Nexi Spa Azioni Ordinarie

Good afternoon. This is the Course Call Conference Operator. Welcome and thank you for joining the NEXI First Quarter 2022 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. Welcome to our call for first quarter results for 2022. As usual, I'm here with our CFO, Bernardo Mingrone, and Stefania Mantegazza, who is leading our investor relations activities as well. Maria with us, some colleagues in case you there are specific issues that you want to cover that require the support. As usual for our quarterly Q1 and Q3 calls, I will give you a quick update on volume dynamics and I will also spend a few words on key business updates. Then I will hand over to Bernardo who will be covering the financial results and I will come back for closing and obviously we will have as usual time for your questions. So let me start with the key messages of the day on page three of the document that was made available. Three messages as always. First of all, we've seen an accelerated volume growth in the first quarter across all our geographies. And this acceleration has been continuing throughout the quarter into the month of April. As far as Italy is concerned, we're seeing a double-digit year-on-year growth and as well a double-digit versus 2019. In particular, we've been growing 38% versus last year in April. At the same time, we're seeing a double-digit volume growth year-on-year both in the Nordics and in Germany. the dark region more broadly with a further acceleration in April that has been at 29% up for the Nordics and more than 50% up for Germany. The travel sector is continuing to recover nicely. It is now close to 70. It has been actually in the quarter close to 75% of what it was in 2019 pre-COVID and in the month of April we've seen a further improvement as well. Like we observed in the recent past, SMEs have been accelerating in an even stronger way compared to the larger merchants. And last but not least, we continue to see acceleration of the shift from cash to digital payments across all our geographies. Second key message, in the quarter we have seen a strong financial performance. In particular, revenues have been growing at a nominal rate of 7% or slightly above 7%. The underlying number is actually more than 9% growth if you exclude some exceptional project work that we had last year in Italy, so it would be more than 9% growth. And this is actually despite the fact that the Italian market, that for us, as you know, accounts for more than half of the revenues, has seen in the first quarter of this year a slower pace of reopenings compared to other European geographies. In particular, merchant services did grow about 13%. This would be a 15% net of those projects that I've mentioned. In the next geographies, we have been growing close to 20%, 19-point-something percent. Last but not least, as far as EBITDA is concerned, EBITDA has grown more than 17%. Actually, if you neutralize the effect of last year's project, this growth would be at around 20%. And with this 17%, we are actually seeing margin expansion, which is 3.5 to 4 percentage points above average. last year a bit imagine last but not least we continue to progress in the creation of what we call in turn the new nexi we confirm our commitment from the beginning of the year of delivering at least 100 million cash synergies in the year and the same time we continue to shape our portfolio we have just announced the full acquisition of Ardabird, a nice software company, a German software company specialized in software for restaurants and more broadly for the hospitality sector. This company is a leader in this space and is for us a strategic investment. At the same time, we continue to focus our portfolio more and more on what is core and presenting stronger growth opportunities and we have recently communicated that also the sale of the non-SEPA clearing business in Italy. And this is something that, by the way, was also connected to the antitrust remedies that we committed to in the context of the combination with SIA. And now over the next weeks and months, we will continue to focus the portfolio dismissing the businesses that are non-core. All in, we confirm the ambition for the year that, as a reminder, We did set back in February for the revenues a growth anywhere between 7% to 9% for the year and for EBITDA a growth anywhere between 13% to 16% for the year. Now let me start with volumes, page four. In here we made a change compared to the past. We have moved to year-on-year comparisons. So the numbers that you see on the lines in the page do compare 2022 with the same period of 2021. We understand that's the way the market would like to start seeing these dynamics. To help you as much as we can in the backup of this document, you also find the usual chart that we had in the past that we're comparing this with 2019 as well. Now, starting with Italy, you see that Italy has been accelerating throughout the last three, four months, and in April was growing actually 38% compared to same period of last year. This acceleration has been mainly driven by a super strong acceleration in the high impact sector, including travel, hotels, restaurants, and those type of sectors. If you I want to compare these numbers, the April numbers in particular, with pre-COVID growth has been more than about 24%, well supported by a continuing very strong growth in basic services at 38%, but also a very strong rebound in the high-impact sectors that are actually already 22% above pre-COVID levels. On the right here, you also see the usual a deep dive when we separate the performance of the Italian cards versus the one of the foreign cards, the cards used by the visitors to Italy coming from abroad. And here you see that while the Italian cards versus last year are continuing to grow at 26%, actually 29% versus pre-COVID, the foreign cards are accelerating in a very, very radical way, growing more than 400% in April, and basically now being very close to the pre-COVID levels as well. Bottom left, when it comes to the Nordics, also in the Nordics, we are seeing similar dynamics, acceleration over the last few months, volumes up 29% in April compared to last year. Again, here, well supported by a strong acceleration from high-impact sectors at 73%. If we compare ourselves with pre-COVID, also nice growth here of 17% for the total, strongly supported by the basic consumption sectors at almost 50% growth versus pre-COVID, but also now having the high-impact sectors also in the positive space at plus 8%. Last but not least, Germany, Germany, where, as I always want to underline, in terms of volumes, not in terms of revenues, but in terms of volume, high weight of the travel sector, volumes have been growing at around 50% throughout the last few months, above last year. Again, here, strongly supported by a very fast recovery in impact that is above 100% versus last year. If we compare ourselves, with pre-COVID, volumes are still at minus 27% net of some businesses in the travel sector that we have decided to discontinue. It would be basically more or less back to pre-COVID levels, strongly supported by the basic sector that is actually up more than 40% versus pre-COVID. So that's the picture that we see on volumes and we expect these dynamics and this recovery to continue throughout the rest of the year. Moving to the next page, let me just give you a quick update on the key progresses that we've seen, we had over the last few months in the merchant services sector that accounts for more than 50% of our revenues. And here we do it by segment. Let me start with SMEs. SMEs represent more than 50% of our revenues in the merchant services space. Volume has been up 36% compared to last year, so a stronger acceleration, as we said before, as shops do reopen. Here we've seen very good performances, performance across all geographies with a special acceleration in Germany and in Poland. We have seen a continued success and also acceleration of our more recent digital proposition, both in Germany and in Italy, SmartPay and the SmartPOS in Italy. Third, we have launched our SoftPOS tap-on-phone proposition in the Nordics and in Hungary. And now we are preparing for the launches in Italy, in Germany and other geographies as well during the rest of the year. Again, this is a very important proposition because it is targeting both the new-to-card merchants that want to start with a light proposition, but also is a great add-on for larger merchants that need to have the ability to collect payments across their stores or across their restaurants and bars. Last but not least, a specific focus over the last few months and that we continue in the future on partnerships. We continue to progress our partnership portfolio both with cross-market leaders but also vertical specialists. I think we named in the past a few of them and you find on the bottom right some names. In the context of these specific efforts, with software companies, that's where you should position our acquisition of Orderbird. The strategy is not to go out and buy software across the board, but not at all. That will vary by vertical. That will vary by geography as well. But we really believe that this small acquisition is really giving us the possibility to go much deeper in this space and, by the way, in the sector that is the most advanced when it comes to software and payment integration that is actually hospitality and restaurants even more specifically. Secondary e-commerce that accounts for about 20% of our revenues in merchant services. Here volume growth has been about 24% starting from a level last year that was already very, very high and in acceleration. Here we've seen continued strong performance of our advanced easy collecting PSP proposition in the Nordics and is now accelerating also in Germany where we've launched towards the end of last year. We continue to see good traction for our account-to-account propositions both in Poland and in Finland. We also progress on our by now for later offer in Germany through RedPay. RedPay in particular signed an exclusive relationship to provide white label invoice payments with PayPal that we consider very strategic. And last but not least, we continue the evolution of our proposition in Italy, especially, I would say, for mid SMEs where we are integrating more and more some capabilities that we have in nets, such as, for example, one-click checkout or collecting PSP capabilities. Last but not least, larger merchants that do account for about 10% of our revenues. Here, the volume growth has been also nice and strong, about 19% in the quarter. Here, as you know, our focus is mainly on the large domestic and regional omnichannel merchants. On the right, you find some of the names of the more recent key wins or renewals with a specific focus in the retail, grocery, apparel space. At the same time, we continue to progress also on cross-border merchants where we see a good traction as well. We are happy to underline the fact that on the back of the combination we see, we are actually very pleased to see that the combination of our capabilities and the former Nexia capabilities and SIA capabilities allowing us really to win new business and extend our ability to serve large complex corporates in Italy, and obviously we will consider what we can export of these in the other geographies as well. Last but not least, also in this space, partnerships are very, very important, and we are progressing in integrating with ERP and CRM platforms for larger merchants as well. Here on the right you see the name of SAP, which is clearly an important partner in this space, but many others will follow as well. Now, let me stop there and I hand over to Bernardo who will take you through the financials.

Good afternoon to you all. I'm starting from slide 7 with an overview of group revenues and EBITDA. Before we comment on the strong revenue growth we've seen in the quarter, Let me just underscore how important it is to understand COMP in terms of measuring and benchmarking performance against 2021. This is true for us within Nexia and the various geographies we're in, and it's true for benchmarking our performance against competitors. It really makes a difference as to what stage of the COVID cycle a country was in last year in terms of degree of openness or closure of shops in terms of how our performance looks compared to last year. So really, it's always important to understand comp this time around. It's all the more important. So within this context, I think revenues grew very healthily. We added almost 50 million euros of revenues year on year, and this translated into an almost identical increase in EBITDA. And you see growth in revenues is 7%, which is within our guidance range. Specifically, Kinexi comp is important because last year we had highlighted how we had some one-off nature growth. revenues coming from a project driven by the integration of UBI into the banks that bought it, Intesa and Biper, that was booked almost entirely in the month of March. And if we normalize for that one-off revenue, growth in the quarter of revenues would actually be north of 9% or above the high end of our guidance. As I said, this revenue growth translated in almost Euro for Euro increase in EBITDA, so EBITDA grew 17.4%. If we normalize for for that one-off in 2021, that growth would actually be 20%. And this sped through into a margin which was recreated by 375 basis points in the roundings. Here you lose it. It's four percentage points overall rounded. But a strong, I would say, operating and financial performance in this quarter. And I think when I speak of calm, just remember, I mean, it will be true in the second half of the year. We see an acceleration throughout the first half of the year, so the second quarter, which further accelerates compared to the first quarter. And in the second half, a return to normalization, given that last year things were much more normal in terms of degree of openness, given the success of the vaccination throughout Europe. Moving on to slide eight and merchant services and solutions within the overall framework. Growth, we highlighted earlier, merchant service and solutions grows 13%. If we normalize for the Italian component of that one-off, it would be 15%. This is driven primarily by volume growth. We see international schemes growing north of 20% year-on-year, even if we include domestic schemes, we're north of 20%, so an acceleration of the value of transactions across the group. Within this context, I think NETS performed particularly well with the growth of 19% in terms of its merchant services division against the first quarter of 2021. Again, as I said, comp helps in that respect, but the performance was very strong at NETS too. Within the volume growth, I would highlight, and I think you saw it earlier in Paolo's slide on business, we have SMEs. which are accelerating faster than lacquers, and that's obviously good for us. But in general, I'd say physical commerce has accelerated faster than e-commerce, which is, I'd say, something we aren't normally used to, but again, a sign of the times in terms of how COVID has impacted the year-on-year dynamics. So a strong quarter for merchant services, which is more than half of our business and is two-thirds driven by volume growth. Moving on to cards and digital payments in slide 9, you see here we have a 5% growth in the quarter, 7% adjusted for the one-off. Again, driven by the increase in volumes both in terms of managed transactions and the volume of transactions. In Italy, we have an ongoing phenomenon which is particularly accretive to us which is a shift from domestic debit to international debit. For us, it's like acquiring a new client effectively given the amount of work we do on international debit compared to domestic debit. And we have won interesting clients in the Nordic regions through the NETS platform. Our focus remains on delivering CVM propositions to our customers outside of Italy, building on our experience in Italy and trying to extend the licensing relationship we have with many Italian banks also outside of the Italian perimeter, which is also underlying some of our ambitions in terms of synergies. And we will update you on that as time goes by. Digital banking and corporate solutions, smaller of our divisions, was most impacted in terms of the year-on-year comparison by the merger of Wubi into Biper and Intesa twofold. One, we had project revenues last year in DBS, but we also lost an area of business, which is corporate banking for Intesa and the Biper client, which we don't do for them and we used to do for Wubi. If we normalize for this, performance was more or less flat in the year. In general, I would highlight how even one or two million euros of lower revenues has an impact here given the size of this business compared to the rest. Slide 11 shows geographically how our performance was in terms of the top line. So Italy would have been 9% normalizing for For the one-off, Nordics at 7.5% or 7.6%. That and Poland with a very strong 20% top-line growth, helped by Poland, but also Germany performed well, and Southeastern Europe at 6%. Moving on to costs, I think obviously to be fair in the representation, we should look at costs grossed up or actually taking into account the effect of the project-related costs that I was normalizing for in the revenues. And if you look at it that way on a like-for-like basis, costs grew 2%. And essentially, this is driven by investment we're making in human capital in areas where we want to grow our business. And we've spoken about that in the four-year results when we said we're going to invest in certain areas and reinvest part of our synergies. And you see that here. Part of the growth in HR costs is also to do, again, with comp. And I mean comp in terms of the fact that last year, COVID had a greater impact on NET's performance compared to its budget than it did for NEXE. And therefore, we had a benefit in the second half of the year in terms of variable comp accruals of NETs. And you remember the outstanding performance in the second half of NETs' EBITDA growth, also helped by these cost reduction initiatives. This year, we're performing well and we're accruing to budget in terms of comp, and that feeds into the HR cost-line feedback. Overall operating costs would otherwise have been pretty much flat. It's a 2% up overall, including HR. And this is ultimately together with the fact that the structure of the cost base is three quarters fixed. And then one quarter variable is what feeds into the operating margin accretion that I mentioned earlier. Again, remember what I said about the phasing in the year. So we gave guidance in terms of margin accretion for 2021. 2022 in the quarter we're doing better than that the guidance but uh as i said in the year we have the benefit earlier on of synergies as they're coming due they were front loaded thanks to the work we did last year uh and in the second half of the year we have a normalization which includes also uh the fact that we are investing as i said part of these synergies to grow businesses which are core to us um slide 13 gives you leverage we are three times if we include uh synergies uh we'll speak to guidance in a second We refinanced the SIA debts, completed the refinancing of the SIA debts. You see the gross indebtedness is coming down for the reimbursement of that component. Our mix is still three quarters, one quarter fixed to floating. I would hand the floor back to Paolo for guidance and concluding remarks.

Thank you, Bernardo. As I anticipated at the beginning of the call, we're just confirming our ambition for 2022. Let me go through the key elements of it. Net revenue is expected to grow 7% to 9% in the year with a double-digit growth in merchant services and solutions. By the way, you've seen very, very visible in the first quarter already. EBITDA growing 13% to 16% with at least a 2% point EBITDA margin expansion. Ordinary capex in the 8% to 10% range. no recurring items with transformation integration cost actually decreasing very, very rapidly to basically half the level of what they were in 2021. And an overall investment of CapEx in transformation integration of about 300 million euros in the period up to 2024-2025 on top of the ordinary CapEx and as there's now just underlined continued organic deleveraging with a target net depth of about 2.5 times EBITDA, including rarer synergies with the current perimeter. So let me just close again, reiterating the three key messages of the day. We are seeing very strong volume recovery across all geographies with now very visible recovery also in the travel sector as well in the more broadly in the high-impact sectors. Number two, strong performance in the quarter on the top line, but most importantly, I would say, on the EBITDA line, despite a not easy comparison for Italy in particular with last year. And last but not least, continued progress in delivering the integration of our new company as a combination of delivery of synergies and continuous optimization of our portfolio. And on the back of this, we are confirming our guidance. Let me just conclude before opening for Q&A that we currently plan to have our capital market day in September 2022. We'll be looking through your schedules and the many, many conferences that you're supposed to attend today. In the summer, we felt that probably the second half of September this year is a good and maybe quieter moment for having our Capital Market Day. So you will be soon receiving a more specific invitation for that. Let me stop there and let us open for Q&A as usual.

Thank you. This is the Kurskal Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Alastair Nolan with Morgan Stanley. Please go ahead.

Great. Thanks very much. Thanks for taking my questions. Just a couple for me. The first would be just a little bit more detail if you could provide it on the exceptional projects you mentioned in relation to some M&A last year. Is that specifically just in the first quarter or does that overlap into the second quarter at all? The second question would just be around the acceleration that you're expecting in the second quarter. I guess what's informing that, obviously you've got strong volume recovery, but there is a from what I can see, a 15-point tougher comp in the second quarter. So just kind of keen to see what's underpinning the confidence on the acceleration there. And then just finally, on pricing trends in merchant services, can you comment on the volume versus revenue and what that means in terms of take rates and essentially what are the moving parts within that? Really helpful. Thank you.

Hi, Alastair. Let me take the second and the third and then hand over to Bernardo for the third and any further comment he may have. On second quarter acceleration, I really want to underline again what Bernardo said. I think the best way to look at our trends is always to compare them with a normal year. Unfortunately, the last normal year was 2019. Compared to that, we expect to see a continued acceleration throughout the year. which is consistent with the continued volume growth plus the effect of our initiatives. While when you compare yourself with 2021, it's always a bit complicated also because growth rates of 2021 compared to growth rates of 2020, that was also not a normal year. So it's really, really tricky to look at it that way. compare it with 19, no, you should see a continued acceleration. It's actually what we have in our own internal plans. As far as prices are concerned, we don't observe, we're not observing any particular new news. Obviously, take rates in this phase will technically decrease because by definition, given the fact that we have a portion of our revenues a bit less than half of our revenues, but we have a big portion of our revenues that are fixed and driven by the installed base. Obviously, when then volume recover, volume grow as fast as they're growing right now, by definition, the take rate calculated as total revenues divided volume, by definition, goes down. On the exceptional projects, Bernardo?

Yeah, just a bit of background for Alistair. Maybe last year or two years ago, actually now, an Italian bank called Ubi was bought by Intesa, and then it was carved up and part of it was sold to Biper. All three banks were our clients, different service models that we did for the three banks, so we did a bit of everything for Ubi. And the work necessary to migrate clients' activities, volumes from Ubi effectively to Intesa, Intez and Biper generated project-related fees for us just north of €10 million, €12 million or so, something like that, which was spread across our three divisions. As I said, we generated those revenues primarily in March, and it might happen again if another bank is bought and their clients and they get merged into others. We typically have kind of recurring project work, but given the size of that one, and the one-off nature of it, we thought it was sensible to highlight it last year and do the same this time. By the way, the impact on EBITDA is obviously much lower because it was primarily, I'd say, cost-plus kind of work we do for them. Great. Thanks very much.

The next question is from James Goodman with Barclays. Please go ahead.

Good afternoon. Thank you. I wonder if I could follow up on the outlook for the rest of the year and just push you to convert a little bit further the increasing volume trajectory versus 19 that you anticipate through the rest of the year into year-on-year phasing of growth in the merchant services business at a revenue level. I mean, specifically, I'm looking ahead to the Q3 comparative where On my calculations, I think you were about 16% above 19 levels on net revenue already. So if you're about 12% or so ahead now, it would look like you'd need a very significant acceleration in Q3. So I wondered if you could just give us a little bit more specific commentary on the phasing of the revenue growth. And secondly, just digging into the Italian performance in merchant services in the quarter in a little bit more detail. I mean, you flagged the very strong NETS performance, which, you know, does imply a softer performance, even excluding the contract effect in Italy. You know, you had some volume data at a recent conference that was showing a sort of a higher volume growth rate than you ended up with for the months of March. I think it was 22% in Italy, the same as it was in February. So why are we not seeing more of a sequential acceleration there in Italy in March and even into April where you're looking at 24%? So those are the two questions and just a quick clarification finally on the project comparative effects, Bernardo. Last year when I look at that it was seemingly in the cards and digital payments business and in the digital banking solutions business and this year you're calling it out in the merchant services business. I just wondered has it sort of moved around or am I misremembering that? Thank you.

Sorry, had you moved there? It was in all three divisions. I can't remember. I think we put a bullet point in all three. I don't think we quantified the impact last time around, but I think we highlighted it. It's in all three divisions. If there's any confusion there, I apologize. There's nothing moving around given that it's a historic number, obviously. With regards to the first two questions, so what I said earlier, I go back to that. I think what we'll have in terms of comp against last year is acceleration in the first two quarters greater in the second quarter than in the first. And it's essentially due to the lockdown dynamics we experienced in Italy, which is still half of our business. We're just not in half of our business. So last year we had an early Easter and we had lockdowns just before and just after Easter. in Italy and at the beginning of January. So we had... We had this effect in the first quarter and at the beginning of the second quarter. But the difference in the degree of openness, it would sound like the comp would have been easier in Italy than other countries in Europe where maybe there's less going down. But the truth is that in Italy we still had throughout the first part of the year and today we're still wearing masks in Italy compared to many other European countries. the degree of openness of the economy is lower than what has been experienced in other European countries. So we have less of a tailwind in terms of the comp in the Italian market, which, as I said, is half of the overall business. In the second half of the year and from the second half, I would say, of the second quarter onwards, everything goes back to normal. So in the second quarter, expect the second quarter, to be blunt, to be the best quarter of the year in terms of... of overall growth, and then this returns to a more normal level in Q3 and Q4 as the terms of comparison are more homogeneous. I hope you follow that and that makes sense.

Maybe if I can add, James, a comment on your volume question, and here let me refer to The page with comparative zone against 2019 that is in the annex of the document is actually page 2022. You see that actually besides the individual week here, if you look at the monthly basis, actually we continue to see progression here. It was 14% growth in January 2022, in February 2022, in March 2024, in April, and we see it continuing by the week and when you look at the graph you see that actually it is supported by a continued strong performance in the basic sector that is not accelerating but is actually as high as 40% or more already. A fast recovery of the high impact sector, January minus 2, February 12, March 15, April 22. And a gradual, even slower recovery of the discretionary consumption sector, minus four, plus seven, plus two, plus seven, where the one sector that is still struggling, by the way, we served this a little bit across geography, so there is clearly an industry-specific topic is actually clothing. So that dynamic, if you look at it on a monthly basis more than a weekly basis, again, if you translate it into revenues, And if you, again, net these effects from last year, extraordinary projects, and you look at the underlying trends also, Italy in the quarter has, in fact, been a double digit when it comes to merchant services.

Okay, thank you both. Appreciate it.

The next question is from Josh Levin with Autonomous. Please go ahead.

Hi, good afternoon. I have two questions. Both Nexian Worldline have talked up the opportunity in Germany. To what extent does that mean Nexian Worldline will compete against each other in Germany as opposed to competing against other players there or just competing against cash? And then the second question, with your final purchase of Orderbird, how are you thinking about other software purchases? And if you are thinking about them, which verticals strike you as the most full of opportunity? Thank you.

Hi Josh, thank you for both questions, actually pretty core to us. Listen, for us Germany is a great opportunity, is a very, very large market that is still under-penetrated when it comes not only to penetration of digital payments but also to sophistication of solutions that are available in the market. Honestly, there we are very much of a challenger. Depending on how you want to measure our market share, we are anywhere 10% to 20% with an opportunity to grow from our customer base on national debit, on terminals, and then obviously potentially win more market share as well, and not only in physical but also, most importantly, in e-commerce. Honestly, we don't measure ourselves in competition with Worldline. There's a much larger position there. We're just going for capturing the growth of the market, as we believe will be very, very important, and then gradually winning more space in the market with our customers and with new customers as well, with a specific focus, again, on e-commerce and the SME, the mid-SME space. When it comes to software, I said it before, but I'm happy to clarify it further. We consider these, well, first of all, if you look at software and payment convergence around the world, not in Europe, but also in the most advanced markets from this point of view, most of it is actually happening in the hospitality sector and is actually happening globally. as far as the SME space is concerned, at least that is the most relevant for us, in restaurants and bars. And this is the reason why we did capture this opportunity of basically acquiring full ownership of Ordo Berda in Germany, on the back of, by the way, the fact that we were already owners from the NET company. combination of a share of that capital because we really believe that this vertical is the one vertical that by far is the one where we see most of these dynamics over the next few years. And we wanted to test more directly in ourselves how it works and the dynamics and see how much these can work in the market. This is focused on Germany and clearly we will work to penetrate the market faster and deeper in the SME segment in Germany and probably export it to a few other geographies. We have our own priority decision but that is not necessarily the core strategy going forward. So at the moment we don't have immediate plans to go beyond this, while actually our core and main strategy is to continue to develop partnerships across our geographies, starting from Italy and the Nordics, with software companies that share our view for the market and that are very keen to work with us to develop this space. Thank you.

The next question is from Hannes Leitner with UBS. Please go ahead.

Yes, thanks for letting me on. I got also a couple of questions. The first one maybe on the guidance. You confirmed the guidance, but then with all those adjustments, is it fair to say that you based the guidance on excluding those project revenues or is that purely on underlying and including them. And then the second question is around merchant services and the related revenues. The volume has been over 20%. Revenues has been lower in that division. Can you maybe talk about that relation? I know it's maybe related to install base. You don't call the project related cost as part of the install base revenues. And the last bit on travel, I think you mentioned something around winding down some business, if I heard correctly. Maybe you can drill there a little bit deeper and where you expect travel then to come in compared to 2019. Some airlines, they even speak about better bookings now than 2019 levels, maybe also in terms of travel and bookings. Thank you.

Thank you for the question. On guidance, I want to be very clear. The guidance is consistent with nominal. What will account for our guidance calculation at the end of the day is the 7%. for this quarter. The reason why we have underlined also the nine plus net of defect of last year is also to give you a better view of the underlying dynamics of the business without being distorted. But we clearly knew from the very beginning of here that we had these elements coming from last year and therefore our declared ambition takes it into full account already. As far as merchant services revenues are concerned, as I said, if you net these elements, actually, our merchant services revenue are going up a bit more, I think, than 15% that is very much consistent with the 20% plus growth of volumes given the mix where basically we have two-thirds of the revenues that are associated with volumes and a third that is more associated with install base that is also slowly growing, but clearly at a different pace compared to revenues on these travel-related contracts that we have been discontinuing over the last few quarters. Bernardo, if you want to give a comment.

Yeah, it's primarily related to airlines in Germany, large German airlines, if you want, where the risk-return profile, in our view, wasn't meeting the criteria we've set ourselves. So, We chose to give away a big impact on volumes, very little, I would say, in terms of the revenues.

Absolutely. I really want to underline this because we never mention this when we talk revenues because the impact on revenues is totally marginal. Volume-wise, these are large merchants with large volumes, very, very low take rates.

Okay, thank you. And just a quick, if I can squeeze in, follow-up on Italy. Maybe you can desegregate the parts of NEXE underlying. If you adjust for the $12 million or $11 million revenue, you grew around 9%. That's also definitely slower than your historic trends in Italy. So maybe you can desegregate it between NEXE and CEO contributions.

No, we're not going to give that level of detail. I mean, we've merged the two companies and we're not monitoring them that way, so I wouldn't be able to take a lot of effort to try and carve out again the data. But I mean, merchant services, as Paul was saying, is growing at 10.5%, 11% if you want, if you normalize for that in Italy, if you normalize for that project-related work somewhere in that region. It is slower growth in the 19% in nets, but again, think of COMP and the fact that in Italy, I think we were slower into COVID, slower out, slower throughout, and therefore the benefit we have, and we monitor internally with an index called the Stringency Index, which shows how the improvement year-on-year in the quarter 2022 compared to 2021 is lower in Italy than it is in many of the other geographies. And that simply explains the pace of exit, the pace of growth year on year. It really is as simple as that. And the proof of the pudding, frankly speaking, is in the eating. If you look at similar geographies to the former Nets group and other competitors have disclosed their results, you'd see that they are very similar. Maybe Nets are a little better, but it's really got to do with where we were last year and where we are this year in terms of people's ability to access shops, spend, travel, all these things here. Great. Thank you. Good luck.

The next question is from Alexandre Ferre with BNP Paribas Exxon. Please go ahead.

Hi. Good afternoon. Thanks for letting me on. I had two questions, if I may. One is a bit technical, just a clarification. I think in a digital banking and corporate solutions. You touched on those IT project revenues last year. I think in the slides you also mentioned an EID project where basically your migrating platform, is this going to be a bit more of a lasting effect over the next few quarters? Do we need to lap Q1 before those effects go away? And how should we think of growth in digital banking in that context? And my second question is kind of wondering if you could remind us of – revenue model in cards and digital payment, and in particular, how we should think of the impact of inflation on your transaction-related revenues and on your install base-related revenues in this particular division. Thank you very much.

Hi, Alexander. Paolo here, and jumping, Bernardo, if you want to add anything here. On digital banking solutions, there are basically three effects in the quarter. The first one is the project work from last year that Bernardo has mentioned. There's a second one that is in particular on one or two products. We have the effect of banking consolidation from last year where the acquiring bank is actually insourced on the service that we were offering to the acquired bank. And therefore, we have a step here that will continue going forward of revenues that we had in the past and will be missing. And when it comes to EAD, this is something that we did highlight also, I think, last quarter, because it's something that we were very much aware of. And this has to do with the fact that in Denmark, we are serving basically the country on the EAD entity service. and that there is ongoing an evolution of migration to a next-generation platform that we have developed for the government, for the country itself. And in this migration, actually, the pricing of the new one, that is a new next-generation technology type of thing, is actually lower than the previous one, and that's something, therefore, that over time you will see actually continuing. So the real one-off effect... is the comparison on the first element. Again, here we're talking about low single-digit million euros of impact, but clearly on the business unit, they are visible when you look at growth rates for the quarter. On the revenue model for cash and digital payments here, I think in its exposure to inflation, it is clearly less exposed to inflation, I would say in the positives, or better. You know that in merchant services and solutions, we have a large part of our revenues that are exposed to end customer pricing, and therefore if prices go up for the same volumes, actually our revenues go up. In cards and digital payments, the volume-related revenues are actually a smaller portion of the total, about a third, so it's the other way around compared to merchant services. And that third is a bit less exposed to inflation because some of it is actually number of transaction related. As well as when you look at the rest of it with cards and this toll base that is also contractualized in long-term contracts normally with the banks and that is also less exposed to inflation.

Understood. Thank you very much.

The next question is from Sebastian Stabovic with Kepler Chevrolet. Please go ahead.

Yes, hello everyone and thanks for taking the question. It seems you have not seen any specific impacts from top-form macro environment so far in your volumes. What kind of correlation to GDP you have on your business at Nexi on a general, I would say, standpoint? And the second one, you confirm double-digit growth on merchant subsidence solutions for this year. What are you expecting for the two divisions, the other CDP and digital banking? And last thing, if I may, starting with Italy on a rather slow growth, looking at your main geography for 2022, which geography are you expecting to outperform the group average, grow in line with the group average and maybe underperform the group average in 2022? Thank you.

Hi, Sebastian. As Bernardo prepared for this one, he's a bit more sophisticated and he's looking for the backup to make sure that we give you a more precise answer. Obviously, we have a good feeling for that, but we want to try and help. Let me just take the first one. Listen, historically, the correlation in between, I mean, the GDP and our top line growth has been fairly light and for a strong reason, which is the fact that at the end of the day, when your volumes grow 10%, 12%, 15%, a GDP growing alpha percentage point more or less is really difficult to be perceived. So historically we've been quite resilient to this effect. By the way, this time, this is also coming with inflation that may also have instead some positive unitary price component as we just discussed. So to give you, if you like, a very, very, very clear and simple example for that, we have obviously before closing the numbers for Q1 also reviewed our projections for the rest of the year and they're actually in line with what they were at the beginning of the year. So despite the fact that unfortunately today we also have a war in Ukraine and there are macro tensions around more than what it was at that point in time internally we're not changing our financial plans for the year and, as a consequence, we're not changing other guidance either. On the geographies, Bernardo?

Yeah, in general, I mean, I think, as you said, double-digit growth, low teens for merchant services, whereas cards and digital payments is something which will grow in the mid-single-digit range, whereas DBS, we're expecting to be, broadly speaking, flat and then, frankly speaking, no one's, you know, one million euro smart at this stage of the year in terms of where we'll end up, but broadly, I'd say, flat. Within this, I'd say that in terms of the geographies that we expect to perform best, I'd say I'd highlight DACH in general. I think DACH and Poland are the two geographies that will best perform in terms of, and I'm talking about acquiring, I'd expect them to perform better than the rest, and then followed by Italy and Nordics. On issuing, actually, it's It's slightly different in issuing. We expect Italy to perform pretty well compared to the Nordics, again, within the overall group. But I would say sticking to acquiring, which I think is where the question is leading to, those are the areas where we'd expect outperformance in terms of top-line growth.

And so Italy is likely to grow in line with the group?

In terms of merchant services, I'd say Italy is pretty much, given that it's half of the business roughly, I mean, you'd expect it to be very close to what the average for the group is, and then we'll have, you know, DAC in Poland more and in the Nordics less.

That's perfect. Thank you.

You're welcome.

The next question is from Antonin Baudry with HSBC. Please go ahead.

Hi. Good afternoon, everyone, and thank you to take my questions. I wanted to come back about inflation, on the impact of inflation picking up on consumer behaviour. I wanted to know if inflation changes what the consumers purchase and if the shift of what they are buying has an impact on your take rate. I will have a second question on the ability you have to pass some price increase on this inflationary environment, whether it is on your transaction-based revenues or on your installed base. And my third question is about your performance in e-commerce. If you can split With rate pay performance, if you could exclude the rate pay or highlight what rate pay record you want, it would be useful to have the underlying growth of your e-commerce business. Thank you very much.

Thanks, Antonin. So inflation, for starters, I think just to, and actually Paul and I have contrasting views on this one. I think we're already seeing an impact on inflation in our numbers because the average ticket size per card, and if I just leave the analysis to Italy, which I think is a good proxy for the whole group on this, the average ticket per card, per transaction, sorry, has historically always decreased between 5% and 10% every year. So it started the year at, no, at 80 euros per card, it ended at just north of 70 and so on and so forth. This year, we're actually flat, right? I mean, the average ticket is not decreasing. Now, this can be due to a number of factors, one of which, you know, increasing prices of the things people are buying. Now, whereas we've observed that, I haven't observed in the data we are looking at, even though it requires further mining and analysis, doesn't suggest there's a shift in consumption from one good to the other. So we're not seeing more coffee being consumed and less other stuff. I think the only relevant shift in consumer behavior that is worth highlighting, Paolo mentioned earlier, which is on clothing. And this is true throughout the group. We've seen clothing volumes and that may not be true with inflation.

Yeah, honestly, this was the case also in the past. I think we discussed it several times with some of you and many investors. This is something that started with, unfortunately, COVID. And obviously, it also did recover a lot as we're exiting COVID, but still remains probably the most depressed sector. And therefore, we're not really connected to inflation.

In terms of our ability to pass the effects of inflation onto customers, I think different customers, the pricing power of customers is always to do with the size of that customer, and it would be, I would say, I think, more relevant on the install base part of our revenues, both in merchant services and in cards and digital payments. But we haven't been there yet. Obviously, we have had some supply chain-led investments, kind of pricing impact on certain things, but not something which we have today worked proactively on passing on to customers.

No, but I want to add something, Anthony, here. The biggest effect is actually coming by itself. We don't need to pass anything because the majority of our revenues, especially in national services, as we said before, are actually expressed in terms of basis points of net merchant fees. And therefore, as the price of the goods increases, we take the same percentage and therefore an higher absolute number. So that's the reason why we are not, and honestly at this stage, we don't plan to increase prices on ourselves. Taking into account that the rest of the business is very much into contracted markets. relationships as well. Obviously, we continue to consider and observe, but we are in a business where the mechanic is already by itself healthy.

In terms of the question on e-commerce, if we break it down within the group, we have countries like Italy where e-commerce, which is not huge, but growing really... You saw the volumes, right? 26%, I think it was, in the quarter highlighted in the slide. 24% in terms of volumes. In terms of revenues, we have growth, which is in the 20s or thereabouts in Poland, Finland, north of 30% in Italy, slower in DACA due to the de-risking I was mentioning earlier. So in general, I'd say e-commerce is, on a like-for-like basis, as usual, is growing handsomely in terms of the volumes you have the data. I would just, and I think we thought it was interesting to highlight how, strangely enough, with the reopening or normally, given that shops are shut and now they're open again, the growth in the physical channel outstripped or was in line with the growth in e-commerce in the quarter, which is a new trend that we thought worked out.

Thank you.

You're welcome.

Mr. Bertoluzzo, there are no more questions registered at this time.

Thank you. Listen, thank you for attending this call. Looking forward to the next one. Again, we will meet and chat with many of you one-to-one in the coming days and weeks. And I think we'll also see you around in the several conferences before our Altea results call that will happen at the very end of July. Again, we are basically progressing the year according to our plan. If anything, the first quarter was slightly ahead of our plan, respect, compared to last year, a stronger second quarter, and we remain quite optimistic about the outlook for the rest of the year. Have a good afternoon, and see you soon. Thank you very much. Bye-bye.