NEXI S.P.A.

Good afternoon. This is the Call School Conference Operator. Welcome and thank you for joining the NEXE Full Year 2021 Preliminary 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.

Thank you and good morning to everyone joining this call. Welcome to our results call for fourth quarter 2021 and most importantly for full year results for last year. As usual, I'm here with Bernardo Mingrone, our CFO. Stefania Mantegazza leading our investor relations team and a few other colleagues that may help us to address any specific issues and questions that you may have. The structure of the presentation today is very much in line with the past. We'll give you a quick update on what we see in terms of volume dynamics as we basically follow the evolution of the various COVID waves. Then we'll move into results. We will give you an update on our integration and transformation initiatives. And most importantly, at the end, we will also share with you the new ambition for 2022 for the new group, including also SIA. So please always remember that when we talk about results for 2021, we talk about NEXE plus NETS. Instead, when we talk about guidance and our ambition for next year, we're talking about the new perimeter, NEXI plus NET plus SIA, given the fact that at the end of last year, we've closed the merger with SIA as well. We will probably go pretty fast in the presentation. We believe it is quite self-explanatory so that we can leave more time for your questions. So let me start with the volumes. Let me start with the key messages of the day. Three key messages for today. First message, continued volume growth, I would say, especially in Italy, but also with positive trends also in the other geographies, despite the Omnicom variant that came in December, basically were affecting Italy. some geographies in earlier than December. We've seen and we are now seeing double-digit growth in Italy in the second half of January. So there is more recent trend as we start to exit slowly, but hopefully in a consistent way from these latest COVID variants as well. So we see compared to pre-COVID levels, so to compare to 2019 more than double digit growth in Italy driven by a very solid growth in basic consumption and Italian cars growing anywhere in between 25 and 30%. We also see continued positive volume growth in the Nordics in the fourth quarter with actually basic consumption growing above 30% compared to pre-COVID. Germany is actually still recovering, but a slower space due to the larger exposure that we have in terms of volumes to travel. Even here, basic consumption is actually growing double-digit nicely, anywhere in between 25% and 30%. SMEs seem to continue to accelerate faster than larger merchants, which is a positive for our economics. And across all geographies, we continue to see a strong acceleration from cash to digital payments growth. in the sectors in the industry that are less affected by COVID. So, first message, continued volume growth despite the arrival of the Omicron variant. Second key message, strong financial performance in the fourth quarter and for the full year. Revenues were up 11% in the fourth quarter and 10% for the full year, 11% for the fourth quarter despite we were not expecting actually the fourth quarter the Omnicom variant coming in in November, December. Strong revenue growth, in particular in merchant services and solutions, with both Nexia Nets growing about 13% in the quarter and 11% for the full year. E-commerce continues to perform strongly at about 29% growth versus last year. EBITDA, 12% plus, plus 20% in the quarter, and also in the year with continuing margin expansion. This year, there is a 1% point margin expansion across the new entity. Third key message, we continue to progress in creating the new company, the European Paytech Leader. As you know, we have closed the deal, the merger, next year, at the end of 2021. As you can see in one of the attachments, we've seen a very strong performance in the year from SIA standalone, basically in line with the performance of Nexi and NET. Our work in integrating the companies and driving the synergies on the back of it continues and we confirm that in 2022 we plan to deliver about €100 million of cash synergies. Last but not least, I will talk more about this as we go forward. Strong progress on the ESG front. It is more and more important for our future, as it should be for any other company, with actually strong progress, very well witnessed by strong improvements in the ratings. Standard and Poor Global at 68 plus 7 points versus last year. CDP, A minus versus C last year. So strong progress positioning our company in the top quartile of the industry and we'll continue to push for more. So all in, we are delivering the ambition that we had anticipated in July on the new perimeter and which is already higher than what we had anticipated committed to at the beginning of the year, despite the arrival of the Omicron variant. And for the new year, assuming that we will come back to a normal situation as far as COVID is concerned from the beginning of the second quarter across all geographies, we expect to have revenues growing anywhere between 7% and 9% with actually merchant services, and this is very important, growing double digits, with EBITDA growing anywhere between 13% and 16%, very well supported by continuing effects of our operating leverage and the positive impact of the synergies that I've mentioned, although a good part of the synergies, we decided to reinvest them in accelerating future growth on our highest growth opportunities in particular I would say Germany and e-commerce. Now let me jump into volumes and I go directly to page five. Here you see as usual the dynamic that we observe on the merchant side of the business. Again all these numbers, the recent numbers compares ourselves still to 2019 to be able to give you a constant benchmark. that is the relevant one. Here you see that in Italy, we had a bit of a slowdown at the end of last year and the beginning of January as well due to the lockdowns, but more in general due to the fact that I think across most of the countries, almost 10% of the population was either infected or actually in quarantine because of contacts with infected people. The good thing is that as the situation started to improve, you see that the second half of the month, we were actually as a total 20% growth versus 2019, which is the highest performance since the beginning of COVID, and with a nice 26% on Italian cars, while international travelers coming to Italy are unfortunately still weaker, even if at levels that are much better compared to the ones of the previous waves. If we go to the next page, as usual, you have the split across the three macro categories. And here again, you see a super strong acceleration of the basic services categories from groceries to general retail to pharmacies, utilities, and so on and so forth, growing nicely at around 40% over the last month, basically. You also see that in the latter part of January, also the other two categories, high impact and discretionary consumption, came back into positive. These two categories are also very much affected by the weakness of international travel. If you look at these two categories for Italian cars only, they're already actually growing double digit at around 10% each one of them. If we now move to the next page, we extend the picture to the other key geographies for us, the Nordics and the Dutch region. Again, here you see that both of them have been affected by the new variant effects across December and January. However, good news for both situations is that we really see a super strong growth in the basic consumption sectors with actually the Nordics growing above 40% in January which again is a great signal of a much further potential that is also in the Nordics despite the very high penetration that is already present there and also in Germany in January we've seen a 27% growth in the in the basic sectors with groceries growing actually even more than 40%. As always, I want to remind everybody that the overall volume dynamic in Germany in particular is affected by the fact that there is, in terms of volumes, a high weight for the impact sectors, the travel sectors in particular, that as you can imagine are very much affected by the COVID situation. Moving to page eight, here we give you, as usual, a snapshot of some of the sectors that have been particularly stronger in terms of volume growth, always compared to 2019. I will not go through all of them, but you see many, many sectors growing, not only double digit, but in the 30s, in the 40s, In some cases, above 60%, 70%. I just want to underline one sector that is gross. Gross is an important sector across all geographies and I think is also one that is very telling when it comes to cash to digital payments conversion and is one that is not affected by COVID. 65% growth in Italy, 37% growth in the Nordics, 42% growth in DAX. So very good. continued acceleration of the shift for digital payments. So this is it in terms of volumes. Happy to take questions when we come to our Q&A session. Let me now move to results, page 10. Let me start with the bigger picture, total group. And again, here the perimeter is NEXE plus NETS. For the year, plus 10% of revenues, actually plus 11.1% in the quarter with a nice acceleration in the quarter. EBITDA plus 12%, 12.1% in the year plus 11.6% in the quarter for the full year, a one percentage point margin expansion. Moving to the individual business units, and here I try to give you, as we normally do at half-year and full-year results, a bit of color of what is happening in terms of the business activities as well. When it comes to merchant services and solutions, We spent a good amount of time on this topic in our last results call, so I will go a bit quicker here. Let me just mention a few relevant points. SMEs represent 59% of the revenues in the merchant services space. They continue to progress well, 13% volume growth. compared to the same in the last quarter to compare to the same quarter in 2019. We continue to see good traction, good acceleration in Germany with our all-in SmartPay digital proposition for SMEs as well as we continue to see a very good traction for our new-to-cards proposition with the mobile POS in Italy. Now this proposition represents around 20% of the front book and last but not least let me also mention the fact that we are continuously expanding the contribution of our complementary channels across geographies but in particular in Italy where actually complementary channels contribution grew by three times in 2021 compared to 2020 and we will continue to push in that direction as some of the new customers are actually shopping through different channels and not necessarily directly from the banks. For the second area, e-commerce, 23% of our revenues with the progress, I would say, across the board, with the progress with our PSP propositions, acceptance propositions, I would say, across Germany, the Nordics, and Italy as well, with a growth of 50% of new gateway activations across compared to pre-COVID levels. We also continue to expand the capabilities that we have on the product side. And in parallel to the PSP efforts, as you know, we are also very focused on the account-to-account alternative and method solutions where we own very nice assets in Poland and in Finland that are doing really well. But at the same time, we integrate more and more in our acceptance solutions, third-party solutions, third-party account-to-account solutions like, for example, Bancomat Pay in Italy. Last but not least, we continue to see a very strong performance of our own buy-now-pay-later solution of rate pay in Germany, but at the same time, also here, we are extending our portfolio of partnerships to be able to offer to our merchant customers alternative solutions. by now plethora of solutions across all geographies. Last but not least, the larger merchants, the larger omnichannel merchants that represent about 9% of the total revenues in merchant services and therefore about 4% of the total for the company. Again, here we continue to see good performance, especially in industries where we focus, such as, for example, food retail. In here, we continue to win or renew against both traditional players competition, but also the newer competitors that are coming into the space. At the same time, the other thing that I want to underline is that we're progressing our sales plans as a new group to be able not only to respond to new tenders cross-border, but also to start upselling to customers that we have in one geography that are not yet our customers in the other geography. And there is a nice pipeline being developed in that space. So moving to the numbers, page 12, in the quarter in merchant services, we did grow 13.3%. And this is an acceleration in a year that we are closing at plus 11.4%. You also find here some data on volume dynamics versus 2020, but I will let you read them. And therefore, let me jump to the next business unit, page 13, cards and digital payments. Again, business update here. Here the business, for your memory, is about two-thirds of revenues in Italy and about a third of it in the Nordics and in the rest of Europe. In Italy, we see good traction of our credit proposition with the licensing banks, also supported by a good performance from our installment solution, from our binomial later solutions that is available as an option on our credit cards. We have also launched the credit premium product that is receiving a very, very good support from the banks and good traction in the market. As far as debit is concerned, international debit is continuously progressing well. We did add 1.5 million cards in the year compared to the year before. Volumes are growing almost 30% in the year and almost 40% in the fourth quarter. Again, we also launched the premium product in this space and we see a good traction for that one as well. In parallel, As you know, we're also serving the banks and the customers of the banks on the national debit proposition on Bancomat, where we've seen a good volume progression. But most importantly, especially now with the combination we see, we're actually partnering with Bancomat to help Bancomat and the banks develop the next generation platform and solution and offering for the Italian market. Last but not least, I think it's just a nice little point. contactless up 80% to 84% of transaction compared to 66% pre-COVID levels, and actually mobile payments growing more than 100% in the year, actually 123% over the previous quarter. In the Nordics, we're also making good progress. The issuer business in the Nordics is now completely reshaped, 97%. of the revenues have been that were with legacy contracts have now been renegotiated and in parallel there is a lot of activity happening to drive future growth in terms of new customer wins and pipeline in the nordics but most importantly across the rest of europe together with that expanding the existing relationship with more value-added services and propositions, such as, for example, car management, account management services, and with a new effort now ongoing in upselling the NAICSI Italian reacher proposition, the licensing proposition or components of it, like, for example, customer value management to the customer base of the banks. Results here as well, page 14. In the quarter, we did grow 8.2% revenues that is up compared to the previous quarter, and we are closing the year at a nice 7.4%. Here, actually, you have a little bit of two different profiles of performance. ETH has been growing double digits in the year and in the quarter, while actually in the Nordics, we are still affected by the effects of the renegotiation that I've mentioned and in particular one single client renegotiation that is limiting the growth in the region. Moving to the third business unit, digital banking and corporate solutions, key business update, good progress I would say across the board. In business-to-business corporate payments, strong growth of instant payments, volumes much, much higher, four times higher than what it was in 2021. Digital corporate banking proposition progressing well as well with a customer-based growth of about 5%, and the expansion of our partnership with CBI that is de facto the banking association, Italian multi-bank infrastructure here. We were already partners and we've shown basically the modernization of the current platform into a more innovative one serving both corporate and public administration. Open banking is small in absolute terms, but as you see from the numbers here, also good progress with volumes growing 80%. in the year with a good acceleration in the latter part of the year. Self-banking, some new sales with new customers in particular in the area of value-added services, but also continued transition from traditional ATMs to advanced ATMs that are for us a richer proposition. And last but not least, the Nordics e-security and digitization businesses In the Nordics, we have launched and we're now ramping up the new electronic ID platform that we've developed basically for the country. Here, the entire country in Denmark is actually using NET services here. This has been launched in October, and we are now actually seizing the legacy platform, the EAD legacy platform from October. At the same time, in parallel, we have the digitization services growing double digit and continue to grow strongly across the board. Numbers again here in the quarter, this business unit grew 6.2%, 9.8% in the year. Now, let me... Before going into cost and ending over to Bernardo, take the country view on page 17. Italy grew in the quarter 9.3%, 11.3% for the year. The DAC region and Poland, 26% in the quarter, 20% in the year. Nordics, 6% in the quarter, 3% in the year, and therefore a good acceleration in the latter part of the year. South and Eastern Europe grew 14.8% in the quarter, 7.9% in the year. Now, let me hand over to Bernardo, and I will come back for conclusions. Thanks, Paolo.

If we move across the room to everyone, also from me. Page 18, starting on costs. As you can see, the costs in the year, as we've discussed in the past, were influenced by, I'd say, two, broadly speaking, two large effects. One on HR costs, which is The spring back, let's say, of variable compensation accruals and payments in NEXE compared to 2020. And the other one is the impact of volume. So 2020 was a year in which we exercised our discretion in trying to reduce costs as much as possible. And the cost contained in planning of 100 million euros, which reduced costs in 2020, shifting part of this expense to 2022. And we have the spring back now. this year and hence the growth in costs. Within the quarter, we have this effect. It's actually slightly distorted by, you know, specific items in December. In the quarter and the fourth quarter, it tends to be a little funny with regards to costs, the way certain things happen towards year end. But essentially, what we've tried to do is normalize the performance in terms of costs, and we've given you an idea on the right. The way we look at it is that basically costs were more or less flat in the year. We've seen HR costs come slightly down and that is the benefit of the early benefit from the Nexi Nets integration of some HR synergies which we've had. Whereas with regards to operating costs, they've increased approximately 2% on a like-for-like basis and overall I would say flat, which is historically what our trend has been, broadly speaking, at Nexi. Moving on to slide 19, again on CapEx we should remember that we had this cash containment program in 2020 which shifted We suspended certain activities in 2020, which didn't mean we weren't going to do them. We just happened to do them in 2022 compared to 2020. It was roughly, I'd say, approximately €20 million at the time. So if we adjust for that, the performance year-on-year, or not the performance, but the percentage of CAPEX over revenues is roughly flat, around 14% in both years. If we look at the increase in ordinary CAPEX, which runs at about 10% of revenues, Just the growth in revenues for the year suggests that €188 million would grow by approximately €20 million. If you add the other €20 million of CAPEX, which was shifted one year to the next, you get to the figure for 2021. With regards to the transformation CAPEX, it should be said that Nexi and NETS were both going through their own transformation journeys before the merger was announced. NEXE was further down the line, NETS was a little further behind and 2021 was a significant transformation year for NETS with Centurion Transaction where they disposed of their A2A business to MasterCard plus the divisionalization of the company which drove most of the transformation spend on a standalone basis. We've listed a number of the items here on the right which are the ones you're used to so I won't go through them. What we've done on slide number 20 is give you a view and these are numbers which also include SIA so the starting point for 2021 aggregates also SIA and remember the SIA transaction actually closed on 31st of December so what we've done is a pro forma from 2021 and you see total capex of around 15% of revenues SIA has a slightly higher capex intensity than NETS or NEXI and the overall capex spend for the combined group is approximately 430 million euros which approximately 300 million euros ordinary capex and 130 transformation so what we're saying is that we have approximately on top of the run rate 10% of revenues capex which includes also the purchase of terminals POS and ATM terminals we are going to spend approximately 300 million euros between 2022 and 2025 on both the completion of the transformation of the three companies so those projects for instance at the NEXE level I would quote the core acquiring platform on SIA. There's a lot of work being done on the new issuing platform, exactly. NETS was completing the UNI platform. So completion of those projects plus the integration of NETS and SIA into NEXI, the sum of all of this will involve approximately 300 million euros of CAPEX being deployed over the next three, four years. And as you can see, if you work the numbers out from the guidance we've given, approximately... 10% of revenues for 2022 is approximately €330 million, and 16% of revenues takes you to €530 million, so approximately €200 million of that €300 million will be spent during the course of 2022, which is going to be the peak year in terms of CAPEX spend for the enlarged group. Moving on to slide 21, we also have transformation costs which are not CAPEX, so OPEX, they flow through our P&L, we classify them below EBITDA because they are non-recurring in nature. Obviously, to the extent we continue doing M&A, we will have some of these items here. As in the past, we see significant reduction almost immediately after the M&A. This was true for NEXI in the past. It was true for NETS. And we believe this will hold true going forward. And we'll speak to that with regards to the guidance. But overall, we have a reduction of 25% in transformation costs from 2020 to 2021. That takes us to 170 million euros. In addition to that, we incurred approximately 57 million euros to set up the integration of NETS and SIA. You see that on the table on the right. And then we had advisory costs for the two M&A transactions involving NEXI, the Centurion deal, which was the sale by NETS to MasterCard of their A2A business and a number of other smaller M&A deals. Advisors of all kinds, their investment banks, accountants, lawyers, et cetera, cost 100 million euros of spend. We have a recurring non-cash item, which is the LTI, paid by Nexus Group to our executive management and larger population. And then we have this year in 2021 an accrual with regards to the likely payment to Intesa of an earn-out related to the acquisition of the merchant book, which we announced a year and a half ago, and performance of this book has been such a better-than-planned to warrant this accrual, which is clearly good news because it's performing even better than our own or the seller's expectations, as a matter of fact. We then have a legacy IPO cost, which is borne by Mercury UK on the far right here, 28 million euros, which is non-cash and paid by Mercury as has happened in the past. And by the way, that is the last we'll see of that. On page 22, we can see how our normalized operating cash flow is strong at 78% in terms of cash conversion. Page 23, we look at leverage and we're landing at three times leverage if you include the SIA net debt, given that we close at the end of the year, and the SIA EBITDA and synergies, so pretty much where we expect it to be given the guidance we've given in the past. If you look at it without the synergies, it's 3.6 times. I would highlight how we were upgraded by S&P during the course of the year, and hopefully this is a virtuous path to further upgrades we hope to have in the future. From an overall indebtedness perspective, I think we are reasonably happy with where we stand with regards to our capital base. We have a strong component of fixed rate indebtedness, so in an environment of increasing rates that gives us comfort, we also have a pretty well-balanced split of instruments out there, including equity-linked bonds and not only fixed floating rate notes. Um, page 24 is, um, let's say just, uh, we're, we're, we're, uh, benchmarking ourselves, the actual performance against what the ambition was, which we announced, uh, in the summer at the end of July. Um, and the, the, the summary of this is that notwithstanding the, the, the very, the cold, the Omicron variant, which, uh, which, uh, hit us in Europe, uh, towards the end of 2021, we still managed to deliver, on expectations and on guidance. So we delivered 10% revenue growth. EBITDA, which was in the range 11% to 13%, which we guided to with a margin accretion in 2021 of 1% point compared to 2020. If you look at it, I think more correctly over the two years, so normalizing for the strangeness of 2020 given COVID, we have a three percentage point accretion, which is roughly 150 basis points per annum, which is roughly what we were accreting EBITDA margin in the past. As I mentioned earlier, CapEx is broadly stable around 14% once we normalize for the underspend in 2020. And the truth is in 2021, we have upfronted as much CapEx spend as possible to make sure that we deliver the synergies from the integrations of nets and see as quickly as we can. And in terms of leverage, I've just spoken through that. Just a word with regards to the fourth quarter performance, which was not only was the full year, I'd say, in line with our expectations, but the fourth quarter was also in line with the consensus IR had circulated before with, if I look at EBITDA, for instance, the EBITDA for the fourth quarter was actually on that front. Slide 26 gives you an overview of where we, the work streams we put in place in terms of integration. I'll just highlight how the day one organization was in place, day one, as it says, for both NETS and SIA. We really hit the ground running and had used the time before effective dates of the mergers in order to do so. Procurement has structured a number of work streams and initiatives aimed at capturing the lower hanging fruit with regards to negotiations and renegotiations with suppliers and supplier consolidations, which will underpin at least part or a significant part of the synergies we expect for 2022, which we have highlighted B2B approximately 100 million euros in terms of cash synergies, so both OPEX and CAPEX. And from the revenues, on the revenues front, we have a commercial plan in place, which is actively marketing and cross-selling across driver fees the products of the enlarged group. Slide 27 just summarizes what we already said. We expect to generate approximately 100 million euros of cash synergies in 2022. This is up from just 18 in 2021. The run rating of this, of the OPEX front at least, is approximately 20 million more. So at the end of 2022, we will have in the bag approximately 18 million of the 320 million cash synergies, or 125 if you include the OPEX. So As I said, the point being that a lot of work went into this during the course of 2021 in order to be able to upfront as much as possible in 2022. Slide 29 gives you a picture of the group including SIA. So compared to what we've seen so far now that we have SIA on board from 1st of January and the guidance that Paolo gave you is on the enlarged group including SIA, not only NexieNets. We have a well-balanced mix both in terms of businesses with... Merchant services continuing to weigh for approximately half of our business, and 20% of that is e-commerce, which is obviously high growth and an attractive sector to be in. A third of it is cards and digital payments, and the rest being digital banking and corporate solutions. More than half of our business is in Italy, which is structurally advantageous given the overall underpenetration of the Italian market. We have greater exposure to volume growth thanks to the deals primarily with NETS, which increases that component to approximately two-thirds. So two-thirds of our revenues grow with the rising tide of digital payments, and we have greater operating leverage in the past with approximately three-quarters of our cost base being fixed and therefore allowing us to translate growth in revenues into growth in EBITDA. If we look at the revenue performance as an enlarged group, CS performance on the top line was very similar to NexiNet, so no wonder that overall revenues grow 10% if you include Net, so just north of €3 billion. The EBITDA margin accretion is slightly better. CS EBITDA growth in 2021 was very high, close to 18, just north of 18%, and that helps us grow as an enlarged group of 13.6%. So if we looked at it year-on-year growth in the setup where now the group grew 13.6% in terms of EBITDA and the margin accretion was 200 basis points if you look at it from an EBITDA margin perspective. For the various divisions, we have a similar picture to one painted earlier by Paolo, so 12% growth, more or less, in terms of merchant services, close to 9% in digital, in card and digital payments, and just shy of 8% on digital banking and corporate solutions. The geographic mix also doesn't change hugely once we put in SIA. Italy grows at 11%. The Nordics is not impacted by the merger with SIA. DAC in Poland adds SIA's businesses in Germany, which are primarily issue processing, and therefore, not particularly exposed to e-commerce as a net as assets and therefore that reduces or dilutes that growth a little, whereas it increases at least in Europe and other with the benefit of some of the payments assets and businesses SIA has outside of Italy and outside of Germany and Nordics which increase that growth from about 8% pre-SIA to about 11% pre-SIA. So let me close before handing the floor over back to Paolo with the reiteration of of our guidance for the enlarged nexi nets sia group and this is for full year revenue growth which will lie between seven and nine percent uh with double digit growth in merchant services and solutions uh we expect our ebitda to grow in the range of 13 to 16 percent and we have an ebitda margin expansion of approximately two percentage points this would have been higher i said we have approximately 60 million euros of EBITDA synergies in the year. We're going to be reinvesting. That's approximately two percentage points of EBITDA growth that will be reinvested in our business, in particular in e-commerce, and we're already doing so, and in Germany in order to secure structure or longer-term growth. CapEx, ordinary CapEx, hover around 8% to 10%, including the terminals, as in the past. And then we have that 300 million euros of additional transformation integration CapEx, which we expect to deploy in by 2025, approximately 200 million of this in 2022. And finally, on leverage, we expect to close the year on an organic basis at around 2.5 times leverage. That said, I would pass the floor over to Paolo for closing remarks and then open it to Tuna.