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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Nexi 9 Months 2022 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Bertoluzzo, CEO of Nexi. Please go ahead, sir.

Thank you. Good morning or good afternoon to all of you, and welcome to our call for results for third quarter 2022. As usual, I'm here with Bernardo Mingrone, our CFO; Stefania Mantegazza, Leading Investor Relations; and a few other members of our team. As usual, for the third quarter, I will give you a short business update, then I will hand over to Bernardo that will cover our financial results and then we'll have space for your questions. Let me start as usual with a summary on Page 3 of the presentation. The usual 3 key messages that are quite consistent, by the way, over the last few quarters. First of all, in the third quarter of this year, we've seen a continued volume growth across all geographies. I think this is particularly important also because the third quarter of last year was already a strong quarter as geographies were exiting COVID. Therefore, we had a tougher comparison in the quarter. In particular, we have seen a particularly strong summer in Italy, well supported by tourism. And we had a very material comeback of international tourists in the country. But also, we have seen a nice continued development in the Nordics and in the DACH region for example, on basic consumption that has been growing year-on-year double digit. Last relevant comment, we see -- we continue to see a strong performance in SMEs where value of transactions have been growing at almost 30% in the first 3 quarters of this year, and this is actually faster than what we've experienced on a larger merchant that nevertheless, are also growing double digits. So first message, continued volume growth across all geographies despite a tougher comp. Second key message, very solid positive financial performance in the third quarter and in the 9 months. We've been growing revenues in the quarter by 7%, which means a 9% year-to-date. In particular, Merchant Services has been growing about 10%, 13% year-to-date, with EBITDA growing about 12% in the quarter with clear continued operating leverage effect and contribution from synergies -- from cost synergies, in particular. And this brings the EBITDA growth year-to-date at about 16% with a 4 percentage point margin expansion in the year so far. Third, and last message, we continue to progress now in the creation of the European PayTech leader in bringing our company together. We presented to you our strategy, medium long-term financial ambition at Capital Markets Day at the end of September, and thanks for the many questions and comments and feedback that we have received since then in our conversations. The only update that is relevant from this point of view is that we simply continue to deliver the synergies, the in-year synergies according to our plan that is to deliver a bit more than EUR 100 million cash synergies in the year. And so far, we already have EUR 68 million in the numbers to date already. On the back of this progress, we continue to confirm our ambition for 2022. But again, as a reminder, is 7% to 9% revenue growth and EBITDA 13% to 16% growth. Now let me move to, as usual, to volumes, Page 4. As a reminder, these gas and these numbers show volume dynamics compared to 2021. In attachment, you also find the same page that compares volumes to 2019 dynamics, and this is really, really important because it gives you a sense of the structural longer-term growth after COVID recovery of the business regardless of the year-on-year comparisons. As you see in the third quarter of the year, we have observed double-digit growth across all geographies. If you look at Italy, 15% -- 14%, 14% with a strong contribution from the recovery of high-impact consumption in particular. In the Nordics -- and on the right, you see the strong contribution and strong recovery in particular from foreign cards in the quarter. In the Nordics, nice 17%, 20%, 15% growth in the quarter, also supported by strong performance in the high impact sectors. And in Germany, in DACH in general, but Germany is most of these volumes. If you adjust for the larger customers that we decided in the past to discontinue as nonprofitable, growth has also been around 15%, 14%, 16%. Again, also here, net of the effect that I mentioned before with strong contribution from high-impact sectors. Last comment, we've also given you, as we always try to do the latest data, this is actually the month of October. October is a bit of a lighter month compared to the previous ones, but it's also, in general, a month, that has a lower weight in the full year. Clearly, how the year will land at the end of it will really depend on November and December, in particular, that are normally very, very important months for the full year performance. If we move to the next page. As always, we try to give you a few highlights of our business progress in particular Merchant Services & Solutions. Let me go through the key points here. Starting from SMEs that represent half or more than half of the revenues in this space. Volume in the 9 months has been growing 29% compared to the previous year. Let me underline 3 important points here. First of all, continued strong sales performance across all geographies. We simply highlight this time Switzerland and Poland as a faster-growing spaces in terms of commercial progress. Overall, in the last 12 months, we have been installing about 200,000 terminals across the various geographies with Italy continuing to provide a strong contribution to this. The second comment I would like to underline is the progress on the launch of the SoftPOS. As you know very well, this is the de facto software version of a terminal that is becoming an app in a smartphone or in a tablet. We believe this is an important evolution in our industry because it offers us many opportunities in terms of positioning and expansion of business opportunities across the various segments of the market, both in SME and in LAKA, but also across the different verticals. We are in market and selling with already many active customers in Denmark, Greece and Hungary, and will soon be launched in other geographies as well, including Italy and Germany. Next here. If I may here, I would underline our satisfaction for what we are doing in this space. So with larger merchants, and you see it in the bottom part of the page, where we're actually implementing very interesting use cases where thanks to the softPOS, we are adding either The CAP services. For example, we've been helping a Nordic customer that was under unfortunately, a cyber attack that had nothing to do with us, but we've been able to bring them back into active sales mode, thanks to a superfast rollout in a few hours of softPOS for their stores, or, for example, restaurant chains where we're implementing this to really expand the possibility to serve their customers better at the table and for home delivery. The third element I would like to underline on SMEs is continued progress in expanding our partnerships with software players, and it is through across all geographies and verticals. Here, we see underlying some interesting progress in smart mobility and retail. As far as e-commerce is concerned, we have seen a growth of volumes that is about 16% year-to-date. We continue to progress on -- in the Nordics or some acceleration also in Germany on our easy collecting PSP proposition. And second point, we are focusing more and more on the mid-market, which tends to be a very attractive, more local segment, faster-growing segments where we've seen very nice wins also when competing with the specialized new Pay Techs across, for example, financial services, retail and mobility. The third element that I would like to underline on e-commerce is the continued progress basically integrating into our PSP proposition to our accession propositions, alternative payment methods and by Buy Now, Pay Later methods also from third parties, for example, AfterPay in Germany or Trustly across the Nordics. Last but not least, in LAKA, we've seen about a 7% growth year-to-date in terms of volumes. Instead of underlying the many new wins. And again, here, don't forget that we are focusing more and more on the mid part of LAKA, mid to low part of LAKA that is, again, we believe the most attractive, especially given our strategy and positioning. Having been said underlying the progress we are making on the proposition itself in terms of omnichannel and vertical capabilities both in the Nordics and in Italy. And also here, the continued entrenchment with enabling platforms and the partnership with enabling platforms across CRM/ERP and property management software solutions where we integrate with these partners, and we also go to market with these partners. I think here, it's particularly notable the partnership that we have developed with Global Blue that is allowing, among others, us to integrate very, very easily across geographies, for example, with Oracle platforms. Let me now hand over to Bernardo and we'll come back in the Q&A later.

Thank you, Paolo. Good afternoon from me as well. I'm on Slide 7. So starting with an overview of our group revenues and EBITDA. And so translating the operating performance we saw in terms of volumes in the geographies in which we operate during the course of the third quarter into how those translated into financial performance, revenues and EBITDA. We've seen how in the quarter, revenues grew just north of 7%. And if you look at the 9 months, 8%. I would like to just focus also on the call out on this slide, which shows what our revenues would have grown if we grossed them up for scheme fees, we've started to show this metric also in the half year results, given their relevance to top line growth and in particular, in this year, in which the return of travel and interchange fees related to foreign cards is so significant. So the top line growth would actually have been an 11% growth in the quarter and 12% for the year-to-date. We then move on to EBITDA, and thanks to the operating leverage we spoke of during our Capital Markets Day, you can see how the top line growth in terms of revenues translates into -- a year-to-date growth of EBITDA of 16.5%, just higher than the guidance for the year and in the quarter of 12%. And this shows in the EBITDA margin accretion, which is around 200 basis points in the quarter from 52% to 54% of EBITDA margin. If we look at it on a year-to-date basis, it's even higher from 45% to 49%. Moving on to the divisional performance on Slide #8, we can see the same data represented for Merchant Solutions. We have revenue growth, which is just shy of being double digit in the quarter, 9.6% for the group. If we look at it on a gross level, including -- or excluding actually scheme fees, that's actually 15% growth. On a year-to-date basis, the reported revenues were 12.6% in gross of scheme fees, 18%. And this is driven essentially by the strong growth in volumes we experienced during the quarter with a healthy return of tourism in those countries in which it's important for us to think of Italy, a little less so in business travel, but in general, the strong growth in quarterly volumes that we saw earlier. I'd also like to call out 2 other factors. You can see the positive contribution to our revenue growth in this division from the installed base. We've added north of 200,000 POS terminals in the year to 30th September -- in the 12 months to 30th of September this year. And we also called out the positive performance of SME with a 29% volume growth we've seen year-to-date, which is very important given the relevance to our strategy of this segment, which we also discussed in late September. Slide #9 shows performance in issuing solutions. Even in this division, we have positive performance in the quarter, close to 6% growth. This is slightly higher than the average for the year, which was 5.2%. Here, I'd like to highlight how not only do we have solid volume growth, which is driving this top line performance but also the addition of close to EUR 2 million international debit cards in Italy. Now, not all of these are new international debit cards. Some of them are migrations within Nexi of the older model of international debit to the newer Nexi international debit card, but this is all helpful in terms of fueling top line growth. I would also like to highlight how we're making progress on our advanced digital issuing proposition. So selling CVM products outside of our original home country Italy into other clients in the countries within the group. Moving on, on Slide 10, we can focus on Digital Banking solutions. Similarly to the performance in previous quarters, we have a roughly flat performance year-on-year. You know that this is mostly about comp. We have -- we lost certain activities relating to DBS due to banking consolidation in Italy, in particular a bank which was bought by a larger Italian bank and for that larger bank, we didn't do part of the services. So it's really about comp. That said, performance roughly flat. In the Nordics, we also had, and we'll see it in a second, migration from the legacy bank ID platform, which has also impacted project-related revenues in the quarter. Slide 11 gives you an overview of the geographic breakdown of our revenues and their growth. Before I start commenting the various geographies I'd just like to remind you what Paolo mentioned earlier, which is essentially that in the third quarter this year, we have a much tougher comp compared to 2021 than we used to have in the first 2 quarters of the year due to the exit from COVID restrictions last year, which was phased in the first half of 2021. So a much tougher comp and this is true throughout the geographies, which we operate in. So all 4 of the geographic areas suffer from this tougher comp. Having said that, Italy has shown strong performance close to double-digit top line growth, 9.9%. This, I must say, to be fair, has benefited from some third quarter, fourth quarter, I would say, migration of some benefits related in particular to scheme fees. So the way we calculate scheme fees is dependent on projections and volumes and things like that. They may well fall in one quarter or the other. This year, they tend to have fallen a little earlier into the year from the third quarter, which has slightly improved the otherwise strong performance of Italy's geography. With regards to Nordics, we can see top line growth for the year-to-date is in line with the mid, high single-digit top line growth ambition we have for that sector in the quarter. We suffered from a couple of phenomenon which are the platform migration I was mentioning earlier with regard to DBS and the Nordics, but also the phasing of some pricing actions we took on certain clients as normal course commercial activity with them. If we move on to DACH and Poland, Here, too, we have a top line growth of 4%, slightly lower than what it was for the 9 months year-to-date. Here, I'd point to things we've also discussed in the past, that have proved to be a drag to the top line, in particular, in the third and fourth quarter this year, I would expect, which is the exit from certain businesses where we thought the risk return profile wasn't appropriate. We've discussed those in the past, but also -- and you know since our Capital Markets Day that we have decided to exit the BMPL spaces principal players in that sector, and that has also impacted the top line growth and that we're not feeling it ahead of the sale. If we look at Southeastern Europe, we also have an impact in the quarter coming from, let's say, the Russian Ukrainian war and the fact that sanctions have led us to lose a client in one of the Southeastern European geographies. This is a few single-digit million euro loss plus project work there as well we're talking very small absolute amounts. If we move on to Slide 12, having spoken about revenues, we can now look at costs. And I think we discussed the way our cost base will behave in light of the inflation we're all facing during our Capital Markets Day. I think what you see on this slide is the translation into actual numbers of what we're expecting. So our cost base, which overall for the year is roughly flat at slightly up 1.3%. And in the quarter, 1.9%. If you gross up for scheme fees, similarly as we've done for revenues, we obviously have a much higher level of cost, similarly to a much higher level of revenue growth. But concentrating on the net costs, excluding scheme fees, we can see that HR costs are growing by 0.2% and this is the effect of inflation in those countries in which we renegotiated HR costs. Offset by our ability both to extract further efficiencies and the synergies coming from the integrations. The same holds true for non-HR costs. And here, we benefit from longer-term contracts with our suppliers that haven't priced in the effects of inflation and which we will be negotiating going forward as we had discussed. The synergies and all of this helping to offset the natural trend to grow costs in light of the strong volume growth we've seen. So operating leverage fully confirmed in terms of our operating cost growth in the quarter, which has been minimal. On Slide 13, I would just briefly comment on the fact that we're on track to deliver the full EUR 105 million of cash synergies which we expect to deliver for 2022. And of course, we are on track to deliver the full amount for 2025 and beyond, the EUR 365 million we discussed at the end of September. Finally, before handing the floor back to Paolo for concluding remarks and opening for Q&A, just a quick word on leverage, which is always something we are happy to discuss when we meet with the investor community. Our leverage is coming down. It's now 2.8x EBITDA. If you look at it on EBITDA inclusive of synergies and 3.3x if you exclude those, during the -- at the end of the quarter and this happened around about the time of our Capital Markets Day, you know that we basically were able to source new funding to the tune of EUR 900 million to use proactively not only to pay for the various M&A deals that have been announced, but also to proactively manage ahead of time, maturities coming due in '24, '25 and '26 with a benefit in terms both of the duration profile of the portfolio, but also managing the cost base, I think, very effectively. That said, Paolo, I'll hand the floor back to you for your concluding remarks. Thanks.

Thank you, Bernardo. If we can move to Page 16, I will not go through it because you know it very well. We simply want to reiterate the fact that we confirm our ambition for 2022 where we will land -- it will depend on the performance that we see in particular in November and December, and that will be very much determined by the overall market conditions that we will operate in November and December. Never forget that we always said that the second half of the year would have been lower than the first half because of the fiscal comp due to basically the recovery dynamics out of COVID. So let's see where we land at the end of the year based on November and December in particular. So to conclude on the next page, again, 3 simple messages. We have seen continued growth in the third quarter, double-digit across all geographies, despite summer last year was also a good summer. Solid financial performance that allows us to confirm our guidance for the year and continued progress on the combination of our company and the creation of European PayTech leader. Let me stop there, and let me open to your questions.

[Operator Instructions] The first question is from Sebastian Sztabowicz with Kepler Cheuvreux.

Have you seen any specific change in market dynamics due to the weakening macroeconomic environment and specifically since the end of the third quarter, could you please comment on the volume trends in October and until the middle of November, any specific, I would say, direction. And the second one will be on Italy. We have seen the new government in Italy ambition to raise the cap on cash payments. Do you see any specific impact on your business going forward? And do you believe that the new government will be a little bit less committed to accelerate the shift from cash to digital payments from the previous one? Or we don't see any specific change in the strategy from government in Italy.

Sebastian, thank you for your questions. Let me try to take both of them. Listen, on October recent volume dynamics, the only comment we can make is basically the one that I made before commenting on Page -- on page -- what was that? Page 4. Now clearly, if you compare October numbers with the previous months, they are a bit lighter. By the way, it depends but it's a little bit by geography by sector and so on and so forth. They are still in very, very strong recovery from 2019 -- the -- I think the environment is still a little bit unstable in the sense that across the month we've seen lighter weeks but also stronger weeks. I think, for example, the last week of October was actually a pretty strong one, pretty much in line with previous months. So I think the -- I think the jury is out in terms of what will happen going forward, and in particular, towards the year-end. I will not overemphasize October because it's always been a little bit of a strange month, a transition month now in between summer and then entering towards end of the year and the Christmas season. So I really believe it's early to have a more robust assessment or a reliable assessment of what is the evolution. Ourselves, we are taking a little bit of a more conservative stance for the last part of the year, but still in the solid growth territory. As far as Italian government measures and so on and so forth, listen, I think that in general, I mean, as you can imagine, we cooperate, we have a very active dialogue with the governments of the countries where we operate. And we see a modernization of society, digitization in general is an important priority for all of them. And this has been the case also for Italian governments, all of them, and I'm sure it's the same also with the new one that, by the way, is very, very recent. More specifically on that measure, that measure has absolutely no impact on us because that measure has to do with the cap of how much cash you can use for this single purchase that cap is currently EUR 2,000, and that is going to be raised apparently to a higher level that is still undefined. But we're very, very clear the percentage of business that we do above the EUR 2000 is absolutely marginal. Our average ticket is EUR 60 to EUR 70 to give you a sense. And most of the growth that the market is actually coming from smaller-sized payments becoming more frequent and across the population. So that's a real driver of growth for us for -- so absolutely no impact from that. And honestly, we believe that digitization, modernization in society will remain a priority for everybody.

The next question is from James Goodman with Barclays.

Great. Just firstly, digging a little bit into the German performance, very strong in the quarter. On Italy -- but a little bit surprised to see 4% growth in Germany. I think you called out BNPL and also the client exits we've discussed before, but I wondered if you could comment on where growth would be maybe excluding that, given the anticipated acceleration in growth in Germany? And then secondly, just on the outlook for '23. Just wondered if anything has changed since the comments you made at the CMD, that growth should be not less than 7%, a bit closer now. Anything that you can comment on in terms of additional visibility you think you might have given the backdrop in Italy.

James. Listen, Germany -- I mean, besides what Bernardo said that in the quarter and I think in the second half of the year, more broadly, we'll have some visible impact also because don't forget when you start looking at performance on a quarterly basis, numbers are actually small and therefore a few million euros here or there suddenly become big percentages. But besides the comments that Bernardo already made, the underlying business is actually growing pretty strongly. Let me give you a data point, for example, for SMEs, SMEs are growing in the quarter, almost 20% in terms of revenues, and we see good traction also on the front book sales that I think in Germany are about 10% to 20% higher versus last year. So there is nothing specific on the German business, it remains a super high priority for us and we have high expectations and we will invest to grow the business faster and faster over time. And by the way, we also have our new focused leadership team there. So that we see no difference from the outlook that we've given you as far as Germany is concerned. As far as the outlook for next year. No, honestly, at this stage, there is nothing more we can say about that. You remember in our Capital Market Day, we said that based on where we were in September, we were expecting a top line growth of at least 7%. Again, that's not a guidance. It's not a target that we will communicate that at the beginning of the new year once we will have the full year this year and a better outlook. At this stage, we have no reason why we should change that view. As we discussed at the Capital Market Day, that view was already taking into account a potentially slower latter part of this year and next year. Then obviously, if you said, the situation becomes tougher, we may have to revisit it, but we remain great believers in general of the resilience of our business. That is always a reminder is strongly supported by the shift from cash to digital that we see continuing everywhere rather than the shorter-term macro dynamics.

The next question is from Mohammed Moawalla with Goldman Sachs.

Yes. Bernardo 2 from me. [indiscernible] categories, have you started to see...

Sorry, we had an interruption in the connection. I don't know if it is on our side or on your side. You can just repeat it.

Yes, sure. So I had 2 questions. First one, have you seen from some of your customers who are in more discretionary categories, any sort of slowdown or impact? And then you talked about reinvestment in the second, you seem to be running a little ahead of plan. Should we issue that the reinvestments will kind of perhaps reaccelerate in Q4? And how do you think of so reinvestments in [indiscernible] of your visibility on the top line?

So thanks, Mo, for your questions. In terms of slowdown, I think Paolo -- the overarching comment is, please remember, October is, in general, a lighter month in any given year compared to other -- the previous 9 months or certainly compared to the next 2 months in the quarter. So it's very hard to judge from October's performance, what one is trying to do, i.e, glean information about the future. If I look at the quarter, the quarter had strong growth throughout the board. We highlighted it and it gives us comfort that notwithstanding the tough comp compared to 2021, the quarter was very strong in terms of volume growth and financial performance. In October, we have, and you see that in the numbers we published a slight slowdown compared to last year, but this is, I would say, not unexpected. I would also say it's probably not as bad as one might appear. But the key is we need to wait until the full year, so November numbers and in particular, second half of November numbers with Black Friday, which is incredibly important and of course, the shopping season around Christmas which is why we pointed to February for guidance for 2023. So I would say that -- and -- but then within the expense categories, if we look at the deeper in half year numbers and full year numbers we give you within discretionary spend, for instance, or other categories, restaurants, restaurants are still booming, right, understanding whether that is a booming, I mean 60% growth or thereabouts, where is that? If that is inflation, more people using cards rather than cash, et cetera. It's hard for us to tell, but we haven't seen in all categories, the slowdown I was mentioning for October. October is just in general a lighter month. So let's wait and see for November and December, how they go and February will give you an update with regards to 2023, where we start from the floor, which is a floor, Paolo said of 7%, and we're in midst of doing our budget, and that hasn't changed in terms of our ambitions, let's say. With regards to reinvestments, you're right. We said we are going to invest more in our business this year or reinvest part of the synergies, even though cash and capital are fungible. So we are devoting more capital to certain growth areas, and we are doing it probably more in the fourth quarter than the third quarter and probably more in the fourth quarter than the third quarter compared to our own plans, but that's still the idea, and that is also true for next year. And I think we spoke about that during the course of our Capital Markets Day.

The next question is from Josh Levin with Autonomous Research.

With regards to the competitive landscape, I know people often ask you about Adyen, but what about Stripe? To what extent do you see Stripe as an emerging competitor in your markets? And then the second question is about the Nets integration. Can you just provide a bit more detail how far along are you? What has been done in terms of the Nets integration and what remains to be done in terms of the integration.

Sure. Josh, the -- on the competitive environment, I think we did debate it quite a bit also the Capital Market Day specifically on Stripe, the reality is that Stripe, we see them, I would say, almost only in e-comm enablers and marketplaces. We don't see them in some smaller merchants. We definitely don't see them at least not for now, in physical. We don't see them at least not for now in omnichannel. And when they try to enter the space of the larger merchants, They will struggle to win with us. With that I honestly I have no idea, but that's the way we see it. So they are pretty strong and successful with the Shopifys of this world, which, by the way, Shopify is the biggest channel into market. And it's a strong partnership that comes from the past and continues to be successful. But for now, this is a dynamic that we see. So I will say really focused, but -- and not so far successful material outside of that space. But obviously, we watch them with a lot of attention because I believe it's a great company and a great player, at least in that space. As far as the Nets integration is progressing, as we did explain at the Capital Market Day, we're progressing exactly in line with our plan. Both when it comes to operational organizational integration, we're moving to one single organizational structure that goes beyond the old ones from January next year, which is exactly what we had planned to do. And we are progressing in the delivery of our synergies on a daily basis according to our plan. I think -- you may remember that we also said that we were expecting to deliver in the long term materially higher cash synergies, I think it was about EUR 100 million more cash synergies. And that's actually what we're working on, and that's actually what we are delivering. So there is no particular new news on that front.

The next question is from Justin Forsythe with Credit Suisse.

Just a couple of questions here. So first, I wanted to kind of touch a little bit more on the current macro environment and specifically the shift between spending bucket. It's been talked a little bit thus far. But related to inflation and cost of living, I think Nexi has previously spoken to a minimal impact to volumes given the shift between spending buckets. Just wanted to understand a little bit more of your exposure to utility payments, I saw it as a decent sized exposure within the volume base in one of your presentations. Has that been a benefit thus far in Italy or elsewhere across the portfolio? And is there a yield differential there? And secondly, I wanted to talk a little bit about the ISV strategy. Specifically, you called out some key integrations during the CMD. One of them being Zucchetti, for instance. Maybe just using that as an example, could you talk a little bit more about that integration? Is that within the accounts payable suite, for instance? And on top of that, does that imply that you're starting to gain traction within B2B payments and what your kind of go-forward strategy is? And if you plan to tackle B2B payments more extensively going forward?

Justin, thanks for your questions. Listen, on macro, let me try to summarize what we see happening and so and so forth. You're right. Inflation is hitting different baskets in a different way. Clearly, that is hitting the energy basket more than others, take into consideration the fact that this is actually good news not bad news. The debt basket for us is pretty small. The impact on us is pretty small. Also because the customers normally use to pay their bills other payment methods, okay? So debt, if you like, the basket dynamic that we observe the general point that we tend to make when we talk about this is that historically, throughout a macro crisis, we have seen actually consumer spending being quite resilient. I'm not saying not impacting, I'm saying quite resilient. So I think we are looking forward to understanding how these potential crisis may move from these standpoint with a differential impact of inflation depending on the sector. And going back, I think, to what Mo was asking before, if you look at it by a sector-by-sector basis, clearly the one where we've seen in October. The fastest, if you like, signal of fragility has been clearly the discretionary goods starting from closing. That's the usual category that is affected by this type of dynamics, but with others being very strong or continue to be very strong at the same time. On the ISV strategy, I think here, we are probably just in combining in your question of 3 different things that are all quite important to us. The first one is the most strategic for us, which is partnering with software vendors, their distribution channels both in integrating our proposition and distributing our products and services together. And that's the direction where most of the deals that we are doing is going, including the Zucchetti one. The second thing is that with some of them, and Zucchetti again is one of them, we actually develop a broader portfolio of initiatives in terms of partnership, offering them -- some of these people, for example, are becoming electronic money institutions and payment institution, we offer them all the capabilities that are necessary for them to do it in a simple and an agile way. So it's additional business for us and a great support for them. Or for example, we also work with some of them on the card side, on the issuing side, offering them our off-the-shelf products. And this is true for Zucchetti but also for a few other of these relationships, especially when you have on the other side of the table, strong big companies. Zucchetti is a big, strong company in the Italian market in terms of offering point-of-sale software and more broadly services. And then there is a third component of that, which, by the way, also is valued for Zucchetti, so you are perfectly right in combining the 3 of them, which is our focus on business-to-business transactions. It's a focus that we've always had, and we continue to have, even if it remains a smaller part of our business. It's an area where, for example, in the third business unit, we have a lot of activities also leveraging our open banking capabilities and clearing capabilities, corporate payment capabilities, relationships with public administration so on and so forth. So it continues to be an important areas, although this one is a bit more Italy focused. So that's the way I would summarize it.

Got it. Just a quick follow-up, if I might, on that. On the issuing side, are you issuing virtual cards? Or is that like expense management type cards? It's a really interesting use case there. And I appreciate it. I'll drop off now.

Actually, we do both. And here, we should again consider the fact that where we are a real issuer or co-issuer is, in fact, Italy for now. We are in conversation to export this also in other places, but for today is mainly Italy. And when we look at business customers, we offer both so we go through corporate more in general from SMEs to large ones and offer them cards for their employees with different type of building and solutions with all the management on the back of it, which is obviously very important for them. But also we offer virtual cards that are at the end of the day, working capital management products and services for them.

The next question is from Anders Leitner with Jefferies.

I have -- mostly -- the most questions were answered, but can you maybe talk -- give an update around the M&A strategy and also about the pending asset for sale Ratepay? And also if there are any merchant books still left in Italy to grab?

Sorry, Anders I didn't get the first one.

M&A in and out.

M&A in general.

Yes.

Listen, let me give you a broader answer and then I'll let the -- I'll leave the floor to Bernardo on assets for sale. In general, you know that we never comment on individual situations in this. But we remain really focused on what we discussed at the Capital Market Day. So our focus is in Merchant Services to begin with. And we are looking at opportunities basically in 3 spaces, consolidating our presence in the markets where we are present through more merchant books. So if I can also address your third point, yes, in Italy, we always consider the opportunities if that's consistent with the strategy of our partner banks. And we try to focus on the more material ones to make sure that we remain focused on the bigger opportunities. Second, we said that we are considering expanding very selectively in other European geographies, in case there were attractive opportunities and value accretive opportunities in terms of merchant books. And third, potentially strengthening our portfolio of capabilities in the e-commerce and software space. And -- these are the 3 areas where we continue to be active, as I said before, in a very, very focused way. We've given up many theoretical opportunities or many conversations where we've been engaged simply because they were not big enough to bother or not creating enough value for our customers. On assets for sale, Bernardo, if you want to give a... .

So the ones we bucketed and held for sale eID in Denmark and Ratepay, we are in the process of basically of disposing of these assets. I think it's early days. We're not in a particular hurry to do so, obviously, the sooner the better, but we're not forced sellers and these are assets which are not that big compared to the rest of the group. So it's not something which makes a material difference to our P&L, especially if you look further down the P&L. I think it's -- we're further down the process in terms of eID in Denmark and with regard to Ratepay it's probably an easier asset because it exists as a company. It has a track record, stark track record, audited financials and the likes. But it's probably not the best time to be marketing a consumer finance -- essentially a consumer finance business. So we will take our time on that one to find the best possible solution. Having said that, we have had a number of inquiries coming in after the announcement and showing interest and curiosity for this kind of assets. I think things are progressing as per plan a little faster on the eID and a little slower on Ratepay. But I think these are 2 very good assets that we are capable of extracting maximum value from.

Just maybe circling back to Paolo's comment around M&A. Maybe just looking now into 2023 and in the recent devaluation of the sector, do you see then that you will continue on that cadence? Or are there now more assets available for sale or less? So how should we think about 2023 and the whole tailwind from M&A?

Listen, the -- I can only reiterate what we said in the past. We don't have a specific cadence in mind or not. We're also very happy to stay put and not do M&A in case there are no attractive opportunities that generate real value for our shareholders. I think we will continue to operate along the lines of -- on the one side, strengthening our portfolio on the 3 spaces that I mentioned, again, only if clearly strategic and value accretive. And on the other side, we'll continue to simplify our portfolio with a clear priority on the 2 initiatives that we have mentioned. And then the timing will be based on when the opportunities arise.

The next question is from Sandeep Deshpande with JPMorgan.

My question is about the Nordics. I mean when we look at the growth in the Nordics, I mean, the overall growth in the Nordics was also quite slow in the quarter. And when we look at the comp in the previous year, Nordics was -- didn't have the kind of high comp that DACH had -- so what is exactly happening in the Nordics? Why is the growth where it is? Is there some -- like you had those one-offs in the DACH region? Were there any one-offs in the Nordics, which caused the growth to be where it is? And in terms of the Nordics, is there something in the future, which is going to cause the growth to accelerate from here?

Sandeep. So listen, I think Bernardo already mentioned it in the Nordics in the quarter, we have a couple of specific phenomena that are connected to the to the business, the DBS business that, by the way, is for sale and is still included in these numbers because we wanted to remain consistent in the year with the guidance. So that's one. And the second one, there are certain price changes that are coming from the past that are impacting this quarter in a more specific way. But again, just to give you a little bit of a sense of it, if you look at merchant services revenues, they're actually growing double digit. So we don't see, at this stage, any specific Nordic issue. Actually, performance is very strong in Merchant Services. On the other 2 divisions is affected by what Bernardo has mentioned, and therefore, we are not changing our view going forward because these 2 dynamics that are a little bit of a drag in the quarter, specifically will fadeaway going forward.

I'm not sure whether this question was asked, but one quickly on inflation. Can you remove the inflationary impact on your Merchant Services growth or that is not possible to do?

Sorry, I didn't understand. Can you remove....

No we can't. I mean, Sandeep it's impossible...

No, no, no. You mean separating in the numbers. No, no, it's impossible. I think -- I'm not sure I would do because it really becomes very [indiscernible] but it's also technically impossible.

The next question is from Alastair Nolan with Morgan Stanley.

Great. I think quite a few of my questions have been answered. Maybe one area would be around pricing, particularly in Merchant Services. Just keen to hear if you have seen any different sort of behavior from merchants? Any different trends when it comes to pricing? Is there any increased pressure given the macro? Just any updates there would be helpful.

Alastair, not really. I mean not connected to the macro dynamics. So on the one side, I think everybody is looking for savings. But on the other side, everybody is also recognizing that delivering products and services at a higher cost due to inflation. So that's a little bit the balancing. To be honest with you, so far, we have not seen any material change in what is happening out there. And this is, I would say, true across the various geographies.

The next question is from Alexandre Faure with Exane BNP Paribas.

I have just one question on macro again, but not on merchant services this time, rather kind of impact on card and digital payments. Wondering if you've seen any lengthening in the decision-making process of your customers perhaps we've seen that elsewhere in sort of financial software. And somewhat relating to that, if you could comment on the state of your pipeline and whether you're seeing any large deals coming up, one of your big competitor is quite excited with demand from banks when it comes to payment processing.

Alexandre, I guess, on the Cards & Digital Payments, you had in mind the banks, you're talking about customers, not the end customers, right? .

Right. Right.

Okay. Well, listen, I think in general, you have a point there in a sense that clearly, in general, the banks and larger merchants over the last few months have become a bit slower on specific projects, and this is a little bit of an impact on project work related revenues because they're actually a little bit into a wait and see mode themselves. Again, the overall impact on our revenues is fairly marginal because we are a recurring revenue business rather than a project work business. But I mean, answering to your specific question, there is a little bit of that. And listen, I think on large deals, I'm not sure what you have in mind generally, but the same also applies even if there is not really a rule. I mean, we are working on very complex deals where the customer is just progressing as fast as possible and it's true for banks and corporates. So I would say, on average, there is a little bit of a slowdown, but there are individual very large cases where instead they are pressing ahead as fast as they can. So there is not, I would say, a rule.

The next question is from Aditya Buddhavarapu with Bank of America.

Just one from my side. Can you talk about the market share trends in different markets, so Italy, Nordics, DACH, particularly in Italy, I guess, you're seeing one of your major competitors buying some assets there. So anything you're seeing on different markets.

No. Let me just reiterate again what I think we tried to say at the Capital Market Day, I think there is a general trend that is also a little bit consistent with our own strategy, which is clearly winning market share, which is in the markets where we are challengers, places like Germany, Switzerland, Poland and others. And we see it happening. And clearly, more defend our position on the value of the market and actually try to increase the portfolio of products and services we sell to customers in markets where instead we are leaders, and it is a little bit what we see happening. But there is no particular new dynamic in the current environment. This is, I would say, throughout the last period, and we see it continuing, and it's actually our own plan when we gave you our own perspective on outlook for the coming years. Mid, long term, we were having this in mind, grow market share where we are challengers and even sometimes accepting a little bit of erosion of market share where instead we are strong, strong leaders.

Understood. And just maybe one quick follow-up. In Germany, specifically, I mean, it looks like volumes are still below the sort of pre-COVID levels, below 2019 levels, especially, I guess, on the high-impact side. So I mean, how are you looking at that market sort of recovering into 4Q and then next year?

Listen, the volumes are, unfortunately, not a good indicator of our performance. But in general, our strategy for Germany. If you look at -- I mean if you just take it, you have it in a patch. But actually, if you look at the volumes net of the what we've given up as large customers because they were unprofitable the actually, volumes are growing compared to last year, double digit in Germany. But nevertheless, and also versus pre-COVID that are growing in August of 13%, 11% in September, 8% in October. But again, I will not really take that as the right KPI because, as I said, we've given up large relationships that maybe have been taken by others. And probably they like them, where we felt that the overall profitability, including cost of risk. For that customer for that relationship was not attractive for us. Again, let me just reiterate what I said before, when it comes to revenues that for us is the real measure here profitable revenues, obviously. If you take that angle, SMEs are growing almost in the quarter, I'm saying 20% in the month. Sorry, in the quarter and large merchants where instead, you have these volume effects, revenues are actually growing more than 20%. So that's clearly what is important to us.

Understood. And then I guess should the impact of some of these discontinued clients wash out in next year then, it's mostly something for this year?

In terms of volume -- in terms of revenue impact and here I'm talking about large retailers or service companies, airline companies and so on and so forth. In terms of the volume impact that should unwind going forward, I think we are still finishing a little bit of -- I mean, we are still exiting some customers and sometimes it takes time, even if we would like to accelerate because again, it's our objective to change position there. So probably we'll see it unwinding next year. But again, as far as revenues in terms of Laka and SMEs, there is no real unwinding that should be seen in the future because the impact on revenue is a bit marginal.

The next question is from Simonetta Chiriotti with Mediobanca.

A quick question on net debt if you will give us a comment on the trends underlying the slight growth that we see with rest of June.

So slide -- just looking for the slide. Slide 14, you see net debt dynamics between June and September, where we have a slight increase, approximately EUR 75 million in terms of gross debt and a similar amount, I would say, in terms of net debt. This is simply payment of interest coupons and the likes during the quarter. Other expenses that Nets Nexi as a holding company had in terms of if you look at the cash balances and so on and so forth. So nothing significant in the quarter.

There are no more questions registered at this time.

Listen, thank you for participating, and thank you for your questions. Again, as always, very happy to comment further and have further conversations in the coming weeks. Otherwise, we see each other with end year results in early next year. Again, thank you for attending, and have a good afternoon. Bye-bye.