Asseco Poland S.A. (ACP) Earnings Call Transcript & Summary

[Audio Gap] Tatomir, and I am Investor Relations Manager of Asseco. Today's conference is also attended by Rafal Kozlowski, Vice President of the Board and CFO of the Group. Our results meeting summarizing our operations and financial performance in H1 2020 will be divided into 2 parts. In the first part, we will go through the extracts from our presentation, which full version is posted on our website under IR tab. The second part of our meeting will be dedicated to Q&A session, and there are 2 ways of asking questions. [Operator Instructions] Of course, if you have any additional questions after the meeting or you want to arrange one-on-one call, Rafal and I are at your disposal. So let's start with the presentation. In the first half of 2020, we generated very good financial results. Our revenues grew by 16% to PLN 2.8 billion (sic) [ 5.8 billion ]. Non-IFRS operating income was up by 20% to PLN 675 million and non-IFRS net income grew by 12% to PLN 201 million. During the first 6 months of 2020, we strengthened our position in all 3 operating segments. We generated higher revenues and profit in Formula Systems segment and Asseco International segment as well as in Polish segment. Positive results stemmed from good diversification of our business, which have been consistently building at the geographical, sectoral and product level. Regarding the situation related to COVID-19, we've been working remotely since mid-March. All group companies operate on an ongoing basis and fulfill its contractual obligations within the deadline specified in relevant contracts. The management of group companies are consistently monitoring situation related to COVID, and they are preparing scenario analysis and reacting to the situation on an ongoing basis, adjusting activities to changing market conditions. We see increased importance of digitization in all areas of our operation and increased demand for solution enabling remote operations and custom service. But on the other hand, we see a certain caution in the market when undertaking new investment projects. It is associated with high uncertainty and caution as how the pandemic situation will develop and what impact it will have on our clients' businesses in the long term. In the first half of 2020, 89% of revenues were generated on international markets through Formula Systems and Asseco International segments. In Asseco Poland segment, we improved sales by 6% year-over-year. This is the effect of higher revenues from the public institutions by 24% as well as Utilities sector. In the first half, we had very good sales of security and trust services, which is, of course, related to the pandemic situation. When Formula Systems segment is concerned, we increased sales by 19% due to double-digit sales growth in all Formula group companies, which reported higher sales to existing customers and revenues from newly concluded contracts. These figures arise from organic growth, impact of takeovers and also from exchange differences. In H1, Formula Systems acquired 7 new companies: 4 from Israel, 1 from Germany, 1 from U.S. and 1 from the Netherlands. Commenting on Asseco International segment, which grew by 12% year-over-year, we should emphasize very good performance of Asseco South-Eastern Europe, which increased scale of operations and profitability in all operating segments. We also should mention increase in sales of companies from Spain. Our sub Asseco Spain reported 18% growth, mainly due to set of hard work. In Denmark, our consulting sub, Peak Consulting, improved sales by 42% year-over-year. And in Portugal, our sub, Asseco PST, reported 17% growth in sales. We should also underline good financial performance of our ERP solutions area, which improved its revenues by 5% year-over-year. As you remember, in our operations, we identified 3 sectors: Banking and Finance, General Business and Public Institutions. In the first half of 2020, Banking and Finance sector accounted for 37% of our sales, General Business sector for 39% and Public Institution sector for 24%. In Banking and Finance sector, our revenues grew by 8%. The highest growth by 10% year-over-year was observed in Formula Systems segment, mainly due to very good performance of Sapiens, which is leading global provider of IT solutions for insurance industry. Sapiens reported double-digit revenue growth in North America and Europe, which combined accounted for more than 90% of its sales. In Asseco International segment, Asseco South-Eastern Europe stood out. It maintained high-growth dynamics in the payment segment. Moreover, we reported positive sales results in our Portugal sub, Asseco PST. In Polish segment, we continued long-term cooperation agreements with existing customers, and we acquired new contracts. For instance, we signed a contract with leading Polish e-commerce company for implementation of an IT system for post-sale loan service. We also signed an agreement for the implementation of our investor platform in one of the largest Polish brokerage houses. We should also have in mind that 2019 was a very good year for Polish Banking and Finance sector due to many legal changes, which had to be implemented [ at our entity ] systems. In General Business sector, sales increased by 23%. The highest growth by 29% was made in Formula Systems segment, thanks to sales of software and services, which support remote operations of customers. Previously completed acquisitions also contributed to this growth. In Asseco International segment, we observed very good financial -- very good sales dynamics in Asseco Spain and Asseco South-Eastern Europe. We also increased sales in our ERP solutions located in Poland, Germany and Slovakia. In Asseco Poland segment, we generated very positive results in Utilities area. We should also mention high base of financial results of H1 2019 when we were running projects in telecommunication area for Orange and Huawei. At the end of March this year, we commenced cooperation with Cyfrowy Polsat group, what should have positive effect on our results in the coming quarters. In Public Institution sector grew -- we noticed growth by 17% year-over-year. The most significant sales growth was recorded in Polish segment, thanks to implementation of long-term contracts which were signed last year. They were worth several hundred million zloty. We also signed new contracts related to government anti-crisis Shield program. Formula Systems segment grew by 21% due to significantly higher sales of its sub, Matrix IT and Magic Software. In Asseco International segment, Asseco and Asseco South-Eastern Europe and Peak Consulting generated very good results. Currently, we have signed contracts worth PLN 10.3 billion, which means 13% growth related to the backlog presented at the same time last year. We observed double-digit increase in all our segments: in Polish segment by 16%, in Israeli and Asseco -- Asseco International segment by 12%. Here, we can see our results for the first half and Q2 alone. Numbers for the first half was already mentioned. And in Q2, we improved the results at all levels of our P&L. Revenues were higher by 12% and amounted to PLN 2.9 billion. Operating profit increased by 33% to PLN 303 million. And it was the historically best level of quarterly operating profit of the group. We also improved margins in Q2. On this slide, we show results of regions and subsidiaries. In Asseco Poland segment, we improved revenues by 6%, and non-IFRS EBIT was higher by 8%. Formula Systems and Asseco International segments both grew at double-digit pace at the level of revenue, EBIT and bottom line. So in total, our consolidated revenues amounted to PLN 5.8 billion, non-IFRS EBIT was equal to PLN 675 million and non-IFRS net income was equal to PLN 201 million. We have stable liquidity position. As of end of June, the level of cash was equal to PLN 2.5 billion. Net cash in the group was on the level of PLN 1.6 billion. Net operating asset amounted to PLN 2.2 billion, out of which PLN 1.5 billion came from Formula Systems segment, PLN 380 million from Asseco International segment and PLN 294 million from Asseco Poland segment. And in Asseco Poland case, this amount includes the payment of dividend in the amount of PLN 250 million. This is all from our side. Thank you for your attention. So we can go to Q&A session.

[Operator Instructions]

So if there is no questions, maybe I will try now to make some statements. So because we had a meeting with Polish investors morning and there were some questions related to backlog. So backlog for the rest of the year, actually. So it seems that the dynamics are very similar to what we have observed so far, which is very optimistic statement. So if anything -- if everything will be fine and now some problems coming from COVID, for example, et cetera, the second part of the year should be similarly good as we are observing in the first half of the year. But meanwhile, I can see some question. Can you give guidance on your backlog and potential margins in order book? Okay. So this is what I am trying to say. What is important, the situation of Polish segment is improving very much. This is related still to Public Administration, especially. We were informing during the last year that we are signing significant contracts. And these contracts are, let's say, realized during this period and it will last another year because the contracts are pretty long. Meanwhile, during the COVID period, we get additional orders, especially from Public Administration in Poland. We are participating in providing special solutions for our government here in Poland, and it's helping our results. In first half of the year, it was more a replacement for current contracts. But in second part of the year and probably beginning of next year, it should improve even good backlog that we have. So this situation should be okay or even more than okay. Of course, the situation is not fully stable. So we cannot predict what will come. But as I said, the bases are very strong. What is happening in other places. So the Formula is also very strong. And we expect that it should be contributing to our results as good as it was in first half of the year, but also Asseco International, especially Asseco South-Eastern Europe, it seems that the rest of the year should be strong. Maybe a little bit different situation will be with Asseco Central Europe, which is part of Asseco International because a year ago the government in Slovakia was changed and there are some, let's say, slowdown in relation to the contracts that are actually ordered from the Public Administration. But all in all, we are still very optimistic looking forward, although still we have in mind that the overall economic situation in countries that we are operating is not so optimistic anymore. So sooner or later, probably it will have the impact on our results as well. Another question. Can you please give us any update on your German... Yes. Good. Thank you for this question. Yes, this is still the process. We are already -- almost established this JV. So all the agreements between us are, let's say, negotiated already. The establishment of this JV is more about some technical legal process. It should be done on days or maybe weeks. But the most important part is that we are participating already in some activity related with the process of offering. So there are some clients that are interested at least at meetings. So we will see the outcome. But please take into consideration that we are talking about core solutions -- core banking solutions. So that kind of sales processes are taking normally quarters or even sometimes a year or a little bit longer. So we have to be patient. But the cooperation itself with adesso is very good. Another question. Are there any sectors you are exposed to that you feel cautious about looking forward in second quarter on the current company? Yes. Okay. Thanks, again, for a good question. So of course, there are some areas of activity or operations that are exposed much for the difficult situation. So Horeca, but we are not exposed so much on this sector. But we have also some issues connected with our products related to industry for 0 and we are serving car business, for example. So there are problems in this sector, and this problem causes some issues for our companies operating there. But they are not significant in total numbers of Asseco group. We are a little bit concerned what will happen with financial institutions because we have some signals that maybe they will look for some savings. Although there are also some new opportunities in this segment, so we have to check whether the net effect will be positive or negative. But I am sharing with you guys all the signals. So I would say that that's all what I can say on this stage. The other businesses are, let's say, normal. And even the collection of receivables is on regular level. So we are still very cautious. We are observing what is happening, but there are no bad signals yet. Okay. Anything else. No question. No other questions. So just maybe summarizing, so -- we have something. Sure, so maybe it's -- let's say, we are not providing information that could be treated as a kind of forecast. So let me try to base on what we have seen during the first half of the year. So the growth was 16%. So we grew by PLN 780 million and 40% out of it was connected with FX difference. But the rest of it, in half growth connected with acquisitions and half organic growth. In terms of EBIT, the situation was different. So only 1 quarter was connected with FX differences. And about 25% -- another 25% was coming from acquisitions, but the rest or half of the growth was organic growth. It was related to the growth itself, I mean, coming from the revenue growth, but also improvement in profitability. Of course, in this improvement of profitability, the pandemic situation also helped because in some extent we get some extra cost savings, and it improved our profitability. But still, the organic growth is pretty strong, and we expect that it should come next half of the year as well. I hope that it was helping somebody who was asking the question.

We see no questions at this moment. So we may wait a little. So if there are no other questions, thank you for attending, and feel free to contacting us in e-mail form, whatsoever.

Yes. So all the presentations and actually the meeting that we had during this morning will be on our page. So you can follow this as well.

Yes. They are already posted and the reports will be posted next week. The presentation -- the full version of presentation is already posted.

Good. Thank you then. All the best.

Bye-bye.

Bye.