Systems Limited (SYS) reported consolidated earnings per share of PKR 7.53 for CY25, compared to earnings per share of PKR 5.12 in FY24. Furthermore, in 1QCY26, the company reported earnings per share of PKR 2.05, compared to earnings per share of PKR 1.71 in the same period last year (SPLY).
Systems Limited successfully absorbed the impact of wage inflation and the appreciation of the Pakistani Rupee, despite the absence of a corresponding upside in the US Dollar, while still delivering 26% growth in operating profit. The company’s revenue base remains highly export oriented, with 91% of revenue denominated in foreign currencies, primarily USD or USD pegged currencies. In contrast, 57% of the cost base is PKR denominated, while the remaining 43% is linked to foreign currencies. 1QCY26 marked the first consolidation of the Confiz and BAT acquisitions into the group’s financial performance.
The acquisition of Confiz has provided Systems Limited with direct access to the North American market, while also adding a delivery center in Costa Rica and operational entities in Canada. Confiz contributed approximately 10% of total revenue during the quarter. Management highlighted that business continuity with existing large clients remains intact. However, the pace of new deal closures has slowed due to ongoing regional geopolitical uncertainties, with customers adopting a more cautious approach toward initiating new projects.
The company is mitigating this through increased focus on North America and Europe. Revenue during 1Q2026 increased by 32% YoY to USD 86 million. Gross margins, however, came under pressure due to fewer working days resulting from Eid holidays, annual salary increments exceeding 10%, and an appreciating PKR, with the real effective exchange rate hovering around 106, which remains unfavorable for an export-oriented business with over 90% of revenue linked to the US Dollar.
Saudi Arabia continues to serve as a key growth market, supported by a favorable business environment, the absence of visa related issues, and positive sentiment following the bilateral defense pact. Management recently engaged with the Prime Minister to advocate for the continuation of the 0.25% Final Discharge Regime tax applicable until June 2026, enhanced Export Refinance Facility limits for the IT sector, and greater flexibility in capital allocation for international acquisitions.
On artificial intelligence, management noted that simple custom application development has largely been commoditized. However, AI presents a significant opportunity in complex enterprise applications, including ERP and core banking systems.
Management believes companies that remain agile and collaborate with global technology leaders such as Microsoft on research and development initiatives will be best positioned to capitalize on this transition. While the North American market offers superior margins, management expects full integration of the Confiz acquisition and realization of associated synergies to materialize gradually, likely by 3QCY26 or 4QCY26. For fixed price projects, management believes AI has the potential to increase margins through productivity gains.
However, under time and material contracts, customers are likely to demand pricing adjustments to reflect these efficiencies. As a result, the market is increasingly shifting toward outcome-based request for-proposal structures. Prior to the Confiz acquisition, the company had limited direct exposure to the Retail and Consumer Packaged Goods segment, primarily serving clients through a US based associate.
The acquisition has enabled Systems Limited to establish direct customer relationships and strengthen its presence in this vertical.
Important Disclosures
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