Dagang NeXchange Berhad Annual Report 2018

15 Annual Report 2018 Management Discussion & Analysis KEY MESSAGES BUSINESS RISKS Being in investment-heavy business, DNeX Group is exposed to risks relating to return on investments. The Management monitors the progress of the Group’s investments specifically new ones on monthly basis. This is done actively to ensure any risks arising are quickly mitigated with fast decision making. Where required, the Management directly participates in key activities to protect the investment interest and mitigate financial exposure. DNeX’s key contracts are with the Government of Malaysia. The Group is therefore exposed to risks relating to change in government policies. The change in Government had exposed DNeX’s business under the scrutiny on all projects under the Government of Malaysia’s administration. The Malaysia Competition Commission (“MyCC”) has proposed a penalty of RM17.4 million on DNeX subsidiary Dagang Net for alleged infringement on one of the prohibitions under Part 1 of the Act in the provision of trade facilitation services under the NSW. Dagang Net is in the midst of making its representation to MyCC. With technology being the key enabler of our services, the Group is also exposed to Technology risks vis-à-vis security, development, integration and infrastructure. Our technological assets are strictly maintained with continued updates and assessments to meet the required service level agreements and updates. Our technology people are also well kept abreast with current methodologies and technology advances in order to ensure processes are functioning, updated and working efficiently. Back-ups, secondary locations and contingency plans are in place to protect business and service continuity. DNeX Group takes compliance to governing bodies and services rendered to Government administration seriously. We strive to provide our services by adhering to all guidelines, professionalism and quality. The same level of effort is directed towards agencies and communities that are linked to our systems. The Group continually invests in improving business expansion, internal resources, customer services, system reliability, technological advancement, and stakeholder management activities in view of retaining customer satisfaction and loyalty. GROUP FINANCIAL ANALYSIS 2018 In 2018, DNeX Group recorded highest revenue and earnings before interest, tax, depreciation and amortisation (“EBITDA”) growth since 2007. During the year, DNeX fully consolidated eleven (11) months result of the newly acquired Genaxis Group which considerably stimulated the year’s financial results. DNeX Group recorded new height of revenue at RM293.5million compared to RM203.9 million the previous year with 44% YoY growth. The Group’s Trade Facilitation business continues its strong positive traction to drive revenue growth in both business to government (“B2G”) and business to business (“B2B”) segments. Trade Facilitation & eCommerce business contributes approximately 31% of the Group revenue. The Group was further awarded a contract extension for one (1) year commencing from 25 September 2018 until 31 August 2019 for the NSW system from the Government of Malaysia. The Group’s Energy division registered lower revenue at RM51.9 million as compared to RM63.7 million in the previous year. The division continues to experience significant competitive pressure in an environment of declining oil & gas activities, and delay in deployment PCS as planned. The progress of designing, engineering, procurement, construction, installation and commissioning of PCS has been behind targets with slow take up of PCS and approval from local authorities. The Group is looking to change the business model to expedite the implementation of PCS. The Energy division contributes to 18% to the Group revenue. The Group achieved highest growth in its EBITDA excluding share of results from associates since 2007 , increasing 18% to RM68.8 million, mainly from the higher revenue from rendering of services, with better profit margins. However the increase in business development expenses and hiring of new talents for business expansion affected the Group’s EBITDA in current reporting year. The Group’s PAT took a 6%dip as a result of higher non-EBITDA items of RM15.0 million , arising from:- • depreciation and amortisation by RM4.2 million; • higher taxes due to fully utilised of tax shield in certain profit making companies (“RM3.5 million”); • one-off impairment of goodwill (“RM3.6 million”); • finance cost by RM2.4 million; and • effect of Malaysian Financial Reporting Standard 9 (“MFRS9”) RM1.3 million. The share of results from associates presented RM22.0 million to the Group’s PAT in current reporting year. Despite the increase in oil price, profitability was impacted by higher tax expenses and higher operating expenses per barrel in associates. The deferred uplift of oil production to mid January 2019 for better transacted price has affected the performance of Energy division’s results and is expected to level up in 2019.