Cerved S p A : Results as of June 30th, 2021 - Transcript

Cerved Group S.P.A.

"First Half 2021 Results Conference Call"

Thursday, July 29, 2021, 17:30 CET

MODERATORS: ANDREA MIGNANELLI, CHIEF EXECUTIVE OFFICER

EMANUELE BONA, CHIEF FINANCIAL OFFICER

PIETRO MASERA, HEAD OF IR, ESG AND STRUCTURED FINANCE

OPERATOR:Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Cerved First Half 2021 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing "*" and "0" on their telephone.

At this time, I would like to turn the conference over to Mr. Pietro Masera, Head of IR, ESG and Structured Finance of Cerved. Please go ahead, sir.

PIETRO MASERA: Thank you very much, and thanks, everyone, for joining the call today. The purpose of the call is to provide you with an update on Cerved's first half results to 30 June 2021, and at this point I'll leave the word to Andrea Mignanelli, CEO. Thanks.

ANDREA MIGNANELLI: Thanks, Pietro, hello, everybody. So as an introductory comment, Q2 was a good quarter, and H1 results are quite positive across the board. Cerved is returning to its normal growth trajectory as expected in our guidance to 2023 [ph] we give you back in March.

Let me take you through the key messages in the Executive Summary on Slide #4, macro. So the situation in Italy is picking up pretty well, thanks to a series of factors. Vaccination rates are quite high, with more than 50% of the population being fully vaccinated. Consumer confidence, industrial output and experts [ph] are all registering solid indicators. Italy has secured €225 billion starting from 2021 as part of the next generation EU plan. And last but not least. Mario Draghi is confirming his capabilities and skills since he took on the role of Italian Prime Minister.

Now focusing on growth prospects for Italy, GDP is expected to grow around 5% in 2021, and this figure has recently been revised upwards in

Italy to return to pre pandemic GDP levels at the end of 2022, and with further growth expected in '23. Clearly, this is a positive tailwind for Cerved, and we are in fact already seeing a positive impact on our results.

So let's now, look at the financial results for H1. As mentioned a second ago, solid set of results. Revenues grew 5% on a reported basis, and mutually entirely organically, with the Data Intelligence parameter ahead of 2019 results, which were not yet impacted by the COVID-19 pandemic. Adjusted EBITDA grew at even a higher rate of 6%, again almost entirely organically and once again the Data Intelligence parameter is above pre- COVID levels.

Operating cash flow jumped 11%, consistently we reported Q1 reflecting the gradual normalization of DSO in 2021, compared to 2020 which witnesses a deterioration of net working capital, as you may recall. Adjusted net income grew by 12.7%, thanks to the underlying growth in EBITDA, and leverage further improved from 2.9 times at year end to 2.7 times, thanks to solid cash generation, and an improvement in net working capital due to strong collection of receivables.

Let me now move to Slide 4, sorry 8, which provides our customary review of our results in the quarters, broken down by business units. Before getting into the 3 key divisions, let me spend a few minutes on the Data Intelligence businesses, which includes Risk Intelligence and Marketing Intelligence, and which is our core business. In this respect, please also refer to Slide 19 which has all the divisional figures from 2019 to 2021, broken down by division and between Data Intelligence and Credit Management. This is very useful to compare our current trading to pre-pandemic levels.

Data Intelligence revenues for H1 2021 were €178 million, which is 10.7% higher than in 2019, and please note that we are ahead of 2019 [ph] results, if we include M&A deals that were not yet in our perimeter, in particular MBS, the advisory firm. By the same token, EBITDA in H1 '21 was €86.4 million, which is 7.8% higher than we reported figures in 2019.

As with revenues, '21 is ahead of 2019 even if we prepare pro forma figures including net contribution of M&A deals. So this is to say that with respect to our core business which is Data Intelligence, we have already overcome the impact of the pandemic, which took a toll on our 2020 results. This is good results which I am keen on highlighting, and which we look into further as we analyze the results of the Risk and Marketing Intelligence divisions.

Now, starting with Risk Intelligence, this is our largest division, and we have had already seen the…with the Q1 results. This division is effectively bouncing back from a very tough 2020. The division grew 9% in H1 '21 and is already up 2% compared to H1 2019.

Let's now look at each of the financial institution and corporate segments in more detail. The financial institutions are once again continuing to do well, and this is on top of 2020 which grew nicely compared to 2019, and despite the pandemic. This segment grew by 8% in Q2, and please recall that it grew 15% in Q1, and this is a combination of 3 key factors.

The core business information analytic segment which accounts for about 80% of total revenues continue to register a positive growth rate, which is comforting even though they did not contract during the pandemic. Consequently, the message regarding H1 results is consistent with what we said in Q1 results call. The situation is looking quite good, and

although we see some headwind from bank consolidation, we also see some positive impact from product innovation and up-selling.

Another area which is doing very well is subsidized finance, which means services to help the banking system cope with the liquidity decree to boost liquidity and new lending. To-date, the euro…about €185 billion on public guarantees and Cerved has work on almost €8 billion. We took a cautious view that this revenue stream would have declined a bit in 2021. But for now we're doing quite well in H1 well above last year. We're confident here because our growth derived both from new contracts, as well as, from existing contracts which are typically multiyear and therefore expected to generate revenues from the medium to long term.

Ratings are also doing quite well. We call that business a very distinctive offering we have and we are the largest rating agency in Europe by number of ratings clearly focused on SMEs. We did very well in both the bank and corporate segments, we show the versatility of the products and services. We're also stepping up our efforts in ESG ratings which are…which have a very bright future.

Last but not least, the real estate segment is back to a growth trajectory compared to last year even though we are still behind 2019 results. As has been occurring in the last few years real estate is a tale of 2 stories. On one end appraisals have been a growth story says that [indiscernible], whereas on the other hand, Depo [ph] which includes land registry checks and cadastral information have been declining. With respect to the Appraisal segment, it was hit by the pandemic but it's now bouncing back even the Italian banking system is healthy and has a lot of liquidity and this is sustained in the volume mortgages been issued and this provides a good tailwind for us.