Chief Financial Officer’s Message
solutions by stc delivered a strong financial performance in 2022, testament to the strength of the Company’s forward-looking LEAP strategy in line with Vision 2030. The Company is well positioned to take advantage of projected expansion of the ICT sector and increased demand for digitalization in the Kingdom and the wider region.
In 2022, solutions by stc delivered a strong performance, posting a revenue of SAR 8,805 million and net profit of SAR 1,054 million, both showing double-digit growth from the previous year. Core ICT Services was the primary growth driver in 2022, with revenue growth of 30% for the segment. The Company has achieved its targets for revenue growth, profitability, cash generation, and return metrics; setting up a strong foundation for achieving our strategic objectives in the long term. The year also saw a series of new milestones for the Company.
Inorganic growth unlocks new avenues for expansion
On 3rd October 2022, solutions by stc successfully closed the deal on acquiring an 88.19% stake in Giza Systems as well as 34% of Giza Arabia (not owned by Giza Systems) for a total Enterprise Value (EV) of USD 158 million. Furthermore, this move signaled solutions by stc’s entry into the substantially lucrative Egyptian IT market. This constituted the first Mergers & Acquisition (M&A) transaction carried out by the Company. solutions by stc’s M&A strategy is set to drive an ambitious growth trajectory for the Company in the years to come. The Company recognizes the potential of the IT market in the MENA region, and looks to make significant gains through consolidation, which improves scale, offering, and reach, while cementing the solutions by stc’s market-leadership position.
Leveraging long-term debt to fuel growth
At the end of the year, solutions by stc’s balance sheet position remains strong. With low capital requirements from its asset-light business model, and newly raised long-term debt that can fuel growth ambitions and optimize its capital structure; solutions by stc’s balance sheet provides the Company with ample flexibility to increase shareholder value.
solutions by stc delivering on guidance provided
Following a landmark IPO in 2021, the Company has reported outcomes in line with, or exceeding, guidance provided. Group revenue has shown YoY growth of 22%; EBITDA margin improved to 15.8% in 2022, up 45bps YoY.; and Capex intensity ratio normalized at 1.5%.
These factors and more ensure solutions by stc remains a strong investment option. Continued growth in Qualified Foreign Investors (QFIs), amounting to 7.72% by end of 2022, showcases the attractiveness of solutions by stc's investment thesis. From the Company’s market-leadership position, unrivalled synergies in the KSA ICT sector, and proactive M&A strategy; to its stable payout ratio, high Free Cash Flow (FCF) generation, and flexible balance sheet; solutions by stc is the right stock in the right market, at the right time.
A sound strategy for future performance
The Company’s solid financial performance, enhanced by the acquisitions of Giza Systems and Giza Arabia, align with the Company’s LEAP Strategy (2020-2025), which focuses on revenue growth, strategic inorganic growth, and expansion into new business lines and markets.
solutions by stc’s success in 2022 is testament to a continued focus on growth and efficiency in line with the Company’s forward-looking LEAP strategy. It is also indicative of a dynamic Information and Communication Technology (ICT) sector in the Kingdom and the MENA region. Entering a post-pandemic period in 2022, Saudi Arabia’s economy experienced accelerated growth during the year in line with Vision 2030. The Kingdom recorded a real GDP growth rate of 8.7% in 2022, more than doubling the growth rate of 3.2% from 2021. We anticipate further expansion of the ICT Sector and a larger contribution to GDP amidst favorable macroeconomic conditions in the Kingdom. In this climate, solutions by stc is well positioned to cater to increased demand for digitalization, as we support government and private sector institutions to grow their digital presence and infrastructure in 2023 and beyond.
Revenue by business segment
The Company posted an increase in total revenue by 22% YoY, to SAR 8.8 billion supported by business growth across all key business lines. Strong performance was led by 30% growth in Core ICT Services (to SAR 4.77 billion), which accounted for 54% of revenue in 2022. Other business lines also performed well, with 19% growth in IT Managed and Operational Services (to SAR 2.330 billion), and 7% growth in Digital Services (to SAR 1.704 billion).
Core ICT
services
30% Growth
54% share of total revenue
SAR 4.772 billion
2021: SAR 3.67 billion
IT
managed and
operational
services
19% growth
27% share of total revenue
SAR 2.330 billion
2021: SAR 1.95 billion
Digital
services
7% growth
19% share of total revenue
SAR 1.704 billion
2021: SAR 1.59 billion
Revenue by customer segment
solutions by stc's customer segment consist of a) Business-to-Business (B2B), where sales are conducted either through stc or directly to customers, ranging from government and semi-government institutions, to large and small-scale private sector entities; and b) Sell-to-stc where stc is the end customer.
In 2022, B2B sales recorded 17% growth, and comprise a 69% share of total revenue. These reflect the Company’s keen focus on developing this area of business and leveraging opportunities for growth in the SME segment.
stc
35% growth
31% share of total revenue
SAR 2.762 billion
2021: SAR 2.048 billion
B2B
17% growth
69% share of total revenue
SAR 6.043 billion
2021: SAR 5.160 billion
Total revenue
22% growth
SAR 8.805 billion
2021: SAR 7.208 billion
Business to stc
Our parent company, stc, continued to be an anchor customer for solutions by stc during 2022. 31% of revenues were generated from sales to stc, up from 28% the previous year. A substantial portion of revenue generated from stc can be directly attributed to the large data center project booked in early 2022. Synergies with stc also played a significant role in helping solutions by stc to expand its customer base through introductions to new government and private sector institutions.
Business to Market (B2B)
This year, our B2B sales channel contributed 69% towards total revenue, reflecting the
strength and competitiveness of solutions by stc’s infrastructure, products, services,
and the Company’s renewed focus on excellence in customer experience.
As part of Vision 2030, the Saudi government brought into effect several digitalization
initiatives, which translated into sales opportunities for solutions by stc. Overall, the
B2B segment added close to SAR 6.04 billion in revenue during the year, a 17% increase
YoY.
These figures also reflect the Company’s increased focus on new industries and
sectors particularly within the SME category. The private sector SME segment is
historically underserved in the region, and presents significant opportunities for
growth in the future.
Geographic analysis of revenue
KSA
SAR 8,377 million
2021: SAR 7,207 million
GCC
SAR 491 thousand
2021: SAR 1.274 million
WECA
SAR 428 million
Marginal increase in operating profitabil
In 2022, solutions by stc’s net profit margin increased to 12.0% from 11.6%, due to the
inherent seasonality of its project-based business. For the same reason, its EBIDTA
margin similarly increased to 15.8% in 2022 from 15.4% the previous year.
Overall operating expenses increased 5% YoY on the back of Giza acquisition-related
expenses, partially offset by lower sales and distribution expenses.
Assets, liabilities, and equity
2022 SAR ‘000 |
2021 SAR ‘000 |
2020 SAR ‘000 |
2019 SAR ‘000 |
2018 SAR ‘000 |
|
Total current assets | 9,383,268 | 6,446,295 | 5,571,035 | 4,523,290 | 4,261,236 |
Total non-current assets | 899,068 | 726,453 | 763,592 | 354,098 | 188,814 |
Total assets | 10,282,336 | 7,172,748 | 6,334,628 | 4,877,388 | 4,450,049 |
Total current liabilities | 6,656,330 | 4,634,258 | 4,068,116 | 3,377,268 | 2,658,919 |
Total non-current liabilities | 802,947 | 267,922 | 342,948 | 243,296 | 125,754 |
Total liabilities | 7,459,277 | 4,902,180 | 4,411,063 | 3,620,564 | 2,784,673 |
Total equity | *2,823,059 | 2,270,568 | 1,923,564 | 1,256,824 | 1,665,377 |
Total liabilities and equity | 10,282,336 | 7,172,748 | 6,334,628 | 4,877,388 | 4,450,049 |
* Total Equity before deducting non-controlling interest of SAR 28,890,452.
During 2022, the Company's Total Assets increased by 43.35% to SAR 10,282 million, from SAR 7,173 million the previous year. The increase is primarily due to short-term Murabaha financing amounting to SAR 2,701 million and an increase in Accounts Receivables to SAR 4,345 million resulting in a healthy level of working capital management.
The Company's Total Liabilities increased by 52.16% to SAR 7,459 million in 2022, compared to SAR 4,902 million the previous year. This reflects the Company's
short-term borrowings of SAR 194 million and long-term borrowings of SAR 502 million during the year under review.
Total Equity increased 24.33% to SAR 2,823 million in 2022. Up from SAR 2,271 million the previous year. The increase reflects the Company's profit and non-controlling interest for the year.
solutions by stc concluded 2022 on an extremely positive note with several successes throughout the year. The Company reached a number of critical milestones that led to a strong overall financial performance, leaving it well positioned to maintain a positive trajectory and achieve its future goals for growth.
Abdulrahman Alrubaia
Chief Financial Officer