Established in 1977, Systems Limited (which is listed on the Pakistan Stock Exchange (PSX) under the symbol ‘SYS’) is Pakistan’s first software house. Currently, it is also one of the most prolific software exporters operating out of the country. With the firm’s 1997 foray into the US market, the export focus started to intensify, and currently SYS has a particularly well-established footprint in the retail, apparel, mortgage, and other growing sectors in the US. Aside from its business in the US, SYS has customers present across the globe, including in Canada, UK, Germany, Australia, UAE, and Qatar.
The company, whose head office is based in Lahore, has over 3,500 employees in Pakistan and abroad. Its latest-available shareholding pattern is provided below.
Holding company and subsidiaries
The holding company (Systems Limited) – which is primarily engaged in software development, software trading, and business process outsourcing (BPO) services – provides the bulk of the revenues to the SYS group. The holding company – which is highly export-centric – also provides services such as systems integration, database administration, application development, process consulting, information security, business process management, among others.
In recent years, the two main subsidiaries – the Pakistan-based E-Processing Systems (EPS) Pvt Limited (in which SYS has 44.6% shares) and the Dubai-based TechVista Systems (fully-owned by SYS) – have grown their contribution to the group financials. The OneLoad venture of EPS (which provides smart e-payments) has grown phenomenally in recent years, signifying local market prospects.
Recent financial performance
Between CY16 and CY20, consolidated results show that SYS had more than tripled its net revenues to Rs10 billion in that five-year period, with net profits growing nearly fivefold to cross Rs2 billion in CY20. This has come about, mainly, due to exceptional export performance in recent years. From just over Rs2 billion in CY16, SYS consolidated annual exports galloped to Rs8 billion by CY20. Exports continue to have a very high share in the topline, accounting for 80 percent of SYS net revenues in CY20.
The local sales, meanwhile, have also grown impressively, albeit their share in net sales continues to remain around 20 percent. From Rs685 million in CY16, SYS local annual sales had jumped to Rs1.9 billion as of CY20. The local market’s IT spending is improving; however, it is not at such a level where it excites prominent software exporters to do more local business. For local revenues to grow, a lot depends on government’s digitization and automation projects, which need to materialize and involve local companies so that export-related capacity development can also take place.
During CY20, SYS consolidated revenues of roughly Rs10 billion continued the strong run of annual growth in recent years. The topline expanded by 31 percent year-on-year despite a tough year in the wake of the Covid-19 pandemic. As per the company information, the consolidated topline was fueled by growth in a number of verticals, especially telecoms, BFS services, retail, BPO and technology sectors.
That year in CY20, the North America region accounted for 44 percent of SYS consolidated revenues, followed by 27 percent of revenues coming in from the Middle East, 20 percent from Pakistan, and eight percent from Europe. In terms of business offerings, some 46 percent of SYS revenues came from ‘digital transformation’, 38 percent from ‘managed services’, and 16 percent from BPO services.
Latest financials
At the end of nine months ended September 30, 2021, SYS consolidated net revenues had grown by nearly 50 percent year-on-year to reach Rs10.5 billion, and its net profits had jumped 56 percent year-on-year to reach Rs2.5 billion. With a quarter to spare in CY21, the group had already crossed its CY20 performance with some margin. The holding company’s topline growth had been robust in 9MCY21, growing by 52 percent year-on-year to reach Rs8.1 billion. It was due, mainly, to the strong sales performance in the North American and Middle Eastern markets.
The North American market remains the most-profitable export market for the holding company. Covid-era US government stimulus programs have helped deliver robust economic recovery during 2021, helping firms like SYS that have exposure in consumer-facing industries. Meanwhile, the two subsidiaries – EP Systems and TechVista – also posted impressive annual growth of 40 percent year-on-year for a combined topline of approximately Rs2.4 billion during 9MCY21. The digital-airtime-recharge platform of OneLoad is presumably the main driver of the growth in subsidiary financials. As per company information, OneLoad had grown its network in Pakistan to around 50,000 retailers as of September 2021.
Outlook
At this pace, SYS is likely to close CY21 with on a high (the full-year financials are expected to be released in a few weeks). The business has been generating strong returns for shareholders, and if the stock market is any guide, the exceptional financial performance has been well received at the bourse. In early March 2020 when the WHO declared Covid-19 a pandemic, SYS was trading on PSX at around Rs150 per share. In the roughly two years since, the stock price has quintupled to Rs777 per share as of yesterday (January 13, 2022). The SYS stock also handily beat the broader KSE-100 index during 2021.
The pandemic inadvertently provided golden opportunities for software exporters like SYS that were both capable and ready to cash in on new business leads at a time when businesses world-over had to find creative ways to remain operational. It remains to be seen if SYS can keep up the growth momentum in its core business once the pandemic tapers off and a post-Covid world impacts the ongoing mad rush for digital transformation.
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