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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

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Company Profile

Corporate Information04

06

Vision and Mission

About Us

08

Services and Solutions12

Our Products13

Testimonials14

10

Board of Directors

04

Corporate Information


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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


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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.


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.


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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.


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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


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


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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


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-

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


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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.


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



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


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.

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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:

*



Mr. Ayaz Dawood

Syed Zahoor Hassan*

Mr. Amir Zia*

Mr. Omer Saeed**

Mr. Tahir Masaud**


3

2

3

-

-

Leave of absence was granted to the Directors who could not attend the meetings of the Audit Committee

*



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:

*



Mr. Omer Saeed

Syed Zahoor Hassan*

Mr. Ayaz Dawood

Mr. Amir Zia*

Mr. Asif Jooma**

Mr. Tahir Masaud**


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.


71Annual General M

eeting111



19Com

pany Profile03


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%


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


71Annual General M

eeting111



19Com

pany Profile03


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.


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


71Annual General M

eeting111



19Com

pany Profile03


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

Auditors� Report to the Members



(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


111Separate Financial Statem

ents31


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


ents71



ents31


Company Profile


ation15

Profit and Loss Accountfor the year ended 31 December 2014

2014 2013

Note Rupees Rupees



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


Taxation 30


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


36



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


www.systemsltd.com


ents71



ents31


Company Profile


ation15

Cash Flow Statementfor the year ended 31 December 2014



Cash flows from operating activities


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


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


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

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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.


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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.


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.


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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.


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.


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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.


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


All purchases and sale of investments are recognized on trade date, which is the date the Company

commits to purchase, or sell the investment.


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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.


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.


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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


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


www.systemsltd.com


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)


71Annual General M

eeting111



19Com

pany Profile03


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


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


Generator


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


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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


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


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Company Profile


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


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


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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.


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.


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Company Profile


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


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.


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




Traveling and conveyance 111,138 289,518


Postage, telephone and telegrams 86,966 78,754

Vehicle running and maintenance 25,539 26,908


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


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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:


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

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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.


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:



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



Long term advances


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


www.systemsltd.com


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


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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


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%


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.


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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


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


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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




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

80


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15Systems Limited | Annual Report 2014 73

www.systemsltd.com

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.



(Bilal Ali)

Lahore

Date: 18 March 2015

74

Consolidated Balance Sheet


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



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


‐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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76

Consolidated Profit and Loss Account



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


Taxation 29


Attributable to:

Owners of the Company

Non‐controlling interest

Basic earnings per share (Rupees) 36

Diluted earnings per share (Rupees)


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


Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2014



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


428,539

411,693,569

(3,610,691)

408,082,878

2014

Rupees

407,654,339

408,082,878

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78

Consolidated Cash Flow Statement



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


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


Advances, prepayments and other receivables

Unearned revenue

Increase in current liabilities:


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


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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.



(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


‐

‐

‐

‐ 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.



‐ 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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‐

‐

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


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.



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


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.



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


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


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.



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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.

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4.13 Financial instruments

Financial assets


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.



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.

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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)



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


Generator


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


Generator


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

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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)


Honda City


Suzuki Mehran (LEA‐11‐4831)

Other

Miscellaneous

2014

Mode of

disposal

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


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



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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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.

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2014 2013

Rupees Rupees




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


Note

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98


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.



2014 2013

Note Rupees Rupees

22 Direct cost


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






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


Printing and stationery 501,671 201,585






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


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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23.1

2014 2013

24 Administration expenses

Note Rupees Rupees


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






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. 10.35 (2013: Rs. 3.67) million

and gratuity amounting to Rs. 1.16 (2013: 0.15) million.



2014 2013

Note Rupees Rupees

25 Research and development expenses





Traveling and conveyance 111,138 289,518


Postage, telephone and telegrams 86,966 78,754

Vehicle Running and mainatenance 25,539 26,908


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


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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



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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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



Long term advances


term advances ‐ 1,219,000 ‐

16,051,790

16,051,790

‐

‐

16,051,790 17,270,790 ‐ 8,611,771

2013


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



Long term advances


term advances ‐ ‐ 3,391,885 ‐

24,583,303 24,583,303 27,975,188 ‐ 6,766,611


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


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.



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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


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

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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


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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




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


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.


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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."



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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.


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






For requests receivedthrough post






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



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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


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


71Annual General M

eeting111



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pany Profile03


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AFFIX

CORRECT

POSTAGE

The Company Secretary

Systems LimitedChamber of Commerce Building,11 Sharae Aiwane Tijarat,Lahore, Pakistan

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