DRB-HICOM Berhad IMTN Sukuk RM3.5 Billion - Information Memorandum

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1. STRICTLY CONFIDENTIAL – DO NOT FORWARD ATTACHED IS AN ELECTRONIC COPY OF THE INFORMATION MEMORANDUM DATED 25 OCTOBER 2019 ("INFORMATION MEMORANDUM") IN RELATION TO THE ISLAMIC MEDIUM TERM NOTES PROGRAMME OF UP TO RINGGIT MALAYSIA THREE BILLION FIVE HUNDRED MILLION (RM3,500,000,000.00) IN NOMINAL VALUE UNDER THE SHARIAH PRINCIPLE OF WAKALAH BI AL-ISTITHMAR (“SUKUK WAKALAH PROGRAMME”). BY OPENING AND ACCEPTING THIS ELECTRONIC TRANSMISSION CONTAINING THE INFORMATION MEMORANDUM, THE RECIPIENT AGREES TO BE BOUND BY ALL THE TERMS AND CONDITIONS BELOW. IF YOU DO NOT AGREE TO ANY OF THE TERMS AND CONDITIONS, PLEASE DELETE THIS ELECTRONIC TRANSMISSION IMMEDIATELY. THE INFORMATION MEMORANDUM IS STRICTLY CONFIDENTIAL AND DOES NOT CONSTITUTE AN OFFER TO ANY PERSON OR TO THE PUBLIC GENERALLY TO SUBSCRIBE FOR OR OTHERWISE PURCHASE ANY OF THE ISLAMIC MEDIUM TERM NOTES ISSUED AND TO BE ISSUED UNDER THE SUKUK WAKALAH PROGRAMME (“SUKUK WAKALAH”) DESCRIBED HEREIN. DISTRIBUTION OF THE INFORMATION MEMORANDUM TO ANY PERSONS, OTHER THAN THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM DRB-HICOM BERHAD (“ISSUER”), MAYBANK INVESTMENT BANK BERHAD AND RHB INVESTMENT BANK BERHAD (COLLECTIVELY, “JOINT PRINCIPAL ADVISERS, JOINT LEAD ARRANGERS AND JOINT LEAD MANAGERS”) AND ITS/THEIR RESPECTIVE AGENTS, IS UNAUTHORISED. THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE ISSUER, THE JOINT PRINCIPAL ADVISERS, THE JOINT LEAD ARRANGERS, THE JOINT LEAD MANAGERS AND ITS/THEIR RESPECTIVE AGENTS IS PROHIBITED FROM DISCLOSING THE INFORMATION MEMORANDUM, ALTERING THE CONTENTS OF THE INFORMATION MEMORANDUM OR FORWARDING A COPY OF THE INFORMATION MEMORANDUM OR ANY PORTION THEREOF BY ELECTRONIC MAIL OR OTHERWISE TO ANY PERSON. THE INFORMATION MEMORANDUM IS NOT A PROSPECTUS AND HAS NOT BEEN REGISTERED NOR WILL IT BE REGISTERED AS A PROSPECTUS UNDER THE CAPITAL MARKETS AND SERVICES ACT, 2007 (AS AMENDED FROM TIME TO TIME) ("CMSA"). AT ISSUANCE, THE SUKUK WAKALAH MAY ONLY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, DIRECTLY OR INDIRECTLY, TO PERSONS FALLING WITHIN PART I OF SCHEDULE 6 AND PART I OF SCHEDULE 7, READ TOGETHER WITH SCHEDULE 9 OF THE CMSA. THEREAFTER, THE SUKUK WAKALAH MAY ONLY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, DIRECTLY OR INDIRECTLY, TO PERSONS FALLING WITHIN PART I OF SCHEDULE 6, READ TOGETHER WITH SCHEDULE 9 OF THE CMSA. BY ACCEPTING THIS ELECTRONIC TRANSMISSION AND ACCESSING THE INFORMATION MEMORANDUM, YOU SHALL BE DEEMED TO HAVE REPRESENTED THAT (1) YOU ARE A PERSON FALLING WITHIN THE SELLING RESTRICTIONS STATED IN THE PARAGRAPH ABOVE; AND (2) YOU CONSENT TO THE DELIVERY OF THE INFORMATION MEMORANDUM BY ELECTRONIC MAIL. YOU ARE REMINDED THAT THE INFORMATION MEMORANDUM HAS BEEN DELIVERED TO YOU ON THE BASIS THAT YOU ARE A PERSON INTO WHOSE POSSESSION THE INFORMATION MEMORANDUM MAY BE LAWFULLY DELIVERED IN ACCORDANCE WITH THE LAWS OF THE JURISDICTION IN WHICH YOU ARE LOCATED AND YOU MAY NOT NOR ARE YOU AUTHORISED TO DELIVER OR DISCLOSE THE CONTENTS OF THE INFORMATION MEMORANDUM TO ANY PERSON. IF THIS IS NOT THE CASE, YOU MUST IMMEDIATELY DELETE ALL COPIES OF THIS ELECTRONIC TRANSMISSION CONTAINING THE INFORMATION MEMORANDUM PERMANENTLY AND DESTROY ALL PRINTOUTS OF IT. THIS ELECTRONIC TRANSMISSION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SUKUK WAKALAH IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL UNDER THE LAWS OF SUCH JURISDICTIONS. TRANSMISSION OVER THE INTERNET MAY BE SUBJECT TO INTERRUPTIONS, TRANSMISSION BLACKOUT, DELAYED TRANSMISSION DUE TO INTERNET TRAFFIC, INCORRECT DATA TRANSMISSION DUE TO THE PUBLIC NATURE OF THE INTERNET, DATA CORRUPTION, INTERCEPTION, UNAUTHORISED AMENDMENT, TAMPERING, VIRUSES OR OTHER TECHNICAL, MECHANICAL OR SYSTEMIC RISKS ASSOCIATED WITH INTERNET TRANSMISSIONS. THE ISSUER, THE JOINT PRINCIPAL ADVISERS, THE JOINT LEAD ARRANGERS, THE JOINT LEAD MANAGERS AND ITS/THEIR RESPECTIVE AGENTS HAVE NOT ACCEPTED AND WILL NOT ACCEPT ANY RESPONSIBILITY AND/OR LIABILITY FOR ANY SUCH INTERRUPTION, TRANSMISSION BLACKOUT, DELAYED TRANSMISSION, INCORRECT DATA TRANSMISSION, CORRUPTION, INTERCEPTION, AMENDMENT, TAMPERING OR VIRUSES OR ANY CONSEQUENCES THEREOF WHICH MAY RESULT IN A DIFFERENCE BETWEEN THE INFORMATION
2. MEMORANDUM DISTRIBUTED TO YOU IN ELECTRONIC FORMAT AND THE HARD COPY VERSION AVAILABLE TO YOU ON REQUEST FROM US . THIS ELECTRONIC TRANSMISSION AND ANY ATTACHMENT HERETO ARE INTENDED ONLY FOR USE BY THE ADDRESSEE NAMED HEREIN AND MAY CONTAIN LEGALLY PRIVILEGED AND/OR CONFIDENTIAL INFORMATION. IF YOU ARE NOT THE INTENDED RECIPIENT OF THIS ELECTRONIC TRANSMISSION, YOU ARE HEREBY NOTIFIED THAT ANY DISSEMINATION, DISTRIBUTION OR COPYING OF THIS ELECTRONIC TRANSMISSION, AND ANY ATTACHMENTS THERETO, IS STRICTLY PROHIBITED. IF YOU HAVE RECEIVED THIS ELECTRONIC MAIL IN ERROR, PLEASE IMMEDIATELY NOTIFY US BY REPLYING TO THIS ELECTRONIC MAIL AND IMMEDIATELY DELETE ALL COPIES OF THIS ELECTRONIC TRANSMISSION CONTAINING THE INFORMATION MEMORANDUM PERMANENTLY AND DESTROY ALL PRINTOUTS OF IT. THE FOREGOING IS IN ADDITION TO AND WITHOUT PREJUDICE TO ALL OTHER DISCLAIMERS AND AGREEMENTS WHICH A RECIPIENT OF THE INFORMATION MEMORANDUM SHALL BE DEEMED TO HAVE AGREED TO OR BE BOUND BY AS PROVIDED IN THE INFORMATION MEMORANDUM.
3. STRICTLY PRIVATE AND CONFIDENTIAL DRB-HICOM BERHAD (Registration No. 199001011860 (203430-W)) INFORMATION MEMORANDUM ISLAMIC MEDIUM TERM NOTES PROGRAMME OF UP TO RINGGIT MALAYSIA THREE BILLION FIVE HUNDRED MILLION (RM3,500,000,000.00) IN NOMINAL VALUE UNDER THE SHARIAH PRINCIPLE OF WAKALAH BI AL-ISTITHMAR Joint Principal Advisers / Joint Lead Arrangers / Joint Lead Managers Maybank Investment Bank Berhad (Registration No. 197301002412 (15938-H)) RHB Investment Bank Berhad (Registration No. 197401002639 (19663-P)) This Information Memorandum is dated 25 October 2019
4. IMPORTANT NOTICE Responsibility Statements This information memorandum (“Information Memorandum”) has been approved by the directors of DRBHICOM Berhad (Registration No. 199001011860 (203430-W)) (“Issuer”) and the Issuer accepts full responsibility for the accuracy of the information contained in this Information Memorandum. The Issuer, after having made all reasonable enquiries, confirms that all the information contained in this Information Memorandum is true and correct in all material respects and not misleading in any material respect and there is no material omission contained in this Information Memorandum in connection with the proposed issuance of Islamic medium term notes (“Sukuk Wakalah”) pursuant to an Islamic medium term notes programme of up to Ringgit Malaysia Three Billion Five Hundred Million (RM3,500,000,000.00) in nominal value under the Shariah principle of Wakalah bi Al-Istithmar (“Sukuk Wakalah Programme”). The opinions and intentions expressed in this Information Memorandum in relation to the Issuer are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions and there are no other facts in relation to the Issuer or the Sukuk Wakalah the omission of which would, in the context of any Sukuk Wakalah issuance, make any statement in this Information Memorandum misleading in any material respect and all reasonable enquiries have been made by the Issuer to ascertain such facts and to verify the accuracy of all such information and statements. No representation or warranty, expressed or implied, is made such that the information remains unchanged in any respect as of any date or dates after those stated herein, with respect to any matter concerning the Issuer or any statement made in this Information Memorandum. The Issuer and its board of directors accept full responsibility for the information contained in this Information Memorandum. Important Notice and General Statement of Disclaimer This Information Memorandum is being furnished on a private and confidential basis solely for the purpose of enabling prospective investors to consider the purchase of the Sukuk Wakalah to be issued pursuant to the Sukuk Wakalah Programme. This Information Memorandum is not and is not intended to be a prospectus. The Sukuk Wakalah Programme has been accorded a preliminary credit rating of A+ with a positive outlook by Malaysian Rating Corporation Berhad (Registration No. 199501035601 (364803-V)). A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the credit rating agency. None of the information or data contained in this Information Memorandum has been independently verified by Maybank Investment Bank Berhad (Registration No. 197301002412 (15938-H)) and RHB Investment Bank Berhad (Registration No. 197401002639 (19663-P)) as the joint principal advisers/ joint lead arrangers/ joint lead managers of the Sukuk Wakalah Programme (collectively, “Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers”). Accordingly, no representation, warranty or undertaking, express or implied, is given or assumed by the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers as to the authenticity, origin, validity, accuracy or completeness of such information and data or that the information or data remains unchanged in any respect after the relevant date shown in this Information Memorandum. The Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers have not accepted and will not accept any responsibility for the information and data contained in this Information Memorandum or otherwise in relation to the Sukuk Wakalah Programme and shall not be liable for any consequences of reliance on any of the information or data in this Information Memorandum except as provided by Malaysian laws. It is to be noted that although the Issuer has sought the advice of Maybank Islamic Berhad (Registration No. 200701029411 (787435-M)) and RHB Islamic Bank Berhad (Registration No. 200501003283 (680329-V)) (collectively, “Joint Shariah Advisers”) with regard to the conformity of the Sukuk Wakalah and the structure and mechanism as described in the principal terms and conditions of the Sukuk Wakalah Programme with Shariah principles, no representation, warranty or undertaking, express or implied, is given by the Issuer as to Shariah permissibility of the structure or the issue and trading of the Sukuk Wakalah and the Issuer, the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers and the Joint Shariah Advisers shall not be liable for any consequences of such reliance and/or assumption of any such compliance. Each recipient should perform and is deemed to have consulted its own professional advisers and obtained independent Shariah advice on the Shariah permissibility of the structure or the issue and trading of the Sukuk Wakalah. Any non-compliance with Shariah principles may have legal consequences. The information in this Information Memorandum supersedes all other information and material previously supplied (if any) to the recipients. By taking possession of this Information Memorandum, the recipients are acknowledging and agreeing and are deemed to have acknowledged and agreed that they will not rely on any previous information supplied. No person is authorised to give any information or data or to make any representation or warranty other than as contained in this Information Memorandum and, if given or made, any such information, data, representation or warranty must not be relied upon as having been authorised by the Issuer, the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers or any other person. i
5. This Information Memorandum has not been and will not be made to comply with the laws of any jurisdiction other than Malaysia (“Foreign Jurisdiction”), and has not been and will not be lodged, registered or approved pursuant to or under any legislation of (or with or by any regulatory authorities or other relevant bodies of) any Foreign Jurisdiction and it does not constitute an issue, offer or sale of, or an invitation to subscribe or purchase the Sukuk Wakalah or any other securities of any kind by any party in any Foreign Jurisdiction. The distribution or possession of this Information Memorandum in or from any Foreign Jurisdiction may be restricted or prohibited by law. Each recipient is required to seek appropriate professional advice regarding, and to observe, any such restriction or prohibition. Neither the Issuer nor the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers accepts any responsibility or liability to any person in relation to the distribution or possession of this Information Memorandum in or from any such Foreign Jurisdiction. By accepting delivery of this Information Memorandum, each recipient agrees to the terms upon which this Information Memorandum is provided to such recipient as set out in this Information Memorandum, and further agrees and confirms that (a) it will keep confidential all of such information and data, (b) it is lawful for the recipient to subscribe for or purchase the Sukuk Wakalah under all jurisdictions to which the recipient is subject, (c) the recipient has complied with all applicable laws in connection with such subscription or purchase of the Sukuk Wakalah, (d) the Issuer, the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers and their respective directors, officers, employees and professional advisers and any of their agents or affiliates are not and will not be in breach of the laws of any jurisdiction to which the recipient is subject as a result of such subscription or purchase of the Sukuk Wakalah, and they shall not have any responsibility or liability in the event that such subscription or purchase of the Sukuk Wakalah is or shall become unlawful, unenforceable, voidable or void, (e) it is aware that the Sukuk Wakalah can only be offered, sold, transferred or otherwise disposed of directly or indirectly in accordance with the relevant selling restrictions and all applicable laws, (f) it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of subscribing or purchasing the Sukuk Wakalah, and is able and is prepared to bear the economic and financial risks of investing in or holding the Sukuk Wakalah, (g) it is subscribing or accepting the Sukuk Wakalah for its own account, and (h) it is a person to whom an issue, offer or invitation to subscribe or purchase the Sukuk Wakalah would constitute an excluded offer or excluded issue as specified in Part I of Schedule 6 and Part I of Schedule 7, read together with Schedule 9 of the Capital Markets and Services Act 2007, as amended from time to time (“CMSA”) at issuance and Part I of Schedule 6, read together with Schedule 9 of the CMSA thereafter. Each recipient is solely responsible for seeking all appropriate expert advice as to the laws of all jurisdictions to which it is subject. For the avoidance of doubt, this Information Memorandum shall not constitute an offer or invitation to subscribe or purchase the Sukuk Wakalah in relation to any recipient who does not fall within item (h) above. This Information Memorandum or any document delivered under or in relation to the issue, offer and sale of the Sukuk Wakalah is not, and should not be construed as, a recommendation by the Issuer and/or the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers to subscribe or purchase the Sukuk Wakalah. This Information Memorandum is not a substitute for, and should not be regarded as, an independent evaluation and analysis and does not purport to be all-inclusive. Each recipient should perform and is deemed to have made its own independent investigation and analysis of the Issuer, the Sukuk Wakalah and all other relevant matters, and each recipient should consult its own professional advisers. All information and statements herein are subject to the detailed provisions of the respective agreements referred to herein and are qualified in their entirety by reference to such documents. Unless otherwise specified in this Information Memorandum, the information contained in this Information Memorandum is current as at the date hereof. Neither the delivery of this Information Memorandum nor the offering, sale or delivery of any Sukuk Wakalah shall in any circumstance imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Sukuk Wakalah Programme is correct as of any time subsequent to the date indicated in the document containing the same. Neither the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers nor any other advisers to the Sukuk Wakalah Programme undertakes to review the financial condition or affairs of the Issuer or to advise any investor of the Sukuk Wakalah of any information coming to their attention. All discrepancies (if any) in the tables included in this Information Memorandum between the listed amounts and totals thereof are due to, and certain numbers appearing in this Information Memorandum are shown after, rounding. Where this Information Memorandum contains or refers to a summary of a document or agreement, the summary is not meant to be exhaustive and potential investors should refer to or read the documents or agreements in its entirety. The contents of the summary may be subject to some other provisions in the relevant document or agreement. Forward-Looking Statements This Information Memorandum includes forward-looking statements and reflects projections of future events which may or may not prove to be correct. All of these statements are based on estimates and assumptions ii
6. made by the Issuer and its advisers and although believed to be reasonable , are subject to risks and uncertainties that may cause actual events or future results to be materially different than expected or indicated by such statements and estimates, and no assurance can be given that any such statements or estimates will be realised. In light of these and other uncertainties, the inclusion of forward-looking statements in this Information Memorandum should not be regarded as a representation or warranty by the Issuer, its advisers or any other persons that the future events as anticipated by the Issuer will occur. Any such statements are not guarantees of performance and involve risks and uncertainties many of which are beyond the control of the Issuer. This Information Memorandum includes certain historical information, estimates, or reports thereon derived from sources mentioned in this Information Memorandum and other parties with respect to the Malaysian economy, the material businesses which the Issuer operates and certain other matters. Such information, estimates, or reports have been included solely for illustrative purposes. No representation or warranty is made as to the accuracy or completeness of any information, estimates and/or reports thereon derived from such sources or from other third party sources. The Issuer has included statements in this Information Memorandum which contain words or phrases such as “will”, “would”, “aimed”, “is likely”, “are likely”, “believe”, “expect”, “expected to”, “will continue”, “will achieve”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “seeking to”, “target”, “propose to”, “future”, “objective”, “goal”, “project”, “should”, “can”, “could”, “may” and similar expressions or variations of such expressions, that are “forward-looking statements”. Actual results may differ materially from those suggested by the forward-looking statements due to certain risks or uncertainties associated with the expectations of the Issuer with respect to, but not limited to, changes in political, social and economic conditions and the regulatory environment in Malaysia, changes in currency exchange rates, the rate of growth and ability to meet the demands relating to such growth of the Issuer, changes in the products of the Issuer, changes in customer preferences, changes in competitive conditions and the ability of the Issuer to compete under these conditions, and other factors beyond control of the Issuer. For a further discussion on the factors that could cause actual results to differ, see the discussion under “Investment Considerations” contained in this Information Memorandum. As such, no assurances can be given that any of such statements or estimates will be realised. In light of these and other uncertainties, the inclusion of a forward-looking statement in this Information Memorandum should not be regarded as a representation or warranty by the Issuer or any other person that the plans and objectives of the Issuer will be achieved. Acknowledgement The Issuer hereby acknowledges that it has authorised the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers to circulate or distribute this Information Memorandum on its behalf in respect of or in connection with the proposed offer or invitation to subscribe for and issue of, the Sukuk Wakalah to prospective investors and that no further evidence of authorisation is required. Statements of Disclaimer by the Securities Commission Malaysia A copy of this Information Memorandum will be deposited, within seven (7) days after it is first issued, with the Securities Commission Malaysia (“SC”), which takes no responsibility for its contents. The issue, offer or invitation to subscribe or purchase the Sukuk Wakalah in this Information Memorandum or otherwise are subject to the fulfilment of various conditions precedent including without limitation the Shariah endorsement by the SC’s Shariah Advisory Council and the lodgement of the lodgement kit with the SC pursuant to the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 and effective on 15 June 2015 which was revised on 11 October 2018 (as amended and/or substituted from time to time) (“LOLA Guidelines”) and each recipient of this Information Memorandum acknowledges and agrees that the endorsement by and the lodgement with the SC shall not be taken to indicate that the SC recommends the subscription or purchase of the Sukuk Wakalah. Statements of Disclaimer on Shariah Pronouncements The Joint Shariah Advisers have approved the structure and mechanism of the Sukuk Wakalah Programme and its compliance with Shariah vide the Shariah pronouncements both dated 14 October 2019. However, the approval is only an expression of the view of the Joint Shariah Advisers based on their experience in the subject. There can be no assurance as to the Shariah permissibility of the structure of the issue and the trading of the Sukuk Wakalah and none of the Issuer nor the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers make any representation as to the same. Investors are reminded that, as with any Shariah views, differences in opinion are possible. Investors are advised to obtain their own independent Shariah advice and make their own determination as to whether the structure and the future tradability of the Sukuk Wakalah on any secondary market meet their individual standards of Shariah compliance. The structure of the Sukuk Wakalah Programme has been endorsed by the SC’s Shariah Advisory Council on 16 October 2019. iii
7. The lodgement in respect of the Sukuk Wakalah Programme with the SC pursuant to the LOLA Guidelines was made on 25 October 2019 . EACH RECIPIENT OF THIS INFORMATION MEMORANDUM ACKNOWLEDGES AND AGREES THAT THE LODGEMENT SHALL NOT BE TAKEN TO INDICATE THAT THE SC RECOMMENDS THE SUBSCRIPTION OR PURCHASE OF THE SUKUK WAKALAH. THE SC SHALL NOT BE LIABLE FOR ANY NON-DISCLOSURE ON THE PART OF THE ISSUER AND ASSUMES NO RESPONSIBILITY FOR THE CORRECTNESS OF ANY STATEMENTS MADE OR OPINION OR REPORTS EXPRESSED OR CONTAINED IN THIS INFORMATION MEMORANDUM. THE ISSUE OF THE SUKUK WAKALAH UNDER THE SUKUK WAKALAH PROGRAMME WILL CARRY DIFFERENT RISKS AND ALL INVESTORS SHOULD EVALUATE THE ISSUE OF THE SUKUK WAKALAH BASED ON ITS MERITS. INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT. IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR FINANCIAL, LEGAL AND OTHER ADVISERS BEFORE PURCHASING OR ACQUIRING OR SUBSCRIBING FOR THE SUKUK WAKALAH. Documents Incorporated by Reference The following documents published or issued from time to time after the date hereof shall be deemed to be incorporated in, and to form part of, this Information Memorandum: (i) the most recently published annual report, audited annual financial statements and, if published later, the most recently published interim financial statements of the Issuer (if any); (ii) the pricing supplement for the issuance of the Sukuk Wakalah (if any); (iii) the announcements made by the Issuer to Bursa Malaysia Securities Berhad; and (iv) all supplements or amendments to this Information Memorandum circulated by the Issuer, if any, save that any statement contained herein or in a document which is deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Information Memorandum to the extent that a statement contained in any such subsequent document which is deemed to be incorporated by reference herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Information Memorandum. CONFIDENTIALITY To the recipient of this Information Memorandum: This Information Memorandum and its contents are strictly confidential and are made strictly on the basis that they will remain confidential. Accordingly, this Information Memorandum and its contents, or any information, which is made available in connection with any further enquiries, must be held in complete confidence. This Information Memorandum is submitted to prospective investors specifically in reference to the Sukuk Wakalah and may not be reproduced or used, in whole or in part, or used for any other purpose, or shown, given, copied to or filed with, in whole or in part, any other person including, without limitation, any governmental or regulatory authority except with the prior consent of the Issuer or as required under Malaysian laws, regulations or guidelines. Should this Information Memorandum, at the request of the recipient, be sent to the recipient or is received or viewed by the recipient in an electronic format, the recipient is reminded that documents transmitted via this mode of transmission may be altered or changed during the process of electronic transmission and consequently the Issuer, the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers or any of their respective directors, officers, employees and professional advisers and any of their agents or affiliates do not accept any liability or responsibility whatsoever in respect of the difference between the Information Memorandum distributed to such recipient or viewed by such recipient in the electronic format and the hard copy version available to the recipient. In the event that there is any contravention of this confidentiality undertaking or there is reasonable likelihood that this confidentiality undertaking may be contravened, the Issuer may, at its discretion, apply for any remedy available to the Issuer whether at law or equity, including without limitation, injunctions. The Issuer is entitled to iv
8. fully recover from the contravening party all cost , expenses and losses incurred and/or suffered, in this regard. For the avoidance of doubt, it is hereby deemed that this confidentiality undertaking shall be imposed upon the recipient, the recipient’s professional advisors, directors, employees and any other persons concerned with the Sukuk Wakalah. Pursuant to the Personal Data Protection Act 2010 which came into force on 15 November 2013, the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers and their affiliates are required to issue privacy notice to any person for the use and processing of personal information of such person. The privacy notices of the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers are available at the Joint Principal Advisers’/ Joint Lead Arrangers’/ Joint Lead Managers’ websites. In respect of a person which is a body corporate, the consent and authority of its directors, shareholders, authorised signatories and officers are deemed to have been duly obtained to provide the personal data (as defined under the Personal Data Protection Act 2010) as required by the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers and their respective affiliates. The recipient must return this Information Memorandum and all reproductions thereof whether in whole or in part and any other information in connection therewith to the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers promptly upon the Joint Principal Advisers’/ Joint Lead Arrangers’/ Joint Lead Managers’ request, unless that recipient provides proof of a written undertaking satisfactory to the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers with respect to destroying these documents as soon as reasonably practicable after the said request from the Joint Principal Advisers/ Joint Lead Arrangers/ Joint Lead Managers. [The rest of this page has been intentionally left blank] v
9. TABLE OF CONTENTS IMPORTANT NOTICE ............................................................................................................................. i DEFINITIONS ........................................................................................................................................ a SECTION 1.0 1.1 1.2 1.3 1.4 1.5 INTRODUCTION ........................................................................................................ 1 Brief background of the Issuer ................................................................................................ 1 Brief description of the Sukuk Wakalah Programme .............................................................. 1 Utilisation of proceeds ............................................................................................................. 1 Security arrangement .............................................................................................................. 1 Credit rating ............................................................................................................................. 2 SECTION 2.0 PRINCIPAL TERMS AND CONDITIONS OF THE SUKUK WAKALAH PROGRAMME ....................................................................................................................................... 3 SECTION 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 Corporate history and principal activities .............................................................................. 42 Share capital ......................................................................................................................... 42 Top twenty (20) shareholders ............................................................................................... 42 Substantial shareholders ....................................................................................................... 43 Principal subsidiaries ............................................................................................................ 44 Profile of directors ................................................................................................................. 45 Profile of key senior management ........................................................................................ 48 Key financial highlights ......................................................................................................... 49 SECTION 4.0 4.1 4.2 ECONOMY AND INDUSTRY OVERVIEW ............................................................... 74 Malaysian economy ............................................................................................................... 74 Monetary and financial developments .................................................................................. 79 Market review for 2018 and outlook for 2019 ....................................................................... 80 SECTION 7.0 7.1 7.2 7.3 7.4 INVESTMENT CONSIDERATIONS ......................................................................... 67 Risks relating to the DRB-HICOM Group ............................................................................. 67 Risks relating to the Sukuk Wakalah .................................................................................... 71 General considerations ......................................................................................................... 73 Forward-looking statements ................................................................................................. 73 SECTION 6.0 6.1 6.2 6.3 BUSINESS OF DRB-HICOM .................................................................................... 51 Business overview ................................................................................................................ 51 Material developments, future outlook and strategies .......................................................... 65 SECTION 5.0 5.1 5.2 5.3 5.4 BACKGROUND INFORMATION ON THE ISSUER ................................................ 42 OTHER INFORMATION ........................................................................................... 84 Material contracts ................................................................................................................. 84 Material litigations ................................................................................................................. 84 Contingent liabilities .............................................................................................................. 85 Conflict-of-interest situations and mitigating measures ........................................................ 85 APPENDIX I AUDITED FINANCIAL STATEMENTS OF DRB-HICOM FOR FYE 2019 APPENDIX II GROUP CORPORATE STRUCTURE (OPERATING COMPANIES) AS AT 31 MARCH 2019
10. DEFINITIONS The following definitions shall apply throughout this Information Memorandum unless the context otherwise requires : Board : Board of Directors of DRB-HICOM Bursa Malaysia : Bursa Malaysia Securities Berhad (Registration No. 200301033577 (635998-W)) CMSA : Capital Markets and Services Act 2007 (as amended from time to time and any re-enactment thereof) Companies Act : Companies Act 2016 (as amended from time to time and any reenactment thereof) CBU : Completely Built Up CKD : Completely Knocked Down Credit Rating Agency : Malaysian Rating Corporation Berhad (Registration No. 199501035601 (364803-V)) Facility : Syndicated Islamic term financing facility of up to Ringgit Malaysia One Billion Five Hundred Million (RM1,500,000,000.00) Facility Agent : Maybank Investment Bank Berhad (Registration No. 197301002412 (15938-H)) FSRA : Has the meaning ascribed to it in the PTC FYE : Financial year ended 31 March Geely : Zhejiang Geely Holding Group Co., Ltd Government : Government of Malaysia GST : Goods and Services Tax IR4.0 : Fourth Industrial Revolution Issuer or DRB-HICOM : DRB-HICOM Berhad (Registration No. 199001011860 (203430-W)) Issuer Group or DRBHICOM Group : The Issuer and the subsidiary companies of the Issuer that are consolidated into the audited consolidated financial statements of the Issuer Joint Lead Arrangers or JLAs : Collectively, Maybank Investment Bank Berhad (Registration No. 197301002412 (15938-H)) and RHB Investment Bank Berhad (Registration No. 197401002639 (19663-P)) Joint Lead Managers or JLMs : Collectively, Maybank Investment Bank Berhad (Registration No. 197301002412 (15938-H)) and RHB Investment Bank Berhad (Registration No. 197401002639 (19663-P)) and/or such other financial institution(s) as may be appointed and mutually agreed between the Issuer and the JLAs/JLMs prior to the issuance of the Sukuk Wakalah Joint Principal Advisers or JPAs : Collectively, Maybank Investment Bank Berhad (Registration No. 197301002412 (15938-H)) and RHB Investment Bank Berhad (Registration No. 197401002639 (19663-P)) a
11. Joint Shariah Advisers : Collectively, Maybank Islamic Berhad (Registration No. 200701029411 (787435-M)) and RHB Islamic Bank Berhad (Registration No. 200501003283 (680329-V)) KLIA : Kuala Lumpur International Airport LOLA Guidelines : Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 and effective on 15 June 2015 which was revised on 11 October 2018 (as amended and/or substituted from time to time) MPV : Multi-purpose vehicle OEM : Original Equipment Manufacturer Paying Agent : Bank Negara Malaysia PBT : Profit before tax PBZT : Profit before Zakat and Tax Principal Subsidiaries : Collectively: (a) Bank Muamalat; (b) Pos Malaysia; (c) DEFTECH; (d) PROTON; (e) MCVSB; (f) HHB; (g) MODENAS; (h) DHAS; and (i) PUSPAKOM Priority and Security Sharing Agreement : Has the meaning ascribed to it in the PTC PTC : Principal terms and conditions of the Sukuk Wakalah Programme set out in Section 2 hereof RA : Has the meaning ascribed to it in the PTC : The lawful currency of Malaysia SC : Securities Commission Malaysia Security Documents : Has the meaning ascribed to it in the PTC Security Trustee : Malaysian Trustees Berhad (Registration No. 197501000080 (21666-V)) Solicitors : Albar & Partners (as solicitors for the JPAs/JLAs) RM and Malaysia Ringgit b
12. Sukuk Wakalah : Islamic medium term notes to be issued under the Sukuk Wakalah Programme Sukuk Programme : Islamic medium term notes programme of up to Ringgit Malaysia Three Billion Five Hundred Million (RM3,500,000,000.00) in nominal value under the Shariah principle of Wakalah bi Al-Istithmar Sukuk Trustee : Malaysian Trustees Berhad (Registration No. 197501000080 (21666-V)) Sukukholders : Holders of the Sukuk Wakalah SUV : Sports Utility Vehicle TIV : Total Industry Volume TML : Tata Motors Limited UAV : Unmanned Aerial Vehicles Wakalah Subsidiaries, associates and jointly controlled entities of DRB-HICOM referred to in this Information Memorandum Alam Flora : Alam Flora Sdn Bhd (Registration No. 199501038511 (367713-X)) ACM : Automotive Corporation (Malaysia) 197901008354 (52640-W)) Bank Muamalat : Bank Muamalat Malaysia Berhad (Registration No. 196501000376 (6175-W)) CTRM : Composites Technology Research Malaysia Sdn Bhd (Registration No. 199001016456 (208125-X)) CTRMCE : CTRM Composites Engineering 199401036495 (322177-V)) CTRMTL : CTRM Testing Laboratory Sdn Bhd (Registration No. 201001005314 (889931-A)) DAV : DEFTECH Aviation Sdn Bhd (Registration No. 199001002469 (194035K)) DEFTECH : DRB-HICOM Defence Technologies Sdn Bhd (Registration No. 199601034068 (406420-U)) DHAS : DRB-HICOM Auto Solutions Sdn Bhd (Registration No. 199901010093 (484993-P)) DHCV : DRB-HICOM Commercial 197901000042 (44265-U)) DHES : DRB-HICOM Environmental Services Sdn Bhd (Registration No. 201101010651 (938781-W)) DHMSB : DRB-HICOM Mechatronics Sdn Bhd (Registration No. 200101003392 (539148-A)) c Vehicles Sdn Sdn Sdn Bhd Bhd Bhd (Registration (Registration (Registration No. No. No.
13. DLSB : DRB-HICOM Leasing Sdn Bhd (Registration No. 199101016281 (226593-W)) DSI : DEFTECH Systems Integration 199501015201 (344402-X)) DSSB : Defence Services Sdn Bhd (Registration No. 198701007854 (166572X)) DUS : DEFTECH Unmanned Systems 200701001259 (759257-D)) EAM : EON Auto Mart Sdn Bhd (Registration No. 199601013479 (385829-D)) EON : Edaran Otomobil Nasional Berhad (Registration No. 198401007251 (119767-X)) ESB : Euromobil Sdn Bhd (Registration No. 200201028835 (596498-M)) EZ-Drive : DRB-HICOM EZ-Drive Sdn Bhd (Registration No. 197201001192 (12799-K)) GPSB : Glenmarie Properties Sdn Bhd (Registration No. 198301002124 (97360A)) HA : HICOM Automotive Manufacturers (Malaysia) Sdn Bhd (Registration No. 198301011475 (106864-D)) HASB : HICOM Auto Sdn Bhd (Registration No. 198601005116 (154276-W)) HB : HICOM Berhad (Registration No. 198001011081 (64867-W)) HDSB : HICOM Diecastings Sdn Bhd (Registration No. 198501015677 (148133M)) HHB : HICOM Holdings Berhad (Registration No. 191001000005 (67-W)) HHBPO : HICOM HBPO Sdn Bhd (Registration No. 199901011844 (486744-P)) Honda Malaysia : Honda Malaysia Sdn Bhd (Registration No. 200001029513 (532120-D)) Horsedale : Horsedale Development Berhad (Registration No. 198901010874 (188176-P)) HTS : HICOM-Teck See Manufacturing Malaysia Sdn Bhd (Registration No. 199101020263 (230574-H)) HUCSB : HICOM University College Sdn Bhd (Registration No. 201001003538 (888126-K)) HYMM : HICOM-Yamaha Manufacturing Malaysia Sdn Bhd (Registration No. 198301012919 (108313-W)) IHM : ISUZU HICOM Malaysia Sdn Bhd (Registration No. 199401000121 (285799-T)) ISUZU Malaysia : ISUZU Malaysia Sdn Bhd (Registration No. 200401026438 (664946-H)) MCVSB : Media City Ventures Sdn Bhd (Registration No. 199401041291 (326978H)) d Sdn Sdn Bhd Bhd (Registration (Registration No. No.
14. MCDSB : Media City Development Sdn Bhd (Registration No. 199301024107 (278845-D)) MMM : Mitsubishi Motors Malaysia Sdn Bhd (Registration No. 200501002982 (680028-M)) MODENAS : Motosikal Dan Enjin Nasional Sdn Bhd (Registration No. 199501025408 (354613-V)) NGISB : Northern Gateway Infrastructure 200401020929 (659433-V)) OSI : Oriental Summit Industries Sdn Bhd (Registration No. 198201001754 (81500-D)) PCDC : Proton City Development Corporation Sdn Bhd (Registration No. 199601002871 (375217-U)) PHN : PHN Industry Sdn Bhd (Registration No. 199001015293 (206963-V)) PONSB : Perusahaan Otomobil Nasional 198301005788 (100995-U)) Pos Aviation : Pos Aviation Sdn Bhd (Registration No. 199501004089 (333284-T)) Pos Logistics : Pos Logistics Berhad (Registration No. 198201009519 (89243-A)) Pos Malaysia : Pos Malaysia Berhad (Registration No. 199101019653 (229990-M)) PROTON : PROTON Holdings Berhad (Registration No. 200301020757 (623177A)) PUSPAKOM : PUSPAKOM Sdn Bhd (Registration No. 199401000307 (285985-U)) RIMB : Rebak Island Marina Berhad (Registration No. 198901006452 (183757T)) e Sdn Sdn Bhd Bhd (Registration (Registration No. No.
15. 1 . INTRODUCTION This summary is qualified by and must be read in conjunction with the more detailed information and financial statements appearing elsewhere in this Information Memorandum. Each investor should read this entire Information Memorandum carefully, including the appendices. 1.1 Brief background of the Issuer The Issuer was incorporated in Malaysia under the Companies Act as a private limited company under the name of Peerless Assets Sdn Bhd on 28 August 1990. It was converted to a public company on 3 August 1991 and changed its name to Peerless Assets Berhad. On 19 September 1991, the Issuer’s name was changed to Diversified Resources Berhad. On 4 September 1992, it was listed on the Main Board of the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia). The Issuer assumed its present name, DRB-HICOM on 11 May 2000. DRB-HICOM is an investment holding company with investment in the automotive (including defence and composite manufacturing), services (including integrated logistics, banking and postal businesses) and property, assets and construction segments. 1.2 Brief description of the Sukuk Wakalah Programme The Sukuk Wakalah Programme has a programme size of Ringgit Malaysia Three Billion Five Hundred Million (RM3,500,000,000.00). The Issuer has the option to upsize the Sukuk Wakalah Programme subject to the fulfilment of certain conditions. The Sukuk Wakalah shall be issued based on the Shariah principle of Wakalah bi Al-Istithmar, which is a Shariah principle and concept approved by the SC’s Shariah Advisory Council. The tenure of the Sukuk Wakalah Programme shall be up to thirty (30) years from the date of first issuance of the Sukuk Wakalah under the Sukuk Wakalah Programme. The tenure of each tranche of the Sukuk Wakalah shall be at least one (1) year and up to thirty (30) years from the date of issuance, as the Issuer may select, provided always that the maturity of each tranche of the Sukuk Wakalah shall not exceed the tenure of the Sukuk Wakalah Programme. For full detailed terms of the Sukuk Wakalah Programme, please refer to the PTC. 1.3 Utilisation of proceeds The Sukuk Proceeds shall be utilised by the Issuer to: (a) refinance the existing financing/ borrowings of the Issuer Group; (b) finance the Issuer’s capital expenditure and working capital requirements and/or investments as well as for general corporate purposes which shall be Shariahcompliant; and (c) pay all fees and expenses in connection with the Sukuk Wakalah Programme. For the avoidance of doubt, the Sukuk Proceeds shall be utilised for Shariah-compliant purposes only. 1.4 Security arrangement The Sukuk Wakalah shall be secured by the Security Documents, as follows: (a) assignment of the Issuer’s present and future rights, interests, title and benefits in all proceeds, revenue and income arising from any entitlements to the Issuer, including but not limited to payments/ repayments, distributions of capital, dividend payments and advances from the subsidiaries and associates within the enlarged group of the Issuer; 1
16. (b) assignment and charge over the Issuer’s present and future rights, interests, title and benefits in the RA and the credit balances therein; (c) assignment and charge over the Issuer’s present and future rights, interests, title and benefits in the FSRA and the credit balances therein; and (d) such other security(ies) as may be required by the JPAs/JLAs and/or the Solicitors to be mutually agreed with the Issuer and subject to the approval of the Joint Shariah Advisers. Items (a) and (b) above shall be shared on a pari passu basis between the Sukuk Wakalah and the Facility. The security sharing arrangement will be set out in the Priority and Security Sharing Agreement. In addition to items (a) and (b) above, there will also be other security arrangements under the Facility which will include lands/ buildings, quoted shares and designated accounts for the Facility. 1.5 Credit rating The Sukuk Wakalah Programme has been accorded a preliminary credit rating of A+ with a positive outlook by the Credit Rating Agency. [The rest of this page has been intentionally left blank] 2
17. 2 . PRINCIPAL TERMS AND CONDITIONS OF THE SUKUK WAKALAH PROGRAMME Words and expressions used and defined in this Section 2 shall, in the event of an inconsistency with the definition of other sections within this Information Memorandum, only be applicable for this Section 2. Details of Facility / Programme (1) Name of facility : Islamic medium term notes programme of up to Ringgit Malaysia Three Billion Five Hundred Million (RM3,500,000,000.00) in nominal value under the Shariah principle of Wakalah bi Al-Istithmar (“Sukuk Wakalah Programme”). (2) One-time issue or programme : Programme. (3) Shariah principles : Wakalah bi Al-Istithmar Murabahah (via Tawarruq arrangement) (4) Facility description : Underlying Transaction The Islamic medium term notes issued and to be issued under the Sukuk Wakalah Programme (“Sukuk Wakalah”) from time to time shall be effected as follows: Step 1 Pursuant to a Wakalah agreement entered into between the Sukuk Trustee (acting on behalf of the holders of the Sukuk Wakalah (“Sukukholders”)) and the Issuer (“Wakalah Agreement”), the Issuer shall be appointed as agent of the Sukukholders (“Wakeel”) to invest the issue proceeds raised from the Sukuk Wakalah (“Sukuk Proceeds”) in a Shariahcompliant Wakalah portfolio (“Wakalah Portfolio”) and manage the Wakalah Portfolio, in accordance with the provisions of the Wakalah Agreement. Each Wakalah Portfolio shall comprise a combination of investment in the following: (a) Shariah-compliant general business of the Issuer (“Shariah-compliant Business”) which shall represent the Sukukholders’ interest in the Shariahcompliant Business; and (b) Shariah-compliant commodities which may include but are not limited to crude palm oil or such other acceptable commodities (excluding ribawi items in the category of medium of exchange such as currency, gold and silver) which are available through the commodity trading platform acceptable to the Joint Shariah Advisers which will be identified at or around the time of issuance of the Sukuk Wakalah (“Commodities”) (to be sold to the Issuer as the purchaser (“Purchaser”)) (“Commodity Murabahah Investment”). 3
18. Step 2 The Wakeel shall declare a trust on the Sukuk Proceeds and the Wakalah Portfolio for the benefit of the Sukukholders . The Issuer shall, from time to time, issue the Sukuk Wakalah to the Sukukholders and the Sukukholders shall subscribe to the Sukuk Wakalah by paying the Sukuk Proceeds. The relevant Sukuk Wakalah shall represent the relevant Sukukholders’ undivided proportionate interest in the relevant Wakalah Portfolio. Step 3 Pursuant to an investment agreement entered into between the Wakeel and the Issuer (as the investment manager (“Investment Manager”)) (“Investment Agreement”), the Wakeel (on behalf of the Sukukholders) shall utilise at least thirty three per cent (33%) of the Sukuk Proceeds of the relevant Sukuk Wakalah for investment into the Shariahcompliant Business via the Investment Manager, subject to the valuation principles set out in the Wakalah Agreement. The Investment Manager shall manage the Shariahcompliant Business for the benefit of the Sukukholders. For the avoidance of doubt, the above ratio is only applicable at the point of initial investment for the relevant Sukuk Wakalah and does not need to be maintained throughout the tenure of the relevant Sukuk Wakalah. However, the Wakeel shall ensure that the Shariah-compliant Business shall at all times be a component of the Wakalah Portfolio. Step 4 The remaining Sukuk Proceeds of the relevant Sukuk Wakalah shall be utilised by the Wakeel (on behalf of the Sukukholders) for the Commodity Murabahah Investment. The Commodity Murabahah Investment shall be effected as follows: (a) Pursuant to a commodity Murabahah investment agreement entered into between the Purchaser, the Wakeel and the Sukuk Trustee (“Commodity Murabahah Investment Agreement”), the Purchaser shall, from time to time, issue a purchase order (“Purchase Order”) to the Wakeel and the Sukuk Trustee with an undertaking to purchase the Commodities from the Wakeel at the Deferred Sale Price (as defined herein). (b) Pursuant to the Purchase Order, the Wakeel shall purchase the Commodities on spot basis from the commodity supplier(s) (via a commodity trading participant) at the commodity purchase price equivalent to such remaining Sukuk Proceeds of the relevant Sukuk Wakalah after investment into the Shariah-compliant Business (“Commodity Purchase Price”). 4
19. (c) Upon acquiring the Commodities, the Wakeel (on behalf of the Sukukholders) shall sell the Commodities to the Purchaser for a sale price equivalent to the aggregate of the Commodity Purchase Price and the profit margin, payable on a deferred payment basis (“Deferred Sale Price”). For the avoidance of doubt, the Deferred Sale Price shall be equal to the aggregate of the Expected Periodic Distribution Amount (as defined herein) and the nominal value of the relevant Sukuk Wakalah. (d) The Purchaser shall, subsequently sell the Commodities on spot basis to a commodity buyer (via a commodity trading participant) for an amount equivalent to the Commodity Purchase Price. “Expected Periodic Distribution Amount” refers to the expected periodic distribution amount payable on the Periodic Distribution Date (as defined herein), calculated based on the Periodic Distribution Rate (as defined herein). Step 5 The Wakeel shall distribute income generated from the Wakalah Portfolio (“Income”) up to: (a) in respect of the Sukuk Wakalah with periodic distributions, the Expected Periodic Distribution Amount to the Sukukholders in the form of periodic distributions on each Periodic Distribution Date; or (b) in respect of the Sukuk Wakalah without periodic distributions, the Expected One-off Distribution Amount (as defined herein) to the Sukukholders in the form of a one-off distribution on the Maturity Date (as defined herein) or the Dissolution Declaration Date (as defined herein), whichever is earlier. Any excess above the Expected Periodic Distribution Amount or the Expected One-off Distribution Amount, as the case may be, shall be waived by the Sukukholders and retained by the Wakeel as incentive fee. “Expected One-off Distribution Amount” refers to the expected one-off distribution amount payable on the Maturity Date or the Dissolution Declaration Date, whichever is earlier, which is an amount equivalent to the difference between the nominal value of the relevant Sukuk Wakalah and the Sukuk Proceeds of the relevant Sukuk Wakalah. Step 6 The Issuer (as the obligor (“Obligor”)) shall issue a purchase undertaking (“Purchase Undertaking”) in favour of the Sukuk Trustee (acting on behalf of the Sukukholders), under which the Obligor undertakes to purchase the Sukukholders’ interest in the Shariah-compliant Business from the Sukuk Trustee (acting on behalf of the Sukukholders) on: 5
20. (a) the maturity date of the relevant Sukuk Wakalah (“Maturity Date”); or (b) the date of declaration of a Dissolution Event (as defined herein) (“Dissolution Declaration Date”), whichever is earlier, at the market value of the Shariahcompliant Business (“Exercise Price”) and enter into a sale agreement for such purchase. The Sukuk Trustee (acting on behalf of the Sukukholders) shall issue a sale undertaking (“Sale Undertaking”) in favour of the Issuer under which the Sukuk Trustee shall sell the Shariah-compliant Business to the Issuer upon early redemption at the Exercise Price and enter into a sale agreement for such sale. Step 7 Proceeds from the Wakalah Portfolio made up of the Exercise Price, the outstanding Deferred Sale Price (subject to Ibra’) and any returns generated under the Wakalah Portfolio shall be paid to the Sukukholders to redeem the relevant Sukuk Wakalah. Any excess above the nominal value or the accreted value (as the case may be) and if applicable any excess above the accrued but unpaid Expected Periodic Distribution Amount of the relevant Sukuk Wakalah shall be waived by the Sukukholders and retained by the Wakeel as an incentive fee upon full redemption of the relevant Sukuk Wakalah. Upon full payment of all amounts due and payable under the relevant Sukuk Wakalah, the trust in respect of the relevant Wakalah Portfolio will be dissolved and the relevant Sukuk Wakalah held by the Sukukholders will be cancelled. The transaction structure of the Sukuk Wakalah Programme is set out in the attachment entitled “Diagram and description on the transaction structure of the Sukuk Wakalah Programme”. (5) Currency : Ringgit Malaysia (6) Expected facility/program me size (for programme, to state the option to upsize) : Up to Ringgit Malaysia Three Billion Five Hundred Million (RM3,500,000,000.00) in nominal value. (7) Tenure of facility/program me : (8) Availability period of the Sukuk Wakalah Programme : Option to upsize: Yes Year(s) 30 Month(s) - Day(s) - The Sukuk Wakalah shall be available for issuance under the Sukuk Wakalah Programme upon completion of the Transaction Documents (as defined herein) and fulfilment of all conditions precedent therein and all other applicable conditions to the satisfaction of the JPAs/JLAs (unless otherwise waived by the JPAs/JLAs) until the expiry of the tenure of the Sukuk Wakalah Programme provided that the first issuance of the Sukuk Wakalah under the Sukuk 6
21. Wakalah Programme shall be made within sixty (60) business days from the date of the lodgement with the SC. (9) Clearing settlement platform (10) (11) and : PayNet Mode of issue : ☒ Private/direct placement ☒ Bought deal ☒ Book building ☐ Tender Selling restrictions : (i) At Issuance ☐ Exclusively to persons outside Malaysia ☒ Part 1 of Schedule 6 of the Capital Markets and Services Act 2007 (“CMSA”) ☒ Part 1 of Schedule 7 of the CMSA ☒ Read together with Schedule 9 of the CMSA ☐ Schedule 8 of the CMSA ☐ Section 2(6) of the Companies Act 2016 ☐ Others (ii) After Issuance ☐ Exclusively to persons outside Malaysia ☒ Part 1 of Schedule 6 of the Capital Markets and Services Act 2007 (“CMSA”) ☐ Part 1 of Schedule 7 of the CMSA ☒ Read together with Schedule 9 of the CMSA ☐ Schedule 8 of the CMSA ☐ Section 2(6) of the Companies Act 2016 ☐ Others (12) (13) Tradability and transferability Details of security/collater al pledged, if applicable : : ☐ Non-tradable & non-transferable ☐ Restricted transferability ☒Tradable & transferable Ringgit Malaysia Three Billion Five Hundred (RM3,500,000,000.00) Million ☐ Unsecured ☒ Secured, details as follows: The Sukuk Wakalah shall be secured by the following securities (“Security Documents”): (1) assignment of the Issuer’s present and future rights, interests, title and benefits in all proceeds, revenue and income arising from any entitlements to the Issuer, including but not limited to payments/ repayments, distributions of capital, dividend payments and advances from the subsidiaries and associates within the enlarged group of the Issuer (“Assignment of Receivables”); (2) assignment and charge over the Issuer’s present and future rights, interests, title and benefits in the RA (as 7
22. defined herein ) and the credit balances therein (“Assignment and Charge of RA”); (3) assignment and charge over the Issuer’s present and future rights, interests, title and benefits in the FSRA (as defined herein) and the credit balances therein (“Assignment and Charge of FSRA”); and (4) such other security(ies) as may be required by the JPAs/JLAs and/or the Solicitors to be mutually agreed with the Issuer and subject to the approval of the Joint Shariah Advisers. Items (1) and (2) above shall be shared on a pari passu basis between the Sukuk Wakalah and the syndicated Islamic term financing facility of up to Ringgit Malaysia One Billion Five Hundred Million (RM1,500,000,000.00) (“Facility”). The security sharing arrangement will be set out in a priority and security sharing agreement (“Priority and Security Sharing Agreement”). (14) Details guarantee, applicable of if : ☒ Not guaranteed ☐ Guaranteed, details as follows: (15) Convertibility of issuance and details of the convertibility, if applicable : ☒ Non-convertible ☐ Convertible, details as follows: (16) Exchangeability of issuance and details of the exchangeability, if applicable : ☒ Non-exchangeable ☐ Exchangeable, details as follows: (17) Call option and details, if applicable : ☒ No call option ☐ Call option, details as follows: (18) Put option and details, if applicable : ☒ No put option ☐ Put option, details as follows: (19) Positive covenants : ☐ No positive covenant ☒ Positive covenant, details as follows: To include but not limited to the following: (1) the Issuer shall and shall procure that the Material Subsidiaries (as defined herein) shall maintain in full force and effect and comply with all relevant authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) and shall promptly obtain any further authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) which are necessary to enable the Issuer and the Material Subsidiaries to own its assets, to carry on its business or for the 8
23. Issuer to enter into or perform its obligations under the Transaction Documents and to ensure the legality validity , enforceability, admissibility in evidence or priority of the liabilities and obligations of the Issuer, and the rights of the Sukukholders, the Sukuk Trustee, the Security Trustee and the JPAs/JLAs under the Transaction Documents; “Material Subsidiaries” is defined as any subsidiary which contributes five per cent (5%) or more to the consolidated revenue and/or profit before tax of the Issuer; (2) the Issuer shall at all times on demand execute all such further documents and do all such further acts as the Sukuk Trustee and/or the Security Trustee considers necessary or expedient to give effect to the terms and conditions of the Transaction Documents and/or for the benefits of all rights, powers and remedies conferred upon the Sukuk Trustee and/or the Security Trustee, as the case may be, in the Transaction Documents; (3) the Issuer shall and shall procure that the Material Subsidiaries shall exercise reasonable diligence in carrying out and conducting of its business and affairs in a proper and efficient manner and in accordance with sound financial and commercial standards and practices of the industry and in accordance with its constitution; (4) the Issuer shall promptly fulfil, comply with, perform and carry out all provisions of the Transaction Documents and all its obligations under the Transaction Documents and the terms and conditions of the Sukuk Wakalah Programme (including but not limited to redeeming the Sukuk Wakalah on the relevant Maturity Date(s) or any other date on which the Sukuk Wakalah are due and payable) and immediately notify the Sukuk Trustee in the event that it is unable to fulfil, comply with, perform or carry out any of the provisions of the Transaction Documents or any of its obligations under the Transaction Documents or any of the terms and conditions of the Sukuk Wakalah Programme; (5) the Issuer shall prepare its financial statements on a basis consistently applied in accordance with the approved accounting principles and standards in Malaysia and those financial statements shall give a true and fair view of the results of the financial position and operations of the Issuer for the period to which the financial statements are made up and disclose or provide against all liabilities (actual or contingent) of the Issuer; (6) the Issuer shall and shall procure that the Material Subsidiaries shall promptly comply with all applicable laws, requirements, rules, regulations, orders, 9
24. guidelines , notes, circulars and conditions including provisions of the CMSA and/or any requirements, rules, regulations, orders, guidelines, notes, circulars and conditions issued and/or imposed by the SC, the Bank Negara Malaysia (“BNM”) and other regulatory authorities from time to time in relation to the Sukuk Wakalah Programme including any applicable antimoney laundering and anti-terrorism financing laws; (7) the Issuer shall undertake that the operation of the Sukuk Wakalah shall at all times be governed by guidelines issued and to be issued by the SC and/or other authorities having jurisdiction over matters pertaining to the Sukuk Wakalah; (8) the Issuer shall at all times maintain a paying agent who is based in Malaysia; (9) the Issuer shall procure that the Paying Agent shall forthwith notify the Sukuk Trustee, through the Facility Agent, if for any reason whatsoever (a) the amounts received by the Paying Agent from the Issuer are insufficient; or (b) the Paying Agent does not receive payment in respect of the Sukuk Wakalah from the Issuer on the due dates and in the manner as required under the Transaction Documents and the terms and conditions of the Sukuk Wakalah Programme; (10) the Issuer shall maintain and/or cause to be maintained adequate takaful/insurances cover in respect of its assets and business and all other takaful/insurances necessary for its assets and business in accordance with common industry practice for business of such nature with reputable takaful/insurance companies and notify the Sukuk Trustee of any event which will or may give rise to any claim or right of action under any takaful/insurances; (11) the Issuer shall file all relevant tax returns and pay all taxes and other liabilities promptly upon the same becoming due except to the extent that taxes are being contested in good faith and an adequate reserve has been set aside with respect thereto; (12) the Issuer shall maintain proper books, accounts and records at all times, and shall provide the Sukuk Trustee or the Sukuk Trustee’s agent and servants and any person appointed or authorised by the Sukuk Trustee, during business hours with prior written notice, to have access to and to inspect such books, accounts and records to the extent permitted by law; (13) the Issuer shall ensure that the terms in the trust deed of the Sukuk Wakalah Programme (“Trust Deed”) do not contain any matter which is inconsistent with the provisions of the information 10
25. memorandum to be issued by the Issuer in respect of the Sukuk Wakalah Programme (“Info Memo”); (20) Negative covenants : (14) the Issuer shall ensure that any loans, advances and/or other forms of equity contribution obtained from its shareholders are made on an arm’s length basis and shall cause and ensure that these loans, advances and/or other forms of equity contribution obtained from its shareholders shall be subordinated to the Sukuk Wakalah; and (15) any other covenants as advised by the Solicitors and to be mutually agreed by the JPAs/JLAs and the Issuer including but not limited to the requirements under the SC’s Trust Deeds Guidelines. ☐ No negative covenant ☒ Negative covenant, details as follows: To include but not limited to the following: (1) the Issuer shall not create or permit to exist any encumbrance, mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment by way of security, trust arrangement for the purpose of providing security or other security interest of any kind including, without limitation, title transfer and/or retention arrangements having a similar effect or any agreement to create any of the foregoing (collectively, “Security Interest”) over all or any part of its assets, save and except for: (a) the Security Interest created or to be created for the Sukuk Wakalah Programme and the Facility; and (b) liens arising in the ordinary course of business by operation of law and not by way of contract, (collectively, “Permitted Security”); (2) the Issuer shall not and shall procure that the Material Subsidiaries shall not transfer, sell, lease or otherwise dispose of or in any case cease to exercise control, whether by single transaction or a number of transactions, over the Issuer’s and the Material Subsidiaries’ undertaking, business and assets, the book value (as reflected in the Issuer’s latest quarterly unaudited financial statements) of which is: (a) more than ten per cent (10%) of the Issuer's consolidated net tangible assets on an aggregate basis per annum and which has or would have a Material Adverse Effect (as defined herein); or (b) more than twenty five per cent (25%) of the Issuer's consolidated net tangible assets on an aggregate basis per annum, 11
26. save and except for : (i) any transfer, sale, lease or disposal solely for the purposes of facilitating Shariah concepts used in Islamic financing facilities granted to the Issuer as allowed under the Sukuk Wakalah Programme and the Facility; (ii) any transfer, sale, lease or disposal pursuant to the on-going corporate exercises that have been announced by the Issuer on Bursa Malaysia Securities Berhad prior to the date of the Trust Deed; and (iii) any transfer, sale, lease or disposal within the Issuer Group (as defined herein); “Issuer Group” refers to collectively the Issuer and the subsidiary companies of the Issuer that are consolidated into the audited consolidated financial statements of the Issuer; (3) the Issuer shall not add, delete, amend or substitute its constitution in a manner which may be materially prejudicial to the interest of the Sukukholders or inconsistent with the provisions of the Transaction Documents or do or omit to do any act or execute or omit to execute any document which may render any provisions of the Transaction Documents to be illegal, void, voidable or unenforceable; (4) the Issuer shall not enter into any transaction, whether directly or indirectly, with its interested persons (as defined herein) unless: (a) such transaction shall be on terms that are no less favourable to the Issuer than those which could have been obtained in a comparable transaction from persons who are not interested persons of the Issuer; and (b) with respect to transactions involving an aggregate payment or value equal to or greater than the relevant percentage ratio in respect of a related party transaction as provided in the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“MMLR”) which require the Issuer to obtain certification from an independent adviser, the Issuer shall obtain certification from an independent adviser that the transaction is carried out on fair and reasonable terms, provided that (i) the Issuer certifies to the Sukuk Trustee that the transaction complies with paragraph (a) above; (ii) the Issuer has received the certification referred to in paragraph (b) above (where applicable); and (iii) the transaction has been approved by the 12
27. majority of its board of directors or shareholders at a general meeting , as the case may require; (c) with respect to transactions constituting a recurrent related-party transaction of a revenue or trading nature (“RRPT”) which are provided for and permitted under the MMLR, provided that (i) the Issuer certifies to the Sukuk Trustee that the transaction complies with paragraph (a) above; (ii) the Issuer has obtained or renewed, where applicable, the shareholders’ mandate in accordance with the MMLR; and (iii) the Issuer furnishes at least one certificate to the Sukuk Trustee in respect of the RRPT contemplated under the shareholders’ mandate; “interested person” includes directors, major shareholders and chief executive officer or such other category of persons as prescribed under the SC’s Trust Deeds Guidelines; (5) the Issuer shall not make, grant, lend, provide or extend any financing/loans or advances to any person or company other than: (a) to the Issuer’s directors, officers or employees as part of their terms of employment; or (b) to the companies within the Issuer Group; (6) the Issuer shall not make any payments to its shareholders in connection with any loans and/or advances from its shareholders for as long as the Sukuk Wakalah is outstanding; (7) the Issuer shall not make any Distribution (as defined herein) whether income or capital in nature to its shareholders unless the Distribution Covenants (as defined herein) are met; “Distribution” is defined as declaration or payment of dividends or distributions by the Issuer; “Distribution Covenants” refers to the following conditions: (a) 13 no Dissolution Event or any event which, upon the giving of notice and/or the lapse of time and/or the issue of a certificate and/or a determination being made and/or the fulfilment of the relevant requirement as contemplated under the relevant Transaction Documents would constitute a Dissolution Event (“Potential Dissolution Event”) has occurred, is continuing or would have occurred following such Distribution;
28. (b) the balance standing to the credit of the FSRA is not less than the Minimum Required Balance (as defined herein); (c) all Financial Covenants (as defined herein) are observed and complied with before and after such Distribution; (8) the Issuer shall not surrender, transfer, assign, relinquish or otherwise dispose of any or all of its rights and interest under the Transaction Documents; (9) the Issuer shall not do or suffer to be done any act, matter or thing whereby any takaful/insurances may be rendered void, voidable or incapable of being effected, maintained or renewed; (10) the Issuer shall not utilise, change or allow the utilisation of the Sukuk Proceeds for any purposes other than for the purposes set out in the Transaction Documents; (11) the Issuer shall not and shall procure that the Material Subsidiaries shall not cancel, surrender, abandon or otherwise change the nature or scope of their present businesses or suspend any part of their businesses which has or would have a Material Adverse Effect; (12) the Issuer shall not and shall procure that the companies within the Issuer Group shall not undertake, permit or enter into any consolidation, amalgamation, merger, demerger, reconstruction, reorganization, corporate reconstruction or windingup of the Issuer or any of the companies within the Issuer Group in such a manner which has or would have a Material Adverse Effect; (13) the Issuer shall not and shall procure that the companies within the Issuer Group shall not cancel, surrender, abandon or amend or cause the cancellation, surrender, abandonment or amendment of their respective related licenses or grants in any way which has or would have a Material Adverse Effect unless such cancellation, surrender, abandonment or amendment is imposed by any applicable legislation or authorities or such license or grant is no longer required for the business or operation of the Issuer or any member of the Issuer Group under the applicable legislation or authorities; (14) the Issuer shall not reduce nor in any way whatsoever alter (other than by way of increase), its issued paid-up capital in existence at the date of the Trust Deed, whether by varying the amount, structure or value thereof or the rights attached thereto or by converting any of its share capital into stock, or by consolidating, dividing or sub-dividing all or any of its shares, or by any other manner; and 14
29. (15) any other covenants as advised by the Solicitors and to be mutually agreed by the JPAs/JLAs and the Issuer including but not limited to the requirements under the SC’s Trust Deeds Guidelines. “Material Adverse Effect” means a material adverse effect on or a material adverse change in: (21) Financial covenant : (1) the business or condition (financial or otherwise) of the Issuer; (2) the operations of the Issuer; (3) the ability of the Issuer to perform or comply with any of its obligations under the Transaction Documents; or (4) the legality, validity or enforceability of the Transaction Documents or the Security Interest granted or purporting to be granted pursuant to any Transaction Document or the right or remedies of the Sukuk Trustee, the Security Trustee or the Sukukholders thereunder. ☐ No financial covenant ☒ Financial covenant, details as below: The Issuer shall comply with the following financial covenants (collectively, “Financial Covenants”) throughout the tenure of the Sukuk Wakalah Programme and so long as any of the Sukuk Wakalah remain outstanding. Finance Service Cover Ratio (“FSCR”) The Issuer shall maintain a FSCR of not less than one point five (1.5) times. The FSCR is the ratio of Cumulative Available Cashflows (as defined herein), to the aggregate of: (1) all periodic distributions and principal payments obligations of the Issuer under the Sukuk Wakalah during each financial year; and (2) all principal and profit/interest payments obligations of the Issuer under any other financing/borrowings during each financial year. “Cumulative Available Cashflows” is defined as for each financial year, the sum of: (1) the net operating cashflow; (2) opening cash balances (including balances already maintained in the Designated Accounts and the designated accounts for the Facility); and 15
30. (3) any other receipts of a capital or revenue in nature (including but not limited to the Sukuk Proceeds and the proceeds from the Facility). Finance to Equity Ratio (“FE Ratio”) The Issuer shall maintain a FE Ratio of not exceeding one point three five (1.35) times. The FE Ratio is the ratio of indebtedness of the Issuer represented by: (1) all principal amounts outstanding under the Sukuk Wakalah; and (2) all other indebtedness for Islamic financing or borrowed moneys (be it actual or contingent), hire purchase obligations, finance lease obligations, net exposure determined on a marked to market basis under any derivative instrument; to the shareholders’ funds of the Issuer, including all share capital (including ordinary and preference shares), subordinated shareholders’ advances/ financing/ loans, minority interests, irredeemable convertible unsecured loan stocks, hybrid capital and retained earnings/ losses. Group Finance to Equity Ratio (“Group FE Ratio”) The Issuer shall maintain a Group FE Ratio of not exceeding one point five (1.5) times. The Group FE Ratio is the ratio of indebtedness of the Issuer Group represented by: (1) all principal amounts outstanding under the Sukuk Wakalah; and (2) all other indebtedness for Islamic financing or borrowed moneys (be it actual or contingent), hire purchase obligations, finance lease obligations, net exposure determined on a marked to market basis under any derivative instrument and obligations/ contingent liabilities under guarantees; to the shareholders’ funds of the Issuer Group, including all share capital (including ordinary and preference shares), subordinated shareholders’ advances/ financing/ loans, minority interests, irredeemable convertible unsecured loan stocks, hybrid capital and retained earnings/ losses. The Financial Covenants shall be computed for each financial year of the Issuer based on the latest audited financial statements of the Issuer (in respect of the FSCR and the FE Ratio) the latest audited consolidated financial statements of the Issuer (in respect of the Group FE Ratio) and duly confirmed in writing by the Issuer’s external auditors on an annual basis during the tenure of the Sukuk Wakalah Programme. The external auditor’s confirmation is to be delivered by the Issuer to the Facility Agent for its distribution 16
31. to the Sukuk Trustee and the Credit Rating Agency within one hundred and eighty (180) days after the end of each of its financial year. For the avoidance of doubt, any double counting shall be disregarded. (22) Information covenants : ☐ No information covenant ☒ Information covenant, details as below: To include but not limited to the following: (1) the Issuer shall deliver to the Sukuk Trustee at least on an annual basis, a certificate signed by any one (1) authorised signatory of the Issuer confirming that it has observed, complied with and performed all its covenants and obligations under the Transaction Documents and the terms and conditions of the Sukuk Wakalah Programme and that there does not exist or had not existed, from the date the Sukuk Wakalah were first issued or the date of the previous certificate as the case may be, any Dissolution Event or any Potential Dissolution Event, and if such is not the case, to specify the same and steps being taken, if any, to remedy the same; (2) the Issuer shall deliver to the Sukuk Trustee the following: (a) as soon as they become available (and in any event within one hundred and eighty (180) days after the end of each of its financial year) copies of its annual consolidated financial statements for that financial year which shall contain the income statements and balance sheets of the Issuer which are audited and certified without qualification by a firm of independent certified public accountants acceptable to the Sukuk Trustee; (b) as soon as they become available (and in any event within ninety (90) days after the end of each of its half year financial period in accordance with the reporting format as required by Bursa Malaysia Securities Berhad) copies of its unaudited half yearly consolidated financial statements for that half year financial period which shall contain the income statements and balance sheets of the Issuer which are duly certified by at least one (1) director of the Issuer; (c) promptly, to the extent permitted by law, such additional financial or other information as the Sukuk Trustee may from time to time reasonably request and such information which the Sukuk Trustee may reasonably require in order to discharge its duties and obligations under the Trust Deed; and 17
32. (d) (3) promptly, all documents received by the Issuer from any of its shareholders or its creditors which content would materially and adversely affect the interest of the Sukukholders, and a copy of all documents dispatched by the Issuer to its shareholders (or any class of them) in their capacity as shareholders or its creditors which content would materially and adversely affect the interest of the Sukukholders generally at the same time as these documents are dispatched to these shareholders or creditors which may be circulated by the Sukuk Trustee at its discretion to the Sukukholders, the qualified investors of the Sukuk Wakalah as well as the Credit Rating Agency; the Issuer shall promptly notify the Sukuk Trustee in the event that the Issuer becomes aware of the following: (a) any Dissolution Event and any Potential Dissolution Event, and it shall take all reasonable steps and/or such other steps as may reasonably be requested by the Sukuk Trustee to remedy and/or mitigate the effect of the Dissolution Event or the Potential Dissolution Event; (b) the happening of any event that has caused or could cause, one or more of the following: (i) any amount secured or payable under the Sukuk Wakalah to become immediately payable; (ii) the Sukuk Wakalah to become immediately enforceable; and (iii) any other right or remedy under the terms, provisions or covenants of the Sukuk Wakalah or the Transaction Documents to become immediately enforceable; (c) any circumstance that has occurred that would materially prejudice the Issuer or any security created in favour of the Security Trustee pursuant to the Transaction Documents; (d) any substantial change in the nature of the business of the Issuer; (e) any change in the Issuer’s withholding tax position or tax jurisdiction; (f) any change in the utilisation of the Sukuk Proceeds other than for the purposes 18
33. stipulated in the Info Memo and the Transaction Documents ; and (g) (23) Details designated account(s), applicable of if : any other matter that may materially prejudice the interests of the Sukukholders; (4) the Issuer shall promptly notify the Sukuk Trustee of any event which has or would have a Material Adverse Effect; (5) the Issuer shall promptly notify the Sukuk Trustee of any change in condition (financial or otherwise) and any litigation or other proceedings of any nature whatsoever being threatened or initiated against the Issuer before any court or tribunal or administrative agency which has or would have a Material Adverse Effect; (6) the Issuer shall promptly notify the Sukuk Trustee of any change in the board of directors of the Issuer; (7) the Issuer shall promptly notify the Sukuk Trustee if any of its authorised signatories is no longer authorised to act on the Issuer’s behalf in respect of the Sukuk Wakalah Programme; (8) the Issuer shall promptly notify the Sukuk Trustee of any amendments, variations, terminations, replacements or supplements of any of the Transaction Documents; (9) the Issuer shall promptly notify the Sukuk Trustee and the Facility Agent, the list of the Material Subsidiaries on an annual basis, based on the latest audited consolidated financial statements of the Issuer; and (10) any other covenants as advised by the Solicitors and to be mutually agreed by the JPAs/JLAs and the Issuer including but not limited to the requirements under the SC’s Trust Deeds Guidelines. ☐ No designated account ☒ Designated account, details as below: The Shariah-compliant designated accounts as follows (collectively, “Designated Accounts”): Name Account of Revenue Account for the Sukuk Wakalah Programme and the Facility (“RA”) Parties responsible for opening of account Issuer Parties responsible to maintain and Security Trustee 19
34. operate account Signatories to the account Security Trustee Sources funds The RA shall capture the following : Utilisation funds Name Account of of of (1) all proceeds, revenue and income arising from any entitlements to the Issuer, including but not limited to payments/ repayments, distributions of capital, dividend payments and advances from the subsidiaries and associates within the enlarged group of the Issuer; and (2) the funds utilised for Permitted Investments (as defined herein) and all profits, income and receivables generated from Permitted Investments from funds in the RA. Funds in the RA shall be utilised in the following order of priority: (1) transfer to the FSRA and the finance service reserve account for the Facility to top up any shortfall in order to maintain the Minimum Required Balance under the FSRA and the finance service reserve account for the Facility; (2) payment of profit payments due under the Facility; (3) any excess monies thereafter may be remitted to the Issuer; and (4) investments Investments. Permitted Finance Service Reserve Account for the Sukuk Wakalah Programme (“FSRA”) Parties responsible for opening of account Issuer Parties responsible to maintain and operate account Security Trustee 20 in
35. Signatories to the account Security Trustee Sources funds The FSRA shall capture the following : of (1) amount transferred from the RA to meet the Minimum Required Balance; and (2) the funds utilised for Permitted Investments and all profits, income and receivables generated from Permitted Investments from funds in the FSRA. The Issuer shall at all times ensure that the Minimum Required Balance is maintained in the FSRA at least three (3) months before the relevant Periodic Distribution Date and/or Maturity Date. “Minimum Required Balance” refers to an amount equivalent to the next periodic distributions and/or principal payments of the relevant tranche of the Sukuk Wakalah. Utilisation funds (24) Details of credit rating, if applicable : of Funds in the FSRA shall be utilised for: (1) payment of periodic distributions and principal payments due and payable under the relevant tranche of the Sukuk Wakalah; and (2) investments Investments. in Permitted ☐ Not Rated ☒ Rated as follows: Credit Rating Agency: Malaysian Rating Corporation Berhad Credit Rating: A+ Final/Indicative: Indicative Amount rated: MYR3,500,000,000.00 (25) Conditions precedent : Conditions precedent relating to the availability of the Sukuk Wakalah Programme: Main Documentation (1) The relevant Transaction Documents (save for the Priority and Security Sharing Agreement, the Assignment of Receivables, the Assignment and Charge of RA and the Assignment and Charge of 21
36. FSRA ) in relation to the Sukuk Wakalah Programme have been executed and endorsed as exempted from stamp duty under Stamp Duty (Exemption) (No. 23) Order 2000. (2) Evidence that the relevant Transaction Documents (save for the Assignment of Receivables, the Assignment and Charge of RA and the Assignment and Charge of FSRA) have been presented to the High Court of Malaya for the registration of the power of attorney therein contained. Issuer (1) Certified true copies of the Certificate of Incorporation and the constitution of the Issuer duly certified by the company secretary or any of its directors. (2) Certified true copies of the latest Return for Allotment of Shares (or Form 24 as prescribed under the Companies Act 1965), Notification of Change in the Registered Address (or Form 44 as prescribed under the Companies Act 1965) and Notification of Change in the Register of Directors, Managers and Secretaries (or Form 49 as prescribed under the Companies Act 1965) of the Issuer duly certified by the company secretary or any of its directors. (3) Certified true copy of the board resolution of the Issuer authorising, amongst others, the establishment of the Sukuk Wakalah Programme, the issuance of the Sukuk Wakalah under the Sukuk Wakalah Programme and the execution of all relevant Transaction Documents, duly certified by the company secretary or any of its directors. (4) A list of the Issuer’s authorised signatories and their respective specimen signatures duly certified by the company secretary or any of its directors. (5) A report of the relevant company search conducted on the Issuer at the Companies Commission of Malaysia. (6) A report of the relevant winding-up search conducted on the Issuer at the Department of Insolvency of Malaysia, confirming that the Issuer is not wound up. General (1) Evidence that all transaction fees, costs, and expenses have been paid in full to the extent that the same are due and payable before the first issuance of the Sukuk Wakalah or arrangements have been made for the payment of such transaction fees, costs and expenses. (2) Evidence that the endorsement from the Shariah Advisory Council (“SAC”) of the SC and the 22
37. acknowledgement in respect of the lodgement of the required information and documents relating to the Sukuk Wakalah Programme with the SC have been obtained . (3) Confirmation that the Designated Accounts have been opened with such financial institution acceptable to the JPAs/JLAs in accordance with the provisions of the relevant Transaction Documents. (4) Confirmation that the Trustees’ Reimbursement Account (as defined herein) has been opened with such financial institution acceptable to the JPAs/JLAs in accordance with the SC’s Trust Deeds Guidelines and a sum of Ringgit Malaysia Thirty Thousand (RM30,000.00) has been deposited therein. (5) Confirmation from the Joint Shariah Advisers that the structure and mechanism of the Sukuk Wakalah Programme and the Transaction Documents are in compliance with Shariah. (6) Evidence that the Sukuk Wakalah Programme has been assigned a minimum long term credit rating of A+ or its equivalent from the Credit Rating Agency. (7) Receipt of satisfactory legal opinion from the Solicitors addressed to the JPAs/JLAs with respect to the legality, validity and enforceability of the relevant Transaction Documents and confirmation that all conditions precedent thereto have been fulfilled or otherwise waived, as the case may be. (8) Evidence of the completion of satisfactory legal due diligence exercise on the Issuer and the receipt of the relevant legal due diligence reports by the JPAs/JLAs from the Solicitors. (9) Where required, satisfactory evidence that all requisite consents/ approvals for the Issuer to establish the Sukuk Wakalah Programme have been obtained. (10) Such other conditions precedent as may be required by the JPAs/JLAs and/or as may be advised by the Solicitors and agreed by the Issuer. Conditions precedent relating to the first issuance of the Sukuk Wakalah under the Sukuk Wakalah Programme: (1) The Priority and Security Sharing Agreement, the Assignment and Charge of RA and the Assignment and Charge of FSRA have been executed and endorsed as exempted from stamp duty under Stamp Duty (Exemption) (No. 23) Order 2000. (2) Evidence that the Statement of Particulars to be lodged with Charge in respect of the Assignment and Charge of RA and the Assignment and Charge of 23
38. FSRA for the purpose of registration of such charges with the Companies Commission of Malaysia in accordance with Section 352 of the Companies Act 2016 have been lodged with the Companies Commission of Malaysia . (3) Evidence that the Assignment and Charge of RA and the Assignment and Charge of FSRA have been presented to the High Court of Malaya for the registration of the power of attorney therein contained. (4) All relevant notices and acknowledgements of assignment shall have been served and received, as the case may be. (5) Where required, satisfactory evidence that all requisite consents/ approvals for the Issuer to issue the Sukuk Wakalah under the Sukuk Wakalah Programme have been obtained. (6) Such other conditions precedent as may be required by the JPAs/JLAs and/or as may be advised by the Solicitors and agreed by the Issuer. Conditions precedent relating to each issuance of the Sukuk Wakalah under the Sukuk Wakalah Programme: (1) Receipt of the redemption statement cum undertaking from existing lenders/ sukukholders/ sukuk trustees/ facility agents/ security agents/ security trustees (where applicable) to redeem the existing borrowings/ sukuk utilising the Sukuk Proceeds, where applicable. (2) Each of the representations and warranties contained in the Transaction Documents shall be true and correct as though such representations and warranties had been made on the proposed issue date of the relevant Sukuk Wakalah and all the covenants and undertakings contained in the Transaction Documents shall have been complied with. (3) No Dissolution Event or Potential Dissolution Event has occurred, is continuing or would occur as a result of the issuance of the relevant Sukuk Wakalah. (4) Such other conditions precedent as may be required by the JPAs/JLAs and/or as may be advised by the Solicitors and agreed by the Issuer. Conditions subsequent to be complied within the timeframe as may be mutually agreed by the JPAs/JLAs and the Issuer: (1) The Assignment of Receivables has been executed and endorsed as exempted from stamp duty under Stamp Duty (Exemption) (No. 23) Order 2000. 24
39. (26) Representation s and warranties : (2) Evidence that the Statement of Particulars to be lodged with Charge in respect of the Assignment of Receivables for the purpose of registration of such charge with the Companies Commission of Malaysia in accordance with Section 352 of the Companies Act 2016 has been lodged with the Companies Commission of Malaysia. (3) Evidence that the Assignment of Receivables has been presented to the High Court of Malaya for the registration of the power of attorney therein contained. (4) All relevant notices and acknowledgements of assignment shall have been served and received, as the case may be. (5) Such other conditions subsequent as may be required by the JPAs/JLAs and/or as may be advised by the Solicitors and agreed by the Issuer. To include but not limited to the following: (1) the Issuer is a company with limited liability duly incorporated and validly existing under the laws of Malaysia, has full power and all relevant authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) to carry on its business and to own its property and assets; (2) the constitution of the Issuer incorporates provisions which authorise, and all necessary corporate and other relevant actions have been taken to authorise, and all relevant authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) have been duly obtained and are in full force and effect which are required to authorise the Issuer to execute and deliver and perform the transactions contemplated in the Transaction Documents in accordance with their terms; (3) neither the execution and delivery of any of the Transaction Documents nor the performance of any of the transactions contemplated by the Transaction Documents did or does or shall: (a) contravene or constitute a default under any provision contained in any agreement, instrument, law, ordinance, decree, judgment, order, rule, regulation, licence, permit or consent by which the Issuer or any of its assets is bound or which is applicable to the Issuer or any of its assets; (b) cause any limitation on the Issuer or the powers of its directors, whether imposed by or contained in its constitution or in any agreement, instrument, law, ordinance, decree, order, rule, regulation, judgment or otherwise, to be exceeded; or 25
40. (c) cause the creation or imposition of any Security Interest or restriction of any nature on any of the Issuer’s assets; (4) each of the Transaction Documents, is or will when executed and/or issued, as the case may be, be in full force and effect and constitutes, or will when executed or issued, as the case may be, constitute, valid and legally binding obligations of the Issuer enforceable in accordance with their respective terms under the laws of Malaysia and that there is no law or regulation or any order or decree of any governmental authority, agency or court to which the Issuer is subject to which would be in conflict with or prevent the Issuer from executing, delivering and performing the transactions contemplated in each of the Transaction Documents; (5) no authorisation, approval, consent, permit, license, exemption, registration, recording, filing, notarization of the Transaction Documents and no payment of any duty or tax and no other action whatsoever which has not been duly and unconditionally obtained, made or taken is necessary to ensure the legality, validity or enforceability of the liabilities and obligations of the Issuer or the rights of the JPAs/JLAs/JLMs, the Facility Agent, the Sukuk Trustee and the Security Trustee under the Transaction Documents in accordance with their terms or the admissibility in evidence of the Transaction Documents before the courts of Malaysia save and except for: (a) registration of the power of attorney contained in the relevant Transaction Documents with the High Court of Malaya; and (b) lodgement of the Statement of Particulars to be lodged with Charge in respect of the charges created under the relevant Transaction Documents with the Companies Commission of Malaysia in accordance with Section 352 of the Companies Act 2016; (6) no event or circumstance has occurred or is continuing which would constitute a Dissolution Event or a Potential Dissolution Event; (7) no event or circumstance has occurred or is continuing which would constitute a contravention of, or a default or termination event (however described) or potential event which upon the giving of notice and/or the lapse of time and/or the issue of a certificate and/or a determination being made and/or the fulfilment of the relevant requirement as contemplated under the relevant agreement or instrument by which the Issuer or any of its assets is bound or affected, would constitute a contravention of, or a default or termination event (however 26
41. described ) under any such agreement or instrument, which has or would have a Material Adverse Effect; (8) the audited financial statements of the Issuer for each financial year have been prepared on a basis consistently applied in accordance with the approved accounting principles and standards in Malaysia and give a true and fair view of the results of the financial position and operations of the Issuer for the period to which the financial statements are made up and disclose or provide against all liabilities (actual or contingent) of the Issuer; (9) save as disclosed in the Info Memo, no legal or governmental proceedings are presently in progress or pending or threatened against the Issuer, to which the Issuer is or may be a party or to which any properties or assets of the Issuer is or may be the subject, which has or would have a Material Adverse Effect; (10) save as disclosed in the Info Memo, no litigation, arbitration, administrative proceeding, claim or dispute is being initiated or presently in progress or pending or, to the best knowledge, information and belief of the Issuer, threatened against the Issuer and/or any of its properties or assets, which has or would have a Material Adverse Effect; (11) the Issuer is not in breach of the provisions of any law or regulations governing the relevant authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) and the Issuer is not aware of any reason why such authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) should be withdrawn or cancelled or any conditions attached thereto should be adversely altered; (12) the Issuer is in compliance and will comply with all applicable laws, regulations, by-laws, orders, codes of practice, directives, guidelines, specifications, notices, circulars and other requirements of all relevant statutory bodies and any relevant federal, local or municipal government department or agencies; (13) the Issuer and its obligations under the Transaction Documents and the Sukuk Wakalah are subject to civil and commercial law and to legal suits in Malaysia, and the execution, delivery and performance of the Transaction Documents constitute private and commercial acts rather than governmental or public acts and neither the Issuer nor any of its properties, assets or revenues are entitled to immunity on the ground of sovereignty or otherwise from any legal actions, suits, judgements, executions, proceedings or other legal process; 27
42. (14) no step has been taken by the Issuer, the Material Subsidiaries, any of their creditors and/or any of their shareholders and/or any other person on their behalf, nor have any legal proceedings or applications been started or threatened under Section 366 of the Companies Act 2016 in respect of the Issuer and/or the Material Subsidiaries; (15) no meeting has been convened for the winding-up of the Issuer and/or the Material Subsidiaries and no petition or application is outstanding for the windingup of the Issuer and/or the Material Subsidiaries and no winding-up order has been made against the Issuer and/or the Material Subsidiaries; (16) all necessary returns have been delivered by or on behalf of the Issuer to the relevant taxation authorities within the requisite periods and are up-todate, correct and made on a proper basis with the relevant taxation authorities and the Issuer is not in default in the payment of any taxes (unless (i) such default is contested by the Issuer in good faith and in accordance with the relevant procedures; (ii) for which adequate provisions are being made in accordance with the approved accounting principles and standards in Malaysia; and (iii) such default is not likely to have a Material Adverse Effect), and no material claim is being asserted with respect to taxes which is not disclosed in the financial statements of the Issuer; (17) all information in whatever form, document, statement or instrument furnished by the Issuer in connection with the Sukuk Wakalah Programme, the Info Memo, the Transaction Documents and the assets, business and affairs of the Issuer Group is true in all material aspects and do not contain any statements which are false or misleading and there is no material omission in respect thereof, and all expressions of expectations, intentions, belief and opinion contained therein were made on reasonable grounds after due and careful inquiry by the Issuer; (18) the Issuer is the legal and beneficial owner of and has full beneficial title to all its properties and assets and there is no Security Interest on any of its properties and assets save and except for the Permitted Security; (19) no change in the business, condition (financial or otherwise), performance or results of the operations of the Issuer and the Material Subsidiaries, which has or would have a Material Adverse Effect; (20) no extraordinary circumstances or change of law or other governmental action has occurred which shall make it impossible that the business of the Issuer can be carried out or that the Issuer will be able to observe and perform the covenants and obligations 28
43. on its part to be observed and performed under the Transaction Documents ; (27) Events of default or enforcement events, where applicable, including recourse available to investors : (21) no event or circumstances has occurred, nor has there been any omission to disclose a fact which, in any such case, would entitle any takaful operator/insurer to avoid, reject, repudiate or reduce its liability under any of the takaful/insurances required or any claim made thereunder and all of the takaful/insurances required to be effected are valid and binding and in full force and all takaful contributions/insurance premiums due have been paid and nothing has been done or omitted to be done which has made or could make any such contract or policy ineffective, invalid, void or voidable or any claim made thereunder liable to be avoided rejected or repudiated whether in whole or in part; and (22) any other representations and warranties as advised by the Solicitors and to be mutually agreed by the JPAs/JLAs and the Issuer including but not limited to the requirements under the SC’s Trust Deeds Guidelines. The dissolution events (“Dissolution Events”) shall include but not limited to the following: (1) the Issuer fails to pay any amount due under the Sukuk Wakalah and any of the Transaction Documents on the due date or, if so payable, on demand; (2) the Issuer fails to comply with the provisions relating to the Minimum Required Balance and such failure is not remedied within fourteen (14) days after the relevant deposit date(s) as stipulated under the provisions relating to the FSRA; (3) the Issuer fails to observe or perform any of its obligations under any of the Transaction Documents or the Sukuk Wakalah or under any undertaking or arrangement entered into in connection therewith (other than an obligation of the type referred to in paragraphs (1) and (2) above), and in the case of a failure which in the opinion of the Sukuk Trustee is capable of being remedied, the Issuer does not remedy such failure within fourteen (14) business days after the Issuer became aware of the failure or having been notified by the Sukuk Trustee of such failure, whichever is earlier; (4) any representation or warranty made or given or deemed made or given by the Issuer under the Transaction Documents or which is contained in any certificate, document or statement furnished at any time pursuant to the terms of the Sukuk Wakalah and/or any of the Transaction Documents proves to have been incorrect or misleading in any material respect on or as of the date made or given or deemed 29
44. made or given or if repeated at any time with reference to the facts and circumstances subsisting at such time , would not be correct or would be misleading in any material respect, and in the case of the circumstances giving rise to the misrepresentation which in the opinion of the Sukuk Trustee are capable of being remedied, the Issuer does not remedy such circumstances within fourteen (14) business days after the Issuer became aware or having been notified by the Sukuk Trustee of such misrepresentation, whichever is earlier; (5) the Issuer and/or any of the Material Subsidiaries fails to perform or breaches any obligation under any of its existing contractual obligations which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect, and in the case of a failure or a breach which in the opinion of the Sukuk Trustee is capable of being remedied, it does not remedy such failure or breach within fourteen (14) business days after it became aware of the failure or having been notified by the Sukuk Trustee of such failure or breach, whichever is earlier; (6) (a) any indebtedness for borrowed monies/financing of the Issuer is not paid when due; (b) any indebtedness for borrowed monies/financing of the Issuer becomes due and payable or capable of being declared due and payable prior to its stated maturity; (c) any guarantee or similar obligations of the Issuer is not discharged at maturity or when called; or (d) the Issuer goes into default under, or commits a breach of, any agreement or instrument relating to any such indebtedness, other obligations, or any security created to secure such indebtedness becomes enforceable; (7) (a) any indebtedness for borrowed monies/financing of any of the Material Subsidiaries in excess of Ringgit Malaysia Fifty Million (RM50,000,000.00) is not paid when due; (b) any indebtedness for borrowed monies/financing of any of the Material Subsidiaries in excess of Ringgit Malaysia Fifty Million (RM50,000,000.00) becomes due and payable or capable of being declared due and payable prior to its stated maturity; (c) any guarantee or similar obligations of any of the Material Subsidiaries in excess of Ringgit Malaysia Fifty Million (RM50,000,000.00) is not discharged at maturity or when called; or (d) any of the Material Subsidiaries goes into default under, or commits a breach of, any agreement or instrument relating to any such indebtedness, other obligations, or any security created to secure such indebtedness becomes enforceable; (8) (a) an encumbrancer takes possession of, or a trustee, receiver, liquidator, receiver and manager, judicial manager or other similar officer is appointed in respect of the whole or a substantial part of the 30
45. business , properties, assets or undertakings of the Issuer and/or any of the Material Subsidiaries; (b) distress, execution, attachment, legal process, sequestration, expropriation or any form of execution or process is levied or enforced upon or sued out against the Issuer and/or any of the Material Subsidiaries in respect of the whole or a substantial part of its business, properties, assets, undertakings, rights or revenue which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect and is not discharged, withdrawn or set aside within the time prescribed by law. For the purpose of this paragraph, references to “substantial” shall mean such business, properties, assets, undertakings, rights or revenue of the Issuer and/or the Material Subsidiaries, the book value of which is more than five per cent (5%) of the Issuer's and/or the Material Subsidiaries’ consolidated net assets. For the avoidance of doubt, the book value of the business, properties, assets, undertakings, rights or revenue is as reflected in the Issuer’s and/or the Material Subsidiaries’ latest quarterly unaudited financial statements; (9) the Issuer and/or any of the Material Subsidiaries fails to satisfy any judgement passed against it by any court of competent jurisdiction which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect and no appeal against such judgement or an application for a stay of execution has been made to any appropriate appellate court within the time prescribed by law or such appeal or application for a stay of execution has been dismissed; (10) any step is taken for the winding-up, administration, dissolution or liquidation of the Issuer or a petition for winding-up, administration, dissolution or liquidation is presented against the Issuer (provided that it is not frivolous, vexation or scandalous) and the Issuer has not taken any steps to set aside such petition within fourteen (14) business days from the date of service of such petition or a winding-up order has been made against the Issuer or a resolution for the winding-up, administration, dissolution or liquidation of the Issuer has been passed; (11) any step is taken for the winding-up, administration, dissolution or liquidation of any of the Material Subsidiaries which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect or a petition for winding-up, administration, dissolution or liquidation is presented against any of the Material Subsidiaries (provided that it is not frivolous, vexation or scandalous) which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect and such Material Subsidiary has not taken any steps to set aside such petition within fourteen (14) business days from the date of service of such petition or a winding-up order has 31
46. been made against any of the Material Subsidiaries which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect or a resolution for the winding-up , administration, dissolution or liquidation of any of the Material Subsidiaries which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect has been passed; (12) the Issuer and/or any of the Material Subsidiaries convenes a meeting of its creditors or proposes or makes any arrangement including any scheme of arrangement or composition or begins negotiations with its creditors, or takes any proceedings or other steps, with a view to a rescheduling or deferral of all or any part of its indebtedness or a moratorium is agreed or declared by a court of competent jurisdiction in respect of or affecting all or any part of its indebtedness or any assignment for the benefit of its creditors or where a scheme of arrangement under Section 366 of the Companies Act 2016 has been instituted against the Issuer and/or any of the Material Subsidiaries; (13) where there is an expiry, non-renewal, cessation, withdrawal, invalidation, termination, revocation, withholding or modification of any authorisations, consents, rights, licences, approvals and permits (governmental and otherwise) granted to the Issuer which in the opinion of the Sukuk Trustee may impair or prejudice the Issuer’s ability to comply with the terms and conditions of the Sukuk Wakalah Programme or the provisions of the Transaction Documents and has or would have a Material Adverse Effect; (14) the Issuer and/or any of the Material Subsidiaries (a) is deemed unable to pay any of its debts within the meaning of Section 466(1) of the Companies Act 2016; (b) becomes unable to pay any of its debts as and when they fall due; or (c) suspends or threatens to suspend making payments with respect to all or any class of its debts which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect, unless in any of the above, the Issuer and/or any of the Material Subsidiaries is disputing in good faith and taking proper legal steps in respect of the matter; (15) the Issuer and/or any of the Material Subsidiaries changes or threatens to change the nature or scope of its present business, or suspends or threatens to suspend, or ceases or threatens to cease the operation of its present business which it now conducts which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect; (16) at any time it is illegal or unlawful for the Issuer to perform any of its obligations under the Transaction Documents or any of the provisions of the Transaction Documents in respect of the Sukuk 32
47. Wakalah Programme is or becomes invalid , illegal, void, voidable or unenforceable or ceases to be binding; (17) the Issuer repudiates any of the Transaction Documents or the Issuer does or causes to be done any act or thing evidencing an intention to repudiate any of the Transaction Documents; (18) the whole or a substantial part of the business, properties, assets, undertakings, rights or revenue of the Issuer and/or any of the Material Subsidiaries is condemned, seized, nationalised, expropriated or compulsorily acquired by or under the authority of any governmental body which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect. For the purpose of this paragraph, references to “substantial” shall mean such business, properties, assets, undertakings, rights or revenue of the Issuer and/or the Material Subsidiaries, the book value of which is more than five per cent (5%) of the Issuer's and/or the Material Subsidiaries’ consolidated net assets. For the avoidance of doubt, the book value of the business, properties, assets, undertakings, rights or revenue is as reflected in the Issuer’s and/or the Material Subsidiaries’ latest quarterly unaudited financial statements; (19) any creditor of the Issuer exercises a contractual right to take over the financial management of the Issuer which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect; (20) any event or events has or have occurred or a situation exists which in the opinion of the Sukuk Trustee has or would have a Material Adverse Effect, and in the case of an event or a situation which in the opinion of the Sukuk Trustee is capable of being remedied, the Issuer does not remedy such event or situation within fourteen (14) business days after the Issuer became aware of such event or situation or having been notified by the Sukuk Trustee of such event or situation, whichever is earlier; and (21) any other events as advised by the Solicitors and to be mutually agreed by the JPAs/JLAs and the Issuer including but not limited to the requirements under the SC’s Trust Deeds Guidelines. Upon occurrence of a Dissolution Event, the Sukuk Trustee may at its discretion, or shall if directed to do so by the Sukukholders pursuant to an extraordinary resolution, declare that a Dissolution Event has occurred, whereupon the Transaction Documents shall become immediately enforceable in accordance with their respective terms. Upon the declaration of a Dissolution Event in accordance with the terms set out in the Transaction Documents: 33
48. (1) the Sukuk Trustee (on behalf of the Sukukholders) shall invoke the Purchase Undertaking and enter into a sale agreement with the Issuer (as the Obligor) and the Issuer (as the Obligor) shall pay the Exercise Price to the Sukukholders, whereupon the Sukukholders’ ownership and interest in the Shariahcompliant Business shall pass to the Issuer (as the Obligor), and the trust in respect thereof shall dissolve; and (2) the Issuer (as the Purchaser), as part of its obligation to pay the Deferred Sale Price, shall pay all amounts then outstanding on the Deferred Sale Price to the Sukukholders (subject to Ibra’) as final settlement of the same, and thereafter the trust in respect of the Wakalah Portfolio will be dissolved and the Sukuk Wakalah held by the Sukukholders will be cancelled. (28) Governing laws : Laws of Malaysia. (29) Provisions buy-back, applicable : ☐ No provision on buy-back ☒ Provision on buy-back, details as below: on if The Issuer, the subsidiaries or agents acting on behalf of the Issuer for the redemption or purchase may at any time purchase the Sukuk Wakalah at any price in the open market or by private treaty. The Sukuk Wakalah which are redeemed or purchased by the Issuer or by the subsidiaries or agents who is acting for the redemption or purchase shall be cancelled by the Issuer and cannot be resold or reissued. The Sukuk Wakalah purchased in the open market or by private treaty by the related corporation of the Issuer (other than the subsidiaries of the Issuer) or the interested person of the Issuer need not be cancelled but such Sukuk Wakalah shall not be counted for purposes of voting of any resolution of the Sukukholders nor form part of the quorum of any meeting of the Sukukholders subject to any exceptions contained in the Trust Deed. (30) Provisions on early redemption, if applicable : ☐ No provision on early redemption ☒ Provision on early redemption, details as below: Subject to the consent of the Sukukholders by an extraordinary resolution in accordance with the terms of the Trust Deed, the Issuer may early redeem the Sukuk Wakalah (in whole or in part) prior to the Maturity Date by giving the requisite notice at a redemption price to be mutually agreed between the Issuer and the Sukukholders in the said extraordinary resolution. The Sukuk Wakalah so redeemed shall be cancelled and cannot be resold or reissued. The Sukukholders shall grant Ibra’ on the Deferred Sale Price in respect of the Commodity Murabahah Investment based on a formula to be agreed between the Issuer and the Sukukholders (to be determined by an extraordinary resolution). 34
49. (31) Voting : Voting by the Sukukholders under the Sukuk Wakalah Programme shall be carried out as follows: Prior to upsizing of the Sukuk Wakalah Programme Prior to upsizing of the Sukuk Wakalah Programme, all matters which require the Sukukholders’ consent under the Sukuk Wakalah Programme shall be carried out on a collective basis. Post upsizing of the Sukuk Wakalah Programme Post upsizing of the Sukuk Wakalah Programme, all matters which require the Sukukholders’ consent under the Sukuk Wakalah Programme shall be carried out on a “per series” (as defined herein) basis. Sukukholders holding a requisite amount under each series (to be determined under the Trust Deed) shall provide their consent for the relevant matters to be passed under the Sukuk Wakalah Programme and the consent from the Sukukholders of all outstanding series shall have been obtained for any such resolution to be carried. “series” is defined as Sukuk Wakalah with the same issue date. (32) Permitted investments, applicable : if ☐ No permitted investment ☒ Permitted investment, details as below: Funds held in the Designated Accounts may be utilised from time to time to invest in Permitted Investments provided that: (1) such funds utilised for Permitted Investments shall be remitted to the relevant Designated Accounts at least three (3) business days before the relevant Periodic Distribution Date and/or Maturity Date so that any payment obligations of the Issuer can be met in a timely manner; (2) the funds utilised for Permitted Investments and all profits, income and receivables generated from Permitted Investments shall be remitted to and retained in the respective Designated Accounts; (3) the Permitted Investments are to be held and not traded; and (4) the Permitted Investments shall be denominated in Ringgit Malaysia. Permitted Investments shall comprise investments in Shariahcompliant products approved by the SC’s SAC, BNM’s SAC or other recognised Shariah authorities. “Permitted Investments” shall mean: (a) Islamic deposits or accounts and/or Islamic money market instruments with licensed banks (as defined in the Financial Services Act 2013) and/or licensed Islamic banks (as defined in the Islamic Financial Services Act 2013) with a rating of at least AAA/P1 by 35
50. RAM Rating Services Berhad (“RAM”) or AAA/MARC1 by Malaysian Rating Corporation Berhad (“MARC”); (33) Ta’widh (Compensation) (b) Islamic banker acceptances, Islamic bills, and Islamic money market instruments issued by licensed Islamic banks with a rating of at least AAA/P1 by RAM or AAA/MARC-1 by MARC; (c) Sukuk, Islamic treasury bills, Islamic short term or medium term notes and any other financial instruments issued or guaranteed by the Government of Malaysia or BNM; or (d) Sukuk issued by corporations, licensed banks or licensed Islamic banks or guaranteed by licensed banks or licensed Islamic banks with a rating at least AAA (or its equivalent) by RAM or MARC. In the event: (1) the Wakeel breaches its fiduciary duty as the Investment Manager due to its failure to distribute the realised Income to the Sukukholders on each Periodic Distribution Date, the Maturity Date or the Dissolution Declaration Date, as the case may be; or (2) the Issuer, the Purchaser or the Obligor delays the payment of the Deferred Sale Price and/or any amount due and payable to the Sukukholders under the sale agreement pursuant to the Purchase Undertaking or the Sale Undertaking (as the case may be), Ta’widh (compensation) shall be payable to the Sukukholders on such overdue amounts at the rate and manner prescribed by the SC’s SAC from time to time. (34) Ibra’ Ibra’ refers to an act of releasing absolutely or conditionally one’s rights and claims on any obligation against another party which would result in the latter being discharged of his/its obligations or liabilities towards the former. The release may be either partial or in full. Ibra’ shall be subject to the requirements stipulated under the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the SC on 9 March 2015 and effective on 15 June 2015 which was revised on 11 October 2018 (as amended and/or substituted from time to time) (“LOLA Guidelines”). In relation to the Commodity Murabahah Investment, an Ibra’, where applicable, shall be granted by the Sukukholders. The Sukukholders in subscribing to or purchasing the Sukuk Wakalah agree to grant an Ibra’ on the Deferred Sale Price upon the occurrence of any of the following circumstances: (1) if the Sukuk Wakalah are redeemed prior to the Maturity Date; and (2) if the Sukuk Wakalah are redeemed upon declaration of a Dissolution Event. 36
51. Ibra ' for redemption prior to the Maturity Date shall be the difference between such portion of the then outstanding Deferred Sale Price of the relevant Sukuk Wakalah being redeemed and the early redemption amount to be agreed between the Issuer and the Sukukholders (to be determined by an extraordinary resolution). Ibra’ for redemption upon declaration of a Dissolution Event shall be calculated as follows: (a) in the case of Sukuk Wakalah with periodic distributions and issued at a discount, the unearned periodic distributions; (b) in the case of Sukuk Wakalah without periodic distributions and issued at a discount, the unearned one-off distribution; (c) in the case of Sukuk Wakalah with periodic distributions and issued at par, the unearned periodic distributions; and (d) in the case of Sukuk Wakalah with periodic distributions and issued at a premium, the unearned periodic distributions. Ibra’ in relation to (a), (b), (c) and (d) above shall be calculated from the Dissolution Declaration Date up to the respective Maturity Date of the Sukuk Wakalah. For the avoidance of doubt, Ibra' will be applicable to the Commodity Murabahah Investment portion of the Wakalah Portfolio, being the Deferred Sale Price only. Further, any double counting shall be disregarded. (35) Kafalah Not applicable. Other terms and conditions (1) Identified assets (2) Purchase and selling price/rental (where applicable) : Shariah-compliant general business of the Issuer (“Shariahcompliant Business”) and Shariah-compliant commodities which may include but are not limited to crude palm oil or such other acceptable commodities (excluding ribawi items in the category of medium of exchange such as currency, gold and silver) which are available through the commodity trading platform acceptable to the Joint Shariah Advisers which will be identified at or around the time of issuance of the Sukuk Wakalah (“Commodities”). Commodity Purchase Price The Commodity Purchase Price is a price equivalent to such remaining Sukuk Proceeds of the relevant Sukuk Wakalah after investment into the Shariah-compliant Business. The Commodity Purchase Price shall be determined prior to the issuance of the Sukuk Wakalah and shall be in accordance with the asset pricing requirements stipulated under the LOLA Guidelines. 37
52. Deferred Sale Price The Deferred Sale Price is a price equivalent to the aggregate of the Commodity Purchase Price and the profit margin , payable on a deferred payment basis. For the avoidance of doubt, the Deferred Sale Price shall be equal to the aggregate of the Expected Periodic Distribution Amount and the nominal value of the relevant Sukuk Wakalah. The Deferred Sale Price shall be determined prior to the issuance of the Sukuk Wakalah. (3) Profit/ coupon/ rental payment frequency : Semi-annual period or such other period of frequency to be agreed between the Issuer, the JLMs and/or the relevant qualified investor(s) prior to each issuance of the Sukuk Wakalah (“Periodic Distribution Period”). “Periodic Distribution Date” refers to the last day of each Periodic Distribution Period. This section is not applicable for the Sukuk Wakalah without periodic distributions. (4) (5) Profit/ coupon/ rental payment basis : Profit/ coupon/ rental payment rate : Actual / 365 days. This section is not applicable for the Sukuk Wakalah without periodic distributions. The Sukuk Wakalah may be issued with or without periodic distributions. For the Sukuk Wakalah with periodic distributions, the profit rate for such Sukuk Wakalah (“Periodic Distribution Rate”) shall be on a fixed rate basis and shall be determined prior to the issuance of such Sukuk Wakalah. This section is not applicable for the Sukuk Wakalah without periodic distributions. (6) (7) (8) Tenure of the ▪: Sukuk Wakalah Programme ▪ Tenure of the : Sukuk Wakalah The tenure of the Sukuk Wakalah Programme shall be up to thirty (30) years from the date of first issuance of the Sukuk Wakalah under the Sukuk Wakalah Programme. Combined limit The Sukuk Wakalah Programme, together with the Facility, shall have a combined issuance/ drawdown limit of up to Ringgit Malaysia Three Billion Five Hundred Million (RM3,500,000,000.00) in nominal value. : The tenure of each tranche of the Sukuk Wakalah shall be at least one (1) year and up to thirty (30) years from the date of issuance, as the Issuer may select, provided always that the maturity of each tranche of the Sukuk Wakalah shall not exceed the tenure of the Sukuk Wakalah Programme. For avoidance of doubt and subject to the other terms and conditions of the Sukuk Wakalah Programme and the Facility, the aggregate outstanding nominal value of the Sukuk Wakalah and the aggregate outstanding principal amount of the Facility shall not exceed Ringgit Malaysia Three Billion Five Hundred Million (RM3,500,000,000.00) at any point in time. 38
53. (9) Details utilisation proceeds Issuer on of by : The Sukuk Proceeds shall be utilised by the Issuer to: (1) refinance the existing financing/ borrowings of the Issuer Group; (2) finance the Issuer’s capital expenditure and working capital requirements and/or investments as well as for general corporate purposes which shall be Shariah-compliant; and (3) pay all fees and expenses in connection with the Sukuk Wakalah Programme. For the avoidance of doubt, the Sukuk Proceeds shall be utilised for Shariah-compliant purposes only. (10) Upsizing of sukuk programme a ▪: The Issuer has the option to upsize the Sukuk Wakalah Programme (without the consent of the Sukukholders) provided that the following conditions have been fulfilled: (1) the compliance with the relevant requirements under the LOLA Guidelines in relation to the upsizing of the Sukuk Wakalah Programme; (2) the relevant regulatory approvals (if applicable) and the necessary corporate authorisations of the Issuer being obtained; and (3) the execution of the relevant documentation to evidence the upsizing of the Sukuk Wakalah Programme. (11) Listing status and types of listing, where applicable : The Sukuk Wakalah are not and will not be listed on Bursa Malaysia Securities Berhad or any other stock exchanges. (12) Issue price : The Sukuk Wakalah shall be issued at par, discount or premium to nominal value. The issue price shall be calculated in accordance with the PayNet Rules (as defined herein) and the PayNet Procedures (as defined herein). (13) Status : The Sukuk Wakalah, pursuant to the relevant Transaction Documents, constitute direct, unconditional, secured and unsubordinated obligations of the Issuer and shall at all times rank pari passu without discrimination, preference or priority amongst themselves and pari passu with all other present and future unconditional, unsecured and unsubordinated obligations of the Issuer, subject to those preferred by law. (14) Transaction Documents : Such documentation which shall include, amongst others, the following: (1) the programme agreement; (2) the Trust Deed; (3) the Islamic transaction documents; (4) the Security Documents; 39
54. (5) the Priority and Security Sharing Agreement; (6) the securities lodgement form; and (7) any other agreements entered into or to be entered into by the Issuer for the purposes of or in connection with the Sukuk Wakalah Programme. (15) Taxation : All payments by the Issuer in respect of the Sukuk Wakalah and the Transaction Documents shall be made without withholding or deductions for or on account of any present or future taxes, duties or charges of whatsoever nature imposed or levied by or on behalf of Malaysia or any other applicable jurisdictions, or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In such event, the Issuer shall pay such additional amounts that the payee would have otherwise received if no such withholding or deductions had been required. (16) Form and Denomination : Issuance of the Sukuk Wakalah shall be in accordance with: (1) the Participation and Operation Rules of Payments and Securities Services issued by Payments Network Malaysia Sdn Bhd (“PayNet”) or its successor in title, assigns or any successor in such capacity (as amended and/or substituted from time to time) (“PayNet Rules”); (2) the Operational Procedures for Securities Services and Operational Procedures for Malaysian Ringgit Settlement in the Real Time Electronic Transfer of Funds and Securities System issued by PayNet or its successor in title, assigns or any successor in such capacity (as amended and/or substituted from time to time) (“PayNet Procedures”); and (3) any other procedures/guidelines/rules issued by the relevant authorities from time to time (as amended and/or substituted from time to time). Form The Sukuk Wakalah shall be represented by a global certificate to be deposited with BNM, and is exchangeable for definitive bearer certificates only in certain limited circumstances. Denomination The denomination of the Sukuk Wakalah shall be Ringgit Malaysia One Million (RM1,000,000.00) and in multiples of Ringgit Malaysia One Million (RM1,000,000.00) thereof or such other denomination as may be mutually agreed by the Issuer and the JPAs/JLAs/JLMs as may be allowed under the PayNet Rules and the PayNet Procedures. (17) Trustees’ Reimbursement Account : The Issuer shall open or procure the opening of and maintain a Shariah-compliant account designated as “Trustees’ Reimbursement Account for Sukukholders’ Actions” with a sum of Ringgit Malaysia Thirty Thousand (RM30,000.00) 40
55. deposited therein by the Issuer (which shall be maintained at all times by the Issuer throughout the tenure of the Sukuk Wakalah Programme). In the event that the amount outstanding to the credit of the Trustees’ Reimbursement Account falls below Ringgit Malaysia Thirty Thousand (RM30,000.00) at any time during the tenure of the Sukuk Wakalah Programme, the Issuer shall immediately remit such amount as to maintain the balance in the Trustees’ Reimbursement Account at Ringgit Malaysia Thirty Thousand (RM30,000.00). The Trustees’ Reimbursement Account shall be operated solely by the Sukuk Trustee and the monies shall only be used strictly by the Sukuk Trustee for the purpose of carrying out its duties in relation to the occurrence of a Dissolution Event or the enforcement of any rights and remedies of the Sukuk Trustee under the Transaction Documents. The monies in the Trustees’ Reimbursement Account may be invested in Islamic deposits or Islamic based accounts, instruments or securities in the manner prescribed in the Trust Deed, with any income from such investment to be accrued to the Issuer. Any unutilised money in the Trustees’ Reimbursement Account shall be returned to the Issuer upon the expiry of the tenure of the Sukuk Wakalah Programme and the full redemption of the Sukuk Wakalah provided always that no Dissolution Event has occurred or is continuing and there are no other amounts due under the Transaction Documents. (18) Jurisdiction : The Issuer shall submit to the exclusive jurisdiction of the courts of Malaysia. (19) Other Conditions : The Sukuk Wakalah shall at all times be governed by the guidelines issued and to be issued from time to time by the SC and BNM. [The rest of this page has been intentionally left blank] 41
56. 3 . BACKGROUND INFORMATION ON THE ISSUER 3.1 Corporate history and principal activities The Issuer was incorporated in Malaysia under the Companies Act as a private limited company under the name of Peerless Assets Sdn Bhd on 28 August 1990. It was converted to a public company on 3 August 1991 and changed its name to Peerless Assets Berhad. On 19 September 1991, the Issuer’s name was changed to Diversified Resources Berhad. On 4 September 1992, it was listed on the Main Board of the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia). The Issuer assumed its present name, DRB-HICOM on 11 May 2000. DRB-HICOM is an investment holding company with investment in the automotive (including defence and composite manufacturing), services (including integrated logistics, banking and postal businesses) and property, assets and construction segments. The registered office of DRB-HICOM is located at Level 5, Wisma DRB-HICOM, No. 2, Jalan Usahawan U 1/8, Seksyen U1, 40150 Shah Alam, Selangor. 3.2 Share capital The issued and paid-up capital of DRB-HICOM as at 30 September 2019 is RM1,740,302,000 comprising 1,933,237,051 ordinary shares. 3.3 Top twenty (20) shareholders The top twenty (20) shareholders of DRB-HICOM as at 30 September 2019 are as follows: No. Name of Shareholder Total Shareholding (number of shares held) % Equity Held 1,081,061,741 55.92 1. Etika Strategi Sdn Bhd 2. Citigroup Nominees (Tempatan) Sdn Bhd Employees Provident Fund Board 131,036,197 6.78 3. Lembaga Tabung Haji 28,385,400 1.47 4. Maybank Nominees (Tempatan) Sdn Bhd MTrustee Berhad for CIMB Islamic Dali Equity Growth Fund (UTCIMB-DALI) 20,754,600 1.07 5. Cartaban Nominees (Tempatan) Sdn Bhd PAMB for PRUlink Equity Fund 19,109,700 0.99 6. Citigroup Nominees (Tempatan) Sdn Bhd Employees Provident Fund Board (CIMB PRIN) 14,652,100 0.76 7. HSBC Nominees (Asing) Sdn Bhd JPMCB NA for Vanguard Total International Stock Index Fund 14,211,317 0.74 8. CIMB Group Nominees (Tempatan) Sdn Bhd CIMB Commerce Trustee Berhad Kenanga Growth Fund 13,589,600 0.70 42
57. 3 .4 9. CIMB Group Nominees (Tempatan) Sdn Bhd CIMB Bank Berhad (EDP 2) 13,037,700 0.67 10. Cartaban Nominees (Tempatan) Sdn Bhd PBTB for Takafulink Dana Ekuiti 12,774,200 0.66 11. HSBC Nominees (Asing) Sdn Bhd JPMCB NA for Vanguard Emerging Markets Stock Index Fund 12,544,700 0.65 12. Citigroup Nominees (Asing) Sdn Bhd CBNY for Emerging Market Core Equity Portfolio DFA Investment Dimensions Group INC 11,253,400 0.58 13. Tai Tak Estates Sdn Bhd 10,952,653 0.57 14. Citigroup Nominees (Asing) Sdn Bhd Exempt AN for Citibank New York (Norges Bank 14) 10,470,600 0.54 15. Citigroup Nominees (Tempatan) Sdn Bhd Great Eastern Life Assurance (Malaysia) Berhad (DR) 9,044,300 0.47 16. Citigroup Nominees (Asing) Sdn Bhd CBNY for Dimensional Emerging Markets Value Fund 8,791,500 0.45 17. Cartaban Nominees (Tempatan) Sdn Bhd PAMB for PRUlink Dana Unggul 8,120,000 0.42 18. Cartaban Nominees (Asing) Sdn Bhd Exempt AN for State Street Bank & Trust Company (WEST CLT OD67) 7,822,100 0.40 19. Citigroup Nominees (Tempatan) Sdn Bhd Kumpulan Wang Persaraan (Diperbadankan) (Principal EQITS) 7,718,100 0.40 20. Citaria Sdn Bhd 6,924,572 0.36 Substantial shareholders The substantial shareholders of DRB-HICOM as at 30 September 2019 are as follows: Name Etika Strategi Sdn Bhd Employees Provident Fund Board No. of ordinary shares held Direct % Indirect % 1,081,061,741 55.92 - - 149,488,297 7.733 - - - - 1,081,061,741 55.92 Tan Sri Dato’ Seri Syed Mokhtar Shah Syed Nor* 43
58. *By virtue of his deemed interest through Etika Strategi Sdn Bhd pursuant to Section 8 of the Companies Act 3.5 Principal subsidiaries DRB-HICOM is one of the leading conglomerates in Malaysia that has 137 subsidiaries, 11 jointly controlled entities and 12 associates. Please refer to Appendix II of this Information Memorandum for the corporate structure (operating companies) of the DRB-HICOM Group. The principal activities of the Principal Subsidiaries and the effective interests of DRB-HICOM as at 30 September 2019 are as follows: Name of Company Effective equity interest held by DRB-HICOM (%) Principal Activities Bank Muamalat Malaysia Berhad (Registration No. 196501000376 (6175-W)) 70.00 Islamic banking business and related financial services Pos Malaysia Berhad (Registration No. 199101019653 (229990M)) 53.50 Provision of postal and its related services which include receiving and dispatching of postal articles, postal financial services, dealing in philatelic products and sale of postage stamps DRB-HICOM Defence Technologies Sdn Bhd (Registration No. 199601034068 (406420U)) 100.00 Manufacturing, assembly, supply, maintenance, marketing, refurbishment or retrofitting of military and commercial vehicles, equipment and spare parts for Malaysian and regional governments PROTON Holdings Berhad (Registration No. 200301020757 (623177A)) 50.10 Investment holding Media City Ventures Sdn Bhd (Registration No. 199401041291 (326978H)) 51.00 Investment holding HICOM Holdings Berhad (Registration No. 191001000005 (67-W)) 100.00 Management services to companies in DRB-HICOM Berhad group Motosikal Dan Enjin Nasional Sdn Bhd (Registration No. 199501025408 (354613V)) 70.00 To manufacture, assemble and distribute motorcycles, related spare parts and accessories and the servicing of motorcycles DRB-HICOM Auto Solutions Sdn Bhd (Registration No. 199901010093 (484993P)) 100.00 Importation of motor vehicles, logistics, vehicle pre-delivery inspection (PDI) providing related services to vehicles at its PDI centre and the sale of contractual vehicles 44
59. PUSPAKOM Sdn Bhd (Registration No. 199401000307 (285985U)) 3.6 100.00 Inspection of commercial vehicles for roadworthiness and the inspection of other vehicles Profile of directors The present directors of DRB-HICOM and their respective profiles as at 30 September 2019 are as follows: Dato’ Mohammad Zainal bin Shaari (“Dato’ Mohammad Zainal”) Chairman/ Non-Independent Non-Executive Director Dato’ Mohammad Zainal was appointed to the Board on 13 April 2018. Dato’ Mohammad Zainal trained and qualified in the United Kingdom, holding fellow memberships of both the Institute of Chartered Accountants in England & Wales (“ICAEW”) and the Association of Chartered Certified Accountants (“ACCA”). Additionally, he is a member of the Malaysian Institute of Accountants (“MIA”) and the Malaysian Institute of Certified Public Accountants (“MICPA”). Throughout his corporate career, Dato’ Mohammad Zainal had served in various positions in the private sector. He trained as an ICAEW Chartered Accountant and qualified in 1988. He then returned to Malaysia in 1990 to join PricewaterhouseCoopers (“PwC”). He spent two years in PwC San Francisco from 1993 to 1995 and became Partner of PwC in 1997. He was with Khazanah Nasional Berhad (“Khazanah”) from 2004 until 2013 where his last position was as Executive Director/ Chief Operating Officer. He is presently the Group Managing Director of Tradewinds (M) Berhad, a position he has held since June 2014. Dato’ Mohammad Zainal’s current directorship in other public companies is as Director of NCB Holdings Berhad (“NCB”), Tradewinds (M) Berhad and various other private limited companies. Dato’ Sri Syed Faisal Albar bin Syed A.R. Albar (“Dato’ Sri Syed Faisal”) Group Managing Director Dato’ Sri Syed Faisal was appointed to the Board on 1 March 2016. Dato’ Sri Syed Faisal is a member of MICPA and American Institute of Certified Public Accountants (“AICPA”). He holds a Bachelor of Arts (Accountancy) degree from Barat College of DePaul University, Lake Forest, United States of America and AICPA Professional Certification from University of Illinois, Urbana Champaign, United States of America. He was also a Council Member of MICPA from 2010 to 2013. Prior to joining DRB-HICOM, Dato’ Sri Syed Faisal was the Chief Executive Officer (“CEO”) of Malakoff Corporation Berhad (“MCB”) from 1 July 2014 to December 2015. He was appointed as CEO of Gas Malaysia Berhad (“GMB”) from January 2014 to June 2014 and also an Executive Director of Pos Logistics for a short span of time assisting Ekuiti Nasional Berhad, the majority owner of Pos Logistics, in its disposal of that business. From 2011 to 2014, Dato’ Sri Syed Faisal served on various boards in a non-executive capacity. He was on the Board of Malaysia Airports Holdings Berhad (“MAHB”) as a nominee Director for Khazanah and was also a Director of Hong Leong Bank Berhad. Within this period, he also sat on the Board of Kwasa Land Sdn Bhd, a wholly-owned subsidiary of Employees Provident Fund (“EPF”), that was tasked to develop a township on the parcel of land previously owned by Rubber Research Institute in Sungai Buloh, Selangor. As part of his effort to contribute to society, Dato’ Sri Syed Faisal served on the Board of Yayasan Kelana Ehsan, a public trust entity that provides funds for charitable activities with the intention to improve the livelihood of the residents in the State of Selangor. 45
60. Dato ’ Sri Syed Faisal’s career spans across various executive positions. Apart from GMB and Pos Logistics, from 2008 to 2011, he was the Group Managing Director of Pos Malaysia, which was a Government Linked Company by virtue of the 32% shareholding held by Khazanah then. During his time at Pos Malaysia, he was also the Chairman of ASEAN Postal Business Union where postal organisations of each of the ASEAN countries are members. Prior to his stint at Pos Malaysia, Syed Faisal was appointed in 2003 as CEO of The New Straits Times Press (Malaysia) Berhad (“NSTP”), a position he held until 2008. He started his career by spending almost a decade with PwC Kuala Lumpur since 1991. He had also served PwC, San Francisco, California in 1995 before returning to Kuala Lumpur in 1997 and subsequently joined NSTP in May 2000 as its Chief Financial Officer. Dato’ Sri Syed Faisal’s current directorships in other public companies within the DRB-HICOM Group include being the Chairman of PROTON, Pos Logistics, EON and Horsedale as well as Director of Pos Malaysia, HHB, HB and various other private limited companies. Datuk Ooi Teik Huat (“Datuk Ooi”) Senior Independent Non-Executive Director Datuk Ooi was appointed to the Board on 1 November 2008. Datuk Ooi is a member of MIA and CPA Australia. He holds a Bachelor of Economics Degree from Monash University, Australia. Datuk Ooi started his career with Messrs Hew & Co, Chartered Accountants, before joining Malaysian International Merchant Bankers Berhad. He subsequently joined Pengkalen Securities Sdn Bhd as Head of Corporate Finance, before leaving to set up Meridian Solutions Sdn Bhd where he is presently a Director. Datuk Ooi sits on the boards of various public listed companies namely; GMB, MCB, MMC Corporation Berhad (“MMC”) and Zelan Berhad. He also sits on the boards of Tradewinds (M) Berhad, Johor Port Berhad and various other private limited companies. Dato’ Siti Fatimah bt Daud (“Dato’ Siti Fatimah”) Non-Independent Non-Executive Director Dato’ Siti Fatimah was appointed to the Board on 1 April 2016. Dato’ Siti Fatimah holds a Bachelor of Arts (Honours) Degree from the University of Malaya. She is currently the Deputy Secretary General (Planning & Development), Ministry of Federal Territories. Dato’ Siti Fatimah started her career in the Civil Service in 1983 and has served in various positions with the Ministry of Health, Ministry of Education and Ministry of Finance. Dato’ Siti Fatimah is a Non-Independent Non-Executive Director nominated by the Minister of Finance Incorporated. Dato’ Siti Fatimah sits on the Board of HHB and she does not hold directorship in any other public listed company. Dato’ Ibrahim bin Taib (“Dato’ Ibrahim”) Independent Non-Executive Director Dato’ Ibrahim was appointed to the Board on 18 March 2004. Dato’ Ibrahim holds a Bachelor of Laws LLB. (Honours) Degree from the University of Malaya and a Master of Laws from the University of London. Dato’ Ibrahim started his career in the judicial service in 1978 as a Magistrate in the Magistrate Court, Jalan Duta, Kuala Lumpur. Thereafter, he was transferred to the Magistrate Court in Segamat, Johor. In 1982, he became a Legal Advisor with the Road Transport Department; and continued in the same role in the Ministry of Human Resources in 1986. 46
61. In October 1989 , Dato’ Ibrahim was attached to the Attorney-General Chambers as a Deputy Public Prosecutor for Selangor. In 1992, he served as a Judge in the Sessions Court, Kota Bharu before he was posted to EPF in July 1992. He retired as the Deputy CEO (Operations) of EPF on 4 October 2014 and remained as a nominee Director of EPF in DRB-HICOM until 26 May 2017 and was re-designated as Independent Non-Executive Director of DRB-HICOM on 30 May 2017. Dato’ Ibrahim was appointed as a Director of Bank Muamalat in March 2018 and he does not hold directorship in any other public or public listed company. Datuk Idris bin Abdullah @ Das Murthy (“Datuk Idris”) Independent Non-Executive Director Datuk Idris was appointed to the Board on 1 January 2017. Datuk Idris holds a Bachelor of Laws LLB. (Honours) Degree from the University of Malaya. Datuk Idris started his career in 1981 in Sibu, Sarawak and was admitted to the Roll of Advocates of the High Court of Malaya in Sabah and Sarawak in 1982. Datuk Idris is a partner in a legal firm in Kuching, Sarawak. Datuk Idris was appointed as a Commission Member of the Companies Commission of Malaysia from 2007 to 2014. He was also a Commission Member of the Malaysian Communications and Multimedia Commission from 2008 to 2010 and 2011 to 2015. He was also a Board Member of Bank Pembangunan Malaysia Berhad (Malayan Development Bank) from 2010 to 2014. Datuk Idris is currently a Board Member of MCB, Pos Malaysia and NCB. Tee Beng Thong (“Tee”) Independent Non-Executive Director Tee was appointed to the Board on 1 December 2017. Tee is an associate member of CPA Australia and holds a Bachelor of Business (Accounting) from Monash University, Melbourne, Australia. Tee started his career with Coopers & Lybrand (now known as PwC). Thereafter, he went into the distributorship of global Fast Moving Consumer Goods (“FMCG”) in the Selangor region. He subsequently joined JM Williams & Associates Sdn Bhd as Senior Consultant/ Partner, heading its FMCG and Financial Services Industry’s Executive Search assignments for Multinational Corporations across Asia Pacific. He was later based in Sydney before leaving to set up Seek Executive Search Sdn Bhd where he is currently the Managing Director. Tee is currently a Board Member of MMC and Padiberas Nasional Berhad. Sharifah Sofia binti Syed Mokhtar Shah (“Sharifah Sofia”) Non-Independent Non-Executive Director Sharifah Sofia was appointed to the Board on 13 April 2018. Sharifah Sofia graduated with a Bachelor of Science in Economics from University of York, United Kingdom and obtained a Master of Science in Development Management from London School of Economics and Political Science (LSE), United Kingdom. Sharifah Sofia started her career as a summer analyst in Morgan Stanley, Singapore in June 2014, where she gained a sound understanding of the economic climate and political situation of the region. Sharifah Sofia was an External Consultant to Bill & Melinda Gates Foundation from October 2015 to May 2016, working closely with the Ethiopian country team, where she and her team 47
62. produced an integrated index to measure women ’s empowerment and a set of realistic recommendations unique to the Ethiopian context. She joined Pos Malaysia as a Special Officer to the Group CEO (“GCEO”) from January to October 2017. In Pos Malaysia, shadowing the GCEO, she completed a rotational placement within the organisation where she learned the operations and achieved a greater understanding of the postal and courier, logistics and aviation industries. She was attached to the Ecommerce team and separately, had spearheaded and led a small team of individuals from different departments to foster the spirit of innovation based on root cause analysis, covering the topics of operational excellence, automation, customer centricity, and so on. Sharifah Sofia was on a stint with the Grameen Bank in Bangladesh, where she acquired greater understanding of microfinance and the operation of social businesses, and was also a Congressional Intern at Washington DC, United States of America. She received the Gold Duke of Edinburgh award and subsequently in 2015, was accorded the York Award in recognition of her involvement in the student community at the University of York. Sharifah Sofia sits on the boards of MCB, GMB, MMC, Pos Malaysia, Symphony Lotus Limited and various other private limited companies. 3.7 Profile of key senior management Shaharul Farez bin Hassan (“Farez”) Chief Operating Officer, Properties, Concession, Corporate Planning & Strategy Farez holds a Master in Business Administration from Massachusetts Institute of Technology, United States of America and a Bachelor of Science in Economics and Accounting (Honors) from University of Bristol, United Kingdom. Farez was formerly the Executive Vice President, Corporate of MCB for almost a year starting from August 2015, and GCEO of Tradewinds Corporation Berhad, a property development, leisure and hospitality outfit from 2008 to July 2015. Farez sits on the boards of HHB, GPSB, MCDSB, NGISB, Horsedale, RIMB and various other companies within the DRB-HICOM Group. He does not hold any directorship in any listed company. Dato’ Jezilee bin Mohamad Ramli (“Dato’ Jezilee”) Chief Operating Officer, Corporate Services Dato’ Jezilee holds a Degree in Bachelor of Science in Business (Major in Accounting) from Emporia State University, Kansas, United States of America and completed his professional accountancy examination at University of Missouri, Kansas City, Missouri, United States of America. He is a member of AICPA and MICPA. Dato’ Jezilee was formerly the Chief Financial Officer of UEM Edgenta Berhad in 2014. He was the Group Chief, Corporate Services of Pos Malaysia in 2009 and was the Chief Financial Officer of NSTP prior to that in 2003. In DRB-HICOM, Dato’ Jezilee oversees the Financial Services and Treasury Divisions as well as the newly-created Corporate Management Division. Dato’ Jezilee sits on the boards of various companies within the DRB-HICOM Group. He does not hold any directorship in any listed company. Amalanathan L. Thomas (“Amalanathan”) Group Director, Financial Services Amalanathan holds a Master of Business Administration from University of Malaya and earned Professional Qualifications in Accounting and Taxation. He holds memberships in MIA, Chartered Tax Institute of Malaysia, Institute of Internal Auditors Malaysia, ASEAN Chartered Professional Accountant and Malaysian Institute of Management. 48
63. Currently , as Group Director of Financial Services, Amalanathan oversees the DRB-HICOM Group’s Accounting, Reporting, Taxation, Risks & Sustainability, Procurement and Safety, Health & Environment. His experience spans over 25 years in the fields of finance, accounting and taxation. Amalanathan sits on the boards of PROTON, DRB-HICOM SPV (Labuan) Limited, CTRM, DHES, EON, MCVSB, HYMM, HUCSB, ACM and various other companies within the DRBHICOM Group. He does not hold any directorship in any listed company. Aminah binti Othman (“Aminah”) Group Director, Treasury Aminah is a certified Chartered Accountant and obtained her professional accounting qualification as a member of ACCA in the United Kingdom in 1990. She also earned Fellowships with reputable industry bodies such as MIA in 2001. Aminah has profound knowledge and extensive experience in the areas of Treasury, Corporate Finance, Debt and Equity Securities Markets, Trade Finance, Foreign Exchange and Risk Management. Currently, as Group Director, Treasury Division, she oversees treasury operations and funding matters of the DRB-HICOM Group. She also spearheads the Group Investor Relations Department. Aminah sits on the boards of Horsedale, HTS, PHN, HUCSB, EZ-Drive, MCDSB, Honda Malaysia and various other companies within the DRB-HICOM Group. She does not hold any directorship in any listed company. Sabarina Laila binti Mohd Hashim (“Sabarina”) Head, Company Secretarial & Legal Affairs Sabarina obtained her Degree in Bachelor of Laws from the University of Malaya and was called to the Malaysian Bar as an advocate and solicitor in 1992. She pursued a postgraduate degree and obtained a Masters of Science in Corporate Governance from London South Bank University, United Kingdom in 2010. Sabarina was formerly the General Manager of Secretarial & Legal Services Division and Company Secretary of MAHB. Prior to joining MAHB, Sabarina was a practising lawyer, and was also a company secretary and director to various private limited companies. She brings with her 27 years of experience in the fields of corporate and commercial laws, Corporate Governance and Corporate Secretarial. Sabarina is licensed by the Companies Commission of Malaysia and is an Affiliate of the Malaysian Institute of Chartered Secretaries and Administrators. She is also at present, the Secretary for all Board Committees of DRB-HICOM. 3.8 Key financial highlights The Board has on 8 July 2019 approved the change in the financial year end of DRB-HICOM from 31 March to 31 December. The next audited financial statements of DRB-HICOM shall be for a period of nine (9) months from 1 April 2019 to 31 December 2019. Subsequently, the financial year end of DRB-HICOM will be 31 December. The following table presents a summary of the DRB-HICOM Group’s unaudited financial information for each of the three months period ended 30 June 201 9 and 30 June 2018 as well as a summary of the DRB-HICOM Group’s audited financial information for the FYE 2019 and FYE 2018. For this section, the DRB-HICOM Group includes DRB-HICOM together with its subsidiaries, jointly controlled entities and associated companies collectively. The annual and interim financial information below have been derived from, and should be read in conjunction with, the audited accounts and unaudited financial statements of the 49
64. DRB-HICOM Group for the respective periods which are available on Bursa Malaysia and DRB-HICOM ’s website at http://www.drb-hicom.com. For the audited financial statements of DRB-HICOM for FYE 2019, please refer to Appendix I of this Information Memorandum. No. Particulars FYE 2018 (RM’000) FYE 2019 (RM’000) For the 3 months ended 30 June 2018 (RM’000) For the 3 months ended 30 June 2019 (RM’000) 12,250,565 12,477,049 2,654,411 3,436,857 1. Gross Revenue 2. Profit Before Taxation 283,802 281,856 (94,399) 146,722 3. Profit After Taxation 192,219 51,191 (144,758) 109,373 4. Total Assets 42,730,441 42,676,826 41,645,431 42,168,813 5. Total Liabilities 32,632,317 32,660,932 31,707,488 32,093,146 6. Intangible Assets 1,613,166 1,563,114 1,583,080 1,633,792 7. Short Term Deposits 920,201 1,039,221 1,020,744 733,016 8. Cash and Balances 1,604,589 1,471,188 1,734,549 1,583,801 9. Borrowings 5,789,699 6,318,711 5,965,909 6,259,434 10. Shareholders’ Funds 10,098,124 10,015,894 9,937,943 10,075,667 Bank [The rest of this page has been intentionally left blank] 50
65. 4 . BUSINESS OF DRB-HICOM 4.1 Business overview DRB-HICOM is an investment holding company with investment in the automotive (including defence and composite manufacturing), services (including integrated logistics, banking and postal businesses) and property, assets and construction segments. In terms of business operations, DRB-HICOM is one of the leading integrated automotive companies in Malaysia, with operations in the manufacturing, assembly and distribution of passenger cars, commercial vehicles, motorcycles and automotive components. While the strength of the DRB-HICOM Group lies in its automotive business, DRB-HICOM also has interests in the services sector and the properties sector providing synergy to the operations of the DRB-HICOM Group as a whole. DRB-HICOM has grown in size since its inception and has transformed into one of the few diversified integrated conglomerate companies in Malaysia. The DRB-HICOM Group’s foundational stability is well reflected in its corporate stable that has 137 subsidiaries, 11 jointly controlled entities and 12 associates, providing employment for approximately 55,000 people. Please refer to Appendix II of this Information Memorandum for the corporate structure (operating companies) of the DRB-HICOM Group. An overview of the DRB-HICOM Group’s key milestones and achievements are set out below: Year Achievements / Milestones 2008 • • • Etika Strategi Sdn Bhd increases shareholdings in DRB-HICOM to 55.9% Acquired 70% interest in Bank Muamalat and 100% interest in HICOM Power Sdn Bhd (who operates and maintains Tanjung Bin Power Plant) Disposed 5 plantation lands Acquired 1,516 acres of freehold land in Iskandar region 2011 • Acquired 32.2% interest in Pos Malaysia 2012 • Divested HICOM Power Sdn Bhd 2013 • Acquired 96.8% interest in CTRM 2014 • Acquired 100% interest in Konsortium Logistik Berhad (now known as Pos Logistics) 2016 • Pos Malaysia became a subsidiary of DRB-HICOM pursuant to the injection of KL Airport Services Group (now known as Pos Aviation) into Pos Malaysia, increasing DRB-HICOM’s stake in Pos Malaysia from 32.2% to 53.5% 2017 • Shareholding in PROTON diluted to 50.1% with strategic partner, Geely, holding 49.9% Divested 100% equity in Lotus Advance Technologies Sdn Bhd • • 2018 • • Proposed disposal on non-industrial properties of 2,200 acres nationwide, in return for 1,243 acres of industrial properties in Johor Proposed disposal of Alam Flora and exit solid waste management business 51
66. 4 .1.1 Automotive Sector The DRB-HICOM Group has more than 40 subsidiaries involved in automotive manufacturing/ assembly, distribution, import and export, sales and aftersales as well as rental/ leasing. This encompasses passenger and commercial vehicles, defence vehicles, specialty vehicles and motorcycles. The DRB-HICOM Group’s comprehensive automotive ecosystem also includes the manufacture of composites and other components for the aerospace industry. (a) PROTON PROTON Holdings Berhad PROTON, established in 1983 as Malaysia’s national car company, is involved in key automotive value chain activities covering research and development, product and powertrain engineering, vendor development, vehicle and key component manufacturing, as well as marketing, sales and after-sale services. In 2017, DRB-HICOM entered into a strategic partnership with Geely to reinvigorate the PROTON brand, regain its domestic leadership while achieving greater success abroad. Key accomplishments in FYE 2019 demonstrated PROTON’s progress in the domestic front to regain its market share in the automotive sector. The brand’s performance can be distilled to a 10-year business plan established immediately upon completion of the partnership deal in September 2017, outlining seven strategic thrusts, namely: (i) develop attractive, technologically-advanced products; (ii) expand its plant capacity and upgrade its manufacturing processes by adopting advanced equipment and automation systems; (iii) implement progressive localisation of components, especially systems and sub-systems of advanced technologies; (iv) adopt group practices on quality management throughout the value chain; (v) attain globally-competitive cost in line with group practices; (vi) upgrade dealer outlets to offer integrated services of sales, after-sale services, spare parts (“3S”) and spray booth body repair (“4S”), as well review business policy between PROTON and its dealers; and (vii) develop in-house talent and concurrently attract global talents to join the journey in reviving PROTON. In FYE 2019, PROTON delivered positive outcomes in each strategic area. Most prominently, on 12 December 2018, PROTON launched its first SUV, the X70. As at 30 June 2019, the model has recorded sales of 16,418 units making it the most popular SUV in 2019. At the same time, PROTON expanded much effort to upgrade its existing model range. The uplifted Persona and Iriz were officially rolled out on 23 April 2019, while the Exora was launched on 28 May 2019. These models offer a new design appeal and at the same time boast enhanced driving performance incorporating intelligent connectivity features, known as the talking-car, “Hi Proton”. In addition, the New Saga, with a history spanning 34 years and over 2 million units delivered, was launched on 6 August 2019. 52
67. In terms of capacity , expansion of the Tanjung Malim plant is underway and operations are expected to commence in the fourth quarter of 2019. The localised Proton X70 will be manufactured in this new plant, followed by other new PROTON models. The plan is for all PROTON production to take place in Tanjung Malim by 2023. Aligned to the IR4.0, the new plant will feature the latest technologies in producing cutting-edge models, including energy-efficient vehicles and autonomous features. With quality and competitiveness being driven to enhance the customer experience, PROTON is upgrading its dealer network to one-stop 3S and 4S centres providing sales and after-sales services, spare parts, as well as body and paint services. There are now 104 upgraded outlets reflecting the ‘new PROTON’, embodying a refreshed, efficient and customer-centric feel. PROTON has also been working to build its export business. While the overall export strategy is being reviewed holistically, PROTON signed a Distributorship Agreement as well as a Licensing and Technical Assistance Agreement with AL-HAJ Automotive for the latter to assemble and market PROTON vehicles in Pakistan. For FYE 2019, PROTON recorded sales of 67,928 passenger vehicles in Malaysia and 1,544 units in the international market, mainly Egypt, Jordan, the United Arab Emirates and Brunei, achieving RM3.94 billion in revenue. For comparison purposes, PROTON exceeded its 2018 total sales in just 9 months with 70,330 units registered in September 2019 as compared to 64,744 units in 2018, achieving its best sales number since 2015 as market share improved to 15.8% from 10.8% in previous year. (b) Distribution companies Honda Malaysia Sdn Bhd Honda Malaysia assembles and distributes Honda cars in Malaysia. It has the capacity to produce 100,000 cars per annum at its plant in Pegoh, Melaka. It is supported by a network of 98 sales and service outlets. In FYE 2019, Honda Malaysia sold 101,101 cars, a slight drop from the previous year of 106,341 cars due to delays in the launch of HR-V and Civic model facelifts. Yet, Honda Malaysia maintained its top position in the nonnational car segment for the fourth consecutive year in 2018; and number 2 position for overall car sales for the third consecutive year. All seven CKD models, namely the Jazz, City, BR-V, HR-V, Civic, Accord and CR-V, continued to be segment leaders. The City contributed to 34% of total sales revenue, followed by CR-V and Civic at 14% and 13% respectively. During the FYE 2019, Honda Malaysia invested RM101 million on its plant and machinery. Its investments in technology means Honda is able to introduce to Malaysia new models being developed using its Next Generation Advanced Technology. These include the new Odyssey, launched in February 2018, the third model after the CR-V and new Accord to be equipped with Honda SENSING; and the new HR-V Hybrid equipped with advanced Sport Hybrid iDual-Clutch Drive. Malaysia was the first country outside Japan to introduce the HR-V Hybrid, in the last quarter of FYE 2019. Mitsubishi Motors Malaysia Sdn Bhd MMM is the official distributor of Mitsubishi Motors vehicles in Malaysia and is represented by 52 showrooms, of which 47 are 3S centres, and 54 service 53
68. outlets throughout Malaysia . It has 15 showrooms in East Malaysia – 8 in Sabah, 7 in Sarawak. During the FYE 2019, MMM launched an enhanced Outlander SUV and a new Mitsubishi Triton. The Outlander was introduced in May 2018 and the Triton was introduced in January 2019, carrying the concept of ‘Engineered Beyond Tough’ and offering four pillars under the 4Sure Handling USPs: 4Sure Power, 4Sure Control, 4Sure Agility and 4Sure Safety. ISUZU Malaysia Sdn Bhd ISUZU Malaysia markets and distributes ISUZU’s commercial vehicles, namely the light-duty ELF, medium-duty FORWARD, heavy-duty GIGA and GIGA Prime Movers, D-Max pick-up trucks; as well as the MU-X SUV. ISUZU’s commercial vehicles continued to dominate the local market in 2018, achieving the number 1 position in the truck segment for the fifth consecutive year, and number 1 position in the light-duty truck segment for the seventh consecutive year. Overall, ISUZU is ranked ninth as a brand. In 2018, a total of 6,036 units commercial vehicle trucks were sold, achieving 35% market share and 5,067 units of ISUZU D-Max were sold which made up 12% of the total pick-up segment. In July 2018, ISUZU Malaysia launched a limited edition ISUZU D-Max XSeries. DRB-HICOM Commercial Vehicles Sdn Bhd DHCV is the exclusive assembler and distributor of TATA commercial vehicles in Malaysia, with 9 sales and 34 service centres nationwide. FYE 2019 saw Indian OEM, TML launch three models in April 2018 – the TATA Super Ace (small pick-up), Ultra 814 (7,500kg) and 1014 (10,400kg). TML is working with DHCV to fast-track the local assembly of these models, which are to be rolled out by first quarter of 2020. DHCV also collaborated with TML to develop specialised body applications for TATA Super Ace and Ultra to cater for local business needs. Looking beyond, TML and DHCV will continue to assess the market and select the most suitable products from the TATA portfolio that are able to meet customers’ increasing demand for wider transportation needs. New segments to be explored include heavy duty trucks, buses and military vehicles. DHCV also plans to expand its dealer network to cater for the business expansion. (c) Motorcycles Motosikal Dan Enjin Nasional Sdn Bhd MODENAS is Malaysia’s homegrown motorcycle manufacturer. In its 100 acres land size factory located in Gurun, Kedah, the plant is equipped for welding, electro-disposition plating, painting and coating, conveyorised assembly lines, vehicle final testing, tools calibration lab, design centre including motorcycle and components testing, engine casting, assembly and test bench. The motorcycle market has grown in a positive index for the second consecutive year by achieving 8.5% in 2018 with sales of 552,514 units, as opposed to 509,425 units in 2017. Propelled by new models introduction and 54
69. robust promotions , MODENAS increased its share in the Street Bikes segment via Pulsar and new model Dominar 400. Moving forward in strengthening its position in the Malaysian market and Asean region, MODENAS has sealed a strategic partnership collaboration with Kawasaki Heavy Industries, Ltd., Japan (“KHI”). With KHI’s strategic partnership via expansion of shareholding position in MODENAS, more new models and technology transfer will be anticipated. The MODENAS’s annual production capacity of 130,000 units is anticipated to be maximised in the next 5 years aligning to reaching economies of scale for the Gurun plant. (d) Retail companies Edaran Otomobil Nasional Berhad EON is the holding company for ESB, EAM, HASB, DLSB and EZ-Drive. It is involved in the retail sales of Audi, Mitsubishi and Volkswagen (“VW”) vehicles, spare parts and accessories via ESB, EAM and HASB respectively; as well as vehicle rental and leasing services via EZ-Drive and DLSB. EON also has 48% equity in MMM, the distributor of Mitsubishi vehicles in Malaysia. Meanwhile, EON’s Jeep marque business has ceased with the appointment of third party authorised service dealer to continue servicing Jeep vehicles. EON Auto Mart Sdn Bhd EAM is the largest MMM dealer with 8 outlets nationwide, accounting for 17% of Mitsubishi market share in Malaysia, providing sales and after-sales services to all Mitsubishi customers. During the year, EAM embarked into network rationalisation exercise and focus on after-sales service efficiencies throughout the outlets. This includes implementation of new Mitsubishi visual identity. At the same time, EAM will build on its strategy of driving fleet sales while looking to grow its after-sales revenue and profitability through greater expansion of the body and paint services. Euromobil Sdn Bhd ESB is the largest Audi dealer in Malaysia with centres in Damansara, Chan Sow Lin, Glenmarie and Johor Bahru. It accounts for 75% of Audi’s total sales in Malaysia. In March 2019, Audi launched the latest Q series range – Audi Q2, Q5, Q7, and all-new Q8. This was followed by the arrival of the Audi A3, A4 Quattro and A5 in May 2019 and A8, A6 and A7 in July 2019. The all-new Audi Q3 will debut later in November 2019. HICOM Auto Sdn Bhd HASB is an authorised dealer for VW with 2 sales and service outlets contributing 7% to VW volume in Malaysia. It is projected that HASB’s sales to corporate fleets will contribute significantly to its performance in the near future. HASB is estimating a 25% growth in vehicle throughput given VW’s launch of Volkswagen Care Plus, a customer care programme to keep customers returning even after their five-year warranty expires. 55
70. HASB will concentrate on enhancing its sales volume via more targeted marketing efforts complemented by extensive roadshows . Automotive Corporation (Malaysia) Sdn Bhd ACM is the largest dealer of ISUZU trucks, pick-ups and SUVs in Malaysia. ACM’s sales centre in Shah Alam, Selangor, is supported by a network of Sales, Service and 3S centres in Batu Caves, Selangor; Kuantan, Pahang; Juru, Penang; Ipoh, Perak; and Johor Bahru in Johor. As an experienced commercial vehicle industry player, ACM specialises in the supply of ISUZU trucks with customised body application to suit specific business needs. ACM aims to further enhance its customer service through offering more comprehensive and competitively priced service maintenance packages with lower total cost of ownership for the fleet and government agency business. (e) Services companies DRB-HICOM Auto Solutions Sdn Bhd DHAS provides end-to-end logistics solutions for the automotive industry, from the import of CBU vehicles and CKD kits, to forwarding and clearance, vehicle yard management, pre-delivery inspection and final delivery to dealer networks. Its broad customer base includes major marques such as PROTON, Audi, VW, Honda, Mitsubishi, ISUZU, TATA, Suzuki Motorcycle and MODENAS. In response to an industry that looks set to remain challenging, DHAS has outlined various initiatives to maintain its business momentum. These include extending its contracts with existing customers that are introducing new CBU and CKD models. The PROTON-Geely collaboration, which will see the introduction of many new CKD models in Malaysia from end of 2019 onwards is also a positive development for DHAS. DHAS also intends to play a key role in the import and export of new CKD motorcycle models to ASEAN. At the same time, DHAS seeks to strengthen its yard management services by attracting customers from outside of the DRB-HICOM Group such as Mercedes-Benz and Hap Seng Trucks. It also intends to grow its trading activities, especially in components manufacturing, while exploring opportunities in DRB-HICOM’s non-automotive sectors such as aerospace and property. DRB-HICOM EZ-Drive Sdn Bhd EZ-Drive, which owns DLSB, represents Avis Malaysia. It is the leasing arm of the DRB-HICOM Group, offering short-term vehicle rental and long-term leasing of passenger and commercial vehicles as well as agricultural equipment. For the FYE 2019, EZ-Drive continued to grow its fleet by 26% to more than 4,000 units while expanding its network of stations to 14 from 12, and further building its agricultural equipment business. Operationally, it was able to maintain a high vehicle utilisation rate, 10% higher than AVIS Asia Pacific standard rate. Its business expansion and diversification enabled EZ-Drive to overcome competition from ride hailing setups to achieve 23.1% growth in revenue year- 56
71. on-year to more than RM100 million , with 4.1% growth in PBT, mainly supported by the introduction of agricultural equipment leasing business. EZ-Drive’s operational and financial successes were duly recognised when Avis Malaysia won the Avis Budget Group 2018 Licensee of the Year Award at the International Licensee Conference 2018, held in Prague, Czech Republic. The award acknowledged licensee partners that have demonstrated growth in annual financial performance, measured against their respective country’s economic conditions, excellence in customer service and alignment with the brand’s initiatives. (f) Manufacturing and engineering ISUZU HICOM Malaysia Sdn Bhd IHM manufactures ISUZU’s commercial vehicles such as the N-Series lightduty trucks, F-Series medium and heavyduty trucks and D-Max pick-up trucks. In 2018, ISUZU sales for light, medium and heavy-duty trucks totalled 5,975 units, capturing 39% of the market, further entrenching the brand as a firm leader in its segment. At the same time, sales of pick-up trucks stood at 5,067 units, making up 11.4% of the market. To further strengthen its market position, IHM plans to upgrade ISUZU NSeries, ISUZU F-Series as well as ISUZU D-Max. Following approval from the Road Transport Department in April 2018, it has also embarked on a frame extension project under which it performs frame modifications for trucks at a new workshop. HICOM Automotive Manufacturers (Malaysia) Sdn Bhd HA assembles the Mercedes-Benz C, E and S Class, GLC, GLC Coupe as well as Actros and Mitsubishi Fuso Light and Medium-Duty trucks, in addition to the VW Passat, Tiguan, Vento and Polo Hatchback at its plants in Peramu Industrial Estate, Pekan. During FYE 2017, HA achieved a significant milestone with the commercial launch of a new high-tech paint shop which doubles HA’s capacity to 50,000 units a year. HA leveraged its additional capacity by signing a five-year contract with Mercedes Benz Malaysia and a three-year contract with Hap Seng Truck Distribution for commercial vehicle assembly. Assembly of the Mercedes-Benz GLC Coupe and S Class 560e plug-in hybrid commenced in February and March 2019 respectively. HA has also commenced the production of left hand drive (LHD) C Class for the export market and the start of production in the newly built high technology assembly plant in July and September 2019 respectively. Capitalising on its high-end painting capabilities and infrastructure as well as skilled employees, HA is looking at further volume expansion in the years to come. The focus for 2019 and 2020 will be the new Mercedes-Benz and VW models, as well as a project it is embarking on with a new customer. HICOM-Yamaha Manufacturing Malaysia Sdn Bhd HYMM manufactures and assembles Yamaha motorcycle engines and parts, with current production catering for three moped and two scooter models. In FYE 2019, three of the models – namely the B17, 55D and 2WB – were upgraded, contributing to a surge in demand, which exceeded HYMM’s 57
72. manufacturing capacity . This led to production line balancing and cycle time improvement to cater for higher volumes. Yamaha’s market share has inched up from 44% in 2017 to 47% in 2018, reinforcing the brand’s leadership. This is also reflected in the overall HYMM financial performance, which sees HYMM revenue and PBT exceeding the Annual Management Plan by 22.1% and 40.5% respectively. HICOM-Teck See Manufacturing Malaysia Sdn Bhd HTS provides precision plastic injection moulding, blow moulding, laser cutting, vacuum foaming, assembly, painting and electroplating services. From manufacturing of cockpits, bumpers, door modules and chrome parts for the automotive industry, it has diversified into the non-automotive sector with the supply of road furniture, mobile garbage bins and sound barriers. It is also gearing up to supply for the aerospace industry. As part of HTS efforts in technological transformation and moving up the value chain, it has formed a joint venture company with Jiangsu Xinquan Automotive Trim Co. Ltd. (“XINQUAN”) in January 2019 to design, develop and manufacture instrument panels using a new slush moulding technology, which is currently not available or used in Malaysia. XINQUAN was incorporated in Jiangsu, China in 1982 and was listed in the Shanghai stock exchange on 17 March 2017. It currently has 10 production plants in various parts of China supplying instrument panels, floor console and door trims to Geely, SAIC Motor, Chery, Volkswagen, Nissan, FOTON and Fiat Chrysler Automobiles. HTS recorded a total revenue of RM329.8 million for FYE 2019, where PROTON contributed 38%, Perodua 22% and HA 14%. HICOM HBPO Sdn Bhd HHBPO designs, develops and supplies front end modules (“FEMs”) for PROTON, VW and BMW at its plants in Tanjung Malim, Perak; Pekan, Pahang; and Kulim, Kedah respectively. FYE 2019 saw HHBPO recording a steady growth with increase in sales, contributed primarily by BMW and PROTON. Demand from the former increased with the launch of the second project namely, MINI (F60), X3 (G01) and X4 (G02); while that from PROTON was driven by higher than expected sales of Prevé. Together with VW sales, HHBPO’s revenue for the year exceeded its target by 30%. Moving forward, HHBPO has been nominated to supply the FEM for PROTON’s SUVs while new launches from BMW, PROTON and VW should boost HHBPO’s revenue further. PHN Industry Sdn Bhd PHN is a Tier-1 manufacturer of automotive components, specialising in metal stamping, roll forming, welding and modular assembly, dies design and manufacturing, as well as electrical and electronic device assembly. It fully owns OSI, one of the largest chassis manufacturers in Malaysia; and DHMSB, a supplier of automotive batteries and electrical/electronic devices. In recent years, PHN has diversified into the non-automotive sector via the production of premium fan blades, industrial air filters and the assembly of agricultural vehicles. 58
73. In FYE 2019 , PHN entered into technical partnerships with TOPRE and ATSUMITEC Japan, to enhance the development of components for three new Honda vehicles. In addition to that, it acquired the rights to supply 24 parts for the Perodua Aruz; and 22 parts for PROTON’s upgraded Persona and Iriz. In anticipation of increase in customer demand, PHN has embarked on additional production capacity project. Collaborating with PROTON, it has established a new subassembly plant within Proton Tanjung Malim complex. A newly completed second plant in Pegoh is ready to supply to Honda whereas the Bukit Beruntung plant is now expanded to cater for additional volume from Perodua. HICOM Diecastings Sdn Bhd HDSB manufactures aluminium parts and components for the automotive and non-automotive sectors. It specialises in engine components such as cover cylinder heads, cover timing chains, oil pumps, water pump covers, fuel pipe delivery, steering housing and engine brackets, supplying to OEMs such as PROTON, Perodua, Mazda, Honda and Bosch, amongst others. HDSB secured a total of 7 new projects from Mazda Corporation Japan, PROTON and Perodua. This is the third consecutive year it has secured new businesses from Mazda for the new generation Skyactiv-X engine components and first Mazda’s electric vehicle for battery case whilst for local OEMs, HDSB will also supply parts for the PROTON’s X70 and Perodua’s new turbo engine. (g) Defence division DRB-HICOM Defence Technologies Sdn Bhd DEFTECH is a key player in the local defence and security industry, with an entrenched position in land-based mobility platforms, and increasing presence in selected aerospace domains. It comprises four main subsidiaries, namely DSSB, an automotive engineering, maintenance, repair and overhaul (“MRO”) powerhouse; DAV which provides aviation MRO; DSI which provides avionic, optronic and systems integration services; and DUS, which specialises in UAVs and unmanned ground vehicles. The entire group caters to, and serves, both the military and non-military segments. Despite a slight reduction in the Government’s budget for defence and security, and a temporary hold on various MRO contracts, DEFTECH recorded a comfortable revenue of RM908.3 million and PBT of RM229.9 million for FYE 2019. The ongoing AV-8 GEMPITA Project, for the supply of 255 units of the armoured vehicles and four units of Commercial off the Shelf vehicles for the Malaysian Army, continues to be the main revenue contributor, at RM905 million, while the spare parts businesses and the delivery of Explosive Ordnance Disposal vans to the Royal Malaysian Police Force contributed to the remainder. DEFTECH’s strategy continues to focus on ensuring delivery excellence for current contracts while securing new defence, security and commercial projects. It also aims to excel in the MRO sphere while pushing for growth in aerospace and unmanned technologies-based services and products and system integration. In 2019 and 2020, DEFTECH will continue to complete the scheduled delivery of AV-8 to the Army and fulfil its MRO and spare parts contracts whilst in terms of future business growth, DEFTECH is actively pursuing several programmes under the Army Mobility Phase 2 (2021-2025) and Royal Malaysian Air Force CAP 55. 59
74. (h) Aerospace division Composites Technology Research Malaysia Sdn Bhd CTRM is a leading aerospace and composites aero-structure manufacturer in the Asia Pacific and has produced and delivered more than 800 parts of various aircraft products with majority of them as a global single source supplier. Continued growth of the aviation industry meant increased demand for aircraft, which contributed to CTRM group increasing its revenue by 3.3% to RM953.2 million in FYE 2019. CTRM’s Aero Structure business was the main revenue earner, with 55% of the total contributed by wing components while Nacelles and others (aircraft tail, main landing gear door) accounted for 42% and 3% respectively. The increase in revenue, together with cost optimisation from reduced material consumption and purchase prices, competitive bidding and commercial negotiations with suppliers, led to a 26.9% increase in PBT to RM60.3 million in FYE 2019. In the Non-Aero Structure business, CTRMCE participated in several product prototyping, development and bidding exercises related to aircraft cabin interiors and satellite communication. Meanwhile, CTRMTL is gaining greater recognition due to investment in product development. It expects to grow its calibration capabilities through technical collaboration with SIRIM and provide competitive calibration services to Pos Malaysia. CTRMTL is also looking to establish technical collaboration through knowledge sharing and technology transfer with Institut De Soudure (IS Groupe), a French company with more than 100 years of experience. Through this collaboration, CTRMTL also plans to diversify its product portfolio in the oil & gas industry. As a result of its wide-ranging efforts to enhance efficiencies and quality, in 2019 CTRM was awarded the Best Performer award from Airbus under its Supply Chain & Quality Improvement Programme, based on its excellent delivery and quality performance. The same year also witnessed CTRM’s recognition as Asia and Malaysia’s Best Employer. Moving forward, CTRM seeks to secure new contracts with existing and new customers in the aero-structure and non aero-structure industries. The completion of a new facility, Building 6, in Batu Berendam, Melaka, will provide additional capacity to take on new work packages without any further significant capex. 4.1.2 Services Sector DRB-HICOM offers a range of services, from postal & logistics to waste management, environmental services, vehicle inspection, banking and education. (a) Postal & logistics Pos Malaysia Berhad Pos Malaysia, the nation’s postal service provider for over 200 years, has evolved beyond traditional mail and parcel delivery. Leveraging its extensive network of more than 3,700 touch points across Malaysia, it offers end-to-end logistics capability with an asset fleet that includes 3 freighter aircraft, 2 bulk carrier vessels, 352 prime movers and 344 lorries in addition to 3,020 delivery vehicles and 6,606 motorcycles. 60
75. As a result of a series of acquisitions in recent years , Pos Malaysia owns Pos Aviation, Pos Logistics and Pos Asia Cargo Express Sdn Bhd (“Pos ACE”). Together with its subsidiaries, it is principally involved in five core businesses, namely Postal Services; Courier, Express and Parcel (“CEP”); Aviation; Logistics and International Business. Revenue from Postal Services for FYE2019 decreased by RM36.7 million as compared to FYE 2018 due to continuing structural decline in mail volume (13% year-on-year). Coupled with the high costs of fulfilling its Universal Service Obligation (“USO”), Postal Services continued to incur a loss. In the last five years, the number of new addresses has increased by 17% to 8.9 million. In mitigation, the management is working closely with the regulator to review and rebalance the tariff – which was last changed in 2010 – and is hopeful of a positive outcome. Riding on Malaysia’s e-commerce wave, revenue from the CEP business increased by RM50 million. Supporting this growth, the aggregated total capacity of Pos Malaysia’s automated processing has been increased to 500,000 items a day from 300,000 items a day with the completion of a second integrated processing centre (“IPC”) in KLIA besides the first IPC in Shah Alam. The Aviation business, which provides a range of ground handling services at airports including cargo handling, saw a 4.8% increase in revenue year-onyear. This was due to higher cargo tonnage at the Sabah and Sarawak stations as well as enhanced cargo volume. Revenue from the logistics business declined by 29%, mainly as a result of completion of the RAPID project in Johor. The International Business, comprising the cross-border delivery of ecommerce items (either via transshipment or direct entry), recorded RM147.2 million in revenue. Overall, Pos Malaysia saw a 4.8% year-on-year drop in revenue to RM2.36 billion compared to RM2.47 billion in the previous financial year. PBT declined from RM117.3 million to a loss before tax of RM158.4 million, mainly as a result of widening losses from postal services in relation to mail and impairment charges from the goodwill impairment loss in Pos Logistics. (b) Concessionaires Alam Flora Sdn Bhd1 Alam Flora is responsible for solid waste management (“SWM”) and public cleansing services in Kuala Lumpur, Putrajaya and Pahang under a concession from the Government which extends up to year 2033. Through its subsidiary, DHES, it is also involved in non-concession business activities such as building cleaning, landscaping, landfill management, waste management, integrated facility management, recycling and the collection of industrial scrap material. FYE 2019 marked the seventh year of Alam Flora’s privatisation with revenue increasing 8.3% year-on-year to RM880.1 million and PBZT at RM98.6 million. At the same time, it made greater inroads into the non-concession business, including waste treatment, through negotiations with the DRB-HICOM and Albukhary Groups, that will facilitate the goal to venture into integrated waste and facilities management, the waste processes business and recovery and recycling business. With reference to DRB-HICOM’s announcement on Bursa Malaysia made on 1 August 2018, 2 August 2018, 25 September 2018, 15 October 2018, 31 January 2019 and 29 July 2019, Alam Flora is in the midst of being disposed by the DRB-HICOM Group. 1 61
76. The ultimate objective is to become a holistic waste management solutions provider and a smart waste management partner to the Government to achieve its goals of increasing the nation ’s recyclable rate to 30% and reducing the solid waste management industry’s carbon footprint by 40% by 2020. PUSPAKOM Sdn Bhd PUSPAKOM is the only authorised vehicle inspection body in Malaysia. In addition to this mandatory function, it offers a suite of services for private vehicles that includes inspection for hire-purchase financing, ownership transfer, registration of imported vehicles and voluntary vehicle inspection. Its Hire-Purchase Inspection service was extended for another three years in December 2018 when PUSPAKOM won a tender issued by the Ministry of Domestic Trade and Consumer Affairs. A key focus area of PUSPAKOM currently is to harness digital technology for more holistic and hassle-free solutions to enhance customer experience. In FYE 2019, PUSPAKOM rolled out the digital service to all inspection centres in Peninsular Malaysia, Kuching and Kota Kinabalu and introduced its own ewallet as a new payment option. On the ground, PUSPAKOM has continued to grow its mobile inspection network, extending the number of operation days and hours of operation at major branches while relocating and upgrading branches for greater customer convenience and experience. It has also been engaging with the public to enhance awareness of the importance of inspection. Higher demand for inspection services along with an overall increase in TIV during FYE 2019 led to a 3.8% growth in net revenue year-on-year to RM145.5 million, while PBZT rose to RM9.9 million from RM8.1 million. PUSPAKOM conducted a total of 3.35 million inspections in FYE 2019, compared to 3.31 million in FYE 2018. (c) Other services Bank Muamalat Malaysia Berhad Bank Muamalat is one of only three full-fledged Islamic banking institutions in Malaysia. It has 63 branches across Malaysia and RM22.9 billion in assets. It is the first and the only Islamic bank in the world to become a member of the Global Alliance for Banking Values. It recorded a total revenue of RM1.33 billion in FYE 2019 and a PBZT of RM241.2 million, marking a 4.6% growth from the previous financial year. This was driven by a 3.5% increase in total net income to RM712 million underpinned by higher financing and investment securities income as well as higher gain in foreign exchange transactions. In FYE 2019, Bank Muamalat’s gross financing base expanded by 3.9% to RM15.47 billion. Deposits from customers closed at RM19.14 billion, as current account and savings account (“CASA”) contributed 27.9%. Bank Muamalat’s gross non-performing financing ratio has also improved to 1.43% as at end of March 2019 from the 1.92% recorded in March 2018. Meanwhile, its capital position remained healthy with the Tier I capital ratio and total capital ratio at 15.8% and 18.6% respectively. Moving forward, Bank Muamalat will continue to focus on five strategic thrusts that have been outlined in its five-year business plan, namely to: 62
77. (i) harness digital technologies; (ii) become the preferred investment solutions provider; (iii) be the banker of choice for each localised community; (iv) be recognised as a socially responsible bank; and (v) further excel in the area of customer service. This five-pronged transformation is being strengthened by initiatives to expand its revenue, better manage its balance sheet, and improve cost efficiency and productivity. DRB-HICOM University of Automotive Malaysia (“DRB-HICOM U”) DRB-HICOM U, established under HUCSB, is a full-fledged university offering foundation, diploma, degree and post-graduate programmes in engineering, technology, business and management to Malaysian and international students. Located within DRB-HICOM’s Automotive Complex in Pekan, Pahang, it is the only university in Malaysia that focuses on producing graduates who are automotive industry-ready. As part of efforts to increase its student intake, DRB-HICOM U is streamlining its resources to focus on the most sought-after programmes and has identified six work-based learning programmes that would combine on-the-job experience with theoretical lessons. This is in line with the Malaysian Education Development Plan 2015-2025 (Higher Education) to produce graduates who are talented, skilled, knowledgeable and ready to face the challenges of the 21st century. Research continues to be emphasised and 21 indexed publications were produced in 2018 and in the same year, DRB-HICOM U won awards at the Malaysia Technology Expo and International Invention, Innovation & Technology Exhibition, gold at the Hackathon PSAS 2018 - Smart Car System and the Prime Minister’s Golden Hand Award at the Worldskill Malaysia Competition in 2018. 4.1.3 Properties Sector DRB-HICOM is involved in property development and management as well as construction. It is currently developing Proton City in Perak, residential properties in Johor, Media City in Kuala Lumpur and an Immigration, Customs, Quarantine and Security (“ICQS”) Complex in Kedah at the Malaysia-Thai border – the latter two under concessions with the Government. Although it also owns and manages hotels and a golf club, these are being phased out under an agreement to dispose of land parcels and leisure assets. The objective is to focus on industrial properties. (a) Property development Glenmarie Properties Sdn Bhd GPSB is the primary property development arm of DRB-HICOM. It is currently involved in the development of Glenmarie Johor and the HICOM Pegoh Industrial Park. Glenmarie Johor is a 69-acres freehold mixed residential project that will feature a total of 477 units once completed. The development is located at the epicentre of Johor’s bustling and mature Tebrau region, highly sought-after due 63
78. to its proximity to Johor Bahru ’s central business district as well as the Malaysia-Singapore Causeway. HICOM Pegoh Industrial Park is designed to be a premier integrated industrial estate spanning 729 acres, one of the largest freehold industrial parks in Melaka. Located strategically along the North South Expressway, it will be easily accessible via the Alor Gajah/ Simpang Empat Interchange in Alor Gajah, Melaka. Proton City Development Corporation Sdn Bhd PCDC is the developer of Proton City, a 4,000-acres township in Tanjung Malim, Perak. The development comprises industrial parcels, residential, commercial and institutional surrounding lakes, which include the PROTON plant. Proton City also houses Universiti Pendidikan Sultan Idris, a premier university in Malaysia. (b) Concession development and construction Media City Ventures Sdn Bhd MCVSB, 51%-owned by DRB-HICOM, is the parent company of MCDSB, which is developing Media City, an upgraded and expanded Angkasapuri, the national TV and radio complex. MCDSB has a 23-year concession that includes the design, construction and upgrade of the buildings and media facilities, and subsequent management of Media City Complex. It has delivered and is currently maintaining the first parcel of Media City, which entailed installing the latest broadcast equipment required for high definition digital TV programmes. The second parcel, equipping RTM’s existing TV studios and radio contis with latest digital high definition broadcast equipment, will be delivered by end of 2019. The third parcel, comprising new office building and facilities, various studios and auditorium including new broadcast equipment, has also commenced and due for delivery by end of 2020. Upon completion, MCDSB will maintain the broadcast equipment for 8 years and 20 years for the building facilities. Northern Gateway Infrastructure Sdn Bhd NGISB was set up to develop and manage a new ICQS complex in Bukit Kayu Hitam, Kedah under a 28-year concession with the Government beginning in June 2014. Phase 1 of the complex was officially opened on 1 November 2017, and has been operating by 14 government agencies helmed by Jabatan Imigresen Malaysia. Construction of Phase 2 commenced in February 2018 and was completed on schedule. It is now fully operational and opened to the public since end of June 2019. NGISB is carrying out integrated facilities maintenance of these facilities until 2044. (c) Asset and facility management Glenmarie Golf & Country Club (“GGCC”)2 GGCC is one of the most prestigious golf courses and club houses in Malaysia, attracting high-profile tournaments such as the Bridgestone ASEAN Amateur Open 2018 – Grand Finals. Total revenue from membership and events for the financial year amounted to RM22.0 million. 2 With reference to DRB-HICOM’s announcement on Bursa Malaysia made on 8 March 2018, 11 July 2018, 7 March 2019 and 6 September 2019, these assets are in the midst of being disposed by the DRB-HICOM Group. 64
79. Holiday Inn Kuala Lumpur Glenmarie (“HIKLG”)2 HIKLG is a business and leisure resort-styled hotel in Shah Alam, Selangor. As a result of the slowdown in tourism, it recorded a lower number of guest arrivals than in the previous year, achieving an average occupancy rate of 45.2%, with revenue totalling RM19.4 million. Vivanta by TAJ - Rebak Island, Langkawi2 Vivanta by TAJ - Rebak Island, Langkawi is a luxury resort under the globally renowned TAJ brand. Offering the lure of staying on a private island, the fivestar resort continues to attract an ever-increasing number of guests, achieving an occupancy rate of 65% for the year and revenue of RM24.3 million. 4.2 Material developments, future outlook and strategies 4.2.1 Automotive Sector The DRB-HICOM Group continues to make progress in streamlining its operations, focusing on core competencies and monetizing identified assets within the DRBHICOM Group. PROTON’s X70 SUV was launched on 12 December 2018 and since then, the X70 has received positive feedback within its segment, achieving commendable sales which have helped turn around PROTON’s business and the entire DRB-HICOM’s automotive sector. Moving forward, the turnaround of PROTON will continue to be one of DRBHICOM Group’s key growth drivers, which the DRB-HICOM Group aims to achieve by enhancing operational profits via quality improvements, cost optimisation and new launches. Other key companies in the DRB-HICOM’s automotive sector has also performed well, enabling DRB-HICOM as a whole to emerge from the year in a much better position and to maintain the growth momentum into the future. Notwithstanding its renewed success in the automotive sector, a number of the DRB-HICOM Group’s automotive companies have diversified into new businesses, expanding into the supply of products to non-automotive sectors. Moving forward, the companies within the sector are focusing on improving their cost management, customer service and aftersales with the goal of improving their overall profitability. 4.2.2 Services Sector Within the services sector, DRB-HICOM is continuing its transformation plans for its postal & logistics businesses with the aim of becoming a leading logistics player. Pos Malaysia is embarking on a digital transformation journey and expanding its capabilities to serve growing e-commerce demand with comprehensive efforts to become more customers centric. Pos Malaysia seeks to elevate the customer experience and build trust through greater transparency and visibility of service. Along with e-commerce growth, the long-term outlook for Pos Malaysia is positive with increasing trend of online shopping. In the shorter term, it is hopeful of the tariff negotiations coming to fruition. This, together with strategies for revenue growth and cost containment, places Pos Malaysia in a much better position to expand its business with robust infrastructure and solutions to serve the market. Separately, the DRB-HICOM Group had entered into an agreement to divest Alam Flora, its waste management services provider, to MCB. The sale will enable DRBHICOM to unlock value of the concessionaire and utilise the proceeds to reduce gearing and part-finance PROTON’s 10-years business plan. 65
80. On the vehicle inspection concession front , PUSPAKOM will be growing its mobile service fleet to meet increasing demand for mobile inspections and with strengthened resources, it will also take its services into untapped markets. In relation to the financial services, Bank Muamalat is seeking to tap into new markets for existing products while growing its Small Medium Enterprise (“SME”) business in collaboration with guarantee providers and other financial institutions. It will also optimise its returns while managing risks through prudent provisioning for financing, offering more floating rate products and attracting more CASA deposits. In terms of cost efficiency and productivity, it will press ahead with process automation, centralised documentation and shift routine transactional banking tasks into less-cost banking channels. 4.2.3 Properties Sector To streamline the properties sector, DRB-HICOM entered into transactions to divest their retail and leisure assets towards the end of FYE 2018. These transactions are expected to be completed in 2020. In choosing to focus on the development of industrial land, the DRB-HICOM Group seeks to leverage on more than 30 years of experience in developing and selling such properties. [The rest of this page has been intentionally left blank] 66
81. 5 . INVESTMENT CONSIDERATIONS The following is a summary of risk factors relating to the DRB-HICOM Group and the Sukuk Wakalah and their possible mitigating factors, where available, and no assurance can be given that these risks will not have a material and adverse effect on the business, operations and prospects of DRB-HICOM and that all these risks can be fully eliminated or managed. This section also sets out risks relating to the business and related industries of the Issuer. This section does not purport to be comprehensive or exhaustive and does not purport to be complete and is not intended to substitute or replace an independent assessment of the risk factors that may affect the Sukuk Wakalah. Each investor should carefully conduct his or her independent evaluation of the risks associated with investing in the Sukuk Wakalah. Investors should also note that each issue of the Sukuk Wakalah will carry different risks and all potential investors are strongly encouraged to evaluate each Sukuk Wakalah issue on its own merit before investing in such Sukuk Wakalah. 5.1 Risks relating to the DRB-HICOM Group 5.1.1 Business risks Inherent risks relating to each business segment The performance of the DRB-HICOM Group is dependent on the performance and growth of the economy and hence, is exposed to certain risks inherent in the industries which it has operations in, including the property and construction, automotive and financial services industries. These include, amongst others, changes in the general economic conditions such as government regulations, taxation, inflation, interest rates, exchange rate of foreign currencies and changes to business conditions such as deterioration in market conditions, rising cost of raw materials and labour. Although the DRB-HICOM Group is led by a capable management team with the necessary skills and experience and has taken steps to manage and minimise these risks, no assurance can be given that any change to these factors will not have a material adverse effect on the DRB-HICOM Group’s business. Automotive regulatory risk The DRB-HICOM Group is subject to regulatory framework applicable to the automotive industry. Any unfavourable changes in laws, regulations and/or governmental policies that govern the automotive industry as well as the duty and tax structure imposed on locally assembled and imported vehicles may have an adverse impact on the DRBHICOM Group’s business or financial performance. Any non-compliance with the applicable laws, policy or regulations could result in the suspension or revocation of any license, as well as the imposition of civil fines and criminal penalties, which could have an adverse effect on the operations, financial condition and prospect of the DRBHICOM Group. Foreign currency risks DRB-HICOM Group is exposed to foreign currency risks as a result of the foreign currency transactions entered into in currencies other than its functional currency. There can be no assurance that the volatility in the foreign exchange rates will not have adverse effect on the DRB-HICOM Group’s financial performance. As part of DRB-HICOM Group’s foreign exchange policy, foreign exchange exposures in transactional currencies other than its functional currency of the operating entities are kept to an acceptable level. Material foreign currencies translation exposures are hedged, mainly with forward foreign exchange contracts. 67
82. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the DRB-HICOM Group ’s financial instruments will fluctuate because of changes in market interest rates. The DRB-HICOM Group’s exposure to interest rate risk arises primarily from their loans and borrowings at floating rates. The DRB-HICOM Group’s policy is to manage interest cost using a mix of fixed and floating rate debts. The DRB-HICOM Group also actively manages the debt maturity profile, operating cash flows and availability of funding so as to ensure that all refinancing, payment/ repayment and funding needs are met. As part of the DRBHICOM Group’s overall prudent liquidity management, the DRB-HICOM Group maintains sufficient levels of cash or cash convertible investments to meet the DRBHICOM Group’s working capital requirements. In addition, the DRB-HICOM Group strives to maintain available banking facilities at a reasonable level to its overall debt position. As far as possible, the DRB-HICOM Group raises committed funding from both capital markets and financial institutions and prudently balances its portfolio with some short-term funding so as to achieve overall cost effectiveness. Dependence on key personnel The performance of the DRB-HICOM Group is dependent upon the abilities and efforts of the DRB-HICOM Group’s board and supported by its experienced, committed and dynamic senior management team who has in-depth knowledge and experience in the relevant industries. The DRB-HICOM Group’s ability to execute its business operations, projects and competitive strategy in the future hinges largely on the efforts of the DRBHICOM Group’s key personnel. The sudden departure of any key personnel may affect the DRB-HICOM Group’s businesses and operations. Taking this into consideration, the DRB-HICOM Group recognises the importance of attracting and retaining these personnel and have in place human resource incentives which include competitive remuneration packages, human resource training and development programme for employees in all key functions of the DRB-HICOM Group’s operations as well as succession planning. The DRB-HICOM Group strives to continue to attract and retain qualified and experienced personnel who are essential towards maintaining the high-performance standards as well as to address its succession planning programme. Notwithstanding the above, there can be no assurance that the DRB-HICOM Group will be able to attract and retain the DRB-HICOM Group’s key personnel. International ventures/ franchise/ foreign investment risks Some of DRB-HICOM’s subsidiaries and associated companies operate on a joint venture and/or business franchise basis in other jurisdictions outside of Malaysia. The political and economic climates in these countries are generally stable and supported by the legal and business frameworks which are similar and conducive to that of Malaysia. The DRB-HICOM Group always exercises due care and close working relationships with the DRB-HICOM Group’s joint venture partners as part of the DRBHICOM Group’s commitment to ensure the success of joint venture partnership entered into by the DRB-HICOM Group. However, no assurance can be given that there will be no changes to the political and economic stability or the relevant governmental policies in those jurisdictions and such changes (if any) will not adversely affect the relevant companies vis-à-vis the DRBHICOM Group in the future. In addition, the continuity of the franchise businesses in particular, is not only influenced by the business bilateral relationship between the franchisee and the DRB-HICOM Group but is also dependent on other factors such as trade policies, industrial incentives and regional competitiveness which are beyond the control of DRB-HICOM. 68
83. Competition There is competition among the many companies within the markets in which the DRBHICOM Group operates . Some of the competitors have substantial market positions. Many of the competitors are large companies with international links and partnerships and have substantial capital and marketing resources. Some of these competitors may also have access to capital at a lower cost. There is also intense competition with respect to the selling prices and types of products and services offered. There can be no assurance that the DRB-HICOM Group will be able to sustain its market position against its competitors. If the DRB-HICOM Group is not able to compete successfully against others in the respective industries, its business, financial conditions, results of operations and prospects could be affected. As a mitigating factor, the DRB-HICOM Group will continue to take effective measures to ensure it delivers quality products and services and to develop innovative marketing strategies to remain competitive. Technology changes Technology changes in materials, manufacturing processes and obsolescence of technology may affect the DRB-HICOM Group’s operations and its ability to maintain its existing cost structure. The DRB-HICOM Group’s established presence and knowledge in each of the industries it is in, would allow them to be proactive and react accordingly should the need arises. Nevertheless, no assurance can be given that such measures in the future would be sufficient or effective. Licenses and permits Certain businesses of the DRB-HICOM Group are dependent on licenses and permits issued by the Government and such other regulatory authorities (as applicable). As these businesses are subject to extensive regulation and supervision by the Government and such other regulatory authorities (as applicable), changes in laws and regulations affecting the DRB-HICOM Group may affect the financial performance of the DRB-HICOM Group. The DRB-HICOM Group will endeavour to comply with all the requirements under the licenses and permits to ensure that it will not breach any of its obligations under the licenses and permits, so that it can continue with the relevant businesses. Skilled labour and expertise The DRB-HICOM Group requires skilled labour and technical expertise to carry out its operations. The DRB-HICOM Group has to ensure that there are sufficient numbers of these workers and is able to train new workers efficiently in order to avoid any disruptions. In the event the DRB-HICOM Group is unable to obtain sufficient manpower for its operations, the business, financial position, operational results and prospects of the DRB-HICOM Group could be affected. Additionally, labour activism and unrest could cause disruption to the DRB-HICOM Group’s operations. Although the DRB-HICOM Group operations have not been affected by any significant labour dispute in the past, there is no assurance that the DRB-HICOM Group will not experience labour unrest, activism or disputes which could affect the DRB-HICOM Group’s business, financial condition, operational results and prospects. Concession agreements The DRB-HICOM Group has in their operations entered into concession agreements with the Government. There is no assurance that these concession agreements will not be terminated before or renewed upon their respective expiration dates. If any one or more of these concession agreements are terminated for whatever reasons, or if the concession agreements are not renewed, the business, financial condition and operating results and prospects of the DRB-HICOM Group would be materially and 69
84. adversely affected . The DRB-HICOM Group will endeavour to comply with all its obligations under the concession agreements to ensure that it will not breach any of the provisions under the concession agreements, so that the risk of termination of the concession agreements can be mitigated. Dependence on suppliers The supply chain plays an important part in the assembly of motor vehicles industry. Any regulatory changes, customs delays, political upheavals or natural disasters could potentially disrupt the supply chain of the materials, parts and accessories for the manufacture and assembly of motor vehicles. Consequently, it could lead to a delay in production and may affect delivery schedules. The DRB-HICOM Group continues to mitigate these risks through, amongst others, maintaining good rapport and engagement with the suppliers, increasing the efficiency of the DRB-HICOM Group’s manufacture and assembly plant(s), maintaining adequate Takaful contracts/ insurance policies, adopting a strict schedule of maintenance and effective management of its suppliers. However, there is no assurance that all these risks can be fully eliminated or managed. 5.1.2 Takaful/ Insurances As at the date of this Information Memorandum, the Board of DRB-HICOM believe that the DRB-HICOM Group’s assets are adequately covered/ insured against unforeseen events such as fire, default of electrical wiring and accidents by employees and that the licenses required for the DRB-HICOM Group’s business activities have been obtained and renewed. Although the DRB-HICOM Group has taken the necessary measures to ensure that the DRB-HICOM Group’s assets are adequately covered/ insured by Takaful/ insurance, there can be no assurance that the Takaful/ insurance coverage would be adequate for the replacement cost of all their assets or any consequential costs arising therefrom. 5.1.3 Servicing and/or payment/ repayment of the DRB-HICOM Group’s borrowings The servicing/ payment/ repayment of the DRB-HICOM Group’s borrowings, including the Sukuk Wakalah Programme is primarily dependent on the strength of the DRBHICOM Group’s operations to generate sufficient and positive cash inflows to service such borrowings. The Sukuk Wakalah Programme takes into consideration of the DRB-HICOM Group’s cash flow projections, which have been prepared, based on assumptions that are considered reasonable by the Board of DRB-HICOM. However, due to the subjective nature and inherent uncertainties and contingencies of forecasts and projections, and because events and circumstances may deviate from expectations, there can be no assurance that the DRB-HICOM Group’s cash flow projections will be realised, and the projected results may be materially different. No assurance can be given that any changes in these factors will not have any material adverse effect on the DRB-HICOM Group’s financial performance. 5.1.4 Fluctuations in operating results The results for any particular period are not necessarily indicative of the results that the DRB-HICOM Group may achieve for any subsequent period. Quarterly or yearly results may vary materially as a result of the timing and structure of acquisitions, any writedown of goodwill, and the timing and magnitude of costs related to such acquisitions. Such fluctuations in operating results may adversely affect the credit rating of the Sukuk Wakalah and accordingly the market price of the Sukuk Wakalah. 70
85. 5 .1.5 Holding company structure DRB-HICOM is an investment holding company and relies mainly on its investment income, including profit/ interest payments and dividends from its subsidiaries, jointly controlled entities and associates to meet its obligations, including obligations under the Sukuk Wakalah Programme. Its subsidiaries, jointly controlled entities, and associates are separate legal entities and have no obligations with respect to the Sukuk Wakalah Programme. The ability of DRB-HICOM’s subsidiaries, jointly controlled entities, associates and investments to pay dividends and profit/ interest payments on shareholders’ advances (if any) and, to the extent that DRB-HICOM relies on such dividends and profit/ interest payments to meet its obligations under the Sukuk Wakalah Programme are subject to all applicable laws and restrictions on the payment of dividends and profit/ interest payments contained in the Articles of Association of the relevant companies and in certain cases, financing or other agreements. In addition, certain outstanding amount due/ indebtedness of particular companies may contain covenants restricting the ability of such companies to pay dividends and profit/ interest so long as such amount due/ indebtedness remains outstanding. Further, the claims of the financiers/ creditors of these subsidiaries, jointly controlled entities and associates will have priority in respect of the assets of such subsidiaries, jointly controlled entities and associates over the claims of the Sukukholders. 5.2 Risks relating to the Sukuk Wakalah 5.2.1 Credit rating of the Sukuk Wakalah Programme The Sukuk Wakalah Programme has been accorded a preliminary credit rating of A+ with a positive outlook by the Credit Rating Agency. A credit rating is not a recommendation to purchase, hold or sell the Sukuk Wakalah. There is no assurance that a credit rating will remain in effect for any given period of time or that a credit rating will not be downgraded, suspended or withdrawn entirely by the Credit Rating Agency in the future, if, in its judgment, circumstances in the future so warrant. Further, such a credit rating is not a guarantee of payment or that there will be no default by the Issuer under the Sukuk Wakalah. In the event that the credit rating initially assigned to the Sukuk Wakalah is subsequently downgraded, suspended or withdrawn for any reason, no person or entity will be obliged to provide any additional credit enhancement with respect to the Sukuk Wakalah. Any downgrading, suspension or withdrawal of a credit rating may have an adverse effect on the liquidity and market price of the Sukuk Wakalah. Any downgrading, suspension or withdrawal of a credit rating will not constitute a dissolution event with respect to the Sukuk Wakalah or an event by itself that warrants the Sukuk Wakalah to be immediately due and payable. 5.2.2 Liquidity of the Sukuk Wakalah The Sukuk Wakalah comprises a new issue of securities for which there is currently no secondary market. There can be no assurance that such secondary market will develop or, if it does develop, that it will provide the Sukukholders with the liquidity of investments or will continue for the tenure of the Sukuk Wakalah. If a market develops, the market value of the Sukuk Wakalah may fluctuate. Any sale of the Sukuk Wakalah by the Sukukholders in any secondary market which may develop may be at a discount from the original issue price of the Sukuk Wakalah, depending on many factors, including the prevailing interest rates and the market for similar securities. 5.2.3 The market value of the Sukuk Wakalah may be subject to fluctuation Trading prices of the Sukuk Wakalah may also be influenced by numerous factors, including the operating results and/or financial condition of the Issuer, political, economic, financial and any other factors that can affect the capital markets, the industry or the Issuer. Adverse economic developments could have a material adverse 71
86. effect on the market value of the Sukuk Wakalah . In addition, the Sukukholders may suffer unforeseen losses due to fluctuations in interest rates. Although the Sukuk Wakalah are Islamic securities which do not pay interest, they are comparable to fixed income securities and may therefore see their price fluctuate due to fluctuations in interest rates. Generally, a rise in interest rates may cause a fall in bond prices. The Sukuk Wakalah may be similarly affected resulting in a capital loss for the Sukukholders. Conversely, when interest rates fall, bond prices and the prices at which the Sukuk Wakalah trade may rise. The Sukukholders may enjoy capital gains but the profits received may be reinvested for lower returns. 5.2.4 An investment in the Sukuk Wakalah is subject to inflation risk The Sukukholders may suffer erosion on the return of their investments due to inflation. The Sukukholders would have an anticipated real rate of return on the purchase of the Sukuk Wakalah. An unexpected increase in inflation could reduce the actual real return. 5.2.5 Suitability of investments Each potential investor in the Sukuk Wakalah must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: 5.2.6 (a) have sufficient knowledge and experience to make a meaningful evaluation of the Sukuk Wakalah, the merits and risks of investing in the Sukuk Wakalah and the information contained in this Information Memorandum; (b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Sukuk Wakalah and the impact the Sukuk Wakalah will have on its overall investment portfolio; (c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Sukuk Wakalah, including where the currency of payment is different from the potential investor's currency; (d) understand thoroughly the terms of the Sukuk Wakalah and be familiar with the behaviour of any relevant indices and financial markets; and (e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic and other factors that may affect its investment and its ability to bear the applicable risks. Shariah compliance The Joint Shariah Advisers have issued pronouncements confirming amongst others that, the transaction and structure of the Sukuk Wakalah are Shariah-compliant as of the date of such pronouncements. However, there is no assurance that the Sukuk Wakalah will be considered as Shariah-compliant by any other Shariah board or Shariah scholar as the Shariah pronouncement is only an expression of the view of the Joint Shariah Advisers. Potential investors should obtain their own independent Shariah advice as to the Shariah compliance of amongst others, the transaction and structure of the Sukuk Wakalah. No assurance is given that the confirmation of the Joint Shariah Advisers will not be subject to challenge on grounds that the Sukuk Wakalah Programme is not Shariah compliant. 5.2.7 DRB-HICOM’s ability to meet its obligations under the Sukuk Wakalah The Sukuk Wakalah, pursuant to the relevant transaction documents, constitute direct, unconditional, secured and unsubordinated obligations of the Issuer. The ability of the 72
87. Issuer to meet its obligations to the Sukukholders in terms of payment of amounts due in respect of the Sukuk Wakalah will depend on the Issuer ’s income and revenue and in particular the strength of the Issuer’s operation to generate sufficient and positive cashflows. Payments of all amounts due and payable in respect of the Sukuk Wakalah will be the Issuer’s obligation alone. In particular, the Sukuk Wakalah will not be obligations or responsibilities of, or guaranteed by, any of the Issuer’s related corporations, the JPAs/JLAs/JLMs, the advisers of the Issuer, the Sukuk Trustee or any subsidiary or affiliate thereof, and any other person involved or interested in the transaction. None of such persons will accept any liability whatsoever to the Sukukholders in respect of any failure of the Issuer to pay any amount due in respect of the Sukuk Wakalah. 5.3 General considerations 5.3.1 Political, Economic and Regulatory Risks Like all other business entities, changes in political, economic and regulatory conditions in Malaysia and elsewhere could materially and adversely affect the financial and business prospects of the DRB-HICOM Group. Amongst the political, economic and regulatory uncertainties are risks of war, terrorist attacks, implementation of unfavourable industry regulations and laws by statutory authorities, changes in interest rates and legislation on taxation, currency exchange rules and controls and adverse foreign currency fluctuations. Investors should note that the DRB-HICOM Group will always strive to continue to take effective measures such as prudent financial management and efficient operating procedures to mitigate such risk. Although measures may be taken by the DRB-HICOM Group to address and/or mitigate such developments, no assurance can be given that such measures would be sufficient or effective in ensuring that any changes to the political, economic and regulatory conditions as stated above will not have a material adverse effect on the financial conditions of the DRB-HICOM Group. 5.3.2 Environmental Considerations The DRB-HICOM Group’s operations are required to comply with various environmental laws relating to, amongst others, water, air, noise pollution and the disposal of waste materials. Although environmental protection procedures and mitigating measures are implemented, there is no assurance that material costs and liabilities will not be incurred in the future in this regard. 5.4 Forward-looking statements This Information Memorandum contains forward-looking statements. Such forward-looking statements are based on estimates and assumptions made by the DRB-HICOM Group at the time the information is prepared and although believed to be reasonable, are subject to known and unknown risks, uncertainties and other factors which may affect actual outcomes, many of which are outside the control of DRB-HICOM. These factors include economic conditions in the markets in which the DRB-HICOM Group operates and achievement of the DRB-HICOM Group’s business forecasts. These factors will cause the actual results, performance or achievements of DRB-HICOM to differ, perhaps materially, from the results, performance or achievements expressed or implied by those forward-looking statements. These forwardlooking statements do not constitute a representation that future results will be achieved in the amounts or by the dates indicated. [The rest of this page has been intentionally left blank] 73
88. 6 . ECONOMY AND INDUSTRY OVERVIEW This section provides a general economy overview and a specific industry overview, which may direct and indirectly affect the business performance of DRB-HICOM. The information contained in this section has been extracted from the various sources as disclosed herein. Neither the Issuer nor the JPAs/JLAs/JLMs or any other party has independently verified or will be held responsible for any information contained herein. 6.1 Malaysian economy Following a robust growth in 2017, Malaysia’s economic growth was expected to normalise in 2018. The economy, however, was confronted with several external and domestic challenges during the year. Major policy and political shifts, arising partly from the global trade tensions and the historic change of government in Malaysia, became sources of uncertainty for the economy. Unanticipated supply disruptions in the commodity sectors adversely affected Malaysia’s economic performance, resulting in a larger-than-expected moderation in growth. Overall, the Malaysian economy recorded a respectable growth of 4.7% in 2018, demonstrating considerable resilience in the face of multiple headwinds. Despite a positive start to 2018, support from global demand began to wane in the latter half of the year. Escalating trade tensions and policy uncertainties dampened sentiments and surpressed investment spending in several major economies. Monetary policy adjustments in advanced economies also contributed to heightened global financial market volatility and induced large capital reversals from the emerging economies. On the domestic front, supply disruptions adversely impacted activity in the mining and agriculture sectors, as well as commodity exports. In particular, unplanned maintenance shutdown and pipeline repairs resulted in declining natural gas output, while production constraints and adverse weather conditions affected rubber and palm oil production. This led to a slowdown in headline GDP growth to below 5%. While the conclusion of the 14th General Election in May 2018 saw a smooth political transition to a new government, transitory policy uncertainty affected growth in the few months after the General Election. Under the new Government, policy emphasis shifted towards expenditure reprioritisation and reforms on institutional and governance framework. This change in policy focus, while imperative for longterm sustainability, entailed inevitable short-term economic growth trade-offs through lower public sector spending. In particular, public investment weighed on overall GDP growth, following the near-completion of a few large infrastructure projects and the review of several developmental projects. Despite these challenges, private sector spending continued to anchor the expansion in domestic demand. This was underpinned by solid economic and financial fundamentals and positive consumer and business sentiments. Private consumption growth accelerated to its fastest rate since 2012, driven by favourable wage and employment growth. Household spending also received a temporary boost during the three-month tax holiday (1 June – 31 August), following the zerorisation of the Goods and Services Tax (GST) rate. Supported by positive demand and favourable financing conditions, private investment activity was geared towards capacity expansions and efficiency enhancements. Nevertheless, global trade tensions and some policy uncertainty following the political transition resulted in a moderation in private capital expenditure growth during the year. On the external sector, exports continued to provide an additional lift to growth, albeit to a lesser extent when compared to the exceptional performance in 2017, due mainly to the moderating global growth momentum. Despite the normalisation from the 2017 global technology upcycle, manufactured exports was buttressed by the underlying demand for semiconductors. The operationalisation of new export-oriented manufacturing plants and the establishment of a global E&E distribution hub in Malaysia provided further impetus to manufactured exports. This, in turn, partially offset the weakness in commodity exports affected by supply disruptions. Import growth also slowed, particularly weighed down by lower capital and intermediate imports. The lower imports was in tandem with the more moderate expansion in overall exports and investment. As a result, the overall trade surplus widened during the year. 74
89. The current account of the balance of payments remained in surplus , as the income deficit was more than offset by a sizeable goods surplus and smaller services deficit. Malaysia maintained its attractiveness as an investment profit centre and continued to receive foreign direct investment (FDI) inflows despite reversals of non-resident portfolio flows during the year. Overall, the commendable growth performance in 2018 in the face of several headwinds and challenges owes in large part to the strong fundamentals and highly diversified structure of the Malaysian economy. Policies were flexible and pre-emptive to ensure risks were minimised. At the same time, Malaysia continued to possess a healthy external position, with a current account surplus and adequate international reserves. External debt exposure remained manageable, reflected by its favourable maturity and currency profiles, as well as resilient repayment capacity (For further details, please refer to the Box Article on 'Malaysia’s Resilience in Managing External Debt Obligations and the Adequacy of International Reserves'). These strengths in the external position, along with a flexible exchange rate and a well-developed financial system, effectively mitigated the impact of volatile shifts in capital flows on domestic financial markets. Appropriate foreign exchange intervention and the implementation of financial market measures during this period of volatility also underscored the importance of pragmatic, timely policy responses in managing risks and supporting growth. (Source: Bank Negara Malaysia’s Annual Report 2018) The Malaysian economy grew at a stronger pace of 4.9% in the second quarter of 2019 GDP registered a higher growth of 4.9% in the second quarter of 2019 (1Q 2019: 4.5%), supported by continued expansion in domestic demand. On a quarter-on-quarter seasonallyadjusted basis, the economy grew by 1.0% (1Q 2019: 1.1%). Private sector activity remained the key driver of growth Domestic demand expanded by 4.6% in the second quarter (1Q 2019: 4.4%), supported by firm household spending and slightly higher private investment. Private consumption expanded by 7.8% (1Q 2019: 7.6%), supported by continued income growth and festive spending during the quarter. Selected Government measures, such as the special Aidilfitri assistance and Bantuan Sara Hidup, also provided some lift to overall household spending. After a strong growth in the first quarter of 2019 (6.3%), public consumption expanded marginally by 0.3%, due to lower spending on supplies and services. Growth in gross fixed capital formation (GFCF) registered a smaller contraction of 0.6% (1Q 2019: -3.5%), driven by a slightly higher private investment growth amid a continued decline in public investment. By type of assets, investments in structures turned around to register a positive growth of 1.2% (1Q 2019: -1.3%), reflecting some improvement in the residential property segment. Capital expenditure on machinery and equipment recorded a smaller decline of 4.2% (1Q 2019: -7.4%), following higher spending on information and communications technology (ICT). Private investment expanded at a faster pace of 1.8% (1Q 2019: 0.4%), supported by increased capital spending in the services and manufacturing sectors. Nonetheless, uncertainty surrounding global trade tensions and prevailing weaknesses in the broad property segment continued to weigh on the investment growth performance. Public investment registered a smaller contraction of 9.0% (1Q 2019: -13.2%), mainly reflecting higher fixed asset spending by the Federal Government which partially offset the continued weak investment by public corporations. 75
90. Expansion across all economic sectors The services sector expanded by 6 .1% in the second quarter of 2019 (1Q 2019: 6.4%). Growth in the wholesale and retail trade subsector was relatively sustained across the wholesale, retail and motor vehicle segments amid firm household spending. The finance and insurance subsector was supported by the fee-based income segment following a major initial public offering in the capital market. Growth in the transport and storage subsector was driven by higher air passenger traffic and port activity in both transhipment and gateway segments. However, growth in the information and communication subsector moderated following slower demand for data communication services. Growth in the manufacturing sector registered a marginal improvement at 4.3% (1Q 2019: 4.2%) amid better performance in the domestic-oriented industries. Higher production of motor vehicles mainly reflected strong sales during the festive season. Demand for metal-related materials for existing transport and infrastructure projects supported the higher production within the construction-related cluster. Meanwhile, within the export-oriented industries, the production of electronic components continued to be weighed by weaker global demand, with negative spillovers across the global semiconductor value chain. Growth in the mining sector rebounded to 2.9% (1Q 2019: -2.1%), the first positive growth since the third quarter of 2017. The turnaround was supported mainly by the recovery in natural gas output following the pipeline disruptions in 2018. This had more than offset the continued drag to growth posed by lower oil production amid the planned facility shutdowns in East Malaysia. The construction sector registered marginally higher growth at 0.5% (1Q 2019: 0.3%), on account of growth improvements in the residential and special trade subsectors. While the residential subsector registered a smaller contraction, activity remained weak amid the high unsold properties. The higher growth in the special trade subsector was due to end-works activity amid completion of some mixed development projects. The near-completion of a large petrochemical project continued to affect growth in the civil engineering subsector, while the non-residential subsector remained weak amid the oversupply of commercial properties. In the agriculture sector, growth moderated to 4.2% (1Q 2019: 5.6%) following the decline in fishing and forestry activities as well as the moderation in natural rubber output growth due to the wintering season3. This had partially offset the continued recovery in oil palm yields from the adverse weather in 2018. Headline inflation increased mainly reflecting the lapse in the impact of the GST zerorisation Headline inflation, as measured by the annual percentage change in the Consumer Price Index (CPI), averaged higher at 0.6% in 2Q 2019 (1Q 2019: -0.3%). The increase mainly reflected the lapse in the impact of the GST zerorisation that was implemented in June 2018. This contributed to the rise in headline inflation in June 2019 to 1.5% (May 2019: 0.2%; April 2019: 0.2%). Fuel inflation recorded a smaller negative largely due to domestic fuel prices averaging higher during the quarter in addition to the base effect (Average RON95 petrol price per litre in 2Q 2019: RM2.08; 1Q 2019: RM2.02). Core inflation, excluding the impact of consumption tax policy changes, was unchanged at 1.6%. Demand-driven inflationary pressures remained broadly stable and contained, amid the absence of excessive wage pressure and some degree of spare capacity in the capital stock. 3 The wintering season typically occurs between February and May during which the rubber trees shed their leaves and new leaves are formed, affecting both the metabolism of the trees and latex production. 76
91. Stable labour market conditions During the second quarter , labour market conditions were stable. Employment growth was sustained at 2.1% (1Q 2019: 2.2%) while the unemployment rate remained unchanged at 3.3% (1Q 2019: 3.3%) as employment gains kept pace with labour force expansion during the quarter. Private sector wages grew by 4.2% (1Q 2019: 4.9%), driven by the services sector (4.4%; 1Q 2019: 3.8%) as the wholesale and retail trade subsector saw a pick-up in wage growth (4.1%; 1Q 2019: 3.3%). However, growth in manufacturing wages were lower (3.9%, 1Q 2019: 7.0%), especially in the export-oriented industries, such as the E&E (5.1%; 1Q 2019: 9.7%) and petrochemical clusters (3.1%; 1Q 2019: 6.7%). Slight recovery in exports and smaller decline in imports In the second quarter of 2019, gross exports turned around to register a positive growth of 0.2% (1Q 2019: -0.7%). This was supported by the rebound in commodities exports amid sustained manufactured exports. The trade surplus4 remained sizeable, albeit narrower at RM30.1 billion (1Q 2019: RM37.0 billion). Manufactured export growth was sustained at 0.3% (1Q 2019: 0.3%) as higher non-E&E exports helped offset the contraction in E&E exports. The improvement in non-E&E exports (0.9%; 1Q 2019: -2.5%) was attributed to higher demand for both resource-based and nonresource based exports including iron & steel and chemicals & chemicals products. In contrast, E&E exports declined by 0.4% (1Q 2019: 3.7%) on account of lower demand from PR China due in part to the ongoing trade tensions. Commodities exports rebounded to 0.8% (1Q 2019: -3.7%), supported by LNG and palm oil exports. Imports recorded a smaller decline of -1.2% (1Q 2019: -2.5%) on account of higher intermediate and consumption imports. Intermediate imports (7.5%; 1Q 2019: 0.0%) were driven by higher crude petroleum imports to cater for refinery activities. Capital imports recorded a smaller contraction due to a lower drag from machinery and equipment investments. Current account surplus remained sizeable The current account surplus of the balance of payment remained sizeable at RM14.3 billion or 3.9% of GNI in the second quarter of 2019 (1Q 2019: RM16.4 billion or 4.7% of GNI). This was due to higher investment income earned by Malaysian firms abroad which partly off set the lower goods surplus. As the improvement in import growth outpaced export growth, the goods surplus narrowed to RM28.1 billion (1Q 2019: RM33.8 billion). The primary income account registered a smaller deficit of RM5.5 billion (1Q 2019:-RM10.1 billion) due to the increase in investment income earned by Malaysian firms abroad, particularly from direct and portfolio investments. These investments were mainly in the finance and insurance, mining, information and technology sectors. This development more than offset the increase in investment income accrued to foreign direct investors and foreign portfolio investors in publicly-listed firms. In the services account, the deficit widened to RM3.4 billion (1Q 2019: -RM1.8 billion). This was attributable to higher net payments to foreign providers for transport and insurance services, in line with higher trade activity during the quarter. The travel account surplus narrowed to RM7.1 billion (1Q 2019: RM7.9 billion) on account of lower tourist per capita spending. The secondary income account deficit amounted to RM4.9 billion (1Q 2019: -RM5.5 billion), reflecting mainly outward remittances by foreign workers. 4 The difference between the goods surplus and trade surplus arises from the exclusion of goods for processing, storage and distribution in the goods accounts as per the 6th Edition of the Balance of Payments and International Investment Position Manual (BPM6) by the IMF. 77
92. Financial account registered a net outflow The financial account registered a net outflow of RM18 .6 billion (1Q 2019: -RM13.8 billion), following outflows in the direct investment and portfolio investment accounts. These outflows have more than offset the marginal net inflow in the other investment account during the quarter. The direct investment account registered a net outflow of RM8.2 billion (1Q 2019: net inflow of RM16.3 billion). Foreign direct investments (FDI) registered a smaller net inflow of RM4.4 billion (1Q 2019: net inflow of RM21.7 billion). Inflows were channelled mainly into the services and manufacturing sectors. Direct investments abroad (DIA) by Malaysian companies registered a larger net outflow of RM12.6 billion (1Q 2019: net outflow of RM5.5 billion). DIA was channelled mainly into the services sector, particularly the financial services subsector and the accommodation and food services subsector, followed by the mining sector. The portfolio investment account registered a net outflow of RM10.2 billion (1Q 2019: net inflow of RM2.1 billion), following a reversal of non-resident portfolio investments. Non-resident portfolio investments recorded a net outflow of RM5.1 billion during the quarter (1Q 2019: +RM13.5 billion). Following increased risk aversion and more cautious sentiments, non-resident investors pared down holdings in both the domestic equity and debt markets. At the same time, residents’ portfolio investments abroad also recorded a smaller net outflow of RM5.0 billion (1Q 2019: -RM11.4 billion). The other investment account recorded a marginal net inflow of RM0.3 billion (1Q 2019: RM31.9 billion). This reflected inter-bank borrowings by the domestic banking system, which were almost entirely off set by interbank placements abroad and a net repayment of loans and trade credits by the private sector. Net errors and omissions amounted to RM2.9 billion, or 0.6% of total trade. Manageable external debt Malaysia’s external debt amounted to RM931.1 billion, or 61.3% of GDP as at end-June 2019 (end-March 2019: RM903.7 billion or 59.5% of GDP). The increase reflects mainly the net drawdown of interbank borrowings and intercompany loans. There was also revaluation adjustment from the weaker ringgit against regional and major currencies during the period. These were partially offset by some liquidation of domestic debt securities and withdrawal of deposits by non-residents. The country’s external debt remains manageable, given its currency and maturity profiles, and the presence of large external assets. Close to one-third of external debt is denominated in ringgit (31.7%; end-March 2019: 32.7%), mainly in the form of nonresident holdings of domestic debt securities (61.7% share of ringgit-denominated external debt) and in ringgit deposits (18.0% share) in domestic banking institutions. As such, these liabilities are not subject to valuation changes from the fluctuations in the ringgit exchange rate. The remaining external debt of RM636.1 billion or 68.3% of total external debt is denominated in foreign currency (FC). As at end-June 2019, offshore borrowings increased to RM580.5 billion or 38.2% of GDP (end-March: RM546.9 billion or 36.0% of GDP). The corporate sector accounted for slightly more than half of FC-denominated external debt and are largely subject to prudential and hedging requirements. By instrument, 36.9% (or RM234.9 billion) of FC-denominated external debt are accounted by interbank borrowings and FC deposits in the domestic banking system. 78.3% of the interbank borrowings are in the form of largely stable intragroup borrowings from related offices abroad, including parent banks, regional offices and subsidiaries. This reflects banks’ centralised liquidity and funding management practices. During the quarter, banks’ FC-denominated short-term external debt increased by RM20.6 billion driven by higher interbank borrowings. This was largely attributable to parent bank placements with foreign banks’ in Malaysia (including banks in Labuan International Banking and Financial Centre (LIBFC)) to facilitate lending and investment activities. Funds received by 78
93. foreign LIBFC banks were largely invested abroad with non-resident clients , a reflection of LIBFC banks’ ‘out-out’ business activities. For locally-incorporated foreign banks, intragroup funds continue to be primarily used for short-term investments and lending in the domestic interbank market. Domestic banking groups accounted for the remaining increase in interbank borrowings reflecting their central role in managing liquidity and funding needs on a group-wide basis. In line with these developments, banks’ total external assets also increased during the quarter by RM22.8 billion. Overall, banks’ funding and liquidity risks continue to be proactively managed via robust internal controls and policies, including internal limits on (i) interbank borrowings; (ii) foreign currency funding and liquidity positions; and (iii) foreign exchange market risk exposures. Foreigncurrency risk, measured in terms of the net open position of FC-denominated exposures 5 remained low at 4.9% of banks’ total capital. Long-term bonds and notes issued offshore stood at RM161.7 billion as at end-June 2019, accounting for 25.4% of total FC-denominated external debt. These were mainly by nonfinancial corporations and channelled primarily to finance asset acquisitions abroad. Intercompany loans, which amount to RM110.5 billion and account for 17.4% of FCdenominated external debt, are typically on flexible and concessionary terms. About 80% of these intercompany loans were obtained by multinational corporations (MNCs) from parent or affiliate companies abroad. From a maturity perspective, 58.3% of the total external debt is skewed towards medium- to long-term tenure (end-March: 59.2%), suggesting limited rollover risks. Short-term external debt accounted for the remaining 41.7% of external debt. While rollover risks may be inherent, this is well contained. Close to half of the short-term external debt are intragroup borrowings among banks and corporations which are generally stable, while another 11% are accounted by trade credits, largely backed by export earnings. As at 31 July 2019, international reserves stood at USD103.9 billion, sufficient to finance 7.6 months of retained imports, and is 1.1 time the shortterm external debt. Of significance, reserves are not the only means for banks and corporations to meet their external obligations. The progressive liberalisation of foreign exchange administration rules has resulted in significant increase in non-reserves external assets. In particular, banks and corporations held roughly three-quarters of Malaysia’s RM1.8 trillion external assets, which can be drawn down to meet their RM728.3 billion external debt obligations. While the flexible exchange rate remains the first line of defence, adequate international reserves and availability of substantial foreign currency external assets by banks and corporations continue to serve as important buffers against potential external shocks. (Source: Bank Negara Malaysia’s Quarterly Bulletin for Second Quarter of 2019) 6.2 Monetary and financial developments Headline inflation increased in June Headline inflation increased to 1.5% in June (May: 0.2%) reflecting the lapse in the impact of the GST zerorisation that was implemented in June 2018. While the lapse in the impact of the GST zerorisation contributed to higher overall food inflation, inflation of fresh food items remained contained amid the festive season price controls. Excluding the impact of the changes in the consumption tax policy, core inflation6 was relatively stable at 1.5% (May: 1.6%). Higher export growth in May Exports registered a higher growth of 2.5% (April: 1.1%) due mainly to stronger non-E&E and agriculture exports. Going forward, export growth is expected to remain moderate on account of modest global growth and trade activity. 5 Refers to the aggregated sum of the net short or long foreign currency positions for all currencies across banks. Core inflation is computed by excluding price-volatile and price-administered items. It also excludes the estimated direct impact of tax policy changes. 6 79
94. Net financing continued to support economic activity Net financing7 expanded by 5 .9% in June (May: 6.3%). Outstanding corporate bond growth moderated to 10.6% (May: 11.1%). Outstanding household loans grew by 4.9% (May: 5.1%) while outstanding business loan growth was sustained at 3.4% (May: 3.6%). Total loans disbursed8 by the banking system remained near the historical monthly average of RM93.0 billion. The steady disbursements were across both the household and business segments, including SMEs. Performance of domestic financial markets improved in June In June, domestic financial markets experienced a resumption of non-resident portfolio inflows. This was mainly driven by improved investors’ risk appetite towards the region amid rising market expectations for an interest rate reduction in the US and easing trade tensions. Subsequent to these developments, the ringgit appreciated by 1.3% against the US dollar, in line with regional currencies. The FBM KLCI increased by 1.3% and the 10-year MGS yield decreased by 15.5 basis points. Banking system capitalisation remained strong Banking institutions are well-positioned to withstand severe macroeconomic and financial shocks, with excess capital buffers9 of RM103 billion as at June 2019. (Source: Monetary and Financial Developments in June 2019, Bank Negara Malaysia) 6.3 Market review for 2018 and outlook for 2019 Based on the latest available statistics, Malaysia's economy grew 4.4% in the third quarter of 2018, its slowest quarterly rate so far for the year 2018. Growth had been on a downtrend trend since the fourth quarter of 2017. The authorities have yet to release the fourth quarter 2018 GDP. Nonetheless the government had revised downwards its projected GDP growth rate to 4.8% for the full year 2018 (instead of 5 to 5.5% as previously announced). Besides the changes in leadership and administration post GE14, the country also faced several issues in 2018 which have had impact on the business community and the consumers at large. Among the issues were the global uncertainties arising from United States- China trade war, slowdown in global economy, fall in prices of crude oil and commodities, the strengthening of the US Dollar and review of mega projects by the new government post GE14. In spite of the dramatic changes and challenges faced by our country, the local automotive industry had performed well and in fact rebounded for the year under review. Total industry volume After two years of consecutive contraction, the local automotive market had rebounded in 2018. The Total Industry Volume (TIV) of new motor vehicles registered in 2018 was 598,714 units against 576,625 units registered in 2017. This was an increase of 22,089 units or 3.8% compared with 2017. 7 Net financing refers to outstanding loans of the banking system (excluding development financial institutions (DFIs)), and outstanding corporate bonds. 8 Total loan disbursements includes loans to the ‘Others’ segment. Note: In June 2019, data for April 2018 onwards have been revised to include MBSB Bank Berhad. 9 Excess total capital refers to total capital above the regulatory minimum, which includes the capital conservation buffer requirement and bank-specific higher minimum requirements. 80
95. The total registration of new Passenger Vehicles in ·2018 rose to 533,202 units from 514,675 units in 2017. This was an increase of 18,527 units or 3.6% growth. While the total registration for Commercial Vehicles in 2018 increased by 5.7% or 3,562 units to 65,512 units. Except for April, June, July and August, the sales of new motor vehicles were generally flat or down in 2018 compared to 2017. This was due partly to the apprehension and wait and see attitude of Malaysians in the lead-up to the 14th General Election (GE14), and then the anxiety and uncertainties post GE14 following the change in the federal government. The TIV for April 2018 was higher than similar corresponding month in 2017 due to the low base effect i.e. versus corresponding April 2017 TIV. While the TIV for the month of June to August 2018 were considerably higher than usual. During these three months, the TIV consistently exceeded the 60,000 units mark. The TIV registered for June, July and August 2018 were 64,502, 68,465 and 65,551 units respectively. At 68,465 units, the sales volume for July 2018 was the second highest monthly TIV achieved in the history of the local automotive industry. As a result, the combined TIV registered for the month of June to August constituted one-third of the total sales of new motor vehicles for the entire 2018. The upsurge in demand for new vehicles from June to August 2018 was because of the reduction in prices after the government announced a GST tax holiday for the three months. Based on y-o-y the TIV for June to August 2018 went up by 28%, 41% and 27% respectively compared with similar period in 2017. After that, the monthly TIV was consistently lower or flat. On a quarterly basis, the TIV for the third quarter of 2018 was the highest. The TIV registered for 3QTR2018 was 165,257 units. This is not surprising given that July and August 2018 fell within that three months of GST tax holiday period. The first quarter 2018 TIV (at 135,140 units) was the lowest among the four quarters in 2018 owing to sluggish business activities and moderation in consumers' spending in view of preelection jitters and uncertainties. Segment performance The share of PV to the total market of new motor vehicles in 2018 decreased slightly to 89.1% in 2018 from 89.3% in 2017. While the CV category accounted for 10.9% of the TIV in 2018. Passenger vehicles The total registration of new Passenger Vehicles in 2018 was 533,202 units. This was 18,527 units or 3.6% higher when compared to 2017. Within the Passenger Vehicles category, Passenger Cars continued to form the biggest segment in 2018 with 74% share. This was followed by 4WD/SUVs with a share of 13.5%, MPVs (11.9%) and Window Vans (0.6%). The share of MPVs had decreased from 14.4% in 2017 to 11.9% in 2018. While the 4WD/SUVs share increased from 12.2% in 2017 to 13.5% in 2018 due the increasing popularity of these vehicles. In terms of units, Passenger Cars sub-segment achieved the highest increase with 19,256 units in 2018. This was followed by 4WD/SUVs sub-segment which achieved an increase of 9,287 81
96. units to reach 72 ,019 units in 2018 compared to 62,732 units in 2017. While the MPV subsegment showed a decline in sales in 2018 by 10,534 units. Commercial vehicles A total of 65,512 units of new commercial vehicles were registered in 2018 compared to 61,950 units in 2017. This was an increase of 3,562 units or 5.7%. Except for Panel vans, all sub-segments of the Commercial Vehicles category registered higher sales in 2018. In terms of units, the Pick-up sub-segment achieved the highest increase with 3,124 units in 2018. This was followed by Trucks with 1,477 units, Prime movers (401 units) and Buses (39 units). Pick-up sub-segment continued to form the biggest sub-segment in 2018 with a share of 67.8% (see Chart 5). The next biggest sub-segment was Trucks (23.4%), followed by Panel Vans (5.1%), Prime movers (1.9%) and Buses (1.4%). Total production volume Total production of new vehicles in year 2018 increased by 65,332 units or 13.1% to reach a total of 564,971 units compared to 499,639 units in 2017. The increase in total vehicles production was in tandem with the growth in the TIV 2018. Passenger vehicles Production of new Passenger Vehicles for 2018 recorded an increase of 62,834 units or 13.7% to reach a total of 522,392 units as compared to 459,558 units in 2017. The increase was contributed by the Passenger cars, 4WD/SUVs and Window vans subsegments which recorded an increase of 52,601 units, 17,873 units and 1,241 units respectively. While the MPVs recorded a lower production in 2018 compared with 2017. Commercial vehicles Production of new Commercial Vehicles in 2018 increased 6.2% to 42,579 units compared to 40,081 units in 2017. Except for Panel vans, all sub-segments of the Commercial Vehicle category recorded higher production in 2018 compared to 2017. Outlook of the automotive market for 2019 Malaysian Automotive Association has taken the following economic and environmental factors into account in its forecast for the Total Industry Volume in 2019: (1) The global economic growth is expected to remain subdued. Uncertainties over ongoing trade tensions between the United States and China, global monetary tightening, declining crude oil prices and commodities prices will continue to affect consumer sentiments. (2) The International Monetary Fund has cut its global economic growth forecast for 2019 to 3.7%, down from its previous forecast of 3.9% growth. (3) The Malaysian economy would not be spared from the external factors. The government had forecasted a GDP growth of 4.9% in 2019, which is marginally higher 82
97. than 2018 (i.e. projected at 4.8%). Domestic demand would continue as the key driver for economic growth. (4) Lower public investment following the completion of several infrastructure projects, review of mega projects and a more prudent approach towards new projects are expected to weigh on Malaysia's economic growth. (5) The persistent weak Ringgit will continue to affect business confidence and consumer sentiment. (6) Moderation in consumers' spending in light of economic uncertainties and inflationary pressure. (7) The delayed approval from the authorities for new models pricing which in turn has affected MAA members' plan for new model launches and subsequently will impact the sales of new vehicles. (8) Vehicles purchased forward during the GST tax holiday period from June to August 2018. (9) Stringent lending guidelines including for hire purchase loans by the financial institutions. (10) Introduction of new models with latest additional specifications, design styles and at very competitive prices can assist to sustain buying interest. (11) Continuation of aggressive promotional campaigns by car companies to maintain market share. (Source: Market review for 2018 and outlook for 2019, Malaysian Automotive Association) [The rest of this page has been intentionally left blank] 83
98. 7 . OTHER INFORMATION 7.1 Material contracts As at the date hereof, save as disclosed below, DRB-HICOM Group has not entered into any material contracts within the past three (3) years preceding 30 September 2019 which are still subsisting. Proposed disposal of ten (10) property assets, total effective equity interest of 70.6% in Horsedale and 100% equity interest and 100% redeemable preference shares in RIMB, to Prisma Dimensi Sdn Bhd, for a total disposal consideration of approximately RM1,934.7 million to be satisfied via a freehold land in Johor and cash consideration of approximately RM288.7 million On 8 March 2018, the identified companies within the DRB-HICOM Group have entered into sale and purchase agreements with Prisma Dimensi Sdn Bhd, to dispose of a large portion of the DRB-HICOM Group’s non-industrial property assets and its entire hospitality portfolio, for a total disposal consideration of approximately RM1,934.7 million. Proposed disposal by HHB of 74,000,000 ordinary shares in Alam Flora, representing approximately 97.37% equity interest in Alam Flora, to Tunas Pancar Sdn Bhd, a wholly-owned subsidiary of MCB, for a cash consideration of approximately RM944.6 million On 1 August 2018, HHB has entered into a sale and purchase agreement with Tunas Pancar Sdn Bhd, to dispose of its entire 97.37% shareholding in Alam Flora involving 74,000,000 ordinary shares in Alam Flora, for a cash consideration of approximately RM944.6 million. 7.2 Material litigations As at the date hereof, save as disclosed below, DRB-HICOM Group is not engaged in any litigation, claims or arbitration, either as plaintiff or defendant, which has a material adverse effect on the financial position or business of the DRB-HICOM Group and, to the best of the Board’s knowledge and belief, the Board, having made all reasonable enquiries, is not aware of any proceedings pending or threatened or of any facts likely to give rise to any proceedings which may materially and adversely affect the financial position or business of the DRB-HICOM Group. Guangdong High People’s Court, Civil Complaint by Goldstar Heavy Industrial Co. Ltd. (“Goldstar”) against Proton Automobiles (China) Ltd (“PACL”) and PONSB PACL is a wholly-owned subsidiary of PONSB and PONSB is a 100% subsidiary of PROTON which in turn is a 50.1% subsidiary of DRB-HICOM. Goldstar is claiming, inter alia, the sum of Renminbi (RMB) 860,613,418.15 (equivalent to RM522,908,712.87 based on Bank Negara Malaysia’s exchange rate as at 17 January 2019 of RMB1 : MYR0.6076). The claims are in relation to the Equity Joint Venture Contract dated 17 April 2015 entered into between PROTON, Lotus Group International Limited (“LGIL”) and Goldstar (“EJVC”) on the establishment of a joint venture company named as Goldstar Lotus Automobile Co., Ltd. (“GLAC”); and its termination on 22 January 2018, amongst others. PROTON had on 22 January 2018 terminated the EJVC. LGIL had, on the same date, also issued a termination notice to Goldstar. The purpose of EJVC was to form a joint venture company to produce and sell LOTUS branded passenger cars, engines, parts and components, and accessories; and to provide after-sales services (including spare parts) in connection with its products in People’s Republic of China (“PRC”). Pursuant to the terms of the EJVC, the joint venture company, GLAC was incorporated on 25 September 2015 as a limited liability company in the PRC. The amount of issued and paid-up share capital of GLAC is RMB180 million and the registered shareholders of GLAC are PROTON (40% equity interest), LGIL (10% equity interest) and Goldstar (50% equity interest). 84
99. GLAC has not yet commenced its business operations due to GLAC not having obtained the required manufacturing license . The deadline to obtain the manufacturing license pursuant to the EJVC was originally 25 September 2017. This was subsequently extended by the parties to 31 December 2017 as a matter of good faith. Pursuant to the EJVC, failure to obtain the said manufacturing license within the agreed timeframe entitles either party to terminate the EJVC. The appearance date as stated in the civil complaint is on 9 July 2019, which was vacated by the Guangdong High People’s Court and has been postponed to a later date to be fixed by the Guangdong High People’s Court. PONSB has yet to receive a new appearance date. 7.3 Contingent liabilities DRB-HICOM has provided corporate guarantees and indemnities to financial institutions in respect of facilities granted to its subsidiary companies with the outstanding amount as at 30 September 2019 stood at approximately RM1.7 billion. As at the date of this Information Memorandum, DRB-HICOM is not aware of any breach or claim made under the corporate guarantees and indemnities which are material in the context of the issue of the Sukuk Wakalah. 7.4 Conflict-of-interest situations and mitigating measures 7.4.1 Maybank Investment Bank Berhad (“Maybank IB”) As at the date hereof and after making enquiries as were reasonable in the circumstances, Maybank IB is not aware of any circumstances that would give rise to a conflict of interest situation in its capacity as the JPAs/JLAs/JLMs and the Facility Agent for the Sukuk Wakalah Programme, save as disclosed below: (a) Maybank IB and Maybank Islamic (as defined herein) are subsidiaries of Malayan Banking Berhad. As such, Maybank IB and Maybank Islamic are deemed to be related corporations; (b) Maybank IB is appointed by the Issuer as the JPAs/JLAs/JLMs and the Facility Agent for the Sukuk Wakalah Programme; (c) Maybank Islamic is appointed by the Issuer as the Joint Shariah Advisers for the Sukuk Wakalah Programme; and (d) certain members of the Maybank Group (as defined herein) might be the holders of the existing Islamic medium term notes of up to Ringgit Malaysia One Billion Eight Hundred Million (RM1,800,000,000.00) in nominal value (“Existing Senior Sukuk”), and the Sukuk Proceeds may be utilised by the Issuer to, inter alia, redeem the outstanding amounts under the Existing Senior Sukuk. In view of the above, there may be a potential conflict of interest arising from the roles assumed by Maybank IB in relation to the Sukuk Wakalah Programme. As a mitigating measure and to address the potential conflict of interest situation set out above, the following measures have been or will be taken: (i) the potential conflict of interest situations have been brought to the attention of the board of directors of the Issuer and hence they are fully aware of the same. Despite such potential conflict of interest situations, the board of directors of the Issuer has agreed to proceed with the implementation of the Sukuk Wakalah Programme based on the present arrangement and terms; (ii) Maybank IB is a licensed investment bank and its appointment as the JPAs/JLAs/JLMs and the Facility Agent for the Sukuk Wakalah Programme is in its ordinary course of business; 85
100. (iii) Maybank IB will fully disclose to the potential investor(s) the roles undertaken by Maybank IB and its potential conflict of interest; (iv) the role of Maybank IB will be governed by the relevant agreements and documentation, which shall clearly set out the rights, duties and responsibilities of Maybank IB in its capacity as the JPAs/JLAs/JLMs and the Facility Agent for the Sukuk Wakalah Programme, and shall be carried out on an arms-length basis and independently by Maybank IB; (v) a due diligence exercise pursuant to the Sukuk Wakalah Programme has been or will be undertaken together with other independent professional advisers; (vi) as the redemption of the Existing Senior Sukuk will be governed by the terms of the Existing Senior Sukuk, each of the holders of the Existing Senior Sukuk under the Existing Senior Sukuk will be repaid in accordance with the terms of the Existing Senior Sukuk. Accordingly, the payment to any member of Maybank Group which is a holder of Existing Senior Sukuk pursuant to the redemption of such Existing Senior Sukuk shall be on the same terms as all other holders of the Existing Senior Sukuk, and such member of Maybank Group would not be subject to any preferential treatment in relation to such redemption; and (vii) the conduct of Maybank IB is regulated by Bank Negara Malaysia and the SC and governed under, inter alia, the Financial Services Act 2013, the CMSA and by its own internal controls and checks. “Maybank Group” means Maybank IB and its related corporations including its holding company, subsidiary(s), and any associated company(s) as well as the subsidiary(s) and any associated company(s) of the holding company. 7.4.2 RHB Investment Bank Berhad (“RHB IB”) As at the date hereof and after making enquiries as were reasonable in the circumstances, RHB IB is not aware of any circumstances that would give rise to a conflict of interest situation in its capacity as the JPAs/JLAs/JLMs for the Sukuk Wakalah Programme, save as disclosed below: (a) EPF is a substantial shareholder of the Issuer, Pos Malaysia Berhad and RHB Bank Berhad (“RHB Bank”) (i.e. the holding company of RHB IB); (b) RHB IB, RHB Islamic (as defined herein) and MTB (as defined herein) are subsidiaries of RHB Bank. As such, RHB IB, RHB Islamic and MTB are deemed to be related corporations; (c) RHB IB is appointed by the Issuer as the JPAs/JLAs/JLMs for the Sukuk Wakalah Programme; (d) RHB Islamic is appointed by the Issuer as the Joint Shariah Advisers for the Sukuk Wakalah Programme; (e) MTB is appointed by the Issuer as the Sukuk Trustee and the Security Trustee for the Sukuk Wakalah Programme. In view of the above, there may be a potential conflict of interest arising from the roles assumed by RHB IB in relation to the Sukuk Wakalah Programme. As a mitigating measure and to address the potential conflict of interest situation set out above, the following measures have been or will be taken: (i) the potential conflict of interest situations have been brought to the attention of the board of directors of the Issuer and hence they are fully aware of the same. 86
101. Despite such potential conflict of interest situations , the board of directors of the Issuer has agreed to proceed with the implementation of the Sukuk Wakalah Programme based on the present arrangement and terms; 7.4.3 (ii) RHB IB is a licensed investment bank and its appointment as the JPAs/JLAs/JLMs for the Sukuk Wakalah Programme is in its ordinary course of business; (iii) RHB IB will fully disclose to the potential investor(s) the roles undertaken by RHB IB and its potential conflict of interest; (iv) the role of RHB IB will be governed by the relevant agreements and documentation, which shall clearly set out the rights, duties and responsibilities of RHB IB in its capacity as the JPAs/JLAs/JLMs for the Sukuk Wakalah Programme, and shall be carried out on an arms-length basis and independently by RHB IB; (v) a due diligence exercise pursuant to the Sukuk Wakalah Programme has been or will be undertaken together with other independent professional advisers; and (vi) the conduct of RHB IB is regulated by Bank Negara Malaysia and the SC and governed under, inter alia, the Financial Services Act 2013, the CMSA and by its own internal controls and checks. Maybank Islamic Berhad (“Maybank Islamic”) As at the date hereof and after making enquiries as were reasonable in the circumstances, Maybank Islamic is not aware of any circumstances that would give rise to a conflict of interest situation in its capacity as the Joint Shariah Advisers for the Sukuk Wakalah Programme, save as disclosed below: (a) Maybank IB and Maybank Islamic are subsidiaries of Malayan Banking Berhad. As such, Maybank IB and Maybank Islamic are deemed to be related corporations; (b) Maybank IB is appointed by the Issuer as the JPAs/JLAs/JLMs and the Facility Agent for the Sukuk Wakalah Programme; (c) Maybank Islamic is appointed by the Issuer as the Joint Shariah Adviser for the Sukuk Wakalah Programme; and (d) certain members of the Maybank Group might be the holders of the Existing Senior Sukuk, and the Sukuk Proceeds may be utilised by the Issuer to, inter alia, redeem the outstanding amounts under the Existing Senior Sukuk. In view of the above, there may be a potential conflict of interest arising from the roles assumed by Maybank Islamic in relation to the Sukuk Wakalah Programme. As a mitigating measure and to address the potential conflict of interest situation set out above, the following measures have been or will be taken: (i) the potential conflict of interest situations have been brought to the attention of the board of directors of the Issuer and hence they are fully aware of the same. Despite such potential conflict of interest situations, the board of directors of the Issuer has agreed to proceed with the implementation of the Sukuk Wakalah Programme based on the present arrangement and terms; (ii) Maybank Islamic is a licensed Islamic Bank and its appointment as the Joint Shariah Advisers for the Sukuk Wakalah Programme is in its ordinary course of business; 87
102. 7 .4.4 (iii) Maybank Islamic will fully disclose to the potential investor(s) the roles undertaken by Maybank Islamic and its potential conflict of interest; (iv) the role of Maybank Islamic will be governed by the relevant agreements and documentation, which shall clearly set out the rights, duties and responsibilities of Maybank Islamic in its capacity as the Joint Shariah Advisers for the Sukuk Wakalah Programme, and shall be carried out on an arms-length basis and independently by Maybank Islamic; and (v) the conduct of Maybank Islamic is regulated by Bank Negara Malaysia and governed under, inter alia, the Islamic Financial Services Act 2013 and by its own internal controls and checks. RHB Islamic Bank Berhad (“RHB Islamic”) As at the date hereof and after making enquiries as were reasonable in the circumstances, RHB Islamic is not aware of any circumstances that would give rise to a conflict of interest situation in its capacity as the Joint Shariah Advisers for the Sukuk Wakalah Programme, save as disclosed below: (a) EPF is a substantial shareholder of the Issuer, Pos Malaysia Berhad and RHB Bank (i.e. the holding company of RHB Islamic); (b) RHB IB, RHB Islamic and MTB are subsidiaries of RHB Bank. As such, RHB IB, RHB Islamic and MTB are deemed to be related corporations; (c) RHB IB is appointed by the Issuer as the JPAs/JLAs/JLMs for the Sukuk Wakalah Programme; (d) RHB Islamic is appointed by the Issuer as the Joint Shariah Advisers for the Sukuk Wakalah Programme; (e) MTB is appointed by the Issuer as the Sukuk Trustee and the Security Trustee for the Sukuk Wakalah Programme. In view of the above, there may be a potential conflict of interest arising from the roles assumed by RHB Islamic in relation to the Sukuk Wakalah Programme. As a mitigating measure and to address the potential conflict of interest situation set out above, the following measures have been or will be taken: (i) the potential conflict of interest situations have been brought to the attention of the board of directors of the Issuer and hence they are fully aware of the same. Despite such potential conflict of interest situations, the board of directors of the Issuer has agreed to proceed with the implementation of the Sukuk Wakalah Programme based on the present arrangement and terms; (ii) RHB Islamic is a licensed Islamic Bank and its appointment as the Joint Shariah Advisers for the Sukuk Wakalah Programme is in its ordinary course of business; (iii) RHB Islamic will fully disclose to the potential investor(s) the roles undertaken by RHB Islamic and its potential conflict of interest; (iv) the role of RHB Islamic will be governed by the relevant agreements and documentation, which shall clearly set out the rights, duties and responsibilities of RHB Islamic in its capacity as the Joint Shariah Advisers for the Sukuk Wakalah Programme, and shall be carried out on an arms-length basis and independently by RHB Islamic; and 88
103. (v) 7.4.5 the conduct of RHB Islamic is regulated by Bank Negara Malaysia and governed under, inter alia, the Islamic Financial Services Act 2013 and by its own internal controls and checks. Albar & Partners (“Albar”) As at the date hereof and after making enquiries as were reasonable in the circumstances, Albar is not aware of any circumstances that would give rise to a conflict of interest situation in its capacity as the Solicitors for the JPAs/JLAs in respect of the Sukuk Wakalah Programme. 7.4.6 Malaysian Trustees Berhad (“MTB”) As at the date hereof and after making enquiries as were reasonable in the circumstances, MTB is not aware of any circumstances that would give rise to a conflict of interest situation in its capacity as the Sukuk Trustee and the Security Trustee for the Sukuk Wakalah Programme, save as disclosed below: (a) EPF is a substantial shareholder of the Issuer, Pos Malaysia Berhad and RHB Bank (i.e. the holding company of MTB); (b) RHB IB, RHB Islamic and MTB are subsidiaries of RHB Bank. As such, RHB IB, RHB Islamic and MTB are deemed to be related corporations; (c) RHB IB is appointed by the Issuer as the JPAs/JLAs/JLMs for the Sukuk Wakalah Programme; (d) RHB Islamic is appointed by the Issuer as the Joint Shariah Advisers for the Sukuk Wakalah Programme; (e) MTB is appointed by the Issuer as the Sukuk Trustee and the Security Trustee for the Sukuk Wakalah Programme. In view of the above, there may be a potential conflict of interest arising from the roles assumed by MTB in relation to the Sukuk Wakalah Programme. As a mitigating measure and to address the potential conflict of interest situation set out above, the following measures have been or will be taken: (i) the potential conflict of interest situations have been brought to the attention of the board of directors of the Issuer and hence they are fully aware of the same. Despite such potential conflict of interest situations, the board of directors of the Issuer has agreed to proceed with the implementation of the Sukuk Wakalah Programme based on the present arrangement and terms; (ii) MTB is a trustee company and registered bond trustee with the SC and its appointment as the Sukuk Trustee and the Security Trustee for the Sukuk Wakalah Programme is in its ordinary course of business; (iii) MTB will fully disclose to the potential investor(s) the roles undertaken by MTB and its potential conflict of interest; (iv) the role of MTB will be governed by the relevant agreements and documentation, which shall clearly set out the rights, duties and responsibilities of MTB in its capacity as the Sukuk Trustee and the Security Trustee for the Sukuk Wakalah Programme, and shall be carried out on an arms-length basis and independently by MTB; and (v) Malaysian Trustees has acted as bond trustee in transactions in the Malaysian corporate bonds market and is committed to upholding its professional integrity and responsibilities in relation to the Sukuk Wakalah Programme. 89
104. APPENDIX I AUDITED FINANCIAL STATEMENTS OF DRB-HICOM FOR FYE 2019
105. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) Directors’ Report and Audited Financial Statements 31 March 2019
106. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) Contents Pages Directors’ Report 1-6 Statements of Comprehensive Income 7-8 Consolidated Statement of Financial Position 9 - 10 Company Statement of Financial Position 11 Consolidated Statement of Changes in Equity 12 - 15 Company Statement of Changes in Equity 16 - 17 Statements of Cash Flows 18 - 25 Notes to the Financial Statements 26 - 229 Statement by Directors 230 Statutory Declaration 230 Independent Auditors’ Report 231 - 241
107. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) DIRECTORS' REPORT The Directors of DRB-HICOM Berhad are pleased to submit their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 March 2019. PRINCIPAL ACTIVITIES The Company is an investment holding company with investments in the automotive (including defence and composite manufacturing), services (including integrated logistics, banking and postal businesses) and properties segments. There was no significant change in these activities during the financial year. Information relating to the subsidiary companies, joint ventures and associated companies are described in Note 3 to the financial statements. FINANCIAL RESULTS Net profit for the financial year Group RM’000 Company RM’000 51,191 15,706 122,866 (63,747) 79,453 79,453 (151,128) - 51,191 15,706 Attributable to: Owners of the Company Holders of Perpetual Sukuk Non-controlling interest DIVIDENDS Dividends paid and proposed by the Company since 31 March 2018 were as follows: RM’000 In respect of the financial year ended 31 March 2018: Single tier first and final dividend of 3.0 sen per share, paid on 1 October 2018 57,997 The Directors recommend the payment of a single tier first and final dividend of 3.0 sen per share amounting to RM57,997,112 in respect of the financial year ended 31 March 2019, subject to the approval of shareholders at the forthcoming Annual General Meeting of the Company. ISSUE OF SHARES The Company has not issued any new shares or debentures during the financial year. 1
108. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) DIRECTORS’ REPORT (Continued) RESERVES AND PROVISIONS All material transfers to or from reserves and provisions during the financial year are disclosed in the financial statements. SIGNIFICANT AND SUBSEQUENT EVENTS The details of significant and subsequent events are as disclosed in Note 56 to the financial statements. DIRECTORS OF THE COMPANY The Directors of the Company who have held office since the beginning of the financial year to the date of this report are: Dato’ Mohammad Zainal bin Shaari (Chairman) (Appointed on 13 April 2018) Dato’ Sri Syed Faisal Albar bin Syed A.R Albar (Group Managing Director) Datuk Ooi Teik Huat Dato’ Ibrahim bin Taib Dato’ Siti Fatimah binti Daud Datuk Idris bin Abdullah @ Das Murthy Sharifah Sofia binti Syed Mokhtar Shah (Appointed on 13 April 2018) Tee Beng Thong Brig. Gen. (K) Tan Sri Dato’ Sri (Dr.) Haji Mohd (Resigned on 1 April 2018) Khamil bin Jamil DIRECTORS’ INTERESTS According to the Register of Directors’ Shareholdings, none of the Directors of the Company in office at the end of the financial year held any interests in the shares of the Company or its related corporations during the financial year. DIRECTORS’ BENEFITS During and at the end of the financial year, no arrangement subsisted to which the Company was a party, being arrangements with the object or objects of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than emoluments disclosed in Note 7 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. DIRECTORS’ INDEMNITY Directors’ liability insurance is in place to protect the Directors of the Company against potential costs and liabilities arising from claims brought against the Directors. 2
109. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) DIRECTORS’ REPORT (Continued) DIRECTORS OF THE SUBSIDIARY COMPANIES The following is a list of Directors of the subsidiary companies who have held office since the beginning of the financial year to the date of this report: Dato’ Sri Syed Faisal Albar bin Syed A.R Albar Dato’ Bahar bin Ahmad Dato’ Ibrahim bin Taib Dato’ Siti Fatimah binti Daud Datuk Idris bin Abdullah @ Das Murthy Shaharul Farez bin Hassan Amalanathan Thomas Aminah binti Othman Abd Aziz bin Miskon Ain bin Saim Azlan bin Ash’ari Azman Hanafi bin Abdullah Chai Lai Sim David Castell Arenillas David Chan Mun Wai Dr. Azura binti Othman Elias bin Effendy Fakihah binti Azahari Feng Qingfeng Ghazali bin Haji Darman Hamizan bin Osman Hiroshi Hasegawa Ho Chun Foh Kamil Ahmad Merican Khairul Anuar bin Hasan Koon Chee Wah Li Chunrong Li Donghui Lim How Ghee Mohammed Shukor bin Ismail Mohd Faruk bin Abdul Karim Naoki Kawaguchi Ng Kong Chin Toshihide Saito (Alternate Director to Shoichi Araya) Soo Thean Hin Sharifah Sofia binti Syed Mokhtar Shah Xu Yuan, Steven Tan Sri Dato’ Dr Mohd Munir bin Abdul Majid Gen. Tan Sri Dato’ Sri Roslan bin Saad Dato’ Abdul Hamid bin Sh Mohamed Dato’ Azlan bin Shahrim Dato’ Dr. Adnan bin Alias Dato’ Haji Amril bin Samsudin Dato’ Haji Che Pee bin Samsudin Dato’ Haji Kamil bin Khalid Ariff Dato’ Haji Mohd Izani bin Ghani Dato’ Haji Mohd Redza Shah bin Abdul Wahid Dato’ Haji Mohd Zain bin Haji Hassan Dato’ Hilmi bin Mohd Noor Dato’ Ibrahim Mahaludin bin Puteh Dato’ Lim Tiong Boon Dato’ Md Radzaif bin Mohamed Dato’ Mohamad bin Saif @ Saib Dato’ Mohd Fuad bin Abd Latiff Dato’ Sri Che Khalib bin Mohamad Noh Dato’ Sri Solah bin Mat Hassan Dato’ Tung Kok Sing Dato’ Wong Lum Kong Datuk Kamarudin bin Md Ali Datuk Puteh Rukiah binti Abd Majid Pang Li Jun PeerMohamed bin Ibramsha Rin Nan Lun Rin Nan Yoong Shamsuddin bin Mohamed Yusof Shoichi Araya Shuhaida binti Nun Tang Hon Shan Winfried Vahland Yoshiya Inamori Wong Yoke Kow (Alternate Director to Dato’ Wong Lum Kong) (Appointed on 11 April 2018) (Appointed on 13 April 2018) (Appointed on 10 May 2018) 3
110. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) DIRECTORS’ REPORT (Continued) DIRECTORS OF THE SUBSIDIARY COMPANIES (Continued) The following is a list of Directors of the subsidiary companies who have held office since the beginning of the financial year to the date of this report: (Continued) Eigo Konya Michael Derin An Conghui Dato’ Shahrani bin Mohd Sany Norahmadi bin Sulong Chang Yeong Gung Ahmad Suhaimi bin Endut Syed Najib bin Syed Md Noor Dato’ Jezilee bin Mohamed Ramli Mohamed Fadzil bin Sulaiman Azri bin Zaharuddin Tan Sri Dr. Ali bin Hamsa Datuk Yasmin binti Mahmood Martin Brune Muhammad Fateh Teh bin Abdullah Brig. Gen. (K) Tan Sri Dato’ Sri (Dr.) Haji Mohd Khamil bin Jamil Ainol Azmil bin Abu Bakar Tengku Dato’ Seri Hasmuddin bin Tengku Othman Varsha Chandrukar Mohd Khalid bin Yusof Takeshi Mishina Heidi Johanna Clay (Appointed on 11 June 2018) (Appointed on 13 August 2018) (Appointed on 30 August 2018) (Appointed on 1 September 2018) (Appointed on 5 September 2018) (Appointed on 18 September 2018) (Appointed on 27 September 2018) (Appointed on 1 October 2018) (Appointed on 13 December 2018) (Appointed on 12 February 2019) (Appointed on 18 March 2019) (Appointed on 1 April 2019) (Appointed on 1 April 2019) (Appointed on 8 April 2019) (Appointed on 23 May 2019) (Resigned on 1 April 2018) (Resigned on 11 April 2018) (Resigned on 18 April 2018) (Resigned on 9 May 2018) (Resigned on 10 May 2018) (Resigned on 11 June 2018) (Appointed on 9 May 2018, resigned on 13 August 2018) Dato’ Azmi bin Abdullah (Resigned on 17 September 2018) Matsuo Hirokazu (Resigned on 18 September 2018) Al-Ishsal bin Ishak (Resigned on 30 September 2018) Yu Ning (Resigned on 30 September 2018) Tan Sri Dato’ Seri Mohd Zahidi bin Haji Zainuddin (Resigned on 1 October 2018) Hasnul bin Haniff (Resigned on 30 October 2018) Nor Azizan bin Tarja @ Tarjo (Resigned on 31 October 2018) Rohime bin Shafie (Resigned on 18 March 2019) Dato’ Mohammad Zainal bin Shaari (Appointed on 13 April 2018, resigned on 1 April 2019) Tan Sri Dato’ Sri Zamzamzairani bin Mohd Isa (Resigned on 1 April 2019) Martin Erdmann Schuler (Resigned on 8 April 2019) Dato’ Abdul Harith bin Abdullah (Resigned on 10 April 2019) Tay Inn Meng (Resigned on 17 April 2019) Abdul Rashid bin Musa (Resigned on 28 June 2019) Datuk Lee Chin Yong (Retired on 18 September 2018) Datuk Ruhaizah binti Mohamed Rashid (Deceased on 11 February 2019) 4
111. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) DIRECTORS’ REPORT (Continued) STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS Before the statements of comprehensive income and statements of financial position were made out, the Directors took reasonable steps: (a) to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and had satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and (b) to ensure that any current assets which were unlikely to realise their values as shown in the accounting records of the Group and of the Company in the ordinary course of business had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances: (a) which would render the amounts written off for bad debts or the amounts of the allowance for doubtful debts made in the financial statements of the Group and of the Company inadequate to any substantial extent; (b) which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; and (c) which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group or of the Company to meet their obligations as and when they fall due. At the date of this report, there does not exist: (a) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liability of any other person; or (b) any contingent liability of the Group and of the Company which has arisen since the end of the financial year. At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. In the opinion of the Directors, other than as disclosed in the financial statements: (a) the results of the Group’s and of the Company’s operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and (b) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to substantially affect the results of the operations of the Group or of the Company for the financial year in which this report is made. 5
113. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 Group 2019 Note RM’000 2018 (Restated) RM’000 Company 2019 2018 (Restated) RM’000 RM’000 644,254 Revenue 4 12,477,049 12,250,565 Cost of sales 5 (10,267,580) Gross profit 1,069,412 (10,780,708) - - 2,209,469 1,469,857 644,254 1,069,412 - 1,100,000 - - Other income - grant income - gain on disposals of subsidiary companies (net) - others Selling and distribution costs Administrative expenses - - - 449,898 282,944 636,204 14,115 80,589 (263,969) (297,069) - - (1,631,530) (1,633,143) (43,042) (42,254) Other expenses - effect of PROTON restructuring 51(iii)(b) - others Finance costs - (595,513) - (32,990) (155,700) (275,157) (463,726) (2,487,129) (134,075) (139,259) 9 (379,941) (360,267) Share of results of joint ventures (net of tax) 18(d) 40,877 (4,459) - - Share of results of associated companies (net of tax) 19(g) 179,706 243,349 - - Profit/(loss) before taxation 6 281,856 283,802 17,526 Taxation 10 (230,665) (91,583) (1,820) 51,191 192,219 15,706 39,490 2,320 - - Net loss on valuation of postemployment benefit obligations (87) (172) - - Net (loss)/gain on fair value changes of equity instrument: financial assets at fair value through other comprehensive income (15,418) - 61,304 (172,160) 2,148 61,304 (172,160) Net profit/(loss) for the financial year (1,101,733) (18,753) (1,120,486) Other comprehensive income/(loss) Items that will not be reclassified subsequently to profit or loss: Fair value adjustment on transfer of property, plant and equipment to investment properties Sub-total carried forward 23,985 7
114. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Note Group 2019 2018 (Restated) RM’000 RM’000 Company 2019 2018 (Restated) RM’000 RM’000 Other comprehensive income/(loss) (Continued) Sub-total brought forward 23,985 2,148 61,304 (172,160) 46,800 6,537 - - 1,181 (9,527) - - (17,533) (23,071) - - - 86,592 - - 54,433 62,679 61,304 (172,160) 105,624 254,898 77,010 (1,292,646) 122,866 430,372 (63,747) (1,199,939) 79,453 79,453 79,453 79,453 - Items that will be reclassified subsequently to profit or loss: Net gain on fair value changes of investment securities: financial assets at fair value through other comprehensive income Currency translation differences of foreign subsidiary companies Reclassification adjustments: Transfer of realised gain on fair value changes of investment securities: financial assets at fair value through other comprehensive income upon disposal Transfer of reserve of foreign subsidiary companies to profit or loss upon disposal Other comprehensive income/(loss) for the financial year (net of tax) Total comprehensive income/(loss) for the financial year Net profit/(loss) for the financial year attributable to: Owners of the Company Holders of Perpetual Sukuk Non-controlling interest 17(h) (151,128) (317,606) - 51,191 192,219 15,706 (1,120,486) 168,430 495,023 (2,443) (1,372,099) 79,453 Total comprehensive income/(loss) for the financial year attributable to: Owners of the Company Holders of Perpetual Sukuk 79,453 Non-controlling interest Basic and diluted earnings per share (sen) 12 79,453 79,453 (142,259) (319,578) - - 105,624 254,898 77,010 6.36 22.26 (1,292,646) The notes set out on pages 26 to 229 form an integral part of the financial statements. 8
115. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2019 RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 6,100,951 51,495 294,857 234,589 317,415 805,843 1,563,114 147,213 5,908,765 209,102 53,208 248,193 232,451 292,805 885,404 1,613,166 204,902 6,453,357 217,152 50,813 246,889 1,079,673 407,343 756,543 1,898,543 171,722 156,456 290,433 310,982 4,635,531 44,898 5,540,505 45,498 5,035,771 46,153 28 23 102,596 1,288,562 504 102,941 923,219 544 101,875 262,717 516 24 11,269,467 10,097,292 10,661,756 25 699,275 27,712,766 674,500 27,322,928 698,636 28,400,441 26 27 28 1,275,893 2,550,799 2,932,296 107,709 458,020 2,388,600 3,156,288 121,405 4,500 2,426,275 3,862,423 200,546 504,344 164,076 175,962 221,573 300,501 766,249 1,090,487 714 - 8,000 8,000 842,508 3,749,776 1,039,221 1,471,188 25,035 14,964,060 1,587,681 4,147,550 920,201 1,604,589 72,968 15,407,513 1,049,925 3,902,864 1,070,133 1,358,947 61,494 15,257,167 42,676,826 42,730,441 43,657,608 2019 Note ASSETS NON-CURRENT ASSETS Property, plant and equipment Concession assets Prepaid lease properties Investment properties Inventories Joint ventures Associated companies Intangible assets Deferred tax assets Investment securities: financial assets at fair value through profit or loss - Banking Investment securities: financial assets at fair value through other comprehensive income - Banking - Non-banking Investment securities: financial assets at amortised cost - Banking Trade and other receivables Other assets Banking related assets - Financing of customers - Statutory deposit with Bank Negara Malaysia CURRENT ASSETS Assets and disposal groups held for sale Inventories Trade and other receivables Tax recoverable Investment securities: financial assets at fair value through profit or loss - Banking - Non-banking Investment securities: financial assets at fair value through other comprehensive income - Banking Investment securities: financial assets at amortised cost - Banking - Non-banking Banking related assets - Cash and short-term funds - Financing of customers Short term deposits Cash and bank balances Derivative assets 13 14 15 16 27 18 19 20 21 22(a) 22(b) 22(c) 22(a) 22(b) 22(c) 31 24 29 30 32 TOTAL ASSETS 9
116. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2019 (Continued) RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 1,740,302 4,970,161 1,740,302 4,862,943 1,740,302 4,270,195 6,710,463 1,051,745 6,603,245 1,052,026 6,010,497 1,051,839 35 17(h) 669,266 1,584,420 10,015,894 669,266 1,773,587 10,098,124 1,289,550 1,817,766 10,169,652 36 43 37 26,585 64,489 3,548,020 26,691 82,905 3,465,291 40,949 120,825 4,105,407 35 38 39 40 21 578,728 11,057 6,116 291,804 545,107 116,727 179,938 8,199 251,433 90,556 138,809 37,741 209,043 41 313,445 617,221 418,615 42 471,102 5,311,346 485,851 5,779,363 5,161,945 26 36 43 38 39 40 44 718,926 6,406 5,117,896 301,046 430 127,811 8,809 5,333,056 321,215 1,740 593 12,998 6,362,392 274,993 6,146 495 12,959 2,757,732 11,255 9,062 2,315,346 10,839 6,511 2,186,391 79,476 41 18,347,717 18,617,151 18,760,895 45 46 32 6,747 15,678 52,794 27,349,586 8,854 9,618 88,860 26,852,954 561,654 9,196 64,864 28,326,011 TOTAL LIABILITIES 32,660,932 32,632,317 33,487,956 TOTAL EQUITY AND LIABILITIES 42,676,826 42,730,441 43,657,608 2019 Note EQUITY AND LIABILITIES EQUITY Share capital Reserves Equity attributable to Owners of the Company Perpetual Sukuk Redeemable Convertible Cumulative Preference Shares Non-controlling interest TOTAL EQUITY NON-CURRENT LIABILITIES Deferred income Trade and other payables Long term borrowings Redeemable Convertible Cumulative Preference Shares Provision for liabilities and charges Provision for concession assets Post-employment benefit obligations Deferred tax liabilities Banking related liabilities - Deposits from customers - Recourse obligation on financing sold to Cagamas CURRENT LIABILITIES Liabilities related to disposal groups held for sale Deferred income Trade and other payables Provision for liabilities and charges Provision for concession assets Post-employment benefit obligations Bank borrowings - Bank overdrafts - Others Tax payable Banking related liabilities - Deposits from customers - Deposits and placements of banks and other financial institutions - Bills and acceptances payable Derivative liabilities 33 34 The notes set out on pages 26 to 229 form an integral part of the financial statements. 10
117. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2019 RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 2019 Note ASSETS NON-CURRENT ASSETS Property, plant and equipment Investment properties Subsidiary companies Joint ventures Associated companies Trade and other receivables 13 16 17 18 19 28 39 130,607 6,234,477 4,686 57,800 441,589 6,869,198 74 130,607 6,509,932 4,686 61,060 159,057 6,865,416 120 130,654 8,357,288 4,686 61,170 8,553,918 CURRENT ASSETS Trade and other receivables Short term deposits Cash and bank balances 28 29 30 482,783 413,034 1,453 897,270 570,511 574,915 1,842 1,147,268 1,223,107 223,771 33,707 1,480,585 7,766,468 8,012,684 10,034,503 1,740,302 2,433,795 1,740,302 2,494,235 1,740,302 3,885,666 4,174,097 1,051,745 5,225,842 4,234,537 1,052,026 5,286,563 5,625,968 1,051,839 6,677,807 37 21 43 1,299,865 5,867 143,740 1,449,472 1,078,879 14,845 287,479 1,381,203 1,538,388 647 1,539,035 43 44 395,381 695,014 759 1,091,154 631,785 711,928 1,205 1,344,918 1,569,910 245,631 2,120 1,817,661 TOTAL LIABILITIES 2,540,626 2,726,121 3,356,696 TOTAL EQUITY AND LIABILITIES 7,766,468 8,012,684 10,034,503 TOTAL ASSETS EQUITY AND LIABILITIES EQUITY Share capital Reserves Equity attributable to Owners of the Company Perpetual Sukuk TOTAL EQUITY NON-CURRENT LIABILITIES Long term borrowings Deferred tax liabilities Trade and other payables CURRENT LIABILITIES Trade and other payables Bank borrowings - Others Tax payable 33 34 The notes set out on pages 26 to 229 form an integral part of the financial statements. 11
118. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 Note Share Capital (Note 33) RM’000 Merger Reserve (Note 47) RM’000 1,740,302 1,212,210 Non-distributable Fair Value through Other Comprehensive Income Currency (“FVOCI”) Translation Reserve Differences RM’000 RM’000 Perpetual Sukuk (Note 34) RM’000 Redeemable Convertible Cumulative Preference Shares (“RCCPS”) (Note 35) RM’000 1,052,026 669,266 Other Reserves (Note 48) RM’000 Retained Earnings RM’000 Equity attributable to Owners of the Company RM’000 (12,997) 56,184 3,745,299 6,733,707 (1,008) 27,345 - - (14,005) 83,529 3,588,500 6,603,245 1,052,026 669,266 Noncontrolling Interest (Note 17(h)) RM’000 Total RM’000 1,830,873 10,285,872 2019 At 1 April 2018 Prior years’ adjustments - - 1,740,302 1,212,210 Net profit for the financial year - - - - - 122,866 122,866 79,453 - Other comprehensive income for the financial year, net of tax - - 894 6,168 38,502 - 45,564 - - Total comprehensive income for the financial year - - 894 6,168 38,502 122,866 168,430 79,453 - Transfer of fair value changes recognised for equity instrument (elected as FVOCI) upon derecognition - - - - 1,632 148 - - 64 Effect of changes in RPGT rate - - - (76) - - - 1,740,302 1,212,210 1,131,479 669,266 1,631,392 As restated Sub-total carried forward 2.2 (7,291) (7,291) (6,397) (1,484) (9,321) 12 (76) 121,955 (156,799) 3,712,998 (130,462) 6,771,747 (57,286) 1,773,587 (151,128) 8,869 (142,259) (187,748) 10,098,124 51,191 54,433 105,624 212 (76) 10,203,884
119. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Non-distributable Note Share Capital (Note 33) RM’000 Merger Reserve (Note 47) RM’000 Currency Translation Differences RM’000 FVOCI Reserve RM’000 Other Reserves (Note 48) RM’000 Retained Earnings RM’000 Equity attributable to Owners of the Company RM’000 (9,321) 121,955 3,712,998 6,771,747 RCCPS (Note 35) RM’000 Noncontrolling Interest (Note 17(h)) RM’000 Total RM’000 1,131,479 669,266 1,631,392 10,203,884 - - - - - - - - - - - - - - - - - Perpetual Sukuk (Note 34) RM’000 2019 (Continued) Sub-total brought forward 1,740,302 1,212,210 Transfer of a subsidiary company’s reserves (6,397) - - - - Realisation of revaluation reserves upon disposal of investment properties - - - - Acquisitions of additional interest in subsidiary companies - - - - - Effect of deconsolidation of a subsidiary company under members’ voluntary winding up - (450) - - - 450 - Distribution to holders of Perpetual Sukuk - - - - - - - Dividend paid/payable to non-controlling interest - - - - - - - 16,094 (467) (16,094) 467 Transactions with Owners First and final dividend in respect of financial year ended 31 March 2018 At 31 March 2019 11 - - 1,740,302 1,211,760 (6,397) (9,321) 13 137,582 (3,287) (57,997) 3,636,537 (3,287) (57,997) 6,710,463 (79,734) - - (12,116) (34,856) - - - 1,051,745 669,266 1,584,420 (15,403) (79,734) (34,856) (57,997) 10,015,894
120. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Non-distributable Note Share Capital (Note 33) RM’000 Merger Reserve (Note 47) RM’000 1,740,302 1,212,275 Currency Translation Differences RM’000 FVOCI Reserve RM’000 Other Reserves (Note 48) RM’000 (1,358) 500,131 Retained Earnings RM’000 Equity attributable to Owners of the Company RM’000 Perpetual Sukuk (Note 34) RM’000 2,704,768 6,071,787 1,051,839 RCCPS (Note 35) RM’000 Noncontrolling Interest (Note 17(h)) RM’000 Total RM’000 1,289,550 1,841,137 10,254,313 2018 At 1 April 2017 Prior years’ adjustments 2.2 (84,331) - - 1,740,302 1,212,275 Net profit for the financial year - - - Other comprehensive income for the financial year, net of tax - - 74,296 Total comprehensive income for the financial year - - 74,296 Transfer of revaluation gain on disposal of investment properties - - - Transfer of subsidiary companies’ reserves - - - - - - - - 2,744 1,740,302 1,212,275 As restated (84,331) - - - 500,131 2,643,478 6,010,497 1,051,839 1,289,550 - 430,372 430,372 79,453 - (317,606) 192,219 (11,639) 1,994 - 64,651 - - (1,972) 62,679 (11,639) 1,994 430,372 495,023 79,453 - (319,578) 254,898 (774) 774 - - - - - (369,661) 370,669 - - - - - - 32,916 (32,916) - - - - - - 103 123,525 126,372 - - 333,928 460,300 164,709 3,535,902 6,631,892 1,131,292 1,289,550 1,832,116 10,884,850 (1,358) - (1,008) - (61,290) (61,290) (23,371) 1,817,766 (84,661) 10,169,652 Transactions with Owners Disposal of subsidiary companies Effect of change in shareholding in subsidiary companies Sub-total carried forward 51(iii)(b) (7,291) (14,005) 14
121. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Non-distributable Note Currency Translation Differences RM’000 FVOCI Reserve RM’000 Other Reserves (Note 48) RM’000 (14,005) 164,709 Share Capital (Note 33) RM’000 Merger Reserve (Note 47) RM’000 1,740,302 1,212,275 - - - - RCCPS (Note 35) RM’000 Noncontrolling Interest (Note 17(h)) RM’000 Total RM’000 1,131,292 1,289,550 1,832,116 10,884,850 - - - - - - - 250,000 - 250,000 - (340,685) - (350,000) Retained Earnings RM’000 Equity attributable to Owners of the Company RM’000 Perpetual Sukuk (Note 34) RM’000 3,535,902 6,631,892 81,180 2018 (Continued) Sub-total brought forward (7,291) Transactions with Owners (Continued) Reclassification of reserves arising from dilution of interest in a subsidiary company (81,180) Net issuance of RCCPS 35 - - - - - RCCPS Purchase 35 - - - - - (9,pg16315) (9,315) Effect on deconsolidation of a subsidiary company under members’ voluntary winding up - - - - 65 - - Reclassification of RCCPS - - - - - - - - Distribution to holders of Perpetual Sukuk - - - - - - - Dividend paid/payable to non-controlling interest - - - - - - - First and final dividend in respect of financial year ended 31 March 2017 At 31 March 2018 11 (65) - - 1,740,302 1,212,210 (7,291) (14,005) 83,529 (19,332) 3,588,500 (19,332) 6,603,245 The notes set out on pages 26 to 229 form an integral part of the financial statements. 15 (79,266) - (529,599) - - - - (529,599) - (79,266) (58,529) - - - 1,052,026 669,266 1,773,587 (58,529) (19,332) 10,098,124
122. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 Non-distributable Share Capital (Note 33) RM’000 Merger Reserve (Note 47) RM’000 1,740,302 2,318,321 Distributable FVOCI Reserve RM’000 Retained Earnings (Note 49) RM’000 Equity attributable to Owners of the Company RM’000 Perpetual Sukuk (Note 34) RM’000 Total RM’000 - 305,353 4,363,976 1,052,026 5,416,002 2019 At 1 April 2018 Prior years’ adjustments 2.2 - - (208,482) 79,043 1,740,302 2,318,321 (208,482) 384,396 Net profit for the financial year - - - Other comprehensive income for the financial year, net of tax - - 61,304 Total comprehensive income for the financial year - - 61,304 - - - As restated (63,747) (63,747) (129,439) 4,234,537 (63,747) 61,304 (2,443) - (129,439) 1,052,026 5,286,563 79,453 15,706 - 61,304 79,453 77,010 (79,734) (79,734) Transactions with Owners Distribution to holders of Perpetual Sukuk First and final dividend in respect of financial year ended 31 March 2018 At 31 March 2019 11 - - - 1,740,302 2,318,321 (147,178) 16 (57,997) 262,652 (57,997) 4,174,097 1,051,745 (57,997) 5,225,842
123. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Non-distributable Share Capital (Note 33) RM’000 Merger Reserve (Note 47) RM’000 1,740,302 2,318,321 Distributable FVOCI Reserve RM’000 Retained Earnings (Note 49) RM’000 Equity attributable to Owners of the Company RM’000 Perpetual Sukuk (Note 34) RM’000 Total RM’000 - 1,603,667 5,662,290 1,051,839 6,714,129 2018 At 1 April 2017 Prior years’ adjustments 2.2 - - (36,322) - 1,740,302 2,318,321 (36,322) 1,603,667 5,625,968 Net loss for the financial year - - - (1,199,939) (1,199,939) 79,453 (1,120,486) Other comprehensive loss for the financial year, net of tax - - (172,160) (172,160) - (172,160) Total comprehensive loss for the financial year - - (172,160) (1,372,099) 79,453 (1,292,646) - - - - - - 1,740,302 2,318,321 (208,482) As restated (1,199,939) (36,322) 1,051,839 (36,322) 6,677,807 Transactions with Owners Distribution to holders of Perpetual Sukuk First and final dividend in respect of financial year ended 31 March 2017 At 31 March 2018 11 (19,332) 384,396 The notes set out on pages 26 to 229 form an integral part of the financial statements. 17 (19,332) 4,234,537 (79,266) 1,052,026 (79,266) (19,332) 5,286,563
124. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 Group 2019 Company 2019 2018 (Restated) RM’000 RM’000 RM’000 2018 (Restated) RM’000 51,191 192,219 15,706 Allowance for expected credit losses (net of write backs) 26,659 16,030 - - Allowance for financing of customers (net of write backs) 11,909 81,084 - - 4,448 11,905 - - 169,948 193,881 - - 1,713 1,768 - - Depreciation of property, plant and equipment 711,439 704,611 35 42 Finance costs 379,941 360,267 134,075 139,259 2,592 6,684 - - 36,619 102,024 - - - 97,637 - 11,867 12,522 - - 60,109 121,610 - - - investment in subsidiary companies - - 422,605 2,485,654 - investment in an associated company - 577 130 110 17,922 25,444 - - 44,218 41,129 - - 230,665 91,583 1,820 18,753 24,464 (148,884) - - - - CASH FLOWS FROM OPERATING ACTIVITIES Net profit/(loss) for the financial year (1,120,486) Adjustments for non-cash items: Amortisation of: - concession assets - intangible assets - prepaid lease properties Financing written off Inventories written off/down (net of write backs) Loss/(gain) on disposals of subsidiary companies Marked to market loss on derivatives (net) (449,898) Net impairment loss of: - intangible assets - property, plant and equipment/prepaid lease properties Provision for concession assets Taxation Unrealised foreign exchange differences (net) Write off of: - intangible assets - property, plant and equipment Sub-total carried forward 3,187 7,306 3,120 4,982 - - 1,792,011 1,924,379 574,371 1,073,434 18
125. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Group 2019 RM’000 2018 (Restated) RM’000 1,792,011 1,924,379 Company 2019 2018 (Restated) RM’000 RM’000 CASH FLOWS FROM OPERATING ACTIVITIES (Continued) Sub-total brought forward Amortisation of deferred income (2,911) (2,012) 574,371 1,073,434 - - Dividend income: - subsidiary companies - - (73,496) (585,446) - a joint venture - - (375) (1,078) - an associated company - - (237,830) (112,370) - other investment (108) (202) - Distribution from a subsidiary company - - (297,053) Gain on capital repayment of an associated company - - (34) (353,000) - (Gain)/loss on fair value adjustments of: - investment properties (2,731) (16,990) - 47 - investment securities (41,523) (18,785) - - (72,952) (71,243) Interest income on: - short term deposits - subsidiary companies Reversal of impairment of investment securities - - (13,907) (14,328) (21,485) (3,503) (201) (3,059) - - (573) (712) - - (18,194) (35,069) - - Net gain on disposals of: - investment properties - investment securities: financial assets at fair value through other comprehensive income (6,692) (16,742) - (Reversal of)/provision for liabilities and charges (net) - property, plant and equipment (81,248) 165,516 - - Share of results of joint ventures (net of tax) (40,877) 4,459 - - - - Share of results of associated companies (net of tax) Cash inflow/(outflow) before working capital changes (179,706) 1,344,295 19 (243,349) 1,686,191 (69,809) (16) 3,740
126. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Group 2019 RM’000 2018 (Restated) RM’000 Company 2019 2018 (Restated) RM’000 RM’000 CASH FLOWS FROM OPERATING ACTIVITIES (Continued) 810,342 (89,637) Inventories Inter-company balances (248,321) 574,152 Trade and other receivables (266,955) Trade and other payables (698,979) (416,314) 10,785 Financing of customers (788,902) 232,010 - - (24,775) 24,136 - - (573,210) 54,862 - - (2,107) (552,800) Statutory deposit with Bank Negara Malaysia Deposits from customers Deposits and placements of banks and other financial institutions Bills and acceptances payable Net cash (outflow)/inflow from operations Interest received 6,060 (442,552) 7,943 (23,987) (1,213) (62,062) 484 (47,029) - - 422 - - 1,520,965 (84,224) (104,867) 69,797 55,768 - - Finance costs paid (179,116) (191,808) - - Taxation paid (net of refund) (123,037) (56,522) (11,244) (86,221) (96,956) - - 3,409 4,255 Provision for liabilities and charges paid Deferred income received (4,809) - - Post-employment benefit obligations paid (2,797) (561) - - Provision for concession assets paid (2,378) (4,406) - - Net cash (outflow)/inflow from operating activities (762,895) 20 1,230,735 (95,468) (109,676)
127. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Group 2019 RM’000 2018 (Restated) RM’000 Company 2019 2018 (Restated) RM’000 RM’000 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of investment securities by: - a banking subsidiary company - a non-banking subsidiary company Acquisition of additional shares/subscription of shares in subsidiary companies (9,051,526) (7,870,260) - - (150) - - - (13,000) - - (1) - 73,496 185,446 Dividends received from: - subsidiary companies - joint ventures - associated companies - other investment Interest received Movement in fixed deposits placement with maturity profile more than three months 6,853 19,418 375 1,078 243,884 115,141 237,830 112,370 113 202 - 4,138 10,891 14,286 13,186 13,311 (14,071) 522 (17) Net cash inflow from disposals of subsidiary companies - - 428,870 - 449,898 9,233,876 6,813,079 - - 13,837 54,008 - 20 (806,913) - - 962,759 910,720 - - Redemption of preference shares by a joint venture - 5,000 - - Share subscription in a subsidiary company by a non-controlling shareholder - 170,300 - - Redeemable Convertible Cumulative Preference Shares (“RCCPS”) Purchase in a subsidiary company - - - 3,158 - 3,164 - 15,748 21,728 - - 332,514 (141,887) 329,673 411,980 Proceeds from disposals of investment securities by a banking subsidiary company Proceeds from disposals of property, plant and equipment/investment properties/assets held for sale Purchases of property, plant and equipment/concession assets/investment properties/intangible assets Redemptions of investment securities by a banking subsidiary company Proceeds from liquidation of an associated company Withdrawal of investment securities Net cash inflow/(outflow) from investing activities (1,100,487) 21 (350,000)
128. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Group 2019 RM’000 2018 (Restated) RM’000 21 2,998 Company 2019 2018 (Restated) RM’000 RM’000 CASH FLOWS FROM FINANCING ACTIVITIES Bank balances in Escrow account arising from RCCPS - Dividends paid to non-controlling interest (34,856) (52,662) Dividends paid to shareholders (57,997) (19,332) (57,997) (19,332) Distribution paid to holders of Perpetual Sukuk (79,734) (79,266) (79,734) (79,266) (167,606) (166,134) (113,293) (138,034) - - (347,378) 248,670 109,324 (163,396) 101,337 (143,490) - 250,000 - - 4,272,942 3,990,448 763,500 400,000 - 500,185 - - Finance costs paid Loans from subsidiary companies (net of repayment) Movement in bank balances and fixed deposits held as security for bank borrowings Net proceeds from issuance of RCCPS Proceeds from bank borrowings Proceeds from recourse obligation on financing sold to Cagamas by a banking subsidiary company Repayment of borrowings/hire purchase and finance leases Repayment of principal for recourse obligation on financing sold to Cagamas NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Effects of foreign currency translation (4,464,308) (14,799) (14,334) - - - (350,000) - - 250,807 (565,801) (294,615) (126,532) (179,574) 523,047 (60,410) 175,772 897 (9,980) (561,050) - (3,776,488) RCCPS Purchase Net cash inflow/(outflow) from financing activities - - (395,080) - - CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 3,091,181 2,578,114 432,708 256,936 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 2,912,504 3,091,181 372,298 432,708 Short term deposits 1,039,221 920,201 413,034 574,915 Cash and bank balances 1,453 1,842 (a) Cash and cash equivalents at end of the financial year comprise the following: 1,471,188 1,604,589 Cash and short-term funds of a banking subsidiary company 842,508 1,587,681 Bank overdrafts (12,959) Sub-total carried forward 3,339,958 22 (9,062) 4,103,409 - - - - 414,487 576,757
129. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) Group 2019 Note (a) RM’000 2018 (Restated) RM’000 3,339,958 4,103,409 Company 2019 2018 (Restated) RM’000 RM’000 Cash and cash equivalents at end of the financial year comprise the following: (Continued) Sub-total brought forward 414,487 576,757 (955,788) (42,152) (143,490) (12,002) (25,313) (37) (559) (21,190) (20,486) - - (21) - - Less: Bank balances and fixed deposits held as security for bank borrowings (c) (846,464) Less: Fixed deposits with maturity profile more than three months 29(a) Less: Bank balance in respect of Automotive Development Fund Less: Bank balances in Escrow account arising from RCCPS - Less: Collections held by a postal subsidiary company on behalf of third parties (35,479) (48,555) - - Add: Cash and cash equivalents attributable to the disposal groups held for sale 487,681 37,935 - - 2,912,504 3,091,181 372,298 432,708 (b) Reconciliation of liabilities arising from financing activities: The table below details changes in the Group’s and Company’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s and Company’s statement of cash flows as cash flows from financing activities. Group 2019 At beginning of the financial year Net changes from financing cash flows: Changes in bank overdraft Finance costs paid Proceeds from bank borrowings Sub-total carried forward 23 Current and Non-current borrowings RM’000 Recourse obligation on financing sold to Cagamas RM’000 Total RM’000 5,789,699 485,851 6,275,550 3,897 4,272,942 4,276,839 (22,276) (22,276) 3,897 (22,276) 4,272,942 4,254,563
130. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) (b) Reconciliation of liabilities arising from financing activities: (Continued) Group 2019 Net changes from financing cash flows: (Continued) Sub-total brought forward Repayment of bank borrowings Repayment of principal for recourse obligation on financing sold to Cagamas Total net changes from financing cash flows Other changes: Currency translation differences Capitalised transaction costs Finance costs payable New hire purchase and finance leases Unwinding discounts Reclassified to liabilities related to disposal groups held for sale Total other changes At end of the financial year 2018 At beginning of the financial year Net changes from financing cash flows: Changes in bank overdraft Proceeds from bank borrowings Proceeds from recourse obligation on financing sold to Cagamas Repayment of bank borrowings Repayment of principal for recourse obligation on financing sold to Cagamas Total net changes from financing cash flows Other changes: Currency translation differences Capitalised transaction costs New hire purchase and finance leases Unwinding discounts Changes in deferred liability Total other changes At end of the financial year Current and Non-current borrowings RM’000 Recourse obligation on financing sold to Cagamas RM’000 4,276,839 (3,776,488) (22,276) - 4,254,563 (3,776,488) (14,799) (37,075) (14,799) 463,276 37,802 (5,025) 42,014 4,272 22,326 - 37,802 (5,025) 22,326 42,014 4,272 (50,402) 28,661 22,326 (50,402) 50,987 500,351 6,318,711 471,102 6,789,813 6,298,309 - 6,298,309 2,551 3,990,448 - 2,551 3,990,448 (4,464,308) (471,309) (65,152) (12,029) 35,095 4,732 53 (37,301) 5,789,699 24 Total RM’000 500,185 (14,334) 485,851 485,851 500,185 (4,464,308) (14,334) 14,542 (65,152) (12,029) 35,095 4,732 53 (37,301) 6,275,550
131. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2019 (Continued) (b) Reconciliation of liabilities arising from financing activities: (Continued) Company 2019 At beginning of the financial year Net changes from financing cash flows: Proceeds from bank borrowings Repayment of bank borrowings Repayment of loans to subsidiary companies Advance/loans from subsidiary companies Finance costs paid Total net changes from financing cash flows Other changes: Capital reduction Finance costs Unwinding discounts Total other changes At end of the financial year 2018 At beginning of the financial year Net changes from financing cash flows: Proceeds from bank borrowings Repayment of bank borrowings Repayment of loans to subsidiary companies Advance/loans from subsidiary companies Finance costs paid Current and Non-current borrowings RM’000 Amount due to subsidiary companies RM’000 Total RM’000 1,790,807 872,170 2,662,977 763,500 (561,050) - (185,892) 25,000 (28,402) 763,500 (561,050) (185,892) 25,000 (28,402) 202,450 (189,294) 13,156 1,622 1,622 (297,986) 27,955 (270,031) (297,986) 27,955 1,622 (268,409) 1,994,879 412,845 2,407,724 1,784,019 1,439,758 3,223,777 400,000 (395,080) - (174,613) 92,656 (45,345) 400,000 (395,080) (174,613) 92,656 (45,345) Total net changes from financing cash flows 4,920 (127,302) (122,382) Other changes: Capital reduction Finance costs Unwinding discounts Total other changes 1,868 1,868 (478,690) 38,404 (440,286) (478,690) 38,404 1,868 (438,418) 1,790,807 872,170 At end of the financial year 2,662,977 (c) As at 31 March 2019, certain fixed deposits with licensed banks and bank balances of the Group and of the Company of RM846,464,000 (2018: RM955,788,000) and RM42,152,000 (2018; RM143,490,000) respectively are held as security for bank borrowings as disclosed in Notes 37 and 44 to the financial statements. The notes set out on pages 26 to 229 form an integral part of the financial statements. 25
132. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 1 CORPORATE INFORMATION The Company is an investment holding company with investments in the automotive (including defence and composite manufacturing), services (including integrated logistics, banking and postal businesses) and properties segments. There was no significant change in these activities during the financial year. The principal activities of the subsidiary companies, joint ventures and associated companies are described in Note 3. The Directors regard Etika Strategi Sdn. Bhd., a company incorporated in Malaysia, as the holding company. The Company is a public limited liability company, incorporated and domiciled in Malaysia, and listed on the Bursa Malaysia Securities Berhad. The address of the registered office and principal place of business of the Company is Level 5, Wisma DRB-HICOM, No. 2, Jalan Usahawan U1/8, Seksyen U1, 40150 Shah Alam, Selangor Darul Ehsan, Malaysia. These financial statements are presented in Ringgit Malaysia (“RM”), which is the Group’s and Company’s functional currency. All the financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies, unless otherwise stated below, have been used consistently in dealing with items which are considered material in relation to the financial statements: 2.1 Basis of preparation The financial statements comply with the provisions of the Companies Act 2016 and Malaysian Financial Reporting Standards (“MFRSs”) and also the International Financial Reporting Standards as issued by the International Accounting Standards Board. The financial statements of the Group and of the Company are prepared under the historical cost convention except for those that are disclosed in this summary of significant accounting policies. The preparation of financial statements in conformity with the provisions of the Companies Act 2016 and MFRSs in Malaysia, requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported year. Actual results could differ from those estimates. There are no areas involving a higher degree of judgement or complexity, or areas where estimates and assumptions are significant to the financial statements other than as disclosed in Note 55. 26
133. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) For the years up to and including the financial year ended 31 March 2018, the Group and the Company prepared its financial statements in accordance with Financial Reporting Standards (“FRS”) in Malaysia whereas, the financial statements of the Group and of the Company, for the current financial year ended 31 March 2019, is prepared in accordance with MFRS Framework, including MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards. Except for certain differences, the requirements under FRS and MFRS are similar. Accordingly, the Group and the Company have consistently applied the same accounting policies in its opening MFRS statement of financial position as at 1 April 2017, being the transition date, and throughout all periods presented except as discussed below. Notes related to the statement of financial position as at the date of transition to MFRS are only provided for those items. (a) MFRS 9 Financial Instruments MFRS 9 replaces MFRS 139 Financial Instruments: Recognition and Measurements and sets out requirements for recognition and measuring financial assets, financial liabilities and some contracts to buy or sell nonfinancial items. (i) Classification and measurement of financial instruments Under MFRS 9, the classification for all financial assets, except equity instruments and derivatives, shall be assessed based on a combination of the Group’s business model for managing the assets and the financial assets’ contractual cash flow characteristics. The categories of financial assets under MFRS 9 are as follows: • • • • Amortised cost Fair value through other comprehensive income (“FVOCI”), with gains or losses recycled to profit or loss on derecognition FVOCI, with no recycling of gains or losses to profit or loss on derecognition Fair value through profit or loss (“FVTPL”) The Group reclassified financial assets previously recognised as available-for-sale and held to maturity to the appropriate MFRS categories noted above. The accounting for financial liabilities remains largely the same as it was under MFRS 139, except for the treatment of gains or losses arising from an entity’s own credit risk relating to liabilities designated at FVTPL. Such movements are presented in other comprehensive income with no subsequent reclassification to the profit or loss. 27
134. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) (a) MFRS 9 Financial Instruments (Continued) (ii) Impairment of financial assets Upon transition to MFRS, the Group’s accounting for impairment of financial assets, has been replaced from the incurred loss approach to the forward-looking expected credit loss (“ECL”) approach. ECL approach is based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. For the banking subsidiary company, the Group applied the MFRS’s general approach to record an allowance for ECL for all loans and other debt financial assets not held at FVTPL, together with loan commitments and financial guarantee contracts. The allowance is based on the ECL associated with the probability of default in the next twelve months, unless there has been a significant increase in credit risk since origination. Other than the banking subsidiary company, the Group has applied the MFRS’s simplified approach for contract assets and trade and other receivables, and has calculated ECL based on lifetime expected credit losses. The simplified approach excludes tracking of changes in credit risk. (b) MFRS 15 Revenue from Contracts with Customers Upon adoption of MFRS 15, revenue arising from contracts with customers is accounted for using the five-step model and is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard supersedes all current revenue recognition requirements under MFRS. The accounting standard requires the Group to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. The Group elected to apply certain practical expedients allowed under MFRS whereby the Group did not restate any contracts that are completed as at date of transition, 1 April 2017. 28
135. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) (b) MFRS 15 Revenue from Contracts with Customers (Continued) The key effects of MFRS are as follows: (i) Under MFRS 118, for the sale of certain motor vehicles, the Group concluded that it is a principal as it has an exposure to significant risks and rewards, based on the existence of credit risk. Pursuant to the adoption of MFRS 15, the Group reassessed its position and has determined that it is an agent, as it does not control the motor vehicles before they are transferred to the customer. There is no impact on the profits of the Group but will result in the decrease of revenue and cost of sales previously recognised. (ii) MFRS 15 requires revenue to be recognised at selling price less any variable considerations, including rebates and incentives, given to customers. Prior to MFRS 15, the Group estimated the rebates and incentives and accrued related provision. Upon adoption of this new MFRS, the Group has reclassified the variable considerations previously recognised in cost of sales and selling and distribution costs arising from the sale of motor vehicles as deduction from revenue. (iii) The Group is required to identify and separately account for performance obligations arising from contracts with customers under MFRS 15. Under the previous MFRS, a single performance obligation was identified for certain supply of automotive parts agreements, vehicle leasing agreements and construction contracts. Upon adoption of this new MFRS, the Group has reassessed and identified these contracts to have two separate performance obligations where revenue shall be recognised separately based on the progress of the respective performance obligations. (iv) Under FRS, revenue for property development activities is recognised based on percentage of completion method. However, under MFRS, this method shall be conditional upon the Group having no alternative use for the property and an enforceable right to payment for work completed to date. FRSIC Consensus 23 Application of MFRS 15 Revenue from Contracts with Customers on Sale of Residential Properties issued by the Malaysian Institute of Accountants (“MIA”), allows sales of residential properties in Malaysia, to be recognised based on percentage of completion method. In respect of sales of non-residential properties, the Group has concluded that based on the existing agreements, it does not have an enforceable right to payment for work completed to date. Accordingly, revenue and property development cost on nonresidential properties shall be recognised to profit or loss only upon completion. The presentation of property development cost capitalised under FRS has now been classified as inventories under MFRS. 29
136. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) (c) Business combinations MFRS 1 provides the option to apply MFRS 3 Business Combinations, prospectively from the date of transition or from a specific date prior to the date of transition. This provides relief from full retrospective application of MFRS 3 which would require restatement of all business combinations prior to the date of transition. The Group has elected to apply MFRS 3 prospectively from the date of transition. In respect of acquisitions prior to the date of transition: (d) (i) The classification of former business combinations under FRS is maintained; (ii) There is no re-measurement of original fair values determined at the time of business combination (date of acquisition); and (iii) The carrying amount of goodwill recognised under FRS is maintained. Borrowing costs MFRS 1 provides option to apply MFRS 123 Borrowings costs from the date of transition or from an earlier date as permitted by MFRS 123. The Group has elected to apply MFRS 123 prospectively from the date of transition. The Group: (e) (i) did not restate the borrowing cost component that was capitalised under FRS 123 and that was included in the carrying amount of assets at that date; and (ii) accounted for borrowing costs incurred on or after the date of transition in accordance with MFRS 123, including those borrowing costs incurred on or after the date of transition on qualifying assets already under construction. Assets and liabilities of subsidiary companies, joint ventures and associated companies Under MFRS 1, the assets and liabilities of subsidiary companies, joint ventures and associated companies which have adopted the MFRS Framework earlier than the Group shall remain at the same carrying amounts as in the financial statements of these subsidiary companies, joint ventures and associated companies, after adjusting for consolidation adjustments. 30
137. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) (f) Estimates MFRS 1 requires the estimates at 1 April 2017 and at 31 March 2018 to be consistent with those made for the same dates in accordance with FRS. The estimates used by the Group to present these amounts in accordance with MFRS, reflect conditions at 1 April 2017, the date of transition to MFRS and as of 31 March 2018. The reconciliation of the financial position of the Group and of the Company as at 31 March 2018 and 1 April 2017 and the reconciliation of the financial performance for the financial year ended 31 March 2018, reported under FRS to those reported under MFRS are as follows: As previously stated RM’000 As at 31 March 2018 Consolidated Statement of Financial Position Non-current assets Property, plant and equipment Land held for development Inventories Joint ventures Deferred tax assets Investment securities: financial assets at fair value through profit or loss - Banking Investment securities: financial assets at fair value through other comprehensive income - Banking - Non-Banking Investment securities: financial assets at amortised cost - Banking Investment securities: available-forsale - Banking - Non-Banking Investment securities: held-tomaturity - Banking Trade and other receivables Banking related assets - Financing of customers 31 5,939,520 274,171 298,075 152,308 Effects of adoption of MFRS RM’000 (30,755) (274,171) 232,451 (5,270) 52,594 As restated RM’000 5,908,765 232,451 292,805 204,902 161,274 129,159 290,433 - 5,540,505 45,498 5,540,505 45,498 - 102,941 102,941 5,553,163 45,498 (5,553,163) (45,498) - 143,730 935,852 (143,730) (12,633) 923,219 10,216,425 (119,133) 10,097,292
138. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) The reconciliation of the financial position of the Group and of the Company as at 31 March 2018 and 1 April 2017 and the reconciliation of the financial performance for the financial year ended 31 March 2018, reported under FRS to those reported under MFRS are as follows: (Continued) As previously stated RM’000 As at 31 March 2018 (Continued) Consolidated Statement of Financial Position (Continued) Current assets Assets and disposal groups held for sale Inventories Property development costs Trade and other receivables Investment securities: financial assets at fair value through profit or loss - Non-banking Investment securities: financial assets at fair value through other comprehensive income - Banking Investment securities: financial assets at amortised cost - Nonbanking Investment securities: available-forsale - Banking Banking related assets - Financing of customers Short term deposits Cash and bank balances Non-current liabilities Deferred income Trade and other payables Deferred tax liabilities Current liabilities Liabilities related to disposal groups held for sale Deferred income Trade and other payables Banking related liabilities - Deposits from customers 32 518,307 1,640,454 797,798 3,150,571 Effects of adoption of MFRS RM’000 (60,287) 748,146 (797,798) 5,717 As restated RM’000 458,020 2,388,600 3,156,288 292 175,670 175,962 - 766,249 766,249 - 8,000 8,000 766,249 (766,249) - 4,301,547 1,127,871 1,706,157 (153,997) (207,670) (101,568) 4,147,550 920,201 1,604,589 109,596 254,309 (82,905) 82,905 (2,876) 26,691 82,905 251,433 135,683 45,439 5,402,012 (7,872) (36,630) (68,956) 127,811 8,809 5,333,056 18,778,061 (160,910) 18,617,151
139. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) The reconciliation of the financial position of the Group and of the Company as at 31 March 2018 and 1 April 2017 and the reconciliation of the financial performance for the financial year ended 31 March 2018, reported under FRS to those reported under MFRS are as follows: (Continued) As previously stated RM’000 Effects of adoption of MFRS RM’000 As restated RM’000 As at 31 March 2018 (Continued) Consolidated Statement of Financial Position (Continued) Equity Reserves Non-controlling interest 4,993,405 1,830,873 (130,462) (57,286) 4,862,943 1,773,587 Consolidated Statement of Changes in Equity Available-for-sale reserve Fair Value through Other Comprehensive Income Reserve Other reserves Retained earnings 56,184 3,745,299 (14,005) 27,345 (156,799) (14,005) 83,529 3,588,500 Company Statement of Financial Position Non-current assets Subsidiary companies 6,639,371 (129,439) 6,509,932 Equity Reserves 2,623,674 (129,439) 2,494,235 305,353 (208,482) 79,043 (208,482) 384,396 Company Statement of Changes in Equity Fair Value through Other Comprehensive Income Reserve Retained earnings 33 (12,997) 12,997 -
140. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) The reconciliation of the financial position of the Group and of the Company as at 31 March 2018 and 1 April 2017 and the reconciliation of the financial performance for the financial year ended 31 March 2018, reported under FRS to those reported under MFRS are as follows: (Continued) As previously stated RM’000 As at 1 April 2017 Consolidated Statement of Financial Position Non-current assets Property, plant and equipment Land held for development Inventories Joint ventures Deferred tax assets Investment securities: financial assets at fair value through profit or loss - Banking Investment securities: financial assets at fair value through other comprehensive income - Banking - Non-Banking Investment securities: financial assets at amortised cost - Banking Investment securities: available-forsale - Banking - Non-Banking Investment securities: held-tomaturity - Banking Trade and other receivables Banking related assets - Financing of customers Current assets Inventories Property development costs Trade and other receivables Tax recoverable Investment securities: financial assets at fair value through profit or loss - Non-banking 34 6,463,431 1,182,226 413,826 147,192 Effects of adoption of MFRS RM’000 As restated RM’000 (10,074) (1,182,226) 1,079,673 (6,483) 24,530 6,453,357 1,079,673 407,343 171,722 197,208 113,774 310,982 - 5,035,771 46,153 5,035,771 46,153 - 101,875 101,875 5,040,929 46,153 (5,040,929) (46,153) - 142,168 264,144 (142,168) (1,427) 262,717 10,772,103 (110,347) 10,661,756 2,285,452 140,186 3,859,027 198,533 140,823 (140,186) 3,396 2,013 2,426,275 3,862,423 200,546 175 221,398 221,573
141. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) The reconciliation of the financial position of the Group and of the Company as at 31 March 2018 and 1 April 2017 and the reconciliation of the financial performance for the financial year ended 31 March 2018, reported under FRS to those reported under MFRS are as follows: (Continued) As previously stated RM’000 As at 1 April 2017 (Continued) Consolidated Statement of Financial Position (Continued) Current assets (Continued) Investment securities: financial assets at fair value through other comprehensive income - Banking Investment securities: financial assets at amortised cost - Nonbanking Investment securities: available-forsale - Banking Banking related assets - Financing of customers Short term deposits Cash and bank balances Non-current liabilities Deferred income Trade and other payables Deferred tax liabilities Current liabilities Deferred income Trade and other payables Tax payable Banking related liabilities - Deposits from customers Equity Reserves Non-controlling interest 35 Effects of adoption of MFRS RM’000 As restated RM’000 - 1,090,487 1,090,487 - 8,000 8,000 1,090,487 (1,090,487) - 3,939,713 1,332,531 1,544,331 (36,849) (262,398) (185,384) 3,902,864 1,070,133 1,358,947 151,621 210,270 (110,672) 120,825 (1,227) 40,949 120,825 209,043 48,410 6,420,740 78,815 (35,412) (58,348) 661 12,998 6,362,392 79,476 18,979,279 (218,384) 18,760,895 4,331,485 1,841,137 (61,290) (23,371) 4,270,195 1,817,766
142. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) The reconciliation of the financial position of the Group and of the Company as at 31 March 2018 and 1 April 2017 and the reconciliation of the financial performance for the financial year ended 31 March 2018, reported under FRS to those reported under MFRS are as follows: (Continued) As previously stated RM’000 Effects of adoption of MFRS RM’000 As restated RM’000 As at 1 April 2017 (Continued) Consolidated Statement of Changes in Equity Available-for-sale reserve Fair Value through Other Comprehensive Income Reserve Retained earnings (1,358) 1,358 - 2,704,768 (1,358) (61,290) (1,358) 2,643,478 Company Statement of Financial Position Non-current assets Subsidiary companies 8,393,610 (36,322) 8,357,288 Equity Reserves 3,921,988 (36,322) 3,885,666 - (36,322) (36,322) Company Statement of Changes in Equity Fair Value through Other Comprehensive Income Reserve For the financial year ended 31 March 2018 Consolidated Statement of Comprehensive Income Revenue Cost of sales Other income - others Selling and distribution costs Administrative expenses Other expenses - others Share of results of joint ventures (net of tax) Profit before taxation Taxation Net profit for the financial year 36 12,789,677 (11,193,896) 639,738 (312,911) (1,633,524) (261,925) 402 415,130 (119,824) 295,306 (539,112) 12,250,565 413,188 (10,780,708) (3,534) 636,204 15,842 (297,069) 381 (1,633,143) (13,232) (275,157) (4,861) (131,328) 28,241 (103,087) (4,459) 283,802 (91,583) 192,219
143. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) The reconciliation of the financial position of the Group and of the Company as at 31 March 2018 and 1 April 2017 and the reconciliation of the financial performance for the financial year ended 31 March 2018, reported under FRS to those reported under MFRS are as follows: (Continued) As previously stated RM’000 For the financial year ended 31 March 2018 (Continued) Consolidated Statement of Comprehensive Income (Continued) Items that will be subsequently reclassified to profit or loss: Net gain on fair value changes of investment securities: availablefor-sale Net gain on fair value changes of investment securities: financial assets at fair value through other comprehensive income Reclassification adjustments: Transfer of realised gain on fair value changes of investment securities: available-for-sale upon disposal Transfer of realised gain on fair value changes of investment securities: financial assets at fair value through other comprehensive income upon disposal Total comprehensive income for the financial year Net profit/(loss) for the financial year attributable to: Owners of the Company Non-controlling interest Total comprehensive income/(loss) for the financial year attributable to: Owners of the Company Non-controlling interest Basic and diluted earnings per share (sen) 37 Effects of adoption of MFRS RM’000 As restated RM’000 6,537 (6,537) - - 6,537 6,537 (23,071) 23,071 - - (23,071) (23,071) 357,985 (103,087) 254,898 498,441 (282,588) (68,069) (35,018) 430,372 (317,606) 563,092 (284,560) (68,069) (35,018) 495,023 (319,578) 25.78 (3.52) 22.26
144. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 First time adoption of Malaysian Financial Reporting Standards (“MFRSs”) (Continued) The reconciliation of the financial position of the Group and of the Company as at 31 March 2018 and 1 April 2017 and the reconciliation of the financial performance for the financial year ended 31 March 2018, reported under FRS to those reported under MFRS are as follows: (Continued) As previously stated RM’000 For the financial year ended 31 March 2018 (Continued) Company Statement of Comprehensive Income Other expenses - others Loss before taxation Net loss for the financial year Items that will not be reclassified subsequently to profit or loss: Net loss on fair value changes of investment securities: financial assets at fair value through other comprehensive income Other comprehensive loss Total comprehensive loss for the financial year Net loss for the financial year attributable to: Owners of the Company Total comprehensive loss for the financial year attributable to: Owners of the Company 38 Effects of adoption of MFRS RM’000 As restated RM’000 (2,566,172) (1,180,776) (1,199,529) 79,043 79,043 79,043 (2,487,129) (1,101,733) (1,120,486) - (172,160) (172,160) (172,160) (172,160) (1,199,529) (93,117) (1,292,646) (1,278,982) 79,043 (1,199,939) (1,278,982) (93,117) (1,372,099)
145. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Impact of new MASB pronouncements The Group has not adopted the following published standards that are applicable to the Group. MFRSs, Interpretation and amendments effective beginning on or after 1 April 2019 MFRS 16 Leases Amendments to MFRS 9 Prepayment Features with Negative Compensation Amendments to MFRS 119 Plan Amendment, Curtailment or Settlement Amendments to MFRS 128 Long-term interests in Associates and Joint Ventures IC Interpretation 23 Uncertainty over Income Tax Treatments Annual Improvements to MFRSs 2015 – 2017 Cycle MFRSs, Interpretation and amendments effective beginning on or after 1 April 2020 Amendments to References to the Conceptual Framework in MFRS Standards: Amendment to MFRS 3 Business Combinations Amendments to MFRS 3 Definition of Business Amendments to MFRS 101 Presentation of Financial Statements Amendments to MFRS 101 and MFRS 108 Definition of Material Amendments to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors Amendments to MFRS 134 Interim Financial Reporting Provisions, Contingent Liabilities and Contingent Assets Amendment to MFRS 137 Amendment to MFRS 138 Amendment to IC Interpretation 12 Intangible Assets Amendments to IC Interpretation 132 Intangible Assets – Web Site Costs Service Concession Arrangements MFRSs, Interpretation and amendments effective beginning on or after a date yet to be confirmed Amendments to MFRS 10 and MFRS 128 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 39
146. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Impact of new MASB pronouncements (Continued) MFRS 16 Leases MFRS 16 replaces MFRS 117 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. It sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under MFRS 117. At the commencement date of a lease, a lessee will recognise a lease liability to make lease payments and a right-of-use asset representing the right to use the underlying asset during the lease term, to be included in property, plant and equipment. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to re-measure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under MFRS 16 is substantially unchanged from the current accounting under MFRS 117. Lessors will continue to classify all leases using the same classification principle as in MFRS 117 and distinguish between two types of leases: operating and finance leases. The Group will adopt MFRS 16 effective 1 April 2019. Transition to MFRS 16 The Group will adopt MFRS 16 on 1 April 2019, using the modified retrospective method and will not restate comparative information. Instead, the Group will recognise the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings at the date of initial application. The Group will also elect to apply the standard to contracts that were previously identified as leases applying MFRS 117 and IFRIC 4. The Group will therefore not apply the standard to contracts that were not previously identified as containing a lease applying MFRS 117 and IFRIC 4. The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within twelve months as of the date of initial application, and lease contracts for which the underlying asset is of low value. For leases where the Group are lessees, the Group will elect not to separate the non-lease components from lease components, and instead account for both components as a single lease component. 40
147. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Impact of new MASB pronouncements (Continued) MFRS 16 Leases (Continued) The Group performed a preliminary assessment of the adoption of MFRS 16 as at 1 April 2019. The Group identified the following effects to the statement of financial position, pertaining to the existing operating leases of the Group. There will be an increase in property, plant and equipment arising from the recognition of rights-ofuse assets, and an increase in lease liability pertaining to the related lease payments. The Group expects the depreciation expense for the right-of-use assets and interest expenses on the related lease liabilities as at 1 April 2019 to exceed the total operating lease expenses recognised under MFRS 117. Accordingly, this will result in a reduction to the opening balance of retained earnings of the Group. As at the reporting date, the Group is in the midst of completing the detailed assessment of MFRS 16 implementation. For finance leases where the Group are lessees, the Group has already recognised an asset and a related finance lease liability for such lease arrangements. Accordingly, the Group does not anticipate the application of MFRS 16 to have a significant impact on the Group’s financial statements. 2.4 Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiary companies made up to the end of the financial year. Consistent accounting policies are applied to like transactions and events in similar circumstances. Subsidiary companies are those companies in which the Group has the following policies: (i) Control exists when the Group has existing rights that give it the current ability to direct the activities that significantly affect investee’s returns, the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. (ii) Potential voting rights are considered when assessing control only when such rights are substantive. (iii) The Group considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s return. The Group's subsidiary companies are listed in Note 3. 41
148. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.4 Basis of consolidation (Continued) All the subsidiary companies are consolidated using the purchase method of accounting where the results of subsidiary companies acquired or disposed off during the financial year are included from the date on which control is transferred to the Group and are no longer consolidated from the date on which the control ceases. At the date of acquisition, the fair values of the subsidiary companies’ identifiable assets acquired and liabilities and contingent liabilities assumed are determined and these values are reflected in the consolidated financial statements. The cost of an acquisition is measured at fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition-related costs are expensed. The total assets and liabilities of subsidiary companies are included in the consolidated statement of financial position and the interests of non-controlling shareholders in the net assets are stated separately. Losses within a subsidiary company are attributed to the non-controlling interest even if that results in a deficit balance. All significant inter-company transactions, balances and unrealised gains on transactions are eliminated on consolidation and unrealised losses on transactions are also eliminated after considering impairment indicators, only to the extent that cost can be recovered. Changes in the Group’s ownership interests in subsidiary companies that do not result in the Group losing control over the subsidiary companies are accounted for as equity transactions. The carrying amounts of the Group’s interests and the noncontrolling interest are adjusted to reflect the changes in their relative interests in the subsidiary companies. The resulting difference is recognised directly in equity and attributed to Owners of the Company. When the Group loses control of a subsidiary company, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. The gain or loss on disposal of a subsidiary company is the difference between net disposal proceeds and the Group’s share of its net assets including the cumulative amount of any currency exchange differences that relate to the subsidiary company and is recognised in profit or loss. The subsidiary company’s cumulative gain or loss which has been recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss or where applicable, transferred directly to retained earnings. The fair value of any investment retained in the former subsidiary company at the date that control is lost is regarded as the cost on initial recognition of the investment. 2.5 Non-controlling interest Non-controlling interest represents the portion of profit or loss and net assets in subsidiary companies not held by the Group and are presented separately in consolidated statement of comprehensive income of the Group and within equity in the consolidated statement of financial position separately from parent shareholders’ equity. Non-controlling interest is initially measured at the noncontrolling interest’s share of fair values of the identifiable assets and liabilities of the acquiree at the date of acquisition. 42
149. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.5 Non-controlling interest (Continued) The Group applies a policy of treating acquisition/disposal of shares from/to noncontrolling interest as transactions with owners. Gains and losses resulting from disposal of shares in subsidiary companies to non-controlling interest are recognised in equity. For purchases from non-controlling interest, the difference between any consideration paid and the relevant share of the carrying value of net assets of the subsidiary acquired is recognised as equity. 2.6 Joint ventures and associated companies A joint venture is an enterprise which is neither a subsidiary company nor an associated company of the Group but over which there is a contractually agreed sharing of control by the Group with one or more parties over the strategic operating, investing and financial policy decisions. The decisions require the unanimous consent of the parties sharing control. An associated company is a company in which the Group is in a position to exercise significant influence in its Management but which is not control and is neither a subsidiary company nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the associated company but not control over those policies. The considerations made in determining joint control or significant influence are similar to those necessary to determine control over subsidiary companies. The Group’s share of results of joint ventures and associated companies are included in the consolidated statement of comprehensive income using the equity method of accounting. On acquisition of an investment in joint venture and associated company, any excess of the cost of investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the joint venture and the associated company is recognised as goodwill and included in the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities of the joint venture and the associated company over the cost of investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the joint venture’s and the associated company’s profit or loss for the period in which the investment is acquired. In the consolidated statement of financial position, the Group’s interest in joint ventures and associated companies is stated at cost plus the Group’s share of post-acquisition retained profits and reserves less impairment. Any change in other comprehensive income (“OCI”) of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the joint venture or associated company, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. The share of the results of the joint venture and the associated company will not be taken into the Group’s statement of comprehensive income when the carrying value of the investment in joint venture and associated company reaches zero unless the Group has incurred obligations or guaranteed obligations in respect of the joint venture and the associated company. 43
150. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.6 Joint ventures and associated companies (Continued) Profits and losses resulting from transactions between the Group and its joint venture and associated company are recognised in the Group’s financial statements only to the extent of unrelated investors’ interests in the joint venture and associated company. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. The financial statements of the joint ventures and the associated companies used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Group. When the reporting dates of the joint ventures and the associated companies are different from the Group, the joint venture and the associated company are required to prepare additional financial statements as of the same date as that of the Group for consolidation purpose. Where necessary, adjustments are made to the financial statements of joint ventures and associated companies to ensure consistency of accounting policies with those of the Group. The Group’s joint ventures and associated companies are listed in Note 3. 2.7 Investments in subsidiary companies, joint ventures and associated companies In the Company’s separate financial statements, investments in subsidiary companies, joint ventures and associated companies are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments, the difference between the net disposal proceeds and its carrying amount is charged or credited to profit or loss. 2.8 Financial assets Financial assets are recognised in the statements of financial position when, and only when, the Group becomes a party to the contractual provisions of the financial instruments. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. Under MFRS 9, the Group shall classify and measure financial assets based on two criteria as follows: (a) The contractual cash flow characteristics of the financial asset which is performed at an instrument level. (b) The Group’s business model for managing financial assets which is referred to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. 44
151. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.8 Financial assets (Continued) With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under MFRS 15. Refer to Note 2.31 for details of the practical expedient in respect of significant financing component. The Group will determine the classification of their financial assets at the initial recognition, and the categories include financial assets at amortised cost, fair value through other comprehensive income and fair value through profit or loss, as explained in the following: (i) Financial assets at amortised cost Financial assets are classified as financial assets at amortised cost if both of the following conditions are met: (a) The financial assets are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and (b) The contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Subsequent to initial recognition, financial assets at amortised cost are measured at amortised cost using the effective interest method, less impairment. Gains and losses are recognised in profit or loss when the financial assets at amortised cost are derecognised, impaired, modified or through the amortisation process. Financial assets at amortised cost are classified as non-current assets, except for those having maturity within twelve months after the reporting date which are classified as current. The Group’s financial assets at amortised cost include trade and other receivables, loans and advance to subsidiary companies and related companies, contract assets, deposits and other assets measured at amortised cost using the effective interest method. 45
152. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.8 Financial assets (Continued) (ii) Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income (“FVOCI”) are recognised and measured in the event of two following conditions are met: (a) The financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and (b) The contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The FVOCI classification is mandatory for certain debt instrument assets unless the conditional option to FVTPL (“the fair value option”) is taken. Whilst for equity investments, the FVOCI classification is an election. The requirements for reclassifying gains or losses recognised in other comprehensive income (“OCI”) are different for debt and equity investments. For debt instruments measured at FVOCI, interest income (calculated using the effective interest rate method), foreign currency gains or losses and impairment gains or losses are recognised directly in profit or loss. The difference between cumulative fair value gains or losses and the cumulative amounts recognised in profit or loss is recognised in OCI until derecognition, when the amounts in OCI are reclassified to profit or loss. This contrasts with the accounting treatment for investments in equity instruments designated at FVOCI under which only dividend income is recognised in profit or loss with all other gains and losses recognised in OCI and there is no reclassification on derecognition. Financial assets at fair value through other comprehensive income are classified as non-current assets unless they are expected to be realised within twelve months after the reporting date. (iii) Financial assets at fair value through profit or loss Financial assets are recognised as financial assets at fair value through profit or loss (“FVTPL”) if the assets are held for trading or financial assets are not qualified for neither held at amortised cost or at FVOCI. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value are recognised in profit or loss. Net gains or net losses on financial assets at fair value through profit or loss do not include exchange differences, interest and dividend income. Exchange differences, interest and dividend income on financial assets at fair value through profit or loss are recognised separately in profit or loss as part of other losses or other income. 46
153. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.8 Financial assets (Continued) (iii) Financial assets at fair value through profit or loss (Continued) Financial assets at fair value through profit or loss could be presented as current or non-current. Financial assets that are held primarily for trading purposes are presented as current whereas financial assets that are not held primarily for trading purposes are presented as current or non-current based on the settlement date. At initial recognition, a financial asset is designated to be measured at FVTPL if doing so eliminates or significantly reduces an ‘accounting mismatch’ that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. However, the Group might have opted for the irrevocable election at initial recognition for particular investment in equity investments that would be measured at FVOCI with no recycling of cumulative gains or losses that had been recognised in other comprehensive income to profit or loss upon disposal. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Group commits to purchase or sell the asset. 2.9 Impairment of financial assets The Expected Credit Losses (“ECL”) model is applied to the financial assets measured at amortised cost or at FVOCI, irrevocable loan commitments and financial guarantee contracts, which include loans, advances and financing and debt instruments held by the Group. The ECL model is also applied to contract assets under MFRS 15 Revenue from Contracts with Customers. The Group applies the general approach to recognise impairment which is based on a three-stage process which is intended to reflect the deterioration in credit quality of a financial instrument as explained in the following: Stage 1 : Financial instruments that have not deteriorated significantly in credit quality since initial recognition or (where the optional low credit risk simplification is applied) that have low credit risk. Stage 2 : Financial instruments that have deteriorated significantly in credit quality since initial recognition (unless the low credit risk simplification has been applied and is relevant) but that do not have objective evidence of a credit loss event. Stage 3 : Financial assets that have objective evidence of impairment at the reporting date. 47
154. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.9 Impairment of financial assets (Continued) 12-month expected credit losses are recognised in stage 1, while lifetime expected credit losses are recognised in stages 2 and 3. Measurement of the ECL is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. For contract assets or trade receivables, the Group applies the simplified approach under MFRS 9 to measure the loss allowance and hence, recognised a loss allowance at an amount equal to lifetime expected credit losses. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The measurement of expected credit losses shall reflect an unbiased and probability-weighted amount that is determined by evaluating the range of possible outcomes as well as incorporating the time value of money. Also, the reasonable and supportable information about past events, current conditions and reasonable and supportable forecasts of future economic conditions should be considered when measuring expected credit losses. 2.10 Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount presented in the statements of financial position when there is a legally enforceable right to offset the recognised amount and there is an intention to settle on a net basis, or realise the receivables and settle the payables simultaneously. 2.11 Investment properties Investment properties comprise land and buildings that are held for long term rental yield and/or for capital appreciation and that are not occupied by the companies in the Group. Assets under construction/development for future use as investment property are also classified in this category. Investment properties are initially measured at cost, including transaction cost. Subsequent to initial recognition, investment properties are stated at fair value, representing openmarket values determined annually by independent qualified valuer. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the year in which they arise. A property interest under an operating lease is classified and accounted for as investment property on a property-by-property basis when the Group and the Company hold it to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at fair value. On disposal of an investment property, or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal, it shall be derecognised (eliminated from the statement of financial position). The difference between the net disposal proceeds and the carrying amount is recognised in profit or loss in the period of the retirement or disposal. 48
155. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.11 Investment properties (Continued) Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. For a transfer from owner-occupied property to investment property, the property is accounted for in accordance with the accounting policy for property, plant and equipment set out in Note 2.14 up to the date of change in use. 2.12 Other assets Other assets represent transferable corporate memberships in golf and country clubs. The golf membership acquired is measured initially at cost. Following initial recognition, it is measured at cost less any accumulated impairment losses. Gain or loss arising from disposal of the golf membership is measured as the difference between the net disposal proceeds and the carrying amount and is recognised in profit or loss. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.21. 2.13 Assets and disposal groups held for sale Assets and disposal groups are classified as held for sale and stated at the lower of carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition subject only to terms that are usual and customary. A non-current asset is not depreciated or amortised while it is classified as held for sale or while it is part of a disposal group classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale are continued to be recognised. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position. 2.14 Property, plant and equipment and depreciation Freehold land is not depreciated as it has an infinite life. Depreciation on capital work-in-progress commences when the assets are ready for their intended use. All other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial year in which they are incurred. 49
156. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.14 Property, plant and equipment and depreciation (Continued) An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Gains and losses on disposals are determined by comparing net disposal proceeds with carrying amounts and are recognised in profit or loss. Where an indication of impairment exists, the carrying amount of the property, plant and equipment is assessed and written down immediately to its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. At each reporting date, the Group and the Company assess whether there is any indication of impairment. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.21. The estimated useful lives in years are as follows: Leasehold land Buildings, golf course and improvements Plant and machinery Motor vehicles Vessels Office equipment, furniture and fittings 16 - 910 years 2 - 59 years 2 - 30 years 3 - 10 years 9 years 2 - 10 years Residual values and useful lives of assets are reviewed, and adjusted prospectively if appropriate, at each reporting date. 2.15 Concession assets Concession assets arise from the right to charge users of the public services and are amortised over the period of 22 years under the Service Concession Agreement. Subsequent costs and expenditures related to infrastructure and equipment arising from the commitments to the concession contracts or that increase future revenue is recognised as additions to the concession assets and are stated at cost. All other repairs and maintenance expenses that are routine in nature, are charged to profit or loss during the financial year in which they are incurred. 2.16 Prepaid lease properties Leasehold land that normally has a finite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease, if the risks and rewards of the ownership are not substantially transferred to the Group. The payment made on entering into or acquiring a leasehold land is accounted as prepaid lease properties. Prepaid lease properties are amortised over the lease term. Prepaid lease properties are stated at cost less accumulated amortisation and impairment losses. Short term leases are below 50 years and long term leases are 50 years and above at the date of initial recognition. 50
157. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.17 Goodwill Goodwill represents the excess of the cost of acquisition of subsidiary companies, joint ventures and associated companies over the fair value of the Group’s share of the identifiable net assets at the time of acquisition. Goodwill on acquisitions of subsidiary companies is included in the consolidated statement of financial position as intangible assets. If the cost of acquisition is less than the fair value of the net assets of the subsidiary company acquired, the difference is recognised directly in profit or loss. Goodwill arising on the acquisition of subsidiary companies 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. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cashgenerating units that are expected to benefit from the synergies of the business combination in which the goodwill arose. The Group allocates goodwill to each business segment in which it operates. Goodwill on acquisitions of joint ventures and associated companies is included in investment in joint ventures and associated companies respectively. Such goodwill is tested for impairment as part of the overall carrying amount. 2.18 Intangible assets other than goodwill Intangible assets acquired separately are measured initially at cost. Following initial recognition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses. (i) Computer software Costs that are directly associated with identifiable and unique software products which have probable benefits exceeding the cost beyond 1 year are recognised as intangible assets. Expenditure which enhances or extends the performance of computer software programmes beyond their original specifications is recognised as a capital movement and added to the original cost of the software. Costs associated with maintaining computer software programmes are recognised as an expense when incurred. Costs include employee costs incurred as a result of developing software and an appropriate portion of relevant overheads. Computer software costs recognised as intangible assets are carried at cost and are amortised on a straight line basis over their estimated useful lives of 3 - 10 years. 51
158. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.18 Intangible assets other than goodwill (Continued) (ii) Research and development cost Expenditure in connection with research activities (research expenditure) is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria for recognition are fulfilled: (a) It is technically feasible to complete the intangible assets so that it will be available for use or sale; (b) Management’s intention to complete the intangible asset for use or sale; (c) There is an ability to use or sell the intangible asset; (d) It can be demonstrated that the intangible asset will generate probable future economic benefits; (e) Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and (f) The expenditure attributable to the intangible asset during its development can be reliably measured. Development costs previously recognised as an expense are not recognised as an asset in subsequent periods. Development expenses capitalised include costs incurred in the development from the date it first meets the recognition criteria and up to the completion of the development project and commencement of commercial production. Capitalised development cost is stated at cost less accumulated amortisation and accumulated impairment losses, if any. Amortisation of development cost is based on straight line basis over its useful life, which ranges between 5 - 10 years for vehicles and 10 years for mechanical parts. During the period of development, the asset is tested for impairment annually. (iii) Acquired intangible assets These intangible assets comprise brand name, customer relationship and dealership network arising from the acquisitions of subsidiary companies. (a) Brand name Brand name, which is separately identifiable with infinite useful life, is tested annually for impairment and stated at cost less accumulated impairment losses. Impairment losses on brand name are not reversed. 52
159. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.18 Intangible assets other than goodwill (Continued) (iii) Acquired intangible assets (Continued) (b) Customer relationship Customer relationship, which is separately identifiable, is stated at cost and amortised on a straight line basis over a period of 30 years. (c) Dealership network Dealership network, which is separately identifiable, is stated at cost and amortised on a straight line basis over a period of 7 years. Where an indication of impairment exists, the carrying amount of the intangible assets is assessed and written down immediately to its recoverable amount. The policy for the recognition and measurement of impairment losses is in accordance with Note 2.21. Preliminary and pre-operating expenses are written off to profit or loss in the financial year in which they are incurred. 2.19 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is defined as all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and conditions as well as property development cost. Costs of purchase comprise the purchase price, import duties and other taxes, transport and handling costs and other directly attributable costs. (a) Raw materials, work-in-progress, finished goods and consumables Raw materials and consumables are stated at cost. Work-in-progress and finished goods represent raw materials, direct labours, direct charges and allocated process costs, where necessary. Cost is principally determined on a first-in first-out or weighted average basis depending on the nature of inventories. (b) Land held for property development Land held for property development consists of land on which no significant development work has been undertaken or where development activities are not expected to be completed within the normal operating cycle and hence, classified as non-current asset. Cost associated with the acquisition of land includes the purchase price of the land, professional fees, stamp duties, conversion fees and other relevant levies. 53
160. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.19 Inventories (Continued) (b) Land held for property development (Continued) Land held for property development is transferred to property development costs (within current assets) when development work is to be undertaken and is expected to be completed within the normal operating cycle. (c) Property development costs Property development costs comprise: (i) Land cost for residential properties which have yet to be expensed off. Land cost is subsequently recognised as an expense based on stage of completion of the sold units described in Note 2.31. (ii) Development cost of unsold units, that are directly attributable to development activities or that can be allocated on a reasonable basis to such activities. Development cost of unsold units is subsequently recognised as an expense when the units are sold. (iii) Costs to obtain contract including sales commissions to agents and are subsequently recognised as an expense based on stage of completion of the sold units described in Note 2.31. Net realisable value is the estimated selling price in the ordinary course of business less the costs of completion and selling expenses. 2.20 Cash and cash equivalents For the purposes of the statements of cash flows, cash and cash equivalents consist of cash in hand, bank balances, demand deposits, bank overdrafts and short term highly liquid investments with a maturity of three months or less from the date of placement that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 2.21 Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs of disposal and its value-in-use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 54
161. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.21 Impairment of non-financial assets (Continued) In assessing value-in-use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis. Impairment losses are recognised in profit or loss. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. 2.22 Income taxes Income tax on the profit or loss for the financial year comprises current and deferred tax. (i) Current tax Current tax is the expected amount of income taxes payable in respect of the taxable profit for the financial year and is measured using the tax rates that have been enacted at the reporting date. Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. (ii) Deferred tax Deferred tax is provided for in full, using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities for tax purposes and their carrying amounts in the financial statements. Deferred tax is not recognised if the temporary difference arises from the initial recognition of goodwill, an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. 55
162. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.22 Income taxes (Continued) (ii) Deferred tax (Continued) The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantially enacted at the reporting date. Deferred tax is recognised in profit or loss, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 2.23 Share capital (i) Classification An equity instrument is any contract that evidences a residual interest in the assets of the Group and of the Company after deducting all of its liabilities. Ordinary shares are classified as equity. (ii) Share issue costs Incremental external costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. (iii) Dividends to shareholders of the Company Dividends on ordinary shares are recognised as liabilities when declared before the reporting date. Dividends proposed after the reporting date, but before the financial statements are authorised for issue, is not recognised as a liability at the reporting date. Upon the dividend becoming payable, it will be accounted for as a liability. 56
163. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.24 Borrowings (i) Classification Borrowings are measured at fair value net of transaction costs initially and subsequently, at amortised cost using the effective interest method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the repayment period of the borrowings. (ii) Capitalisation of borrowing costs Borrowing costs incurred to finance the construction of property, plant and equipment are capitalised as part of the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use. Borrowing costs incurred to finance property development activities and construction contracts are accounted for in a similar manner. All other borrowing costs are recognised in profit or loss in the period they are incurred. 2.25 Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities are recognised in the statement of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities. (i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities held for trading include derivatives entered into by the Group and the Company that do not meet the hedge accounting criteria. Derivative liabilities are initially measured at fair value and subsequently stated at fair value, with any resulting gains or losses recognised in profit or loss. Net gains or losses on derivatives include exchange differences. (ii) Other financial liabilities The Group’s and the Company's other financial liabilities include trade and other payables, contract liabilities, loans and borrowings, deposits from customers, deposits and placements of banks and financial institutions, bills and acceptances payable and other liabilities. 57
164. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.25 Financial liabilities (Continued) (ii) Other financial liabilities (Continued) Trade and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. Loans and borrowings are recognised at fair value net of transaction costs initially and subsequently, at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Deposits from customers, deposits and placements of banks and financial institutions are stated at placement values. Bills and acceptances payable represent the banking subsidiary company’s own bills and acceptances rediscounted and outstanding in the market. Bank and other borrowings and recourse obligations on loans sold to Cagamas Berhad are recognised initially at fair value, net of transaction cost incurred, and subsequently measured at amortised cost using the effective profit method. For other financial liabilities, gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. 2.26 Financial guarantee contract A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due. Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Company, as the issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially recognised less cumulative amortisation. 58
165. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.27 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount can be estimated reliably. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. When the discounting is used, the increase in the provision due to passage of time is recognised as a finance cost. (i) Warranty and sales returns A provision is made for the estimated liability on all products under warranty and provision for sales returns is made for estimated returns of goods as at the reporting date. These provisions are arrived at based on the historical data of service and sales returns. (ii) Restructuring, mutual separation schemes and voluntary separation scheme costs Restructuring, mutual separation scheme and voluntary separation scheme provisions mainly comprise employee termination costs and other related costs and are recognised in the financial year in which the Group becomes legally or constructively committed to such payment. (iii) Concession assets A provision is recognised based on the contractual obligations that it must fulfil as a condition of its license to maintain the infrastructure to a specified standard and to restore the infrastructure when the infrastructure has deteriorated below specific condition as stated under the Service Concession Agreement. (iv) Claims from suppliers In the normal course of business, the Group may receive claims based on contractual terms or deemed constructive obligations arising from noncontractual actions. The claims are recognised based on legal advice on such contractual terms, past constructive actions or business relationship continuity, where deemed necessary. 59
166. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.28 Grants Grants are recognised at their fair values where there is reasonable assurance that the grant will be received and all conditions attached will be met. 2.29 (i) Grants relating to assets are included in the liabilities as deferred income and are amortised to profit or loss over the expected useful life of the relevant asset by equal annual instalment or by deducting the grants in arriving at the carrying amount of the asset. (ii) Grants relating to income are recognised immediately through profit or loss on a systematic basis over the periods that the related costs, for which they are intended to compensate, are expensed or to be deducted in reporting related expenses. Employee benefits (i) Short term employee benefits Wages, salaries, paid annual leave and sick leave, bonuses, and nonmonetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. (ii) Defined contribution plan A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. The Group’s contributions to the defined contribution plan are charged to profit or loss in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations. (iii) Termination benefits Termination benefits are payable to an entitled employee whenever the employment has to be terminated before the normal retirement date or when the employee accepts mutual/voluntary separation in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. 60
167. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.29 Employee benefits (Continued) (iv) Post-employment benefits - Defined benefit plan Certain companies in the Group operate defined benefit plans for their eligible employees. The defined benefit obligation is calculated using the project unit credit method, determined by independent actuaries are charged to the statement of comprehensive income so as to spread the cost of pensions over the average remaining service lives of the related employees participating in the defined benefit plan. Assumptions were made in relation to the expected rate of salary increases, annual discount rate, expected return on plan assets and inflation rate. The liability in respect of a defined benefit plan is the present value of the defined benefit obligations at the consolidated statement of financial position less the fair value of plan assets, together with adjustments for actuarial gains/losses and past service. The Group determines the present value of the defined benefit obligations with sufficient regularity such that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the reporting date. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements. Re-measurements of the net defined benefit obligations, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the changes in asset ceiling (excluding interest), are recognised immediately in other comprehensive income. Remeasurements are not reclassified to profit or loss in subsequent periods. The Group determines the net interest income or expense on the net defined obligations for the period by applying the discount rate used to measure the defined benefit obligations at the beginning of the annual period, taking into account any changes in the net defined benefit obligations during the period as a result of contributions and benefit payments. Net interest income or expense and other expenses relating to defined benefit plans are recognised in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. 61
168. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.30 Assets under lease arrangements (i) Finance leases Leases of property, plant and equipment, assets under concession contracts and intangible assets where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Assets acquired under finance lease arrangements are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. The capital element of the leasing commitments is shown under borrowings. The lease rentals are treated as consisting of capital and interest element. The capital element is applied to reduce the outstanding obligations and the interest element is charged to profit or loss so as to give a constant periodic rate of interest on the outstanding liability at the end of each accounting period. Assets acquired under finance lease are depreciated or amortised over the useful lives of equivalent owned assets or its lease term, if shorter. (ii) Operating leases Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease rental payments on operating leases are charged to profit or loss in the financial year they become payable, on a straight line basis over the lease term. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. 2.31 Revenue contracts with customers The Group is in the business of providing goods and services in the automotive, services and property industries. Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue arrangements, except for agency services, because it typically controls the goods or services before transferring them to the customer. The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of goods, the Group considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any). The transaction price will be allocated to each performance obligation based on the stand-alone selling prices. When these are not directly observable, they are estimated based on expected cost plus margin. 62
169. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.31 Revenue contracts with customers (Continued) (i) Sale of goods Sales are recognised at the point in time upon control of the goods are transferred to the customers, generally on delivery of goods. Sales of certain goods with free maintenance service comprised two performance obligations because the promises to transfer goods and provision of maintenance services are capable of being distinct and separately identifiable. Accordingly, the Group allocates the transaction price based on the relative stand-alone selling prices of the goods and maintenance services. (ii) Sale of development properties Revenue from sale of development properties are recognised at the point in time or over time, depending on the terms of the contract and the laws that apply to the contract. Revenue is recognised for performance obligation satisfied over time, when one of the following criteria is met: (a) the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (b) the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. If a performance obligation is not satisfied over time in accordance with the criteria above, the Group satisfies the performance obligation at a point in time when control is transferred. The Group recognises revenue over time using the input method, which is based on the costs incurred, relative to the total expected costs for the satisfaction of the performance obligation. The Group determined that the input method is the best method in measuring progress because there is a direct relationship between the costs incurred and the transfer of service to the customer. Sales of non-residential properties comprised two performance obligations because the promises to transfer land and construction of infrastructure and building are capable of being distinct and separately identifiable. Accordingly, the Group allocates the transaction price based on the relative stand-alone selling prices of the land and construction services. The Group recognises revenue for sale of completed units at a point in time when control is transferred. 63
170. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.31 Revenue contracts with customers (Continued) (iii) Construction contracts Revenue from construction contracts is recognised for performance obligation satisfied over time, when one of the following criteria is met: (a) the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (b) the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. The Group recognises revenue over time using the input method, which is based on the costs incurred, relative to the total expected costs for the satisfaction of the performance obligation. The Group determined that the input method is the best method in measuring progress because there is a direct relationship between the costs incurred and the transfer of service to the customer. The Group entered into certain contracts that comprised multiple performance obligations, being construction of buildings, supply and installation of equipment, provision of asset management services and maintenance services. These promises are capable of being distinct and separately identifiable. Accordingly, the Group allocates the transaction price based on the relative stand-alone selling prices of these performance obligations. (iv) Rendering of services Revenue from rendering of services is recognised for performance obligation satisfied over time, when one of the following criteria is met: (a) the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (b) the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. If a performance obligation is not satisfied over time in accordance with the criteria above, the Group satisfies the performance obligation when the services are rendered. The Group recognises revenue over time using the input method, which is based on the costs incurred, relative to the total expected costs for the satisfaction of the performance obligation. The Group determined that the input method is the best method in measuring progress because there is a direct relationship between the costs incurred and the transfer of service to the customer. 64
171. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.31 Revenue contracts with customers (Continued) (iv) Rendering of services (Continued) When the Group’s efforts or inputs are expended evenly throughout the performance period, the Group recognises revenue on a straight-line basis. Variable consideration If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of goods provide customers with volume rebates and incentives. The volume rebates and incentives give rise to variable consideration. - Volume rebates and incentives The Group provides volume rebates to certain customers once the quantity of products purchased during the period exceeds a threshold specified in the contract, and incentives upon sale of certain products by customers to the end users. Rebates and incentives are offset against amounts payable by the customer. To estimate the variable consideration for the expected future rebates and incentives, the Group applies the most likely amount method for contracts with a single-volume threshold and the expected value method for contracts with more than one volume threshold. The Group then applies the requirements on constraining estimates of variable consideration and recognises a liability for the expected future rebates and incentives. Liquidated ascertained damages (“LAD”) The Group provides for LAD for certain contracts with customers, as penalties. The LAD is estimated based on the additional number of days required to satisfy the performance obligation from the original completion date, and the LAD rate provided in the contract. Significant financing component Generally, the Group receives short-term advances from its customers. Using the practical expedient in MFRS 15, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less. 65
172. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.31 Revenue contracts with customers (Continued) Significant financing component (Continued) The Group has certain construction contracts with customers where the period between the transfer of the promised goods or services to the customer and the payment by the customer exceeds one year. The payment schedules are prepared based on the contract terms. The transaction price for such contracts is discounted, using the rate that would be reflected in a separate financing transaction between the Group and its customers at contract inception, to take into consideration the significant financing component. Consideration payable on behalf of a customer The Group incurs certain consideration payable on behalf of a customer which includes legal fees and stamp duty on memorandum of transfers, which an entity pays, or expects to pay. The consideration payable on behalf of a customer is accounted for as a reduction of the transaction price. Principal versus agent consideration When another party is involved in providing goods or services to its customer, the Group determines whether it is a principal or an agent in these transactions by evaluating the nature of its promise to the customer. The Group is a principal and records revenue on a gross basis if it controls the promised goods or services before transferring them to the customer. However, if the Group’s role is only to arrange for another entity to provide the goods or services, then the Group is an agent and will need to record revenue at the net amount that it retains for its agency services. Warranty obligations The Group provides service-type warranties on products. These warranties are accounted for under MFRS 137 Provisions, Contingent Liabilities and Contingent Assets. Contract balances - Contract assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. - Trade receivables A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e. only the passage of time is required before payment of the consideration is due). Refer to the Note 2.8. 66
173. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.31 Revenue contracts with customers (Continued) Contract balances (Continued) - Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. 2.32 Other revenue/income recognition Other revenue/income is recognised to the extent that it is probable that the economic benefits will flow to the Group and the other revenue/income can be reliably measured. Other revenue/income is measured at the fair value of consideration received or receivables, excluding taxes. Apart from other revenue/income recognition policies mentioned elsewhere in the summary of significant accounting policies, set out below are other significant revenue/income recognition policies used by the Group: (i) Dividend income Dividends are recognised when the right to receive payment is established. (ii) Interest income Interest income is recognised using effective interest method. (iii) Rental income Rental income is accrued on a straight line basis over the operating lease term. 2.33 Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in RM, which is the Group’s functional and presentation currency. 67
174. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.33 Foreign currency translation (Continued) (ii) Foreign currency transactions Transactions in foreign currencies during the financial year are converted into functional currency at the rates of exchange ruling on the transaction dates. Monetary assets and liabilities in foreign currency are translated into RM at rates of exchange approximating those ruling on the reporting date. Non-monetary items denominated in foreign currencies that are measured at historical cost are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items denominated in foreign currencies measured at fair value are translated using the exchange date when fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operations. (iii) Foreign subsidiary companies The assets and liabilities of foreign subsidiary companies that have a functional currency other than RM (including any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition) are translated into RM at the rate of exchange ruling at the reporting date. Income and expenses are translated at exchange rates at the date of transactions. Exchange differences arise on translation are taken directly to other comprehensive income. On disposal of foreign subsidiary companies, such translation differences are recognised in profit or loss as part of the gain or loss on disposal. 2.34 Segment reporting Segment reporting is presented for enhanced assessment of the Group’s risks and returns. Business segments provide products or services that are subject to risk and returns that are different from those of other business segments. Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expense, assets and liabilities are determined before intragroup balances and intragroup transactions are eliminated as part of the consolidation process, except to the extent that such intragroup balances and transactions are between group enterprises within a single segment. 68
175. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.35 Contingent liabilities and contingent assets The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare circumstance where there is a liability that cannot be recognised because it cannot be measured reliably. A contingent asset is a possible asset that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group. The Group does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain. In the acquisition of subsidiary companies by the Group under a business combination, the contingent liabilities assumed are measured initially at their fair value at the acquisition date. 2.36 Fair value measurements Except for lease transactions, the fair value of an asset or a liability is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market. The principal or the most advantageous market must be accessible by the Group. For non-financial asset, the fair value measurement takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. 69
176. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.36 Fair value measurements (Continued) The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: (i) Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. (ii) Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other than valuation techniques where all significant inputs are directly or indirectly observable from market data. (iii) Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. The Group and the Company recognise transfers between levels of the fair value hierarchy as of the date of the event or change in circumstances that caused the transfers. 2.37 Current versus non-current classification The Group presents assets and liabilities in the statement of financial position based on current and non-current classification. An asset is current when: - it is expected to be realised or intended to be sold or consumed in the normal operating cycle; - it is held primarily for the purpose of trading; - it is expected to be realised within twelve months after the reporting period; or - the cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when: - it is expected to be settled in the normal operating cycle; - it is held primarily for the purpose of trading; - it is due to be settled within twelve months after the reporting period; or - there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. 70
177. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP The principal activities of the companies in the Group and the effective interest of the Group as at 31 March 2019 therein are shown below: Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % HICOM Holdings Berhad 100.00 100.00 Investment holding 31 March Gadek (Malaysia) Berhad 100.00 100.00 Investment holding 31 March PROTON Holdings Berhad (“PROTON”) 50.10 50.10 Investment holding 31 March DRB-HICOM Northern Gateway Sdn. Bhd. 100.00 100.00 Investment holding 31 March DRB-HICOM Auto Solutions Sdn. Bhd. 100.00 100.00 Vehicle importation, logistics, vehicle predelivery inspection, value added services and the sale of vehicles 31 March DRB-HICOM Defence Technologies Sdn. Bhd. 100.00 100.00 Manufacturing, assembly, supply, maintenance, marketing, refurbishment or retrofitting of military and commercial vehicles, equipment and spare parts 31 March DRB-HICOM SPV (Labuan) Limited 100.00 100.00 Special purpose vehicle for funding 31 March HICOM University College Sdn. Bhd. 100.00 100.00 Higher educational and vocational training programme 31 March PUSPAKOM Sdn. Bhd. (“PUSPAKOM”) 100.00 100.00 Inspection of commercial vehicles for roadworthiness and the inspection of other vehicles 31 March SUBSIDIARY COMPANIES Subsidiary companies of DRB-HICOM Berhad: @ d 71
178. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % Motosikal Dan Enjin Nasional Sdn. Bhd. (“MODENAS”) 81.00 81.00 Manufacturing, assembly and distribution of motorcycles, related spare parts and accessories and servicing motorcycles 31 March Bank Muamalat Malaysia Berhad 70.00 70.00 Islamic banking business and related financial services 31 March Pos Malaysia Berhad 53.50 53.50 Provision of postal and related services 31 March Media City Ventures Sdn. Bhd. 51.00 51.00 Investment holding 31 March DRB-HICOM Geely Sdn. Bhd. 50.10 50.10 Investment holding 31 March * HICOM Trucks Sdn. Bhd. 100.00 100.00 Dormant 31 March * HICOM Power Sdn. Bhd. - 100.00 Dormant 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of DRB-HICOM Berhad: (Continued) @ $ * Subsidiary companies of HICOM Holdings Berhad: * Automotive Corporation Holdings Sdn. Bhd. 100.00 100.00 Investment holding 31 March * USF-HICOM Holdings Sdn. Bhd. 100.00 100.00 Investment holding 31 March @ Edaran Otomobil Nasional Berhad (“EON”) 100.00 100.00 Investment holding and distributor and retailer of motor vehicles 31 March 72
179. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % Glenmarie Development (Pahang) Sdn. Bhd. 100.00 100.00 Building and leasing property 31 March Glenmarie Puchong Sdn. Bhd. 100.00 100.00 Property development 31 March HICOM Automotive Manufacturers (Malaysia) Sdn. Bhd. 100.00 100.00 Manufacturing and assembly of motor vehicles and other road transport vehicles 31 March HICOM Berhad 100.00 100.00 Management of projects, rental of properties and investment holding 31 March HICOM Diecastings Sdn. Bhd. 100.00 100.00 Manufacturing and supply of diecast parts for motorcycles, automobiles and other applications 31 March HICOM Petro-Pipes Sdn. Bhd. 100.00 100.00 Rental of property 31 March HICOM Polymers Industry Sdn. Bhd. 100.00 100.00 Trading of mobile receptacles 31 March PHN Industry Sdn. Bhd. 100.00 100.00 Manufacturing stamped metal parts, sub-assembly of automotive components for the motor industry and design and manufacturing of dies 31 March Proton City Development Corporation Sdn. Bhd. 100.00 100.00 Property development 31 March 97.37 97.37 Provision of integrated solid waste collection and public cleansing management services 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of HICOM Holdings Berhad: (Continued) @ * ∞ Alam Flora Sdn. Bhd. 73
180. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % Scott & English (Malaysia) Sdn. Bhd. 70.00 70.00 Investment holding 31 March HICOM-Teck See Manufacturing Malaysia Sdn. Bhd. 51.00 51.00 Manufacturing and sale of thermo plastic and thermo setting products 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of HICOM Holdings Berhad: (Continued) * Comtrac Sdn. Bhd. 100.00 100.00 Dormant 31 March * HICOM Engineering Sdn. Bhd. 100.00 100.00 Dormant 31 March 100.00 100.00 Dormant 31 March 51.00 51.00 Dormant 31 March Proton Marketing Sdn. Bhd. 50.10 50.10 Investment holding 31 March Perusahaan Otomobil Nasional Sdn. Bhd. 50.10 50.10 Manufacturing, assembly and sale of motor vehicles and related products 31 March 50.10 50.10 Dormant 31 March Subsidiary companies of Gadek (Malaysia) Berhad: Mega Consolidated Sdn. Bhd. * Uni.Asia Capital Sdn. Bhd. Subsidiary companies of PROTON: Subsidiary companies of Proton Marketing Sdn. Bhd.: c Proton Cars (UK) Limited 74
181. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % Proton Cars Australia Pty. Limited 50.10 50.10 After-sales services of motor vehicles 31 March Proton Edar Sdn. Bhd. 50.10 50.10 Sale of motor vehicles, related spare parts and accessories 31 March Proton Motors (Thailand) Company Limited 50.10 50.10 Importation and distribution of motor vehicles and related spare parts 31 March Proton Parts Centre Sdn. Bhd. 50.10 50.10 Trading of motor vehicle components, spare parts and accessories 31 March PROTON Motor Parsian Company (Ltd.) 45.09 - Dormant 31 March Lotus Cars Malaysia Sdn. Bhd. 50.10 50.10 Sale of motor vehicles, related spare parts and accessories 31 March PT Proton Edar Indonesia 50.10 50.10 Sale of motor vehicles, related spare parts and accessories 31 March Proton Singapore Pte. Limited (under members’ voluntary liquidation) 50.10 50.10 Dormant 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of Proton Marketing Sdn. Bhd.: (Continued) a j $g Subsidiary companies of Proton Edar Sdn. Bhd.: f $ i 75
182. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % Automotive Conversion Engineering Sdn. Bhd. 50.10 50.10 Conversion and modification of motor vehicles and distribution of car accessories 31 March Proton Tanjung Malim Sdn. Bhd. 50.10 50.10 Assembly of motor vehicles and related products 31 March Miyazu (Malaysia) Sdn. Bhd. 33.07 33.07 Development, manufacturing and sale of products and services relating to dies, moulds, jigs and stamping activities 31 March Proton Automobiles (China) Limited 50.10 50.10 Dormant 31 March 100.00 100.00 Design, construction, development and provision of asset management services 31 March DEFTECH Aviation Sdn. Bhd. 100.00 100.00 Aircraft composites repair, engineering and maintenance services 31 March DEFTECH Systems Integration Sdn. Bhd. 100.00 100.00 Design, research and development of aircraft avionic and the production and marketing of mission systems equipment and services 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of Perusahaan Otomobil Nasional Sdn. Bhd.: b Subsidiary company of DRB-HICOM Northern Gateway Sdn. Bhd.: Northern Gateway Infrastructure Sdn. Bhd. Subsidiary companies of DRB-HICOM Defence Technologies Sdn. Bhd.: 76
183. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % Defence Services Sdn. Bhd. 100.00 100.00 Specialised in defence engineering works including refurbishment, upgrading of armoured vehicles and supply of spare parts 31 March DEFTECH Unmanned Systems Sdn. Bhd. 100.00 100.00 Design, research and development, production and marketing of unmanned aircraft systems 31 March Composites Technology Research Malaysia Sdn. Bhd. 100.00 96.87 Investment holding and development and production of aircraft composites components 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of DRB-HICOM Defence Technologies Sdn. Bhd.: (Continued) $ * Subsidiary companies of Composites Technology Research Malaysia Sdn. Bhd.: $ * CTRM Aero Composites Sdn. Bhd. 100.00 96.87 Manufacturing of aerospace and non-aerospace composite components 31 March $ * CTRM Testing Laboratory Sdn. Bhd. 100.00 96.87 Composites laboratory testing services 31 March $ * CTRM Composites Engineering Sdn. Bhd. 100.00 96.87 Design and manufacturing of non-aerospace composites components 31 March $ * Aerotech Design Malaysia Sdn. Bhd. 100.00 96.87 Dormant 31 March 77
184. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % Puspakom Teknik Sdn. Bhd. 100.00 100.00 Management of billboards and agent for insurance products 31 March Flora Areana Sdn. Bhd. 100.00 100.00 Dormant 31 March 81.00 81.00 Distribution of motorcycles, related spare parts and accessories and servicing of motorcycles 31 March Muamalat Invest Sdn. Bhd. 70.00 70.00 Provision of Islamic fund management services 31 March Muamalat Venture Sdn. Bhd. 70.00 70.00 Islamic venture capital 31 March Muamalat Nominees (Asing) Sdn. Bhd. 70.00 70.00 Dormant 31 March Muamalat Nominees (Tempatan) Sdn. Bhd. 70.00 70.00 Dormant 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of PUSPAKOM: Subsidiary company of MODENAS: Edaran Modenas Sdn. Bhd. Subsidiary companies of Bank Muamalat Malaysia Berhad: Subsidiary companies of Pos Malaysia Berhad: * Pos Malaysia & Services Holdings Berhad 53.50 53.50 Investment holding 31 March * PSH Capital Partners Sdn. Bhd. 53.50 53.50 Investment holding 31 March * PSH Venture Capital Sdn. Bhd. 53.50 53.50 Investment holding 31 March 78
185. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest 2019 % 2018 % Principal Activities Financial Year End SUBSIDIARY COMPANIES (Continued) Subsidiary companies of Pos Malaysia Berhad: (Continued) * Datapos (M) Sdn. Bhd. 53.50 53.50 Printing and insertion of documents for mailing 31 March * Pos Digicert Sdn. Bhd. 53.50 53.50 Licensed digital certification authority 31 March * Pos Ar-Rahnu Sdn. Bhd. 53.50 53.50 Ar-Rahnu (Islamic pawn broking) 31 March * Pos Aviation Sdn. Bhd. 53.50 53.50 Provision of ground handling, in-flight catering, cargo handling, warehousing space and supply chain management including custom forwarding agent services 31 March * Effivation Sdn. Bhd. 53.50 53.50 Property investment 31 March * PMB Properties Sdn. Bhd. 53.50 53.50 Property investment 31 March * PSH Properties Sdn. Bhd. 53.50 53.50 Property investment 31 March * Poslaju (M) Sdn. Bhd. 53.50 53.50 Dormant 31 March $ * Pos Takaful Agency Sdn. Bhd. - 53.50 Dormant 31 March $ * PSH Allied Berhad - 53.50 Dormant 31 March - 53.50 Dormant 31 March Subsidiary company of Pos Malaysia & Services Holdings Berhad: $ *b PSH Investment Holding (BVI) Ltd. 79
186. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % 53.50 53.50 Dormant 31 March 53.50 53.50 Air courier services and fulfilment business 31 March 53.50 53.50 Property investment 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary company of PSH Capital Partners Sdn. Bhd.: * Prestige Future Sdn. Bhd. Subsidiary company of PSH Venture Capital Sdn. Bhd.: * PSH Express Sdn. Bhd. Subsidiary company of PSH Properties Sdn. Bhd.: * Real Riviera Sdn. Bhd. Subsidiary companies of Pos Aviation Sdn. Bhd.: * Pos Asia Cargo Express Sdn. Bhd. 53.50 53.50 Provision of air cargo transport 31 March * Pos Aviation Engineering Services Sdn. Bhd. 53.50 53.50 Provision of aircraft maintenance and engineering services 31 March * Pos Logistics Berhad 53.50 53.50 Provision of total logistics services and inventory solutions 31 March 53.50 53.50 Provision of aircraft leasing services 31 March Subsidiary company of Pos Asia Cargo Express Sdn. Bhd.: *d Gading Sari Aviation Services Ltd. 80
187. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest 2019 % 2018 % Principal Activities Financial Year End SUBSIDIARY COMPANIES (Continued) Subsidiary companies of Pos Logistics Berhad: * Aman Freight (Malaysia) Sdn. Bhd. 53.50 53.50 Freight and forwarding and other related services 31 March * Cougar Logistics (Malaysia) Sdn. Bhd. 53.50 53.50 Freight and forwarding, warehousing and other related services 31 March * Diperdana Kontena Sdn. Bhd. 53.50 53.50 Leasing of vehicles and mechanical equipment 31 March * KP Asia Auto Logistics Sdn. Bhd. 53.50 53.50 Warehousing and inventory solutions, forwarding, shipping and transport agent 31 March * KP Distribution Services Sdn. Bhd. 53.50 53.50 Distribution services 31 March * Malaysian Shipping Agencies Sdn. Bhd. 53.50 53.50 Shipping agency services, freight and forwarding and other related services 31 March * Pengangkutan Aspacs Sdn. Bhd. 53.50 53.50 Agent for freight, forwarding and other related services 31 March * PNSL Berhad 53.50 53.50 Shipping agency and chartering services 31 March * Westport Distripark (M) Sdn. Bhd. 53.50 53.50 Business of a distribution park 31 March * Diperdana Utara Sdn. Bhd. 53.50 53.50 Dormant 31 March * Kaypi Southern Terminal Sdn. Bhd. 53.50 53.50 Dormant 31 March * North Terminal Sdn. Bhd. 53.50 53.50 Dormant 31 March 53.50 53.50 Dormant 31 March - 53.50 Dormant 31 March *j # K.P.B. Sadao I.C.D. Company Limited $ * Asia Pacific Freight System Sdn. Bhd. 81
188. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest 2019 % 2018 % Principal Activities Financial Year End SUBSIDIARY COMPANIES (Continued) Subsidiary companies of Pos Logistics Berhad: (Continued) $ * Diperdana Selatan Sdn. Bhd. - 53.50 Dormant 31 March $ * Diperdana Terminal Services Sdn. Bhd. - 53.50 Dormant 31 March $ * Kaypi Logistics Depot Sdn. Bhd. - 53.50 Dormant 31 March 53.50 53.50 Dormant 31 March - 53.50 Dormant 31 March Subsidiary companies of Aman Freight (Malaysia) Sdn. Bhd.: Aman Freight Services Sdn. Bhd. * $ * Maya Perkasa (M) Sdn. Bhd. Subsidiary companies of Malaysian Shipping Agencies Sdn. Bhd.: * Konsortium Logistik (Sabah) Sdn. Bhd. 53.50 53.50 Forwarding and related services 31 March * Konsortium Logistik (Sarawak) Sdn. Bhd. 53.50 53.50 Dormant 31 March Subsidiary companies of PNSL Berhad: $ * PNSL Risk Management Sdn. Bhd. 53.50 53.50 Insurance agency service 31 March * Parcel Tankers Malaysia Sdn. Bhd. 53.50 27.29 Sea chartering services 31 March 82
189. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % 51.00 51.00 Investment holding 31 March 51.00 51.00 Construction, operation and maintenance of infrastructure and broadcast system 31 March 100.00 100.00 Sale of motor vehicles and related spare parts and accessories 31 March - 100.00 Dormant 31 March 100.00 100.00 Dealers of motor vehicles, related spare parts, accessories and related services 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary company of Media City Ventures Sdn. Bhd.: Media City Holdings Sdn. Bhd. Subsidiary company of Media City Holdings Sdn. Bhd.: Media City Development Sdn. Bhd. Subsidiary company of USF-HICOM Holdings Sdn. Bhd.: * DRB-HICOM Commercial Vehicles Sdn. Bhd. Subsidiary company of DRB-HICOM Commercial Vehicles Sdn. Bhd.: $ * HICOM Premier Malaysia Sdn. Bhd. Subsidiary company of Automotive Corporation Holdings Sdn. Bhd.: * Automotive Corporation (Malaysia) Sdn. Bhd. 83
190. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % - 70.00 Dormant 31 March 100.00 100.00 Dormant 31 March 100.00 100.00 Dormant 31 March 51.00 51.00 Dormant 31 March - 100.00 Dormant 31 March - 51.00 Dormant 31 March DRB-HICOM EZ-Drive Sdn. Bhd. 100.00 100.00 Provision of car rental, leasing of passenger and commercial vehicles 31 March EON Auto Mart Sdn. Bhd. 100.00 100.00 Sale of motor vehicles and related spare parts and servicing of vehicles 31 March Euromobil Sdn. Bhd. 100.00 100.00 Sale of motor vehicles and related spare parts and servicing of vehicles 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary company of Scott & English (Malaysia) Sdn. Bhd.: $ * HICOM United Leasing Sdn. Bhd. Subsidiary companies of Comtrac Sdn. Bhd.: * Comtrac Builders Sdn. Bhd. * Isti-Emas Sdn. Bhd. * Comtrac Glenview Sdn. Bhd. $ * Comtrac Development Sdn. Bhd. Subsidiary company of Comtrac Glenview Sdn. Bhd.: $ * Glenview Management Corporation Sdn. Bhd. Subsidiary companies of EON: 84
191. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % 100.00 100.00 Sale of motor vehicles and related spare parts and servicing of vehicles 31 March - 100.00 Dormant 31 March 100.00 100.00 Provision of leasing of passenger and commercial vehicles 31 March Dekad Kaliber Sdn. Bhd. 100.00 100.00 Provision of engineering and construction services 31 March EON Properties Sdn. Bhd. 100.00 100.00 Investment and management of properties 31 March Glenmarie Cove Development Sdn. Bhd. 100.00 100.00 Property development 31 March Glenmarie Properties Sdn. Bhd. 100.00 100.00 Investment holding and provision of management services 31 March HB Property Development Sdn. Bhd. 100.00 100.00 Property investment 31 March HICOM Builders Sdn. Bhd. 100.00 100.00 Dormant 31 March 100.00 100.00 Property development 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of EON: (Continued) HICOM Auto Sdn. Bhd. $ EON Technologies Sdn. Bhd. Subsidiary company of DRB-HICOM EZ-Drive Sdn. Bhd.: DRB-HICOM Leasing Sdn. Bhd. Subsidiary companies of HICOM Berhad: * Subsidiary companies of Glenmarie Properties Sdn. Bhd.: Benua Kurnia Sdn. Bhd. 85
192. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % HICOM Indungan Sdn. Bhd. 100.00 100.00 Property development 31 March Neraca Prisma Sdn. Bhd. 100.00 100.00 Property development 31 March HICOM Vertex Sdn. Bhd. 100.00 100.00 Property holding 31 March Proton Hartanah Sdn. Bhd. 100.00 100.00 Investment holding 31 March ∞ Puncak Permai Sdn. Bhd. 58.00 58.00 Investment holding 31 March * Kenyir Splendour Berhad 100.00 100.00 Dormant 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary companies of Glenmarie Properties Sdn. Bhd.: (Continued) * $ * HICOM Megah Sdn. Bhd. - 100.00 Dormant 31 March $ * Glenmarie Asset Management Sdn. Bhd. - 100.00 Dormant 31 March $ Jubli Premis Sdn. Bhd. - 100.00 Dormant 31 March Rebak Island Marina Berhad 100.00 100.00 Operation of a marina resort and property development 31 March Indungan Jaya Sdn. Bhd. 100.00 - Dormant 31 March 50.00 50.00 Dormant 31 March 100.00 100.00 Property development and related activities 31 March Subsidiary companies of HICOM Indungan Sdn. Bhd.: ∞* $ HICOM Tan & Tan Sdn. Bhd. Subsidiary company of Proton Hartanah Sdn. Bhd.: Proton Properties Sdn. Bhd. 86
193. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % 70.60 70.60 Property development, management of hotel and golf resort 31 March 70.60 70.60 Dormant 31 March 60.00 60.00 Assembly, manufacturing and sale of front end modules and related components 31 March DRB-HICOM Mechatronics Sdn. Bhd. 100.00 100.00 Manufacturing, assembling and trading of automotive electrical and electronics components 31 March Oriental Summit Industries Sdn. Bhd. 100.00 100.00 Contract manufacturing of motorcycle and automobile parts and components 31 March 100.00 100.00 Dormant 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary company of Puncak Permai Sdn. Bhd.: ∞ Horsedale Development Berhad Subsidiary company of Horsedale Development Berhad: ∞ Kesturi Hektar Sdn. Bhd. Subsidiary company of HICOM Polymers Industry Sdn. Bhd.: HICOM HBPO Sdn. Bhd. Subsidiary companies of PHN Industry Sdn. Bhd.: Subsidiary company of Oriental Summit Industries Sdn. Bhd.: Automotive Components Engineering Centre Sdn. Bhd. 87
194. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % 97.37 97.37 Provision of integrated solid waste collection, recycling and integrated facility management services 31 March 50.99 50.99 Dormant 31 March Isuzu Service Center Sdn. Bhd. 73.69 73.69 Provision of after sales services, sale of spare parts and automobile workshop 31 March Isuzu Malaysia Sdn. Bhd. 48.42 48.42 Importation, assembly and distribution of motor vehicles, components and parts 31 March Exedy (Malaysia) Sdn. Bhd. 45.00 45.00 Manufacturing of car manual clutches, springs and related parts 31 March Goldstar LOTUS Automobile Co., Ltd. 50.00 50.00 Dormant 31 December 45.00 45.00 Manufacturing and assembly of motorcycle engines and parts 31 March SUBSIDIARY COMPANIES (Continued) Subsidiary company of Alam Flora Sdn. Bhd.: ∞ DRB-HICOM Environmental Services Sdn. Bhd. Subsidiary company of HICOM-Teck See Manufacturing Malaysia Sdn. Bhd.: *j HICOM Automotive Plastics (Thailand) Limited JOINT VENTURES Joint ventures of DRB-HICOM Berhad: * *h • Joint ventures of HICOM Holdings Berhad: HICOM-YAMAHA Manufacturing Malaysia Sdn. Bhd. 88
195. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % 48.00 48.00 Dormant 31 March 25.05 25.05 Providing hire purchase or leasing facilities in respect of the purchase or use of PROTON and other vehicles 31 March 48.00 48.00 Importation, assembly, distribution and trading of motor vehicles, components, spare parts and accessories 31 March 35.30 35.30 Housing and property development and rental of properties 31 March 34.00 34.00 Investment holding, assembly, manufacturing and sale of motor vehicles, accessories and components, trading of imported motor vehicles and related spare parts 31 March JOINT VENTURES (Continued) Joint ventures of HICOM Holdings Berhad: (Continued) HICOM-HONDA Manufacturing Malaysia Sdn. Bhd. Joint venture of Proton Edar Sdn. Bhd.: * Proton Commerce Sdn. Bhd. Joint venture of EON: * Mitsubishi Motors Malaysia Sdn. Bhd. Joint venture of Horsedale Development Berhad: ∞ HICOM-Gamuda Development Sdn. Bhd. ASSOCIATED COMPANIES Associated companies of DRB-HICOM Berhad: * Honda Malaysia Sdn. Bhd. 89
196. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % 29.99 29.99 Dormant 31 December - 40.00 Dormant 31 March ISUZU HICOM Malaysia Sdn. Bhd. 49.00 49.00 Manufacturing, assembly and sale of commercial vehicles 31 March * Suzuki Motorcycle Malaysia Sdn. Bhd. 29.00 29.00 Investment holding and manufacturing, assembly and distribution of motorcycles and parts 31 March * Marutech Elastomer Industries Sdn. Bhd. 25.00 25.00 Manufacturing of automotive parts 31 March 24.55 24.55 Dormant 31 December 25.04 25.04 Dormant 31 December ASSOCIATED COMPANIES (Continued) Associated companies of DRB-HICOM Berhad: (Continued) Marak Unggul Sdn. Bhd. $ Suzuki Malaysia Automobile Sdn. Bhd. Associated companies of HICOM Holdings Berhad: Associated company of Proton Automobiles (China) Limited: *h• Goldstar Proton Automobiles Co., Limited Associated company of Proton Cars (UK) Limited: *c Proton Finance Limited Associated companies of Pos Malaysia Berhad: * CEN Sdn. Bhd. 22.74 22.74 Investment holding 31 December * Elpos Print Sdn. Bhd. 21.40 21.40 General printing business and is one of the suppliers of the Group providing printing services 31 December 90
197. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) Name of Company Effective Equity Interest Principal Activities Financial Year End 2019 % 2018 % 26.75 26.75 Dormant 31 December 40.00 40.00 Provision of security services 30 June 35.00 35.00 Dormant 31 December ASSOCIATED COMPANIES (Continued) Associated companies of Pos Malaysia Berhad: (Continued) * Pospay Exchange Sdn. Bhd. Associated company of EON: * SRT-EON Security Services Sdn. Bhd. Associated company of Oriental Summit Industries Sdn. Bhd.: Faurecia HICOM Emissions Control Technologies (M) Sdn. Bhd. 91
198. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 3 COMPANIES IN THE GROUP (Continued) @ All shares in these companies have been charged for bank borrowings as disclosed in Notes 37 and 44. * These companies in the Group are audited by other firms of auditors other than Ernst & Young, Malaysia and member firms of Ernst & Young Global. $ The changes in the effective equity interest/reclassification of these companies in the Group are as disclosed in Notes 50 and 51. # Inclusive of the effective beneficial interest of 27.28% (2018: 27.28%) held in trust. • Due to the local statutory regulation’s requirement, the financial year end of those subsidiary companies incorporated in People’s Republic of China is different from the Group’s financial year end. ∞ Entities classified as disposal groups held for sale as disclosed in Note 26. a The country of incorporation is Australia. b The country of incorporation is British Virgin Islands. c The country of incorporation is England. d The place of incorporation is Federal Territory of Labuan. e The country of incorporation is Hong Kong. f The country of incorporation is Indonesia. g The country of incorporation is Iran. h The country of incorporation is People’s Republic of China. i The country of incorporation is Singapore. j The country of incorporation is Thailand. All the other companies are incorporated in Malaysia. As mutually agreed by respective shareholders, the financial year end of certain joint ventures and associated companies do not coincide with the Group. 92
199. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 4 REVENUE Group 2019 Company 2019 RM’000 2018 (Restated) RM’000 RM’000 RM’000 Sale of goods 6,018,983 5,900,561 - - Rendering of services 3,716,255 3,763,661 - - Construction contracts 1,384,109 1,314,160 - - Banking 1,320,990 1,203,401 - - 36,712 68,782 - - 12,477,049 12,250,565 - - Other revenue Dividend income from subsidiary companies, a joint venture and an associated company - - 311,701 698,894 Distribution from a subsidiary company - - 297,053 353,000 Interest income from subsidiary companies - - 21,485 3,503 Rental income from subsidiary companies and an associated company - - 14,015 14,015 - - 644,254 1,069,412 12,477,049 12,250,565 644,254 1,069,412 2018 Revenue from contracts with customers Sale of development properties Total Revenue 93
200. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 4 REVENUE (Continued) (a) Breakdown of revenue from contracts from customers The Group derives revenue from the transfer of goods and services over time and at a point in time according to the geographical regions: 2019 Group Geographical markets Within Malaysia Outside Malaysia Type of goods and services Sale of goods Rendering of services Construction contracts Banking Sale of development properties Timing of revenue recognition: At a point in time Over time 2018 (Restated) Geographical markets Within Malaysia Outside Malaysia Automotive RM’000 Properties RM’000 Services RM’000 Total RM’000 6,738,630 618,696 7,357,326 540,916 540,916 4,431,638 147,169 4,578,807 11,711,184 765,865 12,477,049 6,000,857 18,080 46 6,018,983 390,865 73,802 3,251,588 3,716,255 965,604 - 412,322 - 6,183 1,320,990 1,384,109 1,320,990 7,357,326 36,712 540,916 4,578,807 36,712 12,477,049 6,373,033 984,293 7,357,326 93,608 447,308 540,916 4,393,352 185,455 4,578,807 10,859,993 1,617,056 12,477,049 6,291,392 604,087 6,895,479 862,598 862,598 4,244,272 248,216 4,492,488 11,398,262 852,303 12,250,565 94
201. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 4 REVENUE (Continued) (a) Breakdown of revenue from contracts from customers (Continued) The Group derives revenue from the transfer of goods and services over time and at a point in time according to the geographical regions: (Continued) 2018 (Restated) Group Type of goods and services Sale of goods Rendering of services Construction contracts Banking Sale of development properties Timing of revenue recognition: At a point in time Over time (b) Automotive RM’000 Properties RM’000 Services RM’000 Total RM’000 5,843,537 56,913 111 5,900,561 407,460 71,079 3,285,122 3,763,661 644,482 - 665,824 - 3,854 1,203,401 1,314,160 1,203,401 6,895,479 68,782 862,598 4,492,488 68,782 12,250,565 6,216,533 678,946 6,895,479 189,493 673,105 862,598 4,234,796 257,692 4,492,488 10,640,822 1,609,743 12,250,565 Assets and liabilities related to revenue from contracts with customers Information about receivables, contract assets and contract liabilities from contracts with customer are disclosed in Notes 28 and 43 respectively. 5 COST OF SALES Group 2019 RM’000 2018 (Restated) RM’000 Cost of inventories 5,469,224 6,025,715 Cost of services rendered 3,288,625 3,000,744 Cost of construction contracts 880,559 1,031,350 Cost of banking 597,888 658,199 31,284 64,700 10,267,580 10,780,708 Cost of sale of development properties 95
202. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 6 PROFIT/(LOSS) BEFORE TAXATION Profit/(loss) before taxation is arrived at after charging/(crediting) the following: Group 2019 Company 2019 2018 (Restated) RM’000 RM’000 RM’000 2018 (Restated) RM’000 26,659 9,551 - - 24(b) 11,909 81,084 - - - concession assets 14 4,448 11,905 - - - intangible assets 20 169,948 185,202 - - - prepaid lease properties 15 1,713 1,768 - - 4,625 4,760 380 350 Note Allowance for expected credit losses (net of write backs) Allowance for financing of customers (net of write backs) Amortisation of: Auditors’ remuneration Depreciation of property, plant and equipment 13 711,439 697,335 35 42 Directors’ emoluments 7 5,351 5,845 959 776 Finance costs: 9 33,621 15,508 - - 337,743 328,476 102,967 97,808 - subsidiary companies - - 27,955 38,404 - other finance charges 3,603 7,642 1,531 1,179 - unwinding of discount 4,974 8,641 1,622 1,868 Financing written off 2,592 6,684 - - - accretion of discounts related to RCCPS - bank borrowings 96
203. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 6 PROFIT/(LOSS) BEFORE TAXATION (Continued) Profit/(loss) before taxation is arrived at after charging/(crediting) the following: (Continued) Group 2019 RM’000 36,619 102,024 - - 2,120 - - - 32(b) 11,867 12,522 - - 20 Note Inventories written off/down (net of write backs) Loss on fair value adjustments of investment securities: financial assets at fair value through other comprehensive income Marked to market loss on derivatives (net) Company 2019 2018 (Restated) RM’000 RM’000 2018 (Restated) RM’000 Net impairment loss of: - intangible assets 60,109 262 - - - investment in an associated company - 577 130 110 - investment in subsidiary companies - - 422,605 2,485,654 17,922 19,812 - - Provision for concession assets 44,218 41,129 - - Rental of motor vehicles 29,309 33,086 - - Rental of plant and machinery and equipment 54,691 56,648 - - 127,868 132,785 - - 6,749 15,802 - - 2,712,933 2,628,900 - - 24,464 (148,884) - - - property, plant and equipment 13 Rental of premises Research and development expenditure Staff costs 8 Unrealised foreign exchange differences (net) 97
204. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 6 PROFIT/(LOSS) BEFORE TAXATION (Continued) Profit/(loss) before taxation is arrived at after charging/(crediting) the following: (Continued) Group 2019 Note RM’000 2018 (Restated) RM’000 Company 2019 2018 (Restated) RM’000 RM’000 Write off of: - intangible assets 20 3,187 7,306 - - - property, plant and equipment 13 3,120 4,982 - - Amortisation of deferred income 36 (2,911) (2,012) - - Dividend income: 4 - subsidiary companies - - (73,496) (585,446) - a joint venture - - (375) (1,078) - an associated company - - (237,830) (112,370) (108) (202) - - - - (297,053) (353,000) - - (34) - (2,731) (16,990) - 47 (43,643) (18,785) - - (72,952) (71,243) (13,907) (14,328) - - (21,485) (3,503) - other investment Distribution from a subsidiary company 4 Gain on capital repayment of an associated company (Gain)/loss on fair value adjustments of: - investment properties 16 - investment securities: financial assets at fair value through profit or loss Interest income on: - short term deposits - subsidiary companies 98
205. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 6 PROFIT/(LOSS) BEFORE TAXATION (Continued) Profit/(loss) before taxation is arrived at after charging/(crediting) the following: (Continued) Group 2019 Note RM’000 2018 (Restated) RM’000 Company 2019 2018 (Restated) RM’000 RM’000 Net (gain)/loss on disposals of: - investment properties - investment securities: financial assets at fair value through other comprehensive income - property, plant and equipment - subsidiary companies Realised foreign exchange differences (net) Rental income (573) (712) - - (18,194) (35,069) - - (6,692) (16,742) - (16) - 97,637 - (449,898) (2,847) 42,236 - 1,318 (32,836) (29,554) (14,015) (14,015) (607) - - - (Reversal of impairment)/impairment loss of: - investment securities: financial assets at amortised cost - investment securities: financial assets at fair value through other comprehensive income 406 (3,059) - prepaid lease properties 15 - (26) - - (Reversal of)/provision for liabilities and charges (net) 38 (81,248) 61,831 - - 99
206. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 7 DIRECTORS’ EMOLUMENTS Group 2019 RM’000 2018 RM’000 Company 2019 2018 RM’000 RM’000 Non-executive Directors: - fees - allowances and other benefits 1,240 850 765 623 322 1,379 194 153 Executive Directors: - salaries, bonuses, fees, allowances and other benefits 3,392 3,237 - - - defined contribution plan 397 379 - - 5,351 5,845 959 776 The estimated value of benefits-in-kind received by Directors amounted to RM113,700 (2018: RM123,900). 8 STAFF COSTS Group Note Salaries, wages, bonuses, allowances and other benefits Defined contribution plan Defined benefit plan 40(d) 100 2019 RM’000 2018 RM’000 2,405,073 2,323,283 307,400 305,313 460 304 2,712,933 2,628,900
207. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 9 FINANCE COSTS Note Interest expense on borrowings Hire purchase and finance lease charges Total interest expense Group 2019 RM’000 2018 RM’000 Company 2019 2018 RM’000 RM’000 330,945 333,936 130,922 136,212 7,917 2,407 - - 338,862 336,343 130,922 136,212 - - Less: Interest expense capitalised in - property, plant and equipment 13(c) (1,119) (7,867) Recognised in profit or loss 337,743 328,476 130,922 136,212 Accretion of discounts related to RCCPS 33,621 15,508 - - Unwinding of discount 4,974 8,641 1,622 1,868 Other finance charges 3,603 7,642 1,531 1,179 379,941 360,267 134,075 139,259 101
208. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 10 TAXATION Note Group 2019 2018 (Restated) RM’000 RM’000 Company 2019 2018 RM’000 RM’000 Statement of Comprehensive Income: Current taxation - Malaysian tax - Foreign tax - (Over)/under provision in respect of prior financial year Deferred taxation 49,828 10,727 5,945 - 101 - - (10,390) 18,018 71 (1,390) 141,862 67,947 10,798 4,555 81,635 34,755 (8,978) 11,985 7,168 (11,119) - 2,213 88,803 23,636 (8,978) 14,198 230,665 91,583 1,820 18,753 9,152 (5,109) - - 21 - Current year - Under/(over) provision in respect of prior financial year Total taxation charge Deferred taxation related to other comprehensive income 152,252 21 Income tax is calculated at the statutory tax rate of 24% (2018: 24%) on the estimated assessable profit for the year. 102
209. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 10 TAXATION (Continued) The explanation of the relationship between taxation charge and profit/(loss) before taxation is as follows: Group 2019 Company 2019 2018 (Restated) RM’000 RM’000 RM’000 2018 (Restated) RM’000 281,856 283,802 17,526 (1,101,733) Tax calculated at the Malaysian tax rate of 24% (2018: 24%) 67,645 68,112 4,206 (264,416) Tax effects of: - different tax rates 11,659 1,054 - - - expenses not deductible for tax purposes 58,901 230,565 143,644 642,776 (25,293) (470,043) (146,101) (360,430) - (reversal of)/temporary differences not recognised (1,257) 106,638 - - - tax allowances not recognised 78,262 48,621 - - - tax losses not recognised 96,909 170,942 - - - (13,871) - - (9,810) 1,070 - - (43,129) (58,404) - - (10,390) 18,018 71 (1,390) 7,168 (11,119) - 2,213 230,665 91,583 1,820 18,753 Numerical reconciliation of effective taxation charge Profit/(loss) before taxation - income not subject to tax - utilisation of previously unrecognised tax allowances - share of results of joint ventures - share of results of associated companies (Over)/under provision of current taxation in respect of prior financial year Under/(over) provision of deferred taxation in respect of prior financial year Taxation charge 103
210. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 10 TAXATION (Continued) Following the gazetting of the Finance Act 2018 on 27 December 2018, the unabsorbed tax losses and unutilised reinvestment allowances are restricted to be carried forward to a maximum period of seven consecutive years of assessment. Unabsorbed tax losses, unutilised capital allowances, unutilised reinvestment allowances, unutilised investment tax allowances and other deductible temporary differences of the Group which are available for set-off against future taxable profit for which the tax effects have not been recognised in the financial statements are shown below: Group 2019 RM’000 Unabsorbed tax losses Unutilised capital allowances Unutilised reinvestment allowances Unutilised investment tax allowances Other deductible temporary differences 11 3,074,613 2,325,052 2,467,307 28,565 460,354 2018 RM’000 2,670,827 2,061,421 2,406,919 26,492 465,593 DIVIDENDS Dividends paid and proposed are as follows: Group and Company 2019 2018 RM’000 RM’000 In respect of the financial year ended 31 March 2018: Single tier first and final dividend of 3.0 sen per share, paid on 1 October 2018 (2017: Single tier first and final dividend of 1.0 sen per share, paid on 3 October 2017) 57,997 19,332 The Directors recommend the payment of a single tier first and final dividend of 3.0 sen per share amounting to RM57,997,112 in respect of the financial year ended 31 March 2019, subject to the approval of shareholders at the forthcoming Annual General Meeting of the Company. 12 EARNINGS PER SHARE The basic and diluted earnings per share is calculated by dividing the Group’s net profit attributable to Owners of the Company by the number of shares in issue during the financial year. Group 2019 Net profit attributable to Owners of the Company (RM’000) Number of ordinary shares in issue (’000) Basic and diluted earnings per share (sen) 104 122,866 1,933,237 6.36 2018 (Restated) 430,372 1,933,237 22.26
211. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 13 PROPERTY, PLANT AND EQUIPMENT Note Freehold land RM’000 Buildings, golf course and Leasehold land improvements RM’000 RM’000 Office equipment, furniture and fittings Vessels RM’000 RM’000 Plant and machinery RM’000 Motor vehicles RM’000 1,329,226 342,735 135,480 358,284 - - - Capital work-inprogress RM’000 Total RM’000 312,665 5,939,520 GROUP 2019 1,059,598 377,069 2,024,463 - - - 1,059,598 377,069 2,024,463 1,316,225 342,735 135,480 358,284 294,911 5,908,765 Additions - - 35,840 41,677 35,040 3,962 51,651 773,526 941,696 Disposals - - (153) (536) (3,927) - (790) - (1,248) (698) (788) - (339) (178,167) (300,378) (92,123) At 1 April 2018 Prior years’ adjustments As restated Written off 6 - Depreciation Impairment losses/(reversal of impairment) 6 - 6 - Currency translation differences (382) Reclassification - (16,141) (13,001) (9,265) (115,365) - 6,264 (14,727) 845 - (1,424) - 817 (17) 6 7,497 24 35,352 197,686 102,808 1,089 - 24,576 (17,754) (47) - (8,880) (361,511) (30,755) (5,406) (3,120) (711,439) (17,922) 7,945 - Transfer to investment properties 16 (43,636) - (14,704) - - - - - (58,340) Adjustment (a) 40,736 - (1,246) - - - - - 39,490 1,056,316 396,280 1,144,354 282,877 137,674 316,617 697,999 6,101,669 Sub-total carried forward 2,069,552 (a) The adjustment relates to gain on fair value adjustment arising upon the transfer of property, plant and equipment to investment properties in subsidiary companies. 105
212. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 13 PROPERTY, PLANT AND EQUIPMENT (Continued) Note Freehold land RM’000 Buildings, golf course and Leasehold land improvements RM’000 RM’000 Office equipment, furniture and fittings Vessels RM’000 RM’000 Plant and machinery RM’000 Motor vehicles RM’000 282,877 137,674 316,617 Capital work-inprogress RM’000 Total RM’000 697,999 6,101,669 GROUP 2019 (Continued) Sub-total brought forward Transfer from/(to) intangible assets 20 Transfer from inventories Transfer to assets held for sale 26 Transfer to assets held for sale under disposal group 26 1,056,316 396,280 2,069,552 1,144,354 - - 111 533 2,404 - 1,185 (7,991) (3,758) - - - 7 46,590 - - 1,464 48,061 - - - - - - - (5,030) (4,571) (8,311) (7,215) (4,514) (825) - (7,840) (6,715) (4,571) (40,450) At 31 March 2019 1,051,286 383,398 2,062,448 1,140,380 331,046 137,674 309,962 684,757 6,100,951 Cost 1,052,710 646,627 4,184,950 6,546,687 918,500 149,128 2,159,955 730,544 16,389,101 - (262,976) (2,006,622) (5,079,995) (582,940) (11,454) (1,846,090) (253) (115,880) (326,312) (4,514) Accumulated depreciation Accumulated impairment losses Net book value (1,424) 1,051,286 383,398 2,062,448 106 1,140,380 331,046 137,674 (3,903) 309,962 (45,787) 684,757 (9,790,077) (498,073) 6,100,951
213. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 13 PROPERTY, PLANT AND EQUIPMENT (Continued) Note Freehold land RM’000 Buildings, golf course and Leasehold land improvements RM’000 RM’000 Office equipment, furniture and fittings Vessels RM’000 RM’000 Capital work-inprogress RM’000 Total RM’000 474,784 6,463,431 Plant and machinery RM’000 Motor vehicles RM’000 1,349,465 335,387 - 442,575 - - - 335,387 - 442,575 469,588 (1) - (53,871) (38,901) (230,180) 137,548 49,303 335,459 708,369 GROUP 2018 (Restated) At 1 April 2017 Prior years’ adjustments As restated Disposals of subsidiary companies 51(iii)(b) Additions 411,525 2,301,708 - - - 1,147,987 411,525 2,301,708 (25,788) 2 Disposals Written off 1,147,987 (3,938) 6 - Depreciation 6& 51(iii)(b) - Impairment losses 6& 51(iii)(b) Currency translation differences Reclassification (5,989) 1,344,587 (5,196) (10,074) 6,453,357 (92,754) (12,876) - 28,882 63,232 93,943 - (14,188) (1,098) (5,540) - (344) (21) (25,129) - (400) (1,830) (368) - (45) (2,339) (4,982) (196,038) (283,775) (106,257) (3,360) (1,628) - (2,317) (70) - 1,301 (15,736) (2,068) (100,737) - - (11,981) (763) - 3,443 (48) 5,691 203,751 210,961 5,475 - 26,708 - - - - - - (10,095) - - - - - 1,350 1,315,793 320,941 135,480 362,573 304,911 6,167,344 1,027 15 - Transfer from/(to) investment properties 16 7,264 480 1,125,741 385,876 (10,095) (6,394) 2,216,029 107 (6,134) (704,611) (50) Transfer to prepaid lease properties Sub-total carried forward (4,878) 872 (453,613) (25,470) 4,735 -
214. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 13 PROPERTY, PLANT AND EQUIPMENT (Continued) GROUP 2018 (Restated) (Continued) Sub-total brought forward Adjustment Transfer from/(to) intangible assets Transfer from inventories Transfer to assets held for sale Transfer to assets held for sale under disposal group At 31 March 2018 Cost Accumulated depreciation Accumulated impairment losses Net book value Buildings, golf course and Leasehold land improvements RM’000 RM’000 Plant and machinery RM’000 Motor vehicles RM’000 Office equipment, furniture and fittings Vessels RM’000 RM’000 Note Freehold land RM’000 (a) 1,125,741 - 385,876 125 2,216,029 2,195 1,315,793 - 320,941 - 135,480 - 362,573 - 20 4,739 - - 1,682 896 22,013 - - 26 (7,487) - - - - 26 (63,395) 1,059,598 377,069 (159,246) 2,024,463 (2,146) 1,316,225 (219) 342,735 135,480 1,060,928 624,157 3,992,144 6,970,699 874,632 137,548 - (246,835) (1,845,489) (5,337,889) (526,345) (1,330) 1,059,598 (8,932) (253) 377,069 (34,515) (122,192) 2,024,463 (316,585) 1,316,225 (5,552) 342,735 (2,068) 135,480 (4,289) 358,284 2,128,694 (1,767,924) (2,486) 358,284 Capital work-inprogress RM’000 Total RM’000 304,911 - 6,167,344 2,320 (8,950) 961 - (2,011) 294,911 (50,934) (231,306) 5,908,765 326,424 16,115,226 - (9,726,550) (31,513) 294,911 (a) The adjustment relates to gain on fair value adjustment arising upon the transfer of property, plant and equipment to investment properties in a subsidiary company. 108 (7,268) 28,609 (479,911) 5,908,765
215. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 13 PROPERTY, PLANT AND EQUIPMENT (Continued) Plant and machinery RM’000 Motor vehicles RM’000 Office equipment, furniture and fittings RM’000 - 5 69 74 - - (35) (35) - 5 34 39 12,154 269 435 12,858 (12,154) (264) (401) (12,819) - 5 34 39 At 1 April 2017 - 9 111 120 Disposal - (4) - (4) - - (42) (42) - 5 69 74 12,154 269 435 12,858 (12,154) (264) (366) (12,784) - 5 69 74 Note Total RM’000 COMPANY 2019 At 1 April 2018 Depreciation 6 At 31 March 2019 Cost Accumulated depreciation Net book value 2018 Depreciation 6 At 31 March 2018 Cost Accumulated depreciation Net book value (b) Certain property, plant and equipment of the Group with a net book value of RM1,299,983,000 (2018: RM1,371,938,000, 1 April 2017: RM2,100,167,000) have been charged as security for bank borrowings (Notes 37 and 44). (c) During the financial year, the borrowing costs capitalised for the purpose of construction of plants and buildings amounted to RM1,119,000 (2018: RM7,867,000, 1 April 2017: RM9,568,000) at the interest rate of 6.03% (2018: 6.28% to 6.57%, 1 April 2017: 5.74% to 6.46%) per annum. (d) The title deeds for certain landed properties of a subsidiary company with net carrying value amounting to RM1,337,000 (2018: RM1,427,000, 1 April 2017: RM1,440,000) have yet to be issued in the name of the subsidiary company as at 31 March 2019 by the relevant authorities. (e) The leasehold land of the Group includes leasehold land of a postal subsidiary company with a lease period of 60 years commencing from 1 January 1992. The cost capitalised of RM208,435,000 (2018: RM208,435,000, 1 April 2017: RM208,435,000) is in respect of the lease for the first 30 years as stipulated in the agreement signed between the postal subsidiary company and the Government. The cost in respect of the remaining 30 year lease period is subject to the agreement with the authorities, no later than 31 December 2021, and thereafter will be recognised accordingly. 109
216. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 13 PROPERTY, PLANT AND EQUIPMENT (Continued) (f) The details of motor vehicles and plant and machinery acquired under hire purchase and finance lease agreements included under property, plant and equipment of the Group are as follows: 2019 RM’000 2018 RM’000 As at 1 April 2017 RM’000 34,170 35,095 2,611 7,844 - 1,093 42,014 35,095 3,704 - Motor vehicles 89,937 63,525 31,503 - Plant and machinery 22,207 21,893 26,577 112,144 85,418 58,080 Additions during the financial year: - Motor vehicles - Plant and machinery Net book value at financial year end: (g) As at 31 March 2019, the property, plant and equipment of a postal subsidiary group amounted to RM1,413,553,000 (2018:RM1,388,407,000) were tested for impairment due to impairment indicators noted, where the postal subsidiary group recorded losses for the current financial year. The impairment testing gave rise to an impairment loss of property, plant and equipment for the postal subsidiary group of RM6,442,000 (2018: RM1,900,000) for the financial year ended 31 March 2019. The recoverable amount has been determined based on value-in-use calculation using cash flow projections prepared based on financial budgets covering a 5-year period. The discount rate applied to cash flow projections range from 9.50% to 13.00%. The key assumptions used in the recoverable amount calculation are as follows: · Increase in tariff rates - inclusion of potential future earnings of the postal subsidiary company deriving from the increase in tariff rates in relation to mail business to be obtained in the next financial year. · Discount rates - discount rate reflects management's estimate of the risks specific to the postal subsidiary company. In determining the appropriate discount rate for the postal subsidiary company, consideration has been given to the applicable weighted average cost of capital of the postal subsidiary company. · Growth rate at 3% - the forecasted growth rates are based on published industry research and do not exceed the long term average growth rate for the industries relevant to the subsidiary company. 110
217. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 13 PROPERTY, PLANT AND EQUIPMENT (Continued) (g) (Continued) Sensitivity to changes in assumptions (h) 14 (i) In the event that the tariff increase is not obtained, this will result in a negative recoverable amount whereby the postal subsidiary company’s carrying amount will be impaired in full. (ii) An increase of 0.5 percentage point in the discount rate used would have decreased the value-in-use of the Group by RM56,496,000. (iii) A decrease of 0.5 percentage point in the terminal growth rate used would have decreased the value-in-use by RM42,632,000. Certain other property, plant and equipment of the Group were also tested for impairment due to impairment indicators noted. The recoverable amount has been determined based on value-in-use calculation using cash flow projections prepared based on financial budgets covering a 5-year period. Based on the impairment testing, for the financial year ended 31 March 2019, the Group recognised an impairment loss (net of reversal of impairment loss) of RM11,480,000 (2018: RM23,570,000) for property, plant and equipment. CONCESSION ASSETS Note 2019 RM’000 2018 RM’000 209,102 217,152 6,182 3,855 Group At beginning of the financial year Additions Amortisation 6 (4,448) (11,905) Transfer to assets held for sale under disposal groups 26 (210,836) - At end of the financial year - 209,102 Cost - 284,074 Accumulated amortisation - (74,972) Net book value - 209,102 (a) As of the previous reporting date, certain concession assets of the Group with a net book value of RM192,469,000 have been charged as security for bank borrowings (Notes 37 and 44). (b) As of the previous reporting date, the net book value of concession assets of the Group amounted to RM18,528,000 were acquired under hire purchase and finance lease agreements. 111
218. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 15 PREPAID LEASE PROPERTIES Short term leasehold land RM’000 Long term leasehold land RM’000 Total RM’000 16,377 36,831 53,208 (1,054) (659) (1,713) At 31 March 2019 15,323 36,172 51,495 Cost 34,506 41,015 75,521 (19,091) (4,843) (23,934) (92) - (92) 15,323 36,172 51,495 7,752 43,061 50,813 Note Group 2019 At 1 April 2018 Amortisation 6 Accumulated amortisation Accumulated impairment Net book value 2018 At 1 April 2017 Amortisation 6 (948) (820) (1,768) Reversal of impairment loss 6 26 - 26 Transfer from property, plant and equipment 13 9,547 548 10,095 Transfer to assets held for sale 26 - (2,918) (2,918) Transfer to assets held for sale under disposal groups 26 - (3,040) (3,040) At 31 March 2018 16,377 36,831 53,208 Cost 34,506 41,015 75,521 (18,037) (4,184) (22,221) (92) - (92) 16,377 36,831 53,208 Accumulated amortisation Accumulated impairment Net book value Certain prepaid lease properties of the Group with a net book value of RM2,511,000 (2018: RM2,578,000) have been charged as security for bank borrowings (Notes 37 and 44). 112
219. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 16 INVESTMENT PROPERTIES 2019 RM’000 2018 RM’000 248,193 246,889 Additions 2,621 589 Disposals (1,049) (2,625) Note Group At fair value At beginning of the financial year Changes in fair value 6 2,731 16,990 Transfer from/(to) property, plant and equipment 13 58,340 (1,350) Transfer to assets held for sale under disposal groups 26 (15,979) (12,300) 294,857 248,193 130,607 130,654 At end of the financial year Company At fair value At beginning of the financial year Changes in fair value 6 At end of the financial year - (47) 130,607 130,607 12,449 12,447 Direct operating expenses from investment properties that generated rental income during the financial year 1,341 1,285 Direct operating expenses from investment properties that did not generate rental income during the financial year 727 372 14,015 14,015 1,886 1,740 The disclosures on income and expenses of investment properties are as below: Group Rental income Company Rental income Direct operating expenses from investment properties that generated rental income during the financial year (a) Certain investment properties of the Group and of the Company with carrying value of RM60,243,000 (2018: RM65,359,000) and RM111,107,000 (2018: RM111,107,000) respectively have been charged as security for bank borrowings (Notes 37 and 44). (b) The fair value measurement of the investment properties is disclosed in Note 58. 113
220. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 17 SUBSIDIARY COMPANIES RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 8,369,653 8,624,144 8,678,271 605,170 605,170 605,170 8,974,823 9,229,314 9,283,441 (3,560,808) (3,431,808) (989,831) 5,414,015 5,797,506 8,293,610 At fair value Redeemable Convertible Cumulative Preference Shares (“RCCPS”) 337,596 303,628 - Redeemable Preference Shares (“RPS”) 482,866 408,798 63,678 Sub-total 820,462 712,426 63,678 6,234,477 6,509,932 8,357,288 2019 Note Company At cost Unquoted shares Quoted shares Less: Accumulated impairment losses Sub-total Total (d) (a) The details of the subsidiary companies are listed in Note 3. (b) As part of conditions precedent to the acquisition of 70% equity in Bank Muamalat Malaysia Berhad (“BMMB”), Bank Negara Malaysia requires the Company to reduce its investment in BMMB to 40%. The Company is considering various options to address this matter. (c) Certain shares of subsidiary companies with carrying value of RM532,170,000 (2018: RM605,170,000, 1 April 2017: RM2,719,324,000) have been charged as security for bank borrowings (Notes 37 and 44). (d) Impairment testing for cost of investment in postal and education subsidiary companies were performed as these subsidiary companies reported losses. Based on management’s impairment review, impairment loss on the cost of investment in postal and education subsidiary companies of RM73,000,000 and RM56,000,000 respectively was recognised for the financial year ended 31 March 2019. 114
221. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 17 SUBSIDIARY COMPANIES (Continued) (d) (Continued) The recoverable amount of the postal and education subsidiary companies were determined based on value-in-use calculations using cash flow projections prepared based on financial budgets covering a 5-year period. The discount rate applied to the cash flow projections is 10.00% - 10.50% per annum. The key assumptions used in the value-in-use calculations are as follows: · Increase in tariff rates - inclusion of potential future earnings of the postal subsidiary deriving from the increase in tariff rates in relation to mail business to be obtained in the next financial year. · Discount rates - discount rates reflect management’s estimate of the risks specific to these entities. In determining appropriate discount rates for each entity, consideration has been given to the applicable weighted average cost of capital for each entity. · Growth rate of 1% - 3% - the forecasted growth rates are based on published industry research and do not exceed the long term average growth rate for the respective industries. · Revenue growth - the bases used to determine the future earnings potential are historical sales and expected growth rates of the relevant industry. · Projected gross margins - projected gross margin reflects the average historical gross margin adjusted for projected market and economic conditions and internal resource efficiency. Sensitivity to changes in assumptions - Postal subsidiary company (i) In the event that the tariff increase is not obtained, this would have decreased the value-in-use by RM1,281,400,000. (ii) An increase of 0.5 percentage point in the discount rate used would have decreased the value-in-use by RM178,356,000. (iii) A decrease of 0.5 percentage point in the terminal growth rate used would have decreased the value-in-use by RM137,545,000. (e) During the financial year, the Company completed the liquidation of HICOM Power Sdn. Bhd. as disclosed in Note 51(i)(c). Upon the liquidation, a capital repayment of RM298,053,000 comprising distribution of profits of RM297,053,000 and repayment of capital of RM1,000,000 was paid to the Company. Accordingly, the remaining cost of investment after deducting the repayment of capital of RM293,605,000 was recognised as an impairment loss during the financial year. (f) The Company has elected to classify the RCCPS and RPS as financial assets at fair value through other comprehensive income. Accordingly, any change in their respective fair value will be recognised through other comprehensive income to reserve. The fair value measurement of the RCCPS and RPS are disclosed in Note 58. 115
222. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 17 SUBSIDIARY COMPANIES (Continued) (g) The Group’s subsidiary companies that have material non-controlling interest (“NCI”), based on effective equity interest are as follows: Effective equity interest held by NCI 2019 2018 PROTON Holdings Berhad 49.90% 49.90% Pos Malaysia Berhad 46.50% 46.50% Bank Muamalat Malaysia Berhad 30.00% 30.00% Horsedale Development Berhad 29.40% 29.40% - The remaining space is intentionally left blank. 116 -
223. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 17 SUBSIDIARY COMPANIES (Continued) (h) The Group’s subsidiary companies that have material NCI, based on effective equity interest are as follows: Pos Malaysia Berhad Bank Muamalat Malaysia Berhad Horsedale Development Berhad Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Carrying value of NCI (247,415) 808,173 722,352 76,327 224,983 1,584,420 Net (loss)/profit for the financial year attributable to NCI (177,660) (86,484) 53,656 (309) 59,669 (151,128) (70,988) 925,642 659,325 76,823 182,785 1,773,587 (409,072) 38,632 27,312 2,793 22,729 (317,606) - 925,353 638,095 86,824 167,494 1,817,766 PROTON Holdings Berhad 2019 2018 (Restated) Carrying value of NCI Net (loss)/profit for the financial year attributable to NCI As at 1 April 2017 (Restated) Carrying value of NCI 117
224. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 17 SUBSIDIARY COMPANIES (Continued) (i) The summarised financial information (before inter-company eliminations) of these subsidiary companies that have material NCI, not adjusted for the ownership interest held by the Group, are as follows: PROTON Holdings Berhad Pos Malaysia Berhad Bank Muamalat Malaysia Berhad Horsedale Development Berhad RM’000 RM’000 RM’000 RM’000 Non-current assets 4,144,421 1,849,008 17,163,508 247,811 Current assets 2,121,645 1,432,930 5,722,102 123,106 (687,446) (287,815) (1,554,121) (93,966) (2,770,505) (1,278,686) (18,980,070) (22,243) 2,808,115 1,715,437 2,351,419 254,708 3,941,223 2,355,117 1,330,838 41,275 (481,243) (165,770) 179,494 7,235 As at 31 March 2019 Non-current liabilities Current liabilities Net assets Financial year ended 31 March 2019 Revenue Net (loss)/profit for the financial year Cash inflow/(outflow) from operating activities 39,661 Cash (outflow)/inflow from investing activities (617,352) Cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Dividends paid/payable to NCI 118 102,921 (1,759,164) 2,177 (173,407) 1,093,066 (2,211) 826,394 5,861 (79,075) - 248,703 (64,625) (745,173) (34) - 29,119 - -
225. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 17 SUBSIDIARY COMPANIES (Continued) (i) The summarised financial information (before inter-company eliminations) of these subsidiary companies that have material NCI, not adjusted for the ownership interest held by the Group, are as follows: (Continued) PROTON Holdings Berhad Pos Malaysia Berhad Bank Muamalat Malaysia Berhad Horsedale Development Berhad RM’000 RM’000 RM’000 RM’000 Non-current assets 3,916,066 1,882,522 16,964,726 244,145 Current assets 1,814,433 1,489,581 6,831,485 131,672 (353,811) (216,034) (1,864,523) (95,188) (2,086,727) (1,210,592) (19,790,999) (30,362) 3,289,961 1,945,477 2,140,689 250,267 3,527,136 2,472,578 1,214,786 53,007 Net (loss)/profit for the financial year (200,987) 91,092 82,340 8,646 Cash inflow from operating activities 865,905 77,311 296,507 10,383 (176,243) 3,570 As at 31 March 2018 (Restated) Non-current liabilities Current liabilities Net assets Financial year ended 31 March 2018 (Restated) Revenue Cash (outflow)/inflow from investing activities (198,704) (370,481) Cash (outflow)/inflow from financing activities (597,450) 48,273 417,492 (50,278) 69,751 (244,897) 537,756 (36,325) - 38,947 - 14,636 Net increase/(decrease) in cash and cash equivalents Dividends paid/payable to NCI 119
226. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 17 SUBSIDIARY COMPANIES (Continued) (i) The summarised financial information (before inter-company eliminations) of these subsidiary companies that have material NCI, not adjusted for the ownership interest held by the Group, are as follows: (Continued) Pos Malaysia Berhad Bank Muamalat Malaysia Berhad Horsedale Development Berhad RM’000 RM’000 RM’000 Non-current assets 1,628,021 17,117,397 264,479 Current assets 1,656,797 6,349,001 159,617 (113,578) (1,191,608) (96,689) (1,234,989) (20,173,819) (35,786) 1,936,251 2,100,971 As at 1 April 2017 (Restated) Non-current liabilities Current liabilities Net assets 120 291,621
227. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 18 JOINT VENTURES RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 317,415 292,805 407,343 4,686 4,686 2019 Group Share of net assets Company Unquoted shares, at cost (a) The details of the joint ventures, all of which are unquoted, are listed in Note 3. (b) None of the Group’s joint ventures are material individually or in aggregate to the financial position, financial performance and cash flows of the Group. (c) The summarised financial information of the joint ventures, not adjusted for the proportion of ownership interest held by the Group, are as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 Non-current assets 1,373,281 1,370,492 1,749,086 Current assets 1,445,570 1,764,012 1,919,885 Non-current liabilities (1,082,407) (1,490,314) (1,736,600) Current liabilities (1,038,299) (998,200) (1,060,197) 2019 Net assets 698,145 645,990 872,174 2019 RM’000 2018 (Restated) RM’000 Revenue 2,540,208 2,379,006 Expenses (2,422,738) (2,373,759) Profit before taxation 117,470 5,247 Taxation (30,762) (6,369) 86,708 (1,122) Net profit/(loss) representing total comprehensive income/(loss) 121
228. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 18 JOINT VENTURES (Continued) (d) The summarised financial information based on Group’s interest in joint ventures for the years are as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 Non-current assets 663,025 661,874 854,568 Current assets 700,616 862,803 937,754 Non-current liabilities (540,995) (744,986) (868,146) Current liabilities (505,231) (486,886) (516,833) 317,415 292,805 407,343 2019 RM’000 2018 (Restated) RM’000 40,877 (4,459) 6,853 19,418 2019 RM’000 2018 RM’000 As at 1 April 2017 RM’000 605 318 172 2,849 940 6,719 3,454 1,258 6,891 2019 RM’000 2018 RM’000 805,843 885,404 57,803 64,603 (3) (3,543) 57,800 61,060 2019 Net assets Net profit/(loss) representing total comprehensive income/(loss) Cash dividends received by the Group (e) (f) 19 Capital commitments for property, plant and equipment - contracted - not contracted There is no material contingency relating to joint ventures. ASSOCIATED COMPANIES Group Share of net assets Company Unquoted shares, at cost Less: Accumulated impairment losses 122
229. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 19 ASSOCIATED COMPANIES (Continued) (a) The details of the associated companies are listed in Note 3. (b) The Group’s material associated companies, based on effective equity interest are as follows: Effective equity interest held by the Group Honda Malaysia Sdn. Bhd. (c) 2019 2018 34.00% 34.00% 2019 RM’000 2018 RM’000 Capital commitments for property, plant and equipment - contracted 7,949 8,871 - not contracted 5,438 3,778 13,387 12,649 (d) There is no material contingency relating to associated companies. (e) The accumulated share of losses that have not been recognised by the Group amounted to RM18,910,000 (2018: RM13,450,000). The Group has no obligation in respect of these losses. (f) The summarised financial information of the associated companies, not adjusted for the proportion of ownership interest held by the Group, are as follows: Honda Malaysia Sdn. Bhd. Others Total RM’000 RM’000 RM’000 933,699 112,641 1,046,340 2,438,831 551,632 2,990,463 As at 31 March 2019 Non-current assets Current assets Non-current liabilities Current liabilities Net assets (214,182) (11,818) (226,000) (1,414,837) (221,659) (1,636,496) 1,743,511 430,796 2,174,307 123
230. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 19 ASSOCIATED COMPANIES (Continued) (f) The summarised financial information of the associated companies, not adjusted for the proportion of ownership interest held by the Group, are as follows: (Continued) Honda Malaysia Sdn. Bhd. Others Total RM’000 RM’000 RM’000 Revenue 9,006,237 926,149 9,932,386 Expenses (8,295,609) (899,202) (9,194,811) Financial year ended 31 March 2019 Profit before taxation 710,628 26,947 737,575 (220,078) (2,103) (222,181) 490,550 24,844 515,394 Non-current assets 1,019,176 121,567 1,140,743 Current assets 2,543,791 560,579 3,104,370 Taxation Net profit representing total comprehensive income As at 31 March 2018 Non-current liabilities (212,743) (13,562) (226,305) (1,397,763) (241,076) (1,638,839) 1,952,461 427,508 2,379,969 Revenue 9,392,058 923,890 10,315,948 Expenses (8,455,286) (899,040) (9,354,326) Current liabilities Net assets Financial year ended 31 March 2018 Profit before taxation Taxation 936,772 24,850 961,622 (252,331) (1,511) (253,842) 684,441 23,339 707,780 Net profit representing total comprehensive income 124
231. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 19 ASSOCIATED COMPANIES (Continued) (g) The summarised financial information based on Group’s interest in associated companies for the years are as follows: Honda Malaysia Sdn. Bhd. Others Total RM’000 RM’000 RM’000 592,795 213,048 805,843 Group’s share of net profit 166,787 12,919 179,706 Cash dividends received by the Group 237,830 6,054 243,884 663,838 221,566 885,404 Group’s share of net profit representing total comprehensive income 232,710 10,639 243,349 Cash dividends received by the Group 112,370 2,771 115,141 As at 31 March 2019 Group’s share of net assets represents carrying value of Group’s interest in associated companies Financial year ended 31 March 2019 As at 31 March 2018 Group’s share of net assets represents carrying value of Group’s interest in associated companies Financial year ended 31 March 2018 125
232. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 20 INTANGIBLE ASSETS Note Capitalised development cost of workin-progress RM’000 Dealership network RM’000 Total RM’000 Goodwill RM’000 Customer relationship RM’000 Computer software RM’000 Product development expenditure RM’000 621,504 216,474 103,356 227,699 438,217 5,916 1,613,166 - - 10,424 487 228,917 - 239,828 Group 2019 At 1 April 2018 Additions Amortisation 6 - (7,596) (37,247) (119,189) - (5,916) (169,948) Impairment loss 6 (60,109) - - - - - (60,109) Written off 6 - - - (3,144) (43) - (3,187) - - 19,812 384,039 (403,851) - - 239 15 3,504 - 3,758 Reclassification Transfer from property, plant and equipment 13 - - Transfer to assets held for sale under disposal groups 26 - - (1,031) - - - (1,031) - - - - (59,363) - (59,363) At 31 March 2019 561,395 208,878 95,553 489,907 207,381 - 1,563,114 Cost 696,033 237,304 476,859 1,699,480 394,190 41,412 3,545,278 - (28,426) (380,973) (1,129,890) - (41,412) (1,580,701) (134,638) - (333) (79,683) (186,809) - (401,463) 208,878 95,553 489,907 207,381 - 1,563,114 Transfer from other payables Accumulated amortisation Accumulated impairment losses Net book value 561,395 126
233. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 20 INTANGIBLE ASSETS (Continued) Note Goodwill RM’000 Customer relationship RM’000 Computer software RM’000 Product development expenditure RM’000 621,504 225,835 124,350 665,141 Capitalised development cost of workin-progress RM’000 Dealership network RM’000 Brand name RM’000 Total RM’000 208,171 11,832 41,710 1,898,543 (346,648) Group 2018 At 1 April 2017 Disposals of subsidiary companies 51(iii)(b) Additions - - (6) (282,112) (22,820) - (41,710) - - 8,046 1,254 360,002 - - 369,302 Amortisation 6& 51(iii)(b) - (9,361) (40,497) (138,107) - (5,916) - (193,881) Impairment loss 6& 51(iii)(b) - - (262) (2,656) (118,692) - - (121,610) 6 - - - (15) (7,291) - - (7,306) - - 1 7,142 412 - - 7,555 - - 7,258 (25,693) 18,435 - - - Written off Currency translation differences Reclassification Transfer from property, plant and equipment 13 - - 4,523 2,745 - - - 7,268 Transfer to assets held for sale under disposal groups 26 - - (57) - - - - (57) 621,504 216,474 227,699 438,217 5,916 - 1,613,166 At 31 March 2018 103,356 127
234. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 20 INTANGIBLE ASSETS (Continued) Capitalised development cost of workin-progress RM’000 Dealership network RM’000 Brand name RM’000 Total RM’000 Goodwill RM’000 Customer relationship RM’000 Computer software RM’000 Product development expenditure RM’000 696,033 237,304 458,052 1,320,006 565,663 41,412 - 3,318,470 Group 2018 (Continued) Cost Accumulated amortisation Accumulated impairment losses - (20,830) (354,363) (1,012,624) - (35,496) - (1,423,313) (74,529) - (333) (79,683) (127,446) - - (281,991) Net book value 621,504 227,699 438,217 5,916 - 1,613,166 216,474 103,356 128
235. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 20 INTANGIBLE ASSETS (Continued) (a) Impairment testing for goodwill and capitalised development cost of work-inprogress is done annually. Their carrying values were allocated to 8 (2018: 8) of the Group’s cash-generating units (“CGU”), for impairment testing as follows: Courier services Logistics Automotive Construction and leasing Aviation Banking Defence services Leasing of motor vehicles 2019 RM’000 2018 RM’000 290,432 131,988 206,690 105,639 16,648 10,742 4,665 1,972 768,776 290,432 192,097 434,269 105,639 16,648 13,999 4,665 1,972 1,059,721 During the financial year, based on management’s impairment review, impairment loss of RM60,109,000 (2018: Nil) was recognised for goodwill in the Logistics CGU. The recoverable amounts were determined based on value-in-use calculations using cash flow projections prepared based on financial budgets covering a 5-year period and applying a terminal value multiple using a terminal growth rate except for aviation segment that applies a terminal value based on its remaining concession period. The discount rate applied to the cash flow projections range from 8.00% to 12.00% (2018: 10.00% to 14.75%) per annum. The key assumptions used in the value-in-use calculations are as follows: · Extension of concession period - the postal subsidiary has a concession with Malaysia Airport Holdings Berhad (“MAHB”) for ground and cargo handling services with anticipation that the concession period will be renewed from 2034 to 2069. · Discount rates - discount rates reflect management’s estimate of the risks specific to these entities. In determining appropriate discount rates for each unit, consideration has been given to the applicable weighted average cost of capital for each unit. · Growth rate of 2% - 3% - the forecasted growth rates are based on published industry research and do not exceed the long term average growth rate for the industries relevant to the CGUs. · Revenue growth - the bases used to determine the future earnings potential are historical sales and expected growth rates of the relevant industry. · Projected gross margins - projected gross margin reflects the average historical gross margin adjusted for projected market and economic conditions and internal resource efficiency. 129
236. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 20 INTANGIBLE ASSETS (Continued) (a) (Continued) Sensitivity to changes in assumptions Aviation Segment (i) In the event that the extension of concession period is not being granted by MAHB, there would be a decrease in value-in-use by RM187,098,000 resulting in the carrying amount of the aviation segment’s goodwill to be impaired in full. (ii) An increase of 0.5 percentage point in the discount rate used would have decreased the value-in-use by RM31,033,000. (iii) A decrease of 0.5 percentage point in the terminal growth rate used would have decreased the value-in-use by RM23,285,000. Logistics Segment 21 (i) An increase of 0.5 percentage point in the discount rate used would have decreased the value-in-use by RM25,699,000. (ii) A decrease of 0.5 percentage point in the terminal growth rate used would have decreased the value-in-use by RM13,543,000. DEFERRED TAXATION 2019 Note RM’000 2018 (Restated) RM’000 (46,531) (63,078) - 25,757 (46,531) (37,321) Group At beginning of the financial year Prior years’ adjustments As restated Disposals of subsidiary companies 51(iii)(b) Foreign currency differences (Charged)/credited to profit or loss - 9,317 (29) - 9,057 2,063 (10,723) 1,432 10 - Intangible assets - Investment properties - Investment securities - Inventories - Financing of customers - Property, plant and equipment - Provisions - Receivables Sub-total carried forward 130 522 (2) 6,737 5,766 (38,819) 31,011 8,608 10,197 (61,165) (83,183) 1,323 2,387 (84,460) (30,329)
237. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 21 DEFERRED TAXATION (Continued) 2019 RM’000 2018 (Restated) RM’000 (84,460) (30,329) (4,343) 6,693 (88,803) (23,636) (8,757) 5,109 (395) - (76) - (144,591) (46,531) RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 Investment securities 509 9,266 10,753 Investment properties - 1,825 393 124,219 108,689 98,548 Financing of customers 11,121 49,940 18,929 Inventories 18,876 11,722 6,040 Provisions 344,122 351,397 360,588 Note Group Sub-total brought forward - Tax losses (Charged)/credited to other comprehensive income 10 - Fair value changes of investment securities: financial assets at fair value through other comprehensive income - Fair value adjustment on transfer of property, plant and equipment to investment properties Charged to equity - Effect of changes in RPGT rate At end of the financial year 2019 Group Subject to income tax Deferred tax assets (before offsetting) Property, plant and equipment Receivables Tax losses Offsetting Deferred tax assets (after offsetting) 131 2,006 683 2,965 18,656 22,999 16,306 519,509 556,521 514,522 (372,296) (351,619) (342,800) 147,213 204,902 171,722
238. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 21 DEFERRED TAXATION (Continued) RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 2019 Group Subject to income tax Deferred tax liabilities (before offsetting) Intangible assets (206,411) (215,468) (226,848) Investment properties (27,037) (18,063) (18,063) Investment securities (65) (587) (7,181) (301,865) (294,548) (294,604) Property, plant and equipment Inventories (417) - (84) Provisions (128,305) (74,386) (394) - - (4,669) (664,100) (603,052) (551,843) 372,296 351,619 342,800 (291,804) (251,433) (209,043) Receivables Offsetting Deferred tax liabilities (after offsetting) Presented after appropriate offsetting as follows: Deferred tax assets Deferred tax liabilities 147,213 204,902 171,722 (291,804) (251,433) (209,043) (144,591) (46,531) (37,321) Note 2019 RM’000 2018 RM’000 (14,845) (647) (1,505) (1,498) - (2,217) 10,483 (10,483) 8,978 (14,198) (5,867) (14,845) (5,867) (4,362) - (10,483) (5,867) (14,845) Company At beginning of the financial year (Charged)/credited to profit or loss 10 - Investment properties - Property, plant and equipment - Receivables At end of the financial year Subject to income tax Investment properties Receivables Deferred tax liabilities 132
239. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 22 INVESTMENT SECURITIES (a) Investment securities: financial assets at fair value through profit or loss 2019 RM’000 Group Banking - held by a banking subsidiary company Quoted Securities Shares in Malaysia Unquoted Securities Bank Negara Bills and Notes Private equity funds Islamic Private Debt Securities Malaysian Government Investment Certificate Total Non-current Current Non-banking - held by other subsidiary company Fund investment Unquoted shares in Malaysia Quoted shares in Malaysia Total (Current) 133 As at 2018 1 April 2017 (Restated) (Restated) RM’000 RM’000 1,933 - - 234,750 188,479 134,096 163,719 126,714 197,208 113,774 101,542 660,800 290,433 310,982 156,456 504,344 660,800 290,433 290,433 310,982 310,982 163,926 150 164,076 175,670 292 175,962 221,398 175 221,573
240. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 22 INVESTMENT SECURITIES (Continued) (b) Investment securities: financial assets at fair value through other comprehensive income (“FVOCI”) 2019 RM’000 Group Banking - held by a banking subsidiary company Debt instruments Malaysian Government Investment Certificate Quoted Securities Shares in Malaysia Unquoted Securities Islamic Private Debt Securities Cagamas Sukuk Foreign Islamic Private Debt Securities and Sukuk Shares in Malaysia Total Non-current Current Non-banking - held by other subsidiary companies Quoted Securities Shares in Malaysia Unquoted Securities Shares in Malaysia Total (Non-current) 134 As at 2018 1 April 2017 (Restated) (Restated) RM’000 RM’000 2,912,118 3,864,730 3,531,945 104,271 116,225 159,858 1,835,870 55,948 2,240,611 60,530 2,381,464 25,385 22,444 5,381 4,936,032 19,277 5,381 6,306,754 22,225 5,381 6,126,258 4,635,531 300,501 4,936,032 5,540,505 766,249 6,306,754 5,035,771 1,090,487 6,126,258 - - 155 44,898 44,898 45,498 45,498 45,998 46,153
241. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 22 INVESTMENT SECURITIES (Continued) (c) Investment securities: financial assets at amortised cost 2019 RM’000 Group Banking - held by a banking subsidiary company Unquoted Islamic Private Debt Securities in Malaysia 103,310 102,941 101,875 102,596 714 103,310 102,941 102,941 101,875 101,875 Non-banking - held by other subsidiary company Deposits placed with licensed banks - 8,000 8,000 Total (Current) - 8,000 8,000 Non-current Current 23 As at 2018 1 April 2017 (Restated) (Restated) RM’000 RM’000 OTHER ASSETS 2019 RM’000 2018 RM’000 504 544 2019 RM’000 2018 (Restated) RM’000 346,768 344,485 4,543,814 4,613,893 - Hire purchase receivables 581,632 623,218 - Syndicated financing 653,567 686,022 - Other term financing 6,571,078 5,954,935 Sub-total carried forward 12,696,859 12,222,553 Group Golf memberships, at cost less accumulated impairment 24 BANKING RELATED ASSETS - FINANCING OF CUSTOMERS Group Cash line Term financing - Home financing 135
242. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 24 BANKING RELATED ASSETS - FINANCING OF CUSTOMERS (Continued) 2019 RM’000 2018 (Restated) RM’000 12,696,859 12,222,553 1,183,923 1,176,105 Claims on customers under acceptance credits 946,466 849,045 Staff financing 100,797 101,894 Trust receipts 98,692 143,981 126,747 109,245 15,153,484 14,602,823 23,045 (5,196) 15,176,529 14,597,627 Group Sub-total brought forward Revolving credits Ar-Rahnu Gross financing Fair value changes arising from fair value hedge Less: Allowance for impaired financing: - Stage 1 - 12 Months ECL - Stage 2 - Lifetime ECL not credit impaired - Stage 3 - Lifetime ECL credit impaired (55,886) (64,460) (7,448) (17,354) (93,952) (270,971) Total net financing 15,019,243 14,244,842 Non-current 11,269,467 10,097,292 3,749,776 4,147,550 15,019,243 14,244,842 Current (a) The table below shows the credit quality for financing of customers exposed to credit risk, based on the banking subsidiary company's internal credit ratings: 2019 RM’000 2018 (Restated) RM’000 14,440,380 13,420,486 - Satisfactory 321,224 610,036 1 to 60 days past due not impaired 128,658 188,124 61 to 90 days past due not impaired 65,051 93,565 Past due not impaired 193,709 281,689 Impaired 221,216 285,416 15,176,529 14,597,627 Neither past due nor impaired - Good 136
243. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 24 BANKING RELATED ASSETS - FINANCING OF CUSTOMERS (Continued) (a) (Continued) Financing of customers that are neither past due nor impaired Financing of customers which are neither past due nor impaired are identified into two grades. Good grade refers to financing of customers which are neither past due nor impaired in the last six months and have never undergone any rescheduling or restructuring exercise previously. Satisfactory grade refers to financing of customers which may have been past due but not impaired or impaired during the last six months or have undergone a rescheduling or restructuring exercise previously. Financing of customers that are past due but not impaired Financing of customers which are past due but not impaired refers to customers who have failed to make principal or profit payment or both after the contractual due date for more than one day but less than three months. Financing of customers that are impaired Financing of customers which are impaired refers to customers that have failed to make principal or profit payment or both after the contractual due date for more than three months. These balances will be assessed under Stage 3 - Lifetime ECL credit impairment of the ECL model. - The remaining space is intentionally left blank. 137 -
244. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 24 BANKING RELATED ASSETS - FINANCING OF CUSTOMERS (Continued) (b) The movements of the allowance for financing during the financial year are as follows: Note Stage 1 - Stage 2 - Stage 3 - 12 Months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total RM’000 RM’000 RM’000 RM’000 352,785 Group 2019 At 1 April 2018 64,460 17,354 270,971 Transfer to Stage 1 101,019 (7,444) (93,575) - Transfer to Stage 2 (2,300) 98,819 (96,519) - Transfer to Stage 3 (2,036) (5,797) 7,833 - Charged/(write backs) 6 (50,497) (90,261) 177,608 36,850 New financing originated 6 29,381 3,001 8,264 40,646 Financing derecognised 6 (22,011) (3,930) (39,646) (65,587) (62,134) (4,294) (140,984) (207,412) 4 - - 4 55,886 7,448 93,952 157,286 Written off Others At 31 March 2019 138
245. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 24 BANKING RELATED ASSETS - FINANCING OF CUSTOMERS (Continued) (c) Collateral and other credit enhancements The amount and type of collateral required depends on assessment of credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types and collateral and valuation parameters. The collateral obtained by the banking subsidiary company are charges over properties and vehicles under financing, pledges over investment securities and charges over the business assets. The financial effect of collateral (i.e. quantification of the extent to which collateral and other credit enhancements mitigate credit risk) held for financing of customer for the banking subsidiary company is at 96.60% as at 31 March 2019 (2018: 90.10%). As at 31 March 2019, the fair value of collateral that the banking subsidiary company holds relating to financing of customers individually determined to be impaired amounted to RM50,738,000 (2018: RM60,010,000). The collateral consists of cash, securities, letters of guarantee, and properties. (d) Repossessed collateral It is the banking subsidiary company's policy that states disposal of repossessed collateral to be carried out in an orderly manner. The proceeds are used to reduce or repay the outstanding balance of financing. Collateral repossessed are subject to disposal as soon as it is practical to do so. The banking subsidiary company does not occupy repossessed properties for its own business use. 25 BANKING RELATED ASSETS - STATUTORY DEPOSIT WITH BANK NEGARA MALAYSIA The statutory deposit is maintained with Bank Negara Malaysia in compliance with Section 26(2)(c) and Section 26(3) of the Central Bank of Malaysia Act 2009, the amount of which is determined at set percentages of total eligible liabilities. 26 ASSETS AND DISPOSAL GROUPS HELD FOR SALE (i) On 8 March and 11 July 2018, DRB-HICOM Group had entered into various agreements and supplemental agreements respectively for the proposed disposals of certain property assets and investments to Prisma Dimensi Sdn. Bhd. and Kelana Ventures Sdn. Bhd. (ii) On 1 August 2018, the Group had entered into a conditional share sale agreement with Tunas Pancar Sdn. Bhd. for the proposed disposal of its entire indirect equity interest of 97.37% in Alam Flora Sdn. Bhd. 139
246. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 26 ASSETS AND DISPOSAL GROUPS HELD FOR SALE (Continued) As at 31 March 2019, the above proposed disposals have not been completed pending fulfilment of certain conditions precedent and the property assets and investments associated with the proposed disposals are classified as held for sale on the consolidated statement of financial position as follows: 2019 Note RM’000 2018 (Restated) RM’000 Property, plant and equipment 13 55,505 50,934 Prepaid lease properties 15 2,918 2,918 Inventories - land held for property development 27(a) 2,266 2,266 Assets related to disposal groups held for sale (a)(i) 1,215,204 401,902 1,275,893 458,020 (718,926) (127,811) Group Sub-total Liabilities related to disposal groups held for sale (a)(ii) 556,967 (a) 330,209 The details of carrying amounts of assets and liabilities related to disposal groups held for sale are shown as follows: 2019 (i) Note RM’000 2018 (Restated) RM’000 Property, plant and equipment 13 271,756 231,306 Concession assets 14 210,836 - Prepaid lease properties 15 3,040 3,040 Investment properties 16 28,279 12,300 39,692 34,259 1,088 57 71,853 71,037 100,327 11,700 652 268 479,750 22,849 7,931 15,086 1,215,204 401,902 Assets Joint ventures Intangible assets 20 Inventories Trade and other receivables Tax recoverable Short term deposits Cash and bank balances 140
247. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 26 ASSETS AND DISPOSAL GROUPS HELD FOR SALE (Continued) (a) (Continued) 2019 Note (ii) RM’000 2018 (Restated) RM’000 (441,311) (127,811) (222,090) - (50,402) - (5,123) - (718,926) (127,811) Liabilities Trade and other payables Provision for concession assets 39 Bank borrowings Tax liabilities (b) The details of disposal groups are listed in Note 3. (c) During the financial year, certain assets of the Group have been charged as security for bank borrowings (Notes 37 and 44) which are disclosed as follows: 2019 Property, plant and equipment Concession assets Investment properties (d) RM’000 2018 (Restated) RM’000 50,788 19,591 179,751 - 5,100 - The details of concession assets of the Group acquired under hire purchase and finance lease agreements are as follows: 2019 RM’000 Net book value at financial year end 17,326 (e) Included in cash and bank balances of the Group are bank accounts maintained pursuant to the Housing Developers (Control & Licensing) Act 1966, amounting to RM1,372,000 (2018: RM1,345,000). (f) Included in the trade and other receivables, a write back of allowance for expected credit losses of RM10,229,000 (2018: allowance for expected credit losses of RM10,000) had been recognised in profit or loss during the financial year. (g) Included in the borrowings are the syndicated term loan of RM34,361,000 (2018: RM65,660,000) which bears the profit rate of 1.50% (2018: 1.50%) per annum above effective cost of funds, is repayable on a quarterly basis for the purchase of concession assets. The effective profit rate as at the reporting date was 5.93% (2018: 5.92%) per annum. 141
248. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 27 INVENTORIES RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 Raw materials 423,493 390,192 477,426 Work-in-progress 354,104 280,484 458,575 Finished goods 738,735 702,656 1,075,941 Parts and accessories 217,047 216,242 235,245 2019 Note Group Land held for property development (a) 234,589 232,451 1,079,673 Property development costs (b) 723,366 748,103 140,823 94,054 50,923 38,265 2,785,388 2,621,051 3,505,948 234,589 232,451 1,079,673 2,550,799 2,388,600 2,426,275 Completed units of unsold properties/land Non-current Current (a) Land held for property development 2019 RM’000 2018 (Restated) RM’000 Land 148,795 712,458 Development costs 125,376 469,768 274,171 1,182,226 Note At beginning of the financial year Prior years’ adjustments (41,720) As restated 232,451 1,079,673 15 2,764 2,123 - 2,138 2,764 - (75,295) - (2,266) 234,589 1,004,876 (102,553) Add: Costs incurred during the financial year - Land - Development costs Less: Adjustment of development cost during the financial year Transfer to assets held for sale 26 Sub-total carried forward 142
249. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 27 INVENTORIES (Continued) (a) Land held for property development (Continued) 2019 RM’000 2018 (Restated) RM’000 234,589 1,004,876 - Land - (30,934) - Development costs - (4,751) - (35,685) - Land - (533,227) - Development costs - (203,513) - (736,740) Note Sub-total brought forward Transfer to assets held for sale under disposal groups Transfer to property development costs At end of the financial year (b) 234,589 232,451 148,810 148,795 85,779 83,656 234,589 232,451 At end of the financial year Land Development costs (b) Property development costs At beginning of the financial year Land 603,337 72,124 Development costs Accumulated costs charged to profit or loss 453,278 251,613 (258,817) (183,551) 797,798 140,186 Prior years’ adjustments (49,695) 637 As restated 748,103 140,823 - Land - - - Development costs - Accumulated costs charged to profit or loss - (62,526) - 62,526 - - 748,103 140,823 Less: Completed developments in previous years Sub-total carried forward 143
250. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 27 INVENTORIES (Continued) (b) Property development costs (Continued) 2019 RM’000 2018 (Restated) RM’000 748,103 140,823 - 4,653 40,867 57,149 40,867 61,802 - Land - (5,323) - Development costs - Accumulated costs charged to profit or loss - (27,458) - 2,228 - (30,553) - Land - 533,227 - Development costs - 203,513 - 736,740 Note Sub-total brought forward Add: Costs incurred during the financial year - Land - Development costs Transfer to assets held for sale under disposal groups Transfer from land held for property development (a) Transfer to completed units of unsold properties - Land (1) (1,344) (48,415) (19,345) (48,416) (20,689) Less: written down during the financial year - (40,440) Less: Costs recognised as expense in profit or loss during the financial year (17,188) (99,580) At end of the financial year 723,366 748,103 Land 603,336 603,337 Development costs 396,035 403,583 (276,005) (258,817) 723,366 748,103 - Development costs At end of the financial year Accumulated costs charged to profit or loss 144
251. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 27 28 INVENTORIES (Continued) (c) Certain inventories of the Group have been charged as security for bank borrowings (Notes 37 and 44). (d) Certain land held for property development and property development costs of the Group with carrying value of RM431,936,000 (2018: RM478,568,000, 1 April 2017: RM496,325,000) have been charged as security for bank borrowings (Notes 37 and 44). TRADE AND OTHER RECEIVABLES RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 1,584,575 1,679,674 2,059,500 (105,807) (128,712) (149,077) 1,478,768 1,550,962 1,910,423 725,969 810,896 1,191,342 (147,889) (148,865) (318,474) 578,080 662,031 872,868 103,924 55,316 76,950 Amounts due from associated companies 30,172 41,946 40,874 Amounts due from related parties 18,062 116,477 247 1,685,378 1,314,588 920,330 45,443 109,658 104,187 281,031 228,529 199,261 2,164,010 1,866,514 1,341,849 Total 4,220,858 4,079,507 4,125,140 Non-current 1,288,562 923,219 262,717 Current 2,932,296 3,156,288 3,862,423 4,220,858 4,079,507 4,125,140 2019 Note Group Trade receivables Less: Allowance for expected credit losses Other receivables Less: Allowance for expected credit losses Amounts due from joint ventures Contract assets (e) Deposits Prepayments 145
252. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 28 TRADE AND OTHER RECEIVABLES (Continued) 2019 RM’000 2018 RM’000 1,924 1,750 Amounts due from subsidiary companies 920,468 726,525 Amounts due from joint ventures 31 1 710 711 80 80 1,159 501 Total 924,372 729,568 Non-current 441,589 159,057 Current 482,783 570,511 924,372 729,568 Company Other receivables Amounts due from associated companies Deposits Prepayments (a) The currency exposure profile of trade and other receivables is as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 3,771,841 3,879,703 3,598,589 369,043 105,856 315,078 71,509 84,032 184,291 - Euro 5,297 6,426 17,082 - Thai Baht 2,056 2,012 1,306 840 1,112 2,803 - - 3,265 272 366 2,726 4,220,858 4,079,507 4,125,140 2019 RM’000 2018 RM’000 924,372 729,568 2019 Group - Ringgit Malaysia - US Dollar - Pound Sterling - Indonesian Rupiah - Japanese Yen - Other currencies Company - Ringgit Malaysia 146
253. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 28 TRADE AND OTHER RECEIVABLES (Continued) (b) Trade receivables are non-interest bearing. The Group’s normal trade credit terms range from 14 days to 180 days (2018: 14 days to 180 days, 1 April 2017: 14 days to 180 days). They are recognised at their original invoice amounts which represent their fair values on initial recognition. Other credit terms are assessed and approved on a case by case basis. (c) Included in the amounts due from subsidiary companies are balances of RM424,097,000 (2018: RM160,296,000) which are interest bearing and unsecured. The interest rates range from 4.00% to 6.70% (2018: 3.58% to 6.35%) per annum. (d) All other amounts due from joint ventures, associated companies and related parties are non-interest bearing, unsecured and repayable on demand. (e) The breakdown of contract assets are as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 - Construction contracts - Property development activities 1,678,717 1,282,118 863,608 3,534 15,292 56,683 - Others 3,127 1,685,378 17,178 1,314,588 39 920,330 2019 Group Contract assets The increase in contract assets is mainly due to higher progress of on-going projects. (f) An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. by product type, customer type and rating, and coverage by letters of credit or other forms of credit insurance). The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. 147
254. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 28 TRADE AND OTHER RECEIVABLES (Continued) (f) (Continued) The loss allowance and ageing analysis of the Group’s trade receivables is as follows: Expected credit loss rate Total gross carrying amount RM’000 Current 0.01% 1,155,142 (123) 1,155,019 1 to 30 days past due 0.33% 144,287 (474) 143,813 31 to 60 days past due 0.36% 75,266 (273) 74,993 61 to 90 days past due 1.88% 30,018 (565) 29,453 More than 91 days past due 58.03% 179,862 (104,372) 75,490 1,584,575 (105,807) 1,478,768 Expected credit losses RM’000 Total net carrying amount RM’000 Group 2019 Total 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 Current 953,386 1,379,862 1 to 30 days past due 352,842 268,580 31 to 60 days past due 153,087 115,125 61 to 90 days past due 35,391 40,107 More than 91 days past 56,256 106,749 Sub-total 597,576 530,561 Expected credit losses 128,712 149,077 1,679,674 2,059,500 Group 148
255. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 28 TRADE AND OTHER RECEIVABLES (Continued) (g) The movements of the allowance for expected credit losses of trade receivables during the financial year are as follows: 2019 At beginning of the financial year Prior years’ adjustments (534) 149,077 - (6,697) 45,745 26,358 Write backs (11,271) (19,751) Written off (57,770) (16,102) Charged Currency translation differences Transfer to assets held for sale under disposal groups At end of the financial year 391 (3,636) - (537) 105,807 128,712 The movements of the allowance for expected credit losses of the Group’s other receivables during the financial year are as follows: At beginning of the financial year Charged Written off Currency translation differences 2019 RM’000 2018 RM’000 148,865 318,474 2,414 9,413 (3,514) (177,744) 124 At end of the financial year 29 149,611 128,712 Disposals of subsidiary companies (i) 116,535 12,177 As restated (h) RM’000 2018 (Restated) RM’000 147,889 (1,278) 148,865 Certain receivables of the Group have been charged as security for bank borrowings (Notes 37 and 44). SHORT TERM DEPOSITS (a) Deposits with licensed banks and financial institutions of the Group and of the Company with maturity profile above three months amounting to RM12,002,000 (2018: RM25,313,000, 1 April 2017: RM11,242,000) and RM37,000 (2018: RM559,000) respectively are excluded from cash and cash equivalents. 149
256. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 29 SHORT TERM DEPOSITS (Continued) (b) The weighted average effective annual interest rates of short term deposits at the end of the financial year is as follows: % 2018 (Restated) % As at 1 April 2017 (Restated) % 3.29 3.43 3.47 2019 % 2018 % 3.50 3.36 2019 Group Deposits with licensed banks Company Deposits with licensed banks (c) The deposits of the Group and of the Company have an average maturity period of 62 days (2018: 62 days, 1 April 2017: 49 days) and 33 days (2018: 33 days) respectively. (d) The currency exposure profile of short term deposits is as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 - Ringgit Malaysia 1,037,918 918,386 1,017,827 - Singapore Dollar 884 866 - - Thai Baht 274 949 25 - Australian Dollar 145 - 575 - Indonesian Rupiah - - 29,523 - US Dollar - - 22,183 1,039,221 920,201 1,070,133 2019 RM’000 2018 RM’000 413,034 574,915 2019 Group Company - Ringgit Malaysia 150
257. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 30 CASH AND BANK BALANCES (a) Bank balances are deposits held at call with banks and are non-interest bearing. (b) Included in cash and bank balances of the Group are bank accounts maintained pursuant to the Housing Developers (Control & Licensing) Act 1966, amounting to RM24,020,000 (2018: RM50,623,000, 1 April 2017: RM81,671,000). (c) Included in cash and bank balances of the Group are cash restricted for payment of project expenditure held by subsidiary companies amounting to RM150,891,000 (2018: RM122,243,000, 1 April 2017: RM157,284,000). (d) The currency exposure profile of cash and bank balances is as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 1,382,279 1,529,103 1,043,389 - US Dollar 68,620 48,064 278,846 - Thai Baht 13,510 15,023 9,711 - Pound Sterling 4,416 3,928 12,776 - Euro 1,998 7,390 2,078 - Indonesian Rupiah 128 88 8,984 - Singapore Dollar 125 122 131 - Australian Dollar 112 871 2,397 - - 635 1,471,188 1,604,589 1,358,947 2019 RM’000 2018 RM’000 1,439 1,828 14 14 1,453 1,842 2019 Group - Ringgit Malaysia - Japanese Yen Company - Ringgit Malaysia - Pound Sterling 151
258. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 31 BANKING RELATED ASSETS - CASH AND SHORT-TERM FUNDS 2019 RM’000 2018 RM’000 Money at call and interbank placements maturing within one month 609,141 1,260,898 Cash and balances with banks and other financial institutions 221,739 319,025 11,937 7,758 842,817 1,587,681 Group Licensed Islamic banks Allowance for expected credit losses (309) Total (a) 842,508 1,587,681 The allowance for expected credit losses is assessed based on stage 1 under the Expected Credit Loss model and the movement during the financial year is as follows: 2019 RM’000 At beginning of the financial year (b) - Charged 377 Written back (68) At end of the financial year 309 The currency exposure profile of cash and short-term funds is as follows: 2019 RM’000 2018 RM’000 - Ringgit Malaysia 670,132 1,097,041 - US Dollar 144,508 437,928 - Japanese Yen 13,760 38,780 - Pound Sterling 2,886 5,452 - Euro 2,665 514 - Other currencies 8,557 7,966 842,508 1,587,681 Group (c) The weighted average effective profit rates of money at call and interbank placements maturing within 1 month is 3.20% (2018: 2.60%) per annum. (d) The weighted average effective profit rates and weighted average maturity of cash and balances with banks and other financial institution is 3.70% (2018: 2.13%) per annum and 59 days (2018: 84 days) respectively. 152
259. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 32 DERIVATIVE FINANCIAL INSTRUMENTS Contract/ Notional Value RM’000 Assets RM’000 Liabilities RM’000 Currency forward foreign exchange contracts 2,019,108 16,200 11,213 Currency swaps foreign exchange contracts 1,858,525 8,835 12,946 2,150,000 - 26,545 289,733 - 2,090 6,317,366 25,035 52,794 1,098,432 1,973 75,301 841,470 70,995 1,498 1,200,000 - 4,942 434,600 - 7,119 3,574,502 72,968 88,860 Fair value Group 2019 Financial instruments at fair value through profit or loss Islamic profit rate swap Capped cross currency interest rate swap 2018 Financial instruments at fair value through profit or loss Currency forward foreign exchange contracts Currency swaps foreign exchange contracts Islamic profit rate swap Capped cross currency interest rate swap (a) (b) There is no significant change for the financial derivatives in respect of the following since the last financial year ended 31 March 2018: (i) the credit risk, market risk and liquidity risk associated with these financial derivatives; (ii) the cash requirements of the financial derivatives; and (iii) the policy in place for mitigating or controlling the risks associated with these financial derivatives. Disclosure of gain/loss arising from fair value changes of financial derivatives During the current financial year, the Group recognised a total net loss of RM11,867,000 (2018: net loss of RM12,522,000) in profit or loss arising from the fair value changes on the currency forward foreign exchange contracts, currency swaps foreign exchange contracts, Islamic profit rate swap and capped cross currency interest rate swap which are marked to market as at 31 March 2019. 153
260. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 33 SHARE CAPITAL Number of Shares ’000 Monetary Value RM’000 At 31 March 2019 1,933,237 1,740,302 At 31 March 2018 1,933,237 1,740,302 Group and Company Issued and fully paid: Ordinary shares: 34 PERPETUAL SUKUK The Perpetual Sukuk is related to the Company’s Sukuk Musharakah Programme of up to RM2,000,000,000 in nominal value, which was approved by the Securities Commission Malaysia on 27 November 2014. The Perpetual Sukuk is under the Islamic principle of Musharakah. As at 31 March 2019, the total Perpetual Sukuk issued by the Company is RM1,040,000,000 (2018: RM1,040,000,000). Series 1 2 3 Date of issue First call date Total RM’000 30 December 2014 5th anniversary of issue date 415,000 7th anniversary of issue date 300,000 5th anniversary of issue date 100,000 27 February 2015 15 April 2015 th 100,000 th 5 anniversary of issue date 4 15 May 2015 5 anniversary of issue date 50,000 5 12 August 2015 5th anniversary of issue date 75,000 1,040,000 The Perpetual Sukuk holders are conferred a right to receive distribution on a semi-annual basis from their issuance date at 7.45% to 8.00% (2018: 7.45% to 8.00%) per annum, subject to a step-up rate after the 1st call date and on the 3rd anniversary of the 1st call date of their respective tranches. The Perpetual Sukuk has no fixed maturity and is redeemable in whole or in part, at the Company’s option on their respective 1st call date together with any accrued, unpaid or deferred distributions. While any distributions are unpaid or deferred, the Company will not declare, pay dividends or make similar periodic payments in respect of, or redeem, buyback or otherwise acquire any securities of lower or equal rank. Based on its terms, the Perpetual Sukuk has been classified as an equity instrument. The Perpetual Sukuk was issued for the Company’s working capital purposes as well as to finance investments such as purchase of shares, lands, buildings and property and development and construction costs. 154
261. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 35 REDEEMABLE CONVERTIBLE CUMULATIVE PREFERENCE SHARES On 6 June 2016, PROTON Holdings Berhad (“PROTON”), a wholly-owned subsidiary company of the Group, entered into a conditional subscription agreement with GOVCO Holdings Berhad (“GOVCO”), a 99.99% company owned by Minister of Finance Incorporated, for the issuance of up to 1,250,000,000 redeemable convertible cumulative preference shares (“RCCPS”) of RM0.01 each in PROTON at an issue price of RM1.00 per RCCPS to GOVCO (“Initial Subscription Agreement”). The Initial Subscription Agreement was completed on 7 June 2016 (“Initial Subscription RCCPS”). On 5 September 2016, PROTON entered into another conditional subscription agreement with GOVCO for the issuance of up to 250,000,000 RCCPS at an issue price of RM1.00 per RCCPS to GOVCO. At the Extraordinary General Meeting on 29 September 2016, the shareholders of DRB-HICOM Berhad approved the issuance of up to 250,000,000 RCCPS by PROTON. On 22 June 2017, GOVCO completed the subscription of the 250,000,000 RCCPS (“Subsequent Subscription RCCPS”). The key salient terms of the Initial Subscription RCCPS and Subsequent Subscription RCCPS are as follows: Tenure Up to 15 years after the date of issuance of the Initial Subscription on 7 June 2016. Dividend rate 4.0% per annum on a cumulative basis, subject to availability of profit. Grace period 5 years from the date of issuance of the Initial Subscription RCCPS. Conversion rights PROTON has the option to convert partially or wholly any outstanding RCCPS into new ordinary shares of PROTON at any time after the Grace Period. Conversion ratio 1 RCCPS : 1.152 new ordinary shares of PROTON. On 5 October 2017, the Company signed the definitive agreement with GOVCO for the purchase of the first principal tranche of RM300,000,000 RCCPS issued by PROTON due on 6 June 2023 and the RCCPS dividend entitlement for the period ended 6 June 2017 amounting to RM50,000,000 from GOVCO (collectively known as “RCCPS Purchase”). The RCCPS Purchase was completed on 6 October 2017. On the same day, the Company also executed an Asset Exchange Agreement with GOVCO for the creation of an asset pool comprising landed properties, designated shares or cash (“Asset Pool”), whereby GOVCO has the option to: (i) require the Company to transfer the Asset Pool to GOVCO in consideration for GOVCO transferring the PROTON ordinary shares to be received from the conversion of GOVCO’s unredeemed principal amount of the RCCPS at the tenure expiry date of 6 June 2031, or (ii) terminate the Asset Exchange Agreement and keep the new PROTON ordinary shares to be received. 155
262. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 35 REDEEMABLE CONVERTIBLE CUMULATIVE PREFERENCE SHARES (Continued) Effectively, the Company had issued a put option to GOVCO in relation to new PROTON ordinary shares to be received from the conversion of the unredeemed principal of the RCCPS of RM1,200,000,000. The put option will give rise to a financial liability at the Group under MFRS 132 Financial Instruments: Presentation. On 5 October 2017, the unredeemed principal amount of the RCCPS was RM1,200,000,000 and the initial carrying amount of the RCCPS liability was RM529,599,000 being the net present value of the redemption value of the RCCPS of RM1,200,000,000 discounted at the Company’s borrowing rate of 6% per annum. Accordingly, the Group reclassified RM529,599,000 from RCCPS equity to RCCPS liability. Accretion of discounts related to RCCPS of RM33,621,000 (2018: RM15,508,000) was recognised to profit or loss during the financial year. 36 DEFERRED INCOME 2019 Note RM’000 2018 (Restated) RM’000 35,500 33,257 3,409 4,255 (3,712) - (2,911) (2,012) Grant Group As restated Received Utilised Amortisation 6 Interest receivable Non-current Current 705 - 32,991 35,500 26,585 26,691 6,406 8,809 32,991 35,500 Deferred revenue in relation to free services given to customers upon sale of vehicles and club membership licensed fees received in advance was restated to contract liabilities (Note 43) pursuant to the adoption of the MFRS Framework as disclosed in Note 2.2. 156
263. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 37 LONG TERM BORROWINGS Note 2019 RM’000 2018 RM’000 77,804 55,296 (21,182) (16,191) 56,622 39,105 618,172 866,827 (166,843) (243,719) 451,329 623,108 2,995,403 2,843,165 (821,320) (807,795) 2,174,083 2,035,370 4,547 6,306 (1,760) (1,760) 2,787 4,546 863,199 763,162 3,548,020 3,465,291 39,177 117,532 (39,177) (78,355) - 39,177 1,799,702 1,520,775 (499,837) (481,073) 1,299,865 1,039,702 1,299,865 1,078,879 Group Secured Hire purchase and finance lease liabilities - Portion repayable within 12 months included under bank borrowings 44 Long term loans - Portion repayable within 12 months included under bank borrowings 44 Long term loans under Islamic financing - Portion repayable within 12 months included under bank borrowings 44 Unsecured Long term loans - Portion repayable within 12 months included under bank borrowings 44 Long term loans under Islamic financing Company Secured Long term loans - Portion repayable within 12 months included under bank borrowings 44 Long term loans under Islamic financing - Portion repayable within 12 months included under bank borrowings 44 157
264. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 37 LONG TERM BORROWINGS (Continued) (a) The hire purchase and finance lease liabilities are secured against the respective assets acquired as disclosed in Notes 13(f) and 14(b). (b) Long term loans (secured and unsecured) Group The long term loans of the Group mainly comprise the following: (i) The Medium Term Notes (“MTN”) of RM340,000,000 (2018: RM340,000,000, 1 April 2017: Nil) which was issued over maturity dates of 36 months to 192 months. The financing was utilised to finance the construction cost of the Immigration, Custom, Quarantine and Security Complex at Bukit Kayu Hitam and the first repayment commences on 28 August 2020 and is fully repayable on 29 August 2033. The interest on MTNs is charged at a fixed rate of 4.60% to 5.50% (2018: 4.60% to 5.50%) in accordance to the MTN maturity period and the effective interest rate as at the reporting date was 5.11% (2018: 5.11%) per annum. (ii) The USD57,507,000 syndicated term loan (equivalent to RM237,907,000) (2018: USD86,254,000, equivalent to RM338,289,000) which bears interest rate of 5.40% (2018: 5.40%) per annum, is repayable by 4 (2018: 6) semi-annual instalments, commenced from January 2017 and was utilised for working capital and general corporate purposes. (iii) The term loan of RM40,000,000 (2018: RM120,000,000) which bears floating interest rate of 2.25% (2018: 2.25%) per annum above effective cost of funds, is repayable by 1 (2018: 3) instalments on semi-annual basis, commenced from March 2017 and was utilised for working capital and general corporate purposes. The effective interest rate as at the reporting date was 6.06% (2018: 6.45%) per annum. The secured long term loans are secured by fixed and floating charges over shares in certain subsidiary companies, property, plant and equipment, concession assets, prepaid lease properties, investment properties, assets and disposal groups held for sale, inventories and receivables including certain short term deposits and cash and bank balances as disclosed in Notes 3, 13, 14, 15, 16, 26, 27, 28 and note (c) to the statements of cash flows. Company The long term loans of the Company are borrowings with terms as disclosed in Note 37(b)(iii) and note (c) to the statements of cash flows. 158
265. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 37 LONG TERM BORROWINGS (Continued) (c) Long term loans under Islamic financing (secured and unsecured) Group The long term loans under Islamic financing of the Group mainly comprise the following: (i) The Islamic Medium Term Notes (“IMTN”) of RM1,800,000,000 (2018: RM1,520,000,000) in nominal value which bears the yield-to-maturity rates range from 5.00% to 6.90% (2018: 4.85% to 6.90%) per annum, is repayable commencing from May 2019 to March 2024. The IMTN were utilised to partially finance the acquisition of shares in PROTON Holdings Berhad and working capital purposes. (ii) The Senior Sukuk 1 of RM500,000,000 of a banking subsidiary company (2018: RM500,000,0000) carries a tenure of 5 (2018: 5) years with a profit rate of 5.50% (2018: 5.50%) per annum. (iii) The syndicated term loan of RM233,553,000 (2018: RM323,381,000) which bears the profit rates range from 6.13% to 6.97% (2018: 5.88% to 6.95%) per annum, is repayable by 8 (2018: 12) instalments on a quarterly basis commenced from November 2016 to purchase plant and equipment by a subsidiary company, HICOM Automotive Manufacturers (Malaysia) Sdn. Bhd. (iv) The RM250,000,000 (2018: RM250,000,000) Subordinated Sukuk of a banking subsidiary company carries a tenure of 5 (2018: 5) years with a profit rate of 5.80% (2018: 5.80%) per annum and qualifies as Tier-2 capital for the purpose of Bank Negara Malaysia capital adequacy requirement. (v) The term loan of RM110,297,000 (2018: RM173,324,000) which bears the profit rate of 2.00% (2018: 2.00%) per annum above effective cost of funds, is repayable by 7 (2018: 11) instalments on quarterly basis for the acquisition of shares in Pos Logistics Berhad and Pos Asia Cargo Express Sdn. Bhd. by Pos Aviation Sdn. Bhd. (“PASB”). The effective profit rate as at the reporting date was 6.69% (2018: 6.57%) per annum. (vi) The term loans of RM165,860,000 (2018: RM164,297,000) which bears floating profit rate of 1.25% (2018: 1.25%) per annum above effective cost of funds, is repayable by 111 (2018: 123) monthly instalments to finance the development cost of DRB-HICOM University of Automotive Malaysia. The effective profit rate as at the reporting date ranged from 5.00% to 6.70% (2018: 5.00% to 6.70%) per annum. 159
266. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 37 LONG TERM BORROWINGS (Continued) (c) Long term loans under Islamic financing (secured and unsecured) (Continued) Group (Continued) (vii) In the previous financial year, a subsidiary company undertook the RM733,000,000 (2018: RM733,000,000) Tawarruq financing facility (“TWQ”) which consists of 4 tranches of TWQ to finance the construction and development cost of new infrastructures and facilities of the existing Angkasapuri Complex into a new Media City under the Ministry of Communications and Multimedia Malaysia. As at the reporting date, the term loans of RM314,929,000 (2018: RM132,073,000) which comprise of Tawarruq 1 (“TWQ 1”) of RM139,504,000 (2018: RM38,433,000), Tawarruq 3 (“TWQ 3”) of RM171,922,000 (2018: RM93,640,000) and Tawarruq 4 (“TWQ 4”) of RM3,503,000 (2018: Nil) have been drawdown from the borrowing facility. TWQ 1 bears the profit rate range from 1.80% to 2.00% (2018: 2.00%) per annum above effective cost of funds and is repayable by 96 monthly instalments upon expiry of the Availability Period (“AP”) of 36 months and a grace period of 6 months 2017. TWQ 3 bears the profit rate of 1.80% (2018: 1.80%) per annum above effective cost of funds and is repayable by 84 monthly instalments upon expiry of the AP of 12 months and a grace period of 6 months. TWQ 4 bears the profit rate of 1.80% (2018: Nil) per annum above effective cost of funds and is repayable by 84 monthly instalments upon expiry of the AP of 12 months and a grace period of 6 months. The effective profit rate as at the reporting date ranged from 6.85% to 7.45% (2018: 7.25% to 7.45%) per annum. (viii) The term loan of USD25,502,000 (equivalent to RM104,034,000) (2018: USD29,610,000, equivalent to RM115,894,000) which carries a tenure of 8 years commenced from 5 December 2017 and repayable on a quarterly basis for the purchase of vessels. The effective profit rate as at the reporting date was 4.00% (2018: 4.00%) per annum. (ix) The term loans of RM68,627,000 (2018: RM94,320,000) which bears the profit rate of 1.75% (2018: 1.75%) per annum above effective cost of funds, is repayable in 33 months (2018: 45 months) on a quarterly basis for the construction of factory building including the purchase of property, plant and equipment in Malacca. The effective profit rate as at the reporting date was 6.03% (2018: 6.28%) per annum. (x) The USD9,168,000 syndicated term loan (equivalent to RM37,927,000) (2018: USD13,750,000, equivalent to RM53,930,000) which bears the profit rate of 5.40% (2018: 5.40%) per annum, is repayable by 4 (2018: 6) equal semi-annual instalments commenced from January 2017 and utilised for working capital and general corporate purposes. (xi) The term loan of RM100,000,000 was undertaken by a subsidiary company during the financial year which carries at tenure of 7 years and is repayable in 22 equal instalments on a quarterly basis, commencing from August 2020 for shariah-compliant general capital expenditure requirements of the e-commerce and courier businesses. The effective profit rate as at the reporting date was 5.34% per annum. 160
267. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 37 LONG TERM BORROWINGS (Continued) (c) Long term loans under Islamic financing (secured and unsecured) (Continued) Group (Continued) The secured long term loans under Islamic financing are secured by fixed and floating charges over shares in certain subsidiary companies, property, plant and equipment, concession assets, prepaid lease properties, investment properties, assets and disposal groups held for sale, inventories and receivables including certain short term deposits and cash and bank balances as disclosed in Notes 3, 13, 14, 15, 16, 26, 27, 28 and note (c) to the statements of cash flows. Company The long term loans under Islamic financing of the Company are borrowings with terms as disclosed in Note 37(c)(i) and note (c) to the statements of cash flows. In addition, the IMTN is also secured by a charge over the Revenue Account in respect of the assignments of all proceeds from any entitlements to the Company, including the repayments, distribution of capital, dividend payments and/or advances from subsidiary companies and associated companies. (d) The weighted average effective annual interest/profit rates at the end of the financial year are as follows: 2019 % 2018 % Hire purchase and finance lease liabilities 3.59 3.43 Long term loans 5.25 5.46 Long term loans under Islamic financing 5.84 5.55 Long term loans 6.06 6.45 Long term loans under Islamic financing 5.64 5.16 Group Company 161
268. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 37 LONG TERM BORROWINGS (Continued) (e) The currency exposure profile of long term borrowings is as follows: 2019 RM’000 2018 RM’000 3,321,918 3,109,422 226,102 355,869 3,548,020 3,465,291 1,299,865 1,078,879 2019 RM’000 2018 RM’000 - not later than 1 year 25,361 19,465 - later than 1 year and not later than 2 years 22,819 20,274 - later than 2 years and not later than 3 years 18,339 8,993 - later than 3 years and not later than 4 years 14,677 8,611 - later than 4 years and not later than 5 years 6,122 4,949 Group - Ringgit Malaysia - US Dollar Company - Ringgit Malaysia (f) Hire purchase and finance lease liabilities: Group Minimum hire purchase and finance lease payments: 87,318 62,292 Future finance charges on hire purchase and finance lease liabilities (9,514) (6,996) Present value of hire purchase and finance lease liabilities 77,804 55,296 - non-current 56,622 39,105 - current (included in Note 44) 21,182 16,191 77,804 55,296 Representing hire purchase and finance lease liabilities: 162
269. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 37 LONG TERM BORROWINGS (Continued) (g) The exposure of long term borrowings to interest/profit rate risk is as follows: Maturity profile Carrying amount Year 2 Year 3 Year 4 Year 5 and above RM’000 RM’000 RM’000 RM’000 RM’000 Fixed rate Hire purchase and finance lease liabilities 56,622 20,017 16,653 13,963 5,989 Long term loans 454,116 142,663 17,343 13,720 280,390 Long term loans under Islamic financing 2,221,488 612,368 504,494 970,346 134,280 2,732,226 775,048 538,490 998,029 420,659 815,794 233,970 192,205 73,265 316,354 3,548,020 1,009,018 730,695 1,071,294 737,013 39,105 18,340 7,894 8,040 4,831 577,023 123,434 137,457 17,810 298,322 1,962,126 412,299 543,193 975,478 31,156 2,578,254 554,073 688,544 1,001,328 334,309 Long term loans 50,631 47,909 2,722 - - Long term loans under Islamic financing 836,406 269,521 272,644 66,151 228,090 887,037 317,430 275,366 66,151 228,090 3,465,291 871,503 963,910 1,067,479 562,399 Group 2019 Floating rate Long term loans under Islamic financing 2018 Fixed rate Hire purchase and finance lease liabilities Long term loans Long term loans under Islamic financing Floating rate 163
270. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 37 LONG TERM BORROWINGS (Continued) (g) The exposure of long term borrowings to interest/profit rate risk is as follows: (Continued) Maturity profile Carrying amount Year 2 Year 3 Year 4 Year 5 and above RM’000 RM’000 RM’000 RM’000 RM’000 1,299,865 499,933 694,932 - 105,000 39,177 39,177 - - - 1,039,702 329,944 499,861 209,897 - 1,078,879 369,121 499,861 209,897 - Company 2019 Fixed rate Long term loans under Islamic financing 2018 Floating rate Long term loans Fixed rate Long term loans under Islamic financing 38 PROVISION FOR LIABILITIES AND CHARGES Warranty RM’000 Sales returns RM’000 Provision for claims from suppliers RM’000 154,099 174 283,669 437,942 6 38,067 289 - 38,356 6 (1,004) (295) (118,305) (119,604) (62,685) - (23,536) (86,221) 33,778 - - 33,778 162,255 168 141,828 304,251 Note Total RM’000 Group 2019 At 1 April 2018 Charged Unused amounts reversed Utilised Warranties reimbursable from suppliers Sub-total carried forward 164
271. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 38 PROVISION FOR LIABILITIES AND CHARGES (Continued) Note Warranty RM’000 Sales returns RM’000 Provision for claims from suppliers RM’000 162,255 168 141,828 304,251 183 - - 183 - - 7,669 7,669 162,438 168 149,497 312,103 Total RM’000 Group 2019 (Continued) Sub-total brought forward Currency translation differences Accretion of long term provision for claims from suppliers At 31 March 2019 Non-current Current 11,057 - - 11,057 151,381 168 149,497 301,046 162,438 168 149,497 312,103 186,482 205 178,862 365,549 2018 At 1 April 2017 Disposals of subsidiary companies Charged Unused amounts reversed Utilised Warranties reimbursable from suppliers Currency translation differences Accretion of long term provision for claims from suppliers At 31 March 2018 Non-current Current 51(iii)(b) (32,336) - - (32,336) 6& 51(iii) 48,665 321 118,343 6 (1,461) (352) - (1,813) (80,006) - (16,950) (96,956) 32,163 - - 32,163 592 - - 592 - - 3,414 3,414 154,099 174 283,669 437,942 167,329 17,549 - 99,178 116,727 136,550 174 184,491 321,215 154,099 174 283,669 437,942 165
272. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 39 PROVISION FOR CONCESSION ASSETS 2019 RM’000 2018 RM’000 181,678 144,955 Replacements 33,737 33,343 Utilised (3,806) (4,406) Unwinding of discounts 10,481 7,786 (222,090) - At end of the financial year - 181,678 Non-current - 179,938 Current - 1,740 - 181,678 - later than 2 years and not later than 5 years - 1,865 - later than 5 years - 178,073 - 179,938 Note Group At beginning of the financial year Transfer to liabilities related to disposal groups held for sale 26 Non-current: As disclosed in Note 2.27(iii), the above represents the contractual obligation by a subsidiary company in relation to the Service Concession Agreement. 40 POST-EMPLOYMENT BENEFIT OBLIGATIONS The Group operates unfunded defined benefit plans for eligible employees of certain subsidiary companies and a funded defined benefit plan in respect of a foreign subsidiary company. The carrying value of the post-employment benefit obligations of the Group was based on the valuations by actuaries. The level of benefits provided depends on members’ length of service and their salary in the final years leading up to retirement. (a) The amount shown in the statement of financial position is presented as follows: 2019 RM’000 2018 RM’000 188 189 - - 188 189 Present value of unfunded obligations 6,358 8,603 Benefit liability 6,546 8,792 Group Present value of funded obligations Fair value of plan assets Shortfall of funded plan 166
273. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 40 POST-EMPLOYMENT BENEFIT OBLIGATIONS (Continued) (a) The amount shown in the statement of financial position is presented as follows: (Continued) 2019 RM’000 2018 RM’000 6,116 8,199 430 593 6,546 8,792 Group Non-current Current (b) Changes in present value of defined benefit obligations are as follows: Note 2019 RM’000 2018 RM’000 8,792 672,221 Group At beginning of the financial year Disposals of subsidiary companies 51(iii)(b) Current service costs 179 Reversal of provision for past service costs - Interest costs 272 (227) 281 285 87 363 Actuarial loss/(gain) on obligations: - Effect of experience gains on liabilities - Effect on curtailment - (26) Currency translation differences 4 18,065 (2,797) (561) 6,546 8,792 188 189 6,358 8,603 Benefits paid/payable At end of the financial year Present value of funded obligations Present value of unfunded obligations (c) (681,600) Changes in fair value of plan assets in the previous financial year were as follows: Note 2018 RM’000 Group At beginning of the financial year Disposals of subsidiary companies Currency translation differences At end of the financial year 633,985 51(iii)(b) (651,085) 17,100 - 167
274. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 40 POST-EMPLOYMENT BENEFIT OBLIGATIONS (Continued) (d) The expenses recognised in profit or loss are analysed as follows: 2019 RM’000 2018 RM’000 Current service costs 179 272 Interest costs (net) 281 285 Note Group Effect on curtailment - (26) Reversal of provision for past service costs - (227) Staff costs (e) 8 460 304 The principal actuarial assumptions used in the latest actuarial valuation are as follows: 2019 2018 Discount rate (%) 4.50 - 7.97 4.90 - 7.23 Expected rate of salary increase (%) 5.00 - 6.00 5.00 - 6.00 3.00 2.50 - 3.50 Group Inflation rate (%) (f) The currency exposure profile of post-employment benefit obligations is as follows: 2019 RM’000 2018 RM’000 6,358 8,603 188 189 6,546 8,792 Group - Ringgit Malaysia - Indonesian Rupiah (g) The following table demonstrates the sensitivity of the Group’s defined benefit obligations to a reasonably possible change in significant assumptions as at the reporting date: Increase Decrease RM’000 RM’000 Discount rate (0.5% movement) (622) 671 Future salary (0.5% movement) 549 (500) Group 2019 168
275. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 40 POST-EMPLOYMENT BENEFIT OBLIGATIONS (Continued) (g) The following table demonstrates the sensitivity of the Group’s defined benefit obligations to a reasonably possible change in significant assumptions as at the reporting date: (Continued) Increase Decrease RM’000 RM’000 Discount rate (0.5% movement) (323) 367 Future salary (0.5% movement) 229 (200) Group 2018 (h) The maturity profile of defined benefit obligations is as follows: Group Average duration of the defined benefit obligations (years) (i) 2019 RM’000 2018 RM’000 4.85 - 24 5.85 - 24 The expected contributions to defined benefit obligations are as follows: 2019 RM’000 2018 RM’000 577 637 Between 2 and 5 years 2,570 2,615 Between 5 and 10 years 5,883 6,412 Beyond 10 years 8,322 9,752 17,352 19,416 Group Within the next 12 months Total expected payments 169
276. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 41 BANKING RELATED LIABILITIES - DEPOSITS FROM CUSTOMERS RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 1,039,081 947,906 1,052,795 354,575 267,224 107,869 1,393,656 1,215,130 1,160,664 3,104,620 3,391,839 2,994,706 844,916 399,182 70,481 3,949,536 3,791,021 3,065,187 908,842 1,156,951 1,550,790 10,564,188 10,803,931 11,003,797 1,716,446 2,114,502 2,220,188 94,877 119,429 140,575 13,284,353 14,194,813 14,915,350 33,617 33,408 38,309 18,661,162 19,234,372 19,179,510 313,445 617,221 418,615 18,347,717 18,617,151 18,760,895 18,661,162 19,234,372 19,179,510 2019 Group Savings deposits Qard Tawarruq Demand deposits Qard Tawarruq Term deposits Negotiable Islamic debts certificates Fixed term accounts tawarruq Short term accounts General investment deposits Other deposits Total Non-current Current (a) The currency exposure profile of deposits from customers is as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 18,052,896 18,789,175 18,405,892 597,380 438,204 769,765 - Euro 5,010 1,589 2,579 - Pound Sterling 2,181 2,798 848 - Other currencies 3,695 2,606 426 18,661,162 19,234,372 19,179,510 2019 Group - Ringgit Malaysia - US Dollar 170
277. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 41 BANKING RELATED LIABILITIES - DEPOSITS FROM CUSTOMERS (Continued) (b) The maturity period of the deposits from customers is as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 - not later than 6 months 16,024,335 17,115,877 17,385,002 - later than 6 months and not later than 1 year 2,323,382 1,501,273 1,375,893 313,445 617,222 418,615 18,661,162 19,234,372 19,179,510 2019 Group - later than 1 year and not later than 5 years (c) 42 The weighted average effective annual profit rates of deposits from customers at the end of the financial year is 2.50% (2018: 2.40%, 1 April 2017: 3.00%) per annum. BANKING RELATED LIABILITIES - RECOURSE OBLIGATION ON FINANCING SOLD TO CAGAMAS This represents the proceeds received from house financing sold directly to Cagamas Berhad with recourse to the banking subsidiary company. Under these agreements, the banking subsidiary company undertakes to administer the financing on behalf of Cagamas Berhad and to buy-back any financing which are regarded as defective based on prudential criteria set by Cagamas Berhad. These financial liabilities are stated at amortised cost. 43 TRADE AND OTHER PAYABLES RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 Trade payables 1,514,680 1,871,692 2,618,119 Other payables and accruals 2,508,812 2,804,482 2,919,548 274,943 464,349 625,944 28,727 21,353 30,211 2019 Group Advances received on contracts Amounts due to joint ventures Amounts due to associated companies Amounts due to related parties Sub-total carried forward 1,551 1,968 7,113 767,817 26,028 6,026 5,096,530 5,189,872 6,206,961 171
278. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 43 TRADE AND OTHER PAYABLES (Continued) RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 5,096,530 5,189,872 6,206,961 85,855 226,089 276,256 5,182,385 5,415,961 6,483,217 64,489 82,905 120,825 Current 5,117,896 5,333,056 6,362,392 Total 5,182,385 5,415,961 6,483,217 2019 RM’000 2018 RM’000 75,568 44,649 412,845 872,170 50,708 2,445 2019 Note Group Sub-total brought forward Contract liabilities (e) Total Non-current Company Other payables and accruals Amounts due to subsidiary companies - Loan account - Current account 463,553 874,615 Total 539,121 919,264 Non-current 143,740 287,479 Current 395,381 631,785 539,121 919,264 (a) The currency exposure profile of trade and other payables is as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 3,932,879 4,736,843 4,574,907 - US Dollar 905,067 261,738 845,363 - Euro 288,736 322,399 601,883 - Pound Sterling 24,157 37,551 135,975 - Japanese Yen 12,292 42,055 232,121 2,504 5,722 46,104 915 1,659 2,979 5,166,550 5,407,967 6,439,332 2019 Group - Ringgit Malaysia - Thai Baht - Indonesian Rupiah Sub-total carried forward 172
279. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 43 TRADE AND OTHER PAYABLES (Continued) (a) The currency exposure profile of trade and other payables is as follows: (Continued) RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 5,166,550 5,407,967 6,439,332 - Australian Dollar 15 663 6,901 - Singapore Dollar 8 714 7,899 - Chinese Yuan - 108 27,075 15,812 6,509 2,010 5,182,385 5,415,961 6,483,217 2019 RM’000 2018 RM’000 539,121 919,264 2019 Group Sub-total brought forward - Other currencies Company - Ringgit Malaysia (b) The Group’s normal trade payables terms range from 30 days to 180 days (2018: 30 days to 180 days, 1 April 2017: 30 days to 180 days). (c) Included in the amounts due to subsidiary companies are balances of RM455,471,000 (2018: RM573,786,000) which are interest bearing and unsecured. The interest rates range from 3.05% to 6.15% (2018: 3.05% to 6.15%) per annum. (d) All other amounts due to joint ventures, associated companies and related parties are non-interest bearing, unsecured and repayable on demand. (e) The breakdown of contract liabilities are as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 - Construction contracts 14,445 122,225 120,385 - Property development activities 381 5,506 764 71,029 98,358 155,107 85,855 226,089 276,256 2019 Group Contract liabilities - Others 173
280. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 43 TRADE AND OTHER PAYABLES (Continued) (e) (Continued) The decrease in contract liabilities is mainly due to lower progress billing for ongoing projects. 44 BANK BORROWINGS 2019 RM’000 2018 RM’000 - secured 6,923 3,694 - unsecured 6,036 5,368 12,959 9,062 Bankers acceptances 550,448 34,276 Revolving credits 263,503 209,661 Short term loans 6,726 14,963 137,506 158,304 Note Group (i) Bank overdrafts (ii) Other bank borrowings Secured Short term loans under Islamic financing Hire purchase and finance lease liabilities portion repayable within 12 months 37 21,182 16,191 Long term loans - portion repayable within 12 months 37 166,843 243,719 Long term loans under Islamic financing portion repayable within 12 months 37 821,320 807,795 1,967,528 1,484,909 Bankers acceptances 493,844 554,645 Revolving credits 269,600 244,445 25,000 25,000 1,760 1,760 - 4,587 790,204 830,437 2,757,732 2,315,346 2,770,691 2,324,408 Sub-total Unsecured Short term loans under Islamic financing Long term loans - portion repayable within 12 months 37 Deferred liability Sub-total Total (Others - Secured and Unsecured) Total bank borrowings 174
281. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 44 BANK BORROWINGS (Continued) Note 2019 RM’000 2018 RM’000 86,500 86,500 Company Other bank borrowings Secured Revolving credits Long term loans - portion repayable within 12 months 37 39,177 78,355 Long term loans under Islamic financing portion repayable within 12 months 37 499,837 481,073 625,514 645,928 69,500 66,000 695,014 711,928 Sub-total Unsecured Revolving credits Total bank borrowings (a) The currency exposure profile of bank overdrafts and other bank borrowings is as follows: 2019 RM’000 2018 RM’000 2,481,844 2,029,538 283,379 279,618 5,468 15,252 2,770,691 2,324,408 695,014 711,928 Group - Ringgit Malaysia - US Dollar - Pound Sterling Company - Ringgit Malaysia (b) The secured bank overdrafts and other borrowings are secured by way of fixed and floating charges over shares in certain subsidiary companies, property, plant and equipment, concession assets, prepaid lease properties, investment properties, assets and disposal groups held for sales, inventories and receivables including short term deposits and cash and bank balances as disclosed in Notes 3, 13, 14, 15, 16, 26, 27, 28 and note (c) to the statements of cash flows. (c) The deferred liability owing by solid waste subsidiary company to local municipalities is in relation to the transfer of certain units of movable assets from these municipalities to the subsidiary company and the amounts are non-interest bearing, unsecured and payable in accordance with the repayment schedule. 175
282. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 44 BANK BORROWINGS (Continued) (d) The weighted average effective annual interest/profit rates of the bank overdrafts and other bank borrowings at the end of the financial year are as follows: 2019 % 2018 % Bank overdrafts 7.50 8.16 Bankers acceptances 4.36 4.55 Revolving credits 5.39 5.36 Short term loans 4.55 5.35 Short term loans under Islamic financing 5.29 4.23 5.57 5.45 Group Company Revolving credits 45 BANKING RELATED LIABILITIES - DEPOSITS AND PLACEMENTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS 2019 RM’000 2018 RM’000 6,747 8,854 Group Non-Mudharabah Bank Negara Malaysia The above are denominated in Ringgit Malaysia and the average maturity period is not exceeding 1 year (2018: not exceeding 1 year). 46 BANKING RELATED LIABILITIES - BILLS AND ACCEPTANCES PAYABLE Bills and acceptances payable are denominated in Ringgit Malaysia and the average maturity period is not exceeding 1 month (2018: not exceeding 1 month). 47 MERGER RESERVE Pursuant to Section 60(4)(a) of the previous Companies Act 1965, the premiums on the shares issued by the Company as consideration for the acquisitions of certain subsidiary companies in the financial year ended 31 March 2001 were not recorded as share premium. The difference between the issue price and the nominal value of shares issued were classified as merger reserve. 176
283. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 48 OTHER RESERVES 2019 RM’000 2018 (Restated) RM’000 Asset revaluation reserve on step-up acquisition of subsidiary companies 21,101 21,101 Fair value reserve on property, plant and equipment and prepaid lease properties Group Non-distributable 49 60,203 22,137 Reserve on valuation of post-employment benefit obligations 1,244 1,351 Share of associated companies’ reserves 2,400 2,400 Share of subsidiary companies’ reserves 52,634 36,540 137,582 83,529 RETAINED EARNINGS The balance of the entire retained earnings of the Company as at 31 March 2019 may be distributed under the single tier system. 50 SUMMARY OF EFFECTS OF ORGANISATION OF COMPANIES ACQUISITION, INCORPORATION AND RE- 2019 (i) Subsidiary companies (a) On 10 April 2018, PROTON Holdings Berhad, a direct 50.10% owned subsidiary company of the Group, had via its wholly-owned subsidiary company, Proton Marketing Sdn. Bhd., incorporated a 90% owned new subsidiary company known as PROTON Motor Parsian Company (Ltd.) (“PMPC”), in Iran. As a result, PMPC is an indirect 45.09% owned subsidiary company of the Group. (b) On 18 September 2018, PNSL Berhad an indirect 53.50% owned subsidiary company of the Group, acquired the remaining 49% equity interest in Parcel Tankers Malaysia Sdn. Bhd. (“PTM”) previously held by Yuma Shipping Pte. Ltd. for consideration of RM2,403,000, thus increasing its ownership from 51% to 100% in PTM. As a result, PTM became an indirect 53.50% owned subsidiary company of the Group. (c) On 7 December 2018, DRB-HICOM Defence Technologies Sdn. Bhd., a direct wholly-owned subsidiary company of the Group, acquired the remaining 3.13% equity interest in Composites Technology Research Malaysia Sdn. Bhd. (“CTRM”) from Petroliam Nasional Berhad for a total cash consideration of RM13,000,000, thus increasing its ownership from 96.87% to 100% in CTRM. As a result, CTRM is an indirect wholly-owned subsidiary company of the Group. 177
284. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 50 SUMMARY OF EFFECTS OF ACQUISITION, ORGANISATION OF COMPANIES (Continued) INCORPORATION AND RE- 2019 (Continued) (i) Subsidiary companies (Continued) (d) On 24 December 2018, Indungan Jaya Sdn. Bhd. (“IJSB”) was incorporated by HICOM Indungan Sdn. Bhd., an indirect wholly-owned subsidiary company of the Group. As a result, IJSB became an indirect wholly-owned subsidiary company of the Group. 2018 (ii) Subsidiary companies (a) On 10 March 2017, DRB-HICOM Defence Technologies Sdn. Bhd. (“DEFTECH”), a wholly-owned subsidiary company of the Group, entered into a share sale agreement with its 96.87% owned subsidiary company, Composites Technology Research Malaysia Sdn. Bhd. (“CTRM”) for the proposed acquisitions of the entire equity interests in the three wholly-owned subsidiary companies of CTRM namely, CTRM Systems Integration Sdn. Bhd., CTRM Aviation Sdn. Bhd. and Unmanned Systems Technology Sdn. Bhd. for a total cash consideration of RM1.05 million. The transaction was completed on 30 June 2017. As a result, the above three companies have become direct subsidiary companies of DEFTECH. On 15 March 2018, the above companies have been renamed as DEFTECH Systems Integration Sdn. Bhd., DEFTECH Aviation Sdn. Bhd. and DEFTECH Unmanned Systems Sdn. Bhd. respectively. (b) On 29 September 2017, following the completion of the PROTON corporate exercise set out in Note 51(iii)(b), the Group has undertaken the following transactions via internal re-organisation: (c) (i) HICOM Berhad, an indirect wholly-owned subsidiary company of the Group, acquired 100% equity interest in EON Properties Sdn. Bhd. from Proton Edar Sdn. Bhd., an indirect wholly-owned subsidiary company of PROTON for a nominal value of RM1. (ii) Glenmarie Properties Sdn. Bhd., an indirect wholly-owned subsidiary company of the Group, acquired 100% equity interest in Proton Hartanah Sdn. Bhd. (“PHSB”) from PROTON for a nominal value of RM1. PHSB owns 100% equity interest in Proton Properties Sdn. Bhd. and 40% equity interest in Proton City Development Corporation Sdn. Bhd. On 11 January 2018, DRB-HICOM Geely Sdn. Bhd. (“DHG”) was incorporated and the shareholdings of 50.10% and 49.90% in DHG are held by DRB-HICOM Berhad and Geely International (Hong Kong) Limited respectively. DHG is an investment holding company. 178
285. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 50 SUMMARY OF EFFECTS OF ACQUISITION, ORGANISATION OF COMPANIES (Continued) INCORPORATION AND RE- 2018 (Continued) (ii) Subsidiary companies (Continued) (d) In the previous financial year, the Group completed the PPA exercise to determine the fair values of the net assets of Pos Malaysia Berhad (“Pos Malaysia”) within the stipulated time period, i.e. twelve months from the acquisition dates, in accordance with MFRS 3. The details are as follows: RM’000 355,844 217,795 (138,049) Provisional goodwill Final goodwill Differences The goodwill of RM217,795,000 comprised the value of expected synergies arising from the acquisitions, which was not separately recognised. Goodwill was allocated entirely to the postal services segment. The adjusted fair values of Pos Malaysia’s identifiable assets, liabilities and contingent liabilities have been reflected in the Consolidated Statement of Financial Position as at 31 March 2017. Below are the effects of the final PPA adjustments in accordance with MFRS 3: As previously stated RM’000 Adjustments RM’000 As restated RM’000 Non-current assets Property, plant and equipment 6,352,474 110,957 6,463,431 Intangible assets 1,812,523 86,020 1,898,543 129,375 80,895 210,270 6,420,456 284 6,420,740 As at 31 March 2017 Consolidated Statement of Financial Position Non-current liabilities Deferred tax liabilities Current liabilities Trade and other payables 179
286. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 50 SUMMARY OF EFFECTS OF ACQUISITION, ORGANISATION OF COMPANIES (Continued) INCORPORATION AND RE- 2018 (Continued) (ii) Subsidiary companies (Continued) (d) (Continued) As previously stated RM’000 Adjustments RM’000 As restated RM’000 As at 31 March 2017 Consolidated Statement of Changes in Equity Retained earnings 2,707,010 Non-controlling interest 1,723,097 (2,242) 118,040 2,704,768 1,841,137 For the financial year ended 31 March 2017 Consolidated Statement of Comprehensive Income Administrative expenses (1,404,943) (5,514) (1,410,457) (38,218) 1,324 (36,894) (454,401) (2,242) (456,643) 73,659 (1,948) 71,711 (500,127) (2,242) (502,369) 71,170 (1,948) 69,222 Taxation Net (loss)/profit for the financial year attributable to: - Owners of the Company - Non-controlling interest Total comprehensive (loss)/income for the financial year attributable to: - Owners of the Company - Non-controlling interest 180
287. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 50 SUMMARY OF EFFECTS OF ACQUISITION, ORGANISATION OF COMPANIES (Continued) INCORPORATION AND RE- 2018 (Continued) (iii) Joint venture On 29 September 2017, following the completion of the PROTON corporate exercise set out in Note 51(iii)(b), HICOM Holdings Berhad, a direct wholly-owned subsidiary company of the Group, acquired 45% equity interest in Exedy (Malaysia) Sdn. Bhd., a joint venture of PROTON for a nominal value of RM1 via internal reorganisation. (iv) Associated companies On 29 September 2017, following the completion of the PROTON corporate exercise set out in Note 51(iii)(b), HICOM Holdings Berhad, a direct wholly-owned subsidiary company of the Group, acquired the following investments via internal re-organisation: 51 - 37.5% equity interest in PHN Industry Sdn. Bhd., an associated company of PROTON for a nominal value of RM1. - 25% equity interest in Marutech Elastomer Industries Sdn. Bhd., an associated company of PROTON for a nominal value of RM1. SUMMARY OF EFFECTS OF DILUTION AND DISPOSAL OF COMPANIES 2019 (i) Subsidiary companies (a) On 6 August 2018, Proton Singapore Pte. Ltd. (“PSPL”), an indirect 50.10% owned dormant subsidiary company of the Group has commenced the dissolution exercise via members’ voluntary winding up. Upon the dissolution, PSPL will cease to be an indirect 50.10% owned subsidiary company of the Group. (b) On 1 November 2018, PSH Investment Holding (BVI) Ltd. (“PSHI”), an indirect 53.50% owned dormant subsidiary company of the Group was struck off from the British Virgin Islands Registry of Corporate Affairs. As a result, PSHI ceased to be an indirect subsidiary company of the Group. 181
288. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 51 SUMMARY OF EFFECTS OF DILUTION AND DISPOSAL OF COMPANIES (Continued) 2019 (Continued) (i) Subsidiary companies (Continued) (c) On 1 February 2019, the following direct and indirect dormant companies of the Group were wound up and as a result, they ceased to be subsidiary companies of the Group. Companies under members’ voluntary winding up 1. HICOM Power Sdn. Bhd. 2. HICOM United Leasing Sdn. Bhd. 3. Jubli Premis Sdn. Bhd. 4. Glenmarie Asset Management Sdn. Bhd. 5. HICOM Megah Sdn. Bhd. 6. Comtrac Development Sdn. Bhd. 7. Pos Takaful Agency Sdn. Bhd. 8. PSH Allied Berhad 9. Maya Perkasa (M) Sdn. Bhd. 10. Kaypi Logistics Depot Sdn. Bhd. 11. Asia Pacific Freight System Sdn. Bhd. 12. Diperdana Selatan Sdn. Bhd. Companies under creditors’ voluntary winding up 1. EON Technologies Sdn. Bhd. 2. HICOM Premier Malaysia Sdn. Bhd. 3. Glenview Management Corporation Sdn. Bhd. 4. Diperdana Terminal Services Sdn. Bhd. (ii) Associated company Suzuki Malaysia Automobile Sdn. Bhd. (“SMA”), a 40% dormant associated company of the Company was dissolved on 21 March 2019. As a result, SMA ceased to be an associated company of the Group. 2018 (iii) Subsidiary companies (a) On 18 September 2017, Proton Motor Pars Co. (Private Joint Stock), an indirect wholly-owned subsidiary company of PROTON, was dissolved and ceased to be an indirect subsidiary company of the Group. 182
289. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 51 SUMMARY OF EFFECTS OF DILUTION AND DISPOSAL OF COMPANIES (Continued) 2018 (Continued) (iii) Subsidiary companies (Continued) (b) On 29 September 2017, the Group completed the following proposals: - Share subscription of 547,020,534 ordinary shares, representing 49.9% of the enlarged ordinary share capital in PROTON Holdings Berhad (“PROTON”) by Zhejiang Geely Holding Group Co., Ltd. (“ZGH”) for a total subscription price of RM460.3 million via RM170.30 million in cash and the grant of the licence of Boyue model by ZGH to PROTON at an ascribed value of RM290 million. As a result, the Group’s equity interest in PROTON reduced to 50.1% and the remaining 49.9% equity interest is held by ZGH’s nominated subsidiary company, Geely International (Hong Kong) Limited. - Disposal of 100% indirect equity interest in Lotus Advance Technologies Sdn. Bhd. (“Lotus Advance”), a wholly-owned subsidiary company of PROTON comprising 51% equity interest to ZGH and 49% equity interest to Etika Automotive Sdn. Bhd. As a result, Lotus Advance ceased to be an indirect wholly-owned subsidiary company of the Group. As part of the corporate exercise, the effect of PROTON restructuring is disclosed in the following. Note Allowance for expected credit losses Group 2018 RM’000 Company 2018 RM’000 6,479 - Amortisation of intangible assets 20 8,679 - Depreciation of property, plant and equipment 13 7,276 - Impairment loss of: - intangible assets 20 121,348 - - property, plant and equipment 13 5,658 - 97,637 - 103,685 - 32,990 32,990 211,761 - 595,513 32,990 Loss on disposals of subsidiary companies Provision for liabilities and charges Transaction costs Other costs 183 38
290. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 51 SUMMARY OF EFFECTS OF DILUTION AND DISPOSAL OF COMPANIES (Continued) 2018 (Continued) (iii) Subsidiary companies (Continued) (b) (Continued) The effects of the disposal of Lotus Advance up to the date of disposal on the results of the Group are shown below: RM’000 Revenue 263,623 Cost of sales (225,262) Gross profit 38,361 Other income 11,011 Selling and distribution expenses (14,996) Administrative expenses (23,709) Other expenses (36,777) Finance costs (150) Share of results of joint venture (net of tax) Loss before taxation 14 (26,246) Taxation 48 Loss after taxation (26,198) Below are the effects of the disposal of Lotus Advance on the financial position and the cash flows of the Group: RM’000 Property, plant and equipment 230,180 Intangible assets 346,648 Joint venture 307 Inventories 107,059 Trade and other receivables 97,750 Cash and bank balances 21,028 Trade and other payables (265,003) Provision for liabilities and charges (32,336) Post-employment benefit obligations (30,515) Tax payable (1,246) Deferred tax liabilities (9,317) Share of net assets disposed 464,555 Loss on disposals (97,637) Other comprehensive income - reclassification adjustments Total sales considerations (net) 184 82,980 449,898
291. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 51 SUMMARY OF EFFECTS OF DILUTION AND DISPOSAL OF COMPANIES (Continued) 2018 (Continued) (iii) Subsidiary companies (Continued) (b) (Continued) Below are the effects of the disposal of Lotus Advance on the financial position and the cash flows of the Group: (Continued) RM’000 Total sales considerations (net) 449,898 Less: Cash and cash equivalents of the subsidiary companies disposed (21,028) Net cash inflow from disposals 428,870 Total sales considerations Less: 20% contingent consideration (in Escrow account) Total sales considerations (net) (c) 563,358 (113,460) 449,898 On 5 October 2017, Pos Malaysia Berhad, a 53.50% owned subsidiary company of the Group, announced the proposed winding-up of its direct and indirect dormant subsidiary companies via members’ voluntary winding up (“MVL”) and creditors’ voluntary winding up (“CVL”) and the companies involved in the exercise are as follows: Companies under MVL 1. Pos Takaful Agency Sdn. Bhd. 2. PSH Allied Berhad 3. Maya Perkasa (M) Sdn. Bhd. 4. Kaypi Logistics Depot Sdn. Bhd. 5. Asia Pacific Freight System Sdn. Bhd. 6. Diperdana Selatan Sdn. Bhd. Companies under CVL 1. Diperdana Terminal Services Sdn. Bhd. Upon the completion of the liquidation exercise, the above companies will cease to be subsidiary companies of the Group. 185
292. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 51 SUMMARY OF EFFECTS OF DILUTION AND DISPOSAL OF COMPANIES (Continued) 2018 (Continued) (iii) Subsidiary companies (Continued) (d) On 29 November 2017, PT Proton Cikarang Indonesia, an indirect dormant wholly-owned subsidiary company of PROTON was dissolved and ceased to be an indirect subsidiary company of the Group. (e) On 25 January 2018, the following direct and indirect dormant companies of the Group were wound up and as a result, they ceased to be subsidiary companies of the Group. Companies under MVL 1. HICOM Technical and Engineering Services Sdn. Bhd. 2. Syarikat Pengangkutan Malaysia Sendirian Berhad 3. EON Trading Sdn. Bhd. 4. HICOM-Potenza Sports Sdn. Bhd. Companies under CVL 1. NSE Development Sdn. Bhd. 2. S.J. Binateknik Sdn. Bhd. 3. EONMobil Sdn. Bhd. 4. Euro Truck & Bus (Malaysia) Sdn. Bhd. 5. Comtrac Trading Sdn. Bhd. 6. Imatex Management Services Sdn. Bhd. (f) On 15 March 2018, the following direct and indirect dormant companies of the Group were wound up and as a result, they ceased to be subsidiary companies of the Group. Companies under MVL 1. Ladang Gadek Development Sdn. Bhd. 2. Ladang Kupang Development Sdn. Bhd. 3. DRB-HICOM Export Corporation Sdn. Bhd. 4. Gemilang Komposit Auto Sdn. Bhd. 5. Mega Komposit Auto Sdn. Bhd. 6. Comtrac Premises Sdn. Bhd. 7. Comtrac-Sabkar Development Sdn. Bhd. 8. CTRM Excelnet Engineering Sdn. Bhd. Companies under CVL 1. Bukit Kledek Development Sdn. Bhd. 2. Intrakota Komposit Sdn. Bhd. 3. S.J. Kenderaan Sdn. Bhd. 4. Intrakota Consolidated Berhad 186
293. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 52 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions which were carried out on mutually agreed terms and conditions. Group 2019 2018 RM’000 RM’000 Company 2019 2018 RM’000 RM’000 (a) Sale of goods/services to: - Joint ventures 116,853 61,653 - - - Associated companies 246,929 243,152 - - 40,173 72,515 - - 297,570 249,950 - - 1,162,252 123,852 - - - Subsidiary companies - - 73,496 585,446 - Associated company - - 237,830 112,370 - - 21,485 3,503 - - 27,955 38,404 - Salaries, bonuses, allowances and other benefits 8,609 8,052 - - - Defined contribution plan 1,092 1,008 - - - Related parties (b) Purchase of goods/services from: - Joint ventures - Related parties (c) Dividend income: (d) Interest income: - Subsidiary companies (e) Finance costs: - Subsidiary companies (f) Key management compensation: 187
294. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 52 SIGNIFICANT RELATED PARTY TRANSACTIONS AND BALANCES (Continued) 2019 RM’000 2018 RM’000 86,736 39,229 Short term deposits 400,903 1,052,289 Revolving credits 371,485 334,996 Trade line 636,660 625,022 Term loan 58,044 63,090 - 10,111 Group (g) Year end balances - banking: - Associated companies Short term deposits - Related parties Bonds purchased 53 CAPITAL AND OTHER COMMITMENTS (a) Non-banking (i) Capital commitments Capital expenditure as at the reporting date is as follows: 2019 RM’000 2018 RM’000 Group Authorised capital expenditure for property, plant and equipment, investment properties, concession assets, land held for property development and intangible assets not provided for in the financial statements - contracted for - not contracted for 188 622,053 667,921 3,878,992 3,446,680 4,501,045 4,114,601
295. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 53 CAPITAL AND OTHER COMMITMENTS (Continued) (a) Non-banking (Continued) (ii) Operating lease commitments - as lessee Future minimum rentals payable under commitments for non-cancellable operating leases at the reporting date are as follows: 2019 RM’000 2018 RM’000 Payable within 1 year 26,778 42,258 Payable within 2 to 5 years 33,562 19,305 Payable more than 5 years - 26,725 60,340 88,288 Group (iii) Operating lease commitments - as lessor Future minimum rentals receivable under commitments for non-cancellable operating leases at the reporting date are as follows: 2019 RM’000 2018 RM’000 Receivable within 1 year 40,355 61,541 Receivable within 2 to 5 years 79,533 91,755 Receivable more than 5 years 5,263 6,101 125,151 159,397 Group 189
296. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 53 CAPITAL AND OTHER COMMITMENTS (Continued) (b) Banking In the normal course of business, the banking subsidiary company makes various commitments and incurs certain contingent liabilities with legal resource to its customers. No material losses are anticipated as a result of these transactions. Risk weighted exposures of a banking subsidiary company are as follows: Principal amount RM’000 Credit equivalent amount RM’000 Total risk weighted amount RM’000 203,424 203,424 169,198 83,279 16,656 7,763 425,159 212,580 199,194 624,707 124,941 123,594 2,232,408 1,116,204 350,760 Profit rate related contracts 2,150,000 85,938 17,188 Foreign exchange related contracts 3,545,493 63,942 39,235 9,264,470 1,823,685 906,932 237,010 237,010 208,603 25,603 5,121 528 342,229 171,114 166,532 2019 Contingent liabilities Direct credit substitutes Trade-related contingencies Transaction related contingencies Commitments Credit extension commitment: - maturity within 1 year - maturity exceeding 1 year Islamic derivative financial instruments 2018 Contingent liabilities Direct credit substitutes Trade-related contingencies Transaction related contingencies Commitments Credit extension commitment: - maturity within 1 year - maturity exceeding 1 year Sub-total carried forward 190 927,991 185,598 170,493 2,336,704 1,168,352 371,012 3,869,537 1,767,195 917,168
297. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 53 CAPITAL AND OTHER COMMITMENTS (Continued) (b) Banking (Continued) Risk weighted exposures of a banking subsidiary company are as follows: (Continued) Principal amount RM’000 Credit equivalent amount RM’000 Total risk weighted amount RM’000 3,869,537 1,767,195 917,168 Profit rate related contracts 1,200,000 10,875 2,175 Foreign exchange related contracts 1,707,391 98,531 30,839 6,776,928 1,876,601 950,182 2018 (Continued) Sub-total brought forward Islamic derivative financial instruments 54 GROUP SEGMENT REPORTING For management purpose, the Group is organised into business units based on the industry and has three reportable segments as follows: Industry segment Description Automotive Manufacturing, assembly, vehicles importation, pre-delivery inspection, composite manufacturing, vehicles leasing, distribution and sale of motor vehicles, military vehicles, motorcycles and special purpose vehicles including sale of related spares and services. Services (i) Properties Property concession, holding and development. Concession - Vehicle inspection, solid waste management and airport ground handling business. (ii) Banking - Islamic banking and related financial services. (iii) Postal - Mail, courier and retail. (iv) Integrated logistics and inventory solutions. (v) Education - Higher education and vocational training institution. 191
298. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 54 GROUP SEGMENT REPORTING (Continued) The Management Committee monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. (a) Primary reporting format - business segment Inter-segment revenue comprises revenue to other business segments carried out on an arm’s length basis. Segment results represent segment revenue less segment expenses. Unallocated expenses represent corporate operating and administrative expenses. Segment assets consist of primarily of property, plant and equipment, concession assets, prepaid lease properties, investment properties, inventories (including land held for property development and property development costs), receivables, investment securities, banking related assets, cash and bank balances and derivative assets. Segment liabilities comprise mainly payables, banking related liabilities, provision for liabilities and charges, provision for concession assets and derivative liabilities. Unallocated liabilities consist of accruals on corporate operating and administrative expenses. Capital expenditure comprises additions of property, plant and equipment, concession assets, prepaid lease properties, investment properties, intangible assets, land held for property development and property development costs. (b) Secondary reporting format - geographical segment The Group’s secondary format, by geographical location, is not shown as the activities of the Group are predominantly in Malaysia and the overseas segment does not contribute to more than 10% of the consolidated revenue and assets. 192
299. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 54 GROUP SEGMENT REPORTING (Continued) The information of each of the Group’s business segments for the financial year ended 31 March 2019 is as follows: Primary reporting format - business segment Automotive RM’000 Services RM’000 Properties RM’000 Investment Holding RM’000 Group RM’000 7,855,116 4,705,505 588,767 41,183 13,190,571 (126,698) (47,851) (41,183) 4,578,807 540,916 280,721 264,272 Financial year ended 31 March 2019 Revenue Total revenue Inter-segment revenue (497,790) External revenue 7,357,326 Segment results (76,519) (16,484) Unallocated expenses (713,522) 12,477,049 451,990 (83,728) Interest income 72,952 Finance costs (379,941) Share of results of joint ventures (net of tax) Share of results of associated companies (net of tax) Profit before taxation 32,651 - 8,226 - 40,877 179,130 576 - - 179,706 281,856 Taxation (230,665) Net profit for the financial year 51,191 Attributable to: Owners of the Company 122,866 Holders of Perpetual Sukuk 79,453 Non-controlling interest (151,128) 193
300. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 54 GROUP SEGMENT REPORTING (Continued) Primary reporting format - business segment (Continued) Automotive RM’000 Services RM’000 Properties RM’000 Investment Holding RM’000 Group RM’000 9,521,828 26,328,063 3,090,255 43,386 38,983,532 Financial year ended 31 March 2019 (Continued) Other information Segment assets Interest bearing short term deposits 1,039,221 Taxation assets 254,922 Joint ventures 317,415 - - - 317,415 Associated companies 790,005 - 15,838 - 805,843 47,205 828,219 398,203 2,266 1,275,893 Assets and disposal groups held for sale Total assets 42,676,826 Segment liabilities 4,577,538 20,285,812 336,891 90,715 Bank borrowings 25,290,956 6,318,711 Taxation liabilities 303,059 Liabilities related to disposal groups held for sale - 606,081 112,845 - Unallocated liabilities 718,926 29,280 Total liabilities 32,660,932 Capital expenditure 834,540 265,099 62,616 3,288 1,165,543 Depreciation and amortisation 594,367 254,082 35,678 3,421 887,548 11,480 6,241 - 60,109 77,830 Impairment loss 194
301. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 54 GROUP SEGMENT REPORTING (Continued) The information of each of the Group’s business segments for the financial year ended 31 March 2018 is as follows: Primary reporting format - business segment Automotive RM’000 Services RM’000 Properties RM’000 Investment Holding RM’000 Group RM’000 7,296,820 4,643,813 914,165 46,638 12,901,436 (151,325) (51,567) (46,638) 4,492,488 862,598 341,339 119,262 Financial year ended 31 March 2018 (Restated) Revenue Total revenue Inter-segment revenue (401,341) External revenue 6,895,479 Segment results (59,955) (35,074) Unallocated expenses (650,871) 12,250,565 365,572 (31,636) Interest income 71,243 Finance costs (360,267) Share of results of joint ventures (net of tax) (7,461) Share of results of associated companies (net of tax) 242,417 Profit before taxation - 3,002 - 932 - - (4,459) 243,349 283,802 Taxation (91,583) Net profit for the financial year 192,219 Attributable to: Owners of the Company 430,372 Holders of Perpetual Sukuk 79,453 Non-controlling interest (317,606) 195
302. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 54 GROUP SEGMENT REPORTING (Continued) Primary reporting format - business segment (Continued) Automotive RM’000 Services RM’000 Properties RM’000 Investment Holding RM’000 Group RM’000 8,806,403 27,758,564 3,091,076 191,661 39,847,704 Financial year ended 31 March 2018 (Restated) (Continued) Other information Segment assets Interest bearing short term deposits 920,201 Taxation assets 326,307 Joint ventures 292,805 - - - 292,805 Associated companies 869,870 15,534 - - 885,404 42,634 - 413,120 2,266 458,020 Assets and disposal groups held for sale Total assets 42,730,441 Segment liabilities 4,483,589 21,353,423 519,767 65,390 Bank borrowings 26,422,169 5,789,699 Taxation liabilities 262,272 Liabilities related to disposal groups held for sale - - 127,811 - Unallocated liabilities 127,811 30,366 Total liabilities 32,632,317 Capital expenditure 630,480 470,945 (40,195) Depreciation and amortisation 624,179 250,854 Impairment loss/(reversal of impairment loss) 142,925 (486) 196 255 1,061,485 34,146 2,985 912,164 43,226 - 185,665
303. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 54 GROUP SEGMENT REPORTING (Continued) The information of each of the Group’s business segments for the financial year ended 31 March 2017 is as follows: Primary reporting format - business segment Automotive RM’000 Services RM’000 Properties RM’000 Investment Holding RM’000 Group RM’000 11,111,548 27,252,878 2,402,966 279,429 41,046,821 As at 1 April 2017 (Restated) Other information Segment assets Interest bearing short term deposits 1,070,133 Taxation assets 372,268 Joint ventures 371,087 - 36,256 - 407,343 Associated companies 741,669 14,874 - - 756,543 4,500 - - - 4,500 Assets held for sale Total assets 43,657,608 Segment liabilities 4,827,700 21,422,518 539,096 98,291 Bank borrowings 26,887,605 6,298,309 Taxation liabilities 288,519 Unallocated liabilities 13,523 Total liabilities 33,487,956 Capital expenditure 591,227 197 129,612 234,876 (736) 954,979
304. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 55 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated by the Directors and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future events. The resulting accounting estimates will, by definition, rarely equal to the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Group’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below: (a) Impairment of property, plant and equipment and intangible assets The Group tests property, plant and equipment and intangible assets for impairment if there is any indicator of impairment. The recoverable amounts are determined based on value-in-use. Under the value-in-use approach, estimating the value-in-use involves estimating the future cash inflows and outflows that will be derived from these assets and discounting them at an appropriate rate. Based on management’s impairment review, impairment loss of RM17,922,000 (2018: RM25,470,000) and RM Nil (2018: RM180,973,000) was recognised for property, plant and equipment and intangible assets respectively during the financial year. (b) Impairment of goodwill under intangible assets The Group tests goodwill for impairment at least annually. For the purposes of assessing impairment, goodwill is allocated to cash generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose. Significant judgement is required in the estimation of the present value of future cash flows generated by the cash-generating units, which involves uncertainties and are significantly affected by assumptions used and judgement made regarding estimates of future cash flows and discount rates. Changes in assumptions could significantly affect the results of the Group’s tests for impairment of goodwill. Based on management’s impairment review, impairment loss of RM60,109,000 was recognised for goodwill during the financial year. (c) Impairment of loans and receivables The Group applies the MFRS 9 simplified approach to measure the expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. 198
305. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 55 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (d) Impairment of banking related assets - financing of customers Significant financing of customers are reviewed individually at each reporting date to assess whether an impairment loss should be recorded in profit or loss. In particular, management’s judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, judgements about the customer’s financial situation and the net realisable value of collateral are made. These estimates are based on assumptions of a number of factors and actual results may differ, resulting in future changes to the allowances. The ECL calculations under MFRS 9 are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Financing that have been assessed individually but for which no impairment is required as well as all individually insignificant financing need to be assessed collectively, in groups of assets with similar credit risk characteristics. This is to determine whether impairment should be made due to expected loss events for which there is objective evidence but effects of which are not yet evident. The collective assessment takes into account of data from the financing portfolio (such as credit quality, levels of arrears, credit utilisation, financing to collateral ratios, etc.) and judgements on the effect of concentrations of risks (such as the performance of different individual groups). (e) Deferred tax assets Deferred tax assets are recognised for all unabsorbed tax losses, unutilised capital allowances, unutilised reinvestment allowances, unutilised investment tax allowances and other deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses and tax allowances can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised based on the likely timing and level of future taxable profits together with future tax planning strategies. (f) Allowance for inventory write down Allowance for inventory write down is made based on an analysis of the ageing profile and expected sales patterns of individual items held in inventory. This requires an analysis of inventory usage based on expected future sales transactions taking into account current market prices, useful lives of inventories and expected cost to sell. Changes in the inventory ageing and expected usage profiles can have an impact on the allowance recorded. (g) Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting date. The Group has used discounted cash flow analysis for various investment securities: financial assets at fair value through other comprehensive income that are not traded in active markets. 199
306. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 55 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (h) Construction contracts and property development activities The Group recognises revenue based on percentage of completion method. The stage of completion is measured by reference to the costs incurred to date to the estimated total costs. Judgement is required in determining the stage of completion, the extent of the costs incurred, the estimated total revenue (other than fixed price contracts) and costs, as well as the recoverability of the receivables. In making the judgement, the Group relies on past experience and work of specialists. (i) Estimate of fair value of investment properties The Group and the Company estimate the fair values of its investment properties using investment and market comparison methods. The fair value of investment properties is determined by independent professional valuers, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued. The independent professional valuers provide the fair value of the Group’s and of the Company’s investment properties portfolio annually. The principal assumptions underlying these valuations are further explained in Note 58(c)(v). (j) Fair value estimation of derivative financial instruments, investment securities: financial assets at fair value through profit or loss and fair value through other comprehensive income For financial instruments measured at fair value, where the fair values cannot be derived from active markets, these fair values are determined using a variety of valuation techniques, including the use of mathematical models. Whilst the Group generally uses widely recognised valuation models with market observable inputs, judgement is required where market observable data are not available. Such judgement normally incorporate assumptions that other market participants would use in their valuations, including assumptions on profit rate yield curves, exchange rates, volatilities and prepayment and default rates. (k) Classification of leases - as lessor The Group, as the lessor, has entered into long term leasing agreements for certain of its motor vehicles with its customers (as lessees). The Group assessed the following: (i) The Group does not pass the titles of the motor vehicles to the lessee by the end of the lease term; (ii) The lessee has no option to purchase the motor vehicles; (iii) The lease term is not for a major part of the economic life of the motor vehicles; (iv) At the inception of the lease, the present value of the minimum lease payments amount is not substantially all the fair value of the leased motor vehicles; and (v) The motor vehicles leased are not specialised in nature. 200
307. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 55 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (k) Classification of leases - as lessor (Continued) Management are of the view that the Group retains all the significant risks and rewards of ownership of these motor vehicles and thus accounted for the leasing agreements as operating leases. (l) Provision for claims from suppliers Provision for claims from suppliers have been computed based on the shortfall of the actual order volume compared to the required volume for vendors to recover their tooling cost. The provision recorded is computed based on the estimated payout for claims which is subject to negotiation on a case-by-case basis with its suppliers. It is expected that most of the provision for claims from suppliers for models will be incurred within 1 to 3 years from the reporting date. When there are deviations from the original estimate, such difference will impact the carrying value of the provision and will be charged to profit or loss in the period such an estimate has been changed. The carrying amount of the provision for claims from suppliers are disclosed in Note 38. (m) Provision for product warranties Certain subsidiary companies make provision for product warranties based on an assessment of historical experience and industry average for defective productions. The identification of defect liability requires the use of judgement and estimates. It is expected that most of these costs will be incurred within 1 year from the reporting date. When there are deviations from the original estimate, such difference will impact the carrying value of the provision and will be charged to profit or loss in the period such an estimate has been changed. The carrying amounts of provision for product warranties for defective works are disclosed in Note 38. (n) Provision for concession assets Under the Service Concession Agreement, the concession subsidiary company has contractual obligations to ensure that the levels of investments are sufficient to maintain the collection services and public cleansing management services to a specified standard. The subsidiary company has recognised a provision for its obligation which depends on the estimated future capital expenditure to maintain the services. These judgements and assumptions are subject to risks and uncertainties, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of provisions recognised in the financial statements. The carrying amount of provision recognised is disclosed in Note 26. 201
308. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 55 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (o) Impairment of investment in subsidiary companies The Company tests investment in subsidiary companies for impairment if there is an indication of impairment. The recoverable amounts are determined based on value-in-use. Under the value-in-use approach, estimating the value-in-use involves estimating the future cash inflows and outflows that will be derived from these assets and discounting them at an appropriate rate. Based on management’s impairment review, an impairment loss of RM422,605,000 (2018: RM2,485,654,000) was recognised during the financial year. (p) Revenue from contracts with customers The Group applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers: (i) Identifying performance obligations in a bundled sale of goods and installation services The Group enters into various revenue contracts with customers which includes bundled goods or services. Significant management judgement is required to determine whether these bundled goods or services are separate performance obligations. Accordingly, management has outlined a two-step process to determine whether a contract with bundled goods or services shall be recognised separately as follows: a. Consideration at the level of the individual goods or services of whether the customer can benefit from the goods or service on its own or with other readily available resources; and b. Consideration of whether the goods or services are separately identifiable from other promises in the contract. Both of these criterias must be met to conclude that the goods or services shall be accounted for as a separate unit of account, i.e., a performance obligation. (ii) Determining method to estimate variable consideration and assessing the constraint Certain contracts for the sale of goods include volume rebates that give rise to variable consideration. In estimating the variable consideration, the Group is required to use either the expected value method or the most likely amount method based on which method better predicts the amount of consideration to which it will be entitled. The Group determined that the expected value method is the appropriate method to use in estimating the variable consideration for the sale of goods with rights of return, given the large number of customer contracts that have similar characteristics. In estimating the variable consideration for the sale of goods with volume rebates, the Group determined that using a combination of the most likely amount method and expected value method is appropriate. The selected method that better predicts the amount of variable consideration was primarily driven by the number of volume thresholds contained in the contract. 202
309. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 55 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (p) Revenue from contracts with customers (Continued) (ii) Determining method to estimate variable consideration and assessing the constraint (Continued) The most likely amount method is used for those contracts with a single volume threshold, while the expected value method is used for contracts with more than one volume threshold. (iii) Principal versus agent considerations The Group enters into contracts with its customers to acquire, on their behalf, goods produced by foreign suppliers. Under these contracts, the Group provides procurement services (i.e. coordinating the selection of suitable suppliers and managing the ordering and delivery of the goods). The Group determined that it does not control the goods before they are transferred to customers, and it does not have the ability to direct the use of the goods or obtain benefits from the goods. The following factors indicate that the Group does not control the goods before they are being transferred to customers. Therefore, the Group determined that it is an agent in these contracts. - The Group is not primarily responsible for fulfilling the promise to provide the goods. - The Group does not have inventory risk before or after the specified goods has been transferred to the customer as it purchases goods only upon approval of the customer and the foreign supplier ships goods directly to the customers. - The Group has no discretion in establishing the price for the specified goods. The Group’s consideration in these contracts is only based on the difference between the maximum purchase price quoted by the customer and the final price negotiated by the Group with the foreign supplier. In addition, the Group concluded that it transfers control over its services (i.e. arranging for the provision of the goods from a foreign supplier), at a point in time, upon receipt by the customer of the goods, because this is when the customer benefits from the Group’s agency service. (iv) Consideration of significant financing component in a contract The Group determined that certain construction contracts contain significant financing component. The transaction price for such contracts is discounted to take into consideration the significant financing component. In determining the interest to be applied to the amount of consideration, the Group concluded that the interest rate implicit in the contract (i.e. the interest rate that discounts the cash selling price of the construction contract to be received in the future) is appropriate because this is commensurate with the rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception. 203
310. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 56 SIGNIFICANT AND SUBSEQUENT EVENTS (a) On 8 March and 11 July 2018, DRB-HICOM Group had entered into various agreements and supplemental agreements respectively for the proposed disposals of certain property assets and investments to Prisma Dimensi Sdn. Bhd. and Kelana Ventures Sdn. Bhd. The Proposed Disposals had been approved by DRBHICOM Berhad shareholders at the Extraordinary General Meeting (“EGM”) held on 15 October 2018. On 7 March 2019, the respective parties to the Disposal Agreements had mutually agreed to extend the period for fulfillment of the Conditions Precedent (“CPs”) until 8 September 2019. (b) On 1 August 2018, HICOM Holdings Berhad (“HHB”), a direct wholly-owned subsidiary company of the Group, had entered into a conditional share sale agreement (“SSA”) with Tunas Pancar Sdn. Bhd. (“TPSB”), a wholly-owned subsidiary company of Malakoff Corporation Berhad, for the proposed disposal of HHB’s entire equity interest of 97.37% in Alam Flora Sdn. Bhd. (“AFSB”) involving 74,000,000 ordinary shares in AFSB, for a total cash consideration of RM944,610,000, subject to the terms and conditions of the SSA (“Proposed Disposal”). The Proposed Disposal had been approved by DRB-HICOM Berhad shareholders at the EGM held on 15 October 2018. On 31 January 2019, HHB and TPSB had mutually agreed to extend the Conditions Precedent period until 31 July 2019 for the fulfillment of the other CPs as set out in the SSA. (c) On 29 January 2019, HICOM-Teck See Manufacturing Malaysia Sdn. Bhd. (“HTS”), an indirect 51% owned subsidiary company of the Group had entered into a Shareholders Agreement (“SA”) with Jiangsu Xinquan Automotive Trim Co. Ltd. (“XQ”) to form a joint venture company incorporated in Malaysia named as XINQUAN HICOM Malaysia Sdn. Bhd. (“XQ-HICOM”) to design, develop and manufacture instrument panel, floor consoles and door trims and related components for vehicles (“Proposed Joint Venture”). Upon receipt of relevant approvals from the Chinese government for overseas investment, XQ will assign its rights and obligations under the SA to Xinquan Development Hong Kong Limited (“XQ HK”), a wholly-owned subsidiary company of XQ incorporated in Hong Kong. XQ-HICOM was incorporated on 7 May 2019, under the Companies Act 2016. The shareholdings of HTS and XQ HK in XQ-HICOM are 49% and 51% respectively. (d) On 26 April 2019, DRB-HICOM Berhad and its 81% owned subsidiary company, Motosikal dan Enjin Nasional Sdn. Bhd. (“MODENAS”) have entered into a conditional share sale cum subscription agreement (“SSSA”) with Kawasaki Heavy Industries, Ltd. (“Kawasaki”) for the proposed disposal of DRB-HICOM’s 11% equity interest involving 14,300,000 ordinary shares in MODENAS to Kawasaki for a cash consideration of RM40,300,000 (“Disposal”). On completion date, Kawasaki will also subscribe for 52,000,000 convertible preference shares (“CPS”) to be issued by MODENAS for a total cash consideration of RM52,000. The CPS will only be convertible upon MODENAS achieving certain strategic milestones as set out in the SSSA. The disposal has been completed on 3 June 2019 and as a result, MODENAS is reclassified to be a joint venture of the Group. (e) On 12 June 2019, Proton Edar Sdn. Bhd. (“PESB”), an indirect 50.10% subsidiary company of the Group, has entered into a Joint Venture Agreement (“JVA”) with Altel Communications Sdn. Bhd. (“ALTEL”) and Ecarx (Hubei) Technology Co, Ltd. (“ECARX”) to form a joint venture company (“JVCO”) in Malaysia to provide research and development, sales and services of vehicle connectivity, digital cockpit, safety, autonomous vehicle and IoT (Internet of Things) technology related products (“Proposed Joint Venture”). The shareholdings of the JVCO are PESB (60%), ALTEL (30%) and ECARX (10%). 204
311. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 57 MATERIAL LITIGATION Save as disclosed below, there is no material litigation as at the reporting date. On 14 January 2019, PROTON Automobile (China) Ltd. (“PACL”) has been served with a Civil Complaint by Goldstar Heavy Industrial Co., Ltd. (“Goldstar”), involving PACL and Perusahaan Otomobil Nasional Sdn. Bhd. (“PONSB”) as Defendants. PACL is a whollyowned subsidiary company of PONSB and PONSB is wholly-owned subsidiary company of PROTON Holdings Berhad (“PHB”) which in turn is a 50.10% owned subsidiary company of DRB-HICOM Berhad (“The Company”). Goldstar is claiming, inter alia, the sum of Renminbi (RMB) 860,613,418 (equivalent to RM522,908,713 based on Bank Negara Exchange Rate as at 17 January 2019 of RMB1 : MYR0.6076). The claims arose as a result of the Equity Joint Venture Contract (“EJVC”) dated 17 April 2015, entered into between PHB, Lotus Group International Limited and Goldstar on the establishment of a joint venture company named as Goldstar Lotus Automobile Co., Ltd. (“GLAC”); and its termination on 22 January 2018, amongst others. The said termination had been announced to Bursa Malaysia Securities Berhad on 23 January 2018. The purpose of the EJVC was to form a joint venture company to produce and sell LOTUS branded passenger cars, engines, parts and components, and accessories and to provide after-sales services (including spare parts) in connection with its products in People’s Republic of China. GLAC has not yet commenced its business operations due to GLAC not having obtained the required manufacturing licence. The deadline to obtain the manufacturing licence pursuant to the EJVC was originally 25 September 2017. This was subsequently extended to 31 December 2017. Pursuant to the EJVC, failure to obtain the said manufacturing licence within the agreed timeframe entitles either party to terminate the EJVC. The Company has appointed its lawyers to review the aforesaid claims and will take all necessary steps to defend against the claims and ensure the rights of the Group are protected. The appearance date fixed on 9 July 2019 as stated in the Civil Complaint has been vacated and postponed by the Guangdong High People’s Court, to a later date to be fixed. 205
312. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (a) Financial and non-financial instruments measured at fair value The table below provides the fair value measurement hierarchy of the Group’s and the Company’s assets and liabilities: Level 1 Level 2 Level 3 Total RM’000 RM’000 RM’000 RM’000 104,271 4,867,934 8,725 4,980,930 1,933 346,542 476,401 824,876 Derivative assets - 25,035 - 25,035 Investment properties - - 294,857 294,857 106,204 5,239,511 779,983 6,125,698 - 52,794 - 52,794 116,225 6,227,302 8,725 6,352,252 292 175,670 290,433 466,395 Derivative assets - 72,968 - 72,968 Investment properties - - 248,193 248,193 116,517 6,475,940 547,351 7,139,808 - 88,860 - 88,860 Group 2019 Assets measured at fair value: Investment securities: financial assets at fair value through other comprehensive income Investment securities: financial assets at fair value through profit or loss Liabilities measured at fair value: Derivative liabilities 2018 (Restated) Assets measured at fair value: Investment securities: financial assets at fair value through other comprehensive income Investment securities: financial assets at fair value through profit or loss Liabilities measured at fair value: Derivative liabilities 206
313. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (a) Financial and non-financial instruments measured at fair value (Continued) The table below provides the fair value measurement hierarchy of the Group’s and the Company’s assets and liabilities: (Continued) Level 1 Level 2 Level 3 Total RM’000 RM’000 RM’000 RM’000 160,013 6,007,082 5,316 6,172,411 175 221,399 310,981 532,555 Derivative assets - 61,494 - 61,494 Investment properties - - 246,889 246,889 160,188 6,289,975 563,186 7,013,349 - 64,864 - 64,864 Investment properties - - 130,607 130,607 Redeemable Convertible Cumulative Preference Shares - - 337,596 337,596 Redeemable Preference Shares - - 482,866 482,866 - - 951,069 951,069 Group As at 1 April 2017 (Restated) Assets measured at fair value: Investment securities: financial assets at fair value through other comprehensive income Investment securities: financial assets at fair value through profit or loss Liabilities measured at fair value: Derivative liabilities Company 2019 Assets measured at fair value: 207
314. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (a) Financial and non-financial instruments measured at fair value (Continued) The table below provides the fair value measurement hierarchy of the Group’s and the Company’s assets and liabilities: (Continued) Level 1 Level 2 Level 3 Total RM’000 RM’000 RM’000 RM’000 Investment properties - - 130,607 130,607 Redeemable Convertible Cumulative Preference Shares - - 303,628 303,628 Redeemable Preference Shares - - 408,798 408,798 - - 843,033 843,033 Investment properties - - 130,654 130,654 Redeemable Preference Shares - - 63,678 63,678 - - 194,332 194,332 Company 2018 (Restated) Assets measured at fair value: As at 1 April 2017 (Restated) Assets measured at fair value: There is no transfer from Levels 1, 2 and 3 during the financial year. For fair value measurements categorised within Levels 2 and 3 of the fair value hierarchy, the fair values are determined using appropriate valuations technique, which include the use of mathematical models, such as discounted cash flow models and option pricing models, comparison to similar instruments for which market observable prices exist and other valuation techniques. Valuation techniques used incorporate assumptions regarding discount rates, profit rate yield curves, estimates of future cash flows and other factors. 208
315. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (a) Financial and non-financial instruments measured at fair value (Continued) The reconciliation of the financial and non-financial assets that are measured at Level 3 of the hierarchy of fair value is as follows: RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 547,351 563,186 823,574 - - 31,100 - - (427,812) 38,000 9,044 (17,879) 3,190 2,848 9,357 2019 Group At beginning of the financial year Acquisitions of subsidiary companies Disposals of subsidiary companies Total gain/(loss) through profit or loss Purchases Sales (18,637) (2,625) Reclassification 158,614 15,385 113,774 58,340 (1,350) (12,470) (15,979) (12,300) (4,500) - - 1,216 9,104 (26,837) 47,453 Transfer from/(to) property, plant and equipment Transfer to assets held for sale Transfer from property development costs Currency translation differences At end of the financial year (627) 779,983 547,351 563,186 At beginning of the financial year 843,033 194,332 236,355 Total (loss)/gain through profit or loss - (47) 6,416 61,304 (172,160) (36,322) Purchases - - 41 Sales - - (10,800) 46,732 820,908 - - - (1,358) 951,069 843,033 Company Total gain/(loss) through other comprehensive income Subscriptions Adjustments At end of the financial year 209 194,332
316. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (b) Financial instruments that are not measured at fair value and which carrying amounts are not reasonable approximation of fair value: Level 1 Level 2 Level 3 Total fair value Carrying amount RM’000 RM’000 RM’000 RM’000 RM’000 Investment securities: financial assets at amortised cost - 132,598 - 132,598 103,310 Financing of customers - 8,785,874 3,941,698 12,727,572 15,019,243 - 8,918,472 3,941,698 12,860,170 15,122,553 Hire purchase and finance lease liabilities - 56,622 - 56,622 56,622 Long term loans (fixed rate) - 454,116 - 454,116 454,116 Long term loans under Islamic financing (fixed rate) - 2,221,488 - 2,221,488 2,221,488 Bank borrowings (non-current) - 2,732,226 - 2,732,226 2,732,226 Bills and acceptances payable - - 15,678 15,678 15,678 Deposits from customers - 1,554,491 17,103,277 18,657,768 18,661,162 Deposits and placements of banks and other financial institutions - - 6,375 6,375 6,747 - 4,286,717 17,125,330 21,412,047 21,415,813 Group 2019 Assets Liabilities 210
317. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (b) Financial instruments that are not measured at fair value and which carrying amounts are not reasonable approximation of fair value: (Continued) Level 1 Level 2 Level 3 Total fair value Carrying amount RM’000 RM’000 RM’000 RM’000 RM’000 Investment securities: financial assets at amortised cost - 126,568 - 126,568 110,941 Financing of customers - 8,186,197 5,208,288 13,394,485 14,244,842 - 8,312,765 5,208,288 13,521,053 14,355,783 Hire purchase and finance lease liabilities - 39,105 - 39,105 39,105 Long term loans (fixed rate) - 577,023 - 577,023 577,023 Long term loans under Islamic financing (fixed rate) - 1,962,126 - 1,962,126 1,962,126 Group 2018 (Restated) Assets Liabilities Bank borrowings (non-current) - 2,578,254 - 2,578,254 2,578,254 Bills and acceptances payable - - 9,618 9,618 9,618 Deposits from customers - 1,243,715 17,989,573 19,233,288 19,234,372 Deposits and placements of banks and other financial institutions - - 8,436 8,436 8,854 - 3,821,969 18,007,627 21,829,596 21,831,098 211
318. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (b) Financial instruments that are not measured at fair value and which carrying amounts are not reasonable approximation of fair value: (Continued) Level 1 Level 2 Level 3 Total fair value Carrying amount RM’000 RM’000 RM’000 RM’000 RM’000 Group As at 1 April 2017 (Restated) Assets Investment securities: financial assets at amortised cost - 118,370 - 118,370 109,875 Financing of customers - 8,361,854 5,142,939 13,504,793 14,564,620 - 8,480,224 5,142,939 13,623,163 14,674,495 - 2,340,764 16,838,626 19,179,390 19,179,510 Liabilities Deposits from customers 212
319. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (b) Financial instruments that are not measured at fair value and which carrying amounts are not reasonable approximation of fair value: (Continued) Level 1 Level 2 Level 3 Total fair value Carrying amount RM’000 RM’000 RM’000 RM’000 RM’000 - 1,299,865 - 1,299,865 1,299,865 - 1,039,702 - 1,039,702 1,039,702 Company 2019 Liabilities Bank borrowings (non-current) - long term loans under Islamic financing (fixed rate) 2018 Liabilities Bank borrowings (non-current) - long term loans under Islamic financing (fixed rate) 213
320. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (c) Determination of fair value (i) Assets and liabilities that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value: Note Banking related assets - statutory deposit with Bank Negara Malaysia Trade and other receivables (current) Bank borrowings (non-current - floating rate) Banking related liabilities - deposits from customers Trade and other payables (current) Bank borrowings (current) 25 28 37 41 43 44 The carrying amounts of these financial assets and liabilities are reasonably approximate fair value, either due to their short-term nature or that they are floating rate instruments that are re-priced to market interest rates on or near the reporting date. (ii) Amounts due from subsidiary companies, loans to/from subsidiary companies, finance lease obligations and fixed rate bank loans The fair values of these financial instruments are estimated by discounting the expected future cash flows at market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the reporting date. (iii) Derivatives Currency forward foreign exchange contracts, currency swaps foreign exchange contracts, Islamic profit rate swap and capped cross currency interest rate swap are valued using a valuation technique with market observable inputs. The most frequently applied valuation techniques include forward pricing models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rate curves. (iv) Banking related assets - financing of customers The fair values of financing of customers are estimated based on the expected future cash flows of contractual instalment payments, discounted at applicable and prevailing rates at the reporting date offered for similar facilities to new customers with similar credit profiles. In respect of non-performing financing, the fair values are deemed to approximate the carrying values, which are net of individual assessment allowance for bad and doubtful financing. 214
321. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (c) Determination of fair value (Continued) (v) Investment properties Fair value of investment properties have been generally derived using the investment method and market comparison approach. The inputs used for the determination of fair value of investment properties are categorised as Level 3. Investment method entails the capitalisation of the net rent from a property at a suitable rate of return. Net rent is the balance sum after deducting service charge, property tax and a reasonable percentage for vacancy from the gross rent. The significant unobservable inputs are market rental rate, outgoings, vacancy rate, term yield and reversionary yield. For market comparison method, the principal assumptions underlying these valuations are those relating to rentals, market yields, maintenance requirements and capitalisation rates and current prices of similar properties or property prices in less active markets adjusted accordingly. Independent professional valuations are obtained for these estimates. The significant unobservable inputs are location, accessibility, size, shape, tenurial interest and restriction (if any) and other relevant characteristics. An increase/decrease in the adjustments for unobservable inputs will decrease/increase the loss/profit after tax of the Group and of the Company respectively. (vi) Investment securities: financial assets at fair value through other comprehensive income Fair value for quoted equity shares in Malaysia is determined based on the quoted (unadjusted) market prices in active markets for identical instruments. Fair value for unquoted private debt securities and Malaysian government investment certificates are determined based on the Bond Pricing Agency Malaysia bid prices adjusted by the accretion of discount or amortisation of premium. Fair value for unquoted equity shares in Malaysia, defaulted foreign Islamic corporate sukuk, Redeemable Convertible Cumulative Preference Shares and Redeemable Preference Shares are generally determined using the discounted cash flow method, which approximates to the fair value. The inputs used for the determination of fair value are categorised as Level 3. An increase/decrease in the adjustments for unobservable inputs will decrease/increase the fair value through other comprehensive income reserve of the Group. 215
322. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 58 FAIR VALUE MEASUREMENT (Continued) (c) Determination of fair value (Continued) (vii) Investment securities: financial assets at fair value through profit or loss Fair value of investment in private equity funds have been generally derived using the net asset value approach. The Group determined that the reported net asset value represents the fair value as at reporting date. The inputs used for the determination of fair value are categorised as Level 3. An increase/decrease in the adjustments for unobservable inputs will decrease/increase the loss/profit after tax of the Group. 59 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group and the Company are exposed to financial risks arising from their operations and the use of financial instruments. The key financial risks include credit risk, liquidity risk, interest rate risk, foreign exchange currency risk and market price risk. The Board of Directors reviews and sets policies and procedures for the management of these risks. The Risk Committee in accordance with the Group’s Enterprise Risk Management framework provides independent oversight to the effectiveness of the risk management process. It is, and has been throughout the current and previous financial year, the Group’s policy that no derivatives shall be undertaken except for the use as hedging where appropriate and cost-efficient. The Group and the Company do not apply hedge accounting. The following sections provide details regarding the Group’s and the Company’s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks. (a) Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. Trade receivables and contract assets Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables and contract assets are regularly monitored. 216
323. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 59 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (a) Credit risk (Continued) An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. by geographical region, product type, customer type and rating, and coverage by letters of credit or other forms of credit insurance). The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written-off if past due for more than one year and are not subject to enforcement activity. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 28. The Group does not hold collateral as security. The Group evaluates the concentration of risk as low due to its diversified customer base. (b) Liquidity risk Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities. The table below summarises the maturity profile of the Group’s and the Company’s liabilities at the reporting date based on contractual undiscounted repayment obligations. On demand or within 1 year RM’000 1 to 5 years RM’000 Over 5 years RM’000 Total RM’000 Bills and acceptances payable 15,678 - - 15,678 Deposits from customers 18,347,717 664,392 - 19,012,109 6,747 - - 6,747 18,370,142 664,392 - 19,034,534 Group 2019 Deposits and placements of banks and other financial institutions Sub-total carried forward 217
324. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 59 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (b) Liquidity risk (Continued) On demand or within 1 year RM’000 1 to 5 years RM’000 Over 5 years RM’000 Total RM’000 18,370,142 664,392 - 19,034,534 Recourse obligation on financing sold to Cagamas - 534,982 - 534,982 Banking related liabilities 18,370,142 1,199,374 - 19,569,516 3,061,886 3,503,637 604,662 7,170,185 52,794 - - 52,794 Trade and other payables 5,117,896 - - 5,117,896 Total undiscounted financial liabilities 26,602,718 4,703,011 604,662 31,910,391 Bills and acceptances payable 9,618 - - 9,618 Deposits from customers 18,617,151 657,727 - 19,274,878 Deposits and placements of banks and other financial institutions 8,854 - - 8,854 Recourse obligation on financing sold to Cagamas - 572,243 - 572,243 Banking related liabilities 18,635,623 1,229,970 - 19,865,593 Group 2019 (Continued) Sub-total brought forward Bank borrowings Derivative liabilities 2018 (Restated) 218
325. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 59 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (b) Liquidity risk (Continued) On demand or within 1 year RM’000 1 to 5 years RM’000 Over 5 years RM’000 Total RM’000 2,486,347 3,255,217 586,224 6,327,788 88,860 - - 88,860 Trade and other payables 5,333,056 - - 5,333,056 Total undiscounted financial liabilities 26,543,886 4,485,187 586,224 31,615,297 Bills and acceptances payable 9,196 - - 9,196 Deposits from customers 18,760,895 458,439 - 19,219,334 Deposits and placements of banks and other financial institutions 561,654 - - 561,654 Banking related liabilities 19,331,745 458,439 - 19,790,184 Bank borrowings 2,453,374 4,361,904 128,242 6,943,520 Group 2018 (Restated) (Continued) Bank borrowings Derivative liabilities As at 1 April 2017 (Restated) Derivative liabilities 64,864 - - 64,864 Trade and other payables 6,362,392 - - 6,362,392 Total undiscounted financial liabilities 28,212,375 4,820,343 128,242 33,160,960 219
326. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 59 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (b) Liquidity risk (Continued) On demand or within 1 year RM’000 1 to 5 years RM’000 Over 5 years RM’000 Total RM’000 2019 Trade and other payables 414,362 148,896 - 563,258 Bank borrowings 786,645 1,418,809 - 2,205,454 1,201,007 1,567,705 - 2,768,712 2018 Trade and other payables 659,714 306,632 - 966,346 Bank borrowings 786,728 1,178,063 - 1,964,791 1,446,442 1,484,695 - 2,931,137 Company Total undiscounted financial liabilities Total undiscounted financial liabilities (c) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure to interest rate risk arises primarily from their loans and borrowings at floating rates. The Group’s policy is to manage interest cost using a mix of fixed and floating rate debts. The following table demonstrates the sensitivity of the Group’s and of the Company’s profit/(loss) after tax to a reasonably possible change in 50 basis points to interest rate, with all other variables held constant. Profit/(loss) after tax Basis points Bank borrowings floating rates Group Company 2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000 +50 (8,483) (7,756) (227) (684) -50 8,483 7,756 227 684 The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment. 220
327. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 59 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (d) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is exposed to currency risk as a result of the foreign currency transactions entered into in currencies other than its functional currency. Foreign exchange exposures in transactional currencies other than its functional currency of the operating entities are kept to an acceptable level. Material foreign currencies transaction exposures are hedged, mainly with forward foreign exchange contracts. (e) Market price risk Market price risk is the risk that the fair value of future cash flows of the Group’s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates). The Group is exposed to equity price risks mainly arising from quoted shares held by the Group. Quoted shares are mainly listed on Bursa Malaysia Securities Berhad. These instruments are classified as financial assets designated at fair value through profit or loss and fair value through other comprehensive income. At the end of the reporting date, if the quoted shares on Bursa Malaysia had been 10% higher or lower, with all other variables held constant, the Group’s profit after tax would have been approximately RM5,650,000 higher/lower (2018: RM6,195,000 lower/higher), arising as a result of an increase/decrease in the fair values of the quoted shares. 60 CAPITAL MANAGEMENT The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholders’ value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. The Group monitors capital using gearing ratio, which is total interest bearing debts divided by total equity. Total debts are equivalent to total bank borrowings (including current and non-current borrowings) as shown in the consolidated statement of financial position. The Group’s policy is to keep the gearing ratio at an acceptable level. 221
328. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 60 CAPITAL MANAGEMENT (Continued) 2019 Note RM’000 2018 (Restated) RM’000 As at 1 April 2017 (Restated) RM’000 Group Bank borrowings liabilities related to disposal groups held for sale 26 45,815 - - Short term borrowings 44 2,770,691 2,319,821 2,188,368 Long term borrowings 37 3,548,020 3,465,291 4,105,407 6,364,526 5,785,112 6,293,775 10,015,894 10,098,124 10,169,652 0.64 0.57 0.62 Total bank borrowings (excluding deferred liability) Total Equity Gross gearing (times) Company Short term borrowings 44 695,014 711,928 245,631 Long term borrowings 37 1,299,865 1,078,879 1,538,388 Total bank borrowings 1,994,879 1,790,807 1,784,019 Total Equity 5,225,842 5,286,563 6,677,807 0.38 0.34 0.27 Gross gearing (times) 222
329. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 61 CATEGORIES OF FINANCIAL INSTRUMENTS The table below provides an analysis of financial instruments categorised as follows: (i) (ii) (iii) (iv) Financial assets at fair value through profit or loss (“FVTPL”); Financial assets at amortised costs (“AC”); Financial assets at fair value through other comprehensive income ("FVOCI"); and Other liabilities (“OL”). Note Carrying amount RM’000 FVTPL RM’000 AC RM’000 FVOCI RM’000 22 5,909,116 824,876 103,310 4,980,930 28 2,089,577 - 2,089,577 - - Cash and short-term funds 31 842,508 - 842,508 - - Financing of customers 24 15,019,243 - 15,019,243 - - Statutory deposit with Bank Negara Malaysia 25 699,275 - 699,275 - Short term deposits 29 1,039,221 - 1,039,221 - Cash and bank balances 30 1,471,188 - 1,471,188 - Derivative assets 32 25,035 25,035 - - Group Financial assets 2019 Investment securities Trade and other receivables (excluding contract assets, prepayments and advances to suppliers included in other receivables) Banking related assets 223
330. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 61 CATEGORIES OF FINANCIAL INSTRUMENTS (Continued) Note Carrying amount RM’000 FVTPL RM’000 AC RM’000 FVOCI RM’000 Investment securities 22 6,929,588 466,395 110,941 6,352,252 Trade and other receivables (excluding contract assets, prepayments and advances to suppliers included in other receivables) 28 2,236,656 - 2,236,656 - - Cash and short-term funds 31 1,587,681 - 1,587,681 - - Financing of customers 24 14,244,842 - 14,244,842 - - Statutory deposit with Bank Negara Malaysia 25 674,500 - 674,500 - Short term deposits 29 920,201 - 920,201 - Cash and bank balances 30 1,604,589 - 1,604,589 - Derivative assets 32 72,968 72,968 - - Group Financial assets (Continued) 2018 (Restated) Banking related assets 224
331. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 61 CATEGORIES OF FINANCIAL INSTRUMENTS (Continued) Note Carrying amount RM’000 FVTPL RM’000 AC RM’000 FVOCI RM’000 Investment securities 22 6,814,841 532,555 109,875 6,172,411 Trade and other receivables (excluding contract assets, prepayments and advances to suppliers included in other receivables) 28 2,629,942 - 2,629,942 - - Cash and short-term funds 31 1,049,925 - 1,049,925 - - Financing of customers 24 14,564,620 - 14,564,620 - - Statutory deposit with Bank Negara Malaysia 25 698,636 - 698,636 - Short term deposits 29 1,070,133 - 1,070,133 - Cash and bank balances 30 1,358,947 - 1,358,947 - Derivative assets 32 61,494 61,494 - - Group Financial assets (Continued) As at 1 April 2017 (Restated) Banking related assets 225
332. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 61 CATEGORIES OF FINANCIAL INSTRUMENTS (Continued) Note Carrying amount RM’000 FVTPL RM’000 OL RM’000 43 5,096,530 - 5,096,530 37 & 44 6,318,711 - 6,318,711 41 18,661,162 - 18,661,162 45 6,747 - 6,747 46 15,678 - 15,678 Recourse obligation on financing sold to Cagamas 42 471,102 - 471,102 Derivative liabilities 32 52,794 52,794 - 2018 (Restated) Trade and other payables (exclude contract liabilities) 43 5,189,872 - 5,189,872 Bank borrowings (excluding deferred liability) 37 & 44 5,785,112 - 5,785,112 - Deposits from customers 41 19,234,372 - 19,234,372 - Deposits and placements of banks and other financial institutions 45 8,854 - 8,854 - Bills and acceptances payable 46 9,618 - 9,618 Recourse obligation on financing sold to Cagamas 42 485,851 - 485,851 Derivative liabilities 32 88,860 88,860 - Group Financial liabilities 2019 Trade and other payables (excluding contract liabilities) Bank borrowings (excluding deferred liability) Banking related liabilities - Deposits from customers - Deposits and placements of banks and other financial institutions - Bills and acceptances payable Banking related liabilities 226
333. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 61 CATEGORIES OF FINANCIAL INSTRUMENTS (Continued) Note Carrying amount RM’000 FVTPL RM’000 OL RM’000 43 6,206,961 - 6,206,961 37 & 44 6,293,775 - 6,293,775 41 19,179,510 - 19,179,510 45 561,654 - 561,654 46 9,196 - 9,196 32 64,864 64,864 - Group (Continued) Financial liabilities (Continued) As at 1 April 2017 (Restated) Trade and other payables (excluding contract liabilities) Bank borrowings (excluding deferred liability) Banking related liabilities - Deposits from customers - Deposits and placements of banks and other financial institutions - Bills and acceptances payable Derivative liabilities 227
334. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 61 CATEGORIES OF FINANCIAL INSTRUMENTS (Continued) Carrying amount RM’000 FVOCI RM’000 AC RM’000 - RCCPS 337,596 337,596 - - RPS 482,866 482,866 - Note Company Financial assets 2019 Subsidiary companies 17 Trade and other receivables (excluding prepayments) 28 923,213 - 923,213 Short term deposits 29 413,034 - 413,034 Cash and bank balances 30 1,453 - 1,453 - RCCPS 303,628 303,628 - - RPS 408,798 408,798 - 2018 (Restated) Subsidiary companies 17 Trade and other receivables (excluding prepayments) 28 729,067 - 729,067 Short term deposits 29 574,915 - 574,915 Cash and bank balances 30 1,842 - 1,842 63,678 63,678 - As at 1 April 2017 (Restated) Subsidiary companies 17 - RPS 228
335. DRB-HICOM BERHAD (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS - 31 MARCH 2019 61 CATEGORIES OF FINANCIAL INSTRUMENTS (Continued) Note Carrying amount RM’000 FVTPL RM’000 OL RM’000 43 539,121 - 539,121 1,994,879 - 1,994,879 919,264 - 919,264 1,790,807 - 1,790,807 Company Financial liabilities 2019 Trade and other payables Bank borrowings 37 & 44 2018 Trade and other payables Bank borrowings 62 43 37 & 44 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 8 July 2019. 229
348. APPENDIX II GROUP CORPORATE STRUCTURE (OPERATING COMPANIES) AS AT 31 MARCH 2019
349. GROUP CORPORATE STRUCTURE Operating Companies as at 31 March 2019 Pos Aviation Engineering Services Sdn . Bhd. Sectorial E.I. : 53.50% Automotive KP Distribution Services Sdn. Bhd. KP Asia Auto Logistics Sdn. Bhd. E.I. : 53.50% E.I. : 53.50% Cougar Logistics (Malaysia) Sdn. Bhd. Malaysian Shipping Agencies Sdn. Bhd. Konsortium Logistik (Sabah) Sdn. Bhd. E.I. : 53.50% E.I. : 53.50% E.I. : 53.50% Properties Pos Asia Cargo Express Sdn. Bhd. Investment Holding E.I. : 53.50% Pos Logistics Berhad Westport Distripark (M) Sdn. Bhd. E.I. : 53.50% Aman Freight (Malaysia) Sdn. Bhd. E.I. : 53.50% E.I. : 53.50% PNSL Berhad E.I. : 53.50% E.I. : 100% PNSL Risk Management Sdn. Bhd. Motosikal Dan Enjin Nasional Sdn. Bhd. Associated Companies Pos Aviation Sdn. Bhd. E.I. : 53.50% DRB-HICOM Group’s PSH Express Sdn. Bhd. Pos Ar-Rahnu Sdn. Bhd. E.I. : 53.50% E.I. : 53.50% Parcel Tankers Malaysia Sdn. Bhd. E.I. : 81% DEFTECH Systems Integration Sdn. Bhd. Edaran Modenas Sdn. Bhd. E.I. : 100% DRB-HICOM Environmental Services Sdn. Bhd. Dekad Kaliber Sdn. Bhd. HICOM Berhad E.I. : 100% E.I. : 100% Glenmarie Development (Pahang) Sdn. Bhd. E.I. : 100% E.I. : 100% Proton City Development Corporation Sdn. Bhd. Glenmarie Cove Development Sdn. Bhd. E.I. : 100% Honda Malaysia Sdn. Bhd. Muamalat Venture Sdn. Bhd. HICOM University College Sdn. Bhd. E.I. : 97.37% E.I. : 100% E.I. : 34% E.I. : 70% Pos Malaysia Berhad PUSPAKOM Sdn. Bhd. E.I. : 53.50% E.I. : 100% Bank Muamalat Malaysia Berhad E.I. : 70% Isuzu Service Centre Sdn. Bhd. Mitsubishi Motors Malaysia Sdn. Bhd. E.I. : 48% E.I. : 40% E.I. : 100% HICOMYAMAHA Manufacturing Malaysia Sdn. Bhd. DRB-HICOM Auto Solutions Sdn. Bhd. Exedy (Malaysia) Sdn. Bhd. E.I. : 45% E.I. : 100% Northern Gateway Infrastructure Sdn. Bhd. E.I. : 100% Automotive Corporation (Malaysia) Sdn. Bhd. Edaran Otomobil Nasional Berhad E.I. : 100% E.I. : 100% DRB-HICOM Commercial Vehicles Sdn. Bhd. E.I. : 100% ISUZU HICOM Malaysia Sdn. Bhd. HICOM Diecastings Sdn. Bhd. E.I. : 49% E.I. : 100% EON Auto Mart Sdn. Bhd. E.I. : 100% HICOM Automotive Manufacturers (Malaysia) Sdn. Bhd. Oriental Summit Industries Sdn. Bhd. E.I. : 100% E.I. : 100% PHN Industry Sdn. Bhd. DRB-HICOM Mechatronics Sdn. Bhd. E.I. : 100% Suzuki Motorcycle Malaysia Sdn. Bhd. HICOMTeck See Manufacturing Malaysia Sdn. Bhd. E.I. : 29% E.I. : 51% E.I. : 100% HICOM Polymers Industry Sdn. Bhd. E.I. : 100% HICOM HBPO Sdn. Bhd. Glenmarie Properties Sdn. Bhd. E.I. : 60% HICOM Holdings Berhad E.I. : 100% PT Proton Edar Indonesia E.I. : 100% Neraca Prisma Sdn. Bhd. Benua Kurnia Sdn. Bhd. E.I. : 100% E.I. : 100% Proton Properties Sdn. Bhd. E.I. : 100% Media City Development Sdn. Bhd. E.I. : 51% Puncak Permai Sdn. Bhd. E.I. : 58% HICOM Indungan Sdn. Bhd. E.I. : 100% Rebak Island Marina Berhad E.I. : 100% HICOMGamuda Development Sdn. Bhd. E.I. : 35.30% E.I. : 50.10% Miyazu (Malaysia) Sdn. Bhd. Media City Ventures Sdn. Bhd. Proton Commerce Sdn. Bhd. E.I. : 33.07% E.I. : 51% PROTON Holdings Berhad Perusahaan Otomobil Nasional Sdn. Bhd. E.I. : 50.10% E.I. : 50.10% E.I. : 70.60% E.I. : 100% Euromobil Sdn. Bhd. SRT-EON Security Services Sdn. Bhd. E.I. : 73.69% E.I. : 45% E.I. : 100% Horsedale Development Berhad E.I. : 100% HICOM Auto Sdn. Bhd. E.I. : 70% E.I. : 100% DRB-HICOM Leasing Sdn. Bhd. E.I. : 100% Muamalat Invest Sdn. Bhd. Puspakom Teknik Sdn. Bhd. Alam Flora Sdn. Bhd. E.I. : 97.37% EON Properties Sdn. Bhd. E.I. : 53.50% CTRM Testing Laboratory Sdn. Bhd. E.I. : 100% DRB-HICOM EZ-Drive Sdn. Bhd. E.I. : 100% E.I. : 48.42% E.I. : 53.50% E.I. : 100% DEFTECH Aviation Sdn. Bhd. E.I. : 81% Isuzu Malaysia Sdn. Bhd. Pos Digicert Sdn. Bhd. E.I. : 100% E.I. : 53.50% Effective Interest Datapos (M) Sdn. Bhd. E.I. : 100% CTRM Aero Composites Sdn. Bhd. CTRM Composites Engineering Sdn. Bhd. E.I. : 100% E.I. : 53.50% Joint Ventures E.I. E.I. : 100% DRB-HICOM Defence Technologies Sdn. Bhd. Services Composites Technology Research Malaysia Sdn. Bhd. DEFTECH Unmanned Systems Sdn. Bhd. Defence Services Sdn. Bhd. Proton Marketing Sdn. Bhd. E.I. : 50.10% E.I. : 25.05% Automotive Conversion Engineering Sdn. Bhd. Lotus Cars Malaysia Sdn. Bhd. E.I. : 50.10% Proton Tanjung Malim Sdn. Bhd. E.I. : 50.10% E.I. : 50.10% Proton Motors (Thailand) Company Limited E.I. : 50.10% Proton Parts Centre Sdn. Bhd. Proton Cars Australia Pty. Limited E.I. : 50.10% E.I. : 50.10% Proton Edar Sdn. Bhd. E.I. : 50.10%
350. THE ISSUER DRB-HICOM Berhad (Registration No. 199001011860 (203430-W)) Level 5, Wisma DRB-HICOM No. 2, Jalan Usahawan U 1/8 Seksyen U1, 40150 Shah Alam Selangor JOINT PRINCIPAL ADVISERS, JOINT LEAD ARRANGERS AND JOINT LEAD MANAGERS Maybank Investment Bank Berhad (Registration No. 197301002412 (15938-H)) 32nd Floor, Menara Maybank 100 Jalan Tun Perak 50050 Kuala Lumpur RHB Investment Bank Berhad (Registration No. 197401002639 (19663-P)) Level 11, Tower Three, RHB Centre Jalan Tun Razak 50400 Kuala Lumpur FACILITY AGENT Maybank Investment Bank Berhad (Registration No. 197301002412 (15938-H)) 32nd Floor, Menara Maybank 100 Jalan Tun Perak 50050 Kuala Lumpur SUKUK TRUSTEE AND SECURITY TRUSTEE Malaysian Trustees Berhad (Registration No. 197501000080 (21666-V)) Level 10, Tower One, RHB Centre Jalan Tun Razak 50400 Kuala Lumpur JOINT SHARIAH ADVISERS Maybank Islamic Berhad (Registration No. 200701029411 (787435-M)) 15th Floor, Tower A, Dataran Maybank 1 Jalan Maarof 59000 Kuala Lumpur RHB Islamic Bank Berhad (Registration No. 200501003283 (680329-V)) Level 11, Tower Three, RHB Centre Jalan Tun Razak 50400 Kuala Lumpur SOLICITORS FOR THE JOINT PRINCIPAL ADVISERS, JOINT LEAD ARRANGERS AND JOINT LEAD MANAGERS Messrs Albar & Partners Suite 14-3, Level 14, Wisma UOA Damansara II No. 6 Changkat Semantan Damansara Heights 50490 Kuala Lumpur