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Contents
Corporate InformationBoard of DirectorsVision and MissionAbout UsServices and SolutionsOur ProductsTestimonials
04060810121314
Six Years at a GlanceStatement of Value Addition
1618
20 Directors’ Report to the ShareholdersPattern of ShareholdingStatement of Compliance with the Code of Corporate Governance
Review Report to the Memberson Statement of Compliance with Code of Corporate Governance
2628
30
Auditors’ Report to the MembersBalance SheetProfit and Loss AccountStatement of Comprehensive IncomeCash Flow StatementStatement of Changes in EquityNotes to the Financial Statements
33343637383940
Company Profile
Stakeholders’ Information
Corporate Governance
Separate Financial Statements
Auditors’ Report to the MembersConsolidated Balance SheetConsolidated Profit and Loss AccountConsolidated Statement of Comprehensive IncomeConsolidated Cash Flow StatementConsolidated Statement of Changes in EquityNotes to the Financial StatementsConsolidated
73747677787980
Annual General Meeting
Notice of Annual General MeetingShareholders’ Information Form of Proxy
112114117
Consolidated Financial Statements
This page has been left blank intentionally
Company Profile
Corporate Information04
06
Vision and Mission
About Us
08
Services and Solutions12
Our Products13
Testimonials14
10
Board of Directors
04
Corporate Information
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15Systems Limited | Annual Report 2014 05
BOARD OF DIRECTORS
Mr. Aezaz HussainChairman
Mr. Asif PeerCEO and Managing Director
Mr. Arshad MasoodDirector
Mr. Omar SaeedDirector
Syed Zahoor Hassan*Director
Mr. Ayaz DawoodDirector
Mr. Amir Zia*(Nominee Treet Corporation Limited)Director
Mr. Asif Jooma**Director
Mr. Tahir Masaud**Director
AUDIT COMMITTEE
Mr. Ayaz DawoodChairman
Mr. Omer SaeedMember
Mr. Tahir MasaudMember
HUMAN RESOURCE & REMUNERATION COMMITTEE
Mr. Omar SaeedChairman
Mr. Asif JoomaMember
Mr. Tahir MasaudMember
CHIEF FINANCIAL OFFICER & COMPANY SECRETARY
Mr. Affan Sajjad
AUDITORS
KPMG Taseer Hadi & Co.Chartered AccountantsLahore
LEGAL ADVISOR
Hassan & Hassan Advocates
BANKERS
Habib Metropolitan Bank Limited United Bank LimitedStandard Chartered Bank (Pakistan) LimitedAlbaraka Bank LimitedBank Alfalah LimitedKASB Bank LimitedDubai Islamic BankFaysal Bank LimitedDeutsche Bank AG
Non-exectuve
Executive
Non-exectuve
Independent
Independent
Independent
Non-exectuve
Independent
Independent
SHARES REGISTRAR
REGISTERED OFFICE
Chamber of Commerce Building,11 Sharae Aiwane Tijarat, Lahore, Pakistan.T: +92 42 36304825-35F: +92 42 36368857
THK Associates (Private) Limited.2nd Floor, State Life Building-3,Dr. Ziauddin Ahmed Road, Karachi.T: +92 21 111-000-322F: +92 21 35655595
E-5, Central Commercial Area,Shaheed-e-Millat Road,Karachi, PakistanT: +92 21 34549385-87F: +92 21 34549389
KARACHI OFFICE
TechVista Systems FZ-LLCOffice 105, Building 11 Dubai Internet City,PO Box 500497, Dubai, UAET: + 9714 369 3525F: +9714 456 3761
DUBAI OFFICE
*
Appointed on 18 March 2015**
Resigned on 18 March 2015
Board of Directors06
Mr. Asif JoomaDirector
Left to Right
Mr. Tahir MasaudDirector
Mr. Arshad MasoodDirector
Mr. Aezaz HussainChairman
Systems Limited | Annual Report 2014
www.systemsltd.com
07
Mr. Asif PeerChief Executive
Mr. Ayaz DawoodDirector
Mr. Omer SaeedDirector
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
Vision and Mission
Our
Vision
08
Systems Limited as an Institution is
committed to being the Leader of IT & ITES in the Region through our Thought Leadership, Sustained Service Delivery Excellence, Strong Customer Focused Employees, Strong relationship with our Customers, Partners, and Vendors. To that end we must continuously innovate, enhance our service offerings, achieve superior financial results and increase value to our clients and trusted shareholders. These unwavering expectations provide the foundation of our commitment to those whom we interact.
Systems Limited | Annual Report 2014
Our
Mission
09
Systems Limited is dedicated to provide the
Highest Quality Business Solutions, IT & IT Enabled Services and People to our clients and business partners that earns their respect and loyalty, we aim to be the number one service provider through our battle tested methodologies, processes, frameworks and customer focused resources in the niche Industry and Technology/Business Sector we operate.
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
About Us
11Systems Limited | Annual Report 2014
Systems Limited is a global leader of next-generation IT services and BPO solutions. Ever since its inception in 1977, the company has evolved and taken center stage in information and technology by providing computing strategies and solutions to Government and Private Organizations.
With three decades of experience and IT evolution, we have accomplished above 600 projects completed in the US, Pakistan, Middle East and Africa. We excel at delivering business solutions to a huge list of clients from diverse industries that also includes several names from the Fortune 500. Our offshore facilities established in the US, UAE, UK, and Pakistan, comprise of over 2,500 customer-focused employees providing a great customer experience.
What makes us distinctive is our ability to assist clients and meet challenges.
We serve them to enrich their productivity by guaranteeing that their core business functions work faster, cheaper and better. Using our ability to conceptualize, wedesign, innovate, and implement with the latest and advanced tech proficiencies, hence enabling our clients to metamorphose their legacy models and take their business to the next level.
Internationally, Systems Limited has proven itself as a key player in the critical market segments covering United States, Middle East, South East Asia and Europe, and continues to provide solutions & products to a budding list of corporate clients and public sector organizations.
Our work philosophy is simple - deliver quality & value by generating flexible software solutions within a fun, disciplined, and a receptive work environment that promotes unity and fortify the strength of the company.
38 Years And Growing!
www.systemsltd.com
The country’s first Information Technology company that provides business solutions, Business Process Outsourcing services, and is the largest software exporter in Pakistan.
Leaders in IT
Corporate LegacyWe have 38 years of sustainable, profitable growth with owner 2,500+ client-focused employees globally.
Certified Global EnterpriseWe are SSAE-16 and ISO 9001:2000 & 27001:2005 certified company.
Core Services & SolutionsWe possess proven expertise in deploying and supporting ERP, Mobile, BPM, Turnkey and Complex Software solutions.
Financial StrengthOur Group turnover exceeds over 50 Million USD, providing us a financial strength to grow 25% year over year.
Employee OwnershipFrom its inception, SL was meant to be an employee-owned enterprise. Some 38 years later, its leaders or top performing employees, past and present, own 84pc of its stock.
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
Services & Solutions Delivering Value to Our Clients
SERVICES
Business Process Outsourcing
Data EntryConsolidate, analyze and visualize your data
Scanning, Indexing and ArchivingThe cutting-edge digitization experience
Consulting Services
Process ConsultingBoost productivity with optimized IT services
Management ConsultancyYour strategic partner for a resilient IT strategy
Information Security & ComplianceProtecting your data integrity
User ExperienceCreating people-centered and elegant digital solutions
Software & IT Services
Systems IntegrationHarness the power of global best practices
Database AdministrationFlexible, scalable and 24/7 available DBA solutions
Application Development & MaintenanceMeeting your unique business requirements
Systems Re-engineeringInnovative business solutions
Outsourcing Services
Staff AugmentationConnecting you with the right people
Business Process ManagementDriving Process Improvements ThroughIT Innovation
Business IntelligenceEnhance, extend and support your decisionmaking process
Enterprise Resource PlanningGain competitive edge through innovationand performance
Enterprise Application IntegrationEnable single integration pillar to connectall systems
Document ManagementGoing ‘paperless’ for rapid, easy andconvenient data storage
Customer Relationship ManagementCraft a superior customer experience touplift business
e-CommerceSave money, save time, and sell more with a powerful e-commerce solution
Product Lifecycle ManagementAccelerate product innovation andmaximize profitability
Portals and CollaborationSuccessfully deploy web portals fora streamlined & collaboration
Mobile AppsIndulge in positive innovation with nextgeneration technology
Human Capital ManagementUnify the entire recruit-to-retire spectruminto a single system-of-record
SOLUTION AREAS
12
13Systems Limited | Annual Report 2014
Our Products
AXEdgeAX is a highly collaborative and scalable software solution designed to address the global needs of enterprises in the Apparel and Retail Industries. Merging our unique implementation methodologies with industry’s best practices, we integrated Microsoft Dynamics AX 2012, a leading enterprise solution, and further extended its capabilities to create EdgeAX suite of business solutions that helps businesses thrive and compete in a rapidly changing global environment.
Each component of the EdgeAX suite has been built upon the core strengths of MS Dynamics AX infrastructure to maintain an end-to-end delivery of complex solutions. The modules’ workflows and functionality follow the Apparel and Retail industry standards that highlight our value-added business processes and guarantees greater ROI to our clients.
Accelerate product delivery in aglobal omni-channel environment
www.edgeax.com
Add more value to your business witha smart e-payment solution
www.oneLoadpk.com
OneLoad is a unique product offering for the local market that provides aggregated prepaid airtime recharge and a host of other value-added services. Using a multi-channel approach, OneLoad facilitates the purchase and disbursement of mobile prepaid vouchers and using SMS, IVR, the web, and mobile apps. With an integrated and seamless service ecosystem, OneLoad offers an extremely simple, convenient and easy-to-use service:
Users can easily create a OneLoad account online and easily credit it through a vast, extensive outreach of well over 25,000+ branded retail outlets around the country. Using their OneLoad account, consumers can avail services from multiple mobile operators and utility companies at the tip of their fingers using SMS or mobile app - there is no need to make multiple, physical trips to the shop anymore.
Boost efficiency by automating your HR operations with an advancedHCM solution
Globally, leading organizations consider their employees as an asset rather than overheads because of business results they deliver. SysHCM, Human Capital Management solution of Systems Limited, offers organizations the tools to help manage, share and steer the vast capabilities of its staff, to focus on its critical talent and support strategic HR processes. It enables organizations to create a workforce that can become its most coveted competitive advantage. The modular architecture of SysHCM application makes it simple to add modules to the core application as your organization grows.
The application supports organizations to lower its human resource costs, streamline the entire recruit-to-retire spectrum, expand the talent pool, shorten the hiring process and make it easy for employees to manage their own HR information and benefits.
www.systemsltd.com
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
14
TestimonialsHappy Clients !
Systems Limited provided us with a comprehensive POC in the shortest possible time. While choosing a partner for the Enterprise Service Bus implementation, our focus was on the skill set and expertise level of the partner and we found Systems Limited to outdo all others in this domain. We are convinced that with this initiative we would be able to achieve the desired operating efficiency.
Kamal Hussain | Senior Vice PresidentMeezan Bank
At Engro Foods we are going through an HR processes transformation since 2013 by moving towards a self-service model and offering intelligent HR solutions. Systems Limited has been our partner in this journey of transformation, where they have so far created smart and user friendly solutions for us for performance assessment, potential assessment, succession planning and career planning. Working with this cooperative team has been a pleasure and we look forward to developing many more unique systems together in the future.
Samar Khosa | Talent & OD ManagerEngro Foods
HEC is pleased to be working with Systems Limited to leverage their technology expertise. This project is in line with our mission of transforming the higher education landscape in the country. As much as we are focused on providing quality education and establishing new academic institutions, we are equally driven to streamlining work processes within the organization that would help us achieve our broader objectives. As Systems Limited implements IBM BPM at HEC, we seek to achieve business process automation and improvement in all the aspects of work processes.
M. Pervaiz Khan | Director NISHigher Education Commission, Pakistan
Yaser Ejaz | Head of ISAdamjee Insurance Company Limited
See what our clients feel abouttheir experience with us
While evaluating a SharePoint implementation partner for Adamjee Insurance Company (AICL), we (AICL) assessed companies on basis of their experience, business acumen, flexibility and cost-benefit analysis. We were mainly looking for a company that would listen to our ideas, implement them, and bring their own creativity on board. Systems Limited went above and beyond our expectations. Their professionalism and dedication of delivering the project on time makes them a perfect candidate for the job.
Stakeholders Information
16
18
Six Years at a Glance
Statement of Value Addition
Key Financial Datasix years at a glance
-
100
200
300
400
500
2009 2010 2011 2012 2013 2014
16
2014
1,992,615,854
1,242,708,948
679,906,906
261,747,126
3,985,590
16,689,230
430,863,420
4,143,840
426,719,580
4.92
2013
1,420,562,189
859,467,123
561,095,066
202,692,544
3,402,989
70,805,575
425,805,108
10,663,819
415,141,289
4.91
2012 2011 2010 2009
Revenue
Direct cost
Gross profit
Operating expenses
Financial cost
Other income
Profit before tax
Taxation
Profit after tax
Earnings per share
Unconsolidated
Operating Performance (Rupees)
35.36
13.61
22.41
39.50
14.27
29.97
1,080,598,569
615,454,025
465,144,544
152,997,391
9,681,423
43,808,631
346,274,361
18,391,150
327,883,211
7.76
851,579,957
528,297,644
323,282,313
118,018,168
9,993,493
25,232,616
220,503,268
2,219,459
218,283,809
5.61
567,712,428
341,708,011
226,004,417
89,376,455
7,281,838
18,658,654
148,004,778
(1,919,442)
149,924,200
5.78
455,843,427
285,794,557
170,048,870
73,370,539
6,007,595
22,234,376
112,905,112
2,448,131
110,456,981
4.26
43.05
14.16
32.04
37.96
13.86
25.89
39.81
15.74
26.07
37.30
16.10
27.77
Gross profit to Revenue
Operating expenses to Revenue
Profit before tax to Revenue
Profitability Analysis (% age)
Rs.
in m
illio
ns
-
500
1,000
1,500
2,000
2009 2010 2011 2012 2013 2014
Revenue
Profit After Tax
Rs.
in m
illio
ns
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
1517Systems Limited | Annual Report 2014
www.systemsltd.com
-
100
200
300
400
500
2009 2010 2011 2012 2013 2014
-
500
1,000
1,500
2,000
2009 2010 2011 2012 2013 2014
2014 2013 2012 2011 2010 2009
1,992,711,560
1,245,857,134
676,854,426
274,752,221
3,995,964
13,691,938
411,798,179
4,143,840
407,654,339
4.74
1,423,069,361
861,356,300
561,713,061
219,338,781
3,457,811
70,833,470
409,749,939
10,633,819
399,086,120
4.74
Revenue
Direct cost
Gross profit
Operating expenses
Financial cost
Other income
Profit before tax
Taxation
Profit after tax
Earnings per share
Consolidated
Operating Performance (Rupees)
Gross profit to Revenue
Operating expenses to Revenue
Profit before tax to Revenue
Profitability Analysis (% age)
1,080,598,569
615,454,025
465,144,544
152,997,391
9,681,423
43,808,631
346,274,361
18,391,150
327,883,211
7.76
43.05
14.16
32.04
851,579,957
528,297,644
323,282,313
118,018,168
9,993,493
25,232,616
220,503,268
2,219,459
218,283,809
5.61
37.96
13.86
25.89
567,712,428
341,708,011
226,004,417
89,376,455
7,281,838
18,658,654
148,004,778
(1,919,442)
149,924,200
5.78
39.81
15.74
26.07
455,843,427
285,794,557
170,048,870
73,370,539
6,007,595
22,234,376
112,905,112
2,448,131
110,456,981
4.26
37.30
16.10
27.77
33.97
13.79
20.67
39.47
15.41
28.79
Revenue
Profit After Tax
Rs.
in m
illio
ns
Rs.
in m
illio
ns
3%
49%
3%
24%
21%
50%
3%
18%
3%
26%
Wealth Generated
Gross revenue
Other income
Wealth Distributed
Employees remuneration and benefits
Depreciation and amortization
Other expenses
Government levies
Profit for the year
1,970,176,199
16,689,230
1,986,865,429
972,645,161
59,274,927
476,521,576
51,704,185
426,719,580
1,986,865,429
2014
1,439,950,242
70,805,575
1,510,755,817
746,201,873
47,316,420
263,533,135
38,563,100
415,141,289
1,510,755,817
2013
1,442,457,414
70,833,470
1,513,290,884
753,668,905
47,352,358
274,620,401
38,563,100
399,086,120
1,513,290,884
2013
1,970,271,905
13,691,938
1,983,963,843
983,931,003
59,566,196
481,108,120
51,704,185
407,654,339
1,983,963,843
2014
18
Statement of Value AdditionUnconsolidated Consolidated
Un
co
nso
lidate
d
2%
49%
3%
24%
22%50%
3%
17%
3%
27% Employees remuneration
and benefits
Depreciation and
amortization
Other expenses
Government levies
Profit for the year
2014 2013
Co
nso
lidate
d
2014 2013
Employees remuneration
and benefits
Depreciation and
amortization
Other expenses
Government levies
Profit for the year
Corporate Governance
Directors’ Report to the Shareholders20
Pattern of Shareholding26
Statement of Compliance with the Code of Corporate Governance
28
Review Report to the Members on Statement of Compliance with Code of Corporate Governance
30
Directors� Report to the Shareholders
On behalf of the Board of Directors we are pleased to present the 38th Annual Report to the members together with Audited Financial Statements and Auditors Report for the year ended 31 December 2014.
20
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Com
pany Profile03
Stakeholders� Information
Corporate Governance19
15
partnership with reputed and well-established regional partners. We have also strengthened our sales team to generate the direct business, we grew more than 100% in MEA region. Due to significant decline in oil prices, public sector IT spending has been sluggish in GCC region, we are expecting first half of 2015 will be slow and IT spending will pick up again during the second half of 2015.
On the Domestic Front, we have seen growth in IT Spending from Private Sector; but on the other side due to political crisis last year Public Sector spending is on lower side. In Private Sector we made significant in roads in Telcos and Financial Institutions. In Public Sector we are heavily engaged with large entities such as PITB and Ministry of Revenue for Land Records.
Systems Limited | Annual Report 2014
We have seen significant growth and demand of skilled resources and services in US Market, Technology spend has been increased and we envisage this trend will continue for foreseeable future. We have been focusing and strengthening our Center Of Excellence / Competency Centers to develop the required skillset at onsite and offshore to service our customers and prospects. We have invested in developing accelerators, frameworks, and solution templates for Apparel and Retail Segment. We have also developed Retail Business Intelligence tool. In BPO Services we have further aligned ourselves with the automation and strengthened our technology platform to increase our efficiency in performing the services. We have been using our Technology Platform to sell our BPO services and this has been instrumental in
In the year 2014 your company's revenues grew by 35%. Whereas, the profit before tax of your company grew by 1.2%, during 2014 we have received significant hit of Exchange Loss due to appreciation of Rupee, our budget of 2014 was created keeping in view of further Rupee depreciation from 2013 and we have created the budget at $110; but our actual yearly average turn out to be in range of $101, this has affected our profitability because about 80% of our revenue is dollar based. We have also utilized funds from our bottom line to invest in starting operations in new markets and building new competency centers, and we believe this will allow us to sustain our future growth.
MARKET OUTLOOK
FINANCIAL RESULTS
generating new business. Our Onsite BPO Center (Visionet Lender Services) has now 50+ resources onsite, this has allowed us to open up new business opportunities where hybrid resource model is essential requirement. Visionet Systems Inc. added number of new relationships in various new technologies, business processes and industries in fact in 2014 we have acquired highest number of new logos in a single year. We believe this will help the group in enhancing the growth of the company and we will have a solid base for repeatable and diversified business and clients.
During 2014 we have expanded and solidified our base in MEA Region, we have active projects in UAE, Oman, Bahrain, Qatar, South Africa, Namibia and Saudi Arabia.
We were able to strengthen our
Summary of Financial Results
Particulars
Revenue
Gross profit
Profit before taxation
Profit after taxation
Earnings per share
2014 2013
1,922,615,854
679,906,906
430,863,420
426,719,580
4.92
Y/Y
1,420,562,189
561,095,066
425,805,108
415,141,289
4.91
35.34%
21.17%
01.19%
02.79%
00.21%
Unconsolidated
Particulars
Revenue
Gross profit
Profit before taxation
Profit after taxation
Earnings per share
2014 2013
1,922,711,560
676,854,426
411,798,179
407,654,339
4.74
Y/Y
1,423,069,361
561,713,061
409,749,939
399,086,120
4.74
35.11%
20.50%
00.50%
02.15%
00.00%
Consolidated
21
www.systemsltd.com
FUTUREOUTLOOK
Systems Limited | Annual Report 2014
2015 Plans
The 2015 proposed budget looks at a growth of 20% over the 2014 actual revenue. This growth is attributed to the following factors:
Retention of current clients and new clients acquired by VSI in 2014 and the nature of engagement with these clients.
We are looking for Acquisition in Europe and/or GCC Region. We are actively searching companies that are aligned with our Competency Centers.
We are very focused in building accelerators, business solutions, and frameworks in the space where we have expertise, this will allow us to open new doors as well as generate profitable and repeatable business.
We have well established Competency Centers and we are very focused on taking them to the next level.
We are Strengthening and Solidifying our Partnerships and Client Base in MEA region.
We have started our operation in Australia and we are looking to kick off business this year.
We have aligned and strengthened our partnerships with Principals (Microsoft, IBM, Informatica and MicroStrategy).
Principals have recognized us and now we are in Microsoft President Club, which means we are one of the top 5% companies in Microsoft ERP Space. We are also IBM Advanced Partner and only value added reseller of Informatica and MicroStrategy in Pakistan.
We are expecting highest return on our Technology Led BPO Initiatives; this will put as ahead of our competitors and provide us unique competitive edge and differential advantage.
We have successfully launched our OneLoad product as Proof of Concept and we are in the process of working out Distribution and marketing side of OneLoad, we are very optimistic about the success of this product in 2015.
Risk Factors
Following are some of the risk factors that may impact our business and financial results:
World perception of Pakistan
Pricing Pressures
Resource Availability
World Perception of Pakistan
The volatile situation of security in Pakistan and the even worse world perception of Pakistan continue to be a major risk factor. This prohibits our international clients to visit Pakistan.
To mitigate this risk we have diversified our business in various regions and expanded our footprint locally and regionally. We are heavily focused on creating IP based solution offerings, which can be sold in any country without hindrance of perception.
Pricing Pressure
Given the scarce IT resources in Market cost of Resources are going up year on year; for the new clients we have increased our billing rates by atleast 20%; but for older clients we were only able to revise the rates by 10%.
In order to mitigate this risk we are planning to induct more Fresh Graduates from top notch universities, and working on resource mix, where senior resources can be utilized as more customer facing and client engagement role and back office work can be done by the junior resources, this will help us in balancing the cost of resources in various engagements.
Resource Availability
High profile IT consultants and Engineers are in heavy demand and very hard to find, and considering our growth target, this is extremely hard to find quality resources.
In order to mitigate this risk this year we have been heavily focused on in-house and outside trainings of our resources to bring them at the level where we can use them effectively.
23
www.systemsltd.com
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
Mr. Aezaz Hussain
Mr. Asif Peer
Mr. Arshad Masood
Syed Zahoor Hassan*
Mr. Omer Saeed
Mr. Ayaz Dawood
Mr. Amir Zia*
Mr. Asif Jooma**
Mr. Tahir Masaud**
Name of Directors Attendance
4
4
4
2
2
3
3
-
-
The Board of Directors has recommended 10 % cash dividend on ordinary shares and 10% stock dividend (bonus shares) for the year ended 31 December 2014.
DIVIDEND
CORPORATE GOVERNANCEAND FINANCIAL REPORTINGFRAMEWORK
As required by the Code of Corporate Governance, the directors are pleased to report that:
The financial statements, prepared by the management of the Company, present its state of affairs fairly, the result of its operations, cash flows and changes in equity;
Proper books of accounts of the Company have been maintained;
Appropriate accounting policies have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment;
International Financial Reporting Standards, as applicable in Pakistan, have been followed in the preparation of financial statements and there have been no departures therefrom.
The system of internal control is sound in design and has been effectively implemented and monitored.
There are no significant doubts about the Company’s ability to continue as a going concern.
KEY OPERATING ANDFINANCIAL DATA
Key operating and financial data of the last six years is presented on page 16.
INVESTMENTS OF PROVIDENTFUND
The value of provident fund operated by the Company, based on the un-audited accounts of the fund as on 31 December 2014, amounts to Rs. 115.28 million.
BOARD’S AND COMMITTEES’MEETINGS
Board of Directors
During the year, four (4) meetings of the Board of Director were held. The attendance of each Director is as follows:
24
Leave of absence was granted to the Directors who could not attend the Board meetings
Audit Committee
During the year, four (4) meetings of the Audit Committee were held. The attendance of each director is as follows:
*
Appointed on 18 March 2015**
Resigned on 18 March 2015
Mr. Ayaz Dawood
Syed Zahoor Hassan*
Mr. Amir Zia*
Mr. Omer Saeed**
Mr. Tahir Masaud**
Name of Directors Attendance
3
2
3
-
-
Leave of absence was granted to the Directors who could not attend the meetings of the Audit Committee
*
Appointed on 18 March 2015**
Resigned on 18 March 2015
Human Resource and Remuneration Committee
During the year, one (1) meeting of the Human Resource and Compensation Committee was held. The attendance of each director is as follows:
*
Appointed on 18 March 2015**
Resigned on 18 March 2015
Mr. Omer Saeed
Syed Zahoor Hassan*
Mr. Ayaz Dawood
Mr. Amir Zia*
Mr. Asif Jooma**
Mr. Tahir Masaud**
Name of Directors Attendance
1
1
1
-
-
-
Subsequent to the year end, two new Directors, Mr. Asif Jooma and Mr. Tahir Masaud, were appointed to fill the casual vacancies. The Board wishes to place on record its appreciation of the valuable services rendered by outgoing Directors, Syed Zahoor Hassan and Mr. Amir Zia during the tenure of their office and welcomes the new Directors who will hold office for the remainder of the term.
DIRECTORS’ TRAINING PROGRAMS
The Company has arranged in- house training programs for its Directors. Formal certifications will be pursued in the ensuing year following the listing of the Company after the reporting period.
TRADING BY DIRECTORS, EXECUTIVES AND THEIR SPOUSES AND MINOR CHILDREN
The Company’s Directors, executives and their spouses and minor children did not trade in the Company’s shares during the year ended 31 December 2014.
NEW APPOINTMENTS ON THE BOARD
Systems Limited | Annual Report 2014 25
www.systemsltd.com
AUDITORS
KPMG Taseer Hadi & Co, Chartered Accountants, has completed its tenure. The Board of Directors upon recommendation of audit committee has recommended Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants, being eligible for appointment as auditors of the Company for the year ended 31 December 2015.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated financial statements of the Company together with its subsidiary companies E Processing Systems (Private) Limited and Tech Vista Systems FZ-LLC also included.
ACKNOWLEDGEMENT
The Board takes this opportunity to thank the Company's valued customers, bankers and other stakeholders for their corporation and support. The Board greatly appreciates hard work and dedication of all the employees of the Company.
On behalf of the Board
18 March 2015Lahore
Asif PeerChief Executive
MATERIAL CHANGES AFTER THE REPORTINGPERIOD
On 30 January 2015, the Karachi, Lahore and Islamabad Stock Exchanges have approved the Company's application for formal listing and quotation of its ordinary shares. There were no other material changes.
PATTERN OF SHAREHOLDING
The Pattern of Shareholding as at 31 December 2014, is presented on page 26.
EMPLOYEE STOCK OPTION POLICY
The Company is operating an Employee Stock Option Scheme approved by Securities and Exchange Commission of Pakistan. According to scheme, 100% options become exercisable after completion of vesting period from the date of grant. The options have vesting period of 2 years and an exercise period of 3 years from the date the option is vested.
According to the requirements of section 12 of Employees Stock Option Rules, 2001 following disclosure is made for the year ended 31 December 2014.
The Company has granted 422,312 options to its employees during the year 2014, which will be available for exercise in 2016.
The detail of options granted to the directors and employees of the Company during the year 2014 are as follows:
Chief Executive Officer
Mr. Arshad Masood - Director
Other Employees
154,712 options
183,704 options
83,896 options
No employee was granted option amounting to one percent or more of the issued capital of the company.
The grant price of these Options in accordance with the approved mechanism is Rs. 40.826 per option. Price of options is determined by taking average of following.
One (1) time last audited Annual Revenue divided by Total Outstanding Shares
Six (6) times last audited Annual Profit before Tax divided by Total Outstanding Shares
Breakup Value calculated by dividing last audited Equity by Total Shares Outstanding
645,144 Shares were issued during the year ended 31 December 2014 due to exercise of options granted in the years 2012 or before, by the employees. On exercise of these options Rs. 14,083,494 were received in the company.
CORPORATE SOCIAL RESPONSIBILITY
The Company acknowledges its responsibility towards society and performs its duty by providing financial assistance to projects for society development by various charitable institutions on consistent basis.
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
Pattern of Shareholding
Shareholders' category
Directors and their spouses and minor children
Associated companies, undertakings and related parties
NIT and ICP
Banks, DFIs and NBFIs
Insurance Companies
Modarabas and Mutual Funds
General Public
Others
Joint Stock Companies
08
-
-
02
01
01
37
01
Number of shareholders
Number of shares held
Percentageof holding
Shareholder's category Number ofshares held
Percentage%
Category no.
Information of shareholding as at 31 December 2014 as required under Code of Corporate Governance is as follows:
The shareholding in the Company as at 31 December 2014 is as follows:
33,322,736
-
-
3,780,450
3,824,688
1,912,344
42,412,740
1,912,344
38.23%
00.00%
00.00%
04.34%
04.39%
02.19%
48.66%
02.19%
6.
5,692,794 06.53%
Banks, DFIs and NBFIs, Insurance Companies,
Modarabas and Pension Funds
Public Sector Companies and Corporations 5. - 00.00%
Executives 4. - 00.00%
Mutual Funds2. - 00.00%
1. Associated companies, undertakings and related parties - 00.00%
Total 50 87,165,302 100%
26
7. Shareholders holding five percent or more voting rights
Aezaz HussainAsif PeerArshad MasoodManzurul HaqSalma Mian
12,971,6745,303,858
14,938,4146,692,0767,251,696
14.88%%06.08%17.14%07.68%08.32
47,157,718 54.10%
Directors and their spouses and minor children3.
Aezaz HussainNeelam HussainAsif PeerArshad MasoodOmar SaeedSyed Zahoor HassanAmir Zia (Nominee Treet Corporation Limited)
Ayaz Dawood
12,971,67495,990
5,303,85814,938,414
1,0001,800
-10,000
14.88%00.11%06.08%17.14%00.00%00.00%00.00%00.01%
33,322,736 38.23%
Systems Limited | Annual Report 2014 27
The pattern of holding of shares held by the shareholders as at 31 December 2014 is as follows:
Number of shareholders
Total shares held
www.systemsltd.com
3
2
1
2
2
6
1
1
2
1
2
2
11
1
6
2
1
1
1
1
1
50
Shareholding
1
5,001
10,002
25,002
45,001
65,001
110,001
170,001
295,001
365,001
550,001
780,001
950,001
1,710,001
2,290,001
2,940,001
3,560,001
6,035,001
7,180,001
11,515,001
14,000,001
From To
5,000
10,000
25,000
45,000
65,000
110,000
170,000
295,000
365,000
550,000
780,000
950,000
1,710,000
2,290,000
2,940,000
3,560,000
6,035,000
7,180,000
11,515,000
14,000,000
15,000,000
5,170
16,374
23,062
76,800
123,010
601,162
147,398
276,392
631,076
502,224
1,514,596
1,607,270
13,966,772
2,120,456
11,429,826
6,965,996
5,303,858
6,692,076
7,251,696
12,971,674
14,938,414
87,165,302
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
Statement of Compliancewith the Code of Corporate Governance
28
This statement is being presented to comply with the Code of Corporate Governance contained in Regulation No. 35 of listing regulations of Lahore, Islamabad and Karachi Stock Exchanges for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance. The company was listed on the stock exchanges on 2nd February 2015, whereas the statement has been prepared to present the status of the company as of 31 December 2014.
The Company has applied the principles contained in the CCG in the following manner:
1. The Company encourages representation of independent non-executive directors and directors representing minority interests on its board of directors. As of 31 December 2014, the Board comprises of the following:
Category
Independent Directors Mr. Syed Zahoor Hassan
Mr. Omar Saeed
Mr. Ayaz Dawood
Names
Executive Director Mr. Asif Peer
Non-Executive Directors Mr. Aezaz Hussain
Mr. Arshad Masood
Mr. Amir Zia
Subsequent to the year end due to casual vacancies on the Board, the Board has been reconstituted as follows:
Category
Independent Directors Mr. Asif Jooma*
Mr. Omar Saeed
Mr. Ayaz Dawood
Mr. Tahir Masaud*
Names
Executive Director Mr. Asif Peer
Non-Executive Directors Mr. Aezaz Hussain
Mr. Arshad Masood
*The above casual vacancies on the Board have been filled on March 18, 2015.
The independent directors meets the criteria of independence under clause i (b) of the CCG.
2. The directors have confirmed that none of them is serving as a director on more than seven listed companies, including this company (excluding the listed subsidiaries of listed holding companies where applicable).
3. All the resident directors of the company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stock exchange, has been declared as a defaulter by that stock exchange.
4. No casual vacancy occurred in the Board of Directors of the Company during the year. Syed Zahoor Hassan and Mr. Amir Zia resigned on March 18, 2015. Mr. Asif Jooma and Mr. Tahir Masaud was appointed on March 18, 2015 to fill the casual vacancy.
5. The company has prepared a "Code of Conduct" and has ensured that appropriate steps have been taken to disseminate it throughout the company along with its supporting policies and procedures, however, since the Company has been listed on the stock exchanges subsequent to year end therefore these were made available on the Company's website subsequent to the year end.
6. The board has developed a vision/mission statement, overall corporate strategy and significant policies of the company. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained subsequent to the year end in compliance with the listing regulations.
7. All the powers of the board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the CEO, other executive and non-executive directors, have been taken by the board.
8. The meetings of the board were presided over by the Chairman and, in his absence, by a director elected by the board for this purpose and the board met at least once in every quarter. Written notices of the board meetings, along with agenda and working papers, were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated.
9. All the Directors are professionals and senior executives who possesses wide experience and awareness of duties of Directors. Nevertheless training and orientation courses is an ongoing process and the company intends to comply with the Director's training and orientation courses as required by CCG and completion of certification in the succeeding year.
Systems Limited | Annual Report 2014 29
www.systemsltd.com
10. The board has approved appointment of CFO, Company Secretary, including their remuneration and terms and conditions of employment.
11. The directors' report for this year has been prepared in compliance with the requirements of the CCG and fully describes the salient matters required to be disclosed.
12. The financial statements of the company were duly endorsed by CEO and CFO before approval of the board.
13. The directors, CEO and executives do not hold any interest in the shares of the company other than that disclosed in the pattern of shareholding.
14. The company has complied with all the corporate and financial reporting requirements of the CCG.
15. The board has formed an Audit Committee. It comprises three members, of whom all are independent directors
16. The meetings of the audit committee were held at least once every quarter prior to approval of interim and final results of the company and as required by the CCG. The terms of reference of the committee have been formed and advised to the committee for compliance.
17. The board has formed an HR and Remuneration Committee. It comprises three members, of whom all are independent directors.
18. The board has outsourced the internal audit function to Uzair Hammad Faisal & Co. Chartered Accountants, which are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the company and their representatives are involved in the internal audit function on a full time basis. Further, under clause xxxi of the code of corporate governance, in the event of outsourcing of internal audit function the company is also required to appoint or designate a full time employee other than CFO as Head of Internal Audit to act as coordinator between firm providing internal audit services and the Board. The company is in the process for the appointment of suitable person as Head of Internal Audit.
19. The statutory auditors of the company have confirmed that they have been given a satisfactory rating under the quality control review program of the ICAP, that they or any of the partners of the firm, their spouses and minor
children do not hold shares of the company and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the ICAP.
20. The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard.
21. The 'closed period', prior to the announcement of interim/final results, and business decisions, which may materially affect the market price of company's securities, was determined and intimated to directors, employees and stock exchange(s).
22. Material/price sensitive information has been disseminated among all market participants at once through stock exchange(s).
23. We confirm that all other material principles enshrined in the CCG have been complied, except for, the requirement of clause x (b) and (c) of the code of corporate governance, where the company is required to separately place before the Board of Directors related party transactions not carried at arm's length price along with necessary justification for consideration and approval of the Board. Further, the Board of Directors are also required to approve the pricing method for related party transactions that were made on terms equivalent to those that prevail in arm's length transaction. The company is in the process of formulating pricing methods for one of the subsidiary and these will be approved by the Board of Directors in the year 2015 to comply with this requirement.
On behalf of the Board
18 March 2015Lahore
Asif PeerChief Executive
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
Review Report to the Memberson The Statement of Compliance with Code of Corporate Governance
30
We have reviewed the enclosed Statement of Compliance with the best practices contained in the Code of Corporate Governance (the Code) prepared by the Board of Directors of Systems Limited ("the Company") for the year ended 31 December 2014 to comply with the Listing Regulation no. 35 of Lahore, Islamabad and Karachi Stock Exchanges, where the company is listed.
The responsibility for compliance with the Code is that of the Board of Directors of the Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Company's compliance with the provisions of the Code and report if it does not and to highlight any non-compliance with the requirements of the Code. A review is limited primarily to inquiries of the Company's personnel and review of various documents prepared by the Company to comply with the Code.
As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors' statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Company's corporate governance procedures and risks.
The Code requires the Company to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval its related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm's length transactions and transactions which are not executed at arm's length price and recording proper justification for using such alternate pricing mechanism. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm's length price or not.
Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company's compliance, in all material respects, with the best practices contained in the Code as applicable to the Company for the year ended 31 December 2014.
Further, we highlight below instance of non-compliance with the requirement of the Code of Corporate Governance as reflected in the below mentioned notes where it is stated in statement of compliance:
Reference Description
As per the requirement of clause v (a) of the code of corporate governance, the board shall ensure that Code of Conduct has been put on the Company's website.
As per the requirement of clause v of the code of corporate governance the Board is required to ensure that significant policies have been formulated and a complete record of particulars of significant policies along with the dates on which they were approved or amended is to be maintained.
As per the requirement of clause xi of the code of corporate governance, Directors are required to obtain certification under Directors training program.
As per the requirement of clause xxxi of the code of corporate governance in the event of outsourcing the internal audit function, Company shall appoint or designate a full time employee other than CFO, as head of internal audit to act as coordinator between firm providing internal audit services and the Board.
As per the requirement of clause x (b) and (c) of the code of corporate governance, related party transactions not executed at arm's length price shall be placed separately at each Board meeting along with necessary justification for consideration and approval of the Board on recommendation of the Audit Committee and the Board of Directors shall approve the pricing method for related party transactions that were made on terms equivalent to those that prevail in arm's length transaction, only if such terms can be substantiated.
The above requirements have not been complied with as of 31 December 2014.
i. Note 5
ii. Note 6
iii. Note 9
iv. Note 18
v. Note 23
KPMG Taseer Hadi & Co.
Chartered Accountants
(Bilal Ali)
Lahore
Date: 18 March 2015
SeparateFinancial Statements
Auditors’ Report to the Members
Balance Sheet
Profit and Loss Account
Statement of Comprehensive Income
Cash Flow Statement
Statement of Changes in Equity
Notes to the Financial Statement
33
34
36
37
38
39
40
This page has been left blank intentionally
Auditors� Report to the Members
KPMG Taseer Hadi & Co.
Chartered Accountants
(Bilal Ali)
We have audited the annexed balance sheet of Systems Limited ("the Company") as at 31 December 2014 and the related profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.
It is the responsibility of the Company's management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:
a) in our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance, 1984;
b) in our opinion:
i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied;
ii) the expenditure incurred during the year was for the purpose of the Company's business; and
iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company;
c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approvedaccounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the Company's affairs as at 31 December 2014 and of the profit, its comprehensive income, its cash flows and changes in equity for the year then ended; and
d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Company and deposited in the Central Zakat Fund established under section 7 of that Ordinance.
Lahore
Date: 18 March 2015
www.systemsltd.com
Systems Limited | Annual Report 2014 33Consolidated Financial Statem
ents71
Annual General Meeting
111Separate Financial Statem
ents31
Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
Balance Sheetas at 31 December 2014
SHARE CAPITAL AND RESERVES
Authorized
150,000,000 (2013: 50,000,000) ordinary
shares of Rs.10 each
Issued, subscribed and paid‐up capital 5
Reserves 6
Advance against issue of shares 7
Unappropriated profit
Non current liabilities
Long term advances 8
Deferred taxation 9
1,500,000,000 500,000,000
871,653,020 429,375,070
39,124,151 31,492,097
520,000,000 ‐
716,983,853 822,700,174
2,147,761,024 1,283,567,341
6,766,611 8,611,771
‐ 1,133,334
6,766,611 9,745,105
Current liabilities
Trade and other payables 10
Unearned revenue
Current portion of long term advances 8
Contingencies and commitments 11
The annexed notes 1 to 38 form an integral part of these financial statements.
269,446,164 56,819,033
6,447,492 1,378,346
3,391,885 1,219,000
279,285,541 59,416,379
2,433,813,176 1,352,728,825
2014 2013
Note Rupees Rupees
AEZAZ HUSSAINChairmanLAHORE
34
2014 2013
Note Rupees Rupees
ASIF PEERChief Executive
ASSETS
Non current assets
Property, plant and equipment 12 202,065,814 181,569,648
Intangibles 13 34,101,951 8,807,171
Long term investments 14 2,077,980 2,077,980
Long term deposits 15 12,346,357 6,108,433
Deferred taxation 9 1,483,224 ‐
252,075,326 198,563,232
Current assets
Work in progress 16 ‐ 694,757
Trade debts‐unsecured, considered good 17 1,014,135,953 689,506,040
Advances, deposits, prepayments
and other receivables 18 106,438,245 48,013,819
Receivable from related parties
‐unsecured, considered good 19 47,728,753 32,435,383
Short term investments 20 30,204,644 241,650,496
Cash and bank balances 21 983,230,255 141,865,098
2,181,737,850 1,154,165,593
2,433,813,176 1,352,728,825
www.systemsltd.com
Systems Limited | Annual Report 2014 35Consolidated Financial Statem
ents71
Annual General Meeting
111Separate Financial Statem
ents31
Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
Profit and Loss Accountfor the year ended 31 December 2014
2014 2013
Note Rupees Rupees
ASIF PEERChief Executive
AEZAZ HUSSAINChairmanLAHORE
Revenue 22
Direct cost 23
Gross profit
1,922,615,854
(1,242,708,948)
679,906,906
(60,686,039)
(198,631,669)
(2,429,418)
‐
(261,747,126)
418,159,780
(3,985,590)
16,689,230
12,703,640
430,863,420
(4,143,840)
426,719,580
4.92
4.92
1,420,562,189
(859,467,123)
561,095,066
Distribution cost 24
Administrative expenses 25
Research and development expenses 26
Other operating expenses 27
Operating profit
Finance cost 28
Other income 29
Profit before taxation
Taxation 30
Profit after taxation
Restated
Earnings per share
Basic earnings per share (Rupees) 36
Diluted earnings per share (Rupees) 36
(49,916,555)
(139,001,669)
(5,263,092)
(8,511,228)
(202,692,544)
358,402,522
(3,402,989)
70,805,575
67,402,586
425,805,108
(10,663,819)
415,141,289
4.91
4.91
The annexed notes 1 to 38 form an integral part of these financial statements.
36
ASIF PEERChief Executive
AEZAZ HUSSAINChairmanLAHORE
Statement of Comprehensive Incomefor the year ended 31 December 2014
415,141,289
415,141,289
2014 2013
Rupees Rupees
Profit for the year 426,719,580
Other comprehensive income: ‐ ‐
Total comprehensive income for the year 426,719,580
The annexed notes 1 to 38 form an integral part of these financial statements.
www.systemsltd.com
Systems Limited | Annual Report 2014 37Consolidated Financial Statem
ents71
Annual General Meeting
111Separate Financial Statem
ents31
Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
Cash Flow Statementfor the year ended 31 December 2014
ASIF PEERChief Executive
AEZAZ HUSSAINChairmanLAHORE
Cash flows from operating activities
Profit before taxation
Adjustments of items not involving movement of cash:
Depreciation
Amortization
Provision for bad debts made during the year
Provision for impairment
Finance cost
Exchange loss/ (gain) ‐ net
Profit on bank deposits
Provision for workers welfare fund
Unrealized gain on investments
Gain on disposal of property, plant and equipment
Profit before working capital changes
Effect on cash flow due to working capital changes
(Increase)/decrease in current assets:
Work in progress
Trade debts
Receivable from related parties
Advances, prepayments and other receivables
Unearned revenue
Increase/(decrease) in current liabilities:
Trade and other payables
Cash generated from operations
Finance cost paid
Taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Fixed capital expenditure
Intangibles
Sale proceeds from disposal of property, plant and equipment
Investment in subsidiaries
Disposal/(purchase) of short term investments
Profit received on bank deposits
Increase in long term deposits
Net cash inflow / (outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Advance against issue of shares
Short term loan repaid
Dividend paid
Increase in long term advances
Net cash inflow / (outflow) from financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of year
The annexed notes 1 to 38 form an integral part of these financial statements.
Note
21
2013
Rupees
425,805,108
43,102,618
4,213,802
6,515,800
‐
3,402,989
(40,855,723)
(8,978,731)
8,511,228
(4,261,187)
(3,508,425)
8,142,371
433,947,479
(694,757)
(116,603,827)
(31,684,619)
(19,776,676)
1,378,346
(167,381,533)
10,144,618
(157,236,915)
276,710,564
(4,892,490)
(16,098,946)
(20,991,436)
255,719,128
(93,814,051)
(4,494,402)
5,500,713
(2,077,980)
(131,878,494)
8,978,731
‐
(217,785,483)
11,954,839
‐
(62,375,000)
(84,552,576)
2,899,749
(132,072,988)
(94,139,343)
236,004,441
141,865,098
2014
Rupees
430,863,420
51,466,837
7,808,090
1,143,961
694,757
3,985,590
21,813,276
(15,920,632)
‐
(2,914,230)
(5,444,957)
62,632,692
493,496,112
‐
(347,587,150)
(15,293,370)
(34,423,135)
5,069,146
(392,234,509)
212,627,131
(179,607,378)
313,888,734
(3,985,590)
(30,761,689)
(34,747,279)
279,141,455
(79,953,402)
(33,102,870)
13,435,356
214,360,082
15,920,632
(6,237,924)
124,421,874
14,083,494
520,000,000
‐
(96,609,391)
327,725
437,801,828
841,365,157
141,865,098
983,230,255
38
LAH
OR
E
Stat
emen
t o
f C
han
ges
in
Eq
uit
yfo
r t
he
year
en
ded
31
Dec
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Systems Limited | Annual Report 2014 39Consolidated Financial Statem
ents71
Annual General Meeting
111Separate Financial Statem
ents31
Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
Notes to the Financial Statementsfor the year ended 31 December 2014
1 Status and activities
2 Basis of preparation
2.1 Statement of compliance
1.2 During the year, the Company has made an Initial Public Offer (IPO) through issue of 13 million
ordinary shares of Rs. 10 each at a price of Rs. 40 per share (including premium of Rs. 30 per share)
determined through book building process. Out of the total issue of 13 million ordinary shares, 9.75
million shares were subscribed through book building by high net worth individuals and
institutional investors whereas the remaining 3.25 million shares were subscribed by the general
public. The shares have been duly allotted subsequent to the year end. On 30 January 2015, the
Karachi, Lahore and Islamabad Stock Exchanges have approved the Company's application for
formal listing and quotation of shares.
These financial statements are the separate financial statements of the Company in which
investments in subsidiary companies are accounted for on the basis of direct equity interest rather
than on the basis of reported results. Consolidated financial statements are prepared separately.
These financial statements have been prepared in accordance with approved accounting standards
as applicable in Pakistan and the requirements of Companies Ordinance, 1984. Approved
accounting standards comprise of such International Financial Reporting Standards (IFRSs) issued
by the International Accounting Standards Board and Islamic Financial Accounting Standards (IFAS)
issued by the Institute of Chartered Accountants of Pakistan as are notified under the provisions of
the Companies Ordinance, 1984. Wherever, the requirements of the Companies Ordinance, 1984
or directives issued by the Securities and Exchange Commission of Pakistan differ with the
requirements of these standards, the requirements of Companies Ordinance, 1984 or the
requirements of the said directives shall prevail.
‐ Amendments to IAS 19 “Employee Benefits” Employee contributions – a practical approach
(effective for annual periods beginning on or after 1 July 2014). The practical expedient
addresses an issue that arose when amendments were made in 2011 to the previous pension
accounting requirements. The amendments introduce a relief that will reduce the complexity
and burden of accounting for certain contributions from employees or third parties. The
amendments are relevant only to defined benefit plans that involve contributions from
employees or third parties meeting certain criteria.
‐ Amendments to IAS 38 Intangible Assets and IAS 16 Property, Plant and Equipment
(effective for annual periods beginning on or after 1 January 2016) introduce severe
restrictions on the use of revenue‐based amortization for intangible assets and explicitly state
that revenue‐based methods of depreciation cannot be used for property, plant and
equipment. The rebuttable presumption that the use of revenue‐based amortisation methods
for intangible assets is inappropriate can be overcome only when revenue and the
2.2 Standards, interpretations and amendments to published approved accounting standards
The following standards, amendments and interpretations of approved accounting standards will
be effective for accounting periods beginning on or after 01 January 2015:
1.1 The Company was incorporated as a private limited company in Pakistan in the year 1977 and
converted into an unquoted public limited company in August, 2005. The Company is principally
engaged in the business of software development, trading of software and business process
outsourcing services. The head office of the Company is situated at Chamber of Commerce building,
11‐ Shahra‐e‐Aiwan‐e‐Tijarat, Lahore.
40
consumption of the economic benefits of the intangible asset are ‘highly correlated’, or when
the intangible asset is expressed as a measure of revenue.
‐ Agriculture: Bearer Plants [Amendment to IAS 16 and IAS 41] (effective for annual periods
beginning on or after 1 January 2016). Bearer plants are now in the scope of IAS 16 Property,
Plant and Equipment for measurement and disclosure purposes. Therefore, a company can
elect to measure bearer plants at cost. However, the produce growing on bearer plants will
continue to be measured at fair value less costs to sell under IAS 41 Agriculture. A bearer
plant is a plant that: is used in the supply of agricultural produce; is expected to bear produce
for more than one period; and has a remote likelihood of being sold as agricultural produce.
Before maturity, bearer plants are accounted for in the same way as self‐constructed items of
property, plant and equipment during construction.
‐ Amendment to IAS 27 ‘Separate Financial Statement’ (effective for annual periods beginning
on or after 1 January 2016). The amendments to IAS 27 will allow entities to use the equity
method to account for investments in subsidiaries, joint ventures and associates in their
separate financial statements.
‐ IFRS 11 ‘Joint Arrangements’ (effective for annual periods beginning on or after 1 January
2015) replaces IAS 31 ‘Interests in Joint Ventures’. Firstly, it carves out, from IAS 31 jointly
controlled entities, those cases in which although there is a separate vehicle, that separation
is ineffective in certain ways. These arrangements are treated similarly to jointly controlled
assets/operations under IAS 31 and are now called joint operations. Secondly, the remainder
of IAS 31 jointly controlled entities, now called joint ventures, are stripped of the free choice
of using the equity method or proportionate consolidation; they must now always use the
equity method. IFRS 11 has also made consequential changes in IAS 28 which has now been
named ‘Investment in Associates and Joint Ventures’. The amendments requiring business
combination accounting to be applied to acquisitions of interests in a joint operation that
constitutes a business are effective for annual periods beginning on or after 1 January 2016.
‐ IFRS 12 ‘Disclosure of Interest in Other Entities’ (effective for annual periods beginning on or
after 1 January 2015) combines the disclosure requirements for entities that have interests in
subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or
unconsolidated structured entities, into one place.
‐ IFRS 13 ‘Fair Value Measurement’ effective for annual periods beginning on or after 1
January 2015) defines fair value, establishes a framework for measuring fair value and sets
out disclosure requirements for fair value measurements. IFRS 13 explains how to measure
fair value when it is required by other IFRSs. It does not introduce new fair value
measurements, nor does it eliminate the practicability exceptions to fair value measurements
that currently exist in certain standards.
‐ IFRS 10 ‘Consolidated Financial Statements’ – (effective for annual periods beginning on or
after 1 January 2015) replaces the part of IAS 27 ‘Consolidated and Separate Financial
Statements. IFRS 10 introduces a new approach to determining which investees should be
consolidated. The single model to be applied in the control analysis requires that an investor
controls an investee when the investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power
over the investee. IFRS 10 has made consequential changes to IAS 27 which is now called
‘Separate Financial Statements’ and will deal with only separate financial statements. Certain
further amendments have been made to IFRS 10, IFRS 12 and IAS 28 clarifying the
requirements relating to accounting for investment entities and would be effective for annual
periods beginning on or after 1 January 2016.
Notes to the Financial Statementsfor the year ended 31 December 2014
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‐ Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
[Amendments to IFRS 10 and IAS 28] (effective for annual periods beginning on or after 1
January 2016). The main consequence of the amendments is that a full gain or loss is
recognised when a transaction involves a business (whether it is housed in a subsidiary or
not). A partial gain or loss is recognised when a transaction involves assets that do not
constitute a business, even if these assets are housed in a subsidiary.
These amendments have no significant impact on financial statements of the Company.
‐ IAS 40 ‘Investment Property’. IAS 40 has been amended to clarify that an entity should:
assess whether an acquired property is an investment property under IAS 40 and perform a
separate assessment under IFRS 3 to determine whether the acquisition of the investment
property constitutes a business combination.
‐ IFRS 8 ‘Operating Segments’ has been amended to explicitly require the disclosure of
judgments made by management in applying the aggregation criteria.
‐ Amendments to IAS 16’Property, plant and equipment’ and IAS 38 ‘Intangible Assets’. The
amendments clarify the requirements of the revaluation model in IAS 16 and IAS 38,
recognizing that the restatement of accumulated depreciation (amortization) is not always
proportionate to the change in the gross carrying amount of the asset.
‐ IAS 24 ‘Related Party Disclosure’. The definition of related party is extended to include a
management entity that provides key management personnel services to the reporting
entity, either directly or through a group entity.
Annual Improvements 2010‐2012 and 2011‐2013 cycles (most amendments will apply prospectively
for annual period beginning on or after 1 July 2014). The new cycle of improvements contain
amendments to the following standards:
‐ IFRS 2 ‘Share‐based Payment’. IFRS 2 has been amended to clarify the definition of ‘vesting
condition’ by separately defining ‘performance condition’ and ‘service condition’.
Annual Improvements 2012‐2014 cycles (amendments are effective for annual periods beginning
on or after 1 January 2016). The new cycle of improvements contain amendments to the following
standards:
‐ IFRS 3 ‘Business Combinations’. These amendments clarify the classification and
measurement of contingent consideration in a business combination.
‐ IFRS 5 Non‐current Assets Held for Sale and Discontinued Operations. IFRS 5 is amended to
clarify that if an entity changes the method of disposal of an asset (or disposal group) i.e.
reclassifies an asset from held for distribution to owners to held for sale or vice versa without
any time lag, then such change in classification is considered as continuation of the original
plan of disposal and if an entity determines that an asset (or disposal group) no longer meets
the criteria to be classified as held for distribution, then it ceases held for distribution
accounting in the same way as it would cease held for sale accounting.
‐ IFRS 7 ‘Financial Instruments‐ Disclosures’. IFRS 7 is amended to clarify when servicing
arrangements are in the scope of its disclosure requirements on continuing involvement in
transferred financial assets in cases when they are derecognized in their entirety. IFRS 7 is
also amended to clarify that additional disclosures required by ‘Disclosures: Offsetting
Financial Assets and Financial Liabilities (Amendments to IFRS7)’ are not specifically required
for inclusion in condensed interim financial statements for all interim periods.
Notes to the Financial Statementsfor the year ended 31 December 2014
42
These amendments have no significant impact on financial statements of the Company.
3 Basis of measurement
Note
‐ Useful life and residual values of depreciable assets and method of depreciation 4.1
‐ Intangible assets 4.2
‐ Impairment 4.3
‐ Taxation 4.7
‐ Provision for doubtful debts 4.9
‐ Provisions 4.11
4 Significant accounting policies
These accounting polices stated below have been consistently applied to all periods presented in these
financial statements.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to
accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period, or in the period of revision and future periods if revision affects both
current and future periods. The areas where various assumptions and estimates are significant to
Company's financial statements or where judgments were exercised in application of accounting
policies are as follows:
3.3 The preparation of financial statements in conformity with approved accounting standards requires
management to make judgments, estimates and assumptions that affects the application of policies
and reported amounts of assets and liabilities, income and expenses. The estimates and associated
assumptions and judgments are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the result of which form the basis of making
the judgment about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
‐ IAS 19 ‘Employee Benefits’. IAS 19 is amended to clarify that high quality corporate bonds or
government bonds used in determining the discount rate should be issued in the same
currency in which the benefits are to be paid.
‐ IAS 34 ‘Interim Financial Reporting’. IAS 34 is amended to clarify that certain disclosures, if
they are not included in the notes to interim financial statements and disclosed elsewhere
should be cross referred.
3.1 These financial statements have been prepared under the historical cost convention except for
short term investments which are stated at fair value. All the transactions reflected in these
financial statements are on accrual basis except for those reflected in cash flow statement.
3.2 Items included in the financial statements are measured using the currency of the primary
economic environment in which the Company operates. The financial statements are presented in
Pak Rupees which is Company's functional and presentation currency.
Notes to the Financial Statementsfor the year ended 31 December 2014
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4.1 Fixed capital expenditure
Property, plant and equipment
Capital work‐in‐progress is stated at cost less identified impairment loss, if any.
4.2 Intangible assets
Acquired intangible assets
Research and development
a)
b) The Company intends to complete the intangible asset and use or sell it.
c) The Company has the ability to use or sell the intangible asset.
Depreciation on property, plant and equipment is charged to income by applying straight line
method on pro rata basis so as to write off the historical cost of the assets over their estimated
useful lives at the rates given in note 12. Depreciation charge commences from the month in which
the asset is available for use and continues until the month of disposal.
An item of property plant and equipment is derecognized upon disposal or when no future
economic benefits are expected from its use or disposal. Profit or loss on disposal of operating fixed
assets represented by the difference between the sale proceeds and the carrying amount of the
asset is included in income.
Development costs incurred on specific projects are capitalized when all the following conditions
are satisfied:
Completion of the intangible asset is technically feasible so that it will be available for use or
The assets residual values and useful lives are reviewed at each financial year end, and adjusted if
impact on depreciation is significant.
Expenditure on research (or the research phase of an internal project) is recognized as an expense
in the period in which it is incurred;
Property, plant and equipment are stated at cost less accumulated depreciation and any identified
impairment loss. Freehold land is stated at historic cost. Cost of operating fixed assets consist of
purchase cost, borrowing cost pertaining to construction period and directly attributable cost of
bringing the asset to working condition. Subsequent costs are included in the assets carrying
amount or recognized as separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Company and the cost of the item can
be measured reliably. All other repair and maintenance costs are charged to profit and loss account
during the period in which they are incurred.
Capital work‐in‐progress
Capital work in progress represents expenditure on property and equipment which are in the
course of construction and installation. Transfers are made to relevant property and equipment
category as and when assets are available for use.
Intangible assets acquired from the market are carried at cost less accumulated amortization and
any impairment losses.
Notes to the Financial Statementsfor the year ended 31 December 2014
44
Development costs not meeting the criteria for capitalization are expensed as incurred.
Others
4.3 Impairment
Financial assets (including receivables)
Non‐financial assets
After initial recognition, internally generated intangible assets are carried at cost less accumulated
amortization and impairment losses. These are amortized using straight line method at the rate
given in note 13. Full month amortization on additions is charged in the month of acquisition and
no amortization is charged in month of disposal.
Financial assets are assessed at each reporting date to determine whether there is objective
evidence that they are impaired. A financial asset is impaired if objective evidence indicates that a
loss event has occurred after the initial recognition of the asset and that the loss event had a
negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired may include default or delinquency by a
debtor indications that a debtor or issuer will enter bankruptcy. All individually significant
receivables are assessed for specific impairment. All individually significant receivables found not to
be specifically impaired are then collectively assessed for any impairment that has been incurred
but not yet identified. Receivables that are not individually significant are collectively assessed for
impairment by grouping together receivables with similar risk characteristics.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the
difference between its carrying amount and the present value of the estimated future cash flows
discounted at the asset's original effective interest rate. Losses are recognized in profit and loss and
reflected in an allowance account against receivables.
The cost of an internally generated intangible asset comprises all directly attributable costs
necessary to create, produce and prepare the asset to be capable of operating in the manner
intended by the management.
e) There are adequate technical, financial and other resources to complete the development
and to use or sell the intangible asset, and
f) The expenditure attributable to the intangible asset during its development can be
measured reliably.
The carrying amounts of non‐financial assets other than inventories and deferred tax asset, are
reviewed at each reporting date to determine whether there is any indication of impairment. If any
such indication exists, then the asset's recoverable amount is estimated. The recoverable amount
of an asset or cash‐generating unit is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre‐tax discount rate that reflects current market assessment of the time value of money
and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be
tested individually are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other assets or
groups of assets (the “cash generating unit, or CGU”).
d) The intangible asset will generate probable future economic benefits. Among other things
this requires that there is a market for the output from the intangible asset or for the
intangible asset itself, or if it is to be used internally, the asset will be used in generating
such benefits.
Notes to the Financial Statementsfor the year ended 31 December 2014
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4.4 Staff benefits
Provident Fund
Employees' share option scheme
4.5 Investments
The Company operates a funded recognized provident fund contribution plan which covers all
permanent employees. Equal contributions are made on monthly basis both by the Company and
the employees at 10% of basic pay.
The Company's corporate assets do not generate separate cash inflows. If there is an indication
that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to
which the corporate asset belongs. An impairment loss is recognized if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in
profit and loss account.
Investments are either classified as financial assets at fair value through profit or loss, held‐to‐
maturity investments, available‐for‐sale investments or investment in subsidiary and associated
companies, as appropriate. When investments are recognized initially, they are measured at fair
value, plus, in case of investments not at fair value through profit or loss, directly attributable
transaction cost.
Management determines the classification of its investments at the time of purchase depending on
the purpose for which the investments are acquired and re‐evaluates this classification at the end
of each financial year. Investments intended to be held for less than twelve months from the
balance sheet date or to be sold to raise operating capital are included in current assets, all other
investments are classified as non‐current.
The Company has the following plans for its employees:
Impairment loss recognized in prior periods is assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.
The Company operates an equity settled share based Employees Stock Option Scheme. The
compensation committee of the Board evaluates the performance and other criteria of employees
and approves the grant of options. These options vest with employees over a specified period
subject to fulfillment of certain conditions. Upon vesting, employees are eligible to apply and
secure allotment of Company's shares at a price determined on the date of grant of options.
When share options are exercised , the proceeds received , net of any transaction costs, are
credited to share capital (nominal value) and share premium.
The fair value of the grant of share options is measured at grant date and recognized as an
employee compensation expense, with a corresponding increase in equity, on the straight line basis
over the vesting period. The fair value of the options granted is measured at option discount i‐e
excess of option price at date of grant of option under a scheme over exercise price of option.
Notes to the Financial Statementsfor the year ended 31 December 2014
46
Investments in equity instruments of subsidiaries and associates
Investments at fair value through profit or loss
Investments held to maturity
4.6 Foreign currency transactions
4.7 Taxation
Current
Deferred
These are investments with fixed pre determinable payment and fixed maturity. The company has
the positive intent and ability to hold till maturity. These are stated at amortized cost.
Deferred tax is accounted for using the balance sheet liability method in respect of all temporary
differences arising from differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of the taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred
tax assets are recognized to the extent that it is probable that taxable profits will be available
against which the deductible temporary differences, unused tax losses and tax credits can be
utilized.
Provision of current tax is based on the taxable income for the year determined in accordance with
the prevailing law for taxation of income. The charge for current tax is calculated using prevailing
tax rates or tax rates expected to apply to the profit for the year if enacted after taking into
account tax credits, rebates and exemptions, if any. The charge for current tax also includes
adjustments, where considered necessary, to provision for tax made in previous years arising from
assessments framed during the year for such years.
Investments in subsidiaries and associates where the Company has significant influence are
measured at cost in the Company’s separate financial statements.
The Company is required to issue consolidated financial statements along with its separate financial
statements, in accordance with the requirements of IAS 27 ‘Consolidated and separate financial
statements’. Investments in associates, in the consolidated financial statements, are being
accounted for using the equity method.
Investments that are acquired principally for the purpose of generating profit from short term
fluctuations in price are classified as investments at fair value through profit or loss. Investments at
fair value through profit or loss are initially recognized at cost (excluding transaction cost), being
the fair value of the consideration given. Subsequent to initial recognition they are recognized at
fair value unless fair value cannot be reliably measured. Any surplus or deficit on revaluation of
investment is recognized in the profit or loss account.
Assets and liabilities in foreign currencies are translated into Rupees at the rate of exchange
prevailing at the balance sheet date. Transactions during the year are converted into Rupees at the
exchange rate prevailing at the date of such transaction. All exchange differences are charged to
profit and loss account.
All purchases and sale of investments are recognized on trade date, which is the date the Company
commits to purchase, or sell the investment.
Notes to the Financial Statementsfor the year ended 31 December 2014
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4.8 Trade debts
4.9 Provision for doubtful debts
4.10 Trade and other payables
4.11 Provisions and contingencies
4.12 Revenue recognition
Professional services
License and license support services
Liabilities for trade and other accounts payable are carried at cost which is the fair value of the
consideration to be paid in future for goods and services.
Deferred tax assets and liabilities are calculated at the rates that are expected to apply to the
period when the asset is realized or the liability is settled, based on the tax rates (and tax laws) that
have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or
credited in the income statement, except in the case of items credited or charged to equity in
which case it is included in equity.
Revenue from license contracts without major customization is recognized when the license
agreement is signed, delivery of software has occurred , fee is fixed or determinable and
collectability is probable. Revenue from license contracts with major modification, customization
and development is recognized on percentage of completion method. Revenue from support
services is recognized on time proportion basis.
Revenue from professional / software services includes fixed price contracts and time and material
contracts. Revenue from services performed under fixed price contracts is recognized in accordance
with the percentage of completion method. Revenue from services performed under time and
material contracts is recognized as services are provided.
Provisions are recognized in the balance sheet when the Company has a legal or constructive
obligation as a result of past events and it is probable that outflow of resources embodying
economic benefits will be required to settle the obligation and a reliable estimate of the amount
can be made. However, provisions are reviewed at each balance sheet date and adjusted to reflect
current best estimate. Where outflow of resources embodying economic benefits is not probable, a
contingent liability is disclosed, unless the possibility of outflow is remote.
Trade debts from local customers are stated at cost while foreign debtors are stated at revalued
amount by applying exchange rate applicable on the balance sheet reporting date.
The Company reviews its trade and other receivable on each balance sheet date to assess whether
the provision should be recorded in the profit and loss account relating to doubtful receivable.
Judgment by the management is made of the amount and timing of future cash flows while
determining the extent of provision required. Such estimation involves the application of the
Company's provision for doubtful debt policy including the assessment of credit history of the
counter party. Actual cash flows may differ resulting in subsequent change in provisions.
Notes to the Financial Statementsfor the year ended 31 December 2014
0448
Outsourcing services
Consultancy
Revenue from provision of consultancy services is recognized as the work is performed.
Sale of third party software
Other income
4.13 Financial instruments
Financial assets
Financial liabilities
Recognition and derecognition
4.14 Offsetting of financial assets and liabilities
4.15 Finance cost
Finance cost is charged to profit and loss account in the year in which it is incurred.
Profit on deposit account is recognized on accrual basis. Miscellaneous income is recognized on
receipt basis.
Significant financial assets include trade debts, advances and receivables, long term deposits and
cash and bank balances. Finances and receivables from clients are stated at their nominal value as
reduced by provision for doubtful finances and receivable, while other financial assets are stated at
cost.
Financial liabilities are classified according to the substance of the contractual arrangements
entered into. Significant financial liabilities include short term ijarah rentals, musharika and
morabaha finances, salam finances, accrued markup, trade and other payables and dividends
payable. Markup based financial liabilities are recorded at gross proceeds received. Other liabilities
are stated at their nominal value.
All the financial assets and financial liabilities are recognized at the time when the Company
becomes party to the contractual provisions of the instrument. Financial assets are derecognized
when the Company looses control of the contractual rights that comprise the financial assets.
Financial liabilities are derecognized when they are extinguished i.e. when the obligation specified
in the contract is discharged, cancelled or expires. Any gain or loss on derecognition of the financial
assets and financial liabilities is taken to income currently.
Revenue from business process outsourcing services is recognized on completion of processing.
Revenue from other outsourcing services is recognized as services are provided.
Revenue from sale of third party software is recognized when delivery has occurred and invoices
are raised to the customer.
A financial asset and a financial liability is offset and the net amount is reported in the balance
sheet if the Company has legal enforceable right to set off the recognized amount and intends
either to settle on a net basis or to realize the assets and settle the liability simultaneously.
Notes to the Financial Statementsfor the year ended 31 December 2014
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Annual General Meeting
111Separate Financial Statem
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Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases (net of any incentives received
from the lessor) are charged to profit on a straight‐line basis over the lease term unless another
systematic basis is representative of the time pattern of the Company’s benefit.
4.16 Cash and cash equivalents
4.17 Work in progress
Softwares or applications for which the Company has not invoiced the customer are recognized in
work in progress at purchased cost plus any incremental cost incurred on purchase.
Cash and cash equivalents are stated in the balance sheet at cost. For the purpose of the Cash flow
Statement, cash and cash equivalents comprise of cash in hand, cheques/demand draft in hand and
deposits in the bank.
4.18 Operating lease
4.19 Dividends and appropriation reserves
4.20 Earnings per share
Dividends distribution to Company's shareholders is recognized as a liability in the period in which
dividends are approved by Company's shareholders.
The Company presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing
the profit after tax attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting
profit and loss attributable to ordinary shareholders and the weighted‐average number of ordinary
shares outstanding, adjusted for the facts of all diluted potential ordinary shares.
5 Issued, subscribed and paid‐up capital
Ordinary shares of Rs. 10/‐
each fully paid in cash
Ordinary shares of Rs. 10/‐ each issued as fully paid bonus shares
5.1 Reconciliation of ordinary shares
Balance at 1 January
Stock options exercised
Bonus shares issued during the year
Balance at 31 December
645,144
42,937,507
87,165,302
43,582,651
42,276,288
42,937,507
661,219
‐
2014 2013
83,756,350
77,304,910
787,896,670
352,070,160
871,653,020
429,375,070
429,375,070
422,762,880
6,451,440
6,612,190
435,826,510
‐
871,653,020
429,375,070
Rupees Rupees
2014 2013
78,789,667
No. of shares
87,165,302 42,937,507
35,207,016
8,375,635 7,730,491
No. of shares
Notes to the Financial Statementsfor the year ended 31 December 2014
50
Accelerated tax depreciation
Provision for doubtful debts
(1,038,793)
(444,431)
(1,483,224)
1,859,663
(726,329)
1,133,334
8 Long term advances
Total advances 8.1
Less: Current portion classified as current liability
10,158,496
(3,391,885)
6,766,611
9,830,771
(1,219,000)
8,611,771
6.1
6.2
This reserve shall be utilized only for the purpose as specified in sec 83(2) of the Companies
Ordinance, 1984.
6 Reserves
Share premium reserve 6.1 39,119,784 31,487,730 Deferred employee compensation reserve 6.2 4,367 4,367
39,124,151 31,492,097
2014 2013
Note Rupees Rupees
7 Advance against issue of shares
8.1
9 Deferred taxation
The (asset) / liability for deferred tax comprises of temporary differences relating to:
Represents subscription money received against IPO, as more fully explained in note 1.2 to the financial
statements.
These represent advances received from staff and will be adjusted as per Company's car policy
against sale of vehicles.
2014 2013
Note Rupees Rupees
2014 2013
Rupees Rupees
Notes to the Financial Statementsfor the year ended 31 December 2014
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Systems Limited | Annual Report 2014 51
This represents balance amount after exercise of share options by the employees under the
Employee Stock Option Scheme approved by SECP against the options granted in 2009, 2010 and
2011 to senior employees who are critical to business operations. According to scheme, 100%
options become exercisable after completion of vesting period from date of grant. The options have
a vesting period of 2 years and an exercise period of 3 years from the date the option is vested.
options were granted by the Compensation Committee during the year.422,312 (2013: 1,074,896)
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
10 Trade and other payables
Creditors
Advance from customers
Accrued expenses
Provision for Worker's Welfare Fund (WWF)
Payable to unsuccessful applicants ‐ IPO 21.1
Provident fund payable
Sales tax payable
13,085,865
24,266,750
28,137,009
17,930,514
167,628,000
7,200,376
11,197,650
269,446,164
3,486,994
6,734,158
16,102,571
17,930,514
‐
‐
12,564,796
56,819,033
2014 2013
Note Rupees Rupees
11 Contingencies and commitments
11.3
11.1 Guarantees issued by the financial institutions on behalf of the Company amount to Rs. 63.05
(2013: Rs. 57.22 ) million.
11.2 Commitments include capital commitments for construction of building of the Company
amounting to Rs. 225.43 (2013: 225.43) million out of which Rs. 25.37 million has been paid in
advance.
During the current year, the Company has not charged Workers' Welfare Fund (WWF) under WWF
Ordinance, 1971 amounting to Rs 8.9 million, as the amendments made through Finance Act 2006
and 2008 relating to scope and applicability of the same has been declared unconstitutional by the
Hounourable Lahore High Court through its judgement number 2011 PLD 2643. The matter is
pending before the Honourable Supreme Court of Pakistan, however, management is confident
that the decision of Lahore High Court shall pervail, accordingly no provision has been made by the
Company during the year in this regard.
12 Property, plant and equipment
Owned assets ‐ tangible 12.1 162,393,875 146,039,617
Capital work in progress 12.2 39,671,939 35,530,031
202,065,814 181,569,648
2014 2013
Note Rupees Rupees
Notes to the Financial Statementsfor the year ended 31 December 2014
52
12.1.1 The cost of owned assets include assets amounting to Rs. 151.68 (2013: 102.61 ) million with nil book value.
Owned assets
Land ‐ free hold
Computers
Computer equipments
and installations
Other equipments and installations
Generator
Furniture, fixtures and fittings
Office equipments
Vehicles
Project assets
Mobile sets
Cost Depreciation
Net book value as at
31 December
Rupees
40,990,412
55,706,701
8,186,332
6,479,426
7,476,766
10,872,769
4,779,124
25,846,855
446,433
1,609,057
162,393,875
Accumulated
depreciation
as at 31 December
‐
103,236,461
22,684,931
15,471,625
9,912,696
39,346,967
6,680,717
14,288,023
4,086,293
1,048,272
216,755,985
Rupees
Disposal
‐
161,650
‐
‐
‐
‐
‐
5,082,267
‐
12,100
5,256,017
Rupees
Depreciation
charge
‐
27,570,147
3,936,572
2,694,560
1,370,901
4,295,207
1,467,248
9,138,419
374,209
619,574
51,466,837
Rupees
Accumulated
depreciation
as at 01 January
‐
75,827,964
18,748,359
12,777,065
8,541,795
35,051,760
5,213,469
10,231,871
3,712,084
440,798
170,545,165
Rupees
Cost as at
31 December
40,990,412
158,943,162
30,871,263
21,951,051
17,389,462
50,219,736
11,459,841
40,134,878
4,532,726
2,657,329
379,149,860
Rupees
Disposals
‐
422,500
‐
75,600
‐
‐
‐
12,708,316
‐
40,000
13,246,416
Rupees
Additions
‐
40,014,107
7,963,431
2,319,145
4,976,993
3,135,032
1,634,529
13,788,587
795,200
1,184,470
75,811,494
Rupees
Cost as at
01 January
40,990,412
119,351,555
22,907,832
19,707,506
12,412,469
47,084,704
9,825,312
39,054,607
3,737,526
1,512,859
316,584,782
Rupees
Depreciation
rate
(% per annum)
‐
33
33
20
20
20
20
25
Project life
33
Rupees
2014
Cost Depreciation
Net book value as at
31 December
Rupees
Accumulated
depreciation
as at 31 December
Rupees
Disposal
Rupees
Depreciation
charge
Rupees
Accumulated
depreciation
as at 01 January
Rupees
Cost as at
31 December
Rupees
Disposals
Rupees
Additions
Rupees
Cost as at
01 January
Rupees
Depreciation
rate
(% per annum)
Rupees
2013
Owned assets
Land ‐ free hold
Computers
Computers equipments
and installations
Other equipments and installations
Generator
Furniture, fixtures and fittings
Office equipments
Vehicles
Project assets
Mobile sets
‐
33
33
20
20
20
20
25
Project life
33
40,990,412
91,287,349
20,783,802
19,172,029
10,595,169
44,887,665
6,790,833
24,188,614
3,243,010
681,918
262,620,801
31,874,287
2,124,030
860,797
1,817,300
2,212,039
3,034,479
23,696,166
494,516
830,941
66,944,555
‐
3,810,081
‐
325,320
‐
15,000
‐
8,830,173
‐
‐
12,980,574
40,990,412
119,351,555
22,907,832
19,707,506
12,412,469
47,084,704
9,825,312
39,054,607
3,737,526
1,512,859
316,584,782
‐
56,519,664
14,158,103
10,824,067
7,636,163
31,524,470
4,147,570
10,306,173
3,230,610
84,013
138,430,833
‐
22,725,713
4,590,256
2,124,918
905,632
3,542,288
1,065,899
7,309,653
481,474
356,785
43,102,618
‐
3,417,413
171,920
‐
14,998
7,383,955
‐
‐
10,988,286
‐
75,827,964
18,748,359
12,777,065
8,541,795
35,051,760
5,213,469
10,231,871
3,712,084
440,798
170,545,165
40,990,412
43,523,591
4,159,473
6,930,441
3,870,674
12,032,944
4,611,843
28,822,736
25,442
1,072,061
146,039,617
12.1
12.2 Capital work in progress
Advance to supplier
Land improvements
Building ‐ freehold
12.2.1
12.2.1 This represents in progress construction of the Company's new office building.
12.3 Depreciation charge for the year has been allocated as follows:
Direct cost 23 41,106,178 34,410,393
Distribution cost 24 1,135,128
466,983
Administrative expenses 25 9,104,230
8,116,213
Research and development expenses 26 121,301
109,029
51,466,837
43,102,618
23,295,538 22,815,000 4,316,890 655,520
12,059,511 12,059,511 39,671,939 35,530,031
Note
2014 2013
Rupees Rupees
Note
2014 2013
Rupees Rupees
Notes to the Financial Statementsfor the year ended 31 December 2014
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Company Profile
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ation15
12.4 Disposal of property, plant and equipment
Accumulated Written Sale
depreciation down value proceeds
Vehicles
Honda Civic (AZJ‐095) 2,495,421
780,513
1,714,908
2,495,421
780,513
Toyota Corolla (AWR‐196) 1,606,265
970,452
635,813
1,606,265
970,452
Honda City (LEA‐12‐8409) 1,586,604
793,302
793,302
1,586,604
793,302
Honda City 1,546,740
161,119
1,385,621
1,546,740
161,119
Suzuki Cultus (LEA‐13‐1813) 1,034,061
236,972
797,089
1,034,061
236,972
Toyota Corolla (AXZ‐557) 1,010,125
163,527
846,598
1,010,125
163,527
Suzuki Cultus (LEA‐12‐7472) 1,004,300
669,533
334,767
1,004,300
669,533
Honda City 1,000,000 125,000 875,000 1,000,000 125,000
Suzuki Cultus (LEA‐11‐5168) 862,110 736,386 125,724 862,110 736,386
Suzuki Mehran (LEA‐11‐4831) 562,690 445,463 117,227 562,690 445,463
12,708,316 5,082,267 7,626,049 12,708,316 5,082,267
Other
Miscellaneous 538,100 173,750 364,350 727,040 362,690
2014 13,246,416 5,256,017 7,990,399 13,435,356 5,444,957
Mode of
disposal
Company Policy
Company Policy
Company Policy
Company Policy
Company Policy
Company Policy
Company Policy
Company Policy
Company Policy
Company Policy
Negotiation
Particulars
of buyer
Asharaf Kapadia
Kashif Krimi
Usman Asif
Wali Muhammad Qadri
Tariq Gill
Muhmmad Nasar Sabih
Muhammad Zahid Hussain
Warood Choudry
Nadeem Yusuf
Adnan Yaqoob
Various
Particulars Cost Profit
RupeesRupeesRupeesRupeesRupees
Accumulated Written Saledepreciation down value proceeds
Computers
HP Probook 4540s Corei7 2.30GHZ 92,000 25,556 66,444 59,000 (7,444)
Vehicles
Honda Civic‐V Tech MT 1,590,813 1,325,678 265,135 505,691 240,556
Other
Miscellaneous 11,297,761 9,637,052 1,660,709 4,936,022 3,275,313
Mode of
disposal
Negotiation
Company Policy
Negotiation
Particulars
of buyer
Mr. Muhammad Kashif
Ali Nadir Zaman
Various
2013 12,980,574 10,988,286 1,992,288 5,500,713 3,508,425
Rupees
Particulars Cost Profit
RupeesRupeesRupeesRupees
2014
2013
13 Intangibles
Rate
30%
Accumulated
Amortization
as at 1 January
11,379,001
11,379,001
Rupees
Additions
33,102,870
33,102,870
Rupees
Cost as at
31 December
53,289,042
53,289,042
Rupees
Book value
as at
31 December
34,101,951
34,101,951
Rupees
Accumulated
Amortization
as at 31 December
19,187,091
19,187,091
Rupees
Amortization
charge
for the period
7,808,090
7,808,090
Rupees
Cost as at
1 January
20,186,172
20,186,172
Rupees
Book value
as at
31 December
RupeesRupeesRupeesRupeesRupeesRupeesRupees
Rate
30%
Particulars
Computer software ‐ (Note‐13.2)
December 2013
Cost as at
AdditionsCost as at
Accumulated Amortization Accumulated
1 January 31 DecemberAmortization charge Amortization
as at 1 January
for the period
as at 31 December
15,691,770 4,494,402 20,186,172 7,165,199 4,213,802 11,379,001 8,807,171
15,691,770 4,494,402 20,186,172 7,165,199 4,213,802 11,379,001 8,807,171
2013
Particulars
Computer software ‐ (Note‐13.2)
December 2014
2014
Notes to the Financial Statementsfor the year ended 31 December 2014
54
13.1 The cost of the intangibles include intangible assets amounting to Rs. 5.34 (2013: 3.42 million) with
nil book value.
13.2 Additions include in‐house developed intangibles amounting to Rs. 26.05 (2013: Nil) million capitalized during the current year.
13.3 Amortization charge for the period has been allocated as follows:
2014 2013
Rupees Rupees
6,707,439 3,634,614
94,367
72,789
982,874 492,609
23,410 13,790
7,808,090 4,213,802
Cost of revenue
Distribution Cost
Administrative expenses
Research and development expenses
Note
23
24
25
26
16.1 This includes application purchased from Microsoft Inc. for Company's customer in the last year
which was not delivered.
14 Long term investments
Investment in subsidiaries ‐ at cost ‐ unquoted
E Processing Systems (Pvt) Ltd. 14.1 700,030 700,030
Tech Vista Systems FZ‐ LLC 14.2 1,377,950 1,377,950
2,077,980 2,077,980
14.1
14.2
15 This mainly includes security deposits for leased office buildings.
16 Work in progress
License cost 694,757
Less: Provision for impairment ‐
694,757
(694,757)
‐ 694,757
This represents 70% share in Company's subsidiary E Processing Systems (Pvt) Ltd. The subsidiary
was incorporated on 06 Feb 2013. The share capital has been fully acquired in cash.
This represents 100% share in Company's subsidiary, Tech Vista Systems FZ‐ LLC. The subsidiary
was set up in Dubai Technology and Media Free Zone Authority and has been registered as a
limited liability company on 03 April 2013.
2014 2013
Rupees Rupees
Notes to the Financial Statementsfor the year ended 31 December 2014
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ation15
17.1 This includes receivable against sale of services from Visionet Systems Incorporation and Techvista
Systems FZE ‐ LLC Rs. 495.19 (2013: 487.90) million and Rs. 99.31 (2013: Rs. Nil) million
respectively.
17 Trade debts ‐ unsecured, considered good
Billed
Export 17.1 671,031,948 511,607,734 Local 151,971,158 87,866,348 Less: Provision for bad debts 17.2 (5,719,683) (8,948,300)
817,283,423 590,525,782
Unbilled 196,852,530 98,980,258 1,014,135,953 689,506,040
2014 2013
Note Rupees Rupees
2014 2013
Rupees Rupees
17.2 Balance as at 01 January 3,127,500
Add: Provision made during the year 6,515,800 Less: Bad debts written off (695,000) Balance as at year end 8,948,300
8,948,300
1,143,961 (4,372,578) 5,719,683
17.3 Aging analysis of the amounts due from related parties is as follows:
Visionet
Systems
Incorporation
Tech Vista
Systems FZE‐LLC
Visionet
Systems
Incorporation
Tech Vista
Systems FZE‐LLC
Not past due 115,695,106 2,759,402 85,803,429 ‐
Past due but not impaired:
‐ Not more than three months 194,438,234 10,598,568 237,575,712 ‐ ‐ More than three months and
not more than six months 185,060,656 31,452,165 160,707,107 ‐
‐ More than six months ‐ 54,497,458 3,812,002 ‐
495,193,996 99,307,593 487,898,250 ‐
2013
Rupees
2014
Rupees RupeesRupees
Notes to the Financial Statementsfor the year ended 31 December 2014
56
2014 2013
Note Rupees Rupees
18 Advances, deposits, prepayments and
other receivables
Advance to suppliers 7,043,902 9,643,345
Advance to employees ‐ unsecured,
considered good 18.1 1,782,142 6,227,730
Advance for expenses 16,443,332 4,821,963
Prepayments 18.2 24,575,779 5,220,043
Tax refunds due from Government 27,467,230 3,465,939
Security deposits ‐ considered good 25,961,122 18,634,799
Accrued interest 18.3 3,164,738 ‐
106,438,245 48,013,819
18.1
18.2
18.3
This includes Rs. Nil (Rs. 2013: 5.12 million) advance given to Chief Executive of the Company to
exercise stock option under Employee Stock Options Scheme of the Company.
This represents interest receivable from E‐Processing (Private) Limited on advances. (Refer to note
19.2)
This includes prepaid IPO expenditures of Rs. 18.48 (2013: Nil) million which mainly includes listing
fees of Karachi, Lahore and Islamabad stock exchange, underwritting commission and consulting
fees.
Note
19 Receivable from related parties‐
unsecured, considered good
Techvista Systems FZE, LLC ‐ Subsidiary 19.1
E Processing Systems (Pvt) Ltd ‐ Subsidiary 19.2
Visionet Systems Incorporation
‐ Associated undertaking 19.3
19.1
19.2
19.3
This represents amount receivable against expenses incurred on behalf of Techvista Systems FZE ‐
LLC and are payable on demand by the related party.
This represents amount receivable against expenses incurred on behalf of E‐Processing (Private)
Limited and are payable on demand by the related party. These receivables are unsecured and
are subject to interest at the rate of 12% on the outstanding balance at the end of each month.
This represents amount receivable against expenses incurred on behalf of Visionet Systems
Incorporation and are payable on demand by the related party.
2014 2013
Rupees Rupees
5,541,940 11,573,976 40,036,747 14,375,137
2,150,066 6,486,270
47,728,753 32,435,383
Notes to the Financial Statementsfor the year ended 31 December 2014
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ation15
20 Short term investments
Held to maturity
Pak Oman Investment Company 20.1 2,030,958
Treasury Bills 20.2 198,482,006
200,512,964
Investment at fair value through profit and loss
Pakistan Cash Management Fund 11,876,345
Nil units (2013: 283,938)
NAFA Fund 269,871 units (2013: 2,690,178) 25,000,000
Add: Unrealized gain on investments at
fair value through profit and loss 4,261,187
41,137,532
241,650,496
20.1
20.2
These are certificates of investment carrying markup at rates ranging from 8.5% to 9.7% (2013:
8.5% to 9.7% ) per annum. These have been redeemed during the year.
These represent treasury bills which have been redeemed during the year.
Note
2013
Rupees
‐
‐
‐
‐
27,290,414
2,914,230
30,204,644
30,204,644
2014
Rupees
2014 2013
Note Rupees Rupees
21 Cash and bank balances
Cash in hand 38,861 167,733
Cash at bank
Local currency:
Current accounts 21.1 699,070,911 29,903,575
Saving accounts 21.2 283,401,017 111,041,026
982,471,928 140,944,601
Foreign currency 719,466 752,764
983,230,255 141,865,098
21.2 These carry markup at the rate of 7.5% to 9.5% (2013: 5% to 6%) per annum. Moreover, these
include Rs. 184.99 (2013: 133.33) million in KASB Bank which the Company is unable to withdraw
due to imposition of moratorium by Federal Government on application of State Bank of Pakistan
for a period of six months effective from 17 November 2014.
21.1 This includes amount of subscription money aggregating to Rs. 687.63 (2013: Nil) million received
from high net worth individuals, institutional investors and general public against the shares offered
through IPO out of which Rs. 167.63 (2013: Nil) million have been refunded to unsuccessful
applicant subsequent to the year end.
Notes to the Financial Statementsfor the year ended 31 December 2014
58
22 Revenue ‐ net
Development and other services
Export 1,419,780,765 1,189,975,994
Local ‐ gross 324,836,908 212,372,285
Less: Sales tax on local sales 22.1 (26,944,437) (14,872,969)
297,892,561 197,499,316
Trading income
Software sale ‐ export 87,323,353 ‐
Software sale ‐ local 138,235,173 37,601,963
Less: Sales tax on local sales 22.1 (20,615,998) (4,515,084)
117,619,175 33,086,879
1,922,615,854 1,420,562,189
22.1 This represents sales tax chargeable under Provincial and Federal Sales tax laws.
2014 2013
Note Rupees Rupees
23 Direct cost
Salaries, allowances and amenities 23.1 796,874,996
616,318,454
Printing and stationery 1,287,818
1,090,860
Computer supplies 4,717,926
6,940,259
Rent, rates and taxes 56,645,263
48,290,100
Electricity, gas and water 44,002,788 42,816,044
Traveling and conveyance 66,049,796 33,572,762
Repair and maintenance 9,272,826 13,050,679
Postage, telephone and telegrams 28,469,379 25,771,937
Vehicle running and maintenance 3,117,248 2,862,476
Entertainment 1,837,004 2,778,790
Fee and subscriptions 19,522,332 3,582,418
Insurance 1,269,270 1,399,947
Provision for impairment 16 694,757 ‐
Depreciation 12.3 41,106,178 34,410,393
Amortization 13.3 6,707,439 3,634,614
Purchase of software for trading 161,133,928 22,947,390
1,081,575,020 836,519,733
1,242,708,948 859,467,123
2014
Note Rupees
2013
Rupees
23.1 This includes employees retirement benefit expense amounting to Rs. 61.85 (2013: Rs.23.80) million.
Notes to the Financial Statementsfor the year ended 31 December 2014
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Annual General Meeting
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Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
Shows/Seminars/Advertising 2,305,209 1,996,132
Bad debts 1,143,961 6,515,800
Depreciation 12.3 1,135,128 466,983
Amortization 13.3 94,367 72,789 Tender documents 116,547 69,604
24 Distribution cost
Salaries, allowances and amenities 24.1 40,887,524 30,699,593
Printing and stationery 501,671 104,829
Computer supplies 443,725 201,095
Rent, rates and taxes 949,317 851,932
Electricity, gas and water 642,831 565,609
Traveling and conveyance 9,650,331 6,839,972
Repair and maintenance 137,925 163,452
Postage, telephone and telegrams 1,195,417 609,077
Vehicle running and maintenance 1,022,986 358,826
Entertainment 101,603 173,946
Insurance 118,534 27,836
Fee and subscriptions/Training 238,963 199,080
2014
Note Rupees
2013
Rupees
60,686,039
49,916,555
24.1
2014 2013
Note Rupees Rupees
25 Administration expenses
Salaries, allowances and amenities 25.1 133,294,808 94,946,037 Printing and stationery 1,039,153 796,626 Computer supplies 3,336,391 2,542,880 Rent, rates and taxes 7,580,772 5,153,211 Electricity, gas and water 7,125,624 5,461,126 Traveling and conveyance 8,422,142 5,106,461 Repair and maintenance 5,207,364 5,560,772 Postage, telephone and telegrams 5,005,280 3,431,158 Vehicle running and maintenance 2,406,366 2,079,570 Legal and professional 3,844,195 1,149,211 Auditors' remuneration 25.2 1,460,000 661,000 Entertainment 1,948,413 985,955 Donations 25.3 684,000 42,000 Fee and subscriptions/Training 5,183,544 1,182,288 Insurance 670,143 468,387 Hiring cost 653,499 524,290 Newspapers, books and periodicals 374,816 54,435 Depreciation 12.3 9,104,230 8,116,213 Amortization 13.3 982,874 492,609
Others 308,055 247,440
198,631,669 139,001,669
This includes employees retirement benefit expense amounting to Rs. 3.17 (2013: Rs. 1.18) million.
Notes to the Financial Statementsfor the year ended 31 December 2014
60
25.1 This includes employees retirement benefit expense amounting to Rs. 10.35 (2013: Rs. 3.67) million.
25.2 Auditors' remuneration
Statutory audit fee 500,000
Half yearly and quarterly audit ‐
Half yearly review 161,000
650,000
810,000
‐
1,460,000 661,000
25.3 The Directors or their spouses have no interest in the Donee's fund.
2014 2013
Rupees Rupees
2014 2013Note Rupees Rupees
26 Research and development expenses
Salaries, allowances and amenities 1,587,833 4,237,789
Computer supplies 115,132 10,663
Rent, rates and taxes 179,196 282,488
Electricity, gas and water 103,482 144,838
Traveling and conveyance 111,138 289,518
Repair and maintenance 41,237 19,334
Postage, telephone and telegrams 86,966 78,754
Vehicle running and maintenance 25,539 26,908
Fee and subscriptions/Training 24,165 42,576
Insurance 10,019 7,405
Depreciation 12.3 121,301 109,029
Amortization 13.3 23,410 13,790
2,429,418 5,263,092
26.1 This includes employees retirement benefit expense amounting to Rs. 0.12 (2013: Rs. 0.16) million.
27 Other operating expenses
Workers Welfare Fund 11.3 ‐ 8,511,228
‐ 8,511,228
28 Finance cost
Markup on short term borrowings ‐ 222,499
Markup on guarantee commission 403,591 490,535
Bank charges and commission 3,581,999 2,689,955
3,985,590 3,402,989
2014 2013Note Rupees Rupees
Notes to the Financial Statementsfor the year ended 31 December 2014
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Annual General Meeting
111Separate Financial Statem
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Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
29 Other income
Income / (Expense) from financial assets:
Profit on term deposit receipts 15,920,632 8,978,731 Gain on short term investments 13,972,179 17,265,812 Exchange (loss)/gain on translation of export debts (21,813,276) 40,855,723
8,079,535 67,100,266
Income from non‐financial assets:
Gain on disposal of fixed assets ‐ net 5,444,957 3,508,425 Others 3,164,738 196,884
8,609,695 3,705,309 16,689,230 70,805,575
2014 2013Rupees Rupees
30 Provision for taxation
Income tax‐ Current 6,760,398 9,861,718
Deferred tax (income) / expense (2,616,558) 802,101 4,143,840 10,663,819
30.1
30.2 Tax charge reconciliation
Accounting profit 430,863,420 425,805,108
Tax expense at the rate of 33% (2013: 34%) 142,184,929 144,773,737
Adjustments:
Tax effect of income under PTR (140,539,679) (137,885,290) Tax effect of inadmissible deductions 5,230,648 2,973,271 Others (2,616,558) 802,101
Tax as per taxable profit 4,259,340 10,663,819
This represents tax chargeable under Normal Tax Regime on local sale of software and services. The
income of the Company from export of software is exempt under clause 133 Part 1 of Second
Schedule to the Income Tax Ordinance, 2001. Tax expenses represent higher of corporate tax @33%
and alternate corporate tax @ 17% of accounting profit. The Company is recognising provision for
taxation @ 33% of its taxable profits as alternate corporate tax is lower than corporate tax.
Note
2014 2013
Rupees Rupees
31 Financial instruments
The Company has exposures to the following risks from its use of financial instruments:
Notes to the Financial Statementsfor the year ended 31 December 2014
62
30.1
‐ Credit risk
‐ Liquidity risk
‐ Market risk
31.1 Credit risk
The Board of Directors has overall responsibility for the establishment and oversight of Company’s risk
management framework. The Board is also responsible for developing and monitoring the Company's risk
management policies.
Credit risk represents the accounting loss that would be recognized at the reporting date if
counterparties fail completely to perform as contracted and arises principally from trade
receivables and investment in debt securities. Out of the total financial assets of Rs. 2,113.61
(2013: Rs. 1,130.17 ) million, the financial assets which are subject to credit risk amounted to Rs.
2,113.57 (2013: Rs. 1,130.00) million.
Note
Trade debts‐ billed (net) 17 817,283,423 590,525,782
Trade debts‐ unbilled 17 196,852,530 98,980,258
Receivable from related parties 19 47,728,753 32,435,383
Long term deposits 15 12,346,357 6,108,433
Short term investment 20 30,204,644 241,650,496
Advances, deposits and other receivables 18 25,961,122 18,634,799
Bank balances 21 983,191,394 141,697,365
2,113,568,223 1,130,032,516
To manage exposure to credit risk in respect of trade receivables, management reviews credit
worthiness, references, establish purchase limits taking into account the customer's financial
position, past experience and other factors. The management has set a maximum credit period of
30 days to reduce the credit risk. Limits are reviewed periodically and the customers that fail to
meet the Company's benchmark creditworthiness may transact with the Company only on a
prepayment basis.
Concentration of credit risk arises when a number of counter parties are engaged in similar
business activities or have similar economic features that would cause their abilities to meet
contractual obligation to be similarly effected by the changes in economic, political or other
conditions. The Company's most significant receivable balance is from related party Visionnet
Systems Incorporation which is included in trade receivable amounting to Rs. 495.19 (2013: Rs.
487.90 ) million.
The trade debts billed as at the balance sheet date are classified as follows:
The carrying amount of financial assets represents the maximum credit exposure before any credit
enhancements. The maximum exposure to credit risk at the reporting date is:
2014 2013
Rupees Rupees
Notes to the Financial Statementsfor the year ended 31 December 2014
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111Separate Financial Statem
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Company Profile
03Stakeholders� Inform
ation15
Foreign 671,031,948 511,607,734
Domestic 151,971,158 87,866,348
823,003,106 599,474,082
Less: Provision for bad debts (5,719,683) (8,948,300)
817,283,423 590,525,782
2014 2013
Rupees Rupees
Bank balances include Rs. 184.99 (2013: 133.33) million in KASB bank which the Company is unable
to withdraw due to imposition of moratorium by Federal Government on application of State Bank
of Pakistan for a period of six months effective from November 17, 2014.
Rating
Short term Long term Agency
IGI Income Fund A+(f) A+(f) PACRA
Pak Oman Investment Company Limited A‐1+ AA+ JCR‐VIS
Deutsche Bank Limited P‐1 A2 Moody's
Nafa Asset Management Fund 5 Star 4 Star PACRA
United Bank Limited A‐1+ AA+ JCR‐VIS
Standard Chartered Bank Limited A1+ AAA PACRA
Albarakah Bank Limited A1 A PACRA
Bank Alfalah Limited A1+ AA PACRA
KASB Bank Limited C B PACRA
The credit quality of cash and bank balances that are neither past due nor impaired can be
assessed by reference to external credit ratings or to historical information about counterparty
default rate:
Credit Rating
2014 2013
Rupees
The aging of trade receivables ‐ billed
at the reporting date is:
0 ‐ 120 days 582,352,530 407,853,815
121 ‐ 365 days 225,251,684 182,671,967
Above one year 15,398,892 8,948,300
823,003,106 599,474,082
Impairment above one year (5,719,683) (8,948,300)
817,283,423 590,525,782
Rupees
Based on past experience and policy of the Company, the management believes that an impairment
allowance is necessary in respect of trade receivables past due by one year except if those receivables
are recovered subsequent to yearend and if management has sufficient grounds to believe that the
amounts will be recovered.
Notes to the Financial Statementsfor the year ended 31 December 2014
64
31.2 Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they
fall due. The Company's approach to managing liquidity is to ensure as far as possible to always
have sufficient liquidity to meet its liabilities when due. The following are the contractual
maturities of financial liabilities:
Financial liabilities
Trade and other payables
Long term advances
Current portion of long
term advances
‐ 6,766,611
‐
6,766,611
‐ ‐
‐
‐
24,283,515 ‐
3,391,885
27,675,400
24,283,515 ‐
24,283,515
24,283,515 ‐
24,283,515
2014
One to two years
Rupees
Six to twelve
months
Rupees
Six months or less
Rupees
Contractual
Cash flows
Rupees
Carrying amount
Rupees
31.3 Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates
and equity prices will affect the Company's income or the value of its holdings of financial
instruments.
‐
‐
‐
8,611,711
Financial liabilities
Trade and other payables
Long term advances
Current portion of long
term advances 1,219,000
‐
‐
25,882,601
‐
Carrying amount
Contractual
Cash flows
Six months or less
Six to twelve
months
One to two years
2013
Rupees RupeesRupeesRupeesRupees
31.3.1 Currency risk
The Company is exposed to currency risk on sales and purchases that are denominated in a
currency other than the functional currency primarily USD. The Company's exposure to foreign
currency risk for USD is as follows:
2014 2013
Rupees Rupees
Foreign debtors 671,031,948 511,607,734
Foreign currency bank accounts 719,466 752,764
Net exposure 671,751,414 512,360,498
Notes to the Financial Statementsfor the year ended 31 December 2014
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Systems Limited | Annual Report 2014 65
16,051,890
3,391,8853,391,885
8,611,711
16,051,890
1,219,000
8,611,711
25,882,601
‐
1,219,000
16,051,890
17,270,890 8,611,711
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
The following significant exchange rate has been applied:
2014 2013 2014 2013
USD to PKR 101.37 100.96 100.6 105
Average rate Reporting date rate
RupeesRupeesRupeesRupees
Sensitivity analysis
At reporting date, if the PKR had strengthened by 10% against the USD with all other variables held
constant, post‐tax profit for the period would have been lower by the amount shown below,
mainly as a result of net foreign exchange gain on translation of foreign debtors and foreign
currency bank account.
2014 2013 2014 2013
Financial assets
Fixed rate instruments:
Treasury bills ‐ 8.55 ‐ 198,482,006
Certificate of investments ‐ 9.1 ‐ 2,030,958
Fair value sensitivity analysis for fixed rate instruments
The Company does not account for any fixed rate financial assets and liabilities at fair value
through profit or loss. Therefore, a change in interest rate at the reporting date would not affect
profit and loss account.
Effective rate
% Rupees
Carrying amount
2014 2013
Rupees Rupees
Effect on profit or (loss)
USD (67,175,141) (51,236,050)
The weakening of the PKR against USD would have had an equal but opposite impact on the post tax profits.
31.3.2 Interest rate risk
The sensitivity analysis prepared is not necessarily indicative of the effects on profit for the period
and assets / liabilities of the Company.
At the reporting date the interest rate profile of the Company's significant interest bearing
financial instruments was as follows:
Rupees%
Notes to the Financial Statementsfor the year ended 31 December 2014
66
31.4 Fair value of financial instruments
Capital management
The Company's objectives when managing capital are:
(i)
(ii) to provide an adequate return to shareholders.
The carrying values of the financial assets and financial liabilities approximate their fair values. Fair
value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction.
Neither there were any changes in the Company’s approach to capital management during the
period nor the Company is subject to externally imposed capital requirements.
The Board’s policy is to maintain an efficient capital base so as to maintain investor, creditor and
market confidence and to sustain the future development of its business. The Board of Directors
monitors the return on capital employed, which the Company defines as operating income divided
by total capital employed. The Board of Directors also monitors the level of dividends to ordinary
shareholders.
to safeguard the entity's ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders, and
Since the Company, has healthy cash flows at period end which is primarily because of higher
revenue resulting in profits and increased equity and advance for issue of share capital, therefore,
it does not carry any long term or short term debts at 31 December 2014.
Investment in mutual funds is valued using quoted prices in active market, hence, fair value of such
investments fall within Level 1 in fair value hierarchy as mentioned above. The carrying values of
other financial assets and financial liabilities reported in balance sheet approximate their fair
values.
‐ Level 3: Valuation techniques using significant unobservable inputs.
‐ Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
31.3.3 Other price risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market prices (other than those arising from interest rate risk or
currency risk). Material investments within the portfolio are managed on an individual basis and all
buy and sell decisions are approved by the Board. The primary goal of the Company's investment
strategy is to maximize investment returns.
Management believes that sensitivity analysis is unrepresentive of the price risks.
‐ Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
Fair value of financial instruments
The Company measures fair values using the following fair value hierarchy that reflects the
significance of the inputs used in making the measurements.
Notes to the Financial Statementsfor the year ended 31 December 2014
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111Separate Financial Statem
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Company Profile
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32 Provident Fund related disclosures
Based on the unaudited financial statements of the Employees' Provident Fund Trust, the total size (total
asset) of the fund is Rs. 131.07 million (2013: Rs. 113.71 million) out of which Rs. 115.28 million (2013:Rs.
97.92 million) is in the form of investments i.e. 87.95% (2013: 86.11%). Investments include fixed deposits
of Rs. 20 million (2013: Rs. 40.86 million) with commercial banks, Rs. 38 million in mutual funds (2013: Rs.
19.76 million), Rs. 19 million (2013: Rs. 8 million) in Term Deposit Certificates, Rs. 22 million (2012: Rs. 22
million) in Defence Saving Certificates and the balance kept in saving accounts is Rs. 16.28 million (2013:
Rs. 7.29 million).
The investments out of provident fund have been made in accordance with the provision of section 227 of
the Companies Ordinance, 1984 and the rules formulated for the purpose.
35 Transactions with related parties
Related parties comprises of associated companies, staff retirement fund, Directors and key management
personnel. Transactions with related parties other than remuneration and benefits to key management
personnel under the terms of their employment disclosed above, are as follows:
During the current year, chief executive of the Company exercised stock option under employee stock option
scheme and 144,404 (2013: 283,314) shares were allotted.
33 Number of Employees
Average number of employees during the period
Number of employees as at 31 December
The total average number of employees during the period and as at the period end are as follows:
2014
1,254 1,253
1,409 1,130
No. of employees
2013
34 Remuneration of Directors and Executives
The aggregate amounts charged in the accounts for the period for remuneration, including all benefits to the
Chief executive, Directors and Executives of the Company are as follows:
Managerial remuneration
Contribution to provident fund
Number of persons
Chief Executive Non Executive Directors Executives
2014 2013 2014 2013 2014 2013
24,400,000
9,600,000
‐
‐
461,490,249
320,303,468
960,000
660,000
‐
‐
25,676,206
17,523,097
25,360,000
10,260,000
‐
‐
487,166,455
337,826,565
1 1 6 6 334 240
Notes to the Financial Statementsfor the year ended 31 December 2014
68
2013
Rupees
14,375,137
‐
14,375,137
11,573,976
5,675,200
17,249,176
1,077,903,754
8,455,105
1,086,358,859
57,628,938
2014
Rupees
25,661,610
3,164,738
28,826,348
146,062,711
‐
146,062,711
1,083,629,875
23,623,310
1,107,253,185
68,294,127
There is no dilutive effect on the basic earning per share of the Company after taking into account
share options granted to employees outstanding at the year end.
36 Earnings per share‐ basic and diluted
36.1 Basic earnings per share
2014 2013
Rupees Rupees
i‐Profit attributable to ordinary share holders (basic):
Profit for the year attributable to owners' of
the Company 426,719,580 415,141,289
2014 2013
Shares Shares
Restated
42,937,507 42,276,288
5.1 430,096 6,236
43,367,603 42,282,524
43,367,603 42,282,524
ii‐Weighted‐average number of ordinary shares (basic):
Issued ordinary shares as at 1 January
Effect of share options exercised
Effect of bonus shares ‐ 100% bonus shares
Weighted‐average number of ordinary shares
at 31 December
36.2 Diluted earnings per share
The calculation of basic earnings per share is based on profit attributable to ordinary shareholders
and weighted‐average number of ordinary shares outstanding, as follows;
The earning per share of prior year has been adjusted to reflect the changes of bonus shares issued
during the year ended 31 December 2014.
86,735,206 84,565,048
Note
Interest income
Sales
Payment for expenses
Sales
Contributions
Reimbursement of expenses
Nature of transactions
Payment for expenses
Employee benefit plan
Subsidiary
Common directorship
Subsidiary
Relationship
E Processing Systems (Pvt) Ltd.
Tech Vista Systems FZ‐ LLC
Vision Systems Incorporation
Provident fund
Name
Notes to the Financial Statementsfor the year ended 31 December 2014
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Annual General Meeting
111Separate Financial Statem
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Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
37 Post balance sheet events
38 General
38.1
38.2
reclasification.
Figures have been rounded off to nearest rupee.
Corresponding figures have been rearranged and reclassified, where necessary, for better presentation
and disclosure. However, there have been no material rearrangements or
ASIF PEERChief Executive
AEZAZ HUSSAINChairmanLAHORE
Notes to the Financial Statementsfor the year ended 31 December 2014
70
The Board of Directors in their meeting held on 18 March 2015 have proposed a final dividend of Rs. 1 (2013:
2.25) per share amounting of Rs. 100.165 million (2013: 96.61 million) and Bonus shares at the rate 10% (2013:
Nil) for the year ended 31 December 2014 for approval of the members at the Annual General Meeting to be held
on 24 April 2015. These financial statements do not reflect these appropriations.
ConsolidatedFinancial Statements
Auditors’ Report to the Members
Consolidated Balance Sheet
Profit and Loss AccountConsolidated
Statement of Comprehensive IncomeConsolidated
Cash Flow StatementConsolidated
Statement of Changes in EquityConsolidated
Notes to the Financial StatementConsolidated
73
74
76
77
78
79
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Separate Financial Statements
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Stakeholders� Information
15Systems Limited | Annual Report 2014 73
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Auditors� report to the Members
We have audited the annexed consolidated financial statements comprising consolidated balance sheet of Systems Limited (”the Holding Company”) and its subsidiary companies as at 31 December 2014 and the related consolidated profit and loss account, consolidated statement of comprehensive income, consolidated cash flow statement and consolidated statement of changes in equity together with the notes forming part thereof, for the year then ended. We have also expressed separate opinion on the financial statements of Systems Limited. The Financial statements of subsidiary companies, E Processing Systems (Private) Limited and Tech Vista Systems FZ‐LLC, were audited by other firms of auditors, whose reports have been furnished to us and our opinion, in so far as it relates to the amounts included for such companies is based solely on the reports of such other auditors. These financial statements are the responsibility of the Holding Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
Our audit was conducted in accordance with the International Standards on Auditing and accordingly included such tests of accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements present fairly the consolidated financial position of Systems limited and its subsidiaries as at 31 December 2014 and the consolidated results of their operations for the year then ended.
KPMG Taseer Hadi & Co.
Chartered Accountants
(Bilal Ali)
Lahore
Date: 18 March 2015
74
Consolidated Balance Sheet
AEZAZ HUSSAINChairmanLAHORE
2014 2013
Note Rupees Rupees
SHARE CAPITAL AND RESERVES
Authorized:
150,000,000 (2013: 50,000,000) ordinary
shares of Rs.10 each
Issued, subscribed and paid‐up capital 5
Reserves 6
Advance against issue of shares 7
Unappropriated profit
Equity attributable to owners of the Company
Non controlling interest
Non current liabilities
Long term advances 8
Provision for gratuity
Deferred taxation 9
Current liabilities
Trade and other payables 10
Unearned revenue
Current portion of long term advances 8
Contingencies and commitments 11
The annexed notes 1 to 38 form an integral part of these consolidated financial statements.
as at 31 December 2014
1,500,000,000 500,000,000
871,653,020 429,375,070
39,208,094 31,147,501
520,000,000 ‐
687,263,344 808,434,215
2,118,124,458 1,268,956,786
(5,099,886) (1,489,195)
2,113,024,572 1,267,467,591
6,766,611 8,611,771
1,651,087 156,616
‐ 1,133,334
8,417,698 9,901,721
273,361,263 58,646,147
6,447,492 1,378,346
3,391,885 1,219,000
283,200,640 61,243,493
2,404,642,910 1,338,612,805
Systems Limited | Annual Report 2014 75
ASIF PEERChief Executive
2013
Note Rupees
ASSETS
Non current assets
Property, plant and equipment 12
Intangible assets 13
Long term deposits 14
Deferred taxation 9
Current assets
Work in progress 15
Trade debts‐unsecured, considered good 16
Advances, deposits, prepayments
and other receivables 17
Receivable from related parties
‐unsecured, considered good 18
Short term investments 19
Cash and bank balances 20
182,073,690
16,052,886
9,865,574
‐
207,992,150
747,157
688,467,080
49,307,401
6,486,270
241,650,496
143,962,251
1,130,620,655
1,338,612,805
2014
Rupees
203,407,660
54,210,428
14,346,357
1,483,224
273,447,669
‐
997,641,923
114,105,810
2,150,066
30,204,644
987,092,798
2,131,195,241
2,404,642,910
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eeting111
Separate Financial Statements
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19Com
pany Profile03
Stakeholders� Information
15
76
Consolidated Profit and Loss Account
ASIF PEERChief Executive
AEZAZ HUSSAINChairmanLAHORE
for the year ended 31 December 2014
2014 2013
Note Rupees Rupees
Revenue 21
Direct cost 22
Gross profit
Distribution cost 23
Administrative expenses 24
Research and development expenses 25
Other operating expenses 26
Operating profit
Finance cost 27
Other income 28
Profit before taxation
Taxation 29
Profit after taxation
Attributable to:
Owners of the Company
Non‐controlling interest
Basic earnings per share (Rupees) 36
Diluted earnings per share (Rupees)
The annexed notes 1 to 38 form an integral part of these consolidated financial statements.
1,922,711,560 1,423,069,361
(1,245,857,134) (861,356,300)
676,854,426 561,713,061
(65,675,450) (53,425,134)
(206,647,353) (152,139,327)
(2,429,418) (5,263,092)
‐ (8,511,228)
(274,752,221) (219,338,781)
402,102,205 342,374,280
(3,995,964) (3,457,811)
13,691,938 70,833,470
9,695,974 67,375,659
411,798,179 409,749,939
(4,143,840) (10,663,819)
407,654,339 399,086,120
411,265,030 400,875,330
(3,610,691) (1,789,210)
407,654,339 399,086,120
Restated
4.74 4.74
4.74 4.74
Systems Limited | Annual Report 2014 77
Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2014
ASIF PEERChief Executive
AEZAZ HUSSAINChairmanLAHORE
2013
Note Rupees
399,086,120
6 (344,596)
398,741,524
400,530,734
Profit for the year
Other comprehensive income:
Items that are or may be reclassified to
profit and loss account :
Foreign currency translation difference
Total comprehensive income for the year
Attributable to:
Owners of the Company
Non‐controlling interest (1,789,210)
398,741,524
The annexed notes 1 to 38 form an integral part of these consolidated financial statements.
428,539
411,693,569
(3,610,691)
408,082,878
2014
Rupees
407,654,339
408,082,878
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Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
78
Consolidated Cash Flow Statement
ASIF PEERChief Executive
AEZAZ HUSSAINChairmanLAHORE
for the year ended 31 December 2014
2014
Note Rupees
411,798,179
51,758,106
7,808,090
3,606,674
694,757
1,494,471
3,995,964
21,650,799
(15,920,632)
‐
(2,914,230)
(5,444,957)
66,729,042
478,527,221
52,400
(334,432,316)
4,336,204
(40,797,118)
5,069,146
(365,771,684)
214,715,116
327,470,653
(3,995,964)
(30,761,689)
(34,757,653)
292,713,000
(81,082,475)
(45,965,632)
13,435,356
(4,480,783)
214,360,082
15,920,632
112,187,180
14,083,494
‐
520,000,000
‐
(96,609,391)
327,725
437,801,828
842,702,008
428,539
143,962,251
20 987,092,798
2013
Rupees
409,749,939
43,138,556
4,213,802
6,515,800
‐
156,616
3,457,811
(40,883,618)
(8,978,731)
8,511,228
(4,261,187)
(3,508,425)
8,361,852
418,111,791
(747,157)
(115,536,972)
(5,735,506)
(21,070,258)
1,378,346
(141,711,547)
11,971,732
288,371,976
(4,947,312)
(16,098,946)
(21,046,258)
267,325,718
(94,354,031)
(11,740,117)
5,500,713
(3,757,141)
(131,878,494)
8,978,731
(227,250,339)
11,954,839
300,015
‐
(62,375,000)
(84,552,576)
2,899,749
(131,772,973)
(91,697,594)
(344,596)
236,004,441
143,962,251
Cash flows from operating activities
Profit before taxation
Adjustments of items not involving movement of cash:
Depreciation
Amortization
Provision for bad debts made during the year
Provision for impairment
Increase in provision for gratuity
Finance cost
Exchange loss/ (gain) ‐ net
Profit on bank deposits
Provision for workers welfare fund
Unrealized gain on investments
Gain on disposal of property, plant and equipment
Profit before working capital changes
Effect on cash flow due to working capital changes
Decrease/(increase) in current assets:
Work in progress
Trade debts
Receivable from related parties
Advances, prepayments and other receivables
Unearned revenue
Increase in current liabilities:
Trade and other payables
Cash generated from operations
Finance cost paid
Taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Fixed capital expenditure
Increase in intangibles
Sale proceeds from disposal of property, plant and equipment
Increase in long term deposits
Decrease / (Increase) in short term investments
Profit received on bank deposits
Net cash inflow / (outflow) from investing activities
Cash flows from financing activities
Proceeds from issuance of share capital
Proceeds from issuance of share to NCI
Advance against issue of shares
Short term loan repaid
Dividend paid
Increase in long term advances
Net cash inflow / (outflow) from financing activities
Increase / (Decrease) in cash and cash equivalents
Effect of exchange translation reserve
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of year
The annexed notes 1 to 38 form an integral part of these consolidated financial statements.
ASI
F P
EER
Ch
ief
Exec
uti
veA
EZA
Z H
USS
AIN
Ch
airm
anLA
HO
RE
Systems Limited | Annual Report 2014 79
Co
nso
lid
ated
Sta
tem
ent
of
Ch
ang
es i
n E
qu
ity
for
th
e ye
ar e
nd
ed 3
1 D
ecem
ber
201
4
Bal
ance
as
on
01
Jan
uar
y 2
01
3
Pro
fit
for
the
year
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er c
om
pre
hen
sive
inco
me
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nsa
ctio
ns
wit
h o
wn
ers
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rch
ase
of
sub
sid
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Shar
es is
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plo
yees
sh
are
op
tio
n s
chem
e
Fin
al d
ivid
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fo
r th
e ye
ar e
nd
ed 3
1 D
ecem
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20
12
at
the
rate
of
Rs.
2 (
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%)
per
sh
are
Bal
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as
on
31
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cem
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r 2
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er c
om
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hen
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ns
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h o
wn
ers
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es is
sued
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plo
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sh
are
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e
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43
,58
2,6
51
ord
inar
y sh
ares
of
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eac
h
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al d
ivid
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fo
r th
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ed 3
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20
13
at
the
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5 (
22
.5%
) p
er s
har
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ecei
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No
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)
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o 3
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orm
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eeting111
Separate Financial Statements
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80
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
was as a company year
converted into an unquoted public limited company in August, 2005. The Company is principally
engaged in the business of software development and business process outsourcing services. The
head office of the Company is situated at Chamber of commerce building, 11‐ Shahra‐e‐Aiwan‐e‐
Tijarat, Lahore.
1 Status and activities
1.1
E Processing Systems (Pvt) Ltd
Techvista Systems FZ‐LLC
2 Basis of preparation
2.1 Statement of compliance
2.2 Functional and presentation currency
2.3 Basis of Consolidation
1.2 During the year, the Holding company has made an Initial Public Offer (IPO) through issue of 13
million ordinary shares of Rs. 10 each at a price of Rs. 40 per share (including premium of Rs. 30 per
share) determined through book building process. Out of the total issue of 13 million ordinary
shares, 9.75 million shares were subscribed through book building by high net worth individuals and
institutional investors whereas the remaining 3.25 million shares were subscribed by the general
public. The shares have been duly allotted subsequent to the year end. On 30 January 2015, the
Karachi, Lahore and Islamabad Stock Exchanges have approved the Holding company's application
for formal listing and quotation of shares.
These financial statements have been prepared in accordance with approved accounting standards
as applicable in Pakistan and the requirements of Companies Ordinance, 1984. Approved
accounting standards comprise of such International Financial Reporting Standards (IFRSs) issued by
the International Accounting Standards Board and Islamic Financial Accounting Standards (IFAS)
issued by the Institute of Chartered Accountants of Pakistan as are notified under the provisions of
the Companies Ordinance, 1984. Wherever, the requirements of the Companies Ordinance, 1984 or
directives issued by the Securities and Exchange Commission of Pakistan differ with the
requirements of these standards, the requirements of Companies Ordinance, 1984 or the
requirements of the said directives shall prevail.
These consolidated financial statements are presented in PKR, which is Group's functional currency.
These consolidated financial statements comprise the financial statements of the Holding company
and its subsidiary companies as at 31 December 2014.
Systems Limited incorporated private limited in Pakistan in the 1977 and
The Group consists of the following subsidiaries;
E Processing Systems (Pvt.) Ltd is 70% owned subsidiary of Systems Ltd. It was incorporated on 06
February 2013 as a Private Limited Company under Companies Ordinance, 1984. E‐Processing
Systems (Pvt.) Ltd specializes in developing mobile e‐payment solutions and value‐added services
for the local market.
Techvista Systems FZ‐LLC is 100% owned subsidiary of Systems Ltd. It is a limited liability company
incorporated in Dubai Technology and Media Free Zone Authority. The principal objective of the
company is software development and providing business process outsourcing solutions.
Systems Limited | Annual Report 2014 81
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
(a) Subsidiaries
(b Non‐controlling interest
2.4
The following standards, amendments and interpretations of approved accounting standards will be
effective for accounting periods beginning on or after 01 January 2015:
‐ Amendments to IAS 19 “Employee Benefits” Employee contributions – a practical approach
(effective for annual periods beginning on or after 1 July 2014). The practical expedient
addresses an issue that arose when amendments were made in 2011 to the previous pension
accounting requirements. The amendments introduce a relief that will reduce the complexity
and burden of accounting for certain contributions from employees or third parties. The
amendments are relevant only to defined benefit plans that involve contributions from
employees or third parties meeting certain criteria.
‐ Amendments to IAS 38 Intangible Assets and IAS 16 Property, Plant and Equipment (effective
for annual periods beginning on or after 1 January 2016) introduce severe restrictions on the use
of revenue‐based amortization for intangible assets and explicitly state that revenue‐based
methods of depreciation cannot be used for property, plant and equipment. The rebuttable
presumption that the use of revenue‐based amortisation methods for intangible assets is
inappropriate can be overcome only when revenue and the consumption of the economic
benefits of the intangible asset are ‘highly correlated’, or when the intangible asset is expressed
as a measure of revenue.
Non‐controlling interest is that part of net results of operations and of net assets of the
subsidiaries which are not owned by the Holding company either directly or indirectly. Non‐
controlling interest is presented as a separate item in the consolidated financial statements. The
Group applies a policy of treating transactions with non‐controlling interests as transactions
with parties external to the Group. Disposals to non‐controlling interests result in gains and
losses for the Group and are recorded in the consolidated statement of changes in equity .
Standards, interpretations and amendments to published approved accounting standards
The financial statements of the subsidiary companies have been consolidated on a line‐by‐line
basis and the carrying values of the investments held by the Holding company have been
eliminated against the shareholders' equity in the subsidiary companies.
The financial statements of the subsidiaries are prepared for the same reporting period as the
Holding company, using consistent accounting policies.
All intragroup balances, transactions, income and expenses and profits and losses resulting from
intragroup transactions that are recognized in assets, are eliminated in full.
The subsidiaries are fully consolidated from the date of acquisition, being the date on which the
Holding company obtains control, and continue to be consolidated until the date that such
control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the
Group. The cost of an acquisition is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange, plus costs
directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any non‐controlling interest.
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‐ IFRS 10 ‘Consolidated Financial Statements’ – (effective for annual periods beginning on or
after 1 January 2015) replaces the part of IAS 27 ‘Consolidated and Separate Financial
Statements. IFRS 10 introduces a new approach to determining which investees should be
consolidated. The single model to be applied in the control analysis requires that an investor
controls an investee when the investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over
the investee. IFRS 10 has made consequential changes to IAS 27 which is now called ‘Separate
Financial Statements’ and will deal with only separate financial statements. Certain further
amendments have been made to IFRS 10, IFRS 12 and IAS 28 clarifying the requirements relating
to accounting for investment entities and would be effective for annual periods beginning on or
after 1 January 2016.
82
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
‐
‐
‐
‐ Amendment to IAS 27 ‘Separate Financial Statement’ (effective for annual periods beginning
on or after 1 January 2016). The amendments to IAS 27 will allow entities to use the equity
method to account for investments in subsidiaries, joint ventures and associates in their
separate financial statements.
IFRS 11 ‘Joint Arrangements’ (effective for annual periods beginning on or after 1 January 2015)
replaces IAS 31 ‘Interests in Joint Ventures’. Firstly, it carves out, from IAS 31 jointly controlled
entities, those cases in which although there is a separate vehicle, that separation is ineffective
in certain ways. These arrangements are treated similarly to jointly controlled assets/operations
under IAS 31 and are now called joint operations. Secondly, the remainder of IAS 31 jointly
controlled entities, now called joint ventures, are stripped of the free choice of using the equity
method or proportionate consolidation; they must now always use the equity method. IFRS 11
has also made consequential changes in IAS 28 which has now been named ‘Investment in
Associates and Joint Ventures’. The amendments requiring business combination accounting to
be applied to acquisitions of interests in a joint operation that constitutes a business are
effective for annual periods beginning on or after 1 January 2016.
IFRS 12 ‘Disclosure of Interest in Other Entities’ (effective for annual periods beginning on or
after 1 January 2015) combines the disclosure requirements for entities that have interests in
subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or
unconsolidated structured entities, into one place.
‐ Agriculture: Bearer Plants [Amendment to IAS 16 and IAS 41] (effective for annual periods
beginning on or after 1 January 2016). Bearer plants are now in the scope of IAS 16 Property,
Plant and Equipment for measurement and disclosure purposes. Therefore, a company can elect
to measure bearer plants at cost. However, the produce growing on bearer plants will continue
to be measured at fair value less costs to sell under IAS 41 Agriculture. A bearer plant is a plant
that: is used in the supply of agricultural produce; is expected to bear produce for more than
one period; and has a remote likelihood of being sold as agricultural produce. Before maturity,
bearer plants are accounted for in the same way as self‐constructed items of property, plant and
equipment during construction.
IFRS 13 ‘Fair Value Measurement’ effective for annual periods beginning on or after 1 January
2015) defines fair value, establishes a framework for measuring fair value and sets out disclosure
requirements for fair value measurements. IFRS 13 explains how to measure fair value when it is
required by other IFRSs. It does not introduce new fair value measurements, nor does it
eliminate the practicability exceptions to fair value measurements that currently exist in certain
standards.
Systems Limited | Annual Report 2014 83
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
‐ Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
[Amendments to IFRS 10 and IAS 28] (effective for annual periods beginning on or after 1
January 2016). The main consequence of the amendments is that a full gain or loss is recognised
when a transaction involves a business (whether it is housed in a subsidiary or not). A partial
gain or loss is recognised when a transaction involves assets that do not constitute a business,
even if these assets are housed in a subsidiary.
These amendments have no significant impact on these consolidated financial statements.
‐
‐
‐
‐
‐
‐
‐
‐
IFRS 5 Non‐current Assets Held for Sale and Discontinued Operations. IFRS 5 is amended to
clarify that if an entity changes the method of disposal of an asset (or disposal group) i.e.
reclassifies an asset from held for distribution to owners to held for sale or vice versa without
any time lag, then such change in classification is considered as continuation of the original plan
of disposal and if an entity determines that an asset (or disposal group) no longer meets the
criteria to be classified as held for distribution, then it ceases held for distribution accounting in
the same way as it would cease held for sale accounting.
IFRS 7 ‘Financial Instruments‐ Disclosures’. IFRS 7 is amended to clarify when servicing
arrangements are in the scope of its disclosure requirements on continuing involvement in
transferred financial assets in cases when they are derecognized in their entirety. IFRS 7 is also
amended to clarify that additional disclosures required by ‘Disclosures: Offsetting Financial
Assets and Financial Liabilities (Amendments to IFRS7)’ are not specifically required for inclusion
in condensed interim financial statements for all interim periods.
IAS 40 ‘Investment Property’. IAS 40 has been amended to clarify that an entity should: assess
whether an acquired property is an investment property under IAS 40 and perform a separate
assessment under IFRS 3 to determine whether the acquisition of the investment property
constitutes a business combination.
Annual Improvements 2012‐2014 cycles (amendments are effective for annual periods beginning on
or after 1 January 2016). The new cycle of improvements contain amendments to the following
standards:
IFRS 3 ‘Business Combinations’. These amendments clarify the classification and measurement
of contingent consideration in a business combination.
IFRS 8 ‘Operating Segments’ has been amended to explicitly require the disclosure of judgments
made by management in applying the aggregation criteria.
Amendments to IAS 16’Property, plant and equipment’ and IAS 38 ‘Intangible Assets’. The
amendments clarify the requirements of the revaluation model in IAS 16 and IAS 38, recognizing
that the restatement of accumulated depreciation (amortization) is not always proportionate to
the change in the gross carrying amount of the asset.
IAS 24 ‘Related Party Disclosure’. The definition of related party is extended to include a
management entity that provides key management personnel services to the reporting entity,
either directly or through a group entity.
Annual Improvements 2010‐2012 and 2011‐2013 cycles (most amendments will apply prospectively
for annual period beginning on or after 1 July 2014). The new cycle of improvements contain
amendments to the following standards:
IFRS 2 ‘Share‐based Payment’. IFRS 2 has been amended to clarify the definition of ‘vesting
condition’ by separately defining ‘performance condition’ and ‘service condition’.
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15
‐
‐
These amendments have no significant impact on these consolidated financial statements.
IAS 19 ‘Employee Benefits’. IAS 19 is amended to clarify that high quality corporate bonds or
government bonds used in determining the discount rate should be issued in the same currency
in which the benefits are to be paid.
IAS 34 ‘Interim Financial Reporting’. IAS 34 is amended to clarify that certain disclosures, if they
are not included in the notes to interim financial statements and disclosed elsewhere should be
cross referred.
84
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
3 Basis of measurement
3.1
3.2
3.3
Note
‐ Useful life and residual values of depreciable assets and
method of depreciation 4.1
‐ Intangible assets 4.2
‐ Impairment 4.3
‐ Taxation 4.7
‐ Provision for doubtful debts 4.9
‐ Provisions 4.11
Items included in the consolidated financial statements are measured using the currency of the
primary economic environment in which the Group operates. The consolidated financial statements
are presented in Pak Rupees which is Group's functional and presentation currency.
The preparation of consolidated financial statements in conformity with approved accounting
standards requires management to make judgments, estimates and assumptions that affects the
application of policies and reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions and judgments are based on historical experience and
various other factors that are believed to be reasonable under the circumstances, the result of
which form the basis of making the judgment about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates.
These consolidated financial statements have been prepared under the historical cost convention
except for short term investments which are stated at fair value. All the transactions reflected in
these consolidated financial statements are on accrual basis except for those reflected in cash flow
statement.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to
accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period, or in the period of revision and future periods if revision affects both
current and future periods. The areas where various assumptions and estimates are significant to
Group's financial statements or where judgments were exercised in application of accounting
policies are as follows:
4 Significant accounting policies
4.1 Fixed capital expenditure
The accounting policies set out below have been consistently applied to all periods presented in
consolidated these financial statements.
Systems Limited | Annual Report 2014 85
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
Property, plant and equipment
Capital work‐in‐progress
Capital work‐in‐progress is stated at cost less identified impairment loss, if any.
4.2 Intangible assets
Acquired Intangible assets
Research and Development
a)
b) The Group intends to complete the intangible asset and use or sell it.
c) The Group has the ability to use or sell the intangible asset.
Expenditure on research (or the research phase of an internal project) is recognized as an expense
in the period in which it is incurred;
Completion of the intangible asset is technically feasible so that it will be available for use or
sale.
Depreciation on property, plant and equipment is charged to income by applying straight line
method on pro rata basis so as to write off the historical cost of the assets over their estimated
useful lives at the rates given in note 12. Depreciation charge commences from the month in which
the asset is available for use and continues until the month of disposal.
The assets residual values and useful lives are reviewed at each financial year end, and adjusted if
impact on depreciation is significant.
An item of property plant and equipment is derecognized upon disposal or when no future
economic benefits are expected from its use or disposal. Profit or loss on disposal of operating fixed
assets represented by the difference between the sale proceeds and the carrying amount of the
asset is included in income.
Development costs incurred on specific projects are capitalized when all the following conditions
are satisfied:
Intangible assets acquired from the market are carried at cost less accumulated amortization and
any impairment losses.
Property, plant and equipment are stated at cost less accumulated depreciation and any identified
impairment loss. Freehold land is stated at historic cost. Cost of operating fixed assets consist of
purchase cost, borrowing cost pertaining to construction period and directly attributable cost of
bringing the asset to working condition. Subsequent costs are included in the assets carrying
amount or recognized as separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. All other repair and maintenance costs are charged to profit and loss account
during the period in which they are incurred.
Capital work in progress represents expenditure on property and equipment which are in the
course of construction and installation. Transfers are made to relevant property and equipment
category as and when assets are available for use.
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86
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
e)
f)
Development costs not meeting the criteria for capitalization are expensed as incurred.
d) The intangible asset will generate probable future economic benefits. Among other things this
requires that there is a market for the output from the intangible asset or for the intangible
asset itself, or if it is to be used internally, the asset will be used in generating such benefits.
There are adequate technical, financial and other resources to complete the development and
to use or sell the intangible asset, and
The expenditure attributable to the intangible asset during its development can be measured
reliably.
Others
4.3 Impairment
Financial assets (including receivables)
The cost of an internally generated intangible asset comprises all directly attributable costs
necessary to create, produce and prepare the asset to be capable of operating in the manner
intended by the management.
After initial recognition, internally generated intangible assets are carried at cost less accumulated
amortization and impairment losses. These are amortized using the straight line method at the rate
given in note 13. Full month amortization on additions is charged in the month of acquisition and
no amortization is charged in month of disposal.
Financial assets are assessed at each reporting date to determine whether there is objective
evidence that they are impaired. A financial asset is impaired if objective evidence indicates that a
loss event has occurred after the initial recognition of the asset and that the loss event had a
negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired may include default or delinquency by a
debtor, indications that a debtor or issuer will enter bankruptcy. All individually significant
receivables are assessed for specific impairment. All individually significant receivables found not to
be specifically impaired are then collectively assessed for any impairment that has been incurred
but not yet identified. Receivables that are not individually significant are collectively assessed for
impairment by grouping together receivables with similar risk characteristics.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the
difference between its carrying amount and the present value of the estimated future cash flows
discounted at the asset's original effective interest rate. Losses are recognized in profit and loss and
reflected in an allowance account against receivables.
Non‐financial assets
The carrying amounts of non‐financial assets other than inventories and deferred tax asset, are
reviewed at each reporting date to determine whether there is any indication of impairment. If any
such indication exists, then the asset's recoverable amount is estimated. The recoverable amount of
an asset or cash‐generating unit is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre‐tax discount rate that reflects current market assessment of the time value of money
and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be
tested individually are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other assets or
groups of assets (the “cash generating unit, or CGU”).
4.4 Staff benefits
Provident Fund
Employees' share option scheme
Gratuity
The Group's corporate assets do not generate separate cash inflows. If there is an indication that a
corporate asset may be impaired, then the recoverable amount is determined for the CGU to which
the corporate asset belongs. An impairment loss is recognized if the carrying amount of an asset or
its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit and
loss account.
Impairment loss recognized in prior periods is assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset's carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.
The Group operates an equity settled share based Employees Stock Option Scheme. The
compensation committee of the Board evaluates the performance and other criteria of employees
and approves the grant of options. These options vest with employees over a specified period
subject to fulfillment of certain conditions. Upon vesting, employees are eligible to apply and secure
allotment of the Holding company's shares at a price determined on the date of grant of options.
When share options are exercised , the proceeds received , net of any transaction costs, are
credited to share capital (nominal value) and share premium.
The Holding company operates a funded recognized provident fund contribution plan which covers
all permanent employees. Equal contributions are made on monthly basis both by the company and
the employees at 10% of basic pay.
The fair value of the grant of share options is measured at grant date and recognized as an
employee compensation expense, with a corresponding increase in equity, on the straight line basis
over the vesting period. The fair value of the options granted is measured at option discount i‐e
excess of option price at date of grant of option under a scheme over exercise price of option.
The Group has the following plans for its employees:
Provision is made for Techvista's (the ''Subsidiary'') employees' end of service benefits in accordance
with the UAE Federal labour laws.
Systems Limited | Annual Report 2014 87
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
4.5 Investments
Management determines the classification of its investments at the time of purchase depending on
the purpose for which the investments are acquired and re‐evaluates this classification at the end of
each financial year. Investments intended to be held for less than twelve months from the balance
sheet date or to be sold to raise operating capital are included in current assets, all other
investments are classified as non‐current.
Investments are either classified as financial assets at fair value through profit or loss, held‐to‐
maturity investments, available‐for‐sale investments or investment in subsidiary and associated
companies, as appropriate. When investments are recognized initially, they are measured at fair
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Investments at fair value through profit or loss
Investments held to maturity
4.6 Foreign currency transactions
4.7 Taxation
Current
Deferred
Assets and liabilities in foreign currencies are translated into rupees at the rate of exchange
prevailing at the balance sheet date. Transactions during the year are converted into rupees at the
exchange rate prevailing at the date of such transaction. All exchange differences are charged to
profit and loss account.
Provision of current tax is based on the taxable income for the year determined in accordance with
the prevailing law for taxation of income. The charge for current tax is calculated using prevailing
tax rates or tax rates expected to apply to the profit for the year if enacted after taking into account
tax credits, rebates and exemptions, if any. The charge for current tax also includes adjustments,
where considered necessary, to provision for tax made in previous years arising from assessments
framed during the year for such years.
Deferred tax is accounted for using the balance sheet liability method in respect of all temporary
differences arising from differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of the taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred
tax assets are recognized to the extent that it is probable that taxable profits will be available
against which the deductible temporary differences, unused tax losses and tax credits can be
utilized.
Deferred tax assets and liabilities are calculated at the rates that are expected to apply to the
period when the asset is realized or the liability is settled, based on the tax rates (and tax laws) that
have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or
credited in the income statement, except in the case of items credited or charged to equity in which
case it is included in equity.
Investments that are acquired principally for the purpose of generating profit from short term
fluctuations in price are classified as investments at fair value through profit or loss. Investments at
fair value through profit or loss are initially recognized at cost (excluding transaction cost), being the
fair value of the consideration given. Subsequent to initial recognition they are recognized at fair
value unless fair value cannot be reliably measured. Any surplus or deficit on revaluation of
investment is recognized in the profit or loss account.
All purchases and sale of investments are recognized on trade date, which is the date the Group
commits to purchase, or sell the investment.
These are investments with fixed pre determinable payment and fixed maturity. The Group has the
positive intent and ability to hold till maturity. These are stated at amortized cost.
88
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
value, plus, in case of investments not at fair value through profit or loss, directly attributable
transaction cost.
4.9 Provision for doubtful debts
4.10 Trade and other payables
4.11 Provisions and contingencies
4.12 Revenue recognition
Professional services
License and license support services
Outsourcing services
Consultancy
Revenue from provision of consultancy services is recognized as the work is performed.
Revenue from license contracts without major customization is recognized when the license
agreement is signed, delivery of software has occurred , fee is fixed or determinable and
collectability is probable. Revenue from license contracts with major modification, customization
and development is recognized on percentage of completion method. Revenue from support
services is recognized on time proportion basis.
Liabilities for trade and other accounts payable are carried at cost which is the fair value of the
consideration to be paid in future for goods and services.
Revenue from professional / software services includes fixed price contracts and time and material
contracts. Revenue from services performed under fixed price contracts is recognized in accordance
with the percentage of completion method. Revenue from services performed under time and
material contracts is recognized as services are provided.
The Group reviews its trade and other receivable on each balance sheet date to assess whether the
provision should be recorded in the profit and loss account relating to doubtful receivable.
Judgment by the management is made of the amount and timing of future cash flows while
determining the extent of provision required. Such estimation involves the application of the
Group's provision for doubtful debt policy including the assessment of credit history of the counter
party. Actual cash flows may differ resulting in subsequent change in provisions.
Revenue from business process outsourcing services is recognized on completion of processing.
Revenue from other outsourcing services is recognized as services are provided.
Provisions are recognized in the balance sheet when the Group has a legal or constructive
obligation as a result of past events and it is probable that outflow of resources embodying
economic benefits will be required to settle the obligation and a reliable estimate of the amount
can be made. However, provisions are reviewed at each balance sheet date and adjusted to reflect
current best estimate. Where outflow of resources embodying economic benefits is not probable, a
contingent liability is disclosed, unless the possibility of outflow is remote.
4.8 Trade debts
Trade debts from local customers are stated at cost while foreign debtors are stated at revalued
amount by applying exchange rate applicable on the balance sheet reporting date.
Systems Limited | Annual Report 2014 89
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
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4.14 Offsetting of financial assets and liabilities
4.15 Finance cost
Finance cost is charged to profit and loss account in the period in which it is incurred.
4.16 Cash and cash equivalents
4.17 Work in progress
Softwares or applications for which the Group has not invoiced the customer are recognized in work
in progress at purchased cost plus any incremental cost incurred on purchase.
Financial assets and financial liabilities are set off and the net amount is reported in the financial
statements when there is a legally enforceable right to set off the recognized amount and the
Group intends either to settle on net basis, or to recognize the assets and to settle the liabilities
simultaneously.
Cash and cash equivalents are stated in the balance sheet at cost. For the purpose of the Cash flow
Statement, cash and cash equivalents comprise of cash in hand, and deposits in the bank.
Sale of third party software
Other income
Revenue from sale of third party software is recognized when delivery has occurred and invoices are
raised to the customer.
Profit on deposit account is recognized on accrual basis. Miscellaneous income is recognized on
receipt basis.
90
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
4.13 Financial instruments
Financial assets
Financial liabilities
Recognition and derecognition
Significant financial assets include trade debts, advances and receivables, long term deposits and
cash and bank balances. Finances and receivables from clients are stated at their nominal value as
reduced by provision for doubtful finances and receivable, while other financial assets are stated at
cost.
Financial liabilities are classified according to the substance of the contractual arrangements
entered into. Significant financial liabilities include trade and other payables. Other liabilities are
stated at their nominal value.
All the financial assets and financial liabilities are recognized at the time when the Group becomes
party to the contractual provisions of the instrument. Financial assets are derecognized when the
Group loses control of the contractual rights that comprise the financial assets. Financial liabilities
are derecognized when they are extinguished i.e. when the obligation specified in the contract is
discharged, cancelled or expires. Any gain or loss on derecognition of the financial assets and
financial liabilities is taken to income currently.
4.18 Operating lease
4.19 Earnings per share
4.20 Operating segments
4.21 Dividends and appropriation reserves
The Group presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing
the profit after tax attributable to ordinary shareholders of the Group by the weighted average
number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting
profit and loss attributable to ordinary shareholders and the weighted‐average number of ordinary
shares outstanding, adjusted for the facts of all diluted potential ordinary shares
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases (net of any incentives
received from the lessor) are charged to profit on a straight‐line basis over the lease term unless
another systematic basis is representative of the time pattern of the Group’s benefit.
Dividends distribution to the shareholders is recognized as a liability in the period in which
dividends are approved by the shareholders.
An operating segment is a component of the Group that engages in business activities from which it
may earn revenues and incur expenses. All operating segments’ operating results are regularly
reviewed by the Group’s Chief Executive to make decisions about resources to be allocated to the
segment and assess its performance, and for which discrete financial information is available.
Systems Limited | Annual Report 2014 91
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
5 Issued, subscribed and paid‐up capital
2014 2013
Ordinary shares of Rs. 10/‐
each fully paid in cash 83,756,350
Ordinary shares of Rs. 10/‐ each
issued as fully paid bonus shares 787,896,670
871,653,020
Rupees
5.1
Balance at 1 January 429,375,070
Stock options exercised 6,451,440
Bonus shares issued during the year 435,826,510
Balance at 31 December 871,653,020
77,304,910
352,070,160
429,375,070
422,762,880
6,612,190
‐
429,375,070
RupeesNote
2014 2013
No. of shares
78,789,667 35,207,016
87,165,302 42,937,507
8,375,635 7,730,491
No. of shares
6 Reserves
Share premium reserve 39,119,784
Deferred employees compensation reserve 4,367
Translation reserve on foreign operations 83,943
39,208,094
31,487,730
4,367
(344,596)
31,147,501
6.1
6.2
87,165,302 42,937,507
43,582,651 ‐
42,937,507 42,276,288
645,144 661,219
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6.1
6.2
7 Advances against issue of shares
2014 2013
Rupees Rupees
8 Long term advances
Total advances 10,158,496 9,830,771
Less: Current portion classified as current liability (3,391,885) (1,219,000)
6,766,611 8,611,771
8.1 These represent advances received from Holding company's staff and will be adjusted as per
Holding company's car policy against sale of vehicles.
Represents subscription money received against IPO, as more fully explained in note 1.2 to the financial
statements.
This reserve shall be utilized only for the purpose as specified in sec 83(2) of the Companies
Ordinance, 1984.
This represents balance amount after exercise of share options by the employees under the
Employee Stock Option Scheme approved by SECP against the options granted in 2009, 2010 and
2011 to senior employees who are critical to business operations. According to scheme, 100%
options become exercisable after completion of vesting period from date of grant. The options
have a vesting period of 2 years and an exercise period of 3 years from the date the option is
vested. options were granted by the Compensation Committee during
the year.
92
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
9 Deferred taxation
The (asset) / liability for deferred tax comprises of temporary differences relating to:
2014 2013
Note Rupees Rupees
Accelerated tax depreciation (1,038,793)
Provision for doubtful debts (444,431)
(1,483,224)
1,859,663
(726,329)
1,133,334
10 Trade and other payables
Creditors 13,385,653
Advance from customers 26,969,004
Accrued expenses 28,926,148
Provision for Worker's Welfare Fund (WWF) 17,930,514
Payable to unsuccessful applicants 20.1 167,628,000
Provident fund payable 7,200,376
Sales tax payable 11,197,650
Other payables 123,918
273,361,263
3,486,994
8,123,260
16,248,201
17,930,514
‐
‐
12,564,796
292,382
58,646,147
11 Contingencies and commitments
11.1 Guarantees issued by the financial institutions on behalf of the Holding company amount to Rs.
63.05 (2013: Rs. 57.22 ) million.
Note
8.1
422,312 (2013: 1,074,896)
Systems Limited | Annual Report 2014 93
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
11.2 Commitments include capital commitments for construction of building of the Holding company
amounting to Rs. 225.43 (2013: 225.43) million out of which Rs. 25.37 million has been paid in
11.3
2014 2013
Note Rupees Rupees
12 Property, plant and equipment
Owned assets ‐ tangible 12.1 163,735,721 146,543,659
Capital work in progress 12.2 39,671,939 35,530,031
203,407,660 182,073,690
advance.
During the current year, the Holding company has not charged Workers' Welfare Fund (WWF)
under WWF Ordinance, 1971 amounting to Rs 8.9 million, as the amendments made through
Finance Act 2006 and 2008 relating to scope and applicability of the same has been declared
unconstitutional by the Hounourable Lahore High Court through its judgement number 2011 PLD
2643. The matter is pending before the Honourable Supreme Court of Pakistan, however,
management is confident that the decision of Lahore High Court shall pervail, accordingly no
provision has been made by the Holding company during the year in this regard.
12.1
Owned assets
Land ‐ free hold
Computers
Computer equipments
and installations
Other equipments and installations
Generator
Furniture, fixtures and fittings
Office equipments
Vehicles
Project assets
Mobile sets
Depreciation
rate
(% per annum)
‐
33
33
20
20
20
20
25
Project life
33
2014Cost Depreciation
Net book value
as at 31 December
40,990,412
56,584,165
8,451,425
6,479,426
7,476,766
11,056,701
4,794,481
25,846,855
446,433
1,609,057
163,735,721
Rupees
Accumulated
depreciation as at
31 December
‐
103,474,149
22,712,873
15,471,625
9,912,696
39,397,187
6,692,073
14,288,023
4,086,293
1,048,272
217,083,191
Rupees
Disposal
‐
161,650
‐
‐
‐
‐
‐
5,082,267
‐
12,100
5,256,017
Rupees
Depreciation
charge
‐
27,806,291
3,942,557
2,694,560
1,370,901
4,333,934
1,477,661
9,138,419
374,209
619,574
51,758,106
Rupees
Accumulated
depreciation
as at 01 January
‐
75,829,508
18,770,316
12,777,065
8,541,795
35,063,253
5,214,412
10,231,871
3,712,084
440,798
170,581,102
Rupees
Cost
as at 31 December
40,990,412
160,058,314
31,164,298
21,951,051
17,389,462
50,453,888
11,486,554
40,134,878
4,532,726
2,657,329
380,818,912
Rupees
Disposals
‐
422,500
‐
75,600
‐
‐
‐
12,708,316
‐
40,000
13,246,416
Rupees
Additions
‐
41,097,839
7,993,467
2,319,145
4,976,993
3,135,032
1,649,834
13,788,587
795,200
1,184,470
76,940,567
Rupees
Cost
as at 01
January
40,990,412
119,382,975
23,170,831
19,707,506
12,412,469
47,318,856
9,836,720
39,054,607
3,737,526
1,512,859
317,124,761
Rupees
Owned assets
Land ‐ free hold
Computers
Computers equipments
and installations
Other equipments and installations
Generator
Furniture, fixtures and fittings
Office equipments
Vehicles
Project assets
Mobile sets
Cost
as at 01 January
2013 Additions Disposals
Cost
as at 31 December
2013
Accumulated
depreciation
as at 01 January
2013
Depreciation
charge Disposal
Accumulated
depreciation
as at31 December
2013
Net book value
as at
31 December
2013
Depreciation
rate
(% per annum)
40,990,412 ‐
40,990,412
‐
‐
‐ 40,990,412 ‐
91,287,349 3,810,081
119,382,975
22,727,257
3,417,413
75,829,508 43,553,467 33
‐
‐
20,783,802 ‐
23,170,831
4,612,213
18,770,316 4,400,515 33
19,172,029 325,320
19,707,506
2,124,918
171,920
12,777,065 6,930,441 20
10,595,169 ‐
12,412,469
905,632
‐
8,541,795 3,870,674 20
44,887,665 15,000
47,318,856
3,553,781
14,998
35,063,253 12,255,603 20
6,790,833 ‐
9,836,720
1,066,842
5,214,412 4,622,308 20
24,188,614 8,830,173 39,054,607 7,309,653 7,383,955 10,231,871 28,822,736 25
3,243,010 ‐ 3,737,526 481,474 ‐ 3,712,084 25,442 Project life
681,918 ‐ 1,512,859 356,785 ‐ 440,798 1,072,061 33
262,620,801
‐
31,905,707
2,387,029
860,797
1,817,300
2,446,191
3,045,887
23,696,166
494,516
830,941
67,484,534 12,980,574 317,124,761
‐
56,519,664
14,158,103
10,824,067
7,636,163
31,524,470
4,147,570
10,306,173
3,230,610
84,013
138,430,833 43,138,556 10,988,286 170,581,102 146,543,659
Cost Depreciation
2013
RupeesRupeesRupeesRupeesRupeesRupeesRupeesRupeesRupees
12.1.1 The cost of owned assets include assets amounting to Rs. 151.68 (2013: 102.61 ) million with nil
book value.
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2014 2013
Rupees Rupees
12.2 Capital work in progress
Advance to supplier
Land improvements
Building ‐ freehold
12.2.1 This represents in progress construction of the Holding company's new office building.
12.3 Depreciation charge for the year has been allocated as follows:
2014 2013
Note Rupees Rupees
Direct cost 22 41,390,320 34,410,393
Distribution cost 23 1,142,255 480,298 Administrative expenses 24 9,104,230 8,138,836 Research and development expenses 25 121,301 109,029
51,758,106 43,138,556
94
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
23,295,538 22,815,000 4,316,890 655,520
12,059,511 12,059,511 39,671,939 35,530,031
12.4 Disposal of property, plant and equipment
Vehicles
Honda Civic (AZJ‐095)
Toyota Corolla (AWR‐196)
Honda City (LEA‐12‐8409)
Honda City
Suzuki Cultus (LEA‐13‐1813)
Toyota Corolla (AXZ‐557)
Suzuki Cultus (LEA‐12‐7472)
Honda City
Suzuki Cultus (LEA‐11‐5168)
Suzuki Mehran (LEA‐11‐4831)
Other
Miscellaneous
2014
Mode of
disposal
Holding Company Policy
Holding Company Policy
Holding Company Policy
Holding Company Policy
Holding Company Policy
Holding Company Policy
Holding Company Policy
Holding Company Policy
Holding Company Policy
Holding Company Policy
Negotiation
Particulars
of buyer
Asharaf Kapadia
Kashif Krimi
Usman Asif
Wali Muhammad Qadri
Tariq Gill
Muhmmad Nasar Sabih
Muhammad Zahid Hussain
Warood Choudry
Nadeem Yusuf
Adnan Yaqoob
Various
Particulars
780,513
970,452
793,302
161,119
236,972
163,527
669,533
125,000
736,386
445,463
5,082,267
362,690
5,444,957
Profit
Rupees
Sale
proceeds
2,495,421
1,606,265
1,586,604
1,546,740
1,034,061
1,010,125
1,004,300
1,000,000
862,110
562,690
12,708,316
727,040
13,435,356
Rupees
Written
down value
1,714,908
635,813
793,302
1,385,621
797,089
846,598
334,767
875,000
125,724
117,227
7,626,049
364,350
7,990,399
Rupees
Accumulated
depreciation
780,513
970,452
793,302
161,119
236,972
163,527
669,533
125,000
736,386
445,463
5,082,267
173,750
5,256,017
Rupees
2,495,421
1,606,265
1,586,604
1,546,740
1,034,061
1,010,125
1,004,300
1,000,000
862,110
562,690
12,708,316
538,100
13,246,416
Computers
HP Probook 4540s Corei7 2.30GHZ
Vehicles
Honda Civic‐V Tech MT
Other
Miscellaneous
Mode ofdisposal
Negotiation
Holding Company Policy
Negotiation
Particulars of buyer
Mr. Muhammad Kashif
Ali Nadir Zaman
Various
2013
Particulars
(7,444)
240,556
3,275,313
3,508,425
Rupees
ProfitSale
proceeds
59,000
505,691
4,936,022
5,500,713
Rupees
Written down value
66,444
265,135
1,660,709
1,992,288
Rupees
Accumulated depreciation
25,556
1,325,678
9,637,052
10,988,286
Rupees
92,000
1,590,813
11,297,761
12,980,574
Cost
Rupees
Cost
Rupees
2014 2013
Note Rupees Rupees
13.3 Amortization charge for the year has been allocated as follows:
Cost of revenue 22 6,707,439 3,634,614
Distribution Cost 23 94,367 72,789
Administrative expenses 24 982,874 492,609
Research and development expenses 25 23,410 13,790
7,808,090 4,213,802
13 Intangible assets
Systems Limited | Annual Report 2014 95
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
Rate
Book value
as at
31 December
Rupees
Accumulated
Amortizationas at
31 December
Rupees
Amortization
charge
for the year
Rupees
Accumulated
Amortizationas at
1 January
Rupees
Cost as at
31 December
Rupees
Additions
Rupees
Cost as at
1 January
Rupees
2013
Particulars
Computer Software ‐ (Note ‐13.2)
December 2014
30%
2014
Particulars
Computer Software ‐ (Note ‐13.2) 15,691,770 11,740,117
27,431,887 7,165,199 4,213,802 11,379,001 16,052,886
December 2013 15,691,770 11,740,117
27,431,887 7,165,199 4,213,802 11,379,001 16,052,886
30%
Rate
Book value
as at
31 December
54,210,428
54,210,428
Rupees
Accumulated
Amortizationas at
31 December
19,187,091
19,187,091
Rupees
Amortization
charge
for the year
7,808,090
7,808,090
Rupees
Accumulated
Amortizationas at
1 January
11,379,001
11,379,001
Rupees
Cost as at
31 December
73,397,519
73,397,519
Rupees
Additions
45,965,632
45,965,632
Rupees
Cost as at
1 January
27,431,887
27,431,887
Rupees
13.1 The cost of the Intangibles include intangible assets amounting to Rs. 5.1 (2013: 3.42) million with nil
book value.
13.2 Additions include in‐house developed intangibles amounting to Rs. 26.05 (2013: Nil) million
capitalized during the current year.
14 This mainly includes security deposits for leased office buildings.
15 Work in progress
Software ‐ work in progress 15.1
Less: Provision for impairment
694,757
(694,757)
‐
747,157
‐
747,157
15.1 This includes application purchased from Microsoft Incorporation a for customer which has not yet
been delivered.
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Stakeholders� Information
15
2014 2013
Note Rupees Rupees
16 Trade debts ‐ unsecured, considered good
Billed
Export 16.1 571,724,311 513,166,261
Local 182,044,950 87,866,348
Less: Provision for bad debts 16.2 (8,182,396) (8,948,300)
745,586,865 592,084,309
Unbilled 252,055,058 96,382,771
997,641,923 688,467,080
16.1
2014 2013
Rupees Rupees
16.2 Balance as at 01 January
Add: Provision made during the year
Less: Bad debts written off
Balance as at year end
8,948,300
3,606,674
(4,372,578)
8,182,396
3,127,500
6,515,800
(695,000)
8,948,300
16.3 Aging analysis of the amounts due from related parties is as follows:
Not past due
Past due but not impaired:
‐ Not more than three months
‐ More than three months and
not more than six months
‐ More than six months
115,695,106
194,438,234
185,060,656
‐
495,193,996
85,803,429
237,575,712
160,707,107
3,812,002
487,898,250
This includes receivable against sale of services from Vision Systems Incorporation amounting to
Rs. 495.19 (2013: Rs. 487.90) million.
96
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
2014 2013
Rupees Rupees
Visionet Systems Incorporation
Systems Limited | Annual Report 2014 97
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
17 Advances, deposits, prepayments and
other receivables
Advance to suppliers 7,043,902 9,643,345
Advance to employees ‐ unsecured,
considered good 17.1 4,238,699 6,227,730
Advance for expenses 16,443,332 5,449,648
Prepayments 17.2 30,833,177 5,885,940
Tax refunds due from Government 27,467,230 3,465,939
Security deposits 28,079,470 18,634,799
114,105,810 49,307,401
17.1
17.2
18
2014 2013
Note Rupees Rupees
19 Short term investments
Held to maturity
Pak Oman Investment Company 19.1
Treasury bills 19.2
Investment at fair value through profit and loss
Pakistan Cash Management Fund
Nil units (2013: 283,938)
NAFA Fund 269,871 units (2013: 2,690,178)
Add: Unrealized gain on investments at
fair value through profit and loss
‐
‐
‐
‐
27,290,414
2,914,230
30,204,644
30,204,644
2,030,958
198,482,006
200,512,964
11,876,345
25,000,000
4,261,187
41,137,532
241,650,496
This includes prepaid IPO expenditures of Rs. 18.48 (2013: Nil) million which mainly includes listing
fees of Karachi, Lahore and Islamabad stock exchange, underwriting commission and consulting
fees.
This includes Rs. Nil (2013:Rs. 5.12 million) advance given to Chief Executive of Systems Limited to
exercise stock option under Employee Stock Option Scheme.
This represents amount receivable against expenses incurred on behalf of Visionet Systems Incorporation
amounting to Rs. 2.15 (2013: 6.49 ) million. These are unsecured, carry no interest and are payable on
demand by the related party.
19.1 These are certificates of investments carrying markup at rates ranging from 8.5% to 9.7% (2013:
8.5% to 9.7% ) per annum. These have been redeemed during the year.
2014 2013
Rupees Rupees
Visionet Systems Incorporation
Note
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98
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
19.2
2014 2013
Note Rupees Rupees
20 Cash and bank balances
Cash in hand 76,861 167,733
Cash at bank
Local currency:
Current accounts 20.1 699,353,085 32,753,492
Saving accounts 20.2 283,423,583 108,553,561
982,776,668 141,307,053
Foreign currency 4,239,269 2,487,465
987,092,798 143,962,251
20.1
20.2
2014 2013
Note Rupees Rupees
21 Revenue ‐ net
Development and other services:
Export 1,184,455,617
Local ‐ gross 217,910,262
Less: Sales tax on local sales 21.1 (14,872,969)
203,037,293
Trading income:
Software sale ‐ export ‐
Software sale ‐ local 40,091,535
21.1 (4,515,084)
35,576,451
1,419,780,765
324,836,908
(26,944,347)
297,892,561
87,323,353
138,330,879
(20,615,998)
117,714,881
1,922,711,560 1,423,069,361
21.1 This represents sales tax chargeable under Provincial and Federal Sales tax laws.
These represent treasury bills which have been redeemed during the year.
This includes amount of subscription money aggregating to Rs. 687.63 (2013: Nil) million received
by the Holding company from high net worth individuals, institutional investors and general public
against the shares offered through IPO out of which Rs. 167.63 (2013: Nil) million have been
refunded to unsuccessful applicant subsequent to the year end.
These carry markup at the rate of 7.5% to 9.5% (2013: 5% to 6%) per annum. Moreover, these
include Rs. 184.99 (2013: 133.33) million in KASB Bank which the Holding company is unable to
withdraw due to imposition of moratorium by Federal Government on application of State Bank of
Pakistan for a period of six months effective from 17 November 2014.
Systems Limited | Annual Report 2014 99
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
2014 2013
Note Rupees Rupees
22 Direct cost
Salaries, allowances and amenities 22.1 798,084,596 616,403,228
Air time consumed 48,962 17,600
Printing and stationery 1,301,183 1,090,860
Computer supplies 4,733,590 6,940,259
Rent, rates and taxes 56,645,263 48,290,100
Electricity, gas and water 44,002,788 42,816,044
Traveling and conveyance 66,210,274 33,572,762
Repair and maintenance 9,275,826 13,050,679
Postage, telephone and telegrams 29,882,354 25,771,937
Vehicle running and maintenance 3,117,248 2,862,476
Entertainment 1,837,004 2,778,790
Fee and subscriptions 19,522,332 3,582,418
Insurance 1,269,270 1,399,947
Provision for impairment 15 694,757 ‐
Depreciation 12.3 41,390,320 34,410,393
Amortization 13.3 6,707,439 3,634,614
1,084,723,206 836,622,108
Purchase of software for trading 161,133,928 24,734,192
1,245,857,134 861,356,300
22.1
2014 2013
23 Distribution cost
Note Rupees Rupees
Salaries, allowances and amenities 23.1 43,114,142 33,581,851
Printing and stationery 501,671 201,585
Computer supplies 443,725 201,095
Rent, rates and taxes 949,317 939,001
Electricity, gas and water 642,831 565,609
Traveling and conveyance 9,917,335 7,139,116
Repair and maintenance 137,925 164,305
Postage, telephone and telegrams 1,195,417 615,679
Vehicle running and maintenance 1,022,986 358,826
Entertainment 101,603 198,870
Insurance 118,534 29,514
Fee and subscriptions/Training 238,963 259,657
Shows/Seminars/Advertising 2,310,842 2,031,535
Depreciation 12.3 1,142,255 480,298
Amortization 13.3 94,367 72,789
Bad debts 3,606,674 6,515,800
Tender documents 136,863 69,604
65,675,450 53,425,134
This includes employees retirement benefit expense amounting to Rs. 61.85 (2013: Rs.23.80)
million.
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100
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
23.1
2014 2013
24 Administration expenses
Note Rupees Rupees
Salaries, allowances and amenities 24.1 141,144,432 99,446,037
Printing and stationery 1,041,747
873,305
Computer supplies 3,343,601
2,548,080
Rent, rates and taxes 7,580,772
6,288,081
Electricity, gas and water 7,125,624 5,461,126
Traveling and conveyance 8,663,615 6,141,153
Repair and maintenance 5,207,364 5,560,772
Postage, telephone and telegrams 5,027,783 3,516,978
Vehicle running and maintenance 2,406,366 2,079,570
Legal and professional 4,031,141 6,591,865
Auditors' remuneration 24.2 1,766,025 898,550
Entertainment 1,952,029 991,591
Donations 24.3 684,000 42,000
Fee and subscriptions/Training 5,183,544 2,282,474
Insurance 670,143 484,425
Depreciation 12.3 9,104,230 8,138,836
Amortization 13.3 982,874 492,609
Newspapers books and periodicals 374,816 54,435
Others 357,247 247,440
206,647,353 152,139,327
24.1
2014 2013
Rupees Rupees
24.2 Auditors' remuneration
Statutory audit fee 670,000
Half yearly and quarterly audit ‐
Half yearly review 161,000
Out of pocket expenses 67,550
906,025
810,000
‐
50,000
1,766,025 898,550
24.3 The Directors or their spouses have no interest in the Donee's fund.
This includes employees retirement benefit expense amounting to Rs. 3.17 (2013: Rs. 1.18) million.
This includes employees retirement benefit expense amounting to Rs. 10.35 (2013: Rs. 3.67) million
and gratuity amounting to Rs. 1.16 (2013: 0.15) million.
Systems Limited | Annual Report 2014 101
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
2014 2013
Note Rupees Rupees
25 Research and development expenses
Salaries, allowances and amenities 25.1 1,587,833 4,237,789
Computer supplies 115,132 10,663
Rent, rates and taxes 179,196 282,488
Electricity, gas and water 103,482 144,838
Traveling and conveyance 111,138 289,518
Repair and maintenance 41,237 19,334
Postage, telephone and telegrams 86,966 78,754
Vehicle Running and mainatenance 25,539 26,908
Fee and subscriptions/Training 24,165 42,576
Insurance 10,019 7,405
Depreciation 12.3 121,301 109,029
Amortization 13.3 23,410 13,790
2,429,418 5,263,092
25.1
2014 2013
Note Rupees Rupees
26 Other operating expenses
Workers Welfare Fund 11.3 ‐ 8,511,228
‐ 8,511,228
27 Finance cost
Markup on short term borrowings ‐ 222,499
Markup on guarantee commission 403,591 490,535
Bank charges and commission 3,592,373 2,744,777
3,995,964 3,457,811
This includes employees retirement benefit expense amounting to Rs. 0.12 (2013: Rs. 0.16) million.
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102
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
28 Other income
Income from financial assets:
Profit on saving accounts 15,920,632 8,978,731
Gain on short term investments 13,972,179 17,265,812
Exchange (loss)/gain (21,650,799) 40,883,618
8,242,012 67,128,161
Income from non‐financial assets:
Gain on disposal of fixed assets ‐ net 5,444,957 3,508,425
Others 4,969 196,884
5,449,926 3,705,309
13,691,938 70,833,470
29 Provision for taxation
Income Tax
‐Current 29.1 9,861,718
Deferred 802,101
6,760,398
(2,616,558)
4,143,840 10,663,819
29.1
2014 2013
Rupees Rupees
29.2 Tax charge reconciliation
Accounting profit
Tax expense at the rate of 33% (2013: 34%)
Adjustments:
Tax effect of income under PTR
Tax effect of inadmissible deductions
Others
Tax as per taxable profit
430,863,420
142,184,929
(140,539,679)
5,115,148
(2,616,558)
4,143,840
425,805,108
144,773,737
(137,885,290)
2,973,271
802,101
10,663,819
This represents tax chargeable under Normal Tax Regime on local sale of software and services.
The income of the Holding Company from export of software is exempt under clause 133 Part 1 of
Second Schedule to the Income Tax Ordinance, 2001. Tax expenses represent higher of corporate
tax @33% and alternate corporate tax @ 17% of accounting profit of the Holding Company. The
Holding Company is recognising provision for taxation @ 33% of its taxable profits as corporate tax
is higher than alternate corporate tax.
2014 2013
Note Rupees Rupees
Systems Limited | Annual Report 2014 103
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
30 Financial instruments
The Group has exposures to the following risks from its use of financial instruments:
‐ Credit risk
‐ Liquidity risk
‐ Market risk
30.1 Credit risk
2014 2013
Rupees Rupees
Trade debts‐ billed (net) 745,586,865 592,084,309
Trade debts‐ unbilled 252,055,058 96,382,771
Receivable from related parties 2,150,066 6,486,270
Long term deposits 14,346,357 9,865,574
Short term investment 30,204,644 241,650,496
Advances, deposits and other receivables 28,079,470 18,634,799
Bank balances 982,776,668 141,307,053
2,055,199,128 1,106,411,272
Foreign 513,166,261
Domestic 87,866,348
601,032,609 Less: Provision for bad debts (8,948,300)
571,724,311
182,044,950 753,769,261
(8,182,396) 745,586,865 592,084,309
The Board of Directors has overall responsibility for the establishment and oversight of Group’s risk
management framework. The Board is also responsible for developing and monitoring the Group's risk
management policies.
Credit risk represents the accounting loss that would be recognized at the reporting date if
counterparties fail completely to perform as contracted and arises principally from trade receivables
and investment in debt securities. Out of the total financial assets of Rs. 2,062.13 (2013: Rs.
1152.52) million, the financial assets which are subject to credit risk amounted to Rs. Rs. 2062.05
(2013: Rs. 1,152.35 ) million.
To manage exposure to credit risk in respect of trade receivables, management reviews credit
worthiness, references, establish purchase limits taking into account the customer's financial
position, past experience and other factors. The management has set a maximum credit period of 30
days to reduce the credit risk. Limits are reviewed periodically and the customers that fail to meet
the Group's benchmark creditworthiness may transact with the Group only on a prepayment basis.
Concentration of credit risk arises when a number of counter parties are engaged in similar business
activities or have similar economic features that would cause their abilities to meet contractual
obligation to be similarly effected by the changes in economic, political or other conditions. The
Group's most significant receivable balance is from related party Visionet Systems Incorporation
which is included in trade receivable amounting to Rs. 495.19 million (2013: Rs. 487.90 million).
The trade debts billed as at the balance sheet date are classified as follows:
The carrying amount of financial assets represents the maximum credit exposure before any credit
enhancements. The maximum exposure to credit risk at the reporting date is:
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104
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
2014 2013
Rupees
The aging of trade receivables ‐ billed
at the reporting date is:
0 ‐ 120 days 588,303,751 409,412,342 121 ‐ 365 days 147,616,464 182,671,967 Above one year 17,849,046 8,948,300
753,769,261 601,032,609 Impairment above one year (8,182,396) (8,948,300)
745,586,865 592,084,309
Rating
Short term Long term Agency
IGI Income Fund A+(f) A+(f) PACRA
Pak Oman Investment Company Limited A‐1+ AA+ JCR‐VIS
Deutsche Bank Limited P‐1 A2 Moody's
Nafa Asset Management Fund 5 Star 4 Star PACRA
United Bank Limited A‐1+ AA+ JCR‐VIS
Standard Chartered Bank Limited A1+ AAA PACRA
Albarakah Bank Limited A1 A PACRA
Bank Alfalah Limited A1+ AA PACRA
KASB Bank Limited C B PACRA
30.2 Liquidity risk
Bank balances include Rs. 184.99 (2013: 133.33) million in KASB bank which the Holding company is
unable to withdraw due to imposition of moratorium by Federal Government on application of State
Bank of Pakistan for a period of six months effective from 17 November 2014.
Based on past experience and policy of the Group, the management believes that an impairment
allowance is necessary in respect of trade receivables past due by one year except if those
receivables are recovered subsequent to year end and if management has sufficient grounds to
believe that the amounts will be recovered.
Credit Rating
The credit quality of cash and bank balances that are neither past due nor impaired can be assessed
by reference to external credit ratings or to historical information about counterparty default rate:
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall
due. The Group's approach to managing liquidity is to ensure as far as possible to always have
sufficient liquidity to meet its liabilities when due. The following are the contractual maturities of
financial liabilities:
Rupees
Carryingamount
Contractual
Cash flows
Six months or less
Six to twelve
months
One to two years
16,051,790 16,051,790 ‐ ‐
‐ ‐ ‐ 8,611,771
Financial liabilities
Trade and other payables
Long term advances
Current portion of long
term advances ‐ 1,219,000 ‐
16,051,790
16,051,790
‐
‐
16,051,790 17,270,790 ‐ 8,611,771
2013
RupeesRupeesRupeesRupeesRupees
Carrying amount
Contractual
Cash flows
Six months or less
Six to twelve
months
One to two years
24,583,303 24,583,303 24,583,303 ‐ ‐
‐ ‐ ‐ ‐ 6,766,611
Financial liabilities
Trade and other payables
Long term advances
Current portion of long
term advances ‐ ‐ 3,391,885 ‐
24,583,303 24,583,303 27,975,188 ‐ 6,766,611
RupeesRupeesRupeesRupeesRupees
2014
Systems Limited | Annual Report 2014 105
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
30.3 Market risk
30.3.1 Currency risk
2014 2013
Rupees Rupees
Foreign debtors 571,724,311 513,166,261
Foreign currency bank accounts 4,239,269 2,487,465
Net exposure 575,963,580 515,653,726
The following significant exchange rate has been applied:
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates
and equity prices will affect the Group's income or the value of its holdings of financial instruments.
The Group is exposed to currency risk on sales and purchases that are denominated in a currency
other than the functional currency primarily USD. The Group's exposure to foreign currency risk for
USD is as follows:
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2014 2013 2014
USD to PKR 101.37 100.96 100.6
AED to PKR 27.47 27.51 27.33
Sensitivity analysis
2014 2013Rupees Rupees
Effect on profit or (loss)
USD (57,596,358) (51,565,373)
The weakening of the PKR against USD would have had an equal but opposite impact on the post tax
profits.
30.3.2 Interest rate risk
2014 2013 2014 2013
Financial assets
Fixed rate instruments
Treasury bills ‐ 8.55 ‐ 198,482,006
Certificate of investments ‐ 9.1 ‐ 2,030,958
Fair value sensitivity analysis for fixed rate instruments
%
The Group does not account for any fixed rate financial assets and liabilities at fair value through
profit or loss. Therefore, a change in interest rate at the reporting date would not affect profit and
loss account.
30.3.3 Other price risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market prices (other than those arising from interest rate risk or
currency risk). Material investments within the portfolio are managed on an individual basis and all
buy and sell decisions are approved by the Board. The primary goal of the Group's investment
strategy is to maximize investment returns.
Carrying amount
At the reporting date the interest rate profile of the Group's significant interest bearing financial
instruments was as follows:
Rupees
Rupees
The sensitivity analysis prepared is not necessarily indicative of the effects on profit for the year and
assets / liabilities of the Group.
At reporting date, if the PKR had strengthened by 10% against the USD with all other variables held
constant, post‐tax profit for the year would have been lower by the amount shown below, mainly as
a result of net foreign exchange gain on translation of foreign debtors and foreign currency bank
account.
Average rate Reporting date rate
Effective rate
106
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
2013
105
28.59
RupeesRupees Rupees
Rupees%
30.4 Fair value of financial instruments
Capital management
The Group's objectives when managing capital are:
(i)
(ii) to provide an adequate return to shareholders.
The Board’s policy is to maintain an efficient capital base so as to maintain investor, creditor and
market confidence and to sustain the future development of its business. The Board of Directors
monitors the return on capital employed, which the Group defines as operating income divided by
total capital employed. The Board of Directors also monitors the level of dividends to ordinary
shareholders.
to safeguard the Group's ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders, and
Since the Group, has healthy cash flows at year end which is primarily because of higher revenue
resulting in profits and increased equity, therefore, it does not carry any long term or short term
debts at 30 June 2014.
The carrying values of the financial assets and financial liabilities approximate their fair values. Fair
value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction.
Investment in mutual funds is valued using quoted prices in active market, hence, fair value of such
investments fall within Level 1 in fair value hierarchy as mentioned above. The carrying values of
other financial assets and financial liabilities reported in balance sheet approximate their fair values.
Neither there were any changes in the Group’s approach to capital management during the year nor
the Group is subject to externally imposed capital requirements.
Fair value of financial instruments
‐ Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
‐
(i.e. derived from prices).
‐ Level 3: Valuation techniques using significant unobservable inputs.
The carrying values of other financial assets and financial liabilities reported in balance sheet
approximate their fair values. The Group measures fair values using the following fair value hierarchy
that reflects the significance of the inputs used in making the measurements.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or
indirectly
Management believes that sensitivity analysis is unrepresentive of the price risks.
Systems Limited | Annual Report 2014 107
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
www.systemsltd.com
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
Visionet Systems Incorporation
Provident fund
Name 2013
Rupees
1,077,903,754
8,455,105
1,086,358,859
57,628,938
2014
Rupees
1,083,629,875
23,623,310
1,107,253,185
68,294,127
Sales
Reimbursement of expenses
Contributions
Nature of transactions
Common directorship
Employee benefit plan
Relationship
31 Provident Fund related disclosures
32 Number of Employees
2014 2013
Average number of employees during the year 1,273 1,258
Number of employees as at the closing date 1,428 1,135
The investments out of provident fund have been made in accordance with the provision of section 227 of
the Companies Ordinance, 1984 and the rules formulated for the purpose.
The total average number of employees during the year and as at the year end are as follows:
No. of employees
Based on the unaudited financial statements of the Employees' Provident Fund Trust, the total size (total
asset) of the fund is Rs. 131.07 million (2013: Rs. 113.71 million) out of which Rs. 115.28 million (2013:Rs.
97.92 million) is in the form of investments i.e. 87.95% (2013: 86.11%). Investments include fixed deposits of
Rs. 20 million (2013: Rs. 40.86 million) with commercial banks, Rs. 38 million in mutual funds (2013: Rs. 19.76
million), Rs. 19 million (2013: Rs. 8 million) in Term Deposit Certificates, Rs. 22 million (2012: Rs. 22 million) in
Defence Saving Certificates and the balance kept in saving accounts is Rs. 16.28 million (2013: Rs. 7.29
million).
108
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
No. of employees
33 Remuneration of Directors and Executives
34 Transactions with related parties
The aggregate amounts charged in the accounts for the year for remuneration, including all benefits to the
Chief executive, Directors and Executives of the Group are as follows:
Chief Executive Non Executive Directors Executives
2014 2013
24,400,000
9,600,000
‐
‐
461,490,249 327,779,896
960,000
660,000
‐
‐
25,676,206
17,523,097
25,360,000
10,260,000
‐
‐
487,166,455
345,302,993
1 1 5 5 344 244
2014 2013
2014 2013
Managerial remuneration
Contribution to provident fund
Number of persons
Related parties comprises of associated companies, staff retirement fund, Directors and key managementpersonnel. Transactions with related parties other than remuneration and
personnel under the terms of their employment disclosed above, are as follows:
benefits to key management
www.systemsltd.com
Systems Limited | Annual Report 2014 109
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
2014
Development and other services:
Local 15.49%
Export 73.84%
Software trading:
Local 6.12%
Export 4.54%
100%
35.1.1
35.1.2
36 Earnings per share‐ basic and diluted
36.1 Basic earnings per share
2014 2013
Rupees Rupees
i‐Profit attributable to ordinary share holders (basic)
Profit for the year attributable to owners' of
the Company 411,265,030 400,875,330
2014 2013
Shares Shares
Restated
ii‐Weighted‐average number of ordinary shares (basic)
Issued ordinary shares as at 1 January 42,937,507 42,276,288
Effect of share options exercised 5.1 430,096 6,236
43,367,603 42,282,524
Effect of bonus shares ‐ 100% bonus shares 43,367,603 42,282,524
Weighted‐average number of ordinary shares
at 31 December 86,735,206 84,565,048
35 Operating segments
The financial information has been prepared on the basis of a single reportable segment.
35.1 Total revenue from development and other services and software trading is as follows:
Percentage
The Group earns 56% (2013:76%) of its revenues from its related party, Visionet Incorporation
located in USA through software development and business process outsourcing.
0.21% (2013: 0.34%) of total assets of the Group are located outside Pakistan.
The calculation of basic earnings per share is based on profit attributable to ordinary shareholders
and weighted‐average number of ordinary shares outstanding, as follows;
2013
14.27%
83.23%
2.50%
0.00%
100%
Note
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
36.2 Diluted earnings per share
37 Post balance sheet events
38 General
The figures have been rounded off to nearest rupee. Comparative figures have been rearranged / reclassified
wherever necessary, however, no major restatement has been made.
The earning per share of prior year has been adjusted to reflect the changes of bonus shares issued during
the year ended 31 December 2014.
There is no dilutive effect on the basic earning per share of the Group after taking into account
share options granted to employees outstanding at the year end.
110
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2014
ASIF PEERChief Executive
AEZAZ HUSSAINChairmanLAHORE
The Board of Directors in their meeting held on 18 March 2015 have proposed a final dividend of Rs. 1 (2013:
2.25) per share amounting of Rs. 100.165 million (2013: 96.61 million) and Bonus shares at the rate 10% (2013:
Nil) for the year ended 31 December 2014 for approval of the members at the Annual General Meeting to be held
on 24 April 2015. These financial statements do not reflect these appropriations.
Shareholders’ Information
112 Notice of Annual General Meeting
114
Form of Proxy117
Annual General Meeting
112
Notice of Annual General MeetingNotice is hereby given to all the members of Systems Limited (the "Company") that 38th Annual General Meeting of the Company is scheduled to be held on 24 April 2015 at 11:00 a.m. at Chamber of Commerce Building, 11 Sharae Aiwane Tijarat, Lahore to transact the following business:
Ordinary Business:
1. To confirm the minutes of the Extra Ordinary General Meeting held on 02 December 2014.
2. To receive, consider and adopt the Audited Accounts of the Company for the year ended 31 December 2014 together with the Board of Directors’ and Auditors’ reports thereon.
3. To approve and declare cash dividend @ 10% i.e. PKR 1/- per share and bonus shares @ 10% i.e. 10 shares per 100 shares held, for the year ended 31 December 2014 as recommended by the Board of Directors.
4. To appoint Auditors and fix their remuneration for the year ending 31 December 2015. The Board of directors upon recommendation of audit committee has recommended M/S Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants, being eligible for appointment as auditors of the company for the year ending 31 December 2015.
5. To approve the web placement of quarterly accounts as per Circular No. 19 of 2004 issued by Securities and Exchange Commission of Pakistan.
Special Business:
6. To approve running credit line of PKR 60 Million to the Company's subsidiary E-Processing Systems (Private) limited for meeting its working capital requirements at an annual markup rate of 9%.
7. To approve the changes in Systems Limited Employee Stock Option Scheme.
Other Business:
8. Any other business with the permission of the Chair
BY ORDER OF THE BOARD
Affan SajjadCompany Secretary
02 April 2015Lahore
NOTES:
1. The Share Transfer books of the company will be closed from 18 April 2015 to 24 April 2015 (both days inclusive). Transfers received at the address of THK Associates (Private) limited, 2nd floor, State Life Building No.3, Dr. Zia-uddin Ahmed Road, Karachi at the close of business on 17 April 2015 will be treated in time for the purpose of above entitlement to the transferees.
2. A member entitled to attend and vote at the meeting may appoint another member as his/her proxy to attend and vote in his/her place. Proxies completed in all respect, in order to be effective, must be received at the Registered Office of the Company not less than forty eight (48) hours before the time of meeting.
3. Members who have not yet submitted photocopies of Computerized National Identity Card (CNIC) are requested to send the same at the earliest.
4. All the account holders whose registration details are uploaded as per CDC Regulations shall authenticate their identity by showing original CNIC at the time of attending the meeting. In case of corporate entity, a certified copy of resolution of the Board of Directors / valid Power of Attorney having the name and specimen signature of the nominee should be produced at the time of meeting.
5. The Statement U/S 160(1) (b) of the Companies Ordinance 1984 is being sent to all shareholders through courier/registered post along with the notice of the meeting.
Systems Limited | Annual Report 2014
www.systemsltd.com
113
STATEMENT UNDER SECTION 160(1)(B) OF THE COMPANIES ORDINANCE 1984
This statement is annexed to the notice of the Annual General Meeting of Systems Limited (the "Company") to be held on 24 April 2015 at 11:00 a.m at Chamber of Commerce Building, 11 Sharae Aiwane Tijarat, Lahore and sets out the material facts concerning the Special Business to be transacted at the said meeting.
1. To approve running credit line of PKR 60 Million to the Company's subsidiary E-Processing Systems (Private) Limited for meeting its working capital requirements at an annual markup rate of 9%.
E-Processing Systems (Private) limited is subsidiary of Systems Limited incorporated in Pakistan as a private limited company in February 2013 under the Companies Ordinance, 1984. The company is principally engaged in the business of purchase and sale of airtime and software development including the development of systems and infrastructure. The company is in process of developing its product i.e. OneLoad Software. The operations of the product are in beta testing phase and few retailers were given access to the system. It is expected that product will be breakthrough in mobile credit transfer industry. To further improve the product, company requires funds in initial phase. The purpose of this credit line is to provide funds to the company to meet its working capital requirements during the phase of product development and launch.
"IT IS HEREBY RESOLVED THAT consent and approval of the members of the Company be and is hereby accorded under section 208 of the Companies Ordinance, 1984 for sanction of credit line of Pkr 60 Million to company's subsidiary E-Processing Systems (Pvt.) Limited for meeting its working capital requirements at an annual markup rate of 9%.”
"FURTHER RESOLVED THAT the Chief Executive Officer and Company Secretary be and are hereby authorized to do all such acts necessary to give effect to above resolution, on behalf of the company.
2. To approve the changes in Systems Limited Employee Stock Option Scheme.
With the objective of employee commitment and retention through ownership in the company, Company is operating Employee Stock option policy approved by SECP.
As per clause 9 of Systems Limited Stock Option Scheme, the Exercise Price is defined as follows:
9.1. In case the Company is not listed on a Stock Exchange the Exercise Price shall be a notional price, which will be calculated by taking an average of the following 3 factors:
Notional Price based on latest available audited Annual Revenue
This will be calculated as follows:
"1.0" times last audited "Annual Revenue" divided by "Total Shares Outstanding".
Notional Price based on latest available audited Annual Profit;
This will be calculated as follows:
"6.0" times last audited "Annual Profit before Tax" divided by "Total Shares Outstanding"; and
Breakup Value;
This will be calculated as follows;
Last available audited "Total Equity" divided by "Total Shares Outstanding".
9.2. In case the company is listed on a Stock Exchange, the Exercise Price shall be the weighted average of the closing market price of the shares of the company for the last 30 days prior to the Date of grant.
Considering the fact that Systems Limited is now a listed company and to further benchmark Company's Stock Option Policy with the listed companies, following changes have been proposed in clause 9.2 of the policy.
“9.2 In case the company is listed on a Stock Exchange, the Exercise Price shall be the weighted average of the closing market price of the shares of the company for the last 90 days prior to the Date of grant discounted by 20%.”
"IT IS HEREBY RESOLVED THAT consent and approval of the members of the Company be and is hereby accorded for adoption of changes in Systems Limited Employee Stock Option Scheme.”
"FURTHER RESOLVED THAT the Chief Executive Officer and Company Secretary be and are hereby authorized to do all such acts necessary to implement the change in Systems Limited Employee Stock Option Scheme."
Consolidated Financial Statements
71Separate Financial Statem
ents31
Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
Annual General Meeting
111
114
BOOK CLOSURE DATES
The Register of Members and Share Transfer Books of the Company will remain closed from 18 April 2015 to 24 April 2015 both days inclusive.
REGISTERED OFFICE
Shareholders� Information
Chamber of Commerce Building,11 Sharae Aiwane Tijarat, Lahore, Pakistan.T: +92 42 36304825-35F: +92 42 36368857
SHARE REGISTRAR
THK Associates (Private) Limited.2nd Floor, State Life Building-3,Dr. Ziauddin Ahmed Road, Karachi.T: +92 21 111-000-322F: +92 21 35655595
LISTING ON STOCK EXCHANGES
Ordinary shares of Systems Limited listed on Karachi, Lahore and Islamabad stock exchanges of Pakistan.
STOCK CODE / SYMBOL
The stock code / symbol for trading in ordinary shares of Systems Limited at Karachi, Lahore and Islamabad stock exchanges is SYS.
STATUTORY COMPLIANCE
During the year, the Company has complied with all applicable provisions, filed all returns/forms and furnished all the relevant particulars as required under the Companies Ordinance, 1984 and allied rules, the Securities and Exchange Commission of Pakistan Regulations and the listing requirements.
DIVIDEND
DIVIDEND REMITTANCE
Ordinary dividend declared and approved at the Annual General Meeting will be paid within the statutory time limit of 30 days.
(i) For shares held in physical form: to shareholders whose names appear in the Register of Members of the Company after entertaining all requests for transfer of shares lodged with the Company on or before the book closure date.
(ii) For shares held in electronic from: to shareholders whose names appear in the statement of beneficial ownership furnished by CDC as at end of business on book closure date.
WITHHOLDING OF TAX & ZAKATON ORDINARY DIVIDEND
As per the provisions of the Income Tax Ordinance, 2001, income tax is deductible at source by the Company at the rate of 10% wherever applicable.
Zakat is also deductible at source form the ordinary dividend at the rate of 2.5% of the face value of the share, other than corporate holders or individuals who have provided an undertaking for non-deduction.
DIVIDEND WARRANTS
Cash dividends are paid through dividend warrants addressed to the ordinary shareholders whose names appear in the Register of Shareholders at the date of book closure.
INVESTOR’S GRIEVANCES
To date none of the investors or shareholders has filed any significant complaint against any service provided by the Company to its shareholders.
GENERAL MEETINGS & VOTING RIGHTS
Pursuant to section 158 of The Companies Ordinance 1984, Systems Limited holds a General Meeting of shareholders at least once a year. Every shareholder has a right to attend the General Meeting. The notice of such meeting is sent to all the shareholders at least 21 days before the meeting and also advertised in at least one English and one Urdu newspaper having circulation in Karachi, Lahore and Islamabad.
Shareholders having holding of at least 10% of voting rights may also apply to the Board of Directors to call for meeting of shareholders, and if the Board does not take action on such application within 21 days, the shareholders may themselves call the meeting.
All ordinary shares issued by the Company carry equal voting rights, Generally, matters at the general meetings are decided by a show of hands in the first instance. Voting by show of hands operates on the principle of “One Member-One Vote”. If majority of shareholders raise their hands in favor of a particular resolution, it is taken as passed, unless a poll is demanded.
Since the fundamental voting principle in the Company is “One Share-One Vote”, voting takes place by a poll, if demanded. One a poll being taken, the decision arrived by poll is final, overruling any decision taken on a show of hands.
The Board of Directors has recommended 10 % cash dividend on ordinary shares and 10% stock dividend (bonus shares) for the year ended 31 December 2014.
Systems Limited | Annual Report 2014 115
PROXIES
Pursuant to Section 161 of The Companies Ordinance, 1984 and according to the Memorandum and Articles of Association of the Company, every shareholder of the Company who is entitled to attend and vote at a general meeting of the Company can appoint another member as his/her proxy to attend and vote instead of him/her. Every notice calling a general meeting of the Company contains a statement that a shareholder entitled to appoint a proxy.
The instrument appointing a proxy (duly signed by the shareholder appointing that proxy) should be deposited at the office of the Company not less than forty-eight hours before the meeting.
WEB PRESENCE
Updated information regarding the Company can be accessed at its website, www.systemsltd.com. The website contains the latest financial results of the Company together with the Company’s profile.
SERVICE STANDARDS
Systems Limited has always endeavored to provide investors with prompt services. Listed below are various investor services and the maximum time limits set for their execution:
Transfer of shares
Transmission of shares
Issue of duplicate share certificates
Issue of duplicate dividend warrants
Issue of revalidated dividend warrants
Change of address
30 days after receipt
30 days after receipt
30 days after receipt
5 days after receipt
5 days after receipt
2 days after receipt
For requests receivedthrough post
30 days after receipt
30 days after receipt
30 days after receipt
5 days after receipt
5 days after receipt
1 day after receipt
For requests receivedover the counter
Well qualified personnel of the Shares Registrar have been entrusted with the responsibility of ensuring that services are rendered within the set time limits are rendered within the set time limits.
www.systemsltd.com
Consolidated Financial Statements
71Separate Financial Statem
ents31
Corporate Governance19
Company Profile
03Stakeholders� Inform
ation15
Annual General Meeting
111
116
Notes
Annual General Meeting on 24th April
2015 at Chamber of Commerce Building,
11 Sharae Aiwane Tijarat, Lahore at
11:00 a.m
Systems Limited
Systems Limited | Annual Report 2014
www.systemsltd.com
Form of Proxyth38 Annual General Meeting
Signature
Name
Address
CNIC
2.
I/We
son/daughter of
Mr./Ms.
son/daughter of
who is also member of the Company vide Registered Folio No.
a member of Systems Limited and holder of shares as
per Registered Folio No. do hereby appoint Mr./Ms.
son/daughter of or failing him/her
In witness whereof on this day of 2015.
WITNESSES:
Affix RevenueStamp
Member's Signature
NOTES:
Signature
Name
Address
CNIC
1.
The Forma of Proxy should be deposited at the Registered Office of the Company not later than 48 hours before the time for holding the meeting.
CDC Shareholders, entitled to attend and vote at this meeting, must bring with them their national Identity Cards/Passport in original to provide his/her identity, and in case of Proxy, must enclosed an attested copy of his/her CNIC or Passport. Representatives of corporate members should bring the usual documents for such purpose.
1.
2.
as my/our Proxy to attend, speak and vote for me/us and on my/our behalf at the Annual General Meeting of the Company
to be held on 24 April 2015 at 11:00 a.m. at Chamber of Commerce Building, 11 Sharae Aiwane Tijarat, Lahore and at any
adjournment thereof.
117
Chamber of Commerce Building, 11 Sharae Aiwane Tijarat, Lahore
Consolidated Financial Statements
71Annual General M
eeting111
Separate Financial Statements
31Corporate Governance
19Com
pany Profile03
Stakeholders� Information
15
AFFIX
CORRECT
POSTAGE
The Company Secretary
Systems LimitedChamber of Commerce Building,11 Sharae Aiwane Tijarat,Lahore, Pakistan