delivering very strong performance, you know, with a lot of work, and then we survived. But then we got into the subprime crisis in 2008. Right after our IPO, we were meeting investors, and they were all asking questions about mortgages

and if we had problems, and we didn't even know why they were asking about, for their particular concerns about mortgages and for a while it was okay and you know we had a reasonable period for a year after IPO but then all of a sudden the mortgage crisis

became apparent and nobody would even want to talk to a company that had to do with mortgages and that was our main business and we couldn't even get meetings with investors because they thought that anything that had to do with mortgages was risky that that was that's what was taking down the American financial system and so again we had problems and also our main clients, the lenders,

had problems at the time and so we had difficulties especially on our BPO side and finally third crisis because you know there is never, you always have a three after the two. Basically, it was the southern European sovereign crisis. That was actually probably comparable to 2000 for us because it was very serious threat to our business. At the time, we were still doing mostly lending and mostly mortgages. And all of a sudden, all the Italian banks, between 11 and 12, could no longer fund themselves on the markets, even the Italian state and very serious issues.

And from 2011 to 2012, our main reference market, which is the Italian residential mortgage market, declined by two-thirds. So from one year to the next, you lose two-thirds of your market and your revenues. and especially for the BPO business, which had a fixed-cost base, that was again a nightmare, but this was a nightmare across the board. So basically, every part of our DNA brought to a crisis. First, the internet, multi-online means online mortgages, then the mortgages, and finally the fact that we were Italian. So these were the three toughest moments in our existence. Maybe let's go back to the fact that you're Italian and from a German audience I did get to question if you might have to feel something like 2012, the Euro crisis and the mortgage market collapse again in Italy or is there something that structurally changes or changed in the last years?

Well, there are two answers to this. One is about the country and the general situation and the second is. about ourselves. And I'll start from the second part. From our point of view, even if we were to go through a 2002-like crisis, we are much stronger than 10 years ago. We are particularly much more diversified.

So we have businesses that, you know, are less subject to such a situation, like insurance broking or companies. price comparison or utility intermediation. And also on the BPO side, a lot of the businesses are more or less independent of the credit cycle and talking about claims adjustment or I'm talking about also the vehicle fleet management, the leasing and rental BPO and so on. So the business itself would withstand much better a similar type of crisis.

which, by the way, also generated a lot of opportunities. So it was not only bad because, I mean, it was a time when we could buy very nice businesses for little, not only in Italy. So we are stronger to withstand something like that. But the first part of the answer, going back to that, is that we don't think it's very likely that something like that will happen. again. And that's for a number of reasons. And I would say that there is clearly a much greater level of economic integration in Europe. So the idea, which was already a bit observed

at the time that Italy could be let, you know, collapse is much less likely. The monetary framework is such that it supports the Italian sovereign bond issues. It supports the Italian banking system. The banking system is a bit more decapable from the state. And also, I think that all that is happening now with the recovery plans, the pandemic recovery plans is also quite positive because these recovery plans are basically forcing local governments to undertake a set of reforms that are very useful for the countries that they wouldn't have the political ability to pass autonomously because of a lot of particular interests.

And so basically also in terms of, you know, increasing the efficiency of, say, the public administration, the court system, all the things that are not working perfectly well in Italy, I think that, you know, having these plans brings much more authority, let's say, to the governments to drive the change. so I think it's a very healthy situation overall I mean it's not good that you know we needed a pandemic for this but it was I think a powerful catalyst for change so again I don't think I think we could have recessions I think we could have maybe a slow recovery I don't know that but I think it's very unlikely that Italy both because Italy has been

has done and will be doing a lot of things, but also because the European framework has more cohesion, I think it's very unlikely that Italy will be subject to a sovereign risk like the one that we saw in 2012 for the next, say, 10 years. Maybe let's go to the lower end of the screen I shared with you in the picture. Under the line, you see that a lot of businesses were either built by you or edited by you. Like, maybe how do you get the idea of starting such a new business before you decide to buy or build? What is the common ground there? I mean, in general, our preference is for creating new businesses.

We see ourselves as entrepreneurs and creators and not only myself and Alex, but I would say the company, the group. So our preference is for finding opportunities that are just not exploited, that are maybe needs of customers, clients or potential clients, and we try to solve them. And we operate in the service sector and mostly in financial services, and we think that there are a number of situations like that. And as you learn more and also as the situation evolves, you keep identifying opportunities.

And the best and where you create the highest value, we think, is again, finding a need and trying to build something that solves the need, that, you know, creates value or efficiency or, you know, is a better way of doing something. And then you grow that business. And if the opportunity is there, you don't always get it right,

and you execute correctly, you might end up being, you know, the leader of possibly even a sizable business without having to invest too much. All our businesses are mostly constrained by execution, not by capital. So it's not a matter of the cost of doing things. It's a matter of getting the right idea and executing on that idea. So that's in general our preference But obviously that doesn't always work

And also it's a slow process But we are not worried about that So we do things for the long term So we know that what we are starting today We'll bring fruits in five years maybe Or maybe longer, it depends At the same time we realized And this is what we did for the first 10 years of our life

So we built everything internally, and we, for quite a long period, we didn't even consider the possibility of doing acquisitions. Then we realized also, thanks to the financial crisis of 2009, and more importantly, 2012, that we could do acquisitions. Then we started doing them also to accelerate a diversification, because they thought in 2000, 2012 was, look, you know, we are in a difficult situation, we, you know, we intervene to keep the company floating, you know, and making some money, but we said we want to be in a position to do okay and to grow again even if this situation doesn't recover, even if the worst happens. And so we thought, you know, we have some money in the bank. There are some companies we understand that are close to what, we do and let's try to do some transactions and we realized that you know we we were also able to generate some value in that way that was especially the first things that we did were good experiences and and so we realized that if we could acquire businesses that were that had either synergies or or that we knew how to run better or

or that, you know, commercially would fit better. And again, that's a synergy with our portfolio. You know, it could make sense to bring them within the group. And, of course, always with a lot of discipline on what we were willing to pay for the acquisitions. And in fact, we also realized, and this is quite important, that in many of the businesses in which we are present, there are barriers to entry. Both our broken division operates in businesses with barriers to entry,

and the same is true for our BPO division, which means that, you know, in many cases, the market leader has a very strong and defensible position if the execution is reasonable. So when we have the opportunity to acquire a market, leading business in a niche that is coherent with the activity of our broken division or BPO division, we, you know, that makes a lot of sense. And we know that in those situations where there is already a strong player, we wouldn't have a very strong chance of, you know,

building a strong position in that same business. So also growing with acquisitions is, is a good strategy and it's complementary to what we did, you know, in terms of organic things. And also, it's one of the few ways we can deploy capital effectively because, you know, internal investment opportunities are limited. You said something about identifying the need that I think as a business builder, this is more kind of an art than the science where you have clear rules. how are you going about identifying the needs of the customers? Do you look what others do in different countries or do you do deep surveys?

How are you going about that? Well, you're right. It's more an art, at least for us, than you know, a profession, let's say. So basically, you need to learn sometimes in detail the workings of a particular market, you know, a deep knowledge of what either the customer, if it's a consumer or, you know, maybe a financial institution needs or could be, maybe they don't even know they need it, but, you know, finding a problem, either again by knowing exactly how things work or even trying it yourself or

thinking about how they could work better is one way. The problem is quite often not only finding your ethical need, but you know figuring out

whether a solution, the solution that you could, and that's also a creative part of it because you know the need is maybe, you know, finding the best mortgage for me at the best possible rates. And that was one of the things we identified at the very beginning. And then how you deliver on that, you know, it could be an online comparison-based broker or it could be a completely different thing. So also the solution is quite, there is a lot of variation on the solutions.

And that's also quite creative. and figuring out whether the solution will work commercially in practice is not always obvious. So there are things that you think will be killer solutions and there is in the end no consumer demand. I don't know. For instance, we tried over the years comparison of bank accounts. And it turns out that despite the fact that everybody is a bank account, you make, and we are the leader in this specific business, tiny and doesn't really

become any bigger it always remains marginal while the same concept for other products is a very big business. So those two things are important in terms of tools I think we started

to use more tools like, you know, focus group hiring companies that will research on particular things etc. But it's more a way to confirm ideas than anything. And of course, there are some situations like when we launched Segujo, a long time ago,

Seguer is our insurance comparison business. It's a multi-product comparison business, but it's mostly focused on insurance. And we wanted to launch that as a brand-based business, so driven by television advertising. And we knew we had to get the brand right for that business, because it had to be something memorable and unique. And there we use a lot of research tools. But again, it's mostly intuition and knowledge of the industry. You know, it's weird, but all the time we keep thinking and talking about, you know,

how this is working, whether we could do this or that, whether, you know, we could create value by inventing or modifying a service. You know, we do that all the time. How are you, how autonomous are the businesses you build and you acquire? Yeah, no, that's another interesting question. And maybe gives me the opportunity to clarify one point, which is not always obvious about our business, which is the fact that within our group,

we really have two separate businesses. Our broken division and our BPO division are structurally separate and autonomous businesses with very limited synergies or these synergies for the matter. And then the question is, I would say, your question is more of an organizational nature. And I would say within our broken division, we tend to have a tight coordination of all the businesses.

I also have the chart prepared for this so people can see these two business lines. I was coming to that later, but now we go about it. Perfect. No, this is very useful. So looking at the, and the answer in terms of the organization is different for the two divisions. For the broken division, the broken division is a business that overall involves a relatively limited number of people because the operations are

limited mainly so it's a few hundred people and in the businesses of the broken division are run in a very coordinated way so there is today with the exception of price

comparison which is still kept to a certain extent separate but all the other businesses are run in a coordinated way by a general manager. I used to do that business, that activity myself, but now we have a general manager who is leading the broken division.

And again, that is done with a lot of coordination, in particular functional coordination. So activities like marketing, but also things that have to do with technology. and so on are done in a coordinated way. And this is quite the opposite of what happens in the BPO division, not fully the opposite, but I would say in the BPO division, basically you tend to have more autonomous businesses.

And first of all, there is the issue of complexity, because there are, I don't know, but between 1,500 and 2,000 people working for the BPO division. And so each of the businesses has a lot of people to manage. The clients, you know, while for Broking, the clients are consumers in the end, and users, because the guys that pay are. the product providers, but, you know, you have to reach consumers and talk to consumers in the end, in the broken side. Here, in one case, you talk to lenders, in the other case, you talk to insurance companies, in other case, you talk to asset managers, so it's quite different. So these are niche businesses where you are the super-specialist of a niche, that's where the barriers to entry come from, and these are complex businesses.

So you need a lot of domain competence. So the key and the most credible person within these businesses is, say, a business leader that talks with competence to clients and as all delivers to deliver, you know, what the client needs in terms of service. And so this is the main organizational dimension. So we are still working on, you know, we used to have more coordination here. We are working towards more independence of the business leaders and a set of shared services, which is what gives you efficiency and scale. For instance, in BPO, part of the IT services, you know, all the compliance, which is more.

and more important, administrative processes and so on. All these things are in common. But the business part, which is the key part, is driven by a significantly more autonomous business leader. And the point for us is really, and this is a point of also organizational design and tuning, is to find the right balance between the entrepreneurs, and accountability of the individual managers

and the need to have synergies and some shared services which bring order and and also efficiency. So that's a situation and this is for us one of the key open points as we scale the business because the answer that works for a small company is no longer the answer that works for a larger company as we are becoming. Maybe let me go back to the slide I showed before. How did the role of you and Alessandro change over time? I think at the beginning where you were just running the businesses,

but with building more, your role had to change a bit. We had to change a number of times. and so far it always worked well. At the very beginning, Alessandro was running the operations and I was more doing the growth, you know,

planning the growth and talking to investors. And this was very clear, especially in 2000 when, you know, basically my job became for six months to find the money to survive to allow the company to survive and Alessandro's job was to deliver the performance that we needed

to show you know to deserve that money and for a number of years we were you know I was planning the growth and it was running the operations then when we started with

the BPO division we started changing this type of organization and it naturally evolved as the two divisions really became two relevant entities a split where I would run the broken division and Alessandro would run the BPO division

that's been our main focus for a number of years And also, for instance, I was doing some other things like I was always more focused on, you know, talking to investors and so on. But in general, the main responsibilities were these two. and as the group kept growing we could no longer we realized we could no longer run the different businesses first end maybe it took us a while to realize that and we are a little bit late but we decided to start hiring managers that could take

over, especially the day-to-day responsibilities of, you know, running the businesses. And in my case, the solution was to focus more on a single person overseeing the bulk of the broken division, plus there is a person overseeing Trova Prezi. But it was more of, you know, an approach. of finding someone who could replace me with a general management role. For Alessandro, it was more a matter of designing the organization

and designing the roles for people that we mostly had within the group so that they could have full accountability. But in all cases, there is always a threshold when you realize that, you know, what you were doing before is no longer feasible just because of the work hours,

the demands, et cetera, and you realize that, you know, maybe someone that you take from either inside or the outside could do it better than you. And also, you know, you have a better life. But I think it's more importantly in, you know, in the interest of the company to have a stronger management because also it allows you to, you know, keep finding opportunities for growth. So how much free time do you currently, you both keep? No, we don't have free time.

The problem is we still don't have free time because it's like, it's like, you know, the company is like here that is taking all the available space. So you add an extra room and, you know, it expands.

So basically my focus is for instance more on, say, overseeing the administration area I'm more involved

maybe in M&A I'm more involved in things that are let's say a bit more strategic nature or that have to do with regulations and other things that you know that are relevant for our businesses

you know When we started, first two years, we were working 14 hours a day, 365 days a year. So that meant 14 hours even on Saturdays and Sundays. Then it became more normal. So we would work, say, 12 hours a day and work a half day on the weekends. And then in recent years, it's even a bit more normal so we can, say, count on the weekends off. And, you know, we are no longer tied to the desk, but still we are working much more than an employee, let's say. This is our more than full-time job, and we try to reduce it, but it is still our more than full-time job.

In the end, I think we are happy with it. And maybe that brings me to the question of ownership and I also prepared a chart on this. You're currently with Alessandro, you're currently holding 32% of the company. And let's make an experiment. If I would say I would like to buy this 32%, and you would send you an email and ask for some, you were willing to talk about it.

what should I write in there to convince us that you're willing to sell or like even talking about selling hey tell money here I'm sure you're curious about the answer to this question but this answer is exclusive

to the members of my community Good Investing Plus Good Investing Plus is a place where we help each other to get better as investor day by day if you are an ambitious long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to good minusinvesting.net slash plus.

You can also find this link into show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. Maybe let's go back to 2007 and help me understand why you did choose the way to go to the stock market. What was the reason? We had raised money from private equity or better venture capital at the beginning. And by the way, we had raised it at times that was not particularly favorable for us. And our commitment was to give them a liquidity event.

and we realized that going public was a good liquidity event because it allowed them to realize a return on their investment but would give us a lot of strategic freedom because what we suffered and I mean I'm positive about the experience that we had but it's more about the setup that we were concerned what we suffered was the fact that was a different type of horizon for a financial investor of that type and our horizon. So we thought we had a lot of opportunities

that were sometimes for the long term and we were not interested, for instance, in doing cosmetic things that make you look better today but don't really bring benefits for the future and maybe bring complexity for the future. So basically with the IPO, I and Alex, and we never sold shares, especially we didn't in the IPO, became basically the masters of our own destiny.

And obviously we knew we had to deliver, which I hope we did. But we knew that if we delivered, you know, we would be allowed to keep running the company in the way that we thought most appropriate. why did you choose the way to give back capital to investors by dividends and not buybacks because if you look over the long term it would have been more value creative to buyback shares well we did both but and we fully understand the point and we are quite in favor of buybacks in general. The problem are

the regulations that allow us to do only a limited amount of buy back over time because in our case there are some regulations that say that in order not to interfere with the stock price you're allowed to buy back

I think no more than 20% of the daily volumes which in the past were quite limited for a number of years. So we had a permanent buy-back program for almost since IPO, and that brought us to buy back 6, 7% of the company. Also, we had some stock option plans for our employees. So part of the shares we bought back, we consumed.

Today, I think we have around 5% of shares. But again, we are super in favor of buybacks. You could also do them with tender offers, but it's more complicated. You need a prospectus. It makes sense if you think there is maybe a gap between intrinsic value and the stock price, and that is stable.

So in order and you have the liquidity and so on to do that, that could generate value for all the shareholds. in being sensible capital allocation, but we never had enough time or we were never ready for something of that type. And in general, our view is, to the extent we are able to use the capital ourselves, we use it. It's not always easy because, as we were saying, you cannot really invest much within the business. without doing an M&A.

And it depends on the opportunities we have. We are selective in terms of, you know, the quality of what we buy and the price we are willing to buy. And that, again, creates limitations. But, you know, and if there is, if there is a, by the way, you know, we are not looking to build empires. We'd rather have a smaller company that is working pretty well than, you know, keeping buying things.

So we don't, you know, given the choice, if we are neutral, we don't do things. We don't do M&A. We do MNA only if we really think it creates value. It makes our life more difficult, you know, more complexity. So, you know, it's, it's, but, but. If it's a good capital allocation, we do it. If, you know, we don't know what to do with the money and we think there is a stable situation, we would return it as dividends or buybacks.

How much cash do you want to keep at hand or what do you think about that? Well, we are not particularly allergic to debt, but at the same time having lived in risky times, at least for our company, we want to always have a certain level of safety. So our businesses are all quite cash generative. So even if we take that, it tends to repay itself quite rapidly. I would say we would not be afraid to take that

to do value creating M&A. We found something that really made sense. Obviously, we would take a bit more risk or a bit more leverage if we had really compelling opportunities. But the other point about that is that what we have found

an effective combination is to have both cash on end and some leverage because when you do MNA at least this is our experience in Italy sometimes over turbulent times is that if you have the money in the bank and you do an acquisition and you can say hey we use available cash

and you know it's in the back account and you can show it in a way you are much more credible and it's your own decision because when you need the bank financing for a specific transaction then the bank starts asking about the business plan the combined business plan what do you think of the market you waste a lot of time explaining things to you know people that don't really know what you're doing but it's impossible to know what you're doing becomes a lot of bureaucracy so our approach has always been you know we buy things with the cash that we have, and then later we arrange the financing or, you know, recharge the batteries

and so on. So the current configuration, for instance, is good. Maybe we have a bit too much cash, but, you know, we have cash and we have that and gives this type of flexibility. If we were in, you know, very well-running markets, if we knew that bank financing is always available, then probably we would offset the two. So that's our view about that. We already talked a bit about M and A and heard between lines something like price discipline and not paying too much.

Like when are you feeling, what are the multiples you feeling fine with buying other companies? Well, anything about a single digit is a is already a bit

of a stretch for us it really depends on the businesses actually. Of course, a fast growing business or a business with synergies

would deserve a higher multiple. So we really look at the different situations. I would say for most of our acquisitions over the years

we were able to apply a multiple of no more than say nine, but between seven and nine. Obviously, that's ideal and it depends on the business. Sometimes we did things at more expensive prices either because there was growth there or because we knew there were hard synergies. But those were more the exceptions.

And in general, we don't pay big prices because of generic strategic value. We pay prices for specific things. And also we consider what the alternatives are. if we could build something or do something different so that's a way we look at it but

and we don't look too much of course we have to take into account what the markets are for the assets but if the market is paying crazy prices for something the most likely thing that we will do is not buy the asset and not match the market

price you mentioned synergies have you really found them in the acquisitions you did because often synergies if you look deeper it's just an advertisement word for saying that the buy was good no no no that's true that's true i i think we we found we we never bought much based on the synergies uh we we we acquired the company that was doing real estate where we had an identical company doing the same, and the synergies were that we put together the IT systems. And in fact, as you correctly say, instead of putting them together in one year, you know, we are still working on it.

So it takes a bit longer. And so eventually we will have the synergies, but they took a bit longer. We see sometimes commercial synergies, which we never price in. which are normally the fact that we have maybe higher level or better relationships that help to sell the, say, BPO services of the companies that we acquire. Well, one case where we had fast synergies was with a recent acquisition of a utility comparison business.

And there basically the way you are remunerated is with volume incentives. And our business was significantly smaller than the acquired business. And basically our volumes were switched from, you know, a low pricing commission bracket to the top bracket because it became the incremental bracket of the agreement of the acquired company. So that was quite immediate instead of getting, I don't know, 90 euros per contract. We were getting 140 euros per contract on our existing volumes. So sometimes they are tangible, they are there and they are predictable. In many cases, as the IT example, you know, it still takes a lot of work to extract those synergies.

maybe let's go back to this overview i already showed you with the you know it well because it's your overview um of the different divisions and um my question revolves a bit about the customer and the surplus you give to the customer but as these are different businesses maybe let's go first about what is the customer or what are you customers well okay let's look at the division. Here we really have two different actors. We have the product providers that are

our clients or maybe customers even they are the people that pay us for what we do. And basically they pay us normally for helping them to

sell their products to consumers. So it could be a bank that you know, provides mortgages or could be an insurance company, they pay us commissions for introducing business to them or even in some cases closing the business on their behalf. But in this type of business in particular, this is very interesting because on one side you have these clients that pay you for what you do. On the other end, you have the consumers that are the ones that really bring you the business. So the way it works is you have to provide service and benefits to consumers so that they come to you,

use your service, and as a byproduct of your service, you provide introductions to your clients that will pay you commissions because these are again intermediary or marketplace services. And so in this type of business, you have to make two parts. is happy. You have to make, first of all, and this is where our focus is, the consumer, because we always try to build lasting businesses where, basically, which are based on the idea that the consumer comes first. So we try to provide significant value to the consumer so that they are happy of what we, of our service, and they come back. And, In fact, this is, for instance, embodied in the fact that we always try to offer, you know,

we compare products or services. We always try to do that in the most transparent and impartial way. And we always try to offer the best product, the cheapest product or, you know, maybe it's other features other than price, to the consumer for his own needs rather than, you know, what pays us the highest commissions because commissions are not always aligned. So we sacrifice something for the short term because we know that in the long term, this will pay. Also, it's our ethics.

So this is the consumer first principle here. And that's how we deliver value. So basically, you know, we are really the best way for people to make both. the right choice and the cheapest choice for a lot of household or financial needs. On the other end, we have to deliver value as well to our partners because they want to, you know, to acquire business profitably. They compare us with other channels. And basically, the idea is we gave fairly, you know, correctly towards. them, we try to be their most efficient customer acquisition channel, and that's taking into

consideration, both the price that they pay us, but also the risk that we deliver to them. For instance, one thing that we do is we try, also it's difficult in our business, but people try to do that, we try not to interfere in the, say, approval decisions or credit or risk decisions of our partners. So that means that normally the risk of the clients that we deliver to our partners is better than the risk that they get from other channels. So they get value not only because, you know, we are variable costs, reasonable cost in terms of commission, but also because they get better clients.

And that's because we don't interfere with their decision processes. We don't try to find, you know, tricks that make things happen. So that's basically the formula. And thanks to the fact that, you know, we are the most efficient channel, we try to get the best products in the market and get competition. So it's also a virtual circle. and really our channels for a number of businesses are really the most efficient way for demand and supply to meet in the Italian market.

And that's what we are trying to achieve more and more as we keep developing the businesses. On the B.O division, the clients are, say, institutions, mostly financial institutions, but could also be other actors. Like sometimes it's, I don't know, for instance, owners of fleet of vehicles for losing rental BPO, sometimes on public administrations, that's quite minor. But in the end, here it's simply client first. And what we do is, within our BPO, the idea is we run very specialized processes better in terms of quality, cheaper.

And basically, we share these advantages with our clients. And that means our clients, you know, if they did things in house, which is normally the main alternative, would have lower quality, maybe, would have certainly much higher costs. The cost would be fixed. So basically there is a value gap between, you know, what we can deliver, let's say, if we operate at cost and what it would cost them to do the things in house.

And then basically this value is split between us and our clients. And depending on, you know, the level of competition, the alternatives and so on, the value is split half and half or, you know, more towards one side or the other. But in the end, we know we have to create tangible value for our clients. So, and this comes from the fact that, you know, again, we are specialized. we have our own systems that are always

proprietary systems that we have a lot of competence that we have the scale that we have the diversification so we work with many clients in the same vertical so we can manage capacity better

so we have a number of intrinsic factors that create efficiency and quality as well that give us an advantage and thanks to that we can serve our clients better and we see our clients as partners

and again we don't charge for every exception or change that they ask for or anything we tend to have simple and transparent pricing and long-term relationships and we try to have a fair split of the value that we generate between us and our partner clients

how do you make sure that in all those different processes the quality for the customer is good or even great well we again depends on on the different businesses the consumer businesses you just ask the consumers so you do net promoter scores you keep monitoring a lot of KPIs what are your numbers there no I mean there there are no I mean there are no numbers that that we discussed, but let's say, you know, net promoter scores is, you know, net is, is 85 to 90% for mortgages. So basically there are almost no people that have complaints. And within BPO, what we track are a lot of key performance indicators.

So sometimes the clients, sometimes the clients are very much on top of it. So if there is a problem, they will report it immediately or complain. Sometimes they even exaggerate. But quite often, you know, they could be a bit attached. So and then maybe they realize there is an issue all of a sudden after two years. And if that happens, you have a problem. And it's very difficult to recover from that. So we always try to run the business with keeping.

KPI that we monitor at even at detail level for the main processes and so on. And if any, if there are issues with any of those KPI, we intervene, even if the client is not really complaining. Obviously, it's always a matter of balancing capacity and the number of needs. We, you know, we, you know, the delivery. But we always monitor the businesses in a numerical way, which is quite detailed, so that we make sure that things, or SLAs, let's say, but sometimes there are SLAs, sometimes they're just internal TPIs.

We always make sure that internally things are monitored and run in a way that is good for the clients. Let's make another experiment. let's think an unfair god comes to you and says you can only keep free of these businesses business arms there and you have to pick the one that you think that will perform best over the next 10 years which one would you pick you can only keep free okay of all the TV visions well certainly I would keep mortgage broking because it's It's always been strong and there's a lot of barriers and we think it has a lot of upside still. I would, now it gets difficult. I would, you know, even if it's a small business, I would possibly keep consumer loan blocking because it has a lot of growth potential

and maybe we didn't run it perfectly well in the past and this is running at a national market share of 1%. This in all other countries is 10%. I would want to gamble a bit on this. And then within BPO where I'm bitless expert, expert, my gamble would be maybe on one of the new things. One that is quite interesting, that is also a challenge for us, is an insurance BPO. Maybe I would try to keep that, even if it's again a gamble.

Because this is a totally unstructured industry, and if there is, consolidation, if it goes from a situation where insurance companies work with individual professionals to a situation where they work with companies, we tend to win big time in this business. And again, I've made a choice of one safe bet, which is mortgage broken, and two risky ones. So just to, you know, aging. Maybe let's go a bit deeper into risky ones, because what is attractive for you in them that you say like in 10 years or let's say five years maybe 10 years is a bit too much out but what could

happen what good could happen in these businesses if they perform well well could happen that they grow by by by multiple so they become for instance consumer loan broking becomes five times what it is now or you know we could build as an insurance BPO such

a strong and leading position that you know we would have a very strong player for a very long period of time those are the things basically these are the situations where we see more change happening

or more potential change happening and so you know they are interesting bets but the truth is the question you asked is an unfair question because unfair God sorry no no but because the reality is all of our business

have broken division as an underlying penetration trend that is across the board and it is visible for all the products and they will all have you know maybe with a random work but they will all have significant upside and for the BPO division the outsourcing trend is also a clear trend that gives us across the board a significant significant upside. So, you know, it's really picking some random bets. What are the problems that you experience across the businesses that still are, what you would call hurdles you have to cross or the challenges you have in these

businesses? You don't have to say for every business you could pick one or two or three or, yeah. No, but I would say for all the broken businesses, is the point is the challenge is that in theory you know you would expect

penetration of the internet channel to increase over time the reality is that you know you have to make things happen for this to happen so you don't see

just an increase in business volumes by itself it normally happens because you keep innovating, you keep doing things, you keep spending more on marketing. So translating on the broking side, what everybody thinks, and we also think is a clear potential

into actual growth, is an execution channel. You have to continue delivering improvements on a lot of things. Because there is an expectation that there will be growth. But by itself, you know, the growth doesn't fully come by itself.

You also have to do things. That's one side. On the BPO side, I think the issue is managing the complexity. And the complexity is coming in many cases from regulatory evolution. It comes from the authorities, it comes from GDPR, it comes from a lot of IT compliance requirements. And, you know, being agile, being entrepreneurial, you know, and at the same time managing in a correct way this complexity. So we don't want to take risks, but we don't want to become a bureaucracy. So managing this balance in a way that is effective so that we are still faster and more agile than all the potential competition.

But at the same time, without taking unnecessary risks, that's a challenge for our BPO division. Is regulation making you stronger in your mode and your business position? how do you see it i think it is i think it is i mean because it's it's it's another thing that is you know deepening the most entering some of these businesses uh is now very difficult you know also some of the companies we acquired were set up you know by by people that were expert at something and that a few initial contacts and without any particularly formal structure

but just by being better at their specific field they were able to acquire clients and you know today they would no longer be able to start similar businesses they would have to you know get a DPO get this or that

they have 10 procedures in place before they even open the doors so I think regulations in both In all of our businesses, it's making market entry for smaller players, unstructured players, even startups. You know, it's making it quite difficult.

At the same time, you know, it's a drag on everybody. So it is reducing the efficiency of what we are doing sometimes. But longer term, I think it's going to be positive for the business. For the entire system, I don't know, because too much regulation tends to reduce innovation. But for us, I think in the end, it will be okay. So another experiment, let's say we are meeting in five years again and I show this chart again. What might have happened, like could there be a third angle or a fourth angle like Kupomutui Online France, for instance? or could there be more verticals here?

What do you think? What is most likely is that there could be some more verticals under BPO. Because there are things that fit that either we could develop internally or acquire, but I wouldn't rule out new verticals in BPO. Within Broking, it is more difficult to. find new verticals. And

in terms of, you know, Muti Online France, I think that's quite unlikely. Because our strategy is, I mean, we think we have a lot of growth opportunities. Even if, you know,

maybe we don't expand the scope too much, but we have a lot of growth opportunities and our capital is execution capital in the end, what drives the growth. And this is an execution capital, which we try to expand by enforcing the management, the IT staff and so on, is better deployed in Italy where we have experience, where we have contacts, where we know how to do things, where we know the regulations. So we think that as long as we have opportunities for growth in Italy, we think we have

plenty, we'd rather stay at home. Of course, if someone comes and wants to sell us for cheap a nice business in France that maybe we know even how to restructure and it is sizable enough, maybe we would consider it, but it would be very opportunistic and we consider it unlikely. So if someone wants to make us a big gift in Germany, you know, we will take the gift, but we are not even looking for that. yeah i see it's um yeah like also thinking about the experiment in um five years could they be one of the business that's not anymore on the list that you might have closed because there was too much competition or no no that no no i never say never but i don't think there is

any any risk of this type in terms of you know closing a business what i think i couldn't rule out, but this is what we always say also with investors, is that, you know, maybe these two divisions are not designed to fit together. You know, there is a capital allocation synergy, yes, but the two businesses are independent. And maybe there are evolutions, even regulatory evolutions or, you know, other changes that, you know, will increase our propensity to split the two things off. So we could either have split the group into two separate businesses or one could have been sold for a ton of money to someone who was really keen to get to, you know,

to take it. So, you know, a possibility is to have only one of the two divisions left. I don't know which one because we like both. but that's not because it would run out of business but because it could have been separated or maybe sold so competition can

can't really hurt you badly or is there a chance that competition might be a problem for one of the we've we've had a very intense competition for a very long time

so you know can become sometimes the but that there is no competition that we think could kill our businesses. And again, these are businesses with, as you say, MOTS. And the MOTS protect us and also the other incumbents in these businesses. So it keeps competition normally to, you know, it remains intense, but it doesn't become crazy. And the risks are more, let's say, maybe technological risks.

So, for instance, you take the BPO division as an example, if, you know, you had intelligent systems, so artificial intelligence, general artificial intelligence, of a quality that could do the tasks of, you know, specialized employees that, you know, the guys that work for us and maybe do underwrite a mortgage or, you know, process, complex activity, you know, if you could have that type of general artificial intelligence,

then these businesses could change dramatically. Could be either that, you know, we are, adopt all of that and we end up running the same business with very few people and more like, say, technology guys and design guys and so on. Or this technology, you know, makes our type of business obsolete. Or say, insurance broken. It's mostly motor insurance. If because of technology, car no longer have accidents, there is no reason. you know, to have insurance or the premiums would be so tiny that the business will evaporate. So these are risks that we don't see as immediate risks,

but in theory are longer-term risks. Competition is, we think, manageable and not, not, not, you know, it's part of the way it should be. It will not kill us. So you also see the risk of Google or, Amazon is manageable, or do we have different concerns? Yeah, that we see as manageable. We have had the full impact of Google in e-commerce price comparison.

Google even was fined for an abuse of dominant position for its activities in e-commerce price comparison because the commission decided it favored Google shopping in unfair way. And of course it created a lot of damage. It reduced the potential of our e-commerce price comparison business, but still the business is alive and is profitable. So obviously it reduced the potential, but didn't kill the business. And in the other verticals, I think it will be more difficult for Google, in particular, or Amazon, to enter as a direct competitor for a number of structural reasons. So we think those risks are also manageable. And also, you know, the risk of the entry of those players normally comes from the fact that they have

such a dominant position that they might try to leverage. So if that is legal, then, you know, there is more risk. If that is made more difficult, say, by new legislation that the European Commission that Europe is considering, then I think it's even that is under control. So, you know, we are not afraid of fair competition in general. Do you think we, you know, we can beat and, you know, or defend ourselves pretty well? You already made the point that you're a focused Italian company and you will have some investors coming back to Italy traveling again soon. And if they meet you in meetings or if they meet you over soon, what are the stories you have to tell them to understand Italy better and what are the unique points of the Italian market compared to maybe the markets they come from?

Well, the truth is that there are maybe fewer differences, or let's say, if you look at a number of figures, you will see that the Italian market is maybe behind in many of the services that we provide in terms of penetration. But then if you look at the population of the country, the education level, et cetera, the differences are not too big. And so it's mostly a matter of adoption of our services. And I think it's like, you know, with supermarkets, you know, when, you know, When I was a kid, we would go shopping to a small store, the milk store in front of my house, and we would buy a few things and were just two guys running the store. And that was the normal way of shopping. There were no or very few supermarkets.

And I would travel with my parents to France, and we would stop and visit the supermarkets, the hypermarkets, because they were huge and completely different. and they were really interesting for us to see. And so back at the time, Italy at the local stores and France had the supermarkets already like the US. Today, the two countries are exactly the same from the point of view of retail distribution. I think this is the same type of situation.

So we will see a convergent towards a very similar situation for a number of reasons that depend on the individual markets, Italy is behind in the curve, but we will get to a very similar point because, you know, when they tell you that, you know, Italians are not so interested in saving money, you know, that's not true.

You know, it's that they don't know, they can do it in a particular way. They are not used to, you know, doing things with a, you know, to do a transaction with a computer. But as soon as they learn, they're fine, you know. So the differences are in terms of a degree of maturity,

but there are no fundamental differences, we would say. And also, you know, as we look and talk to people in other markets, you realize that there are many more commonalities between European markets than you would think. So, like, regulations are, you know, increasingly becoming convergent. A lot of things are becoming convergent. So my point is, you know, there is nothing particular special about Italy, you know, that you need to understand to interpret what could happen. you know, it's a European country with, you know, people that are very similar to fellow Europeans.

You mentioned that Italy is some years behind. Now we had COVID with some tragedies in Europe as well in Italy. How did this change your business trajectory? Did you jump up 10 years in the future? or what does you take? We saw a good acceleration. We hope it's not a one-off effect.

Certainly there is a lasting component. It was like a first training session for a population that was not fully trained for the use of digital devices, channels of communication and so on.

So I think this was let's put aside the, you know, the said aspects of, you know, the pandemic, the losses and so on. But this was quite positive for the digital evolution of the country. They think for a country that was a bit behind Italy, the beneficial effect was probably bigger than what you had say in Germany or other places where some things were already commonplace. you mentioned one-off effects

do you think it's where do you think it could be more of a one-off effect or where could you think this might be a structural change no I think it's more of a structural change and it's basically a force training it was a force training for the Italian population and the fact that we were behind

probably means that the positive impacts of this force training where more significant, are more significant than the impact of, you know, in other countries. And I give you an example, for instance, you know, now to get the vaccines in Italy, you basically need to have a sort of a government ID, a digital ID,

which is a secure ID that you need to log on to do the booking. And this is a standard ID, form of ID, digital ID, that you can use to access all the public services, so be it the tax authorities or, you know, the health authorities, whatever. And the adoption of these digital IDs was quite limited before. And now, given that you need to have it for the vaccines, everybody has it. and this allows you once you have learned to use it it's quite simple to get

you know certificates to get this and that in a simple way that was already there but people just didn't use it or realize it so we really once you have learned to do these things you know you understand that they are easier you know in the new way and no I'm very positive about

you know what happened from this point of view. That's interesting to hear. This year you had a special good year because you also had this tax benefit and maybe also the effects of COVID. Do you feel a certain pressure over the next

years to be as good as this or how do you think about it? No, I mean, we never felt pressure because of our results and we never try to smooth the results. So we try to do as best as we can and we know that, you know, there could be ups and downs.

So, you know, it would be, of course, challenging to deliver a good performance after the one, the extraordinary one of 2020. But, you know, we just do our best and, you know, and the results will follow and, you know, what they are depends on. on a number of factors. But no, we, you know, we don't feel, we never felt pressure because either of the stock price

or, uh, or, or of the results, especially when they depend on, uh, external factors. To come to the end, I want to do an outlook. So how do you think about Kopumutui online in like five or 10 years? Do you have some kind of vision where you say, um, we will be there in 2000? Or are you going very opportunistic and down to the ground and hardworking about it? Well, the thing is we have an implicit vision, but we don't articulate it too much. So I would say we keep growing what we have, we'll be opportunistic, and we'll try to explain the options

that present themselves to explore the options that present themselves but you know this is not done you know in a blind way this is done really by trying to understand how the industry

will evolve how the markets will evolve what happens in the rest of the world and charting an implicit strategy to exploit or you know prepare ourselves to exploit the

opportunities You know, we don't articulate it in an explicit way. And, you know, the most likely outlook is that you will find as, you know, with maybe a slightly broader portfolio of activities with stronger positions, bigger and with stronger management, and maybe, you know, we will have addressed some of the challenges that we were discussed before

and some of the other challenges such as, say, artificial intelligence will have translated into opportunities. For the end, I want to give you the chance to add something we haven't discussed. Is there anything that's interesting about Rupamutu Online and you want to add?

No, maybe I'll just say that I and Alessandro are still sitting in the same office and it's you know we've become a medium-sized company but it still feels like you know not a startup but a bit just a bit more than a startup is are there any startup traditions you still have in the company like Monday singing together or something like this no no no no we No, yeah, no, we don't do any. No, we were quite normal in a way.

We don't do anything that stands out. We just, we are business people. We try to build, you know, something that makes sense for all the actors, for consumers first, and this tries value, and we want to make our shareholder as happy. And, you know, all that we do are simple things in the end. Then thank you very much for the same. insights and that addition of many sample things you gave me today.

Thank you very much for the time. Thank you. Thank you, Tim. Bye-bye to the viewers. Bye-bye. As in every video, also here is the disclaimer. You can find a link to the disclaimer below in the show notes. The disclaimer says, always do your own work.

What we're doing here is no recommendation and no advice. So please always do your own work. Thank you very much.