NEXI S.P.A.

Good afternoon. This is the Colu School Conference operator. Welcome and thank you for joining the NEXI First Half 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.

Good morning. Good morning to all of you. This is Paolo, and welcome to our first half 2021 results call. As usual, I'm here with Bernardo Mingrone, our CFO, and Stefania Mantegazza, who is leading our investor relations activities. In the session today, in our presentation, most importantly, we will be covering, as usual, the first alpha volume dynamics and NEXI Italy results, if I may say that. So the first session is going to be focused on the NEXI of yesterday, but it is still the NEXI that is relevant for the first alpha results for 2021. And then actually we'll give you a short update on where we are on progress on the integration of NETS and SIA. And then we will a little bit switch gears. Bernardo will cover a summary of NETS results in the test out of the year. And then we'll give you a flavor of how the combined NEXI and NETS entity would look like the first half of the year if it was already a one single company and then i will come back uh at the end with uh our updated and upgraded ambition for 2021 is a new aggregated entity let me jump to page three where uh as usual we've summarized the key messages from today uh three key messages As far as volume dynamics are concerned, we continue to see an acceleration in volumes that are by now well back to above pre-COVID levels. Over the last couple of weeks, we have seen all macro sectors now growing versus 2019, including also the more travel and leisure-related sectors. Italian cards have been growing over the last few weeks above 20% year over year, and we now have double-digit growth across all sectors. In parallel, also, international cards are now, foreign cards are now accelerating. They're still negative, but actually accelerating very fast. Last but not least, as you will see, we have a specific page. We see a confirmed acceleration of cash-to-digital payments shift across countries. I would say most of the sectors. Second key message, our financial performance in the second quarter have been strong and accelerating versus the first quarter. We've been growing revenues in the quarter by almost 23% versus last year, actually 6.7% versus 2019. So there is also material growth versus pre-COVID levels. EBITDA has been growing almost 27% versus last year, actually 10.6% versus second quarter, 19%, confirming operating leverage working in our favor. Third key message, we are continuously progressing and consistently progressing in creating the European paytech leader on the back of the combination with NETS and SIA. As you've seen, we have strong SEA and NET standalone performances in their geographies. The NET deal has been closed on the 1st of July and is now one company, while next year we expect to receive regulatory approvals by September, October, and we expect to close in the fourth quarter of this year. Overall, the transformation is well on track. Actually, we're a little bit ahead of of where we thought we would have been. And as we're doing the numbers with more detail, we start to see an upside on the announced synergies of at least 10% in the middle long term. Overall, as we combine these three messages, we're actually increasing the ambition for the year, for the second half of the year, so for the full year as well. Obviously, we're now talking about the combined NEXI and NETS that will give us a larger and more diversified base as well. As far as revenues are concerned, we expect to see an acceleration in the second half anywhere in between 11% and 13%, bringing the total for the year at around 10%. While EBITDA should grow in the second half of the year at around 13% to 16%, while overall year should be anywhere in between 11% to 13%, which is higher versus where we were as next year's standalone when we talked in May. Now, let me jump to the volume dynamics. I will cover only three pages. We put everything in the document as always, and we also have in the backups the comparisons with 2020, but I would really want to cover three pages here. So if we jump to page seven, page seven gives you a focus on merchant services and what we see in terms of acquiring volumes here. The total has been over the last week at around 14%. received last night, the most recent data is also anywhere between 10% to 15%. So good growth. As always, we start with a split in between Italian cards and international cards. Italian cards have been growing at around 26%, 25% in the recent period, and this is consistent over the last few weeks, while you see a stronger and accelerated, I would say, acceleration in particular in June and July from the international cards, the cards of citizens incoming into Italy from other countries. So consistent growth, double-digit growth on Italian cards and a real acceleration of international cards as well. If you now jump to page nine, it gives you the usual bisector I think the picture is fairly clear. We see a consistent, accelerated growth in what we call basic consumption sectors, from groceries to finances to utilities to basic services more in general. Over the last few weeks, we've been moving around 30%, 31% in the last week. We've seen a recovery of what we call discretionary services, discretionary products, which is the gray line here. that came back into the positive around June and was at around 8% in the last week. And last but not least, and this is probably the most positive and unexpected news over the last few weeks, we've seen a very, very, very fast recovery in the high-impact consumption sectors that went into positive space over the last couple of weeks. In here, we've seen a very, very material acceleration, especially when it comes to restaurants, bars, hotels, and so on, which means that people are really, really keen to come to a more normal life as restrictions are released. Final page that I want to cover on volumes, page 10. On page 10, as we've done in the past, we try to highlight elements that give comfort on the fact that we are seeing an acceleration of the shift from cash to digital in Italy. On the left, you see, and here we're basically taken out from the numbers, the contribution from foreign cards. So we're talking about Italian cards only so that we neutralize the effect of international travel being still limited, even as you have seen, it's now recovering faster. On the left, you see the macro categories dynamic. You see an acceleration basically across 21 and is now moving anywhere between 30 to 40%. Discretionary consumption recovering throughout the year and now a double digit as well, 19% in the last week. And high impact consumption, if you remove the effect of the foreign cards, is actually also into double-digit growth actually in the last week and with a consistent recovery at around 23%. On the right, we have highlighted the dynamics in more specific sectors and more granular sectors to give you a real perception of what is happening in terms of shift from cash to digital. You can read them yourself, but on basic consumption, we have the usual grocery sector, which is actually the most important here, growing in between 20% and 30%. But actually you see sectors like doctors and dentists that are sometimes a bit newer to digital payments growing 70% to 80%. When it comes to discretionary consumption, you see certain sectors, in particular I would say also the business-to-business sectors growing at 50%, 60%, 90%. And when it comes to high-impact consumption sector, I think this is particularly telling in terms of how the society is coming back or is trying to come back to more normal life, where you see hotels coming back into double-digit growth, entertainment, despite a lot of limitations, still in place, 20%, and restaurants with an outstanding 35%. So all in good volume dynamics, I would say faster than expected growth in certain areas and confirmed acceleration of cash-to-digital migration in Italy. Let me now hand over to Bernardo that will take us through our results again as Nexi equally alone for the first half.

Thanks, Paolo. Good afternoon from me as well. Starting on page 12, we'll go through the usual set of slides with regards to financial performance, starting with revenues. I would highlight on this slide what Paolo just said, i.e. a strong quarter, a strong first half with volume recovery fueling the growth in revenues. What I would highlight is the margin expansion we've seen compared to last year. So two percentage points pick up from 54% last year to 56% this year. The progression is also clear if you look at first quarter this year compared to second quarter this year where we have picked up a similar margin. Overall, for the first half, we have a 55% margin which is in line with this progression I just outlined. So a pickup in revenues which follows the growth of revenues and a margin which is also being helped by what we will see with merchant services and cards and digital payments in terms of the mix we have seen in terms of these volume recoveries. So on slide 13, if we go on to merchant services, here as well we have the strong growth in the quarter in terms of revenues, 25% increase. This is against a quarterly increase in volumes of approximately 34%. Approximately two-thirds of our revenues in merchant services are volume-driven and therefore the growth in revenues is slightly lower than the growth in volumes, however, more than proportional. And you've tried to highlight this in the comments on the right. What we've seen in the quarter are two mixed effects which are positive. The first one is that sales, so cards being used at POS terminals rather than for withdrawing cash from ATMs, has grown 22% compared to the average growth of overall managed transactions, which was 16%, so positive mixed effect there. The other positive mixed effect is on the composition of volumes at terminals. So compared to LACA, SMEs have grown more. We see that 28% growth in terms of SMEs, which outperform the overall growth in point-of-sale volume growth. The other highlights of the quarter, indeed for the first half of this year with regards to performance merchant services and solutions is The ongoing and increasing demand for omni-channel solutions, so our merchants asking for ways to make sure they can accept payments through all of their distribution channels seamlessly. An acceleration of our MPOS proposition, so to counter also some new entrants in the markets, which is giving us good results, in particular in certain verticals, for instance, I'd say restaurants or micro-merchants in general. And e-commerce, which has both grown very healthily, 54% growth compared to the first half of 2019. The comparison with 2020 is obviously impacted by the severe lockdown we had last year in the first half, which obviously created a huge surge in e-commerce volumes, but still growth compared to last year, 15%. but also in terms of revenues, which is driven by a greater, let's say, penetration or greater demand for gateway activations, for instance, in our example here, which are twice what they were in the first half of 2019. Overall volumes are still slightly down compared to 2019, so we're not at pre-COVID level in terms of value of transactions. Indeed, we are in terms of number of transactions, and that's clearly the impact of foreign cards, which is still not back to where it was Moving on to slide 14, we have a similar picture in terms of cards and digital payments. I won't comment on the volumes. You have the data there. We're pretty much back to pre-COVID levels also in terms of value of managed transactions, and that's because obviously foreign cards don't impact on this value of transactions number. So less tourism and I think less impact from tourism. But what we'd like to highlight is, again, a positive mix effect within cards and digital payments, which is twofold. I'd say one, driven by commercial cards, so as people travel for business more than they used to in the past because of lower restrictions, we have a benefit. Profitability on these cards is roughly, I'd say, three times that of a normal card. And the faster or increasing pace of growth of international debit, again, the international debit product for us is more profitable in the uh... standard national debit product approximately four times more uh... outside three times more than four times more for uh... commercial card uh... overall we have a strong growth and install base and this is a mix of of of uh... of effects uh... most importantly new clients we've imported a new client uh... and we have new value-added services which were uh... which were introduced into market in the first half of this year which have helped uh... this uh... grow this uh... grow this number uh... Page 15 on digital banking solutions, less impacted overall by COVID, more helped, I would say, by project work to help a couple of our clients integrate the acquisition of UBI, but otherwise a generalized increase in revenues throughout the four divisions of digital banking solutions. Slide 16 on costs. As you know, as we saw in the first quarter this year and we're expecting for the full year, we have a bounce back of costs, which are basically driven by the bounce back in volumes I've just spoken of. And also the fact that we are now accruing variable compensation to budget compared to last year where we zeroed it because of the negative impact of COVID on profitability. I would highlight that notwithstanding all of this and, you know, basically anticipating something that Paolo will then say with regards to guidance for the year, I would just highlight how there is strong cost control at NAXI, and we still remain committed and will deliver costs for 2021, which are below 2019 level. And this, I think, is worth of note. given that compared to 2019, we're managing 25% more volumes in terms of number of transactions, which is what drives the variable component of our cost base to our outsourcers. And we have approximately 80 FTEs more than 2019. So notwithstanding this greater cost base or this greater volume, this base that we manage, costs will be below 2019 levels. The other point maybe that is worth highlighting, and this is again a byproduct of one of the transactions we've announced, is that part of the growth in variable costs for us is processing costs of more volumes, and those are processing revenues for SIA, which will be merged into NEXI later this year, so revenues for SIA. On slide 17, on CAPEX, we are roughly flat compared to last year in line with the guidance for the year, I'd say. only highlight how the growth in ordinary CapEx is essentially tied to the growth in volume. So last year we were buying a few less POS terminals given the lockdown. And I would say the growth is primarily driven by that 5 million growth from 40 to 45 million euros. But overall, 12% of revenues are pretty much in line with expectations for the year. On slide 18, I think here what I would highlight is how we are approximately three quarters of the way done with our transformation program. Here we've had the opportunity to basically revise the transformation program and secure savings of approximately 40 million euros compared to the additional 80 million we still have to spend. And that's thanks to the integration which will happen with SIA. So we already have an on-issuing platform which we don't have to build anymore and that's how we're coming by these savings. Which means we're actually further down the transformation and actually if I normalize for that we're probably 85% done which is good news because it means we can focus on integration of NETS and SIA. Slide 19 is the usual slide we show on what's going on below EBITDA. At NEXI, we have flat, I would say, transformation costs around 10 million euros, 11 million euros in the first half this year. Three-quarters or two-thirds, I'd say, of this is related to YAP. The rest is just pure transformation. And then on the right, we have a bridge between transformation costs and overall costs below EBITDA. And you can see that the 70 million euros that take us to minus 80 million euros are all, I would say, M&A driven. So it's... advisory costs, refinancing costs, and integration costs related to nets and CL, which take us to minus 80 million. And then we have a non-cash cost of 15 million euros, which is borne by Mercury UK, the former parent company, and is just close to our P&L, but is netted by an equal and opposite contribution by Mercury and is a legacy of the IPO back in 2019. 2020 shows us a bridge of normalized net profit from the reported amount just shy of 50 million euros to 100 million euros once we normalize for the non-recurring items and adjust for a number of other items to be normalized. For instance, interest expense, where we normalize for the new capital structure following the new emissions during the year. On site 20 on, we confirmed... Our strong cash conversion at 83%, roughly in line, slightly better than what it was last year, but hovering around the 80% mark. Slide 22, just a word on leverage. We're back to around three times. This is pre-closing of NETs. Obviously, when NETs and SIA closes, we'll be consolidating their EBITDA. Well, NETs is already closed, but from the third quarter, we'll be consolidating the NETs' financial indebtedness. and then CES and consolidating their EBITDAs. But in general, we have shown strong cash flow generation and ability to deleverage. Just a few notes we have to be spent on what happened during the quarter. We successfully refinanced NETS' indebtedness, as you know. We have had a constructive discussion with rating agencies and we're hoping for improvements following the closure of these transactions. And overall, The pre-tax cash coupon is now lower than what it was before. It's now 1.65%. In the face of an extended maturity profile, the weighted average maturity of our debt is now five and a half years after we extended the maturity of the IPO facilities. I'll hand the floor over back to Paolo for a few words on the progress on NETS in Seattle.