The director presents the strategic report for the year ended 31 December 2023.
During the year under review the company achieved an increased level of turnover and a satisfactory profit for the year as we grew in Sales and Marketing function to support our Parent company.
The director continues to adopt the going concern basis of accounting in preparing the financial statements.
SoftServe Systems Limited operates as a limited risk service provider and is remunerated with a targeted percentage of revenue, while all the losses would be compensated by ISV Tech Limited (sister company of the Group).
Financial risks management
The company uses a variety of financial instruments including cash and various items, such as trade debtors that arise directly from its operations. The main purpose of these financial instruments is to provide working capital for the company’s operations.
The directors review and agree policies for managing each of these risks and they are summarised below.
1) Market risk
Considering that SoftServe Systems Limited operates as a limited risk service provider its profitability is not generally sensitive to market conditions, although it could take limited market risk in case the market will be significantly decreased or affected in price terms.
As a result, ISV Tech Limited bears majority of the market risks associated with the UK market, while SoftServe Systems Limited bears market risk to a limited extent.
2) Credit risk
Credit risk relates to potential failure to pay or delay in payment of receivables by the buyers of services. In case clients will fail to pay SoftServe Systems Limited for the services provided, all losses related to such accident would be borne by ISV Tech Limited, therefore credit risk is mostly attributable to ISV Tech Limited, with minor exposure of SoftServe Systems Limited to this type of risk.
3) Risk of quality of services
The risk is associated with unsatisfactory results of research and development or innovation activity.
ISV Tech Limited shall indemnify, defend and hold harmless SoftServe Systems Limited according to the Agreement, as mentioned above, against and from, any and all liabilities, obligations etc. given it is economic owner of all the clients contracts and is responsible for the provision of the services.
In addition, SoftServe Systems Limited is added as a party to the insurance coverage obtained by ISV Tech Limited. As a result, SoftServe Systems Limited does not bear quality risks, given it is fully attributable to ISV Tech Limited.
4) Foreign exchange risk
Forex risks relate to changes in exchange rates with regard to the base currency of settlements of the companies. The risk arises if the amount of profit may be affected by currency fluctuations. The Parties may be faced with this risk if the currency of its expenses is different from the currency of its profits.
The functional currency of SoftServe Systems Limited is British Pound Sterling (GBP). SoftServe Systems Limited may bill end clients in currencies other than GBP and therefore SoftServe Systems Limited could be impacted albeit to a relatively small extent, by changes to foreign exchange rates. However, given the remuneration mechanism of SoftServe Systems Limited it is exposed to foreign exchange risk to a very limited extent.
The general industry outlook is expected to reach the same financial result as in 2023.
The company continues to receive the support of it’s parent company.
The company uses a number of measures to monitor the performance of the company.
Revenue 2023: £14,306,912 (2022: £13,515,503)
Profit before tax for the year 2023: £2,497,983 (2022: £2,341,055)
Average headcount 2023: 66 (2022: 55)
The director presents his annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 8.
No ordinary dividends were paid. The director does not recommend payment of a final dividend.
The director who held office during the year and up to the date of signature of the financial statements was as follows:
Saffery LLP have expressed their willingness to continue in office as auditor of the company.
We have audited the financial statements of Softserve Systems Limited (the 'company') for the year ended 31 December 2023 which comprise the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the director with respect to going concern are described in the relevant sections of this report.
Other information
The director is responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the director's report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the director's report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the director's report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of director's remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the director's responsibilities statement, the director is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the director determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the director is responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the director either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud are detailed below.
Identifying and assessing risks related to irregularities:
We assessed the susceptibility of the company’s financial statements to material misstatement and how fraud might occur, including through discussions with the director, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements. We identified laws and regulations that are of significance in the context of the company by discussions with director and by updating our understanding of the sector in which the company operates.
Laws and regulations of direct significance in the context of the company include The Companies Act 2006 and UK Tax legislation.
Audit response to risks identified
We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of financial statement disclosures. We discussed the company's policies and procedures for compliance with laws and regulations with members of management responsible for compliance.
During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non-compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner’s review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and fraud.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
A further description of our responsibilities is available on the Financial Reporting Council's website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
The income statement has been prepared on the basis that all operations are continuing operations.
Softserve Systems Limited is a private company limited by shares incorporated in England and Wales. The registered office is Part Lower Ground Floor, 30 Cannon Street, London, EC4M 6XH.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.
Interests in fellow group companies are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.
The tax expense represents the sum of the tax currently payable and deferred tax.
At inception, the company assesses whether a contract is, or contains, a lease within the scope of IFRS 16. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Where a tangible asset is acquired through a lease, the company recognises a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are included within property, plant and equipment, apart from those that meet the definition of investment property.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date plus any initial direct costs and an estimate of the cost of obligations to dismantle, remove, refurbish or restore the underlying asset and the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of other property, plant and equipment. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the company's incremental borrowing rate.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in: future lease payments arising from a change in an index or rate; the company's estimate of the amount expected to be payable under a residual value guarantee; or the company's assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less, or for leases of low-value assets including IT equipment. The payments associated with these leases are recognised in profit or loss on a straight-line basis over the lease term.
During the financial year, the Company has adopted the following new IFRSs (including amendments thereto) and IFRIC interpretations, that became effective for the first time.
Their adoption has not had any material impact on the disclosures or amounts reported in the financial statements.
At the date of authorisation of these financial statements, the following standards and interpretations relevant to Company and which have not been applied in these financial statements, were in issue but were not yet effective.
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Company in future periods.
In the application of the company’s accounting policies, the director is required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The Director believes that there are no critical accounting estimates, judgements and key sources of uncertainty in these financial statements.
Turnover arises entirely on sales made within the United Kingdom.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The charge for the year can be reconciled to the profit per the income statement as follows:
On the 28 October 2021 Softserve Systems Limited acquired a minority shareholding in fellow group undertaking Softserve Technology Services Mexico S.A. de C.V. for 1 MXN (£0.04).
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
The director considers that the carrying amount of trade and other receivables is approximately equal to their fair value.
In the view of the director the expected credit loss at the reporting end date is negligible and therefore has not been recognised.
Lease liabilities are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
Lease liabilities relate solely to the capitalisation of leases of land and buildings as "Right of use assets" under IFRS 16.
The company's leasing activities relates to the rental of their registered office. The directors have assessed the companies incremental borrowing rate to be 7.55% when discounting the cash flows associated with the lease agreements.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon during the current and prior reporting period.
Deferred tax assets and liabilities are offset in the financial statements only where the company has a legally enforceable right to do so.
All shares have equal rights in respect to voting, dividends and winding up.
Amounts recognised in profit or loss as an expense during the period in respect of lease arrangements are as follows:
The Company's principal financial instruments comprise of trade receivables and trade payables which arise directly from its operations. The main purpose of these financial instruments is to fund the Company's operation and to manage working capital, liquidity. The Company has also provided a loan to a fellow subsidiary detailed in Note 22.
The Company does not enter into any derivative transactions.
The main risks arising from the Company's financial instruments are foreign currency risk and credit risk. Liquidity risk is not considered to be a main risk to the Company given the nature of its transactions with intercompany and holding significant cash balances. Interest rate risk is not considered to be a main risk to the Company as it does not have any borrowing and is purely equity financed.
Foreign currency risk
The Company is exposed to foreign currency risk on sales and purchases that are denominated in currencies other than the functional currency of the Company.
Foreign currency risk is managed by holding cash reserves in multiple currencies (GBP, USD and Euro) and transacting in these currencies as appropriate thus reducing the risks associated with fluctuations in foreign currencies.
Credit risk
The Company trades only with recognised, creditworthy third parties. It is the Company's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the results that the Company's exposure to bad debt is not significant, where a customer does default the expense is recharged to a fellow subsidiary.
No directors or key management personnel were remunerated by Softserve Systems Limited.
During the year sales were made of £14,306,912 (2022: £13,515,503) to ISV Tech Limited a fellow subsidiary.
Purchases of £62,421,523 (2022: £66,052,141) were made from ISV Tech Limited which are netted off against sales to 3rd parties to show net agency commission revenues.
The following amounts were outstanding at the reporting end date:
Included within trade payables is £16,896,044 (2022: £19,551,355) owing to ISV Tech Limited a fellow subsidiary.
Included within contract liabilities is £1,584,473 (2022: £2,129,626) owing to ISV Tech Limited a fellow subsidiary.
Included within contract assets is £491,715 (2022: £839,125) due from ISV Tech Limited a fellow subsidiary.
A long term loan balance is included within non-current assets being £9,166,557 (2022: £6,425,804) owing from ISV Tech Limited a fellow subsidiary. During the year interest has been charged of £355,196 (2022: £17,603) at a rate of 4.5-5.5% per annum. The amounts are repayable between 1.25 to 2 years.
No guarantees have been given or received.