Shams ul Nisa

Systems Limited experienced a robust growth in revenues and net profitability during the first half (January-June) of the ongoing calendar year 2023. The company’s revenue expanded 61.6% to Rs14.2 billion in 1HCY23 from Rs8.79 billion in 1HCY22. This significant hike in revenue is because of the rise in demand of the company’s IT services, both domestically and internationally, during this period. The company also saw a surge in software and hardware trading. Additionally, the gross profit grew 41.49% to Rs4.01 billion in 1HCY23 from Rs2.83 billion in 1HCY22.

However, the gross profit margin showed a marginal decline from 32.25% in 1HCY22 to 28.23% in 1HCY23. This decline in gross profit margin is attributed to a number of factors such as higher compensation costs due to inflation, currency devaluation affecting the costs of onsite resources, licences and subscriptions paid in US dollars, and high amortisation of intellectual property. In addition, the increased energy prices adversely impacted local and foreign travelling and company’s overheads costs.

The operational profit stood at Rs2.7 billion in 1HCY23 compared to Rs2.02 billion over the same period last year, constituting a growth of 33.79%. The higher finance cost during 1HCY23 is due to currency devaluation, significant increase in policy rate and cost incurred on acquiring new subsidiaries. The profit-before-taxation soared by 70.93% to Rs5.05 billion in 1HCY23 from Rs2.9 billion in 1HCY22. Similarly, the net profit witnessed a remarkable surge of 72.7% from Rs2.79 billion in 1HCY22 to Rs4.82 billion in 1HCY23.

This robust surge indicates the effective management of revenue generation after accounting for taxes. Furthermore, the company’s net profit margin expanded to 33.93% in 1HCY23 from 31.76% last year. The company has customers in 16 countries across Pakistan, Asia Pacific, North America, Europe, and the Middle East. The Middle East and other regions accounted for 52% of the company’s revenue, followed by North America and Europe with 28%, Pakistan with 18%, and Asia Pacific with 2%. The earnings per share rose to Rs16.45 in 1HCY23 from Rs10.00 over the same period last year.

Asset analysis

As Systems Limited invested in new subsidiaries its non-current assets moved up to Rs12.95 billion on June 30, 2023 from Rs10.46 billion at the end of December 2022, constituting a growth of 23.79%. Likewise, the company’s current assets grew by 24.65% during the period under review. As the operational activities rose during the period, they reflected a significant increase in the company’s working capital. As a result, this rise in current and non-current assets led to a 24.32% increase in the company’s total assets. The company’s capital allocation policy was aimed at reinvesting in growth by merging and acquisitions of capital.

Equity and liabilities analysis

As of June 30, 2023, the company’s shared capital and reserves stood at Rs23.83 billion compared to Rs20.18 billion at the end of December 2022, posting a growth of 18.09%. Systems Limited’s current and non-current assets showed a significant growth of 14.77% and 45.30%, respectively. This indicates that the company took additional short and long-term liabilities to finance its expansion activities during the period. The total equity and liabilities expanded by 24.32% from Rs26.8 billion on December 31, 2022 to Rs33.36 billion on June 30, 2023.

Cash flow analysis

During 1HCY23, the company’s core operational activities increased substantially, as the net cash generated from operating activities surged to Rs1.63 billion form Rs695.54 million last year. The company’s net cash from investing activities increased by Rs1.97 billion in the first half of 2023, as it invested in subsidiaries and other projects. In the same period last year, the company had a negative cash flow of Rs1.69 billion from investing activities.

An amount of Rs142.8 million was used for financing activities in 1HCY23 compared to Rs72.96 million earned in 1HCY22. This shows the company paid off more debt during this period, rather than invest. So, the cash at the end of the period grew to Rs4.10 billion from Rs755.94 million in 1HCY22.

Credit: INP-WealthPk