Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of YTL Corporation Berhad, which comprise the Statements of Financial Position as at 30 June 2019 of the Group and of the Company, and the Income Statements, 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 117 to 324.

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 30 June 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.

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 opinion.

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 Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the 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 of the Group and of the Company for the current year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

1. Valuation of investment properties

The risk

We refer to Note 3 and 12 to the Financial Statements respectively.

Investment properties of the Group amounting to RM10,218 million, comprises 13.3% of total assets and is measured at fair value. Most of the investment properties held by the listed real estate investment trusts comprise of 94.1% of total investment properties.

The investment properties held by the listed real estate investment trusts are stated at their fair values based on independent external valuations using the income capitalisation approach, which capitalise the estimated rental income stream, net projected operating costs, using a discount rate derived from market yield. Valuation of these properties was carried out once a year.

We focused on this area due to the magnitude of the balance and the complexities in determining the fair value of the investment properties, which involves significant judgement and estimation that could result in material misstatement.

Our response:

Ours and component auditors audit procedures included the following:

・evaluated the competency and objectivity of the independent valuers;

・assessed the appropriateness and reasonableness of the valuation methodology and key assumptions used; and

・reviewed the adequacy of disclosure in the financial statements.

2. Impairment assessment of goodwill

The risk

We refer to Note 3 and 18 to the Financial Statements respectively.

As at 30 June 2019, goodwill arising on consolidation amounted to RM7,840 million which represents 10.2% of the Group’s total assets. The goodwill is primarily allocated to the multi utilities business in Singapore, water and sewerage business in the United Kingdom and cement manufacturing business in Malaysia. The goodwill for these businesses comprise 88.5% of total goodwill.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

The recoverable amounts of the cash generating units (“CGU”) are determined based on value-in-use (“VIU”) calculation. The key assumptions and sensitivities are disclosed in Note 18(a) and 18(b) to the Financial Statements respectively.

We focused on this area as the estimation of the recoverable amount is inherently uncertain and requires significant judgement on the future cash flows, terminal growth rate and the discount rate applied to the projected cash flows.

Our response:

Ours and component auditors audit procedures included the following:

・ agreed the VIU cash flows of each CGU to the financial budgets approved by the Directors;

・ discussed with management the key assumptions used in the respective VIU cash flows and compared the revenue growth rates to the historical performance of the respective CGUs;

・ checked the reasonableness of the discount rates and terminal growth rates with the assistance of valuation expert by benchmarking to the respective industries; and

・ checked the sensitivity analysis performed by management over discount rates, terminal growth rates, and revenue growth rates, used in deriving the respective VIU cash flows.

3. Net realisable value of property held for sale in Singapore classified as inventories

The risk

We refer to Note 3 and 21 to the Financial Statements respectively.

As at 30 June 2019, the property held for sale in Singapore comprises 57.3% (RM1,596 million) (after the write-down) of the Group’s total inventories. The challenging property market environment was mired by the issues such as cooling measures undertaken by the authorities in Singapore have contributed to the slow sale of the completed properties during the year. The Group continues to monitor the realisable value of the inventories to ensure that these inventories are stated at the lower of cost and net realisable value (the estimated selling price less estimated costs necessary to make the sale).

The estimates of net realisable values are based on reliable evidence available at the time the estimates are made and take into consideration estimated fluctuations of future property prices. Such estimates often involve certain degree of subjectivity and accordingly, we consider this area to be an area of audit focus.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

The net realisable value assessment carried out by the management resulted in a write down of inventories for the year ended 30 June 2019.

Estimating the selling price and costs necessary to make the sale for the properties often involve certain degree of objectivity and accordingly, we consider this area to be an area of audit focus.

Our response:

Ours and component auditors’ audit procedures include the following:

・ evaluated the objectivity, independence and expertise of the firm of independent valuers;

・ evaluated the management’s assessments and assumptions of the estimated selling price (less estimated cost necessary to make the sale) of these inventories by making reference to the recent transacted prices of comparable property within the vicinity;

4. Impairment assessment of property, plant and equipment (“PPE”) of the mobile broadband network business

The risk

We refer to Note 3 and 11 to the Financial Statements respectively.

The property, plant and equipment of the mobile broadband network business accounts for 7.2% (RM2,227.7 million) of the Group’s property, plant and equipment as at 30 June 2019.

The Group performed an impairment assessment on the carrying values of the PPE due to losses recorded by the business which is an impairment indicator.

The impairment assessment was performed by management using fair value less costs of disposal (“FVLCD”) cash flows which requires significant judgement as the timing and quantum of the cash flows is dependent on the achievement of the next five years’ business plans and financial budgets which are dependent on the use of key assumptions comprising its growth targets and sourcing contract renewals.

We focused on this area as the estimation of the recoverable amount is inherently uncertain and requires significant judgement on the future cash flows, average revenue growth rate, discount rate and the useful life of the assets applied to the calculation of the FVLCD.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

Our response:

Our audit procedures include the following:

・ agreed the FVLCD cash flows of the cash generating unit (“CGU”) to the financial budgets approved by the Directors;

・ checked the assumptions used, in particular the average revenue growth rate and useful life of the assets and benchmarked against the comparable companies within the industry;

・ discussed with management the rationale applied on the assumption of sourcing contract renewals by considering the Company’s historical experience;

・ assessed reasonableness of the discount rate which reflects the specific risk relating to the PPE based on inputs that are publicly available; and

・ checked sensitivity analysis performed by management on the discount rate used in deriving the FVLCD.

5. Capitalisation policy on infrastructure assets of the water and sewerage business

The risk

We refer to Note 3 and 11 to the Financial Statements respectively.

The water and sewerage business’s net book value of infrastructure assets comprise 25.1% (RM7,735.3 million) of the Group’s total property, plant and equipment. The infrastructure assets comprise capital expenditure incurred to meet the development and regulatory requirement of the business, employee and overhead costs that are directly attributable to the construction of the asset.

There is significant judgement involved in determining whether costs incurred, specifically employee and overhead costs meet the relevant criteria for capitalisation in accordance with MFRS 116, Property, Plant and Equipment (“MFRS 116”).

Our response:

Ours and component auditors’ audit procedures include the following:

・ tested the operating effectiveness of the controls over authorisation of selected projects’ infrastructure assets and identification of capital expenditures attributable to the infrastructure assets;

・ understood the nature of costs incurred through discussion with management and checked whether the costs incurred met the capitalisation criteria in accordance with MFRS 116; and

・ compared the level of employee and overhead costs capitalised against prior year balances and current year budget information to identify material changes in the nature or quantum of costs capitalised, with any significant variances corroborated and discussed with management.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

6. Assumptions used in determining the present value of the funded defined benefit obligations of the water and sewerage segment

The risk

We refer to Note 3 and 33 to the Financial Statements respectively.

As at 30 June 2019, the water and sewerage business’s post-employment benefit obligations comprise 90.0% (RM688 million) of the Group’s total post-employment benefit obligations.

The present value of the funded defined benefit obligations depends on a number of assumptions determined on an actuarial basis. The key assumptions are disclosed in Note 33 (c) to the financial statements.

We focused on this area due to the key assumptions used in determining the present value of the funded defined benefit obligations and any changes in these assumptions will materially impact the carrying amounts of the post-employment benefit obligations.

Our response:

Ours and component auditors’ audit procedures include the following:

・ assessed the competencies, objectivity and capabilities of external actuary;

・ obtained the external actuarial report and understood the key assumptions used in determining the present value of the funded defined benefit obligations;

・ compared the key assumptions used by the actuary on discount rate, expected rate of increase in pension payment, and price inflation against external market data and similar schemes with assistance of an actuary specialist;

・ compared the expected rate of salary increases used by the actuary against historical trend; and

・ checked the disclosures in respect of the sensitivity of the carrying amounts of the post-employment benefit obligations to changes in the key assumptions, performed by the actuary.

7. Impairment assessment on trade receivables of the Group’s water and sewerage segment

The risk

We refer to Note 3 and 19 to the Financial Statements respectively.

The trade receivables of the water and sewerage segment accounts for 18.9% (RM445.3 million is net of impairment charges of RM226.8 million) of the Group’s trade receivables as at 30 June 2019.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

As this segment operates in the United Kingdom (“UK”), there is a statutory requirement to continue to provide water to all customers who has defaulted in payment. Therefore, the Group has estimated the impairment of trade receivables on a portfolio basis for the year based on the historical cash collection trends and economic trends, which are subjective in nature.

We focused on this area given the use of significant estimates and judgement in determining the appropriate level of impairment for trade receivables.

Our response:

Ours and component auditors’ audit procedures include the following:

・ tested the controls over assessment of impairment of trade receivables and the operating effectiveness of the key IT systems used for generating billings and cash collection data used for the impairment assessment;

・ obtained the historical cash collection trends of each ageing bracket of the trade receivables and payment methods and compared against the percentage of impairment used by management against each ageing bracket and payment methods;

・ checked the appropriateness of the forward-looking forecasts assumptions used to determine the impairment; and

・ compared the level of impairment applied against similar companies within the industry in the UK.

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 included 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.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

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.

Auditors’ 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:

・ 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.

・ 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 of the Company’s internal control.

・ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

・ 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 and the 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 and the Company to cease to continue as a going concern.

・ 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 represent the underlying transactions and events in a manner that achieves fair presentation.

・ 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.

We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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.

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 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.

Report on Other Legal and Regulatory Requirements

In accordance with the requirements of the Companies Act 2016 in Malaysia, we report that the subsidiaries of which we have not acted as auditors, are disclosed in Note 14 to the Financial Statements.

Company No: 92647-H

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)

Other Matters

1. As stated in Note 44(a) to the Financial Statements, YTL Corporation Berhad adopted Malaysian Financial Reporting Standards on 1 July 2018 with a transition date of 1 July 2017. These standards were applied retrospectively by Directors to the comparative information in these financial statements, including the Statements of Financial Position as at 30 June 2018 and 1 July 2017, and the Income Statements, Statements of Comprehensive Income, Statements of Changes in Equity and Statements of Cash Flows for the financial year ended 30 June 2018 and related disclosures. We were not engaged to report on the restated comparative information and it is unaudited. Our responsibilities as part of our audit of the financial statements of the Group and of the Company for the financial year ended 30 June 2019 have, in these circumstances, included obtaining sufficient appropriate audit evidence that the opening balances as at 1 July 2018 do not contain misstatements that materially affect the financial position as of 30 June 2019 and financial performance and cash flows for the year then ended.

2. 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.

| HLB LER LUM PLT
| LLP0021174-LCA & AF 0276
| Chartered Accountants

| LUM TUCK CHEONG
| 01005/03/2021 J
Dated : 26 September 2019 | Chartered Accountant
Kuala Lumpur |

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