NEXI S.P.A.

Good morning. This is the Chorus Call Conference Operator. Welcome and thank you for joining the NEXE Full Year 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 to all of you and welcome to Nexi call on results for full year 2022. As usual, I'm here with Bernardo Mingroni, our CFO, Stefania Mantegazza, who leads investor relations, and a few other members of our team who may help in case of need on your questions. As usual, we summarize the key messages and give you a short business update, and I will then hand over to Bernardo that will cover results more in detail, and then we will have time, as usual, for your questions. Let me jump on page 3 with the key messages. Overall, we consider 2022 a year of strong progress for our company, despite a macro environment that has been more challenging than what we would have expected only one year ago. First of all, we've seen strong volume growth across the year, in particular also in Q4, despite more difficult comparisons with the previous year, we've seen double-digit volume growth across all geographies. In particular, we have seen a strong growth in SMEs that did grow volumes across the year for about 25% and you know how much SMEs are the core of our strategy and therefore that's really important. The good news is that when we look at the beginning of this year, 2023, we see an accelerated volume growth with a near-to-date of about 12% with a positive evolution across all geographies. Clearly, this is a little bit helped by an easier comparison in January, given the fact that last year, January, was not a completely clean year in terms of openings due to COVID, but still it's a good signal for the new year. Second key message overall, we had a very solid financial performance despite the macro environment with strong margin expansion in the year and accelerated cash generation in the year as well. Revenue did grow about 7.1% in the year with merchant services and merchant solutions growing double digits. EBITDA grew 14.2%. with an exceptional 311 basis point ABW margin expansion despite some early signals of inflationary pressures on the cost base. Last but not least, and this is the first time we underline it, if you take the operating cash generation measured as ABW minus capex and minus non-recurring cash items, that item did grow more than 50%, actually 56%. That's very important as we focus more and more on cash generation. Third key message, we have seen strong progress in creating the European Paytech leader. We did deliver more synergies than what we had planned ourselves, about 110 million euros, 10% more than our initial target. We did progress a lot on our M&A activities both in terms of acquisition but also disposals and the future will look like this with a mix of both. The intention here is to continue to focus more and more the company on core strategic growth opportunities. Last but not least, we have announced only last week our entry into Spain. It is a very attractive market through the strategic partnership with Banco Sabadell. Overall, as a combination of all of this, we have delivered our beginning of year ambition for 2022, despite a macro that has been more challenging than what we expected. Let me start by giving you a bit of more flavor on Spain and moving to page four. We're actually very happy for this win and I'm particularly proud for the fact that it has been chosen especially for our capabilities and for our people and the work we've done with the bank over the last few months. Entering to Spain is for us very, very strategic. First of all, the Spanish market is a large market with, by the way, good economy potential. with unique structural characteristics and very significant growth potential. Car penetration is as low as 38%, which is more or less in line with the average of our portfolio. The market is SME-dominated with an accelerating e-commerce dynamic, and the payment distribution is still dominated by banks. As you can see from these characteristics, it's quite similar to the Italian market. Second, we are very proud of this partnership with Banco Sabadella, which allows us to start in Spain a strong initial position. It's still a challenger position, but actually a very strong challenger position. Banco Sabadell is a very dynamic Spanish bank located in Barcelona. They cover the entire Spanish geography, Spanish market with 1,200 branches. They're a second merchant acquirer that always had a special focus on payments. They have 380,000 merchants generating almost 50 billion of acquiring transaction volumes. And they have a very diversified and attractive portfolio of customers with a stronger SME focus. Third key element, as you understood from my words, this market is a market that we believe still has a lot of potential in terms of innovation and digital proposition. but also in terms of commercial innovation, channel innovation, pricing innovation, and so on and so forth, which is exactly where we can leverage our capabilities developed over time on many similar situations. And last but not least, and this is particularly important to me as CEO of the company, this is a very simple and lean integration and execution in front of us. This is adding zero complexity to everything else we are doing. It's a standalone initiative where we will really be able to inject the best of our products and capabilities to accelerate growth. Let me jump on page five. This page, you may remember it from our Capital Market Day presentation, is mapping our markets across two dimensions. Vertically, the car penetration and therefore how much more growth. structural growth there is in the market and horizontally the next market share and therefore the next position. Here you see Spain jumping onto the map and as you see very well we expect Spain to provide both opportunities in terms of market expansion as penetration grows and new innovative propositions come to market but also in terms of growing market share further. My super summary I always say it's like adding another Italy to the portfolio that we have given the characteristics and the growth opportunity there. Let me summarize on page six the key elements of the transaction. First of all, technically we are acquiring 80% of Paycomet. Paycomet is a fully owned company by Sabadell. That already includes payment activities. Basically, Sabadell will transfer into Paycomet all assets associated to merchant acquiring, obviously starting with the contract. And we will buy 80% of these. And you immediately understand why this is a very simple integration, because there is a team up and running. There is a company up and running. There's a license up and running. There are processes up and running. And therefore, the integration effort will be minimal. We're paying for this 280 million euros. that we will be paying with available cash, with an implied multiple of about 11.5%. The closing is expected in the fourth quarter of the year, subject to the necessary approvals, even if we don't see any issue coming out of that. As always, this acquisition is combined with a long-term distribution agreement for the next 10 years, renewable by another 5 plus 5. And last but not least, as always, we have wanted to align fully our interest and the interest of our partner through a rebate mechanism plus potential earnouts that are subject to an overachievement of the plan. And as a reminder, every single time you see us paying earnouts, this is very, very good news because normally the multiple on the earnouts is much, much lower than the earnout on the basis of four. In case we end up paying these earnouts, this means that the implied multiple for the overall asset would be very much below 10 times EBITDA. Let me now jump to volume update as usual on Phase 7. As I've anticipated, overall double-digit volume growth in the fourth quarter across all geographies. Here we're representing the growth rate across our market and macro segments. versus last year, which is an approach we've taken more recently, given the fact that the benchmarking with 2019 is less and less meaningful, even if, as usual, and probably for the last time, we are actually adding in the appendix also the comparison with 2019 pre-COVID numbers. Let me just comment rapidly. You see here Italy trending at around 10% for the last quarter, but actually accelerating to about 15%. in the new year. This is basically a combination of January and almost full February. And here you see how much high impact consumption is actually accelerating the growth. You see that we continue to see a very solid performance of Italian cars, but actually the traffic from foreign cards and therefore visitors to Italy is also contributing more and more to volume growth, coming back gradually to normal levels. In the Nordics, we had a similar pattern, a good fourth quarter, accelerating from the quarter from 10 in October to 17. And actually, year to date in the new year, we're about a 21% growth. Again, here, impact consumption becoming a big driver. And last but not least, Germany in here, I suggest we look at the dotted line, the blue dotted line that is neutralizing the effect of volume reduction that we have imposed ourselves as we decide to give up certain high volume relationships that were not worth having in terms of value creation. And here you see that throughout the quarter, we're also finding 14, 14, 29, And then in the beginning of this year, up to 31%. And again, also here, you see our impact consumption sectors driving the growth. Let me just now jump to page eight and give you a quick update on merchant solutions and the key business progress here. I will not go through all of them. Let me just point at a few of them. SMEs, as I've anticipated, 25% volume growth versus last year. well supported by a strong continued customer base growth that we measure by an increased number of terminals in our base by 200,000 in the full year, mainly driven by Italy, DAC, and Poland. We continue to see a good traction, especially in Italy, of the new two-cart propositions that for us is a mobile POS. that is very important in a market that is still growing and where the base is still expanding. And here, the very important strategic evolution for us is that we're seeing very, very good traction from digital sales, digital channels, and this is something that we'll be replicating across all markets over time. Last but not least, we continue to expand very materially our partner base with a specific focus on ISV partnerships, both with market leaders, and here we mention Olivetti in Italy, but also with vertical specialists across all geographies. And here you see a few names from wellness, ticketing, and so on and so forth. Coming to e-commerce, e-commerce, 12% growth in the year. We continued customer base growth. Customer base has grown actually about 20% versus the end of previous year, and with a stronger focus on the mid-segment that is more and more of a core target for us. Second thing that I would like to mention also here, further expansion of new partnerships, both with web agencies and developers and the ISVs. Here there is clearly a gradual convergence with what we are doing with SMEs. And last but not least, and this is for us quite strategic going forward, continuous expansion of our enabled APMs. Here we mentioned Alipay and WeChat Pay in DAC and the Nordics. And this is particularly important also because it's leveraging the mid-layer that we call Nexi Relay that is allowing us basically to build scale across our geographies as we drive innovation while still maintaining a strong local entrenchment, a local customer experience when it comes to front-end and scale when it comes to back-end. Last but not least, on LACAS, 15% volume growth, even if here the volume growth is not really our key focus. Our key focus is value growth, as you will know, You may buy a very large volume contract with very little to no margin, which is not our approach. Now, here we have a strong pipeline of commercial wins across markets with a specific focus on mid-channel grocery and retail and vertical solutions in petrol and EV charging. Here we mention the strategic partnership with ENI. It is one of the very largest Italian and European companies. This is already a very good customer. a long-term customer of us, and here we're extending the relationship both in terms of innovative proposition across the board, but also in terms of geographies. And last but not least, we are more and more rolling out our omnichannel solutions in Germany and Switzerland, leveraging on the capabilities that we have developed over time in the Nordics and in Italy. Let me now pose and hand over to Bernardo for results. Thanks, Paolo.

Good morning, everyone. We have a dozen or so slides with regards to financial performance for 2022 based on the perimeter consistent with the guidance we've given at the beginning of the year. And then I'll end with a couple of slides resetting the baseline for M&A, both one which has been completed or signed and the ones which we announced back at the capital market stage. So starting on slide number 10, a few call-outs here on this slide to try and and give you transparency with regards to our performance for the quarter and the year in order to be able to understand the underlying trend in particular with regards to the fourth quarter and therefore to be able to have a good idea as to how we exited 2022 and look into 2023 ahead of Paolo's guidance at the end of the presentation. So revenues grow just north of 7%, as you can see, 7.1%. We then highlight how if you exclude rate pay, which as you know we've been managing on an available for sale basis and therefore managed its performance during the year in terms of revenues and growth in line with our ambition to sell the asset and therefore not fueling the growth as in the past. That growth, the top line growth would have been 7.8% if you exclude rate pay and also to provide you further insight into our performance if we It goes up for scheme fees as other players in the sector do. Top line growth would have been double digit at 10.5%. The fourth quarter was a little softer and slower than the rest of the year, as you know, because of comp reasons compared to 2021 in particular. We have growth of 4% in the quarter. If you normalize for rate pay, that's close to 6%. And if we look at the revenue growth, growth of scheme fees, that's close to 7%. Moving on to EBITDA, we closed the year with EBITDA growth in the mid-teens at 14.2%. That's more than 300 basis points of margin accretion from 46% to 49%. In the fourth quarter, EBITDA grew close to 9%, and we had north of 200 basis points of margin accretion. If we look at slide 11, we have details on performance of merchant services, which is more than half of our revenues, and as you can see, gross of scheme fees Merchant services revenues grew 15.3%. If we look at them, net of scheme fees is still double digit in line with the guidance we provided in February last year. And if you normalize for rate pay, as I said, we have, we pick up another almost two percentage points in terms of top line growth. In the quarter, consistent with the comment I made for the full year, we had revenues growing 3.3%. Overall, if you exclude scheme fees, that's close to 8%. In general, I think we can see in terms of volumes, and Paolo mentioned it in his opening remarks, strong continued volume growth across all geographies in the group. We also, more importantly, see growth in our customer base across business areas within merchant services. You see here how we added more than 200,000 POS terminals in the year, and we had a 20% plus growth in e-commerce clients. SME transactions, which are at the heart of our business, are going north of 25%. And as I said, we should look at the fourth quarter performance net of rate pay, which we're managing ahead of sale in order not to consume liquidity and create bottom line losses. One other call out about the fourth quarter, I think I referenced to it last year, maybe in some of the one-on-ones, due to the performance within the year in terms of volumes in 2021, so this is a call out about 2021, the ultimate cost of scheme fees, net of everything which goes on in the year with regards to volume, targets, etc., and the same with regards to our bank relationships in Italy, was effectively calculated towards the end of the year, and that's led to a fourth quarter in 2021, which was a little richer in terms of the top line to a normal year, and that has also performance in merchant services, in particular in Italy. Moving on to issuing, we have strong growth in international debit in Italy and in general in the licensing business model in Italy. This led to close to 5% growth in revenues, 4% in the quarter. I think it's important to call out, based on also what we discussed at our capital markets day and our strategy in issuing, to win new clients, and here we call out the Commerzbank win, which is an important add in a very strategic geography for us, Germany, with a blue-chip client like Commerzbank, but also in terms of upselling and cross-selling to our customer base here, and we call out how we are extending our advanced additional issuing solutions to bank customers across Europe. I think another call-out here is about fourth quarter. We had a slight slowdown in project work in southeastern Europe, which also slightly reduced growth in the fourth quarter compared to the full year. Moving on to slide 13, we have digital banking solutions, which, contrary to the rest of the business, actually had an acceleration in the fourth quarter. This is driven primarily, I'd say, by projects across geographies, so there's no one real call-out here. It's just generalized in EID in Denmark and across bank customers in Europe. We had more project work than usual in the fourth quarter. Overall, we have growth in the year just north of 1%. If we look at the geographic breakdown, I think this tells a similar picture to what we described for the group as a whole. We have Italy growing just north of 7%. The same goes for Nordic. We have a slightly lower growth in Southeastern Europe. And if you look at DAF in Poland, these are the geographies which grow the most if you exclude rate pay, which, as I said, has been managed in terms of its slowdown at 12.5%. If you include rate pay, that is 6.5%. Moving on to slide 15, I think this is a very important slide where we give you details with regards to how our cost base behaved in a context of strong top line growth, but also inflationary pressures. So we saw how volumes were growing in the mid-teens level, notwithstanding this volume growth, new client addition, and overall increased size of our business, overall costs increased less than 1% in the year. If you gross this up for scheme fees as we did for revenues, clearly that is a higher growth, close to 8%. But on a net basis, this is a 1% growth. And this is clearly due to a strong and focused effort to keep costs under control, delivery of synergies, but is a strong testament to another claim we made in the Capital Markets Day that our business is one which benefits from strong operating leverage. So strong top-line growth does not necessarily translate into cost growth. Moving on to slide 16, we have CAPEX, which are in line with the guidance we provided at the Capital Markets Day, going through about 16% of revenues in the year. This is a peak year in terms of CAPEX. We see on slide 17 how we expect overall CAPEX to trend to just south of 10% of total revenues as revenues grow and as the residual part of transformation integration CapEx gets deployed over the next coming years. Moving on to slide 18, again, more details with regards to our costs. Below EBITDA we have a close to 50% reduction in transformation integration costs. This is something we also had guided to and we end up landing overall if you include other non-recurring items such as earnouts or M&A related fees and costs, but also include non-cash items or items which flow through RP&L but are borne by others. For instance, the IPO costs which are sustained by the sponsors that originally bought ICBPI. The overall non-recurring items figure is 245 million euros. 186 of this is cash, the rest is non-cash, which is broadly in line with the guidance we gave at the Capital Markets Day. Moving on to slide 19, we now introduce some slides on, let's say, our cash generation. These are new compared to the past, and I'd say consistent to what we discussed back in September. So we have close to 56% growth in terms of EBITDA less capex, less transformation costs for non-recurring cash items at €186 million we saw in the earlier slide. And this translates into 15% growth in terms of our bottom line earnings on a normalized basis. So if you exclude the non-recurring items from the P&L. And this is close to 700 million euros in terms of normalized net profit. We also take a look at cash generation. And you remember we gave a 2.8 billion cash generation target for the years 23, 24, and 25 in our capital markets tape. So if we look at this chart, we can see how we move from the 1.6 billion euros of EBITDA to close to 400 million euros of cash generation in the year. And we break it down between the various items, both on an operating level, so including other than CAPEX and our recurring cash items, also the narrow working capital change of 65 million euros. And then to the right of the operating cash flow, we have cash taxes, interest expense, and other cash items. We have a call out here about $100 million of cash taxes, which were basically deferred to 2023. The competence or on an accrual basis, they would be 2022 cash taxes or taxes, but we're actually going to be paying them in 2023. So that's important to know that our ending cash balance benefits from this cash flow for 2023 will be affected by it. Slide 21, net debt, we closed the year just south of three times leverage, if you include the synergies we'd announced back at the acquisition date, and we are, I forgot to mention this on cost, we're delivering just slightly ahead of target. We closed the year with 110 million cash synergies compared to 100 million we targeted for the year. If you exclude those synergies, it's 3.3 times. If you look on the right, we call out how we're proactively managing our seven billion out of gross indebtedness to make sure that we are always in a comfortable position with regards to leverage. Overall, three-quarters of our indebtedness is fixed and only a quarter is variable. And therefore, only the rise in interest rates in the last six or seven months has only partially affected our cost of debt. As you can see, we've moved from between one and a half and two percentage points of cost of overall debt in the autumn of last year to just north of 2.5% now. Moving on to the last two slides before I hand over to Paolo. So overall, I think the year, and we benchmarked it based on the perimeter when we gave the guidance, has been a remarkable year in which we delivered what we were expecting to deliver, notwithstanding the fact we gave the guidance before the war broke out in the Ukraine, before inflation rose to levels which were probably higher than expected. and before the rate cycle rise which started towards the spring of last year. We now move on to resetting the baseline so that you have the right starting point for benchmarking guidance which we'll speak to in a second. We've introduced the bottom line EPS normalization as well because from a bottom line basis what we're doing doesn't really change anything in that in that moving rate pay and DBS to below EPS. That doesn't change their impact on EPS. What impacts EPS is the M&A activity that we're carrying out in terms of acquiring assets. So moving from the left, you can see the net revenues add approximately 50 million euros, just north of 50 million euros of M&A in. This is the acquisition of the BPER book and the acquisition of Intesa's creation book. M&A out and AFS is substantially moving the revenues of rate pay and of EID in Denmark to below EBITDA, and we close the capital market stay permitters. This is called, defined at 3.143 billion euros. The same impact in terms of EBITDA, so we add 40 million of EBITDA from M&A in and move to below EBITDA for 2022, approximately 60 million euros of EBITDA associated with EBITDA. DBS and rate pay mostly that's DBS which is the AID business so we close the perimeter at 1.592 billion euros in terms of EBITDA which is your new baseline if you look at the net effect in terms of EPS and it's important I'll just focus on M&A out and available for sale assets As you can see, there is no impact on bottom line because whereas both EID and rate pay are largest contributors to the top line in terms of when you start looking at these businesses in terms of the bottom line and net income, they're actually very small and don't change, don't move the needle at all in terms of earnings and bottom line earnings and EPS. Slide 23 gives you the same details broken down per business unit, so I won't dwell on this too much and I would hand over the floor to Paul just summarizing what our performance in terms of top line EBITDA and margin expansion bottom line would have been based on new perimeters, so 7.1% top line growth would have been 8%, the 14.2% EBITDA growth would have been 15.3%, and the close to 15% EPS growth would have been 18%. Paolo?