Systems Limited (SYS) gross margins clocked in at 27% in 1H2023 vs 32% in 1H2022. The major reasons include (1) inflationary adjustments in salaries, (2) increase in energy prices impacting local & foreign travelling, (3) currency devaluation impacting onsite resources cost along with licenses & subscription cost, (4) high amortisation cost of intellectual property purchased by NDC, and (5) net addition in human capital.

SYS’s operating profit margins clocked in at 14% in 1H2023 vs 21% in 1H2022. The major reasons include (1) additional cost of newly incorporated subsidiaries and NDC, (2) WHT on payments from subsidiaries classified as admin, (3) one-off adjustment of investment in JOMO, and (4) higher IFRS-9 adjustment on receivables.

Of the total other income of Rs 2.8 billion in 1H2023, Rs 1.7 billion is related to recognized exchange gains.

SYS made net additions of 390 IT professionals during 1H2023. The number of employees at the end 1H2023 stood at 4,922 compared to 4,532 in 2022. 84% employees are based in Pakistan, and rest are from Middle East. As of 1H2023, NDC has a net employee count of around 600.

Service segmentation of revenue includes 79% from digital, 18% from managed services and 3% from BPO. To note, over the years contribution from BPO has come down from 40% to just 3%. The focus of SYS is now towards the Digital services segment.

Geographical segmentation of revenue stands at 52% from Middle East, 28% North America & Europe, 18% for Pakistan and the remaining 2% from Asia Pacific. Middle East has been the fasted growing region for the company.

Number of active clients of the company has increased to 150 in 1H2023 compared to 108 in 1H2022.

The revenue mix by currency stands at 82% in foreign currency and 18% in PKR, while the cost mix is 66% in PKR and 34% in foreign currency in 1H2023.

Revenue has grown by 39% YoY in US$ terms and 102% YoY in PKR in 1H2023. Management highlighted that the more than 80% growth is organic while 15-20% is attributed to acquisitions.

Operating profit grew by 1% YoY in US$ and 47% YoY in PKR in 1H2023. EBITDA grew by 15% YoY in US$ and 67% YoY in PKR in 1H2023.

SYS has no plans for a share buyback shortly.

Under the capital allocation policy, SYS focus would be on (1) reinvestment in growth which includes organic growth, talent acquisition, strengthening current geographics and new offerings, (2) mergers and acquisitions, and (3) cash and stock dividends.

Courtesy – Topline Pakistan Research