Integrated Annual Report 2019 Digi.Com Berhad
Connecting You To What Matters Most Our Heroes Keeping Customers Connected At All Times
Digi.Com Berhad Reg. No. 199701009694 (425190-X)
Lot 10, Jalan Delima 1/1, Subang Hi-Tech Industrial Park, 40000 Subang Jaya, Selangor, Malaysia
Email: Investor_Relati [email protected] Digi.Com Berhad
Printed on Environmental Friendly Paper. Reg. No. 199701009694 (425190-X)
Integrated Annual Report Annual Integrated 2019 OUR COVER
This report was produced over the course of the Movement Control Order, with full adherence to safety measures and our business continuity plan guidelines. Our cover is a salute to all dedicated Digizens who continue to serve and connect customers when it matters most, as the nation and world combat the Covid-19 pandemic.
WHAT’S INSIDE SECTION 1: AT A GLANCE SECTION 5: GOVERNANCE
1 About This Report 54 Board of Directors’ Profiles 2 About Digi 59 Management Profiles 3 Corporate Structure 62 Corporate Governance Overview Statement 5 Key Highlights 70 Statement on Risk Management and Internal Control 75 Audit and Risk Committee Report SECTION 2: MESSAGE TO SHAREHOLDERS 78 Nomination Committee Report 84 Additional Compliance Information 8 Chair of the Board’s Statement 85 Statement on Responsibility by Directors 10 Chief Executive Officer’s Statement SECTION 6: AUDITED FINANCIAL STATEMENTS SECTION 3: STRATEGIES TO CREATE VALUE 86 Directors’ Report 14 Our Value Creation Model 90 Statement by Directors 16 Our Operating Landscape 90 Statutory Declaration 18 Our Emerging Opportunities 91 Independent Auditors’ Report 19 Our Strategy Framework 94 Statements of Comprehensive Income 20 Our Key Relationships 95 Statements of Financial Position 22 Our Materiality Assessment 96 Statements of Changes in Equity 24 Our Identified Key Risks 97 Statements of Cash Flows 99 Notes to the Financial Statements SECTION 4: MANAGEMENT DISCUSSION AND ANALYSIS
28 The Year in Review SECTION 7: OTHER INFORMATION 29 Financial Review 157 Independent Limited Assurance Report 35 Summarised Statement of Financial Position 159 Corporate Information 36 5-Year Financial Summary 161 Corporate Directory 37 Investor Information 163 List of Properties 39 Operational Review 165 Disclosure of Recurrent Related Party Transactions 39 Best for Internet Network 166 Statistics on Shareholdings 40 5G-Ready Network for the Future 167 Statement of Directors’ Shareholdings 41 Driving New Growth Opportunities and Value from 168 List of Thirty (30) Largest Shareholders Existing Customer Base 170 Notice of Annual General Meeting 42 A Trusted Digital Partner for Corporates and SMEs 175 Form of Proxy 43 Digital as a New Growth Engine 45 People and Workplace Modernisation 49 Managing Our Environmental Footprint ONLINE VERSION 51 Impacting Local Community and Industry
www.digi.com.my/annualreport ABOUT THIS REPORT
REPORTING SUITE This is Digi.Com Berhad’s inaugural Integrated Annual Report (IAR) 2019, prepared in accordance with the principles prescribed by the International Integrated Reporting Council (IIRC). Embarking on the integrated Our Reporting Suite comprises the reporting (IR) journey is an important step for us, in terms Integrated Annual Report 2019, of setting our approach towards value creation and the supplementary Sustainability Data management. This report is a credible medium to disseminate Book 2019 and Corporate Governance information critical to our business and growth, and to Report 2019. communicate with our stakeholders with integrity and transparency.
Integrated Annual Report (IAR) 2019 – Our IAR 2019 serves to communicate Reporting Period to our stakeholders information that is critical to our business. This includes our The report covers our financial and non-financial performance key financial and non-financial performance in relation to our strategy, and from 1 January 2019 to 31 December 2019, unless stated corporate governance commitments. This IAR 2019 also presents stakeholders otherwise. with the Financial Statement for the year ended 31 December 2019. Scope and Reporting Boundaries Sustainability Data Book 2019 – Our Sustainability Data Book 2019 reports our This IAR 2019 covers the activities of our wholly owned annual performance in managing economic, environmental, social and governance subsidiary, Digi Telecommunications Sdn Bhd, which is the related matters. It showcases programmes and initiatives implemented to create core of our business operations, unless stated otherwise. shared value and positive impact in our ecosystem. Integrated Reporting Approach Corporate Governance Report 2019 – Our Corporate Governance Report presents The reporting approach and framework adopted by Digi for a set of practices implemented during the year as part of our commitment to IAR 2019 is primarily based on the Integrated Reporting meet and strengthen our high corporate governance standards. Framework by IIRC, Main Market Listing Requirements (MMLR) on Corporate Reporting and Sustainability Reporting NAVIGATION ICONS by Bursa Malaysia Securities Berhad, the Malaysian Code on Corporate Governance (MCCG) by the Securities Commission Malaysia and the Companies Act 2016. Our Capitals Our Stakeholder Groups Our financial statement is prepared and assured in accordance Financial Capital Government and Regulators with the Malaysian Financial Reporting Standards (MFRS), International Financial Reporting Standards (IFRS) and the Intellectual Capital Customers Companies Act 2016.
Manufactured Capital Employees We have also engaged an external auditor to provide a Social and Relationship Capital Shareholders, Analysts and Investors limited external assurance of selected non-financial indicators. The independent limited assurance statement can be found Natural Capital Suppliers and Business Partners on pages 157 to 158 of this Integrated Annual Report.
Human Capital Media Forward-looking Statements
Communities, Sustainability Partners and NGOs This report may contain forward-looking statements regarding Digi’s future performance and prospects. While these Our Strategic Priorities statements represent our judgements and future expectations at the time of preparing this report, a number of emerging Growth Winning Team risks, uncertainties and other important factors could cause actual results to differ materially from our expectations. Efficiency & Simplification Responsible Business These include factors that could adversely affect our business and financial performance. 2 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019 ABOUT DIGI WHO WE ARE
Digi is a company focused on growth and creating value for the long-term, delivered through a well-defined strategy to connect customers to what matters most.
In connecting Malaysians and businesses for the last 25 years, we have built strong capabilities and expertise in future-ready networks, digitalisation, customer experience, workplace and people development, and responsible business practices – shaped by a culture of innovation.
Our focus on remaining agile and innovating our business to capture growth opportunities presented by the digital revolution has transformed us into the trusted digital company we are today, empowering 11.3 million customers on our advanced 4G LTE network.
Being customer-obsessed, we are driven to continuously innovate and deliver personalised, engaging and safe digital products and services to enhance Malaysians’ digital lifestyles. We believe connectivity empowers everyone to improve their lives, builds societies and secures a better future for all.
Building on these strong fundamentals, we believe we are well positioned for the future to unlock the full benefits of advanced connectivity technologies such as 5G, AI and IoT for all Malaysians.
OUR VALUES WAY OF WORK
Always Explore Customer Obsessed We believe growth comes from learning every day. We’re Putting our customers at the heart of everything we do. curious and we dare to challenge, test, fail fast and pivot. Create Together Innovation 360 Exploring ways to do things differently and to do different We believe diverse teams find better solutions. We seek different things that serve to improve the lives of our customers. perspectives, share, involve, and help each other succeed. Keep Promises We believe that trust is key in all our relationships. We take ownership and pride in delivering with precision and integrity. Be Respectful We believe in the unique human ability to understand what matters for people. We meet everyone at eye level, listen and show that we care. 3
01 AT A GLANCE
02 CORPORATE STRUCTURE
Digi.Com Berhad [Registration No. 199701009694 (425190-X)] MESSAGE TO SHAREHOLDERS
100% 100%
Digi Telecommunications Sdn Bhd Y3llownation Sdn Bhd 03 [Registration No. 199001009711 (201283-M)] [Registration No. 200901003326 (846253-D)] CREATE VALUE STRATEGIES TO
100% 100%
Y3llowlabs Sdn Bhd Digi Services Sdn Bhd 04 [Registration No. 200001032596 (535203-H)] [Registration No. 199201012386 (243889-T)] ANALYSIS MANAGEMENT DISCUSSION AND
05 GOVERNANCE
06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 4 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
ABOUT DIGI
OUR PURPOSE Connecting you to what matters most Our number one priority is to deliver connectivity in a safe, reliable and efficient way to as many Malaysians across the country, which is what our customers have come to expect of us.
To do this requires a dedicated focus on transforming and modernising our organisation to enable growth and create efficiencies, while innovating on our core services and customer experiences, and delivering them in a responsible manner. This is how we aim to create value for our customers and stakeholders for the long-term.
OUR STRATEGY
To remain a leader in enabling reliable connectivity for all Malaysians, our Winning strategy focuses on: Team Growth • Delivering growth through relevant customer offerings that fuel the continuous need for connectivity and digital services. • Being a leader in digitalisation and modernisation, from the way we run Connecting you to our network, engage customers across touchpoints and instill a culture of what matters most innovation and agility. • Raising responsible business standards across our operations, in the way Responsible we manage our value chain, treat customer data, environmental impact Business Efficiency & Simplification and advocate safe internet usage and digital inclusion.
OUR PROMISE TO CUSTOMERS
We believe trust in our brand is essential to build deeper and longer relationships with customers, and work hard to deliver a Digi experience that puts our customers first, ensuring easy access to quality, consistent, safe and secure services. These priorities hold fast in the way we deliver our postpaid, prepaid and home fibre offerings, when helping corporate and small business customers through their digital transformation, or enabling opportunities for communities.
BEST IN VALUE BEST FOR INTERNET DIGITAL EXPERIENCE YELLOW HEART Deliver value to customers EXPERIENCE CHAMPION Create equal opportunities through innovative, Deliver a quality, reliable Create innovative digital for people, businesses and personalised and relevant and secure 4G LTE services and relevant societies to benefit from products and services. connectivity for a seamless self-serve platforms to connectivity, in a safe and internet experience. enhance customers’ responsible way. digital lifestyles.
Connectivity will always be a fundamental need for modern societies. Our role remains to enable opportunities for people and advance communities through our services. That’s what matters most to us and continues to drive us forward. 5
01 KEY HIGHLIGHTS AT A GLANCE
02 2019 AT Connecting customers to what matters most with a wide range of connectivity A GLANCE and digital services, while being a responsible, people-first company MESSAGE TO 5.64billion 1.50billion 18.2sen 46% SHAREHOLDERS Service Revenue (RM) Profit After Taxes (RM) Dividend Per Share EBITDA Margin
03 11.3 million 91% 72% 13.8GB Customers 4G LTE footprint 4G LTE-A footprint Average monthly data usage by customers CREATE VALUE 9.4million 9,610km +3pp 85.0% STRATEGIES TO Internet customers Fibre network Network Net Smartphone adoption Promoter Score
04 Malaysia’s first Active 8.9million +48% 4G LTE customers 5G 5Gtrial Total data OpenLab projects traffic growth Hosted in Cyberjaya in Cyberjaya & ANALYSIS Langkawi MANAGEMENT DISCUSSION AND
3.8million 05 Active MyDigi 1,535 51% 49% 46% users Number of Male Female Women in employees leadership positions
76.7 million GOVERNANCE Upsell transactions on MyDigi 78,568 51.3 Employee Engagement hours hours & Enablement Survey Total online Average online 06 learning hours learning hours by 15.3 million by Digizens each Digizen 80% 79% Digital bill payments Engagement Enablement STATEMENTS
Best value offers for AUDITED FINANCIAL >24,000 Senior citizens 158,958 2,594hours Students engaged on Supply chain training hours >1,500 online safety 07 Persons with disabilities OTHER INFORMATION
Building the future together with 5G We believe broad collaboration is key to fully realising the significant benefits of 5G for Malaysia. We are focused on building 5G the right way to help people, businesses and society redefine what’s possible for the future. 8 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
CHAIR OF THE BOARD’S STATEMENT
DEAR SHAREHOLDERS,
At a time of rapid technology innovation and disruption, open exchanges of data are increasingly prevalent, accentuating the need for leading organisations around the world to place more focus on building trust and business integrity in the way we serve customers and manage data.
Network operators like us, as key enablers of today’s data-centric, digitally-fuelled market, sit at the crux of the trust economy. We believe that trust is key in all our relationships and have worked hard to lay a strong foundation for a sustainable, responsible business built on the tenets of good corporate governance and trustworthiness. This approach enables us to deliver services to 11.3 million customers on our network and partner with various stakeholders with precision and integrity. This has been the key priority for the Board.
MAINTAINING FINANCIAL STRENGTH TO DELIVER HEALTHY READY TO MEET FUTURE CHALLENGES SHAREHOLDER RETURNS The first few months of 2020 have been challenging on numerous In spite of operating in a competitive market environment, our fronts, particularly with the escalating Covid-19 global pandemic. focused execution on business and prudent balance sheet management We have become more important in helping people in their daily has led the Board to declare a net dividend per share of 18.2 sen, lives at this time and have quickly implemented a wide range of returning a total of RM1.42 billion to shareholders, equivalent to a initiatives to help our fellow Malaysians. The assistance comes in 99% dividend payout ratio for 2019. Year on year, we continue to the form of free data, business continuity boosters, 24x7 customer exceed the company’s dividend policy of distributing a minimum support services and the delivery of a reliable, secure network for 80% net profits, keeping to our commitment to deliver strong and customers and authorities at the frontlines of combating this crisis sustainable returns to our shareholders. to remain connected.
In the face of these challenges, we are confident in our ability to LEADING IN RESPONSIBLE BUSINESS PRACTICES continue creating value for our stakeholders. Our strategic focus on The Board places equal importance on steering the Company to growth, efficiency and digital transformation has delivered consistent achieve its financial targets and continue our leadership in responsible results over the past three years and has laid a strong foundation business practices. Guided by the principle of doing good by doing for us to manage these future developments. The Company’s right, these practices have remained a strategic business priority. organisational agility will enable us to quickly trial or discontinue Our focus has been to maintain high standards of ethics and integrity new business models as we have done previously, with our digital in our business conduct, develop a future-ready workforce, protect media and mobile wallet businesses, pivoting as needed in this period the safety and privacy of our customers while reducing inequalities of uncertainty. for society. Read more about our Operating Landscape and Strategies to Create Value in Section 3 of this report. Read more about our responsible business and corporate governance approach in Section 4 and 5 of this report.
WELL POSITIONED TO WIN IN THE DIGITAL ECONOMY ADOPTING INTEGRATED REPORTING FOR IMPROVED AND CREATE LONG-TERM VALUE CORPORATE GOVERNANCE Given the growing focus on the digital economy, the telecommunications We continuously benchmark our governance approach against the sector will continue to evolve rapidly, with significant new opportunities latest in industry best practices and take proactive measures to enabled through 5G, AI and IoT. Drawing on our expertise and enhance the way we engage stakeholders. With this, we are pleased assets, we remain steadfast to seize these opportunities and pursue to introduce our first Integrated Annual Report for 2019. The Board what is sustainable for our business. We will deliver on our strategy fully supports the principles underlying the Integrated Reporting (IR) while being equally resolute to behaving with the highest standards framework – that we must be strategic, future-oriented and transparent of integrity and staying focused on people development. These on how the Company draws on its capitals to create long-term value matters remain high on the Board’s priorities in 2020. for our stakeholders. This is our first step towards IR, and we aim to continue maturing this approach of communicating value in the years to come. 9
01 AT A GLANCE
02
MESSAGE TO SHAREHOLDERS
03 CREATE VALUE STRATEGIES TO
04 ANALYSIS MANAGEMENT DISCUSSION AND
05 We will deliver on our strategy while being equally resolute to behaving with the highest standards of integrity and staying focused on people development. GOVERNANCE
The Board is confident we have the appropriate balance of knowledge, In view of Covid-19, we look to set a new way of shareholder 06 skills, experience, diversity and independence to drive the company engagement this year that will allow us to prioritise your safety and agenda and govern effectively. The recent appointment of Lars Erik continue engaging with you. Please see details outlined in our Notice Tellmann as a Non-Independent Non-Executive Director has further to AGM. We look forward to sharing more on our business at our strengthened the Board. The Board and I welcome his support Annual General Meeting in June. moving forward and would also like to thank Tone Ripel for her STATEMENTS valued contribution in her time with the Board. AUDITED FINANCIAL
I also wish to express my appreciation to the Management team Haakon Bruaset Kjoel and all Digizens for their collective contribution to Digi’s continuing Chair of the Board strong performance. I would also like to thank our business 07 partners, shareholders and stakeholders for their ongoing engagement and support. OTHER INFORMATION 10 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019 CHIEF EXECUTIVE OFFICER’S STATEMENT
DEAR SHAREHOLDERS,
The performance we see today results from a series of strategic decisions made over the past four years to transform our business in view of the challenges that continue to pressure the telecommunications sector. Our sharp focus on executing our growth, efficiency and digital transformation agenda has kept us on track. We closed 2019 with good momentum in line with industry performance, while establishing leadership on innovation, customer-obsession, workforce development and responsible business practices.
STEADY 2019 PERFORMANCE
• Strategic focus on digitalisation, deeper customer engagements and solid cost management underscores that our strategy is effective to deliver healthy growth, earnings and returns to shareholders. • Posted service revenue of RM5.64 billion, driven by postpaid, internet and digital growth. • Healthy EBITDA of RM2.91 billion or 46% margin, with flat OPEX and operational cash flow of RM2.16 billion.
Refer to pages 29 to 34 of Financial Review
CUSTOMER-OBSESSION DELIVERING VALUE AND GROWTH
• Deepening customer engagements through a streamlined omni-channel experience, delivered by a combination of people and digital resources: new EasyAdd feature on MyDigi, MyDigi for businesses, AI virtual assistants across all digital platforms, Digi Kiosks in high traffic areas, eQMS and more. • 9.4 million internet customers enjoying an average 13.8GB data monthly, a significant 48% total usage growth contributing to an 11% year-on-year increase in internet and digital revenue. • Net Promoter Score (NPS) continued to guide our delivery of quality network and customer experience.
Refer to pages 39 to 51 of Operational Review
TRANSFORMING INNOVATION INTO OPPORTUNITIES
• New innovation 360 platforms unlocked more value from employee and business model innovation: Agile Tribes, Common Delivery Centre (CDC) set-up, Digital Frontrunners programme, Digital Day, 40-Hour Learning, and more. • Data science driving innovation in offerings to deliver more relevant, personalised services enjoyed by 11.3 million customers, alongside sharing best practices to enable businesses through their respective digital transformations. • Investing in leading network solutions to enable future technologies such as 5G, AI and IoT, while maintaining standards of excellence of core network and IT services, providing customers the best connectivity experience.
Refer to pages 39 to 51 of Operational Review
PARTNERING RESPONSIBLY TO BUILD A BETTER TOMORROW
• Built on partnerships with global, government, social and industry organisations for more collaborative and effective action towards solving issues related to reducing inequalities and impact of digital technology on society. • Established industry standards in managing business risks and building trust associated to human rights, ethics and compliance, data protection, cybersecurity, supply chain, quality of service, people, and environmental impact.
Refer to pages 20 to 25 of Strategies to Create Value Refer to pages 45 to 51 of Operational Review 11
01 AT A GLANCE
02
MESSAGE TO SHAREHOLDERS
03 CREATE VALUE STRATEGIES TO
04 ANALYSIS MANAGEMENT DISCUSSION AND
05 As we continue providing essential connectivity services, I would The strength of our like to thank our dedicated Digizens who are working tirelessly 24x7 every day to deliver reliable network and customer support services organisation, leverage from past for all. To the Board and Management team for their leadership in strategic investments, alongside making the right decisions to prioritise our people in this time of GOVERNANCE crisis. A deep appreciation also to Malaysia’s first responders, a clear, practical view of our enforcement agencies and government authorities working determinedly to stem this pandemic. business gives me assurance 06 I am thankful to the Board, Management team and Digizens for all that we can move forward we achieved in 2019, and for their perseverance as we steward through this challenging season together. It is the strength of our confidently. organisation, leverage from past strategic investments, alongside a
clear, practical view of our business that gives me assurance we can STATEMENTS
As you read this, our nation and the world combat a new, move forward confidently. We are fit to continue providing the AUDITED FINANCIAL unprecedented health crisis with Covid-19. This global pandemic has standard of excellence and ability to create value that both our forced a ‘new normal’ way of work, life and social connection for customers and shareholders have come to expect of us, and to meet all of us, leaving many questions about our shared future. While it future developments. is early days yet to gauge its full impact on the economy and our 07 business, I would like to assure you that we have taken every measure necessary to protect our people, ecosystem partners and
business continuity as we fulfil our crucial responsibility to keep our Albern Murty OTHER
fellow Malaysians connected during this time. Chief Executive Officer INFORMATION Empowering businesses to go digital We believe innovation is essential to grow a business. Drawing on our dual focus as a connectivity and digital solutions provider, we bring together a range of relevant expertise necessary to support Malaysian businesses through their own digital transformation.
14 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
OUR VALUE CREATION MODEL
Our value creation model takes into consideration our operating landscape, reflects our commitment to responsible business and indicates the value created for the business and our stakeholders. Further details of each component in the model and how it impacts our capitals are available in the subsequent pages of this section.
OUR OPERATING CONTEXT OUR CAPITALS SUSTAINABLE VALUE CREATION
FINANCIAL CAPITAL • Consistent profitability and efficient operating cost management
Macroeconomic
INTELLECTUAL CAPITAL • Digital services (MyDigi 3.0, RepublicGG, EasyAdd, Omni, iFleet, altHR) OUR • New operating model with IT partners OUR STRATEGY • Solid track record and brand goodwill since 1995 PURPOSE Connecting you to what matters most
MANUFACTURED CAPITAL
• Robust network infrastructure (9,610 km of fibre) Winning Regulatory • 10,200 network sites, of which 4,500 sites are owned Team • More than 10,000 retail touchpoints Growth across Malaysia OUR WAY SOCIAL AND RELATIONSHIP CAPITAL OF WORK Connecting you to what matters most • Strategic partnerships with key stakeholders to Customer O sessed Innovation 360 drive societal impact • Yellow Heart commitment to empower societies Responsible Business Efficiency & Simplification
Technology
NATURAL CAPITAL ANCHORED BY • Initiatives to drive operational efficiencies to GOVERNANCE achieve a net-positive ratio between our operational footprint and carbon reductions RISK MANAGEMENT PRACTICES
HUMAN CAPITAL • Diverse and skilled workforce comprising 1,535 employees Social and • Highly experienced leadership team Environment 15
01 AT A GLANCE
02
VALUES CREATED IN FY2019
FINANCIAL CAPITAL MESSAGE TO • 99% dividend payout ratio SHAREHOLDERS • 46% EBITDA margin • Best Islamic Finance Deal in Southeast Asia 2019 Award – RM900 million Sukuk Murabahah issued in September 2019 (Refer to pages 29 to 34 of Financial Review) 03
INTELLECTUAL CAPITAL • Efficient Common Delivery Centres (CDC) managed CREATE VALUE OUR by strategic partners STRATEGIES TO STRATEGY • Employee innovation programmes OUR • Digital services and 5G OpenLab PURPOSE (Refer to pages 39 to 44 of Operational Review) Connecting you to what matters most 04
MANUFACTURED CAPITAL
Winning • 91% 4G LTE and 72% 4G LTE-A population coverage • 11.3 million customers
Team ANALYSIS
Growth • 13.8GB monthly data usage per customer MANAGEMENT DISCUSSION AND (Refer to pages 39 to 44 of Operational Review) OUR WAY Connecting you to SOCIAL AND RELATIONSHIP CAPITAL OF WORK 05 Customer O sessed what matters most • Global partnership with UNICEF on training next generation Innovation 360 in digital competencies Responsible • >1000 SMEs equipped with tools and skills to digitalise their business • 158,958 individuals engaged in Digi’s digital resilience and Business Efficiency &
Simplification inclusion programmes GOVERNANCE (Refer to pages 45 to 51 of Operational Review)
ANCHORED BY NATURAL CAPITAL 06 • Carbon intensity of 0.13 per data usage (tCO2e) GOVERNANCE • Addressing climate risk via Environmental Management RISK MANAGEMENT System and policies PRACTICES (Refer to page 49 to 50 of Operational Review) STATEMENTS AUDITED FINANCIAL HUMAN CAPITAL • 78,568 total hours of online learning by employees, averaging at 51.3 hours per employee • Achieved zero Lost Time Injury Frequency (LTIF) in 2019 07 • Employee Engagement & Enablement Survey (EES) score – 65% of employees are Most Effective (highly engaged and highly enabled) OTHER (Refer to pages 45 to 51 of Operational Review) INFORMATION 16 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
OUR OPERATING LANDSCAPE
As a leading mobile connectivity and digital services provider, Digi finds itself at the heart of major macroeconomic, regulatory, technological, social and environmental challenges that are shaping the future. Drawing on our expertise, we possess the ability to meet these potential challenges and seize new opportunities to continue creating value for our stakeholders and driving our business forward.
2019 Developments Material Implications to Digi and Digi’s Response • Less predictable economic the Industry • Deploy efficient network strategies growth rates due to volatility • Higher private spending from to improve overall service coverage, in commodity prices and a growing affluent population can reliability and quality cooling of the global trade war lead to smarter consumption of • Develop segmented propositions • Malaysia’s gross domestic digital products and services for different wallet sizes Macroeconomic product (GDP) stood at 4.3%, • Efficient cost management and • Identify potential collaborations and the weakest pace in this optimum capital allocation is partnerships across the value chains decade despite increased required to enable long-term to maintain strong efficiency drive private consumption sustainable growth • Ensure supply chain continuity and maintain inventory to mitigate effects of trade war
2020 Outlook • Increase in internet adoption and data usage given the growing focus on the digital economy and adoption of future techologies • Heightened competition in the mobile and fixed broadband market with improved consumer choices and affordability • Anticipate short-term market correction followed by a recovery in mid-2020, alongside a surge in demand for secure and reliable network and coverage • Companies and consumers are forced to adapt to a new normal during the Covid-19 global pandemic, leading to a change in consumer behaviour • Increased focus on quality of service (QoS) by the Malaysian Communications and Multimedia Commission (MCMC) during this unprecedented Covid-19 crisis
2019 Developments Material Implications to Digi and Digi’s Response • Increased regulatory the Industry • Redefine cyber security, data intervention to strengthen • Continuing regulatory protection and privacy policies to personal data protection, oversight on data security build customer trust and reinforce expanded existing compliance and privacy pushes in-depth network integrity mechanism and address engagements with policy • Provide connectivity for all by Regulatory enforcement issues makers and regulators enhancing suburban coverage via surrounding data security • Provide the widest availability strategic industry partnerships • Supported the government’s of affordable, high quality ambition to promote digital connectivity to meet National inclusion across the nation Fiberisation and Connectivity and to uplift network quality Plan (NFCP) ambitions and coverage • Enhance technology capabilities • MCMC decided to allocate to meet customers’ demand for 5G spectrum to a innovative solutions single consortium
2020 Outlook • Expect stronger push for regulations from government and customers on issues related to data privacy and security, and initiatives to promote digital inclusion 17
01 AT A GLANCE
02
2019 Developments Material Implications to Digi and Digi’s Response • Cloud, data and analytics, the Industry • Utilise Data Analytics to develop MESSAGE TO artificial intelligence, and • More informed, digital-savvy strategic data assets and create SHAREHOLDERS network technologies continue customers and changing focused offerings to reshape the telco industry consumer behaviour require • Leverage consumer behaviour data • National focus on 5G with tailored services to meet to redefine value chain RM50 million grants allocated their needs 03 Technology • Develop innovative digital services to build 5G ecosystem, and • Crucial to proactively leverage to enhance customer engagement 5G spectrum expected to be and analyse data to redefine • Ensure business readiness and allocated in 2020 value chains smooth 5G rollout via learnings • Readiness for 5G deployment • Necessity to focus on from Digi’s 5G use cases and trials CREATE VALUE and nurturing tech talent in safeguarding data assets conducted across Malaysia STRATEGIES TO parallel to advancement of • Nurture tech talents via agile way technology trends of work and Innovation 360 culture
04 2020 Outlook • Develop critical digital competencies in Digi and implement agile way of work while continuing to drive customer obsessed and innovation culture • Reliable network connectivity, personalised offerings, and affordable data to drive customer demand ANALYSIS
• 5G, with IoT and AI, expected to transform and accelerate digitalisation of businesses and industries MANAGEMENT DISCUSSION AND
2019 Developments Material Implications to Digi and Digi’s Response 05 • Heightened emphasis on the Industry • Deliver on Yellow Heart responsible building tech talent pipeline, • Required to prioritise business commitments to: resulting in greater investments to boost talent – Equip youths in underserved
investments to bridge talent competencies and segments with digital skills to GOVERNANCE gaps in the country competitiveness provide equal opportunities and Social and • Increased awareness of • Operators expected to continue build future talent pipeline Environment mobile technology impact on network expansion and improve – Build youth’s resilience to cyber
society and climate change network quality while reducing safety risks for a kinder, safer 06 environmental impact internet future • Reduce environmental impact via streamlined operations and close monitoring of climate targets
• Develop future-ready talent through STATEMENTS
initiatives like CXO Apprentice, digital AUDITED FINANCIAL learning and employer branding
2020 Outlook 07 • Expectation to strengthen talent pipeline and capacity of the workforce in line with country’s socio-economic priorities • Greater emphasis on sustainability commitments contributing to sustainable social, economic and environmental development OTHER INFORMATION 18 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
OUR EMERGING OPPORTUNITIES
As technology reshapes our industry and consumer behaviour, we continue to be mindful of the emerging opportunities present for our business, and how we can utilise our available assets to drive sustainable performance in the year ahead.
Emerging Opportunities Descriptions Action Plans by Digi Impact to Capital
5G is a new growth area to drive • Prepare Digi’s network for 5G deployment revenue upside from 5G consumers • Identify consumer and business 5G use Deploy and and businesses cases at 5G OpenLab in Cyberjaya monetise 5G • Drive collaboration with potential industry and solution partners, and Telenor
Accelerate digitalisation of SMEs • Organised annual MY Digital SME Develop digital through development and provision workshop solutions for of SME-related digital solutions • Launched iFleet, Omni and altHR to corporates, small and beyond Digi’s core connectivity enable SMEs’ digital transformation medium enterprises business • Launched MyDigi 3.0 to enhance value (SMEs) and mass to customers and drive retention Develop new digital services for consumers • Build ecosystem for partnerships on our consumers in Malaysia platform for scalability
Scale up Digi Home Fibre • Launched FTTH service in Q42019 and branding as part of end-to-end signed agreements with major internet Introduce Fibre-to-the- product portfolio to support service providers Home (FTTH) solution Postpaid growth • Provide customers with a bundled product proposition for a seamless in and out of home service experience
Increase in technology usage among • Provide safe internet training for Address societal children has brought new risks and educators and schools issues such as online complex challenges related to safety • Produce national survey findings on child safety internet safety among students
Rapid technology innovation and • Empower underserved communities with Build sustainable transformation are changing the future skills training talent pipeline workforce and skills landscape • Global partnership with UNICEF to prepare Malaysia’s future workforce
Climate change risks poses an • Establish responsible Environmental Responsible urgent threat to economic progress Management policies and systems climate change and business continuity • Deploy energy efficient network and environmental • Innovate digital solutions management for customers to reduce shared carbon footprint
Companies have a responsibility to • Identify and mitigate human rights issues Commitment to respect human rights across their • Establish policy and manuals on freedom respect human rights operations in compliance with laws of expression and privacy and guiding principles 19
01 OUR STRATEGY
FRAMEWORK AT A GLANCE
Our purpose is to connect our customers to what matters most. This is achieved through our commitment to modernise and operate our 02 business responsibly to enable growth and create efficiencies, anchored by a strong people, customer and innovation focused culture. We believe this gives us a competitive advantage to deliver sustainable growth and long-term value creation.
PURPOSE
CONNECTING CUSTOMERS TO WHAT MATTERS MOST MESSAGE TO SHAREHOLDERS Pillars Strategic Goals 2020 Priorities Performance Metrics
Leader in industry postpaid and internet 1. Capture new growth • Service revenue Growth growth from consumer and development 03 Driving profitable growth ahead of • Trusted partner for SMEs’ digital B2B business • Capital expenditure the industry by optimising our core transformation and preferred digital 2. Derive more value (capex) investment business through differentiated partner for enterprises from existing segment offerings, enriching value • Offer differentiated services through customer base for our current customer base, and personalisation and digital solutions 3. Invest in competitive accelerating growth from our digital • Provide best internet experience on network CREATE VALUE STRATEGIES TO business. This is supported by our Malaysia’s largest network, ready determination to provide a consistent for 5G network experience, and relevant products and services to customers. 04
Leader in modernising operations 1. Continue organisation- • Free cash flow Efficiency and Simplification • Improve and innovate on core business wide digital • Improvement in We remain focused and purposeful • Simplify systems and processes to be transformation Network Net to drive structural operational more effective and efficient 2. Drive multi-year, Promoter Score ANALYSIS
efficiencies for our business to • Modernise network and IT platforms to structural operational • Increase in MyDigi’s MANAGEMENT remain competitive. unlock potential of 5G, loT and Al efficiency initiatives to monthly active users DISCUSSION AND • Digitalise customer interactions across ensure profitable channels with MyDigi as central hub business for telco and digital lifestyle services
05 Leader in modernising the organisation 1. Strengthen inclusivity • Number of online Winning Team • Empower employees with freedom to at workplace, driven learning hours People are our most valuable asset. engage, learn, grow and innovate to by agile mindset that per employee We aim to continuously build a inspire the next for Malaysia inspires everyday • Improvement in conducive, modern workplace for • Build a future ready workforce, with innovation and Diversity and GOVERNANCE our people that promotes inclusion, critical digital competencies customer obsession Inclusion targets collaboration, agility, health and • Implement agile way of work, while 2. Upskill organisational • Zero Lost Time Injury safety, and the freedom to learn, driving a Customer Obsessed and capabilities and build Frequency (LTIF) rate innovate, engage and grow as they Innovation 360 culture critical digital • Employee Engagement deliver on our purpose and drive • Nurture a diverse and inclusive competencies to and Enablement 06 the business. workforce reflective of customer base strengthen future Survey (EES) • Improve workplace health, safety and talent pipeline environment for employees
Leader in responsible and sustainable 1. Ensure secure and • Number of children Responsible Business business practices sustainable business engaged in internet STATEMENTS
We are committed to operate our • Responsible in securing and protecting conduct, adhering to safety AUDITED FINANCIAL business responsibly, holding to customer data high governance • Number of site high standards in managing material • Prioritise secure and defendable network standards inspections and audits business environment risks, and • Make digital skills inclusive and internet 2. Continued focus on • Reduction of fuel effective action to solve issues safety an imperative for all youths improving economic, energy dependency related to safe and inclusive • Maintain high governance standards environmental, and 07 connectivity for all. across our supply chain social priorities • Committed to managing environmental footprint and impact OTHER INFORMATION 20 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
OUR KEY RELATIONSHIPS
BUILDING TRUST OF STAKEHOLDERS We engage our stakeholders to understand their concerns and emerging priorities. Through THROUGH STRUCTURED ENGAGEMENT the close working relationship we have established with them, we are able to better AND ACCOUNTABLE ACTIONS identify and address issues, pulling together diverse groups of expertise and expectations, in collectively achieving far greater positive impact for all six capitals.
Stakeholder Groups Engagement Channel Key Expectations Digi’s Response
• Participation in industry • Improve widespread digital • Strengthened quality of meetings with regulators and adoption via high quality and network infrastructure and Government and industry consultative bodies affordable digital connectivity improved nationwide coverage Regulators • Partnering on • Support NFCP initiatives of 4G LTE and LTE-A network Provide access to social programmes • Equip youth with a digital coverage to 91% and 72% of spectrum and • Host workshops to improve ecosystem to groom future population respectively operating licenses, sector understanding tech talent • 5G OpenLab in Cyberjaya and 5G set regulatory demonstration projects in Langkawi measures with • Nurture skills for digital future financial implications via online learning platforms and entrepreneurial programmes conducted at our Pusat Internet
• Retail outlets, online and • Expect high quality services, • Enhanced personalised offerings to call centre encompassing network and tailor-suit customers’ profile and Customers • MyDigi app retail experience usage pattern such as Internet Cili Use our products • Net promoter score survey • Better value offerings Padi and Box of Surprise and services, providing • Improved functionalities and the basis of our introduced more self-service revenue growth options on MyDigi • Driving a customer-obsessed mindset
• Internal engagement • Opportunities for personal • Maintain constructive partnership platforms and career development with Digi Telecommunications Sdn Employees • Leadership forums • Competitive remuneration Bhd Employee Union, and Best Play a defining role in • Townhalls • Deepening digital skills on People Council strategy and operations • Internalise innovation via design to drive execution of sprints, bootcamps and our growth agenda intrapreneur programmes • Improved score in annual Employee Engagement & Enablement Survey 21
01 AT A GLANCE
02 Our assessment on the quality of our relationship An established relationship that needed stronger enhancement
A good relationship with constant engagements A strong relationship based on mutual trust and shared benefit MESSAGE TO SHAREHOLDERS Stakeholder Groups Engagement Channel Key Expectations Digi’s Response
• Periodic and on-demand • Resilient revenue • Facilitate discussions on investor meetings during growth and efficient company’s developments 03 Shareholder, Analysts conferences, non-deal cost management and strategies and Investors roadshows and at offices • Responsible allocation of • Maintain corporate credibility Contribute to our • Quarterly conference calls capitals to ensure sustained and instill investor confidence financial capital for • Website financial growth • AGM and EGM • Sustainable shareholder
sustainable growth CREATE VALUE STRATEGIES TO • Annual report and returns Sustainability Data Book • High standards of governance and integrity
04 • Annual self-assessment • High standards of Health • Provide training sessions to questionnaires and Safety in Digi’s contractors and sub-contractors, Suppliers and Business • Site inspections and audits sourcing activities ranging from health and safety to
Partners • Supplier training • Timely payments and ANALYSIS
anti-corruption matters MANAGEMENT • Product presentations fair terms Impact our ability to DISCUSSION AND • Enhance enforcements in line create value and • High integrity in due with industry standards deliver quality services diligence and governance process
05
• Media interviews and events • Informed of key product • Conduct regular media engagements • Formal and informal briefings and service offerings, and to provide updates on business Media • On-demand requests business developments performance and developments Deliver consumer • Fair and transparent GOVERNANCE • Address customer concerns awareness of products reporting of business and services performance
06
• Yellow Heart initiatives • Leveraging mobile • Conduct digital resilience • Community interaction on technologies and future and digital inclusion programmes Community, digital inclusion and digital skills content to empower in partnership with NGOs Sustainability Partners resilience across Malaysia local communities STATEMENTS and communities and NGO • Safe internet use by AUDITED FINANCIAL Strengthen our role in young children the socioeconomic context 07 OTHER INFORMATION 22 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
OUR MATERIALITY ASSESSMENT
WHAT MATTERS TO OUR Constant engagement with our wide range of stakeholders forms a key understanding in evaluating STAKEHOLDERS IS WHAT and shaping our materiality matrix. We conduct a biennial assessment with external stakeholders and MATTERS TO DIGI an annual assessment involving Digi’s key functional leads within the organisation. Subsequently, these findings are mapped against Digi’s strategic priorities and its business environment.
Approach to Materiality in FY2019
Identification Prioritisation Validation We took into account enterprise During the year, we have reviewed the relevance of Finally, evaluation and risks with reference to the our material issues. We have recategorised these 11 discussions at Management and Global Reporting Initiative material matters to align with our Strategy Pillars. Board were carried out to Standards and the 2nd Edition of These matters may have material bearing on our determine the scope and the Bursa Malaysia Sustainability ability to create value or influence the decisions of boundary of each matter to Reporting Guide (2018). our stakeholders. These material matters are then our core business and mapped across our value chain, as shown below. stakeholder groups.
Materiality Matrix Digi’s material matters by prioritisation and mapped to our strategic pillars. This matrix provides guidance on our future initiatives and sustainability planning.
Talent and Culture High Customer Satisfaction Data Privacy and Security Ethics and Compliance
Service Reliability and Quality Human Rights Environment and Digital Resilience Climate Change Digital Inclusion Medium Diversity and Inclusion
Supply Chain Sustainability
IMPORTANCE TO STAKEHOLDERS Mapped to Strategic Pillars Growth Winning Team
Low Efficiency and Simplification Responsible Business Low Medium High SIGNIFICANCE OF IMPACTS
Materiality issues mapped to our value chain
Value Chain Strategic Sourcing and Billing and Customer Sales and Network and Planning and Service Customer Service and Distribution IT Service Material Issues Innovation Development Service Data Insight Ethics and Compliance • • • Data Privacy and Security • • • Customer Satisfaction • • • • Talent and Culture • • Human Rights • • Service Reliability and Quality • • Digital Resilience (safe) • • Digital Inclusion (access) • • • Environment and Climate Change • • Diversity and Inclusion • • Supply Chain Sustainability • • 23
01 AT A GLANCE
The table below outlines the top material matters identified during the materiality assessment process. For more information on Digi’s response 02 to each material matter, please refer to the supplementary Sustainability Data Book, which is available on our website.
Stakeholder Group Impact to Material Issues Digi’s Response With Interests Capital
• Compulsory for all employees and suppliers to adhere to Digi’s Code of • Regulator MESSAGE TO
Business Conduct • Shareholder SHAREHOLDERS Ethics and • Remain cognisant to all changes in industrial regulations and compliance • Investors Compliance • Media • Regulators
• Digi has a clear privacy position to safeguard personal data • Customers 03 Data Privacy • Constantly review our processes for privacy, authority requests and • Regulators and Security information management • Suppliers
Customer • Efficient deployment of network and customer service is our top priority • Customers CREATE VALUE Satisfaction anchored on our business agility STRATEGIES TO
• Hold regular dialogues with employees or employee representatives via Talent and Culture established platforms such as labour union and Best on People Council • Encourage a learning culture through education and upskilling platforms 04 • Employees • Adhere to Digi’s Code of Conduct, Policies, Supplier Conduct Principles and • Regulators Values which form a common approach on our way of work • Suppliers Human Rights ANALYSIS MANAGEMENT DISCUSSION AND • Maintain network availability and improve customer experiences underpinned • Customers Service Reliability by strategic expansion of network footprint while ensuring network service • Regulators and Quality recovery and readiness
05 • Bridge digital divide by increasing accessibility and service reliability • Communities • Drive digital adoption in rural areas and responsible internet usage to spur • Investors Digital Resilience socio-economic improvements • Regulators • Invest in communities and build partnerships for the nation’s growth • SMEs and Digital Inclusion Corporates GOVERNANCE
• Establish manuals for Environment Management and Environmental • Suppliers Management System • Employees Environment and 06 Climate Change • Develop green data centre and energy efficient sites • Investors • Obtain green building certification
• Focus on equal opportunities • Employees Diversity and • Ensure safe and healthy working conditions • Regulatory • Comply to the local Employment Act and industrial regulations
Inclusion STATEMENTS AUDITED FINANCIAL
• Legally oblige suppliers to uphold responsible business practices according to • Employees Supply Chain our Supply Chain Principles (SCP) and related policies • Suppliers Sustainability 07 OTHER INFORMATION 24 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
OUR IDENTIFIED KEY RISKS
We have in place a structure and system to detect, monitor and take targeted measures to prevent and mitigate both financial and non-financial risks. Quarterly dialogues are held where Management and Board deliberate on existing and emerging risks, followed by a risk mitigation review to ensure we manage risks well to support our business’ continued sustainable performance.
Competitive Threats and Market Digital Transformation to Deliver Capital Allocation and Operational Pressure Risk Differentiated Services Risk Efficiency Risk
Key Risk and its Potential Impact to Digi Key Risk and its Potential Impact to Digi Key Risk and its Potential Impact to Digi As competition intensifies among industry As consumer demand and expectations for Failure to maximise profitability for players, digital service providers and new mobile data and connectivity evolve, we shareholders’ return if we are not robust in entrants, price and market erosion may could be impacted if we are unable to shift capital allocation, operational efficiencies and impact both revenues and margin and scale our services free cash flow management
We need to keep pace with new technologies to compete while maintaining excellent customer experience
Mitigating Actions Mitigating Actions Mitigating Actions • Monetise data by providing customers • Explore and expand to more cost-efficient • Drive execution of operational with a balanced network experience and digital channels and platforms efficiences, prioritise network pricing proposition • Innovate product offerings to ensure investment to ensure reliable and • Increase market share through seamless customer journeys and high-quality customer experience personalised offerings differentiated digital experiences • Expand business solution capabilities to grow B2B segment
Impact to Capital: Impact to Capital: Impact to Capital:
Sustainability Matters Sustainability Matters Sustainability Matters • Customer Satisfaction • Customer Satisfaction • Service Reliability and Quality • Service Reliability and Quality • Service Reliability and Quality • Digital Inclusion
Regulatory, Legal and Data Protection and Cyber Threats and Security Risk Compliance Risk Management Risk
Key Risk and its Potential Impact to Digi Key Risk and its Potential Impact to Digi Key Risk and its Potential Impact to Digi Non-compliance to changes in laws, policies Effective data governance is critical to fulfil Telecommunication service providers could or requirements on spectrum, licenses, increasing customer expectations be more susceptible to external security access, registration, business ethics or tax attacks, insider threats or network Failure to process and manage data in laws could result in reputational damage, vulnerabilities compliance with requirements could result in financial penalties or suspension of license customers distrust, financial penalty, adverse Loss of critical data and service impact on reputation and NPS interruptions could affect credibility and customer experience
Mitigating Actions Mitigating Actions Mitigating Actions • Robust policy compliance frameworks • Implement data privacy programme and • A dedicated security monitoring team to to govern underlying functional framework to govern data protection detect potential threats compliance programmes • Establish dedicated Privacy and Security • Enhance our security architecture to be • Provide training and awareness programmes teams to ensure data is handled and more resilient to malicious cyber attacks to improve competencies and knowledge stored in accordance to applicable laws on governance, ethics and integrity and requirements
Impact to Capital: Impact to Capital: Impact to Capital:
Sustainability Matters Sustainability Matters Sustainability Matters • Ethics and Compliance • Data, Privacy and Security • Data, Privacy and Security 25
01 AT A GLANCE
Financial Capital Manufactured Capital Natural Capital
Intellectual Capital Social and Relationship Capital Human Capital 02
Supply Chain Management to Prevent Service Technology Resiliency and Recovery Management Risk Disruptions Risk
Key Risk and its Potential Impact to Digi Key Risk and its Potential Impact to Digi MESSAGE TO SHAREHOLDERS International trade war tensions and sanctions will impede supply of Prolonged service unavailability in the event of technology site loss system or network equipment caused by disaster or extreme technology failure may affect customer experience and profitability We could be impacted if we do not have an effective supply chain management process 03
Mitigating Actions Mitigating Actions CREATE VALUE
• Put in place a dynamic sourcing and supply chain management • Close monitoring on system development life cycle STRATEGIES TO process to ensure adequate and sustainable supply of system or • Conduct impact assessment of critical IT systems as part of system network equipment modernisation journey to improve system resilience • Implement a multi-vendor strategy to diversify and minimise • To implement business continuity plans (BCP) to ensure minimal dependancy on a single vendor impact to customers 04
Impact to Capital: Impact to Capital: ANALYSIS
Sustainability Matters Sustainability Matters MANAGEMENT • Supply Chain Sustainability • Service Reliability and Quality DISCUSSION AND • Human Rights
05 Talent and Succession Management Risk Responsible Business Commitment Risk
Key Risk and its Potential Impact to Digi Key Risk and its Potential Impact to Digi Inability to effectively manage succession planning risk, attract new There is growing expectation on corporate responsibility to address talent and retain top talent amidst stiff market competition from start environmental concerns such as climate change and social concerns GOVERNANCE ups will impact overall workforce effectiveness surrounding internet safety and equality
06
Mitigating Actions Mitigating Actions • Strengthen our employer brand via targeted retention strategies to • Implement Sustainability Framework to drive our commitment in retain talents responsible business conduct • Proactive succession and workforce planning to identify skill gaps • Digi is a constituent on FTSE4Good Bursa Malaysia Index, STATEMENTS and talent development needs reflecting our strong ESG risk management practice AUDITED FINANCIAL • Execute Yellow Heart programmes
Impact to Capital: Impact to Capital: 07
Sustainability Matters Sustainability Matters • Talent and Culture • Digital Resilience (Safe)
• Digital and Inclusion • Digital Inclusion (Access) OTHER
• Human Rights • Environment and Climate Change INFORMATION
Staying connected beyond borders We take our purpose to connect you with what matters most very seriously. Whether you are travelling the globe or reaching out to family and friends abroad, we have made staying connected simple, seamless and borderless. 28 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
THE YEAR IN REVIEW
Digi is at a key point of strengthening its leadership position on growth, and operating an efficient, modernised and responsible business. We have delivered on our 2019 priorities, as communicated in last year’s Annual Report, by being disciplined to execute on our strategic focus areas of Growth, Efficiency and Simplification, Responsible Business and Winning Team.
In this section, we have outlined our financial and operational performances that commensurate with the priorities we have set at the beginning of the year. Our non-financial initiatives which focus on empowering communities and fortifying our tech talent pipeline are available in the Operational Review segment of the IAR 2019.
2019 Priorities
Growth Efficiency and Simplification Winning Team Responsible Business
• Capture growth from • Continue focus and • Build Customer Obsessed • Maintain high standards existing customers execution of Operational and Innovation 360 of ethics and integrity in • Continue to drive Excellence (OE) initiatives culture, cultivate growth, business conduct postpaid growth and efficiency and agile • Protect the safety and Small and Medium mindset privacy of customers Enterprises (SMEs) • Reducing inequalities in opportunities society by improving • Deploy network for best internet and digital internet experience skills access
STRENGTHENED SUSTAINABLE REVENUE MIX ALONGSIDE EFFICIENT OPERATIONS AND INVESTMENTS FOR FUTURE GROWTH
2019 has been a relatively resilient year for Digi with solid execution and delivery of our strategic focus areas. This has strengthened our revenue and subscriber mix to pave the way for sustainable growth opportunities, with stronger internet and postpaid revenue, significant improvement in our 4G Plus network quality and coverage nationwide. We maintained our discipline on efficient operations to deliver a resilient underlying performance and healthy shareholder returns with 18.2 sen dividend per share for the year.
This was achieved despite being challenged by weaker macroeconomy development as Malaysia’s Gross Domestic Product (GDP) trimmed to 4.3% (2018: 4.7%), intense competition within the telecommunications industry across the postpaid and prepaid segments as well as a downward revision to the regulated mobile termination rates. These factors have also adversely trimmed the industry’s revenue growth. 29
01 FINANCIAL
REVIEW AT A GLANCE
Delivered 2019 As Guided 02
Service Revenue: EBITDA: Capex-to-Service Revenue: Low single digit decline Low single digit decline 12% – 13% MESSAGE TO SHAREHOLDERS -2.5% -1.4%1 -0.4%1&2 -4.0% 13.3%
03 * All analysis and comparisons are made based on pre-MFRS 16 accounting principles unless otherwise stated
STRONG EXECUTION ON A CONSISTENT STRATEGY CREATE VALUE STRATEGIES TO
DIGITAL GROWTH EFFICIENCY TRANSFORMATION 04 ANALYSIS MANAGEMENT +11.0% Flat +24% DISCUSSION AND Internet and digital revenue OPEX or RM1.97 billion Monthly active MyDigi users
05 +11.9% Postpaid revenue1 46% IT Common GOVERNANCE #2 EBITDA Margin Delivery Centre Postpaid operator with over Operating model innovation 3.0 million subscribers 06 STATEMENTS
+6.0% RM753 million Digi Home Fibre AUDITED FINANCIAL B2B Revenue CAPEX Malaysia’s first 5G 07 OpenLab & Pilots
1 Excluding contract assets amortisation OTHER
2 Excluding interconnect INFORMATION 30 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
FINANCIAL REVIEW
Service Revenue
Sustainable growth driven by postpaid, prepaid internet and digital Blended ARPU remained relatively resilient at RM40, comprised of revenue uplift stronger internet revenue mix. Postpaid and prepaid internet subscribers increased 222,000 to 9.7 million, representing 85.9% (2018: 81.2%) Over the last few years, we have sharpened our focus to drive sustainable of our 11.3 million subscribers. growth from postpaid, prepaid internet and digital portfolios while pursuing opportunities in SMEs, B2B and home fibre network solutions. Sales of devices and other revenue for the year trimmed 11.4% to RM653 million as a result of lower volume of devices sold during The strategic shifts undertaken to reduce reliance on traditional the year. However, the lower volume on devices sold did not hamper prepaid voice significantly changed our revenue and subscriber mix postpaid growth during the year. to be more internet centric when compared to a year ago.
Internet subscriber base strengthened to 9.4 million, an increase of Service Revenue 235,000 from a year ago while data traffic volumes surged 48% year-on-year and monthly data usage amongst our subscribers 11.3 increased from 9.9GB in 2018 to 13.8GB at end of 2019. 40 The higher data consumption is fueled by significant improvements in our 4G+ network coverage and quality. This is evident from the 5.64 3 percentage point improvement in our network Net Promoter Score (NPS) and increase in average 4G data download speeds as part of 1.38 our efforts to deliver a consistent, best for internet experience to our customers.
We delivered 8.2% revenue growth from our postpaid, prepaid internet and digital portfolios to RM4.46 billion (2018: RM4.12 billion) which substantially mitigated decline from prepaid non-internet 4.46 revenue and interconnect rates revision during the year. -0.20 2019 Pursuant to the adoption of MFRS 15 accounting standard, headline service revenue moderated 2.5% to RM5.64 billion after accounting Prepaid non-Internet (RM billion) for higher contract assets amortisation as a flow through from prior Postpaid, prepaid internet and digital (RM billion) Contract assets amortisation (RM billion) year’s accelerated postpaid contract acquisition. ARPU (RM) Subscribers (million)
2018 and 2019 data are based on post MFRS-15
INTERNET POSTPAID, PREPAID INTERNET AND BLENDED ARPU SUBSCRIBERS DIGITAL REVENUE GROWTH 235,000 9.4 million increase 8.2% RM40 31
01 AT A GLANCE
Postpaid Revenue Prepaid Revenue 02
Continued double digit growth driven by solid acquisition and Significant shift to more sustainable prepaid revenue and retention momentum subscriber mix
During the year, we continued to register steady postpaid acquisitions, Prepaid internet subscribers remained steady at 6.7 million (2018: and prepaid to postpaid conversions fueled by affordable postpaid 6.7 million) accounting for 80.7% of overall prepaid subscriber base MESSAGE TO plans and easy device ownership in addition to our attractive and driving internet revenues up to 54% of prepaid revenue (2018: SHAREHOLDERS Borderless Roaming and Family propositions. 47%) or RM1.61 billion for the year.
Strong demand for our PhoneFreedom 365 (PF365) and Family Plans Our channel transformation strategy combined with our affordable, boosted plan upgrades and re-contracting among our existing worry-free prepaid internet plans have provided greater accessibility 03 subscribers and resulted in postpaid subscribers rising by 227,000 for our subscribers to continue enjoying all the internet has to offer to more than 3.0 million. This places us firmly as Malaysia’s #2 on our network. This disciplined focus on quality prepaid acquisitions postpaid mobile operator. and stronger internet adoption amongst our prepaid subscribers have effectively shifted our reliance on traditional voice to internet services, CREATE VALUE This is a testament of Digi’s solid channel execution and base building a more sustainable runway for this segment of our business. STRATEGIES TO management strategies in driving postpaid revenue growth of 11.9%1 to RM2.82 billion1 or RM2.62 billion after accounting for MFRS 15 While we see encouraging internet usage growth over a larger contract assets amortisation. Meanwhile, Postpaid ARPU reduced prepaid internet subscriber base, the effects from moderating non- slightly to RM71 on the back of stronger postpaid subscriber base internet services, lower interconnect rates, prolonged intense market 04 with higher contributions from entry level postpaid plans. competition and active prepaid to postpaid conversions trimmed prepaid revenue by 12.0% to RM3.00 billion. In spite of that, Prepaid ARPU remained relatively resilient at RM30 underpinned by our Postpaid Revenue
solid work in building a sustainable revenue mix. ANALYSIS MANAGEMENT
3.0 DISCUSSION AND Prepaid Revenue 71 8.3 05 2.62 30 GOVERNANCE 3.00 2.82
-0.20 06 2019
Postpaid revenue (RM billion) ARPU (RM) Contract assets amortisation (RM billion) Subscribers (million)
2018 and 2019 data are based on post MFRS-15 2019 STATEMENTS
Prepaid revenue (RM billion) AUDITED FINANCIAL 1 Excluding contract assets amortisation ARPU (RM) Subscribers (million)
2018 and 2019 data are based on post MFRS-15
07 OTHER INFORMATION 32 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
FINANCIAL REVIEW
Costs and EBITDA
Smart investments to drive customer value and better Our consistent focus in driving growth and efficiencies enabled us network experience to sustain our industry-leading EBITDA margin at 46%, despite We registered a 3.1% reduction in total cost supported by our challenging market conditions and topline pressure. relentless focus on OE and business modernisation efforts, including digitalising our core operations, and operating model shifts across Underlying EBITDA trimmed 1.6% to RM3.11 billion or RM2.91 billion our business processes and value chain. after accounting or contract assets amortisation.
Cost of goods sold (COGS) improved 6.9% mainly due to reduction CAPEX and Operational Cash Flow in regulated interconnect rates while efficiently managing rising costs from data traffic growth and sale of devices from postpaid expansion. Strategic investments for sustainable growth During the year, we invested RM753 million, equivalent to 13.3% Total Costs of service revenue, to strengthen our network experience. These investments primarily focused on network quality optimisation, capacity upgrades, and mobile and fibre coverage expansion to 4G LTE: 91% 3.41 and LTE-A: 72% of the population and 9,610km respectively.
1.97 The improved quality of our network delivered a consistent internet experience for our 11.3 million customers and earned us recognition as one of the top-ranking 4G networks in a recent speed test report in December 2019. 1.44 Operational (Ops) Cash Flow retraced to RM2.16 billion, equivalent to 34.1% margin. 2019 Opex (RM billion) COGS (RM billion) CAPEX and Operational Cash Flow Opex trimmed 0.2% to RM1.97 billion or 34.7% of service revenue 2.16 while we continued investing in network coverage and capacity expansions nationwide, and marketing activities to drive stronger 34 postpaid and internet subscriptions.
EBITDA and Margin 0.75 46
2.91
3.11 2019
-0.20 CAPE (RM billion) 2019 Margin (%) Operational Cash Flow (RM billion) Underlying EBITDA (RM billion) Margin (%) Contract assets amortisation (RM billion) 33
01 AT A GLANCE
Profit After Taxes (PAT) Shareholders’ Return 02
Healthy earnings underpinned by improved sustainable revenue Close to 100% dividend payout with solid foundation set for mix and efficient operations future growth PAT margin remained steady at 24% although moderated 3.0% to Earnings per share (EPS) for the year trimmed to 19.2 sen and RM1.50 billion. This is a flow through from lower EBITDA and accounting 18.4 sen after accounting for the impact of MFRS 16 adoption. MESSAGE TO for RM9 million IT Common Delivery Centre transition costs, RM0.83 SHAREHOLDERS billion depreciation from investments in network and digital capabilities EPS and DPS in addition to spectrum assets to support growth opportunities. 18.2 Depreciation and PAT 03 99 0.83 CREATE VALUE 24 STRATEGIES TO 19.2 18.4 1.50 04
2019 ANALYSIS MANAGEMENT DISCUSSION AND EPS pre MFRS-16 (sen) EPS post MFRS-16 (sen) Payout Ratio (%) DPS (sen) 2019
PAT (RM billion) The Board of Directors declared total dividend per share of 18.2 05 PAT Margin (%) Depreciation (RM billion) sen, equivalent to RM1.42 billion or 99% payout for 2019.
PROFIT AFTER DIVIDEND GOVERNANCE TAXES (PAT) PAYOUT 24% 99% RM1.50 billion PAT margin RM1.42 billion Payout ratio 06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 34 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
FINANCIAL REVIEW
Impact of MFRS 16 Adoption 2020 Outlook and Financial Guidance
Digi adopted MFRS 16: Leases using a modified retrospective In the midst of the global Covid-19 pandemic, we are all navigating approach with effect from 1 January 2019. new ways of educating our children, running businesses, maintaining critical societal functions, all while trying to ensure the health and A summary of the accounting impact from MFRS 16 on 2019 income welfare of those around us. statement is as follows: Keeping you connected to what matters most is our purpose, and it has never been more relevant than in the situation we face today. 2019 Connectivity is critical for societies to continue functioning at this RM million Pre Post Delta % time. Globally, children are streaming sessions with their teachers, MFRS 16 MFRS 16 doctors are seeing patients online, businesses are running remotely, and many are simultaneously turning to the web for social interaction Revenue 6,297 6,297 – 0.0 and entertainment while neighbourhood locales close their doors. COGS 1,438 1,435 (3) -0.2 That is why we remain dedicated to maintain the quality and reliability of services to support our customers, businesses and society during Opex 1,967 1,577 (390) -19.9 this time. EBITDA before 2,911 3,303 392 -13.5 other items (boi) We are: • Actively monitoring the situation, securing our networks and EBITDA margin (%) 46.2 52.5 6.2 increasing our efforts to meet the needs of our customers Depreciation and • Dedicating people and resources to an internal Covid-19 response 833 1,197 364 43.7 amortisation and Business Continuity Planning team to ensure that we are in constant dialogue to manage the impact of Covid-19 on our Net finance cost 95 205 110 108.9 employees, customers, value chain, connectivity services and business Profit before taxes 1,973 1,892 (81) -4.1 • Leveraging our robust digital infrastructure to continue driving organisation-wide productivity while protecting employees with Profit after taxes 1,495 1,433 (62) -4.1 appropriate workforce planning, allowing only critical resources Capex 753 753 – 0.0 in the field to maintain service reliability, supported by all other Ops cash flow 2,158 2,550 392 18.2 employees working from home
Ops cash flow 34.3 40.5 6.2 Despite the current challenges, we remain committed to our long-term margin (%) strategy, prospects and continued focus on innovation, taking a practical EPS (sen) 19.2 18.4 view on our earnings parameters.
DPS (sen) 18.2 In the months ahead in 2020, we will prioritise: • Investments in strengthening network and IT infrastructure to support growing data demand Mobile termination rates revision • Delivering on core and digital businesses via focused customer There will also be further revision to the mobile termination rates offerings • Protecting cash flow through cost measures and financial flexibility effective 1 January 2020 as prescribed in MCMC’s Determination 1, 2017 of Mandatory Standard on Access Pricing made in 20 The solid groundwork we have set in the last three years by consistently December 2017 as follows: executing our strategy, in particular digitalisation, has enabled us to quickly respond to the new virtual environment. As we continue Sen 2019 2020 delivering essential connectivity services for all at this time, we believe we are fit to manage through these future developments. Local 1.96 0.99
National 1.96 0.99
Sub-marine 1.96 0.99 35
01 SUMMARISED STATEMENT
OF FINANCIAL POSITION AT A GLANCE
ROBUST BALANCE SHEET WITH SOLID FINANCIAL DEBT AND FUNDING STRATEGY 02 CAPABILITY We place high priority on prudent capital management which Our balance sheet stayed healthy backed by solid financial strength includes strategic deployment of funding sources depending on to fund infrastructure and spectrum investments and 5G-ready the requirements and market conditions. This is to ensure that capabilities with the aim to deliver best for internet network the company is equipped with flexibility either through borrowings MESSAGE TO experience for our customers nationwide. Total Assets sustained provided by financial institutions or the issuance of Islamic paper SHAREHOLDERS at RM8.15 billion, an increase of 31.2% as compared to RM6.21 in debt capital market. In Digi, the Treasury function is responsible billion last year. This was largely underpinned by annual capex for all debt and funding, cash management and corporate finance investments on network and IT capabilities, spectrum assets, matters. The Head of Group Treasury reports directly to the recognition of Rights of Use (ROU) Assets under MFRS 16 and Chief Financial Officer and is governed by Group Treasury Policy 03 receivables device contracts. that sets out the principle framework for treasury risk management and liquidity reporting. Composition of Total Assets CREATE VALUE STRATEGIES TO
77% Current Assets FINANCIAL FACILITIES Digi issued the second series of Islamic Medium-Term Notes 23% Non-current Assets (IMTN) at RM900 million in September 2019. The issuance is 04 part of its IMTN Programme of up to RM5.0 billion in nominal value and an Islamic Commercial Papers Programme with sub-limit of up to RM1.0 billion in nominal value, which have a combined limit of up to RM5.0 billion in nominal value (Sukuk Programmes). ANALYSIS MANAGEMENT DISCUSSION AND BORROWINGS PROFILE The Sukuk Programmes were established in 2017 and have been accorded with AAA/Stable/P1 sukuk rating by RAM Rating Services Total borrowings amounted to RM5.15 billion, against RM2.69 Berhad. This credit rating was reaffirmed in January 2020 to billion in 2018 due to the recognition of lease liabilities of RM2.05 reflect the company’s well-established position in the 05 billion pursuant to the adoption of MFRS 16. This led to a Net mobile telecommunications industry, excellent profitability and Debt over EBITDA ratio of 1.6 times in 2019 (Pre-MFRS 16: 0.9 robust cashflow. times) as compared to 0.7 times last year. Digi has bagged the Best Islamic Finance Deal in Southeast Asia Total borrowings comprised Term Loans, Islamic Medium-Term 2019 award at the Annual Alpha Southeast Asia Deal and Solutions GOVERNANCE Notes (IMTN) Programme and finance leases, of which 45% were Awards. Digi emerged as the winner for its RM900 Million Sukuk Islamic debt. Conventional debt as a percentage of Total Assets Murabahah issued in September 2019, comprising a 7-year and stood at 10%, well below the 33% threshold set by the Securities 10-year tranche of RM450 Million each, pricing at 3.50% and Commission to meet the criteria of a Shariah-compliant counter on 3.60% per annum, respectively. 06 Bursa Malaysia. Digi’s solid credit profile resulted in an immense success for the Composition of Total Borrowings issuance, with final bid to cover ratio of 3.2 times after the final price revision. The transaction generated interest from a diverse
investor base despite a volatile capital market. STATEMENTS
45% Islamic AUDITED FINANCIAL
15% Conventional IMTN Credit Programme Rating 40% Finance Leases RM5.0 AAA/ 07 billion STABLE/P1 OTHER INFORMATION 36 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
5-YEAR FINANCIAL SUMMARY
RM Million 2015 2016 2017 2018 2019
KEY FINANCIAL RESULTS1
Revenue 6,914 6,597 6,340 6,527 6,297
Telecommunication Revenue – Service revenue 6,348 6,226 5,914 5,790 5,644 – Others 64 100 121 112 87 – Sales of device 502 271 306 625 566
Earnings before interest, taxes, depreciation and amortisation 2,983 2,955 2,886 3,034 2,911 before other items (EBITDA – boi)
EBITDA margin 43% 45% 46% 46% 46%
Earnings before interest and taxes (EBIT) 2,354 2,304 2,100 2,188 2,069
Net finance cost 45 66 115 108 96
Profit before taxes 2,309 2,238 1,985 2,080 1,973
Profit after taxes 1,723 1,633 1,477 1,542 1,495
Capital expenditure (Capex)2 904 780 748 685 753
Operational (ops) cash flow 2,079 2,175 2,138 2,349 2,158
KEY FINANCIAL POSITIONS
Total assets 4,662 5,498 5,834 6,212 8,149
Non-Current liabilities 386 2,150 3,033 2,838 4,732
Total borrowings 1,294 2,282 2,704 2,694 5,150
– Conventional borrowing 1,260 2,257 1,292 1,293 780
– Islamic borrowing – – 1,392 1,397 2,322
– Finance leases 34 25 21 8 2,048
Shareholders’ equity 519 519 519 673 660
KEY FINANCIAL RATIOS4
Return on equity 332% 315% 285% 229% 227%
Return on total assets 37.0% 29.7% 25.3% 24.8% 18.3%
Earnings per share (sen) 22.2 21.0 19.0 19.8 19.2
Dividend per share (sen) 22.2 21.0 18.8 19.6 18.2
Dividend yield 4.1% 4.3% 3.7% 4.4% 4.1%3
Net assets per share (sen) 6.7 6.7 6.7 8.7 8.5
Net debt/EBITDA (x) 0.4 0.6 0.7 0.7 0.9
Interest cover (x) 42.0 29.5 15.9 17.1 21.9
1 Post 2018 Financial Results are based on MFRS 15 (pre-MFRS 16) 2 CAPEX exclude new spectrum acquisition 3 Yield calculated based on the closing price of RM4.46 as at 31 December 2019 4 Key Financial Ratios are calculated based on MFRS 15 37
01 INVESTOR
INFORMATION AT A GLANCE
The Investor Relations (IR) team acts as a focal point with the global investment community throughout the year to communicate the 02 company’s financial and operational performance, growth strategies and outlook, amongst other things. In Digi, the IR activities are spearheaded by the CEO; Albern Murty and Chief Financial Officer; Inger Folkeson supported by the IR team and selected senior
Management which are Chief Marketing Officer; Loh Keh Jiat, Chief Technology Officer; Kesavan Sivabalan and Chief Corporate Affairs Officer; Joachim Rajaram.
We maintain active dialogues with our stakeholders via a planned IR programme, providing them access to the Management wherever MESSAGE TO SHAREHOLDERS possible via analyst days, direct one-on-one meetings, or via our participation in roadshows and investor conferences. As part of our commitment to maintain corporate credibility and instill investor confidence, the IR team ensures queries from shareholders and analysts are addressed in a timely, open and comprehensive manner.
03 Our Investor Relations website is frequently maintained to provide up-to-date and historical investor-related information. The Digi Board and Management are regularly apprised through Investor Relations Quarterly Reports, feedback from investor engagement sessions and reports from analysts and fund managers. CREATE VALUE 2019 INVESTOR CALENDAR STRATEGIES TO • 22nd AGM • dBAccess Asia Conference, Singapore • Management 04 Roadshow in Management Management Analyst • Engagement at MIRA Singapore and Roadshow in Analyst Roadshow in Day • Invest Malaysia Kuala Lumpur Europe Day Singapore ANALYSIS MANAGEMENT DISCUSSION AND Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
05 1Q 2Q 3Q 4Q Financial Results Financial Results Financial Results Financial Results
Proactive communication with Investors and Analysts via meetings GOVERNANCE
06 BROAD ANALYST COVERAGE AWARDS AND ACCOLADES
As one of the largest telecommunication companies by market Digi’s IR team received acknowledgment by global investors capitalisation on Bursa Malaysia as at end of 2019, Digi and analysts who cover Malaysian entities in a survey garnered a fair share of coverage by the investment community. conducted by the Malaysian Investor Relations Association For 2019, a total of 25 analysts and research houses have (MIRA). As a result, our Head of IR was awarded Best IR STATEMENTS core coverage on the stock, with 56% being foreign coverage. Professional for Large Cap companies, and Digi was recognised AUDITED FINANCIAL as Top Three for Best Company for IR and Best IR Website categories in the MIRA Awards 2019.
07 OTHER INFORMATION 38 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
INVESTOR INFORMATION
Summary of Investor Discussion In the various engagement sessions with the investment community, key topics of interest included:
• Market competition • Capital expenditure guidance • Revenue growth opportunities and outlook • Earnings and dividend prospects • Regulatory development – 5G and National Fiberisation and Connectivity Plan (NFCP) • Digitisation of core business • Debt structure • Operational efficiency initiatives • MFRS 15 and 16 accounting impact • Digi’s 4G+ network • Spectrum portfolio
The views and feedback from our shareholders and investors are regularly reported to Management for their deliberation and actions, if any.
SHARE PRICE DEVELOPMENT
Digi’s Share Price and Volume Performance in 2019
Million RM shares
5 5 40
35 5 0 30
4 5 25
20 4 0 15
10 3 5 5
3 0 0 an e ar Apr a un ul Aug Sep Oct o ec
1Q19 2Q19 3Q19 4Q19 High RM4.72 High RM5.05 High RM5.08 High RM4.78 Low RM4.42 Low RM4.44 Low RM4.60 Low RM4.46 Volume 322.5 million Volume 475.8 million Volume 551.4 million Volume 322.1 million
ail Trading olume illion s ares igi s S are rice 39
01 OPERATIONAL
REVIEW AT A GLANCE BEST FOR INTERNET NETWORK
02 Re-farmed spectrum to deliver stronger
Significantly strengthened and optimised indoor and outdoor coverage and network nationwide improved network capacity
We have markedly improved average 4G LTE download speeds We have actively re-farmed our diverse spectrum portfolio to MESSAGE TO SHAREHOLDERS and now rank #1 or #2 across 13 states in Malaysia, as measured deliver a stronger, more consistent 4G network experience for in recent speed test reports. our customers, supported by an expanded fibre network footprint of 9,610KM. Registered speed improvements in all states 03 2x5Mhz, 900Mhz Central Eastern (expiry 2032) Kuala Lumpur +19% Pahang +24% CREATE VALUE Selangor +18% Kelantan +49% STRATEGIES TO Putrajaya +11% Terengganu +29% 2x20Mhz,1800Mhz (expiry 2032)
Northern Southern 04 Kedah +36% Negeri Sembilan +37% Perlis +41% Melaka +34% 2x15Mhz, 1x5Mhz, 2100Mhz (expiry 2034)
Penang +40% Johor +25% ANALYSIS MANAGEMENT Perak +24% DISCUSSION AND
Sabah Sarawak 2x10Mhz, 2600Mhz (expiry 2021) 05 Sabah +22% Sarawak +15% Labuan +26% GOVERNANCE
Network Net Promoter Score (NPS) Enabled 7,000 WiFi Hotspot locations improved by 3 percentage points (pp) across Malaysia 06
In the periodic Network NPS survey, which gathers feedback In October 2019, we announced a partnership with TM Global from over 30,000 Digi customers, all regions nationwide recorded to enable Digi customers to enjoy affordable internet access stronger NPS. This signals improved customer confidence and across 7,000 WiFi hotspots nationwide. This solution strengthens satisfaction in our network. Digi’s product range, offering customers more options to enjoy STATEMENTS a seamless internet experience in and out of their homes. This 2019 Nationwide Results AUDITED FINANCIAL is in line with the National Fiberisation and Connectivity Plan (NFCP)’s aspiration to provide quality and affordable connectivity
Northern for more Malaysians across more areas nationwide. +5pp Sarawak +7pp 07 Central +2pp Sabah +1pp
Southern OTHER +2pp INFORMATION 40 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
5G-READY NETWORK FOR THE FUTURE
5G is an important enabler for Malaysia's connected future. We have actively prepared our network and business for 5G, investing to ensure 5G is built right for the future and ready to rollout when spectrum becomes available.
Over the last two years, we have made strategic investments to be 5G-ready:
• Extensive backhaul and access fibre network in preparation for 5G rollout • Modernised network systems, and Network and IT Function Virtualisation capabilities with 5G-ready features • Advanced security architecture to safeguard access to digital services and customer information • NB-IOT solutions for businesses and industries • Smart partnerships in different industry verticals to pilot 5G technology and use cases • Malaysia’s first 5G OpenLab where businesses, academics and developers can go to test new 5G use cases
We strongly believe in a collaborative, partnership-based approach to develop the potential of our nation’s 5G ecosystem to bring entirely new possibilities to the way Malaysians live, work and play.
Enhanced mobile broadband Explore use cases to capitalise on Massive machine type 5G Ultra reliable, 5G benefits communications low-latency
5G Malaysia: Progressing Humanity Showcase (18-21 April 2019) April • Showcased use cases demonstrating how 5G accelerates emergency medical response times, learning through 2019 Augmented Reality (AR), and enable seamless e-Sports gameplay through Virtual Reality (VR)
Partners ZTE to explore 5G innovations (27 May 2019) May • Exploring several aspects of collaboration to make 5G a reality in Malaysia, including 5G live trials of end-to- 2019 end network functions and features, and pilot trials of 5G use cases
Malaysia’s first 5G OpenLab Oct • Partnered Cyberview Sdn Bhd (Cyberview) and ZTE to introduce the 5G OpenLab in Cyberjaya 2019 • The OpenLab enables start-ups and developers to trial use cases and prototypes that will benefit from 5G’s onwards super high-speed, massive bandwidth and ultra-low latency connectivity in a live, controlled environment
5G Demonstration Projects at 5G OpenLab and Langkawi, Kedah • In conjunction with Malaysia’s 5G Demonstration Project (5GDP) showcase, we have live 5G use cases running at the 5G OpenLab in Selangor, and Langkawi Airport and Hospital • The use cases explore Real-time Medical Data Transfers, Real-time Virtual Tourism, Collaborative VR, Interactive AR with Avatar, and Fixed Wireless Access (FWA) 41
01 DRIVING NEW GROWTH OPPORTUNITIES AND VALUE FROM EXISTING CUSTOMER BASE AT A GLANCE
We continued our focus to provide customers with compelling product propositions and differentiated customer experiences. As a result, we 02 saw favourable quality acquisition momentum and growth, coupled with data monetisation amid a highly competitive operating environment.
48% 83% 476,000 85% Data traffic growth Internet subscribers Smartphones sold Smartphone penetration MESSAGE TO SHAREHOLDERS
KEY HIGHLIGHTS
Postpaid 03
PhoneFreedom 365 (PF365): All-New Digi Postpaid Family Plan: Easy device ownership programme #SameSameForAll CREATE VALUE PF365 is designed exclusively for postpaid customers to enjoy affordable, Our all-new enhanced Digi Postpaid Family Plan allows everyone in STRATEGIES TO easy device ownership and access to the latest smartphones with the Family Plan to enjoy the same benefits. The first-of-its-kind in zero upfront payment and 0% interest instalments. The strong demand the market, the plan mirrors the principal line’s Internet Quota and for our PF365 plans registered a solid increase in postpaid plan Unlimited Calls for supplementary lines at only RM38/line monthly. upgrades and drove higher retention rate among our existing customers. 04 RM0 0% Upfront Payment Interest Rate ANALYSIS MANAGEMENT Free Free DISCUSSION AND Phone Upgrade 365 Phone Protection
05 Worry-Free Borderless Roaming Experience All-New Home Fibre Plans
Borderless Roaming has been an attractive and worry-free proposition Our inaugural Home Fibre plans introduced in September 2019 gave for our customers to enjoy borderless connectivity and a seamless us the opportunity to provide enhanced services to our customers’ GOVERNANCE roaming experience anytime, anywhere with Digi. Our Borderless homes and families complementing our mobile services. With the Roaming feature is made available across our postpaid and prepaid recent partnership with Time DotCom, we have expanded our home plans with the flexibility of affordable internet roaming pass add-ons fibre footprint to more locations and can now connect more Malaysians from as low as RM5 a day. residing in high-rise residential areas. 06
Prepaid
#JomInternet with Internet Cili Padi Passes STATEMENTS AUDITED FINANCIAL
We sharpened our prepaid internet plans to deliver worry-free, reliable internet and digital entertainment experience for our prepaid customers. We have a broad prepaid internet portfolio offering affordable hourly, daily, weekly and monthly internet passes, enriched with app and time-based internet quotas. To drive stronger internet adoption and usage amongst our prepaid subscribers, we also introduced 07 bite-sized internet passes from as low as RM1 to RM35 with Internet Cili Padi passes via our #JomInternet Campaign and monthly BiGBonus plan. These monthly prepaid internet passes and plan offers a combination of all-usage internet quota, with either app or time- based internet or unlimited calls for a whole month. OTHER INFORMATION 42 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
A TRUSTED DIGITAL PARTNER FOR CORPORATES AND SMEs
Drawing on our competencies as both a network and digital solutions provider, we have brought together a range of expertise necessary to support businesses through their growth and digital transformation journeys. This approach has underlined our expansion into B2B, recording a 6% growth in the business by working with clients from various sectors, namely construction, oil and gas, education, healthcare, financial and hospitality.
While we offer a wide range of connectivity, digital and IoT solutions for businesses to work more efficiently and accelerate their growth, we have also made it our commitment to create knowledge sharing platforms to help SMEs adapt and benefit from digital transformation. This year, our MY Digital SME Workshop equipped 1,000 SMEs in four cities with knowledge and tools to build an e-commerce presence for their businesses. This comprehensive programme was delivered in partnership with SME Corp, Mahir Digital Bersama Google, Avana Facebook Commerce, RevAsia and Shopee.
Dedicated Business Solutions Team with years of experience
Digi-X Scaling Adjacent B2B solutions, working closely with Business sales force
Direct Internet Access (DIA) served by a dedicated, high bandwidth connection DRIVERS MyDigi Business app enables full control of your accounts
Dedicated Customer Service Team driven by customer obsessed mindset
Key connectivity and digital solutions for Corporates and SMEs
We customise connectivity and digital solutions for businesses to enhance their overall network experience by increasing coverage, improving reliability and scalability of services, as well as solutions to digitalise their operations. • Wider and reliable coverage offshore and at ports with a licensed spectrum, i.e. FDD LTE • Dedicated high-speed internet access and branch-to-branch private connectivity • Cost effective solutions over wireless technology (Microwave) with Direct Internet Access, Sip Trunk (IP-based fixed line), Toll Free Numbers, and IP PABX and IP Phones • Realised more effective and efficient business operations for clients with digital solutions including:
Omni Hotline is a full-fledged office phone system that operates completely through an app. With landline numbers, extension lines, virtual assistants, call redirection and more. Our virtual PABX system is a highly scalable mobile cloud-based subscription solution.
iFleet is an IOT-enabled fleet management solution powered by telematics data. Through iFleet, we provide solutions such as vehicle tracking and analytics, in-vehicle WiFi for passengers and in-vehicle video footage to help fleet managers optimise their fleet.
What started off as a mission to build a better, alternative HR app to serve our own needs presented us with a new business opportunity. Fully developed in-house and used by all Digi employees, altHR is now available in the market as an all-in-one HR solution that digitises and simplifies HR admin processes on a single platform. 43
01 DIGITAL AS A NEW GROWTH ENGINE AT A GLANCE
Our goal is to provide digital services, along with the best customer experience and make them accessible to all. From empowering users 02 to self-manage subscriptions, game with confidence and break boundaries in education, we continue to innovate and unlock the value of digital services to enable our customers' digital lifestyles and drive new growth for Digi.
MESSAGE TO SHAREHOLDERS
MyDigi as a primary digital hub for customers RepublicGG (RGG) as a B2C platform for gaming 03
MyDigi app provides customers full control to manage their RGG is a popular platform for gamers to get gaming virtual accounts through convenient self-service features while promising currency loaded with gaming rewards. These rewards include CREATE VALUE a secure, hassle-free 24/7 experience. cashbacks, physical and in-game items. STRATEGIES TO
04
3.8 million +27% +21% +45% +10% 40% Monthly Active Transacted Bill Upsell Revenue Average ARPU growth Non-Digi
Users Collections In Volume transaction customers on ANALYSIS MANAGEMENT
growth monthly RGG DISCUSSION AND
The platform has seen a positive adoption trajectory since launch, 05 Key Highlights even attracting subscriptions from non-Digi users. This affirms • Personalised deals: Such as Box of Surprise and MyDigi Rewards RGG as a standalone, telco-agnostic service. to incentivise loyal customers. Deals range from internet add- ons to plan upgrades based on customer behaviour • Pre-book Roaming: Seamless connectivity abroad via advanced Key Highlights GOVERNANCE selection of roaming passes and easy monitoring of data usage • Extending payment options such as direct operator billing, • Easier payments: One account for multiple numbers and prepaid reload vouchers and e-wallet transactions seamless one-click payment • Partnered with publishers to bring exclusive merchandise and • Secure sign-in: Enhanced login security for a safer online experience in-game items to drive engagement 06 • Partnered MDEC’s ‘Level Up 2019’ gaming showcase of new popular gaming content, for wider reach and exposure STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 44 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
DIGITAL AS A NEW GROWTH ENGINE
Subscription management platform Interactive education platform
EasyAdd is a fully in-house developed subscription management Digi partnered Astro, Media Prima and MDEC to launch JomStudi, platform. It gives customers the convenience to subscribe and a digital education resource hub, in March 2019. manage multiple subscription services all in one place. Integrating with partners from the Entertainment, Productivity, Learning The platform makes quality learning content available to and Lifestyle verticals has allowed us to deliver an enriched underserved communities where access to learning resources range of digital customer experiences. may be limited. Within JomStudi, students can access school syllabus content set by the Ministry of Education and learn via self-learning tools and interactive videos provided by its partners, Classruum and Veative.
30+ +45% +65% Product Transaction Renewal Offerings growth growth rate rate monthly monthly 132 13-15 years old 40% Pusat Internet Make up Non-Digi Malaysia 34% of our customers subscriber base on JomStudi EasyAdd also grows the subscription economy. As a result of integrating into our platform, our partners build scalable recurring revenue. This partnership programme is a Digi exclusive initiative known as Collab with Digi. Key Highlights • Free access at all Digi run Pusat Internet Malaysia Key Highlights • Borderless online education hub reached over 10,000 students • Strong monthly user base growth, with higher subscription with Selangor, Sabah and Johor being top consumption states renewal rates as compared to Direct Operator Billing subscriptions • Over 50% of the registered users are non-Digi, with majority • Over 30 local and global services, including partnerships with of users seeking UPSR and SPM content local startups for subscriptions of physical products • Gained strong support by partners, visible through differentiated offers as compared to their retail offering 45
01 PEOPLE AND WORKPLACE MODERNISATION AT A GLANCE
02
MESSAGE TO SHAREHOLDERS
03 CREATE VALUE STRATEGIES TO Digi strives to provide an exceptional employee experience through our ‘Freedom to Inspire the Next’ aspiration. We believe that this premise is central to deliver upon our brand promise of connecting customers to what matters most. In living up to this brand promise, we continue building an ethical, inclusive and dynamic workplace that nurtures a learning, agile, and collaborative environment that promotes a culture of innovation and customer obsession. 04
PROMOTING A DIVERSE AND ENGAGING WORKFORCE
We believe in building a diverse and inclusive workforce at all levels of the organisation to maximise the power of different experiences. ANALYSIS MANAGEMENT Diversity is a critical pillar of good governance as it drives better Engagement Enablement Effectiveness DISCUSSION AND decision making, stimulates innovation, increases organisational agility Scores1 Scores2 Scores and strengthens resilience to disruption. This is evident in our 2% 3% 4% balanced gender ratio of 49% women to 51% men. 80% 79% 65% 05 Incremental % are benchmarked against 2018 data. Gender ratio 1 Engagement represents the % of employees committed to the organisation and willing to apply discretionary effort in their work. 2 Enablement represents the % employees well matched to their role and who experience Female Male job conditions that support them to perform to their full potential. GOVERNANCE
This is attributed to the action planning workshops and interventions % of women in leadership positions* carried out across Digi throughout 2019, focusing on various areas such as leadership, collaboration, way of work and integrity. 06
Extended Senior Leadership At Digi, our Best on People Council (BOPC) and Digi Employees 48% Management Forum 46% Forum Union (DGEU) are formed as our labour and employee representation. The councils are formed via a democratic election process by Digizens. * This accounts for CXO -1 and CXO -2 managerial positions STATEMENTS
During the year, we have observed a positive trend in our 2019 AUDITED FINANCIAL Employee Engagement, Enablement and Effectiveness scores as measured by our annual survey:
• Engagement score improved by 2% to 80% 07 • Enablement score increased by 3% to 79% • Effectiveness, which is the percentage of engaged and enabled employees, rose 4% to 65%. We have outperformed the 58% OTHER
benchmark scored by High Performing Companies INFORMATION 46 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
PEOPLE AND WORKPLACE MODERNISATION
DEVELOPING A FUTURE-READY WORKFORCE
Strategy Execution Programme This year, 70 leaders from Digi have been selected to participate in the Strategy Execution Programme organised in collaboration with Telenor and Deloitte. This programme is essential in equipping our leaders with concepts of business agility and skills to navigate through new paradigm shifts, as well as enabling them to hone their leadership style to drive an agile culture and mindset.
Building an expert workforce Upskilling through learning We have embraced a culture of continuous learning and encourage In driving a culture of continuous learning, each employee is our employees to upskill and even relearn new skills to keep up challenged to complete 40 hours of learning on various digital with the demands of the transforming technological landscape in learning platforms annually. For 2019, we achieved a total of the wake of the fourth industrial revolution. Depending on their 78,568* learning hours, averaging at 51.3 hours per employee. level of proficiency, employees are offered structured learning This is the accumulated hours clocked in from digital learning paths in the seven expert competence areas deemed critical to platforms only, such as Telenor Campus, Udacity, Coursera, Digi’s business strategy – Data and Analytics, Personalised Marketing, LinkedIn, and Lynda among others, and does not account for Product Management, Automation and Process, Cyber Security, face-to-face or guided learning sessions. Customer Facing IT and Cloud and Virtualisation. * Assured by KPMG
Digi CXO Apprentice Programme In engaging with various external talent partners and communities, we organised the fourth season of Digi CXO Apprentice programme, registering over 1,590 applications. Eight young talents have been selected to work directly under the guidance of Digi’s Management Team.
ENSURING A SAFE AND HEALTHY WORKING ENVIRONMENT
We acknowledge that it is crucial to maintain a safe and healthy working environment for our employees, vendors and suppliers. During the year, we led an industry level collaboration to provide training and conducting joint-inspection sessions involving multiple vendor groups. This has resulted in over 800 vendors being engaged.
Additionally, we also conducted joint-inspection with 13 safety officers from Tier-1 vendors. This involved quarterly inspections and monthly meetings to address issues and challenges faced by the vendors. Our efforts have resulted in zero* Lost Time Injury Frequency (LTIF) rate.
* Assured by KPMG 47
01 AT A GLANCE
UPHOLDING ETHICAL AND INTEGRITY PRACTICES WITHIN OUR COMPANY AND ACROSS THE VALUE CHAIN 02
Our key performance in relation to managing supply chain sustainably is as follows: MESSAGE TO
111* SHAREHOLDERS Newly registered vendors signed the Agreement of Responsible Business Conduct (ABC)1
1,793 03 Vendors having signed our ABC to date
The telecommunication industry is a highly regulated industry. Corporate compliance is therefore a strategic priority and forms an CREATE VALUE 44 STRATEGIES TO essential element of good governance. We employ a proactive Vendors were engaged through the Supplier Assessment approach in addressing compliance across the board, encompassing Questionnaire (SAQ)2 our people, processes, data and systems, that is supportive of the current economic, regulatory, social and environmental expectations set forth by our stakeholders. 30 04 Announced inspections Compliance begins with the top management setting the tone on fostering a culture of integrity and the behaviours within the company.
We have a clear zero-tolerance policy against all forms of bribery ANALYSIS 430 MANAGEMENT and corruption and our Anti-Corruption Policy sets out Digi’s core DISCUSSION AND Unannounced inspections principles in this regard. Our Code of Conduct is the foundation of Digi’s corporate culture and sets out high standards of integrity for how we do business and provides guidance to employees on how to deal with bribery and corruption activities that may arise in the 4 05 Contractors terminated as a result of failing to meet safety course of business. Internally, we carry out a company-wide annual standards risk assessment exercise to identify the Company’s risk exposures and put in place appropriate remediation plans. GOVERNANCE We are also committed to uphold the principles of ethics and integrity 2,594 Training hours accumulated by vendors undergoing capacity across our value chain. We believe our supply chain is an area where building workshops in the areas of safety awareness guidelines, there is an extraordinary opportunity to improve business performance, proper ways of using personal protective equipment and to reduce our environmental impact and positively influence social human rights awareness 06 equality, which includes mitigating human rights risks (i.e. modern slavery and child labour) and health and safety risks. * Assured by KPMG During the year, we stepped up efforts in monitoring business partner 1 Agreement of Responsible Business Conduct (ABC) which covers our stand and risk management which mandates relevant employees to screen high expectations on anti-corruption STATEMENTS risk business partners for integrity concerns prior to engagement, 2 Supplier Assessment Questionnaire (SAQ) is a self-audit survey form through which AUDITED FINANCIAL ensuring that Digi’s business relationships with all business partners process improvements are recommended do not pose unacceptable risks to the company.
07 Please refer to Digi Sustainability Data Book 2019 for more information OTHER INFORMATION 48 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
PEOPLE AND WORKPLACE MODERNISATION
PROTECTING DATA AND INFORMATION
Digi prioritises data protection to ensure employees’ and customers’ personal data are safe and secure. Our data privacy strategy incorporates strong governance around strengthening of privacy controls and in driving a responsible business culture, supported Asia Privacy Programme by continuous awareness on safe privacy practices and by Telenor Group information management. We have embarked on a two-year Asia Privacy Programme We improved privacy controls internally through embedment of organised by Telenor Group through which Digi aspires to stringent access control and management of data requests. The data operationalise privacy compliance, such as systemic mapping processing framework was simplified with revisions to the Privacy of assets and processing activities, monitoring consent Requirement Checklist (PRC), Data Processing Impact Assessment management across the value chain and improvement of data (DPIA) and Data Processing Agreement (DPA - Full and Lite versions) security by way of enacting a data breach response plan. as part of the Supply Chain Management programme. Annual audits These efforts are on-going and continual improvement is were conducted on selected vendors to ensure compliance with the envisaged in promoting data protection and information DPA obligations and proactive measures undertaken to mitigate risks. management in Digi.
In parallel, we provided nationwide awareness training sessions for over 700 Digizens, educating them on privacy risks and good practices on handling information. 49
01 MANAGING OUR ENVIRONMENTAL FOOTPRINT AT A GLANCE
02
MESSAGE TO SHAREHOLDERS
03
Climate change is a global challenge and we see ourselves as one of the key enablers towards building a decarbonised world by improving CREATE VALUE STRATEGIES TO our internal processes and leveraging on our digital solution offerings. Environmental sustainability is embedded into our business operations and seen in the overall context of the business – as stated in our Sustainability Policy and our Climate and Environment Manual.
04
Reducing our environmental impact Innovating and Modernising our Network
As part of Telenor Group, we have set a science-based target Total data traffic on our network increased by 48%, a reflection ANALYSIS MANAGEMENT in line with the latest climate science to achieve a 50% reduction of the increasing data usage per customer, averaging at a monthly DISCUSSION AND in our carbon emissions by 2030 (from a 2018 baseline). We usage of almost 13.8 GB in 2019. The growth in data usage align ourselves to the Government’s ambition for a low carbon poses a healthy challenge on how we scale the network while economy and support the National Energy Efficiency Master maintaining quality of service and resilience in reducing our Plan’s target of increasing renewable energy generation to 20% carbon emissions. 05 by 2025. We continue to undertake initiatives to make our entire Our engagement with Ericsson through the Common Delivery operations more efficient to achieve a net-positive ratio between Centre (CDC) since May 2018 has resulted in optimal efficiencies our operational footprint and carbon reductions. This in the way we manage and operate our network, enabling includes integrating sustainability considerations into our supply technological knowledge transfers across both organisations, and GOVERNANCE chain management. utilisation of the latest equipment in line with our long-term network expansion plans. Towards mid-2019, we inked a similar Our innovative digitised offerings help corporate and SME CDC model with Tech Mahindra for our IT infrastructure and customers to better manage their carbon emissions. We system functions for greater efficiencies and to keep pace with continuously hold dialogues and discussions with industry, 06 changing business needs. government and non-government organisations to advance industry progress, establish best practices, and support responsible We strive to minimise our climate impact by improving energy disclosure. In 2020, Telenor is disclosing more climate-related efficiency, choosing alternative energy sources to reduce our risks information in line with the Task Force on Climate-related direct and indirect sources of emissions, and working with
Financial Disclosures (TFCD) recommendations, and it encompasses stakeholders to decrease value chain emissions. We are exploring STATEMENTS
Digi’s climate related information. the deployment of Solar Leasing Model and Net Energy Metering AUDITED FINANCIAL Schemes with utility companies for green energy at our buildings and data centres as well as adopting digital communication solutions to reduce travel and transport. 07 In 2019, our carbon emission increased 4.8% y-o-y. Moving forward, we will adopt more carbon solutions in line with our Scientific Based Targets Initiative (SBTi) to achieve a 50% reduction
by 2030. OTHER INFORMATION 50 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
MANAGING OUR ENVIRONMENTAL FOOTPRINT
Annual GHG emissions inventory in accordance to the GHG Protocol Corporate Standard:
Digi Climate Metrics/Year 2019 2018
Scope 1: Direct Energy Consumption from Fuel (GwH) 43.47** 48.2**
Scope 1: Carbon Emissions (Tonnes)* 10,677** 11,738**
Scope 2: Indirect Energy Consumption from Grid and Green Electricity (GwH) 250.6 230
Scope 2: Carbon Emissions (Tonnes)* 162,870 153,769
Scope 3: Indirect Energy from Value Chain (GwH) 8 9
Scope 3: Carbon Emissions (Tonnes)* 1,653 1,728
Total Energy (GwH) 302 287.2**
Total Carbon Emissions (Tonnes) 175,200 167,235**
* Scope 1 (excluding emissions from diesel consumption used in generators), Scope 2 and Scope 3 Carbon Emissions – Assured by KPMG. ** In 2019, Digi underwent a review exercise of the methodology used to calculate fuel consumption of our generators used to power equipment for our network, taking into consideration efforts to convert generator powered sites to the grid. Based on our review, we had estimated a higher reporting capacity in prior years. Towards this effect, we have restated our 2018 figures based on the changes in methodology used. Energy consumption and carbon emissions related to diesel consumption used in generators reported in 2019 and 2018 restated are not assured by KPMG.
(Our boundary for carbon reporting only covers emissions from Digi Telecommunications Sdn Bhd. Emissions from our network, which accounts for our largest emissions, operate under this company. It does not include subsidiaries, outsourcing services or joint ventures)
We improved Carbon Intensity per Data Usage by 28% y-o-y as a result of operational efficiencies attributed to network modernisation and embarking on new operating models. This means that though the average customer is using more data, we have achieved a lower carbon footprint per unit of data consumed. Our carbon intensity is measured by tonnes of CO2 (tCO2e) per terabyte of data.
Digi Intensity Metrics/Year 2019 2018
Customer Base (mil) 11.28 11.66
Energy Usage per Customer (KwH) 26.7 24.6
Carbon Intensity per Customer 0.016 0.014
Energy Usage per data terabyte (MwH) 0.22 0.31
Carbon Intensity per Data Usage (tCO2e) 0.13 0.18
Please refer to Digi Sustainability Data Book 2019 for more information 51
01 IMPACTING LOCAL COMMUNITY AND INDUSTRY AT A GLANCE
02
MESSAGE TO SHAREHOLDERS
03 CREATE VALUE STRATEGIES TO As part of our commitment towards SDG 10 Reduced Inequalities, “Yellow Heart” is our brand promise to bring everyone in an accelerated journey towards digitalisation and responsible digital citizenship. This belief guides us in everything we do, bringing us closer to what matters most to our customers, communities and businesses, ultimately driving brand preference. The Yellow Heart initiative is led by
Sustainability and supported by Brand and other business functions – Privacy and Security, Compliance and Labour Law, Supply Chain, 04 Risk, People, and Environment.
Inclusive internet experience for all Thought leadership in ANALYSIS
Capacity building for advocating responsible MANAGEMENT
Focus areas Skills for a digital future Digital empowerment DISCUSSION AND schoolchildren business practices
Thought leadership in Bridging inequalities by Empowering every Malaysian Commitment to internet related risks for providing education, access – including the underserved responsible practices
families, especially to the Internet and communities – with access to across all business levels 05 children and building opportunities to upskill. In the Internet and to reap the and maximise the positive digital resilience strategies response to the demand for benefits of a digital lifestyle. impact through emphasis to ensure Malaysians are a digital–fluent workforce, For businesses and SMEs, to on privacy, climate, empowered on the Digi is invested in nurturing increase their efficiencies compliance, supply chain Initiatives
internet through the next generation to be and productivity by sustainability and people. GOVERNANCE responsible digital usage. digitally literate and ready establishing and growing for future jobs. their digital footprint.
• Building Digital • Future Skills for All • Digi MY Digital SME • Digi Sustainability Day 06 Resilience – Created Programme – Digi, programme – Equipped 2019 – Advocate resources and MDEC and UNICEF over 1000 Malaysian responsible business engagement for over collaborated to make SMEs with tools and skills practices to over 160 158,958* students digital learning of to digitalise their business. corporates and SMEs. on responsible computational thinking • Yellow Heart privileges • Implemented due
and resilient and computer science – differentiated offerings diligence to identify STATEMENTS
Performance digital citizenship. subjects accessible for in the form of rebates and address Digi’s AUDITED FINANCIAL schoolchildren and prioritised services for most salient human nationwide. Seniors and Persons with rights risk areas. Disabilities (PWD) to make services more accessible. 07
* Assured by KPMG OTHER
Please refer to Digi Sustainability Data Book 2019 for more information INFORMATION Creating inclusive internet experiences We believe the internet is for everyone, and that we play a crucial role to ensure every Malaysian has equal access to it. Our Yellow Heart Privileges seeks to lower barriers for senior citizens, persons with disabilities and more to access countless opportunities enabled through connectivity.
54 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
BOARD OF DIRECTORS’ PROFILES
Key to Committee membership:
B N A Haakon Bruaset Kjoel R Non-Independent Non-Executive Director Committee Chair
Member B R
Tan Sri Saw Choo Boon Yasmin Binti Aladad Khan Senior Independent Independent Non-Executive Director Non-Executive Director
Member B N A Member B N A R
Vimala V.R. Menon Anne Karin Kvam Independent Non-Independent Non-Executive Director Non-Executive Director
Member B A Member B
Torstein Pedersen Lars Erik Tellmann Non-Independent Non-Independent Non-Executive Director Non-Executive Director
Member B A R Member B 55
01 AT A GLANCE
HAAKON BRUASET KJOEL TAN SRI SAW CHOO BOON 02
Nationality Age Gender Nationality Age Gender Norwegian 48 Male Malaysian 73 Male
APPOINTED TO THE BOARD: PRESENT DIRECTORSHIP(S): APPOINTED TO THE BOARD: PRESENT DIRECTORSHIP(S): MESSAGE TO 11 July 2017 Listed Entities: 9 December 2010 Listed Entities: SHAREHOLDERS • Nil • RHB Bank Berhad MEETINGS ATTENDED: Other Public Companies: MEETINGS ATTENDED: • Wah Seong 10 out of 10 • Nil 10 out of 10 Corporation Berhad Other Public Companies: 03 LENGTH OF SERVICE AREA OF EXPERTISE: LENGTH OF SERVICE • RHB Capital Berhad (AS AT 31 MARCH 2020): • Telecommunications (AS AT 31 MARCH 2020): (In Members’ 2 years 8 months • Strategy Development 9 years 2 months Voluntary Liquidation) • Leadership • RHB Insurance Berhad CREATE VALUE • Legal and Regulatory STRATEGIES TO • Environmental Sustainability AREA OF EXPERTISE: • Leadership RELEVANT EXPERIENCE: • Strategy Development Mr Kjoel joined Telenor Group in 1995, beginning his career in the • Environmental Sustainability 04 domestic mobile operation in Norway. Since then, he has contributed • Human Resources to Telenor Group’s growing international presence through his involvement • Accounting and Finance in Telenor’s international mobile operations where he played significant roles in operational development, and merger and acquisition activities RELEVANT EXPERIENCE: ANALYSIS both in Europe and Asia. For the last 19 years, he has been based in Tan Sri Saw joined Shell in 1970 as a Refinery Technologist in Shell MANAGEMENT DISCUSSION AND Asia where he has played a key role in the development of Telenor Refining Company (Federation of Malaya) Bhd. He then served in Group’s strategy for Asia, and managing the Asia business environment various capacities in Manufacturing, Supply, Trading and Planning in including in the areas of public affairs, government relations, strategic Malaysia, Singapore and the Netherlands. In 1996, Tan Sri Saw was communications and corporate responsibility. Mr Kjoel was Acting appointed Managing Director of Shell MDS (Malaysia) Sdn Bhd. In 05 Executive Vice President and Chief Corporate Affairs Officer for Telenor 1998, he assumed the position of Managing Director for Oil Products Group from July until October 2018 in addition to his global responsibility (Downstream) Shell Malaysia. In 1999, with the globalisation of the for Telenor Group’s public and regulatory affairs activities, a role he Shell Oil Products business, he was appointed Vice President of the undertook in September 2016. Commercial Business in the Asia Pacific region. In 2005, he assumed
the Vice President Global Marine position to manage the marketing GOVERNANCE Mr Kjoel is a senior corporate and public affairs professional with of oil products to shipping customers globally. He was appointed extensive experience from telecom and digital industries in Europe Chairman of Shell Malaysia Ltd from 2006 until 2010, when he and Asia. retired from Shell after 40 years of continuous service. 06 Mr Kjoel has since December 2019 served as the Chief Strategy Tan Sri Saw is an Independent Director of RHB Bank Berhad and and Transformation Officer at Total Access Communication Public of Wah Seong Corporation Berhad. He is also a Director for some Company Limited, Thailand, dtac. He serves on the Board of Directors private companies and the Chairman of MRCB Quill Management of several Telenor Group Companies in Singapore, Grameenphone Sdn Bhd.
Limited in Bangladesh, Telenor Pakistan Limited and Telenor Myammar STATEMENTS
Ltd and Digi Telecommunications Sdn Bhd. Mr Kjoel is also a non- In addition, he is a Director on the Socio-Economic Research Centre AUDITED FINANCIAL executive Director of the global architect and design company Board of the Associated Chinese Chambers of Commerce and Snøhetta which is headquartered in Oslo, Norway. Industry Malaysia and a Council Member of the Federation of Malaysian Manufacturers Council. ACADEMIC/PROFESSIONAL QUALIFICATION/MEMBERSHIP(S): 07 • Master of Business Administration degree from BI Norwegian ACADEMIC/PROFESSIONAL QUALIFICATION/MEMBERSHIP(S): Business School, Oslo • Bachelor of Science Hons (Chemistry) from University of Malaya
• Studies in public relations at BI Norwegian Business School, Oslo OTHER INFORMATION 56 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
BOARD OF DIRECTORS’ PROFILEs
YASMIN BINTI ALADAD KHAN VIMALA V.R. MENON
Nationality Age Gender Nationality Age Gender Malaysian 61 Female Malaysian 65 Female
APPOINTED TO THE BOARD: PRESENT DIRECTORSHIP(S): APPOINTED TO THE BOARD: PRESENT DIRECTORSHIP(S): 23 July 2013 Listed Entities: 1 July 2015 Listed Entities: • Nil • Petronas Dagangan Berhad MEETINGS ATTENDED: Other Public Companies: MEETINGS ATTENDED: Other Public Companies: 9 out of 10 • Nil 10 out of 10 • Nil
LENGTH OF SERVICE AREA OF EXPERTISE: LENGTH OF SERVICE AREA OF EXPERTISE: (AS AT 31 MARCH 2020): • Leadership (AS AT 31 MARCH 2020): • Leadership 6 years 8 months • Commercial Marketing 4 years 8 months • Accounting and Finance • Strategy Development • Legal and Regulatory • Human Resources • Strategy Development • Telecommunications • Commercial Marketing
RELEVANT EXPERIENCE: RELEVANT EXPERIENCE: Puan Yasmin pursued a career in banking where she started out as Ms Menon is a Chartered Accountant and has had more than 30 a Credit Analyst and eventually became Vice President, Corporate years of experience in Finance and General Management. She started and Investment Banking at JP Morgan Chase. She later joined General her career in 1982 and after a brief time in practice she joined Electric (GE) Operations Inc as Director, Business Development of Edaran Otomobil Nasional Berhad (EON Berhad) as Manager in the GE International Inc, Thailand and Malaysia, and was promoted to Finance Division in 1984. In 1989, she was promoted to General Chief Operating Officer of GE International Inc, Thailand. Manager Finance and then to Director of Finance and Corporate Services, and served as a non-independent Board member of EON She was the Senior Vice President, South East Asia and South Asia Berhad from 1990 to 2006. At various times during this period she for DHL Express overseeing 14 countries in South East Asia and also served as a Board member of EON Bank Berhad, Jardine Cycle South Asia until December 2015. Prior to this, she was DHL Malaysia’s & Carriage Limited and PT Astra International Tbk. She left EON Country Manager in 2001 and Country Manager in Singapore in 2003. Berhad in 2007 and was subsequently appointed Director of Finance and Corporate Affairs at Proton Holdings Berhad from 2008 to 2009. Puan Yasmin is a Director of DHL’s subsidiaries in Asia Pacific and is also the Executive Vice President, Commercial, DHL Express, Asia Ms Menon served as a member of the Board of Trustees of Pemandu Pacific (excluding China). Corporation from July 2014 to January 2017 and a Board member of Prince Court Medical Centre Sdn Bhd from 2011 to July 2018. ACADEMIC/PROFESSIONAL QUALIFICATION/MEMBERSHIP(S): She served as Senior Independent Director and Chairman of the • Master of Business Administration from Aston University Board Audit Committee for Petronas Chemical Group Berhad. • Member of the Advisory Board of Singapore Management University Currently, Ms Menon is the Independent Director and Chairman of the Board Audit Committee for Petronas Dagangan Berhad, and also an Independent Director and Board Audit Committee Chairman of Jardine Cycle & Carriage Limited.
ACADEMIC/PROFESSIONAL QUALIFICATION/MEMBERSHIP(S): • Fellow of the Institute of Chartered Accountants in England and Wales • Member of the Malaysian Institute of Accountants (MIA) 57
01 AT A GLANCE
ANNE KARIN KVAM TORSTEIN PEDERSEN 02
Nationality Age Gender Nationality Age Gender Norwegian 52 Female Norwegian 53 Male
APPOINTED TO THE BOARD: PRESENT DIRECTORSHIP(S): APPOINTED TO THE BOARD: PRESENT DIRECTORSHIP(S): MESSAGE TO 16 October 2018 Listed Entities: 12 December 2017 Listed Entities: SHAREHOLDERS • Nil • Nil MEETINGS ATTENDED: Other Public Companies: MEETINGS ATTENDED: Other Public Companies: 10 out of 10 • Nil 10 out of 10 • Nil 03 LENGTH OF SERVICE AREA OF EXPERTISE: LENGTH OF SERVICE AREA OF EXPERTISE: (AS AT 31 MARCH 2020): • Leadership (AS AT 31 MARCH 2020): • Telecommunications 1 year 5 months • Telecommunications 2 years 3 months • Strategy Development • Environmental Sustainability • Environmental Sustainability CREATE VALUE • Legal and Regulatory • Leadership STRATEGIES TO • Corporate Governance • Accounting and Finance
RELEVANT EXPERIENCE: RELEVANT EXPERIENCE: 04 Ms Kvam started her career as a case worker in the Norwegian Ministry Mr Pedersen has more than 23 years of international management of Justice in 1993. She worked at Norske Skogindustrier ASA in experience in the telecommunications sector, covering strategic, different management positions from 1994 to 2007, with the last four financial, commercial and technology areas of business. He started years as General Counsel. Following that, Ms Kvam was the Global his professional career in 1992 as an Engineer in Telenor Broadcast, Head of Ownership Policies in Norges Bank Investment Management Norway, and subsequently served as Senior Engineer in Telenor ANALYSIS MANAGEMENT from 2008 to 2012. Ms Kvam served as Principal Sustainability Norway. In 1997, he joined Viag Interkom, Germany, as a Virtual DISCUSSION AND Consultant in DNV GL from 2012 to 2017. She later became the Private Network Planner and was appointed as Manager in Corporate Head of Responsible Investment in KLP Kapitalforvaltning AS and was Strategy in 1998. From 2001 to 2002, Mr Pedersen served as part of the leadership team from 2017 to September 2018. Project Director, Head of the CEO Office in UCOM, Thailand. He joined Telenor Norway in 2003 to 2008 as a Product Manager and 05 Ms Kvam was appointed as the Executive Vice President, Corporate was then appointed as Strategic Director. From 2013 to 2014, he Affairs of Telenor Group on 1 October 2018. She is also a Director acted as Vice President in Telenor ASA and then as Chief Strategy of Digi Telecommunications Sdn Bhd. Officer in Globul Bulgaria. He later assumed the Project Director position for a Telenor-Telia merger project in Denmark in 2014 to GOVERNANCE ACADEMIC/PROFESSIONAL QUALIFICATION/MEMBERSHIP(S): 2015. From 2015 to 2017, he served as Vice President M&A and • Master of Business Administration from University College subsequently as Senior Business Manager in Telenor ASA until 2019. Dublin, Ireland Mr Pedersen is currently Head of Operational Efficiency in Total • Licensed solicitor with a Law Degree from University of 06 Oslo, Norway Access Communication Public Company Limited, Thailand, dtac and a Director of Digi Telecommunications Sdn Bhd.
ACADEMIC/PROFESSIONAL QUALIFICATION/MEMBERSHIP(S):
• Master of Business Administration from IESE Business STATEMENTS
School, Spain AUDITED FINANCIAL • Master of Science in Electrical Engineering from University of Karlsruhe, Germany
07 OTHER INFORMATION 58 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
BOARD OF DIRECTORS’ PROFILEs
LARS ERIK TELLMANN RELEVANT EXPERIENCE: Nationality Age Gender Mr Tellmann joined Telenor Group in 2001 and has since served Norwegian 48 Male in various leadership positions in both Norway, Malaysia, Thailand and Myanmar. Mr Tellmann is currently Senior Vice President and APPOINTED TO THE BOARD: PRESENT DIRECTORSHIP(S): Head of Business Development and Portfolio Management in Telenor 12 July 2019 Listed Entities: Asia Ltd., and the Head of Telenor Financial Services in Singapore. • Nil Prior to this, he was the Chief Financial Officer of Telenor Myanmar MEETINGS ATTENDED: Other Public Companies: Ltd. from 2013 to 2016, and Chief Executive Officer of Telenor 4 out of 4 • Nil Myanmar Ltd. from 2016 to 2018. Prior to joining Telenor, Mr Tellmann had his initial career in the Software industry with Agresso AREA OF EXPERTISE: LENGTH OF SERVICE Group ASA in Norway. (AS AT 31 MARCH 2020): • Leadership 8 months • Telecommunications Mr Tellmann has served as a Director in several public listed Telecom • Strategy Development companies, including Grameenphone Ltd. in Bangladesh and Total • Accounting and Finance Access Communication Public Company Limited, Thailand, dtac. At • General Management present he is a Director in Grameenphone Ltd., Telenor Pakistan Ltd., Telenor Health AS, Digital Money Myanmar Ltd., and Digi Telecommunications Sdn Bhd.
ACADEMIC/PROFESSIONAL QUALIFICATION/MEMBERSHIP(S): • Master of Science in Business (M.Sc/Siviløkonom) degree from NORD University in Norway • Master in Business Administration from Heriot-Watt University, Edinburgh
Save as disclosed, none of the Directors have any:- 1. Family relationship with any Director and/or major shareholders of the Company; 2. Conflict of interest with the Company; and 3. Conviction for offences within the past 5 years other than traffic offences 59
01 MANAGEMENT
PROFILES AT A GLANCE
02
Albern Murty Inger Gløersen Folkeson
Chief Executive Officer Chief Financial Officer MESSAGE TO SHAREHOLDERS
03 CREATE VALUE STRATEGIES TO
Loh Keh Jiat Eugene Teh Chief Marketing Officer Chief Business Officer 04 ANALYSIS MANAGEMENT DISCUSSION AND
Elisabeth Melander 05 Stene Kesavan Sivabalan Chief Human Chief Technology Officer Resource Officer GOVERNANCE
06 STATEMENTS Joachim Rajaram AUDITED FINANCIAL Praveen Rajan Chief Corporate Chief Digital Officer Affairs Officer
07 OTHER INFORMATION 60 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
MANAGEMENT PROFILES
ALBERN MURTY INGER GLØERSEN FOLKESON Chief Executive Officer Chief Financial Officer
Nationality Age Gender Nationality Age Gender Malaysian 47 Male Norwegian 38 Female
CAREER HISTORY CAREER HISTORY Albern was appointed Chief Executive Officer on 1 April 2015. Prior Inger was appointed Chief Financial Officer on 1 March 2019. Prior to that, he was the Chief Operating Officer of Digi. Since joining to this, she was instrumental in building strong financial standings Digi in 2002, he has held roles in Project Planning and Controls, for several of Telenor Group’s adjacent and non-telco assets globally Product Management and Product Development, and as Head of as Chief Financial Officer, namely for Norkring AS (part of Telenor Strategy and New Business, Acting Co-Chief Marketing Officer and Broadcast Holding), Telenor Digital Businesses, and Telenor Group Chief Marketing Officer. Before Digi, his previous experience includes Holdings. She has been with Telenor for over 11 years and has held business and commercial management roles in Lucent Technologies several research and strategy roles where she developed across the Asian region. her experience in business modeling, portfolio development and project management. SKILLS AND EXPERIENCE Albern holds a Bachelor of Science in Marketing and Advertising SKILLS AND EXPERIENCE Management from Portland State University, Oregon, USA. Inger holds a Master of Science, Institute of Industrial Economics and Technology Management from the Norwegian University of Science and Technology, Trondheim, Norway.
LOH KEH JIAT EUGENE TEH Chief Marketing Officer Chief Business Officer
Nationality Age Gender Nationality Age Gender Malaysian 48 Male Malaysian 45 Male
CAREER HISTORY CAREER HISTORY Loh was appointed Chief Marketing Officer on 30 March 2016. Eugene was appointed Chief Business Officer on 1 January 2018. Prior to that, he was Chief Sales Officer. He has held other various He was formerly the Chief Corporate Affairs Officer. Prior to Digi, senior positions within the Marketing Division in his 12 years with he was a Director at the Performance Management and Delivery Digi Telecommunications Sdn Bhd. These include Head of Postpaid, Unit (PEMANDU) of the Prime Minister’s Department. Eugene Head of Corporate Strategy and Broadband, Head of Product previously helmed senior leadership roles in Arthur D. Little, and Marketing, and Head of Channels and Regional Management. He McKinsey & Co. He was also a senior investment officer at Singapore’s has more than 20 years of experience in the telecommunications Economic Development Board. and accounting industries, having held roles at PT Mobile-8 Tbk Indonesia and PricewaterhouseCoopers prior to joining Digi. SKILLS AND EXPERIENCE Eugene holds a Master of Science in Electrical Engineering and SKILLS AND EXPERIENCE Computer Science from University of California Berkeley, USA. Loh is a Chartered Accountant who holds a Bachelor of Business (Accounting) from Monash University, Australia. 61
01 AT A GLANCE
ELISABETH MELANDER STENE KESAVAN SIVABALAN 02 Chief Human Resource Officer Chief Technology Officer
Nationality Age Gender Nationality Age Gender Norwegian 54 Female Malaysian 51 Male
CAREER HISTORY CAREER HISTORY MESSAGE TO Elisabeth was appointed Chief Human Resource Officer on 1 October Kesavan was appointed Chief Technology Officer on 1 June 2017. SHAREHOLDERS 2018. Prior to that, she was Chief HR Officer at Multiconsult, a Since joining Digi in August 2013, he has held various senior Norway based engineering company. Before joining Multiconsult, positions in the company including Chief Network Officer and Head Elisabeth spent 16 years with Telenor, both at the Group and of Technology Operations. Prior to Digi, he was the General Manager Business Unit level across various commercial and HR functions, of Access Network at Vodafone Australia. Kesavan has more than 03 including serving as Chief HR Officer at Uninor, a Telenor subsidiary 20 years of experience in the telecommunications industry in several in India. Asian and European markets including Malaysia, Germany, Australia, Cambodia, Vietnam and Bangladesh, working with network vendors SKILLS AND EXPERIENCE like Lucent and Ericsson, and operators like Maxis and Vodafone. CREATE VALUE STRATEGIES TO Elisabeth holds a Masters of Science from the London School of Economics and Political Science, and a Bachelor of Science from SKILLS AND EXPERIENCE University of Salford, United Kingdom. Kesavan holds a Bachelor of Business from Deakin University, Australia and a Master of Science in Enterprise Project Management 04 from Stevens Institute of Technology, New York, USA.
JOACHIM RAJARAM PRAVEEN RAJAN Chief Corporate Affairs Officer Chief Digital Officer ANALYSIS MANAGEMENT DISCUSSION AND Nationality Age Gender Nationality Age Gender Malaysian 43 Male Malaysian 41 Male
CAREER HISTORY CAREER HISTORY 05 Joachim was appointed Chief Corporate Affairs Officer on 1 February Praveen was appointed Chief Digital Officer on 1 June 2016. He 2018. He was formerly Growth and Partnerships Lead at Digi’s venture joined Digi in 2007, and brings more than 16 years of experience building arm, Digi-X, where he drove business development, and in the internet and mobile industries. He has held multiple leadership partner and stakeholder engagement for the company’s FinTech, IoT, positions in his 11 year stint with Digi, and these include Head of
and eCommerce offerings. He has been with Telenor for close to 11 Advanced Data Services, Head of Products – Internet and Services, GOVERNANCE years, and has held various senior roles in this period including VP and Head of Postpaid and Digital Services. Prior to joining Digi, – Head of Corporate Communications in Telenor Myanmar, and Head Praveen co-founded a social networking startup called LifeLogger in of Communications and Sustainability at Digi. Joachim has two decades 2003, where he served as the Chief Technology Officer. of experience in corporate communications, sustainability planning and 06 governance, public affairs, and business environment management. SKILLS AND EXPERIENCE Praveen holds a Bachelor of Engineering (BEng), Electronics and SKILLS AND EXPERIENCE Computing from Nottingham Trent University, Nottingham, England. Joachim holds a Bachelor of Laws (LLB) from the University of
London, and has attended executive education programmes at London STATEMENTS
Business School. AUDITED FINANCIAL
The CEO has: 4,600 interest in shares of Digi.Com Berhad. 07 The Management Team do not have any of the following: 1. Directorship of public companies; 2. Family relationship with any Director and/or major shareholders of the Company; OTHER 3. Conflict of interest with the Company; and INFORMATION 4. Conviction for offences within the past 5 years other than traffic offences. 62 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
CORPORATE GOVERNANCE OVERVIEW STATEMENT
The Board of Directors (the Board, Digi Board or our Board) sets and steers the direction of Digi Group and brings independent, informed and effective judgement on material decisions reserved for the Board. The Board also ensures that strategy, risk, performance and sustainable development considerations are effectively integrated and appropriately balanced. Recognising the importance of good corporate governance, the Board is committed to uphold high standards of business integrity and ethics, and has worked to maintain these standards through the course of the year. For a fair view of the Board’s priorities and the Company’s corporate governance practices in 2019, this statement is to be read together with the Corporate Governance Report (CG Report). The CG Report elaborates on the Company’s application of each Principle of the Malaysian Code of Corporate Governance 2017 (MCCG) for the financial year under review.
STAKEHOLDERS
Governance BOARD OF DIRECTORS Structure
AUDIT AND RISK NOMINATION REMUNERATION COMMITTEE COMMITTEE COMMITTEE
Delegation of Authority
CHIEF EXECUTIVE OFFICER
DIGI MANAGEMENT ETHICS AND SUSTAINABILITY TEAM (DMT) COMMITTEE
Please refer to Digi’s website at www.digi.com.my/investors for detailed information on the Code and policies and the Corporate Governance Report. 63
01 AT A GLANCE
Principle A – Board Leadership and Effectiveness 02
Board Leadership and Effectiveness Our Board has the appropriate balance of knowledge, skills, experience, diversity and independence to objectively and effectively discharge its governance role and responsibilities. MESSAGE TO SHAREHOLDERS The diversity in its membership creates value by promoting better decision-making and effective governance and the Board has escalated its efforts to establish a diverse Board with a variety of skills, experience, age, cultural background and gender. Similarly, the Board is committed to developing a corporate culture that embraces all aspects of diversity and inclusion practices in the Group.
03
Board Balance and Composition Female Representation CREATE VALUE STRATEGIES TO
1 Senior Independent Non-Executive Director 2 Independent Non-Executive Directors 43% 04 4 Non-Independent Non-Executive Directors ANALYSIS MANAGEMENT DISCUSSION AND
Ethnic Diversity No. of pax Length of Tenure 3 05 2 2 15% Malay 1 1 1 1 1 14% Chinese 1 14% Indian
0 GOVERNANCE < 1Y 1-2Y 2-3Y 4-5Y 6-7Y 8-9Y Years 57% Others
06
Directors Core Area of Expertise DiversityAge Diversity of Age
83% 83% 83% 66% STATEMENTS 100% 74% 77% 80% 29% 45–50 years 80% 60% AUDITED FINANCIAL 60% 29% 51–56 years 40% 14% 57–62 years 20% 14% 63–68 years 0% 07
Strategy Human 14% 69–73 years Legal and Finance Leadership Commercial Marketing Resources Regulatory Environmental DevelopmentAccounting and Sustainability Telecommunications OTHER INFORMATION 64 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
CORPORATE GOVERNANCE OVERVIEW STATEMENT
Board Roles and Responsibilities OVERVIEW OF THE ROLES OF THE BOARD
The roles of the Chair of the Board and CEO are separated and Chair of the Board held by different individuals. Whilst the Chair of the Board provides • Leads and manages the Board’s effectiveness with a keen focus leadership of the Board, the CEO heads the Management team for on strategy, governance and compliance the day-to-day management of the business. The CEO has been • Leads Board meetings, sets the agenda and promotes a culture given certain powers to execute transactions guided by the rules of open debate between the Directors and procedures for the CEO and in accordance with the authority • Regularly engages with the CEO and the Management team to limits as defined and formalised. stay informed on operational matters • Ensures effective communication with shareholders The following Board Committees have been established to assist the Board in its oversight function with reference to specific Non-Executive Directors responsibility areas: • Contribute to developing Digi’s strategies • Scrutinise and constructively challenge the performance of Management in the execution of Digi’s strategies
Audit and Risk Nomination Remuneration Senior Independent Director Committee Committee Committee (ARC) (NC) (RC) • Provides a sounding board to the Chair and appraises his performance It should however be noted that at all times, the Board has collective • Acts as intermediary for other Directors, if needed oversight over the Board Committees. These Board Committees • Responds to shareholder concerns if and when other channels have been constituted with clear Terms of Reference (TOR). are exhausted
Detailed description of these roles can be found on the Board Charter inclusive of the TOR of the Board Committees online at www.digi.com.my/investors.
Key features of the Board • Separation of roles between the Chair of the Board and CEO Matters reserved for the Board • The Chair of the NC and ARC are Independent Non- Executive Directors • Review, approve and adopt the Group’s strategic plans and • Meets Board Diversity requirements, in particular gender annual targets diversity with three (3) women serving as members of the • Overseeing and evaluating the conduct and performance Board (43% female representation) of the Group’s business • Senior Independent Director provides a sounding board to • Declaration of dividends, approval of financial statements, the Chair Annual and quarterly reports of the Company • Management do not sit on the Board • Strategic investment, mergers and acquisition, divestment • The Chair of the ARC is not the Chair of the Board and any corporate exercises • Material acquisitions and disposition of assets not in the ordinary course of business • Reviewing the adequacy and integrity of the Group’s internal control system • Changes in the Group’s policies, procedures and delegated authority limits • Identifying and managing principal risks affecting the Company 65
01 AT A GLANCE
The Board is supported by two (2) professionally qualified and competent Company Secretaries who provide advisory to the Board, 02 particularly on corporate governance issues and compliance with relevant policies and procedures, and laws and regulatory requirements in addition to administrative matters.
In Digi, sustainability is governed across various levels in the organisation – the Board, Management, and across various functions including Sustainability, Strategy, Labor Law and Compliance, Supply Chain Sustainability, Privacy, Legal, Security, Finance, Network, Marketing and MESSAGE TO Human Resources. A Sustainability team has been established within the Corporate Affairs division. The Head of Sustainability SHAREHOLDERS oversees the daily operations of the team to meet the non-financial Key Performance Indicators (KPIs) established jointly with Telenor Group Sustainability.
Subsequently, Sustainability KPIs are reported quarterly to the Ethics and Sustainability Committee (ESC) which is chaired by the Chief 03 Executive Officer, alongside key members including the Chief Human Resource Officer, Chief Technology Officer, Chief Corporate Affairs Officer and other senior leadership members.
Board Meetings CREATE VALUE STRATEGIES TO The Board held ten (10) meetings during the year. Members of the Management Team were invited, when appropriate to attend Board meetings. Management provides Directors with complete, adequate and timely information prior to meetings and on an ongoing basis to enable them to make informed decisions. On 6 December 2019, a Board meeting was held in Malacca and a local market visit was organised as part of business orientation. 04
Board Meetings
Current Directors Attendance % ANALYSIS
Haakon Bruaset Kjoel (Chair of the Board) 10/10 100 MANAGEMENT DISCUSSION AND Tan Sri Saw Choo Boon 10/10 100
Yasmin Binti Aladad Khan 9/10 90
Vimala V.R. Menon 10/10 100 05
Anne Karin Kvam 10/10 100
Torstein Pedersen 10/10 100
Lars Erik Tellmann1 4/4 100 GOVERNANCE
Former Directors
Tone Ripel2 6/7 86 06
Notes: 1 Appointed as Director on 12 July 2019 2 Resigned as Director on 12 July 2019 STATEMENTS AUDITED FINANCIAL
24.80 98.57% 38.83 07 Total hours of the Overall percentage of the Total hours of the Board meetings Board meetings attended Board and Board by Directors Committee Meetings OTHER
The Board is satisfied with the level of time commitment given by the Directors towards fulfilling their roles and responsibilities. INFORMATION 66 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
CORPORATE GOVERNANCE OVERVIEW STATEMENT
Board Activities During the financial year 2019, the Board focused on a number of specific areas in line with our strategic goals and principal risks as outlined in the table below:
Strategy Financial
• Reviewed and approved Digi’s Group strategy plan, • Reviewed and approved the cumulative full year results for the financial ambitions and targets year ended 31 December 2018 • Oversaw the implementation of Digi’s Group strategic and • Reviewed and approved the Director’s Report and Audited Accounts business plan through quarterly updates with the CEO for the financial year ended 31 December 2018 • Reviewed and approved Digi’s Group capital investments • Reviewed and approved the Quarterly Results • Approved the Dividend payments and reviewed the solvency position of the Company • Reviewed the Group’s compliance with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (MMLR), Malaysian Accounting Standards and other relevant legal and regulatory requirements with regards to the quarterly and year end financial statements • Reviewed updates on the Recurrent Related Party Transactions (RRPT) by the Group • Reviewed and approved the Capital Expenditure budget • Received updates on the impact of the Sales and Service Tax 2018 and Tax matters
Risk and Internal Controls Governance
• Identified principal risks following in-depth risk assessment • Approved 2018 Annual Report Statements with all operating units, encompassing divisional risks from • Approved the draft Circular to shareholders in relation to the Proposed financial and non-financial aspects Renewal of Shareholders’ Mandates and New Shareholders’ Mandate • Ensure efficient implementation of appropriate internal for RRPT of a revenue or trading nature controls and mitigation measures • Approved the Board and Board Committees restructuring • Reviewed the adequacy and integrity of the management • Approved the revised Charter for the Board and CEO and TOR for of information and internal control systems Board Committees • Quarterly enterprise risk and opportunities status update • Approved revised Digi policies • Reviewed the internal controls over financials with • Established and identified succession plan for leadership within substantial financial impact the Digi Group • Reviewed and approved the Statement of Risk Management • Received Ethics and Sustainability and Material Sustainability and Internal Control for the Annual Report updates • Reviewed the Internal Audit Report, the recommendations • Received human resources updates and Management’s responses • Reviewed training sessions for the Board • Reviewed the report of the external auditor • Analysed performance evaluation for Board of Directors and Board Committees • Reviewed the tenure of the Directors • Reviewed and approved the recommendation for the fees and benefits to be paid to the Independent Non-Executive Directors • Reviewed and approved the remuneration structure for the Independent Non-Executive Directors • Reviewed and approved the scorecards, benefits and remuneration of the CEO • Reviewed the composition of the Board 67
01 AT A GLANCE
Directors’ Remuneration 02 The Board has adopted Digi’s Remuneration Policy for Non-Executive Directors, and Remuneration Policy and Procedure for Senior
Management which are designed to support its objectives.
The RC comprises all Non-Executive Directors who oversee the implementation of the remuneration policy and structure, and reviews and recommends matters relating to the remuneration for Directors and Management to the Board. MESSAGE TO SHAREHOLDERS Following a benchmarking exercise conducted in January 2019 by AON Hewitt on the remuneration packages including benefits payable to the Independent Non-Executive Directors, the Board has approved the revised remuneration structure as follows:-
• Discontinuance of meeting allowance for the ARC; • Introduction of Board Committee retainer fees and adjustment of fees for all categories based on role within the Board Committee 03 (Chair or Member); and • Continuance of the current cashless components of the fee structure, such as staff phone line and devices.
Each of the Independent Directors abstains from deliberating and voting on his or her own remuneration. The Non-Independent Non- CREATE VALUE STRATEGIES TO Executive Directors receive their remuneration from their employing companies within the Telenor Group and do not receive any form of remuneration from Digi.
The breakdown of the Directors’ remuneration paid in 2019 is as follows: 04
Board Committees’ Benefit- Directors’ Fees Fee in-kind TOTAL ANALYSIS
(RM) (RM) (RM) (RM) MANAGEMENT DISCUSSION AND Independent Non-Executive Directors Company Subsidiaries Company
Tan Sri Saw Choo Boon 214,733 31,992 59,582 300 306,607
Vimala V.R. Menon 214,733 Nil 46,885 5,300 266,918 05
Yasmin Binti Aladad Khan 214,733 Nil 65,339 300 280,372
TOTAL 847,997 5,900 853,897 GOVERNANCE
Please refer to Digi’s website at www.digi.com.my/investors for the Non-Executive Directors’ Remuneration Policy, and Remuneration Policy and Procedure for Senior Management.
The remuneration packages for Senior Management are set based on industry standards, reflects a Senior Management’s roles, responsibilities, 06 level of skills and experience, and motivates performance. The reward matrix is assessed based on the Company’s performance indicators under our four strategic pillars.
Embracing the Corporate Governance Culture
The Board recognises that upholding high standards of corporate ethics is key to long-term value creation and contributes directly to STATEMENTS improved business performance. The Management leads forums and engagements throughout the year to highlight our values, beliefs, AUDITED FINANCIAL business integrity and approach to health and safety.
Digi’s culture is defined through the Digi Way, the Code of Conduct (the Code), Whistle Blowing Policy and Manual, Anti-Corruption Policy, No Gift Policy, and Health, Safety and Environmental Policy. There are various activities to increase awareness and these activities 07 are essential towards instilling a compliance culture in the Digi Group. OTHER Please refer to Digi’s website at www.digi.com.my/investors for detailed information on the Code and policies. INFORMATION 68 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
CORPORATE GOVERNANCE OVERVIEW STATEMENT
Principle B – Accountability and Effective Audit and Risk Management
Audit and Risk Committee (ARC) The ARC acknowledges its responsibility for establishing and overseeing the effectiveness of the Company’s system and framework of risk management and internal controls, and has appointed the ARC to undertake the governance oversight responsibility. The ARC comprises of four (4) Non-Executive Directors, three (3) of whom are Independent Directors, and is chaired by Ms Vimala V.R. Menon. The ARC’s responsibilities in overseeing Digi’s financial reporting process, internal controls, risk management and governance are guided by its Terms of Reference, which is reviewed and approved by the Board annually.
During the financial year, the ARC assessed the performance of the external auditors and agreed on their scope of work based on developments in the business. Non-audit services proposed by the external auditors were presented to the ARC to determine if auditors’ independence will be compromised. Based on these assessments, the ARC recommends the re-appointment of the external auditors at the forthcoming Annual General Meeting (AGM).
Risk Management and Internal Control Framework The risk management framework is designed to identify, assess and manage risks and uncover strategic opportunities in relation to delivering Digi’s strategic ambitions and business objectives.
Management is responsible for implementing Board approved policy on risk management by identifying, evaluating and monitoring risks which affect the achievement of business objectives within approved risk appetite levels. Digi’s enterprise risk heat map is deliberated on a quarterly basis by ARC and mitigation status of top risks are reviewed. On an annual basis, Management provides a report for the Board to gain oversight of the top risks, opportunities and mitigation strategies. Any ad hoc material risks identified are required to be reported at each Board meeting.
The Internal Audit department reports directly to the ARC to preserve its independence. Its activities and practices are guided by the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing.
The Internal Audit function assists the ARC in evaluating the effectiveness of the Company’s risk management and internal control system through its risk-based Audit Plan approved by the Board annually. The ARC also obtains assurance from Management and other assurance providers in ensuring the adequacy and effectiveness of its risk management and internal control framework.
Details of the Risk Management and Internal Control Framework are set out in the Statement on Risk Management and Internal Control of this Annual Report. 69
01 AT A GLANCE
Principle C – Integrity in Corporate Reporting and Meaningful Relationship with Stakeholders 02
Communication with Stakeholders and Conduct of AGM The Board recognises the importance of communicating with its shareholders through Annual Reports, AGM and the Company’s website. The details of these areas of practices are set out in the Investor Information section of this Annual Report. MESSAGE TO SHAREHOLDERS Sustainability Management Responsible business and sustainability are integral parts of Digi’s business strategy as it reaffirms the way we conduct business. We believe in a structured governance to identify and manage our business systematically to address risks and to maximise the positive impact of our business, whilst conforming to global sustainability standards. Our approach is one of continuous improvement. 03
We commit to the highest standards of transparency and to be accountable for the impact of our operations, products and services, environmental footprint and the value chain we operate in. We have zero tolerance for corruption and our corporate values and ethical standards represent an important foundation for implementing our governance framework as we believe that upholding high standards of CREATE VALUE corporate ethics is key to long-term value creation and contributes directly to improved business performance. STRATEGIES TO
We continue in our commitment to all United Nations Sustainable Development Goals with a focus on goal #10 Reduced Inequalities as we believe that our innovative use of digital communication can help improve people’s lives, close the inequality gap and empower societies. 04
More information on Digi’s principles and practices for corporate governance can be found at the Governance section at www.digi.com.my/investors.
2020 PRIORITIES ANALYSIS MANAGEMENT DISCUSSION AND Moving forward, the Board will allocate additional time to understand and address factors that contribute to sustainable long-term value creation while meeting urgent challenges stemming from economic, geopolitical, technology, social and environmental developments. The Board has identified the following priorities for 2020:
• Strategically prepare for growth amid increased uncertainty 05 • Accelerate the talent agenda and activate culture as a strategic asset • Evolve enterprise risk management • Prioritise cybersecurity and data privacy • Embrace environmental, social and governance (ESG) as a business imperative • Redefine and better communicate long-term value GOVERNANCE • Take a continuous improvement approach to board effectiveness
06 STATEMENT BY THE BOARD ON COMPLIANCE
The Board has reviewed, deliberated and approved this Statement on 11 March 2020. The Board is pleased to report to its shareholders that to the best of its knowledge, Digi has complied with and shall remain committed to attaining the highest possible standards of corporate governance through the continuous adoption of the principles and best practices of the MCCG 2017, and all other applicable
laws. The status of the Company’s application is reported in our CG report, which is accessible to the public at Digi’s website at STATEMENTS
www.digi.com.my/investors. AUDITED FINANCIAL
07 OTHER INFORMATION 70 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
Pursuant to Paragraph 15.26 (b) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (Bursa Securities), the Board of Directors of listed companies is required to include in their annual report, a statement about the state of risk management and internal control of the listed issuer as a group. Digi’s Board of Directors (the Board) is pleased to provide the following statement that has been prepared in accordance with the Statement on Risk Management and Internal Control: Guidelines for Directors of Listed Issuers endorsed by Bursa Securities. The Statement outlines the nature and scope of risk management and internal control within Digi during the financial year under review.
RESPONSIBILITIES AND ACCOUNTABILITIES As part of risk governance, Management reports Digi’s top enterprise risks to ARC in a risk heat map on quarterly basis for oversight and The Board acknowledges its responsibility for the establishment as mitigation status. On an annual basis, a risk report is provided to well as oversight of Digi’s risk management framework and internal the Board to highlight major enterprise risks which might affect control systems. The risk management framework and internal control delivery of Digi’s objectives. As material risk is identified, it will be systems are designed to identify, assess and manage risks that may reported to the Board, via ARC, to ensure the Board is kept updated impede the achievement of business objectives and strategies. The on the most significant risks in Digi and the progress of mitigation. Board also acknowledges that the internal control systems are designed to manage and minimise, rather than eliminate, occurrences To strengthen our risk management framework, we have continuously of material misstatement, financial losses or fraud. improved to enhance our risk management practices and increase the scope across Digi. The Board, through the Audit and Risk Committee (ARC) periodically reviews the effectiveness and adequacy of the risk management Refer to the diagram below for an overview of the risk management framework and internal controls by identifying, assessing, monitoring framework and processes implemented in Digi: and reporting key business risks with the objective to safeguard shareholders’ investments and Digi’s assets. Risk management framework:
Management is responsible for implementing Board approved policies • Risk Management Policy and and procedures on risk management and internal controls by identifying Framework and evaluating risks faced and monitoring the achievement of business • Risk Management Manual Strategic Planning goals and objectives within the risk appetite parameters. Process
Digi’s Objectives, Top-down Strategic Risk RISK MANAGEMENT Strategy, KPIs Identification and Assignment
Digi’s risk management framework provides the foundation and process on how risks are managed across Digi. Our process is broadly based on ISO 31000:2009. Bottom-up Divisional/ Operational Risk Identification and Assignment Risk management responsibilities in Digi are defined in the framework where Risk Management function is responsible to implement the enterprise risk management process. The Digi Management Team Risk Assessment (Management)’s key role is to identify significant threats and and Mitigation Plan opportunities, evaluate the risk profile and drive mitigation strategies on a regular basis. All line managers are required to assume Continuous Risk responsibility for risk management within their areas of responsibility Monitoring Improvement Process Responses and ensure that risk management is embedded in the day-to-day business processes.
Risk Monitoring 71
01 AT A GLANCE
Digi’s risks are identified based on risk assessments performed relative to the organisation’s ambition and objectives from our strategic planning process. The identified risks are assessed and deliberated by Management, and mitigated through strategies which are monitored 02 for progress to maintain the risk exposure within acceptable levels.
Risks reported by Management and discussed with ARC and the Board during the financial year are summarised below. As these key risks are still relevant, appropriate mitigation responses are identified and continuously monitored to mitigate exposures of these key risks. MESSAGE TO SHAREHOLDERS
Competitive threats and market pressure Agile digital transformation to deliver differentiated services 03 As competition intensifies amongst competitors, digital service As the technology landscape and consumers’ demand on mobile providers and new entrants, price and market erosion may data evolve, we could be impacted if we are unable to shift and impact both revenues and margin. transform our services to deliver the relevant customer experience. CREATE VALUE STRATEGIES TO
Capital allocation and operational efficiencies Regulatory, legal and compliance 04 Failure to maximise profitability for shareholders’ return if we Regulatory and compliance risk due to changes in laws, policies are not robust in capital allocation, operational efficiencies and or requirements on spectrum, licenses, access, registration, free cash flow management. business ethics or tax laws. ANALYSIS MANAGEMENT DISCUSSION AND
Data protection and management Cyber threats and security risk 05 Vast amount of data are subject to numerous compliance, As the technology landscape changes and business models security, and privacy requirements. Effective data governance evolve, we could be more susceptible to external security is critical to fulfil increasing customers’ expectation. attack, insider threats or network vulnerability. GOVERNANCE
Supply chain management to prevent service disruptions Technology resiliency and recovery management 06 International trade war sanctions will impede supply of system Failure to recover or continue services in the event of technology or network equipment. We could be impacted if we do not site loss caused by natural calamity, extreme technology failure have effective supply chain management process. or disaster. STATEMENTS AUDITED FINANCIAL
Talent and succession management Sustainability and responsible business conduct Inability to manage succession planning, attract new talents Rapid technological changes, large scale network infrastructure 07 and retain top talents amidst stiff market competition from expansion and roll out to meet consumers’ growing demand start ups and fight for talent by leading organisations. are causing increased carbon emission, e-waste and climate change threats. OTHER INFORMATION 72 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
INTERNAL CONTROL SYSTEMS Other activities performed to ensure network security protection include conducting security awareness sessions, running vulnerability The key elements of the internal control systems established by the management and security posture assessments, and continuous Board that provide effective governance and oversight of internal security monitoring and security compliance audits. Digi complies controls include: with the MS/ISO 27001:2013 – Information Security Management System, ISO 14001: 2015 – Environmental Management System, Policies and Operating Procedures ISO 45001:2018 – Occupational Health and Safety Management Policies and operating procedures are in place to ensure compliance System and Payment Card Industry/Data Security Standard (PCIDSS) with internal controls and the prescribed laws and regulations. These standards. policies and procedures provide guidance and direction for proper management and governance of operations and business activities. Monthly meetings are held with the Chief Technology Officer to The documents are published in the communication portal which is discuss, direct and approve security initiatives, activities, policies and made available to all employees. projects driven by the Security department.
Profitability Assurance Business Continuity Management
This function minimises revenue leakage by implementing adequate Digi recognises the importance of providing uninterrupted mission controls and processes through an optimal revenue management critical and time sensitive products and services to its customers. Hence, framework. It covers the cycle of identification, assessment, mitigation disruptive incidents are handled and responded to effectively to ensure and monitoring. Digi has in place automated controls to ensure that a structural recovery that safeguards the interests of its stakeholders, usage and profile integrity between the network, mediation, rating and as well as to protect the credibility and reputation of Digi. billing is assured and adequately controlled. Key issues and mitigation actions are reported to Management monthly. The effectiveness and In this regard, Digi has established the Business Continuity Management efficiency of processes and controls within the revenue cycle are (BCM) Manual which covers the BCM policy, framework and structure. reviewed regularly. In addition to assuring minimal revenue leakage, The BCM practices adopted in Digi are aligned with ISO 22301: the team also monitors site and store profitability, providing key Business Continuity Management. The Management continuously feedback to optimise the management of Digi’s key assets. leads the drive to enhance Digi’s BCM processes which encompass emergency response, crisis management, crisis communication, business continuity and Network and IT disaster recovery. In addition, Digi Security has an annual BCM programme which includes awareness, training, review and validation on the efficiencies and effectiveness of BCM. Digi is committed to reduce the impact of service disruptions by ensuring infrastructure is protected and services are not interrupted, thereby enabling continuous services to its customers. Controls over Financial Reporting
The Information Security and Physical Security functions are responsible The Controls over Financial Reporting (CFR) function plays an for ensuring confidentiality, integrity and availability of information important role in evaluating and improving effectiveness of key and information processing facilities, including telecommunication controls surrounding Digi’s financial reporting process. Its primary systems and infrastructure and to protect against cyber-attacks, objective is to provide reasonable assurance regarding the reliability fraudulent activities, information loss and other security risks and of financial reporting and preparation of financial statements. Reviews threats arising internally and externally. on internal controls over financial reporting is performed in accordance to Digi’s Internal Control over Financial Reporting Framework, which The Fraud Management function manages and mitigates the risk of requires assessment based on materiality level of significant accounts; relevant fraud and related losses. Some of its key activities involve testing and evaluation of the design and operational effectiveness developing and designing internal fraud controls which are regularly of key controls. The function adopts a continuous monitoring routine reviewed to ensure relevance and effectiveness. Measures and to follow up on unaddressed risks and non-operating controls, continuous actions are taken to ensure telecommunication fraud is including periodic reporting to Management and the ARC on the minimised and the requirement for preventive controls are embedded status of controls over the financial reporting processes. into business processes. 73
01 AT A GLANCE
Organisational Structure Assignment of Authority 02
Digi has established a well-defined organisational structure with clear Digi has an established Delegation Authority Matrix (DAM) to provide lines of responsibility and accountability, proper segregation of duties a framework of authority and accountability. The DAM outlines and assignment of authority to ensure effective and independent approval authority for strategic, capital and operational expenditure. stewardship. The DAM is reviewed and approved by the Board in line with MESSAGE TO
changes in business needs. SHAREHOLDERS
Board and Management Committees Code of Conduct and Agreement of Responsible The Board Committees, namely the Audit and Risk, Nomination and Business Conduct Remuneration Committees have been established to assist the Board 03 in executing its governance responsibilities and oversight function. These The Code of Conduct (the Code) and Agreement of Responsible Board Committees have been delegated specific responsibilities all of Business Conduct (ABC) is a vital and integral part of Digi’s governance which are governed by clearly defined Terms of Reference. The Terms regime that defines the core principles and ethical standards in of Reference of these Committees are accessible in the Corporate conducting business and engagements with all stakeholders, and CREATE VALUE Governance section of Digi’s website at www.digi.com.my/investors. compliance with relevant laws and regulations. The Code and ABC STRATEGIES TO applies to the members of the Board, employees and those acting Various committees comprising key Management members have on behalf of Digi. All employees and business partners are required been established to assist and support the Board Committees to to confirm that they have read, understood and will adhere to the oversee core areas of business operations under their respective Code and ABC, respectively. The Company has established 04 documented mandates. These Management Committees are: communication channels that allow concerns of non-adherence to the Code and ABC to be anonymously reported. Vendor and Investment Committee (VIC)
– Governs the approval process regarding material capital Compliance ANALYSIS MANAGEMENT
investments, operating expenditure, vendor evaluation criteria and DISCUSSION AND vendor selection. The Compliance Officer supports the CEO and the Board in – Meets bi-weekly. ensuring that: – Chaired by the Investment Controller with selected Management – The Code and ABC reflect good business practices and relevant
as participants of the Forum. laws, regulations and widely recognised treaties. 05 – The Code and ABC are implemented consistently and effectively Regulatory Steering Committee (RSC) through sharing of knowledge and measures for quality assurance. – Provides direction and makes decisions on regulatory matters and/ – Compliance incidents are consistently and effectively managed. or related topics that have a significant impact to Digi. – Reports on material breaches of the Code and ABC are made to
– Meets on a monthly basis. the Management, Board and ARC on a quarterly basis. GOVERNANCE – Chaired by the CEO with key Management as RSC members.
Risk Management Forum Management and Board Meetings – Forum member consists of Management who meets on a 06 Management meetings are held on a weekly basis to identify, discuss, quarterly basis. approve and resolve strategic, operational, financial and key – Reviews and deliberates on significant risks (threats and opportunities) management issues pertaining to Digi’s day-to-day business. Significant in Digi. changes in the business and the external environment are reported – Makes decisions on the coordinated action plans to mitigate risks. by the Management to the Board on an on-going basis and/or during STATEMENTS Board meetings. AUDITED FINANCIAL
07 OTHER INFORMATION 74 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL
REVIEW OF THIS STATEMENT BY EXTERNAL AUDITORS Internal Audit The external auditors have performed limited assurance procedures The Internal Audit function is established to undertake independent on this Statement on Risk Management and Internal Control pursuant review and assessment on the adequacy, efficiency and effectiveness to the scope set out in Audit and Assurance Practice Guide 3, of risk management, internal control and governance processes Guidance for Auditors on Engagements to Report on the Statement implemented by Management. To maintain its impartiality, proficiency on Risk Management and Internal Control included in the Annual and due professional care, the Internal Audit function reports Report issued by the Malaysian Institute of Accountants (MIA) for functionally to the ARC and administratively to the CEO. The purpose, inclusion in the Annual Report of the Group for the year ended 31 authority and responsibility of the Internal Audit function are reflected December 2019, and reported to the Board that nothing has come in the Internal Audit Charter, which is reviewed and approved by to their attention that cause them to believe the statement intended the ARC annually. to be included in the Annual Report is not prepared, in all material respects, in accordance with the disclosures required by paragraphs The annual audit plan, established on a risk-based approach, is 41 and 42 of the Guidelines, nor is the Statement factually inaccurate. reviewed and approved by the Board annually. The audit reports, including the audit recommendations, Management’s responses and AAPG 3 does not require the external auditors to consider whether action plans for improvement and/or rectification are reported to the Directors’ Statement on Risk Management and Internal Control the ARC on a quarterly basis. The status of the implementation are covers all risks and controls, or to form an opinion on the adequacy monitored by the ARC to ensure they are addressed timely. and effectiveness of the Group’s risk management and internal control system including the assessment and opinion by the Directors The Internal Audit activities and practices conform to The Institute and Management thereon. The report from the external auditor was of Internal Auditor (IIA)’s International Standards for the Professional made solely for, and directed solely to the Board of Directors in Practice of Internal Auditing. Further information on the Internal connection with their compliance with the listing requirements of Audit department’s activities are detailed in the Audit and Risk Bursa Securities and for no other purposes or parties. The external Committee Report of this Annual Report. auditors do not assume responsibility to any person other than the Board of Directors in respect of any aspect of this report.
CONCLUSION
The Board has received assurance from the CEO and CFO that Digi’s risk management and internal control framework is operating adequately and effectively, in all material aspects, during the financial year under review and up to the date of this Statement. Taking into consideration the assurance from Management and relevant assurance providers, the Board is of the view that the risk management and internal control practices and processes are operating adequately and effectively to safeguard the shareholders’ investment, customer’s interests, and Digi’s assets. 75
01 AUDIT AND
RISK COMMITTEE REPORT AT A GLANCE
Composition and Terms of Reference 02
In line with the requirements of Paragraph 15.09(1)(a) and (b) of The Chief Executive Officer, Chief Financial Officer and Head of the Main Market Listing Requirements of Bursa Securities (MMLR), Internal Audit attended ARC meetings by invitation to provide their the composition of the Audit and Risk Committee (ARC) is as follows: input, advice and clarification to relevant items on the agenda. The attendance of other Management team members was by invitation
Chair as well, depending on the matters that were discussed. The external MESSAGE TO SHAREHOLDERS Vimala V.R. Menon auditors were also invited to the ARC meetings to present their Independent Non-Executive Director annual audit plan, and discuss the quarterly unaudited financial results and annual audited financial statements, as well as other matters Members deemed relevant. 03 Tan Sri Saw Choo Boon Senior Independent Non-Executive Director All deliberations during the ARC meetings, including the issues tabled Yasmin Binti Aladad Khan and rationale adopted for decisions were properly recorded. Minutes Independent Non-Executive Director of the ARC meetings were tabled for confirmation at the following
ARC meeting and subsequently presented to the Board for notation. CREATE VALUE Torstein Pedersen STRATEGIES TO The Chair of the ARC reported to the Board on the activities and Non-Independent Non-Executive Director significant matters discussed at each ARC meeting.
No alternate Directors were appointed as members of the ARC. 04 SUMMARY OF ACTIVITIES OF THE ARC Vimala V.R. Menon is a Fellow of the Institute of Chartered Accountants in England and Wales, and a member of the Malaysian During the year under review, the ARC carried out the Institute of Accountants. The ARC, therefore, meets the requirement following activities: of Paragraph 15.09(1)(c)(i) of the MMLR, which requires at least one ANALYSIS MANAGEMENT
(1) member of the ARC to be a qualified accountant. DISCUSSION AND Risk Management and Internal Control During the financial year ended 31 December 2019, Vimala V.R. (a) Reviewed Digi’s quarterly top risk profiles and deliberated on Menon was appointed as the Chair of the ARC on 1 June 2019 in the significant threats and opportunities, including status and place of Tan Sri Saw Choo Boon (‘Tan Sri Saw’) who relinquished 05 adequacy of mitigation strategies. his Chair. However, Tan Sri Saw remains a member of the ARC. (b) Discussed the improvements to the Enterprise Risk Management The Board of Directors (the Board), via the Nomination Committee process to ensure proactive and holistic risk identification, and (NC), annually reviews the terms of office and performance of the monitoring of mitigation actions to reduce risk impact to an ARC and its members through an effectiveness evaluation exercise. acceptable level. GOVERNANCE In early 2020, the NC assessed the ARC’s performance for the (c) Evaluated the overall adequacy and effectiveness of internal financial year ended 31 December 2019 and was satisfied that the controls through review of the work performed by both internal ARC and its members have discharged their functions, duties and and external auditors, other assurance providers within Digi, 06 responsibilities in accordance to the ARC’s Terms of Reference. and discussions with Management.
The duties and responsibilities of the ARC are set out in its Terms of Reference which is accessible in the Corporate Governance section of Digi’s website at www.digi.com.my/investors. STATEMENTS AUDITED FINANCIAL The ARC held six (6) meetings during the financial year ended 31 December 2019 which were attended by all members.
07 OTHER INFORMATION 76 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
AUDIT AND RISK COMMITTEE REPORT
Internal Audit Compliance Programme
(a) Provided input on key areas to be included as part of the (a) Monitored the status of internal misconduct cases reported to annual Internal Audit Plan. Deliberated the risk-based Internal Board and ARC on a quarterly basis, including on-going Audit Plan to ensure adequate scope and comprehensive investigations, in accordance with Digi’s Code of Conduct and coverage of Digi’s activities, prior to recommending to the Governing Documents. Board for approval. Monitored the progress of the approved (b) Deliberated on the results of compliance cases and directed Internal Audit Plan, including the status of the planned reviews Management to implement and/or enhance controls to prevent and approved changes to the Internal Audit Plan due to changes recurrence, including conducting education programmes to in business and/or risk environment. increase awareness. (b) Reviewed and deliberated on internal audit reports, the audit (c) Reviewed the status of the planned mitigation actions developed recommendations and adequacy of Management’s response to from the results of the Compliance risk assessment performed these recommendations. Significant issues were discussed at in 2018. length with the presence of relevant Management team members to ensure satisfactory and timely remediation actions have been committed by Management to address identified risks. Additional Financial Reporting presentations were made at the request of the ARC to ensure adequate actions were taken in addressing the issues raised. (a) Reviewed Digi’s unaudited quarterly financial results and audited annual financial statements, and related announcements, before (c) Monitored the implementation of corrective action plans agreed recommending them for the Board’s approval, including: by Management on outstanding audit findings on a quarterly basis to ensure that all actions have been implemented on a (i) Deliberation on significant audit and accounting matters timely basis in the related areas. highlighted, comprising Management’s judgments, estimates or assessments made and sufficiency of disclosures in the (d) Discussions with the Head of Internal Audit, to assure itself of financial statements; and the soundness of internal control systems and activities of the Internal Audit Department, and to provide guidance on ad hoc (ii) Discussion of significant financial matters at length to matters arising from on-going internal audit activities. ensure compliance with internal accounting policies and Malaysian Financial Reporting Standards (MFRS), focusing (e) Reviewed the effectiveness of the Internal Audit function on MFRS 16. through evaluation of its performance and competency, and monitoring the sufficiency of resources and costs, to ensure that it has the required expertise and professionalism to discharge its duties.
(f) Reviewed and approved the Internal Audit Charter to reflect inclusion of investigation function and responsibilities.
(g) Received updates on the status of investigation cases handled by Internal Audit to provide guidance where relevant. 77
01 AT A GLANCE
External Audit Internal Audit Function 02
(a) Reviewed the scope of work of the external auditors confirming The Internal Audit Department reports functionally to the ARC, to their independence and objectivity. ensure impartiality and independence in executing its role. Its primary responsibility is to provide risk-based and objective assurance, advice (b) Reviewed external auditors’ Management Letter together with and insight to the Board and Management on Digi’s internal control,
Management’s responses, to ensure that appropriate actions MESSAGE TO
risk management and governance system. SHAREHOLDERS have been taken.
(c) Monitored on a quarterly basis, all non-audit services and fees The Internal Audit Department comprises seven (7) members, led incurred in which the external auditors were engaged, taking by Anushia Ganason, who has over 20 years of experience in into account external auditors’ independence and objectivity. operations and audit in various industries. Anushia is a Certified 03 The amount incurred by Digi and on group basis in respect of Internal Auditor (CIA) and is a member of the Malaysian Institute audit fees and non-audit related fees for services rendered by of Accountants. To further preserve the independence of the Internal the external auditors is disclosed in Note 7 to the financial Audit function, the Head of Internal Audit’s performance is appraised statements and in the Additional Compliance Information in by the Chair of the ARC. CREATE VALUE this annual report. STRATEGIES TO The Internal Audit function is guided by its Internal Audit Charter, (d) Met privately with the external auditors at the ARC meetings which is reviewed and approved annually by the ARC and complies held on 23 January 2019 and 17 October 2019 to ensure with the Institute of Internal Auditors International Standards for there were no restrictions to the scope of their audit and to the Professional Practice of Internal Auditing. It also continues to discuss significant matters that arose during the course of audit. 04 maintain a quality assurance and improvement programme to assess (e) Evaluated the performance of the external auditors and made the effectiveness of the internal audit processes and identified recommendations to the Board on their re-appointment, subject opportunities for improvement through both internal and external to the approval of Digi’s shareholders at the general meeting. assessments. The internal assessment is performed annually while ANALYSIS
the external assessment by a certified body is conducted once every MANAGEMENT DISCUSSION AND 5 years. The last external assessment was performed by a qualified, Related Party Transactions independent assessor in 2015. The results of the assessments are presented and discussed with the ARC. (a) Reviewed the annual mandate compiled for recurrent related 05 party transactions. In 2019, the Internal Audit Department executed a total of 16 (b) Reviewed related party transactions as disclosed in the financial reviews, including advisory services. The reviews covered business statements and performed quarterly monitoring of the mandate priority and key risk areas, focusing on the efficiency and effectiveness for recurrent related party transactions to ensure compliance of governance and controls within inventory management, trade
with the MMLR and Digi’s policies and procedures. receivables management, business marketing and operations, incentives GOVERNANCE management, managed service partner management, supply chain (c) Reviewed and deliberated on any new related party transactions sustainability, accuracy of accrual, as well as IT maintenance, monitoring to ensure that the terms and conditions of the transactions and system recovery. The Internal Audit Department had also are commercially based and at arm’s length. conducted internal investigations into allegations of misconduct or 06 breach of Code of Conduct (the Code) by senior management.
Other Activities Internal Audit staff perform an annual declaration on the adherence (a) Reviewed and recommended to the Board; the ARC Report, to the Code of Ethics, and any non-compliance and/or conflicts are
Corporate Governance Overview Statement, Corporate reported to either the Head of Internal Audit or Chair of the ARC. STATEMENTS Governance Report, and Statement on Risk Management and The total costs incurred for the Internal Audit Department in respect AUDITED FINANCIAL Internal Control, for inclusion in the Annual Report. of the financial year ended 31 December 2019 amounted to RM1.8 million (2018: RM1.4 million). (b) Reviewed the proposed dividend payout on a quarterly basis, taking into consideration the cash flow requirements before The ARC Report is made in accordance with the resolution of the 07 recommending for the Board’s approval. Board dated 11 March 2020. OTHER INFORMATION 78 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOMINATION COMMITTEE REPORT
The Nomination Committee (NC) continues its work of ensuring the Board composition comprises individuals with the necessary skills, knowledge and experience to maintain the Board’s effectiveness in discharging its responsibilities.
Committee Number of Main committee membership meetings in 2019 responsibilities Director Attendance • Regularly review the structure, size and composition (including the skills, knowledge, experience and diversity) of the Board Tan Sri Saw Choo Boon 4/4 and make recommendations to the Board with regard to (Chair) any changes. • Give full consideration to succession planning for directors and other senior executives in the course of its work. Yasmin Binti Aladad Khan 4/4 • Responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise. Haakon Bruaset Kjoel 3/4
The NC consists of a majority of Independent Non-Executive Directors in compliance with the requirement of the MMLR, which provides that the NC must comprise exclusively Non-Executive Directors, a majority of whom must be Independent. The composition also observed MCCG 2017 where the NC is chaired by a Senior Independent Director.
The Terms of Reference of the NC is accessible in the Corporate Governance section on Digi’s website at www.digi.com.my/investors.
APPOINTMENT TO THE BOARD
The NC is responsible to ensure that the procedures for appointing new Directors are transparent and rigorous. The Board composition is consistently reviewed to identify and close any gap in the Board’s functional knowledge and competencies by bringing in new directors with the required experience, knowledge and expertise to meet the current and future needs of the Company.
In designing the Board’s composition, Board diversity is considered from a number of aspects, including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. All Board appointments are based on meritocracy, and candidates considered against objective criteria, having due regard for the benefits of diversity on the Board.
Any new Director appointed by the Board during the year is required to stand for re-election at Digi’s next AGM. Other than those Directors appointed during the year, one-third of the remaining Directors are required to retire by rotation and all Directors must submit themselves for re-election at AGM at least once in every three (3) years.
Pursuant to Practice 4.2 of the MCCG 2017, upon completion of nine (9) years, an Independent Director may continue to serve on board as a Non-Independent Director. If the Board intends to retain an Independent Director beyond nine (9) years, it should justify and seek annual shareholders’ approval.
The NC is responsible for assessing and recommending to the Board the eligibility of retiring Directors for re-election and retention of Independent Directors who has served the Board for more than nine (9) years. 79
01 AT A GLANCE
During the NC and Board Meetings held on 9 March 2020 and 11 March 2020 respectively, the NC and Board, through their annual 02 assessment, has reviewed and recommended the retention of Tan Sri Saw Choo Boon who has served the Board for more than nine (9) years as a Senior Independent Non-Executive Director of the Company to the shareholders for approval at the forthcoming Annual General
Meeting based on the following justifications:
• He fulfilled the criteria under the definition of Independent Director as stated in the MMLR;
• His experience enables him to provide the Board with a diverse set of experience, expertise, skills and competence. His good understanding MESSAGE TO SHAREHOLDERS of the industry and Company’s business operations enable him to participate actively and contribute effectively during deliberations for robust discussion at the Audit and Risk Committee, NC and Board Meetings without compromising his independence and objective judgement;
• He demonstrated high commitment and devoted sufficient time to his responsibilities as Senior Independent Non-Executive Director of 03 the Company; and
• Sufficient time is required by the Company to find a suitable successor for Tan Sri Saw Choo Boon as an Independent Director, who is also a member of Audit and Risk Committee, to ensure an orderly succession plan. CREATE VALUE STRATEGIES TO Upon the Board’s endorsement, the retiring Director is then proposed for re-election at the AGM. The re-election of each Director is voted as a separate resolution during the AGM.
The Company is guided by the following process and procedures for nomination of new candidates 04
Identification of Skills/Gaps Review by NC ANALYSIS MANAGEMENT DISCUSSION AND
Selection of Candidates Recommendation for Board Approval
05
Assessment of Candidates Board Approval GOVERNANCE Initial Interaction with Candidates Board Onboarding/Induction
06 TRAINING AND DEVELOPMENT
All existing Directors have completed the Mandatory Accreditation Programme (MAP). Mr Lars Erik Tellmann, who was appointed on 12 July 2019 completed his MAP in January 2012. STATEMENTS
The Directors are encouraged to attend continuous education programmes, talks, seminars, workshops and conferences to enhance their AUDITED FINANCIAL skills and knowledge and to ensure that the Directors are kept abreast with new developments in the business environment, corporate governance and enhance their skills and knowledge. The NC also assessed the training needs of each Director and recommended to the Board the appropriate training list for respective Directors. In addition, the Directors received face-to-face briefings, training and presentations on matters which are relevant to the Company’s operation. The Company from time-to-time provides reading materials to the Directors 07 on key corporate governance development, any salient changes to the Listing Requirements, laws and regulations and on matters pertaining to the latest development in areas relating to the Directors’ roles and responsibilities. OTHER INFORMATION 80 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOMINATION COMMITTEE REPORT
Details of the trainings attended by Directors during the financial year are set out below:
Name of Director Training Programme/Conference/Seminar
Haakon Bruaset Kjoel • Directors Certification Programme, Thailand Institute of Directors • Telenor Global Forum 2019, Bangkok • Telenor Strategy Execution Programme 3 • Agile online training • Telecommunications and Media Forum Asia 2019 • ICDM International Director Summit • PNB Corporate Summit 2019 • Digi Performance Deep Dive
Tan Sri Saw Choo Boon • Ratifying the CTPP – What’s in it for Malaysia? • New Malaysia, New Beginning, New Opportunities Forum • Islamic Finance for Boards • The Next Financial Crisis and Its Potential Impact on Asia • BNM Governor’s Address on the Malaysian Economy • Economic Developments in the US • Market Manipulation and Securities Fraud • Industry 4.0 and It’s Impact of Malaysian Capital Market • MOPB Seminar on Biodiesel Implementation in Industrial Sector • BNM’s AML/CFT Policies and Guidelines • Independent Directors’ Programme – The Essence of Independence • IT Risk Management for Insurance Boards • Transfer Pricing – Next Phase in Malaysia • Understanding Fintech and It’s Implications for Banks • National Economic Forum • Role of Board in Risk Management of Legal Issues of M&A • Integrated Accounting • Sustainability by Design – Practical Steps by Malaysian Businesses • New Business Directions 2025 • Industry 4.0 Conference • Islamic Banking Case Studies on Court Decisions • Digital to the Core • Implications of Acquisition and Restructuring • SCM Audit Oversight Board Conversation with Audit Committees • Regulatory Framework: Pre/Post IPO • Seminar on Business Ethics and Integrity • Digi Performance Deep Dive
Vimala V.R. Menon • The Essence of Independence • 20th Asia Oil and Gas Conference 2019 • Petronas Board Excellence Programme – Effective Strategy for Stakeholder Management • MFRS updates for Public Listed Companies • Digi Performance Deep Dive 81
01 AT A GLANCE
02
Name of Director Training Programme/Conference/Seminar
Yasmin Binti Aladad Khan • Deutsche Post DHL Data Protection • Deutsche Post DHL Information Security Awareness MESSAGE TO
• Deutsche Post DHL Data Private Policy SHAREHOLDERS • Deutsche Post DHL Insider Trading Laws • DHL B2B Sales Training • Digi Performance Deep Dive
03 Anne Karin Kvam • Mandatory Accreditation Programme • The Confederation of Norwegian Enterprise (NHO) Year Conference • Group Executive Management gathering and Strategy Session • Group Executive Management workshop on Privacy Position CREATE VALUE
• Telenor Group Forum STRATEGIES TO • Information and Communication Technology (ICT) Norway Year Conference • Telenor Youth Forum – Jury duty • Group Executive Management workshop on 5G and Security
• Arendalsuka Conference 04 • Extended Management Meeting – Strategy Execution • Board of Directors’ Strategy Seminar • Crisis Management Training • Group Executive Management Strategy Seminar ANALYSIS
• Telenor Security Day MANAGEMENT • Financial Times/European Telecommunications Network Operator’s (FT/ETNO) DISCUSSION AND Conference Brussels • Digi Performance Deep Dive
05 Torstein Pedersen • Agile Way of Work Seminar • 5G Business Models, Talk and Test • Robotics Process Automation (RPA) Show Case and Approach to Scaling RPA • 5G Talk and Test
• Amazon Web Services (AWS) Innovation Process GOVERNANCE • Agile Awareness Workshop • Robotics Process Automation – Automation Anywhere • 5G Seminar
• Digi Performance Deep Dive 06
Lars Erik Tellmann • INSEAD (Appointed on 12 July 2019) • Digi Performance Deep Dive STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 82 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOMINATION COMMITTEE REPORT
EVALUATING THE BOARD
Every year, a formal evaluation is undertaken to assess the effectiveness of the Board, its Committees, the contribution of each Director (Peer and Self-evaluation) and independence of Independent Directors with the aim of improving individual contribution by identifying gaps, maximising strengths and addressing weaknesses of the Board. The evaluation process is led by the NC Chair and assisted by the Company Secretaries.
The Board has adopted Practice 5.1 of MCCG by engaging external Company Secretary who is from an independent external secretarial firm to facilitate the Board evaluation via evaluation forms. Our external Company Secretary from Boardroom Corporate Services Sdn Bhd assists in the preparation of documents for the annual evaluation and facilitates the evaluation which includes self and peer evaluation.
The Board evaluation questionnaires towards an Effective Board cover the following parameters:
Areas of Assessment
Responsibility and Conduct Structure and Composition Process and Administration • Business Strategy governance and • Diversity • Board focus, agenda and frequency implementation • Members competency of meetings • Risk management and Internal • Board and Committee composition • Sufficient information availability control on timely basis • Company’s value creation • Relationship with Management
Each Director completes a confidential online questionnaire accessible via the Board software portal prepared by Boardroom Corporate Services Sdn Bhd and the Internal Company Secretary
Upon collation, the results were presented to the NC, featuring the findings, areas of improvement and development opportunities for deliberation
A summarised report was tabled to the Board by the NC’s Chair with a view to discuss on areas of improvement
During the meeting held on 9 March 2020, the NC reviewed and assessed the mix of skills, knowledge, expertise, industry experience, professionalism, integrity, competencies, time commitment, composition, size and background of the Board. This included the core competencies of the Directors, contribution of each individual Director, independence of the Independent Directors, Board diversity in terms of gender and age, effectiveness of the Board and Board Committees, as well as the retirement of Directors eligible for re-election.
Based on the assessment, the NC is satisfied that Digi has a well-balanced, functioning Board with good diversity and a broad range of skills and experience. The Independent Directors have complied with the criteria of independence as set out in the MMLR. All Directors have discharged their responsibilities, contributed effectively to the Board and demonstrated full commitment to their duties as Directors. 83
01 AT A GLANCE
Main Activities of the NC for the Year 02
Assessment on the effectiveness of the Board as a whole, Board Facilitated the 2019 Board evaluation and validate the Committees, as well as the contribution of each individual results thereof Director through the Board evaluation MESSAGE TO SHAREHOLDERS
Reviewed the size, structure, function, balance and composition Assessed the independence and time commitment of each of the Board and Board Committees Independent Director 03
Reviewed the term of office, competency and performance of Reviewed the tenure of Independent Directors the Audit and Risk Committee and its members CREATE VALUE STRATEGIES TO
Recommended the appointment of Lars Erik Tellmann as a Reviewed the Board’s Skills and Experience Matrix Director of the Company 04
Conducted induction programmes for newly appointed Director Reviewed the Directors’ training requirements assisted by Company Secretary ANALYSIS MANAGEMENT DISCUSSION AND
Conducted annual review on the NC Terms of Reference and Reviewed Performance Planning and Key Performance Indicators Board Diversity Policy for CEO 05
Assess the retirement of Directors by rotation, the re-election and continuance of office of Directors and eligibility for re- Reviewed the NC Report for inclusion in the 2018 Annual Report
election and continuance of office GOVERNANCE
SUCCESSION PLANNING 06 The NC is responsible for developing plans to identify the necessary and desirable competencies and skills of Directors and succession plans to ensure there is an appropriate dynamic of skills, experience and diversity on the Board. The Board also oversees the appointment as well as the succession planning of the Management team. The Board had a closed door discussion on the succession planning of the Management team in December 2019. STATEMENTS The Board has deliberated, reviewed and approved the Nomination Committee Report on 11 March 2020. AUDITED FINANCIAL
07 OTHER INFORMATION 84 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
ADDITIONAL COMPLIANCE INFORMATION
OTHER DISCLOSURES
The following information is provided in accordance with Paragraph 9.25 of the Main Market Listing Requirements of Bursa Securities as set out in Appendix 9C thereto.
1. Non-Audit Fees During the financial year, the amount incurred by Digi and the Group with respect to audit fees and non-audit related fees paid to external auditors for the financial year ended 31 December 2019 are as follows:-
Company (RM) Group (RM)
Audit Services 44,000 503,000
Non-Audit Services 53.000 463,515
Total Fees 97,000 966,515
The non-audit services comprised the following assignments:- (a) Attestation of non-financial reporting (b) Review of regulatory reporting (c) Review of quarterly and year end reporting packages (d) Review of the Statement on Risk Management and Internal Control (e) Performance of agreed upon procedures (f) Tax compliance services
2. Material Contracts Involving Directors’ and Major Shareholders’ Interests There were no material contracts by Digi and/or its subsidiaries involving Directors’ and major shareholders’ interests either subsisting as at 31 December 2019 or entered into since the end of the previous financial year.
3. Recurrent Related Party Transaction of a Revenue or Trading Nature At the Annual General Meeting held on 14 May 2019, Digi obtained a shareholders’ mandate to allow the Group to enter into recurrent related party transactions of a revenue or trading nature.
The disclosure of the recurrent related party transactions conducted during the financial year ended 31 December 2019 are set out in the Annual Report.
4. There were no proceeds raised from corporate proposals during the financial year.
5. There were no material public sanctions and/or penalties imposed on the Company, Directors or Management by the relevant regulatory bodies during the financial year. 85
01 STATEMENT OF
RESPONSIBILITY BY DIRECTORS AT A GLANCE In respect of the preparation of the annual audited financial statements
The Directors are responsible for ensuring that the financial statements of the Group are drawn up in accordance with the applicable 02 Financial Reporting Standards in Malaysia and the provisions of the Companies Act 2016.
The Directors are also responsible for ensuring that the annual audited financial statements of the Group are prepared with reasonable accuracy from the accounting records of the Group so as to give a true and fair view of the financial position of the Group as of 31 December 2019 and of their financial performance and cash flows for the year. MESSAGE TO SHAREHOLDERS In reviewing the annual audited financial statements, the Directors have relied upon the Group’s system of internal controls to provide them with reasonable grounds to believe that the Group’s accounting records, as well as other relevant records, have been maintained by the Group in a manner that enables them to sufficiently conclude on the following:
03 a. Selected and applied the appropriate and relevant accounting policies on a consistent basis; b. Made judgements and estimates that are reasonable and prudent; and c. Prepared the annual audited financial statements on a going concern basis
The Directors are also responsible for taking reasonable steps to safeguard the assets of the Group to prevent and detect fraud and CREATE VALUE STRATEGIES TO other irregularities.
04 ANALYSIS MANAGEMENT DISCUSSION AND
05 GOVERNANCE
06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 86 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
DIRECTORS’ REPORT
The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2019.
PRINCIPAL ACTIVITIES
The principal activity of the Company is investment holding.
The principal activities and other information relating to subsidiaries are disclosed in Note 15 to the financial statements.
RESULTS
Group Company RM’000 RM’000
Profit for the year, attributable to owners of the parent 1,432,949 1,445,901
There were no material transfers to or from reserves or provisions during the financial year, other than as disclosed in the financial statements.
In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature.
DIVIDENDS
The dividends paid by the Company since the end of the previous financial year were as follows:
RM’000
In respect of the financial year ended 31 December 2018: Fourth interim tax exempt (single-tier) dividend of 4.8 sen per ordinary share, declared on 23 January 2019 and paid on 29 March 2019 373,200
In respect of the financial year ended 31 December 2019: First interim tax exempt (single-tier) dividend of 4.3 sen per ordinary share, declared on 22 April 2019 and paid on 28 June 2019 334,325
Second interim tax exempt (single-tier) dividend of 5.0 sen per ordinary share, declared on 12 July 2019 and paid on 27 September 2019 388,750
Third interim tax exempt (single-tier) dividend of 4.5 sen per ordinary share, declared on 17 October 2019 and paid on 19 December 2019 349,875
The board of directors had on 22 January 2020, declared a fourth interim tax exempt (single-tier) dividend of 4.4 sen per ordinary share in respect of the financial year ended 31 December 2019 amounting to RM342.1 million. The financial statements for the current financial year do not reflect this fourth interim dividend. Such dividend will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2020. 87
01 AT A GLANCE
DIRECTORS 02 The names of the directors of the Company in office since the beginning of the financial year to the date of this report are:
Haakon Bruaset Kjoel Tan Sri Saw Choo Boon Yasmin Binti Aladad Khan
Vimala A/P V.R. Menon MESSAGE TO SHAREHOLDERS Torstein Pedersen Anne Karin Kvam Lars Erik Tellmann (Appointed on 12 July 2019) Tone Ripel (Resigned on 12 July 2019) 03
The names of the directors of the subsidiaries of the Company since the beginning of the financial year to the date of this report, not including those directors listed above are:
Albern A/L Murty CREATE VALUE Eugene Teh Yee STRATEGIES TO Praveen Rajan A/L Nadarajan Loh Keh Jiat (Appointed on 1 February 2019) Inger Gloeersen Folkeson (Appointed on 1 March 2019) Nakul Seghal (Resigned on 1 February 2019) 04
DIRECTORS’ BENEFITS ANALYSIS
Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was MANAGEMENT a party, whereby the directors might acquire benefits by means of acquisition of shares in or debentures of the Company or any other DISCUSSION AND body corporate.
Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors as shown below) by reason of a contract made 05 by the Company or a related corporation with any director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest.
The directors’ benefits are as follows: GOVERNANCE
Group Company RM’000 RM’000
Non-executive: 06 Fees 882 88 Benefits-in-kind 6 –
888 88 STATEMENTS AUDITED FINANCIAL
INDEMNITY AND INSURANCE FOR DIRECTORS AND OFFICERS
The Group maintains a Directors’ and Officers’ Liability Insurance for any legal liability incurred by the directors and officers in discharging their duties while holding office for the Group and the Company. In respect of the above, the total amount of insurance premium paid 07 for the financial year ended 31 December 2019 was RM10,312 (31 December 2018: RM10,429). The directors and officers shall not be indemnified by such insurance for any deliberate negligence, fraud, intentional breach of law or breach of trust proven against them. OTHER INFORMATION 88 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
Directors’ report
HOLDING COMPANY
The ultimate holding company is Telenor ASA, which is incorporated in Norway.
DIRECTORS’ INTEREST
According to the register of directors’ shareholdings, the interest of directors in office at the end of the financial year in the shares of the Company or its related corporations during the financial year were as follows:
<------Number of ordinary shares of NOK6 each ------> 1 January 2019/date of 31 December appointment Acquired Sold 2019
Ultimate holding company Telenor ASA Direct interest: Haakon Bruaset Kjoel 14,948 2,074 – 17,022 Torstein Pedersen 36 254 – 290 Anne Karin Kvam – 3,180 – 3,180 Lars Erik Tellmann 24,761 231 – 24,992
None of the other directors in office at the end of the financial year had any interest in shares in the Company or its related corporations during the financial year.
OTHER STATUTORY INFORMATION
(a) Before the statements of comprehensive income and statements of financial position of the Group and of the Company were made out, the directors took reasonable steps:
(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and
(ii) to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.
(b) At the date of this report, the directors are not aware of any circumstances which would render:
(i) the amount written off for bad debts or the amount of the allowance for doubtful debts, in the financial statements of the Group and of the Company, inadequate to any substantial extent; and
(ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading.
(c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.
(d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. 89
01 AT A GLANCE
OTHER STATUTORY INFORMATION (CONT’D.) 02 (e) As at the date of this report, there does not exist:
(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or MESSAGE TO (ii) any material contingent liability of the Group or of the Company which has arisen since the end of the financial year. SHAREHOLDERS
(f) In the opinion of the directors:
(i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months 03 after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations as and when they fall due; and
(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year CREATE VALUE and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company STRATEGIES TO for the financial year in which this report is made.
AUDITORS 04
The auditors, Ernst & Young PLT, have expressed their willingness to continue in office.
The auditors’ remuneration for the statutory audit for the financial year ended 31 December 2019 for the Group and the Company are ANALYSIS
RM503,000 and RM44,000 respectively. MANAGEMENT DISCUSSION AND
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young PLT, as part of the terms of its audit engagement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young PLT during or since the financial year. 05
Signed on behalf of the board in accordance with a resolution of the directors dated 11 March 2020. GOVERNANCE
Tan Sri Saw Choo Boon Vimala A/P V.R. Menon
Director Director 06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 90 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
STATEMENT BY DIRECTORS Pursuant to Section 251(2) of the Companies Act 2016
We, Tan Sri Saw Choo Boon and Vimala A/P V.R. Menon, being two of the directors of Digi.Com Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 94 to 156 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2019 and of their financial performance and cash flows for the financial year then ended.
Signed on behalf of the board in accordance with a resolution of the directors dated 11 March 2020.
Tan Sri Saw Choo Boon Vimala A/P V.R. Menon Director Director
STATUTORY DECLARATION Pursuant to Section 251(1)(b) of the Companies Act 2016
I, Ng Kim Chuan, being the officer primarily responsible for the financial management of Digi.Com Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 94 to 156 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.
Subscribed and solemnly declared by the above-named Ng Kim Chuan at Kuala Lumpur in Wilayah Persekutuan on 11 March 2020 Ng Kim Chuan
Before me, 91
01 INDEPENDENT
AUDITORS’ REPORT AT A GLANCE to the members of Digi.Com Berhad (Incorporated in Malaysia)
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS 02 Opinion
We have audited the financial statements of Digi.Com Berhad, which comprise the statements of financial position as at 31 December 2019 of the Group and of the Company, and statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 94 to 156. MESSAGE TO SHAREHOLDERS In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2019 and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia.
03 Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. CREATE VALUE STRATEGIES TO Independence and other ethical responsibilities We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the 04 IESBA Code.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements ANALYSIS MANAGEMENT
of the Group and of the Company for the current year. We have determined that there are no key audit matters to communicate in our DISCUSSION AND report on the financial statements of the Company. The key audit matters for the audit of the financial statements of the Group are described below. These matters were addressed in the context of our audit of the financial statements of the Group as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. 05
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. GOVERNANCE
ACCURACY OF REVENUE RECOGNITION
Refer to Note 2.19.1(a) – Revenue Recognition (Telecommunication Revenue) and Note 5 – Revenue. 06
The Group relies on complex information technology system (including the rating module within the billing system) in accounting for its telecommunication revenue. Such information system processes large volumes of data with a combination of different products, which consist of individually low value transactions.
In addition, estimates and judgements were involved in accounting for unbilled revenue at the reporting date and allocating the transaction STATEMENTS price between the multiple products sold in bundled transactions. AUDITED FINANCIAL
The above factors gave rise to higher risk of material misstatement in the timing and amount of telecommunication revenue recognised. Accordingly, we identified revenue recognition to be an area of focus. 07 Our audit sought to place a high level of reliance on the Group’s information technology systems and key controls which management relies on in recording telecommunication revenue. Our audit procedures included involving our information technology specialists to test the operating effectiveness of automated controls over the billing system, including the rating module. We also tested the accuracy of the data interface between the billing system and the general ledger and tested the non-automated controls in place to ensure accuracy of OTHER revenue recognised, including timely updating of approved rate changes in the billing system. INFORMATION 92 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
INDEPENDENT AUDITORS’ REPORT to the members of Digi.Com Berhad (Incorporated in Malaysia)
ACCURACY OF REVENUE RECOGNITION (CONT’D.)
We also performed substantive audit procedures which included amongst others, the testing of the reconciliation between the billing system and the general ledger, including validating material manual journals processed and evaluating management’s estimate of unbilled revenue by comparing such amount to the billings raised subsequent to the reporting period.
In respect of the allocation of transaction price between multiple products sold in bundled transactions, we obtained an understanding of management’s basis of allocation in accordance with the identified performance obligations, evaluated management’s estimate of standalone selling prices used in allocating the transaction price and tested the computation of revenue to be recognised in respect of each product sold in bundled transactions.
Information other than the financial statements and auditors’ report thereon
The directors of the Company are responsible for the other information. The other information comprises the information in the annual report but does not include the financial statements of the Group and of the Company and our auditors’ report thereon.
Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial statements
The directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act 2016 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements of the Group and of the Company, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
(a) Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 93
01 AT A GLANCE
ACCURACY OF REVENUE RECOGNITION (CONT’D.) 02 Auditor’s responsibilities for the audit of the financial statements (cont’d.)
(b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control.
(c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made MESSAGE TO SHAREHOLDERS by the directors.
(d) Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the 03 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. CREATE VALUE STRATEGIES TO (e) Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation.
04 (f) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. ANALYSIS
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit MANAGEMENT findings, including any significant deficiencies in internal control that we identify during our audit. DISCUSSION AND
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 05
From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters
in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we GOVERNANCE determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
06 OTHER MATTERS
This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. STATEMENTS AUDITED FINANCIAL
Ernst & Young PLT Chong Tse Heng 202006000003 (LLP0022760-LCA) & AF 0039 No. 03179/05/2021 J 07 Chartered Accountants Chartered Accountant
Kuala Lumpur, Malaysia
11 March 2020 OTHER INFORMATION 94 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
STATEMENTS OF COMPREHENSIVE INCOME for the financial year ended 31 December 2019
Group Company
2019 2018 2019 2018 Note RM’000 RM’000 RM’000 RM’000
Revenue 5 6,297,358 6,527,111 1,446,000 1,508,000 Other income 16,304 19,499 1,235 1,387 Cost of materials and traffic expenses (1,434,390) (1,543,003) – – Sales and marketing expenses (453,961) (489,787) – – Operations and maintenance expenses (112,623) (116,261) – – Rental expenses (57,475) (355,758) – – Staff expenses (224,628) (253,779) – – Depreciation expenses (1,124,874) (657,319) – – Amortisation expenses 12 (72,425) (147,471) – – Other expenses (727,224) (754,946) (1,488) (1,443) Finance costs 6 (231,076) (129,984) – – Interest income 25,694 20,778 202 229 Operating model transition costs 7(d) (8,359) (39,638) – –
Profit before tax 7 1,892,321 2,079,442 1,445,949 1,508,173 Taxation 8 (459,372) (538,654) (48) (55)
Profit for the year, representing total comprehensive income for the year 1,432,949 1,540,788 1,445,901 1,508,118
Attributable to: Owners of the parent 1,432,949 1,540,788 1,445,901 1,508,118
Group
2019 2018
Earnings per share attributable to owners of the parent (sen per share) 9 18.4 19.8
The accompanying accounting policies and explanatory information form an integral part of the financial statements. The Group and the Company have adopted MFRS 16 using the modified retrospective method of adoption on 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. Accordingly, comparatives have not been restated. 95
01 STATEMENTS OF
FINANCIAL POSITION AT A GLANCE as at 31 December 2019
Group Company 02
2019 2018 2019 2018
Note RM’000 RM’000 RM’000 RM’000 Non-current assets Property, plant and equipment 11 2,852,110 2,881,172 – – MESSAGE TO
Intangible assets 12 305,986 981,683 – – SHAREHOLDERS Right of use assets 13 2,595,088 – – – Investments in subsidiaries 15 – – 772,751 772,751 Other investment 16 78 78 – – Trade and other receivables 18 427,565 140,762 – – Contract costs 14 66,170 71,130 – – 03 Contract assets 5 26,661 40,900 – – Derivative financial assets 19 18,605 569 – – 6,292,263 4,116,294 772,751 772,751 CREATE VALUE Current assets STRATEGIES TO Inventories 17 90,501 61,135 – – Trade and other receivables 18 1,220,923 1,460,709 4 4 Contract assets 5 79,590 134,800 – –
Tax recoverable 8,448 – – – 04 Cash and short-term deposits 20 457,716 433,118 828 776 1,857,178 2,089,762 832 780 Total assets 8,149,441 6,206,056 773,583 773,531 ANALYSIS MANAGEMENT
Non-current liabilities DISCUSSION AND Loans and borrowings 21 4,461,043 2,512,683 – – Deferred tax liabilities 22 217,628 276,063 – – Other liabilities 23 53,295 48,964 – –
4,731,966 2,837,710 – – 05 Current liabilities Trade and other payables 24 1,784,308 2,144,070 1,380 1,071 Contract liabilities 5 283,572 315,386 – – Derivative financial liabilities 19 419 301 – – GOVERNANCE Other liabilities 23 420 5,373 – – Loans and borrowings 21 688,756 181,371 – – Tax payable 13 48,657 13 21
2,757,488 2,695,158 1,393 1,092 06 Total liabilities 7,489,454 5,532,868 1,393 1,092
Equity Share capital 25 769,655 769,655 769,655 769,655
(Accumulated losses)/retained earnings 27 (109,668) (96,467) 2,535 2,784 STATEMENTS
Total equity 659,987 673,188 772,190 772,439 AUDITED FINANCIAL Total equity and liabilities 8,149,441 6,206,056 773,583 773,531
07
The accompanying accounting policies and explanatory information form an integral part of the financial statements. The Group and the Company have adopted MFRS 16 using the modified retrospective method of adoption on 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. OTHER
Accordingly, comparatives have not been restated. INFORMATION 96 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
STATEMENTS OF CHANGES IN EQUITY for the financial year ended 31 December 2019
<----- Attributable to owners of the parent -----> Non- distributable accumulated losses/ distributable Share retained capital earnings Total Note RM’000 RM’000 RM’000 (Note 27)
Group At 1 January 2018 769,655 (128,905) 640,750 Total comprehensive income – 1,540,788 1,540,788 Transaction with owners: Dividends on ordinary shares 10 – (1,508,350) (1,508,350)
At 31 December 2018 769,655 (96,467)1 673,188 Total comprehensive income – 1,432,949 1,432,949 Transaction with owners: Dividends on ordinary shares 10 – (1,446,150) (1,446,150)
At 31 December 2019 769,655 (109,668)1 659,987
Company At 1 January 2018 769,655 3,016 772,671 Total comprehensive income – 1,508,118 1,508,118 Transaction with owners: Dividends on ordinary shares 10 – (1,508,350) (1,508,350)
At 31 December 2018 769,655 2,784 772,439 Total comprehensive income – 1,445,901 1,445,901 Transaction with owners: Dividends on ordinary shares 10 – (1,446,150) (1,446,150)
At 31 December 2019 769,655 2,535 772,190
Note: 1 In the prior years, as part of the Group’s capital management initiatives, the Company received dividends in specie from its subsidiary, Digi Telecommunications Sdn. Bhd. (“DTSB”), in the form of bonus issue of redeemable preference shares and capital repayment by DTSB amounting to RM509.0 million and RM495.0 million respectively. The Company has declared part of these as special dividend to its shareholders. The deficit arose from the elimination of these intra-group dividends at Group level.
The accompanying accounting policies and explanatory information form an integral part of the financial statements. 97
01 STATEMENTS OF
CASH FLOWS AT A GLANCE for the financial year ended 31 December 2019
Group Company 02
2019 2018 2019 2018
Note RM’000 RM’000 RM’000 RM’000
Cash flows from operating activities Profit before tax 1,892,321 2,079,442 1,445,949 1,508,173 MESSAGE TO Adjustments for: SHAREHOLDERS Amortisation of intangible assets 12 72,425 147,471 – – Depreciation – property, plant and equipment 11 693,643 657,319 – – – right of use assets 13 431,231 – – – 03 Allowance for expected credit loss on trade receivables and contract assets 77,660 48,020 – – Inventories written down 3,104 804 – – Dividend income – – (1,446,000) (1,508,000) CREATE VALUE Finance costs 6 231,076 129,984 – – STRATEGIES TO Loss/(gain) on disposal of property, plant and equipment 15 (560) – – Gain on termination of lease (57) – – – Other investment written off – 100 – – 04 Write-off of property, plant and equipment 625 204 – – Write-off of intangible assets 53 – – – Interest income (25,694) (20,778) (202) (229)
Reversal of provision for employee leave ANALYSIS MANAGEMENT
entitlements 23.1 (4,953) (541) – – DISCUSSION AND Employee benefits – share-based payment 367 603 – – – defined benefit plan 26 70 65 – – Fair value loss/(gain) on derivative 05 financial instruments 118 (1,146) – – Unrealised foreign exchange (gain)/loss (1,722) 1,852 – –
Operating cash flows before working capital changes 3,370,282 3,042,839 (253) (56) GOVERNANCE
Increase in inventories (32,470) (2,801) – – Increase in trade and other receivables (358,565) (517,129) – – Decrease/(increase) in contract asset 71,764 (89,518) – – Decrease in contract costs 4,960 4,220 – – 06 (Decrease)/increase in trade and other payables (373,903) 225,395 309 106 (Decrease)/increase in contract liabilities (31,814) 318,862 – – Decrease in deferred revenue – (333,343) – –
Cash generated from operations 2,650,254 2,648,525 56 50 STATEMENTS Advance payment for bandwidth (57,881) (21,418) – – AUDITED FINANCIAL Interest paid (234,311) (138,469) – – Proceeds from government grants 278,572 203,383 – – Payments for provisions 23.1 (93) (621) – – Taxes paid (574,899) (515,316) (56) (50) 07
Net cash generated from operating activities 2,061,642 2,176,084 – – OTHER INFORMATION 98 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
Statements of cash flows for the financial year ended 31 December 2019
Group Company
2019 2018 2019 2018 Note RM’000 RM’000 RM’000 RM’000
Cash flows from investing activities Purchase of property, plant and equipment (696,708) (626,398) – – Purchase of intangible assets (54,004) (192,054) – – Purchase of unquoted investment – (15) – – Dividends received from a subsidiary 5 – – 1,446,000 1,508,000 Interest received 24,781 20,895 202 229 Proceeds from disposal of property, plant and equipment 612 659 – –
Net cash (used in)/generated from investing activities (725,319) (796,913) 1,446,202 1,508,229
Cash flows from financing activities Repayment of loans and borrowings (587,500) – – – Proceeds from issuance of Sukuk Programme 1,000,000 – – – Repayment of lease liabilities (278,427) (12,767) – – Dividends paid 10 (1,446,150) (1,508,350) (1,446,150) (1,508,350)
Net cash used in financing activities (1,312,077) (1,521,117) (1,446,150) (1,508,350)
Net increase/(decrease) in cash and cash equivalents 24,246 (141,946) 52 (121) Effect of exchange rate changes on cash and cash equivalents 352 19 – – Cash and cash equivalents at beginning of financial year 433,118 575,045 776 897
Cash and cash equivalents at end of financial year 20 457,716 433,118 828 776
The accompanying accounting policies and explanatory information form an integral part of the financial statements. The Group has adopted MFRS 16 using the modified retrospective method of adoption on 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. Accordingly, comparatives are not restated. 99
01 NOTES TO THE
FINANCIAL STATEMENTS AT A GLANCE – 31 December 2019
1. CORPORATE INFORMATION 02 The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa
Malaysia Securities Berhad (“Bursa Securities”). The principal place of business is located at Lot 10, Jalan Delima 1/1, Subang Hi-Tech Industrial Park, 40000 Subang Jaya, Selangor Darul Ehsan. The registered office of the Company is located at 12th Floor, Menara Symphony, No. 5, Jalan Professor Khoo Kay Kim, Seksyen 13, 46200 Petaling Jaya, Selangor. MESSAGE TO The immediate and ultimate holding companies are Telenor Asia Pte Ltd and Telenor ASA, incorporated in Singapore and Norway SHAREHOLDERS respectively. The ultimate holding company is listed on the Oslo Stock Exchange, Norway.
The principal activity of the Company is investment holding, whilst the principal activities of the subsidiaries are stated in Note 15. There has been no significant change in the nature of the principal activities during the financial year. 03
Related companies refer to companies within the Telenor Asia Pte Ltd and Telenor ASA group of companies. CREATE VALUE 2. SIGNIFICANT ACCOUNTING POLICIES STRATEGIES TO
2.1 Basis of preparation
The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act 2016 in Malaysia. 04 At the beginning of the current financial year, the Group and the Company adopted new and amended MFRSs and interpretation which are mandatory for annual financial periods beginning on or after 1 January 2019 as described fully in Note 3.1.
The financial statements of the Group and of the Company have been prepared on the historical cost convention unless indicated ANALYSIS MANAGEMENT
otherwise in the accounting policies below. DISCUSSION AND
The financial statements are presented in Ringgit Malaysia (“RM”) and all values are rounded to the nearest thousand (“RM’000”) except when otherwise indicated.
05 2.2 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the reporting date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the
same reporting date as the Company. Consistent accounting policies are applied for like transactions and events in similar circumstances. GOVERNANCE
The Company controls an investee if, and only if, the Company has all the following:
(i) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); 06
(ii) Exposure, or rights, to variable returns from its investment with the investee; and
(iii) The ability to use its power over the investee to affect its returns. STATEMENTS Subsidiaries are consolidated when the Company obtains control over the subsidiary and ceases when the Company loses control AUDITED FINANCIAL of the subsidiary. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Losses within a subsidiary are attributed to the non-controlling interests even if that results in a deficit balance. 07 OTHER INFORMATION 100 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.2 Basis of consolidation (cont’d.)
Business combinations
Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. The Group elects on a transaction-by-transaction basis whether to measure the non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Transaction costs incurred are expensed and included in administrative expenses.
2.3 Investment in subsidiaries
In the Company’s separate financial statements, investment in subsidiaries are accounted for at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in profit or loss.
2.4 Property, plant and equipment, and depreciation
All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
Subsequent to recognition, property, plant and equipment, except for freehold land and capital work-in-progress, are measured at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item includes expenditure that is attributable to the acquisition of the item. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively. The carrying amount of the replaced part is then derecognised. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the asset as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit and loss as incurred.
Freehold land has an unlimited useful life and is therefore not depreciated. Capital work-in-progress representing assets under construction, is also not depreciated as these assets are not yet available for its intended use. Depreciation of other property, plant and equipment is computed on a straight-line basis to write down the cost of each asset to its residual value over the estimated useful life, at the following annual rates or periods:
Buildings 2.0% Motor vehicles 20.0% Computer systems 20.0% – 33.3% Furniture and fittings 20.0% Telecommunications network 3.3% – 33.3%
The residual values, useful lives and depreciation method are reviewed at each financial year end, and adjusted prospectively, if appropriate, to ensure that the amount, method and period of depreciation are consistent with the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from the difference between the net disposal proceeds, if any, and the net carrying amount is recognised in profit and loss in the year the asset is derecognised. 101
01 AT A GLANCE
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 02 2.5 Intangible assets
Intangible assets acquired separately are initially measured at cost. Following initial recognition, intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses, if any. The useful lives of intangible assets are assessed to be either finite or indefinite. MESSAGE TO SHAREHOLDERS Intangible assets with finite useful lives are amortised over the estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least during each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, 03 and are treated prospectively as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit and loss.
Intangible assets not yet available for use are tested for impairment annually, or more frequently if events and circumstances
indicate that the carrying value may be impaired either individually or at the cash generating unit (“CGU”) level. Such intangible CREATE VALUE STRATEGIES TO assets are not amortised.
Any gain or loss arising from derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset, and is recognised in profit and loss when the asset is derecognised. 04
(a) Spectrum bandwidths
In prior years, the expenditure for the acquisition of the spectrum bandwidths were capitalised under intangible assets.
The amount was amortised using the straight-line method over the spectrum assignment period which ranged from 1.5 to ANALYSIS MANAGEMENT
16 years. DISCUSSION AND
Upon adoption of MFRS 16 in the current year, the Group has elected to apply MFRS 16 to its spectrum bandwidths. Accordingly, spectrum bandwidths is now presented within the right of use (“ROU”) assets category.
05 (b) Computer software
Costs incurred to acquire computer software, that are not an integral part of the related hardware, are capitalised as intangible assets and amortised on a straight-line basis over the estimated useful life of 5 years. GOVERNANCE 2.6 Impairment of non-financial assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists, impairment is measured by comparing the carrying amounts of the assets with their recoverable amounts. 06
For intangible assets not yet available for use, the recoverable amount is estimated at the end of each reporting period, or more frequently if events and circumstances indicate that the carrying value may be impaired either individually or at the cash generating unit (“CGU”) level. STATEMENTS
An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purpose of AUDITED FINANCIAL assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, namely a CGU.
In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present 07 value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount
of any goodwill allocated to those units or groups of units, if any and then, to reduce the carrying amount of the other assets OTHER
in the unit or groups of units on a pro-rata basis. INFORMATION 102 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.6 Impairment of non-financial assets (cont’d.)
An impairment is recognised whenever the carrying amount of an asset or CGU exceeds its recoverable amount, and the impairment loss is recognised as an expense in profit and loss in the period in which it arises.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is reversed if, and only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Such reversal is recognised in profit or loss.
2.7 Inventories
Inventories are stated at lower of cost and net realisable value. Cost is determined using the weighted average basis. The cost of trading merchandise comprises costs of purchases and other incidental costs incurred in bringing these merchandise to their present condition and location.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
2.8 Financial assets
2.8.1 Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (“OCI”), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s and Company’s business model for managing them. The Group and the Company initially measure a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs except for trade receivables that do not contain a significant financing component. Trade receivables that do not contain a significant financing component are measured at the transaction price determined under MFRS 15.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (“SPPI”)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Group’s and the Company’s business model for managing financial assets refer to how the financial assets are managed in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. 103
01 AT A GLANCE
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 02 2.8 Financial assets (cont’d.)
2.8.2 Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
– Financial assets at amortised cost (debt instruments) MESSAGE TO SHAREHOLDERS – Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) – Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) – Financial assets at fair value through profit or loss 03
The Group and the Company do not have any debt instruments at fair value through OCI with recycling of cumulative gains and losses.
(a) Financial assets at amortised cost (debt instruments) CREATE VALUE STRATEGIES TO
This category is the most relevant to the Group and the Company. The Group and the Company measure financial assets at amortised cost if both of the following conditions are met:
– The financial asset is held within a business model with the objective to hold financial assets in order to collect 04 contractual cash flows; and – The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. ANALYSIS
Financial assets at amortised cost are subsequently measured using the effective interest (“EIR”) method and are MANAGEMENT subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified DISCUSSION AND or impaired.
The Group’s and the Company’s financial assets at amortised cost includes trade and other receivables and cash and short-term deposits. 05
(b) Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under MFRS 132 Financial Instruments: GOVERNANCE Presentation and are not held for trading. The classification is determined on an instrument-by instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the profit or loss when the right of payment has been established, except when the Group benefits from 06 such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Group elected to classify irrevocably its non-listed equity investments under this category. STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 104 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.8 Financial assets (cont’d.)
2.8.2 Subsequent measurement (cont’d.)
(c) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the profit or loss.
This category includes derivative instruments such as foreign currency forward contracts and interest rate swaps. Derivative instruments are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
2.8.3 Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s and Company’s statement of financial position) when:
– The rights to receive cash flows from the asset have expired; or – The Group and the Company have transferred their rights to receive cash flows from the asset or have assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group and the Company have transferred substantially all the risks and rewards of the asset, or (b) the Group and the Company have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset.
When the Group and the Company have transferred their rights to receive cash flows from an asset or have entered into a pass-through arrangement, the Group and the Company evaluate if, and to what extent, they have retained the risks and rewards of ownership. When they have neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group and the Company continue to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group and the Company also recognise an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group and the Company have retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group and the Company could be required to repay. 105
01 AT A GLANCE
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 02 2.9 Impairment of financial assets and contract assets
The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss and contract assets. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original
effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit MESSAGE TO SHAREHOLDERS enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 03 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group CREATE VALUE STRATEGIES TO does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the category of debtors and the economic environment.
04 The Group considers a financial asset in default when contractual payments are overdue for more than 60 days. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the ANALYSIS
contractual cash flows. MANAGEMENT DISCUSSION AND
2.10 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and at banks and deposits with licensed banks with a maturity of three months
or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 05 These also include bank overdrafts, if any, that form an integral part of the Group’s cash management.
Interest income is recognised in profit or loss by applying the effective interest rate to the gross carrying amount of the financial assets. GOVERNANCE
2.11 Provision for liabilities
Provisions for liabilities are recognised when the Group has a present obligation as a result of a past event and it is probable that
an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the 06 amount can be made.
Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. Where the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific STATEMENTS to the liability to the present value of the expenditure expected to be required to settle the obligation. When discounting is used, AUDITED FINANCIAL the increase in the provision due to the passage of time is recognised as a finance cost.
07 OTHER INFORMATION 106 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.11 Provision for liabilities (cont’d.)
(a) Employee leave entitlements
Employees’ entitlement to annual leave are recognised when the associated services performed by employees increase their entitlements to annual leave. A provision is made for the estimated liability for the annual leave as a result of services rendered by employees up to the end of the reporting period netted off against annual leave utilised to date.
(b) Site decommissioning and restoration costs
Provision for site decommissioning and restoration costs is in respect of management’s best estimate on the costs necessary to be incurred to decommission the Group’s telecommunications network infrastructure and restore the previously occupied sites.
The estimated amount is determined after taking into consideration the time value of money, and the initial estimated sum is capitalised as part of the cost of property, plant and equipment. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
(c) Defined benefit plan
Provision for defined benefit plan for eligible employees is as disclosed in Note 2.16(c).
2.12 Financial liabilities
2.12.1 Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Group’s and the Company’s financial liabilities include derivative financial instruments and other financial liabilities.
2.12.2 Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
(a) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as financial liabilities at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by MFRS 9.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in MFRS 9 are satisfied. This category includes derivative instruments such as foreign currency forward contracts and interest rate swaps. 107
01 AT A GLANCE
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 02 2.12 Financial liabilities (cont’d.)
2.12.2 Subsequent measurement (cont’d.)
The measurement of financial liabilities depends on their classification, as described below (cont’d.): MESSAGE TO (b) Other financial liabilities SHAREHOLDERS
The Group’s and the Company’s other financial liabilities include trade and other payables, and loans and borrowings.
After initial recognition, trade and other payables and interest-bearing loans and borrowings are subsequently 03 measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the EIR. The EIR amortisation is included as finance costs in the profit or loss. CREATE VALUE STRATEGIES TO
This category generally applies to interest-bearing loans and borrowings and trade and other payables. For more information, refer to Note 21 and Note 24.
04 2.12.3 Derecogniton
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of ANALYSIS MANAGEMENT
the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised DISCUSSION AND in profit or loss.
2.13 Borrowing costs
Borrowing costs are recognised in profit and loss as an expense in the period in which they are incurred. 05
Borrowing costs consist of interest and other costs that the Group incurred in connection with the borrowing of funds.
2.14 Share capital and share issuance expenses GOVERNANCE
An equity instrument is any contract that evidences a residual interest in the assets of the Group and of the Company after deducting all of its liabilities. Ordinary shares are equity instruments.
The attributable incremental transaction costs of an equity transaction are accounted for as a deduction from equity, net of 06 tax. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared.
2.15 Leases STATEMENTS Current financial year AUDITED FINANCIAL The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Group as a lessee 07 The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right of use (“ROU”) assets representing
the right to use the underlying assets. OTHER INFORMATION 108 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.15 Leases (cont’d.)
Current financial year (cont’d.) Group as a lessee (cont’d.) (a) ROU assets
The Group recognises ROU assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). ROU assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of ROU assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.
The Group elected to apply the practical expedient not to separate out non-lease components from lease components and instead account for the lease and non-lease component as a single component.
ROU assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:
Leasehold land and buildings 1% – 3% Telecommunication network sites 10% – 33.3% Transmission facilities 10% – 20% Spectrum bandwidths 6.3% – 66.7% Stores, office buildings and kiosks 33.3%
The ROU assets are also subject to impairment. Refer to Note 2.6 for accounting policy on impairment of non-financial assets.
(b) Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate and are dependant on a future activity are recognised as expenses in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification or a change in the lease term.
The Group’s lease liabilities are included in loans and borrowings. Please refer to Note 21.
(c) Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of telecommunication network sites, equipment and billboard spaces (i.e., those leases that have a lease term of 12 months or less from the commencement date). It also applies the lease of low-value assets recognition exemption to leases of office equipment and storage spaces that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognised as an expense on a straight-line basis over the lease term.
Group as a lessor Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. 109
01 AT A GLANCE
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 02 2.15 Leases (cont’d.)
Previous financial year A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. MESSAGE TO SHAREHOLDERS Finance leases are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges are charged to profit or loss. Contingent rents, if any, are charged as 03 expenses in the period in which they are incurred. All other leases where a significant portion of risks and rewards of ownership are retained by the lessor are classified as operating leases.
Leased assets are depreciated over the estimated useful life of the asset. However, if there is no reasonable certainty that CREATE VALUE the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated STRATEGIES TO useful life and the lease term.
Operating lease payments, net of any incentives received from the lessor, are recognised as an expense in profit and loss on a
straight-line basis over the lease term. When an operating lease is terminated before the lease period has expired, any payment 04 required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.
2.16 Employee benefits
(a) Short-term benefits ANALYSIS MANAGEMENT DISCUSSION AND Wages, salaries, bonuses and social security contributions are recognised as an expense in the period in which the associated services are rendered by employees. Short-term accumulated compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences netted off against annual leave utilised to date, and short-term non-accumulating compensated absences such as sick 05 leave are recognised when the absences occur.
(b) Defined contribution plan
As required by law, companies in Malaysia make contributions to the state-defined contribution pension scheme known GOVERNANCE as the Employee Provident Fund, and will have no legal or constructive obligation to make further contributions in the future, over-and-above what is existingly legally required. The contributions are recognised as an expense in profit and loss in the period which the related services are rendered by employees.
06 (c) Defined benefit plan
The Group operates an unfunded defined benefit plan for its eligible employees. The benefits are calculated based on the length of service and the agreed percentages of eligible employees’ salaries over the period of their employment and are payable upon resignation after completion of the minimum employment period of ten years or upon retirement age
of sixty years. The Group’s obligations under the retirement benefit scheme, calculated using the Projected Unit Credit STATEMENTS
Method, is determined based on actuarial computations by independent actuaries, through which the amount of benefit AUDITED FINANCIAL that employees have earned in return for their service in the current and prior years is estimated. That benefit is discounted in order to determine its present value.
07 OTHER INFORMATION 110 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.16 Employee benefits (cont’d.)
(c) Defined benefit plan (cont’d.)
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income in the period in which they occur and recorded in defined benefit reserve. Remeasurements are not reclassified to profit and loss in subsequent periods.
Past service costs are recognised in profit and loss on the earlier of:
– The date of the plan amendment or curtailment; or – The date that the Group recognises restructuring related costs.
Net interest and other expenses relating to defined benefit plans are calculated by applying the discount rate to the net defined benefit liability or asset and recognised in profit and loss.
The Group amended the defined benefit plan effective 1 January 2006 to restrict new entrants into the plan, and the benefits payable to be calculated based on the employees’ length of service up to 31 December 2005.
2.17 Income taxes
(a) Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.
Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity.
(b) Deferred tax
Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences, and deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
(c) Sales and Services Tax (“SST”)
SST is recognised as part of the expense or cost of acquisition of the asset as SST is not recoverable.
Revenue is recognised net of the amount of SST billed as it is payable to the taxation authority. SST payable to the taxation authority is included as part of payables in the statements of financial position. 111
01 AT A GLANCE
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 02 2.17 Income taxes (cont’d.)
(d) Goods and Services Tax (“GST”)
The net amount of GST being the difference between output and input of GST, payable to or receivable from the respective authorities at the reporting date, is included in trade and other payables or trade and other receivables in the MESSAGE TO
statements of financial position. SHAREHOLDERS
Effective from 1 June 2018, the rate was reduced from 6% to 0% and GST was subsequently abolished and replaced by Sales and Services Tax (“SST”) on 1 September 2018.
03 2.18 Contingencies
A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group. CREATE VALUE Contingent liabilities and assets are not recognised in the financial statements. STRATEGIES TO
2.19 Revenue recognition
2.19.1 Revenue from contracts with customers 04 The Group is in the business of providing telecommunication and related services.
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the
customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for ANALYSIS MANAGEMENT
those goods or services, net of indirect taxes. DISCUSSION AND
The Group has generally concluded that it is the principal in its revenue arrangements because it typically controls the goods or services before transferring them to the customer.
05 (a) Telecommunication revenue
Telecommunication revenue from postpaid and prepaid services provided by the Group are recognised over time, as the benefits of telecommunication services are simultaneously received and consumed by the customer. GOVERNANCE Revenue from prepaid services (i.e. preloaded talk time, prepaid top-up vouchers, etc.) are recognised when services are rendered. Consideration from the sale of prepaid sim cards and reload vouchers to customers where services have not been rendered at the reporting date is deferred as contract liability until actual usage or when the cards, vouchers or reloaded amounts are expired or forfeited. 06
Postpaid services are provided in postpaid packages which consists of various services (i.e. call minutes, internet data, sms, etc.). These postpaid packages have been assessed to meet the definition of a series of distinct services that are substantially the same and have the same pattern of transfer and as such the Group treats these packages as a single performance obligation. STATEMENTS
Postpaid packages are either sold separately or bundled together with the sale of a mobile device to a customer. AUDITED FINANCIAL Mobile devices can also be obtained separately from other mobile device retailers and can be used together with the postpaid packages provided by the Group. Postpaid packages and mobile devices are capable of being distinct
and separately identifiable, therefore, there are two performance obligations within a bundled transaction. 07 Accordingly, the Group allocates the transaction price based on the relative stand-alone selling prices of the postpaid packages and device.
Stand-alone selling price are based on observable sales prices; however, where stand-alone selling prices are not OTHER
directly observable, estimates will be made maximising the use of observable inputs. INFORMATION 112 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.19 Revenue recognition (cont’d.)
2.19.1 Revenue from contracts with customers (cont’d.)
(b) Sale of device
Revenue from sale of device is recognised at the point in time when control of the asset is transferred to the customer, usually on delivery and acceptance of the device.
Payment for the transaction price of the mobile device is typically collected at the point the customer signs up for the bundled contract, except for bundled packages that have a payment structure allowing customers to pay for the mobile device over a period of time. For these arrangements the Group discounts the transaction price using the rate that would be reflected in a separate financing transaction between the Group and its customers at contract inception, to take into consideration the significant financing component.
Certain bundled contracts provide the customer with a right to return the mobile devices during a specified time frame. The Group uses the expected value method to estimate the mobile devices that will not be returned because this method best predicts the amount of variable consideration to which the Group will be entitled. The requirements in MFRS 15 on constraining estimates of variable consideration are also applied in order to determine the amount of variable consideration that can be included in the transaction price. For mobile devices that are expected to be returned, the Group adjusts revenue and recognises a refund liability instead. Correspondingly, costs of sales is also adjusted and a right of return asset is recognised as the right to recover the mobile device from the customer.
(c) Contract balances
(i) Contract assets
A contract asset is the right to consideration in exchange for goods or services (i.e. mobile devices or telecommunication services) transferred to the customer. If the Group transfers goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.
Contract assets are subject to impairment assessment based on the ECL model.
(ii) Trade receivables
A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e. only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in Note 2.8.
(iii) Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract.
For prepaid services, a contract liability is recognised when consideration is received from a customer, but services are yet to be performed. 113
01 AT A GLANCE
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 02 2.19 Revenue recognition (cont’d.)
2.19.1 Revenue from contracts with customers (cont’d.)
(d) Cost to obtain a contract
The Group pays sales commissions to external sales channels and employees as an incentive for each new MESSAGE TO SHAREHOLDERS customer registration to the Group’s telecommunication services. Sales commissions have been determined to be an incremental cost of obtaining a contract and are capitalised as contract costs when the Group expects these costs to be recovered over a period of more than one year.
03 Contract costs are amortised on a straight-line basis over the expected customer life cycle, which is consistent with the pattern of the related revenue. For contract costs with an amortisation period of less than one year, the Group has elected to apply the practical expendient to recognise as an expense when incurred.
Amortisation of contract costs are included as part of operating expenses in the profit or loss, based on the CREATE VALUE STRATEGIES TO nature of commission costs, and not under amortisation expenses.
The Group recognises an impairment loss in profit or loss to the extent that the carrying amount of the contract costs recognised exceeds the remaining amount of consideration that the Group expects to receive in exchange 04 for the goods or services to which the contract costs relate, less the remaining costs that relate directly to providing those goods or services (that have not been recognised as an expense).
When there are indications of impairment, relating to the CGU to which the contract costs belong, the Group ANALYSIS
will include the resulting carrying amount of contract costs after performing the impairment test above, in the MANAGEMENT carrying amount of the CGU for the purpose of applying MFRS 136. DISCUSSION AND
When impairment conditions no longer exist or have improved, the Group will recognise a reversal of some or all of the impairment losses previously recognised on the contract costs. The increased carrying amount of the contract costs should not exceed the amount that would have been determined (net of amortisation) had no 05 impairment loss been recognised previously.
2.19.2 Dividend income
Dividend income is recognised when the Company’s right to receive payment is established, and is presented as GOVERNANCE revenue in profit or loss, aligned with the principal activity of the Company as an investment holding entity.
2.19.3 Lease income 06 Lease income is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. The aggregate costs of incentives provided to lessees are recognised as a reduction of rental income over the lease term on a straight-line basis.
2.20 Government grants STATEMENTS
As a universal service provider (“USP”), the Group is entitled to claim certain qualified expenses from the Malaysian Communications AUDITED FINANCIAL and Multimedia Commission (“MCMC”) in relation to USP projects. These claims are treated as government grants and recognised at their fair values where there is reasonable assurance that the grants will be received and the Group complies with all the attached conditions. 07 A grant relating to the asset is recognised as income over the life of the depreciable asset by way of a reduced depreciation charge. Grant relating to income is recognised in profit and loss by crediting directly against the related expense. OTHER INFORMATION 114 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.21 Foreign currency transactions
(a) Functional and presentation currency
The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements of the Group are presented in RM, which is also the functional currency of all entities in the Group.
Transactions in foreign currencies are initially converted into RM at exchange rates prevailing at the date of transaction. At each reporting date, foreign currency monetary items are translated into RM at exchange rates prevailing at that date. Non-monetary items initially denominated in foreign currencies, which are carried at historical cost are translated using the historical rate as of the date of acquisition.
(b) Foreign currency trsansactions
Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting date are recognised in profit or loss. Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period except for the differences arising on the translation of non-monetary items in respect of which gains and losses are recognised directly in other comprehensive income. Exchange differences arising from such non-monetary items are also recognised directly in other comprehensive income.
2.22 Fair value measurement
The Group measures financial instruments such as derivatives at fair value at each reporting date. The fair values of financial instruments measured at amortised cost are disclosed in Note 31.6.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
(i) In the principal market for the asset or liability; or
(ii) In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. 115
01 AT A GLANCE
2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 02 2.22 Fair value measurement (cont’d.)
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
(i) Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities MESSAGE TO SHAREHOLDERS (ii) Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
(iii) Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable 03
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. CREATE VALUE STRATEGIES TO
2.23 Current versus non-current classification
The Group presents assets and liabilities in statements of financial position based on current/non-current classification. An asset is current when it is: 04 – Expected to be realised or intended to be sold or consumed in normal operating cycle;
– Held primarily for the purpose of trading;
– Expected to be realised within twelve months after the reporting period; or ANALYSIS MANAGEMENT – Cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months DISCUSSION AND after the reporting period.
All other assets are classified as non-current. A liability is current when: 05 – It is expected to be settled in normal operating cycle;
– It is held primarily for the purpose of trading;
– It is due to be settled within twelve months after the reporting period; or GOVERNANCE – There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets
and liabilities. 06
2.24 Segment reporting
The Group provides telecommunication and related services to customers across the country and its services and products essentially have a similar risk profile. Business activities of the Group are not organised by product or geographical components
and its operating result is reviewed as a whole by its management. Accordingly, there is no separate segment, as disclosed in STATEMENTS
Note 33. AUDITED FINANCIAL
07 OTHER INFORMATION 116 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
3. CHANGES IN ACCOUNTING POLICIES
3.1 Adoption of new and amended MFRSs and interpretation
The accounting policies adopted are consistent with those of the previous financial year except as follows:
On 1 January 2019, the Group and the Company adopted the following new and amended MFRSs and interpretation mandatory for annual financial periods beginning on or after 1 January 2019.
Effective for annual periods Description beginning on or after
MFRS 16: Leases 1 January 2019 MFRS 9: Prepayment Features with Negative Compensation (Amendments to MFRS 9) 1 January 2019 MFRS 128: Long-term Interests in Associates and Joint Ventures (Amendments to MFRS 128) 1 January 2019 MFRS 119 Plan Amendment, Curtailment or Settlement (Amendments to MFRS 119) 1 January 2019 IC Interpretation 23: Uncertainty over Income Tax Treatments 1 January 2019 Annual Improvements to MFRS Standards 2015–2017 Cycle 1 January 2019
The adoption of the above standards and interpretation did not have any significant effect on the financial statements of the Group and the Company except as discussed below:
MFRS 16 Leases
MFRS 16 supersedes MFRS 117: Leases, IC Interpretation 4: Determining whether an Arrangement contains a Lease, IC Interpretation 115: Operating Leases-Incentives and IC Interpretation 127: Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the balance sheet.
Lessor accounting under MFRS 16 is substantially unchanged from MFRS 117. Lessors will continue to classify leases as either operating or finance leases using similar principles as in MFRS 117. Therefore, MFRS 16 did not have an impact for leases where the Group is the lessor.
The Group and the Company adopted MFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of the initial application. Accordingly, comparatives are not restated. 117
01 AT A GLANCE
3. CHANGES IN ACCOUNTING POLICIES (CONT’D.) 02 3.1 Adoption of new and amended MFRSs and interpretation (cont’d.)
The effect of adopting MFRS 16 to the statement of financial position of the Group as at 1 January 2019 is as follows:
Statement of financial position – 1 January 2019 MESSAGE TO SHAREHOLDERS Impact of change in accounting policies As previously MFRS 16 After reported adjustments adjustments Group RM’000 RM’000 RM’000 03 Non-current assets Property, plant and equipment (a) 2,881,172 (33,034) 2,848,138 Intangible assets (b) 981,683 (657,223) 324,460 Right of use assets (c) – 2,857,320 2,857,320 CREATE VALUE STRATEGIES TO Impact to non-current assets 3,862,855 2,167,063 6,029,918
Current assets Trade and other receivables 1,460,709 (10,660) 1,450,049 04 Impact to current assets 1,460,709 (10,660) 1,450,049
Non-current liabilities
Lease liabilities (a), (b), (c) (2,081) (1,907,549) (1,909,630) ANALYSIS MANAGEMENT Impact to non-current liabilities (2,081) (1,907,549) (1,909,630) DISCUSSION AND
Current liabilities Lease liabilities (a), (b), (c) (6,371) (298,411) (304,782) Trade and other payables (2,144,070) 49,557 (2,094,513) 05
Impact to current liabilities (2,150,441) (248,854) (2,399,295) GOVERNANCE Upon adoption of MFRS 16, the Group applied a single recognition and measurement approach for all leases except for short- term leases and leases of low-value assets. Please refer to Note 2.15 for the accounting policy on leases beginning 1 January 2019. The standard provides specific transition requirements and practical expedients, which have been applied by the Group.
06 (a) Leases previously accounted for as finance leases
The Group did not change the initial carrying amounts of recognised assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e., the ROU assets and lease liabilities equal the lease assets and liabilities recognised under MFRS 117) and these finance leases which were previously presented as part of property, plant and
equipment are now presented within ROU assets. Accordingly, the finance lease liabilities have also been reclassified to STATEMENTS
lease liabilities. The requirements of MFRS 16 were applied to these leases from 1 January 2019. AUDITED FINANCIAL
(b) Leases of intangible assets
The Group elected to apply MFRS 16 to leases of intangible assets, such as the assigned spectrum bandwidths. The carrying 07 amounts of spectrum bandwidths which were previously presented within intangible assets is now presented within ROU assets, adjusted for by adding the amount equal to the corresponding lease liabilities recognised at the date of initial application with the fixed annual fee payments discounted using the incremental borrowing rate. OTHER INFORMATION 118 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
3. CHANGES IN ACCOUNTING POLICIES (CONT’D.)
3.1 Adoption of new and amended MFRSs and interpretation (cont’d.)
(c) Leases previously accounted for as operating leases
The Group recognised ROU assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application and the Group has opted for the ROU assets to be carried at an amount equal to the lease liabilities, adjusted by the amount of the prepaid lease payments. Subsequently, accrued operating lease liabilities have also been reclassified to lease liabilities.
The Group applied the following practical expedients permitted under the initial application of MFRS 16:
– used a single discount rate to a portfolio of leases with reasonably similar characteristics (ie. leases with a similar remaining lease term for a similar class of underlying assets);
– relied on its assessment of whether leases are onerous before the date of initial application as an alternative to performing an impairment review; and
– excluded the initial direct costs from the measurement of the ROU assets at the date of initial application.
The operating lease commitments as at 31 December 2018 is reconciled to arrive at the lease liabilities as at 1 January 2019 as follows:
RM’000
Operating lease commitments disclosed as at 31 December 2018 840,536 Less: commitments relating to short-term leases and low-value leases (818)
839,718 Weighted average incremental borrowing rate as at 1 January 2019 5%
Discounted using the lessee’s incremental borrowing rate at the date of initial application 733,154 Add: finance lease liabilities relating to leases previously classified as finance leases 8,452 Add: accrued operating lease liabilities recognised as at 31 December 2018 49,557 Add: lease payments for existing contracts assessed to contain a lease under MFRS 16 and election to apply MFRS 16 to leases of intangible assets (ie. spectrum bandwidths) 1,267,851 Add: lease payments relating to lease term for termination options unlikely to be exercised 155,398
Lease liabilities recognised as at 1 January 2019 2,214,412 119
01 AT A GLANCE
3. CHANGES IN ACCOUNTING POLICIES (CONT’D.) 02 3.2 Standards and interpretation issued but not yet effective
The standards that are issued but not yet effective up to the date of issuance of the Group’s and the Company’s financial statements are disclosed below. The Group and the Company intend to adopt these standards, if applicable, when they become effective.
Effective for MESSAGE TO SHAREHOLDERS annual periods Description beginning on or after
MFRS 101 and MFRS 108: Definition of Material
(Amendments to MFRS 101 and MFRS 108) 1 January 2020 03 MFRS 3: Definition of a Business (Amendments to MFRS 3) 1 January 2020 MFRS 9, MFRS 139 and MFRS 7: Interest Rate Benchmark Reform (Amendments to MFRS 9, MFRS 139 and MFRS 7) 1 January 2020 Conceptual Framework: Amendments to References to the Conceptual Framework CREATE VALUE in MFRS Standards 1 January 2020 STRATEGIES TO MFRS 17: Insurance Contracts 1 January 2021 MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to MFRS 10 and MFRS 128) Deferred 04 The directors expect that the adoption of the above standards will not have a material impact on the financial statements in the period of initial application. ANALYSIS MANAGEMENT
4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY DISCUSSION AND
There were no significant judgements made in applying the accounting policies of the Group which may have significant effects on the amounts recognised in the financial statements.
05 Management makes key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
The following represents a summary of the critical accounting estimates and the associated key sources of estimation uncertainty. GOVERNANCE 4.1 Useful lives of property, plant and equipment and intangible assets
Depreciation and amortisation are based on management’s estimates of the future estimated useful lives and residual values of property, plant and equipment and intangible assets. Estimates may change due to technological developments, modernisation 06 initiatives, expected level of usage, competition, market conditions and other factors, which could potentially impact the average useful lives and the residual values of these assets. This may result in future changes in the estimated useful lives and in the depreciation or amortisation expenses. A 5.0% difference in the expected useful lives of these assets from management’s estimates would result in approximately 2.7% (2018: 2.4%) variance in the Group’s profit for the year. The carrying amounts of property, plant and equipment and intangible assets at the reporting date are disclosed in Note 11 and Note 12 respectively. STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 120 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONT’D.)
4.2 Provision for expected credit losses of trade receivables and contract assets
The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e. customer type and rating).
The provision matrix is initially based on the Group’s historical observed default rates. The Group then adjusts the historical credit loss experience taking into consideration the forward-looking information. For example, if the Group’s view of the forecasted economic conditions (i.e. inflation rate, unemployment rate, interest rate and economic outlook for Malaysia) are expected to significantly deteriorate over the next year which may lead to an increase in the unrecoverable rate of the receivables and contract assets. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The Group estimates the relationship between historical observed default rates, forecast economic conditions and ECL which may not be representative of customer’s actual default in the future. The information about the provision matrix on the Group’s trade receivables and contract assets is disclosed in Note 31.2.
If the historical observed default rates varies by 5.0% from management’s estimates, the Group’s allowance for expected credit loss on trade receivables and contract assets will cause either a 0.2% (2018: 0.1%) increase or 0.2% (2018: 0.2%) decrease respectively in the Group’s profit for the year.
4.3 Deferred tax
Deferred tax implications arising from the changes in corporate income tax rates are measured with reference to the estimated realisation and settlement of temporary differences in the future periods in which the tax rates are expected to apply, based on the tax rates enacted or substantively enacted at the reporting date. While management’s estimates on the realisation and settlement of temporary differences are based on the available information at the reporting date, changes in business strategy, future operating performance and other factors could potentially impact the actual timing and amount of temporary differences realised and settled. Any difference between the actual amount and the estimated amount would be recognised in profit and loss in the period in which actual realisation and settlement occurs. The carrying amount of deferred tax liabilities is disclosed in Note 22.
4.4 Income taxes
Significant estimation is involved in determining the Group’s provision for income taxes as there are certain transactions and computations for which the final tax treatment is uncertain at the reporting date.
Where the final tax treatment of these matters are different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which determination of final tax treatment is made.
4.5 Provisions for liabilities
Provision for site decommissioning and restoration costs are provided based on the present value of the estimated future expenditure to be incurred for dismantling the inactive sites. Significant management assumption and estimation are required in determining the discount rate, the estimated life cycle and the expenditure to be incurred for dismantling each network infrastructure sites. Where expectations differ from the original estimates, the differences will impact the carrying amount of provision for site decommissioning and restoration costs. The carrying amount of provision for site decommissioning and restoration costs at the reporting date is disclosed in Note 23. 121
01 AT A GLANCE
4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY 02 (CONT’D.)
4.6 Revenue recognition – determining stand-alone selling price (“SSP”)
The Group has assessed that there are two performance obligations for bundled contracts where the Group needs to allocate the transaction price between the postpaid service and mobile device based on their relative SSP. MESSAGE TO SHAREHOLDERS SSP for postpaid packages and mobile devices are based on observable sales prices; however, where certain SSP are not directly observable, estimates will be made maximising the use of observable inputs.
The estimation of SSP is a significant estimate as it will directly determine the amount of revenue to be recognised up front 03 (sale of device) and amount of revenue to be recognised over time (telecommunication revenue). For example, a lower SSP for mobile device will result in a lower amount of revenue recognised upfront and higher amount of revenue recognised over the contract period.
The revenue recognised in the current year in relation to sale of device and telecommunication revenue is detailed in Note 5. CREATE VALUE STRATEGIES TO
4.7 Estimating the lease term – Group as a lessee
In determining the lease term and assessing the length of the non-cancellable period of a lease, the Group applies the definition of a contract and determines the period for which the contract is enforceable. However, for leases of certain telecommunication 04 network sites, the contract contains an exit clause that is exercisable by both the lessee and lessor with a short notification period. For such contracts, the Group considers whether lessee and lessor each has the right to terminate the lease without the permission from the other party with no more than an insignificant penalty, in assessing and estimating the lease term. ANALYSIS MANAGEMENT
The carrying amount of the ROU for these telecommunication network sites included within the telecommunication network DISCUSSION AND sites category in Note 13 is RM110.0 million (1 January 2019: RM158.7 million).
4.8 Estimating the incremental borrowing rate for leases
In measuring its lease liabilities, the Group has used its incremental borrowing rate (“IBR”) to present value the future lease 05 payments, as the interest rate implicit in the lease cannot be readily determined.
The IBR is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the
funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. GOVERNANCE
To determine the incremental borrowing rate for its leases, the Group makes adjustments to the existing rates received from financial institutions, taking into consideration the lease term and leased assets. The Group also considers changes in the financing
condition since the last offered rates from the financing institutions. 06
The carrying amount of lease liabilities is disclosed in Note 13. STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 122 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
5. REVENUE
Group Company
2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000
Revenue from contracts with customers (Note 5.1) 6,210,845 6,452,285 – – Lease income (Note 5.4) 86,513 74,826 – – Dividend income from a subsidiary – – 1,446,000 1,508,000
6,297,358 6,527,111 1,446,000 1,508,000
5.1 Disaggregation of revenue from contracts with customers
In the following table, revenue is disaggregated by major products or service lines (which also represents the Group’s defined performance obligations).
2019 2018 Group Note RM’000 RM’000
Major products/service lines Telecommunication revenue (a) 5,644,111 5,827,450 Sales of devices (b) 566,734 624,835
Total revenue from contracts with customers 6,210,845 6,452,285
The timing of revenue recognition for respective major products/service lines are as follows:
(a) Services transferred over time (b) Products transferred at a point in time
5.2 Contract balances Group
2019 2018 Note RM’000 RM’000
Non-current assets Trade receivables 18 101,098 40,596 Contract assets 26,661 40,900
Current assets/(liabilities) Trade receivables 18 471,813 439,381 Contract assets 79,590 134,800 Contract liabilities (283,572) (315,386) 123
01 AT A GLANCE
5. REVENUE (CONT’D.) 02 5.2 Contract balances (cont’d.)
Contract assets primarily relate to rights to consideration for mobile devices transferred to subscribers but not billed at the reporting date. Contract assets are transferred to receivables when the rights become unconditional. As at 31 December 2019, the Group has contract assets of RM106.2 million (2018: RM175.7 million) which is net of an allowance for expected credit
losses of RM2.4 million (2018: RM3.7 million). The decrease was mainly due to lower sales of mobile devices bundled with a MESSAGE TO SHAREHOLDERS contractual postpaid service plan during the financial year.
Contract liabilities mainly relate to advance consideration received from subscribers at inception of contracts, for which revenue is only recognised upon rendering of telecommunication service. 03
All contract liabilities at the beginning of the year have been recognised as revenue in the current year.
5.3 Right of return asset and refund liabilities CREATE VALUE STRATEGIES TO Group
2019 2018 RM’000 RM’000 04 Right of return assets 16,526 5,663 Refund liabilities (16,526) (5,663) ANALYSIS
5.4 Group as a lessor MANAGEMENT DISCUSSION AND The Group has entered into operating leases on certain network telecommunication sites. These leases have lease terms between one to three years. Lease income recognised by the Group during the year is RM86.5 million (2018: RM74.8 million).
The future minimum rentals receivable under non-cancellable operating leases are as follows: 05
2019 RM’000
Within one year 76,547 GOVERNANCE After one year but not more than three years 153,819 More than five years 2,534
232,900 06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 124 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
6. FINANCE COSTS
Group
2019 2018 Note RM’000 RM’000
Interest expense on: – Loans and borrowings 129,647 127,208 – Others 3,406 301 Unwinding of discount: – Lease liabilities 13 110,506 1,082 – Site decommissioning and restoration costs 23.1 2,195 2,015 Net change in fair value of derivative financial instruments: – Interest rate swaps (14,678) (622)
231,076 129,984
7. PROFIT BEFORE TAX
Profit before tax is derived after deducting/(crediting):
Group Company
2019 2018 2019 2018 Note RM’000 RM’000 RM’000 RM’000
Allowance for expected credit losses on trade receivables and contract assets 77,660 48,020 – – Depreciation – property, plant and equipment 11 693,643 657,319 – – – ROU asset 13 431,231 – – – Auditors’ remuneration: – statutory audit 503 430 44 44 – other services 7(a) 464 428 – – Staff expenses 7(b) 224,628 253,779 – – Non-executive directors’ remuneration excluding benefits-in-kind 7(c) 882 762 88 76 Transmission facilities services 140,439 177,770 – – Inventories written down 3,104 804 – – Rental of land and buildings 43,504 343,547 – – Rental of equipment and others 21,373 19,001 – – Realised foreign exchange gain (843) (192) – – Unrealised foreign exchange (gain)/loss (1,722) 1,852 – – Fair value loss/(gain) on derivative financial instruments 118 (1,146) – – Loss/(gain) on disposal of property, plant and equipment 15 (560) – – 125
01 AT A GLANCE
7. PROFIT BEFORE TAX (CONT’D.) 02 Profit before tax is derived after deducting/(crediting): (cont’d.)
Group Company
2019 2018 2019 2018
Note RM’000 RM’000 RM’000 RM’000 MESSAGE TO SHAREHOLDERS Gain on termination of lease (57) – – – Other investment written off – 100 – – Write-off of property, plant and equipment 625 204 – –
Write-off of intangible asset 53 – – – 03 Bad debts recovered (15,708) (17,483) – – Waiver of debt – – (1,235) (1,387) Interest income from deposits with licensed banks (18,320) (20,778) (202) (229) CREATE VALUE Unwinding of significant financing component STRATEGIES TO of revenue contracts with deferred payment scheme (7,374) – – –
04 (a) Fees for other services were incurred in connection with performance of agreed upon procedures and regulatory compliance reporting.
(b) Staff expenses incurred by the Group net of capitalisation of employee benefit expense in property, plant and equipment during ANALYSIS MANAGEMENT
the financial year comprises of: DISCUSSION AND
Group
2019 2018 05 Note RM’000 RM’000
Wages and salaries 178,360 193,304 Defined contribution plan 23,418 24,239 Defined benefit plan 26 70 65 Share-based payment 367 603 GOVERNANCE Reversal of provision for employee leave entitlements 23.1 (4,953) (541) Other staff related expenses 27,366 36,109
224,628 253,779 06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 126 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
7. PROFIT BEFORE TAX (CONT’D.)
(c) Non-executive directors’ remuneration during the financial year comprises of:
Group Company
2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000
Non-executive: Fees 882 762 88 76 Benefits-in-kind 6 17 – –
Total 888 779 88 76
The number of non-executive directors of the Company whose total remuneration during the financial year falls within the following band is analysed below:
Number of directors
Non-executive directors: 2019 2018
Nil 5 6 RM200,001 – RM300,000 3 3
(d) In the current year, the Group collaborated with a managed services provider in establishing a Common Delivery Centre (“CDC”) that takes over certain parts of the Group’s Information Technology (“IT”) operations.
The Group incurred operating model transition costs of RM8.4 million (2018: RM39.6 million) for redeployment exercise of in- house IT team (2018: in-house network team).
With the network and IT CDC operations in effect, the Group made a shift in operating model with the following changes:
– relocation of Group’s in-house network team and IT team;
– network and IT support operation externally managed; and
– CDC partner to deliver full turnkey services on network infrastructure. 127
01 AT A GLANCE
8. TAXATION 02 Major components of income tax expense The major components of income tax expense for the financial years ended 31 December 2019 and 2018 are:
Group Company MESSAGE TO
2019 2018 2019 2018 SHAREHOLDERS RM’000 RM’000 RM’000 RM’000
Statements of comprehensive income: Income tax: – Current tax expense 522,096 617,433 48 55 03 – Over provision in prior years (4,289) (18,783) – –
Total income tax 517,807 598,650 48 55 CREATE VALUE Deferred taxation (Note 22): STRATEGIES TO – Relating to origination and reversal of temporary differences (46,891) (77,647) – – – (Over)/under provision in prior years (11,544) 17,651 – –
04 Total deferred tax (58,435) (59,996) – –
Income tax expense recognised in profit or loss 459,372 538,654 48 55 ANALYSIS MANAGEMENT
Reconciliations of income tax expense/rate applicable to profit before tax at the statutory income tax rate to income tax expense/ DISCUSSION AND rate at the effective income tax rate of the Group and of the Company are as follows:
2019 2018
% RM’000 % RM’000 05 Group Profit before tax 1,892,321 2,079,442
Taxation at Malaysian statutory tax rate 24.0 454,157 24.0 499,066 GOVERNANCE Effect of expenses not deductible for tax purposes 1.0 21,048 2.0 40,720 Over provision of income tax expense in prior years (0.2) (4,289) (0.9) (18,783) (Over)/under provision of deferred tax expense
in prior years (0.6) (11,544) 0.8 17,651 06
Effective tax rate/income tax expense recognised in profit or loss 24.2 459,372 25.9 538,654
Company STATEMENTS Profit before tax 1,445,949 1,508,173 AUDITED FINANCIAL
Taxation at Malaysian statutory tax rate 24.0 347,028 24.0 361,962 Income not subject to tax (24.0) (346,980) (24.0) (361,907) 07 Effective tax rate/income tax expense recognised in profit or loss 0.0 48 0.0 55 OTHER
Domestic current income tax is calculated at the Malaysian statutory tax rate of 24% (2018: 24%) of the estimated taxable profit for INFORMATION the year. 128 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
9. EARNINGS PER ORDINARY SHARE
Earnings per ordinary share is calculated by dividing profit for the year, net of tax, attributable to owners of the parent by the weighted average number of ordinary shares in issue during the financial year.
Group
2019 2018
Profit attributable to owners of the parent (RM’000) 1,432,949 1,540,788
Weighted average number of ordinary shares in issue (‘000) 7,775,000 7,775,000
Basic earnings per share (sen) 18.4 19.8
No diluted earnings per ordinary share was presented as the Group does not have any convertible instrument, options, warrants and their equivalents.
10. DIVIDENDS
Group/Company
2019 2018 RM’000 RM’000
Recognised during the financial year: Dividends on ordinary shares: Fourth interim tax exempt (single-tier) dividend (2018: 4.8 sen; 2017: 4.6 sen) 373,200 357,650 First interim tax exempt (single-tier) dividend (2019: 4.3 sen; 2018: 4.9 sen) 334,325 380,975 Second interim tax exempt (single-tier) dividend (2019: 5.0 sen; 2018: 4.9 sen) 388,750 380,975 Third interim tax exempt (single-tier) dividend (2019: 4.5 sen; 2018: 5.0 sen) 349,875 388,750
1,446,150 1,508,350
Interim dividend declared subsequent to the reporting date (not recognised as a liability as at 31 December):
Dividends on ordinary shares: Fourth interim tax exempt (single-tier) dividend (2019: 4.4 sen; 2018: 4.8 sen) 342,100 373,200
The board of directors had on 22 January 2020, declared a fourth interim tax exempt (single-tier) dividend of 4.4 sen per ordinary share in respect of the financial year ended 31 December 2019 amounting to RM342.1 million. The financial statements for the current financial year do not reflect this fourth interim dividend. Such dividend will be accounted for in equity as an appropriation of retained earnings in the financial year ending 31 December 2020. 129
01 AT A GLANCE
11. PROPERTY, PLANT AND EQUIPMENT 02 Tele-
Long-term Short-term Long-term Short-term Furniture communi- Capital Freehold leasehold leasehold Freehold leasehold leasehold Motor Computer and cations work-in- land land land buildings buildings buildings vehicles systems fittings network progress Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Group MESSAGE TO SHAREHOLDERS Cost At 1 January 2019 29,638 7,312 7,565 143,295 7,146 6,866 23,216 319,549 254,432 6,220,762 103,512 7,123,293 Adjustments upon adoption of MFRS16 – (7,312) (7,565) – (7,146) (6,866) – – – (80,188) – (109,077) 03 At 1 January 2019 (restated) 29,638 – – 143,295 – – 23,216 319,549 254,432 6,140,574 103,512 7,014,216 Additions – – – – – – – – – 21,542 677,325 698,867 Disposals – – – – – – (790) (1,477) (1,192) (3,372) – (6,831) Write offs – – – – – – – (100,093) (1,351) (150,183) (436) (252,063) CREATE VALUE Transfers – – – 37 – – 1,556 14,100 11,950 521,938 (549,581) – STRATEGIES TO At 31 December 2019 29,638 – – 143,332 – – 23,982 232,079 263,839 6,530,499 230,820 7,454,189
Accumulated depreciation 04 At 1 January 2019 – 1,561 3,211 27,024 814 3,266 19,087 271,883 185,792 3,729,483 – 4,242,121 Adjustments upon adoption of MFRS16 – (1,561) (3,211) – (814) (3,266) – – – (67,191) – (76,043) At 1 January 2019 (restated) – – – 27,024 – – 19,087 271,883 185,792 3,662,292 – 4,166,078 ANALYSIS MANAGEMENT
Depreciation expenses DISCUSSION AND for the year – – – 2,821 – – 2,451 16,831 26,368 645,172 – 693,643 Disposals – – – – – – (774) (1,477) (960) (2,993) – (6,204) Write offs – – – – – – – (100,067) (1,351) (150,020) – (251,438) At 31 December 2019 – – – 29,845 – – 20,764 187,170 209,849 4,154,451 – 4,602,079 05
Carrying Amount At 31 December 2019 29,638 – – 113,487 – – 3,218 44,909 53,990 2,376,048 230,820 2,852,110 GOVERNANCE Cost At 1 January 2018 29,638 7,312 7,565 143,295 7,146 6,866 23,325 306,657 232,678 5,612,769 127,020 6,504,271 Additions – – – – – – 381 1,352 744 26,545 600,804 629,826 Disposals – – – – – – (490) (4) – (5) (95) (594) Write offs – – – – – – – – – (10,006) (204) (10,210) 06 Transfers – – – – – – – 11,544 21,010 591,459 (624,013) – At 31 December 2018 29,638 7,312 7,565 143,295 7,146 6,866 23,216 319,549 254,432 6,220,762 103,512 7,123,293
Accumulated depreciation At 1 January 2018 – 1,500 3,083 24,213 750 3,158 16,685 246,676 159,474 3,139,764 – 3,595,303 STATEMENTS Depreciation expenses AUDITED FINANCIAL for the year – 61 128 2,811 64 108 2,892 25,211 26,318 599,726 – 657,319 Disposals – – – – – – (490) (4) – (1) – (495) Write offs – – – – – – – – – (10,006) – (10,006) 07 At 31 December 2018 – 1,561 3,211 27,024 814 3,266 19,087 271,883 185,792 3,729,483 – 4,242,121
Carrying Amount
At 31 December 2018 29,638 5,751 4,354 116,271 6,332 3,600 4,129 47,666 68,640 2,491,279 103,512 2,881,172 OTHER INFORMATION 130 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
11. PROPERTY, PLANT AND EQUIPMENT (CONT’D.)
(a) The Group acquired property, plant and equipment with an aggregate cost of RM698.9 million (2018: RM629.8 million) of which RM2.2 million (2018: RM3.4 million) relates to the provision for site decommissioning and restoration costs, as disclosed in Note 23.1.
(b) Government grants of RM147.4 million (2018: RM171.0 million) relating to additions of qualifying property, plant and equipment, were deducted before arriving at the cost of property, plant and equipment during the financial year ended 31 December 2019.
12. INTANGIBLE ASSETS
Spectrum Computer bandwidths software Licenses Total RM’000 RM’000 RM’000 RM’000
Group Cost At 1 January 2019 1,430,011 683,075 1,300 2,114,386 Adjustments upon adoption of MFRS16 (1,430,011) – – (1,430,011)
At 1 January 2019 (restated) – 683,075 1,300 684,375 Additions – 54,004 – 54,004 Write offs – (110) (1,300) (1,410)
At 31 December 2019 – 736,969 – 736,969
Accumulated amortisation At 1 January 2019 772,788 358,615 1,300 1,132,703 Adjustments upon adoption of MFRS16 (772,788) – – (772,788)
At 1 January 2019 (restated) – 358,615 1,300 359,915 Amortisation expenses for the year – 72,425 – 72,425 Write offs – (57) (1,300) (1,357)
At 31 December 2019 – 430,983 – 430,983
Carrying amount At 31 December 2019 – 305,986 – 305,986
Cost At 1 January 2018 1,293,611 627,421 1,300 1,922,332 Additions 136,400 55,654 – 192,054
At 31 December 2018 1,430,011 683,075 1,300 2,114,386
Accumulated amortisation At 1 January 2018 696,060 287,872 1,300 985,232 Amortisation expenses for the year 76,728 70,743 – 147,471
At 31 December 2018 772,788 358,615 1,300 1,132,703
Carrying amount At 31 December 2018 657,223 324,460 – 981,683
Included in the cost of computer software are computer software not yet available for use of RM58.6 million as at 31 December 2019 (2018: RM71.3 million). 131
01 AT A GLANCE
13. RIGHT OF USE ASSETS 02 Group as a lessee
Leasehold Telecommuni- Spectrum Stores, office land and cations Transmission band- buildings buildings network sites facilities widths and kiosks Total MESSAGE TO
RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 SHAREHOLDERS
Carrying amount At 1 January 2019 20,037 1,169,267 6,735 1,645,071 16,210 2,857,320 Additions – 165,993 108 – 8,011 174,112 03 Depreciation expenses for the year (401) (287,882) (2,633) (128,180) (12,135) (431,231) Termination – (4,641) (353) – (119) (5,113)
At 31 December 2019 19,636 1,042,737 3,857 1,516,891 11,967 2,595,088 CREATE VALUE STRATEGIES TO
The Group’s lease arrangements are mainly in relation to telecommunication network sites, transmission facilities and spectrum bandwidths which are used to support the Group’s telecommunication operations. The lease arrangements generally do not allow for subleasing of the leased asset, unless there is a contractual right for the Group to sublet the leased asset to another party. 04
The Group also has certain leases with lease terms of 12 months or less and leases that have been determined to be low value. The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemption for these leases. ANALYSIS MANAGEMENT
Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements DISCUSSION AND during the year:
2019
Group Note RM’000 05
At 1 January 8,452 Adjustments upon adoption of MFRS 16 2,205,960
At 1 January (restated) 2,214,412 Additions 174,112 GOVERNANCE Accretion of interest 6 110,506 Settlement (445,928) Termination (5,170) 06 At 31 December 2,047,932
Analysed as: 313,756 Current 21 1,734,176
Non-current 21 2,047,932 STATEMENTS AUDITED FINANCIAL
The maturity analysis of lease liabilities are disclosed in Note 31.4
07 OTHER INFORMATION 132 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
13. RIGHT OF USE ASSETS (CONT’D.)
The following amounts are recognised in profit or loss:
2019 Group RM’000
Depreciation expense of right of use assets 431,231 Interest expense on lease liabilities 110,506 Expenses included in sales and marketing expenses: – short-term leases 7,402 Expenses included in operating and maintenance expenses: – short-term leases 55,849 – leases of low value assets 1,626
606,614
The Group has total cash outflow for leases amounting to RM453.7 million.
14. CONTRACT COSTS
Group
2019 2018 RM’000 RM’000
Capitalised sales commissions, net of amortisation 66,170 71,130
During the financial year, amortisation amounting to RM103.0 million (2018: RM100.7 million) was recognised as an expense in operating expenses of the Group.
15. INVESTMENTS IN SUBSIDIARIES
Company
2019 2018 RM’000 RM’000
Unquoted shares at cost 772,751 772,751 133
01 AT A GLANCE
15. INVESTMENTS IN SUBSIDIARIES (CONT’D.) 02 Details of the subsidiaries, which are incorporated in Malaysia, are as follows:
Percentage of ownership Name of company interest held by the Group Principal activities
2019 2018 MESSAGE TO SHAREHOLDERS (%) (%)
Digi Telecommunications Sdn Bhd 100 100 Establishment, maintenance and provision of (“DTSB”) telecommunications and related services
03 Y3llownation Sdn Bhd 100 100 Dormant
Subsidiaries held through DTSB Digi Services Sdn Bhd 100 100 Dormant CREATE VALUE STRATEGIES TO Y3llowLabs Sdn Bhd 100 100 Provision of e-commerce, digital services and solutions
16. OTHER INVESTMENT 04
Group
2019 2018 ANALYSIS
RM’000 RM’000 MANAGEMENT DISCUSSION AND Non-current Financial asset at fair value through OCI Unquoted shares 78 78 05
The investment was previously made in relation to a programme initiated by the Group to fund new digital start-ups in Malaysia. GOVERNANCE 17. INVENTORIES
Group
2019 2018 06 RM’000 RM’000
Merchandise: At cost 69,234 39,456 At net realisable value 21,267 21,679 STATEMENTS
90,501 61,135 AUDITED FINANCIAL
During the financial year, the amount of inventories recognised as an expense in cost of materials of the Group was RM679.2 million (2018: RM688.2 million). 07 OTHER INFORMATION 134 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
18. TRADE AND OTHER RECEIVABLES
Group Company
2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000
Non-current Trade receivables (Note 18.1) 101,098 40,596 – – Other receivables 77,900 – – – Deposits and prepayments (Note 18.2) 248,567 100,166 – –
427,565 140,762 – –
Current Trade receivables (Note 18.1) 471,813 439,381 – – Other receivables 529,534 705,582 4 4 Deposits and prepayments (Note 18.2) 250,592 327,320 – –
1,251,939 1,472,283 4 4 Allowance for expected credit loss (Note 18.1) (31,016) (11,574) – –
1,220,923 1,460,709 4 4
Total trade and other receivables 1,648,488 1,601,471 4 4
18.1 Trade receivables
The Group’s trade receivables are non-interest bearing, and are subject to normal trade credit terms ranging from 30 to 45 days (2018: 30 to 45 days). They are recognised at their original invoice amounts which represent their fair value on initial recognition.
The Group’s trade receivables include receivables on deferred payment schemes amounting to RM171.2 million (2018: RM86.1 million), which allows eligible customers on bundled packages to make payment for mobile devices over a 24-month period. This deferred payment scheme has also resulted in the increase in trade receivables.
Set out below is the movement in allowance for expected credit losses for trade receivables:
Group
2019 2018 RM’000 RM’000
At 1 January 11,574 7,279 Impact arising from adoption of MFRS 9 – 8,099
At 1 January (restated) 11,574 15,378 Charge for the year 78,933 44,361 Write offs (59,491) (48,165)
At 31 December 31,016 11,574 135
01 AT A GLANCE
18. TRADE AND OTHER RECEIVABLES 02 18.2 Deposits and prepayments
Included in deposits and prepayments are non-current and current prepayments which are advances to a network facility provider (“NFP”) of RM167.9 million (2018: RM125.1 million) for provision of connectivity services for a period of 10 years and non-current and current deposits given to local city councils of RM124.3 million (2018: RM134.0 million) for public
infrastructure works which are refundable upon completion. MESSAGE TO SHAREHOLDERS
18.3 Foreign currency exposures
As at 31 December 2019, the Group’s trade receivables balances included exposure to foreign currency denominated in United States Dollar (“USD”) and Special Drawing Rights (“SDR”) amounting to RM12.5 million (2018: RM4.9 million) and RM25.6 03 million (2018: RM46.4 million) respectively.
19. DERIVATIVE FINANCIAL ASSETS/(LIABILITIES) CREATE VALUE STRATEGIES TO Group
2019 2018 RM’000 RM’000 04 Non-hedging derivative financial assets/(liabilities) Non-current – Interest rate swaps 19.1 18,605 569 ANALYSIS MANAGEMENT Current DISCUSSION AND – Foreign currency forward contracts 19.2 (419) (301)
05 19.1 Interest rate swaps
Interest rate swaps are used to achieve an appropriate fair value change exposure within the Group. The Group entered into interest rate swaps to hedge the fair value risk in relation to the fixed interest rates of the Islamic Medium Term Note (“IMTN”), as disclosed in Note 20 with notional principal amounts of RM750.0 million. GOVERNANCE
The interest rate swaps entitle the Group to receive interest semi-annually at fixed rates ranging from 4% to 5% per annum, and in return, pays interest quarterly at Kuala Lumpur Interbank Offer Rate (“KLIBOR”) plus a spread with a weighted average rate of 4% (2018: 4%). The swaps mature at varying dates based on the maturity of different tranches of the IMTN. 06
During the financial year, the Group recognised a net gain of RM18.0 million (2018: net gain of RM0.6 million) arising from fair value changes attributable to changes in market interest rates. STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 136 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
19. DERIVATIVE FINANCIAL ASSETS/(LIABILITIES) (CONT’D.)
19.2 Foreign currency forward contracts
Contract value in foreign Notional currency value Fair value Liabilities USD’000 RM’000 RM’000 RM’000
Foreign currency forward contracts: – 2019 7,600 31,578 31,159 (419)
– 2018 8,182 34,171 33,870 (301)
The Group uses foreign currency forward contracts to minimise its exposure to foreign currency risks as a result of transactions denominated in currency other than its functional currency, arising from the normal business activities. Foreign currency forward contracts are used to hedge certain payables denominated in USD for which firm commitments existed at the reporting date, extending to January and February 2020.
During the financial year, the Group recognised a loss of RM0.4 million (2018: a loss of RM0.3 million) arising from fair value changes between foreign exchange spot and forward rates.
The foreign currency forward contracts and interest rate swap are not designated as cash flow hedges and are entered into for periods consistent with foreign currency exposure and fair value changes exposure. Any gains or losses arising from changes in the fair value of derivatives are recognised directly in profit or loss.
The method and assumptions applied in determining the fair values of the derivatives above are disclosed in Note 31.6(b).
20. CASH AND SHORT-TERM DEPOSITS
Group Company
2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000
Cash and bank balances 72,816 86,018 828 776 Deposits with licensed banks 384,900 347,100 – –
Cash and cash equivalents 457,716 433,118 828 776
Cash and cash equivalents include cash on hand and at banks and deposits with financial institutions. For the purpose of the statements of cash flows, cash and cash equivalents are net of outstanding bank overdrafts, if any.
The Group’s cash and cash equivalents included amounts of foreign currency denominated in USD totalling RM8.5 million (2018: RM15.9 million) at the reporting date. 137
01 AT A GLANCE
20. CASH AND SHORT-TERM DEPOSITS (CONT’D.) 02 Cash at banks earns interest at floating rates based on daily bank deposit rates. The weighted average effective interest rates of
deposits at the reporting date are as follows:
Group
2019 2018 MESSAGE TO SHAREHOLDERS % %
Deposits with licensed banks 3 4
03 The deposits with licensed banks of the Group will mature within one month (2018: one month) from the end of the reporting date.
21. LOANS AND BORROWINGS CREATE VALUE STRATEGIES TO Group
2019 2018 Note RM’000 RM’000 04 Non-current (unsecured) Floating-rate term loans 555,162 1,180,674 Floating-rate term financing-i 373,486 430,945 Islamic medium term notes 21.1 1,798,219 898,983 ANALYSIS
Lease liabilities 13 1,734,176 2,081 MANAGEMENT DISCUSSION AND 4,461,043 2,512,683
Current (unsecured) Floating-rate term loans 225,000 112,500 05 Floating-rate term financing-i 150,000 62,500 Lease liabilities 13 313,756 6,371
688,756 181,371 GOVERNANCE
Total loans and borrowings 5,149,799 2,694,054
The weighted average effective interest/profit rates at the reporting date for borrowings and debt securities are as follows: 06
Group
2019 2018 % % STATEMENTS
Floating-rate term loans and term financing-i 4 5 AUDITED FINANCIAL Islamic medium term notes 4 5 Lease liabilities 5 9
07 The above borrowings and debt securities are denominated in RM. OTHER INFORMATION 138 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
21. LOANS AND BORROWINGS (CONT’D.)
21.1 Islamic medium term notes
The Group through its wholly-owned subsidiary, DTSB, has established an Islamic medium term note programme of up to RM5.0 billion in nominal value (“IMTN Programme”); and an Islamic commercial papers programme of up to RM1.0 billion in nominal value (“ICP Programme”), which have a combined limit of up to RM5.0 billion in nominal value (collectively referred to as “Sukuk Programme”) based on the Islamic principle of Murabahah (via a Tawarruq arrangement).
The tenures of the IMTN and ICP Programme are for 15 and 7 years, respectively from the date of the first issuance.
As at 31 December 2019, the series of IMTN that the Group has in issue consists of:
Nominal Tranche Tenure Rate Maturity date value % RM’000
001 5 years 4 14 April 2022 300,000 002 7 years 5 12 April 2024 300,000 003 10 years 5 14 April 2027 300,000 004* 7 years 4 18 September 2026 450,000 005* 10 years 4 20 September 2029 450,000
Total 1,800,000
* During the year, the Group issued the second series of IMTN.
The proceeds from IMTN have been partially hedged against interest rate risk using interest rate swaps as disclosed in Note 19.
The maturities of the Group’s loans and borrowings at the reporting date are as follows:
Group
2019 2018 RM’000 RM’000
Less than one year 688,756 181,371 Between one and two years 693,237 448,736 Between two and five years 1,825,655 1,464,653 More than five years 1,942,151 599,294
5,149,799 2,694,054 139
01 AT A GLANCE
21. LOANS AND BORROWINGS (CONT’D.) 02 Reconciliation of liabilities/(assets) arising from financing activities
Non-current Current interest interest bearing bearing MESSAGE TO
loans and loans and Non-current Current lease Interest SHAREHOLDERS borrowings borrowings lease liabilities liabilities rate swaps Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Group 03 At 1 January 2019 2,512,683 181,371 – – (569) 2,693,485 Adjustments upon adoption of MFRS 16 (2,081) (6,371) 1,909,630 304,782 – 2,205,960
At 1 January 2019 (restated) 2,510,602 175,000 1,909,630 304,782 (569) 4,899,445 CREATE VALUE Repayment (237,500) (175,000) – (278,427) – (690,927) STRATEGIES TO Non-cash changes: Fair value changes – – – – (14,678) (14,678) Other changes 453,765 375,000 (175,454) 287,401 (3,358) 937,354 04 At 31 December 2019 2,726,867 375,000 1,734,176 313,756 (18,605) 5,131,194
At 1 January 2018 2,691,438 12,881 – – (355) 2,703,964 Repayment – (12,767) – – – (12,767) ANALYSIS
Non-cash changes: MANAGEMENT Payment of transaction DISCUSSION AND costs related to loans and borrowings (1,500) – – – – (1,500) Fair value changes – – – – (622) (622) 05 Other changes (177,255) 181,257 – – 408 4,410
At 31 December 2018 2,512,683 181,371 – – (569) 2,693,485
Included in the other changes are the effects of reclassification of non-current portion of loans and borrowings and lease liabilities GOVERNANCE to current due to the passage of time, transaction costs deducted against carrying amount of loans and borrowings amortised under effective interest rate method, and accrued but not yet paid/(received) interest on interest-bearing loans and borrowings and derivatives. The Group classifies interest paid as cash flows from operating activities. 06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 140 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
22. DEFERRED TAX LIABILITIES
Group
2019 2018 RM’000 RM’000
At 1 January 276,063 297,523 Impact arising from adoption of MFRS 15 and MFRS 9 – 38,536
At 1 January (restated) 276,063 336,059 Recognised in profit and loss (Note 8) (58,435) (59,996)
At 31 December 217,628 276,063
The components and movements of recognised deferred tax liabilities and assets of the Group during the financial year prior to offsetting are as follows:
Property, plant and equipment and Contract Contract intangible Right of costs assets assets use assets Total Deferred tax liabilities: RM’000 RM’000 RM’000 RM’000 RM’000
At 1 January 2019 17,071 42,168 509,641 – 568,880 Impact arising from adoption of MFRS 16 – – – 517,537 517,537
At 1 January 2019 (restated) 17,071 42,168 509,641 517,537 1,086,417 Recognised in profit and loss (1,190) (12,826) (46,677) (46,694) (107,387)
At 31 December 2019 15,881 29,342 462,964 470,843 979,030
At 31 December 2017 – – 539,900 – 539,900 Impact arising from adoption of MFRS 15 18,084 21,562 – – 39,646
At 1 January 2018 (restated) 18,084 21,562 539,900 – 579,546 Recognised in profit and loss (1,013) 20,606 (30,259) – (10,666)
At 31 December 2018 17,071 42,168 509,641 – 568,880 141
01 AT A GLANCE
22. DEFERRED TAX LIABILITIES (CONT’D.) 02 The components and movements of recognised deferred tax liabilities and assets of the Group during the financial year prior to
offsetting are as follows: (cont’d.)
Contract Deferred Lease liabilities revenue liabilities Others Total MESSAGE TO
Deferred tax assets: RM’000 RM’000 RM’000 RM’000 RM’000 SHAREHOLDERS
At 1 January 2019 (75,693) – – (217,124) (292,817) Impact arising from adoption of MFRS 16 – – (517,537) – (517,537) 03 At 1 January 2019 (restated) (75,693) – (517,537) (217,124) (810,354) Recognised in profit and loss (1,550) – 28,031 22,471 48,952
At 31 December 2019 (77,243) – (489,506) (194,653) (761,402) CREATE VALUE STRATEGIES TO At 31 December 2017 – (80,002) – (162,375) (242,377) Impact arising from adoption of MFRS 15 and MFRS 9 (79,168) 80,002 – (1,944) (1,110)
At 1 January 2018 (restated) (79,168) – – (164,319) (243,487) 04 Recognised in profit and loss 3,475 – – (52,805) (49,330)
At 31 December 2018 (75,693) – – (217,124) (292,817) ANALYSIS MANAGEMENT DISCUSSION AND Others relate to deferred tax assets mainly arising from deductible temporary differences on provisions.
23. OTHER LIABILITIES 05
Group
2019 2018 RM’000 RM’000 GOVERNANCE Non-current Provisions (Note 23.1) 53,295 48,964
Current 06 Provisions (Note 23.1) 420 5,373
Total other liabilities 53,715 54,337 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 142 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
23. OTHER LIABILITIES (CONT’D.)
23.1 Provisions
Site decommissioning Defined and restoration benefit costs plan Total RM’000 RM’000 RM’000 Note (Note 26)
Group Non-current At 1 January 2019 48,930 34 48,964 Capitalised as property, plant and equipment 11(a) 2,159 – 2,159 Recognised in profit and loss 2,195 70 2,265 Paid during the year – (93) (93)
At 31 December 2019 53,284 11 53,295
Non-current At 1 January 2018 43,487 590 44,077 Capitalised as property, plant and equipment 11(a) 3,428 – 3,428 Recognised in profit and loss 2,015 65 2,080 Paid during the year – (621) (621)
At 31 December 2018 48,930 34 48,964
Employee leave entitlements Note RM’000
Group Current At 1 January 2019 5,373 Recognised in profit and loss 7 (4,953)
At 31 December 2019 420
At 1 January 2018 5,914 Recognised in profit and loss 7 (541)
At 31 December 2018 5,373
Further details on the provisions are disclosed in Note 2.11. 143
01 AT A GLANCE
24. TRADE AND OTHER PAYABLES 02 Group Company
2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000
Trade payables 247,686 200,095 – – MESSAGE TO SHAREHOLDERS Other payables 778,114 383,290 – – Accruals 742,658 1,545,659 1,380 1,071 Customer deposits 15,850 15,026 – –
1,784,308 2,144,070 1,380 1,071 03
The Group’s trade and other payables are non-interest bearing, and are subject to normal credit terms ranging from 30 to 60 days (2018: 30 to 60 days). CREATE VALUE STRATEGIES TO
At 31 December 2019, the Group’s trade and other payables balances included exposure to foreign currency denominated in USD, SDR and Norwegian Krone (“NOK”) amounting to RM51.1 million (2018: RM43.8 million), RM32.0 million (2018: RM20.8 million) and RM22.3 million (2018: RM49.9 million) respectively. 04
25. SHARE CAPITAL
Group/Company ANALYSIS
Number of ordinary shares Amount MANAGEMENT DISCUSSION AND 2019 2018 2019 2018 Units (‘000) Units (‘000) RM’000 RM’000
Issued and fully paid 05 As at 1 January and 31 December 7,775,000 7,775,000 769,655 769,655
The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry
one vote per share without restrictions and rank equally with regard to the Company’s residual assets. GOVERNANCE
06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 144 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
26. DEFINED BENEFIT PLAN
The Group operates an unfunded defined benefit plan for its eligible employees. The estimated obligations under the retirement benefit scheme are determined based on actuarial valuation by a qualified independent actuary on 24 May 2017.
The amount recognised in the consolidated statement of financial position is determined as follows:
Group
2019 2018 Note RM’000 RM’000
Present value of unfunded obligations 23.1 11 34
The amount recognised in profit and loss, included under staff expenses, is as follows:
Group
2019 2018 Note RM’000 RM’000
Interest on obligations, representing increase in provision for defined benefit plan 7 70 65
The principal actuarial assumption used in determining the retirement benefit obligation for the defined benefit plan is as follows:
Group
2019 2018 % %
Rate per annum: – Discount rate 5 5
Assumption regarding future mortality are based on published statistics and mortality table.
27. RETAINED EARNINGS
The Company may distribute dividends out of its entire retained earnings as at 31 December 2019 and 2018 respectively, under the single-tier system. 145
01 AT A GLANCE
28. COMMITMENTS 02 28.1 Capital commitments
Group
2019 2018
RM’000 RM’000 MESSAGE TO SHAREHOLDERS Capital expenditure in respect of property, plant and equipment and intangible assets:
Approved and contracted for 227,000 405,000
03 Approved but not contracted for 530,000 300,000
28.2 Non-cancellable operating lease commitments CREATE VALUE STRATEGIES TO 2018 As reported under
MFRS 117 04 Group RM’000
Future minimum lease payments: – Less than one year 174,330
– Between one and five years 437,910 ANALYSIS MANAGEMENT
– More than five years 228,296 DISCUSSION AND
840,536
05 Upon adoption of MFRS 16 on 1 January 2019, the present value of future minimum lease payments for operating leases have been accounted for as part of lease liabilities on the balance sheet. Please refer to Note 3.1 for further details. GOVERNANCE
06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 146 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
28. COMMITMENTS (CONT’D.)
28.3 Capital commitments
The Group’s finance lease commitment is in relation to the acquired indefeasible right of use (“IRU”) over purchased fibre optic wavelength by means of a finance lease arrangement. Future minimum lease payments under the finance lease together with the present value of the net minimum lease payments are as follows:
2018 As reported under MFRS 117 Group RM’000
Minimum lease payments: – Less than one year 6,796 – Between one and two years 2,092
Total minimum lease payments 8,888 Less: Amounts representing finance charges (436)
Present value of minimum lease payments 8,452
Present value of payments: – Less than one year 6,371 – Between one and two years 2,081
Present value of minimum lease payments 8,452 Less: Amount due within 12 months (Note 21) (6,371)
Amount due after 12 months (Note 21) 2,081
Upon adoption of MFRS 16, the maturity analysis and present value of finance lease commitment is included within lease liabilities in Note 21 and Note 31.4 respectively.
29. PERFORMANCE GUARANTEES
Group
2019 2018 RM’000 RM’000
Unsecured Guarantees given to city councils for public infrastructure works 39,819 53,054 Guarantee given to MCMC on project tender 10,556 10,000
50,375 63,054 147
01 AT A GLANCE
30. SIGNIFICANT RELATED PARTY DISCLOSURES 02 30.1 Sales and purchases of services
Related party relationships are as follows:
(i) The immediate and ultimate holding company are as disclosed in Note 1; and (ii) The Company’s subsidiaries are as disclosed in Note 15. MESSAGE TO SHAREHOLDERS
Significant transactions and balances with related parties of the Group during the financial year are as follows:
Transactions Balance due (to)/from at
03 2019 2018 2019 2018 Group RM’000 RM’000 RM’000 RM’000
With the ultimate holding company and fellow subsidiaries CREATE VALUE STRATEGIES TO – Telenor ASA (3,697) (12,389) Consultancy services received 47,166 47,803 Fees payable for licenses and trademarks 9,491 9,507
– Telenor GO Pte Ltd (824) (200) 04 Personnel services received 5,289 5,613
– Telenor Global Services AS (3,067) (3,348) Sales of interconnection services ANALYSIS
on international traffic (9,982) (1,674) MANAGEMENT Purchases of interconnection services DISCUSSION AND on international traffic 8,254 15,648 Purchases of international roaming services – 2,049 Purchases of global connectivity 2,678 4,030 Clearing house services received 05 for international roaming arrangements 507 190
– Total Access Communication Public Company Limited (433) (337) Sales of international roaming services (680) (1) GOVERNANCE Purchases of international roaming services 119 587 Device management fee payable – 134
– dtac TriNet Co. Ltd (2,099) (2,042) 06 Sales of international roaming services (1,824) (2,250) Purchases of international roaming services 957 1,245 Sales of interconnection services on international traffic (245) (474)
Purchases of interconnection services on STATEMENTS
international traffic 2,086 48 AUDITED FINANCIAL
– Telenor Norge AS (2,249) (6,029) Sales of international roaming services (70) (47)
Purchases of international roaming services 22 14 07 Services rendered on application operations and basic operation for data centre – 656 Business security strategy execution received 7,154 5,439 OTHER INFORMATION 148 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
30. SIGNIFICANT RELATED PARTY DISCLOSURES (CONT’D.)
30.1 Sales and purchases of services (cont’d.)
Transactions Balance due (to)/from at
2019 2018 2019 2018 Group RM’000 RM’000 RM’000 RM’000
With the ultimate holding company and fellow subsidiaries (cont’d.)
– Telenor Digital Services AS (543) (20,844) Consultancy fees rendered (955) (414) Services received on digital marketing and distribution platform 156 1,228 Purchases of cloud based software infrastructure services 6,112 5,480 Technical services received 4,637 15,485
– Telenor Global Shared Services AS (7,742) (2,002) Services received on application operations and basic operation for data centre 7,504 9,253
– Telenor IT Asia Sdn Bhd (63) (63)
– Telenor Myanmar Ltd 117 267 Sales of international roaming services (149) (24) Purchases of international roaming services 85 50 Purchases of interconnection services on international traffic 49 458 Sales of telecommunication and related services – (64) Consultancy fees rendered (236) (259)
– Valyou Sdn Bhd 122 981 Sales of telecommunication and related services (289) (1,029) Consultancy fees rendered – (48)
– Telenor Procurement Company (8,018) (4,956) Managed services received 19,383 10,570
– Telenor Financial Services AS – – Personnel services rendered – (247)
– Telenor Global Services Singapore Pte Ltd 391 1,014 Lease income from bandwidth leasing (5,569) (2,707) Lease expenses of bandwidth leasing 3,977 1,597 Purchases of IP transit 388 1,298
– Tapad Inc. US (1,403) (665) Services received on digital marketing and distribution platform 2,066 1,896 149
01 AT A GLANCE
30. SIGNIFICANT RELATED PARTY DISCLOSURES (CONT’D.) 02 30.1 Sales and purchases of services (cont’d.)
Amounts due (to)/from related companies which are trade in nature are unsecured, non-interest bearing and are subject to the normal credit terms for trade receivables and trade payables respectively.
The directors are of the opinion that the above transactions are entered into in the normal course of business and at standard MESSAGE TO SHAREHOLDERS commercial terms mutually agreed between both parties.
30.2 Compensation of key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the 03 activities of the Group and the Company, directly and indirectly, including directors of the Group and the Company.
The remuneration of key management personnel during the financial year was as follows: CREATE VALUE Group Company STRATEGIES TO
2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000
Short-term employee benefits 16,421 15,335 88 76 04 Post-employment benefits 1,580 1,361 – – Other employment benefits 1,267 1,106 – –
19,268 17,802 88 76 ANALYSIS MANAGEMENT DISCUSSION AND
Included in remuneration of key management personnel above are non-executive directors’ remuneration as disclosed in Note 7(c).
05 31. FINANCIAL INSTRUMENTS
31.1 Financial risk management objectives and policies
In the normal course of conducting its business activities, the Group is exposed to a variety of financial risks, which include
credit, foreign currency, liquidity and interest rate risks. The Group’s overall risk management programme seeks to minimise GOVERNANCE potential adverse effects of these risks on the financial performance of the Group.
31.2 Credit risk 06 Credit risk is the risk of loss that may arise if a counterparty default on its obligations under a financial instrument or customer contract, leading to a financial loss. The Group’s credit risk arises in the normal course of operations (primarily from trade and other receivables, and contract assets) and from its financing activities, including deposits with approved financial institutions. The maximum credit risk exposure is limited to the carrying amount of each financial asset and contract assets less allowance for impairment. STATEMENTS
Trade receivables and contract assets AUDITED FINANCIAL
The credit risk is managed through formalised policies on credit assessment and approvals, credit limits and monitoring procedures. Credit quality of each new customer is assessed based on an internally developed credit scoring model using information such as external ratings and credit agency information. Individual risk limits are set in accordance to the risk profile established for 07 each customer, and are reviewed periodically. OTHER INFORMATION 150 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
31. FINANCIAL INSTRUMENTS (CONT’D.)
31.2 Credit risk (cont’d.)
Trade receivables and contract assets (cont’d.)
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e., customer type and rating). The calculation reflects the probability-weighted outcome, and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The Group evaluates the concentration of risk with respect to trade receivables and contract assets as low, as its customers base is large and diverse.
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery, and are not subject to enforcement activity. They are not secured by any collateral or credit enhancements.
Set out below is the information about the credit risk exposure on the Group’s trade receivables and contract assets using a provision matrix:
Gross Total net carrying Significant carrying amount at expected amount at default credit loss default RM’000 RM’000 RM’000
As at 31 December 2019 Trade receivables – Not past due 440,461 (6,936) 433,525 – 1 to 30 days past due 22,361 (4,256) 18,105 – 31 to 60 days past due 13,981 (3,379) 10,602 – 61 to 90 days past due 12,949 (2,542) 10,407 – 91 to 180 days past due 25,105 (3,750) 21,355 – More than 181 days past due 58,054 (10,153) 47,901
Total trade receivables 572,911 (31,016) 541,895
Contract assets 108,637 (2,386) 106,251
Total trade receivables and contract assets 681,548 (33,402) 648,146
As at 31 December 2018 Trade receivables – Not past due 401,101 (3,280) 397,821 – 1 to 30 days past due 44,933 (3,144) 41,789 – 31 to 60 days past due 15,383 (3,086) 12,297 – 61 to 90 days past due 6,694 (83) 6,611 – 91 to 180 days past due 8,744 (69) 8,675 – More than 181 days past due 3,122 (1,912) 1,210
Total trade receivables 479,977 (11,574) 468,403
Contract assets 179,359 (3,659) 175,700
Total trade receivables and contract assets 659,336 (15,233) 644,103 151
01 AT A GLANCE
31. FINANCIAL INSTRUMENTS (CONT’D.) 02 31.2 Credit risk (cont’d.)
Other receivables and cash and short-term deposits
The Group’s credit risk also arises from cash and short-term deposits and other receivables. The credit risk is managed through monitoring procedures. MESSAGE TO SHAREHOLDERS
Cash and short-term deposits are placed only with reputable licensed banks and other receivables mainly consists of amounts due from a governement regulatory body and various city councils. The Group has assessed that the credit risk from these financial instruments are low. 03 The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets (net of impairment) disclosed in Note 31.7.
31.3 Foreign currency risk CREATE VALUE STRATEGIES TO Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is exposed to foreign currency risk as a result of transactions denominated in currencies other than its functional currency, arising from the normal business activities. The currencies giving rise to this risk are primarily the USD, SDR and NOK. Although approximately 9% (2018: 9%) of the Group’s total expenses are denominated 04 in the above-mentioned foreign currencies, the settlements of these payables are on a net basis through clearing house services, together with revenues earned from the same operators and partners. The Group also holds cash and cash equivalents denominated in USD for working capital purposes. The Group’s foreign-denominated cash and cash equivalents at the reporting date is disclosed in Note 20. ANALYSIS MANAGEMENT Exposure to foreign currency risk is monitored on an on-going basis and when considered necessary, the Group will consider DISCUSSION AND using effective financial instruments to hedge its foreign currency risk in accordance with its foreign currency hedging policy. In line with the Group’s foreign currency hedging policy, hedging is only considered for firm commitments and highly probable transactions of which hedging shall not exceed 100% of the net exposure value. Speculative activities are strictly prohibited. The Group adopts a layered approach to hedging, where a higher percentage of hedging will be executed for closer-dated exposures 05 and with time, increase the hedge as the probability of the underlying exposure increases. These derivatives and their underlying exposures will be monitored on an on-going basis. However, these contracts are not designated as cash flow or fair value hedge.
The Group’s foreign currency forward contracts are executed only with creditworthy financial institutions in Malaysia which GOVERNANCE are governed by appropriate policies and procedures.
Details of the Group’s outstanding foreign currency forward contracts for the purpose of hedging certain payables denominated
in USD for which firm commitments existed at the reporting date, extends to January and February 2020, are disclosed in 06 Note 19. The effects of changes in the fair values of these derivative financial instruments have already been included in the financial statements during the financial year.
Management believes that there is no reasonably possible fluctuation in the foreign exchange rate which would cause any material effect to the Group’s profit for the year. STATEMENTS AUDITED FINANCIAL 31.4 Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations due to shortage of funds. The Group monitors and maintains a level of cash and cash equivalents deemed adequate by management, for working capital purposes 07 and to mitigate the effects of fluctuations in cash flows. The Group invests only in highly liquid cash management funds, if any. OTHER INFORMATION 152 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
31. FINANCIAL INSTRUMENTS (CONT’D.)
31.4 Liquidity risk (cont’d.)
The Group’s and the Company’s trade and other payables and non-hedging derivative liabilities at the reporting date, are short-term in nature, and are payable either on-demand or within one year. Details of maturities for the Group’s loans and borrowings are as disclosed in Note 21.
Analysis of financial instruments by remaining contractual maturities The table below summarises the maturity profile of the Group’s and the Company’s financial liabilities at the reporting date based on contractual undiscounted repayment obligations.
On demand or within One to Two to More than one year two years five years five years Total RM’000 RM’000 RM’000 RM’000 RM’000
Group 2019 Financial liabilities Trade and other payables 1,784,308 – – – 1,784,308 Loans and borrowings 501,993 483,759 1,364,796 1,347,356 3,697,904 Lease liabilities 411,557 758,225 711,989 1,280,158 3,161,929 Derivative financial liabilities: – Foreign currency forward contracts 419 – – – 419
Total undiscounted financial liabilities 2,698,277 1,241,984 2,076,785 2,627,514 8,644,560
2018 Financial liabilities Trade and other payables 2,144,070 – – – 2,144,070 Loans and borrowings 306,628 562,555 1,660,527 655,583 3,185,293 Derivative financial liabilities: – Foreign currency forward contracts 301 – – – 301
Total undiscounted financial liabilities 2,450,999 562,555 1,660,527 655,583 5,329,664
31.5 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates. The Group’s income and operating cash flows are substantially independent of changes in market interest rates.
The Group is exposed to interest rate risk primarily from floating rate financial liabilities.
The Group manages its interest rate risk by having a balanced portfolio of fixed and floating rate financial liabilities that is consistent with the interest rates profiles acceptable to the Group. To manage this, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, a fixed interest rate for floating rates. 153
01 AT A GLANCE
31. FINANCIAL INSTRUMENTS (CONT’D.) 02 31.5 Interest rate risk (cont’d.)
The notional principal amounts of the outstanding interest rate swaps and its fair value are disclosed in Note 19.1.
The Group’s policy in dealing with interest-bearing financial liabilities is to minimise the interest expense by obtaining the most
favourable interest rates available. A difference of 20 (2018: 20) basis points in interest rates applicable for the Group’s entire MESSAGE TO SHAREHOLDERS loans and borrowings (excluding finance lease obligation) would result in approximately 0.25% (2018: 0.25%) variance in the Group’s profit for the year.
31.6 Fair values 03 The management assessed that the fair values of cash and short-term deposits, trade and other receivables and trade and other payables approximate their carrying amounts largely due to the short-term maturities of these instruments and the insignificant impact of discounting. CREATE VALUE The following methods and assumptions are used to estimate the fair values of the following classes of financial instruments: STRATEGIES TO
(a) Loans and borrowings
The carrying amounts of the current portion of loans and borrowings are reasonable approximations of fair values due 04 to the insignificant impact of discounting.
The carrying amounts of floating-rate term loan and term financing-i are reasonable approximations of fair values as they are floating rate instruments that are re-priced to market interest rates on or near the reporting date. ANALYSIS MANAGEMENT The fair values of non-current portion of borrowings and debt securities are estimated by discounting expected future DISCUSSION AND cash flows at market incremental lending rate for similar types of borrowing, debt instruments or leasing arrangements at the reporting date.
(b) Derivative financial instruments 05
The fair value of foreign currency forward contracts is determined using quoted forward exchange rates at the balance sheet date.
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on GOVERNANCE observable yield curves.
(c) Other investment 06 Investment in equity instrument represents ordinary shares not quoted on any market and does not have any comparable industry peers that is listed. The investment in unquoted equity instrument is not held for trading.
The initial acquisition cost of the unquoted equity investment is an appropriate estimate of its fair value as the investee’s entity is in the start-up stage. STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 154 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
31. FINANCIAL INSTRUMENTS (CONT’D.)
31.7 Classification
The carrying amounts of financial instruments under each category are as follows:
Group Company
Note 2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000
Financial assets Financial assets at fair value through OCI: – Other investments 16 78 78 – –
Financial assets at amortised cost: – Trade receivables 541,895 468,403 – – – Other receivables 607,434 705,582 4 4 – Deposits and prepayments 499,159 427,486 – – – Cash and short-term deposits 20 457,716 433,118 828 776
2,106,204 2,034,589 832 780 Less: Prepayments (283,403) (211,348)
1,822,801 1,823,241 832 780
Financial assets at fair value through profit or loss: Derivative financial assets – Interest rate swaps 19 18,605 569 – –
Financial liabilities Financial liabilities at fair value through profit or loss: – Foreign currency forward contracts 19 419 301 – –
Other financial liabilities: – Floating-rate term loans 780,162 1,293,174 – – – Islamic medium term notes 1,798,219 898,983 – – – Floating-rate term financing-i 523,486 493,445 – – – Lease liabilities 2,047,932 8,452 – – – Trade payables 24 247,686 200,095 – – – Other payables 24 778,114 383,290 – – – Accruals 24 742,658 1,545,659 1,380 1,071 – Customer deposits 24 15,850 15,026 – –
6,934,107 4,838,124 1,380 1,071 155
01 AT A GLANCE
31. FINANCIAL INSTRUMENTS (CONT’D.) 02 31.8 Fair value measurement
The following table provides the fair value measurement hierarchy of the Group’s financial assets and liabilities.
Quantitative disclosures fair value measurement hierarchy for financial assets/(liabilities) as at 31 December 2019: MESSAGE TO SHAREHOLDERS Fair value measurement using
Quoted Significant prices in Significant unobserv-
active observable able 03 markets inputs inputs Note Date of valuation Total (Level 1) (Level 2) (Level 3) RM’000 RM’000 RM’000 RM’000
Financial assets/(liabilities) CREATE VALUE STRATEGIES TO measured at fair value: Unquoted equity investments: – Other investment 16 31 December 2019 78 – – 78 Derivative financial assets: 04 – Interest rate swaps 19 31 December 2019 18,605 – 18,605 – Derivative financial liabilities: – Foreign currency forward contracts 19 31 December 2019 419 – 419 – ANALYSIS MANAGEMENT DISCUSSION AND Quantitative disclosures fair value measurement hierarchy for financial assets/(liabilities) as at 31 December 2018:
Fair value measurement using
Quoted Significant 05 prices in Significant unobserv- active observable able markets inputs inputs
Note Date of valuation Total (Level 1) (Level 2) (Level 3) GOVERNANCE RM’000 RM’000 RM’000 RM’000
Financial assets/(liabilities) measured at fair value: Unquoted equity investments: 06 – Other investment 16 31 December 2018 78 – – 78 Derivative financial assets: – Interest rate swaps 19 31 December 2018 569 – 569 – Derivative financial liabilities:
– Foreign currency forward STATEMENTS
contracts 19 31 December 2018 (301) – (301) – AUDITED FINANCIAL
There have been no transfers between Level 2 and Level 3 in the current year and prior year. 07 The fair value of unquoted equity investment is categorised as Level 3 as cost was estimated to be an appropriate measure of fair value. There was no indicators that cost might not be representative of fair value. OTHER INFORMATION 156 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2019
32. CAPITAL MANAGEMENT
The essence of the Group’s capital management strategy is to support its long-term strategic ambitions including:
(i) its commitment to long-term sustainable dividend policy;
(ii) its financial obligations while maintaining its financial flexibility; and
(iii) its ability to support its business requirements and enable future growth.
Going-forward, the Group will continue to actively manage its capital structure to enhance shareholders’ value and make adjustments to address changes in the economic environment and its business risk characteristics. The Group had during the financial year ended 31 December 2009, revised its minimum dividend pay-out policy to at least 80% of the Company’s profit for the year, and dividend payment frequency. The dividend policy will be maintained subject to on-going assessment, and based on the availability of distributable reserves as well as the Group’s future cash flow requirements and market conditions. These revisions and any other revision to its allocation of capital resources are subject to the approval of the Board of Directors. No changes were made in the objectives, policies or processes during the financial year ended 31 December 2019.
33. SEGMENTAL INFORMATION
Segmental information is not presented as the Group is primarily engaged in the provision of mobile communication services and its related products in Malaysia.
34. AUTHORISATION OF FINANCIAL STATEMENTS FOR ISSUE
The financial statements for the financial year ended 31 December 2019 were authorised for issue in accordance with a resolution of the directors on 11 March 2020.
157
01 INDEPENDENT LIMITED
ASSURANCE REPORT AT A GLANCE
Digi.Com Berhad Independent Limited Assurance Report 14 April 2020 02
To the Directors of Digi.Com Berhad
In accordance with the terms of our engagement, we, KPMG PLT, have been engaged by the Board of Directors of Digi.Com Berhad, to provide limited assurance on the Selected Sustainability Information for the year ended 31 December 2019 as published by Digi.Com
Berhad (“Digi”) in the Integrated Annual Report 2019 (“identified as the Selected Sustainability Information”). The boundary of this assurance MESSAGE TO SHAREHOLDERS report is limited to Digi Telecommunications Sdn Bhd’s operations in Malaysia, a wholly owned subsidiary of Digi.Com Berhad.
Management’s Responsibilities
The Management of Digi Telecommunications Sdn Bhd and Digi.Com Berhad (“Management”) is responsible for the preparation and 03 presentation of the Selected Sustainability Information in accordance with Management’s calculation methodologies and the information and assertions contained within it and for establishing and maintaining appropriate performance management and internal control systems from which the reported performance information is derived. CREATE VALUE Management is responsible for preventing and detecting fraud and for identifying and ensuring that Digi.Com Berhad and its subsidiaries STRATEGIES TO complies with laws and regulations applicable to its activities.
Management is also responsible for ensuring that staff involved with the preparation and presentation of the description and Integrated Annual Report 2019 (the “Report”) are properly trained, information systems are properly updated and any changes in reporting encompass 04 all significant business units.
Our Responsibilities
Our responsibility is to carry out a limited assurance engagement and to express a conclusion based on the work performed. We conducted ANALYSIS MANAGEMENT our engagement in accordance with International Standard on Assurance Engagements (“ISAE”) 3000 (Revised) Assurance Engagements DISCUSSION AND other than Audits or Reviews of Historical Financial Information and the ISAE 3410 standard for Assurance Engagements on Greenhouse Gas Statements, issued by the International Auditing and Assurance Standards Board (“IAASB”). Those Standards require that we plan and perform the engagement to obtain limited assurance about whether the Selected Sustainability Information is free from material misstatement. 05 Selected Sustainability Information
Selected Sustainability Information includes the following data for the year ended 31 December 2019: • Number of suppliers signing the Agreement of Business Conduct (“ABC”); GOVERNANCE • Energy consumption, excluding diesel consumption used in generators; • Scope 1 Carbon Emissions, excluding emissions from diesel consumption used in generators; • Scope 2 Carbon Emissions; 06 • Scope 3 Carbon Emissions; • Lost time injury frequency (“LTIF”); • Total online learning hours for employees; and • Number of students engaged on responsible and resilient digital citizenship. STATEMENTS
Procedures Performed over Selected Sustainability Information AUDITED FINANCIAL
Limited assurance on the Selected Sustainability Information consists of making inquiries, primarily of persons responsible for the preparation of information presented in the Report, and applying analytical and other evidence gathering procedures, as appropriate. These procedures include: 07 • Interviews with Senior Management and relevant staff at corporate level; • Inquiries about the design and implementation of the systems and methods used to collect and process the information reported,
including the aggregation of source data into the Selected Sustainability Information; OTHER INFORMATION 158 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
INDEPENDENT LIMITED ASSURANCE REPORT
Digi.Com Berhad Independent Limited Assurance Report 14 April 2020
• Visits to Digi’s head office in Malaysia; and • Comparing the information presented in the Selected Sustainability Information to corresponding information in the relevant underlying sources to determine whether all the relevant information has been included in the Selected Sustainability Information and prepared in accordance with Management’s calculations methodologies.
The procedures performed in a limited assurance engagement vary in nature and timing from, and are less in extent than for, a reasonable assurance engagement and consequently the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed.
Our Independence and Quality Control
We have complied with the independence and other relevant ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
KPMG PLT applies the Malaysian Approved Standard on Quality Control, ISQC 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
Inherent Limitations
Due to the inherent limitations of any internal control structure it is possible that errors or irregularities in the information presented in the Report may occur and not be detected. Our engagement is not designed to detect all weaknesses in the internal controls over the preparation and presentation of the Report, as the engagement has not been performed continuously throughout the period and the procedures performed were undertaken on a test basis.
Our Conclusion
Our conclusion has been formed based on, and is subject to, the matters outlined in this Independent Limited Assurance Report. We believe the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.
Based on the procedures performed and evidence obtained, as described above, nothing has come to our attention that would lead us to believe that the Selected Sustainability Information included in the Report for the year ended 31 December 2019, is not presented, in all material respects, in accordance with Management’s calculation methodologies.
Restriction of use of our Independent Limited Assurance Report
Our Independent Limited Assurance Report should not be regarded as suitable to be used or relied on by any party wishing to acquire rights against us other than Digi, for any purpose or in any other context. Any party other than Digi who obtains access to our Independent Limited Assurance Report, or a copy thereof, and chooses to rely on our Independent Limited Assurance Report, will do so at its own risk. To the fullest extent permitted by law, we do not accept nor assume responsibility and deny any liability to any party other than Digi for our work, this Independent Limited Assurance Report, or the conclusions we have reached.
Our Independent Limited Assurance Report is released to Digi on the basis that it shall not be copied, referred to or disclosed, in whole (save for Digi’s internal purposes) or in part, without our prior written consent.
KPMG PLT (LLP0010081-LCA) Petaling Jaya 14 April 2020 159
01 CORPORATE
INFORMATION AT A GLANCE
BOARD OF DIRECTORS NOMINATION COMMITTEE 02
Haakon Bruaset Kjoel Tan Sri Saw Choo Boon Chair, Non-Independent Non-Executive Director Chair, Senior Independent Non-Executive Director
Tan Sri Saw Choo Boon Yasmin Binti Aladad Khan MESSAGE TO SHAREHOLDERS Senior Independent Non-Executive Director Independent Non-Executive Director
Yasmin Binti Aladad Khan Haakon Bruaset Kjoel Independent Non-Executive Director Non-Independent Non-Executive Director 03
Vimala V.R. Menon Independent Non-Executive Director REMUNERATION COMMITTEE
Anne Karin Kvam CREATE VALUE Haakon Bruaset Kjoel STRATEGIES TO Non-Independent Non-Executive Director Chair, Non-Independent Non-Executive Director
Torstein Pedersen Yasmin Binti Aladad Khan Non-Independent Non-Executive Director Independent Non-Executive Director 04
Lars Erik Tellmann Torstein Pedersen Non-Independent Non-Executive Director Non-Independent Non-Executive Director (Appointed on 12 July 2019) ANALYSIS MANAGEMENT DISCUSSION AND SECRETARIES AUDIT AND RISK COMMITTEE
Choo Mun Lai (MAICSA No. 7039980) Vimala V.R. Menon 05 Chair, Independent Non-Executive Director Tai Yit Chan (MAICSA No. 7009143)
Tan Sri Saw Choo Boon Senior Independent Non-Executive Director DOMICILE AND COUNTRY OF INCORPORATION GOVERNANCE
Yasmin Binti Aladad Khan Malaysia Independent Non-Executive Director
06 Torstein Pedersen Non-Independent Non-Executive Director STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 160 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
CORPORATE INFORMATION
REGISTERED OFFICE AUDITORS
12th Floor, Menara Symphony Messrs Ernst & Young PLT No. 5, Jalan Professor Khoo Kay Kim Chartered Accountants Seksyen 13, 46200 Petaling Jaya Level 23A, Menara Milenium Selangor Darul Ehsan Jalan Damanlela, Pusat Bandar Damansara Malaysia 50490 Kuala Lumpur Tel: 03-7890 4800 Malaysia Fax: 03-7890 4650 Tel: 03-7495 8000 E-mail: [email protected] Fax: 03-2095 5332 Web: www.boardroomlimited.com
STOCK EXCHANGE LISTING SHARE REGISTRARS Main Market of Bursa Malaysia Securities Berhad Tricor Investor & Issuing House Services Sdn Bhd Listed on: 18 December 1997 Unit 32-01, Level 32, Tower A Stock Name: DIGI Vertical Business Suite, Avenue 3, Bangsar South Stock Code: 6947 No. 8, Jalan Kerinchi 59200 Kuala Lumpur Malaysia PRINCIPAL BANKERS Tel: 03-2783 9299 Fax: 03-2783 9222 CIMB Islamic Bank Berhad E-mail: [email protected] Sumitomo Mitsui Banking Corporation Malaysia Berhad Web: www.tricorglobal.com MUFG Bank (Malaysia) Berhad RHB Bank Berhad Tricor’s Customer Service Centre Standard Chartered Bank Malaysia Berhad Unit G-3, Ground Floor OCBC Bank (Malaysia) Berhad Vertical Podium, Avenue 3 Bangsar South, No. 8 Jalan Kerinchi 59200 Kuala Lumpur Malaysia 161
01 CORPORATE
DIRECTORY AT A GLANCE
PRINCIPAL PLACE OF BUSINESS/HEAD OFFICE CENTRAL OPERATING OFFICE 02
D’House, Lot 10, Jalan Delima 1/1, Lot 43, Jalan Delima 1/1, Subang Hi-Tech Industrial Park, Subang Hi-Tech Industrial Park, 40000 Subang Jaya, Selangor 40000 Subang Jaya, Selangor Tel : 03-5721 1800 Tel : 03-5721 1800 MESSAGE TO Fax : 03-5721 1857 Fax : 03-5721 1857 SHAREHOLDERS
REGIONAL OPERATING OFFICES
03 Northern Region Eastern Region Sarawak Region 1-03-18, E-Gate Commercial Centre, Lot 112 & 113, No. 9, Level 21, Gateway Kuching, Lebuh Tunku Kudin 2, Lorong Industri Semambu 7, Jalan Bukit Mata, 11700 Gelugor, Penang Semambu Industrial Estate, 93100 Kuching, Sarawak CREATE VALUE 25350 Kuantan, Pahang Tel : 082-421 800 STRATEGIES TO Ipoh Sales Office Fax : 09-508 0016 Fax : 082-427 597 C-G-02, Persiaran Greentown 3, Greentown Business Centre, Sabah Region 04 30450 Ipoh, Perak Digi Telecommunications Sdn Bhd Lot36, Sedco Light Industrial Estate, Southern Region Jln Kilang Kolombong, 6 & 8, Jalan Molek 1/12, 88450 Kota Kinabalu, Taman Molek, Sabah ANALYSIS MANAGEMENT DISCUSSION AND 81100 Johor Bahru, Johor Tel : 088-438800 Fax : 088-436633
DIGI STORES 05
KUALA LUMPUR SELANGOR
Bukit Bintang Alamanda Klang Lot 106 & 108, Lot LG-70, 71&72, Ground Floor, Lot B-G-8, BBT One Tower, GOVERNANCE Jalan Bukit Bintang, Alamanda Putrajaya Shopping Centre, Lebuh Batu Nilam 2, 55100 Kuala Lumpur Jalan Alamanda, Precinct 1, Bandar Bukit Tinggi, 62000 Putrajaya 41200 Klang, Selangor
Bangsar 06 Lot F122, 1st Floor, Ampang SS2 Bangsar Shopping Centre, 86G, Lorong Mamanda 1, 24, Jalan SS2/66, 285, Jalan Maarof, Bukit Bandaraya, Ampang Point, 47300 Petaling Jaya, Selangor 59000 Kuala Lumpur 68000 Selangor
Sunway Pyramid STATEMENTS
Gardens Cheras Lot LG2.69, Lower Ground 2, AUDITED FINANCIAL S-233, 2nd Floor, Gardens Mall, 3-G, Jalan C180/1, Sunway Pyramid Shopping Mall, Mid Valley City, Lingkaran Syed Putra, Dataran C180, 3, Jalan PJS 11/15, Bandar Sunway, 59200 Kuala Lumpur 43200 Cheras, Selangor 46150 Petaling Jaya, Selangor 07
Setapak Central Mall D’House G49, 67, Jalan Taman Ibu Kota, Lot 10 Jalan Delima 1/1,
Taman Danau Kota, Setapak, Subang Hi-Tech Industrial Park, OTHER
53300 Kuala Lumpur 40000 Shah Alam, Selangor INFORMATION 162 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
CORPORATE DIRECTORY
MELAKA KEDAH SARAWAK
Melaka Alor Setar Kuching 2, Plaza Merdeka, 2 & 3, Kompleks Perniagaan Pintu 10, Lot 506-507, Section 6 KTLD, Jalan Plaza Merdeka, Jalan Pintu Sepuluh, Jalan Kulas Tengah, 75000 Melaka 05100 Alor Setar, Kedah 93400 Kuching, Sarawak
NEGERI SEMBILAN PERAK Miri
Seremban De Gardens Lot 2037, Jalan Datuk Temenggong Oyong Lawai, 62A, Jalan Tuanku Munawir, DGR-1A, Ground Floor, Marina Square Phase 1, 70000 Seremban, N.Sembilan 3, Persiaran Medan Ipoh, 98000 Miri, Sarawak Medan Ipoh, JOHOR 31400 Ipoh, Perak Sibu Batu Pahat Ipoh 17 & 19, Ground Floor, 1-1D, Jalan Zabedah, Jalan Tong Sang, C-G-02, Persiaran Greentown 3, 83000 Batu Pahat, Johor Off Jalan Wong King Huo, Greentown Business Centre, 96000 Sibu 30450 Ipoh, Perak Danga Bay
Block 6-G-35, Danga Walk, PAHANG Batu 41/2, Jalan Skudai, 80200 Johor Bahru, Johor Kuantan 91, Jalan Tun Ismail, Taman Molek 25000 Kuantan, Pahang 6 & 8, Jalan Molek 1/12, Taman Molek, Kelantan 81100 Johor Bahru, Johor Kota Bharu S/16, PT 232, PENANG Lot 1A, Jalan Hamzah, Bayan Baru 15050 Kota Bharu, Kelantan 1B-G-08 & 1B-G-09, Ground Floor, TERENGGANU One Precinct, Lengkok Mayang Pasir, 11950 Bayan Baru, Penang Kuala Terenganu Lot PT 3937, Jalan Sultan Sulaiman, Pulau Tikus 20000 Kuala Terengganu, Terengganu 368-1-05 & 06, Belissa Row, Jalan Burmah, SABAH 10350 Pulau Tikus, Penang 1-Borneo
Seberang Jaya Lot G612, Ground Floor 1 Borneo Hypermall, Jalan Sulaman, 8, Ground Floor, Jalan Todak Dua, 88450 Kota Kinabalu, Sabah Pusat Bandar, Seberang Jaya, 13700 Prai, Penang Api-Api Lot 5/G3, Ground & 1st Floor, Api-Api Centre, 88000 Kota Kinabalu, Sabah 163
01 LIST OF
PROPERTIES AT A GLANCE
Age of Net Book Value 02 Description/ Date of Building as at 31.12.2019 No. Location Tenure Existing Use Acquisition Area (Years) RM'000
1 H.S. (D) No 92086 & 92087 Freehold Land with a building/ 29.12.1997 22,529 20 524 P.T. No 9 & No 10 Telecommunications sq ft Pekan Seremban Jaya Centre
Daerah Seremban, Negeri Sembilan MESSAGE TO SHAREHOLDERS 2 Unit No 202-4-11 Freehold Apartment/ 26.01.1995 802 22 68 Sri Bandar Besi, Jalan Sungai Besi Housing base transceiver sq ft Sungai Besi, Kuala Lumpur equipment
3 Unit No C16-2, Indera Subang UEP Freehold Apartment/ 04.02.1995 2,249 24 365 03 Jalan UEP 6/2L, UEP Subang Jaya Housing base transceiver sq ft Petaling Jaya, Selangor equipment
4 No 1-16.2, 16th Floor, Union Height Freehold Apartment/ 25.01.1995 1,249 23 137 Taman Yan, Jalan Klang Lama Housing base transceiver sq ft CREATE VALUE Kuala Lumpur equipment STRATEGIES TO
5 3rd Floor, Unit Pt 4888/4786 C Freehold Apartment/ 29.03.1995 1,319 22 52 Block TC-14, Taman Sri Gombak Housing base transceiver sq ft Jalan Batu Caves, Selangor equipment 04 6 4572, 7th Floor Freehold Apartment/ 07.02.1995 1,115 22 106 Sri Jelatek Condominiums Housing base transceiver sq ft Section 10, Wangsa Maju equipment Kuala Lumpur
7 32, PLO 151 Jln Angkasa Mas Utama Leasehold Land with a building/ 12.05.1995 1.58 23 690 ANALYSIS MANAGEMENT
Kawasan Perindustrian Tebrau II 30 years lease Telecommunications acres DISCUSSION AND 81100 Johor Bahru, Johor (expiring in 2023) Centre
8 HS (D) 77, No P.T. PTBM/A/081 Leasehold Land with a building/ 23.03.1995 1 acre 43 1,294 Mukim 1, Kawasan Perusahaan 60 years Telecommunications Perai, District Seberang Perai (expiring in 2033) Centre 05 Tengah, Pulau Pinang
9 Lot 36, Sedco Light Industrial Leasehold Land with a building/ 12.06.1995 0.938 37 1,457 Estate, Jalan Kelombong 60 years Telecommunications acre Kota Kinabalu, Sabah (expiring in 2034) Centre GOVERNANCE 10 Lot 1220, Section 66 Leasehold Land with a building/ 15.08.1995 4,124 22 1,252 Kuching Town 60 years Telecommunications sq ft Land District, Sarawak (expiring in 2036) Centre
11 No 112, Semambu Industrial Estate Leasehold Land with a building/ 07.07.1995 4 35 1,420 06 Kuantan, Pahang 66 years Telecommunications acres (expiring in 2041) Centre
12 Unit No M803 Leasehold Apartment/ 22.03.1995 1,100 26 82 8th Floor, Sunrise Park 99 years Housing base transceiver sq ft Ampang, Kuala Lumpur (expiring in 2088) equipment STATEMENTS
13 H.S.(D) 12776, P.T. No 15866 Leasehold Land with a building/ 07.08.1996 7.5 24 4,964 AUDITED FINANCIAL Mukim Bentong 99 years Earth Station Complex acres District of Bentong, Pahang (expiring in 2091)
14 Plot D-38 Leasehold Land with Fixed Line 14.11.1997 25,521 20 336 Taman Industri Prima Kota Fasa 1 99 years switch and base sq ft 07 Sector 3, Bandar Indera Mahkota (expiring in 2097) transceiver station Kuantan, Pahang OTHER INFORMATION 164 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
LIST OF PROPERTIES
Age of Net Book Value Description/ Date of Building as at 31.12.2019 No. Location Tenure Existing Use Acquisition Area (Years) RM'000
15 Ptd 1490, Mukim of Jemaluang Leasehold Land with trunk station 17.08.1999 40,000 18 98 District of Mersing 99 years sq ft Johor (expiring in 2098)
16 PN 89926, Lot 191363 Leasehold Land with a building/ 15.07.1999 5,942 18 181 Mukim Hulu Kinta 90 years Telecommunications sq ft Daerah Kinta, Perak (expiring in 2081) Centre
17 Lot No 54, Jalan 6/2 Leasehold Land with a building/ 23.05.2000 18,050 28 1,590 Kawasan Perindustrian Seri Kembangan 99 years Telecommunications sq ft 43000 Seri Kembangan, Selangor (expiring in 2091) Centre
18 Lot 2728 Miri Concession Land District Leasehold Land with cabin 29.09.2000 4,937 N/A 742 Lopeng, 60 years container/ sq m Miri, Sarawak (expiring in 2027) Telecommunications Centre
19 Lot 10, Jalan Delima 1/1 Freehold Land with a building 19.07.2001 284,485 12 67,439 Subang Hi-Tech Industrial Park sq ft 40000 Shah Alam, Selangor
20 No 24, Jalan KIP 7 Freehold Land with a building/ 21.08.2002 17,847 21 2,779 Taman Perindustrian KIP Telecommunications sq ft 52200 Kuala Lumpur Centre
21 Lot 42, Jalan Delima 1/1 Freehold Parking Lot 28.04.2008 91,676 N/A 8,234 Subang Hi-Tech Industrial Park (Title transferred sq ft 40000 Shah Alam, Selangor date)
22 Lot 43, Jalan Delima 1/1 Freehold Land with a building/ 06.04.2008 92,142 8 63,178 Subang Hi-Tech Industrial Park Telecommunications (Title transferred sq ft 40000 Shah Alam, Selangor Centre date)
23 13-1st Floor Gemilang Indah Condominium Freehold Apartment unit 26.10.2009 935 27 111 Geran Mukim 2227/M1/2/7 sq ft Lot 295, Sek 98, Bandar KL Wilayah Persektuan
24 H.S.(M) 26928 PT 180 Pekan Serdang Leasehold Land with a building/ 03.03.2009 1,803 22 3,849 Tempat Seri Kembangan 90 years Telecommunications sq m Daerah Petaling, Selangor (expiring in 2099) Centre
25 Title No PN 89925, Lot 191362 Leasehold Land with a building/ 21.09.2009 358 17 644 No 4, Hala Perusahaan Kledang U5 90 years Telecommunications sq m Kawasan Perusahaan Menglembu (expiring in 2099) Centre Daerah Kinta, Perak
161,592
Notes: The Group does not adapt a revaluation policy on landed properties. N/A denotes “Not Applicable”
Telecommunications Centre Under Rented Properties
1 Site No. 10341 – MSH Lot 30 SHT 3 Site No. 10251 – MKL KL Plaza Landlord: Ng Lee Lin Landlord: Sinar Merdu Sdn Bhd
2 Site No. 40521 – MMG Menglembu 4 Site No. 90142 – MSB Sibu Landlord: Jubli Raya Sdn Bhd Landlord: Lee Yau Poh 165
01 DISCLOSURE OF RECURRENT RELATED
PARTY TRANSACTIONS AT A GLANCE
At the Annual General Meeting held on 12 May 2019, the Company obtained a shareholders’ mandate to allow the Group to enter into 02 recurrent related party transactions of revenue or trading nature.
In accordance with Practice Note 12 of Main Market Listing Requirements of Bursa Securities, the details of recurrent related party transactions conducted during the financial year ended 31 December 2019 pursuant to the shareholders’ mandate are disclosed as follows:- MESSAGE TO
Sales of goods and Purchase of goods SHAREHOLDERS Digi Group with the Digi and/or its services during the and services during following related subsidiary Nature of transaction undertaken by/ financial year the financial year parties companies provided to Digi and/or its subsidiaries (RM’000) (RM’000)
03 Telenor Group of Companies
Telenor Group DTSB Business service costs, which include 51,803 consultancy, training programmes and advisory fees (“Business Service Costs”) CREATE VALUE STRATEGIES TO Telenor Group DTSB Personnel services payable and professional 1,191 5,289 fees (“Professional Service”)
Telenor Group DTSB International Accounting Settlement. This 10,227 10,389 refers to an arrangement for interconnection 04 services on international traffic between foreign carriers
Telenor Group DTSB International Roaming 2,723 1,183 ANALYSIS MANAGEMENT
Telenor Group DTSB IP Transit (Internet Upstream) 388 DISCUSSION AND
Telenor Group DTSB Global connectivity services Telenor 2,678 Business Units (BUs) in Asia and to data
centers for common services 05 Telenor Group DTSB Services rendered on Enterprise Resource 7,504 Planning (“ERP”) and enterprise applications
Telenor Group DTSB License and trademarks 9,491 GOVERNANCE Telenor Group DTSB Managed Services 19,890
Telenor Group DTSB Cloud based software infrastructure services 6,112
Telenor Group DTSB Digital marketing and distribution platform 2,222 06
Telenor Group DTSB Business Security cost 7,154
Telenor Group DTSB Bandwidth leasing 5569 3977
Telenor Group DTSB Telecommunication and related services 289 STATEMENTS
TOTAL 19,999 128,080 AUDITED FINANCIAL
Notes: 07 Telenor Group refers to Telenor ASA and its subsidiary and related companies (including the associated companies). Telenor ASA is the ultimate holding company of Digi.Com Berhad (Digi).
Digi Telecommunications Sdn Bhd (“DTSB”) is a wholly-owned subsidiary of Digi. OTHER INFORMATION 166 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
STATISTICS ON SHAREHOLDINGS as at 31 March 2020
Total number of Issued Shares : 7,775,000,000 Class of Shares : Ordinary shares Voting Rights : One vote per share
ANALYSIS BY SIZE OF HOLDINGS
No. of No. of Size of Holdings Holders % Shares %
1 – 99 1,073 4.288 11,995 0.00 100 – 1,000 11,458 45.799 6,374,878 0.08 1,001 – 10,000 9,791 39.135 39,106,255 0.50 10,001 – 100,000 1,887 7.542 55,352,292 0.71 100,001 – 388,749,999 (less than 5% of issued shares) 806 3.221 2,255,131,693 29.00 388,750,000 and above (5% and above of issued shares) 3 0.011 5,419,022,887 69.70
TOTAL 25,018 100.00 7,775,000,000 100.00
SUBSTANTIAL SHAREHOLDERS AS PER REGISTER OF SUBSTANTIAL SHAREHOLDERS AS AT 31 MARCH 2020
Number of Shares
Direct Deemed Name Interest % Interest %
1. Telenor Asia Pte Ltd 3,809,750,300 49.00 – –
2. Telenor Mobile Communications AS – – 3,809,750,300(a) 49.00
3. Telenor Mobile Holding AS – – 3,809,750,300(b) 49.00
4. Telenor ASA – – 3,809,750,300(c) 49.00
5. Employees Provident Fund Board 1,076,087,877 13.84 – –
6. AmanahRaya Trustees Berhad – Amanah Saham Bumiputera 592,035,200 7.61 – –
Notes: (a) Deemed interested by virtue of its 100% interest in Telenor Asia Pte Ltd. (b) Deemed interested by virtue of its 100% interest in Telenor Mobile Communications AS. (c) Deemed interested by virtue of its 100% interest in Telenor Mobile Holding AS. 167
01 STATEMENT OF
DIRECTORS’ SHAREHOLDINGS AT A GLANCE as at 31 March 2020
Number of Ordinary Shares 02
The Company Direct Deemed
Digi.Com Berhad Interest % Interest %
– – – – – MESSAGE TO SHAREHOLDERS
Number of Ordinary Shares of NOK6 each
Ultimate Holding Company Direct Deemed Telenor ASA Interest % Interest % 03
Haakon Bruaset Kjoel 17,077 0.0012 – – Torstein Pedersen 386 0 – – Lars Erik Tellmann 25,946 0.0018 – – CREATE VALUE Anne Karin Kvam 3,905 0.0003 – – STRATEGIES TO
Number of Options over Ordinary Shares of NOK6 each 04 Ultimate Holding Company Direct Deemed Telenor ASA Interest % Interest %
Haakon Bruaset Kjoel – – – – Torstein Pedersen – – – – ANALYSIS MANAGEMENT Lars Erik Tellmann – – – – DISCUSSION AND Anne Karin Kvam – – – –
05 GOVERNANCE
06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 168 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
LIST OF THIRTY (30) LARGEST SHAREHOLDERS as at 31 March 2020
Name of Shareholders No. of Shares %
1 CITIGROUP NOMINEES (ASING) SDN BHD 3,809,750,300 49.00 TELENOR ASIA PTE LTD (DIGI)
2 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 1,017,237,387 13.08 EMPLOYEES PROVIDENT FUND BOARD
3 AMANAHRAYA TRUSTEES BERHAD 592,035,200 7.61 AMANAH SAHAM BUMIPUTERA
4 KUMPULAN WANG PERSARAAN (DIPERBADANKAN) 282,521,000 3.63
5 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 112,332,500 1.44 URUSHARTA JAMAAH SDN. BHD. (1)
6 AMANAHRAYA TRUSTEES BERHAD 63,974,300 0.82 AMANAH SAHAM BUMIPUTERA 2
7 AMANAHRAYA TRUSTEES BERHAD 62,600,000 0.81 AMANAH SAHAM MALAYSIA 2 – WAWASAN
8 HSBC NOMINEES (ASING) SDN BHD 62,585,480 0.80 JPMCB NA FOR VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND
9 CARTABAN NOMINEES (ASING) SDN BHD 60,330,600 0.78 EXEMPT AN FOR STATE STREET BANK & TRUST COMPANY (WEST CLT OD67)
10 LEMBAGA TABUNG HAJI 57,651,050 0.74
11 AMANAHRAYA TRUSTEES BERHAD 56,765,800 0.73 AMANAH SAHAM MALAYSIA 3
12 CARTABAN NOMINEES (TEMPATAN) SDN BHD 55,475,000 0.71 PAMB FOR PRULINK EQUITY FUND
13 HSBC NOMINEES (ASING) SDN BHD 54,097,033 0.70 JPMCB NA FOR VANGUARD EMERGING MARKETS STOCK INDEX FUND
14 AHMAD SEBI BIN BAKAR 50,923,830 0.65
15 MAYBANK NOMINEES (TEMPATAN) SDN BHD 48,500,000 0.62 MAYBANK TRUSTEES BERHAD FOR PUBLIC ITTIKAL FUND (N14011970240)
16 MAYBANK NOMINEES (TEMPATAN) SDN BHD 43,653,700 0.56 MAYBANK TRUSTEES BERHAD FOR PUBLIC REGULAR SAVINGS FUND (N14011940100)
17 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 35,787,262 0.46 EXEMPT AN FOR AIA BHD
18 AMANAHRAYA TRUSTEES BERHAD 31,655,000 0.41 PUBLIC ITTIKAL SEQUEL FUND 169
01 AT A GLANCE
Name of Shareholders No. of Shares % 02
19 CARTABAN NOMINEES (ASING) SDN BHD 25,165,200 0.32 GIC PRIVATE LIMITED FOR GOVERNMENT OF SINGAPORE (C)
20 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 23,182,900 0.30
GREAT EASTERN LIFE ASSURANCE (MALAYSIA) BERHAD (PAR 1) MESSAGE TO SHAREHOLDERS
21 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 21,816,400 0.28 GREAT EASTERN LIFE ASSURANCE (MALAYSIA) BERHAD (PAR 3)
22 AMANAHRAYA TRUSTEES BERHAD 21,664,200 0.28 03 AMANAH SAHAM BUMIPUTERA 3 – DIDIK
23 DB (MALAYSIA) NOMINEE (ASING) SDN BHD 20,552,300 0.26 BNYM SA/NV FOR PEOPLE'S BANK OF CHINA (SICL ASIA EM) CREATE VALUE 24 MAYBANK NOMINEES (TEMPATAN) SDN BHD 19,482,000 0.25 STRATEGIES TO MTRUSTEE BERHAD FOR PRINCIPAL DALI EQUITY GROWTH FUND (UT-CIMB-DALI) (419455)
25 PERMODALAN NASIONAL BERHAD 18,561,900 0.24
26 HSBC NOMINEES (ASING) SDN BHD 16,657,899 0.21 04 J.P. MORGAN SECURITIES PLC
27 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 16,539,600 0.21 EMPLOYEES PROVIDENT FUND BOARD (AFFIN-HWG) ANALYSIS MANAGEMENT 28 HSBC NOMINEES (ASING) SDN BHD 15,136,200 0.19 DISCUSSION AND JPMCB NA FOR MSCI EQUITY INDEX FUND B – MALAYSIA
29 CITIGROUP NOMINEES (ASING) SDN BHD 14,523,700 0.19 EXEMPT AN FOR CITIBANK NEW YORK (NORGES BANK 1) 05
30 HSBC NOMINEES (ASING) SDN BHD 13,187,100 0.17 JPMCB NA FOR BLACKROCK INSTITUTIONAL TRUST COMPANY, N.A. INVESTMENT FUNDS FOR EMPLOYEE BENEFIT TRUSTS GOVERNANCE TOTAL 6,724,344,841 86.49
06 STATEMENTS AUDITED FINANCIAL
07 OTHER INFORMATION 170 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN THAT the Twenty-Third Annual General Meeting (“23rd AGM”) of Digi.Com Berhad (“the Company”) will be held on Monday, 1 June 2020 at 10.00 a.m. through a combination of: • Majority remote participation via Tricor’s website https://tiih.online • Minimal physical participation at Yellow Arena, Digi Telecommunications Sdn Bhd, Lot 10, Jalan Delima 1/1, Subang Hi-Tech Industrial Park, 40000 Subang Jaya, Selangor, Malaysia
The 23rd AGM is held for the following purposes:
AGENDA As Ordinary Business 1. To receive the Audited Financial Statements for the financial year ended 31 December 2019 and (Please refer to Note 1 of the Reports of the Directors and Auditors thereon. the Explanatory Notes)
2. To re-elect the following Directors who are to retire pursuant to Article 98(A) of the Company’s Articles of Association and being eligible, have offered themselves for re-election:
(i) Mr Haakon Bruaset Kjoel Resolution 1 (ii) Ms Vimala A/P V.R. Menon Resolution 2
3. To re-elect Mr Lars Erik Tellmann as a Director who is to retire pursuant to Article 98(E) of the Resolution 3 Company’s Articles of Association and being eligible, has offered himself for re-election.
4. To approve the payment of Directors’ fees of up to RM900,000 for the Independent Non-Executive Resolution 4 Directors and benefits payable to the Directors up to an aggregate amount of RM16,000 from the date of the forthcoming Annual General Meeting (“AGM”) until the next AGM of the Company.
5. To re-appoint Messrs Ernst & Young PLT as Auditors of the Company and to authorise the Directors Resolution 5 to fix their remuneration.
As Special Business
To consider and, if deemed fit, to pass the following resolutions:-
6. Ordinary Resolution Resolution 6 Proposed Retention of Tan Sri Saw Choo Boon as a Senior Independent Non-Executive Director (Please refer to Note 2 of the Explanatory Notes) “That Tan Sri Saw Choo Boon who has served the Board as a Senior Independent Non-Executive Director of the Company for a cumulative term of more than nine (9) years since 9 December 2010 be and is hereby retained as a Senior Independent Non-Executive Director of the Company until the conclusion of the next AGM in accordance with the Malaysian Code on Corporate Governance.” 171
01 AT A GLANCE
7. Ordinary Resolution Resolution 7 02 Proposed Renewal of Existing Shareholders’ Mandate for Recurrent Related Party Transactions of (Please refer to Note 3 of
a Revenue or Trading Nature, to be entered with Telenor ASA (“Telenor”) and Persons Connected the Explanatory Notes) with Telenor (“Proposed Shareholders’ Mandate”)
“That, subject to the provisions of the Main Market Listing Requirements of Bursa Malaysia Securities
Berhad, approval be and is hereby given to the Company and its subsidiaries to enter into recurrent MESSAGE TO related party transactions of a revenue or trading nature with Telenor and persons connected with SHAREHOLDERS Telenor as specified in Section 2.3 of the Circular to Shareholders dated 28 April 2020, which are necessary for the day-to-day operations and/or in the ordinary course of business of the Company and its subsidiaries on terms not more favourable to the related parties than those generally available to the public and are not detrimental to the minority shareholders of the Company and that such 03 approval shall continue to be in force until:
(i) the conclusion of the next AGM of the Company following the forthcoming AGM at which the Proposed Shareholders’ Mandate shall be passed, at which time it will lapse, unless by a resolution CREATE VALUE passed at a general meeting, the authority conferred by this resolution is renewed; STRATEGIES TO
(ii) the expiration of the period within which the next AGM of the Company is required to be held pursuant to Section 340(2) of the Companies Act 2016 (but shall not extend to such extension as may be allowed pursuant to Section 340(4) of the Companies Act 2016); or 04
(iii) revoked or varied by resolution passed by the shareholders at a general meeting,
whichever is earlier. ANALYSIS MANAGEMENT DISCUSSION AND And that the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary to give effect to the Proposed Shareholders’ Mandate.” 05 As Other Business 8. To transact any other business of which due notice has been given in accordance with the Companies Act 2016 and the Company’s Articles of Association. GOVERNANCE
By Order of the Board
06 CHOO MUN LAI (MAICSA 7039980) TAI YIT CHAN (MAICSA 7009143) Company Secretaries
Selangor Darul Ehsan STATEMENTS
28 April 2020 AUDITED FINANCIAL
07 OTHER INFORMATION 172 DIGI.COM BERHAD INTEGRATED ANNUAL REPORT 2019
NOTICE OF ANNUAL GENERAL MEETING
(A) NOTES (i) Due to the ongoing Movement Control Order effective since 18 March 2020, there may be some delay in the delivery of the hardcopies of the Company’s Integrated Annual Report 2019, as requested by the Shareholders. The hardcopies will be delivered once they are made available to the Company.
(ii) In respect of deposited securities, only Shareholders whose names appear on the Record of Depositors on 20 May 2020 (General Meeting Record of Depositors) shall be eligible to attend, participate, speak and/or vote at the meeting.
(iii) Shareholders and representative of Corporate Shareholders who are not able to attend the meeting in person at the meeting venue may opt to participate and vote remotely at the meeting via the facility which is available on Tricor’s TIIH Online website at https://tiih.online. For further information on the remote participation, kindly refer to the annexure of the Administrative Details.
(iv) A shareholder entitled to attend, participate, speak and vote at the AGM is entitled to appoint not more than two (2) proxies to attend, participate, speak and vote on his/her behalf. Where a Shareholder appoints more than one (1) proxy, the appointment shall not be valid unless he specifies the proportions of his/her shareholdings to be represented by each proxy.
(v) A proxy or attorney need not be a Shareholder of the Company. There shall be no restriction as to the qualification of the proxy. A proxy appointed to attend and vote at the meeting shall have the same rights as the Shareholder to speak at the Meeting.
(vi) Where a Shareholder of the Company is an Exempt Authorised Nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities account (omnibus account) as defined under the Securities Industry (Central Depositories) Act 1991, there shall be no limit to the number of proxies which the Exempt Authorised Nominee may appoint in respect of each omnibus account it holds.
(vii) The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing, and in the case of a corporation, either under its common seal or under the hand of an officer or attorney duly authorised.
(viii) The instrument appointing a proxy together with the power of attorney (if any) or a certified copy thereof must be deposited at the Company’s Share Registrar Office, Tricor Investor & Issuing House Services Sdn Bhd at Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia or alternatively, Tricor’s Customer Service Centre, Unit G-3, Ground Floor, Vertical Podium, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia at least forty-eight (48) hours before the time appointed for the holding of the meeting or adjourned meeting, otherwise the instrument of proxy should not be treated as valid. You can also have the option to submit the proxy appointment electronically via TIIH Online at website: https://tiih.online before the proxy form submission cut-off time as mentioned in the above. For further information on the electronic submission of proxy form, kindly refer to the annexure of the Administrative Details.
(ix) Any Notice of Termination of Authority to act as Proxy must be received by the Company before the commencement of the meeting or at any adjournment thereof, failing which, the termination of the authority of a person to act as proxy will not affect the following in accordance with Section 338 of the Companies Act 2016:-
(a) the constitution of the quorum at such meeting; (b) the validity of anything he did as chairman of such meeting; (c) the validity of a poll demanded by him at such meeting; or (d) the validity of the vote exercised by him at such meeting.
(x) Pursuant to Paragraph 8.29A of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, all the resolutions set out in the Notice of AGM will put to vote by way of poll. Poll Administrator and Independent Scrutineers will be appointed to conduct the polling process and verify the results of the poll respectively. 173
01 AT A GLANCE
(B) EXPLANATORY NOTES 02 1. Audited Financial Statements for the financial year ended 31 December 2019
The Audited Financial Statements under Item 1 of the Agenda are laid in accordance with Section 340(1)(a) the Companies Act 2016 for discussion only. They do not require shareholders’ approval and hence, this agenda item will not be put forward for voting. MESSAGE TO SHAREHOLDERS 2. Ordinary Resolution 6 – Proposed Retention of Tan Sri Saw Choo Boon as a Senior Independent Non-Executive Director
The Board of Directors had on 9 March 2020 via the Nomination Committee conducted an annual performance evaluation and assessment of Tan Sri Saw Choo Boon, who has served the Board as a Senior Independent Non-Executive Director for a
cumulative term of more than nine (9) years, and recommended him to continue in office as a Senior Independent Non-Executive 03 Director of the Company based on the following justifications:-
(a) He fulfilled the criteria under the definition of Independent Director as stated in the Main Market Listing Requirements; (b) His experience enables him to provide the Board with a diverse set of experience, expertise, skills and competence. His good understanding of the industry and Company’s business operations enable him to participate actively and contribute CREATE VALUE STRATEGIES TO effectively during deliberations for robust discussion at the Audit and Risk Committee, Nomination Committee and Board Meetings without compromising his independence and objective judgement; (c) He demonstrated high commitment and devoted sufficient time to his responsibilities as Senior Independent Non-Executive Director of the Company; and 04 (d) Sufficient time is required by the Company to find a suitable successor for Tan Sri Saw Choo Boon as an Independent Director, who is also a member of Audit and Risk Committee, to ensure an orderly succession plan.
The Board upon the recommendation from the Nomination Committee of the Company, therefore, considers Tan Sri Saw Choo Boon to be independent and recommends him to be remained as a Senior Independent Non-Executive Director until the ANALYSIS MANAGEMENT conclusion of the next AGM subject to the approval from the shareholders of the Company pursuant to Practice 4.2 of the DISCUSSION AND Malaysian Code on Corporate Governance 2017.
3. Ordinary Resolution 7 – Proposed Shareholders’ Mandate 05 Ordinary Resolution 7 proposed under Item 7 of the Agenda on the shareholders’ mandate, if passed, will allow the Company and its subsidiaries (Group) to enter into recurrent related party transactions, in accordance with paragraph 10.09 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, without the necessity to convene separate general meetings from time to time to seek shareholders’ approval as and when such recurrent related party transactions occur. This would reduce
substantial administrative time and expenses associated with the convening of such meetings without compromising the corporate GOVERNANCE objectives of the Group or affecting the business opportunities available to the Group. The shareholders’ mandate is subject to renewal on an annual basis.
Personal data privacy 06 By submitting an instrument appointing a proxy(ies) and/or representative(s) to attend, participate, speak and vote at the AGM and/or any adjournment thereof, a Shareholder of the Company (i) consents to the collection, use and disclosure of the Shareholder’s personal data by the Company (or its agents) for the purpose of processing and administration by the Company (or its agents) of proxies and representatives appointed for the AGM (including any adjournment thereof), and the preparation and compilation of the attendance lists, minutes and other documents relating to the AGM STATEMENTS (including any adjournment thereof), and in order for the Company (or its agents) to comply with any applicable laws, listing rules, regulations and/ AUDITED FINANCIAL or guidelines (collectively, the “Purposes”), (ii) warrants that where the Shareholder discloses the personal data of the Shareholder’s proxy(ies) and/ or representative(s) to the Company (or its agents), the Shareholder has obtained the prior consent of such proxy(ies) and/or representative(s) for the collection, use and disclosure by the Company (or its agents) of the personal data of such proxy(ies) and/or representative(s) for the Purposes, and (iii) agrees that the Shareholder will indemnify the Company in respect of any penalties, liabilities, claims, demands, losses and damages as a 07 result of the Shareholder’s breach of warranty. OTHER INFORMATION This page has been intentionally left blank DIGI.COM BERHAD Registration No. 199701009694 (425190-X) FORM OF PROXY (Incorporated in Malaysia)
I/We (Name in full) NRIC No./Company No. (New and Old NRIC No.) CDS Account No. of (Address) and telephone no./email address being a shareholder/shareholders of DIGI.COM BERHAD
(“the Company”), hereby appoint (Name in full) NRIC No. (New and Old NRIC No.) of
(Address) or failing him/her (Name in full) NRIC No. (New and Old NRIC No.) of (Address) or failing him/her, the *Chair of the Meeting as my/our proxy to vote for me/us on my/our behalf at the Twenty-Third Annual General Meeting (“AGM”) of the Company will be held on Monday, 1 June 2020 at 10.00 a.m. or any adjournment thereof, through a combination of: • Majority remote participation via Tricor’s website https://tiih.online • Minimal physical participation at Yellow Arena, Digi Telecommunications Sdn Bhd, Lot 10, Jalan Delima 1/1, Subang Hi-Tech Industrial Park, 40000 Subang Jaya, Selangor, Malaysia
This proxy is to vote on the resolutions set out in the Notice of the Meeting, as indicated with an ‘X’ in the appropriate spaces below. If no specific direction as to voting is given, the proxy will vote or abstain from voting at his/her discretion.
*Please delete the words ‘Chair of the Meeting’ if you wish to appoint some other person to be your proxy.
Item No. Agenda 1. To receive the Audited Financial Statements for the financial year ended 31 December 2019 and the Reports of the Directors and Auditors thereon. Resolution For Against 2. (a) To re-elect Mr Haakon Bruaset Kjoel as Director who is to retire pursuant to Article 98(A) 1 of the Company’s Articles of Association. (b) To re-elect Ms Vimala A/P V.R. Menon as Director who is to retire pursuant to Article 98(A) 2 of the Company’s Articles of Association. 3. To re-elect Mr Lars Erik Tellmann as a Director who is to retire pursuant to Article 98(E) of the 3 Company’s Articles of Association. 4. To approve the payment of Directors’ fees and benefits payable to the Independent Directors. 4 5. To re-appoint Messrs Ernst & Young PLT as Auditors of the Company and to authorise the Directors 5 to fix their remuneration. Special Business 6. Ordinary Resolution: 6 Proposed Retention of Tan Sri Saw Choo Boon as a Senior Independent Non-Executive Director. 7. Ordinary Resolution: 7 Proposed Renewal of Existing Shareholders’ Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature, to be entered with Telenor ASA and Persons Connected with Telenor.
For appointment of two (2) proxies, percentage of shareholdings to be represented by the proxies: No. of Shares Percentage Proxy 1 % No. of Shares Proxy 2 % Total 100%
Signature of Shareholder(s) or Common Seal
Signed this day of , 2020. Tel. No. Notes: (i) Due to the ongoing Movement Control Order effective 18 March 2020, there may be some delay in (viii) The instrument appointing a proxy together with the power of attorney (if any) or a certified copy the delivery of the hardcopies of the Company’s Integrated Annual Report 2019, as requested by the thereof must be deposited at the Company’s Share Registrar Office, Tricor Investor & Issuing House Shareholders. The hardcopies will be delivered once they are made available to the Company. Services Sdn Bhd at Unit 32-01, Level 32, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, (ii) In respect of deposited securities, only Shareholders whose names appear on the Record of Depositors No. 8, Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia or alternatively, Tricor’s Customer Service Centre, on 20 May 2020 (General Meeting Record of Depositors) shall be eligible to attend, participate, speak Unit G-3, Ground Floor, Vertical Podium, Avenue 3, Bangsar South, No. 8, Jalan Kerinchi, 59200 Kuala and/or vote at the meeting. Lumpur, Malaysia at least forty-eight (48) hours before the time appointed for the holding of the meeting or adjourned meeting, otherwise the instrument of proxy should not be treated as valid. You can also (iii) Shareholders and representative of Corporate Shareholders who are not able to attend the meeting in have the option to submit the proxy appointment electronically via TIIH Online website at https://tiih. person at the meeting venue may opt to participate and vote remotely at the meeting via the facility online before the proxy form submission cut-off time as mentioned in the above. For further information which is available on Tricor’s TIIH Online website at https://tiih.online. For further information on the on the electronic submission of proxy form, kindly refer to the annexure of the Administrative Details. remote participation, kindly refer to the annexure of the Administrative Details. (ix) Any Notice of Termination of Authority to act as Proxy must be received by the Company before the (iv) A shareholder entitled to attend, participate, speak and vote at the AGM is entitled to appoint not commencement of the meeting or at any adjournment thereof, failing which, the termination of the more than two (2) proxies to attend, participate, speak and vote on his/her behalf. Where a Shareholder authority of a person to act as proxy will not affect the following in accordance with Section 338 of appoints more than one (1) proxy, the appointment shall not be valid unless he specifies the proportions the Companies Act 2016:- of his/her shareholdings to be represented by each proxy. (v) A proxy or attorney need not be a Shareholder of the Company. There shall be no restriction as to the (a) the constitution of the quorum at such meeting; qualification of the proxy. A proxy appointed to attend and vote at the meeting shall have the same rights (b) the validity of anything he did as chairman of such meeting; as the Shareholder to speak at the Meeting. (c) the validity of a poll demanded by him at such meeting; or (d) the validity of the vote exercised by him at such meeting. (vi) Where a Shareholder of the Company is an Exempt Authorised Nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities account (omnibus account) as defined under (x) Pursuant to Paragraph 8.29A of the Main Market Listing Requirements of Bursa Malaysia Securities the Securities Industry (Central Depositories) Act 1991, there shall be no limit to the number of proxies Berhad, all the resolutions set out in the Notice of AGM will put to vote by way of poll. Poll Administrator which the Exempt Authorised Nominee may appoint in respect of each omnibus account it holds. and Independent Scrutineers will be appointed to conduct the polling process and verify the results of the poll respectively. (vii) The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing, and in the case of a corporation, either under its common seal or under the Personal Data Privacy hand of an officer or attorney duly authorised. By submitting an instrument appointing a proxy(ies) and/or representative(s), the shareholder accepts and agrees to the personal data privacy terms set out in the Notice of Annual General Meeting dated 28 April 2020.
Please fold here to seal
Affix Stamp Here
Share Registrars TRICOR INVESTOR & ISSUING HOUSE SERVICES SDN BHD Unit 32-01, Level 32, Tower A Vertical Business Suite, Avenue 3, Bangsar South No. 8, Jalan Kerinchi 59200 Kuala Lumpur Malaysia
Please fold here to seal Integrated Annual Report 2019 Digi.Com Berhad
Connecting You To What Matters Most Our Heroes Keeping Customers Connected At All Times
Digi.Com Berhad Reg. No. 199701009694 (425190-X)
Lot 10, Jalan Delima 1/1, Subang Hi-Tech Industrial Park, 40000 Subang Jaya, Selangor, Malaysia
Email: Investor_Relati [email protected] Digi.Com Berhad
Printed on Environmental Friendly Paper. Reg. No. 199701009694 (425190-X)
Integrated Annual Report Annual Integrated 2019