NEXI S.P.A.

Good afternoon. This is the Coral School Conference operator. Welcome and thank you for joining the NEXE third quarter 2021 financial 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 everybody on this call, and thank you for joining us in our third quarter results session. As usual, I'm here with Bernardo Mingrune, our CFO, and Stefania Mantegazza is leading investor relations, but we have also a few other colleagues connected today. and here with us in case it is needed. As usual, I will start giving you a little bit of an update on where we see the volumes going and evolving on the back of the evolution of COVID, and I will also give you a short business update with focus on merchant services. Then I will hand over to Bernardo who will cover financial results. I will come back to give you a quick update on where we are in creating the European PayTech Leader and bringing the new group together. And obviously, I will conclude commenting on guidance that, as you know, has been confirmed for the full year already. Before I go in, let me remind to everybody this is the first time for us in presenting the aggregated numbers of NEXI and NETS. Last time, you may remember, Bernardo gave you an overview of what the profile of the new group would have looked like to kind of introduce the topic. This time, we are reporting integrated NEXI and NETS. We will cover the performances by region, which we give you an indication of how things are going. We'll probably make a few more comments on the standalone performances, but as I said, we are reporting for the first time in an integrated way. And then at the end of the presentation, we'll have time as always for your questions. Now, let me start as usual with the messages at page three. The three messages basically are reinforcing the same three messages we had over the last couple of quarters. Number one, we observed continued volume recovery and acceleration across the various geographies. In Italy, we continue to see a strong volume performance with Italian cards growing anywhere between 20% to 25% versus 2019, that again, I remember to everybody is always our benchmark year because it was pre-COVID year. Next to Italy, we've seen also a good recovery in the Nordics that came back to positive over the last few weeks as a total, with some stronger performances across many sectors. The DAF region is still recovering, not back to the previous level at full, but actually seeing a strong basic consumption growth. And also, more recently, we've seen the discretionary sector coming back to positive here, The travel sector impacted that for our business there. Still relevant in volumes is the one that is still behind, although recovering. Third point, we see an acceleration stronger in SMEs than in LACA. This has to do also with the different profiles of SMEs. the different sectors in terms of mix of SMEs and lack, but we believe this is really positive for our positioning and for the outlook as well. And last but not least, we continue to see clear signals of acceleration of cash to digital payments transition across all sectors and visible in all geographies, also the ones that are already more penetrated. Message number one. Message number two, also in the third quarter, we've seen stronger and growing financial performance. Revenues for the group were up 10.1% in the quarter in acceleration versus the previous two quarters for a total of 9.6% in the nine months. We've seen, in particular, strong revenue growth performance in venture services and solutions for both NEXI and NETS. At very similar levels, plus 12.2% for the total in the third quarter, 10.6% year-to-date. And again, here you see an acceleration. E-commerce revenues were particularly strong at plus 32%, despite the fact that the travel-related sectors are still affected by COVID. EBITDA in the quarter was up 14.6%, up 12.3% from the beginning of the year with continued margin expansion that in the third quarter was at 53% up to percentage points versus last year. Third message, we continue to progress in the creation of the European Paytech leader. SIA has reported again stronger standalone performance and will comment on a dedicated page. As you know, we have received the antitrust approval on October 14th on the combination of Nexia and Sia, and the closing is now expected by year-end. In the meantime, we have closed the deal with Impeza on the Ubi merchant book. Yesterday, we have also signed the deal with Alphabank to create a joint venture in merchant services still in Greece. Closing is expected at some point. in the second half, probably the second quarter of next year. And last but not least, we made a small but actually strategic investment for our future in a company called Orderbird and is the leading DAC commercial software solution for the hospitality sector present also in other geographies. It's a small investment, talking only about 16 million euros. We have increased our ownership from 20% we were already there to 40% with a clear path to control and we are very happy for this because it's the first real FML test for us in entering in a deeper way the software space especially for SMEs starting from Germany that is a very strategic market for us and expanding in other places as well. On the back of all of this we have confirmed our ambition for 2021 on a Nexinet combined level. Revenues, we expect them to grow at about 10% year over year, and EBITDA, we expect EBITDA to grow at 11 to 13% year over year. Now, before I go into volumes, let me jump to page five. As a quick reminder, this is the new profile of the group. We have a group that sees about 60% of the revenues in merchant services and solutions with a strong exposure to e-commerce. 29% is what we call cash and digital payments and the remaining 10% in what we call digital banking and corporate solutions. Second, the group is highly, highly exposed to markets with super strong and very, very long-term and secular growth opportunity in digital payments, 71%. of our revenues are in low penetration markets such as Italy, such as Germany, such as the Central European ones and Southern European ones. Number three, 64% of our revenues are coming from volume and 36% from installed or installed like type of revenue. Last but not least, we have a fairly strong operating leverage. Now, let me jump into volumes and cover Italy first, and then I will also give you an highlight on what we see happening in the other key geographies. Page number six is the usual page. The dark blue line is the total here. We are focusing on merchant services. where we have more insights and therefore the dynamics are more interesting. The dark blue line is the total. The lighter blue one is actually on Italian cards. The gray one is on international cards and therefore visitors to Italy. Here you see that after the summer we continue to basically grow revenues compared to 2019, anywhere in between 10% to 20%, sometimes also above 20%. And here there is a clear strong contribution from Italian cards that have been growing anywhere in between 20 to 30% over the last few months. I would say particularly interesting is also the dynamic in the international visitors cards. Here you see that we had a very, very fast recovery in the summer leading to August where we went back to the levels of pre-COVID. mainly driven by European visitors with Americans and Asians being still not present or present in a very limited way. Then with the slowdown again, but then a strong recovery over the last few weeks, this dynamic is probably explained by the fact that the touristic side of international travel is recovering fast. People are really keen to travel as soon as they can do it. Well, actually, the business traveler dynamic is still behind and therefore depending on the moment of the season probably we'll continue to see these dynamics happening. Hopefully the recovery of October is also due to the fact that we had less restrictions also for business travelers. So it's a combination of business travelers coming a bit back and actually holidays in some countries in Europe in the latter part of October as well. Jumping to page seven, we have the usual split by macro sectors. This is the total, so this is not separating Italian cars versus international cars, and therefore the sectors are also affected by the dynamic that I was explaining before. Here we see very strong continuing growth in the basic consumption sectors like groceries, utilities, medical and so on and so forth, growing anywhere around the 30%, 34%, 37% in the last week. And we see the other two sectors now moving kind of similarly, anywhere in between, I would say, 5% to 10% year over year, with a super strong recovery, I would say definitely faster than expected, in particular in the impact sectors, and I would say in particular in restaurants. and bars. So this is the dynamic we're observing in Italy. We'll come back in a moment to give you a bit more insight on specific subsectors because I think it's interesting. On page 8, we see instead the dynamics, we observed the dynamics in the Nordics area and in the DAC region. If you just take the total before going to the subsectors space, we have observed a plus 12% growth in October across the net, if you like, geographies, 12% growth of our SMEs versus 2019. LACA, instead, we're still behind. But actually, if you strip out the effect of the impact consumption sectors growing as well, plus 8%. Last one, please. We also see a good recovery in issuing and now growing at 5% in next geographies and basically this is mainly relating to the Nordics. As we're talking about the Nordics here, you see in the top graph, the dynamic Nordics have been back to positive from September and actually growing further in October. As a total, they've been growing 7% versus 2019 in terms of volumes. Actually, the last week was actually double-digit with 12%. Very strong and continued performance on the basic consumption sectors, above 30%, actually 45% in the last week. The discretionary consumption sector trending a bit slower, but now close to zero. And a good recovery over the last few months also for the high-impact sectors also. over the last month at minus 1%. Last but not least, in the DAC region, and here most of the volumes are actually associated to Germany, here you see a continued strong performance of growth in the basic consumption sectors. You see actually discretionary services going back to a positive 8% last week, 2% in October versus 2019. Here, the sector that is still behind is actually the one that is related to travel. And here in Germany, this is an important impact on the total mix, and this is one of the key reasons why actually Germany is still behind compared to 2019 volumes. So this is the total picture, page nine, a bit more into the specific sectors to reinforce the point that I think we made over the last many calls. I would say that we have been observing underneath these COVID-related dynamics a very strong acceleration of the transition from cash to digital payments, not only in under-penetrated markets like Italy, but also in more penetrated markets like the Nordics. And here you see at page nine a few examples here with the peak from top to bottom, the top eight sectors per market. Some of them may be less relevant in size, but here you see actually also very relevant sectors. Think of the restaurants and bars in Italy, 34% growth, or groceries, 25% growth, nicely growing, all double digit next to some very special ones like doctors at 82%, for example. Nordics, similarly, groceries, 25% versus 2019. Again, for a market that we tend to believe that is already highly penetrated, it's a big positive in our opinion. And then you see some more specialized and smaller sectors such as, for example, cosmetic or hardware growing at 40%, 59%. and so on. Last but not least, also in the DAC region, grocery is 49%, also restaurants, despite some limitations being still in place, 13% and many other sectors growing double-digit, with actually department stores growing triple-digit, but I would look at it with a lot of sympathy that it's probably not the benchmark for the other sectors, at least not for now. So, this is basically the picture in terms of volumes. Before I hand over to Bernardo to cover financial results, I would love to dive with you for a few minutes on the dynamics and the key initiatives that we are observing, in particular in merchant services that, as you know, is more than half of our revenues and is always up here focused not just for us but also for you and for investors alike. more broadly. And here we try to give a little bit of a feeling of what we're doing in the different segments. And it will be covered by SMEs that represent almost 60% of our revenues in Merchant Services. Ecom that represents about 25% and also LACA that is a bit less than 10% of total revenues. If you're asking yourself why those are mapped to 100, the reason is that There is a 7% that has to do with acquiring ATMs, as we call it, cash, and that is not allocatable to any segment. For simplicity reasons, we have allocated post-terminals revenues to SMEs because most of it is really SMEs. Now, going one by one, in SMEs, we see a strong acceleration on our digital proposition in Germany. positive results in Germany, on the back of the very positive results we had in the Nordics, as well as in Italy, we are promoting more and more the mobile post proposition for new to merchant subsector. At the same time, we are very successfully pushing on vertical propositions in the specific sectors. We started in Italy with dedicated go-to-market for very narrow verticals, for example, restaurants, cafes, hotels, retail, and so on and so forth, where we package very often from the distribution, go-to-market point of view, but sometimes also pricing and product itself and this is really hitting the ground well with customers. At the same time, we are increasing our focus on ISVs and more in general the software space. And here, basically there are two things we are doing. On the one side, we are expanding our partnerships across all geographies, I would say, with ISVs. And if you count them across the board, we count them actually for this call. It's actually more than 500 partnerships in the ISV space. And there are a mix of partnerships with local leaders on merchants, CRM, and ERP softwares. For example, Team System needed just to mention one. And many, many, many smaller, much smaller vertical specialists that very often are local partners. companies as well and we normally partner with the technical integration with some of them we do also go to market together as anticipated now with Ardabird we're going one level deeper as now we will integrate more on the proposition side as well and we'll test it in one segment in one market to expand it further as we go along. In the S&E segment, basically, we have not seen any major news in terms of competitive dynamics. We know, I mean, we discussed it in the past, that we have important competition in the new to digital payments segment, the smaller merchants that are starting to use digital payments for the first time, in particular in Italy, in particular also in Germany, from basically one player uh... that either some app that actually successful in the market in winning a number of customers but actually the value associated with these customers that even the size of them that is uh... normally very small uh... we have also increased in italy our focus uh... in uh... that segment and we're actually quite successful with double the now our acquisition bonds but it was a focusing at in that winning back these customers as they grow and when they need a proposition that is more structural and more complete. This is it in terms of SMEs. The volumes across our geographies were up about 14% in the quarter compared to the same quarter 2019. E-commerce that represents about 25% of our revenues in merchant services is seeing a lot of dynamics, a lot of new players coming, some of them going as well, to be honest with you. And by the way, this is a sector where we have a new segment and new propositions emerging as well. We maybe talk more about it in our Q&A sessions, but let me give you a flavor of what we are doing here. First of all, when it comes to the more PSP-like type of proposition for the acceptance propositions, we are launching easy in Germany after a pretty good success in the Nordics as a collecting PSP proposition at the same time. We are extending our PSP proposition in terms of capability in Italy. It's called XPAY. And we are extending this proposition also on the back of the experience and the capabilities that we have in net, for example, in one click checkout and cart pre-onboarding. In the nine months, our e-commerce activations in Italy have been up 70% compared to the same period two years ago, just to give you a flavor. At the same time, we are seeing a lot of activity in the alternative payment method space here. Our angle is twofold. We know, we own alternative payment methods, and at the same time, we partner with third-party payment methods to make them available through our gateways to our merchant customers. If you focus for a moment on account-to-account propositions, We actually have a very strong position, a successful position, both in Poland and in Finland, and they're growing very, very strongly. At the same time, we are onboarding more and more account-to-account solutions to our gateways, for example, Bancomat Pay in Italy. Similarly, in Buy Now, Pay Later, we have a very strong proposition called Rate Pay in Germany. We own that proposition. That proposition is growing very, very strongly. But again, this is a proposition that is made available not only through our gateway solutions in Germany, but also to basically every other national, international PSP active in the country. At the same time, in the other geographies, we are partnering more and more with PAPI, by now, Pelletier Providers, because at the end of the day, as a PSP, we must be able to offer all possible payment methods to our merchants customers in order to allow them to basically maximize their conversion rates at checkout. Last but not least, we continue to strike partnerships with e-commerce enabler platforms across all markets. We have more than 10 partnerships across the group. Many of them are with players that are present in more than one market. Today, we cover about 76% of the market. Today, e-commerce enables cover across our geography about 10% of the volumes that basically serve the tiniest, the micro merchants, the micro SMEs in e-commerce. We cover through technology integration and in certain cases also go to market partnership, 76% of that. Again, here volumes are growing 13% despite the travel related sector still being suffering. The reason why the growth rate of revenues is actually well above 30% is because when it comes to account to account and by now pay later solutions that we own, the growth rate is very, very strong and it's contributing to the total growth. Last but not least, the lacquer segment represents about 9% of all total revenues in merchant services. Here, we don't see any major news in terms of competition. Obviously, we continue to see active, very active players like Adyen in very specific segments that are basically segments of the global brands, in particular, I would say, in luxury and in fashion. To be very clear, we continue to compete successfully and win in the sectors that instead are more local in nature, such as, for example, food retail, household goods, mobility, insurance, public administration, and so on and so forth. Basically, we win and continue to win where the physical component of the omni-channel solutions is actually relevant for these companies. where they have complex needs in terms of terminals and terminals acquiring acceptance integration, where the local integration with local payment methods is important, where the vertical sector integration is important, where customization is important. At the end of the day, that's the core of what we do thanks to our local entrenchment. And here we continue to serve successfully not only the local customers, large merchants, but also global brands that are present in market with the characteristics I just described. So across our geographies, we cover and serve merchants such as, for example, IKEA, Sky, Decathlon, Vodafone, Zara. I mean, names that are clearly international names, but require very specific local support, integration, and delivery. Now, before I move on, let me use one example of something that we have announced yesterday. It is actually today's mold, but I think it is also a good example of what we see as the core of the nature of the new NAICSI group. I think we said in the past in many one-to-one conversations that at the end of the day, our strategy is quite simple. We want to combine the scale that is necessary to drive hard innovation, digital innovation in particular, and we understand competence is important, investments are important, therefore we need scale. So we want to remain competitive with the global players, specialized players when it comes to product proposition innovation. But at the same time, we also want to be very, very locally entrenched, thanks to our people, thanks to the ecosystem integration that we have in the different geographies. And one simple example of this, on top of the many I gave to you over the last few minutes, is to do with a product we launched yesterday. It's called Pago Inconto. It's translatable as pay-by-account. It is a very nice product because it is an account-to-account payment product that we are making available to begin with in e-commerce, but will be available also on omnichannel solutions for LACAs and SMEs as well. This is actually integrating many capabilities that we have in Nexi, not only in merchant services, but also in the payment space, in the open banking space, to deliver a solution that we are making available to our PSP merchant customers, and I would believe progressively also to other PSPs that want to operate in Italy, and this solution is basically leveraging open banking enablement that we provide because we are the provider of the open banking system for Italy our capability in this space plus our local licenses plus our local integration plus our local capabilities on the e-commerce side and basically a merchant can offer the opportunity to its own customer to pay by the bank account without pre-registering on anything because thanks to open banking the customer will find a click bottom on the checkout page and we click on the bottom then basically the page of the bank will open, the customer will identify himself with the standard identification method of the bank and the transaction will happen because it will be pre already filled on the different components of the transaction itself and the reconciliation will happen automatically. Again, it's a small thing, but I believe it gives you an idea of what it means not having global scale, but also being locally entrenched and integrated. Clearly, this is targeting not necessarily the small transaction, but actually the large transaction, because being pay-by-counter, you can pay for the moment up to 15,000 euros per transaction and going forward even more. Let me now hand over to Bernardo. Sorry if I took a bit more time here, but I really wanted to try and give you a flavor of what is happening in this space. Bernardo.

Thanks, Paolo. So just we'll try and be quick here, so we leave as much space as possible for Q&A. Starting on slide 12, we've seen how revenues have grown approximately 10% in the quarter and 10% for the nine months. As Paolo said earlier, this is how what we discussed in terms of volumes and in terms of the business updates translates into the financials. I think it's important to underline how growth in revenues was very similar to both NETS and NEXI. I guess that's the message I would like to leave you with. In terms of EBITDA, we can see there's been a two percentage point accretion year on year in the quarter and the same applies if we look at the nine months. Most of this accretion actually comes from NETS. We have less of an accretion this year on NEXI as we've discussed in the past due to the fact that we're unwinding or Let's see, coming out of last year, we have the effect of certain costs, the cost-cutting exercise we had last year, which impacts our growth in costs this year as expected. So two percentage points, accretion, which is in line with our expectations. On slide number 13, we see how the various geographies performed. Italy, a strong performance in the quarter with 12% growth accelerating compared to compared to 12% versus 2019, accelerating compared to the 8% we had in the first nine months. So again, good signs of recovery from COVID. DAF in Poland had even stronger growth. We have close to 18% growth in nine months, 19% if you look at it in the quarter. Actually, Germany growing more than Poland, thanks to the strong exposure we have in Germany to e-commerce and BNPL, which Paolo also referred to earlier. In the Nordics and Southeastern Europe, a slightly different dynamic. Again, there is less exposure, I would say, to e-commerce compensated in Germany and Poland for the slow recovery in terms of coming out of lockdown in some of the geographies NETS is present in. Plus, as we will see later, the effect in the Nordics of, as we had mentioned in the past, the fact that we have renegotiated the last major contract at NETS, and that has hit us in 2021. Moving on to the various divisions on site 14, we have merchant services and solutions, where we've had a very strong quarter with double-digit revenue growth across the group, and this is true, as I said, both at NEXE and at NETS level. NETS has proved to be extremely resilient in all its geographies, We can see that transactions have recovered very nicely throughout the group. In Italy, we have 15% year-on-year growth for the nine months, and this was only partially offset by slightly slower growth than some of the other geographies due to the different phasing of lockdown. I think it's important to underscore how e-commerce has continued to grow nicely. We have 37% growth in the third quarter this year, 32% if you look at the nine months, and This is also sustained, as I said earlier, through a strong performance in Germany and Poland. Just a word of explanation with regards to a trend which in the past has been different in terms of the growth in volumes of international schemes, which is lower than the overall volume growth. This is due to a factor in Italy of domestic debit cards now being able to transact contactless, transacting on the domestic scheme rather than than international schemes, and this has caused this inversion of the trend. On site 15, we can see the data for cards and digital payments. Even in this division, we have good revenue growth with good volume recovery. Here, the volume recovery, as you can see, is what we're more used to, where the trend I highlighted earlier of the shift to domestic debit in Italy on contactless transactions is more than offset by the fact that we are progressively moving our domestic debit cards into international debit cards, which fuel the growth in international schemes. But overall, we have strong growth in the quarter also in cards and digital payments. Slide 16, we can see how DBS or digital banking corporate solutions is now called performed in the nine months. This, we've discussed this in the past, is a division in which project-related revenue, which is recurring by nature even though it's not contractualized, but every year we have project work for our partner banks mainly in the various geographies, has been, from a seasonality perspective, present in our P&L more in the first half of the year, hence the deceleration you can see from 11% to 5%, so 11% for the first nine months and 5% for the last quarter. Overall, I would say that performance has been in line with our overall expectations. Maybe in Italy, we have had a bit of a slowdown, which has impacted us this year on Montepaschi as they were discussing a potential transaction with Unicredit. That is no longer the case, so hopefully we'll recover some of the lost revenues there in 2022. Slide 17 shows us the cost dynamic. I think it's important to look at the commentary we put into the side of this slide where we try and give you a picture of what the cost dynamics really look like if we normalize for last year. I mentioned earlier that at Nexi we had, I reminded you that at Nexi we had a cost containment program which was 100 million euros of cash cost cut last year to protect our P&L and our cash flow. This unwinds this year, and hence we have a bounce back of accruals on variable compensation, a bounce back of travel expenses and the likes. If we normalize for those, I'd say, two items in HR costs, for instance, the overall HR costs would actually be flat year on year. There's some slight, let's say, increase due to the annualization of people who were hired last year. But overall, basically flat HR costs if we normalize for variable comp With regards to other non-HR costs, these will be up 1.4% if we normalize for the growth in volume. So, effectively, obviously, revenues are growing. We've seen double-digit. Our cost base grows by 1.4%, showing if we take out the growth in volume-driven processing costs, testament to the fixed nature of most of our cost base. With regards to... say, the net debt position of the group. We should look at it with SIA, or at least I look at it with SIA included. We have received antitrust approval, and Paolo will speak to this in a second. But basically, now we have deal certainty. If we look at the combined numbers, both of net debt and EBITDA, so adding on to our last 12 months, EBITDA also sees 327 million euros of EBITDA for the last 12 months, and we include CES 820 million euros of net debt, our overall ratio is 3.6 times leverage, which is three times if we include also run rate synergies, which we announced as part of this transaction. And this we expect to unwind pretty quickly in the leverage with the profile we highlighted in the announcement. Just a reminder that three quarters of our indebtedness is fixed rate, so moving into, let's say, a potentially high rate environment, I think we feel pretty comfortable with regards to our capital structure. So that said, I will pass the floor back on to Paolo so he can take us through the M&A updates in closing remarks.