NEXI S.P.A.

Good morning, this is the Chorus Call Conference Operator. Welcome, and thank you for joining the NEXE Full Year 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 NEXE. Please go ahead, sir.

Thank you, and good morning to everyone. Welcome to our call for full year results for 2023. As usual, I'm here with Bernardo Lombrone, our CFO and Deputy General Manager, with Stefania Mantegazza, who leads our investor relations activities, and a few other colleagues that may help in case we need for your questions. I will start with the key messages and commenting as usual volumes on our progress in merchant services. I will then hand over to Bernardo that will take us through the financial results and then I will close with the new year guidance and the outlook for the medium term. Let me jump to page three that summarizes the key messages of today. Three key messages, first of all in the quarter The last quarter of last year, we've seen continued volume growth in all geographies. While Italy and the Nordics have been trailing at around mid-single-digit year-on-year growth, we do continue to see strong double-digit growth in the DAC region in the quarter as well. The beginning of the year has been more or less in line with the end of last year, with growth across all geographies in January and in February so far, despite the macro weakness that we see around us. Second key message we've seen in the year and also in the quarter, continued top line growth, very strong margin expansion and cash generation. Revenue growth for the year has been at around 7%, with merchant solutions growing closer to 8%, and with Germany and e-commerce growing in the year double digits. On EBITDA, we've seen a growth of about 10 percent versus last year, with almost 150 basis points of EBITDA margin expansion, despite the inflationary pressure that we've seen on the cost base. Third, we've seen continued strong cash, excess cash generation that is closing at the year at around 600 million euros, slightly above 600 million euros, which was our target for the year. In this context, we've seen a continued debt leverage reduction. We're closing the year at about three times EBITDA, which is down from 3.3 at the end of last year. Last but not least, we had to take a non-cash technical impairment of goodwill intangible of about $1.2 billion to reflect the share price evolution and the current market conditions De facto, this is related to the NetSense emergence from 2021 that were done in shares with no cash component. The third message, given these strong cash generation and the outlook of continued growing cash generation, we have decided to propose to our AGM to start a 500 million euros of share buyback program. Overall, the strategy, our strategy execution is progressing well. We are seeing more and more opportunities for efficiencies and synergy delivery on the back of the group integration, and we'll take them starting from this year at an accelerated pace. The 2024 guidance and the revised medium-term plan are confirming continued margin expansion and strong growth in cash generation in a more uncertain macro outlook, at least in the shorter term. In this context, we've decided to evolve our capital allocation strategy. We will continue to reduce leverage that remains a key priority. We will always continue to cover the limited, actually, M&A opportunities that we see and that we expect to have in the near term. But at the same time, we entered a new phase for our company in terms of capital allocation, and we started returning capital to our shareholders. And given where the share price is today, and the management and board believes that the share price doesn't fully reflect the value of the business and its outlook, we decided to propose to our shareholders meeting a share-by-back program up to 500 million euros over the next 18 months. Consistently, what I just said, that in the year, actually over the next couple of years, we are confirming that we will pay down the 1.3 billion euros of debt maturities that would exist in cash. This will materially reduce our gross debt, our gross leverage, and obviously our cost of debt. And last but not least, we continue to progress on our ESG plan, and in INEX, you see a page that summarizes the progress that we've done during 2023. Overall, we have delivered guidance for last year, despite a macroeconomic environment that during the year has become much more complex and challenging than what we were expecting at the beginning of the year when we gave the guidance. Let me now move to page four. And where you see, as usual, the volume dynamics. As I did say last time, this is the last time we're providing all these details. This page was intended to help to understand what was happening during the COVID period and after the COVID period. Hopefully, this is history. And therefore, we'll move to a more simplified explanation of our volume dynamics. But to comment what we have in front of us today, Basically, you see all geographies are growing. Italy is basically moving at around 5%, 6% over the last few months. Nordics are seeing a similar trend. Well, actually, in DACA, we continue to see a double-digit growth over the last quarter and also at the beginning of the year. When you look at the different categories, it's good to see that we have a very solid growth across all geographies on basic consumption that remains strong and it continues to be a clear signal of the very strong cash to digital payments shift that continues to happen across all geographies. While you see that the category that is suffering the most actually is discretionary goods, as it is normal in a phase where macro is difficult and consumers need to rationalize the way they spend, and this is particularly visible in Italy and in DACA as well. Let me now move to page five that summarizes some of the progress we've done in the merchant services space. Let me just pick on a few of the points on this page. First of all, in SMEs, when we continue to see good volume and revenue growth, we have continued to expand our customer base similarly to what we've done in the previous quarters, with particularly strong growth in Italy, in Germany, and in Poland. Second, this is very strategic for us. We continue to progress on integrated payments, on this convergence of software and payments. with a good number of new SV partnership wins in the last quarter as well, both in the ECR space and in the vertical solution space with a special focus in the sectors that we believe are the most exposed to this dynamic, being retail, hospitality, mobility, and ticketing. Moving to e-commerce, where we've seen during the year a good double-digit growth of revenues, Now we've seen again also here continued customer base expansion with about a 7% growth with a strong continued focus on mid-market that we see as the sweet spot for us. And we continue to sign also in this space partnerships with key strategic e-commerce platforms. In the last quarter, we signed a group-wide partnership with WooCommerce. It is coming on top of the ones that we've signed in the recent past with Magento, Shopware, and Prestashop. Last but not least, on LACA, we continue to see a solid pipeline of customer wins and the cross-selling and up-selling opportunity. Here, our focus is more and more on mid-corporate and national large merchant space, where the local integrated capabilities are a key differentiator and where we are keeping as much as possible a strong focus on some key verticals like omni-channel retail, hospitality, and EV charging, and petrol. Let me now hand over to Bernardo that will take us through the financial results.

Thanks, Paolo, and we'll go through these slides. You've anticipated the group results, so I'll try to leave as much time as possible for your concluding remarks and Q&A, starting from Slide 7, looking at the group as a whole, as Paul has already said, we grew revenues in the year by 7%. This was in line with the guidance we'd confirmed back in November, notwithstanding the market environment we spoke of. The fourth quarter was roughly similar to the whole year, albeit a little lighter. I think it's important to note how, notwithstanding the tougher market conditions, we still benefit from significant operating leverage, and as we grow revenues, EBITDA margin grew 146 basis points in a month, roughly 140 in the quarter, taking us to a 52% group-wide EBITDA margin for the year, which is in line, I would say, with the high historical performance and track record. In this context, our EBITDA grew double-digit, 10%, slightly lower than that in the fourth quarter, but again, very much in line with the guidance we gave for the year. Moving on to merchant solutions, we can see how top-line growth has been a little lower than what historically we have been used to, but roughly 8% for the year, a little softer than that in the first quarter, consistent with what we said with regards to performance. However, if we only looked at international schemes, we obviously benefit from the strong growth in international schemes we've highlighted, and more importantly, I think it's fundamental to look at our growth in Germany and e-commerce, which are two of the key pillars of growth for our strategy going forward, which are growing double-digit, and indeed e-commerce is probably growing twice the speed of the market. Moving on to issuing solutions on slide nine, again, we have guidance, which is, I would say, sorry, results, which are at the top end of the guidance we have always provided for this business unit, which is to grow made to high single digits, so growth for the year was 7.6%. And as we knew, as we had planned for the beginning of the year, a stronger fourth quarter than the rest of the year. And this is due to a number of things we've highlighted on the top right-hand corner of the page, where, as you know, a lot of work gets done for banks. These are primary partners in issuing solutions, and the phasing of the project work we did for banks was skewed towards the end of the year, as I said. It was planned, but you should think of it also as something which is hard to predict up front for next year. Indeed, I think one word of warning, the reason why I call this out is that given the more prudent environment we want to manage for next year, I think we've been a little more conservative in 2024 than in 2023 with regards to this kind of project work. The fundamentally important point I would like to highlight on issuing solutions are basically the first and the last in the page. The first one is that we've gone past the 6 million international debit cards in Italy. As you know, we've discussed this a number of times, this product for us is significantly more valuable than the traditional, simpler domestic scheme cards, and there was a strong push in the year which also contributed to this result. And the final point, which is also crucially important to our success and our strategy, we continue to upsell and cross-sell value-added services in different geographies from Italy also, in Italy clearly, but also outside of Italy. And this is important when we'll come to see progress in the DAC region in the fourth quarter as well in a couple slides. DBS, I think, had a very strong year. It is the business unit which least relies on growth in volumes. However, the exposure to instant payment growth in the European market, where we are a very significant player thanks to our Partnership with the EBA Clearing has helped basically offset the loss of customers in prior years. So we lost bank customers in Italy through banking mergers. And the loss of those revenues has been more than offset by the growth in the business. So a strong year for digital banking solutions, which grows about 2%, the top line in line, again, with our guidance for this kind of business. Slide 11 gives you the geographic breakdown of the growth in our businesses, Italy growing 7.5%, Nordic slightly lower than that in the mid-single-digit range. Dock in Poland is a key driver to the top-line growth, with growth in the year of 8%. The fourth quarter, I think, is more driven by some project work, again, as I was mentioning, on issuing and some customers. We won in Germany in particular. but in general, a strong year for the Aachen-Poland region, Southeastern Europe, and other benefits from the acquisition we closed in February this year of the Intesa book in Croatia, which also contributed materially to growth in the period. Slide 12 is an important slide for us to spend a moment or two on. It's cost performance. We've guided to costs being lower than 4%. in the year, at least, to discuss. That was our outlook during the course of 2023. And indeed, we closed the year at 3.8%. And this is notwithstanding significant inflationary pressures, which all of us are keenly aware of. And this is very much so in renegotiating labor contracts throughout Europe, and Italy in particular, where we have half of our businesses, just under half of our businesses in Italy, including the workforce. And as some of you might know, Given, I'd say, the strength in the banking market, thanks to the higher rate environment, we have the national credit contract applying to our colleagues in Italy. There's a very, very front-end skewed negotiation in terms of updating that contract, which impacted us at the back end of 2023, so much so that if we normalize for that big one-off we had to book in December, growth in HR costs in the fourth quarter would have actually been zero. In any event, I think through synergies which we continue to benefit from, efficiency programs which we continue to implement, we managed to contain cost growth on the non-HR expenses to 2% and overall to under 4% for the group, as I said, showing our continued commitment with regards to cost control. Moving on to CAPEX, the trend has inverted. We are down year-on-year by approximately €25 million, a 5% reduction. This is also thanks to the fact that we're completing, finalizing what we had earmarked as transformation costs following the mergers with NETS and SIA, which were announced at the end of 2020, but implemented ultimately from 2022 onwards, at least with regards to the merger with SIA. And we expect, and Mopalo will talk to guidance, we expect this trend to be consistent with what we discussed in the past with regards to CAPEX. It's important to highlight how, and we give you an indicator here of progress in simplifying our platforms, reducing them by number, and also data centers, even though we measure the number of data centers, and it should be in square meters, this is just a course measure of how we are gaining those efficiencies, synergies, and lower capex. Slide 14, as usual, highlights how the costs which are booked below EBITDA, because they are non-recurring in nature, because they're not related to the ordinary business, if you want, Transformation and integration costs, these are cash costs, are down 24%. You're near the trajectory. You'll continue as planned. On the right of that, you can see some other costs, including clearly the impairment charge Paolo spoke of, which is non-cash. We never paid cash for the mergers with NETS and CSO. All of this is an impairment of an intangible, which was not generated by cash acquisition. I mean, it's a I'd say it's obviously unfortunate we had to devalue the goodwill, but at least it wasn't paid for in cash. And we have the usual other buckets, which include non-cash costs like LTI or even those five years down the line. There's still some IPO-rated costs borne by the initial financial sponsors. In M&A impact fees and others, we have the impact of burnouts M&A carried out in the past and so on and so forth. Slide 15 is the walk to $600 million of cash generation a year as per guidance. This is a 27% increase year-on-year, taking into account as you knew that we had benefited from a higher cash balance coming into 2023 due to the deferral of cash tax components from 2022. Taking that into account, bottom-line cash generation was 500 million in year 600, less than 100 from the year before, compared to 400 million the year before. It's a 100 million increase, so in line with our expectation and our guidance. Slide 16 is about the leverage. We've come down from 3.3 to 3 times. That trajectory will inertially continue. This is a very highly generating cash business. The debt, you know, the debt stack was generated from the sponsors' acquisitions of NETS and NEXE. Very little of this is related to M&A activity, and in general, it's coming down. From April, we'll start reducing gross debt. We'll pay back the NASA notes in April as they come due and as we've committed to and so on and so forth in October with the publicly traded bonds, et cetera. I think it's important to highlight how rating agencies have taken a favorable view with regards to the progress on the leverage and cash generation with six upgrades over the last couple of years, which is clearly very pleasing from our standpoint. And I always like to highlight how the cost of our debt stack is limited, less than 3%. At current rates, it's as if we had half of the debt that we have on our balance sheet given the cost of this debt, and we will continue to benefit from this for quite a while longer. Slide 17 summarizes what Paolo has said, that we have reached a turning point in the company's transformation and journey. Now we are capable and able to start returning capital to shareholders. We believe there's significant cash balances we already have, plus the cash generation going forward, the high visibility we have on the business, on M&A, on the debt maturities that allows us to plan for this and we believe that the stock price gives us the best and most compelling opportunity to do so. So at the next EGM, we'll propose this up to 500 million buyback program, which will commence shortly thereafter and last up to 18 months. I think it's important to know the last bullet point we put on this slide, which is we believe this is the start of a capital restitution phase in NEXE's corporate life. We believe that after this initial 18-month period in 2026, will be at a point in time when we can consider other forms of capital restitution, maybe still buybacks, maybe dividends, but this is not to be considered a one-off. With that, I will hand the floor back to Paolo for his closing remarks.