Asseco Poland SA

WSE:ACP

Earnings Call Transcript 2020-Q3

[Joanna Paczkowska-Tatomir, executive]

[Audio Gap] Asseco. Today's conference is also attended by Rafal Kozlowski, Asseco's VP and CFO.

[Rafal Kozlowski, executive]

Hello, everyone.

[Joanna Paczkowska-Tatomir, executive]

Our result meeting summarizing our operations and financial performance from Q1 to Q3 will be divided into 2 parts. In the first part, we will go through the extract of our results presentation. The full version is posted on our website under IR tab. Moreover on the screen above the window with slides, you can see a small banner also pointing to this file. Second part will be dedicated to Q&A session. [Operator Instructions]

So let's start with the presentation. The first 9 months of 2020 were very good period for Asseco in financial terms. We strengthened our position in all operating segments, recording both revenue and profit growth. In Q1-Q3, our revenues grew by 13% to PLN 8.7 billion. Non-IFRS EBIT was up by 17% to PLN 1 billion and non-IFRS net income grew by 12% to more than PLN 300 million.

Our strategy is based not only on organic development, but also on acquisitions, to a large extent. We are interested in companies that allow us to increase competencies in specific sectors or to enter new geographical regions. And from January to September 2020, we've completed 13 acquisitions out of which 5 in Q3.

Regarding the impact of ongoing market situation on the results achieved and development prospects, we see acceleration of the digitization processes in companies and increased demand for solution in selected IT areas. But on the other hand, we see a certain caution in the market when undertaking new investment projects. It is, of course, associated with the general situation in the world and the caution as how the pandemic situation will develop the economies. And of course, the businesses of the clients in Polska. As mentioned [indiscernible] results [indiscernible] are in some areas positively influenced by cost savings, related to conducting business operations remotely. In Q1 to Q3 2020, 88% of our revenues were generated on international markets through Formula Systems and the Asseco International segments. In Asseco Poland segment, we improved sales by 12% year-over-year. This is the effect of higher revenues from the public institutions by 32% year-over-year and as well as utility sector by 52% growth year-over-year. In Q1-Q3 2020, we had very good sales of security and trust services, which, of course, is related to the pandemic situation and increased interest in our digital solutions.

On Formula Systems segment is concerned, we improved sales by 14% due to double-digit sales growth in all Formula Group companies, which reported higher sales to existing customers, revenues from newly conducted contracts and also newly-acquired companies also positively contributed to segment's results. These figures arrived from organic growth and impact of takeover and also from exchange differences. In Q1-Q3, Formula Systems acquired 10 new companies, 5 from Israel, 3 from the U.S., 1 from Germany and 1 from the Netherlands.

Commenting on Asseco International segment, which grew by 9%, we should emphasize very good performance of Asseco South Eastern Europe, which increased scale of operations in the area of payments and banking, thanks to among other acquired companies. We also should emphasize increased sales in companies from Spain. Our company, Asseco Spain, reported 26% growth year-over-year. In Denmark, our consulting sub, Peak Consulting, improved sales by 27% year-over-year. And in Lithuania, and our company Asseco Lithuania, reported 51% growth in sales year-over-year. We should also underline good financial performance in our ERP solutions area, which is represented by the company Asseco Enterprise Solutions by the group of companies.

As you remember, in our operations, we identified 3 sectors: banking and finance, general business and public institutions. In Q1-Q3 2020, banking and finance sector accounted for 37% of our sales, general business sector for 38% and public institutions for 25%. In banking and finance sector, our revenues grew by 7%, the highest growth by 9% was observed in Formula Systems segment, mainly due to very good performance of Sapiens, which is a leading global provider of IT solutions for insurance industry. Sapiens reported double-digit revenue growth in North America and Europe, which combined accounted for 94% of its sales.

In Asseco International segment, Asseco South Eastern Europe stood out. It maintained high-growth dynamics in the payment area and it has also generated good sales results in banking and finance sector. In Polish segment, sales were at a similar level to last year. We are very satisfied with the results of Polish banking and finance sector, which is currently running approximately 200 products simultaneously. What we want to emphasize is the fact that 2019 was an outstanding year for Polish Banking and Finance. We implemented many changes to IT since then, resulting from changes in legal regulations. So it was a record year, and it will be hard for us to beat it. In General Business sector, sales increased by 14%, the highest growth by 19% was made in Asseco International segment, thanks to improved sales results of Asseco Spain and Asseco South Eastern Europe, as well as our companies connected to selling ERP solutions located in Poland, Germany and Slovakia.

In Formula Systems segment, we observed very good sales dynamics in Matrix and Magic Software. In Asseco Poland segment, we generated positive results in the area -- in the utilities area. At the end of March 2020, we commenced cooperation with Cyfrowy Polsat Group, both had positive effects on our results in Q2 and Q3 and should positively contribute to our results in the coming quarters.

In public institutions sector, sales grew by 20%. The most significant sales grow by 32% was recorded in Polish segment, thanks to execution of long-term agreements with several hundred million zlotys, including signing agreements with clients such as the National Health Fund, the Social Insurance Institution, the Farmer Social Security Fund and the Agency for Restructuring and Modernization of Agriculture. They are really the client from Polish market, they are public institutions. We've also signed in reporting period new contracts related to adjustment of ZUS key IT systems, to support government's Anti-Crisis Shield program and Polish Tourist Voucher.

Formula Systems segment grew by 26% due to significantly higher sales of Matrix and Matrix IT, among other, thanks to execution of significant new contracts signed last year. Currently, we have signed contracts worth PLN 11.3 billion, which means 12% growth related to the backlog presented at the same time last year. We observed double-digit increase in all segments, in Polish segment by 17%, in Israeli segment by 14% and in Asseco International by 9%.

Here, we can see our results for the 3 quarters of 2020 cumulatively and Q3 alone. Numbers for Q -- from Q1 to Q3 have already been discussed. And in Q3 alone, we improved the results at all levels of profit and loss accounts. So we -- our revenues were higher by 7% and amounted to PLN 2.9 billion and our operating profit increased by 15% to almost PLN 300 in Q3. We also improved our margins in this period.

On this slide, we show Q1-Q3 results of regions and subsidiaries. In Asseco Poland segment, we improved revenues by 12%, EBIT non-IFRS was higher by 21% and non-IFRS net income by 17%. Formula Systems segment also grew at a double-digit pace at the level of revenues, EBIT at the bottom line, revenues by 13 -- 14%, non-IFRS EBIT by 22% and non-IFRS net profit by 21%. Asseco International grew on single-digit pace on the level on top line, EBIT and bottom line. In total, our revenues amounted to PLN 8.7 billion, non-IFRS EBIT exceeded PLN 1 billion, and non-IFRS net income was equal to PLN 303 million.

We have a stable liquidity position. At the end of September, the level of cash was equal to PLN 2.3 billion. Net cash in the group was on the level of PLN 1.7 billion. Net operating assets amounted to more than PLN 2.1 billion, out of which PLN 1.3 billion came from Formula Systems segment, PLN 466 million from Asseco International segment and PLN 374 million from Asseco Poland segment.

So this is all from our side. Thank you for your attention, and we could call to Q&A session.

[Joanna Paczkowska-Tatomir, executive]

[Operator Instructions]

[Rafal Kozlowski, executive]

So [indiscernible] question whether it's difficult to find appropriate icon to click on or there are no questions. No, it's...

[Joanna Paczkowska-Tatomir, executive]

So you can also -- yes, type questions [ in here ].

[Rafal Kozlowski, executive]

[ Chat, maybe we can ] take this one, yes. So maybe meanwhile, I will try to -- not summarize because Joanna did it already, but let me exchange with you some other topics.

So all in all, we are very pleased after these 3 quarters. At the beginning of pandemic period, we're really afraid what will happen and how much the overall situation will influence the business itself. So far, so good. I mean, we are, let's say, lucky sector because our customers need us, and really during this difficult period, they need some updates, some new functionalities, et cetera. So there is additional demand. This is one thing.

Another one is that thanks to the pandemic situation, we are also saving some costs. There are no business trips, the amount of usage, even the offices is smaller. In some extent, we could stop, let's say, the salary increase expectations, et cetera, and it's helping in our results, and it is visible. So we are pleased.

What to think about the next quarter, still it's not so clear. In many countries during this year, there were a lot of governmental support, which improved the economy. We will see what will happen if the support will be smaller and smaller amount for next year. And then we will adopt again. But already, one can say that we know how to work, how to deliver functionalities and all the requested modifications to our customers. So it's happening.

There are almost no customers that stopped their operations. Of course, we have some sectors that are more influenced, like, I don't know, HORECA, for instance, or we are providing some solutions for the producers of cars. So it's also the sector that was influenced by the situation. But overall, it's really good.

I see that your backlog increasing. Is it correct to conclude that there are no problems with new project starts?

In some extent, yes, that's correct. Still we have new projects. We are working on some other. But of course, we are also trying to emphasize that selling process, it's not the same as it was. Nothing is better than to sit next to customers, listen to customers, try to convince him during the meeting. Of course, we have plenty of video meetings, but it's not the same. So I would say that the sales process is not stopped, but it's slowed down. So this is a more appropriate question.

What can you say about outlook for 2021?

It's a little bit too early for us. We started the budgeting process. And normally, we are finishing our budget around January. And then we are sharing with the shareholders, I mean, the market, our outlook for 2021, I mean, the next year. Today, the only thing that I can say that there are sectors where we have some kind of expected growth. It seems good. I am just judging thanks to backlog, but there are some sectors that it's more flattish. So we will see.

How is the cooperation with Cyfrowy Polsat going?

It's pretty good. Actually, we are very pleased. We started works from the beginning, let's say, our cooperation. Although we are finishing, concluding this first biggest agreement. One has to remember that this is not a new customer for us. We used to cooperate with Cyfrowy Polsat and most of the contracts that we already concluded, it's delivered. Now we are waiting for much bigger contracts, the frame contract to build the CRM system for Cyfrowy Polsat. As I said, we are finishing this and it will be officially announced once it will be closed.

But by the way, the cooperation with Cyfrowy Polsat is already visible in our numbers. And maybe on the revenue side, it's not significantly more because in 2019, we finished -- we're finishing the cooperation with Orange and with Huawei, but -- and it was stopped in '19. So the first 3 quarters of '19 were full of this revenue, but the EBIT was not so good from these 2 customers. But this year, the revenue, we already, let's say, delivered on the same level, but the profit is much better.

There is no other question?

[Joanna Paczkowska-Tatomir, executive]

[ Yes. We will give it one moment ]. We see no further questions at this time. So thank you for attending our meeting. If you have any questions, do not hesitate to contact us. And I hope you will stay all health or safety. And thank you for attending our meeting once again. Bye.

[Rafal Kozlowski, executive]

Thank you very much. Take care. Bye.