Softbank hungry for Euro boost
Softbank, which specialises in software for domestic banks, has been forced to look in other directions for large IT contracts to revitalise its sales as tenders for big financial projects have dried up in the home market. The domestic banking sector generated about 64% of Softbank's revenue in 2001, with state-owned PKO BP accounting for about 40% of the firm's sales.
Despite the dearth of domestic bank contracts, Lesz also said that Softbank has a good chance of winning an upcoming tender to be held by PKO BP for a new central IT system, estimated to be worth €101 million-€506 million (zł. 400 million-zł. 2 billion), but the bank has so far kept mum on the matter. Softbank, which will likely place an offer jointly with Prokom Software, will face competition from other IT giants, such as ComputerLand, which also provides IT services to PKO BP.
The scarcity of big domestic bank tenders has taken its toll on Softbank's bottom line, prompting a strategy rethink. During the first six months of the year, Softbank's revenue was €39.5 million (zł. 156 million) compared to €43.8 million (zł. 173 million) in the same period of 2001, while the firm's net loss increased to almost €2.3 million (zł. 9 million) in the first half of 2002 compared to €1.8 million (zł. 7.2 million) in the same period of 2001. Softbank has a market capitalisation of almost €50 million.
Softbank's strategy for 2003 has been planned despite Lesz ending his tenure as president at the end of March as a result of his recent deal with IT giant Prokom Software, which will buy his 33% stake in Softbank, thereby increasing its current 10% stake to 43% and become the firm's strategic investor. Lesz, however, will likely remain a member of Softbank's supervisory board. Under the deal, the two companies are to remain separate, according to Lesz.
As part of its strategy for 2003, Lesz said that Softbank would concentrate on competing for big EU-related IT tenders in the public administration sector, expected to generate 30-40% of its revenue. New contracts must be offered before the country joins the EU in 2004, despite the limitations of the government's dwindling budget, which must supply some of the funding for the projects. Tenders should be conducted for centralised systems and databases for customs officials, the courts and prosecutors' offices and vehicle and driver registrations.
Włodzimierz Giller, a country analyst at Erste Securities Polska, said that Softbank has so far failed to implement a strategy for public administration tenders.
This is nothing new," he said. "Lesz has been saying that for several months, but there are no such results. Prokom and ComputerLand have been much more successful at public administration tenders. The biggest problem in Softbank is it has no capability of winning tenders."
In the last two years, Softbank has invested a significant amount in building its public administration IT capacities. At present, the company has no public administration contracts.
Giller also said that Prokom's main task would be to restructure Softbank, for which he forecasts a €557,000 (zł. 2.2 million) loss for the entire year.
Mirosław Szturmowicz, a Prokom vice president, said that his firm was analysing Softbank's operational activities and evaluating the perspectives for the company, and would not comment on Softbank's strategy for next year.
Lesz also said that during the first half of 2003, Softbank would concentrate on delivering system applications to the National Clearing System of Belarus with which it signed a E8.2 million IT systems contract last month. As the company turns more toward an export strategy, Softbank expects foreign contracts to generate about 10% of its revenue next year, mainly from the Belarussian contract, and wants to nab additional IT contracts with other financial institutions there, including the Belarussian Savings Bank, with which Softbank has been working for more than a year. Belarussian banks, however, are not holding any big tenders for IT systems or services.
Softbank is hunting for contracts in Ukraine and Russia, but Lesz would not discuss any details. He said that Softbank decided to explore the East since more than half its 230 employees speak Russian fluently and since the firm understands the problems of the banking and financial sectors in this region due to Poland's own experience with the transformation of its banking sector.
Lesz's remarks about his company's strategy for next year surprised analysts, who expected the firm to continue concentrating mainly on the domestic banking sector, especially after Prokom becomes its majority shareholder. Likewise, they said that the export strategy would not bode well in boosting the company's income.
Prokom would have already had to agree to the export strategy, said Tomasz Bardziłowski, an IT analyst at Credit Suisse First Boston in Warsaw, who added that such a plan would likely flounder since exporting has proved to be unprofitable for Polish IT companies.
"I view the strategy as a temporary one before new big contracts in the finance sector awarded to the Prokom and Softbank partnership; then Softbank will have lots to do, and have its capacity fully utilised," he said.
