Systems Limited Projects Growth Amid Challenges, Shifting Focus to Export Markets

Karachi, Systems Limited (SYS) hosted an analyst briefing yesterday, disclosing financial challenges and strategic adjustments amidst varying economic pressures. The company outlined reasons for the recent dip in gross profit margins, attributing it to heightened inflation and a shifting revenue mix, as well as higher administration and marketing expenditures due to the incorporation of new subsidiaries and the National Data Center (NDC).

According to AKD Securities Limited, the briefing revealed that the decrease in gross margins for the last quarter was mainly because of a less than expected depreciation of the Pakistani Rupee (PkR). This trend is expected to continue into the first quarter of 2024, with margins remaining under pressure due to the currency's appreciation. Systems Limited has also adjusted its investment strategies, marking one-time impairment adjustments on its 'JOMO' and 'Jugnu' investments, alongside a notional impairment loss on EP systems to normalize past gains.

Notably, Systems Limited reported a 75% year-over-year growth in revenue from the Middle East, signaling sustainable expansion rather than transient success. Despite the difficulty in forecasting exact future growth, the management is optimistic, especially with a 95% revenue influx in foreign currency.

Domestically, the company plans to phase out less profitable and smaller public sector contracts, aiming to secure more lucrative agreements, mainly in the export markets. This strategic pivot is part of adapting to the current economic climate, which, under IFRS-9, has prompted more aggressive provision taking and led to a gross loss domestically.

Revenue distribution across industries shows significant contributions from banking, financial services and insurance (29%), telecommunications (22%), technology (14%), and retail and consumer packaged goods (11%), with the Middle East being the largest regional market, accounting for 55% of revenue.

The company's active client base grew to 236 in 2023, up from 191 in 2022, indicating a robust order and booking pipeline for 2024. Focusing on foreign markets, especially the US and Europe, Systems Limited anticipates dollar revenue growth, with plans to scale down on startup investments to concentrate on core business sectors. Additionally, it intends to reduce its reliance on the Export Refinance Facility, aiming to lower finance costs.

Despite financial adjustments, Systems Limited maintains a consistent payout policy, using retained profits to fuel further growth, as affirmed by the management during the briefing.