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It was another impressive round of financial performance for one of Pakistan’s leading software exporters last year! As per its latest financial results posted to the bourse last week for the year ended December 31, 2021, Systems Limited (PSX: SYS) expanded its consolidated topline by over 50 percent and its bottomline by over 100 percent on a year-on-year basis. Those are the sharpest growth rates for SYS in recent years, helped primarily by core operating factors, but also assisted by a few non-core factors.

The 55 percent yearly growth in consolidated topline to Rs15.3 billion was brought about by solid topline gains at both the Systems Limited holding company and the SYS subsidiaries. The holding company, which gets bulk of its revenues from exports to North American, Middle Eastern and European markets, provides IT services such as software development, managed services, consulting and BPO services. The two main subsidiaries are Pakistan-based E-Processing Systems and the Dubai-based TechVista.

Asif Peer, CEO at Systems Limited, told BR Research post-result announcement that SYS witnessed growth in all geographical regions where it operates, as there was significant demand in different sectors. The management is focused on provision of high-end IT services in an expanding number of markets with a growing employee footprint. Hence, the topline share of low-end BPO services is on a decline – a positive!

The holding company’s revenues surged 58 percent year-on-year in CY21 to reach Rs11.9 billion, providing 78 percent of consolidated topline (CY20: 76%). This firm’s gross profits increased by 43 percent year-on-year to Rs3.99 billion, less-than-proportional compared to topline growth, which reflects higher growth in ‘cost of services’ in achieving robust topline expansion. The holding company’s operating profit increased by 38 percent year-on-year to Rs2.8 billion. Net profit jumped 51 percent to Rs3.3 billion.

Collectively, the subsidiaries also returned a significant performance in CY21, as their combined topline increased 44 percent year-on-year to reach Rs3.4 billion. Core costs and operating expenditures were on the low side, helping their cumulative gross profit to more than double to Rs999 million and their operating profit to more than quadruple to Rs353 million. Together, the subsidiaries provided Rs1.05 billion in net profit to consolidated bottomline in CY21, compared to Rs30 million net loss back in CY20.

Under core operations, consolidated cost of services and distribution/marketing and administrative expenses remained elevated, leading to slight dilution in gross margin (down 37 basis points to 32.6%) and operating margin (down 69 basis points to 20.7%) The Systems CEO explained that cost of sales were higher due to significant investments being made in HR (hiring and training IT professionals) to cater growing business. The competition in the market for IT professionals has been high amid pandemic.

In the end, with the help of some non-core factors, consolidated net profit margin went up by quite a lot (up 6.6 percentage points to 28.6%). These factors were: a) ~three-times growth in ‘other income’ (which the CEO attributed mainly to exchange-related gains post-PKR depreciation and higher returns on financial assets), and b) a windfall equivalent to 5 percent of topline via a ‘Fair value adjustment on dilution of control in subsidiary’ (which is related to SYS stake in E-Processing Systems post-external investment). Let’s see what 2022 has in store for Pakistan’s software industry pioneer!


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