Asseco South Eastern Europe S.A. (ASE) Q4 FY2025 Earnings Call Transcript & Summary

Welcome, everybody. Traditionally, Q4 and whole year results with some prospects and assumptions for 2026, as we'll mention by the end of the presentation, and we will present everything in traditional format as usually. So short summary or highlights for 2025, yes. If we take away one-offs, we had quite solid operating profit growth, yes, adjusted by one-offs. The biggest growth has been seen in Dedicated Solutions, mostly in the energy sector, building solutions and utility sector as well as the highway tunnel software monitoring company. This was very, very big growth and very dynamic. Banking has performed better than expected, and we are very happy from it, and we do expect similar performance in '26. So this contributed highly. In Payment, we had some slowdowns and disappointments because in Turkey, 2 of our big customers decided to go in-house with their gateway systems, which reduced the number of transactions. And this will impact also '26, even though we try to compensate this with other business to keep the results pretty flat in Turkey. In India and UAE, as you are aware, we did not like the investment we've made. So we were performing some write-offs. A lot of things were written off still. There is some things on the balance sheet we will see in 2026 if there is any hope for these companies or not. The independent ATM network has been performing reasonably, but in Albania, where competition aggressively entered compared to '24, '25 was weaker by around EUR 800,000. Direct merchant payment lines were performing much better. ECR business and independent POS business has grown by almost EUR 1 million as well as traditional POS ATM business also grew a bit by EUR 0.5 million. Cash generation very much improved compared to '24 when -- is back on track and the conversion of EBITDA to cash is good. Michal will show the details later. In transactional business, as mentioned, eComm dropped mostly due to Turkey and IPD business grew by 53%, a big contributor from Romania and processing of physical cards also nicely grew by above 20%. And let's look at the numbers now.

Okay. So let's start with Q4 numbers. And for those who note, have you recall, for us will explain the slide. So for first 2 columns on the left are total numbers as they are reported in our financial statements. And then the following 2 are excluding hyperinflation reporting in Turkey. And we will focus on those excluding the hyperinflation effects. So on top line, 13% growth, pretty nice, but a lot better on operating profit level, 62% growth year-over-year and 23% on net profit level. This difference between operating profit and net profit results mostly from 3 elements. One, EUR 3.7 million is goodwill write-off related to India and Dubai, what we just mentioned. We are not satisfied with performance, and we did additional write-offs in Q4. Then we have EUR 3 million effect of restatement or recalculation of put option liabilities related mostly with the companies in Bosnia and Herzegovina. And as you will see on following slides, these are companies which generated huge growth year-over-year, and this is why we need to evaluate those liability. And the last from those big impacts is around EUR 1 million increased taxes and -- but it's not like regular tax our subsidiaries pay, but additional tax related to Pillar 2 taxation. Again, quite a big part of this value is related with Bosnian operations. And for you to understand, in Bosnia corporate income tax is 10% whereas this minimum requested by Pillar 2 is 15%. So of course, this is not that simple calculation, but some additional tax to Bosnian operations will be generated. If we look at results excluding one-offs, in Q4 on operating profit level difference is not big, EUR 600,000 only, but on net profit is bigger, EUR 4.3 million. And this is mostly just write-off of goodwill, which I already mentioned. So if we exclude this write-off, year-over-year growth of net profit is pretty close to operating profit and is around 60%. Okay. So let's move to results by segments, by business units. As already mentioned, Dedicated Solutions results are very good, EUR 11 million growth of revenues and EUR 9 million growth of operating profit. Mostly thanks to operations in Bosnia and Herzegovina in area of solutions for utilities billing and ERPs and intelligent traffic solutions. A bit weaker Serbia, Romania and Macedonia if we look at Q4 only. Another good quarter for Banking, EUR 1.7 million higher result year-over-year. And here, it is mostly thanks to operations in Serbia and Macedonia. And Payment, pretty flat in Q4, EUR 0.5 million higher revenues, EUR 600,000 lower in operating profit. If we look at by business lines, you can see this drop in eCommerce drop of revenues. Here, we have the effect of problematic India in Dubai and Turkey where we lost to clients, then they move to in-source solution. If we go to geographies, as already mentioned, Bosnia very good performance and significant growth of result, more than EUR 10 million higher, mostly in Dedicated Solutions. In Macedonia, this increase is thanks to Banking mostly, and Central Europe decrease of result, it is in Banking and Dedicated Solutions. Western Europe, good performance increased by EUR 1.2 million year-over-year in Payment, both in eCommerce payment gateway solutions and in more traditional POS-related business. Turkey dropped by EUR 1.5 million as already mentioned, related to eCommerce and lost clients and of course, problematic India and Middle East. Okay. Let's move to results for whole 2025. This was good as quite similar to Q4 on the lower dynamics year-over-year, and revenues 9% growth, operating profit 16% growth and net profit a slight decline year-over-year for the past reasons I can say the same as for Q4. So we have goodwill write-offs which were netted by earnout reversal for India and Dubai, not big impact. EUR 7.5 million effect of revaluation of put liabilities, mostly related to Bosnia and subsidiaries, Dwelt and BSTS. This tax impact of Pillar 2 exactly the same because we booked this in Q4. And additionally beginning of the year there, we sold one entity and generated some [indiscernible]. If we look at results by, first, one-offs, so what would be if we exclude those write-offs related to India and Dubai and some reversals. On operating profit, EUR 5.6 million of this total effect of one-offs booked mostly in Q4. And on net profit level, it is EUR 6 million and still it was partially booked in Q3 and as we already heard partially in Q4. Okay. So let's move to segments. Banking, very good year for Banking. And despite beginning of the year, we were a bit more conservative. We didn't have huge projects as in previous years, but still we managed to deliver a lot of smaller projects, mostly in area of core banking. We generated a pretty nice increase of operating profit. Spectacular Dedicated Solutions. Revenue grow with some EUR 10 million whereas operating profit EUR 15 million, but this is related to change of structure of business. This growth was generated on own solution, and we have a drop of third-party solutions where profitability is significantly lower, and we have this component of third-party COGS. So revenue drop does not translate that much into drop of operating profit. In Payments, EUR 15 million drop of revenues, but drop of operating profit, EUR 5 million. And if we look at structure business lines, all of them are growing. The biggest one is direct to merchant business in area of ECRs and IPDs, so that is in cash registered and independent POS network. It also translated in the growth of operating profit, as mentioned before. In eComm, we did have growth of revenues, but quite significant drop of results. India and Dubai, which generated operating losses and this drop in Turkey by more than EUR 3 million, what you will see also in a moment on another geographies. POS and ATM pretty stable, some growth of revenues and slight growth of operating profit. If we look by countries, Bosnia again, the biggest growth, EUR 17 million, more than EUR 17 million year-over-year. As we already mentioned, mostly Dedicated Solutions and those products for utilities and related with intelligent traffic solutions, so tunnels and highways. Good Macedonia and growth mostly in Banking. In Croatia, weaker Banking, but a lot stronger Payments in total growth. Slightly weaker Serbia, but with growing Banking and with the Dedicated Solutions. Central Europe growth by EUR 600,000, mostly thanks to Banking. And in Western Europe, as you see result is pretty flat, but there is a change of structure, growing eCommerce and independent networks, mostly CRs and drop in the more traditional POS-related business. India and Dubai already mentioned the challenges we have there and drop in Turkey is mostly related with eCommerce. Let's move to cash flow and liquidity position. So cash flow, as already mentioned, was good. It's almost EUR 75 million generated operating cash flow. This gives conversion of operating cash flow to EBITDA 83%. So we can say we are back on track after weak 2024. Investments those related to fixed assets and intangible assets, project-related parts, so equipment for outsourcing mostly in Payment business unit and partially in Dedicated, very similar to the ones in 2024. And M&A expenditures, they are lower this year. They were lower this year, EUR 11 million, almost half of this or over half of this in Q4 when we acquired minority stake in that concludes operations in Western Europe, and now we have 100%. And let's move to balance sheet position, pretty good cash, EUR 74 million cash in the group, EUR 10 million more than end of 2024. External debt from banks, short-term part is slightly lower by EUR 2.5 million. Leases and dividends standard changes, nothing spectacular. And M&A liabilities, we have growth, but this is mostly not due to new acquisitions, but just moving M&A, those liabilities, from long term to short term and the restatement based on better performance of subsidiaries, as I already mentioned when I was commenting P&L and FX impact on net profit. So net cash, EUR 25 million. And when talking about other short-term assets, so receivables they increased a bit more than liabilities. And this is related with, again, operations in Bosnia and Herzegovina. Mostly at the end of the year, we received acceptances from clients. So invoices were issued but not collected before year-end. Inventory in line with expectations. So balance decreased from this Q1 at the end of 2024 and now it's around EUR 60 million. And as usual, it's mostly related to this POS and ATM business. Okay. So this is all and let's move to outlook for '26.

So for '26, the backlog dynamics for the whole group is 8% Q1, 6% for the whole year. It's bigger for asset part, Dedicated Solution and Banking and smaller for patent part, mostly Turkey probably being the reason with the issue that we had in '25. Overall, we have quite positive outlook. We expect growth in operating profit, something in high low digits or low double-digit numbers. And so far, we don't have bad signals of this, but this growth in profit will come not only from organic growth, not only from -- it will come from organic growth, but not only from the net revenue growth, but also from the increase in efficiency and productivity of our teams, which we have many projects that were initiated in that area, and we expect some very positive effects in that scope. And having said that, we are open to questions.

Anybody has any questions, please feel free. We'll unmute you and we can discuss. There are questions always about acquisitions. We continue to do acquisitions. We have in the pipeline a couple of companies. But we cannot say until we finalize due diligence and go for the internal group approvals if we will pursue these acquisitions. But my personal judgment is these are small and midsized companies and probably 2, 3 companies might be acquired in '26. You can ask on chat questions also, please feel free. What do we think about the interaction between AI and software? Well, AI is a tool. It's a very attractive tool. And like any tool, it helps to be better. Yes, but it's not a remedy to build, produce things. I've given earlier today an example on the Polish conference that you can compare to the construction segment and sector where many materials or processes were automized and improved and it being over time. It doesn't guarantee you build a good house or proper apartment house, thanks to these new materials. But if you don't use them, definitely, you will be too expensive and you'll fail or the quality will not be as good as it could be. So AI is a must. It's one-way tickets to use it. It will reduce cost in many areas. It will increase efficiency in many, many areas. But it will not replace the whole development delivery process of the teams as our intelligence, not only artificial, but human will be desperately needed also to use in intelligent way the AI tools. Any other? I think there's other chat questions. What are the reasons why some of our customers decided to do it in-house? What are usually the key considerations for customers in deciding to go in-house? Okay. This applies actually to the gateway, eComm gateway solution in Turkey. And these customers were very big banks, one of the biggest banks in Turkey. So we have here 2 aspects overlapping. One is very specific to Turkey, culture of doing things in-house overall. It's -- I would say, it's overproportionate compared to other markets. And second, big institutions couldn't afford to do so and who can risk delays and bigger budgets in this type of projects. Smaller institutions would not do it or if they do, they cannot bear the failure, yes, and we have such cases also in Turkey. So this is only for the big customers in Turkey and the reason is as mentioned. Any other questions, please? We have 4 such customers in Turkey, 2 of them are going in-house. It might be that 2 others will also go in-house like that, but we are getting prepared for that, and this is something we expect to happen within the next couple of years, to expand this answer. If there is no more questions, we invite you to direct contact. We are very -- no? Is there anymore? No. There are. Would -- are you actively investing into agentic AI for bank indicated solutions? Yes, we have agentic AI tools our own, and we are selling them to the banks and not only banks offering them, yes. So this is something we are doing using or connecting it to our solutions. Would AI lead to lower cost or hurdle in developing some good enough software in-house, or it's vice versa as our cost of providing services also gets lower? Well, AI helps us to develop things cheaper, quicker and in reasonable quality, not only develop but also test it and verify it, yes. But it requires good operators, yes. So it will lower the cost, yes. Or if not lower the cost, but this is the fact of the same, allow us to produce or deliver more. And we are in the process of doing it verifying. What kind of identity AI tools do you use? Yes, we use Claude. We use many others, yes. So we are not restricting our people as to the tools. The only thing is restrictions we have as to the privacy policy, confidentiality to make sure we are not disclosing customer data or some sensitive information. But this is -- there's many tools that are being used. What drove the strong expansion in gross margin in Q4 and the massive reduction in CapEx? As for margin expansion, it's mostly dedicated solution recognition in the energy sector that accelerated. So delivery was in course of the year, but because of accelerated acceptance by the customers of projects, mostly Bosnia and Herzegovina, wind and utility sector, energy sector, this has been the major impact. Usually Q4 is stronger every year, but this one effect that I mentioned now, it was different than other years, and it contributed on top of the other traditional cumulative effects year-on-year. As to the reduction in CapEx, Michal?

If we look the whole year and there is no big reduction of CapEx, yes. It's simply seasonality, yes.

Some seasonality, yes.

More things were bought earlier and nothing spectacular. If you think about this M&A CapEx, we simply didn't have new M&As.

M&A in Q4.

Yes, in or whole year.

Should we -- well, wait, wait. Do you think one of the keynote value of us in our deep understanding of clients' workflow. If not, what do you think is the key value added from us to our clients in the long term? From us, I mean this is probably from one of our employees. Yes. I mean the answer is yes, understanding the customer business processes, if I understand the question rightly, and being able to tailor and translate not only solutions, but technology overall and cater the customer needs is something that is the huge value added on our side. But something where we can provide bigger value add is how to communicate to customers. In other words, I think we are heavily undervaluing what we provide because we are -- and we are positioning ourselves as commodity providers very often instead of value providers and solution providers to the customers with more proactive approach problems. I think we have to mute somebody. Somebody is not -- okay. Should we anticipate that segments to remain at elevated margin levels? Are these figures sustainable? Should we read this as a change in strategy or just a quarterly timing impact? When it comes to Dedicated Solutions and this utilities billing thing, it was a onetime effect. So this one company is very well, but they have in BH recorded a record of over EUR 12 million, EUR 13 million operating profit in euros, yes, where this year, we expect closer to EUR 5 million for them, yes, will be much lower. Whereas we -- other Dedicated Solution operations, we expect to grow significantly, yes. So this will compensate for this drop in this one company in business. But there was one big effect in Q4 '24, '25 and which I just described. What are the thoughts on the ATM business? Would you sell any of your PP&E.

Fixed assets.

Okay. Fixed assets. It looks like gross margins went up at, Michal, if you can't answer this now, maybe we can hop on a call later. Well, I can answer generally. Traditionally ATM business is more and more becoming competitive commodity business. The pressure on margins will be growing here, yes. So -- but again, as you see in many other industries, not this payment or other, the commodity business are phasing out much longer than others expect, yes. So we treat this as a cash cow, yes. We don't believe in dynamic growth here long term, yes. But we believe in protecting the position and generating value-added services around it using our market position. As to the sale of the fixed assets, people in commerce say nothing is for sale until the price is right, yes. So we are not actively searching to sell it, and we are not thinking about it at all, yes, but never say never. What kind of pricing framework are you using for agentic AI sales? That's a good question. Listen, we are looking for in all, not agentic AI. For all our business, we are looking and trying to redefine our price carriers, yes, because a lot of our business has had traditional price carriers or none of them actually, they were like fixed price with some indexation, yes, for a solution, yes. Now we are looking how to connect it to the business process of the customer to grow together with the customer, providing value for the customer, but also benefiting from the growth. So it depends very much on the usage, but here we are very flexible, but we are also having internal exercises. We started how to redefine this not only for agentic AI, but for all the solutions. Any other questions? If I missed some question, let me know. Looking, reading the chat. I think that's it. Let's give ourselves a few seconds if there's any more questions, and we really invite you to direct contact. So we -- the closed period is over, so we can be much more open and direct with you and discuss, and we are looking very forward to these contacts with you and to this year, hoping to perform well or make you happy. Wait, I heard a click. Is there anything else on there?

No.

No message. Okay. Thank you very much. All the best. Enjoy the afternoon. Bye-bye. Bye-bye.

Okay. Thanks. Bye.