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

Good afternoon, everyone. I would like to welcome you to our call today to review Asseco's Financial Results for the first 9 months of 2023. Our -- my name is Joanna Paczkowska-Tatomir, and I'm responsible for Investor Relations in Asseco. Today's conference is also attended by Karolina Rzonca-Bajorek, Asseco's Vice President and CFO. Our result meeting, as always, is divided into 2 parts. In the first part, we will go through the extract of our results presentation. The full version is also posted on our website under IR tab. Moreover, on the window -- on the screen above the window with the slides, you can see a small button up pointing to the slide. The second part of our meeting is dedicated to Q&A session. So let's start with the presentation. Asseco's business is developing steadily, and we are satisfied with the results achieved in Q1-Q3 2023. Group revenues amounted to PLN 12.6 billion. Non-IFRS operating profit was equal to PLN 1.5 billion. Net profit in non-IFRS [ approaches ] amounted to PLN 384 million and reported net profit was PLN 344 million. We emphasized that in Q1-Q3 currency exchange rates had a significant negative impact on our results. After its excluding organic revenue growth at fixed rate was 6%. We remain focused on our proprietary software and services, which accounted for 79% of our revenues. This results confirm the effectiveness of our business model based on proprietary software, combined with local experience and global expertise. We have a diversified portfolio of clients, most of them are large, financially stable companies and public institutions. In Q3, we successfully completed share buyback. Its goal is to ultimately increase the liquidity of Asseco's shares listed on the Warsaw Stock Exchange. In the reported period, 89% of our revenues were generated on international markets for Formula System and Asseco International segments. In the Asseco Poland segment, the revenue dynamics amounted to 12% on year-on-year basis. In Poland, we achieved double-digit revenue growth in the following sectors, finance and banking, health care, energy and telecommunications. We continued the implementation of long-term contracts and projects in the central [ of listed ] administration sectors. Our 2 subsidiaries, Asseco Data Systems and Asseco Cloud also performed very well. In the case of Asseco Data Systems, the growth recorded in the area of trust services deserves a particular attention. The revenues of our Polish cloud company, Asseco Poland and Asseco Cloud increased in the reporting period by 26%. The Formula Systems segment reported revenues of over PLN 8.3 billion. Changes in currency rates had a significant impact on the sales level. Organic revenue growth at fixed rates was 7%. In the case of Formula System, we emphasize the geographically diversified activities of companies from this group. Sapiens generated 50% of revenues in Europe, 41% -- and 41% in North America. Matrix generated 90% in Israel and 9% in North America, while Magic Software reported 49% of revenues in the U.S.A., [ 39% ] in Israel and the remaining 4% revenues from Europe -- Europe and APAC and the rest of Europe. [ The Formula System ] wide portfolio of clients from the public sector and large private companies with strong market position. These International segment generated revenues of PLN 2.9 billion. In Q1-Q3 2023, dynamic increases in sales of ERP systems were recorded in Poland, Czech Republic, and drastic regions, what means in Germany, Austria, Switzerland and Italy. The Asseco South-Eastern Europe group operating in the southeastern part of Europe, generated double-digit revenue growth in the Banking and Dedicated Solutions segment. In the lower right corner, you can see how our sales by geographical segments have been developing over the last 5 years. Our revenues are highly diversified by sector. In the reporting period, finance and banking sector accounted for 34% of our sales, general business sector for 42% and public institution sector for 24% and just like in the previous slide in the bar chart on the right, you can see how our [ sales ] by sector has been developing over the last 5 years. What is small, what I would like to also emphasize that Asseco's has a diversified portfolio of customers. And in Q1-Q3 2023, 10 largest contractors accounted for 10% of group revenue, while the largest customer was responsible for only 2%. In the area of banking and finance and banking sales slightly decreased by 3%. Revenue grow by 22% was observed in a Asseco Poland segment, where we reported 40% growth in revenues in the current company and high growth rate in the area of commercial and corporate banking capital market and business utilities. Asseco International segment grew by 1%, mainly due to very good sales result in Asseco South-Eastern Europe banking segment, where growth was driven by lines of central banking systems and omnichannel solutions. In the case of Formula Systems segment, please remember about the significant negative impact of exchange rates on its results. In this segment, the company that stood out [indiscernible]. This is a long global leading provider of IT solutions for the insurance industry. [ Savings ] generated more than 50% -- more than 90% revenues outside Israel. The company has 66% share of software and re-occurring post-production services in total sales software products and re-occurring post-production services, including mainly term licenses, maintenance, cloud solutions, subscription and post-production services. The remaining 34% of sales or preproduction implementation services that include mainly implementation services before it go live, which are one banking nature. Savings is currently intensively supporting its customers in cloud migration processes. A significant percentage of new contracts is related to cloud migration. In General Business sector, sales increased by 1%. The highest growth by 29% was made in Asseco Poland segment. It was very good half year period for Asseco Poland, Asseco Data Systems and Asseco Cloud. In Asseco Poland, mainly thanks to dynamic growth of revenues in the energy and communications sectors. In the reported period, we implemented 2 important digital transformation project in the Polish utility sector for Poland Group and [indiscernible]. In the project carried out for [ Pagani] that Asseco responsible for the construction and implementation of the largest building system in the energy sector in Central and Eastern Europe. In the Republic, Asseco Poland continued cooperation with [ us growth ] supporting transformation of B2C system of this group. In the case of Asseco Data Systems, sales increase was feasible, especially in the robust services such as e-signature. In the case of Formula Systems segment that grew by 1%, we observed higher sales in Matrix IT and in Insync staffing. In Asseco International segment, we reported double-digit revenue growth in Asseco Enterprise Solutions Group, so our ERP and then also Asseco South-Eastern Europe Group. The sales decrease in the segment results from lower sales of Asseco Spain. This company is a distributor of IT equipment and its revenues in the comparative period was supported by the phenomenon of stocking up of enterprises and the situation observed during the pandemic. It also should be remembered that the Asseco International segment, Q1-Q3 2022 results included to Danish companies sold by us in Q4 2022. Those 2 entities generated PLN 37 million in the comparable period. In public institution sector, sales were maintained at a similar level as in the corresponding period of 2022. 1% sales growth was recorded in Formula System segment. We observed the growth of Nitric IT revenues in healthcare and uniform services and discrete sales in [indiscernible] for computers. Equated in Q4 2022 company named Shamrad electronics also positively contributed to the reporting period results. In the Q1-Q3 2022, we recorded a double-digit sales increase in the health care sector in Asseco Poland segment as well a stable stream of revenues from the central and local government sector. In 2022, we implemented many special projects for the social insurance institution, which significantly increased revenue for this period. [indiscernible] in Q1-Q3 2023, the return to the overall contract of operations in this institution. Asseco International segment reported 9% decrease in revenues on a year-on-year basis. And so we have already commented in the previous meetings, we have a temporarily launch period in the public administration sector in [indiscernible] and Czech Republic due to turbulent political situations. In addition, as in general business sector, we are dealing with the effect of lack of revenues from Danish companies sold in Q4 2022. We generated PLN 79 million in the comparable period. On the other hand, strong sales performance of Asseco South-Eastern Europe and Asseco Enterprise Solutions Group should be [indiscernible]. We are satisfied with presented results achieved in such a volatile market environment. 2022 was a record year for us, both in terms of sales and net profit attributable to Asseco Poland shareholders. It should be noted that last year's results was also supported by one-offs. Additionally, in 2022, the exchange rates were favorable for us, while this year, they are strongly to our treatment. Hence, we now experienced the high base [indiscernible]. Organically, the business that developed stable in the first 9 months of 2023, Asseco's revenues increased by 6% at fixed rates. We strongly recommend analyzing non-IFRS figures. They are crucial for assessing business financial spending for Asseco Group. When we compare 9 months 2022 operating profit on non-IFRS -- non-IFRS basis, net of one-offs in the same period of last year, it is very comparable. We maintain profitability on year-over-year basis, we managed to balance the increase of labor costs and revenues from already index contracts. Both during the first 3 quarters and Q3 alone of 2023, non-IFRS operating profit was equal to 11.5%. Commenting on the income statement items below EBIT, it should be noted that despite the increase in debt servicing cost, we maintained net interest income at a stable level, thanks to the effective allocation of financial surpluses. The lower effective tax rate results from the fact that we use that relief such as [ IT works ] in a greater extent, especially in the product company. As a result of one-off channel that occurred in 2022 and the reversal of exchange rates to our detriment. Our net result decreased by the single-digit percent. However, I would like to point out that nothing bad is happening in business and we are simply dealing with the effect of high base of 2022. Commenting on question of consideration. As you can see on the slide, we managed the cash in 94% of the group's non-IFRS. In case of all our business segments, we are within the range of 80% to 120%, which we have set ourself as a super sales [indiscenible]. We informed you at the previous conference calls that this year, due to the payment schedule in long-term contracts signed in public sector in Asseco Poland, we used to have slightly worse level of the ratio in Poland. As expected, in Q3 2023, receivables from several year contracts were invoiced which caused this indicator to return to a very safe level and insurance agency of 54%. We have a stable liquidity position. At the end of September, the level of cash accounted to over PLN 2.6 billion. We have net debt in Formula System and Asseco Poland segment. Net debt in a Asseco Poland segment resulted from new loans taken out from a bi-mode company. The loan was granted on September 6, 2023, by transport [ bank forward scale and the funds ] obtained under it in the amount of almost PLN 950 million were used to finance the buyback, which was finalized on the 21st of September 2023. The final requirement of funds should take place by September 6, 2028. The loan will be repaid in monthly installments. And the last installment will be 50% of the loan amount could use of it. We feel very safe with the level of debt, both in Asseco Poland segment and in the entire Asseco Group. Asseco's consolidated order backlog for 2023 in variable rates in the area of proprietary software and services is now worth PLN 12.5 billion return in fixed rates in total stock PLN 14.6 billion and is 5% higher than in the same period last year. Here, you can also -- you can also see how feasible is the exchange rate effect. It is visible especially in the Formula System segment. So we can see minus 7% dynamics, variable rate versus plus 4% in fixed rates. In September 2023, Asseco Poland carried out as a succesful buyback. The total value of which was PLN 1.2 billion a total of 14.8 million of shares were purchased. Both shares represented 17.84% of Asseco's share capital. Personal and to call the commercial companies, the company does not exercise share right from above-mentioned shares, including both in slides at Asseco's General Meeting of shareholders. The shares were purchased for the purpose of offering them to potential investments. Ultimately, we intend to diversify the shareholding structure and increase the liquidity of Asseco Poland to listed on Warsaw Stock Exchange. This process is that is still ahead of us. Moreover, after the end of the reporting period at the beginning of October, the President of Asseco's Management Board, Adam Goral, purchased nearly 190,000 shares of the company constituted of 0.22% of Asseco's share capital spending coming to PLN 13.5 million. In the bar chart in the pie chart, you can see how Asseco's shareholding structure was shaped before the transactions and how zlotys look right now. Okay. So I would also like to refer to the situation in this trial. We are deeply saddened by the events unfolding in Israel. Such unprecedented and qualified acts after against civilian population should never occur. Formula System group companies acknowledges a well-established business continuity programs. They fulfill their contractual and financial obligations on an ongoing basis. Most employees work in unusual hybrid manner. Formula Group has a diversified portfolio of clients, which are mainly large financially stable companies and institutions. Revenues generated in Israel constitute approximately for approximately 60% of Formula Group's revenues and approximately 40% of the Asseco Group's revenues and the activities of the Israeli Companies are geographically diversified. From 21,000 people employed in the Formula Systems segment, 14,000 were employed in [ Israel ]. As for now, less than 10% of employees, approximately 1,000 was drafted to a active military service in Israel [ Taliban's ] or against a terrorist organization, which corresponds to the average number of a collapse to the army for Czech Republic. Formula System estimates that the impact of the current [ dividend ] on its operation across the investment portfolio will not be severe, and they remain committed to executing its growth strategy. When commenting on the potential impact of the situation in Israeli on the results of Asseco group, it should be noted with the contribution of the results of Formula Systems segment to the net profit of the Asseco Group is proportionally significantly lower than the share of this segment in the revenues of the Asseco Group. The revenues of the Formula Systems segment constituted 66% of revenues of Asseco Group, which translates into only 14% to share of this segment in the net profit of the Asseco Group. Thank you. This is all from my side. So we can -- I will check if we have any questions -- so we will wait a minute. Okay. So if there are no questions, so thank you for attending our meeting. Of course, if you have any questions, so do not hesitate to ask our IR team. We are at your disposal. So see you in our full year earning call, probably will be in May 2024. Thank you. Goodbye.