Elm Company
The term information technology services sector has been expanded several times to serve larger categories of companies. The information technology sector was initially based on semiconductors, computing devices, and communication equipment.
As for this sector globally, it is often the most attractive investment destination in the economy of any country, in the United States of America, for example, companies such as Apple, Google, Amazon, Microsoft lead the growth in the sector in addition to their long-term capabilities that enable them to trade in multiples of price compared to profits.
The global IT services sector grew by more than $1,000 billion in 2022 at a CAGR of 11.6%.
In Saudi Arabia, the sector is one of the fastest growing in the region, and as evidenced by this, the Kingdom's response to the Corona pandemic was one of the strongest and most coherent globally because it was one of the most remarkably prepared countries, and Vision 2030 played an important role and is considered the main reservoir of this success.
According to the report of the global data company IDC, this sector witnessed an expansion between 2019-2021 and expects year-on-year growth of 2.3% in Saudi Arabia.
The information technology sector, especially the application and technology services sector, is witnessing distinctive growth.
This sector is one of the most important sectors in our time and in the future due to the technical transformation witnessed by the Kingdom of Saudi Arabia to achieve the Vision 2030.
We see that this sector witnessed a change during the past two years at a rate of 178.83%. This rate is evidence of the importance of this sector and its positive impact on economic growth satisfaction.
The IT sector was one of the most important pillars of Vision 2030, so the digital transformation program was established, resulting from one of the pillars of the vision (a thriving economy). This transformation aims to develop e-government, which aims to provide government and other services digitally and improve the level of community satisfaction.
Since the beginning of the start of the vision and the Kingdom, there has been a tremendous progress that the world is witnessing in this field, as it occupies the second position in the 2021 digital competitiveness. It also worked to pump huge investments to develop digital infrastructure. It also created the Digital Government Authority that follows up this transformation and develops it and adopts innovative solutions to raise the efficiency of this transformation.
As we know, the development of technology services stimulates the economy, builds advanced activities, opens new markets, and creates an attractive environment for investors. Therefore, the Kingdom of Saudi Arabia is seeking to achieve its 2023 vision of digitally transforming the government and building world-class smart technologies.
With the acceleration of the Kingdom of Saudi Arabia towards the development of technology in the government sector, the Kingdom advanced 9 ranks in the world, because its progress and development in the electronic services sector improves the competitiveness of the Saudi economy and facilitates the access of citizens and residents to electronic services such as Absher.
In its endeavor to develop this sector, the Kingdom has established many projects and initiatives such as the Data Visions initiative, the Open Innovation Project and the Digital Academy, as the Kingdom of Saudi Arabia achieved first place in the field of (availability and development of electronic services). in the index issued by the United Nations Commission.
After we highlighted the IT sector (the main sector of Elm), We will move to take an overview of the company and its services, comparing them with its competitors.
Elm Company is a Saudi joint stock company owned by the Saudi government that provides digital solutions for all majors in proportion to the customer's need and in order to achieve its desire by providing them to use advanced technologies in the hands of highly experienced consultants. and the services provided by Elm Company:
1- Consulting services :
At this stage, they study the problem by designing strategic plans and implementing it through the latest technologies by a team with high skills.
Among the most prominent:
-Strategic and Management Consultations and Transformation Programs.
-Organizational Change and Transformation Management Consultation.
-Digitization Services Consultations.
2- Data analysis :
At this stage, they analyze the data and link it to the performance measurement indicators according to certain forms, while ensuring that the customer is able to benefit from them by providing the necessary technologies.
Analysis team services:
-Advanced analysis to support decision makers.
-Operational Analysis.
- Creating analytical monitoring solutions.
After learning about the company and the most important services it provides, we will highlight the most important events since the company's establishment:
Elm company targets four main sectors and sub-sectors under each major sector, and these sectors are:
- Technical solutions: It is the development of digital applications and information technology and their use in several sectors: data and artificial intelligence, software engineering, business applications, and basic facilities.
- Supporting business procedures/ operational operations management: It is to enable an external party to provide improvements through digitization and cloud activities.
- Consulting: such as consulting in the technical field.
- Human Resources Services: It is include providing training and developing services in the field of technology and employment services.
The size of the targeted market sectors is estimated at 54.9 billion Saudi riyals in the year 2020
- Technical solutions sector
The company operates in three areas in technical solutions, which are the product, the digital project, data management and analysis, and also 'Tabadul' a subsidiary of Elm company, specialized in logistical services applications, financial solutions and trade. The company's market share in the technical solutions sector is 5-6 %
- Business procedures/ operational operations management sector
The business support unit works to develop work procedures using digitization and also improve government measures such as inspection and other services, which are considered as specialized support services. The company's market share in the business procedures/ operational operations management sector is 4-5 %
- Consulting sector
The company provides specialized consulting services in the digital, technical and business field. The company's market share in the consulting sector is 2-3 %
- Human Resources Services Sector
The company providing specialized human resources to various government agencies, with the aim of supporting the government sector in implementing its major projects, through 'Emdad' a subsidiary of Elm Companies. The company's market share in the Human Resources Services Sector is 1-2%
The company has several competitors in the same sector, but here we will address the company's 3 competitors and we will compare them with them using several financial ratios.
1- The Arab Sea of Information Systems company
is a Saudi joint stock company that provides services in producing computer programs for commercial and governmental purposes, solutions and information systems, and the implementation of government projects in the information technology sector. The headquarters of the company is located in Riyadh, the capital of the Kingdom of Saudi Arabia, and it has agents in the United Arab Emirates, Oman, the Arab Republic of Egypt, Yemen, Libya, Mauritania, and India. The company's activity began in 1980 and expanded since then until the number of the company's customers reached more than 94,000 customers, and the number of users of the company's products reached more than 690,000 users in the Arab countries, America, Singapore, China, and India. The company produced four basic products:
- Saudi management and accounting system (SMACC): It consists of several integrated sub-systems that help manage all facilities operations in accounting, sales, inventory, purchases, points of sale, and employee affairs.
- SCRIBES: an integrated systems group that helps in planning the company's resources, and supports remote work through the possibility of entering the system anywhere in the world.
- System (3S): It helps in managing points of sale by linking it to the stock system and the financial accounting system.
- E-government systems (GIS): Warehouse Management System and Government Procurement, and through this system it is possible to control the movement of products from supplier to the warehouse.
In 2020, the Arab sea of Information Systems Company went to the Financial Technology Sector (FinTech) through its financial company of Arab sea, which is providing digital payments services. The company's market share is 1.8%.
2- STC solutions
Saudi subsidiary limited liability and is a leader in technical services. It has an active role in the digital transformation of companies and has a market share of 13%. One of the most important strengths of the company is that it is a subsidiary of STC which already has a reputation in the market and serves a large number of diversified customers, infrastructure, global partners, and past experience which helps them to obtain commercial contracts inside and outside the kingdom. and of the digital services provided by STC solutions:
- Systems Integration: It aims to support digital transformation by providing consultation and executive services to understand the client's needs.
- connectivity Services: It aims to facilitate the process of communication between customers and others around the clock through a safe and reliable network.
- Business Outsourcing: It aims to benefit from external expertise by contracting with stc solution to provide certain services in order to follow up with technical changes.
- Cloud services: It aims to accelerate business growth and facilitate the process of digital transformation by providing secure systems, platforms and infrastructure.
- IoT digital services: It aims to build the latest technologies to create unique experiences and enhance performance and productivity by using an advanced information network and modern services.
- Managed Services: It aims to solve technical problems and challenges through integrated management of technical processes.
- Cybersecurity Integration: It aims to protect the digital future from cyber risks and cyber-attacks to support digital transformation.
3- Almuammar Information Systems Company (MIS)
Al-Muammar Company was established in 1975 in Riyadh as a Saudi private shareholding company, and in 2019 its shares were listed on the Saudi Stock Exchange (Tadawul).
It provides a range of ICT services and solutions, and the main activity of Al-Muammar Company is import, export, wholesale and retail trade in electronic devices, and many activities according to its articles of association are as follows:
• Installation, operation and maintenance of electrical and electronic works.
• Installation, operation and maintenance of communication technology
• Contracting in wireless and wired communication networks.
• Electronic installations and maintenance of the operation of electrical installations.
• Operation and installation of remote sensing geographic survey systems and training and technical support work.
• Information security systems, cybersecurity and service management.
Its market value is SAR 2.81 billion, which represents 7.76% of the sector's size as a whole.
We will now review a comparison between Elm and the three competitors using a number of financial ratios.
Net profit margin
This ratio simply measures how much net income or profit is generated as a percentage of revenue
"Elm" shows that its net profit margin increased by 2.4% last year, from 12.4% to 14.8% in 2021, due to the gradual rise in net profit since they recovered from Covid-19 pandemic.
As for its competitors, "Elm" held the highest average ratio over the four years with a rate of 15%. indicating how efficient the company is at turning income into profit, and that it has the most profit generating efficiency.
followed by "Solutions" and later "MIS". And lastly was “Arab sea” with a negative margin of 6%, which is the lowest. Its decline may be due to poor management decisions and also due to the loss in net income in 2018.
Return on Equity (ROE)
A financial performance measure determined by dividing net income by shareholders' rights. Thus, it measures the company's efficiency in generating profits from each unit of shareholder's equity.
"Elm" shows that its return on equity increased by 6.46% from 2020 from 13.72% to 20.18% in 2021, due to the rise in net profit in 2021.
As for its competitors, "Solutions" held the highest average return on equity over the four years, indicating the strength of the company's performance and that it has the most profits-generating efficiency compared to its counterparts, followed by a company "MIS" and later "Elm", and " Arab Sea" were negative in the average return on equity, which is the lowest compared to competitors. Its decline may be due to poor management decisions when it comes to reinvesting capital in inefficient assets.
Return on Assets (ROA)
A measure of how efficiently a company uses its assets to create profits.
"Elm" return on assets increased by 3.29% from 2020 from 7.62% to 10.91% in 2021, due to a rise in net profits in 2021.
In view of its competitors, "Elm" held the highest average return on assets over the four years, followed by a small margin by " Solutions", indicating the efficiency of its management and investment of their assets and making the most of them. " Arab Sea" was ranked last with a negative average return on assets due to a lower net profit than its counterparts, and thus less efficient in asset management.
Cash ratio (liquidity)
It measures the ability of a company to use its cash to meet its current liabilities immediately
At "Elm", we noticed an increase in 2021 by 10% from 0.6x to 0.7x, the ratio simply increased due to the increase in cash & cash equivalents.
Compared to its competitors, the highest average ratio was “Arab sea” with a result of .47x which means that it has enough cash to pay 47% of its current liabilities.
In the second rank is "Elm" with a rate of 0.38x, followed by “solutions” and then “MIS” with rates of 0.24x and 0.08x, which is very compared to Elm Company and that means they don’t have enough money available for paying their liabilities.
Debt to Equity ratio
is a measure of the extent to which the company relies on debt to finance its operations. It is computed by dividing the total debt of a company by the total shareholders' equity.
At "Elm", we note an increase in the debt-to-equity ratio in the last year 2021 by 0.05× from 2020, which means an increase in its reliance on debt to finance its investments and operations.
Compared to its competitors, the lowest average debt-to-equity ratio over the four years was " Arab Sea", which meant that its reliance on debt for its investment and operations was lower than its competitors, followed by "Elm", which placed them well among their competitors.
Assets turnover ratio (efficiency)
This ratio helps investors understand how effectively companies are using their assets to generate revenue.
Compared to competitors, "Solutions" held the highest average over the four years, followed by MIS then by “Elm” with a very small margin, indicating the efficiency of use of its assets. Lastly "Arab Sea" was ranked the lowest by a large margin due to a lower revenue compared the counterparts, and thus less efficient in asset management.
After analyzing Elm's financial ratios for the past 4 years, we noted that Elm has a great performance.
Due to the three profitability ratios (net profit margin, return on equity, and return on assets), we note that in 2021 the company recovered its normal performance before the pandemic, showing its good management and efficiency in generating profits.
In terms of measuring the company's leverage, which we represented using the debt-to-equity ratio, Elm achieved the second lowest percentage, meaning that its reliance on debt for its investments and operations is lower than those with a higher result, making it a good place among its competitors.
As for the company's liquidity measured using the cash ratio, there was an increase in 2021 of 10% from 0.6x to 0.7x which means that Elm has enough cash to pay 70% of its current liabilities.
Finally, regarding the company's efficiency, we represented it using the asset turnover, as it rose 13%, which shows that the company effectively uses its assets to generate revenue.
You can find the full analysis here:
References:
https://www.thebusinessresearchcompany.com/report-preview1.aspx?Rid=information%20technology%20global%20market%20report https://cma.org.sa/Market/Prospectuses/Documents/elm_ar.pdf https://rb.gy/4cqfut https://www.alarabiya.net/amp/aswaq/economy/2022/02/24/السعودية-الأولى-بالشرق-الأوسط-وشمال-أفريقيا-في-توفير-الخدمات-الرقمية https://www.elm.sa/en/pages/default.aspx https://www.argaam.com/ar
Done by:
Shahad Alwahby
Reema Alnuami
Dana Almuqhem
Nura Altamimi
RazanAlattas
Renad Alhomali
Lamia Alharbi