ACS Tells Investors Diversification Will Keep Growth at 20%

Executives at Affiliated Computer Services Inc. told a group of institutional investors last week that the company intends to sustain its rapid growth by continuing to diversify beyond the management of core processing systems for banks.

ACS chairman and chief executive Darwin Deason, speaking at a Bears, Stearns & Co. technology conference in New York, said he is confident of his company's ability to grow 20% per year.

"We hope to achieve half of that through internal growth and the rest through acquisitions," he said. "The fundamentals of the businesses we're in continue to be very strong."

Wall Street appears to agree with Mr. Deason's upbeat appraisal. Formed in 1988, Dallas-based ACS had an initial public offering of stock last fall priced at $16 a share. The stock has been heading upward ever since, topping $30 a share last week.

"The company has delivered on every one of its promises," said Charlotte Walker, a technology analyst at Bear Stearns.

Mr. Deason said he was "very comfortable" with analysts' estimates that ACS would earn 37 cents per share in its fourth fiscal 1995 quarter, ending this month. The company should top $300 million in sales for fiscal '95, he added.

ACS has continued to grow in spite of somewhat diminished prospects in bank outsourcing, as industry consolidation has thinned the ranks of financial institutions in recent years.

For example, ACS' largest bank customer, Bank of America Texas, decided last year not to renew the outsourcing contract that expires in August. Bank of America Texas, formerly known as First Gibraltar Bank, was acquired by BankAmerica Corp. in 1993.

To offset this negative trend, Mr. Deason said his company would continue to expand its systems outsourcing business into industries other than banking. He noted that, overall, the outsourcing business is a $15 billion market in the United States and is projected to grow to more than $30 billion by the year 2000.

Mr. Deason added that he expects 20% to 25% of ACS revenues will continue to come from bank outsourcing.

In addition, ACS sees a bright future in its burgeoning electronic funds transfer services business, with a customer base composed mainly of convenience stores and groceries.

Mr. Deason said his company has deployed more than 1,000 low-cost automated teller machines - called the Anycard ATM - during the past year in convenience stores and mom-and-pop retailers.

"The Anycard ATM is profitable at 400 to 500 transactions a month, while a traditional ATM needs 2,000 transactions to break even," Mr. Deason said.

ACS officials also announced that they had signed a marketing agreement with the Fleming Cos., one of the nation's largest food marketing and distribution firms.

Under the agreement, Fleming will market ACS' ATM processing services to its clients, mainly midsize and small supermarket chains in the Southeast and Southwest.

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