With a quarter to spare, a leading software house has exceeded the profitability achieved in entire 2018. As per a notice sent to the bourse yesterday, Systems Limited (PSX: SYS) showed an impressive run in the nine-month period ended September 30, 2019. The group, which derives most of its revenues from software exports, has become more competitive in the last one and a half years due to PKR devaluation.
The competitiveness is reflected in that the 9MCY19 consolidated topline expanded by almost a half of what it was a year ago. A breakdown of the financials shows that the holding company (Systems Limited) – which provided 70 percent to the consolidated topline – grew its net revenues by 46 percent. The company provides software development, business process outsourcing and software trading services.
Systems Limited (consolidated) | |||
(Rs mn) | 9MCY19 | 9MCY18 | Chg |
Net revenues | 5,472 | 3,698 | 48% |
Cost of sales | 3,758 | 2,694 | 39% |
Gross profit | 1,715 | 1,004 | 71% |
Distribution expenses | 145 | 97 | 49% |
Administrative expenses | 483 | 365 | 32% |
Other operating expenses | 90 | 45 | 99% |
Other income | 294 | 211 | 39% |
Operating profit | 1,290 | 708 | 82% |
Finance costs | 31 | 16 | 89% |
Profit before taxation | 1,259 | 691 | 82% |
Taxation | 36 | 16 | 120% |
Profit after taxation | 1,223 | 675 | 81% |
Source: PSX notice | |||
Between the two subsidiaries – the 53 percent owned E-Processing Systems, which provides airtime services locally, and the fully-owned, Dubai-based TechVista, which is working in the MENA region’s software development market – the combined topline growth was 52 percent year-on-year. EP Systems is showing significant growth in number of users and number of transactions, while TechVista is holding on despite a stagnant regional market.
The group saw double-digit growth in its core/service costs and operating expenditures, which is on account of a growing topline. The group’s cost of sales, in fact, came in at 69 percent of net revenues, down from 73 percent in 9MCY18. Similarly, the distribution, administrative and other operating expenses collectively exhausted 13 percent of net revenues, marginally lower than same period last year. Some help came from ‘other income’, as the PKR devaluation continued to give.
It is good to see the holding company holding well. After all, the company provided 75 percent of the consolidated gross profits, 94 percent of the operating profits, and 88 percent of the net profits. It is understandable, given that the subsidiaries are focused more on expanding sales. Having said that, the two subsidiaries together are a source of operating profits and net profits for the group. If these trends continued, expect SYS to close CY19 with record profits.
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