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

[Audio Gap] I'm an Investor Relations Officer of Asseco. Today's conference is also attended by Rafal Kozlowski, Asseco Vice President and CFO. Our results meeting, summarizing our operations and financial performance in 2020 will be divided in the 2 parts. In the first [Technical Difficulty] Okay. Sorry, for his technical problems. So our results meeting, summarizing our financial results for 2020 will be divided into 2 parts. In the first part, we will go through the extracts from our results presentation. The full version is posted on our website under IR tab. Moreover, on the screen above window with slides, you can see a small banner pointing to this file. The second part of our meeting will be dedicated to Q&A session. [Operator Instructions] Of course, if you will have additional questions after the meeting, IR department is at your disposal. So let's start with the presentation. 2020 was a very good year for Asseco in financial terms. We strengthened our position in all operating segments and business sectors, recording both revenue and profit growth. Our revenues grew by 13% to PLN 12.2 billion. Non-IFRS EBIT was up by 23% to PLN 1.5 billion and non-IFRS net income -- net profit grew by 24% to PLN 454 million. In 2020, in spite of the coronavirus pandemic, the digitization processes in companies and disposition significantly accelerated, which resulted in an increase demand for IT solutions and services. We're focused on providing full support to our clients at this difficult time. We consistently implemented our business diversification strategy. At the level of countries, sectors and products. We develop our own software and services, which in 2020, accounted for 79% of our sales, and we also increased the scale of operations through acquisitions. At the end of 2020, the Asseco team consisted of over 28,000 employees, out of which 24,500 from production departments. In 2020, we increased sales in all business segments. 88% of revenues were generated on international markets through Formula Systems and Asseco international segments. In Asseco Poland segment, we improved sales by 18%. This is the effect of higher revenues from the public institutions as well as telecommunications and media, and also utility sectors. Last year, we had very good sales of security and trust services, which, of course, is also related to the pandemic situation and the increased interest in our digital solutions. Revenues in this area increased by over 30%. When Formula Systems segment is concerned, we increased sales by 15% due to double-digit sales growth in all Formula Group companies, which reported higher sales from existing customers, revenues from newly contracted contracts. And newly acquired companies also positively contributed to this change, to this result. In 2020, Formula Systems segment companies acquired 12 new entities. Commenting on our Asseco International segment, which grew by 10%. We should emphasize very good performance of Asseco South Eastern Europe, which reported organic sales growth across all business segments. We also should emphasize increase in sales of companies from Spain, Denmark and Lithuania. We should also underline growth for financial performance of our ERP [ Arm ]. As you remember, in our operations, we identified 3 sectors: Banking and Finance, General Business, and Public Institutions. In 2020, Banking and Finance sector accounted for 36% of our sales; general business sector for 39%; and the remaining 25% was devoted to public institutions. In Banking and Finance sector, our revenues grew by 9%. The highest growth by 10% was observed in Formula Systems segment mainly due to very good performance of Sapiens, which is the leading global provider of IT solutions for the insurance industry. Sapiens reported significant improvement in the property and casualty segment in North America and Europe and in the life and annuity segment in Europe. In Asseco International segment, Asseco South Eastern Europe stood out. It maintained high-growth dynamics in the payment area, represented by Payten, and it also generated good sales results in banking sector. In addition, Asseco Central Europe, operating in the check and flow of markets, was doing very well in the insurance sector. In Polish segment, sales were at the similar level to the previous year. But we are very satisfied with these results because 2019 was an outstanding year for Polish Banking and Finance. We implemented many changes to IT systems resulting from changes in legal regulations. So it was a record year. 2019 was a record year, and it was hard for us to beat it. In General Business sector, sales increased by 17%. The highest growth by 21% was made in Asseco Poland segment. In this segment, we reported very strong sales in the utilities, telecommunications and media sectors. Asseco International segment improved revenues by 18%, thanks to sales of -- good sales results of Asseco Spain and Asseco South Eastern Europe. We reported also higher sales of ERP solutions in Poland, Germany, Czech Republic and Slovakia. In Formula Systems segment, we observed very good sales dynamics in Matrix IT and Magic Software. In Public Institution sector, sales grew by 20%. The most significant sales growth by 34% was recorded in Polish segment, and it was thanks to execution on prolonged agreement with -- worth several hundred million zlotys with main public institutions in Poland. For example, with National Health Fund or the Social Insurance Institution. We also signed new contracts related to adjustment of Polish key IT systems to support the government's Anti-Crisis Shield program and Polish Tourist Voucher. We grew organically, and through acquisitions. Last year, 15 new companies joined the Asseco Group, bringing added value in the form of interesting products, customers as well as presence in new markets and new segments. We acquired 5 companies from the Israeli market, 4 from the U.S. market and 6 from the European market. Just to remind you, Asseco Group is based on federation, not corporation model. We usually buy more than 50% of equity. But we do not aim to have 100% play in acquired companies. Each new company joining the group retains its unique character freedom of action, while taking advantage of the opportunities offered by belonging to the group, including access to products and competencies of our other companies, joint sales network, or even image benefits related to a recognition of international brands. In the area of proprietary software and services, we signed contracts of the value of PLN 7.6 billion, which means 13% growth related to the backlog presented in the same time last year. Taking into account a fixed effect, the increase is 9%. We observed increases in all segments. In Polish segment by 5%,, in Israeli segment by 14% and in Asseco International segment by 12%. Here, we can see our full year and Q4 results. Full year numbers have already been mentioned. I would like to just add that from this 14% increase in group's revenues, 32% was due to organic growth, acquisitions were responsible for 34% and remaining 24% was generating, thanks to FX changes. In the case of non-IFRS EBIT growth, 57% was organic, 30% was M&A and 13% was FX. In Q4, we improved the results at all levels of our P&L. Revenues were higher by 19% and amounted to PLN 3.5 billion. Non-IFRS EBIT increased by 39% to PLN 432 million. In Q4, we also improved margins. On this slide, we show full year results of regions and subsidiaries. In the Asseco Poland segment, we improved revenues by 18%. EBIT non-IFRS was higher by 39% and non-IFRS net income by 45%. For Formula Systems and the Asseco International segment also grew at a double-digit pace. Formula Systems, reported revenues grow by 15%, non-IFRS EBIT was higher by 25% and non-IFRS net profit by 23%. Asseco International revenues grew by 10% on the revenues level, EBIT non-IFRS grew by 12% and non-IFRS net income by 12%, also. In total, our consolidated revenues amounted to PLN 12.2 billion, non-IFRS EBIT was equal to PLN 1.5 billion, and non-IFRS net profit exceeded PLN 450 million. We have a stable liquidity position. At the end of December, the level of cash was equal to PLN 2.9 billion. Net cash in the group was on the level of PLN 2 billion. Net operating assets amounted to PLN 2.4 billion, out of which PLN 1.4 billion came from Formula Systems segment, PLN 555 million from Asseco International segment and PLN 407 million Asseco Poland segment. Asseco Poland is willing to be a company paying dividend consistency. Our stable financial position allows us to do so. Since 2007, we have payed above a PLN 2.4 billion in dividends. Asseco's Management Board decided to change it's dividend policy from the current 10% to 40% to the new one, over 50% of the net profit payout. This year, Management Board recommended dividend payment in the year-end of PLN 258 million, which means PLN 3.11 per share and is equal to 64% of Asseco's consolidated net profit. We are focused on providing customers with proprietary solutions in the form of software and services. And this part accounts for approximately 80% of our revenues year-by-year. Third-party software and [ medical ] equipment and infrastructure are provided only when necessary. As a result, Asseco offers its customers, top-class solutions, tailor to day needs. Asseco produce top quality software, which supports key business processes of companies in all key sectors of the economy. We want to maintain leading position in our strategic sectors, which are: banking, insurance, telecommunications, health care, utilities and public administration. In 2021 and following years, we will invest in development of new competence areas, which are cloud services and cyber security. We've been pursuing successful acquisition policy for many years. Since 2004, we finalized over 100 purchase transactions, repeatedly increasing the scale of our operations and geographical reach. Our M&A targets are combined with their own software and implementation, complementing the group's existing offer. In terms of acquisition in the Asseco Poland segment, we are focused on Polish market. In case of Asseco International segment, we focus on European markets and in Formula Systems on Israeli, European and American markets. So this is all from our side. Thank you for your attention, and we can go through to Q&A session.

[Operator Instructions] We see no question at this time.

So we have any questions? Meanwhile, I will comment a little bit out of the meaning, let's call it like this. So this 2020 was really good year. And when we entered the year itself and especially in March when the COVID situation was more obvious for everyone. We didn't expect that it will be so prosperous here. So basically, it's, thanks to the kind of good organization, let's say. So this is the first point, and it allow us to really operate successfully and efficiently. But also, we had some savings, thanks to the situation. But there was also -- maybe this is the most important some additional demand coming from our customers looking for more digitalization of the operation, which is a really good thing, and it is not only set for 2020, but it has prolonged already, and we expect additional demand in 2021 because of the same reason. So all in all, again, it was a very good year. And hopefully, 2020 will be also so successful. Please see and look more carefully to our backlog, which shows [ still ] the growth. The overall percentage year-on-year is 13%, based on the results of first 2 months plus expected the backlog for the rest of the year. Even Poland -- Polish segment seems like the not so large it's only 5%, but the true is that methodology here is different. I mean the comparable from 2020 are slightly different. So if we would make the pro forma, it would be 9% growth. So really, the expectations are also very good. So that's all it's -- on one hand, it's very easy to talk about such results. On the other hand, it's difficult to point out anything particular because all the segments, all geographies were pretty okay. There were only a couple of exceptions from this rule, but it doesn't make sense to mention about them because they were insignificant. So maybe somebody has any additional questions, so please.

We see no questions. So, go ahead.

Okay. So if there will be anything else on your interest, just let us know by e-mail or you can SMS, whatever. Joanna is ready to answer, myself as well. You probably heard about the change that we decided to do so why I'm stepping out from being a CFO. I am becoming the CEO of one of our group. The group is called Asseco Enterprise Solutions. It's the group dealing with ERP software for our customers. So this is my next, let's say, goal and project. And my Deputy, [indiscernible] she will take her oath of being CFO of Asseco Poland. So next time, you will meet with her. So there is no other questions I can see.

Yes. I'm always at your disposal, so I will [indiscernible].

Okay. Good guys. So thank you very much. All the best. I hope that you are well despite the situation with COVID. But we have to focus on what we are doing, which is the case. And hopefully, it will be also good for you. So see you next time.

Thank you. Bye.

Thank you. Bye.