92 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

MANAGEMENT DISCUSSION & ANALYSIS

Despite yet another challenging year, DRB-HICOM Berhad (“DRB-HICOM” or “the Group”) once again proved its resilience by pooling their resources and leveraging expertise to present a set of commendable results. This performance was greatly enhanced by PROTON Holdings Berhad (“PROTON”), which catapulted to second position in the domestic automotive sales rankings, once again becoming the market’s darling in the sedan segment while completely dominating the sport ultility vechicle (“SUV") space, a new niche for the nation’s first car-maker. PROTON’s performance did not just boost the Group’s performance; it also boosted the nation’s total industry volume (“TIV”).

MACROENVIRONMENT

The global economy contracted from 3.6% in 2018 to 2.9%1 in 2019 amid were 31,092 unsold residential units at end of September 2019, ongoing US-China trade tensions and uncertainties over Brexit, among compared with 30,115 units in the previous corresponding period. This others. Both developed and developing countries were affected, was despite the year-long Home Ownership Campaign launched by the Malaysia notwithstanding. The country recorded a drop in gross Government which spurred sales of 29,461 units worth RM17.99 billion domestic product GDP from 4.7% in 2018 to 4.3%, the lowest since comprising completed units and those still under construction2. The the financial crisis of 2008/9. industrial sector fared better as a result of undersupply of quality property together with relatively higher returns, longer lease tenures and Within this environment, the domestic market still saw a slight expansion lower maintenance costs. Investors snapped up RM2.6 billion worth of in TIV for vehicles sales, from 598,598 units in 2018 to 604,287 units. industrial assets during the year, 149.4% above the long-term average. This is the first time since 2015 that TIV breached 600,000 units (TIV for 2015 was 666,677 units). What is clear is PROTON’s sales for the year The one industry that has been thriving in which DRB-HICOM has a increased by 55.7%, making it the biggest mover in the industry. This presence is e-commerce. A joint study in 2019 by Google, Singapore- was achieved against a backdrop of lower sales among the competition, based investment company Temasek and global business consultants in line with the soft economy as well as tight lending protocols. Only Bain & Company predicts that the internet economy in Asean will be PERODUA and Toyota saw sales increasing among the mainstream worth estimated USD300 billion in 2025, increasing from USD240 billion brands; across the premium marques, only Geely-owned Volvo improved estimated just a year previously. The study also states that the number sales in the calendar year. Mercedes-Benz and BMW sales declined by of people buying/selling online in the region has tripled from 49 million more than 20%. in 2015 to 150 million in 2019. Growth of the sector in Malaysia mirrors that of the region, tripling in value to reach USD3 billion in the four-year Stringent loan requirements also impacted the residential property period. This figure is expected to hit USD11 billion by 2025, growing at a sector. According to the National Property Information Centre, there compounded annual growth rate of 27% from 20153.

1According to IMF’s World Economic Outlook, January 2020 2According to the Ministry of Housing and Local Government’s (KPKT), as reported in The Edge, https://www.edgeprop.my/content/1638530/what-shall-we-do-property-overhang 3http://think.storage.googleapis.com/docs/e-Conomy_SEA_2019_report.pdf DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 93

OUR FOCUS FOR THE YEAR There is also increased emphasis on creating greater synergies across the vast Group businesses as DRB-HICOM tries enhance customer As an organisation with a long and colourful history, DRB-HICOM is no stickiness through collaboration, intra-Group referencing and stranger to adversity. It has been through a number of challenging cross-selling. There is great potential in this and some are already periods throughout its journey, learnt from them, adapted, and emerged bearing fruit. stronger. DRB-HICOM has always kept a pulse on trends and analysed emerging needs to stay ahead of the curve. Over the last few years, there FINANCIAL PERFORMANCE has been a rationalising its operations according to market demand while focusing on its core expertise and strengths. In 2019, DRB-HICOM announced a change of its financial year end from March to December to be aligned with the Government’s national Based on a five-year plan outlined in FY2016/17, DRB-HICOM has been budgeting period. The financial results reported here are therefore for placing greater emphasis on the following areas: the nine-month period from April to December 2019. • Enhancing PROTON’s market position For the nine-month period ended 31 December 2019, the Group achieved • Building Research & Development and automotive product a 16.9% increase in revenue to RM10.5 billion from the corresponding development capabilities period in 2018. This was driven primarily by the Group’s Automotive • Expanding presence regionally and globally Sector, and specifically PROTON which saw a 55.7% increase in sales. • Growing in aerospace, aviation and defence technologies Total revenue from the Automotive Sector came in at RM7.0 billion, Through PROTON, which is charting spectacular growth since entering RM1.8 billion more than for the corresponding period in 2018. into a strategic partnership with Geely in 2017, they are making good Revenue from the Services Sector, however, decreased by RM161.5 progress on the plan. million year-on-year to RM3.20 billion. This was due to lower In the space of 24 months, PROTON has moved up from fourth position contributions from Pos Malaysia and Bank Muamalat, as well as in the Malaysian automotive industry in terms of sales volume to second de-consolidation of Alam Flora Sdn. Bhd.'s (“Alam Flora") results in position, and now has set in motion efforts to challenge the top spot. November 2019. Divestment of the waste management company to More importantly, as PROTON regains its dominance, it is spurring Malakoff Corporation Berhad was completed in December 2019. growth of the Group’s entire automotive chain. Several Manufacturing The Properties Sector contributed RM290.9 million to the Group’s and Engineering (“M&E”) companies within DRB-HICOM have entered revenue, which was less than the RM73.4 million for the same period in and continue to enter into joint ventures with Geely’s existing vendors 2018. Contraction in revenue from Properties Sector was the result of and adopting their cutting-edge technologies, enabling them not only to completion and handover of the ICQS Complex in Bukit Kayu Hitam in serve PROTON’s needs but also that of other reputable Original June 2019. Sales from ongoing development projects at Proton City in Equipment Manufacturers (“OEM“). In terms of geographical expansion, Tanjong Malim, Glenmarie Johor in Johor Bahru and HICOM Pegoh the X70 is being exported to Brunei, while a Licensing and Technical Industrial Park (“HPP″) in Melaka brought in RM45 million. Assistance Agreement has been signed with ALHAJ Automotive to set up a PROTON assembly plant in Karachi to supply the Pakistan market. Along with the increase in revenue, the Group’s PBT came in at RM472.5 Meanwhile, there are plans to make inroads into China. million, reversing a loss before tax of RM46.9 million in the same period a year ago. Net profit, meanwhile, was RM439.1 million. The significant As for business diversification, an increasing number of DRB-HICOM’s increase in profit was due to the divestment of Alam Flora as well as the M&E companies have ventured into the aerospace and aviation improved performance of the Group’s Automotive Sector. industries and are partners to global names such as Airbus and Boeing. In defence technologies, DRB-HICOM Defence Technologies Sdn. Bhd. (“DEFTECH″) continues to address the Government’s changing needs, leveraging on its commendable track record and experience in providing defence solutions. 94 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

OPERATIONAL REVIEW

AUTOMOTIVE SECTOR

Key Highlight

The main highlight, not only for the Automotive Sector but for the Group, sending employees for training at Geely Research Institute (“GRI”) in has been the remarkable turnaround of PROTON. The country’s first car Ningbo and Hangzhou in China, further building capabilities within the maker sold a total of 100,821 units in calendar year 2019, a significant industry. 55.7% increase from 2018. This was all the more notable given that TIV Among the beneficiaries of PROTON’s partnership with Geely has been for the year inched up by only 0.9%. HICOM HBPO Sdn. Bhd. (“HHBPO”), which manufactures front end PROTON’s growth was driven by the new X70 for which local production modules (“FEM”). Following collaboration with GRI, the company was began in December 2019, as well as facelifts to four existing models, named a Top 5 Supplier to PROTON in Product Development. It has also namely the Persona, Iriz, Exora and Saga, which also now incorporate acquired ISO 45001:2018 Occupational Health and Safety Management intelligent connectivity with in-built Wi-Fi. Fans snapped up more than System certification and the German automotive industry’s VDA 6.3 and 29,000 units of the SUV while 38,144 units of the facelifted Saga rolled 6.5 Quality Management System qualifying it to supply BMW and out of PROTON’s showrooms across the country. Mercedes-Benz.

By December 2019, PROTON had captured 18.3% of the overall At the same time, PROTON has been matching its local vendors with passenger car segment to attain second position in the Malaysian Geely’s extensive network of suppliers, and particularly those that were automotive market, while as a Group, DRB-HICOM commanded no less already providing parts for the SUV. In 2019, seven new joint ventures than 33.6% of the TIV for 2019. were formed with Chinese counterparts, while 20 vendors signed agreements with overseas counterparts for a total investment value of Other Significant Achievements RM111 million.

With local production of the X70 commencing in late 2019, the country’s Among the other companies that performed well during the calendar technical and human capital capabilities also needed a jump forward. year was Mitsubishi Motors Malaysia Sdn. Bhd. (“MMM”). Despite a PROTON has made a quantum leap improvement in local automotive 21% drop in sales of pick-up trucks in Malaysia in 2019, MMM recorded manufacturing via its brand new RM1.2 billion state-of-the-art plant in a 2.4% year-on-year increase in sales of the Mitsubishi Triton pick-up Tanjong Malim, which was completed in December 2019. With a range, thus growing its market share by 3.8% to 16.5%. Meanwhile, the 150,000-unit/year capacity, the plant is now manufacturing the X70 and market is eagerly awaiting the launch of the Xpander multi-utility vehicle will also be used for production of all future PROTON and Geely models in the third quarter of 2020. as well as right-hand drive Geely models targeted for the global export Launches of new and face lifted models by the other marques also market. helped to keep the market piqued in calendar year 2019. In total, the In terms of human capital, there is a steady and strong two-way Group was responsible for 14 product launches, including by Audi and exchange of employees between PROTON and Geely to accelerate Honda. knowledge and skills-sharing. In addition, PROTON and its vendors are DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 95

Work in Progress

Despite launching a moped and streetbikes in 2019, there is still much scope to grow Motosikal Dan Enjin Nasional Sdn. Bhd. (“MODENAS”). Currently, its plant in Gurun is operating at only about 50% capacity. However, as Kawasaki has increased its equity in the motorcycle manufacturer to 48%, it will be playing a more active role in the company’s turnaround. Currently, the Japanese OEM is reviewing MODENAS’ business model and revamping its production line. New models are in the pipeline and some of these should roll out of Kedah in late 2020 or early 2021.

Key Risks & Mitigating Actions

Segment Key Risks Mitigating Actions

Vehicle Distribution Competition with other new disruptive • Reviewing cost structure to be more competitive in pricing and business models ie. car sharing, car offering aggressive promotions to customers via social media subscription & e-hailing • To explore business potentials in the new disruptive models to complement current business environment

Tightening of Government policies • Ensuring all submission to be complete and in order i.e. price approval, Industrial Linkage Programme submission with proper documentation for audit purposes • Continue to engage with the Government together with Regulatory Management Division to resolve and minimise any unfavourable policies

Components Manufacturing Requirement by OEMs for lower • All Group manufacturing companies engage in continuous prices in order to reduce their costs improvement programmes for enhanced efficiencies to reduce cost • M&E companies serving the same clients are collaborating to create synergies and cost efficiencies • Increase in volume of manufacturing (e.g. for PROTON) reduces price per unit

What To Look Forward To

The buzz in the industry is the National Automotive Policy 2020, which envisages Malaysia becoming a regional hub for energy efficient vehicles (“EEV”) while also paving the way for the development of next-generation vehicles (“NxGV”). Although NxGV has not been clearly defined, there is good reason to believe these will be connected vehicles with self-driving capabilities, taking the automotive industry to an entirely new level. As the largest automotive player in the country, DRB-HICOM would like to lead the industry into this digitally-driven future and our partnership with Geely stands us in good stead in this regard, given its technical expertise.

In the more immediate future, we can look forward to a range of new vehicle models from our stable of companies, including a new PROTON and Geely model that promises to be as sensational as the X70. 96 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

OPERATIONAL REVIEW

SERVICES SECTOR

Key Highlight Other Significant Achievements

In 2019, DRB-HICOM’s vehicle testing arm, PUSPAKOM Sdn. Bhd. Bank Muamalat Malaysia Berhad (“Bank Muamalat”), DRB-HICOM’s (“PUSPAKOM”) celebrated its 25th anniversary. Although it is the only 70%-owned Islamic bank, undertook a deep and incisive review of its Government-approved vehicle inspection company in Malaysia, the operations during the period. As a result, a comprehensive turnaround 100%-owned subsidiary has never taken its successes for granted. It plan has been devised focused on seven key areas, namely: has continuously sought to maintain the highest standard of service, 1. resetting its target market; digitalising its systems for greater operational efficiency while also 2. disciplined balance sheet management; introducing online channels to interact and communicate with 3. digitalisation; customers. As an example of its high level of service delivery, the year 4. data monetisation; saw PUSPAKOM conduct a series of briefings for e-hailing drivers for 5. infrastructure; whom vehicle inspection has been made compulsory. Its commitment 6. Shariah-led innovation; and to vehicle safety has contributed immensely to safer roads throughout 7. talent management & succession planning. the nation. Although the turnaround plan outlines a five-year roadmap, PUSPAKOM now moves to equip itself with newer technology to cater to Bank Muamalat is confident of some early wins and has set the target the future. As NxGV becomes more and more significant, the company of increasing its profit before zakat and tax (“PBZT”) by 75.3% in 2020. must be able to meet the needs of the sub-segment. Meanwhile, DRB-HICOM U continued to focus on research, receiving two grants totaling RM202,700, and producing 23 papers. The quality of its research output led to the university winning a grand sum of 20 awards at the International Invention, Innovation & Technology Exhibition 2019; Malaysia Technology Expo; Novel Research and Innovation Competition; and the International Conference and Exposition on Inventions by Institutions of Higher Learning 2019. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 97

Key Risks & Mitigating Actions

Company Key Risks Mitigating Actions

DRB-HICOM University Effectiveness of marketing activities translating • Focus on strength in automotive branding backed by into sales industry to drive interest for potential students to enrol • Increasing marketing and branding activities via digital media

Achievement level not meeting criteria set by • On-going improvement of the University operational Ministry due to relatively new player in the sector performance to stakeholders

Programmes do not appeal to market • Review of academic programmes which are relevant to the industry

Competition from other matured players • Direct programme collaboration in target market such as with Beijing Geely University and others

Insufficient resources leading to lower • Cost saving initiatives to meet operational requirement performance as a University

Inability to fully meet the subsidiaries training • Develop training programme modules that are relevant needs due to gap in execution process and needed by the industry • Leverage direct access and network to subsidiaries 98 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

OPERATIONAL REVIEW

Company Key Risks Mitigating Actions

Pos Malaysia Absence of a sustainability framework to sustain the • Throughout 2019, regulators were engaged to Universal Service Obligation Model revise postage rates, which were gazetted on 31 January 2020

Increasing competition in the courier market could lead • Combine internal data with easy-to-use digital to diminishing market share platforms to achieve operational excellence for superior customer experience • Build user-friendly digital platforms for customers

PUSPAKOM Possible discontinuation of inspection service as • Enhancing stakeholder′s reliance and consumer concession expires in 2024 convenience via:

a. Adopting new inspection technology to reduce inspection cycle time (“CT"), human intervention and increase in service integrity b. Expansion of service accessibility focusing in high volume areas and providing new value added services by expanding PUSPAKOM One-Stop Centre service c. Enhancing vehicle inspection quality through standardisation of inspection methodology, requirements and technology d. Ensuring PUSPAKOM’s technical competency and readiness in accommodating new inspection types and requirements e. Developing a sustainable relationship with stakeholders and making the company relevant beyond year 2024 as a competent service provider for the country’s vehicle inspection needs

Bank Muamalat Emerging competition from non-banking players and • Determine new business areas to identify new the rising of new norm growth opportunities • Effective cost management and enhanced productivity • Digitalisation across processes and services for more efficient deliverables and cost-competitive offerings • Collaboration and partnership with fintech companies and Government agencies DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 99

What To Look Forward To

Although Pos Malaysia’s revenue continued to plummet from the decline in postal volume, prospects for 2020 are looking bright. Following the Government’s approval, as of 1 February 2020, Pos Malaysia has increased the tariff for commercial mail, which makes up about 95% of its total mail volume. This is expected to help the group stem its losses.

At the same time, Pos Malaysia has embarked on a comprehensive turnaround programme which encompasses the injection of RM300 million into digitalisation of its core infrastructure, including its track-and-trace system, retail operations and security in order to improve its business across the value chain. Along with automation to enhance capacity, Pos Malaysia expects to see a marked increase in top and bottom lines from 2020 onwards. 100 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

OPERATIONAL REVIEW

PROPERTIES SECTOR

Key Highlight

The RM425 million Immigration, Customs, Quarantine and Security Phase 2A of HICOM Pegoh Industrial Park (“HPP") and approximately 18 (“ICQS”) Complex in Bukit Kayu Hitam, Kedah, celebrated a milestone on acres in Phase 3 at prices between RM25.00 and RM27.00 per square 26 June 2019 when its construction was completed. Phase 1 had already foot. HPP is being developed as a premier integrated industrial estate, been completed on 1 November 2017, and the complex is now be and will be one of the largest freehold industrial parks in Melaka once managed by DRB-HICOM’s 100%-owned subsidiary, Northern Gateway completed. It is already home to major names such as Honda Malaysia, Infrastructure Sdn. Bhd. (“NGISB”), until the end of the 28-year concession Nippon Express and EP Manufacturing Berhad. with the Government in 2042. Work in Progress The ICQS is a state-of-the-art facility at the Malaysia-Thai border in Kedah, and has eased vehicular traffic congestion that burdened the GPSB is also developing Phase 1C of Glenmarie Johor, a residential old facility. This will be a boost to Kedah and the country, as it precinct in the bustling Tebrau area close to the Malaysia-Singapore commences 24-hour operation4 to facilitate trade between the Causeway. Launched in April 2018 comprising 56 units of semi-detached Thailand and Malaysia. units and cluster homes, approximately 50% of the units have been taken up.

Other Highlights Meanwhile in Tanjong Malim, Perak, Proton City Development Corporation In FY2019, DRB-HICOM’s property development arm Glenmarie Properties Sdn. Bhd. (“PCDC”), launched 130 units of single-storey and 1 ½-storey Sdn. Bhd. (“GPSB”) sold approximately 3.5 acres of industrial land in link houses in July 2018, of which approximately 58% have been sold.

Key Risks & Mitigating Actions

Key Risks Mitigating Actions

Developers are likely to launch new properties to keep their • The Group will adopt a prudent strategy of launching smaller parcels of businesses going, leading to a further increase in number of unsold residential projects that cater to the mass market completed units, as most of the new launches will be priced beyond • More focus will be channelled towards the sale of industrial land in the means of the mass market HPP and Proton City Development Corporation Sdn. Bhd. ("PCDC")

What To Look Forward To

The Government accepted the first stage (Lease 1) of Media City Complex, being developed by the Group’s 51%-owned company, Media City Ventures Sdn. Bhd. (“MCVSB”) on 11 March 2019. MCVSB is now focusing on the second stage, Lease 2, which is on track for delivery in the second quarter of 2020.

4https://www.nst.com.my/news/nation/2019/06/496899/malaysia-thailand-run-24-hour-icqs-operations-midnight DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 101

OUTLOOK

The year 2020 has begun on a very challenging note, with the COVID-19 Malaysia VW model, the Arteon, while PROTON is keeping expectant pandemic disrupting business as normal. Although the services fans on their toes with plans to launch a more compact SUV code- industry, and particularly travel and hospitality, is worst hit, all named the SX-11 later in the year. businesses from manufacturing to construction are affected as DRB-HICOM’s defence and aerospace businesses will continue to Governments across the globe have imposed shut downs or lockdowns strengthen their positions amid stiff competition while maintaining in varying degrees. prudence in operating costs. The Group is using the current lull to thoroughly review and reassess In the Services Sector, the turnaround of Pos Malaysia, Bank Muamalat our businesses and focus on creating optimum efficiency in all our and DRB-HICOM University of Automotive Malaysia (“DRB-HICOM operations once normalcy resumes to become market leaders in our University”) will be a focus. Each subsidiary has a clearly outlined,

chosen segments. A Business Recovery Task Force (“BRTF”) was carefully-thought out plan which it will execute diligently, and the hope established in March 2020 as soon as the Government imposed a is for it to yield positive results, if not in 2020 then in the near future. Movement Control Order (“MCO”) on 18 March 2020. As this report goes In Properties Sector, the shift towards industrial properties will take to print, the Conditional MCO is scheduled to run until 9 June, after 49 shape upon the completion of the exercise to dispose of several assets days of the MCO, and thus the economy essentially grounded to an in Klang Valley and Johor, in a related party transaction annouced almost complete stop. The BRTF is tasked with assisting the Group’s earlier. businesses to chart their way through this trying time, apart from identifying opportunities within this crisis. Restructuring across the Group will continue. The year was always going to be tough, and COVID-19 has made it even more challenging. The Group’s Automotive Sector is expected to remain the largest Still, DRB-HICOM has sufficiently strong fundamentals to build upon, contributor to revenue, with various product launches lined up to sustain and when the right conditions prevail, it should be able to capitalise on its growth momentum. In January, Honda excited the market with the the opportunities that may present itself in this crisis. all-new 10th generation Accord while VW introduced another D-segment variant, the Passat Elegance facelift. In the wings is another new-in- 102 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Automotive Sector

The DRB-HICOM Group is involved in the entire automotive value chain through more than 40 subsidiaries encompassing the manufacture/assembly, distribution, import and export, sales and after-sales as well as rental and leasing of a range of vehicles including defence and specialty vehicles and motorcycles. As part of the Group’s diversification programme, some of these subsidiaries are venturing into the aerospace and other non-automotive segments.

PROTON Holdings Berhad (“PROTON”)

The launch of its first sports utility vehicle (“SUV”), the X70 on While the Proton X70 became the most sought-after SUV in Malaysia, 12 December 2018 provided PROTON with an excellent start to the year. design and technology uplifts to the Persona, Iriz, Exora and Saga, and The X70, which is also the first premium SUV by a Malaysian car especially the incorporation of intelligent connectivity features, also manufacturer, not only piqued public interest but regained consumer’s contributed significantly to PROTON’s performance. Sales of the Iriz trust towards the company leading to the successful launch of a series grew by 96.2% year-on-year, while that for the Exora and Saga jumped of upgraded PROTON models in the coming months. by 38.6% and 37.4% respectively.

Consumers’ trust was further reinforced when, exactly a year later on The launches and improvements were key to PROTON’S improved 13 December 2019, local production of the X70 began at the performance. In sharp contrast to marginal TIV growth in Malaysia in newly-expanded plant in PROTON Tanjong Malim, utilising the latest 2019, PROTON sales shot up by 55.7% year-on-year to 100,821 units, high-technology equipment and best-practice processes. Along with its catapulting the marque to second position in the domestic automotive technology upgrades, PROTON also gave its customer-facing outlets an market. This helped PROTON to end the year with 18.3% share of the uplift. No less than 120 new 3S and 4S outlets that offer integrated overall local passenger car market. services were opened or re-launched over the period of 24 months. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 103

The popularity and confidence in the Proton X70 has been reflected by the major accolades it has received since its launch. It was named ‘Overall Car of The Year’ at the 18th Malaysia Car of the Year Awards, ‘Local Car of The Year’ by CarSifu Editors’ Choice Awards, ‘Overall Car of The Year 2019’ at the Carlist Awards and ‘Vehicle Design of The Year’ by DSF.MY Allianz. Positive vibes created by the SUV spilled over to the upgraded models launched during the year, which also received their fair share of major awards in their respective categories.

PROTON’s immensely successful turnaround is the result of the synergy and strong support of its shareholders, i.e. DRB-HICOM and Geely, and the effective implementation of a carefully thought-out 10-year Business Plan. The latter rests on three strategic aspirations: i. to return to a profitable position as soon as practical; ii. to regain its leading position in Malaysia; and iii. to become one of the top-three automotive brands in ASEAN.

These aspirations, in turn, are driven by seven strategic thrusts as described in the table below.

Strategic Thrust Achievements in 2019

Develop competitive models • Maximised the momentum of new technologies introduced by Proton X70 incorporating advanced • Launched a series of upgraded models boasting intelligent features - Persona, Iriz, Exora and Saga technologies • Started production of the 2020 X70 in Proton Tanjong Malim

Attain optimal capacity utilisation • Invested RM1.2 billion in the Tanjong Malim plant expansion, with new production lines (body with plant expansion sub-assembly, main body assembly and trim & final assembly) equipped to produce the X70 and future models derived from Geely technologies

Implement progressive • Continued to implement inclusive vendor development programmes to upscale technical capability and localisation activities operational capacity • Strategic partnership established between Malaysian vendors and overseas companies to enhance the respective technical capabilities required to support production of new models • Appointed 48 local vendors to produce 484 components for the X70

Achieve quality consistency by • Benchmarking against global best practices, PROTON adopted the Geely Group quality management adopting global standards system • Under the Global Customer Product Audit, quality demerit points on PROTON vehicles dropped from 6,600 to below 1,200, which is within the set target

Optimise cost competitiveness • Manufacturing costs improved by 31% with various continuous improvement programmes • Logistics costs reduced by 33% via the consolidation of warehouse operations from 12 to 4 • In line with efforts to increase the number of 3S and 4S centres, the number of regular parts centres halved from six to three

Enhance the customer experience • Opened 120 3S and 4S outlets with new specifications and criteria, offering improved integrated services to car owners to enhance customer satisfaction throughout the ownership period, optimise productivity and improve dealer business viability • PROTON now engages more meaningfully with customers to understand their needs, and incorporates feedback into its product and service design

Develop in-house talent while • In-house talent undergo training to boost their capabilities sourcing global talents • Selected employees were assigned to GRI to improve their skillset while completing project tasks • Selected Geely employees have been assigned to PROTON as part of strategic partnership programmes • To date, 65 new recruits of various backgrounds and experience have been employed in critical positions to strengthen the required core competencies

In terms of exports, PROTON sold a total of 1,007 units overseas, aided by the successful launch of the X70 in Brunei. The company has also entered into a Licensing and Technical Assistance Agreement with ALHAJ Automotive with the objective of setting up a plant in Karachi to assemble PROTON cars for the Pakistan market.

Going forward, PROTON has set aggressive targets for the year 2020, such as increasing its sales volume by more than 30%. This will be aided by the launch of new and enhanced models, as well as continuous operational improvement activities focused on the company’s strategic thrusts. Driven by its strategic aspirations, PROTON is determined to build on the momentum of growth achieved to create a sustainably successful brand in Malaysia and ASEAN. 104 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Automotive Sector

DISTRIBUTION COMPANIES Honda Malaysia Sdn. Bhd. (“Honda Malaysia”)

Honda Malaysia assembles Honda cars at its plant in Pegoh, Melaka continue to launch a series of new models, including the Civic, BR-V and and markets them via its network of 88 sales and after-sales centres CR-V, while introducing all-new Honda Accord and Honda City models nationwide. to keep enticing the market. With a robust strategy and enterprising spirit, the company is confident of maintaining its growth momentum as In 2019, Honda Malaysia maintained its leadership in the non-national it continues to contribute towards the nation’s automotive industry. car segment with 88,192 units sold. Honda City was the best-selling model for the year, commanding 37% of the company’s total sales, while Mitsubishi Motors Malaysia Sdn. Bhd. (“MMM”) the Honda HR-V took the second spot at 15,671 units to maintain its leadership in the compact SUV segment. MMM is the official distributor of Mitsubishi Motors vehicles in Malaysia. The company is represented by 49 outlets, of which 44 are 3S centres. Different variants of the Honda HR-V continued to win accolades. The 15 of its outlets are in East Malaysia – eight in Sabah and seven in Honda HR-V 1.5 Hybrid was named Compact Crossover & SUV of the Sarawak. Year by Malaysia Cars of The Year 2019; the Honda HR-V Sport Hybrid was named Best Hybrid at the Car Sifu Editors’ Choice Awards 2019; Despite a 21% drop in sales of pick-up trucks in Malaysia in 2019, the and the New Honda HR-V was awarded Best Compact SUV of Malaysia number of Mitsubishi Triton pick-ups sold by MMM increased by 2.4% by 2019 Cars of Malaysia. Honda swept a total of eight awards at each year-on-year to 5,792 units. The Triton, in fact, achieved the highest of the Carlist.my People’s Choice Awards 2019 and 2019 Cars of sales growth in the pick-up truck segment in the country, enabling it to Malaysia respectively. It was also The People’s Choice for Automotive at increase its market share by 3.8% to 16.5%. Introduction of the new the Putra Brand Awards 2019. Triton in early 2019 contributed to 71.2% of MMM’s overall business for the year which saw a total of 8,140 units sold. As at December 2019, Honda Malaysia had invested a total of RM67.8 million to upgrade its plant and machinery in preparation for the roll-out MMM won two awards in 2019 for the Triton pick-up truck, namely the of new models and to create greater operational efficiencies. The plant Best Pick-Up Truck in the Manual category by Carsifu Editor’s Choice currently has the capacity to produce 100,000 cars per annum. Awards and a Bronze for the Best Pick-Up Truck by Carlist.my People’s Choice Awards. The company also ranked number one in the J.D. Power To sustain its market leadership, Honda Malaysia is committed to Malaysia Customer Service Index Mass Market Study 2019. This is the enhancing its product quality and after-sales service. The company will DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 105

second consecutive year that MMM has taken the top spot and the fifth DRB-HICOM Commercial Vehicles Sdn. Bhd. (“DHCV”) year that it has remained among the top three in the study. Meanwhile, DHCV is the exclusive distributor and assembler of TATA commercial it was also ranked top two in the J.D. Power Sales Satisfaction Index vehicles in Malaysia. 2019, based on feedback from new car owners. Following the successful launch of the TATA Super Ace, Ultra 814 and Riding on the performance of its pick-up truck, MMM is confident of 1014 in April 2018, DHCV together with TATA Motors Limited (“TML”) continuing to be the customer’s choice in this segment over the coming achieved a milestone in 2019 by rolling out the CKD versions of the years, and targets to further grow its market share to 17% in 2020. Super Ace small pick-up, Ultra 814 (7,500kg) and 1014 (10,400kg) trucks. This was part of DHCV’s strategic plan to boost TATA sales - and Isuzu Malaysia Sdn. Bhd. (“Isuzu Malaysia”) market share - especially in the small pick-up and light duty truck Isuzu Malaysia markets and distributes Isuzu commercial vehicles, segments. namely the light-duty ELF, medium-duty FORWARD, heavy-duty GIGA The CKD launches underline DHCV’s commitment to expanding TATA’s and GIGA Prime Movers, D-Max pick-up trucks and MU-X SUV. presence in Malaysia while promoting the local supplier ecosystem, Isuzu’s commercial vehicles continue to strengthen their leadership in creating greater employment opportunities and developing new Malaysia, with its trucks taking the No. 1 spot in the segment for a technical skillsets. These locally-assembled models also open up the sixth consecutive year, and the ELF occupying the No. 1 position as the potential of more business opportunities in both the public and private best-selling light-duty truck for four consecutive years. Overall, Isuzu sectors. The models themselves offer attractive value propositions of maintained its ranking as the ninth top automotive brand in Malaysia. competitive performance, durability and safety combined with low maintenance costs. The year saw Isuzu Malaysia launch two new products in June; the ELF Smoother light-duty model and FORWARD medium-duty model. This In addition to 360° advertising campaigns to heighten the products` was followed by the launch of the 1.9L/3.0L EEV engine pick-up truck visibility nationwide, various public relations activities were organised facelift model in September. including media test drives, road-shows and exhibitions.

A total of 5,109 commercial trucks were sold in 2019 achieving 34% Looking beyond, DHCV and TML will continue to evaluate the suitability market share. Of these, 3,865 units were the D-Max, which comprised of more products and introduce those that cater to increasing demand 11% of the pick-up segment. The pick-up won in the Best Pick-up for wider transportation needs. The partnership is looking at introducing Engine category at the Carlist.my People’s Choice Awards 2019. three product variants in 2020, namely the Ultra 814 Auto Transmission, Ultra 710 4 tyres and Intra V20.

Upcoming promotions will focus on the products’ niche applications based on competitive chassis specifications to tap into new markets and build brand loyalty. 106 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Automotive Sector

MOTORCYCLES RETAIL COMPANIES Motosikal dan Enjin Nasional Sdn. Bhd. (“MODENAS”) Edaran Otomobil Nasional Berhad (“EON”) MODENAS is Malaysia’s homegrown motorcycle manufacturer and EON is a holding company for Euromobil Sdn. Bhd., EON Auto Mart Sdn. distributor as well as contract assembler of imported models. Its 100- Bhd. (“EAM”), HICOM Auto Sdn. Bhd. (“HASB”), DRB-HICOM Leasing acre factory in Gurun, Kedah, is equipped with conveyorised assembly Sdn. Bhd. (“DLSB”) and DRB-HICOM EZ-Drive Sdn. Bhd. lines and a design centre for welding, electro-deposition plating, painting and coating, tools calibration, components testing, engine The company’s Jeep business has been scaled down since September casting, assembly, test benching and final vehicle testing. 2017 with the appointment of Tiger Shoji as the authorised service dealer. The company also has 48% equity in MMM, the distributor of The motorcycle market in 2019 grew for the second consecutive year, Mitsubishi vehicles in the country. with sales increasing 6.6% to an estimated 589,000 units as opposed to 512,554 units in 2018. MODENAS itself achieved sales of 17,385 units, Since August 2016, EON has been providing shared services via boosted by the introduction of two new models in September, namely streamlined reporting and other processes for its subsidiary companies the KRISS 110 moped and Pulsar NS160 street bike. in four core functions, namely Finance, Human Capital, IT and Procurement. In 2020, the company plans to expand its shared services To further establish its position in the Malaysian market, MODENAS will to Automotive Corporation Malaysia Sdn. Bhd. (“ACM”) and DHCV, while build on its motosikal rakyat legacy as the trusted Malaysian brand that also managing the insurance business for all its subsidiary companies. offers appealing motorcycle designs that are value for money. With Japan’s Kawasaki Heavy Industries (“KHI”) increasing its equity in EON Auto Mart Sdn. Bhd. (“EAM”) MODENAS to 30% in April 2019, the management aims to strengthen its position with expertise from the Japanese giants. EAM is an authorised dealer for MMM, involved principally in the sales and after-sales services of motor vehicles and related spare parts in Malaysia. With eight 3S outlets nationwide, EAM commands the largest share of MMM sales volume, at 17%. The company also has a Body and Paint (“B&P”) hub in Kota Damansara and is an authorised B&P service provider in Kota Kinabalu, Johor and Ampang, Selangor.

Sales of the Outlander, Triton and ASX totalled 1,060 units in 2019 while EAM recorded a throughput of 21,259 units. The company is currently concentrating on fleet sales to Government-linked companies and Government agencies while eyeing sales and service opportunities within the larger group.

EAM is focused on enhancing its customer service with a new corporate identity and visual identity (“VI”) at its outlets. During the year, two outlets – in Glenmarie and Johor – completed the adoption of the new VI while the outlet in Kota Kinabalu will follow suit by the second quarter of 2020. The other branches will be upgraded in time for the launch of a new product line-up. EAM also launched a Loyalty Buddies after-sales programme in October 2019 and a mobile service truck in January 2020 to enhance its customer support.

Moving forward, EAM seeks to grow its B&P and fleet businesses while keeping its margins healthy through effective cost control measures.

Euromobil Sdn. Bhd.

Euromobil is the largest Audi dealer in Malaysia, with centres in Glenmarie, Damansara, Kuala Lumpur and Johor Bahru accounting for 72% of the marque’s total sales in the country.

In 2019, Euromobil generated total revenue of RM67 million, of which about 60% was generated from sales, boosted by the launch of various models. In March 2019, Audi introduced its latest Q range of SUVs, namely the Q2, Q5, Q7 and Q8, which created much hype among fans in Malaysia. This was followed by the launch of the A3, A4 Quattro and A5 in April, and then the A6, A7 and A8L in July 2019. In November, the all- new Audi Q3 made its debut at Paultan’s Auto Car Expo. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 107

Automotive Corporation (Malaysia) Sdn. Bhd. (“ACM”)

Its re-strategised after-sales operations, meanwhile, attracted a ACM is the largest dealer of the Isuzu brand of trucks, pick-ups throughput of 11,125 vehicles, of which 10,821 units underwent and SUVs in Malaysia. The company has 3S centres in Shah Alam, servicing and the remaining 304 units were for B&P work. After-sales Batu Caves, Kuantan, Juru, Ipoh, and Johor. contributed to about 40% (RM27 million) of Euromobil’s total revenue. Nationally, there was a 17.4% dip in sales of commercial vehicles during Further strengthening its performance, Euromobil is enhancing its the year. Sales of Isuzu trucks overall also decreased by 19.6%, to 8,983 customer service with a loyalty programme, extended warranty units. In comparison, ACM sales declined by only 3.0% to 905 units from programme and the Audi Conformity Check. With the Audi Conformity 933 units in 2018, leading to an increase in its share of the Isuzu market Check, imported Audi owners will enjoy the same benefits as those who from 8.3% to 10.1%. ACM’s positive results for FY2019 were due to cost- bought their cars from authorised Audi outlets such as a two-year saving measures that included more streamlined operations and strict warranty for parts replacement topped with recall and workshop control of capital expenditure. campaign services if applicable. Moving forward, ACM is confident of improving its sales with the launch of an upgraded ELF light duty truck; continuation of mega projects and HICOM Auto Sdn. Bhd. (“HASB”) other developments that necessitate the use of trucks; and penetration HASB is an authorised dealer for the Volkswagen (“VW”) brand in into untapped markets. Focus in 2020 will be on customers in the oil Malaysia with two outlets – in Semenyih, Selangor and Seremban, and gas and solid waste management sectors for whom ACM is able to Negeri Sembilan. customise the body specifications of its trucks. There will also be greater emphasis on enhanced after-sales service with service clinics, Impacted by stiff competition from new product launches by other premium mobile PUSPAKOM inspection and Dr. Mobile, through which brands, VW recorded a drop in total revenue to RM33 million in 2019. ACM will send its team to the customer to service its vehicles. In To enhance its performance, VW has renewed its focus on customer addition, ACM seeks to attract owners who made their purchases more care with the launch of Volkswagen Care Plus (“VCP”) targeted at than five years previously with various attractive replacement and owners of VW models that are five years old or more. The objective is to upgrade offers. encourage such owners to return to VW service centres for their regular servicing even after their five-year warranty has expired. VCP is expected to increase HASB’s throughput by 25% in 2020.

The company will also focus on its corporate fleet business while adopting a more aggressive digital marketing approach and carrying out more roadshows. 108 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Automotive Sector

SERVICES COMPANIES DRB-HICOM Auto Solutions Sdn. Bhd. (“DHAS”) DRB-HICOM EZ-Drive Sdn. Bhd. (“EZ-Drive”)

DHAS provides end-to-end logistics solutions for the automotive EZ-Drive, commercially known as AVIS Malaysia, provides short-term industry, encompassing the import of completely built up (“CBU") vehicle rental, and long-term leasing of passenger and commercial vehicles and completely knocked down (“CKD") kits, forwarding and vehicles as well as agricultural equipment. EZ-Drive fully owns clearance, vehicle yard management, pre-delivery inspection and final DLSB, and represents the leasing arm of DRB-HICOM Group. delivery to dealer networks. Its customers include major marques such It was a positive year for EZ-Drive which continued to grow its rental/ as PROTON, Audi, VW, Honda, Mitsubishi, Isuzu, TATA, Mercedes Benz, leased assets to more than 4,500 units while strengthening its network Hap Seng Trucks, Suzuki motorcycles and MODENAS. to 15 stations nationwide from 14, and making greater inroads into the In 2019, DHAS saw an increase in import volumes, contributed by the agricultural equipment leasing segment. Operationally, it maintained a introduction of the new Isuzu D-Max model in the third quarter of the vehicle utilisation rate that was consistently 10% higher than the AVIS year and continuous influx of Mitsubishi models. Meanwhile, total Asia Pacific standard. production volume of CKD vehicles grew 1.2% from 564,971 units in Despite the shorter financial period of nine months, competition from 2018 to 571,632 units, in tandem with TIV growth in 2019. DHAS was a ride hailing set-ups, and regulatory challenges, EZ-Drive recorded a 4% beneficiary of this growth given that it imports kits for VW. Its Vehicle growth in PBT year-on-year supported by the early delivery of leasing Preparation Centre (“VPC”) also experienced a spike in business along vehicles and equipment, better leasing rates as well as manpower and with greater volume of CBU units, especially that of Proton X70 and resources optimisation. increased CKD activity in Pekan as compared to the previous year. EZ-Drive’s operational and financial successes were recognised with The largest contributor to DHAS’ revenue for the year was CKD import, AVIS Malaysia winning the Outstanding Achievement Award at the AVIS which accounted for 29% of the total, followed by CBU imports and VPC Budget Group Regional Conference 2019 held in Cambodia. The annual activity (both at 26%), then Transportation (18%). Licensee Awards recognise licensee partners that have demonstrated In 2020, DHAS will continue to expand its business with existing growth in annual financial performance measured against their customers while seeking additional business from new customers. It respective country’s economic conditions, excellence in customer plans to extend its service for the import of new VW, Audi and Isuzu CBU service and alignment with the brand’s initiatives. models as well as new VW, Mitsubishi, PROTON-Geely, TATA and Going forward, the company will continue to expand into commercial MODENAS CKD models. It also seeks to grow its VPC business through vehicle leasing and market its services more aggressively to Government increased accessory installation activities for VW, Isuzu and Mitsubishi agencies. It also seeks to leverage potential synergies with the Group. CKD models, while extending yard management services for Mercedes- To meet an expected increase in demand, it will further strengthen its Benz and Hap Seng trucks. fleet size and add two new outlets to its current network in 2020. In addition, DHAS expects to expand its trading activity, especially in the The company’s prospects look favourable as demand for leased manufacture of components, emulating the Proton Factory In Factory vehicles is set to increase, driven by consistent demand for lower (“FIF”) business model. As the DRB-HICOM group of automotive leasing solutions, the establishment of more multinational companies companies increases its export volume, this too will present an and logistics requirements for ongoing mega projects in the country. additional source of revenue enhancement for DHAS. In the immediate horizon, DHAS is working to secure the PROTON-Geely and MODENAS export businesses. Finally, it seeks to build its logistics segment through the provision of CKD kits haulage services for upcoming TATA, Mitsubishi, VW and PROTON-Geely models. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 109

MANUFACTURING & ENGINEERING Moving forward, Bosch Germany has requested HDSB to continue participating in its ASEAN programmes; while Mazda has contracted HICOM Automotive Manufacturers (Malaysia) Sdn. Bhd. (“HA”) the company to produce components for its first electric vehicle HA assembles the Mercedes-Benz C, E and S Class, GLC, GLC Coupe as programme. With effective marketing, competitively priced engineering well as Actros and Mitsubishi Fuso light and medium-duty trucks, in solutions and enhanced service delivery, HDSB is expected to partner addition to the VW Passat, Tiguan, Vento and Polo Hatchback at its more global automotive suppliers in the coming years as part of its plants in Peramu Industrial Estate, Pekan. long-term growth and diversification plan.

In 2019, HA produced a total of 13,903 units, a 10% increase from 2018, HICOM HBPO Sdn. Bhd. (“HHBPO”) due to an increase in VW and commercial vehicles production. Another feather in HA’s cap was production of 100,000 units of Mercedes-Benz, HHBPO designs, develops and supplies FEMs for PROTON, VW and including the pioneer rollout of the Mercedes-Benz C Class left-hand BMW at its plants in Tanjong Malim, Perak; Pekan, Pahang; and Kulim, drive for the Philippine market. Kedah respectively. It is the only company in Malaysia with the capability to provide “design to print” solutions for automotive FEMs. It is also Going forward, HA seeks to secure business expansion via the working with PROTON/Geely designers to fulfill the technical introduction of a line-up of new models. In 2020, it looks forward to the requirements for their range and upcoming X50 CKD projects. commencement of mass production for a Japanese brand and the introduction of new models for Mercedes-Benz, VW and Mitsubishi For the nine-month period of the financial year, HHBPO exceeded both Fuso truck range. its revenue and PBT targets, mainly due to the introduction of the BMW 3 Series and X5. Going forward, the production of PROTON’s X70 is HICOM Diecastings Sdn. Bhd. (“HDSB”) expected to significantly boost its revenue over the next few years.

HDSB manufactures aluminium parts and components for the Close engagement with GRI in developing the X70 FEM greatly boosted automotive and non-automotive sectors. It specialises in engine HHBPO’s development capability and operational excellence, leading to components such as cover cylinder heads, cover timing chains, oil the company being recognised as a Top 5 Supplier in Product pumps, water pump covers, fuel pipe delivery, steering housing and Development to Geely. HHBPO also acquired ISO 45001:2018 engine brackets, which are supplied to OEM such as PROTON, Perodua, Occupational Health and Safety Management System certification in Mazda, Honda and Bosch, among others. December 2019 to qualify as a global BMW supplier. In addition, HHBPO has embarked on the German automotive industry’s VDA 6.3 and 6.5 For the financial period ended 31 December 2019, the company recorded Quality Management System certification to fulfill the requirements of 6% year-on-year growth in revenue with export contributing 73% of the Mercedes Benz Malaysia. It has been nominated by Mercedes Benz to revenue compared to 67% in the previous year. The automotive business supply FEMs; and by Mitsubishi to supply cooling modules for their contributed 93% of the revenue; however, the non-automotive business models in Pekan. is expected to grow in the coming years. In 2019, the company secured RM30.25 million in revenue for a total of nine new parts, namely front With new model launches at all three plants, 2020 is set to be busy for bracket assy and bracket bearing for PROTON; water pump housing for HHBPO. BMW is expected to introduce at least one new model, while Hanon; bracket oil filters for Perodua; street lights for Oversea Lighting PROTON is scheduled to commence production of the X50; and VW is & Electric; and pan sub-assy oil for Daihatsu Perodua Engine launching a series of new models/facelifts. A new factory is being set Manufacturing. At the same time, it continued to pursue more business up in Pekan to cater for CKD parts coming from Germany for Mercedes from PROTON’s GEP3 engine localisation and Honda’s 2022 new 1.5L Benz’ production. turbo and non-turbo engine programmes. Going forward, HHBPO will focus on attracting new premium OEMs into its portfolio, in view of the attractive margins, while diversifying its product range for long-term growth. 110 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Automotive Sector

HICOM-Teck See Manufacturing Malaysia Sdn. Bhd. (“HTS”) Going forward, there are plans to facelift the B17, 2WB and B92 models, as well as to introduce a new model, further strengthening Yamaha’s HTS is a leading manufacturer of precision plastic injection mouldings brand position and market share. In order to cater to the expected for the automotive industry. It is accredited with various industry increase in demand, HYMM will continue to upgrade its production certifications including IATF16949:2016, Environmental Management capabilities with the installation of an additional crankshaft machining System (“EMS”) ISO 14001:2015 and OHSAS 18001:2007 for the line while further reducing its assembly CT from 0.55 minutes to 0.50 automotive industry; and AS9100 Rev D for the aerospace industry. minutes.

During the financial period ended 31 December, the company recorded ISUZU HICOM Malaysia Sdn. Bhd. (“IHM”) a total revenue of RM239.3 million, mainly from automotive parts IHM manufactures ISUZU commercial vehicles such as the N-Series comprising instrumental panels and bumpers. light-duty trucks, F-Series medium and heavy-duty trucks, and D-Max pick-up trucks. In August 2019, HTS signed a technical assistance agreement with Hengbo Holdings Co. Ltd., an air intake manufacturer from Taizhou, In June 2019, the company launched an additional variant of the Zhejiang Province, China as part of a product diversification strategy to N-Series light-duty truck and the new D-Max 1.9L pick-up truck in support long-term growth. It is also building a state-of-the-art robotic September 2019. This contributed to sales of 5,078 ISUZU trucks, painting plant in Tanjong Malim to upgrade its process capabilities with capturing 38.9% of the market, and 3,865 units of pick-up trucks, making emphasis on automation and digital transformation. In addition, HTS is up 11.0% of the market. Its performance meant that ISUZU retained its investing in the latest injection moulding machines in anticipation of No. 1 position among all truck brands for the sixth consecutive year and increased demand from the automotive and non-automotive segments. the No. 1 position among light-duty trucks for the 10th consecutive year while capturing 11% share in the pick-up segment. HTS also places great emphasis on human capital development to Validating its quality and safety systems, IHM was officially certified ensure excellent manufacturing, quality, cost, delivery and service to with the ISO 14001:2015 EMS and ISO 45001:2018 Occupational Health support long-term growth. This has led to a gold award from Perodua in and Safety Management System (“OHS”) on 2 August 2019 by SIRIM January 2109 for the implementation of Karakuri Kaizen. QAS International Sdn. Bhd.

HICOM-YAMAHA Manufacturing Malaysia Sdn. Bhd. (“HYMM”) To further strengthen its market position, IHM plans to launch the Limited Edition D-Max pick-up as well as a new variant of the N-Series HYMM manufactures and assembles Yamaha motorcycle engines and light-duty truck featuring an additional anti-lock braking system. An parts for three moped and two scooter models with engines ranging in upgraded F-Series heavy-duty truck will also be introduced in 2020. capacity from 115cc to 150cc.

Yamaha continues to dominate the local motorcycle segment with a market share of 50%, up from 47% in 2018. This contributed to HYMM’s revenue and PBT for the nine-month financial year exceeding its targets by 6.3% and 3.3% respectively.

During the financial year, two scooter models – namely the B92 (LNR125) and BF4 (LNS125) – were upgraded, contributing to an increase in the company’s market share. To meet an anticipated growth in demand, HYMM is enhancing its production capacity to 22,000 units per month from 19,100 units currently. During the year, it reduced its CT from 0.65 minutes to 0.60 minutes in September and then to 0.55 minutes in December by increasing its assembly job stations from 39 to 43. This increased its assembly line capacity by 15%.

Meanwhile, continued focus on its Total Productive Maintenance programme contributed to an assembly overall equipment effectiveness (“OEE”) of more than 97% and a machining OEE of more than 91%. HYMM also maintained its gold rating for the implementation of Shikkari Kihon manufacturing principles; and scored 3.7 points (exceeding its target of 3.5 points) for Yamaha Global Standards practices (Hyoujun Soubi) in a Yamaha Motor Company Limited Japan audit conducted from 16 to 20 September 2019.

In addition, for the second consecutive year, HYMM won two Global Benchmarking Awards at the Yamaha Japan Annual Monozukuri 2019. These were for Best Performance Assembly and Best Improvement Crankcase Machining Line. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 111

PHN Industry Sdn. Bhd. (“PHN”)

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 Oriental Summit Industries Sdn. Bhd., one of the largest chassis parts manufacturers in the country; and DRB-HICOM Mechatronics Sdn. Bhd., a supplier of automotive batteries and electrical/electronic devices. In recent years, PHN has diversified into the non-automotive sector via the aerospace industry and the production of premium fan blades, industrial air filters and the assembly of agricultural vehicles. PHN operates out of nine plants in Malaysia.

In 2019, PHN received numerous new contracts from major customers such as PROTON, Honda and Perodua. To support the growing needs of PROTON, it established a new FIF plant in Tanjong Malim which commenced operations in November. It also completed the Pegoh 2 Plant in August to support business growth with Honda Malaysia.

Along with contracts, PHN also received several awards. These include the Excellent Technology Development Award by Geely in March; the Environment Appreciation and Best Delivery awards from Honda Malaysia in April; and PSSB Performance Award, PSSB Best Quality Award and PSSB Best Delivery Award from Perodua in December 2019.

The year 2020 will be busy for PHN with many new models from OEMs such as PROTON, Honda, Perodua, Mitsubishi and VW in the production pipeline. This is in addition to models in the development stage at Honda, Perodua and Toyota. Apart from automotive, PHN is working with CTRM, SAM Engineering & Equipment (M) Berhad (“SAM”) and Aerospace Composites Malaysia Sdn. Bhd. to manufacture aerospace components, while growing its business with customers such as Camfil France and Bafco USA.

Having garnered the biggest domestic market share, PHN is now more than ready to establish a footprint outside Malaysian shores. In terms of export, it is pursuing the possibility of supplying stamping parts to BMW Germany. For non-automotive components, it has plans to export parts to Camfil France and Bafco USA. PHN is also working on developing its presence in the aerospace industry through the delivery of metallic machining parts via CTRM, Collins, SAM and ACM. 112 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Automotive Sector

DEFENCE DIVISION DRB-HICOM Defence Technologies Sdn. Bhd. (“DEFTECH”)

DEFTECH is a key player in the local defence and security industry, • Medium Altitude Long Endurance (“MALE”) Unmanned Aerial Vehicle focused specifically on land and aerospace domains. Its two main (“UAV”): DEFTECH is partnering Turkish Aerospace in bidding for this customers are the Ministry of Defence (“MINDEF”) and Ministry of Home programme, which forms part of RMAF’s CAP 55 plan. Affairs. • Maintenance & Spare Parts contract for AV-8: DEFTECH is in In 2019, the Government’s Budget for Defence and Security totalled various stages of commercial negotiations with the original RM30.9 billion, nominally higher than RM29.6 billion in 2018. This vendors in securing this programme with MINDEF. relatively low budget, together with non-finalisation of pending • Soft Skinned Vehicles and Trucks: DEFTECH seeks to supply these contracts for maintenance, repair and overhaul (“MRO”) as well as a speciality vehicles to various security agencies within the Ministry slight shortfall in delivery of the armoured vehicle GEMPITA (“AV-8”) of Home Affairs, including the 4x4 Light Tactical Vehicles for Border contract, led to an overall decrease in DEFTECH’s revenue year-on-year. Patrol and three-tonne trucks for the Royal Malaysian Police. The AV-8 contract continued to be the principal source of revenue, at RM648.0 million. This was followed by revenue from Handalan light The company will also continue to participate in tenders related to areas utility truck spares, at RM13.6 million; and MRO which brought in RM4.1 of its core capabilities such as trucks, UAVs and speciality vehicles for million. Government agencies such as the Fire Brigade, Malaysian Maritime Enforcement Agency and Customs. Looking ahead with the Government’s Defence and Security budget for 2020 being set at RM32.5 billion, a 5.2% increase from 2019, it will Securing the programmes outlined above would sustain DEFTECH’s contribute to several ongoing programmes such as the Army Mobility business operations at least until 2030. Additionally, in the aerospace Phase 2 (2021-2025) and Royal Malaysian Air Force (“RMAF”)’s segment, the value of DEFTECH’s contract with RMAF and Police Air Capability Development 55 Programme (“CAP 55”). DEFTECH seeks to Wing is increasing. Meanwhile, DEFTECH Unmanned System be part of these programmes and is actively pursuing the following in Technology continues to pursue more Company Owned Company order to secure an increase in revenue: Maintained business with MINDEF while exploring other opportunities with Malaysian Remote Sensing Agency and PETRONAS. • Armoured Wheeled Vehicle AV-6: DEFTECH is leveraging its experience from the AV-8 programme to secure the AV-6 programme, which will be one of its key revenue generators. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 113

AEROSPACE DIVISION Composites Technology Research Malaysia Sdn. Bhd. (“CTRM”)

CTRM is a leading composites aero-structure manufacturer in ASEAN, recently awarded the contract to develop vertical axis wind turbines, and the first Asian composites manufacturer with a Nadcap AC7122- creating the potential for CTRM CE to venture into the manufacture of accredited test lab. It is also rapidly building its non-aero structures large-scale wind turbines utilising the autoclave manufacturing business. process, similar to structural components for aerospace.

CTRM Group recorded a revenue of RM731.47 million for the nine- In 2019, CTRM Testing Laboratory (“CTRM TL”) diversified its product month financial year, with the A320/A321 single aisle, B787 Fan Cowl, offering through the introduction of calibration services, repair, A350 Fan Cowl, A350 J-Nose and A350 Root End Fix Fairing programmes maintenance and retailing of balance and scales. It is also expanding its being major contributors. PBT came in at RM34.89 million with a margin capabilities in partnership with renowned global laboratories. This will of 4.8%. This was partly affected by cessation of the A380 programme enable the company to offer more services to external parties in various by Airbus, resulting in a write-off of RM24.35 million. industries including oil and gas, electronics, construction and automotive. Going forward, the A320 and A350 programmes will continue to be the main volume drivers, with the wing and nacelle segments expected to In terms of accreditation, the lab has added another scope under ISO contribute 53.5% and 43.8% of total revenue from FY2020 to FY2030. 17025 hence is now accredited for a total of 29 testing scopes. CTRM TL also received a 24-month audit exemption for NADCAP AC7122 Non Within the non-aero structure business, CTRM Composites Engineering Metallic Material Testing and 18-month ISO 17025:2017 audit (“CTRM CE”) is building reputable relationships with major OEMs in the exemption based on excellent reassessments by external auditors. aircraft interiors, Satellite Communication and wind energy industries, and has cemented its quality management by being certified with the Going forward, CTRM has outlined a clear roadmap for its business AS9100 in 2019. expansion focused on research & technology, operational and infrastructure excellence, supply chain, people development and In the aircraft interiors segment, CTRM CE is developing a new seat sustainability. Together with space optimisation initiatives and the design for HAECO using press moulding. It is also in discussions with a completion of a new 200,000 sq ft building, it will have the physical major Airbus vendor on the supply of composite lavatory components. space to accommodate expanded production needs with minimum At the same time, CTRM CE is continuing to work on repeat and new capital expense. orders for reflectors, antenna mounting structures and Radome. It has also submitted quotations for contracts amounting to more than USD1 million per year. In terms of wind energy, the company was 114 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Services Sector

DRB-HICOM is involved in a range of services through our subsidiaries, from postal and logistics services under the Pos Malaysia Group; vehicle inspection under PUSPAKOM ; and banking offered by Bank Muamalat; to tertiary education provided by DRB-HICOM University. In 2019, we exited the waste management industry upon the sale of Alam Flora to Malakoff Corp Bhd.

POSTAL & LOGISTICS Pos Malaysia Berhad (“Pos Malaysia”) impairment of RM90.6 million for the Logistics business, aircraft With a history of over 200 years as the nation’s postal service provider, redelivery cost of RM28.6 million, and continuous double-digit decline Pos Malaysia has an extensive network of more than 3,700 touch points in mail volume. across the country. Leveraging this unique asset, as well as a fleet of freighter aircraft, bulk carrier vessels, prime movers, trailers, lorries and Revenue from Postal Services decreased by 12% to RM446.5 million, delivery vehicles, it is transforming into an end-to-end logistics partly buttressed by 10% year-on-year growth in Retail services due to solutions provider. Today, it has four core businesses, namely Postal strong sales from general and life insurance products, offered in Services, Courier, Aviation and Logistics. partnership with 16 insurance companies in Malaysia. The Courier segment was impacted by malware attack in October 2019 resulting in In recent years, the group has been impacted by a systemic decline in the loss of one-and-a-half months of parcel volume and two months traditional mail volume, but has been compensating for it by focusing of bulk mail volume. This contributed to a 1.2% decline in revenue to on its other businesses. RM619.1 million. The Aviation business also saw its revenue decrease, For the nine-month financial year ended December 2019, Pos Malaysia by 8.8%, to RM203.6 million as a result of lower cargo tonnage. More recorded a 4.4% decrease in revenue to RM1.68 billion and a total loss positively, Logistics registered a marginally higher (1.7%) revenue of before tax of RM241.9 million. The latter was due primarily to goodwill RM232.1 million, mainly contributed by growth in its automotive DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 115

logistics business along with increased PROTON sales volume and new business ventures, including specialised logistics services to Linde and Central Sugar Refinery.

Moving forward, Pos Malaysia will be able to move its transformation initiatives into higher gear in 2020 with the support of increased postal tariffs. A milestone was achieved in February 2020, when the Government agreed to an increase in postal rates, for the first time since 2010. This marks a fresh beginning for our postal and logistics arms, which we believe will begin to generate healthy returns once again.

The Group will focus on revenue growth in line with the rapid e-Commerce boom while embarking on operational efficiencies to improve its cost structure in the long run. Among the initiatives to support this goal include promotion of its online shipping platform SendParcel as well as the revamped Pos Mobile App, expanding its courier touchpoints through agent outlets, and improving the utilisation of its parcel lockers across 250 locations nationwide.

At the same time, Pos Logistics has identified certain legacy issues related to operational inefficiencies which need to be rectified, and is exploring the rationalisation of selected businesses and assets as it moves towards higher-yielding services.

As Pos Malaysia scales up its courier business, it is investing in greater digitalisation of its retail and core systems, including its track and trace functionality to improve the customer experience. On top of the modernisation of its ICT architecture and security, investments in parcel sorting automation will further reduce processing costs whilst increasing efficiency, capacity and speed.

With containment of losses from postal services, Pos Malaysia’s management will be able to focus on realising the full potential of its other core businesses and is looking at a complete turnaround in 2020.

CONCESSIONAIRES PUSPAKOM Sdn. Bhd. (“PUSPAKOM”)

PUSPAKOM, which celebrated its 25th anniversary in 2019, is the only all inspection centres nationwide and PUSPAKOM’s mobile inspection Government appointed vehicle inspection company in Malaysia. It service. It also includes an e-wallet function which allows customers to conducts mandatory inspections for commercial vehicles, including pay for services digitally. Another value-added innovation was to e-hailing vehicles, at its 54 centres nationwide. For greater customer introduce On-Board Diagnostics, enabling vehicle owners to check the convenience, PUSPAKOM also has a fleet of more than 30 mobile units performance status of the various sub-systems in their vehicles, and 30 inspection visiting sites that serve customers in Malaysia’s less ensuring a high level of overall safety. populated and rural areas. In response to increased service demand, PUSPAKOM now offers In recent years, PUSPAKOM has been focused on further enhancing its seven-days-a-week service at its inspection centres in Wangsa Maju, service delivery. This saw the agency launch its MyPUSPAKOM Kuala Lumpur; Padang Jawa, Selangor; Mak Mandin, Penang; and Johor application (“app”) in 2017, primarily for use of customers to book Bahru, Johor. appointments on-line. By 2018, the app had been made applicable for 116 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Services Sector

Enhancing its customer service, PUSPAKOM it also conducted briefings at various locations nationwide to explain inspection procedures to e-hailing drivers for whom vehicle inspections was made mandatory as of April 2019.

With additional inspection for e-hailing vehicles, PUSPAKOM recorded 6.1% growth in revenue to RM116.99 million in 2019. Meanwhile, PBZT increased 1.4% to RM10.99 million and the company’s net profit increased by 4.3% to RM8.11 million year-on-year.

Going forward, the PUSPAKOM seeks to diversify and expand its service. Focus will be given on transforming into a one-stop centre where vehicle owners can perform various functions such as road tax and motor insurance renewal. Following approval from the Ministry of Transport and the Road Transport Department (“RTD”), PUSPAKOM will be offering road tax renewal services at all its inspection centres in stages. Other services currently offered by RTD are expected to follow suit.

PUSPAKOM will also continue to innovate to further raise its service standards. To meet the high demand for mobile inspection services, it will expand its mobile service fleet to provide door-to-door service in as yet untapped markets. At the same time, it will continue to promote more voluntary inspection to private car owners and expand its portfolio of service offerings to become the go-to centre for all vehicle owners’ needs.

OTHER SERVICES Bank Muamalat Malaysia Berhad (“Bank Muamalat”)

Bank Muamalat is a full-fledged Islamic banking institution, with 65 branches across the country and RM22.8 billion in assets. Taking Shariah principles a step further, it is a member of the Global Alliance for Banking Values.

For the nine months period ended December 2019, the Bank posted a PBZT of RM140.3 million, 8.0% lower year-on-year. At the same time, the Bank’s gross financing base increased by 4.9% to RM16.0 billion, and its gross impaired financing ratio improved to 1.31% from 1.43% as at March 2019 as a result of concerted efforts to improve its asset quality.

In view of a changing and challenging macroenvironment, Bank Muamalat conducted an extensive review of its position in the banking industry, and developed a five-year business plan to ensure sustainable growth. The plan focuses on seven strategic areas, which are explained below.

Strategic Area Action Plan

Resetting target market • Shift the Bank’s customer profile from low to mid-income earners, including SMEs, by introducing more sophisticated products

Disciplined balance sheet • Focus on asset quality that is above the industry average while increasing the number of current management accounts/savings accounts to move away from higher-cost funding segments. • The Bank also seeks to achieve the right balance between meeting liquidity requirements and managing its profitability

Digitalisation • Digitalisation will enhance its operational efficiency as well as customer delivery, and therefore it is investing into digital platforms and seeks to be one of five banks to be awarded a digital banking licence by Bank Negara Malaysia

Data monetisation • To leverage data from its more than 640,000 customers, the Bank is introducing artificial intelligence to be able to conduct prescriptive and descriptive analysis in order to maximise product holdings

Infrastructure • Going digital also means a focus on setting up more sales centres that utilise online platforms rather than building more branches in order to grow its business more cost effectively

Shariah-led innovation • Future products will be based on the most appropriate Shariah-compliant financing solution, and more emphasis on new product development

Talent management & succession • In November, Bank Muamalat formed a Talent Management Council to identify a talent pool and embark planning on succession planning

Guided by its seven strategic focus areas, the Bank has started addressing issues that have been holding back its growth in the past. This, together with adherence to the principles of values-based banking, will ensure sustainable growth. For the year 2020 itself, the Bank is targeting a PBZT of RM246 million, a 31.5% improvement as compared to the annualised PBZT of the preceding financial year. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 117

DRB-HICOM University of Automotive Malaysia (“DRB-HICOM University”)

DRB-HICOM University started out in April 2010 as the International College of Automotive, and acquired full-fledged university status in October 2015. The 42-acre campus, strategically located within the DRB-HICOM Automotive Complex in Pekan, houses two faculties namely the Faculty of Engineering & Technology (“FOE″) and Faculty of Business & Management (“FOB″). Currently the university offers 46 programmes at the foundation, diploma, degree and post-graduate levels with emphasis on the automotive ecosystem.

The university’s curriculum is a balanced blend of theory and practical using the concept of “University by the industry, for the industry”. Some of its programmes adopt the 2-year university, 2-year industry model, leveraging the fact that students have access to DRB-HICOM’s extensive automotive ecosystem.

For the 2019/20 academic year, the university had an intake of 485 students and a total enrolment of 1,050 students. Of these, 28 are international students, with 19 from China. Total enrolment in the Postgraduate Centre increased 27.9% from 49 in FY2018/2019 to 68 in FY2019/2020. This is due in part to DRB-HICOM U’s reputation for having a strong focus on research.

Intake by Programme Level

80 132 55 133 221 148 7 27 12 7 150 38 250

200

150

100

50

- Foundation Diploma Degree Master PhD NGS

FY 2018/2019 FY 2019/2020

In 2019, the university received two research grants amounting to RM202,700, while its research students published a total of 23 papers. The quality of research at the university is reflected in the awards won. During the year, DRB-HICOM U’s faculties won five silver awards at the International Invention, Innovation & Technology Exhibition 2019, five bronzes at the Malaysia Technology Expo, a total of five awards at the Novel Research and Innovation Competition; and another five awards at the International Conference and Exposition on Inventions by Institutions of Higher Learning 2019.

It also organised its first Research Colloquium between 26 and 27 September 2019, which was open to all postgraduate students, internal as well as external researchers. The colloquium saw 15 posters and 20 papers presented by its academic staff and students.

The quality of the university’s programmes are backed by appropriate accreditations. To ensure relevance to industry needs, the FOE underwent a degree programme rationalisation initiative that identified three programmes to be phased out. The rationalisation programme will be extended to the FOB as well as the other academic departments to better reflect market demand and supply.

The university offers strong pastoral care via the Student Development & Wellbeing Unit and Guidance & Counselling Unit under the Student Affairs Department. Meanwhile, the Language, Cultural & International Centre offers a number of language programmes to ensure all students are sufficiently proficient in the English Language.

For the 2020/21 academic year, the university expects to enrol 500 new students through improved marketing, product quality and collaboration. DRB-HICOM U also plans to build a corporate training centre to fulfil the professional training needs of employees throughout the Group and beyond. 118 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Properties Sector

DRB-HICOM is involved in property development, concession development and construction, as well as asset and facilities management. Through our subsidiaries, we are developing a residential project in Johor, Proton City in Perak, an industrial park in Melaka, and theMedia City in Kuala Lumpur. We are also managing the newly completed ICQS Complex in Bukit Kayu Hitam, Kedah under a concession. Some leisure properties are in the process of being divested as part of a strategy to focus on industrial properties.

PROPERTY DEVELOPMENT Glenmarie Properties Sdn. Bhd. (“GPSB”)

GPSB, the Group’s property arm, is involved in the development of Phase 1C of Glenmarie Johor, comprising 56 units of semi- Glenmarie Johor, a 69-acre residential enclave in Tebrau, and the HPP in detached units and cluster homes, was launched in April 2018. The Melaka. semi-detached units have an approximate built-up area of 3,200 sq. ft. while the cluster homes measure 2,720 sq. ft. with standard • Glenmarie Johor – GPSB is currently developing Phase 1 of this land areas of 40’ x 80’ and 34’ x 80’ respectively. Prices range from freehold mixed residential development comprising a total of 477 RM1,098,000 to RM1,398,000 for standard units. To date, link houses, semi-detached units and cluster homes. Located at approximately 50% of the units have been taken up. the epicentre of Johor’s bustling and mature Tebrau region, the address is sought-after due to its proximity to Johor Bahru’s • HPP – Spanning 729 acres, the premier integrated industrial estate central business district as well as the Malaysia-Singapore is one of the largest freehold industrial parks in Melaka. It is, Causeway. moreover, strategically located along the North South Expressway and easily accessible via the Alor Gajah/Simpang Empat Interchange in Alor Gajah, Melaka. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 119

To date, some 326 acres of the industrial estate has been developed; and approximately 94% of the land has been sold.

For the nine-month financial year, GPSB sold approximately 3.5 acres of industrial land in Phase 2A and approximately 18 acres in Phase 3 at prices between RM25.00 and RM27.00 per sq. ft.

Proton City Development Corporation Sdn. Bhd. (“PCDC”)

PCDC is responsible for the development of Proton City, a 4,000-acre On-going sales efforts are concentrated largely on the affordable township in Tanjong Malim, Perak comprising residential, commercial, housing range. In July 2018, PCDC launched a total of 130 units of institutional as well as industrial parcels including Universiti Pendidikan mixed single-storey and 1½-storey link houses on standard lot sizes of Sultan Idris and the state-of-the-art PROTON manufacturing facility. 22’ x 70’. The single-storey units have built-up areas of 1,000 sq. ft. The entire development is dotted by lakes, which add to a sense of while the 1½-storey link houses measure 1,586 sq. ft. Prices range from holistic well-being. RM279,000 and RM390,000 respectively. To date, approximately 58% of the units have been sold. 120 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

BUSINESS REVIEW Properties Sector

CONCESSION DEVELOPMENT AND CONSTRUCTION Media City Development Sdn. Bhd. (“MCDSB”) Northern Gateway Infrastructure Sdn. Bhd. (“NGISB”)

DRB-HICOM has 51% equity in MCVSB, the parent company of MCDSB, NGISB, our 100%-owned subsidiary, holds a 28-year concession from which holds a 23-year concession from the Government to upgrade the the Government beginning 14 June 2014 to develop and subsequently existing Angkasapuri Complex into Media City and to develop and own manage a new ICQS Complex in Bukit Kayu Hitam, Kedah. a new commercial component within Angkasapuri. Once completed, A milestone was achieved on 26 June 2019 when Phase 2 of the Media City will boast the latest broadcasting technology and complex was completed, following completion of Phase 1 on 1 infrastructure to support a comprehensive digital high-resolution November 2017. Being directly connected to the highway at the northern broadcast network. part of Peninsular Malaysia, the RM425 million ICQS complex eases Phase 1 of redevelopment of Angkasapuri, estimated at RM860 million, traffic congestion to offer a smoother border-crossing experience from is scheduled to be completed in stages from 2018 to 2020. This will be and to Thailand, while providing better security facilities. followed by development of the new commercial component under NGISB now manages the complex, carrying out Integrated Facility Phase 2 of the project. Maintenance works until expiry of the 28-year concession period. The The Government accepted the first stage of the project, known as Lease ICQS Bukit Kayu Hitam complex serves more than three million 1, on 11 March 2019 prior to the nation-wide termination of the analog travellers and one million vehicles a year. terrestrial transmission. Lease 1 has garnered returns through lease NGISB has garnered returns through lease payments and maintenance payments and maintenance fees from the Government. The second fees since acceptance of the complex by the Government. stage, Lease 2, is on track for delivery in the second quarter of 2020. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 121

ASSET AND FACILITY MANAGEMENT Glenmarie Golf & Country Club (“GGCC”)

As one of the most prestigious golf courses and club houses in the country, GGCC regularly attracts high-profile tournaments. During the financial year, it was the chosen venue for the 36th ASEAN Senior Amateur Championship, the Professional Golf of Malaysia (“PGM”) Northport Championship, 14th Ambank Group – SportExcel International Junior Golf Championship, Astro Masters 2019 and Era Sport Hainan Junior Golf 2019. Total revenue from membership and events for the financial period amounted to RM15 million.

Holiday Inn Kuala Lumpur Glenmarie (“HIKLG”)

HIKLG is a business and leisure resort-styled hotel, neighbouring the GGCC. 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 44.6%, with revenue totaling RM13.5 million.

Vivanta by TAJ – Rebak Island, Langkawi

Vivanta by TAJ, Rebak Island, Langkawi is a luxury resort under the globally renowned TAJ brand. Offering the allure of staying on a private island, the five-star resort continues to be a popular choice among local and foreign tourists achieving an occupancy rate of 59% and revenueof RM15 million for the period under review. 122 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 123

THE NEW NORMAL 124 A Note on the COVID-19 Pandemic 124 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

A NOTE ON THE COVID-19 PANDEMIC On 11 March 2020, the World Health Organisation declared the latest For small and medium-sized enterprises, various funds were made Coronavirus outbreak, the COVID-19 as a global pandemic. On 16 March available to the tune of RM4.5 billion, covering low interest loans, 2020, the Government announced a Movement Control Order (“MCO”) to collateral-free micro financing schemes and loan guarantees. curb the spread of the virus in the country, and it began on Wednesday 18 DRB-HICOM has implemented various measures to mitigate the impact March 2020. Many countries worldwide too had their own versions of an of COVID-19 to the Group’s businesses. Prior to the MCO, a COVID-19 MCO, and this meant that almost all economic activities globally ceased, Task Force was established to design work protocols for the Group, and except for essential services such as medicare, defence, banking, waste to disseminate information related to the pandemic across the management and postal services. This triggered significant disruptions businesses. to businesses worldwide, resulting in an economic slowdown. Essentially, a Business Recovery Task Force (“BRTF”) was also set up at This has also brought major economic uncertainties in Malaysia within the beginning of the MCO. The BRTF is chaired by the Group Managing which the DRB-HICOM operates. During the MCO, the Group’s businesses Director, and is aimed at establishing the needs and requirements of the listed as essential services had different levels of operations as listed in Group’s businesses, and to identify critical tipping points that will assist Appendix 1. the management of the companies to navigate the choppy waters of this The DRB-HICOM Group and its auditors have determined there is no economic crisis. It will also serve to identify opportunities that exist evidence that the COVID-19 outbreak existed prior to the financial period within the Malaysian economy that the Group can take advantage of. ended 31 December 2019, and have accordingly assessed it to be a non- As COVID-19 still exists and a vaccine is still some time away, the adjusting event. Consequently, there is no impact on the recognition and situation is still evolving and unpredictable. This means the Group is measurement of assets and liabilities as at 31 December 2019. unable to estimate the financial impact of the MCO and consequential On 27 February, 27 March and 6 April 2020, the Government announced economic fallout in the current financial year ending 31 December 2020. economic stimulus packages to help both individuals and businesses However, it is clear that it will have certain adverse effects on the Group’s alleviate the impact of the pandemic. These include duty and tax businesses and financial performance. The Group is actively monitoring exemptions, cash assistance, statutory payment deferrals, moratoriums and managing the situation including taking appropriate measures to for loans and wage subsidy programmes, all covering both public and minimise the impact of COVID-19 on the Group’s operations. private sector employees. The larger Prihatin Rakyat Economic Stimulus Package was worth RM250 billion or 17% or the Gross Domestic Product. DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 125

APPENDIX 1

Company Sector Mode of Operations Period

• Selected post offices closed Pos Malaysia Postal & integrated logistics • 18 March to end of MCO • Work from home • Selected branches opened Bank Muamalat Islamic Banking • 18 March to end of MCO • Work from home

Holiday Inn Kuala Lumpur Glenmarie Leisure • Closed • 18 March to 3 May

Glenmarie Golf & Country Club Leisure • Closed • 18 March to 3 May

• Opened 18 to 20 March, and then closed under instruction • Partially opened PUSPAKOM Vehicle inspection • Reopened commercial • Work from home vehicle inspection on 29 April • Full operations from 11 May • Essential MRO services DEFTECH Defence industry • 18 March to end of MCO out of Nilai • 18 March to present • Pending National Security DRB-HICOM University Education • On-line classes Council directive to allow full operations

DRB-HICOM Berhad observed the work from home protocol for Wisma DRB-HICOM staff beginning 18 March 2020 and went back to partial operations from the headquarters on 6 May 2020. Swapping every work week, 50% of headquarters staff will operate from office and another 50% will work from home until 31 July 2020. This is intended to limit their exposure to COVID-19 and manage social distancing more effectively at Wisma DRB-HICOM. 126 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 127

FINANCIAL STATEMENTS

128 Directors’ Report 134 Statements of Comprehensive Income 137 Consolidated Statement of Financial Position 139 Company Statement of Financial Position 140 Consolidated Statement of Changes in Equity 144 Company Statement of Changes in Equity 145 Statements of Cash Flows 155 Notes to the Financial Statements 352 Statement by Directors 352 Statutory Declaration 353 Independent Auditors’ Report 128 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

DIRECTORSʼ REPORT 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 nine months financial period ended 31 December 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 period except for the disposal of a solid waste management subsidiary company as disclosed in Note 10.

Information relating to the subsidiary companies, joint ventures and associated companies are described in Note 3 to the financial statements.

FINANCIAL RESULTS

Group Company RM’000 RM’000

Net profit for the financial period 439,124 189,298 Attributable to: Owners of the Company 358,969 129,437 Holders of Perpetual Sukuk 59,861 59,861 Non-controlling interest 20,294 - 439,124 189,298

DIVIDENDS

Dividends paid and proposed by the Company since 31 March 2019 were as follows:

RM’000 In respect of the financial year ended 31 March 2019: Single tier first and final dividend of 3.0 sen per share, approved on 12 September 2019, paid on 11 October 2019 57,997

The Directors recommend the payment of a single tier first and final dividend of 2.0 sen per share amounting to RM38,664,741 in respect of the financial period ended 31 December 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 period.

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DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 129

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

DIRECTORS’ REPORT (Continued)

RESERVES AND PROVISIONS

All material transfers to or from reserves and provisions during the financial period are disclosed in the financial statements.

SIGNIFICANT AND SUBSEQUENT EVENTS

The details of significant and subsequent events are as disclosed in Note 58 to the financial statements.

DIRECTORS OF THE COMPANY

The Directors of the Company who have held office since the beginning of the financial period to the date of this report are:

Dato’ Mohammad Zainal bin Shaari (Chairman) Dato’ Sri Syed Faisal Albar bin Syed A.R Albar (Group Managing Director) Datuk Ooi Teik Huat Dato’ Ibrahim bin Taib Datuk Idris bin Abdullah @ Das Murthy Sharifah Sofia binti Syed Mokhtar Shah Dato’ Siti Fatimah binti Daud (Resigned on 15 November 2019) Tee Beng Thong (Resigned on 29 May 2020)

DIRECTORS’ INTERESTS

According to the Register of Directors’ Shareholdings, none of the Directors of the Company in office at the end of the financial period held any interests in the shares of the Company or its related corporations during the financial period.

DIRECTORS’ BENEFITS

During and at the end of the financial period, 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 other than as disclosed in Note 54.

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.

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130 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (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 period to the date of this report:

Dato’ Sri Syed Faisal Albar bin Syed A.R Albar Tan Sri Dato’ Dr Mohd Munir bin Abdul Majid Dato’ Ibrahim bin Taib Gen. Tan Sri Dato’ Sri Roslan bin Saad RMAF (R) Datuk Idris bin Abdullah @ Das Murthy Lt. Gen. Dato’ Shahrani bin Mohd Sany (R) Dato’ Jezilee bin Mohamad Ramli Dato’ Bahar bin Ahmad Sharifah Sofia binti Syed Mokhtar Shah Dato’ Dr. Adnan bin Alias Shaharul Farez bin Hassan Dato’ Haji Che Pee bin Samsudin Amalanathan Thomas Dato’ Haji Kamil Khalid Ariff Aminah binti Othman Dato’ Ibrahim Mahaludin bin Puteh Abd Aziz bin Miskon Dato’ Lim Tiong Boon Ahmad Suhaimi bin Endut Dato’ Md Radzaif bin Mohamed Ain bin Saim Dato’ Sri Che Khalib bin Mohamad Noh An Conghui Dato’ Sri Solah bin Mat Hassan Azlan bin Ash’ari Dato’ Tung Kok Sing Azman Hanafi bin Abdullah Dato’ Wong Lum Kong Azri bin Zaharuddin Datuk Kamarudin bin Md Ali Chai Lai Sim Datuk Puteh Rukiah binti Abd Majid Chang Yeong Gung Michael Derin David Castell Arenillas Mohamed Fadzil bin Sulaiman David Chan Mun Wai Mohammed Shukor bin Ismail Dr. Azura binti Othman Ng Kong Chin Dr. Li Chunrong Norahmadi bin Sulong Elias bin Effendy PeerMohamed bin Ibramsha Fakihah binti Azahari Rin Nan Lun Feng Qingfeng Rin Nan Yoong Ghazali bin Haji Darman Shamsuddin bin Mohamed Yusof Hamizan bin Osman Shoichi Araya Hiroshi Hasegawa Shuhaida binti Nun Ho Chun Foh Soo Thean Hin Kamil Ahmad Merican Syed Md Najib bin Syed Md Noor Khairul Anuar bin Hasan Tang Hon Shan Koon Chee Wah Winfried Vahland Li Donghui Xu Yuan, Steven Lim How Ghee Yoshiya Inamori Toshihide Saito (Alternate Director to Wong Yoke Kow (Alternate Director to Dato’ Shoichi Araya) Wong Lum Kong) Dato’ Haji Mohd Zain bin Haji Hassan * Eigo Konya * Dato’ Mohamad bin Saif @ Saib * Naoki Kawaguchi *

* The companies of which these Directors have held office ceased to be the subsidiary companies of the Group during the financial period.

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DRB-HICOM BERHAD 199001011860 (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 period to the date of this report: (Continued)

Tan Sri Dr. Ali bin Hamsa (Appointed on 1 April 2019) Datuk Yasmin binti Mahmood (Appointed on 1 April 2019) Martin Brune (Appointed on 8 April 2019) Muhammad Fateh Teh bin Abdullah (Appointed on 23 May 2019) Khairul bin Kamarudin (Appointed on 25 June 2019) Yohan bin Mokhtar (Appointed on 28 June 2019) Mohamed Rozaidi bin Md Sharif (Appointed on 13 August 2019) Shen Ziyu (Appointed on 13 August 2019) Azahar bin Ariff (Appointed on 30 August 2019) Iwan Rashman bin Gulamoydeen (Appointed on 1 September 2019) Md Khairuddin bin Haji Arshad (Appointed on 10 September 2019) Ahmed Fairuz bin Abdul Aziz (Appointed on 19 September 2019) Mohd Faishal bin Kassim (Appointed on 7 October 2019) Woo Kam Weng (Appointed on 15 October 2019) Wang Huaibing (Appointed on 18 November 2019) Dato’ Mohammad Zainal bin Shaari (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) Dato’ Abdul Rashid bin Musa (Resigned on 28 June 2019) Dato’ Hilmi bin Mohd Noor (Resigned on 3 July 2019) Dato’ Abdul Hamid bin Sh Mohamed (Resigned on 20 August 2019) Dato’ Azlan bin Shahrim (Resigned on 30 August 2019) Dato’ Haji Mohd Izani bin Ghani (Resigned on 31 August 2019) Dato’ Haji Mohd Redza Shah bin Abdul Wahid (Resigned on 31 October 2019) Dato’ Siti Fatimah binti Daud (Resigned on 15 November 2019) Pang Li Jun (Resigned on 18 November 2019) Dato’ Haji Amril bin Samsudin (Resigned on 6 February 2020) Dato’ Haji Mohd Fuad bin Abd Latiff (Demised on 25 April 2020)

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 expected credit losses and had satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for expected credit losses; 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.

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132 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

DIRECTORS’ REPORT (Continued)

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS (Continued)

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 expected credit losses 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 nine months after the end of the financial period 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 period 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 period.

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 period 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 period 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 period in which this report is made.

HOLDING COMPANY

The Directors regard Etika Strategi Sdn. Bhd., a company incorporated in Malaysia, as the holding company.

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DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 133

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

DIRECTORS’ REPORT (Continued)

CHANGE OF FINANCIAL YEAR END

Following the approval by the Board of Directors, in their resolution dated 8 July 2019, on the change of the financial year end from 31 March to 31 December, the financial year covered in these financial statements is for a period of nine months from 1 April 2019 to 31 December 2019. Consequently, the comparatives for the statements of comprehensive income, statements of changes in equity and statements of cash flows as well as certain comparatives in the notes to the financial statements of the Group and of the Company are not comparable to those of the previous twelve months ended 31 March 2019. Thereafter, the financial year of the Group and of the Company shall revert to twelve months ending 31 December, for each subsequent year.

AUDITORS

The auditors’ remuneration are disclosed in Note 6 to the financial statements.

The auditors, Ernst & Young PLT have expressed their willingness to continue in office.

Signed on behalf of the Board in accordance with a resolution of the Directors dated 29 May 2020.

DATO’ MOHAMMAD ZAINAL BIN SHAARI Chairman

DATO’ SRI SYED FAISAL ALBAR BIN SYED A.R ALBAR Group Managing Director

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134 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia) STATEMENTS OF COMPREHENSIVE INCOME

SFORTATEMENTS THE FINANCIAL OF COMPREHENSIVE PERIOD ENDED INCOME 31 FOR DECEMBER THE FINANCIAL 2019 PERIOD ENDED 31 DECEMBER 2019

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 Note RM’000 RM’000 RM’000 RM’000 Continuing operations: Revenue 4 9,998,149 11,620,691 642,713 644,254 Cost of sales 5 (8,331,130) (9,569,859) - - Gross profit 1,667,019 2,050,832 642,713 644,254 Other income 297,237 259,540 32,111 14,115 Selling and distribution costs (196,688) (263,969) - - Administrative expenses (1,219,165) (1,562,061) (101,511) (43,042) Other expenses (420,709) (150,520) (279,546) (463,726) Finance costs 9 (344,627) (375,720) (102,658) (134,075) Share of results of joint ventures (net of tax) 19(e) 7,659 40,877 - - Share of results of associated companies (net of tax) 20(h) 92,742 179,706 - - (Loss)/profit before taxation from continuing operations 6 (116,532) 178,685 191,109 17,526

Discontinued operations: - Gain on disposal of a subsidiary company 514,673 - - - - Profit before taxation 74,320 103,171 - - Profit before taxation from discontinued operations 10 588,993 103,171 - -

Total profit before taxation from continuing and discontinued operations 472,461 281,856 191,109 17,526

Taxation - continuing operations 11 (20,473) (205,486) (1,811) (1,820) - discontinued operations 10 (12,864) (25,179) - - (33,337) (230,665) (1,811) (1,820)

Net (loss)/profit for the financial period/year - continuing operations (137,005) (26,801) 189,298 15,706 - discontinued operations 10 576,129 77,992 - - 439,124 51,191 189,298 15,706

TheThe Group’sGroup's total Revenue for the financial periodperiod endedended 3131 DecemberDecember 20192019 andand the previousprevious financialfinancial yearyear endedended 3131 Marchmarch 20192019 arising arising from from continuing continuing and and discontinued discontinued operations operations are are disclosed disclosed on on page page 9 of the financial statements. 136 of the financial statements. 7

DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 135

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 RM’000 RM’000 RM’000 RM’000 Other comprehensive income/(loss) Items that will not be reclassified subsequently to profit or loss: Net (loss)/gain on fair value changes of equity instrument: financial assets at fair value through other comprehensive income (9,567) (15,418) (17,528) 61,304 Net loss on valuation of post- employment benefit obligations (17) (87) - - Fair value adjustment on transfer of property, plant and equipment to investment properties - 39,490 - - 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 63,858 46,800 - - Currency translation differences of foreign subsidiary companies (2,123) 1,181 - - Reclassification adjustments: Transfer of realised gain on fair value changes of investment securities: financial assets at fair value through other comprehensive income upon disposal (44,300) (17,533) - - Transfer of currency translation differences of a foreign subsidiary company to profit or loss upon liquidation (2,283) - - - Other comprehensive income/(loss) for the financial period/year (net of tax) 5,568 54,433 (17,528) 61,304

Total comprehensive income for the financial period/year 444,692 105,624 171,770 77,010

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136 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 Note RM’000 RM’000 RM’000 RM’000

Net profit/(loss) for the financial period/year attributable to: Owners of the Company 358,969 122,866 129,437 (63,747) Holders of Perpetual Sukuk 59,861 79,453 59,861 79,453 Non-controlling interest 18(h) 20,294 (151,128) - - 439,124 51,191 189,298 15,706 Total comprehensive income/(loss) for the financial period/year attributable to: Owners of the Company 360,074 168,430 111,909 (2,443) Holders of Perpetual Sukuk 59,861 79,453 59,861 79,453 Non-controlling interest 24,757 (142,259) - - 444,692 105,624 171,770 77,010 Basic and diluted earnings per share (sen) 13 18.57 6.36

Further analysis of revenue at Group level is presented as follows:

Financial Financial period year ended 31 ended 31 December March 2019 2019 Note RM’000 RM’000 Revenue - continuing operations 4 9,998,149 11,620,691 - discontinued operations 10 538,157 856,358 10,536,306 12,477,049

The notes set out on pages 155 to 351 form an integral part of the financial statements.

The notes set out on pages 28 to 224 form an integral part of the financial statements.

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DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 137

DRB-HICOM BERHAD 199001011860CONSOLIDATED (203430-W) STATEMENT OF (Incorporated in Malaysia)

FINANCIAL POSITION CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 AS AT 31 DECEMBER 2019

31 31 December March 2019 2019 Note RM’000 RM’000 ASSETS NON-CURRENT ASSETS Property, plant and equipment 14 6,433,898 6,100,951 Concession assets 15 - - Prepaid lease properties 16 - 51,495 Investment properties 17 278,492 294,857 Inventories 28 235,999 234,589 Joint ventures 19 422,923 317,415 Associated companies 20 845,226 805,843 Intangible assets 21 1,335,680 1,563,114 Deferred tax assets 22 212,892 147,213 Investment securities: financial assets at fair value through profit or loss 23(a) - Banking 139,684 156,456 Investment securities: financial assets at fair value through other comprehensive income 23(b) - Banking 2,830,480 4,635,531 - Non-banking 44,748 44,898 Investment securities: financial assets at amortised cost 23(c) - Banking 103,162 102,596 Trade and other receivables 29 1,382,098 1,288,562 Other assets 24 480 504 Banking related assets - Financing of customers 25 11,422,973 11,269,467 - Statutory deposit with Bank Negara Malaysia 26 568,768 699,275 26,257,503 27,712,766 CURRENT ASSETS Assets and disposal groups held for sale 27 499,224 1,275,893 Inventories 28 2,220,513 2,550,799 Trade and other receivables 29 3,048,070 2,932,296 Tax recoverable 31,927 107,709 Investment securities: financial assets at fair value through profit or loss 23(a) - Banking 169,109 504,344 - Non-banking 117,843 164,076 Investment securities: financial assets at fair value through other comprehensive income 23(b) - Banking 1,774,344 300,501 Investment securities: financial assets at amortised cost 23(c) - Banking - 714 Banking related assets - Cash and short-term funds 30 1,065,150 842,508 - Financing of customers 25 3,948,580 3,749,776 Short-term deposits 31 1,161,941 1,039,221 Cash and bank balances 32 1,359,283 1,471,188 Derivative assets 33 21,916 25,035 15,417,900 14,964,060

TOTAL ASSETS 41,675,403 42,676,826

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138 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 (Continued)

31 31 December March 2019 2019 Note RM’000 RM’000 EQUITY AND LIABILITIES EQUITY Share capital 34 1,740,302 1,740,302 Reserves 5,255,610 4,970,161 Equity attributable to Owners of the Company 6,995,912 6,710,463 Perpetual Sukuk 35 623,887 1,051,745 Redeemable Convertible Cumulative Preference Shares 36 669,266 669,266 Non-controlling interest 18(h) 1,553,849 1,584,420 TOTAL EQUITY 9,842,914 10,015,894

NON-CURRENT LIABILITIES Deferred income 37 24,278 26,585 Trade and other payables 45 50,792 64,489 Long-term borrowings 38 4,389,149 3,548,020 Lease liabilities 39.1(a) 330,381 - Redeemable Convertible Cumulative Preference Shares 36 605,421 578,728 Provision for liabilities and charges 40 9,673 11,057 Provision for concession assets 41 - - Post-employment benefit obligations 42 6,005 6,116 Deferred tax liabilities 22 265,492 291,804 Banking related liabilities - Deposits from customers 43 92,614 313,445 - Recourse obligation on financing sold to Cagamas 44 459,633 471,102 6,233,438 5,311,346 CURRENT LIABILITIES Liabilities related to disposal groups held for sale 27 118,541 718,926 Deferred income 37 5,237 6,406 Trade and other payables 45 4,715,115 5,117,896 Provision for liabilities and charges 40 288,753 301,046 Provision for concession assets 41 - - Post-employment benefit obligations 42 256 430 Bank borrowings 46 - Bank overdrafts 8,298 12,959 - Others 1,960,435 2,757,732 Lease liabilities 39.1(a) 73,889 - Tax payable 34,129 11,255 Banking related liabilities - Deposits from customers 43 18,297,233 18,347,717 - Deposits and placements of banks and other financial institutions 47 6,303 6,747 - Bills and acceptances payable 48 8,444 15,678 Derivative liabilities 33 82,418 52,794 25,599,051 27,349,586

TOTAL LIABILITIES 31,832,489 32,660,932

TOTAL EQUITY AND LIABILITIES 41,675,403 42,676,826

TheThe notesnotes set set out out on on pages pages 155 28 to 235124 form an integral part of thethe financialfinancial statements.statements.

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DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 139

DRB-HICOM BERHAD 199001011860COMPANY (203430-W) STATEMENT OF FINANCIAL (Incorporated in Malaysia) POSITION

COMPANYAS AT 31 STATEMENT DECEMBER OF 2019FINANCIAL POSITION AS AT 31 DECEMBER 2019

31 31 December March 2019 2019 Note RM’000 RM’000 ASSETS NON-CURRENT ASSETS Property, plant and equipment 14 14 39 Investment properties 17 130,607 130,607 Subsidiary companies 18 6,217,383 6,234,477 Joint ventures 19 103,444 4,686 Associated companies 20 57,800 57,800 Trade and other receivables 29 343,375 441,589 6,852,623 6,869,198 CURRENT ASSETS Trade and other receivables 29 391,747 482,783 Tax recoverable 3,353 - Short-term deposits 31 775,661 413,034 Cash and bank balances 32 2,042 1,453 1,172,803 897,270

TOTAL ASSETS 8,025,426 7,766,468

EQUITY AND LIABILITIES EQUITY Share capital 34 1,740,302 1,740,302 Reserves 2,487,707 2,433,795 Equity attributable to Owners of the Company 4,228,009 4,174,097 Perpetual Sukuk 35 623,887 1,051,745 TOTAL EQUITY 4,851,896 5,225,842

NON-CURRENT LIABILITIES Long-term borrowings 38 2,367,363 1,299,865 Deferred tax liabilities 22 6,506 5,867 Trade and other payables 45 - 143,740 2,373,869 1,449,472 CURRENT LIABILITIES Trade and other payables 45 643,661 395,381 Bank borrowings - Others 46 156,000 695,014 Tax payable - 759 799,661 1,091,154

TOTAL LIABILITIES 3,173,530 2,540,626

TOTAL EQUITY AND LIABILITIES 8,025,426 7,766,468

The notes set out on pages 155 to 351 form an integral part of the financial statements.

The notes set out on pages 28 to 224 form an integral part of the financial statements.

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140 DRB-HICOM ANNUAL REPORT PERIODENDED |FINANCIAL

CONSOLIDATEDDRB-HICOM BERHAD STATEMENT OF CHANGES IN EQUITY 199001011860 (203430-W) (Incorporated in Malaysia) FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019

Non-distributable Redeemable Fair Value Convertible through Other Equity Cumulative Comprehensive attributable Preference Non- Share Merger Currency Income Other to Owners Perpetual Shares controlling Capital Reserve Translation (“FVOCI”) Reserves Retained of the Sukuk (“RCCPS”) Interest 31 DECEMBER (Note 34) (Note 49) Differences Reserve (Note 50) Earnings Company (Note 35) (Note 36) (Note 18(h)) Total Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 April 2019 1,740,302 1,211,760 (6,397) (9,321) 137,582 3,636,537 6,710,463 1,051,745 669,266 1,584,420 10,015,894 2019 Effect of adoption of MFRS 16 2.2 - - - - - (16,628) (16,628) - - (6,156) (22,784) As restated 1,740,302 1,211,760 (6,397) (9,321) 137,582 3,619,909 6,693,835 1,051,745 669,266 1,578,264 9,993,110

Net profit for the financial period - - - - - 358,969 358,969 59,861 - 20,294 439,124 Other comprehensive income/(loss) for the financial period, net of tax - - (2,211) 3,384 (68) - 1,105 - - 4,463 5,568 Total comprehensive income/(loss) for the financial period - - (2,211) 3,384 (68) 358,969 360,074 59,861 - 24,757 444,692 Transfer of fair value changes recognised for equity instrument (elected as FVOCI) upon derecognition - - - (735) - 735 - - - - - Transfer of a subsidiary company’s reserves - - - - (636) 636 - - - - - Sub-total carried forward 1,740,302 1,211,760 (8,608) (6,672) 136,878 3,980,249 7,053,909 1,111,606 669,266 1,603,021 10,437,802

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DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Non-distributable Equity attributable Non- Share Merger Currency Other to Owners of Perpetual controlling Capital Reserve Translation FVOCI Reserves Retained the Sukuk RCCPS Interest (Note 34) (Note 49) Differences Reserve (Note 50) Earnings Company (Note 35) (Note 36) (Note 18(h)) Total Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Sub-total brought forward 1,740,302 1,211,760 (8,608) (6,672) 136,878 3,980,249 7,053,909 1,111,606 669,266 1,603,021 10,437,802 Share subscription in a newly incorporated subsidiary company by non-controlling interest shareholders ------2,400 2,400 Effect of deconsolidation of a subsidiary company 53(i)(a) - 2,325 - - - (2,325) - - - (26,658) (26,658) Disposal of a subsidiary company 10 - - - - (2,259) 2,259 - - - (9,620) (9,620) Transactions with Owners Redemption of Perpetual Sukuk ------(415,000) - - (415,000) DRB-HICOM ANNUAL REPORT PERIODENDED |FINANCIAL Distribution to holders of Perpetual Sukuk ------(72,719) - - (72,719) Dividend paid/payable to non-controlling interest ------(15,294) (15,294) First and final dividend in respect of financial year ended 31 March 2019 12 - - - - - (57,997) (57,997) - - - (57,997) At 31 December 2019 1,740,302 1,214,085 (8,608) (6,672) 134,619 3,922,186 6,995,912 623,887 669,266 1,553,849 9,842,914

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31 DECEMBER 2019 141 142

DRB-HICOM BERHAD 199001011860 (203430-W) DRB-HICOM ANNUAL REPORT PERIODENDED |FINANCIAL (Incorporated in Malaysia)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Non-distributable Equity Non- attributable controlling Share Merger Currency Other to Owners Perpetual Interest Capital Reserve Translation FVOCI Reserves Retained of the Sukuk RCCPS (Note (Note 34) (Note 49) Differences Reserve (Note 50) Earnings Company (Note 35) (Note 36) 18(h)) Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 April 2018 1,740,302 1,212,210 (7,291) (14,005) 83,529 3,588,500 6,603,245 1,052,026 669,266 1,773,587 10,098,124

Net profit for the financial year - - - - - 122,866 122,866 79,453 - (151,128) 51,191 31 DECEMBER Other comprehensive income for the financial year, net of

tax - - 894 6,168 38,502 - 45,564 - - 8,869 54,433 2019 Total comprehensive income for the financial year - - 894 6,168 38,502 122,866 168,430 79,453 - (142,259) 105,624 Transfer of fair value changes recognised for equity instrument (elected as FVOCI) upon derecognition - - - (1,484) - 1,632 148 - - 64 212 Effect of changes in RPGT rate - - - - (76) - (76) - - - (76) Transfer of a subsidiary company’s reserves - - - - 16,094 (16,094) - - - - - Realisation of revaluation reserves upon disposal of investment properties - - - - (467) 467 - - - - - Sub-total carried forward 1,740,302 1,212,210 (6,397) (9,321) 137,582 3,697,371 6,771,747 1,131,479 669,266 1,631,392 10,203,884

15

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Non-distributable Equity Non- attributable controlling Share Merger Currency Other to Owners Perpetual Interest Capital Reserve Translation FVOCI Reserves Retained of the Sukuk RCCPS (Note (Note 34) (Note 49) Differences Reserve (Note 50) Earnings Company (Note 35) (Note 36) 18(h)) Total Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Sub-total brought forward 1,740,302 1,212,210 (6,397) (9,321) 137,582 3,697,371 6,771,747 1,131,479 669,266 1,631,392 10,203,884 Acquisitions of additional interest in subsidiary companies - - - - - (3,287) (3,287) - - (12,116) (15,403) Effect of deconsolidation of a subsidiary company under members’ voluntary winding up - (450) - - - 450 - - - - - Transactions with Owners Distribution to holders of Perpetual Sukuk ------(79,734) - - (79,734) Dividend paid/payable to non-controlling interest ------(34,856) (34,856) DRB-HICOM ANNUAL REPORT PERIODENDED |FINANCIAL First and final dividend in respect of financial year ended 31 March 2018 12 - - - - - (57,997) (57,997) - - - (57,997) At 31 March 2019 1,740,302 1,211,760 (6,397) (9,321) 137,582 3,636,537 6,710,463 1,051,745 669,266 1,584,420 10,015,894

The notes set out on pages 155 to 351 form an integral part of the financial statements.

The notes set out on pages 28 to 224 form an integral part of the financial statements.

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31 DECEMBER 2019 143 144

DRB-HICOM ANNUAL REPORT PERIODENDED |FINANCIAL DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia) COMPANY STATEMENT OF CHANGES IN EQUITY

COMPANYFOR THE STATEMENT FINANCIAL OF CHANGESPERIOD INENDED EQUITY 31 FOR DECEMBER THE FINANCIAL 2019 PERIOD ENDED 31 DECEMBER 2019

Non-distributable Distributable Equity Merger Retained attributable to Perpetual Sukuk Share Capital Reserve FVOCI Earnings Owners of the (Note 34) (Note 49) Reserve (Note 51) Company (Note 35) Total Note RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 April 2019 1,740,302 2,318,321 (147,178) 262,652 4,174,097 1,051,745 5,225,842 31 DECEMBER

Net profit for the financial period - - - 129,437 129,437 59,861 189,298 Other comprehensive loss for the financial period, net of tax - - (17,528) - (17,528) - (17,528) 2019 Total comprehensive income for the financial period - - (17,528) 129,437 111,909 59,861 171,770 Transactions with Owners Redemption of Perpetual Sukuk - - - - - (415,000) (415,000) Distribution to holders of Perpetual Sukuk - - - - - (72,719) (72,719) First and final dividend in respect of financial year ended 31 March 2019 12 - - - (57,997) (57,997) - (57,997) At 31 December 2019 1,740,302 2,318,321 (164,706) 334,092 4,228,009 623,887 4,851,896

At 1 April 2018 1,740,302 2,318,321 (208,482) 384,396 4,234,537 1,052,026 5,286,563

Net profit for the financial year - - - (63,747) (63,747) 79,453 15,706 Other comprehensive income for the financial year, net of tax - - 61,304 - 61,304 - 61,304 Total comprehensive income for the financial year - - 61,304 (63,747) (2,443) 79,453 77,010 Transactions with Owners Distribution to holders of Perpetual Sukuk - - - - - (79,734) (79,734) First and final dividend in respect of financial year ended 31 March 2018 12 - - - (57,997) (57,997) - (57,997) At 31 March 2019 1,740,302 2,318,321 (147,178) 262,652 4,174,097 1,051,745 5,225,842

TheThe notesnotes setset outout onon pagespages 15528 to to 2 35124 form form anan integralintegral partpart ofof thethe financialfinancial statements. statements.

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DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 145

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia) STATEMENTS OF CASH FLOWS

STATEMENTSFOR THE FINANCIAL OF CASH F LOWSPERIOD FOR ENDED THE FINANCI 31 DECEMBERAL PERIOD ENDED2019 31 DECEMBER 2019

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING

ACTIVITIES

Net (loss)/profit for the financial period/year - from continuing operations (137,005) (26,801) 189,298 15,706 - from discontinued operations 576,129 77,992 - - 439,124 51,191 189,298 15,706 Adjustments for non-cash items: Allowance for financing of customers (net of write-back) 52,593 11,909 - - Amortisation of: - concession assets - discontinued operations - 4,448 - - - intangible assets - continuing operations 112,682 169,782 - - - discontinued operations - 166 - - - prepaid lease properties - 1,713 - - Depreciation of property, plant and equipment - continuing operations 602,796 710,469 25 35 - discontinued operations - 970 - - Finance costs - continuing operations 344,627 375,720 102,658 134,075 - discontinued operations 1,583 4,221 - - Financing written off 2,687 2,592 - - Impairment loss/(reversal of impairment loss) of: - investment securities 3,068 (201) - - - intangible assets 319,790 60,109 - - - investment in subsidiary companies - - 280,879 422,605 - investment in an associated company (30,263) - - 130 - property, plant and equipment - continuing operations 2,748 17,922 - - - discontinued operations (111) - - -

Sub-total carried forward 1,851,324 1,411,011 572,860 572,551

18 146 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING

ACTIVITIES (Continued)

Sub-total brought forward 1,851,324 1,411,011 572,860 572,551 Loss/(gain) on disposal of property, plant and equipment - continuing operations 680 (6,690) - - - discontinued operations (14) (2) - - Loss/(gain) on fair value adjustments of investment securities 3,012 (41,523) - - Marked to market loss on derivatives (net) 32,743 11,867 - - Provision for concession assets - discontinued operations 33,669 44,218 - - Provision for/(reversal of) liabilities and charges 40,515 (81,248) - - Taxation - continuing operations 20,473 205,486 1,811 1,820 - discontinued operations 12,864 25,179 - - Unrealised foreign exchange differences (net) 7,195 24,464 - - Write-off of: - intangible assets - 3,187 - - - property, plant and equipment 1,828 3,120 - - Amortisation of deferred income (607) (2,911) - - Dividend income: - subsidiary companies - - (545,726) (73,496) - a joint venture - - (1,874) (375) - an associated company - - (65,790) (237,830) - other investment (198) (108) - - Distribution from a subsidiary company - - - (297,053) Gain on capital repayment of an associated company - - - (34) Gain on fair value adjustments of investment properties - continuing operations (401) (2,831) - - - discontinued operations - 100 - -

Sub-total carried forward 2,003,083 1,593,319 (38,719) (34,417)

19 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 147

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES (Continued)

Sub-total brought forward 2,003,083 1,593,319 (38,719) (34,417) Interest income on: - short-term deposits - continuing operations (45,021) (62,620) (6,960) (13,907) - discontinued operations (11,237) (10,332) - - - subsidiary companies - - (18,696) (21,485) - a joint venture (1,148) - (542) - Gain on disposals of: - a subsidiary company - discontinued operations (514,673) - - - - investment properties - (573) - - - investment securities: financial assets at fair value (44,550) (18,194) - - - partial equity interest in a former subsidiary company (33,586) - (24,674) - Share of results of joint ventures (net of tax) (7,659) (40,877) - - Share of results of associated companies (net of tax) (92,742) (179,706) - - (Write-back of)/allowance for expected credit losses - continuing operations 767 36,769 - - - discontinued operations (844) (10,110) - - (Write-back)/write-off/down of inventories - continuing operations (41,002) 36,756 - - - discontinued operations (4) (137) - -

Cash inflow/(outflow) before working capital changes 1,211,384 1,344,295 (89,591) (69,809) Inter-company balances (353,879) 810,342 (10,857) (23,987) Inventories 329,165 (248,321) - - Trade and other receivables (191,453) (266,955) 520 (1,213) Trade and other payables (124,082) (698,979) (83,626) 10,785 Financing of customers (407,590) (788,902) - - Statutory deposit with Bank Negara Malaysia 130,507 (24,775) - -

Sub-total carried forward 594,052 126,705 (183,554) (84,224)

20 148 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM OPERATING ACTIVITIES (Continued)

Sub-total brought forward 594,052 126,705 (183,554) (84,224) Deposits from customers (271,315) (573,210) - - Deposits and placements of banks and

other financial institutions (444) (2,107) - - Bills and acceptances payable (7,234) 6,060 - -

Net cash inflow/(outflow) from operations 315,059 (442,552) (183,554) (84,224) Interest received - continuing operations 43,198 59,443 - - - discontinued operations 11,101 10,354 - - Finance costs paid - continuing operations (95,928) (179,116) - - - discontinued operations (378) - - - Taxation paid (net of refund) - continuing operations (33,291) (109,437) (5,285) (11,244) - discontinued operations (22,757) (13,600) - - Provision for liabilities and charges paid (85,618) (86,221) - - Deferred income received 87 3,409 - - Post-employment benefit obligations paid (607) (2,797) - - Provision for concession assets paid - discontinued operations (870) (2,378) - -

Net cash inflow/(outflow) from operating activities 129,996 (762,895) (188,839) (95,468)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of investment securities by: - a banking subsidiary company (8,320,555) (9,051,526) - - - a non-banking subsidiary company - (150) - - Acquisition of additional shares in a subsidiary company - (13,000) - - Dividends received from: - subsidiary companies - - 545,726 73,496 - joint ventures 18,498 6,853 1,874 375 - associated companies 73,140 243,884 65,790 237,830

Sub-total carried forward (8,228,917) (8,813,939) 613,390 311,701

21 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 149

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 Note RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM INVESTING ACTIVITIES (Continued) Sub-total brought forward (8,228,917) (8,813,939) 613,390 311,701 Dividends received from: (Continued) - other investment 150 113 - - Interest received 9,329 4,138 7,872 14,286 Movement in fixed deposits placement with maturity profile more than three months (13,965) 13,311 37 522 Net cash inflow from disposal of a subsidiary company 10 396,005 - - - Net cash inflow from partial disposal of equity interest in a former subsidiary company 35,377 - 40,300 - Net proceeds from disposals of fund investments 49,992 23,748 - - New investment in a joint venture (19,600) - - - Proceeds from disposal of an investment security by a non- banking subsidiary company 332 - - - Proceeds from disposals of investment securities by a banking subsidiary company 9,120,983 10,188,635 - - Proceeds from disposals of property, plant and equipment/investment properties - continuing operations 9,160 13,833 - - - discontinued operations 20 4 - - Purchases of property, plant and equipment/concession assets/investment properties/intangible assets - continuing operations (775,704) (1,082,327) - - - discontinued operations (10,938) (18,160) - - Proceeds from liquidation of an associated company - 3,158 - 3,164 Share subscription in a newly incorporated subsidiary company by non-controlling interest shareholders 2,400 - - -

Net cash inflow from investing activities 574,624 332,514 661,599 329,673

22 150 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 RM’000 RM’000 RM’000 RM’000

CASH FLOWS FROM FINANCING ACTIVITIES Bank balances in Escrow account arising from RCCPS - 21 - - Dividends paid to non-controlling interest (15,294) (34,856) - - Dividends paid to shareholders (57,997) (57,997) (57,997) (57,997) Distribution paid to holders of Perpetual Sukuk (72,719) (79,734) (72,719) (79,734) Finance costs paid - continuing operations (290,619) (167,606) (104,949) (113,293) - discontinued operations (1,180) - - - Loans to subsidiary companies (net of repayment) - - (18,707) (347,378) Movement in bank balances and fixed deposits held as security for bank borrowings 59,536 109,324 29,405 101,337 Redemption of Perpetual Sukuk (415,000) - (415,000) - Proceeds from bank borrowings 6,331,859 4,272,942 2,599,864 763,500 Repayment of borrowings/hire purchase - continuing operations (6,286,829) (3,734,756) (2,040,000) (561,050) - discontinued operations (20,867) (41,732) - - Repayment of principal portion of lease liabilities - continuing operations (59,106) - - - - discontinued operations (4,927) - - - Repayment of principal for recourse obligation on financing sold to Cagamas (11,463) (14,799) - -

Net cash (outflow)/inflow from financing activities (844,606) 250,807 (80,103) (294,615)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (139,986) (179,574) 392,657 (60,410) Effects of foreign currency translation (257) 897 - - CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 2,912,504 3,091,181 372,298 432,708

CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD/YEAR 2,772,261 2,912,504 764,955 372,298

23 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 151

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

Group Company Financial Financial Financial Financial period year period year ended 31 ended 31 ended 31 ended 31 December March December March 2019 2019 2019 2019 Note RM’000 RM’000 RM’000 RM’000

(a) Cash and cash equivalents at end of the financial period/year comprise the following:

Short-term deposits 1,161,941 1,039,221 775,661 413,034 Cash and bank balances 1,359,283 1,471,188 2,042 1,453 Cash and short-term funds of a banking subsidiary company 1,065,150 842,508 - - Bank overdrafts (8,298) (12,959) - -

3,578,076 3,339,958 777,703 414,487 Less: Bank balances and fixed deposits held as security for bank borrowings (c) (786,928) (846,464) (12,748) (42,152) Less: Fixed deposits with maturity profile more than three months 31(a) (25,967) (12,002) - (37) Less: Bank balance in respect of Automotive Development Fund (20,148) (21,190) - - Less: Collections held by a postal subsidiary company on behalf of third parties (28,792) (35,479) - - Add: Cash and cash equivalents attributable to the disposal groups held for sale 56,020 487,681 - -

2,772,261 2,912,504 764,955 372,298

24 152 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

(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.

Recourse obligation on Current and financing non-current Lease sold to borrowings liabilities Cagamas Total RM’000 RM’000 RM’000 RM’000

Group At 1 April 2019 6,318,711 - 471,102 6,789,813 Effect of adoption of MFRS 16 - continuing operations - 429,468 - 429,468 - discontinued operations - 8,335 - 8,335 As restated 6,318,711 437,803 471,102 7,227,616 Net changes from financing cash flows: Changes in bank overdraft (4,661) - - (4,661) Finance costs paid - continuing operations - (19,482) (16,243) (35,725) - discontinued operations - (378) - (378) Payments for the principal portion of lease liabilities - continuing operations - (59,106) - (59,106) - discontinued operations - (4,927) - (4,927) Proceeds from bank borrowings 6,331,859 - - 6,331,859 Repayment of bank borrowings - continuing operations (6,286,829) - - (6,286,829) - discontinued operations (20,867) - - (20,867) Repayment of principal for recourse obligation on financing sold to Cagamas - - (11,463) (11,463) Total net changes from financing cash flows 19,502 (83,893) (27,706) (92,097) Other changes: Currency translation differences 15,748 - - 15,748 Capitalised transaction costs (35,223) - - (35,223) Disposal of partial equity interest in a former subsidiary company (12,310) (195) - (12,505) Finance costs payable - continuing operations - 19,616 16,237 35,853 - discontinued operations - 378 - 378 Sub-total carried forward (31,785) 19,799 16,237 4,251

25 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 153

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

(b) Reconciliation of liabilities arising from financing activities: (Continued)

Recourse obligation on Current and financing non-current Lease sold to borrowings liabilities Cagamas Total RM’000 RM’000 RM’000 RM’000

Group Other changes: (Continued) Sub-total brought forward (31,785) 19,799 16,237 4,251 New hire purchase/leases - continuing operations 34,653 28,582 - 63,235 - discontinued operations - 4,111 - 4,111 Unwinding discounts (4,066) - - (4,066) Reclassified to liabilities related to disposal groups held for sale 20,867 816 - 21,683 Termination - (2,948) - (2,948) Total other changes 19,669 50,360 16,237 86,266

At 31 December 2019 6,357,882 404,270 459,633 7,221,785

At 1 April 2018 5,789,699 - 485,851 6,275,550 Net changes from financing cash flows: Changes in bank overdraft 3,897 - - 3,897 Finance costs paid - - (22,276) (22,276) Proceeds from bank borrowings 4,272,942 - - 4,272,942 Repayment of bank borrowings - continuing operations (3,734,756) - - (3,734,756) - discontinued operations (41,732) - - (41,732) Repayment of principal for recourse obligation on financing sold to Cagamas - - (14,799) (14,799) Total net changes from financing cash flows 500,351 - (37,075) 463,276 Other changes: - Currency translation differences 37,802 - - 37,802 Capitalised transaction costs (5,025) - - (5,025) Finance costs payable - - 22,326 22,326 New hire purchase and finance leases 42,014 - - 42,014 Unwinding discounts 4,272 - - 4,272 Reclassified to liabilities related to disposal groups held for sale (50,402) - - (50,402) Total other changes 28,661 - 22,326 50,987

At 31 March 2019 6,318,711 - 471,102 6,789,813

26 154 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

STATEMENTS OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (Continued)

(b) Reconciliation of liabilities arising from financing activities: (Continued)

Current and Amount due non-current to subsidiary borrowings companies Total RM’000 RM’000 RM’000

Company At 1 April 2019 1,994,879 412,845 2,407,724 Net changes from financing cash flows: Proceeds from bank borrowings 2,599,864 - 2,599,864 Repayment of bank borrowings (2,040,000) - (2,040,000) Repayment of loans to subsidiary companies - (326,432) (326,432) Advance/loans from subsidiary companies - 25,000 25,000 Finance costs paid - (9,147) (9,147) Total net changes from financing cash flows 559,864 (310,579) 249,285 Other changes: Finance costs - 14,173 14,173 Incidental cost (32,501) - (32,501) Unwinding discounts 1,121 - 1,121 Total other changes (31,380) 14,173 (17,207)

At 31 December 2019 2,523,363 116,439 2,639,802

At 1 April 2018 1,790,807 872,170 2,662,977 Net changes from financing cash flows: Proceeds from bank borrowings 763,500 - 763,500 Repayment of bank borrowings (561,050) - (561,050) Repayment of loans to subsidiary companies - (185,892) (185,892) Advance/loans from subsidiary companies - 25,000 25,000 Finance costs paid - (28,402) (28,402) Total net changes from financing cash flows 202,450 (189,294) 13,156 Other changes: Capital reduction - (297,986) (297,986) Finance costs - 27,955 27,955 Unwinding discounts 1,622 - 1,622 Total other changes 1,622 (270,031) (268,409)

At 31 March 2019 1,994,879 412,845 2,407,724

(c) As at 31 December 2019, certain fixed deposits with licensed banks and bank balances of the Group and of the Company of RM786,928,000 (31 March 2019: RM846,464,000) and RM12,748,000 (31 March 2019: RM42,152,000) respectively are held as security for bank borrowings as disclosed in Notes 38 and 46 to the financial statements.

The notes set out on pages 28 to 224 form an integral part of the financial statements. The notes set out on pages 155 to 351 form an integral part of the financial statements.

27 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 155

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia) NOTES TO THE FINANCIAL STATEMENTS

31NOTES DECEMBER TO THE FINANCIAL 2019 STATEMENTS - 31 DECEMBER 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 period except for the disposal of a solid waste management subsidiary company as disclosed in Note 10.

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.

Following the approval by the Board of Directors, in their resolution dated 8 July 2019, on the change of the financial year end from 31 March to 31 December, the financial year covered in these financial statements is for a period of nine months from 1 April 2019 to 31 December 2019. Consequently, the comparatives for the statements of comprehensive income, statements of changes in equity and statements of cash flows as well as certain comparatives in the notes to the financial statements of the Group and of the Company are not comparable to those of the previous twelve months ended 31 March 2019. Thereafter, the financial year of the Group and of the Company shall revert to twelve months ending 31 December, for each subsequent year.

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.

28 156 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.1 Basis of preparation (Continued)

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 57.

2.2 Changes in accounting policies and effects arising from adoption of new/revised and amendments to MFRSs

The new/revised accounting standards and amendments to published standards and issued by Malaysian Accounting Standards Board (“MASB”) that are applicable to the Group and effective for the current financial period are as follows:

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

The adoption and application of the above standards did not have any material impact to the financial statements of the Group, other than as disclosed below:

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 except for short-term leases and leases of low-value assets.

At the commencement date of a lease, a lessee recognises 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, included in property, plant and equipment. The right-of- use asset is depreciated throughout the lease period in accordance with the depreciation requirements of MFRS 116 Property, Plant and Equipment whereas lease liability is accreted to reflect interest and is reduced to reflect lease payments made. Lessees are 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 generally recognises the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset.

29 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 157

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.2 Changes in accounting policies and effects arising from adoption of new/revised and amendments to MFRSs (Continued)

MFRS 16 Leases (Continued)

Leases that were classified as finance leases under MFRS 117, the carrying amount of the right-of-use asset and lease liability at the date of initial application shall be the carrying amount of the lease asset and lease liability immediately before the date of initial application.

Lessor accounting under MFRS 16 is substantially unchanged from the current accounting under MFRS 117. Lessors 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.

Transition to MFRS 16

The Group adopted MFRS 16 on 1 April 2019, using the modified retrospective method and did not restate comparative information. Instead, the Group recognised 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 also elected to apply the standard to contracts that were previously identified as leases applying MFRS 117 and IFRIC 4. Therefore, the Group did not apply the standard to contracts that were not previously identified as containing a lease applying MFRS 117 and IFRIC 4.

The Group elected 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 elected not to separate the non- lease components from lease components, and instead accounted for both components as a single lease component.

Below is the impact of adopting MFRS 16 to opening balances to the Group:

Impact of adoption of MFRS 16 to opening balance as at 1 April 2019 Increase/(Decrease) RM’000

Consolidated Statement of Financial Position Non-current assets Property, plant and equipment - Leasehold land (386,701) - Buildings, golf course and improvements (56,523) - Right-of-use assets 906,309

30 158 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.2 Changes in accounting policies and effects arising from adoption of new/revised and amendments to MFRSs (Continued)

MFRS 16 Leases (Continued)

Transition to MFRS 16 (Continued)

Below is the impact of adopting MFRS 16 to opening balances to the Group: (Continued)

Impact of adoption of MFRS 16 to opening balance as at 1 April 2019 Increase/(Decrease) RM’000

Consolidated Statement of Financial Position (Continued) Non-current assets (Continued) Prepaid lease properties (51,495) Joint ventures (102) Associated companies (573) Deferred tax assets 2,288

Current assets Assets and disposal groups held for sale 14,379 Trade and other receivables (455)

Equity Reserves (16,628) Non-controlling interest (6,156)

Non-current liabilities Lease liabilities 350,030 Deferred tax liabilities (2,804)

Current liabilities Liabilities related to disposal groups held for sale 14,912 Lease liabilities 87,773

Upon adoption of MFRS 16, the Group recognised lease liabilities in relation to leases which had been previously recognised as “operating leases” under the previous principles of MFRS 117.

31 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 159

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.2 Changes in accounting policies and effects arising from adoption of new/revised and amendments to MFRSs (Continued)

MFRS 16 Leases (Continued)

Transition to MFRS 16 (Continued)

Reconciliation for the differences between operating lease commitments disclosed as at 31 March 2019 and lease liabilities as at the date of initial application of 1 April 2019 are as follows:

RM’000

Operating lease commitments disclosed as at 31 March 2019 426,821

Add: Payments in optional extension periods not recognised 105,079

Add: Optional termination by the lessee recognised 73,772 Less: Short-term leases not recognised as a liability (21,287) Less: Low-value leases not recognised as a liability (17,140) 567,245 Effects from discounting at the incremental borrowing rate between 4.20% to 7.50% per annum (129,442)

Lease liabilities recognised as at 1 April 2019 437,803

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 January 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 Definition of Material and MFRS 108

• Amendments to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors

• Amendments to MFRS 134 Interim Financial Reporting • Amendment to MFRS 137 Provisions, Contingent Liabilities and Contingent Assets

• Amendment to MFRS 138 Intangible Assets

• Amendment to IC Service Concession Arrangements

Interpretation 12

32 160 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.3 Impact of new MASB pronouncements (Continued)

MFRSs, Interpretation and amendments effective beginning on or after 1 January 2020 (Continued)

• Amendments to IC Intangible Assets – Web Site Costs

Interpretation 132

MFRSs, Interpretation and amendments effective beginning on or after a date yet to be confirmed

• Amendments to MFRS 10 Sale or Contribution of Assets between an

and MFRS 128 Investor and its Associate or Joint Venture

The adoption of the above amendments to MFRSs and Interpretations will have no material impact on the financial statements in the period of initial application.

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 period. 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.

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.

33 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 161

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.4 Basis of consolidation (Continued)

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 non- controlling 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 non-controlling interest’s share of fair values of the identifiable assets and liabilities of the acquiree at the date of acquisition.

The Group applies a policy of treating acquisition/disposal of shares from/to non- controlling 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.

34 162 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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.

35 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 163

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.6 Joint ventures and associated companies (Continued)

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.

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.

36 164 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.8 Financial assets (Continued)

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.

(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.

37 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 165

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.8 Financial assets (Continued)

(ii) Financial assets at fair value through other comprehensive income (Continued)

The FVOCI classification is mandatory for certain debt instrument assets unless the conditional option to FVTPL (which is 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 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.

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.

38 166 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.8 Financial assets (Continued)

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 MFRS 9 impairment requirements are based on an Expected Credit Loss (“ECL”) model. The ECL model applies to financial assets measured at amortised cost or at FVOCI (with recycling to profit or loss), irrevocable financing commitments and financial guarantee contracts, and financing of customers and debt instruments held by the Group. The ECL model also applies to contract assets under MFRS 15 Revenue from Contracts with Customers and lease receivables under MFRS 16 Leases.

The measurement of ECL involves increased complexity and judgement that include:

(i) Determining a significant increase in credit risk since initial recognition

The assessment of significant deterioration since initial recognition is critical in establishing the point of switching between the requirement to measure an allowance based on 12-month ECL and one that is based on lifetime ECL. The quantitative and qualitative assessments are required to estimate the significant increase in credit risk by comparing the risk of a default occurring on the financial assets as at reporting date with the risk of default occurring on the financial assets as at the date of initial recognition.

The Group applies the general approach to recognise impairment which is based on a 3-stage process which is intended to reflect the deterioration in credit quality of a financial instrument as explained in the following:

3-Stage approach Stage 1 Stage 2 Stage 3

No significant Credit risk Credit- Criterion increase in increased impaired credit risk significantly assets

39 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 167

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.9 Impairment of financial assets (Continued)

The measurement of ECL involves increased complexity and judgement that include: (Continued)

(i) Determining a significant increase in credit risk since initial recognition (Continued)

3-Stage approach Stage 1 Stage 2 Stage 3

ECL approach 12-month ECL Lifetime ECL Lifetime ECL

(ii) ECL measurement

There are three main components to measure ECL, which include:

1. probability of default ("PD") model; 2. loss given default ("LGD") model; and 3. exposure at default ("EAD") model.

MFRS 9 does not distinguish between individual assessment and collective assessment. Therefore, the Group has decided to continue to measure the impairment mainly on an individual transaction basis for financial assets that are deemed to be individually significant.

(iii) Expected life

Lifetime ECL must be measured over the expected life of the financial asset. This is restricted to the maximum contractual life and takes into account expected prepayment, extension, call and similar options, except for certain revolving financial instruments such as overdraft. The expected life for these revolving facilities generally refers to their behavioural life.

(iv) Forward-looking information

ECL are the unbiased probability-weighted credit losses determined by evaluating a range of possible outcomes and considering future economic conditions. The reasonable and supportable forward-looking information is based on the collation of macroeconomic data obtained from various external sources such as, but not limited to regulators, government and foreign ministries as well as independent research organisations.

Where applicable, the Group incorporates forward-looking adjustments in credit risk factors of PD and LGD used in the ECL calculation; taking into account the impact of multiple probability-weighted future forecast economic scenarios.

40 168 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.9 Impairment of financial assets (Continued)

The measurement of ECL involves increased complexity and judgement that include: (Continued)

(iv) Forward-looking information (Continued)

Embedded in ECL is a broad range of forward-looking information as economic inputs, such as:

• Consumer Price Index; • Unemployment rates; • House Price Indices; and • Overnight Policy Rate.

The Group applies the following three alternative macroeconomic scenarios to reflect an unbiased probability-weighted range of possible future outcomes in estimating ECL:

Base scenario: This scenario reflects that current macroeconomic conditions continue to prevail; and

Upside and Downside scenarios: These scenarios are set relative to the base scenario, reflecting best and worst-case macroeconomic conditions based on subject matter expert's best judgement from current economic conditions.

The macroeconomic factors and scenarios and their impacts are regularly monitored as part of the normal process of the Group in tracking credit risk and measuring ECL, including the on-going COVID-19 development and impacts.

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.

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.

41 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 169

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 open-market 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.

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 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.

42 170 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.13 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.

2.14 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.

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:

Buildings, golf course and improvements 2 - 59 years Plant and machinery 2 - 30 years Motor vehicles 3 - 10 years Vessels 9 years Office equipment, furniture and fittings 2 - 10 years

Accounting policies applied from 1 April 2019

Included in the property, plant, and equipment, the Group recognise a right-of-use asset at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or site on which it is located, less any lease incentives received.

43 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 171

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.14 Property, plant and equipment and depreciation (Continued)

Accounting policies applied from 1 April 2019 (Continued)

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right- of-use asset or the end of the lease term. The estimated useful lives of the right-of- use assets are determined on the same basis as those of property, plant and equipment as follows:

Leasehold land 3 - 990 years Buildings 1 - 50 years Plant and machinery 1 - 10 years Motor vehicles 1 - 7 years Office equipment 2 - 7 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

Accounting policies applied from 1 April 2019

Following the adoption of MFRS 16 Leases on 1 April 2019, the Group has reclassified the carrying amount of prepaid lease properties to property, plant and equipment. The new accounting policies are disclosed in Note 2.14.

Accounting policies applied until 31 March 2019

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.

44 172 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 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 cash-generating 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.

45 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 173

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 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 cost previously recognised as an expense is not recognised as an asset in subsequent periods. Development expense capitalised include cost 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 customer relationship and dealership network arising from the acquisitions of subsidiary companies.

(a) 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.

(b) 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.

46 174 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.18 Intangible assets other than goodwill (Continued)

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 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.

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.

47 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 175

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.19 Inventories (Continued)

(c) Property development costs

Property development costs comprise:

(i) Land cost for residential properties which has 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 is 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 purpose 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.

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.

48 176 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.21 Impairment of non-financial assets (Continued)

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 period/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 period/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.

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.

49 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 177

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.22 Income taxes (Continued)

(ii) Deferred tax (Continued)

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.

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.

50 178 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.24 Borrowings (Continued)

(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 year 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.

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.

51 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 179

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.25 Financial liabilities (Continued)

(ii) Other financial liabilities (Continued)

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.

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 reporting date 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.

52 180 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.27 Provisions (Continued)

(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 non- contractual actions. The claims are recognised based on legal advice on such contractual terms, past constructive actions or business relationship continuity, where deemed necessary.

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.

(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.

53 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 181

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.29 Employee benefits

(i) Short-term employee benefits

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

(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.

(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, is 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.

54 182 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.29 Employee benefits (Continued)

(iv) Post-employment benefits - Defined benefit plan (Continued)

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. Re-measurements are not reclassified to profit or loss in subsequent periods. The Group determines the net interest income or expense on the net defined benefit 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.

2.30 Lease liabilities

Accounting policies applied from 1 April 2019

The lease liability is initially measured at the present value of future lease payments at the commencement date, discounted using the Group’s incremental borrowing rates. Lease payments included in the measurement of the lease liability include fixed payments, any variable lease payments, amount expected to be payable under a residual value guarantee, and exercise price under an extension option that the Group is reasonably certain to exercise.

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in rate, or if the Group changes its assessment of whether it will exercise an extension or termination option.

Lease payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss over the lease term. Short-term leases are leases with a lease term of twelve months or less. Low- value assets are those assets valued at less than RM20,000 each when purchased new.

55 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 183

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.30 Lease liabilities (Continued)

Accounting policies applied until 31 March 2019

(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.

56 184 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 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 comprise 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 is 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 comprise 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.

57 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019 185

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 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.

58 186 DRB-HICOM ANNUAL REPORT | FINANCIAL PERIOD ENDED 31 DECEMBER 2019

DRB-HICOM BERHAD 199001011860 (203430-W) (Incorporated in Malaysia)

NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 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.

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.

59