NEXI S.P.A.

Good afternoon. This is the Coruscall Conference Operator. Welcome and thank you for joining the NEXI First Quarter 2021 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, and good morning to everyone, or actually good afternoon to everyone, and good morning if you're connected from the U.S. Welcome to our first quarter result call. As usual, I'm here together with Bernardo Mingroi, our CFO, Stefania Mantegazza, our head of investor relations, and a few other members of our team. As we've done last time, we will give you today an update on how we see the market evolving in the COVID context, and particularly the focus on volume dynamics and volume evolution. Then we'll move on our results for the quarter. And last but not least, we'll give you a quick brief update on our M&A progress as well. And as usual, we will have plenty of time for Q&A. Before I move into the presentation, let me just make two technical notes. The first one is that it's really important to remind ourselves that when we look at our results for the first quarter, we have to keep in mind two things. The first one is that in 2020, January and February were actually very strong non-COVID months. Well, actually, March was already a very tough month for Italy because, as you remember, the first wave of COVID started from Italy in the Western world. The second element is that Honestly, different from our expectation, we had a third wave coming into the third quarter and the latter part of the first quarter, therefore, after March and somehow also the beginning of April. The second technical note is that given the fact that 2020 has been an year with very extraordinary effects due to COVID starting from late February, and therefore any comparison from 2021 volumes or performance to 2020 is really difficult to be understood. We will be using as much as possible also comparison to 2019 numbers to try and give you as a benchmark a more stable non-COVID affected situation. Obviously, we're doing this to try and help all of us to understand what is really happening in the business. For completeness, we also have put in the attachments the more if you like normal year-on-year comparisons benchmarking 2021 volumes with 2020. So that's in case you need to compare it with other players in our space, you can do that as well. But we really prefer to help you as much as possible with comparable numbers. So let me just, let me now move into the presentation and actually let me start from page three where we start to summarize the three key messages for today from Nexi. The first message is that After the third wave of COVID that was unexpected, from mid-late April, we've seen a fairly clear and strong volume acceleration. We've seen it a little bit across the different categories. In particular, in the basic consumption sector, which includes groceries, pharmacies, utilities, these type of things, we have seen a continued strong growth that is simply a continuation of what we have seen also throughout the previous periods, confirming a clear acceleration of the transition from cash to digital in Italy. Second, in the discretionary consumption sector, as shops were broadly reopened recently, Towards the end of April, we have seen a very, very rapid re-acceleration, and they're now into a strong positive. And last but not least, we're starting to see some visible signals of initial recovery also in the more travel and ratio-related sectors on the back of some partial reopenings that have happened over the last two or three weeks. So all in clear recent volume acceleration from late April. Second, our performance in the quarter, in the first quarter, despite the third wave of COVID that was not expected, has been actually ahead of our expectations. Our revenues grew 4%. Our EBITDA grew 2%. It's always important, as I said before, to compare this with 2019 to basically clean it up from extraordinary 2020 effects, both on revenues and on cost. If you do that, our revenues are actually up 5.3% versus first quarter 2019, and actually 9.2% versus first quarter of 2019 in terms of EBITDA. And therefore, when you compare the 9.2% of EBITDA with the 5.3% of revenue growth, you see the continued effect of our operating leverage and margin expansion. The combination of these two elements is suggesting us to basically raise the ambition for the full year from the mid-high single digit that we presented to the market in February to what we're calling high single digit, two double digit revenue growth. And obviously, I will come back to this in the end and I'll try to give you more clarity around what we mean with that. But clearly, we have a more positive view of the rest of the year on the back of the results, which we've seen in the first quarter, despite the third wave of COVID and on the back of the recent volume dynamics and plans for the openings and vaccination as well. Third trimester for the day, we also are continuing to progress in the creation of the European Paytech Leader. As you've seen yesterday, Nets and SIA have communicated their high-level standalone performances, and they are both of them strong and ahead of our expectations. We confirmed, basically, the plan for closing as it was anticipated. Therefore, we confirmed that we plan to close Nets' merger by the second quarter this year, and we expect the next ESEA closing to happen in the third quarter towards the latter part of the third quarter, 21. And obviously, as we're working on the closing, we already started to work across the board with our future colleagues on the go-live initiatives, so therefore the preparation for the one, and the transformation and synergy initiatives as well. Not only this, today we are also announcing, I would say strategically important, a bolt on M&A. It was anticipated in the recent months. We have extended our partnership with Intesa Sao Paulo to the former UBI book, or better to the portion of the former UBI book that was bought by Intesa. This is very consistent with what we said in the past, that while we are busy in the combination of NEXI, NETS, and SIA, and in the creation of value on top of these combinations, we are also continuing to explore both on M&A opportunities where they are very clear, very clearly value-adding, and also quite simple to be managed and integrated. So this is the summary for the day. Now let me skip the summary pages four and five. We put them in for completeness as we've done in the past, but let me move into the content and let me start with the volume dynamics. I will then hand over to Bernardo to call the results and we'll come back on M&A and ambition in the end. Now let's move on page six. And before we start looking at the numbers together, let me just give you a sense of what has happened over the last few weeks in Italy to be able to put everything into that context as well. As I said before, in March, we had this unexpected third wave of COVID. So we had hard lockdowns at Christmas, you remember, then some reopenings in January and February, but then also in Italy with the third wave of COVID. of COVID happening in March, and that has obliged the government to take new restrictive measures. And the new lockdowns came into place. You may remember that since some time ago, we have a color system for the different regions of Italy, red, orange, and yellow. And the point is that many, many important regions moved from yellow to orange, from orange to red in that period. These measures, together with other elements, add positive effect on the dynamics of the pandemic. And over the last few weeks, we have seen an improvement of the situation. We now, depending on the day, are moving around 5,000 to 10,000 new cases per day with a percentage on the tests that are done that is now well below 5%, depending on the days, from 2% to 3%. The good news is that the pressure on hospitals, the pressure on intensive care is going down. Unfortunately, sadly, we still have 200,000 to 300,000 people dying per day, but as you know very well, this is the effect of the new cases back several weeks ago in most of the cases. In parallel, the vaccination plan has accelerated as well. Italy is probably broadly in line with the other continental Europe countries. It is probably a month to two months behind compared to the UK and the US, not to mention Israel. But this vaccination plan has now accelerated very, very visibly. We are now vaccinating more or less half a million people per day. We have about 30% of the adult population that got at least one shot of the vaccine so far, with about half of it already having two shots. Most importantly, the majority of people above 70 years old, about 80% of them already got the two shots. A lot of the people that are exposed for example, in hospitals and doctors and so on, got their vaccine done. A lot of the people with health fragilities and the people that take care of them also receive the vaccine. And just to mention a personal case, I'm 55, I will get my first shot in a couple of weeks, and the government is announcing further acceleration for the plan. So this is the context that we are in. As a consequence, the government over the last few weeks has decided that very carefully designed and rationally planned reopening plan, still using the color grading for the different regions and therefore the country has gone rapidly from red to orange and again from orange to yellow. As you speak, the government is deciding what will happen from next week and most of the regions will go into yellow. In parallel with this, we have foreseen the reopening of the majority of retail with limitations. For example, large commercial centers are still closed during the weekend. The good news is that also restaurants and bars are now open until 10 o'clock in the evening in the outdoor facilities. So indoor cannot be used, but at least outdoor can. is there. Fortunately, the weather has not been too helpful in Italy over the last couple of weeks, but in any case, it's shocking to see people almost eating a pizza almost in the rain. It tells you a lot about how people are really keen and willing to start to come back to normal life. And we still have a curfew at 10 o'clock in the evening. But as you can understand, the situation is already very different from what it was in March. So this is the context we're in. Now let's look at the numbers. I think the numbers are fairly self-explanatory here. As usual, this curve represents the year-on-year volume changes that we see as a combination of total issuing and acquiring volumes. Here you see on the graph the three different waves in red boxes. And as I said before, from basically the latter part of February, we've started to measure growth performance, not on a year-on-year basis, but actually comparing it to 2019 to make sure that you can really follow what is happening underneath. So what have we seen in the quarter? As I said before, we had a difficult start in January because of the lockdown. Then we had a recovery in January and February, almost getting closer to parity with the previous year. Then we had the new lockdowns happening in March. Easter was complete lockdown, therefore was obviously a negative impact, very negative impact. And then after Easter, instead, with the new reopenings, we're seeing again a strong acceleration happening. And if you look at the recent 5% or 9% data, This is really the best we've seen for a long, long time. The minus 11 on that week is justified by the comparison with what was happening two years ago. because of a long weekend with tourism and everything else that obviously this year has not happened. Just as a reference, and you will see all the details in the attachments, if you compare these numbers with last year numbers, March would have been a plus 36%, April would be a plus 63%, but again, as I said before, we really don't think these numbers are too helpful. They look so great, but they're not really helpful in understanding exactly what is happening. Now let's move as usual in the details of these numbers and let's start diving into the usual distinction between Italian cars and international tourist cars and therefore the inbound traffic to Italy. Obviously here we take only the view of acquiring where we have the data necessary to look at these dynamics and here you see What I was saying before, even in a stronger way, you see Italian cars went back into positive. Last week, they were actually growing at around 20%. Despite the fact, as I said before, we still have a lot of limitations in retail, leisure, entertainment, curfews, and stuff like that. But you clearly see an accelerated recovery here. At the same time, the inbound international tourism is still suffering a lot. I don't know if this marginal improvement that we see on the last week is already a signal of recovery, but clearly the situation there is still different. I'm sure we all read the press and what every single country is doing to reaccelerate and reopening the borders to tourism, but this is something that still has to become a reality. Now, moving to the next page, we give you, as usual, the details by macro category. Let's start with the basic consumption category. The basic consumption category has always remained in the positive space throughout 2020, throughout COVID, and also throughout the recent months. It's now running at around 40% over the two years. So this, again, is also a comparison to 2019. And as you clearly see, this is a strong acceleration, showcasing that underneath 2020, The different dynamics, we have a clear acceleration of the shift from cash to digital payments. Moving to the second area, what we call generic and discretionary consumption. Here we have sectors such as clothing, household products, beauty, these type of things. Over the last week, we see a stronger rebound. It went back into positive 6% growth with actually Italian cars being at plus 21%. Obviously, the individual weak data point per se cannot be extrapolated, but the trend underneath is very clear and already fairly solid. Last but not least, the high impact consumption here, putting basically all the tourism and leisure-related sectors, bars, restaurants, cafes, discos, hotels, transportation, airlines, and so on and so forth in here as well in the last week you see a nice improvement even if it is still at minus 30% with the Italian customers the Italian cards being already at a minus 10% so all in plus 20% e-commerce is also in positive theory all in, but you see very clearly dynamic is growing very strongly around 60-70% over the two-year period in the basic consumption, generic and discretionary consumption sectors, while is still fairly depressed in the travel-related sectors as well as everywhere else in the world, even if also here we see a nice improvement in the very recent period. Page 9 gives you a little bit of a visual demonstration of what I was saying. Here you see the continued growth of the basic consumption categories with weekly, if you like, ups and downs depending on the extraordinary situation of the week, but quite solid, very high growth. You see over the last few weeks the super strong reacceleration of the discretionary consumption from minus 40, minus 44% to actually a positive space, plus 6% in the last week. And here you also see graphically some recovery happening literally over the last few days here. when it comes to the high-impact consumption sectors, and here we decided to basically give you some more granularity on some relevant sectors. Over the last four weeks, restaurants and bars have improved almost 50 percentage points, travel and transportation around 20 percentage points, also hotels in the last week about 10 percentage points. They're all still in the negative space, but the speed of is, we believe, very, very visible and I think good for the economy more in general. Page 10, so these are the dynamics that we've been observing. Page 10 is basically an update of the similar page we had last time. As usual, we try to pull out data points that showcase the acceleration of the migration from cash to digital. On the left, you see the dynamic of the grocery category for Italian cards. It has been growing basically last year around 20%. Third quarter of this year, it's been growing about 40%, and this is actually compared to 2019, and therefore basically it's maintaining its kind of 20% a year growth rate, similarly in April, similarly last week, so quite consistent dynamic. On the right, on the top right, we also give you again the performance of volumes in the different categories of zones, red, orange, and yellow for Italian cards. And here you see basically that when reopenings happen, therefore, when you go from red to to orange, and from orange to yellow, basically you have an improvement that goes anywhere around 10%. In this particular observation, we had from red to yellow about 14 percentage points, and from orange to yellow about 9 percentage points. And actually, now the dynamic is even clearer when you carve out from this data the high-impact consumption sectors where you see that actually the orange zones and the yellow zones are actually running at 20%, 30%. over the two years in terms of growth rate. Let me stop here in terms of all the dynamics. Let me hand over to Bernardo who will cover results. Bernardo.

So good afternoon from me as well. Starting on page 12, we'll see how the steady increase we've observed in volumes in the first quarter translates into financials. Looking at the consolidated level, so the group, the next group level, we have revenues which are increasing by 4% in the quarter. It's important to benchmark ourselves against 2019 on top of 2020, as Paul was mentioning earlier, because of the strange nature of 2020 as a comp and the performance in the first two months of last year being very strong pre-COVID and then March being affected by COVID. So we have 4% growth in revenue on a year-on-year basis. And if we look back to the first quarter of 2019, so we have a 5% growth. Now, this comparison is even more meaningful against 2019 when we look at EBITDA because we have growth in EBITDA in the first quarter this year, 2% growth at €140 million compared to €137 million last year, which per se is a good result. I'd say it's ahead of our own expectations and something we're particularly pleased with. But it's important to benchmark ourselves against first quarter 2019 to have a more like-for-like comparison, given what happened in terms of costs last year. And we discussed this with a lot of you during the course of meetings after the full year results, etc. Obviously, last year, we took out a bunch of cash costs to protect our P&L and our cash flow. Most of these spring back in the first quarter this year. So it's useful to compare both EBITDA and then the cost later on against performance in 2019. You can see that EBITDA has grown by 9% compared to the first quarter of 2019. And therefore, we highlight the continued operating leverage our business benefits from, you know, growth in revenues 5%, growth in EBITDA almost twice that. And again, also from a margin perspective, you can see the margin expansion of two percentage points from 52% to 54% when we account for this extended time horizon to normalize for the anomalies of 2020. Moving on to, so this sets the scene in terms of the overall performance, growth in revenues, growth in EBITDA. If we look at merchant services on slide 13, We have flat revenues, 0.0% and flat revenues of 128.3 million euros. If we look at the comparison against 2019, it's 2.6% growth. More importantly, I would highlight the growth in volumes, in particular in terms of managed transactions. This is an important sign of Italians' propensity to use digital technology. payments or card-based payments compared to cash, further strengthening our conviction of the secular shift of cash-to-card payments as the average ticket drops and the number of transactions increases, notwithstanding COVID, double-digit, 10.2%. And in terms of value of managed transactions, we have also positive growth on a year-on-year basis, notwithstanding the fact that we had two full pre-COVID months last year. From a business perspective, what is worth highlighting, we have summarized in boxes on the right. We have continued to support the growth of the efforts of our client base in terms of large merchants with our omnichannel solutions, which have been increasingly important in a year which was impacted by COVID and the ability to transact not in a physical way but online. The acceleration of our MPOS proposition to counter growing trends of competition in this space, which has been a very successful initiative. And e-commerce, which continues to grow very healthily. We have highlighted what the growth is, excluding the high-impact sectors, which are in e-commerce very important. You obviously have all the travel sector, which is primarily e-commerce. But if you take that out, which has been impacted by travel restrictions due to the pandemic, if you strip that out, The other sectors have grown by 30% on a year-on-year basis or 63% as we've highlighted when compared to the first quarter of 2019. In general, even including the high impact consumptions, e-commerce has actually grown year-on-year and unsurprisingly has performed better than the physical channel. Volume growth in e-commerce has been accompanied by growth in revenues in e-commerce which have helped the performance in the quarter. We highlight here how gateway activations have doubled compared to what they were in the first quarter of last year. We also focused a lot on implementing PSD2 and allowing our customers to deal with implications of strong customer authentication and we have successfully implemented all the regulatory requirements which should be introduced. Page 14 moves on to cards and digital payments. Even in this division, we have strong revenue performance, which has been supported by a growth in install base, which is very important to us. We've had both a growth in the number of cards and a growth in terms of the revenues driving install base, 8% on a year-on-year basis. And I remind you, this accounts for approximately 60% of our overall revenues. We have very strong signals coming from international debit, which you know is a key pillar of growth for us. It's one of the key pillars of our strategy identified a couple of years ago, and we can see that international debit is fueling part of this growth with an 8% increase in the value of managed transactions on a year-on-year basis, better than the market as a whole, so if you include domestic debit and international schemes. We continue to work with the domestic debit scheme to increase their digital capabilities. This is obviously very important in light of what I was saying earlier with regards to e-commerce growth. And two interesting data points we highlight here in terms of, again, the payment habits in Italy. We have C-list transactions which increase 15% year-on-year. 38% of transactions were carried out on a contactless basis. Prior to COVID, now we're at 43% in April. So increasing the usage of the contactless features. And we also have a growth in mobile payment transactions, which are up almost 60% on a year-on-year basis. All of this has been helped by the initiatives which were introduced by the government and we spoke of in the past and are still in place. And all of this has translated into growth in revenues of 7%. We highlight here that this growth has been flattered somewhat by certain project-specific revenues, so you know that a large domestic bank was acquired by Intesa during the course of last year, Ubi, and we worked with our customers in order for them to integrate these businesses into their own, and this generated some project-related revenues which were booked in the quarter. In any event, we would have had growth in the quarter, but we highlight that just for completeness' sake. Page 15, the third division in Nexi Digital Banking Solutions has also had very healthy growth in the first quarter, up 13%. I would say that the benefit of this growth comes from pretty much all the legs of the business. ATMs have contributed to this growth thanks to the fact that we've completed the rollout of our new platform to all our existing customers, and we can see growth in installation of advanced ATMs as they replace the more traditional cash-in, cash-out ATMs. Digital corporate banking is also growing inertially at 3%. Corporate payments in general is an opportunity for further growth as we extend our pay-by-account solutions to new electronic money institutions which are coming into the market. And on open banking, we continue to work with the CBI Consortium in the open banking gateway which we have provided to them. In this division, we also had some benefit coming from project-related revenues which helped support this group. Coming to costs on slide 16, we like to highlight how we continue to remain very focused on controlling our costs as we showed, I would say, every year we try and show an improvement in our costs as we limit the growth or actually cut costs in the face of increasing volumes. This continues to be true today. If we look at 2019, again, to try and normalize for the factors which I highlighted earlier in terms of the evolution of costs in 2020 due to COVID, we have costs which are substantially flat compared to the first quarter of 2019. If you actually look at operating costs, they're down in line with the fact that volumes are not yet where they were on an aggregate basis. So costs are consistent with the evolution of volumes if you look at them against 2019. On the HR front, we have evolved our human capital base over time and this reflects the growth since the pre-IPO days till today. We then come to performance compared to 2020. We have an increase of 6.5% to €119 million. But as I was saying, this increase is explained by the fact that last year we had certain cost containment initiatives, €100 million in total, A lot of this flowed through our P&L. This year, a lot of these costs spring back. If I think of HR costs we've highlighted here, the personal cost basis we have started to accrue again for the variable component of compensation in our first quarter numbers. But there are also project-related costs tied to the initiatives I was mentioning earlier in the revenues front. So on a like-for-like comparison, costs are actually down almost one percentage point again highlighting our steadfast commitment to containing cost growth or actually trying to reduce it over time as we insource. Slide 17 comes to our net financial indebtedness. As you can see, we have brought this down from 3.5 times leverage at the end of last year to 3.2 times. This is consistent with our target of reaching the medium term 2 to 2.5 times leverage which we expect to be at the end of next year, and I'd say this is a good step in that direction. Page 18, I think, is worth noting in light of the 3.1 billion euros of securities which were issued in the first four months of the year. This was all done in light of the two M&A transactions with NETS and SIA, so we have, let's say, pre-funded the repayment of the NETS and SIA debt, which we will repay once the two transactions closed. In fact, if you go back to slide 17, you'll see the gross indebtedness has increased and the gross cash has increased for the proceeds of the convertible bond, which will be deployed to repay the debt and nets once that transaction closes. But these two transactions, the convertible bond and the senior unsecured notes, which are issued in April, basically helped us achieve a more balanced mix in terms of debt structure. Half of this is senior unsecured unsecured notes and the other half is equally split between term loans and convertible notes. Term loans affording us a certain degree of flexibility in terms of optimizing the cost of debt going forward. Notwithstanding what I just said, we have already achieved a very substantial reduction in the weighted average cost of our debt for down from 2.1% before these transactions to 1.6% now. This essentially achieves the targets we had set ourselves in terms of improving our cash EPS as we had disclosed them at the end of last year with the NETs and the SEER transactions. But we believe there's more optimization embedded in our ability to refinance, as I was saying, the term loan at better rates. And we also have spread our maturities over a number of years, starting from 2024 to 2029, basically getting rid of a lot of the point-in-time refinancing risks we had earlier. So from now until 2024, we can focus on optimizing the cost of debt rather than having to raise new capital, which is a good place to be. And the three rating agencies are supportive. They are on a positive outlook, and we hope that they will resolve this favorably for us in not too long a time frame. Having said this, I'll pass the floor on to Paolo to update us on M&A and his final considerations.