GHL System Berhad Annual Report 2020

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 ) 18 MANAGEMENT DISCUSSION AND ANALYSIS CONT’D 4. KNOWN RISKS (Cont’d) b) Operational Risk – In the first half of 2020, the Group reported a total of 182 risks of which 155 risks (85%) were classified as minor and moderate risk. The remaining 15% were 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 exposure to foreign currency risk by purchasing USD spot at the time of recording the vendor liability. The Group does not hedge against 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 2020 started on a cautious footing with news of a flu like epidemic which eventually turned into COVID-19 with the World Health Organisation declaring a worldwide pandemic on 11 March 2020. ASEAN countries had seen the COVID-19 outbreak worsened with governments initiating movement restrictions and border controls for much of 2020. Movement Control Orders to stay at home and the closure of most businesses and economic activities save for essential services had adversely impacted consumer spending. Given our Group’s diverse range of merchant base, some of our payment touchpoints such as convenience stores, pharmacies, medical facilities, supermarkets and petrol stations were still functioning throughout the movement control period. However, as most of the businesses in the retail, leisure, tourism and other sectors were closed, our Group’s TPA business was adversely affected. Throughout 2020, with the erratic recovery in most of the ASEAN markets were dependent very much on local conditions as governments implemented measures deemed best to counter the rate of infections, both rising and dropping. This had led to cautiousness in investment spending not only within the group but also at our bank partners as well as the merchants that we serve. With the emergence of COVID-19 vaccines towards the end of 2020, to be deployed in stages in 2021, has brought cautious optimism that 2021 will see a gradual recovery in the global economies, and with it, the opening of borders and hence travel and trade. However, due to the uncertainties on the effectiveness of the vaccines, the near-term outlook for most businesses and consumer sentiment remain cautious and the timing and extent of recovery, difficult to estimate. The group however remains positive in the long-term potential of the ASEAN e-payments industry and believes the trends of switching to e-payments and cashless channels will continue going forward. 6. DIVIDENDS The Board of Directors has decided that our cash reserves can be better used to further grow the Group’s business in the various ASEAN markets it operates in and therefore do not recommend the payment of a dividend for the financial year ended 31 December 2020.