DRB-HICOM 94 ANNUAL REPORT 2020

“THERE ARE TWO WAYS OF SPREADING LIGHT; TO BE THE CANDLE OR THE MIRROR THAT REFLECTS IT”

- EDITH WHARTON, NOVELIST DRB-HICOM ANNUAL REPORT 2020 95 HIGHLIGHTS CORPORATE DISCLOSURE REVIEW PERFORMANCE

PERSPECTIVE LEADERSHIP 96 Chairman’s Message 98 Management Discussion and Analysis (MD&A) 98 • Group Managing Director’s Foreword 104 • Operational Review ACCOUNTABILITY 110 • Business Review 110 - Automotive Sector 122 - Services Sector 126 - Properties Sector PERSPECTIVE FINANCIAL STATEMENTS RELATED INFORMATION DRB-HICOM 96 ANNUAL REPORT 2020

CHAIRMAN’S MESSAGE

Dear Shareholders,

It is indeed a pleasure to pen down my message for the very first time as Chairman of DRB- HICOM Berhad (“DRB-HICOM”, “the Group”) and I would like to take this opportunity to firstly record my sincere appreciation and thanks to all my Board colleagues and staff throughout the Group for the warm reception and welcome that has been extended to me since coming on board. In view of the current COVID-19 challenges, the format of my on-boarding programme has been different from the previous ones and had to be adapted to cater for the many restrictions in place.

Challenging External Environment Business Performance

My appointment came at a time of profound global changes For the reporting period, DRB-HICOM continued to deliver and uncertainties taking place with the global and Malaysian a commendable performance despite the challenging economies recording a contraction of 4.3% and 5.6% respectively business landscape. Overall, the Group recorded a revenue of due to the unprecedented impacts of the pandemic on both the RM13.2 billion with a net profit of RM554 million for the year. The health of individuals as well as the economies. Many of the Automotive Sector remained the anchor sector for the Group consequences of this episode have led to permanent changes in with successes in launches of new models, more collaboration the way we live, think and conduct our businesses going forward. arrangements with technical partners, expansion of production facilities and enhanced presence in the areas of automotive sales As for the Group, we implemented timely and strategic and services. responses to these external challenges. As our staff health and safety remains our top priority, the Management established Meanwhile, the Services Sector had a mixed and challenging a COVID-19 Committee (“C19C”) to monitor the situation and performance as they were most affected by the pandemic, orchestrated intervention and mitigation efforts across the resulting in more initiatives and mitigations being put in place Group. Subsequently, a Business Recovery Task Force (“BRTF”) including digital solutions. The Property Sector successfully comprising of leaders from all subsidiaries was also set up pursued the strategic intent to focus on industrial properties to provide the overall stewardship to ensure DRB-HICOM’s development by streamlining their portfolio through divestment business interests and risks are efficiently managed during of non-core assets. these challenging times. I must commend the Group Managing Director and members of the leadership team for their timely and decisive actions. DRB-HICOM ANNUAL REPORT 2020 97 HIGHLIGHTS

Commitment to Environment, Social and Governance Looking Ahead

Our companies continued to play its active role to be a responsible Going forward, the Board and I are committed to continue corporate citizen through its CSR activities in. In trying to aid exercising good corporate governance and at the same time, efforts of managing COVID-19, DRB-HICOM contributed RM1 explore new ways to further expand and strengthen our business CORPORATE million towards the Government’s Tabung COVID-19. At the whilst leveraging on digital technologies. Emphasis will also be DISCLOSURE same time, we also donated 30 units of ventilators worth RM1.24 given to the organisational culture, and efforts will be taken to million to the Ministry of Health for distribution to hospitals that further enhance our talent management systems including the are in dire need of the critical equipment nationwide. National attraction, retention and development of talents. I truly believe carmaker PROTON began producing face shields early into the these are prerequisites to ensure we have progressive and robust pandemic; some 136,000 units were produced and handed over business entities throughout the DRB-HICOM Group in order to to MOH for use by medical frontliners. Other subsidiaries too prepare us for an uncertain future. contributed in many ways towards the COVID-19 cause, either REVIEW

nationally or at the state level. Acknowledgements PERFORMANCE

In September 2020, DRB-HICOM’s subsidiary, Bank Muamalat I would like to start my acknowledgments by expressing my Malaysia Berhad (“Bank Muamalat”) launched the Jariah Fund. sincere gratitude to my predecessor, Dato’ Mohammad Zainal It is a crowdfunding platform for social welfare projects through Shaari for his contribution in steering the Group during his the application of financial technology. Jariah Fund is one of tenure. On behalf of the Board, I would also like to record our Bank Muamalat’s efforts to assist the underprivileged and appreciation to Dato’ Sri Syed Faisal Albar, his leadership team continuously contribute to society. and all the staff throughout the Group for their efforts and sacrifices which proved to be invaluable throughout the reporting LEADERSHIP We also play our role on the environment, social and governance year. (“ESG”) front. The PROTON Tanjong Malim plant has implemented a recycled water initiative since 2015 to channel waste water from Finally, on behalf of the Board, I would like to register our the plant back to its manufacturing process as an initiative to appreciation to all our shareholders and our stakeholders optimise water consumption and increase plant efficiency. This including the Government Authorities, our partners, vendors and has resulted in 60% of waste water being re-used at the facility. all others who have been supportive and instrumental during these challenging times and always encouraging us to continue Meanwhile, in collaboration with Badan Kawal Selia Air Negeri creating value for the DRB-HICOM Group. Melaka, Composites Technology Research Malaysia Sdn. Bhd. ACCOUNTABILITY (“CTRM”) initiated a tube well project to mitigate any water Thank you. disruption in their operations during the drought season in FY2020. Water is a key component in composites manufacturing Best regards and stay safe, and this initiative makes use of groundwater as an alternative water supply. Wan Zul PERSPECTIVE FINANCIAL STATEMENTS RELATED INFORMATION DRB-HICOM 98 ANNUAL REPORT 2020

MANAGEMENT DISCUSSION & ANALYSIS GROUP MANAGING DIRECTOR’S FOREWORD

History will record the year 2020 with many things. The United Kingdom formally left the European Union in January, the cold continent of the Antarctica hit its highest ever temperature of 18.3oc in February, Joe Biden and Kamala Harris won a historic American election, and in March, Malaysia saw a new Government created. But chiefly, it will be remembered as the year when the COVID-19 pandemic sent the global economy into a tailspin.

Enough has been written about the impact of the pandemic to the economy. Suffice to say that globally, trade shrunk as movements were curtailed and the focus was fighting the virus. Malaysia saw its Gross Domestic Product (“GDP”) shrunk 5.6% in 2020, after growing more than 4% in 2019. DRB-HICOM is proud to have been able to withstand the acid test, and deliver a commendable performance in the end. We may have stood up against the invisible bully and delivered, but lest we think the worst is over, I wish to remind you that the road ahead remains daunting.

A Challenging Environment

As per Bank Negara Malaysia’s (“BNM”) report1, the economic The domestic property market was hard hit by the pandemic, contraction was expected, given the movement restrictions that with transaction numbers slipping almost 10% in 2020 from were imposed. Indeed, all economic sectors recorded negative the previous year. Of the 295,968 property transactions (valued growth except for manufacturing, and as the population became at RM119.08 billion) in 2020, only 1% was for industrial units. more guarded with their money, public consumption also Residential properties saw activity boosted by the Home moderated. Ownership Campaign that was extended by the Government, lowering property acquisition costs via tax breaks. Despite the economic turmoil, the Government’s efforts to spur the domestic economy helped, with policy measures including More than 118,000 units of industrial property remains in the PENJANA, KITA PRIHATIN, Budget 2021 and PERMAI enabling market in 2020. But the National Property Information Centre consumption to rise. DRB-HICOM benefitted from policies such in their 2020 property market report2 remain positive on the as the sales tax holiday for vehicle purchases, with national prospects for 2021. carmaker PROTON recording another positive year. The total industry volume (“TIV”) of the automotive industry of just under 530,000 units may look poor against the original forecast of 607,000 units, but it is way above the 400,000 units forecast at the start of the pandemic (this figure was revised to 470,000 later).

1 https://www.bnm.gov.my/-/quarterly-developments-q4-2020 2 https://napic.jpph.gov.my/portal/web/guest/main-page DRB-HICOM ANNUAL REPORT 2020 99 HIGHLIGHTS

2020 IN FOCUS The Automotive Sector’s RM8.0 billion revenue in FY2020 was driven by national carmaker PROTON. Driven by the sales tax Whatever DRB-HICOM planned for 2020 was thrown into disarray holiday, PROTON’s sales in the last quarter of 2020 came in at the moment the very necessary movement control order (“MCO”) RM2.6 billion, the best quarterly performance for the year. was activated on 18 March 2020. Yet, the five-year plan we CORPORATE envisioned in FY2016/17 remained in sharp focus. In the Services Sector, revenue came in at RM3.5 billion in DISCLOSURE FY2020, mainly boosted by the performance of postal and PROTON was able to retain its second spot in terms of sales in logistics subsidiaries as well as banking operations. The MCO led 2020. After surpassing 100,000 units for the first time in four to e-commerce transactions rising steeply, helping Pos Malaysia years in 2019, they kept pace in 2020 by adding 8.8% more sales boost revenue in the period. in 2020 to end with 109,716 units3. Their first sports utility vehicle (“SUV”), the X70, was crowned the best-selling SUV in Malaysia At the Properties Sector, revenue was RM1.3 billion boosted by the in the year under review. Later in 2020, PROTON launched the completion of the disposals of property assets and investments REVIEW smaller X50, which has also been well-received by the market. by the Group. The disposal - first announced in 2018 as part of the PERFORMANCE re-structuring of DRB-HICOM’s property businesses - saw the Domestic performance alone won’t make PROTON successful, Group recognise a gain of RM862.6 million. Among the disposals when the TIV is merely 600,000 units. Thus, PROTON is already were the Group’s residential landbank with the Properties Sector eyeing export markets4, with the Pakistan venture with ALHAJ now focusing more on industrial properties, with their extensive Automotive already bearing fruit. landbank in Kedah, Perak, Melaka, and Johor. It also marks DRB-HICOM’s exit from the hospitality industry. Our rationalisation of the Properties Sector was completed in December 2020, with the sale of our non-industrial assets The following pages detail the highlights of DRB-HICOM’s LEADERSHIP completed. It also marked our exit from the hospitality segment, three Sectors, in the Operational Review and Business Review with assets in Kedah, Selangor and Terengganu now off our books. segments. I hope you will find the write-up comprehensive and The focus for the Sector is now industrial properties, something helpful. that DRB-HICOM has more than 30 years of expertise in. ACKNOWLEDGEMENTS In aerospace, Composites Technology Research Malaysia Sdn. Bhd. (“CTRM”) marked a significant feather in their cap, receiving I place on record my gratitude to our former Chairman, Dato’ the top award5 from French aviation giant Airbus SE in December Mohammad Zainal Shaari who left the Board in August 2020. ACCOUNTABILITY 2020. Awarded annually at the Airbus Supply Chain & Quality He led DRB-HICOM to an improved capital structure during his Improvement Programme Day, CTRM is the only Tier-2 supplier chairmanship, and was a firm promoter of culture and values in the world to have been given this recognition. It speaks volumes across our vast Group. Thank you as well to the Board of Directors of the Batu Berendam, Melaka-based company’s capabilities, for their wise counsel and for pushing not only our business and augurs well with our intention to grow in the segment. performance but also sustainability, integrity and governance as major thrusts of the Company. FINANCIAL PERFORMANCE

To all our stakeholders, including the more than 50,000 people PERSPECTIVE 2020 is the first full year for DRB-HICOM in its revised financial that we employ in the Group, thank you for your efforts in the year which now ends in December. Therefore, a year-to-year challenging year behind us. I ask you to soldier on with a stronger comparison of the financial performance will not be available, determination as we push DRB-HICOM to greater heights, for against the last financial period of only nine months (April to our mutual benefit. December 2019).

For the 12-months to December 2020, the Group charted SYED FAISAL ALBAR FINANCIAL a revenue of RM13.2 billion, with net profit coming in at STATEMENTS RM554.1 million in the period. Apart from being boosted by the completion of the Properties Sector rationalisation mentioned above, the Automotive Sector once again led the performance. RELATED INFORMATION 3 https://www.proton.com/en/press-release/2021/january/proton-records-even-higher-sales-in-2020 4 https://themalaysianreserve.com/2020/12/11/proton-to-enter-five-markets-in-2021/ 5 https://www.might.org.my/ctrm-bags-highest-airbus-supplier-award/ DRB-HICOM 100 ANNUAL REPORT 2020

MANAGEMENT DISCUSSION & ANALYSIS

The year 2020 was extremely challenging as a result of the pandemic which impeded business operations across the board. Yet, DRB-HICOM Berhad (“DRB-HICOM” or “the Group”) was bolstered by encouraging performances by some of our companies, and especially PROTON which has continued to shine within a generally lacklustre industry, becoming the only major marque in the country to record an increase in sales year-on-year. The Group also pressed ahead with the transformation of our Property Services, completing the divestment of non-core landbanks and assets in order to focus on industrial development.

Overall, the Group has performed commendably in a year that severely tested the fundamentals and sustainability of all organisations. That we have done well is a reflection not only of robust operations and resilience but also the commitment and calibre of our people.

MACROENVIRONMENT

In efforts to curb the pandemic, governments the world over shut In Malaysia, the Government imposed a Movement Control down businesses and instituted various forms of social as well as Order (“MCO”) in March which saw all economic activities movement restrictions. Almost all industries were affected, from except those deemed essential come to a halt for two months. manufacturing to services and even financial institutions. The Although businesses were allowed to resume by the end of May, result has been the worst recession since the Great Depression, the Ministry of Health and other regulatory bodies have issued with the World Bank recording the global economy taking a 4.3% a number of standard operating procedures (“SOPs”) and other dive in 2020. policies to minimise as far as possible the risk of infection. Along with greatly reduced economic activity, the country’s gross development product (“GDP”) shrank by 5.6% for the year. DRB-HICOM ANNUAL REPORT 2020 101

MANAGEMENT DISCUSSION & ANALYSIS HIGHLIGHTS

Together with a low interest rate environment – brought about by Bank Negara Malaysia (“BNM”)’s overnight policy rate (“OPR”) cuts resulting in a record low OPR of 1.75% – the tax reprieve helped to boost demand for certain marques. Overall, however, total industry volume (“TIV”) decreased by 12.4% from 604,281 CORPORATE units in 2019 to 529,434 units. After sales throughput also DISCLOSURE reduced significantly as most people recorded lower mileage and their vehicles required less maintenance. The slowdown in car assembly had a domino effect on our Manufacturing & Engineering (“M&E”) subsidiaries, especially those that supply non-national original equipment manufacturers (“OEMs”).

The impact on the aerospace industry was even more REVIEW

pronounced. Closure of international borders and grounding of PERFORMANCE aircraft cascaded into a 50% reduction in global airline capacity , and USD371 billion loss in income, leading to Airbus and Boeing cutting back on production of their narrow and wide-body aircraft by between 40% and 50%.

Within our Services Sector, while Pos Malaysia Berhad stood to benefit from a surge in demand for courier services, its aviation segment was greatly hampered by the absence of international LEADERSHIP flights. The enforced two-month closure and decreased vehicular use impacted PUSPAKOM, our vehicle inspection subsidiary; while Bank Muamalat was required to manage the dual challenges of lowered interest rates and the cost of a six- month government-induced loan moratorium. At DRB-HICOM University, meanwhile, students and the teaching faculty had to make the necessary adjustments to teaching and learning on- line. ACCOUNTABILITY

Finally, the first half of 2020 was very challenging for the property market as the MCO brought to a halt property viewings and other physical sales activities. Although the residential market picked up after the MCO eased in June, there was a drop in the volume As with most corporations, DRB-HICOM was not spared the and value of transactions for the full year. Nevertheless, sales for challenges and changes in our operating landscape, with all residential properties priced below RM500,000 was still strong, three of our core sectors affected either directly or indirectly by boosted by Government initiatives to promote home ownership PERSPECTIVE the new norm. such as the stamp duty exemption for first residential homes and the Home Ownership Campaign. The automotive industry was impacted both at the demand and supply ends of the value chain, with the mandatory lockdown Sales have been sluggish on the industrial front, too, due to entailing two-month closure of production plants; and subsequent financial constraints and the inability of foreign investors to movement/social constraints preventing normal sales and view potential sites. The exceptions have been warehouses and industrial buildings located in the Klang Valley, Johor and

marketing activities. This, together with widespread financial FINANCIAL pressures from the loss of income, led to a significant dip in sales Penang. STATEMENTS which was relieved to an extent when the Government introduced a sales tax incentive for the purchase of locally-manufactured cars under its PENJANA economic stimulus package. RELATED INFORMATION DRB-HICOM 102 ANNUAL REPORT 2020

MANAGEMENT DISCUSSION & ANALYSIS

FOCUS FOR THE YEAR

DRB-HICOM’s top priority during the year under review was to protect the well-being of its employees. Despite heavy pressure to maintain sustainable productivity, the Group ensured all SOPs were adhered to and heightened focus on health and safety across all operations to keep the employees safe.

Meanwhile, to safeguard business continuity, DRB-HICOM set up a Business Recovery Task Force (“BRTF”) to develop and effectively execute a strategic Group response to the crisis. This included more fluid management of manpower, with employees being deployed to different subsidiaries according to needs. Financially, a key challenge was to manage DRB-HICOM’s cash and liquidity. This involved re-prioritising capital expenditure while taking into consideration a prolonged period of economic uncertainty and the varied nature of the Group’s businesses. Operationally, BRTF had to ensure continuity of the supply chain. Towards this end, greater emphasis was placed on supplier engagement while the team also sourced for alternatives.

Even prior to the pandemic, the Group had embarked on a concerted cost-cutting programme as well as digital transformation, both of which stood us on firmer ground to manage the challenges of the pandemic. As a result of CROP, the course management programme, the Group was able to bring down its operating costs by approximately 5%. Efforts to create cost efficiencies were supported by greater investments in new CORPORATE HIGHLIGHTS technologies, which not only enhanced operational efficiencies but also enabled it to better engage with customers. As with all challenges, the pandemic brought with it some silver linings. For DRB-HICOM, it created a window of opportunity to In 2020, digitalisation efforts were accelerated due to the push ahead with a strategic decision that had been made to need to adapt to the new norm. There is now greater use of streamline our Properties Sector; shifting its focus towards automation and other digital systems across all subsidiary industrial properties. The objective is to be able to leverage the companies. At the same time, they are engaging more actively Group’s more than 30 years of experience in industrial property with customers, business partners and other stakeholders on development. During the year, two major transactions were various digital platforms, including social media. This has proved completed towards this end. to be especially effective in sales and marketing efforts among business-to-customer (“B2C”) companies. The two transactions, detailed later in this report, will enable DRB-HICOM to increase its industrial landbank, an area it will While adapting to the new norm, DRB-HICOM continued to build be focusing on in the Properties Sector. The deal also sees the its competitive edge by focusing on and further developing our Group exit the hospitality business. core competencies as well as ensuring optimum returns via concerted efforts to better manage costs. During the year, added On 5 June 2020, DRB-HICOM also acquired the remaining emphasis was placed on the following areas: 49% equity in Media City Ventures Sdn. Bhd. (“MCVSB”) from Enigma Permata Sdn. Bhd. (“EPSB”) under a Share Sale and • Faster and more cost effective execution of initiatives Purchase Agreement which was completed on 5 June 2020. • Business recalibration to achieve sustainable profitability The transaction was satisfied via a cash consideration of RM100 via enhanced processes as well as right-sizing of our human million. With MCVSB Group as a wholly-owned subsidiary, capital DRB-HICOM will be able to fully consolidate the financial returns • Review of partnerships and collaborations, and the pursuit of from the Concession and Lease Agreements while benefitting new opportunities in line with strategic plans from the long-term appreciation in value of Media City. • Entering new growth markets and creating value for high-growth companies by pursuing new business opportunities DRB-HICOM ANNUAL REPORT 2020 103

MANAGEMENT DISCUSSION & ANALYSIS HIGHLIGHTS CORPORATE DISCLOSURE REVIEW PERFORMANCE LEADERSHIP

FINANCIAL PERFORMANCE

Following the change in financial year-end from March to onwards. Revenue from the Services Sector totalled RM3.50

December in 2019, FY2020 represents a full year from 1 January billion, supported by improved performance by our banking ACCOUNTABILITY to 31 December 2020. Our results for FY2020 cannot, therefore, be segment, which achieved RM1.15 billion in revenue as well justifiably compared with that for FY2019, which represented only as RM2.20 billion achieved by the postal & logistics segment. the nine months from March to December 2019. In presenting Meanwhile the Properties Sector contributed RM1.63 billion our results, therefore, we will not make direct comparisons, but in revenue, due to the completion of the divestment of non- will still provide the relevant data for FY2019 to benchmark our industrial land assets in December 2020. performance.

The Group’s profit before tax (“PBT”) came in at RM540.1 million, PERSPECTIVE The Group recorded total revenue of RM13.16 billion, mainly as with significant contributions from the disposal of property a result of automotive sales and completion of the divestment of assets, as well as our equity dilution in World Cargo Airline non-industrial land assets in December 2020. Sdn. Bhd. On the downside, profit was impacted by temporary closure of various businesses within the Group due to the MCO The Automotive Sector recorded RM8.03 billion in revenue, as well as loss of goodwill and impairment on intangible assets driven by an 8.8% increase in sales of PROTON as well as amounting to RM123.3 million in certain subsidiaries. sales growth by other distribution companies within the FINANCIAL stable including Mitsubishi Motors Malaysia Sdn. Bhd., STATEMENTS DRB-HICOM Commercial Vehicles Sdn. Bhd. (“DHCV”) and MODENAS. A key contributor was the sales tax holiday from June RELATED INFORMATION DRB-HICOM 104 ANNUAL REPORT 2020

OPERATIONAL REVIEW AUTOMOTIVE SECTOR

Key Highlights

PROTON continued to be a shining beacon within the Group Other Significant Achievements in 2020, this time making waves with the launch of the locally-made version of the ultra-popular X70 in February, While PROTON continued to gain significant ground in the and following that with the introduction of a smaller yet national car segment, Honda maintained its top spot in the non- just as exciting new model, the X50, at the end of October. national car category, boosted by the launch of a fifth generation Bucking the overall TIV trend, which contracted during of its popular Honda City as well as the facelifted CR-V. the year, PROTON’s sales increased by 8.8% from 100,821 units in 2019 to 109,716 units in 2020. Meanwhile, both Mitsubishi and Isuzu increased their market share, the former as a result of the continued popularity of the Apart from the SUVs, the sales boom also came from Triton aided by the launch of a new SUV, the XPANDER; and the PROTON’s line up of upgraded old guards, specifically latter with a Limited-Edition Stealth model of its Isuzu D-Max the PIES, comprising the Persona, Iriz, Exora and Saga. pick-up truck and an upgraded light-duty ELF Safety Plus. Especially the Saga, Persona and Exora, these locally- Mitsubishi Motors Malaysia Sdn. Bhd. (“MMM”) ended the year designed and powered models enjoyed very encouraging with a 12.6% increase in sales year-on-year, while Isuzu Malaysia sales, taking them to the top of their respective segments. Sdn. Bhd. achieved total sales of 4,777 commercial vehicle Given its spectacular performance, PROTON’s overall trucks, accounting for 44.5% of the market. share in the local passenger car market increased by another 4.4 percentage points to 21.1%. EON Automart, a Mitsubishi dealer, also achieved better results year-on-year, driven by enhanced teamwork, improved customer Another key highlight was a strategic decision by PROTON relationship management (“CRM”), and aggressive digital to outsource its retail operations, thus enabling the marketing initiatives. company to be more laser-focused on the development and design of more exciting models. This saw Edaran Otomobil Nasional Berhad (“EON”) take over the management of nine PROTON Edar branches nationwide, making it the largest PROTON dealer in the country. DRB-HICOM ANNUAL REPORT 2020 105 HIGHLIGHTS

In the M&E segment, our subsidiaries are seeing the fruits of PROTON’s partnership with Geely as they tap into the potential of valuable technology transfer from their foreign strategic partner’s extensive network of suppliers. HICOM-Teck See Manufacturing Malaysia Sdn. Bhd. (“HTS”), for example, signed a Technical Agreement with Hengbo TSA in August 2019 on an air filter project and received a Letter of Award (“LOA”) from PROTON in July 2020. Production is expected to commence in July 2021. Similarly, PHN Industry Sdn. Bhd. (“PHN”) entered into a partnership with Toupu (a Tier-1 Geely supplier) in June 2019 for rear axle and subframes; CORPORATE and received a Letter of Award (“LOA”) for the X50 project in June 2020. DISCLOSURE

Preparing for production growth, HTS is constructing a new plant in Tanjong Malim, which will include the latest injection moulding plant and a state-of-the-art robotic painting line, and is expected to be completed in October 2021.

Work-in-Progress

With the Gempita AV-8 programme coming to an end, our defence specialist DRB-HICOM Defence Technologies Sdn. Bhd. (“DEFTECH”) REVIEW

is embarking on a comprehensive transformation plan to expand its revenue stream. During the year, it set up a Centre of Excellence PERFORMANCE to enhance its commercial competencies as it plans to participate more actively in tenders from a broader customer base. It is also working closely with a Turkish partner on winning the tender for the AV-6, the Army’s next large contract.

Key Risks & Their Mitigation

Segment Key Risks Mitigating Actions

Vehicle • Potential of further lockdowns due to • Observe lessons learnt from MCO 1.0 and respond more LEADERSHIP Assembly & resurgence of the virus effectively to any future crisis Distribution • Disruption in supply chain, causing • Expand network of suppliers, especially their geographical bottleneck in production location while building local capabilities • Soft consumer sentiment due to loss of • Work closely with financial institutions to offer attractive income and lower spend potential automotive loan packages while strengthening customer loyalty through after- sales programmes and Net Promoter Index

Components • Continued slowdown in automotive sales, • Further diversify customer base to lower market ACCOUNTABILITY Manufacturing especially of higher end foreign marques concentration risk • Keeping employees safe when working in • Adhere strictly to all SOPs and monitor employees close quarters in plants stringently • Enhance communication to share safety messages more effectively PERSPECTIVE What to Look Forward To

PROTON will continue to focus on its strategic initiatives and, through closer engagement with business partners, i.e. vendors, dealers and service providers, seeks to assure continuity of supply in order to maintain optimal manufacturing, sales and service operations. In this manner, it is confident of keeping the market enticed with a steady stream of exciting products. FINANCIAL STATEMENTS RELATED INFORMATION DRB-HICOM 106 ANNUAL REPORT 2020

OPERATIONAL REVIEW SERVICES SECTOR

Key Highlights

On 1 February 2020, commercial postal rates in Malaysia Other Significant Achievements increased for the first time since 2010. This, together with an upsurge in courier business as well as on-going PUSPAKOM has greatly accelerated its digitalisation journey transformation initiatives to create cost and operational and on-boarded more than 80% of its customers onto its on-line efficiencies, contributed to Pos Malaysia Berhad achieving reservation and payment system, MyPUSPAKOM. This has helped operating profits in June and July, indicating an imminent to create greater efficiencies in terms of managing customers as business turnaround. Additionally, Pos Malaysia’s courier well as reducing queues and waiting times. PUSPAKOM is also business is expected to continue expanding exponentially making progress in terms of expanding the range of services due to the boom in e-commerce activities in the country. offered under its One-Stop-Centre vision. In February 2020, it It will be in a good position to leverage this growth obtained approval from the Ministry of Transport to offer road opportunity as a result of enhanced parcel sorting and tax renewal service for light commercial vehicles below 7,500kg, delivery capacity, the former as a result of automation with other services in the pipeline. of its parcel sorting centres, and the latter driven by the Pos Rider crowdsourcing programme as well as a newly Meanwhile, Bank Muamalat has seen an expansion of its launched Entrepreneurship Programme, in which Pos leadership bench, with the appointment of a new Chief Credit Malaysia staff are encouraged to set up their own delivery Officer, Chief Information Security Officer and Chief Strategy business and receive commission-based income from the Officer. The strengthened C-suite is expected to lead the Bank postal company. through its newly developed strategy, called RISE24, comprising 24 initiatives to help the Bank “to ethically deliver the best value to stakeholders, society and the environment”.

Bank Muamalat is also making headway in terms of digitalisation. During the year, it introduced the Muamalat Application Programme (“MAP”) which allows customers to apply for financing on-line. With this platform, the application process is significantly shortened, thus greatly enhancing the customer experience.

DRB-HICOM ANNUAL REPORT 2020 107 HIGHLIGHTS

Work-in-Progress

DRB-HICOM University continues to ensure it produces industry-ready graduates. Living up to its motto of being “a university by the industry and for the industry”, it is rationalising its academic programmes to be more relevant to the market’s needs. This will see the CORPORATE 53 programmes offered in 2019 reduce to 25 by 2023. At the same time, it will maintain the highest level of quality by obtaining the DISCLOSURE Malaysian Qualification Agency (“MQA”) accreditation for all its programmes. Key Risks & Their Mitigation

Company Risk Mitigating Actions Pos Malaysia Heightened competition in the courier • Enhance quality of services and customer experience via

business digitalisation REVIEW

• Seek policy reforms in the courier market PERFORMANCE Increasing cost of fulfilling Universal Service • Rationalise mail outlets and expand agent-run touchpoints Obligation to reduce fixed costs • Engage with regulators on subjects pertaining to service rates PUSPAKOM Operating in a small market (only commercial • Expand non-concession services such as One-Stop-Centre vehicles and a small portion of private vehicles and voluntary vehicle inspection (“VVI”) LEADERSHIP are required to undergo routine inspection) • Expand coverage via mobile fleet where the fees are fixed by the Government • Enhance efficiencies via digital technologies Bank Muamalat Reducing profit margin environment • Focus on higher-yielding portfolios • Promote Current Account and Savings Account (“CASA”) as source of low-cost deposits • Optimise government securities holding to balance liquidity requirements and profitability

Data and cyber security threat along with • Appointment of Chief Information Security Officer to ACCOUNTABILITY greater digitalisation of systems and services oversee & manage cyber and technological risks • Enhance policies for bank-wide implementation of Technology Risk Management Framework (“TRMF”) and Cyber Resilience Framework (“CRF”) • Elevate cyber risk awareness and mitigation skills throughout the Bank via e-learning and e-training

Impact of rising unemployment and economic • Integrate risk impact assessment in credit decisions PERSPECTIVE slowdown on business sustainability • Avoid vulnerable segments and focus on good-rated customers DRB-HICOM The tertiary education sector is highly • Grow corporate training business University competitive with many new entrants • Increase revenue by maximising campus utilisation • Provide flexible educational opportunities to widen market segment FINANCIAL STATEMENTS

What to Look Forward To

DRB-HICOM plans to establish a Corporate Training Institute (“CTI”) to fulfil the training needs of its employees Group-wide. It is envisaged that the CTI will provide a mix of short courses, professional diplomas, professional certifications and micro-credential programmes. With the relocation of Akademi Saga to the DRB-HICOM University campus in Pekan in 2020, an ideal venue for the institute has been created. The Group will be working on setting up and officially opening the institute in the near future. RELATED INFORMATION DRB-HICOM 108 ANNUAL REPORT 2020

OPERATIONAL REVIEW PROPERTIES SECTOR

Grand entrance to Proton City, Tanjong Malim

CORPORATE HIGHLIGHTS

Two major transactions were completed by the Group in its effort At the same time, through the same deal, HGSB acquired to revamp its Properties Sector. approximately 1,243.46 acres of freehold land in Tebrau, Johor Bahru, previously owned by Prisma Dimensi and Kelana Through HICOM Glen Sdn. Bhd. (“HGSB”), the Group acquired Ventures and approximately RM288.7 million in cash. This brings approximately 287.73 acres of land earmarked for industrial use the Group’s industrial land bank to a notable 2,790 acres spread in Alor Gajah, Melaka for a cash consideration of RM239.4 million. across the nation. The Sale and Purchase Agreement with Eksklusif Pesona Sdn. Bhd. was executed on 30 October 2020 and duly completed on On 5 June 2020, the Group also acquired the remaining 49% 24 December 2020. Through this acquisition, DRB-HICOM will equity in Media City Ventures Sdn. Bhd. (“MCVSB”) from Enigma be able to maintain continuity in the development of industrial Permata Sdn. Bhd. (“EPSB”) under a Share Sale and Purchase parks in Melaka, following the successful earlier development of Agreement which was completed on 5 June 2020. The transaction HICOM Pegoh Industrial Park, which is just 6 km away from the was satisfied via a cash consideration of RM100 million. With new site. MCVSB Group as a wholly-owned subsidiary, DRB-HICOM will be able to fully consolidate the financial returns from the On 31 December 2020, The Group also completed the disposal Concession and Lease Agreements while benefitting from the of 10 property assets to Prisma Dimensi Sdn. Bhd. (“Prisma long-term appreciation in value of Media City. Dimensi”) and Kelana Ventures Sdn. Bhd. (“Kelana Ventures”) for approximately RM1,934.7 million. This included its 70.6% equity in Horsedale Development Berhad under which it owned Key Highlights Glenmarie Golf & Country Club (“GGCC”) and Holiday Inn Kuala Lumpur Glenmarie (“HIKLG”), among others; and its 100% equity The most significant development during the year was in Rebak Island Marina Berhad, through which it owned Vivanta completion of the divestment of non-core properties to by Taj, Rebak Island Resort Langkawi. Effectively, the transaction Prisma Dimensi and Kelana Ventures on 31 December has enabled the Group to unlock the value of its our non-core 2020. This marks the closure of agreements that had been property assets and investments at their current market value entered into between the Group and the two companies and exit the hospitality business. in March 2018. As a result of this transaction, and the separate acquisition of 287 acres of land in Gadek, Melaka, the Group’s total industrial land bank has increased by 122% to 2,790 acres, setting the Group up to further build its industrial portfolio leveraging niche expertise that has been gained over the last 30 years. DRB-HICOM ANNUAL REPORT 2020 109 HIGHLIGHTS

Other Significant Achievements Work-in-Progress

Despite the disruption brought on by the pandemic, the Group The Group is currently working on Lease 2 and the Concession managed to achieve close to 100% sales of residential properties Agreement (of Phase 1) of the Media City development, under in Glenmarie Johor and Proton City. In the former, it had which it is replacing the existing broadcasting system and CORPORATE launched 56 semi-detached and cluster homes under Phase 1C developing new office buildings, studios and an auditorium DISCLOSURE in April 2018. Vacant possession for the units were obtained on including the installation of new broadcasting equipment. 15 September 2020, and by year-end approximately 93% of the This phase is expected to be completed and handed over to houses had been sold. Meanwhile, in Proton City, it had launched the Government by end 2021, following which it will begin on 130 single-storey and 1½-storey link houses in July 2018. By end Phase 2 which comprises broadcasting-related and commercial 2020, approximately 98% of the units had been sold, and vacant developments to be delivered by 2026. Having acquired 100% possession was delivered in January 2021. equity in MCVSB, the Group stand to benefit from the full returns

of this project, which includes asset management services that REVIEW

will continue until 2040. PERFORMANCE

Key Risks & Their Mitigation

Risk Mitigating Actions With the re-imposition of the MCO in January 2021, buyer • The Company will adopt a more cautious approach and launch sentiment is likely to be affected residential projects in smaller parcels catering to the mass LEADERSHIP market in Proton City. The release of semi-detached units in Glenmarie Cove and launches in Glenmarie Johor will be delayed as they do not fall into the mass market category.

Developers are re-strategising their product offerings • More concentrated efforts will be channelled towards the sale of to cater for the demand for properties priced below industrial land in HICOM Pegoh Park and Proton City. RM500,000, adding to already high inventory levels of completed properties ACCOUNTABILITY

What to Look Forward To

The team has started working on master plans for our newly acquired land banks in Melaka and Johor. Site works for both developments are expected to commence in 2022 with the first launch planned for 2023. PERSPECTIVE FINANCIAL STATEMENTS

The PROTON Sports Complex at Proton City, Tanjong Malim RELATED INFORMATION DRB-HICOM 110 ANNUAL REPORT 2020

BUSINESS REVIEW

AUTOMOTIVE SECTOR

A robotic Stud Welding machine at work at PHN Industry

DRB-HICOM is involved in the entire automotive value chain from research & development, the production of parts and components to the assembly, sales and after-sales service of national and foreign marques. We own PROTON, the nation’s first national car brand; MODENAS, the nation’s motorcycle brand; and DEFTECH, the leading defence solutions provider in the country. We also supply global players in the aviation sector via CTRM which specialises in composites for the aerospace industry.

PROTON Holdings Berhad (“PROTON”) Proton Saga, which celebrated its 35th anniversary on 8 July, was not only the overall best-seller for the company – with a take-up Despite two months of halted production due to the pandemic, of 46,527 units – it also posted its best year-on-year sales growth PROTON continued its stellar run which began with the launch of ever, at 20.1%. This was followed by the Iriz, with a year-on-year the X70 SUV in December 2018. In 2020, the locally made version increase of 13.4%, and the Persona and Exora which grew 9.1% of the X70 was launched in February, while a smaller SUV – the and 6.1% respectively. Meanwhile, the launch of the X50 and the X50 – made its debut in September. In addition, the revamped continued popularity of the X70 combined to make PROTON the and thoroughly upgraded Proton PIES (Persona, Iriz, Exora and number one SUV brand in the country. Saga) models continued to entice Malaysians and ended the year with good sales figures. Sales of the X70 dampened slightly due to decreased production resulting from the two-month lockdown period and disruption in For the year as a whole, PROTON recorded 8.8% growth in sales, parts supply from local and overseas vendors. However, this was in direct contrast with Malaysia’s TIV which contracted by 12.4%. cushioned by the extremely positive reception towards the X50, It was, in fact, the only top-five automotive brand in Malaysia to which started rolling off the production line on 15 September. As see enhanced sales, leading to a 4.4 percentage point rise in of year-end, over 20,000 bookings had been made for the more the local passenger vehicle market share to 21.1%. Beginning compact SUV while 3,787 units were sold as production was the year relatively sluggish due to the COVID-19 pandemic slowly ramped up to meet demand. and the resultant MCO, sales started to pick up in June when the Government waived the sales tax for locally-assembled cars under its stimulus package - PENJANA. Thanks to the tax exemption, PROTON witnessed a total of 109,716 units leaving its showrooms in 2020, up from 100,821 units in 2019. DRB-HICOM ANNUAL REPORT 2020 111 HIGHLIGHTS

A key contributor to PROTON’s performance is the company’s continuous focus on enhancing its manufacturing capabilities while maintaining the highest vehicle quality. Aside from technological improvements, new processes and systems were introduced to drive an increase in capacity and precision. Of note, PROTON significantly improved its Global Customer Product Audit (“GCPA”) score demonstrating the positive outcomes of its quality initiatives. CORPORATE Exports also played a role in PROTON’s performance for the year. In 2020, the first locally-assembled Proton Saga made its debut in DISCLOSURE Kenya, while both the Saga and X70 were introduced in Pakistan. The Saga also burst onto the scene in Egypt, Bangladesh and Nepal, while the X50 successfully crossed the borders to enter Brunei on 19 December.

On the retail end, PROTON increased its sales channels with the opening of another 20 3S/4S outlets bringing its total network to 140 outlets at end 2020. Meanwhile, PROTON Edar Sdn. Bhd. also embarked on a network transformation programme to transfer the management of retail operations to its dealers. This will allow the company to focus on product development, product quality, after-

sales service and exports while opening the door for dealers to enhance their customer service deliveries. REVIEW

PERFORMANCE LEADERSHIP ACCOUNTABILITY

Honda Accord 1.5L VTEC Turbo

DISTRIBUTION COMPANIES PERSPECTIVE Honda Malaysia Sdn. Bhd. (“Honda Malaysia”) The company launched two new models in 2020, namely a fifth generation Honda City and a facelifted CR-V. Introduced to the Honda Malaysia assembles the brand’s cars at its plant in Pegoh market on 13 October and 5 November respectively, these two Melaka, and offers sales as well as after-sales service via a new models contributed to the boost in sales for the last quarter network of 88 centres nationwide. of the year.

In 2020, Honda Malaysia retained its top spot in the non-national Having spent a total of RM79.1 million in capital investments

car segment for the sixth consecutive year. This was largely to upgrade and modernise its plant for upcoming new models FINANCIAL STATEMENTS contributed by the City models which accounted for 34% of total and to ensure better operational efficiency, Honda Malaysia is sales, followed by the Honda Civic and Honda HR-V, which made confident of sustaining its market leadership in 2021 and beyond. up 21% and 16% of total sales respectively. Overall, however, the The company plans to introduce three new models, and has set MCO resulted in a 29.2% decrease in new car registry to 60,468 the target of achieving sales of 70,000 units in 2021. Supported by units. a robust strategy and positive mind-set, the company also seeks to contribute towards the recovery of Malaysia’s automotive industry. RELATED INFORMATION DRB-HICOM 112 ANNUAL REPORT 2020

BUSINESS REVIEW AUTOMOTIVE SECTOR

Mitsubishi Motors Malaysia Sdn. Bhd. (“MMM”)

MMM is the official distributor of Mitsubishi Motors vehicles in Malaysia. The company has a network of 52 showrooms, of which seven are in Sabah and seven in Sarawak. A total of 46 of Isuzu D-Max its showrooms are 3S centres, offering sales, service and spare AT X-Terrain parts.

Despite the unprecedented challenges brought on by the pandemic, MMM closed the year with sales of 9,163 units, 12.6% more than in 2019. This was contributed mainly by the company’s Isuzu Malaysia Sdn. Bhd. (“Isuzu Malaysia”) best-selling Mitsubishi Triton which enjoyed a 19.4% increase in sales to 6,915 units, leading to a four-percentage point gain Isuzu Malaysia markets and distributes Isuzu commercial in the pick-up truck segment where it now accounts for 20.7% vehicles, namely the light-duty ELF, medium-duty FORWARD, market share. Launch of a new colour for the Triton – Sun Flare heavy-duty GIGA and GIGA Prime Movers, D-Max pick-up trucks Orange Pearl – added to the allure of the model. and the sport utility vehicle, MU-X.

An added boost to its performance was the launch in November The year saw Isuzu maintain its leadership in various commercial of the new XPANDER, which received good market response. vehicle segments. It was number 1 in the overall truck segment With its combination of style, practicality and competitive pricing, for the seventh consecutive year, while Isuzu ELF was the best- the XPANDER offers great convenience and comfort allowing selling light-duty truck for the 11th consecutive year. These customers to pursue an adventurous lifestyle within their means. rankings contributed to Isuzu being placed ninth among all Since its launch, the new XPANDER has received close to 5,000 automotive brands. bookings, and in December, contributed to 44% of MMM’s total sales. Isuzu Malaysia itself achieved total sales of 4,777 commercial vehicle trucks, accounting for 44.5% of the market, while in In addition to its great products, MMM launched a number of the pick-up segment, it sold a total of 4,031 Isuzu D-Max units, programmes to maintain and enhance its high level of customer making up 12.2% of the market. Expanding its product range, the service. In 2020, it introduced TEST DRIVE 2U, allowing customers company launched a Limited Edition Stealth Isuzu D-Max Pick- to book test drives on-line. It also launched the MITSUBISHI up truck on 6 August. This was followed by the introduction of an CONNECT mobile application (“app”) offering a range of vehicle- upgraded light-duty ELF Safety Plus on 1 September. related digital services for the convenience of Mitsubishi owners. In addition, the company expanded its dealer outlets to Temerloh, DRB-HICOM Commercial Vehicles Sdn. Bhd. (“DHCV”) Kuala Selangor and Petaling Jaya, and saw more than 50% of its dealers upgrade their outlets in line with the brand’s new Visual In September 2013, DHCV was appointed the exclusive assembler Identity (“VI”) to deliver an enhanced customer experience. and distributor of TATA commercial vehicles in Malaysia. Originally importing CBU units, in 2019 it rolled out the first two TATA CKD models, namely the TATA Super Ace Ultra 814 (7,500kg) and Ultra 1014 (10,400kg) small pick-up trucks.

The decision to embark on CKD operations, coupled with the aggressive sales and marketing activities, contributed to enhanced sales and market share especially in the small pick-up segment. Despite the pandemic, DHCV’s sales increased by 39% to 114 units, compared to 82 units in 2019.

DHCV seeks to differentiate TATA in the local market by focusing on the development of specialised body applications to cater for the specific needs of niche customer segments. In line with this strategy, collaborating with TATA Motors Limited (“TML”), it will introduce more product variants in 2021 that offer competitive specifications. Three variants are in the pipeline, namely the Mitsubishi XPANDER TATA Ultra 815 7,500kg, Ultra T7 4 tyres and Intra V30 Euro 4, which are expected to build the TATA brand within the local business community. DRB-HICOM ANNUAL REPORT 2020 113

BUSINESS REVIEW AUTOMOTIVE SECTOR HIGHLIGHTS

MOTORCYCLES RETAIL COMPANIES

Motosikal dan Enjin Nasional Sdn. Bhd. (“MODENAS”) Edaran Otomobil Nasional Berhad (“EON”) MODENAS is a Malaysian motorcycle manufacturer and CORPORATE distributor, specialising in mopeds, scooters and street bikes. It EON is the holding company for Euromobil Sdn. Bhd. (“ESB”), EON DISCLOSURE also assembles imported brands such as Yamaha and Kawasaki Auto Mart Sdn. Bhd. (“EAM”), HICOM Auto Sdn. Bhd. (“HASB”), at its plant in Gurun, Kedah. DRB-HICOM Leasing Sdn. Bhd. (“DLSB”) and DRB-HICOM EZ- Drive Sd. Bhd. (“DESB”). It also has 48% shareholding in MMM Although total industry sales volume (“TSV”) of motorcycles which distributes Mitsubishi vehicles in Malaysia. Through these declined by 8.9% year-on-year, MODENAS recorded a growth of companies, EON is involved in the retail sales of multiple brands 57.4%, aided by an increase in demand for mopeds, which forms such as Audi, Mitsubishi and Volkswagen including spare parts

76.4% of the total market, followed by scooters and street bikes, and accessories as well as servicing motor vehicles and vehicle REVIEW rental/leasing. at 20.8% and 2.8%, respectively. In an impressive achievement, PERFORMANCE MODENAS was the only motorcycle marque that recorded growth In November 2020, the company expanded its portfolio of in 2020. automobile marques by acquiring the dealership of PROTON cars through the takeover of nine PROTON Edar outlets, namely Contributing to sales growth was a general preference by Glenmarie, Damansara, Ampang and Banting in the Klang Valley; Malaysians to avoid public modes of transport – for social Juru, Jalan Makloom and Taiping in the northern region; as distancing reasons – and enhanced affordability of smaller- well as Batu Pahat and Larkin in the southern region. EON now engine motorcycles given the bank loan moratorium. MODENAS operates the largest PROTON network in Malaysia. was also able to stimulate demand with the launch of three new LEADERSHIP models/variants, namely the Modenas Pulsar NS200 ABS in Leveraging Group synergies, it is confident of accelerating the January; Modenas Elegan 250 ABS in November; and Modenas growth of PROTON’S retail business as well as improving the Kriss 110 Disc Brake in December. insurance business at EON.

Aided by its new models, and particularly the iconic Modenas EON Auto Mart Sdn. Bhd. (“EAM”) Kriss 110, total sales increased from 22,614 units in 2019 to 35,610 units, contributing to MODENAS growing its market share As an authorised MMM dealer, EAM is principally engaged in the from 4.1% to 7.1%, placing it third after Yamaha and Honda. sales of Mitsubishi vehicles and spare parts and the provision of after-sales services in Malaysia. With eight 3S centres, it ACCOUNTABILITY MODENAS also introduced a new product, in the form of an commands the largest market share of MMM sales, at about all-new fully synthetic motorcycle oil, EMOS 7000E, which was 19.7% of the total. It also operates one Body and Paint (“B&P”) developed specifically for street bikes. With viscosity grade hub in Kota Damansara and is the authorised service provider at SAE 10W-50, and blending premium additives with base oil B&P centres in Kota Kinabalu, Johor Bahru and Ampang. composed of high-quality polyalphaolefins (“PAO”) and ester, this During the year, EAM achieved an encouraging performance due motorcycle engine oil manifests the company’s commitment to to the launch of the XPANDER SUV in November 2020. expanding its range of after-sales services and products whilst PERSPECTIVE delivering sustainable value to its customers. Focused on enhancing its customer experience, MMM launched a mobile after-sales programme as well as a Privilege Service for its Car Club during the year. Despite the pandemic, it also continued to roll out its new Visual Identity (“VI”), with outlets in Jalan Ampang and Kota Kinabalu joining those in Glenmarie and Johor in sporting the modern look. Four more outlets – in Melaka, Kuching, Bayan Lepas and Tawau – are expected to FINANCIAL reflect the new VI within the financial year 2021. In Melaka, this STATEMENTS will involve relocation into a new standalone 3S facility.

For 2021, there are plans to develop new B&P facilities in Bayan Lepas and expand the B&P business in Johor Bharu to further enhance the customer experience. The company will also continue to focus on its Fleet & Corporate sales, targeting government-linked companies and government agencies. At the Motorcycle assembly operations at the RELATED same time, it will invest more into digital marketing as part of its MODENAS plant in Gurun, Kedah INFORMATION efforts to better connect with its target customers while keeping a tight rein on costs. DRB-HICOM 114 ANNUAL REPORT 2020

BUSINESS REVIEW AUTOMOTIVE SECTOR

Audi Q3 Sportback

Euromobil Sdn. Bhd. (“Euromobil”) In response to movement restrictions, VPCM also launched a number of customer service innovations for convenient Euromobil is the authorised Audi dealer in Malaysia with outlets communication as well as safe engagement and delivery. These in Glenmarie, Chan Sow Lin (Kuala Lumpur) and Johor Bahru. included an eShowroom (offering exclusive on-line savings), a Contactless Dialogue Reception and after-sales pick-up and drop- Despite the challenges faced in 2020, Audi successfully launched off service. The Contactless Dialogue Reception is an interactive several new models in the Malaysian market. Joining the current on-line video platform through which service specialists can model line-up in August 2020 were the all-new Audi Q3 Sportback communicate with customers on the recommended service/ and four RS models – the Audi RS 4 Avant, RS 5 Sportback, RS repairs for their vehicles. 6 Avant and RS 7 Sportback. This was followed by the launch of the facelifted A5 Sportback (PI) front wheel drive (“FWD”) and A5 Moving forward, HASB plans to enhance its digital platforms to Sportback (PI) Quattro in October, both in a distinctive new colour generate more leads. It will also further strengthen its after- - District Green. Prior to these launches, Euromobil ensured its sales offerings prioritising warranty audit improvements as it on-line showroom was up and running, enabling customers to seeks to consistently provide a 5-star customer experience. browse through and book their cars from the comfort of their homes. Automotive Corporation (Malaysia) Sdn. Bhd. (“ACM”)

In 2021, Euromobil plans to further strengthen its sales with ACM is the largest dealer of Isuzu trucks, pick-ups and SUVs in the launch of even more models. It already has a ready line-up Malaysia. The company operates out of six 3S centres across which includes the facelifted Audi Q5 (PI), the Q2 (PI), the new A3 the country – namely in Shah Alam, Batu Caves, Kuantan, Juru Sportback and new Q5 Sportback. Meanwhile, to maintain high (Penang), Ipoh and Johor. standards of delivery, it is also enhancing its after-sales service with the Euromobil Loyalty Programme, Extended Warranty Due to challenges of the new norm as well as softened demand Programme and the Audi Conformity Check for Audis that are from the fleet business as companies cut down on their operating brought in by third parties as reconditioned cars. expenses, ACM experienced a 13.1% drop in total sales, which was reflected in a year-on-year decrease in the company’s HICOM Auto Sdn. Bhd. (“HASB”) contribution to total Isuzu sales, from 10.1% to 8.9%.

HASB is an authorised Volkswagen Passenger Cars Malaysia Nevertheless, ACM continued to be recognised for its sales (“VPCM”) dealer, its 3S centre in Seremban 2 accounting for 5% efforts, winning second place in Isuzu’s Top Sales Award 2020; of total Volkswagen sales in the country. and top position in the Medium & Heavy Duty (Peninsular Malaysia) category. The year saw Volkswagen Malaysia launch several new locally- assembled models. In January 2020, the Passat Elegance was 2021 heralds some exciting changes for the company. Not only introduced to the market. This was followed by the launch in are sales expected to pick up alongside the expected economic August of the Tiguan Allspace and the R-Line trinity of the new recovery, but ACM will be launching a new Isuzu D-Max. Passat R-Line, the all-new Arteon R-Line, and the all-new Tiguan Leveraging digital marketing as well as providing attractive Allspace R-Line. These, however, were unable to cushion the incentives to motivate its sales team, ACM is confident of its impact of the pandemic, which contributed to a drop in overall prospects for the year. It has also identified a niche industry to sales. target as it pursues its fleet sales approach more aggressively. DRB-HICOM ANNUAL REPORT 2020 115

BUSINESS REVIEW AUTOMOTIVE SECTOR HIGHLIGHTS

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 is the exclusive AVIS Car Hire agent in Malaysia, and CORPORATE industry, encompassing the importation of completely built the leasing arm of the DRB-HICOM Group. Through DRB-HICOM DISCLOSURE up (“CBU”) vehicles and completely knocked down (“CKD”) Leasing Sdn. Bhd., it offers short-term rental of passenger kits, forwarding & clearance, vehicle yard management, Pre- vehicles and long-term leasing of passenger and commercial Delivery Inspection (“PDI”) and final delivery to dealer networks. vehicles as well as agricultural machinery and equipment. Its customers include major marques namely PROTON, Audi, Volkswagen (“VW”), Honda, Mitsubishi, Isuzu, TATA, Mercedes With declining international and domestic travel, demand for Benz, Fuso, Actros and MODENAS. short-term rentals decreased. Yet, EZ-Drive was able to maintain

an acceptable vehicle utilisation rate throughout 2020 for the REVIEW

The year saw DHAS import CKD kits for VW and PROTON’s X70 retail sector while steadily growing its commercial business. PERFORMANCE and X50; and CBU vehicles for Mitsubishi, VW, Audi and Isuzu. It To increase its visibility in the retail segment, it engaged more also engaged with MODENAS on the import of motorcycle CKD actively with consumers on social media, and introduced the AVIS kits in collaboration with Bajaj (India), Zongshen (China) and Car Hire mobile application and digital check-in feature via its Kymco (Taiwan). However, the volume of imports dropped as a website, www.avis.com.my. These served the dual purpose of result of the two-month closure of automotive plants; and, for connecting in a convenient manner with customers while also Proton X70 CKD kits, due to production stoppage at Geely in enabling them to enjoy a safe and contactless rental experience. January and February 2020, followed by delayed shipment in 2020 due to a typhoon. A large number of customers were business travellers returning LEADERSHIP from overseas and who required transport home following Nevertheless, DHAS is optimistic of regaining its earnings in 2021 their quarantine. As an added value, EZ-Drive offered attractive as its prospects are looking bright on various fronts. Imports promotions as well as free delivery and collection of the of modular parts and CKD kits for Proton X50 and the kits for rented vehicles. It also continued to build on its AVIS Malaysia Kymco and Zhongsheng motorcycles are set to increase along Partnership programme, through which EZ-Drive partners with a significant volume of the new Isuzu D-Max CBU. DHAS is hotels, food & beverage brands and theme parks in order to offer also exploring other business opportunities with VW which aims attractive deals to customers. As of December 2020, it had 38 to strengthen its brand presence in Malaysia; and with PROTON, partners under the programme representing a cross-section of ACCOUNTABILITY which is likely to introduce more PROTON-Geely CKD models. industries. For these imported kits/vehicles, DHAS will also provide related logistics services. Meanwhile, as MODENAS enhances its export Meanwhile, demand from the commercial leasing sector business, the company will also play a key role in the export of continued to grow steadily, contributing to a 9% increase in fleet CBU motorcycles, in addition to their import. size.

Outside of the DRB-HICOM Group, DHAS will continue to provide Going forward, the company is confident of recovery in the travel additional yard management services for brands such as and tourism industry which will in turn, boost its retail services. PERSPECTIVE Mercedes-Benz, Go Auto Manufacturing and Hap Seng Trucks. At the same time, to fully tap the commercial vehicle leasing segment, it seeks to market its services more aggressively with DHAS also aims to expand its trading activity in the automotive state governments and leverage potential synergies with the sector, especially in components manufacturing, emulating DRB-HICOM Group. EZ-Drive has also set its sights on developing PROTON’s Factory in Factory (“FIF”) business model. a Fleet Management service to create a new revenue stream for the company.

FINANCIAL Targeting manufacturing, agricultural, petrochemical, logistics STATEMENTS companies and MNCs, EZ-Drive will continue efforts to secure its position as the leading car rental and leasing service provider in Malaysia as it grows its clientele base beyond 2020. RELATED INFORMATION DRB-HICOM 116 ANNUAL REPORT 2020

BUSINESS REVIEW AUTOMOTIVE SECTOR

Autonomous Welding for Fastener Assembly

MANUFACTURING & ENGINEERING

HICOM Automotive Manufacturers (Malaysia) Sdn. Bhd. HICOM Diecastings Sdn. Bhd. (“HDSB”) (“HA”) HDSB supplies aluminium die cast products and services to some HA assembles the Mercedes-Benz C, E and S-Class, GLC, GLC of the biggest names in the local and international automotive, Coupé as well as Actros, Mitsubishi Fuso Light, Medium-Duty motorcycle and related industries. It manufactures a range of trucks and the new Mitsubishi XPANDER, in addition to the precision aluminium casting products, specialising in powertrain Volkswagen Passat, Tiguan Allspace and Arteon at its plants in and drivetrain engine components such as steering housing, oil Peramu Industrial Estate, Pekan. pan, cover cylinder heads, cover timing chains, oil pumps, water pump covers, fuel pipe delivery and engine brackets. Its clients The year was challenging for HA given soft demand especially include PROTON, Perodua, Robert Bosch Automotive Steering, for non-national cars, which was compounded by the deferment Honda Malaysia, Mazda Japan, Magna Power Train and Hanon in the start of production for the new business operations due System, among others. to the impact of COVID-19 pandemic. Despite the setbacks, the company pressed ahead with the expansion of its Mercedes-Benz Currently, RM71 million worth of new business is under Body Shop, with a flexible line offering LHD and plug-in options development, of which RM31 million was secured in 2019 and to cater for new models, including refurbishment of the previous RM40 million in 2020. The projects consist primarily of engine Suzuki assembly line for Mitsubishi’s newly launched XPANDER development and localisation programmes for PROTON (GEP3), model. Meanwhile, intense focus on cost containment led to Perodua (D28E & D41E) and Honda (AP2T), and are scheduled to savings that exceeded its target by 70%. be completed in 2021 and 2022.

Revenue contribution for the year was dominated by Mercedes- Meanwhile, HDSB is preparing quotations for the manufacture Benz, followed by VW, Hap Seng and Mitsubishi. Total revenue and export of electric steering housing and electric water pump was recorded at RM 82.0 million, and the company is optimistic components for companies in South Korea and North America. of its future prospects as it looks to expand its business with Together, these contracts are valued at RM80 million per annum. the addition of new models to meet an anticipated recovery in Production of electrification engine component items represents demand. the company’s capability to penetrate new growth areas that would open the company to business opportunities in the automotive business globally.

Securing its longer-term prospects, HDSB is investing into more automation and robotic processes to enhance its capacity and operational efficiencies. This will help the company sustain its competitive advantage and accelerate its business growth. DRB-HICOM ANNUAL REPORT 2020 117

BUSINESS REVIEW AUTOMOTIVE SECTOR HIGHLIGHTS

HICOM HBPO Sdn. Bhd. (“HHBPO”) As of October 2020, German-based HBPO Gmbh (“HBPO”) has become a major shareholder of HHBPO, enabling our associate HHBPO is the leading supplier of front-end modules (“FEMs”) in company to benefit from technology transfer, including digital Malaysia with its plants in Tanjong Malim, Perak; Pekan, Pahang; systems and processes which will greatly enhance its operations, and Kulim, Kedah delivering to PROTON, VW and BMW. quality and administration. HHBPO will also have greater access CORPORATE to HBPO products such as cockpit modules, grill shutters and DISCLOSURE Although it was a challenging year, with BMW and VW revising newly developed parts for electric vehicles. down their production forecasts, HHBPO stood to benefit from strong performance of the Proton X70 and launch of the X50 in Working with HBPO, HHBPO is targeting Japanese and Korean September. It also gained a new customer - MMM, for which it OEMs in Indonesia and Thailand who have recently installed new started producing cooling modules in October. Although current plants or expanded existing plants in these countries. Through volumes are small, it marks the company’s entry into the HBPO, too, our associate plans to localise FEM production for

Japanese OEM market. Mercedes-Benz which currently imports directly from HBPO’s REVIEW

plant in Germany. PERFORMANCE Boosted by PROTON, HHBPO recorded its highest ever production in 2020 (with cumulative FEM volume from the time the company HICOM-Teck See Manufacturing Malaysia Sdn. Bhd. was established in 2012 nearing 100,000 units). This was reflected (“HTS”) in the company’s revenue, which almost doubled year-on-year and exceeded management’s pre-pandemic target. HTS is a leading manufacturer of precision plastic injection mouldings for the automotive industry. It is accredited with the HHBPO’s performance was further boosted by prudent cost IATF 16949:2016, EMS ISO 14001:2015 and OHSAS 18001:2007 management via Kaizen and other initiatives, including gypsy certifications; and the AS9100 Rev D for the aerospace industry. LEADERSHIP manpower optimisation, which led to overall savings of about RM2 million. For financial year 2020, the company’s revenue increased by almost 100% to RM476.3 million, mainly from automotive parts comprising bumpers and cockpits.

The company is undergoing a comprehensive transformation to automate its production lines. This has seen HTS install the most current technologies at its existing plants as well as the plant being developed in Tanjong Malim, which is expected ACCOUNTABILITY to begin commercial operations in October 2021. During the year, it equipped the Tanjong Malim plant with a state-of-the- art robotic painting line. It also installed the latest injection moulding machine at the Tanjong Malim plant and the existing Shah Alam plant for enhanced production capacity, catering to both automotive and non-automotive customers. PERSPECTIVE While putting in place systems and processes for enhanced operations, it has continued to focus on the Innovative Creative Circle (“ICC”) and HICOM Management System (“HMS”) Capability Development programmes to inspire greater An HHBPO employee working on a front-end module innovation and productivity among employees. This is supported by various human capital development programmes aimed The company’s prospects look bright with more models waiting towards excellence in manufacturing, quality, cost, delivery and FINANCIAL to be launched by existing as well as new customers. Among service to support its long-term growth. Going forward, HTS is STATEMENTS existing customers, VW plans to introduce a new model in 2021; intensifying and expanding to wider range of Non-Automotive PROTON will be introducing replacement models in 2022 while plastics components. also looking to export the X70 and X50 SUVs. Meanwhile, a new marquee OEM is to commence production in December 2021. In addition, HHBPO will be assembling headlining modules for the new variant of VW Arteon and Tiguan scheduled in Q2 2021. This new product will add to its current product portfolio. RELATED INFORMATION DRB-HICOM 118 ANNUAL REPORT 2020

BUSINESS REVIEW AUTOMOTIVE SECTOR

HICOM-YAMAHA Manufacturing Malaysia Sdn. Bhd. ISUZU HICOM Malaysia Sdn. Bhd. (“IHM”) (“HYMM”) IHM manufactures ISUZU commercial vehicles such as the HYMM manufactures and assembles Yamaha motorcycle N-Series light-duty trucks, F-Series medium and heavy-duty engines and parts for mopeds and scooters with engines ranging trucks and D-Max pick-up trucks. in capacity from 115cc to 150cc. The pandemic resulted in overall sales decreasing year-on- It was a relatively successful year for HYMM, in which Yamaha year. However, ISUZU still retained its position as the number 1 retained its dominance of the local bikes segment with 50% truck brand for the 7th consecutive year and the No. 1 light-duty market share. This was aided by the launch of three upgraded truck brand for the 11th consecutive year. Sales of ISUZU light, moped models (B17A, 2WB7 and B17B) and two scooter models medium and heavy-duty trucks totalled 4,747 units, capturing (B925 and BF44), and exceptionally high sales of 33,625 Yamaha 44.5% of the market and entrenching the brand as a firm leader motorcycles in October – the highest monthly sales ever - when in its segment. At the same time, sales of pick-up trucks stood at demand surged unexpectedly. 4,031 units, making up 12% of the market.

In line with the October anomaly, HYMM produced its highest During the MCO in April and May 2020, the plant was shut down monthly volume of 30,400 engine units while achieving sales of for 1.5 months, resulting in a revenue of RM539.89 million. 29,400 units. For the year as whole, however, sales was impacted by the 1.5 month plant closure during MCO 1.0 to total 237,717 IHM contributed to ISUZU’s performance, with its focus on quality engine units (18% lower than target). This contributed to revenue control and cost efficiency. Maintaining high standards of quality, and PBT of RM350.7 million and RM26.9 million respectively. IHM was re-certified with ISO 9001:2015 Quality Management System (“QMS”) on 20 November 2020 by SIRIM QAS International Despite the slowdown, HYMM pressed ahead with initiatives to Sdn. Bhd. with IQNet recognisation. enhance its operational efficiency. In February, it commissioned two new machining lines for head cylinders and crankcases. This In terms of cost management, various initiatives were and other on-going continuous improvement programmes led to implemented such as rationalisation of IHM’s centralised local an overall equipment effectiveness (“OEE”) of more than 97% for parts warehouse in Shah Alam and improved milk run activities. its assembly line and above 91% for the machining line. The latter involved the collection of local parts from various suppliers in the Klang Valley before delivery to IHM’s plant in Going forward, there are plans to replace three ageing models as Pekan. well as to launch a new BAX (T155) model, further strengthening Yamaha’s brand position and market share. Catering to the FY2021 is expected to be a better year, with higher demand expected increase in demand, HYMM will continue to upgrade projected for Isuzu light, medium, and heavy duty trucks. its production capabilities with the installation of an additional crankshaft machining line which was postponed in 2020 due to the pandemic, while further reducing its assembly cycle time from 0.55 minutes to 0.50 minutes.

Interior of the new ISUZU D-Max DRB-HICOM ANNUAL REPORT 2020 119

BUSINESS REVIEW AUTOMOTIVE SECTOR HIGHLIGHTS CORPORATE DISCLOSURE REVIEW PERFORMANCE

A skilled technician programming a robotic arm at a PHN factory LEADERSHIP PHN Industry Sdn. Bhd. (“PHN”) To support the growing needs of its business, PHN jointly established a new plant with PROTON in Tanjong Malim, and a PHN is a Tier-1 manufacturer of automotive components warehouse facility in the Pegoh 2 Plant for Honda Malaysia. At specialising in metal stamping, roll forming, welding and modular the same time, it continued with efforts to expand its customer assembly, dies design and manufacturing, as well as electrical base, and successfully acquired a new OEM customer, Assembly and electronic device assembly. It fully owns Oriental Summit Services Sdn. Bhd. (“ASSB”), for which it will be supplying parts Industries Sdn. Bhd. (“OSI”), one of the largest chassis parts for a new Toyota model. manufacturers in the country; and DRB-HICOM Mechatronics

Sdn. Bhd. (“DHMSB”), a supplier of automotive batteries and The year 2021 looks set to be busy with production of the Proton ACCOUNTABILITY electrical/electronic devices. X50 and several new models under the Honda and Perodua brands. A number of facelift models will also be in their In recent years, PHN has diversified into the non-automotive development stage, such as the Honda H-RV, and Perodua’s sector via the tool making business, production of premium Myvi, Axia, Bezza and Alza variants. fan blades and production of industrial air filters. PHN has nine plants in Malaysia. In the non-automotive segment, besides growing its business with Camfil, Bafco and HP, PHN is working on expanding its in- The MCO had an effect on PHN’s results in 2020, but it was house tool making business. There are also plans to establish a PERSPECTIVE mitigated by higher PROTON sales and, in particular, the footprint in the overseas market. introduction of the locally produced X70 SUV. FINANCIAL STATEMENTS RELATED INFORMATION DRB-HICOM 120 ANNUAL REPORT 2020

BUSINESS REVIEW AUTOMOTIVE SECTOR

DEFTECH is also taking a proactive approach towards winning more contracts to widen its revenue stream. During the year itself, it participated in various tenders issued not only by the Ministry of Defence (“MINDEF”) and Royal Malaysian Police, but also other Government agencies.

Among the more significant tenders were the following:

• Supply of Medium Altitude Long Endurance (“MALE”) Unmanned Aerial Vehicle (“UAV”) to the Royal Malaysian Armed Forces (“RMAF”). The tender for this programme, which forms part of RMAF’s Capability Development 55 (“CAP 55”), was opened in Q42020. The bid submitted by DEFTECH in partnership with Turkish Aerospace in November 2020 has The AV4 Lipan Bara produced by DEFTECH been shortlisted. • Maintenance of AV-8 vehicles supplied to the Army. The 259 AV-8 vehicles will be in service for a minimum of 20 years, DEFENCE DIVISION and will require maintenance. DEFTECH is in the final stages of commercial negotiations with MINDEF and has since DRB-HICOM Defence Technologies Sdn. Bhd. submitted a proposal to them. (“DEFTECH”) • Supply of 155mm Self Propelled Howitzers (SPH) for the Army. • Supply of soft skinned vehicles and trucks for various security DEFTECH is a key player within the national defence and security agencies within the Ministry of Home Affairs. industry. It designs, develops, manufactures, supplies and • Tenders from the Fire and Rescue Department of Malaysia provides maintenance services for a range of vehicles, composite (“Bomba”), the Malaysian Maritime Enforcement Agency structures, unmanned technologies and systems for the military, (“APMM”) and Royal Malaysian Customs Department for the homeland security, Government and commercial agencies. supply of trucks, UAVs and specialised vehicles. These are new frontiers in which DEFTECH seeks to cultivate a presence DEFTECH’s expertise has been built over the years in close to mitigate the risk of heavy dependence on the military. collaboration with leading OEMs such as Turkish Aerospace Industries, FNSS (major supplier to the Turkish Armed Forces), In addition, DEFTECH has been working closely with FNSS on Aselsan, Roketsan and Posco International. the development of AV-6 armoured vehicles for the Army’s next big defence programme. Trials were successfully completed in 2020 proved challenging due to a reduction in the Government’s October 2020, and DEFTECH is confident of winning the tender, budget for defence; and major supply disruption as most which is expected to be opened in Q4 2021 or Q1 2022, as the DEFTECH vendors are foreign OEMs. Invoking force majeure, modular design of the FNSS’s AV-6 is very similar to that of the however, the company obtained a two-year extension to complete Gempita AV-8. the delivery of the AV8 Gempita armoured vehicles to the Army. It has also embarked on an organisational restructuring exercise Meanwhile, DEFTECH recognises the need to strengthen the in order to be better aligned with the new norm. relationships that have already been developed with long-term customers as competition in the defence sector increases. It A key component of the restructuring has been the establishment is therefore engaging more regularly with its customers and of a Centre of Excellence focused on transforming DEFTECH has embarked on a smart partnership with STRIDE, MINDEF’s into a more functional, customer-driven organisation with a research entity, to optimise its product range. diversified source of revenue. Supporting this transformation, DEFTECH’s Supply Management Division has been tasked Various factors point to a more conducive environment for with enhancing reliability of supply. Towards this end, it has DEFTECH moving forward. Externally, the steadily recovering begun liaising directly with the company’s foreign OEMs while economy will stimulate greater demand, while internally its identifying local vendors that have the capability and capacity to organisational restructuring will enhance its ability to meet fulfil DEFTECH’s needs. the needs of its customers efficiently and reliably. DEFTECH therefore looks forward to a more successful year in 2021. DRB-HICOM ANNUAL REPORT 2020 121

BUSINESS REVIEW AUTOMOTIVE SECTOR HIGHLIGHTS

Major contributors to revenue were the A320/A321 single aisle, B787 Fan Cowl, A350 Fan Cowl and A350 J-Nose & REFF programmes.

The year was also positive for both CTRM CE and CTRM TL, which CORPORATE are gaining greater recognition internationally. DISCLOSURE

CTRM CE submitted a total of 21 RFQs valued at RM53 million to potential customers such as Cobham Satcom, the world’s largest commercial satellite communication manufacturer based in the US and Denmark; ND Satcom and Diehl Aviation, both from Germany. At the same time, it was awarded with eight

work packages, mainly for radomes (radar domes) and satellite REVIEW

A line of autoclaves in CTRM’s facilities in Batu reflectors. The company also continues to receive repeat PERFORMANCE Berendam, Melaka orders from Cobham Satcom which is intensifying its focus on Asian composites suppliers as it looks to relocate its European assembly plant to the region. AEROSPACE DIVISION Meanwhile, CTRM TL has been actively promoting its products Composites Technology Research Malaysia Sdn. Bhd. and services through on-line meetings and activities, resulting (“CTRM”) in more external business for its testing and calibration works. For the year, it more than doubled its revenue with a significant LEADERSHIP CTRM is a leading composites aero-structure manufacturer in contribution from new customers. It also continued to collaborate ASEAN, supplying OEMs and Tier 1 OEMs companies which in with reputable local and international partners such as SIRIM turn provide essential components to leading aviation names Berhad, Institude De Soudure (IS Groupe, France and Thailand), such as Airbus and Boeing. It is supported by three wholly-owned Metcal Technologies and the Institute of Tropical Forestry and subsidiaries – CTRM Aero Composites Sdn. Bhd. (“AC”), CTRM Forest Products (“INTROP”) to penetrate new markets including Composites Engineering Sdn. Bhd. (“CE”) and CTRM Testing construction, oil & gas, food and automotive. Laboratory Sdn. Bhd. (“TL”). With an expected pick-up in travel in 2021, and the significant The pandemic has had a significant impact on the global backlog of orders at both Airbus and Boeing, CTRM is confident ACCOUNTABILITY aerospace industry with travel restrictions and lockdowns of a more positive year. This is supported by contracts secured leading to the deferment of aircraft purchase. Yet, CTRM and in 2020 for B787 Floor Grid from GKN US and A350 In Board its subsidiaries continued to attract a fair share of interest Flap from Strata; and the resumption in delivery of the Embraer from leading OEMs indicating their growing visibility in the E190 in 2021. CTRM’s management also foresees new contracts international space. During the year, CTRM received more materialising following its spate of aggressive bidding in both the requests for proposals (”RFQs”) at a higher total value than it aero and non-aero structure industries. did in 2019. Of note, it also won two significant wide-body aircraft PERSPECTIVE work packages – one from an existing customer, GKN USA; and the other from a new customer, STRATA from UAE. The contracts are valued at a total of RM25.9 million.

These, and other on-going projects contributed to CTRM recording a total revenue of RM545.75 million, commendable given the operating landscape. Even more encouragingly, the company remained profitable as a result of austerity programmes and cost FINANCIAL STATEMENTS optimisation initiatives. For the financial year 2020, CTRM Group realised a PBT of RM26.37 million with a PBT margin of 4.8%. RELATED INFORMATION DRB-HICOM 122 ANNUAL REPORT 2020

BUSINESS REVIEW

SERVICES SECTOR

DRB-HICOM’s Services Sector comprises postal, courier, logistics and aviation services under Pos Malaysia, vehicle inspection under PUSPAKOM, values-based banking provided by Bank Muamalat, and automotive/engineering education and training at the Group’s industry-driven university in Pekan.

POSTAL & LOGISTICS The aviation business, which provides ground handling services in major Malaysian airports, was substantially impacted by Pos Malaysia Berhad (“Pos Malaysia”) the decline in the number of commercial flights. This saw the company implementing multiple cost cutting measures Pos Malaysia is the national postal service provider and sole to mitigate the loss in revenue. Despite this, Pos Malaysia’s licensee for universal postal services in the country. In operation aviation segment recorded a segmental loss of RM159.3 million for over 200 years, the company has diversified beyond the in FY2020. Meanwhile, the logistics business benefited from traditional provision of mail and parcel delivery to also offer higher demand for automotive logistics due to higher automobile retail, logistics and aviation products and services. production volume from PROTON in FY2020. The business was largely unimpacted by COVID-19, notwithstanding the initial MCO The pandemic had both positive and negative impacts on Pos period in March of 2020. Malaysia, enhancing courier services revenue in tandem with accelerated e-commerce adoption but severely impacting the Moving forward, Pos Malaysia will press on with its transformation aviation segment. For FY2020, Pos Malaysia recorded a revenue initiatives to further improve efficiency, manage costs and of RM2.3 billion and a loss of RM303.5 million before tax. capitalise on growth opportunities. As e-commerce continues to grow, the company will scale up its courier business, improve For the year, postal services achieved RM1.74 billion in revenue, delivery and work towards optimum cost efficiencies. This will with the courier business accounting for 46% of the total. The be complemented by further digitalisation to meet customers’ increase in on-line shopping due to movement restrictions expectations while enabling future business requirements. At the significantly boosted its courier business, which delivered 111 same time, Pos Malaysia will be rationalising its under-utilised million parcels despite the temporary closure of the company’s mail infrastructure and explore alternative models for last-mile Integrated Parcel Centres in October and November due to the delivery as it moves towards creating a right-sized organisation. COVID-19 outbreak. Meanwhile, the mail business benefited from an increase in commercial postage rates beginning 1 February Resolute in its efforts to adapt to the new norm as the global and 2020 which helped mitigate the impact of declining mail volume. local economies recover, Pos Malaysia expects to see improved At the same time, the international business segment was performance and profitability in the upcoming financial year. negatively impacted by the pandemic, as a result of the steep decline in number of international flights into Malaysia. Retail business remained resilient despite a temporary dip in footfall during the Movement Control Order (“MCO”). DRB-HICOM ANNUAL REPORT 2020 123 HIGHLIGHTS

PUSPAKOM also further enhanced the accessibility of its services by increasing its mobile fleet to 34 trucks that now cover more areas in the Klang Valley as well as the Southern, Northern and Eastern regions. The mobile units make regular visits to remote locations such as Merapoh, Jeli, Gerik, Dungun and Mersing, CORPORATE where the volume of inspections does not justify setting up DISCLOSURE permanent branches.

Investment in technology has also been high on the agenda at PUSPAKOM as it strives continuously to enhance its service delivery. This year the company piloted a digital scanner for PUSPAKOM offers doorstep services via their mobile vans measurement and assessment of a vehicle’s body. The tool

reduces both the cycle time and human error, significantly REVIEW

improving efficiency, and will be rolled out to all inspection PERFORMANCE CONCESSIONAIRES centres in the near future. In its internationally-recognised inspection services, PUSPAKOM is guided by the standards PUSPAKOM Sdn. Bhd. (“PUSPAKOM”) and inspection methods recommended by the Belgium-based International Motor Vehicle Inspection Committee (“CITA”). PUSPAKOM is Malaysia’s first and only Government appointed vehicle inspection body with the crucial role of ensuring vehicle Although revenue was impacted by the shutdown, reducing 8% safety and compliance in the country. It does this by conducting to RM139.98 million, various cost containment measures proved mandatory inspections of commercial vehicles at its 54 centres effective and contributed to a 33% growth in profit before zakat LEADERSHIP nationwide, through remote inspection services as well as to RM13.42 million. through its fleet of mobile units. Going forward, PUSPAKOM will press ahead with on-going Despite challenges brought by the pandemic, the year saw strategies to enhance its customer experience through increased PUSPAKOM accelerate its digital transformation while also efficiencies and service offerings. While growing its inspection growing its non-concession and ancillary businesses. capacity by setting up new branches and increasing its mobile fleet, it will introduce more digitalisation such as cashless Following its two-month shutdown during MCO 1.0, PUSPAKOM payments and new inspection technologies to further reduce its experienced an overwhelming surge in demand for inspections inspection cycle time and increase its service integrity. It also ACCOUNTABILITY when it reopened at the end of April. To manage this, the company seeks to offer a broader range of services, for example road successfully channelled a large number of its customers onto its tax renewal for other vehicle types (such as heavy commercial on-line booking system, MyPUSPAKOM. This resulted in an even vehicles, private vehicles and e-hailing vehicles), eventually spread of appointments across its network of service centres branching into the renewal of driving licences, transfer of vehicle thus avoiding congestion and unnecessary delays and waiting ownership with biometric validation, as well as e-Permit renewal times. By the end of the year, more than 80% of all customers for commercial vehicles.

were using the on-line system and even more are being converted PERSPECTIVE because of the convenience it afforded. Firm in the belief of the value of roadworthiness inspection for all vehicles, it will also continue to promote its voluntary vehicle At the same time, PUSPAKOM has continued to build on its One- inspection service through various channels. Ultimately, its Stop-Centre vision of becoming the go-to service provider for any objective is to ensure safer vehicles and enhanced road safety for vehicle-related need. A milestone was achieved in this regard all road users in the country. with approval from the Ministry of Transport for PUSPAKOM to offer road tax renewal services for decontrolled vehicles, namely FINANCIAL commercial vehicles weighing less than 7.5 tonnes, starting from STATEMENTS February 2020. RELATED INFORMATION DRB-HICOM 124 ANNUAL REPORT 2020

BUSINESS REVIEW SERVICES SECTOR

OTHER SERVICES

Bank Muamalat Malaysia Berhad (“Bank Muamalat”)

Bank Muamalat is a full-fledged Islamic banking institution with a network of 67 full branches and 7 sales centres located in 13 states nationwide. It is the first Islamic bank in the world and the first bank in South East Asia to be a member of the Global Alliance for Banking on Values (“GABV”). GABV is an independent network of the world’s leading value-based banks and banking cooperatives, with a shared mission to use finance to deliver sustainable economic, social and environmental development.

The environment for the banking industry in 2020 was extremely challenging as the economic contraction coupled with reductions in the overnight policy rate (“OPR”) weighed heavily on earnings. To add to this, the blanket loan moratorium from April to September came at a significant cost to banks.

Within this environment, Bank Muamalat continued to demonstrate its value-based principles of extending assistance to those who are most vulnerable and in need. At the same time, the new norm made it imperative to maintain asset quality as well as protect its liquidity and capital. This spurred the Bank to review its target markets, outlining higher-yielding segments it would like to grow while reducing its exposure to risky sectors. In view of the low-interest regime, it is also focused on growing its fee-based income contribution.

In terms of operations, Bank Muamalat has continued to enhance efficiencies via acceleration of its digitalisation journey. The year saw it launch the Muamalat Application Programme (“MAP”) which allows customers to apply for financing on an on-line Menara Bank Muamalat on Jalan Melaka, Kuala Lumpur platform that greatly simplifies the entire application process thus reducing the time needed for approvals. With a revised business strategy and strong leadership, the At a more fundamental level, the pandemic inspired a strategy Bank is set to resume and accelerate its growth trajectory as the review and the launch of a new five-year business plan, RISE24, economy recovers in 2021. Among others, it will focus on retail which seeks “to ethically deliver best value to stakeholders, investment, mainly in gold-related businesses, while also tapping society and the environment”. RISE stands for: strong Risk into opportunities in personal financing, auto financing and culture, ICT driven business, Shariah innovation, and Earnings mortgage financing. It has also put more emphasis in growing oriented; while the 24 refers both to the number of initiatives that responsibly for non-retail segments of SMEs, Commercials and have been identified, as well as the year in which the strategic Corporate clients. At the same time, it will continue to leverage objectives are to be realised, i.e. 2024. digital and other technologies to continuously enhance its operational efficiencies as it drives towards an ever-improving In an effort to enhance its organisational capability to achieve customer experience. RISE24, the Bank has undergone a restructuring to further strengthen its leadership bench. Three new positions have been created and filled, which are Chief Credit Officer, Chief Information Security Officer and Chief Strategy Officer. These new leaders will provide critical input to strengthen the Bank’s resilience and relevance, supporting and complementing the functions of the CEO. DRB-HICOM ANNUAL REPORT 2020 125

BUSINESS REVIEW SERVICES SECTOR HIGHLIGHTS CORPORATE DISCLOSURE REVIEW PERFORMANCE

DRB-HICOM University students on graduation day

DRB-HICOM University of Automotive Malaysia DRB-HICOM University has always been industry driven, seeing (“DRB-HICOM University”) itself as “a university by the industry and for the industry”. LEADERSHIP True to this approach, it has begun the process of rationalising DRB-HICOM University sprawls across a 42-acre campus its academic programmes to be more relevant to the market’s located within the DRB-HICOM Automotive Complex in Pekan. It needs. From 53 programmes in 2019, it distilled the number to currently offers 42 programmes under the Faculty of Engineering 41 in 2020 and seeks to further reduce to number to 25 by 2023. & Technology (“FOE”) and Faculty of Business & Management Of the 41 programmes offered during the year under review, (“FOB”). 22 were fully accredited while three were awaiting results of audits conducted virtually by the Malaysian Qualification Agency The pandemic created a unique set of challenges for educational (“MQA”). ACCOUNTABILITY institutions as a result of the need for social distancing. DRB-HICOM University’s response has been to shift all its Another significant development during the year was the programmes on-line, its lecturers communicating with students relocation of Akademi Saga to the campus in Pekan. The move using Microsoft Teams. The transition was relatively smooth creates greater synergies between the two institutions while as it had already adopted a blended approach in which 60% of also enabling cost optimisation from reduced rental, building learning was on-line. Beyond teaching, the university has also and maintenance, and administration staff, among others. adopted the digital platform for various administrative purposes, There are also plans to host the newly established Corporate from student application to the induction of new intakes. Training Institute (“CTI”) within the academy. CTI will fulfil the PERSPECTIVE training needs of the DRB-HICOM Group via the provision of short Making the process easier for both students and lecturers, courses, executive diplomas, professional certifications and it developed a comprehensive book titled “Taking Everything micro-credential programmes. On-line”. Students also have on-line access to the university’s library, hence have not been hindered in any way to participate in digital learning. This is reflected in the final assessments for 2020 in which there was no significant difference in performance FINANCIAL from the previous years. STATEMENTS

Recognising that some students may need financial aid to equip themselves with computers or laptop/tablets, the university offered up to RM1,500 in cash rebate per student for the April, June and October intakes. Despite its proactive measures to manage in the new norm, disruptions caused by the pandemic

resulted in a 26% drop in total intake for the year 2020, which RELATED numbered 426 students as compared to 575 students in 2019. INFORMATION DRB-HICOM 126 ANNUAL REPORT 2020

BUSINESS REVIEW

PROPERTIES SECTOR

DRB-HICOM is involved in property development and the management of assets built under concession agreements with the Government. Until the end of 2020, the Group was also managing leisure and hospitality assets including the Glenmarie Golf & Country Club, Holiday Inn Kuala Lumpur Glenmarie and Vivanta by Taj, Rebak Island Resort Langkawi. However, these have been disposed of under its property restructuring programme.

PROPERTY DEVELOPMENT

Glenmarie Properties Sdn. Bhd. (“GPSB”) The property is much sought after given its proximity to Johor Bahru’s central business district as well as the Malaysia- GPSB, the Group’s main property development arm, has on-going Singapore Causeway. residential development projects in Tebrau, Johor and Proton City, Tanjong Malim, Perak. It also has industrial developments Sprawling across 729 acres, HICOM Pegoh Park (“HPP”) is one in Alor Gajah, Melaka as well as in Proton City. of the largest freehold industrial parks in Melaka. It is also one of the most strategically located, set along the North South Glenmarie Johor, located at the epicentre of the bustling and Expressway and easily accessible via the Alor Gajah/Simpang mature Tebrau region, is a 69-acre freehold development that Ampat Interchange in Alor Gajah, Melaka. is being rolled out in phases. Phases 1A and 1B have been completed, comprising a total of 291 two-storey link houses. To date, approximately 326 acres of the industrial estate have Phase 1C, launched in April 2018, offers 56 semi-detached units been developed, achieving approximately 94% land sales. Phase and cluster homes. 3, occupying about 69 acres, was launched in September 2019, and earthworks have been completed. 22.22 acres of Phase 3 The semi-detached units have an approximate built-up area of have been sold thus far. 3,200 sq. ft. while the cluster homes are approximately 2,720 sq. ft. with standard land dimensions of 40’ x 80’ and 34’ x 80’ respectively. The standard units are priced from RM1,098,000 to RM1,398,000. Vacant possession for the units was obtained on 15 September 2020, and as at year-end approximately 93% of the houses had been sold.

DRB-HICOM ANNUAL REPORT 2020 127 HIGHLIGHTS

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

PCDC is the developer of Proton City, a 4,000-acre township located in Tanjong Malim, Perak, comprising residential, commercial, institutional as well as industrial parcels surrounded by lakes, a-state-of-the-art PROTON plant and Universiti Pendidikan Sultan Idris. CORPORATE DISCLOSURE REVIEW PERFORMANCE LEADERSHIP

Taman Tasik Embayu at Proton City, Tanjong Malim

Sales efforts to date have largely concentrated on the affordable housing range. In July 2018, a total of 130 units of mixed single- storey and 1½-storey link houses on standard lots measuring 22’ x 70’ were launched. The single-storey units have built-up areas ACCOUNTABILITY of 1,000 sq. ft. and are priced from RM279,000 while the 1½-storey link houses offering 1,586 sq. ft. of built-up space are priced at RM390,000. As at end 2020, approximately 98% of the units had been taken up. Vacant possession was delivered in January 2021.

During the year, 1.3 acres of land earmarked for a petrol station within the Parcel 3 Vendor Park was sold for RM1.8 million. The purchaser plans to operate a Shell Petrol Station complete with a convenience store.

In December 2020, the Group completed the acquisition of another two land banks – HICOM Glen Lands and Johor Lands – both earmarked for industrial development. HICOM Glen Lands, measuring 287 acres, is located in Pulau Sebang, Melaka; while Johor PERSPECTIVE Lands comprises 1,243 acres in the Tebrau region of Johor. Site works for both developments are expected to commence in 2022 with the first launch planned for 2023. FINANCIAL STATEMENTS RELATED INFORMATION DRB-HICOM 128 ANNUAL REPORT 2020

BUSINESS REVIEW PROPERTIES SECTOR

The new facilities at Bukit Kayu Hitam ICQS Complex

CONCESSION DEVELOPMENT AND CONSTRUCTION

Media City Development Sdn. Bhd. (“MCDSB”) Northern Gateway Infrastructure Sdn. Bhd. (“NGISB”)

DRB-HICOM has 100% equity in Media City Ventures Sdn. Bhd. NGISB, a 100%-owned subsidiary of DRB-HICOM, holds a 28- (“MCVSB”), the parent company of MCDSB, which holds a 23- year concession from the Government beginning 14 June 2014 year concession from the Government to build, operate and to develop and subsequently maintain the new Immigration, maintain a state-of-the-art broadcasting complex, Media City, Customs, Quarantine and Security (“ICQS”) Complex in Bukit for the Ministry of Communications and Multimedia Malaysia Kayu Hitam, Kedah. Being directly connected to the highway at (“MCMM”). Modelled on MediaCityUK, the project involves the the northern part of Peninsular Malaysia, ICQS Bukit Kayu Hitam rejuvenation of the historic Angkasapuri broadcasting complex offers smooth border-crossing experiences from and to Thailand. and is envisaged as a modern destination for technology, innovation and creativity. Once fully completed, it will serve as With an enhanced capacity and better security features compared the nation’s primary broadcasting centre, boasting the latest to the previous ICQS, the new RM425 million complex is better technology and infrastructure. able to manage the more than three million travellers and one million vehicles that cross the Malaysia-Thailand border every Development of Phase 1, comprising new office buildings year. Phase 1 was completed and opened to traffic in November including broadcasting systems, studios and an auditorium, 2017 followed by Phase 2 in June 2019. began in 2018. Carrying an estimated gross development value (“GDV”) of RM860 million, it is scheduled to be completed in 2021. NGISB is currently providing Integrated Facility Maintenance This will be followed by the development of a new commercial services at the complex until the expiry of the concession on 26 component under Phase 2. June 2044.

A milestone was achieved on 11 March 2019, when the Government accepted the first stage (Lease 1) of Phase 1, which led to the termination of analogue terrestrial TV transmission nationwide. Lease 1 has garnered returns through Lease Rental and Maintenance Payment from the Government, which will continue until the eight-year lease expires on 10 March 2027. The second stage, Lease 2 Agreement, is on track for handover by early 2021, followed by delivery of the final stage, the Concession Agreement, which includes new buildings and broadcasting systems. DRB-HICOM ANNUAL REPORT 2020 129

BUSINESS REVIEW PROPERTIES SECTOR HIGHLIGHTS CORPORATE DISCLOSURE REVIEW PERFORMANCE

Vivanta by Taj, Glenmarie Golf & Country Club Holiday Inn Kuala Lumpur Glenmarie Rebak Island Resort Langkawi

ASSET AND FACILITY MANAGEMENT LEADERSHIP

Glenmarie Golf & Country Club (“GGCC”)* Vivanta by Taj, Rebak Island Resort Langkawi (“RIR”)*

GGCC is known as a haven for both leisure golfing and for RIR is a luxury resort under the globally-renowned TAJ brand. hosting international golf tournaments, such as the acclaimed Offering the allure of staying on a private island, the five-star EurAsia Cup. Loyal support for the 36-hole golf course, event and hotel continues to be a popular choice among local and foreign sports facilities contributed to GGCC achieving RM20.7 million in tourists. With the pandemic, however, its occupancy rate revenue for the financial year with utilisation of the golf course averaged 24% for the financial year leading to a drop in revenue ACCOUNTABILITY averaging 48%. to RM9.7 million.

Holiday Inn Kuala Lumpur Glenmarie (“HIKLG”)*

HIKLG is a business and leisure resort-styled hotel in Shah Alam, Selangor. As a result of the slowdown in tourism due to the pandemic, guest arrivals to the hotel dipped significantly. This contributed to an average occupancy rate of 13%, and revenue PERSPECTIVE totalling RM4.5 million.

* As of 1 January 2021, these assets are no longer part of DRB-HICOM’s Properties portfolio as the Group has completed their disposal to Prisma Dimensi Sdn. Bhd. on 31 December 2020 FINANCIAL STATEMENTS RELATED INFORMATION