NEXI S.P.A.

Good afternoon. This is the Course Call Conference Operator. Welcome and thank you for joining the NEXI 9 Months 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. Good morning or good afternoon to all of you, and welcome to our call for results for third quarter 2022. As usual, I'm here with Bernardo Mingrone, our CFO. Stefania Mantegazza is leading investor relations, and a few other members of our team as usual for the third quarter I will give you a short business update then I will hand over to Bernardo that will cover our financial results and then we will have space for your questions. Let me start as usual with a summary on page three of the presentation. The usual three key messages that are quite consistent by the way over the last few quarters First of all, in the third quarter of this year, we've seen a continued volume growth across all geographies. I think this is particularly important also because the third quarter of last year was already a strong quarter as geographies were exiting COVID. Therefore, we had a tougher comparison in the quarter. In particular, we have seen a particularly strong summer in Italy, well supported by tourism. And we had a very material comeback of international tourists in the country. But also, we have seen a nice continued development in the Nordics and in the DAC region, for example, on basic consumption that has been growing year on year, double-digit. Last relevant comment, we continue to see a strong performance in SMEs where value of transactions have been growing at almost 30% in the first three quarters of this year. And this is actually faster than what was experienced on the larger merchants that nevertheless are also growing double digit. So first message, continued volume growth across all geographies despite tougher conflicts. Second key message, very solid positive financial performance in the third quarter and in the nine months. We've been growing revenues in the quarter by 7%, which means a 9% year-to-date. In particular, merchant services have been growing about 10%, 13% year-to-date, with EBITDA growing about 12% in the quarter with clear continued operating leverage effect and contribution from synergies, from cost synergies in particular. And this brings the EBITDA growth year-to-date at about 16%, with a four percentage point margin expansion in the year so far. Third, and last message, we continue to progress in the creation of the European Paytech Leader in bringing our company together. We present to you our strategy medium-long-term financial ambition at Capital Market Day at the end of September. And thanks for the many questions and comments and feedbacks that we have received since then in our conversations. The only update that is relevant from this point of view is that we simply continue to deliver the synergies, the in-year synergies according to our plan that is to deliver a bit more than 100 million euros cash synergies in the year And so far, we already have 68 million euros in the numbers to date already. On the back of this progress, we continue to confirm our ambition for 2022. That, again, as a reminder, is 7% to 9% revenue growth and EBITDA 13% to 16% growth. Now, let me move to, as usual, to volumes, page 4. As a reminder, these graphs and these numbers show volume dynamics compared to 2021. In attachment, you also find the same page that compares volumes to 2019 dynamics, and this is really, really important because it gives you a sense of the structural longer-term growth after COVID-19. recovery of the business, regardless of the year-on-year comparisons. As you see, in the third quarter of the year, we've observed a double-digit growth across all geographies. You look at Italy, 15%, 14%, 14%, with a strong contribution from the recovery of high-impact consumption in particular. In the Nordics, and on the right, you see the strong contribution and strong recovery in particular from foreign cards in the quarter. In the Nordics, nice 17, 20, 15% growth in the quarter, also supported by strong performance in the high-impact sectors. And in Germany, in Dakar more in general, but Germany is most of these volumes, if you adjust for the larger customers that we decided in the past to discontinue, as non-profitable growth has also been around 15%, 14%, 16%. Again, also here, net of the effect that I mentioned before with strong from high impact sectors. Last comment, we've also given you, as we always try to do, the latest data. This is actually the month of October. October is a bit of a lighter month compared to the previous ones. but it's also, in general, a month that has a lower weight in the full year. Clearly, how the year will land at the end of it, we really depend on November and December in particular that are normally very, very important months for the full year performance. If we move to the next page, as always, we try to give you A few highlights of our business progress, in particular, investment services and solutions. Let me go through the key points here, starting from SMEs that represent half or more than half of the revenues in this space. Volume in the nine months has been growing 29% compared to the previous year. Let me underline three important points here. continuous translates performance across all geographies. We simply highlight this time Switzerland and Poland as faster growing spaces in terms of commercial progress. Overall, in the last 12 months, we've been installing about 200,000 terminals across the various geographies with Italy continuing to provide a strong contribution to these. The second comment I would like to underline is the progress on the launch of the SoftBoss. As you know very well, this is de facto a software version of a terminal that is becoming an app in a smartphone or in a tablet. We believe this is an important evolution in our industry because it offers us many opportunities in terms of positioning and expansion of business opportunities across the various segments of the market, both in SME and in LACA. but also across the different verticals. We are in market and selling with already many active customers in Denmark, Greece and Hungary and will be soon launched in other geographies as well, including Italy and Germany next year. If I may here, I would underline our satisfaction for what we are doing in this space with larger merchants, You see it in the bottom part of the page where we're actually implementing very interesting use cases where, thanks to the soft post, we are providing other backup services. For example, we have been helping a Nordic customer that was under, unfortunately, a cyber attack that had nothing to do with us, but we've been able to bring them back into active sales mode thanks to a super-fast service roll out in a few hours of soft posts for their stores or for example, restaurant chains where we're implementing these to really expand the possibility to serve their customers better at the table and for home delivery. The third element I'd like to underline on SMEs is the continued progress in expanding our partnerships with software players and it is through our crossword geographies and verticals here we're simply underlining Some interesting progress in smart mobility and retail. As far as e-commerce is concerned, we have seen a growth of volumes that is about 16% year-to-date. We continue to progress in the Nordics with some acceleration also in Germany on our easy collecting PSP proposition. And second point, we are focusing more and more on the mid-market, which tends to be a very attractive, more local segment, faster-growing segment, where we're seeing very nice wins. Also, when competing with the specialized new paychecks across, for example, financial services, retail, on mobility. The third element I would like to underline on e-commerce is the continued progress in basically integrating into our PSP proposition, into our acceptance propositions, alternative payment methods, and by now pay later methods also from third parties, for example, Afterpay in Germany or Traslit across the Nordics. Last but not least, in LACA we have seen about a 70% growth year-to-date in terms of volumes. Instead of underlying the many new wins, and again here don't forget that we are focusing on more and more on the mid part of LACA, mid to low part of LACA that is again, we believe the most attractive, especially given our strategy and positioning. They've instead underlying the progress we're making on the proposition itself in terms of omni-channel and vertical capabilities, both in the Nordics and in Italy. And also here, the continuing entrenchment with enabling platforms and the partnership with enabling platforms across CRM, ERP, and property management software solutions where we integrate with these partners and we also go to market with these partners. I think here it's particularly notable the partnership that we have developed with GlobalBlue that is allowing, among others, us to integrate very, very easily across geographies, for example, with Oracle platforms. Let me now hand over... to Bernardo, and we'll come back with a Q&A later.

Thank you, Paolo. Good afternoon for me as well. I'm on slide 7, so starting with an overview of our group revenues and EBITDA, and so translating the operating performance we saw in terms of volumes in the geographies in which we operate during the course of the third quarter into how those translated into financial performance revenues and EBITDA. We've seen how in the quarter revenues grew just north of 7%, and if you look at the nine months, 8%. I would like to just focus also on the callout on this slide, which shows what our revenues would have grown if we grossed them up for scheme fees. We've started to show this metric also in the half-year results, given their relevance to top-line growth, and in particular, in this year in which the return of travel and interchange fees related to foreign cards is so significant. So the top line growth would actually have been an 11% growth in the quarter and 12% for the year to date. We then move on to EBITDA and thanks to the operating leverage we spoke of during our capital markets there you can see how the top line growth in terms of revenues translates into And year-to-date growth of EBITDA of 16.5%, just higher than the guidance for the year, and in the quarter, 12%. And this shows in the EBITDA margin accretion, which is around 200 basis points in the quarter from 52% to 54% of EBITDA margin. If we look at it on a year-to-date basis, it's even higher from 45% to 49%. Moving on to the divisional performance on slide number eight, we can see the same data represented for merchant solutions. We have revenue growth, which is just shy of being double-digit in the quarter, 9.6% for the group. And if we look at it on a gross level, excluding scheme fees, it's actually 15% growth. On a year-to-date basis, the reported revenues are 12.6% and gross of scheme fees, 18%. And this is driven... essentially by the strong growth in volumes we experienced during the quarter with a healthy return of tourism in those countries in which it's important for us to think of Italy and Greece a little less so in business travel, but in general the strong growth in quarterly volumes that we saw earlier. I'd also like to call out two other factors. You can see the positive contribution to our revenue growth in this division from the install base. We've added north of 200,000 POS terminals in the year to 30th of September, in the 12 months to 30th of September this year. And we also call out the positive performance of SME with a 29% volume growth we've seen here to date, which is very important given the relevance to our strategy of this segment, which we also discussed in late September. Slide number nine shows performance in issuing solutions. Even in this division, we have positive performance in the quarter, close to 6% growth. This is slightly higher than the average for the year, which is 5.2%. Here, I'd like to highlight how not only did we have solid volume growth, which is driving this top-line performance, but also the addition of close to 2 million international debit cards. In Italy now, not all of these are new international debit cards. Some of them are migrations within Axio of Italy. the older model of international debit to the newer Nexi international debit card, but this is all helpful in terms of fueling top-line growth. I would also like to highlight how we're making progress on our advanced digital issuing proposition, so selling CVM products outside of our original home country, Italy, into other clients and countries within the group. Moving on, on slide 10, we can focus on digital banking solutions. Similarly to the performance in the previous quarters, we have a roughly flat performance year on year. You know that this is mostly about comp. We lost certain activities relating to DBS due to banking consolidation in Italy, in particular a bank which was bought by a larger Italian bank and for that larger bank we didn't do part of the services. So it's really about comp. That said, performance roughly flat. In the Nordics we also had and we'll see it in a second, migration from the legacy BankID platform, which has also impacted project-related revenues in the quarter. Slide 11 gives you an overview of the geographic breakdown of our revenues and their growth. Before I start commenting the various geographies, I'll just remind you what Paolo mentioned earlier, which is essentially that in the third quarter this year, we have a much tougher comp compared to 2021 that we used to have in the first two quarters of the year due to the exit from COVID restrictions last year, which was phased in the first half of 2021. So a much tougher comp, and this is true throughout the geographies which we operate in. So all four of the geographic areas suffer from this tougher comp. Having said that, Italy has shown strong performance, close to double-digit top-line growth, 9.9%. This, I must say, to be fair, has benefited from... some third quarter, fourth quarter, I would say, migration of some benefits related in particular to scheme fees. So the way we calculate scheme fees is dependent on projections and volumes and things like that. They may well fall in one quarter or the other. This year they tend to have fallen a little earlier into the year, so in the third quarter, which has slightly improved the otherwise strong performance of Italy's geography. With regards to Nordics, we can see top-line growth for the year to date is in line with the mid-high single-digit top-line growth ambition we have for that sector. In the quarter, we suffer from a couple of phenomena, which are the platform migration I was mentioning earlier with regards to DBS and the Nordics, but also the phasing of some pricing actions we took on certain clients as normal course commercial activity with them. If we move on to DACH and Poland, here too we have a top line growth of 4%, slightly lower than what it was for the nine months here to date. Here I'd point to things we've also discussed in the past that have proved to be a drag to the top line, in particular in the third and fourth quarter this year, I would expect, which is the exit from certain businesses where we thought the risk return profile wasn't appropriate. We've discussed those in the past, but also and you know since our capital markets day that we have decided to exit the BNPL space as principal players in that sector, and that has also impacted the top line growth in that we're not fueling it ahead of a sale. If we look at Southeastern Europe, we also have an impact in the quarter coming from, let's say, the Russian-Ukrainian war and the fact that sanctions have led us to lose a client in one of the Southeastern European geographies. This is a few single-digit million euro loss plus project work there as well. We're talking very small absolute amounts. If we move on to slide 12, having spoken about revenues, we can now look at costs and I think we discussed the way our cost base will behave in light of the inflation we're all facing during our capital markets day. I think what you see on this slide is the translation into actual numbers of what we're expecting. a cost base which overall for the year is roughly flat, it's slightly up 1.3%, in the quarter 1.9%. If you gross up for scheme fees, similarly as we've done for revenues, we obviously have a much higher level of cost, similarly to a much higher level of revenue growth. But concentrating on the net costs excluding scheme fees, we can see that HR costs are growing by 0.2% and this is the effect of inflation in those countries in which we renegotiated HR costs offset by our ability both to extract further efficiencies and the synergies coming from the integrations. The same holds true for non-HR costs and here we benefit from longer term contracts with our suppliers that haven't priced in the effects of inflation in which we will be negotiating going forward as we had discussed the synergies and all of this helping to offset the natural trend to grow costs in light of the strong volume growth we've seen. So operating leverage fully confirmed in terms of our operating cost growth in the quarter, which has been minimal. On slide 13, I would just briefly comment on the fact that we're on track to deliver the full $105 million of cash synergies, which we expect to deliver for 2022. And of course, we're on track to deliver the full amount for 2025 and beyond of €365 million we discussed at the end of September. Finally, before handing the floor back to Paolo for concluding remarks and opening for Q&A, just a quick word on leverage, which is always something we are happy to discuss when we meet with the investor community. Our leverage is coming down. It's now 2.8 times EBITDA if you look at it on EBITDA inclusive of synergies. and 3.3 times if you exclude those. At the end of the quarter, and this happened around about the time of our Capital Markets Day, you know that we basically were able to source new funding to the tune of €900 million to use proactively, not only to pay for the various M&A deals that have been announced, but also to proactively invest manage ahead of time maturities coming due in 24, 25, and 26, with a benefit in terms both of the duration profile of the portfolio, but also managing the cost base, I think, very effectively. That said, Paolo, I'd hand the floor back to you for your concluding remarks. Thanks.