Systems Limited sees profits dip in Q32024

October 22, 2024 (MLN): Systems Limited (PSX: SYS) recorded a decrease of 8.8% YoY in its profits, with the company's after-tax profits shrinking to Rs1.74 billion [EPS: Rs5.95] during the three months ended September 30, 2024, compared to a profit of Rs1.9bn [EPS: Rs6.55] in the same period last year (SPLY).

Going by the results, the company's top line marked an increase of 11.37% YoY to Rs9.87bn as compared to Rs8.865bn in SPLY.

However, a disproportionately higher increase in the cost of sales, which rose by 23% YoY, led to an 11.78% YoY reduction in gross profit, which stood at Rs2.62bn in Q3 2024

According to the Director’s report, European and MEA segments are bouncing back showing an encouraging dollarized growth.

The company is rationalizing the Pakistan segment as well by improving the quality of revenue bringing efficiencies and optimizing costs to improve the profitability in this segment as well.

With the strategic actions that the company is taking, the profitability across all segments is expected to show a positive trend towards the latter half of the year.

Export sales of the Company are now roughly around 87% of total sales in line with the company’s strategy to grow exports.

The company continues to invest in markets with significant growth potential, driving aggressive expansion in these regions.

While 90% of the company’s business is conducted in USD to mitigate currency risk, the exchange rate has remained stable and the company is expecting it to be in the same range in the foreseeable future, rising inflation is exerting pressure on margins despite the strong growth.

To counteract the impact on margins, the company is actively optimizing and rationalizing costs, improving efficiencies, and negotiating rates when renewing old contracts. The results of these efforts have started to reflect in this quarter and are expected to continue going forward.

With a solid pipeline in place and a strong backlog for the upcoming quarters, the company is well-positioned to sustain future growth. This foundation is expected to ensure consistent performance in the periods ahead.

Leveraging its strong regional presence, the company has formed strategic partnerships with major players like Microsoft, signing agreements that are expected to generate new leads, accounts, and offerings.

This presence has also attracted additional partners, opening up more business opportunities. Since much of the Company’s business is partner-led, it is actively collaborating with other partners beyond Microsoft.

The company is strategically transitioning towards offering AI as a Service, aligning with technological advancements. This move aims to capitalize on the increasing demand for AI-driven solutions and position the company as a leader in industry innovation.

The company is building accelerators for specific industries like BFSI, Pharma and will use these as references.

The European market has shown stable growth, while the previously flat US market has begun contributing positively and the company is expecting similar momentum in 2025 as well.

The Middle East remains a key growth driver, with a focus on expanding enterprise customers and deepening market penetration.

Meanwhile, the company has strategically reduced its focus on the domestic market, with unprofitable contracts in Pakistan nearing completion, expected to improve segment profitability by yearend.

Additionally, an increase in exports has further bolstered overall performance.

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