The growth run continues for Pakistan’s oldest software house. Latest financials of Systems Limited (PSX: SYS) show improving health of its consolidated financials for the year ending December 31, 2017 (see the table). Much of that owes to the robust operating performance of two SYS subsidiaries, which expanded last year to account for 24 percent of consolidated top line, compared to 14 percent in CY16.
The subsidiaries – seventy-percent-owned, Pakistan-based E-Processing Systems (EP Systems) that develops airtime solutions among other related services; and the fully-owned, Dubai-based TechVista Systems FZ that deals in software development and ancillary services – showed a collective top line growth of 113 percent year-on-year to reach Rs922 million in CY17. Besides, the duo posted healthy net profits of Rs87 million in CY17 as against a net loss of Rs34 million in CY16.
Most of the subsidiaries’ top-line and bottom-line gains have been delivered by TechVista. This firm is focused on selling software solutions in the Middle-East and Africa market. Asif Peer, CEO at Systems Limited, told BR Research after the result announcement that the subsidiary, which had turned very profitable in 2017, had lately made forays into the European market as well.
Meanwhile, EP Systems is more of a startup at this stage, Asif said. The firm is focusing on building a critical mass of users and transactions on its main payment platform, OneLoad, which helps users to add and transfer financial credit as well as redeem prepaid credit and gift vouchers. The CEO suggested that the platform would monetize itself over time after transaction volumes reach a high level. He sounded hopeful that annual volume on this platform would soon cross 50 million transactions.
Meanwhile, the holding company (Systems Limited) – which is engaged in the business of software development, software trading, and business process outsourcing – couldn’t return a double-digit top line growth for the first time in past many years. The firm, which derives over 80 percent of its revenues from overseas sales, also saw its net profits decline 8 percent year-on-year to Rs473 million.
The CEO explained that the holding company’s local business forecast couldn’t be met in 2017, mainly due to operational delay at the New Islamabad, where the firm is expected to provide IT support and services for three years. As the company is focused on growing its exports, which have better margins, the P&L took the impact of marketing & distribution expenses tripling in CY17 to Rs114 million.
Calculations based on available data suggest that in 4QCY17, the holding company showed top line growth of 26 percent year-on-year, just as the subsidiaries posted top line growth of 275 percent. But the quarterly consolidated net profits remained almost unchanged at Rs116 million, as profitability declined by 13 percent at the holding company and the subsidiaries returned a net profit of Rs6 million.
Anticipated growth in billed revenues at the holding company, TechVista’s continued profitability, and the latest round of PKR depreciation may help SYS boost its quarterly profitability in the Jan-Mar quarter. Over at the bourse, the stock appreciated in the year-to-date period. But SYS has bounced back this calendar year – along with the benchmark KSE-100 index – reaching a high of Rs99.4 on March 22.
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