NEXI S.P.A.

Good morning. This is the course called Conference Operator. Welcome and thank you for joining the NEXI First Health 2024 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 due to conference call, please signal an operator by pressing star and zero on the telephone. At this time, I would like to turn the conference over to Paolo Bertoluzzo of Nexi. Please go ahead.

Thank you. Good morning to everyone. Welcome to our call for the results for the first half of 2024. As usual, I'm here with Bernardo Mingrone, our CFO and Deputy GM. Stefania Mantegazza is leading our call. investor relations activities, and a number of other colleagues that may help us in case we have very specific questions. The program is very similar to the one that we had last time, so I will start by summarizing the key messages. Then we will deep dive on a topic that we believe is particularly relevant for next year, but most importantly for our investors and for the market. This time we will deep dive on on our cash acceleration formula and our capital allocation strategy. You remember last time we deep-dived on our strategy on software and payment integration. This time we've chosen this topic instead. Then I will hand over to Bernardo that will take us through results, and we will all come back for our Q&A session to answer to your questions. So let me start at page three, as usual, with a summary of the key messages of today. First of all, in the first half of the year, in the second quarter of the year, we have continued to deliver our growth and, most importantly, a bit of margin expansion and, as we today communicate also, our excess cash. We have, in particular, accelerated very, very materially our excess cash generation on the back of a number of positives. In particular, revenues did grow In the first half, about 5.9%, with merchant solutions revenues up 7%, with a slight acceleration in the second quarter compared to the first quarter, and with e-commerce that continues to grow on double digits. EBITDA did grow about 8% in the first half, with an EBITDA margin expansion close to 100 basis points. As a reminder, we remain committed to expand by at least 100 basis points for the full year, and in the second half, we expect an higher a bit of margin expansion also on the back of a number of efficiency and synergy acceleration measures that we have already put in place. Last but not least, in the first half of the year, we have seen a strong acceleration of our excess cash generation, which is the cash that we generate from our organic business, also after our investment in organic growth. In the first half of the year, we've generated 383 million euros, which is up more than 40% compared to last year. There are phasing elements here, but in any case, it's a strong performance that compounds revenue growth, operating leverage, and capex reduction. Second key message, in parallel, we continue to invest to shape Nexi for future profitable growth. In the first half of the year, we had a number of very important areas of progress. Let me just point to some of them. In MS, we have accelerated the development of our direct channels in Italy that are so important given the evolution of the market there, as well as we've continued to accelerate our ISV partnerships across all our geographies. At the same time, still in MS, We had a strong development of our most advanced digital proposition, just to name a few. We have launched First to Market, Apple Tap to Pay, not only in Italy, where we're market leaders, but also in Germany, where we are a challenger. Still in Germany, and I would say more broadly in DACA, we start to capture the benefits of the bundling of the NEXI and the computer propositions across e-commerce and omnichannel. In Italy, we've started to serve Amazon on Bancomat Pay as an acquirer and just as a processor for Bancomat Pay. And just to add another one, we've launched a pretty strong partnership with Klarna in the Nordics, and we will extend it across other geographies as well. Last but not least, we continue to accelerate our efficiency and cost synergies delivery on the back of the group integration, as we did anticipate earlier. a few months ago and the impact of this will become even more visible in the second half of this year. Third and very, very important point, this strong cash generation acceleration is allowing us to continue to progress our leveraging when adapted to EBITDA down to 2.8 times EBITDA as of June. This will be 2.7 pre-shared buyback effect. We confirm again that we will pay down 1.3 billion of the debt maturities for all the maturities expected in 24 and 25 with existing cash. Now, out of these, 220 million euros have already been reimbursed in April, and another 536 million euros will be reimbursed in the fourth quarter, clearly giving us a benefit on the cost of debt as well. Last but not least, as you remember, we announced in March Alpha Billion Euro buyback program across 18 months. We launched the program in May. We are progressing the program. We have now decided to accelerate the program and complete it in full, so therefore the full Alpha Billion by the end of 2024. On the back of the progress that we had also in the second quarter, we confirmed the guidance for the year, which as a reminder says that we'll grow revenues around mid-single digit, we will grow EBITDA around mid to high single digit with 100 basis point EBITDA margin expansion at least, and we will generate excess cash for more than 700 million euros. Now, let me go in the deep dive, and I will cover basically two topics, what we call the NEXE cash acceleration formula and our capital allocation strategy. Let me start with what we like to call the NEXE cash acceleration formula. The data, I think, is simple. It's quite unique of NEXE, at least in some of the components. And let me take you through page four, going horizontally. First of all, top-line growth, we did guide the market for mid-single-digit in the year, in the first half with a 6% growth. Second, our continued effort to contain OPEX growth despite inflation, despite higher volumes, despite investments in growth. We expect OPEX to continue to grow at a low single-digit pace this year, but also in the future. Combining top-line growth and this EBITDA margin and this cost-income reduction, we continue to see EBITDA acceleration and, in particular, EBITDA margin expansion that we are guiding to at least 100 basis points. Now, and honestly, also in the midterm, in the quarter, sorry, in the first half, we have grown EBITDA 8% with EBITDA margin expansion close to 100 basis points. Again, these are the margin expansion positions next year at the very high end of our industry across not just Europe, but I think the U.S. as well. And then on top of these operating leverage, we are benefiting already from what we like to call cash leverage. We understand it's a little bit of an invented expression, but let me take you through it. We have CAPEX that over time will continue to go down in absolute terms and most importantly in percentage terms. We will have, and we already have, no recurring cash items following the same path, therefore going down in absolute terms and in percentage terms. And we will have also net cash interest expenses going down in absolute terms and in percentage terms on the back of the reduction of our gross debt. as well as over time we believe a positive evolution of interest rates. So these three components may have been a little bit of a drag of NEXE for NEXE on the back of the transformational M&A we have done and the transformational efforts on the back of it, but going forward and already today, they're actually NEXE unique points of strength. And if you combine the EBITDA margin expansion and the operating leverage with these components, this is what is generating excess cash, very strong acceleration. We have guided and we have committed to the market to generate at least 700 million euro cash, excess cash this year. In the medium-long term, we see these organic cash generation growth continuing strongly. And now we plan to be at around a billion euro by 2026, which is only two years from now. In the first half of the year, we've generated already 383 million euros, which is up more than 40%, also benefiting some phasing effects, but we remain committed to the more than 700 million euros for the full year. Now, how do we plan to allocate? Let me, these excess cash, and in general the capital, Now, let me start at page five, reiterating our strategic approach, and then I will go on the next page on the progress in the year so far. So, as you have understood from our previous conversations, these excess cash allows us at the same time to allocate capital to reduce debt quite rapidly, but at the same time, materially return capital to shareholders. Let me start with debt and leverage reduction. First of all, and we always like to remind it, we have a very well-balanced debt profile in terms of maturities and mix, with an average pre-tax cash cost of debt, which is at around 2.8%, which is actually slightly lower than what it was last quarter, and we expect, in general, cost of debt, absolute cost of debt, as I said before, to continue to go down. Second key point, we have a target leverage of about 2 to 2.5 times EBITDA by 2026 after further capital return to shareholders. This is a top priority. It's kind of a precondition for us, and it's also a commitment. And what we are seeing now is actually give us a lot of comfort that that's the direction of travel that will allow us at the same time to return capital to shareholders. And again, I want to confirm that we paid down 1.3 billion euro of gross debt that is maturing this year and next year with the existing cash. So this is it in terms of debt and leverage reduction strategy. Second, thanks to the excess cash we are generating and despite our non-commitment to reduce target leverage to 2 to 2.5 cents bid down by 2026, The strong accelerated cash generation will enable us to structurally return capital to shareholders. Therefore, we plan to allocate a material share of excess cash to shareholders on an ongoing basis, either via share buybacks or dividends, depending on market conditions. Therefore, you should not see the current buyback as an exception. For us, again, returning capital to shareholders either via buybacks or dividends, depending on market conditions, is the rule of the game. and will remain a structural characteristic of Nexi. Last but not least, as far as M&A is concerned, we will continue to remain extremely selective and focus on value-added creative acquisitions, normally on merchant books and or strategic product and tech capabilities enhancements. But in parallel, we'll continue to sell non-core businesses, especially in the digital banking solutions area. Now, even if we are not in a hurry and we remain very rational in making sure that we capture the value that we associate with this business, but this will happen over time. Now, let me jump to the third and last page of this session to give you a more precise update on how this strategy has been executed in the first half of this year. As far as Depth and leverage reduction, as I've anticipated, we are now down to 2.8 times versus the end of last year, 3.0. And actually, this 2.8 would be 2.7 pre-shared buyback effect. The only reason why we are highlighting this is because this is just confirming our ability to leverage quite rapidly, 0.3 in half a year. Second, we've already reimbursed 220 million euros in April of gross debt, debt maturities, and we will reimburse another more than alpha billion by the end of the year, completing the full year commitment on this front. Second, in terms of return to shareholders, we have announced this alpha billion euro share buyback 18-month program. As anticipated, we have decided, the board has decided, to accelerate this program to complete in 2024. And we feel very comfortable in doing it, considering the M&A outlook that we see for the rest of the year and into next year as well. At the end of the quarter, we'd already purchased 180 million euro equivalent of shares, 201 as of July 26. And again, as a reminder, we plan to cancel all the shares that we are buying back And in fact, we've already canceled the more than 26 million euro shares. Last but not least, as far as M&A is concerned, we have closed the Sparkass merchant book acquisition. We invested under about 30 million euros. And we expect to complete the sale of the Nordic EID business by the summer 2024. And this should bring in something around 100 million euro of cash. So unless something else happens that we don't see now happening, this year M&A could be a positive contributor to cash flow generator for the company. Let me stop there and let me now hand over to Bernardo for results.

Good morning to everyone. So as you've seen, the second quarter and indeed the first half continues to exhibit solid revenue growth. growth, coupled with margin expansion and EBITDA growth. It's been a rather consistent second quarter in line with performance of the first quarter. So we had revenue growing at 5.8%, that's close to 6% for the first half. Margin expansion has been close to the one percentage point we've guided for the year, and as Paolo said, we confirm guidance and we stand by our prediction to improve margin by 100 basis points or more for the full year. But EBITDA grew 7.5%, pretty aligned to the growth in the first half of 8%. A slight dip, I would say, in terms of EBITDA margin expansion really comes from the nature of the one-offs we had highlighted with regard to 2023, where we had some upfront project work which had very high EBITDA margins in the month of June of last year. But as I said, we expect EBITDA margins to accrete by 100 basis points or more for the full year. Moving on to merchant solutions, again, similar performance as for the group, very consistent in the second quarter compared to the first quarter. We have a slight acceleration in terms of the top line growth, 7.2% compared to 7% for the half. We have seen solid volume growth across the group, driven by international schemes, which contribute the most, I'd say, to our revenue growth. We've seen customer base growth. expansion in e-commerce that continues to grow faster than the market. In general, I think Germany is an important geography for us, and we like to call out how SME Germany revenue growth has been double-digit in the second quarter. So good performance overall, I'd say, for merchant solutions as well. Moving on to issuing, we've had yet more consistency in terms of top-line growth, 5% in the quarter, 5.1% for the for the first half. We continue to see strong support international schemes. This is particularly true in Italy in issuing where we have a very strong and solid growth of international debit where we've reached more than 7.5 million cards and obviously that's very beneficial to our top line given the more attractive economics associated to this. Issuing is where that one-off last year creates a bit of a step effect compared to both our profitability and our growth year on year. But I would say the continued upselling and cross-selling of our value-added services across the group and the progress we're making in advanced digital issuing solutions is another big contributor to our top line. So notwithstanding the one-off from last year, we still have, I would say, very positive performance in issuing solutions as well. DBS, growth of 2.4% in the first half. slightly lower than that in the quarter. This is the business unit which is most exposed, let's say, to a more lumpy set of revenues coming from project work. This is just purely the nature of this business. So the difference in the quarterly performance isn't something which needs to be focused on. I think the overall plan is for this low single-digit growth to be confirmed for the full year, and we've seen positive contribution also coming from those businesses which do rely on volume growth like EBA clearing and open banking in general. So a good performance from DBS as well. So the overall revenue performance, which has been substantially in line with our expectations, absolutely consistent with the guidance we provided for the year. From a geographical basis, you can see broken down on slide 12 where Italy pretty much consistent quarter on quarter and for the first half at 6%. Nordics, as you know, a market which is more mature and therefore structurally has a slightly lower growth rate at 2% in the quarter. All I would do is highlight how DAX in Poland, in general, we've had as a geography DAX has had on the issuing front, a bit of a shift or let's say from a timing perspective, issuing had a very strong first quarter in DAX and a weaker second quarter. Again, more to do with... with project work relating to some customers. We have one in the region, which has skewed the top-line growth towards the first half compared to the first quarter compared to the second quarter. But if we focus on merchant solutions revenue in Germany, we have been hovering around a very high single-digit or double-digit growth, which is pretty much in line with our expectations. Moving on to costs on slide 13, I'd like to underscore how how the significant work has gone in to try to limit our cost growth, which has upward pressure coming from volume growth, which we see, as I said, throughout the geographies, coming from inflation. Even though inflation is coming down, there is a tail effect to inflation in renegotiating contracts, which come due over time. So notwithstanding this upward pressure on costs, thanks to the work we're doing on our cost base and thanks to synergies, we've been able to limit this cost growth. And similarly to revenues, you can see how costs have been pretty flat in the first half with a similar performance in the first quarter compared to the second quarter. I'd like to highlight how, as you know, we're investing part of our capital in a right-sizing plan, in particular in Italy, where we have exits which will benefit our P&L in the in the second half of the year associated with the severance costs you will see in the transformation items. So, we expect this cost growth to come down in the second half of the year. Moving on to CAPEX, we have a 15% reduction year-on-year on the CAPEX. CAPEX tends to be seasonal. The second half is obviously heavier in terms of investment than the first half. I think Paolo summarized it well. We're on track delivering integration This energy is coming from merging with NETS. We continue to rationalize our cost base, as you saw earlier, and this means also closing data centers, moving towards our four target core processing platforms. That work continues. The reduction, as I said, is going to be consistent for the year. We've often spoken about a $50 million or so reduction in CAPEX. I would stand by that projection for the year. Moving on to transformation costs, on the left side of this slide we show how we have had a very significant reduction year-on-year in integration and transformation costs. These were the costs associated with merging with SIA, NETS, and completing the transformation of the three countries. And that is, again, consistent with the trajectory we had highlighted in the past with regards to reduction and transformation costs. Obviously, we have the large severance component. Only 30 million of the 130 are cash. Around about 70, 75 million of the total 150 million cost will be cash for the year. But again, if we treat that as a one-off, remember the last time we had a severance program of this size was seven years ago. It's not something that can happen every year. The transformation costs, integration costs are down 30% otherwise. Moving on to cash generation, which is obviously one of the strongest points in terms of the characteristics of Nexi. You can see how we have a 42% increase in the excess cash, which is the cash we generate after having invested in our business and managed the business for growth we've spoken of earlier. This 42% comes off the growth in EBITDA. I would say a strong benefit in terms of managing our working capital, where we also had the benefit, and maybe some of you will remember we spoke of this when we discussed full-year results last year. We had one customer who unfortunately paid us, actually it was two, one large and one slightly smaller, who paid us midway through January rather than the year end last year. This put pressure on our cash generation last year, nothing much we could do about it, and we got the benefit of it in this year. in this half, so nothing particular there. I think it's part of ordinary business, but I would say that the very strong cash generation in the first half puts us in a good position to confirm our guidance for the year of at least 700 million euros. On slide 17, you see the net debt position. Paul has already highlighted how in the absence of M&A, notwithstanding the share buyback program, you can see how In the last year, we have come down from 3.2 times leverage to 2.8 times leverage. This would actually mean 2.7 times leverage if we hadn't completed the buyback. And in general, we are on a very steep, I'd say, deleveraging trajectory. For the first time, by the way, in a number of years, we also see gross financial debt coming down as we reimburse the national. We will have more maturities coming in 2024 in October, where we will reimburse about half a billion of bonds, and next year we have another half a billion. Just to reiterate, we have sufficient cash on balance sheet to meet all our liabilities through to 2026. The reason why we're not prepaying these is, as Paolo highlighted, the cost of debt is actually lower than what our cash balances yield us, and therefore there's no real sense in giving away the benefit of this carry But we're 100% committed to reducing our gross leverage and our net leverage as EBITDA increases. That said, I would hand the floor back to Paolo for his final remarks.