NEXI

Initiation of Coverage BUY 23 May 2019 – 5:30 PM MARKET PRICE: EUR8.80 TARGET PRICE : EUR10.20

Financial Technology - Payments A bet on a cash-less future Data Shares Outstanding (m): 627.8 business model is different from any of its competitors as its activities span across the entire electronic payments value-chain Market Cap. (EURm): 5,524 while being focused entirely on Italy. Nexi can boast its scale, being Enterprise Value (EURm): 7,012 the market leader, and established partnerships with the Italian Free Float (%): 36.7% banking system. It is a story of mild but visible growth enhanced by Av. Daily Trad. Vol. (m): 4.8 a high operating leverage and cost-structure optimization. Nexi was Main Shareholder: Mercury UK 60.2% listed in April 2019 at EUR9.0 p.s.. We initiate coverage with a BUY , TP EUR10.2 (based on DCF and peers comparison). Reuters/Bloomberg: NEXII.MI NEXI IM

52-Week Range (EUR) 7.83 9.00 > The leading player in Italy, a relatively underdeveloped market. With Source: FactSet, UBI Banca estimates 70% market share in merchant acquiring, 60% in cards issuing, circa 150 Performance partner (2018 data) Nexi is the leader in the Italian electronic 1m 3m 12m payments market, where card penetration of 26% is half the WE average. Absolute 6.6% NA NA > We think that the industry can boast secular growth drivers. The Rel. to FTSE IT 12.9% NA NA payments sector looks attractive given its secular growth drivers (younger Source: FactSet generations more inclined to electronic payments and e-commerce) and

Graph aerea Absolute/Relative economic resilience. We expect a 2018-23 CAGR of 7.6% in value for the Italian card payment, below the 9.7% mark of the past three years. 9.00 8.80 > A market decorrelated from the local GDP trend. Exposure to Italy is a 8.60 plus but also a perceived risk by investors. Our analysis shows that, in the 8.40 past 20 years, the value of card payments declined only once (2008). 8.20 8.00 > Future growth to be organic, but consolidation remains an option. 7.80 Product innovation and marketing are the main growth leavers , focused at 7.60 easing electronic payments. But also external growth is in Nex i’s DNA and 7.40 the sector has begun a second consolidation wave. > We estimate a visible 22.3% 2018-23 Adj Net Profit CAGR while Nexi FTSE Italia All-Share deleveraging the BS. We estimate 2018-23 EBITDA CAGR of 13.8%

Source: FactSet with top line growing 6.6%. This thanks to a cost base fix for two/thirds (operating leverage at 80.6%). The solid cash flow generation should Analysts bring Net Debt/EBITDA to 1.6x by 2021. Our 2019 estimates are 2% Massimo Vecchio above guidance, reinforced by a solid set of 1Q19 results. Senior Analyst [email protected] > What has changed since the IPO. A debt refinancing exercise, thanks to Tel. +39 02 62753016 the agencies ratings upgrade, reduced the average cost by 70 bps to

Dario Fasani 3.1% thus increasing our EPS by 5.5% on average in 2019-21. Analyst [email protected] > Main risks. Card payments growth could be slower ; in case of systemic Tel. +39 02 62753014 risks, electronic payments values may decline; the growth of non-banking channels may be a risk for the Italian banks and ultimately for Nexi. www.ubibanca.com/equity -research

Financials (2018 before initiatives) Ratios (2018 bef. Initiat.), priced on 22 May 2019 2018P/F 2019E 2020E 2021E 2018P/F 2019E 2020E 2021E Revenues (EURm) 931 982 1051 1118 P/E (x) n.a. 48.8 30.2 24.0 EBITDA (EURm) 424 500 574 646 P/CF (x) n.a. 32.4 23.4 18.5 EBITDA margin (%) 45.5% 50.9% 54.6% 57.8% P/BV (x) n.a. 4.1 3.6 3.2 EBIT (EURm) 349 385 429 476 Dividend Yield n.a. 0.0% 0.0% 0.0% EPS (EUR) 0.03 0.18 0.29 0.37 EV/EBITDA (x) n.a. 14.0 11.9 10.1 CFPS (EUR) 0.14 0.27 0.38 0.48 Debt/Equity (x) 4.2 1.1 0.8 0.6 DPS (EUR) 0.0 0.0 0.0 0.0 Debt/EBITDA (x) 5.7 3.0 2.3 1.6 Source: Company data, UBI Banca Estimates Source: Company data, UBI Banca Estimates

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NEXI 18 May 2019

Index

1 EXECUTIVE SUMMARY 3

2 COMPANY PROFILE 7

3 THE DIGITAL PAYMENT MARKET 15

4 STRATEGY: GROWTH (ORGANIC & IN-ORGANIC) AND EFFICIENCIES 26

5 SWOT ANALYSIS 35

6 FINANCIALS 37

7 VALUATION 48

8 APPENDIX A: GOVERNANCE 56

9 APPENDIX B: MANAGEMENT TEAM 59

10 APPENDIX C: PEER GROUP DESCRIPTION 63

11 APPENDIX D: HOW THE ELECTRONIC PAYMENT SECTOR WORKS 64

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NEXI 23 May 2019

EXECUTIVE SUMMARY

Nexi – The leading Italian player in the electronic payment industry…

The group, thanks to its scale that allows massive capex spending, is the innovation leader on the Italian market. The company operates through three divisions: ‹ Merchants Services & Solutions (48% of 2018 pro-forma revenues including other services like HelpLine): provider of electronic payments solutions to merchants; ‹ Cards & Digital Payments (39% of 2018 pro-forma revenues): consumer cards, commercial cards, mobile payments and payment apps; ‹ Digital Banking Solutions (13% of pro-forma revenues): advance banking solutions, open banking and other services.

…that covers all the steps of the electronic payment value chain…

Nexi can boast the broadest offering with coverage of value chain that is unique and it is much more entrenched than anyone in the Italian eco-system both at the banking and merchant level. This, coupled with Nexi’s extension in other adjacent digital services and rail- agnostic payments segments has made Nexi the partner of choice for global payments methods (e.g. Alipay, Wepay, Google Pay etc.). This, in our view, makes Nexi’s business model highly defensible and could push many players to partner with Nexi in Italy rather than challenging it.

…and has a strong relationship with the Italian banking system

Nexi customer base includes ca. 150 partner banks accounting for ca. 80% of the Italian banking sector by number of branches, which creates an effective and cost- efficient distribution network, to which Nexi provides mission-critical services. These relationships give Nexi unparalleled access to merchants, as the banking channel in Italy represents the most important distribution actor for the payment sector, accounting for ca. 93% of total volumes in acquiring and POS distribution (source: company data ). These relationships are governed by strategic framework agreements that are either multiyear (45% of net revenues expiring in 2025 or later) or with undated duration (subject to termination by the partner ).

Figure 1 – 2018 revenues breakdown by contract expiration date Recurring annual contracts 2025+ 2024 2023 2022 2021 2020 Total Banks #1-5 - 30.2% - 8.0% - - 6.3% 44.5% Banks #6-10 2.8% - - 2.2% 0.6% 8.3% 13.9% Banks #11-20 8.3% 0.7% - - 1.1% 1.0% 1.2% 12.3% Other banks 11.4% - - - - - 4.1% 15.5% Direct/referral 1.3% 12.5% - - - - 13.8% Total 23.8% 43.4% 0.0% 10.2% 1.7% 1.0% 19.9% 100.0% Source: Company data

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As a result of the aforementioned elements customer retention has been very high: ‹ Most bank partnerships have been in place for more than 25 years; ‹ Top 10 partner banks have been customers for > 15 years; Strong track record of contract renewals and no material customer losses during the last 3 years (since the change of ownership. Exception made for Merchant Services and Cards & Digital Payments solutions of Banca Popolare di Vicenza and , now part of IntesaSanPaolo to whom, nevertheless, processing services are still sold through Mercury payment services).

The Industry benefits from secular growth drivers and is resilient…

We expect, as detailed in the “Payment market” chapter, the Italian card payment market to grow at a 2018-23 CAGR of 7.6% in value. The number of transactions in our view should grow double digit during the same period, while average value per transaction should decline mid-single digit (micro- payments growing more than proportionally). The industry looks attractive given its high leverage, secular growth drivers (younger generations more inclined to electronic payments and e-commerce) and its resiliency. On the latter point in particular our analysis shows that consumer spending is the most resilient part of the GDP and that the natural increase in the penetration of card payment on total payment is such that card payment in value declined only once (2008) in the past 20 years (we did not investigate figures prior to this date).

…and the Italian market is particularly underdeveloped

Despite having all the infrastructure in place (highest number of POS/inhabitants and one of the highest mobile penetration in selected EU countries), Italy’s penetration of card payments on total consumptions is half the Western European average (26% vs. 45% in 2018 according to Nexi). The reasons for the under-development may also include cultural aspects and a high share of “shadow economy” but, notwithstanding that, the penetration has grown in the past years from 15% in 2011. The average speed of growth has been 180 bps in the past 5 years (sources: company data, Banca d’Italia and ECB ), which is close to our assumption going forward (154 bps). Nexi aims to put in place a series of initiatives to ease the cards utilization and latest government actions have been supportive too.

Future growth driven by products…but don’t rule out consolidation Our understanding is that marketing and product innovation are the leavers management will use to support future growth. New products aim is different depending on the division: ‹ In Merchants Solutions the key task is to simplify the process and improve merchants’ control; ‹ In Cards & Digital Payments the key task is to expand the portfolio and unlock the card usage; ‹ In Digital Banking the key is to digitalize banking activities and to develop the Open Banking technology; ‹ Cross selling too is a relevant item as not all partner banks buy from Nexi all of its products;

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‹ New opportunities, only partially included in our estimates, encompass corporate/B2B payments, data-enabled solutions and YAP (the app specifically designed by Nexi for millennials). We believe that external growth is in Nexi’s DNA and, despite the fact that opportunities in Italy are more limited than in the past, we note that sector consolidation is still in progress. In fact, in January 2019 Fiserv announced the acquisition of First Data and more than 40 significant transactions have taken place over the last 5 years with a 50% to 100% increase in the size of the leading consolidators ( source: Worldline 2019 investor day presentation ). In our view, Nexi is in an ideal position to participate in this consolidation exercise.

A high-fix costs business where growth should support our estimates for a 22.4% 2018-23 Adj. Net Profit CAGR

According to Nexi, more than 50% of its revenues are driven by its installed base and this gives high visibility to the financials of the company. At the same time, around two/thirds of costs were defined as fixed, so, on the basis of our expected 6.6% top line 2018-23 CAGR, we see EBITDA CAGR at 13.8% in the same period (when some EUR72 million of efficiencies are also taken into account). As a consequence we see Adjusted Net Income CAGR above 20% in 2018-23 coupled with solid cash generation to de-leverage the balance sheet with Net Debt/EBITDA at 1.6x by 2021. The company issued the following financial guidance: ‹ Net revenues 2019-23 CAGR between 5% and 7% with 2019 towards the low- end of the range; ‹ Normalized EBITDA 2019-23 CAGR between 13% and 16% with 2019 towards the high-end of the range; ‹ Capex between 16% and 17% on Net Revenues in 2019 including both ordinary and “transformational projects”. Ordinary capex is expected anywhere between 8% and 10% of Net Revenues and should trend towards this level in the medium-long term. Our estimates are 2% above the guidance for 2019 EBITDA and in the middle of the medium term guidance:

Figure 2 – UBI estimates vs. Guidance and Consensus estimates

(EURm, %) 2019E 2020E 2021E

Guidance UBI change Consensus Guidance UBI change Consensus Guidance UBI change Consensus Net Revenues 978 982 0% 978 1,046 1,051 0% 1,038 1,119 1,118 0% 1,109 EBITDA 490 500 2% 490 NA 574 559 612/662 646 613 % 50.0% 50.9% 50.1% NA 54.6% 53.9% NA 57.8% 55.3% EBITDA cagr 18-21 13%-16% 15.1% 13.1% Non recurring items <(52) (85) NA (40) NA NA (30) NA Capex - Total (156)/(166) (163) +1.1% (160) (152) (154) NA (151) (135) Ordinary Capex 8%-10% 8.6% NA D&A (117) (115) -2% (101) (145) (129) 15% on Sales 15.2% 12.7% Net Debt/EBITDA <3.2 3.0 3.3 2.3 2.5 2-2.5 1.6 1.9

Source: Company data, FactSet, UBI Banca estimates

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Investment case and potential risks We initiate our coverage on the stock with a BUY rating and a EUR10.2 target price. Nexi’s investment case is based on a visible top line growth (mid to high- single digit) which is predicated on a market which has been growing relentlessly in the past decade. When moving to profitability, growth reaches the double-digit level thanks to the very high operating leverage and the “initiatives” put in place by the management to further optimize the operating and the cost structure. In summary, Nexi equity story is the following: ‹ Nexi is by far the market leader in Italy; ‹ Its unique business model that encompasses all the area of the payments market value chain allows Nexi to increase its penetration and gives it unmatchable scale advantages; ‹ Nexi’s partnership with the Italian banking systems dates back to decades ago and the partnership has been working well for both parties given that the retention rate is particularly high; ‹ The products that Nexi has recently launched or is planning to launch give more visibility to its growth expectations; ‹ Nexi’s scale allows the company to invest around EUR150 million in capex in 2018 thus maintaining its technological leadership; ‹ Nexi’s financials are outstanding: an industry-leading 46% EBITDA margin (2018 P/F before initiatives) is mostly driven in our view by an increase in the take-rate and an efficient cost structure; ‹ The management team has a visible track record both before Nexi and at Nexi itself (being in place since the end of 2015 when a new ownership was established). The major risks we see are: ‹ The penetration of card payments on total consumptions could grow at a slower pace than predicted; ‹ Past experiences (reference to a period before 2011, when the card penetration began to rise) show that, in case of systemic risks, electronic payments value may decline; ‹ According to Nexi 57% of millennials do not have a fully-fledged bank account. In the long run this could be a threat for the banking system and ultimately for Nexi; ‹ Nexi, having a local nature, is not suited to satisfying the needs of global e- commerce players which continue, however, to gain market share; ‹ The fact that Nexi’s brand is gaining relevance in consumers’ minds (YAP, Nexi branded cards, etc.) could be seen as a threat by partners’ banks; ‹ Industry consolidation is creating competitors of bigger size. In certain activities/segments (processing, international SMEs, large corporate) Nexi may end up being too small.

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COMPANY PROFILE – A UNIQUE PAYTECH

Nexi is the product of acquisitions, asset disposals and restructuring actions taken over the past three years. The history of Nexi dates back to 1939 when ICBPI (Istituto Centrale delle Banche Popolari) was founded. Since then, the business was progressively focused on payment technologies, both through several acquisitions and disposals. Major Italian banks were conferring/selling to the company their payment activities (, MPS, the popular banks, CartaSi, Bassilichi, Carige more recently). By looking at Nexi’s genesis it is possible to understand a key pillar of its equity story: the long-lasting relationship with the Italian incumbent banks which, until the end of 2015 owned 100% of the asset (they sold around 90% to private equity funds at that date). As can be seen in the next graph, Nexi has undergone in the last three years a re- focus exercise by selling/spinning off the businesses which were non-core (depositary/banking activities, market making in stocks/bonds, real estate, pension fund transfer agents, etc.), a re-branding exercise in 2017 and a re-organization in 2018 that followed the acquisition spree. Following the 2018 reorganization, the former ICBPI payments activities were separated from the banking business (which remained in ICBPI, now renamed Depobank) and concentrated in the current Nexi S.p.A (formerly Latino Italy S.p.A.). This impacted significantly the financials of the company as it will be seen in the relevant chapter later in this report:

Figure 3 – Recent acquisitions, disposals and restructuring

Merchant IN Acquiring Business (4/2018 )

(12/2016 ) Merchant (6/2017 ) Rebranding Acquiring Business Increase scale Merchant Acquiring Business (7/2017 ) and leadership (9/2018 ) (6/2017 ) (11/2017 )

2016 2017 2018 2019

OUT Brokerage and Transfer Agent Market Making Pension Fund Separation of Fondo Italiano «Non-core» banking activities Focus on core Signed di Investimenti real estate / Corporate business portfolio restructuring

Business Services

Source: Company data

Overtime Nexi has moved: ‹ From a diversified banking group to a payment-focused company; ‹ From an under-invested company to a technological leader, according to management, through a massive increase in spending; ‹ From a company with drifting financials into a 46% P/F-EBITDA margin company.

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The company operates through three business units

Nexi operates through three business units, two of which represents almost 90% of 2018 revenues:

Figure 4 – Nexi – Business units summary

48% 39% 13% Merchant Services & Solutions Cards and Digital Payments Digital Banking Solutions One-stop solution provi8der for Comprehensive portfolio, leading towards Driving adoption of advanced banking merchants of all categories and size complete digitalisation of payments solutions and developing Open Banking

SME Solutions Large merchants Consumer Cards Commercial Cards Instant Payments Self Banking omni-channel Business Activities

E-Commerce & Data-enabled Digital Corporate PSD2 & Open Invisible Payments products Mobile Payments Payment Apps Banking Banking

∼∼∼ ∼∼∼ 890k €249bn 3.2bn 41m €197bn 2.4bn 936m 13.4k 420k Scale Number of ATMs Corporate Merchants Value of Number of Payment Cards Value of Number of Clearing managed Banking (2018 data) served Transactions Transactions managed Transactions Transactions Transactions Workstations

150 banks >800 SMEs ∼30m Cardholders

Source: Company data

Merchant Services & Solutions supplies merchants with the necessary infrastructure to enable digital payment acceptance, and executes card payments on the merchant’s behalf. The services performed within the Merchant Services & Solutions business unit can be divided into core acquiring services and POS management. ‹ Core acquiring services are financial services such as the settlement of card payments to merchants, technology services aimed at a fast, reliable and secure authentication and execution of payment transactions, and administrative services such as payment tracking and data analytics; ‹ POS management involves the configuration, activation and maintenance of the hardware and software required for digital payments, which is installed both at physical POS such as shops, grocery stores, restaurants, taxis, hotels and vending machines and online POS such as websites and mobile applications. Core acquiring and POS management services are usually sold as a bundle, which offers customers a full service benefit. Nexi provides the majority of acquiring services in partnership with its partner banks – benefitting, as a result, from the existing relationships and extensive branch networks for customer origination, while providing them with the benefit of its expertise and scale in the areas of procurement, processing and data security. However, Nexi also serves certain merchants directly through direct acquiring activities, with the partner bank acting solely as a referral partner. Cards & Digital Payments , in partnership with its partner banks, provides a wide spectrum of services in connection with the issuance of payment cards to cardholders:

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‹ Product development and procurement services relating to the design and production of durable and secure payment cards; ‹ Anti-fraud and customer support services; ‹ Pricing services; ‹ Banking services such as the provision of an underlying credit allowance and credit scoring services; ‹ Financial services such as the prefunding of card payments; ‹ Technology services to ensure a fast, reliable and secure authentication and execution of payment transactions; ‹ Administrative services such as payment tracking and monthly billing and data analytics services. We note that Nexi acts almost exclusively alongside partner banks in the provision of issuing services, with its partner banks assuming the underlying cardholders’ credit risk . The Nexi Group services most of the card issuing needs of the partner banks, allowing them to focus on their core lending business.

Digital Banking Solutions provides: ‹ Clearing services, including the provision of infrastructure for and management of the execution of account-based payments. It also operates as a clearing house for domestic and international SEPA payments; ‹ Digital corporate banking services, by providing digital solutions to banks and corporate clients to help them manage their bank accounts and payments, such as a customizable e-banking platform. The Digital Banking Solutions business unit also provides market-leading CBI Gateway services (an Italian payment platform allowing direct payment collection and delivery of supporting documentation between banks, corporations, tax authorities, pension schemes and other public and private bodies); ‹ Financial supply chain services; ‹ ATM management services. ATM management services range from the complete management of an ATM fleet for banks to the management of discrete parts of the ATM management value chain based on customer needs. In the vast majority of cases risk rests with the partner banks : as for Cards & Digital Payments when it is the co-issuer or issuer (which we estimate being 1.5% of total card managed) the risk rests with Nexi. As for the Merchant & Services side when Nexi acts as a commercial acquirers Nexi can bear some risk (there is a time-lag between the moment the merchant receives the money from Nexi and the moment Nexi itself is paid by the bank that issued the card, or the factor or the card scheme). The ownership of the clients data follows the same rules (when the customer is a bank one, the bank owns the data too). In cases where Nexi is the co-licensee or co-commercial acquirer, it can share the ownership of the data but not the credit risk .

The importance of scale in the payment industry

Nexi is by far the leading player in the Italian electronic payment market and scale in this business is, in our view, a phenomenal competitive advantage: ‹ A total of EUR446 billion transacted in 2018;

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‹ 70% circa market share in merchant acquiring and 60% circa in card issuing (market shares estimated by management allocating proportionally other issuers’ card volumes among Nexi’s clients and other merchants for total market volumes. Data refer to international card scheme only); ‹ Around 150 partner banks; ‹ 90% of Italian spending flowed through Nexi (company’s estimate based on percentage of card spending via Nexi issuing or acquiring on international schemes). Despite being present only in Italy, Nexi ranks fifth in the European market as can be seen from the following graph:

Figure 5 – PSP ranking in the EU (European revenues in EURm)

+

0 400 800 1,200 1,600 2,000

Source: Worldline 2019 Investor Day (based on latest available public information, 2017 for Nexi)

We estimates Nexi to gain market share, despite its incumbent status, thanks to: ‹ Nexi’s strong relationship with banks, which originate around 93% of the acquiring business in Italy. In fact, Nexi still has room to cross-sell products that have not yet been sold to some partner banks; ‹ New products that Nexi has launched or is developing should further improve its offer stimulating banks and customers. More details can be found in the “New products” paragraph in the chapter on Strategy. Based on the assumption that it is tougher to grow when you have already two/thirds of the market, we estimate smaller market share gains in Merchant & Solutions (physical) and credit cards while we expect higher market share gains in the segment where Nexi has a relatively lower presence (Merchant & Solutions – Ecommerce; Debit and pre-paid cards). Scale allows Nexi to invest around EUR150 million in 2018 in the development of new technologies, products and operational processes that would be unthinkable for the rest of the Italian market players (the second competitor has an EBITDA that is less than half Nexi’s). The strategy is to build in-house key

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software/infrastructure owning the IP of the key differentiating components while purchasing from outside and then develop (partnering with suppliers) less critical software/infrastructure. More specifically, the key technological layer that Nexi wants to control are labeled in the following graph as “a” (digital layer) and “d” (security and infrastructure layer). The former in particular is the backbone of the Italian digital payment infrastructure. The customer management layer is somewhat less important (labeled “b”) so it falls in the category of purchasing/co- developing while the transaction processing layer (labeled “c”) is the least important:

Figure 6 – Nexi – Technology architecture

Mobile –––Portal ––– ATMATMATM POSPOSPOS API Gateway Wallet

Customer Services Terminal Management • Marketing EEE-E---CommerceCommerce OpenOpenOpen Automation Payment Banking • Disputes Gateway Authorization Layers • Onboarding • Customer Care

Integration Layer Issuing & Real Time Payment (Microservices) Acquiring Transactional Processing Processing Services Data Layer

Security

Nexi Blue Infrastructure

a - Digital Layer b - Customer Management Layer c - Transaction Processing Layer d - Security Infrastructure Layer

Source: Company data

Why Nexi has and will have a space on the market…

A key question to pose when investing for the long term is why a business exists and has developed to-date and if it deserves a place on the market going forward. We believe that Nexi was born as a typical process of outsourcing of non-strategic activities from major banks, so the first question to pose is “would banks like to in- source the payment business again?” In our view the answer is no for three reasons: ‹ Nexi operates the business better than banks would; ‹ No bank would be capable of investing EUR150 million per year alone to support the business development; ‹ Nexi’s approach with banks is such that banks see the company as a value-oriented partner. Evidence that confirms our view: ‹ 56% of Nexi 2017 normalized revenues coming from contracts/distribution agreements are locked until 2023 while most of the remaining contracts have undated duration (unless terminated by one of the parties);

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‹ Top 10 partner banks have been customers for more than 15 years; ‹ No customer loss since 2015 (change of ownership, exception made for Merchant Services and Cards & Digital Payments solutions of Banca Popolare di Vicenza and Veneto Banca, now part of IntesaSanPaolo to whom, nevertheless, processing services are still sold through Mercury payment services). Nexi has increasingly been supporting partner banks with their commercial activity as competition from alternative players increase, thus resulting in the need to be more proactive on this front. Support in commercial activities like targeted campaigns, upselling campaigns targeting profiled customers, product specialists for large merchants, corporate cards specialists, on-field support, training days and similar activities have already had directly quantifiable benefits for the partner banks (and consequently for Nexi’s revenues). The fact that Nexi offers a one-stop-shop (merchant acquiring and cards but also IBAN/SEPA based payments, ATM/POS, corporate banking, CBI network, etc.) has the twofold effect of satisfying partner banks while creating enormous entry barriers.

…and how it compares with peers’ business models

Nexi’s business model is unique as it operates across all the digital payments value-chain activities though it is focused entirely on one country (Italy).

Figure 7 – Electronic Payment Industry – Business model comparison

I&M POS ATM Card Money Company Processing Antifraud D/C Banking Others Geography Acquiring mgnt mgnt Networks Transfer

NEXI x x x x x x x x x Italy WorldPay* x x x USA+UK Global Payments x Global First Data* x x x x x Global TSYS x x x North America Worldline x x x x x x Europe+India FIS* x x x Global Adyen x x x x x Global Wirecard x x Global Square x USA NCR x x x Global Evertec x x x x x Latam Fiserv* x USA Safecharge x Global Pagseguro x x x Brazil Ingenico x x Global Cardtronics x x x Global Diebold Nixdorf x x x Global Visa x Global Mastercard x Global Amex x Global Paypal x x Global Source: Companies websites, * in merger talks

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Its competitors are generally focused only on few activities but on a larger geographical span. Thanks to its business model Nexi is trying to establish its brand in the mind of the consumers (which would increase the value of the company). This strategy cannot be followed by the majority of the other players (we believe that Worldpay or Square are not top of mind brands). Worldline is one of the closest to Nexi in terms of business model and geography (France, Belgium, the UK and the Netherlands represent 70% of its revenues). Similarly to Nexi, it has low exposure to e-commerce given its high presence in in- store merchants and banks. Nexi is less exposed than peers to e-commerce and this is due partly to the structure of the Italian market (93.5% of the total commerce is physical, source: Politecnico, Osservatorio eCommerce B2c, October 2018) and partly to the fact that Nexi’s main partners are banks (where, in terms of relative weight, incumbents represents the majority of the portfolio, mirroring the structure of the Italian banking system). Companies highly exposed to e-commerce includes Worldpay and Global Payment (which generates 40% of their revenues in this market and aims to reach 60%). The payment process is quite complex and this issue is amplified by the fact that players may outsource some activities to companies that may become competitors in other areas. For instance, in some cases, Nexi uses SIA and Equens-Worldline as processors. By default, this let us assume that Nexi processes the transaction itself when it sits on all sides of the transaction. Generally speaking, merchant acquirers benefit from the same secular trends as the networks, and also see similar benefits of scale, although they have slightly higher product development and client acquisition costs vs. the networks.

Figure 8 – Nexi and its peers – 2018 Capex/Sales comparison

16.1%

Transformation 7.0% Capex

7.2% 6.0% 6.0% 6.0% 6.2% 5.4% 4.9% 9.1% Ordinary Capex

1.5%

Source: Company data (P/F for Nexi), FactSet

Merchant acquiring/processing, which was once highly commoditized, has seen stable/increasing prices as POS and digital offerings have become more complex. We witness a market rapidly evolving over the next 2-3 years, as continued investments and specialization begin to define clear winners.

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Another difference in business models is that some are tailored for SMEs and P2P (Nexi for instance), while others are more suitable for large corporates and global digital players. Adyen, for instance, built its own network (gateway) to simplify the payment value chain for the benefit of the merchant. Its business model fits in perfectly with large customers:

Figure 9 – Adyen business model & infrastructure

Source: Company website

Summing up, trying to answer the question about who is competing against Nexi, our answer would be: ‹ At retail level any bank that is not a customer of Nexi (i.e. , Poste) or customers banks for products that they do not buy from Nexi; ‹ In card issuing: o Amex on affluent and corporate customers; o Any bank/financial institution that has a different go-to-market strategy (challenging banks like N26 or Revolut) and “steals” customers from Nexi’s partner banks; ‹ In merchant acquiring any player/financial institution that focus on verticals: o On global large e-commerce players (Worldpay, Wirecard); o On large multi-channel merchants (Adyen); o On small/medium e-commerce (Stripe); o On Physical SMEs (limited competition to date, would mention Paypal, Stripe, iZettle and SumUp); ‹ Any traditional payment sector player that competes with Nexi to sign supply contracts with banks (SIA, Six, Worldline, First Data, etc.).

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THE DIGITAL PAYMENT MARKET – A VISIBLE GROWTH STORY

We think that the payments sector looks attractive, given its natural leverage, secular growth drivers and economic cycle resilience. Secular tailwinds from the shift to electronic payments, B2B payments, etc. should continue to drive attractive industry growth. Worldpay, citing McKinsey data from “Global Payments Map” database, expects the growth to accelerate as worldwide industry CAGR should go from 6% in the 2011-17 period to 7% expected in 2017-21. The Italian card payment market has grown faster than the European market and at a 9.7% CAGR in the past three years. With a card-payment penetration rate that is half the Western European average, we believe this overperformance vs. Europe should continue and we forecast a 2018-23 CAGR of 7.6%:

Figure 10 – The Italian Electronic Payment market – Estimates on growth and card penetration

2016AG 2017AG 2018PF 2019E 2020E 2021E 2022E 2023E 15-18 CAGR 18-23 CAGR

Italian digital payment market

ISTAT/OE Consumer spending - Italy (EURbn) 1,021 1,048 1,064 1,065 1,095 1,110 1,150 1,184

YoY growth 1.4% 2.6% 1.5% 0.1% 2.8% 1.4% 3.6% 3.0%

Shadow Economy (EURbn) 205 208 213 213 219 222 230 237

Consumer spending - Italy (EURbn) 816 840 851 852 876 888 920 947 2.4% 2.2%

YoY growth NA 3.0% 1.3% 0.1% 2.8% 1.4% 3.6% 3.0%

Card Payment penetration 22.5% 24.0% 25.9% 27.2% 28.8% 30.4% 32.0% 33.6% 7.2% 5.4%

Card Payment value (EURbn) 189 206 220 231 252 269 294 318 9.7% 7.6%

YoY growth 13.4% 9.0% 6.8% 5.1% 8.9% 7.0% 9.1% 8.1%

Card Payment - segmentation by kind

Physical (EURbn) 167 180 189 196.7 213.3 226.5 246.0 264.3 6.4% 6.9%

YoY growth NA 7.8% 5.0% 4.1% 8.4% 6.2% 8.6% 7.5%

E-Commerce (EURbn) 22 26 31 34.6 38.5 43.0 47.9 53.4 18.7% 11.5%

YoY growth NA 18.2% 19.2% 11.5% 11.5% 11.5% 11.5% 11.5%

Issuing Market

ATM activity (EURbn) 223 222 230 238 249 256 269 281

YoY growth NA -0.4% 3.6% 3.6% 4.3% 2.9% 5.1% 4.5%

Prepaid (EURbn) 37 43 51 53 57 60 64 68

Debit (EURbn) 306 312 323 337 359 377 404 430

Credit (EURbn) 69 73 76 79 85 89 95 101

Issuing market Total (EURbn; Card payment + ATM) 412 428 450 470 500 525 563 598 4.5% 5.9%

YoY growth NA 3.9% 5.1% 4.3% 6.6% 5.0% 7.1% 6.4%

Source: Nexi, ISTAT, Oxford Economics, McKinsey, Worldpay, UBI Banca Estimates

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In our analysis of the market we wanted to go more in depth and we questioned ourselves on two specific topics: ‹ Why does Italy show such a low rate of electronic payment and is there some structural reason that could prevent its growth? ‹ Is consumer spending as resilient as market participants claim and how did the payment sector behave during recessions?

Card penetration in Italy: why it should (continue to) grow

Italians pay only 26% of what they consume on the retail side by cards and this compares with a Western European average of 45% and with countries like France (often referred to as Italy’s “cousins”) at 52% and growing (it was 49% back in 2015).

Figure 11 – 2018 card payment penetration (% by value)

∼ 3x

2015 Card payment 2x penetration 69% 63% 62% 52% 58%

45% 49% 42% 26%

21%

Western Europe

Cards Payments CAGR 9.7% 5.6% 3.9% 5.9% 6.2% 2015-2018 by Value

Source: Euromonitor International Consumer Finance 2019

In terms of infrastructure Italy is extremely well positioned with respect to other Western European countries as it boasts the highest number of POS/inhabitants (although the distribution is still uneven) and a very high level of smartphone penetration (although the connection speed is not always optimal):

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Figure 12 – Payment terminal penetration in Europe (terminals/000 inhabitants)

Romania Slovakia Hungary Poland Bulgaria Czech Republic Germany Austria Latvia Lithuania Belgium Slovenia Sweden Greece France Estonia Croatia Denmark Netherlands Cyprus Portugal Finland Spain United Kingdom Malta Italy

0 5 10 15 20 25 30 35

Source: ECB

Figure 13 – Western Europe – Smartphone penetration rate and apps usage for M-Commerce

Source: Company data

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While the infrastructure is there and consumer spending habits seems to tend towards the European average, we believe that two factors are preventing Italians from spending more through payment cards: ‹ Corruption: the share of “shadow economy” is reported by ISTAT itself (the Italian Statistical Office) being worth around 20% of total consumer spending. CapGemini established a connection between the perceived corruption level of several countries and the level of electronic payments and, not surprisingly, the correlation holds true;

Figure 14 – Correlation between perceived corruption and usage of cash

500 Number of Non-Cash South Korea Transactions per Sweden Capita (2016) Denmark USA Australia Finald 400 Netherlands United Kingdom Canada Luxemburg France 300 Belgium

Germany Czech Republic Switzerland Ireland 200 Austria Spain Singapore Hong Kong Russia Brazil Japan 100 South Africa Saudi Italy Turkey Arabia Greece Mexico China India 0 35 45 55 65 75 85 95

Corrupution Perception Index (2016) (Decreasing level of Corruption)

Source:CapGemini – World Payment reports 2018

‹ A cultural component : We believe that Italians are quite conservative when using their money (i.e. perception of losing one’s spending control) and have a relatively high fears of frauds (mostly from the merchant side which also fears not having real-time visibility of revenues and costs). We arrived to this conclusion as one of the few options to explain the difference in card penetration with countries that usually have similar behaviors. Despite these factors, the penetration rate has been growing in the past 5 years by 180bps per year which, conservatively, is close to what we assumed in our forecasts (154bps). We said conservatively because there are some forces at play that may change both the corruption and the cultural component: a) As can be seen in the following graph, past Italian governments, regardless of their political color, have been acting in favor of electronic payments with the aim of reducing the magnitude of the shadow economy. It is worth mentioning that the Monti government’s (2011 - 2013) decided to make POS mandatory at merchants’ level;

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Figure 15 – Italian government laws on topics related to the electronic payments

Monti Letta Renzi Gentiloni Conte Governments 2011 - 2013 2013 - 2014 2014 - 2016 2011 - 2013 2018 - Today

2011 2012 2013 2014 2015 2016 2017 2018 2019

Mandatory POS Terminals e-Invoicing Obligation to provide customers Obligation of electronic invoicing with the option to pay by card between Italian private VAT (instead of cash) involving all holders (from January 2019) merchants and professionals Electronic payment for fuel prchase

Digital Agenda PagoPA Obligation of electronic payment for the purchase of fuel at petrol pumps Introduction of a new national to benefit from tax exempions (from Relaunch of Digital Agenda and digital payment acceptance January 2019) strengthening of its governance system for Public Administration New Universal Basic Income

Payment of New Universal Basic Income to Italian citizends through pre-paid payment cards, driving penetration of cashless payment methods

Source: Company data

b) Nexi itself is improving the “electronic payment experience” to make it faster, easier with the ultimate goal of incentivizing consumers to use cards.

Consumer spending: resilient unless 2009-like systemic crisis occur

Our analysis shows that Italian consumer spending is less volatile than GDP or, in other words, when GDP contracts, it is mostly investments and exports that take the hit. This makes sense since the amount of goods one may need is somewhat limited despite potentially stronger GDP growth:

Figure 16 – Italian GDP and consumer spending (rebased to 100) and spread of GDP vs. consumer spending growth

170.0 4.0 160.0 150.0 3.0 140.0 130.0 2.0 120.0 110.0 1.0 100.0 90.0 0.0 80.0 70.0 60.0 -1.0 50.0 40.0 -2.0 30.0 20.0 -3.0 10.0 0.0 -4.0 Q1 1999 Q1 1999 Q4 2000 Q3 2001 Q2 2002 Q1 2002 Q4 2003 Q3 2004 Q2 2005 Q1 2005 Q4 2006 Q3 2007 Q2 2008 Q1 2008 Q4 2009 Q3 2010 Q2 2011 Q1 2011 Q4 2012 Q3 2013 Q2 2014 Q1 2014 Q4 2015 Q3 2016 Q2 2017 Q1 2017 Q4 2018 Q3 Spread GDP Consumption expenditure

Source: ISTAT, UBI Banca estimates

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During the 2003 recession Italian consumer spending growth was moderate but remained positive (source ISTAT). Instead it went negative in 2012 and, obviously, in 2008. The increase in cards payment penetration rate was such that it more than compensated the 2012 slow down and the overall card-spending went down only in 2008 (mostly due to corporate cards).

Figure 17 – Card payments value compared to GDP and Consumer spending

470

420

370

320

270

220

170

120

70

Card Payments Nominal GDP Consumption Expenditure

Source: Banca D’Italia, UBI Banca estimates

Our understanding is that in case of systemic crisis, where also the banking system is under extreme pressure, and consumer confidence’s negative influence is stronger than the real disposable income, then the amount of electronic payment could decline. This is also related to the Italian market peculiarity on the acquiring side: 93% of the acquiring is led by banks:

Figure 18 – Acquiring distribution channels in Europe

93% 7%

82% 18% Banks

Other 38% 62%

25% 75%

Source: Company data

To sum up, our market estimates (based on Oxford Economics in terms of Italian consumer spending), forecast a 154bps increase in card penetration and we would describe this as reasonably conservative. Our estimates, however, do not incorporate the negative effect of a systemic crisis.

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How pricing works in the electronic payment market…

The electronic payment value chain is quite long and involves several actors (for more details see the Appendix C), each of which does the work in exchange for a fee. Although several companies play more than one role, typically the fees paid from merchants and consumers could be grouped into the following three categories: ‹ Interchange fees (Nexi, Worldpay, Worldline, Firstdata, etc.); ‹ Card scheme fees (Visa, Mastercard); ‹ Merchant acquirer/banks (i.e. Nexi and its partner banks). The sum of all those fees is usually referred as the Merchant Discount Rate (MDR) or Gross Merchant Service Charge (Gross MSC). For full details of how the payment system works and who the players involved are please refer to Appendix C.

Interchange Fees Every time a customer uses a credit card in a store, a fee is paid by the acquiring bank (merchant account) to the issuing bank (customer account). It’s called an interchange fee. Interchange fees are set by each network (Mastercard’s and Visa’s interchange rates are on their website). They change twice a year, in April and October. The purpose of interchange fees is to help the card-issuer cover things like the risk of approving the sale, fraud, and handling costs. So it should not be surprising that the factors that influence these rates relate in some way to the risk taken on by the card issuer, e.g.: ‹ The card that is used : debit cards with PINs are lower risk than credit cards, so they typically have a lower interchange rate. Moreover, rewards cards (travel, triple points, etc.) and business cards have higher interchange; ‹ How the transaction is processed : in-person card present transactions at the point of sale (POS) typically have lower rates compared to card not- present (CNP) transactions (online, over the phone, invoices, or mail order); ‹ The amount being charged : Merchants with small ticket sizes and a large amount of sales can qualify for lower interchange rates to help reduce their costs; ‹ The type of business : every business that accepts credit card payments has a merchant category code (or MCC), a four-digit number that is assigned to them by the acquiring bank or institution. The MCC is used to classify businesses into market segments that simplify IRS reporting; ‹ The MCC also influences how much a bank or institution charges in interchange fees. Business types that are considered “higher risk” (like financial services, travel, gambling, and hospitality) often have to pay higher interchange fees.

American Express and Diners serve as both the card network and the card issuer and their fee structure varies from the interchange fees we mentioned (it is a closed network and not an open one like Visa and Mastercard where any partner could issue cards). As an indication, in the following table, we report the Interchange fees as per Mastercard’s website:

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Figure 19 – Mastercard – Interchange fees for consumer and corporate cards

Payment Product Fee Tier General Bill Payment and Government Reloadable Cards Top Up

Mastercard Consumer Credit Contactless 0.30% 0.30% (Max EUR 0.20) 0.30% (Max EUR 0.20)

Chip & PIN 0.30% 0.30% (Max EUR 0.20) 0.30% (Max EUR 0.20)

Low Value Payments 0.28% 0.28% (Max EUR 0.20) 0.28% (Max EUR 0.20)

Enhanced Electronic 0.30% 0.30% (Max EUR 0.20) 0.30% (Max EUR 0.20)

Merchant UCAF 0.30% 0.30% (Max EUR 0.35) 0.30%

Full UCAF 0.30% 0.30% (Max EUR 0.35) 0.30%

Base 0.30% 0.30% (Max EUR 0.35) 0.30%

Purchase at ATM 0.30% 0.30% (Max EUR 0.20) NA

Purchase at ATM (late presentment) 0.30% 0.30% NA

Mastercard Consumer Debit Contactless 0.20% 0.20% (Max EUR 0.08) 0.20% (Max EUR 0.08)

Chip & PIN 0.20% 0.20% (Max EUR 0.08) 0.20% (Max EUR 0.08)

Low Value Payments 0.18% 0.18% (Max EUR 0.08) 0.18% (Max EUR 0.08)

Enhanced Electronic 0.20% 0.20% (Max EUR 0.08) 0.20% (Max EUR 0.08)

Merchant UCAF 0.20% 0.20% (Max EUR 0.20) 0.20%

Full UCAF 0.20% 0.20% (Max EUR 0.20) 0.20%

Base 0.20% 0.20% (Max EUR 0.20) 0.20%

Purchase at ATM 0.20% 0.20% (Max EUR 0.08) NA

Purchase at ATM (late presentment) 0.20% 0.20% NA

Mastercard Corporate Contactless 0.50% + EUR 0.02 0.50% + EUR 0.02 EUR 0.20

Chip & PIN 1.50% 1.50% EUR 0.20

Enhanced Electronic 1.60% 1.60% EUR 0.20

Merchant UCAF 1.60% 1.60% EUR 0.35

Full UCAF 1.75% 1.75% EUR 0.35

Base 1.90% 1.90% EUR 0.35

Incentive -0.30% -0.30% N/A

Purchase at ATM 1.50% NA EUR 0.20

Purchase at ATM (late presentment) 1.90% NA 1.90%

Source: Mastercard website

Electronic payment costs are higher in USA When it’s all said and done, according to Square for instance, the average cost of processing payments for U.S. businesses ranging between USD10,000 and USD250,000 in annual payments volume is between 2.87% and 4.35% per transaction. The Nilson Report instead estimates the average MDR in USA at around 170bps:

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Figure 20 - MDR rates in USA

(%) 2010 2012 2013 2014 2016

V/MC credit 2.02% 2.16% 2.17% 2.15% 2.12%

American Express 2.29% 2.41% 2.37% 2.48% 2.36%

V/MC Debit 1.59% 0.78% 0.76% 0.75% 0.73%

Private Label 1.00% 1.10% 1.12% 1.13% 1.17%

Discover 1.88% 1.90% 1.89% 1.89% 2.04%

Average 1.76% 1.67% 1.66% 1.68% 1.68%

Source: Nilson report, No data for 2011/2015; US market, UBI Banca estimates

The Durbin Amendment, which was passed as part of the Dodd-Frank financial reform legislation and implemented in 2011, set interchange caps on debit transactions at 0.05% plus 21 cents. This drove the fall in debit MDRs between 2012 and 2010. Although what we wrote works in the vast majority of cases (and geographies), some case are peculiar, for instance Adyen, which has a different business model (it owns the infrastructure) and presents a different pricing structure. In the end, however, what finishes in the merchant bank account is still 1.76%, broadly in line with the MDR incorporated in our estimates:

Figure 21 – Adyen – MDR rates charges to customers

Source: Adyen corporate website

…and where it should go from here

We believe that MDR in Europe is lower than what it is in the USA and should be around 1.45%, it has been quite stable for some time. Our estimates are based on the assumption that: ‹ The interchange fee is 30bps for credit and 20bps for debit cards; ‹ The card scheme fees is 50bps; ‹ The remaining part of the MDR is split between the partner bank and Nexi (we estimate a 70/30. When Nexi is co-issuer we this could be around 50/50). A warning to investors however needs to be made: estimating the MDR is a

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nightmare. It may vary significantly as: ‹ It is composed by many parts and generally merchants do not know how to answer the question “how much do you pay for accepting electronic payments?”; ‹ It varies from card circuit to card circuit and by type of card (credit, debit, prepaid, meal voucher, pin debit, etc.); ‹ It depends on which offer made by the various circuit the merchant has accepted. For instance, some possible kinds of offers are: o Interchange-Plus typically consist of both a percentage markup and a per-transaction fee markup, which are applied to all transactions; o Subscription/Membership similar to interchange-plus, the difference is that you do not pay any percentage markup on transactions, just a small per-transaction fee. Then, an additional markup is charged as a flat monthly subscription fee; o Tiered where fees (fix and in percentage of value) change depending on the amount of business that a merchant generates; o Flat rate is like tiered pricing, but without the tiers. Instead, all transactions cost the exact same percentage and transaction fee, regardless of the wholesale cost. All costs are blended together to create one consistent rate and fee. This pricing model often makes sense for low-volume businesses. The reason why we model the MDR is to better understand the price dynamics going forward. In that respect, we model 0.5bps decline every 2 years in the MDR due to increasing competition (e-commerce, PSD2, open banking, etc.). Regardless of the MDR what we know for sure is that Nexi take-rate was, in 2018, 18bps (EUR448 million revenues based on EUR249 billion on transaction value for Merchants Services & Solutions and EUR361 million revenues based on EUR197 billion on transaction value for Card & Digital). Nexi’s take rate has grown in the past three years: ‹ In Merchant Services & Solutions it went from 17bps in 2016 to 18bps in 2018; ‹ In Card & Digital it went from 17.8bps to 18.3bps in 2018. We warn investors not to confuse the take-rate with the average price charged by Nexi. The take-rate can grow because of mix (for instance corporate cards command a higher cost for customers vs. consumer cards) and/or because Nexi increases its share of wallet (it is involved in more activities within the payment value chain. Put it simply Nexi increases its market share).

Contractual agreements with banks Leaving aside the differences in MDR, there is another factor that influences what part of the MDR goes to Nexi: the type of cooperation (i.e. contract) Nexi has signed with every partner bank: ‹ Direct acquiring: Nexi directly serve the customer, cashes all the MDR and pays out intercharge fee and scheme fee. On the MSS side large corporates may fall into this category while, for Cards, at the end of 2018, this represented only 1.5% of total number of cards managed; ‹ Referral model : Nexi enters directly into the contractual agreement with a merchant signaled by the partner bank. It charges directly the MDR to a merchant and gives part of it to the partner banks, based on their contract. MPS, and Carige fall into this category on the MSS side;

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‹ Associate licensing agreement : the relationship (and the contract) with the merchant is managed by the partner bank. Nexi offers a more limited amount of services to the merchant, manages the relationship with the card scheme and receives fees by the partner bank. BPM, BPER and Credit Agricole fall into this category for MSS. For card, main customers are UBI Banca and MPS (pure associates) and BPM, , Mediolanum, Credit Agricolè and PoP Sondrio (traditional licensing); ‹ Servicing model : Is the form that involves Nexi the least; in fact the relationship with the merchant and the card scheme are managed by the partner bank while Nexi offers usually POS management services only. Intesa Sanpaolo and ICCREA fall into this category as far as the MSS division is concerned. As far as card are concerned Intesa Sanpaolo and ICCREA again, BPM, BPER and Deutsche Bank are the main customers. For the MSS business the next table summarizes duties and fees:

Figure 22 – Merchant Services & Solutions – Possible cooperation forms between Nexi and the partner banks Associate Licensing Servicing Direct Referral Agreement Agreement Agrrement Acquiring Contractual relationship with merchant Nexi Partner Bank Partner Bank Nexi

Full range: Pos management POS management Services provided by Nexi Payment Relationship with card POS management Full range autenthication/execution scheme Adiministrative services Pre-funding

Merchant fee Merchant fee Fee per transaction Fee per transaction Fees received by Nexi POS management (from POS management (from (from partner bank) (from partner bank) merchant) merchant)

Rebate to partner bank Interchange fee Fees paid by Nexi Interchange fee Scheme fee Scheme fee

Source: UBI Banca estimates, Company data

For the C&DP business the following table summarizes duties and fees:

Figure 23 – Card & Digital Payments – Possible cooperation forms between Nexi and the partner banks Licensing Associate Licensing Servicing Direct Agreement Agreement Agrrement Issuing Contractual relationship with merchant Pertner Bank & Nexi Partner Bank Partner Bank Nexi

Nexi is the card co- Nexi is the card issuer: issuer: Management of Management of the partner’s thepartner’s entire stock Processing entire stock of cards Services provided by Nexi of cards Fraud management Full range Relationship with card scheme Relationship with card Dispute management Product development and scheme marketing Anti-fraud Anti-fraud

From cardholder: annual From cardholder: annual and Service fee Service fee and service fees Fees received by Nexi service fees (from partner bank) (from partner bank) From acquirer: From acquirer: interchange fee interchange fee

Rebate to partner bank Scheme fee Scheme fee Fees paid by Nexi Funding costs (rebated to the Funding costs bank) Credit risk Partner Bank Partner Bank Partner Bank Nexi

Source: UBI Banca estimates, Company data

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STRATEGY: product, product, product…M&A

Nexi’s strategy to fuel growth can be summarized in three simple points: ‹ Increase the card penetration rate through new products that should improve the electronic payment experience; ‹ Cross selling within the current customer base; ‹ Search for new business opportunities (i.e. B2B and e-commerce). Segmenting growth by customer type, the best opportunities should arise from Italian SMEs and Large corporates going Omni-channel. All this implies significant investment in technology and a strong focus on operational excellence (it is a sector where customers do not accept even the smallest mistake). We understand that Nexi is also investing to develop its own salesforce. In Merchant Services, it is in the process of building a team of >120 FTEs dedicated to large merchants. A similar approach is also under development in commercial cards. Those investments are aimed at helping partner banks better understand its products and services and at supporting their commercial activity. Last but not least, Nexi has grown through a disciplined acquisition strategy and should continue to do so, although few opportunities are left in Italy and as such looking abroad is almost mandatory given the industry consolidation wave. It is worth mentioning that the payment market is considered, for antitrust purposes, a Europe-wide market so we see few risks in terms of further consolidation in Italy. We will examine some of these points in more details in the next paragraphs.

New products to overcome electronic payment limiting factors It is useful in our view to look at new products/services separating the three business units to take into account the different issues experienced by merchants, card owners and partner banks with the electronic payment process.

Merchant Services & Solutions: the key task is to simplify the process and improve merchants’ control Intuitively, one of the reasons why card payment penetration is low in Italy is that the speed of execution in some cases is long and, in a few cases, the outcome is uncertain: it happens from time to time that the POS may not be working so one ends up paying cash. For significant amounts, if in doubt that the POS may not work, customers usually pay by cash. So one of Nexi’s main efforts has been and will be to speed up the payment process and this should have the side-effect of increasing micro-payment transactions (considering that part of Nexi’s revenues is volume-driven, the benefits are obvious):

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Figure 24 – Speed of electronic payment on the Italian market

Acceptance Infrastructure Perception / Reliability Habits

Transaction Speed POS C-Less Premium Assistance Micro-Payments Seconds / Transaction % POS C-Less Merchants coverage YoY growth rate

14.6 85% 13.5 81% 78% 12.4 65%

+7pp

38%

0%

2016 2017 2018 2016 2017 2018 2016 2017 2018 Merchants with vs without micropayment’s promotion

54% C-Less transactions High elasticity on «daily» +15/20% transaction speed 90min-4h 24/7 SLA (Dec-2018) card usage

Source: Company data

Another issue perceived by merchants is the complexity of having to use several devices (one for each circuit) and the associated costs. Nexi, to overcome this issue, has launched in 3Q18 the “SmartPOS”, a device that incorporates all the hardware that today sits on the merchant’s desk. This device could be also mobile (in-store mobility) and offered on a large screen desktop solutions. It accepts all payment methods (including meal vouchers), acts as a cash register with fiscal printer included, and offers other VAS:

Figure 25 – Nexi SmartPOS – Comparison with current products on the market

Today Tomorrow

ΠMultiple devides V Simple configuration, lean layout Merchant ΠHigh costs V Cost reduction ΠSpace issue V More services

• POS and acquiring • Full merchant service suite • Add’I revenues and margins from both merchants and alternative rail issuers

Source: Company data

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Early adopter banks, according to Nexi, have been able to “place” it on 20% of their customer base. Those merchants have experienced a EUR14.0 higher ARPU (EUR40 for those that were using SmartPOS+ECR). Talking about SMEs, Nexi is developing (launched during 1Q19) Omni channel solutions which are different based on the vertical to which they refer to, for instance: ‹ For Grocery and retail: in-app mobile self-scan, purchase & payment solutions; ‹ For Fuel & Petrol: mobile payment and e-invoicing; ‹ For Food & Restaurant: Omni-channel and loyalty solutions; ‹ For B2B2C: a new collection process for the Insurance sector. To better serve the e-commerce space, Nexi, in 2Q17, launched X-Pay a comprehensive payment gateway that allows the use of e-wallets and is already being sold to several customers. To improve the analytical capabilities of merchants, Nexi launched, in 4Q17, “Nexi Business” an app that helps compare merchant’s historical data, benchmark vs. similar merchants and manage the documentation.

Cards & Digital Payments: expanding the portfolio and unlocking card usage is key When comparing Italy consumers behaviors on cards it emerges that: ‹ Italian debit cards are mostly used for cash withdrawals (“Bancomat”). International debit card have been launched recently and are growing fast (+53% CAGR in 2016-2018 vs. -10% of the national debit cards); ‹ Italian pre-paid cards have a very low level of activation and are mainly used for e-commerce; ‹ Italian credit card have low credit limit (according to Nexi 7 million transactions every year are denied due to credit limit). As for debit cards, to summarize, Nexi’s focus is to make it works like credit cards (i.e. enabling e-commerce, mobile payments and acceptance abroad). As for credit cards, we see that the majority of product innovations strive to overcome customers’ issues: ‹ High value purchases often carried out by cash/cheque as 55% of cards have less than EUR1,600 limit: Nexi’s offer allows customers to pay by instalments therefore enabling larger transactions (and customer stickiness); ‹ Card limit: 7 million transactions every year are denied due to credit limit. Starting from June 2019, Nexi’s products will allow customers to purchase extra credit ceiling (10-20% of total limit); ‹ Control and security issues limit payments and, more specifically, micro- payments. Nexi’s products will increase spending control by introducing immediate control over single transactions.

But, in our view, one of the most underdeveloped segments in Italy is corporate cards. It can be seen from two points of view: corporate consumer cards and corporate B2B cards.

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Figure 26 – Corporate Cards Addressable Market by Value of B2B Transactions (EURbn)

Source: Company data

While the action to increase the usage of Corporate consumer cards is similar to the normal consumer card in our view this segment matters because the take-rate for Nexi is higher ( source: interchange fees reported by Mastercard ).

As for B2B corporate cards, Nexi’s idea is to launch virtual cards solutions to pay for items that normally fall into the working capital needs. This could be integrated with the company ERP (thus simplifying the payment matching exercise later on) and with the automatic generation of the e-invoice. This product has already been trialed selectively by some corporate customers while its full launch is scheduled for 2Q19.

Digital Banking Solutions: digitalizing banking activities and developing the Open Banking technology is key We would like to focus here on two main initiatives: ‹ Digital corporate banking: to be launched during 1Q19, this involves E-invoice management and dedicated mobile apps for CFOs; ‹ Open Banking: to be launched in 3Q19 (mandatory by the regulation), this involves the PSD2 gateway solution for the entire Italian banking system as Nexi won the tender issued by ABI and Consorzio CBI (over 70% of the Italian banking system has already joined CBI Globe).

Cross selling: low-hanging fruit

While Nexi has undoubtedly a strong relationship with the Italian banking system, not all partner banks have outsourced 100% of their activity to Nexi. For every activity there is a specific contract so, with the 150 banks with which Nexi works, the company has signed around 1,000 contracts. Growth space is evident from the following table:

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Figure 27 – Nexi cross selling opportunities – Penetration on top 25 Nexi partner banks based on revenues

Source: Company data

These relationships evolve overtime, not least because of bank concentration (which per se is neither negative nor positive: some banks which were not customers may end up within the scope of Nexi’s partner banks and vice versa). In our experience, cross-selling is easier said than done and requires stringent execution and operational capabilities. Nonetheless, in our experience, incumbents stand more of a chance of gaining market share than new comers, above all in a sector as traditional and conservative as the banking sector.

New opportunities: not included in our estimates

Nexi’s role as market leader in Italy also entails the “responsibility” of advancing the market by being the first mover. The target segments that Nexi tries to capture are: ‹ Millennials; ‹ Corporate (mostly large) B2B payments; ‹ Data-Enabled that opens new opportunity in payments.

Millennials: 6 million people in Italy alone Millennials, as far as payments are concerned, can be described as people with high propensity to spend, who are inclined towards e-commerce and are often disconnected from traditional banks. On that score, Nexi has internally developed an app called YAP that is driven by Nexi itself but could also carry the bank brand and gives 1:1 promotion opportunities that could drive cross/up-selling. Launched in September 2018, it has gained an ever growing number of users:

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Figure 28 – YAP enrolled users (000) by week

Source: Company data

Please note that for YAP consumers are Nexi’s (and also data ownership). As we said before Nexi is trying to establish its brand in the consumers’ minds.

Corporate Payments: an EUR85 billion addressable market in EMEA With working capital and cash flow discipline assuming greater importance, the corporate payments revenues pool becomes an addressa ble market. Customers here need to deal with the fact that regulation now requires electronic processes while in reality paper-based processes and payments are often decoupled from the procurement cycle.

Nexi’s position here is strong thanks to its business model that spans across all areas. The combination of its Digital Corporate Banking business ( as the largest Italian provider of DCB workstations, only supplier of the CBI Globe gateway, market share in cards and merchants segments) allows Nexi to supply services like account receivables collection, real time supplier payments, real time international cash pooling 24x7x365 and supply chain synchronized payments.

Data-enabled: it could open interesting cross/up-selling opportunities Data analytics and machine learning are opening up new frontiers that were unthinkable only some years ago. It is difficult to summarize in a few lines the array of services that Nexi could offer to its partner banks, many of which are not big enough to develop themselves anything similar to what Nexi could offer. We would only like to present an example here that deals with how direct customer verifications, context analysis and the fact that Nexi sees both sides of a transaction help the company to massively reduce its fraud rates vs. the past:

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Figure 29 – Evolution of fraud rate on expenditure

Source: Company data

Not only this but nowadays Nexi anti-fraud systems are no worse than Visa’s or Mastercard’s ones:

Figure 30 – Gross Fraud rates (basis points, 2018)

4,44,44,4

8,08,08,0

6,76,76,7

7,97,97,9

NEXI EU perimeter

Source: Company data

External Growth: national…or international

Nexi’s history is one of external growth which, since the entry of Private Equity funds in the shareholders base at the end of 2015, has been focused on transforming the company from a bank-like group into a payment-focused company. It is inevitable to think that such experienced management would look at M&A again in the future. However, we would like to split this theme in two parts: national and international M&A.

National M&A In our view, it is obvious that, for a company that has a 70% market share in the merchant acquiring market and 60% in the card issuing market there are few options in Italy in terms of consolidation. Before the IPO the deal that even the press has been talking about is the merger with SIA. SIA is a EUR615 million sales company (in 2018) with EUR201 million EBITDA (33% margin) operating in the processing space but also in the issuing, acquiring, clearing as well as in other activities.

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In press interviews, SIA CEO, Mr. Cordone, said that he would prefer to go stand- alone but if shareholders were to create a national champion through a merger with Nexi then cost optimization and scale opportunity would arise. SIA major shareholder, CDP (the Italian “sovereign fund”), however could envision to create a national champion to go, at a later stage, as a consolidator. Nexi outsources to SIA part of its processing and, in 2018 alone, paid EUR44 million to SIA. A merger will have the benfit to internalize this revenues (and the margins attached). It is worth mentioning that, as far as antitrust issues are concerned, the payment sector is seen as a Europe-wide market place and, as such further consolidation in Italy should not raise particular antitrust issues.

International M&A A first wave of M&A transactions has already happened in the sector, quite recently: the combination between Vantiv and Worldpay, which created one of the sector leaders dates from January 2018. The rationale of the merger was to create a global player in the merchant acquiring market, with a focus on e-commerce and omni-commerce in particular on specific verticals.

Figure 31 – Electronic payments M&A Deals – Major deals of the past 5 years

Buyer Target EV/Sales EV/EBITDA Price Date Expanded Offering

Vantiv Mercury Payments USD 1.7 bn Jun-14 Integrated payments

Wex Evolution1 USD 533 m Jul-14 Virtual corporate payments

DH Fundtech 4.8x USD 1.3 bn May-15 Hub Payment technology

Fidelity National Sungard 11.5x USD 9.1 bn Aug-15 Finance software

Wex EFS USD 1.4 bn Oct-15 Virtual corporate payments

Alliance Data Systems Conversant 10.0x USD 2.3 bn Nov-15 Customer data analytics

Global Payments Heartland Pmts 19.2x USD 4.3 bn Dec-15 Merchant acquiring

Total System Services Transfirst 13.8x USD 2.4 bn Jan-16 Merchant acquiring

Fleetcor STP (Brazil) USD 1.1 bn Mar-16 Workforce Payments, Toll Network

Fleetcor Cambridge Global Pmts USD 675 m May-17 Cross border payments

Vantiv Worldpay 16.7x USD 10 bn Jul-17 Merchant acquiring, e-commerce

American Express Cake Technologies EUR 11 m Oct-17 Mobile payment

Blackhawk Silver Lake / P2 Capital 12.0x USD 3.5 bn Jan-18 Digital Commerce

PT Metranet Cellum Global EUR 5 m Jan-18 Mobile payment

Alfa Bank Pay-Me EUR 7 m Feb-18 Merchant acquiring

Verifone Francisco Partners 10.4x USD 3.4 bn Apr-18 Going private

DST Global Revolut EUR 206 m Apr-18 Global money transfer

SIA Firstdata 3.9x EUR 387 m May-18 Card processing business

Nets Dotcard EUR 73 m Jun-18 Payment Services

Dunedin Capital Partners Global Processing Service EUR 50 m Jun-18 Issuer processing

PayPal iZettle 18.6x EUR 1.9 bn Sep-18 Money transfer

Sella Open Fintech Platform Vipera EUR 22 m Sep-18 Mobile banking, mobile payment

Wordline SIX Payment Services EUR 2.4 bn Nov-18 Merchant acquiring

Source: Company data, UBI Banca estimates

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The French Worldline too executed 8 deals in the past 5 years, the most notable being Six, competing against Nexi. According to Worldline for instance ( 2019 investor day presentation ) more than 40 significant transactions have taken place over the last 5 years with a 50% to 100% increase in the size of the leading consolidators. The previous table lists the most relevant (by size) with the kind of expanded offer the acquirer was trying to achieve. The consolidators have been massively increasing their competitive advantage in terms of scale and European reach. The second wave of consolidation in payments could just have started: in January 2019 Fiserv announced the acquisition of First Data, just to name the most recent and relevant transaction. The strategic rationale is to add Global Merchant Acquiring business of First Data to the card-based payments & security solutions of Fiserv. Worldline itself didn’t made a mystery it is open to new acquisitions ( source: 2019 Investor day presentation ). Worth mentioning that Nexi outsources to Equens/Worldline part of its processing and, in 2018 alone, paid EUR90.7 million. A merger will have the benefit to internalize this revenues (and the margins attached). We expect M&A will largely focus on the themes outlined in this report: expanding exposure to e-commerce, integrated Merchant Services & Solutions and B2B services. Additionally, we expect that payment companies will seek international growth opportunities that can provide cross-border or emerging market exposure. Nexi is, as we have stressed, the Italian leader but lacks a foreign presence. By looking at its business model (please refer to Figure 6) it seems difficult to us that Nexi would try to specialize in one/two activities of the value chain at a European/worldwide level. It is more likely that Nexi would try to replicate its whole- chain/few countries strategy. As such, the companies more similar to Nexi are, in our view, Worldline and Adyen (within the listed universe). Please note that the market capitalization of both companies (Adyen in particular) are, in our view, significantly higher than Nexi’s prospective one. Summing up, our understanding about M&A options for Nexi is that: ‹ Nexi does not need an international M&A deal as it sees the organic growth in its core market being the main driver; ‹ However, it does have the size to look at potential opportunities and it is keeping an eye on what is happening in its sector (i.e. a second wave of consolidation); ‹ The criteria with whom management would look at potential M&A are strategic fit and value creation for shareholders.

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SWOT ANALYSIS

Strengths

‹ By far the market leader in Italy, in a business where scale matters, offering full coverage of the payment system value-chain; ‹ High entry barriers: much more entrenched than anyone in the Italian eco- system both at the banking and merchant level; ‹ Large and diversified customer base with around 150 partner banks; ‹ High customer retention rates (each of the top 10 partner banks has been a customer for more than 15 years); ‹ Visible business: more than 50% of revenues are installed base-driven (i.e. 1st January of every single year half of the revenues are already “at home”); ‹ Dual-sided positioning allows to see both side of the transaction improving cost and operational efficiency while reducing risks; ‹ The majority of the credit risks rests with partner’s banks; ‹ Attracted and developed an excellent management team; ‹ Solid financials allow Nexi to remain the innovation leader on the market; ‹ Nexi is in an enviable position to further consolidate the Italian market and to grow abroad.

Weaknesses

‹ Lack of international presence; ‹ Low exposure to e-commerce; ‹ Limited direct exposure to retail customers (merchants and card holders); ‹ Heavily reliant on the Italian banking systems (origination, distribution, marketing); ‹ Large amount of goodwill (EUR2.1 billion).

Opportunities

‹ B2B/Corporate payments are un-tapped market opportunities that could result in a significant boost to the growth rate of the payment market; ‹ Nexi has just launched its app (YAP) to attract millennials to the payment market. Customers and their data are owned directly by Nexi in this case; ‹ Broader technological developments (faster broadband connections, smartphone penetration, contactless payments) work in favor of the electronic payment industry; ‹ New opportunities arising in payments thanks to big data and advanced analytics; ‹ Dual-sided positioning allows to see both side of the transaction and should be an asset in data analytics, instant credit scoring, closed-loop schemes (i.e. fuel cards); ‹ Nexi is trying to establish its brand also in the mind of retail consumers and this could represent an asset going forward; ‹ Nexi is developing its own sales force to support banks’ commercial activity and this could further speed up market growth.

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Threats

‹ Penetration of card payments on total consumptions could grow at a slower pace than predicted; ‹ Past experience shows that, in case of systemic risks, electronic payments value may decline; ‹ According to Nexi, 57% of millennials do not have a bank account. In the long run, this could be a threat for the banking system and ultimately for Nexi; ‹ Nexi, having a local nature, is not suited to satisfy the needs of global e- commerce players which continue, however, to gain market share; ‹ Reputational risk (data privacy, frauds to clients, etc) may impact customers willingness to use Nexi as a payment actor; ‹ Risk of default for ; some of Nexi’s customers in the MSS division utilize Carige banking services; ‹ The fact that Nexi’s brand is gaining relevance in consumers’ minds (YAP, Nexi branded cards, etc.) could be seen as a threat from partners’ banks; ‹ Industry consolidation is creating larger competitors. In certain activities/segments (processing, international SMEs, large corporate) Nexi may end up being too small.

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FINANCIALS

In the past three years, Nexi changed significantly its perimeters (acquisitions of companies and merchants books, disposals, spinoff of Depobank and sale of real estate assets) plus a refinancing of its debt in 2018 which has a meaningful impact on the amount of financial charges (please refer to Figure 2 for more details). In this context, the financials that we present are the following: ‹ “Aggregated” numbers for 2016 and 2017 (i.e. providing the full year effect of completed M&A); ‹ Pro-forma 2018 reflecting full-year effects of completed M&A and of the refinancing and the contracts signed with Depobank at the time of the spinoff. Below is a useful reference to draw a comparison between carve-out EBITDA (i.e. figures reported in the official financial accounts), aggregated and pro-forma:

Figure 32 – Historical normalized EBITDA evolution (EURm)

Carve-Out Aggregated Pro Forma

519

56.4% CAGR 15.5% CAGR 95 419 424 424

369 Announced 338 Initiatives 317

171

2016 2017 2018 2016 2017 2018 2018 2018 including Pro Forma Announced Initiatives

Source: Company data, “Announced Initiatives” to be fully realized by 2020 according to the company

Income Statement – 53% of revenues are installed base-driven

In the past three years revenues have grown at a 8.5% CAGR if 2018 P/F is considered as opposed to 7.8% when aggregated figures are considered. Merchant Services & Solutions have grown at the strongest pace (9.3%), followed by Cards & Digital Payments (7.0%) whereas Digital banking posted a +5.0%. Nexi revenues comes from a different mix of volume-driven (i.e. number/value of transactions) and installed-base driven (i.e. recurring revenues based on the number of clients/hardware/contracts/etc.). The end result is that, based on 2018 P/F revenues, 53% is installed-base driven meaning that, at 1st January 2018, more than half of Nexi’s revenues were already at home. We consider this feature particularly relevant and therefore we have incorporated this into our analysis. Summing up our findings, detailed later on, we expect revenues to grow at a 2018- 23 CAGR of 6.6%, while the split of volume and installed-base driven should trend towards the 50/50 base. 2019 should trend somewhat below the longer term CAGR due to the deliberate run-off of some low-margins contracts entered into by Bassilichi and the negative impact of two failed banks (Veneto Banca and Banca

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Popolare Vicenza). Another way of de-constructing our estimates is that volume-driven revenues should grow in line with the market (9.3% 2018-23 CAGR), while installed-base driven should grow predictably at a 2018-23 CAGR of 4.0%. The two divisions represent almost 90% of the business (Merchant Service and Cards), while Digital banking should grow at a slower pace.

Figure 33 – Nexi – Revenues breakdown

2016AG 2017AG 2018PF 2019E 2020E 2021E 2022E 2023E Merchant Services & Sol. - Revenues (EURbn; A+B) 375 415 448 475.8 517.7 559.1 610.4 661.1 YoY growth 10.7% 8.0% 6.2% 8.8% 8.0% 9.2% 8.3% Installed base driven revenues - A (EURbn) 173.5 182.2 191.3 199.9 208.9 221.4 234.7 248.8 YoY growth 5.0% 5.0% 5.0% 4.5% 4.5% 6.0% 6.0% 6.0% NEXI mkt share in Physical NA NA 72.0% 73.0% 74.0% 75.0% 76.0% 77.0% Physical - NEXI transacted value (EURbn) NA NA 136 144 158 170 187 204 NEXI mkt share in E-commerce NA NA 21.0% 22.5% 23.7% 24.9% 26.1% 27.3% E-commerce - NEXI transacted value (EURbn) NA NA 6.5 7.8 9.1 10.7 12.5 14.6 MDR assumption (bps) NA NA 145.0 145.0 144.5 144.5 144.0 144.0 Interchange (bps) NA NA 28.0 27.5 27.0 26.5 26.0 25.5 Card Scheme (bps) NA NA 50.5 50.0 49.5 50.0 50.0 50.0 NEXI+partner bank (bps) NA NA 66.5 67.5 68.0 68.0 68.0 68.5 NEXI (bps) NA NA 18.0 18.2 18.5 18.7 18.8 18.9 NEXI Revenues - Physical (EURm) NA NA 244.3 261.7 291.9 317.7 352.1 384.8 NEXI Revenues - E-commerce (EURm) NA NA 11.7 14.2 16.9 20.0 23.6 27.6 Volume driven Revenues - B (EURbn) 201.5 232.8 256.0 275.9 308.8 337.7 375.7 412.3 YoY growth 15.5% 10.0% 7.8% 11.9% 9.3% 11.3% 9.8% Cards & Digital Payments - Revenues (EURbn; A+B) 315 342 361 387.6 414.0 437.5 466.8 496.3 YoY growth NA 8.6% 5.6% 7.4% 6.8% 5.7% 6.7% 6.3% Installed base driven revenues (A) (EURbn) 197.4 209.3 216.6 225.3 234.3 244.8 255.8 267.3 YoY growth 6.0% 3.5% 3.5% 4.0% 4.0% 4.5% 4.5% 4.5% NEXI mkt share in Credit NA NA 77.0% 78.0% 78.5% 79.0% 79.5% 80.0% Credit - NEXI transacted value (EURbn) NA NA 59 62 66 70 76 81 NEXI mkt share in Debit NA NA 39.0% 40.5% 41.5% 42.5% 43.5% 44.5% Debit - NEXI transacted value (EURbn) NA NA 126.0 136.5 149.0 160.2 175.7 191.1 NEXI mkt share in Prepaid NA NA 23.0% 24.5% 25.1% 25.7% 26.3% 26.9% Prepaid - NEXI transacted value (EURbn) NA NA 11.7 13.0 14.2 15.3 16.8 18.2 Total NA NA 196.2 211.4 229.6 245.6 268.0 290.2 NEXI fee (bps) NA NA 0.74 0.75 0.75 0.74 0.74 0.74 NEXI mkt share in B2B payments/cards NA NA NA 60.3% 60.0% 60.8% 61.5% 62.3% NEXI transacted value (EURbn) NA NA NA 9.7 11.0 13.8 17.3 20.9 NEXI revenues NA NA NA 3.7 8.2 10.2 12.8 15.4 Volume driven Revenues (B) 117.6 132.7 144.4 162.3 179.7 192.7 210.9 228.9 YoY growth 12.9% 8.8% 12.4% 10.7% 7.2% 9.4% 8.5% Digital Banking - Revenues (EURbn; A+B) 101 109 122 119.0 119.1 121.0 123.0 125.0 YoY growth NA 7.9% 11.9% -2.5% 0.1% 1.6% 1.6% 1.7% Installed base driven revenues (A) (EURbn) 71.9 78.3 85.4 82.0 81.2 82.0 82.8 83.6 YoY growth 9.0% 9.0% 9.0% -4.0% -1.0% 1.0% 1.0% 1.0% Volume driven Revenues (B) 29.1 30.7 36.6 37.0 37.9 39.0 40.2 41.4 YoY growth NA 5% 19% 1.0% 2.5% 3.0% 3.0% 3.0% Source: Company data, UBI Banca estimates

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Our estimate s are based on the following assumptions: ‹ Merchant Services & Solutions ( 8.1% CAGR): o 5.4% growth in installed base-driven revenues ( 4.5% for 2019); o 18bps fee on the volume-driven revenues (growing to 18. 9 in 2023); o Or, take-out rate at 18.4 bps in 2023. ‹ Cards & Digital Payments (6.6% CAGR) o 4.3% growth in installed base-driven revenues ( 4.0% for 2019); o Nexi fee (bps) of 0.75 declining by 1 bps every year; o Or take-out rate increasing by 0.6 bps to 18.9. ‹ Digital Banking ( 0.5% CAGR): o Installed base-driven revenues declining -0.4% (-4.0% in 2019); o Volume driven-revenues growing 2.5% (1.0% in 2019). An alternative way to model revenues, which has been nonetheless explored, would have been to estimate the number of transaction (or the transaction value) and then multiply it by net revenue per transaction (called “take -rate”). Based this approach, and assuming that average ticket /transaction should go down (increased weight of micro -payments) by 4.8 % per year, we estimate a 13.1% 2018 -23 CAGR in number of transactions managed in the Merchants & Solutions and 1 0.2% growth for Cards & Digital Payments. This should result, as better detailed in the “Financials” chapter, in an overall 2018 -23 CAGR in revenues of 7.3% for the Merchants & Solutions plus the Cards & Digital Payments together (we excluded from the calculation digital banking which works on different metrics). In terms of EBITDA we expect a 2018-23 CAGR of 13.8%, which is consistent with the 15.5% reported in the 2016 -18 period on the aggregated figures . By de- constructing the 2016 -18 EBITDA evolution into in-organic /organic, we see how the 15.5% was organic:

Figure 34 – Nexi EBITDA contribution analysis – Acquisition, disposals and organic growth (EURm)

Source: Company data

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Our EBITDA estimates are based on the assumption that 64% of the total costs are fixed, and this is why we defined the business as one where scale matters: operating leverage is 80.6%. Slicing the fixed costs by the main components we expect: ‹ Slightly increase in HR costs mainly due to inflation and business growth; ‹ No growth in IT costs, as technological upgrades allow Nexi to be already correctly sized. By contrast, the planned actions (IT strategy program, decommissioning initiatives, spending review programs, integration of Bassilichi/MPS, etc.) will favor a reduction in fixed costs in the next few years; ‹ Decrease in other non-HR cost components is expected thanks to further costs efficiency and synergies. On top of that, we have considered so far, EUR72 million worth of benefits in terms of EBITDA from initiatives already announced and implemented but not yet realized (EUR36 million of cost savings and EUR36 million of integration synergies). This is the main driver of the pick-up in 2020 EBITDA growth. Worth mentioning that recent re-organizations allowed the company to keep the overall workforce flat:

Figure 35 – Nexi – Workforce 2016-2018 evolution

291 43 (343) Others NEXI MePS (94) Oasi (721) ∼1000 1,8211,8211,821 1,7831,7831,783 Bassilichi (380) 242 Bassilichi Non-core DEPObank

Acquisitions Restructuring / Disposals Investments

2016 2018

Source: Company data

Given the current level of investments, we estimate D&A (excluding D&A related to acquired customer contracts) would increase by around ca. EUR30 million per year (as a result of EUR65 million “transformation capex” amortized over three years) implying that D&A/Net revenues are higher than total capex/net revenues for the next three years and will begin to normalize thereafter. As a consequence, EBIT 2018-21 CAGR will be lower than EBITDA CAGR for the same period but it will be similar if not higher in the longer run (18-23 CAGR). Interest expenses should decline significantly in 2019 (cash-in from the IPO and refinancing) and in 2020 (full-year impact of 2019 actions just mentioned plus

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another notes redeemed). Our interest expense line includes also the costs for the long-term incentive program (LTIP) consisting of share options. It will run from 2019 to 2021 and will consist of EUR12 million per year with a vesting period of three years (EUR4 million in 2019, EUR8 million in 2020 and EUR12 million in 2021). The Non-recurring line declines massively from 2019 according to the company guidance and includes the IPO costs (the company indicated EUR70 million part of which will go through the Balance Sheet, we assume that EUR39 million will flow through the P&L while EUR31 million will be capitalized). Adjusted Net Profit, considering a tax rate of 33%, is seen posting a 22.4% 2018- 23 CAGR. In the next table we present our P&L estimates:

Figure 36 – Nexi P&L estimates

(EURm) 2016AG 2017AG 2018PF 2019E 2020E 2021E 2022E 2023E 16-18 CAGR 18-23 CAGR Merchant Services & Solutions 375 415 448 476 518 559 610 661 Cards & Digital Payments 315 342 361 388 414 438 467 496 Digital Banking Solutions 101 109 122 119 119 121 123 125 Net Revenues 791 866 931 982 1,051 1,118 1,200 1,282 8.5% 6.6% Payroll & Personnel Costs (132) (137) (150) (152) (155) (157) (159) (162) % on Net Revenues 16.7% 15.8% 16.1% 15.5% 14.7% 14.0% 13.3% 12.6% Non-Personnel Operating Costs (342) (360) (357) (330) (323) (315) (310) (311) % on Net Revenues 43.2% 41.6% 38.3% 33.6% 30.7% 28.2% 25.9% 24.2% EBITDA 317 369 424 500 574 646 731 810 15.7% 13.8% EBITDA margin 40.1% 42.6% 45.5% 50.9% 54.6% 57.8% 60.9% 63.2% D&A NA NA (75) (115) (145) (170) (175) (160) % on Net Revenues NA NA 8.1% 11.7% 13.8% 15.2% 14.6% 12.5% Operating Profit NA NA 349 385 429 476 556 650 NA 13.2% Operating margin NA NA 37.5% 39.2% 40.8% 42.6% 46.3% 50.7% D&A Customer Contracts NA NA (40) (40) (40) (40) (40) (40) Interests + LTIP NA NA (108) (82) (61) (44) (40) (37) Non Recurring / Extraordinary Items NA NA (131) (85) (40) (30) (20) (10) Pre Tax Profit NA NA 70 178 288 362 455 563 NA 51.7% Taxes NA NA (49) (59) (95) (119) (150) (186) Tax rate NA NA 69.4% 33.0% 33.0% 33.0% 33.0% 33.0% Net Profit NA NA 21 119 193 243 305 377 Minority Interests NA NA (2) (6) (10) (12) (15) (19) Group Net Profit NA NA 20 113 183 230 290 358 NA 78.4% Group Net Profit - Adjusted NA NA 148 210 250 290 343 405 NA 22.4% Source: Company data, UBI Banca estimates

Balance Sheet

The main three items to look-at in Nexi’s balance sheet are: ‹ Debt (gross and net); ‹ Goodwill; ‹ Working capital evolution.

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Debt – renegotiated after the IPO According to Nexi financials, as of 2018, gross debt was EUR2.6 billion while Net debt stood at ca. EUR2.4 billion representing a 4.5x ratio on pro-forma EBITDA including “Initiatives” and 5.7x excluding initiatives. Including the amount of Visa share held (EUR84 million net of hedging) and the earn-out on OASI (EUR9 million) the 2018 P/F Net Debt would be EUR2,325 million. After the IPO rating agencies raised Nexi’s rating (and outlook). The current status is highlighted in the table below:

Figure 37 – Nexi – Current Ratings from agencies Moody's S&P Fitch Issuer LT / Corporate Family rating Ba3 BB- B+ (rating watch positive) Outlook Positive Positive Stable (under review) Issue Rating Ba3 BB- BB- (rating watch positive) Source: Company data

Part of the gross debt has been refinanced after the IPO and part should be subject to a refinancing exercise from now until 2020: ‹ Two new lines were signed after the IPO: EUR1 billion senior secured term loan facility and EUR350 million multy-currency RCF. They replace the EUR1,375 million bond expiring May 2023 (and paying + 362.5bps) which the company redeemed last week. ‹ EUR825 million expiring November 2023 and paying a fix coupon of 4.125%. Up to 40% of this bond, in case of an IPO, could be redeemed at a call price of 104.125 (thereafter and until 30 November 2020 the call premium is set at 102.0625); ‹ EUR400 million expiring July 2024 and paying Euribor + 362.5bps. It is callable after 2nd July 2019 at 101 (if called between 2nd July 2019 and 1st July 2020) and at 100 (if called after 2nd July 2020). In our estimates we assume that the money raised during the IPO (EUR684 million, net of the fees) will be used to call the EUR400 million bond in 2019 and part of the EUR825 million bond in 2020. The weighted average yield of the existing debt structure, given Euribor current levels, is around 3.1% p.a. and went down (from 3.8% before the IPO) thanks to the refinancing exercise, thus significantly reducing financial charges. Worth mentioning that, in the IPO prospectus, the company provided a sensitivity to interest rates (presumably before the refinancing exercise): every 100bps increase in the yield curve would bring EUR70 million additional financial charges cumulated 2019-2024. This estimate do not include any mitigant action.

Goodwill & Intangibles – Sizeable and Stable The balance sheet carries a significant amount of intangibles (EUR2.7 billion on P/F 2018) with the vast majority being goodwill that arose from the acquisitions. Intangibles mostly refer to customer relationships and software. We do not expect the overall Intangible number to vary over time given that the company does not capitalize R&D and the customer relationship may change if, as with bank failures, the impairment test will show their value has changed.

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Working Capital – Not material Nexi has a daily operational sourcing requirement generated by the pass through of funds in the card issuing and merchant acquiring business it manages. As regards the card issuing business, Nexi is debited daily by the card schemes for all payments occurring on any given day with its cards; the time lapse within which Nexi receives back the amount previously debited ranges on average from 15 to 45 days (issuing licensing and direct). A limited number of customers benefit, in the issuing licensing scheme, from 60 to 90 days delay vs. the standard 45 days. Furthermore, should a cardholder elect to pay its monthly bill in instalments, the delay could increase to some months (issuing revolving). As regards the acquiring business, transactions are debited to Nexi on a daily basis and repaid to Nexi after 1 to 3 days. In order to support these settlement amounts linked to issuing transactions, Nexi has several different instruments at its disposal: ‹ Issuing licensing (which represents the largest source for Nexi) is substantially covered by the Factoring Agreement, which provides the daily sale and assignment of receivables by Nexi to Unicredit. About 90% of the Factoring Agreement amount is without recourse so the related receivables are derecognized from the balance sheet; ‹ Issuing revolving settlement amounts are covered directly by the bank whose cardholder elects to pay in instalments; ‹ Direct issuing is covered by the same bilateral bank lines dedicated also to acquiring; ‹ Acquiring is covered by bilateral bank lines. Focusing on factoring, the purchase price for each receivable is equal to 100% of its face value, net of a factoring fee comprising funding and commitment costs. This means that Nexi monetizes every day the issuing business settlement amounts without waiting for the 15th of the following month. The cost of factoring is rebated to partner banks under the licensing contractual framework. Factoring encompasses a maximum committed amount per bank, totalizing an overall EUR3.2 billion amount. All of the above is not part of the working capital given the fully matched nature of these exposures / positions. As such the working capital that we report in our estimates is related to the operating expenses of the company, and we do not expect massive variations in the long term (a small cash absorption given that the business is growing).

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Figure 38 – Nexi – Balance Sheet estimates (2016-17 are “carve-out figures” not directly comparable to 2018 P/F)

(EURm) 2016CO 2017CO 2018PF 2019E 2020E 2021E 2022E 2023E Cash & Cash Equivalents 8 134 187 1,117 1,314 1,583 1,937 2,296 Financial Assets at Fair Value 48 83 100 100 100 100 100 100 Financial Assets at Amortised Cost 2,878 3,112 1,668 1,520 1,535 1,523 1,485 1,512 a) Receivables from Banks 330 333 561 561 561 561 561 561 b) Receivables from Customers 2,548 2,779 1,107 959 974 962 924 951 Equity Investments 0 0 1 1 1 1 1 1 Tangible Assets 116 163 159 159 159 159 159 159 Intangible Assets 1,906 2,608 2,668 2,628 2,588 2,548 2,508 2,468 of which Goodwill 1,501 2,072 2,097 2,097 2,097 2,097 2,097 2,097 Tax Assets 46 54 63 63 63 63 63 63 Non Current Assets and Assets Under Disposal 54 66 2 2 2 2 2 2 Other Assets 263 340 406 426 439 452 466 480 Total Assets 5,319 6,560 5,254 6,017 6,200 6,431 6,721 7,080 Financial Liabilities at Amortised Cost 1,957 2,606 3,717 3,717 3,717 3,717 3,717 3,717 a) Due to Banks 1,859 2,493 793 793 793 793 793 793 b)Due to Clients 98 113 354 354 354 354 354 354 c) Securities Issued 0 0 2,570 2,570 2,570 2,570 2,570 2,570 Financial Liabilities Held for Trading 0 1 3 3 3 3 3 3 Hedging Derivatives 0 6 17 17 17 17 17 17 Tax Liabilities 146 134 164 164 164 164 164 164 Liabilities Related to Assets Under Disposal 12 23 1 1 1 1 1 1 Other Liabilities 474 720 716 716 716 716 716 716 Severance Pay 16 18 14 14 14 14 14 14 Provisions for Risk and Charges 17 33 47 47 48 48 49 49 Equity 2,697 3,020 576 1,337 1,521 1,751 2,040 2,399 Total Liabilities and Equity 5,319 6,561 5,255 6,017 6,200 6,431 6,721 7,080 Net Debt/(Cash) 2,418 1,488 1,291 1,022 668 309 Capital Employed 2,994 2,825 2,812 2,773 2,708 2,708 Net Debt/EBITDA 5.7 3.0 2.3 1.6 0.9 0.4 Source: Company data, UBI Banca estimates

Cash Flow – A cash generative business

We estimate that, in the 2016-18 period (excluding the non-recurring items and based on 2016-17 aggregated figures and P/F 2018), Nexi generated an average yearly normalized free cash flow of EUR259 million. The proceeds from disposals in the period have been almost equal to the non- recurring items:

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Figure 39 - Nexi non recurring items – Summary of cash flow and P&L impact

Non-recurring items affecting Reported EBITDA 2016 2017 2018 Disposals EV (EURm)

Extraordinary costs linked to Fondo Italiano di Investimenti 25 Transformation transformation projects (including re- 36 54 38 branding) 2017 114

HR Restructuring Mainly Nexi in 2016 / 2017 and Bassilichi 16 51 21 Transfer Agent Pension Fund 16 in 2018 Brokerage and Market Making 1 M&A, Corporate M&A-related extraordinary items, DEPObank separation, bond (1) 29 72 2 Reorganization and refinancing, start-up investments (e.g. 2018 Other Items YAP) «Non-core» Real Estate Portfolio 73

0.1 Extraordinary items below EBITDA 2016 2017 2018 Business Services 1 PPA D&A related to the acquisitions of - 33 40 Carige, MPS and BK books 2019 149

0.1 Debt Pushdown One-off rating agencies fees as well as - - 9 amortisation of the bond cost 381

Source: Company data

Going forward we expect a similar amount of cash generation which should be back-end loaded as capex should normalize:

Figure 40 – Nexi – Cash Flow Statement estimates (EURm) 2018PF 2019E 2020E 2021E 2022E 2023E EBITDA 424 500 574 646 731 810 Ordinary Capex (85) (95) (92) (96) (105) (107) Transformation Capex (65) (68) (60) (55) (25) (15) Change in WC (27) (20) (20) (20) (20) (20) Operating Cash Flow 247 317 402 475 581 668 Non-Recurring Items (131) (69) (40) (30) (20) (10) Interest Expense (108) (82) (61) (44) (40) (37) Cash Taxes and Minorities (50) (65) (105) (132) (165) (205) Capital Increase/(acquisitions)/disposals 0 829 0 0 0 0 Dividends 0 0 0 0 0 (58) Free Cash Flow (42) 930 196 269 355 358

Free cash flow - before one offs 89 170 236 299 375 368 Capex/Sales 16.1% 16.6% 14.5% 13.5% 10.8% 9.5% Net Debt/(Cash) - Beginning of the period 2,376 2,418 1,488 1,291 1,022 668 Net Debt/(Cash) - End of the period 2,418 1,488 1,291 1,022 668 309

The most relevant item in Nexi’s cash flow is capex. Management has been investing heavily in what they call “transformation capex” (IT Strategy Transformation, Customer Care Transformation; M&A-related investments), which should represent anything in the region of 7% on net revenues. In the long run, total capex should decline toward the 8-10% range.

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Figure 41 – Electronic Payment industry – 2018 Capex/Sales comparison

16.1%

Transformation 7.0% Capex

7.2% 6.0% 6.0% 6.0% 6.2% 5.4% 4.9% Ordinary 9.1% Capex

1.5%

Source: Company data (P/F for Nexi), FactSet

1Q19 results: better than the FY guidance Nexi reported a solid set of 1Q19 results with a EUR111 million EBITDA that would imply EUR513 million for FY2019, assuming the same weight of 1Q18 (or 21.6% of FY total). During the call management confirmed that 1Q19 numbers where somewhat above budget/expectations but, being the first quarter of the year, it was too early to raise guidance. Cash generation optically was very strong with 1Q19 net debt already aligned with FY2019 guidance. However, this number includes one-offs from the disposal of OASI (EUR145 million) and a dividend from Depobank for the excess cash that was, cautiously, left in the bank at the time of the spinoff and that is not needed anymore. More in details: ‹ Revenues grew 5.2% YoY or +6.8% excluding the run-off of some zero margin contracts included in recently acquired businesses; o Merchant Services & Solutions grew by 6% YoY; o Cards & Digital grew 8.1% YoY; o Digital Banking declined 6.6% YoY; ‹ EBITDA grew 21% YoY and reached the 48.8% margin or 660 bps above 1Q18: o Operating leverage added EUR8.8 million to EBITDA, we estimate; o The remaining EUR11 million increase in EBITDA is explained by cost cutting: despite revenues grew, overall costs went down -6.5% YoY (operating costs alone down 13% YoY). ‹ Net Debt went down to EUR2,185 million that, considering the IPO proceeds, means EUR1,538 million. This level is basically in line with the FY2019 estimates we have of EUR1,611 million.

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Figure 42 – Nexi 1Q19 results vs. 1Q18 (EURm) 1Q18 1Q19A YoY chg. Merchant Services & Solutions 100 106 6.0% Cards & Digital Payments 86 93 8.1% Digital Banking Solutions 29 27 -6.5% Net Revenues 215 227 5.2% EBITDA 91 111 21.0% EBITDA margin % 42.4% 48.8% Industrial Net (Debt)/Cash (pre capital increase) (2,454) (2,185) -8.0% Source: Company data

The major points that emerged during the call helped to better understand this firstever set of results: ‹ Revenues seasonality: quarters should grow sequentially, so 2Q stronger than 1Q and so forth until 4Q. The number of working days is a relevant driver to take into account. In 1Q19 it was lower than 1Q18 (-1.6% YoY); ‹ Take-out rates (Nexi revenues/transaction value. In other words how much remains to Nexi of every single transaction): increased vs. last year (18.4bps vs. 18.2bps for MSS and 19.9bps vs. 19.2bps for Cards). This is extremely positive as it shows that, regardless of price pressure, Nexi takes a larger chunk of bps from every transaction; ‹ Revenues on e-commerce grew by 17.5%, in line with our FY estimate; ‹ Cash flow seasonality: management confirmed that 1Q19 cash generation was particularly strong but the FY guidance implies no cash generation for the rest of the year. Apart from looking conservative, management stressed that taxes and bonds coupon are paid mostly in 2Q. On top of that, management hinted that 1Q19 was below trend line on capex but spending will recover over the course of 2019; ‹ YAP users progression is very strong: 150K at year end 2018, 200K at the time of the IPO and 430K as of today;

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VALUATION

We initiate coverage with a Buy rating. Our target price is based on two methods: ‹ A peer group comparison, given that an homogeneous peer group exists and the dispersion of multiples is quite low; ‹ A Discounted Cash Flow, given that cash generation is resilient and not extremely volatile; The summary of our findings, which lead us to establish a target price of EUR10.2, is outlined here below:

Figure 43 – Valuation summary (EURm)

10.5 9.8 10.2

DCF Peers Average

Source: UBI Banca estimates

Peer Group valuation Out of the entire universe of electronic payments players, (see Figure 7 for more details) we selected two group of peers: ‹ Tieri I are companies focused on merchant acquiring, issuing and card payments that, at the same time, are technology driven and have a solid IT platform: First Data, Global Payments, TSYS, Worldline; Worldpay; ‹ Tier II are companies that still are technology driven and have a solid IT platform but focused only on processing: FIS, Fiserv and Wirecard. Before entering into the comparison exercise, it is worth noticing that peers have performed very well being up on average by 32.5% on a 1 year basis and 123% on a 3 years basis:

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Figure 44 – Peer group 3 years share price performances

500 450 400 350 300 250 200 150 100 50 16 17 17 18 18 19 16 16 16 16 16 16 16 17 17 17 17 17 17 17 17 17 17 18 18 18 18 18 18 18 18 18 18 19 19 19 19 ------Jul Jul Jul Jan Jan Jan Jun Jun Jun Oct Oct Oct Apr Apr Apr Sep Feb Sep Feb Sep Feb Dec Dec Dec Aug Aug Aug Nov Nov Nov Mar Mar Mar May May May May First Data Global Payments TSYS Worldline Worldpay Fidelity Fiserv Wirecard

Source: Facset

Furthermore, the sector has re-rated given that the 1 year forward EBITDA has gone from 13.1x of 2015 to the current 16.9x:

Figure 45 – Peer group historical EV/EBITDA 1 year forward

45

40

35

30

25

20

15

10

5 15 16 17 18 19 15 15 15 15 15 16 16 16 16 16 17 17 17 17 17 18 18 18 18 18 19 19 ------Jul Jul Jul Jul Jan Jan Jan Jan Jan Sep Sep Sep Sep Nov Nov Nov Nov Mar Mar Mar Mar Mar May May May May May First Data Global Payments TSYS Worldline Worldpay Fidelity Fiserv Wirecard

Source: Facset

With that in mind, to better understand the impacts of Nexi business model/market in the context of a peers comparison, we note that: ‹ Nexi is investing well above peers as its capex/sales spread vs. them is around 9% on average for the 2019-21 period; ‹ At the same time its EBITDA margin is around 16.5% higher than that of peers over the same time horizon; ‹ The combined result of the two points above is that Nexi EBITDA-to-cash conversion ratio is broadly 11% lower than peers. In other words Nexi is investing more than peers to fuel its business model that allows for superior EBITDA margin. Capex should normalize and, at that point, assuming EBITDA margin will not deteriorate, its cash generation potential will be in line with peers.

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This can be seen in the following table where it is worth mentioning also the difference between Tier I and Tier II in terms of fundamental that support our view of not using processors’ multiples in the valuation:

Figure 46 – Peer group – Comparison with Nexi on EBITDA margins, cash generation and capex/Sales (priced on 22 May 2019)

Name TIER Price Currency Mkt Cap FCF/EBITDA Capex/Sales Cash conversion ratio EBITDA %

bn 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

First Data I 23.9 USD 22.5 46.3% 49.8% 51.5% 5.5% 5.5% 5.0% 85.7% 85.9% 87.5% 38.3% 38.9% 39.7%

Global Payments I 135.0 USD 21.2 58.3% 64.0% NA 5.1% 4.9% 4.8% 85.9% 86.6% 87.0% 36.1% 36.7% 37.0%

TSS I 90.8 USD 16.1 47.9% 53.8% NA 5.6% 5.8% 7.1% 84.5% 84.3% 80.6% 36.3% 36.9% 36.5%

Worldline SA I 52.3 EUR 9.6 48.9% 53.5% NA 5.9% 5.8% 5.8% 76.2% 77.6% 78.4% 24.8% 25.9% 26.9%

Worldpay I 109.7 USD 34.1 66.2% 72.7% 82.9% 8.7% 8.3% 7.6% 82.7% 84.1% 85.8% 50.6% 52.1% 53.3%

FIS II 108.5 USD 35.1 59.3% 69.1% NA 1.6% 1.6% 8.7% 96.0% 96.1% 78.7% 39.0% 40.1% 40.9%

Fiserv II 80.3 USD 31.5 66.4% 76.9% 113.2% 7.2% 8.5% 15.1% 81.1% 78.0% 0.0% 38.2% 38.6% 39.5%

Wirecard II 158.9 EUR 19.6 58.4% 61.2% 63.0% 5.6% 5.4% 5.6% 80.9% 82.4% 82.2% 29.4% 30.9% 31.6%

Median 58.3% 62.6% 44.4% 5.6% 5.6% 6.5% 83.6% 84.2% 82.2% 37.2% 37.7% 38.3%

Nexi 34.1% 41.2% 46.3% 16.6% 14.5% 13.5% 67.4% 73.5% 76.6% 50.9% 54.6% 57.8%

TIER I - Average 53.5% 58.8% 33.6% 6.2% 6.1% 6.1% 83.0% 83.7% 83.8% 37.2% 38.1% 38.7%

TIER II - Average 61.4% 69.1% 88.1% 4.8% 5.2% 9.8% 86.0% 85.5% 80.5% 35.5% 36.5% 37.3%

Source: FactSet, UBI Banca estimates

In terms of multiples, the peer group shows a very low dispersion of multiples, therefore we consider fair to use all of those peers as a valuation tool. During the IPO we used only the Tier I for the valuation but, considering that two companies of the Tier II are taking-over two Tier I companies, we decided to use both Tiers. After the mergers will be closed (2H19) the Tier I and II will be merged into a single peer group:

Figure 47 – Peer group – Multiples (priced on 22 May 2019)

Name TIER Price Currency Mkt Cap EV/EBITDA EV/EBIT P/E FCF Yield

bn 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

First Data I 23.9 USD 22.5 11.9 x 10.7 x 9.4 x 18.4 x 15.6 x 14.0 x 16.9 14.8 13.0 6.3% 7.3% 8.1%

Global Payments I 135.0 USD 21.2 17.1 x 15.0 x 13.0 x 19.0 x 16.5 x 14.1 x 24.9 21.3 18.4 4.0% 4.8% 6.4%

TSS I 90.8 USD 16.1 14.3 x 12.7 x 11.6 x 21.7 x 18.9 x 16.6 x 20.8 18.2 16.1 3.9% 4.8% 4.6%

Worldline SA I 52.3 EUR 9.6 16.5 x 14.2 x 12.2 x 23.5 x 19.4 x 16.2 x 33.1 27.3 24.1 3.0% 3.7% 4.2%

Worldpay I 109.7 USD 34.1 20.4 x 17.5 x 14.6 x 22.7 x 18.7 x 15.8 x 26.2 22.5 19.7 3.8% 4.6% 6.0%

FIS II 108.5 USD 35.1 14.1 x 12.9 x 11.6 x 16.3 x 14.5 x 13.6 x 16.3 14.9 14.0 5.0% 6.2% 7.9%

Fiserv II 80.3 USD 31.5 16.6 x 15.2 x 14.9 x 23.3 x 19.7 x 19.2 x 25.9 23.3 19.9 4.4% 5.5% 8.6%

Wirecard II 158.9 EUR 19.6 23.9 x 17.5 x 13.3 x 28.8 x 20.6 x 15.6 x 36.8 27.4 21.4 2.3% 3.2% 4.2%

Median 16.6 x 14.6 x 12.6 x 22.2 x 18.8 x 15.7 x 25.4 x 21.9 x 19.0 x 4.0% 4.8% 6.2%

TIER I - Average 16.1 x 14.0 x 12.2 x 21.1 x 17.8 x 15.3 x 24.4 x 20.8 x 18.3 x 4.2% 5.1% 5.8%

TIER II - Average 18.2 x 15.2 x 13.3 x 22.8 x 18.3 x 16.1 x 26.3 21.8 18.4 3.9% 5.0% 6.9%

Nexi 8.80 EUR 5,524 14.0 x 11.9 x 10.1 x 18.2 x 15.9 x 13.8 x 48.8 x 30.2 x 24.0 x 3.1% 4.3% 5.4%

Premium/(Discount) to peers -15.4% -18.6% -19.4% -18.1% -15.6% -12.2% 92.0% 37.7% 26.1% 35.9% 18.1% 7.8%

Source: FactSet, UBI Banca estimates

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When valuing Nexi vs. peers three other factors have to be taken into account: ‹ Leverage : Nexi’s leverage is slightly higher than peers : for 2019 it would be in the 3.0x region compared to the 2.4x of the TIER I peer group;

Figure 48 – Peer group Debt/EBITDA

5.0 x 4.6 x

3.9 x 4.0 x 2019E 2020E

3.0 x 3.0 x 2.8 x 2.4 x 2.4 x 2.2 x 2.2 x 2.3 x 1.8 x 2.0 x 1.7 x 1.8 x 1.7 x 1.4 x 1.2 x 0.9 x 1.0 x 0.5 x 0.2 x 0.0 x 0.0 x

-0.3 x -1.0 x

-1.3 x -2.0 x -1.6 x

First Data Global TSYS Worldline Worldpay Fidelity Fiserv Wirecard Tier 1 Tier 2 NEXI Payments Average Average

Source: FactSet, UBI Banca estimates

‹ Growth: Nexi growth rates (not in terms of revenues but in terms of EBITDA and Net Profit) will reflect the “Initiatives” (cost and operating structure optimization actions) and the high leverage of the company (two/thirds of the total costs are fix). This can be seen in the following table:

Figure 49 – Peer group net income growth

Source: FactSet, UBI Banca estimates

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‹ Geographical breakdown of revenues : Nexi is 100% concentrated on Italy while peers are usually more diversified (as can be seen in the next graph). From the one hand this market has higher growth potential than many other in the Western countries but from the other this represents a “concentration risk”;

Figure 50 – Peer group’s revenues breakdown by geography

Wirecard Fiserv FIS First Data TSYS Global Payments Worldpay Worldline

0% 20% 40% 60% 80% 100% Americas Europe RoW

Source: Companies’ last available reports

We believe the combination of risk and growth allows Nexi to be valued on same static multiples than its peers, meaning a valuation of EUR9.5 p.s.:

Figure 51 – Peer group summary valuation (EURm, x) 2019E 2020E 2021E EV/EBITDA - peers 16.6 x 14.6 x 12.6 x Nexi EBITDA 500 574 646 Implied EV 8,287 8,376 8,119 Debt/(Cash) 1,488 1,291 1,022 Pension liabilities 14 14 14 A - Nexi Equity value 6,785 7,071 7,083 EV/EBIT - peers 22.2 x 18.8 x 15.7 x Nexi EBIT 385 429 476 Implied EV 8,565 8,073 7,456 Debt/(Cash) 1,488 1,291 1,022 Pension liabilities 14 14 14 B - Nexi Equity value 7,063 6,768 6,420 P/E - Peers 25.4 x 21.9 x 19.0 x Nexi Adj Net profit 210 250 290 C - Nexi Equity Value 5,338 5,474 5,526 FCF Yield - Peers 4.0% 4.8% 6.2% Nexi FCF - before one offs 170 236 299 D - Nexi Equity Value 4,310 4,898 4,856 Average of A,B,C,D 5,874 6,053 5,971 Number of shares (million) 627.8 627.8 627.8 Nexi - Fair value per share (EUR) 9.4 9.6 9.5 Source: FactSet, UBI Banca estimates

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To the static peer group valuation that we just showed we felt useful to add a multiples -adjusted-for-growth valuation. This given that Nexi is coming from a period of acquisitions/disposals/re -organization and the full effects of that will be seen in the next two -three years Sector -wise, the valuation vs. growth exercise demonstrate d a solid correlation within peers (the P/E vs. Net Profit growth in particular). It is relevant in assessing Nexi fair value given that the company will reap the benefits of its “initiatives” over 2019 and 2020 :

Figure 52 – EV/EBITDA to EBITDA growth regression

Source: FactSet, UBI Banca estimates

Figure 53 – P/E to Net Income growth regression

Source: FactSet, UBI Banca estimates

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The resulting valuation is EUR 10.1 p.s. (EUR11.3 p.s. for the EV/EBITDA based one and EUR9.0 p.s. for the P/E based one):

Figure 54 – Peer group – Valuation growth-adjusted

(EURm, x)

Fair EV/EBITDA 2019 (x) 17.1

Nexi 2019 EBITDA 500

Nexi fair EV 8,567

Nexi Net Debt - 2019 1,488

Nexi - Fair Equity Value 7,080

Nexi - Fair value per share 11.3

Fair P/E 2019 (x) 26.9

Nexi 2019 Net profit 210

Nexi fair Equity value 5,664

Nexi - Fair value per share (EUR) 9.0

Source: UBI Banca estimates

DISCOUNTED CASH FLOW Given the resiliency of cash flows in the payment sector (as demonstrated by the high sector leverage), we suggest investors to apply also a DCF valuation to set Nexi’s fair value. We adopted a two-stage DCF based on: ‹ Explicit estimates until 2023; ‹ For a 2023-26 period, we assume sales CAGR declining to 3% and a stable EBIT margin while capex is seen in line with D&A and NWC should be neutral; ‹ Terminal value calculated on a terminal growth rate of 1.75%, revenues growth of 3.0% and an EBIT margin at 45%, capex in line with D&A, and neutral NWC change. This returns an exit EV/EBITDA multiple of 10.8x; ‹ A WACC of 6.7% deriving from: o A free risk rate of 3.5%, higher than the current market one; o An equity risk premium of 4.5%; o A beta of 1.0 (obtained through peers’ unlevered beta, re-levered with the 2020 debt/equity ratio); o A sustainable D/E of 22% (implying Debt/EBITDA of 2.5x, in line with peers’ average).

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In summary, here below we present the estimates on which our DCF is based upon:

Figure 55 – DCF valuation – Estimates summary

(EURm) 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E Terminal TV

NOPAT 265 295 328 384 450 473 496 521 476

Capex (150) (163) (152) (151) (130) (168) (176) (185) (199)

D&A (115) (145) (170) (175) (160) (168) (176) (185) (199)

Change in Working capital (20) (20) (20) (20) (20) 0.8 0.8 0.8 -

Cash flow to the firm 209.8 257.2 326.3 388.0 460.1 473.4 497.0 521.9 475.8 9,619

Time adjustment - 1 2 3 4 5 6 7 8 9

Discount factor 1.00 0.94 0.88 0.82 0.77 0.72 0.68 0.64 0.60 0.56

Discounted cash flow to firm 210 241 287 319 355 342 337 332 283 5,367

Source: UBI Banca estimates

We then run a sensitivity of the DCF by tweaking WACC by 0.5% up/down and a terminal growth rate in a 1.50-2.00% range. The resulting fair value range is highlighted in grey in the below table:

Figure 56 – DCF Sensitivity Analysis

(EUR, %) Terminal growth rate

1.50% 1.75% 2.00%

5.7% 13.1 13.8 14.6

6.2% 11.4 11.9 12.5

WACC 6.7% 10.1 10.5 10.9

7.2% 9.0 9.3 9.7

7.7% 8.0 8.3 8.6

Source: Company data, UBI Banca estimates

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APPENDIX A - GOVERNANCE

Nexi is still controlled by the private equity funds that sponsored the IPO, namely Advent, Bain and Clessidra. According to the registration document, the Executive Managers would own around 1% of the share capital under the hypotheses of full exercise of the greenshoe option and price at the mid-point of the IPO offer price range. Although none of these two conditions apply, this still represent a truthful indication of their share.

Figure 57 – Nexi shareholders base

3.2% Mercury UK HoldCo Limited

36.6% Free Float 60.2% GIC Private Limited

Source: Consob

Nexi’s board of directors (one-tier, non-staggered) is composed of 13 members, counting one executive director (namely the CEO, Mr. Bertoluzzo) and twelve non- executive directors, three of which are also independent. The board, illustrated in details in the following table, was appointed by the ordinary shareholders’ meeting of the Group on 13 February 2019 and will remain in office until the date of the shareholders' meeting called to approve the financial statements for the year ending 31 December 2021.

Figure 58 – Nexi Board of Directors and Comittees’ composition Appointment and Related Strategic Remuneration Control and Parties Director Role Committee Committee Risk Committee Committee Michaela Castelli BoD President, non-executive director X Luca Bassi non-executive director X X Paolo Bertoluzzo executive director (CEO) X Giuseppe Capponcelli BoD Vice-President, non-executive director X Francesco Casiraghi non-executive director X X Simone Cucchetti non-executive director X Federico Ghizzoni non-executive director Robin Marshall non-executive director X Jeffrey David Paduch non-executive director X Antonio Patuelli independent director X Maurizio Mussi non-executive director Marinella Soldi independent director X X X Luisa Torchia independent director X X X Source: Company data

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The same shareholders’ meeting has also established a yearly gross salary of EUR50 thousand for each director, with the sole exception of the BoD President, which will make EUR300 thousand, and Vice-President, which will collect EUR150 thousand, for an overall BoD compensation of EUR1 million (gross, yearly basis).

The current board of directors is mainly constituted by representatives of the private equity funds which jointly owned around 94% of the share capital at the date the board was appointed. However, the picture is going to change following the adoption of the new articles of association approved by the extraordinary shareholders’ meeting on 13 March 2019: starting from the next board renewal (expected in 1H22), the BoD will be made of 7 to 15 re-electable directors appointed on the basis of lists, moreover regulation to guarantee the gender balance will become fully effective. To sum up, the new articles association establishes that: ‹ The lists may be submitted by the exiting Board of Directors and by shareholders representing at least 2.5% of the share capital; ‹ Each vote is for one list only and extends to the entire list, that is all indicated candidates; ‹ All directors, except for two, will be elected from the list achieving the highest number of votes. The remaining two directors will be elected from the minority lists.

Besides the BoD, Nexi actively manages and monitors operations and performance through a series of committees: ‹ A Strategic Committee, which advises the board on industrial plans, business lines performances, extraordinary operations, financial strategies and policies and organization structure of controlled entities; ‹ An Appointment and Remuneration Committee, that submits proposals to the BoD concerning the dimension and the composition of the board itself and the remuneration policy (in terms of fixed and variable component); ‹ A Control and Risk Committee, which informs the BoD about appropriate risk policy and risk tolerance of the Group, oversees the company-wide risk management processes and exercises a control over the internal audit division; ‹ Lastly, a Related Parties Committee, that issues opinions on the board resolutions with regard to the adoption and amendments of the procedures on related-party transactions. Remuneration policy The remuneration of Nexi employees is based on four main components, but this number can vary according to the band each employee belongs to: 1. A fixed remuneration recognized to the entire Group labor force; 2. A short term variable component (Management By Objectives or MBO plan) intended for the employees of the first five bands; 3. A medium/long term variable component (Long Term Incentive or LTI plan) dedicated to the employees which constitute the top four bands; 4. Benefits (i.e. health insurance, pension plan, ticket restaurant). The same remuneration policy is also applied for the Group Executive Managers, namely the CEO Mr. Bertoluzzo, the CFO Mr. Mingrone, the Director of the business unit Merchant Services & Solutions Mr. Trovati, the Director of the

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business unit Cards & Digital Payment Mr. Mencarini and the Head of the business unit Digital banking Solutions Mr. Martini.

The MBO plan is defined by a variable amount (expressed as percentage of the fixed remuneration) which changes depending on the banding and the results achieved at group level (overall EBITDA), business unit and individual levels. This variable component is paid entirely in cash and is not characterized by malus and claw-back clauses. For Executive Managers this short term variable component can reach 50% of the fixed remuneration, the only two exceptions are represented by the CEO and the CFO which present a 130% and 100% cap respectively.

The LTI plan has a three years time horizon and provides the employees of the first four bands (around 230 people) with the right to receive free of charge Nexi ordinary shares on a yearly basis between 2019 and 2022 with a vesting period between 2022 and 2024. In particular, the Long Term Incentive plan establishes the distribution of two kind of shares: ‹ Performance shares: destined to the Executive Managers and distributed if specific company performance thresholds (in terms of shareholders return and cumulative operating cash flow) are met; ‹ Restricted shares: distributed to remaining employees if the recipient is still in office at the end of the vesting period. The distribution of such shares is based on banding: the higher the banding, the higher the percentage of shares received. Moreover, the employees belonging to the highest band (which includes the five Executive Managers aforementioned) are subject to a minimum holding period of 1 year for half the shares obtained through this plan. Lastly, contrary to the MBO plan, this incentive is also subject to malus and claw-back clauses.

Lastly, after the listing, the Executive Managers had the opportunity to buy shares from Mercury following the exercise of the call option on their warrants. These shares, which should represent around 1% of the share capital, are subject to lock- up periods, in particular: ‹ Mr. Bertoluzzo has committed to not sell 50% of these shares for at least 12 months from the acquisition date and the remaining 50% for at least 24 months from the same date; ‹ The remaining Executive Managers can not sell such shares before at least 12 months have passed from the acquisition date. These minimum holding periods will become ineffective in case of takeover from an entity different from the Financial Sponsors or in case of good leaver events.

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APPENDIX B – MANAGEMENT TEAM

Nexi management team has a solid experience mostly gained in banking/financial services, telecommunications at national and international levels.

Figure 59 – Management Team

Paolo Bertoluzzo Group CEO

Enrico Trovati Andrea Mencarini Renato Martini Merchant Services Cards & Digital Digital Banking & Solutions Payments Solutions

Roberto Catanzaro Giuseppe Dallona Bernardo Mingrone Business CIO CFO Development

Marco Ferrero Stefania Gentile Federico Ferlenghi Commercial Mercury Payments Operations & Division Help Line

Silvia Beraldo Saverio Tridico CAO Corporate & External Affairs

Daniela Bragante Emanuele Boati Compliance & Audit AML

Source: Company website

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The current management team in place from not so long (Mr. Bertoluzzo, the CEO, joined what still was called ICBPI in May 2016) and has already delivered on many fronts (6 acquisitions, 260 plus hirings, re-branding, new products, IT transformations, etc.). More specifically here follows a summary cv of the main managers:

Paolo Bertoluzzo Paolo Bertoluzzo is Chief Executive Officer of Nexi and Nexi Payments since July 2016, he is also Chairman of the Nexi Strategic Committee. Graduated with a degree cum laude in Management Engineering from the Politecnico of Milan and completed an MBA with distinction from INSEAD, he started his career as a management consultant working both in Europe and the United States. He served as Chief Commercial Operations and Strategy Officer of the Vodafone Group Plc with responsibility for Vodafone’s global commercial management, strategy and operations, as well as innovation and transformation projects. From 2008 to 2013, Paolo was Chief Executive Officer of Vodafone Italy and since 2012 of the Southern Region, when he became a member of the Vodafone Group’s Executive Committee. Currently he is a member of the Politecnico of Milan Advisory Board. From 2013 to 2016 he has served as a Member of the GSMA Board, the worldwide telecom industry Association.

Enrico Trovati Enrico Trovati is Director of the Business Unit Merchant Services & Solutions since October 2016. Graduated in Electronic Engineering at Politecnico of Milan, after his professional experience in McKinsey & Company as Associate Principal and Member of European Telecom Practice Leadership Group, he performed various roles in Telecom Italia, mainly in Value Added Services Marketing and Web Marketing. From 2008 to 2009 he has been CEO of Matrix S.p.A., Telecom Italia Group, then Marketing Director and Sales Director of the Business Market and Marketing Director of Business, Top & Public Sector since September 2016.

Andrea Mencarini Andrea Mencarini is Director of the Business Unit Cards & Digital Payments in Nexi since October 2016. Graduated in Economics and Commerce, he started his career in marketing at the Api Group and then at the De Agostini Group, where he was responsible for loyalty, advertising and customer services projects. From 1998 to 2002, he held a number of commercial positions at Rolo Banca 1473. He then joined the UniCredit Group, where, up to 2008, he performed various roles in the commercial area as Head of Sales Mass Market and subsequently, in the marketing area as Head of Marketing Family and Senior. From 2008 to 2016, he was Head of Marketing for Retail Customers at the Group. He was responsible for the development and launch of financial services and products in the transnational, insurance, financial and social security segments supporting both the physical and the digital channels.

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Renato Martini Renato Martini is Head of Digital Banking Solutions since March 2017. Graduated in Electronic Engineering at University of Rome and with a Master in Business Administration at INSEAD, he starts his career as Senior Consultant at Andersen Consulting, London. From 1995 to 2003 he is in Mc Kinsey & Company, where he becomes Associate Principal, in charge of many projects for Financial Institutions, including payments and product innovation in Corporate Banking. From 2004 to 2013 he is in UniCredit Group, where he becomes Head of Global Marketing for Small and Medium Companies. In 2013 he is appointed CEO of UniCredit Factoring and in 2014 he is promoted Executive Vice President of UniCredit Group.

Roberto Catanzaro Roberto Catanzaro is the Director for Business Development of Nexi from November 2016. Chemical engineer, he made his first work experiences in consulting at Accenture and McKinsey, where he supervised and coordinated projects in CRM, Marketing and Sales for primary reality of financial services. From 2005 to 2014 he worked at Italy, where he held several management positions within Sales, Marketing and Planning. In particular, he led the digital transformation of Allianz in front office platforms, CRM systems, the creation of modern analytical / marketing capabilities and the creation of a European platform for e-business. Roberto joined Nexi (formerly CartaSi) in October 2014 as Marketing Director.

Giuseppe Dallona Giuseppe Dallona is CIO at Nexi Group since November 2017 and Member of the Board of Directors in Mercury Payment Services since December 2016. Formed professionally in software engineering at Centro di Calcolo of Catholic University in Milan, he starts his career in IT and Management Consulting companies such as Arthur Andersen & Company, General Electric Information Services and Ernst & Young Consultants. From 1994 to 2001 he is in charge of IT Directional Systems at Intesa Sistemi e Servizi (Banca Intesa) and implementation of management systems for Banco Ambrosiano Veneto-Cariplo-Comit mergers. From 2001 to 2015 he is CIO at UBI Sistemi e Servizi (UBI Banca), filling moreover the role of General Director of the Company since 2005. He manages the construction of the Information System and the Merger Project between Banca Lombarda and Banche Popolari Unite; he is Board Member of UBISS and SIA and participates at the Steering Committee of UBI. In 2015 and 2016 he is CIO of and CEO of Postecom with an active participation in the IPO of Poste Italiane and IT transformation program forming part of Poste 2020 industrial plan.

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Bernardo Mingrone Bernardo Mingrone is Chief Financial Officer of Nexi Group since 2016. He was Group Chief Financial Officer of UniCredit and Deputy General Manager in charge of Finance and Operations of Banca Monte dei Paschi di Siena, preceded by a career in investment banking at Lehman Brothers and JP Morgan. He is also Chairman of the Board of Nexi’s processing subsidiary in Mercury Payment Services, acquired in 2016, and has in the past served as chairman of the Board of Fabrica Immobiliare, Vice Chairman of the Board of Asset Management Holding / Anima, Board Member in AXA MPS and of AS Roma.

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APPENDIX C – PEER GROUP DESCRIPTION

Figure 60 - Worldline sales breakdown by product Figure 61 - Worldpay sales breakdown by product

9% 19% Merchant Service Technology Solutions 36% Financial Services 41% Merchant Solutions

Mobility & e -Transactional 50% Issuer Solutions 45% Services

Source: Worldline Source: Worldpay

Figure 62 – Global Payments sales breakdown by product Figure 63 - TSYS sales breakdown by product

20% Issuer Solutions 44% Payment Services Merchant Solutions Consumer Solutions 36% 100%

Source: Global Payments Source: TSYS

Figure 64 – First Data sales breakdown by product Figure 65 - FIS sales breakdown by product

17% Global Business Solutions 4% Integrated Financial (GBS) Solutions (IFS) Global Financial Solutions Global Financial Solutions 19% 44% 52% (GFS) (GFS) 64% Network & Security Corporate & Other Solutions (NSS)

Source: First Data Source: FIS

Figure 66 – Fiserv sales breakdown by product Figure 67 - Wirecard sales breakdown by product

29% Payment Processing & Risk Payment Services 44% Management (PP&RM) 56% Financial Services Acquiring & Issuing (A&I) 71%

Source: Fiserv Source: Wirecard

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APPENDIX D – HOW THE ELECTRONIC PAYMENT SYSTEM WORKS

The main parties involved in a typical credit or debit card transaction include: Cardholders : the consumer who use non-cash payment means to purchase goods or services from merchants. Merchants or other accepting parties: accept consumers’ credit or debit cards in stores, online, or via mobile devices, and deliver goods or services to consumers. Payment acceptance processing providers : provide merchants with the means (POS terminals, mobile POS terminals, online payment gateways) to collect and transmit card data and receive payment authorizations in stores, online and via mobile devices. Acceptance related services providers: provide merchants with acceptance related services beyond core processing functions, such as enhanced reporting, loyalty programs, advertising services, quality surveys using payment terminals, dynamic currency conversion (DCC) services, etc. These services are offered by most payment acceptance processing providers. Commercial acquirers , which are banks or payment institutions that provide merchants with access to the card schemes (e.g., Visa, MasterCard, Carte Blue, Bancontact/Mister Cash, etc.) and a merchant account. Commercial acquirers receive funds from issuing banks and deposit the proceeds, net of a “merchant service charge,” into the merchant’s account. Acquiring processors , who offer payment transaction processing services for commercial acquirers by routing transaction data received from merchants’ physical or online payment gateways with a view to obtaining payment authorizations via the credit and debit card scheme networks, known as “front-end” processing, and then ensuring that each transaction is appropriately cleared and settled into the merchant’s bank account, known as “back-end” processing. Card schemes , which set card scheme network rules and interchange fees and act as custodians and clearing houses for their respective card brands. Card schemes include both international brands such as Visa and MasterCard, and local schemes. Clearing and settlement institutions , such as national banks, which clear and settle transactions between acquiring banks and issuing banks. Issuers, which distribute card scheme-branded payment cards, and, in the case of credit cards, extend credit, to consumers. Issuing processors , which are payment service providers that authorize transactions received from the card scheme networks and ensure that each transaction is appropriately cleared and settled from the originating card account. Issuing card management service providers , which are service providers that help issuers manage aspects of the card issuing and account management process other than transaction processing functions.

In a typical card based payment transaction, most of the key “core” players deduct their service fees from the gross amount originally charged by the merchant for the good or service. By way of a simplified illustration, in a EUR100 credit transaction using Visa or MasterCard with an interchange fee of 0.30% and a card scheme processing fee of EUR0.05 per transaction: ‹ The issuing bank would immediately withdraw EUR100 from the cardholder’s available balance and a debit of EUR100 would appear on

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the cardholder’s monthly statement at the end of the month; ‹ The issuer would then transfer EUR99.70 to the card scheme, having deducted the interchange fee of 0.30%. If the issuing bank outsources issuing processing services, it might separately pay the issuing processor a part of its fee; ‹ The card scheme would then transfer EUR99.70 to the commercial acquirer; the commercial acquirer would then pay the merchant pursuant to terms of their contractual arrangements; ‹ In most instances, the commercial acquirer pays the merchant within 24 to 48 hours, having deducted from the principal transaction amount a charge comprising the EUR0.30 interchange fee deducted by the issuing bank, the EUR0.05 card scheme processing fee and its own acquiring fee; ‹ The merchant would therefore receive the remaining amount from the commercial acquirer. Various alternative payment arrangements exist between commercial acquirers and merchants, depending on the particular terms of their contractual arrangements; ‹ In some cases, the merchant receives the full EUR100 from its commercial acquirer and receives a bill at the end of the month for the merchant service charge; this is known as the “interchange ++” payment method (generally limited to large- volume customers); ‹ In other cases, the commercial acquirer only pays the merchant several days after the transaction (generally for higher-risk transactions); ‹ The card scheme would send a bill to the commercial acquirer for its card scheme processing fees on a monthly basis. Payments processors have to collect something called dues and assessments for the card networks. These are fees that are paid directly to the networks for the use of their card brand, as well as the ability to process transactions on their payments networks. Assessment fees are different from interchange fees in that they are charged based on total monthly sales and not individual transactions. They are typically lower than interchange fees. But how much you pay in assessment fees varies by network and depends on things like whether the cards used were credit or debit, transaction volume, and whether foreign transactions were processed. Similar to interchange fees, networks review their assessment fees twice a year. Unlike Visa and MasterCard, which are open networks where anyone can issue cards, American Express is a closed network where the company issues cards and offers merchants methods to accept those cards. Because of this closed network structure, Amex has a lot of control over how much merchants have to pay to accept its cards. It uses that control to command higher rates industries where its cards are the preferred method of payment. But Amex doesn’t have total control. Many processors - including some of the largest, such as Elavon, TSYS, and First Data - are able to bundle acceptance in with Visa and MasterCard, and set their own markup for doing so. In addition, the pricing scheme is a bit different than other networks because the card type has no bearing on the processing rate. For instance, with Visa and MasterCard, rewards or commercial cards cost more to process than ordinary debit or credit cards. Not so with Amex. However, industries/merchant categories play a substantial role, and the popularity of the Amex brand in some of those pricier industries also leads to higher fees for merchants.

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Disclaimer

Analyst Declaration This research report (the “ Report ”) has been prepared by Massimo Vecchio and Dario Fasani on behalf of UBI Banca S.p.A. (“ UBI Banca ”) in the context of the ancillary service provided by UBI Banca named “Investment research and financial analysis or other forms of recommendation relating to transactions in financial instruments” under Paragraph 5), Section B, Annex I of the Directive 2014/65/EU (“MiFID II”). UBI Banca is an Italian bank under art. 4 (1)(27) of MiFID II and it is supervised by the European and duly authorised to provide investment services pursuant to Article 1, Paragraph 5, letter a), b), c), c-bis), e) and f) of the Legislative Decree 24 February 1998, n° 58 under the supervision of the Italian Authority for the financial markets (Consob). UBI Banca has its head office at Piazza Vittorio Veneto 8, 24122 Bergamo. The analyst who prepared the Report, and whose name and role appear on the front page, certifies that: a. The views expressed on the company, mentioned herein (the “ Company ”) accurately reflect his personal views, but do not represent the views or opinions of UBI Banca, its management or any other company which is part of or affiliated with UBI Banca group (the “ UBI Banca Group ”). It may be possible that some UBI Banca Group officers may disagree with the views expressed in this Report; b. He has not received, and will not receive any direct or indirect compensation in exchange for any views expressed in this Report; c. The analyst does not own any securities and/or any other financial instruments issued by the Company or any financial instrument which the price depends on, or is linked to any securities and/or any financial instruments issued by the Company. d. Neither the analyst nor any member of the analyst’s household serves as an officer, director or advisory board member of the Company. e. The remuneration of the analyst is not directly tied to transactions for services for investment firms or other types of transactions it or any legal person, part of the same group performs, or to trading fees it or any legal person that is part of the same group receives. f. Massimo Vecchio is a member of AIAF.

General disclosure This Report is for information purposes only. This Report (i) is not, nor may it be construed, to constitute, an offer for sale or subscription or of a solicitation of any offer to buy or subscribe for any securities issued or to be issued by the Company, (ii) should not be regarded as a substitute for the exercise of the recipient’s own judgement. In addition, the information included in this Report may not be suitable for all recipients. Therefore the recipient should conduct their own investigations and analysis of the Company and securities referred to in this document, and make their own investment decisions without undue reliance on its contents. Neither UBI Banca, nor any other company belonging to the UBI Banca Group, nor any of its directors, managers, officers or employees, accepts any direct or indirect liability whatsoever (in negligence or otherwise), and accordingly no direct or indirect liability whatsoever shall be assumed by, or shall be placed on, UBI Banca, or any other company belonging to the UBI Banca Group, or any of its directors, managers, officers or employees, for any loss, damage, cost, expense, lower earnings howsoever arising from any use of this Report or its contents or otherwise arising in

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connection with this Report. The information provided and the opinions expressed in this Report are based upon information and data provided to the public by the Company or news otherwise public, and refers to the date of publication of the Report. The sources (press publications, financial statements, current and periodic releases, as well as meetings and telephone conversations with the Company’s representatives) are believed to be reliable and in good faith, but no representation or warranty, express or implied, is made by UBI Banca as to their accuracy, completeness or correctness. Past performance is not a guarantee of future results. Any opinions, forecasts or estimates contained herein constitute a judgement as of the date of this Report, and there can be no assurance that the future results of the Company and/or any future events involving directly or indirectly the Company will be consistent with any such opinions, forecasts or estimates. Any information herein is subject to change, update or amendment without notice by UBI Banca subsequent to the date of this Report, with no undertaking by UBI Banca to notify the recipient of this Report of such change, update or amendment.

Organizational and administrative arrangements to prevent conflicts of interests UBI Banca maintains procedures and organizational mechanism (physical and non physical barriers designed to restrict the flow of information between the unit which performs investment research activity, and other units of UBI Banca) to prevent and professionally manage conflicts of interest in relation to investment research in accordance with art. 23 of Directive 2014/65/EU and under art. 34 (3) and art. 37 of the Regulation 2017/565/EU. More specifically, UBI Banca has established, implements and maintains an effective conflicts of interests policy aimed at preventing and managing the potential conflicts of interest that could occur during the performance of the investment research services. Insofar as the above mentioned organizational and administrative arrangements established by UBI Banca to prevent or manage potential conflicts of interests are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented, UBI Banca engages to provide a clear disclosure of the specific conflicts of interests arising from the performance of investment research services, including a description of the sources of those conflicts and the steps undertaken to mitigate them, taking into account the nature of the client to whom the disclosure is being made. For further information please see UBI Banca’s website (www.ubibanca.com/equity- research - “Informativa sintetica sull’attività di ricerca”) and (www.ubibanca.com/Mifid - “Policy sintetica conflitti di interessi” ). More details about the conflicts of interests policy will be provided by UBI Banca upon request.

Disclosure of interests and conflicts of interests pursuant to Delegated Regulation 2016/958/EU In relation to the Company the following interest/conflict of interest have been found: > UBI Banca, in the last 12 months, has acted as lead manager, co-lead manager, bookrunner or in similar roles in the context of a public offering of financial instruments of Nexi > UBI Banca may have long or short positions with the issuer > UBI Banca has delivered corporate finance services to Nexi S.p.A. in the last 12 months On the basis of the checks carried out no other interest/conflict of interest arose.

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Frequency of updates UBI Banca aims to provide continuous coverage of the companies in conjunction with the timing of periodical accounting reports and any exceptional event that occurs affecting the issuer’s sphere of operations and in any case at least twice per year. The companies for which UBI Banca acts as Sponsor or Specialist are covered in compliance with regulations of the market authorities. For further information please refer to www.ubibanca.com/equity-research

Valuation methodology UBI Banca’s analysts value the Company subject to their recommendations using several methods among which the most prevalent are: the Discounted Cash Flow method (DCF), the Economic Value Added method (EVA), the Multiple comparison method, the SOP method and the NAV method. The analysts use the above valuation methods alternatively and/or jointly at their discretion. The assigned target price may differ from their fair value, as it also takes into account overall market/sector conditions, corporate/market events, and corporate specifics (i.e. holding discounts) reasonably considered to be possible drivers of the company’s share price performance. These factors may also be assessed using the methodologies indicated above. For further information please refer to www.ubibanca.com/equity-research .

Ranking system UBI Banca’s analysts use an “absolute” rating system, not related to market performance. The explanation of the rating system is listed below: Buy: if the target price is 15% higher than the market price, over the next 12 months. Hold: if the target price is 15% below or 15% above the market price, over the next 12 months. Sell: if the target price is 15% lower than the market price, over the next 12 months. No Rating: the investment rating and target price have been suspended as there is not sufficient fundamental basis for determining an investment rating or target. The previous investment rating and target price, if any, are no longer in effect. Alternatively, No Rating is assigned in certain circumstances when UBI Banca is acting in any advisory capacity in a strategic transaction involving the Company. Target price: the market price that the analyst believes that the share may reach within a one-year time horizon. Market price: closing price on the day before the issue date of the report, appearing on the first page.

Distribution Italy: This document is intended for distribution in electronic form to “Professional Clients” and “Qualified Counterparties” as defined by Legislative Decree 24 February 1998, n. 58 and by Consob Regulation n. 16190 dated 29.10.2007, as further amended and supplemented. This Report has been released within 30 minutes from the timing reported on the front page. IN THE UNITED KINGDOM, THIS DOCUMENT IS BEING DISTRIBUTED ONLY TO, AND IS DIRECTED ONLY AT PERSONS WHO (A) ARE (I) PERSONS FALLING WITHIN ARTICLE 19 OR

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ARTICLE 49 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (AND ONLY WHERE THE CONDITIONS CONTAINED IN THOSE ARTICLES HAVE BEEN, OR WILL AT THE RELEVANT TIME BE, SATISFIED) OR (II) ANY OTHER PERSONS TO WHOM IT MAY BE LAWFULLY COMMUNICATED; AND (B) ARE QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC), (ALL SUCH PERSONS BEING REFERRED TO AS " RELEVANT PERSONS "). THIS DOCUMENT MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS.

SWITZERLAND THIS REPORT DOES NOT CONSTITUE A PROSPECTUS WITHIN THE MEANING OF THE ARTICLE 652a OR ART. 1156 OF THE SWISS CODE OF OBLIGATIONS OR A LISTING PROSPECTUS WITHIN THE MEANING OF THE LISTING RULES OF THE SIX SWISS EXCHANGE OR ANY OTHER TRADING VENUES IN SWITZERLAND, OR A SIMILAR COMMUNICATION WITHIN THE MEANING OF ART. 752 OF THE SWISS CODE OF OBBLIGATIONS, AND HAS BEEN PREPARED WITHOUT REGARD TO THE SWISS LAWS AND REGULATIONS, AND DOES NOT CONSTITUTE AN OFFER TO SUBSCRIBE FOR, BUY OR OTHERWISE ACQUIRE ANY SECURITY OF THE COMPANY.

Copyright This Report is being supplied solely for the recipient’s information and may not be reproduced, redistributed or passed on, directly or indirectly to any other person or published, in whole or in part, for any purpose without prior written consent of UBI Banca. The copyright and intellectual property rights on the data are owned by UBI Banca Group, unless otherwise indicated. The data, information, opinions and valuations contained in this Report may not be subject to further distribution or reproduction, in any form or via any means, even in part, unless expressly consented by UBI Banca.

By accepting this Report the recipient agrees to be bound by all of the forgoing provisions.

Distribution of ratings Equity rating dispersion in the past 12 months Buy Hold Sell No Rating 89.1% 6.5% 0.0% 4.4%

Proportion on issuers to which UBI Banca has supplied investment banking services relating to the last 12 months Buy Hold Sell No Rating 100% 100% - 100%

For further information regarding yearly and quarterly rating statistics and descriptions, please refer to www.ubibanca.com/equity-research .

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SERVIZIO STUDI

Head of Research Department

Giovanni Barone

[email protected]

Industry Research Macroeconomic and Financial Market Research Equity Research

Enza De Vita Francesca Pascali Marco Cristofori

[email protected] [email protected] +39.02.6275 3015

[email protected]

Anna Cristina Visconti Vincenzo Petrignano

[email protected] [email protected] Massimo Vecchio

+39.02.6275 3016

Paolo Manzoni [email protected]

[email protected]

Oriana Cardani, CFA

Quantitative Analysis Paolo Leoni +39.02.6275 3017

[email protected] [email protected]

Francesco Martinelli

[email protected] Lorenzo Biagioli Dario Fasani

[email protected] +39.02.6275 3014

[email protected]

ECM & DCM GLOBAL MARKETS SALES

Head of ECM & DCM Head of Global Markets Sales Marco Germano (Key Executive) Alessandro Michele Ravogli +39.02.7781 4651 [email protected] [email protected]

Head of Sales ECM & DCM

Gisella Barisone (Key Executive) Andrea Paolo Martini +39.02.7781 4618 +39.02.7781 4341 [email protected] [email protected]

Ilenia Osimi Roberta Pupeschi [email protected] +39.02.7781 4682 [email protected]

Pierfrancesco Genoviva [email protected] Laura Katherine Milic

+39.02.7781 4616

Fabio Gatta [email protected] [email protected]

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