INTEGRATED REPORT 2023 18 MONTHS REPORT PERIOD ENDED 31 DECEMBER 2023 Positioned for the Future Going Beyond
DAGANG NeXCHANGE BERHAD Integrated Report (“IR”) 2023 This Integrated Report 2023 (“IR 2023” or “this Report”) is a detailed account of Dagang NeXchange Berhad’s (“DNeX” or “the Group”) strategies, initiatives and performance during the 18 months from 1 July 2022 to 31 December 2023 (“FY2023”) and aims to elucidate our holistic and purposeful approach to creating value for our business and stakeholders over the short, medium and long term. Navigation Icon GHG Emissions M1 Workforce Management M5 Resource Management M3 Energy Management M2 Employee Health and Safety M6 Ecological Impact M4 Our Capitals Our Business Divisions Our Strategic Thrusts Our Material Matters Financial Capital Social and Relationship Capital Natural Capital Intellectual Capital Manufactured Capital Human Capital Development Financial Prudence Portfolio Diversification Governance and Excellence Energy Information Technology (“IT”) Technology SCOPE & BOUNDARY This Report holistically covers the primary activities of our business clusters, key support areas and subsidiaries within both our Malaysian and international operations. In addition to financial reporting, this Report provides comprehensive analysis of our non-financial performance, opportunities, risks and outcomes associated with our key stakeholders that significantly impact our ability to generate value. Human Capital Customer Centricity REPORTING FRAMEWORKS This Report is prepared with reference to the following recognised standards and guidelines: • Main Market Listing Requirement (“MMLR”) by Bursa Malaysia Securities Berhad (“Bursa Malaysia”) • Malaysian Code of Corporate Governance (“MCCG”) by Securities Commission Malaysia • Corporate Governance Guide (4th Edition) issued by Bursa Malaysia • Malaysian Financial Reporting Standards (“MFRS”) • The Companies Act (“CA”) 2016 • International Financial Reporting Standards (“IFRS”) • International Integrated Reporting Framework by IFRS Foundation The disclosures of our sustainability statement, which is contained within this Report, are guided by: • Sustainability Reporting Guide (3rd Edition) of Bursa Malaysia • Global Reporting Initiative (“GRI”) Universal Standards 2021 • United Nations’ Sustainable Development Goals (“UN SDGs”) • FTSE4Good Bursa Malaysia Index’s Environmental, Social and Governance (“ESG”) Indicators • Task Force on Climate-Related Financial Disclosures (“TCFD”) ABOUT THIS REPORT
Product Quality and Safety M7 Business Ethics M9 Community Relations M8 Business Model Resilience M10 Data Privacy and Security M11 Supply Chain Management M12 Our Key Stakeholders Our Key Risks Society and Communities Customers Employees Shareholders and Investment Community Government and Regulators Business Partners and Suppliers Media Availability of Financial Resources Environmental, Social and Governance Cybersecurity and Data Privacy Global Geopolitical Stability Human Capital Attraction and Retention PRIORITISED UN SDGs This report aligns with the following UN SDGs as part of our commitment to sustainable development and creating positive social, environmental and economic impacts: COMBINED ASSURANCE STATEMENT We employ a coordinated assurance model to assess and assure various aspects of the business operations including elements of external reporting. These assurances are provided by the Management and the Board, Internal Audit and independent external service providers. FORWARD-LOOKING STATEMENTS This report includes forward-looking statements and forecasts concerning our future performance, prospects and business strategies. These are based on current expectations and reasonable assumptions, which are subject to change due to various factors beyond our control. Consequently, actual results may differ materially from those anticipated in these statements. We caution readers against placing undue reliance as they inherently involve uncertainties and contingencies. MATERIALITY The key topics disclosed in this Report are determined via an established, three-step materiality determination process, whereby the input of internal and external stakeholders is considered, leading to the formulation of material matters, which are defined as issues that impact our performance as a business and the assessments of our business by our stakeholders. These material matters, and our actions therein, are presented and consistently referenced throughout this Report. FEEDBACK We value your input and strive to continuously improve our reporting practices. Feedback on this Report can be emailed to communications@dnex.com.my. BOARD RESPONSIBILITY STATEMENT The Board acknowledges its responsibility of ensuring the integrity of this Report which, in its opinion, provides a fair and balanced account of the Group’s performance during FY2023. The Board further certifies that this Report has been prepared in accordance with Bursa Malaysia’s MMLR. This Report was approved by the Board of Directors on 30 April 2024, and signed on its behalf by: Tan Sri Dato’ Sri Haji Syed Zainal Abidin Bin Syed Mohamed Tahir Executive Chairman Azhar Bin Othman Group Chief Operating Officer
53rd A N N U A L G E N E R A L M E E T I N G Multipurpose Hall, Level 3A, Dagang Net Tower, Block 10 (A&B) Corporate Park, Star Central, Lingkaran Cyberpoint Timur, Cyber 12, 63000 Cyberjaya, Selangor, Malaysia Wednesday, 19 June 2024 10.00 a.m. Welcome to DAGANG NeXCHANGE BERHAD Integrated Report 2023 Driven by a relentless pursuit of growth, innovation, and resilience, DNeX, a prominent technology player, navigates the dynamic business landscape with an unwavering focus. Our proactive approach transcends domestic borders, seeking new horizons and partnerships in the global arena. By tapping into diverse customer bases and revenue streams, we capitalise on emerging markets and opportunities, ensuring sustainable growth in the long run. Leveraging our expertise and industry-leading insights, we develop tailored solutions that empower our customers. This approach, coupled with our commitment to staying ahead of industry trends through continuous innovation, ensures we deliver high-quality products and exceptional services that create tangible value for both our customers and stakeholders. Sustainability isn’t a peripheral concern, but woven into the very fabric of our growth plans. As an ESG-conscious corporation, we proactively minimise our environmental footprint, guiding us towards a greener future. By combining our global outlook, unwavering commitment to innovation, and leadership in sustainable practices, DNeX is strategically positioned to thrive in the ever-evolving technological landscape. We are poised to not only adapt to the future but also to shape it responsibly, leaving a lasting positive impact on the world around us. COVER RATIONALE This Integrated Report is available at www.dnex.com.my Driven
inside this report OVERVIEW OF DAGANG NeXCHANGE BERHAD 21 Vision | Mission | Shared Values 22 Who We Are | Key Strategic Thrusts 22 2023 Key Highlights 22 Financial Highlights 23 Business Highlights 24 Sustainability Highlights 24 Awards & Recognitions 25 What Differentiates Us: Our Strengths 26 Our Presence 28 Group Corporate Structure 30 What We Do: Core Business 32 Corporate Milestones 2 ABOUT THIS REPORT LEADERSHIP INSIGHTS 04 Executive Chairman’s Statement 10 Group Chief Operating Officer’s Statement 18 Embedding ESG into Our Business 1 3 VALUE CREATION AT DNeX 36 Our Approach To Value Creation 38 Our Value Creating Business Model 40 Stakeholder Engagement 46 Value We Create B. Performance Review 68 Group Financial Review 72 5-Year Financial Summary 73 5-Year Financial Highlights 74 Simplified Group Statements Of Financial Position 75 Group Quarterly Performance 76 Financial Calendar 77 Investor Relations C. Business Review 82 Technology 84 Energy 86 Information Technology MANAGEMENT DISCUSSION AND ANALYSIS A. Strategic Review 54 Our Material Matters 56 Operating Environment 59 Key Market Trends 61 Key Risks And Mitigation 67 Our Strategies 4 6 SUSTAINABILITY STATEMENTS 110 About This Statement 111 About DNeX - Our Supply Chain 112 Our Approach to Sustainability - Sustainability Governance - Stakeholder Engagement - Materiality - The DNeX Sustainability Framework 115 Environmental 116 GHG Emissions 117 Energy Management 118 Resource Management 119 Ecological Impact 120 Social 121 Workforce Management 130 Employee Health & Safety 132 Product Quality & Safety 133 Community Relations 135 Governance 136 Business Ethics 137 Data Privacy & Security 138 Supply Chain Management 139 Business Model Resilience 140 Sustainability Bursa Performance 5 LEADERSHIP 90 Corporate Information 92 Board At A Glance 93 Board Of Directors’ Profile 104 Profile Of Senior Management OUR GOVERNANCE 142 Chairman’s Corporate Governance Overview 144 Corporate Governance Overview Statement 164 Additional Compliance Information 167 Statement On Risk Management And Internal Control 176 Audit Committee Report 7 8 FINANCIAL STATEMENTS 180 Statement Of Directors’ Responsibility 181 Directors’ Report 187 Statements Of Financial Position 189 Statements Of Profit Or Loss And Other Comprehensive Income 191 Statements Of Changes In Equity 195 Statements Of Cash Flows 198 Notes To The Financial Statements 306 Statement By Directors 306 Statutory Declaration 307 Independent Auditors’ Report 9 SHAREHOLDERS’ INFORMATION 313 Analysis Of Shareholdings 316 List Of Properties 317 Group Corporate Directory 319 Notice Of 53rd Annual General Meeting 325 Administrative Notes For The 53rd Annual General Meeting Form Of Proxy
Dear Shareholders, I hereby present to you DNeX’s Integrated Report 2023, an account of our strategies, actions and performance across the 18 months ended 31 December 2023 (“FY2023”). It is said that the measure of an organisation lies in its response to adversities, and FY2023 certainly had its fair share. Instead of waiting for macroeconomic and industry challenges to subside, our team took the front foot, adapting to new market realities and moving to capture transformative growth opportunities that will lay the groundwork for our long-term growth. This proactive and energetic response shows how far we have come as a company and how much more we can achieve in the future. EXECUTIVE CHAIRMAN’S STATEMENT Tan Sri Dato’ Sri Haji Syed Zainal Abidin Bin Syed Mohamed Tahir Executive Chairman POSITIONING DNeX FOR LONG-TERM PROSPERITY Leadership Insights DAGANG NeXCHANGE BERHAD 04
WITH OPPORTUNITY COMES COMPLEXITY In December 2022, I assumed the role of Executive Chairman of DNeX, bringing with me the experience and knowledge I had gained from my two years as Group Managing Director. While I retain oversight and influence over the day-to-day operations of the Group, my responsibilities are now more high-level in nature – including spearheading our long-term strategic direction, forging international partnerships and maintaining strong stakeholder relationships. This change in role came at a time of great transformation for the Group. After being a prominent but locally focused player primarily focused on the IT market, we had ventured into the burgeoning semiconductor industry with the acquisition of a 60 per cent stake in SilTerra Malaysia Sdn Bhd (“SilTerra”) while increasing our stake in Ping Petroleum Limited (“Ping”) to 90 per cent, marking our entry as a majority owner into the UK energy market. These breakthrough developments unleashed new possibilities for the Group and duly contributed to a remarkable improvement in our financial performance in FY2022. However, they also placed us squarely in the unforgiving geopolitical and macroeconomic nexus, exposing us to a wider range of risks that have added complexity to our operating environment. During FY2023, these risks had a material effect on our performance as a business, and nowhere was this more apparent than in our Technology division. With SilTerra serving a 100 per cent overseas client base, the Russia-Ukraine conflict and US-China trade war exacerbated supply chain disruptions and created uncertainty in the market, negatively affecting performance. Moreover, the technology downcycle – evidenced by reduced demand for personal computers (“PCs”) and smartphones – drove the division’s revenue further downwards. Our Energy division, meanwhile, suffered a regulatory shock due to the UK government’s decision to implement an Energy Profits Levy (“EPL”) on the exceptional profits of oil and gas players. This resulted in an additional deferred tax liability of RM143.2 million, significantly affecting the division’s annual profitability and altering its prospects moving forward. Having transitioned from being a local to a global player, we accept that these downside impacts are part and parcel of our business – they are necessary risks that come with the opportunity that our widened, multi-sectoral reach provides us. However, it is also clear that in order to thrive amidst our new circumstances, we must embrace new ways of doing business; approaches that minimise risk, drive agility to capture emerging opportunities and empower our people to be drivers of positive change. I am proud to say that our journey on this front is progressing strongly, and throughout the rest of this statement I shall delve deeper into what we are doing to position DNeX for long-term prosperity. I am proud to say that our journey on this front is progressing strongly, and throughout the rest of this statement I shall delve deeper into what we are doing to position DNeX for long-term prosperity. STRATEGICALLY DIVERSIFYING OUR PORTFOLIO With our widened presence exposing us to a wider range of industry-specific risks, we are strategically diversifying our portfolio by investing in emerging opportunities with considerable growth potential. In our Technology division, we continue to see the benefits of our foresighted foray into micro-electromechanical system (“MEMS”) technologies and Silicon Photonics (“SiPh”), which are emerging technologies that command higher average selling prices and offer greater profit margins. These leadingedge technologies boast vast applications in emerging sectors such as electric vehicles (“EVs”) and high-performance computing (“HPC”), positioning us to capitalise on global digital transformation and the shift to low-carbon transport. Presently, we are undergoing product testing and qualification with new customers in these fields, with our efforts to capture this exciting opportunity supported by an expansion of SilTerra’s capacity. Meanwhile, in response to the UK’s new energy tax regime, we pivoted to focus on the opportunities presented in Malaysia’s upstream oil and gas sector. Leveraging our strong reputation as a safe and environmentally responsible operator, Ping secured three Production Sharing Contracts (“PSC”) with PETRONAS under the Malaysia Bid Round 2022 (“MBR 2022”) – for the Meranti Cluster, A Cluster and Abu Cluster. While these fields will take time and considerable investment to develop and monetise, they offer strong upside potential and, most importantly, enable us to focus our business within a more favourable market that is oriented towards growth in the oil and gas sector. Integrated Report 2023 05
Our IT division is also diversifying its revenue sources, parlaying its core capabilities in operating the National Single Window (“NSW”) to provide trade facilitation solutions to a wider range of public and private sector clients. Most notably, in October 2023 Dagang Net secured a contract from the Port Klang Authority to develop, implement and maintain Phase 1 of the Malaysia Maritime Single Window (“MMSW”), a unified digital platform that promises to streamline and drive efficiencies in shipping and maritime trade at the national level. In addition to this, I am actively working to further our partnership with Ajlan & Bros Holding Group (“Ajlan”), a key player in the Middle East that boasts a wide network across most of the countries within the Gulf Cooperation Council (“GCC”). As the region – and Saudi Arabia in particular – gears up on its monumental development plans, we are in an ideal position to contribute to large-scale smart city, e-government services and system integration projects, leveraging our growing capabilities in IoT, Big Data and analytics. This will position us as an international player in IT and open the door to even more “blue ocean” opportunities ahead. BUILDING A HIGH-PERFORMANCE CULTURE While our diversification across borders, technologies and industries offers immense potential for the future, our ability to maximise these opportunities rests squarely on the quality of the human capital at our disposal. With the objective of nurturing a high-performance culture, we formulated our new corporate values in FY2023, centred around four key attributes that we have identified as key to success in a fast-evolving global context – Driven, Adaptable, Responsible and Ethical, or DARE. With change a constant, being driven is a must to stay at the forefront. Accordingly, we want our people to never settle for “good enough”, but instead look continuously forward to what is next, seeking out opportunities for business and personal growth at every turn. Our aim is to cultivate an entrepreneurial mindset in each member of our workforce, empowering them to find new solutions and develop creative value propositions that forge compelling competitive advantage for the Group. Of course, immediate progress is not always possible and factors beyond our control may present setbacks to achieving our objectives, as was illustrated clearly during the challenges of FY2023. During such times, it is vital that our people adapt with agility, strength and purpose, pivoting their attention to effective alternatives or new opportunities. Underlying these qualities is the imperative of acting responsibly, in line with high ethical standards, across everything we do. With our Environmental, Social and Governance (“ESG”) performance directly impacting the trust of our customers and partners, and our ability to secure funding, any instance of unethical business conduct or non-compliance with ESG or ethics-based regulations could have significant reputational, financial and legal consequences. These core values are being socialised across our workforce through comprehensive employee engagements and embedded within our existing training and development programmes. Ultimately, they will serve to futureproof our people – and DNeX as an organisation – against a global landscape that is evolving faster than ever before. Leadership Insights DAGANG NeXCHANGE BERHAD 06 EXECUTIVE CHAIRMAN’S STATEMENT
EMBRACING SUSTAINABILITY AT OUR CORE As touched upon above, sustainability has become a vital cog of every global organisation. Today’s businesses, investors and customers are more likely to base their decisions on the commitment and track record of a company in delivering socioeconomic value and protecting natural environments, making it missioncritical that we remain ahead of expectations. Our approach is to treat sustainability not merely as a compliance issue but see it as an enabler for improved business performance. As an example, we have plans to install solar panels within SilTerra’s operations. This not only reduces our carbon footprint – in line with our efforts to become a net zero emissions company by 2050 – but drives long-term cost efficiency in production, with the potential to sell excess energy generated back to the grid for profit. This pursuit of shared valued is echoed by our collaboration with Cerulean Winds Limited, a specialist in creating solutions for oil and gas decarbonisation. Through our partnership, we are working to develop a first-of-its-kind floating wind turbine that will power Ping’s Excalibur FPSO vessel in the UK upon launch. In the hard-to-abate energy sector, this promises to be a defining breakthrough, and its geographically flexible nature means that we may potentially be able to sell the solution to other players in the oil and gas sector. These highlights merely scratch the surface of our extensive work across the ESG spectrum, with continuous and purposeful efforts from our teams to improve employee health and safety, drive higher standards in product quality and support sustainable community development. For more information, read our Sustainability Statement from page 110 to 141. Casting our eyes towards FY2024, we look forward to taking further steps on our sustainability journey, guided by our Sustainability Framework. Our upcoming climate risk assessment will provide us with a comprehensive view of the risks and opportunities associated with climate change and our transition to low-carbon operations, informing more effective and holistic decision-making on business practices and potential investments. Meanwhile, we will also conduct a Group-wide human rights risk assessment to identify potential risks related to human rights violations across our various jurisdictions. This assessment will be key to minimising the severe downside consequences that any non-compliance may cause and will earmark us as a responsible organisation within the global arena. The Launch of DARE, 27 February 2024 Integrated Report 2023 07
STRENGTHENING OUR GOVERNANCE STANCE Robust and effective governance underlies our sustainabilityrelated and operational initiatives, ensuring that our standards are upheld across our business, and is even more important given our continued expansion across new geographies. With our operations already aligned to an extensive suite of policies and practices, our work in FY2023 focused on strengthening our stance by undertaking progressive improvements and driving awareness of our standards amongst our employees and stakeholders. I would also like to highlight our work to enhance sustainability across our supply chain, which is a key issue that our stakeholders have impressed upon us in recent years. Through coordinated training programmes, we aim to thoroughly communicate our ESG standards amongst our vendors and suppliers, empowering them to journey with us and capture new growth opportunities beyond Malaysia’s shores. Supporting our efforts to strengthen governance, we have made strides in improving the diversity of experiences, skills and competencies made available to the Group via our Board of Directors. In FY2023, we welcomed Tan Sri Acryl Sani bin Haji Abdullah Sani, a former Inspector General of Royal Malaysia Police, and En. Muhammad Saifullah bin Mohd Isa, who also serves as our Head of Corporate Strategy & Investment, to the Board. Reflecting their professional backgrounds, they bring to the table a wealth of knowledge in anti-corruption and corporate finance and planning, respectively, supporting our efforts to forge and maintain trust-based partnerships with private and public entities as we expand our global presence. On this note, I would like to extend my sincere thanks, on behalf of the Board, to our former Chairman, Tan Sri Abdul Rahman Mamat, and our former Executive Director, Encik Zainal ‘Abidin Bin Abd Jalil, for their sterling service to the Group and relentless dedication to its advancement during their tenures. I wish them all the best in their future endeavours. STANDING READY FOR THE UPSWING Looking back on the past 18 months, it is an unmistakeable fact that, largely due to external factors, our financial performance did not meet the high expectations that we have set for ourselves. With that said, I wish to re-emphasise the confidence that I share with the Group’s management that brighter days are around the corner. Across our business divisions, there is much room for optimism. In the Technology division, our proactive investment in MEMS and SiPh positions us to capitalise on the rapid growth in data warehousing and Artificial Intelligence (“AI”), and is already picking up steam with new customers onboarded, while the US-China trade war opens the door to growth in Malaysia’s semiconductor and technology ecosystem. In Energy, PETRONAS aims to grow Malaysia’s oil and gas production to two million barrels of oil equivalent per day by 2025, towards which our new assets will contribute to achieving. Meanwhile, the consistent additions to our IT orderbook – across various public and private industries and applications – is evidence that we have an important role to play in Malaysia’s accelerating digital transformation. This is before mentioning the exciting potential that our partnerships in the Middle East and North Africa proffer for us. These prospects are indeed promising and exciting. We are strategically positioning ourselves in emerging sectors and opportunities that have the potential to deliver outsized value for the Group, driving growth beyond what we have experienced in years prior. However, the nature of emerging investments is that they take time to gestate, to be implemented and realise value – and this is the period that we are in right now. As we ready ourselves for the upswing, we are supported by strong financial fundamentals and the continuing, steadfast support of our stakeholders, for which I am endlessly grateful. Our upcoming climate risk assessment will provide us with a comprehensive view of the risks and opportunities associated with climate change and our transition to lowcarbon operations, informing more effective and holistic decisionmaking on business practices and potential investments. Leadership Insights DAGANG NeXCHANGE BERHAD 08 EXECUTIVE CHAIRMAN’S STATEMENT
To our shareholders, thank you for your unceasing trust during trying times. To our various government and business partners, please accept my gratitude for seeing potential in DNeX as an architect for national advancement and supporting our domestic and international endeavours. And to our customers, we are thankful for your faith in our capacity to continually adapt to your needs and iron out any pain points that exist on our shared journey. Most importantly, to our people – you are the central piece of our value creation jigsaw, and your contributions are the one key enabler that empowers success in everything we do. Together, let us DARE to dream, aspire and achieve. With our ambitions high, we can harness the opportunities of today and position DNeX for greater success tomorrow and far into the future. Tan Sri Dato’ Sri Haji Syed Zainal Abidin Bin Syed Mohamed Tahir Executive Chairman Integrated Report 2023 09
GROUP CHIEF OPERATING OFFICER’S STATEMENT Dear Shareholders, The past eighteen months have presented the DNeX Group with a unique blend of challenges and opportunities. Shifting market trends, evolving regulatory frameworks and unforeseen operational dynamics have collectively impacted our shortterm financial performance. However, amidst these headwinds, we have demonstrated agility and adaptability, pivoting with purpose to uncover new prospects for our diverse businesses and establish a sturdy foundation for sustainable growth. In this statement, I will elaborate on our ongoing initiatives to catalyse this transformative shift in our organisational culture, placing focus on balancing our portfolios, bolstering our financial resilience and capitalising on emerging opportunities presented by our growing size and scale. Most importantly, we are nurturing a workforce with the right capabilities and mindset to compete at the international level and uphold our commitment of delivering long-term value to our stakeholders. BUILDING RESILIENCE AS WE TRANSFORM FOR THE FUTURE Leadership Insights DAGANG NeXCHANGE BERHAD 10
RECALIBRATING TO UNLOCK OUR GLOBAL POTENTIAL The remarkable surge in our revenue over recent years, soaring from RM330 million in FY2021 to RM1.9 billion over the past 18 months, has been truly remarkable. However, amidst this meteoric rise, we have encountered significant challenges that have necessitated a thorough reassessment of our strategies, competencies and leadership. Since assuming the role of Group Chief Operating Officer (“GCOO”) in December 2022, I embarked on a mission to orchestrate transformative change within DNeX, aimed at addressing gaps in our capabilities, governance and compliance and cultivating an organisation equipped with the necessary people, culture and systems to thrive in the global arena. Azhar Bin Othman Group Chief Operating Officer The remarkable surge in our revenue over recent years, soaring from RM330 million in FY2021 to RM1.9 billion over the past 18 months, has been truly remarkable Transformative strategies are being integrated into every facet of our organisation, commencing with a concerted effort to recalibrate the mindset of our people – the cornerstone of our enterprise. Transformative strategies are being integrated into every facet of our organisation, commencing with a concerted effort to recalibrate the mindset of our people – the cornerstone of our enterprise. Amongst our many reforms was the appointment of a new HR director and the introduction of our new corporate values: Driven, Adaptable, Responsible, and Ethical (“DARE”). These values encapsulate our commitment to operating as a high-performing organisation that balances internal development with unwavering operational excellence and business integrity. Concurrently, a myriad of strategic and operational initiatives has been set in motion across all three divisions to fortify our financial and operational fundamentals while laying the groundwork for robust future growth. Although our financial outcomes have yet to fully reflect the impact of these measures, it is imperative to acknowledge that enduring change requires time and commitment. We are steadfast in our belief that we are on the right track towards realising our ambitions. Integrated Report 2023 11
GROUP PERFORMANCE REVIEW In the eighteen months from 1 July 2022 to 31 December 2023 (“FY2023”), the Group recorded a revenue of RM1,913 million, with our Technology division contributing 52 per cent, Energy contributing 33 per cent and our IT segment making up the remaining 15 per cent. These figures underscore our strategic diversification and the strength of our multi-sectoral presence. Despite these commendable achievements, the Group’s profitability faced significant headwinds due to various unfavourable market, regulatory and operational conditions. A notable example was the decline in semiconductor demand, which significantly impacted SilTerra’s performance. The Group’s core profitability remained healthy and sound with normalised PAT and PATANCI of RM88.7 million and RM101.0 million respectively, demonstrating the underlying strength of our operations. These excluded external factors such as the increase in Ping’s tax liabilities following the recent implementation of Energy Profits Levy (“EPL”) by the UK Government, and other assets impairments and deferred tax reversal. The reported loss after tax of RM191 million and loss after tax and controlling interests of RM120 million reflected the adjustments due to the above factors. Notwithstanding these transient challenges, the Group has successfully maintained a positive annual operating cash flow and a strong net cash position, underpinning our ability to pursue strategic growth initiatives. With total cash reserves surpassing our borrowings, we are wellpositioned to leverage opportunities for further expansion, supported by a solid gearing ratio of just 0.2 times. The Group recorded revenue of RM1,913 million, with our Technology division contributing 52 per cent, Energy contributing 33 per cent and our IT segment making up the remaining 15 per cent. Leadership Insights DAGANG NeXCHANGE BERHAD 12 GROUP CHIEF OPERATING OFFICER’S STATEMENT
SEGMENTAL REVIEW Technology Division Our technology division encountered challenging market dynamics during FY2023, marked by a downturn in the semiconductor market that hindered our ability to meet manufacturing capacity requirements to ensure production profitability. However, it is vital to recognise that the semiconductor demand has historically exhibited cyclical patterns, and such downturns are inherent in the industry. We maintain confidence in the long-term viability of this sector and are steadfastly focused on positioning ourselves optimally for the next upswing while diversifying our business to ensure portfolio resilience against future market uncertainties. Having anticipated such market fluctuations, we had already begun proactively expanding SilTerra’s horizons beyond its core business in 2022, channelling over USD150 million into the research, development and commercialisation of emerging technologies, notably microelectromechanical systems (“MEMS”) and Silicon Photonics. With MEMS and Silicon Photonics possessing numerous applications across the Artificial Intelligence (“AI”), electric vehicles (“EV”) and medical sectors, amongst others, the demand for these emerging technologies is steadily increasing and anticipated to maintain an upward trend. This therefore represents an opportune time for SilTerra to penetrate the market and validates our strategic investment into these sectors to future proof our business. With our newly developed products currently undergoing product testing and qualifications with new global customers, and a 20 per cent expansion of our manufacturing capacity completed in 2023, we are well-positioned to capitalise on future demand and benefit from the higher average selling prices and profit margins these products will offer. Several new customers from the AI and EV sectors have already been onboarded, providing us with a springboard to launch our new emerging technologies into the market. Energy Division Even as the world collectively transitions away from fossil fuels, there remains great potential for growth in the oil and gas sector, with the recent COP28 summit confirming the vital role that oil will continue to play in ensuring energy security in the coming decades. However, the ongoing energy transition has led to regulatory developments such as the Energy Profits Levy, which has heavily impacted our profitability and decreased the feasibility of rapid expansion in the UK. In response to this evolving landscape, we have adeptly capitalised on our strengths as a lowcost operator with extensive global experience and a robust track record to shift Ping Petroleum’s focus towards expanding operations closer to home. Acting with speed and agility, we have successfully bid for new domestic projects from PETRONAS and acquired interests in three fields across Malaysia over the past year. This includes acquiring a 60 per cent working interest in the Meranti Cluster, located off the east coast of Peninsular Malaysia, as well as a 70 per cent working interest in the A Cluster located at Sarawak, both of which were secured in January 2023. However, with these two oilfields still in the early development stages, we also acquired a 100 per cent working interest in the Abu Cluster in October 2023. This late life asset bears the potential for near-term revenue generation and represents our immediate focus as we target first oil production in early 2025. With MEMS and Silicon Photonics possessing numerous applications across the Artificial Intelligence (“AI”), electric vehicles (“EV”) and medical sectors, amongst others, the demand for these emerging technologies is steadily increasing and anticipated to maintain an upward trend Integrated Report 2023 13
These domestic expansion efforts have injected a balanced blend of near-term and long-term prospects into our energy portfolio, while diversifying our exposure across various geographical locations. Furthermore, our move to invest in projects with near-term revenue potential will provide a stronger financial foundation for pursuing our long-term ambitions in the UK. This strategic approach is paramount, given that our Anasuria asset currently stands as our sole oil-producing asset, and the yet developed Avalon field requiring an estimated investment of USD300 million before commencing the production of oil in 2028, at the very earliest. On this note, we have further bolstered our long-term prospects in the UK North Sea by acquiring a 42.5 per cent interest in the Fyne oil field in November 2023. Situated in proximity to our existing Anasuria operations, this acquisition aligns with our strategy of pursuing new projects in the surrounding vicinity of existing assets, enabling optimal utilisation of resources and equipment across multiple projects. This strategic approach will also be replicated for our Meranti and Abu clusters, which are strategically located around 180km from each other. IT Division Our IT division stands as the foundational pillar upon which DNeX was established, historically relying on government contracts from operating the National Single Window (“NSW”) to ensure revenue stability. Leveraging the invaluable experience, infrastructure and network garnered from NSW operations, we have ventured into private sector trade facilitation, subsea telecommunications and technology consulting and system integration in recent years. While this diversification has broadened our expertise and unearthed numerous exciting opportunities for domestic and international growth, it has also shed light on areas within our processes and competencies that require attention, as evidenced by the division’s profitability struggles in FY2023. To restore stability and equip ourselves adequately to capitalise on emerging opportunities, we are actively undertaking strategic initiatives to bolster our financial and operational fundamentals across the IT Division. A key ongoing initiative involves consolidating SealNet and Dagang Net to streamline our B2B and B2G businesses, with the execution of this plan on track for completion by end 2024. By coordinating resources and enhancing internal collaborative synergies, we aim to unlock greater cost efficiencies, enhance customer service, and improve profitability. Even before the completion of this exercise, I challenged Dagang Net to reduce costs, and I am pleased to report that the team succeeded in reducing external fees, notably to consultants, by RM3 million during FY2023. Concurrently, in conjunction with the consolidation exercise, we have established a new IT Strategy and Transformation Department to spearhead the alignment of our B2B and B2G businesses, subsequently leading the charge for procuring large-scale IT projects that harness the combined expertise and resources of Dagang Net, SealNet and IAC. Recognising challenges faced by our current or legacy project, we took and conducted proactively a comprehensive study and implemented robust measurements to enhance the financial management in our unwavering commitment to financial excellence. Noteworthy business development updates during FY2023 include Dagang Net securing a 3.5-year contract from the Port Klang Authority in October 2023 to develop, implement and maintain the Malaysia Maritime Single Window (“MMSW”) Phase 1. Furthermore, Dagang Net launched TradeSwift DAGANGNET, an all-in-one trade facilitation SuperApp enabling entities involved in global trade to perform multiple trade facilitation services in real-time. IAC has also clinched a two-year maintenance contract extension worth RM11.2 million from the Inland Revenue Board of Malaysia (“IRBM”) for the maintenance, support and enhancement of its Hasil Integrated Taxation Systems (“HITS”). DRIVING INTERNAL TRANSFORMATION As a diversified business with various divisions, each posing its own challenges and opportunities, we recognise the importance of enhancing the competencies and capabilities of our people in lockstep with our ambitions. In my inaugural year as GCOO, I have instituted a clear mission to propel DNeX towards becoming a high-performing organisation. Central to this vision is cultivating a workforce of capable, independent and resourceful individuals poised to give their utmost for the company’s success. Leadership Insights DAGANG NeXCHANGE BERHAD 14 GROUP CHIEF OPERATING OFFICER’S STATEMENT
To achieve this objective, we have built upon our appointment of a new HR Director and the establishment of our new core values to embark on a series of initiatives aimed at strengthening our workforce. Key undertakings over the past year include the implementation of robust learning programmes, talent development initiatives and succession roadmaps to enhance the competencies and prospects of our employees, while bolstering our ability to attract and retain the requisite talent to achieve our ambitions. We have also taken steps to bolster financial acumen and cost discipline throughout the organisation. Drawing from lessons learnt, we are adopting a more holistic approach to managing our costs and deploying innovative solutions to maximise our bottom line. A demonstration of our proactive approach is evident in our response to global currency fluctuations, notably the weakening of the British pound in 2022 and the ringgit in 2023. Through meticulous cost analysis, we leveraged our multicurrency revenue streams to implement natural hedging strategies, effectively limiting potential forex losses and reducing overall expenses. Integrated Report 2023 15
Moreover, we are also enhancing our Enterprise Resource Planning (“ERP”) system to provide our management teams with seamless access to critical data points and analysis. This upgrade will significantly improve productivity and ensure accurate decision-making based on precise insights. Such advancements are pivotal in achieving heightened efficiency in management, a fundamental requirement for our Group to compete effectively on the global stage. I firmly believe that a robust organisational culture and a highly competent workforce will serve as the dual engines propelling DNeX into a new era of growth. While driving such a cultural shift requires time, we have already taken significant strides forward. Through the implementation of a comprehensive roadmap and the introduction of new systems and processes, we are uniting our employees under a collective vision, fostering a culture of collaboration and excellence across the Group. OUTLOOK Despite the challenges encountered in the period under review, we remain optimistic about the future prospects across all our divisions. Our strategic focus is on enhancing operational efficiencies, fortifying fundamentals and identifying high-growth opportunities within each business segment. As a diversified Group, it is imperative that each division achieves profitability independently and contributes significantly to our overall progress. While our Technology division faced profitability struggles in FY2023, we see significant long-term potential for growth and expansion. The anticipated recovery of the global semiconductor industry, driven by increasing demand for AI and high-performance computing (“HPC”), coupled with stabilising demand in key sectors, presents promising opportunities. Furthermore, our strategic emphasis on integrating emerging technologies like MEMs and Silicon Photonics into our product mix positions us well to capitalise on market growth, supported by the expansion of our production capacity. In the Energy division, favourable oil prices are expected to continue, which will provide stability for our operations at the Anasuria cluster in the North Sea. To drive progress in our UK-based endeavours, the Group’s corporate team is collaborating with Ping to drive greater alignment with our transformation goals and support fundraising and fund management efforts for the development of the Avalon and Fyne fields. In Malaysia, our immediate goal is to reactivate the Abu Cluster and commence production in 2025, before shifting our focus to the development plans for the Meranti cluster. We have also submitted further bids for more Malaysian fields as part of Petronas Malaysian Bid Round (“MBR+”) in 6Q of the period under review, with the awarding of these tenders expected to be announced in the second half of 2024. Opportunities also lie in store for OGPC in light of PETRONAS’ aim to sustain and grow Malaysia’s oil and gas production to two million barrels of oil equivalent per day (MMboe/d) by 2025 and beyond. With this target set to create significant new opportunities in the oil and gas sector, OGPC is pursuing various general maintenance and pipeline maintenance tenders. Leadership Insights DAGANG NeXCHANGE BERHAD 16 GROUP CHIEF OPERATING OFFICER’S STATEMENT
Regarding our IT division’s prospects, we are actively expanding our collaboration with esteemed partners, including leading data and business analytics firms such as CapGemini and Strateq, to strengthen our ability to provide end-to-end IT solutions. Through these strategic alliances, coupled with the guidance of our IT Strategy and Transformation Department, we aim to expand our pipeline of large-scale IT projects in both the public and private sectors, both domestically and internationally. We are keeping a close eye on the Malaysian government’s ongoing emphasis to digitalise its services and adopt modern systems, a commitment that was underscored by the setting up of Jabatan Digital Negara in December 2023. As one of the few local companies equipped with the necessary experience and infrastructure, we are poised to leverage our expertise and established relationships to bid for digital transformation projects across various government ministries. On the global front, we remain focused on advancing our international collaborations, initiated in 2022 through our partnership with Saudi Arabia’s Ajlan & Bros Holding Group (“Ajlan”). Over the past year, we have not only formed a Joint Venture with China’s Zhongheguoji Construction Group (“Zhongheguoji”) but also solidified a Collaboration Agreement involving DNeX MENA, Zhongheguoji, and Ajlan. While these collaborations will undoubtedly require time to mature, we recognise immense potential in synergising our expertise with the technological prowess of our Chinese counterparts. Together, we aim to secure projects in the Middle East and North Africa, particularly in the domains of smart city development, e-government services and system integration projects. ACKNOWLEDGEMENTS In closing, I extend my heartfelt appreciation to the Board of Directors, senior management team and entire DNeX workforce for their guidance, support and dedication over the past eighteen months. As we navigate this transformative period, it is imperative that we unite as a team and implement the necessary changes to unlock the full potential of our diverse business divisions. I am also grateful for the continuous support from our shareholders, customers, government agencies, business partners and other loyal stakeholders. Thank you for your faith in our strategies and sharing in our vision for the future. To all stakeholders, I assure you that with our transformation into a high-performing organisation, DNeX remains on the right track to deliver long-term stability and sustainable growth. In every success story, there are obstacles to overcome, and true success lies in our ability to learn from mistakes and reinvent ourselves. This is our time of reinvention, and I am confident that the transformed DNeX will emerge stronger and more resilient than ever. Azhar Bin Othman Group Chief Operating Officer To all stakeholders, I assure you that with our transformation into a high-performing organisation, DNeX remains on the right track to deliver longterm stability and sustainable growth. In every success story, there are obstacles to overcome, and true success lies in our ability to learn from mistakes and reinvent ourselves. This is our time of reinvention, and I am confident that the transformed DNeX will emerge stronger and more resilient than ever. Integrated Report 2023 17
As our business expands across industries and borders, we are subject to more stringent regulations and heightened stakeholder expectations in relation to Environmental, Social and Governance (“ESG”) matters. Taking a proactive approach to this challenge, we have established our Sustainability Framework, which articulates our Groupwide approach to ESG. The framework is pillared on four themes, under which long-term ambitions have been established. We will progress towards these ambitions through focused, consistent efforts across each of our material matters, positioning DNeX as a responsible and future-ready organisation that is worthy of our stakeholders’ continued trust. DNeX SUSTAINABILITY FRAMEWORK Organisational Purpose Ambitions EMBEDDING ESG INTO OUR BUSINESS Environmental Governance Social Net Zero emissions by 2050 Be an ESG-driven organisation and drive ESG development across our suppliers Be a local employer of choice Be a preferred partner with our customers and an impactful organisation to the community Committed to deliver business innovation that creates value for stakeholders DAGANG NeXCHANGE BERHAD 18 Leadership Insights
Themes Material ESG Issues Stewarding a Sustainable Environment Empowering Our People Creating Value for Our Customers and Community Embracing Good Governance for Business Resilience GHG Emissions Resource Management Energy Management Ecological Impact Business Ethics Business Model Resilience Data Privacy & Security Supply Chain Management Associated To discover our sustainability initiatives and performance in detail, please read the Sustainability Statement section of this Report from page 110 – 141. Workforce Management Product Quality & Safety Employee Health & Safety Community Relations Integrated Report 2023 19
TOGETHER Making Things Better, DAGANG NeXCHANGE BERHAD 20 Overview of Dagang NeXchange Berhad
Ethical We uphold ethical standards, integrity, and transparency, and create a conducive and safe working environment while never compromising on our values. (We Do the Right Thing) VISION MISSION To be a leading multinational corporation that is trusted for its worldclass services and expertise. We are vibrant talents who are committed to deliver business innovation that creates value for stakeholders. ts DNeX HIGH PERFORMANCE SHARED VALUES DNeX has introduced its High Performance Shared Values with the primary objectives towards being results driven, innovative, playing-to-win and doing-the-right-thing. This set of values - Driven, Adaptable, Responsible and Ethical (“DARE”) – encapsulates how DNeX Group would like to operate as a high-performing organisation, balancing the needs for both internal development and continued operational excellence. The new shared values provide a framework of actionable behaviours for employees to inculcate in the workplace that will lead to high-performance culture, while developing the right core, leadership, and technical competencies that the organisation can measure itself against. Driven We relentlessly drive to achieve our goals, constantly strive for excellence through collaborative efforts and focus on delivering impactful results. (We Play to Win) Responsible We maintain a strong sense of responsibility, ensure accountability in all endeavors, and seek win-win solutions through continuous learning and dedicated efforts. (We Achieve Results with Care) ADAPTABLE We embrace innovation and encourage creative thinking and agile responses to challenges, always exploring new ideas and approaches. (We Strive to be Innovative) Integrated Report 2023 21 OVERVIEW OF DAGANG NeXCHANGE BERHAD
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