Integrated Annual Report 2021
Connecting you to what matters most Connecting you to what matters most 2021 continued to be an extraordinary year as society stayed vigilant and resilient a year after the Covid-19 pandemic emerged. Malaysians persevered as we adapted to changing situations brought on by various safety restrictions imposed by the authorities to curb the spread of the virus. Digital connectivity became even more crucial as lives and livelihoods shifted online and people continued to be physically apart. The cover highlights how digital connectivity has supported the communication needs of every segment of the society, bringing people closer together amidst the pandemic.We continue to be inspired by the people we serve, and remain steadfast in our responsibility and purpose to connect people to what matters most. To learn more about our Integrated Annual Report 2021, visit www.digi.com.my/ annualreport/index.html Scan this QR Code for Integrated Annual Report 2021 online
1 Integrated Annual Report 2021 At A Glance 2 About This Report 4 About Digi Message To Shareholders 6 Chair of the Board’s Statement 10 Chief Executive Officer’s Statement 14 Chief Financial Officer’s Statement 21 Quarterly Financial Performance 21 5-Year Financial Summary Strategies To Create Value 24 Our Business Model 26 Our Operating Landscape 30 Our Key Relationships 33 Our Key Risks 38 Our Material Matters 41 Our Emerging Opportunities 44 Our Strategy Inside This Report 1 6 7 2 3 4 5 How We Create Value 50 Financial Capital 54 Manufactured Capital 57 Intellectual Capital 62 Human Capital 67 Natural Capital 73 Social and Relationship Capital Governance 84 Board of Directors’ Profiles 90 Management Profiles 94 Corporate Governance Overview Statement 119 Statement on Risk Management and Internal Control 126 Additional Compliance Information 128 Statement of Responsibility by Directors Audited Financial Statements 130 Directors’ Report 135 Statement by Directors 135 Statutory Declaration 136 Independent Auditors’ Report 140 Statements of Comprehensive Income 141 Statements of Financial Position 143 Statements of Changes in Equity 144 Statements of Cash Flows 147 Notes to the Financial Statements Other Information 218 Independent Assurance Report 221 Corporate Information 222 Corporate Directory 223 List of Properties 225 Disclosure of Recurrent Related Party Transactions 226 Share Price Development 227 Statistics on Shareholdings 228 Statement of Directors and CEO’s Shareholdings 229 List of Thirty (30) Largest Shareholders 231 Notice of Annual General Meeting • Form of Proxy
about this report About This Report This is Digi.Com Berhad’s 3rd Integrated Annual Report (IAR) 2021, prepared in accordance with the principles prescribed by the International Integrated Reporting Council (IIRC). Our IAR aims to provide a balanced and accurate reflection of our strategy, performance, risks and emerging opportunities, as well as prospects of the company. The intent of the report is primarily to address valuecreation considerations of long-term investors and provide appropriate information to all our key stakeholders. Scope and Reporting Boundaries As previously announced in June 2021,Axiata Group Berhad,Telenor Asia Pte Ltd and Digi.Com Berhad (Digi) have successfully concluded the due-diligence exercise and signed the Transaction Agreements for the proposed merger of Celcom Axiata Berhad (Celcom) and Digi. However, the report is published on a business-as-usual basis with its reporting scope remains largely the same as last year’s report, covering the activities of our wholly owned subsidiary, Digi Telecommunications Sdn. Bhd., which is the core of our business operations.The reporting period comprises our financial and non-financial performance from 1 January 2021 to 31 December 2021, unless stated otherwise. 2 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
Assurance Our audited annual financial statements are disclosed in Section 6.We have also engaged an external auditor to provide a limited assurance for selected non-financial indicators.The independent assurance report can be found on pages 218 to 220 of this report. Forward-looking Statements This report may contain forward-looking statements with respect to Digi’s future performance and prospects, alongside the ongoing proposed merger of Digi and Celcom which will be subject to regulatory approvals, other customary terms and conditions and approvals of all non-interest shareholders. Integrated Approach and Materiality We aim to preserve, create and deliver sustainable value for all our stakeholders through our six capitals. Our unique processes are key inputs and we produce value-adding outputs by using an integrated approach. In addition, we have fully embedded integrated thinking in our sustainability management to fully reflect material environmental, social, and governance (ESG) considerations into our short-to-long term business model and strategies. Our material matters are continuously monitored as they have the potential to substantially affect – both positively and negatively – our ability to create and preserve value. Subsequently, the materiality assessment processes and disclosures are aligned to the Materiality principles of International <IR> Framework and Bursa Malaysia Securities Berhad’s (Bursa Malaysia) Listing Requirements. Approval by the Board The Board of Directors of Digi is responsible for ensuring the integrity of Digi’s IAR 2021 and give full attention to the management’s evaluation and effectiveness of disclosure controls and procedures. Such controls will ensure high reliability of financial reporting for external purposes in accordance with the Main Market Listing Requirements of Bursa Malaysia.The report was approved by the Board on 11 March 2022. Reporting Suites We are committed to report openly and honestly to our broad range of stakeholders.To view the full suite, visit our website at www.digi.com.my/annualreport/index.html Reporting Framework & Principles Our Capitals Our Strategic Pillars Navigation Icons Corporate Governance Report 2021 Our Corporate Governance report details out Digi’s corporate governance practices. 2 3 5 Integrated Annual Report (IAR) 2021 Our primary report to shareholders,which details the company’s developments, financial performance for the year and future orientation to form our holistic value creation story. 1 2 3 4 5 6 7 8 9 About This Report 1 IIRC’s Integrated Reporting <IR> Framework 2 Companies Act 2016 3 Main Market Listing Requirements of Bursa Malaysia 4 Bursa Sustainability Reporting Guidelines & Toolkits Financial Capital Manufactured Capital Intellectual Capital Human Capital Natural Capital Social and Relationship Capital Growth Modernisation Responsible Business 5 Malaysian Code on Corporate Governance 6 Malaysian Financial Reporting Standards (MFRS) 7 International Financial Reporting Standards (IFRS) 8 Global Reporting Initiative (GRI) Standards (Core) 9 ISAE 3000 (Revised) – Limited Assurance Engagement Sustainability Performance and GRI Content Index Our Sustainability performance website provides a detailed account of the company’s sustainability performances, available online via https://www.digi. com.my/sustainability/reporting.html 3 4 8 9 CG SP IAR Feedback and Contact Point Your feedback is important to us and we welcome your input to enhance the quality of our reporting. Please email your feedback to invesrel@digi.com.my. 3 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
ABOU WHO WE ARE Digi is a leading and trusted digital connectivity and services company, empowering societies and keeping customers connected to what matters most. WHAT WE DO OUR VALUES Our number one priority is to deliver connectivity in a safe, reliable, and efficient way to Malaysians across the country. We believe connectivity empowers everyone to improve their lives, builds societies and secures a better future for all. We offer a wide range of innovative, personalised, and engaging mobile connectivity, internet services, and digital solutions to 10.3 million consumers and business customers every day on our advanced 4G LTE network. OUR Way of Work Customer Obsessed Innovat ion 360 Putting our customers at the heart of everything we do. Exploring ways to do things differently and to do different things that serve to improve the lives of our customers. Always Explore Create Together Keep Promises Be Respectful We believe growth comes from learning every day. We’re curious and we dare to challenge, test, fail fast and pivot. We believe that trust is key in all our relationships.We take ownership and pride in delivering with precision and integrity. We believe diverse teams find better solutions.We seek different perspectives, share, involve, and help each other succeed. 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. About Digi We have built solid fundamentals and expertise in futureready networks, digitalisation, customer experience, workplace and people development, and responsible business practices – shaped by a culture of innovation. Building on these capabilities, we believe we are well positioned to include, advance and safeguard customers and society through digitalisation and advanced technologies for a future of new possibilities. 10.3 million customers 10,173 KM fibre network network coverage in populated areas nationwide 93.1% 4G LTE 75.9% 4G LTE-A 4 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
UT DIGI OUR PURPOSE CORPORATE STRUCTURE Empowering Societies Connecting Customers To What Matters Most Connecting people, businesses and societies has been the core of our business for the last 27 years. Today, internet connectivity impacts nearly every part of our lives, and we are making it more personalised and relevant than ever before.To us, it is more than good business. It is empowering societies. Building on this,we want to enable connectivity for all to drive greater societal inclusion, advance connectivity to accelerate digital future, and safeguard the planet, people Our Strategy We have a clearly defined strategy driving our purpose to empower societies and connect customers to what matters most.Anchored on Growth, Modernisation and Responsible Business, our strategy steers us to remain a leading and trusted digital connectivity partner. Refer to Our Strategy on pages to 44 to 47. About Digi and data in the digital world and beyond.The global Covid-19 pandemic in the past two years has demonstrated that our purpose is more relevant than ever. Delivering our purpose 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 conducting our business in a responsible manner always. This is how we aim to create value for our customers and stakeholders for the long-term. Digi.Com Berhad [Registration No. 199701009694 (425190-X)] Digi Telecommunications Sdn. Bhd. InfraNation Sdn. Bhd. [Registration No. 199001009711 (201283-M)] [Registration No. 200901003326 (846253-D)] 100% 100% 100% Y3llowlabs Sdn. Bhd. [Registration No. 200001032596 (535203-H)] 5 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
In the context of the ongoing Covid-19 pandemic in 2021, Digi’s purpose has never been more relevant: connectivity continues to enable customers to work from anywhere, for businesses to remain operational, for public services to function, and for people to stay connected to what matters most to them. Read more about this on pages 8 to 9. In 2021, Digi delivered on its strategic plans: the company focused on growing its network, brought affordable, relevant, and innovative products and digital solutions to consumers and businesses, modernised its operations to improve how it serves customers, and delivered healthy returns to its shareholders. Digi continued to deepen its responsible business commitments, which are built on good corporate governance principles to serve customers credibly, to care for its employees and supply chain, and to play our part as society recovers from the pandemic. Chair of the Board’s Statement 6 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
Digi continued to deepen its responsible business commitments, which are built on good corporate governance principles to serve customers credibly, to care for its employees and supply chain, and to play our part as society recovers from the pandemic. Haakon Bruaset Kjoel Chair of the Board Chair of the Board’s Statement 7 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
Q A How did Digi fare in sustaining its returns to shareholders? Digi’s focused execution on strategic priorities and prudent financial management have led the Board to declare a net dividend per share of 14.9 sen - returning a total payout of RM1,158 million to shareholders and sustaining a near 100% dividend payout ratio for FY2021.Year on year, the company continues to exceed its dividend policy of distributing a minimum 80% of net profits, keeping to its commitment of delivering strong and sustainable returns to shareholders. Q How is Digi delivering on its Responsible Business commitments? Chair of the Board’s Statement Read more about how Digi created value across its six capitals on pages 50 to 81. Read more about the value Digi created with its Financial Capital on pages 50 to 53. A Responsible Business continues to be a core pillar of Digi’s strategy, embedded in the way the company works and the standards it expects from its supply chain.The company’s responsible business framework is anchored on its ‘Yellow Heart’ brand aspirations: to raise standards across its operations and supply chain, and to partner effectively to build skills and resilience for an accelerated digital future. The Board continues to push for Digi to maintain its responsible business leadership among corporates in Malaysia. In 2021, Digi improved its MSCI environmental, social and governance (ESG) rating from‘A’ to ‘AA’, and the company is well on track to achieving its ambition to be among the best performing companies in Malaysia on sustainable business standards and ESG practices. Digi continues to maintain the highest standards of ethics and integrity in its business conduct. Initiatives include developing a future-ready workforce, safeguarding the health, safety and wellbeing of its people and partners, being environmentally responsible in its operations, protecting the privacy of its customers, and reducing inequalities for society. Read more about how Responsible Business is embedded in the way Digi creates value in pages 57 to 81. Q A How did Digi create value for its stakeholders amidst the pandemic? Digi continued to improve network availability and quality, enabling customers to stay connected and fully leverage the benefits of digital technology. Initiatives introduced at the start of the pandemic in 2020 carried on into 2021.They include various Yellow Heart initiatives to help critical relief and community support efforts, as well as the year-long provision of free daily 1GB data for productivity and education, access to affordable mobile plans and devices via the Jaringan Prihatin and Pakej Keluarga Malaysia programmes, and access to PENJANA digitalisation grants for small and medium enterprises (SME). Provision of these digital solutions has also enabled consumers and businesses to reduce their carbon footprint, helping Digi drive greater climate action across its value chain. The Board commends the Management for advancing the robust business continuity plan put in place the previous year that enabled the company to adapt quickly to changing conditions.We also record our appreciation to all Digizens and partners for their resilience in navigating through yet another a challenging year, by working together safely to continue serving the needs of its 10.3 million customers. 8 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
Q A How has Digi strengthened its diversity commitment? Diversity and inclusion is a key agenda in Digi’s people strategy. The company firmly believes that a diverse workforce across all levels of the organisation with a variety of perspectives is a strength, to better serve its diverse customer base.The Board is pleased that Digi continues to be recognised as a leader in this respect, with its second-year inclusion in the global Bloomberg Gender Equality Index (GEI) 2022. Digi is one of only three Malaysian companies on the index. Digi also signed the UN Women’s Empowerment Principles and became a member of 30% Club, attesting to its commitment in advocating diversity and inclusion initiatives. Q What is Digi’s outlook for 2022? Chair of the Board’s Statement A Accelerated digitalisation will continue to fuel demand for connectivity and digital infrastructure, and the telecommunications sector will continue to evolve rapidly, with significant new opportunities enabled through 5G, artificial intelligence (AI) and internet of things (IoT).At the time of writing, the mobile telecommunications industry eagerly anticipates the Malaysian government’s policy decision on the implementation of 5G. Digi continues to support the MyDigital initiative and believe that 5G networks are a critical infrastructure to enable the advancement of the digital economy in Malaysia. Looking ahead, we aspire to create even more value for the business.The proposed merger with Celcom Axiata Berhad aims to create a leading telecommunications service provider in Malaysia.The new company will have the capabilities to provide better network quality and coverage and have greater scale to invest, drive new digital solutions, catalyse new growth opportunities for large enterprises and SMEs, and attract and partner global digital giants. It will also leverage economies of scale to realise efficiencies from operations, while strengthening core distribution and delivering improved network operations. We are confident that Digi’s strategic focus on growth and modernisation, and our agile way of work will enable the company to seize opportunities. All Digizens, from the Boardroom to our stores, will work together to deliver our ambitions.We will be led by our purpose of Connecting Customers to What Matters Most, execute a focused strategy to make Digi more digital, efficient, and customer centric, as well as do our part to build a truly inclusive and resilient digital society in Malaysia. Read more about the value Digi created with its Human Capital on pages 62 to 66. and its governance focus in Section 5 of this report. The Board is confident we have the appropriate balance of knowledge, skills, experience, and independence to drive the company’s agenda and govern effectively.The recent appointments of Datuk Iain John Lo as Independent Non-Executive Director has further strengthened the Board.We also extend our heartfelt gratitude to Tan Sri Saw Choo Boon, for his decade-long dedication and guidance, and to Randi Wiese Heirung for her valued contributions to the Board. On behalf of the Board, I wish to express my appreciation to the Management team and all Digizens for their collective contribution to Digi’s resilient performance in a year challenged by Covid-19. I would also like to thank our business partners, shareholders, and stakeholders for their ongoing engagement and support, as we continue to navigate the impact of the pandemic. In view of Covid-19, we will continue to engage with shareholders virtually in 2022, to prioritise your safety. Please see details outlined in our Notice to the 25th Annual General Meeting (AGM).We look forward to sharing more on our business at the AGM on 13 May 2022. 9 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
Resilience and inspiration have been central tenets that have underpinned 2021 for us.We continue to draw inspiration from our customers, who are the lifeblood of our business, recognising that we play a crucial role in enabling them to make real, positive impact – big and small – in the world today. Albern Murty Chief Executive Officer Chief Executive Officer’s Statement 10 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
Read more about this on pages 12 to 13. Chief Executive Officer’s Statement 2021 was a year of resilience and inspiration for Digi. In a year of prolonged movement restrictions, macroeconomic and competitive challenges, and mostly a pandemic that continued to affect lives and livelihoods, Digizens and partners rallied to adapt to conditions and delivered a steady performance, while being committed in driving society’s recovery from the effects of Covid-19, as well as the devastating floods that hit many parts of the country in the later part of the year. We continue to invest strategically to deliver to the expectations of our consumer and business segments, capture new growth opportunities, scale our business, drive modernisation and efficiencies in our operations, safeguard people and planet, and support the nation’s recovery from the pandemic. Resilience and inspiration have been central tenets that have underpinned 2021 for us.As CEO, I am immensely proud of how all Digizens have come together to support each other in these challenging times. In 2021, Digi stayed focused on executing our business strategy and delivering on our purpose of Connecting Customers to What Matters Most. We invested in ensuring the quality and availability of our network services, aligned with the government’s JENDELA plans.We continued to deliver value from winning products and services to consumer and business customers.We have put in place a strategic transformation plan to guide the next phase of the company’s journey.And we are building a solid platform to advance our ESG goals. 11 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
Chief Executive Officer’s Statement Q A How did Digi navigate through the year to deliver value and growth? We set out our three-year strategy roadmap at the start of 2021, anchored on our purpose to empower societies and connect customers to what matters most. The surge in demand for connectivity and digital services supported our ambition to modernise and strengthen our network and operations, as well as to grow revenues in Postpaid, Fixed, and Business segments during the year.This accelerated shift to digitalisation also put a spotlight on the society’s increased use of digital technology and tools: this fueled our commitment to continue on our Yellow Heart programme to advance safer internet awareness, advocating data privacy, partnering to build skills for a better digital future, and promoting digital inclusion by enabling easier access to our services for all Malaysians across the country. More details on Digi’s financial review by our Chief Financial Officer in pages 14 to 20, and how we created value from our Financial Capital on pages 50 to 53. More on our 2021 strategy progress and achievements are detailed out in the Our Strategy section of this report on pages 44 to 47, and how we created value across our six capitals on pages 50 to 81. Q Q A A How would you characterise Digi’s performance in FY2021? What can we expect from Digi in the coming year? Digi delivered a well-fought performance in FY2021, achieving fullyear results in line with our financial guidance.We prioritised network and digitalisation initiatives in the year to further improve customer experience and develop our core segments.We also stepped up initiatives to run our technology and business operations efficiently, while continuing to invest in the right areas to execute well on our growth and modernisation agenda. These resulted in steady earnings for the company and healthy returns to shareholders. While overall macroeconomic challenges will remain intense, we are encouraged to see some signs of recovery from the pandemic and a clear plan from the government for the safe normalisation of business activities, easing of broader Covid-19 related restrictions, and the impending opening of international borders, all driven by an exemplary execution of our national immunisation programme and the gallant efforts of our frontliners. We have confidence that Digi will deliver a robust 2022, underpinned by sharp execution of our strategic priorities.We see Postpaid, Fibre, and Business as our key growth drivers, and will continue to bring best-value product propositions and innovative digital solutions to the market. Our business modernisation journey is progressing well, with critical IT transformation projects in the pipeline to enhance digital experience for our customers, and boost organisational capabilities.We continue to work closely with the Malaysian Communications and Multimedia Commission (MCMC), including on Universal Service Provision (USP) initiatives, which will strengthen our ability to provide high-quality and affordable digital connectivity to communities in rural and remote areas. 12 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
Chief Executive Officer’s Statement On behalf of the Management team, I would like to thank all our customers and shareholders for your support and continued confidence in Digi during the last year.We also appreciate the engagement and collaboration with the MCMC and our industry colleagues in achieving many shared successes in the year.We are grateful to the Board for their leadership in guiding and governing Digi. I would also like to take this opportunity to thank outgoing Chief Human Resource Officer, Elisabeth Stene for playing a pivotal role in driving Digi’s People agenda through a most critical period. Best wishes from us as she heads home to Norway for another opportunity within the Telenor Group. We want to also thank all our dedicated Digizens who have been working tirelessly to deliver reliable network services and support our customers throughout the various phases of movement control orders last year. Lastly, we express our appreciation to Malaysia’s first responders, enforcement agencies, and government authorities working determinedly to keep society safe and lead us on the path of recovery in 2022. In parallel, the proposed merger of Celcom Axiata Berhad and Digi Telecommunications Sdn. Bhd. announced last year is proceeding as planned at this time of writing. We look forward to the exciting prospect of creating a Malaysian market leader through the proven capabilities of the two established operating companies and the strength of two international telecom leaders Axiata and Telenor. This underpins a shared vision to create value through product and market innovation and high-quality data connectivity to all Malaysian consumers and businesses, to power the nation’s digital ambitions in the years to come. 5G networks are among the critical infrastructure in the development of this digital ambition.We are committed to supporting the government’s MyDigital initiative and look forward to working closely with the government in charting Malaysia’s 5G deployment. Underlying all these ambitions is the trusted Digi brand, built on a responsible business impulse to include, advance, and safeguard society.We continue to draw inspiration from our customers, who are the lifeblood of our business, recognising that we play a crucial role in enabling them to make real, positive impact – big and small – in the world today. 13 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
2021 was undoubtedly a challenging year with the nation focusing on rebuilding growth momentum and staying connected while people were working or studying from home.As we entered the second year of the Covid-19 pandemic, Digi remained focused on keeping customers, businesses and stakeholders connected while continuing to strengthen our operations and financial performance. In this context, we are proud of our 2021 results. One of the things that has warmed me since I joined Digi in August 2021 was the relentless commitment and dedication of all my colleagues, as well as the entire telecommunications industry and public officials in weathering the challenges brought upon us by the ongoing pandemic. In this environment, I am so proud of how our shareholders have supported us and how Digi has succeeded not only to continue to operate efficiently and deliver strong results, but also how we continued to invest in our leading network and improve coverage all around the country. Read more about this on pages 16 to 20. Chief Financial Officer’s Statement All this would not have been possible without the consistent commitment over time to the principles of disciplined capital management, both in allocating capital to our value creating initiatives, as well as in the distribution of attractive returns to our shareholders. 14 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
I am proud of how our shareholders have supported us and how Digi has succeeded not only to continue to operate efficiently and deliver strong results, but also how we continued to invest in our leading network and improve coverage all around the country. Otto Magne Risbakk Chief Financial Officer Chief Financial Officer’s Statement 15 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
Chief Financial Officer’s Statement Q A How did Digi perform financially compared to FY2020? In FY2021, we delivered steady financial results within guidance amidst a challenging and unprecedented operating environment.The impact of volatile macroeconomic conditions on consumer confidence and business spend were partly mitigated by relevant government support initiatives, some of which also supported our sector. Although financial results declined marginally, we saw encouraging improvements in key revenue segments and continued improvements in operational efficiency.While total service revenue declined by 1.6%, we succeeded in building a strong momentum in our Postpaid, Fibre, and Business segments.We added approximately 253,000 new Postpaid customers to reach 3.3 million subscribers. In the fourth quarter of 2021, the Postpaid segment revenue was higher than the Prepaid revenue for the first time in FY2021. Nevertheless, we made significant progress in attracting higher quality Malaysian Prepaid subscribers. We also grew our Fibre subscriber base to approximately 13,000 customers in its first full year. Our Business segment realised a 4.8% revenue growth from large enterprises seeking advanced managed solutions and SMEs seeking to digitalise their businesses.All in all, total revenue upped 3.0% to RM6,336 million, as handset sales increased to support our growing Postpaid business, offsetting the decline in service revenue. In line with the growth in our device and digital business, our costs of goods sold (COGS) of RM1,754 million was 14.0% higher. On the operating expenditure (OPEX) front, we have also recorded a modest increase of 2.5% mainly driven by 4G network coverage expansion and site upgrade works to deliver improved network experience for our customers. OPEX-to-service-revenue ratio remained healthy at 29.5%, highlighting our prudent cost management and efficient operations. Despite the prolonged movement restrictions in Malaysia, we were able to minimise bad debt risks and improve collections.These were achieved by focusing on effective customer acquisition mechanisms and digitalising payment methods.As a result, we recorded a low expected credit loss (ECL) of RM55 million as compared to RM82 million a year ago. For the full 2021 year, earnings before interest, tax, depreciation and amortisations (EBITDA) reached RM3,009 million, a decline of 2.3%.The EBITDA margin was 47.5%, down from 50.0% in 2020. However, the underlying operating 2021 EBITDA margin was similar to 2020 excluding handset sales. Our conservative balance sheet and low gearing again secured a high EBITDA to profit after tax (PAT) conversion. PAT for 2021 reached RM1,162 million, a decline of 4.8% due to flow through from EBITDA, higher depreciation charges mainly caused by our 3G network shutdown and a small increase in finance costs. Despite the minor decline, our PAT margin remains among the best in the industry. Supported by a strong balance sheet and low gearing, we were able to comfortably maintain the near 100% dividend payout ratio, distributing RM1,158 million in dividends to our shareholders. Building on the execution momentum in 2021, we entered 2022 full of confidence, with a stronger and more resilient customer base, a well-invested and modernised asset base, and a solid capital structure. 16 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
The macroeconomic impact of Covid-19 has impacted Digi in many different ways, both directly and indirectly. As a provider of critical communication and connectivity services to consumers as well as business customers, our purpose of empowering societies and connecting people to what matters most has never been more relevant. Our customers have relied heavily on our services during the various phases of movement restrictions caused by Covid-19, for example students following classes and taking exams from home, employees working remotely, families keeping contact with their loved ones, businesses moving sales and services online, and so on.The change in consumer patterns and the increase of data traffic required a swift response from Digi. To meet the needs of all our customers and to ensure customers and society continued to work seamlessly and stay safe, we had to make internal decision processes faster, accelerate digitalisation of internal processes, and increase investments in network capacity and quality to meet data traffic growth of 22%. I am proud to say that we succeeded well in this endeavor. Not only did we manage to keep all our customers connected, we also managed to deliver record-high internet speed and solidify our position as the fastest and most consistent network in Malaysia, as recognised by external benchmark. I am impressed by the excellent work done by all Digizens and grateful for the support we received from the Board to reprioritise and accelerate investments during this difficult time. Chief Financial Officer’s Statement After almost two years of pandemic, society is gradually adapting and living alongside with Covid-19. However, certain effects of the pandemic persist, and the economic outlook for our markets remain clouded. Malaysia has closed its borders for the past two years.The extended closure and movement restrictions have decreased consumer and business spending, negatively affecting demand, and lowering roaming revenue. It is difficult to predict when the effects of the Covid-19 pandemic will start abating.We are hopeful for a gradual recovery in 2022, but with all the investments and learnings we have made in the last two years, we are also prepared for a prolonged impact. Q A How did macroeconomic and Covid-19 challenges impact Digi in terms of its financial decisions? Data traffic growth 22% 17 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
Responsible business is one of three key pillars of our strategy, and ESG is a fundamental part of this.We are proud of our contributions and recognitions in this important area – we are member of FTSE4Good Bursa Malaysia Index with ESG score of 3.8, Sustainalytics’ ESG risk rating of 18th percentile, which is one of the highest of in the region, and we have been part of CDP’s voluntary environmental disclosure of carbon reporting since 2009 via Telenor Group, and more. Nevertheless, there is much more to do in the years to come in cooperation with the industry and authorities, both locally and on an international level.We fundamentally believe that business and ESG targets are complementary and not contrasting. Fortunately, we are not alone in this battle.We enjoy strong support from our Board and our investors are increasingly placing ESG as a key investment criteria. A key element of ESG is climate.We take an active approach in addressing climate change and are working closely with the industry, government, environmental agencies, and partners towards achieving a net zero greenhouse gas emissions by 2050, in line with the Paris Agreement.While challenges remain in large scale CO2 reductions due to our dependency on the national grid, we will continue to strengthen our governance and reporting mechanisms while exploring new technologies and solutions. Chief Financial Officer’s Statement Digi also invested significant human and financial capital to support our ESG agenda.We have participated in public, industry and private forums, and supported many local initiatives. For example, through our partnership with Astro on the #KamiCareMBiz programme, we offered RM500,000 worth of digital solutions and mobile plans to help local micro and small business owners go digital. We had also pledged RM1 million to GDRN (GLC/GLIC Disaster Response Network), disbursing the remaining RM750,000 in 2021, via Mercy Malaysia to support Covid-19 relief efforts. Q A How has Digi progressed in delivering on its environmental, social and governance (ESG) aspiration and plans? FTSE4Good Bursa Malaysia Index (2021/22) ESG indices score of 3.8 ESG risk rating of 18th percentile one of the highest for the region #KamiCareMBiz partnership RM500,000 worth of digital solutions and mobile plans provided to help local micro and small business owners go digital GDRN Covid-19 relief efforts RM750,000 disbursed in 2021, part of RM1 million pledged in 2020 18 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
Capital allocation and maintaining a strong and flexible capital structure are key priorities for Digi. Our capital allocation policy is firmly based on stringent criteria for value creation, guided by our three strategic pillars of pursuing growth, modernisation and responsible business. Thanks to the solid performance and strong balance sheet, Digi could continue its investment strategy despite the pandemic. In 2021, we continued our targeted CAPEX and OPEX investments to maintain our leading position in terms of network quality, operational efficiency and ESG. For both CAPEX and OPEX investments, we would always prioritise investments that support customer needs, followed by initiatives to support modernisation and digitalisation. Most of our RM815 million CAPEX in 2021 was spent to enhance our 4G network, catering for the increase in data consumption (more than 20GB per user, up 8.9% versus 2020) and delivering 100% of our JENDELA commitments. Our industry-leading OPEX-to-Sales ratio of 24.8% in 2021 as well as external recognitions for having the fastest and most consistent network in Malaysia are testimonies of our persistent investment in network quality, modernisation, and digitalisation. Chief Financial Officer’s Statement Q A How did Digi manage its capital in FY2021? Q How was Digi’s financial strength in meeting its financial obligation? A In 2021, Digi realised an EBITDA margin of 47.5% and a PAT margin of 18.3%. Operational cash flow reached RM2,606 million with a margin of 41.1%.The financial gearing as expressed by net interest bearing debt divided by EBITDA was at 1.6x.As at the end of 2021, Digi had a net interest bearing debt of RM2,500 million and available undrawn debt facilities of RM4,925 million. Our total asset in 2021 stood at RM7,840 million.We maintained a healthy return-on-total assets of 14.8%. Our strength in financial position enabled us to maintain the Sukuk rating of AAA/P1 with stable outlook by RAM Rating Service amidst these challenging times, supported by strong cash flow. Thanks to our solid and consistent profitability, a strong balance sheet and low gearing, Digi benefits from a low cost of capital, high financial flexibility, the ability to sustain a generous dividend payout ratio to our shareholders, and ample flexibility to fund future investment and growth opportunities. Total asset in 2021 RM7,840 million RM815 million Majority CAPEX in 2021 spent to enhance 4G network 8.9% growth in monthly average data consumption per user 19 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
Service Revenue EBITDA Capexto-total revenue ratio Return to growth Around FY2021 level: ~RM3,000 million Around FY2021 level: 12% - 13% 2022 Guidance Chief Financial Officer’s Statement By strengthening our offerings in core and near-core connectivity solutions within Postpaid, Fibre, and Business segments, we aim to return to service revenue growth in 2022, and expect the decline of the Prepaid segment to abate further. On the cost side, we will continue our efforts to modernise and digitalise customer touchpoints and operational processes.The focus on modernisation will also require continued investments to sustain network leadership and drive digital capabilities.We will therefore maintain 2022 CAPEX around FY2021 level, focusing on disciplined capital and resource allocation, and also deliver EBITDA at around FY2021 level alongside higher cost pressure. We also aspire to further raise our responsible business standards including ESG, which we are already leading the industry, as recognised by external awards and benchmarks. In summary, our 2022 guidance is as follows: Q A What is the guidance for FY2022? Digi entered 2022 with confidence.The performance in core Postpaid, Fibre, and Business segments improved and the decline of the Prepaid subscriber base after the exit of the high-churn low-end of the migrant segment was substantially reduced.Assets are well invested, the capital structure is conservative with significant flexibility and the cost base and profitability remains among the best in the industry.Although competition in Malaysia is strong, we believe that Digi is well placed to maintain its steady financial performance and continue to offer attractive shareholder returns from a resilient business model, a prudent capital allocation methodology, and a careful financial management practice. Q A What can shareholders expect in FY2022? 20 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
Quarterly Financial Performance 5-Year Financial Summary RM Million First Quarter Second Quarter Third Quarter Fourth Quarter KEY HIGHLIGHTS FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 Revenue 1,509 1,560 1,550 1,549 1,452 1,618 1,562 1,580 1,584 1,678 1,561 1,584 Service revenue 1,393 1,387 1,337 1,402 1,317 1,340 1,413 1,374 1,343 1,436 1,350 1,321 Earnings before interest, taxes, depreciation and amortisation (EBITDA)1 805 756 738 850 770 743 837 788 788 819 766 740 Normalised EBITDA 804 756 743 803 744 744 820 743 766 795 757 740 Profit before taxes (PBT) 453 435 359 490 377 373 490 433 418 459 377 365 Profit after taxes (PAT) 342 332 265 392 288 280 358 321 313 341 280 304 Normalised PAT 341 331 270 323 291 287 326 268 295 318 285 253 Profit attributable to equity holders of the Company 342 332 265 392 288 280 358 321 313 341 280 304 Earnings per share - basic (sen) 4.4 4.3 3.4 5.0 3.7 3.6 4.6 4.1 4.0 4.4 3.6 3.9 Dividends per share (sen) 4.3 4.2 3.4 5.0 3.7 3.6 4.5 4.1 4.0 4.4 3.6 3.9 RM Million 2017 2018 2019 2020 2021 KEY FINANCIAL RESULTS Revenue 6,340 6,527 6,298 6,153 6,336 Telecommunication revenue - Service revenue 5,969 5,827 5,644 5,428 5,341 - Others 65 75 87 84 95 - Sales of device 306 625 567 641 900 EBITDA1 2,886 3,033 3,311 3,080 3,009 Earnings before interest and taxes (EBIT) 2,100 2,229 2,113 1,805 1,729 Interest cost 132 130 246 253 210 PBT 1,985 2,080 1,892 1,622 1,515 PAT 1,477 1,541 1,433 1,221 1,162 Organic capital expenditure (Capex) 1,345 818 751 720 803 Operations (ops) cash-flow 2,577 2,176 2,062 2,432 2,606 KEY FINANCIAL POSITIONS Total assets 5,834 6,206 8,149 8,187 7,840 Non-current liabilities 3,033 2,838 4,732 5,067 4,275 Total debts 2,704 2,694 5,150 5,452 4,960 - Conventional borrowing 1,292 1,293 780 555 333 - Islamic borrowing 1,391 1,393 2,322 2,316 2,168 - Lease liabilities 21 8 2,048 2,581 2,459 Shareholders’ equity 519 673 660 606 633 KEY FINANCIAL RATIOS3 Return on equity 285% 229% 217% 201% 184% Return on total assets 25% 25% 18% 15% 15% EBITDA margin 46% 46% 53% 50% 47% Net debt/EBITDA (x) 0.7 0.7 1.4 1.7 1.6 Interest cover (x) 15.9 17.1 8.6 7.1 8.2 SHARE INFORMATION Earnings per share (sen) 19.0 19.8 18.4 15.7 14.9 Dividend per share (sen) 18.8 19.6 18.2 15.6 14.9 Net assets per share (sen) 6.7 8.7 8.5 7.8 8.1 Dividend yield 3.7% 4.4% 4.1% 3.8% 3.4%2 Notes: • 2019, 2020 and 2021 Financial Information are based on post-MFRS 16 1 EBITDA excludes the gain or loss on: - disposal and write-off of property, plant and equipment - disposal and write-off of intangible assets - termination of lease 2 Yield calculated based on the closing price of RM4.36 as at 31 December 2021 3 Key financial ratios prior to 2019 are calculated based on MFRS 15 21 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
Fuelled by new market opportunities and segments We aim to sustainably grow consumer and lead organic B2B revenue growth, as part of our strategic priorities to create longterm value for the company and for all our stakeholders.
Low double-digit growth in Postpaid and Fixed subscribers (vs FY2020) Low to mid double-digit growth in B2B revenue (vs FY2020) #1 Most consistent network (maintain 2020 position)
Our strategy framework (Pages 44 to 47) Key enablers to operationalise our strategy Our growth engines Our Business Model KEY INPUTS our value creation engine Innovative digital platforms and solutions Trusted brand reputation intellectual Capital 11,000+ network sites (2020: 10,000+) Investment in enhancing 4G coverage and quality manufactured Capital 1,400+ Digi employees (2020: 1,500+) Embraced a culture of continuous learning human Capital Consumed 341.01 GWh (2020: 329.18 GWh) Environmental Management System - ISO14001:2015 certified natural Capital Our Operating Landscape (Pages 26 to 29) Our Key Relationship (Pages 30 to 32) Our Material Matters (Pages 38 to 40) Our Emerging Opportunities (Pages 41 to 43) Governance (Pages 84 to 128) Our Key Risks (Pages 33 to 37) Postpaid Prepaid Fibre Broadband Business (B2B) Commitment to operate responsibly Raising standards across our value chain Partnerships to build required skills and resilience for an accelerated digital future social and relationship Capital We aim to create value for our stakeholders in a sustainable manner.We strive to align our business objectives to stakeholder needs, and deliver our strategy against business opportunities and risks, backed by our robust corporate governance to deliver value. Further details on the value we created and the impacts to Digi are available in Section 4 to 5 of this report. Financial Capital RM33.9 billion market capitalisation1 Net debt to EBITDA at 1.6x 1as at 31 December 2021 24 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
Our Business Model Outcomes Our performance indicators Our competitive advantage lies in the quality of our network and infrastructure, innovative product and service offerings, strong distribution channels and procurement system, proven track record in driving operational efficiency, strength of our trusted brand, and resilience of our people. Revenue growth Brand preference OPEX EBITDA CAPEX-to-total revenue ESG rating and SDG contribution Employees’ learning hours Cyber security training Total revenue up by 3.0% to RM6.34 billion EBITDA margin at 47.5% ~100% dividend payout ratio Credit ratings of AAA/Stable/P1 Serving 10.3 million customers Sustained position as Malaysia’s fastest and most consistent network Delivered JENDELA commitments Scaled core and near-core connectivity offerings 5% increase in CO2 emissions in parallel with aggressive network roll-out Reduced Carbon Intensity per Data Usage by 13.7% Structural reinforcements of network sites in response to physical climate risks (e.g. floods) Average 52.6 learning hours per employee 45% women in leadership positions 87% employees believed their well-being was prioritised during the Covid-19 pandemic (Digi’s 2021 Pulse Survey) 0 Lost Time Injury Frequency (LTIF) and 0 fatalities > RM1.5 million contributed to Covid-19 Response and Recovery efforts RM500,000 aid pledged for flood relief and recovery efforts Supported medical frontliners by providing devices and connectivity plans for contact tracing Accelerated businesses and SME digitalisation via the PENJANA grant Received the BCMS ISO 22301:2019 certification Strongest brand in Malaysia (ranked by Brand Finance, 2021) Sustained leadership ranking in ESG2 Implemented secure and sustainable business conduct Modernised processes and innovated ways of work Launched innovative offerings to cater to wider segments of customers 2 Polled by independent Brand Health Survey provider 25 Integrated Annual Report 2021 Governance Audited Financial Statements Other Information
Our Operating Landscape In 2021, Malaysia, like many other countries in the world, continued to weather the impact of the Covid-19 pandemic. Disruptions caused by the pandemic led to increased inequalities and mobility contrains, which further underscored the critical role and services of telecommunications companies.To address both the challenges and opportunities, Digi focused on redirecting our network resources and services to support our customers and businesses. Legend Financial Capital Human Capital Social and Relationship Capital Manufactured Capital Intellectual Capital Natural Capital Macroeconomic 1 • Malaysia’s gross domestic product (GDP) grew 3% to 4% in 2021, as a result of nationwide recovery efforts to mitigate the impact of the pandemic • Acceleration of the National Covid-19 Immunisation Programme (PICK), an integral component of the National Recovery Plan (NRP) has enabled the economy to fully open with less movement restrictions in the fourth quarter of 2021 • Emergence of the Covid-19 Omicron variant impacted public health and consequently delayed economic recovery • Vaccine and booster rollout, coupled with easing of travel restrictions increased consumer activities across all sectors, including the telecommunications sector • High unemployment rate remained a concern alongside weaker consumer spend and affordability • Accelerated digitalisation and innovation driven by remote working and online learning spurred demands for high quality network connectivity and digital services Our Response Strengthened mobile offering and digital services for subscribers Supported society’s recovery from Covid-19 and prioritised safety and wellbeing of employees and all stakeholders Increased spectrum efficiency via the new 4G integration and maintained network stability and consistency Looking Ahead 2022 Malaysia’s GDP is expected to strengthen between 5.5% and 6.5% due to high vaccination rates and various stimulus and assistance packages to support the people and revitalise the economy The acceleration of the National Covid-19 Immunisation Programme enabled next phase adoption in the National Recovery Plan (NRP) for border reopening and endemic transition Continue working with the government and industry on advancing technology adoption among customers and businesses leveraging potential of 5G, artificial intelligence (AI) and internet of things (IoT) Continue serving consumers with consistent network experience and B2B solutions to drive business growth Global geopolitical tensions resulting in rising commodity prices, inflation and possible supply chain disruptions are emerging risks to be monitored Capitals 26 Digi.Com Berhad At A Glance Message To Shareholders How We Create Value Strategies To Create Value
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