April 30, 2024 (MLN): Systems Limited (PSX: SYS) experienced a fall of 66.1% YoY in its profitability, with its profit after tax falling to Rs1.24 billion [EPS: Rs4.24], compared to a profit of Rs3.64bn [EPS: Rs12.53] in the same period last year (SPLY).

Normalizing the impact of currency fluctuation, the net profit showed increase of 3% from same period last year.

It is important to note that a Rs1 change in average USD/PKR rate results in a ~1% change in the gross margins.

Since the rupee has appreciated against the dollar in Q1, the company did not get the leverage on the wage inflation which has impacted the bottom line.

However, the business continues to grow, and revenue has increased by 24% in USD terms.

Going by the results, the company's top line marked an increase of 33.3% YoY to Rs9.16bn as compared to Rs6.87bn in SPLY.

The cost of sales rose by 40.8% YoY.

Gross profit and operating profit increased by 14% and 9% respectively, delivering a leveraged operating performance for the company.

Moreover, as a consequence of rupee appreciation, net profit for the period has been impacted by an exchange loss of Rs207.64 million compared to the Rs2.24bn exchange gain in March 2023.

On the expense side, the company's administrative expenses rose 17.7% YoY to Rs544.62m, selling and distribution expenses rose 62.3% YoY to Rs102.52m, and other operating expenses rose 62.3% YoY to Rs1.02m.

The company’s finance cost contracted by 12.6% YoY and stood at Rs89.99m as compared to Rs102.93m in SPLY.

On the tax front, the company paid a higher tax worth Rs109.78m against the Rs95.55m paid in the corresponding period of last year, depicting a rise of 14.9% YoY.

Outlook

The company encountered significant inflationary pressures on costs throughout 2023, and these challenges persist into 2024, particularly in the form of wage inflation.

Historically, the devaluation of the rupee, typically around 5-8% for Pakistan, has helped offset inflation.

However, in 2024, the rupee appreciated against dollar, exacerbating pressure on margins.

To address these challenges, the company is implementing measures to optimize costs and develop strategies for revenue growth across all geographical areas, Systems Limited said.

The company anticipates that the results of these measures will begin to manifest in the latter half of the year.

Systems Limited has a solid backlog and has secured a substantial number of new contracts in all geographies.

The company is actively developing a robust pipeline for the future to support its ambitious growth objectives.

Given the surge in AI technology and its widespread applications, the company continues to invest in the technology and in upskilling and reskilling its workforce.

Recognizing the immense market potential, the company is addressing the high demand for AI by ensuring adequate training of resources.

Additionally, significant investments are being made in developing assets, products, and solutions in the banking AI sector.

Besides AI, the company remains committed to investing in cutting-edge technologies, aligning with the strategic investments of key principals such as Microsoft, Google, Amazon, and Salesforce.

The company is actively lobbying with the government to allow investment in new markets and acquisition of similar businessesthat will contribute to the expansion plans of the company.

With the new government’s focus on the IT sector, the company is hopeful that this will open new doors for business.

Systems Limited intends to persist in pursuing opportunities for inorganic growth, both within Pakistan and on a global scale, it said.

It is actively assessing businesses that align with its strategic objectives, organizational structure, and corporate culture.

Amount in thousand except for EPS

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Posted on: 2024-04-30T09:16:21+05:00