Nexi SpA
MIL:NEXI
Nexi SpA
MIL:NEXI
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Earnings Call Transcript
Other Earnings Calls
Good afternoon. This is the Chorus Call conference operator. Welcome. And thank you for joining the Nexi First Quarter 2019 Financial Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Paolo Bertoluzzo, CEO of Nexi. Please go ahead, sir.
Good morning or good afternoon, depending on where you are. This is Paolo Bertoluzzo, starting the call. This is our first results call since our IPO on April 16. I'm here with Bernardo Mingrone, our CFO; and Stefania Mantegazza that is in charge for Investor Relations. First of all, thank you, again, for your engagement and interest in Nexi, we really appreciate that. And if I may, a special thank you to investors that have decided to invest in Nexi.
Before we jump into the presentation and the results, let me say a few words on how we plan to manage formal results communication beyond the other contacts that we have over time. As you understand from this call, we plan to have quarterly announcements. Q1 and Q3 announcements will be focused on the key elements of our financial performance. Clearly, there will always be a Q&A, and therefore, we can always cover whatever topic is of your interest. Obviously, on first half and full year results, we will also provide a broader business update and, obviously, depending on any other extraordinary operation we may be doing or not, we will be providing more detail whenever it happens.
We also plan to host an Investor and Analyst Day once a year. We'll plan it, obviously, later on, given the fact that we met most of you over the road show at the analyst presentation over the last couple of months. Therefore, today, we will focus on financial results. The presentation will be led mainly by Bernardo. And as are anticipated, we have plenty of time for Q&A in case you have other topics that you want to cover beyond the clarifications on our numbers as well.
So let me jump into the presentation. Let me start from Page 3, the page with the executive summary. And as you may have seen already from our press release in the quarter, despite, I would say, the preparation for the IPO and the process itself, we had a strong focus on financial delivery. EBITDA in the quarter grew about 21% year-over-year at EUR 110.6 million in the quarter. This compares with the last year result of about 15% uplift. Our revenues grew in the quarter about 5.1% on a reported basis at EUR 226.5 million. If you discount this for the runoff of zero-margin hardware reselling contracts from acquisitions as we've done over the last quarter or so, this revenue growth is about 6.8% year-over-year underlying, and this compares with about a 6% growth last year.
Overall, we have continued progress on our key business initiatives. Let me just say a few more words about our 3 key business areas. Merchant Services & Solutions represent about 50% of the business, 47% last year. We had good progress in the SME space with our SmartPOS proposition that is very strategic for us as we're entering a newer space of SME software and business solutions more in general. We have good progress on large merchants, omnichannel solutions, where we see growing interest from the market as we stimulate the market itself. And we also had good progress on e-commerce, Bernardo will say a few more words about it later on.
In our second business area, Cards & Digital Payments, this accounts for about 40% of our revenues. We have continued progress in International Debit, it is an important product to us. A strong acceleration in our millennials payment app solution, it's called YAP. And finally, we had a good support of our revenue growth from our Customer Value Management up-selling and cross-selling activities that are important for us and important for our partner banks as well.
Finally, our third smaller market here, that is Digital Banking Solutions, accounts for about 10%, 12% of our revenues. We are progressing with the rollout of our key proposition, in particular, the newer Digital Corporate banking solution, the newer ATM solutions and also the Open Banking Gateway solution that we are providing to the overall Italian banking system, and this will support an underlying growth from the second half of the year.
As far as cost is concerned, we did drive our cost initiatives and, at the same time, the integration of synergies on the back of the acquisitions we made a couple of years ago. And all of this has contributed to our cost reduction of about 6.5%. On a reported basis, again, if we exclude runoff of those hardware reselling contracts that were zero margin, our cost reduction comes to about 4% despite, I want to underline the continued investments in capabilities, innovation and technology. At the same time, our nonrecurring below EBITDA costs have decreased about 60% compared to the first quarter of last year. Finally, our IT strategy, and we discussed about it in most of our meetings over the last couple of months, is delivering and progressing according to our initial plan.
Overall, these results are clearly well on track to deliver the financial guidance for the year that we have provided. Before I hand over to Bernardo to go deeper into these results, let me just do 2 reminders for those of you that have been newer to the company: one, on the company profile, at the end of the day what do we do; and second, on the guidance that we have announced as I believe both topics are a good baseline for everybody.
So let me move to Page 4. On this page, basically, we summarize what we do and our position in the market as the leading PayTech that has a full coverage of the overall payment ecosystem in the Italian market. As I've anticipated, about 50% of our revenues are in what we call Merchant Services & Solutions where we provide one-stop solutions for merchants of all categories and size. Here, we provide SME solutions. We also provide large merchant omnichannel solutions. We obviously provide e-commerce and also invisible payment solutions, and we had an early start more than a year ago in data-enabled products, business intelligence products that allow our merchant customers to manage their businesses more effectively and more efficiently. Here, we serve about 900,000 merchants. And last year, we have transacted about EUR 250 billion overall. We have about a 70% market share in market if we consider International Schemes transactions.
The second area of business for us is represented by Cards & Digital Payments that represents about 40% of our revenues. Here, we provide a comprehensive portfolio of card solutions, and we are leading towards a complete digitalization of payments. Here, we provide consumer cards products from prepaid to credit and debit as well. We also offer commercial cards of all kinds, and this year, we'll enter the space of virtual accounts and virtual cards to optimize working capital for our corporate customers. But we are also active, as you can imagine, in mobile payments and payment apps as well. Here we manage about 40 million cards. Last year, we transacted about EUR 200 billion, and we have a market share of about 60%.
Finally, our smaller business area, Digital Banking Solutions, accounts for about 10% of our revenues. Here, we provide a portfolio of solutions for banks and for banks' customers that allow them to digitalize basically their relationship with their own customers. We offer instant payment, real-time clearing solutions. We offer ATM as banking solutions, digital corporate banking solutions and we also provide open banking gateway solutions. And here, our market share ranges anywhere from 16%, 20% to more than 70%, depending on which product you look at.
Overall, we serve in the market about 150 banks, so the vast majority of the Italian banking system. We serve about 800,000 SMEs and about 30 million cardholders. The final reminder, last year, our financials -- our key financials were, for revenues, EUR 931 million, growing about 6% year-over-year, and as far as EBITDA is concerned, EUR 424 million, growing about 15% year-over-year.
With this introduction, let me now hand it over to Bernardo.
Thank you, Paolo. So if we move to slide number...
Sorry, before I hand it over to Bernardo, I also wanted to remind on Page 5, our financial guidance as are anticipated, as we feel may be useful as we go through the results afterwards. So on Page 5, first of all, as far as net revenues are concerned, we've provided guidance of 5% to 7% annual net revenue growth over the medium term. To be more precise, 2019, we expect it to be at the lower end of this guidance due to the runoff of those contracts that I've mentioned before, while we expect growth after 2019 to be at the higher end of the range and, therefore, mid-, high single digit.
As far as EBITDA is concerned, we provided guidance of 13% to 16% annual EBITDA growth with this year planned to be at around EUR 490 million and, therefore, implying a growth rate at the upper end of the range. And obviously, over time, we will continue to increase our operating leverage.
As far as nonrecurring items are concerned, we plan for this year, a reduction of about 60% before IPO refinancing effect. And after '19, we also plan to have a rapid further decrease.
As far as CapEx are concerned, in the long term, we expect to have 8% to 10% ordinary CapEx as a percentage of net revenues, including also hardware, that is an important component as a service for our business. In 2019, we expect CapEx to be at around 16%, 17%, more or less in line with last year, including ordinary but also the transformation CapEx. The total CapEx will trend towards this ordinary level of 8% to 10% of net revenues over the medium to long term.
Finally, as far as capital structure and capital allocation is concerned, we plan to deleverage quite rapidly with a target net debt of about 2 to 2.5x EBITDA over the medium to long term. We will continue to invest in organic growth and will potentially consider accretive and strategically compelling M&A if this becomes available. As far as the dividend policy is concerned, we have -- we'll have a progressive moderate dividend policy targeting a payout ratio of 20% to 30% of distributable profits in the medium to long run.
And now let me hand it over to Bernardo.
Thank you, Paolo. A warm welcome and good afternoon to those dialing into our call, also from me. I will start on Page 7 where we provide you -- where we start again from revenues and EBITDA, which we'd like to focus on for a few minutes.
So as Paolo has already said, revenues have grown approximately 7% quarter on -- year-on-year in the first quarter. You see this -- basically, it excludes certain zero-margin contracts, which we acquired through some of the acquisitions we carried out in the past and we discussed with many of you during the course of the road show. So we are excluding both the set of nonrecurring, let's call them, revenues and costs, as we'll see later. So the underlying growth of the business is approximately 7% this quarter. On a reported basis, you see that's approximately 5%. With regard to EBITDA, we have the 21% growth we've already spoken about, so from EUR 91.4 million to EUR 110.6 million supported by a margin uplift of 7 percentage points, which take us to 49% where we closed the quarter.
If we move on to the divisions and the sectors we operate in. On Slide 8, we start with Merchant Services & Solutions, which is the largest area of business for us, approximately 50%, as Paolo was saying earlier, of our revenue base. In this area, we grew revenues by approximately 8%, again, by the same metric as before, so excluding certain reselling contracts, POS terminals, which were zero margin. If we excluded or we left them on a reported basis, revenues would have grown 6%, and this is broadly in line with what we also discussed with regard to past performance when we are road-showing for the IPO purposes.
In general, our strategic initiatives are all well on track. SmartPOS rollout seeing enrollment of 4 new banks to sustain momentum along with the launch of the small SmartPOS or SmartPOS Mini as we've seen. And we have a growing pipeline of large merchants where we're offering all our innovative solutions, including omnichannel, invisible payments, SmartPOS and the likes. And volume growth, in general, you see transactions have increased by 11% year-on-year, with the value of managed transaction also growing supported by e-commerce growth, which has accelerated to 17.5% growth year-on-year. This was, in the past, double-digit but much lower, close to 10%, so a significant acceleration there. And in general, the value of managed transactions has been supported by International Schemes volumes, which have grown double-digit at 12% year-on-year.
In general, just a word of warning, when we look at the value of managed transaction growth, and this is true, this holds true both for acquiring and for issuing, calendar days -- or actually working days in the quarter were less this year than they were in the first quarter last year. And by the way, they're -- these volumes are calculated, effectively, we lose a couple of days, and that shaves approximately 1 percentage point of the growth of value managed transactions, which is, broadly speaking, in line which -- with what we discussed in the past, between 5% and 6% for both issuing and acquiring.
If we move on to Slide #9 where we focus on Cards & Digital Payments. Again, revenues have grown at a healthy 8.1%, no one-off contracts here to sterilize for, so from EUR 86 million to EUR 93 million. Again, all our strategic initiatives are delivering well on track. Paolo mentioned a few of them in his opening remarks. So YAP, our mobile app, has reached close to 0.5 million subscribers. The number at 31st of March was approximately 300,000 and shows the strong momentum in the growth of this app. We have sustained growth of -- in terms of volumes from International Schemes, also on the issuing side. And even here, we have a negative effect coming from the number of working days in the quarter.
Slide #10 summarizes the performance of Digital Banking Solutions. This is the smaller one of the areas that we operate in, representing approximately 10% of our revenue base. We have a contraction of approximately 1.5% -- 1.7% in the quarter. If we look at it on a reported basis, we have minus 6.6%. I think it's important to -- again, for the same reasons as before, we had a hardware reselling contract here, which we discontinued during the process of running off relating to ATMs. Here, we're talking hundreds of thousands of euros compared to our EUR 1 billion revenue base on an annual basis, so obviously, not material in that sense but a sector where we expect to turn this slight reduction to growth going forward as initiatives, which we highlight here, kick in and contribute to revenue generation.
So this would be in the various businesses that we're in, in DBS, so digital corporate banking where our new proposition was launched, and we have signed up a couple of major banks who are starting to roll out the product in the coming months; our new ATM proposition where we recently rolled out, again, our new proposition and installed the first of these new smart ATMs just during the course of the this week; and the Open Banking Gateway, which we spoke a lot of during the course of our road show. This is the open banking gateway for PSD2 compliance with the Italian banking system where we've signed up more than 200 banks and financial institutions, which represent approximately 3/4 of the market. So a quarter which should slowly turn into positive territory going forward as these initiatives kick in.
I think it's worth spending a few words on costs and operating leverage. As you see, we have a strong reduction, which is supported by a number of cost initiatives and integration of the businesses that we have acquired. Our cost base is strong, EUR 116 million from EUR 124 million. In terms of representing this as a percentage reduction, we should always take into account those zero-margin contracts. So just as we took out some revenues, in preparing a like-for-like comparison, we should take out some costs in the cost analysis, and therefore, the reduction is 4% on a like-for-like basis, 6.5% on a reported basis.
We also have to be fair, a small benefit coming from IFRS 16 this year contributed approximately 2 -- just north of EUR 2 million in the quarter. But the bulk of the reduction comes from the continued focus on cost discipline, on extracting efficiency gains from reviewing our cost base, on extracting some early results, at least on the IT strategy implementation and, indeed, a lot of the benefits coming from those initiatives we discussed when we met with most of you just a few weeks ago, so in-sourcing of data centers and the likes. This is, I think, important to highlight that the cost reduction in absolute terms is notwithstanding the continuous investment we are carrying out both in our platforms and in developing initiatives and people capabilities. Indeed, on the HR front, you can see the uptick year-on-year as we -- as our HR cost base reflects the hirings which we carried out during the course of 2018.
One final word on costs. I think we've spoken about what goes on at an EBITDA level. One of the areas of focus in many of the meetings we carried out with investors over the last couple of months was the transformation, and we had a lot of transformation costs in the past, EUR 131 million in 2018 alone. We gave you guidance, as Paolo has underscored in his opening remarks, these nonrecurring items below EBITDA will be substantially reduced during the course of 2019. And in the first quarter, they're already significantly down year-on-year, 60% at EUR 9 million.
Moving on to the final point I would like to make on Slide 12 before opening the floor over to Q&A. It's just an update on our capital structure and leverage. I think I'd start with 2 recent pieces of news, good news for us. S&P and Moody's have both upgraded Nexi to BB-, Ba3. Fitch was already at BB- in initial rating. Both have taken a positive outlook on us, and therefore, this bodes well for the future. With regards to the overall capital structure and leverage, the update is something we also discussed and was indeed part of the IPO rationale. We raised EUR 700 million and secured a EUR 1 billion senior term long -- senior long-term facility, a 5-year facility, which we'll use to refinance existing senior-secured FRNs, both publicly placed notes and the privately placed notes in the coming months. And this will clearly be bringing substantial benefit to our interest income.
Compared to the initial discussions we had when we were road-showing for the IPO, the only point I would wish to mention is that we're actually shaving off another EUR 100 million -- EUR 150 million more or less of net debt, thanks to the cash generation in the quarter and efficiency gains we made from a cash perspective in the subsidiaries and allow us to pay down more of the debt than we originally expected. Overall, leverage guidance remains unchanged at approximately 3x for the year as we have discussed during the course of the IPO.
So I would -- I'd say, Paolo, we can open up the floor to Q&A if you're okay.
Yes. Thank you, Bernardo.
[Operator Instructions]
The first question is from Edoardo Girelli with Intermonte SIM.
I got 4 questions. So the first one would be on seasonality. In particular, should we expect some seasonality on your revenues, in particular, in the -- meaning that maybe on the second half of the year, there are more digital payments, something related to Christmas and/or summer, so if we should expect some seasonality from this point of view? The second question would be on nonrecurring costs. And could you please indicate what were the nonrecurring costs on the first quarter of last year? Then the third question would be on the EBITDA margin. Could you please tell us something about a breakdown of the EBITDA on the different 3 business lines, whether there is some indication about the different profitability as due to the cost reduction you're going to implement in the following -- in the coming year? It's not so easy to understand.
And the last one would be on EnelPay. This morning on an article on Il Sole 24 Ore, it was possible to understand that Enel is going to launch EnelPay, a new fintech company, with the authorization to manage digital payments for Enel services. In particular, the article says it does not need any credit card or intermediation. So could you please comment about this new player and the possible impact on your business?
So thank you, Edoardo, for your call. So let me take the last two, and I will hand over to Bernardo for the first two. As far as EBITDA margin by division is concerned, we don't provide that information. What we said in the past, directionally, is that -- is we want to run the Merchant Services & Solutions as an EBITDA margin that is higher than our company EBITDA margin, the Cards & Digital Payments business as an EBITDA margin that is slightly below our company-wide margin while Digital Banking Solutions, given the smaller size, also the investments we're running to accelerate growth, is the one with the lowest EBITDA margin. I think one example of why we don't provide this is, for example, when you take the data center in-sourcing, this is something that has impact across the 3 business areas, and it's very difficult for us to have a proper and detailed allocation.
As far as EnelPay is concerned, we believe that in general, these are good news because this means digitalization of payments more in general. In the market, as in any other market, in Europe, you have a flourishing, I would say, of similar initiatives that go under the umbrella of payment institutions or money -- electronic money institutions. And I think [ it is ] about already 70, 80 of them. And we consider these companies potentially as customers. The -- most of the cases, when you see a corporate utility or these type of companies entering into this space, the real focus is to reduce the cost of the payments that they have with what we call in Italian, [Foreign Language]. I'm not sure what is the exact translation in English.
Utility bills.
Utility bills. They're normally are paid not by credit card but actually through other methods that are particularly expensive. So I believe, over time, we'll see more and more of these initiatives, and we don't consider them, at least not at this stage, as something that has an impact on us. More in general, our strategic view is that whatever happens in the market that digitalized money is good for the system, and given our position as a very large ecosystem player, in the end, it's positive for us. Let me hand it over to Bernardo for your first 2 questions.
Yes. So with regards to seasonality, clearly, I think just a few words, within any 1 year, there are seasonality effects. So we typically have a second half of the year, which is better than the first half of the year. And in general, as you progress through the year, given the underlying growth of the markets, typically, later months are richer in revenues than the initial months. Clearly, this kind of analysis is not valid if you're looking at what we were showing earlier, the growth on a quarter or in any given quarter compared to the previous year where the seasonality effect is common to both years and is sterilized. So broadly speaking, you should expect that revenues in the first quarter to continue to grow in a similar pace during the course of the year on a year-on-year basis.
However, I think it's not only underlying volume growth that drives our revenues, and we spoke a lot about this when we met with investors and during the course of the Analyst Day, we also work hard to try and improve revenues through initiatives, which introduce new products and services and stimulate growth in the market. And it may happen that some of these are introduced at different points of any given year and, therefore, will have a slight effect and cause -- on the year-on-year comparison and cause revenues to grow a bit faster or a bit slower than the average rate. Hence, I think it's important for us to guide you towards -- to return towards the guidance, which we've given you, which is that our revenues are expected to grow, on an underlying basis, approximately 7%. This is 7% or more, hopefully, which is what is happening. And this year, because of the runoff of the one-off contracts -- or the zero-margin contracts, they will grow at 5% or 5.2%, as has happened in this quarter.
The second question was on recurring -- on nonrecurring costs. Last year, as I said, we had EUR 131 million of nonrecurring costs. And in the first quarter, they were primarily driven by expenses related to the separation from DEPObank, which was the banking entity we were part of until the 1st of July last year and all the work which went into that but also work relating to preparation for the refinancing of the obligation towards the restructuring of the business. We had a lot of people being early retired or leaving the group voluntarily, and so it's a mixture of these costs which we had in the 2018 numbers.
Your next question is from Adithya Metuku with BAML.
Yes. So a couple of questions, if I could. Firstly, just on the refinancing of debt. Obviously, your ratings have changed. So if you could give us any color on how we should think about the interest rate on your debt going forward, it would be very helpful for our modeling purposes. And secondly, I just wondered on your -- you've given some color on seasonality on revenues. How should we think about costs? Clearly, you've done much higher growth on EBITDA in the first quarter. How should we think about this as we go through the rest of the year? Any color here would be very helpful.
Thank you for the questions. I think they're both for Bernardo.
Yes. Sure. On the refinancing of the debt, we have a slide in the deck, which shows you how we are going to -- are seeking to refinance the floaters, which are out there, so approximately EUR 1.9 billion, EUR 1.7 billion of the FRNs, which are out there. And we will do so, in part, paying down the exposure, and then for EUR 1 billion, we will draw upon this term loan, which we've secured as part of the IPO process. Now the cost of this term loan is approximately half of what we were paying on -- or what we are paying on the bonds. So overall, the guidance we had given at the IPO stage was -- the run rate of interest expense was approximately EUR 100 million, approximately 3.8% cost of debt. Now this will be reduced to just over 3% upon the refinancing by virtue of the reduction of the debt and the better rate at which we are refinancing this.
Now the truth is, the EUR 60 million guidance is going to between EUR 3 million, EUR 4 million, actually less, so just north of EUR 55 million due to the fact that, that guidance had been provided when we thought we would draw approximately EUR 1.165 billion of term loan whereas when we grow EUR 1 billion of that using this cash we have on balance sheet following the first quarter accumulation of payment of dividends from subsidiaries to the holding company, et cetera. So you should think approximately EUR 55 million in terms of net interest going forward on a pro forma basis.
The question was -- on cost, it's similar to what we were discussing with regard to revenue. So I wouldn't expect any huge seasonality in costs. I mean there are minor things which affect on HR costs, which are holidays and how you accrue for them as a cost, unused holidays, et cetera, which might have peaks in September and January after summer holidays in December but nothing, I think, worth speaking to. In general, we would return to the guidance we've provided with regards to our strong operating leverage and, therefore, our overall cost base, which will come down by virtue of those one-off integration synergies, which we highlighted, and the ongoing cost control we have put in place to make sure that the growth in revenues and volumes does not feed into growth in costs.
Understood. Very clear. Just one other question, if I could. There's been a lot of talk around a new payment method called Satispay. I just wondered if you could provide your thoughts on how it could affect Nexi? I don't know if it was -- if it's similar to the previous question on -- I didn't quite catch the question if it was EnelPay or -- I don't know if it's similar or if your response would be different.
No. I think these are 2 different -- this is Paolo. I think these are 2 different things. EnelPay is de facto a corporate as many others that is making their way of basically cashing in from customers more sophisticated and more efficient and developing potentially other products and service, other, if you like, components of the relationship with their customers around payments. Satispay is a stand-alone initiative that aims to provide payments on different rails. Again, I think, what we comment is in our road show with some of you, so this is one of the main initiatives that have happened in this space around Europe. This one in particular is an initiative that is I think -- this specifically has a very important acquisition cost, both on the consumer side and the merchant side.
The -- honestly, we don't perceive that to be a material challenge to our business. That's definitely a space that has to be well covered. It's a space that starts with person-to-person payments in millennials and then evolves into person-to-business payments. That's clearly -- the second one is clearly our core. That's the area that we want to make sure it remains our space, and this is exactly the reason why we've launched YAP back in late last year. And we consider -- there is a main difference here. Both of them provide the person-to-person payments and person-to-business payments. The main difference is that while Satispay is to develop a brand-new acceptance network and to fund for it in -- and it's a different rail, in the case of YAP, which has leveraged the current acceptance network, both physical and e-commerce. And it works around the world because it's based on very traditional card rails, even if the customer experiences fully digital and fully mobile as a type of target requires. And here, we are accelerating a lot. I think when we met for the analyst presentation, our customer base was about 200,000 customers, today it's more than 400,000 customers and growing fast. There is no doubt that today, the fastest-growing mobile payment product in the country is actually YAP.
Your next question is from Sébastien Sztabowicz with Kepler Cheuvreux.
Just a small question on Digital Banking business because you started the year on a rather soft note. Should we expect an acceleration from Q2 or from H2 in this business? And if yes, what could drive the improvement in the sales dynamic in Digital Banking? And another one on the competitive landscape, have you seen any signs of intensifying competition from online payment service providers like Adyen or Stripe, moving from online to in-store with their omnichannel strategy? Do you think there is such a risk in retailer market at some stage?
So I'll take both of these questions. On Digital Banking Solution, I think it's really important, first of all, to underline what was said by Bernardo, it's about 10% of our revenues, so we're really talking about small numbers. Nevertheless, we believe that this is a business with good opportunities for growth. And therefore, this is the reason why we're investing there. And by the way, it complements well our portfolio of services, the more digital area, with banks and [ we're guiding ] a few very visible and relevant innovations in that space. As far as the performance is concerned in the outlook, let me underline something that we discussed with some of you over the road show. When we discussed banking consolidation and all, we were talking about the impact of some of the banking consolidation moves.
And in particular, we discussed, for example, the impact of Intesa acquiring the assets of the Veneto banks last year. If you remove that component, actually, also Digital Banking Solutions will be growing low single-digit, double-digit growing. And once this effect unwinds in the year, plus the new initiatives and the fact that we expect the underlying performance of the business to come back to positive territory towards later in the year. Let me just -- and due to the fact that later in the year, we also had a gain, an effect, an important effect actually, I think in the fourth quarter of these hardware resales happened last year. So you will have to net for it, but we see this business on an underlying basis coming back to growth later in the year.
Second point on competition, honestly, we didn't see any major news in this space nor competitive activities. I think if you compare it to last year or even the beginning of this year, we didn't see any major move. Actually, Stripe remains pretty much into the commerce because we're not seeing them at least yet in the physical space. While as far as Adyen is concerned, we see them playing in the traditional, we didn't see them coming into a space closer to us yet.
Okay. One last question, if I may, it's a general question on your strategy with respect to the processing. Is there any rationale to keep outsourcing the processing capability to some third parties like [ Equant ], [ Forline ] or [ SCR ], while you have already some internal capability or technology in-house?
The -- I think it's important for -- to position this process in question in a more broader context of our overall technology strategy and priorities. As we said in some of the meetings that we've been investing in the past, first of all, to improve our capabilities across the board, as we've mentioned, now we're able to drive innovation and technology activities across the board; second, to make sure we get into total quality and total security, [ and we've done it ]; and third, drive innovation.
Now we started a broader like transformation with some more in-sourcing in some areas. And the -- so these are areas where we may be doing more in-sourcing going forward. However, we look at it at the end of the day as a make versus buy type of type of conversation. Today, we are able to drive both -- actually, we are able to drive the quality of service, we are able to drive innovation, digital innovation, thanks to all the digital layers that we have put around processing and also efficiency as our numbers show very well and our EBITDA margin shows very well. And therefore, we really look at this as a make versus buy conversation.
All said, in the future, you will see us probably doing more in-source processing rather than less.
The next question is from Antonin Baudry with HSBC.
I have a quick question on the underlying growth. You highlight an underlying growth, excluding the 0% margin contracts. Is it possible to have the amount of the impact of the 2 Veneto banks being bought by Intesa? What would be the underlying growth excluding that? My second question is on the 2 business -- the 2 main businesses that are growing at the same pace, plus 8% of underlying growth. Is it something in line with your expectation? Or is there any extraordinary impact in one or the other -- in the other segment that could explain this growth that could [ fail ] in the future?
Let me take both of these questions. On the underlying growth matter with Veneto banks, we don't disclose it. At the end of the day, as we said in many conversations, we have to accept the fact that these dynamics of banking consolidation, [ contraction ] are a part of our business. So they've been affecting us in the past and could affect us in the future, and that's the reason why we have discounted already our guidance because of that. I only mentioned it in the context of the trends on Digital Banking Solutions because they are particularly visible, particularly in the quarter and these few quarters. And on -- as far as the growth of the 2 businesses, the business areas is concerned, they tend to be similar due to many reasons or many effects, but it is not something that will materially change or evolve differently.
So we believe both these businesses have a good potential for growth given our portfolio of products and services. Actually, if you go back over the last 3 years, the revenue growth -- over the last couple of years, the revenue growth for both of them have been a mid-, high single-digit, with the Cards & Digital Payments being around 7% and Merchant Services are a bit above that. So we believe both of them will continue to grow at around the mid- to high single digits.
I have a third question, if I may. Is it possible to have an update of your two-screen point of sales you launched at the beginning of the year? What is the success of this offer?
Again, this is very early days. We see a lot of interest in the market given the fact we work in partnership with banks. For us, what is key, first of all, to put it "on the shelf " of as many banks as possible. That is why our effort today is to ramp up the product in our bank
[Audio Gap]
Your next question is from Gianmarco Bonacina with Equita.
Yes. Two quick points. The first one, you have mentioned that you have initiatives for EUR 95 million, about EUR 70 million related to cost. If you can share with us how much of these initiatives you have realized in the first quarter? And then the second question is on the Slide 12. If you can help us to understand a little bit more the net debt bridge because, excluding the proceeds from the IPO, I see that you had a decrease of EUR 270 million, which is clearly higher than EBITDA. So if you can help us to understand the driver behind this? And also, you are indicating that you expect by the end of the year to have a 3.2x debt to EBITDA, which means that the debt should be slightly higher than the figure you are indicating in Q1 post IPO, so if you can help us a little bit.
[Operator Instructions] Just a second, Mr. Bonacina.
[Technical Difficulty]
Sorry, I think it was a connection problem, and we dropped off the call. Let me maybe answer again to the question on SmartPOS because I don't know where you lost us. I was saying that the SmartPOS proposition is progressing well, and our focus today is more in terms of on-boarding the banks on the new proposition and put the product on the shelf there. And this have seen good progress, as Bernardo has mentioned. We also launched the smaller proposition, the SmartPOS Mini, that operates on the same operating system and business services portfolio on the App Store. When we look at the penetration -- for us, the key number is the penetration of the proposition on the front book with the banks that have launched already, and this is ranging anywhere in between 20% to 40%, depending on the moment, depending on the bank, and that will be the KPI we'll continue to track, and actually, we're tracking on a daily basis, and we'll continue to keep you updated when we have a major news.
Your next question is from Gianmarco Bonacina of Equita.
Yes. A couple of points. The first one, please, on the cost side, you mentioned that you had the EUR 72 million worth of initiatives by the end of 2020. So if you can clarify how much of these initiatives you have realized in Q1? And the second question on the net debt. In Slide 12, you have showed the figure of EUR 2.185 billion in Q1 '19, which is almost EUR 300 million decline versus the year-end. So if you can clarify, basically, the bridge because clearly, it's higher than the EBITDA.
Bernardo?
Yes. Sorry, you need to repeat the question on the bridge. I'm not sure what that was. With regards to the cost, as you said, we had approximately EUR 72 million of cost savings coming from -- or cost reduction coming from both integration of the acquired businesses and other cost-reduction measures. In the quarter, we have -- we are basically delivering on track with what we discussed during the course of the road show. So we said we have a run rate of between EUR 40 million and EUR 50 million per annum of this. So you should take approximately 1/4 of that, and this is what we would have in the first quarter numbers for this year.
With regards to the second question, you said that you couldn't reconcile what numbers exactly, sorry?
No. On Slide 12, I saw a net financial debt of EUR 2.185 billion in Q1, excluding the IPO, so which is a decline versus the end of the year of almost EUR 270 million, so clearly above EBITDA. So if you can clarify what are the drivers of this drop versus the year-end figure.
Yes. And there's 2 sources of this. The first one is the cash generated in the quarter, and the second source of this is essentially cash, which we have released from our subsidiaries following -- let's say, following a trial period, [ this quarter as such ], that we had after the separation from DEPObank. So what happened -- I mean this risks being a very long answer to a simple question, but essentially, when we separated from DEPObank on the 1st of July or effective 2nd of July last year, we had to substitute all the funding which came for our settlement business from the -- from ICBPI. Now DEPObank from -- to other sources of funding, which are essentially a big factoring facility with a large Italian bank and a number of matched credit lines from a multiple number of other banks in Italy. And these facilities are all matched compared to the uses of these funds, which are settlement facilities where we don't take credit risk, we don't take interest rate risk, and we've discussed a number of times before.
Now we kept a buffer of cash of Nexi proprietaries for cash with our -- with DEPObank in order to make sure that if anything went wrong, any one day from an operational perspective with this, let's say, untried setup at the time, we would have a buffer of approximately EUR 150 million there. Now these funds that are subsequently transferred to the holding company were used to reduce the amount of term loan we're going to drop. So the term loan, which we originally expected to drove EUR 1.165 billion has been reduced EUR 1 billion, thanks to the use of this cash.
Okay. But effectively, from this pro forma number of EUR 1.538 billion, the debt will continue to -- the net debt will continue to decline going into year-end.
Absolutely, absolutely. The net debt will come down as we generate cash.
Okay. And just -- sorry, another quick follow-up on the cost initiatives because we saw the EBITDA growth in Q1 which was running ahead of your full year guidance of plus 16%. So it's not correct to say that you had some front-loading of cost savings. So in theory, this 21%, I mean, could be also a run rate for the coming quarters or maybe there is some special costs that you have to incur in the coming quarters.
Listen, I'd like to tell you that it will be at the end year result, I cannot -- this is Paolo again. Reality is that there are always phasing elements into costs. We believe that even if you remove these phasing elements, we are currently running in the first quarter ahead of the full year guidance. However, it's really too early to discuss the guidance we've given only a couple of months back. We'll come back to that, I guess, at half year results.
The next question is from Mohammed Moawalla with Goldman Sachs.
Great. Paolo, I just wanted to clarify your comments around seasonality again. So am I right in understanding that you expect on the top line the kind of underlying growth rates to sort of continue and potentially could accelerate in H2? Or should we think of -- as we think of the normalized mix of the business that it's simply sort of H2 is a little bit bigger than H1, so if you could clarify that? Secondly, in terms of the business mix, sort of the bank-facing side of the business, the growth rate seemed to be a bit higher than what I think you had sort of anticipated on the medium term view. Is there anything specific going on in there? And is that -- is this a sort of one-off in the quarter? And then lastly, I may have missed this, but can you give us the CapEx or CapEx-to-sales ratio in the quarter versus net revenue?
So let me take the first and the third, then I need to ask you, again, to reiterate the second one because I could not understand it. But as far as the seasonality is concerned, as Bernardo explained, these are businesses x seasonality, for example, the Christmas quarter is heavier, the summer quarter is heavier and so on and so forth. This is the reason why we look at year-over-year quarterly results. And from this point of view, no, we don't expect to see major changes throughout the year at the underlying level. The hardware impact instead is changing quarter-by-quarter, but we will always provide you with the net underlying value as well. And then throughout the year, we may have phasing of different initiatives, so expect that that's a little bit in the nature of the business. As far as seasonality is concerned, it's there, but we net it basically when we look at year-over-year quarterly performance.
As far as CapEx are concerned, we decided not to communicate the CapEx because, again, phasing is very important. To give you an indication, if you wish, we are currently running below the number that we have provided as a guidance for the year, but this does not mean yet that we'll end the year lower than that. Obviously, we continue to review our plans. And again, we will have a conversation on this topic. Clearly, we'll communicate CapEx at half year results, and we'll have a more thorough conversation on the topic. Can I ask you to repeat the second question, please?
Yes. So when you look at the Cards & Digital Payments division, obviously, the underlying net revenue there grew at around 8%, and if I recall correctly, you anticipated this business to grow kind of at close to the group average or even sort of fractionally below that. Was there anything unusual in the quarter? Or is -- are you still confident that what you stated in terms of the medium-term trajectory, that remains the same in more in the kind of mid-single-digit range, and this is a one-off?
Well, no. I think we -- our view is where -- what we said in the past. I think if you look at it at -- the overall business is in the end growing mid-, high single digit because we have 90% of the business that is a combination of Merchant Services & Solutions and Cards & Digital Payments that grow at about 8% underlying and instead we have the Digital Banking Solution, it's only 10% of the business. On an underlying basis, this is broadly flat, but again [ with the effect ]. So we believe both businesses will grow medium term -- short to medium term at about mid-, high single digit.
Your next question is from Hannes Leitner with UBS.
Yes. I have also a couple of questions. Can you talk a little bit about the trends you are seeing? As you had quite a stable take rate and your transaction volume grew, should you think that this will persist throughout the year? It would be quite a good performance then. And also, I didn't really catch the -- there was quite some noise in terms of the EBITDA growth trajectory and in terms of cost savings in Q1 as you are tracking well ahead of your guidance. And then just some housekeeping questions on the share count post IPO. And then in terms of seasonality of the cash flow, it's -- probably you had a -- Q1 is one of the stronger ones, but maybe you could comment on that.
So I'll leave this -- the third and fourth to Bernardo. Let me say a few more words on take rate. Yes, as we calculate take rate, our take rate is actually stable, actually growing year-on-year in the quarter. Again, that is the effect of many, many elements or components. So for example, you have to discount that take rate for the hardware resales that we were mentioning before. But we continue to foresee the take rate to be -- to remain broadly stable over time. As a combination of effects, as we discussed in the past, we expect to see some unitary price pressure over time. We believe it is normal in a growing business, and we have discounted it for our guidance already. But at the same time, we are pushing more valuable propositions on the customer base to provide them more value and -- with more value for us, and by the way, also for the banks.
Typically, an easy example will be the SmartPOS proposition that cost the customer twice a more traditional proposition on a monthly basis. And that is clearly what is supporting this take rate. So we remain of the view that it will remain broadly stable going forward. And obviously, we'll try to continue to do whatever we can to make it grow. The commentary on EBITDA and guidance, that was your question also, in line with what I was saying, at least in this first quarter, very early to talk about being any change in guidance or things like that. Clearly, EBITDA and cost is also affected by phasing. But even if you remove all the phasing components, EBITDA in the quarter remains higher than the guidance we have provided. This just increases our confidence in delivering the guidance. So I think we'll talk about any potential change in the future.
The other questions were, I think, seasonality...
Yes. Okay. So the question was around seasonality of cash flow.
Yes. Seasonality cash flow. I think the one -- the way we reported so usually operating cash flow is not particularly seasonal. Of course, we pay taxes at a certain time of the year, we pay coupons on the bond on a different basis biannually and quarterly depending on on the bonds. And then we have some one-offs, I mean, in particular, we had an exceptional inflow of cash of EUR 150 million at the end of February from the disposal of OASI, et cetera. But I think in general, I wouldn't characterize this business as the way we report. The cash was particularly seasonal simply because the cash from settlement activities, which contributes 0 to our working capital changes, is instead seasonal because of the reasons we discussed earlier. But the operating cash flow for Nexi is rather predictable if you strip out exceptional, so sale of businesses in this case, and if you take into account the seasonality of interest payments and tax payments.
On share count, I'm not sure what the question is, we published the number of shares on our website. I think it was 627,777,777 last time I checked, but is that the question?
Yes, that was good. Just a follow-up on the take rate in the Card & Digital business. You show -- you reported in Q1, this year and last year, quite a substantially higher number as on the pro forma basis for the full year last year. So implying that, that -- is there some seasonality in that sense? Or should we now take rather more Q1 '19 as a proxy for the rest of the year?
No, I think you should stick to the guidance we gave you. And as Paolo said earlier, the take rate was always going to hover around 18 basis points for both. It's currently just north of 19 on Cards & Digital Payments. But as I said, the take rate as measured this way, I think is the best proxy in terms of the modeling of our revenue base given the complexity of the business we run. But it's also hard to say that from one quarter based on -- the way you've calculated those 19 basis points is probably driven also by the fact that the value of the volume of transactions is slightly lower. Because of the number of working days in the quarter, you should gross that up, and you probably come down from the 19 basis points to more similar to what our guidance is. So I think we always go back to the guidance. I think the quarterly results, as Paolo said, make us extremely confident about being able to deliver it, but it's really too early to say things will change on a structural basis for the medium term.
I think there is one last question that we can take.
The next question is from Vala, Matas with Onex Credit.
Three questions from my side. I'll start with your LTM EBITDA. I think when you reported Q3 LTM, you showed EUR 400 million, and then on top of that, you added about EUR 110 million of cost savings post-merger synergies, innovations. So you arrived at like EUR 510 million, EUR 520 million. And now you're reporting at EUR 443 million and guiding for EUR 90 million to the year-end. Should we assume that those sort of EUR 100 million of synergies is still flowing through that for EUR 40 million and you're kind of approaching EUR 520 million over the next 18 months? Is that your assumption?
Bernardo?
Yes. I think we are trying to normalize our reporting to more equity kind of environment compared to the bond reporting environment we were in before our IPO and, therefore, the disclosure of initiatives, et cetera. But those numbers remain valid. We are -- there's a question earlier on today, we're fully on track to deliver the final EUR 95 million of the EUR 126 million, which we announced in May last year and to which you were referring to in terms of the quarter 3 reporting. So including these, our EBITDA is well above EUR 500 million.
That's helpful. And second question on your FRN you're looking to repay, any guidance on timing, when we should expect that?
No specific guidance. I think you're all aware that there are some core protections, which we don't wish to pay. And therefore, we'll wait for them to expire. They are on the public notes end of May and on the privately placed note in July. So I think we won't waste too much time after those come due.
Got it. And the last one on the business. Sorry, if I missed this one, but your Q1 EBITDA margin went up from 42% to 49%. Is that because last year, you just had lots of one-offs that was recorded under that 42% margin? Or are there any specific reasons why you have 7 percentage points increase?
Well, it's just a function of how the financials have evolved. So I have the revenues growing 5%, and then costs are reducing on an absolute basis. So the actual euro value cost is down by EUR 9 million -- EUR 8.5 million in the quarter. And just if you multiply that out, that's how you get to the margin uplift. So it's not like our cost base is reducing on a cost-to-income perspective, it's actually reducing on a euro basis. And the reduction in cost comes from what we were discussing earlier. Part of it is the reselling contracts. There's no really -- no cost action on our behalf. It's just not doing this kind of business, but a lot of it comes from our key strategy from our overview -- overall review of costs, et cetera. Some of it comes from IFRS, but a marginal part of it. But it's all, I'd say, pretty structural.
So I think we have covered all the questions, and by the way, within more or less in 1 hour. So thank you for attending this call. I'm sure we'll meet or talk to many of you over the next few weeks. We are always available whenever you need us. As a reminder, Stefania is the key contact person, but clearly, Bernardo and myself will be very much willing and happy to talk to you. This is about it. Enjoy the weekend, and thank you again for attending. Bye-bye.