GHL System Berhad Annual Report 2019

G H L S Y S T E M S B E R H A D 1 9 9 4 0 1 0 0 7 3 6 1 ( 2 9 3 0 4 0 - D ) 128 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 CONT’D 16. INVESTMENTS IN SUBSIDIARIES (cont’d) (h) Acquisition of subsidiary during the financial year ended 31 December 2018 (cont’d) (i) Paysys (M) Sdn. Bhd. (cont’d) The potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is between RM nil to RM33,363,043. The fair value of the contingent consideration arrangement of RM30,111,050 was estimated by applying the income approach. The fair value estimates are based on assumed discount rate of 10.8% and assumed that PMSB will achieved its profit target for both financial years. If the acquisition occurred on 1 January 2018, the revenue and profit after tax of the Group for the financial year ended 31 December 2018 would have been RM324,273,963 and RM27,500,339 respectively. The effects of the acquisition on cash flows: 2018 RM Total consideration for equity interest acquired 90,904,209 Less: Equity instruments issued - Tranche 1 (20,793,159) Less: Contingent consideration - Tranche 2 and Tranche 3 (30,111,050) Cash consideration 40,000,000 Less: Cash and cash equivalents of subsidiary acquired (5,604,596) Net cash inflow of the Group on acquisition 34,395,404 (i) During the financial year, the Group recognised share options granted under shares options scheme of RM1,518,227 (2018: RM1,018,945) in profit or loss, out of which an amount of RM951,112 (2018: RM643,848) in the financial year are in respect of employees of subsidiaries. At Company level, the amount of RM951,112 (2018: RM643,848) in the financial year are recorded as an increase in investments in subsidiaries with a corresponding credit to equity as disclosed in Note 23 to the financial statements. (j) During the financial year, GHL ePayments Sdn. Bhd. had subscribed for 107,995 ordinary shares in GHL Electronic Payments Inc.(“GEP”), a company incorporated in Philippines for a consideration of RM845,158. GEP became a wholly owned indirect subsidiary of the Company. (k) During the financial year, the Company had granted and subsequently capitalised the amount owing by subsidiaries amounted to RM36,590,432 (2018: RM61,042,181) into equity loan. (l) The Group reviews the investments in subsidiaries for impairment when there is an indication of impairment. The recoverable amounts of the investments in subsidiaries are assessed by reference to the fair value less cost to sell of the underlying assets or the value-in-use of the respective subsidiaries. The value-in-use is the net present value of the projected future cash flows derived from the business operations of the respective subsidiaries discounted at an appropriate pre-tax discount rate. For such discounted cash flow method, it involves the use of estimated future results and a set of assumptions to support their income and cash flows. Significant judgements and estimates had also been used to determine the key assumptions applied to the cash flow projections, which includes the projected earnings before interest and tax margins, growth rates, and the appropriate pre-tax discount rates used for each of the subsidiary. Impairment losses are made when the carrying amount of the investment in subsidiaries exceed its recoverable amount.