Nexi S.p.A. (NEXI) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Nexi Third Quarter 2020 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 evening, and welcome to our results communication for the 9 months -- the first 9 months of 2020. I'm here, as usual, with Bernardo Mingrone, our CFO; Stefania Mantegazza, in charge for Investor Relations; and the other members of our team. Tonight, we will comment the results for the 9 months that we have anticipated earlier in the day. Obviously, we'll be covering the volume dynamics that we are seeing over the last few months on the back of the COVID emergency. Obviously, we'll talk about the financials for the quarter and the 9 months. And obviously, we'll also take Q&A -- we'll have a Q&A session, we'll answer your questions as usual. In our communication earlier today, we have also anticipated the fact that we are progressing our conversations for the possible merger with Nets. We have extended the exclusivity period to Monday next week. Conversations are progressing well, but we still need a little bit of time to finalize certain aspects that need to be finalized. As a consequence, I prefer to anticipate that we will not be able to answer questions on this topic, because we really prefer to do it if and when the communication on this possible deal will be complete. And therefore, we prefer to have a much deeper conversation and a much richer conversation with all of you once we can provide the full set of information, which is well deserved, given the importance of this possible deal. So now moving to results before I jump into the content. I think there are 2 key messages for this results announcement. The first one is that as we were navigating through the different dynamics of the COVID emergency, in the third quarter, our results were, I would say, pretty strong. We came back to revenue growth and also quite material, I would say, to EBITDA growth. It is also slightly growing for the year to date. These results are a bit better than what we've expanded -- we were expecting on the back of better volume trends, but also a few other things that have been happening in the period. This is message number one. The second message, the second comment has to do a bit more with the dynamics that we have observed so far during the first wave of COVID and that we believe provide to us 2 important learnings as we think about these new wave costs. The first learning is that the recovery from lockdowns and from general restrictive measures can be quite rapid. Obviously, it varies by sectors, varies by type of customers. But actually, we've experienced a recovery of volumes that has been actually faster than what we thought. The second, I think, learning is that this normally comes also with a more and more visible shift from cash to digital, I think, from -- there is a broader shift from physical service to digital service, but digital payments are clearly part of this. And therefore, we see customers on the consumer side more keen to use digital to pay and merchants on the merchant side also more keen to accept digital payment, given the fact that its benefits are clearer and clearer to both. Now going into the results, Page 3 of the presentation. As we had anticipated throughout the recent period, we've seen a strong recovery from the lockdowns that we experienced in the spring period. From there -- you remember, we were minus 50% year-on-year in March and April. From there, as the lockdown measures were released, we saw a quite rapid improvement of the situation, with a particular acceleration, I would say, end of July and in August with the acquiring volumes on Italian cards were basically back to pre-COVID growth levels in the month of August, despite the fact that clearly, the travel sector more in general was not performing yet in line with last year and despite the fact that international travelers' contribution, so the inbound business, has been throughout the summer later -- lighter than in the previous years. As far as transaction volumes are concerned, in the quarter, we saw as a combination of acquiring and issuing a minus 4% versus the same quarter last year. Year-to-date, it's about minus 12%, which obviously is affected by the minus 50% that we saw over a couple of months in March and April. So this is the situation basically up until the end of September, beginning of October. Obviously, as in many other countries around the world -- probably a bit later than many other countries around the world, in October, we saw the first signals of progressive slowdown in volumes, starting obviously, again, from the reduction in visitors and in travel activities and certain activities more in general. And clearly, we see this continuing and changing, I would say, on a weekly basis as the COVID emergency develops and as our government is implementing new restrictions in the country. If we compare the measures with the measures that we saw in the first wave, they are quite different for a couple of reasons at least. First of all, this time, our government has decided to segment their regions in 3 tiers: red, orange and yellow. And you can guess what the colors mean. And the business segmentation is something that is evolving. So every week or so, the government will assess the situation in every single region. This will depend, obviously, on the number of cases, but also on the situation with the health care system and the ability to support the people that need support. The -- even in the case of the red regions that are the most affected, the measures that are being implemented, at least for now, and again, the situation may change, the measures are not directly comparable with the ones that we had in March and April. That is why we're calling here this lockdown a soft lockdown. The government has been more selective basically on the back of the learnings from the first round. Just to give you a few examples, basically all industrial production is up and running. Obviously, wherever possible, there is -- and business activities are open. There is a recommendation to do remote working. But the companies are not being shut down, as it happened in the past, with the exception of companies such as [indiscernible] that are necessary, because they provide basically super-necessary type of services. Bars and restaurants are closed, but actually, they're open for takeaway and home delivery, which was not the case at the peak of the previous lockdown. If you look at the categories of retail that are closed again, there are a good number of categories at this time that have been allowed to remain open, not only in the typical grocery and pharmacy space, but also, for example, sporting goods or, for example, clothing for kids and a few others. So obviously, we'll need to see how the situation evolves. The impact that we are observing at the moment in our volumes is, therefore, softer than what it was in the past, [indiscernible], the last data that was available when we did put this communication together was for the week ending on the 4th of November, so the minus 8% year-on-year on acquiring with a clear impact on the higher -- on the categories that are travel-related, entertainment-related, hotel, restaurants, cafés and the usual suspects. A couple of last comments. Throughout, I would say, 2020, so throughout the first phase of COVID, the recovery, and now again, we see strong growth in the e-commerce sectors that are not impacted by COVID, this growth is around 35% in the quarter and year-to-date as well. While actually, overall, the e-commerce overall performance is impacted by basically the weakness -- the visible weakness of the travel-related sectors that in e-commerce do have a very important weight of about 40%. Last, but not least, as I've anticipated, we continue to see signals of positive acceleration of the transition from cash to digital transactions. Now coming on the next page on Page 4 on the results. EBITDA for the quarter was up 7% year-over-year at around EUR 167 million, and it's up 0.4% for the 9 months. Revenues were also up about 1% in the quarter at around EUR 276 million, although still a bit below last year, minus 3.6% if you take the 9 months. Basically, we've been progressing our operational activities, our operations according to our plans. Merchant Services & Solutions, that is more than half of our business. We did see a continued positive growth of POS installations, a clear acceleration in mobile POS to support merchants that want to deliver [indiscernible], need more flexibility to serve their customers, a step-up in e-commerce and in digital services more in general. On Cards & Digital Payments, we continue to see an accelerated interest for international debit. That is a strong product for e-commerce transactions as well and more, in general, digital life. At the same time, we continue to roll out new capabilities for the national debit scheme, Bancomat, that is basically improving roughly in that sense. As well as we see an acceleration of mobile payments and contactless transactions. As far as Digital Banking Solutions is concerned, around 10% of our revenues, we basically continue to see extension of our Nexi Open Banking ecosystem, both in terms of banks and other parties coming onboard of our products and services, but also in terms of extension of the partnerships. I think we have today around 25 partnerships ranging from the larger digital players such as Microsoft, to the smaller but fast-growing fintechs like [indiscernible] or Alight. At the same time, we're also progressing, I would say, very well, in the rollout of the more advanced solutions both in digital corporate banking and corporate payments in general and some banking. On the cost side, we've done what we had committed to do in terms of trying to balance as much as possible the pressures on revenues, working even harder on the cost side. If you remember, we have announced our EUR 100 million cash cost containment plan. Bernardo will give you a more specific update on that one. But the combination of that program, together with our usual efficiency work, is allowing us to reduce costs in the year-to-year for the 9 months by 8.4%. Last point on our performance, the net financial debt at the end of the period was at 3.7x EBITDA, already improving from what it was at the end of the previous quarter. One last comment before going into the volume dynamics. As you remember, we've announced the possible combination with SIA only a few weeks back. We are progressing with the work that has to be done on transaction documentation and confirmatory due diligence. And we expect to sign the binding documentation over the next couple of months and close with all the necessary authorizations around the third quarter this year. In the meantime, we just communicated the results that have been reported over the last 3 days by SIA. We'll try to do this as much as possible to start to give you visibility of what the profile of new Nexi is becoming over time. Also SIA had good result, EBITDA growing about 8% year-on-year in the quarter and probably in line with last year over the 9 months; revenues up 2% point in the quarter and slightly better than last year over the 9 months. There is an attachment page that basically replicates the communication of SIA. And obviously, on the website, you can find more information. Now let me jump into the volumes, Page 5. This is the usual page that we have seen in the past. This is the combination of acquiring and issuing volumes, 7 days rolling numbers represented as a year-on-year change for the rolling week. You remember, March, April, it was around minus 50%. You see here quite a rapid recovery that we've already commented in July up until the end of July, actually an acceleration beginning of August, in particular, back to growth levels similar to the ones that we had pre-COVID. And now, let's say, especially from August with international travel starting to have issues, starting to slow down a bit again. And then from October, I would say, a more visible slowdown. And we're now running around minus 8%, minus 9% on the back of the new measures that I have described before. The following page, and here we start to try and open up the different elements, try to give you as much insight as possible as we've done in the past. Page 6 gives you a snapshot, specifically now focusing in acquiring where we have more detail. In here, you see the clear dynamics in between the national card, the Italian card and for the Italian customers and how they've been spending in our merchants throughout. That's the lighter blue line. But you also see the dynamics that we have observed on the visitors. So the foreign card spending on our merchants in Italy, and that's the gray line. You see that as far as the Italian cards are concerned, they came back to positive already from June and then accelerated in July and August. So we had a good period in August, basically at double digit growth that is in line, actually even better than what it was before, despite, as I said before, some weakness in certain travel sectors, as you can imagine. Then we slowed down a little bit around 5%, 6%, and we are just seeing some slowdown at the end of October, beginning of November. But I would say definitely a good resilience of the Italian card consumption. At the same time, the impact of COVID is super-visible on visitors, and foreign cards have been going down at minus 95% at the peak of lockdown and then did start recovering, I would say, slowly but also consistently, you see very regularly, up until August where they are at minus 40%. And then as the international travel restrictions were going into place and COVID was starting again in some of the most important countries for our tourism, you see that you have seen a further deceleration, and we are now running at minus 60%, minus 70% year-over-year. I think it's worth remembering that the weight of visitors is normally important for Nexi and for our country more in general. And here in the table below, you see what is the weight in terms of total volumes. There is a peak normal in the summer period with more than 20% of the volumes coming from visitors. As we go more towards the winter, it's more around 10% to 15%. October was already 15%. Now let me give you, as usual, a breakdown by sectors. On Page 7, we gave you exactly the same snapshot that we gave you in the past with updated numbers. If you allow me and it's for your reference and you have the comparisons with the data that you gave in the past. If you allow me, I would comment it on Page 8, which is exactly on the same set of information simply plotted on a graph that I believe is particularly telling visually to help you to understand what is happening. Here, again, the blue line is the total acquiring volumes that we see. The green line is what we call the basic consumption services and, of course, things such as groceries, medical, retail, utilities, services and so on. They are the largest segment, about 35% of our volumes. The gray line is the line on generic and discretionary consumption products and services: clothing, household, laundries, beauty, these type of things. And last, but not least, the red line is obviously the one on high-impact consumption, product and services and mainly services, I would say, like hotel and restaurants, travel, transport, entertainment, bars and alike. And here you see how visible the dynamics are. The green line has been obviously positive basically throughout the period since the beginning of the year. And that is remaining positive. Actually over the last few weeks, we've seen a very visible acceleration. We are now running above 20% year-on-year growth. Obviously, this is also a little bit driven by the fact that as the restaurants shut down, probably you buy more food to eat at home. But honestly, the speed of growth at the moment is so visible that I think there are good reasons to believe that there is a shift from cash to digital payments that is happening here. The gray line is probably the most telling and the one that is the most correlated with the lockdown measures. You see that as the shops were closed in March and April, it was at minus 80%, minus 90%. As the shops reopened in mid-May, you see a rapid acceleration back to a better space. Then a slow recovery, and it went back to positive in August. And now more recently, they started to suffer a bit more. Here, it is interesting, because when you look at it under the more detailed sector, there is one sector that is suffering the most, that is clothing. That, as you can imagine, is also a little bit messed up with different seasons and session-specific dynamics here, while I would say the majority of the other sectors are still in a positive territory. And last but not least, the red line is self-explanatory. Obviously, with lockdown, it was minus 90%. Then again, a gradual recovery here. This is a sector where you have the highest impact of foreign cards and visitors. They did recover up until August, close to positive in August. Actually if you take Italian curve in August, it was quite positive. Restaurants, hotels, most of the categories went back into positive for Italian cards. So there is a minus only because of the impact of the missing 40% of visitors. And then actually, as the new measures went into place, you see that the degradation started and we are now running at about minus 40% and 50% compared to last year. So these are dynamics, I think, that are explaining what is happening here more than any other detail or comments. Page 9, before going into results, a quick update on what we are -- how we are progressing on our commercial activities with a little bit more focus on the ones that are related to the current situation. On Merchant Services & Solutions, we see a continued positive growth on POS installations with new terminals or new merchants coming in. Mobile POS, as I said, is a good solution, which is getting a lot of success in this period, given the environment. Continued progress on e-commerce and continued progress more in general in all digital properties, including the Nexi Business app, which is our business intelligence app. As far as Cards & Digital Payments are concerned, good acceleration in international debit, continued evolution of the capability of the national debit product and accelerated, I would say, pipeline of digital projects, more in general, with most of the banks. Here, maybe interesting to underline the fact that the mobile payments year-on-year, in the third quarter, we saw basically the volumes [indiscernible] plus 190% versus the same period the previous year. And we see a continuous acceleration in the use of contactless from 38% pre-lockdown to 45% these days. As far as Digital Banking Solutions is concerned, last but not least, as I mentioned, we see progress on, I would say, in particular, most of the digital front. One last comment on the government initiatives. You remember that in December last year, the government had started to implement a list of measures. 5 are the key ones to support the transition from cash to digital payments. Obviously, they are doing it with a double objective: accelerate the modernization of the country [indiscernible] the benefits that this creates for citizens and enterprises and public administration in the entire country. At the same time, clearly, the government thinks this is the way to reduce the impact of the black economy and therefore create -- creation of more transparency in transactions. 3 out of the 5 measures already went into place. There were 2 last measures that were postponed that were supposed to be implemented in the summer. The government, I would say, for very good reasons, decided to postpone them. And now they should go in place at the beginning of the new year. The 2 measures are the following. Let me start from the second one here. In January, we should see the beginning of the lottery on receipts. Basically on a periodical basis, there will be lotteries with prizes. And most of the prizes, say, about EUR 45 million would be for people that are paying with digital payment methods, obviously, cards being the main one. And that should go in place in January. The one instead that may be starting earlier in December, at least with [indiscernible], is actually the cashback mechanism. Now the mechanics are fairly well defined. It works as follows. The -- for every purchase that you do in physical retail, so e-commerce is excluded, for every purchase in physical retail, you will be receiving a cashback on a periodical period. So they have split the period in 6 months. At the end of the period, you will receive a cashback of about 10% -- up to 10% of how much we have spent. There is a cap for this that is at around EUR 150 per period. There is also a cap for each eligible transaction up to EUR 150. And it's clear incentive to use the card as much as possible, because you need to use the card at least 50x in the period before you're eligible for this cashback. And clearly, the mechanics are well designed to promote not to just using the card once to buy something expensive, but actually the other way around, use a card as many times as you can for your daily life. And clearly, this is going in the direction of basically making digital payments normal as an everyday payment tool. The budget for this is quite important. For the period December 2020 to 2021, it's going to be about EUR 1.750 billion. The period of December is going to be probably a bit more and a trial is confirmed, because we're talking about only about [indiscernible], but then it's going to be bigger next year. And at the moment, they have budgeted an extra EUR 3 billion for 2022. Let me stop here and hand the floor to Bernardo, [indiscernible] through the financials.

Thanks, Paolo, and good afternoon to everyone. Moving on to Slide 11, where we summarize the group results. I think we had a very strong set of third quarter results that highlight the great resilience of our business as it emerged from the discussion Paolo had with regards to the volumes and Nexi's operations during such difficult times. I think it has also highlighted the high level of elasticity of our business, how quickly we are capable of recovering following the trough we experienced during the lockdown months in the spring. And we have had a number of data points that suggest that there is a much higher propensity to pay by cards than the cash than in the past and a higher growth rate in terms of penetration. So this has translated, as you can see in the charts on Page 11, to a growth of revenues in the third quarter of 1%, closing the quarter at EUR 276 million revenues. Revenues have been growing within the quarter already since August, and this is 5 months ahead of what we had originally estimated to be a return to growth in revenues when we discussed first half results back in July. We had indicated that we'd expect revenues to start growing on a year-on-year basis towards the end of the year December. It started earlier, thanks to the recovery in volumes that we were discussing just a short while ago. Even in terms of the 9-month figures, you can see revenues are down 3.6%, and this is at the lower end of the range we had identified back in July, which was to have revenues decline in the mid-single-digit area. With regards to EBITDA, clearly, we benefited from the uplift of performance coming from the cost management initiatives we have discussed with a number of you and back at the time of the announcement in the first quarter and again in July. 7% growth in EBITDA, closing the quarter at EUR 167 million, which is obviously a good result for us. And if we look at the full year performance or the year-to-date performance in the third quarter, so the 9 months, 30th of September, we also have a return to growth of the overall EBITDA, closing 9 months with EUR 429 million of EBITDA and an EBITDA margin which is accretive by about 200 percentage point -- 200 basis points from 55% to 57%. Moving on to the divisional performance. On Slide 12, we have Merchant Services & Solutions. As you can see, volumes here performed well compared to the prior 2 quarters, ahead of schedule as for the rest of the business as well. I think it's important to highlight how, notwithstanding the improvement in the pickup in volumes, we still suffered from a low level of foreign travelers, particularly from outside the EEA, which impacted acquiring volumes and also helped us, from a business mix perspective, defend revenues because of the lower profitability of domestic card transactions on the client side are more profitable, which is a silver lining of the slower level of volumes. We also have had the benefit of the protection mechanism built into the acquisition of the book from Intesa, which helped us smooth the impact of the different volumes in the first part of the year. And another -- I would say another positive mix effect in the third quarter, which is as the -- as we had the relaxation of the lockdown measures at the end of the spring, the beginning of the summer, we had a larger proportion of the transacting merchants, which are SME merchants, which have inherently a higher profitability for us compared to the larger customers, which were transacting during the lockdown period. So this helped us perform well in terms of revenues. You can see in the quarter, acquiring revenues were up 3% to EUR 151 million. And there's a slight disconnect with regards to the volumes, which were down 4.8% in the third quarter if you look at international schemes and down 13% for the whole year. The level of installations was also up during the summer months ahead of what we had planned. And we have strong growth in e-commerce. If you look at e-commerce, which is not affected by lockdown, so excluding travel tourism, which tends to be mostly encapsulated, we've had 35% year-on-year growth, which is significantly higher than what we used to experience in these sectors closer to around 20%. Moving on to issuing on Slide 13. Here we have a better performance in terms of volumes, and this is not a surprise, given the fact that issuing is not impacted by foreign travelers not being able to come to Italy. And it benefits from Italian cards transacting online on platforms who are not acquirers. Now here, conversely, the acquiring side, the fact that Italians did not travel [indiscernible] not transacting with Italian cards abroad, that lack of transaction volume impacts us negatively on the performance of revenues, because they are higher profitability transactions for us. So we have a slightly different trend where volumes were up 3.7% if you look at the third quarter 2020 in terms of managed transactions of plus 0.4% if you look at the value transactions in the third quarter, but revenues were slightly down 2.1%. And this is also impacted by recovering volumes of the slightly higher mix of domestic debit transactions compared to international schemes. And again, those, from a business mix perspective, were slightly less profitable for us than international scheme transactions. But all in, I would say, a solid quarter in terms of revenues for Cards & Digital Payments, similarly to Merchant Services & Solutions. With regards to DBS, now DBS is, not surprising, the least impacted by COVID, given its greatest reliance on installed base revenue. We have substantially flat performance. I would say we have growth in the quarter, 1.1% growth in terms of revenues to EUR 29 million. Slightly down year-to-date, minus 1%, better than the merchant services and cards, as I was mentioning. I'd say we are impacted to the extent that there was less work on ATMs and other activities, which required field work due to the restrictions, which were still in place to a certain extent during the summer months. But this didn't stop us from working, as Paolo was mentioning, on the digital side of things and a number of areas, including Open Banking where significant process was made -- progress was made during the quarter. Moving on to costs. On Slide 15, you can see that we have successfully reduced cost on a year-to-date basis by north of 8%, in the quarter down 7%. If you look at HR costs were down 8%, and non-HR 6%. On the non-HR front, I would highlight how the greater volumes we were speaking of earlier have hit us negatively on the cost reduction front, where the volumes mean greater processing cost to our -- or payments made to our processing partners. These are obviously, I'd say, good costs to be had, because they contribute revenues. And obviously, we -- withstanding this higher level of volume-related costs, we remain committed to delivering on our EUR 100 million of cost -- overall cash cost containment plan. The other thing with regards to costs that is worth highlighting is that a bit of a -- kind of changed the mix of our cost-saving initiatives during the course of the year, I would say, as things evolved. Basically making sure that we would -- we were reactive to opportunities or reactive to client needs. So we ended up spending a little more than we expected on the CapEx front in particular to support certain initiatives around online, omnichannel, around certain initiatives, which are, in our mind, particularly relevant during these COVID-related times, and obviously, remain, as I was mentioning earlier, committed to finding savings elsewhere in order to fund this changed mix. We can see this on Slide 16, where we talk about the progress we're making in achieving the EUR 100 million cost results where we are absolutely on target to deliver the full savings. As I said, the mix might be slightly different, slightly less savings, I'd say, on the CapEx front, slightly more on transformation costs or discretionary spend. Overall, I would say the degree of achievement is pretty much in line with what you'd expect. We're 2 quarters in out of 3. We announced these measures during April or actually at the beginning of May during the discussion on first quarter results. So we've had since April to work on these cost containment measures. We're now 2 quarters in out of 3, and we are more or less 2/3 of the way there. We're ahead on discretionary spend. As I mentioned, this kind of compensates the lower level of achievement on CapEx, which is -- and were planned and intended mix change in order to continue our focus on all those investments as we highlight on this slide in key initiatives, which are structural for us and will grow and will [indiscernible] in future growth and efficiency. So again, there's no concern with regards to achieving these targets for the full year. I'll end the financial section with a word on our net debt and our strong cash position. As you can see, leverage has come down to 3.7x, as EBITDA has grown and cash generation has helped reduce the net debt position. This is down from 4x at the half year mark. If we just assume a similar kind of cash generation in the fourth quarter, you'll see we'll be towards the 3.5x leverage, which is where we expect to be, given the targets we set ourselves when we IPO-ed 1.5 years ago. I think also the mix of cash and cash equivalents is improving. On the cash equivalents side, we have received unrestricted piece of shares at the end of September, which we're in the process of -- the fact that we're being able -- or trying to sell, we need to obtain certain documents before you can do so. But those will be transformed into pure cash during the course of the coming weeks. So having said that, Paolo, I would hand the floor back to you to conclude.

Yes. Thank you, Bernardo. Let me just go back to what we said in the past around the outlook for the year. As you remember, we have suspended our guidance back in spring on the back of the arrival of COVID. And clearly, [indiscernible] because, again, the dynamics are still changing on a weekly or monthly basis. It's really difficult to have a precise view of the short term at least. In July, with first half results, we said, however, that we had a certain ambition for the year, obviously, depending on the evolution of the pandemic, the speed of recovery, the dynamics of the sector and all of that. We basically said 2 things -- 2 major things. Number one, that we were expecting a positive return to revenue growth by year-end. And second, we said that if that was happening, we were still targeting an EBITDA for the year around the same level of the EBITDA of last year of around EUR 600 million, actually slightly above last year including the organic impact of the Intesa book acquisition. And as a consequence of all the work we're doing on cost and CapEx as well, we were expecting an increase in our EBITDA minus CapEx with and without the contribution of the Intesa book. The only comments that we can make is basically on progress versus this ambition. As you've seen, we are already back to positive growth in the third quarter, actually were positive in 2 months of the third quarter, both in August and September. And this is clearly ahead of our plan when we did say that we were considering a positive return to revenue growth by year-end. Actually, in our simulations, we're seeing a positive number from more around November, December. And now it is at a mean in July and August already. However, as you can imagine, it's now a bit more difficult to say what will happen in the third quarter, because it will depend on the evolution of epidemic, and most important, the evolution of the measures that are going into place. As you may have read in the presentation, the measures that are in place at the moment are in place for the next couple of weeks and the government will decide if and how to extend them, intensify or actually soften them based on the region, based on the situation and so on and so forth. So it's very difficult to have a precise view for the next couple of months. Similarly, on EBITDA, actually EBITDA was already back to growth in the quarter, but was already expected growth year-to-date, which is actually, again, earlier than what we were expecting, clearly dynamic for the next quarter, will be mainly impacted by the evolution, again, of the situation and in particular through the impact that this will have on the revenues, while we'll keep on obviously executing our cost containment plan. So let me stop here and before taking your questions, let me just remind the 2 key messages that we wanted to make sure that will remain with you from this call. Number one, performance for the quarter better-than-expected on a better -- on the back of better volumes and a few other things. Second key message, let's keep in mind the learnings from the first round of COVID. There are 2 key learnings. First one is that volumes can go down faster, but they can also recover faster, especially in many sectors. Second lesson is the one around the fact that the shift from cash to digital in our country is not only happening, it's actually happening at a faster space (sic) [ pace ] that what normally would have happened. Let me pause here and take your questions again. Unfortunately, it's sad for us to say this, because we always like to take any questions from you, but we will not be able to take tonight questions on the Nets possible merger.

[Operator Instructions] The first question is from Hannes Leitner with UBS.

Congrats to the results. In regards to your performance being slightly ahead of expectations in EBITDA growth, driven by the cost containing program, should we expect that you basically start to spend a little bit more in Q4? Or is this a little bit to just offset now the second lockdown? That's the first question. And then the second one is on the SIA business. Do you expect them to report also similar Q4, which would then potentially drive them to EBITDA growth for the full year? And then the last one is just looking for your 2021 performance. Do you expect that this continues now? What is roughly the growth rate of the core business of Nexi you would expect next year?

Thank you, Hannes, for the 3 questions. Let me try to answer them in order. Spending more on the last quarter, honestly, we always try to spend exactly what is needed for the business, and therefore, we continue to implement our cost plans. We don't -- we will not spend on things, I don't think, that are unnecessary just because we are ahead of the plan on the third quarter. And by the way, no, we have in front of us no uncertainty on the volumes for the last quarter. So we'll keep running with our plans. Again, as we've said in the past, whenever we see clear opportunities -- I mean our business is a growth business. Now -- and therefore, wherever we see opportunities for growth that require us to spend a bit of money, even if I planned in the short term, we just go for it. [indiscernible] differently. We never look at the quarter as the end of the story. But obviously, for us, delivering consistently with what we tell you is super-important. Super-important. But despite that, we always keep a longer-term view on everything we do. SIA fourth quarter is up, honestly, it's too early for us to comment on a company that is an independent company. So honestly, we don't know. I think the results that they reported are very encouraging. And we should congratulate them for these results. I cannot really comment on what will happen for them in the fourth quarter. Clearly, these results are showing a growth, both resilience of the top line and important work being done on the cost side as well. On your last question around 2021 performance, honestly -- I mean, obviously, we are preparing our budgets. We really have our budget ready for next year, but now we'll start doing simulations on the back of the COVID situation. I think, again, it will be affected by clearly longer the potential COVID situation will be. The news we all received on vaccine readiness are obviously very encouraging, but I think it's really too early to talk about next year. Obviously, also impact that performance this year, unless the situation on COVID continues for a long time in here, we'd expect that year to be a growth year. That's definitely what we are working on. That's definitely what is in our plans, but it's clearly too early to talk about more precise indications.

The next question is from James Goodman with Barclays.

I'll hold back questions on Nets, as you asked. But one thing I think I'm allowed to just ask you is whether we should infer anything at all just from the extension to the negotiation period. I mean you've already announced preliminary terms. I just want to ask you really whether there's a negotiation ongoing around any aspects of the deal or whether we're really here just talking about the progression of the sort of legal aspects of the transaction? And then a couple of quick ones on the quarter, please. And the first one just on the like-for-like performance. Back to growth was very encouraging. Presumably, Intesa was supportive to that. Just wondering if you can give us the organic Nexi performance, excluding Intesa, either for the merchant services business or the overall? And finally, I appreciate that you -- there's a lot of uncertainty in terms of the volume and top line development into '21. Can you help us at all with the budgeting around the OpEx into '21? It's hard to know how much of the cost containment plan on OpEx comes back next year and to reconcile that with the ongoing cost containment within Nexi. Is there anything you can say on scenarios around OpEx in '21 would be helpful.

I'll let Bernardo cover the second and the third. Let me briefly comment on your first point, the fact that we are extending the exclusivity period by a few days. I believe it means 2 things. Number one is that we are progressing and we are very keen to make it happen on both sides. And second that there is still a few things that need to be finalized before being able, hopefully, to close the deal. Bernardo?

On the Intesa contribution, the Intesa contribution is obviously positive. It's a great book -- great quality book we bought, and therefore, it helped stimulate growth during the whole course of the year. With regards to protection mechanism, as I was referring to earlier, this didn't really kick in, in the third quarter. It was more common related to the full 9 months, where obviously, in the lockdown months in the spring, this actually helped. So with regards to OpEx for 2021, we've discussed -- and by the way, going back to Hannes' point earlier, obviously, we're going to deliver the EUR 100 million protection of our P&L and cash flow during the course of the year, which doesn't mean that costs in the fourth quarter this year are not going to be higher than the third quarter and the cost in the third quarter were higher than the second quarter and so on and so forth. It's a growing business. Every quarter, we have higher revenues and higher costs. But ultimately, if you look at -- on a year-on-year basis, that's where you get the savings, just to be perfectly clear. With regards to next year, I think we've discussed this a number of times before. Most of these costs that we are cutting this year are going to come back next year. A lot of them are related to our discretionary and related to activities that we chose not to carry out, because the market was not conducive to them. Some of them were automatic reductions tied to lower performance. So if I think of Paolo and the ex co, we're not going to be receiving variable compensation this year, because we're going to miss our budgeted target for EBITDA. We're paying less on processing costs as volumes have come down. All of these things, hopefully, at least with regards to variable compensation will come back next year if we hit our budget target for next year. But a lot of them -- I mean some things will stay. I mean travel, we're unlikely to spend as much as we used to on travel. But we had a virtual bank convention this year, which was cheaper than hosting a live event. But hopefully, next year, if COVID has been dealt with, we will go back to spending that kind of money, marketing, et cetera. So most of these will come back. Now we remain vetted to make sure -- making sure that our costs never go back to where they were, thanks to the investment we're making in IT and internalizing certain costs which are outsourced. So even though year-on-year cost will rise again, hopefully, volumes will rise much more than proportionately and we'll still have costs, which are below or around, I would say, the 2019 levels at most next year.

So let me just, before we take the next question, underline again the point around the Intesa group contribution, while the first and second quarter debt protection roll. Our performance in the third quarter, basically, it had 0 roll. So our growth is not impacted by that protection. This means that also that component of the business has been growing organically well.

Your next question is from Mohammed Moawalla with Goldman Sachs.

Great. A couple of questions from my end. Firstly, just on that sort of as you go into Q4 next year, obviously, you're not sort of -- can I just confirm that you said that even if we sort of exclude some of the guarantees you had on in terms of the underlying merchant business still grew positively. And then as we go into Q4, your visibility -- I know that there are many moving parts here, but your kind of ambition will be to sort of deliver close to kind of positive growth in Q4? And then as we move into 2021, I mean, some of the regulatory or the government initiatives you talked about, Paolo, could potentially act as a further tailwind. So how should we think of kind of the shape of the growth and how much incremental growth could these initiatives add in terms of the kind of trend line growth that you expected that was going to be more high single-digit? Normally, it could obviously grow faster than that. But are these on top or are already built into some of your mid-term projections?

Thank you for the questions. Listen, on fourth quarter, it's difficult for me to add on what I said before. And this is a little bit dependent on the dynamics around the merchant book of -- the Intesa business is actually performing very well. The -- it really has to do with the evolution of the pandemic, and therefore, it is impossible to speculate now what will happen in the fourth quarter. You've seen the volumes. You know that we are fairly resilient to volumes, because half of our revenues -- a bit more than half of our revenues are more dependent on the installed base. The installed base dynamics are okay. And therefore, you should not expect major shifts. But it's difficult to say if the growth that we've seen in August and in September will continue, given the environment out there. So we cannot add a lot on projections for Q4. And I personally believe that a key element will be what will happen, obviously, in the Christmas season that is so important for all merchant categories and if and how those categories will be affected by lockdowns in that period. The second -- on your second question, listen, I think -- I mean the government initiatives, when they were conceived at the end of last year, they were more focused on promoting digital payments. My point of view is that especially the cashback is now intended basically to promote consumption, to promote -- to basically incentivize people to go in store and buy in store to basically create momentum and support the relaunching of the economy. Obviously, it is a side effect that is the digital payment, and therefore, this could have a positive impact there. As far as the outlook for next year is concerned, again, it will totally depend in the first part of the year at least on what will happen with COVID. But I think we have seen an underlying acceleration of digital payments. I think in the past, we've commented that cutting through a lot of analysis, advanced analytics outcomes and stuff like that, if you really want to cut the long story short, our perception is that this year, probably the penetration of digital payments that normally will grow 1 to 2 percentage points is actually growing more or less 50% to 100% more than that. So kind of a twice speed underlying. So hopefully that will support a good year next year, again, if you put COVID aside. And then on the effect of the government initiatives, I think it will very, very much depend on the communication effort and the support that this communication will provide. We understand that the government is very committed to these initiatives again for the benefit that they expect not only the modernization of the country to have, but also the acceleration of, in general, consumption, therefore, to support the economy and to the smaller merchants in particular. The impact will very much depend again on the effectiveness of this communication. Obviously, from our side, we're already ready to support these efforts in all possible manners, both on the consumer side and on the merchant side.

Your next question is from Stephane Houri with ODDO.

Yes. Two questions, if I may. Not on the quarter, my questions have already been asked. But on the SIA deal, if you can share with us your quote after a few weeks of really looking inside the companies if you could. There have been some questions in the market about the competition authority is -- you're not going to be asked to leave -- I'm not sure if you have more visibility on the competitive issue of the addition of the 2 companies? That's the first question. And the second question, I know you said you don't want to talk about Nets. But there is recurring questions that we also have is about your ability to conduct 2 deals of [indiscernible] at the same time. So if you could just share with us your thoughts about how you're going to organize yourself to make it happen in Q3.

So listen, on SIA, I can only repeat what I said in the past. We've done as much homework as possible around the analysis on the antitrust aspects of this transaction. And the reason why we are moving ahead with this transaction is because we believe this is compatible with the rules. Obviously -- I mean we will have conversations. We already started to have conversations in some ways with the competition authorities that remain the ultimate judges of all of this. And it's impossible to have a precise early-on understanding on the outcomes here. I can only repeat what I said in the past. You need to look at the activities of the 2 companies in terms of geographical markets, not just in terms of payments in general. The markets that I think today, the European competition authority is segmenting the payment space in -- at about 20, I'm not taking about geographic markets, I'm talking about vertical marks, about 20 already. And therefore, you need to segment all these businesses. And then you need to look at the overlaps -- the potential overlaps in each one of these. And the reality is that the majority of these markets are already designed or are becoming more and more pan-European. And when you get this granularity, I understand that actually, we have quite different roles in the value chain as more on the products, they're more on the platforms and processing, utilize that, then the picture is quite different. And this is the basis on which we have decided to move ahead, and we believe this is compatible. On your second point around the ability to execute, I would really prefer to discuss this if and when we get there, because I think that before having that conversation, it's really important to share with you where we see the synergies are coming from, how we think we can address and face them and so on and so forth. So I think it's important to have that conversation in the context of a much richer set of information made available to you.

The next question is from Adithya Metuku with BAML.

Just 3 questions. Firstly, just on this 10% cashback measure that's being put in place by the government, it seems to me like this could be a pretty big deal and even a bigger thing than the economic reopening as we go into 2021. Would you agree with this point of view? And secondly, you said earlier that the impact of these measures would depend on communication. But I really struggle to see why somebody wouldn't want to get 10% of their purchases. Are there any other reasons that we need to be aware of that could cause these measures to fail in driving adoption of digital payments as you look into 2021? That's my first question. And then I've got a couple of follow-ups.

Well, listen, I agree with you that a 10% cashback is a no-brainer. That's the way I will simplify it. Then I think it's -- and it's a little bit about rule of marketing. I mean people, in order to get it, they need to subscribe. They need to subscribe on an app or on the issuer digital properties. And therefore, there must be a voluntary action to do it. And marketing tells you that sometimes people don't pay too much attention to the messages they are receiving. And therefore, communication is key. So even things that seems to be totally obvious and no-brainer sometimes don't happen, because people don't simply realize, then they don't know them, they're not aware of them, and they don't take action to make it happen. I think the size of the incentive is important. So that's the reason why I think that if people are aware, it's a complete no-brainer to participate and because there is nothing to lose, there is only to gain. But again, I think communication is going to be important. That's the reason why not only the government is, as far as you understand, planning to do important things in this space, but we will also try to help as much as possible.

Understood. And just a couple of follow-ups. Just maybe one for Bernardo. When I look at the acceptance rates, I think you made a comment in one of the slides that the take rates are higher on Italian cards than they are on foreign cards. Could you shed some light on what sort of magnitude difference are we talking about? And then finally, just a question on Nets. I know you can't say much, but one of the misconceptions there seems to be in the market is that Nets is a low growth company. And I just wondered if you're planning on presenting any financials on a pro forma basis with the -- sharing the historical growth with the current perimeter as the company you'll be acquiring? Any thoughts around that would be helpful.

Adi, let me just take briefly the second one. Obviously, yes. Obviously, yes. I think there are already information available on their website. But obviously, we will share with you our views. Let me to pass the floor to Bernardo.

So the difference is that clearly, [indiscernible] interchange is much higher than it is where -- in Europe where it's capped at 30 basis points on international schemes. And our merchant fees don't always reflect the full difference in interchange fee -- and the interchange fee, which is paid to U.S. issuer, for instance. The order of magnitude, therefore, can be several tens of basis points. It really depends from merchant-to-merchant, but it can be material. Obviously, I mean, the -- so -- I mean the way it works is you charge the merchant fees to merchant. If it's a U.S. issuer, you take off the interchange fee paid to the U.S. If it's a domestic issuer, you take off 30 basis points. And given that we're not issuers in the U.S., we lose that interchange fee all in. So having a domestic transaction is better for us than having a foreign transaction. Unfortunately, the overall volume effect is overwhelming when compared to this mix effect. It trumps it. So it's kind of silver lining. Lower volumes is bad, but within these lower volumes, the mix effect is positive.

The next question is come from Sébastien Sztabowicz with Kepler Cheuvreux.

Yes. The Italian government seems to be looking to increase the contactless payment limits to around EUR 50, if I'm right. Is it something that could give a clear boost to the [indiscernible] in Italy in the coming months? And also, regarding contactless, do you have any data points regarding the usage of contactless payment in Italy since the beginning of the year? Would be quite helpful. And also on Q3, can you share with us the level of free cash flow generation that you recorded in Q3? And also, where do you see your CapEx ending in 2020 based on the cost containment plan that is ongoing?