The management of Systems Limited (SYS) held a Corporate Briefing Session on 17th Mar’21 to discuss the financial results for CY20 and future outlook.

Brief Takeaways

· To recall the company posted a consolidated Profit after Tax of PKR 2,164mn (EPS: PKR 17.78) in CY20 against PKR 1,568mn (EPS: PKR 12.86) in CY19, up by 38% YoY.

· Net Sales in CY20 witnessed a jump of 31% YoY, settling at PKR 9,877mn. As per revenue break-up disclosed by the company, the Telco, BFS Services, BPO and Retail & CPG contributed 18%, 17%, 16% and 15%, respectively. On region/country-wise basis, major revenue of 44% came from North America, followed by Middle East and Europe contributing 27% and 8% respectively. Meanwhile, local business comprised 20% of the total revenue. The company informed that 90% sales are from existing/recurring customers. Software implementation depicted revenue growth of 27% YoY.

· The company believes that the US is the key market with more potential for growth. Europe and Middle East have also shown more potential. However, in Pakistan progress related to IT is slow. Therefore, the company is focusing more on exports.

· As per the company, it has witnessed a significant jump of 76% free cash flows during CY20. The company explained that it is pondering over various options given higher cash position, and has not yet come to any decision regarding investment or acquisition of new businesses. Moreover, the company clarified that it is keener to invest instead of buying back shares.

· Regarding OneLoad, the company stated that Active retailer base witnessed a jump of 19% YoY in CY20, standing at 38,077. Similarly, Gross Merchandise Value also swelled up by 17% YoY, clocking-in at PKR 11,347mn in CY20. The company explained that it makes money on each transaction as a certain percentage is charged as commission. Hence, GMV in OneLoad is increasing.

· The company informed that recent amendment in tax ordinance, which replaced tax exemption for IT sector with 100% tax credit, will not have an impact on income of the company or industry.

· The company said that the pandemic has accelerated the digital transformation worldwide and every business is now investing on their digital front. In this regard, the company increased outsourcing and offshoring rapidly. Hence, offshore to onshore ratio has increased in the last one year. The management believes that post COVID-19 the outsourcing and offshoring industry will continue to see growth.

· The company said that EMI License will enable it to do more innovative use cases. At present, the company is aiming to expand retail business through EMI License. The focus is now more on B2B. With this license, the company is collaborating with various source providers, wallets, banks and telcos, acting as a hub in between.

· The management said that the tax rate was high in 4QCY20 due to higher corporate tax on other income. Also EP Systems (OneLoad) had a one-time tax adjustment, which is a one-off for two years. Moreover, currency appreciation dented margins during 4QCY20.

· The company reiterated that Artificial Intelligence and Machine Learning are key focus areas since the last 3-4 years and it has developed data competencies and is constantly building solutions related to it.

· Margins are higher in professional services (IT and Technical skills) compared to BPO and Call Centers’.

Courtesy – AHL Research