Financial results for Q3 2017 November 2017 Powering Digital Payments
Forward-looking statements Disclaimer This presentation contains forward-looking statements. Forward-looking statements are statements (other than statements of historical fact) relating to future events and Nets’ anticipated or planned financial and operational performance. The words ‘may’, ‘will’, ‘will continue’, ‘should’, ‘expect’, ‘foresee’, ‘anticipate’, ‘believe’, ‘estimate’, ‘plan’, ‘predict’, ‘intend’ or v ariations of these words, including negatives thereof, as well as other statements regarding matters that are not historical facts or regarding future events or prospects, constitute forward-looking statements. Nets has based these forward-looking statements on its current views with respect to future events and financial performance. These views involve a number of risks and uncertainties, which could cause actual results to differ materially from those predicted in the forward-looking statements and from the past performance of Nets. Although Nets believes that the estimates and projections reflected in the forward-looking statements are reasonable, they may prove materially incorrect, and actual results may materially differ, e.g. as the result of risks related to the industry in general or Nets in particular. Factors that may affect future results include, but are not limited to, global and economic conditions, including currency exchange rate and interest rate fluctuations, delay or failure of projects related to research and/or development, unexpected contract breaches or terminations, unplanned loss of patents, government-mandated or market- driven price decreases for Nets’ products, introduction of competing products, reliance on information technology, Nets’ ability to successfully market current and new products, exposure to product liability, litigation and investigations, regulatory developments, actual or perceived failure to adhere to ethical marketing practices, unexpected growth in costs and expenses, failure to recruit and retain the right employees, and failure to maintain a culture of compliance. 2
Financial highlights Q3 2017 Organic revenue growth EBITDA b.s.i. margin* Adjusted net profit (in DKKm) 5% 39.5% 442 Revenues of DKK 1,962m, up 3.9% EBITDA b.s.i. of DKK 775m, Adjusted net profit up 66.8% compared to Q3 2016, driven by solid up 3.9% compared to Q3 2016. The compared to Q3 2016 growth in Merchant Services EBITDA b.s.i. margin was unchanged and strong growth in Corporate Services compared to Q3 2016 Capital expenditure/ revenues Net interest-bearing debt/LTM LTM Cash conversion ratio EBITDA b.s.i. 8.2% 2.9x 65% Down from 75% in Q3 2016 due to Capital expenditure of DKK 160m, down Down by 0.2x compared to Q2 2017. Net negative change in narrow working capital from a ratio of 8.5% Y/Y, driven by interest-bearing debt was reduced by compared to a positive in Q3 2016, driven investments in development projects and DKK 359m in Q3 2017 compared to Q2 by IPO-related accrual build-up last year software 2017 *Before special items 3
Merchant Services • Organic net revenue growth of 9% Value of transactions (DKKbn) • 15.9% growth in value of transactions, driven by the acquisition of OP’s merchant acquiring business in Finland, which closed 28 June 2017 146 • 6.5% growth adjusted for OP +15.9% • In Sweden, Nets continues to see good growth in value of transactions in the SME segment, but price competition has led to increased churn in 126 the large and key account segment • Contactless payments in Denmark reached 37.7% of all in-store payments in September. Denmark is now one of the countries in the world with the highest penetration of contactless payments • The market for mobile based payments continues to evolve • Danske Bank decided to stop MobilePay in Norway and together with Nordea they decided to support Vipps instead of MobilePay • ApplePay launched in Denmark, Sweden and Finland in October • AliPay launched in Denmark and Norway to service Chinese travelers Q3 '16 Q3 '17 • Terminals accounting for approx. 45 % of all transactions have been upgraded to take payments using BLE 4
Financial & Network Services • Organic net revenue growth of 2% Number of transactions (million) • 8.1% growth in number of transactions, especially driven by 1,466 international cards +8.1% • Solid growth in number of accounts on file on the CMS platform, 1,356 partly due to on-boarding of new customers • Implementation of Finnish banks on the fraud prevention solution contributed to the growth in the quarter • Vipps, which is the widest used wallet in Norway, and Nets entered into a new agreement, which will enable users of Vipps to make instant P2P payments using "straksbetaling". The solution will be available before year-end 2017 • Nets established Smart Payments, which will strengthen Nets’ innovation and business development efforts by developing and commercialising sustainable proof of concepts, and by identifying the most attractive fintech partnerships for the future Q3 '16 Q3 '17 • Susanne Brønnum will take on the position as CEO of Smart Payments. Nets has hired Thomas Jul as Group Executive Vice President for Financial & Network Services 5
Corporate Services • Organic net revenue growth of 3% Number of e-bill transactions (million) • 226 Strong growth of 4.1% in e-bill transactions, driven by both +4.1% Betalingsservice in Denmark and the Norwegian e-bill solutions 217 • Nets experience interest from new parties to participate in the pilot test that Nets is currently running on the new PSD2- compliant open platform, hereunder from Fintech companies • In August, Nets and Bankart in Slovenia signed an agreement for delivery of Nets’ instant clearing solution, RealTime 24/7 Q3 '16 Q3 '17 6
Nets to deliver instant payments solution to Bankart in Slovenia • Nets will deliver its RealTime 24/7 payment solution, which will work About Bankart as a single processing engine servicing the full value chain for all types of A2A payments Bankart is the leading provider of services to • Instant payments financial institutions in Slovenia • Non-urgent payments Bankart intend to deliver more than a basic • Other related financial information, including support for PSD2 payments infrastructure to the Slovenian banking community • The solution is built on an open API architecture permitting easy Bankart will develop and operate new customer delivery of services additional services and solutions as well as utilising Bankart’s existing services and solutions to make full use of the scalable and • The solution is a managed service operated out of Nets’ data center open central infrastructure in Norway and is planned to go live in September 2018. The agreement will run for 10 years • With this agreement Nets will run instant clearing platforms in Denmark, Italy and Slovenia 7
Merchant Services Solid organic growth of 9% in net revenue Organic growth Y/Y DKKm • Reported growth was impacted positively by the +9.7% acquisition of OP’s acquiring business 666 • Organic growth was primarily driven by transactions 631 acquired and e-commerce 609 607 9% 585 Net revenue • Point-of-sale and related solutions in line with Q3 last 10% 17% 11% year, driven by the continued push towards a higher 12% proportion of rented terminals d • The lower interchange fees, implemented on 1 September 2016 in Norway, positively impacted organic growth in July and August 2017 • The underlying organic growth was 9%, adjusted for effects from lower interchange fees and effect of Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 increased scheme fees DKKm Further margin expansion +19.5% • EBITDA b.s.i. up by 19.5% Y/Y leading to a 350 basis 288 points margin expansion • The growth in profitability is primarily driven by operating 241 225 leverage and a higher proportion of consultancy spend EBITDA b.s.i. 198 43.2% related to development of e-commerce solutions that are 174 39.7% capitalised 35.7% 32.5% 29.7% Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 8
Financial & Network Services Organic growth Y/Y DKKm Organic growth of 2% in net revenue (0,7)% • Strong underlying structural growth in number of transactions 594 588 583 584 of 8.1%, especially related to international cards 550 11% 10% 2% 2% • Solid growth in CMS due to higher number of accounts on file 5% Net revenue • Fraud services impacted positively by on-boarding of Finnish banks partly offset by declining volumes in dispute handling d • Growth impacted negatively due to unusually high implementation revenue last year related to the development of mobile services and due to new prices on processing of VISA/Dankort • When adjusting for implementation fees, growth in Financial & Network Services would have been around 2 ppts higher Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 DKKm (7.3)% Lower margin 260 • EBITDA b.s.i. down by 7.3% to DKK 241m, leading to an 241 235 EBITDA b.s.i. margin contraction of 290 basis points, to 217 41.3% 191 EBITDA b.s.i. • Margin contraction primarily driven by changes to he project 44.2% 41.3% portfolio leading to a lower proportion of consultancy spend 39.6% 37.2% being capitalised. In addition, reduced prices on Visa/Dankort 34.7% transactions also impacted margin negatively Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 9
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