ANNUAL REPORT 2022

Performance Report

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

Due to Giza Systems consolidation

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

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