Nexi Spa Azioni Ordinarie

Good morning, this is the Coruscall Conference Operator. Welcome and thank you for joining the NEXE First Quarter 2023 Financial Results Presentation 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 results call for the first quarter of 2023. As usual, Amir with Bernardo Mingrone and Stefania Mantegazza is leading our investor relations team, and we also have a few members of our teams connected to help in case of need with your questions. I will make a few introductory remarks and comment on volume dynamics that we have observed over the last three or four months. And then I will hand over to Bernardo who will cover our financial results, and I will come back with Bernardo for your questions. Let me jump straight to page three with our key messages as usual. First message, across the quarter, across all geographies, we have seen a double-digit volume growth. As we have anticipated, January has been particularly strong, benefiting from an easier year-on-year comp because last year, January, was still a COVID month, hopefully the last one. We've seen positive volume growth across all categories with a particularly strong contribution from what we define the high-impact consumption, restaurants, hotels, travels, entertainment and the like. And also in April, which is instead a normal month with, I would say, more standard comparison versus last year, we continue to observe double-digit growth across all geographies. So overall, quite strong double-digit volume growth. Second key message, in the quarter, we've seen strong financial performance with solid margin expansion. Revenue grew 9% in the quarter, with strong performance across all geographies. Bernardo will comment more on this. We have seen a double-digit revenue growth in merchant solutions, with a particularly strong performance in Italy and DAC and Poland. Last but not least, EBITDA growth has been at 13.6% versus the same quarter of last year. with a margin expansion of almost two percentage points. So strong financial performance across the quarter. Third and last message, we continue to progress the execution of our strategy. We are well on track with the execution of our strategy announced back in September at our Capital Market Day. That strategy, we want to reiterate, is expected to generate about 2.8 billion euros of organic cash over the three years. Over time, we will be allocating most of this cash to leverage reduction, still leaving a lot of room of maneuver to both return money to shareholders and do high value creative M&A as necessary. We see stronger growth performance of all the recently acquired assets, the different merchant book in Italy, the book we bought in Greece, Croatia, and also Spain that we plan to close later in the year. And last but not least, we are progressing well on our non-core assets disposal plans, and we will tell you more over the next few months as we progress and we come to signing of these deals. Overall, we are therefore confirming our guidance for the full year with revenues expected to be at above 7%, EBITDA growth expected to be at above 10% and excess cash generation at above 600 million euros. Let me now move to page four and let me comment on the volumes that we have been observing over the last three or four months. Now here the comparison is with the previous year and therefore with 2022. You see that across all geographies we have been observing a total volume growth that is normally the blue line well into double digit space with peaks in January. Italy, you see 18, 13, 13, was supported by the high-impact consumption sector growing above 20%, and with a contribution from the foreign cards growth, and therefore international travel remaining very strong at above 50% growth. In the Nordics as well, we've been observing a strong volume growth, especially again in January, and this growth is continuing also in April. Last but not least, DAC is also here, very strong volume growth, about 20% across the quarter. I think here the relevant line is the dotted blue line, 33, 29, 21, still continuing on a more normalized April at around 16%. So across our geographies, we see the trends that we were expecting, and we see these trends continually according to our expectations also now in April. Let me now hand over to Bernardo to comment on the financial performance. Thanks, Paolo. Good morning.

I'm on slide six. So moving on to how NAXI performed from a financial standpoint in the context of the growing volumes that Paolo has just described. So top-line growth we've seen grew 11%, if you look at it, Growth of scheme fees, 9% on a net basis, whereas EBITDA, as we have seen, grew almost 14% with a margin expansion of just shy of 200 basis points, taking it to 45% at the end of the first quarter of this year. Moving on to slide seven, we have merchant services. Top line growth, again, double digit. Fala's already called out the strong performance we've had in Italy and the dark and Polish regions. This 11.5% of course is 14% gross of scheme fees, and this growth was sustained by strong volumes, particularly in international schemes, as we see in the charts on the page. But it's important also to notice how it's not only the volumes growing that are fueling the growth in our top line, but also the expansion of our footprint in terms of growth in number of customers, both in the physical acquiring and the e-comm space. Across all geographies and segments, we have strong winds in SME and LACA, and we are further expanding our partnerships and our footprint in terms of our presence of acquiring through ISPs. Moving on to issuing solutions, particularly strong quarter here, you can see top-line growth of just north of 8%. Again, I would call out the contribution to top-line growth of volumes. In particular, here we have, I'd say, recovery and travel related volumes both in terms of cards Italian cards in particular being used abroad but also commercial cards we have to be to be fair we have a slight benefit in in this first part of the year in terms of a better phasing with regards to contract renewal we'd spoken of in the past so that has helped us but most importantly I would say the key driver to top-line growth being volumes of and the overall advancement of our cross-selling and up-selling initiatives, in particular in advanced digital issuing solutions. Page 9 on DBS, here in DBS in the past, this is only Italy, or Italy, I'd say the vast majority of this is Italy, once we recast our numbers moving EID in available for sale. And this is the division which was most impacted in the past by domestic Italian banking M&A. So notwithstanding the fact that in the past we've lost clients, you can see some growth on the top line, which is, again, benefiting from stronger volumes in the first half, in particular on bank transfers and the EBA clearing framework we manage. If we look at the revenue performance, which, as I said, was strong in the first quarter in every business unit we operate, The same holds true on a geographical basis, which you see on slide 10, with basically in the DACA and Polish regions growing almost 10% top line, double-digit if you look at gross of scheme fees in both Nordics and Southeast Europe, which are growing above the minimum guidance for the year. If we move on to costs on slide 11, you see the cost performance essentially should be thought of as being impacted by four key components. The first is the investment we've made in people during the course of 2022 and the start of this year. This is catching up in terms of the cost dynamics. The second effect is clearly with the strong volume growth we've seen. Part of this feeds into our cost base, notwithstanding the very strong operating leverage we benefit from. We then have some effects coming from inflation. And as we had discussed back in September when we looked at our projections for the three-year period, we knew we'd be able to manage the progressive impact of inflation, mitigating it, and we are starting to see some of it filter through this year. And then finally, obviously, we have the benefit of our synergies, which are helping to offset these trends and effects on inflation. Finally, if we look at leverage on slide 12, We have some good news in the quarter. We've already spoken of it. We have an upgrade from rating agencies. We hope for more to come. I think the key point to remark always is that we have sufficient cash on our balance sheet to cover commitments up until the end of 2025, which stands us in good stead given market conditions. Overall, the book is – our debt stack is, I think, and again – I apologize if I'm saying it about ourselves, but I believe it's well-balanced in terms of the maturities profile, in terms of the mix of funding sources, in terms of the mix of fixed versus floating rate. So we see a leverage profile which is substantially flat in the quarter, having closed the M&A deal in Croatia. And I think we benefit from a very sound balance sheet. So, I'll hand over the floor back to Paolo for his concluding remarks.

Thank you, Bernardo. Let me move now to page 14. As I've anticipated on the back of these results and what we see in the market, we confirm our 2023 guidance. That is, I want to remind us, fully in line with our longer-term, medium-term capital market day growth targets. On net revenues, we plan to deliver at least a 7% growth. On EBITDA, we plan to deliver at least a 10% growth. We plan to generate at least 600 million euros of excess cash at the organic level. On the back of this, we expect net leverage to come down to 2.9 times EBITDA organically, 2.6 including run rate synergies. If you include the announced deal in Spain with Banco Sabadell, you should top it up by 0.1, and therefore 3 times EBITDA and 2.7 times EBITDA, including synergies and normalized EPS. We plan to grow at more than 10% year-over-year. Let me now conclude reiterating the three questions. key simple messages. Across the quarter, we've seen double-digit growth across all geographies, and we see this double-digit growth continuing in April. Second point, strong financial performance, 9% top-line growth, double-digit revenue growth in merchant solutions, particularly strong in Italy and in Poland. EBITDA almost 14% growth with 183 basis points with the margin expansion. And again, last but not least, progressing well in executing our strategy is expected to generate 2.8 billion euros of excess cash that we plan over time to allocate mostly to leverage the action, still leaving a lot of flexibility to also give back money to our shareholders and focus on highly value-creative M&A. Let me stop here and let's open to your questions.

This is the Coruscall conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. To remove yourself from the question queue, please press star and 2. 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 Justin Forsythe from Credit Suisse. Please go ahead.

Hello, Bernardo. Good to speak to you again. I have a couple for you. I just wanted to first ask around the reiteration of guidance, understand it wasn't a super sizable beat, albeit a beat, Is that related to conservatism or perhaps a bit of weakness exiting the quarter? Just looking a little bit at back of envelope math, it does appear perhaps a little bit of a slowdown on a verse 2019 basis, and I guess on a year-over-year basis in Italy. So maybe you could talk a little bit about trends in your key market. And then I wanted to flip a little bit to a more longer-term question regarding the Nets and SIA integrations. I think SIA was expected to be mostly finished at this point with a little bit of synergy flowing through in 23 with the majority of the go-forward being related to Nets and a significant amount of revenue synergy coming from the e-commerce and omnichannel platform and the next-gen SME proposition. Now that you've had a year to evaluate Nets and the propositions they're bringing to the table, What is the progress on your thinking there, and do you expect to have those solutions integrated, and what is the kind of product map going forward for integrating them? Thank you.

Good morning, Justin, and thank you for your questions. Listen, on guidance, we consider the first quarter bang on line with our expectations. I want to reiterate the fact that we didn't say that our guidance was 7 and 10, but it was at least 7 and 10. And the first quarter was expected to be a stronger quarter than the rest of the year. We've been also very clear in anticipating this when we did communicate the guidance back in February. And we continue to have exactly that view, that expectation. So we don't see at this stage any reason why we should revise these guidance. If anything, being four months into the quarter, we are even stronger confidence in our guidance. As far as the volumes dynamics are concerned, they are, broadly speaking, in line with what we were expecting, and now we are reporting them compared to 2021 because we believe this has become the real, sorry, 2022 because we are getting to a normal way of living and to a normal comparison as well. And I think this is really important and allows us to go back to also a normal way of looking at numbers. However, we still, among ourselves, continue to look back to 2019. And if you look at the volumes on Italy that you mentioned specifically compared to 2019, in the quarter, they were up about 40% compared to pre-COVID. And it's a solid 40% continuing also in April. So we don't see any particular dynamic different from what we were expecting. On the next integration, let me... I reiterate what we said in the past because what you're mentioning around the focus on SIA and the focus on NETS was more around the organizational integration. As you remember, we did integrate since the beginning of 2022 organizationally with SIA, especially in Italy, and we had decided to postpone a fuller integration also with NETS later on. This has happened on the 1st of January this year, so now we are operating as one company, fully integrated. It's also one of the reasons why it's becoming very difficult for us to talk about synergies because they are fully embedded now into the way we run the business and into our guidance, into our long-term guidance as well. As far as how the plans on the net side, on the previous, on the former net side are concerned, They are basically moving according to plan. We are, for example, let me give you a couple of examples specifically on e-commerce as you are referring to that. And that's clearly one of the areas where we were expecting to have a stronger contribution. We have recently launched in Italy a one-click checkout solution that allows to maximize traffic. basically the probability of success of a transaction, the conversion rate for a merchant, and this has been very well received by the market, and this is actually translated from the Nets experience in the Nordics that is now being rolled out also in Germany. A second example, there is a mid-layer that we talked about at the Capital Market Day that we call NEXI Relay, that is a de facto mid-layer that allows us to decouple the underlying processing platforms and the customer-facing acceptance platforms, the gateways. And that solution that was originally developed to serve the next state is now actually being extended to Italy as well. And over the next few months, we will roll out, for example, certain new payment acceptance method in Italy on the back of that platform. So it's progressing overall according to our plans.

Got it. Thanks so much, guys. And congrats on a good quarter. Cheers. Thank you.

The next question is from Hans Leitner from Jefferies. Please go ahead.

Yes, thank you for letting me on. I have a couple of questions. The first one is if you look into your database and you calculate the basket, the average basket of transactions, actually you had a decline which seems a little bit against the typical inflation trends we see. Maybe you can comment on that. And then the second is could you comment on the Italian landscape? I think Banco BPM is looking to a similar increase the value of their payment assets and their fee income, I think similar to unit credit. That's for now, then maybe a follow-up.

Good morning, Agnes. Listen, on the impact on inflation and overall volumes and so on and so forth, to be honest with you, we gave up to try to have a precise assessment because we What we observe in our volume dynamics is a mix of very different things. You have the real economy, real consumption dynamics. You have inflation, and most importantly, you also have the cash to digital payments continued and structural transition. I think inflation is supporting the top line here, but we also have to consider the fact that real inflation consumption over the last several months on the back of pressures on energy, pressure on mortgages, and pressure on many other things have been suffering quite a bit. I think overall the mix is evolving in line with what we were expecting. I think on your second question, Obviously, we cannot comment on Banco BPM or other banks' statements. It's for them to comment. Overall, we see in Italy the dynamic that we see everywhere else where banks continuously revisit their payment strategies and approaches. realizing the fact that this business is becoming more and more of a technology-centric business, and therefore they really need to have a stronger focus and work with dedicated partners. And this is not an Italy-only phenomenon. I think specialization in digital payments is becoming the rule of the game across, I would say, not just Europe, but across the world. So it's very consistent with what we see everywhere else.

Okay, thank you. And then just a short follow-up on Justin's comment and your answer on it in terms of it goes according to plan, the integration of CEI and NET. Maybe you can comment around that if there are more assets you have so far identified you might want to divest or spin out looking into this after you had now moving a couple of assets as available for sale.

Honestly, I would reiterate what we said at the Capital Market Day. We had identified for sure and therefore made explicit with the market our plans to sell the next DBS business, the electronic identity business in the Nordics and the by now political business that we have established. But you also said that especially in the third business unit, in the overall DBS business unit, we continue to revisit the portfolio to make sure that all the different products and services and assets that we have there are really core to the strategy. And we can continue to focus our investments also on them. So it's a continuous evaluation of options there. and for now there is no new news on that front. Thank you.

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

Good morning. Thank you for taking my two questions. The first one is just on DAC, where we see a very strong volume acceleration in the quarter, I think up until the middle or high 20s, depending on how you look at that. But the revenue growth at 10% is quite similar to So the question is just why are we seeing a lower level of conversion of that very high volume into revenue in DAC? And then given the mid-term outlook for that region to reach mid-20s growth, when and why do you see the acceleration in the revenue side on DAC? The second question is just around press reports again last month that the Italian government is meeting with, I think, banks and payment firms, retailers, in order to discuss, again, potential additional taxes on transactions, I think up to 30 euros. Can you just talk a little bit about that regulatory backdrop evolution in Italy and potentially if you've run any stress tests or otherwise around any sort of impact of that sort of legislation? Thank you.

Good morning, James, and thank you for your questions. Let me take the second one, and then I will hand over to Bernardo for the one on DACA in Poland. On the Italian government side, I think that the only relevant comment is that the conversations are continuing across the different stakeholders on the topic, obviously led by The government is taking probably a little bit more time than what it was expected, but for what we see, we see a pretty constructive approach from all sides. For the outlook we have at the moment, we honestly don't see any material impact on our growth, on our financials. We should always remind the fact that since three or four years ago, ourselves, we started specific promotion to support micro merchants on smaller merchants on smaller transaction. We're out in the market since three, four years with basically the option for merchants to basically have for free transactions below the 10 euros and we use this to have the merchants on one side but also to stimulate usage on the other side. And all in, we do not see We do not expect any negative impact of the ongoing conversation. On DAC, let me hand over to Bernardo. I think one element to notice is that probably DAC has been one of the regions where last year COVID impact was the strongest, and therefore this year the rebound is also the most visible and the most positive on the link with revenues. I'll hand over to Bernardo.

Yeah, no, I think the first point to note, James, is that DAC is DAC and Poland. Actually, in Germany, it was growing significantly more than Poland, so that's an average of the two. And then the other points to note is that the rebound in volumes is primarily coming from travel, and this is probably larger merchants, lower average take rates. And finally, obviously, not all volumes translate into top-line growth because we also have... revenues being generated from the install base, so you can't just say 20% volume growth, 20% revenue growth. However, if you strip out Poland, Germany is much more similar to that top-line growth.

Well, I think here, just to help you figuring it out, actually German revenue growth in the quarter was above 20%. That's helpful.

Thank you. Yep.

The next question is from Sandeep Deshpande from JP Morgan. Please go ahead.

Yeah, hi. Thanks for letting me on. My question, again, coming back to one of the earlier responses from Bernardo, you talked about travel being a constituent of your growth in Germany. Are you seeing this travel being a constituent of your growth in Italy and particularly China travel? Has it returned? And in terms of, because you can see it with your card, Mick, That's my first question. And my second question is regarding the growth you're seeing. I mean, of the acquisitions you've done, I guess only the Greek acquisition may have a one-year period where you can see the growth. And can you comment on how you're seeing the organic growth within that business or in the acquired businesses? Thank you.

Good morning, Sandeep. Let me try to address both of them. If you want to add something more on the specific M&A performance, please do it. On travel, you see it clearly in our volume page that the high-impact consumption is clearly sustaining a very high level of growth. And you see clearly that when it comes to the contribution of international travelers, you have the example of Italy. This is particularly strong and continues to be particularly strong. And we expect this to continue throughout the year as international travel fully recovers. Plus, honestly, at least my point of view is that in the new economic environment post-COVID, I think whatever has to do with social activities and services is with the very positive dynamic potentially rebalancing a lighter spending on a more discretionary spending type of goods. Specifically, when it comes to China or Russia and the impact of all these elements, I think we said in the past that both China and Russia were a very small part of our total volumes. low single digit of the international travel component. And therefore, now that at least the Chinese volumes are recovering, it's true that they are recovering. They are already, they are, sorry, I'm just looking at the numbers here. The China volumes are still below, materially below the pre-COVID, but actually growing almost two times what they were last year. But again, the impact on the total numbers remains pretty low.

On your second question... Yeah, if we look at it, I think Paolo called it out at the beginning. I think we're extremely happy with the performance of the assets that we acquired and closed during the year, but then I spent the word on Sabadell as well. But if you look at the performance of Croatia, which we signed in the first half of last year, only closed at the end of February because of the say the lengthy process due to Croatia entering the Euro area and the approval process took a little longer, but we were accruing cash as part of the agreement. We basically took the benefit of the performance from signing until today. In Croatia, the book there is growing 30%, I think, in the first quarter year and year. If I look at Alphabank, Alphabank is also growing like 15% or so. I mean, we won't be giving you these details every quarter, but given that we've just closed and I got the question, I thought it would be helpful to highlight how. And by the way, BePero, which is in Italy as well, is performing much better than any other merchant book in Italy that we acquired. Why? Because in the first quarter, we normally go and work on those customers that are loss-making. We price them and get a benefit early on in the process. And if we look into Spain as well, I think Salvador made comments to that effect. Of course, we don't get the benefit of that. We haven't closed the transaction, but that book is also performing better than our average. So the four acquisitions I've just mentioned on average are all performing better than the average of the portfolio, which is clearly good news. Thank you. You're welcome.

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

Yeah. Hello, everyone, and thanks for taking my question. You mentioned healthy price dynamics in issuing contracts in Q1. You explained a little bit the reason behind that and also attached to that in the Nordics, where are you standing in your contracts and negotiations and specifically the price adjustments that are materializing there? And the second question is on the business trends for the second quarter. We are only one month into the second quarter, but what kind of net revenue growth do you expect for Q2? Do you expect growth more or less in line with the middle of your guidance, above or below, depending on the ups and downs? Thank you.

Good morning, Sebastian. Let me try to take the two questions. I think in general... we see, I mean, we decided to point it out, to point out these positive and healthier dynamic of price renegotiation in the issuing space because that's actually what we see. I think this is driven by a combination of elements. On the one side, I think that the flow of those contracts that were very old and that were maybe highly priced on the back of the acquisition debt repricing has already happened, and now we are actually moving into a more normal market dynamic. Add on top of it the fact that more and more when we renegotiate contracts, we are able to add more products and services, more value added, more components of the value chain, and last but not least, obviously, inflation is making everybody more price aware, and clearly, we can also justify a certain type of dynamic. By the way, in most of the new contracts, we're also including inflation-linked annual repricing, which we believe, given the fact that in the future it's a little bit unclear now what the new normal level of inflation will be, we believe is super important and super strategic. As far as the Q2 business trends are concerned, allow us not to give a quarterly guidance. Sorry if I put it that way, but it's also very, very difficult because you're starting to discuss a few million euros shifting from one quarter to the other, both in terms of revenues and costs. Again, let me just reiterate the fact that we continue to see all elements to confirm with confidence our full year guidance. Obviously, the test quarter is stronger than the rest of the year because of the easier comparison with last year. But let me stay on this statement without getting into the specific quarter dynamics more than that.

Okay. And just to the Nordics, most of the contracts have been renegotiated and repriced, and there is no more lingering impact moving to Q2?

No, I think we are mentioning in the comments in the page the fact that we still had some impact from one legacy contract and that impact was expected to be more material this year but maybe instead postponed to next year. But again, In the big scheme of things, given the size of the group and given the size of what we are talking about, these type of things on the overall performance of the business are actually pretty much diluted and therefore much less impacting.

Thanks a lot, Paolo.

Thank you.

The next question is from Gianmarco Bonaccina from Equita. Please go ahead.

Yes, good morning. A couple of questions for me. One is on the OPEX growth. So clearly you reported stronger revenues, but also probably a little bit higher OPEX. So this 5.5% is a level we should expect for there, because if I use your 7% revenue and 10% EBITDA, I get more of 4% OPEX. So I know there is a variable component, but just if you can give some more color in terms of what we should expect for the OPEX. And also on the staff cost, maybe I see you mentioned hiring for growth hires, so just a little bit more color there. The second one is on the cash flow bridge. We saw the net debt increase by a little bit more than $100 million. If I recall well, you had to pay for Intesa in Croatia, so $180 million. which leaves you your underlying cash generation about $60 million. Maybe here you can give more color on this cash flow, excluding the VMA, how it's performed, and also if you had to pay for the deferred taxes or not already in the Q1, so just to understand the underlying cash flow generation. Thank you.

Good morning, Gianmarco. Let me hand over to Bernardo for your questions.

Yeah, so starting from the last one, which is the easiest one, no, we haven't paid for that yet, so that $100 million hasn't come out yet. Going back to your bridge, and we're answering reverse order, going back to the cash flow bridge, I think not wanting to go into every nitty-gritty detail, we report cash flow on a half-yearly basis, and there's a good reason for that. But in the quarter, I think you should just broadly speaking think of that $150 million, which is a quarter of the $600 million of the cash we expect to generate in the year, just the preseasonality, so just shy of that. And then you can start working your adjustments on the cash out for the period on Intesa, the creation book of Intesa, which as you were saying is $180 million, but I also mentioned earlier, we are accruing cash on that from signing, so we get some cash from that as well. And that translates into the cash flow that you've seen, but you'll see the full details of this in July or first of August when we report first half results. But in general, I'd say it's all pretty normal. There's no exceptional items, et cetera. Just think of cash generation in the quarter as being seasonally adjusted, what it should be for the $600 million target we've given ourselves, at least $600 million in the year. Again, I don't want to dodge the question, but we provide guidance on a yearly basis, and we've provided you guidance with at least 7% top-line growth, at least 10% EBITDA growth, and we've given you a target in terms of, or we've commented in terms of margin accretion, going into detailed guidance of how costs are going to evolve in terms of FTEs or HR costs, non-HR costs. is, I think, a level too much. I mean, we manage the business in order to deliver those targets we've given you, and we're confident we will achieve them. I think that should be the answer to this question.

Okay, thank you. Maybe just a follow-up in terms of your staff cost, just if you want to mention the areas of growth in which you are investing. Thank you.

Gianmarco, the areas of investment are the ones that we mentioned last year. You may remember that over time we postponed some of the investments from last year to this year, and finally they are coming in between the end of last year and the beginning of this year. And we are mainly investing into the merchant services space, especially in the areas of e-commerce and DAC that are expected to be very strong sources of growth for the near future. Again, there are also other areas, but if I need to mention a couple of them, they are the ones. On your previous question on cost dynamic, a little bit like top line, you should consider the first quarter to be the highest quarter in terms of cost growth, and then it will come down to levels that are more aligned with the full year estimate that you are talking about. Thank you.

The next question is from Adita Budavarapu from Bank of America. Please go ahead.

Hi, Paolo Bernardo. Thanks for taking my question. Just a couple from me. You mentioned that there seems to be progress on the disposal of the non-core assets. Could you just maybe talk about the conversations there? I mean, how those progressing house should think about, you know, when we should maybe hear a bit more on those. And then also on the comments you made on the Italian, some of the Italian banks and in general banks looking at their payments portfolios. I think you saw obviously one of your competitors recently going for a slightly different deal as a JV rather than, you know, purchasing the merchant book outright. Are those sort of deals something which would be interesting to you as well, or would you still look at assets where you can buy those out completely? Yeah, maybe those two first.

Good morning, Aditya, and thank you for your question. Let me start from the second and go to Bernardo on the first. I think in general it is very good to see that there are multiple avenues for banks to revisit their strategies and ultimately as far as there is the opportunity to create more value together, I think all of them have to be considered. I think what we've seen recently is just another version with very specific characteristics also in terms of size of the opportunity. and type of dynamic there. In our current portfolio, we have both straight merchant book acquisitions and joint ventures. And to be honest with you, for what we see so far, what really matters is the quality of the collaboration with the bank and the real focus that you're able to generate together. So I think ultimately, the different models can work and we are keen to be open to what ultimately banks sees as their strategies. Obviously, then whatever valuation, whatever upfront payments we have to do remains consistent with that. Therefore, we remain fully, fully value-driven and rational in looking at these different type of deals. But I think in general, it's good to see that, for example, a market like the French one is opening, even with a very different type of setup, because this is going to be offering more opportunities also to us. And it's good to see that banks continuously revisit their strategies, because I think in general, this will be good for the market overall.

On the M&A disposals process, I think the two processes, one for EID and rate pay, are traveling at a different pace. EID is a pretty competitive process in place, which is progressing well and faster than rate pay. This is not surprising given the overall environment on the funding side, on the on the credit side, and therefore you should expect EAD to be completed sooner than rate pay. I think that's all I want to say about that.

Great, thank you. If I could just follow up. On the M&A point, would there be any sort of market share considerations in maybe Italy which might prevent you from doing something with a couple of those banking players in the future? And then just also, Bernardo, I think you also obviously talked about in terms of the excess cash, you look at deleveraging shareholder returns. I mean, any progress on that we might hear a bit more, anything we might hear a bit more on some of the other use of cash around, let's say, returns to shareholders, I mean, or again, the deleveraging, any point when you decide to look at some of the other avenues as well in more detail?

On your first point, I think that the comment I can make is that every case is different and the market is evolving in a direction that is more and more of an European market, as we see very clearly from the different type of competitors that are appearing in different markets and ourselves expanding other markets as well. On your cash allocation question, maybe Bernardo, you want to comment more?

I think, Adi, we should pick this up when we talk in the first half results at the beginning of August about capital allocation once we have the discussion on CapEx, cash flow, et cetera, and maybe, who knows, on some of the disposals as well in terms of of how we plan to allocate this cash. I think the important thing, and I'm never tired of reminding us of this, is that if we believe our guidance, and obviously clearly we believe our own guidance, we expect to generate $2.8 billion of cash between now and the end of 2025. We are sitting on north of $1.6 billion of cash as we speak. The sum of all of the cash both existing and to be generated is much more than enough to cover you know, liabilities in the coming future, you know, buy back stock if we choose to do so, do any of the M&A that you might have read of in the press. So our focus is obviously to generate this cash, and once we've generated it, then it's a high-class problem how we actually deploy it. Understood. Thank you very much.

The next question is from Alistair Nolan from Morgan Stanley. Please go ahead.

Great. Thank you. Morning. I think quite a few of mine have been answered already, but maybe just a question on the expected pace of growth for the rest of the year. You've obviously had an easier comp in the first quarter. Things get a little bit tougher as we progress through the year, and then there's the potential for kind of a tougher macro impact as well. Is the expectation broadly still to deliver that greater than 7% revenue growth in every quarter, or is there any kind of comments you could make there?

Good morning, Alistair. Well, let me just reiterate what I said before. The current view is that we'll be able to deliver at least the 7% that we've talked about. So it's very difficult for now to say if we're going to be much higher than 7% or a bit lower than 7%. We'll be on every single quarter because volume dynamics are not necessarily very constant and also other revenue components are not always consistent. predictable in terms of phasing across the year. But again, I want to confirm at least the 7% revenue growth is what we are confirming today.

Great. Thank you. Appreciate it.

The next question is from Mohamed Mohawala from Goldman Sachs. Please go ahead.

Yes, thank you. Morning, Paolo and Bernardo. I had two. Paolo and Bernardo, what do you see as the kind of primary risk around kind of achieving kind of this year's guidance or if we think of maybe the kind of the variables around kind of potentially exceeding the, I know it's a pretty, the above seven is kind of not very precise, but how should we think of the different kind of factors around sort of exceeding or significantly exceeding versus potentially disappointing and is a seven kind of sounds like a floor. So just curious to get kind of your perspective on that. And then secondly, on M&A, and I may have missed your answer earlier, if you were to look at the kind of deals that are kind of available in the market, is sort of larger bank deals now kind of off the table? It's largely a kind of JV approach and most of the deals are kind of mid-sized and Would you also sort of look at perhaps more technology, software, kind of platform-type deals to kind of complement your M&A strategy going forward? Thank you.

More and more. Listen, on what can enable us to over-deliver materially the 7% or not get to that? Ultimately, no, it's macroeconomic evolution and driving volumes. And I think in this new world, after COVID, it is particularly difficult to be predicted because the mix of segments and the dynamics of the individual segments have changed quite a bit. I was commenting before that what we observe across, I would say, all geographies is that, for example, people are actually – spending either mix more in everything that has to do with social life from restaurants to bars to travel, hotels, entertainment, and so on and so forth, and probably less in certain categories that are more discretionary, goods, hard goods type of things, for example, household appliances or even clothing, no? And that's the reason why it's anything a bit more difficult than in the past to project volume. But the simple answer to your question is volume driven by macro. That's the reason why we have to remain quite flexible and open. On your M&A question, I think as many banks are revisiting their strategies and so forth, I would say very different type of deals made for PAPA over the next few years. If we look at what are the conversations that we are having at this stage and when we come real at some point over the next 12 months, they tend to be medium to small size. That's what I would say, at least in terms of capital commitment. from our side. And yes, we are also considering potential tech additions to our portfolio, but we're really talking about smaller type of things with pretty marginal impact because our portfolio is already fairly complete and strong, and therefore we don't see the need of huge investments to add more to the portfolio as well. What you may see over time is a mix of technology capabilities slash geographies, but again, with pretty limited capital commitments.

I mean, just look at the track record of the recent acquisitions. They've all been, you know, between $150 and $300 million, if you exclude, obviously, the mergers of Nets and SIA, which were shared deals. Yeah. Great. Thank you. Thank you.

The next question is from Simonetta Chiriotti from Mediobanca. Please go ahead.

Hello, good morning all. A couple of questions from my side. We have seen in the quarter strong volume growth. My question is on the installed base component of the revenues. If you could give us a bit more color on these both in merchant services and in issuing products. And the second question on competition, just a general comment on how competition is evolving in the different markets. Looking at Italy, We have seen a bit more of activity from a relatively new player like Fondo Strategico Italiano. Just a comment from you on these, if you may. Thank you.

Good morning, Simonetta. Thank you for your question. Let me start from the second one, and then I will hand over to Bernardo to comment more on this topic dynamics. I think we continue to see an evolution of the dynamic that we have described at the Capital Market Day, and I would say across all markets. We're basically facing two types of extremes of competition, and there are many others in the middle. On the one side, we see the players that are operating more internationally, the SMAPs, the Adians, these type of people that are pretty focused on certain segments and come in with one strength and one weakness. The strength is clearly the fact that they have good targeted propositions. The weakness is that they are much less local than we are and therefore our clear approach is to have a strong proposition but also being much into the market and enabling what is necessary to be successful for our merchants in the market. And on the other extreme, you tend to have more local competitors that instead try to be local, but normally they are subscale to have a strong technology, strong capabilities, and strong proposition. And this is what we see, I would say, across the board. And the latter tend to be a bit more aggressive on pricing because they need to be more aggressive on pricing to have hope. We see this dynamic evolving, and that's the reason why the core of our strategy, as we said, the Capital Market Day is to represent across our geographies the best combination of the scale and the strength that the scale gives you in terms of product technology capabilities, but at the same time also be very local with our presence in the local markets, with our partnerships in the local markets. with our capabilities in the local markets. And we see these honestly playing quite well in responding to both type of competitions. On the stall base, Mark?

The stall base grows, as you know, because of the growth of the stall base itself. So we've highlighted how we added 170,000 terminals in the quarter on a year-on-year basis. And the install base grows not only because of that, but because of the upselling and cross-selling on that install base. So if you look at the numbers, we have double-digit growth of 11.5% of merchant services, and that is the product of volumes growing, and you see in the charts on the page, around about 15% in international schemes and just over 11% in total. And that accounts for about 70% of our total volumes. The rest of the growth So if you multiply out 70% times that growth, you get part of the growth coming from and the top line coming from the volumes, and the rest is coming from the installed base. So you should think of, in general, our installed base growing mid-single digit and the volumes growing close to where the volumes are growing. The volume-related revenue is growing close to where the volumes are growing at.

Thank you.

As a reminder, if you wish to register for a question, please press star and 1 on your telephone. For any further question, please press star and 1 on your telephone. Mr. Bertoluzzo, there are no more questions registered at this time.

Thank you. Thank you all for attending this call. Thank you for your questions as well. As always, we'll continue the conversation with many of you in the coming days and weeks. And we'll come back with our results for the first alpha on the 1st of August. Thank you very much and have a good day. Bye-bye.