NEXI S.P.A.

Good afternoon. This is the Coral School Conference Operator. Welcome and thank you for joining the next third quarter 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, please 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.

Good evening and welcome to our results communication for the first nine months of 2020. I'm here as usual with Bernardo Mingrone, our CFO, Stefania Mantegazza, judge for investor relations, and a few other members of our team. Tonight, we will comment the results for the nine months that we have anticipated earlier in the day. Obviously, we'll be covering the volume dynamics that we have been seeing over the last few months on the back of the COVID emergency. Obviously, we'll talk about the financials for the quarter and then a month, and obviously we'll also take Q&A. We'll have a Q&A session. We'll answer your questions as usual. In our communication earlier today, we've also anticipated the fact that we are progressing our conversations for the possible merger with NET. We have extended the exclusivity period to Monday, Next week, conversations are progressing well, but we still need a little bit of time to finalize certain aspects that need to be finalized. As a consequence, I prefer to anticipate that we will not be able to answer questions on this topic because we really prefer to do it if and when the communication on this possible deal will be complete, and therefore we prefer to to have a much deeper conversation, a much richer conversation with all of you once we can provide the full set of information, which is well deserved given the importance of this possible deal. So now moving to results before I jump into the content, I think there are two key messages for these results announcements. The first one is that as we were navigating through the different dynamics of the COVID emergency, in the third quarter, our results were, I would say, pretty strong. We came back to revenue growth and also quite material, I would say, to EBITDA growth. It is also slightly growing for the year to date. These results are a bit better than what we were expecting on the back of better volume terms, but also a few other things that have been happening in the period. This is message number one. The second message, the second comment has to do a bit more with the dynamics that we've observed so far during the first wave of COVID. and that we believe provides to us two important learnings as we think about these new wave calls. The first learning is that the recovery from lockdowns and from in general the restricted measures can be quite rapid. Obviously, it varies by sectors, varies by type of customers, but actually We've experienced a recovery of volumes that has been actually faster than what we thought. The second, I think, learning is that this normally comes also with a more and more visible shift from cash to digital. I think there is a broader shift from physical services to digital services, but digital payments are clearly a part of this, and therefore we see customers On the consumer side, more keen to use digital to pay, and merchants. On the merchant side, also more keen to accept digital payments, given the fact that the benefits are clearer and clearer to both. Now, going into the results, page three of the presentation, As we had anticipated throughout the recent period, we've seen a strong recovery from the lockdowns that we experienced in the spring period. From there, you remember we were at minus 50% year-on-year in March and April. From there, as the lockdown measures were released, we saw a quite rapid improvement of the situation. with a particular acceleration, I would say, end of July and in August, with the acquiring volumes on Italian cars that were basically back to pre-COVID growth levels in the month of August. Despite the fact that clearly the travel sector more in general was not performing yet in line with last year, and despite the fact that international travelers' contribution, so the inbound business has been throughout the summer lighter than in the previous years. As far as transaction volumes are concerned, in the quarter, we saw as a combination of acquiring and issuing a minus 4% versus the same quarter last year. Year to date is about a minus 12%, which obviously is affected by the minus 50 that we saw over a couple of months in March and April. So this is the situation basically up until the end of September, beginning of October. Obviously, as in many other countries around the world, probably a bit later than many other countries around the world, in October, we saw the first signals of progressive slowdown in volumes, starting obviously, again, from the reduction in visitors and in travel activities and entertainment activities more in general, and clearly, We see this continuing and changing, I would say, on a weekly basis as the COVID emergency develops and as our government is implementing new restrictions in the country. If we compare the measures with the measures that we saw in the first wave, they are quite different. for a couple of reasons at least. First of all, this time our government has decided to segment the regions in three tiers, red, orange, and yellow. You can guess what the colors mean. And this segmentation is something that is evolving. So every week or so, the government will assess the situation in every single region. This will depend, obviously, on the number of cases, but also on on the situation with the healthcare system and the ability to support the people that need support. Even in the case of the red regions that are the most affected, the measures that are being implemented, at least for now, and again, the situation may change, the measures are not directly comparable with the ones that we had in March and April. That is why we're calling here this lockdown a soft lockdown. the government has been more selective basically on the back of the learnings from the first round. Just to give you a few examples, basically all industrial production is not running. Obviously, wherever possible there is, and business activities are open, there is a recommendation to do remote working, but the companies have not been shut down as it happened in the past with the exception of companies such as ours that that are necessary because they provide basically super necessary type of services. Bars and restaurants are closed, but actually they're open for takeaway and home delivery, which was not the case at the peak of the previous lockdown. If you look at the categories of retail that are closed again, there are a good number of categories at this time have been allowed to remain open, not only the typical grocery stores, and pharmacy space, but also, for example, sporting goods or, for example, clothing for kids and a few others. So, obviously, we need to see how the situation evolves. The impact that we are observing at the moment in our volumes is, therefore, softer than what was in the past, luckily enough. data that was available when we did put this communication together was for the week ending on the 4th of November. It was minus 8% year-on-year on acquiring with a clear impact on the categories that are travel-related, entertainment-related, hotels, restaurants, cafes, and the usual suspects. A couple of last comments. Throughout, I would say 2020, so throughout the first phase of COVID, the recovery, and now again, we see strong growth in the commerce sectors that are not impacted by COVID. This growth is around 35% in the quarter and year-to-date as well. while actually overall the e-commerce overall performance is impacted by basically the weakness, the visible weakness of the travel-related sectors that in e-commerce do have a very important weight, about 40%. Last but not least, as I've anticipated, we continue to see signals of positive acceleration of the transition from cash to digital transactions. Now coming on the next page, on page four, on the results. EBITDA for the quarter was up 7% year over year at around 167 million, and it's up 0.4% for the nine months. Revenues were also up about 1% in the quarter at around 276 million euros, although still a bit below last year, minus 3.6% to take the nine months. Basically, we've been progressing our operational activities, our operations according to our plans. Merchant services and solutions, that is more than half of our business, we see a continued positive growth of post installations that create acceleration in mobile posts to support merchants that want to deliver at home and in any case need more flexibility to serve their customers, a step up in e-commerce and in digital services more in general. On current digital payments, we continue to see an accelerated interest for international debit. That is a strong product for e-commerce transactions as well and more in general digital life. At the same time, we continue to roll out new capabilities for the national debit scheme, Bancomat, that is basically improving rapidly in that sense. as well as we see an acceleration of mobile payments and contactless transactions. As far as digital banking solutions are concerned, around 10% of our revenues, we basically continue to see an extension of our next open banking ecosystem, both in terms of banks and third parties coming on board of our products and services, but also in terms of extension of the partnerships. I think we have today around 25 partnerships, ranging from the larger digital players, such as Microsoft, to the smaller but fast-growing fintechs like Miniga or Alight. At the same time, we're also progressing, I would say, very well in the rollout of the more advanced solutions, both in digital corporate banking and corporate payments more in general, and self-banking. On the cost side, we've done what we're committed to do in terms of trying to balance as much as possible the pressures on revenues working even harder on the cost side. If you remember, we have announced our 100 million euro cash cost containment plan. Bernardo will give you a more specific update on that one, but the combination of that program together with our usual efficiency work is allowing us to reduce costs year to year for the nine months by 8.4%. Last point, on our performance, the net financial debt rate At the end of the period, it was 3.7 times EBITDA already improving from what it was at the end of the previous quarter. One last comment before going into the volume dynamics. As you remember, we've announced the possible combination we see only a few weeks back. We are progressing with the work that has to be done on transaction documentation and confirmatory transactions. due diligence and respect to sign the binding documentation over the next couple of months and close with all the necessary authorizations around the third quarter this year. In the meantime, we just communicate the results that have been reported over the last few days by SEA. We'll try to do to be as much as possible to start to give you visibility of what the profile of the new NEXE is becoming over time. Also see a good result, EBITDA growing about 8% year-on-year in the quarter and broadly in line with last year over the nine months, and revenues up 2% point in the quarter and slightly better than last year over the nine months. There is an attachment page that basically replicates the communication of FIIA, and obviously on their website you can find more information. Now let me jump into the volumes, page five. This is the usual page that we've seen in the past. This is the combination of acquiring and issuing volumes, seven days rolling numbers represented as a year-on-year change for the rolling week. You remember March, April were around minus 50. You see here quite rapid recovery that we've already commented in July up until the end of July. Actually, an acceleration at the beginning of August in particular back to growth levels similar to the ones that we had pre-COVID. And now I would say especially from August with international travel starting to have issues, starting to slow down a bit again. And then from October, I would say a more visible slowdown. And we're now running around minus 8, minus 9% on the back of the new measures that I have described before. The following page, and here we start to try and open up the different elements to try to give you as much insight as possible as we've done in the past. Page 6. It gives you a snapshot specifically now focusing in acquiring where we have more detail. In here you see the clear dynamics in between the national cart, the Italian cart, and therefore the Italian customers and how they've been spending in our merchants throughout. That's the lighter blue line. But you also see the dynamics that we have observed on the visitors, so the foreign card spending on our merchants in Italy, and that's the gray line. You see that as far as the Italian cards are concerned, they came back to positive already from June, and they accelerated in July and August. So we had a good period in August, basically a double-digit. growth it is in line actually even better than what it was before despite as I said before some weakness in certain travel sectors as you can imagine then it did slow down a little bit around the five or six percent and we're just seeing some slowdown at the end of October beginning of November but I would say definitely good resilience of the Italian cards consumption at the same time Now, the impact of COVID is super visible on visitors and foreign cars that have been going down at minus 95% at the peak of lockdown, and then they did start recovering. I would say slowly, but also consistently. You see very regularly up until August, where they arrived at a minus 40%. And then as international travel restrictions were going into place and COVID was starting again in some of the most important countries for our tourism, you see that we have seen a further deceleration, and we are now running at a minus 60, minus 70% year-over-year. I think it's worth remembering that the weight of visitors is normally important for an action for our country more in general. And here in the table below, you see what is the weight in terms of total volumes for There is a peak normal in the summer period with more than 20% of the volumes coming from visitors. As we go more towards the winter, it's more around 10% to 15%. October was already 15%. Now, let me give you, as usual, a breakdown by sectors. On page 7, we gave you exactly the same snapshot that we gave you in the past with updated numbers. If you allow me, and it's for your reference and you have the comparisons with the data that you gave in the past, if you allow me, I would comment it on page eight, which is exactly the same set of information simply plotted on a graph that I believe is particularly telling visually to help you to understand what is happening. Here again, the blue line is the total acquiring volumes that we see. The green line is what we call the basic consumption services, and therefore things such as groceries, medical, retail, utilities, services, and so on. They are the largest segment, about 35% of our volumes. The gray line is the line on generic and discretionary consumption, products and services, clothing, household, laundries, beauty, these type of things. And last but not least, the red line is obviously the one on high-impact consumption products and services, and mainly services, I would say, like hotel and restaurants, travel, transport, entertainment, bars, and alike. And here you see how visible the dynamics are. The green line has been obviously positive basically throughout the period since the beginning of the year. and is remaining positive. Actually, over the last few weeks, we've seen a very visible acceleration. We're now running above 20% year-on-year growth. Obviously, this is also a little bit driven by the fact that as restaurants shut down, probably you buy more food to eat at home. But honestly, the speed of growth at the moment is so visible that I think there are good reasons to believe that there is growth. a shift from cash to digital payments that is happening here. The gray line is probably the most telling and the one that is the most correlated with the lockdown measures. You see that as the shops were closed in March and April, it was a minus 80, minus 90%. As the shops did reopen in mid-May, you see a rapid acceleration back to a better space. Then a slow recovery and it went back to positive speed. in August, and now more recently they started to suffer a bit more. Here it is interesting because when you look at it under the more detailed sector, there is one sector that is suffering the most, that is clothing, that as you can imagine is also a little bit messed up with different seasons and fashion specific dynamics here, while I would say the majority of the other sectors are still in positive territory. And last but not least, the red line is self-explanatory. Obviously, with lockdown, it was minus 90%. Then, again, gradual recovery. Here, this is the sector where you have the highest impact of foreign cars and visitors. They did recover up until August, close to positive in August. Actually, if you take Italian cars in August, it was quite positive. Restaurants, hotels, most of the categories went back into positive for Italian cars. So there is a minus only because of the impact of the missing 40% of visitors. And then actually as the new measures went into place, you see that the degradation started and we're now running at about minus 40, minus 50 compared to last year. So these are dynamics. I think that they're explaining what is happening here more than any other detail or comment. Page nine, before going into results, A quick update on what we are progressing on our commercial activities with a little bit more focus on the ones that are related to the current situation on merchant services and solutions. We see a continued positive growth on post installations with new terminals or new merchants coming in. Mobile post, as I said, is a good solution, which is having a lot of success in this period given the environment. Continued growth. progress on e-commerce, and continued progress more in general on all digital properties, including the Nexi Business App, which is our business intelligence app. As far as card and digital payments are concerned, good acceleration in international debit, continued evolution of the capability of the national debit product, and accelerated, I would say, pipeline of digital projects more in general with most of the banks. Here, it may be interesting to underline the fact that mobile payments year-on-year are In the third quarter, we saw basically the volume stripling, so plus 190% versus the same period the previous year. And we see a continuous acceleration in the use of contactless from 38% pre-lockdown to 45% these days. As far as digital banking solutions are concerned, last but not least, as I mentioned, we see progress on, I would say, in particular, most of the digital front. One last comment on the government initiatives. You remember that in December last year, the government decided to implement a list of measures. Five are the key ones to support the transition from cash to digital payments. Obviously, they're doing it with a double objective, accelerate the modernization of the country, monetize the digitalization of the country, perfectly depending on the benefits that come This creates for citizens and enterprises and public administration and the entire country. At the same time, clearly, the government sees this as a way to reduce the impact of the black economy and therefore create more transparency in transactions. Three out of the five measures already went into place. There were two last measures that were postponed. They were supposed to be implemented in the summer. The government, I would say, for very good reasons, decided to postpone them. And now they should go in place at the beginning of the new year. The two measures are the following. Let me start from the second one here. In January, we should see the beginning of the lottery on receipts. Basically, on a periodical basis, there will be lotteries with prices increasing. Most of the prices you see, about $45 million, would be for people that are paying with digital payment methods, obviously cards being the main one. That should go in place in January. The one instead that may be starting earlier in December, at least with a test, is actually the cashback mechanism. Now the mechanics are fairly well-defined. It works as follows. for every purchase that you do in physical retail, so e-commerce is excluded, for every purchase in physical retail, you will be receiving a cashback on a periodical period. So they split the period in six months. At the end of the period, you will receive a cashback of about 10%, up to 10% of how much you spent. There is a cap for this that is around 150 euros per period. There is also a cap for each eligible transaction up to 150 euros. And it's clear incentive to use the card as much as possible because you need to use the card at least 50 times in the period before you're eligible for this cashback. And clearly the mechanics are well designed to promote not to just using the card once to buy something expensive but actually the other way around use the card as many times as you can for your daily life and clearly this is going in the direction of basically making digital payments normal as an everyday payment tool. The budget for this is quite important for the period December 2020 to 2021 is going to be about 1.750 billion euros. The period of December is going to be probably a bit more than a trial, if confirmed, because we're talking about only about a few minutes, but then it's going to be big next year. And at the moment, there are budgeted an extra 3 billion for 2022. Let me stop here and hand the floor to Paolo.

Thanks Paolo and good afternoon to everyone. Moving on to slide 11 where we summarize the group results. I think we had a very strong set of third quarter results that highlight the great resilience of our businesses as it emerged from the discussion Paolo had with regards to the volumes and the and NEXI's operations during such difficult times. I think it has also highlighted the high level of elasticity of our business, how quickly we are capable of recovering following the trough we experienced during the lockdown months in the spring. And we have had a number of data points which suggest that there is a much higher propensity to pay by by cards and with cash than in the past and a higher growth rate in terms of penetration. So this is translated, as you can see in the charts on page 11, to a growth of revenues in the third quarter of 1%, closing the quarter at $276 million. Revenues have been growing within the quarter already since August, and this is five months ahead of what we had originally estimated to be a return to growth in revenues. When we discussed first half results back in July, we indicated that we'd expect revenues to start growing on a year-on-year basis towards the end of the year, December. This started earlier thanks to the recovery in volumes that we were discussing just a short while ago. Even in terms of the nine-month figures, you can see revenues are down 3.6%, and this is at the lower end of the range we had identified back in July, which was to have revenues decline in the mid-single-digit area. With regards to EBITDA, clearly we benefit from the uplift of performance coming from the cost management initiatives we have discussed with a number of you and back at the time of the announcement in the first quarter and again in July. 7% growth in EBITDA, closing the quarter at €167 million, which is obviously a good result for us. And if we look at the full-year performance or the year-to-date performance of the third quarter, so the nine months to 30th of September, we also have a return to growth of the overall EBITDA closing the nine months with 429 million euros of EBITDA and an EBITDA margin which is accreted by about 200 percentage points, 200 of the basis points from 55% to 57%. Moving on to the divisional performance, on slide 12, We have merchant services and solutions. As you can see, volumes here performed well compared to the prior two quarters ahead of schedule, as for the rest of the business as well. I think it's important to highlight how, notwithstanding the improvement in the pickup in volumes, we still suffered from a low level of foreign travelers, particularly from outside the EEA, which impacted acquiring volumes. and also helped us from a business mix perspective defend the revenues because the lower the profitability of domestic card transactions on the acquiring side are more profitable, which is a silver lining of this lower level of volumes. We also have had the benefit of the protection mechanism built into the acquisition of the book from Intesa, which helped us move the impact of the dip in volumes in the first part of the year. And another positive mixed effect in the third quarter, which is as we had the relaxation of the lockdown measures at the end of the spring, beginning of the summer, we had a larger proportion of the transacting merchants, which are SME merchants, which have inherently a higher profitability for us compared to the larger customers which were transacting during the lockdown period. So this helped us perform well in terms of revenues. You can see in the quarter, acquiring revenues were up 3%, 251 million euros, and there's a slight disconnect with regards to the volumes, which are down 4.8% in the third quarter, if you look at international schemes, and down 13% for the whole year. The level of installations was also up during the summer months, ahead of what we had planned, and we have a strong growth in e-commerce. If you look at the e-commerce, which was not affected by lockdown, so excluding travel tourism, which tends to be mostly encapsulated with 35% year-on-year growth, which is significantly higher than what we used to experience in these sectors, closer to around 20%. Moving on to issuing on slide 13, here we have better performance in terms of volumes, and this is not a surprise given the fact that issuing is not impacted by foreign travelers not being able to come to Italy. and it benefits from Italian cards transacting online on platforms where it not acquires. Now here, conversely, the acquiring side, the fact that Italians not traveling, not transacting with Italian cards abroad, that lack of transaction volume impacts us negatively on the performance of revenues because they're higher profitability transactions for us. So we have a slightly different trend where volumes were up 3.7% if you look at the third quarter 2020 in terms of minus transactions, plus 0.4% if you look at the value of transactions in the third quarter, but revenues were slightly down 2.1%. This was also impacted by recovering volumes of the slightly higher mix of domestic debit transactions compared to international schemes, and again, those, from a business mix perspective, were slightly less profitable for us than international scheme transactions. But all in, I would say a solid quarter in terms of revenues for cards and digital payments, similarly to to merchant services and solutions. With regards to DBS, now DBS is not surprising. It's the least impacted by COVID given its greatest reliance on install-based revenue. We have substantially flat performance, I would say. We have growth in the quarter, 1.5% growth in terms of revenues to €29 million, slightly down year-to-date, minus 1%, better than the merchant services and cards, as I was mentioning. I'd say we were impacted to the extent that there was less work done on ATMs and other activities which required field work due to the restrictions which were still in place to a certain extent during the summer months. But this didn't stop us from working, as Paul was mentioning, on the digital side of things in a number of areas, including open banking, where significant progress was made during the quarter. Moving on to costs, on slide 15, we can see that we have successfully reduced costs on a year-to-date basis by north of 8%, in the quarter down 7%. If you look at HR costs, we're down 8%, and non-HR, 6%. On the non-HR front, I would highlight how the greater volumes you were speaking of earlier have hit us negatively on the cost reduction front. Greater volumes mean greater processing costs or payments made to our processing partners. These are obviously, let's say, good costs to be had because they contribute revenues. And obviously, withstanding this higher level of volume-related costs, we remain committed to delivering on our €100 million of overall cash cost containment plan. The other thing with regards to cost that is worth highlighting is that we kind of changed the mix of our cost-saving initiatives during the course of the year, I would say, as things evolved, basically, you know, making sure that we would, you know, we were reactive to opportunities or reactive to client needs. So we ended up spending a little more than we expected on the CapEx front in particular to support certain initiatives around online, omnichannel, around the certain initiatives which are in our mind particularly relevant during these COVID-related times and obviously remained, as I was mentioning earlier, committed to finding savings elsewhere in order to fund this change mix. We can see this on slide 16 where we talk about the The progress we're making in achieving the 100 million net cost results, where we are absolutely on target to deliver the full savings. As I said, the mix might be slightly different, slightly less savings, I'd say, on the CapEx front, slightly more on transformation costs or discretionary spend. Overall, I'd say the degree of achievement is pretty much in line with what you'd expect. We're two quarters in out of three. We announced these results. these measures during April or actually the beginning of May during the discussion on first quarter results. So we've had since April to work on these cost containment measures. We're now two quarters in out of three, and we are more or less two-thirds of the way there. We're ahead on discretionary spend. As I mentioned, this kind of compensates the lower level of achievement on CAPEX, which is kind of a planned and intended mixed change in order to continue our focus on all those investments as we highlight on this slide and key initiatives which are structural for us and will grow and will basically in the future grow in efficiency. So again, there's no concern with regards to achieving these targets for the full year. I'll end the financial section with a word on our strong cash position. As you can see, leverage has come down to 3.7 times as EBITDA has grown and cash generation has helped reduce the net debt position. This is down from four times at the half-year mark. If we just assume a similar kind of cash generation in the fourth quarter, you'll see we'll be towards the 3.5 times leverage, which is where we expect to be given the targets we set ourselves when we IPO-ed a year and a half ago. I think also the mix of cash and cash equivalents is improving. On the cash equivalent side, we have received unrestricted visa shares at the end of September, which in the process of the fact of being able to try to sell, we need to obtain certain documents before we can do so, but those will be transformed into pure cash during the course of the coming weeks. So having said that, Paolo, I would hand the floor back to you to conclude.