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 2022 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 102 to 295.
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 2022, 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’ 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 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: 198201012898 (92647-H)
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)
1. Impairment assessment of goodwill
The risk
We refer to Notes 2(q)(ii), 3 (a) and 19 to the Financial Statements, respectively.
As at 30 June 2022, goodwill arising on consolidation amounted to RM8,360 million which represents 11.6% 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 (“UK”) and cement manufacturing business in Malaysia as disclosed in Note 19 to the Financial Statements. The goodwill for these businesses comprises 82.7% of total goodwill.
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 Notes 19(a) and 19(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;
・ 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; and
・ compared historical forecasting for the current financial year to actual results achieved to ascertain the reasonableness of management’s estimates.
Company No: 198201012898 (92647-H)
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)
2. Impairment assessment of property, plant and equipment (“PPE”) of the mobile broadband network business
The risk
We refer to Notes 2(h), 3(c) and 11 to the Financial Statements, respectively.
The property, plant and equipment of the mobile broadband network business accounts for 6.5% (RM2,082.5 million) of the Group’s property, plant and equipment as at 30 June 2022.
The Group performed an impairment assessment on the carrying values of the PPE due to losses recorded by the segment 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, terminal growth rate and the discount rate applied to the calculation of the FVLCD.
Our response:
Ours and component auditors’ audit procedures included the following:
・ agreed the FVLCD cash flows of the CGU to the financial budgets approved by the Directors, adjusted to reflect market participants assumptions;
・ checked the assumptions used, in particular average revenue growth rate, earnings before interest, taxes, depreciation and amortisation margin, 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 Group’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.
Company No: 198201012898 (92647-H)
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)
3. Capitalisation policy on infrastructure assets of the water and sewerage business
The risk
We refer to Notes 2(h), 3(b) and 11 to the Financial Statements, respectively.
The water and sewerage business’s net book value of infrastructure assets (RM8,724.6 million) comprises 27.3% 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 a 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 included 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;
・ sampled capital expenditure costs in the year and agreed the costs to underlying support, including timesheets and invoices;
・ challenged management’s assumptions used in allocating certain costs between capital and operating expenditure. Specifically, this has included assessing the appropriate capitalisation of the various types of costs such as overheads, interest, and infrastructure maintenance; and
・ understood the nature of costs incurred in relation to employee and overhead costs through discussion with management and corroborated with supporting information provided and checked whether the costs incurred met the capitalisation criteria in accordance with MFRS 116.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)
4. Assumptions used in determining the present value of the funded defined benefit plans of the water and sewerage segment
The risk
We refer to Notes 2(e), 3(h) and 35 to the Financial Statements, respectively.
The water and sewerage segment of the Group recorded RM174.8 million of defined benefit assets as at 30 June 2022, net of present value of funded defined 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 35 (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 included the following:
・ understood and assessed the scope of work by the external actuary engaged by the management;
・ 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 expert;
・ compared the expected rate of salary increase used by the actuary against historical trend;
・ assessed the fair value of the scheme assets by obtaining the valuation from the relevant fund managers as at 30 June 2022 and corroborated with independent sources; and
・ checked the disclosures in respect of the sensitivity of the carrying amounts of the post-employment benefit obligations to changes in key assumptions, performed by the actuary.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)
5. Impairment assessment on trade receivables of the Group’s water and sewerage segment
The risk
We refer to Notes 2(r), 3(d) and 20 to the Financial Statements, respectively.
Trade receivables of the water and sewerage segment (RM474.4 million net of expected credit losses of RM275.3 million) accounts for 20.9% of the Group’s trade receivables as at 30 June 2022.
As this segment operates in the 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 expected credit losses 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 expected credit losses for trade receivables.
Our response:
Ours and component auditors’ audit procedures included the following:
・ tested the operating effectiveness of the key information technology systems used for generating billings and cash collection data used for the expected credit losses assessment and the controls over assessment of expected credit losses of trade receivables;
・ obtained the historical cash collection trends of each ageing bracket of the trade receivables and payment methods and compared against the percentage of expected credit losses used by management against each ageing bracket and payment methods;
・ checked the appropriateness of the forward-looking forecasts assumptions used to determine the expected credit losses, which include management’s scenario analysis of the impact of economic uncertainty due to inflation;
・ compared the level of expected credit losses applied against similar companies within the industry in the UK;
・ performed substantive testing to ensure the completeness and accuracy of the reports used to populate the expected credit loss provision calculation; and
・ developed expectations to generate a range for the estimated value and compared against the estimates and assumptions set forth by management to ensure no management bias over the expected credit losses.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)
6. Metered income accrual
The risk
We refer to Notes 2(d)(i)(a), 3(j), 4 and 20 to the Financial Statements, respectively.
The Group has recorded a metered income accrual of RM550.3 million as at 30 June 2022 relating to revenue from the provision of water services to customers on water meters that had not been read at the year-end date.
Revenue recognition in respect of the accrued income is particularly judgemental. It arises in relation to the unbilled income accrual from metered water services. This income accrual requires an estimation of the amount of unbilled charges at the period end. It is calculated using system generated information based on previous customer volume usage.
Given the range of factors underlying the estimate, there is a risk that the metered income accrual and revenue could be misstated.
Our response:
Ours and component auditors’ audit procedures included the following:
・ obtained an understanding of the process for the supply of measured services, meter reading and related billing;
・ tested the key controls linked to system generated information and around the estimation process for measured revenue;
・ compared the accrued income to bills raised post year end and compared management's history of estimating the accrued income balance to bills raised in the subsequent year to assess the accuracy of accrual income balance;
・ recomputed the accrued income based on customers' historical usage data for selected samples;
・ perform analytical procedures by comparing revenue balances for the year against expectation and obtaining support for significant variances;
・ corroborated the key assumptions and estimates made by management in recognising revenue, by obtaining internal and external data on factors that influence demand from customers;
・ tested contract terms and conditions were met and revenue recognised at the correct period;
・ performed journal testing over targeted manual entries related to revenue, particularly those recorded close to the year-end; and
・ obtained an understanding of manual adjustments made to accrued income and reviewed the underlying assumptions for those adjustments.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)
7. Revenue recognition from construction contracts
The risk
Revenue and cost of sales recognised from construction contracts during the financial year as disclosed in Notes 2(d)(i)(e), 3(i), 4 and 5 to the Financial Statements, respectively is RM1,136.2 million and RM1,017.3 million, respectively.
The Group has significant long term construction contracts. The recognition of revenue and profit on these contracts is based on input method (on the basis of the entity’s efforts or inputs to the satisfaction of the performance obligation relative to the total expected inputs to the satisfaction of that performance obligation).
Revenue and profit recognition on long term construction contract is a key audit matter because of the judgement and estimates exercised by the management based on the assessment of performance obligation, revenue recognition arising from variations to the original contracts, assessment of progress towards complete satisfaction of the performance obligation and contract costs and appropriate provision for foreseeable losses and liquidated damages.
Our response:
Our audit procedures included the following:
・ reviewed and assessed the forecast budget and appropriateness of assumptions used based on historical performance in the Group and industry knowledge, including obtained and assessed information provided by management to determine whether the forecast assumptions are consistent with the terms of the relevant contracts;
・ evaluated the management’s updated budgeted costs and forecast of costs to complete by assessing the basis of their calculation;
・ recomputed the revenue using approved contract sum, actual costs incurred to date that reflect the progress towards completion of the agreed works to customer and latest revised budgets; and
・ inspected the actual costs incurred to the corresponding supporting documents.
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: 198201012898 (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: 198201012898 (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, actions taken to eliminate threats or safeguards applied.
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 15 to the Financial Statements.
Company No: 198201012898 (92647-H)
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF YTL CORPORATION BERHAD – (Continued)
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.
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HLB LER LUM CHEW PLT |
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201906002362 & AF 0276 |
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Chartered Accountants |
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WONG CHEE HONG |
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03160/09/2024 J |
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Chartered Accountants |
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Dated : 29 September 2022 |
Chartered Accountant |
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Kuala Lumpur |
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