Nexi Spa Azioni Ordinarie

Good afternoon. This is the Coruscall Conference Operator. Welcome and thank you for joining the NEXI First Half 2020 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Paolo Bertoluzzo, CEO of Nexi. Please go ahead, sir.

Thank you very much. This is Paolo. Good afternoon to all of you and welcome to our first half 2020 results presentation and call. As usual, I'm here with Bernardo Mingrone, our CFO, and Stefania Mantegazza, who's leading our investor relations. We have a few other colleagues that may help us in cases needed that in the Q&A session. I anticipate that we'll have probably a slightly longer than usual presentation this afternoon. And the reason is that we try to give you as much as possible clarity on what is happening around the COVID situation, most importantly the recovery after the lockdown periods. And the presentation will be basically split in two parts. This COVID update that I will be leading, and then second, obviously, we'll cover the results for the first half of the year, and Bernardo will be leading that session. And then, as usual, we will have our Q&A session. So let me start from the executive summary as usual on page three. As you probably observed, the COVID-19 situation in Italy is currently under control. We normally have around 200, 300, from 100 to 300 new positives per day, depending on the day, with less than 50 people still in intensive care across the country. After two months of very strict lockdown in Italy, they were March and April basically, we had a reopening phase, a phase two that started at the beginning of May when basically we were having our first quarter call. And then a phase three started in June with a gradual return to normality. Also, international travel recently reopened with some country-specific restrictions in place. And as you know, the situation is changing on a daily basis, but that is, broadly speaking, the situation. The first half of the year, transaction volumes aggregating, acquiring, and issuing has been down compared to last year, about 17%, with a gradual recovery across all components from May. In particular, the two areas that are still behind, although recovering, are all the travel tourism sector and across sectors of international travelers contribution. We show data on this. Our acquiring volumes last week rolling, and you see again all the details here, was at around minus 9% with a strong recovery across category over the last couple of months in particular acquiring volumes on the Italian cards so net of the foreign cards are now back to pre-COVID levels while as I said foreign cards are still behind we are observing and we also give you data on there's a progressive reopening of the commercial activities with transacting merchants levels now back to pre-COVID and 2019 levels Obviously, as we said in the past, e-commerce saw a strong acceleration outside of travel industries during the lockdown period. This is actually continuing. The numbers we reported is about a 35% year-on-year growth for the first half of the year and a 43% year-on-year growth in the second quarter. As I said, net of the travel, tourism-related sectors and restaurants. If you take e-commerce overall, it has been slightly down minus 2.8% due to the important effects in the travel industry. Last but not least, we start to see early signals of acceleration across different sectors and industries of the structural shift from cash to digital payments. That was already happening. We start to see some signals that allow us to be thinking positive about the possibility what is happening is creating an acceleration in that transition. Page four, continuing executive summary. First, after your results, first of all, we just want to remind everybody that at the end of June, I would say a bit earlier than expected, we have completed the acquisition of the Intesa San Paolo Merchant Book. And therefore, given the nature of that deal, that was including the fact that the full economics for 2020 would have been coming to NEXI regardless of the date of completion. The numbers that we are reporting today are both with INTESA book contribution for the first half as well, and without to allow you to have comparisons, starting from next time, we'll only report including INTESA book contribution. Said that EBITDA in the first half has been going down minus 3.9%, including the organic contribution of INTESA. On a standalone basis, without that contribution, it has been actually negative 8%. On the revenue side, again, including Intesa, revenues have been down 6%, while on a standalone basis, it was about minus 8.5%. As far as the key business data are concerned, merchant services and solutions commercial activities are now back to pre-COVID levels. I will give you a bit more details, and we think this is positive. We are launching a new proposition in particular, one is called, I'll say a few words, a few more words later on. We are accelerating our pipeline of large merchants and many channeling propositions and actually commerce is having a step up in terms of gateway activations. On cards and digital payments, also here the activities are gradually recovering, even if they're not yet back at the level that they were at in the past. And you have certain areas of acceleration such as, for example, international debit and digital more in general. Third area of business, digital banking solutions. Here we see an accelerated interest, I would say, around the open banking ecosystem proposition and a good trend on self-banking and digital corporate banking and more advanced solutions. On the cost side, we are implementing our 100 million euro cash cost containment plan that we announced back in May. Also thanks to that, but not only thanks to that, the costs were down for the first half of the year at around minus 9.1%, and Bernardo will give you more details, including an update on where we are in our cost containment plan. As a consequence of everything I said before, the net debt on EBITDA financial position is at four times EBITDA, including the intensive merchant acquiring book and cost of acquisition. You remember we raised over time about a billion to fund that acquisition. Net off debt component actually would have been, despite COVID-19, at 2.9 on a standalone basis, which we believe is just confirming what we committed to you in the past in terms of trend of reduction of the time of our leverage. As you know, we suspended our financial guidance back in April, given the fact it was very difficult and is still very difficult to have a clear view of how the recovery will continue. Nevertheless, we are starting to have clearer plans and therefore we are keen to share with you what our ambition, I will not call it guidance, but in many cases our current plan and ambition is for the year. We see the possibility to come back to positive revenue growth towards the end of the year if the path of recovery continues along the current trajectory. If that happens, thanks to The cost plan that we are implementing, we have the ambition to grow EBITDA versus last year, including the organic contribution of the Intesa book. Without that contribution, we would be kind of in line with last year. With a full year EBITDA that we believe could be close to 600 million, including obviously the full effect of the Intesa book acquisition. On top of these, given the fact that the capex will be lower this year compared to last year, we expect to have a material growth in EBITDA minus capex versus 2019 with and without the intangible contribution. And again, as we said last time, we confirm to have a strong cash position, which is particularly important these days. Now, let me go into the update on COVID and the recovery out of COVID and what we see happening. Page five is simply the evolution of the same page we did present to you back in May. Here you see in gray the curve of the current positive case. They were peaking at above 100,000 back in April, and now they are trending towards 10,000 with a gradual decrease on a daily basis. The people in intensive care, which is clearly a very, very relevant measure because it's not just counting numbers, but it's also adding the concept of how severe is the virus and the situation. At peak, there were about 4,000 in intensive care. Now, the people in intensive care across Italy are less than 50%. Key dates on the right. As you remember, on the 18th of May, you had the reopening of retail businesses and restaurants with certain restrictions that in most cases are still in place. On the 3rd of June, free travel across Italian regions were allowed again. It was not possible to do it before that. And we also had the reopening to EU travelers that were incoming to Italy. On the 15th of June... travel across European frontiers was reopened, and we also had the reopening of certain entertainment activities, again, with certain restrictions. At the beginning of this month, in July, extra-year travel was allowed with country-specific restrictions, and now, on a daily basis, there are small changes to what the barriers, restrictions, and conditions are. As a note, we said last time that the Italian government was putting in place, as many other governments, a major support economy and society support programs. Curitalia, Liquidita and Rilancio were the three big names out there. Now, as you speak, the government is discussing a potential new support package for about 25 billion. And as you know, Europe has approved a recovery fund for European country and the amount of money that should be dedicated to Italy is 209 billion euros, which obviously creates the opportunity to invest in many different areas and relaunch many activities that have been suffering in this case, but most importantly, create a better future for the country in the long term. Now, within this context, what has happened on volumes? Let me move to page six. This is exactly a similar graph to what we've seen in the past. Here you may remember our combined acquiring and issuing volumes were kind of growing at 5% to 10% depending on the week and the month before COVID. With COVID, the lockdown went down to minus 50%. And when we met last time, we were already at around minus 30, minus 35 type of thing. Since then, with the reopening happening, the trend has continued to improve. Most recent data suggests that we are now trailing around minus 4, minus 5, minus 6, minus 3, depending on the week and depending on the various phasings and seasonality. That is the shape of the recovery so far. As I said, there are, however, very specific underlying dynamics that we would like to explain to you a bit better. Let me start, first of all, to show you what is happening when you separate Italian cards from international cards in acquiring here. We need to separate acquiring from issuing to make sure that we can understand the underlying dynamics. So on page 7, you see basically the same type of curve so this is the weekly rolling week year-on-year growth rate for acquiring only and the dark blue line you see it's minus nine percent last year and here with the lighter blue you see what is happening for the italian card that as you see over the last few weeks have been coming back to break even positive actually plus six in the last reported week. While actually the international cards and therefore the inbound travel to Italy, tourist but also business, is still very much behind. During lockdown it was at minus 95%, like I believe in most other countries. As the reopening was starting, Disney started to improve, as you see, slowly, very slowly in the beginning, a bit more, a bit faster, in the recent weeks, but it's still at minus 60%. And this is particularly important because in this season in particular, you also have a mixed effect because as you see below the graph, while normally on average throughout the year in acquiring international travelers would account for about 15% of the traffic, this is obviously very different across seasons and months. because during the winter it's much closer and the fall is much closer to 10%. Well, actually, as you get into the summer, you see, for example, July, normal July, 2019 July would be actually above 20% contribution. And therefore, there is a mixed effect that in this specific moment is working against us. And obviously, as we will exit the summer and go towards the fall, it should work in our favor. and so on and so forth as the underlying dynamics continue to move. So, bottom line, Italians and Burkina are actually starting to come in the positive effect. Also, including the negative contribution of the travel sector, foreigners are still very much behind, recovering slowly, but I would also say steadily. What is happening in terms of sectors? And again, here we continue to look at acquiring. Page eight, this is exactly the same page we did use last time. I know it's a complex page, but maybe now it's a bit easier because the second time we see it together. As a reminder, we have organized the different mergers categories and grouped them in three macro buckets. First of all, on the left, you see the basic consumption, which is basically groceries, Medicare, retail, utilities, and similar type of services, they account for 35% of our last year total volumes. Second, generic discretionary consumption. Here, you have clothing, household, and the various purchases that are more discretionary, and therefore, in theory, you can also postpone them. These accounts for about 34% of our total volumes. And then last but not least, the high-impact consumption, we're regrouping Basically, everything is travel or entertainment and leisure related to hotels, restaurants, travel, transport, and so on and so forth, which accounts for 31%. Again, there is an underlying mixed effect. I will show you in a second the numbers by category. Although there is a mixed effect because in the summer period, normally, the 31%, that is a yearly number in terms of weight of the impact consumption, actually decreases. goes up to 36%. And therefore, again, throughout the year, there is a negative mixed effect for this period that is somehow shaping our numbers. So it's going sector by sector. Table on the right, basic consumption when we met, we said it was kind of stable, actually growing double digit throughout also the COVID period. And actually, as we exit in the COVID period, this is continuing to run. You see 13% in May, 14% in June. Over the last week, again, another 14%. Interestingly enough, on Italian cards, this is a plus 18%. The contribution of international travelers actually would be important across sectors because it totalizes more than 20%. So also in this segment, you have some contribution from international travelers that today are not traveling to Italy yet. Again here, basically you had a solid performance and contribution both from physical and e-commerce. Actually e-commerce you see it's running at around 40% to 50% depending on the period. Second block, generic and discretionary consumption. This is where obviously with the reopenings we have the fastest and steepest recovery. It was down minus 77% in the peak of lockdown. May was already back to 33%. Now it's back to minus 11%. I'm understanding the last week positive on Italian card. And here you see again e-commerce actually running fairly fast. It was already running at 20-30%. Now it's running north of that 36% in the last week, but normally it's anywhere around 40%. Last but not least, the impact consumption segment, which is obviously the one that is also the most affected by COVID. by the incoming tourists from abroad. Here, this was a minus 90% basically down, minus 70%, minus 46%, minus 20% in the last week. Actually, it's already minus 6% on Italian cards. There is another point which I think is a good use at least for Italians. If you take within this segment restaurants, from Italian customers last week it was positive for the first time after a longer period which is particularly appreciated I would say again here e-commerce is also suffering although is recovering in parallel or a bit faster than physical all in physical channels are at around minus 10% Year-on-year, e-commerce is now back to positive as the first two sectors contribute and accelerate and go very fast, and the travel industry recovers. That's about it in terms of sector dynamics. We also share with you how the mix in between smaller merchants and larger merchants is evolving. It's actually on page 9. This is a question that came to us a few times from investors, so we felt it was good to provide some clarity here. If you take our portfolio of merchants on a pre-COVID basis, the mix of volumes were about half-half between large merchants and SMEs. During the lockdown, this mix went more in favor of the larger merchants. A lot of them are into large retail, and by the way, a lot of them are were organizing themselves faster than the smaller merchants. So you see it locked down to around 37% of the contribution from SMEs. I think the good news is that over time the weight of the SMEs went back to the previous levels and very much in line with last year numbers as well. So it's actually around 50% or north of 50% and actually this recovery these dynamics apply both across physical and e-commerce. Another topic that for us is very relevant is how fast the shops and the retail activities have been reopening after lockdown. And this is also a question that we receive quite often from many of you. Page 10, you have a little bit of similar analysis of what you've seen before. So this is the weekly year-on-year movement compared to the same week of last year across the three macro categories. And this is actually the number of merchants that are transacting compared to last year, same week, last year. So here you see that in the blue line, the dark blue line is actually the total, and then you see the three macro segments. So you see that before COVID, the total was kind of flat here over here. with some specific sector dynamics. While we were in lockdown, only about 70% of them were transacting. As we got out of lockdown rapidly, the situation improved. And then we got to end of May, around 14% less transacting merchant chance compared to last year. And then since then, week after week, you see how We had more and more merchants transacting, and right now we are marginally below last year's level, minus 2%. Again, here you see different dynamics by sector. In fact, the basic consumption sector has a growing number, went very rapidly back to growth. The reason why you have more and more merchants transacting is because more and more merchants are getting the terminals, and this is actually the effect of deep penetration of digital payments. Well, actually, you see that the other sectors are still a bit behind. In particular, travel and tourism is at minus 8, minus 9 percent, kind of recovering one percentage point per month. So this is the overall picture of what we observe in terms of dynamics. So, again, in natural, fast, I would say, also strong recovery, not yet. at the levels as a total of last year, back at the levels of last year if you exclude the contribution that is not coming as it should be. From international travelers, the two key areas of pain, if I may say that, for the economy at the moment and also for our volumes remain the travel and tourism and entertainment space and obviously the contribution from foreigners. I think there's been enormous debate across the industry around how have consumer behaviors changed, people behavior changed over this lockdown and now what is happening in terms of propensity to use digital payments and shifting from cash to digital payments. And I think all of us have a strong perception that this is happening. I think we've all seen lots of market research that is saying that this is happening. But the reality is that it's still very difficult, given the underlying dynamics, to have specific data that are giving a size, a number, to this dynamic that is reliable enough. So let us try to give you on page 11 a bit more insight on what we see in terms of speed of growth. And here on the left, we picked certain categories where we've seen specific already accelerations. These are categories that were pre-COVID, that's the gray area in the positive space or kind of flattish. And in here, with the dark blue, you see the acceleration that we are observing today. So, for example, let's take one in florists and nurseries. It was going at around 15% before COVID. Now it's running at 39% year-on-year growth. And therefore, there is a doubling of the speed of growth. Or, for example, electronics that were kind of flattish are now growing 20%, and furniture is kind of doubling, and so on and so forth. Here we have selected some categories where we felt that this effect was already visible. Obviously, there are many others where, unfortunately, it's still difficult to have this clarity because the underlying consumption is still weak and is recovering. On the right, we've done again an attempt, an exercise to try and help you and ourselves and obviously you to understand what is happening. Here we took only Italian consumer cars, so trying to clean from the effect of other components such as, for example, remote working for commercial cars and obviously being bound traffic from foreign users. And we also focused on the basic consumption, generic consumption areas. And here you see that on a total basis, the rate of growth is already around 13%, 14% with actually basic consumption running at around 20%. And this was not necessarily happening before the effect of COVID. Now here we have more analysis that is trying to address the other more specific questions. Okay, fine, but is the penetration of digital payments growing or not? And here we decided not to show you data because there are too many assumptions, too many nexus analysis type of components here and therefore we really don't want to take any risk of misleading you. However, what comes out looking at specific cases and bigger samples and so on and so forth is that probably while in a normal situation digital penetration was growing a kind of 1.5 to 2 percentage points per year, probably as we speak is growing more or less twice the speed. It's probably around 4%, 5 percentage points year over year. We'll continue to observe this and we'll share with you as we go along what we believe is really reliable and can be fully drafted. That's about it in terms of volume updates. A quick business update on the key initiatives also in the context of the COVID situation, actually the recovery situation, so that Bernardo can then run faster as we go through the results. You may remember we said that we were trying to capture as early as possible the changes of behaviors of of customers and help them with the recovery. If you take all in what is happening on merchant services and solution, as I said before, we are observing commercial activities coming back to normal recording levels. In particular, if you take the post-installations that suffer, as you can imagine, while shops were closed, is now actually accelerating and is running faster than last year. In June, we did activate about 20% more merchants than last year. There is strong demand for solutions that allow merchants to transact from remote or in a very agile way. So, for example, strong mobile POS demand for small and micro merchants. As I was suggesting before, we launched NexiGo. It is a new proposition. It is actually packaging things that we already had plus new things. It is really targeting SMEs omni-channel digitalization, providing a very light type of solution. Also, for example, for remote commerce and e-commerce, for example, through social commerce. So even smaller merchants who don't have technical capabilities can actually start selling cross-channel in a very simple way. And we've done this through a list of partnerships. As I said before, we're accelerating our large merchants omni-channel project pipeline. There was a startup, and it's obvious to be confirmed as we go along, but we saw a startup on e-commerce gate with activation. Basically in the second quarter of this year, we did activate twice what we did activate last year. Actually nine times if you include pay-by-link. Pay-by-link is the solution we launched three months back to allow merchants that didn't have any e-commerce presence to be paid from remote because they simply send an email or a text with a link. The customer clicks the link and they can pay as if it was a normal e-commerce transaction. And finally, just to continue to talk about digital, and digital assets you know the penetration of our next business app on label merchant is now about 50 percent with actually a 60 growth in active users in june versus june last year on cars and digital payments as i said commercial activities are recovering fast but not yet at the same level of last year renewed interest in international debit as an e-commerce mass market product at the same time we're supporting national debit a bancomat that is a very strategic product also for us to develop more digital and e-commerce ready capabilities while we're participating to the next generation platform tender that is ongoing. We see strong demand for our commercial and corporate payment products. YAP is continuing to grow on a more organic basis and, of course, lower because at the moment we're not pushing in big marketing efforts. And we see an acceleration of our digital onboarding and digital issuing projects. And last but not least, as you may have read also yesterday from the press, we are working to extend the no-pin contactless limits also in Italy from 25 to 50 euros. This is something that will go over time into place starting probably by the beginning of next year because there is a technical rollout. There are certain issues to be addressed. We can do that across both the acquiring side of the business and the the issuing side, not just from us, but also from everybody else in the market, and in particular, the banks. Last but not least, before I leave the floor to Bernardo for results, as a reminder, on page 13, we closed the Intesa merchant book acquisition successfully at the end of second quarter on the 30th of June. despite the COVID emergency. We were given a full, clean European anti-stress approval. Actually, the commentary around the market test that was done was actually very encouraging, also in terms of the competitive dynamics and the outlook for more of this type of deals. As a reminder, we're talking about 180,000 merchants who transact about $68 billion euros per year in 2019 as a reminder again we bought the asset for about a billion euro plus a potential earn out in 2025 and together with this we have a market agreement plus the extension of all the other contracts we had in issuing and other areas with them within PESA until 2044 As a reminder, the economics of this book are into NEXE account, will be into NEXE account from the 1st of January this year. The size of this is about 60 million cash flow contribution generated by the Aquarium book in the first start and transfer to NEXE. financials about 100 million euro of revenues 95 million euro EBITDA net income of about 60 million euros and again here on the right as a reminder again you see that thanks to this to this deal the share of business that we have in merchant services and solutions goes up to more than 50% and within merchant services by now about 50% of what we do is through the referral or direct acquiring business while we continue to develop business with the other banks in the other business models that obviously continue to execute in parallel. With this, I will leave the floor. Bernardo, take us through that.

Thanks, Paolo. I'm on slide 15 now. So we start with the slide you've already seen, and it helps understand the dynamics or what drives the revenues in our business and the costs in our business. I think once you understand the structure of our revenues and our costs, and have all the parameters that's easy to predict or to rationalize the performance. So we start by reminding you that half of our revenues or just over half of our revenues grow but are not driven by volume growth. They're driven by the growth in install base. And this is clearly less affected by COVID or has been less affected by COVID in the recent months. And that approximately close to 40% of our cost base is actually comprised of variable costs. 20% of which or half of this variable cost base is actually absorbing part of the lost revenues by falling in size thanks to the fall in volume growth. Within the various businesses we have a slightly different mix of install base and volume driven revenues. This helps understand why the different business units perform differently. Merchant Services and Solutions has the largest portion of volume-driven revenue, 64%, and then a third is install-based driven. This ratio is inverted in cards and digital payments, where you have approximately 60% of revenues driven by the install-based and 40% driven by volumes. And Digital Banking Solutions is almost entirely reliant upon install-based revenues. So with that said, I would move to slide 16, where just a word of warning, as Paolo mentioned, When we agreed to purchase the merchant book from Intesa back in November last year or December when we announced, we agreed that we next year would take the full benefit or the underperformance of the book from the 1st of January, even though we closed the transaction and knew we would close the transaction after the 1st of January. In actual fact, it closed on the 30th of June. So we have the full economic benefit as of the 30th of June, as if we had owned the business on the 1st of January. And so we're representing our performance for the year to date and we'll do so going forward for the full year 2020 on a performer basis. We've given you also the breakdown of what performance would have been like without the book. But as we have the economics of the book from the 1st of January, we believe it's the right way to look at our business and it helps you better monitor performance also going forward. So starting with revenues, you can see how revenues in the quarter declined 13%. worse than what we reported in the first quarter. This is due to the timing of lockdown in Italy. As you know, lockdown was progressively introduced from the beginning of March and impacted us in full in April. And only halfway through May, we started to exit the lockdown. And this obviously is reflected in the volume dynamics Paolo showed you earlier and therefore translated into loss of revenues. For the first half, revenues were down 6.3%, so even there, slightly better with Intesa Book than without the protection mechanisms we have in place, guaranteeing a kind of floor to revenues in EBITDA from this acquisition. If we look at the EBITDA, the fall in revenue translates into fall in EBITDA in the half of almost 4%, with an EBITDA margin accretion of approximately 200 basis points Again, primarily driven by the fact that the book we bought from Intesa has a very high EBITDA margin, being the transfer of revenues essentially with the costs already in place at Nexi through the Mercury Payment Services acquisition a few years ago. At a group level, that is the overview. If we go into the various business units on slide 17, we summarize the performance of merchant services and solutions. I mentioned the mix in terms of install-based and volume-based, so merchant services and solutions is the division which is most exposed to the falling volumes given its highest reliance on volume-based revenues. There's also a number of other effects we've summarized in the notes here which have impacted us in merchant services revenues, I would say. Obviously, in terms of Volumes, we have lost all foreign travel, most of foreign travel. It's not picking up, but in the second quarter, the travel restrictions in place basically made it such that volumes from X-ray EA or indeed even intra-European travel were much lower than they were last year, and that has impacted this division more than the others. We have a mixed effect with large customers, as we call them, delivering better in terms of volumes during lockdown than SMEs. From a revenues perspective, these are less profitable clients than SMEs, and this mixed effect has also impacted us. However, the performance in the quarter and in the first half, I think, is absolutely consistent with the volume dynamics we discussed earlier. and the resilience attributable to the significant, albeit 40%, I'd say, proportion of revenues which is install-based driven. We've also seen how e-commerce has performed well during the quarter. If you exclude travel and tourism, we have significant growth which is accelerating first in the quarter-by-quarter basis in the first half 2020 compared to 2019 level. On slide 18, we see the similar analysis for cards and digital payments. Here we have no performer numbers given that the merchant book required for performing days only impacts merchant services and solutions. Again here, the installed basis compared to merchant services and solutions is a high proportion of revenues derived from the installed basis. and therefore this division suffered less. We are also benefiting from the growth in e-commerce on clients that we do not act as an acquirer for. Think of Netflix or Amazon, etc. Italian cards or cards issued by Nexia used on those platforms. You don't see those volumes on merchant services. We do see those volumes in our money on cards and digital payments. The year-on-year comparison is not affected by foreign travel restrictions here. although we do suffer a bit from a mixed effect with Italian cards being used abroad going close to zero, similarly to foreign cards being used in Italy. All in all, however, the impact has been lower, and indeed revenues were down only 4% in the first half. And you can see also from a volumes perspective, we also suffered less in cards and digital payments than in merchant services and solutions, as would be expected given the premises. We continue to push on products such as international debit, which are more suited to the current environment, which sees growth in e-commerce and domestic debit, for instance. And we continue to push on commercial cards and other initiatives as we have done in previous quarters. With regards to digital banking solutions, here, as we mentioned earlier, this is the division which is less reliant on volume-based volume goal for the same terms of revenues. COVID has impacted it marginally. This division clearly working on ATMs in a lockdown period has not been as easy as it should have been, and therefore we have some decline in revenue, though very limited through this minus 2.3% and a half. We continue rolling out our initiatives on advanced ATMs, which are becoming always more relevant given the branch closures which were affected during the first half of the year. and we've recently announced further additions and developments on the Nexi Open ecosystem with an announcement a couple of days ago of the authorization received from Bank of Italy to operate as a PIS or an AIP. A word on costs on slide 20. As we had mentioned back in May, we embarked on a cost containment program. We'll speak to that in a second. The benefits of this cost containment program started in April, we have an acceleration in terms of the cost reduction compared to what you saw in the first quarter and year-on-year we have a 13% decline or reduction in costs that you can see here on the aggregate we haven't broken out the Intesa book costs I mean they're tiny showing you how in the first half the overall decline of 9% would have been 8.9% on a standalone basis the cost base acquired with the merchant book is just more it would have created more confusion if we broke it out on this slide. However, in general, personnel costs are down 7%. This is primarily driven by variable components of cost cutting. We haven't embarked on any kind of redundancy procedures or downsizing of staff following COVID. We simply think this was a temporary impact on our business. And as volumes are picking up, as Paolo has shown you, we didn't believe we should downsize and then scale up again once volumes picked up. Whereas with regards to non-HR costs, they're down 10%. Here we have benefited from lower processing costs, which are volume driven, but also a number of cost containment initiatives aimed at either shifting costs to when the market picks up entirely and lockdown is completely released or have been simply saved because certain initiatives have not been carried out. Slide 21 gives you a bit of an update on the 100 million cost containment plan. This is a cash cost containment plan. Not all of this is P&L. Some of it is balance sheet in terms of CAPEX. I think we gave you the breakdown back in the first quarter or had hinted to it. It's roughly 40% CAPEX, 60% P&L, and within the P&L it's roughly 20% volume-based and 40% of the total coming from discretionary spending cuts, including transformation costs. And we are, I think, suffice it to say that we're pretty much on track in terms of delivering what we were expecting to deliver, what we were expecting to deliver in terms of 100 million reduction year on year. And so we'll keep on monitoring this and giving you updates as the year progresses. Slide 22 shows you the progress on CapEx. We're slightly up compared to 2019, 62 million reduction. In total, roughly one-third of this is transformation spend and two-thirds of this has been ordinary capex, including the purchase of POS terminals. On the purchase of POS terminals, I think there's some dynamics in the first half, which might have been counterintuitive. In lockdown, we kept on stocking up on POS terminals, afraid of the disruption that there might have been on the supply chain. But in general, as I've said, the current plan is to spend between 535 million euros compared to 170 million last year. And you can see where the cash savings are coming from here. None of our cost-cutting or capex savings has been aimed at any of the transformational initiatives. And indeed, on slide 23, we have readjusted the diagram we've shown in the past of how we expect to continue investing in our IT transformation. What has happened is essentially COVID has caused the flattening of the overall curve and the shifting of some of the expenses or the investments that we were going to be making this year to next year. But just to cite one example, we are investing heavily in our next generation acquiring platform. This went almost live where we had the first transaction a couple weeks ago and is progressing as to plan and what we've shifted out there are essentially expenses or investments on CapEx which probably would have been delayed anyway due to bank closures and the lockdown. So we're trying to be efficient in our spend without postponing structurally important investments. On slide 24 we highlight how transformation costs continue to fall. They were down 60%, 19 on 18. They're down 60% first half this year compared to last year. And also this is clearly part of the cost containment program I was mentioning earlier. And then we have a bridge from transformation costs to the total non-recurring items. some of which are tied to Damasco, most of which are tied to Damasco. As far as the code name we've given to the acquisition, it is a book, so 17 million are related to that. Six million are costs which go to our P&L related to the IPO, but are paid for by our shareholder, Mercury UK, so they're WASH. And then we have approximately 9 million euros, which is comprised of non-cash costs such as LTI, but more importantly also COVID-related costs, termination payments, other one-off items which are below EBITDA. Slide 25 bridges EBITDA to net profit, normalized net profit. I would say the only comment I would make here is the $100 million normalized net profit is below what it was last year, essentially due to the lower EBITDA that we've commented on earlier. and also the ramp-up of DNA, which is up year-on-year due to the investments we have made in RIT, essentially, over the last couple of years. Slide 26 speaks to the strong cash conversion we had in the first half, 77%, which is, I think, perfectly in line with what it was in the past, which I think last time we reported was somewhere around in the same region, around 70-80%. We have, you know, even if you look further down to normalized pre-cash flow, once you take into account cash taxes and interest expense, you know, cash flow generation is strong at Nexi. And this translates to slide 27, where we can see that from a cash position, we have approximately just north of 400 million euros of cash and cash equivalent sitting on balance sheets. Our net debt position has worsened, if you want, due to the Intesa acquisition. This was as expected, I would say. We stand by our targets of reaching levels similar to what we announced at the IPO by the end of this year. So this four times leverage will be reabsorbed in the second half of the year and be much closer to what we discussed when we announced the Intesa deal. Overall, the cost of debt, notwithstanding the worsening of market conditions and the fact that we had to fund a billion of acquisitions of the acquisition costs during COVID, is pretty stable at just under 200 basis points, 1.9%. And it's significantly lower than where we were just over a year ago at the IPO, where we were paying close to 4% on our debt. So that said, Paolo, I'll hand the floor back to you.

Thanks, Bernardo. The last page, page 28, is trying to recap a little bit where we are in terms of guidance and outlook. As you know, we have basically suspended our guidance back in April, given that it was impossible to make projections for the year, given the uncertainty. we believe that it is still difficult to make a process prediction for the year. However, we start to have a clearer plan for the year, again, under certain assumptions that we have to make in terms of recovery and actually dynamics of COVID, not only literally, to be honest with you, but also elsewhere, given the fact that one key factor that is at the moment slowing down our recoveries, for example, the contribution of international travel. With the scenario that we have underlined right now, therefore, as I've anticipated in the executive summary, we believe that there is a possibility for us to see, again, revenue growth towards the end of the year. Again, depending on many other things, but we believe it's realistic, it's possible. And second, given the cash containment plan that we launched very early on in March, we believe we have an outlook for the year that suggests that we may be able to grow BIDA versus last year, including the organic contribution of this book acquisition. Without that contribution, we will be broadly in line with last year. which means that basically the nominal EBITDA for 2020 should get close to 600 million euros for the year. As you understood, in our current plans, we'll spend a bit less than last year in terms of capex, which means that EBITDA minus capex should see material growth. And as we said in the beginning, we confirm to have a strong cash position. I would stop there again. Sorry for being a bit longer than expected, but we try to do our best to give you clarity on the COVID situation and also the results with the complication that this time, for the first time, we're including also the effect of the Intesa book acquisition. So with this, I will leave the floor to your questions.

Excuse me. This is the Coruscant Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Muawalla Mohammed with Goldman Sachs. Please go ahead.

Good afternoon, Paolo and Bernardo. Thank you for all the additional color you provided around the volume trends. My first question was really around those. Paolo, you commented that you hope to get back to some positive trajectory towards the end of the year. What's stopping you from guiding? Is it just the international and tourism and travel related? segment where you've got the least visibility as well as the kind of foreign costs. And I don't know if you can sort of give us a sense of the potential range of outcomes or scenarios depending on how that evolves. So my question ultimately is, can you get back to positive without a kind of a meaningful recovery in that business? The second question is just around some of your merchants. Obviously, right now there's a lot of government measures in place to support various economies in Europe. What sort of provisions are you making or have you in mind in the event of potential sort of merchant bankruptcies increasing, you know, either the back end of the year or into next year? And how should we think of the impact in XE? And the last question is just on, you know, further consolidation, maybe give us an update now that, you know, Intesa has closed. what is the scope to acquire additional books in Italy. But more importantly, any updates you can give us on SIA, given there's been various speculation in the press and perhaps where things stand to the extent you can comment. Thank you very much.

Thank you, Mo, for your questions. And actually, I think with your three questions, you're covering a large part of everybody's questions, probably. So let me take the first and the third, and I let Bernardo cover the one around provision and so on. Listen, on recovery, it's very difficult for us to be precise here. Obviously, we are not taking the risk to assume that all travelers, international travelers, will be back to Italy from September, stuff like that. So at the end of the day, we are making fairly realistic assumptions on the recovery sector by sector. So underlying these assumptions, we take the broader categories we have seen, and we have a recovery path for all of them, including the contribution from foreign travelers. Just to give you a perception of More specifically, in the underlying assumption, we are assuming that, for example, the high-impact sector is still below last year on the fourth quarter of the year. So we are assuming that it will not fully recover by the end of the year. It will recover only next year. Or, for example, that the contribution from international travelers be still pretty much below around 20, 30% below the one that we had on the previous year. So we are assuming that the gradual trend continues, but we are not assuming that the world goes back to normal by the end of the year. So we don't need to believe that the world goes back to normal in December in order to be able to believe that our revenues will come back to growth. I hope I gave you some better insight on this. Do you want to cover the provisions now and then I go back to the Constitution?

I think in general what we need to go back to is something we discussed back in the first quarter results. We believe that if we are impacted by... I honestly won't comment on the effectiveness of government initiatives. I mean, a lot have been put in place and hopefully it will work and there won't be anything to worry about. But essentially, bankruptcies, we believe, will impact us if at all on the install base. Volumes will move from one business to the other, so they shouldn't be impacted. Our install base might be reduced by the fact that, I don't know, some restaurants might not open or shops might not open again. in the autumn once some of the temporary support measures are removed. But that kind of impact is pretty limited. And even those shops that haven't opened yet and may not open in the future are not going to really create credit risk for us. We're not really exposed to that. We don't do acquiring for airlines. We don't have a large exposure to tour operators. Online is structurally small in Italy, which is where a lot of the risk resides. So businesses which have been shut for a while haven't transacted and therefore our risk, merchant acquiring risk, which is the fact that someone has bought or paid for something and doesn't receive the good and we are liable for that, that is minimized by the fact that a lot of shops that will go bankrupt probably haven't opened, haven't transacted and therefore have not created a liability for us. So we're not particularly concerned on the credit risk front and indeed the first half comes to spew. We lost or we provisioned approximately 5 million euros between issuing and acquiring, half of which was a single name on issuing, which has nothing to do with COVID. So I think my concern is that if there is a deep recession as there currently is, and if this is as deep as people expect it to be, we may lose some install-based revenues. But if you look at any kind of statistic, if we have, I don't know, 10% of merchants going bust and that impacts us, we would end up using approximately 10%, I guess, on a proportional basis of our install-based revenues and merchant acquiring, I think, that is somewhere between 10 and 20 million euros, which hopefully over time we'd make up anyway. So that is the extent in a kind of, you know, if I gave you a kind of ballpark figure that so far hasn't materialized and we hope doesn't materialize, but if it were to, On a run rate basis, that might be the impact. Clearly not all in 2020. Sorry, it was a bit long.

No, thank you, Bernardo. Coming back on your question around consolidation, let me start from the easiest part of it, which is your point around books. We are very happy we've completed the Intesibook acquisition. It's for us the fourth and so far the largest acquisition. As I said, the commentary from European Commission Antitrust Authority was actually suggesting that the understanding of this market is becoming more and more dynamic market and a European market as well, although the approval was given on an Italian market basis for now. And this makes us believe that there is room to do more. We believe we will have further options on the table pretty much soon. There is one that will be on the table for sure. That is the one of the portion of the UbiBanca book that will go to Intesa. As you may know, yesterday, the day before yesterday, basically there was a confirmation that the acquisition from Bank Intesa of UbiBanca was actually going through. in our deal with Intesa there is a provision that allows us basically to buy the merchant books of potential further acquisition they could have done and there was nothing like could be on the table at that moment or at least not for us not for what we know but we will have the option to acquire that book at similar conditions to what we've done for the Intesa book and obviously that we will do And then we know for sure that there are other banks that are thinking through what is best for their strategy and their balancing of the different needs. And every bank knows that we are interested, but this is something that we don't want to force, we never force, because honestly it has to really be from the strategy of the bank. If the bank is really strategically interested in making a deal happen, they know that we are very happy to participate. On the SEER front, and you mentioned articles and so on and so forth, that is and that remains, I think, a complex conversation. There's a conversation happening among our reference shareholders as we declared in the past. As every other negotiation and discussion, there are accelerations, slowdowns, and so on and so forth. It's very difficult to say at this stage where it may land. To be very clear on something that I think is clear to you, but I want to be explicit, the key challenge in this conversation is driven by the fact that you are looking at the possibility of combining two assets where One asset, which is Nexi, is a listed company with full transparency, well understood by the market and actually priced by the market. There is a price tag on Nexi that fluctuates, but at the end of the day, it is what it is. While on the other side, you have an asset that is privately owned, much less known, with much less disclosure. And most importantly, without a national price tag associated to it. So it's not easy to find a balance in between the two parties that makes both parties happy. At the end of the day, we are very relaxed about this in the sense that we've always been convinced that this is a potential combination that makes a lot of industrial sense, creates strategic value for for both companies. But luckily enough, this is something that we don't need to do. This is something that we can look at an important opportunity that we would like to do. But again, it has to create visible material value for our shareholders. So if there is the opportunity to have something that makes parties happy and creates value for all our shareholders, they will go through it. Otherwise, it will not, and as you can imagine, there are other projects and opportunities that we may or we are considering. So that's actually the status of the current situation.

The next question is from Aditya Mituku. with Bank of America Merrill Lynch. Please go ahead.

Yeah, good afternoon, guys. Thank you for taking my questions. I had, firstly, just a question on Intesa, just in terms of modeling it. So does the balance sheet, should we assume that all the money flows, i.e., the payment for Intesa and the money you are going to get for the cash flow from Intesa or the Intesa's payment asset in the first half should be included in the first half numbers just from a modeling viewpoint on the cash flow statement. And also, I just wondered if you could give us a view on some steer on what the pre-cash flow excluding Intesa was in the first half. Then secondly, I just wondered if you could give us some color on why Intesa's revenue and EBITDA decline trend seem to be doing better than the trends we've seen at NEXE standard line and what exactly is driving this. just so that we get a sense for how things are trending and how this asset is different to what NEXE is on a standalone basis. And finally, just a question for Bernardo on OPEX for the full year. In the first half, your OPEX was roughly around $250 million. Obviously, the cost savings plan only really starts in April. So when we look at the second half, would this be a reasonable number to take into account or would we – assume that it should be lower than the number we've seen in the first half. Those are my questions. Thank you.

I will let Bernardo on the first and the third, maybe just say, let me say one word on the second to help you understand the dynamics of the Intesa numbers. When we had the deal with Intesa, especially for the first year, we agreed that it was this burnout mechanism in case the business was over delivering compared to a base plan that we had agreed but there was also protection in case things were not going as well as planned and therefore the reason why the underlying integer numbers are actually performing better than the standalone numbers is because that protection is active and therefore is supporting revenues and therefore EBITDA and therefore cash flow and income generated by the book. On the first and the third, Bernardo, balance sheet.

Yes, so I think the way you need to look at it is, I'll just go jumping to the last part of your question, what is the contribution to the cash flow in the period for Intez? It's just roughly around 60 million euros, 6.0 million euros. And this, you know, was paid to us at the time of closing and reflecting the performance in the first half of the year of Intesa. So from a modeling perspective, I think the way we look at it is, you know, that business was ours effectively from the 1st of January, just ended up paying for it in closing for regulatory perspective due to antitrust tools, et cetera, on the 30th of June. but it's as if it had been ours from the 1st of January, and that is a cash flow contribution. With regards to optics, I think your question was how to model the second half of the year. I think we've given you some of the elements that can be used given the targets we have set ourselves, and you should be able to multiply it out. But essentially, of the $100 million cash savings, we have approximately 40% of them being used being CAPEX and we gave you the target for the year on CAPEX with regards to the OPEX that's the other 60 million euros which is roughly 20 million euros coming from volume driven costs and 40 coming from transformation and other costs and we've given you the percentage realization in the first half the real problem there is the volume driven OPEX in the second half depend on volumes and we have our view I think the mode asked about how the year is going to go but the truth is we need to retain some flexibility in shifting savings from you know if we do better than expected as we hope on the volume front we might have more revenues and therefore need to cut the volume or the related volume rated cost less but we should also be able to offset part of this lower volume rated cost reduction with other transformation cost reduction maybe So I think you have the numbers that you need to have in the slides and happy to discuss this offline if you need further help.

Sure. Thank you. Just a quick clarification. So the cash outflow for the Intesa deal, I take it it happened on the 30th of June? That's correct, yes. Understood. Thank you. Sure.

The next question is from James Goodman with Barclays. Please go ahead.

Good afternoon. Thank you very much. I wanted to ask you just about the European Payment Initiative, actually, which seems to have moved more into the spotlight since the recent announcement. Just wondered how supportive maybe you and Nexi are to this, given my perception is clearly that you're more focused on international cards. And I just wondered if you perceive any sort of risk that this might actually support sort of the domestic card scheme. So just any thoughts around the topic and how potentially, even when it sort of comes to pass, it might affect the business. And then a quick clarification. I just wanted to ask you on your acquiring and issuing volumes, if my recollection is correct, you've got, I think, ATM transactions in there as well. And I just wanted to ask you if that's right and whether ATM transactions in Italy have been remaining depressed versus, you know, the card volumes that you see. Thank you.

Hi, James. So I'll take your first questions and Bernardo will try to clarify on the second. Listen, on EPI, I think in general as a company, personally, we are very supportive on any initiative that promotes the evolution of digital payments because there is so much to be developed in our market that at the end of the day, the more usage there is around the various tools and solutions, the better it is. Before having a strong opinion on EPI, I think it's important to clarify a bit better what is the consumer benefit, the merchant benefit, the bank benefit around it, especially when you compare it to the current existing national debit schemes or the international debit schemes, innovation and so on and so forth. As you may have seen, the Italian banks for the moment are not participating to this phase of the initiative. My understanding is that they're not participating because of what I said before. I think it's not clear yet to them what is into this product and this proposition that this initiative is trying to deliver that makes a difference compared to the current situation. In fact, they are at the moment very focused, as I mentioned before, in developing and enhancing and reinforcing the current national debit product. When we look at this from the NEXE standpoint, at the end of the day, to simplify something that could be a very complex product, I mean, a simple way of looking at it is a new scheme. And as when new schemes come in on the acquiring side, we activate the new scheme and we acquire on the new scheme. Historically, it was a massacre, but by now, we never forget. As we bought the books, we also do a lot of bank acquiring as well. We acquired JCB, we acquired Union Pay, we acquired the new voucher schemes, and therefore EPR would be definitely an additional scheme that we would acquire. And on the other side, given what we do on the issuing side of the house, this would be a new product to be issued or reissued or somehow substituted in the hands of the customer. At the end of the day, we look at the new scheme. Our economics, the more web books are, the more they are neutralized between international, national, other type of things. All in, we see it as a positive, honestly detailed to be understood because it's a very sophisticated and also complex to be implemented type of initiative because it requires a huge level of commitment and coordination among many, many banks across many, many markets, some of which have international schemes, some of which don't have national schemes, and therefore I think a lot of clarification is needed. Bernardo?

Hi, James. The question is on ATMs, and they're down, obviously, just similarly to the whole of merchant services. Actually, counterintuitively, or compared to your question, which was kind of suggesting this might be further down than what physical acquiring is, On domestic debit, they're actually pretty much down the same level, both physical POS transactions and ATM transactions, so cash withdrawals. And on international schemes, they're actually, you know, ATMs have done better than POS terminals. So on average, ATM volumes are down on a relative basis, a little less than physical acquiring.

Interesting.

Thanks. Okay. Appreciate that. Sure.

The next question is from Hannes Leitner with UBS. Please go ahead.

Yes, thank you for letting me on. I would start, please, with the transformation capex. Maybe you can give us a progress update on if you have started already shifting some volumes off or is it still around the IT and building the IT infrastructure? And then the second question is again on some M&A related. Swedbank announced a couple of weeks ago their strategic review of the payment business. I know it's not something completely at core, but are you considering to take a look at such assets already as one of those things that Italy might become at one point too small to keep growing? Thank you.

Hi, Anderson. Thank you for the question.

Listen, on Transformation CapEx, here on the page, you find a list of key projects that we've been on consistently with our transformation plan. And what we're making, I would say, progress across the board. And let me just take a few examples. First of all, Open Banking Way and Corporate Banking. This is an area where, as I said, we're launching new products and services and we've done a good chunk of investment. And Next Generation Omnichannel Demand Gate is something that, as we said in the past, we've been continuing this year and probably a portion of next year, but then we should be done with it because then you move into more ongoing traditional innovation that goes into our ordinary plans. As far as the Next Generation platform is concerned, we've been completing a few things. We've been completing the infrastructure, the network infrastructure that is done, We've been completing the GTPOS processing platform. We've been migrating on our internal platform all the volumes that were externally managed. Over the next couple of years, we'll migrate on these also, the ones that are on the Intesa merchants that, however, are already internally processed. Therefore, the benefit to move it, as you can imagine, is much, much smaller. but it's also good to rationalize platform and shut down what you can shut down and stop investing on two and focusing our efforts on one. CRM is something that is ongoing. There is nothing short term. I mean, CRM and channel management platforms is a list of projects, not one. And certain, for example, dispute management we have progressed is almost close to some others. are instead ongoing. I think the most important news may be on the acquiring core platform where actually we have completed the first transaction only a few days ago. There is still a good way to go from the first transaction to starting migrating volumes, but this is something that will probably happen starting at some point next year. A few of them are completed and effective and already impacting our financials this year positively. Some others are ongoing, good progress. I would say there is one I want to highlight is the one on the acquiring platform. On Swedbank, I think, as you know, unless it's in the press and comments and so forth, we prefer not to comment specific cases. I think, as we said in the past, in general, we are starting to look at opportunities around Europe to understand better. And honestly, as we look at them for us, there are some criteria that are important. Clearly, value creation for our shareholders, number one. Number two, they must, even if maybe small or not big gap, we must see an evolution to make them relevant for the size of our business. And third, very important, especially for the smaller assets, we must be very confident that they can be run from a local, strong, in-place team without complexity or large effort from our current team that, as you know, is fully focused in delivering our organic structure potentially considering more transformational use.

Great. Thank you. Just a quick follow-up on your slide 15. You provided the volume-driven revenues versus the installed base. Could you give just a brief update on Q2? I think at Q1, you have given for almost all segments that data.

Thank you.

Sorry, I didn't understand the last point. You were asking for a kind of a, how is the dynamic going for the installed base driven revenues?

Yeah, so the volume, yes. So, you know, what was the split between volume and installed base?

No, but listen, this split that we're giving here actually is referring to 2019, was to give you an idea of what was the starting point, you know. In general, as we said in the past, these install-based driven volumes are much more stable. So we're not reporting, and honestly, we'd like not to start reporting all splits and so on and so forth, but I think here the key message is that these 52% in absolute terms is actually much more stable, as we were commenting before, for example, on the terminal side. I know that despite the slowdown in COVID times, that, for example, component of volume is actually growing instead of going down. Cars, it depends on the mix, it depends on the situation. But that was really referring to the structural shape of our revenue component.

Perfect. Thank you.

Thank you.

The next question is from Sebastian Zabowicz with Kepler Chevrolet. Please go ahead.

Yeah, hello everyone and thanks for taking the question. One on the short-term outlook. We are now one month into the third quarter. Could you help us a little bit understand the dynamics in the beginning of the quarter in terms of revenue evolution? Basically, also the model Q3 in terms of revenue decline. What do you have in mind for Q3? And the second one is quite simple. Could you give us your free cash flow number, including all exceptional items in H1 2020, and also the comparable number in H1 2019? So the published free cash flow number will be there.

So thank you. So let me try.

On the first one, unfortunately, I mean, it's already very difficult for us to even an outlook, a very hypothesis-driven outlook for the rest of the year. And so we cannot guide too much on the third quarter. I mean, at the end of the day, you can kind of draw a line from where we are today in terms of volumes. And what I said before, obviously, if we believe we can go back to revenue growth by the end of the year, this means that volumes will go up. back to positive, all in, or actually more than positive by the end of the year. You can draw kind of a line from there for sure. Second quarter was by far the most affected, and from there we should be seeing recovery. We gave you the numbers that we're seeing in July. I think at the end of the day, the numbers you've seen there are more or less the numbers for July, given the fact that we are already at the end of the month or towards the end of the month. On free cash flow, Bernardo, I don't know if you have the answer now or we come back to you.

Well, we'll need to wait until we publish the first half results, which will be in a couple of weeks' time, and you'll have the reported numbers in there. But I think you have some information here on page 26, for instance, or sorry, not 26, where was it, on page 24, I think, with some of the transformation costs which we have normalized outside of the cash flow. Some of them are non-cash, like the LTI or the IPO costs, which are borne by Mercury. I think to give you the exact answer, I'd rather wait until we publish the results in a couple of weeks' time in a full report.

I'll come back to you when we have them. Okay, thank you.

The next question is from Stefan Huri with OddoBHS. Please go ahead.

Yes, hello. Good afternoon. Actually, I have two questions. The first one is referring to the growth dynamic. You are basically saying that you think you will come back to growth by the end of the year. Is it possible, in your view, I'm not saying for the end of this year, but at some point in 2021, that you get back to your more structural 5-7% growth? Is it something that you are thinking about and what are the conditions to get there? And the second question is about e-commerce online. As you said, it is becoming more and more important and it is a fast-growing segment but also a very competitive one where you have strong players. Are you going to invest more to make sure that you keep your market share and you continue to serve well your customers. Thank you.

Hi, Stefan. So I try to take both questions on.

Can we believe in 2021 at some point we'll go back to the 5% to 7% point growth year on year? My answer is yes. Obviously, if there is a brutal comeback of the virus or a brutal crisis of the economy and none of the two I think the agenda for anybody here but if we continue to the gradual recovery and even if the economy doesn't go back in fantastic shape I think it's realistic that we'll go back to this type of growth rate and I think here the key question is going to be how much if and how much shift from cash digital payments we are seeing as we speak thanks to the change of behaviors, but to be clear, we think positive about it. It's difficult to elaborate more, but the data I've shown you is suggesting that in certain segments that are less affected today already by international travel, by remote working, by crisis elements and so on and so forth, or by, for example, restrictions in the way you can shop or the way you can behave, we already see acceleration. So we think it's possible.

And sorry, with the savings that you've made, do you think that you will go back to the 13% to 16% EBITDA growth or that you can even do more with all the savings plan that you've made?

This is something that I will talk about a bit in a few months, hopefully. It's a bit early to say, but you remember at the end of the day, our dynamic was kind of a structural 5% to 7% growth rate of revenues and double-digit, mid-double-digit growth rate. Obviously, our cost initiatives are continuing. Therefore, they will contribute the same. So, I think it's realistic, but it depends again on many other things. So we will see, but it's a bit too early to talk about it. We are ourselves starting to look at the different scenarios for 2021. As far as e-commerce is concerned, listen, I think we are all happy because we see an important shift in behavior. By the way, we always look at it from the acquiring point of view, but also from the issuing point of view. This provides a a good contribution, even stronger contribution. We said the first time we spoke at IPO times that e-commerce was a super important priority for us and we are sticking to that commitment and that plan investing and innovating and so on and so forth. At the same time, we always have to remember that even if it's becoming more important, it's still relatively small. Not just for us, for the overall market. We continue to believe what we said in the past, that the vast majority of the growth over the next 10 years In Italy, for digital payments will not come from e-commerce, from the shift from physical commerce to e-commerce, but will continue to come from the shift from cash to digital money in store, in physical commerce. Said that, I think there is an important piece of information we can share. There is one element that we've been tracking throughout the tools, how the mix of e-commerce business is evolving, not just for Nexi, for the market, because we heard a lot about the Amazons and the others and so on and so forth. So we've been asking ourselves the question, is the market changing in terms of shape as it is growing or the different segments are growing at different rates? And you may remember going back that in the past we said that looking at the market, it was about a 50%. that was in the end of the top 20 super global players, and that market was difficult for us to be competed for, while the other 50% was instead our place, because it was a combination of a large omnichannel merchant, national and international, plus local pure e-commerce players, plus local SMEs going multichannel. And actually, When you look at it today, after the COVID dynamics, it's still pretty much the case. So the overall market has grown, but the mix in terms of the addressable market for us versus the ones that are more difficult has not changed. Actually, the addressable for us, when we look at it in a more analytical, granular way, is actually a little bit above 50%. Because actually you see a lot of retail chains, many of them are our customers, that have increased very fast. e-commerce. We have certain retail chains that are going omnichannel where e-commerce is growing a triple digit, not a double digit as we speak. As much as there is a lot that is happening in terms of smaller physical merchants going multichannel and obviously again that is our space and so on and so forth. So all in, there is a big evolution. At the end of the day, the mix of the market is not changing a lot. For us, it's a major, major focus of especially the space where we can play. We win business on a daily basis in the spaces against very different type of players. We also lose it, as you can imagine. But all in, we see that this is an opportunity. It's becoming bigger, not the one shaping our financials over the next five, ten years, but more and more important.

Okay, thank you. Very clear.

The next question is from Gianmarco Bonaccina with Equita. Please go ahead, sir.

Yes, good afternoon. I saw you made a few announcements recently about open banking. If you can help us to understand what you believe is the addressable market in the mid-term in the next three to five years and what kind of share Nexi could take considering that normally with banks, I think... Next is taking about 20% of the 100 basis point of the take rate. So how can we think about the opportunity in the mid to long term for open banking?

Thank you.

Giorgio Marco, listen, this is the $1 billion question. I think nobody is able today to give any realistic projection of the banking. We believe it's important. It's very important for our partner banks. and we believe that is a good opportunity for next as well that is why we invested early on I don't believe that it will be evolving in the same in a way that is easy to be simplified as much as the example you've given for acquiring or for the other businesses we're in at the moment because at the end of the day we call it open banking but it's a list of very different type of things let me make you give you a couple of examples the core open banking gateway that we have developed as an exit for the banking, for Italian banks, for the banking association sponsored company that is called CBI Global. That is a place where our market share is probably around 90%, 80%, I don't remember the exact number, and there we get paid by transaction and by monthly or yearly fee by the banks and by the way by transaction depends if it is an account information transaction is a payment initiation transaction is different. When instead you start talking about the open banking ecosystem then you have services that you deliver, you develop and you deliver and therefore you invest but you also keep a good chunk of the margin and we are doing certain services again in the piece per night spaces. While in some other cases we are simply partnering and distributing third parties, and in that case we're just taking a small percentage of the fees they collect. I think it's really, really difficult, A, to do a projection, B, to simplify it. If you want to take it in a simple way, we are looking at a business that five years from now we believe can be double digits for us in terms of revenue contribution. So that is the way we look at it. Normally, we don't get into business that don't have at least this type of projections. Can it be bigger than that, much bigger than that? Possibly, yes. It depends on how fast certain areas are developed and embraced by the banks.

Thank you.

The next question is from Charles Brennan with Credit Suisse. Please go ahead.

Great. Thanks very much for taking my questions. Just a couple, actually. Firstly, on the acquiring platform, can you just confirm if you've made the decision to insource 100% of the processing? And if you start migrating volumes next year, how long do you think it's going to take to get all 100% of the volumes onto your platform? And then secondly, just as a strategic question, it feels like we're seeing an acceleration in the market opportunity and an acceleration of this digitization. Given that increased market opportunity, I'm just wondering whether it's right to continue with the cost containment plan and how do we get comfortable that that cost containment plan is in some way not restricting your ability to capitalize on the market opportunity. I'm just wondering if there are some things that now we know the market's developing maybe a little bit better than we thought it might a couple of months ago, whether there's some investments that you should be putting back into the business.

Let me just start from your second question, which is actually a very well put question. Be reassured that there is nothing that we consider as being completely rigid in our plans And we are very comfortable in coming back to you and explaining why we decided to change plan. If it makes sense, it creates more value, more long-term value, and so on and so forth. So we don't feel restricted or constrained by that if there are good reasons why we should change our plan. And in fact, this is already what we are doing within the envelope. So while the total envelope for now remains broadly the same that we discussed a few months ago, within that envelope we are continuously shifting and remixing. And you are right. We are investing today much more than what we planned and much more within this path. For example, on SME digitalization. And this launch of Nexigo was not planned. We are putting material commercial money on the back of it. Again, on CapEx, similar story. We are giving you a range of CapEx that has the flexibility that we need to accelerate certain investments that may become an opportunity in certain areas. So be reassured that we feel comfortable in reshaping the plans where we see opportunities where it makes sense to invest more because it's needed. Second, coming back to your first questions, Well, the migrations will start, as I said, at some point next year. And depending on how it goes and many other things, it will take, if I remember correctly, a couple of years because you have to go bank by bank. Then you have the direct customer. So there is some complexity around it. And obviously, we will start migrating in and outsourcing the volumes that are currently outsourced and in particular the ones that are outsourced at the worst price.

And just to be clear, the goal is to insource 100% of them, is it?

Well, yeah, never forget that 40% we already ran ourselves on the current platforms that we have, so we're talking about the remaining 60%.

Perfect, thank you.

The next question is from Alexander Ford with Exxon BNP Paribas. Please go ahead.

Hi, good afternoon. Thanks for letting me on. I had two questions.

One is actually a follow-up on the very first question you had on your expectations of possibly going back to revenue growth in December. What sort of underlying assumption do you need to make on personal consumption in Italy to get there in H2? My second question is on CIA. You touched on it already and you highlighted maybe some situation around relative valuation and price. I was just wondering if there was other elements to consider, maybe the Italian state having second thoughts around relishing control on what one might see as a mission-critical asset. So, yeah, that's that for me. Thank you very much.

Thank you for the two questions.

Let me start again from the second. The state would actually be very keen to see this deal happening because they understand also the value for the country of having a large technology leader with the potential to develop not only the Italian market but also to participate and actually take a position in European and international considerations. So I think that it's all seen as a positive and the reality is that it will become a large shareholder of the new entity and potentially the reference shareholder over time as the private equities go down unless there are other views and so on and so forth. But so I think... General institutions are looking at this bill as something quite positive and seem to be supportive across the board. As far as your third question is concerned, I touched on it before. At the end of the day, in order to go back to revenue growth, it mainly depends on volumes. And again, volumes depend on the different dynamics by sector. Obviously, you need to have the basic consumption sector to continue to grow double-digit as much as it is growing today. Secondly, you need to have the discretionary consumption sector coming back to positive in a more stable way. Today is kind of positive-negative depending on the weakness to come back mid-single-digit stably to positive. You need to have... the high-impact consumption sector recovering more. It can stay a bit negative, but actually it has to come back to a break-even, and actually you need to have the foreign consumption improving, but it's possible to be volume and revenue positive, even if, as I was saying before, you are still behind on international 20-30 percentage points. So these are more or less the assumptions that you need to make.

Got it. Thank you.

The next question is from Nushin Nejati with Deutsche Bank. Please go ahead.

Hi. Thanks for taking my question. I just have one and then one follow-up, basically. So... On the EBITDA margin in the second quarter, excluding the Intesa contribution, we are now like on 49%. And I wanted to know, like, if you can tell us how we should think of your margin going forward, basically. And then the follow-up, basically, on the open banking. So I was wondering how you think this would change – somewhat the portion of your division because now you might think that basically the account to account transaction with the PIS solutions would increase instead of like basically having those volumes on the card present or not present basically volume. If you can also shed some color on that, I would appreciate. Thank you.

Thank you, Nugin, for your questions. Listen, on the margin one, I guess your question is a bit more directional and strategic rather than precise. I think we need to go back to what we said in the past a couple of times. When you look at our margins and you compare them with the margins of other payment players, you always have to remember a couple of things in order to be able to compare them like for like because they look very high. First of all, you need to take into account that these are margins calculated on top of net net revenues and while others report revenues gross off for example skin peas or interchange or other components for us take them away before taking them out before the top line okay and second basically our distribution costs are somehow already taken into account as well for the top line because it's a portion of the money we collect from our customers that we leave directly to the banks, and therefore they are in between gross revenues and net revenues. So if you compare our bid and margins on a like-for-like basis, you should take away around 15% percentage points, something like that. Okay, so at the end of the day, we are more in the high 30s type of low 40s type of situation. space. At the same time, you should also consider that part of this margin improvement is also coming, honestly, through CAPEX, because as we source more, as we do more in that direction, obviously, we are investing CAPEX, driving cost efficiency, and therefore it's also good, I think, to compare it with the EBITDA minus CAPEX levels. And we know we are investing a bit more than the others on CAPEX, and we are fine with that. And therefore, when you start looking at the Darmanian scapex, like for like, and so on and so forth, we go back to much more. I mean, we're still in the upper side of the group of comparables, but with much more normal and consistent level. By the way, we also apply certain business models such as, for example, co-issuing that make, for example, the issuing side of the business much more profitable than in that traditional issuing processor type of business. This is the reason why we believe that these margins are sustainable and now we continue to drive down costs to allow margins to expand at the same time to continue to compete in the market. and therefore accept and allow space for price reductions as we go along. On open banking... I'm sorry.

I was basically not comparing it to other peers, but to your, for example, Q1, which was more around 51% and now we're at 49% excluding the Intesa contribution. So I was mainly talking about that one. I'm sorry. Okay.

Let me just try and answer. Historically, we've always grown margins on a quarterly, even though there's some seasonality. For instance, the margin in the last quarter tends to be hit by bonus accruals, etc. But in general, we've grown margins by 2% to 3% on an annual basis. We have this year two effects that will need to be taken into account. The acquisition in Tezaboc, which structurally lifts the margin because that's a business We bought, which essentially was only revenues. We had 105 million of revenues and 95 million of EBITDA. So, you know, a 90 or 10% cost income or 90% margin business, which structurally increases our EBITDA margin by three or four percentage points. And then, you know, once we get past COVID, I would expect this margin to continue to accrete every year between 200 and 300 basis points. Now, the absolute numbers, as Paolo was saying, seem high, but you need to adjust for the reasons he was saying. So take off 15 percentage points off that reported margins to kind of have a like-for-like comparison. But the level of accretion from a margin perspective is what I just said, 2 to 3 percentage points or 200, 300 basis points per annum.

On open banking... On open banking, Nishimi, if I understood your questions, the way we see open banking applied in the payment space, because open banking applies across many other spaces as well, for the moment is basically more as a substitute to the payments with bollettini. I know you call it in English the bollettini. It's other ways of paying that are still analog. For example, you go to the post office and you pay with these analog bills. we are paying, and you pay an extra to it. So therefore, the way the corporates that are implementing this type of solutions are looking at it at the moment is more to substitute that type of solution. And said that, we believe there are many other reasons why, at the end of the day, the card rates remain superior for what they're doing right now.

Thank you. The next question is from Paul Kratz with Jefferies. Please go ahead.

Hi, everybody. Thank you for taking my question. Really, the main question I have is, you know, we've obviously seen the Italian government re-phase some of the digital payment adoption initiatives, I think, now to January of next year. When we start thinking about your outlook into next year, and I think this return to gross, maybe 5% to 7% in 2021, Does that incorporate any uplift to kind of digital payments from these initiatives? And maybe to kind of also flip that around, do you see any risk that the Italian government might maybe call off some of those initiatives considering the rate of adoption post-COVID?

Listen, let me start from your second point because it helps me to give you an answer on the first point. I think on the second point, to be honest with you, at the moment, everybody in the government, the prime minister in person is very, very committed to digital payments because everybody sees and he sees personally the big advantages of digital payments in terms of safety and security, digitalization, modernization, efficiency, obviously also the possibility to fight tax evasion. and so on and so forth. So it basically is a backbone of a modern society and a modern economy. So maybe they will have other priorities, maybe the change plans, maybe something happens, but at the same time they're considering other initiatives where they leverage digital payments or they support digital payments going along. For example, there is a debate if they should which is not intended to promote digital payments, intended to support the economy. There's a current debate if they should, for example, reduce VAT on certain merchant categories that are under serious economic pressure, for example, the travel industry, but provide that discount on VAT only subject to the fact that you pay with digital. So on the one side, there is a possibility. On the other side, it looks like they're considering other initiatives. Said that, I think it's always good not to bet to what other people should do. Therefore, when we say, can we go back to previously a guided type of growth rate and so on and so forth, it's honestly including a little bit of everything. You should never forget that over the next few quarters, we will have a very complicated to be forecast mix of effects because you have the volume recovery, You will have the volume recovery across different mixes of customers and segments which do have very different type of revenues per unit and so on and so forth. Plus, you will have the underlying economy dynamics. Plus, you will have the penetration of payment that hopefully will have accelerated. Plus, you have what you have just mentioned. I think our answer to this question would be more directional. Can we believe at some point next year we go back to mid-high single digit? We think we can as we include everything. Can you do more than that? Yeah, if everything goes in the same direction at the same time, yes, but it can also go the other way around. That's the reason why at the end of the day we prefer to stay a bit more conservative.

That makes sense. Thank you.

As a reminder, if you wish to register for a question, please press star and 1 on your telephone. For any further questions, please press star and 1. Mr. Bertoluzzo, gentlemen, there are no more questions registered at this time.

Thank you for participating in this call. It's been a bit longer than normal, but I think it was well due given the complexity and the situation we are in. Again, I guess the key message at the end of the day is simple. I think the situation is recovering faster and we see signals of an increase of attitude penetration and some utilization of digital payments to be confirmed, but As we said, we think positive about the future even more than before from this point of view. Obviously, the economy and society has to recover from what is still a difficult period. Our results basically is the solidity we discussed in the past and start to see the contribution of a very important deal that we have only recently closed. I think as we discussed throughout the Q&A session, As a company, beyond the organic growth in the Italian market, we have further opportunities that I'm sure we'll be able to capture as we move along, regardless of the short-term dynamics or articles or stuff like that. Thank you very much for your attention. I hope you'll be able to have a little bit of holiday at least. Please travel to Italy. I would welcome you if your governments allow it to happen. and i will speak soon with many of you in the follow-up calls thank you very much bye