Capex deferral sends Silverlake Axis' Q1 net profit down 30%

A DEFERRAL of big-ticket projects and deals because of Covid-19 have dealt a blow to software company Silverlake Axis's first-quarter results.

The group on Friday posted a 30 per cent drop in net profit to RM32.9 million (S$10.7 million), on the back of a 10 per cent decline in revenue to RM148.2 million for its first quarter ended Sept 30.

Contributions from all revenue segments were lower, except for maintenance and enhancement services, which grew marginally.

The recurring revenue segments of maintenance, enhancement services and software-as-a-service remained a key revenue driver for the group, contributing more than four-fifths of its revenue in Q1.

Project-related revenue, comprising software licensing and software project services, declined 35 per cent to RM25.2 million. This was because its key projects closed in prior years are nearing completion, hence lower progressive revenue was recognised. This was mitigated by progressive revenue contribution from the core banking implementation and retail automation contracts secured in Indonesia and Malaysia in FY20.

Total expenses fell 7 per cent in Q1 from a year ago as a result of cost rationalisation activities implemented in the second half of FY20, and less marketing spend during the pandemic.

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Earnings fell due to lower contribution from higher-margin business segments such as software licensing in the quarter. Earnings per share was 1.27 Malaysian sen, compared to 1.78 sen a year ago.

Silverlake said its prospects for the coming year remain dominated by uncertainties due to Covid-19, which it foresees will continue to affect both industry economics and customer purchasing patterns.

However, the group expects improvements in the second half of its fiscal year, spurred by positive vaccine news.

"Large deals remain a challenge as pressure to conserve and extract efficiencies continue to be a defining theme," it said.

That said, its deal conversion in Q1 FY21 was more than double that achieved in Q1 FY20. There are encouraging signs from customer enquiries from both existing and new accounts. Its deal pipeline remains strong going into Q2, without any significant attrition due to macroeconomic conditions, it said.

For instance, it secured contracts to deliver digital innovation enhancement solutions to 17 existing customers in its first quarter. The contracts are worth RM70 million and expected to contribute positively to its results in the current and following financial years, it said.

They were signed with four large regional banking franchises in Asean, a leading bank in Indonesia, four local banks and a government-linked investment company in Malaysia, a bank in United Arab Emirates, China, Thailand, Pakistan and Brunei respectively, a large commercial bank in Slovakia and a company in Hungary.

They are mostly for enhancements to existing core banking systems and to customers' digital experience, and are expected to be completed 12 to 18 months from the signing of the contracts.