GHL System Berhad Annual Report 2017

GHL SYSTEMS BERHAD 14 MANAGEMENT DISCUSSION AND ANALYSIS 1. OVERVIEW OF THE GROUP’S BUSINESS AND OPERATIONS GHL Systems Berhad (“the Group”) is a leading payment services provider in ASEAN with key business operations in Malaysia, Philippines, Thailand, Australia, Singapore and Indonesia. The Group provides world-class payment services and solutions encompassing physical, internet and mobile payments on a sale, rental or transactional basis and is one of the region’s top merchant acquirers. GHL manages more than 170,000 acceptance points in ASEAN that enable credit card, debit card, prepaid contactless payment, loyalty, prepaid top up and bill collection payment services.. The Group has 3 core business segments as follows:- 1. Transaction Payment Acquisition (“TPA”) comprises mainly of revenue derived from 2 distinct sub- segments: i) e-pay services which includes Telco prepaid and other top-up facilities and, bill collection services for consumers (“reload and collection services”) and; ii) GHL’s direct merchant acquiring and electronic payment services (“electronic payment services”) 2. Shared Services comprises mainly of revenue derived from the sale, rental and maintenance of EDC terminals and other payment acceptance devices. 3. Solution Services comprises mainly of revenue derived from the sale and maintenance of hardware and software that are proprietary to the Group. These include; network devices and related software, outsourced payment networks, management and processing of pre-paid and loyalty cards and internet payment processing. The Group’s objective is to become ASEAN’s largest merchant acquirer by directly contracting with merchants (“merchant acquisition”) under its TPA initiative. These businesses have since grown rapidly resulting in a higher proportion of annuity income and a significant change in the business segment mix for the Group (See Sections 2.5 and 3.1 for details). GHL has been listed on Bursa Malaysia since 2003. 2. DISCUSSION AND ANALYSIS OF THE FINANCIAL RESULTS AND CONDITIONS Analysis of Financial Results 2.1 Revenue Group revenue grew +3.2% yoy to RM253.7 million (2016 – RM245.9 million) with growth registered in all three business segments (i.e. TPA, Shared Services and Solutions Services) as well as all geographical markets, except Australia. 2.2 Net Profit Pre-tax profits grew at +2.4% to RM25.4 million as compared to RM24.8 million a year ago. Pre-tax margins were stable +10.0%, with a slight decline from 2016’s pre-tax margins of +10.1%. Net profit after tax grew +13.3% yoy to RM20.5 million (2016 – RM18.1 million) driven by overall better gross profit margin of 41.7%, a growth of +7.5% yoy from 38.8% in 2016. The increase was also as a result of growth in all business segments and geographical markets except for Australia, particularly in the TPA segment. 2.3 Taxation The effective tax rate for 2017 was 19.3% (2016 – 26.6%) which was lower than the statutory tax rate mainly due to unabsorbed tax losses and unutilised tax allowances. Post-tax profit margins improved to 8.1% in 2017 versus 7.4% in 2016 due to improved operating margins and lower interest expense.