Nexi Spa Azioni Ordinarie

Good morning, this is the Chorus Call Conference Operator. Welcome and thank you for joining the NEXE First Half 2023 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, Chief Executive Officer of Nexi. Please go ahead, sir.

Thank you, and good morning to everyone. Welcome to Nexi's call for our results for the first half of 2023. I'm here, as usual, with Bernardo Mingrone, our CFO and Deputy General Manager, Stefania Mantegazza, who is leading our Investor Relations team, and a few other colleagues that are here to help us in case of need. As usual, I will start sharing with you the key messages for the first half of the year. I will briefly comment on volumes and key updates for the merchant services business. I will then hand over to Bernardo that will cover financial results. I will come back for final comments and then, as usual, we will open to your questions. Let me jump to page three with the key messages of today. First of all, we see continued solid volume growth in the second quarter of the year across all geographies. And this is despite a tougher comparison year on year due to COVID last year reopening. Summer last year was particularly strong. I would say spring to summer last year was particularly strong as the businesses across geographies were reopening for business at full speed after COVID. Despite that, we had good, strong growth across all geographies in this year. In particular, if you compare to pre-COVID levels, and this is an important check that we always do, you see acceleration across geographies, all of them reaching a 30% growth versus 2019, and this growth is consistent across all product categories that are now converging to more normal levels of growth post all the various COVID effects. Second key message, in the quarter, in the first half of the year, we had a solid financial performance with continuing margin expansion. Revenue growth has been at 8.1% in the first half of the year, with merchant solutions growing close to double digit at 9.8%. EBITDA grew 11.6%, with 153 basis points EBITDA margin expansion. And as a combination of these elements plus our very rational approach to non-recurring items and capex. EBITDA minus capex and non-recurring cash items did grow 18%, a very high level, 18%. Third and last key message, we continue to progress in creating the European paytech leader. We are executing the strategy that we have announced at Capital Market Day back in September last year. and we expect to generate €2.8 billion of organic excess cash in the three years 2023 to 2025. Based on the M&A outlook for the next 12-18 months, both in and out, we feel comfortable in saying that we plan to allocate at least €1.5 billion for debt reduction, still leaving plenty of room for returning cash to shareholders and very selective strategic and value-creative M&A. last but not least we are progressing in our portfolio rationalization and we are in very advanced talks on sdbs and we hope to be able to announce soon something uh overall based on what we've seen in the first half of the year we feel comfortable in confirming our 2023 guidance that has as key uh expectations revenues growing at least seven percent a bida growing at least ten percent and cash excess cash generation at at least 600 million euros let me now move to volumes page four as i've anticipated we see continued volume growth across all geographies let me take it one by one italy is the one that probably had the toughest comparison with last year as we are going towards the summer and nevertheless we still had a solid growth in mid-high single digit and if you look at it in comparison with pre-covered actually there is an acceleration at 35 percent compared to pre-covered levels when you look at the nordics and nordics have been moving in the double digit space throughout the quarter also accelerating at about 30% growth versus pre-COVID. Last but not least, in our DAC region, we also saw a strong double-digit growth across the quarter, and also in this region, actually volumes are accelerating at 31% versus pre-COVID. If you look at the bigger picture, you see that categories and markets are converging to more normal levels of growth after the various changes rebounds and the effects of COVID, the closing, reopenings, closing and reopenings. Very probably going forward, we will consider to reduce the level of detail that we are providing on this page in order to simplify and making the understanding of the business simpler. Let me now move to the key updates for our merchant services business that is the largest in our portfolio. First of all, in the SME segment, we've seen in the first half of the year growth of volume in the order of magnitude of 14%. We have seen continued strong customer base growth across the various geographies with a particularly strong growth in Italy and Poland. We have added, in terms of terminal base, which is a good proxy of customer base, about 150,000 customers over the last 12 months. Second comment I want to make, we continue to make progress in our software partnerships with ISVs and platform partners, and these are contributing strongly to our sales acceleration across the various geographies. Last but not least, we are more and more rolling out capabilities and practices across markets, from one market to the other. And we are progressing across all our geographies with the rollout of the soft pass proposition, which we believe has a great potential, given the many types of applications and use cases that it can be applied to. Moving to e-commerce, in e-commerce we've seen an 8% volume growth with actually a double digit revenue growth, by the way, in acceleration in the semester. three points that I want to underline here, also for e-commerce accelerators' performance of our e-commerce solutions in Italy and the Nordics and our account-to-account, owned account-to-account solutions in Poland and Finland. We continue to be strategically focused on the mid-market, that we believe is the one with the biggest potential, and compared to where we were one year ago, we've seen a customer-based growth of about 10%. at the end of the start of the year. Second key message, we have developed a strategic partnership with CompuTop in DAC. CompuTop is the leading e-commerce provider in Germany, and this partnership is strengthening our online omnichannel proposition, definitely in the DAC region, but also beyond the DAC region, given the capabilities that CompuTop is bringing to our portfolio. Last message that I want to underline, we continue to strengthen also in e-commerce our partnership portfolio. For example, we signed a commercial agreement with Shopware across our geographies, and we are already live in Italy and in the DAC region, and a preferred partnership with Shopify in Poland. Last but not least, our large merchant business that did grow 10% in terms of volumes in the first half of the year, Also here, we continue to see an active pipeline of commercial new wings and upselling and cross-selling across multiple verticals and geographies. Just underlying a few of them, omnichannel retail, hospitality and restaurants, mobility, and petrol. And here, as you may remember from our Capital Market Day presentations and discussions, our focus is more and more on the local and regional lacquers that we believe are offering the best and most profitable opportunities. Let me now hand over to Bernardo for financial results. Thanks, Paolo.

Good morning from me as well. On slide seven, so starting with the top-line growth, EBITDA, and margin expansions, Paolo was saying I think we had a strong first half of the year, notwithstanding as we had anticipated the fact the first quarter was going to be the strongest and there's going to be a reversion towards pre-COVID level growth throughout the geographies in which we operate. We closed the first half with 8% top-line growth. In the quarter, it was 7.3%. Again, we gross up for scheme fees as we normally show. We add a couple of percentage points to this top-line growth. Within this context, margin continued to expand. We had, as usual, between one and two percentage points of margin expansion. It was 153 basis points in the first half, growing the EBITDA margin to 49%. and EBITDA overall grew close to 12% in the first half and just north of 10% in the second quarter. Moving on to merchant services, I think a touch lighter than what we might have expected still, double-digit top-line growth if we go sub for scheme fees, and this is in the context of sustained growth, the value of transactions throughout the group. So I would say that even in merchant services, we had... sustained the top-line growth, notwithstanding the tough comparison compared to the second quarter last year, which is probably going to be the toughest one in the year. Within merchant services, we've just heard from Paolo how SMEs grew 14% faster than LACAs and contributing significantly to top-line growth. In addition, I think it's important to call out how we benefit not only from the structural growth in volumes which we as we've seen throughout the post-COVID years have continued to volumes have continued to to grow significantly but also thanks to the growth in our customer base and we call out how we added close to 150,000 terminals in in the first half and e-commerce clients growing north of 10 percent. Slide nine on on issuing solutions it's fair to say I think we had a first half and a second quarter above expectations with strong top line growth which was uh supported also, and we call this from a one-off, I'd say, contribution of between one and two percentage points in the first half. This comes off the back of an M&A deal we closed at the end of last year. In general, I think the focus that we'd like to call out is on upselling, cross-selling of value-added services and the progress we're continuing to make on advanced digital ageing solutions also outside of Italy. Digital banking solutions, notwithstanding the negative effect we suffer from banking consolidation, in particular last year we lost two client banks through banking mergers. We have growth in the quarter, so the growth which is driven primarily through volumes which are strong in EBA clearing. This is the network of instant payments and bank transfer we manage across Europe, more than 40% of overall volumes. The growth in network services is but also growth in other businesses within DBS has more than compensated the loss of these clients last year. So I would say a very good quarter and a very good first half for digital banking solutions. Moving on to the geographical split of performance on slide 11, we can see how Italy has grown high single digit as has the DAC region. We pick up again those two percentage points, grossing up for scheme fees being double digit growth and for both geographies. Similar growth in the second quarter. Southeastern Europe, it's important to call out, I would say, a couple of factors. The first is through the war in the Ukraine. Last year, we lost a bank in the region. This depressed the second quarter growth year on year from a comp perspective. The other factor to note is how the growth of scheme fees here is much higher. This is due to the higher incidence of tourism and the proportionally higher incidence of tourism in the geography in which we operate, Greece and Croatia in particular, but I'd say a good quarter in Southeastern Europe as well. In the Nordics, a little softer here, margin compression, I'd say, in the Nordics is one of the primary drivers. A little phasing on project work on the issuing front is also part of the explanation for the 2.5% growth in the second quarter, but mid-single digit for the first half, which is in line with our overall longer-term guidance for the region. If we move to slide 12 on costs, I'd say as expected and as anticipated, we have the slowdown on the growth, year-on-year growth on costs. As for the first quarter, throughout the year, we will have four primary factors contributing to our cost base. The first one is investment we've made in our people, in our in our business, which has driven the growth in HR costs, in particular in the first quarter where it peaked. The second impact is clearly coming from inflation. And as we have discussed a number of times, we try and I think are successful in managing the impact of inflation over time. But nevertheless, at some point, inflation does hit our cost base. And you see that reflected in 23 numbers. Don't forget that last year we were flat year-on-year on costs. The third is not all our costs are fixed. We have approximately 20% of our cost base, which is driven by volumes, and volume growth has driven some costs. And then offsetting part of this growth are the synergies which we are on track to deliver in terms of our guidance and help us mitigate this overall impact on our cost line. However, I think the important point is that we peaked in terms of cost growth year-on-year in the first quarter, and we're now reverting to more. more normalized growth level for the rest of the year, starting from this second quarter. Moving on to slide 13, we continue to invest in our technology stack to support the innovation and the transformation of our IT platforms. Indeed, I think we don't give the details here, but our IT costs were down year on year this year, thanks to these investments we're making in the platforms. We have closed down over all five platforms out of the 25 on track towards our four target platform level. And we've also decommissioned 11 data centers of the 45 we had, and we have further, obviously, coming in the second half of the year, I think another five in the second half of the year. I think it's fair to call out how in the second quarter we had a bit more CAPEX spend on terminals. This is clearly directly linked to revenue, so good. But we also had some infrastructure issues related renewals, et cetera, which from a timing difference shifted or actually were booked in the second quarter, making the year-on-year comparison a little less favorable than it would otherwise have been. Overall, we target still to have a two percentage point reduction in capex to revenues level for the year, which is on track towards our longer term target. Slide 14 shows the decrease in integration transformation costs or in general non-recurring items. We have a 25% reduction year-on-year in the first half. You know the target for the year was to reduce by more than 40% this line, so if you look at the half-year number, 76 million, I think we are perfectly on track to deliver that reduction compared to 2022. Slide 15, again, going back to Paolo's comment, strong growth in EBITDA less capex, close to 20% growth, a very high teen growth on that front. We also have an 8% growth in unnormalized EPS. And slide 16, before we move on to the balance sheet, the cash generation in the first half was strong, €271 million, if or to 70.5%. If we account for seasonality of certain items, but most importantly, seasonality of earnings, with the second half obviously being stronger than the first half, I think we're well on track to deliver our goal for the year. Finally, on slide 17, the balance sheet or leverage, we closed the quarter, the first half, at 2.8 times, if you include synergies, or just south of 3.2 times, so continued reduction in leverage. This trend is appreciated by rating agencies. We had an upgrade to WB Plus by Fitch. This followed the S&P upgrade, and we're hopeful to continue on this trend in the coming months. Two more things I'd like to call out. The first is that we've activated the sustainability-linked clause on a term loan. This will help not only save a little money on the interest margin, which is always important, but I think is a strong testament to our commitment to ESG and achieving our targets. And finally, and maybe more importantly, just we have earmarked or identified or I'd say highlight how we already have more than sufficient cash on our balance sheet to meet short-term liabilities both next year and the year after, but we call out here how 2024 maturity, so the NASA notes in April and the 8-ball notes in November, will be redeemed or reimbursed using existing cash resources, and this will lead to gross debt reduction, which is a step in the right direction. Paolo?

Thank you, Bernardo. Let me just jump to page 19. Based on the start of the year, we confirm the guidance that we gave for the full year. Net revenues growing at least 7%, EBITDA growing at least 10%, excess cash generation at least 600 million euros, net leverage going down on an organic basis at 2.9 times EBITDA by year-end, 2.6 if you include run rate synergies, and normalized EPS at more than 10%. Let me close on page 20, reiterating the key messages. Continued solid volume growth across all geographies for the quarter. Second message, solid strong financial performance with continued margin expansion. And let me underline again the growth of 18% of our cash generation with that minus capex and non-recurring cash items. And last but not least, strong progress in creating European paytech leader. And here we are adding to our previous comments the fact that based on the M&A outlook both in and out for the next 12 to 18 months, we feel comfortable in saying that we plan to allocate at least 1.5 billion euros for debt reduction, still leaving plenty of room for returning cash to shareholders and very selective strategic value-creative M&A. Overall, we confirm the guidance for the year. Let us stop there, and let's open to your questions.

Excuse me, this is the Chorus Call Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself in the question queue, please press star and 2. Please pick up the receiver when asking questions. The first question comes from James Goodman of Barclays.

Oh, great morning. Thank you. Yeah. First question for me, just around the merchant volumes and the outlook for the second half. I see that the volumes softened somewhat as we went through the quarter. I think there's going to be less inflation across your geographies in the second half. I'm just wondering what that run rate means for the merchant business in the second half. And maybe within that, you can comment on pricing, whether that's been improved. having an effect or whether you anticipate it to be effect given what we've seen in the market other question and just around the issuing business if you could help us understand exactly what the one-offs were around the banks m&a and maybe the materiality of that because more broadly again there seems to be some some backdrop challenges in signing these these larger issuing deals yet your business is remaining very resilient there thank you

Good morning, James. Let me take the first and I will hand over to Bernardo for the second one. Listen, I think the outlook on volumes is something that remains pretty challenging to be forecasted. Based on last year and what we see, we expect, as I said before, the trends in the second quarter to continue into the third quarter because of the very strong comparison with last year, I would say particularly in Italy, and then potentially re-accelerating on a year-on-year basis in the last quarter of the year. That's the perception and the expectation that we have at this stage. While I think on Italy the comparison was very tough and the nominal numbers versus last year may seem a bit lighter than expected. We've actually been surprised by pretty good volumes in DACA and Nordic. So there is also, if you like, an effect there on the mix. As far as pricing is concerned, if you look at our net merchant fees, our take rates, if you look at that as the average of the averages, They tend to be pretty stable over time. There is maybe some pressure a little bit in the Nordics, but we see actually good dynamics, for example, in Italy. So there is not a one size that fits all, but that's overall the dynamic, pretty stable take rates across the group. Bernardo Nischi?

Yes, initially, I think we called out, and I think it was fair to do so, this one-off, let's call it project work, but it's related to an acquisition of a book at the end of last year, so I won't name it, but I'm sure you can figure it out. At the same time, the bank that we did this M&A deal with was merging with another bank, which was our client, and as part of the overall agreement, we basically allowed this second client bank to transfer its issuing book to the service model we had with the bank we were buying the merchant book from. And this was project related, let's say fees plus compensation for the fact that we were losing some cards on one bank and getting them on the other. So it's work which happened during the first half of the year and was closed at the beginning of June or so. And sorry, size-wise, I think we haven't given a precise number, but it's between 5 and 10 million euros.

Understood. Thank you, Peter.

You're welcome.

The next question is from Justin Forsyth of Credit Suisse.

Hello, Bernardo. Good to hear from you. Thanks for having me. A couple questions, if I might. First, just want to talk a little bit about guidance on the EBITDA side. It seems like you had quite a strong 1Q and 2Q. So if you could just – I know you mentioned a little bit, Bernardo, about inflation impacting the cost base in 2H, but maybe you could just talk about the implications behind reiterating the guidance and potential for incremental synergies to make that number appear even slightly more conservative as the NET's integration begins to ramp. A second question, more broader, strategic, I just want to hit a little bit on PSD3, which I'm sure you saw was recently released, the go-forward plans there. PSD2 was clearly a landmark piece of legislation, spread a ton of innovation in Europe. It looks like the new proposal hinted a little bit at the inequity between non-bank merchant acquirers and bank acquirers, particularly with access to payment systems. Any thoughts on how you could benefit from that would be great, or if there are any other aspects of the proposal that were intriguing to you. Thanks.

Good morning, Justin, and thank you for the two questions. I will leave the first one to Bernardo, but let me comment on the second one that is good to hear this type of question that is actually something that will stay with us for some time after Listen, there are many, many components on PSD3 and more in general on the package that was presented, the draft package that was presented by the ECB that was also included in the Digital Euro proposed regulation and many other things. I think your high-level comment goes in the right direction. I mean, at least in line with what we believe in. I think that there are measures that are a kind of trying to make the life of customers easier in buying with digital payments, in particular online, and this is good. We believe this is just good and will offer us the possibility to offer additional value-added services on that front, but I think in general it will facilitate volume growth and user experience, customer experience. On the other side, there are rules that make the basic requirements for being a player in this space more stringent, more important from different aspects, starting from technological capabilities, legal commitments, capital commitments, and so on and so forth. And while on the one side this may be creating additional work for us to be done, actually we welcome it because this requires scale to be able to invest on this front. This requires scale to be able to provide business continuity and perfect security. And this is our bread and butter ultimately. This is one of the reasons why we are bringing the group together with the way we are bringing And we make, I think, the entrance into the business to smaller and more marginal players more difficult. So I think your general comment is right. Overall, we welcome the direction.

Yeah, on EBITDA growth, I think we stick by our guidance of delivering double-digit growth on EBITDA. We won't revise that in any way. I think the way we closed the first half at 11.6% obviously suggests we have some room to do better, but obviously we're also facing inflation, which has to do with contract renewals and not just automatic impacts on our cost base, which come in the second half. I think synergies, which we are delivering on, will help mitigate this, but we've also made a bit of a step step up in terms of our capabilities, which are fed through our cost base, which need to be managed through these synergies. So I wouldn't expect, I wouldn't want to change the guidance that sticks to that 10%, knowing that we are in a good position to deliver it.

Awesome. Thank you so much. Appreciate it.

The next question is from Alastair Nolan of Morgan Stanley.

Great. Thanks for taking my questions. I've got two. Maybe first on the outlook into next year, you've mentioned obviously some tougher comps in the second half. Can you just talk about the levers that you see in front of you in terms of kind of re-accelerating that growth and back towards the 9% implied CAGR that you laid out at the capital markets day? And then just secondly, you talked about the $1.5 billion earmarked for debt reduction, but that's still leaving some room for a capital return. Can you maybe talk in a little bit more detail around what you're thinking on that front? That would be really helpful. Thank you.

Good morning, Alistair. Let me try to take both questions. Outlook in 2024 is early to talk about it, but said that the way you should think about it the levers to accelerate top and also bottom line and also cash generation performance are about these four. I think on the top line, I would definitely mention an acceleration of revenues in merchant services in the DAC region and second, acceleration in e-commerce broadly across geographies. As far as the EBITDA segment, is concerned, clearly, a continued delivery of our cost synergies. As you remember, there is a multi-year plan we are delivering according to that plan. And as we said in the past, there might be some more to be done in the longer term. And the fourth element that instead would impact cash generation is the trend that Bernardo has been Mentioning as well in terms of going gradually down to a more normal level of CapEx spend and non-recurring cash expenditure. So the four things together we expect should generate revenue acceleration, EBITDA acceleration, and cash generation acceleration. On the capital allocation, I'm smiling because obviously when we give something, there is always the request for giving something more. As I said, based on the cash generation that we expect to see for the business this year, next year, and the coming two years, and the outlook that we see for M&A, where we see opportunity for disposing non-strategic funds assets and we see honestly limited opportunities of high value additional M&A and by the way of limited size. Today we feel comfortable in saying that we'll be allocating at least 1.5 billion euros to debt reduction which is already a clear indication of direction on the back of our capital market day strategy announcement. And as we said, this leaves plenty of room for maneuver, which is the 1.3 remaining out of the 2.8 to do both basically returning cash to shareholders and doing net M&A. As I said again, you should look at M&A as net because the 2.8 billion euros we are generating are organic, are coming from the current M&A. As we go forward, probably we'll be able to provide even more detail on this, but for today, this is where we want to stop.

Thank you.

The next question is from Sandeep Deshpand of JP Morgan.

Hello. Yes, good morning.

Yeah, hi. My question is regarding the growth. I mean, when we compare the growth between the different regions, we see, you know, Italian growth is 10% in volume, but Nordic growth is some low single digit. Clearly, there is difference in volume, but in revenue, are you seeing these sort of growth differences as well?

Sorry, Sandy. Okay, you're talking about the different growth rates. Yeah, it's what I was probably also mentioning a little before. The one region that is a bit an outlier there, that despite good volumes, I would say on strong volumes, is actually running lower volumes. than volume growth on top line is actually the Nordic region. There are two reasons for that. The first one is that on issuing, we are broadly speaking flat or with low single-digit growth, while in issuing most of the accelerated growth is coming from Italy. And let me underline the fact that initially, despite the one-off that Bernardo has been commenting on, growth is pretty strong also net of that. While still in the Nordics on merchant services, we are more around mid-single-digit. This mid-single-digit is still a bit below volume dynamic for basically two reasons. I think in the first half of the year, we had a bit less demand. NZ sales compared to last year, this year, so there is a little bit of phasing probably there. And second, there is a little bit of a margin pressure mostly due to product mix in the Nordics. We expect, however, Nordics to re-accelerate in the second half of the year, at least for the outlook that we see. Let me underline the fact that on the fourth region, Central, Southern, Eastern Europe, also there you see a number for top line growth that is not as strong as revenues are. But if you look at it in terms of merchant services, actually merchant services are in the double digit space. This lower number for the total is mainly driven by what Bernardo was saying before, a little bit of the effect of last year, a Russian thing plus a specific Greek topic on a customer care business that was EBITDA negative and that is finishing.

Another question quickly on your growth into the second half of the year. You've had fairly good growth here now in the second quarter when the comps were much more difficult in Q2 of 22, given the reopening. But then by the fourth quarter of 22, as you know, that your growth did slow down. So the comps become easier later in the year. So do you expect your growth to accelerate now into the fourth quarter, for instance?

Yes, it's a little bit what I said before. Again, it's very difficult because the reality is that when you see it from the macro data, the outlook for the European economy across the different countries is still a little bit unstable and uncertain. Said that, when we look at our current plans, we expect to have a third quarter. pretty much in line with the second quarter because, again, especially when you compare it to pre-COVID, the third quarter last year with the summer in the middle, it was very, very strong, especially in Italy that is driving a lot of the volumes and the revenues for the group, while volume-wise we may have easier comps in the fourth quarter. So what you're saying sounds very much in line with our belief. Thank you so much.

The next question is from Joshua Levine of Autonomous Research.

Hi, good morning. Two questions for me. So banks in the UK, or one in particular, are exploring options for their payment businesses. Is the UK a payments market that Nexi would consider doing a deal in, whether it's a JV or an asset purchase? And then the second question is, I was in Italy not too long ago, and I noticed it was possible to pay using a card just about everywhere in regardless of how small the purchase, no cash was necessary. I know this is just limited personal experience as a tourist, but if you think about Italy's cash to car transition, how far along do you think it is? Thank you.

Good morning, George. Thank you for the question. The second one that I love because it's really based on personal experience. You're right. I don't know which part of Italy you were, which area, but The reality is that if you look at the metropolitan areas of the country, it's very much the way you have experienced. Personally, I have not been using cash for the last many, many, many weeks. It's probably left for tips and for small gifts on the street. The reality, however, is that As soon as you go outside the metropolitan areas, there is still a lot of cash payments around. But also in the metropolitan cities, again, talking about personal experience, I love to go to the local market in Milena on Saturday mornings doing my own grocery shopping. And the reality is that I still see a lot of people, normally a bit older people, that pay cash. which is a nonsense for me, but it's really what is happening because probably they feel comfortable like that. Therefore, if you look at the overall penetration of digital payments in Italy, it's probably today in the low-mid 30s, which is still very much behind what you see in the rest of Europe, in particular the UK, France, Benelux, the Nordics. So I think there is a long, long run in front of us in terms of cash to digital payments conversion. It's happening, it's good it's happening, but there is a long, long way to go. On the UK front, to be honest with you, we are really, really focused on our organic plans. We believe that our organic plans do have a lot of value and we are focused, obviously, in making sure that we get the most of the acquisitions, the recent acquisitions we have done and we are preparing, as you can imagine, very strongly for Spain to come into the portfolio. At the moment, we are not looking at the UK. We have other priorities, and that's not necessarily a market that we consider for us attractive.

Thank you very much.

The next question is from Sebastian Stavowitz of Kepler Chevrolet.

Yeah, hello everyone and thanks for taking my question. Can you please make an update on the integration process of CIN at what has been done over the past few months? What are the key, I would say, point of focus for the coming months and where the synergies have ended at the end of H1? And the second one is more on the M&A front because we have seen more private equity gradually coming back to the payment market, bringing some kind of inflation on the multiple in the market. Is it something that you are seeing as well? And is it something that could slow a little bit your M&A opportunity in the coming months? Thank you.

Good morning, Sebastian. Listen, I think the integration process is progressing exactly according to our plans. Again, we do not provide any longer detailed numbers for a very simple reason, because since the 1st of January of this year, we are running a company as one company. And therefore, giving reliable numbers becomes de facto impossible because we are operating as a group. And therefore, everything we are doing right now could be considered a synergy. Said that, we are progressing according to our plan. I think if anything, this year we may be over delivering a little bit on technology synergies. And we have more for next year. But again, as I said, so far so good. As you can imagine, Sebastian, you have certain initiatives that are doing better than expected, certain others that are going a bit slower, which, by the way, leaves room for doing better in the coming years. But all in, we are in line or slightly better than expected. Listen, on M&A, I guess you're referring to, in particular, to the U.S. World Pay deal. I think, in general, we welcome... from, in general, investors and private equities as well in the sector that I think is, by the way, underlined the fact that the multiples that we see around these days are probably far too low given the potential value generation of the sector. Said that, we're not particularly worried about private equities coming in and inflating prices and so on and so forth because, honestly, buying additional assets is not our priority. So we are very selective on what we are looking at and currently we are looking at a very, very small number of potential small opportunities where honestly we don't see private equities around.

Thank you.

The next question is from Hans Leitner of Jefferies.

Yes, good morning. Thanks for letting me on. I have two questions. So the first one is you mentioned here a couple of data points around platform and data center decommissioning. Could you remind us how many platforms and data centers you have currently running and what is the target here? And then the second one is on issuing services. You spoke around a very strong market environment that is a little bit against some other competitors. Maybe you could break that down in a little bit, let's say, leading market activity, ramp up, and then, let's say, existing businesses and renewal business. Thank you.

Let me maybe take the second one. I will hand over to Bernardo to complete the comments he was making on platform and data center consolidation. Vishen, on issue and service, I think that in a nutshell, the dynamic is the following. We have Italy that is growing very strongly, even besides the one we were talking about is growing high single digits. And that's really well supported by a continued rollout of new products and services, international debit in particular, but more and more of those in the licensing model that we have in Italy where basically we own the product and we can do product innovation and customer management. And we see more and more engagement with the banks also supporting them to upsell and cross-sell these products and services internationally. And a core part of the strategy for us is to export this model that we call the advanced digital issuing across the different geographies. We also see a solid performance outside of Italy that is mainly driven by processing business. Again, the processing business, as I commented in the past, we see good support for volumes. So there is a volume... growth that is supporting growth. We have a few smaller new deals here and there, but most importantly, upselling and cross-selling on the customer base of additional value-added services. And this is more than rebalancing sign price pressure that we see here and there that continues to be around or in negotiations and so on and so forth, even if much, much lower than what it was in the past. So that's the overall dynamic that we see at this stage.

On the platforms, so we had 25 platforms issuing, acquiring e-commerce and so on and so forth. We have closed, as of the first half this year, five of them, so we were at 20. There's a plan to close another five in the second half of the year, so further reducing towards our target, which is four in the longer term. And on the data center consolidation, we had 45 at the time of the announcement. We are planning to reduce that to 15. We have closed 11 of them, and there's another two for year-end. Obviously, numbers don't necessarily correlate directly and proportionately to costs on data centers. It's really the square meters you close down that impacts the cost and not the number of data centers. But I think it's a good proxy towards achieving our overall synergy target. Just a final reminder of something I mentioned during the results. I think we're progressing very well on the synergies. We haven't given you the full cash synergies for the year. I think in the first half on the cost front, we had sufficient synergies, especially in IT, to make it such that overall our IT costs are actually coming down, the P&L IT costs. Yeah.

Thanks. Just a little follow-up here to Paolo. You didn't speak now about, could you remind us around the activity in terms of lead times to projects? Is there a vibrant market in the banking space at this point compared to maybe the pandemic?

Well, there is not. I want to say that it also, I would say, we see a good project activity around, but I will not consider it neither higher than normal nor lower than normal. We consider it more or less in line with what it was pre-pandemic. I think there is a broader long-term trend that we see on another front, which is connected to the fact that as payments become more complex, more important for customers, And also, we just discussed a few minutes ago, new regulation coming in, making it a bit more complex, not to think about new products and services to be managed, such as the digital euro, EPI, and other things. It's very, very clear that banks reconsider their strategies, and in general, they look for partnerships in order to have the support that is needed from payment specialists that have a scale of investments, competence to support them into this journey, into this evolution. So it's not necessarily connected to a pandemic, but it's more around the long-term evolution of the industry. And from this point of view, we are having everyday conversations with medium and large-sized banks about their strategic evolution. Excellent.

Thank you.

The next question is from Aditya. Budha Varapu of Bank of America.

Hey, morning, Paolo Bernardo.

Thanks for taking my question. Just a few from my side. Firstly, could you just comment on some of the trends you're seeing across different geographies and markets in terms of demand or maybe it's just consumption trends, how travel is faring and maybe what you've seen in July as well? Second, you mentioned that the NETS DBS asset is in advanced talks. Could you also just comment on rate pay and, you know, I think the decision around that? And then finally, I think probably you also mentioned that in terms of use of cash, you also, you know, scope to think about disposes outside of these two. Can you just comment on that? Are there any other assets which you might look at as being slightly less non-core going forward?

Good morning, Adi. Let me take the first and the last, and then I will hand over to Bernardo for the second. No, listen, as I commented before, we start to see categories converging to similar growth rates. I think Italy is particularly telling because it's a large market and our numbers are a good proxy to the overall number. So that's where you see year-on-year growth rates that are coming down at the same time to more normal levels. Said that, it is important to say that in general we've seen a good recovery of travel. We continue to see a good recovery of travel. Today, travel, just let me give you a couple of numbers. Today, travel, when I say travel, I literally mean airlines, transportation, travel agencies. So it's not the traditional, it's not including restaurants and stuff like that. It's up about 30% compared to pre-COVID. Also, the Nordics is up double digits compared to pre-COVID. And our perception is that recovery is now coming to completion, more or less. I think going forward, the macro environment will become more important as people rebalance the way they spend their money in the context of inflationary pressures that are, on the nominal level, starting to go down when we look at the cost spending. for example, food and beverages, groceries, and stuff like that, are still at very high levels with, by the way, other expenditures such as, for example, loans, cost of loans going up. So we believe we will see going forward a more normal dynamic. On disposals, again, we talk about what we do when we do it, but you may remember that at the Capital Market Day, We said that over time, we've been looking at further opportunities for focusing, rationalizing our DBS portfolio besides the next DBS business that we put as asset for sale. Again, for us, it's all about having the ability to focus our energies and resources to the business that are more core. And for our company with a stronger growth potential, At the same time, allowing the other businesses to have their growth opportunity and capture their well-deserved investments with other owners. On NetDBS, Bernardo?

Yeah, and RatePay, I think. Sorry, NetDBS. Basically, we're in advanced talks with buyers, as we have said in the past. On the 29th of June, unfortunately... Unfortunately, a European draft directive impacting electronic ID wallets throughout Europe was published ahead of the plan. This needs to be evaluated by the bidders in the context of this process, so this has slightly delayed the timing. I would say that however we are in a very good position to close the transaction, in the coming weeks or at most months given the summer period. With regards to rate pay, there it's a different market. Obviously, we've spoken to that point in the past. It's not the most ideal market to sell a consumer finance business. We are even in this front engaged in discussions, articulating discussions, I'd say, surrounding a multifaceted deal which would entail more than just one agreement being struck, so a little complicated and taking a little time. But in any event, I always like to remind us that we always have a kind of put option on rate pay, which is switching it off and bringing up between 100 and 150 million euros of indebtedness. So that, you know, we have that option which is in our hands as a backstop.

Thanks for that. Just maybe one follow-up. I think on the point on banks looking for partnerships as the payments business becomes more complex, I mean, can you talk about, I mean, again, your, you know, willingness to do those sort of partnerships and where you see maybe some opportunities around that, any particular markets? which you think might be attractive?

Listen, I think that we're having these conversations both with customers that are already with us and we're discussing with them on how to evolve the partnership to the benefit of both, but also we have conversations in markets and with banks and geographies where we're not necessarily yet the core partner. So I think this is happening in several different places and we see more of these coming out going forward. We are not talking necessarily about books, I want to be clear. We are not talking about necessarily M&A. Here we are talking about having industrial projects, co-funded industrial projects, especially for the large banks. where now we have them evolving towards more advanced products and services and next generation platforms. That's, I would say, what we see around.

The next question is from Antoine Hutcher of UBS.

Hello, good morning. Thanks for taking my question. The first one is on transformational CapEx. It was 78 million in H1. So could you give us maybe an update on your expectation for 2023? And I know you expect that to trend in 2024 and 2025 afterwards. And the second question is on rate pay. I think you are managing the decline of the business in 2022 to trim your risk exposure. Could you give us an idea maybe of what growth was like for rate pay and revenue trends in the first half of the year?

Good morning, Antoine. Let me hand over to Bernardo for Bob.

So transformational capex, I remind you that we entered the year with approximately 130 million euros to be spent uh in 23 24 most of it would be spent i expect uh this year if you look at the at the at the target if you think of the target we've given to to be just out of 500 million euros in terms of total capex and uh what we've spent in the first half in terms of transformation i think most of that 130 would be spent during the course of uh of uh 2023 um The second question on rate pay, I mean, we're not going to disclose numbers on rate pay, but I would say the core business of rate pay is growing, is expected to grow. If you exclude Auto Group, which is the original parent company of rate pay, from which rate pay has been separated entirely, including business volumes coming from Auto Group, which were a legacy, the core business is growing, you know, healthy notwithstanding the fact that we are not or we're limiting onboarding of new customers in light of the M&A process. The bottom line obviously suffering from this growth which isn't as strong as it could be and therefore the cost base is what it is and therefore last year we managed to generate a very small profit. This year we're likely, bottom line profit, this year we're likely to generate a small bottom line loss.

Okay, thank you very much.

The next question is from Simonetta Chiriotti of Mediobanca.

Thank you, good morning all. Just one question on competition. How do you see competition changing in Italy after the agreement announced by Banco BPM and BCC Pay? and which could be the possible impact for Nexi from this new JV. Thank you.

Good morning, Simonetta. Listen, Italy is a competitive market, has always been a competitive market and will continue to be a competitive market. Honestly, we don't know exactly what to expect from this new player. I think it would be fair to ask them and Banco. The only thing that I underline consistently with what I said before is that if you want to compete at scale in this market, you must have capabilities and ability to invest at scale. And this is what we have. And obviously, we will continue to do everything we can to continue to win and grow. In Italy, regardless, the last competitor appearing in the market. So let's see. There is, for us, no major new news compared to the past.

Thank you. The next question is from Alberto Villa of Intermontissim.

Yes, good morning. Just coming back to the previous question, can you give us an idea what was the, let's say, revenues and NABDA generated by Banco BPM in first half 2023 for the group? And if you think you will be able to retain part of the business in the future out of this, let's say, new deal they're announcing. And secondly, again on M&A, among the non-core assets disposal, there has been rumors about this national interbank network in Italy, potentially an asset you could dispose. Can you give us an idea what would be your idea on that asset? Thank you.

Good morning, Alberto. Listen, I think on Banco is a bit early to say, I think the size of the business, we never give size of individual contracts or products and so on and so forth, but what we have read around is, broadly speaking, going in the right direction. The impact for us, and we are working through our plans, as you can imagine, will be definitely zero this year and probably very marginal next year. Then what the impact will be going forward will really depend on the ability of these new players to migrate customers, develop technology, develop products, be competitive, and so on and so forth. and our ability and actions to defend customers that over the last many, many years have been used to next products and propositions that are quite advanced for return standards and quality of service. So I think over time that will be the key element to be watched. But again, no impact this year. and you expect a marginal to no impact next year as well. On the network thing, as you can imagine, again, we don't comment on rumors, but I go back to what I did answer a few moments ago, I think, to the question from Adi, that in general, the area of DBS was an area, as we announced, the capital market day that we would have been considering for potential rationalization and further focusing of the business.

Thank you.

The next question is from Mohamed Mouawala of Goldman Sachs.

Great, thank you. Morning, Paolo Bernardo. Just a quick one from me. How would you rate your visibility into the second half of the year? Obviously, card digital payments going quite well. I know there was some sort of one-time benefits in there. But on the kind of merchant services side, and particularly as you kind of move into next year, as we consider some of the kind of, you know, the macro concerns out there, and do you feel this is now a kind of sustainable growth rate that you're at in the kind of high single digits? That's great. Thank you.

Good morning, Mo. And I think we are closing with a very difficult question, I think, here. Let me try to answer to you in two different ways. First of all, we have the visibility that is sufficient for us to confirm our guidance as we are doing today. At the same time, I think it's fair to say that the visibility on the second half of the year is a bit lower than what it used to be in the past, probably at least pre-COVID, because of the many macro elements that are mixing up in the various geographies. So we had a good visibility of what we do and the things that we can control when it comes to initiatives, projects, cost management, capex management, and all of that. No, but when it comes to volumes, it's a bit more difficult than over the last several years. But again, it's good enough to confirm the guidance. That's great. Thank you.

Thank you.

For any further questions, please press star and 1 on your touchtone telephone. Mr. Bertoluzzo, there are no more questions registered at this time, sir.

Thank you. Again, thank you for joining our call this morning. We'll see some of you over the next few days in conference calls and the likes, and we plan to see many more of you right after the summer break. Let's stop for the moment here. So, very solid results for the quarter and for the first half of the year. Confirmed guidance for the full year and the further clarity on directional travel of capital allocation going forward with a clear priority in debt reduction, but also plenty of room of maneuver to return cash to shareholders and for the limited M&A that we can see in front of us over the next 12 to 18 months. Enjoy the summer and see you soon. Bye-bye.