Final Results

30 June 2016

Galasys PLC

("Galasys" or the "Group" or the "Company")

Final results for the year ended 31 December 2015

Galasys PLC (AIM:GLS), a leading provider of solutions and services to the fast growing theme park industry in Asia, is pleased to announce its full year results for the year ended 31 December 2015 .

Financial results

· Revenue for 2015 up 33% at MYR51.36m (2014: MYR38.62m)

· Repeat and recurring revenue 60% of sales

· Gross Profit up 38% at MYR27.02m (2014: MYR19.52m)

· EBITDA down 8% MYR11.63m (2014: MYR12.58m)

o Reflects c. MYR2m of planned global expansion and R&D amortisation in 2015

· Profit Before Tax down 19% at MYR9.14m (2014: MYR11.34m)

o Includes a provision of GBP500,000 (c. MYR3m) for the on-going litigation fees

o Includes foreign exchange loss of MYR0.83m (c. GBP0.13m)

· Profit After Tax down 25% at MYR7.04m (2014: MYR9.4m)

· EPS MYR0.10 or 1.59p (2014: MYR0.16 or c. 2.91p)

· Cash and cash equivalents of MYR16.0m (2014: MYR11.32m)

o Includes the funds raised in April 2015 amounting to GBP2.8m (MYR16.5m)

o Includes c. MYR1m pay out for I Logic Solutions Sdn Bhd acquisition.

o Reflects c. MYR11m increase in working capital for receivables due to strong revenue growth

o Invested MYR7.2m on planned global expansion and R&D in 2015

Operational Highlights:

· Signed up an additional 73 new amusement park installed sites in 2015

· Awarded numerous contracts from renowned companies, including:

o Shanghai International Theme Park Company Limited and Shanghai International Theme Park; Associated Facilities Company Limited with a total value of c. GBP660K;

o Silver Base Group for Yinji Water Park with a total value of c. GBP500K;

o Dalian Wanda's XiShuangbanna Theme Park with a total value c. GBP280K; and

o Mount Yandang with a total contract value c. GBP305K.

o Aerospace Theme Park with a total contract value c. GBP225K;

o Oriental Pearl and TV Tower with a total contract value c. GBP215K;

o Nanshan Cultural Tourism Zone with a total contract value c. GBP200K;

o Penang Hill with a total contract value c. GBP225K;

o Malaysia Animation Park with the first contract value c. GBP227K;

o Secured repeat orders from Enchanted Kingdom in the Philippines as the first customer for its newly developed and launched Mobile Ticketing and Park Map & Navigation Apps; and

o Secured and deployed Intelligent Tourism cloud platform for Xinjiang Province Tourism in China.

· Raised c. GBP2.8 million through a placing with Beijing Shiji Information Technology Co., Ltd ("Shiji")

· Signed up partnership with Fusionex International PLC to offer big data solutions and services.

· Extended sales network and channels into the Philippines, Indonesia, Dubai and Australia

· Completed R&D for a number of new modules including eWallet on RFID, Mobile Ticketing, Park Map & Navigation and Smart-Q Apps, Ticketing Redemption & Vending Kiosk, Intelligent Tourism Cloud Marketing Platform and Big Data Analytics.

· Successful acquisition of I Logic Solutions Sdn Bhd ("I Logic"), a leisure and entertainment solutions provider in Malaysia 

Commenting on the announcement, Mr. Seah, Chief Executive, said:

"Galasys continues to show strong growth in the 2015 financial year with an additional 73 new installed-sites signed up in the period. Since the launch of CLOTATM in December 2014, we managed to integrate nearly 30 of our installed sites as at 31 December 2015 by linking their GSET ticketing systems to our CLOTATM platform, which has linked to China's leading Online Travel Agencies (OTAs) and Travel Platforms. Our sales pipeline is increasing and we expect further momentum as the Group continues to expand its market coverage in China and other countries in Asia. We are well positioned to continue to drive both our geographical expansion and new product and services rollout in 2016 and beyond."

For further information, please contact: 

About Galasys

www.Galasystec.com

Galasys is a leading integrated and modular amusement park solutions and services provider to premier amusement parks in China and South East Asia. Through its proprietary systems, the Group provides amusement park operators with the ability to sell, manage and analyse tickets, visitors, merchandise sales and other amusement park operations. It has been operating since 2005 and supplies solutions and services to more than 170 amusement parks in China and South East Asia. The Group has invested more than 50 man-years in R&D and owns the intellectual properties to its software and systems. The Group currently employs and retains more than 140 people across Asia.

In recognition of the quality of the Group's solutions and services, Galasys is a merit recipient for the prestigious 2015 ASOCIO ICT Awards in the category of Outstanding ICT Company.

For more information, please visit www.galasystec.com

Board Report

Strategy & Business Review

The Group's key events for 2015 was undoubtedly the successful acquisition of I Logic Solutions Sdn Bhd ("I Logic"), the strategic investment from Beijing Shiji Information Co. Ltd ("Shiji") and the contract signed with the Shanghai International Theme Park Company Limited and Shanghai International Theme Park Associated Facilities Company Limited. These are significant milestones for the Group and all our staff, shareholders and partners following an 11-year build-up of the business since inception in 2005.

Acquisition of I Logic immediately enhanced our product portfolio and customer references in terms of number of amusement park installed sites that are using our ticketing solutions. It also strengthened our position in Malaysia, where we are the ticketing solution vender with the most amusement park installed sites.

In April 2015, we finalised the strategic investment from Shiji, an IT solution provider that is listed in Shenzhen Stock Exchange, China. Shiji is the largest solutions provider for the hotel and hospitality sector in China and South East Asia. Under the terms of the Collaboration Agreement signed between Galasys and Shiji, the two companies will cooperate in the tourism and leisure industry in Asia by integrating their respective technology solutions, internet ticketing platforms and payment services for the Asian market. Galasys received net-proceeds of c. GBP2.8mil from the fund raise.

Equally significant, the Group had signed a multi-year contract with Shanghai International Theme Park Company Limited and Shanghai International Theme Park Associated Facilities Company Limited to research, develop and manage a Third Party System Integrator platform, which includes a Business-to-business General Admission module. The arrangement will allow Galasys to license and customise its Intelligent Cloud Business-to-Business ("Cloud B2B") system as a Third Party System Integrator platform, working with travel agents in China for the sale of theme park and theatre admission tickets. The contract will run for five years with software managed service and annual maintenance services.

The Galasys team has been busy since IPO implementing the Group's two-pronged strategy: focusing on selling product licensing and services on a project basis, and investing product licensing and services in Ticketing IT Outsourcing ("TiTo") on a revenue-sharing basis. We have signed up a total of 73 new amusement park installed sites in the period and had accumulated a total of 172 installed sites as of 31st December 2015. I am pleased that the efforts are reflected in the Group's full year results for 2015, which have shown significant improvements compared to 2014.

Prospects

The Group is in an important phase of technological and product development. 2016 will see continuing efforts to enhance the existing core ticketing platform using Cloud and Big Data technologies and its associated modules including eWallet with RFID, mobile apps, CLOTATM, GALOTASTM and Intelligent Tourism and eCommerce platforms. The Group expects to see more financial contribution arising from the commercialisation of products and services launched in 2015. In particular, as part of the transformational growth plan, we have developed and launched new products and Internet platforms enabling the Group to broaden its revenue base and reach out more directly to park visitors.

As a testament to the reliability and quality of our products and services, we continue to secure new and highly reputable clients such as the Malaysia Animation Park, the Dalian Wanda Group in China, the Enchanted Kingdom in the Philippines and the Shanghai International Theme Park Company Limited and Shanghai International Theme Park Associated Facilities Company Limited based in China.

In 2015, Galasys developed and launched its Intelligent Tourism Cloud Marketing Platform ("ITCMP") which integrates with Big-data analytics, to allow tourists to pick and choose theme-park attractions, restaurants, hotel accommodation, transportation, shopping and entertainment from one integrated CLOTATM platform which tourists can easily pay for via their favourite Online Travel Agencies ("OTAs") such as C-Trip or payment gateways such as Alipay. Yangzhou China was the first Chinese district to deploy ITCMP and has successfully attracted millions of "free-n-easy" tourists to visit Yangzhou. Burqin County of Xinjiang China is the second district to use the platform, which now has over 500,000 subscribers in China through Galasys collaborations with Alitrip, C-Trip and Tuniu, amongst others.

"Intelligent Tourism" is the application of technologies such as the internet of things ("IoT"), cloud computing, next generation of communication networks and intelligent data mining for the tourism industry, in which physical and information resources are integrated to improve tourism services, improve the tourism experience, innovate tourism management and enhance a tourism enterprises' competitiveness. Galasys believes that the future lies in the concept of Intelligent Tourism, where tourists could potentially travel to the site of their choice without the need to carry cash. Hotels, restaurants, famous local delicacies, convenience stores and local attractions are all available in a single portal, together with customer reviews.

In terms of marketing and business development, the Group has a planned investment in global business expansion, which will increase the size and capability of the sales and marketing team and see additional allocated R&D resources for product internationalisation in order to reach out to new business prospects in Asia, Middle-East, Australia and the United States of America.

We expect to maintain the positive trends in the business in the coming financial year as we deliver on our long term strategic objective of transforming our current project based revenue model into one which correlates our revenue and profits more directly to the number of visitors to our theme-park customers.

Results

Galasys has delivered good financial performance in 2015, with revenues up 33% at MYR51.36m (FY2014: MYR38.62m). We have seen continued growth in demand for our products and services from existing customers as well as successfully adding new large customers such as Shanghai International Theme Park Company Limited and Shanghai International Theme Park Associated Facilities Company Limited in China, Penang Hill and Malaysia Animation Park in Malaysia.

Although the Group achieved a significant increase in revenue, the Group has delivered EBITDA, which decreased by 8% at MYR11.63m (FY2014: MYR12.58m), and pre-tax profit, which decreased 19% at MYR9.14m (FY2014: MYR11.34m). This was predominantly a result of a provision for one-off exceptional costs of GBP500,000 for the on-going litigation fees.

Despite this, the Group's Cash-and-cash-equivalent has increased to MYR16.0m (FY2014: MYR11.32m). The net position increased on receipt of the proceeds from the placing with Beijing Shiji Information Technology Co., Ltd which raised GBP2.8m (c. MYR16.5m).

The auditor made a qualification on the audited financial statement for the year ended 31 December 2015 with respect of legal fees provision of GBP500K, the audit evidence available to them was limited because they have not been able to confirm the provision is a reliable estimate. Due to dispute and debate within the Board, Directors cannot clarify probable liability incurred in 2015, nor have the auditor been able to carry out any alternative procedures within their audit time schedule. Therefore, they were unable to obtain sufficient appropriate audit evidence regarding the existence and valuation of the provision (Notes 22 and 29).

A Galasys Board meeting has been held and the Board duly passed a resolution to sign the accounts, albeit that two directors abstained in that vote.

Market Overview

According to the Global Attractions Attendance Report published by Themed Attraction Association and AECOM, the theme park industry in Asia achieved very strong growth in 2015 with annual growth in attendance numbers of 6.9%. This was higher than both the America at 5.88% and Europe at 2.8%. The growth in the Asia market was driven almost entirely by China where many new parks have recently completed their first full year of operation. The report also stated that the attendance total for the top 20 Asian water-parks continued to surpass attendance for the top 20 water-parks in North America. AECOM further predicts the total attendance for the top 20 Asia Pacific theme parks will also surpass those of the North American top 20 in the near future. Against this backdrop of high growth, we intend to continue building on our market leading position across Asia and have made good progress entering into new and emerging Asian markets such as the Philippines, Indonesia, Singapore, Thailand, UAE, Oman and Sri Lanka.

Of the Top 20 amusement parks in Asia, 13 are from China and in worldwide amusement park rankings, Chimelong Group and Songcheng, both from China, have emerged in the World's top 20 list. Chimelong Group had a 36% increase in total attendance while Songcheng Worldwide had a 26% increase. Chimelong Water Park (ranked first in terms of water park attendance worldwide) enjoyed attendance figures of 2.35 million. This very strong year for theme parks in Asia was propelled by the fundamental market growth, particularly in China, based on the increases in wealth and tourism that drives visitor numbers.

"China saw many new entries into the market - a huge construction boom in fact, that will influence the numbers in the future." - TEA & AECOM 2015 Theme Index

The Middle East, especially Dubai, has indicated economy growth with more theme park projects launched due to Dubai World Expo 2020 and FIFA World Cup 2022 in Qatar.

"Dubai has had a number of tourist projects launched. Going ahead, we will have more projects, for instance, a number of theme parks [in the works] and a larger zoo by Dubai government besides various retail projects. And then we have continuous renovation of our historic areas like Al Shindaga and Al Fahidi. I would expect over the coming years announcements on a lot more family projects" - Helal Saeed Al Merri, Director General of Department of Tourism and Commerce Marketing, Gulf News , 4 May 2013

Since the commercialization of CLOTATM in December 2014, Galasys has signed up the top OTAs and Travel Platforms, including Beijing Qunar Software Technology ("Qunar"), Ctrip.com International Ltd ("Ctrip"), Shanghai Lvmama International Travel Agency Co. Ltd ("Lvmama"), Sichuan Brigade Butler Network Technology ("Lvxiaobao"), Tuniu Corporation ("Tuniu"), Alitrip and Chengdu Chenyu Culture Communication Co., Ltd. These OTAs and Travel Platforms accounted for most of the online travel traffic in China.

According to iResearch, among the OTAs, Ctrip (23.2%) and Tuniu (13.4%) were still the top 2 companies in China online vacation tour market in 2014. Among the travel platforms in China online vacation tour market, Alitrip is the absolute leader with 17.3% market share, followed by Qunar at 7.1% in the same year. As for the online inbound tour market, Ctrip commands superiority over others with 26.9%, followed by Tuniu 12.9% among the OTAs while Alitrip led the online outbound market with 12.1% followed by Qunar at 4.1% among the travel platforms. As for the outbound tour market, Ctrip and Tuniu were leaders commanding 27.8% and 17.4% respectively among the OTAs while Alitrip and Qunar were the top two leading in the travel platform market commanding 12.1% and 4.1% respectively.

Given such statistics, the Group is in a very good position to successfully market CLOTATM for the promotion of in-bound tourism in countries that wish to attract more tourist trade form China.

New Wins

The largest and most commercially significant contract win in 2015 was Shanghai International Theme Park Company Limited and Shanghai International Theme Park Associated Facilities Company Limited in China which brought in revenue of c. GBP660K to Galasys. Additionally, the Group secured Yinji Water Park in the first half of FY2015 worth c. GBP500K, followed by Dalian Wanda Xishuangbanna Theme Park worth c. GBP280K, Mount Yandang contract worth c. GBP305K, Aerospace Theme Park contract worth c. GBP225K, Nanshan Cultural Tourism Zone contract worth c. GBP200K and Kanashi Theme Park Management contract worth c. GBP180K. Outside China, we have secured Penang Hill contract worth c. GBP225K, Malaysia Animation Park first contract worth c. GBP227K and repeat sales from Enchanted Kingdom worth c. GBP180K.

In 2014, Galasys secured the first contract to deploy its ticketing management system for Enchanted Kingdom to entirely replace the incumbent's ticketing system. Following the successful implementation, Galasys has now secured Enchanted Kingdom as the first customer for its newly developed and launched Mobile Ticketing and Park Map & Navigation Apps. The contract also includes Galasys Point-of-Sale ("GPOS") and GSET Online Ticketing Solutions ("GSET-OTS").

From I Logic, we have secured the Tropical Island Waterpark in Kuala Terengganu in Malaysia worth c. GBP91K. More significantly, Galasys has signed up an additional 73 new installed-sites in 2015, bringing total sites signed to 172 at close of FY2015. The Group is also venturing into Japan, Indonesia, Singapore, Australia, UAE, Oman and Sri Lanka.

TiTo, CLOTATM, Intelligent Tourism and Big Data

Since the IPO the Group has introduced its TiTo engagement model followed by the launch of its CLOTA platform. Over time, the tourism business has evolved following the introduction of the internet+ concept by China's Prime Minister Li Keqiang in his Government Work Report on March 5 in 2015. Internet+ is basically the use of Internet technology across many industries, fostering new industries and business development. Internet+ uses Cloud Computing ("SaaS"), Big Data, mobile Internet and IoT at the core to simplify and enhance the way we do businesses. Thus, it is where the intelligent tourism concept is born. The TiTo engagement model and CLOTA platform fit very well into the intelligent tourism initiative and Galasys has seen an accelerated adoption of its TiTo engagement model and the CLOTA platform as a result.

In the past, we approached individual amusement parks to sell our ticketing solutions using the TiTo engagement model and integration to our CLOTATM platform. The amusement park admission tickets will be added into our CLOTATM platform as a product to sell to tourists via our contractual OTAs. With the intelligent tourism initiative, we are adding other products including hotel rooms, food and beverages, transportation, events tickets and souvenirs as a package to sell to tourists via the OTAs. This package is customizable for each OTA. For instance, amusement parks and Galasys could jointly create a package that consists of amusement park admission tickets for 2 days 1 night inclusive of hotel rooms, food-and-beverages and souvenirs to sell to tourists via OTAs. The availability of more packages will enable tourists to decide and plan their trip, in a free-and-easy manner.

Furthermore, in our traditional approach to sell TiTo and CLOTATM, we approached amusement parks individually, convincing them to sign up with us. Now with the intelligent tourism initiative, the government intervenes to support the newly endorsed Internet+ intelligent tourism initiative. Our approach changed significantly and we now approach government entities such as the city or provincial government tourism boards. Our CLOTATM has integrated with the top OTAs and travel platforms with an estimated 500 million registered users, which has caught the attention of most tourism boards. According to iResearch, there is a continuous boom of outbound tourists in China with 40% growth in 2012, 18.6% growth in 2013 and an estimated 22% growth in 2014. In the first half of 2016, we are promoting a new cross-border intelligent tourism initiative that promotes tourism products in Malaysia, Indonesia and Japan to tourists in China via our CLOTATM platform. With this new initiative, we are expanding our market coverage rapidly into more Asian countries, to cross-sell tourism products via CLOTATM. Our contractual OTAs will have more tourism products from different countries to sell to their registered members. More tourism products mean more attractiveness of our CLOTATM platform and more revenue sharing from each product sold.

We have also signed up a strategic collaboration with Fusionex to embed big data collection and analytics capabilities to our CLOTATM platform. CLOTATM is able to collect data, analyse and identify consumers' behaviour, spending patterns etc. This analysis enables us to create appropriate promotional activities and produce more goods/services that consumers find more attractive.

Resources & Research and Development

Research and development ("R&D") remains a key business driver for the Group in order to maintain its competitive advantage in delivering innovative solutions ahead of the market and creating new business trends. The Group has strong and proven R&D capability, which we will continue to deploy to bring new products and services to the market.

The R&D projects for the Galasys Mobile-Commerce, Park-Map Navigation and Smart-Q Mobile apps were completed in April 2015 and we have successfully secured new customers like Enchanted Kingdom to deploy these apps. The Group has continued to invest in its proprietary CLOTATM platform, launched in Q4 2014. We have signed up more OTAs and additional theme parks connected to the CLOTATM platform. The Group has successfully developed an innovative Galasys Intelligent Tourism Cloud Marketing Platform and it was first deployed for ShouXiHu, Yangzhou. Moreover, the Galasys GALOTAS.com ecommerce portal was launched in Q2 2015.

After signing the Collaboration Agreement with Beijing Shiji, both parties have been working closely to develop, integrate, promote and sell our respective systems. From the R&D perspective, Galasys has integrated its Platform with Shiji's hotel management ("PMS") systems, point-of-sale systems and the Alipay payment gateway. With these product integrations successfully completed, the Group is positioned to sell and implement complete solutions for the amusement and hospitality industry.

Dispute over composition of Board

On October 22nd, it was announced that Chee Keong Hee and Chee Siong Chin would be leaving the Board. This departure process has been the subject of dispute thereafter, as described in a number of RNS announcements issued by the Company subsequent to that date. The dispute is now subject to legal proceedings and the Jersey Court is due to commence hearings on the subject on 20 September 2016. The Company will provide shareholders with further updates on this issue as appropriate.

On 18 December 2015, Independent Non-Executive Director Garry Peagam left the Board.

Outlook for 2016

The Group currently operates in Asia, the strongest growth market for amusement parks and visitor numbers. The Group's growth strategy is built on new key customer acquisitions, new products through continuous R&D and technology partnership, the rollout of the intelligent tourism engagement model to increase recurring revenue, the execution of the cross border intelligent tourism initiative, sales and distribution platform to correlate our revenue and growth more closely to the number of visitors to our installed sites, and geographical expansion into new territories.

The Group is also exploring collaborations with various technology partners to realise mutual synergies and will keep the market and our shareholders informed in due course.

The Group continues to expand into new territories by signing up partners in countries such as the Philippines, Indonesia, Japan, UAE, Oman, Hong Kong and Australia. Additionally, the Group is acquiring new clients while continuing to serve and deepen ties to its existing client base.

Asia remains the fastest growing market for the global amusement park industry and Galasys is well positioned to continue its growth in this region. The Group is working on a strong sales pipeline of projects for financial year 2016 and the Board is confident of delivering another year of good progress and financial performance.

Sean Seah

Chief Executive Officer

29 June 2016

Consolidated Statement of Financial Position

for the year ended 31 December 2015

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2015

Consolidated Statement of Changes in Equity (Audited)

for the year ended 31 December 2015

Consolidated Statement of Cash Flows (Audited)

for the year ended 31 December 2015

Notes to the Financial Statements

1. General Information

The Company is principally engaged in investment holding. The principal activities of the subsidiaries are set out in Note 2.2 to the financial statements.

There are no significant changes in the nature of these principal activities during the financial year.

The company is a public limited company with registration number 114827 and listed on the AIM Market of the London Stock Exchange.

The registered office of the Company is Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES.

2. Summary of significant accounting policies

2.1. Basis of preparation

Statement of Compliance

The consolidated financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). The consolidated financial information has been prepared using the accounting policies which are consistent with those adopted in Part IV of the AIM Admission Document of Galasys plc dated 7 May 2014 as well as applying the below accounting policy in respect of the basis of consolidation as extracted from the draft financial statements.

The individual financial information of each entity is measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements of the Group are presented in Malaysian Ringgit (MYR), which is the presentation currency for the consolidated financial statements. The functional currency of each individual entity is the local currency of each individual entity. The primary economic environment for the Group is Malaysia.

Standards, amendments and interpretations issued but not yet effective

The Group has not applied the following new IFRSs and amendments to IFRSs that have been issued but are not yet endorsed by EU at 8 June 2016:

There are no other standards, amendments and interpretations in issue but not yet adopted that the directors anticipate will have material effect on the reported income or net assets of the Group.

Business Combinations

The consolidated financial statements include the financial statements of the Group made up to 31 December each year.

On 7 March 2014 the Company acquired the entire share capital of Galasys Holdings Limited ("Galasys Holdings") via a share swap agreement. As a result of this transaction, the ultimate shareholders in Galasys Holdings received shares in the Company in direct proportion to their original shareholdings in Galasys Holdings.

IFRS does not provide specific guidance on accounting for common control transactions. Therefore, the Directors have selected an accounting policy using the "hierarchy" described in paragraphs 10-12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The hierarchy permits the consideration of pronouncement of other standard-setting bodies. The Directors have adopted a policy of accounting for business combinations between entities under common control in accordance with guidance under UK GAAP for guidance (FRS-Acquisitions and Mergers) which does not conflict with IFRS and reflects the economic substance of the transaction. This guidance produces a result that is similar to pooling.

Under UK GAAP, the assets and liabilities of both entities are recorded at book value, not fair value. Intangible assets and contingent liabilities are recognized only to the extent that they were recognised by the legal acquirer in accordance within applicable IFRS, no goodwill is recognised, any expenses of the combination are written off immediately to the income statement and comparative amounts, if applicable, are restated as if the combination had taken place at the beginning of the earliest accounting period presented. Therefore, the consolidated accounts have therefore been prepared as if the Group structure has always been in place, including activity from incorporation of the Group's subsidiaries, although the Group reconstruction did not become unconditional until 7 March 2014.

Subsidiaries

A subsidiary is an entity (including special purposes entities) over which the Company has the power to govern the financial operating policies, generally accompanied by a shareholding giving rise to the majority of the voting rights, as to obtain benefits from their activities. The consolidated financial statements present the results of the Group as if they formed a single entity.

Intra-group balances and transactions and any income and expenses arising from intra-Group transactions are eliminated on consolidation. Unrealised gains and losses arising from transactions with associates and joint ventures are eliminated against the investment to the extent of the Group's interest in the investee.

The principal activities of the subsidiaries are as follows:

Note:

* Held through Galasys Holdings Limited

^ Held through Galasys Technologies (HK) Limited. Under Galasys Global (Suzhou) Co. Limited, there is a branch company in Beijing and four representative branch offices in Guangzhou, Chengdu, Shandong and Wuhan.

# On 5th January 2015, the company acquire 500,000 ordinary shares MYR1/- each of I Logic Solutions Sdn Bhd, represent 100% of the total paid up share capital of the subsidiary.

@ On 20th April 2015, the Company subscribed 100% of the total issued and paid up share capital of Galasys Global (Beijing) Co Limited for a cash consideration of RMB1,575,317/-.

Purchase method

Under the purchase method, the results of subsidiaries acquired or disposed of are included from the date of acquisition or up to the date of disposal. At the date of acquisition, the fair values of the subsidiaries' net assets are determined and these values are reflected in the consolidated financial statements. The cost of acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.

Intragroup transactions, balances and unrealised gains on transactions are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial information of subsidiaries to ensure consistency of accounting policies with those of the Galasys Group.

2.3 Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. If the cost of an acquisition is less than the fair value of the Group's share of net identifiable assets of the acquired subsidiary and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase (negative goodwill).

During the financial year ended 31 December 2015, the Group acquired the entire share capital of I Logic Solutions Sdn Bhd ("I Logic"). Pursuant to the agreement entered into between the Group's fully owned subsidiary Galasys Holdings Limited ("GHL") and the shareholders of I Logic, GHL will acquire the entire issued share capital of I Logic for a total consideration that is based on the aggregate of a multiple of 2 of its audited profit after tax for each of the financial years 2014, 2015 and 2016 with a maximum amount payable of MYR7,000,000 (the "Consideration"). For financial year 2014, the earn-out payment shall be fully in cash and of which an upfront cash payment of MYR400,000 has been paid upon closing of the Acquisition. Subject to certain terms and conditions, the earn out payment for financial years 2015 and 2016 shall be paid 50% in cash and 50% in the form of new shares of Galasys. The shareholders of I Logic have also given a profit guarantee of MYR200,000 for financial year 2014. The fair value of I Logic's net identifiable assets as at the date of acquisition and the goodwill resulted from the acquisition are disclosed in Note 25 to the financial statements.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. 

After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Irrespective of whether there is any indication of impairment, goodwill (and also an intangible asset with an indefinite useful life or an intangible asset not yet available for use) is tested for impairment, at least annually. Goodwill impairment is not reversed in any circumstances.

For the purpose of impairment testing and since the acquisition date of the business combination, goodwill is allocated to each cash-generating unit, or groups of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree were assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and is not larger than a segment.

2.4. Intangible assets

Research and development expenditure

Research expenditure is recognised as an expense when it is incurred.

Development expenditure is recognised as an expense except that costs incurred on development projects are capitalised as long term assets to the extent that such expenditure is expected to generate future economic benefits. Development expenditure is capitalised if, and only if, an entity can demonstrate all of the following:

Research and development expenditure (continued)

(i) its ability to measure reliably the expenditure attributable to the asset under development;

(ii) the product or process is technically and commercially feasible;

(iii) its future economic benefits are probable;

(iv) its ability to use or sell the developed asset; and

(v) the availability of adequate technical, financial and other resources to complete the asset under development.

Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses, if any. Development expenditure initially recognised as an expense is not recognised as assets in the subsequent year.

The development expenditure is amortised on a straight‑line method over a period of 5 years when the products are ready for sale or use. In the event that the expected future economic benefits are no longer probable of being recovered, the development expenditure is written down to its recoverable amount.

2.5. Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. The cost of plant and equipment includes its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Dismantlement, removal or restoration costs are included as part of the cost of plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the plant and equipment. Depreciation of plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows:

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The estimated useful lives, residual values and depreciation methods are reviewed, and adjusted as appropriate, at the end of each financial year.

The gain or loss arising on disposal or retirement of an item of plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in comprehensive income statement.

Fully depreciated plant and equipment are retained in the financial statements until they are no longer in use.

2.6. Impairment of tangible and intangible assets excluding goodwill

At the end of each financial year, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.

The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in statement of comprehensive income, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in comprehensive income statement, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

2.7. Income tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported comprehensive income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group's liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted in countries where the Group and its subsidiaries operate by the end of the financial period.

Deferred tax is recognised on the differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised on taxable temporary differences arising on investment in subsidiary, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each financial year and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the financial year. Deferred tax is charged or credited to comprehensive income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over cost.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

2.8. Financial instruments

Financial assets and financial liabilities are recognised on the Group's consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial instrument and allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or where appropriate, a shorter period, to the net carrying amount of the financial instrument. Income and expense are recognised on an effective interest basis for debt instruments other than those financial instruments at fair value through comprehensive income statement.

Financial assets

Financial assets within the scope of IAS 39 are classified as either:

(i) financial assets at fair value through profit or loss

(ii) loans and receivables

(iii) held-to-maturity investments

(iv) available-for-sale financial assets

The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this classification at every reporting date. As at the balance sheet date, the Group did not have any financial assets at fair value through profit or loss, and in the categories of held-to-maturity investments and available-for-sale financial assets.

All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Regular way purchases and sales are purchases or sales of financial assets that require delivery of the financial assets within the period generally established by regulation or convention of the market place concerned.

Financial assets are derecognised when the rights to receive cash flow from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Financial assets at fair value through profit or loss ("FVTPL")

Financial assets are classified in this category if they are acquired for the purpose of selling in the short term. Gains or losses on investments held for trading are recognised in the comprehensive income statement.

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in active market are classified as loans and receivables. Loans and receivables are measured at amortised cost, using the effective interest method less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than FVTPL, are assessed for indicators of impairment at the end of each financial year. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For financial assets carried, at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amounts of all financial assets are reduced by the impairment loss directly with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in comprehensive income statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through comprehensive income statement to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised directly in equity.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds receivables.

Financial liabilities and equity instruments

Classification as debt or equity

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities are classified as either financial liabilities at fair value through comprehensive income statement or other financial liabilities.

Financial liabilities are classified as at fair value through comprehensive income statement if the financial liability is either held for trading or it is designated as such upon initial recognition.

Other financial liabilities

Trade and other payables

Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, where applicable, using the effective interest method, with interest expense recognised on an effective yield basis.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

2.9. Inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

2.10. Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments which are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value.

2.11. Employee benefits

Short term benefits

Wages, salaries, paid annual leave and sick leave, bonuses and non‑monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group.

For employee leave entitlement the expected cost of short-term employee benefits in the form of compensated absences is recognised in the case of accumulating compensated absences, when the employees render service that increases their entitlement to future compensated absences; and in the case of non-accumulating compensated absences, when the absences occur. A liability for bonuses is recognised where the entity is contractually obliged or where there is constructive obligation based on past practice.

Defined contribution plans

The Group's contributions to defined contribution plans are recognised in profit or loss in the period to which they relate. The entity's legal or constructive obligation is limited to the amount that it agrees to contribute to an independently administered fund. Once the contributions have been paid, the Group has no further liability in respect of the defined contribution plans.

Share-based payment transactions

The Group operates share-based compensation plans for remuneration of its employees. All employee services received in exchange for the grant of any share-based compensation are measured at their fair values.

The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expenses in profit or loss.

The Group's share option schemes provide for an exercise price at which an option may be exercised is determined by the Board of Directors at the time of grant and will be not less than the average of the mid-market price for the last five dealing days prior to the date of grant or par value, whichever is higher. The vesting period ranges from the date of grant up to ten years. If options remain unexercised after a period of ten years from the date of grant, the options expire and are returned to the unused share option pool.

An option may be exercised for a period of 30 days if the option holder's employment terminates by reason of injury, disability, redundancy, the option holder's employer ceasing to be a member of the group, because the business in which the option holder is employed is transferred out of the Group or for any other reason which may be determined by the Board. In such cases, options will be exercisable to the extent vested at the date on which the option holder ceases to hold an office or employment with the Group and to the extent any condition has been met at that time, with such condition to be modified by the Board of Directors as may be appropriate to reflect any reduced time for its fulfilment. In the event of an option holder's death, an option may be exercised by his personal representatives within 12 months following the date of death. The option may be exercised to the extent vested at the date of death and to the extent any condition has been met at such time, with such condition to be modified by the Board as may be appropriate to reflect any reduced time for its fulfilment.

If an option holder ceases to be employed for any reason other than those set out above, his options will lapse on the date of such cessation.

Options will lapse to the extent unexercised at the expiry of ten years from the date of grant.

The Group has a current share option scheme under which options have been granted on various exercise periods between 12 May 2015 to 12 May 2024.

2.12. Contracts

Where the outcome of a contract can be reliably estimated, contract revenue and contract costs are recognised as revenue and expenses respectively by using the stage of completion method. The stage of completion is measured by reference to the proportion of cost of work accepted by the customers to date to the estimated total contract cost.

Where the outcome of a contract cannot be reliably estimated, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Contract revenue comprises the initial amount of revenue agreed in the contract and variations in contract work to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.

When the total of costs incurred on contracts plus recognised profits (less recognised losses) exceeds progress billings, the balance is classified as amount due from customers on contracts. When progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is classified as amount due to customers on contracts.

2.13. Provisions, contingent liabilities, contingent assets

Provisions are recognised when the Group has a present or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount can be made.

Provisions are reviewed at the end of each financial reporting period and adjusted to reflect the current best estimate. Where effect of the time value of money is material, the provision is the present value of the estimated expenditure required to settle the obligation.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial information. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision.

A contingent asset is a probable asset that arises from past events and whose existence will be confirmed only by the occurrence or non‑occurrence of one or more uncertain events not wholly within the control of the Group. The Group does not recognise contingent assets but discloses their existence where inflows of economic benefits are probable, but not virtually certain.

2.14. Borrowings

Borrowings are presented as current liabilities unless the Group has an unconditional right to defer settlement for at least twelve months after the reporting date, in which case they are presented as non-current liabilities.

Borrowing costs, directly attributable to the acquisition and construction of plant and equipment, are capitalised as part of the cost of those assets, until such time as the assets are ready for their intended use or sale. Capitalisation of borrowing costs is suspended during extended periods in which active development is interrupted.

All other borrowing costs are recognised in profit or loss as expenses in the period in which they incurred.

2.15. Leases

Assets acquired under hire purchase are capitalised in the financial statements and are depreciated in accordance with the policy set out in Note 2.5 above. Each hire purchase payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. Finance charges are recognised in profit or loss over the period of the respective hire purchase agreements.

Hire purchases are classified as finance leases as the terms of the lease transfer substantially all of the risk and rewards of ownership to the lessee.

Payments made under operating leases are recognised as an expense in the profit or loss on a straight-line basis over the term of the lease unless another systematic basis is representative of the time pattern of the user's benefit, even if the payments are not on that basis. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense.

2.16. Related parties

A party is related to an entity if:

(i) directly, or indirectly through one or more intermediaries, the party:

· controls, is controlled by, or is under common control with the entity (this includes parents, subsidiaries and fellow subsidiaries);

· has an interest in the entity that gives it significant influence over the entity; or

· has joint control over the entity;

(ii) the party is an associate of the entity;

(iii) the party is a joint venture in which the entity is a venturer;

(iv) the party is a member of the key management personnel of the entity or its parent;

(v) the party is a close member of the family of any individual referred to in (i) or (iv);

(vi) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or

 (vii) the party is a post‑employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity.

Close members of the family of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

2.17. Share capital

Ordinary shares

Proceeds from issuance of ordinary shares are classified as share capital in equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against share capital.

Redeemable convertible preference shares

Redeemable convertible preference shares are classified as equity if it is non-redeemable, or redeemable only at the Company's option, and any dividends are discretionary. Dividends thereon are recognised as distributions within equity on approval by the Company's shareholders.

Redeemable convertible preference shares are classified as financial liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognised as interest expense in profit or loss as accrued.

2.18. Revenue and other income

The Group's revenue is earned through the sale of software, software related services and the sale of associated products.

Sale of goods

Revenue is recognised upon delivery of goods and customers' acceptance and, where applicable, net of returns and trade discounts.

Services

Revenue is recognised on the percentage of completion method as disclosed in Notes 2.12.

Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the applicable effective interest rate.

2.19. Foreign currency transactions and translation

Transactions and balances

Transactions in foreign currencies are converted into the respective functional currencies on initial recognition, using the exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities at the end of the reporting period are translated at the rates ruling as of that date. Non‑monetary assets and liabilities are translated using exchange rates that existed when the values were determined. All exchange differences are recognised in profit or loss.

The translations of Sterling ("GBP") amounts into MYR amounts are included solely for the convenience of readers. The reporting year end rates used are GBP to MYR6.3607 (2014: MYR5.4396) which approximate the rate of exchange at the end of the reporting year. The average rates of exchange for exchange for the reporting year were GBP to MYR6.0127 (2014: MYR5.3935). Such translation should not be construed as a representation that the GBP amounts could be converted into MYR at the above rate or other rate.

Foreign operations

Assets and liabilities of foreign operations are translated to MYR at the rates of exchange ruling at the end of the reporting period. Revenues and expenses of foreign operations are translated at exchange rates approximating those ruling at the dates of the transactions. All exchange differences arising from translation are taken directly to other comprehensive income and accumulated in equity under the foreign exchange translation reserve. On the disposal of a foreign operation, the cumulative amount recognised in other comprehensive income relating to that particular foreign operation is reclassified from equity to profit or loss.

Goodwill and fair value adjustments arising from the acquisition of foreign operations are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the end of the reporting period.

2.20. Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. An operating segment's operating results are reviewed regularly by the chief operating decision maker (which takes the form of the Board of Directors of the Company) to make decisions about resources to be allocated to the segments and assess its performance, and for which discrete financial information is available.

3. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in Note 2, management made judgements, estimates and assumptions about the carrying amounts of assets and liabilities that were not readily apparent from other sources. These judgements are continually evaluated by the directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, this does not prevent actual figures differing from estimates.

Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the end of the financial year, that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are reviewed are as stated below.

Amortisation of intangible assets 

Development costs are amortised on a straight‑line method over a period of 5 years. Useful lives are based on management's estimates of the period that the assets will generate revenue, with such periods being periodically reviewed for continued appropriateness.

The Group assesses the impairment of intangible assets subject to amortisation whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review include the following:

• significant underperformance relative to historical or projected future operating results;

• significant changes in the manner of the use of the acquired assets or the strategy for the overall business; and

• significant negative industry or economic trends.

The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the Group's accounting estimates in relation to intangible assets affect the amounts reported in the financial statements, especially the estimates of the expected useful economic lives and the carrying values of those assets. If business conditions were different, or if different assumptions were used in the application of this and other accounting estimates, it is likely that materially different amounts could be reported in the Group's financial statements. The carrying amount of the development costs at the end of the financial year affected by the assumption is MYR9,407,331 (2014: MYR6,085,901 ) in Note 5.

Allowance for trade and other receivables

Management reviews its loans and receivables for objective evidence of impairment at least quarterly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgment as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in.

The allowance policy for doubtful debts of the Group is based on the ageing analysis and management's on-going evaluation of the recoverability of the outstanding receivables. Once debtors have been identified as having evidence of impairment, it is regularly reviewed and appropriate impairment position applied. The carrying amount of the Group's trade and other receivables as at 31 December 2015 are disclosed in Note 9.

Impairment of non-financial assets

An impairment exists when the carrying value of non-financial assets or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from internal budgets and do not include significant future investments that will enhance the asset's performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

An assessment is made annually whether goodwill and franchise fees have suffered any impairment losses. The assessment process is complex and highly judgemental and is based on assumptions that are affected by expected future market or economic conditions. Judgement is required in identifying the cash generating units ("CGU") and the use of estimates as disclosed in Note 5 and 6. Projections of future revenues were a critical estimate in determining fair value. Actual outcomes could vary from these estimates as disclosed in Notes 5 and 6.

Provision for income taxes

The amount of income tax is being calculated on estimated assessable profits based on the completed contract method which is in accordance with the tax rules and regulations applicable in the People's Republic China. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The amounts are disclosed in Note 23.

Provision for legal fees

The consolidated financial statements include a provision for legal fees of GBP500K. Provision has been made for the estimated legal costs which the Group may incur. The actual legal costs could be materially higher or lower than this estimate, depending on the progress of the claims that are ongoing. See Note 29 for details.

Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of manufacturing and selling products of similar nature. It could change significantly as a result of changes in customer demand and competitor actions in response to severe industry cycle. Management reassesses these estimates at each balance sheet date. The carrying amounts of the Group's inventories as at 31 December 2015 are disclosed in Note 8.

4. Plant and equipment

The depreciation expense is charged to administrative expenses within the Consolidated Statement of Comprehensive Income as disclosed in Note 22.

Assets under hire purchase

The carrying amount of motor vehicles held under finance leases amounted to MYR35,891 (2014: MYR86,238).

5. Intangible assets

Intangible assets comprise software development costs and additions comprise internally generated assets. Development costs principally comprise internally generated expenditure on development costs on major software development projects where it is reasonably anticipated that the costs will be recovered through future commercial activity. It mainly consists of staff costs and outsourcing professional fees.

Of those assets that are ready for use, the development costs are amortised over the estimated useful life of 5 years. The amortisation charge is recognised in cost of sales.

Key sources of estimation uncertainty

Of those assets that are not ready for use, the recoverable amount of a cash-generating unit ("CGU") is determined using the value-in-use approach, and this is derived from the present value of the future cash flows from this segment computed based on the projections of financial budgets approved by management covering a period of five years with assumptions for revenues, margins and growth rates. These assumptions were used for the analysis of the CGU within the business on a consistent basis each year. Management determined budgeted gross margins based on its expectations of market developments. The weighted average growth rates used were consistent with forecasts included in industry reports. The discount rates used were pre-tax and reflected specific risks relating to the relevant segments.

6. Goodwill on consolidation

During the financial year, the Group assessed the recoverable amount of the goodwill and determined that no impairment is required.

This assessment of goodwill was done by comparing the gross profit to the value of goodwill for the entity whose acquisition gave rise to the goodwill.

Key sources of estimation uncertainty

The recoverable amount of a cash-generating unit is determined based on value-in-use calculations using cash flow projections based on financial budgets approved by management covering a period of five years. The key assumptions used for value-in-use calculations are:-

Management determined the budgeted gross margin based on past and expected future performances. The growth rate used is based on the anticipated demand over the projection years. The discount rate used was pre-tax and was estimated based on the industry weighted average cost of capital.

7. Reconciliation of tax movements

(a) Deferred tax assets/(liabilities)

(b) Provision for taxation

8. Inventories

None of the inventories carried at below net realisable value. There has been no impairment charge recognised in relation to inventory.

9. Trade and other receivables

The change in impairment loss in respect of trade receivables balance during the year is as follows:

The Company's normal trade credit terms range from 30 to 180 days. Other credit terms are assessed and approved on a case-by-case basis.

The carrying amounts of trade and other receivables approximate to their fair values.

10. Amounts owing by/ (to) contract customers

11. Fixed deposit with licensed banks

The fixed deposits of the Group at the end of the reporting period bore effective interest rates ranging from 2.75% to 3.20% per annum. The fixed deposits have maturity periods ranging from 30 days to 365 days and pledged to bank as security for banking facilities granted to the Group as disclosed in Note 15.

12. Cash and cash equivalents

(a) Cash and cash equivalents in the statement of cash flows

13. Asset classified as held for sale

The Group has entered into an agreement to sale the hardware and equipment on 20 February 2016. No impairment loss was recognized on reclassification of fixed assets as assets held for sale as at 31 December 2015, as the Group's Directors expected that the fair value less costs to sell is higher than the carrying amount.

14. Trade and other payables

(a) The normal trade credit terms granted to the Company is range from 30 to 60 days.

(b) Included in the accruals are mainly legal fees provide in relation to the Directors dispute (Note 29) that began in October 2015, salaries payables and value-added tax payable at the end of the reporting period.

(c) Included in other payables is an amount of contingent consideration amounted to MYR931,178 resulted from acquisition of the subsidiary I Logic Solutions Sdn. Bhd. (Note 25). The contingent consideration is calculated based on earn-out of the subsidiary of financial year 2015 and 2016.

The carrying amounts of trade and other payables approximate to their fair values.

15. Short-term borrowings

(a) Bank overdrafts

The bank overdrafts bore an interest rates of 2.00% per annum above the banks' base lending rate at the end of the financial year and secured by:-

(i) fixed deposits up to MYR200,000 with interest capitalised; and

(ii) Joint and several guarantee by all directors of a subsidiary for MYR500,000.

(b) Term loan

The term loan bore an effective interest rate of 8.60% (2014:8.35%) per annum at the end of the reporting period and repayable by 60 monthly installments of MYR4,089 and is secured by:-

(i) fixed deposits up to MYR200,000; and

(ii) Joint and several guarantee by all directors of a subsidiary for MYR500,000.

16. Finance lease payables

The hire purchase payables of the Group related to motor vehicles, and bore average effective interest rates per annum of 3.47% (2014: 3.47%)

The obligations under finance lease payables are secured by the lessor's charge over the leased assets.

17. Redeemable convertible preference shares

The Redeemable Convertible Preference Shares ("RCPS") at a nominal value of US$0.01 were constituted by the subscription agreement dated 26 December 2013. The issue price of the RCPS was US$1.00. The main feature of the RCPS is that each holder shall, when all shares of the Company acceptable to all the holders of the RCPS, be entitled to require the Company to convert all or any of the RCPS registered under the name of the holder into such number of fully paid ordinary shares of US$1.00 each, at the conversion price as computed in the agreement therein.

The salient features of RCPS were as follows:-

(a) The RCPS shall be converted at the option of RCPS holders into ordinary shares of the Company at a specified conversion ratio for every RCPS held when the Company received approval for a public listing and there is an underwriter committed to underwrite the public listing and the Company proceeds with the listing exercise.

(b) The RCPS holders do not carry any right to vote at any general meeting of the Company except on resolutions to amend the RCPS holder's rights, to declare dividends to other classes of shares whist there remain preference dividends in arrears, or to commence dissolution of the Company.

(c) The RCPS do not carry any right to participate in the profits or surplus assets of the Company.

The entire RCPS were converted into 22,835,131 ordinary shares of Galasys Holdings on 7 March 2014.

18. Stated capital account

(a) On 15 April 2015, the Company completed placing of 9,985,655 new Ordinary Shares at 30 pence per new Ordinary Share by way of a Subscription Agreement. The new Ordinary Shares are to be subscribed for by Focus Information Technology Co., Limited, a wholly owned subsidiary of Beijing Shiji Information Technology Co., Ltd.

The new ordinary shares are to be admitted for trading on AIM and upon issue will rank pari passu with the existing Ordinary Shares.

19. Reserves

(a) Foreign currency translation reserves

The foreign exchange translation reserves arose from the translation of the financial information of foreign subsidiaries and are not distributable by way of dividends.

(b) Capital reserve

In accordance with the relevant laws and regulations of the People's Republic of China ("PRC"), the subsidiaries of the Company established in the PRC are required to transfer 10% of profit after taxation prepared in accordance with the accounting regulation in the PRC to the statutory reserve until the reserve balance reaches 50% of the respective registered capital. Such reserve may be used to reduce any losses incurred or for capitalisation as paid-up capital.

(c) Share option reserve

The share option reserve arises from the requirement to value share options in existence at the year end at fair value.

(d) Merger deficit

The accounting treatment for Group reorganisation is scoped out of IFRS 3. Accordingly, as required under IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, the Group has referred to current UK GAAP to assist its judgement in identifying a suitable accounting policy. The introduction of the new holding company has been accounted for as a capital reorganisation using the merger accounting principles prescribed under current UK GAAP. Therefore the consolidated financial statements of Galasys PLC is presented as if Galasys PLC has always been the holding company for the Group.

The use of merger accounting principles has resulted in a balance on Group capital and reserves that have been classified as a merger reserve and included in the Group's shareholders' funds. The consolidated financial statements include the results of the Company and all its subsidiary undertakings made up to the same accounting date.

(e) Other reserves

This reserve arises from the contingent consideration of acquisition I Logic Solutions Sdn. Bhd.

The Consideration is to be satisfied by way of:

(a) Agreed earn-out payment calculated based on result of financial year 2014 in cash payable upon closing of the acquisition. An initial payment of MYR400,000 was paid as part of the fulfilment of purchase consideration; and

(b) 50% agreed earn-out payment based on results of the financial year 2015 and 2016 payable in cash and remaining 50% in the form of new shares of the Company.

The assumption of the contingent consideration is disclosed in Note 25 to the financial statement.

20. Revenue

Revenue represents total value of invoices issued for goods and services rendered.

21. Other operating income

22. Profit before taxation

* During the year, the group has made a provision of GBP500K for legal costs in relation to counsel advice and other legal fees for the ongoing Directors dispute that began in October 2015. It has been agreed by the Board that it is in the best interest of the Group to reimburse the Directors of all legal costs when the case is completed (Note 29).

23. Taxes

Components of tax expenses recognised in profit or loss include: