Pax Global Technology : Results Announcement for the Year Ended 31 December 2016

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PAX Global Technology Limited

百 富 環 球 科 技 有 限 公 司 *

(incorporated in Bermuda with limited liability)

(Stock Code: 327)

RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2016

FINANCIAL HIGHLIGHTS
2016	2015
RESULTS	HK$'000	HK$'000	+/(-)
Revenue	2,914,842	2,870,794	+1.5%
Gross profit	1,261,994	1,092,490	+15.5%
EBITDA	699,477	662,977	+5.5%
Profit before income tax	678,299	657,973	+3.1%
Profit attributable to the owners of the Company	600,908	620,736	-3.2%
2016	2015	+/(-)
Earnings per share
- Basic (HK$)	0.539	0.560	-3.8%
- Diluted (HK$)	0.535	0.551	-2.9%
Proposed final dividend per ordinary share (HK$)	0.04	0.02	+100%
2016	2015
KEY BALANCE SHEET ITEMS	HK$'000	HK$'000	+/(-)
Total current assets	4,220,419	4,020,585	+5.0%
Total assets	4,433,063	4,080,199	+8.6%
Net current assets	3,295,002	3,033,042	+8.6%
Total equity	3,501,283	3,090,599	+13.3%

* For identification purpose only

The board of directors (the "Board") of PAX Global Technology Limited (the "Company" or "PAX") is pleased to announce the audited consolidated results of the Company and its subsidiaries (the "Group") for the year ended 31 December 2016, with comparative figures for the year ended 31 December 2015.

MANAGEMENT DISCUSSION AND ANALYSIS OVERVIEW

The Group is an innovative global electronic payment point-of-sale terminals ("E-payment Terminals") solutions provider, engaging in the development and sales of E-payment Terminals products and the provision of relevant services (collectively, the "E-payment Terminals solutions business"). Owing to its outstanding services and leading position, PAX is one of the fastest growing suppliers in the payment industry which possesses the most advanced production facilities, excellent research and development ("R&D") capabilities as well as sales networks and cooperation channels around the globe. Today, the Group has a huge customer base and works with over 90 distributors or partners from all over the world. The Company sells products to over 100 countries and regions and has established a strong global presence.

Since 2010, the global shipment volume of E-payment Terminals has grown by at least 10% each year. As a result of years of effort, PAX recorded remarkable growth in both domestic and overseas market shares with exceptionally rapid sales growth in overseas markets in the preceding years. PAX has successfully gained global recognition and established distinctive reputation. In 2016, overseas revenue contributed 57% of the Group's total turnover, as compared to 22% in 2010. With increasing contribution of overseas revenue, together with PAX's solid position in the People's Republic of China market (excluding Hong Kong, Macau and Taiwan) ("China Market"), which set for us to approach the target of becoming one of the global leading providers of E-payment Terminals solutions. PAX is the only mainstream E-payment Terminals solutions provider in Asia capable of competing with major international peers. PAX is well positioned to become a global leading E-payment Terminals solutions provider through capturing expansion opportunities arising from industry consolidation, further growing market shares in E-payment Terminals sales markets, and increasing revenue generated from transaction services and solutions.

MARKET ANALYSIS AND INDUSTRY TRENDS

Overseas Markets

The E-payment business has been undergoing rapid development globally. According to industry report forecast, the number of E-payment Terminals with near field communication ("NFC") function installed globally will grow at a compound annual growth rate of 17.9% from 45 million units in 2016 to 86.9 million units in 2020, which depicts a market expectation that the market demand for E-payment Terminals with NFC function will continue to remain strong. According to The Nilson Report issued in September 2016, the shipments of E-payment Terminals in United States of America and Canada Region ("USCA") grew roughly by 70% in 2015, primarily due to the E-payment Terminals replacements brought by the Europay, MasterCard, and Visa ("EMV") migration. The shipments of E-payment Terminals in the Middle East and Africa region and the Latin America region also increased by 46% and 11% respectively in 2015. Meanwhile, the penetration rates of E-payment Terminals in some emerging markets (e.g. In Brazil, 20-22 units of E-payment Terminals were installed among every 1,000 people in 2015) remain relatively low as compared to the mature markets (e.g. In the US, about 40-43 units of E-payment Terminals were installed among every 1,000 people in 2015). The popularity of electronic payment and technological enhancement will accelerate the pace of domestic financial electronification. In Asia Pacific Region (except for Mainland China) ("APAC"), the penetration rates of E-payment Terminals in some countries are still low (e.g. In India, Indonesia and Malaysia, approximately 5 units of E-payment Terminals were installed among every 1,000 people in 2016). Driven by the trend of cashless transactions as well as supportive government and market policies, the demand for E-payment Terminals in overseas markets is expected to record a robust growth in the coming years.

USCA

In 2016, PAX achieved fruitful results from the implementation of a sales strategy focused primanly on small to medium-sized merchants in the US and recorded an increase of 67.6% in revenue. Despite the delay of EMV certification, which brought uncertainties to the market growth in the US in the interim, it is expected that the demand for E-payment Terminals in the US will continue to increase substantially in the coming years. According to the estimates of industry experts, at the end of 2016, there were approximately 5 million units of E-payment Terminals in the market which required EMV upgrade/replacement, accounting for approximately 35-40% of the installed E-payment Terminals in the US.

Since the establishment of Pax Technology Inc, a subsidiary of PAX, in the US in 2008, PAX has been striving to develop integrated payment solutions, streamline merchants' payment processing procedures, and reduce operating costs. PAX's comprehensive product line with high quality and electronic payment solutions are well received and widely-used by merchants in the US market, it is expected that PAX will grow substantially in the US market in the coming years.

Europe, Middle East and Africa ("EMEA")

Europe is one of the most well-developed regions of card payments, with strong security awareness of payment terminals and readiness to accept emerging technologies, such as NFC, which makes it one of the key markets for E-payment Terminals. Despite PAX's relatively low market share in the European market, PAX has successfully expanded its market share in Italy since the acquisition of Pax Italia

S.r.l. in 2015. PAX achieved encouraging sales growth in the Italian market in 2016 with a shipment volume of nearly 100 thousand units which was raised by 200% as compared to 2015. At the end of 2016, PAX further entered into an acquisition and subscription agreement with CSC Italia S.c.a.r.l., one of the largest local service providers for installation and maintenance of E-payment Terminals and other electronic equipment in Italy. The expected completion of the acquisition will further strengthen the Group's capacity to provide installation and maintenance services to key customers and will consolidate PAX's market position in Italy, making Italy an indispensable growth engine in Europe and overseas markets. PAX strives to enhance the Group's brand recognition in the rest of Europe through local partnership, and establish PAX as a mainstream payment terminals and solutions brand in the future. PAX's leading position in the Middle East region, along with its organic growth and accelerated launch of new products in 2016, further solidified the Middle East region as a sustaining driving force of the EMEA region. In Africa, PAX maintained a steady growth in 2016, the Group expects a gradual market share growth in the future.

Latin America and the Commonwealth of Independent States ("LACIS")

In 2014, PAX became the first provider of E-payment Terminals to obtain all the necessary certifications for mobile payment terminals ("mPOS") in Brazil. In 2016, PAX continued to be the dominant market leader for mPOS, and successfully diversified from its leading mPOS offering into the supply or traditional payment terminals. Notwithstanding the unfavourable economic factors in Brazil, such as exchange rate fluctuations and the decline in gross domestic product, the demand for E-payment Terminals in the Brazilian market persists to grow. According to the data from the Central Bank of Brazil, the volume and amount of credit card transactions in Brazilian market for the first nine months in 2016 increased by approximately 9% and 7% year-on-year respectively, demonstrating that the unfavourable economic factors had not significantly hindered the growth of payment industry. Owing to the increasing brand recognition, Brazil is expected to continue to be the growth engine in LACIS region.

In other parts of the Latin American region, such as Argentina and Chile, stable revenue growth was recorded. In the Russian market, according to a market research, the number of NFC-enabled E-payment Terminals has increased from about 90,000 units at the end of 2015 to more than double at the end of 2016. Accordingly, PAX's NFC-enabled D200 were deployed on all metro ticket machines in Moscow in 2016, PAX's market recognition has further enhanced.