NEXI S.P.A.

Good afternoon, this is the Coruscall Conference Operator. Welcome and thank you for joining the NEXE First Half 2022 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. Good morning. Good morning to everyone and welcome to our call for the first Alpha 22 results. As always, I'm here with Bernardo Mingrone, our CFO, and Stefania Mantegazza, who is leading investor relations at Nexi, plus a few other colleagues that may help us in case of need on specific questions. As usual, I will start with the key messages for today. I will give you a quick update on volume dynamics and a few business updates on what we see happening and our progress in merchant services in particular. I will then hand over to Bernardo, who will cover more in detail the financial results. And obviously, as usual, we will have then time for your questions. Let me start from page three, summarizing the key messages for today. First message, we continue to see strong volume growth in the second quarter across all our geographies. All our geographies are now growing double digit, both compared to last year and compared to pre-COVID to 2019. That is something that we continue to track with a lot of attention, because at the end of the day, gives you the real picture of what is happening. I will give you more details in a moment. Let me just underline here the impressive growth that we've seen in the SME segment, which is very much the segment where we apply a lot of focus, probably most of the focus, where we've seen in the first half of the year a 38% growth of volumes compared to last year. Second key message, in the quarter and more broadly in the first half, we've seen strong financial performance. Let me start from EBITDA that did grow in the second quarter of the year by 20% and 19% for the first half. with a four percentage point margin expansion was supported also by the early delivery of the synergies of the back of the acquisitions we have done in the recent past. This growth of EBITDA 20% has been well supported by revenue growing about 10% in the quarter and 9% in the first half. And this revenue growth has been supported by a very fast growth in merchant services, plus 16% in the quarter and 14% in the first half. Obviously, the strong EBITDA growth at plus 20% has been clearly enabled by a strong cost control. Bernardo will show you our cost growth versus last year, about 1% to 2%, so strong cost control there as well. Third message, we continue to progress on our journey of creating the European Paytech leader. As I've anticipated, we are progressing the delivery of our synergies. 100 million euro is the target for this year and we confirm that we are moving exactly in line with that target. Second point, we had a particularly active second quarter in terms of M&A both in and out and I think this is something that I really want to underline. We signed the acquisition of the Bipper Merchant Book in Italy. We did sign the acquisition of the Intesa Merchant Book in Croatia. We did close the Alfa Bank joint venture and launched actually the activities and we closed the acquisition of Artebird. But also we have announced the sale of the capital market business in Italy. We have announced the sale and also closed the sale of Edigar that is a nice digital invoice business in the Nordics. And we've also closed the sale of the non-SEPA clearing business in Italy. And I think this map gives you really the sense of how we see our future progressing with nice, even if small in many cases, both an acquisition in merchant services to strengthen our our portfolio, but at the same time also refocusing continuously our portfolio on the core of the business, on the core of our future. Let me now move, sorry, in this context, we are confirming our ambition for 2022 that as a reminder is a revenue growth of 7% to 9% for the year and maybe the growth of 13% to 16% for the full year. Let me now move to volumes, page four. Here you see the lines representing the comparison versus last year. I always feel these lines would be a little bit complex to be understood because they very much depend on what happened last year that was still very much affected by ups and downs with COVID. Nevertheless, you see across all markets double digit growth, both when compared with last year and when compared with 2019 as well. In the appendix to this document, you find our usual charts giving you the month by month dynamic versus 2019 and that's where probably you can appreciate better the fact that the trend of volume recovery and volume increase is actually continuously also in the second quarter throughout the quarter in a very positive way across all geographies something that you may be losing when you look at these comparisons versus last year but said that Italy, we're now growing in June 18% versus last year, 27% compared to pre-COVID. Actually, it was supported not only by the business consumption, but also by the high-impact consumption that is now growing 37%. On the right, you see the usual split in between Italian cards and international cards, and you see that international cards are now above 100% more versus last year, but they're already actually 16% higher than pre-COVID. I think this is very important because it's the first quarter actually in which we finally see a stable and substantial recovery of international travelers in our geography. In the Nordics as well, we see throughout the quarter a 20% to 30% increase versus last year and a nice 18% versus pre-COVID, well supported by a 57% growth in the basic consumption sectors. That is the effect of obviously our focus in our commercial wins, but also a continuous shift from cash to digital also in the Nordics. Last but not least, DAC. We have a double-digit growth compared to last year. You've seen, depending on the comparison with the specific month from last year, growing 37-53%. If you adjust, if you clean up this volume dynamic from some discontinuities that we had as we did the risk-led portfolio, especially in travel with a lower value contracts that were presenting actually high volumes. Actually, the growth versus last year in Germany would be a nice 25%, already up 11% versus pre-COVID. Also in Germany, I want to underline the fact that in the basic sector, we are running more than 50% higher than pre-COVID levels. All in, it's also important to underline that if you look at the travel sector, which is really focused on airline, transportation, hotels, these type of things, so it's net of restaurants and more local type of high-impact sectors. Finally, travel is back to above 2019 and materially above 2019 level for the group all together. Let me now move to page five to give you a bit of a deep dive into our merchant services space. It's a pretty rich page, I understand, and on the right you also have examples of recent customer wins and losses. very strategic, also new partnerships in the software and platform space. But let me focus on a few key messages here, starting with SMEs that represent more than half of the business. As I said, SMEs grew volume 38% in the first half of the year. Let me just underline two or three messages. Number one, we've seen strong and accelerated sales performance across all geographies, I would say especially Back in Poland, if I need to name two, our installed base of terminals did grow more than 150,000 terminals in the first half of this year, clearly signaling also strong growth in terms of customer base. The second thing I would like to underline is that we launched our soft-post proposition, tap-on-phone proposition in Greece as well, after the Nordics and Hungary, and we're now preparing for the Italian launch. We believe soft-post is a nice add-on proposition of both for new-to-card merchants, but also as an additional device for mobility or backup for more traditional merchants, already well-developed merchants as well. Third, that I want to underline, we continue to make progress in partnering with software vendors, both market leaders horizontally, that cover the market horizontally across sectors, but also vertical specialists across all our geographies. Moving to e-commerce, we continue to see a strong performance of our easy collecting PSP proposition in the Nordics and we are now ramping up that same proposition in Germany and we started that basically this year. The second point that I want to underline is the progress we are making on enhancing the capabilities of our proposition in the e-commerce space with two easy examples here. We've implemented the transaction risk analysis capabilities in Italy with very visible results for our merchants in terms of conversion rate improvements. At the same time, in Poland, we launched something that is quite noted, which is the one-click checkout also for APMs not just for cards. Last but not least, let me stress something that we did announce this morning. We've signed a strategic partnership with Microsoft. These partnerships is actually covering four areas. We will become one of their main payment providers with main payment partners for their e-commerce, acquiring e-commerce acceptance in Europe. We will invest together in go-to markets for SMEs in particular, where you know that Microsoft is particularly strong and is particularly focused. We will work together in integrating our proposition payments and software across the board. And last but not least, we will also partner to enable an acceleration for Nexi of our platform evolution, our platform transformation in the cloud. Let me close with larger merchants. In larger merchants, we've seen a growth versus last year, about 17%, despite the risking of volumes that I mentioned before. Now here, let me underline three things again. strong progress in Italy in particular, I would say on the back of the combination we see an integrated collection and business-to-business payments capabilities with a specific focus on public administration, transport and utilities. Second point, let me stress not the extension of our Omnicom capabilities, both in the Nordics, we are now integrating also the acceptance of local wallets via QR code and DAC in Germany in particular, where we implemented a very innovative digital direct debit feature that allows merchants to accept direct debit payments in a much simpler way, fully digitalized in their shops. And last but not least, also for larger merchants, We are continuing to develop the integrations with the key enabling platforms, both CRMs, ERPs, property management systems for hospitality. And we have signed here new partnerships, such as, for example, with Global Blue in hospitality and retail, Ozuora for digital subscriptions management. Let me now hand over to Bernardo, who will cover the financial results.

Thanks, Paul, and good afternoon to everyone who is connected to this call. Starting on slide number seven, we have a brief summary of revenues in EBITDA. In the quarter, we have double-digit revenue growth at 10.2%. I would like to highlight how margin expansion is as high as it's been, at least as seen since I've been at NEXI with 400 basis points of expansion, both in the quarter and for the full year, with EBITDA, as Paul has mentioned, growing north of 20%. I think it's just worth calling out that this quarter, and I think this holds true for most payments players in Europe, we've had an increase in scheme fees, which I think needs to be called out in terms of understanding top-line performance. We report revenues like most payment players, net of scheme fees. But if we were to normalize and gross up revenues for scheme fees, which have had a strong growth due to the fact that as... we mentioned earlier, extra EA travel and general travel has picked up, bringing higher scheme fees than in 2021 when travel was subdued. This normalization would lead our growth in the quarter to jump from 10.2% to 14% and in the year to be 12%. Obviously, this has no effect on EBITDA. It increases costs just like it increases revenues, and EBITDA is therefore, I think, the truest and best measure to to evaluate quality of performance, and that I think we did particularly well with this 20.5% growth, which I think is one of the highest we've recorded in the recent past. Moving on to slide number eight, we have performance at the Merchant Services Business Unit. Again, we have acceleration in the second quarter. Revenues were growing 16% for the quarter. Strong volume growth. I would like to call out the fact that we have an installed base which is growing very handsomely with over 150,000 POS terminals installed in the first half of this year. I think a very positive note coming from the growth in SME volumes, which stands at 38%, much higher than the average growth in volumes. And a couple of interesting points. that I think are worth noting as well with regards to the fact that we still see stronger growth in the physical channel than e-commerce. And this has been a trend we've been observing throughout 2022. And the other one, which is that value of managed transactions is actually growing faster than the number of transactions. And this is probably due to a couple of effects. One, a mixed effect travel coming back and that being higher than average ticket and probably the inflation rate or the first impacts of inflation on customer spend. Going back to the point I made earlier with regards to scheme fees, if we grossed up revenues for scheme fees on merchant services, the 15.8% growth in the quarter would actually be 22.3%, and for the first half, it would be 19.6%. We actually have a table. We've included a table for your reference in the appendix. so that you can have a look at those numbers if you please. I mean, we'll obviously continue to report on a net of scheme fee basis. We believe that's the right way of doing it, but as a reference, I think it's useful. Slide number nine, I think the messages are similar in cards and digital payments. We also have strong volume growth feeding into top-line growth of approximately 5% for the first half, 6% in the quarter. If we look at Italy, where we have... a slightly different business model with co-issuing. We have a very strong performance, I'd say, with high single digits, 7%, and the rest of Europe, where we're more of a payment processor on the issuing front, slightly lower. I'd like to also call out how, during the first half of this year, we've seen strong acceleration of the international debit proposition in Italy in particular, which is an initiative, a very important initiative we've been highlighting since we went public as a key driver of growth in this market. Moving on to digital banking and corporate solutions, the first half results as we discussed a couple months ago in May when we discussed first quarter were impacted on a year-on-year basis from the fact that we had some project-related revenues last year from the acquisition of an Italian bank by Intesa. That project-related revenue is no longer present in the first half of 2022. The comp is therefore rather flat for the year. For the first half, if you look at the quarter, we have a slight growth driven primarily from the net side in some project-related work on the EID business we run in Denmark. Slide 11 paints a picture across the various geographies in terms of revenue growth, where mostly double-digit growth with the exception of ITI, which would be double-digit, obviously, if we grossed up for scheme fees, as we're saying. But I would say, in general, healthy growth throughout Europe, coming from the structural shift of card-to-cash and the reopening we've witnessed in the first half of the year throughout Europe. Slide number 12 points to costs. As has been highlighted, I think, through our continued review of our cost base and attention to it, stopping or trying to cut costs as much as possible, wherever possible. We've been able to contain cost growth to just under 2% in the quarter, just over 1% in the first half. This has clearly been helped by the synergies. Even if we were to factor in synergies, cost growth for the first half would be below 4%, notwithstanding the strong volume growth we've witnessed. Obviously, the flip side of the coin of grossing up revenues for scheme fees is that you would have to gross up costs for scheme fees as well, and that cost base would be growing 8%, so against that 12 plus percent revenue growth in the quarter growth for scheme fees, we'd have 8% cost growth. Slide number 13 takes a look at CAPEX. We have a year-on-year increase in CAPEX of approximately 15 million euros. This is primarily driven by the gray box on the right, so that transformation CAPEX, where we continue to invest in both transformations, so the completion of standalone projects at Nexi and NETS, including, for instance, completion of our group authorization platform, UNI, the rollout of the core acquiring platform at NETS, but also integration CAPEX coming from the integration of SIA and NETS. For instance, we are starting our mainframe and data center consolidation. This will bring us down to around 14 data centers from the 40 which we have currently or had at the time of... of the merger. We also continue to invest in our ordinary CapEx that, as you know, hovers between 8% and 10% of revenues and includes all ordinary business development. And we have some examples here, for instance, the evolution of RPoS ecosystems and the developments of data analytics and the likes. But again, CapEx in slight growth driven by the transformation CapEx. But as you can see on slide 14, We're expecting to reach more or less a peak of this transformation spend in 2022. Overall, we said during the course of our full year presentation and back in February, we had approximately 300 million euros, an envelope of approximately 300 million euros to be spent between now or between then and 2025 in order to complete the transformation of individual companies and integrations of that 300 million euros is now reduced to 215 and will continue to further reduce over time until it's completed by 2025, at which point our spend will be reduced to a normal ordinary capex level of between 8% to 10% of revenues. Site 15 updates you on performance or actually the rate of achievement of the synergies. As you know, last year we generated approximately 18 million euros of synergies during 2021. This year we're targeting just north of 100 million euros of synergies, both EBITDA or P&L synergies and CAPEX synergies. Around about 21 million euros were delivered in the first half of the year, mostly OPEX cost synergies. We also had 17 million of recurring CAPEX synergies, so the total for the first half is 37 million euros. We'd obviously already achieved the target of achieving the 65 million one-off CapEx savings at the beginning of this year, and that was done pretty soon after the Nets and SEA deals closed because it was about cost avoidance rather than cutting ongoing spend. So I would say that we are fully on track to deliver the synergy targets that we expect for the year, and in general to confirm our ambition, our expectation rather, to do better than what we'd originally expected. planned in terms of the 320 million total recurring cash synergies over time. Slide 16 updates you on progress with regards to OPEX transformation integration costs. As you know, last year we spent more than 500 million euros on transformation costs, including M&A fees, et cetera. This year we're targeting spend less than half that. And you see how if we just limit to integration transformation costs, We're at 76.2 million euros, which is roughly 50% of what it was in the first half of last year. And then we have the usual other non-cash costs on the right of the table, or costs borne by the sponsors as part of the IPO process, which take us to 106 million euros of non-recurring items for the first half of this year. Slide 17, I think what I would like to call out here is how we are introducing for the first time our EPS, a cash EPS. Finally, we have a stable share count having completed the SIA merger, so we think it makes sense to start commenting on that, and presumably when we come out with our Capital Markets Day at the end of September, we'll provide guidance not only on the top line and EBITDA level, but also on the bottom line level. So you can see that our normalized cash EPS, normalized excluding one-off costs on a cash basis is $0.34 per share. And this is a 23% year-on-year increase at the bottom line level. Slide 18 confirms our strong cash conversion capabilities. Again, this is on a normalized basis, so excluding those 300-odd million euros that we had of CapEx and P&L transformation spent. So on a normalized basis, we expect to convert approximately 80% of our EBITDA in terms of operating cash flow. And on slide 19, we summarize our indebtedness, which is reduced to below three times at the end of June if you include run rate synergies in our EBITDA. I think it's also interesting to note how we were recently upgraded by Moody's. S&P confirmed their positive outlook, so our journey towards improving our rating towards investment grade continues. I think it's also interesting to note how, as part of our ordinary course, refinancing or financing activities, for instance, in order to fund M&A to the extent that we don't use on balance sheet cash are being carried out at rates which are the same levels as the ones we were obtaining from banks and from the street before rates rise. The expectation of rate rises was embedded into the performance of our publicly traded bonds, for instance, sort of pre-rate increase levels. And this is obviously a very strong message in terms of the strong appetite for the NEXE credit. Finally, on slide number 20, before I hand the floor back over to Paolo for concluding remarks, just a few words on M&A in the first half, which was pretty busy, particularly in the second quarter. We completed or signed a number of acquisitions. They're highlighted here on the left. From BIPA, we bought the merchant services book. Transaction is expected to close by the end of the year. We signed this and we're just waiting for BIPA to complete the integration of Katija before we migrate that book. It will happen at some point in December. We paid approximately 10 times EBITDA for this. The transaction with Intesa was also announced during the course of May, if I remember correctly, where we bought the merchant acquiring business in Croatia for Intesa. Again, this is the third deal we do with Intesa. The transaction structure is the one we've done in the past. Again, multiple is around 10.5 times EBITDA. We also agreed with Alfa Bank to increase our stake from the level at which it was at signing of 51% to approximately 90%, and this was done basically in agreement with Alfa at their request. And we were more than happy to do so. We would have bought 100% from the start if we could have. And we increased our stake in Orderbird to 100% from the 40% we had before. For the first time, we can now speak also of disposals. We actually completed the disposal of EdiGuard, a Norwegian business, which basically digitized documentation. The sale of that was to private equity. and we sold 14 times EBITDA. We also signed an agreement with Euronext to sell CS Capital Market Business to Euronext during the course of the second half of the year. We expect closing again. This was a transaction carried out at approximately 12 times enterprise value to EBITDA, multiple. Non-separate clearing is a very, very small transaction. So, Paolo, I'll hand the floor back to you.