16 GHL SYSTEMS BERHAD 199401007361 (293040-D) ANNUAL REPORT 2021 4. KNOWN RISKS In the ordinary course of its operations, the Group is exposed to the following risks: a) Merchant Performance Risk – The Group currently contracts directly with merchants on two business models namely as a Payment Facilitator (PF) with Financial and Non-Financial Institutions as well as a Direct Acquirer with the schemes for the provision of electronic payment services. In the event a risk arises in that the merchant default in his obligations to the cardholder or e-wallet holders for any particular sale, then, that sale would be reversed (“or charged-back”) and the sale amount refunded to the cardholder or e-wallet holder. The acquiring institution would execute its rights to then recover the charged-back transaction from the Group which would then seek to recover it from the merchant. The Group could potentially incur a loss if the merchant was no longer in business or otherwise unable to reimburse the Group for the charge-back. The Group has, over the past years, invested significantly to develop and put in place risk management policies, procedures, systems, and risk managers with the requisite experience to monitor merchant performance risk. The Group also implemented specific rules and other forms of controls to the merchants to manage performance risks. These strict controls and Standard Operating Procedures (SOP) have effectively mitigated merchant performance risk, and as of the date of this report, there was negligible exposure arising from this risk. The Group had recorded RM8,769.95 nett chargeback losses attributable to merchant performance risk in 2021 recorded for Malaysia, Thailand, Philippines and Indonesia. b) Operational Risk – In 2021, the Group reported a total of 239 risks of which 139 risks (90%) were classified as minor and moderate risk. The remaining 10% was addressed with adequate and appropriate mitigation strategies to ensure that the residual risk is minimised. Operational risk management, which forms part of the Group’ Enterprise Risk Management Framework, is a continual process applied by the Group in a half yearly cycle that includes risk assessment, risk decision making, and implantation of risk controls, which result in acceptance, mitigation, or avoidance of risks. c) Liquidity Risk – As indicated in Section 2.6, the Group is in a net cash surplus position and therefore has no net gearing. Short term purchases for Telco prepaid top-ups are typically funded with internal generated cash or Bankers Acceptances and are liquidated when these are on-sold to merchants. Longer term EDC terminal purchases are funded with long term bank term loans. The Group plans to fund the planned expansion in the Payment Facilitator (PF) and Direct Acquiring business by commensurately increasing its bank term loans and internal generated cash. Given the Group’s strong cash flow and lack of net gearing, it is well positioned to do so. d) Foreign Currency Risk – EDC terminals are purchased in USD and therefore can expose the Group to foreign currency risk as the Group’s functional currency is in Ringgit Malaysia. The Group minimises its exposure to foreign currency risk by purchasing USD spot at the time of recording the vendor liability. The Group does not hedge against any foreign currency fluctuations in the net asset value of its overseas subsidiaries as these investments are of a long term nature. This would, however, be re-visited should a significant event occur that would cause a permanent diminution in the foreign currency denomination of its overseas subsidiaries. 5. FUTURE PROSPECTS 2022 started relatively unchanged compared to the last quarter of 2021 as the COVID-19 pandemic remain the main concern. Different countries are implementing commensurate measures to contain the spread whilst juggling and keeping their economies as open as possible. Cross border travel remains nascent but vaccination efforts are being intensified by most countries and hopefully the various economies will experience a more meaningful recovery and reopening in subsequent quarters of 2022. MANAGEMENT DISCUSSION AND ANALYSIS CONT’D
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