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

Good afternoon, ladies and gentlemen. Welcome to our meeting where we will present the results of Asseco for Q1 2025. As always, we will divide this presentation into several areas where we will discuss individual segments, and then we will have a Q&A session. Feel free to type your questions on the chat, both in Polish and in English. The moderator will then read out the questions, and we will try to respond to all of them. Traditionally, we will start with our core business. and the CEO will take the floor now.

Good afternoon, ladies and gentlemen. We could say the following about Q1, that it was a great period in the activity of the Asseco Group, and we are very happy about it, and that would be it. Obviously, we are going to give you some more details. We will be happy to give you some highlights that took place in the first 3 months of the year. In the screen, you can see some basic figures that characterize Q1. Sales amounted to PLN 4.6 billion, which marks an 8% increase as compared to the previous year, increase in non-IFRS operating profit by 13% to PLN 565 million, and non-IFRS net profit went up by 14%, achieving PLN 156 million. The net profit amounted to PLN 136 million, which marked a 9% increase as compared to Q1 last year. This is great. Our group has grown and now includes some new companies. We've been very active in the M&A sector. Hence, 8 new companies joined our family, and I'm going to give you some more details later. First, let me tell you what happened in individual geographical segments where we operate. Please bear in mind, if you look to the right on the chart, in fact, we have no foreign exchange difference result. That is something that was quite important last year. ForEx exchange rate differences were always quite significant, whereas this year, they are negligible. And you can see that on the right-hand side, revenues from sales went up by 8%. Hadn't it been for FX rate, it would be 9%. So as you can see, that FX effect is quite small this time. So what was going on in Poland? In the financial sector, the situation was quite solid. By that, I mean both the banking sector and the capital sector. Brokering companies are quite stable, and they've been developing very well. Also in health care, we've seen quite good performance. And I expect this will be a trend that will continue further into the year because of the recovery and resilience plan for Poland. The allocated amount to the health care is quite significant for this and the next year. Now when it comes to the central administration and the public sector, which we also classify as the energy sector, and here, we see a very strong double-digit growth rates in sales. Now for Asseco International segment, actually, no surprises, these trends started back in 2024. When it comes to our ERP solutions, this is concentrated in the Asseco Enterprise Solutions Group. Just to remind you, this group is actually in Poland, Germany, Slovakia and Czechia. And we welcome the fact that this business is very stable. And shows very good growth rates; and the second point is Asseco Southeastern Europe, especially the payment solutions part of it. Now Formula Systems. This is the largest contributor to the revenues of our group. Another record-breaking quarter for Matrix IT, that's the largest IT company in Israel, actually. And I'd like to emphasize that it really has very good Q1 performance. Also Sapiens, this company, one of the world leaders in terms of the insurance sector solutions, is doing very well. And we see consistent development of other Formula Systems Group companies, which, by the way, has become bigger and bigger. This is our fourth leg. It includes payment and HR solutions. We see more and more companies that are joining that particular segment. Now have a look at the revenues broken down by product groups. On the chart on the right, you can see that actually, in every product group, we saw growth. The fastest one is the solutions for public institutions, which grew by almost 20%. And I will then tell you more about the specific nature of the public market. Now solutions for finance, that's the largest segment in terms of product groups, creating 31% of sales revenues. So this is solutions for banking institutions, brokerage institutions, insurance companies and other vendors. Also, 8% growth in this part is something that makes us very happy. We would like to stress that we are very diversified. That means we are not overly dependent on just one customer. The share of top 10 customers is no more than 10% in the group's revenues, whereas the largest customer generates about 2% of the revenues. Now let me briefly characterize individual sectors where we operate, first, solutions for finance. Here, we had almost PLN 1.4 billion sales, which marks a growth of 8% for the whole group. Asseco Poland, as I said, is really the core part of the business, very important in Poland. We have a big share in the market and a solid position in the area of banks, both cooperative and private banks. We are also a leader in the capital market and leasing solutions, which, by the way, are now being offered also to international customers. We provide systems and software for leasing companies outside of Poland. Now Asseco International, here, we have continued growth. It's 13%. We are very close to PLN 1.4 billion in sales that was -- sorry, PLN 1.428 billion. So we've seen very good results in the card payments and banking industry, so wherever we sell core banking systems and omnichannel solutions for banks. And that part, Asseco International also includes Asseco PST a company which operates mainly in Africa and Portuguese-speaking countries. And finally, Formula Systems, the largest contributor, PLN 900 million, as you can see, almost out of PLN 1.4 billion. A big part of that is generated by Sapiens that has consistently built up its position when it comes to producers of solutions for the insurance industry. It operates both in the U.S.A., in North America, in Europe. And some 10% of revenues also comes from Israel in the case of Sapiens. Now solutions for public institutions. As I said, this is where we grow the fastest, almost 20%. That's the rate of our growth. We are close to PLN 1 billion in terms of software. And by the way, here, we only offer software for public institutions, no other solutions. All of the segments that you can see grow at a similar pace, 16%, 17%, 21%. These are the rates of growth here for Poland and International and Formula. When it comes to Asseco Poland, we cooperate with many huge public institutions. I'm not going to give you names because. I'm sure you know them. We take active part in digitizing the Polish health care system. We provide services to 400 hospitals, thousands of clinics. This is where we are an important player. That sector also encompasses energy groups. So the energy sector, here, we are very strong, and we've started rolling out some projects in order to adapt their systems to the new regulations regarding market database to CSIRE. Now Asseco International segment, it's PLN 107 million. It's 17% growth rate. So we are kind of restoring our position here, offering projects, for example, in Czechia and Slovakia in cooperation with public institutions. And let me remind you that we had several years of stagnation due to geopolitical situation in those 2 countries. Now this has finally changed, and we welcome the fact that we've been able to sign some new projects. We hope it's the beginning of a new positive trend. And Formula Systems, almost PLN 600 million in sales. Matrix IT is the main player here, the largest IT company in Israel. And at the same time, this company generates many revenues by cooperating with public institutions and carrying out strategic projects for the Israeli government. Now ERP solutions, we were able to cross the boundary of PLN 400 million in Q1, which marks an 8% growth rate. I'm not going to comment on Poland because as you can see, these numbers are quite negligible. It's just a little part of our company, DahliaMatic. However, look at Asseco International. Here, we've been consolidating our ERP solutions in those countries that I mentioned before. And we are happy to see a growth rate of 5%, and we've been able to generate sales of PLN 235 million. And finally, Formula Systems. This is our proprietary solution. It's called Tafnit. And we've been also implementing third-party systems, mainly by Matrix IT. Now let me move on to the other IT solutions. All of them that could not be qualified under the previously mentioned segments. Here, the sales amounts to about PLN 731 million, which is slightly higher than last year. In Q1, Asseco Poland, Asseco Poland debt involves trust services and some other minor solutions and cooperation of Asseco Group with telecommunications industry, mainly projects that we carry out together with Polsat Plus Group. And Formula Systems has a dominant role here. Out of that number, PLN 731 million, over PLN 650 million is generated by Formula Systems. This involves Matrix, with their dedicated enterprise solutions, and Magic Software. That stands for outsourcing of resources and other development platforms. That is mainly happening in the U.S. Now let me come back to the topic of new acquisitions. We are proud to tell you that we've been very active in the area of M&A because, after all, it marks a crucial element of our strategy and the group's development. In Q1 this year, as I said, our group was increased by 8 new organizations: 3 in Israel, 2 in Poland, 2 companies in Spain, and the remaining is 1 company from Egypt, and 1 from the U.S. and from India. Below, you can see some companies that joined us actually in Q2. But anyway, we are showing them here in that report, even though they joined us after the balance sheet date. And this acquisition activity will be continued. We are now vetting some other organizations. We are running talks. And we do hope that in a moment, they will materialize into some particular transactions, and we will inform you whenever it happens. That's it for me. Over to Karolina.

Thank you. When it comes to revenues, Marek has commented on them already. I will only repeat, PLN 4.5 million on the quarterly level; PLN 3.6 million is the programming proprietary software and services, which we are focusing on, and here, we have 9% CAGR. Then we have PLN 712 million of non-IFRS EBITDA and same as in case of the proprietary software and services, PLN 565 million of non-IFRS EBITDA (sic) [ non-IFRS EBIT ]. And this is the level of net profit in the non-IFRS outlook, we have PLN 156 million. When we take a look at the first quarter of last year, to the reported quarter of 2025, then we can see that we do not have as significant, as in the previous years, negative influence derived from the currency differences and currency exchange into Polish zloty. Quarter-to-quarter, we can see negative influx, but only PLN 40 million on the level of income -- on the level of revenue. And then on the level of operating profit, you can see it in the slide. When it comes to the other factors, we do not have -- we have an organic increase, which seems to be a very good proportion that is being rebuilt from the organic versus acquisition. The same result on the level of the profit from acquisition, we can see that it's similar compared to our organic companies. We've noted PLN 47 million and PLN 44 million from acquisitions. We can also see the impact of onetime transaction, which took place in 2024. We have to say out loud that, on the level of non-IFRS in this quarter, when it comes to the profit, we didn't have any onetime transactions. When it comes to what's happening on the net profit level, we can note comparison that was of the additional influx in the past quarter. And here, we can see it's not there anymore, plus PLN 136 million summary of all the companies from the group. We have to remember that both quarters are with the burden of the cost of loan of the parent company. So if we take a look now at the balance of results in the complex outlook, then we can see clearly that, in some cases, we have double-digit increase both on the level of proprietary software and services. If you take a look at the notes with the influence of the currency exchange and EBITDA, plus 10%, same thing that makes us happy is the 0.4% of increase of EBITDA -- 0.4 percentage point. Then the improvement of rentability by 0.5 percentage point in the case of non-IFRS operating profit. I think that here, we can note a significant influence -- noticeable influence. And we've been declaring that we were planning to work on rentability. Here, you can see first results of it. Then the operating profit increases at the speed of plus 12% quarterly -- quarter-to-quarter. And here, we can also see an improvement of rentability by 0.4 percentage points. And on the level of the operating profit reported, 10.3%. Then the reconciliation of operating profit and net profit. Here, we don't have any significant changes. It is stable. We are showcasing it both on the level of what we pay for the debt, which is on the level of the costs of M&A transactions and hyperinflation that sometimes analytics are describing as a one-off, but we can see that it's a result that's repeating in cycle. So this is something that came from Turkey. And this result -- this effect will probably, in the future, be decreasing. We have PLN 10 million; in the first quarter, PLN 24.7 million. It's worth to comment that we've sent one of the companies in Turkey, which caused this effect. And therefore, we foresee that the hyperinflation effect will be decreasing. I know that it's still visible when we are summarizing the results. So probably in the non-IFRS notes, it's not reflected. When it comes to efficient taxes, it's comparable year-to-year and in line with what we've foreseen for the whole of the year. A slightly higher share of profit and loss of associates. This is a result of acquisitions, especially from Formula, and this should be an effect that will be repeating. We are finishing net profit that is at the amount of PLN 136 million, plus 9% quarter-to-quarter. This is a very decent result in a market consensus. As Marek said, we are very happy about it. Now when it comes to what's happening in separate companies, it's worth to underline indeed that we have a very good result with a very good performance of parent company where, on the increase of revenue, we can see an increasing speed of rentability. And on the level of contribution, too, we can see an improvement. It's worth to note that the results, the effect of improvement of operational results at the parent company, is because of all the segments: banking and finances, public segments and segment of companies. In all those, we can see an improvement of rentability, which is transposed to the improvement of the total result. We also see improvement in the Asseco Data Systems company. Here, we have an improvement of rentability and an improvement of results. For instance -- very good results. We've noted in the programming software for leasing, new contracts that we have signed. So this is all giving us better results in this quarter. In the other companies, we have a stable plus situation, which is an improvement of results. If there is no improvement, then it's stable. There is no place in the table which would have significant decrease quarter-to-quarter. Marek commented then that Matrix has an outstanding quarter in its history. And this quarter is outstanding both on the level of income and operational profit and net profit. The company is indeed growing very nicely and improves its rentability. In percentage points, it's not much. But on such a scale of activities, it really has a significant effect on the result. We should pay attention, especially to the improvement of results in Israel. There is a stable situation of the results in the -- of the companies which operate in the American market. Similar in the case of Magic, Magic has improved its results and the main contributor to the improvement are operations in Israel. But Sapiens, they've informed that they will have slow speed of increase of revenues. We can see that they are working on rentability improvement, but we should not be worried about it. Indeed, Sapiens has a different sales cycle than the 2 companies. They sell more fixed price projects -- products. And this is the result of such a cycle of sales. We have a very good performance of the company in the European markets. And here, we can see an improvement of building -- when it comes to building backlog. They've introduced the guidelines that their income -- their revenue is going to increase by 1 digit probably, maybe somewhere around 5 of the first 10. They have maintained their tendency. So I believe that the results are going to be satisfactory. When it comes to the last line, cyclic -- we can observe it in a cycle that it's growing. Formula Group is building its fourth pillar. Most of companies are companies which consequently are implementing strategy of increasing share in the market of services-related payroll, HR. Very good results of group with the parent company, Michpal. It shows that they are consequent (sic) [ consistent ] in building the fourth pillar, and it's paying off. When it comes to Asseco International segment, here, it's worth to underline that we have very good results in ERP segment, which is consolidated to the middle European market. What makes us particularly happy is a big improvement when it comes to public segment in Czech Republic and in Slovakia. Marek said that we can -- we've noted an increase of revenue. And this place also increases its rentability. The increase of rentability is caused, to a big extent, by the fact that certain projects came to an end, the ones that we've been implementing as an investment. So the introductory phase usually costs much more and generates lower income. This has now switched to the maintenance stage. We can plan it with a bigger precision and debate on rentability. So we hope that this trend is going to stay with us when it comes to this very region. On the Southeastern European market, I think that it's worth to underline Payten, which strategy is being consequently implemented. And this makes it constantly growing. If we take a look at consecutive quarters, we can see that Payten indeed has satisfactory results. It's also a good time for core -- in banking in this segment, slightly less well in the segment of dedicated solutions. The only location which year-to-year has less impressive operational profit is the Western European market. Here, the company that adds most operational profit is Asseco PST company. This operates mainly on the Angola market. And there, the market is naturally shrinking gently. We here apply a very conservative approach when it comes to anticipation of the financial burdens and those debt collections are included there, too. So I think this is it. When it comes to other companies, we have numbers which are much less significant. What makes us particularly happy after this quarter is the fact that the discipline when it comes to management of capital is maintained in the group. When it comes to last 12 months, we can see conversion of cash over 100%, 100% in the whole of the group, 115% in Asseco Poland and only slightly under 100% in Asseco International segment. It's a very decent result. We have to remember that the operational model makes it better to look at cash flows in a longer time frame than point by point each quarter. Therefore, we present it in such a way. If we take a look at the balance, we can note that the situation is stable. We are repeating it every quarter, and we have over PLN 3 billion of cash in Asseco Group. The situation improves when it comes to the debt, especially in the Formula segment, but the debt that we have, in Formula, in International and in Asseco Poland, is not posing any big challenges. I think it's an optimum solution. It's been quite some time that we've been presenting to you the balance in proportional reflection. From the top line, we are showing an efficient share of all the companies in the group. Here, we can see that we have similar dynamics. When it comes to the speed of growth, it's slightly better. We have 12% of growth of EBITDA quarter-to-quarter and 15% of non-IFRS operating profit. And here, we've noted the improvement of rentability on the level in the proportional take that is even greater. So this is because of the fact that the companies where we have biggest shares have improved their rentability most. I spoke about the parent company and AC, and this is -- and those are the reasons. So let's have a look at the balance sheet, proportional recognition. The situation, as you can see, is quite stable, and you can draw a similar conclusion as we did for the comprehensive view. And that's my final slide, which is the order backlog. I think there are reasons to be happy looking at these growth rates and our performance. Look at the backlog for 2025, PLN 12.5 billion, that's the revenues on fixed rates that already have been contracted in projects. Let's have a look at individual segments where we consolidate most: 13%, that accounts for Asseco Poland; 16%, international; whereas 11%, this is Formula. Right. That's it for me. Thank you very much.

Karolina, Marek, thank you very much for your contributions. Now we will move on to questions that you've kindly sent to us, and we will do our best to answer them one by one. The first one, what are the reasons that Q1 margin gross improved so much? And how come operating profitability of Asseco Poland year-on-year improved so much?

Now the parent company. As I said, profitability went up in all important segments. We've shown that in the statement, operating segment, public finance, enterprises and banking. In all these 3, we saw improved profitability. Now why that's the case? I think there are mainly 2 factors driving that situation. First of all, last year, there were several such circumstances, which forced us to start works early because we knew there were some regulatory changes on the horizon. Contracting of projects always happens at the end of the year. That means we need to incur some costs which then would be immediately visible in our profit and loss account. However, the revenues would then be postponed. They would be visible later. So some decisions we take by taking risks, which is manageable, obviously. And that's the reason. That's what happened last year in this segment. So we signed an important agreement at the end of the year or beginning of that year. Consequently, we now have a catch-up effect. So the costs that already have been recognized now will be linked only with revenues according to the methodology. That's why profitability improved that considerably. I believe it's a one-off effect. I don't expect such a high dynamic growth in the future. Whereas I do expect that in the whole segment, the performance will be very good. This agreement that I mentioned and some others, they are long-term agreements. They will be valid for long periods. So we are very optimistic here. At the same time, I must emphasize that the costs are not as dynamically growing as the revenues. And that is the result of an improved situation on the labor market. So remuneration rates now are a bit lower than they used to be. I mean we are not changing our remuneration policy, it's still the same. But we don't have such challenges here as we did some 2 or 3 years back. And the second factor that I'd like to mention is this, at some point, we had to go back to the customer to have a proper revenue indexation. So these effects were seen later. They were postponed. And we were able to catch up some 1 or 2 years ago. And the effect of that exercise is visible precisely in Q1 this year. In terms of the International area, our profitability improved mainly because of a couple of contracts that previously were a huge burden. They expired, so now they entered the phase of maintenance or they were finalized. That's the reason. All in all, wherever we can, we focus on improving efficiency of labor because employment, in our case, is always meticulously planned. And there is some cyclical nature in our business that has to be taken into account. And in some areas, especially the fixed price part of the business, we have to wait for tenders to be announced. And in the meantime, we have to keep highly specialized employees with whom we want to cooperate. So that's why there are some cycles. So that's a natural consequence of policies, of some decisions of how public and EU money is spent and how EU funds are rollout that influences our profitability in some cases. But in Q1 and the end part of last year, it was quite visible that we are good at making that stable and adjusting to the situation.

Right. The next question is quite close to it. The cost of benefits for employees went up by 10% year-on-year. How big part of that amounts to remuneration? And what's the relation between the remuneration and the number of people that you've employed, your FTEs?

So in absolute terms, 10% might strike one as a contradictory to what I said before that we had no challenges. But I think we should rather look at the average growth of costs per FTE. And then you will see that the numbers look a bit different. In total terms, indeed, it's 10%. But if you look at the average cost per employee, then the growth is smaller. It's 7% to 8%, depending on how you recognize the cost, just the remuneration or together with other benefits. So as I said, it's 7%, 8%, both for Poland and Formula Systems; and even less in the case of the Asseco International segment, where the equivalent amount is 5.3%. So I hope this answers the question.

One more question. In the production department, we see a drop in employment rate quarter-to-quarter. Please comment. And what are the forecasts for the upcoming quarters?

Well, we like to adjust our capacities to the contracted projects. That's our logic. So that means that if we have a backlog, you need to take that into account. Plus sometimes the employment is kind of distorted. You have a distorted view because of the M&A transactions. So there might be some fluctuations ongoing. But I'm not saying that we have some clear guideline like, yes, let's now increase the workforce. No. We like to optimize things. We like to calculate things per 1 employee. That's the main metrics that we use. So that's the reasons behind fluctuations.

I would like to also mention the next question. We see more and more comments from big techs on the growing role of AI in code generation. Can you expect some savings and higher efficiency driven by AI? Well, that question, in fact, could be rephrased as whether we are going to make people redundant because AI will write the code. I would say as an answer to this, well, AI right now can improve efficiency of testing and preparation, but it won't replace our programmers and analysts, for sure. So the answer is no.

On top of it, when you look at the numbers we report, I have a following comment. The drop in employment, I guess you refer the table where we present employment per day. Well, if you look at it as of December and compared as of March, we see a drop amounting to 6 FTEs. But look at the average employment in the production. Well, some people might have gotten pregnant, and they are on maternity leave. So don't look on absolute numbers, but look at the average employment rate. So below the table with employment cost, you will see, in the statements, the average employment rate in production, look at it, actually, quarter-to-quarter, it went up by a high number.

Right. We have another question, growth in revenues in Denmark. What is it related to? And why this number, this figure, went down in the U.K.?

Oh, these are the killer questions, to be honest. Now let's start with Denmark. Both Denmark and the U.K. are the markets where Formula Systems operates, mainly Sapiens. So it's really hard for me to comment. For sure, in Denmark, that increase is driven by some contracts related to the purchase of T. And well, this is where Sapiens is very active. I said already that Sapiens -- well, the Continental Europe and Nordics, this is the area where Sapiens has better performance.

What about the drop in revenues in the U.K.?

To be frank, I would need to double check that. I'm not in the position to answer this.

So talking about small markets, why is the Angolan market shrinking?

The Angolan market is a tough one. It's affected by high inflation and devaluation of the local currency. Additionally, there are some movements in the banking sector there. And Asseco PST, a Portuguese company, operates there. So we see some mergers of banks, takeovers. And indeed, there was a case where 2 customers disappeared because of such a merger.

Next question, Poland. What determines the acceleration of your backlog here in Poland in the domestic market?

Well, all in all, the order backlog; as I said, it's impacted by a certain cycle. And that cycle is determined by many external factors. Please bear in mind that in the public sector, we take part in tenders. At this point, we are in such a moment of that cycle where project contracting for PZP -- because to be fair, public is not very precise a definition because it involves also the energy market. And indeed, it happened so that some potential opportunities for tenders were won by us. And when you look on the growth in Poland itself, the largest dynamic growth of backlog indeed is driven by, first of all, enterprises; and second of all, the public sector; and the banking and finance sector rank third.

Right. Again, on Poland, does the recovery fund impact your plans for this and next year? If so, what would be the scale of growth that we can expect?

It's not an easy topic because we talk about a very long time horizon. And I guess it's not a secret that tenders when it comes to the recovery plan are organized quite slowly, to be fair. This means that we speak a lot about recovery funds, but the way we feel about it is there's not that much results there from it.

When it comes to the net profit, plus 9% in the first quarter is a good one. What dynamic can we expect in 2025?

We do not give any guidelines when it comes to how the results will look like in the future. So I'm not going to answer this question.

Do you know what net income will the company have after selling the shares to Topicus? What is the number of factors in there?

Yes, we know and know there are no more factors.

When will we get familiar with the goals and conditions of motivational program on the basis of which we will allocate part of the own shares?

I think that is way too early to address this question. Let me remind you that right now, we have not yet done the calculation of the transaction. For now, we've changed the shareholder who has 10% of shares, but the whole transaction was conditional. And right now, we are in such a moment in time where the procedure of getting permissions and consents of many different institutions in many different countries. Because of this procedure, we are very careful. And therefore, we don't have any strategic meetings, plans where we will be planning different things. We do not discuss this topic because it all depends, as I said, from whether we meet the conditions or not. When it comes to discussion about such details, it's way too early.

So this is precisely the next question in this scope, whether the first results of cooperation with Constellation will be visible at the end of this year? And are you planning to publish several years of strategy after you confirm investment of Constellation Group by the regulator?

We don't plan to do so.

Well, as Karolina said, this is the time when our activities stay as they were. We focus on our activities, which we've been implementing for many years. But the cooperation with Constellation will only happen after we will finalize the transaction. Right now, we are operating as we used to up until now. We, of course, pay attention to certain elements, which are supposed to improve our efficiency of activities. We've been doing it every year, and this is how we've been functioning. So right now, we are operating as we were operating before. I do not see any more questions. We don't have any more questions on the chat. In the room, I don't see anyone raising hands and posing questions. Therefore, we are coming to an end. We invite you, of course, should you have any emerging topics, you may reach out to our focal point. We also want to invite you to the next meeting regarding the results of the first quarter of this year. So we are about to meet in the next quarter.

Thank you very much once again, and see you next time.