4. RISK FACTORS 4. RISK FACTORS NOTWITHSTANDING THE PROSPECTS OF OUR GROUP AS OUTLINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RiSK FACTORS (WHICH MAY NOT BE EXHAUSTIVE) THAT MAY HAVE A SIGNIFICANT IMPACT ON OUR FUTURE PERFORMANCE, IN ADDITION TO OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS, BEFORE INVESTING IN OUR SHARES. If you are in any doubt as to the information contained in this section, you should consult your stockbroker, bank manager, solicitors, accountants or other professional adviser. 4.1 RISKS RELATING TO OUR BUSINESS AND OPERATIONS 4.1.1 We are dependent on the infrastructure of our MNO partners for the delivery of our ATS Services Our products and services are primarily delivered to our subscribers through our MNO partner’s infrastructure and gateway as set out in Section 6.1.1 of this Prospectus. Accordingly, we are reliant on the infrastructure, coverage, quality, reliability, service upgrades and network capacity of our MNO partners. We have no control over the service provision of the MNOs. The MNO’s infrastructure may be subject to various delays and outages as a result of traffic congestion and power disruptions, amongst others. Any disruption/interruption to the MNO’s network could affect our operations. For instance, an IT transformation programme undertaken by Celcom had resulted in system related issues at Celcom in FYE 2014, which has affected our revenue as set out in Section 12.4 (i) of this Prospectus. In the event the system related issues faced by Celcom are not resolved, our revenue would continue to be adversely affected. In addition to the above, the technology development and services innovation of our Group are also partially dependent on the technology level of the MNO’s infrastructure and the future direction of the MNO’s future technology development. We understand the risk of our Group’s dependency on the MNO’s infrastructure and thus we ensure continuous communication with our MNO partners are maintained at all times by our Network Operations Centre to monitor their operating system and thus ensures that we are informed of any unforeseen service interruptions. To date, we have not experienced any material disruption/interruption to our operations. We also actively engage with our MNO partners on any upgrades to our ATS platform and the capability of the MNO’s infrastructure to handle our upgrades which include sharing best practices with our MNO partners. This is performed via consultative dialogue with our MNO partners to ensure that the required modifications meet the standards and expectations of all parties. Furthermore, prior to the live activation of system upgrades, simulation and controlled environment test are conducted to ensure smooth integration into the MNO’s infrastructure. 4.1.2 We are dependent on our contractual agreement with Celcom and our MNO partners Since 2004, we have been dependent on our contractual agreement with Celcom for the provisioning of our services using Celcom’s infrastructure and gateway. In 2014, we had also entered into a strategic agreement with SIB in Bangladesh for the provision of our ATS Solutions to the subscribers of Robi Axiata (Bangladesh), a subsidiary of the Axiata Group Berhad. As set out in Section 6.7 of this Prospectus, for the Financial Years Under Review, our contract with Celcom has contributed approximately 94.63%, 99.87%,99.98% and 79.22% respectively, to our Group’s total revenue. The revenue for Robi Axiata, contributed approximately 19.94% to our Group’s total revenue in FYE 2014. 4. RISK FACTORS (cont’d) The current contract with Celcom expires on 31 May 2020. Due to our long working relationship with Celcom, Celcom subscribers are currently the major revenue contributor to our Group. In the event that the said contractual agreement with Celcom is terminated, curtailed or renewed on terms that are unfavourable to us, our operating results would be adversely affected. As we are dependent on Celcom’s infrastructure, should Celcom’s subscribers switch to a different MNO or should Celcom switch to another aggregator (platform provider and service enabler), our revenue would be affected. However, our dependency on Celcom’s contractual agreement and subscribers is mitigated by the following: (i) We maintain a close working relationship with Celcom, by conducting weekly work group meetings with Celcom to understand the technical and business challenges and propose possible solutions, pursuant to our contract as set out in Section 6.6 of this Prospectus. However, in the event our contract with Celcom is terminated, Celcom is prohibited from reproducing the same single coded transfer method pursuant to the terms of the contractual agreement between Celcom. We have also applied for the registration of our patent with MylPO for the protection of our Group’s single coded transfer method.
(ii) Our relationship with Celcom had been established and nurtured for a period of more than ten (10) years since 2004 with our current contract recently renewed on 7 May 2015 and expiring on 31 May 2020. This long-term business relationship implies a satisfactory and beneficial business partner relationship and forms the basis of continuous business in future. Further details of our contracts with Celcom are set out in Section 6.6 of this Prospectus.
(iii) Notwithstanding that some subscribers may switch to different MNO’s, we will continue to develop and expand our services to other MNO’s locally and overseas. In this regard, we had through third party partners, entered into arrangements with Maxis in Malaysia and Robi Axiata in Bangladesh for the provision of our ATS Solutions, as explained in Section 4.1.3 below.
4.1.3 We are dependent on the performance of our strategic partners We have entered into strategic agreements with Rayyan Global in Malaysia and SIB in Bangladesh for the provision of our ATS Solutions to the subscribers of Maxis and Robi Axiata (Bangladesh) respectively. The revenue generated from our strategic partnership with SIB has contributed approximately 19.94% of the Group’s total revenue in FYE 2014. We are dependent on these strategic partners to successfully maintain their business relationship with the respective MNO partners in order to secure and maintain our contracts for the provision of our ATS Solutions to the respective MNO partners. We believe that the success of our relationship with these strategic partners and the MNOs will enable us to enter into and capitalise on additional strategic partnerships in the future. In the event that one or more of the relationship of our strategic partners with the MNO or our relationship with our strategic partner is terminated, curtailed or renewed on terms that may be unfavourable to the Group, our business, results of operations and financial condition may be adversely affected and we may lose any potential for future strategic partnerships. In the event of such occurrence, the Group can mitigate the risk by entering into agreement with other potential strategic partners or with the MNO directly for the provision of our ATS Solutions. Moving forward, we will continue to develop and expand our services to other MNO’s locally and overseas. In addition to the above, we have applied for a number of patents to safeguard our technology and upon the grant of the patent, we shall have the right to institute court proceedings against any competitor who infringes the patent. 4. RISK FACTORS (cont’d) 4.1.4 We are dependent on the continued market demand for our ATS Services by our subscribers As part of our strategy moving forward, we intend to introduce, and continue to develop and enhance, a number of products, services and service experiences for our subscribers as set out under Sections 6.1.3 and 6.11.1 of this Prospectus. Our Group has pioneered and launched innovative mobile services into the market, namely ATS, which was well received by the targeted subscribers. The single coded ATS Transfer solution that allows users to send Airtime Credit in a single step was first launched by us with Celcom in Malaysia and presently there are no similar single coded ATS Transfer solutions available locally. Notwithstanding the above, there can be no assurance that we will be able to successfully extend our existing products and services into new markets due to potential shifts in market expectation and demand. A reduction in demand to our existing products and services will adversely affect our operating and financial results. The realisation of our future plans is also dependent on the level of market acceptance achieved in the future in respect of our products and services such as GreenBilling© mobile application, voice sharing and data sharing solutions. There can be no assurance that we will be able to successfully launch our products or that unanticipated expenses or problems or technical difficulties will not occur which could result in material delays in our implementation or even deviation from our original plan. In addition, the actual results of our future plans may deviate due to rapid technological changes. To date, our products and services under the ATS platform have been well received by our customers and we expect that enhancements and improvements of features, timeliness in delivery to our customers and good technical service should ensure continuous acceptance of our products and services.
4.1.5 We may be unable to adequately protect our intellectual property rights We are reliant on a combination of patent protection, copyrights and contractual restrictions to establish and protect the intellectual property of our software applications and services. There can be no assurance however, that such patent and copyright registrations will adequately protect our intellectual property rights. Any third party may challenge our Group’s intellectual property rights and we could incur substantial costs in defending or prosecuting any claims relating to our intellectual property rights. There is also no assurance that disputes will not arise or that any disputes in relation to our intellectual property will be resolved in our favour. However, as at the LPD, we are not aware of any claims on our Group’s intellectual property. Further information on our patents, trademark and copyrights is set out in Section 6.4 of this Prospectus. 4.1.6 We are dependent on the continued employment and performance of our Executive Directors and key management Our continued success and future performance depends to a large extent upon the skills, abilities, experience, competency and continuous efforts of the existing Executive Directors and key management and on our ability to retain qualified and competent personnel. While every effort has been made to nurture and maintain good relationships, there can be no assurance that the loss of any key management can be avoided and would not materially affect our business, operating results and financial conditions. 4. RISK FACTORS (cont’d) We seek to mitigate this risk by incorporating effective human resource management and development, which includes competitive compensation packages, training and personnel development programmes to retain skilled personnel. Our management recognises the importance of succession planning for business continuity, and maintaining the level of our competencies and competitiveness in the industry. In view thereof, we have taken the appropriate steps to ensure the implementation of succession planning for key management positions in our Group and every effort is made to attract, train and retain our key management for succession planning to ensure smooth transition in management should changes occur. However, there can be no assurance that the above measures will always be successful in retaining our Executive Directors, key management personnel and skilled workforce or in ensuring a smooth transition or management succession plan should such key personnel no longer serve our Group. Notwithstanding the above, most of the key management of our Group have been with the Group for more than eight (8) years.
4.1.7 We are dependent on the validity of our Applications Service Provider license Our subsidiary, IDOTTV, was granted an Applications Service Provider license by MCMC on 8 November 2006, with the latest renewal on 10 April 2015, to provide, amongst others, messaging services including SMS and MMS applications and SMS and MMS contents such as ring tones, picture messaging, wallpapers and JAVA games. The Applications Service Provider license is valid for a year and has been renewed annually since 2006. The approval for the renewal application is at MCMC’s discretion. We will ensure that we submit the relevant application to renew our Applications Service Provider license with the MCMC every year to ensure that we will continue to meet the requirements of the MCMC. However, there can be no assurance that we will be successful in our application to renew our Applications Service Provider license, and this could affect our business operations. 4.1.8 We are exposed to breach of our customer data protection which could materially affect our Group’s reputation and business The ability to provide secure transmissions of confidential information over networks accessible to the public is essential in the industry in which our Group operates. We are required to take all reasonable steps to ensure that parties who have access to our subscriber’s information in our ordinary course of the business do not disclose such information without the prior consent of the subscriber. Under the Personal Data Protection Act 2010, any service provider that collects customer information has a responsibility to adopt and implement a policy that protects the privacy of identifiable information. In this regard, we have registered as a data user with the Personal Data Protection Department of Malaysia effective up to 21 December 2016. Meanwhile, we are in the midst of adopting and implementing an effective policy, which includes amongst other, specific Database Management Systems that is password protected and information is available only to selected employees based on their level of clearance, to protect confidential subscriber and end user data stored or transmitted through our network. Despite various security measures taken by our Group, we cannot assure that unauthorised access, computer viruses, accidental or intentional actions and other disruptions will not occur. As at the LPD, there has been no occurrence of unauthorised access, computer viruses, accidental or intentional actions and other disruptions that have materially affected our operations. 4. RISK FACTORS (cont’d)
4.1.9 We are subject to the risk of non-collectability of our trade receivables The non-collectability of our trade receivables form part of the business risks of our Group. As set out in Section 12.8(ii), we had bad debts written off amounting to RM2.05 million and RMO.36 million in FYE 2012 and FYE 2013 respectively, which represents approximately 23.0% and 4.0% of the total revenue for the respective years. These bad debts were either due to failure of payment from our customers or bad debts arising from dispute of services provided to customers. Approximately 68.0% of these bad debts were from receivables outstanding for more than five (5) years, which we had been unable to recover despite exhaustive measures. There was no bad debts recorded in FYE 2014. The non-collection of our trade receivables will adversely affect our cash flow, financial position, results of operations and prospects. Even in the event we are able to recover any bad debts, the process of such recovery may be time-consuming and requires financial and other resources to settle the disputes. Furthermore, there can be no assurance that any outcome will be in our favour or that any dispute will be resolved in a timely manner. In some instances, the expenses for recovery may exceed the amount of debt outstanding. We acknowledge the importance of credit control and seek to mitigate the risk by monitoring the outstanding trade receivables of our Group and undertaking relevant measures to ensure that our trade receivables are maintained at a manageable level at all times. We intend to set a systematic credit policy to be extended to our customers and implement an effective credit control and receivables collections management system. We also continuously monitor our cashflow and maintain an action plan for any receivable beyond the credit term of six (6) months. However, there can be no assurance that the above measures will always be successful.
4.1.10 We are subject to political, economic and regulatory risks Presently, our Group has business dealings in Malaysia and Bangladesh (via Robi Axiata). As part of our future plans, we also intend to expand to Indonesia and countries within the Indochina region as set out in Section 6.11 of this Prospectus. Hence, any adverse development in the political, economic and regulatory environment in the countries involved may adversely affect our operations and financial performance. These risks include but are not limited to changes in general economic and business conditions, government legislations and policies affecting our industry, inflation, fluctuations in foreign exchange rates and interest rates, political and social development, risks of war, expropriation, nationalisation, renegotiation or nullification of existing contracts, methods of taxation and tax policy, and currency exchange controls. We will continue to adopt prudent management and precautionary measures but there can be no assurance that these measures are sufficient to address any future changes in the political, economic and regulatory environment in the countries involved. 4. RISK FACTORS (cont’d) 4.1.11 We are exposed to fluctuations in exchange rates arising from our business in Bangladesh The Groups’ business dealings in Bangladesh are conducted in the local currency of Bangladesh and payments to our Group are made in USD. Similarly, when we expand to other countries, the businesses in the countries will be conducted in the respective local currencies. As such, any fluctuation in relation to the local currencies of the countries we operate in will have an effect on the financial performance of our Group. There was no exposure from fluctuations in exchange rates during the Financial Years Under Review save for in FYE 2014 when we recorded an unrealised gain on foreign exchange of RM89,386 from the provision of our ATS Solutions to Robi Axiata subscribers. There is also no assurance that the local currency of the said country will not be subject to administrative or legislative intervention by the respective governments or adverse market movements in future. 4.1.12 We are exposed to the introduction of new laws or changes to existing laws in a foreign jurisdiction Apart from Malaysia, our Group has business dealings in Bangladesh which is governed by its respective corporate laws, regulations and legal systems. The corporate laws, regulations and legal systems in Bangladesh may be subject to future changes. We are unable to predict future changes to its current laws and regulations and how they might affect our business dealings as well as our qualification to operate in Bangladesh. Any changes to the relevant laws and regulations may impose more stringent compliance requirements which require us to incur additional costs in order to comply with such laws and regulations and hence, may adversely affect our operations and financial performance. Any failure to comply with such new laws and regulations could also subject us to penalties, suspension or cessation of our operations, and therefore there is no assurance that our operations and financial performance would not be adversely affected. Notwithstanding the above, we will take the necessary actions to comply with any new laws and regulations and any changes to the existing laws and regulations. However, there is no assurance that in doing so, our Group’s competitiveness and operational results would not be adversely affected. [THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 4. RISK FACTORS (cont’d)
4.2 RISKS RELATING TO THE INDUSTRY IN WHICH OUR GROUP OPERATES 4.2.1 We face competition from other market players within the mobile telecommunication industry Our Group operates in a competitive and revolving information and telecommunications industry where our success is dependent on our ability to increase our market share and market presence within our target markets. Our business, Le. aggregators (platform and services enablers), can be classified under the umbrella of mobile content services and solutions market which includes six (6) broad categories of services, namely mobile phone personalisation, infotainment, information, banking and financial services; communication and other services. It is estimated that there are approximately four hundred (400) market players which include MNO aggregators (application services and platform enabler) as well as content developers/ providers that are participating in the local mobile content and solution services market in 2014. Our market share in the whole of mobile content and solution markets for FYE 2011, FYE 2012, FYE 2013 and FYE 2014 is approximately 0.3%. The market for application services and platform enabling is characterised by rapid technological innovation and on-going regulatory change. We may also experience intense competition from future competitors. Emerging companies could enter the market and introduce new products and technologies. In addition, MNOs are also capable of taking the roles of aggregators, content providers and solution providers at the same time, and thus may compete directly with our Group. Increased competition could result in price reductions, reduced revenue and margins, loss of market share, anyone of which could materially and adversely affect our business, operating results and financial condition. However, our Directors believe that the technology we employ is highly reliable and able to handle high volumes. Our ATS Solutions is supported by a scalable backend system that is capable of performing 223 transactions per second. In 2014, the highest number of chargeable transactions per day was 380,984 with an average of 324,019 chargeable transactions per day. We invest in new product development and updates to our ATS platform and ATS Solutions, such as enhanced favourite number feature, enhance schedules transfer feature and application-based ATS through sustained R&D efforts. This ensures our competitive edge in capturing market share and garnering market acceptance. In addition to the above, we have applied for a number of patents to safeguard our technology as mentioned in Section 6.4 of this Prospectus. Upon the grant of the patent, we shall have the right to institute court proceedings against any competitor who has infringed the patent. However, there can be no assurance that we will be able to maintain our competitiveness against current and future competitors or that competitive pressures will not materially and adversely affect our business, operating results and financial condition. 4. RISK FACTORS (cont’d) 4.2.2 We are exposed to the rapid changes in technology within the mobile telecommunication industry The information and telecommunications industry is characterised by rapid technological developments, evolving industry standards, swift changes in customer requirements, software applications, and frequent new products introductions and enhancements. The mobile telecommunications industry in particular has experienced rapid and significant technological development and frequent improvements in capacity, quality and data-transmission speed. Particularly noteworthy is the development of data, internet and mobile technology as well as the convergence of data technology, voice technology, and computer technology. In particular, our Group is also affected by the trend of emergence of data mobile applications or contents, whereby certain SMS based services such as newswires and gaming results might face substitution and therefore lead to reduced demand for certain mobile content and solutions. As such, our Group’s future depends substantially upon our ability to address the increasingly sophisticated needs of our customers by supporting existing and emerging mobile software, database and network platforms. We would need to keep abreast with the latest technology to ensure our products and services remain relevant and in demand. Notwithstanding the above, technology changes typically relate to the increase in efficiency of advancements in technology, however user behaviour does not change, but is simplified by technology enhancement. In the event our Group is not able to develop new products and services or enhancement to our existing products and services in a timely and cost-effective basis, or if our new products and services or enhancements fail to achieve market acceptance, or if one or more of our competitors introduce products that better address customer needs or for any reason gain market share, our business, operating results and financial condition would be adversely affected. We seek to mitigate these risks by ensuring our R&D team remains proactive in developing technology content solutions to cater for current trends and anticipate for technological changes. Our in-house R&D team is constantly adding new features, improving efficiency of existing systems and developing new and innovative services for the Group such as GreenBilling© application, SMS sharing, voice sharing, data sharing and network sharing platform to suit the changing needs of the our consumers. Please refer to Section 6.1.3 for further details on our new products. At the same time, with regard to the emerging trend of data mobile applications and content, our Group is of the opinion that while certain SMS based services might be phased out, SMS will still remain a crucial mode of communication in supporting functions such as verification and authentication codes as well as push marketing notifications targeted at mobile phone users. 4. RISK FACTORS (cont’d) 4.2.3 We face competition from mobile content and mobile application developers Our existing efforts in enhancing our ATS solutions include the development of application based ATS. We are also in the midst of developing GreenBilling©, a mobile application to facilitate convenient billing services between service providers such as utility companies, banks etc. and their respective customers. This places our Group in competition with other mobile content and mobile applications developers who create contents and applications for smartphone users. These mobile content and mobile applications developers may be able to introduce similar mobile applications with better format and functionality that could result in lesser adoption and use of our mobile applications. In view of the above, we rely on our competitive strengths as set out in Section 6.2 of this Prospectus to compete effectively with the other mobile content and mobile applications developers. Additionally, we are able to differentiate our application based ATS from other mobile application due to the nature of our services, which are integrated directly into the MNO’s system and utilise the MNO’s infrastructure and gateway to reach subscribers. For our GreenBilling© mobile application, IDOTTV holds the right to use the GreenBilling© intellectual property as set out in Section 6.4.3 of this Prospectus. Nevertheless, there can be no assurance that we will be able to maintain our competitiveness against current and future competitors or that competitive pressures will not materially and adversely affect our business, operating results and financial condition. [THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]