With a helping hand from a couple of subsidiaries, Systems Limited (PSX: SYS) has closed the quarter ended September 30, 2017 with all-round gains. Thanks to such amelioration, Pakistan’s oldest software house now looks likely to maintain the long-running double-digit top line growth momentum for CY17 as well.
During the quarter under review, the SYS (consolidated) financials continued to experience slight weaknesses from the holding company, Systems Limited, which is engaged in the business of software development, software trading, and business process outsourcing. In recent years, the holding company has seen stellar top line growth on the heels of growth in software exports going to the North American market as well as trading income from local software sales.
In 3QCY17, the holding company could only grow its top line 4 percent year-on-year. (Top line growth for 9MCY17 stands at 3 percent year-on-year). Due to double-digit expansion in operating and non-operating expenditures, quarterly operating profits and net profits were down 8 percent and 10 percent year-on-year, respectively. A bit worrying, the 9MCY17 net profits are down 7 percent year-on-year courtesy sharp increases in distribution expenses, administrative expenses, and ‘other operating expenses’.
Compared to that, the two SYS subsidiaries – E-Processing Systems (EP Systems) and TechVista Systems FZ – together provided revenues of close to Rs300 million in 3QCY17, up 136 percent year-on-year. EP Systems, which deals in the business of buying and selling of airtime, among other related services, is 70 percent owned by SYS. TechVista, which deals in software development and ancillary services and is based out of Dubai, is 100 percent owned by SYS.
The quarter was noticeable also in the sense that the two subsidiaries returned an operating profit of Rs47 million, compared to a negligible number on that count same period last year. More important, the two firms provided SYS with a combined net profit worth Rs45 million in 3QCY17, compared to a marginal net loss in the year-ago period. EP Systems is expected to have provided the majority of those gains.
As the subsidiaries rack up top line growth, the concentration of holding company in SYS financials is shrinking. In 3QCY17, the company provided 70 percent of SYS revenues (84% in 3QCY16) and 73 percent of its profits (101% in 3QCY16). The firm plans to tackle this slowdown through a heightened export focus in North America (apparel and retail vertical), from where it derives about two-thirds of its revenues, as well as the Middle East, which accounts for roughly 15 percent of revenues. It will also remain focused on its Pakistan business, but with a selective approach to boost profit margins.
Meanwhile, it’s a good omen for SYS that its subsidiaries are becoming an increasing source of financial relief for the group. More so the EP Systems, whose smart e-payment solution, OneLoad, is said to be doing well in the local market, even without a targeted marketing push. But the firm’s stock seems caught up in the wider market turmoil, down over 10 percent in the year-to-date period. After the result’s announcement yesterday, though, SYS stock caught investor attention during the day and inched up.
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