NEXI S.P.A.

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?