Unleashing potential...

Annual Report 2007

...Creating value

paua [pou-uh]noun
Paua or p aua is the Maori name given to three species of large edible sea snails, marine gastropod molluscs, which belong to the family Haliotidae (genus Haliotis). New Zealands most well-known paua species is Haliotis Iris. It is also the most common species, growing up to 18 cm in length. What sets it apart is its distinctive iridescent colour.

About the cover

Unleashing Potential...
In everything there lies a seed, which has the capacity to be something better. However, to truly effect transformation something more than a mere stimulus is required. That something is a focus, a mission, a goal. To get there one must have deep understanding of ones true potential. Only then can that potential be recognised and then unleashed.

Creating Value
Change is good. It is driven by a desire for improvement. It is powered by excellence. It banishes complacency and apathy with creativity and energy. It inspires people to push further and become something better. It gives potential a chance to be unleashed. But best of all, it rewrites the written, removes obstacles and destroys barriers. Change is the herald of new beginnings, allowing for the opening up of possibilities and the unleashing of potential towards the creation of value.

A Unique Creature
The Paua is possibly one of natures most enigmatic of creatures. To the ordinary eye it is a large mollusc that spends its existence unobtrusively nibbling away at seaweed. The Paua is in fact a highly sought-after delicacy, its iridescent shell stunningly beautiful and radiant, equally so its rare and unique blue pearl. When it comes to the humble Paua, the surface belies what lies underneath.

A Unique Company
TM has been instrumental in the development of Malaysia since its early days as The Department of Telecommunications. As a Company, we are now the nations largest telecommunications provider, and more. From having the largest fibre-optic network to offering a diverse portfolio of products and services, TM is a name everyone knows. Going beyond connectivity, we permeate nearly every strata of society through our educational, corporate, community and social roles. Having spread our wings beyond our shores, we are now one of Asias leading telecommunication companies.

Corporate Framework
Corporate Profile The Demerger Proposition TM Group Products & Services Milestones Over Two Centuries Media Milestones In 2007 2007 Corporate Events TM Awards & Recognition 2007 Corporate Information Group Corporate Structure Group Organisation Structure Enhancing Value To Our Providers Of Capital 14 17 20 22 24 26 38 42 44 46 47

Performance Review
Five-Year Group Financial Highlights Simplified Group Balance Sheets & Group Segmental Analysis Group Quarterly Performance Group Financial Review Business & Other Statistics Statement & Distribution Of Value Added 52 54

Leadership

Accountability

Profile Of Directors Group Senior Management

70 76

Statement On Corporate Governance Achieving Business Objectives By Improving Enterprise Risk Management (ERM) Execution Code Of Business Ethics Audit Committee Report Directors Statement On Internal Control

88 103

56 57 64 66

106 114 121

Additional Compliance Information 108

14-50

51-66

67-86

87-124

Contents
OUR VISION
Our vision is to be the Communications Company of choice focused on delivering Exceptional Value to our customers and other stakeholders.

Annual Report 2007

TELEKOM MALAYSIA BERHAD
(128740-P)

OUR MISSION
To achieve our vision, we are determined to do the following: Be the recognised leader in all markets we serve Be a customer-focused organisation that provides one-stop total solutions Build enduring relationships based on trust with our customers and partners Generate shareholder value by seizing opportunities in Asia Pacific and other selected regional markets Be the employer of choice that inspires performance excellence

Notice Of Annual General Meeting Statement Accompanying The Notice Of Annual General Meeting Financial Calendar

6 10 11

Notice of Annual General Meeting

Date: 17 April 2008, Thursday Time: 10.00 a.m. Venue: Multi Purpose Hall, Menara TM, Jalan Pantai Baharu 50672 Kuala Lumpur, Malaysia

Perspective

Business Review
126 134 Malaysia Business Celcom (Malaysia) Berhad International Operations Global Cable Services, International Investments & Presence TM Ventures International And Domestic Infrastructure & Trunk Fibre Optic Network Asian Economies And The Telecommunications Sector: Review & Outlook 148 158 166 184

Key Initiatives
Building Enduring Customer Relationships Fostering A Nation Through Capacity Building Gearing Human Capital Towards Business Excellence 186 202 Building Capabilities Through Development And Learning Towards Greater Innovation 204 Occupational Safety, Health And Environment (OSHE) Corporate Responsibility 214 218 224 230 234 238 240

Financial Statements Other Information

Shareholding Statistics List Of Top 30 Shareholders Authorised And Issued Share Capital Net Book Value Of Land & Buildings Usage Of Properties Group Directory Glossary Proxy Form

251

Chairmans Statement Group Chief Executive Officers Statement

413 414 416 418 419 420 429

125-143

144-210

211-250

251-430

CHAIRMANS STATEMENT

Notice of Annual

General Meeting

1.

23

rd
2. 3.

To receive the Audited Financial Statements for the financial year ended 31 December 2007 together with the Reports of the Directors and Auditors thereon. (Ordinary Resolution 1) To declare a final gross dividend of 22 sen per share (less 26% Malaysian Income Tax) in respect of the financial year ended 31 December 2007. (Ordinary Resolution 2) To re-elect Datuk Zalekha Hassan who was appointed to the Board during the year and retire pursuant to Article 98(2) of the Companys Articles of Association. (Ordinary Resolution 3) To re-elect the following Directors, who retire by rotation pursuant to Article 103 of the Companys Articles of Association:(i) (ii) Dato Ir Dr Abdul Rahim Daud (Ordinary Resolution 4)

NOTICE IS HEREBY GIVEN THAT THE TWENTY-THIRD (23RD) ANNUAL GENERAL MEETING OF THE COMPANY WILL BE HELD ON THURSDAY, 17 APRIL 2008 AT 10:00 A.M., AT MULTI PURPOSE HALL, MENARA TM, JALAN PANTAI BAHARU, 50672 KUALA LUMPUR, MALAYSIA, FOR THE FOLLOWING PURPOSES:AS SPECIAL BUSINESS
To consider and if thought fit, to pass the following Resolutions:7. (i) Authority under Section 132D of the Companies Act, 1965 for the Directors to allot and issue shares THAT pursuant to Section 132D of the Companies Act, 1965 (the Act), full authority be and is hereby given to the Directors to issue shares in the capital of the Company at any time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued, does not exceed 10% of the issued share capital of the Company for the time being, subject always to the approvals of the relevant regulatory authorities, where such approval is necessary. (Ordinary Resolution 9) 6. 5. 4.

YB Datuk Nur Jazlan Tan Sri Mohamed (Ordinary Resolution 5) (Ordinary Resolution 6)

(iii) Dato Azman Mokhtar

To approve the payment of Directors fees of RM720,492.91 for the financial year ended 31 December 2007. (Ordinary Resolution 7) To re-appoint Messrs. PricewaterhouseCoopers having consented to act as Auditors of the Company for the financial year ending 31 December 2008 and to authorise the Directors to fix their remuneration. (Ordinary Resolution 8)

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notice of Annual General Meeting

(ii)

Proposed New Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature THAT in accordance with paragraph 10.09 of the Listing Requirements of Bursa Malaysia Securities Berhad (Bursa Securities), approval be and is hereby given for Telekom Malaysia Berhad (the Company) and/or its subsidiaries to enter into recurrent related party transactions of a revenue or trading nature as set out in APPENDIX I of the Circular to Shareholders despatched together with the Companys 2007 Annual Report, which are necessary for the day-to-day operations provided such transactions are entered into in the ordinary course of business of the Company and/or its subsidiaries, are carried out on an arms length basis, on terms not more favourable to the related party than those generally available to the public and are not detrimental to the minority shareholders of the Company (Proposed New Shareholders Mandate); THAT such approval shall continue to be in full force and effect until: (a) the conclusion of the next Annual General Meeting of the Company at which time the authority will lapse, unless the authority is renewed by a resolution passed at such general meeting; the expiration of the period within which the Companys next Annual General Meeting is required to be held under Section 143(1) of the Companies Act, 1965 (but shall not extend to such extension as may be allowed under Section 143(2) of the Companies Act, 1965; or revoked or varied by resolution passed by the shareholders of the Company at a general meeting,

(b)

(c)

whichever is earlier; AND THAT the Board of Directors of the Company be and is hereby authorised to complete and do all such acts, deeds and things (including executing such documents under the common seal in accordance with the provisions of the Articles of Association of the Company, as may be required) to give effect to the Proposed New Shareholders Mandate. (Ordinary Resolution 10) (iii) Proposed Amendments to the Articles of Association of the Company THAT the Articles of Association of the Company be and are hereby altered, modified, added and deleted in the form and manner as set out in APPENDIX II of the Circular to Shareholders despatched together with the Companys 2007 Annual Report. AND THAT the Board of Directors of the Company be and is hereby authorised to do all such acts, deeds and things as are necessary and/or expedient in order to give full effect to the Proposed Amendments to the Articles with full powers to assent to any conditions, modifications and/or amendments as may be required by any relevant authorities." (Special Resolution) 8. To transact any other business of the Company of which due notice has been received.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notice of Annual General Meeting

FURTHER NOTICE IS HEREBY GIVEN THAT a Depositor shall be eligible to attend this meeting only in respect of:(a) (b) (c) Shares deposited into the Depositors Securities Account before 12:30 p.m. on 8 April 2008 (in respect of shares which are exempted from Mandatory Deposit); Shares transferred into the Depositors Securities Account before 4:00 p.m. on 8 April 2008 (in respect of Ordinary Transfer); and Shares bought on the Bursa Securities on a cum entitlement basis according to the Rules of the Bursa Securities.

Shareholders are reminded that pursuant to the Securities Industry (Central Depositories) (Amendment No. 2) Act, 1998 (SICDA) which came into force on 1 November 1998, all shares not deposited with Bursa Malaysia Depository Sdn Bhd (Bursa Depository) by 12:30 p.m. on 1 December 1998 and not exempted from Mandatory Deposit, have been transferred to the Minister of Finance (MOF). Accordingly, the person eligible to attend this Meeting for such undeposited shares will be the MOF.

NOTICE ON ENTITLEMENT AND PAYMENT OF FINAL DIVIDEND

NOTICE IS ALSO HEREBY GIVEN THAT subject to the approval of Members at the 23rd Annual General Meeting to be held on 17 April 2008, a final dividend of 22 sen (less 26% Malaysian Income Tax) for the financial year ended 31 December 2007 will be paid on 15 May 2008 to Depositors whose names appear in the Record of Depositors on 24 April 2008. FURTHER NOTICE IS HEREBY GIVEN THAT a Depositor shall qualify for entitlement to the dividends only in respect of: (a) (b) (c) Shares deposited into the Depositors Securities Account before 12:30 p.m. on 22 April 2008 (in respect of shares which are exempted from Mandatory Deposit); Shares transferred into the Depositors Securities Account before 4:00 p.m. on 24 April 2008 (in respect of Ordinary Transfers); and Shares bought on the Bursa Securities on a cum entitlement basis according to the Rules of the Bursa Securities.

Shareholders are reminded that pursuant to SICDA, all shares not deposited with Bursa Depository by 12:30 p.m. on 1 December 1998 and not exempted from Mandatory Deposit, have been transferred to the MOF. Accordingly, the dividend for such undeposited shares will be paid to MOF. By Order of the Board

Wang Cheng Yong (MAICSA 0777702) Zaiton Ahmad (MAICSA 7011681) Secretaries Kuala Lumpur 26 March 2008

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notice of Annual General Meeting

NOTES: 1. A Member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his/her stead. A Proxy need not be a Member of the Company and the provisions of Section 149(1)(b) of the Act shall not apply to the Company. A Member shall not be entitled to appoint more than two (2) proxies to attend and vote at the Meeting provided that where a Member of the Company is an authorised nominee as defined in accordance with the provisions of the Securities Industry (Central Depositories) Act, 1991, it may appoint at least one (1) proxy but not more than two (2) proxies in respect of each securities account it holds with ordinary shares in the Company standing to the credit of the said securities account. Where a Member appoints two (2) proxies, the appointments shall be invalid unless the proportion of the holding to be represented by each proxy is specified. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly appointed under a power of attorney or if such appointer is a corporation, either under its common seal or under the hand of an officer or attorney duly appointed under a power of attorney. If the Proxy Form is signed under the hand of an officer duly authorised, it should be accompanied by a statement reading "signed as authorised officer under an Authorisation Document which is still in force, no notice of revocation have been received". If the Proxy Form is signed under the attorney duly appointed under a power of attorney, it should be accompanied by a statement reading "signed under a Power of Attorney which is still in force, no notice of revocation have been received". A copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the laws of the jurisdiction in which it was created and is exercised, should be enclosed with the Proxy Form. 5. A corporation which is a Member, may by resolution of its Directors or other governing body authorise such person as it thinks fit to act as its representative at the Meeting, in accordance with Article 92 of the Company's Articles of Association. The instrument appointing the proxy together with the duly registered power of attorney referred to in Note 4 above, if any, must be deposited at the office of the Share Registrars, Tenaga Koperat Sdn Bhd, G-01 Ground Floor, Plaza Permata, Jalan Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof, or, in the case of a poll, not less than 24 hours before the time appointed for the taking of the poll. Detailed information on the proposed new shareholders mandate is set out in Appendix I of the Circular to Shareholders despatched together with the Companys 2007 Annual Report. (iii) The proposed Special Resolution, if passed, will bring the Articles of Association of the Company in line with the recent amendments of the Listing Requirements of Bursa Securities, the provisions of the Capital Markets and Services Act, 2007 as well as for better clarity and administrative efficiency. Detailed information on the proposed amendments to the Articles of Association of the Company is set out in Appendix II of the Circular to Shareholders despatched together with the Companys 2007 Annual Report.

2.

6.

3.

EXPLANATORY NOTES ON SPECIAL BUSINESS (i) The proposed Ordinary Resolution 9, if passed, will give the Directors of the Company authority to issue and allot shares for such purposes as the Directors in their absolute discretion consider to be in the interest of the Company, without having to convene a general meeting. This authority unless revoked or varied by the Company in a general meeting, will expire at the next Annual General Meeting of the Company.

4.

(ii) The proposed Ordinary Resolution 10, if passed, will authorise the Company and/or its subsidiaries to enter into recurrent related party transactions with related parties in the ordinary course of business which are necessary for the Group's day-to-day operations and are on terms not more favourable to the related parties than those generally available to the public and shall lapse at the conclusion of the next Annual General Meeting unless authority for its renewal is obtained from shareholders of the Company at a general meeting.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Statement Accompanying The

Notice Of Annual General Meeting

DIRECTORS RANKING FOR RETIREMENT AND RE-ELECTION AT THE

23
1.

rd

ANNUAL GENERAL MEETING

The following are Directors retiring pursuant to Article 98(2) and Article 103 of the Companys Articles of Association:Article 98(2): Retirement after appointment to fill casual vacancy Datuk Zalekha Hassan

Article 103: Retirement by rotation 1. 2. 3. Dato Ir Dr Abdul Rahim Daud YB Datuk Nur Jazlan Tan Sri Mohamed Dato Azman Mokhtar

The respective profiles of the above Directors are set out in the Profile of the Board of Directors on pages 72 to 74 inclusive, of this Annual Report. Their securities holdings in the Company and its related corporation are disclosed on page 413 of this Annual Report. Note: Dato Sri Abdul Wahid Omar, the Director/Group Chief Executive Officer who is due for retirement by rotation pursuant to Article 103 of the Companys Articles of Association at this 23rd Annual General Meeting, has indicated his intention not to seek re-election as a Director of the Company. Dato Sri Abdul Wahid shall therefore, retire as a Director upon the conclusion of the 23rd Annual General Meeting. However, he shall remain as the Group Chief Executive Officer of the Company.

10

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

23 February 2007
Announcement of the audited consolidated results and the proposed final dividend of 30 sen per share (less 27% Malaysian Income Tax) for the financial year ended 31 December 2006.

10 December 2007
Declaration of a special dividend of 65 sen per share (less 26% Malaysian Income Tax) for the financial year ended 31 December 2007.

Calendar

Financial

8 May 2007
22nd AGM followed by the Extraordinary General Meeting (EGM) of the Company.

18 January 2008
Date of entitlement to the special dividend of 65 sen per share (less 26% Malaysian Income Tax) for the financial year ended 31 December 2007.

14 May 2007
Date of entitlement to the final dividend of 30 sen per share (less 27% Malaysian Income Tax) for the financial year ended 31 December 2006.

31 January 2008
Date of payment of the special dividend of 65 sen per share (less 26% Malaysian Income Tax) for the financial year ended 31 December 2007.

12 June 2007
Date of payment of the final dividend of 30 sen per share (less 27% Malaysian Income Tax) for the financial year ended 31 December 2006.

20 February 2008
Issuance of Notice of EGM.

26 July 2007
Announcement of the unaudited consolidated results for the 2nd quarter ended 30 June 2007 and the declaration of an interim dividend of 26 sen per share (less 27% Malaysian Income Tax) for the financial year ended 31 December 2007.

26 February 2008
Announcement of the audited consolidated results and the proposed final dividend of 22 sen per share (less 26% Malaysian Income Tax) for the financial year ended 31 December 2007.

20 August 2007
Date of entitlement to the interim dividend of 26 sen per share (less 27% Malaysian Income Tax) for the financial year ended 31 December 2007.

6 March 2008
EGM of the Company.

24 April 2008
Date of entitlement to the final dividend of 22 sen per share (less 26% Malaysian Income Tax) for the financial year ended 31 December 2007.

4 September 2007
Date of payment of the interim dividend of 26 sen per share (less 27% Malaysian Income Tax) for the financial year ended 31 December 2007.

26 March 2008
Issuance of Notice of the 23rd AGM together with the Annual Report for the financial year ended 31 December 2007 and Circular to Shareholders.

15 May 2008
Date of payment of the final dividend of 22 sen per share (less 26% Malaysian Income Tax) for the financial year ended 31 December 2007.

7 November 2007
Announcement of the unaudited consolidated results for the 3rd quarter ended 30 September 2007.

17 April 2008
23rd AGM of the Company.
TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

11

Corporate Framework

CORPORATE PROFILE THE DEMERGER PROPOSITION TM GROUP PRODUCTS AND SERVICES MILESTONES OVER TWO CENTURIES MEDIA MILESTONES IN 2007 2007 CORPORATE EVENTS TM AWARDS AND RECOGNITION 2007 CORPORATE INFORMATION GROUP CORPORATE STRUCTURE GROUP ORGANISATION STRUCTURE ENHANCING VALUE TO PROVIDERS OF CAPITAL

14 17 20 22 24 26 38 42 44 46 47

Corporate Framework

Corporate

Profile

FROM ITS EARLY DAYS AS THE MALAYAN TELECOMMUNICATIONS DEPARTMENT IN 1946, TM CHARTED A GROWTH PATH THAT SAW ITS CORPORATISATION IN 1987, INITIAL PUBLIC OFFERING AND LISTING ON BURSA SECURITIES IN 1990, ITS EVOLUTION AS A COMPANY WITH A RECORD FINANCIAL PERFORMANCE IN ITS COUNTRY OF DOMICILE AS WELL AS AN EXPANDING FOOTPRINT IN ASIA AND ELSEWHERE, AND THE LAUNCH OF A NEW BRAND IDENTITY IN 2005. OVER THE YEARS, TM HAS EVOLVED TO BECOME THE LARGEST INTEGRATED TELECOMMUNICATIONS SOLUTIONS PROVIDER IN MALAYSIA AND ONE OF ASIAS LEADING COMMUNICATIONS COMPANIES. TMS SUCCESS AND GROWTH HAS BEEN REMARKABLE, GIVEN THE HIGHLY-COMPETITIVE ENVIRONMENT IN WHICH IT OPERATES. WITH A CURRENT GROUP STAFF STRENGTH IN EXCESS OF 36,000 WITH OPERATIONS AND INTERESTS IN 13 COUNTRIES, TM IS FOCUSED ON BEING A RECOGNISED LEADER IN ALL ITS MARKETS, DELIVERING EXCEPTIONAL VALUE TO ITS CUSTOMERS AND ACHIEVING SUSTAINABLE GROWTH IN BOTH LOCAL AND INTERNATIONAL MARKETS.

14

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Corporate Profile

As an integrated telecommunications company, TM offers a comprehensive range of communication services and solutions in fixed line, data, mobile and Internet, and multimedia. Supporting this extensive range of products and services is a world-class communications infrastructure, spanning the entire country and going beyond Malaysian shores. In facilitating regional and international telecommunications, TM has in place an extensive combination of satellite, terrestrial and submarine fibre-optic cable systems to deliver both domestic and international data services. In August 2006, TM implemented the second phase of its corporate reorganisation that saw the creation of a Strategic Business Unit called Malaysia Business to consolidate all domestic fixed services and align businesses with a common agenda. Incorporating TM Retail, TM Wholesale and TM Net Sdn

Bhd, Malaysia Business focuses on TMs fixed line and data, as well as Internet and multimedia businesses. As at 31 December 2007, TMs fixed services customers stood at 5.7 million, inclusive of fixed line, Internet and multimedia. TMs mobile arm, Celcom (Malaysia) Berhad (Celcom), is Malaysias premier mobile communications provider. Celcom has steadily made its presence felt in the market through its innovations, which have raised industry standards and provided product and service benchmarks in the country. Celcom was the first mobile operator in Malaysia to launch 3G services commercially. Leveraging on its partnership with Vodafone, Celcom launched the Vodafone Mobile Connect 3G Broadband (HSDPA) data card and Blackberry by Vodafone which extends the product offerings to its growing subscriber base. The Company also launched PowerTools for the enterprise market, formed an alliance with online search engine Google, and joined hands with Maybank to introduce Malaysias first mobile financial services, the Maybank2u Mobile Service. As at 31 December 2007, Celcoms customer base stood at 7.2 million. In its quest for future and sustainable growth, TM is focused on continued regional expansion in markets closer to home. Today, TM is an emerging leader in Asian communications with operations and interests in the region and globally. Together with its mobile operations in Malaysia, TMs regional mobile customer base stood at 39.8

million as at end of 2007. Apart from Malaysia, TM has nine key markets within Asia: Indonesia, Singapore, Cambodia, Thailand, Bangladesh, Pakistan, India, Sri Lanka and Iran, with businesses focusing mainly on the mobile segment. TMs investment philosophy is to play an active role in its international operations (where it has management control), with the aim of building value in its investments by hiring and developing local talents, sharing expertise, knowledge and best practices, contributing to infrastructure development in the countries in which it has investments, as well as providing opportunities for wealth creation among the local population. Evidence of this can be found in the highly-successful listing of TMs pioneer investment in Sri Lanka, Dialog Telekom Limited (Dialog) on the Colombo Stock Exchange in July 2005. With a market capitalisation exceeding US$1 billion. Dialog was the largest Initial Public Offering in Sri Lankas corporate history. The successful listing of Dialog provided the opportunity for local ownership of a well-run company and the sharing of the Companys wealth with the Sri Lankan public. Dialog continues to lead the mobile industry in Sri Lanka with a market share of more than 60%. Complementing its investment forays abroad, the international arm of TMs wholesale business, TM Global, provides a wide array of voice, international bandwidth, IP and data services capacity across six continents, namely Asia, Europe, the Americas, Oceania, Middle East and Africa. In the ASEAN region, TM Global has business tie-ups and

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

15

Corporate

Framework

Corporate Profile

arrangements with telcos in Singapore, Philippines, Brunei, Indonesia, Thailand, Myanmar, Cambodia, Laos and Vietnam. TM Global has also set up Global IP Nodes in Singapore, Hong Kong, Japan, UK, US, Netherlands, Egypt, Bahrain and Indonesia, while Sri Lanka and Pakistan Global IP Nodes were in progress in 2007. Meanwhile, on 28 September 2007, TM proposed to undertake a demerger exercise to separate its mobile and fixed businesses currently managed as one, into two business entities as follows: FixedCo (TM) This entity would retain TMs domestic interests in fixed-line voice, data and broadband and other non-telecommunication related services under TM Ventures. RegionCo (TM International) This entity would include all TMs mobile and overseas operations under TM International, and domestic mobile operations under Celcom (Malaysia) Berhad. The demerged entity would then seek a separate listing. This move would create two leading communication companies, each clearly focused on its own core business or core competency. One will be positioned as a champion of regional mobile services, and the other a leader in domestic fixed services including highspeed broadband.

On 10 December 2007, TM unveiled the final terms of the demerger which would ensure the Group continued to derive greater shareholder value from both businesses, and ultimately benefit all its stakeholder communities. As a leading Company, TM remains committed to the principles of Corporate Responsibility through its various stakeholder activities and projects, significantly contributing towards the national agenda and the communities where it has a presence. In this, TM is driven by a belief that good Corporate Responsibility is a fundamental tenet of good Corporate Governance. Besides running a sustainable enterprise in line with international best practices, TM fulfils its corporate responsibility towards the community via three major platforms, i.e. education, sports development and community and nation-building. In Education, TM has invested considerably in establishing and growing the internationally-recognised Multimedia University into one of the top private universities in Malaysia with more than 20,000 students enrolled in 2007. As part of capacity-building, TM provides scholarships to deserving students. More than 10,000 graduates have benefited from TM scholarships since 1994. On the Sports Development front, TM is involved in the promotion and strengthening of football at all levels, while under the Community and Nation-Building platform, the Group contributes towards causes that bring tangible benefits to society and the nation at large.

16

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Corporate Framework

Proposition

The Demerger

On September 28, 2007, TMs Board of Directors approved the proposal for a strategic demerger exercise which was designed to lay the foundations for the Groups continued success. A year before, TM had begun to address the performance issues of its domestic fixed-line business which was facing revenue decline, and its mobile operations in Malaysia, which suffered from intense competition. A Performance Improvement Programme (PIP) was launched to improve operational efficiencies at all levels in August 2006. TM executed a number of programmes to bring about real and positive change from the top, to the front-liners, by way of employee-engagement and productivity-enhancement exercises. Under PIP, TM also undertook a restructuring exercise to consolidate and strengthen its domestic operations under a new Strategic Business Unit called Malaysia Business whose team would focus on arresting fixed-line revenue decline and maximise operational synergies across the organisation. The PIP initiatives resulted in an enhanced performance of TMs core businesses in fixed and mobile operations and demonstrated that a sharper focus on each core competency would yield desired results. Demerger to further rationalise both operations was inevitable as the next step. The proposition was to demerge TMs operations into two separate legal entities FixedCo (TM) and RegionCo (TM International) each with its own leadership and teams and growth strategies independent of one another, with the ultimate objective being to improve operational excellence and deliver better shareholder value. FixedCo would retain the listed TMs domestic interests in fixed-line voice, data and broadband and other non-core services under TM Ventures. RegionCo, on the other hand, would group TMs regional mobile operations under TM International, and domestic mobile operations under Celcom, and pursue listing status as a separate entity. Both companies would have the freedom to chart their own growth while standing on their individual merits with distinct investment-value propositions.

Facts at a Glance
HSBB The Next Generation To propel Malaysia into a digital economy A project over 10 years in partnership with the Government of Malaysia To connect premises with high-speed Internet access To help achieve the national household objective of broadband penetration by 2010

RM15.2 billion

2.2 million

50%

TMs aspirations were for FixedCo to focus on growing the domestic broadband market even as it continued to boost performance for fixed voice and data. In this regard, FixedCo was to collaborate with the Government of Malaysia to roll out high speed broadband (HSBB) services. While FixedCo was well positioned as a leader in the domestic market, RegionCo would emerge as a regional mobile champion leveraging on its assets and expanding and increasing its footprint across Asia and other emerging markets.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

17

Corporate

Framework

The Demerger Proposition

DEMERGER TRANSACTION STEPS

1. The first step involves an internal restructuring exercise which will group all TM's mobile and overseas businesses under TM International; 2. The second step sees the separation of the fixed-line and mobile businesses into TM International Group and TM Group.

Demerger Transaction Step 1: Internal Restructuring / Asset Transfers Objective To group all mobile assets under TMI, and to ensure ownership of fixed business under TM

Demerger Transaction Step 2: TMI Share Distribution to TM Shareholders Objective To distribute shares in TM International to existing shareholders of TM in the ratio of 1:1, as a result of which, TMI will cease to be a subsidiary of TM

TMB

Pre-Demerger
Khazanah MI

TMI

SS RCPS 3 2

3G 4

TESB

Celcom

TMB
CTX 51% Fibrecomm 1

TMI
TMB

Post-Demerger
TMI TESB 51% SS RCPS CTX Celcom Fibrecomm

Khazanah

MI

Khazanah

MI

3G

TMB

TMI

All wholly-owned unless otherwise stated

1. 2. 3. 4. 5.

Fibercomm1 to be transferred by Celcom (Malaysia) Berhad (Celcom) to MB for RM33 million (at book value) Telekom Enterprise Sdn Bhd (TESB) to transfer Celcom to TMI for RM4,677 million (at cost of investment) Sunshare RCPS2 to be transferred to TMI for RM141 million (at book value) TMB to transfer 3G licence to Celcom for RM40 million (at book value). Consideration is paid by Celcom in cash Settlement of amount owing from TMI to TMB of RM3,041 million

Distribution > Distribution via special dividend on a one share of TMI for every one share in TM > This approach has been adopted as it provides the highest degree of transaction certainly and reduces execution complexity Listing > TMI to be listed separately

With the completion of the share distribution, TM International ceases to be a subsidiary of TM and effectively demerged from TM.

Notes: 1. Fibrecomm is 51% owned by Celcom via Celcom Transmission (M) Sdn Bhd (CTX). Principally engaged in provision of fibre optic transmission network service. 2. SunShare Investment Ltd, a jointly-controlled entity with primary investment in MobileOne Ltd. TMB holds redeemable preference shares (RCPS) in SunShare with 51% economic interest, notwithstanding its TMBs 80% equity interest therein.

18

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

The Demerger Proposition

THE METAMORPHOSIS
The complex exercise of demerger was simplified for TMs key stakeholders by open and transparent communications from the onset. Through regular disclosure and dialogue, TM articulated the rationale and benefits, and shared the process and way forward postdemerger plans. Demerger involved two key stages of transition. The first stage called for an internal restructuring exercise to group all TMs mobile and businesses under TM International, while the second stage focused on separation of the fixed-line and mobile businesses into TM International Group and TM Group respectively. As at end December 2007, the demerger process was on track and key deliverables already in place. The first quarter of 2008 saw regulatory and compliance activities in progress, including submissions for approval to the Malaysian Communications and Multimedia Commission, the Securities Commission, Foreign Investment Committee and Bursa Securities. TM obtained its shareholders approval to proceed with the demerger exercise at an Extraordinary General Meeting (EGM) held on 6 March 2008. A Demerger Program office headed by Khairussaleh Ramli was set up to manage the demerger exercise. The demerger is targeted for completion at the end of the second quarter of 2008, when TM International is expected to be listed. With that, the TM Group will effectively move forward as two different companies, each with their own value proposition.

TM: MALAYSIAS LEADING NEXT GENERATION COMMUNICATIONS PROVIDER

TM, optimising on its strengths of 95% and 96% market share in the fixed-line and broadband businesses respectively, intends to focus on new business segments as its growth engine, namely broadband, global business and wholesale. With a commitment to embrace customer needs through innovation and execution excellence, TM will capitalise on consumer demand and growth opportunities through upstream partnerships and deploying differentiated service offerings under High Speed Broadband in the downstream consumer segment. It will also focus on the small-medium enterprise (SME) market, as well as enhance international connectivity within the region to establish Malaysia as a regional Internet hub and digital gateway for South-East Asia. In the long-term, TM will drive HSBB as an important engine for national growth.

TM INTERNATIONAL: THE LEADING MOBILE OPERATOR IN SOUTH & SOUTH-EAST ASIA BY 2015
TM International is on a new growth trajectory by aiming to expand its footprint beyond the existing 10 countries where TM has a presence and where the mobile subscriber base is about 39.8 million. To strengthen its position in high-growth markets in South Asia and South-East Asia, TM International will be considering strategic collaborations with existing and new partners especially to facilitate a mutual exchange of resources, technology and international best practices. TM International has great aspirations for Celcom to make it a player capable of contributing significantly to the growth of TM International across the region. With its track record and strong position in mobile operations in Malaysia, Celcom will anchor TM International and provide continuing technological, brand and marketing leadership through access to product and service innovations and offerings. In conclusion, TM Group is determined to continue its evolution as one of Malaysias foremost companies, by providing the impetus to the growth of two companies which will build on Malaysias telecommunications legacy separately and independently, as well as achieve prominence at home and leadership in the region. Demerger is a strategic exercise whose value proposition is to deliver tangible benefits to all TM stakeholders far and wide with a new vision and renewed energy.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

19

MALAYSIA BUSINESS
TM RETAIL
Voice Products Home Line Business Line Infoblast One Number Services Malaysia Direct iTalk TM Calling Card Data Products VPN Coins VPN Global VPN IPVPN Metro-E Managed Services Solution Added Services Conferencing Services Access Services Business Broadband i. SOHO ii. 1IP iii. 5IP 1515 1525 EZnet 1315 Streamyx Streamyx Hotspot Application Services e-health e-secure e-biz e-hotel e-Mall e-supply chain e-surveillance Hosting services Webmail Value Added Services Global Roaming Corporate Roaming Xfilter E-scan Online Guard Powersurf Virus Shield & Anti-Spamming Xfilter Ishield X-blocker Content Services Bluehyppo.com Netmyne Hypp.tv

TM WHOLESALE
Traffic Minutes Public Switched Terminal Network (PSTN) Voice-over Internet Protocol (VoIP) Domestic Interconnect International Interconnect Access Services Narrowband (Payphone) Broadband (DSL, Fixed, Fixed Wireless) Bandwidth Services Domestic (Commercial) i. Narrowband ii. Broadband iii. Optical Bandwidth Domestic (Regulated) i. In span ii. Full span POI iii. Domestic Network Transmission Services

International i. International Private Leased Circuit (IPLC) ii. International Satellite Services iii. International VSAT Services iv. Bandwidth Transit Services v. Bandwidth Backhaul Services vi. Bandwidth Interconnection Services Data Services Domestic i. IP Wholesale ii. Wholesale Ethernet International i. Global IPVPN ii. Global Managed Services iii. Global IP Transit Infra Services Tenancy Co-Location Infrastructure Sharing Customised Services Recovery Work Order

CELCOM (MALAYSIA) BERHAD

CELCOM CONSUMER PRODUCTS
Celcom Postpaid Mobile Services Postpaid Rate Plans Normal Postpaid Minutes Postpaid Family Postpaid 1+3 Plan Postpaid Data Services Postpaid Value Added Services 3G Postpaid Services Celcom Prepaid Mobile Services Rate Plans Xpax Prepaid (Max, Mid, Lite) Promotional/Limited Edition Starter Packs i.e. Paket Baladewa, Paket Keren Peterpan, Sikat Pack for Filipinos, UOX, Kenangan

Terindah bersama Samsons, World Cricket 07 (West Indies) Limited Addition Starter Pack Data Services Value Added Services i.e. 8pax, Airtime Share Xpax Bonuses (Every Month Bonus, Birthday Bonus, Reload Bonus, Stay Active Bonus) 3G Services Celcom Branded Content (Channel X) i.e. Music, Movies, Games

CELCOM ENTERPRISE MARKET PRODUCTS

Business Voice Power38 Business 1+3 Business Prepaid Association Package Business Data Mobile Broadband (BASIC/ADVANCED/PPU) BlackBerry by Vodafone BES BlackBerry Enterprise Solution (For Companies) BIS BlackBerry Internet Solution (For Individuals) Email & Beyond Hosted Microsoft Exchange Business Solutions Telemetry Fleet Management Remote Meter Reading Satellite Voice and Data Mobile Fax Bulk SMS/EMS Data Roaming Packages

INTERNATIONAL ROAMING PRODUCTS FOR POSTPAID & PREPAID

Postpaid International Direct Dialling (Premium IDD, IDD 131) International Roaming (SMS, MMS, 3G Video Calls, Roam Saver *120*) Prepaid Premium IDD, IDD 131, SMS, MMS International Roaming (SMS, MMS, 3G Video Calls)

MULTINET PAKISTAN (PRIVATE) LIMITED (MULTINET)

PAKISTAN
Broadband Internet services International bandwidth and data services Long distance and international voice services Dark fibre Domestic private leased circuits Corporate applications

Corporate Framework
TM INTERNATIONAL (BANGLADESH) LIMITED (TMIB)
BANGLADESH

Products & Services

TM Group

Prepaid and postpaid mobile services Mobile data services Infotainment Services SMS Banking E reload Share a fill Local Language messaging Downloads: Ringtones, Operator logo, Screen Saver, Picture Message, MMS content Voice Greetings Fun Dose Caller Ring Back Tone

DIALOG TELEKOM PLC (DIALOG)

SRI LANKA
Mobile Voice and Data services 3G Mobile services Broadband Voice and Data services Internet services Direct to Home (DTH) satellite TV services Satellite Phone services International Voice and Data services mCommerce services Tele-infrastructure and carrier grade connectivity services Enterprise Solutions

TELEKOM MALAYSIA INTERNATIONAL (CAMBODIA) COMPANY LIMITED (TMIC)

CAMBODIA
Prepaid and postpaid mobile services Mobile data services Infotainment services e.g. sports Voice SMS, Voicemail Downloads: Ringtones, Operator logo, Screen Saver, Picture Message, MMS content

MOBILEONE LIMITED (M1)

SINGAPORE
Prepaid and postpaid mobile service Mobile broadband Mobile data services including: MeTV mClassified eBay Mobile SMS 2.0

wide coverage

PT EXCELCOMINDO PRATAMA TBK (XL)

INDONESIA
Prepaid and postpaid mobile services Mobile data services Corporate Push Email e.g. BlackBerry and Microsoft Push Email Consumer Push Email branded XLMobileMail Location based services E voucher Reload 3G services i.e. Video Streaming, Video Call, Video Downloads, Full Track downloads, Mobile TV, Interactive Game Domestic and international business solutions International wholesale carrier services

SPICE COMMUNICATIONS LIMITED (SPICE)

INDIA
Prepaid and postpaid mobile services Mobile data services Music: Caller Ringback tone, Background music, Jukebox, Mobile Karaoke Entertainment services: Mobile Dating Emergency call service Videotones

MOBILE TELECOMMUNICATIONS COMPANY OF ESFAHAN (MTCE)

IRAN
Prepaid and postpaid mobile services SMS services Selective Value Added Services content: Al Quran, Hafiz poems

21

Corporate Framework

1800s
1874
The telephone makes its debut in Perak

1968
The Telecommunications Department of Sabah and Sarawak merge with that of Peninsular Malaysia forming the Telecommunications Department of Malaysia

Milestones Over

Two Centuries

1970
The first international standard satellite earth station is commissioned in Kuantan, marking the advent of live telecasts in Malaysia

1882
Perak and Penang are linked by telephone via a submarine cable

1891
The first telephone exchange is commissioned in Kuala Lumpur

1975
Establishment of the Automatic Telex Exchange

1979
Introduction of International Direct Dial (IDD) facilities

1894
A submarine cable links Labuan with Singapore and Hong Kong

1980
Malaysia commissions its own submarine cable linking Kuantan and Kuching

1900s
1900
The first magneto telephone service is introduced in Kudat, Jesselton (KK) and Sandakan

1982
Introduction of Telefax and International Maritime Service

1983
Introduction of data communications

1908
Incorporation of postal and telegraph services

1984
Introduction of packet switch technology, leading to Malaysias own public data network

1926
Advent of radio communications in the country

1985
Commissioning of the ATUR service using 450 analog cellular radio technology, a first in Asia The Multi Access Radio System, providing rural customers with easier access to telephone services, is introduced

1946
Establishment of the Telecommunications Department in Malaya

1962
Introduction of Subscriber Trunk Dialling (STD) between Kuala Lumpur and Singapore via the first long distance microwave link

1987
Jabatan Telekom Malaysia (JTM) is corporatised, forming Syarikat Telekom Malaysia Berhad (STMB), the nations first privatised entity

1963
Expansion of the microwave network throughout Malaysia Launch of television services in Peninsular Malaysia

1988
Introduction of digital INTELSAT Business Service

22

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

1989
Introduction of the 800 toll-free service

1990
Introduction of international tollfree and prepaid cardphone (Kadfon) Listing of STMB on the Main Board of Bursa Securities and introduction of the new company logo

Telekom Malaysia becomes a major partner in the launch of the stateof-the-art submarine cable Asia Pacific Cable Network 2 (APCN2) Establishment of TM Net as the largest Internet Service Provider in the South-East Asian region Launch of CDMA service fixed wireless telephony

2002
Award of the 3G spectrum to Telekom Malaysia

1991
The Company rebranded its name to Telekom Malaysia Introduction of Malaysia Direct, Home Country Direct

2003
Merger of Celcom and TMTOUCH forming Malaysias largest cellular operator

XL, TMs Indonesian subsidiary secures 3G licence while Dialog, TMs subsidiary in Sri Lanka launches South Asias first 3G service Acquisition of the remaining 49% in Telekom Malaysia International (Cambodia) Company Limited, (formerly known as Cambodia Samart Communications Ltd), Cambodia and 49% interest in Spice Communications Private Limited, India TM initiates consortium to develop an undersea cable system, Asia-America Gateway, linking SE Asia and the USA

1992
Introduction of Video Conferencing and CENTREX

2007 2004
Restructuring of TM TelCo into two Strategic Business Units (SBUs) TM Wholesale and TM Retail TM Group undertakes Demerger exercise resulting in two distinct entities TM (FixedCo) and TMI (RegionCo) TM becomes the first Malaysian company to be named Service Provider of the Year at 2007 Frost & Sullivan Asia Pacific ICT Awards The first commemorative book titled Transforming a Legacy, was launched by YAB Dato Seri Abdullah Hj Ahmad Badawi, Prime Minister of Malaysia Divestment of TMs Payphone business to Pernec Corporation Berhad TMs affiliate in India, Spice Communications Limited commences trading on the Bombay Stock Exchange and receives the National and International Long Distance licences

1993
Introduction of ISDN services

1996
Introduction of 1800 MHz digital TMTOUCH cellular services

2005
Telekom Malaysia undergoes a major re-branding exercise and TM is adopted as the new brand Launch of 3G Services first in Malaysia Acquisition of 27.3% interest in PT Excelcomindo Pratama Tbk of Indonesia

1997
Introduction of Corporate Information Superhighway (COINS), Telekom Malaysias state-of-the-art, highcapacity enterprise solution

2006

2000
2001
Launch of Bluehyppo.com, Telekom Malaysias lifestyle Internet portal, which records more than 290 million searches a year Introduction of broadband services

TM forges strategic partnership with Vodafone, becoming a Vodafone Partner Network with a global reach of an estimated 179 million mobile customers worldwide TM implements its second phase restructuring exercise that organises the Groups business into 4 groupings Malaysia Business, Celcom, TM International and TM Ventures

Our Journey Continues...

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

23

Corporate

Framework

Media

Milestones in 2007

24

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Corporate

Framework

2007 Corporate Events

17

January

11

February

31

January

23

February

17 January 2007
TM along with Tenaga Nasional Berhad (TNB), Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS) and Indah Water Konsortium Sdn Bhd (IWK) came together for a 3-month public awareness campaign to address cable theft.

31 January 2007
The Lets Talk package which is aimed at boosting the usage of fixed-line services among customers was unveiled to the public. The campaign was an initiative under the TM Performance Improvement Programme (TM PIP), which sought to turnaround the domestic business.

11 February 2007
TM continued to support Le Tour de Langkawi, an international cycling race for the 12th consecutive year.

23 February 2007
TM announced its 2006 financial results which saw TM recording higher Profit After Tax and Minority Interest (PATAMI) of RM2.069 billion. The healthy performance was attributed mainly to higher group revenue, better cost and financial management and foreign exchange gain. TM also announced the extension of Dato Sri Abdul Wahid Omars tenure as TM Group Chief Executive Officer for another 3-year term with effect from 1 July 2007.

25 January 2007
TM entered into a partnership with Vodafone Alliance where each party agreed to jointly explore and identify opportunities to enhance the businesses of their respective group companies through collaboration in the area of international mobile telecommunications products and services. Subsequently, Vodafone entered into a separate Cooperation and Branding Agreement with respective TM subsidiaries including Celcom, Dialog and XL.

8 February 2007
Dialog Telekom PLC (Dialog)s subsidiary Asset Media (Pvt) Ltd launched Dialog Satellite TV a premier satellite television service set to revolutionise Direct to Home Television in Sri Lanka. Dialog is TMs subsidiary in Sri Lanka. Dialog Satellite TV features world-class entertainment and the widest spectrum of channels with a special focus on News, Entertainment and Knowledge-based Programming.

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TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Corporate Framework

15 March 2007
TM signed a Memorandum of Understanding (MoU) with US-based phone firm Verizon Business to explore the development of a Malaysian-based Internet Protocol (IP) hub.

20 March 2007
TM signed a tripartite MoU with the Ministry of Entrepreneur and Cooperative Development (MECD) and three financial institutions, namely Maybank, CIMB and SME Bank to further enhance the implementation of TMs Entrepreneurship Development Programme (EDP).

Corporate Events

2007

17 March 2007
Multimedia University (MMU), the first private university in the country, celebrated its 10th anniversary with a host of activities throughout the year highlighting its many achievements.

30 March 2007
TM Net signed a partnership with Korean company, Netpia.Com Inc to supply an application for Internationalised Domain Name or Native Language Internet Address (NLIA). The agreement marked the next step in the continued evolution of TM Nets vast array of services.

20 March 2007
Pizza Hut customers are able to enjoy both their meal and wireless broadband at the same time through tmnet hotspot services at more than 100 Pizza Hut restaurants located throughout Peninsular Malaysia, which collectively form the largest hotspot network in the country.

30 March 2007
TM showed its support for the North Pole expedition by contributing communication facilities amounting to RM100,000 which included Celcom Xpax prepaid cards, satellite airtime, handphones and a special laptop called toughbook.

15

March

20

March

30

March

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

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Corporate

Framework

2007 Corporate Events

5 April 2007
TM completed the sale of its entire 60% shareholding in Telekom Networks Malawi Limited to MTL Mobile Limited for a total cash consideration of US$16 million (RM55.0 million). The sale was part of a broader re-orientation of the Companys international investment strategy to focus on geographic regions closer to home.

19 April 2007
In Sri Lanka, Dialog executed a rights issue to raise SLR15.54 billion (RM482.1 million) to fund the companys aggressive expansion plans. The rights issue was accompanied by a Rated Cumulative Redeemable Preference Shares (RCRPS) issue aimed at raising up to SLR5.0 billion (RM155.5 million). The proceeds of the rights issue and issue of RCRPS totalling approximately SLR20.5 billion (RM637.6 million) was for the partial financing of Dialogs capital expenditure over the next three years.

21 April 2007
TM adopted two primary schools in Bukit Mertajam, Penang; Sekolah Kebangsaan Bukit Indera Muda and Sekolah Kebangsaan Seri Penanti under the PINTAR programme, giving students from the schools an opportunity to enhance their IT skills and improve their academic achievements. PINTAR is a programme initiated by the Ministry of Finance and driven by Khazanah Nasional together with major GLCs.

10 April 2007
Celcom signed a domestic roaming agreement with UMobile Sdn Bhd (formerly known as MiTV Networks Sdn Bhd), allowing UMobile customers to roam on Celcoms superior 2G network.

16 April 2007
TM signed an agreement with Universiti Teknologi Petronas (UTP) for the establishment of a wireless campus thereby making it the most extensively covered University for wireless broadband access.

10

April

21
28
TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

April

2007 Corporate Events

May

14

May

11& 29

May

17

May

27 April 2007
TM led a 17-member consortium of international telcos to build the first high bandwidth optical fibre submarine cable system, known as the AsiaAmerica Gateway (AAG), which will link the South East Asia region directly to the United States of America.

operate National and International Long Distance (NLD/ILD) services in India. This development allowed the company to carry both voice and data traffic nationally and internationally.

14 May 2007
Deputy Prime Minister, Dato Sri Mohd Najib Tun Abdul Razak launched TMs Corporate Social Responsibility (CSR) theme, Reaching Out during his maiden visit to TMs HQ in Kuala Lumpur. Reaching Out gives an identity to the Groups CSR efforts, making it easier for the public to relate to the CSR causes championed by the Group. In executing its CSR, TM focuses on three platforms, namely education, sports development as well as community and nation-building.

Peninsular Malaysia (NUTE), Union of Telekom Malaysia Employees, Sabah (SUTE) and Union of Telekom Malaysia Berhad Employees, Sarawak (UTES) for 2007-2009. The CAs covered various aspects, which included salary adjustments, salary structure and salary increment quantum, cost of living allowance, housing allowance and performance-based rewards.

8 May 2007
For the first time, Menara TM, TMs headquarters hosted some 500 shareholders at the Companys 22nd Annual General Meeting (AGM). At the AGM, shareholders voted in favour of the seven resolutions presented. TM also held an Extraordinary General Meeting (EGM), where another six resolutions were presented and approved.

17 May 2007
Dato Sri Dr Lim Keng Yaik, Minister of Energy, Water and Communications, launched Metro.e and Streamyx 4.0 Mbps, another of TMs latest offerings in the Malaysian broadband market. Launched in conjunction with World Telecommunications Day, the offerings boost the speed of broadband Internet for businesses and consumers. With these services, subscribers can add on bandwidth from 1Mbps whenever they desire through a concept called bandwidth on demand.

11 May 2007
A major achievement for Spice TM Internationals Indian affiliate, came with the acquisition of a licence from the Department of Telecommunication to

11 & 29 May 2007

TM signed three collective agreements (CAs) with the National Union of Telecommunication Employees

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

29

Corporate

Framework

2007 Corporate Events

22

May

24

May

25

May

31

May

22 May 2007
Chief Minister of Penang, Tan Sri Dr Koh Tsu Koon launched TMs latest call centre situated at Level 58, Menara KOMTAR, Penang. Dato Koay Kar Huah, EXCO for Transportation Utility & Infrastructure of Penang (left) and Dato Sri Abdul Wahid Omar, Group CEO (middle) were also present during the launch. The new call centre receives incoming calls on fault management and sales & services support for telephony services for the Northern region. Operating 24 hours a day, the centre houses 254 Customer Service Representatives.

24 May 2007
TM bagged the Service Provider of the Year award for the second consecutive year at the annual Frost & Sullivan Malaysia Telecoms Awards. It was a triple honour for TM as it also bagged the 2007 Data Communications Service Provider of the Year and 2007 Broadband Service Provider of the Year awards.

27 May 2007
TM International entered into a Stock Purchase Agreement with AIF (Indonesia) Limited to purchase all of the latters stake in PT Excelcomindo Pratama Tbk (XL). The acquisition, for a cash consideration of US$113 million (RM388.3 million), enabled the Company to raise its shareholding to 67%, thereby capitalising on one of the fastest growing markets for mobile telephony services in the region.

25 May 2007
Dato Seri Shahrizat Abdul Jalil, Minister of Women, Family and Community Development launched the TM Merdeka Millionaire reward programme at Berjaya Times Square. The programme gave customers the opportunity to win RM1 million cash, holiday packages, Nokia 3G handphones, a brand new Proton Perdana and other exciting prizes. To participate, customers have to answer a few questions about themselves and complete a slogan on Malaysias 50th Merdeka celebration.

31 May 2007
TM reached a pivotal milestone when it hit its one-millionth broadband customer. To celebrate the occasion, TM feted its one-millionth customer, Iskandar Syah Ismail, 31, with a surprise breakfast treat with Suki, the winner of One-in-a-Million, 8TVs reality talent show.

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TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

2007 Corporate Events

15 June 2007
TM became the first Malaysian company to receive the coveted Service Provider of the Year award at the 2007 Frost & Sullivan Asia Pacific ICT Awards ceremony held in Singapore. Held for the fourth consecutive year, the Frost & Sullivan Asia Pacific ICT awards serve to recognise companies in the ICT sector across the Asia Pacific region.

28 June 2007
Celcom introduced the innovative Blue Cube outlet with a vision to attain leadership in leading edge telecommunications retailing. Blue Cube is a powerful one-stop concept store for lifestyle mobile devices, 3G services and mobile content. It is the first concept store which allows consumers to experience, touch and feel the full range of mobile lifestyle products and services from Celcom.

2 July 2007
TM Chairman, Tan Sri Dato Ir Md Radzi Mansor was inducted into the Malaysian Institute of Directors (MID) Academy of Fellows at the MIDs Corporate Leaders Banquet on 2 July 2007 at the JW Marriot, Kuala Lumpur. Incorporated in 1982, the Malaysian Institute of Directors (MID) is the countrys only professional organisation for company directors in Malaysia.

5 July 2007
Dialog Broadband Networks launched their fixed wireless operations based on CDMA technology. This launch further strengthens Dialogs position as a total connectivity solutions provider.

15

June

28

June

July

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

31

Corporate

Framework

2007 Corporate Events

6 July 2007
A signing ceremony was held for TMs successful conversion of RM2,925 million of its existing Tekad Mercu bonds to Syariah-compliant Stapled Income Securities on 28 June 2007. This represents the first Syariahcompliant Stapled Income Securities ever structured and issued globally. With the conversion, about 95% of TMs domestic borrowings and one-third of total Group Borrowings are now based on domestic principles. Citibank Malaysia was the Principal Adviser and Sole Lead Arranger, while investors were the Employee Provident Fund, Kumpulan Amanah Wang Pencen, Malaysian National Insurance and Amanah Raya Berhad.

14 July 2007
TM launched another channel known as Hypp.TV at its lifestyle portal, BlueHyppo.com. at Suria KLCC during NTV7s UrbanLive roadshow. Hypp.TV offers streaming media content through its three main channels namely sports, news and local lifestyle and entertainment.

17 July 2007
TM Research & Development Sdn Bhd (TMR&D) revealed an exciting solution known as Fibre-to-the-home (FTTH) broadband access during a media preview of the trial deployment of FTTH by Dato Zamzamzairani Mohd Isa, CEO Malaysia Business and Shahruddin Muslimin, CEO TMR&D. The new FTTH solution is set to offer high speed broadband services to Malaysian homes in the Klang Valley and other major urban centres in Peninsular Malaysia by 2008. This end-to-end fibre optic connection is capable of supporting up to 100Mbps, although TM has designated a speed of 10Mbps for its initial rollout.

15 July 2007
Aktel celebrated its 10th year of operations in Bangladesh by showing their appreciation to their loyal customers in launching The Golden Call campaign. The campaign, a first of its kind in the country, rewards Aktels loyal customers.

July

15
32
TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

July

17

July

2007 Corporate Events

19

July

25

July

31

July

11

August

15

August

19 July 2007
TM Internationals Indian affiliate, Spice Communications Limited (Spice) made a spectacular debut on the Bombay Stock Exchange (BSE), opening at INR55.75 (RM4.64) per share, up 20% from its issue price of INR46 (RM3.83) per share. The Initial Public Offering (IPO) was oversubscribed by 37.5 times.

31 July 2007
Celcom Broadband, which offers the fastest wireless Internet access anytime anywhere from as low as RM8 a day, for Celcoms business and individual customers was launched. The high speed of up to 3.6Mbps is made possible by High Speed Data Packet Access (HSDPA) technology, or better known as 3GX. The new package comes in two different plans, Daily Unlimited and Monthly Unlimited.

11 August 2007
TM unveiled iTalk Buddy, the latest feature of its iTalk prepaid calling card at The Curve, Petaling Jaya. iTalk Buddy allows its users to build and join an online and offline community of buddies, families and friends. Users within this community will be able to send messages, make PC-to-PC calls, share files and folders, share screens and Internet connections, produce and share blogs, upload and share photos and much more. It is also the first Instant Messenger (IM) service introduced which allows common online services to operate even when there are no Internet connections available.

25 July 2007
Celcom signed an agreement with Merchantrade Asia Sdn Bhd, (Merchantrade) to launch Malaysias first Mobile Virtual Network Operator (MVNO) by providing a prepaid package to overseas foreign workers in Malaysia. These include customers from nine countries, specifically India, Nepal, Sri Lanka, Pakistan, Bangladesh, Vietnam, Myanmar, Cambodia and Laos.

1 & 2 August 2007

TM organised the TM Journalism Workshop in Kuching, Sarawak for 20 journalists from 11 major media houses in the state. Co-organised by the Malaysian Press Institute (MPI), the workshop was launched by Hj Mohd Narodin Hj Majais, Assistant Minister in the Chief Ministers Department (Bumiputera Entrepreneurs Development) and Assistant Minister, Land Development of Sarawak.

15 August 2007
TM flagged off its 50th Merdeka Anniversary celebrations on 15 August, 2007 with a wide range of activities revolving around the theme Thanking Malaysians Because It Takes Everyone to Build a Beautiful Nation.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

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Corporate

Framework

2007 Corporate Events

15

August

31

August

15 August 2007
Dialog Telekom together with NDB Bank, one of the leading private sector commercial banks in the country, unveiled eZ Pay, South Asias first mCommerce (Mobile Commerce) initiative. It is a revolutionary service that allows consumers to purchase goods, pay bills, transfer money and perform banking transactions via their mobile phones.

22-23 August 2007

TM International, together with TM, co-sponsored this year s ASEAN 100 Leadership Forum which was held in Hanoi, Vietnam. TM Chairman, Tan Sri Dato Ir Muhammad Radzi Hj Mansor led the delegation of 11 which included TM Directors Dato Dr Abdul Rahim Daud, YB Datuk Nur Jazlan Tan Sri Mohammed and Ir Prabahar NK Singam as well as TM Internationals Chief Executive Officer Dato Yusof Annuar Yaacob.

1 September 2007
Dialog Telekom established one of Sri Lankas most technologically advanced Enterprise Management Centres which has enabled top Sri Lankan enterprises to offer its customers the best service experience from a well-trained customer-centric workforce.

7 September 2007
VADS Contact Centre Services (CCS) was honoured with two Corporate Awards and five individual achievement awards by the Customer Relationship Management & Contact Centre Association (CCAM). The awards were given in recognition of its exceptional commitment to managing the customer experience through innovative, proven processes and technologies to maximise the value of customer communications within its sales and service operations.

20 August 2007
TM received two accreditations, i.e. Trainee Development and Professional Development, from the Association of Chartered Certified Accountants (ACCA) under the latters Approved Employer Programme. Tay Kay Luan, ACCA Director for ASEAN & Australasia presented the certificate to Dato Sri Abdul Wahid Omar.

31 August 2007
TMs CEOs and their peers from the industry led a 300-participant strong contingent comprising employees from TM, Celcom, Maxis, DiGi and Pos Malaysia in a march on Merdeka Day. The contingent strode proudly in colourful uniforms inspired by the national flag, Jalur Gemilang. The industry leaders included Dato Sri Abdul Wahid Omar, Group CEO TM; Dato Sri Shazalli Ramly, CEO of Celcom; Dato Zamzamzairani Mohd Isa, CEO of Malaysia Business TM; Sandip Das, CEO of Maxis; Roslan Rosli, Regulatory Head of DiGi and Hj Mohd Derus Harun, General Manager of Pos Malaysia.

21 August 2007
TM Internationals Cambodian operations, TMIC, rolled out its new VoIP service.

15 September 2007
In Indonesia, XL introduced lower tariffs for its bebas plan to counter the stiff competition from existing GSM and new CDMA players. This resulted in substantial revenue growth in the third and fourth quarters of the financial year.

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TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

2007 Corporate Events

21 September 2007
Celcom distributed RM730.1 million in cash to its shareholders by way of a capital repayment exercise.

30 September 2007
TMIB, TMs operations in Bangladesh, achieved its 7 millionth customer. To meet the demands of its growing customer base, TMIB expanded its customer service network to 19 walk-in Customer Care Centres by year end.

4 October 2007
TM and Polis DiRaja Malaysia (PDRM) launched its seventh annual Ops Sikap campaign which ran from 7 until 21 October 2007 and unveiled the first Ops Sikap Icon during the launch ceremony held at Bentong, Pahang. The campaign themed, Pandu Cermat Sampai Selamat, promoted safe driving and a courteous attitude amongst road users, especially during the festive season. The campaign was also launched simultaneously in other states in Malaysia over the following two days.

24 September 2007
Dialog Telekom PLC received a US$100 million financing package from International Finance Corporation (IFC) a member of the World Bank Group. The US$100 million package included a US$70 million term loan facility and a US$30 million equity commitment via the acquisition of a 1.6% holding in Dialog by IFC.

2 October 2007
YB Dato Shaziman Abu Mansor, Deputy Minister of Energy, Water & Communications announced that 999 would be the only number for all emergency calls made by the public. TM manages the emergency calls by directing them to the relevant agencies namely Police, Fire Department, Hospital and Civil Defence.

12 October 2007
Celcom launched its new Unbeatable campaign, which became a huge success. The campaign features Celcom Power Icons, Ryan Giggs, John Terry, Peterpan and Lee Hom.

28 September 2007
Chairman, Tan Sri Dato Ir Md Radzi Mansor announced the approval by the Board of Directors for the demerger of the TM Groups mobile and fixed businesses into two distinct entities.

24

September

28 12

September

October

October

October

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

35

Corporate

Framework

2007 Corporate Events

1 November 2007
Dialog Broadband Networks (DBN), a wholly-owned subsidiary of Dialog Telekom PLC, became the first in Sri Lanka to introduce Broadband Internet, powered by WiMAX technology.

12 November 2007
PT Excelcomindo Pratama Tbk (XL) officially launched its new submarine cable system linking Batam in Indonesia and Tanjung Penyusop, Sungai Rengit in south Johor, Malaysia. The system, known as the BatamRengit Cable System (BRCS), is XLs first international submarine cable system. The launch of this undersea cable system automatically gives XL the status of the cellular operator with the widest backbone in Indonesia.

15 November 2007
TM Internationals Cambodian subsidiary, Telekom Malaysia International (Cambodia) Company Limited (TMIC), unveiled the new identity of its hello brand at a grand ceremony in Phnom Penh. Held at the luxurious Raffles Hotel Le Royal, the launching ceremony was officiated by His Excellency, Minister So Khun, Minister of Posts and Telecommunications and attended by officials from TMIC, corporate guests as well as local and international media.

3 November 2007
Prime Minister, Dato Seri Abdullah Hj Ahmad Badawi, launched TMs commemorative book titled Transforming a Legacy during the TM Hari Raya Open House held at Menara TM in Kuala Lumpur.

12 November 2007
Dato Abdul Aziz Abu Bakar, Senior Vice President of Group HR was awarded the prestigious HR Leader Award under the Individual Professional category by the Malaysian Institute of Human Resource. This Award is to recognise individual professionals who have made an outstanding contribution to Human Resource Management, in the context of the Malaysian Vision 2020. Dato Aziz received a trophy and a certificate from Datin Sri Rosmah Mansor, wife of Deputy Prime Minister at the Malaysia HR Awards 2007.

12 3

November

November

15

November

12
36
TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

November

2007 Corporate Events

30

November

29 31

November December

29 November 2007
TM clinched the Gold Award for the Overall Excellence category of the National Annual Corporate Report Awards (NACRA). TM also took home the Industry Excellence Award for the Bursa Malaysia Main Board Companies category under the Trading & Services sector for the 11th consecutive time and the Gold Award for Best Designed Annual Report. NACRA is jointly organised by MIA, The Malaysian Institute of Certificate Public Accountants (MICPA), the Malaysian Institute of Management (MIM) and Bursa Malaysia Berhad.

11 December 2007
PT Excelcomindo Pratama Tbk (XL) ended the year by welcoming Etisalat International Indonesia Limited as one of its shareholders.

31 December 2007
M1, a leading mobile communications operator in Singapore, recorded a 14.8% increase in its total customer base, with 1.535 million mobile customers as at 31 December 2007.

31 December 2007
XL, TMs subsidiary in Indonesia, ended 2007 with 15.5 million subscribers making up a market share of 15%. This represented a hefty increase of 62% from a year ago. At the end of 2007, XLs coverage had reached 90% of the Indonesian population.

31 December 2007
Malaysia Business, a strategic business unit of TM focused on the fixed sector in Malaysia, registered significant Internet growth in 2007 to reach a total subscriber base of 1.27 million by December 2007.

30 November 2007
TM rewarded 241 of its scholars who achieved excellent results in their studies at an event aptly called Majlis Anugerah Pelajar Cemerlang 2007 held at Multimedia University (MMU) Melaka campus on 30 November 2007. The Excellence Awards serve as an encouragement for them to continue with their outstanding performance and demonstrate TMs commitment in supporting excellence in education.

31 December 2007
The total number of subscribers registered by Spice, TMs investment in India, had increased to 3.8 million from 2.5 million at the start of the year.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

37

Corporate Framework

TM Awards &

Recognition 2007

The Brand Laureate Award

Frost & Sullivan Malaysia Telecoms Award

8 JANUARY 2007

5 MAY 2007

Trusted Brand in Telecommunications Award

Gold Award & Innovative Product Award

7 MAY 2007

18-20 MAY 2007

Silver Award & Innovative Product Award

Malaysia Brand Equity Award

18-20 MAY 2007

4 JUNE 2007

38

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Anugerah Citra Wangsa Malaysia Award

UNI-APRO Outstanding Employee Partner Award

Program Time 2 Award

24 AUGUST 2007

28 AUGUST 2007

26 OCTOBER 2007

Six Oskar Award

Malaysias Most Valuable Brands Award

Gold NACRA Award for Overall Excellence

10 NOVEMBER 2007

16 NOVEMBER 2007

29 NOVEMBER 2007

NACRA Award for Industry Excellence

NACRA Award for Best Design

National Award for Management Accounting

29 NOVEMBER 2007

29 NOVEMBER 2007

13 DECEMBER 2007

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

39

Corporate

Framework

TM Awards & Recognition 2007

8 JANUARY 2007
The year opened with a bang, with TM being conferred The Brand Laureate Award 2006-2007 in the Corporate Brand Telecommunications Industry category by the Asia Pacific Brands Foundation. The selection criteria included Brand Strategy, Brand Culture, Brand Communications, Brand Equity and Performance.

5 MAY 2007
TM took three awards at the annual Frost & Sullivan Malaysia Telecoms Awards presentation ceremony. TM bagged the 2007 Data Communications Service Provider of the Year award whilst TM Net took home the 2007 Broadband Service Provider of the Year award. For the second time running, TM also received the coveted 2007 Service Provider of the Year award. This award recognises TMs consistent performance and sustainable growth in revenue, substantial market share as well as overall leadership in new product introductions and innovations.

4 JUNE 2007
Celcom took 4th place in the Malaysia Brand Equity Award 2007 for the Brand Visibility Award category. Malaysia Brand Equity Award 2007 is organised by Perception Media Sdn Bhd to recognise the performance of local and international brands in Malaysia.

15 JUNE 2007
TM became the first Malaysian company to receive the highly-prized Service Provider of the Year award at the 2007 Frost & Sullivan Asia Pacific ICT Awards ceremony. This coveted award for service providers is conferred each year to the company, in Frost & Sullivans judgement, that has demonstrated clear leadership in essential areas, including consistent and sustainable revenue growth, dominant market share and market share growth, as well as overall leadership in product introductions and innovations.

17 JANUARY 2007
Clearly emerging as the most popular Broadband Internet service provider in Malaysia, TM Net Sdn Bhd once again received the title of Best Broadband Internet Service Provider of 2006 from PC.Com magazine. Based on a poll conducted by the magazine, the award has been won by TM Net for five years in a row.

7 MAY 2007
TM was voted by consumers as the Trusted Brand in Telecommunications in Readers Digest Trusted Brands 2007 survey. TM received the Platinum Award for this recognition. Surveyed consumers were asked to name their most trusted brand in each of 43 different product categories based on 6 key criterias trustworthiness, credible image, quality, value, understanding of customer needs and innovation.

15 FEBRUARY 2007
Dialog Telekom PLC of Sri Lanka, a member of the TM Group, received a Commendation Award from the GSM Association at the GSM Global Mobile Awards event in Barcelona, Spain. Dialog was commended for its Disaster and Emergency Warning Network (DEWN), which enables disaster warning information to be communicated securely and instantaneously to emergency personnel and mobile phone users anywhere in the country. Dialog has so far had three consecutive wins at the prestigious GSM World Awards.

26 JUNE 2007
TMs 2007 Chinese New Year TVC received the Silver-Phoenix Award for Cinematography from AdAsia, a leading advertising and marketing industry magazine. The awards sponsored by Media Development Authority of Singapore recognise creativity and professional skills in the production of commercial films, video and digital images for advertising and promotional purposes.

18-20 MAY 2007

A total of nine product development awards were won by TM R&D in recognition of its Research and Development efforts. These were given by the International Invention, Innovation, Industrial Design and Technology Exhibition (I-TEX) 2007 held in Kuala Lumpur. The award-winning products were the Platform for All-Service Multi-Access or PLASMA (Gold Award & Innovative Product Award), XtreamX Home Media Centre (Gold Award), Vertical Cavity Surface Emitting Laser or VCSEL (Gold Award), Advanced Tracking System Using RFID (Silver Award & Innovative Product Award), EDFA In-Line (Silver Award), Simple & Efficient Software Radio Development Platform (Bronze Award) and Distribution Point or DP (Innovative Product Award).

22 MARCH 2007
Dialog Telekom PLC won further recognition by attaining the top spot in the Finance Brand Index as Sri Lankas most valued brand. This recognition was noted in the March issue of Lanka Monthly Digest.

6 JULY 2007
Dialog Telekom PLC (Dialog) became the first South Asian company to receive Asia Pacific-wide recognition for excellence in customer service and relationship management practices. It was given the Outstanding Achievement in Customer Relationship Excellence in Customer Relationship Excellence Award from the Asia Pacific Customer Service Consortium (APCSC) at the Customer Relationship Excellence (CRE) Awards Ceremony held in Hong Kong.

22 MARCH 2007
TM International Bangladesh Ltd (TMIB), a TM regional company, won the Standard Chartered-Financial Express CSR Award 2006 for its significant contributions to the services sector.

40

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

TM Awards & Recognition 2007

1 AUGUST 2007
PT Excelcomindo Pratama Tbk (XL), a TM company in Indonesia, was judged the most admired knowledge enterprise in Indonesia in 2007 when it received the Most Admired Knowledge Enterprise (MAKE) Award, beating 63 nominated organisations based on a study conducted by renowned consultant Dunamis Organisation an independent global research company, Teleos.

7 SEPTEMBER 2007
VADS Berhad was honoured with two Corporate Awards for Best Outsouced Service Contract Centre Association of Malaysia (CCAM) Gold award for the Celcom Customer Premier Service team award, and Bronze award for the TM Net Customer Interaction Centre Management team. Additionally, VADS secured five other individual achievements namely, Bronze and Gold Awards for Best Contact Centre Manager, a Silver Award for Best Contact Centre Team Leader and a Gold as well as Bronze Award for Best Contact Centre Professional Outsourced.

20 NOVEMBER 2007
TM was ranked second in the Corporate Governance Survey Report 2007 jointly organised by the Minority Shareholders Watchdog Group (MSWG) and the Nottingham University Business School, Malaysia Campus.

29 NOVEMBER 2007
TM achieved recognition once again for its annual report, clinching the Gold Award for Overall Excellence during the National Annual Corporate Report Awards (NACRA) 2007 ceremony held in Kuala Lumpur. TM also took home the Industry Excellence Award for Bursa Malaysia Main Board Companies under the Trading & Services sector for the 11th consecutive year, as well as winning the Gold award for Best Designed Annual Report.

20 AUGUST 2007
TM received two accreditations from the Association of Chartered Certified Accountants (ACCA) under its Approved Employer Programme. TM received the highest recognition through the Platinum for Trainee Development whereby ACCA recognises the learning opportunities that TM provides for its employees who are working towards obtaining its professional and Certified Accounting Technician qualifications in line with global best practices.

26 OCTOBER 2007
In recognition of its effort to widen the cellular network coverage of highways, industrial areas, tourist spots and major towns in Malaysia, Celcom was awarded the Anugerah Program Time 2: Syarikat Pemberi Perkhidmatan Terbaik by the Minister of Energy, Water and Communications, Malaysia.

12 DECEMBER 2007
VADS Berhad was awarded the ICT Service Provider of the year award by PIKOM. This prestigious award is a strong testament to the Companys capabilities and contribution towards the growth of the ICT Industry in Malaysia.

24 AUGUST 2007
Celcom emerged the Grand Prize Winner (Telecommunication category) in the Anugerah Citra Wangsa Malaysia 2006. The award is organised by Dewan Bahasa dan Pustaka in collaboration with the Malaysian Communications and Multimedia Commission annually. The award is a significant milestone and recognises Celcoms leadership in the usage of Bahasa Malaysia of the highest standard.

10 NOVEMBER 2007
TM received awards for best cinematography for its TM Merdeka 2007 TVC and best TVC for its TM Chinese New Year 2007 ad at the Sixth Oskar Awards 2007 organised by the Film Workers Association of Malaysia with the support of FINAS.

13 DECEMBER 2007
In recognition of its best practices in management accounting, value creation and excellent business performance, TM beat 9 other finalists to win the coveted National Award for Management Accounting (NAfMA) Excellence Award this year. The NAfMA Award is jointly awarded by the Malaysian Institute of Accountants (MIA) and the Chartered Institute of Management Accountants (CIMA).

16 NOVEMBER 2007
Celcom secured 5th place in Malaysias Most Valuable Brands 2007 competition, initiated and promoted by the 4As (Association of Accredited Advertising Agents Malaysia) as a recognition and valuation exercise, in collaboration with worldrenowned Interbrand. Based on a valuation of RM4.07 billion, Celcom was selected based on Interbrands well-established brand valuation methodology.

28 AUGUST 2007
TM was one of five regional companies to receive the UNI-APRO Outstanding EmployeePartner Award which recognises employers who have strong and cordial relationships with their unions.

29-31 AUGUST 2007

Aogos Network Sdn. Bhd., a start-up company nurtured by the Multimedia University or MMU, obtained the Red Herring Asia Top 100 Technology Companies Award in Hong Kong on 29-31 August 2007.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

41

Corporate

Framework

Corporate Information

BOARD OF DIRECTORS TAN SRI DATO Ir MUHAMMAD RADZI HJ MANSOR

Chairman (Non-Independent Non-Executive Director)

REGISTERED OFFICE
Level 51, North Wing Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur Malaysia Tel No. : 603-2240 1221/1225 Fax No. : 603-2283 2415

STOCK EXCHANGE LISTING

Main Board of Bursa Malaysia Securities Berhad (Listed since 7 November 1990)

DATO SRI ABDUL WAHID OMAR

Group Chief Executive Officer (Non-Independent Executive Director)

MALAYSIAN TAXES ON DIVIDEND

Malaysia practices an imputation system in the distribution of dividends whereby the income tax paid by a company is imputed to dividends distributed to shareholders. The Budget 2008 announced that a single tier company tax system to be introduced with effect from year of assessment 2008. The transitional provisions for the Finance Act, 2007 allow the imputation system to continue up to 31 December 2013 and the Company shall be entitled to deduct tax at the rate applicable to the company at the date the dividend is paid. As gazetted in the Finance Act, 2007, the corporate tax rate applicable to TM in 2008 is 26%. Consequently, Malaysian income tax at 26% will be deducted from the proposed final gross dividend of 22 sen per share for financial year ended 31 December 2007, subject to shareholders approval at the forthcoming 23rd AGM. The income tax deducted or deemed to have been deducted from dividend is accounted for by the income tax of the company. There is no further tax or withholding tax on the payment of dividends to all shareholders.

DATUK ZALEKHA HASSAN

(Non-Independent Non-Executive Director)

SHARE REGISTRAR
Tenaga Koperat Sdn Bhd 20th Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak 50400 Kuala Lumpur Malaysia Tel No. : 603-4047 3883 Fax No. : 603-4042 6352

DATO AZMAN MOKHTAR

(Non-Independent Non-Executive Director)

DATO Ir DR ABDUL RAHIM DAUD

(Independent Non-Executive Director)

DATO LIM KHENG GUAN

(Senior Independent Non-Executive Director)

AUDITORS
PricewaterhouseCoopers (Chartered Accountants) Level 10, 1 Sentral Jalan Travers, Kuala Lumpur Sentral 50706 Kuala Lumpur Malaysia Tel No. : 603-2173 1188 Fax No. : 603-2173 1288

YB DATUK NUR JAZLAN TAN SRI MOHAMED

(Independent Non-Executive Director)

Ir PRABAHAR NK SINGAM
(Independent Non-Executive Director)

ROSLI MAN
(Independent Non-Executive Director)

PRINCIPAL BANKERS
CIMB Bank Berhad Malayan Banking Berhad

DYG SADIAH ABG BOHAN

(Alternate Director to Datuk Zalekha Hassan) (Non-Independent Non-Executive Director)

PRINCIPAL SOLICITORS SECRETARIES

Wang Cheng Yong (MAICSA 0777702) Zaiton Ahmad (MAICSA 7011681) Zul Rafique & Partners Hisham Sobri & Kadir

42

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Corporate Framework

Information

Corporate

The Annual Report is available to the public who are not shareholders of the Company, by writing to: General Manager Group Corporate Communications Division Telekom Malaysia Berhad Level 8, South Wing, Menara TM, Jalan Pantai Baharu 50672 Kuala Lumpur, Malaysia Tel: 603-2240 2676/2657 Fax: 603-7955 2510

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

43

Corporate Framework

Corporate Structure

Group

Malaysia Business*1

TM RETAIL*1 TM WHOLESALE*1 100% TM NET SDN BHD 100% TELEKOM SALES & SERVICES SDN BHD 100% GITN SDN BERHAD 100% TELEKOM RESEARCH & DEVELOPMENT SDN BHD 100% TELEKOM MALAYSIA (USA) INC 100% TELEKOM MALAYSIA (UK) LIMITED 100% 100% 100% 100% TELEKOM MALAYSIA (HONG KONG) LIMITED TELEKOM MALAYSIA (S) PTE LTD MOBIKOM SDN BHD TELEKOM APPLIED BUSINESS SDN BHD

TM International Berhad

AS AT 20 FEBRUARY 2008 Depicting active subsidiaries, jointly controlled entities, associates and Strategic Business Units (SBUs) categorised under major business segments

100% TM INTERNATIONAL (L) LIMITED 84.81% DIALOG TELEKOM PLC (Formerly known as Dialog Telekom Limited) 100% DIALOG BROADBAND NETWORKS (PRIVATE) LIMITED 100% DIALOG TELEVISION (PRIVATE) LIMITED (Formerly known as Asset Media (Private) Limited) 100% COMMUNIQ BROADBAND NETWORK (PRIVATE) LIMITED 100% CBN SAT (PRIVATE) LIMITED 70% TM INTERNATIONAL (BANGLADESH) LIMITED 100% INDOCEL HOLDING SDN BHD 66.99% PT EXCELCOMINDO PRATAMA TBK 89% MULTINET PAKISTAN (PRIVATE) LIMITED 49% MOBILE TELECOMMUNICATIONS COMPANY OF ESFAHAN 100% TELEKOM MALAYSIA INTERNATIONAL (CAMBODIA) COMPANY LIMITED 18.97% SAMART CORPORATION PUBLIC COMPANY LIMITED 24.42% SAMART I-MOBILE PUBLIC COMPANY LIMITED*2 80% SUNSHARE INVESTMENTS LTD*3 29.69% MOBILEONE LTD 100% TMI MAURITIUS LTD

100% TMI INDIA LTD 39.20% SPICE COMMUNICATIONS LIMITED

44

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Celcom (Malaysia) Berhad

100% 100% 100% 80% 100% 100% 100%

TECHNOLOGY RESOURCES INDUSTRIES BERHAD CELCOM TRANSMISSION (M) SDN BHD CELCOM TECHNOLOGY (M) SDN BHD CELCOM TIMUR (SABAH) SDN BHD CELCOM MOBILE SDN BHD ALPHA CANGGIH SDN BHD CT PAGING SDN BHD

49% C-MOBILE SDN BHD 20% SACOFA SDN BHD

Note: *1 SBU within Telekom Malaysia Berhad *2 TM International Berhads effective shareholding in Samart I-Mobile Public Company Limited (SIM) is 35.58% by virtue of SIM being a 57.69% subsidiary of Samart Corporation Public Company Limited *3 Economic benefit of TM Group in SunShare Investments Ltd is 51% notwithstanding TM Groups equity interest of 80%

TM Ventures*1

64.77% VADS BERHAD 100% VADS E-SERVICES SDN BHD 100% VADS CONTACT CENTRE SERVICES SDN BHD 100% VADS PROFESSIONAL SERVICES SDN BHD 100% VADS SOLUTIONS SDN BHD 100% MEGANET COMMUNICATIONS SDN BHD 51% FIBRECOMM NETWORK (M) SDN BHD (Held via Celcom Transmission (M) Sdn Bhd) 54% FIBERAIL SDN BHD 100% UNIVERSITI TELEKOM SDN BHD 100% UNITELE MULTIMEDIA SDN BHD 100% MMU CREATIVISTA SDN BHD 100% MENARA KUALA LUMPUR SDN BHD 100% TM INFO-MEDIA SDN BHD 100% TELEKOM MULTI-MEDIA SDN BHD 51% TELEKOM SMART SCHOOL SDN BHD 30% MUTIARA.COM SDN BHD 100% TM FACILITIES SDN BHD 100% TMF SERVICES SDN BHD 100% TMF AUTOLEASE SDN BHD 100% TM LAND SDN BHD PROPERTY DEVELOPMENT*1

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

45

Corporate Framework
BOARD OF DIRECTORS

Group

Organisation Structure

Company Secretary

Board Audit Committee

Group Chief Executive Officer TM

Vice President Performance Improvement Management Office

General Manager Group Corporate Communications

Group Chief Financial Officer

Senior Vice President Group Regulatory, Legal & Compliance

Senior Vice President Group Human Resource

Group Chief Procurement Officer

Group Chief Information Officer

Group Chief Internal Auditor

Operating Companies/SBUs

Chief Executive Officer Malaysia Business

Chief Executive Officer Celcom (Malaysia) Berhad

Chief Executive Officer TM International Sdn Bhd

Chief Executive Officer TM Ventures

46

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Corporate Framework
As TM evolves into the regional communications company of choice, the pursuit of operational excellence is not without sound financial management. 2007 has seen the continued commitment towards enhancing value for the providers of capital with improved shareholder payout coupled with capital management initiatives and better economic profit.

Our Providers Of Capital

Enhancing Value To

IMPROVING PAYOUT TO SHAREHOLDERS

In our efforts to strengthen and establish TM as a leading Communications Company in this region, we have always remained focused in creating value for our shareholders. In 2007, we declared a proposed total dividend payout of RM2.9 billion to our shareholders which consists of: a proposed final gross dividend of 22 sen per share less tax at 26.0%. special gross dividend of 65 sen per share less tax at 26.0%. interim gross dividend of 26 sen per share less tax at 27.0%. The total dividend payout of 112.5%, including special dividends was made possible through better financial performance and capital management exercise. Excluding special dividends, the ordinary dividends payout represented 47.6% of profit attributable to shareholders. This is very much in line with our dividend payout policy of 40% to 60% of profit attributable to shareholders. Net dividend yield incorporating the special dividend, rose to 7.4% based on the year end price of RM11.20.

TM DIVIDEND PAYOUT
RM Million 10,000 7.4%* 9,000 2.6% 2.9% 3.4% 112.5%* 100% 125% Dividend Payout In Line with Dividend Policy of 40% to 60% of Profit Attributable to Shareholders 150%

8,000

0.9%

1.8%

7,000
Dividend Payout Policy 40%-60%

75%

6,000

Dividend Payout Policy 20%-50%

54.1% 5,000 21.6% 4,000 34.6% 38.8%

54.8% 47.6%

50%

25%

3,000

2,000

1,000

228.4

481.2

2,547.7

2002

2003

2004 Ordinary Dividends

2005 Special Dividends

2006 Payout

2007 Net Dividend Yield

Profit Attributable to Shareholders

*Including Special Dividends FY 2005 Net Profit adjusted for provision of Dete Claim of RM879.5 million Net Dividend Yield based on closing price at year-end

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

1,212.9

1,056.3

1,390.4

2,613.5

1,014.1

1,754.7

2,068.8

1,135.1

949.5

1,654.5 2,868.0

47

Corporate

Framework

Enhancing Value To Our Providers Of Capital

CAPITAL MANAGEMENT EXERCISE

A sale and leaseback of property assets was carried out to facilitate the implementation of TMs strategy to monetise its non-core assets with a view to unlock value while focusing on its core business of providing telecommunications services. The sale and leaseback involved four properties, namely Menara TM, Wisma TM Taman Desa, Cyberjaya Complex and Menara Celcom which upon completion of the transaction were transferred from TM to Menara ABS Berhad, a special purpose vehicle for a total consideration of RM1.0 billion. Proceeds from this capital management exercise and the capital repayment from Celcom of RM730.1 miillion has enabled TM to distribute the cash in the form of special dividends amounting to RM1.65 billion to reward its shareholders.

BETTER ECONOMIC PROFIT

In order to provide a more accurate picture of underlying economic performance of the TM Group vis--vis its financial accounting reports, Economic Profit (EP) is used as a yardstick to measure shareholder value. EP measures net profit after deducting a charge to account for the cost of capital utilised to generate this profit. EP is defined as capital invested multiplied by the spread between Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). * EP has the benefit of incorporating profitability, size of capital base, return on capital and the cost of capital into a single measure. For the financial year 2007, TMs EP of RM830.1 million has shown a RM85.4 million increase from RM744.7 million recorded in 2006. This increase is attributed to the higher Net Operating Profit Less Adjusted Taxes (NOPLAT) from better operational performance which was partially offset by the increased economic charge from higher WACC.

ECONOMIC PROFIT
RM Million 1,200

800

400 -444.0 830.1 744.7 69.1

-400

* Economic Profit = NOPLAT (Invested Capital x WACC), where NOPLAT is Net Operating Profit Less Adjusted Taxes (Source: Khazanah Nasional Berhad)

-800 2004 2005 2006 2007

48

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Enhancing Value To Our Providers Of Capital

DEMERGER TO FURTHER UNLOCK VALUE

The demerger of TM into 2 separate entities with distinct business strategies and aspirations, enables value creation through accelerated operational improvement and growth. Operating as a separate entity can further promote improvements in disclosure and boost transparency levels. The demerger is expected to create value and is sound from a capital markets perspective. The two companies will each have a capital structure suitable to its business, with funding capacity for growth and investment requirements. Clearly the market is upbeat and supportive of this exercise. This has been reflected in the improved share price performance post announcement of the demerger.

At the point of demerger, TM shareholders will be awarded a onefor-one dividend in specie, of one TMI share for each TM share held. Shareholders will be able to jointly participate in the value creation as these two entities pursue their respective goals to be a domestic broadband champion and leading regional mobile operator.

TM CREDIT RATING
TM continued to exhibit strong fundamentals and a sound balance sheet. This is evident from the credit rating accorded by both the local and international rating agencies. TMs credit rating is as follows: Moodys Investors Service Standard & Poors Fitch Rating Agency of Malaysia A2 AAAAA

The demerger of TM into two unique entities has not changed the strength of its financial position. Following a rating review, the credit rating of TM remains largely unchanged with Standard & Poors, Fitch, and RAM reaffirming the above ratings while Moodys has placed TM on Rating Watch to align its rating to the sovereign rating of A3. This review will be continued pending the final completion of the demerger. TM remains committed at maintaining its strong investment grade ratings and adopt a prudent approach to financial management moving forward.

TMS SHARE PRICE PERFORMANCE

Share Price (RM)
12.0 11.5 11.0 10.5 10.0 9.5 9.0
Aug 30 Feb 28 Mar 30 May 31 Sep 27 Nov 30 Dec 31 Jan 3 Jan 31 Apr 30 Jun 29 Jul 31 Oct 31

Announcement of Proposed Demerger on 28 September 2007

Source : Bloomberg

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

49

Corporate

Framework

Enhancing Value To Our Providers Of Capital

SHARE PRICE & VOLUME TRADED 2007 Monthly Trading Volume & Highest-Lowest Share Price 2007
Jan Volume (000) Highest (RM) Lowest (RM) Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 98,001 191,721 118,369 71,505 135,643 69,431 86,109 125,768 49,709 162,410 190,127 200,729 10.50 9.65 11.10 9.75 10.30 9.50 10.90 10.00 11.20 9.60 11.00 10.00 10.70 9.85 10.30 9.20 9.95 9.35 11.10 9.85 11.20 10.10
Lowest (RM)

11.80 10.80

Volume ('000)

Highest (RM)

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

MARKET CAPITALISATION/SHARE PRICE 2003 Market Capitalisation (RM Million) Share Price (RM) 27,255.6 8.40
Market Capitalisation (RM Million) 11.60 9.55 8.40 9.75

2004 39,227.4 11.60

2005 32,386.9 9.55

2006

2007

33,121.9 38,525.9 9.75 11.20

Share Price (RM) 11.20

27,256

39,227

32,387

33,122

2003

2004

2005

2006

2007

50

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

38,526

200,729

191,721

118,369

135,643

125,768

162,410

190,127

49,709

98,001

71,505

69,431

86,109

Performance Review

FIVE-YEAR GROUP FINANCIAL HIGHLIGHTS SIMPLIFIED GROUP BALANCE SHEETS & GROUP SEGMENTAL ANALYSIS GROUP QUARTERLY PERFORMANCE GROUP FINANCIAL REVIEW BUSINESS & OTHER STATISTICS STATEMENT & DISTRIBUTION OF VALUE ADDED

52 54

56 57 64 66

Performance Review
Operating Revenue (RM Million) Profit Attributable to Equity Holders of the Company (RM Million)

Five-Year Group

Financial Highlights

17,842.9

11,796.4

13,250.9

13,942.4

16,399.2

03

04

05

06

07

03

04

05

06

07

Total Shareholders Equity (RM Million)

Total Assets (RM Million)

19,802.1

16,437.6

19,120.5

18,987.4

19,911.1

03

04

05

06

07

03

04

05

06

07

Total Borrowings (RM Million)

Return on Shareholders Equity (%)

11,924.4

12,053.2

11,117.5

12,215.8

12,085.9

03

04

05

06

07

03

04

05

06

07

Return on Total Assets (%)

Debt Equity Ratio

6.0

03

04

05

06

07

03

04

05

06

07

52

0.6

4.2

7.1

2.1

5.5

0.7

0.6

0.6

0.6

12.8

14.8

10.6

9.4

4.3

44,221.3

36,040.3

37,675.2

41,184.3

41,843.5

2,547.7

1,451.6

2,625.5

2,068.8

811.3

IN RM MILLION 1. 2. 3. 4. 5. 6. 7. Operating revenue Profit before taxation Profit for the year Profit attributable to equity holders of the Company Total shareholders equity Total assets Total borrowings GROWTH RATES OVER PREVIOUS YEARS Operating revenue Profit before taxation Total shareholders equity Total assets Total borrowings

2003 11,796.4 1,759.1 1,505.4 1,451.6 16,437.6 36,040.3 12,053.2

2004 13,250.9 3,161.9 2,688.5 2,625.5 19,120.5 37,675.2 11,117.5

2005 13,942.4 1,520.4 855.5 811.3 18,987.4 41,184.3 12,215.8

2006 16,399.2 3,133.2 2,302.3 2,068.8 19,911.1 41,843.5 12,085.9

2007
17,842.9

3,142.6 2,631.6 2,547.7 19,802.1 44,221.3 11,924.4

1. 2. 3. 4. 5.

20.0% 13.4% 13.3% 24.6% 49.1%

12.3% 79.7% 16.3% 4.5% -7.8%

5.2% -51.9% -0.7% 9.3% 9.9%

17.6% 106.1% 4.9% 1.6% -1.1%

8.8% 0.3% -0.5% 5.7% -1.3%

1.

SHARE INFORMATION Per share Earnings (basic) Gross dividend * Net assets 2. Share price information High Low FINANCIAL RATIO Return on shareholders equity Return on total assets Debt equity ratio Dividend cover *

45.5 sen 20.0 sen 505.7 sen RM9.20 RM7.15

78.6 sen 30.0 sen 565.3 sen RM12.10 RM8.25

23.9 sen 35.0 sen 559.9 sen RM12.00 RM9.15

61.0 sen 46.0 sen 586.0 sen RM10.40 RM8.60

74.4 sen 113.0 sen 575.7 sen RM11.80 RM9.20

1. 2. 3. 4.

9.4% 4.2% 0.7 2.2

14.8% 7.1% 0.6 2.6

4.3% 2.1% 0.6 0.7

10.6% 5.5% 0.6 1.3

12.8% 6.0% 0.6 0.7

Included special dividend of 65.0 sen per share declared on 10 December 2007 and paid on 31 January 2008.

Performance Review
56.6% Property, plant and equipment

1.9% Jointly controlled entities 0.1% Non-current assets held for sale 3.7% Other assets 1.3% Long term receivables 8.3% Trade and other receivables 11.2% Cash and bank balances 2006 16.9% Intangible assets

Total Assets

Group Balance Sheets & Group Segmental Analysis

2.3% Jointly controlled entities 2.2% Non-current assets held for sale 3.8% Other assets 1.2% Long term receivables 10.0% Trade and other receivables 9.4% Cash and bank balances 2007 16.9% Intangible assets

54.2% Property, plant and equipment

Simplified

8.1% Share capital 2.0% Minority interests 28.9% Borrowings 5.4% Deferred tax liabilities 0.6% Current tax liabilities 2006 7.8% Share capital 1.9% Minority interests 27.0% Borrowings 5.2% Deferred tax liabilities 0.3% Current tax liabilities 3.7% Dividend payable

13.7% Trade and other payables 9.4% Share premium 30.0% Other reserves 1.7% Customer deposits 0.2% Provision for liabilities

Total Liabilities & Shareholders Equity

15.2% Trade and other payables 9.6% Share premium 27.4% Other reserves

1.7% Customer deposits 0.2% Provision for liabilities 2007

54

Segment Operating Revenue

For the year ended 31 December

14.0%

16.6%

40.9%

27.8%

27.7%

43.6%

27.0%

25.3%

06

07

06

07

06

07

06

07

06

07

71.2%

73.7%

3.6%

4.1%

06

07

06

07

Malaysia Business

Celcom

International Operations

TM Ventures

Malaysia

Indonesia

Others

BY BUSINESS

BY GEOGRAPHICAL LOCATION

Segment Results
For the year ended 31 December

16.1%

76.5%

14.4%

15.9% 06 06 8.0% Others

39.5%

37.2%

21.8%

35.8%

30.2%

32.3%

06

07

06

07

06

07

06

1.7%

07

1.5%

06

68.0%

07

06

07

07

Malaysia Business

Celcom

International Operations

TM Ventures

Malaysia

Indonesia

Others

BY BUSINESS

BY GEOGRAPHICAL LOCATION

Segment Assets
as at 31 December

76.2%

38.2%

23.9%

33.3%

41.6%

24.9%

28.3%

71.9%

4.6%

5.2%

15.8%

20.1%

06

07

06

07

06

07

06

07

06

07

06

07

07

Malaysia Business

Celcom

International Operations

TM Ventures

Malaysia

Indonesia

BY BUSINESS

BY GEOGRAPHICAL LOCATION

8.0%

9.1%

12.2%

12.3%

Performance Review

Group

Quarterly Performance

2007 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER YEAR 2007

IN RM MILLION FINANCIAL PERFORMANCE Operating revenue Operating profit before finance cost Profit before tax Profit attributable to equity holders of the Company Earnings per share (sen) #

4,181.2 968.4 846.7

4,318.8 998.6 885.9

4,608.7 867.0 692.6

4,734.2 649.3 717.4

17,842.9 3,483.3 3,142.6

595.7 17.4

701.0 20.5 26.0

658.5 19.2

592.5 17.2 87.0

2,547.7 74.4 113.0

Dividends per share (sen)*

2006 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER YEAR 2006

IN RM MILLION FINANCIAL PERFORMANCE Operating revenue Operating profit before finance cost Profit before tax Profit attributable to equity holders of the Company Earnings per share (sen) Dividends per share (sen)

3,787.6 954.4 842.0

3,976.3 723.6 689.3

4,227.5 848.6 730.4

4,407.8 964.0 871.5

16,399.2 3,490.6 3,133.2

545.6 16.1

453.5 13.4 16.0

478.9 14.1

590.8 17.4 30.0

2,068.8 61.0 46.0

# *

Included effect of cumulative rounding. Included special dividend of 65.0 sen per share declared on 10 December 2007 and paid on 31 January 2008.

56

Performance Review

Operating Revenue
(RM Million)

Financial Review

Group

6,620.3

9,901.3

6,603.1

8,575.0

1,067.4

869.9

351.2 '06 '07

'06

'07

'06

'07

'06

'07

Fixed line

Cellular

Internet and multimedia

Nontelecommunication related service

OPERATING REVENUE
For the year ended 31 December 2007, the Group registered 8.8% (RM1,443.7 million) growth in operating revenue to RM17,842.9 million as compared to RM16,399.2 million recorded in 2006, largely driven by the cellular, data, Internet and multimedia segments of the Groups businesses. The cellular segment continued to be the number one revenue contributor to the Group. Current year revenue from the cellular segment of RM9,901.3 million was 15.5% higher as compared to RM8,575.0 million recorded in the preceding year and made up 55.5% (2006: 52.3%) of the Groups revenue. Revenue from fixed line segments (including voice, data services and other telecommunication services) of RM6,620.3 million accounted for 37.1% of the Groups revenue, decreased from 40.3% in the preceding year. The reduced contribution was in tandem with global trend where customers are migrating from the traditional fixed line services to cellular and broadband services. Internet and multimedia services registered encouraging year-on-year revenue growth of 22.7% to RM1,067.4 million and contributed 6.0% to the Groups operating revenue as compared to 5.3% in

2006. Non-telecommunication related services contributed only 1.4% (RM253.9 million) of the Groups operating revenue in 2007 as compared to 2.1% (RM351.2 million) in 2006. CELLULAR SEGMENT Revenue from the cellular segment comprising rental, call charges, short message services, roaming and interconnect charges terminating at mobile, registered a significant growth of 15.5% (RM1,326.3 million) from RM8,575.0 million recorded in 2006 to RM9,901.3 million in 2007 largely due to improved performance of Celcom (Malaysia) Berhad (Celcom) and PT Excelcomindo Pratama Tbk (XL). Celcom registered an encouraging revenue growth after inter-segment elimination of 12.2% from RM4,424.0 million in 2006 to RM4,965.1 million in 2007 amidst an intensely competitive cellular market. This was mainly due to strong growth in the prepaid market resulting from aggressive marketing activities and launching of new products. The push for mobility solutions also contributed to the increase in revenue. Celcom added 1.1 million new customers in 2007 bringing the total customers to 7.2 million, a growth of 18.0% from 6.1 million as at end of 2006.

253.9 TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

57

Performance

Review

Group Financial Review

XL posted a year-on-year revenue growth (after discounts) of 38.3% from IDR5,777.7 billion (RM2,310.4 million) in 2006 to IDR7,989.5 billion (RM3,011.0 million) in the current year arising from increase in customer base, mainly attributable to successful execution of several key strategies, especially in pricing and distribution channel management. Dialog Telekom PLC (formerly known as Dialog Telekom Limited) (Dialog) continued to show steady growth in revenue of 26.6% from SLR25,679.5 million (RM907.0 million) to SLR32,518.6 million (RM1,011.3 million) despite its challenging operating environment. TM International (Bangladesh) Limited (TMIB) also registered 9.5% revenue growth from BDT13,139.6 million (RM704.3 million) in 2006 to BDT14,390.1 million (RM718.7 million) in 2007. Non-consolidation of Telekom Networks Malawi Limited (TNM) following disposal in April 2007 reduced the net increase. TNM contributed RM98.4 million in 2006 as compared to RM28.7 million in 2007. FIXED LINE SERVICES Fixed line services comprise business telephony (which also includes ISDN, interconnect, international inpayment), residential telephony, public payphone services, data services and other telecommunication related services. Other telecommunication related services include primarily recoverable work orders (RWO), maintenance, broadcasting, restoration of submarine cable, managed network services and enhanced value-added telecommunication services.

Fixed line services contributed RM6,620.3 million to the Groups revenue in 2007, a marginal increase of 0.3% (RM17.2 million) from RM6,603.1 million recorded in 2006. This turnaround was mainly attributed to higher data revenue resulting from the demand for higher speed services and higher revenue from RWO resulting from new billable projects. Higher contribution from VADS Berhad (VADS) and GITN Sdn Berhad (GITN) also contributed to the increase in revenue from the fixed-line segment. INTERNET AND MULTIMEDIA SERVICES Internet and multimedia services continued to record commendable revenue growth in 2007. Revenue increased by 22.7% to RM1,067.4 million as compared to RM869.9 million in 2006 in line with the increase to its customer base from 864,000 at the end of 2006 to 1,265,308 at the end of 2007. NON-TELECOMMUNICATION RELATED SERVICES Non-telecommunication related services comprise services from subsidiaries with core business in education, printing and publication of directories, property development, trading in consumer premises equipments, etc. Revenue from these services reduced by 27.7% (RM97.3 million) as compared to 2006, mainly attributed to lower revenue from TM Facilities Sdn Bhd as there was no disposal of land in the current year as compared to approximately RM43.0 million recorded in 2006. Telekom Sales and Services Sdn Bhd also contributed lower revenue from lower sales of customer premises equipment.

OPERATING COSTS
For the year ended 31 December 2007 the Groups operating costs rose by 13.2% (RM1,733.0 million) to RM14,820.1 million in 2007 as compared to RM13,087.1 million recorded in 2006 mainly due to higher marketing related expenses, impairment of property, plant and equipment, allowance for diminution in value of long term investments, one-off penalty charges and lower foreign exchange gain as explained below. DEPRECIATION, IMPAIRMENT AND AMORTISATION Depreciation, impairment and amortisation charges which comprised depreciation, impairment and write off of property, plant and equipment (PPE) as well as amortisation of intangible assets increased marginally by 3.5% (RM142.0 million) to RM4,143.5 million as compared to RM4,001.5 million recorded in 2006 and accounted for 28.0% of total operating costs. Higher impairment of PPE of RM85.9 million and higher write off of PPE amounting to RM33.3 million were the main contributing factors to the higher cost. During the current year, Celcom recognised impairment losses on PPE amounting to RM52.4 million due to asset buyback plans in which these assets have been written down to its recoverable amount. The Company, XL and other subsidiaries contributed the remaining balance.

58

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Group Financial Review

Operating Costs
(RM Million)

1,133.7

1,357.9

731.8

840.3

619.1

667.3

4,143.5

2,107.1

2,039.3

377.1

'06 '07

'06 '07

'06 '07

'06 '07

'06 '07

'06 '07

'06 '07
Allowance for doubtful debts

'06 '07
Other operating costs

Depreciation, Staff costs impairment and amortisation

Domestic Marketing, Maintenance Supplies and interconnect advertising inventories and and promotion international outpayment

3,287.6

4,001.5

1,991.4

1,962.1

303.9

2,343.6

DOMESTIC INTERCONNECT AND INTERNATIONAL OUTPAYMENT The Groups domestic interconnect and international outpayment increased marginally by 3.9% (RM77.2 million) from RM1,962.1 million recorded in 2006 to RM2,039.3 million in 2007 and accounted for 13.8% of the total operating costs. STAFF COSTS The Groups staff costs rose by 5.8% (RM115.7 million) from RM1,991.4 million in 2006 to RM2,107.1 million in 2007 and accounted for 14.2% of total operating costs. Notable increase was noted in Celcom (RM48.2 million), Dialog (RM22.5 million), VADS (RM13.5 million), XL (RM14.2 million), TM Payphone Sdn Bhd (TMP) (RM18.0 million), TMIB (RM4.9 million) and GITN (RM5.5 million) arising from annual increment, higher provision for bonus and increase in headcount to support business expansion. The

Company, however, recorded lower costs of RM10.1 million due to reversal of excess bonus provision and lower cost on the employees share option scheme. MARKETING, ADVERTISING AND PROMOTION The Company, Celcom, XL and Dialog jointly contributed to higher marketing, advertisement and promotion costs which grew by 19.8% (RM224.2 million) from RM1,133.7 million in 2006 to RM1,357.9 million in 2007 due to aggressive marketing activities to promote new products and services. SUPPLIES AND INVENTORIES The Groups supplies and inventories costs grew to RM667.3 million, an increase of 7.8% (RM48.2 million) over RM619.1 million recorded in 2006 mainly due to the higher cost of prepaid cards, subscriber equipment and cables.

XL and Dialog registered higher cost of prepaid cards by RM30.8 million and RM10.1 million respectively in line with their increased customer base and higher revenue. Celcom, however, incurred lower cost of prepaid cards by RM16.0 million following the introduction of the 2 in 1 recharge card. The Company registered higher subscriber equipment cost arising from installation for Streamyx whereas higher cable cost was the result of cable theft.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

59

Performance

Review

Group Financial Review

Profit for the Year

(RM Million)

OTHER SIGNIFICANT ONE-OFF CHARGES During the year, TMIB has recognised an administrative fine by the local government of RM72.8 million for revenue loss.
998.9

Group Company

Group Company

Group Company

Group Company

Group Company

'03

'04

'05

'06

'07

ALLOWANCE FOR DOUBTFUL DEBTS For the current year, the Groups doubtful debts expense increased by 24.1% from RM303.9 million recorded in 2006 to RM377.1 million in 2007. The Company mainly contributed to the higher expense due to a one-off allowance for wholesale global debts. Celcom, XL and Dialog registered lower allowance for bad debts by RM8.5 million, RM5.0 million and RM3.1 million respectively which mitigated the net impact of the one-off allowance to the Groups bottom-line. ALLOWANCE FOR DIMINUTION IN VALUE OF LONG TERM INVESTMENTS Following the review of impairment in the value of long term investments, an allowance for diminution in value amounting to RM80.0 million was made in the current year.

FOREIGN EXCHANGE DIFFERENCES In line with the appreciation of Ringgit Malaysia against US Dollar, the Company recorded significant gain on foreign exchange of RM197.6 million in 2007, largely arising from the revaluation of borrowings in US Dollar. However, this gain was RM63.1 million lesser as compared to the foreign exchange gain recorded in the preceding year. In addition, XL suffered substantial losses on foreign exchange amounting to RM124.4 million as compared to a significant gain of RM138.0 million in 2006 primarily due to the revaluation of borrowings in US Dollar as well as payables in foreign currencies. As a result, a net gain on foreign exchange of RM38.6 million was recorded in the current year as compared to a net gain of RM361.0 million recorded in the preceding year.

In addition, XL has recognised penalty charges on late payment of withholding tax on off-shore interest payments of RM22.0 million following the Directorates General for Taxations (DGTs) rejection of XLs objection on DGTs assessment requiring XL to pay higher withholding tax on off-shore interest payments. Celcom also recognised some penalties on late payment of taxation liabilities.

590.2

561.8

408.4

534.7

2,631.6

1,505.4

2,688.5

2,302.3

855.5

OTHER OPERATING INCOME

Other operating income increased significantly from RM178.5 million in 2006 to RM460.5 million in 2007 largely due to gain on dilution and disposal of subsidiaries amounting to RM248.0 million. During the year, the Group disposed its 4.62% equity interest in Dialog and its entire 60.0% equity interest in TNM. Higher dividend income from unquoted long term investments and gain on disposal of non-current asset held for sale also contributed to the increase in other operating income.

60

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Group Financial Review

NET FINANCE COST

XL and TMIB mainly contributed to higher finance cost which increased by RM199.0 million in 2007 as compared to 2006. XL incurred higher finance cost of RM170.9 million, mainly arising from higher withholding tax on off-shore interest payments for the years 2004 to 2007. TMIB recorded higher cost by RM35.5 million due to increased borrowings. The impact of the above increase was mitigated by the lower finance cost incurred by Celcom of RM24.0 million due to repayment of loan. Finance income in 2007 was 12.9% (RM30.1 million) lower as compared to 2006 following lower income at the Company, Celcom, TMIB and Dialog. Consequent from the above, the Groups net finance cost increased by 59.1% from RM387.9 million in 2006 to RM617.0 million in 2007.

effective 1 January 2008. The Groups share of the gain was RM128.8 million. SunShare Investments Ltd also contributed higher profits of RM42.2 million as compared to RM38.0 million in 2006. The Group also recognised a gain on dilution of equity interest in Spice of RM71.3 million in the current year arising from its initial public offering. Contributions from associates in the current year of RM29.5 million was 48.2% higher than RM19.9 million recorded in 2006 and was largely attributed to improved performance of Celcoms associates.

PROFITABILITY
Consequent from improved performance of Celcom, one-off capital gain and higher contribution from jointly controlled entities, the Group recorded a 23.1% increase in profit after tax and minority interests from RM2,068.8 million in 2006 to RM2,547.7 million in 2007.

TOTAL ASSETS
Total assets of the Group grew marginally by 5.7% to RM44,221.3 million as compared to RM41,843.5 million in 2006 largely due to the increase in property, plant and equipment, intangible assets, investments in jointly controlled entities, trade and other receivables, non-current assets held for sale net of decrease in cash and bank balances. INTANGIBLE ASSETS During the year, the Group acquired an additional 7.38% equity interest in XL. The goodwill on acquisition arising from this transaction of RM286.3 million was included in intangible assets. In addition, goodwill totalling RM180.8 million arising from the acquisitions of equity interest in XL, Telekom Malaysia International (Cambodia) Company Limited and Celcom Timur (Sabah) Sdn Bhd in 2006 which was previously recorded in equity has now been reclassified as intangible assets. Consequent from the above, the Groups intangible assets increased by 5.7% (RM401.8 million) from RM7,059.1 million in 2006 to RM7,460.9 million in 2007.

TAXATION EXPENSES
The Groups effective tax rate in 2007 was 16.3% as compared to 26.5% in 2006 mainly due to one-off capital gain that was not subjected to tax and the reversal of excess prior years provisions for current and deferred tax mainly at the Company level. Excluding the reversal of excess provisions in prior years, the current year effective tax rate would be 23.4% which was still lower than the statutory tax rate mainly due to one-off capital gain that was not subjected to tax. Reduction in deferred tax arising from the change in tax rate from 26.0% to 25.0% also contributed to the lower effective tax rate in the current year.

CONTRIBUTION FROM JOINTLY CONTROLLED ENTITIES AND ASSOCIATES

The share of results in jointly controlled entities in 2007 of RM175.5 million was significantly higher than RM10.6 million recorded in 2006, largely due to share of Spice Communications Limiteds (Spice) gain on sale of telecommunication towers. Spice recognised a net gain of RM328.6 million arising from the sale of telecommunication towers. The towers will be leased back from the purchaser

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

61

Performance

Review

Group Financial Review

PROPERTY, PLANT AND EQUIPMENT (PPE) The Groups PPE increased by 1.3% (RM303.0 million) to RM23,983.3 million in 2007 as compared to RM23,680.3 million in the preceding year arising mainly from increased capital expenditure for network expansions at XL, Dialog and TMIB of RM1,464.2 million, RM390.2 million and RM164.6 million respectively. However, PPE at the Company level reduced significantly by RM1,273.4 million mainly due to the net book value of four buildings under the sale and leaseback arrangement amounting to RM988.4 million being reclassified to non-current assets held for sale as well as lower capital expenditure in 2007. Celcom and TM Net Sdn Bhd also recorded a reduction of RM175.9 million and RM52.3 million respectively. The exclusion of PPE of TNM and TMP following the disposal of both companies during the year reduced the net increase by RM66.7 million and RM36.5 million respectively. In addition, the strengthening of Ringgit Malaysia against the local currency of foreign subsidiaries, i.e. XL, Dialog and TMIB, resulted in foreign exchange losses on translation of PPE for the current year amounting to RM532.6 million. This loss is debited directly to foreign translation reserve.

INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (JCE) Consequent from share of higher profits of JCE, the Groups investments in jointly controlled entities increased by 26.9% from RM807.5 million in 2006 to RM1,024.4 million in 2007. TRADE AND OTHER RECEIVABLES The Groups trade and other receivables grew significantly by 27.0% (RM934.5 million) from RM3,464.1 million in 2006 to RM4,398.6 million in 2007. The Company accounted for RM594.5 million of the increase arising from the increase in Internet access and international receivables and higher tax recoverable. CASH AND BANK BALANCES Cash and bank balances of the Group decreased by 10.9% (RM508.6 million) to RM4,171.8 million mainly due to higher dividend payment to equity holder of the company of RM1,402.4 million in 2007 as compared to RM1,001.9 million in 2006. Consequent from aggressive network expansion undertaken by foreign subsidiaries, the cash outflow for purchase of PPE also increased substantially by RM604.4 million. This was however offset by zero cash outflow for investment in JCE as compared to cash outflow of RM659.4 million in 2006.

TOTAL LIABILITIES
The Groups total liabilities stood at RM23,569.8 million at the end of 2007, increased by 11.7% (RM2,473.9 million) as compared to RM21,095.9 million a year ago primarily attributed to increased trade and other payables and dividend payable. TRADE AND OTHER PAYABLES Trade and other payables of the Group which include deferred revenue, increased substantially by 16.8% (RM961.8 million) between 2006 and 2007. Celcom, XL and TMIB recorded higher trade and other payables by RM226.9 million, RM260.9 million and RM86.7 million respectively consequent from business and network expansion and jointly contributed to the increase in trade and other payables of RM788.7 million at Group level. The Company and XL jointly contributed to higher deferred revenue which increased by RM163.4 million between the years under review. The Company recorded higher deferred revenue of RM62.7 million due to change in basis of revenue recognition in respect of prepaid cards from the point of sale to the point of usage. Higher deferred revenue of XL is in line with increase in prepaid customers. DIVIDEND PAYABLE In December 2007, the Company has declared the payment of a special gross dividend of 65.0 sen per share less tax at 26.0% in respect of the current year. Consequently, the dividend payable amounting to RM1,654.5 million was recognised as liability in the Group Consolidated Balance Sheet as at 31 December 2007.

62

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Group Financial Review

Shareholders Equity
(RM Million)

14.8

9.4

4.3

10.6

EPS (sen)

ROE (%)

EPS (sen)

ROE (%)

EPS (sen)

ROE (%)

EPS (sen)

ROE (%)

EPS (sen)

74.4
ROE (%)

45.5

78.6

23.9

61.0

'03

'04

'05

'06

'07

12.8

SHAREHOLDERS EQUITY
The Groups shareholders equity remained strong at RM19,802.1 million, despite declining marginally from RM19,911.1 million as at 31 December 2006. The slight decrease was primarily due to higher appropriation from dividend payments and the special dividend declared during the year amounting to RM3,056.9 million compared to the increase from profit attributable to equity holders of the Company of RM2,547.7 million and the increase in paid-up capital and share premium pursuant to employees exercising their share options under the Companys employees share options scheme. EARNINGS PER SHARE AND RETURN ON SHAREHOLDERS EQUITY Consequent from higher profit for the year attributable to equity holders of the Company as mentioned above, basic earnings per share (EPS) increased from 61.0 sen in 2006 to 74.4 sen in 2007. Accordingly, return on shareholders equity (ROE) also increased from 10.6% in 2006 to 12.8% in 2007.

DIVIDENDS For the current year ended 31 December 2007, an interim gross dividend of 26.0 sen per share less tax at 27.0% was paid on 4 September 2007 to shareholders whose names appear in the Register of Members and Record of Depositors on 20 August 2007. Together with the proposed final gross dividend of 22.0 sen per share less tax at 26.0% subject to the shareholders approval at the forthcoming 23rd Annual General Meeting of the Company, the total payout based on the issued and paid-up capital as at 31 December 2007 would be RM1,212.9 million. This represents 47.6% of the net profit for the year which is in line with the Companys dividend policy of between 40.0% and 60.0% of the profit attributable to equity holders.

Including the special gross dividend of 65.0 sen less tax at 26.0% amounting to RM1,654.5 million that was declared on 10 December 2007 and paid on 31 January 2008, the total dividend payout would amount to approximately RM2,867.4 million, representing 112.5% of the profit attributable to equity holders.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

63

Performance Review

Business & Other

YEAR ENDED 31 DECEMBER

Statistics
2003 2004 2005 2006 2007 3,328,456 1,295,185 79,613 63,587 4,488 2,195 4,623,641 18.1 1,741,108 9,158 480,290 107,200 100,529 6,671 31,040 472 8,679 45.7 0.30 4.2 97.5 0.09 46 3,236,457 1,429,675 73,498 54,733 58,469 3,889 3,156 4,416,135 17.2 2,178,406 9,685 636,491 269,112 257,099 12,013 31,644 637 8,684 45.7 17,846 247.5 0.28 0.23 93.7 0.07 28 2,886,077 1,457,112 70,063 48,437 52,876 3,826 3,425 4,343,189 16.6 2,564,407 21,633 796,489 491,409 478,469 11,920 1,020 32,110 722 8,684 45.7 16,097 269.8 0.15 99.7 0.02 22 2,924,284 1,509,542 64,567 46,409 51,414 3,480 3,857 4,433,826 16.6 3,189,517 284,890*1 1,023,409 864,358 736,714 125,783 1,861 32,559 790 8,684 43.1 15,228 291.2 0.14 99.3 0.02 12 2,942,613 1,438,220 46,787 56,790 53,284 1,365 2,708 4,380,833 16.0*2 3,815,283 219,329 1,262,007 1,265,308 999,722 264,259 1,327 32,858 831 8,693 50.0 15,625 280.4 0.29 3.86 99.7 0.07 4

MALAYSIA BUSINESS
Customer Base 1. Residential Telephone 2. Business Telephone 3. Public Payphones 4. Leased Circuits 5. ISDN 6. Other Services (Telex & Maypac) 7. Toll Free (1-300 & 1-800) 8. Total access lines 9. Total access lines per 100 population 10. Access Services 11. Application Services 12. Content Services 13. Broadband Streamyx Streamyx Hotspot Direct Network Capacity (000) 14. Kilometers Cable pair 15. Fibre kilometers 16. Exchange lines 17. International gateway exchange Productivity 18. Number of employees 19. Number of access line per employee Quality of Service 20. Total Faults report per line PSTN 21. Total complaints per 1,000 lines PSTN 22. Leased circuits fault restoration (within 24 hrs) 23. Complaints of bill issued (%) TM Net 24. Number of complaints per 1,000 cust. TM Net

CELCOM (MALAYSIA) BERHAD

Customers 1. Postpaid 2. Prepaid 3. Total Customers 1,176,860 3,160,065 4,336,925 1,104,419 4,230,998 5,335,417 1,118,138 5,740,078 6,858,216 1,230,517 4,848,753 6,079,270 1,282,264 5,920,095 7,202,359

Notes: *1: Value Added Services (VAS) are reflected in Application Services for 2006. *2: Based on forecasted value at 0.33% growth from MCMC Q3 2007 figure; 27.4 million population.

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YEAR ENDED 31 DECEMBER

2003

2004

2005

2006

2007

CELCOM (MALAYSIA) BERHAD (CONTINUED)

Network Capacity 1. No. of GSM Stations 2. No. of 3G Stations 3. Network Customer capacity (000) 4. Coverage populated area (%) Productivity 1. Number of employees 2. Revenue per employee (RM000) 3. Customer per employee Quality of Service 1. Overall Network Availability (%) 5,322 3,749 not launched 5,046 5,289 95 96 4,264 858 1,017 4,019 1,063 1,328 99.37 4,202 806 7,222 97 3,461 1,306 1,982 99.41 5,053 1,499 8,534 98 3,679 1,239 1,652 99.42 5,801 2,280 10,223 98.50 3,692 1,397 1,951 99.69

TM INTERNATIONAL BERHAD
Number of Customers 1. PT Excelcomindo Pratama Tbk 2. Dialog Telekom PLC 3. TM International (Bangladesh) Limited 4. Telekom Malaysia International (Cambodia) Company Limited 5. Spice Communications Limited 6. MobileOne Limited 7. Mobile Telecommunications Company of Esfahan Network Capacity (number of BTS) 1. PT Excelcomindo Pratama Tbk 2. Dialog Telekom PLC 3. TM International (Bangladesh) Limited 4. Telekom Malaysia International (Cambodia) Company Limited 5. Spice Communications Limited 6. MobileOne Limited 7. Mobile Telecommunications Company of Esfahan Number of Employees 1. PT Excelcomindo Pratama Tbk 2. Dialog Telekom PLC 3. TM International (Bangladesh) Limited 4. Telekom Malaysia International (Cambodia) Company Limited 5. Multinet Pakistan (Private) Limited 6. Spice Communications Limited 7. MobileOne Limited 8. Mobile Telecommunications Company of Esfahan
* Including 981 Node B.

2,943,972 825,284 401,680 84,221 1,068,000 15,536 1,491 588 369 96

3,791,049 1,358,641 1,103,465 103,147 1,162,000 16,211 2,357 672 505 136

6,978,519 2,123,801 3,051,917 154,504 1,246,000 19,042 4,324 833 1,548 170

9,527,970 3,105,649 5,762,093 228,969 1,337,000 20,459 7,260* 1,211 2,770 202

15,468,600 4,259,529 7,183,382 311,650 3,800,633 1,535,000 30,568 11,153 1,000 3,905 500 3,663 (approx.) 1,300 64 2,159 3,423 1,623 710 388 351 1,342 48

20 1,515 926 378 387

28 1,543 1,215 652 410

29 1,867 1,711 1,087 466

56 2,061 2,290 1,541 470

1,460 28

1,435 36

1,382 46

1,350 47

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Performance Review

Statement Of Value Added

& Distribution Of Value Added

Value added is a measure of wealth created. The following statement shows the Group's value added for 2006 and 2007 and its distribution by way of payments to employees, governments and shareholders, with the balance retained in the Group for reinvestment and future growth. IN RM MILLION 2006 2007

VALUE ADDED
Revenue Purchase of goods and services Value added by the Group Other operating income Finance income Finance cost Share of results of jointly controlled entities/associates Gain on dilution of equity interest in a jointly controlled entity Value added available for distribution 16,399.2 (7,094.2) 9,305.0 178.5 234.0 (621.9) 30.5 9,126.1 17,842.9 (8,569.5) 9,273.4 460.5 203.9 (820.9) 205.0 71.3 9,393.2

Statement

DISTRIBUTION
To Employees Employment cost To Government Taxation To Shareholders Dividends Minority interests Retained for reinvestment and future growth Depreciation, impairment and amortisation Retained profit Total distributed 1,991.4 830.9 1,001.9 233.5 4,001.5 1,066.9 9,126.1 2,107.1 511.0 3,056.9 83.9 4,143.5 (509.2) 9,393.2

Distribution Of Value Added

(RM Million)
13.6% / 1,235.4 To Shareholders Dividends and minority interests 9.1% / 830.9 To Government Taxation 21.8% / 1,991.4 To Employees Employment cost 2006 55.5% / 5,068.4 Retained for reinvestment and future growth Depreciation, impairment, amortisation and retained profit 33.5% / 3,140.8 To Shareholders Dividends and minority interests 5.4% / 511.0 To Government Taxation 22.4% / 2,107.1 To Employees Employment cost

38.7% / 3,634.3 Retained for reinvestment and future growth Depreciation, impairment, amortisation and retained profit

2007

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Leadership

PROFILE OF DIRECTORS GROUP SENIOR MANAGEMENT

70 76

A Marvel of Nature
There is nothing quite like the iridescence of a Paua shell. From Greens and Pinks to Purples and Blues, the colours stand out on their own, yet merge fluidly into each other like magic. But magic it is not. Each colour comprises a single unique layer of protein and calcium refracting light. Each shell comprises thousands upon thousands of such layers. Such seamless perfection of colour and form is what sets the Paua apart. And yet another reason why we marvel at it.

A Pure Form
When it comes to truly standing out, a great deal of attention is paid to detail but what is also important is how things are put together. With its wide range of sophisticated services, extensive portfolio of assets, partnerships, networks and a demography of customers that spans nations, TM is all about detail. So it takes a special kind of vision and resolve to weave them into an organic entity with a natural incandescence that comes from purity of form and synergy of function. Which is why TM stays ahead.

Leadership

Directors

Profile of

Tan Sri Dato Ir Muhammad Radzi Hj Mansor was appointed Chairman and Director of TM on 12 July 1999. He graduated with a Diploma in Electrical Engineering in 1962 from Faraday House Engineering College, London and a Masters in Science (Technological Economics) from the University of Stirling, Scotland in 1975. A Chartered Professional Engineer registered with the Board of Engineers, Malaysia and Engineering Council, United Kingdom, he is a corporate member of the Institution of Engineers, Malaysia, the Institution of Engineering and Technology, United Kingdom and the Institute of Management, United Kingdom. He served in various engineering and management capacities in the former Jabatan Telekom Malaysia (JTM) over a 22-year period, including a three-year secondment as Technical Adviser to the Ministry of Energy, Telecommunications and Post. Tan Sri Radzi retired as Director General of Telecommunications upon corporatisation of JTM on 1 January 1987 and was subsequently appointed as Director of Operations of TM. He served as Director of Marketing and Customer Services from 1989 to 1995 and later as Director of Regulatory Management and External Affairs before retiring in July 1996. From 1997 to 1999, he was retained as a Consultant/Advisor on multimedia flagship application projects for the Multimedia Development Corporation Sdn Bhd (MDeC). Apart from his directorship in several companies in the TM Group, Tan Sri Radzi is currently Chairman of Celcom (Malaysia) Berhad, Dialog Telekom Limited, Sri Lanka, Menara Kuala Lumpur Sdn Bhd and President Commissioner of PT Excelcomindo Pratama Tbk, Indonesia. He is co-chairman of the Malaysian Industry-Government Group for High Technology (MIGHT) and a Director of MDeC. Tan Sri Radzi served as Chairman of TMs Board Employees Share Option Scheme (ESOS) Committee until expiry of the ESOS on 31 July 2007. He currently serves as Chairman of TMs Board Dispute Resolution Committee. He has attended all the 12 Board of Directors Meetings of the Company held during the financial year. He is a Non-Executive Director nominated by the Minister of Finance, Inc., the Special Shareholder of TM and has never been charged for any offence. He has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.

TAN SRI DATO IR MUHAMMAD RADZI HJ MANSOR Non-Independent Non-Executive Chairman 66 years of age Malaysian

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Profile of Directors

Dato Sri Abdul Wahid Omar was appointed Group Chief Executive Officer (Group CEO) of TM on 1 July 2004. An accountant by training, Dato Sri Abdul Wahid is a Fellow of the Association of Chartered Certified Accountants (ACCA), United Kingdom and a member of the Malaysian Institute of Accountants. He was formerly the Managing Director/Chief Executive Officer of the then United Engineers (Malaysia) Berhad and UEM World Berhad as well as the Executive Vice Chairman of PLUS Expressways Berhad. Prior to his stint at UEM Group, Dato Sri Abdul Wahid served TM as the Chief Financial Officer in 2001. He previously served as a Director of Group Corporate Services cum Divisional Director, Capital Market & Securities of Amanah Capital Partners Berhad, Chairman of Amanah Short Deposits Berhad as well as a Director of Amanah Merchant Bank Berhad and several other companies in the financial services sector. He is also currently a Director of Bursa Malaysia Berhad and member of the Financial Reporting Foundation of Malaysia and the Investment Panel of Lembaga Tabung Haji. As the Group CEO, Dato Sri Abdul Wahid sits on various Board committees including the Board Tender Committee, Board Dispute Resolution Committee and the Board ESOS Committee until expiry of the ESOS on 31 July 2007. He is also the Deputy Chairman of Celcom (Malaysia) Berhad, a Director of VADS Berhad and several other companies in the TM Group. He was appointed an Alternate Director to Tan Sri Dato Ir Muhammad Radzi Hj Mansor on the Board of the Multimedia Development Corporation Sdn Bhd on 1 May 2005. Dato Sri Abdul Wahid has attended all the 12 Board of Directors Meetings of the Company held during the financial year. He is an Executive Director nominated by the Minister of Finance, Inc., the Special Shareholder of TM. He has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.

DATO SRI ABDUL WAHID OMAR Group Chief Executive Officer Non-Independent Executive Director 44 years of age Malaysian

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Leadership

Profile of Directors

DATUK ZALEKHA HASSAN Non-Independent Non-Executive Director 54 years of age Malaysian Datuk Zalekha Hassan was appointed a Director of TM on 9 January 2008. She graduated with a Bachelor of Arts (Hons) from the University of Malaya. Datuk Zalekha began her career in the Malaysian civil service in 1977, as an Assistant Director, in the Training and Career Development division of the Public Service Department. She continued to serve the Government in numerous Ministries including the Ministry of Health, Ministry of Social Welfare, Ministry of National Unity and Social Development prior to commencement of her career in the Ministry of Finance (MOF) in 1998 as the Senior Assistant Director of the Budget Division. She has since then continued to serve the MOF in various capacities. Datuk Zalekha was attached to the Government Procurement Management Division of the MOF for 7 years before taking up her current appointment as the Deputy Secretary General (Operation) in MOF. Datuk Zalekha is also the Chairman of TMs Board Tender Committee and a Non-Independent Non-Executive member of TMs Board Audit Committee. She is a Non-Executive Director nominated by the Minister of Finance, Inc., the Special Shareholder of TM and has never been charged for any offence. She has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.

DATO AZMAN MOKHTAR Non-Independent Non-Executive Director 47 years of age Malaysian Dato Azman was appointed a Director of TM on 1 June 2004. He obtained his Masters of Philosophy in Development Studies from Darwin College, Cambridge University as a British Chevening Scholar. Dato Azman is a Fellow of the Association of Chartered Certified Accountants (ACCA) and a Chartered Financial Analyst (CFA) of the Association of Investment Management and Research (AIMR). He also holds a postgraduate diploma in Islamic Studies from the International Islamic University, Malaysia. Dato Azman is the Managing Director of Khazanah Nasional Berhad (Khazanah) since 1 June 2004 and was the Managing Director of BinaFikir Sdn Bhd until May 2004. Prior to that, he was the Director, Head of Country Research, Salomon Smith Barney in Malaysia and Director, Head of Research, the Union Bank of Switzerland in Malaysia. Prior to that, he was with the then National Electricity Board and Tenaga Nasional Berhad. Dato Azman is a Director of UEM Group Berhad, UEM World Berhad and Malaysian Agrifood Corporation Berhad. He is also the Chairman of ValueCap Sdn Bhd and South Johor Investment Corporation Berhad. He was appointed Chairman of TM International Berhad on 3 March 2008. He is currently the Chairman of TMs Board Nomination and Remuneration Committee. He has attended 10 out of 12 Board of Directors Meetings of the Company held during the financial year. Dato Azman is a Non-Executive Director nominated by the Companys major shareholder, Khazanah, and has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.

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Profile of Directors

DATO Ir DR ABDUL RAHIM DAUD Independent Non-Executive Director 59 years of age Malaysian Dato Ir Dr Abdul Rahim Daud was appointed to the Board of TM on 7 July 1998. His academic and professional qualifications are: B.Eng (Hons) Electronic, Liverpool; M.Sc(Eng) Communication, Birmingham; PhD (Eng), University of Bath, United Kingdom; MBA(Ohio), USA; P.ENG - Member of Professional Engineer Malaysia; FIEM - Fellow of Institution of Engineers Malaysia. He joined Jabatan Telekom Malaysia in 1973. He has been in various senior positions in TM and in 1996, he was appointed as Chief Operating Officer of Telco. In July 1998, he was appointed as Executive Director of TM Group and remained as the Chief Operating Officer of TelCo until 1 February 2001 when he assumed the position of Executive Director, Corporate Strategy and Development. He was then appointed as the Group Deputy Chief Executive/Executive Director of TM from 29 May 2001 until his retirement on 30 June 2004. He remained on the Board of TM and currently as an Independent Non-Executive Director of TM. He was the first Malaysian to be elected as Chairman of Commonwealth Telecommunications Organisation (CTO) in London for 3 terms from September 1999 to November 2002. He also joined the Board of Governor of Intelsat (International Satellite Consortium in Washington DC) for 2 years until its privatisation in 2002. He has completed the Advanced Management Program (AMP) from the Harvard Business School and Senior Executive Development Program from the Wharton School of Business, Pennsylvania, USA. He is an Adjunct Professor of Universiti Kebangsaan Malaysia. Dato Ir Dr Abdul Rahim served as a member of the Board Tender Committee and also as Chairman/Board Member of a number of subsidiaries of TM. He has attended all the twelve (12) Board of Directors Meetings of the Company held during the financial year. He has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.

DATO LIM KHENG GUAN Senior Independent Non-Executive Director 65 years of age Malaysian Dato Lim Kheng Guan was appointed to the Board of TM on 23 June 2000. He is a Chartered Accountant by profession and an Associate Member of the Malaysian Institute of Accountants, Associate of the Malaysian Institute of Certified Public Accountants, Fellow of Australian Society of Certified Practicing Accountants, Associate of the Australian Institute of Bankers and a Member of the Malaysian Institute of Management. He has also attended Advanced Management Programs at Manchester Business School, INSEAD and London Business School. He has more than 40 years of experience in accounting, management consulting and senior managerial positions in local and multinational public listed companies. Currently, he is the Executive Director of Malaysian Management Consultants Sdn Bhd. Dato Lim Kheng Guan currently serves as an Independent Non-Executive Chairman of the Board Audit Committee with effect from 16 August 2007 and also an Independent Non-Executive Member of the Nomination and Remuneration Committee and Board Dispute Resolution Committee. He is also a Board Member of a number of subsidiaries and associate companies of TM. He has attended 11 out of 12 Board of Directors Meetings of the Company held during the financial year. He has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.
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Leadership

Profile of Directors

YB DATUK NUR JAZLAN TAN SRI MOHAMED Independent Non-Executive Director 42 years of age Malaysian YB Datuk Nur Jazlan was appointed to the Board of TM on 1 June 2004. He is a Fellow of the Association of Chartered Certified Accountants (FCCA), United Kingdom. He was a Council Member and Chairman of Public Relations Committee of Malaysian Institute of Accountants as well as a Council Member of the Asean Federation of Accountants. In addition to his corporate experience in the financial arena, YB Datuk Nur Jazlan is also active in politics. He is the Head of UMNO Pulai, Johor and also Chairman of Barisan Nasional for the division. He was an Exco Member of UMNO Youth from 1996 until 2004. He was re-elected in the recent General Election, as Member of Parliament for the Pulai Parliamentary Constituency, Johor. YB Datuk Nur Jazlan is also a Director of United Malayan Land Bhd, Prinsiptek Corporation Berhad, Jaycorp Berhad and Penang Port Sdn Bhd, TSH Resources Berhad and Ekowood International Berhad. YB Datuk Nur Jazlan served as an Independent Non-Executive Chairman of TMs Board Audit Committee until 29 May 2007. He is currently a Member of TMs Board Tender Committee, a Member of Board of Commissioners of PT Excelcomindo Pratama Tbk, Indonesia and Chairman of Multinet Pakistan (Private) Limited, subsidiaries of TM. He has attended 10 out of 12 Board of Directors Meetings of the Company held during the financial year. He has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.

IR PRABAHAR NK SINGAM Independent Non-Executive Director 46 years of age Malaysia Ir Prabahar was appointed Director of TM on 23 June 2000. He is an engineer by profession and obtained his Bachelor of Science (Civil Engineering) degree from Portsmouth Polytechnic, United Kingdom in 1985. A member of the Board of Engineers Malaysia and the Institute of Engineers Malaysia, he is a professional engineer who has wide experience in the engineering sector, especially in the areas of consultancy, contracting, project management and project financing. Ir Prabahar currently serves as an Independent Non-Executive Member of the Board Nomination and Remuneration Committee and Board Audit Committee of TM. He was a Member of TMs Board Tender Committee until 16 August 2007. He is also a Board Member of a number of subsidiaries and associate companies of TM. He has attended all the 12 Board of Directors Meetings of the Company held during the financial year. He has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.

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TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Profile of Directors

ROSLI MAN Independent Non-Executive Director 54 years of age Malaysian Rosli Man was appointed to the Board of TM on 15 July 2000. He holds a Bachelor of Science degree in Electrical and Electronic Engineering (Electrical Design and Instrumentation) from the University of Glasgow, United Kingdom and a Diploma in Electrical and Electronic Engineering (Communications) from Technical College, Kuala Lumpur. Rosli has more than 26 years of experience in the telecommunications industry. He joined JTM in 1976 as Assistant Controller where he gained wide exposure in telecommunication services including the task to implement the countrys first mobile telecommunication service, i.e. ATUR 450. He then moved to the private sector by joining the Fleet group as its Group Manager, Technical Services in 1985. From 1988 to 1996, he was instrumental in setting up the first privately owned telecommunications company in Malaysia, the then Celcom (Malaysia) Sdn Bhd (Celcom), catering to the cellular telecommunication business. He left Celcom as its President in 1996 to join Prismanet Sdn Bhd as Managing Director and held the position until November 1998. In July 2000, he joined Natrindo Telpon Sellular (NTS), the GSM 1800 cellular operator in East Java, Indonesia as Chief Operating Officer. He left NTS in January 2002. Rosli currently serves as an Independent Non-Executive Member of the Board Audit Committee of TM. He was a Member of the Board Tender Committee until 16 August 2007. He is also a Member of the Board of Commissioners of PT Excelcomindo Pratama Tbk, Indonesia, a subsidiary of TM. He has attended all the 12 Board of Directors Meetings of the Company held during the financial year. He has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.

DYG SADIAH ABG BOHAN Non-Independent Non-Executive Alternate Director 45 years of age Malaysian Dyg Sadiah Abg Bohan was appointed Alternate Director to Datuk Zalekha Hassan on 9 January 2008 after she ceased to be Alternate Director to Dato Ahmad Hashim on 7 January 2008. She graduated from the University of Malaya with a Bachelor of Science (Hons) in 1986 and holds a Diploma in Public Administration from the National Institute of Public Administration (INTAN) in 1989. She obtained her Masters in Business Administration from Universiti Kebangsaan Malaysia in 1998. Dyg Sadiah began her career in the Malaysian Civil Service in 1989 as an Assistant Secretary in the Ministry of Agriculture. Thereafter, she was assigned to INTAN and subsequently in 1999, was transferred to the Ministry of Finance. She is currently the Deputy Under Secretary of the Investment, MOF (Inc) and Privatisation Division. Dyg Sadiah is a Director of Penang Port Holdings Berhad and an alternate Director of Malaysia Airports Holdings Berhad. She is also the Alternate Member to Datuk Zalekha Hassan on TMs Board Tender Committee. She has never been charged for any offence and has no family relationship with any Director or major shareholder of the Company nor any conflict of interest with the Company.
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Leadership

Group

Senior Management

Dato Sri Abdul Wahid, 44, is an accountant by training. He is a Fellow of the Association of Chartered Certified Accountants (ACCA), United Kingdom and a member of the Malaysian Institute of Accountants. He has vast experience in the financial services sector and was the Managing Director/Chief Executive Officer of UEM Group, an infrastructure development conglomerate, prior to his appointment as Group Chief Executive Officer of TM on 1 July 2004. He is currently a Director of Bursa Malaysia Berhad, VADS Berhad and a member of the Financial Reporting Foundation of Malaysia and the Investment Panel of Lembaga Tabung Haji.

DATO SRI ABDUL WAHID OMAR Group Chief Executive Officer

DATUK BAZLAN OSMAN Group Chief Financial Officer

Datuk Bazlan, 44, is a Fellow of the Association of Chartered Certified Accountants, United Kingdom and also a Chartered Accountant of the Malaysian Institute of Accountants. He began his career as an auditor with a public accounting firm in 1986 and subsequently served the Sime Darby Group, holding various positions in its corporate office, Singapore and Melaka. He later had a brief stint in American Express in 1993 before joining Kumpulan FIMA Berhad in 1994, where he was subsequently appointed Senior Vice President, Finance/Company Secretary. He joined Celcom in 2001 and was the Chief Financial Officer (CFO) prior to his appointment as TM Group CFO on 1 May 2005. He sits on the boards of two public listed companies and several private companies of the TM Group. He is also a member of the Issues Committee of the Malaysian Accounting Standards Board.

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TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

DATO ZAMZAMZAIRANI MOHD ISA Chief Executive Officer, Malaysia Business / Group CEO Designate, Telekom Malaysia Berhad

Dato Zamzamzairani, 47, holds a Bachelor of Science degree in Communication Engineering from Plymouth Polytechnic, United Kingdom and has attended the Kellog School of Managements programme in Corporate Finance, Strategies for Creating Shareholder Value. He has vast experience in the telecommunications industry and has held senior positions in several multinational companies within the industry, such as Global One and Lucent Technologies (Malaysia), where he led the companies as the CEO. He was the Senior Vice President, Group Strategy and Technology of TM before assuming his current position as the CEO of Malaysia Business. Dato Zamzamzairani also sits on the boards of several TM Group subsidiaries, including VADS Berhad.

Dato Jamaludin Ibrahim, 49, was appointed as the Group CEO Designate and Executive Director of TM International Berhad (TMI) with effect from 3 March 2008. Prior to the appointment in TMI, Dato Jamaludin was the Group Chief Executive Officer of Maxis Communications Berhad (Maxis). He joined Maxis in 1997 and was appointed as CEO in 1998. Prior to Maxis, Dato' Jamaludin was the Managing Director and CEO of Digital Equipment (M) Sdn Bhd from 1993 to 1997. Before that, he spent 12 years in IBM Malaysia. He started his career in 1981 as a lecturer. Dato' Jamaludin graduated in 1978 from California State University, United States, with a Bachelor of Science in Business Administration and a minor in Mathematics. He obtained his Masters of Business Administration from Portland State University, Oregon, in 1980, specializing in quantitative methods.

DATO JAMALUDIN BIN IBRAHIM Group CEO Designate/ Executive Director TM International Berhad

In Malaysia, Dato' Jamaludin is Chairman of the Advisory Board of the National Science Centre. He also sits on the boards of Universiti Tun Hussein Onn Malaysia and Universiti Tun Abdul Razak Sdn Bhd. He had previously served as board member of the Bridge Mobile Alliance, World GSM Association, Malaysia Venture Capital Management Berhad, and HeiTech Padu Berhad.

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Leadership

Group Senior Management

Dato Sri Mohammed Shazalli, 46, holds a Bachelor of Science (Marketing) degree from Indiana University, Bloomington, Indiana, and a Masters of Business Administration from St. Louis University, Missouri, USA. He was appointed Chief Executive Officer and Director of Celcom (Malaysia) Berhad on 1 September 2005. Prior to that, he was the CEO of ntv7, Malaysias 7th terrestrial TV station, since its inception in 1998. He gained vast experience in the Fast Moving Consumer Goods Industry, working for Lever Brothers from 1987 to 1993, followed by Malaysian Tobacco Company (MTC) and British American Tobacco (BAT) from 1993 until 1996, both in Malaysia and the United Kingdom.

KHAIRUSSALEH RAMLI Chief Executive Officer, TM Ventures

DATO SRI MOHAMMED SHAZALLI RAMLY Chief Executive Officer, Celcom (Malaysia) Berhad

Khairussaleh, 40, holds a Business Administration degree from Washington University, St Louis, Missouri, in 1989. He has more than 17 years experience, primarily in financial services. He served the Public Bank Group for 7 years and gained experience in corporate banking, equity research and futures broking, where his last position in the Group was Executive Director of PB Futures. He spent 8 years at Bursa Malaysia Berhad, his last position there being the Chief Financial Officer before joining TM as the Chief Executive Officer, TM Ventures in September 2006.

DATO YUSOF ANNUAR YAACOB Chief Executive Officer, TM International Berhad / Group CFO Designate/ Executive Director, TM International Berhad

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TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Dato Yusof Annuar, 42, is a Chartered Accountant by profession. He completed his Chartered Institute of Management Accountants professional examination from the London School of Accountancy in 1987. He has both investment banking and corporate management experience. His investment banking career included stints at S.G. Warburg & Co (now known as UBS Warburg), ING Barings Securities Singapore and the Merrill Lynch & Co affiliate in Malaysia. Prior to his appointment as Chief Executive Officer of TM International Berhad on 1 June 2005, he was an Executive Director at OCB Berhad and a Board member of a number of other public listed companies in Malaysia. Currently, he is also a Board member of several public listed and private companies, locally and internationally. Post demerger, Dato Yusof will assume the position of Group CFO/Executive Director in the enlarged TM International Berhad.

Group Senior Management

Dato Adnan Rofiee, 53 holds a Bachelors degree in Electronic Engineering from Brighton Polytechnic, United Kingdom. He has 30 years of experience in the telecommunications industry where he began his career with JTM in 1977 as a Planning Engineer, Customer Access Network for the Central Region. He was later appointed General Manager of the Sarawak Operations Area in 1994. He was the Managing Director of Ghana Telecommunications Co Ltd, an associate company of TM, in 2000 and subsequently appointed the CEO of TM Cellular Sdn Bhd in February 2001. He was the Senior Vice President of Major Business & Government before assuming his current position as the Chief Operating Officer of TM Retail since 1 July 2004.

DATO ADNAN ROFIEE Chief Operating Officer, TM Retail

DENNIS KOH SENG HUAT Chief Executive Officer, VADS Berhad

Dennis Koh, 46 holds a Bachelor of Science (Engineering) degree in Computer Science from the Imperial College of Science & Technology, University of London, United Kingdom in 1984. He began his career in computer networking in 1985 with Malaysian Airlines Systems Berhad. In 1990, he moved to Paris to join Societe Internationale de Telecommunications Aeronautiques (SITA) as a Project Manager. He then joined a new start-up company, VADS Berhad which was a joint-venture between IBM (Malaysia) Sdn Bhd and TM then. Over the next 13 years, he held various senior positions before assuming his current position as the Chief Executive Officer of VADS Berhad on 1 June 2005.

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Leadership

Group Senior Management

ZAID HAMZAH Senior Vice President, Group Regulatory, Legal & Compliance

Zaid, 48, is a lawyer with a Bachelor of Law degree from National University of Singapore. He completed his Masters from Fletcher School of Law & Diplomacy, Tufts University, USA on a Fulbright Scholarship. He has over 22 years of professional work experience spanning government service, legal practice and in-house counsel work with an MNC. He started his career with the Singapore Ministry of Foreign Affairs, where he spent almost 10 years as the Senior Assistant Director. Zaid specialises in strategic value creation and risk management in the technology sector and is the author of 5 books on Law, Technology and Strategy. He was a consultant to Microsofts Legal & Corporate Affairs, Asia Pacific, based in Singapore before joining TM on 2 April 2007 as Senior Vice President, Group Regulatory, Legal & Compliance.

Dato Abdul Aziz, 54, holds a Bachelor of Economics (Hons) degree from the University of Malaya. He began his career in 1977 as a Fleet Planning Coordinator with Malaysian Airlines Systems Berhad. He subsequently joined Shell in 1979 where he spent the next 20 years in several management positions in Internal Audit, Marketing Economics, Sales & Marketing, Supply/Distribution Logistics and Human Resource. He left for an international assignment in 1991 with the Shell Group based in London, where he was the shareholders representative, overseeing Shells business interests in Hong Kong and China. He later served as Executive Vice President, Human Resource of RHB Bank Berhad, responsible for setting the direction, formulating and overseeing the implementation of HR Strategies before joining TM on 18 October 2004 as Senior Vice President, Group Human Resource.

DATO ABDUL AZIZ ABU BAKAR Senior Vice President, Group Human Resource

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Group Senior Management

Ahmad Azhar, 44, holds a Bachelor of Science degree in Electrical Engineering from Oklahoma State University. He began his career as an engineer in Agilent Technologies (formerly known as Hewlett Packard) in 1987. He then joined Accenture in 1990 servicing clients in Malaysia, Asia and Middle East in various industries namely communications, high technology, oil and gas and public sector services. His experiences include strategic planning and change management, business and operations support systems, enterprise resource management, revenue and customer relationship management. He became a Partner at Accenture in 2000 before joining TM as Group Chief Information Officer on 2 August 2004.

AHMAD AZHAR YAHYA Group Chief Information Officer

Hashim, 49, holds a Bachelor of Science degree from Queen Elizabeth College, University of London and a Masters in Business Administration (MBA) in International Management from RMIT University in Melbourne, Australia. Hashim is the former Vice President and current Chartered Fellow of The Institute of Internal Auditors Malaysia, and a member of the Malaysian Institute of Management. He has been a member of the Investigation Tribunal, Advocates and Solicitors Disciplinary Board, Bar Council Malaysia since 2004. He is also a Chartered Chemist and member of the Royal Society of Chemistry, United Kingdom. Hashim spent 21 years in Shell Malaysia holding various management positions spanning marketing, sales, manufacturing, operations, logistics, information technology and internal audit. He joined TM as the Group Chief Auditor in October 2002.

HASHIM MOHAMMED Group Chief Auditor

Gazali, 50, holds a Bachelor of Science (Finance) degree from Northern Illinois University, and in 1982 obtained a Masters in Business Administration (MBA) from Governors State University. He gained vast experience in corporate banking and corporate finance while serving at a local merchant bank prior to joining TM in 1990. In TM, he was involved in treasury management, fund raising activities, mergers and acquisitions, investor relations GAZALI HARUN and overseeing the Enterprise Group Chief Procurement Risk Management Programme Officer for the Group. Prior to his appointment as Group Chief Procurement Officer of TM on 1 June 2005, he was the Vice President, Finance, of TM Wholesale.

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Leadership

Group Senior Management

Mohd Noor, 53, holds a Masters of Business Administration from the University of Wales, United Kingdom. He is also a Chartered Accountant and a member of the Malaysian Institute of Accountants. He was the General Manager of Strategy & Business Analysis of TM International Berhad (TM International), before assuming his current position as Vice President, Group Performance Improvement Management Office of TM. Mohd Noor has contributed significantly to the development of TM International since 2004, particularly during the acquisitions in Pakistan, Indonesia, Singapore, India, Cambodia and Thailand. He started his career with Petronas where he spent a total of 18 years and subsequently joined Kumpulan Guthrie Berhad. Prior to joining TM International, he was the CEO of an IT consultancy company in Singapore for 3 years.

WANG CHENG YONG Company Secretary

MOHD NOOR OMAR

Vice President, Group Performance Improvement Management Office

Yong, 53, has been the Company Secretary of TM since 1998. A qualified Company Secretary by training, she is an Associate member of the Institute of Chartered Secretaries and Administrators. She gained accounting and secretarial experience in Postel Investment Management Ltd in the United Kingdom in 1980 and subsequently, upon her return to Malaysia in 1984, as an Accountant/Company Secretary in a stock/share broking company and Corporate Secretary in a secretarial company, affiliated to the then Arthur Young International. She joined BHL Bank Berhad in 1988 and left as the Senior Secretarial Officer in 1991 to join TMs Company Secretarial Division.

MARIAM BEVI BATCHA General Manager, Group Corporate Communications

Mariam, 44, holds a Bachelor of Business (Business Administration) with Distinction from RMIT University in Melbourne, Australia and a Diploma in Public Relations from the Institute of Public Relations Malaysia (IPRM). She is a member of IPRM and is among the first batch of PR practitioners to be accredited by IPRM in 2005. Prior to joining TM in September 2004 as General Manager, Group Corporate Communications, she served as the Head of Group Corporate Communications in Amanah Capital Partners Berhad, and later as the General Manager of Group Corporate Communications in United Engineers (Malaysia) Berhad/UEM World Berhad.

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Group Senior Management

Hasnul Suhaimi, 50, was appointed President Director of PT Excelcomindo Pratama Tbk (XL) in September 2006. Formerly the President Director of Indosat, he held various directorship positions in the Company since 2003. Prior to that, he held senior positions at Telkomsel and Indosats subsidiary, Indosel. Hasnul graduated from Bandung Institute of Technology (ITB) in 1981 with an Electrical Engineering degree before receiving an MBA from the University of Hawaii in 1992.

TM International Subsidiaries/Associated Companies/Affiliates

HASNUL SUHAIMI President Director PT Excelcomindo Pratama Tbk, Indonesia

Director and Group Chief Executive of Dialog Telekom PLC, Dr Wijayasuriya, 39, joined the Company in 1994 as a member of the founding management team and has functioned in the capacity of Chief Executive Officer of Dialog Telekom since 1997. Counting over 15 years of professional experience in mobile communications, Dr Wijayasuriya has published widely on the subject of digital mobile communications, including research papers in publications of the Institution of Electrical and Electronic Engineers (IEEE), USA, Royal Society and Institution of Electrical Engineers of the United Kingdom (IEE), UK. He has made several keynote presentations at international conferences on digital mobile communications. Dr Wijayasuriya is also a past chairman of GSM Asia Pacific the regional interest group of the GSM Association. A fellow of the Institute of Engineering Technology of the United Kingdom (IET), Dr Wijayasuriya is a Chartered Professional Engineer registered with the IET UK. He is also a member of the Institution of Electrical and Electronic Engineers (IEEE), USA. Dr Wijayasuriya graduated with a degree in Electrical and Electronic Engineering from the University of Cambridge, United Kingdom in 1989. He subsequently read for and was awarded a PhD in Digital Mobile Communications at the University of Bristol, United Kingdom. Dr Wijayasuriya also holds a Masters in Business Administration from the University of Warwick, United Kingdom.

DR SHRIDHIR SARIPUTTA HANS WIJAYASURIYA Chief Executive/Executive Director Dialog Telekom PLC, Sri Lanka

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Leadership

Group Senior Management

MUHAMMED YUSOFF MOHD ZAMRI Chief Executive Officer Telekom Malaysia International (Cambodia) Company Limited, Cambodia

Muhammed Yusoff Mohd Zamri, 43, was appointed Chief Executive Officer of Telekom Malaysia International (Cambodia) Company Limited (TMIC) in February 2007. After obtaining his Bachelor of Engineering (Industrial) from Monash University, Australia in 1987, he began his career with INTEL in 1988. Subsequently, he moved into the service industry with American Express from 1990 to 1993. Yusoff has both cellular operator and telecommunications vendor experience. His mobile operator experience includes stints at Celcom and in Uzmacom as Director of Marketing and Business Development for a new mobile operator in Uzbekistan from 1996 to 2000. Prior to his appointment in TMIC, he was attached to various international companies such as Lucent Technologies, Schlumberger and Atos Origin.

Adnan, one of the pioneers of Multinet Pakistan (Private) Limited, has been the driving force behind the Company and is responsible for spearheading the successful deployment of the nationwide OFN. He has a degree in Science (Civil Engineering) from Wisconsin, USA and a Masters in Science (Civil Engineering) from Minnesota, USA. He has a rich and progressively diverse experience of over 24 years in structural and forensic engineering, construction management, quality control and project management. Adnan has conducted a series of seminars on Entrepreneurship and Marketing at the Institute of Business Administration in Karachi as well as Project Management and Leadership seminars at NED University in Karachi. He also plays advisory roles in several nonprofit organisations primarily focused on Education and Health and is on the Executive Council Board for the Indus Valley School of Art and Architecture and The Citizens Foundation.

ADNAN ASDAR Chief Executive Officer Multinet Pakistan (Private) Limited, Pakistan

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Group Senior Management

Navin Kaul has over 29 years of experience in managing businesses in highly competitive markets. He has been in the telecommunications industry right from its inception in India. He was part of the Modi Telstra team that pioneered cellular communications in India. Navin has held leadership positions in the areas of corporate sales, customer care, revenue assurance and credit risk management. He also has significant exposure in handling joint-ventures. In his current role, Navin will be responsible for Spices development and growth by creating financial value, ensuring customer and employee satisfaction and creating strong processes to build a world-class organisation.

NAVIN KAUL Chief Executive Officer Spice Communications Limited, India

Neil, 55, has been Chief Executive Officer of MobileOne Limited (M1) since April 1996. He was appointed to M1s Board of Directors on 8 November 2002. He is a Fellow of the Institute of Electrical Engineers and a Fellow of the Chartered Institute of Marketing. Neil was formerly Director of Mobile Services at Hong Kong Telecom CSL Ltd, the largest cellular operator in Hong Kong, before assuming the position of Managing Director in several telecommunication companies in Hong Kong and in the United Kingdom, including Paknet Ltd which launched the worlds first public packet radio data network. His earlier years at various units in the Cable and Wireless Group saw him managing and specialising in telecommunication products, projects and services in Hong Kong and the Far East, as well as in Bahrain, Saudi Arabia and the United Kingdom.

NEIL MONTEFIORE Chief Executive Officer MobileOne Limited, Singapore

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Leadership

Group Senior Management

Seyed Ahmad Sadjjadi, 53, has been the Managing Director of Mobile Telecommunications Company of Esfahan (MTCE) since 2006. He was formerly the Chairman of the Board of Directors in Kerman Industrial Communications and a Member of the Board of Directors at Industrial University of Khajeh Nasir Toosi from 1981 to 1989. He has held various managerial positions within the Telecommunications Company of Iran for the Kerman, Markazi Arak, Golestan and Esfahan provinces. He graduated from the Khajeh Nasir Toosi University with a Bachelors in Telecommunications degree and received his Masters in System Management from the Governmental Management Education Centre in Tehran.

WATCHAI VILAILUCK Chief Executive Officer Samart I-Mobile Public Company Limited, Thailand

Watchai Vilailuck, 45, has helmed Samart I-Mobile as Executive Chairman and Chief Executive Officer since 2003. An Accounting graduate from Thammasart University, he also holds a Certificate of Director Accreditation from the Thai Institute of Directors (IOD). Watchai began his career as an Assistant Auditor for SGV-NA Thalang & Company Limited in 1984. Subsequently, he held senior management positions in the Samart group of companies which included Samart Telcom Public Company Limited, Samart Satcom Company Limited and Samart Engineering Company Limited.

SEYED AHMAD SADJJADI Managing Director Mobile Telecommunications Company of Esfahan, Iran

CHAROENRATH VILAILUCK Executive Chairman/ Chief Executive Officer Samart Corporation Public Company Limited, Thailand

Charoenrath, 48, has held the position of Executive Chairman and Chief Executive Officer for Samart Corporation Public Company Limited since 1987. In addition, he is also Director for Samart Telcoms Public Company Limited and Samart I-Mobile Public Company Limited. Charoenrath graduated from the University of Newcastle, Australia with a Bachelors of Engineering in Electrical Engineering. He also holds a certificate from the Thai Institute of Directors.

* TM International Berhad Chief Executive Officer Dato Yusof Annuar Yaacob oversees the business and operations for TM International (Bangladesh) Limited (TMIB).

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Accountability

STATEMENT ON CORPORATE GOVERNANCE

88

ACHIEVING BUSINESS 103 OBJECTIVES BY IMPROVING ENTERPRISE RISK MANAGEMENT (ERM) EXECUTION CODE OF BUSINESS ETHICS ADDITIONAL COMPLIANCE INFORMATION AUDIT COMMITTEE REPORT DIRECTORS STATEMENT ON INTERNAL CONTROL 106 108 114 121

Accountability

Statement on

Corporate Governance

INTRODUCTION
Company Directors have a fiduciary duty to shareholders to ensure that the principles of good corporate governance are properly enforced. In this case, I believe that transparency and openness remain the best deterrent against corruption and fraud. As company directors, you must always ensure transparency in governance. You must be prepared to scrutinize and to probe. You must be prepared to ask uncomfortable questions, and to receive uncomfortable answers. I would like to call upon all those charged with the responsibility of being company directors to dispense it well. It is a responsibility that you hold, not only towards your shareholders and your own conscience, but also towards the nation.
Excerpts from a speech by the Honourable Prime Minister of Malaysia, Dato Seri Abdullah Hj Ahmad Badawi, at the Corporate Leaders Banquet on 7 February 2007, organised by the Malaysian Institute of Directors.

Transparency-hallmark of corporate governance

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Statement on Corporate Governance

Corporate Governance is about the way in which Boards oversee the running of the company by its managers and about how Boards are in turn accountable to shareholders in particular and stakeholders in general. The presence of an effective Corporate Governance framework provides the confidence necessary for the proper functioning of a market economy. Poor governance undermines corporate integrity and can expose the company to risk through fraud and ultimately weakens a companys potential. As one of the leading companies in the stable of Government-linked Companies (GLC) in Malaysia, TM has, apart from abiding to the principles and best practices as set out in the Malaysian Code on Corporate Governance (Malaysian Code), also subscribes to the principles introduced by the Putrajaya Committee on GLC High Performance (PCG) which comprise the Guidelines to Enhance Board Effectiveness. These Guidelines, as codified in the Green Book launched on 26 April 2006, reinforce the recommendations contained in the Malaysian Code. The PCG recommended changes and improvements to the governance of GLCs based on the following objectives: Refocus the role and mandate of GLC Boards. Strengthen GLC Board composition. Intensify GLC Board performance management. Upgrade Board structure and processes.

TM has also taken cognizance of and adhered to recent amendments to the Malaysian Code which came into effect on 1 October 2007, aimed at strengthening the roles of the Board of Directors and Audit Committees and the effective discharge of their respective roles and responsibilities. The Board of TM recognises that corporate governance is not only about commitment to values and ethical conduct and provides a framework for best practices, but also that stakeholder expectations must be fully understood and managed, and not assumed. The Board also believes that a successful GLC is an organisation whose performance must be equal if not better than that of a non-GLC in terms of profit and efficiency coupled with responsible employment and corporate social responsibility. TMs commitment is evident in its internal processes, guidelines and systems, which are aligned with sound corporate governance practices aimed at increased efficiency, transparency and accountability.

National Annual Corporate Report Awards (NACRA) 2007 TM achieved recognition once again for its annual report, clinching the Gold Award for Overall Excellence during the National Annual Corporate Report Awards (NACRA) 2007 ceremony held in Kuala Lumpur. TM also took home the Industry Excellence Award for Bursa Malaysia Main Board Companies under the Trading & Services sector for the 11th consecutive year, as well as won the Gold Award for Best Designed Annual Report.

ANOTHER AWARD WINNING YEAR FOR TM

TMs commitment to realise shareholder value is evidenced by the following awards conferred on the Company in 2007: Corporate Governance TM ranked Second place in the Corporate Governance Survey Report 2007, a joint study by the Minority Shareholders Watchdog Group (MSWG) of Malaysia and Nottingham University Business School, Malaysia Campus.

National Award for Management Accounting (NAfMA) Excellence Award TM received the coveted NAfMA Excellence Award, beating nine other finalists to take First place in management accounting best practices. The NAfMA awards recognise best practices in management accounting by companies in Malaysia that leads to value creation and excellent business performance. The awarding bodies for NAfMA are the Malaysian Institute of Accountants (MIA) and Chartered Institute of Management Accountants (CIMA).

Details of other awards, local and international, won by TM and its Group of Companies in 2007 is provided on pages 38 to 41 inclusive of this annual report.

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Statement on Corporate Governance

COMPLIANCE STATEMENT
The Board will continue to strengthen governance practices to safeguard the best interests of shareholders and other stakeholders. The Company has fully complied with the principles and best practices of the Malaysian Code and its amendments, which took effect on 1 October 2007. This Statement, together with the Statement on Internal Control and the Statement on Risk Management, sets out the manner in which the Company has applied the principles and best practices of the Malaysian Code. Best practices adopted by TM Group over and above the recommendations prescribed in the Malaysian Code are those recommended by PCG and other global standards, which the Board has deemed to be suitable for the Group.

Dato Lim Kheng Guan is the Senior Independent Non-Executive Director, to whom concerns pertaining to the Group may be conveyed by shareholders and the public. He also represents and acts as spokesperson for the Independent Directors as a group. ROLES AND RESPONSIBILITIES OF THE BOARD TM Group is led and controlled by an active and experienced Board consisting of members with a wide range of business, financial, technical and public service backgrounds. This brings depth and diversity in expertise and perspectives to the leadership of a highly regulated communications business. Directors biographies appearing on pages 70 to 75 inclusive, of this annual report, represent an impressive range of experiences, which are vital to providing strategic direction and guidance in the management of a communications company. The Board has assumed the following 6 core responsibilities in discharging its stewardship: Review and adopt a strategic plan Oversee and evaluate the conduct of the Companys business Identify and manage principal risks Succession planning Develop and implement an investor relations programme Review adequacy and integrity of the Companys internal controls

Financial and Subsidiary Policy manuals are in place to ensure that prior TM Board approvals are obtained for the following transactions and activities of the Group within various levels of authorities: Shareholding and Capital Structure: Equity and long term debt issues Corporate Guarantees Change in nature of business

Financial Investments and Mergers & Acquisitions: Mergers & Acquisitions Investments and equity participation/joint ventures Divestment of investment or business Loan or cash advances to subsidiaries Investment in corporate bonds and securities Business alliances

BUILDING A STRONG BOARD

BOARD COMPOSITION AND BALANCE In 2007, the Board consisted of 9 members, comprising a Non-Executive Chairman, an Executive Director designated as the Group Chief Executive Officer (Group CEO), 2 Non-Independent Non-Executive Directors and an Alternate and 5 Independent NonExecutive Directors, representing more than half of the Board. The Board believes that its current size, which is in line with the GLC guidelines, is appropriate for its purpose.

Budget Annual Capital Expenditure Annual Operating Expenditure

Procurement for: Network assets Network landed property Non-network assets/services Non-network landed property

Others Consultancy Working capital financing

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Statement on Corporate Governance

Apart from the above specific responsibilities, the Board also takes full, independent responsibility and accountability for the smooth functioning of core processes, involving board governance, business value and ethical oversight. To facilitate effective discharge of these responsibilities, dedicated Board Committees have been established with clear terms of references, comprising Directors who have committed time and effort as members. The Board committees are chaired by Non-Executive Directors who exercise their leadership with the benefit of in-depth knowledge of the relevant industry. The Board meets regularly. In addition to 9 scheduled meetings during the year to decide on core issues, 3 interim or special meetings were held where immediate decisions were warranted. This includes consideration of proposals in relation to mergers and acquisitions and quarterly financial results. The attendance of individual Directors at the 12 Board Meetings held in 2007 is recorded within the Directors biographies published on pages 70 to 75 inclusive, in this annual report. Besides the 12 Board Meetings, urgent issues were considered via a total of 6 Directors Circular Resolutions during the year. ROLES OF THE CHAIRMAN, GROUP CEO AND NON-EXECUTIVE DIRECTORS The roles of the Non-Executive Chairman, Tan Sri Dato Ir Muhammad Radzi Hj Mansor and the Group CEO, Dato Sri Abdul Wahid Omar, are kept separate in line with best practice, with clear division of responsibilities between them.

The Boards principal focus is the overall strategic direction, development and control of the Group. As such, the Board approves the Groups strategic plan and its annual budget and throughout the year, reviews the performance of the operating subsidiaries against their budgets and targets. The Group CEO is responsible for the implementation of broad policies approved by the Board and he is obliged to report and discuss at Board Meetings all material matters currently or potentially affecting the Group and its performance, including all strategic projects and regulatory developments. The Chairman is responsible for the integrity and effectiveness of the relationship between the Non-Executive and Executive Directors. His interactions with global leaders of the industry and relationships with stakeholders and various institutions, such as his active participation as a member of the Board of Engineers, help to bring about the benefits of the engineering profession to the Group and society. Non-Executive Directors provide considerable depth of knowledge collectively gained from experiences in a variety of public and private companies. The Independent Non-Executive Directors are independent of management and free from any business or other relationship, which could materially interfere with the exercise of their independent judgement as defined under paragraph 1.01 of the Listing Requirements of Bursa Malaysia Securities Berhad (Bursa Securities). They provide unbiased and independent views in ensuring that the strategies proposed by the management are fully

deliberated and examined, in the interest of shareholders, employees, customers, and the many communities in which the Group conducts its business. The independence of the Non-Executive Directors is constantly reviewed and benchmarked against best practices and regulatory provisions. BOARD APPOINTMENT PROCESS The Company has in place formal and transparent procedures for the appointment of new Directors. These procedures ensure that all nominees to the Board are first considered by the Nomination and Remuneration Committee, taking into account the required mix of skills and experience and other qualities, before making a recommendation to the Board and shareholders. BOARD EFFECTIVENESS EVALUATION The formal Performance Evaluation Framework (the Framework) adopted in 2004 and reviewed in 2006, comprises a Board Effectiveness Assessment and a Board of Directors' Self/Peer Assessment. The Framework is designed to maintain cohesiveness of the Board and, at the same time, serves to improve the Boards effectiveness. The broad performance indicators, on which Board Effectiveness is evaluated, include board composition, board administration, board accountability and responsibility and board conduct. Performance indicators for individual directors include their interactive contributions, understanding of their roles and quality of input.

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Accountability

Statement on Corporate Governance

To ensure integrity and independence of the appraisal process, PricewaterhouseCoopers Advisory Services Sdn Bhd was engaged as the independent Adviser to tabulate and report to the Chairman the results of the evaluation process. Every board member is provided with the results of the self-evaluation marked against peer evaluation to allow for comparison. TMs Board Effectiveness Evaluation has been instrumental in drawing the Boards attention to areas to be addressed. During the year, similar Board Effectiveness Evaluations were also implemented by major subsidiaries within the Group. RE-ELECTION OF DIRECTORS In accordance with the Listing Requirements of Bursa Securities and the Companys Articles of Association, all Directors are subject to re-election by rotation once at least every 3 years and a re-election of Directors shall take place at each Annual General Meeting. Executive Directors also rank for reelection by rotation. The re-election of Directors ensures that shareholders have a regular opportunity to reassess the composition of the Board. Particulars of Directors submitted to shareholders for re-election are enumerated in the Statement accompanying the Notice of Annual General Meeting (AGM).

DIRECTORS REMUNERATION The framework for the remuneration of Executive and Non-Executive Directors is reviewed regularly against market practices. The remuneration of NonExecutive Directors is based on a standard fixed fee. Additional allowances are also paid in accordance with the number of meetings attended during the year. As an Executive Director, the Group CEO is paid a salary, allowances, bonuses and other customary benefits as appropriate to Senior Management members. TM carries out salary benchmarking of equivalent jobs in the market of similar-sized companies to arrive at appropriate base pay levels. TMs Group CEOs remuneration is benchmarked against the remuneration of CEOs of other GLCs, taking into account job size as determined by Hay Management Consultant (M) Sdn Bhd. Subsequently, other salary benchmarks were also considered with adjustments provided for the industry TM is in and its regional exposure. For the senior management directly reporting to the Group CEO, the same salary benchmarks are also done but against both internally equivalent jobs and also external jobs in similar sized companies.

TM has also implemented guidelines set out in the Blue Book applicable to GLCs, on Intensifying Performance Management Practices and Performance-linked Compensation introduced by PCG. According to these guidelines, a significant portion of TMs compensation package for executives has been made variable in nature, to be determined based on performance. This is determined by how well the individual has performed in the year based on the approved individual Key Performance Indicators (KPIs), which are aligned to the Group Scorecard. The actual size of the Companys performance bonus pool is dependent on how well the Group has performed on its Scorecard and will be determined and endorsed by the Board. The Group CEO and his direct reports would be rewarded according to a combination of how well they have delivered their KPIs and their ratings on their 360 degrees feedback, which is then moderated within a peer group in order to arrive at a relative ranking according to a normal distribution curve.

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Statement on Corporate Governance

Details of the fees and remuneration of each Director of the Company, categorised into appropriate components for the financial year ended 31 December 2007, are as follows: NAME OF DIRECTORS Non-Independent and Executive Director: Dato' Sri Abdul Wahid Omar Non-Independent and Non-Executive Directors: Tan Sri Dato' Ir Muhammad Radzi Hj Mansor Dato Ahmad Hj Hashim Resigned on 7 January 2008 Datuk Zalekha Hassan Appointed on 9 January 2008 Dato Azman Mokhtar Alternate Directors (Non-Independent and Non-Executive Directors): Leonard Wilfred Yussin [Alternate Director to Dato Ahmad Hj Hashim] Resigned on 8 February 2007 Dyg Sadiah Abg Bohan [Alternate Director to Dato Ahmad Hj Hashim] Appointed on 8 February 2007 and resigned on 7 January 2008 Dyg Sadiah Abg Bohan [Alternate Director to Datuk Zalekha Hassan] Appointed on 9 January 2008 Independent and Non-Executive Directors: Dato' Ir Dr Abdul Rahim Daud YB Datuk Nur Jazlan Tan Sri Mohamed Ir Prabahar NK Singam Dato Lim Kheng Guan Rosli Man TOTAL AMOUNT 1,263,030.00 106,295.77 36,000.00 139,098.57 118,478.86 36,000.00 720,492.91 51,227.46 33,109.86 123,885.74 76,507.19 42,346.48 511,673.20 39,447.15 39,447.15 465,894.30 17,786.79 1,884.00 49,616.02 49,872.02 2,140.00 220,732.68 175,310.02 70,993.86 352,047.48 284,305.22 80,486.48 3,181,823.09 212,619.71 36,000.00 36,000.00 5 78,646.47 28,950.00 15,000.00 5 32,476.99 1,884.00 1,900.92 323,743.17 66,834.00 52,900.92 1,263,030.00 1 60,000.00 2 387,000.00 3 61,057.54 4 1,771,087.54 SALARY FEE ALLOWANCE BONUS BENEFITS IN-KIND TOTAL AMOUNT

1,000.00

166.03

1,166.03

1,000.00

1,948.37

2,948.37

NOTES: 1 Inclusive of Companys contribution to provident fund (RM273,030). 2 Car allowances (RM60,000) in lieu of provision of company car. 3 Bonus for financial year ended 2006, paid in 2007. 4 Apart from the above benefits-inkind, Dato Sri Abdul Wahid Omar is entitled to Performance Link ESOS which resulted in a total cost of RM483,137 to the Company pursuant to FRS 2. 5 Paid directly to Khazanah Nasional Berhad.

Accountability

Statement on Corporate Governance

BOARD COMMITTEES
In accordance with TMs Articles of Association, the Board delegates certain responsibilities to Board Committees, namely, the Audit Committee, Nomination and Remuneration Committee, Tender Committee, Employee Share Option Scheme Committee and Commercial Dispute Resolution Committee. All Committees have written terms of reference and operating procedures and the Board receives regular reports of their proceedings and deliberations. Where Committees have no authority to make decisions on matters reserved for the Board, recommendations would be highlighted in their respective reports for the Board of Directors deliberation and endorsement. The Chairpersons of the various Committees report the outcome of the committee meetings to the Board and relevant decisions are incorporated into the minutes of the Board of Directors meetings. The details and activities of Board Committees during the year are outlined below: AUDIT COMMITTEE A full Audit Committee report detailing the membership, its role and activities in 2007 is set out on pages 114 to 120 inclusive, of this annual report.

Nomination and Remuneration Committee Membership Dato Azman Mokhtar (Non-Independent Non-Executive) Ir Prabahar NK Singam (Independent Non-Executive) Dato Lim Kheng Guan (Senior Independent Non-Executive) TM has a combined Nomination Committee and Remuneration Committee for the purpose of expediency, since the same members are entrusted with the functions of both the Committees. The members of the Nomination and Remuneration Committee are mindful of their dual roles, which are clearly reflected and demarcated in the Agendas of each meeting. The main objectives and principal duties and responsibilities of the Nomination and Remuneration Committee (NRC) are as follows: Nomination Function Main Objectives To ensure that the Directors of the Board bring characteristics to the Board, which provide a required mix of responsibilities, skills and experience. To assist the Board to review on an annual basis the appropriate balance and size of Non-Executive participation and to establish procedures and processes towards an annual assessment of the effectiveness of the Board as a whole and contribution of each individual Director and Board Committee member.

Principal Duties and Responsibilities Recommend to the Board candidates for directorship on the Board of the Company and Group as well as membership of all other Board Committees. Examine the size of the Board with a view to determine the number of Directors on the Board in relation to its effectiveness and review its required mix of skills and experience and other qualities. Recommend suitable orientation, educational and training programmes to continuously train and equip existing and new Directors.

Remuneration Function Main Objectives To set the policy framework and to make recommendations to the Board on all elements of the remuneration package including terms of employment, reward structure and fringe benefits for Executive Director(s) and pivotal management positions. The aim is to attract, retain and motivate individuals of the highest quality.

Principal Duties and Responsibilities Set, review, recommend and advise the policy framework on all elements of the remuneration such as reward structure, fringe benefits and other terms of employment of the Executive Director(s) having regard to the overall Group policy guidelines and framework.

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Statement on Corporate Governance

Advise the Board on the performance of the Executive Director(s) and an assessment of their entitlement to performance related pay and advise the Executive Director(s) on the remuneration terms and conditions of senior management. Establish and recommend a formal and transparent procedure for developing a policy on the remuneration of the Non-Executive Chairman, Non-Executive Directors and Board Committees, which recommendation shall be decided by the Board of Directors as a whole.

Authority The Nomination and Remuneration Committee has the authority to examine a particular issue and report back to the Board with recommendations. The determination of remuneration packages of Directors is a matter for the Board as a whole and individuals are required to abstain from discussion on their own remuneration.

Monitored closely the status of Directors training and ensured a more appropriate distribution of training needs according to knowledge gaps highlighted by the Board effectiveness evaluation results. Endorsed appointments of key management positions pursuant to the TM Demerger exercise approved by the Board on 28 September 2007, involving the creation of 2 separate entities with distinct business strategies and aspirations. Reviewed Committees memberships and composition to ensure alignment with recommendations of the Green Book and the Malaysian Code. Considered and recommended to the Board a long-term incentive scheme for the Executive Director/Group CEO.

Datuk Nur Jazlan Tan Sri Mohamed (Independent Non-Executive) Rosli Man (Independent Non-Executive, resigned on 16 August 2007) Ir Prabahar NK Singam (Independent Non-Executive, resigned on 16 August 2007) Dyg Sadiah Abg Bohan (Ceased as Alternate to Dato Ahmad Hj Hashim on 7 January 2008 and appointed as Alternate to Datuk Zalekha Hassan with effect from 9 January 2008) Membership of the Board Tender Committee was reviewed in August 2007 by the Board and reduced from 6 to 4 members, in line with the recommendations of the Green Book for GLCs and other best practices. Objectives, Principal Duties and Responsibilities To ensure that the procurement process complies with the relevant procurement ethics, policies and requirements. To consider, evaluate and approve or recommend awards which are beneficial to the Company, taking into consideration various price factors, usage of product and services, quantity, duration of service and other relevant factors.

Meeting Attendance The Nomination and Remuneration Committee met 5 times in 2007, duly attended by all Members. A total of 2 resolutions in writing were passed by the Committee during the year. Tender Committee Membership Dato Ahmad Hj Hashim (Chairman Non-Executive, resigned on 7 January 2008) Datuk Zalekha Hassan (Chairman Non-Executive, appointed on 9 January 2008) Dato Sri Abdul Wahid Omar (Group CEO Executive) Dato Ir Dr Abdul Rahim Daud (Independent Non-Executive)

Main Activities in 2007 During the year, the Nomination and Remuneration Committee fulfilled a number of key activities as listed below: Facilitated the administration and conduct of the Board effectiveness evaluation process and ensured the integrity and independence of the process. Monitored the rollout of the Board effectiveness evaluation process by major subsidiaries.

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Meeting Attendance The Board Tender Committee met 11 times during the year, duly attended by all members except for YB Datuk Nur Jazlan who attended 8 meetings and Rosli Man who attended 10 meetings, during the year. 1 Circular Resolution was duly issued and approved by all members during the year. Employee Share Option Scheme (ESOS) Committee Membership Tan Sri Dato Ir Muhammad Radzi Hj Mansor (Chairman Non-Executive) Dato Sri Abdul Wahid Omar (Group CEO Executive) Dato Ahmad Hj Hashim (Non-Executive) Dato Ir Dr Abdul Rahim Daud (Independent Non-Executive) Dyg Sadiah Abg Bohan (Alternate to Dato Ahmad Hj Hashim) Principal duties and responsibilities To construe and interpret the ESOS and options granted under it, to define the terms therein and to recommend to the Board to establish, amend and resolve rules and regulations relating to the scheme and its administration. Authority was given to any 2 Committee members to approve allotment of shares pursuant to exercise of ESOS by employees. The ESOS Committee met twice in 2007 duly attended by all 4 Members. 55 Circular Resolutions, were passed by the ESOS Committee on share allotments in 2007.

The ESOS Committee was disbanded upon expiration of the scheme on 31 July 2007. Ad-Hoc Board Committees Apart from the above, ad-hoc or special purpose Board Committees, such as the Commercial Dispute Resolution Committee (CDRC), were established on a needs basis to deliberate and expedite decision-making processes in respect of specific aspects of the business. These short-term Committees were established with their terms of reference duly approved by the Board.

Following the repeal of Practice Note No. 15 on the Continuing Education Programme (CEP) prescribed by Bursa Securities, the Board of Directors of each listed issuer has a duty to evaluate and determine the training needs of its Directors on a continuous basis. The training must be one that aids the Director in the discharge of his duties as a Director. Board Training Programme (BTP) and Enhancement The Board of Directors had duly adopted a set of BTP Guidelines, effective from 1 January 2005, to address the training needs of Directors in the absence of the Bursa Securities CEP requirements. The BTP Guidelines impose a minimum of 36 training hours to be accomplished by the Directors within a calendar year, compared to the minimum of 24 training hours under the CEP. The BTP Guidelines allow for speaking roles at conferences to be included in the allocated training hours. During the year, all the Directors achieved over and above the minimum of 36 training hours by attending various seminars and international conventions to gain insight into the state of the economy as well as the latest regulatory and technological developments in relation to the Groups business. Directors have also participated as speakers at local and international conventions on topics relevant to their roles.

BOARD PERFORMANCE IMPROVEMENT PROGRAMME (BPIP)

This programme was implemented in March 2006 with a view to improve the Boards functions and structure and ensure alignment between Boards priorities and the Group CEOs mandate. Various initiatives were introduced as deliverables under the BPIP to enhance Board effectiveness. BOARD TRAINING AND KNOWLEDGE ACQUISITION Bursa Malaysia Securities Berhad (Bursa Securities) Listing Requirements All the Directors have successfully completed the Mandatory Accreditation Programme (MAP) prescribed by Bursa Securities during the year 2007. Induction briefings, which include information on the corporate profile and activities of the Group, as well as business plan targets and group performance are organised for newly appointed Directors.

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As a result of close monitoring of the BTP by the Nomination and Remuneration Committee, the Directors training structure has improved in 2007 and aligned with the Directors training needs with focus on training on Human Capital Management, Industry as well as Strategy and Risk Management. The progress in the Directors training structure in 2007 compared to 2006 is depicted as follows:

8% Performance Management 5% Human Capital Management 4% Financial/ Audit 23% Strategy/ Risk

3% Others

12% Corporate Governance 45% Industry

Summary of Analysts' views on TM Key local trends and events including competitive intelligence and Key global trends and events Interesting industry reports from external research houses, including related periodicals on telecommunications Domestic and overseas regulatory updates

2006

5% Performance Management 22% Human Capital Management 5% Financial/ Audit

ENSURING EFFECTIVE BOARD OPERATIONS AND INTERACTIONS The effectiveness of the Board is, to a large extent, determined by the quality of its procedures, processes and operations. Board processes have been strengthened and enhanced during the year as evidenced by the following initiatives:
6% Others

Board Meetings Schedule and Predetermined Agendas

9% Corporate Governance 37% Industry

16% Strategy/ Risk

2007

A Board and Board Committee meetings calendar and draft agendas have been established 12 months in advance and synchronized with managements planning cycle. The meeting agenda is communicated to management in advance and the Performance Improvement Management Office (PIMO) acts as facilitator to ensure board papers and presentations are in line with Board expectations. The Meeting Agenda is structured to address priority strategic issues aligned with the Companys aspirations, and consistent with the mandate that the Board provides to the Group CEO. The said mandate specifies what the CEO needs to accomplish within clear parameters. A review conducted at the end of 2007 showed that the actual time spent by the Board on the Meeting

Directors Training Structure in 2006 and 2007 Whilst the charts reflect an ideal training structure for the Directors in 2007, continuous efforts are being made to ensure that an appropriate training structure is in place for the Board according to changing business needs. Industry Workshops and Quarterly Industry Information packs The Board is invited to Industry Workshops organised by management at quarterly intervals. Quarterly industry information packs on the following matters are compiled and issued to the Board and senior management members:

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Agenda matched closely the time allocated to Agenda topics determined at the beginning of the year. Availability of Information to the Board An indicator of good Corporate Governance lies in the application of informed and independent judgement by experienced and qualified Directors. Hence, it is essential that relevant information required to make informed decisions by the Board are provided in a timely manner. The Board and its Committees are supplied with an agenda and relevant up-to-date information 5 days prior to each meeting to enable them to make informed decisions. Board papers are also disseminated via a securely encrypted electronic Board Document Management System, which acts as an efficient archival and retrieval system for all Board papers and minutes of meetings. The Board welcomes the presence of managers who can provide additional insights into items being discussed. The information regularly supplied to the Board includes inter alia: Annual business plans and budget. Monthly and Quarterly financial and operating results. Reports from meetings of major operating companies. Reports from meetings of board committees. Material litigations. Regulatory matters with substantial impact on the business. Details of proposed corporate exercises, acquisitions or collaboration agreements.

Transactions of material nature, not in the ordinary course of the business. Human resource policies and significant issues. General notices of interest.

All Directors have access to the advice and services of the company secretary. The Board is constantly advised and updated on statutory and regulatory requirements pertaining to their duties and responsibilities. Procedures are in place for Directors and Board committees to seek independent professional advice in the course of fulfilling their responsibilities, at the Companys expense. Prompt communication of Board decisions All Board decisions are clearly recorded in the minutes, including the rationale for each decision, along with clear actions to be taken and individuals responsible for implementation. Relevant Board decisions are communicated verbally to the management within 1 working day of the Board meeting and relevant extracts of the minutes are distributed within 3 to 5 working days depending on the urgency of agenda items. Board and Management Interactions The Board and management acknowledge the importance of positive interaction dynamics and open communication to build trust in order to deliver significant and positive performance and shareholder value.

The quality of information received by the Board affects the effectiveness of the Board to a considerable extent. The Board has, therefore, adopted a rating process for papers and presentations by management at each Board meeting with constructive feedback on the quality of information and analysis received. This process has enabled management to ensure that papers are of high quality and standard. The overall review of Board ratings on quality of Management papers and presentation has shown an increase in overall average ratings by the Board to 3.5 points out of the total of 5.0 points as at 31 December 2007, compared to an average rating of 3.0 points recorded during the mid-year review. Similarly, management is given the opportunity to also rate the Board at semi-annual intervals, in terms of whether Board deliberations have been focused, constructive, supportive, and whether clear decisions have been arrived at based on relevant facts available. In the year under review, the Managements average rating of the Board increased to 3.98 points out of a total of 5.0 points, compared to an average rating of 3.85 points recorded during the mid-term review.

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INDEPENDENT DIRECTORS DISCUSSION In pursuit of a greater degree of independence, the Board has agreed on a process whereby Non-Executive Directors could meet and actively exchange views on a regular basis in the absence of management. With this practice, the Board is able to fulfil one of its principal responsibilities to effectively and independently assess the direction of the Company and the performance of the management. This practice is in line with Chapter 4 of the Malaysian Code regarding the relationship of the Board and the Management. In 2007, the Independent and NonExecutive Directors had one such meeting without the presence of the Executive Director/Group CEO and the Management, to exchange views and assess the strategic direction of the Company and performance of the Management.

Business Ethics covers the following areas: Responsibilities of the Directors, the management and employees. Group dealings with shareholders, customers, employees, suppliers, business partners and stakeholder communities at large. Group dealings with respective Governments. Group dealings with competitors. Group dealings in respect of Company assets. Trading on Insider information. Conflict of interest.

respect of such transactions at the Board or any general meetings convened to consider the matter. TRADING ON INSIDER INFORMATION TMs Directors and employees are not allowed to trade in securities or any other kind of property based on price sensitive information and knowledge which have not been publicly announced. TMs Code of Business Ethics expressly states that insider trading is an offence under the Securities Industry Act 1983 (Act 280). Notices on close period for trading in the Companys shares are sent to Directors and Key Management on a quarterly basis specifying the close period where Directors and Key Management personnel are prohibited from dealings in the Companys shares. Directors are also prompted not to deal in the Companys shares at the point when price sensitive information is shared with them, occasionally in the form of Board Meeting papers. DIRECTORS INDEMNITY The Company has in place a liabilities insurance policy for Directors and Officers in respect of liabilities arising from holding office as Directors and Management of the Company. The insurance does not provide coverage in the event a Director or Management member is proven to have acted negligently, fraudulently or dishonestly. The Directors contribute annually towards the payment of the premium for this policy.

BOARD CONDUCT
CODE OF BUSINESS ETHICS TMs Code of Business Ethics, launched in 2004, supports the Companys vision and core values by instilling, internalising and upholding the value of uncompromising integrity in the behaviour and conduct of the Board of Directors, Management, Employees and all stakeholders of the Company. The Group CEO, Management and all employees are required to declare their assets and interests according to the Code of Business Ethics. Updated declarations are required to be submitted each year. TMs Code of

CONFLICT OF INTEREST The Directors have a continuing responsibility to determine whether they have a potential or actual conflict of interest in relation to any matter, which comes before the Board. The Company and the Group have adopted a practice whereby each Director is required to make written declarations whether they have any interest in transactions, tabled at regular Board meetings of the Group. A paper is also tabled at each Board meeting to remind Directors of their statutory duties and responsibilities as Directors and to provide updates on any changes or amendments thereon, such as the recent Companies (Amendment) Act 2007 requiring Directors to also disclose the interests of their spouse, child including adopted and step child, in the Company. RELATED PARTY TRANSACTIONS Directors recognise that they must declare their respective interest in transactions with the Company and Group and abstain from deliberation and voting on the relevant resolution in

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WHISTLE BLOWER POLICY

The Securities Industries Act, 1983, was amended to make it mandatory for auditors and key officers of companies to report corporate misdeeds to the authorities. This practice, known as whistle blowing, gained prominence following the passing of the Sarbanes Oxley Act, 2002 in the United States and previously, the Public Interest Disclosure Act, 1999 in United Kingdom. Since the introduction of TMs Code of Business Ethics, the employees have become much more aware of what is acceptable and unacceptable business conduct and became better acquainted with the channels through which reports of violation of the Code of Business Ethics can be made. Adequate protection is provided for whistle blowers against reprisals.

ANNUAL REPORT AND ANNUAL GENERAL MEETINGS In addition to quarterly financial reports, the Company communicates with shareholders and investors through its annual report, which is comprehensively laid out and containing sufficient depth and breadth of information about not only financial results but also activities and operations of the Group. In an effort to save costs and encourage shareholders to enhance their ICT experience, TM has started to despatch annual reports to shareholders in electronic format (CD-ROM) together with a summarised version of the financial statements in a readable booklet incorporating the notice of AGM and related proxy form. Shareholders are also given the option to request for hard copies of the annual report in either the English or Bahasa Malaysia versions. The AGM provides an open forum at which shareholders and investors are informed of current developments and where ample time is allowed for questions to be asked of Board members and Committees Chairpersons. The Company supports the Malaysian Codes principles to encourage shareholder participation. The Companys Articles of Association allow a member entitled to attend and vote to appoint a proxy to attend and vote instead of the member and also provide that a proxy need not be a member of the Company. A press conference is held immediately after the AGM where the Chairman, Executive Director and Group Chief Financial Officer are present to clarify and explain issues raised by the media.

RISK MANAGEMENT
TM has an integrated approach in managing risks inherent in various aspects of its business. A detailed Risk Management Report is provided on pages 103 to 105 inclusive.

ACCOUNTABILITY AND AUDIT

FINANCIAL REPORTING The Board aims to provide and present a balanced and meaningful assessment of the Groups financial performance and prospects at the end of each financial year, primarily through annual financial statements, quarterly and halfyearly announcement of results to shareholders as well as the Chairmans Statement and review of operations in the annual report. The Board is assisted by the Audit Committee to oversee the Groups financial reporting processes and the quality of its financial reporting. The Audit Committee reviews the Groups annual financial statements and the quarterly condensed financial statements focusing particularly on changes in accounting policies, management judgement in applying the accounting policies as well as assumptions and estimates applied in accounting certain material transactions. DIRECTORS RESPONSIBILITY STATEMENT The Directors are required by the Companies Act 1965 to ensure that financial statements prepared for each financial year give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the results and cash flow of the Group for the financial year.

RELATIONSHIP AND COMMUNICATION WITH SHAREHOLDERS AND INVESTORS

SHAREHOLDERS/INVESTORS The Company communicates regularly and proactively with investors and shareholders. Care is taken to ensure reporting to shareholders is balanced and sufficiently comprehensive and objective to allow performance to be measured. The Board also maintains lines of communications with major shareholders to take heed of their concerns over matters related to corporate governance and Group performance.

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The Statement of Responsibility by Directors is as enumerated on page 252 of this annual report. INTERNAL CONTROLS The Board recognises and affirms its overall responsibility for the Groups system of internal control, which includes the establishment of an appropriate control environment and control framework as well as reviewing its effectiveness, adequacy and integrity. The Boards evaluation of the adequacy of the system of internal controls in the Group is based on the criteria developed under COSO (Committee of the Sponsoring Organisations of the Treadway Commission) Internal Control Integrated Framework, which is a generally-accepted framework for internal control assessments. RELATIONSHIP WITH AUDITORS An appropriate relationship is maintained with the Companys Auditors through the Audit Committee. The Audit Committee has been explicitly accorded the power to communicate directly with both external Auditors and internal Auditors. The role of the Audit Committee in relation to the Auditors is set out in the Terms of Reference on pages 118 to 120 inclusive, in this annual report. AUDIT COMMITTEE The Audit Committee also conducts reviews of the Internal Audit Function in terms of its authority, competencies and scope as defined in the Internal Audit Charter, thus ensuring the function to address the emerging risks of today as well as future risks. Furthermore, it ensures the independence of the internal auditors

and unrestricted access to information, property and people in the Group. Highlights of activities conducted by the Committee are detailed in the Audit Committee Report on pages 115 to 116 inclusive, in this annual report.

Briefing was held at TMs Head Office and via webcast for the virtual community while the Senior Management team was involved in a roadshow both domestically and regionally to address matters raised by key institutional shareholders. Key Investor Relations initiatives undertaken in 2007 and aimed at improving corporate governance included: Quarterly Financial Results Announcement and Briefing TM conducted briefing sessions to analysts and fund managers via teleconferencing subsequent to the release of TMs quarterly earnings disclosure to Bursa Securities. These sessions were chaired by the Group CEO and attended by Senior Management representing TMs key operations. These were aimed at providing an avenue for a clear understanding of the financial and operational performance of the Group. Presentation Slides on Financial Results The quality of disclosure of information has seen improvements reflecting TMs multi-faceted businesses and incorporating feedback from the investors who are the primary users of such information. Presentation slides of the announced results are prepared in an investor-friendly manner to aid understanding of the Groups financial results and performance. These are made available promptly on the Companys website following the release of information first to Bursa Securities. A copy of the presentation slides is also distributed by e-mail to analysts and investors who are on the Investor Relations distribution list.

INVESTOR RELATIONS
With a firm belief that value creation for shareholders stems from good corporate governance, TM is committed to communicating its strategy and activities regularly and clearly to its shareholders and, to that end, maintains an active dialogue with investors through a planned programme of investor relations activities and engagement. TM, through its Investor Relations Unit, proactively disseminates relevant and timely information to the investment community to keep investors abreast of the Groups strategies, performance updates and key business activities happening at home and across the region. Communication with the capital market is governed by the Investor Relations Policy and Guidelines to ensure adherence to best practice communication guidelines and fair and timely disclosure of information to all shareholders. The announcement of the demerger of TM Group towards the end of 2007 heightened interest from the regional and global investment community. Careful steps were taken to ensure clear communication and equitable dissemination of information to shareholders and analysts. An Analysts

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One-on-one Meetings, Conference Calls and Investor Conferences The Group CEO, Group Chief Financial Officer and Investor Relations team are actively involved in Investor Relations activities through regular meetings and conference calls with institutional investors. TM has participated in various investor conferences held in Malaysia and abroad. Throughout 2007, close to 400 meetings and conference calls with investors and analysts were held. Annual Analysts Day Continuing on the success of the inaugural Analyst Day in 2006, TM organised an Analyst Day for the year 2007 at its Head Office, Menara TM. About 60 analysts and fund managers from both local and foreign institutions attended the event. They had the opportunity to listen to key presentations and interact with TMs Senior Management members from both domestic and international operations in breakout sessions. Hosted by the Group CEO, and attended by key Senior Management personnel, including several CEOs of TMs international operations, such as Excelcomindo, Dialog, TMIB and MobileOne, the event has continued to receive positive feedback from participants, and demonstrated TMs commitment in improving its disclosure and transparency. TM believes that such efforts will encourage a fair valuation of the Company. Website The TM website, www.tm.com.my is continuously updated, and provides an excellent medium of communication and source of information to shareholders, and the general public. The updated information on the website includes, among others, the Groups annual reports, financial results, investor presentations, capital structure information, press releases, and information on TMs international operations. Feedback Engagement with the capital market is not a one-way communication. TM recognises that feedback from the investment community is critical to meeting the information needs of shareholders and improving its relationship with them. As such, TM seeks feedback through ongoing surveys and engagement with investors and analysts. The positive feedback received over the year on the Groups improved Investor Relations efforts would not have been possible without these strategies. TM continuously listens to the investing community to enhance our Investor Relations.

A Graph on dividend payment and share price performance of TM is available on pages 47 and 49 of this annual report. Signed on behalf of the Board of Directors pursuant to a resolution duly passed on 26 February 2008.

Tan Sri Dato Ir Muhammad Radzi Hj Mansor Chairman

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Improving Enterprise Risk Management (ERM) Execution

Achieving Business Objectives By

No organisation operates in a risk-free environment. A proactive approach in identifying current and potential risks and to put in place reasonable and adequate mitigation plans remain priorities for management, to ensure business targets and stakeholder expectations are met. Enterprise Risk Management (ERM) has been effectively institutionalised throughout the TM Group. It began with the ability to embed risk assessment processes into business decisionmaking to enable TM Group to achieve its short and medium-term business objectives. ERM benefits are not merely restricted to the strategic level but have also to be extended to the operational level so that employees as a whole will be responsible for managing their strategic and operational business risks freely. In 2007, ERM was embedded into business planning and strategy management processes. The successful implementation at strategic level provided the impetus for the ERM team to move forward to institutionalise the ERM framework at the operational level as part of the on-going exercise to improve ERM implementation within the Group.

In 2007, TM had its first experience of embedding risk assessment in the business planning process whereby all the operating companies diligently complied with the ERM framework. As a result, the TM Group Corporate Risk Map has become a part of the Corporate Strategy Map using the Balanced Scorecard methodology.

RISK ASSESSMENT IN STRATEGY MANAGEMENT

While the strategy management team uses the Balanced Scorecard as performance measurement tools, as well as Key Performance Indicators (KPIs) and the initiatives to achieve its objectives, ERM looks into utilising some of the KPIs as risk indicators to gauge the level of risk performance that may prevent the organisation from achieving its business objectives.

Achieving Strategic Objectives by Managing Risks

TM GROUP Corporate Centre, Malaysia Business, Celcom, TM Ventures & TM International Divisions & OPCOs

RISK ASSESSMENT IN BUSINESS PLANNING

The identification of risk from the onset is necessary for business to be proactive about both opportunity and threat. In defining strategy, direction-setting, and allocation of resources, risk assessment comes in handy to identify the actual or potential internal and external roadblocks that may prevent the achievement of business objectives. Having assessed both business opportunities and uncertainties up-front, the organisation can then be in a better position to chart the control elements and resources required to facilitate the journey towards success.

Aligning Risk Profiles with Strategic Objectives

OPERATIONAL

COMPLIANCE

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STRATEGIC

SYSTEM

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In line with the cascading principle of the Balanced Scorecard methodology, risk drivers will also be cascaded down from the strategic risk map to the operational division risk map with proper alignment to overall strategic objectives. Thus, risk and strategy are mutually interdependent through the balance between value creation by strategy execution and the avoidance of value destruction by risk management.

current risk levels, trends and changes. The monthly KRI status has been monitored by the ERM Resource team to track risk changes. Since its introduction into the Group, KRI has brought value to the overall ERM implementation in TM. It has also supported the performance management report by giving a useful ongoing view of the underlying behaviour of the risk profile that can influence the achievement of strategic objectives.

TM Ventures, Celcom and Corporate Centre. These were followed by an additional seven awareness events conducted for other business entities at corporate and state levels. To share ERM experiences with other GLCs, a seminar for the ERM Resource Team was successfully conducted on 21 May 2007 involving representatives from Petronas, Tenaga Nasional and KPMG. Following on its success, similar seminars will be continued as part of the ERM knowledge-sharing initiative by the TM Group on an annual basis.

RISK REPORTING
The year 2007 saw ERM evolved significantly in TM whereby an ERM report was regularly escalated and discussed at the Board of Directors (BOD), Board Audit Committee (BAC) and senior management meeting. The report highlighted changes in the risk rating, mitigation plan status and its timeline for completion, control effectiveness and the health of the Key Risk Indicators. Any other significant issues affecting the achievement of objectives that required the attention of the BOD was channelled through the ERM report in line with the TM Groups Risk Management and Internal Control Policy statement to provide reasonable assurance of achieving business objectives, while safeguarding and enhancing shareholder investment and Company assets.

RISK AWARENESS
Creating and maintaining a strong risk management culture within the organisation is necessary for a lasting and meaningful ERM programme. In creating such a culture and improving ERM implementation, communication is key. It is critical to collaborate with stakeholders and TM employees to ensure that consistent, meaningful ERMrelated information sharing takes place throughout the organisation. These activities of the ERM function include engagement and communication with internal stakeholders, internal relationship management and facilitation, and awareness and training programmes about ERM. In conjunction with this, communication and training programmes to raise awareness of risk were planned and conducted with the Multimedia College. Moving forward, these training modules have since been improved to reflect the actual and current risk situation affecting TM business and operations as a whole. The year also marked the first collaboration of ERM awareness programmes with Strategy Development and Management teams. A total of 11 awareness sessions were conducted nationwide involving Malaysia Business,

BUSINESS RISK
As a business entity operating in a highly-regulated market, TM Group continues to be exposed to a multitude of business risks either originating from internal sources or the external environment. What follows are a number of significant business risks that TM Group manages under the ERM programme. QUALITY OF SERVICE TM is often judged by its ability to deliver a reliable service network to its customers. The key to customer success and a stimulant for new sales efforts is effective churn management. In delivering service commitment to its customers, TM recognises that there are factors which are beyond its control that may adversely affect its service quality and thereby impact the revenue and profitability of the Group. These include natural disasters, network failure, equipment or cable damage and other operational problems. A continuous risk management effort or risk mitigation measures are needed to

KEY RISK INDICATORS

Besides providing reports on the risk rating, mitigation plan status and control effectiveness, Key Risk Indicators or KRI have become a part of the report to provide early warning signals, express escalation criteria for risk management, as well as highlight

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address these but there cannot be an absolute assurance that these events will not occur. GOVERNMENT POLICY & REGULATORY ISSUES Being in a highly-regulated industry, government decisions and actions on communication and multimedia policy or regulatory issues may have negative impact on the business of TM. For instance, the withdrawal of the 2.5 GHz and 3.5 GHz spectrum as announced by the Ministry of Energy, Water and Communications of Malaysia on 19 November 2007 may either be an opportunity or a threat to TM. Considering that TM has limited control over these external developments, continuous monitoring of industry changes and government policies remains one of the priorities of management to minimise surprises to the business. Risks related to anti competition, trespassing, customer service management and apparatus assignment remain priority regulatory risks to be managed under the Operational Risk Assurance Program (ORAP). TECHNOLOGY CHANGES Rapidly changing technology continues to dominate the communications industry, creating both threats and opportunities. While TM needs to seize business opportunities via IT innovations and its ability to offer multi-business solutions to meet the new customer demands, strategic and well-managed plans are needed by Management, working with project resources, business users and technology partners. In particular, proper and realistic planning in the rollout of High Speed

Broadband (HSBB) and Next Generation Network (NGN) implementation will ensure TM remains competitive and focused. COMPETITION The telecommunications industry faces intense competition from new entrants targeting lucrative customer segments. Furthermore, there is increasing demand for freedom of choice as a result of mobile lifestyles, high peer influence and changing customer behaviour. Such competition both in Malaysia and abroad needs to be continually monitored so that risks can be kept at acceptable levels in order to ensure business continuity and viability. STAFF COMPETENCY & PERFORMANCE MANAGEMENT Given growing competition and the robust technological changes, there is always an urgent need to upgrade staff competencies. Besides technical competencies, soft skills need to be enhanced in order to produce personnel with scalability, and strong and stable characters that will ensure continuing keen focus despite volatility in the marketplace and changing organisational structures. This includes enhancing and retaining core skills and driving fundamental culture change to break silo mentalities and legacy mindsets. Performance management needs to be broadened to all staff, to enable a more effective deployment of Balanced Scorecard principles throughout the organisation. TERRORISM & POLITICAL RISK Terrorist activity and political instability in some parts of the region may affect the performance of TMs regional investments. Even though such risks

are beyond TMs direct control, the Management has put in place certain mitigation plans in order to safeguard their investments in high-risk countries including: Continuous surveillance of the political position in invested countries. Spreading the risk by going for regional expansion. Improved investment strategy by identifying countries that provide better investment protection, and bilateral agreement. Other financial protection.

At the ground level, special terrorism insurance, disaster recovery plans, crisis communication and business continuity plans remain key risk mitigation plans. Continuous monitoring and appropriate action will not eliminate the risks but can minimise their impact on the Group.

CONCLUSION
In summary, year 2007 provided a testbed opportunity to embed and institutionalise ERM practices throughout the Group. Considering the size, culture, geographical spread and multitude of service offerings, ERM was a challenge to execute and institutionalise. Nevertheless, it has now been integrated into the strategic business planning process and cascaded down to the operational level. With the strong support of the Board of Directors and senior Management, ERM will continue its journey to help build a stronger and more resilient culture throughout the Group.

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Code of

Business Ethics

TM expects that its directors, managers, employees and representatives observe the highest standards of integrity in the conduct of its business. TMs reputation as a responsible corporate citizen depends on its complete understanding of best practices and compliance with policies as enunciated in its Code of Business Ethics (CBE). TM prides itself on observing high ethical standards. In 2007, it continued to infuse good values and ethics into the Groups basic business conduct by promoting an organisational culture that encourages ethical behaviour with a commitment to full regulatory and legal compliance. TM expects that business conduct must be carried out transparently and fairly. All vendors and suppliers must be given equal and fair access to information.

New employees are introduced to the Code to raise awareness of ethical business issues, and existing employees are continuously given lectures to ensure that they are able to apply sound judgment in deciding on the most ethical means of dealing with any given situation involving customers, suppliers, competitors, regulators, other stakeholders and the public in general. Employees of TM are also expected to treat each other with respect and fairness at all times in line with TMs Core Values (KRISTAL) which emphasise Respect and Care. To achieve the objectives, TM monitors and investigates complaints received. Disciplinary action is taken against employees, and vendors or suppliers who are found to be in breach of the Code are either reprimanded or blacklisted. In 2007, disciplinary action was taken against a number of employees who were found to be acting in concert with a vendor.

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Code of Business Ethics

One of the key instruments for maintaining integrity in a corporation is the requirement for employees to declare their assets. Since 2004, all employees within the TM Group are required to declare all properties and assets which have been acquired or disposed by him, his spouse or his children in the year under review. The Code requires the employee to provide a reasonable explanation if he is found to live beyond his legitimate means. In 2006, a manual on Procurement Ethics was introduced to complement the CBE in outlining the principles, the applications and the Dos and Donts related to the procurement process. It clarifies and institutionalises: What is considered to be acceptable business behaviour and by implication, behaviour that is not tolerated by the organisation; Available channels to communicate and report unethical behaviour; and The implications of non-compliance with the Procurement Ethics.

The guidelines on Procurement Ethics can be downloaded from TMs corporate website. Briefings to employees of TM including overseas subsidiaries are conducted on an ongoing basis to update them on matters related to procurement and ethical sourcing. The CBE was amended in March 2007 to include expressly the confidentiality obligation and also Intellectual Property (IP) provisions to ensure that an employee or ex-employee will not infringe the IP rights or leak any

confidential information of TM and/or its Group to unauthorised parties. Prior to this the CBE only touched briefly on the obligations of employees to protect corporate information and intellectual property. TM will always press for commitment from its workforce to promote an ethical business environment founded on integrity in line with international best practices to ensure business continuity and sustainability of the Group.

The Procurement Ethics is applicable to all employees and suppliers. Any breach of the Procurement Ethics may result in disciplinary action being taken, in addition to contractual and legal remedies.

Ethical Business Practices

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Additional Compliance Information

The following information is provided in compliance with the Bursa Securities Listing Requirements:

5. OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES

The Company has not issued any options, warrants or convertible securities during the financial year ended 31 December 2007. Details of the Companys Employees Share Option Scheme 3 (ESOS 3) are as disclosed in note 12(a) to the financial statements. ESOS 3 has expired on 31 July 2007. The Company has been granted an exemption by the Companies Commission of Malaysia via a letter dated 18 February 2008 from having to disclose in this report the names of the persons to whom options have been granted during the period and details of their holdings pursuant to Section 169(11) of the Companies Act, 1965, except for information on employees who were granted options representing 100,000 ordinary shares and above. The Company has not granted any options during the financial year ended 31 December 2007. However, disclosure of employees who were granted options under the Performance Linked Option Scheme (PLES) in 2005 having more than 100,000 of the PLES options vested during the financial year 2007 is disclosed on pages 254 and 255 of the annual report.

1. SHARE BUY-BACK
The Company did not make any proposal for share buy-back during the financial year.

2. AMERICAN DEPOSITORY RECEIPT (ADR) OR GLOBAL DEPOSITORY RECEIPT (GDR) PROGRAMME

The Company did not sponsor any ADR or GDR programme during the financial year.

3. IMPOSITION OF SANCTIONS/PENALTIES
There were no public sanctions and/or penalties imposed on the Company and its subsidiaries, directors or management by the relevant regulatory bodies during the financial year.

4. NON-AUDIT FEES
The amount of non-audit fees incurred for services rendered to the Group by the external auditors and their affiliated companies for the financial year ended 31 December 2007 are as follows: RM (a) (b) (c) PricewaterhouseCoopers, Malaysia PricewaterhouseCoopers Taxation Services Sdn Bhd Member firms of PricewaterhouseCoopers International Limited Total 913,825 2,071,900 453,037 3,438,762

Services rendered by PricewaterhouseCoopers are not prohibited by regulatory or other professional requirements, and are based on globally practised guidelines on auditor independence. PricewaterhouseCoopers is engaged for these services when their expertise and experience of TM are important. It is also the Groups policy to use the auditors in cases where their knowledge of the Group means it is neither efficient nor cost effective to employ another firm of accountants.

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Accountability

IN ACCORDANCE WITH APPENDIX 9C OF THE BURSA SECURITIES LISTING REQUIREMENTS

Compliance Information

Additional

6. UTILISATION OF PROCEEDS FROM CORPORATE PROPOSALS

TM Proceeds from Sale of a Subsidiary On 5 April 2007, TM completed its divestment of a 60.0% interest in Telekom Networks Malawi Limited to MTL Mobile Ltd for a total cash consideration of USD16 million. Proceeds from the divestment were used to finance TMs working capital. TMs RM1.0 billion Islamic Sale and Leaseback Transaction On 15 January 2008, TM completed its RM1.0 billion Islamic Sale and Leaseback Transaction that involved the issuance of RM1.0 billion of Islamic Asset Backed Sukuk Ijarah by Menara ABS Berhad (MAB). The transaction was completed with the sale and purchase of Menara TM, Menara Celcom, TM Cyberjaya Complex and Wisma TM (Taman Desa) to MAB for a total purchase consideration of RM1.0 billion. TM has also entered into a 15-year lease agreement under the Ijarah principle. MAB issued 3 classes of Sukuk, namely RM345 million Class A, RM155 million Class B and RM500 million Class C. Rating Agency Malaysia Bhd has rated Class A and B, with Class C being un-rated. TM has utilised the proceeds from the transaction to partially pay a special gross dividend of RM0.65 per share (less Malaysian Income Tax of 26%). Spice Communications Ltd (Spice) Proceeds from Initial Public Offering (IPO) TMs jointly controlled entity in India, Spice Communications Ltd commenced trading on the Bombay Stock Exchange (BSE) on 19 July 2007 with a debut price of INR55.75 per share. The issuance had successfully raised INR6,322 million (approximately USD156

million). As at 30 September 2007, approximately 50% of the IPO proceeds has been utilised as part payment of its longterm debt. The remaining funds were used to finance its network rollout involving acquisition of network equipment and payment of licence fee. Spice Communications Ltd Proceeds from Sale and Leaseback of Towers On 25 December 2007, the Board of Directors of Spice approved the sale and leaseback of the companys 875 telecom towers to a tower operating company in India for a total consideration of INR6.0 billion (approximately USD150 million). The proceeds from the sale was used to partially support the companys financial obligations arising from the issuance of Letters of Intent for the Award of Licence to provide Unified Access Services in 4 additional new Circles in India. Dialog Telekom PLC Rights Issue & Rated Cumulative Redeemable Preference Share On 27 June 2007, TMs subsidiary in Sri Lanka, Dialog Telekom PLC, completed a Rights Issue and Rated Cumulative Redeemable Preference Share (RCRPS) issuance exercise to raise SLR20.54 billion (approximately USD188.52 million). The rights issue of 740.3 million shares at SLR21 per share raised SLR15.54 billion (approximately USD142.63 million), from its existing ordinary shareholders while RCRPS placed with institutional investors raised the additional SLR5.0 billion (approximately USD45.89 million). The proceeds will partially finance Dialogs capital expenditure planned for the next 3 years.

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Additional Compliance Information

7. VARIATION IN RESULTS
There were no profit estimations, forecasts or projections made or released by the Company during the financial year. However, the Company had on 19 March 2007 announced its Headline Key Performance Indicators (KPIs) for the financial year ended 31 December 2007 to enhance greater transparency to the public, as part of the broader performance management framework that TM has in place, and as prescribed under the Government Linked Company (GLC) Transformation Programme. These Headline KPIs are targets or aspirations set by the Company and shall not be construed either as forecasts, projections or estimates of the company or representation of any future performance.

9. MATERIAL CONTRACTS INVOLVING DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS

There were no material contracts entered into by the Company and/or its subsidiaries involving Directors and major shareholders interests either subsisting as at 31 December 2007 or entered into since the end of the previous financial year ended 31 December 2006, except for the following contracts/agreements in respect of the joint venture between TM, TM International Berhad (TM International) and our major shareholder, Khazanah Nasional Berhad (Khazanah) in relation to MobileOne Ltd (M1):(a) Restated Joint Venture and Shareholders Agreement dated 23 September 2005 entered into between Khazanah, TM International and TM, which amended and replaced the previous Joint Venture and Shareholders Agreement dated 17 August 2005 to regulate the affairs of SunShare Investment Ltd (SunShare) as a special purpose vehicle for the acquisition of shares in M1; and

(b)

Subscription Agreement dated 23 September 2005 between SunShare, Khazanah and TM for the subscription of redeemable convertible preference shares of USD0.01 each in SunShare at the issue price of USD1.00 each by Khazanah and TM for a consideration of USD35,965,998 and USD37,433,992 respectively.

10. REVALUATION POLICY ON LANDED PROPERTIES

The Company has not adopted any revaluation policy or carry out any revaluation exercise on its landed properties during the financial year.

11. RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE (RRPT)

At the last EGM held on 8 May 2007, the Company obtained a general mandate from its shareholders on the RRPT entered into by the Company and/or its subsidiaries (RRPT Mandate). The RRPT mandate is valid until the conclusion of the forthcoming 23rd AGM of the Company to be held on 17 April 2008.

8. PROFIT GUARANTEE
During the financial year, the Company did not give any profit guarantee.

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Additional Compliance Information

Pursuant to paragraph 10.09 (1)(b) of the Bursa Securities Listing Requirements, the details of the RRPT entered into during the financial year ended 31 December 2007 pursuant to the said shareholders mandate are as follows:
Transacting companies within TM Group TM and its whollyowned subsidiaries, namely TM International Berhad (TM International), Telekom Malaysia (Hong Kong) Limited (TMHK), Telekom Malaysia (S) Pte Ltd (TM(S)) and Celcom (Malaysia) Berhad (Celcom) Transacting Related Parties PT Excelcomindo Pratama Tbk (XL) Interested Related Parties MoF Inc., Khazanah, Datuk Zalekha Hassan, Puan Dyg Sadiah Abg Bohan and Dato Azman Mokhtar Value of Transactions RM000 53,429

Nature of relationship In addition to their interest in XL through their shareholdings in TM, MoF Inc. and Khazanah have an interest of 16.81% in XL. Datuk Zalekha Hassan is a representative of MoF Inc. on TM Board. Puan Dyg Sadiah Abg Bohan is the alternate Director to Datuk Zalekha Hassan. Dato Azman Mokhtar is the Managing Director of Khazanah and also a representative of Khazanah on TM Board.

Nature of Transaction Provision of Voice Over Internet Protocol (VoIP) related services by TM, TM International, TM(S) and Celcom to XL and viceversa. Provision of VoIP related services by XL to TMHK International roaming and interconnection charges by Celcom and TM(S) to XL and vice-versa Interconnection and leased line charges by TM to Excelcomindo and vice versa. Interconnection and leased line charges by XL to TM International and TMHK Other telecommunication services cost and reimbursement expenses charged by TM, TM(S) and Celcom to XL and vice-versa Lease of bandwidth to support Network Access Point product for corporate solutions by TM to XL

XL

MobileOne Limited (M1)

MoF Inc., Khazanah, Datuk Zalekha Hassan, Puan Dyg Sadiah Abg Bohan and Dato Azman Mokhtar

In addition to their interest in XL through their shareholdings in TM, MoF Inc. and Khazanah have an interest of 16.81% in XL. In addition to their interest in M1 through their shareholdings in TM, MoF Inc. and Khazanah have an interest of 29.73% in M1 through their 20% interest in SunShare Investments Ltd.

International roaming and interconnection charges by XL to M1 and vice-versa

7,811

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Additional Compliance Information

Transacting companies within TM Group XL (Continued)

Transacting Related Parties

Interested Related Parties

Nature of relationship Datuk Zalekha Hassan is a representative of MoF Inc. on TM Board. Puan Dyg Sadiah Abg Bohan is the alternate Director to Datuk Zalekha Hassan. Dato Azman Mokhtar is the Managing Director of Khazanah and also a representative of Khazanah on TM Board.

Nature of Transaction

Value of Transactions RM000

XL

PT Bank Lippo Tbk (Lippo Bank)

MoF Inc., Khazanah, Datuk Zalekha Hassan, Puan Dyg Sadiah Abg Bohan and Dato Azman Mokhtar

In addition to their interest in XL through their shareholdings in TM, MoF Inc. and Khazanah have an interest of 16.81% in XL. MoF Inc. and Khazanah have an interest of 87.8% in Lippo Bank. Datuk Zalekha Hassan is a representative of MoF Inc. on TM Board. Puan Dyg Sadiah Abg Bohan is the alternate Director to Datuk Zalekha Hassan. Dato Azman Mokhtar is the Managing Director of Khazanah and also a representative of Khazanah on TM Board.

Supply of Multi Protocol Level Switch and Global System for mobile communication services from XL to Lippo Bank

5,306

Multinet Pakistan (Pte) Limited (Multinet)

Fiberail Sdn Bhd (Fiberail)

MoF Inc., Khazanah, Datuk Zalekha Hassan, Puan Dyg Sadiah Abg Bohan and Dato Azman Mokhtar

In addition to their interest in Fiberail through their shareholdings in TM, MoF Inc. and Khazanah have an interest of 36% in Fiberail through MoF Inc.s wholly-owned subsidiary, Keretapi Tanah Melayu Berhad.

Supply of fibre optic cables by Fiberail to Multinet

10,142

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Additional Compliance Information

Transacting companies within TM Group Multinet Pakistan (Pte) Limited (Multinet) (Continued)

Transacting Related Parties

Interested Related Parties

Nature of relationship Datuk Zalekha Hassan is a representative of MoF Inc. on TM Board. Puan Dyg Sadiah Abg Bohan is the alternate Director to Datuk Zalekha Hassan. Dato Azman Mokhtar is the Managing Director of Khazanah and also a representative of Khazanah on TM Board.

Nature of Transaction

Value of Transactions RM000

TM and/or its subsidiaries

Khazanah and/or companies in which Khazanah holds an interest of at least 5% (other than through TM) (Khazanah Companies)

MoF Inc., Khazanah, Datuk Zalekha Hassan, Puan Dyg Sadiah Abg Bohan and Dato Azman Mokhtar

MoF Inc. and Khazanah have an interest of at least 5% in Khazanah Companies. Datuk Zalekha Hassan is a representative of MoF Inc. on TM Board. Puan Dyg Sadiah Abg Bohan is the alternate Director to Datuk Zalekha Hassan. Dato Azman Mokhtar is the Managing Director of Khazanah and also a representative of Khazanah on TM Board.

Sales and purchases of interconnection services on international and domestic traffic to/from Time DotCom Berhad and its subsidiaries

28,350

The Company proposes to obtain a new RRPT Mandate at the forthcoming 23rd AGM of the Company. This new RRPT Mandate, if approved by shareholders, would be valid until the conclusion of the next AGM of the Company.

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Audit Committee

Report
1

MEMBERSHIP
The Audit Committee comprises 3 Independent Non-Executive Directors and 1 Non-Independent Non-Executive Director. The composition of the Audit Committee in 2007 was as follows:

YB Datuk Nur Jazlan Tan Sri Mohamed (Chairman, resigned 29 May 2007) Independent Non-Executive Director Dato Lim Kheng Guan 1 (Chairman, appointed 16 August 2007) Senior Independent Non-Executive Director Dato Ir Dr Abdul Rahim Daud (resigned 16 August 2007) Independent Non-Executive Director Dato Ahmad Hj Hashim (resigned 7 January 2008) Non-Independent Non-Executive Director

Datuk Zalekha Hassan 2 (appointed 31 January 2008) Non-Independent Non-Executive Director Rosli Man 3 Independent Non-Executive Director Ir Prabahar NK Singam 4 (appointed 16 August 2007) Independent Non-Executive Director Hashim Mohammed 5 Group Chief Auditor/Secretary to the Audit Committee

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Audit Committee Report

Members of the Audit Committee shall not have a relationship, which in the opinion of the Board, would interfere with the exercise of independent judgement in carrying out the functions of the Audit Committee. Members of the Audit Committee shall possess wisdom, sound judgement, objectivity, independent attitude, management experience and knowledge of the industry. YB Datuk Nur Jazlan Tan Sri Mohamed, the Chairman of the Audit Committee up till May 2007 and Dato Lim Kheng Guan, Chairman from August 2007, are both Independent NonExecutive Directors and members of the Malaysian Institute of Accountants (MIA).

SUMMARY OF ACTIVITIES IN 2007

The Audit Committee carried out its duties as set out in the terms of reference published elsewhere in this annual report. The Audit Committee also reviewed and deliberated on reports and updates as provided by the following Committees. (a) The Best Practice Committee (formerly known as Task Force for Best Practices) which was established by the Audit Committee in 2001 mainly to provide support as follows: New updates and developments of best business practices and exposure drafts, principally on Corporate Governance, statutory and regulatory requirements, compliance with accounting standards and other business guidelines. Establishment of Group Business Assurance Committee (GBAC) following the consolidation of Risk Management Unit, Fraud Management Unit and Revenue Assurance Unit under Group Finance. Establishment of Enterprise Risk Management (ERM) Standard Operating Procedures in order to improve the standardisation of ERM implementation processes throughout the Group. Reviews and reports on the adequacy, effectiveness and reliability of the system of internal controls based on control self-assessments performed annually by key senior management of the Operating Companies/ Subsidiaries through the Annual Internal Control Assurance Letter reporting, and Internal Control Incidents submitted to the Group Chief Executive Officer and the Group Chief Auditor. Reviews and reports on the status of financial controls based on self-assessments conducted quarterly by the CEO/CFO of the Operating Companies/Subsidiaries through the Financial Controls Compliance and Assurance Letter submitted to the Group CFO. Reviews and reports on new policy updates, revisions or enhancements of the Business Process Manual and Subsidiaries Policy as recommended by the Management to ascertain that the improvements made are aligned to business best practices and effective internal control processes.

MEETINGS & ATTENDANCE

The Audit Committee had a total of seven (7) meetings in the financial year 2007. The attendance record was as follows: Member YB Datuk Nur Jazlan Tan Sri Mohamed Dato Lim Kheng Guan Dato Ir Dr Abdul Rahim Daud Dato Ahmad Hj Hashim Rosli Man Ir Prabahar NK Singam Attendance 3/3 7/7 4/4 5/7 7/7 3/3 Percentage 100% 100% 100% 71% 100% 100%

The Group Chief Executive Officer, Group Chief Financial Officer, other Senior Management members and External Auditors attended these meetings upon invitation to brief the Audit Committee on specific issues. A key feature prior to each Audit Committee Meeting is a private session between the Chairman and the Group Chief Auditor and the External Auditors (separately) without the Managements presence. The Audit Committee also had several meetings with the External Auditors without the Managements presence. Minutes of meetings of the Audit Committee were circulated to all members of the Board and significant issues were discussed at Board Meetings.

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(b)

The Management Audit Issues Action Committee which was established by the Audit Committee in 2002 to update on progress of: Management actions to resolve significant internal controls and accounting issues as highlighted by the Internal and External auditors. Any other recommendations made by the Audit Committee for Management action.

(e)

COSO (The Committee of Sponsoring Organisations of the Treadway Commission) which has been adopted as the generally-accepted integrated framework for internal controls and which is widely recognised as the definitive standard against which the Group measures the effectiveness of its systems of internal control.

GROUP INTERNAL AUDIT

Group Internal Audit (GIA) strives to provide greater value as a key contributor to the Groups governance framework. Many new areas of governance now require a different type of auditing skills and this has led to a fundamental shift in the nature of audit services provided by GIA. Effective internal audit functions help the Group to accomplish the business objectives by establishing a structured, disciplined approach to review and evaluate the effectiveness of governance, risk management and internal control processes. The purpose, authority and responsibility of GIA as well as the nature of assurance and consultancy activities provided to the Group is clearly articulated in the Internal Audit Charter that has been approved by the Audit Committee. GIA reports directly to the Audit Committee. The Group Chief Auditor periodically reports the activities and key strategic and controls issues noted by GIA to the Audit Committee. The Audit Committee reviews and approves the GIAs annual budget and Human Resource requirements to ensure that this important function is adequately resourced with competent and proficient internal auditors. INTERNAL AUDIT PRACTICES & FRAMEWORK To ensure standardisation and consistency in providing assurance on the adequacy, integrity and effectiveness of the Groups overall system of internal controls, risk management and governance, GIA has realigned its current audit practices towards COSO Internal Controls Integrated Framework. Using this framework, all internal control assessments performed by GIA must be based on the five (5) internal control elements as follows: Control Environment Risk Assessment Control Activities Information & Communication Monitoring

(c)

The Internal Control Incident Committee, established in 2003, which deliberates alleged major control incidents or failures based on reports submitted from Management or special investigation/audit conducted and proposes the next course of action. The reports are summarised by the Group Chief Auditor and updated to the Audit Committee at least on a quarterly basis describing the following: The nature and root causes of control failures which have financial impact and/or affect the image and reputation of the Group. Lateral learnings to prevent recurrence of similar incidents within the Group. Status of actions taken by Management to remedy control weaknesses and appropriate disciplinary action taken.

(d)

Reports from Management on the following: The extent of non-audit work performed by the External Auditors to ensure that the provision of non-audit services does not impair their independence or objectivity. The implementation preparation and progress of the major projects that have been developed and implemented in 2007 such as Group Enterprise Resource Management System (GEMS). Group Business Assurance Report, which comprised Risk Management activities, Revenue Assurance and Fraud Management. Treasury Investment status report on a quarterly basis which focused on TMs equity and fixed income portfolios.

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Audit Committee Report

To further improve the existing internal audit processes, and achieve greater efficiency and productivity, GIA has acquired an electronic document management system. Key audit processes that have been enhanced through the documents management system are risk assessment, scheduling activities, electronic working paper and on-line audit review. SCOPE & COVERAGE GIA maintains a flexible audit approach and a dynamic audit plan that addresses the emerging risks of today as well as potential future risks. This has enhanced its ability to effect and facilitate change, and foster continuous improvements within the Group. The end-to-end process audit has positioned GIA at the forefront of positive change by recommending and facilitating the alignment of people, processes and technology. The scope of the audit engagement is aligned with the primary risks of the organisation mainly arising from previous audit issues, TM Group Risk Strategy and strategic initiatives under the Performance Improvement Programme (PIP) from entity, subsidiary, business or process levels. Identified key audit areas in 2007 in line with COSO broad objectives are as follows: 1. Effectiveness and efficiency of operations Information Technology & Systems Reviews SAP Post Implementation Reviews Key Business Process (i.e. end-to-end process) Reviews on Shared Services Organisation (SSO) Contract Management Reviews on IT Governance Reliability of Financial Reporting Financial Reporting Reviews Quarterly Interim Financial Reviews Billing System Reviews Compliance with applicable laws and regulations Recurrent Related Party Transactions Reviews

COMMITMENT TO COMPETENCE Given the ever-increasing range of new technologies, process risks and changes to the business environment, it is critical that internal auditors are well trained and equipped with the requisite skills and knowledge. In 2007, the Group invested heavily in developing and executing training programmes to meet its business requirements and to enable internal auditors to perform their duties better. Among the seminars and workshops attended by GIA in 2007 were: Corporate Governance Update on Corporate Law and Capital Markets Revised Malaysian Code on Corporate Governance Corporate Boards and Challenges Management & Leadership Building and Nurturing High Performance Teams National Management Conference 2007 Effective Middle Management Process Knowledge Telecoms Fraud and Fraud Risk Prevention Strategic Procurement & Supply Chain Management Strategic Marketing Planning Financial Reporting Environment in Malaysia, Updates SAP Authorisation Concept World Continuity Congress on Business Continuity and Disaster Growth IT Audit for IT Managers Risk Based Auditing INTERNAL AUDIT QUALITY In line with The Institute of Internal Auditor (IIA) Standards, GIA carries out periodic and on-going assessments on the entire spectrum of audit work performed by the internal auditors via an external quality assessment by a qualified independent reviewer once every five years. The assessment includes the evaluation of areas such as compliance with IIA standards and GIA Manuals, contribution to the governance, risk assessment and control processes as well as performance management. Group Internal Audit generally conforms to the International Standards for the Professional Practice of Internal Auditing.

2.

3.

GIA has also been requested to collaborate with Management to review and evaluate the risk exposure for TMs major projects and ensure that the controls are adequate to mitigate those identified risks.

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TERMS OF REFERENCE OF THE AUDIT COMMITTEE

1. COMPOSITION The Audit Committee (AC) Members shall be appointed by the Board of Directors (Board) from amongst their members. No alternate director shall be appointed as a member of the Audit Committee. The AC must be composed of no fewer than three members and the majority shall be Independent NonExecutive Directors. All members of the AC, including the Chairman, will hold office only so long as they serve as Directors of Telekom Malaysia Berhad (TM). The composition of the AC shall meet the independence and experience requirements of the Bursa Securities Listing Requirements and other rules and regulations of the Securities Commission. The Board of Directors must review the term of office and performance of the AC and each of its members at least once every three years to determine whether the AC has carried out its duties in accordance with Terms of Reference. 2. MEETINGS The AC shall meet at least four times a year and such additional meetings as the Chairman shall decide. In order to form a quorum, a majority of the members must be present and the majority of those present must be Independent Non-Executive Directors. The Notice and agenda for the meeting shall be sent in advance to all members of the AC. The Chairman of the AC shall provide to the Board a report of the AC Meetings. 3. AUTHORITY In carrying out its duties and responsibilities, the AC shall have the following rights, in accordance with the procedures to be determined by the Board of Directors and at the cost to the Company: a. b. Have explicit authority to investigate any matter within its terms of reference; Have the resources which are required to perform its duties;

c.

Have full, free and unrestricted access to any information, records, properties and personnel of TM and of any other companies within the TM Group; Have access to the minutes, reports and information of all subsidiary AC; Have direct communication channels with the External Auditors and person(s) carrying out the internal audit function or activity (if any); Be able to obtain independent professional or other advice and to invite outsiders with relevant experience to attend the ACs meetings (if required) and to brief the AC thereof; The attendance at any particular AC meeting by other Directors and employees of TM at the ACs invitation and discretion and must be specific to the relevant meeting; Be able to convene meetings with External Auditors, excluding the attendance of the executive members of the AC, whenever deemed necessary; Have immediate access to reports on findings and recommendations from Group Internal Audit in respect of any fraud or irregularities discovered and referred to Group Internal Audit by the Management; Be able to seek clarification from the subsidiary Board or CEO; Have step-in rights in the situation where there is possible fraud, illegal acts or code of conduct violation is suspected involving senior management or members of the Board; Be able to direct the centralisation of the Group Internal Audit (GIA) and that GIA provides representation at the subsidiary AC; Have authority and ability for placement of internal audit resources TM Group wide; Require the Head of Internal Audit at subsidiary and the Group Chief Auditor to escalate and inform the AC immediately on urgent matters.

d. e.

f.

g.

h.

i.

j. k.

l.

m. n.

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4.

DUTIES AND RESPONSIBILITIES The following are the main duties and responsibilities of the AC collectively, (and shall review and report the same to the Board of Directors): 4.1 Risk Management and Internal Control Review the adequacy and the integrity of the Groups internal control systems and management information systems, including systems for compliance with applicable laws, rules, directives and guidelines. Propose an adequate system of risk management for Management to safeguard the Groups assets. Review the risk profile of the Group and major initiatives having significant impact on the business.

b) c) d) e) f)

Significant changes and adjustments in the presentation of financial statements; Compliance with laws and local and international accounting standards; Material fluctuations in balances in the financial statements; Significant variations in audit scope and approach; and Significant commitments or contingent liabilities.

Discuss problems and reservations arising from the interim and final audits and any matter the auditor may wish to discuss in the absence of Management where necessary; Propose best practices on disclosure in financial results and annual reports of the Company in line with the principles set out in the Malaysian Code of Corporate Governance, other applicable laws, rules, directives and guidelines. Review the follow-up actions by Management on the weaknesses of internal accounting procedures and controls as highlighted by the External and Internal Auditors as per management letters. Where there is an audit assignment initiated by the GIA central office that have bearing upon all subsidiaries or that the subsidiaries results would affect the audit opinion of the Group, the respective subsidiaries internal audit office must adhere to the request and include in its audit plan.

4.2 Financial Reporting Review Review the quarterly interim results, half-yearly results and annual financial statements review of the Company and the Group, focusing particularly on: a) b) c) d) e) f) Any changes in accounting policies and practices; Significant or material adjustments with financial impact arising from the audit; Significant unusual events or exceptional activities; Financial decision-making with the presumptions of significant judgments; The going concern assumptions; and Compliance with approved accounting standards, stock exchange and other regulatory requirements.

4.3 External Audit Consider the appointment of a suitable accounting firm to act as External Auditors and amongst the factors to be considered for the appointment are the adequacy of the experience and resources of the firm and the persons assigned to the audit, to consider any question of resignation (including any letter of resignation) or removal and whether there is a reason (supported by grounds) to believe that the External Auditors are not suitable for re-appointment and to recommend the audit fee payable thereof. Discuss with the External Auditors before the audit commences, the audit plan, nature, approach and scope of the audit and ensure coordination where more than one audit firm is involved.

Review with the External Auditors the financial statements for the purpose of approval before the audited financial statements are presented to the Board for adoption including: a) Whether the auditors report contained any qualifications which must be properly discussed and acted upon for purposes of resolving the contentious point of disputes in the current audits and to remove the cause of the auditors concern in the conduct of future audits;

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Monitor the extent of non-audit work to be performed by the external auditors to ensure that the provision of non-audit services does not impair their independence or objectivity.

The internal audit function should be independent of the activities that they audit and should be performed with impartiality, proficiency and due professional care. The Board or the AC should determine the remit of the internal audit function.

4.4 Group Internal Audit (GIA) To approve the Internal Audit Charter, which defines the independent purpose, authority, scope and responsibility of the internal audit function in the Company and Group. Review the Internal Audit Plan and results of the internal audit process and where necessary to ensure: a) That appropriate action is taken on the recommendations of the internal audit function; That Group Internal Audit has adequate and competent resources and that it has the necessary authority to carry out its work; and That the goals and objectives of Group Internal Audit are commensurate with corporate goals. 4.5 Related Party Transactions Consider and review any significant transactions, which are not within the normal course of business and any related party transactions and conflict of interest situations that may arise within the Company and the Group including any transaction, procedure or course of conduct that raises questions of Management integrity.

4.6 Employee Share Option Scheme (ESOS) Verify the allocation of share options to the Groups eligible employees in accordance with the Bursa Securities Listing Requirements at the end of each financial year.

b)

c)

4.7 Other Matters Establish a process for dealing with complaints received by the Company and the Group regarding accounting issues, internal control matters or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. To report to Bursa Securities, if the AC views that a matter resulting in a breach of the Bursa Securities Listing Requirements reported by the AC to the Board has not been satisfactorily resolved by the Board. Such matters as the AC considers appropriate or as defined by the Board.

Review and appraise the performance and remuneration of the Group Chief Auditor and senior staff members of Group Internal Audit, approve the appointment or termination of the Group Chief Auditor and senior staff members of Group Internal Audit and inform itself of resignations of the Group Chief Auditor and senior staff members of the Group Internal Audit and provide the resigning staff member an opportunity to submit his reasons for resigning. Be informed, referred to and agree on the initiation, commencement and mechanism of any disciplinary proceedings/investigations, including the nature and reasons for the said disciplinary proceedings/investigations, as well as the subsequent findings and proposed disciplinary actions against the Group Chief Auditor and senior staff members of Group Internal Audit. As employees of TM, the Group Chief Auditor and senior staff members of Group Internal Audit are subject to TMs human resource policies and guidelines, including disciplinary proceedings/investigations and actions.

Dato Lim Kheng Guan Chairman

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On Internal Control

Directors Statement

RESPONSIBILITY AND ACCOUNTABILITY

The Board of Directors (Board) is responsible and accountable for maintaining a sound system of internal control which covers governance, risk management, financial, organisational, operational and compliance controls to safeguard shareholders investments, customers interests and the Groups assets. The Board recognises and affirms its overall responsibility for the Groups system of internal control which includes the establishment of an appropriate control environment and framework as well as reviewing its effectiveness, adequacy and integrity. However, the Board recognises that this system is designed to manage, rather than eliminate the risk of nonachievement of the Groups objectives. It therefore, provides reasonable and not absolute assurance, against the occurrence of any material misstatement or loss. The Board is assisted by the Management in the implementation of the approved policies and procedures on risk and control. Management identifies and assesses the risk faced and then designs, implements and monitors appropriate internal controls to mitigate and manage these risks. This Statement on Internal Control ("the Statement") has been prepared in compliance with the Listing Requirements of Bursa Malaysia Securities Berhad and in accordance with the guidance in the Statement on Internal Control Guidance for Directors of Public Listed Companies.

TM Group is committed to implementing Enterprise Risk Management (ERM) as a key strategic risk management tool to proactively identify and manage risks throughout the Group. It is inevitable that risks will always exist in an organisation and these risks are managed or controlled. Managing risk is a shared responsibility and therefore, the management of risk is integrated into the managerial framework of an organisation. It is an interactive process consisting of steps which, when undertaken in sequence, enable continual improvement in decision-making. Principal risks that have been identified by the Board are: Strategic Risk: Human Resource risk, Market risk and Technology risk Operational Risk: Process risk (e.g. Network risk, Procurement risk, IT risk) Reporting Risk: Information System risk and Financial Reporting risk Compliance Risk: Regulatory risk and Legal risk

INTERNAL CONTROL FRAMEWORK

The Boards evaluation of the adequacy of the internal controls in the Group is based on the criteria developed under COSO (Committee of the Sponsoring Organisations of the Treadway Commission) Internal Control Integrated Framework. It is a generally-accepted framework for internal control and is widely recognised as the standards against which the Group measures the effectiveness of its systems of internal control. The internal control system is intertwined with the Groups operating activities and exists for fundamental business reasons. Under the COSO model, internal control framework is segregated into five inter-related components as follows.

RISK MANAGEMENT GOVERNANCE

The Group has in place an on-going process for identifying, evaluating, monitoring and managing the significant risks affecting the achievement of the Groups objectives throughout the period. This process is regularly reviewed by the Board taking cognisance of changes in the regulatory and business environment to ensure the adequacy and integrity of the system of internal controls.

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A. CONTROL ENVIRONMENT
Control environment is the organisational structure and culture created by management and employees to sustain organisational support for effective internal control. The Managements commitment to establishing and maintaining effective internal control are cascaded down and permeated throughout the Group control environment, aiding in the successful implementation of internal controls. Key activities involved are: Organisation Structure TM Group has a formal organisation structure in place with clearly defined lines of responsibility and accountability aligned to business and operations requirements. Assignment of Authority and Responsibility Clear definition of limits of authority and responsibilities through the Groups Business Process Manual and Subsidiaries Policy that have been approved by the Board and subject to regular reviews and enhancements. Core Values Internalisation of TM Groups Core Values of Total Commitment to Customers, Uncompromising Integrity and Respect and Care sets the guiding principles of the Groups culture. Code of Business Ethics All employees are required to sign and adhere to the Groups Code of Business Ethics, which outlines the minimum standard of behaviour and ethical conduct expected of employees in business matters. Competency Based Development Framework TM Group has established a framework to analyse current human capital development needs and challenges undertaken to ensure key assets, being its people and their dedication and abilities, are competitive in the present and remain so in the future. Board and Audit Committee The various Board Committees, namely the Audit Committee, the Nomination and Remuneration Committee, the Tender Committee, Employee Share Option Scheme (ESOS) Committee and other ad-hoc Committees that are all governed by clearly defined terms of references.

The Audit Committee, comprising all non-executive directors and a majority of independent directors, bring with them wide ranging in-depth experience, knowledge and expertise. They continue to meet and have full and unimpeded access to both the internal and external auditors during the financial year.

Human Resource Policies and Procedures Efforts have been made by the Group to realign its existing Human Resource policies and procedures with the initiatives developed by the Government under the GLC Transformation Programme.

B. RISK ASSESSMENT
Risk assessment is the identification and analysis of relevant risks to achieve the Groups objectives, forming a basis for determining how risk is managed in terms of likelihood and impact. Key activities involved within this area are: Enterprise Risk Management (ERM) Risk management is firmly embedded in the Groups system of internal control as it is regarded by the Board to be an integral part of the operations. Managing risk is a shared responsibility and therefore the management of risks is integrated within the Groups governance, business processes and operations. It is an interactive process consisting of steps which, undertaken in sequence, enable continual improvement in decision-making. Employees appreciation and commitment to ERM is continually emphasised and enforced. Group Internal Audit complements the role of Risk Management Unit by performing post-implementation reviews of ERM workshops, to independently review risk profiles, risk management strategies and adequacy and effectiveness of the controls identified and implemented in response to the risks identified.

Control Self-Assessments (CSA) Control Self-Assessments (CSA) is a process that allows the employees in the Group to identify the risks within their business environment and evaluate adequacy and effectiveness of the controls in place. The CSAs result is used as one of the key information in identifying high-risk areas within the Group.

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C. CONTROL ACTIVITIES
Control activities are the policies and procedures that help ensure managements directives are carried out. Relevant activities within TM Group are as follows: Business Performance Management (BPM) Policy and Guidelines BPM provides a comprehensive reference to TM Balanced Scorecard (BSC) implementation, stating the guiding principles and policies for TM Group on BSC development and deployment processes; It supports TMs Corporate Governance, providing an internal control framework to manage strategy implementation for better business performance results.

D. INFORMATION AND COMMUNICATION

Information and Communication ensures that pertinent information is identified, captured and communicated in a form and time frame that enables people to carry out their responsibilities. Relevant key activities within the Group are: Communications Policy TM Group is committed to open and effective communication as an essential component of its culture in order to motivate the workforce in delivering high quality services and exceptional value to customers and other stakeholders as well as anticipating their feedback. Its purpose is to ensure that communication across the TM Group is well coordinated, effectively managed and meets the diverse needs of the organisation.

IT Governance Policy TM Group has in place an IT Governance policy which is established based on the current Information Technology (IT) issues identified internally and raised by the internal and external auditors. It consists of 6 core policies, namely IT Security Policy, IT Network Policy, IT Application Control Policy, IT Desktops, PDA, Email, Internet and Intranet Policy, Purchasing, Licensing and Usage of Corporate Software and Business Continuity Facility Policy. Subsidiaries Policy Subsidiaries Policy (SP) is positioned to ensure that the Group's interests are protected and prioritised at all times while providing adequate flexibility for subsidiaries to deliver their respective business objectives. Performance Improvement Programme (PIP) TMs PIP journey is synchronised with the overall GLC Transformation Programme as envisioned in the GLC Transformation Manual issued by the Putrajaya Committee on GLC High Performance (PCG). It is included as part of TMs Group Strategy Map in ensuring positive improvements to overall Group performance. Insurance and Physical Safeguard Adequate insurance and physical safeguards on major assets are in place to ensure that assets of the Group are sufficiently covered against any mishap that will result in material losses to the Group.

Group Enterprise Resource Management Systems (GEMS) GEMS Project is a major initiative towards improving the business performance of TM Group via integrated information and processes across TM Group. Through the implementation of GEMS, a significant portion of business processes will be aligned to a SAP solution and TM will emerge as a tightly-integrated, vibrant and dynamic enterprise. Internal Control Incident (ICI) Reporting Internal Control Incident (ICI) Reporting is meant to capture and disseminate lessons learnt from internal control incidents with the objective of preventing similar incidents from occurring in other operating companies within the Group. Best Practice Committee The Best Practice Committee is a management committee that reports to the Audit Committee. It provides updates and developments of best practices and exposure drafts on corporate governance, statutory and regulatory requirements set by all statutory bodies/relevant authorities, compliance to accounting standards and other business guidelines and issues. All requisite reminders and updates are raised through its secretariat, the Compliance Unit.

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E. MONITORING
Monitoring the effectiveness of internal control is embedded in the normal course of the business. Periodical assessments are being integrated as part of managements continuous monitoring of internal control. There are systematic processes available in addressing deficiencies such as: Management Committees Group Executive Committee (EXCO) meetings are held on a regular basis to identify, discuss and resolve strategic, operational, financial and key management issues. Management Audit Issues Action Committee, comprising members of Senior Management and CEO/COOs of major Operating Companies regularly monitors major internal and external audit issues to ensure they are promptly addressed and resolved. The TM Group Performance Improvement Management Office (PIMO) was established with a full mandate to drive and coordinate the Performance Improvement Programme (PIP) as part of the strategy to achieve the Groups ultimate aspirations.

Group Internal Audit continues to independently and objectively monitor compliance with policies and procedures and effectiveness of the internal control systems. Significant findings and recommendations for improvements are highlighted to Senior Management and the Audit Committee, with periodic follow up reviews of action plans. Group Internal Audits practices and conduct are governed by the Internal Audit Charter.

Special Affairs Unit Special Affairs Unit is responsible to review and monitor the ethical conduct and practices of all employees including Senior Management. Investigation of Internal Control Incident (ICI) cases is also undertaken by the Unit (where applicable) and tabled to the ICI Committee and to the Board via the Audit Committee. Appropriate actions are then taken based on the strengths and merits of the findings.

REVIEW OF THE STATEMENT BY THE BOARD OF DIRECTORS

The Board considers the system of internal control described in this Statement to be adequate and the risks are considered to be at an acceptable level within the context of the Groups business environment. The Board and Management continue to take measures to strengthen the control environment and monitor the health of the internal controls framework. For the financial year under review, the Board is satisfied that the system of internal control was satisfactory and has not resulted in any material losses, contingencies or uncertainties. TMs internal control system does not apply to its associated companies and joint controlled entities, which fall within the control of their majority shareholders. Nonetheless, the interests of TM is served through representation on the Board of Directors and Senior Management posting(s) of the associated companies and joint controlled entities through the review of management accounts received. These provide the Board with performance related information to enable informed and timely decision making on the Groups investments in such companies.

Periodical Self-Assessments Annual disclosures are made by the Groups Operating Companies CEO/CFO/COO and senior management on the overall effectiveness, reliability and adequacy of their respective companies systems of internal controls and financial controls respectively. Quarterly disclosure on Financial Controls Compliance and Assurance as part of the initiative to inculcate selfawareness on the financial and internal controls requirements within the Group.

Headline Key Performance Indicators (KPIs) These Headline KPIs are a subset of broader performance indicators approved by the Board. The Board agreed in year 2007 on 3 KPIs taken from TM Group Corporate Scorecard to be reported as Headline KPIs, e.g. Revenue, EBITDA Margin and Return on Equity. Group Internal Audit Group Internal Audit carries out continuous assessments of the quality of risk management and existing internal controls. It also assists to promote effective risk management in the lines of business operations.

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Perspective

CHAIRMANS STATEMENT GROUP CHIEF EXECUTIVE OFFICERS STATEMENT

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Statement
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OVERVIEW
Dear Shareholders, You will be pleased to know that TMs performance in 2007 was favourable in more ways than one. Building on the momentum gained from the Performance Improvement Program (PIP) that we launched in mid 2006, we saw the full year impact of PIP initiatives which have enabled us to deliver outstanding financial results despite an increasingly competitive environment. We also delivered on our Key Performance Indicators in furtherance of the process of transformation which continued to be an overarching theme, improved our productivity, grew our mobile and broadband customer base and stabilised traditional fixed-line revenues. Outside Malaysia, we continued our growth momentum while corporate developments in India culminating in the listing of Spice Communications Ltd (Spice), provided a further boost to our regional presence.

TAN SRI DATO Ir MUHAMMAD RADZI HJ MANSOR

NON-INDEPENDENT NON-EXECUTIVE CHAIRMAN

It was the year when TM completed 20 years as a privatised entity coinciding with Malaysias 50th year of nationhood. Over this period, we grew from a company with a revenue of RM1.5 billion and Loss After Tax of RM97.0 million to a revenue of RM17.8 billion and Profit After Tax of RM2.6 billion. Commemorating these separate milestones, we published Transforming a Legacy, a commemorative book

which captures in words and pictures the growth and evolution of Malaysias telecommunications industry for posterity. As TM was at the centre of that growth, we believed it was necessary to trace our development from our humble beginnings to the present day. The book was launched by the Prime Minister of Malaysia, Dato Seri Abdullah Haji Ahmad Badawi, during TM Groups Hari Raya open house held on 3 November 2007.

It was also a year in which we embarked on a bold and strategic move to demerge our businesses into two one, a company dedicated to the fixedsector business with all the opportunities that high-speed broadband and next-generation networks offer, and two, a company whose focus would be mobile services in several major markets in South and South-East Asia, including Malaysia. Both would be positioned to strongly compete in their

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respective businesses and enhance shareholder value. The Board believes that demerger will help accelerate performance improvement through greater performance transparency, organisational focus and improved execution capacity. At the time of publication of this annual report, the process of demerger was well underway, having obtained shareholders approval to proceed with it. I am happy to report that we are on target to complete it within the second quarter of 2008 and a new organisation structure and management team had been put into place to lead the two entities forward.

FINANCIAL & OPERATING HIGHLIGHTS

Group revenue increased by 8.8% to RM17.8 billion in the year under review, against the record RM16.4 billion posted in 2006. This was largely driven by growth in mobile, leased services, and Internet and multimedia sectors. The Groups Profit After Tax and Minority Interest (PATAMI) registered a commendable 23.1% growth to RM2.6 billion from RM2.1 billion previously. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) was also an improvement at RM7.6 billion, compared to RM7.5 billion recorded in 2006. The year 2007 saw us adding 401,000 new broadband customers bringing the total broadband customer base to 1.3 million, while fixed-line customers continued to remain stable at 4.4 million. On the international front, I am pleased to report that TM International Berhad (TMI) sustained growth despite challenging macro-economic conditions in nearly all our markets, particularly Sri Lanka, Indonesia and Bangladesh. The Groups overseas contributions posted positive revenue growth of 19.7% contributing 26.2% to revenue composition which was an improvement over the 24.2% recorded in 2006.

It was heartening to note from our results that the Groups mobile business continued to strengthen in spite of a fairly challenging macro-economic and political environment. The total contribution from mobile to Group revenue was 53.2%, which was an indication of sustainable growth. Our mobile customer base grew to a record 39.8 million customers from 28.5 million a year ago, which was a robust 39.6% increase.

DELIVERING SHAREHOLDER VALUE

In line with the dividend payout policy of 40.0% to 60.0% of PATAMI, the Board of Directors has proposed to declare a final gross dividend of 22 sen per share less tax of 26.0%, amounting to RM560.0 million net. Combined with the interim dividend of 26 sen per share less tax of 27.0% paid on 4 September 2007, the total dividend payout in respect of financial year 2007 would amount to RM1,212.9 million representing a payout ratio of 47.6%. This is in addition to the RM1,654.5 million special dividend which was paid to shareholders on 31 January 2008.

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PROGRESS AND ACHIEVEMENTS

To illustrate the depth of progress that TM has achieved, allow me to share the transformation journey that we have taken since the Government-linked Companies (GLCs) transformation initiative was launched in 2004. Over the last four years, we have continued to implement our strategy to transform TM into a more competitive and performance driven company. When we launched our new identity in 2005, we said that it was not a mere cosmetic change. Over the last three years, we have worked hard to ensure that we did exactly that. I must say that the change in the form is easily noticeable, taking on a more vibrant and global identity. Along with that, we have also transformed ourselves into an emerging leader in Asian communication, and grown from a RM11.8 billion into a RM17.8 billion revenue company with 39.8 million regional mobile customers. Strategies alone cannot bring about this transformation without the change in mindset of our employees and how we run the Company the part which is not easily seen but crucial to deliver the kind of transformation that we have seen.

One of the key areas is development and management of human resources. How do we mould and shape the behaviour and mindset of a dynamic and progressive workforce? To this end, TM has embraced an enhanced Performance Driven Culture by introducing better performance rewards to incentivise and motivate high performers. TM has also embarked on a Talent Management Programme. To date, more than 400 executives have been identified to be in the Talent Pool where they are provided leadership training and deployment to more challenging positions. This is supported by a Succession Planning framework which was implemented to identify potential successors to key positions across the Group. Capacity building is also given due emphasis. A Competency Based Development Model and Learning Programmes (SmartOrange) was introduced to give staff adequate soft skills training to ensure they acquire the critical behavioural competencies at every stage of their career. To measure the effectiveness of all these efforts, we carried out two assessments, 360 Feedback and Employee Satisfaction Index (ESI) surveys. 360 Feedback gives a Competency Index (CI) reading which measures individual and organisation competency level based on a set of

behavioural attributes aligned to Competency Based Development Framework. The CI has improved to 7.54 in 2007 from 6.89 in 2004. While ESI measures employees satisfaction in relation to their workplace environment. ESI has also improved to 75.4% in 2007 from 72.1% in 2004. We have also improved the way we manage our finances. We undertook a financial integration exercise across the Company with the implementation of a Group-wide Enterprise Management System (GEMS) in mid 2007 that resulted in timely reporting, analysis and operational efficiency. In addition, the implementation of the Shared Service Organisation (SSO) units beginning 2006 helped to further improve efficiency. To ensure that TM remains a strategy-focused organisation, we also adopted Groupwide, the Balanced Scorecard in 2005, followed by incorporation of a risk assessment component in our Balanced Scorecard monthly Business Performance Report. Maintaining a high standard of corporate governance has always been an important element of the way we conduct ourselves. Over the last four years, the internal controls framework in TM Group has been strengthened with effective governance and

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independent oversight provided by the Board Audit Committee and a strong Group Internal Audit function at the Group level. This is supported by the respective Audit Committees and Internal Audit functions at the major subsidiaries. We have put in place a structured and disciplined approach to review and evaluate effectiveness of governance, risk management and internal processes with enterprise risk management processes embedded in key processes. In addition, more controls are automated through the implementation of the enterprise resource planning system (SAP), enabling speed in information sharing and decision making. For the procurement function specifically, we have created a more focused, proactive and proficient environment which is rooted in best practice management and exemplary corporate governance in term of accountability, transparency and performance. TM led the way with a unique strategic supplier partnership model for its network transformation into the Next Generation Network (NGN). Given the size of the project and the technological and operational complexities involved, TM decided to adopt an Establish, Operate and Transfer (EOT) procurement approach rather than outright purchases. Overall, TM has adopted a holistic approach in its procurement transformation. As part of the strategic initiatives, TM has

driven its cost saving efforts through standardisation of specifications and volume aggregation across the Group. This has delivered significant bottom line benefit through cost avoidance and reduction showing that procurement levers can be used in parallel to create value and efficiency across the Group. TM now is a matured organisation. From my years at TM, I am pleased to note that all the transformation that we have put in place as mentioned above have brought about a change-inprogress in TMs culture over the last four years. While there is no hard and fast rule in quantifying the change that have taken place, I can say that TM has been on the positive track in embracing private sector work culture, one which emphasises sense of urgency, punctuality, Group interest, teamwork and open communication. This is in line with the GLC Transformation effort in making GLCs such as TM more competitive and performance-driven. I believe this is also made possible by open and transparent internal communications which over the last four years has helped to promote a communicative culture in TM. We use various tools to ensure that staff are well informed of the Groups key developments and aspirations. Most of all, this transformation is largely due to the presence of a strong and capable leader who through his actions, shaped and inspired the whole organisation to drive better performance.

We continued to register improvements from all the initiatives that have been implemented as evident from the many accolades that we received. In 2007, we achieved triple honours and recognition when we won the Frost & Sullivan Malaysia Telecoms Awards as Service Provider of the Year for the second consecutive year, in addition to being named 2007 Data Communications Service Provider of the Year and 2007 Broadband Service Provider of the Year. These awards were followed closely by the 2007 Frost & Sullivan Asia Pacific ICT Awards in Singapore, where TM became the first Malaysian company to be named Service Provider of the Year in recognition of its leadership in the Asia-Pacific region. We clinched the Gold Award for the Overall Excellence category of the National Annual Corporate Report Awards (NACRA) and the overall winner of the 2007 National Award for Management Accounting (NAfMA). We also recently won Merit awards for The Malaysian Business CSR Awards 2007 under the category of the Overall Winner and Best Innovation in CSR. Participating companies were evaluated based on their compliance with the environmental, and workplace regulations, contributions to the community at large, compliance and contributions to the marketplace, and compliance with ethical standards.

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GOVERNANCE AND CORPORATE RESPONSIBILITY

Corporate Responsibility is evident across all aspects of our operations and has been an integral part of our business since inception. We are committed to operating in an ethical, sustainable and socially responsible way. We have always subscribed to the notion of supporting host governments and host communities wherever we operate by being good corporate citizens and discharging good corporate governance. We have a number of clear policies in respect of Corporate Governance, Enterprise Risk Management, Environmental Management and also Procurement Practices in place that govern our behaviour towards our shareholders, our stakeholders, our partners and last but not least, our employees. Besides this, our Corporate Social Responsibility Policy prescribes that TM companies will also undertake a variety of programmes that are aligned with their businesses and also benefits the wider interests of the societies which we serve. From a social perspective, TM continued to intervene in efforts to support community initiatives and charitable organisations. We put in place a CSR and Donations/Sponsorships Policy and Best Practices which set out the guidelines and criteria for the award of donations and approval of sponsorships,

to ensure alignment of the corporate response across the Group. The Group also subscribed to the Silver Book Guidelines prescribed for GLCs which are designed to evaluate value creation and the impact of donations and sponsorships. As part of our commitment toward sustainable efforts in the community and society, we continued to direct our efforts towards Education, Sports Development and Community & NationBuilding. The Group invested more than RM73.0 million towards discharging our responsibility to the community and society in the year under review.

Looking ahead, the preference is towards digital lifestyle where broadband access and contents are becoming more prevalent amongst our customers in their everyday lives. Broadband and broadband-enabled services are also a major part of most businesses. In this regard, we look forward to working in partnership with the Government of Malaysia to develop and roll-out a high-speed broadband ("HSBB") infrastructure and services. With speeds up to 1000 times for businesses and 100 times for homes HSBB will allow a whole new way of living online and allow Malaysians to really make the most out of what internet can offer. Across the region, the economies within the Asia Pacific continue to show robust growth and the region contains some of the highest growing economies i.e. India and China. This development is helping to increase demand for communication services, both in the consumer and business segments. According to the Frost & Sullivans Mobile Communication Outlook 2007, the region posted a CAGR of 24.0% from 2002 to 2006, reaching a customer base of almost 1 billion.

2008 OUTLOOK
Telecommunication industry continues to move at a rapid pace. As a player in an industry where its competitive landscape is constantly changing, we understand that we need to be agile and an adaptive communications service provider to ensure our continued growth and survival. Upon completion of the demerger, TM will move from being a fixed-line communications service provider into the next generation service provider. That means providing integrated services of access, voice and data to help our customers enrich their lifestyle and also grow their business.

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Post demerger, the TMI Group will be well positioned to reap the growth potential of the markets it currently operates. It has a strong presence in the fast growing South/Southeast Asia with a unique portfolio of assets across 10 markets in Asia, 8 of which are mobile operations. These markets are characterised by high economic growth and/or low mobile penetration rates. Based on our experience operating in these markets, we know how important it is to make the services affordable to the masses and capitalise on the synergies with our operations in other markets. Moving forward, the TMI Group intends to continue to focus on growing its market share in its existing markets and expanding its footprint into the South and South East Asian mobile telecommunications markets through organic expansion as well as selective acquisition opportunities.

Clearly, TM is right in the heart of the sector where the new economic and social model for the 21st century is being developed. We will certainly leverage on these opportunities to create exciting growth and value for our stakeholders. Looking ahead, the Board is confident the demerger will further enhance shareholders value through accelerated operational improvements, as the demerged entities will have greater execution capacity, more focus and flexibility which will make it easier for each company to seize opportunities and respond to the challenges in their respective businesses.

Dato Jamaludin Ibrahim as the Group CEO Designate of TMI with effect from 3 March 2008. Post demerger, the enlarged TMI which is TMs investment arm overseeing TMs international investment and operations including domestic mobile operations under Celcom (Malaysia) Berhad, will be a listed pure-play regional mobile operator with 39.8 million customers across Asia. I am delighted to hand over the chairmanship of TMI to Dato Azman who is no stranger to the Group, having been a Director of TM since June 2004. As the current Managing Director of Khazanah Nasional Berhad, Dato Azman will be able to provide multidimensional perspectives to the Board and management of TMI. I have no doubt TMI will benefit from his vast experience and insights. As for the role of Group CEO for TMI, I believe Dato Jamaludin is an ideal candidate to take the Company forward in its next phase of development. He brings to TMI extensive experience in the telco (specifically mobile) and IT industries, not only in Malaysia but internationally. His track record will prove essential as we groom TMI to be the leading mobile operator in South and South-East Asia.

ACKNOWLEDGEMENTS
On 26 February 2008, TM announced that its Group Chief Executive Officer (Group CEO), Dato Sri Abdul Wahid Omar, had tendered his resignation to take up a top appointment with a financial institution. He is retiring by rotation as a Director of the company but would remain as the Group CEO of TM until completion of the demerger, expected by the end of the second quarter of 2008. The Board also announced the appointment of Dato Azman Mokhtar as the Chairman and

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Post demerger, TM (FixedCo) will be helmed by Dato Zamzamzairani Mohd Isa as Group CEO. Given his 23 years of experience in telecommunications, having begun his career in 1984 with the then Telecommunications Department, Dato' Zamzamzairani distinguished himself as CEO of Malaysia Business, overseeing TM Retail, TM Wholesale, TM Net Sdn Bhd and several other related subsidiaries. Prior to this position, he served as Senior Vice President, Group Strategy and Technology for a number of years. I would like to take this opportunity to thank Dato Sri Abdul Wahid for his valued contributions to the TM Group. Dato Sri Abdul Wahid has been instrumental in implementing several key initiatives crucial to TMs transformation and continuing growth since he came on board in July 2004. At that time, TM was a RM11.8 billion Company, with 61.0% of its revenue from the fixed-line business. We have now grown into a RM17.8 billion revenue Company with 53.2% of its revenue contribution from mobile operations. This does not happen by a stroke of luck but by determination and

hard work by everyone here in TM Group, and I must stress, under the leadership of a very capable man. It was during his tenure that the PIP was launched to rejuvenate the flagging domestic fixed-line business. TM also made the strategic decision to focus its international expansion and strengthen its presence in emerging markets closer to home. He leaves a group that is financially sound and with a strong presence in a fast-growing region. On that note, it is only fitting that I take this opportunity to thank Dato Sri Abdul Wahid for his immense and positive contributions to the continuing transformation of TM and record the Board of Directors' and Management's gratitude and appreciation to him upon his retirement as a Director at our forthcoming Annual General Meeting. The Board also like to record its appreciation to Dato Ahmad Haji Hashim who retired on 7 January 2008, for his services rendered to TM during his tenure as director of the Company. We also warmly welcome Datuk Zalekha Hassan who was appointed in Dato Ahmads place effective 9 January 2008.

Finally, on behalf of the Board, I wish to express my sincerest appreciation to all our stakeholders shareholders, customers, business partners, regulators, the Government, employees, the media and others who have all done their part in helping us build and grow the TM brand, and in particular, for their contributions of the past year. Going forward, as TM enters a new and exciting chapter, we will need their continuing support.

Tan Sri Dato Ir Muhammad Radzi Hj Mansor Chairman

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OVERVIEW
The year 2007 will go down in corporate history as one where TM took a number of major strategic decisions in its continuing journey to transform the Group and position it as a leading regional communications company of choice. As such, we have chosen what we believe to be an apt theme for our annual report, which is Opening Up Possibilities: Creating Value, Unleashing Potential.

DATO SRI ABDUL WAHID OMAR

GROUP CHIEF EXECUTIVE OFFICER NON-INDEPENDENT EXECUTIVE DIRECTOR

In last years Annual Report, I highlighted how the Performance Improvement Program (PIP) we launched in mid 2006 has shown early positive results. Those PIP initiatives were intensified further in 2007 and have indeed brought about further improvements with our fixed-line revenue recording 2.0% growth in 2007 compared to negative 0.9% in 2006 whilst Celcom (Malaysia) Berhads (Celcom) revenue grew by 13.1% compared to 0.7% in 2006. As a follow through to the PIP and following a strategic review of our businesses and core competencies, the Board in September 2007 announced the proposed demerger to separate the Groups fixed and mobile businesses into two separate entities. This will

result in the emergence of TM International Berhad (TMI) or RegionCo as the Regional Mobile Operator and TM or FixedCo as the Domestic Broadband Champion. The demerger is expected to accelerate operational improvements and growth through clearer strategic and organisational focus and further unlock shareholder value. I am pleased that the shareholders have approved the proposed demerger at the recently held Extraordinary General Meeting (EGM) on 6 March 2008. With shareholders approval in place and subject to obtaining other relevant approvals, we expect the proposed demerger to be completed and TMI separately listed on Bursa Securities in the second quarter of 2008.

The year 2007 was also notable for the fact that we have been identified by the Government to participate in the PublicPrivate Partnership (PPP) arrangement to roll out High Speed Broadband (HSBB) infrastructure and services for the nation. The cost of the HSBB investment is approximately RM15.2 billion with TM investing RM10.4 billion over the next 10 years and the Government co-investing RM4.8 billion or one third of the total cost. The HSBB coverage is expected to be available across 2.2 million premises over the next 3 years. The execution of this longawaited infrastructural development is expected to be entrusted to TMs FixedCo, giving us the responsibility to ensure that Malaysia continues to stay at the forefront of ICT through broadband deployment and joins the rest of the best-in-league nations with deep broadband penetration to further propel economic growth.

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To sum up the year in review, I would say we continued with our theme of transformation, begun more than 20 years ago when we metamorphosed from an incumbent fixed-line company to a regional communications player, in line with the Government-linked Companies (GLCs) Transformation program. But the metamorphosis has not ended by any means. TM is now poised to continue its journey as two separate and independent companies, each with its own strengths and strategies, and in the process, seize opportunities to unlock its full potential. Both TM and TMI will offer fresh value propositions to its stakeholders.

in Spice and lower taxation charges. Gains on placement of 4.6% of shares in Dialog Telekom Ltd (Dialog) totalling RM234.8 million as part of efforts to boost liquidity of Dialogs shares on the Colombo Stock Exchange contributed to higher operating income. The higher share of results in Spice was mainly due to proportionate gain on disposal of towers of RM128.8 million.

The Group also registered better Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of RM7.6 billion, an improvement over the RM7.5 billion registered the year before. The Groups overseas operations continued to deliver positive revenue growth of 19.7%, despite a challenging operating environment thereby contributing 26.2% to Group revenue.

2007 Headline KPI Achievements: Headline KPIs 1. Revenue 2. EBITDA Margin 3. Return on Equity (ROE)** FY2006 Actual RM16.4 billion 45.9% 10.6% FY2007 Actual RM17.8 billion 42.8% 12.8% FY2007 KPI RM17.7* billion 44.5% 9.8%

GROUP PERFORMANCE
The Group delivered another set of commendable financial performance despite the challenging macro and political environment overseas, and intense competition, both domestically and on the international front. I am also pleased to report that the Group successfully met its Headline Revenue and Return on Equity (ROE) Key Performance Indicators (KPIs). Overall Group revenue in 2007 grew by 8.8% to RM17.8 billion against the RM16.4 billion recorded in 2006, driven largely by positive results from mobile, leased services, and Internet and multimedia segments. The Groups Profit After Tax and Minority Interest (PATAMI) increased by 23.1% to RM2.6 billion as compared to RM2.1 billion recorded in 2006. This was mainly attributed to stronger contributions by Celcom, higher other operating income, gain on the Initial Public Offering (IPO) of Spice Communications Ltd (Spice) of RM71.3 million, higher share of results

* Restated to reflect actual foreign exchange rates in the translation of foreign subsidiaries revenue into RM ** ROE is computed as PATAMI/Average Capital & Reserves Attributable to Equity Holders of the Company

For 2007, the Group successfully met its Headline Revenue and ROE KPIs. Actual 2007 EBITDA margin of 42.8%, however, fell below the target of 44.5%, as a result of one-off charges such as provision for impairment of investment in a quoted security (RM80.0 million), withholding taxes on USD bond interests at PT Excelcomindo Pratama TBK (XL), regulatory compensation at TM International (Bangladesh) Limited (TMIB), and other operating expenses. The Groups actual ROE of 12.8% for the year 2007 was nevertheless higher than 2006s ROE of 10.6%, and exceeded its 2007 KPI of 9.8%.

Malaysia Business performed satisfactorily, achieving a full-year growth of 2.0% in the year under review, compared to a decline of 0.9% the year before to register RM7.6 billion in revenue for the financial year ended 2007. This was driven by greater broadband push through aggressive marketing initiatives resulting in a robust growth of 22.7% in Internet and multimedia revenue. Data revenue also saw an encouraging growth of 25.4% led by demand for higher bandwidth by the corporate and business customers. A success factor was the introduction of the successful Lets Talk campaign aimed at rejuvenating the usage of fixed-line services. Offered in several packages to suit different customer lifestyle and usage needs, this product offered some of the lowest domestic and international call rates with high voice quality.

DOMESTIC REVIEW
I am happy to report that the PIP launched in the middle of 2006 continued to bring in positive results. The Groups fixed services under

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We also continued to retain our leadership in VoIP through several festive promotions. Other product offerings included iTalk Buddy later in the year to cater to the youth segment with exciting interactive online features. As at end 2007, fixed-line customers continued to remain stable at 4.4 million while 401,000 new broadband customers were brought on board, resulting in a total broadband customer base of 1.3 million. All of these indicators showed we had consolidated our leadership in the broadband market. This provides solid foundation for TM as it positions itself to be Malaysias leading next generation communications provider focusing on aggressive implementation of HSBB products and services. On domestic mobile operations, Celcom for the first time delivered a healthy double-digit growth of 13.1%, with a revenue of RM5.2 billion. Celcom also moved to reach out to more customers by launching Malaysias first Mobile Virtual Network Operator (MVNO) in 2007 to provide a prepaid package to foreign workers in Malaysia i.e. those from India, Nepal, Sri Lanka, Pakistan, Bangladesh, Vietnam, Myanmar, Cambodia and Laos. This collaboration with MVNOs was a serious effort to step up sales in targeted segments where Celcom has lacked presence while utilising some excess capacity on its network. It was encouraging to note that Celcom added 1.1 million new customers in 2007, bringing its total customer base to 7.2 million another record, representing a growth of 18.0% from the 6.1 million posted a year before. Prepaid customers increased by 22.9%

or over 1 million net additions to 5.9 million from 4.8 million in 2006, while postpaid customers totalled 1.3 million at the end of 2007. Post demerger, Celcom has a big role to play. Celcom will provide a stable source of cash flow for TMI that will enable it to actively seek and capitalise on investment overseas in the region. Moreover, TMIs emerging mobile operations across the region will benefit from Celcoms expertise and allow it to serve as a strong base to groom talent and future leaders for TMI. For TM Ventures, steps were taken towards the re-integration of network system integration businesses of Meganet Communications Sdn Bhd into VADS Berhad. The year also saw TM Ventures completing the divestment of TM Payphone to Pernec Corporation on 31 December 2007.

to report that TMs overseas operations continued to grow, contributing RM5.0 billion or 26.2% to Group revenue as compared to 24.2% the previous year. The year 2007 saw our key overseas investments in Sri Lanka and Indonesia delivering encouraging performance. For the financial year 2007, Dialog and its subsidiaries (Dialog Group) posted a revenue of SLR32.5 billion, a growth of 26.6% as compared to SLR25.7 billion posted in 2006 despite its challenging operating environment. Dialog registered a year-on-year customer growth of 37.2% and further consolidates its leading position as the number one mobile operator in Sri Lanka with a total customer base of 4.3 million as at end of 2007. In Indonesia, the telecommunications industry recorded strong growth and XL enjoyed a boost to its customer base by adding on 62.4% more customers to breach the 15.5 million mark. XL posted a year-on-year revenue growth of 29.4% to Rp 8,364.7 billion for financial year 2007 arising from 62.4% growth in customer base as a result of the introduction of a nationwide single-tariff strategy which was well-received. XLs net income, however, decreased by 61.5% due to forex losses and the recognition of withholding taxes including penalty on off-shore interest in the 2007 financial year. By year-end, the number of XLs BTSs increased by 3,897 to bring the total to 11,153, achieving a 90.0% network coverage of the Indonesian population of 220 million. In Bangladesh, we saw valuable additions to our customer base despite more competitor activity, growing by 1.3 million in the year under review to exceed 7.0 million customers by year

INTERNATIONAL REVIEW
On the international front, the year 2007 closed with a number of positive indicators to reflect our favourable expansion in the countries where TM has a presence. Through TMI we forged ahead in 2007 to build on the activities of the previous years and focus particularly on revenue-generating growth strategies in Cambodia, Indonesia, Singapore, India, Pakistan and Thailand. Nevertheless, our regional operations were impacted by the pressures of growing competition and the entry of several new players into our markets, political issues and regulatory challenges in some countries, as well as forex losses as a consequence of a stronger Ringgit Malaysia against most currencies. Despite these challenges, I am pleased

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end. TMIB posted a revenue growth of 9.9% to BDT 14.4 billion as compared to BDT 13.1 billion recorded in the corresponding period last year. Over in Cambodia, where TMI just completed its acquisition of the remaining 49.0% in Telekom Malaysia International (Cambodia) Company Limited (TMIC) in 2006, a noteworthy development in the past year was a rebranding exercise revolving around the popular word hello. The new identity was designed to be the basis for a brand promise in this growing market, focusing on improved service quality through a number of hello points or shops, as well as a fundamental shift in direction. The rebranding campaign came along with increased investments of US$150.0 million to be spent from 2007 to 2009 to upgrade network capacity and extend coverage into the rural and provincial communities. In the year under review, TMIC achieved a 33.7% growth in revenue along with a 36.1% increase in the customer base to 311,650 at year end. Keeping to our commitment to create value for stakeholders, on the 2nd anniversary of Dialogs listing on the Colombo Stock Exchange (CSE), TM sold 4.6% of its shareholding in Dialog as an effort to boost liquidity of Dialogs shares and therefore passing on more opportunity of ownership to the Sri Lankan public. This liquidity enhancement will indirectly support the growth of the capital market in Sri Lanka by potentially attracting large foreign funds, thus enhancing the profile of the CSE, for its potential inclusion into global equity indices. At the same time, Dialog would be able to achieve a broader scale of public

ownership and project a strong image. Already the biggest company on the CSE, Dialog has moved into quadruple play and convergence services in Sri Lanka and has launched fixed wireless operations based on CDMA technology making it the first quadruple player in South Asia. We also witnessed the successful debut of our Indian affiliate company, Spice, on the Bombay Stock Exchange. The IPO enabled Spice, first founded in 1997 as a cellular services provider, to make debt repayments and fund growth in Karnataka and Punjab, the two circles it currently operates in. Applications for licences in 20 other circles as part of the companys pan-Indian strategy are pending. Following the listing in July, TMs shareholding was reduced from 49.0% to 39.2%, which tied in with the Groups philosophy of value-add to stakeholder communities in local populations. Spice is now in the process of reconstructing its culture to reflect that of a listed company, with greater incorporation of the tenets of good corporate governance and management best practices. The review of our international operations would not be complete without a mention of the effort by TM to take a lead role in the 17-member consortium of telcos to establish the first submarine cable system linking South-East Asia directly to the US. The 20,000-kilometre-long Asia-America Gateway is designed to help strengthen the communication and business linkages between Asia and the US, as well as increase broadband uptake and enhance the competitiveness of eight Asian countries.

KEY INITIATIVES
Shareholders will remember that early in 2006 we had noted a declining trend in our fixed-line revenue which was greater than the average when benchmarked regionally, and at the same time, faced competitive pressures from the domestic mobile segment. As an essential part of our response, we launched a five-year PIP in August 2006 to strengthen our domestic fixed business through a series of proactive measures, as well as regain our position in the highly-competitive mobile segment. In the first phase of PIP, the focus was to arrest the decline in the domestic business. For fixed services, the targets were to mitigate the decline in fixed-line revenue and drive broadband deployment aggressively. While for mobile business, the focus was to increase segment focus, spend and rejuvenate the Celcom brand and its distribution channels. PIP efforts begun in the middle of 2006 bore fruit in 2007 as the decline in fixed services was arrested mainly as a result of more aggressive sales and pricing stimulation. Stated objectives to drive broadband growth were also fairly successful, despite continuing churn in this segment, and the year 2007 ended with a cumulative broadband customer base of 1.3 million. Lastly, quality enhancements were delivered as promised and notably, achievement time to restore service to customers improved from 4.5 days in 2006 to 1.5 days in 2007.

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Meanwhile, PIP initiatives also impacted positively on Celcom. The year saw increased segment focus in both prepaid and postpaid as evidenced in the daily average prepaid recharge record of RM9.1 million posted in the year under review. Celcom adopted a bold new position with a rejuvenated branding strategy and reform of its distribution channels. The launch of Blue Cube resulted in greater awareness of its service offerings and as at the end of December 2007, 32 Blue Cube outlets were in operation nationwide offering virtual recharge. For TMI, it is yet to feel the full impact from PIP measures although XL, Dialog and TMIB have pushed for revenue growth, while throughout the Group, network optimisation through synergistic relationships and efforts to innovate and share common products and services were conspicuous. At the same time, our commitment to improving the quality of our customer service has never wavered. We completed the transformation of 104 TMpoint nationwide which serves as a one-stop centre for our customers to pay bills and find out more about our products and services. TM once again received recognition for its efforts in upgrading service quality. Continuing the tradition of previous years, TM won the top Frost & Sullivan Malaysia Telecoms Awards by being named Service Provider of the Year for the second consecutive year as well as the 2007 Data Communications Service Provider of the Year and 2007 Broadband Service Provider of the Year. TM capped this achievement by winning yet more awards at the 2007 Frost & Sullivan Asia-Pacific ICT Awards in

Singapore. It emerged as the first Malaysian company to receive the coveted Service Provider of the Year Award which recognised TMs commitment in delivering customer service not only in Malaysia but also in the Asia-Pacific region. Execution capacity of our people is key in making all our initiatives a success and this was given strong emphasis in PIP. In line with this, TM has put in place a lot of effort towards instilling a performance driven culture. This is supported by effective internal communications to ensure that all staff are well informed of the Groups key developments and aspirations. We believe that staff who are well informed are more motivated and understand how their roles fit into the bigger picture. In 2007, we introduced a new communication program, a series of "Teh Tarik" sessions to provide a platform for direct interaction between staff and me. It gave the opportunity to share knowledge, exchange feedback, ideas and provide explanation over specific topics. PIP is a success as TMs entire workforce rallied behind the program and took ownership of the initiatives that we set out to do. For PIP, we had 527 face-to-face briefing sessions talking to all staff across the Group to explain the program, motivate and get everyone to work towards the same universal targets set by the Company. Clearly, all measures that have been put in place have enabled a shift in the employees mindset towards becoming more performance driven.

GLOBAL & REGIONAL ENVIRONMENT

From a fairly buoyant performance in 2006, the global economic environment was fragile but thankfully stable in 2007 despite fears of a credit crunch in the US, rising oil prices, global recessionary trends, conflict tensions and growing concerns over the issue of climate change. The two Asian giants, China and India, grew 11.5 and 8.9% respectively, and secured leading positions as the worlds main growth engines. Nevertheless, even as the balance of power shifts from the traditional biggest economy in the world, USA, to the emerging economies of Asia and elsewhere, economic interdependence will still be vital to maintain orderly and sustainable growth in the global economy. Asia recorded a surprising overall growth of 9.8%, which compared favourably with the 8.7% achieved in the previous year, and augurs well for the development blueprints of emerging markets in Asia. Generally, the outlook for Asia remained bullish in the year under review, despite contrarian trends noted elsewhere particularly in Europe and North America, which became more apparent in the second half of the year. The ICT sector, meanwhile, remained in transition as players grappled to find sustainable business models in an increasingly convergent world. At the heart of this uncertainty were important decisions to be made towards migration to Next Generation Networks (NGN), be it at the core, transport or access networks. Many developing countries perceive NGN as an essential leapfrogging step towards closing the digital divide and helping economies become

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more resilient Information Societies. Companies such as TM continued to redefine and transform itself from the perspectives of strategy, operations and culture, in order to deal with the constant ebb and flow of change in the operating environment. As such, telecommunications service providers need to mount a search for new revenue streams from the increasingly popular triple or quadruple play bundled package of IPTV, voice calls and ultra-high-speed broadband Internet access. This calls for the accelerated roll-out of fibre networks closer to homes and offices. According to the ITU, mobile operators now seek to collect advertising revenue from the range of user-generated, socialnetworking and other content running on ever-higher speed broadband networks, which the ITU calls ultra broadband or broaderband technology. Growth in the ICT sector has been breathtaking over the last few years, aided by these continually changing technological developments and product and service innovations which are in high demand. There are also ongoing challenges in the ways in which these innovations are being delivered across multiple platforms and devices in response to new end-user lifestyle needs. By ITU accounts, at the end of 2006, there were nearly 4 billion mobile and fixed-line phone customers, plus over 1 billion Internet users worldwide. This included 1.3 billion fixed-line customers and 2.7 billion mobile customers. Revenue in the global telecom services and equipment market grew by an estimated 7.8% in 2006, reaching US$1.7 trillion and accounting for more than half of the total ICT market; of this, Asias share was 26.0%.

Our research shows that for 2007, mobile customers alone were expected to grow to over 3.3 billion, with over 60.0% coming from developing countries and around 50.0% from Asia. Revenue for the telecom market is expected to reach over US$1.8 trillion, growing 8.5%, with Asia recording an aboveaverage growth of 9.6%. Going forward, it is our expectation that regulators will seek to be more pro-growth and proend user, thus more liberalisation is expected in a convergence era. Further, the concept of technology neutrality and net-neutrality will come to the fore as regulation moves away from a oneservice-on-one network approach to multiple services running on multiple platforms. It is also worth noting that in a world of IP-based convergence, consumer protection and cybersecurity will be paramount. As always, these technological developments will impact not only how the industry continues to be regulated, but the way in which we do business ourselves.

Competition in Malaysia remained intense as players mounted price and branding wars to regain falling ARPUs and win back customers. The Malaysian market continued to move closer towards saturation with mobile penetration estimated at more than 80% at year end. Meanwhile, global and regional telcos and IT players were among the new entrants attracted to the local market, with some aiming for Malaysias Enterprise Market and others taking advantage of the demand for broadband services. Malaysias MyICMS 886 initiative in line with the 3rd Industrial Masterplan was focused on delivering broadband via all technologies, hence the push for WIMAX licences and spectrum allocations through the Malaysian Communications & Multimedia Commission. Further, regulatory compliance issues particularly in respect to Mobile Number Portability and Mandatory Quality of Service continued to impact on the operations of TM. With growing competition on the one hand and tighter regulatory supervision on the other, the year offered its fair share of demands and challenges. In such an industry, customers are service and price-sensitive, always expecting more for their money. As players fight for their share of wallet, they need to continually provide product and service differentiation and be savvy with micro-segmentation. We find that there is a demand for highlypersonalised and customised services, driven by content and community needs. Customers demand freedom of choice and in the process, operators can expect high churn.

DOMESTIC ENVIRONMENT
Malaysias GDP in 2007 grew by 6.3% mainly driven by strong private consumption, public sector spending and investment activities. The business outlook remained fairly cautious but was still positive, given that the consumer outlook continued to see encouraging spending behaviour. The ICT Industry (Services and Equipment) in the year under review was worth RM36.6 billion or 13.2% of Malaysias GDP, representing a hefty growth over the previous years RM23.9 billion.

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GOVERNMENT-LINKED COMPANIES TRANSFORMATION

Since the GLC transformation exercise began in 2004, TM has made clear progress towards the 10 overarching themes or improvement initiatives recommended for all GLCs. In essence, our transformation may be divided into three categories Strategic, Operational and Cultural. A key strategic change involved a shift of focus from overseas and international operations to regional investments or a presence closer to home. We began to assess the opportunities presented by emerging markets in South and South-East Asia, particularly those with high-growth potential. Towards this end, we successfully made three acquisitions in recent years in Indonesia, Pakistan and India. Additionally, we have also begun to sharpen our focus on growing our mobile and broadband business domestically. On matters of operations, we introduced PIP which not only set out specific roadmaps towards achieving our aspirations of becoming a domestic champion as well as a regional communications company of choice, but was also in line with GLC Transformation expectations. Cultural changes instituted by the Company in relation to work and performance have also been evident and brought about positive results. These included the need to set measurable targets, succession planning, driving performance consequence management as well as maintaining active employee engagement, among others. In summary, the GLC transformation initiatives have enabled us to deliver a much improved performance as evidenced by our results which have been on an upward trend since 2004.

CORPORATE GOVERNANCE & BOARD EFFECTIVENESS

TM has always prized its reputation as a leading company with a high respect for the principles of good corporate governance. This commitment has been reinforced alongside the rest of the GLCs in Malaysia, TM has duly complied with the principles and best practices as set out in the Malaysian Code on Corporate Governance first rolled out in 2002 and subsequently revised in 2007. Additionally, TM abides by the best-practice principles applied to GLCs as contained and prescribed in the Guidelines to Enhance Board Effectiveness, also known as the Green Book, which was launched in 2006. In recent years, TM has taken steps to strengthen its corporate governance in line with Green Book recommendations by reviewing the role and mandate of its Board, improving Board composition and balance, enhancing the performance management of the Board and also upgrading the Board structure and process. Besides strengthening the role of its Board, TM has also institutionalised the recommended board committees which include the Audit Committee, the Nomination & Remuneration Committee, the Tender Committee and the Employee Share Option Committee. Additionally, TM has in place a number of approved policies with respect to communications ethics, disclosure, whistle-blowers, investor relations and corporate responsibility. These provide guidelines and guidance to management in their day-to-day conduct. In recognition of its standing in this area, TM was once again recognised by the Minority Shareholders Watchdog Group of Malaysia which conducted a

study jointly with the Nottingham University Business School (Malaysia) and gave TM second place in its Corporate Governance Survey Report 2007. In a further show of appreciation for its commitment to good governance, TM was also conferred awards for the quality of its corporate and financial reporting. We clinched the Gold Award for the Overall Excellence category during the National Annual Corporate Report Awards (NACRA) 2007 held in Kuala Lumpur in November 2007. TM also took home the Industry Excellence Award for the Bursa Malaysia Main Board Companies category under the Trading & Services sector for the 11th consecutive time and the Gold Award for Best Designed Annual Report. TM also won the Excellence Award in the National Award for Management Accounting (NAfMA) 2007, beating nine other finalists to earn recognition for its best practices in management accounting. In its Compliance Statement, TM states that the Board will continue to strengthen governance practices to safeguard the best interests of shareholders and other stakeholders which is a move beyond mere compliance with the principles and best practices of the Malaysian Code on Corporate Governance.

CORPORATE RESPONSIBILITY
TMs corporate responsibilities (CR) have traditionally been centred around the three platforms of Education, Sports Development and Community/Nationbuilding. However, the practice of CR today takes into consideration all those internal policies and procedures that govern the Groups relations with its various stakeholder constituencies.

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Thus TM takes into account its role as an employer vis--vis its staff, and promotes good staff relations. In addition, it also ensures that several codes of conduct are in place to ensure sound and ethical business practices. TM has guidelines to support quality relationships with partners and vendors. It also practises transparent performance management and employee satisfaction schemes. Health and safety of the working environment are valued. In these ways, TM demonstrates that corporate responsibility is not an ad-hoc community project, neither is it about sponsoring programmes that merely promote its brand. In TMs response to the community as a whole, it considers seriously what constitutes good corporate practice and bases its decisions on business principles and ethics. I am proud to inform that TM recently won Merit awards for The Malaysian Business CSR Awards 2007 under the category of the Overall Winner and Best Innovation in CSR. Participating companies were evaluated based on their compliance with the environmental, and workplace regulations, contributions to the community at large, compliance and contributions to the marketplace, and compliance with ethical standards.

expected at a slower pace to 10% and 8.4% respectively, in the current year, given the effect of US recessionary pressures and a weakening dollar. This will be somewhat mitigated if Asia maintains the strength of its domestic demand from its sizeable population. Malaysia, meanwhile, is expected to maintain its growth momentum and achieve a 5.8% GDP growth rate for 2008. We can expect that the downside risks will come from any negative shocks to global capital markets arising from the US economic situation, as well as high oil prices. Trade and capital flows to emerging markets may be disrupted as a result. However, overall the world economy should be able to ride out these difficulties, provided economies do not resort to protectionist measures. The global ICT industry is expected to continue to grow favourably in 2008, albeit at a slower rate of 6.4% versus that of 2007s expected growth of 8.5%. This is due not only to the anticipated economic slowdown but also as a result of declining fixed voice revenues and given that fixed-to-mobile substitution does not compensate in terms of revenue gains in the mobile sector. Further, the migration of services onto IP platforms may also erode previous margins enjoyed in the traditional network as operators fight to deliver more value to the customers to secure their loyalty. The Internet will prove to be the new competitor to both fixed and mobile players as content and software come to the forefront of services. We can expect these to be key drivers in determining pricing schemes both for the consumer and enterprise markets.

Mobile broadband will gain increasing traction and fixed players will focus on rising above this threat by rolling out high-speed broadband networks and making the digital home a reality. Formidable threats will also come from the likes of Apple and Google who are re-shaping the way telecom companies ought to do business. Hence the onus will be on TMs RegionCo and other telcos to innovate and find way-forward solutions to deal with the changing nature of the competitive landscape and the changes in customer behaviour. On the domestic front, PIP initiatives will be accelerated to deliver more tangible outcomes in the fixed, broadband and data-related services as well as better Celcom delivery channels and customer experiences. On the international front, revenues will need to be driven aggressively in the face of mounting competition and economic and political uncertainties. Finally, demerger will cause a number of fundamental changes to be made, mainly at staff and operating level. Although it will be business as usual, there will be additional responsibilities for us all such as training and deployment of talents to new positions, new roles for management and the continuing effort to boost operational excellence and evaluate value-enhancing investment opportunities for the longterm. As two organisations operating in the knowledge economy, the prevailing challenge will always be to develop, attract and retain good talent and build a knowledge-centric workforce to ensure high executional capabilities. These would indeed be major considerations that will impact on the outlook for 2008. It would be fair to say that 2008 will be a crucial year in that

OUTLOOK FOR 2008

The sub-prime fallout in the US has cast a cloud on global economic prospects for the current year, with world growth expected to slow down to 4.8%. Nevertheless, predictions are that this will be offset by continuing growth in emerging market economies Asia in particular, which is expected to register growth of 8.8%. Despite record performance by the Chinese and Indian economies in 2006, growth can be

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TM going forward will be a different organisation, with two sets of financial reporting as its businesses successfully demerge. The prospects for TM, which encompasses the retail as well as domestic and global wholesale fixed-line voice, data and broadband services continue to be exciting. Having arrested declining revenue in 2007, TM aims to stabilise revenue and create momentum by focusing on Internet, Data Services, and Value Added Services for consumers and businesses in 2008. Additionally, efforts will be targeted towards implementation of HSBB network, in partnership with the Government of Malaysia. TMI is expected to continue to register further revenue growth in 2008, in line with its aspiration to become the leading regional mobile operator. TMI will continue to strengthen market share and improve its financial position in Sri Lanka, Bangladesh, Indonesia and Cambodia. TMI will also try to expand its presence in the South and SouthEast Asian regions by selectively looking for new investment opportunities. Although the domestic mobile industry is reaching saturation point, Celcom is expected to register revenue growth in 2008 through a combination of well crafted strategies targeted at specific customer segments, as well as the introduction of new and competitive products. However TMI will have to be mindful of the challenges and risks facing its international operations, where unfavourable changes in political regimes, regulations and currency exchange rates may have financial impact.

ACKNOWLEDGEMENTS
As announced, I will be retiring as the Group CEO of TM to take up the appointment as President and CEO Designate of Maybank effective 2 June 2008. At this juncture, allow me to express my sincere gratitude to Tan Sri Radzi, Dato Azman Mokhtar and other members of the Board for the trust and support extended to me from day one. Without such support, I wouldnt have been able to discharge my duties effectively. It has certainly been an honour and pleasure to serve the TM Group and to have worked closely with Tan Sri Radzi as the Chairman and fatherly figure of TM. I would also like to extend my utmost appreciation to all my colleagues in the Management Team and elsewhere throughout the TM Group for the opportunity to have led this Group for the past four years, and for their support and guidance. To the entire 35,000 TM Group employees, thank you for your support. I am glad that I had the opportunity to interact with you during the many dialog sessions during my tenure here. I especially cherish the 17 Teh Tarik sessions we had last year as the sessions provided us with an excellent platform to open up and communicate with each other. I wish to also record the appreciation of the TM community to all our stakeholders which includes the Government of Malaysia and other host governments, regulators, partners, suppliers, customers and local communities who have collectively facilitated the delivery of our brand promise.

As this is a watershed year, in that we move on as two companies postdemerger, it is incumbent upon me as retiring Group CEO, to also recognise the efforts of everyone who have gone before me in the effort to transform our legacy. I am happy with the fact that upon completion of the demerger, I will be passing the batons over to two capable leaders in Dato Zamzamzairani Mohd Isa and Dato Jamaludin Ibrahim. Dato Zam as the Group CEO designate of TM, has been in the telecommunication industry for more than 20 years. He has the benefit of looking at TM from both the inside and outside having been in TM during the Jabatan Telekom days before holding senior positions in several multinational companies and coming back to TM. While Dato Jamaludin as the Group CEO designate of TMI is a well-known corporate figure in Malaysia. He has extensive experience in the telecommunications industry, specifically the mobile business, both in Malaysia and internationally. With their wealth of experience and deep knowledge of the industry, I am confident that they will lead both TM and TMI to greater heights into 2008 and beyond. With the efforts of all our 35,000 employees behind us, we remain confident of the future for TM.

Dato Sri Abdul Wahid Omar Group Chief Executive Officer

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Malaysia Business Facts at a Glance

Overview
Broadband Internet Customers

Celcom Facts at a Glance

Overview
Total Customer Base

International Operations

Facts at a Glance
Operations

7.2 million + 18%

Total Revenue

Mobile Customers

1,265,308 + 46.4%

RM5,157.1 million + 13.1%

Prepaid Customer

32.6 million + 45.3%

PATAMI

5.9 million + 22.9%

Postpaid Customer

RM744.9 million + 19.7%

1.3 million + 8.3%

Business Review

MALAYSIA BUSINESS CELCOM (MALAYSIA) BERHAD INTERNATIONAL OPERATIONS GLOBAL CABLE SERVICES, INTERNATIONAL INVESTMENTS & PRESENCE

148 158 166 184

TM VENTURES 186 INTERNATIONAL & 202 DOMESTIC INFRASTRUCTURE & TRUNK FIBRE OPTIC NETWORK ASIAN ECONOMIES AND THE TELECOMMUNICATIONS SECTOR: REVIEW & OUTLOOK 204

TM Ventures Facts at a Glance

Overview

EBITDA

RM462.3 million + 114.6%

PATAMI

RM189.5 million + 247.1%

A Galaxy of Colours
It is said that looking into the Paua shell is like stepping into a galaxy of shimmering colour. One should be prepared to be entranced by its constantly changing hues, light and shades. The radiance and iridescence of the Paua is as limitless as the imagination.

A Universe of Possibilities
One needs to be given the key to unlock the imagination and to look beyond fixed and mobile services once there, you will begin to catch a glimpse of the vast potential Broadband is capable of delivering. As the appetite for high-speed broadband grows, Malaysians will be empowered for the future a future where there are no limits, only endless possibilities.

Business Review

Malaysia

Business

DATO ZAMZAMZAIRANI MOHD ISA

CHIEF EXECUTIVE OFFICER Malaysia Business

Facts at a Glance
Overview
Broadband Internet Customers

OVERVIEW
Malaysia Business (MB) was established in August 2006 as a Strategic Business Unit (SBU) to consolidate all TMs domestic fixed services under a single leadership team. The establishment of Malaysia Business was also a strategic response to address the challenges faced by the domestic business, particularly in the fixed sector. By creating a focused and dedicated team under the leadership of one CEO, TMs strategic priorities for the domestic market could be better aligned and decision making would also be improved. As a result, performance improvements were noticeable in the year under review.

1,265,308 + 46.4%

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FINANCIAL PERFORMANCE
Having launched its Performance Improvement Programme (PIP) in August 2006, and continued its initiatives into 2007, MB successfully arrested revenue decline in its fixed operations as part of the turnaround plan. In the financial year ended 31 December 2007, operations under MB recorded revenues of RM7.6 billion, an improvement of 2.0% over 2006. This led to EBITDA of RM3.0 billion for the year. However, EBITDA margins declined by 5.0% from 2006 as a result of corresponding increase in direct costs and higher support costs as well as one-off costs and bad-debt provisions. Voice remained the key revenue generator for MB in 2007, contributing 64.2% to the units income which, although substantial, represented a drop of 4.5% over the revenue contribution registered in 2006 due to continuing migration to mobile and Internet-based communications. However, the decline was much lower compared to the 6.5% decline registered in the year before.

In line with industry trends showing consumer preferences for Internet and multimedia services, revenue from this segment posted a strong year-on-year growth of 22.7%, contributing 14.1% of the total operating revenue as compared to 11.7% in 2006. A growth of total broadband customers comprising Streamyx, Streamyx Hotspot and Direct customers to 1,265,308 was recorded in 2007, representing a marked 46.4% improvement over the previous year. Data contributed 14.7% of revenue for MB, while other telecommunication and non-telecommunication services contributed the remaining 7.0% of revenue. Total cost in MB including depreciation for the financial year ended 31 December 2007 increased by 4.9% from 2006 to RM6.6 billion in 2007. The increase in cost was due to increases in direct and operating cost, as well as higher provision for bad and doubtful debts. Positively, there were decreases in supplies and materials costs as well as lower depreciation and amortisation charges.

Driven by the need to align businesses with a common agenda as well as to capitalise on synergies, MB continues to focus on three core business segments namely retail, domestic wholesale and global business.

RETAIL
Servicing key retail customer segments namely consumers, SME, enterprise and government, MBs retail business concentrated on sales activities and building customer relationships in the year under review.

CONSUMER SEGMENT
VOICE SERVICES In 2007, MB increased its efforts towards arresting the decline in fixedvoice usage and sustaining a stable fixed-line customer base. One of its major initiatives was the introduction of the successful Lets Talk campaign aimed at rejuvenating the usage of fixed-line services. Lets Talk was offered in several packages to suit different customer lifestyle and usage needs, including some of the lowest domestic and international call rates with high voice quality. As a result of the aggressive promotional activities under this campaign, MB experienced a positive change in behaviour towards fixed-line usage, particularly evident in the increase of fixed-to-fixed calls. MB also continued to retain its leadership in the prepaid VoIP market through several promotional offers especially during festive seasons. In conjunction with the Visit Malaysia Year 2007 campaign, MB introduced iTalk Travellers featuring a new range of iTalk special edition card designs of Malaysias attractions, mainly to serve inbound tourists. More product enhancements followed, with MB

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Frontliner Goes to Customer, an innovative programme designed to enhance customer interaction using high-tech wireless tablet PCs that function as a virtual counter to assist customers with simple enquiries and introduce TMs latest product offerings. The PIP also focused on delivering an improved reseller programme with clear guidelines and selection criteria of resellers that enabled MB to push for further reach of its sales activities.

SME SEGMENTS
VOICE SERVICES For the SME segment, MB offered a range of customised call plans such as Merdeka Plan and Smartcall package to allow customers to get in touch with their clients and business associates at attractive low flat rates. These call plans managed to protect fixed-voice usage from the continuous threat of alternative voice service providers. In terms of total revenue performance in this segment, MB managed to record a slower yearon-year decline rate from negative 6.4% in 2006 to negative 1.3% in 2007. INTERNET/BROADBAND SERVICES Internet services such as Streamyx continued to be heavily promoted by MB to drive penetration of broadband Internet in the SME sector. Promotional packages included product offerings designed for small business performance such as the SOHO and Business Broadband packages. DATA SERVICES & SOLUTIONS Whilst the growth of traditional data services was challenged by price erosion, MB continued to evolve its data services by providing managed

Service with a smile

launching iTalk Buddy later in the year to cater for the youth segment with exciting interactive online features. MB also entered into a collaboration with AmBank (M) Bhd to launch NexG-iTalk Prepaid MasterCard which provided consumers with a new avenue to shop and call at the same time. As a result of these activities, the overall year-on-year revenue experienced a slower decline from negative 13.2% in 2006 to negative 11.4% in 2007. INTERNET/BROADBAND SERVICES MB registered significant Internet growth in 2007 to reach a total customer base of 1.3 million by December 2007. The growth was driven by aggressive broadband promotions and sales activities such as the Streamyx Super Duper Deal and an improved reseller programme under the PIP initiative. The promotion was aimed

at encouraging higher adoption of broadband services among Malaysians by giving customers extra value in an all-in-one digital lifestyle package. MB also teamed up with several partners to expand its Streamyx Hotspot coverage, giving customers more options to access the Internet at their favourite locations. The customer growth of Streamyx Hotspot in 2007 also indicated a growing popularity of wireless computing through laptops and other mobile devices among Malaysians. SALES & MARKETING In terms of sales, MB focused on two nationwide events namely the TM Syoknya Fiesta and Lets Talk Road Show to serve as platforms to create awareness and introduce various TMs products and services to the population. As part of its customer service improvement drive, MB introduced

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Smartcall were used effectively to manage voice churn as well as to satisfy customer needs for cost efficiencies. DATA SERVICES MB launched Metro Ethernet Services, a Carrier Class Ethernet standard-based technology, on 17 May 2007 offering high-speed and secured connectivity bandwidth ranging from 4.0Mbps up to 1Gbps. With these services, customers can add on bandwidth in multiples of 1.0Mbps whenever required, a concept called bandwidth on demand. TM Metro Ethernet services are offered on private networks and as connectivity-based solutions. Meanwhile, MB also worked in partnership with value-added solution service providers to offer applications alongside its networking services. Among the solutions on offer are managed security services, bandwidth management applications and managed storage services. With a strong account management team, MB managed to grow its yearon-year data revenue from negative 0.1% in 2006 to 15.3% in 2007 in this segment. The contribution was mainly due to up selling opportunities and timely project completion, resulting in revenue realisation within 2007. SALES & MARKETING ACTIVITIES Sales and marketing activities were directed towards establishing outstanding customer relationships supported by personalised and experienced sales teams to handle enterprise customers. MB also embarked on a sales incentive programme to further motivate its sales personnel.

networking services and solutions such as TM IPVPN range of networking solutions, hosting and e-commerce applications. As SMEs expanded their business, the growing need for accessibility and efficiency were met by MBs data services and solutions. As a result of its efforts, MB experienced a slower data revenue decline from negative 11.9% in 2006 to negative 0.5% in 2007. SALES & MARKETING ACTIVITIES The SME market presented a clear opportunity for MB in the year under review. Annual Industrial Business Solution Seminar and SMI Biz Net activities were conducted to promote new business solutions to the SME community as well as to improve customer interaction and further understand their business needs to recommend the most appropriate solutions. SME Save N Grow loyalty programme was an innovation to further assist SMEs in their quest for business growth while establishing a sense of

partnership with existing customers. In 2007, SME Save N Grow members reached 58,000. Membership benefits included the following: (a) (b) Cost savings on telecommunications services. Business consultation CDs to assist members in streamlining their business processes and grow their business. Invitations to enrol into skillbuilding programmes in the areas of finance, marketing and IT. Cost savings and business enhancement tools via partners offerings on financial, insurance, logistical and office security systems. Use of TM facilities to conduct business meetings and seminars.

(c)

(d)

(e)

ENTERPRISE & GOVERNMENT SEGMENTS

VOICE SERVICES A major thrust for the year was retention of revenue and supporting customers business by providing competitive call rates and high service quality. Customised call plans such as

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DOMESTIC WHOLESALE BUSINESS

Overall, the Domestic Wholesale Business or DWB posted a lower revenue of RM18.4 million against 2006 mainly due to lower achievement of PSTN Minutes and VoIP revenue and slow take-up on DSL Wholesale services. However, domestic interconnect revenue achieved 6.0% growth from 2006 to 2007. This was mainly contributed by improvements in categorisation of call types. VOICE VoIP traffic minutes DWB provides the facility for VoIP Service Providers to establish and operate voice calls and fax services as well as a range of value-added applications. Utilising TMs extensive domestic network coverage, DWB offers VoIP Access that enables voice connectivity over VoIP platform, a more cost-effective solution for the wholesale market. With its established Clearing

House service, VoIP Premium service, extensive network of partners and coverage, DWB is well positioned to serve the domestic licensed carriers business needs. Interconnect service In addressing growing competition in the existing telecommunications market, DWB has positioned itself well through its competitive interconnect services where licensed carriers can now interconnect fixed and mobile voice, ISDN and fixed SMS services. INTERNET/BROADBAND SERVICES Broadband Targeting Internet Service Providers (ISP), Network Service Providers (NSP) and Application Service Providers (ASP), the broadband service delivers DSL connectivity from end user Remote Terminal Units up to the TM IP network platform. At the end of 2007, DWB had delivered 1.6 million broadband ports nationwide.

DATA SERVICES Bandwidth Services As the main wholesale bandwidth services provider and with the progressive demand for higher bandwidth services especially to bring wireless services like 3G to end customers, DWB is offering a reliable and managed transmission media via Dense Wave Division Multiplexing (DWDM) across the country. However, DWB still continues to offer narrowband, broadband and optical bandwidth services over its legacy technology platform such as Digital Data Network (DDN) and Synchronous Digital Hierarchy (SDH). Data Services As one of DWBs technological breakthrough solutions, data services address the connectivity needs of customers over geographically-diverse sites. The domestic data services offered include Frame Relay, ATM and MPLS based IP networks to fully integrate customers networking needs. Wholesale Ethernet service is available to support TM products and service packages such as TM Direct, TM IPVPN and Digital Home services. INFRASTRUCTURE SERVICES Infrastructure services allow for a customers nationwide network expansion in a timely and cost-effective manner. It is gaining popularity as a substitute for infrastructural development through infrastructure sharing, network co-location and tenancy services. DWB provides the entire support infrastructure for customer equipment that ranges from tower space for fixed antenna and microwave dishes, power supply, climate control and building management.

Bringing the web into schools

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Enhancing vendor relationships

GLOBAL BUSINESS
MBs Global Business (GB) has a continuing focus to drive new revenues while maximising TM assets in submarine cable systems, data centres and satellite earth stations. In 2007, GBs revenue achievement increased by 30.4%, compared to 2006. This was mainly due to high growth in bilateral voice and bandwidth businesses. VOICE GB provides voice services on two platforms namely, PSTN and VoIP. GBs core voice function is to ensure line-cost reduction and profitability for TMs international outbound voice traffic generated from its retail and domestic wholesale business entities, as well as addressing the International Carrier Wholesale market in respect of hubbing traffic business. The performance of GBs voice traffic business was largely contributed by high growth in hubbing traffic and other initiatives as detailed below: 1. Demand for Bangladesh traffic increased as a result of regulatory action to cut off all grey routes. Business collaboration with TMI subsidiaries and Celcom to route their organic traffic through GB.

3.

Contribution of value-added services, successful alliances with carriers on delivery of premium services via VoIP and upgrading of TMUSA Softswitch. Streamline Volume Commitment that limits the mass availability of Malaysia fixed-voice traffic supply, resulting in stability of Malaysia fixed-voice market rate. Implementation of automated routing and monitoring tools for integrity control of GB voice business.

The service is offered with a dedicated access link to customers from its global point of service with speeds ranging from 64kbps up to 10Gbps via submarine cable systems, satellite services and in-country local leased circuits or Metro Ethernet connections. In addition, the product also provides options for bundling with Global Co-location, Managed Router, and IPv6 Transit services. IP Transit Point of Services Region Asia Country of Presence Malaysia Singapore Hong Kong Japan Korea Jakarta* Palo Alto San Jose Los Angeles Ashburn New York* London Amsterdam Sri Lanka Bahrain* Egypt*

4.

5.

North America

INTERNET/BROADBAND SERVICES Global IP Transit In support of the rapid demand for Internet access requirement from regional markets in 2007, TM repositioned Global IP Transit service as one of its premium core service offerings. Riding on ATOM (Any Transport over MPLS) IP network platform, it currently supports Streamyx service international requirements and is recognised as one of the leading carriers in the region.

Europe

South Asia Middle East

* Provided through Global Ethernet network

2.

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DATA SERVICES International bandwidth services Enabling contact beyond Malaysian shores, a range of bandwidth services is offered via TMs extensive international network infrastructure, which includes a combination of terrestrial, submarine fibre optic cable systems and satellite. Accentuating One Stop Shopping (OSS) and Full Channel Service (FCS), international bandwidth services link Malaysia to any destination in the world. TMs major submarine systems are SMW3, SMW4, SAFE/WASC/SAT-3, APCN2, JUSCN, CUSCN, DMCS and BRCS which connect Malaysia to North and South Asia, Europe, Africa, Middle East and United States of America. To meet the growing demand, TM is also in the process of upgrading SMW4, APCN2 and SAFE submarine cables, expected to be ready as early as 2009. International Private Leased Circuit (IPLC) TMs IPLC offers high-speed dedicated digital connections not only from Malaysia to the world but also links one country to another via the global artery of vital submarine cable systems. International Satellite Services With more than 10 satellites over Asia, TMs Bandwidth via Satellite services offers a point-to-point dedicated connectivity from Malaysia to the world. TM utilises major satellite systems such as MEASAT, INTELSAT, PANAMSAT, ASIASAT and JSAT which provide footprints to most locations around the world. Global VSAT offers a satellite-

based Single Channel Per Carrier (SCPC) technology, which uses a Very Small Aperture Terminal (VSAT) antenna and indoor unit to provide reliable multi-way communication links globally. Bandwidth Transit Bandwidth Transit is a fast and reliable connectivity solution that is established in one country and terminates in another country while transiting via Malaysia. Bandwidth Backhaul Bandwidth Backhaul is a focused and dedicated capacity solution between Cable Landing Stations or Border Stations in Malaysia which the customer owns or Indefeasible Right of Use (IRU) capacity within the international submarine cable system or border facilities.

Global IPVPN TMs Global IPVPN is a cost-effective managed networking solution that offers a simplified, secured and scalable communication network. In 2007, TM continued to expand its own node in Sri Lanka to penetrate the IP market in the South Asia region. This will complement the existing node that has been located in the Middle East, North Africa, Europe, US, ASEAN and North Asia regions. In order to expand global reachability, Network-toNetwork Interconnection (NNI) initiatives have been initiated to allow TM and its partners to leverage on each others extensive IPVPN networks. A strategic NNI project has been successfully implemented with AsiaNetcom, ACASIA and C&W. Under this arrangement, TM can now offer its customers enhanced and seamless services covering a much wider service area.

Exploring possibilities with broadband

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Broadband wherever you are

PROSPECTS
Overall, the Malaysia fixed services market is expected to grow in 2008, with a strong bias towards data and broadband across all customer segments. MB is ideally positioned to capitalise on these growth opportunities, with its leading position in basic voice, broadband and data services, providing a springboard towards becoming Malaysias leading next generation communications provider, embracing customer needs through innovation and execution excellence. MB will enrich consumer lifestyles and experiences, improve performance of its business customers by providing next generation services, high-value solutions and upholding customer-driven principles. 2008 will be an important year for MB as it participates in the strategic demerger exercise and embark on its next wave of PIP anchored on two thrusts: Enhancing commercial excellence to drive topline revenue; and Driving operational excellence towards stronger cost and profitability management.

Enhancing commercial excellence to drive topline revenue. For retail business, focus for the consumer and SME segment is to maintain strong broadband growth and stabilise the voice decline, whereas in the enterprise segment, new opportunities lie in the managed services and business process outsourcing areas. In the domestic wholesale business, the priority is to maintain current leadership position and capture growth opportunities in voice and bandwidth services. For the global business, the focus is to grow beyond current existing businesses. Driving operational excellence towards stronger cost and profitability management. Initiatives planned for the year will focus on driving procurement excellence, deploying lean network and business operations best practices and enhancing quality and customer service operations. The overarching control framework across each business lines will be strengthened to ensure tighter cost and profitability management.

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A Thing Of Beauty
Rated as the most beautiful of all pearls, the Blue Pearl is truly unique. It is only the Paua that can produce pearls of its fine quality and spectacular luster whilst its natural occurrence is exceedingly rare. Thus every pearl represents something borne from patience, perfection and careful nurturing.

A Crown Jewel
Celcom represents one of TMs finest creations. Determined to revolutionise Malaysias mobile industry, Celcom has established its leadership, and offers some of the most innovative products and services. It is indeed one of TMs crown jewels. While Celcom can attribute its shining success to its rich potpourri of skills, creativity and technology, a key stimulus comes from the recognition of its full potential by TM. With careful nurturing and shaping, Celcom has been unleashed to carve a new future for itself.

Business Review

Celcom

(Malaysia) Berhad

DATO SRI MOHAMMED SHAZALLI RAMLY

CHIEF EXECUTIVE OFFICER Celcom (Malaysia) Berhad

Facts at a Glance
Overview
Total Customer Base

7.2 million + 18%

Total Revenue

OVERVIEW
Celcoms performance in 2007 was its strongest in recent years. The turnaround efforts started in 2006 were further intensified, and the sustained momentum resulted in a record-breaking performance beyond market expectations.

RM5,157.1 million + 13.1%

Prepaid Customer

5.9 million + 22.9%

Postpaid Customer

1.3 million + 8.3%

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Celcoms successful implementation of the Performance Improvement Programme resulted in aggressive sales and marketing activities, intensified initiatives to reform distribution channels and efforts to implement a segment-focused brand strategy. As a result Celcom strengthened its market position, providing a strong foundation for further growth in 2008. Celcom continued to maintain its leadership in coverage and network quality both in terms of 2G, 2.5G, 3G and HSDPA, customer service standards have been taken to new heights and the overall brand perception is at the highest ever recorded. 2007 also saw Celcom leading the industry in initiating a number of industry-firsts. Celcom was the first operator to rollout its own branded retail stores, Blue Cube. Celcoms partnership strategy resulted in

Malaysias first MVNO, and the first nationwide domestic roaming agreement. Celcom was also the first operator to launch the concept of branded customer service, introducing the Anna icon. Its innovative broadband and data strategy also resulted in the introduction of the first daily use and monthly capped data plans.

FINANCIAL PERFORMANCE
The Celcom Group delivered a commendable performance for the financial year ended 31 December 2007, despite an environment of mounting and intense competition. The Group chalked up 3 significant record achievements: profit after taxation exceeded RM1 billion, revenue surpassed the RM5 billion mark, and its total customer base expanded to over 7 million. Profit after tax and minority interests of RM1,051.6 million represented a healthy and significant growth of 28.8% from the RM816.4 million posted in the last financial year. This was attributable to a strong growth momentum in revenues during the year. Total revenue, includes other operating income posted for the year grew by 13.1% from RM4,560.1 million in 2006 to RM5,157.1 million in 2007, the highest recorded to date. Revenue growth came mainly from the buoyant prepaid segment, which recorded an increase in the customer base of 1.1 million or 22.9%, bringing the total number of prepaid customers to 5.9 million from 4.8 million previously.

The postpaid segment presented a challenge for Celcom in 2007 with increasing price pressure and aggressive competition. Despite an erosion in the customer base during the first half of the year, the introduction of various new innovative postpaid products in the second half resulted in the trend being reversed, successfully addressing the decline, and even resulting in net postpaid growth for the year. On a net basis, postpaid customers grew from 1.2 million in 2006 to 1.3 million as of December 2007. As at 31 December 2007, Celcoms cumulative customer base exceeded the 7 million mark, growing by 18.0% from 6.1 million to 7.2 million customers. The stronger revenue base coupled with continued cost control resulted in Celcom posting an earnings before interest, tax, depreciation and amortisation (EBITDA) of RM2,310.6 million in 2007 from RM1,962.9 million in 2006, an improvement of 17.7%. In line with this, EBITDA margins also improved from 43.0% to 44.8% in 2007. In September 2007, Celcom distributed RM730.1 million in cash to its shareholders by way of a capital repayment exercise. This has resulted in an improvement in a number of key financial indicators namely earnings per share and return on equity, from 36.1 sen to 66.6 sen, and from 32.1% to 37.9% respectively.

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OPERATIONS
Leveraging on its leadership in network coverage and 3G, Celcom continued to expand its network capacity to meet the surge in demand for its services. Its leadership in the mobile sector was further reinforced when it won the best T2 service provider among cellular operators in 2007, an award conferred by the Malaysian Communications and Multimedia Commission (MCMC). Capitalising further on its strengths, Celcom launched its new Unbeatable campaign, which emphasized the companys superiority in speed, coverage, rates and service. The campaign was a huge success and featured Celcoms latest line-up of Power Icons such as Ryan Giggs, John Terry, Wang Lee Hom and Peterpan. In 2007, Celcom also unveiled its new Branded Customer Service initiative aimed at providing a total customer experience. In line with this, Celcom introduced Anna, its Customer Service Ambassador, an icon who represents the very essence of excellent customer service, being courteous, attentive and helpful. During the launch of this innovation, Celcom also introduced other customer service initiatives from online web registration for postpaid customers, to free calls to its contact centre throughout the day. New uniforms in line with the new Branded Customer Service also drew attention as did the launch of nationwide kiosks for cash, cheque and credit card payments.

Mobile connectivity enhancing ones options

In 2007, Celcom also launched Channel X, the New and Ultimate Mobile Content Channel, offering customers the latest mobile content and downloads ranging from music and movies to games. Channel X is the first cross media content brand which allows customers to experience mobile content via the Internet, mobile WAP, TV and radio. The Channel X portal is accessible at www.channelx.com.my or by dialing *118# from mobile phones. XPAX The Xpax prepaid product continued to be the main contributor to Celcoms overall revenue. This was mainly due to the success of the Xpax Bonus campaign which featured four different bonuses Every Month Bonus, Birthday Bonus, Reload Bonus and Stay Active Bonus. As a result, the prepaid customer base grew by 22.9%, to 5.9 million. The Xpax Who Says campaign was also another major success aimed at repositioning Xpax as the only prepaid that offers the best rates, the widest coverage, the fastest network and the best bonuses.

In an effort to reach out to the foreign workers segment, Celcom also introduced targeted packages and customised promotions for the Indian, Indonesian and Filipino communities. SALES On the sales front, 2007 saw the continuation of Celcoms dealer incentives programme, which was a key success factor in the turnaround experienced by the Group in the second half of 2006. Celcoms retail universe also grew to exceed 15,000 outlets. Celcom also introduced the innovative Blue Cube retail store concept, aimed at revolutionising telecommunications retailing by providing consumers the chance to experience cutting-edge technologies. Blue Cube is a powerful one-stop concept store for lifestyle mobile devices, 3G services and mobile content. It is the first concept store which allows consumers to experience, touch and feel the full range of mobile lifestyle products and services from Celcom. As of December 2007 over 30 Blue Cube outlets have been established nationwide.

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Complementing Blue Cube, over 70 micro kiosks have been constructed and situated strategically at all major shopping centres throughout the country, reinforcing Celcoms brand presence within these key locations. Introduction of Celcoms easy reload anchored by a newly developed online recharge platform with a capacity of 1.2 million transactions per day has also resulted in a stable performance in-market. CELCOM BUSINESS Despite an increasingly competitive environment, Celcom continued to grow its presence in the Enterprise market and is believed to be the countrys largest business mobile provider by revenue. The Celcom Business name was introduced in 2007 to crystallize the divisions product offerings, service commitment and overall value proposition to business customers. This involved further enhancement of its product portfolio marketed under the PowerTools brand and diversification away from basic voice and data connectivity to higher value-added services and business applications. This repositioning was reinforced by the introduction of a Customer Service Charter with defined service level commitments for large corporate customers. Celcom Business enjoyed robust growth of advanced data services in 2007. It recorded the fastest BlackBerry sales growth in the region and secured large machine-to-machine (M2M) customer contracts for remote meter reading, vehicle tracking, and wireless POS and

ATM connectivity. Core voice product sales in 2007 were also boosted through channel expansion, with the creation of a Value-Added Reseller programme and tie-ups with regional and national Associations. CELCOM BROADBAND Recognising the increasing demand for anytime, anywhere broadband connectivity, Celcom launched its branded broadband service, Celcom Broadband in July 2007, for both business and personal connectivity. The product provides the best value offering, providing a fully mobile, high speed broadband offering at affordable rates.

Bringing the community spirit into schools Celcom XCHANGE

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Celcom Broadband provides speeds up to 3.6Mbps based on High Speed Data Packet Access (HSDPA) technology, with the widest 3G and HSDPA in the country, covering approximately 60% of the population. Celcom Broadband customers can also roam globally on 2.5G or 3G networks over 168 operators and 59 operators respectively. A unique feature of the broadband offering is that customers have the flexibility to choose either a Celcom Broadband modem, or to use their existing 3G phones as a modem. Celcom successfully launched a variety of innovative pricing packages providing simple consumer propositions, meeting the needs of all consumers: light users, can opt for a pay-per-use plan, with capped monthly charges; occasional users can opt for Malaysias only daily unlimited plans whilst heavy users can opt for either of two monthly unlimited packages with speeds up to 384k or 3.6Mbps respectively.

STRATEGIC ALLIANCES To widen its reach and take advantage of new business opportunities, Celcom formed alliances with several major corporations. In 2007, Celcom became the first and only mobile operator in Malaysia to join forces with various Mobile Virtual Network Operators (MVNOs) to complement Celcoms existing business. A MVNO targeting foreign workers was launched with Merchantrade Asia Sdn Bhd in July 2007, whilst MoUs have been signed with REDtone and Tune Talk, targeted to launch in 2008. These alliances will allow Celcom to further concentrate on specific target segments for its core brands, whilst allowing it to penetrate new markets via partners. Furthermore, Celcom also signed Malaysias first-ever nationwide domestic roaming agreement with UMobile Sdn Bhd (formerly known as MiTV Networks Sdn Bhd). UMobile customers will now be able to roam on Celcoms superior 2G network. Celcom also entered into a MoU with Tune Money to launch Malaysias first Mobile-enabled Prepaid Visa card, to be launched in 2008.

Celcom Broadband Anytime Anywhere

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PROSPECTS
The year 2008 is anticipated to be an exciting and challenging year in the Malaysian mobile telecommunications industry. In addition to the expected launch of the Mobile Number Portability (MNP) exercise and the entrance of various MVNOs, two other 3G operators are expected to fully launch their services in competition with Celcom. These developments are expected to intensify the already competitive nature of the telco industry, thus forcing mobile operators to become more aggressive and more segment-focused especially in customer acquisition in an increasingly saturated marketplace. Despite the likely industry challenges in 2008, Celcom believes that the initiatives and strategies implemented will form a strong foundation for continued strong performance. For 2008, Celcom aims to:

focus on value retention and growth while maintaining profitability by prioritising key market segments expand the enterprise business via partnerships and increased customisation. work towards improving customer retention by leveraging on the initiatives introduced in 2007. continue to upgrade the distribution network and create new channels, enhancing operational processes and implementing cost-saving synergies. expand its leadership in mobile broadband and increase usage in mobile data services and content. Create new revenue streams in m-commerce and mobile advertising.

Celcom is also confident that postdemerger, being part of a focused mobile operation, RegionCo will provide further opportunities for value creation via identifying and implementing regional best practices and by working in closer collaboration with other TMI companies to realise cost saving opportunities.

Celcoms simple and innovative pricing packages

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Greatly Appreciated
While the Blue Pearl can only be found in one species, its fame is not as limited. Across the world, people covet it for its almost unearthly beauty as much as for its rarity. No matter what the reason, the Blue Pearl will never be a mere purchase. It will be a treasure for always. That is because its monetary value is paled by its intrinsic quality.

Regional Appeal
In the business of communication, there is a constant need to expand reach. Through years of dedication and strong partnerships TM has established an intricate and extensive communication network and a portfolio of mobile assets across the region. This track record has earned TM recognition as one of the leading Asian telcos. But more importantly, through adherence to high standards, TM is better known and trusted for the intrinsic quality of its brand.

Business Review

Operations

International

DATO YUSOF ANNUAR YAACOB

CHIEF EXECUTIVE OFFICER TM International Berhad

Facts at a Glance
Operations
Mobile Customers

OVERVIEW
TM International Berhad (TM International) oversees the Groups international operations and investments in nine Asian countries Sri Lanka, Bangladesh, Indonesia, Cambodia, Pakistan, India, Iran, Singapore and Thailand. The year 2007 saw the Company building on the previous years acquisitions and focusing on post-acquisition implementation activities. Among the highlights were the successful listing on the Bombay Stock Exchange of TM Internationals Indian associate, Spice Communications Limited in July and the announcement of the demerger between TM and TM International in September. In December, TM International was converted into a public company.

32.6 million + 45.3%

PATAMI

RM744.9 million + 19.7%

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AS AT 31 DECEMBER 2007 Company PT Excelcomindo Pratama Tbk. Dialog Telekom PLC TM International (Bangladesh) Limited Telekom Malaysia International (Cambodia) Company Limited Multinet Pakistan (Private) Limited Country Indonesia Sri Lanka Bangladesh Cambodia Pakistan Business Cellular Quadruple play Cellular, ISP Cellular Long Distance/ International voice; Broadband Cellular Cellular Cellular Mobile content and mobile telephone distribution Holding company Effective interest 66.99% 84.81% 70.00% 100.00% 89.00% Customers 15,468,600 4,259,529 7,183,382 311,650 - na -

Spice Communications Limited MobileOne Limited* Mobile Telecommunications Company of Esfahan Samart I-Mobile Public Company Limited**

India Singapore Iran Thailand

39.20% 29.69% 49.00% 35.58%

3,800,633 1,535,000 30,568 - na -

Samart Corporation Public Company Limited

Thailand

18.97%

- na -

* TM International and Khazanah Nasional Berhad jointly have a shareholding in M1 through a Company known as SunShare Investments Ltd. On 6 February 2008, TM International and TM Internationals indirect wholly-owned subsidiary, Indocel, entered into a Sale and Purchase Agreement (SPA) with Khazanah to acquire all of Khazanahs equity interests in SunShare and XL, to be satisfied through the issuance of new ordinary shares of RM1.00 each in TM International. ** TM International held directly 24.42% equity interest in Samart I-Mobile Public Company Limited (SIM). TM International also held indirect equity interest in SIM of 11.16% (2006: 10.90%) by virtue of its equity interest in Samart Corporation Public Company Limited.

OPERATIONAL HIGHLIGHTS
International operations continued to record an impressive number of mobile customers in the year under review. International operations attracted 32.6 million customers as at end 2007, an increase of 45.3% from the 22.4 million customers the previous year. For the financial year ended 31 December 2007, international operations recorded operating revenue of RM4,987.2 million compared to RM4,165.4 million the previous year. This translated to a growth of 19.7%.

Profit After Tax and Minority Interest (PATAMI) from international operations stood at RM744.9 million in 2007 compared to RM677.5 million in the year before. The strengthening of the Ringgit against other local currencies in 2007 had adversely affected the Groups numbers in Ringgit terms. The stronger Ringgit has resulted in lower translated revenue and PATAMI numbers by 7.9% and 3.8%, respectively.

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Satellite farm Cyberjaya

CONSOLIDATION ACTIVITIES
After a succession of acquisitions in Indonesia, Singapore, Pakistan, Cambodia, Thailand and India over the past three years, TM International focused on strengthening its existing investments in 2007. Among the more notable developments was the completion of the sale of the entire 60.0% shareholding in Telekom Networks Malawi Limited to MTL Mobile Limited for a total cash consideration of US$16.0 million (RM55.0 million) in April 2007. The sale was part of a broader re-orientation of TM Groups international investment strategy to focus on geographic regions closer to home. In Sri Lanka, Dialog Telekom PLC (Dialog) executed a rights issue to raise SLR15.5 billion (RM482.1 million) to fund the Companys aggressive

expansion plans. The rights issue was accompanied by a Rated Cumulative Redeemable Preference Shares (RCRPS) issue aimed at raising up to SLR5.0 billion (RM155.5 million). The proceeds of the rights issue and RCRPS totalilng approximately SLR20.5 billion (RM637.6 million) went to the partial financing of Dialogs capital expenditure for the next three years. The capital expenditure would target accelerated expansion of network capacity and coverage as well as transformational investments in convergent technologies spanning the multiple business lines of the Group. Dialog also received a US$70.0 million (RM240.6 million) package from International Finance Corporation (IFC) a member of the World Bank Group in September and entered into a deed with TM International (L) Limited allowing IFC to purchase up to 1.6% holding in Dialog. As at end 2007, TMs shareholding in Dialog stood at 84.81%.

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Moving from strength to strength, TM Internationals Indian jointly controlled entity, Spice Communications Limited (Spice) made a spectacular debut on the Bombay Stock Exchange (BSE) in July. The stock opened at INR55.75 (RM4.60) per share, up 21.2% from its issue price of INR46.0 (RM3.80) per share. The Initial Public Offering (IPO), which was oversubscribed by 37.5 times, would enable the Company to fund debt repayments, pay for its recently acquired National and International Long Distance (NLD/ILD) licence fees and related capital expenditure as well as drive business expansion in the current two circles it operates in, i.e. Punjab and Karnataka.

In a move to further boost its presence in Indonesia, TM International entered into a Stock Purchase Agreement with AIF (Indonesia) Limited to purchase all of the latters stake in PT Excelcomindo Pratama Tbk (XL). The acquisition, for a cash consideration of US$113.0 million (RM388.3 million), enabled the Company to raise its shareholding by 7.38%, thereby capitalising on one of the fastest-growing markets for mobile telephony services. XL ended the year by welcoming Etisalat International Indonesia Limited as one of its shareholders on 11 December 2007. TM Internationals Cambodian operations, Telekom Malaysia International (Cambodia) Company Limited (TMIC), directed its effort towards acquiring a larger customer base in the year under review. Having invested more than US$76.0 million (RM261.2 million) over the years, TMIC plans to further invest US$150.0 million (RM515.5 million) over the next two years to upgrade network capacity and add 500 new Base Transceiver Stations (BTS) for coverage in rural and provincial areas. TMIC also rolled out its new VoIP service in August 2007. During the year, the Company underwent a major re-branding exercise which included the unveiling of its new hello logo in November and substantial budget allocations for employee training programmes to boost operational efficiency and effectiveness.

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The renewed focus on boosting executional capability throughout its operations abroad in 2007 culminated in the decision by TMs Board of Directors in September 2007 to de-merge the mobile and non-Malaysian businesses from TM Group. The proposed demerger would accelerate operational improvements and growth efforts through clearer strategic and organisational focus. It would also provide greater transparency of the financial and operational performance of both entities. The exercise would result in the proposed listing of the entire issued and paid-up ordinary share capital of TM International Berhad on the Main Board of Bursa Malaysia Securities Berhad.

The overall objective of the Cooperation Agreement was to establish an effective and efficient framework for the following: Increased roaming revenue for both Vodafone Group and TM Group companies via the implementation of Vodafone Global Product and Services in the area of international mobile telecommunications. A segmented dual brand and coordinated brand and advertising initiatives. Cooperation in the acquisition, service provision and management of internationally-operating corporate customers. Reciprocal Roaming Agreements between members of the Vodafone Group, TM Group and any Partner Networks.

Segmented dual branding in respect of Vodafone Global Products and Services. Participation in Procurement Arrangements/Supply Chain Management of handsets particularly Ultra Low Cost Handsets (ULCH).

ASIA MOBILITY INITIATIVE (AMI) ALLIANCE

TMs participation in AMI was formed through Celcom, XL and MobileOne Limited (M1). M1 has been a member since April 2003 while Celcom and XL joined the alliance in June 2005. Formed in 2003, AMI was one of the first Asian alliances set up to work towards various business initiatives for member countries and provide deliverables for mobile customers in these areas. It also helps increase its members market shares in their respective home markets as well as improve profitability through strategic key initiatives like developing selective marketing packages and cross-border service offerings. In addition, AMI facilitates economies of scale by having vendor benchmarking, group-wide procurement, and content sharing. It also serves as a common platform for sharing technological know-how and experience.

VODAFONE ALLIANCE
OVERVIEW TM entered into a partnership with Vodafone Alliance on 25 January 2006 where each party agreed to jointly explore and identify opportunities to enhance the businesses of their respective companies through collaboration in international mobile telecommunications products and services. This would be achieved via the adoption of Vodafone Global Products and Services under the internationallyrecognised Vodafone brand throughout the Group. Subsequently, Vodafone entered into a separate Cooperation and Branding Agreement with respective TM subsidiaries namely Celcom, Dialog and XL.

PRODUCTS & SERVICES LAUNCH HIGHLIGHTS Among the key Products and Services launches which took place throughout the tenure of the Partnership were: Vodafone Enterprise Proposition including BlackBerry from Vodafone which was successfully launched by Celcom, Dialog and XL respectively. Vodafone Mobile Connect cards and other PC connectivity products. Collaboration in MNC initiatives for the acquisition, provision and management of services to international corporate customers. Vodafone Roaming propositions such as the establishment of Virtual Home Environment, Prepaid Roaming, GPRS, 3G Roaming, Assisted/Managed Roaming and Data Roaming Tariff.

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In the year under review, AMI welcomed Idea Cellular and Sun Cellular to the six-member group, replacing SMART and Telstra. The number of customers represented by Celcom, XL, DTAC, M1, Idea and Sun totalled 60 million. Among the key programmes introduced in 2007 were flat rate roaming service, full interconnect for VHE services, Roaming Voucher Recharge (RVR) and Airtime Exchange (ATE) Project, CAMEL II Interconnectivity and Enterprise Programmes.

In Bangladesh, TM International (Bangladesh) Limited (TMIB) encountered challenges in the area of VoIP regulation and pricing. The Company took immediate measures to counter these challenges including the execution of its 100-day Performance Improvement Programme (PIP) exercise to address revenue and market share issues. In Indonesia, XL introduced lower tariffs for its bebas plan to boost revenue and voice traffic in the third and fourth quarters of the financial year. The Company also implemented a hybrid distribution system which led to the expansion of more than 400,000 direct and indirect distribution channels. In terms of improving its network infrastructure, XL ended the year with 11,153 BTSs or an additional 3,897 BTSs in 2007. The Minutes of Use (MoU) per customer in Indonesia is still low compared to other countries. This is mainly because the Average Revenue Per Minute (ARPM) in Indonesia is still relatively high compared to other countries. With interconnect rates coming down in 2008, the Company expects continued decline in revenue/minute.

REGIONAL PRESENCE
The year 2008 will see TM International housing all international investments and Celcom post-Demerger. The Companys investment strategy will remain focused on high growth and emerging markets closer to home. This is in line with the Companys aim to become the leading South and South-East Asian mobile operator. The Company will continue to manage and expand investments in India and Indonesia, two of the fastest growing mobile markets in the region. Particular emphasis will also be given to the dynamic economies of Indochina where the telecommunications sector has immense growth potential.

INDUSTRY CHALLENGES
While consolidation activities dominated TM Internationals focus throughout the year, the Company underwent a number of industry-related challenges. In Sri Lanka, Dialogs revenue potential was diluted by intermittent disruption of services in the countrys Northern and Eastern provinces during the first half of 2007 and a reduction in tourist arrivals which, in turn, diluted International Roaming Revenues relative to their full potential. The Company also experienced operational and direct cost expansion during the second half of 2007, largely arising from macroeconomic conditions, aggressive rollout of multiple new services and expansion of customer base.

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FINANCIAL PERFORMANCE
XLs gross revenue increased by 29.4% to IDR8,364.7 billion [RM3,153.5 million] in 2007. This growth was mainly attributable to the successful execution of several key strategies, especially in pricing and distribution channel management. A nationwide single tariff of IDR25 per second was introduced in February 2007. In April 2007, XL further enhanced the offering by introducing a reduced on-net tariff of IDR10 per second which resulted in a progressive increase in call volume. This was then followed by the launching of IDR1 per second for on-net tariff and IDR10 per second for off-net tariff which had stimulated duration per call and successfully increased the revenue and voice traffic in the third and fourth quarters of 2007. At the same time, XL was able to enhance its operational profitability leading to EBITDA margin improvement of 2.5% to 42.0% as compared to 2006. XLs EBITDA showed a significant growth of 37.4% to IDR3,509.2 billion [RM1,323.0 million]. On the other hand, XLs net income decreased by 61.5% to IDR250.8 billion [RM94.5 million] in the year under review. This was mainly due to Managements decision to book the IDR368.5 billion [RM138.9 million] withholding tax (including penalty) on US$ bond interest for the period of 2004-2007, and forex losses as a result of the depreciation of the IDR against the US$ in 2007. A total of IDR7.1 trillion [RM2.7 billion] was added to fixed assets for network infrastructure and other investments. XLs cash flow from operating activities was IDR3,959.4 billion [RM1,492.7 million] while cash flow from financing activities was IDR3,382.9 billion [RM1,275.3 million]. Cash flow from

financing activities was in the form of Rupiah Bond of IDR1.5 trillion and new bank loans of US$230.0 million and IDR400.0 billion. At the end of 2007, XLs cash and cash equivalent stood at IDR805.8 billion [RM283.6 million].

Indonesia
PT EXCELCOMINDO PRATAMA TBK (XL)

OPERATIONS
XLs customer base registered significant growth in 2007 with the acquisition of 5.9 million new customers. At the end of 2007, XLs customer base was 15.5 million, an increase of 62.4% from 2006. XLs customer base mostly consisted of prepaid customers which represented 96.9% of its total customer base. Netadds from prepaid services contributed 98.4% to the total net-adds or 5.8 million new customers. The increase in prepaid customers was mainly driven by bebas which accounted for 87.9% of the total net-adds and recorded 106.7% customer growth. This was a result of XLs pricing strategy of IDR1 per second which was launched in July 2007. At the end of 2007, XL recorded 10.1 million bebas customers and 4.9 million jempol customers. Its postpaid service (Xplor) grew by 24.3% to 481,000 customers or 3.1% of its total customer base. In 2007, XLs coverage reached 90.0% of the Indonesian population. Around 75.0% of its capital expenditure for the year was spent on improving coverage while the rest was spent on improving capacity. XLs focus was still in Java, Bali and Lombok with 67.0% of its new customers from these areas.

OVERVIEW
In 2007, the Indonesian telecommunications industry had another year of strong growth. At the end of 2007, there were approximately 102 million cellular customers in Indonesia. This was an increase of 50.0% from the previous year, and amounted to a penetration rate of 42.0%. With the existence of 11 players offering more than 20 products in the market, XL faced mounting competition in the year under review. Nevertheless, the Company grew its customer base and revenue by 62.4% and 29.4%, respectively, clearly outperforming the industry. XLs fortified market position was driven by its innovative pricing strategy and new market positioning. XL ended the year 2007 with 15.5 million customers. XLs stellar performance in 2007 led to the Company making a clean sweep of several industry awards. The awards included Best E-Corp 2007 Award for Best IT System category from SWA magazine; Best Prepaid GSM Cellular Award 2007 for its bebas prepaid card; Best Innovation in Marketing; Best Customer Care Cellular Award 2007 for Customer Service and the Indonesian MAKE (Most Admired Knowledge Enterprise) Winner 2007.

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3.

Convergence Communication Services, including Office Zone, GSM PBX Integration, Instant Office, Hosted PBX, Machine to Machine (Wireless ATM, Wireless EDC), WiFi over Picocell, and Vehicle Tracking System (XLocate).

XL forging ahead in Indonesia

ARPU Since applying its pricing strategy of IDR1 per second, XL was able to improve ARPU. As a result of the reduction in on-net and off-net tariffs, MoU per customer significantly increased by 74.0% to 50 minutes, the highest growth over the last 5 years. Therefore, the ARPU increased slightly to IDR47,000 from IDR46,000 in 2006, despite the reduction in average tariffs per minute. ARPU from bebas services increased 7.0% to IDR47,000, while ARPU from jempol decreased by 5.0% to IDR37,000. Overall, XLs prepaid ARPU increased slightly by 2.0% to IDR43,000 compared to last year. ARPU from Xplor decreased 10.0% to IDR155,000. PRODUCTS & SERVICES In February 2007, bebas simplified its core voice service by offering a flat tariff of IDR25 per second for any type of call, at any time, to any operator, to any destination. The offering was then enhanced by another promotion in April 2007, introducing a reduced on-net tariff of IDR10 per second. To make the product even more appealing, bebas further offered a reduction of its tariff to IDR1 per second for on-net tariff and IDR10 per second for off-net tariff in July 2007.

In April 2007, to further enhance its position as a product with the most affordable SMS tariff, jempol reduced its SMS on-net tariff by 55.0%, offering it at IDR45 per SMS to other XL numbers during off-peak hours. These off-peak hours were extended in June 2007. Recognising the demand for overseas calls, jempol also offered an affordable tariff starting at IDR16 per second to 51 countries through VoIP (Voice Over Internet Protocol). XLs postpaid service, Xplor, followed suit by simplifying its voice tariff in the year under review. Under its Business Solutions label, XL continued to provide: 1. Fixed Communication Services, including Domestic Leased Line, International Leased Line, Domestic MPLS, International MPLS, Broadband Internet Access (including NAP), VoIP and Collocation Mobile Communication Services, including Corporate User Group, Corporate Data (GPRS 3G), Push Mail (XPand, BlackBerry), Mobile Application and Corporate SMS Broadcast; and

In 2007, XL expanded and reinforced its fibre-optic network in Medan, Bandung, Surabaya, Semarang and Denpasar with its inner ring road network. It also reinforced more than 2,000 km fibre optic from Medan to Jakarta following the construction of submarine fibreoptic spread out from Jakarta to Batam and Riau island. In anticipation of high network capacity demand, XL built about 500 km fibre optic in Jakarta; a multiplex network with a capacity of 10 Gbps, DWDM, MPLS and NGN networks to replace the conventional TDM technology. It also built a network building in Bintaro as part of the DRP system (Disaster Recovery Plan). BTS XL continued to build its BTS network to expand and strengthen its coverage and minimise its dependency on other operators. XLs committed capital expenditure in 2007 was US$700.0 million. Half of that amount was used to expand and reinforce its coverage in Java, Bali and Lombok while one third was used to build a BTS network in Sumatera island. The rest was dedicated to East Indonesia. At the end of 2007, XLs coverage had reached 90.0% of the Indonesian population. The Company added 3,897 BTSs, bringing its total number of stations to 11,153 by year end.

2.

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Sri Lanka
DIALOG TELEKOM PLC (DIALOG)
Dialogs eZ Pay service South Asias first in mobile commerce initiative

OVERVIEW
In 2007, the telecommunications sector grew by approximately 25.0% and contributed over 20.0% to the GDP. Total tele-density in Sri Lanka saw a sharp increase with approximately 50.0% of the population owning some mode of telecommunication (fixed and mobile phones). The mobile industry had 7.1 million users by September 2007 relative to 5.4 million in 2006, representing a 32.4% growth in mobile telephony ownership. The industry growth was fuelled by increased competitiveness with all four operators competing intensely on all four strategic dimensions of price, quality, coverage and convenience, giving the Sri Lankan consumer total value for money.

The fixed-line sector also grew by 30.0% in 2007 led by CDMA technologyenabled phone sales (58.0% growth) that catered to a largely unfulfilled demand for low-cost fixed-line telephony in the market. Several telecommunications projects were in progress during the year to enhance product, service quality and coverage. Third-generation mobile technology witnessed an increased take-up by consumers for both voice and data. Internet penetration in Sri Lanka grew by 24.0% to reach 0.16 million customers. This was largely due to the introduction and aggressive promotion of fixed broadband Internet. Aggressive adoption and marketing of wireless broadband within the Sri Lankan market was one of the key highlights for the year with deployment of High Speed Downlink Packet Access (HSDPA) and High Speed Uplink Packet Access (HSUPA) applications in addition to 3G. Dialog, the first entrant into the Sri Lankan wireless broadband market, still remained the market leader despite the entry of Mobitel through the provision of 7.2 Mbps speed wireless data access.

The Pay TV industry saw modest growth due to the economic downturn which led to low customer additions to the industry. The perception of Pay TV in Sri Lanka as a luxury service with higher taxes being targeted at imports of key equipment and services was one of the key factors for its lower-than-expected performance in 2007. In 2007, Dialog established one of Sri Lankas most technologically-advanced Enterprise Management Centre that has enabled top Sri Lankan enterprises to offer their customers the best service experience from a well-trained customer-centric workforce. Dialogs superior business strategy in 2007 led to its recognition in several areas of the telecommunications industry. Among the awards that it received in 2007 were Best Use of Mobile for Social & Economic Development for Disaster and Emergency Warning Network (DEWN); Outstanding Achievement in Customer Relationship Excellence; Customer Service Centre of the Year; Best Use of Knowledge Management of the Year and Innovative Technology of the Year at the Customer Relationship Excellence (CRE) Awards held in Hong Kong.

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FINANCIAL PERFORMANCE
For the 2007 financial year, Dialog recorded SLR32.5 billion (RM1.0 billion) in revenue, representing an increase of 26.6% from the previous year. The Company chalked up gross profit of SLR19.1 billion (RM594.4 million) for the 2007 financial year. This represents a 13.4% increase from the SLR16.9 billion (RM553.6 million) recorded for the year ended 31 December 2006. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) stood at SLR13.7 billion (RM427.3 million) for the year ended 31 December 2007. This represents a marginal decline of 0.03% from the previous years reported figures. Dialog recorded a Profit After Tax (PAT) of SLR9.0 billion (RM278.9 million) representing a drop in performance by 11.4% relative to the year ended 31 December 2006.

Dialog together with NDB Bank, one of the leading private sector commercial banks in Sri Lanka, unveiled eZ Pay, South Asias first mCommerce (Mobile Commerce) initiative in August 2007, a revolutionary service that allows consumers to purchase goods, pay bills, transfer money and perform banking transactions via their mobile phones. Dialog, the pioneer in International Roaming in the South Asian region, celebrated 10 years of Roaming excellence in October 2007 with a host of special promotions and privileges designed to reward its roaming customers who have extended loyal patronage to its roaming service. DBN, a fully-owned subsidiary of Dialog, became the first in Sri Lanka to introduce Broadband Internet, powered by WiMAX technology in November 2007. A milestone was reached when Dialog achieved four million customers in October 2007, further strengthening its market position in the Sri Lankan telecommunications industry. PREFERENCE SHARE ISSUE Dialog entered into an agreement with banks and financial institutions in Sri Lanka to raise SLR5.0 billion (RM155.5 million) via the issuance of 5.0 billion Rated Cumulative Redeemable Preference Shares of SLR1 per share. RIGHTS ISSUE Dialog shareholders approved a Rights Issue worth SLR15.5 billion (RM482.1 million) which represented the singlelargest equity-raising exercise in the Sri Lankan capital market.

The Companys principal shareholder Telekom Malaysia Berhad (TM) has pledged to enhance its direct investment in the country through subscribing in full for its entitlement under the rights issue. 1,000 2.5 G BASE STATIONS Dialog unveiled their 1,000th base station at Yodakandiya. The largest and fastest growing cellular company in the country, Dialogs local coverage spans all provinces of the country. The Companys extensive network coverage is a reflection of its commitment to cater to all segments of society regardless of demographic disparity, which is an important part of the Companys corporate responsibility philosophy. ENTRY INTO BPO Dialog recently launched a new programme to provide Business Process Outsourcing (BPO) services for both local and international enterprises. The programme, known as Enterprise Contact Management (ECM), offers a wide range of contact options including multiple modes of Agent Voice, Automated Voice, SMS, fax, email and web chat.

OPERATIONS
Venturing into the spheres of satellite broadcasting, Dialog launched Dialog Satellite TV, a Direct-to-Home satellite television service in Sri Lanka in February 2007. Dialog Satellite TV features world-class entertainment and the widest spectrum of channels with a special focus on News, Entertainment and Knowledge-based Programming. In July 2007, Dialog Broadband Networks (DBN) launched its fixed wireless operations based on CDMA technology. With its entrance into CDMA, Dialog became a provider of a total connectivity solution, encompassing Mobile, Fixed, Broadband and Media.

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OVERVIEW
TM International (Bangladesh) Limited (TMIB) was incorporated on 15 December 1997. TMIB operates a GSM cellular service on the 900 and 1800 MHz frequency bands under the brand name AKTEL. The year 2007 saw the industry facing steep competition amongst the six mobile operators in Bangladesh.

Bangladesh
TM INTERNATIONAL (BANGLADESH) LIMITED (TMIB)

network. Nonetheless, due to a one-off Government compensation in the third quarter of 2007 and higher customer acquisition cost, particularly arising from the SIM tax subsidy, EBITDA and PAT fell from BDT5,998.1 million [RM321.5 million] and BDT4,333.4 million [RM232.3 million] in 2006 to BDT4,263.7 million [RM212.9 million] and BDT105.2 million [RM5.3 million] in 2007, respectively.

FINANCIAL PERFORMANCE
For the year ended 31 December 2007, TMIB recorded a gross revenue of BDT14,390.1 million [RM718.7 million], an increase of 9.5% from BDT13,139.6 million [RM704.3 million] achieved in the previous financial year. This result was achieved despite declining ARPU brought about by the falling average tariff from intense competition in the industry. The increase in revenue was mainly attributed to the increase of 1.4 million new customers in 2007 arising from various marketing initiatives, improved network capacity and expanded customer service

OPERATIONS
In 2007, TMIB embarked on various marketing initiatives to create more value for its customers. AKTEL Prepaid attracted customers with its Phurti Campaign, Power re-launch, recharge bonuses and special rates from Power and Joy. On the other hand, postpaid solutions saw offers like BTTB FnF, insurance and zero-line rent. AKTEL customers also received special bundle offers of free AKTEL PA, SMS and MMS. For its corporate clients, AKTEL introduced its Power Pack solution and Corporate Messaging Platform for additional savings. Its International Roaming Unit also launched additional bilateral voice roaming and GPRS Roaming in 2007. In terms of network capacity, TMIB had a total of 3,905 BTSs at the end of 2007. The Company added an impressive 1.4 million new customers to end the year with 7.2 million customers. To meet the demands of its growing customer base, TMIB expanded its customer service network to 19 walk-in Customer Care Centres in 2007.

Boosting performance at AKTEL

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OVERVIEW
Telekom Malaysia International (Cambodia) Company Limited (TMIC) provides services on the GSM 900 frequency band under a 35-year cellular concession commencing 1996 from the Ministry of Posts and Telecommunications. In November 2007, TMIC launched a re-branding campaign to introduce its identity hello which will spearhead the Companys plan to aggressively add new business, especially with the establishment of 500 additional base stations. The re-branding process was crucial as it was a key factor in achieving TMICs projected target to eventually become the leading mobile operator in Cambodia. The re-branding campaign also focused on areas such as the distribution network, customer service quality, manpower and new brand identity for 10 "hello point" outlets located in Phnom Penh and the provinces.

OPERATIONS
As at 31 December 2007, TMIC had a customer base of 311,650. Prepaid customers totalled 308,243 while postpaid customers totalled 3,407. TMICs blended ARPU is the highest among TM International subsidiaries, and currently stands at US$9.4 per month. The Company will continue to focus on network expansion in the year 2008. In line with this, TMIC will execute Phase 6.1 of Project Expansion, which will give the Company a wider coverage area and higher quality network in the Kingdom of Cambodia.

Cambodia
TELEKOM MALAYSIA INTERNATIONAL (CAMBODIA) COMPANY LIMITED (TMIC)

FINANCIAL PERFORMANCE
TMIC achieved a 33.7% growth in revenue, from US$30.9 million [RM113.3 million] recorded in financial year 2006 to US$41.3 million [RM142.0 million] in 2007. The surge in revenue was the result of a healthy 36.1% increase in its customer base as well as high blended ARPU, which currently stands at US$9.4 per month as compared to US$8.9 per month in the previous year. On the back of stronger revenue figures, EBITDA margin stood relatively stable at 44.4%. Profit after tax for the financial year 2007 was US$9.8 million [RM33.7 million], an increase of 46.3% from US$6.7 million [RM24.6 million] reported previously. The Company achieved a Return on Total Assets (ROTA) above the local industry rate of 15.1%.

hello spearheading TMIC in Cambodia

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OVERVIEW
Multinets predominant area of business is broadband connectivity. Broadband take-up, however, has been slow in Pakistan due to various reasons including the availability of content and cost of bandwidth which is more expensive compared to other countries in the region. Introduced in 2002, DSL is the oldest form of broadband connectivity in Pakistan. Due to its long presence in the market, it is the dominant means of connectivity. The year 2007 saw the incumbent operators entry into the DSL market, resulting in greater accessibility and affordability for end users. However, DSL cannot handle the rapidlyincreasing bandwidth and customer numbers. This has led to an extensive rollout of FTTH and Wireless networks.

Due to the growing market size, problems in service delivery and decreasing ARPUs, there has been tremendous interest in the data delivery business with massive WiMax rollouts in 2007.

Pakistan
MULTINET PAKISTAN (PRIVATE) LIMITED (MULTINET)

FINANCIAL PERFORMANCE
For the year ended 31 December 2007, Multinet registered total revenue and negative EBITDA of PKR345.5 million [RM19.6 million] and PKR13.5 million [RM0.8 million], respectively. This represents a 121.9% and 71.1% growth from the results reported last year. Loss after taxation reduced from PKR106.4 million [RM6.4 million] in 2006 to PKR36.6 million [RM2.1 million] recorded in 2007.

OPERATIONS
In 2007, Multinet maximised its revenue through the development of new product lines such as MPLS and Colocation services, aggressive customer acquisition and retention, business process enforcement and skill sets enhancement. The Company is in the final stage of completion of its 4,250 km fibre network across Pakistan through Project Ittehad. As at 31 December 2007, 82.3% of the project was completed. Multinet expects to achieve 100.0% project completion in the second quarter of 2008. As at 31 December 2007, Multinets customer base stood at 3,300 with a majority of them being Broadband DSL customers.

Multinet moving broadband in Pakistan

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OVERVIEW
Indias telecom industry experienced a healthy increase of activity in 2007. In an effort to further open up the telecom sector to competition, the industry saw the emergence of Unified Access Service Licence (UASL); Letters of Intent (LoIs) issued to eligible licence seekers as per the telecom policy; and spectrum allocated to new players. The customer gained the most as telecom services became more affordable and innovative offerings flooded the market. Telecom regulations were also being developed to ensure better service to the customer such as the launch of National Do Not Call registry (NDNC) an effort to rein in telemarketers who contact customers using their mobile numbers. NDNC is expected to put a stop to unwanted telemarketing calls and thus improve mobile customer experiences. In 2007, wireless customers in India reached 233.6 million, a 56.1% increase from 149.6 million the previous year. In December 2007, mobile phone customers in India grew by over 8 million, making it the worlds fastestgrowing telecom market. The market has been consistently adding more than 8 million customers every month since July 2007. The major drivers for this growth are low call rates (as low as US$0.01 a minute) and cheap handsets. Still, only about a quarter of the population has a telephone. India had 272.9 million (23.9% of the population) telephone users at the end of December 2007. The government has targetted 500 million users by 2010. Spice is amongst the first private GSM operators to commence operations in India. The cellular operator provides GSM services in Punjab and Karnataka in the 900 MHz range. The total spectrum allocated in Punjab and Karnataka is 7.8 MHz and 6.2 MHz,

Spices successful IPO

respectively. Spice has one of the largest roaming networks with over 450 roaming agreements with operators worldwide. The Companys IPO was completed successfully in 2007 with 37.5 times oversubscription rate. The stock enjoys listing status on the Bombay Stock Exchange. A major achievement for Spice in 2007 was the acquisition of a licence to operate National and International Long Distance (NLD/ILD) services in India by the Department of Telecommunications. This development allowed the Company to carry both voice and data traffic nationally and internationally. Further, on 10 January 2008, Spice received a Letter of Intent (LoI) for the Award of Licence to provide Unified Access Services (UAS) in 4 additional circles or service areas i.e. Delhi, Maharashtra, Andhra Pradesh and Haryana. The licences will be issued on a non-exclusive basis subject to compliance of the UAS Guidelines.

India
SPICE COMMUNICATIONS LIMITED (SPICE)

Improved performance of Spice was mainly attributed to 55.5% growth in customer base, wider population coverage from the increased number of cell sites and gain on sale of telecommunication towers.

OPERATIONS
Spice operates in two circles Punjab and Karnataka which are still undergoing network expansion. The number of cell sites in Punjab increased from 1,192 in December 2006 to 2,031 in December 2007, taking the percentage of population covered to 67.0% from 50.0%. In Karnataka, the number of cell sites increased from 838 in December 2006 to 1,632 in December 2007, taking the percentage of population covered to 40.0% from 20.0%. The ARPU in both Punjab and Karnataka has decreased from INR364 and INR423 in December 2006 to INR269 and INR260 in December 2007 respectively. In January 2007, Spice had a total of 2.5 million customers (1.8 million in Punjab and 0.7 million in Karnataka). By December 2007, this number had swelled to 3.8 million customers (2.3 million in Punjab and 1.4 million in Karnataka).

FINANCIAL PERFORMANCE
In 2007, the Company recorded total revenue of INR10,346.3 million [RM861.3 million] compared to INR8,323.5 million [RM670.9 million] in 2006. This translates to a year-on-year increase of 24.3%. EBITDA saw an increase to INR7,396.2 million [RM615.7 million] in 2007 from INR2,283.0 million [RM184.0 million] recorded in 2006. The Company registered profit after tax of INR3,801.3 million [RM316.4 million] for the financial year ended 31 December 2007 as compared to loss after tax of INR245.2 million [RM19.7 million] recorded in the previous financial year.

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Singapore
MOBILEONE LTD (M1)

OVERVIEW
M1 is a leading mobile communications provider in Singapore, with more than one million customers. It provides a full range of mobile voice and data communications services over its 2G/3G/3.5G network. M1 also provides international call services to both mobile and fixed-line customers. It has partnered operators globally to provide its customers coverage and roaming services in over 200 countries and territories. With a newly-upgraded 3G network, M1 became the first mobile operator in Singapore to offer High Speed Downlink Packet Access (HSDPA) in 2006 when it launched M1 Broadband, Singapores first island-wide wireless broadband service. M1 is listed on the Singapore Exchange and its current major shareholders are SunShare Investments Ltd, Keppel Telecoms Pte Ltd and SPH Multimedia Private Limited. As at 31 December 2007, SunShare Investments, a jointcontrolled entity between TM International and Khazanah Nasional, held a 29.69% equity interest in M1.

M1 Breaking new ground in Singapore

FINANCIAL PERFORMANCE
For the year ended 31 December 2007, operating revenue increased by 3.9% to SG$803.3 million [RM1,832.2 million] driven by the 6.4% growth in service revenue to SG$727.1 million [RM1,658.4 million]. Postpaid revenue and international call revenue for the year under review was recorded at SG$538.5 million [RM1,228.3 million] and SG$127.1 million [RM289.9 million], and representing a growth of 6.2% and 11.5% respectively from the previous year. Contribution from mobile data revenue increased from 6.3% of the service revenue in 2006 to 8.4% in 2007. PAT for the year increased by 4.4% to SG$171.8 million [RM391.9 million] while earnings per share (EPS) improved 11.4% to 18.5 cents.

OPERATIONS
M1 recorded a 14.8% increase in its total customer base, with 1.535 million customers as at 31 December 2007, comprising 856,000 postpaid customers and 679,000 prepaid customers. Postpaid and prepaid ARPU increased quarter-on-quarter. Monthly postpaid churn remained stable at 1.2%. For 2008, M1 expects to see sustained growth in data traffic from M1 Broadband and mobile devices. Apart from driving operating efficiencies, M1 will tap on the continuing telecom media convergence and develop new businesses anchored on its core competencies. To manage growing lease circuit requirements, the Company has started to roll out its own cellular backhaul network.

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International Operations

OVERVIEW
Mobile Telecommunications Company of Esfahan (MTCE) commenced its operations on 24 June 2002 as the first provider of mobile prepaid SIM cards in Iran. The Company is licensed to operate a GSM 900 MHz mobile communication service with a capacity of 35,000 customers in the Esfahan province of the Islamic Republic of Iran. This licence is valid for a 15-year period commencing 19 May 2001. The telecommunications industry in Iran saw a major change at the start of 2007 with the introduction of a second nationwide mobile operator. This introduction marked the initial phase of Irans liberalisation of the telecommunications sector, resulting in a near doubling of mobile customers from 15.4 million in 2006 to 27.5 million at the end of 2007. Correspondingly, the countrys mobile customer penetration rate also increased from 22.2% to 39.0% during the year.

OPERATIONS
In 2007, the Company continued to focus on growing its prepaid services. Taking advantage of its newly-installed customer network capacity of 35,000, the Company embarked on a marketing drive which resulted in an increase in its customer base from 20,459 at the end of 2006 to 30,568 by the end of 2007. The Company operates 64 BTSs in 12 cities within the Esfahan Province.

Iran
MOBILE TELECOMMUNICATIONS COMPANY OF ESFAHAN (MTCE)

FINANCIAL PERFORMANCE
Despite greater competition with a threat of declining ARPU, MTCE was able to marginally improve its revenue contribution to IRR45.3 billion [RM16.8 million] from IRR43.8 billion [RM17.5 million] previously recorded in 2006. However, due to higher direct and operational costs arising from an enlarged network and high inflation rate, the Company was not able to sustain its EBITDA. Comparatively, EBITDA decreased to IRR21.8 billion [RM8.1 million] in 2007 from IRR27.7 billion [RM11.1 million] in the previous year.

Moving the prepaid market in Iran

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FINANCIAL PERFORMANCE
In 2007, SIM recorded total revenue of THB15.4 billion (RM1,587.4 million) a 37.3% decrease from THB24.6 billion (RM2,370.7 million) recorded in the previous year. The Company registered a net profit of THB321.1 million (RM33.0 million), which was a 34.2% decrease from the previous years figure of THB488.1 million (RM47.0 million).

Thailand
SAMART I-MOBILE PUBLIC COMPANY LIMITED (SIM)

options, and attracted customers to purchase products and goods from the Companys multiple channels of distribution. The variety of communication products on offer, special content and applications, SIMs comprehensive national and regional distribution network further strengthened the Companys leadership in the Asian market. In 2007, approximately 2.5 million Imobile handsets were sold in Thailand. This propelled the brand to take the number two spot in the Thai handset market. I-mobiles market share increased from 28.0% in 2006 to 31.0% in 2007. The year 2008 will see the Company looking towards regional market expansion after successful penetration in Malaysia, Indonesia, Vietnam, Bangladesh, Laos, Cambodia and India. SIMs content business will also be expanded regionally where I-mobile has a strong presence, namely Malaysia, Indonesia and Vietnam. New businesses will be introduced to partners in order to serve a wider customer base.

OPERATIONS OVERVIEW
Samart I-Mobile Public Company Limited (SIM), a Company listed on the Stock Exchange of Thailand (SET), is a majority-owned subsidiary of Samart Corporation Public Company Limited (Samart). In February 2006, TM International initiated its investment in SIM by acquiring a direct 24.42% stake in the Company. SIM provides wireless information services and mobile content in addition to distributing mobile telephones and accessories. TM Internationals share acquisition was completed on 27 March 2006. In 2007, SIM saw a decrease in revenue due to the discontinued export of selected mobile telephone brands to a third country. However, the Company continued to achieve higher handset sales for its house brand in both the local and overseas markets. The Company chalked up impressive sales in Malaysia, followed by countries like Indonesia, Laos, Vietnam, Cambodia and Bangladesh. SIM recently underwent a business restructuring to support its growth and global expansion. Using the strategy of advanced product development with new product lines, SIM redefined the Company and created more distinct business groups, which consisted of the i-mobile brand, other main mobile brands, multimedia content and new businesses. These initiatives further strengthened SIMs ability to maximise its assets and penetrate the market for each group. More importantly, the introduction of new product lines, both for mobile phones and other communication devices, provided customers with more

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OVERVIEW
Established in 1989, Samart Corporation Public Company Limited (Samart) is involved in three main areas of business: 1. Mobile multimedia Integrated mobile and interactive media including infotainment, billing systems for 1900 MHz mobile phones as well as media production and development. 2. ICT solutions and services Telecommunications networks and total ICT solutions system designed for the government and private sectors. 3. Technology-related businesses Manufacture and distribution of television and radio antennas and satellite dishes, provision of Call Centre services for government and private sectors, distribution, installation and maintenance of Communication and Security Systems including Total Waste Management Solution in Suvarnabhumi Airport, provision of air traffic control services in Cambodia and electric generating supply to Kampot Cement factory in Cambodia. TMs interest in Samart was formalised on 9 June 1997. In February 2006, TM International repositioned its business partnership with Samart by obtaining a direct 24.42% stake in Samart I-Mobile Public Company Limited (SIM), a majority-owned Samart subsidiary. As at 31 December 2007, TM International held a 18.97% stake in Samart.

FINANCIAL PERFORMANCE
For the year ended 31 December 2007, Samart recorded a total revenue of THB19.6 billion (RM2,021.0 million) and net profit of THB573.6 million (RM59.0 million). This represents a decrease of 36.6% and 71.2%, respectively, due mainly to the economic slowdown and political uncertainties. However, the Companys performance was still deemed satisfactory when benchmarked against industry performance.

Thailand
SAMART CORPORATION PUBLIC COMPANY LIMITED (SAMART)

OPERATIONS
In 2007, Samart focused on internal organisation improvement, business restructuring, value-added services, market channel expansion and human capital development. The Company developed many new business initiatives notably its collaboration with the National Nuclear Institute for further investment and development in nuclear technology, the newly-designed I-mobile phone, ICT business realignment and international market expansion in ICT outsourcing, content and mobile businesses. A robust increase in the number of flights in Cambodia by 16.7% in the year under review contributed to an encouraging growth of 15.6% in revenue (US$20.6 million) for Air Traffic Services Co. Ltd, a company wholly-owned by Samart. The Companys concession period was extended an additional 10 years, bringing it to a total of 27 years. Kampot Powerplant Co. Ltd. produces electricity for Kampot Cement under a 10-year contract.

Samart diversified communication services in Thailand and the region

In 2008, Samart aims to achieve a substantial revenue increase of 40.0% to 50.0% by providing products and services that match customer needs, as well as expanding its operations in markets with high potential.

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Global Cable Services,

International Investments & Presence

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(+262)

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Global Data Services

IPLC, Frame Relay, ATM, IPVPN, IP Transit

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Frame Relay, ATM IPVPN & IP Transit

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Business Review

Ventures
KHAIRUSSALEH RAMLI
CHIEF EXECUTIVE OFFICER TM Ventures

TM

Facts at a Glance
Overview
EBITDA

TM Ventures Group was established as a Strategic Business Unit in 2006 under its own CEO, Khairussaleh Ramli, as part of the recommendations of the Performance Improvement Programme to streamline the various business activities under one group for better accountability and performance and to rationalise the non-core businesses. TM Ventures is supported by three key units Financial Advisory, Subsidiary Management and Programme Management Office-cumBusiness Support.

RM462.3 million + 114.6%

PATAMI

RM189.5 million + 247.1%

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Portfolio of Companies and Assets CEO TM Ventures
Mutiara.Com Sdn Bhd Financial Advisory

MEASAT Global Bhd

Associates / Investment
Property Development (SBU)

CEO TM Venturess Office

Subsidiary Management PMO & Business Support

Subsidiaries
Fiberail Sdn Bhd TM Info-Media Sdn Bhd Menara Kuala Lumpur Sdn Bhd Fibrecomm Network (M) Sdn Bhd Universiti Telekom Sdn Bhd (Multimedia Universiti)

VADS Berhad

Telekom Smart School Sdn Bhd

TM Facilities Sdn Bhd

TMF Services Sdn Bhd

TMF Autolease Sdn Bhd

FINANCIAL OVERVIEW
For the year ending 2007, the TM Ventures Group recorded growth of 9.2% in revenue to RM1,326.6 million from RM1,214.5 million previously. The Group also achieved a higher EBITDA of RM462.3 million in 2007 which represented a significant increase of 114.6% from the previous years of RM215.4 million. This was mainly attributable to the gain on disposal of Wisma TM in Kuala Lumpur for RM46.0 million. PATAMI grew 247.1% from RM54.6 million posted in 2006 to RM189.5 million in the year under review. Operating costs (excluding depreciation) increased by 14.9% to RM1,148.0 million as compared to the previous years

RM999.1 million. In 2007, the Group also spent RM141.4 million on Capex as compared to RM302.3 million previously, with most of the investment coming under Property Development in respect of the TM Annex 2 and the TM R&D Complex as well as development of Phase II of the Multimedia University at Cyberjaya. In the year under review, TM Ventures completed four strategic initiatives under its planned rationalisation of non-core businesses as follows: Disposal of its 16.2% stake in mySpeed.com Sdn Bhd to MyEg Services Berhad Integration of Telekom Applied Business Sdn Bhd (TAB) into TM Malaysia Business

Integration of Meganet Sdn Bhd into VADS Berhad; and Disposal of TM Payphone Sdn Bhd to Pernec Corporation Berhad

In 2008, in line with the demerger exercise, TM Ventures will continue to rationalise non-core assets, enhance business performance of various businesses under its stable and reintegrate subsidiaries and affiliates to the respective businesses under FixedCo (TM), to support FixedCos objective of creating a one-company mindset dedicated to achieving the excellence of a domestic champion.

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TM Ventures

VADS BERHAD
Managed Network Services VADS

VADS continued to strengthen its position as a leading Managed ICT Services Provider focused on empowering companies to be more productive and efficient. The winner of the coveted PIKOM 2007 ICT Service Provider of the Year award, VADS provides niche offerings from its three core business segments i.e. Managed Network Services (MNS), Systems Integration Services (SIS) and Contact Centre Services (CCS). VADS is continuing its growth momentum by delivering healthy revenue growth for the 16th year in a row. VADS reached new heights when its revenue crossed the RM500 million mark, recording a turnover of RM523.3 million and PAT of RM54.1 million which represented significant increases of 42.2% and 67.0% respectively over the previous year. All three VADS business segments recorded commendable performance in 2007. MNS continues to be the largest revenue contributor for VADS with RM263.5 million, an increase of 30.4%. Despite a very competitive SIS market, VADS managed to increase the revenue from this segment to RM78.4 million as compared to a lower RM57.6 million the year before, an increase of 36.1%. On the other hand, CCS maintained its past years growth momentum as it chartered a 67.3% increase in revenue to RM181.4 million in 2007.

2007 Revenue by Segment MNS SIS CCS Total RM Mil 263.5 78.4 181.4 523.3 % 50.4 15.0 34.7 100 RM Mil 202.1 57.6 108.4 368.1

2006 % 54.9 15.6 29.4 100

To improve the liquidity of the shares traded on Bursa Securities, the Company, pursuant to approval by the shareholders, undertook a share split on the basis of 1 share of RM1.00 each to RM0.50 each, hence increasing the number of shares to 128,307,800 as at October 2007. As at December 2007, the number of shares was 128,596,800. With improved liquidity, the market capitalisation of the company reached RM862 million as at end of 2007, a more than 10-fold increase since VADS was listed in 2002. The Board of Directors is proposing a final tax-exempt dividend of 13 sen per share of RM0.50 par value, in addition to the interim tax-exempt dividend of 17 sen per share of RM1.00 par value already paid on 4 September 2007. The total tax-exempt dividend in the financial year ended 31 December 2007 was 72.0% higher than a year ago, reflecting a more generous dividend payout of 50.4% of PAT for the year

compared to 47.8% in 2006. VADSs balance sheet was strengthened as the net cash position rose from RM29 million last year to almost RM110 million on 31 December 2007, or 85.7 sen per share of RM0.50 par value.

MANAGED NETWORK SERVICES (MNS)

VADS Managed Network Services, complemented by its host of valueadded services, namely Managed Network Data Centre, Managed Business Internet Services, Managed Security Services, Managed WAN Accelerator Services (a new service introduced in 2007) and Managed IP Telephony, continued to successfully serve the enterprise market. VADS strengthened its synergistic relationship with TM Retail by supporting the TMPremier product, a move which saw a significant growth in the number of customers.

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In line with its ongoing efforts to raise service standards, MNS launched its customer service portal to provide customers with easy access to reports and performance analyses. VADS was re-certified as Ciscos Silver Partner and received the following awards from CISCO in 2007: Outstanding Leadership in Advance Services Sales Top performing partner Outstanding Leadership in Managed Services 3rd consecutive year Outstanding Leadership in Advance Technology Delivering the highest contribution to Cisco Advance Technology business

implementation in ASEAN. The new solution provides features such as Voice Over IP (VoIP), instant messaging and Web conferencing. Such capabilities help the customer to reduce costs, facilitate communication, increase mobility, and accelerate productivity. VADSs continued efforts to fortify its SIS capabilities were rewarded when it received the Microsoft Gold Partner award, IBM Platinum award and IBM Premier Partner award in 2007.

Setting its sights to be a regional CCS player, VADS has been building its capabilities and expertise to meet international standards. VADS won 2 offshore contracts; Mobile One (Singapore) and Linksys (USA). VADS also tied up with AVAYA, a leading global provider of business communications applications, systems and services, to offer hosted contact centre solutions on a pay-as-you-use basis. This is aimed at reducing customers capital outlay while still meeting their business objectives. VADS managed contact centres received seven CCAM (Contact Centre Association of Malaysia) awards in 2007 while the VADS managed Celcom Contact Centre achieved the Customer Operations Performance Centre (COPC) 2000 certification. VADS is optimistic about 2008 as it is confident that managed ICT services will continue to be well received by businesses that are looking to increase their operational effectiveness and productivity while containing costs. VADS will continue to aggressively drive business growth by keeping abreast of industry and technology developments so as to offer better innovations in service offerings, as well as leverage on the synergistic strengths within the TM Group. VADS will also continue to explore new opportunities as it strives towards improving its services and offerings to meet customer expectations and the new challenges that growth inevitably brings.

CONTACT CENTRE SERVICES (CCS)

2007 was a year of rapid growth for VADS Contact Centre Services. In January 2007, VADS was awarded an in-sourcing contract to manage the TM Retail Contact Centre (TMRC). This involved the handling of TMs inbound and outbound calls including the directory assistance services (103), domestic and international assistance services (101) and emergency services (999), TM 100 services (Sales and Service, Telephone Fault Management, Credit Management (inbound and outbound) and Telegraph), Maritime Operator assisted service and outbound Telemarketing which operate accross various locations accross the country. VADS succeeded in ensuring a seamless transition with undisrupted service for the TMRC services. As a result, VADS is now the largest contact centre service provider in Malaysia with over 3,700 Customer Service Representatives across 8 locations around the country.

VADS acquired Meganet Communications Sdn Bhd on 1 June 2007 for a consideration of RM8.2 million from TM and NTT Communications Corporation of Japan. This was to expand the MNS product suite and strengthen its capabilities in the provision of LAN services.

SYSTEMS INTEGRATION SERVICES (SIS)

SISs forte is in Microsoft Office Communications Server 2007 (OCS), Servers, Managed Storage and Software Tools. In March 2007, as a National & Regional Systems Integrator for Microsoft Unified Communications, VADS was commissioned by a US-based multinational company to deploy the first Unified Communications

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TM Ventures

FIBERAIL SDN BHD

Fiberail Sdn Bhd was incorporated in 1992 as a joint-venture between TM and Keretapi Tanah Melayu Berhad (KTM) to provide telecommunication network-related services. In 2006, Fiberail purchased Petrofibre Network (M) Sdn Bhd, as a result of which, the latter became a shareholder in Fiberail. The acquisition was designed to bring synergistic benefits to the parties and to give Fiberail usage of two corridors, namely the KTM railway corridor and Petronas gas pipeline corridor. A "carriers carrier", Fiberail owns fibre-optic cable networks alongside railway and gas pipelines. The company provides the backbone infrastructure in the form of dark fibre leasing,

bandwidth services, Metro Ethernet, ancillary services and turnkey network solutions to Telco providers, managed network service providers, global operators, discounted voice operators and broadcasting operators. Given its fibre network across the length and breadth of the country in both rural and urban locations, Fiberail plays a vital role in complementing TM Groups efforts in supporting the Governments aspirations to establish Malaysia as a global hub for communications and multimedia. For the financial year ended 31 December 2007, Fiberail reported revenues of RM111.2 million, representing a growth of 12.6%, while PAT stood at a record RM15.0 million. The significant growth in profit of 135.2% was mainly attributable to the contribution from project management services provided to MMC Gamuda Joint Venture for the establishment of an Electrified Double Track Project between Ipoh and Padang Besar for KTM Berhad. This, coupled with a

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steady growth in sales from core products mainly fibre optic core and bandwidth, as well as other contract services, ensured profitability. Fiberail currently owns 140,525 km of fibre optic core network compared with 138,293 km in the preceding year. The network rides along KTMs and Petronas railway and gas pipeline corridors respectively and stretches throughout the length of the peninsular with an additional network along the gas pipeline corridor to the east coast. This offers customers diversity, resilience, and wide coverage, which is of vital importance in the fast-expanding telecommunications arena. In 2006, Fiberail was granted an extension of its operating licence by the Malaysian Communications and Multimedia Commission, a move which allows the delivery of additional value to its customers via a wider network reach in line with the Companys continuing effort to extend and improve its network coverage. In furtherance of the objective to always boost customer confidence and enhance customer service, Fiberail has implemented its ISO 9002 certification which encompasses planning, development, operations and maintenance, business management and support services of the fibre optic network for telecommunications, as well

as business development for new products. Fiberails strict adherence to ISO 9002 procedures ensures consistency and customer satisfaction at all times. To support its growing customer base, Fiberail has 20 operation centres nationwide, the National Control Centre at KTM Berhads hub in Kuala Lumpur and a 24-hour Helpdesk. The year 2007 was clearly a growth year for Fiberail, given its sterling performance, and the major opportunity it secured with MMC-Gamuda Joint Venture for the electrified doubletracking project. This is an initiative by the Malaysian Government and KTM Berhad under the Railway Infrastructure Development Project to convert the existing single-track railway infrastructure to a modern electrified double-tracking network which would offer increased line speed and throughput to Peninsular Malaysias railway network. Work is in progress and due for completion in five years. Fiberail will also see its resilient infrastructure and technical expertise supporting the WiMAX rollout. Asiaspace Sdn Bhd, one of the four companies awarded the WiMAX licence has selected Fiberail, together with TM, to provide the use of a fibre-optic network for Asiaspaces backhaul.

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MENARA KUALA LUMPUR SDN BHD

The fourth tallest telecommunication tower in the world and the tallest in South-East Asia at 421 meters above ground level, Menara Kuala Lumpur offers a unique blend of culture, adventure and nature not easily found elsewhere in Kuala Lumpur. Situated within the landmark Bukit Nanas Forest Reserve, one of the oldest forest reserves in the country, the Tower blends into the natural surroundings and offers splendid panoramic views to those who venture up to the top. Besides being a major tourist attraction, Menara Kuala Lumpur plays a vital role in broadcasting and telecommunications, of which its main partners are national broadcaster Radio Televisyen Malaysia (RTM) and its parent company, TM. Originally constructed to improve the quality of telecommunications and broadcasting transmission services in the country, Menara Kuala Lumpur has become a symbol of Malaysia as a progressive regional business hub. The number of visitors to the tower has increased markedly from the day it was first opened in 1996. As at December 2007, Menara Kuala Lumpur received a total of 9,615,240 visitors. The year 2007 alone saw Menara Kuala Lumpur receiving 765,584 visitors comprising more than half a million foreign tourists who came mainly from India, Japan, United Kingdom, Hong Kong and Australia. For the financial year ended 31 December 2007, Menara Kuala Lumpur recorded a revenue of RM93.3 million, representing a growth of 5.1% over the previous years of RM88.8 million, while PAT was RM50.4 million compared to the RM47.2 million achieved in 2006, or an increase of 6.8%. A key factor for the improved performance was the

success of the international tourism campaign under Visit Malaysia Year 2007 which saw an influx of inbound tourists into the country. Additionally, in conjunction with Malaysias 50th Independence Celebrations in 2007, Menara Kuala Lumpur introduced a Unity & Harmony theme into its promotions which portrayed the beauty and strengths of Malaysia through the blending of cultures of people from different ethnic backgrounds, traditions and religions. These activities received widespread coverage from both local and international media and footage was also viewed worldwide through the Internet. As an icon for Brand Malaysia, Menara Kuala Lumpur has contributed to the countrys international profiling by introducing a number of signature events which are exclusive and have proven popular internationally. These are the KL Tower International Jump Malaysia and the KL Tower International Forest Towerthon Challenge where participants venture up the flight of 2,058 steps ending at 382 meters above sea level. Having played host to the KL Tower International Jump Malaysia for the past nine years, Menara Kuala Lumpur has been acknowledged as the World Basejump Centre among those seeking adventure and thrills. The objective of this event is not only to cater for professional jumpers from all over the world who relish the opportunity to jump from tower to tower in Malaysia, but to promote every participating tower namely Menara Pelita (Sarawak), Menara Tun Mustapha (Sabah), Menara Alor Star (Kedah), Menara Komtar (Penang), Menara Kuala Lumpur and Menara TM (Kuala Lumpur).

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Also for the first time, Menara Kuala Lumpur was given the honour of hosting the World Federation of Great Towers Conference from 3-8 September 2007, which involved participants from famous towers all over the world. Participants of the conference were exposed to Malaysian culture and heritage and made a visit to Putrajaya, the federal administrative capital. At this conference, Menara Kuala Lumpur recorded the largest number of participants since the Federation was formed in 1989, and history was made when Eiffel Tower was welcomed back into the Federation during the conference. Sometimes referred to as the Tower of Hope, Menara Kuala Lumpur has always played its role in Corporate Social Responsibility. In 2007, Menara Kuala Lumpur responded with aid to flood victims and also organised a series of charity activities alongside the Down Syndrome Association and for cancer patients at hospital paediatric wards throughout six locations in Malaysia. In line with the Governments initiative to promote Agro-Tourism, Menara Kuala Lumpur has organised activities with the Ministry of Agriculture, the Malaysian Pineapple Board and RISDA, among others, with the aim of creating awareness among visitors to the tower of some of Malaysias best agro products that have left their mark in the international marketplace. In 2007, Menara Kuala Lumpur also launched an international campaign in search of its 10th million visitor who stands a chance of visiting the Eiffel Tower Paris through a collaboration between Menara Kuala Lumpur and Eiffel Tower as members of the World Federation of Great Towers.

Moving forward, Menara Kuala Lumpur will continue to focus on Culture, Adventure and Nature (CAN). This is its unique offering to both local and international visitors. The tower is expected to receive another 1.5 million visitors in 2008.

Menara KL providing a birds eye view of famous Malaysian hospitality

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TM INFO-MEDIA SDN BHD (TMIM)

TM Info-Media Sdn Bhd (TMIM) is the publisher of the Yellow Pages, White Pages, Malaysian Chinese Pages, Malaysia Tourist Pages, Halal Pages, Oil & Gas Directory and Corporate Agriculture Pages. In 2006 the company embarked on a business transformation exercise involving the enhancement of Internet Yellow Pages (IYP) features and the revamping of several industry-based directories to create a new look and feel to the Yellow Pages main books. Successful collaboration with various government agencies and ministries were chartered in respect of its niche products. Transiting into 2007, TMIM undertook to focus on improved distribution, marketing and sales for well-rounded and balanced progress. New strategies were put in place, especially in distribution, and a more competitive and incentive-driven sales strategy was devised to spur sales growth. All in all, the year 2007 was focused on enhancing operational capabilities and systems. With minimal capital expenditure in 2007, together with a well-planned and controlled operating expenditure, TMIM registered PAT of RM11.9 million, an increase of about 97.0% over 2006.

Highlights of 2007 included the introduction of a new product called the Mini YP (Mini Yellow Pages), designed for the consumer and positioned as a consumer directory-in-the-car. Given its targeted distribution strategies, Mini YP is set to be a winning product in 2008. The IYP has also shown improvements in revenue and page views. Charting the highest revenue growth rate in 2007 at almost double the previous year, IYP is one of TMIMs most promising products. The growth of IYP is indicated by a monthly average number of visits of more than 300,000, a five-fold increase from the previous year. This is a result of richer content that also includes maps. TMIMs initiatives to be a broad-based multi-channel company that offers a comprehensive electronic and print media solution will be fully realised in the near to medium term. Its current directions are to grow the traditional business while penetrating new markets that are technology driven such as mobile and the Internet. YellowPost, the Klang Valleys Free City Paper, is one initiative designed to ensure a positive value chain and new marketing platform for Yellow Pages advertisers.

A stable of consumer and business directories

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Fibrecomm Network (M) Sdn Bhd was incorporated as a joint-venture company between a subsidiary of Celcom (M) Bhd, Celcom Transmission (M) Sdn Bhd, and Tenaga Nasional Bhd. Fibrecomms core business is in telecommunication network services provision with a focus on connectivity and application services designed to cater for the needs of service providers. To date, Fibrecomm has installed approximately 98,000 fibre kilometers (running on high speed capacity of up to 10 Gbps), that form a unique transport and access network throughout Peninsular Malaysia. Fibrecomm offers a focused range of services including dark fibre, wavelength, bandwidth, IP, Ethernet and Co-location services. With its full-service offerings, Fibrecomm is well positioned to address the needs of customers for a reliable network performance, short time to market, cost-effective solutions and excellent service. In its effort to strengthen and establish Fibrecomm as the network carrier of choice in not only Malaysia but also the region, Fibrecomm has extended its network reach to Thailand, Singapore and East Malaysia. At Fibrecomm, the company recognises that its customers demand nothing less than the best when it comes to reliability of the network, product innovations and quality service. From time to time customer satisfaction is measured through surveys. In this regard, Fibrecomm was ranked first in term of customer satisfaction based on a survey conducted by an independent research company in 2007.

The year 2007 was one of strong growth for Fibrecomm which saw its financial and market position within the industry further strengthened. Revenue grew from RM49.3 million to RM64.5 million, representing a 31.0% improvement year-on-year. In terms of profitability, Fibrecomm reached a new milestone with PAT at RM11.1 million, marking a year-on-year growth of a record 576.0%. The improved performance was attributed not only to effective cost management, aggressive efforts to acquire new customers from new markets and timely rollout of products and services, but also from the continued confidence of the customers in Fibrecomms network and services. Moving forward, Fibrecomm remains committed to boosting shareholder value by sustaining, if not improving, upon the growth momentum set in motion in 2007. This will be done by further enhancing customers experiences, developing people and seizing opportunities to accelerate growth. The Company will continue to strive to bring state-of-the-art technologies and solutions to the marketplace, to live up to its core vision which is to be the network carrier of choice in Malaysia and the region.

FIBRECOMM NETWORK (M) SDN BHD

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UNIVERSITI TELEKOM SDN BHD (MULTIMEDIA UNIVERSITY)

As the first wholly-private university to be established in Malaysia, Multimedia University (MMU) strives to be a worldclass academic institution in its chosen fields of engineering, information technology, management and multimedia technology. The year 2007 brought outstanding successes in MMUs ongoing mission to position itself as a major international institution as it engaged within the Asia-Pacific region across the full range of its responsibilities, including research, undergraduate and postgraduate education and community services. Faculties in MMU have also stepped up their alliances with the best teaching resources in the world to offer compelling degree programmes. Such partnerships have brought a wealth of learning opportunities to MMU students and enhanced the market value of MMU degrees worldwide. Notable partnerships initiated or launched in the year included: Student Exchange and Staff Exchange, Proposed Joint R&D, Joint Research and Seminar Programmes (Dian Nuswantoro University, Semarang, Indonesia) Student Exchange and Staff Exchange, Proposed Joint R&D, Run IELP Programme (Lanzhou Foreign Languages and Vocational College, China) Student Exchange and Staff Exchange, Proposed Joint R&D (Payame Noor University, Iran) Student Exchange and Staff Exchange, Postgraduate Scholarships, Proposed Joint R&D (Tashkent State Technical University, Uzbekistan)

Student Exchange and Staff Exchange, Proposed Joint R&D (Taiwan University of Science and Technology, Taiwan) Student Exchange and Staff Exchange, Proposed Joint R&D (Qazwin Azad Islamic University, Iran) Student Exchange and Staff Exchange, Proposed Joint R&D (Shariff University of Technology, Iran) Student Exchange and Staff Exchange, Proposed Joint R&D (Al-Hosn University, UAE) Student Exchange and Staff Exchange, Proposed Joint R&D (University of Science and Culture, Iran) To Run IELP Programme (Aryanpour Language Centre, Iran)

MMU graduates are renowned for their quality, as demonstrated in their achieving a consistently high employment rate in industry. In the year under review, the MMU produced a total of 461 diploma graduates, 2,603 bachelor degree graduates, 181 master degree graduates and 10 PhD degree graduates. Student postgraduate enrolment rose to 2,020. The number of MMU students in 2007 totalled 19,464, as compared to 19,144 in the previous year and comprised 15,693 local students and 3,771 international students. The international students came from 79 countries.

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MMU establishing strong international links

Members of the Faculty and student body also received several noteworthy awards including: CISCO Networks Innovation Awards 2007. Best Converged Campus Network Award. CISCO Networks Innovation Awards 2007 2nd Prize - Altera InNoCom 2006. Altera InNoCom 2006 Outstanding Engineering Achievement Award (IEM) 18th International Invention, Innovation and Technology Exhibition (ITEX 07). Silver Medals Flat Gain Optical Best Student Chapter Website Award for 2006. The Institution of Engineering and Technology (Malaysia Branch) Awards IET Malaysia Leadership Award 2006/2007. The Institution of Engineering and Technology (Malaysia Branch) Awards IET Malaysia Best Student Chapter 2006/2007. The Institution of Engineering and Technology (Malaysia Branch) Awards SoftPedia 100% Clean Awards. SoftPedia Clean Awards 1st Runner-up. Agilent Malaysia Innovator Award 2007 ICRC International Humanitarian Law Moots Competition (National Level). ICRC International Humanitarian Law Moots Competition

Universiti Malayas (UM) Engineering Invention N Innovation Challenge (EINIC) 2007 Best Postgraduate Award

The Ministry of Education approved seven new courses in 2007. The new courses include Doctor of Engineering (Microelectronics), Doctor of Engineering (Telecommunications), Foundation in Engineering, Master of Computer Science in Software Engineering and Software Architecture, Foundation in Information Technology, Master of Accounting and Diploma in Business Administration. Under the Academic Quality Assurance, MMU promotes public confidence that quality of provision and standards of its academic programmes are continually safeguarded and enhanced. A newlyaccredited course by the National Accreditation Board (LAN) is the MMU Diploma in Electronic Commerce. The year 2007 saw the Centre for Commercialisation and Technopreneur Development (CCTD) of MMU making a serious commitment to infuse the entrepreneurial spirit throughout the MMU community. This centre also received several noteworthy awards which recognised innovative students and other projects. The year saw MMU consolidating efforts to improve its facilities in support of the Universitys scholarly pursuits and research activities. In October 2007, MMU was awarded the MS ISO 9001:2000 Quality Management System

MMU pushing quality education to new heights

for certification for both campuses in respect of the provision of Library Services and management of Student Records. In achieving ISO, MMU is better placed to be on par with other older reputable academic institutions in Malaysia who implemented ISO much earlier. Financially, MMU continues to be a self-sustaining university and funding for the development of the Phase II Cyberjaya Campus came from internally-generated funds. On 2 January 2008, MMU appointed Prof Dr Zaharin Yusoff as its new President. Dr. Zaharin, a Professor with experience in Computational Linguistics and Artificial Intelligence, was formerly the Dean of the College of Graduate Studies at Universiti Tenaga Nasional (UNITEN).

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Telekom Smart School Sdn Bhd (TSS) was established on 22 July 1999 to develop and implement the Malaysian Smart School pilot project in collaboration with the Malaysian Ministry of Education (MOE) and Multimedia Development Corporation (MDeC). Since the completion of the project in December 2002, TSS, an MSC-Status Company, has established several key businesses in e-Education such as web-based school applications (eSkool - School Management System and eLearn - Learning and Content Management System) and content development services, both for the education and corporate sectors locally and abroad. As Malaysias foremost e-Education solutions provider, TSS has completed numerous content development projects for the Ministry of Education (MOE), Ministry of Higher Education (MOHE), Multimedia College (MMC) and Brunei Ministry of Education, amongst others. In a sustained effort to reinforce itself as the leading e-Learning player in the market, TSS is also dynamically involved in promoting its products and services via exhibitions and seminars to targeted audiences and collaborating with both international and established local partners and associates, to offer a wider range of e-Learning products and services.

TELEKOM SMART SCHOOL SDN BHD

Widening the Smart School curriculum in schools

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TM Facilities Sdn Bhd (TMF), a whollyowned subsidiary of TM established in 2002, is focused on performance improvement and transforming its businesses into profitable entities. The company has successfully undertaken two phases of transformation with the objective of streamlining its business activities. TMF is the holding company of two wholly-owned subsidiaries, namely TMF Autolease Sdn Bhd (TMFA) and TMF Services Sdn Bhd (TMFS). TMFA provides auto-leasing and vehiclerelated business, whilst TMFS provides facilities management services to TM Group. For the financial year ended 31 December 2007, TMF Group recorded total revenue of RM237.6 million and PAT of RM29.9 million. The main contributor to revenue was TMFS (72.0%) and TMFA (24.9%). The Group will continue to remain focussed on creating wealth and enhancing its shareholder value by providing better quality services and delivering operational efficiencies.

Malaysia Business remains the major TMFA customer with 3,966 units leased, or 70%, while the remaining units are leased to related subsidiaries of TM. In pursuit of quality, TMFA in 2007 conducted several quality programmes for its customers including safe driving. It also scored 88.5% in a Customer Satisfaction Index (CSI) based on a study completed in October 2007. For the financial year ended 31 December 2007, TMFA registered a revenue of RM59.1 million. With operating costs at RM27.8 million, the PAT recorded was RM22.6 million. Most of the revenue or 99.0% was derived from the Management and Maintenance Package (MMP) fee for TM vehicles. As for prospects in 2008, stakeholders will be assured of further improvements in performance and positive growth in shareholder value as TMFA strives to continue providing greater efficiency in its services to the TM Group.

TM FACILITIES SDN BHD

TMF AUTOLEASE SDN BHD TMF Autolease Sdn Bhd (TMFA) oversees the fleet management of TM Group nationwide. The key tasks are to ensure all vehicles are roadworthy, utilised optimally and available at all times for the purpose of business operations and support. As at 31 December 2007, the total number of vehicles stood at 5,478 units with various makes and models ranging from utility vans, saloon cars, four-wheel drives and lorries. Besides its fleet, TMFA manages a total of seven zone offices and 30 service outlets nationwide.

TMs Fleet

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TM Resort Cameron Highlands

TMF SERVICES SDN BHD TMF Services Sdn Bhd (TMFS) provides services in relation to the daily operations and maintenance services for all TM facilities and installations nationwide, which include exchanges, telecommunication towers, masts, office buildings, AC & DC, generators, hill stations, cabins, retail outlets, museums, warehouses, staff quarters, multimedia colleges and resorts. TMFS comprises two primary units the Operations & Maintenance Unit, responsible for daily operations, and the Project Management & Consultancy Unit, which is involved in project-related activities.

Throughout 2007, TMFS has taken various measures in improving service quality to customers. This was reflected in a significant improvement in its Customer Satisfaction Index of 92.4%, whereas power availability remained at a high level of 99.9%. In 2007, TMFS completed the EMS ISO 14001 and QMS ISO 9001:2000 exercise, as well as conducted a quality programme based on the 5S (Sort, Set in order, Shine, Standardise and Sustain). In 2007, TMFS also constructed a total of 20 telecommunication towers worth RM15 million for the Malaysian Communication and Multimedia Commission (MCMC) in respect of its Universal Service Provision (USP) project along the East West Highway which is aimed at providing seamless network coverage along the highway.

For the financial year ended 31 December 2007, TMFS registered a revenue of RM171.0 million and PAT of RM5.5 million. A total of RM147.3 million or 86.1% of the revenue was generated from Comprehensive Facilities Management services rendered to TM, whilst the rest came from requested services, including project management fees. In 2008, TMFS will continue to enhance its operating efficiencies and improve the quality of its services to the TM Group.

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Property Development division or PD, the in-house adviser on land and building matters, manages TMs land bank and assets. PD contributes to the Companys bottom line by unlocking TMs idle land bank through disposal or development of identified parcels of land jointly with reputable developers. As the custodian of all TMs nonnetwork assets, PD is also responsible for property and land administration of these assets. Apart from creating value from the land bank, PD also proposes cost-savings options particularly in respect of utilities consumption and related property taxes. In 2007, PD contributed savings of RM5.1 million in reduction of land lease expenses. In line with TMs objective to unlock value of non-core assets, PD also concluded the sale of Wisma TM in Kuala Lumpur to Pesuruhjaya Tanah Persekutuan for a purchase consideration of RM70 million. To date, PD has successfully unlocked over 1,694 acres of land, of which 56 acres were

disposed of, and the remaining jointly developed with partners over periods ranging from three to seven years. In 2008, PD will continue on the initiatives to unlock TMs Group land bank. Another key objective for 2008 would be the securitisation of nonnetwork assets, which is in line with TMs rationalisation exercise.

PROPERTY DEVELOPMENT

Enhancing value of TMs landbanks

On 14 August 2007, in line with continued rationalisation of non-core assets, TM entered into a Sale and Purchase Agreement to dispose its entire equity interest in its whollyowned subsidiary, TM Payphone Sdn Bhd (TM Payphone), to Pernec Corporation Berhad (Pernec), for a total consideration of RM22.0 million. The

divestment which was completed on 31 December 2007 supports the strategic intention of TM to focus on its role as mainstream network facility and service provider. TM Payphone ceased to be a subsidiary of TM, effective from 1 January 2008 and is now whollyowned by Pernec.

TM PAYPHONE SDN BHD

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International & Domestic

Infrastructure & Trunk Fibre Optic Network

Intelsat (IOR)
60E 62E 64E

Thai Com5
78.5E

Measat-1 & Measat-3

91.5E

Palapa C2 113E

To Europe, Middle East & South Asia

Kangar Alor Star Bedong Sg. Petani Kuala Muda Penang Bayan Baru Bkt. Kayu Hitam Pasir Mas Banting Kota Bharu

FLAG SEA-ME-WE-3

SAT-3/WASC/SAFE
To Africa, India & Europe

Kulim Sg. Jaya

Kuala Krai K. Terengganu Padang Hiliran

Taiping Dungun Sitiawan Ipoh Tg. Malim Rawang Shah Alam Klang Cyberjaya Port Dickson SEA-ME-WE-4
To Europe, Middle East & South Asia

Kijal Beserah Temerloh Cherating Kuantan APCN2

To ASEAN, Asia Pacific & USA

Kuala Lumpur Seremban

Segamat APCN
To ASEAN, Asia Pacific, Oceania & USA

Melaka Muar Batu Pahat Skudai Kluang Mersing

DMCS
To Indonesia

SEA-ME-WE-3

Kota Tinggi

Johor Bahru BRCS

To Indonesia

Thai Com1A
120E

ASIASAT 4 122.2E

JCSAT3 128E

Kota Kinabalu

Kinarut

Labuan

Miri Bintulu

Legends
Trunk cable Satellite Earth Station 4 International cable landing stations 7 Domestic cable landing stations Trunk nodes

Kuching

Malaysian domestic submarine cable system (MDSCS) Fibrecomm Fiberail

Business Review

Asian Economies and the

Telecommunications Sector:

Review & Outlook

OVERVIEW 2007
The global economy saw growth in nearly all the major regions in 2007. China continued to be a growth engine for the Asia Pacific region, with its healthy growth rate of over 11.0% in 2007, while India, the second most-populous country, trailed behind with growth of over 9.0%. Malaysia itself recorded a robust 6.1% growth in 2007.

Comparatively, the year witnessed 2.6% growth in Europe, 2.1% in the United States and 1.9% in Japan. That economic growth continued to come primarily from emerging markets can be reinforced by a comparison of stock market indices globally. The S&P and the NASDAQ Composite indices improved by 4.8% and 10.6% respectively compared to more than 90.0% gains for the Shanghai stock market, and an average of over 40.0% for most of the other emerging markets.

Chart 1: GDP Growth Rates in 2007 (Estimates): Select Countries in Asia Pacific, Europe and the US
2007 GDP GROWTH
14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Australia Cambodia India Malaysia Singapore Sri Lanka South Korea Euro Region Bangladesh China Indonesia Pakistan Thailand Vietnam Japan US

Source: Country Central Banks, Economic development units, The Economist and others

OUTLOOK 2008
The prospect of an economic slowdown in the US marked by a falling US dollar and continuing high oil and commodity prices have begun to temper growth prospects for 2008. The exposure to the sub-prime market for American financial institutions and its concomitant impact on the US economy is further exarcebated by the challenge of maintaining a high current account deficit. It is expected that global growth will trend downwards from 3.6% in 2007 to 3.3% in 2008 (Source: World Bank). Meanwhile, a falling US dollar will potentially result in lower margins for some of the export-led Asian and other emerging economies

(outside of pegged exchange-rate countries), thereby impacting regional and global growth prospects. Such economies can be expected to quickly diversify their markets from the US to Europe and elsewhere, as evident in the decline of the USs share of world imports from 19.0% in 2000 to 14.0% in 2007. Continuing high oil prices reinforced by high commodity prices as well as rising food costs globally can also be expected to increase input costs across all industries. The potential impact of all these factors could result in a re-rating of risk leading to a slowdown in investments and a drop in consumer spending in certain markets.

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However, the risks of a global economic slowdown should be looked at in the context of growth drivers in the emerging markets. For a number of emerging markets, growth is led by endogenous factors (especially India, but also for Malaysia, Thailand, Indonesia and Vietnam). While ostensibly China can be expected to be impacted, given its status as the worlds largest exporter, the risks are likely to be mitigated by strong domestic demand. The emerging markets led by China and India would be the key demand centres and a key focus of investments and growth for multinational and domestic firms, as witnessed recently by Vodafones buyout of Hutchisons mobile play in India. The World Bank, for example, remains optimistic in its estimates of GDP growth for developing countries which is 7.1% in 2008, as compared to 2.2% for high-income countries. Moreover, non-traditional markets are now emerging as a key source of investment and capital both through the private sector, and increasingly, through sovereign funds.

Critical to the growth of the global economy would be therefore the ability to bridge the "connectivity divide". The global mobile customer base has reached around 3 billion by the end of 2007 with about 1 billion people connected through home or office to

some form of Internet connectivity, including dial-up and broadband. The key challenge would be to extend the mobile connectivity to more than 50.0% and 85.0% of global unconnected mobile and Internet populations respectively.

Chart 2: Estimated Mobile Penetration end 2007: Select Countries in Asia Pacific, Europe and the US
2007 End Mobile Penetration (estimated)
140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Australia Cambodia India Malaysia Singapore Sri Lanka Bangladesh Indonesia Pakistan South Korea Thailand Vietnam Japan China US Western Europe

Source: Company 3rd Quarter 2007 results and F&S estimates

TELECOMS OUTLOOK 2008

A critical measure of the development of any economy is the usage of telecommunication services in that country. Telecom services can be said to have a symbiotic relationship with the economic conditions in a particular country. While the growth in any economy is a causal factor for the increasing penetration of telecom services, given increasing disposable incomes to buy telecom services, the pervasiveness of telecom services is in itself a contributor to GDP growth by increasing the efficiency and productivity of transactions and business processes.

From Chart 2, it is apparent that mobile penetration growth was driven by Asian economies in 2007. Going forward, a critical aspect of the growth momentum would be the application of business models focusing on a scale strategy (in contrast to market skimming) which would mean lower end-user prices, sharing of infrastructure and in certain cases, sharing of end-user terminals. The liberalisation of the telecoms sector has enabled market forces to derive optimal business models depending upon the socio-economic conditions in a said market to inevitably diffuse technologies in the country. Playing on the Bottom of the Pyramid strategies in India, for example, meant that while a

mobile call at US 1 cent a minute is probably the cheapest in the world, the market is the fastest growing (adding around 5-6 million customers a month) and the players remain profitable. The hunt for the next 500 million subscribers in the Asia-Pacific region would require innovative market penetration strategies in all emerging markets. Telecom service providers will need to figure out different ways to connect the unconnected at increasingly lower price points. This will involve both community level connectivity (e.g. a small village with one wireless based voice and or data connectivity) as well as concomitant pressure on vendors to continuously reduce equipment prices.

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For provision of broadband access, the emerging markets would see a greater usage of mature technologies of the xDSL kind given the rapid equipment commoditisation advantages; in some markets, however, wireless connectivity through both GPRS/HSPA and or any of the WiMAX flavours could be used to bridge the gap. More developed markets in the region (including Malaysia) would see higher penetration of data specific technologies (3G and HSPA in the wireless space, potential fibre rollout in the fixed space) to provide the infrastructure and an inevitable doubling of bandwidth yearon-year usage by the consumers (driven by growth in the Peer to Peer or P2P

traffic along with the various Web 2.0 based video streams). 2008 will also see the provision of converged services so as to offer enhanced functionality through service blending by blending voice, video, data and wireless technologies. While the monetisation end-game of a variety of newer services (e.g. mobile TV, IPTV etc.) is still uncertain, given the twin imperatives of competition and the reality of no alternatives, telecom service providers will inevitably go on upgrading their last-mile access speeds. The expectation is that an availability of infrastructure would drive the growth of traffic and help deliver value for infrastructure providers.

that the total fixed line subscriber base would remain stable regionally and globally, for the next few years. The global broadband access market stood at about 330 million subscribers at the end of the third quarter of 2007. The Asia-Pacific region accounted for about 125 million subscribers at the end of the same period. The biggest markets in Asia include China with about 63 million lines, Japan with 28 million and South Korea with 14 million lines. The South-East Asian market is still in broadband infancy with Malaysia, currently the largest market, registering around 1.2 million subscribers and the rest of the countries in the region with broadband subscriber bases of less than one million. The broadband market is being driven globally by changing consumption and lifestyle patterns on the one hand, and productivity enhancements to businesses consequent to high access Internet services on the other. The South Asian markets have one of the lowest broadband penetrations in the region with India having a total of about 2.3 million subscribers and the rest of the countries having penetration rates of under 1.0%. The South-East Asian and South Asian markets are ripe for double-digit growth rates in their broadband subscriber base for the next few years.

Chart 3: Change in Mobile Penetration (2007-2011): Select Countries in Asia Pacific, Europe and the US
Western Europe US Australia Bangladesh Cambodia China 2007 End Mobile Penetration (estimated) Vietnam India 2011 End Mobile Penetration (estimated) Thailand Indonesia

Japan

Sri Lanka South Korea Singapore

Malaysia Pakistan

Source: F&S Analysis The fixed line market on the other hand has been stagnant over the last two years globally at around 1.25 billion subscribers. The Asia-Pacific region accounts for about 500 million subscribers although the rate has been growing at less than 4.0% annually. The market growth had been primarily led by China although there are signs of a slowdown there as well. Not much growth has been evident in the SouthEast Asian and South Asian markets. Nevertheless, the mobile substitution of fixed has been to a certain extent tempered due to the growth of the fixed broadband market. It is thus expected

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Chart 4: Estimated Broad Mobile Penetration end 2007: Select Countries in Asia Pacific, Europe and the US
2007 End Broadband Penetration (estimated)
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Australia Cambodia India Malaysia Singapore Sri Lanka Bangladesh Indonesia Pakistan South Korea Thailand Vietnam Japan China US Western Europe

In summary, it is expected that the prospect of a global slowdown consequent to the economic challenges faced in late 2007/early 2008 in the United States will be tempered by high expectations of sustained growth in the Asian economies. Led by China, followed by economies like India, and other emerging markets such as Vietnam, Asian economies will continue to realise their growth potential. Such growth will also have positive impact on prospects for the telecommunications sector especially in the mobile and broadband sectors.

Source: F&S Analysis

The global Shared Services and Outsourcing (SSO) market is estimated to be valued at around US$ 930 billion in 2006 and is projected to reach US$ 1,430 billion by 2009, growing at a compound annual growth rate or CAGR of 15.0%. Offshore SSO activity (defined here as including in-sourcing and outsourcing) constituted around just 10% of the total pie, and is expected to grow at double the rate for the SSO industry. The key drivers for SSO have continued to be cost benefits through

standardisation, leveraging of scale benefits, and cost arbitrage in countries like India, China and Malaysia. Other benefits include the ability to free up management time to allow companies to focus on their core competencies, the drive for more business innovation even in non-core areas and the ability to reap benefits from standardisation and resulting efficiencies. All of this has encouraged large corporations to explore further expansion of their current SSO operations.

SOUTH-EAST ASIAN MARKETS OUTLOOK 2008

The South-East Asian region is a mix of more developed countries like Singapore and just emerging economies like Cambodia and Laos. The disparity in economic development across the region can be seen in mobile penetration rate comparisons above 100.0% in the case of Singapore and less than 10.0% in the case of Laos. The Singapore economy maintained its robust expansion, growing in excess of 7.0% in 2007. Robust growth was recorded across most industries notably in the non-IT industries and asset market-related activities. Looking ahead, the Monetary Authority of Singapore (MAS) expects the economy to continue to expand in 2008, albeit at a more moderate pace. Strong domestic demand and improved prospects for trade in the Asian region will continue to provide support and drive GDP growth at a medium-term potential rate of 4.5% to 6.5% in 2008.

Chart 5: Global SSO Spend across the various Industry Verticals (2006 and 2009)
Spend on SSO by Vertical ($bn)
SSO Revenue 1,500 1,200 900 600 300 0
256 94

Healthcare FMCG Retail Technology T&L

130 59 233 113 39 84 273

420

147 52 100 361

E&M Energy BFSI

2006

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With a penetration rate in excess of 110.0%, the mobile services market in Singapore can be considered as one of the most saturated markets in the region. The mobile subscriber base in Singapore is expected to grow at a CAGR of 7.4% between 2006 and 2011 on account of demand emanating from the prepaid segment which caters to the lower-end market as well as the foreign-worker population. The Malaysian economy expanded by around 6.1% in 2007. On the supply side, the growth was attributed to the expanding services and manufacturing sectors. Robust domestic demand and a projected improvement in exports of electrical goods are expected to sustain the economys momentum into 2008. Consumer spending will again be the main driver of growth, supported by expected increases in incomes. The Malaysian government budget announced in September 2007 is based on expectations of 6.0% to 6.5% growth in 2008. With a mobile penetration in excess of 80.0%, the mobile market in Malaysia is maturing. It is expected that the total mobile subscriber market will sustain positive growth to reach 27.5 million subscribers by 2011 growing at a CAGR of 7.1% between 2006 and 2011. In line with impending market saturation, the mobile market is already showing signs of slow down in growth.

On the back of strong exports and higher consumer spending, the Indonesian economy continued to gain momentum in 2007 to register a growth in excess of 6.0% its best performance since the Asian financial crisis of 1997. The growth was mainly supported by private consumption expenditure and a rapid expansion in net exports. Bank Indonesia recently revised its projection for GDP growth from 6.5% to 7.0% for 2008 in line with anticipated export gains from rising commodity prices and increased Government spending on infrastructure such as roads and ports. Indonesia is one of the fastest-growing mobile markets in the South-East Asian region. The local mobile market comprises predominantly prepaid users, which accounted for approximately 96.0% of its total subscriber base as at the third quarter of 2007. Due to the disproportionately large prepaid segment and high price sensitivity, the ARPU in Indonesia is among the lowest in the region. However, mobile penetration is expected to reach about 67.0% by 2011, and will account for a staggering 175 million subscribers. According to the Cambodian Ministry of Economy and Finance, the economy is estimated to have grown by 8.5% in 2007. Growth was expected to be lower than 2006 due mainly to the expected slowdown in the manufacturing of garments attributable to increased competition from other producers, including Vietnam, which was inducted into the World Trade Organisation in January 2007. For 2008, the Ministry of Economy and Finance projects a GDP growth of 7.0%.

Cambodia is another fast-growing mobile market in South-East Asia, having registered phenomenal CAGR of 36.6% between 2003 and 2006. At the end of 2007, its subscriber base was about 2.4 million, with a corresponding mobile penetration rate of 17.2%. The local mobile market comprised predominantly prepaid users, which accounted for close to 90.0% of its total subscriber base in 2006. The Cambodian mobile market is expected to achieve a penetration rate of around 38.0% by 2011 which will be accounted by about 6 million subscribers. The prognosis for the rest of SouthEast Asia remains positive. In particular, Vietnam, Thailand and the Philippines can expect their mobile and broadband markets to grow at double-digit rates in 2008 and beyond.

SOUTH ASIAN MARKETS OUTLOOK 2008

South Asia with a population in excess of 1.5 billion has been one of the fastest growing mobile markets in the world, having recorded more than 6.0% economic growth in 2007. Given its sheer size, South Asias telecoms industry for both fixed and mobile sectors can only be expected to grow in 2008 and beyond. India, the largest South Asian market, achieved economic growth in excess of 9.0% in 2007. Most of the growth came from the services and manufacturing sectors. It is expected that the growth may marginally slip to 8.0% in 2008 on the back of higher interest rates which could adversely impact consumer spending. The rapid appreciation of the

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Indian currency vis--vis the US dollar may also make Indian exports less competitive. While overall economic fundamentals look strong, India needs to remove infrastructure bottlenecks to fully realise its growth potential. Indias mobile industry is fast rising, with subscribers growing at a CAGR of over 73.7% between 2003 and 2006. The mobile subscriber base is expected to grow at a reduced CAGR of 28.1% from 2006 to 2011. A penetration of 44.2% is expected by 2011 leading the subscriber base to touch more than 500 million. GSM is the most widely-used standard, accounting for more than 70.0% of total subscribers as at the end of 2006. The Indian mobile market comprised predominantly prepaid users, which accounted for more than 85.0% of the total subscriber base. Due to the disproportionately large prepaid segment and their high price sensitivity, the ARPU in India is around US$7. The Sri Lankan economy continued its upward trend, registering growth of more than 6.0% in 2007. The growth is mainly attributed to value-added agricultural products such as rubber and livestock. Growth from the service sector was attributed mostly to wholesale and retail trade. The economy is expected to expand by another 6.0% in 2008. The mobile market in Sri Lanka has expanded very rapidly as a result of significant foreign investments in the telecommunications sector. The current penetration rate in Sri Lanka is around 27.0% and this is expected to grow to around 69.0% by 2011. The total subscriber base is 15 million mobile

subscribers and the positive outlook is expected to be driven by its large addressable market, increased affordability of prepaid plans and a conducive regulatory environment for telecommunications operators. The Sri Lankan mobile market is largely dominated by the prepaid segment, with prepaid subscribers accounting for more than 90.0% of total subscriber base. The Bangladesh GDP grew by 6.5% in 2007. Overall, the economic performance continued to remain strong, driven by improved domestic and external demand. The growth was fuelled by a dynamic garment sector, acceleration in private consumption, and a record increase in overseas workers remittances. In the current year, GDP growth is forecast to be below 6.0%, partly as a result of a number of natural disasters that have affected the country recently. The mobile industry in Bangladesh has been witnessing year-on-year growth of well over 100.0% in the past few years. The market has grown at a rapid pace of 113.1% CAGR between 2003 and 2006. At a penetration rate of 20.9%, there still remains room for growth considering its population size and economic growth. The mobile market comprised predominantly prepaid users, which accounted for approximately 94.2% of the total subscriber base in 2006. Due to the disproportionately large prepaid segment and high price sensitivity, the ARPU in Bangladesh was among the lowest at US$5. The number of mobile subscribers in Bangladesh is expected to reach 58.8 million by 2011 as it achieves a CAGR of 22.5%, bringing the mobile penetration rate to 36.0%.

The economy of Pakistan is expected to grow slightly below 7.0% in 2007. The growth came from the industrial and services sectors. The outlook for 2008 remains positive although there is some risk from political instability and anticipated slowdown in the manufacturing sector. The mobile subscriber base in Pakistan is expected to grow at a CAGR of 26.8% from 2006 to 2011, to achieve a penetration of 63.9% accounted by around 112 million subscribers. Subscriber growth rate is likely to slow down as the market saturates. However factors such as expansion of rural market coverage, increasing competition and innovative cellular service packages, acceleration of fixed-tomobile substitution, and lower costs of entry level handsets are likely to stimulate growth.

OTHER EMERGING MARKETS OUTLOOK 2008

While most of the South-East and South Asian markets have seen a huge growth in their telecoms sectors in the past few years, it is expected that West and Central Asia can be new engines of growth going forward. Countries like Iran, Iraq, Jordan, and Lebanon in West Asia and Kazakhstan and others in Central Asia present huge untapped potential, particularly in the mobile telephony sector, given existing levels of mobile penetration.

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Taking Iran as an example, the Iranian economy expanded by around 5.4% in 2007. Economic growth is expected to taper slightly in 2008 as incremental oil revenues may not be as high as in 2007. The Iranian mobile market is still in an early growth stage, with a mobile penetration of approximately 30.0% as at 30 June 2007. The mobile subscriber base in Iran is expected to grow at a CAGR of 27.2% from 2006 to 2011, and reach a penetration rate of 61.9% to 46.6 million subscribers by 2011. Factors such as network coverage expansion, the acceleration of fixed-tomobile substitution, increasing competition, the introduction of innovative cellular service packages and the anticipation of a third national service provider in 2008 are likely to encourage further growth.

but can provide significant impetus to economic growth. Maturing individual markets in the region are driving industry players to achieve global economies of scale by diversifying their mobile asset base across the region. Beyond mobile services, high-speed broadband or HSBB is the other major growth area in Asia where broadband penetration rates vary considerably. Generally, across Asia, broadband penetration rates are significantly lower than mobile penetration; and as the economies in Asia grow, there would be an increased demand for high-speed Internet connectivity. The broadband rollouts will see a mix of fixed (which will offer high-speed access) and wireless technologies (to fill gaps and cover under-served areas) playing to their individual strengths. A broadband revolution is on the cusp of replicating the mobile revolution of the last few years in Asia. Overall, Asian markets with their growing populations and fuelled by growing consumer appetite for telecoms, will provide the scale and scope for not only industry growth but GDP growth as well. For sure, the global future telecoms market belongs to Asia.

CONCLUSION
Asian markets offer an eclectic mix of technologically-advanced markets like Japan and South Korea, top performers like India and China and infant markets like Cambodia and Laos. There is tacit agreement amongst the governments and the private sector that bridging the connectivity gap is not only desirable

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Key Initiatives

BUILDING ENDURING CUSTOMER RELATIONSHIPS FOSTERING A NATION THROUGH CAPACITY BUILDING GEARING HUMAN CAPITAL TOWARDS BUSINESS EXCELLENCE BUILDING CAPABILITIES THROUGH DEVELOPMENT AND LEARNING TOWARDS GREATER INNOVATION OCCUPATIONAL SAFETY, HEALTH AND ENVIRONMENT (OSHE) CORPORATE RESPONSIBILITY

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Sustaining Life
The Paua shells primary significance is not beauty but safety. Growing as the Paua reaches maturity it offers the otherwise vulnerable creature shelter from harsh conditions of the ocean as well as protection from numerous predators. Its natural design allows it a modicum of mobility as well. The shell is also highly durable as it can withstand constant wear and impact. Thus the true value of the shell is the preservation of life.

Securing Destiny
Although TM plays a leading role in propelling people towards a knowledge-based future, we have never forgotten our primary objective of Helping People Lead Better Lives. This we do not only in our country of domicile but also wherever we operate. Regionally, as well as locally, our extensive Corporate Responsibility efforts are delivered on a variety of platforms Education, Sports, Nation & Community Building, and Humanitarian Aid. It is our hope that we respond to the needs of local communities wherever we are, so that we help secure their destinies.

Key Initiatives

Building Enduring

Customer Relationships

Facts at a Glance
103 TMpoint outlets 12 TMpoint transformed as One-Stop Service Centres 29 e-Kiosks 2 Drive-Thru TMpoint facilities TM Online Customer Self-service Portal Single Number Access for call centres

In todays highly-competitive environment, customer relationship management or CRM is no longer a catch-phrase; it has become a necessary strategy that is widely adopted across industries. In the communications sector as with other industries, customers are the lifeblood of an organisation and efforts are geared towards building enduring and mutually-satisfying customer relationships based on trust. This is what TM believes in and strives for. Each customer is unique, with different needs and expectations. Thus, our integrated and evolving CRM programme is focused on garnering customer insights and using the intelligence gained to better understand customers and meet their needs. As part of the TM transformation exercise, CRM within the Group has evolved toward a more holistic approach that strives to make customer centricity a reality. Over the years, the Group has focused its energies and merged the effective deployment of appropriate strategies, processes, people and systems in acquiring, satisfying and retaining customers.

CONTINUOUS COMMITMENT TOWARD CUSTOMER CENTRICITY

As the Group moves ahead towards becoming the communications company of choice, one of the key aims of its CRM programme is to know, identify and target valued customers, generate quality sales leads, plan and implement marketing campaigns with clear goals and objectives that are aligned with enhancing customer relationships. At the same time, the programme aims to provide a better experience for the customer-in service interactions at the frontline. Notable CRM programmes implemented in 2007 are iCARE (Integrated Customer Allied Relationship System), TMOnline (customer self-service portal), Single Number Access (100) for call centres and New Payment Collection Systems at TMPoints.

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An integrated programme with farreaching benefits, the iCARE project was implemented in three phases from May 2005. The system for Phase 1 was completed in December 2006 while the second and third phases were completed in April and October 2007 respectively. Specifically, iCARE provides TM with a fully-integrated CRM programme to better serve its wide base of customers and to transform the entire customer value chain based on global best practices, guidelines and business processes. The full deployment of iCARE will bring improvements in operational effectiveness while enhancing a customers experience when in contact with TM. Customer interaction points now have the same 360-degree view of the customer across departments, enabling a consistent reponse and attention to the customers requests. In call centres, the Integrated Customer Interaction capabilities and Workforce Scheduling have resulted in improved efficiency in call handling. The Quality Management Assignment System monitors the quality of customer interactions resulting in improved management of customer interactions. At the back office, the introduction of Field Service Workforce Scheduling and end-to-end visibility of order status has enabled tracking of the effectiveness of delivery service fulfilment and service restoration which is vital to customer satisfaction. With this new system, the most updated customer information is available to the field-force which enables them to address and resolve customers complaints quickly. The enhancement of the Sales Force Automation or SFA system was completed in December 2005, enabling sales personnel with the ability to access real-time customer information to pursue sales leads and conclude transactions effectively. They are now

Building relationships with customers

able to proactively identify valuable prospects and target them with sales efforts and campaigns to generate greater returns. The SFA system also comes equipped with a Marketing Encyclopaedia, which includes a product library with information on all TMs products and services. In an effort to better understand the customer and equip the sales force with the intelligence needed to better service customers, the Business Intelligence Unit has continued with the second season of its RM1 Million Reward Programme, a Group-wide initiative to enrich the customer profile data. Launched on 25 May 2007, the target population was TM Fixed, Celcom and

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TM Net customers. The campaign was successfully run and concluded on 31 December 2007 with a total of 1,163,821 application forms from customers. The valuable customer insights generated coupled with the Business Analytics tools of iCARE will enable TM to conduct more effective and targeted marketing campaigns specific to customers needs while improving customer retention through predictive churn analysis.

Celcom and TM Net) on 22 May 2007. With this streamlining, customers have simpler and faster access to all services within the TM Group. SNA Number 100 TMs Products and Other Services Purpose

By just dialling 100 the call will be diverted automatically to the appropriate Call Centres.

Customers can call the 100 number to enquire about products and services, fault reporting, payments and billing or to speak directly with TM customer service representatives. Customers only need to dial 101 to be connected to either a domestic or an international number.

ENHANCING CUSTOMER CONTACT POINTS

The Call Centre Rationalisation programme has achieved economies of scale and effective management control over business process and human capital utilisation improvements while enhancing the skill levels of customer service representatives. A key initiative to improving customer service and operational effectiveness was the transformation, rationalisation and consolidation of the call centre network. The physical relocation of 19 centres to four strategic locations, namely in Kuala Lumpur, Penang, Kuching and Malacca in the first quarter of 2006, was further enhanced with the introduction of the TM Single Number Access (SNA) across the Group. SNA refers to the 100 number, which is one of the three key numbers that TM customers need to remember whenever they require customer services via the contact centres. SNA was introduced to cover the three Opcos in TM (Malaysia Business,

101 Domestic and International Call Assistance Services 103 Directory Services

The directory services number 103 remains unchanged.

FOCUS ON CUSTOMER SERVICE EXCELLENCE

As the transformation journey continues, each point where a customer comes into contact with the Group will shape his or her perception of TM. As such, in the pursuit of customer service delivery excellence, all TM customer service representatives in our contact centres are being re-trained continually in specific areas. TM subsidiary, VADS Bhd, has been assigned the task to manage the operations of TM Contact Centres. During the year 2007, VADS trained and retrained all TM Customer Service Representatives. Throughout the year, the customercentric programme ensured that two key modules were covered: CRM System Tools & Training and Competency Based Training. In the effort to change mindsets and improve customer management/servicing skills, the programme will be further

enhanced with Business Process Training for all frontliners. This is a commitment by the management to further improve the customer service culture in TM.

BUSINESS WITH A CLICK ON TM ONLINE

TM Online is a customer interaction platform which is complementary to the CRM systems. Launched in 2005, the Business to Customer (B2C) functionality enables residential as well as small and medium enterprise customers to obtain information, download, make online payments or conduct transactions directly over the Internet, providing customer online convenience while lowering customer service costs. In June 2007, the Business to Business (B2B) functionality was added which extends these on-line services to business and corporate sector customers.

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Building Enduring Customer Relationships

DELIVERING THE PROMISE AT TMPOINT

Following TMs rebranding exercise launched on 14 April 2005, all Kedai Telekom nationwide underwent a successful transformation aimed at improving efficiency, productivity, customer service and customer experience (convenience, reach, grade of service, and image). A total of 103 Kedai Telekom (now transformed as TMpoint) were rationalised at the end of 2007. This includes the conversion of TM Net service centres called Clickers into TMpoint. Remaining TMpoints will be transformed in 2008. The transformation entailed a comprehensive identity change in terms of physical look and feel, relocation of stores, an evaluation and review of front and back-end processes and systems, and improved staff skills and competency levels. E-kiosk facilities were deployed at selected TMpoints to provide convenience for customers to pay their bills around the clock. At the end of the year under review, 29 e-kiosks were made available nationwide. Additional e-kiosks will be deployed in 2008. A Drive-Thru facility was deployed in selected TMpoints namely TMpoint Alor Setar and Jalan Burmah, Penang to provide added convenience for customers to pay their bills using drive through facilities at high traffic and congested areas. More Drive-Thru counters will be made available in 2008.

To expand TM channels and provide better reach for customer convenience, the TMpoint dealership programme was created for roll-out in 2008. This programme will support the entrepreneur development initiative embarked upon by Government-linked Companies or GLCs. To enrich and upgrade TMpoint as a One-Stop Service & Retail Centre, selected TMpoints will undergo further transformation aimed at integrating Celcom services as well as introducing mobile retail corners (known as Blue Cube) in order to offer a complete range of telecommunication products and services under one roof. A total of 12 TMpoints have been transformed under the One-Stop Service concept in 2007. TM successfully launched the New Payment Collection System (Phase 1) for front-end Points of Sale. This has significantly improved the customer payment collection process at all TMpoints while rendering it able to handle larger volumes of transactions. The average customer waiting and serving time has improved significantly. Phase 2 of the system which involves the back-end payment clearing house is scheduled to be rolled out in 2008. When implemented, updating of customer payments will be done efficiently in real-time thereby providing updated customer billing. At TMpoint, every effort is made to provide customers with solutions. In line with best practices and international standards of service, TM service

personnel are accountable for every transaction, treating every appointment with customers as a top priority. Visitors to TMpoint can expect a friendly greeting and service that is efficient and knowledgeable. That is TMs promise to customers. As a result of the transformation, Telekom Sales & Services Sdn Bhd (TSSSB) won the coveted TM Group Award 2006. Additionally, TSSSB won awards in two categories Best Counter Service and Most Innovative Company in the KTAK Minister Award 2007. Good customer relationships are at the heart of a successful business. At TM, CRM is not only a process but a commitment. CRM helps to gather customer information, sales information, and market trends, and use this data for greater effectiveness while establishing loyal relationships with customers that are not only profitable but enduring.

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Fostering A Nation Through

Capacity Building

Facts at a Glance
MMU student enrolment in 2007:

3,771 from 79 countries 2,988

Courses conducted by MMC in 2007:

Web-based Smart School solutions of eSkool and eLearn introduced by TSS in 2007

91 smart schools

PROF DR ZAHARIN YUSOFF

PRESIDENT UNIVERSITI TELEKOM SDN BHD (Multimedia University)

DATO DR IR AHMAD ZAINI MOHD AMIN

CHIEF EXECUTIVE OFFICER Multimedia College

DR NAS TAMIMI IBRAHIM

CHIEF EXECUTIVE OFFICER Telekom Smart School Sdn Bhd

Malaysias drive towards becoming a regional ICT hub requires a pool of talents to support the rapid development of the ICT industry. For the past 60 years, Malaysia has been at the forefront of telecommunications growth and change, having championed early on the privatisation of its telecommunications department which resulted in the creation of TM. As an employer of thousands of people, TM has long recognised the need for skills training and capacity-building not only for its own needs but also for the industry, both in Malaysia and the region. There are a number of institutions that support TMs thirst for knowledge workers, the oldest of which is the Multimedia College, first established as a training wing in 1948. This is followed by the 10-year old Multimedia University, which enjoys the distinction of being the first private tertiary institution in Malaysia. Under the innovative Smart Schools programme, TM also helps to build a cadre of IT-savvy young Malaysians who are poised to launch their own careers in a competitive global marketplace. In these various ways, TM has also fulfilled a key social responsibility that of fostering a nation through capacity-building at various levels.

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MULTIMEDIA UNIVERSITY
Multimedia University (MMU), a tertiary education institution set up through Universiti Telekom Sdn Bhd (UTSB), a wholly-owned subsidiary of TM, fulfills the noblest of corporate social responsibilities educating the next generation, the nations leaders and knowledge workers of the future. As Malaysias first private university, MMUs successful model paved the way for the establishment of several private universities in the country. It is the university at the heart of MSC Malaysia (formerly known as Multimedia Super Corridor), the countrys dynamic ICT hub, and thereby serves as a catalyst for the development of the nations ICT industry much as Stanford University does in Silicon Valley in the United States. In 10 years, MMU has achieved an international student population of 20,000 and growing, on two campuses the first, its original site in the historic city of Melaka, and the second in Cyberjaya, the intelligent city in MSC Malaysia. It has produced 13,110 graduates, most of whom have found employment within six months of graduation according to a recent survey. Building technological and managerial capacity not only for Malaysia but many markets in the region and elsewhere, MMU has been responsible for nurturing an outstanding pool of international talent. The current enrolment of students includes a record 3,771 from 79 countries as compared to 2,799 from 81 countries in 2006. In 2007, MMU produced a total of 461 diploma graduates, 2,603 bachelor degree graduates, 181 masters degree graduates and 10 PhD degree graduates. MMU has 26 centres of excellence, establishing itself as a major player in research and development, and maintains excellent ties with the industry through collaboration and research partnerships.

MMU continues to innovate to differentiate itself in the field of education, and recent measures to promote a holistic education has resulted in the establishment of the Centre of Commercialisation and Technopreneur Development which promotes a spirit of enterprise among staff, students and alumni of the university. A new programme was launched in 2007 called e-SILK which promotes the development of soft-skills, innovation, leadership and knowledge among the undergraduate community. Although new, the Centre has already produced several awardwinning projects including: The MSC-IHL Business Plan Competition 2006 (Business Idea Category) 2nd Runner-Up, Students Team called Nestkom. Organised by Multimedia Development Corporation (MDeC) on 8 February 2007. Aogos Network Sdn Bhd (MMU start-up company) obtained the Red Herring Asia Top 100 Technology Companies Award in Hong Kong 29-31 August 2007. IP Creators Challenge Series 2006 Computer Game Category organised by MDeC on 20 December 2006. MMU Start-up Company Team Hatchlings Games, FIT Winner of RM50,000 Grant Fund from MDeC. IP Creators Challenge Series 2006 Mobile Content Category organised by MDeC on 20 December 2006. New Start-up Team NexWave Winner of RM50,000 Grant Fund from MDeC.

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Xirien Sdn Bhd, an MMU start-up company successfully obtained the MDeC Pre-Seed Technopreneur Development Grant in 2007. Enveluv Sdn Bhd, an MMU start-up company successfully obtained the MDeC Pre-Seed Technopreneur Development Grant in 2007. MSC Malaysia APICTA 2007 Merit Award for Tertiary Student Projects Software/Hardware Category for Mobile Interactive Television project. Winner in the MSC Malaysia APICTA 2007 for Best of Tertiary Student Project Creative Multimedia Category for Project 57.

MMU Library

MULTIMEDIA COLLEGE
The nations premier provider of telecommunications training, the Multimedia College (MMC) was founded in 1948 to train employees of the Telecommunications Department, of then Malaya. Having started life in a modest way, the next key milestone in its evolution was the establishment of a new telecommunications training centre in 1961 as a joint-venture between the United Nations and the Malaysian Government under the United Nations Development Programme. The need for specialised technical training grew as the provisioning of telecommunications services was privatised, and MMC responded by setting up, in 1980, five training schools throughout the country in Taiping, Kuala Terengganu, Melaka, Kuching and Kota Kinabalu.

While delivering training courses for an increasing number of employees of TM year-on-year, MMC also rose to the challenge of being a training provider to other Commonwealth countries through an arrangement with the Commonwealth Telecommunications Organisation (CTO). The CTO, headquartered in London, has a membership of more than 130 countries. MMC was also given the responsibility of spearheading the Malaysian Technical Cooperation Programme (MTCP) under the Prime Ministers Department with

the objective of encouraging knowledgesharing and facilitating capacity-building especially in the telecommunications and ICT industries of emerging markets. The participants came from such countries as Mauritius, Malawi, Indonesia, Bosnia Herzegovina, Laos, Vietnam, Gambia, Myanmar, Cambodia, Burkina Faso, Philippines, DPR Korea, Timor-Leste and Yemen. Today, MMC also collaborates with the Asia Pacific Telecommunity (APT) and Organisation of Islamic Countries (OIC) as a leading telecommunications training provider.

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Fostering A Nation Through Capacity Building

MMC fostering education for all ages

In 1998, MMC was awarded the ISO 9002 certification by the Standards & Industrial Research Institute of Malaysia (SIRIM) in recognition of the quality of its training programmes. It received further recognition when it was subsequently appointed sole Certifying Agency for the Malaysian telecommunications industry by the Malaysian Communication & Multimedia Commission which regulates the industry under the Ministry of Energy, Water and Communications. As the training wing of TM, headquartered in Kuala Lumpur, MMC is chiefly responsible to provide training and development for TM employees throughout the organisation. In the pursuit of excellence, TM continues to invest in MMC to ensure its many training initiatives and programmes are in line with current industry needs. TMs

human resource development policies are focused on staff development through continuing professional and onthe-job training at all levels. MMC is the vehicle through which staff skills are delivered and upgraded. In 2007, MMC conducted a total of 2,988 courses for over 51,273 participants compared to 2,475 courses for 41,364 participants in the previous year. Besides its popular core programmes, MMC has successfully innovated programmes for TM executives such as the SmartOrange and Structured Training Programmes. These are designed to enhance both behavioural and functional competencies of employees. The selection of participants for such programmes is based on a 360-degree Feedback Assessment conducted by the Group HR division whereby executives

are prescribed courses to meet their specific skills-set requirements. MMC also works closely with the National Union of Telecommunication Employees (NUTE) in the provisioning of customised training programmes for non-executive employees. This ensures a growing pool of skilled workers throughout the organisation. To ensure it keeps abreast with technological developments, MMC has invested in the provisioning of ELearning facilities such as Balanced Scorecard (BSC) E-Learning module which has been well received. In 1995, MMC was given college status under the Ministry of Higher Education in recognition of its track record and role. Since 2000, MMC has been operating as a Private Higher Educational Institution (PHEI) which

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puts it on par with the best educational and technical colleges in the country. As an educational institution, MMC now offers diploma-level courses that meet the exact requirements of the ICT and Knowledge economies. In 2007, MMC added three new programmes to its existing six diploma-level courses the Diploma in Creative Media, Diploma in Mobile & Wireless Communication, and the Diploma in Accounting with Multimedia. The other six programmes offered are: Diploma in Multimedia (Business & Computing), Diploma in Multimedia Technology, Diploma in Technology (Telecommunications Engineering), Diploma in Computer Science, Diploma in Marketing with Multimedia and Diploma in Management with Multimedia. All six diploma-level courses have been recognised by the

Malaysia Qualifications Agency (MQA) while the additional three courses are in the process of obtaining MQA certification. At MMCs 11th Convocation in 2007, 477 graduates received their diplomas. Meanwhile, as a leading training provider, MMC has a clientele which includes TM vendor organisations, Malaysian companies, regional companies, the armed forces and the police force. With respect to its own Corporate Responsibility effort, MMC offers ICT training to teachers and their pupils under the PINTAR Project, while also initiating community programmes such as educational and learning camps for school-going children and welfare activities for orphanage homes.

On 30 January 2007, MMC introduced the Training Reservation and Information System (TRIS), a friendly web-based system accessible via TMs intranet network to facilitate the management of training. It provides information from training requests to training evaluations. With TRIS, TM employees may also view training programmes and schedules, while management can request training and evaluation reports. The interactivity will help MMC to further improve its training offerings. TM has also put in place a network upgrade plan to implement Next Generation Networks (NGN) and High Speed Broadband (HSBB). The entire network will evolve into an NGN/HSBB environment over the next five years and in line with this transition, MMC is poised to ensure that TM employees are equipped for change to a new operating environment and are fully able to meet their customers expectations. New courses and modules have been introduced already and in 2007, MMC delivered a range of new workforce programmes such as Broadband Savvy TCP/IP, NGN Technology Evolution, Triple Play and IP Convergences. More than 5,000 staff have been trained via these various programmes and in 2008, MMC is expected to train a further 12,500 employees under these specialised programmes.

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TELEKOM SMART SCHOOL SDN BHD

Telekom Smart School (TSS) continues to support the implementation of Smart Schools as one of the flagship applications of MSC Malaysia. Recognised as one of the countrys premier e-Education providers, TSS attained the Capability Maturity Model Integration (CMMI-SWV1.1) Maturity Level 3 in June 2006, in line with its mission to become a world-class multimedia education solutions provider. CMMI offers a process improvement approach that provides organisations with essential tools and is now being adopted worldwide as a quality methodology. In addition, three of TSSs project managers were recently certified for Project Management Professional (PMP), which is a globally-recognised certification in project management, thereby giving TSS the edge to provide excellent and high quality project management services in delivering any project, locally and globally. The webbased Smart School solutions of eSkool (School Management System) and eLearn (Learning and Content Management System) introduced by TSS in 2006 to the 88 smart schools in Malaysia were further enhanced in 2007 to support additional user requirements. Continuous improvement is key in ensuring that TSS solutions are benchmarked globally and that TSS remains at the cutting edge of technological offerings to young and aspiring ICT professionals.

Besides the 88 smart schools, the eSkool and eLearn solutions were also introduced to three other schools in Kuala Lumpur in 2007 as part of TM Groups Corporate Responsibility effort in community relations initiatives under the TM eSchool project SMK USJ 12, SMK (L) Methodist KL and SMK Seksyen 11 Shah Alam. In addition to the solutions given, the schools were also given touch-card access systems that are integrated to the eSkool application, giving the schools immediate real-time attendance updates. In order to encourage and expose teachers and students to novel ways of creating teaching and learning content using eLearn, a content creation competition was organised at these three schools. Depending on the feedback, more schools may be adopted by TM in the coming years for this CSR initiative and TSS will continue to take a lead in the provisioning of systems, maintenance and support services for the TM eSchool project.

To reinforce its position as the leading e-Learning player in local and regional markets, TSS collaborates with both international and established local partners and associates to enhance its product and service offerings. Under TSS, e-learning tools are marketed at exhibitions and TSS experts participate at seminars to share their knowledge and expertise. In this way, TM fulfils its obligations to the society in which it operates.

Enriching education in schools

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Towards Business Excellence

Gearing Human Capital

Facts at a Glance
A new

3-year

Collective Agreement with TM Unions was signed

348 employees
rewarded for PIP contributions

281 employees
received the Group CEO Merit Award
Enhancing employee productivity through IT

To bring TM closer towards its goal of greater efficiency and operational excellence, its Human Resource (HR) Division has been playing its role as a strategic business partner by emphasising and inculcating a performance-driven work culture with innovative performance management and rewards systems. The role of the HR Division is also to nurture the organisations future leaders by identifying and developing a pool of high-potential employees that can be a source of future talents and resources.

DRIVING EMPLOYEES PERFORMANCE THROUGH STRATEGIC REWARD PLANS

One of the initiatives taken to instill a performance-based culture in the organisation is through the implementation of strategic reward plans. On top of ensuring deserving employees are given their due recognition and reward, the performance-based reward component has been carefully designed to address various pay and compensation issues facing the organisation such as the following: Realising pay-for-performance Performance-Linked Bonus is derived from TM Groups overall achievement results and thus is distributed based on individual performance level using the factoring (f) approach.

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Pay competitiveness (external equity) & compression (internal inequity) Performance-Linked Increment incorporates dimensions such as cost of living, individual performance as well as individual salary positioning against the market which are all included into the paymatrix to serve as a two-pronged mechanism in addressing external and internal equity issues. Honouring the superstars The Group CEO Merit Award was inspired to further recognise the unsung heroes in the organisation who have truly gone the extra mile to deliver on responsibilities entrusted to them. Furthermore, the scope of the award has also been widened to recognise those who uphold CSR/CR values by rendering their services to society. The complexities of todays business environment and the growing accountabilities for executives call for greater flexibility and promptness in TMs internal reward system. The Group CEO Merit Award recognises these challenges and provides a platform on which to reward exceptional achievements or recognise honourable deeds by employees. In 2007, a total of 348 employees were rewarded for their contributions under the Performance Improvement Programme and another 281 employees were rewarded directly through the Merit Award.

Based on tangible results from these reward systems, TM will continue with their implementation into 2008 and beyond, and work towards bringing the organisation a step closer to becoming a fully performance-based organisation. Besides the above reward scheme, TM has also introduced a number of recognition plans in its effort to enhance the performance and contributions of their employees. Some of these plans are as follows: MARKET PREMIUM TM has completed a feasibility study across the organisation, which explores the possibility of offering special market premiums for employees categorised as hot skills, where their skill sets are in high demand in the industry. This is seen as critical to allow TM to be able to retain employees with such skill sets via a structured mechanism. The implementation framework for the market premium principle has been endorsed and will be implemented in 2008.

SALES INCENTIVE SCHEME In view of TMs aspiration to become a performance-driven organisation, HR is entering the second year of the differentiated rewards programme, namely the Sales Incentive Scheme (SIS). Looking at the performance of the Group, the scheme has successfully inculcated a performance-based culture among its Sales Personnel. For 2007, a total of 164 employees have enrolled in the programme, which represents 53.0% of the Sales workforce in the Malaysia Business. The scheme propagates rewards through sales achievement. TM GROUP AWARDS NITE In April 2007, TM continued its yearly recognition for its employees through the TM Group Awards Nite. The Awards Nite held in Putrajaya brought together a total of 3,500 employees, including those from regional subsidiaries. The best of the employees received awards for excellent performance, innovativeness and exemplary behaviour.

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INNOVATIVE PERFORMANCE MANAGEMENT

TM has now built a credible and effective performance-management system which has adopted the Balanced Scorecard principle. The system has the ability to ensure that results across the organisation are aligned. Individual KPIs now have direct links with the Balanced Scorecard of the respective division. In the effort to ensure better understanding of Balanced Scorecard methodology, HR has introduced the Balanced Scorecard E-Learning to all employees. This is to allow consistency in the development and creation of KPIs amongst employees. To date, 92.0% of the workforce has completed the online programme. Moving forward, the performancemanagement system is being enhanced to capture non-executive performance. Employee Productivity Enhancement (EPE) Employee Productivity Enhancement (EPE) is a programme designed to support the current PerformanceManagement System. The focal point of the programme is to enhance the performance levels of non-performers. In its second year, EPE has shown 58.0% performance improvement in those who have enrolled in the programme.

EXCELLENCE THROUGH LEADERSHIP & TALENT MANAGEMENT

Under the Strengthening Leadership Development Framework, the key initiatives have been to ensure that there is a clear plan for a strong current and future leadership in TM. The Leadership and Talent Management (LTM) unit has been established as its own unit under Group HR. Efforts have been focused on nurturing and retaining high-potential employees by giving them opportunities to fill up vacant key positions in Senior Management, while ensuring that their remuneration is well aligned to the market. From a longerterm perspective, pivotal positions have been identified and their succession plans completed. Those employees who have been identified for succession plans have been targeted for further leadership development and mentoring to ensure that there is continuity in the leadership

pipeline. Throughout the year, 327 Leaders and Talents attended 14 selected leadership development programmes by top Executive Development Institutions such as the Harvard Business School, INSEAD (in collaboration with Petronas), University of Melbourne, and the Corporate Leadership Council, Washington D.C. The high-potential talent, currently numbering about 400 for the whole Group, were assessed through a structured methodology and endorsed by the Board of Directors. They are currently rated as to whether they have the potential to reach top leadership or senior management positions in the Group. In addition, leadership practices have been strengthened by engaging about 150 members of Senior Management in the leadership and talent management process. This was done through a one and a half-day Talent Spotting exercise. In these sessions, besides

Best Manager Award, TM Group Awards Nite 2007

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understanding the overall framework of Talent Management, they are specifically taught the skills of identifying leadership behaviour among their executive populations so that they can identify who are their high-potential reports for succession grooming, and at the same time, support their continuous development in the work place. Alongside that strategy, as part of leaderships continuing direct engagement with employees on the ground, TM leaders regularly visited and met with employees from other functions and divisions, to discuss dayto-day or organisational issues they face in their work environment. These activities are coordinated through the Leaders Role Modelling Turun Padang or grassroots programme. Randomly-selected employees have also been given the opportunity to meet the Group CEO under the Employee Engagement Programme held bimonthly. A total of 17 sessions were held in 2007, involving about 250 executives and non-executives. They were given the opportunity to share their personal and career aspirations with the Group CEO Dato Sri Abdul Wahid Omar. This has helped to close gaps between the top leadership and the employees at large and has therefore contributed to better cultural alignment throughout the organisation. Based on the employees feedback during these sessions, some initiatives have been implemented as part of the business improvement programme.

Inculcating a healthy lifestyle

Younger high-potential employees have also been engaged by Top Management to ensure there is better alignment between the business and their personal aspirations. Work has also started to ensure that this younger talented group is exposed to the appropriate leadership development programmes. Similarly, under the Leaders Dialogue programme, selected leaders were given the opportunity to present and share their work experiences and career growth with an audience of about 150-200 employees to provide exposure about personal career development experiences.

Another milestone in TMs search for leadership excellence was the Leaders Convention 2007, where about 220 top and senior leaders of the entire Group, including those from regional subsidiaries, converged over two days in April 2007, to share their success stories and experiences. This gave them first-hand insights into how each leader has developed and handled issues facing their business.

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PERFORMANCE IMPROVEMENT PROGRAMME (PIP)

In 2007, the HR Divison spearheaded the boosting execution capacity initiatives in the PIP. The role played by HR was to execute actions that support and build the execution capacity of other divisions involved in the turnaround of the fixed-line business and mobile business. Several strategic initiatives were implemented as follows: Communicated key messages related to PIP and other fixedbusiness and mobile business concerns to the entire organisation Intensified performance management for top management and revenue earners Accelerated leadership changes in pivotal positions and among GMs

Revamped HR to become an effective strategic partner to the business Developed critical institutional capabilities (e.g. Regulatory, Sales and Marketing) Reinforced core execution disciplines (e.g. Project Management Office, Intra-Company governance)

Prompt execution of these initiatives help to yield positive results in the fixed-line and Celcom business turnaround for 2007.

MANAGEMENT-UNION RELATIONSHIP
In 2007, the long-standing relationship between the Management of TM and the three Unions, i.e. Kesatuan Kebangsaan Pekerja-Pekerja Telekomunikasi Semenanjung Malaysia (NUTE) representing non-executive employees in Peninsular Malaysia,

Towards a strong management-union relationship

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Kesatuan Pekerja Telekom Malaysia Berhad Sarawak (UTES) representing non-executive employees in Sarawak and Kesatuan Pekerja-Pekerja Telekom Malaysia Berhad Sabah (SUTE) representing non-executive employees in Sabah, continued to improve with mutual respect and better understanding of each others strengths and areas for growth. The year also marked the successful negotiation of a new set of Collective Agreements (CA) with the three unions concerned. First begun in November 2006, the CAs were signed with the respective Unions as follows: 1. 11 May 2007 with NUTE (7th CA); 2. 29 May 2007 with SUTE (4th CA); and 3. 31 May 2007 with UTES (7th CA). A number of improvements in terms of salary and benefits were noticeable in the CAs which benefit the non-executive staff of TM. Some of the highlights are:

RM135.00 with UTES and RM90.00 with SUTE, the total amount received by non-executives represented by the three Unions are the same, i.e RM170.00 per month. All Unions have also agreed in principle to the introduction of PerformanceBased Incentives for non-executive employees. The system is aimed at rewarding non-executive employees

whose performance exceed the pre-set KPI targets. A Committee comprising members from both the Management and each Union was formed to ensure smooth implementation of the initiative. TM continues to maintain a healthy and amiable working relationship with the Unions to ensure mutual trust, respect and understanding of each others needs.

National Day

1.

Effective from 1 January 2007 all non-executive employees within the ambit of the respective three CAs are given an Across the Board salary revision of 5.5% of their basic salary as at 31 December 2006; Cost of Living Allowance (COLA) was introduced and the amount agreed with the respective Unions were RM50.00 for NUTE, RM35.00 for UTES and RM80.00 for SUTE. Adding this amount to the Housing Allowance which were agreed at RM120.00 per month with NUTE,

2.

Workers Day

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Building Capabilities Through

Development And Learning

230

TM continues to promote the development of staff capabilities as one of its important initiatives to support the Groups vision. As a key asset, the employees dedication and competencies are crucial to ensure TM is competitive in the present and remains so in the future. At the same time, emphasis is placed on achieving excellence and delivering quality products and services. Hence, TM Group is committed to developing its strategic human capital assets, which are paramount to improving operational efficiency within the Group and to realising its vision of being the Communications Company of Choice. Individually, TM employees are expected to continually learn, unlearn and relearn new technical and functional skills. Training is still an important intervention and treated as an ongoing process to optimise manpower development and to improve productivity.

360-DEGREE FEEDBACK ASSESSMENT

To serve as a measurement tool to check on the health of employees competencies, a 360-Degree Feedback Assessment is used to measure the organisations competency level. Also known as a multisource assessment, an executive is rated by his/her subordinates, peers, supervisors as well as internal customers. Results obtained, known as the Competency Index (CI), can determine the level of ones behavioural competencies. For the Balanced Scorecard set in 2007, the targeted rate was for 50.0% of the TM population to achieve a CI of 7.5 (on a scale of 1 10). Based on the annual 360-degree Feedback Assessment done for 8,259 executives in TM and local subsidiaries, 56.0% of the population successfully achieved a CI of 7.5 and above. The 2007 CI has shown significant improvement over 2006. In 2006, 44.0% of the population achieved a CI of 7.5 and above. Employees have clearly shown improvements in their behavioural competencies while performing their day-to-day tasks.

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SMARTORANGE INITIATIVES
Another intervention programme as initiated by the management to continuously develop and enhance staff capabilities is called SmartOrange. Conducted initially for staff of Malaysia Business, it was newly introduced Group-wide for all TM subsidiaries in 2007 to support gaps in any employee competencies. SmartOrange is an initiative by Group Human Resource to identify and address those behavioural competencies that need to be acquired by all TM executives. The Transformation and Development Division (TDD), a division responsible for the overall structure of TM Competency-Based Development Framework and SmartOrange programmes have continuously receive testimonials from the participants as well as Heads of Units or Divisions recognising the effectiveness of the scheme. A senior manager from a local subsidiary remarked in praise of SmartOrange: Thank you for your effort in encouraging me to attend the programme. It is indeed an enriching programme and I highly recommend that others be sent, as I believe they will all benefit from it as well.

FUNCTIONAL COMPETENCIES
Besides behavioural competencies, functional competencies are also seen as crucial to develop skills, knowledge and abilities of an employee. Whilst behavioural competencies focus more towards soft skills for the executives, functional competencies covers the hard skills for both executives and nonexecutives. Sets of framework have been developed for employees at Sales, Marketing and Technical. These Structured Training Programmes, in the non-executive framework set, for example, a non-executive should be able to understand the type of fundamental and functional competencies that he/she should obtain while sitting in his/her current position and types of functional competencies he/she should acquire in order to be upgraded to a higher position. While behavioural competencies are assessed via on-line 360-Degree Feedback Assessment, functional competencies are assessed via one-to-one interviews, written questionnaires and live presentations.

a set of training and development programmes are recommended. The other areas involved are Sales and Marketing and Technical Competency Framework. Acting on the framework, some work has been undertaken to assess the competencies of sales and marketing. As a training arm of TM, the Multimedia College (MMC) is responsible for the delivery of both SmartOrange and the Structured Training Programmes. In 2007, 17,188 employees executives were trained at MMC which continues to play its part in ensuring that TM employees have every opportunity to acquire the skills, knowledge and expertise to carry out their duties effectively and to achieve their full potential.

INDUCTION PROGRAMMES
For newcomers in the organisation, Induction Programmes are conducted to give them an overview of the organisation, and to share the Companys vision and aspirations, business direction and environment, policies, procedures and systems and well as culture and values. A series of such programmes are also conducted for externally-recruited management groups at TM and subsidiaries, as well as front liners. Being very committed towards staff development and training, the Group CEO does make time to meet new employees and share his personal aspirations for the organisation.

INSTITUTIONALISE FUNCTIONAL CAPABILITIES

A thorough work study has been done for Group Regulatory, Legal and Compliance to assess their employees functional capabilities in areas such as communication and strategic skills conducted through interviews, group discussions and presentations as well as tests. With the assessment findings,

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HIGH CONTRIBUTORS DEVELOPMENT PROGRAMME

This programme focuses on the development of those executives who are not in the talent pool list but have achieved desired work performance levels. A key aspect of the programme is coaching, job rotation, attachment to divisions in TM or subsidiaries, special assignments and training. In 2007, TM Group continued to invest in several training and development initiatives to enhance staff capabilities in pursuit of excellence. Continuous education is critical to create a highly skilled and efficient workforce to give the Group a competitive advantage in the challenging telecommunications market.

National Day Parade

TM SCHOLAR CAREER MANAGEMENT PROGRAMME

This was introduced to provide a framework for various engagement and development programmes that cover both new TM Scholars and also existing TM Ex-Scholars. The main focus of the programme is to provide emphasis on talent creation, improving their engagement level towards the Company, nurturing a sense of belonging towards their jobs, and also addressing their functional and behavioural competencies. For TM Scholars hired as new executives, it is compulsory for them to undergo the Management Trainee Programme which includes an induction programme known as My TM Training Progamme and on the job training known as TM Internship Programme.

EMPLOYEE ASSISTANCE PROGRAMME (EAP)

Group Human Resource is committed towards crystallising TMs Vision and Mission. With a high-performing workforce, TM can perform beyond expectation. With that in mind, Group HR through its Transformation and Development Division (TDD) has embarked on a journey formulating an Employee Assistance Programme (EAP) for all employees. EAP is a form of a human performance intervention tool for effective personnel management beyond training and development. Through it employees will be able to manage, overcome and avoid personal, career, family, interpersonal and work related problems that can impede their performance and productivity.

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EAP is a confidential resource at no cost. It provides counseling, coaching and mentoring for TMs employees through our trained multi-discipline EAP Practitioner nationwide. It has been designed by incorporating the existing Human Resource as well as TM transformation initiatives. Thus EAP has been proven to be an effective mechanism in improving employees performance, quality and productivity. Given the dramatic developments in the telecommunications business either domestically or internationally, TM employees can face drastic change and become overwhelmed with their added responsibilities and market demands. This may affect their confidence, performance, health, motivation, and relationships. Hence the EAP programmes objectives are as follows: To enhance employee performance and productivity To create a harmonious work environment

To reduce organisational cost by providing preventive education and early constructive intervention To encourage employees with personal problems to seek help

In the near future, it is the aspiration of Group HR to establish a platform for special learning and sharing of best practices in counseling, coaching and mentoring through benchmarking. TM intends to share resources through cross-organisational counseling and coaching with other willing partner organisations (especially amongst GLCs) to successfully implement such programmes Group-wide.

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Greater Innovation

Towards

Facts at a Glance

27 research projects
successfully completed

Telekom Research & Development Sdn Bhd (TMR&D) was established in 2000 to harness technology and innovation for improved and new product development and to provide related services to existing and potential markets. With a clear focus on innovation, TMR&D is set on growing its competency in technology development and management, usage of knowledgeintensive applications, networking, and accelerated industrial skills upgrading of its most important asset, which is human capital. As the research arm of TM, TMR&D has identified its priority research areas in ICT. All research initiatives are designed to match TMs business objectives and direction by considering emerging global technology trends, the national ICT blueprint, user requirements and market needs. A total of 79 research projects were undertaken in 2007, of which 27 were successfully completed by year end as scheduled, with the rest planned for completion in 2008 and beyond. In anticipation of the market demand for high speed broadband, in July 2007, TMR&D successfully showcased the Fibre-to-the-Home (FTTH) products as well as the digital homes concept to the Malaysian Communications and Multimedia Commission and the media at Sri Hartamas Kuala Lumpur. This was in support of TMs business plan which includes the implementation of high speed broadband (HSBB) infrastructure by the second half of 2008, which will allow users new lifestyle experiences with digital home services such as IPTV and HSBB internet access.

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Enriching lifestyle through broadband

KEEPING UP WITH THE INDUSTRY THROUGH COMMERCIALISATION & QUALITY ASSURANCE

As part of the move towards greater commercialisation of its innovations, TMR&D successfully commercialised a total of four new products in 2007. Commercialisation initiatives called for TMR&D to participate actively in product exhibitions, roadshows and international conferences as well as submit entries for recognition at award competitions. Continuing the trend of previous years, TMR&D collected several awards during the International Invention, Innovation, Industrial Design & Technology

Exhibition (ITEX07) in 2007. The awards included: 1. Platform for All-Service MultiAccess (PLASMA) Gold Award & Innovative Product Award XtreamX Home Media Centre Gold Award Vertical Cavity Surface Emitting Laser (VCSEL) Gold Award Advanced Tracking System Using RFID Silver Award & Innovative Product Award EDFA In-Line Silver Award Simple & Efficient Software Radio Development Platform Bronze Award Distribution Point (DP) Innovative Product Award

Whilst focusing its research activities on niche technologies, TMR&D also placed emphasis on quality initiatives including Capability Maturity Model Integrated (CMMI) and Product Quality Assurance. In August 2007, TMR&D successfully passed the SCAMPI 1.2 Class A appraisals for Capability Maturity Model Integration (CMMI) and based on the model set by the Software Engineering Institute (SEI) of Carnegie Mellon University, USA, was successfully appraised to CMMI - Development Version 1.2 Staged Representation Maturity Level 3. TMR&D is the first company within the Group to be appraised under CMMI Version 1.2. Following the appraisal, TMR&D is set for the appraisal of the CMMI Maturity

2. 3. 4.

5. 6.

7.

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Towards Greater Innovation

Level 4, scheduled to take place in 2008 where all relevant activities will be intensified. Project managers will be inducted through training into the processes and guidelines as outlined in the CMMI Process Quality Manual and other process documents.

HUMAN & INTELLECTUAL CAPITAL

To provide a wider intellectual resource to meet current and expected market demand, TMR&D increased its research personnel strength from 270 in 2006 to 287 in 2007. A Post-Graduate Scheme first introduced in 2004 to provide opportunities for MSc and PhD qualifications remains, and produces multi-skilled experts in specialised areas. As of 31 December 2007, 68 fulltime employees were offered postgraduate opportunities as compared to 43 a year ago. In the year under review, 13 scholars completed their postgraduate studies while in full-time employment. As part of the continuing effort to build human and intellectual capital, researchers at TMR&D are also offered opportunities for industrial attachments through sabbatical and other programmes as a commitment towards individual skill enhancement. TMR&D also encourages scholarship in other ways. In 2007, 87 papers were submitted by researchers at TMR&D, out of which 61 were accepted at international conferences and for publication by journals. These included: Optical Express International Journal Volume 15(6), March 2007 published by Optical Society America. Journal of Optics & Laser Technology.

International Symposium on Management Engineering, 10-12 March 2007, Japan. IASTED International Conference on Communication Systems, Networks and Applications, 8-10 October 2007, Beijing, China. Konferensi Nasional Sistem Informasi, 14-15 February 2007, Bandung, Indonesia. International Conference on Signal Processing, Communications and Networking, 22-24 February 2007, Chennai. Asia Modeling Symposium, 27-30 March 2007, Thailand. The Optoelectronics and Communications Conference, 9-13 July 2007, Yokohama, Japan. International Conference on the Optical Internet and the Australian Conference on Optical Fiber Technology, 24-37 June 2007, Melbourne, Australia. International Conference on Electrical Engineering and Informatics, 17-19 June 2007, Bandung, Indonesia. IEEE TENCON 2007, 30 October 2 November 2007, Taipei, Taiwan. Twelfth Optoelectronics and Communications Conference/ 16th International Conference on Integrated Optics Fiber Communication 9-13 July 2007, Yokohama, Japan.

INTELLECTUAL PROPERTY & COLLABORATION TO ENHANCE CAPACITY BUILDING

In 2007, TMR&D successfully filed 16 patents, 13 industrial designs, 21 layout designs for integrated circuits and 65 copyrights. The realisation that Intellectual Property is a reflection of a companys competitive edge has brought about an increase of 3.0% of filed applications compared to the previous year. Continuing the effort towards capacity building, TMR&D formed numerous partnership agreements with several organisations to collaborate on applications for next generation services, product prototyping and development, GEPON, new generation of optical fibre, cable and accessories for FTTH deployment, designs, fabrications, model development and manufacturing. Its partners include many local and international companies/institutions involved in equipment/component manufacturing, higher learning and research and development.

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The 7th Pacific Rim Conference on Lasers and Electro-Optics, 26-31 August 2007, Seoul, Korea. 7th International Symposium on Communications and Information Technologies, 16-19 October 2007, Sydney, Australia. SPIE APOC 2007 Asia Pacific Optical Communications, 1-5 November 2007, Wuhan, China. Ninth @WAS International Conference on Information Integration and Web-based Applications & Services for the Master and Doctor Colloquium, 3-5 December 2007, Jakarta, Indonesia. IASK International Conference EActivity and Leading Technologies 2007, 3-6 December 2007, Oporto, Portugal.

12th WSEAS Conference on Applied Mathematics, 29-31 December 2007, Cairo, Egypt. The International conference on Information Networking 2008, 23-25 January 2008, Busan, Korea.

GIVING BACK TO SOCIETY THROUGH KNOWLEDGE & SKILLS ENHANCEMENT INITIATIVES

TMR&D continued to play a vital role in nation-building via its commitment to provide education and internship opportunities. During the year, 70 students at various levels participated in its internship programmes. Industrial training programmes were also conducted through collaboration with local universities throughout the country.

TM R&Ds new premises

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Occupational Safety, Health

And Environment (OSHE)

Facts at a Glance
Reduction of accidents:

6.2% Zero Accident

in Terengganu & Pahang

Safety first

The OSHE performance in TM for the year saw a reduction of 6.2% of accidents with continued efforts to create greater awareness and to step up improvements in the workplace from both the safety and health aspects. In 2007, we exceeded our target for accident reduction by 6.2% (actual: 31.2% against target of 25.0%) but fell short of maintaining the zero fatality record we achieved in 2006. Nevertheless, in Malaysia, two states, Terengganu and Pahang, achieved zero accident records. A single fatal accident was recorded in Kelantan, and Kuala Lumpur recorded the second-highest number of workdays lost due to major accidents. A number of positive steps were taken during the year under review. They are described below. 1. The TM Group Occupational Safety, Health & Environment Management System which contains two separate management systems, was completed. The systems are: ISO 14001:2000 Environmental Management System Specification OSHAS 18001: 1999 Occupational Safety & Health Management System Specification. The ISO 14001:2000 provides tools for managing environmental impact consistently. It was succesfully developed and later implemented by Menara TM Operation and Maintenance Unit (MTOM) in 2007 in their day-to-day operations and maintenance activities at Menara TM. Certification is targetted for 2008. The implementation of the ISO system was a significant step towards having all TM properties and offices managed to the same standards. Meanwhile, the OSH Management System Specification was also officially rolled out.

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The launch of TMs Safety Campaign

2. The NIOSH-TM safety passport training programmes for TM contractors and vendors were also implemented. These were initiated in late 2006 in collaboration with the National Institute of Occupational Safety and Health (NIOSH). About 400 contractors personnel attended the programme. It will be continued in 2008. 3. Training for TM Group OSHE Steering Committee members to equip them with the requisite knowledge and understanding of various OSHE statutory and regulations requirements was inaugurated. 4. The OSHE Audit Programme was conducted at state level to ensure all activities and processes implemented were in compliance with the relevant statutory regulations. 5. The First OSHE Personnel Workshop was held to enhance skills and competency. 6. The OSHE Campaign & Exhibition, held annually since 2005, had its roadshow at Menara TM, Kedah/Perlis, Sarawak and Johor. 7. Celcom launched its new OSHE Policy in July in conjunction with a Health Carnival. The carnival provided a necessary platform for Celcom and TM employees to appreciate the merits of a healthy mind and body in increasing productivity.

8. An Environmental Awareness Campaign made its debut in August. This was organised by TMF Services Sdn Bhd at Menara TM based on the theme Creating Habits Today, Safe Environment for Tomorrow. A total of 10 organisations from different sectors participated in this event. Dialogues, lectures and distribution of pamphlets focusing on the 3Rs (Reduce, Recycle, Reuse) were the main activities and information was shared among the participants with an emphasis on the importance of protecting forests, planting trees, decreasing pollution and protecting the quality of drinking water. 9. TM has initiated other efforts to reduce emissions of ozone-depleting substances by phasing out the chlorofluorocarbons (CFCs) used in older, less-efficient chillers such as the large cooling systems of commercial office buildings, to ensure full compliance with regulations. As old inefficient chillers and air-conditioning equipment are replaced with new technology, it could mean more energy savings throughout the Company.

10. Radiation Safety Assessment at TM Hill Stations and Celcom Towers was conducted by the Non-Ionizing Radiation Group of the Malaysian Nuclear Agency (Nuclear Malaysia) on all telecommunication and broadcast towers at hill stations. The main objectives were as follows:

to identify work places around telecommunication and broadcast towers where the radiation levels may be perceived to be higher than exposure limits allowed by the Malaysian Communication and Multimedia Commission (MCMC), and to determine the radiofrequency and microwave radiation exposure to employees located in the vicinity of telecommunication and broadcast towers.

As at December 2007, three hill stations (Ulu Kali, Genting Highlands, Bukit Tampin, Negeri Sembilan and Gunung Pulai, Johor) had been assessed. Seven hill stations will be assessed in 2008. Meanwhile, continuing surveys by Celcom have indicated that the radiofrequency and microwave radiation present in the areas around the towers of a sample of sites were well below the exposure limits stipulated by the MCMC and ICNIRP guidelines for employees as well as the public.

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Facts at a Glance

Corporate

Responsibility

TMs contribution towards CR in community was in excess of RM73 million for 2007
Education:

RM32.05 million
Sports Development:

RM17.33 million
Community & Nation-Building:

RM24.03 million
Malaysian Business CSR Merit Awards 2007

Corporate Responsibility (CR) is relevant across all aspects of the Groups operations. It has always been an integral part of the Groups business strategies, creating value for the Groups different stakeholders over the years. TMs commitment is clearly outlined in its Corporate Responsibility (CR) Policy where it is stated that TM companies shall undertake a variety of programmes that are aligned with their business strategies or that benefit the broader interests of the community, while complementing the efforts of the Government in nation-building. TMs scope of CR embraces a culture of good governance and accountability throughout the organisation. TM believes CR makes good business sense in the long run as it contributes towards building lasting goodwill and trust in the TM brand. A keen awareness of its corporate responsibility towards stakeholders in line with good corporate governance has also given TM the edge in attracting and retaining talent, enhancing customer loyalty and retaining its position as a leading responsible corporate citizen. In real terms, a culture of corporate responsibility has proven its worth in ensuring consistently-strong performance and delivering better returns to shareholders. TMs CR initiatives are evident through its engagement with all stakeholders including employees, customers, suppliers, investors, local communities and the host governments where it operates.

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A FINANCIAL PERSPECTIVE
CORPORATE GOVERNANCE Having been one of the first listed companies to respond to the call for greater corporate governance, TM has established positions for independent non-executive directors on its board. Out of a total of 9 Board members, more than one-third is made up of independent directors, while the Chairman is non-executive in line with best practice. The board oversees functions such as strategy, audit, risk management, nomination and remuneration of board members and top management, as well as corporate social responsibility. A Statement of Corporate Governance is available elsewhere in this annual report and it carries information about the remuneration of Board members. A clear demarcation of the roles of the Board and the Management Committee has provided for smooth running of Group operations. Strict financial authority limits have been set for management personnel throughout the Group. TMs high corporate governance standards are further consolidated by several codes of conduct that govern the way it conducts its business. These codes include a Corporate Social Responsibility or CSR Policy Manual, a Code of Business Ethics Manual, a guide to procurement called Procurement Ethics and a manual of its KRISTAL core values. To further consolidate its efforts, the Group has instituted a yearly asset declaration exercise for all employees.

In summary, TM has put in place an effective internal system of checks and balances governed by codes of best practice to ensure that its business is carried out in an ethical manner in line with the highest international benchmarks.

INVESTOR RELATIONS In line with good corporate governance practice worldwide and the Malaysian Code of Corporate Governance, TM subscribes to the expectation of maintaining a high level of transparency vis-a-vis its dealings with the investing community. This is done via various communication channels such as regular face-to-face briefings and dialogue sessions, teleconferences, press releases, press conferences and briefings, frequent and timely disclosure to Bursa Securities, e-mails, investor conferences, annual general meeting, annual report and regular postings on the Company website.

exposure. In ensuring standardisation of risk management practices within the Group, the ERM framework has been embedded into daily business strategy and operations through the Groups Balanced Scorecard process. This will assist the Group to proactively identify key risks that may prejudice the achievement of business performance for the Group and the delivery of shareholder value. PROCUREMENT PRACTICES In managing issues related to procurement and to standardise practices across the Group, TM has launched a handbook called Procurement Ethics Rules and Practices, consistent with the Procurement Red Book, published by Putrajaya Committee for the High Performing GLCs (PCG). TMs handbook outlines the principles, applications and Dos and Donts related to the procurement process. The handbook also complements TMs Code of Business Ethics which guides the Companys dealings with employees, customers, business partners, competitors and other parties. In conducting business with TM, all suppliers are also required to adhere to the Environmental Quality Act 1974, Factories and Machinery Act, 1967 and the Occupational Safety and Health Act 1994.

ENTERPRISE RISK MANAGEMENT In dealing with enterprise risk, the Company has established and embedded a TM Enterprise Risk Management Framework (ERM) and Guideline that allows the Group to identify, assess and report business risks from an enterprise perspective. In assessing corporate risk, the Company reviews all key and significant business drivers such as corporate governance, bribery/corruption, environmental issues, supply chain issues, human rights, employee relations, safety and health and other business-related risk

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Corporate Responsibility

AN ENVIRONMENTAL PERSPECTIVE
ENVIRONMENTAL MANAGEMENT TM Groups Occupational Safety, Health and Environmental (OSHE) Policy addresses the management of OSHE risk and the environmental impact of business activities. The Companys OSHE Policy is based on the standard requirements of OHSAS 18001:1999 and ISO14001:2004, designed to ensure consistency in environmental management.

EMPLOYEE SATISFACTION MONITORING Since 1997, TM has conducted an annual Employee Satisfaction Index Survey (ESI) to gauge employees perceptions of the Company on various matters such as management and leadership, compensation, communications and other workplace issues. For 2007, 40.0% of employees were covered by the ESI, with the index at 75.4% compared with 72.8% in 2006. EMPLOYEE BENEFITS TM has adopted a transparent and objective remuneration and benefits system for all employees. Companywide benefits provided for all employees include the Employees Provident Fund pay-as-you-earn pension scheme, health and accident insurance, medical care for families, disability insurance, maternity and paternity leave, in-house sports sessions, two child-care centres (Menara TM and Multimedia College Taiping), employee counselling, employee volunteering options during work hours, on-going learning opportunities available at the Multimedia College and access to academic scholarships. Remuneration and benefits for the unionised workforce are mutually agreed upon between TM and the trade unions via a Collective Agreement. In 2007, a new agreement was formalised and signed covering a 3 year period from January 2007 to December 2009.

STAFF TRAINING Career development is one of the main priorities of the Group HR division. In 2007, each member of staff was required to attend at least 40 hours of training related to their functional areas of work and behavioural competencies, identified through a yearly competency assessment exercise. A total of 117,661 trainee days were registered for a total of 941,288 training hours in the year under review. SAFETY & HEALTH To govern safety and health, the Company has put in place a safety and health management system called OHSAS 18001. In 2007, the Company set an employee occupational safety and health target for a 25.0% reduction in accidents and zero fatalities. The year saw a 31.2% reduction in accidents. To raise awareness of safety and health procedures, the Company organises regular annual occupational safety and health campaigns at its head office as well as at state locations, offering free health screenings and health talks conducted by the Companys panel of medical doctors. Safety and Health training is provided to employees in furtherance of the Companys goals for better safety records and in 2007, 400 TM contractors underwent the NIOSH TM Safety Passport Programme, while 35 staff went through the OSH Personnel Workshop Programme and 240 staff received the OSHE MS Awareness Training Programme.

A WORK ENVIRONMENT PERSPECTIVE

PERFORMANCE MEASUREMENT TM has instituted a transparent on-line performance management system that is tied in with the Companys Balanced Scorecard. Through this system, Key Performance Indicators (KPIs) for all employees are directly related to the Companys key business performance targets. Individual KPIs are identified and keyed into the system at the beginning of the year and a mid-term evaluation is conducted at all levels to ensure that achievement of targets are on course and, where necessary, corrective actions are recommended. A final evaluation is then conducted at the end of the year. Payment of bonuses and increments are then decided, based on the outcome of the evaluation process.

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Corporate Responsibility

CHILDCARE & EARLY DEVELOPMENT FACILITY Provision of childcare services for the families of employees has always been a feature of TMs responsibilities to stakeholders. At the end of 2007, there were 128 employees' children, between the age of 2 months and 6 years, registered with TMs childcare and early development facility, TM Taska. TM Taska was established to provide quality and affordable childcare services in close proximity to the work place for employees and is in line with the recommendations set by the Ministry of Women, Family & Community Development, Malaysia.

A SOCIAL PERSPECTIVE
STAKEHOLDER ENGAGEMENT TM is continually engaged with its various stakeholders such as government departments and agencies, regulators, customers, local communities, the media, suppliers, trade unions, investors, shareholders and employees through planned and unplanned face-to-face meetings and briefings, dialogue sessions, information roadshows, newsletters, e-mails, video and audio conferencing, web streaming, media briefings/press conferences and press releases, annual general meeting, customer satisfaction surveys, newspaper advertorials and advertisements and on-line communication channels such as the website. TM maintains a highly

communicative culture to ensure information is shared with stakeholders beyond the shareholders and financial community. COMMUNITY & CHARITABLE ORGANISATIONS CR efforts in the community supports one of the Groups strategic objectives, to be a responsible corporate citizen. TM has taken the effort to integrate CR in community into its business strategy and this is reflected in governance, policy, process and reporting. It is also included as one of the items in TMs annual budgeting process and a Key Performance Indicator (KPI) which is monitored as a performance measure in the Groups Balanced Scorecard.

Assisting the needy

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Corporate Responsibility

To ensure responsible and ethical practices in the management of its community efforts, TMs Corporate Social Responsibility (CSR) and Donations/ Sponsorships Policy and Best Practices manual sets out the guidelines and the criteria for the award of donations and the approval of sponsorships, recommended allocations, limits of authority, approval process, budgeting, monitoring and evaluation of donations and sponsorships. The policy states that CSR opportunities and programmes shall be pursued with professionalism and guided by the core values of the TM Group. The CSR policy manual expects that decisions must be taken with integrity and the highest regard for good corporate governance and transparency. An overview of TMs CSR Policy is available at www.tm.com.my. In line with the policy recommendations, TMs community efforts are summarised and analysed for presentation to the Board on a quarterly basis. During 2007, TM also adopted PCGs Silver Book Guidelines incorporating the recommended assessment methodologies in evaluating value creation and impact of donations and sponsorships approved and conducting periodic reviews of contributions given for all of TMs community efforts. These guidelines include: Standardised monthly tracking of CSR activity by all CSR custodians in the Group. Adoption of standardised costbenefits assessment tools on CSR contributions by all CSR custodians.

Community service

Adoption of a standardised evaluation process by all CSR custodians. Submission of a consolidated quarterly CSR management report by the CSR project champion (Group Corporate Communications Division). Maintaining a CSR web-page on the Companys website.

community to sustain and improve their lives long after each TM-supported community project is completed. There are three key platforms through which TMs community efforts are directed: Education the focus of which is to contribute towards human capital development and capacity building. Sports Development the focus of which is contribution towards developing sporting talent at grassroots level, as well as promoting the nation as an international sporting destination. Community and Nation-Building the focus of which is towards providing assistance to the needy and underprivileged as well as promoting community development and nation-building activities while bridging the digital divide between urban and rural communities.

TM launched its theme Reaching Out which encapsulated the essence of its corporate citizenship initiatives in year 2007, a year which saw TM re-invigorate and consolidate its commitment to its CSR practices with the aim of making a difference to peoples lives both within and outside the country. COMMUNITY CAUSES WE SUPPORT Sustainability is an important element in TMs community efforts. Therefore the emphasis in TMs community efforts is towards providing the opportunity to acquire knowledge or skills. These are the tools which will enable the

TM Group spent in excess of RM73 million towards CR in community efforts in 2007 as highlighted below: Amount (RM) RM32.05 million RM17.33 million RM24.03 million RM73.41 million

CR Platform Education Sports Development Community and Nation-Building Total

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Corporate Responsibility

TM IN EDUCATION PROVIDING OPPORTUNITY TO PURSUE KNOWLEDGE In Education, TMs objective is to assist the nation in the development of human capital and capacity-building, and thereby meet its socio-economic developmental goals. Towards this end, TM has contributed and continues to contribute through the provision of scholarships from its foundation, Yayasan Telekom Malaysia (YTM), through its own training and staff development programmes and also through the establishment of the Multimedia University. Education made up the major chunk of external social contributions, taking up 44.0% of total contributions. The TM foundation, YTM, was the major contributor in this area. Established in 1994 and having provided financial support valued at over RM350 million to more than 10,070 students to date, YTM provided over RM32 million in the form of scholarships and loans to 823 students in various academic level programmes in the year under review. These scholarships and loans were awarded to students to follow academic programmes at Preparatory, Diploma, First Degree and Post-Graduate levels in recognised local and overseas institutes of higher learning. The financial support provided also included that for 700 needy secondary school students in government schools under YTMs Minor Secondary School Scheme which identifies deserving students for financial assistance to continue their studies up to SPM level.

Multimedia University (MMU), a tertiary education institution, was set up in 1997 by TM at a cost of more than RM800 million. Today, the university has 2 campuses Melaka and Cyberjaya with a current student enrolment of over 21,000. MMU offers programmes and degrees in creative multimedia, information technology, management and engineering from foundation to doctorate level. To date, MMU has produced over 13,000 graduates with 96.0% of them gaining employment within 6 months of graduation. MMU has an outstanding pool of international students, totalling 3,771 from 79 countries and has established 26 centres of excellence. It is now a major player in research and development. The establishment of MMU as a research university also serves to benefit the nations ICT aspirations which are for the industry to be a creator and not just a consumer

of technology. Through the establishment of a local private university, the nation can have a pool of talented human resources within its borders, ensuring sustainability from the perspective of economic management and human capital development within the country. TM IN SPORTS DEVELOPMENT INSTILLING A HEALTHY AND POSITIVE LIFESTYLE In Sports Development, TM seeks to identify and promote grassroots talent as well as assist in promoting the nation as an international sporting destination. Towards the latter, TM has contributed towards the sponsorship of several notable events including Liga Malaysia, the Le Tour de Langkawi, Monsoon Cup, the JB International Challenge and the Mount Kinabalu Climbathon, among others.

Le Tour de Langkawi

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Corporate Responsibility

Liga Malaysia

Monsoon Cup

identified core sports in the country, TM continued to support football; it was the sport that received the most contributions from TM in 2007. Liga Malaysia received RM8.5 million in support and this has provided an injection of funds that has benefited the administration and development of the game at national and state level. Year 2007 also saw TM carry its support for football development even further by its major sponsorship support of RM1.2 million for the TM Unileague, a popular inter-varsity football league competition, TMs Syoknya Bola Carnival (RM2.4 million), TMs Cage Futsal (RM1.2 million) and the TM ERA Ole K.O futsal tournament (RM288,000). Other major contributions from TM in 2007 for sports, that helped bring international sporting attention to the country, included cash and in-kind sponsorship support for the Le Tour de Langkawi, the premier international level bicycle race in Asia, the Monsoon

The year 2007 saw TM contribute RM17.33 million towards Sports Development, representing 24.0% of its total allocations to community, in support of various sports development causes that benefited individual sports

as well as fulfilled the nations objectives to promote the country as an international sports tourism destination. In response to the Governments call for corporate support to help develop

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Corporate Responsibility

Cup, an international world-class professional match-race sailing regatta in Terengganu, the FEI World Cup Show Jumping event, the Mount Kinabalu International Climbathon and the KL Tower International Jump 2007. TM IN COMMUNITY AND NATIONBUILDING GIVING THE OPPORTUNITY TO LEARN NEW SKILLS AND IMPROVE LIVES The major focus here is towards providing assistance to the needy and underprivileged through donations to welfare homes, NGOs and charitable organisations as well as promoting community development and nationbuilding activities while bridging the digital divide between urban and rural communities. The year 2007 saw TM contributing RM24.03 million towards various community and nation-building initiatives and social activities. This comprised 33.0% of the total allocation for CR in the community for the year. a. Graduate Employment Programme TM initiated a graduate re-training programme to retrain unemployed graduates and equip them with skills relevant to current employment needs. Called the Certificate in Business English & Communication Skills Programme or CiBEC, the program was carried out in collaboration with the Business Advanced Technology Centre of UTM. Kicking off in 2006 and continuing on in 2007 with a budget of RM2 million, TM targeted a total of 1,000 graduates and provided them with intensive English language, communication and other soft-skills

training relevant to the needs of the business environment. In 2007, TM spent in excess of RM500,000 to provide this training and as of end 2007, a total of 1,053 graduates were re-trained out of which, 72.1% gained employment upon completing the programme. b. School Adoption Programme This initiative saw TM contributing cash and in-kind resources in the adoption of 2 rural schools, namely, Sekolah Kebangsaan Bukit Indera Muda and Sekolah Kebangsaan Seri Penanti, both in Bukit Mertajam, Penang under the national PINTAR programme. The PINTAR programme, an initiative of the Ministry of Finance and implemented by Khazanah Nasional, is an effort to bridge the digital divide between rural and urban schools and to enhance their academic performance.

With an allocation of RM1 million in cash and in-kind to be utilised over a 3-year period beginning 2007, TMs involvement in these schools has been through the provision of ICT infrastructure such as broadband connectivity and PC equipment, ICT training and instruction, study visits, motivational talks, IT camps, financial assistance and scholarships to students with academic potential as well as school maintenance and repair. All these activities were carried out with the involvement of students, teachers, parents and the local communities. Several TM subsidiaries also played a significant role to ensure the programmes success.

PINTAR Programme

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c. Broadband in Schools TM kicked off its 3-year broadband initiative for schools in 2007 through its TM eSchool project with an allocation of RM2 million. Having as its goal a target of adopting 50 schools nation-wide over this period, TM commenced a pilot project in the Klang Valley by adopting 3 schools, namely, SMK USJ 12 Subang Jaya, Selangor, SMK Seksyen 11, Shah Alam, Selangor and SM(Laki-laki) Methodist Kuala Lumpur. A further 4 schools have been identified for the project in and around Kuala Lumpur. Providing these schools with broadband access, applications, services and specialised training for students and teachers at a cost of over RM781,000, the project aims to raise awareness of the benefits and usage of broadband to enhance learning and research and improve lifestyles. A TM eSchool web portal incorporating the Web School Management System (WSMS) and the Learning Content Management System (LMCS) was introduced in the schools involved to help facilitate the broadband assimilation process. d. Blue Ribbon Campaign TM lent its hand to this nationwide mobilisation awareness and fund-raising campaign to improve the lives of children suffering from cancer in 2007. The campaign is focused on brightening the lives of terminally-ill children in order to allow them to forget their pain, fear and isolation of their illnesses. The Blue Ribbon Campaign is part of the Rainbow of Life Forces (ROLF) which is a seven-year community CSR campaign initiated to give hope to all children regardless of race, religion, background

TM Scholars

and nationality. ROLF consists of seven campaigns, with each campaign tagged a different colour for each year denoting support for children in different situations. The year 2007 was the year of the blue ribbon. TM weighed in with RM5.35 million in financial assistance for the campaign. e. Other Community Initiatives In keeping with its yearly practice, TM continued its sponsorship of school students to the Formula 1 race in Sepang. Year 2007 saw TM sponsoring the full cost of tickets, F&B and transport for 152 underprivileged students from 5 welfare homes in and around Kuala Lumpur and Selangor to witness the world class sporting event.

The TM Group has always been sensitive towards the plight of the less fortunate and the needy. In view of this, TM continued to provide financial contributions to NGOs, charitable and welfare organisations. Groups receiving aid included senior citizens, the disabled, the orphaned and the abused. Other notable contributions from the Group included cash and in-kind contributions (prepaid cards) to the Armed Forces for the Hari Raya celebrations, assistance to Tabung Haji pilgrims in the form of prepaid cards and prayer amenities, cash contributions for Workers Day and Warriors Day celebrations as well as sponsorship support for Federation of Malaysian Consumer Associations (FOMCA) consumer education activities.

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Corporate Responsibility

NATION-BUILDING INITIATIVES a. 50th Year National Day (Merdeka) Celebrations For the nations 50th year National Day events in August 2007, the TM Group spent in excess of RM10 million through sponsorships and distribution of the national flag, parade celebrations, TV commercials, banners and buntings to celebrate the milestone achievement of the nations independence and development as well as to help instil a sense of pride and patriotism amongst staff, stakeholders and the general public. b. Khazanah Global Lecture Series 2007 Initiatied by Khazanah Nasional in conjunction with the 50th Merdeka celebrations, the lecture series was designed to encourage debate and share intellectual thinking at a global level for the benefit of the general Malaysian public. Lectures by prominent Nobel laureates such as Kofi Annan, Professor Muhammad Yunus of Grameen Bank and Professor Joseph Stiglitz were beamed to selected public and private universities nationwide via live video-conferencing and webstreaming facilities with the support of TMs in-kind sponsorship assistance valued at about RM500,000. c. Langkawi International Maritime & Aerospace Exhibition 2007 This international biennial event returned to Langkawi in 2007. Over 500 international and local companies participated in the event which saw the display of the latest technologies in the aerospace and maritime industries in Langkawi, helping yet again to put the island on the world map as a major tourist attraction. TM contributed to this

TelCo Industry Leaders participation in the 50th Merdeka Day celebration

effort by providing sponsorship of communications infrastructure worth about RM500,000. d. Other Nation-Building Initiative Other major sponsorships for the year undertaken by TM in cash and in-kind contributions in excess of RM2 million in total were the MSC Asia Pacific ICT Awards (MSC APICTA) 2007, 10th MSC International Advisory Panel (IAP) Meeting, 3rd World Islamic Economic Forum (WIEF), Langkawi International Dialogue 2007, Kuala Lumpur International Film Festival 2007 (KLIFF 2007), GK3 Global Knowledge Partnership and the Pekan Fest. TM in Community Beyond Malaysian Shores CSR initiatives continue to be extensively pursued in countries abroad where TM International has business operations and investments, namely Sri

Lanka, Indonesia, Bangladesh, Cambodia, Thailand, Singapore, India, Pakistan and Iran. In Sri Lanka, Dialog Telekom PLC (Dialog) continued through its Change Trust Fund to help disadvantaged communities across the island through community projects based on 5 themes digital inclusion, empowering the differently-abled, youth and education, environment and humanitarianism. Dialogs community projects included: Dialogs Digital Learning Bridge, a joint project with the Ministry of Education to minimise differences in education standards between urban and rural areas; Disaster and Emergency Warning Network (DEWN), a cost effective, multi-modal mass alert system which can be used to alert the general public in the event of a disaster; and

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State-of-the-art Ratmalana Audiology Centre for the Hearing Impaired.

Dialog has now joined the steering committee of the United Nations Global Compact (UNGC), the worlds largest CR network comprising 4,400 organisations, to influence other Sri Lankan companies to adopt UNGC principles. TM Internationals Indonesian subsidiary, PT Excelcomindo Pratama Tbk (XL), also launched a broad range of programmes to address community needs in the critical areas of education and community service. In 2007, XLs CSR projects included the building of kindergartens and schools in rural areas and the establishment of a much-needed mobile library to service children from underprivileged communities. XL also donated multiplexer equipment to several universities and provided Internet connection for the Indonesian Olympiad Physic Team. In terms of disaster relief, XL provided free public telephones and Internet services for flood victims in Jakarta as well as earthquake survivors in Yogyakarta and Bengkulu. XL wrapped up its CSR initiatives for the year by conferring the Indonesia Achievement Award to 4 Indonesian citizens under the categories of Science, Technology, Education and Culture. In Bangladesh, TM International (Bangladesh) Limited (TMIB) focused on four core values Education, Health, Environment and Poverty Eradication

under its continuing CSR programme. Besides awarding annual scholarships to deserving students, improving the lives of street children in the greater metropolitan areas and distributing winter necessities to underprivileged citizens, the year saw the company coming to the aid of Cyclone STDR survivors in the Patuakhali district. TM Internationals Cambodian operations, TM International (Cambodia) Company Limited (TMIC), also initiated several activities under its CSR efforts in 2007. A key activity was the provision of 35 hotline numbers to the Military Police Headquarters to promote national security. TMIC also provided financial aid to thousands of needy Muslim families in villages throughout Cambodia in the month of Ramadan. In Thailand, the Samart Group continued with its CSR initiatives by planting 3 million trees under the I-mobile Stop Global Warming Campaign, providing scholarships worth 195,000 baht, establishing the Samart Telecom Technician School and sponsoring a number of sporting events. Other subsidiaries and affiliates initiated their respective CSR programmes for the year in the areas of education, sports development as well as community and regional projects, to help continue the tradition of good corporate citizenry and in furtherance of good corporate governance.

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Financial Statements

STATEMENT OF RESPONSIBILITY BY DIRECTORS DIRECTORS REPORT SIGNIFICANT ACCOUNTING POLICIES INCOME STATEMENTS BALANCE SHEETS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY COMPANY STATEMENT OF CHANGES IN EQUITY CASH FLOW STATEMENTS NOTES TO THE FINANCIAL STATEMENTS STATEMENT BY DIRECTORS STATUTORY DECLARATION REPORT OF THE AUDITORS GENERAL INFORMATION

252 253 261 279 280 282 284 285 286 409 409 410 411

Financial Statements

Statement of

Responsibility by Directors

IN RESPECT OF THE PREPARATION OF THE ANNUAL AUDITED FINANCIAL STATEMENTS

The Directors are required by the Companies Act, 1965 to prepare financial statements for each year which have been made out in accordance with the applicable approved accounting standards in Malaysia and give a true and fair view of the state of affairs of the Group and the Company at the end of the year and of the results and cash flows of the Group and the Company for the year. In preparing the financial statements, the Directors have: adopted appropriate accounting policies and applied them consistently; made judgements and estimates that are reasonable and prudent; ensured that all applicable approved accounting standards have been followed; and prepared financial statements on the going concern basis as the Directors have a reasonable expectation, having made enquiries, that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future.

The Directors have the responsibility to ensure that the Group and the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Group and the Company and which enable them to ensure the financial statements comply with the Companies Act, 1965. The Directors have the overall responsibilities to take such steps as are reasonably open to them to safeguard the assets of the Group and for establishment and implementation of appropriate accounting and internal control systems for the prevention and detection of fraud and other irregularities.

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Financial Statements

Directors
FOR THE YEAR ENDED 31 DECEMBER 2007
1.

Report

The Directors have pleasure in submitting their annual report and the audited financial statements of the Group and the Company for the year ended 31 December 2007.

PRINCIPAL ACTIVITIES
2. The principal activities of the Company during the year are the establishment, maintenance and provision of telecommunication and related services under the licence issued by the Ministry of Energy, Water and Communications. The principal activities of the subsidiaries are set out in note 50 to the financial statements. There was no significant change in the nature of these activities during the year except that the Group disposed its national payphone network and related services following the sale of its wholly owned subsidiary, TM Payphone Sdn Bhd (now known as Pernec Paypoint Sdn Bhd). In addition, a subsidiary, TM Net Sdn Bhd transferred the Internet and broadband business to the Company with effect from 1 January 2007 to focus on content and application development for Internet services.

RESULTS
3. The results of the operations of the Group and the Company for the year were as follows: The Group RM million Profit for the year attributable to: Equity holders of the Company Minority interests Profit for the year The Company RM million

2,547.7 83.9 2,631.6

998.9 998.9

4.

In the opinion of the Directors, the results of the operations of the Group and the Company during the year were not substantially affected by any item, transaction or event of a material and unusual nature.

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Statements

Directors Report
for the year ended 31 December 2007

DIVIDENDS
5. Since the end of the previous year, the dividends paid, declared or proposed on ordinary shares by the Company are as follows: RM million (a) In respect of the year ended 31 December 2006, a final gross dividend of 30.0 sen per share less tax at 27.0% was paid on 12 June 2007 In respect of the year ended 31 December 2007 (i) an interim gross dividend of 26.0 sen per share less tax at 27.0% was paid on 4 September 2007 (ii) a special dividend of 65.0 sen per share less tax at 26.0% was paid on 31 January 2008

749.5

(b)

652.9 1,654.5

(c)

In respect of the year ended 31 December 2007, the Directors now recommend a final gross dividend of 22.0 sen per share less tax at 26.0% subject to the shareholders approval at the forthcoming Twenty-Third Annual General Meeting (23rd AGM) of the Company.

EMPLOYEES SHARE OPTION SCHEME

6. Details of the Companys Employees Share Option Scheme (ESOS 3), which expired on 31 July 2007, are as disclosed in note 12(a) to the financial statements. The Company has been granted an exemption by the Companies Commission of Malaysia via a letter dated 18 February 2008 from having to disclose in this report the names of the persons to whom options have been granted during the year and details of their holdings pursuant to Section 169(11) of the Companies Act, 1965, except for information on employees who were granted options representing 100,000 ordinary shares and above. The Company has not granted any options during the year ended 31 December 2007. However, the following employees who were granted options under the Performance Linked Option Scheme (PLES) in 2005 have more than 100,000 of the PLES options vested during the year. Number of options granted/ vested as at 1.1.2007 53,700 2 Number of options exercised during 2007 250,000

Name Dato Sri Abdul Wahid Omar Datuk Bazlan Osman

Designation Group Chief Executive Officer Group Chief Financial Officer

Options vested during 2007 652,500 2

Lapsed on 31.7.2007 # 456,200

Balance as at 31.12.2007

27,000 1 34,700 2

116,600 2

27,000

151,300

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Directors Report
for the year ended 31 December 2007

EMPLOYEES SHARE OPTION SCHEME (continued)

Number of options granted/ vested as at 1.1.2007 27,000 1 Options vested during 2007 116,700 2 Number of options exercised during 2007 27,000

Name Dato Yusof Annuar Yaacob

Designation Chief Executive Officer TM International Berhad Group Chief Auditor

Lapsed on 31.7.2007# 116,700

Balance as at 31.12.2007

Hashim Mohammed Dennis Koh Seng Huat

27,000 1 34,700 2 34,700 2

116,600 2

27,000

151,300

Chief Executive Officer VADS Berhad Former President, Universiti Telekom Sdn Bhd (resigned on 31.12.2007)

116,600 2

151,300

Prof Datuk Dr Ghauth Jasmon

34,700 2

116,600 2

151,300

1 2 #

These options were granted at RM9.22 per share These options were granted at RM10.24 per share under the PLES These options have expired on 31 July 2007 and any unexercised options were deemed lapsed

SHARE CAPITAL
7. On 8 May 2007, the authorised share capital of the Company was increased to include 2,000 Class C Non-Convertible Redeemable Preference Shares of RM1.00 each and 1,000 Class D Non-Convertible Redeemable Preference Shares of RM1.00 each. During the year, the issued and fully paid-up share capital of the Company was increased by the issuance of 42,152,800 ordinary shares of RM1.00 each for cash under ESOS 3 and PLES, detailed as follows: Number of ordinary shares of RM1.00 each issued 18,934,000 13,000 2,170,000 15,838,300 4,864,000 333,500 Exercise price per share RM7.09 RM8.02 RM9.32 RM9.22 RM8.69 RM10.24

8.

These shares rank pari-passu in all respects with the existing issued ordinary shares of the Company.

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Statements

Directors Report
for the year ended 31 December 2007

SHARE CAPITAL (continued)

9. On 20 July 2007, the Company redeemed 1,000 Class A Redeemable Preference Shares (RPS) (TM RPS A) and 1,000 Class B RPS (TM RPS B) that was issued in 2003 to Rebung Utama Sdn Bhd, a special purpose entity of the Company, as part of the exchange of TM Islamic Stapled Income Securities with the existing Tekad Mercu bonds as explained in paragraph 10 below.

NON-CONVERTIBLE REDEEMABLE PREFERENCE SHARES (NCRPS)

10. On 20 July 2007, the Company had, through itself and its wholly owned subsidiary, Hijrah Pertama Berhad (HPB), issued the TM Islamic Stapled Income Securities (TM ISIS) consisting of: (a) (i) RM2.0 million Class C Non-Convertible Redeemable Preference Shares (NCRPS) (TM NCRPS C) consisting of 2,000 Class C NCRPS of RM1.00 each at a premium of RM999 issued by the Company at an issue price of RM1,000 each; Sukuk Ijarah Class A of nominal value RM1,998.0 million issued by HPB; and RM925,000 Class D NCRPS (TM NCRPS D) consisting of 925 Class D NCRPS of RM1.00 each at a premium of RM999 issued by the Company at an issue price of RM1,000 each; Sukuk Ijarah Class B of nominal value RM924,075,000 issued by HPB.

(ii) (b) (i) (ii)

Details of TM NCRPS C, TM NCRPS D, Sukuk Ijarah Class A and B are set out in note 14(g)(I) and (II) to the financial statements. 11. The TM NCRPS shall rank pari-passu among themselves but below the Special Share and ahead of the ordinary shares of the Company in a distribution of capital in the event of the winding up or liquidation of the Company. The TM NCRPS are effectively linked to the Sukuk in that the TM NCRPS and the Sukuk are issued simultaneously to the same parties and the periodic distribution obligations under the Sukuk are dependent on the payments made under the TM NCRPS. The outstanding amount of Sukuk Ijarah Class A and B are treated as borrowing by the Company as the Sukuk are effectively obligations of the Company. The issuance of the TM ISIS was made in exchange for the existing RM3,000.0 million redeemable unsecured bonds (Tekad Mercu bonds) issued by a special purpose entity Tekad Mercu Berhad. Details of the exchange transaction is explained in note 14(g) to the financial statements. The TM ISIS are classified as debt instruments and hence are reported as liabilities. Consequently, dividend payable under TM NCRPS and rental payable under Sukuk are reported as finance cost.

MOVEMENTS ON RESERVES AND PROVISIONS

12. All material transfers to or from reserves or provisions during the year have been disclosed in the financial statements.

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Directors Report
for the year ended 31 December 2007

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS

13. Before the financial statements of the Group and the Company were prepared, the Directors took reasonable steps to: (a) ascertain that actions had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and ensure that any current assets which were unlikely to be realised at their book value in the ordinary course of business had been written down to their expected realisable values.

(b)

14. At the date of this report, the Directors are not aware of any circumstances which: (a) would render the amounts written off for bad debts or the amount of allowance for doubtful debts in the financial statements of the Group and the Company inadequate to any substantial extent or the values attributed to current assets in the financial statements of the Group and the Company misleading; and have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and the Company misleading or inappropriate.

(b)

15. In the interval between the end of the year and the date of this report: (a) no items, transactions or other events of material and unusual nature has arisen which, in the opinion of the Directors, would substantially affect the results of the operations of the Group and the Company for the year in which this report is made; and no charge has arisen on the assets of any company in the Group which secures the liability of any other person nor has any contingent liability arisen in any company in the Group except as disclosed in note 45(c)(i) to the financial statements.

(b)

16. No contingent or other liability of any company in the Group has become enforceable or is likely to become enforceable within the period of 12 months after the end of the year which, in the opinion of the Directors, will or may affect the ability of the Group or the Company to meet their obligations when they fall due. 17. At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Group and the Company, which would render any amount stated in the financial statements misleading.

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Financial

Statements

Directors Report
for the year ended 31 December 2007

DIRECTORS
18. The Directors in office since the date of the last report are as follows: Directors Tan Sri Dato Ir Muhammad Radzi Hj Mansor Dato Sri Abdul Wahid Omar Datuk Zalekha Hassan (appointed on 9 January 2008) Dato Ahmad Hj Hashim (resigned on 7 January 2008) Dato Azman Mokhtar Dato Ir Dr Abdul Rahim Daud Dato Lim Kheng Guan YB Datuk Nur Jazlan Tan Sri Mohamed Ir Prabahar NK Singam Rosli Man 19. In accordance with the Article 98 (2) of the Companys Article of Association, Datuk Zalekha Hassan who was appointed to the Board before the general meeting, shall retire from the Board at the Companys 23rd AGM and being eligible, offers herself for re-election. 20. According to Article 103 of the Companys Articles of Association, Dato Ir Dr Abdul Rahim Daud, YB Datuk Nur Jazlan Tan Sri Mohamed and Dato Azman Mokhtar shall retire by rotation from the Board at the Companys 23rd AGM and being eligible offer themselves for re-election. 21. Dato Sri Abdul Wahid Omar who is also retiring by rotation pursuant to Article 103, will not seek re-election and will therefore retire as a Director of the Company upon conclusion of the 23rd AGM of the Company. However, he will remain as Group Chief Executive Officer thereafter. Dyg Sadiah Abg Bohan (appointed on 9 January 2008) Dyg Sadiah Abg Bohan (ceased on 7 January 2008) Alternate Director

DIRECTORS INTEREST
22. In accordance with the Register of Directors Shareholdings, the Directors who held office at the end of the year and have interest in shares and options over shares in the Company and subsidiaries are as follows: Number of ordinary shares of RM1.00 each Interest in the Company Tan Sri Dato Ir Muhammad Radzi Hj Mansor Dato Sri Abdul Wahid Omar Dato Ir Dr Abdul Rahim Daud
@

Balance at 1.1.2007 123,500 145,000

Bought 250,000
@

Sold 1,500

Balance at 31.12.2007 122,000 250,000 145,000

Being options under PLES exercised during the year

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Directors Report
for the year ended 31 December 2007

DIRECTORS INTEREST (continued)

Number of options over ordinary shares of RM1.00 each Interest in the Company Dato Sri Abdul Wahid Omar
1 2

Balance at 1.1.2007 53,700 1

Vested 652,500 2

Exercised 250,000

Lapsed* 456,200

Balance at 31.12.2007

Options granted and vested under PLES on 6 September 2005 as detailed in note 12(a) to the financial statements Options granted in 2005 under PLES and vested on 24 April 2007 These options have expired on 31 July 2007 and any unexercised options were deemed lapsed Number of ordinary shares of RM1.00 each of RM0.50 each # Share split 15,000 3 15,000 3 Balance at 31.12.2007 30,000 30,000

Interest in VADS Berhad Tan Sri Dato Ir Muhammad Radzi Hj Mansor Dato Ir Dr Abdul Rahim Daud
#

Balance at 1.1.2007 15,000 15,000

Bought

Sold

On 25 October 2007, VADS Berhads existing ordinary shares of RM1.00 each was subdivided into 2 ordinary shares of RM0.50 each following a share split exercise Additional shares created due to share split exercise carried out by VADS Berhad

23. In accordance with the Register of Directors Shareholdings, none of the other Directors who held office at the end of the year have any direct or indirect interests in the shares and options over ordinary shares in the Company and its related corporations during the year.

DIRECTORS BENEFITS
24. Since the end of the previous year, none of the Directors have received or become entitled to receive any benefit (except for the Directors fees, remuneration and other emoluments as disclosed in note 5(b) to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member or with a company in which he has a substantial financial interest and any benefit that may deem to have been received by certain Directors. Neither during nor at the end of the year was the Company or any of its related corporations, a party to any arrangement with the object(s) of enabling the Directors to acquire benefits by means of the acquisition of shares in, or debentures of the Company or any other body corporate.

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259

Financial

Statements

Directors Report
for the year ended 31 December 2007

AUDITORS
25. The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.

In accordance with a resolution of the Board of Directors dated 26 February 2008.

TAN SRI DATO Ir MUHAMMAD RADZI HJ MANSOR Chairman

DATO SRI ABDUL WAHID OMAR Group Chief Executive Officer

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Financial Statements

Significant
FOR THE YEAR ENDED 31 DECEMBER 2007

Accounting Policies

The following accounting policies have been used consistently in dealing with items that are considered material in relation to the financial statements, and have been consistently applied to all the years presented, unless otherwise stated.

1.

BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements of the Group and the Company have been prepared in accordance with the provisions of the Companies Act, 1965 and Financial Reporting Standards, the Malaysian Accounting Standards Board (MASB) approved accounting standards in Malaysia for Entities Other Than Private Entities. The Group and the Company had adopted new and revised Financial Reporting Standards which are mandatory for the Groups and the Companys financial year beginning on 1 January 2007 as described in (a) below. The financial statements have been prepared under the historical cost convention except as disclosed in the Significant Accounting Policies below. The preparation of financial statements in conformity with Financial Reporting Standards, requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of the revenue and expenses during the reported period. It also requires Directors to exercise their judgement in the process of applying the Groups accounting policies. Although these estimates and judgement are based on the Directors best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Groups and the Companys financial statements are disclosed in note 2 to the financial statements. (a) Standards and amendments to published standards that are effective The new accounting standards and amendments to published standards effective for the Groups and the Companys financial year beginning on 1 January 2007 are as follows: FRS 6 FRS 117 FRS 124 Amendments to FRS 119 Exploration for and Evaluation of Mineral Resources Leases Related Party Disclosures Employee Benefits Actuarial Gains and Losses, Group Plans and Disclosures in relation to the option of an alternative recognition approach for actuarial gains and losses. Accounting for Zakat on Business Ijarah

TR i-1 TR i-2

All changes in the accounting policies, where applicable have been made in accordance with the transitional provisions in the respective standards and amendments to the published standards. All standards and amendments to the published standards, where applicable adopted by the Group require retrospective application. A summary of the impact of the new accounting standards and amendments to the published standards on the financial statements of the Group and the Company is set out in note 53 to the financial statements.

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261

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

1.

BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued)

(b) Standards, amendments to published standards and Interpretations Committee (IC) Interpretations that are not yet effective and have not been early adopted The new standards, amendments to published standards and IC Interpretations which are effective for accounting periods beginning on or after 1 July 2007 and hence are mandatory for the Groups and the Companys financial year beginning on 1 January 2008, which the Group and the Company have not early adopted, are as follows: (i) Standards, amendments to published standards and Interpretations Committee (IC) Interpretations that are relevant for the Groups and the Companys operations FRS 107 FRS 112 FRS 118 FRS 120 FRS 134 FRS 137 FRS 139 Cash Flow Statements Income Taxes Revenue Accounting for Government Grants and Disclosure of Government Assistance Interim Financial Reporting Provisions, Contingent Liabilities and Contingent Assets Financial Instruments: Recognition and Measurement (effective date yet to be determined by MASB) Changes in Existing Decommissioning Restoration & Similar Liabilities Scope of FRS 2

Amendments to FRS 121 The Effects of Changes in Foreign Rates Net Investment in Foreign Operations IC Interpretation 1 IC Interpretation 8

FRS 107, FRS 118, FRS 134 and FRS 137 have no significant changes compared to the original standards. FRS 112 removes the requirements that prohibit recognition of deferred tax on unutilised reinvestment allowances or other allowances in excess of capital allowances. FRS 120 allows the alternative treatment of recording non-monetary government grant at nominal amount on initial recognition. Amendment to FRS 121 requires exchange differences on monetary items that form part of the net investment in a foreign operation to be recognised in equity instead of in profit or loss regardless of the currency in which these items are denominated in. FRS 139 establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. Hedge accounting is permitted only under strict circumstances. The Group has applied the transitional provision in FRS 139 which exempts entities from disclosing the possible impact arising from the initial application of this standard on the financial statements of the Company. The Group will apply this standard when effective. IC Interpretation 1 deals with changes in the estimated timing or amount of the outflow of resources required to settle the obligation or a change in the discount rate.

262

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Significant Accounting Policies

for the year ended 31 December 2007

1.

BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued)

(b) Standards, amendments to published standards and Interpretations Committee (IC) Interpretations that are not yet effective and have not been early adopted (continued) (i) Standards, amendments to published standards and Interpretations Committee (IC) Interpretations that are relevant for the Groups and the Companys operations (continued) IC Interpretation 8 clarifies that FRS 2 "Share-based Payment" applies even in the absence of specifically identifiable goods or services. With the exception of FRS 139, the above standards, amendments to published standards and Interpretations to existing standards are not anticipated to have any significant impact to the financial position of the Group and the Company. The Group and the Company will apply the above revised standards, amendments to published standards and IC Interpretations where applicable from financial year beginning on 1 January 2008. (ii) Standards and IC Interpretations to existing standards that are not relevant or material for the Groups operations FRS 111 IC Interpretation 2 IC Interpretation 5 IC Interpretation 6 IC Interpretation 7 Construction Contracts Members Shares in Co-operative Entities & Similar Instruments Rights to Interests arising from Decommissioning, Restoration & Environmental Rehabilitation Funds Liabilities arising from Participating in a Specific Market-Waste Electrical & Electronic Equipment Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies

FRS 111 has no significant changes compared to the original standards. IC Interpretation 2 deals with liability or equity classification of financial instruments which give the holder the right to request redemption, but subject to limits on whether it will be redeemed. IC Interpretation 5 deals with accounting in the financial statements of a contributor for its interests arising from decommissioning funds. IC Interpretation 6 provides guidance on the recognition, in the financial statements of producers, of liabilities for waste management under the European Union Directive in respect of sales of historical household equipment. IC Interpretation 7 provides guidance on how to apply the requirements of FRS 129 in a reporting period in which an entity identifies the existence of hyperinflationary in the economy of its functional currency, when that economy was not hyperinflationary in the prior period.

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263

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

2.

ECONOMIC ENTITIES IN THE GROUP

(a) Subsidiaries Subsidiaries are those corporations or other entities (including special purpose entities) in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated using the purchase method of accounting except for the following business combinations which were accounted for using the merger method: subsidiaries that were consolidated prior to 1 April 2002 in accordance with Malaysian Accounting Standard 2 Accounting for Acquisitions and Mergers, the generally accepted accounting principles prevailing at that time business combinations consolidated on/after 1 April 2002 but with agreement dates before 1 January 2006 that meet the conditions of a merger as set out in FRS 1222004 Business Combinations internal group reorganisations, as defined in FRS 1222004, consolidated on/after 1 April 2002 but with agreement dates before 1 January 2006 where: the ultimate shareholders remain the same, and the rights of each such shareholder, relative to the others, are unchanged; and the minorities' share of net assets of the Group is not altered by the transfer

business combinations involving entities or businesses under common control with agreement dates on/after 1 January 2006

The Group has taken advantage of the exemption provided by FRS 1222004 and FRS 3 to apply these Standards prospectively. Under the purchase method of accounting, subsidiaries are fully consolidated from the date on which control is transferred to the Group and are excluded from consolidation from the date that control ceases. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Groups share of the identifiable net assets acquired at the date of acquisition is recorded as goodwill (see Significant Accounting Policies note 3(a)). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Consolidated Income Statement.

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Significant Accounting Policies

for the year ended 31 December 2007

2.

ECONOMIC ENTITIES IN THE GROUP (continued)

(a) Subsidiaries (continued) Minority interests represent that portion of the profit or loss and net assets of subsidiaries attributable to equity interest that are not owned, directly or indirectly through the subsidiaries by the parent. It is measured at the minorities share of the fair values of the subsidiaries identifiable assets and liabilities at the acquisition date and the minorities share of changes in subsidiaries equity since that date. Separate disclosure is made of minority interests. Where more than one exchange transaction is involved, any adjustment to the fair value of the subsidiarys identifiable assets, liabilities and contingent liabilities relating to previously held interests of the Group is accounted for as a revaluation. Under the merger method of accounting, the results of subsidiaries are presented as if the merger had been effected throughout the current and previous years. The assets and liabilities combined are accounted for based on the carrying amounts from the perspective of the common control shareholder at the date of transfer. On consolidation, the cost of the merger is cancelled with the values of the shares received. Any resulting credit difference is classified as equity and regarded as a non-distributable reserve. Any resulting debit difference is adjusted against any suitable reserve. Any share premium, capital redemption reserve and any other reserves which are attributable to share capital of the merged enterprises, to the extent that they have not been capitalised by a debit difference, are reclassified and presented as movement in other capital reserves. Intragroup transactions, balances and unrealised gains or losses on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the accounting policies adopted by the Group. The gain or loss on disposal of a subsidiary is the difference between the net disposal proceeds and the Groups share of the subsidiarys net assets as of the date of disposal, including the cumulative amount of any exchange differences that relate to that subsidiary which were previously recognised in equity, and is recognised in the Consolidated Income Statement. (b) Transactions with Minority Interests The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the Income Statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share of the carrying value of net assets of the subsidiary acquired.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

265

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

2.

ECONOMIC ENTITIES IN THE GROUP (continued)

(c) Jointly Controlled Entities Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of control by the Group with one or more parties where the strategic financial and operation decisions relating to the entity requires unanimous consent of the parties sharing control. The Groups interest in jointly controlled entities is accounted for in the consolidated financial statements using the equity method of accounting. Equity accounting involves recognising the Groups share of the post acquisition results of the jointly controlled entities in the Consolidated Income Statement and its share of post acquisition movement within reserve in reserves. The cumulative post acquisition movements are adjusted against the cost of the investment and includes goodwill on acquisition (net of accumulated impairment loss). The results of jointly controlled entities are taken from the most recent unaudited financial statements of the jointly controlled entities concerned, made up to dates not more than 3 months prior to the end of the financial year of the Group. Equity accounting is discontinued when the Group ceases to have joint control in the jointly controlled entities. The Group recognises the portion of gains or losses on the sale of assets by the Group to the jointly controlled entities that is attributable to the other venturers. The Group does not recognise its share of profits or losses from the jointly controlled entities that result from the purchase of assets by the Group from the jointly controlled entities until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets or an impairment loss. Where necessary, in applying the equity method, adjustments are made to the financial statements of jointly controlled entities to ensure consistency of the accounting policies with those of the Group. (d) Associates Associates are corporations, partnerships or other entities in which the Group exercises significant influence but which it does not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Significant influence is the power to participate in the financial and operating policy decisions of the associates but not control over those policies. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Equity accounting is discontinued when the Group ceases to have significant influence over the associates. The Groups investments in associates includes goodwill identified on acquisition, net of any accumulated impairment loss (see Significant Accounting Policies note 3(a)). The Groups share of its associates post-acquisition profits or losses is recognised in the Consolidated Income Statement, and its share of post-acquisition movements in reserves is recognised within reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investments. When the Groups share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Groups interest is reduced to nil and recognition of further loss is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

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Significant Accounting Policies

for the year ended 31 December 2007

2.

ECONOMIC ENTITIES IN THE GROUP (continued)

(d) Associates (continued) The results of associates are taken from the most recent unaudited financial statements of the associates concerned, made up to dates not more than 3 months prior to the end of the financial year of the Group. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Groups interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, in applying the equity method, appropriate adjustments are made to the financial statements of the associates to ensure consistency of accounting policies with those of the Group. Dilution gains and losses are recognised in the Income Statement. For incremental interest in associates, the date of acquisition is the date at which significant influence is obtained. Goodwill is calculated at each purchase date based on the fair value of assets and liabilities identified. The previously acquired stake is stepped up to fair value and the share of profits and equity movements for the previously acquired stake are not recognised since they are embedded in the step up.

3.

INTANGIBLE ASSETS
(a) Goodwill Goodwill represents the excess of the cost of acquisition of subsidiaries, jointly controlled entities and associates over the Groups share of the fair value of the identifiable net assets including contingent liabilities of subsidiaries, jointly controlled entities and associates at the date of acquisition. Goodwill on acquisition occurring on or after 1 January 2002 in respect of a subsidiary is included in the Consolidated Balance Sheet as an intangible asset. Goodwill is carried at cost less accumulated impairment losses. Goodwill is tested for impairment at least annually, or when events or circumstances occur indicating that an impairment may exist. Impairment of goodwill is charged to the Consolidated Income Statement as and when it arises. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity disposed. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each cash-generating unit or a group of cash-generating units represents the lowest level within the Group at which goodwill is monitored for internal management purposes and which are expected to benefit from the synergies of the combination. The Group allocates goodwill to each business segment in each country in which it operates. Goodwill on acquisition of jointly controlled entities and associates occurring on or after 1 January 2002 is included in the investments in jointly controlled entities and associates respectively. Such goodwill is tested for impairment as part of the overall balance. Goodwill on acquisitions that occurred prior to 1 January 2002 was written off against reserves in the year of acquisition.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

267

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

3.

INTANGIBLE ASSETS (continued)

(b) Licences Acquired licences are shown at cost. Licences have finite useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using straight line method, from the effective date of commercialisation of services, subject to impairment, to the end of the assignment period. Licences are not revalued.

4.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. (a) Cost Cost of telecommunication network comprises expenditure up to and including the last distribution point before the customers premises and includes contractors' charges, materials, direct labour and related overheads. The cost of other property, plant and equipment comprises their purchase cost and any incidental cost of acquisition. These costs include the costs of dismantling, removal and restoration, the obligation which was incurred as a consequence of installing the asset. Subsequent cost is included in the carrying amount of the asset or recognised as appropriate only when it is probable that the future economic benefit associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying value of the replaced part is derecognised. All other repairs and maintenance are charged to the Income Statement during the period in which they are incurred. (b) Depreciation Freehold land is not depreciated as it has an infinite life. Other property, plant and equipment are depreciated on a straight line basis to write off the cost of the assets to their residual values over their estimated useful lives in years as summarised below: Telecommunication network Movable plant and equipment Computer support systems Buildings 3 5 3 5 20 8 5 40

Depreciation on property, plant and equipment under construction commences when the property, plant and equipment are ready for their intended use. Depreciation on property, plant and equipment ceases at the earlier of derecognition and classification as held for sale. The assets residual values and useful lives are reviewed and adjusted as appropriate at each balance sheet date. (c) Impairment At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indication exists, an analysis is performed to assess whether the carrying value of the asset is fully recoverable. A write down is made if the carrying value exceeds the recoverable amount (see Significant Accounting Policies note 8 on Impairment of Assets).

268

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Significant Accounting Policies

for the year ended 31 December 2007

4.

PROPERTY, PLANT AND EQUIPMENT (continued)

(d) Gains or Losses on Disposal Gains or losses on disposal are determined by comparing the proceeds with the carrying amount of the related asset and are included in the Income Statement. (e) Asset Exchange Transaction Property, plant and equipment may be acquired in exchange for a non-monetary asset or for a combination of monetary and non-monetary assets and is measured at fair values unless; (i) (ii) the exchange transaction lacks commercial substance; or the fair value of neither the assets received nor the assets given up can be measured reliably.

The acquired item is measured in this way even if the Group cannot immediately derecognise the assets given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. (f) Repairs and Maintenance Repairs and maintenance are charged to the Income Statement during the period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. This cost is depreciated over the remaining useful life of the related asset.

5.

INVESTMENT PROPERTIES
Investment properties, principally comprising land and office buildings, are held for long term rental yields or for capital appreciation or for both, and are not occupied by the Group or the Company. Investment properties are carried at cost less accumulated depreciation and impairment losses. Investment properties are depreciated on a straight line basis to write off the cost of the investment properties to their residual values over their estimated useful lives in years as summarised below: Leasehold land Buildings over the period of the respective leases 5 40

On disposal of an investment property, or when it is permanently withdrawn from use and no future economic benefits are expected, then it shall be derecognised (eliminated from balance sheet). The difference between the net disposal proceeds and the carrying amount is recognised as profit or loss in the period of the retirement or disposal.

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269

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

6.

LAND HELD FOR PROPERTY DEVELOPMENT

Land held for property development consists of land on which no significant development work has been undertaken or where development activities are not expected to be completed within the normal operating cycle. Such land is classified as non-current asset and is stated at cost less accumulated impairment losses. Cost associated with the acquisition of land includes the purchase price of the land, professional fees, stamp duties, commissions, conversion fees and other relevant levies. Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its recoverable amount (see Significant Accounting Policies note 8 on Impairment of Assets). Land held for property development is transferred to property development cost (under current assets) when development activities have commenced and where the development activities can be completed within the Companys normal operating cycle of 2 to 5 years.

7.

INVESTMENTS
Investments in subsidiaries, jointly controlled entities and associates are stated at cost less accumulated impairment losses. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount (see Significant Accounting Policies note 8 on Impairment of Assets). Investments in International Satellite Organisations, quoted shares within non-current assets and other unquoted shares are stated at cost and an allowance for diminution in value is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments. Such allowance for diminution in value is recognised as an expense in the period in which the diminution is identified. Marketable securities (within current assets) are carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investment. Cost is derived at based on the weighted average basis. Market value is calculated by reference to stock exchange quoted selling prices at the close of business on the balance sheet date. Increases/decreases in the carrying amount of marketable securities are credited/charged to the Income Statement. On disposal of an investment, the difference between the net disposal proceeds and its carrying amount is charged/credited to the Income Statement.

8.

IMPAIRMENT OF ASSETS
Assets that have an indefinite useful life are not subject to amortisation and are tested for impairment annually, or as and when events or circumstances occur indicating that an impairment may exist. Property, plant and equipment and other non-current assets, including intangible assets with definite useful life, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less cost to sell and value-in-use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows (cash-generating units). Assets other than goodwill that suffered an impairment are reviewed for possible reversal at each reporting date.

270

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Significant Accounting Policies

for the year ended 31 December 2007

8.

IMPAIRMENT OF ASSETS (continued)

The impairment loss is charged to the Income Statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Impairment losses on goodwill are not reversed. In respect of other assets, any subsequent increase in recoverable amount is recognised in the Income Statement unless it reverses an impairment loss on revalued asset in which case it is taken to revaluation surplus.

9.

GOVERNMENT GRANTS
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the Income Statement over the financial period necessary to match them with the costs they are intended to compensate. Government grants relating to the purchase of assets are included in non-current liabilities as deferred income and are credited to the Income Statement on the straight line basis over the estimated useful lives of the related assets.

10. INVENTORIES
Inventories are stated at lower of cost and net realisable value. Cost is determined on a weighted average basis and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location. The cost of finished goods and work-in-progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value represents the estimated selling price in the ordinary course of business, less all estimated costs to completion and applicable variable selling expenses. In arriving at the net realisable value, due allowance is made for all obsolete and slow moving items. Inventories include maintenance spares acquired for the purpose of replacing damaged or faulty plant or spares and supplies used in constructing and maintaining the network.

11. NON-CURRENT ASSETS (OR DISPOSAL GROUP) CLASSIFIED AS ASSETS HELD FOR SALE
Non-current assets (or disposal group) are classified as assets held for sale if their carrying amount will be recovered principally through a sale transaction rather than through a continuing use. Assets held for sale are stated at the lower of carrying amount and fair value less cost to sell.

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271

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

12. TRADE RECEIVABLES

Trade receivables are carried at anticipated realisable value. Bad debts are written off and specific allowances are made for trade receivables considered to be doubtful of collection. In addition, a general allowance based on a percentage of trade receivables is made to cover possible losses which are not specifically identified.

13. CASH AND CASH EQUIVALENTS

For the purpose of the Cash Flow Statements, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term, highly liquid investments with original maturities of 3 months or less and bank overdrafts. Deposits held as pledged securities for term loans granted are not included as cash and cash equivalents. Bank overdrafts are included within borrowings in current liabilities in the balance sheet.

14. SHARE CAPITAL

(a) Classification Ordinary share and non-redeemable preference shares with discretionary dividends are classified as equity. Other shares are classified as equity and/or liability according to the economic substance of the particular instrument. Distribution to holders of a financial instrument classified as an equity instrument is charged directly to equity. (b) Share issue costs Incremental external costs directly attributable to the issuance of new shares or options are shown in equity as a deduction, net of tax from the proceeds. (c) Dividend to shareholders of the Company Dividends on redeemable preference shares are recognised as a liability and expressed on an accrual basis. Other dividends are recognised as a liability in the period in which they are declared.

15. BONDS, NOTES, DEBENTURES AND BORROWINGS

Bonds, notes and debentures, are stated at the net proceeds received on issue. The finance costs which represent the difference between the net proceeds and the total amount of the payments of these borrowings are allocated to periods over the term of the borrowings at a constant rate on the carrying amount and are charged to the Income Statement. Interests, dividends, losses and gains relating to a financial instrument, or a component part, classified as a liability is reported within finance cost in the Income Statement. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing cost incurred in connection with financing the construction and installation of property, plant and equipment is capitalised until the property, plant and equipment are ready for their intended use. All other borrowing costs are charged to the Income Statement.

272

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Significant Accounting Policies

for the year ended 31 December 2007

16. OPERATING LEASES

Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on the straight line basis over the lease period. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. Upfront payments on leasehold land are classified as prepaid lease payments and amortised on a straight line basis over the remaining lease period.

17. INCOME TAXES

Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits, including withholding taxes payable by foreign subsidiaries, jointly controlled entities or associates on distributions of retained earnings to companies in the Group, and real property gains taxes payable on disposal of properties. Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. However deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at that time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unutilised tax losses can be utilised. Deferred tax is recognised on temporary differences arising on investments in subsidiaries, jointly controlled entities and associates except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The Groups share of income taxes of jointly controlled entities and associates are included in the Groups share of results of jointly controlled entities and associates. Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

18. PROVISIONS
Provisions are recognised when the Group and the Company have a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are not recognised for future operating losses.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

273

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

18. PROVISIONS (continued)

Where there are a number of similar obligations, the likelihood that an outflow will be required in a settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

19. CONTINGENT LIABILITIES AND CONTINGENT ASSETS

The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare circumstance where there is a liability that cannot be recognised because it cannot be measured reliably. A contingent asset is a possible asset that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group. The Group does not recognise a contingent asset but discloses its existence where inflows of economic benefits are probable, but not virtually certain. In the acquisition of subsidiaries by the Group under a business combination, the contingent liabilities assumed are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The Group recognises separately the contingent liabilities of the acquirees as part of allocating the cost of a business combination where their fair values can be measured reliably. Where the fair values cannot be measured reliably, the resulting effect will be reflected in the goodwill arising from the acquisitions. Subsequent to the initial recognition, the Group measures the contingent liabilities that are recognised separately at the date of acquisition at the higher of the amount that would be recognised in accordance with the provisions of FRS 137 and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with FRS 118.

20. REVENUE RECOGNITION

Operating revenue comprises the fair value of the consideration received or receivables for the sale of products and rendering of services net of returns, duties, sales discounts and sales taxes paid, after eliminating sales within the Group. Operating revenue is recognised or accrued at the time of the provision of the products or services. Dividend income from investment in subsidiaries, jointly controlled entities, associates and other investments is recognised when a right to receive payment is established. Interest income includes income from deposits with licensed banks, finance companies, other financial institutions and staff loans, and is recognised on an accrual basis.

274

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Significant Accounting Policies

for the year ended 31 December 2007

21. EMPLOYEE BENEFITS

(a) Short Term Employee Benefits Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. (b) Contribution to Employees Provident Fund (EPF) The Groups contributions to EPF are charged to the Income Statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (c) Termination Benefits Termination benefits are payable whenever an employees employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the balance sheet date are discounted to present value.

(d) Share-Based Compensation The Group operates an equity settled, share-based compensation plan for the employees of the Group. Employee services received in exchange for the grant of the share options is recognised as an expense in the Income Statement over the vesting periods of the grant with a corresponding increase in equity. The total amount to be expensed over the vesting periods is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in the assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the Income Statement, and a corresponding adjustment to equity. For options granted to subsidiaries, the expense will be recognised in the subsidiaries' financial statements over the vesting periods of the grant. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

22. FOREIGN CURRENCIES

(a) Functional and Presentation Currency Items included in the financial statements of each of the Groups entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Ringgit Malaysia, which is the Companys functional and presentation currency.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

275

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

22. FOREIGN CURRENCIES (continued)

(b) Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. (c) Group Companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each Income Statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(iii) all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders equity. When a foreign operation is disposed of or sold, such exchange differences that were recorded in equity are recognised in the Income Statement as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity completed on or after 1 January 2006 are treated as assets and liabilities of the foreign entity and are recorded in the functional currency of the foreign entity and translated at the exchange rate prevailing at balance sheet date. For acquisition of foreign entities completed prior to 1 January 2006, goodwill and fair value adjustments continued to be recorded at the exchange rates at the respective date of acquisitions. (d) Closing Rates The principal closing rates (units of Malaysian Ringgit per foreign currency) used in translating significant balances at year end are as follows: Foreign Currency US Dollar Japanese Yen Sri Lanka Rupee Bangladesh Taka Indonesian Rupiah Pakistani Rupee 31.12.2007 3.30500 0.02969 0.03043 0.04843 0.00035 0.05370 31.12.2006 3.52700 0.02964 0.03284 0.05107 0.00039 0.05807 Foreign Currency Singapore Dollar Thai Baht Indian Rupee Special Drawing Rights 31.12.2007 2.29307 0.11054 0.08393 5.22510 31.12.2006 2.29967 0.09958 0.07996 5.30659

276

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Significant Accounting Policies

for the year ended 31 December 2007

23. FINANCIAL INSTRUMENTS

(i) Description A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. (ii) Financial Instruments Recognised on the Balance Sheet The particular recognition and measurement method for financial instruments recognised on the balance sheet is disclosed in the individual significant accounting policy statements associated with each item. (iii) Financial Instruments Not Recognised on the Balance Sheet Financial derivative hedging instruments are used in the Groups risk management of foreign currency and interest rate exposures of its financial liabilities. Hedge accounting principles are applied for the accounting of the underlying exposures and their hedge instruments. These hedge instruments are not recognised in the financial statements on inception. Exchange gains and losses relating to hedge instruments are recognised in the Income Statement in the same period as the exchange differences on the underlying hedged items. No amounts are recognised in respect of future periods. (iv) Fair Value Estimation for Disclosure Purposes The fair value of publicly traded financial instruments is based on quoted market prices at the balance sheet date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. In assessing the fair value of non-traded financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices are used if available or other techniques, such as estimated discounted value of future cash flows, are used to determine fair value. In particular, the fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. The carrying values for financial assets and liabilities with a maturity of less than 1 year are assumed to approximate their fair values.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

277

Financial

Statements

Significant Accounting Policies

for the year ended 31 December 2007

24. SEGMENT REPORTING

Segment reporting is presented for the enhanced assessment of the Groups risks and returns. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from other geographical segments. Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expense, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties. These accounting policies form an integral part of the financial statements set out on pages 279 to 408.

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TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Financial Statements

Income
FOR THE YEAR ENDED 31 DECEMBER 2007
The Group All amounts are in millions unless otherwise stated OPERATING REVENUE OPERATING COSTS depreciation, impairment and amortisation other operating costs OTHER OPERATING INCOME OPERATING PROFIT BEFORE FINANCE COST FINANCE INCOME FINANCE COST NET FINANCE COST JOINTLY CONTROLLED ENTITIES share of results (net of tax) gain on dilution of equity interest ASSOCIATES share of results (net of tax) PROFIT BEFORE TAXATION TAXATION PROFIT FOR THE YEAR ATTRIBUTABLE TO: equity holders of the Company minority interests PROFIT FOR THE YEAR EARNINGS PER SHARE (sen) basic diluted 8 7 7 7 Note 2007 RM 17,842.9 2006 RM 16,399.2

Statements
The Company 2007 RM 7,418.9 2006 RM 6,753.5

5(a) 5(b) 6

(4,143.5) (10,676.6) 460.5 3,483.3 203.9 (820.9) (617.0)

(4,001.5) (9,085.6) 178.5 3,490.6 234.0 (621.9) (387.9)

(2,087.6) (4,656.4) 656.7 1,331.6 95.3 (408.6) (313.3)

(2,199.6) (3,954.1) 292.8 892.6 100.5 (376.0) (275.5)

175.5 71.3

10.6

29.5 3,142.6 (511.0) 2,631.6

19.9 3,133.2 (830.9) 2,302.3

1,018.3 (19.4) 998.9

617.1 (82.4) 534.7

2,547.7 83.9 2,631.6

2,068.8 233.5 2,302.3

998.9 998.9

534.7 534.7

9 9

74.4 74.4

61.0 60.8

The above Income Statements are to be read in conjunction with the Significant Accounting Policies on pages 261 to 278 and the Notes to the Financial Statements on pages 286 to 408. Report of the Auditors Page 410.
TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

279

Financial Statements

Balance

Sheets
All amounts are in millions unless otherwise stated SHARE CAPITAL SHARE PREMIUM OTHER RESERVES TOTAL CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY MINORITY INTERESTS TOTAL EQUITY Borrowings Payable to subsidiaries Deferred tax liabilities Provision for liabilities

AS AT 31 DECEMBER 2007
The Group Note 2007 RM 3,439.8 4,262.1 12,100.2 2006 RM 3,397.6 3,941.9 12,571.6 The Company 2007 RM 3,439.8 4,262.1 6,172.6 2006 RM 3,397.6 3,941.9 8,243.4

11 13

19,802.1 849.4 20,651.5 14 15 17 18 9,747.2 2,313.2 87.2 12,147.6 32,799.1

19,911.1 836.5 20,747.6 10,282.8 2,261.9 64.6 12,609.3 33,356.9

13,874.5 13,874.5 4,913.1 1,652.5 1,411.8 7,977.4 21,851.9

15,582.9 15,582.9 2,368.0 4,747.0 1,434.0 8,549.0 24,131.9

DEFERRED AND LONG TERM LIABILITIES

INTANGIBLE ASSETS PROPERTY, PLANT AND EQUIPMENT PREPAID LEASE PAYMENTS INVESTMENT PROPERTY LAND HELD FOR PROPERTY DEVELOPMENT SUBSIDIARIES JOINTLY CONTROLLED ENTITIES ASSOCIATES INVESTMENTS LONG TERM RECEIVABLES DEFERRED TAX ASSETS

19 20 21 22 23 24 25 26 27 28 17

7,460.9 23,983.3 387.0 165.4 1,024.4 252.5 138.9 511.5 179.4

7,059.1 23,680.3 346.2 168.4 807.5 220.6 226.7 557.7 115.6

39.7 10,620.5 52.9 9,398.9 141.2 138.9 511.1

43.6 11,893.9 38.0 179.8 9,836.8 141.2 220.5 557.3

280

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Balance Sheets
as at 31 December 2007

The Group All amounts are in millions unless otherwise stated Non-current assets held for sale Inventories Trade and other receivables Short term investments Cash and bank balances CURRENT ASSETS Trade and other payables Customer deposits Borrowings Current tax liabilities Dividend payable CURRENT LIABILITIES NET CURRENT (LIABILITIES)/ASSETS 34 35 14 Note 2007 RM 988.4 181.1 4,398.6 378.1 4,171.8 10,118.0 6,702.7 732.6 2,177.2 155.2 1,654.5 11,422.2 (1,304.2) 32,799.1 2006 RM 24.0 172.8 3,464.1 320.1 4,680.4 8,661.4 5,740.9 718.9 1,803.1 223.7 8,486.6 174.8 33,356.9

The Company 2007 RM 988.4 82.3 3,092.5 376.4 1,528.1 6,067.7 2,606.9 590.2 244.1 23.3 1,654.5 5,119.0 948.7 21,851.9 2006 RM 24.0 68.4 2,498.0 318.4 2,035.3 4,944.1 2,348.7 590.3 736.0 48.3 3,723.3 1,220.8 24,131.9

29 30 31 32 33

The above Balance Sheets are to be read in conjunction with the Significant Accounting Policies on pages 261 to 278 and the Notes to the Financial Statements on pages 286 to 408. Report of the Auditors Page 410.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

281

Financial Statements

Consolidated

Statement of Changes in Equity

FOR THE YEAR ENDED 31 DECEMBER 2007

All amounts are in millions unless otherwise stated At 1 January 2007 Currency translation differences arising during the year subsidiaries jointly controlled entities associates Net loss not recognised in the Income Statement Profit for the year

Attributable to equity holders of the Company Issued and Fully Paid of RM1 each Special Share*/ Ordinary Shares Currency Share Share Translation ESOS Retained Note Capital Premium Differences Reserve Profits RM RM RM RM RM 3,397.6 42.2 3,439.8 3,941.9 304.2 16.0 4,262.1 (282.4) (243.6) 81.6 14.2 (147.8) (147.8) 17.6 (412.6) 25.0 3.2 (16.0) (12.2) 12,829.0 2,547.7 2,547.7 180.8 (749.5) (652.9) (1,654.5) 12.2 12,512.8

Minority Interests RM 836.5 (85.8) (85.8) 83.9 (1.9) (44.7) 23.3 67.7 (36.0) 4.5 849.4

Total Equity RM 20,747.6 (329.4) 81.6 14.2 (233.6) 2,631.6 2,398.0 (44.7) 40.9 67.7 180.8 (749.5) (652.9) (1,654.5) (36.0) 346.4 7.7 20,651.5

Total recognised (expense)/ income for the year Acquisition of additional equity interest in subsidiaries Dilution, disposal and partial disposal of equity interest in subsidiaries Increase in net assets due to rights issue of a subsidiary Reclassification to intangible assets 19(b) Final dividends paid for the year ended 31 December 2006 10 Interim dividends paid for the year ended 31 December 2007 10 Special dividends payable for the year ended 31 December 2007 10 Dividends paid to minority interests Employees' share option scheme (ESOS) shares issued options granted options exercised ESOS expired At 31 December 2007

282

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Consolidated Statement of Changes in Equity

for the year ended 31 December 2007

Attributable to equity holders of the Company Issued and Fully Paid of RM1 each Special Share*/ Ordinary Shares All amounts are in millions unless otherwise stated At 1 January 2006 Currency translation differences arising during the year subsidiaries jointly controlled entities associates Net loss not recognised in the Income Statement Profit for the year Total recognised (expense)/ income for the year Acquisition of equity interest in subsidiaries Dilution of equity interest in subsidiaries Transaction with minority interests Final dividends paid for the year ended 31 December 2005 Interim dividends paid for the year ended 31 December 2006 Dividends paid to minority interests Employees' share option scheme (ESOS) shares issued options granted At 31 December 2006 * Note Share Capital RM 3,391.5 Currency Share Translation Premium Differences RM RM 3,904.2 (251.2) ESOS Reserve RM Retained Profits RM 11,942.9 Minority Interests RM 654.0 Total Equity RM 19,641.4

(134.4) 18.5 84.3 (31.6) (31.6) 0.4

2,068.8 2,068.8 (180.8)

(2.5) (2.5) 233.5 231.0 28.1 23.6 (77.4)

(136.9) 18.5 84.3 (34.1) 2,302.3 2,268.2 28.1 24.0 (258.2)

10

(610.9)

(610.9)

10

(391.0)

(33.6)

(391.0) (33.6)

6.1 3,397.6

37.7 3,941.9

(282.4)

25.0 25.0

12,829.0

10.8 836.5

43.8 35.8 20,747.6

Issued and fully paid shares include the Special Rights Redeemable Preference Share (Special Share) of RM1.00. Refer to note 11 to the financial statements for details of the terms and rights attached to Special Share.

The above Consolidated Statement of Changes in Equity is to be read in conjunction with the Significant Accounting Policies on pages 261 to 278 and the Notes to the Financial Statements on pages 286 to 408. Report of the Auditors Page 410.
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283

Financial Statements

Company

Statement of Changes in Equity

FOR THE YEAR ENDED 31 DECEMBER 2007

Issued and Fully Paid of RM1 each

Non-Distributable

Distributable

All amounts are in millions unless otherwise stated At 1 January 2007 Profit for the year Final dividends paid for the year ended 31 December 2006 Interim dividends paid for the year ended 31 December 2007 Special dividends payable for the year ended 31 December 2007 Employees' share option scheme (ESOS) shares issued options granted to employees of the Company options granted to employees of the subsidiaries options exercised ESOS expired At 31 December 2007 At 1 January 2006 Profit for the year Final dividends paid for the year ended 31 December 2005 Interim dividends paid for the year ended 31 December 2006 Employees' share option scheme (ESOS) shares issued options granted to employees of the Company options granted to employees of the subsidiaries At 31 December 2006 *

Special Share*/ Ordinary Shares Share Share Note Capital Premium RM RM 3,397.6 10 10 10 42.2 24 3,439.8 3,391.5 10 10 6.1 24 3,397.6 3,941.9 304.2 16.0 4,262.1 3,904.2 37.7 3,941.9

ESOS Reserve RM 25.0 2.5 0.7 (16.0) (12.2) 8.0 17.0 25.0

Retained Profits RM 8,218.4 998.9 (749.5) (652.9) (1,654.5) 12.2 6,172.6 8,685.6 534.7 (610.9) (391.0) 8,218.4

Total Equity RM 15,582.9 998.9 (749.5) (652.9) (1,654.5) 346.4 2.5 0.7 13,874.5 15,981.3 534.7 (610.9) (391.0) 43.8 8.0 17.0 15,582.9

Issued and fully paid shares include the Special Rights Redeemable Preference Share (Special Share) of RM1.00. Refer to note 11 to the financial statements for details of the terms and rights attached to Special Share.

The above Company Statement of Changes in Equity is to be read in conjunction with the Significant Accounting Policies on pages 261 to 278 and the Notes to the Financial Statements on pages 286 to 408. Report of the Auditors Page 410.

284

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Financial Statements

Cash Flow
FOR THE YEAR ENDED 31 DECEMBER 2007
The Group All amounts are in millions unless otherwise stated CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOWS USED IN INVESTING ACTIVITIES CASH FLOWS USED IN FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR Note 2007 RM 5,947.0 (5,878.7) (586.3) 2006 RM 5,233.8 (6,397.2) (501.8)

Statements
The Company 2007 RM 2,303.7 (939.0) (1,852.0) 2006 RM 2,592.7 (1,531.9) (1,205.0)

36 37 38

(518.0) (55.5)

(1,665.2) (69.4)

(487.3) (19.9)

(144.2) (31.0)

4,666.4

6,401.0

2,035.3

2,210.5

33

4,092.9

4,666.4

1,528.1

2,035.3

The above Cash Flow Statements are to be read in conjunction with the Significant Accounting Policies on pages 261 to 278 and the Notes to the Financial Statements on pages 286 to 408. Report of the Auditors Page 410.

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285

Financial Statements

Notes to the

Financial Statements
1. PRINCIPAL ACTIVITIES

FOR THE YEAR ENDED 31 DECEMBER 2007

All amounts are in millions unless otherwise stated

The principal activities of the Company during the year are the establishment, maintenance and provision of telecommunication and related services under the licence issued by the Ministry of Energy, Water and Communications. The principal activities of the subsidiaries are set out in note 50 to the financial statements. There was no significant change in the nature of these activities during the year except that the Group disposed its national payphone network and related services following the sale of its wholly owned subsidiary, TM Payphone Sdn Bhd (now known as Pernec Paypoint Sdn Bhd). In addition, a subsidiary, TM Net Sdn Bhd transferred the Internet and broadband business to the Company with effect from 1 January 2007 to focus on content and application development for Internet services.

2.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated by the Directors and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 2.1 Critical judgements in applying the entitys accounting policies In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy could materially affect the reported results and financial position of the Group. The following accounting policies require subjective judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. (i) Intangible Assets The Group has applied judgement in determining the treatment of the annual fees payable over 10 years in respect of a 3G spectrum licence granted to a foreign subsidiary. The annual fee is charged to the Income Statement when incurred based on managements judgement that future annual fees will no longer be payable upon the decision by the subsidiary to return the licence. The Directors consider the annual payment to be usage fees based on interpretation of the licence conditions, written confirmation from the Directorate General of Post and Telecommunication, Indonesia and current year assessment of 3G operations. The annual fees are therefore not considered part of the acquisition cost of the licence. Should the regulations and conditions with regards to the payment of the annual fees be amended in the future with the consequence that payment of the remaining outstanding annual fees cannot be avoided upon the subsidiary surrendering the licence, the Group will recognise an intangible asset and a corresponding liability at the present value of the remaining annual fees at that point in time.

286

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

2.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

2.1 Critical judgements in applying the entitys accounting policies (continued) (ii) Sale and Leaseback The Company has applied judgement in determining the treatment of the sale and subsequent leaseback of 4 of the Company's property assets (Properties) with carrying value of RM988.4 million at 31 December 2007 to Menara ABS Berhad (MAB), a special purpose vehicle which was completed on 15 January 2008. Subsequent to the sale, the Properties will be leased back to the Company on a portfolio basis, under the Ijarah principle, for a lease term of up to 15 years. MAB will issue RM1,000.0 million Islamic Asset Backed Sukuk Ijarah (Sukuk) to finance the purchase of the Properties. The Directors consider the sale and subsequent leaseback result in an operating lease. This conclusion is derived based on the Directors conclusion that the Company does not retain substantially all the risks and rewards incidental to the ownership of the Properties and that the lease payments and the sale price are at fair values. Furthermore, the Directors are of the view that MAB is not a subsidiary of the Company as the Company does not control MAB and the risks and rewards of owning the Properties lie with the Sukuk investors. The carrying value of the Properties involved was reclassified as non-current assets held for sale at the balance sheet date as disclosed in note 29 to the financial statements, as the criteria for reclassification was met. 2.2 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Groups results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are mentioned below. (i) Impairment of Goodwill The Group tests goodwill for impairment annually in accordance with its accounting policy or whenever events or change in circumstances indicate that this is necessary. The assumptions used, results and conclusion of the impairment assessment are stated in note 19 to the financial statements. Impairment of Property, Plant and Equipment, Intangible Assets (other than goodwill) and Investments The Group assesses impairment of the assets mentioned above whenever the events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable i.e. the carrying amount of the asset is more than the recoverable amount. Recoverable amount is measured at the higher of the fair value less cost to sell for that asset and its value-in-use. The value-in-use is the net present value of the projected future cash flow derived from that asset discounted at an appropriate discount rate. Projected future cash flows are based on Groups estimates calculated based on historical, sector and industry trends, general market and economic conditions, changes in technology and other available information.

(ii)

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

287

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

2.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

2.2 Critical accounting estimates and assumptions (continued) (iii) Estimated Useful Lives of Property, Plant and Equipment The Group reviews annually the estimated useful lives of property, plant and equipment based on factors such as business plan and strategies, expected level of usage and future technological developments. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property, plant and equipment would increase the recorded depreciation and decrease the property, plant and equipment. (iv) Taxation (a) Income taxes The Group is subject to income tax in numerous jurisdictions. Judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for tax matters based on estimates of whether additional taxes will be due. If the final outcome of these tax matters result in a difference in the amounts initially recognised, such differences will impact the income tax and/or deferred tax provisions in the period in which such determination is made. (b) Deferred tax assets Deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilised. This involves judgement regarding future financial performance of a particular entity in which the deferred tax asset has been recognised.

(v)

Share-based Payments Equity settled share-based payments (share options) are measured at fair values at the grant dates. In addition, the Group revises the estimated number of performance linked share options that participants are expected to receive based on non-market conditions at each balance sheet date. The assumptions used in the valuation to determine these fair values are explained in note 12 to the financial statements. Contingent Liabilities Determination of the treatment of contingent liabilities is based on managements view of the expected outcome of the contingencies after consulting legal counsel for litigation cases and experts internal and external to the Group for matters in the ordinary course of business. Please refer to note 42(b) to (m) to the financial statements for legal proceedings that the Group is involved in as at 31 December 2007.

(vi)

288

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

3.

SIGNIFICANT ACQUISITIONS AND DISPOSALS

(I) Acquisitions (a) Acquisition of additional interest in PT Excelcomindo Pratama Tbk (XL) On 19 April 2007, the Group through TM International (L) Limited (TMIL), a wholly owned subsidiary, entered into an agreement with AIF (Indonesia) Limited (AIF) to purchase 523,532,100 ordinary shares of Indonesian Rupiah 100 each in XL, representing approximately 7.38% of the issued and paid-up share capital of XL from AIF (the AIF Purchased Shares) for a cash consideration of USD113.0 million. The acquisition of the AIF Purchased Shares was completed on 4 June 2007. Consequently, the Groups effective equity interest in XL increased to 67.02%. RM Purchase consideration Carrying value of net assets acquired Goodwill 384.1 (97.8) 286.3

The goodwill on acquisition arising from the above transaction was included in intangible assets. The Group's equity interest in XL reduced to 66.99% as at 31 December 2007 following the disposal of 2,050,000 shares of XL through the open market in December 2007. (b) During the year, the Group also acquired the following companies for a total consideration of RM15.0 million: (i) Additional 11.0% equity interest in a subsidiary, Multinet Pakistan (Private) Limited (Multinet) for USD2.42 million (RM8.8 million). Consequently, the Group's equity interest in Multinet increased from 78.0% to 89.0% as at 31 December 2007. Additional 30.0% equity interest in a subsidiary, Meganet Communications Sdn Bhd (Meganet) for RM2.5 million, making Meganet a wholly owned subsidiary.

(ii)

(iii) Additional 10.0% equity interest in a subsidiary, Dialog Television (Private) Limited (formerly known as Asset Media (Private) Limited) (DTV) for a consideration of USD0.35 million (RM1.2 million), making DTV a wholly owned subsidiary. (iv) 49.0% equity interest in C-Mobile Sdn Bhd for RM2.5 million representing 2,450,000 ordinary shares of RM1.00 each. The above acquisitions have no material effect to the results of the Group in the current year.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

289

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

3.

SIGNIFICANT ACQUISITIONS AND DISPOSALS (continued)

(I) Acquisitions (continued) (c) Acquisition of 49.0% equity interest in Spice Communications Limited (Spice) through the acquisition of TMI India Ltd (TMI India) On 10 May 2006, the Group through TMI Mauritius Ltd completed the acquisition of 100.0% equity interest in TMI India. TMI India is an investment holding company having a 49.0% equity interest in Spice. The provisional goodwill on acquisition arising from the above transaction was INR8,654.7 million (RM691.1 million) as at 31 December 2006, being the excess of the purchase price over the Groups share of the provisional fair value of Spices identifiable assets and liabilities as at 10 May 2006. Following the completion of the fair value determination during the year, the goodwill on acquisition increased by INR1,461.4 million (RM116.7 million) to INR10,116.1 million (RM807.8 million). The above goodwill has been included in the cost of investment in jointly controlled entities. (II) Disposals (a) Disposal of Telekom Networks Malawi Limited (TNM) On 5 April 2007, the Company disposed its entire 60.0% shareholding in TNM to MTL Mobile Ltd for a total cash consideration of USD16.0 million. The disposal resulted in a net gain on disposal to the Group of RM6.9 million. (b) Disposal of Dialog Telekom PLC (formerly known as Dialog Telekom Limited) (Dialog) During the year, the Group through TMIL, disposed its 4.62% equity interest in Dialog through various transactions as summarised below: (i) (ii) Disposal of 277,000,000 ordinary shares equivalent to 3.82% equity interest in Dialog through market placement on 17 and 21 May 2007 for a total cash consideration of RM227.3 million. Disposal of 64,086,800 ordinary shares equivalent to 0.8% equity interest in Dialog to International Finance Corporation (IFC), a member of the World Bank Group, on 24 September 2007 for a total cash consideration of RM51.1 million.

The above disposals resulted in a net gain on disposal to the Group of RM234.8 million. The above disposals reduced the Group's equity interest in Dialog to 85.6%. The Group's equity interest in Dialog was further reduced to 84.8% following issuance of shares under Dialog's Employees' Share Option Scheme. (c) Dilution of equity interest in Spice Communications Limited (Spice) On 5 June 2007, Spice, a 49.0% owned jointly controlled entity, held through TMI India Limited, concluded a Pre-Initial Public Offering (Pre-IPO) placement of 24,873,889 shares at INR45 per shares. On completion of the Pre-IPO placement, the Groups equity interest in Spice reduced from 49.0% to 46.89%. Pursuant to the IPO, 113,111,111 equity shares were issued at INR46 per share and Spice commenced trading on the Bombay Stock Exchange (BSE) on 19 July 2007 with a debut price of INR55.75 per share. Consequently, the Groups shareholding was further diluted from 46.89% to 39.2%.

290

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

3.

SIGNIFICANT ACQUISITIONS AND DISPOSALS (continued)

(II) Disposals (continued) (c) Dilution of equity interest in Spice Communications Limited (Spice) (continued) The dilution of equity interest in Spice from the initial public offering resulted in a net gain of RM71.3 million to the Group in the current year. The Groups shareholding in Spice remained unchanged at 39.2% as at 31 December 2007. (d) Disposal of TM Payphone Sdn Bhd (TMP) On 14 August 2007, the Company entered into a Sale and Purchase Agreement to dispose its entire equity interest in TMP to Pernec Corporation Berhad for a total consideration of RM22.0 million. The disposal was completed on 31 December 2007. This disposal has no significant effect to the results of the Group in the current year. Subsequent to the disposal, the name of TMP was changed to Pernec Paypoint Sdn Bhd.

4.

OPERATING REVENUE
The Group 2007 RM Calls/usage Rentals Interconnect and international inpayment Others Total voice Data services Internet and multimedia Other telecommunication related services Non-telecommunication related services Total Malaysia Business and TM Ventures segments Calls/usage Rentals Interconnect and international inpayment Messaging and roaming Other services Total cellular segment TOTAL OPERATING REVENUE 2,849.3 1,322.1 553.5 102.3 4,827.2 1,091.8 1,067.4 701.3 253.9 2006 RM 2,966.8 1,415.6 615.4 128.7 5,126.5 870.4 869.9 606.2 351.2 The Company 2007 RM 2,851.0 1,337.0 586.4 103.2 4,877.6 1,186.7 1,080.3 274.3 2006 RM 2,933.6 1,435.6 576.8 129.3 5,075.3 1,374.8 303.4

7,941.6 6,126.3 137.2 934.3 2,193.4 510.1 9,901.3 17,842.9

7,824.2 5,402.4 171.8 957.5 1,801.7 241.6 8,575.0 16,399.2

7,418.9 7,418.9

6,753.5 6,753.5

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

291

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

5(a) DEPRECIATION, IMPAIRMENT AND AMORTISATION

The Group 2007 RM Depreciation of property, plant and equipment (PPE) Depreciation of investment property Impairment of PPE Reversal of impairment of PPE Write off of PPE Amortisation of intangible assets TOTAL DEPRECIATION, IMPAIRMENT AND AMORTISATION 2006 RM The Company 2007 RM 2006 RM

4,004.8 85.9 (5.5) 33.3 25.0

3,979.8 4.1 (7.4) 2.0 23.0

2,030.9 11.6 9.9 31.3 3.9

2,186.4 11.6 (3.9) 1.7 3.8

4,143.5

4,001.5

2,087.6

2,199.6

5(b) OTHER OPERATING COSTS

The Group 2007 RM Allowance for amount owing by subsidiaries Allowance for diminution in value of a subsidiary Allowance for/(reversal of) diminution in value of long term investments Allowance for doubtful debts (net of bad debt recoveries) Business licence current year prior year Charges and agencies commissions Domestic interconnect and international outpayment Impairment of goodwill Maintenance Marketing, advertising and promotion Net loss/(gain) on foreign exchange realised Net gain on foreign exchange unrealised Outsourcing costs Rental equipment Rental land and buildings Prepaid rental leasehold land Rental others Research and development Reversal of diminution in value of quoted investments 80.0 377.1 282.7 5.6 156.4 2,039.3 23.8 840.3 1,357.9 28.2 (66.8) 28.2 67.9 314.2 42.7 37.4 (49.1) 2006 RM (10.3) 303.9 135.7 (26.1) 132.0 1,962.1 731.8 1,133.7 72.3 (433.3) 25.6 42.9 243.0 34.7 44.1 (28.7) The Company 2007 RM 13.2 80.0 222.0 8.8 5.6 168.2 1,174.5 480.6 287.0 (7.4) (190.2) 115.9 46.3 96.0 0.9 0.8 80.0 (49.1) 2006 RM 134.7 0.2 (10.3) 111.2 8.5 (26.1) 165.1 1,183.7 310.1 142.6 (0.3) (260.4) 29.5 92.7 0.2 6.1 76.9 (28.1)

292

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

5(b) OTHER OPERATING COSTS (continued)

The Group 2007 RM Reversal of impairment of land held for property development (Reversal of)/allowance for diminution in value of an associate Staff costs Staff costs capitalised into property, plant and equipment Supplies and inventories Transportation and travelling Universal Service Provision contribution Utilities Waiver of amount due from a subsidiary (trading and non-trading) Others TOTAL OTHER OPERATING COSTS Staff costs include: salaries, allowances, overtime and bonus termination benefit contribution to Employees Provident Fund (EPF) other staff benefits ESOS expense remuneration of an Executive Director of the Company salaries, allowances and bonus contribution to EPF ESOS expense remuneration of Non-Executive Directors of the Company fees salaries, allowances and bonus Others include: statutory audit fees PricewaterhouseCoopers Malaysia Member firms of PricewaterhouseCoopers International Limited others audit related fees tax and other non-audit services 2006 RM The Company 2007 RM 2006 RM

2,107.1 (79.7) 667.3 132.7 347.4 369.8 1,566.2 10,676.6

(3.6) 1,991.4 (74.9) 619.1 128.7 398.4 295.3 1,367.8 9,085.6

(1.5) 1,116.0 (68.1) 283.2 40.6 94.7 192.2 61.3 404.9 4,656.4

1.5 1,126.1 (60.6) 273.5 42.3 113.7 172.9 348.4 3,954.1

1,673.8 49.5 220.0 153.1 7.2

1,555.0 38.8 209.8 149.4 35.5

884.0 31.1 139.7 56.4 2.0

875.2 37.2 145.1 58.7 7.7

1.4 0.3 0.5

0.9 0.2 0.3

1.4 0.3 0.5

0.9 0.2 0.3

0.7 0.6

0.8 0.7

0.3 0.3

0.4 0.4

2.4 1.3 0.2 4.0 3.4

2.2 1.1 0.3 2.7 2.3

1.0 3.3 1.1

0.9 1.0 1.0

(a)

Estimated money value of benefits of Directors amounted to RM220,733 (2006: RM125,141) for the Group and RM87,766 (2006: RM40,729) for the Company.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

293

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

6.

OTHER OPERATING INCOME

The Group 2007 RM Dividend income from subsidiaries Dividend income from a jointly controlled entity Dividend income from quoted shares Dividend income from unquoted shares Gain on dilution and disposal of subsidiaries Income from subsidiaries interest others Penalty on breach of contract Profit on disposal of property, plant and equipment Profit on disposal of non-current asset held for sale Profit/(loss) on disposal of an associate Profit/(loss) on disposal of fixed income securities Profit/(loss) on disposal of long term investments Profit/(loss) on disposal of short term investments Rental income from buildings Rental income from vehicles Revenue from training and related activities Sale of scrap stores Others TOTAL OTHER OPERATING INCOME 3.8 30.2 248.0 18.4 6.1 46.0 0.2 0.4 1.6 17.3 21.9 11.6 8.1 46.9 460.5 2006 RM 4.5 2.7 13.8 10.7 12.4 (0.2) 68.5 (1.7) 9.2 13.2 7.4 38.0 178.5 The Company 2007 RM 250.8 71.2 3.8 30.2 60.2 6.6 17.9 1.6 20.2 46.0 (1.3) 0.4 0.6 17.3 44.3 21.7 12.2 8.0 45.0 656.7 2006 RM 142.4 3.3 2.7 8.0 16.7 6.4 11.7 (0.2) (8.9) (1.7) 39.7 14.7 14.1 7.2 36.7 292.8

7.

NET FINANCE COST

2007 Foreign RM The Group Finance income TOTAL FINANCE INCOME 48.5 116.1 39.3 203.9 80.9 110.5 42.6 234.0 Domestic RM Islamic Principles RM Total RM Foreign RM 2006 Domestic RM Islamic Principles RM Total RM

48.5

116.1

39.3

203.9

80.9

110.5

42.6

234.0

294

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

7.

NET FINANCE COST (continued)

2007 Foreign RM The Group Finance cost from Borrowings Rated Cumulative Redeemable Preference Shares (note 14(f)) TM Islamic Stapled Income Securities (note 14(g)) Amortisation of fair value adjustment on borrowings Accretion of finance income Amortisation of discounts TOTAL FINANCE COST NET FINANCE COST The Company Finance income TOTAL FINANCE INCOME Finance cost from Borrowings Redeemable Preference Shares TM Islamic Stapled Income Securities (note 14(g)) Accretion of finance income Amortisation of discounts TOTAL FINANCE COST NET FINANCE COST 15.2 15.2 (257.2) 41.2 (216.0) (200.8) 63.4 63.4 (106.7) 0.5 (1.7) (107.9) (44.5) 16.7 16.7 (19.8) (64.9) (84.7) (68.0) 95.3 95.3 (277.0) (106.7) (64.9) 41.7 (1.7) (408.6) (313.3) 30.5 30.5 (285.3) 10.8 (274.5) (244.0) 52.7 52.7 (78.6) 1.0 (1.5) (79.1) (26.4) 17.3 17.3 (22.4) (22.4) (5.1) 100.5 100.5 (307.7) (78.6) 11.8 (1.5) (376.0) (275.5) (680.4) (93.2) (46.3) (819.9) (500.4) (90.6) (79.0) (670.0) Domestic RM Islamic Principles RM Total RM Foreign RM 2006 Domestic RM Islamic Principles RM Total RM

(4.0) 19.2 41.2 (624.0) (575.5)

8.7 0.5 (1.7) (85.7) 30.4

(64.9) (111.2) (71.9)

(4.0) (64.9) 27.9 41.7 (1.7) (820.9) (617.0)

19.2 10.8 (470.4) (389.5)

18.6 1.0 (1.5) (72.5) 38.0

(79.0) (36.4)

37.8 11.8 (1.5) (621.9) (387.9)

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

295

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

8.

TAXATION
The Group 2007 RM The taxation charge for the Group and the Company comprise: Malaysia Income Tax Current year Prior year Deferred Tax (net) Current year Prior year 2006 RM The Company 2007 RM 2006 RM

560.6 (187.8) 21.0 (33.4) 360.4

413.7 269.8 (95.7) (54.3) 533.5

208.1 (166.4) 3.9 (26.2) 19.4

255.3 87.9 (141.5) (119.3) 82.4

Overseas Income Tax Current year Prior year Deferred Tax (net) Current year

19.9 (3.6) 134.3 150.6

31.1 (0.4) 266.7 297.4 830.9

19.4

82.4

TOTAL TAXATION Current taxation: Current year Under/(over) accrual in prior years (net) Deferred taxation: Origination and reversal of temporary differences Benefit from previously unrecognised deductible temporary differences and tax losses Change in tax rate Over accrual of deferred tax

511.0

580.5 (191.4)

444.8 269.4

208.1 (166.4)

255.3 87.9

238.9 (7.7) (75.9) (33.4) 511.0

393.0 (157.2) (64.8) (54.3) 830.9

64.6 (60.7) (26.2) 19.4

(89.6) (51.9) (119.3) 82.4

296

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

8.

TAXATION (continued)
The explanation of the relationship between taxation expense and profit before taxation is as follows: Numerical reconciliation between taxation expense and the product of accounting profit multiplied by the Malaysian tax rate: The Group 2007 RM Profit Before Taxation Taxation calculated at the applicable Malaysian taxation rate of 27.0% (2006: 28.0%) Tax effects of: shares of results of jointly controlled entities and associates different taxation rates in other countries expenses not deductible for taxation purposes income not subject to taxation expenses allowed for double deduction previously unrecognised temporary differences tax incentives change in tax rate current year tax losses not recognised over accrual of deferred tax (net) (over)/under accrual of income tax (net) TOTAL TAXATION 3,142.6 2006 RM 3,133.2 The Company 2007 RM 1,018.3 2006 RM 617.1

848.5

877.3

274.9

172.8

(55.3) 40.0 190.0 (190.3) (18.4) (7.7) (3.4) (75.9) 8.3 (33.4) (191.4) 511.0

1.0 45.4 192.7 (260.2) (11.4) (157.2) (17.0) (64.8) 10.0 (54.3) 269.4 830.9

70.1 (50.5) (18.4) (3.4) (60.7) (26.2) (166.4) 19.4

107.9 (86.6) (11.4) (17.0) (51.9) (119.3) 87.9 82.4

9.

EARNINGS PER SHARE

(a) Basic earnings per share Basic earnings per share of the Group is calculated by dividing the profit attributable to equity holders by the weighted average number of ordinary shares of the Company in issue during the year. The Group 2007 Profit attributable to equity holders (RM million) Weighted average number of ordinary shares in issue (million) Basic earnings per share (sen) 2,547.7 3,426.2 74.4 2006 2,068.8 3,394.0 61.0

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

297

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

9.

EARNINGS PER SHARE (continued)

(b) Diluted earnings per share For the diluted earnings per share calculation in 2006, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. For ESOS 3 offered since 2002 and PLES offered since 2005, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual share price of the Companys shares) based on the monetary value of the subscription rights attached to outstanding share options. This calculation serves to determine the unexercised shares to be added to the ordinary shares in issue for the purpose of computing the dilution. No adjustment is made to profit attributable to equity holders for the share options calculation. The Companys Employees Share Option Scheme (ESOS 3) expired on 31 July 2007 and the remaining options unexercised as at 31 July 2007 had lapsed and became null and void. There is no dilutive potential ordinary shares as at 31 December 2007. Thus, diluted earnings per share is equal to basic earnings per share. For details of the Companys Employees Share Option Scheme, please refer to note 12(a) to the financial statements. The Group 2007 Profit attributable to equity holders (RM million) Weighted average number of ordinary shares in issue (million) Adjustment for ESOS 3 (million) Weighted average number of ordinary shares for computation of diluted earnings per share (million) Diluted earnings per share (sen) 2,547.7 3,426.2 2006 2,068.8 3,394.0 7.3

3,426.2 74.4

3,401.3 60.8

298

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

10. DIVIDENDS IN RESPECT OF ORDINARY SHARES

Dividends approved and paid/payable in respect of ordinary shares: The Group and Company 2007 Gross dividend per share Sen Interim dividends paid in respect of the year ended: 31 December 2007 31 December 2006 Final dividends paid in respect of the year ended: 31 December 2006 31 December 2005 Special dividend payable in respect of the year ended: 31 December 2007 DIVIDENDS RECOGNISED AS DISTRIBUTION TO ORDINARY EQUITY HOLDERS OF THE COMPANY Amount of dividend, net of 27.0% tax RM Amount of dividend, net of 26.0% tax RM 2006 Gross dividend per share Sen Amount of dividend, net of 28.0% tax RM

26.0

652.9

16.0

391.0

30.0

749.5

25.0

610.9

65.0

1,654.5

121.0

1,402.4

1,654.5

41.0

1,001.9

The special gross dividend of 65.0 sen per share less tax at 26.0% was paid on 31 January 2008. The Board now recommends a final gross dividend of 22.0 sen per share less tax at 26.0% (2006: a final gross dividend of 30.0 sen per share less tax at 27.0%) for shareholders approval at the forthcoming Annual General Meeting of the Company. The total dividend payout for the current year (excluding special dividend) based on issued share capital as at 31 December 2007 is approximately RM1,212.9 million, representing 47.6% of the profit attributable to equity holders. This is in line with the dividend payout policy of between 40.0% to 60.0% of profit attributable to equity holders. These financial statements do not reflect this final dividend which will only be accrued as a liability when approved by shareholders.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

299

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

11. SHARE CAPITAL

The Group and Company 2007 Number of shares Authorised: Ordinary shares of RM1.00 each Special share of RM1.00 (sub-note a) Class A Redeemable Preference Shares of RM0.01 each (sub-note b) Class B Redeemable Preference Shares of RM0.01 each (sub-note b) Class C Non-Convertible Redeemable Preference Shares of RM1.00 each (sub-note c) Class D Non-Convertible Redeemable Preference Shares of RM1.00 each (sub-note c) Issued and fully paid: Ordinary shares of RM1.00 each At 1 January Exercise of share options At 31 December Special share of RM1.00 (sub-note a) At 1 January and 31 December TOTAL ISSUED AND FULLY PAID-UP SHARE CAPITAL RM 2006 Number of shares RM

5,000.0

5,000.0

5,000.0

5,000.0

3,397.6 42.2 3,439.8

3,397.6 42.2 3,439.8

3,391.5 6.1 3,397.6

3,391.5 6.1 3,397.6

3,439.8

3,439.8

3,397.6

3,397.6

(a)

The Special Rights Redeemable Preference Share (Special Share) of RM1.00 would enable the Government through the Minister of Finance to ensure that certain major decisions affecting the operations of the Company are consistent with the Governments policy. The Special Shareholder, which may only be the Government or any representative or person acting on its behalf, is entitled to receive notices of meetings but does not carry any right to vote at such meetings of the Company. However, the Special Shareholder is entitled to attend and speak at such meetings. Certain matters, in particular, the alteration of the Articles of Association of the Company relating to the rights of the Special Shareholder, the dissolution of the Company, any substantial acquisitions and disposal of assets, amalgamation, merger and takeover, require the prior consent of the Special Shareholder. The Special Shareholder has the right to require the Company to redeem the Special Share at par at any time. In a distribution of capital in a winding up of the Company, the Special Shareholder is entitled to the repayment of the capital paid-up on the Special Share in priority to any repayment of capital to any other member. The Special Share does not confer any right to participate in the capital or profits of the Company.

300

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

11. SHARE CAPITAL (continued)

(b) These comprise 1,000 Class A Redeemable Preference Shares (RPS) (TM RPS A) of RM0.01 each and 1,000 Class B RPS (TM RPS B) of RM0.01 each, which were issued in 2003 to Rebung Utama Sdn Bhd, a special purpose entity of the Company, at a premium of RM0.99 each over the par value of RM0.01 each. TM RPS A and TM RPS B rank pari-passu amongst themselves but below the Special Share and ahead of the ordinary shares of the Company in a distribution of capital in the event of the winding up or liquidation of the Company. TM RPS A and TM RPS B have been classified as liabilities. The details of TM RPS A and TM RPS B are set out in note 15(a) to the financial statements. On 20 July 2007, the Company redeemed these 1,000 TM RPS A and 1,000 TM RPS B as part of the exchange of TM Islamic Stapled Income Securities with the existing Tekad Mercu Bonds as explained in note 14(g) to the financial statements. (c) On 8 May 2007, the authorised share capital of the Company was increased to include 2,000 Class C NonConvertible Redeemable Preference Shares (NCRPS) of RM1.00 each and 1,000 Class D NCRPS of RM1.00 each. During the year, the issued and fully paid-up share capital of the Company was increased by the issuance of 42,152,800 ordinary shares of RM1.00 each for cash under ESOS 3 and PLES, detailed as follows: Number of ordinary shares of RM1.00 each issued 18,934,000 13,000 2,170,000 15,838,300 4,864,000 333,500 Exercise price per share RM7.09 RM8.02 RM9.32 RM9.22 RM8.69 RM10.24

(d)

These shares rank pari-passu in all respects with the existing issued ordinary shares of the Company. (e) On 20 July 2007, the Company issued 2,000 Class C NCRPS (TM NCRPS C) and 925 Class D NCRPS (TM NCRPS D) at a premium of RM999 each over the par value of RM1.00 each. TM NCRPS C and TM NCRPS D rank paripassu amongst themselves but below the Special Share and ahead of the ordinary shares of the Company in a distribution of capital in the event of the winding up or liquidation of the Company. TM NCRPS C and TM NCRPS D have been classified as liabilities. The details of TM NCRPS C and TM NCRPS D are set out in note 14(g)(I) to the financial statements.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

301

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME

Total expense recognised arising from share-based payments amounted to RM7.7 million and RM2.5 million for the Group and the Company respectively as disclosed in note 5(b) to the financial statements. (a) Employees Share Option Scheme (ESOS) of the Company The Companys existing Employees Share Option Scheme (ESOS 3) was approved by the shareholders at an Extraordinary General Meeting held on 21 May 2002. ESOS 3 expired on 31 July 2007. Options to subscribe for ordinary shares of RM1.00 each under ESOS 3 was granted in various phases, as follows: Scheme ESOS 3 (phase 1) Grant date 1 August 2002 20 May 2004 ESOS 3 (phase 2) 10 March 2005 6 September 2005 Exercise price (RM) 7.09 8.02 9.32 9.22 Eligibility Executives and Non-Executives of the Company and its subsidiaries Non-Executives of the Company Executives of the Company Executives and Non-Executives of the Company and its subsidiaries Executives and Non-Executives of the Company and its subsidiaries Number of options granted 259,014,000 48,000 3,365,000 19,439,000

ESOS 3 (phase 3)

18 December 2006

8.69

5,470,000

On 6 September 2005, the Company also implemented a Performance Linked Employee Options Scheme (PLES) for Senior Management of the Company and its subsidiaries. The scheme is an extension of the existing ESOS 3 and has expired on 31 July 2007. The maximum number of PLES options granted and the vesting period is as follows: Vesting Period/Maximum Options Granted Performance Condition Performance for year: 2004 2005 2006 Aggregated performance for 2004-2006 Total 6 September 2005 5,991,200 5,991,200 1 May 2006 5,991,200 5,991,200 24 April 2007 5,991,200 11,982,400 17,973,600

Options granted under PLES are conditional grants and are based on the performance of the Group and individuals for the respective years. Options under PLES have an exercise price of RM10.24. The number of options a grantee may exercise will be notified to the grantee through a letter of notification after the end of the respective years. Options to which the grantees are not qualified to exercise shall lapse, be null and void.

302

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(a) Employees Share Option Scheme (ESOS) of the Company (continued) General features of ESOS 3 and PLES (i) (ii) The eligibility for participation in ESOS is at the discretion of the Option Committee appointed by the Board of Directors. The total number of shares to be offered shall not exceed 10.0% of the total issued and paid-up shares of the Company.

(iii) No option shall be granted for less than 100 shares nor more than 1,200,000 shares unless so adjusted pursuant to item (v) below. (iv) The subscription price of each RM1.00 share shall be the average of the middle market quotation of the shares as shown in the daily official list issued by the Bursa Malaysia Securities Berhad for the 5 trading days preceding the date of offer with a 10.0% discount, except for PLES options, which were granted without discount. (v) In the event of any alteration in capital structure of the Company during the option period which expires on 31 July 2007, such corresponding alterations shall be made in: (i) (ii) the number of new shares in relation to ESOS so far as unexercised; and/or the subscription price.

Specific features of ESOS 3 (vi) Subject to item (v) above, an employee may exercise his options subject to the following limits: (a) In respect of any options granted and remained unexercised prior to 17 May 2005, being the effective date of the 2005 amendments to the ESOS by-law: Number of options granted Year 1 Below 20,000 20,000 99,999 100,000 and above 100 *40 20 Percentage of options exercisable (%) Year 2 30 20 Year 3 **30 20 Year 4 20 Year 5 20

* 40.0% or 20,000 options, whichever is higher ** 30.0% or the remaining number of options unexercised (b) In respect of options granted after 17 May 2005 (not inclusive of PLES options), the number of options which a grantee may exercise in a relevant year shall be evenly distributed over the number of unexpired years of the scheme, as calculated on the date of acceptance of the option, save as determined otherwise by the Option Committee.

The options granted do not confer any right to participate in any share issue of any other company.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

303

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(a) Employees Share Option Scheme (ESOS) of the Company (continued) The movement during the year in the number of options over the ordinary shares of RM1.00 each of the Company is as follows: Exercise Price (RM) At 1 January (000) At Lapsed # 31 December (000) (000) Fair value at grant date (RM)

Option Scheme (ESOS 3) 2007 Phase Phase Phase Phase Phase Total 2006 Phase Phase Phase Phase Phase Total

Granted (000)

Exercised (000)

Forfeited (000)

1 1 2 2 3

7.09 8.02 9.32 9.22 8.69

22,803.0 13.0 3,092.0 18,838.0 5,143.0 49,889.0

(18,934.0) (13.0) (2,170.0) (15,838.3) (4,864.0) (41,819.3)

(63.0) (28.0) (91.0)

(3,869.0) (922.0) (2,936.7) (251.0) (7,978.7)

* * * 1.61 1.07

1 1 2 2 3

7.09 8.02 9.32 9.22 8.69

28,798.0 14.0 3,176.0 19,356.5 51,344.5

5,470.0 5,470.0

(5,995.0) (1.0) (46.0) (97.5) (6,139.5)

(38.0) (421.0) (327.0) (786.0)

22,803.0 13.0 3,092.0 18,838.0 5,143.0 49,889.0

* * * 1.61 1.07

Option Scheme (PLES) 2007 Performance for: 2004 2006 Aggregate Total

Exercise Price (RM)

At 1 January Not yet Vested vested Exercised Forfeited (000) (000) (000) (000)

Lapsed # (000)

At 31 December Fair value Not yet at grant Vested vested date (000) (000) (RM)

10.24 10.24 10.24

1,602.2 1,602.2

5,991.2 11,982.4 17,973.6**

(333.5) (333.5)

(1,602.2) (5,991.2) (11,648.9) (19,242.3)

* 1.14 1.14

304

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(a) Employees Share Option Scheme (ESOS) of the Company (continued) At 1 January Exercise Not yet Option Scheme Price Vested vested Exercised Forfeited Lapsed # (PLES) (RM) (000) (000) (000) (000) (000) 2006 Performance for: 2004 2005 2006 Aggregate Total * ** # At 31 December Fair value Not yet at grant Vested vested date (000) (000) (RM)

10.24 10.24 10.24 10.24

1,629.0 1,629.0

5,991.2 5,991.2 11,982.4 23,964.8

(26.8) (5,991.2) (6,018.0)

1,602.2 1,602.2

5,991.2 11,982.4 17,973.6

* 1.14 1.14 1.14

FRS 2 not applicable for these tranches 6,573,600 options were vested during the year ESOS 3 has expired on 31 July 2007 and any unexercised option were deemed lapsed

Details relating to options exercised during the year are as follows: Fair value of shares at exercise date Exercise date 2007 January February March April May June July RM/share RM7.09

Exercise price/Number of options exercised (000) RM8.02 RM9.32 RM9.22 RM8.69 RM10.24

10.10 10.40 9.90 10.45 10.40 10.50 9.65

2,182.0 3,167.0 2,618.0 1,566.0 2,223.0 2,325.0 4,853.0 18,934.0

1.0 3.0 2.0 2.0 5.0 13.0

7.0 168.0 225.0 105.0 485.0 357.0 823.0 2,170.0

183.0 1,501.0 4,305.0 1,102.1 5,196.1 1,385.5 2,165.6 15,838.3

236.0 1,390.2 1,510.8 362.1 752.5 262.1 350.3 4,864.0

5.0 328.5 333.5

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

305

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(a) Employees Share Option Scheme (ESOS) of the Company (continued) Fair value of shares at exercise date Exercise date 2006 January to May June to October November to December RM/share

Exercise price/Number of options exercised (000) RM7.09 RM8.02 RM9.32 RM9.22

9.50-9.95 8.90-9.10 9.30-9.70

2,292.0 1,687.0 2,016.0 5,995.0

1.0 1.0

42.0 4.0 46.0

41.5 56.0 97.5

2007 RM million Ordinary share capital at par Share premium Proceeds received on exercise of share options Fair value at exercise date of shares issued 42.2 304.2 346.4 427.7

2006 RM million 6.1 37.7 43.8 58.0

The fair value of shares issued on the exercise of options is the mean market price at which the Company's share were traded on the Bursa Malaysia Securities Berhad on the day prior to the exercise of the options. There were no new options granted in 2007. The fair values of options granted at the date of grant in which FRS 2 applies, were determined using the Black Scholes Valuation model. The significant inputs into the model are as follows: Phase 2 Exercise price RM9.22 Option life (number of days to expiry) 649 Weighted average share price at grant date RM10.10 Expected dividend yield 3.00% Risk free interest rates (Yield of Malaysian Government securities) 3.18% Expected volatility 23.27% TM share historical volatility period: From 24.10.2003 To 14.10.2005 ESOS 3 Phase 3 RM8.69 225 RM9.65 3.00% 3.21% 15.74% 18.12.2004 18.12.2006 PLES RM10.24 649 RM10.10 3.00% 3.18% 23.27% 24.10.2003 14.10.2005

The volatility measured at the standard deviation of continuously compounded share return is based on statistical analysis of daily share prices over the last 2 years from the grant date.

306

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(b) ESOS of VADS Berhad (VADS) The ESOS was approved by VADSs shareholders at an Extraordinary General Meeting held on 28 January 2005. The principal features of ESOS are as follows: (i) (ii) The eligibility for participation in ESOS is at the discretion of the Option Committee appointed by the Board of Directors of VADS. The total number of shares to be offered shall not exceed 15.0% of the total issued and paid-up shares of VADS.

(iii) No option shall be granted for less than 1,000 shares nor more than 500,000 shares unless so adjusted pursuant to item (vi) below. (iv) The subscription price of each RM1.00 share shall be the average of the middle market quotation of the shares as shown in the daily official list issued by the Bursa Malaysia Securities Berhad for the 5 trading days preceding the date of offer with a 10.0% discount. (v) Subject to item (vi) below, an employee may exercise his options subject to the following limits: Percentage of options exercisable (%) Year 1 Number of options granted 20 Year 2 20 Year 3 20 Year 4 20 Year 5 20

(vi) In the event of any alteration in capital structure of VADS during the option period which expires on 31 March 2010, such corresponding alterations shall be made in: (a) (b) the number of new shares in relation to ESOS so far as unexercised; and/or the subscription price.

These options granted do not confer any right to participate in any share issue of any other company. On 25 October 2007, VADSs existing ordinary shares of RM1.00 each was subdivided into 2 ordinary shares of RM0.50 each following a share split exercise. Consequent from the share split, the number of options unexercised, the subscription price and the fair value at grant date are adjusted accordingly.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

307

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(b) ESOS of VADS Berhad (VADS) (continued) The movement during the year in the number of options over the ordinary shares of RM0.50 each of VADS, after the share split, is as follows: Exercise Price (RM) At 25 October (000) At 31 Forfeited December (000) (000) Fair value at grant date (RM)

Grant date 2007 After share split 14 April 2005 31 August 2005 30 November 2005 19 January 2006 28 April 2006 28 July 2006 20 October 2006 26 January 2007 20 April 2007 4 July 2007 1 November 2007 Total

Granted Exercised (000) (000)

1.32 1.38 1.47 1.54 1.84 1.91 2.87 2.93 3.15 3.03 5.32

3,732.0 298.0 122.0 324.0 738.0 404.0 580.0 300.0 1,116.2 736.0 8,350.2

273.0 273.0

(5.0) (3.0) (14.0) (12.0) (6.0) (28.0) (9.0) (97.0) (115.0) (289.0)

(51.0) (40.0) (91.0)

3,676.0 298.0 119.0 270.0 726.0 398.0 552.0 291.0 1,019.2 621.0 273.0 8,243.2

0.31 0.43 0.37 0.32 0.51 0.44 0.70 0.79 0.65 1.74 1.93

The movement during the year in the number of options over the ordinary shares of RM1.00 each of VADS, before the share split, is as follows: Exercise Price (RM) At 1 January (000) At 24 October (000) Fair value at grant date (RM)

Grant date 2007 Before share split 14 April 2005 31 August 2005 30 November 2005 19 January 2006 28 April 2006 28 July 2006 20 October 2006 26 January 2007 20 April 2007 4 July 2007 Total

Granted Exercised (000) (000)

Forfeited (000)

2.65 2.76 2.94 3.08 3.69 3.82 5.75 5.86 6.30 6.07

3,175.0 256.0 138.0 352.0 658.0 380.0 554.0 5,513.0

444.0 654.0 444.0 1,542.0

(1,085.0) (45.0) (37.0) (112.0) (187.0) (126.0) (166.0) (162.0) (49.9) (76.0) (2,045.9)

(224.0) (62.0) (40.0) (78.0) (102.0) (52.0) (98.0) (132.0) (46.0) (834.0)

1,866.0 149.0 61.0 162.0 369.0 202.0 290.0 150.0 558.1 368.0 4,175.1

0.62 0.86 0.74 0.63 1.02 0.88 1.41 1.57 1.30 3.48

308

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(b) ESOS of VADS Berhad (VADS) (continued) Exercise Price (RM) At 1 January (000) At 31 Forfeited December (000) (000) Fair value at grant date (RM)

Grant date 2006 14 April 2005 31 August 2005 30 November 2005 19 January 2006 28 April 2006 28 July 2006 20 October 2006 Total

Granted Exercised (000) (000)

2.65 2.76 2.94 3.08 3.69 3.82 5.75

4,761.0 400.0 220.0 5,381.0

800.0 848.0 504.0 628.0 2,780.0

(1,242.0) (104.0) (82.0) (248.0) (136.0) (100.0) (18.0) (1,930.0)

(344.0) (40.0) (200.0) (54.0) (24.0) (56.0) (718.0)

3,175.0 256.0 138.0 352.0 658.0 380.0 554.0 5,513.0

0.62 0.86 0.74 0.63 1.02 0.88 1.41

The above unexercised options remain in force until 31 March 2010. The fair values of options granted in which FRS 2 applies, were determined using the Black Scholes Valuation model. The significant inputs into the model are as follows: Weighted average share price at grant date RM2.84 RM3.38 RM3.28 RM3.42 RM4.42 RM4.26 RM6.60 RM6.85 RM6.80 RM6.70 RM6.70 Risk free interest rates (Yield of Malaysian Government securities) 3.70% 3.28% 3.68% 3.56% 4.07% 4.22% 3.76% 3.64% 3.39% 3.73% 3.53%

Exercise Price RM1.32 RM1.38 RM1.47 RM1.54 RM1.84 RM1.91 RM2.87 RM2.93 RM3.15 RM3.03 RM5.32

Option life (number of days to expiry) 1,812 1,673 1,581 1,533 1,434 1,343 1,259 1,161 1,077 1,002 882

Expected dividend yield 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50%

Expected volatility 26.00% 26.00% 26.00% 20.59% 22.20% 23.08% 24.04% 23.88% 23.70% 28.10% 33.30%

VADS share historical volatility period From To 30.08.2002 30.08.2002 30.08.2002 30.08.2002 30.08.2002 30.06.2003 30.06.2003 30.06.2003 30.06.2003 30.06.2003 30.06.2003 14.04.2005 31.08.2005 30.11.2005 19.01.2006 28.04.2006 28.07.2006 20.10.2006 26.01.2007 20.04.2007 04.07.2007 01.11.2007

The volatility measured at the standard deviation of continuously compounded share return is based on statistical analysis of daily share prices over the last 2 to 4 years from the grant date.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

309

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(c) ESOS of Dialog Telekom PLC (Dialog) On 11 July 2005, the Board of Directors of Dialog resolved and issued 199,892,741 ordinary shares of Dialog at the Initial Public Offering (IPO) price of Sri Lanka Rupee (SLR)12 to an ESOS Trust, being 2.7% of the issued share capital of Dialog. Of the total ESOS shares that were transferred to the ESOS Trust, 88,841,218 shares (44.4%) were granted at the point of the IPO with the exercise price equals to IPO price. The balance 111,051,523 shares (56.6%) together with the forfeited portion were accounted as treasury shares of Dialog as at 31 December 2007 and shall be granted to employees as an ongoing performance incentive mechanism in 4 further tranches. The principal features of ESOS are as follows: (i) (ii) The eligibility for participation in ESOS is at the discretion of the ESOS Committee appointed by the Board of Directors of Dialog. Except the existing tranche, the exercise price of the ESOS shares will be based on the 5 days weighted average market price of Dialog's shares immediately preceding the offer date for options, with the ESOS Committee having the discretion to set an exercise price up to 10.0% lower than that derived weighted average market price.

(iii) Options are conditional on an employee satisfying the following: has attained the age of 18 years; is employed full-time by and on the payroll of a company within Dialog Group; and has been in the employment of Dialog Group for a period of at least 1 year of continuous service prior to and up to the offer date, including service during the probation period. (iv) No options shall be granted for more than 8.0 million shares. (v) An employee may exercise his options subject to the following limits: Percentage of options exercisable (%) Number of options granted Support and Operative Supervisory and Middle Management Management and Senior Management Year 1 100 50 50 Year 2 50 30 Year 3 20

310

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

12. EMPLOYEES SHARE OPTION SCHEME (continued)

(c) ESOS of Dialog Telekom PLC (Dialog) (continued) The movement during the year in the number of ESOS shares outstanding is as follows: Exercise Price (SLR) At 1 January (000) At 31 December (000) Fair value at grant date (SLR)

Grant date 2007 11 July 2005 2006 11 July 2005

Granted (000)

Exercised (000)

Forfeited* (000)

12

48,735.0

(10,853.0)

(353.0)

37,529.0

4.4

12

87,725.0

(38,341.0)

(649.0)

48,735.0

4.4

Options forfeited are allocated to the ESOS Trust for future reallocation

The fair values of options granted in which FRS 2 applies, were determined using the Black Scholes Valuation model. The significant inputs into the model are as follows: Exercise price Option life (number of days to expiry) Weighted average share price at grant date Expected dividend yield Risk free interest rates (Yield of treasury bond of Central Bank of Sri Lanka) Expected volatility SLR12 1,826 SLR12 2.10%

10.00% 28.24%

The above volatility rate was derived after considering the patent and level of historical volatility of entities in the same industry since Dialog does not have sufficient information on historical volatility as it was only listed on the Colombo Stock Exchange in July 2005. The volatility measured at the standard deviation of continuously compounded share return is based on statistical analysis of daily share prices of these entities over the last 2 years from the grant date.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

311

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

13. OTHER RESERVES

The Group 2007 RM Retained profits ESOS reserve Currency translation differences arising from translation of: subsidiaries jointly controlled entities associates TOTAL OTHER RESERVES 12,512.8 2006 RM 12,829.0 25.0 The Company 2007 RM 6,172.6 2006 RM 8,218.4 25.0

(530.7) 100.2 17.9 12,100.2

(304.7) 18.6 3.7 12,571.6

6,172.6

8,243.4

Under the full dividend imputation system, subject to agreement with the Inland Revenue Board, the Company has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and tax-exempt income under Section 8 of the Income Tax (Amendment) Act, 1999 at 31 December 2007 to frank the payment of net dividends out of all (2006: all) its retained profits without incurring additional taxation. The Malaysian Budget 2008 introduced a single tier company income tax system with effect from the year of assessment 2008. Under the single tier system, the tax on a companys profit is a final tax and the dividends distributed to its shareholders would be exempted from tax. Unutilised Section 108 balances as at 31 December 2007 will be available until such time the tax credit is fully utilised or upon expiry of the 6 years transitional period on 31 December 2013, whichever is earlier.

14. BORROWINGS
2007 Weighted Average Rate of Finance The Group DOMESTIC Secured Borrowings from financial institutions (sub-note a) Borrowings under Islamic principles Banking facilities (sub-note a) Long Term RM Short Term RM Weighted Average Rate of Finance Long Term RM 2006 Short Term RM

Total RM

Total RM

5.70%

113.8

113.8

8.23% 8.23%

201.6 201.6

201.6 201.6

8.10% 7.72%

210.3 210.3

400.0 513.8

610.3 724.1

312

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

14. BORROWINGS (continued)

2007 Weighted Average Rate of Finance The Group DOMESTIC Unsecured Redeemable Bonds (note 15(c)) Borrowings from financial institutions Borrowings under Islamic principles Banking facilities TM Islamic Stapled Income Securities (sub-note g) Other borrowings Long Term RM Short Term RM Weighted Average Rate of Finance 2006 Long Term RM Short Term RM

Total RM

Total RM

5.88%

3,000.0

3,000.0

4.93%

15.0

21.7

36.7

4.74%

10.0

50.2

60.2

6.20%

243.0

243.0

5.07%

243.0

207.9

450.9

4.34% 5.90% 4.49%

2,925.0 6.9 2,946.9 2,946.9

264.7 466.3

2,925.0 6.9 3,211.6 3,413.2

5.76% 6.10%

3,253.0 3,463.3

258.1 771.9

3,511.1 4,235.2

Total Domestic FOREIGN Secured Borrowings from financial institutions (sub-note b) Other borrowings (sub-note c) Bank overdrafts (sub-note d & note 33)

4.71%

9.70% 1.97%

392.6 370.0

76.1 40.0

468.7 410.0

7.90% 1.96%

498.0 200.9

301.4 12.0

799.4 212.9

6.10%

762.6

116.1

878.7

14.00% 6.66%

698.9

1.7 315.1

1.7 1,014.0

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

313

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

14. BORROWINGS (continued)

2007 Weighted Average Rate of Finance The Group FOREIGN Unsecured Notes and Debentures (sub-note e) Rated Cumulative Redeemable Preference Shares (sub-note f) Borrowings from financial institutions Other borrowings Bank overdrafts (note 33) Long Term RM Short Term RM Weighted Average Rate of Finance 2006 Long Term RM Short Term RM

Total RM

Total RM

6.96%

4,975.1

1,175.0

6,150.1

7.00%

6,013.6

6,013.6

18.43%

136.9

15.2

152.1

7.91% 1.21% 19.74% 7.50%

917.6 8.1 6,037.7 6,800.3

401.4 1.1 2.1 1,594.8 1,710.9

1,319.0 9.2 2.1 7,632.5 8,511.2

6.72% 1.26% 17.34% 6.96% 6.92%

98.3 8.7 6,120.6 6,819.5

712.7 1.4 2.0 716.1 1,031.2

811.0 10.1 2.0 6,836.7 7,850.7

Total Foreign TOTAL BORROWINGS

7.35%

6.58%

9,747.2

2,177.2

11,924.4

6.63%

10,282.8

1,803.1

12,085.9

2007 Domestic RM The Group's long term borrowings are repayable as follows: After one year and up to five years After five years and up to ten years After ten years and up to fifteen years After fifteen years Foreign RM Total RM Domestic RM

2006 Foreign RM Total RM

21.9 2,000.0 925.0 2,946.9

3,079.7 2,729.3 0.9 990.4 6,800.3

3,101.6 4,729.3 925.9 990.4 9,747.2

463.3 2,000.0 1,000.0 3,463.3

3,078.2 2,680.4 0.8 1,060.1 6,819.5

3,541.5 4,680.4 1,000.8 1,060.1 10,282.8

314

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

14. BORROWINGS (continued)

2007 Weighted Average Rate of Finance The Company DOMESTIC Unsecured Borrowings under Islamic principles Banking facilities TM Islamic Stapled Income Securities (sub-note g) Total Domestic FOREIGN Unsecured Notes and Debentures (sub-note e) Borrowings from financial institutions Other borrowings Total Foreign TOTAL BORROWINGS Long Term RM Short Term RM Weighted Average Rate of Finance 2006 Long Term RM Short Term RM

Total RM

Total RM

6.20%

243.0

243.0

5.16%

243.0

200.0

443.0

4.34% 4.49%

2,925.0 2,925.0

243.0

2,925.0 3,168.0

5.16%

243.0

200.0

443.0

6.87%

1,979.9

1,979.9

7.80%

2,116.3

2,116.3

1.21% 6.84%

8.2 1,988.1

1.1 1.1

9.3 1,989.2

5.55% 1.26% 7.32%

8.7 2,125.0

534.6 1.4 536.0

534.6 10.1 2,661.0

5.39%

4,913.1

244.1

5,157.2

7.02%

2,368.0

736.0

3,104.0

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

315

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

14. BORROWINGS (continued)

2007 Domestic RM The Company's long term borrowings are repayable as follows: After one year and up to five years After five years and up to ten years After ten years and up to fifteen years After fifteen years Foreign RM Total RM Domestic RM 2006 Foreign RM Total RM

2,000.0 925.0 2,925.0

995.1 1.7 0.9 990.4 1,988.1

995.1 2,001.7 925.9 990.4 4,913.1

243.0 243.0

1,062.0 2.1 0.8 1,060.1 2,125.0

1,305.0 2.1 0.8 1,060.1 2,368.0

The currency exposure profile of borrowings is as follows: The Group 2007 RM Ringgit Malaysia US Dollar Indonesian Rupiah Bangladesh Taka Sri Lanka Rupee Other currencies 3,413.2 7,071.7 666.4 432.6 202.3 138.2 11,924.4 2006 RM 4,235.2 7,259.3 322.7 188.8 79.9 12,085.9 The Company 2007 RM 3,168.0 1,979.9 9.3 5,157.2 2006 RM 443.0 2,650.9 10.1 3,104.0

316

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

14. BORROWINGS (continued)

(a) Syndicated term loan facilities and Islamic Private Debt securities issued by Celcom (Malaysia) Berhad (Celcom), a wholly owned subsidiary. The borrowings are secured by deed of assignment over Celcom's key bank collection accounts and designated bank accounts which requires Celcom to deposit a proportion of its cash flows into designated bank accounts from which funds can be utilised only for interest and principal repayments on these borrowings. Only the syndicated term loan facilities have been fully paid in the current year. Under the respective debt covenants, Celcom is required to comply with certain conditions which includes not to be in breach of certain agreed financial ratios summarised as follows: (b) debt equity ratio of not more than 1.25; debt over EBITDA ratio of not more than 2.5; EBITDA over finance cost ratio of more than 5; and finance service coverage ratio of more than 1.2.

Secured by way of fixed charge on property, plant and equipment of subsidiaries (note 20 to the financial statements). Consists of USD122.9 million (2006: USD60.0 million) supplier credit that bears 0% interest during the first 2 years and is repayable from 2007 to 2014. This supplier credit is secured by way of fixed charge on property, plant and equipment of TM International (Bangladesh) Limited (note 20 to the financial statements). The bank overdrafts for the previous year were secured by way of fixed charge over property, plant and equipment of Dialog Telekom PLC and interests were payable at rates which varied according to the lenders' prevailing base lending rates. Interest rate during the previous year was 14.0% per annum (note 20 to the financial statements). Notes and Debentures consist of the following: The Group 2007 RM USD250.0 million 7.125% Notes due 2013 (sub-note i) USD350.0 million 8.0% Notes due 2009 (sub-note i & note 45(c)(ii)) USD300.0 million 8.0% Guaranteed Notes due 2010 USD500.0 million 5.25% Guaranteed Notes due 2014 USD300.0 million 7.875% Debentures due 2025 IDR1,500 billion 10.35% Notes due 2012 (sub-note ii) 2006 RM The Company 2007 RM 2006 RM

(c)

(d)

(e)

817.0 1,175.1 991.5 1,652.5 988.4 525.6 6,150.1

868.0 1,265.8 1,058.2 1,763.5 1,058.1 6,013.6

991.5 988.4 1,979.9

1,058.2 1,058.1 2,116.3

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

317

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

14. BORROWINGS (continued)

(e) Notes and Debentures consist of the following: (continued) (i) Issued by Excelcomindo Finance Company BV, a wholly owned subsidiary of PT Excelcomindo Pratama Tbk (XL). XL is required to comply with certain conditions, such as limitations on asset sale and/or leaseback transactions, and Consolidated Leverage Ratio not exceeding as follows: Notes USD250.0 million 7.125% Notes Consolidated Leverage Ratio 5.0 to 1.0 prior to 27 January 2007 4.5 to 1.0 thereafter 5.0 to 1.0 prior to 27 January 2007 4.5 to 1.0 from 27 January 2007 and prior to 27 January 2008 4.0 to 1.0 from 27 January 2008 and thereafter

USD350.0 million 8.0% Notes

(ii)

Issued by XL. XL is required to comply with certain conditions, such as limitations on asset sale and/or leaseback transactions, and XL should not get another debt which may cause its Debt to EBITDA Ratio to exceed 4.5 to 1.0.

(f)

Consists of 5,000 million Rated Cumulative Redeemable Preference Shares (RCRPS) of SLR1 each issued by Dialog Telekom PLC (Dialog) during the year, redeemable at par. The shares are mandatorily redeemable on 31 May 2012 with redemption schedule as set out below: 2008 2009 2010 2011 2012 Redemption Value per RCRPS 10% 15% 25% 25% 25%

The dividend is on cumulative basis and payable semi-annually, at the prevailing local base lending rate less a discount of 0.9%. The RCRPS issued by Dialog have been classified as liabilities and accordingly, dividends on these RCRPS are recognised in the Income Statement as finance cost. (g) On 20 July 2007, the Company had, through itself and its wholly owned subsidiary, Hijrah Pertama Berhad (HPB), issued the TM Islamic Stapled Income Securities (TM ISIS) consisting of: (a) (i) RM2.0 million Class C Non-Convertible Redeemable Preference Shares (NCRPS) (TM NCRPS C) consisting of 2,000 Class C NCRPS of RM1.00 each at a premium of RM999 issued by the Company at an issue price of RM1,000 each; Sukuk Ijarah Class A of nominal value RM1,998.0 million issued by HPB; and RM925,000 Class D NCRPS (TM NCRPS D) consisting of 925 Class D NCRPS of RM1.00 each at a premium of RM999 issued by the Company at an issue price of RM1,000 each; Sukuk Ijarah Class B of nominal value RM924,075,000 issued by HPB.

(ii) (b) (i) (ii)

Sukuk Ijarah Class A and B are collectively referred to as Sukuk.

318

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

14. BORROWINGS (continued)

(g) The TM NCRPS are effectively linked to the Sukuk in that the TM NCRPS and the Sukuk are issued simultaneously to the same parties and the periodic distribution obligations under the Sukuk are dependent on the payments made under the TM NCRPS. The outstanding amount of Sukuk are treated as borrowing by the Company as the Sukuk are effectively obligations of the Company. The issuance of the TM ISIS was made in exchange for the existing Tekad Mercu bonds (Exchange Offer). Holders of RM2,925.0 million of the existing Tekad Mercu bonds accepted the Exchange Offer. The Company purchased the remaining RM75.0 million Tekad Mercu bonds which were cancelled subsequently. Refer to note 15(i) and 15(c) for details of Tekad Mercu bonds. The TM ISIS are classified as debt instruments and hence are reported as liabilities. Consequently, dividend payable under TM NCRPS and rental payable under Sukuk are reported as finance cost. Salient terms of the above transactions are: (I) TM NCRPS The principle features of the TM NCRPS (which comprises Class C and Class D NCRPS respectively) are summarised as follows: (i) (ii) The NCRPS will not be convertible to ordinary shares of the Company. The NCRPS are not transferable/tradable and will held by Primary Subscribers until redeemed by the Company (anticipated to be concurrent with Sukuk maturity).

(iii) There will be no voting rights except with regards to the proposal to reduce the capital of the Company, sanctioning the disposal of the whole of the Companys property, business and undertaking or where the proposition to be submitted to the meeting directly affects the rights and privileges of the NCRPS holders or as provided for in the Companies Act, 1965. (iv) The NCRPS will not be listed on any of the boards of Bursa Malaysia Securities Berhad. (v) The NCRPS shall rank pari-passu amongst themselves but below the Special Share and ahead of the Companys ordinary shares in a distribution of capital in the event of the winding up or liquidation of the Company.

(II) Sukuk Ijarah The Sukuk are issued in 4 classes and is for the purposes of financing the purchase by HPB of the beneficial ownership of certain assets. The Sukuk comprise the following classes: (i) (ii) Class A Sukuk comprising of Class A1 Sukuk and Class A2 Sukuk (collectively referred to as Class A Sukuk) Class B Sukuk comprising of Class B1 Sukuk and Class B2 Sukuk (collectively referred to as Class B Sukuk)

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

319

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

14. BORROWINGS (continued)

(g) (II) Sukuk Ijarah (continued) The Class A Sukuk and Class B Sukuk shall represent undivided beneficial ownership in the relevant assets and shall constitute direct, unconditional and unsecured trust obligations of HPB and shall at all times rank pari-passu, without discrimination, preference or priority amongst themselves. Features of the Sukuk are summarised as follows: (a) (b) (c) (d) The Sukuk shall constitute trust obligations of HPB in relation to, and represent undivided beneficial ownership in the assets. Class A2 Sukuk and Class B2 Sukuk are not transferable/tradable and will be held by Primary Subscribers until maturity of the Sukuk. The Sukuk will constitute, inter alia, the obligations of the Company. The obligations of the Company in respect of the Sukuk will constitute direct, unconditional and unsecured obligations of the Company and shall at all times rank pari-passu, without discrimination, preference or priority amongst themselves and at least pari-passu with all other present and future unsecured and unsubordinated obligations of the Company, subject to those preferred by law or the transaction documents. The Sukuk carry a rating of AAA by RAM Rating Services Berhad at the date of issue.

(e)

The respective tenure of the Sukuk are as follows: Class A1 A2 B1 B2 Maturity Dates 30 30 28 28 December December December December 2013 2013 2018 2018

During the tenure of the TM ISIS, the Company can elect to either: (a) (b) Pay gross dividends, comprising of net dividend with the respective tax credits to investors and Nominal Rental payable to HPB; or Pay Full Rental to HPB, which in turn distributes the same as periodic distribution to investors who are holding Class A2 Sukuk and Class B2 Sukuk.

The Periodic Distribution Rate as in the TM ISIS of Class C NCRPS and Class D NCRPS which is linked to Class A Sukuk and Class B Sukuk is 6.20% and 5.25% per annum respectively payable semi-annually in arrears. The Periodic Distribution Rate for Class B Sukuk will be reset in December 2008 and December 2013. Where the Company elects to pay dividend, HPB will only receive Nominal Rental under the lease agreement which it in turn would pay out to investors under Class A2 Sukuk and Class B2 Sukuk as nominal periodic distribution. The nominal periodic distribution rate is 0.01% per annum.

320

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

15. PAYABLE TO SUBSIDIARIES

(i) On 12 December 2003, the Company issued for cash 1,000 Class A Redeemable Preference Shares (RPS) (TM RPS A) and 1,000 Class B RPS (TM RPS B) to Rebung Utama Sdn Bhd (RUSB), a special purpose entity of the Company, at a premium of RM0.99 each over the par value of RM0.01 each. Subsequently, on 30 December 2003, the Company issued RM1,983.5 million nominal value 10-year redeemable unsecured bonds due 2013 (Tranche 1) and RM1,000.0 million nominal value 15-year redeemable unsecured bonds due 2018 (Tranche 2) (collectively referred to as TM bonds) to RUSB. As part of an overall cost efficient funding structure, the funds for the subscription of the Companys RPS and bonds were raised by RUSB vide the issuance of RM2,987.0 million RPS (RUSB RPS) to Tekad Mercu Berhad (Tekad Mercu), another special purpose entity of the Company. Tekad Mercu had, in turn, issued RM2,000.0 million nominal value 10-year redeemable unsecured bonds due 2013 (Tranche 1) and RM1,000.0 million nominal value 15-year redeemable unsecured bonds due 2018 (Tranche 2) (collectively referred to as Tekad Mercu bonds) to investors on 30 December 2003 to finance the subscription of the RUSB RPS (sub-note c). All TM RPS A, TM RPS B, TM bonds, RUSB RPS and Tekad Mercu bonds have been fully redeemed, purchased and cancelled during the year pursuant to the completion of the Exchange Offer as explained in note 14(g) to the financial statements. (ii) On 22 September 2004, the Companys wholly owned subsidiary, TM Global Incorporated (TM Global), a company incorporated in the Federal Territory of Labuan, under the Offshore Companies Act, 1990, issued a 10-year USD500.0 million Guaranteed Notes. The Notes carry an interest rate of 5.25% per annum payable semi-annually in arrears on 22 March and September commencing in March 2005. The Notes will mature on 22 September 2014. Proceeds from the transaction were utilised to refinance the Companys maturing debt and general working capital. The Notes are unconditional and irrevocably guaranteed by the Company. None of TM Global Notes have been redeemed, purchased or cancelled during the year. Listed below are the effects and salient terms of the above transactions to the Company: 2007 RM The Company (i) Payable to a subsidiary company, RUSB TM RPS A of RM1,000 (sub-note a) TM RPS B of RM1,000 (sub-note a) 10-year redeemable unsecured bonds due 2013 (Tranche 1) (sub-note b) 15-year redeemable unsecured bonds due 2018 (Tranche 2) (sub-note b) (ii) Payable to a subsidiary company, TM Global Incorporated 1,652.5 1,652.5 1,983.5 1,000.0 1,763.5 4,747.0 2006 RM

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

321

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

15. PAYABLE TO SUBSIDIARIES (continued)

(a) TM RPS A and TM RPS B TM RPS A and TM RPS B issued by the Company to RUSB have been classified as liabilities and accordingly, dividends on these preference shares are recognised in the Income Statement as finance cost. The salient terms of the RPS are as follows: (i) (ii) The preference shares, 1,000 RPS A and 1,000 RPS B are both issued at RM0.01 par value and a premium of RM0.99 each. TM RPS A and TM RPS B rank pari-passu amongst themselves but below the Special Share and ahead of the ordinary shares of the Company in a distribution of capital in the event of the winding up or liquidation of the Company.

(iii) The non-cumulative dividends, when declared by the Board of Directors of the Company, are payable in arrears at the end of every 6 months period commencing from the date of issue of the RPS of 12 December 2003, the amount of which will be at the discretion of the Directors. (iv) The RPS is not convertible and shall not confer on the holder thereof any right to participate on a return in excess of capital on liquidation, winding up or otherwise of the Company, other than on redemption, up to the redemption price of RM1.00 for each RPS A and RPS B. (v) Both RPS A and RPS B do not have fixed maturity dates and may be redeemed in cash at the option of the Company at any time, at a redemption price of RM1.00 per share.

(b) TM Bonds The principal features of the bonds issued by the Company to RUSB are as follows: (i) Unless previously redeemed, purchased and cancelled, the bonds are redeemable by the Company on 30 December 2013 and 28 December 2018 respectively at nominal amount together with accrued and unpaid interest. The bonds may also be redeemed by the Company at any time after the issue date by private arrangement with RUSB. Payment of coupon on the bonds may either be: (a) interest of 6.25% per annum payable semi-annually in arrears on the Tranche 1 bonds, and interest of 5.25% per annum payable semi-annually in arrears on the Tranche 2 bonds, with the option to reset these rates after the fifth year; or net dividends on both TM RPS A and TM RPS B, which shall be equal to the interest on Tranche 1 and Tranche 2 of the bonds less any amounts in the Designated Accounts, being accounts designated to capture all collections of dividends and tax refunds by the authorities, and a nominal interest of 0.01% per annum payable semi-annually.

(ii)

(b)

(iii) The bonds will constitute direct, unconditional and unsecured obligations of the Company and will at all times rank pari-passu, without discrimination, preference or priority amongst themselves and at least pari-passu with all other present and future unsecured and unsubordinated obligations of the Company, subject to those preferred by law or the transaction documents. (iv) The bonds are not convertible, not transferable and not tradable.

322

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

15. PAYABLE TO SUBSIDIARIES (continued)

(c) Tekad Mercu Bonds The principle features of the bonds issued by Tekad Mercu are as follows: (i) Unless previously redeemed, purchased and cancelled, the bonds are redeemable by Tekad Mercu on 30 December 2013 and 28 December 2018 respectively at nominal amount together with accrued and unpaid interest. In respect of Tranche 2 only, (a) Tekad Mercu has the right to redeem all of the outstanding Tekad Mercu bonds (Tranche 2) on the tenth and the twentieth coupon payment date (Optional Redemption Date) with advance notice to the bondholders at nominal amount together with accrued and unpaid interest (up to but excluding the relevant Optional Redemption Date) in respect thereof. If on the day falling 20 business days prior to any Optional Redemption Date, the rating of the Tekad Mercu bonds (Tranche 2) shall be below AAA or its equivalent as confirmed by the Calculation Agent, then Tekad Mercu shall be obliged to redeem all outstanding Tekad Mercu bonds (Tranche 2) on the relevant Optional Redemption Date. Redemption of the Tekad Mercu bonds (Tranche 2) shall be at their nominal value together with all accrued interest (up to but excluding the relevant Optional Redemption Date) in respect thereof.

(ii)

(b)

(iii) The bonds may also be purchased, in whole or in part, by the Company, at any time at any price in the open market or by private treaty. (iv) Payment of coupon on the bonds Interest rate of 6.20% per annum payable semi-annually in arrears on the Tranche 1 bonds and interest rate of 5.25% per annum payable semi-annually in arrears on the Tranche 2 bonds with the option to reset these rates after the fifth year. (v) The bonds will constitute direct, unconditional and unsecured obligations of Tekad Mercu and will at all times rank pari-passu without discrimination, preference or priority amongst themselves and at least pari-passu with all other present and future unsecured and unsubordinated obligations of Tekad Mercu, subject to those preferred by law or the transaction documents.

(vi) The bonds are not convertible but transferable, subject to certain selling restrictions. (vii) The Company has granted a Put Option in favour of the security trustee of the bonds for the benefit of the holders of the bonds. The Put Option will allow the holders of the bonds to have direct recourse on the Company for the following circumstances: (a) (b) (c) on a pre-agreed time frame, there is insufficient amounts in the relevant Designated Account to meet coupon payments and/or principal redemption of the bonds on the relevant due date for payment; an event of default has been declared under the bonds; and an event of default has been declared under the Put Option.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

323

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

16. HEDGING TRANSACTIONS

(a) Long Dated Swap Underlying Liability USD300.0 million 7.875% Debentures due in 2025 In 1998, the Company entered into a long dated swap, which will mature on 1 August 2025. Hedging Instrument The Company made a payment of USD5.0 million and is obliged to pay fixed amounts of JPY209.9 million semiannually on each 1 February and 1 August, up to and including 1 August 2025. Prior to 1 February 2004, the counterparty was not obliged to agree to any request by the Company to terminate the transaction. Commencing from 1 February 2004, the Company has the right to terminate the transaction at a rate mutually agreed with the counterparty. However, the Company intends to hold the contract to maturity. On 1 August 2025, the Company will receive RM750.0 million from the counterparty. These proceeds will be swapped for USD300.0 million at a predetermined exchange rate of RM2.5 to USD1.0, which will be used for the repayment of the USD300.0 million 7.875% redeemable unsecured Debentures. The effect of this transaction is to effectively build up a sinking fund with an assured value of USD300.0 million on 1 August 2025 for the repayment of the Debentures. (b) Interest Rate Swap (IRS) Underlying Liability USD300.0 million 8.0% Guaranteed Notes due in 2010 In year 2000, the Company issued USD300.0 million 8.0% Guaranteed Notes due in 2010. The Notes are redeemable in full on 7 December 2010. Hedging Instrument On 1 April 2004, the Company entered into an IRS agreement with a notional principal of USD150.0 million that entitles it to receive interest at a fixed rate of 8.0% per annum and obliges it to pay interest at a floating rate of 6 months USD LIBOR-in-arrears plus 5.255%. The swap was due to mature on 7 December 2006. The Company restructured twice on the existing USD150.0 million IRS into a range accrual swap. Under this structure, the Company will receive interest at a rate of 8.0% times N1/N2 (where N1 is the number of the days when the reference floating rate, i.e. the 6 months USD LIBOR in this transaction, stays within a predetermined range, while N2 is the total number of days in the calculation period). Under the latest restructure, on 5 December 2005, the Company will pay interest at a floating rate of 6 months USD LIBOR plus 2.35% for a new predetermined range. The restructured swap will mature on 7 December 2010.

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Notes to the Financial Statements

for the year ended 31 December 2007

16. HEDGING TRANSACTIONS (continued)

(c) Interest Rate Swap (IRS) Underlying Liability USD300.0 million 7.875% Debentures due in 2025 In 1998, the Company issued USD300.0 million 7.875% Debentures due in 2025. Hedging Instrument On 2 April 2004, the Company entered into an IRS agreement with a notional principal of USD150.0 million that entitles it to receive interest at a fixed rate of 7.875% per annum and obliges it to pay interest at a floating rate of 6 months USD LIBOR-in-arrears plus 5.05%. The swap was due to mature on 1 August 2006. The Company restructured twice on the existing USD150.0 million IRS into a range accrual swap. Under this structure, the Company will receive interest at a rate of 7.875% times N1/N2 (where N1 is the number of the days when the reference floating rate, i.e. the 6 months USD LIBOR in this transaction, stays within a predetermined range, while N2 is the total number of days in the calculation period). Under the latest restructure, on 5 December 2005, the Company will pay interest at a floating rate of 6 months USD LIBOR plus 2.24% for a new predetermined range. The restructured swap will mature on 1 August 2010. On 9 July 2007, the Company entered into another IRS range accrual swap with trigger feature agreement for the balance notional principal of USD150.0 million that entitles it to receive interest at a fixed rate of 7.875% times N1/N2 (where N1 is the number of the days when the reference floating rate, i.e. the 6 months USD LIBOR in this transaction, stays within a predetermined range, while N2 is the total number of days in the calculation period). In exchange, the Company is obliged to pay interest at a floating rate of 6 months USD LIBOR plus 1.05%. This transaction will automatically terminate in whole, but not in part, on an Auto-Put Date, i.e. 1 August 2009, where the LIBOR rate fixes at or below the trigger level. The swap is due to mature on 1 August 2010. (d) Cross-Currency Swap (CCS) Underlying Liability USD100.0 million Term Loan due in 2010 On 8 January 2007, PT Excelcomindo Pratama Tbk (XL) entered into a credit agreement with a financial institution amounting to USD50.0 million. On 18 April 2007, XL signed the credit agreement amendment to increase the credit facility to USD100.0 million. The loan will be based on a floating rate of interest at quarterly intervals of 3 months SIBOR plus 1.05% margin per annum. The loan will mature 36 months from each drawdown date. Hedging Instrument On 18 April 2007, XL entered into a CCS contract with a financial institution. Based on the contract, XL would swap, at the final exchange date (termination date) on 16 April 2010, a total of IDR90.88 million for USD10.0 million. XL will make quarterly payments in IDR on every 18 January, 18 April, 18 July and 18 October up to termination date, at the amount of USD10.0 million times fixed interest rate of 9.65% per annum with strike rate of IDR9,088 per USD, and will receive payment in USD amounting to USD10.0 million times floating rate of interest at quarterly intervals of 3 months SIBOR plus 1.05%.

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Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

16. HEDGING TRANSACTIONS (continued)

(e) Cross-Currency Swap (CCS) Underlying Liability USD50.0 million Term Loan due in 2010 On 15 January 2007, XL entered into a credit agreement with a financial institution amounting to USD50.0 million. The loan will be based on a floating rate of interest at quarterly intervals of 3 months LIBOR plus 0.95% margin per annum. The loan will mature on 29 January 2010. Hedging Instrument On 23 April 2007, XL entered into a CCS contract with a financial institution. Based on the contract, XL would swap, at the final exchange date (termination date) on 29 January 2010, a total of IDR225.0 million for USD25.0 million. XL will make quarterly payments in IDR on every 30 January, 30 April, 30 July and 30 October up to termination date, at the amount of USD25.0 million times fixed interest rate of 9.99% per annum with strike rate of IDR9,000 per USD, and will receive payment in USD amounting to USD25.0 million times floating rate of interest at quarterly intervals of 3 months LIBOR plus 0.95%. On 10 May 2007, XL entered into another CCS contract with a financial institution. Based on the contract, XL would swap, at the final exchange date (termination date) on 29 January 2010, a total of IDR112.5 million for USD12.5 million. XL will make quarterly payments in IDR on every 28 June, 28 September, 28 December and 28 March up to termination date, at the amount of USD12.5 million times fixed interest rate of 7.73% per annum with strike rate of IDR9,000 per USD, and will receive payment in USD amounting to USD12.5 million times floating rate of interest at quarterly intervals of 3 months LIBOR plus 0.95%. (f) Cross-Currency Swap (CCS) Underlying Liability USD50.0 million Term Loan due in 2010 On 19 April 2007, XL signed a credit facility agreement with a financial institution amounting to USD50.0 million. The loan will be based on a floating rate of interest at quarterly intervals of 3 months LIBOR plus 1.00% margin per annum. The loan will mature 36 months from the first drawdown date. Hedging Instrument On 26 April 2007, XL entered into a CCS contract with a financial institution. Based on the contract, XL would swap, at the final exchange date (termination date) on 26 April 2010, a total of IDR135.0 million for USD15.0 million. XL will make quarterly payments in IDR on every 26 January, 26 April, 26 July and 26 October up to termination date, at the amount of USD15.0 million times fixed interest rate of 9.825% per annum with strike rate of IDR9,000 per USD, and will receive payment in USD amounting to USD15.0 million times floating rate of interest at quarterly intervals of 3 months LIBOR plus 1.00%. On 9 May 2007, XL entered into another CCS contract with a financial institution. Based on the contract, XL would swap, at the final exchange date (termination date) on 26 April 2010, a total of IDR135.0 million for USD15.0 million. XL will make quarterly payments in IDR on every 26 January, 26 April, 26 July and 26 October up to termination date, at the amount of USD15.0 million times fixed interest rate of 8.20% per annum with strike rate of IDR9,000 per USD, and will receive payment in USD amounting to USD15.0 million times floating rate of interest at quarterly intervals of 3 months LIBOR plus 1.00%.

326

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Notes to the Financial Statements

for the year ended 31 December 2007

16. HEDGING TRANSACTIONS (continued)

(g) Forward Foreign Currency Contracts During the current year, XL entered into forward foreign currency contracts with financial institutions to hedge the payment of long term loans in USD. The details of forward foreign currency contracts are as follows: Type of contracts Deliverable Non-Deliverable Total Notional amount (in USD Million) 175.0 125.0 300.0 Strike rate (full amount) USD1= IDR9,000 USD1= IDR9,000

The premium on the forward foreign currency contracts will be paid semi-annually based on contracted rates. On the deliverable contract, XL would swap, at the final exchange date, a total of IDR1,575.0 million for USD175.0 million. On the non-deliverable contract, XL would swap, at the final exchange date: If settlement rate at expiry time is less than IDR9,000, XL would pay the banks the USD notional amount times the excess of strike rate over settlement rate. If settlement rate at expiry time is more than IDR9,000, the banks would pay XL the USD notional amount times the excess of settlement rate over strike rate. If settlement rate at expiry time is equal to IDR9,000, no exchange payments between the banks and XL will be required.

(h) Other foreign exchange transactions XL regularly purchases USD currency to meet monthly obligations by using Spot (2 days settlement) or Tom (1 day settlement) transactions. In addition to this regular USD purchase, XL entered into foreign currency forward contracts with 2 financial institutions for the period of May 2007 until December 2007. The strike rates of foreign exchange forwards entered into in 2007 are as follows: USD1.0 million per month at IDR8,999 USD1.0 million per month at IDR8,995

The terms and conditions for these contracts are as follows: If the spot rate is higher than IDR9,225, the contracts will cease to exist and no USD should be bought at the respective month. If the spot rate is between strike rate and IDR9,225, XL will buy USD1.0 million at the strike rate at the respective month. If the spot rate is below the strike rate, XL is obliged to buy USD2.0 million at the strike rate at the respective month.

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327

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

17. DEFERRED TAX

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are disclosed in the balance sheet: The Group 2007 RM Subject to income tax: Deferred tax assets Deferred tax liabilities TOTAL DEFERRED TAX At 1 January Current year charged/(credited) to Income Statement arising from: property, plant and equipment tax losses provisions and others 2006 RM The Company 2007 RM 2006 RM

179.4 2,313.2 2,133.8 2,146.3

115.6 2,261.9 2,146.3 2,172.2

1,411.8 1,411.8 1,434.0

1,434.0 1,434.0 1,694.8

(1.3) (11.6) 134.8 121.9 (97.1) (5.6) (31.7) 2,133.8

395.0 180.2 (458.5) 116.7 (120.6) (22.0) 2,146.3

(17.3) (4.9) (22.2) 1,411.8

(129.4) (131.4) (260.8) 1,434.0

acquisition of subsidiaries under accrual of deferred tax assets for minority interests disposal of a subsidiary currency translation differences At 31 December

The tax effect of deductible temporary differences, unutilised tax losses and unabsorbed capital/other tax allowances of subsidiaries for which no deferred tax asset is recognised in the balance sheet are as follows: The Group Deductible temporary differences Unutilised tax losses Unabsorbed capital/other tax allowances 2007 RM 11.8 148.5 193.3 353.6 2006 RM 45.1 180.3 200.5 425.9

The benefits of these tax losses and credits will only be obtained if the relevant subsidiaries derive future assessable income of a nature and amount sufficient for the benefits to be utilised.

328

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

17. DEFERRED TAX (continued)

Breakdown of cumulative balances by each type of temporary difference: The Group 2007 RM (a) Deferred Tax Assets Property, plant and equipment Tax losses Provisions and others 2006 RM The Company 2007 RM 2006 RM

431.8 29.9 608.2 1,069.9 (890.5) 179.4

96.2 18.3 731.1 845.6 (730.0) 115.6

370.2 370.2 (370.2)

365.3 365.3 (365.3)

Offsetting Total Deferred Tax Assets After Offsetting (b) Deferred Tax Liabilities Property, plant and equipment Provisions and others

3,193.0 10.7 3,203.7 (890.5) 2,313.2

2,984.4 7.5 2,991.9 (730.0) 2,261.9

1,782.0 1,782.0 (370.2) 1,411.8

1,799.3 1,799.3 (365.3) 1,434.0

Offsetting Total Deferred Tax Liabilities After Offsetting

18. PROVISION FOR LIABILITIES

2007 RM The Group At 1 January Current year provision Over accrual of provision in respect of prior year Accretion of interest 64.6 19.3 4.2 88.1 (0.9) 87.2 65.0 8.0 (7.6) 65.4 (0.8) 64.6 2006 RM

Utilised during the year At 31 December

The provision for liabilities relates to provision for dismantling costs of existing telecommunication network and equipment of subsidiaries.

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329

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

19. INTANGIBLE ASSETS

Goodwill RM The Group Net Book Value At 1 January 2007 Additions Additional interest in subsidiaries Partial disposal of a subsidiary Amortisation Impairment (sub-note a) Currency translation differences Reclassified from equity (sub-note b) At 31 December 2007 6,826.1 295.1 (3.8) (23.8) (3.3) 180.8 7,271.1 233.0 0.6 (23.7) (21.1) 188.8 2.3 (1.3) 1.0 7,059.1 2.9 295.1 (3.8) (25.0) (23.8) (24.4) 180.8 7,460.9 Licences RM Other Intangible* RM Total RM

Net Book Value At 1 January 2006 Additions Acquisition of subsidiaries Amortisation Currency translation differences At 31 December 2006

6,891.3 (63.7) (1.5) 6,826.1

80.4 184.5 (23.0) (8.9) 233.0

6,971.7 184.5 (63.7) (23.0) (10.4) 7,059.1

At 31 December 2007 Cost Accumulated amortisation Accumulated impairment Net Book Value At 31 December 2006 Cost Accumulated amortisation Accumulated impairment Net Book Value

7,339.6 (68.5) 7,271.1

238.1 (49.3) 188.8

2.3 (1.3) 1.0

7,580.0 (50.6) (68.5) 7,460.9

6,870.8 (44.7) 6,826.1

258.6 (25.6) 233.0

7,129.4 (25.6) (44.7) 7,059.1

330

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Notes to the Financial Statements

for the year ended 31 December 2007

19. INTANGIBLE ASSETS (continued)

Goodwill RM The Company Net Book Value At 1 January 2007 Amortisation At 31 December 2007 Net Book Value At 1 January 2006 Amortisation At 31 December 2006 At 31 December 2007 Cost Accumulated amortisation Net Book Value At 31 December 2006 Cost Accumulated amortisation Net Book Value 43.6 (3.9) 39.7 43.6 (3.9) 39.7 Licences RM Other Intangible* RM Total RM

47.4 (3.8) 43.6

47.4 (3.8) 43.6

50.0 (10.3) 39.7

50.0 (10.3) 39.7

50.0 (6.4) 43.6

50.0 (6.4) 43.6

The remaining amortisation period of acquired licences ranged from 1 year to 9 years. * Other intangible represents the fair value of sales contracts acquired by a subsidiary. (a) Impairment tests for goodwill The Group undertakes an annual test for impairment of its cash-generating units. Based on the impairment test, an impairment loss of RM23.8 million has been recorded in the Consolidated Income Statement for the goodwill arising from acquisition of an overseas subsidiary. No impairment loss was required for the carrying amounts of the remaining goodwill assessed as at 31 December 2007 as their recoverable amounts were in excess of their carrying amounts.

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331

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

19. INTANGIBLE ASSETS (continued)

(b) Reclassification of goodwill In 2006, the Group had undertaken the following transactions with minority interests where the difference between the consideration paid and the Groups share of carrying value of net assets acquired had been treated as a movement in equity: (i) (ii) The acquisition of 2.8% equity interest in PT Excelcomindo Pratama Tbk from AIF (Indonesia) Limited on 12 June 2006. The acquisition of 49.0% equity interest in Telekom Malaysia International (Cambodia) Company Limited from Samart Corporation Public Company Limited on 27 March 2006.

(iii) The acquisition of 20.0% equity interest in Celcom Timur (Sabah) Sdn Bhd from Hugold Success Sdn Bhd on 24 November 2006. Goodwill totalling RM180.8 million arising from the above transactions previously recorded in equity has now been reclassified as intangible assets to reflect the Groups accounting policy on transactions with minority interests. Goodwill is allocated to the Groups cash-generating units identified according to business segment and the country of operations. The following cash-generating units, being the lowest level of asset for which there are separately identifiable cash flows, have carrying amounts of goodwill that are considered significant in comparison with the Groups total goodwill: 2007 RM Cellular Malaysia Indonesia 2006 RM

4,022.7 3,121.2 7,143.9

4,022.7 2,722.9 6,745.6 80.5 6,826.1

Cellular and Others Multiple units without significant goodwill Impairment

151.0 (23.8) 7,271.1

The amount of goodwill initially recognised is dependent upon the allocation of the purchase price to the fair value of identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on managements judgement.

332

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

19. INTANGIBLE ASSETS (continued)

(i) Key assumptions used in the value-in-use calculations The recoverable amounts of the cash-generating units including goodwill in these tests are determined based on value-in-use calculations. These value-in-use calculations apply a discounted cash flow model using cash flow projections based on forecasts and projections approved by management covering a five-year period for the cellular business in Malaysia and a ten-year period for the cellular business in Indonesia. These forecasts and projections reflect managements expectation of revenue growth, operating costs and margins for each cash-generating unit based on past experience. Cash flows beyond the fifth year for the cellular business in Malaysia and tenth year for the cellular business in Indonesia are extrapolated using estimated terminal growth rates. These rates have been determined with regards to projected growth rates for the respective markets in which the cash-generating units participate and are not expected to exceed the long term average growth rates for those markets. The value-in-use calculation for the Group's cash-generating unit in Indonesia reflects the low penetration of mobile telecommunications in that country and the expectation of strong revenue growth throughout the ten-year plan. Discount rates applied to the cash flow forecasts are derived from the cash-generating units pre-tax weighted average cost of capital plus a reasonable risk premium at the date of the assessment of the respective cashgenerating units. The following assumptions have been applied in the value-in-use calculations: 2007 Malaysia % Pre-tax discount rate Terminal growth rate 14.5 1.5 Indonesia % 16.3 3.0 2006 Malaysia % 13.1 1.5 Indonesia % 18.5 4.0

(ii) Impact of possible change in key assumptions Changing the assumptions selected by management, in particular the discount rate assumptions used in the discounted cash flow model could significantly affect the results of the impairment test and consequently the Groups results. The Groups review includes an impact assessment of changes in key assumptions. Based on the sensitivity analysis performed, management has concluded that no reasonable change in the base case key assumptions would cause the carrying amounts of the cash-generating units to exceed their recoverable amounts. If the following pre-tax discount rates are applied to the cash flow forecasts and projections of the Groups cashgenerating units, the carrying amounts of the cash-generating units including goodwill will equal the corresponding recoverable values, assuming all other variables remain unchanged. 2007 Malaysia % Pre-tax discount rate 36.5 Indonesia % 18.6 2006 Malaysia % 26.7 Indonesia % 20.0

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

333

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

20. PROPERTY, PLANT AND EQUIPMENT

Telecommunication Network RM The Group Net Book Value At 1 January 2007 Additions Assetisation Disposals Disposal of subsidiaries Write off Depreciation Impairment Reversal of impairment Currency translation differences Reclassified to prepaid lease payments (note 21) Reclassified as non-current assets held for sale (note 29) Reclassification At 31 December 2007 At 31 December 2007 Cost Accumulated depreciation Accumulated impairment Net Book Value 16,445.5 1,716.8 2,827.2 (24.4) (67.4) (2.9) (3,224.2) (70.7) (421.3) (17.4) 17,161.2 589.8 157.5 19.9 (7.1) (4.2) (0.2) (203.6) (2.0) (5.6) 38.7 583.2 817.0 79.0 293.6 (1.9) (0.2) (341.9) (0.7) (3.4) (25.0) 816.5 326.7 11.7 (0.1) (0.9) (0.7) (7.9) (16.3) 312.5 3,061.6 17.9 117.4 (14.6) (7.4) (0.3) (235.1) (4.5) (973.2) 16.6 1,978.4 2,439.7 4,083.4 (3,258.1) (3.3) (29.7) (12.5) 5.5 (96.9) 3.4 3,131.5 23,680.3 6,066.3 (46.1) (84.3) (33.3) (4,004.8) (85.9) 5.5 (532.6) (0.7) (981.1) 23,983.3 Movable Plant and Equipment RM Computer Support Systems RM Capital Work-InProgress RM Total Property, Plant and Equipment RM

Land (sub-note f) RM

Buildings RM

46,952.9 (29,226.1) (565.6) 17,161.2

2,520.2 (1,929.8) (7.2) 583.2

4,347.7 (3,514.3) (16.9) 816.5

323.1 (0.9) (9.7) 312.5

3,636.1 (1,634.1) (23.6) 1,978.4

3,190.0 (58.5) 3,131.5

60,970.0 (36,305.2) (681.5) 23,983.3

334

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

20. PROPERTY, PLANT AND EQUIPMENT (continued)

Telecommunication Network RM The Group Net Book Value At 1 January 2006 Acquisition of subsidiaries Additions Assetisation Disposals Write off Depreciation Impairment Reversal of impairment Currency translation differences Reclassified to prepaid lease payments (note 21) Transferred from land held for property development (note 23) Reclassified as non-current assets held for sale (note 29) Reclassification At 31 December 2006 At 31 December 2006 Cost Accumulated depreciation Accumulated impairment Net Book Value 15,132.3 147.0 1,716.9 2,740.1 (27.1) (0.1) (3,155.7) (3.5) (110.3) 5.9 16,445.5 581.0 3.7 91.1 47.6 (0.9) (0.3) (150.7) (13.3) 31.6 589.8 801.6 1.8 72.4 389.6 (1.6) (444.9) (1.9) 817.0 321.6 0.3 3.5 (0.1) 3.9 (1.4) (0.3) 3.3 (4.1) 326.7 3,273.6 35.6 63.0 (0.7) (228.4) (3.1) (21.0) (24.0) (33.4) 3,061.6 1,960.9 3.8 3,716.0 (3,243.8) (0.6) 3.5 (0.1) 2,439.7 22,071.0 156.3 5,632.3 (28.7) (2.0) (3,979.8) (4.1) 7.4 (130.0) (21.4) 3.3 (24.0) 23,680.3 Movable Plant and Equipment RM Computer Support Systems RM Capital Work-InProgress RM Total Property, Plant and Equipment RM

Land (sub-note f) RM

Buildings RM

43,824.9 (26,728.5) (650.9) 16,445.5

1,822.6 (1,226.7) (6.1) 589.8

4,572.3 (3,738.0) (17.3) 817.0

338.2 (0.9) (10.6) 326.7

4,719.3 (1,622.2) (35.5) 3,061.6

2,494.6 (54.9) 2,439.7

57,771.9 (33,316.3) (775.3) 23,680.3

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

335

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

20. PROPERTY, PLANT AND EQUIPMENT (continued)

Net book value of property, plant and equipment of certain subsidiaries pledged as security for borrowings (note 14(b), (c) and (d) to the financial statements): 2007 RM Telecommunication network Movable plant and equipment Computer support systems Land Buildings 1,500.5 72.0 7.3 5.0 23.6 1,608.4 2006 RM 1,838.2 75.2 23.9 4.2 51.3 1,992.8

Telecommunication Network RM The Company Net Book Value At 1 January 2007 Additions @ Assetisation Disposals # Write off Depreciation Impairment Reclassified to prepaid lease payments (note 21) Reclassified as non-current assets held for sale (note 29) Reclassification At 31 December 2007 At 31 December 2007 Cost Accumulated depreciation Accumulated impairment Net Book Value 8,097.8 14.7 976.7 (9.2) (0.9) (1,586.1) (9.9) (17.4) 7,465.7

Movable Plant and Equipment RM

Computer Support Systems RM

Land (sub-note f) RM

Buildings RM

Capital Work-InProgress RM

Total Property, Plant and Equipment RM

371.8 52.2 8.3 (10.6) (0.2) (125.2) 42.4 338.7

466.4 63.8 233.3 (0.2) (199.5) (25.0) 538.8

169.9 (0.7) (7.9) 161.3

2,171.4 3.9 96.9 (14.6) (0.3) (120.1) (812.3) 1,324.9

616.6 1,519.4 (1,315.2) (29.7) 791.1

11,893.9 1,654.0 (34.4) (31.3) (2,030.9) (9.9) (0.7) (820.2) 10,620.5

30,624.3 (22,932.9) (225.7) 7,465.7

1,817.3 (1,478.6) 338.7

3,051.7 (2,512.9) 538.8

164.8 (0.9) (2.6) 161.3

2,560.7 (1,235.8) 1,324.9

791.1 791.1

39,009.9 (28,161.1) (228.3) 10,620.5

336

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

20. PROPERTY, PLANT AND EQUIPMENT (continued)

Telecommunication Network RM The Company Net Book Value At 1 January 2006 Additions @ Assetisation Disposals Write off Depreciation Reversal of impairment Reclassified to prepaid lease payments (note 21) Reclassified as non-current assets held for sale (note 29) Reclassification At 31 December 2006 At 31 December 2006 Cost Accumulated depreciation Accumulated impairment Net Book Value 8,481.0 15.3 1,292.5 (1,691.0) 8,097.8 339.6 78.9 31.3 (0.1) (0.2) (77.7) 371.8 430.1 21.4 311.7 (1.5) (295.3) 466.4 175.2 2.1 (0.1) 3.9 (0.3) (10.9) 169.9 2,258.4 48.4 (122.3) (24.0) 10.9 2,171.4 797.2 1,503.3 (1,683.9) 616.6 12,481.5 1,621.0 (0.1) (1.7) (2,186.4) 3.9 (0.3) (24.0) 11,893.9 Movable Plant and Equipment RM Computer Support Systems RM Capital Work-InProgress RM Total Property, Plant and Equipment RM

Land (sub-note f) RM

Buildings RM

30,073.4 (21,759.8) (215.8) 8,097.8

1,201.8 (830.0) 371.8

3,321.8 (2,855.4) 466.4

173.4 (0.9) (2.6) 169.9

3,503.8 (1,332.4) 2,171.4

616.6 616.6

38,890.8 (26,778.5) (218.4) 11,893.9

@ Included in additions was RM59.4 million (2006: RM22.3 million) being telecommunication network assets, movable plant and equipment, computer support systems and buildings transferred from subsidiaries. # Included in disposals for 2007 was RM8.6 million being telecommunication network assets, movable plant and equipment and computer support systems transferred to subsidiaries. There was no disposal to subsidiaries in 2006. (a) Included in property, plant and equipment of the Group and the Company are fully depreciated assets which are still in use costing RM21,205.5 million (2006: RM19,100.6 million) and RM17,004.3 million (2006: RM15,359.2 million) respectively. During the year, a wholly owned subsidiary, Celcom (Malaysia) Berhad (Celcom) recognised impairment losses amounting to RM52.4 million due to asset buyback plans in which these assets have been written down to its recoverable amount.

(b)

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Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

20. PROPERTY, PLANT AND EQUIPMENT (continued)

(c) During the year, Celcom reversed impairment losses amounting to RM5.5 million in relation to capital work-inprogress which was previously impaired on long outstanding projects which have been completed. During the year, there has been a change in the expected pattern of consumption of future economic benefits embodied in certain telecommunication network and equipment of Celcom due to asset replacement plans. The revision was accounted for as a change in accounting estimates and had increased the current year depreciation charge by RM63.7 million. On 11 January 2007, an overseas subsidiary, PT Excelcomindo Pratama Tbk (XL) received a notification letter from the Yogyakarta District Court regarding the execution of North Jakarta District Court Decision relating to an individual claim over the ownership of the XL's land located in Yogyakarta that was purchased in 2002. XL lodged a counter claim at the Yogyakarta District Court on the legality of this claim. The Yogyakarta District Court subsequently issued a ruling in favour of XL, reaffirming its rightful ownership to the land, and absolving previous court decisions which ruled otherwise. On 27 June 2007, the North Jakarta District Court also issued a new ruling which nullified all and any execution rulings by the Yogyakarta District Court in respect of this matter. On 16 January 2008, Yogyakarta High Court issued a ruling which supported the Yogyakarta District Court ruling. The Directors believe that this matter will not affect the daily operations of XL in Yogyakarta offices. (f) Details of land are as follows: Freehold RM The Group Net Book Value At 1 January 2007 Additions Disposal of a subsidiary Currency translation differences Reclassified to prepaid lease payments (note 21) Reclassified as non-current assets held for sale (note 29) Reclassified to property, plant and equipment Reclassification At 31 December 2007 At 31 December 2007 Cost Accumulated depreciation Accumulated impairment Net Book Value 252.2 11.7 (0.1) (0.9) (7.9) (16.3) 13.0 251.7 74.5 (0.7) (13.0) 60.8 326.7 11.7 (0.1) (0.9) (0.7) (7.9) (16.3) 312.5 Other RM Total RM

(d)

(e)

261.4 (9.7) 251.7

61.7 (0.9) 60.8

323.1 (0.9) (9.7) 312.5

338

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Notes to the Financial Statements

for the year ended 31 December 2007

20. PROPERTY, PLANT AND EQUIPMENT (continued)

Freehold RM The Group Net Book Value At 1 January 2006 Additions Assetisation Depreciation Reversal of impairment Currency translation differences Reclassified to prepaid lease payments (note 21) Transferred from land held for property development (note 23) Reclassified from/(to) buildings Reclassification At 31 December 2006 At 31 December 2006 Cost Accumulated depreciation Accumulated impairment Net Book Value 235.3 0.3 3.5 3.9 (1.4) 3.3 6.8 0.5 252.2 86.3 (0.1) (0.3) (10.9) (0.5) 74.5 321.6 0.3 3.5 (0.1) 3.9 (1.4) (0.3) 3.3 (4.1) 326.7 Other RM Total RM

262.8 (10.6) 252.2

75.4 (0.9) 74.5

338.2 (0.9) (10.6) 326.7

The Company Net Book Value At 1 January 2007 Reclassified to prepaid lease payments (note 21) Reclassified as non-current assets held for sale (note 29) Reclassification At 31 December 2007 At 31 December 2007 Cost Accumulated depreciation Accumulated impairment Net Book Value 95.4 (7.9) 13.0 100.5 74.5 (0.7) (13.0) 60.8 169.9 (0.7) (7.9) 161.3

103.1 (2.6) 100.5

61.7 (0.9) 60.8

164.8 (0.9) (2.6) 161.3

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Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

20. PROPERTY, PLANT AND EQUIPMENT (continued)

Freehold RM The Company Net Book Value At 1 January 2006 Additions Depreciation Reversal of impairment Reclassified to prepaid lease payments (note 21) Reclassified to buildings Reclassification At 31 December 2006 At 31 December 2006 Cost Accumulated depreciation Accumulated impairment Net Book Value 88.9 2.1 3.9 0.5 95.4 86.3 (0.1) (0.3) (10.9) (0.5) 74.5 175.2 2.1 (0.1) 3.9 (0.3) (10.9) 169.9 Other RM Total RM

98.0 (2.6) 95.4

75.4 (0.9) 74.5

173.4 (0.9) (2.6) 169.9

The title deeds pertaining to other land have not yet been registered in the name of the Company and a subsidiary. Pending finalisation with the relevant authorities, these land have not been classified according to their tenure. During the year, certain title deeds pertaining to other land have been registered and hence, the land has been reclassified accordingly.

21. PREPAID LEASE PAYMENTS

The Group 2007 RM Net Book Value At 1 January Additions Disposals Amortisation Currency translation differences Reclassified from property, plant and equipment (note 20) Reclassified as non-current assets held for sale (note 29) At 31 December 2006 RM The Company 2007 RM 2006 RM

346.2 113.7 (0.1) (42.7) (23.5) 0.7 (7.3) 387.0

249.9 106.0 (0.3) (34.7) 3.9 21.4 346.2

38.0 15.2 (0.1) (0.9) 0.7 52.9

37.9 (0.2) 0.3 38.0

340

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Notes to the Financial Statements

for the year ended 31 December 2007

21. PREPAID LEASE PAYMENTS (continued)

The Group 2007 RM At 31 December Cost Accumulated amortisation Accumulated impairment Net Book Value The prepaid lease rentals were payment for rights to use the followings: Long term leasehold land Short term leasehold land At 31 December 2006 RM The Company 2007 RM 2006 RM

535.6 (132.3) (16.3) 387.0

477.7 (123.9) (7.6) 346.2

57.5 (4.6) 52.9

41.7 (3.7) 38.0

65.7 321.3 387.0

82.0 264.2 346.2

41.2 11.7 52.9

32.3 5.7 38.0

The prepaid lease payments comprise upfront payments for long term leasehold land and short term leasehold land which were previously classified under property, plant and equipment.

22. INVESTMENT PROPERTY

2007 RM The Company Net Book Value At 1 January Depreciation Reclassified as non-current assets held for sale (note 29) At 31 December At 31 December Cost Accumulated depreciation Reclassified as non-current assets held for sale (note 29) Net Book Value 179.8 (11.6) (168.2) 191.4 (11.6) 179.8 2006 RM

229.1 (60.9) (168.2)

229.1 (49.3) 179.8

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Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

22. INVESTMENT PROPERTY (continued)

The fair value of the property in 2006 was estimated at RM180.0 million based on a valuation performed by an independent professional valuer. The valuation was based on current price in an active market. The office building which was classified as investment property is subsequently reclassified as non-current assets held for sale. Please refer to note 29 to the financial statements for details.

23. LAND HELD FOR PROPERTY DEVELOPMENT

2007 RM The Group Net Book Value At 1 January Transferred to property, plant and equipment (note 20) Transferred to land held for sale Reversal of impairment At 31 December At 31 December Land at cost Accumulated impairment Net Book Value 168.4 (3.0) 165.4 170.7 (3.3) (2.6) 3.6 168.4 2006 RM

176.1 (10.7) 165.4

179.1 (10.7) 168.4

342

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

24. SUBSIDIARIES
2007 Malaysia RM The Company Quoted investment, at cost Unquoted investments, at cost Allowance for diminution in value Options granted to employees of subsidiaries 19.5 1,121.0 17.7 1,158.2 Unquoted investments, at written down value (sub-note a) Net investments Amount owing by subsidiaries (sub-note b) Allowance for loans and advances Amount owing by subsidiaries after allowance (note 43(g)(i)) TOTAL INTEREST IN SUBSIDIARIES Market value of quoted investment 1,158.2 22.0 (13.2) 8.8 8.8 19.5 1,143.0 (13.2) 17.7 1,167.0 1,167.0 19.5 1,116.8 (9.0) 17.0 1,144.3 1,144.3 37.1 37.1 37.1 19.5 1,153.9 (9.0) 17.0 1,181.4 1,181.4 Overseas RM Total RM Malaysia RM 2006 Overseas RM Total RM

8,690.3 (562.3)

103.9

8,794.2 (562.3)

9,216.1 (672.4)

111.7

9,327.8 (672.4)

8,128.0

103.9

8,231.9

8,543.7

111.7

8,655.4

9,286.2

112.7

9,398.9

9,688.0

148.8

9,836.8

279.5

279.5

266.9

266.9

(a) (b)

Investments in certain subsidiaries have been written down to recoverable amount of RM1 each. The amount owing by subsidiaries represents shareholder loans and advances for working capital purposes. These loans and advances are unsecured and bear interest ranging from 0% to 8.1% (2006: 0% to 8.9%) and are principally with no fixed repayment terms. However, the Company has indicated that it will not demand substantial repayment within the next 12 months. Shareholder loans and advances provided to overseas subsidiaries are in US Dollar.

The Group's equity interest in the subsidiaries, their respective principal activities and countries of incorporation are listed in note 50 to the financial statements.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

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Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

25. JOINTLY CONTROLLED ENTITIES

2007 Malaysia RM The Group Share of net assets of jointly controlled entities Quoted investment (sub-note a) Unquoted investment TOTAL Market value of quoted investment Overseas RM Total RM Malaysia RM 2006 Overseas RM Total RM

146.9 146.9

877.5 877.5

877.5 146.9 1,024.4

175.5 175.5

632.0 632.0

807.5 807.5

1,427.0

1,427.0

The Company Unquoted investment, at cost 141.2 141.2 141.2 141.2

(a)

During the year, a jointly controlled entity, Spice Communications Limited has completed its initial public offerings and became listed on the Bombay Stock Exchange.

The Group's share of revenue and expenses of the jointly controlled entities is as follows: 2007 RM Revenue Other income Expenses excluding tax Share of results of an associate (net of tax) Profit before taxation Taxation Profit after taxation 358.7 167.6 (393.1) 59.3 192.5 (17.0) 175.5 2006 RM 227.5 6.7 (281.4) 57.8 10.6 10.6

Included in other income and taxation above is the Groups share of the gain arising from the disposal of towers during the year amounting to RM145.3 million and RM16.5 million respectively.

344

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

25. JOINTLY CONTROLLED ENTITIES (continued)

The Group's share of assets and liabilities of the jointly controlled entities is as follows: 2007 RM Non-current assets Current assets Current liabilities Non-current liabilities Net assets 1,876.0 169.8 (148.3) (873.1) 1,024.4 2006 RM 1,807.8 203.8 (98.2) (1,105.9) 807.5

The Groups share of contingent liabilities of a jointly controlled entity amounted to RM37.9 million (2006: RM Nil). The Group's equity interest in the jointly controlled entities, their respective principal activities and countries of incorporation are listed in note 51 to the financial statements.

26. ASSOCIATES
2007 Malaysia RM The Group Share of net assets of associates Quoted investments Unquoted investments (sub-note a) TOTAL Market value of quoted investments 22.4 22.4 218.6 11.5 230.1 218.6 33.9 252.5 15.1 15.1 197.2 8.3 205.5 197.2 23.4 220.6 Overseas RM Total RM Malaysia RM 2006 Overseas RM Total RM

378.1

378.1

361.5

361.5

The Company Unquoted investment, at cost Allowance for diminution in value TOTAL 1.5 (1.5) 1.5 (1.5)

(a)

During the year, the Group had disposed its entire 16.22% equity interest in mySPEED.com Sdn Bhd to MY E.G. Services Berhad for a total consideration of RM1.
TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

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Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

26. ASSOCIATES (continued)

The Group's share of revenue and profit of associates is as follows: 2007 RM Revenue Profit after taxation 781.4 29.5 2006 RM 537.8 19.9

The Group's share of assets and liabilities of associates is as follows: Non-current assets Current assets Current liabilities Non-current liabilities Net assets 269.7 355.1 (239.9) (132.4) 252.5 250.7 350.5 (250.7) (129.9) 220.6

The Group has excluded the amount that would otherwise have been accounted for in respect of the current and cumulative year share of losses after taxation of associates amounting to RM# (2006: RM0.3 million) and RM2.2 million (2006: RM2.2 million) respectively from the financial statements as the carrying amount of these investments have been fully eroded. The Group has no obligation to finance any further losses. # Amount less than RM0.1 million The Group's equity interest in the associates, their respective principal activities and countries of incorporation are listed in note 52 to the financial statements.

346

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

27. INVESTMENTS
The Group 2007 RM Investments in International Satellite Organisations, at cost Allowance for diminution in value 2006 RM The Company 2007 RM 2006 RM

79.1 (77.7) 1.4

79.1 (77.7) 1.4 251.9 (75.0) 176.9 78.7 (30.3) 48.4 226.7 226.7 159.7

79.1 (77.7) 1.4 250.3 (155.0) 95.3 192.8 (150.6) 42.2 138.9 138.9 102.8

79.1 (77.7) 1.4 251.9 (75.0) 176.9 192.8 (150.6) 42.2 220.5 220.5 159.7

Investments in quoted shares, at cost Allowance for diminution in value (sub-note a)

250.3 (155.0) 95.3

Investments in unquoted shares, at cost Allowance for diminution in value

72.5 (30.3) 42.2 138.9

Investments in unquoted shares, at written down value (sub-note b) TOTAL INVESTMENTS AFTER ALLOWANCE Market value of quoted investments

138.9 102.8

(a)

During the year, the Company has assessed the carrying value of its investment in quoted shares. Consequent from the assessment, an allowance for diminution in value of RM80.0 million was made. The following corporations in which the Group owns more than one half of the voting power, which, due to permanent loss of control or significant influence, have been accounted as investments and written down to recoverable amounts of RM1 each. Held by the Company Societe Des Telecommunications De Guinee Held by Celcom Group TRI Telecommunication Tanzania Limited TRI Telecommunication Zanzibar Limited* Tripoly Communication Technology Corporation Ltd In view of the above, the financial statements of the respective companies have not been consolidated nor equity accounted for. The Directors are of the view that the amounts would be insignificant to the Group results. * On 13 March 2006, the Group through a subsidiary had obtained an order from the High Court of Zanzibar to wind up the company.

(b)

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

347

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

28. LONG TERM RECEIVABLES

The Group 2007 RM Staff loans under Islamic principles Staff loans Total staff loans (sub-note a) Other long term receivables (sub-note b) Allowance for other long term receivables 419.9 89.5 509.4 67.8 (9.0) 568.2 Staff loans receivable within twelve months included under other receivables (note 31) TOTAL LONG TERM RECEIVABLES (56.7) 511.5 2006 RM 441.4 120.1 561.5 66.8 (7.4) 620.9 (63.2) 557.7 The Company 2007 RM 419.9 88.2 508.1 67.8 (9.0) 566.9 (55.8) 511.1 2006 RM 441.4 119.0 560.4 66.8 (7.4) 619.8 (62.5) 557.3

(a)

Staff loans comprise housing, vehicle, computer and club membership loans offered to employees with financing cost of 4.0% per annum on a reducing balance basis except for club membership loans which are free of financing cost. There is no single significant credit risk exposure as the amount is mainly receivable from individuals. Staff loans inclusive of financing cost are repayable in equal monthly instalments as follows: (i) (ii) Housing loans 25 years or upon employees attaining 55 years of age, whichever is earlier Vehicle loans maximum of 8 years for new cars and 6 years for second hand cars

(iii) Computer loans 3 years (b) Other long term receivables of the Company are in respect of education loans provided to undergraduates and are convertible to scholarships if certain performance criteria are met. The loans are interest free and if not converted to scholarship will be repayable over a period of not more than 8 years. During the year, RM4.6 million (2006: RM3.9 million) was converted to scholarship and expensed off to the Income Statement.

348

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

29. NON-CURRENT ASSETS HELD FOR SALE

On 25 May 2007, the Company announced a proposal for an Islamic sale and leaseback transaction involving the issuance of up to RM1,100.0 million Islamic Asset Backed Sukuk Ijarah (Sukuk) by a special purpose vehicle. The sale and leaseback transaction involves the sale of 4 of the Company's property assets (Properties) with carrying value of RM988.4 million at 31 December 2007 to Menara ABS Berhad (MAB), a special purpose vehicle with the objective of implementing the transaction. The Properties identified are Menara TM, Menara Celcom, Cyberjaya Complex and Wisma TM Taman Desa. Subsequent to the sale, the Properties will be leased back to the Company on a portfolio basis, under the Ijarah principle, for a lease term of up to 15 years. The sale and leaseback will facilitate the issuance of 3 different classes of Sukuk in tranches by MAB. The funds to be raised from the issuance of such Sukuk will be utilised by MAB to pay the Company for the purchase of the Properties. As discussed in note 2.1(ii) to the financial statements, the Directors considered the sale and subsequent leaseback a true sale transaction with respect to the Properties and an operating lease with respect to the leaseback arrangement. The carrying value of the Properties involved was reclassified as non-current assets held for sale at the balance sheet date as the criteria for reclassification was met. The sale and leaseback was completed on 15 January 2008, which involved the issuance of RM1,000.0 million Sukuk by MAB. 2007 Carrying amount immediately before classification RM The Group Land and buildings (note 20) Prepaid leasehold payments (note 21) 981.1 7.3 988.4 The Company Land and buildings (note 20) Investment property (note 22) 820.2 168.2 988.4 820.2 168.2 988.4 24.0 24.0 24.0 24.0 981.1 7.3 988.4 24.0 24.0 24.0 24.0 Allocation of remeasurement RM Carrying Carrying amount amount as immediately at 31 before December classification RM RM 2006 Allocation of remeasurement RM Carrying amount as at 31 December RM

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349

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

29. NON-CURRENT ASSETS HELD FOR SALE (continued)

The above non-current assets held for sale are disclosed under unallocated corporate assets in note 40 to the financial statements, Segmental Reporting. In 2006, non-current asset held for sale comprised a 25 storey office building known as Wisma TM. The disposal of Wisma TM was completed in the current year.

30. INVENTORIES
The Group 2007 RM Cables and wires Network materials Telecommunication equipment Spares and others* Land held for sale TOTAL INVENTORIES * 38.6 49.5 21.2 67.8 4.0 181.1 2006 RM 39.1 33.8 14.1 84.8 1.0 172.8 The Company 2007 RM 38.6 31.0 9.3 3.4 82.3 2006 RM 39.1 19.0 7.3 3.0 68.4

Included in spares and others are trading inventories comprising SIM cards, prepaid cards, telephone sets and other consumables.

31. TRADE AND OTHER RECEIVABLES

The Group 2007 RM Receivables from telephone customers Receivables from non-telephone customers Receivables from subsidiaries 2,659.0 2,160.9 4,819.9 (330.4) 4,489.5 (1,496.9) 2,992.6 2006 RM 2,639.8 1,805.1 4,444.9 (394.9) 4,050.0 (1,557.0) 2,493.0 The Company 2007 RM 1,766.1 1,524.9 308.9 3,599.9 (334.6) 3,265.3 (882.8) 2,382.5 2006 RM 1,522.1 1,073.1 562.6 3,157.8 (368.9) 2,788.9 (763.2) 2,025.7

Advance rental billings

Allowance for doubtful debts Total trade receivables after allowance

350

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

31. TRADE AND OTHER RECEIVABLES (continued)

The Group 2007 RM Prepayments Tax recoverable Staff loans (note 28) Other receivables from subsidiaries Other receivables from associates Other receivables (sub-note a) Allowance for doubtful debts Total other receivables after allowance TOTAL TRADE AND OTHER RECEIVABLES AFTER ALLOWANCE 227.5 432.6 56.7 19.0 845.4 (175.2) 1,406.0 2006 RM 246.0 15.1 63.2 19.0 787.2 (159.4) 971.1 The Company 2007 RM 52.8 227.3 55.8 31.6 1.1 469.2 (127.8) 710.0 2006 RM 29.0 15.1 62.5 27.1 1.1 465.4 (127.9) 472.3

4,398.6

3,464.1

3,092.5

2,498.0

The currency exposure profile of trade and other receivables after allowance is as follows: Ringgit Malaysia US Dollar Sri Lanka Rupee Indonesian Rupiah Bangladesh Taka Special Drawing Rights Other currencies 2,857.8 839.7 245.6 240.6 95.6 58.0 61.3 4,398.6 2,079.2 690.6 166.2 202.0 114.7 137.9 73.5 3,464.1 2,234.8 826.7 15.2 15.8 3,092.5 1,694.6 670.3 132.1 1.0 2,498.0

The following table represents credit risk exposure of trade receivables, net of allowances for doubtful debts and without taking into account any collateral taken: Business Residential Subsidiaries 2,369.0 623.6 2,992.6 1,838.3 654.7 2,493.0 1,765.6 308.0 308.9 2,382.5 1,217.9 245.2 562.6 2,025.7

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

351

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

31. TRADE AND OTHER RECEIVABLES (continued)

(a) Included in other receivables are amounts owing from a former subsidiary amounting to RM83.9 million (2006: RM83.9 million) and RM70.0 million (2006: RM70.0 million) for the Group and the Company respectively as at 31 December 2007, which has been fully provided for.

The Group and the Company are not exposed to major concentrations of credit risk due to the diversed customer base. In addition, credit risk is mitigated to a certain extent by cash deposits and bankers' guarantee obtained from customers. The Group and the Company consider the allowance for doubtful debts at balance sheet date to be adequate to cover the potential financial loss. Credit terms of trade receivables excluding advance rental billing range from 30 to 90 days (2006: 30 to 90 days). Other receivables from associates are unsecured and interest free with no fixed terms of repayment.

32. SHORT TERM INVESTMENTS

The Group 2007 RM Shares quoted on the Bursa Malaysia Securities Berhad Quoted fixed income securities TOTAL SHORT TERM INVESTMENTS Market value of quoted shares Market value of quoted fixed income securities 2006 RM The Company 2007 RM 2006 RM

177.6 200.5 378.1 177.6 200.5

125.3 194.8 320.1 125.3 194.8

175.9 200.5 376.4 175.9 200.5

123.6 194.8 318.4 123.6 194.8

352

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

33. CASH AND BANK BALANCES

The Group 2007 RM Deposits with: Licensed banks Licensed finance companies Other financial institutions Deposits under Islamic principles Total deposits Cash and bank balances Cash and bank balances under Islamic principles TOTAL CASH AND BANK BALANCES Less: Bank overdrafts (note 14) Deposits pledged TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR 2006 RM The Company 2007 RM 2006 RM

2,475.8 18.2 245.6 631.3 3,370.9 646.7 154.2 4,171.8 (2.1) (76.8)

2,388.0 20.1 392.1 1,096.0 3,896.2 705.2 79.0 4,680.4 (3.7) (10.3)

1,023.0 51.9 211.2 1,286.1 242.0 1,528.1

1,197.8 259.3 296.2 1,753.3 282.0 2,035.3

4,092.9

4,666.4

1,528.1

2,035.3

The currency exposure profile of cash and bank balances is as follows: Ringgit Malaysia US Dollar Indonesian Rupiah Sri Lanka Rupee Bangladesh Taka Other currencies 3,150.6 611.6 203.9 114.0 7.6 84.1 4,171.8 3,537.8 817.8 143.2 15.3 77.8 88.5 4,680.4 1,292.3 235.8 1,528.1 1,510.3 525.0 2,035.3

Deposits of the Group included RM181.6 million (2006: RM377.3 million) being funds earmarked for principal and interest repayments under terms of borrowings of Celcom as mentioned in note 14(a) to the financial statements. Cash and bank balances of the Group included RM11.2 million (2006: RM11.2 million) of a subsidiary which is restricted due to ongoing litigation.

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Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

33. CASH AND BANK BALANCES (continued)

The deposits are placed mainly with a number of creditworthy financial institutions. There is no major concentration of deposits in any single financial institution. Deposits have maturity range from overnight to 360 days (2006: from overnight to 365 days) and from overnight to 112 days (2006: from overnight to 91 days) for the Group and the Company respectively. Bank balances are deposits held at call with banks. The weighted average interest rate of deposits (excluding deposits under Islamic principles) as at 31 December 2007 is 4.08% (2006: 4.14%) and 3.93% (2006: 3.85%) for the Group and the Company respectively.

34. TRADE AND OTHER PAYABLES

The Group 2007 RM Trade payables Accruals for Universal Service Provision Deferred revenue Finance cost payable Duties and other taxes payable Deposits and trust monies Payables to subsidiaries Other payables (sub-note a) TOTAL TRADE AND OTHER PAYABLES 4,058.7 387.3 550.0 157.1 65.9 65.8 1,417.9 6,702.7 2006 RM 3,683.7 294.6 386.6 182.8 48.0 42.1 1,103.1 5,740.9 The Company 2007 RM 1,365.8 164.5 62.7 70.2 52.1 41.2 339.8 510.6 2,606.9 2006 RM 1,344.5 183.2 91.3 53.2 20.9 212.1 443.5 2,348.7

The currency exposure profile of trade and other payables is as follows: Ringgit Malaysia US Dollar Indonesian Rupiah Bangladesh Taka Sri Lanka Rupee Special Drawing Rights Other currencies 4,092.0 1,421.6 526.1 249.5 203.8 112.5 97.2 6,702.7 3,696.5 970.9 445.4 160.3 165.7 178.5 123.6 5,740.9 2,055.5 487.0 58.5 5.9 2,606.9 1,798.1 399.4 147.8 3.4 2,348.7

(a)

Included in other payables is government grant of RM59.5 million (2006: RM27.2 million) for the Group and RM46.2 million (2006: RM11.6 million) for the Company.

Credit terms of trade and other payables vary from 30 to 90 days (2006: from 30 to 180 days) depending on the terms of the contracts.

354

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

35. CUSTOMER DEPOSITS

The Group 2007 RM Telephone Cellular services Data services TOTAL CUSTOMER DEPOSITS 559.0 114.8 58.8 732.6 2006 RM 559.4 128.6 30.9 718.9 The Company 2007 RM 558.9 31.3 590.2 2006 RM 559.4 30.9 590.3

Telephone customer deposits are subjected to rebate at 5.0% per annum in accordance with Telephone Regulations, 1996.

36. CASH FLOWS FROM OPERATING ACTIVITIES

The Group 2007 RM Receipts from customers Payments to suppliers and employees Payment of compensation Payment of finance cost Payment of income taxes (net of tax refunds) TOTAL CASH FLOWS FROM OPERATING ACTIVITIES 17,065.1 (9,475.2) (887.7) (755.2) 2006 RM 16,180.9 (8,893.4) (874.0) (648.8) (530.9) The Company 2007 RM 6,866.5 (3,861.4) (469.9) (231.5) 2006 RM 6,897.0 (3,632.9) (386.6) (284.8)

5,947.0

5,233.8

2,303.7

2,592.7

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

355

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

37. CASH FLOWS USED IN INVESTING ACTIVITIES

The Group 2007 RM Disposal of property, plant and equipment Purchase of property, plant and equipment Disposal of non-current assets held for sale Payment of intangible asset (telecommunication and spectrum licence) Disposal of long term investments Disposal of short term investments Purchase of short term investments Disposal of subsidiaries (net of cash disposed) Partial disposal of a subsidiary Acquisition of subsidiaries (net of cash acquired) Additional interest in subsidiaries Disposal of an associate Acquisition of an associate Investment in a jointly controlled entity Payments to subsidiaries Repayments from subsidiaries Advances to subsidiaries Advances from subsidiaries Repayments of loans by employees Loans to employees Interest received Dividend received TOTAL CASH FLOWS USED IN INVESTING ACTIVITIES 45.1 (6,197.1) 70.0 (8.6) 9.4 213.1 (205.2) 51.7 280.4 (396.6) 0.2 (2.5) 108.7 (50.5) 180.7 22.5 2006 RM 41.4 (5,592.7) (192.5) 157.3 147.0 (166.2) 3.5 (39.4) (265.4) (124.8) (659.4) 112.2 (52.2) 226.8 7.2 The Company 2007 RM 29.2 (1,979.3) 70.0 (8.0) 2.2 213.1 (205.2) 83.0 0.2 (71.5) 956.1 (482.2) 108.7 (50.5) 96.7 298.5 2006 RM 11.8 (1,699.1) (8.0) 1.7 147.0 (166.2) (30.6) 1,043.1 (1,113.3) 9.3 112.2 (51.3) 99.1 112.4

(5,878.7)

(6,397.2)

(939.0)

(1,531.9)

356

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

38. CASH FLOWS USED IN FINANCING ACTIVITIES

The Group 2007 RM Issue of share capital Issue of share capital to minority interests Proceeds from borrowings Repayments of borrowings Dividends paid to shareholders Dividends paid to minority interests TOTAL CASH FLOWS USED IN FINANCING ACTIVITIES 346.4 83.2 2,636.6 (2,214.1) (1,402.4) (36.0) 2006 RM 43.8 20.7 2,344.9 (1,875.7) (1,001.9) (33.6) The Company 2007 RM 346.4 (796.0) (1,402.4) 2006 RM 43.8 (246.9) (1,001.9)

(586.3)

(501.8)

(1,852.0)

(1,205.0)

39. SIGNIFICANT NON-CASH TRANSACTIONS

Significant non-cash transactions during the year are as follows: The Group 2007 RM (a) Contra settlements with a subsidiary between amount owing by subsidiaries and other payables Contra settlements with subsidiaries between receivables and payables Conversion of amount owing into paid-up capital of a subsidiary Exchange of Tekad Mercu Bonds with TM Islamic Stapled Income Securities (note 14(g) & 15(i)) Purchase of business and business assets by a subsidiary satisfied by the issuance of shares Transfer of telecommunication network assets, movable plant and equipment, computer support systems and buildings from subsidiaries Waiver of amount due from a subsidiary (trading and non-trading) 2006 RM The Company 2007 RM 2006 RM

211.5 157.9

105.2 13.2

(b) (c) (d)

2,925.0

2,983.5

(e)

12.8

(f)

59.4 61.3

22.3

(g)

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

357

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

40. SEGMENTAL REPORTING

By Business During the year, the Group reviewed and changed the grouping of segmental reporting information to reflect the change in the business structure. The comparatives have been restated to conform with the current year's presentation. The Group is organised on a worldwide basis in 4 main business segments: Malaysia Business is a Strategic Business Unit (SBU) consolidating all domestic fixed line services. It comprises TM Wholesale, TM Retail, TM Net Sdn Bhd, GITN Sdn Berhad, Telekom Sales and Services Sdn Bhd, Telekom Research & Development Sdn Bhd, Telekom Applied Business Sdn Bhd, Mobikom Sdn Bhd, Telekom Malaysia (UK) Limited, Telekom Malaysia (Hong Kong) Limited, Telekom Malaysia (S) Pte Ltd and Telekom Malaysia (USA) Inc. This is intended to align businesses with a common agenda and maximise synergies. Celcom is made up of Celcom (Malaysia) Berhad, a domestic subsidiary involved in the cellular business and its group of companies. International Operations comprises all overseas operations of the Group except those companies that fall within the ambit of Malaysia Business. TM Ventures is a SBU established to separately manage the large number of non-core businesses with the objective of rationalising and streamlining the non-core businesses in maximising the Group assets/entities value proposition, whilst growing the business that offers potentials.

Segment results represent segment operating revenue less segment expenses. Unallocated income includes interest income, dividend income and gain or loss on disposal of investments. Unallocated costs represent corporate centre expenses and net foreign exchange differences arising from revaluation of corporate borrowings. The accounting policies used to derive reportable segment results are consistent with those as described in the Significant Accounting Policies. Segment assets disclosed for each segment represent assets directly managed by each segment, primarily include intangibles, property, plant and equipment, receivables, inventories and cash and bank balances. Unallocated corporate assets mainly include staff loans, other long term receivables, investments, deferred tax assets and property, plant and equipment of the Companys training centre and office buildings. Segment liabilities comprise operating liabilities and exclude borrowings, interest payable on borrowings, current tax liabilities, deferred tax liabilities and dividend payable. Segment capital expenditure comprises additions to intangibles, property, plant and equipment, including additions resulting from acquisition of subsidiaries as disclosed in note 19 and 20 to the financial statements. Significant non-cash expenses comprise mainly allowances and unrealised foreign exchange losses (excluding net foreign exchange differences arising from revaluation of borrowings) as disclosed in note 5(b) to the financial statements.

358

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

40. SEGMENTAL REPORTING (continued)

Malaysia Business RM Year Ended 31 December 2007 Operating Revenue Total operating revenue Inter-segment* External operating revenue Results Segment results Unallocated income Corporate expenses Foreign exchange gains Operating profit before finance cost Finance income Finance cost Jointly controlled entities share of results (net of tax) gain on dilution of equity interest Associates share of results (net of tax) Profit before taxation Taxation Profit for the year At 31 December 2007 Segment assets Jointly controlled entities Associates Unallocated corporate assets Total assets Segment liabilities Borrowings Unallocated liabilities Total liabilities 3,035.1 2,060.4 1,890.2 379.7 Celcom RM International Operations RM TM Ventures RM Total RM

7,643.2 (341.3) 7,301.9

5,127.0 (161.9) 4,965.1

4,987.2 (51.0) 4,936.2

1,265.7 (626.0) 639.7

19,023.1 (1,180.2) 17,842.9

1,431.4

1,345.7

790.7

53.3

3,621.1 446.9 (847.0) 262.3 3,483.3 203.9 (820.9)

5.1

175.5 71.3 24.5

(0.1)

175.5 71.3 29.5 3,142.6 (511.0) 2,631.6

2.9

(344.2)

(145.5)

(24.2)

15,526.9

9,715.7 22.0

13,523.9 1,024.4 230.2

1,856.6 0.3

40,623.1 1,024.4 252.5 2,321.3 44,221.3 7,365.4 11,924.4 4,280.0 23,569.8

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

359

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

40. SEGMENTAL REPORTING (continued)

Malaysia Business RM Year Ended 31 December 2007 Other Information Capital expenditure additions during the year Depreciation and amortisation Write off of property, plant and equipment Impairment of property, plant and equipment Reversal of impairment of property, plant and equipment Significant non-cash expenses Year Ended 31 December 2006 Operating Revenue Total operating revenue Inter-segment* External operating revenue Results Segment results Unallocated income Corporate expenses Foreign exchange gains Operating profit before finance cost Finance income Finance cost Jointly controlled entities share of results (net of tax) Associates share of results (net of tax) Profit before taxation Taxation Profit for the year Celcom RM International Operations RM TM Ventures RM Total RM

1,634.5 2,085.1 31.5 11.9 324.1

753.2 854.6 62.9 (5.5) 68.2

3,885.5 933.0 1.8 4.5 185.5

91.1 157.1 6.6 36.1

6,364.3 4,029.8 33.3 85.9 (5.5) 613.9

7,495.9 (347.3) 7,148.6

4,528.6 (104.6) 4,424.0

4,165.4 (14.4) 4,151.0

989.4 (313.8) 675.6

17,179.3 (780.1) 16,399.2

1,344.8

1,132.7

1,212.2

64.8

3,754.5 155.5 (721.8) 302.4 3,490.6 234.0 (621.9)

(8.6)

10.6 28.5

10.6 19.9 3,133.2 (830.9) 2,302.3

(116.1)

(398.7)

(296.8)

(19.3)

360

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

40. SEGMENTAL REPORTING (continued)

Malaysia Business RM At 31 December 2006 Segment assets Jointly controlled entities Associates Unallocated corporate assets Total assets At 31 December 2006 Segment liabilities Borrowings Unallocated liabilities Total liabilities Year Ended 31 December 2006 Other Information Capital expenditure additions during the year acquisition of subsidiaries Depreciation and amortisation Write off of property, plant and equipment Impairment of property, plant and equipment Reversal of impairment of property, plant and equipment Significant non-cash expenses * Celcom RM International Operations RM TM Ventures RM Total RM

16,033.6

9,587.2 14.5

10,920.0 807.5 205.6

1,993.3 0.5

38,534.1 807.5 220.6 2,281.3 41,843.5

2,740.0

1,792.3

1,482.6

326.7

6,341.6 12,085.9 2,668.4 21,095.9

1,664.4 2,258.0 1.6 0.1 (3.9) 210.2

857.1 146.6 807.8 0.2 0.5 (3.5) 77.5

3,087.2 (54.0) 785.1 0.1 3.5 (113.4)

208.1 151.9 0.1 12.9

5,816.8 92.6 4,002.8 2.0 4.1 (7.4) 187.2

Inter-segment operating revenue has been eliminated at the respective segment operating revenue. The intersegment operating revenue was entered into in the normal course of business and at prices available to third parties or at negotiated terms.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

361

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

40. SEGMENTAL REPORTING (continued)

By Geographical Location The Group operates in many countries as disclosed in note 50 to the financial statements. Accordingly, the segmentisation of Group operation by geographical location is segmentised to Malaysia and overseas. The overseas operation is further segregated into Indonesia and others as no other individual overseas country contributed more than 10.0% of consolidated operating revenue or assets. In presenting information for geographical segments of the Group, sales are based on the country in which the customers are located. Total assets and capital expenditure are determined based on where the assets are located. Operating Revenue 2007 RM Malaysia Overseas Indonesia Others 12,706.5 2,962.8 2,173.6 17,842.9 Jointly controlled entities Associates Unallocated corporate assets Total assets 2006 RM 12,087.4 2,296.1 2,015.7 16,399.2 Total Assets 2007 RM 29,214.6 8,143.3 3,265.2 40,623.1 1,024.4 252.5 2,321.3 44,221.3 2006 RM 29,357.6 6,081.2 3,095.3 38,534.1 807.5 220.6 2,281.3 41,843.5 Capital Expenditure 2007 RM 2,470.7 2,738.3 1,155.3 6,364.3 2006 RM 2,865.2 1,793.2 1,251.0 5,909.4

41. CAPITAL AND OTHER COMMITMENTS

The Group 2007 RM (a) Property, plant and equipment Commitments in respect of expenditure approved and contracted for Commitments in respect of expenditure approved but not contracted for (b) Donation to Yayasan Telekom Amount approved and committed 2006 RM The Company 2007 RM 2006 RM

3,832.1

3,817.2

1,181.7

1,594.3

921.5

1,226.7

49.1

62.4

49.1

62.4

362

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

41. CAPITAL AND OTHER COMMITMENTS (continued)

The Company 2007 Future minimum lease payments RM (c) Non-cancellable operating lease commitments Not later than one year Later than one year and not later than five years 2006 Future minimum lease payments RM

54.9 81.4 136.3

52.4 74.3 126.7

The above lease payments relate to the non-cancellable operating lease of a telecommunication tower from a wholly owned subsidiary. (d) Other commitments On 21 April 2006, a Deed of Undertaking was signed between Spice Communications Limited (Spice), the Company, TM International Berhad (TM International) and DBS Bank Ltd in connection with the provision of limited sponsor support for a USD215.0 million Indian Rupee facility and a USD50.0 million USD facility. Under the terms, TM International, failing which the Company, is required to make payment of any outstanding principal and/or interest under the facilities to the lenders upon occurrence of a specified trigger event. TM Internationals and the Companys obligation on behalf of Spice give the Group the rights to exercise a call option under the terms of a shareholders agreement to acquire additional shares in Spice from the existing shareholder, namely Modi Wellvest.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

363

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED)

(a) On 6 October 2005, TM International (L) Limited (TMIL) had executed a blanket counter indemnity in favour of a financial institution in Labuan for all facilities offered. As at 31 December 2007, the amount outstanding is USD26.5 million (2006: USD16.6 million). A summary of the facilities offered by the financial institution is as follows: (i) Issuance of USD10.0 million Standby Letter of Credit (SBLC) to a financial institution in Karachi on behalf of TMIL on 6 October 2005 to counter guarantee a USD10.0 million SBLC to Pakistan Telecommunication Authority (PTA) on behalf of a subsidiary, Multinet Pakistan (Private) Limited (Multinet). This SBLC was part of a requirement in awarding a long distance international licence to Multinet. The tenure of the SBLC is 3 years and is subject to an annual review. (ii) Offering of an additional SBLC facility of up to USD33.0 million to TMIL on 18 December 2006, to counter guarantee a financial institution in Karachi for Bank Guarantee (BG) issuances on behalf of Multinet to Telenor Pakistan (Private) Limited (Telenor). Multinet and Telenor had entered into a 20 years Indefeasible Right of Use agreement which requires a BG favouring Telenor to be issued by Multinet. A financial institution in Karachi has issued a BG to Telenor on behalf of Multinet. The BG is to be issued in 3 tranches. As at 31 December 2007, a USD16.5 million (2006: USD6.6 million) SBLC was issued, being the first and second tranche. The tenure of the SBLC is 1 year and is subject to an annual review. (b) On 11 August 2003, the Company jointly with Telekom Publications Sdn Bhd (now known as TM Info-Media Sdn Bhd) (TMIM), the Company's wholly owned subsidiary, instituted legal proeedings against Buying Guide (M) Sdn Bhd (BGSB) relating to the infringement of TMIM's and the Company's copyright and passing off. BGSB filed their defence and counterclaim on 15 October 2003 for RM114.3 million which was dismissed by the Assistant Registrar. On 27 July 2004, BGSB filed their notice of appeal against the Assistant Registrar's decision which was dismissed on 8 April 2005 with cost. On 10 June 2005, TMIM and the Company filed their reply to BGSBs statement of defence and the Company's defence to BGSB's counterclaim. The case was heard on 14 February 2007, 11 June 2007, 14 September 2007 and 5 November 2007 respectively, and TMIM and the Company had filed and served the tentative list of witness and tentative list of documents. The next hearing is on 17 March 2008. The Directors, are of the view that based on the available documents and the various discussions with the Company and TMIM, the Company has a reasonable chance of success in its claim and defending BGSB's counterclaim.

364

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

(c) Bukit Lenang Development Sdn Bhd (BLDSB) had instituted legal proceeding against the Company, Tenaga Nasional Berhad (TNB) and SAJ Holdings Sdn Bhd (SAJ Holdings) (collectively referred to as the Parties and/or Defendants) by way of a writ of summons dated 27 November 2004 and statement of claim dated 15 December 2004 in the High Court of Malaya at Kuala Lumpur. BLDSB is seeking special damages for the sum of RM29.4 million and other damages and relief from the Parties for: (i) wrongfully conspiring with the occupants on Mukim Plentong, Daerah Johor Bahru, Johor Darul Takzim (the Land) by facilitating the occupants with telecommunications, electricity and water services and illegally assisting the occupants in their occupation with the obvious and foreseeable consequence of adversely affecting and seriously prejudicing BLDSB; joint tortfeasor with the occupants in the commission of the wrongs committed by the occupants;

(ii)

(iii) jointly and independently trespassing and continue to trespass the Land by reason of emplacement of the telecommunication, electricity and water equipments to the occupants; (iv) wrongfully and/or unconscionably derived and still deriving pecuniary benefits from its wrongful actions and the wrongful use of the Land and that the same amount to unjust enrichment of the law; and (v) loss of opportunity in that the plaintiff has been wrongfully prevented from developing the Land and as such has not had the benefit of the full potential of the development and the advantageous economic circumstances in the period immediately following the acquisition of the Land by the plaintiff.

On 23 January 2006, the Court granted an order in terms for the Companys application to transfer this matter from Kuala Lumpur High Court to Johor Bahru High Court and as directed by the High Court, the Company filed its statement of defence in the Kuala Lumpur High Court on 21 February 2006. On 10 November 2006, the plaintiffs solicitors had served the Company with the unsealed notice to attend pre-trial case management. However, the plaintiffs solicitors have yet to serve the Company with the sealed copy of the said notice. On 16 November 2007, the plaintiffs solicitors had served the Company with an application to strike out the Company's Statement of Defence. The said striking out application is fixed for hearing on 12 May 2008. The Directors, based on legal advice, are of the view that the Company has a reasonably good chance of success in defending its case against BLDSB.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

365

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

(d) Acres & Hectares Sdn Bhd (AHSB) had instituted legal proceeding against the Company by way of a writ of summons dated 22 April 2005 and statement of claim dated 7 April 2005 in the High Court of Malaya at Kuala Lumpur. In the said statement of claim, AHSB claimed that the Company was indebted to AHSB in the judgement sum of RM2.9 million plus 8.0% interest per annum on the said sum from 29 November 2004 (Notice of Demand) until the date of full settlement for consultancy works rendered to TM Facilities Sdn Bhd (TMF), a wholly owned subsidiary of the Company in respect of the management and development of the Companys land. Further, AHSB claimed for damages in the sum of RM26.9 million plus 8.0% interest per annum on the said sum from date of the statement of claim until date of full settlement for alleged losses suffered by AHSB due to the Companys failure to proceed with the said project and cost. On 15 June 2005, the Company filed its statement of defence disputing the appointment of AHSB as the Companys consultant in relation to the said project and put AHSB to strict proof thereof. In addition, the Company contended that the preliminary reports prepared by AHSB were part of the requirements to be fulfilled by AHSB prior to the selection of the appointment of a consultant to be approved by TMF Board of Directors. On 7 July 2005, the Company filed an interlocutory application to strike out AHSBs claim and the matter was originally fixed for hearing on 29 September 2005. The Court heard the said application on 17 October 2005 and then adjourned the said hearing to 22 December 2005. On 22 December 2005, the Court directed the Company and AHSB to file their written submission on 6 January 2006 and 20 January 2006 respectively and the decision was fixed on 10 February 2006. However, on 10 February 2006, the Court dismissed the Companys application with costs on grounds that there were triable issues to be decided before a full and proper hearing. Meanwhile, AHSB had served a notice to attend for pre-trial case management on the Company and this notice is fixed for hearing on 6 March 2006. On 6 March 2006, the Court had fixed this matter for hearing on 10 December 2007 to 12 December 2007 as the trial date of this case. The Court has also directed the parties to file the necessary cause papers before the said hearing dates. On 10 December 2007, the Court has postponed the case to 10 March 2008 for mention pending the outcome of an application by AHSBs solicitors to discharge themselves from representing AHSB in the case. The Directors, based on legal advice, are of the view that the Company has a reasonably good chance of success in defending its case against AHSB.

366

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

(e) By a Joint Venture Agreement dated 13 September 1993 (JVA), Technology Resources Industries Berhad (TRI) and VIP Engineering and Marketing Limited (VIPEM) agreed to establish TRI Telecommunications Tanzania Limited (Tritel) as a joint venture company, to provide telecommunications services in Tanzania. On 10 December 2001, vide Civil Case No. 427 of 2001 (the Suit) VIPEM is claiming a sum of USD18.6 million from TRI as its share of loss of profits for mismanagement of Tritel. TRI through its solicitors asserted that the Court has no jurisdiction to hear the Suit because of the arbitration clause in the JVA and applied for a stay of proceedings. The Court concurred with TRIs contention and TRI then filed a petition to stay the proceedings pending reference of the dispute to arbitration. Subsequently, on 17 July 2003 the Court adjourned the Suit sine die pending completion of the liquidation of Tritel. In light of the winding up order made against Tritel, on 22 July 2003, TRI filed its claims of RM123.4 million with the liquidator of Tritel. The Directors, based on legal opinion received, are of the view that on the allegations of mismanagement, unless more evidence can be produced, the allegations are rhetorical and unsubstantiated. In view of the winding up proceedings, there is also a possibility that VIPEM will not pursue its claim. Hence, no provision has been made in the financial statements for the claim made by VIPEM. (f) In 2005, Rego Multi-Trades Sdn Bhd (Rego), a wholly owned subsidiary of Celcom (Malaysia) Berhad (Celcom) commenced proceedings in the High Court against Aras Capital Sdn Bhd (Aras Capital) and Tan Sri Dato Tajudin Ramli (TSDTR) for amounts due to Rego pursuant to an investment agreement with Aras Capital and an indemnity letter given by TSDTR. The sum claimed in the proceedings is RM261.8 million as at 30 November 2004 together with interests and costs. On 13 May 2005, TSDTR filed its defence and instituted a counterclaim against Rego, TRI and its directors to void and rescind the indemnity letter and also claim damages. Subsequently, Rego, TRI and its directors filed their respective applications to strike out TSDTRs counterclaim on 19 July 2005 but their respective applications were dismissed by the Registrar on 18 May 2006. Rego, TRI and its directors then filed their respective appeals and the same are fixed for mention on 4 March 2008. The Directors, based on legal advice received, are of the view that it has good prospects of succeeding on the claim and successfully defending the counterclaim if the same were to proceed to trial. (g) On 24 November 2005 and 29 November 2005, Celcom was served with 2 Writs of Summons and Statement of Claim by MCAT GEN Sdn Bhd (MCAT). The claims instituted were for (i) libel based on certain alleged press releases made by Celcom which appeared in the New Straits Times, Utusan Malaysia, Harian Metro and Berita Harian (First Suit) and (ii) breach of contract on an alleged Resellers Agreement between Celcom and MCAT (Second Suit).

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

367

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

(g) Subsequently on 13 December 2005, Celcom was served with a Writ of Summons and Statement of Claim by MCATs directors, whereby the directors have pleaded a cause of action for libel against Celcom based on certain alleged press releases which appeared in the New Straits Times, Utusan Malaysia, Harian Metro and Berita Harian. The directors are seeking, amongst others, damages for libel totalling RM1.01 billion, aggravated and exemplary damages, an injunction restraining Celcom from further publishing any similar defamatory words, a public apology, interests and costs (Third Suit). In the First Suit, MCAT is seeking, amongst other remedies, damages for libel in the sum of RM1.0 billion, aggravated and exemplary damages, an injunction restraining Celcom from further publishing any similar allegedly defamatory words, a public apology, interests and costs. Celcom then filed a defence on the grounds that there was no concluded contract between the parties and, furthermore, that its statements were published by third parties and, in any event, not defamatory of MCAT. It also instituted a counterclaim against MCAT for passing off its products and services as those of Celcoms, implying a trade association with Celcom when no such association exists and for misrepresenting itself as a reseller of its products and services, and filed an application to strike out MCATs claim. In December 2006, at the Courts direction, Celcom successfully applied to consolidate this action with the Third Suit, which MCAT appealed against. Subsequently MCAT has withdrawn the appeal with no order as to costs. On 22 March 2007, Celcoms striking out application was dismissed with costs and Celcom subsequently filed an appeal to the Judge in Chambers against the dismissal. On 29 January 2008, the High Court dismissed Celcoms appeal. Celcom is presently considering whether to file a notice of appeal to the Court of Appeal. The notice of appeal to the Court of Appeal must be filed within 30 days from 29 January 2008. In respect of the Second Suit, MCAT is seeking, amongst other remedies, specific performance of the Reseller Agreement, damages in the sum of RM765.1 million and damages in lieu or in addition to specific performance. Celcoms position is that it did not enter into the Reseller Agreement and there is no agreement between the parties. In 2006, MCAT unsuccessfully applied for an injunction to restrain Celcom from entering into a similar agreement with any other party that would be detrimental to MCATs alleged rights under the Reseller Agreement and from disclosing any confidential information to third parties. Celcom applied to the High Court for security of costs and to strike out parts of MCATs statement of claim on the basis that the statement did not satisfy the Courts direction to furnish further and better particulars to Celcom. The High Court granted Celcoms application for security for costs and MCAT has paid an aggregate of RM250,000 into the Court. Celcoms striking out application was however dismissed by the Court. The matter commenced to trial in June 2007 and hearings are scheduled to continue in May 2008.

368

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

(g) In respect of the Third Suit, the MCATs directors are seeking, amongst other remedies, an aggregate amount of RM1.01 billion in damages, aggravated and exemplary damages, a retraction of the allegedly defamatory statements and an injunction restraining Celcom from further publishing any similar allegedly defamatory words. Celcom filed its defence and striking out application on the same grounds as its defence in the First Suit. It also filed a counterclaim against Mohd Razi bin Adam for a breach of his employment contract with Celcom and his fiduciary duties as an employee of Celcom prior to his joining MCAT as its chief executive officer. Celcom also applied for an injunction to restrain him from disclosing confidential information acquired by him as an employee of Celcom. Celcoms striking out application was allowed with costs on 12 November 2007. The MCATs directors have filed an appeal and no dates have been fixed. On 9 March 2007, Celcom successfully applied to consolidate this suit with the First Suit. Consequently, this proceeding shall only be heard after the First Suit has been disposed off. The Directors, based on legal advice received, are of the view that the crystallisation of liability from the 3 cases above is remote. (h) In June 2006, the Company, Telekom Enterprise Sdn Bhd (TESB), Celcom and TRI (TM Group) were served with a defence and counterclaim by TSDTR in connection with proceedings initiated against him by Pengurusan Danaharta Nasional Berhad (Danaharta) and 2 others. The TM Group and the other 20 defendants were joined in these proceedings via the counterclaim. TSDTR is seeking from Celcom, TRI and 9 others jointly and/or severally the following relief in the counterclaim: (i) (ii) the sum of RM6.2 billion (TRI shares at RM24.00 per share); general damages to be assessed;

(iii) aggravated and exemplary damages to be assessed; (iv) damages for conspiracy to be assessed; (v) an Account of all sums paid under the Facility Agreement and/or to Danaharta by TSDTR including all such sums received by Danaharta including as a result of the sale of the TRI shares and the Naluri shares;

(vi) an assessment of all sums due to be repaid by Danaharta to TSDTR as a result of overpayment by TSDTR to Danaharta; (vii) an Order that Danaharta forthwith pays all sums adjudged to be paid to TSDTR under prayer (vi); (viii) an Account of all dividends and/or payments received by the Company arising out of or in relation to the TRI (now Celcom) Shares; (ix) an Order that the Company forthwith pays all sum adjudged to be paid to TSDTR under prayer (viii); (x) damages for breach of contract against Danaharta to be assessed.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

369

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

(h) In addition, TSDTR is also seeking, inter alia, from all the 24 Defendants to the counterclaim the following relief: (i) (ii) the sum of RM7.2 billion; damages for conspiracy to be assessed;

(iii) a declaration that the Vesting Certificates are illegal and ultra vires that the Danaharta Act and/or unconstitutional against the provisions of the Federal Constitution and/or against Public Policy and void; (iv) a declaration that the Settlement Agreement is illegal and ultra vires the Danaharta Act and/or the Federal Constitution and is void and unenforceable pursuant to S.24 of the Contracts Act 1950 inter alia as being against Public Policy; (v) a declaration that all acts and deeds carried out and all agreements executed by Danaharta is illegal and unenforceable;

(vi) an order that all contracts, agreements, transfers, conveyances, dealings, acts or deeds whatsoever carried out and executed by Danaharta hereby declared as null and void and set aside; (vii) all necessary and fit orders and directions as may be required to give full effect to the aforesaid declarations and orders; (viii) damages to be assessed; (ix) aggravated and exemplary damages to be assessed; (x) interest at the rate of 8.0% per annum on all sums adjudged to be paid by the respective Defendants to the counterclaim to TSDTR from the date such loss and damage was incurred to the date of full payment;

(xi) costs. In July 2006, the TM Groups solicitors filed applications on behalf of the Company/TESB and Celcom/TRI respectively to strike out the counterclaim. Both applications were dismissed on 28 August 2007 with costs. The Company/TESB appeal against the dismissal is fixed for hearing on 16 July 2008 and Celcom/TRI appeal is fixed for hearing on 26 September 2008. TSDTR has also applied to re-amend the counterclaim to include 14 additional defendants, 11 of whom are present or former directors/officers of the TM Group. This application is fixed for hearing on 14 March 2008. The TM Group is opposing it on the grounds it is, amongst others, frivolous and an abuse of the process of court. The Directors, based on legal advice received, are of the view that the crystallisation of liability from the above is remote.

370

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

(i) In July 2006, Celcom was served with a Writ of Summons and Statement of Claim by the Plaintiff, Dato Saizo Abdul Ghani (trading under the name and style of Airtime Telecommunication). The Plaintiff seeks against Celcom and Kamsani bin Hj Ahmad (Kamsani), an employee of Celcom at the material time, general damages in the sum of RM15.0 million for the alleged libel and breach of contract, a further sum of RM15.0 million in exemplary and aggravated damages for the alleged libel and an injunction to prevent Celcom and Kamsani from distributing or publishing any letters or content similar thereto, interest and costs. A Memorandum of Appearance and a Statement of Defence was filed on 7 July 2006 and 21 July 2006 respectively on behalf of Celcom and Kamsani (Defendants). On 28 August 2006, the Defendants filed a striking out application and on 17 May 2007, the Court dismissed the striking out application. Notice of appeal to the Judge in Chambers was filed by the Defendants. Subsequently, on 13 September 2007, the Court allowed the Defendants appeal with costs. On 11 October 2007, the Plaintiff filed a notice of appeal to the Court of Appeal against the whole of the Courts decision. No date has been fixed for the appeal. The Directors, based on legal advice, are of the view that the Defendants have a reasonably good chance of success in defending the claims by the Plaintiff. (j) On 6 July 2006, Celcom was served with a Writ of Summons and Statement of Claim by the Plaintiff, Asmawi bin Muktar (trading under the name and style of GM Telecommunication & Trading). The Plaintiff seeks against Celcom and Kamsani, general damages in the sum of RM10.0 million for the alleged libel and breach of contract, a further sum of RM9.0 million in exemplary and aggravated damages for the alleged libel and an injunction to prevent Celcom and Kamsani from distributing or publishing any letters or content similar thereto, and interest and costs. A Memorandum of Appearance and a Statement of Defence was filed on 7 July 2006 and 21 July 2006 respectively on behalf of Celcom and Kamsani (Defendants). On 28 August 2006, the Defendants filed a striking out application and on 22 February 2007, the Court dismissed the striking out application. Notice of appeal to the Judge in Chambers was filed by the Defendants. On 17 September 2007, the Court dismissed the Defendants appeal with costs. On 11 October 2007, the Defendants filed a notice of appeal to the Court of Appeal against the whole of the Courts decision. No date has been fixed for the appeal. The Plaintiff has filed an application to amend its Writ of Summons and Statement of Claim and the said application is fixed for hearing on 26 February 2008. The Directors, based on legal advice, are of the view that the Defendants have a reasonably good chance of success in defending the claims by the Plaintiff.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

371

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

(k) TRI filed a claim against TSDTR, Bistamam Ramli and Dato Lim Kheng Yew (Defendants), being former directors of TRI for the recovery of a total sum of RM55.8 million which was paid to the Defendants as compensation for loss of office and incentive payment and also the return of 2 luxury vehicles which were transferred to the first 2 Defendants. On 18 September 2006, TRI was served with a copy of the first and second Defendants Defence and Counterclaim. This matter is fixed for hearing on 2, 3, 4 and 5 March 2009. The Directors have been advised that TRI has good prospect of success in respect of the claim. (l) On 26 November 2007, the Company, Celcom and TESB (collectively referred to in this paragraph (l) as TM Group) had been served with a Writ of Summons and Statement of Claim in respect of a suit filed by Mohd Shuaib Ishak (MSI). MSI is seeking from the TM Group and 11 others (including the former and existing directors of TM Group) jointly and/or severally, inter alia, the following: (i) a Declaration that the Sale and Purchase Agreement dated 28 October 2002 between Celcom and the Company (or TESB) for the acquisition by Celcom of the shares in TM Cellular Sdn Bhd, and all matters undertaken thereunder including but not limited to the issuance of shares by Celcom are illegal and void and of no effect; a Declaration that all purchases of shares in Celcom made by TESB and/or the Company and/or parties acting in concert with them with effect from and including the date of the Notice of the Mandatory Offer dated 3 April 2003 issued by Commerce International Merchant Bankers Berhad (now known as CIMB) are illegal and void and of no effect;

(ii)

(iii) all necessary and fit orders and directions as may be required to give effect to the aforesaid Declarations as the Court deemed fit including but not limited to directions for the rescission of all transfers of shares of Celcom made after the Notice of Mandatory Offer for shares in Celcom dated 3 April 2003; (iv) that the Company by itself, its servants and agents be restrained from giving effect to or executing any of the proposals relating to the proposed demerger of the mobile and fixed line businesses of the TM Group; and (v) various damages to be assessed.

The TM Group has as of 30 November 2007 obtained leave to enter conditional appearance and subsequently on 17 December 2007, TM Group filed the relevant applications to strike out the suit. All of the striking out applications have been fixed for mention on 15 May 2008. The Directors, based on legal advice, are of the view that claims made by MSI are not sustainable and accordingly will take steps to strike out the action. (m) On 15 November 2007, PT Excelcomindo Pratama Tbk (XL) received a notice letter from KPPU (the Commission for Fair Business Practices) concerning the investigation on potential cartelistic practices allegedly involving GSM operators in Indonesia in relation to the perceived price SMS charges. If XL is found guilty of price fixing, based on Article 47 of Law No. 5 of 1999 concerning Anti Monopolistic Practices and Unfair Business Competition (the Anti Monopoly Law), XL may be ordered to amend the agreement that forms the basis of existing prices and to pay certain fines and other sanctions as deemed enforceable by the Anti Monopoly Law. The investigation is still in process and consequently, the Directors are of the view that the outcome cannot be determined reliably.

372

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

42. CONTINGENT LIABILITIES (UNSECURED) (continued)

Apart from the above, the Directors are not aware of any other proceedings pending against the Company and/or its subsidiaries or of any facts likely to give rise to any proceedings which might materially affect the position or business of the Company and/or its subsidiaries. There were no other contingent liabilities or material litigations or guarantees other than those arising in the ordinary course of the business of the Group and the Company and on these no material losses are anticipated.

43. SIGNIFICANT RELATED PARTY DISCLOSURES

The related party transactions of the Company comprise mainly transactions between the Company and its subsidiaries, jointly controlled entities and associates namely the following: Celcom (Malaysia) Berhad Dialog Telekom PLC Fiberail Sdn Bhd GITN Sdn Berhad Meganet Communications Sdn Bhd Menara Kuala Lumpur Sdn Bhd MobileOne Limited* PT Excelcomindo Pratama Tbk Rebung Utama Sdn Bhd SunShare Investments Ltd# Telekom Applied Business Sdn Bhd Telekom Enterprise Sdn Bhd Telekom Malaysia (Hong Kong) Limited Telekom Malaysia (S) Pte Ltd Telekom Malaysia (UK) Limited Telekom Malaysia (USA) Inc Telekom Multi-Media Sdn Bhd Telekom Research & Development Sdn Bhd Telekom Sales and Services Sdn Bhd Telekom Smart School Sdn Bhd TMF Autolease Sdn Bhd TMF Services Sdn Bhd TM Global Incorporated TM Info-Media Sdn Bhd TM International (Bangladesh) Limited TM International (L) Limited TM International Berhad TM Net Sdn Bhd TM Payphone Sdn Bhd (now known as Pernec Paypoint Sdn Bhd) Universiti Telekom Sdn Bhd VADS Berhad VADS e-Services Sdn Bhd VADS Solutions Sdn Bhd

* An associate of the Company held through SunShare Investments Ltd # A jointly controlled entity of the Company The related party transactions with associates also include transactions between Celcom (Malaysia) Berhad and MobileOne Limited and its associates, namely Sacofa Sdn Bhd and C-Mobile Sdn Bhd and between PT Excelcomindo Pratama Tbk and MobileOne Limited. All related party transactions were entered into in the normal course of business and at prices available to third parties or at negotiated terms. Khazanah Nasional Berhad (Khazanah) is a major shareholder with 36.14% equity interest and is a related party of the Company.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

373

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

43. SIGNIFICANT RELATED PARTY DISCLOSURES (continued)

Key management personnel are the persons who have authority and responsibility for planning, directing and controlling the activities of the Company or the Group either directly or indirectly. Key management personnel of the Company are the directors (executive and non-executive) of the Company and heads or senior management officers who report directly to the Group Chief Executive Officer whereas the key management personnel of the Group also includes all Group Executive Committee members. Whenever exist, related party transactions also includes transaction with entities that are controlled, jointly controlled or significantly influenced directly or indirectly by any key management personnel or their close family members. In addition to related party transactions and balances mentioned elsewhere in the financial statements, set out below are significant related party transactions and balances which were carried out on terms and conditions negotiated amongst the related parties: The Group 2007 RM (a) Sales of goods and services Subsidiaries telecommunication related services lease/rental of buildings and vehicles other income* less waiver/allowance Associates telecommunication related services * Included management fees, royalties, charges for security, shared services, training and related activities. (b) Dividend and interest income Subsidiaries Jointly controlled entity (c) Purchases of goods and services Subsidiaries telecommunication related services lease/rental of buildings maintenance of vehicles and buildings other expenses Associates telecommunication related services 2006 RM The Company 2007 RM 2006 RM

52.2

15.6

469.9 45.2 20.7 (61.1) 11.7

947.2 46.1 16.7 (3.2) 8.5

257.4 71.2

150.4

46.0

21.2

578.0 52.4 186.2 118.8 10.3

273.1 52.4 140.2 3.1

374

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

43. SIGNIFICANT RELATED PARTY DISCLOSURES (continued)

The Group 2007 RM (d) Finance cost Subsidiaries (e) Key management compensation Short term employee benefits Fees Salaries, allowances and bonus Contribution to Employees Provident Fund (EPF) Estimated money value of benefits Other staff benefits Share-based payment ESOS expense Included in key management compensation is the Directors remuneration (whether executive or otherwise) as disclosed in note 5(b) to the financial statements (f) Year-end balances arising from sales/purchases of goods/services (i) Receivables from related parties Subsidiaries Associates 33.8 21.1 11.9 7.0 340.5 18.5 339.8 5.8 589.7 8.2 212.1 3.0 2006 RM The Company 2007 RM 2006 RM

262.2

262.8

0.7 9.1 1.5 0.7 0.6 1.0

0.8 6.6 1.0 0.4 0.2 0.9

0.3 7.3 1.2 0.4 0.5 0.9

0.4 5.1 0.8 0.2 0.2 0.8

(ii) Payables to related parties Subsidiaries Associates

The receivables from related parties above arise mainly from sale transactions and have credit terms of 30 to 90 days. The receivables are unsecured and interest free. The payables to related parties above arise mainly from purchase transactions and have credit terms of 30 to 90 days. The payables are unsecured and interest free.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

375

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

43. SIGNIFICANT RELATED PARTY DISCLOSURES (continued)

The Group 2007 RM (g) Loans and advances extended to related parties (i) Loans and advances to subsidiaries At 1 January Advanced during the year Repayments during the year Foreign exchange differences Transfer of property, plant and equipment Conversion of advances into paid-up capital Adjustment Waiver/allowances Interest charged At 31 December (note 24) (ii) Advances to associates At 1 January Allowances At 31 December (iii) Loans to key management personnel of the Company At 1 January Repayments during the year Interest charged Interest received At 31 December Total loans and advances to related parties At 1 January Advanced during the year Repayments during the year Foreign exchange differences Transfer of property, plant and equipment Conversion of advances into paid-up capital Adjustment Waiver/allowances Interest charged At 31 December # Amount less than RM0.1 million 2006 RM The Company 2007 RM 2006 RM

8.9 (8.9)

8.9 8.9

8,655.4 482.2 (956.1) 24.8 19.2 (0.2) 6.6 8,231.9

8,797.7 1,113.3 (1,043.1) (9.9) (13.2) (65.9) (131.5) 8.0 8,655.4 1.1 (1.1)

0.3 (0.1) # # 0.2

0.4 (0.1) # # 0.3

8.9 (8.9)

8.9 8.9

8,655.7 482.2 (956.2) 24.8 19.2 (0.2) 6.6 8,232.1

8,799.2 1,113.3 (1,043.2) (9.9) (13.2) (65.9) (132.6) 8.0 8,655.7

376

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

44. SIGNIFICANT EVENT DURING THE YEAR

On 28 September 2007, the Company announced the proposed demerger of the Group to create 2 separate entities with distinct business strategies and aspirations (Proposed Demerger) and the proposed listing of the entire issued and paidup ordinary share capital of TM International Berhad (TM International) on the Main Board of Bursa Malaysia Securities Berhad (Bursa Securities) (Proposed Listing). The Company has further announced on 10 December 2007, that the Board of Directors has approved the final terms of the Proposed Demerger which comprises the proposed internal restructuring of the Group to group the assets for the mobile and non-Malaysian businesses under TM International and the assets for the fixed line voice, data and broadband businesses under the Company (which includes the transfer of the 3G Spectrum Assignment from the Company to Celcom (Malaysia) Berhad) (Proposed Internal Restructuring), and the proposed distribution by the Company to the Entitled Shareholders of the entire holding of and rights to ordinary shares of RM1.00 each in TM International (TM International Shares) (Proposed Distribution). Accordingly, the Company had, on the same date, entered into a Demerger Agreement with its wholly owned subsidiaries, Telekom Enterprise Sdn Bhd, TM International, Celcom (Malaysia) Berhad and Celcom Transmission (M) Sdn Bhd to give effect to the Proposed Internal Restructuring. Following the Proposed Internal Restructuring, the Company proposes to distribute its entire holdings in and rights to TM International Shares to the entitled shareholders of the Company (Proposed Distribution). The entire issued and paid-up ordinary share capital of TM International is proposed to be listed on the Main Board of Bursa Securities. On 10 December 2007, the Board of Directors also proposed the following: (i) (ii) to obtain a shareholders mandate for the issuance of up to 10.0% of the share capital of TM International (Proposed Shareholders' Mandate); and to have in place an employees share option scheme for eligible employees and Executive Director(s) of the Group (Proposed Option Scheme).

The Board of Directors has also approved a payment of a special gross dividend of 65.0 sen per share less tax of 26.0% in respect of the year ended 31 December 2007, to the shareholders of the Company. The special net dividend of 48.1 sen per share amounting to RM1,654.5 million was paid on 31 January 2008.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

377

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

44. SIGNIFICANT EVENT DURING THE YEAR (continued)

The Proposals are subject to the following: (i) (ii) approval of the Minister of Finance, Incorporated for the Proposed Internal Restructuring and Proposed Distribution, which was obtained on 22 January 2008; approval of the Securities Commission (SC) and SC (on behalf of the Foreign Investment Committee (FIC)) for the Proposed Demerger, Proposed Listing and issuance of TM International Shares pursuant to the Proposed Shareholders Mandate, which was obtained on 30 January 2008 subject to certain conditions as stipulated in our announcement to Bursa Securities on 4 February 2008;

(iii) approval of Bursa Securities for the Proposed Listing, and listing of and quotation for the TM International Shares to be issued pursuant to the Proposed Shareholders Mandate; (iv) approval of the Malaysian Communications and Multimedia Commission for the transfer of the 3G Spectrum Assignment under the Proposed Internal Restructuring, which was obtained on 21 February 2008; (v) approval of the Companys shareholders, which will be sought at the Company's Extraordinary General Meeting (EGM) to be held on 6 March 2008;

(vi) approval of the Groups creditors/lenders (where applicable) for the Proposed Demerger; (vii) approval of the Groups counterparties with respect to shareholders agreements and joint venture agreements (where applicable) for the Proposed Demerger; and (viii) approvals/consents of any other relevant authorities, if required. Further to the above, the Company is also seeking the shareholders approval at the EGM for the Employees Provident Fund Board (EPF), the Companys major shareholder to subscribe up to 30.0% of the number of new TM International Shares which may be made available and issued under the Proposed Shareholders Mandate. Consequent to the Proposed Option Scheme, which is subject to the shareholders approval and approval of Bursa Securities for the listing of and quotation for the Company's Shares, the Company also proposes to grant options to Dato Sri Abdul Wahid Omar, the Group Chief Executive Officer and Director, and an employee, Mohd Azizi Rosli, son of Rosli Man, a Director of the Company (Proposed Grant of Options). The Proposed Grant of Options is subject to the shareholders approval at the forthcoming EGM. Barring any unforeseen circumstances, the Proposals are expected to complete by end of the second quarter of 2008. The proposed issuance of TM International Shares under the Proposed Shareholders Mandate (if implemented) will be implemented over the Mandate Period. There were no other significant events during the year that have not been reflected in the audited financial statements.

378

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

45. SIGNIFICANT SUBSEQUENT EVENTS

(a) Islamic Sale and Leaseback Transaction of RM1,000.0 million On 2 January 2008, the Company entered into the conditional Sale and Purchase Agreements and Master Ijarah Agreement with Menara ABS Berhad (MAB) as well as a Supplemental Agreement to the Sale and Purchase Agreement for Menara Celcom dated 28 August 2007, in relation to the sale and leaseback transaction as mentioned in note 29 to the financial statements, for a total consideration of RM1,000.0 million. The sale and leaseback that involved the issuance of RM1,000.0 million Islamic Asset Backed Sukuk Ijarah by MAB was completed on 15 January 2008. MAB accordingly issued 3 classes of Sukuk: Class A totalled RM345.0 million; Class B totalled RM155.0 million, while Class C totalled RM500.0 million. Rating Agency Malaysia Bhd has rated Class A and B, with Class C being un-rated. (b) Proposed Acquisition by TM International Berhad (TM International) and Indocel Holding Sdn Bhd (Indocel), both wholly owned subsidiaries of the Company, from Khazanah Nasional Berhad (Khazanah) of Equity Interests in SunShare Investments Ltd (SunShare) and PT Excelcomindo Pratama Tbk (XL) (Proposed Acquisition) On 6 February 2008, TM International and Indocel had entered into a Sale and Purchase Agreement (SPA) with Khazanah (collectively referred to as the Parties) to acquire all of Khazanahs equity interests in SunShare and XL for an aggregate purchase consideration of RM1,580.0 million which will be satisfied through the issuance of new ordinary shares of RM1.00 each in TM International under the Proposed Acquisition (Consideration Shares). If the Proposed Demerger becomes unconditional in accordance with the terms and conditions of the Demerger Agreement, Khazanahs equity interest in TM International after the Proposed Demerger would increase by more than 2.0% from 34.75% to 37.81% (based on Khazanahs shareholdings in the Company as at 31 January 2008 adjusted for effects of the Proposed Option Scheme) as a result of the Proposed Acquisition. In accordance with Section 6, Part II of the Malaysian Code on Take-Overs and Mergers, 1998 (Code), Khazanah would then be required to carry out a mandatory take-over offer to acquire the remaining voting shares in TM International not held by Khazanah. Consequently, on 15 February 2008, an application to the Securities Commission (SC) had been made for an exemption for Khazanah under Practice Note 2.9.1 of the Code, from the obligation to carry out a mandatory takeover offer to acquire the remaining voting shares in TM International not held by Khazanah pursuant to the issuance of new TM International Shares under the Proposed Acquisition (Proposed Exemption). The SC had through its letter dated 18 February 2008, stated that it will consider the Proposed Exemption upon various conditions being met. The Proposed Acquisition is subject to the following: (i) (ii) approval of the SC; approval of the SC (on behalf of the Foreign Investment Committee (FIC));

(iii) approval of Bursa Securities for the listing of and quotation for the Consideration Shares on the Main Board of Bursa Securities in conjunction with the Proposed Listing (if applicable); (iv) approval of the Companys shareholders, which will be sought at the Companys Extraordinary General Meeting (EGM) to be held on 6 March 2008; (v) approval of the TM International Groups creditors/lenders (where applicable); and

(vi) approvals/consents of any other relevant authorities. Applications to the SC and SC (on behalf of the FIC) were made on 22 February 2008.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

379

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

45. SIGNIFICANT SUBSEQUENT EVENTS (continued)

(b) Proposed Acquisition by TM International Berhad (TM International) and Indocel Holding Sdn Bhd (Indocel), both wholly owned subsidiaries of the Company, from Khazanah Nasional Berhad (Khazanah) of Equity Interests in SunShare Investments Ltd (SunShare) and PT Excelcomindo Pratama Tbk (XL) (Proposed Acquisition) (continued) In addition, the Proposed Acquisition is subject to the Proposed Exemption being approved by the SC and the Companys shareholders at the Companys EGM. Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed by the end of the second quarter of 2008. (c) Other Significant Subsequent Events (i) On 4 February 2008, Celcom was served with a sealed Originating Summons (Summons) by Mohd Shuaib Ishak (MSI) seeking leave to bring a derivative action in Celcoms name under Section 181A(1) of the Companies Act 1965 (the Proposed Action). The Proposed Action is against, inter alia, the former and existing directors of Celcom and the Company for failing to obtain the consent of DeTeAsia Holding GmbH (DeTeAsia) pursuant to the Amended and Restated Agreement (ARSA) dated 4 April 2002 with DeTeAsia prior to Celcom entering into the Sale and Purchase Agreement dated 28 October 2002 with the Company for the acquisition by Celcom of the shares in TM Cellular Sdn Bhd (now known as Celcom Mobile Sdn Bhd). MSI alleges that the directors are liable for damages calculated by reference to the difference between the Buy Out Offer price of RM7.00 per Celcoms share under the ARSA and the price of RM2.75 per Celcoms share under the Mandatory General Offer undertaken by the Company through Telekom Enterprise Sdn Bhd in respect of Celcom. The Summons has been fixed for hearing on 22 April 2008. The Directors are advised by its solicitors that it has reasonably good prospects of resisting the Summons and will take vigorous steps to defend the same. (ii) On 25 January 2008, PT Excelcomindo Pratama Tbk (XL) through its wholly owned subsidiary, Excelcomindo Finance Company BV bought back the USD350.0 million Bond at a price of 100.0% of nominal value.

(iii) On 18 January 2008, XL entered into a credit agreement amendment with a foreign bank as follows: to amend the availability period of an existing credit arrangement to 31 August 2008 and automatically extend for another 6 months period unless otherwise amended. to add bridging loans facility to retire existing USD bonds and/or other debt amounting to USD110.0 million and a maximum of IDR1,000.0 billion (full amount), which can be drawdown in USD and IDR. The facility is subject to floating rate of interest at monthly intervals of Sertifikat Bank Indonesia (SBI) rate plus 1.10% margin per annum.

On 22 January 2008, XL made drawdown on this credit facility amounting to IDR1,000.0 billion (full amount).

380

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

45. SIGNIFICANT SUBSEQUENT EVENTS (continued)

(c) Other Significant Subsequent Events (continued) (iv) In January 2008, XL undertook further financing and hedging activities as follows: made drawdowns on credit facilities amounting to IDR600.0 billion (full amount) and USD50.0 million. entered into a credit facility agreement and made drawdown amounting to USD50.0 million whereby XL will pay a floating rate of interest at quarterly intervals of 3 months SIBOR plus 1.75% margin per annum. The loan will mature 1 year from the first drawdown date. entered into a credit facility agreement of USD50.0 million whereby XL will pay a floating rate of interest at quarterly intervals of 3 months LIBOR plus 1.20% margin per annum. The loan will mature 1 year from the first drawdown date. withdrew a credit facility amounting to IDR700.0 billion (full amount). entered into a foreign currency contract to hedge the payment of quarterly interest of a long term loan in USD amounting to USD97.5 million. terminated one of the forward foreign currency contracts amounting to USD25.0 million used to hedge the payment of long term loan in USD.

There were no other material events subsequent to the end of the year that have not been reflected in the audited financial statements.

46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The main risks arising from the Groups financial assets and liabilities are foreign exchange, interest rate, credit and liquidity risk. The Groups overall risk management seeks to minimise potential adverse effects of these risks on the financial performance of the Group. The Group has established risk management policies, guidelines and control procedures to manage its exposure to financial risks. Hedging transactions are determined in the light of commercial commitments. Derivative financial instruments are used only to hedge underlying commercial exposures and are not held for speculative purposes. Foreign Exchange Risk The foreign exchange risk of the Group predominantly arises from borrowings denominated in foreign currencies. The Group has long dated and cross-currency swaps that are primarily used to hedge selected long term foreign currency borrowings to reduce the foreign currency exposures on these borrowings. The main currency exposure is US Dollar. The Group also has subsidiaries and associates operating in foreign countries, which generate revenue and incur costs denominated in foreign currencies. The main currency exposures are Sri Lanka Rupee, Bangladesh Taka and Indonesian Rupiah. The Groups foreign exchange objective is to achieve the acceptable level of foreign exchange fluctuation on the Groups assets and liabilities and manage the consequent impact to the Income Statement. To achieve this objective, the Group targets a composition of currencies based on assessment of the existing exposure and desirable currency profile. To obtain this composition, the Group uses various types of hedging instruments such as cross-currency swaps as well as maintaining funds in foreign currencies at appropriate levels to support operating cash flows requirement.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

381

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Interest Rate Risk The Group has cash and bank balances and deposits placed with creditworthy licensed banks and financial institutions. The Group manages its interest rate risk by actively monitoring the yield curve trend and interest rate movement for the various investment classes. The Groups debts includes bank overdrafts, bank borrowings, bonds, notes and debentures. The Groups interest rate risk objective is to manage the acceptable level of rate fluctuation on the interest expense. In order to achieve this objective, the Group targets a composition of fixed and floating debt based on assessment of its existing exposure and desirable interest rate profile. To obtain this composition, the Group uses various types of hedging instruments such as interest rate swaps and range accrual swaps. Credit Risk Financial assets that potentially subject the Group to concentrations of credit risk are primarily trade receivables, cash and bank balances, marketable securities and financial instruments used in hedging activities. Due to the nature of the Groups business, customers are mainly segregated into business and residential. The Group has no significant concentration of credit risk due to its diverse customer base. Credit risk is managed through the application of credit assessment and approval, credit limit and monitoring procedures. Where appropriate, the Group obtains deposits or bank guarantees from customers. The Group places its cash and cash equivalents and marketable securities with a number of creditworthy financial institutions. The Groups policy limits the concentration of financial exposure to any single financial institution. All hedging instruments are executed with creditworthy financial institutions with a view to limiting the credit risk exposure of the Group. The Group, however, is exposed to credit-related losses in the event of non-performance by counterparties to financial derivative instruments, but does not expect any counterparties to fail to meet their obligations. Liquidity Risk In the management of liquidity and cash flow risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Groups operations and mitigate the effects of fluctuations in cash flows. Due to the dynamic nature of the underlying business, the Group aims at maintaining flexibility in funding by keeping both committed and uncommitted credit lines available.

47. INTEREST RATE RISK

The table below summarises the Group's and the Company's exposure to interest rate risk. Included in the tables are the Group's and the Company's financial assets and liabilities at carrying amounts, categorised by the earlier of repricing or contractual maturity dates except for borrowings and amount due from subsidiaries with floating interest rates. These are repriced within 1 year or less and have been shown to reflect the maturity dates. The off-balance-sheet gap represents the net notional amounts of all interest rate sensitive derivative instruments. Sensitivity to interest rates arises from mismatches in the repricing dates, cash flows and other characteristics of assets and their corresponding liability funding.

382

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

47. INTEREST RATE RISK (continued)

Maturing or repriced (whichever is earlier) 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM >4 - 5 years RM Balances More Total Nonunder than interest interest Islamic 5 years sensitive sensitive principles RM RM RM RM

W.A.R.F.*

Total RM

The Group 2007 Financial Assets Investments Staff Loans and Other Long Term Receivables balances under Islamic principles non-interest sensitive fixed interest rate Trade and Other Receivables (excluding short term staff loans) Short Term Investments non-interest sensitive fixed interest rate Cash and Bank Balances balances under Islamic principles non-interest sensitive fixed interest rate Total Financial Liabilities Borrowings balances under Islamic principles non-interest sensitive floating interest rate fixed interest rate Customer Deposits Trade and Other Payables Total

138.9

138.9

4.00%

0.1

5.0

3.8

6.6

9.7

63.0

88.2

60.1

419.9

419.9 60.1 88.2

4.83%

200.5

200.5

4,341.9 177.6

4,341.9 177.6 200.5

4.13%

2,773.7 2,974.3

5.0

3.8

6.6

9.7

63.0

2,773.7 3,062.4

612.6 5,331.1

785.5 1,205.4

785.5 612.6 2,773.7 9,598.9

5.67% 8.10%

150.5 1,503.5 1,654.0

6.9 6.9

1,258.7 497.5 1,756.2

39.1 113.0 152.1

364.6 540.6 905.2

1,601.6 2,474.0 4,075.6

3,414.5 5,135.5 8,550.0

4.8 732.6 6,702.7 7,440.1

3,369.6 3,369.6

3,369.6 4.8 3,414.5 5,135.5 732.6 6,702.7 19,359.7

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

383

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

47. INTEREST RATE RISK (continued)

Maturing or repriced (whichever is earlier) 1 year or W.A.R.F.* less RM The Group On-balance-sheet interest sensitivity gap Off-balance-sheet interest sensitivity gap Total interest sensitivity gap 1,320.3 1,320.3 (1.9) (1,752.4) (145.5) (145.5) (895.5) (4,012.6) >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM >4 - 5 years RM More than 5 years RM

(1.9) (1,752.4)

(895.5) (4,012.6)

Maturing or repriced (whichever is earlier) 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM >4 - 5 years RM

W.A.R.F.*

Balances More Total Nonunder than interest interest Islamic 5 years sensitive sensitive principles RM RM RM RM

Total RM

The Group 2006 Financial Assets Investments Staff Loans and Other Long Term Receivables balances under Islamic principles non-interest sensitive fixed interest rate Trade and Other Receivables (excluding short term staff loans) non-interest sensitive floating interest rate Short Term Investments non-interest sensitive fixed interest rate Cash and Bank Balances balances under Islamic principles non-interest sensitive fixed interest rate Total

226.7

226.7

4.00%

0.8

2.0

11.2

5.8

9.8

89.4

119.0

60.5

441.4

441.4 60.5 119.0

7.37% 4.67%

50.7 194.8

50.7 194.8

3,350.2 125.3

3,350.2 50.7 125.3 194.8

4.14%

2,800.2 3,046.5

2.0

11.2

5.8

9.8

89.4

2,800.2 3,164.7

705.2 4,467.9

1,175.0 1,616.4

1,175.0 705.2 2,800.2 9,249.0

384

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

47. INTEREST RATE RISK (continued)

Maturing or repriced (whichever is earlier) 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM >4 - 5 years RM Balances More Total Nonunder than interest interest Islamic 5 years sensitive sensitive principles RM RM RM RM

W.A.R.F.*

Total RM

The Group 2006 Financial Liabilities Borrowings balances under Islamic principles non-interest sensitive floating interest rate fixed interest rate Customer Deposits Trade and Other Payables Total

7.04% 6.46%

724.9 409.5 1,134.4

5.5 119.1 124.6

1,329.7 1,329.7

611.2 529.1 1,140.3

127.2 25.9 153.1

972.1 6,165.5 7,137.6

2,440.9 8,578.8 11,019.7

5.0 718.9 5,740.9 6,464.8

1,061.2 1,061.2

1,061.2 5.0 2,440.9 8,578.8 718.9 5,740.9 18,545.7

On-balance-sheet interest sensitivity gap Off-balance-sheet interest sensitivity gap Total interest sensitivity gap

1,912.1

(122.6)

(1,318.5)

(1,134.5)

(143.3)

(7,048.2)

1,912.1

(122.6)

(1,318.5)

(1,134.5)

(143.3)

(7,048.2)

* W.A.R.F. Weighted Average Rate of Finance as at 31 December The table below summarises the weighted average rate of finance as at 31 December by major currencies for each class of financial asset and liability: 2007 2006 USD The Group Financial Assets Staff Loans Trade and Other Receivables (excluding short term staff loans) Short Term Investments Cash and Bank Balances Financial Liabilities Borrowings 4.75% 4.00% 4.83% 3.52% 7.37% 4.90% 4.00% 4.67% 3.52% RM USD RM

6.28%

5.08%

6.47%

5.86%

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

385

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

47. INTEREST RATE RISK (continued)

Maturing or repriced (whichever is earlier) 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM >4 - 5 years RM Balances More Total Nonunder than interest interest Islamic 5 years sensitive sensitive principles RM RM RM RM

W.A.R.F.*

Total RM

The Company 2007 Financial Assets Amount Owing by Subsidiaries, net of allowances non-interest sensitive floating interest rate fixed interest rate Investments Staff Loans and Other Long Term Receivables balances under Islamic principles non-interest sensitive fixed interest rate Trade and Other Receivables (excluding short term staff loans) Short Term Investments non-interest sensitive fixed interest rate Cash and Bank Balances balances under Islamic principles non-interest sensitive fixed interest rate Total

8.10% 2.97%

7.7

31.2

103.0

31.2 110.7

8,090.0 138.9

8,090.0 31.2 110.7 138.9

4.00%

0.1

5.0

3.8

6.6

9.7

63.0

88.2

58.8

419.9

419.9 58.8 88.2

4.83%

200.5

200.5

3,036.7 175.9

3,036.7 175.9 200.5

3.93%

1,074.9 1,275.5

12.7

35.0

6.6

9.7

166.0

1,074.9 1,505.5

242.0 11,742.3

211.2 631.1

211.2 242.0 1,074.9 13,878.9

386

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

47. INTEREST RATE RISK (continued)

Maturing or repriced (whichever is earlier) 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM >4 - 5 years RM Balances More Total Nonunder than interest interest Islamic 5 years sensitive sensitive principles RM RM RM RM

W.A.R.F.*

Total RM

The Company 2007 Financial Liabilities Borrowings balances under Islamic principles non-interest sensitive floating interest rate fixed interest rate Payable to Subsidiaries fixed interest rate Customer Deposits Trade and Other Payables Total

6.49% 7.88% 5.25%

495.8 495.8 991.6

988.3 4.5 1,652.5 2,645.3

1,484.1 500.3 1,652.5 3,636.9

4.8 590.2 2,606.9 3,201.9

3,168.0 3,168.0

3,168.0 4.8 1,484.1 500.3 1,652.5 590.2 2,606.9 10,006.8

On-balance-sheet interest sensitivity gap Off-balance-sheet interest sensitivity gap Total interest sensitivity gap

1,275.5 1,275.5

12.7 12.7

(956.6) (956.6)

6.6 6.6

9.7 9.7

(2,479.3) (2,479.3)

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

387

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

47. INTEREST RATE RISK (continued)

Maturing or repriced (whichever is earlier) 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM >4 - 5 years RM Balances More Total Nonunder than interest interest Islamic 5 years sensitive sensitive principles RM RM RM RM

W.A.R.F.*

Total RM

The Company 2006 Financial Assets Amount Owing by Subsidiaries, net of allowances non-interest sensitive floating interest rate fixed interest rate Investments Staff Loans and Other Long Term Receivables balances under Islamic principles non-interest sensitive fixed interest rate Trade and Other Receivables (excluding short term staff loans) non-interest sensitive floating interest rate Short Term Investments non-interest sensitive fixed interest rate Cash and Bank Balances balances under Islamic principles non-interest sensitive fixed interest rate Total

8.87% 2.97%

9.1 7.7

34.7

103.0

43.8 110.7

8,500.9 220.5

8,500.9 43.8 110.7 220.5

4.00%

0.8

2.0

11.2

5.8

9.8

89.4

119.0

59.4

441.4

441.4 59.4 119.0

7.37% 4.67%

50.7 194.8

50.7 194.8

2,384.8 123.6

2,384.8 50.7 123.6 194.8

3.85%

1,457.1 1,703.4

2.0

28.0

40.5

9.8

192.4

1,457.1 1,976.1

282.0 11,571.2

296.2 737.6

296.2 282.0 1,457.1 14,284.9

388

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

47. INTEREST RATE RISK (continued)

Maturing or repriced (whichever is earlier) 1 year or less RM >1 - 2 years RM >2 - 3 years RM >3 - 4 years RM >4 - 5 years RM Balances More Total Nonunder than interest interest Islamic 5 years sensitive sensitive principles RM RM RM RM

W.A.R.F.*

Total RM

The Company 2006 Financial Liabilities Borrowings balances under Islamic principles non-interest sensitive floating interest rate fixed interest rate Payable to Subsidiaries fixed interest rate Customer Deposits Trade and Other Payables Total

6.96% 7.87% 5.67%

534.6 534.6

529.1 529.1 1,058.2

529.1 534.1 4,747.0 5,810.2

1,592.8 1,063.2 4,747.0 7,403.0

5.0 590.3 2,348.7 2,944.0

443.0 443.0

443.0 5.0 1,592.8 1,063.2 4,747.0 590.3 2,348.7 10,790.0

On-balance-sheet interest sensitivity gap Off-balance-sheet interest sensitivity gap Total interest sensitivity gap

1,168.8

2.0

28.0

(1,017.7)

9.8

(5,617.8)

1,168.8

2.0

28.0

(1,017.7)

9.8

(5,617.8)

* W.A.R.F. - Weighted Average Rate of Finance as at 31 December

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

389

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

47. INTEREST RATE RISK (continued)

The table below summarises the weighted average rate of finance as at 31 December by major currencies for each class of financial asset and liability: 2007 USD The Company Financial Assets Amount Owing by Subsidiaries, net of allowances Staff Loans Trade and Other Receivables (excluding short term staff loans) Short Term Investments Cash and Bank Balances Financial Liabilities Borrowings Payable to Subsidiaries 8.10% 5.33% 2.97% 4.00% 4.83% 3.56% 8.87% 7.37% 5.31% 2.97% 4.00% 4.57% 3.52% RM USD 2006 RM

6.86% 5.25%

7.35% 5.25%

5.91%

48. CREDIT RISK

For on-balance-sheet financial instruments, the main credit risk exposure has been disclosed elsewhere in the financial statements. Off-balance-sheet financial instruments The Group and the Company are exposed to credit risk where the fair value of the contract is favourable, where the counterparty is required to pay the Group or the Company in the event of contract termination. The following table summarises the favourable fair values of the contracts, indicating the credit risk exposure. The Group 2007 Contract or notional principal amount RM Long dated swap Cross-currency swaps Forward foreign currency contracts Total 988.4 257.0 994.6 2,240.0 2006 Contract or notional principal amount RM 1,058.1 1,058.1 2007 Contract or notional principal amount RM 988.4 988.4 The Company 2006 Contract or notional principal amount RM 1,058.1 1,058.1

Favourable fair value RM 208.6 7.1 37.2 252.9

Favourable fair value RM 201.0 201.0

Favourable fair value RM 208.6 208.6

Favourable fair value RM 201.0 201.0

390

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

49. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The fair value of a financial instrument is assumed to be the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm's length transaction, other than in forced or liquidation sale. Quoted market prices, when available, are used as the measure of fair values. However, for a significant portion of the Group and the Companys financial instruments, quoted market prices do not exist. For such financial instruments, fair values presented are estimates derived using the net present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgements made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. (a) On-balance-sheet The carrying amounts of the financial assets and liabilities of the Group and the Company at the balance sheet date approximated their fair values except as set out below: The Group 2007 Carrying amount RM Financial assets Investments Staff loans Financial liabilities Borrowings (excluding redeemable bonds) Redeemable bonds/ Payable to subsidiaries Net fair value RM 2006 Carrying amount RM Net fair value RM 2007 Carrying amount RM Net fair value RM The Company 2006 Carrying amount RM Net fair value RM

138.9 89.5

223.0 72.2

226.7 119.0

290.6 110.0

138.9 88.2

223.0 70.9

220.5 119.0

284.4 110.0

8,554.8

8,558.3

8,024.7

8,255.5

1,989.2

2,036.6

2,661.0

2,821.4

3,000.0

3,164.2

1,652.5

1,621.6

4,747.0

4,898.7

The above carrying amounts and net fair values of borrowings exclude swaps, which are disclosed in sub-note (b).

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

391

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

49. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

(a) On-balance-sheet (continued) Financial assets The fair value of publicly traded financial instruments is based on quoted market prices at the balance sheet date. In assessing the fair value of non-traded financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Where allowances of permanent diminution in value or impairment, where applicable, is made in respect of any investment, the carrying amount net of allowance made is deemed to be a close approximation of its fair value. The fair value of staff loans have been estimated by discounting the estimated future cash flows using the prevailing market rates for similar credit risks and remaining period to maturity. The fair value of staff loans is lower than carrying amount at the balance sheet date as the Company and its subsidiaries charged interest rates on staff loans at below current market rates. The Directors consider the carrying amount fully recoverable as they do not intend to realise the financial asset via exchange with another counterparty but to hold it to contract maturity. Collaterals are taken for these loans and the Directors are of the opinion that the potential losses in the event of default will be covered by the collateral values on individual loan basis. For educational loans, amount owing by subsidiaries and associates and customer deposits which are mainly interest free and do not have fixed repayment terms, the carrying amounts recorded are anticipated to approximate their fair values at the balance sheet date. Financial liabilities The fair value of quoted bonds has been estimated using the respective quoted offer price. For unquoted borrowings with fixed interest rate, the fair values have been estimated by discounting the estimated future cash flows using the prevailing market rates for similar credit risks and remaining period to maturity. For unquoted borrowings with floating interest rate, the carrying values are generally reasonable estimates of their fair values. The financial liabilities will be realised at their carrying values and not at their fair values as the Directors have no intention to settle these liabilities other than in accordance with their contractual obligations. For all other short term on-balance-sheet financial instruments maturing within 1 year or are repayable on demand, the carrying values are assumed to approximate their fair values.

392

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

49. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

(b) Off-balance-sheet The financial derivative instruments are used to hedge foreign exchange and interest rate risks associated with certain long term foreign currency borrowings. The contract notional principal amounts of the derivative and the corresponding fair value adjustments are analysed as below: 2007 Contract or notional principal amount RM The Group Off-balance-sheet financial derivative instruments Long dated swap Interest rate swaps Cross-currency swaps Forward foreign currency contracts The Company Off-balance-sheet financial derivative instruments Long dated swap Interest rate swaps Contract or notional principal amount RM 2006

Net fair value Favourable Unfavourable RM RM

Net fair value Favourable Unfavourable RM RM

988.4 1,484.1 257.0 994.6

208.6 7.1 37.2

(61.3)

1,058.1 1,058.1

201.0

(55.0)

988.4 1,484.1

208.6

(61.3)

1,058.1 1,058.1

201.0

(55.0)

Fair values of financial derivative instruments are the present values of their future cash flows and are arrived at based on valuations carried out by the Companys bankers. Favourable fair value indicates amount receivable by the Company if the contracts are terminated as at 31 December 2007 or vice versa.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

393

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007

The subsidiaries are as follows: Groups Effective Interest Name of Company 2007 2006 Paid-up Capital 2007 Million RM15.8 2006 Million RM15.8 Principal Activities

Fiberail Sdn Bhd

54

54

Installation and maintenance of optic fibre telecommunication system in Malaysia and provision of consultancy services in relation to telecommunications Provision of managed network services and enhanced value added telecommunication and information technology services Special purpose entity

GITN Sdn Berhad

100

100

RM50.0

RM50.0

Hijrah Pertama Berhad (formerly known as Hijrah Pertama Sendirian Berhad) (formerly known as Malaysian Logistics Sdn Bhd) Intelsec Sdn Bhd Mediatel (Malaysia) Sdn Bhd Meganet Communications Sdn Bhd Menara Kuala Lumpur Sdn Bhd

100

RM#

RM

100 100

100 100

RM3.0 RM#

RM3.0 RM#

Ceased operation Investment holding

70

RM

RM11.0

Provision of interactive multimedia communication services and solution

100

100

RM91.0

RM91.0

Management and operation of the telecommunication and tourism tower of Menara Kuala Lumpur Provision/transmission of voice and data through the cellular system Dormant

Mobikom Sdn Bhd

100

100

RM260.0

RM260.0

Parkside Properties Sdn Bhd

100

100

RM0.1

RM0.1

394

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

Groups Effective Interest Name of Company 2007 2006 Paid-up Capital 2007 Million RM# RM# RM1.6 2006 Million RM# RM# RM1.6 Principal Activities

Rebung Utama Sdn Bhd Tekad Mercu Berhad Telekom Applied Business Sdn Bhd Telekom Consultancy Sdn Bhd Telekom Enterprise Sdn Bhd Telekom Malaysia-Africa Sdn Bhd Telekom Malaysia (Hong Kong) Limited** Telekom Malaysia (S) Pte Ltd** Telekom Malaysia (UK) Limited** Telekom Malaysia (USA) Inc** Telekom Multi-Media Sdn Bhd

100 100 100

100 100 100

Special purpose entity Special purpose entity Provision of software development and sale of software products Ceased operation

51

51

RM#

RM#

100

100

RM0.6

RM0.6

Investment holding

100

100

RM0.1

RM0.1

Investment holding

100

100

HKD18.5

HKD18.5

Provision of international telecommunication services Provision of international telecommunication services Provision of international telecommunication services Provision of international telecommunication services Investment holding and provision of interactive multimedia communication services and solutions Provision of telecommunication and related services in the Republic of Malawi Investment holding

100

100

SGD#

SGD#

100

100

STR#

STR#

100

100

USD3.5

USD3.5

100

100

RM1.7

RM1.7

Telekom Networks Malawi Limited** Telekom Payphone Sdn Bhd >

60

MKW

MKW350.0

100

100

RM9.0

RM9.0

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

395

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

Groups Effective Interest Name of Company 2007 2006 Paid-up Capital 2007 Million RM20.0 2006 Million RM20.0 Principal Activities

Telekom Research & Development Sdn Bhd

100

100

Provision of research and development activities in the areas of telecommunication and multimedia, hi-tech applications and products and services in related business Trading and rental of customer premises telecommunication equipment and provision of management of customers care services Ceased operation

Telekom Sales and Services Sdn Bhd

100

100

RM14.5

RM14.5

Telekom Technology Sdn Bhd Telesafe Sdn Bhd > TM Cellular (Holdings) Sdn Bhd TM Global Incorporated TM Facilities Sdn Bhd

100

100

RM13.0

RM13.0

100 100

100 100

RM4.0 RM0.1

RM4.0 RM0.1

Ceased operation Dormant

100 100

100 100

USD# RM2.3

USD# RM2.3

Investment holding Provision of facilities management services and property development activities Provision of printing and publications services Dormant

TM Info-Media Sdn Bhd TM International (Cayman) Ltd TM International Berhad

100 100

100 100

RM6.0 USD#

RM6.0 USD#

100

100

RM35.7

RM35.7

Investment holding and provision of telecommunication and consultancy services on an international scale Content and application development for Internet services Provision of national payphone network and related services

TM Net Sdn Bhd

100

100

RM180.0

RM180.0

TM Payphone Sdn Bhd (now known as Pernec Paypoint Sdn Bhd) Universiti Telekom Sdn Bhd

100

RM

RM65.0

100

100

RM650.0

RM650.0

Managing and administering a private university known as Multimedia University

396

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

Groups Effective Interest Name of Company 2007 2006 Paid-up Capital 2007 Million RM62.1 2006 Million RM62.1 Principal Activities

VADS Berhad

64.87

67.16

Provision of international and national managed network services for businesses and organisations

Subsidiaries held through Telekom Enterprise Sdn Bhd Celcom (Malaysia) Berhad 100 Mobitel Sdn Bhd > 100 100 100 RM1,237.5 RM8.0 RM1,767.9 RM8.0 Provision of network capacity and services Dormant

Subsidiary held through Telekom Multi-Media Sdn Bhd Telekom Smart School Sdn Bhd 51 51 RM15.0 RM15.0 Implementation of government smart school project, provision of multimedia education systems and software, portal services and other related services

Subsidiary held through TM Info-Media Sdn Bhd Cybermall Sdn Bhd 100 100 RM2.7 RM2.7 Ceased operation

Subsidiaries held through TM Facilities Sdn Bhd TM Land Sdn Bhd TMF Autolease Sdn Bhd TMF Services Sdn Bhd 100 100 100 100 100 100 RM# RM# RM# RM# RM# RM# Property development activities Provision of fleet management and services Provision of facilities management services

Subsidiaries held through TM International Berhad TM International (L) Limited Telekom Management Services Sdn Bhd TMI Mauritius Ltd## G-Com Limited** 100 100 USD78.4 USD78.4 Investment holding

100

100

RM0.1

RM0.1

Provision of consultancy and engineering services in telecommunication and related area Investment holding Investment holding Provision of mobile telecommunication services in Cambodia

100 100

100 100 100

USD# CED455.0 USD8.5

USD# CED455.0 USD8.5

Telekom Malaysia 100 International (Cambodia) Company Limited

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

397

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

Groups Effective Interest Name of Company 2007 2006 Paid-up Capital 2007 Million 2006 Million Principal Activities

Subsidiary held through TMI Mauritius Ltd TMI India Ltd ## 100 100 USD72.7 USD72.7 Investment holding

Subsidiaries held through TM International (L) Limited Dialog Telekom PLC ## (formerly known as Dialog Telekom Limited) TESS International Ltd TM International (Bangladesh) Limited** TM International Lanka (Private) Limited## Indocel Holding Sdn Bhd Multinet Pakistan (Private) Limited** 84.81 89.62 SLR33,056.4^ SLR12,680.4^ Provision of mobile telecommunication services in Sri Lanka

100 70

100 70

USD# BDT3,060.0

USD# BDT3,060.0

Dormant Provision of mobile telecommunication services in Bangladesh

100

100

SLR222.0^

SLR222.0^

Investment holding

100 89

100 78

RM0.1 PKR992.5

RM0.1 PKR992.5

Investment holding Provision of cable television services, information technology (including software development), telecommunication and multimedia services in Pakistan

Subsidiary held through Indocel Holding Sdn Bhd PT Excelcomindo Pratama Tbk## 66.99 59.63 IDR709,000 IDR709,000 Provision of mobile telecommunication services in Republic of Indonesia

Subsidiaries held through Dialog Telekom PLC Dialog Broadband Networks (Private) Limited 84.81 89.62 SLR823.7^ SLR823.7^ Provision of infrastructure facilities for voice and data communication systems, radio and television broadcasting systems and mobile radio communication systems and the provision of telecommunication services in Sri Lanka

398

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

Groups Effective Interest Name of Company 2007 2006 Paid-up Capital 2007 Million 2006 Million Principal Activities

Subsidiaries held through Dialog Telekom PLC (continued) Dialog Television (Private) 84.81 Limited (formerly known as Asset Media (Private) Limited) ## 80.66 SLR#^ SLR#^ Provision of television broadcasting station and television broadcasting network including cable and pay television transmission

Subsidiaries held through Dialog Television (Private) Limited Communiq Broadband Network (Private) Limited ## CBN Sat (Private) Limited ## 84.81 80.66 SLR50.0^ SLR50.0^ Provision of information technology including data, content transmission services, audio visual services and television programmes services Provisions of manufacturing, assembling, importing and exporting of electronic consumer products and audio visual goods

84.81

80.66

SLR#^

SLR#^

Subsidiaries held through PT Excelcomindo Pratama Tbk Excel Phoneloan 818 BV Excelcomindo Finance Company BV GSM One (L) Limited GSM Two (L) Limited 66.99 59.63 EUR# EUR# Dormant

66.99

59.63

EUR#

EUR#

Investment holding

66.99 66.99

59.63 59.63

USD# USD#

USD# USD#

Dormant Dormant

Subsidiary held through Universiti Telekom Sdn Bhd Unitele Multimedia Sdn Bhd 100 100 RM1.0 RM1.0 Provision of training and related services

Subsidiary held through Unitele Multimedia Sdn Bhd MMU Creativista Sdn Bhd 100 100 RM# RM# Provision of digital video and film production and post production services

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

399

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

Groups Effective Interest Name of Company 2007 2006 Paid-up Capital 2007 Million 2006 Million Principal Activities

Subsidiaries held through VADS Berhad Meganet Communications 64.87 Sdn Bhd RM11.0 RM Provision of intelligent building and security systems integrated telecommunication and technology solutions Contact centre and related services Provision of personnel for contact centre services

VADS e-Services Sdn Bhd 64.87 VADS Professional Services Sdn Bhd VADS Solutions Sdn Bhd 64.87

67.16 67.16

RM1.0 RM#

RM1.0 RM#

64.87

67.16

RM1.5

RM1.5

Provision of system integration services

Subsidiary held through VADS e-Services Sdn Bhd VADS Contact Centre Services Sdn Bhd 64.87 67.16 RM# RM# Provision of managed contact centre services

Subsidiaries held through Celcom (Malaysia) Berhad Celcom Academy Sdn Bhd+ Celcom Multimedia (Malaysia) Sdn Bhd Celcom Technology (M) Sdn Bhd 100 RM RM# Inactive

100

100

RM#

RM#

Dormant

100

100

RM2.0

RM2.0

Provision of telecommunication value added services through cellular or other forms of telecommunications network Provision of fibre optic transmission network

Celcom Timur (Sabah) Sdn Bhd Celcom Transmission (M) Sdn Bhd Celcom Trunk Radio (M) Sdn Bhd CT Paging Sdn Bhd++

80

80

RM7.0

RM7.0

100

100

RM25.0

RM25.0

Provision of network transmission related services

100

100

RM#

RM#

Ceased operation

100

100

RM0.5

RM0.5

Provision of strategic and business development, management, administrative and support services and investment holding

400

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

Groups Effective Interest Name of Company 2007 2006 Paid-up Capital 2007 Million 2006 Million Principal Activities

Subsidiaries held through Celcom (Malaysia) Berhad (continued) Technology Resources Industries Berhad Celcom Mobile Sdn Bhd 100 100 RM# RM# Investment holding

100

100

RM1,565.0

RM1,565.0

Provision of mobile communication services, network services, application services and content Property investment

Alpha Canggih Sdn Bhd

100

100

RM#

RM#

Subsidiary held through Celcom Transmission (M) Sdn Bhd Fibrecomm Network (M) Sdn Bhd 51 51 RM75.0 RM75.0 Provision of fibre optic transmission network services

Subsidiaries held through Technology Resources Industries Berhad Alpine Resources Sdn Bhd Freemantle Holdings (M) Sdn Bhd+ Rego Multi-Trades Sdn Bhd Technology Resources Management Services Sdn Bhd Technology Resources (Nominees) Sdn Bhd TR Components Sdn Bhd TR International Limited** 100 100 RM2.5 RM2.5 Inactive

100

RM

RM13.5

Investment holding

100

100

RM2.0

RM2.0

Dealing in marketable securities

100

100

RM#

RM#

Inactive

100

100

RM#

RM#

Dormant

100 100

100 100

RM# HKD#

RM# HKD#

Investment holding Investment holding

Subsidiary held through TR Components Sdn Bhd Aseania Plastics Sdn Bhd + 99 RM RM0.3 Inactive

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

401

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

All subsidiaries are incorporated in Malaysia except the following: Name of Company CBN Sat (Private) Limited Communiq Broadband Network (Private) Limited Dialog Broadband Networks (Private) Limited Dialog Telekom PLC Dialog Television (Private) Limited Excelcomindo Finance Company BV Excel Phoneloan 818 BV G-Com Limited GSM One (L) Limited GSM Two (L) Limited Multinet Pakistan (Private) Limited PT Excelcomindo Pratama Tbk Telekom Malaysia (Hong Kong) Limited Telekom Malaysia (S) Pte Ltd Telekom Malaysia (UK) Limited Telekom Malaysia (USA) Inc Telekom Malaysia International (Cambodia) Company Limited Telekom Networks Malawi Limited TESS International Ltd TM International (Bangladesh) Limited TM International (Cayman) Ltd TM International (L) Limited TM International Lanka (Private) Limited TMI India Ltd TMI Mauritius Ltd TR International Limited Place of Incorporation Sri Lanka Sri Lanka Sri Lanka Sri Lanka Sri Lanka Netherlands Netherlands Ghana Federal Territory, Labuan Federal Territory, Labuan Pakistan Indonesia Hong Kong Singapore United Kingdom USA Cambodia Republic of Malawi Republic of Mauritius Bangladesh British West Indies, USA Federal Territory, Labuan Sri Lanka Republic of Mauritius Republic of Mauritius Hong Kong

# Amounts less than 0.1 million in their respective currency ## Audited by a member firm of PricewaterhouseCoopers International Limited which is a separate and independent legal entity from PricewaterhouseCoopers Malaysia ** Audited by a firm other than member firm of PricewaterhouseCoopers International Limited > Undergoing members' voluntary winding up pursuant to Section 254(1) of the Companies Act, 1965 (CA) since 17 December 2007 + Dissolved during the year pursuant to members' voluntary winding up under Section 272(5) of the CA ++ Inactive as at 31 December 2007 ^ Refers to stated capital. Pursuant to the new Companies Act, No. 7 of Sri Lanka, the concept of authorised and paid-up share capital has been replaced with the concept of stated capital, effective from 3 May 2007. The stated capital comprises the total amounts received in respect of the issue of shares. For accounting purposes, the share premium is also included and expenses relating to the issuance are deducted.

402

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

50. LIST OF SUBSIDIARIES AS AT 31 DECEMBER 2007 (continued)

BDT CED EUR HKD IDR MKW PKR SGD SLR STR USD Bangladesh Taka Ghanaian Cedi Euro Dollar Hong Kong Dollar Indonesian Rupiah Malawi Kwacha Pakistani Rupee Singapore Dollar Sri Lanka Rupee Pound Sterling US Dollar

During the year, the Group had disposed its entire 60.0% and 100.0% equity interest in Telekom Networks Malawi Limited and TM Payphone Sdn Bhd respectively. Details as disclosed on note 3(II)(a) and (d) to the financial statements.

51. LIST OF JOINTLY CONTROLLED ENTITIES AS AT 31 DECEMBER 2007

The jointly controlled entities are as follows: Groups Effective Interest Name of Company SunShare Investments Ltd (sub-note a) 2007 51 2006 51 Principal Activities Investment holding

Jointly controlled entity held through TMI India Ltd Spice Communications Limited Name of Company SunShare Investments Ltd Spice Communications Limited 39.2 49 Licensed mobile and cellular telecommunications service provider in the state of Punjab and Karnataka in India Place of Incorporation Federal Territory, Labuan India

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

403

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

51. LIST OF JOINTLY CONTROLLED ENTITIES AS AT 31 DECEMBER 2007 (continued)

(a) The Group has an 80.0% interest in the ordinary shares of SunShare Investments Ltd (SunShare), a jointly controlled entity incorporated in the Federal Territory of Labuan, which is an investment holding company. Notwithstanding the ordinary shareholding, the economic benefit of the Group in SunShare is 51.0%. In 2006, SunShare owned a 29.78% stake in an associate, MobileOne Limited (M1), a company incorporated in Singapore and listed on the Singapore Stock Exchange. M1 provides mobile and other related telecommunication services as well as development of mobile telecommunication products and services. During the year, the equity interest has decreased to 29.69% following the issuance of shares under M1s Employees Share Option Scheme. The dilution has no material effect to the results of the Group. All jointly controlled entities have co-terminous financial year end with the Company.

52. LIST OF ASSOCIATES AS AT 31 DECEMBER 2007

The associates are as follows: Groups Effective Interest Name of Company mySPEED.com Sdn Bhd (sub-note a) 2007 2006 16.22 Principal Activities Creating, implementing and operating e-business activities including electronic commerce delivery services, multimedia related activities and other computerised or electronic services Dormant

Sistem Iridium Malaysia Sdn Bhd

40

40

Associates held through Telekom Multi-Media Sdn Bhd Mahirnet Sdn Bhd 49 49 Development, management and marketing of educational products offered by local and overseas educational institutions electronically Provision of promotion of Internet-based communication services

Mutiara.Com Sdn Bhd

30

30

Associates held through TM International Berhad Samart Corporation Public Company Limited 18.97 18.98 Design, implementation and installation of telecommunication systems and the sale and distribution of telecommunication equipment in Thailand Mobile phone distributor accessories and bundled with content and administration of the distribution channels for and management of customer care and billing system of I900MHz mobile phone

Samart I-Mobile Public Company Limited (sub-note b)

35.58

35.32

404

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

52. LIST OF ASSOCIATES AS AT 31 DECEMBER 2007 (continued)

Groups Effective Interest Name of Company 2007 2006 Principal Activities

Associate held through TM International (L) Limited Mobile Telecommunications Company of Esfahan 49 49 Planning, designing, installing, operating and maintaining a GSM cellular telecommunication network to customers in the province of Esfahan, Iran

Associate held through Celcom (Malaysia) Berhad Sacofa Sdn Bhd 20 20 Trade or business of a telecommunications infrastructure and services company

Associate held through CT Paging Sdn Bhd C-Mobile Sdn Bhd 67.15 Setting up a distribution network of dealers and concept retail stores based on intellectual property rights owned by Celcom (Malaysia) Berhad

All associates are incorporated in Malaysia except the following: Name of Company Mobile Telecommunications Company of Esfahan Samart Corporation Public Company Limited Samart I-Mobile Public Company Limited Place of Incorporation Iran Thailand Thailand

All associates have co-terminous financial year end with the Company except for Mobile Telecommunications Company of Esfahan with financial year end of 20 March. (a) (b) On 2 February 2007, the Company had entered into a share Sale and Purchase Agreement to sell its entire equity interest of 16.22% in mySPEED.com Sdn Bhd to MY E.G. Services Berhad. The disposal was completed on 16 July 2007. TM International Berhad (TM International) held directly 24.42% equity interest in Samart I-Mobile Public Company Limited (SIM). TM International also held indirect equity interest in SIM of 11.16% (2006: 10.90%) by virtue of its equity interest in Samart Corporation Public Company Limited.

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

405

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

53. CHANGES IN ACCOUNTING POLICIES AND RECLASSIFICATIONS

The comparative financial statements were restated to reflect the effects of changes in accounting policies during the year as well as to conform with current year presentation as summarised below: (a) Changes in accounting policies in the current year The following describes the impact of the new accounting standards adopted by the Group for the financial year beginning 1 January 2007 as listed in note 1(a) of the Significant Accounting Policies on the Basis of Preparation of the Financial Statements. (i) Irrelevant or immaterial effect on financial statements The adoption of FRS 6, amendments to FRS 119, FRS 124, TR i-1 and TR i-2 did not result in significant changes to the Groups accounting policies. In summary: FRS 6, amendments to FRS 119, TR i-1 and TR i-2 are not relevant or material to the Groups operations. FRS 124 has no material financial impact on the Groups accounting policies. This standard affects the identification of related parties and other similar related party disclosures. This standard requires the disclosure of related party transactions and outstanding balances with other entities in a group. Intra-group related party transactions and outstanding balances are eliminated in the preparation of consolidated financial statements of the Group.

(ii) Reclassification of prior year comparatives Prior to 1 January 2007, lease of land and buildings held for own use was classified as property, plant and equipment and was stated at cost less accumulated depreciation and impairment loss. FRS 117 requires that lease of land and buildings to be classified as operating or finance leases in the same way as leases of other assets. The land and building elements of a lease of land and buildings are considered separately for the purposes of lease classification. Upfront payments of leasehold interests are allocated between land and building elements in proportion to their relative fair values at the inception of the leases. Consequent to the changes in accounting policies arising from the adoption of FRS 117, the Group has reclassified upfront payments of leasehold land as prepaid lease payments. These payments are amortised on a straight line basis over the remaining lease period. The Group has applied the new accounting policy with respect to leasehold land retrospectively. Consequently, certain comparatives within the Consolidated Balance Sheet as at 31 December 2006, Consolidated Income Statement for the year ended 31 December 2006 and Consolidated Cash Flow Statement for the year ended 31 December 2006 have been restated as set out in sub-note (c) below. (b) Reclassifications During the year, the Group had reviewed and changed the presentation of write offs and impairment of property, plant and equipment for the year ended 31 December 2006. These expenditure items which were previously included in other operating costs are now presented with depreciation, impairment and amortisation to conform with current year presentation which better reflects the nature of expenses.

406

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Notes to the Financial Statements

for the year ended 31 December 2007

53. CHANGES IN ACCOUNTING POLICIES AND RECLASSIFICATIONS (continued)

(c) Effects of changes in accounting policies and reclassifications The effects of the changes in accounting policies and reclassifications as described in sub-note (a)(ii) and (b) above are illustrated below: Effects of change in accounting policy FRS 117 RM

As previously reported RM The Group Income statement for the year ended 31 December 2006 Depreciation, impairment and amortisation Other operating costs Balance sheet as at 1 January 2006 Property, plant and equipment Prepaid lease payments Balance sheet as at 31 December 2006 Property, plant and equipment Prepaid lease payments Cash Flow Statement for the year ended 31 December 2006 Purchase of property, plant and equipment Payments to suppliers and employees Cash flows used in investing activities Cash flows from operating activities The Company Income statement for the year ended 31 December 2006 Depreciation, impairment and amortisation Other operating costs Balance sheet as at 1 January 2006 Property, plant and equipment Prepaid lease payments Balance sheet as at 31 December 2006 Property, plant and equipment Prepaid lease payments

Reclassifications RM

As restated RM

(4,039.0) (9,048.1)

34.7 (34.7)

2.8 (2.8)

(4,001.5) (9,085.6)

22,320.9

(249.9) 249.9

22,071.0 249.9

24,026.5

(346.2) 346.2

23,680.3 346.2

(5,698.7) (8,787.4) (6,503.2) 5,339.8

106.0 (106.0) 106.0 (106.0)

(5,592.7) (8,893.4) (6,397.2) 5,233.8

(2,202.0) (3,951.7)

0.2 (0.2)

2.2 (2.2)

(2,199.6) (3,954.1)

12,519.4

(37.9) 37.9

12,481.5 37.9

11,931.9

(38.0) 38.0

11,893.9 38.0

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

407

Financial

Statements

Notes to the Financial Statements

for the year ended 31 December 2007

53. CHANGES IN ACCOUNTING POLICIES AND RECLASSIFICATIONS (continued)

(d) Other reclassifications The presentation of operating revenue in note 4 to the financial statements has been changed and comparatives restated in line with the change of grouping of segmental reporting information as mentioned in note 40 to the financial statements.

54. CURRENCY
All amounts are expressed in Ringgit Malaysia (RM).

55. APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issuance in accordance with a resolution of the Board of Directors on 26 February 2008.

408

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Financial Statements

Statement by
PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965

Directors

We, Tan Sri Dato Ir Muhammad Radzi Hj Mansor and Dato Sri Abdul Wahid Omar being two of the Directors of Telekom Malaysia Berhad, state that, in the opinion of the Directors, the financial statements on pages 261 to 408 are drawn up so as to exhibit a true and fair view of the state of affairs of the Group and the Company as at 31 December 2007 and of the results and the cash flows of the Group and the Company for the year ended on that date in accordance with Financial Reporting Standards, the MASB approved accounting standards in Malaysia for Entities Other than Private Entities and the provisions of the Companies Act, 1965.

In accordance with a resolution of the Board of Directors dated 26 February 2008.

TAN SRI DATO Ir MUHAMMAD RADZI HJ MANSOR Chairman

DATO SRI ABDUL WAHID OMAR Group Chief Executive Officer

Statutory

Declaration
I, Datuk Bazlan bin Osman, being the Officer primarily responsible for the financial management of Telekom Malaysia Berhad, do solemnly and sincerely declare that to the best of my knowledge and belief, the financial statements set out on pages 261 to 408 are correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared at Kuala Lumpur this 26 February 2008. Before me:

) ) )

DATUK BAZLAN BIN OSMAN

T. THANAPALASINGAM Commissioner for Oaths Kuala Lumpur

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

409

Financial Statements

Report of the

Auditors

TO THE MEMBERS OF TELEKOM MALAYSIA BERHAD (COMPANY NO. 128740-P)

We have audited the financial statements set out on pages 261 to 408. These financial statements are the responsibility of the Companys Directors. Our responsibility is to form an independent opinion, based on our audit, on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report. We conducted our audit in accordance with approved Auditing Standards in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and Financial Reporting Standards, the MASB approved accounting standards in Malaysia for Entities Other than Private Entities so as to give a true and fair view of: (i) (ii) and (b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. the matters required by section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and the state of affairs of the Group and the Company as at 31 December 2007 and of the results and the cash flows of the Group and the Company for the year ended on that date;

The names of the subsidiaries of which we have not acted as auditors are indicated in note 50 to the financial statements. We have considered the financial statements of these subsidiaries and the auditors reports thereon. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company's financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors' reports on the financial statements of the subsidiaries were not subject to any material qualification and did not include any comment made under subsection (3) of section 174 of the Act.

PRICEWATERHOUSECOOPERS (AF: 1146) Chartered Accountants Kuala Lumpur Date: 26 February 2008

DATO AHMAD JOHAN BIN MOHAMMAD RASLAN [1867/09/08(J)] Partner

410

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Financial Statements

General
AS AT 31 DECEMBER 2007
1.

Information

Telekom Malaysia Berhad is a public limited liability company, incorporated and domiciled in Malaysia, and listed on the main board of the Bursa Malaysia Securities Berhad. The address of the registered office of the Company is: Level 51, North Wing Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur

2.

3.

The principal office and place of business of the Company is: Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur

4.

The number of employees at the end of the year amounted to: 2007 Group 36,242 2006 35,824

Company

18,235

19,094

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

411

Other Information

SHAREHOLDING STATISTICS LIST OF TOP 30 SHAREHOLDERS AUTHORISED AND ISSUED SHARE CAPITAL NET BOOK VALUE OF LAND & BUILDINGS USAGE OF PROPERTIES GROUP DIRECTORY GLOSSARY PROXY FORM

413 414 416 418 419 420 429

Other Information

Shareholding
AS AT 20 FEBRUARY 2008 ANALYSIS OF SHAREHOLDINGS
Share Capital Authorised Share Capital : 5,000,003,021 RM3,439,812,606 comprising of 3,439,809,680 ordinary shares of RM1 each, 1 (one) Special Rights Redeemable Preference Share (Special Share) of RM1, 2,000 Class C Non-Convertible Redeemable Preference Shares (NCRPS C) of RM1 each and 925 Class D Non-Convertible Redeemable Preference Shares (NCRPS D) of RM1 each One vote per ordinary share. The Special Share, NCRPS C & NCRPS D has no voting right other than those referred to in notes 11(a) and 14(g)(I) respectively to the financial statements.

Statistics

Issued and Paid-up Capital :

Voting Rights

DISTRIBUTION OF SHAREHOLDINGS
Shareholders Malaysian Foreign No. % No. % 492 6,156 7,465 802 233 5 15,153 3.03 37.87 45.92 4.93 1.43 0.03 93.21 7 219 315 202 360 0 1,103 0.04 1.35 1.94 1.24 2.21 0.00 6.78 Shares Malaysian No. % 3,272 5,275,166 24,789,523 22,680,315 424,581,826 2,117,338,423 2,594,668,525 0.00 0.15 0.72 0.66 12.34 61.56 75.43 Foreign No. % 156 160,262 1,218,472 7,836,440 835,928,751 0 845,144,081 0.00 0.00 0.04 0.23 24.30 0.00 24.57

Size of Shareholdings Less than 100 100 1,000 1,001 10,000 10,001 100,000 100,001 170,398,253 (less than 5% of paid-up capital) 170,398,253 and above TOTAL

DIRECTORS DIRECT AND DEEMED INTERESTS IN THE COMPANY AND ITS RELATED CORPORATION
In accordance with the Register of Directors Shareholdings, the directors direct and deemed interests in shares in the Company and its related corporation are as follows:Telekom Malaysia Berhad Direct Indirect % VADS Berhad Indirect

Name of Directors Tan Sri Dato Ir Muhammad Radzi Hj Mansor Dato Sri Abdul Wahid Omar Dato Ir Dr Abdul Rahim Daud

Direct

122,000 250,000 145,000

0.003* 0.007* 0.004*

30,000 30,000

0.023* 0.023*

* negligible (less than 0.1%)

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

413

Other Information

List of

Top 30 Shareholders
No. Name 1. 2. 3. 4. 5. 6. 7. 8. 9. Khazanah Nasional Berhad Employees Provident Fund Board

AS AT 20 FEBRUARY 2008
Share Held 988,817,541 325,013,050 297,588,200 254,239,632 251,680,000 156,184,300 80,093,036 50,342,232 39,875,800 37,615,100 33,534,188 31,395,000 24,431,500 23,272,505 20,017,300 16,456,000 15,579,087 15,478,800 15,212,400 14,500,000 14,090,693 Percentage (%) 28.75 9.45 8.65 7.39 7.32 4.54 2.33 1.46 1.16 1.09 0.97 0.91 0.71 0.68 0.58 0.48 0.45 0.45 0.44 0.42 0.41

Amanah Raya Nominees (Tempatan) Sdn Bhd Skim Amanah Saham Bumiputera Khazanah Nasional Berhad Exempt An Bank Negara Malaysia HSBC Nominees (Asing) Sdn Bhd Exempt An for JPMorgan Chase Bank, National Association (U.S.A) Lembaga Tabung Haji HSBC Nominees (Asing) Sdn Bhd Exempt an for Morgan Stanley & Co. International PLC (IPB Client ACCT) Kumpulan Wang Persaraan (Diperbadankan)

10. Amanah Raya Nominees (Tempatan) Sdn Bhd Amanah Saham Wawasan 2020 11. HSBC Nominees (Asing) Sdn Bhd TNTC for Saudi Arabian Monetary Agency 12. Amanah Raya Nominees (Tempatan) Sdn Bhd Amanah Saham Malaysia 13. HSBC Nominees (Asing) Sdn Bhd Exempt an for Morgan Stanley & Co Incorporated 14. Citigroup Nominees (Asing) Sdn Bhd GSI for Perry Partners Inter Inc 15. Valuecap Sdn Bhd 16. Cartaban Nominees (Asing) Sdn Bhd Investors Bank and Trust Company for Ishares Inc. 17. Citigroup Nominees (Asing) Sdn Bhd UBS AG 18. Permodalan Nasional Berhad 19. Citigroup Nominees (Asing) Sdn Bhd GSCO for Drawbridge Global Macro Master Fund Ltd 20. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (Par 1) 21. HSBC Nominees (Asing) Sdn Bhd Morgan Stanley & Co. International PLC (Firm A/c)

414

TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

List of Top 30 Shareholders

as at 20 February 2008

No. Name 22. HSBC Nominees (Asing) Sdn Bhd BNY Brussels for JF Asean Fund 23. Citigroup Nominees (Tempatan) Sdn Bhd Exempt an for Prudential Fund Management Berhad 24. Citigroup Nominees (Asing) Sdn Bhd Goldman Sachs International 25. HSBC Nominees (Asing) Sdn Bhd Exempt an for the Hongkong and Shanghai Banking Corporation Limited (HBFS-I CLT Acct) 26. Citigroup Nominees (Asing) Sdn Bhd GSI for OZ Asia Master Fund, Ltd 27. Citigroup Nominees (Asing) Sdn Bhd Exempt an for American International Assurance Company Limited 28. HSBC Nominees (Asing) Sdn Bhd Exempt an for JP Morgan Chase Bank, National Association (UK) 29. Cartaban Nominees (Asing) Sdn Bhd Government of Singapore Investment Corporation Pte Ltd for Government of Singapore (C) 30. HSBC Nominees (Asing) Sdn Bhd Exempt an for JPMorgan Chase Bank, National Association (U.A.E) TOTAL

Share Held 14,000,000 13,672,300 12,752,245 12,650,100

Percentage (%) 0.41 0.40 0.37 0.37

12,514,100 12,010,900 11,129,924 10,687,000

0.36 0.35 0.32 0.31

10,515,889

0.31

2,815,348,822

81.84

SUBSTANTIAL SHAREHOLDERS HOLDING 5% AND ABOVE

As per register of substantial shareholders No. Name 1. 2. 3. 4. Khazanah Nasional Berhad Employees Provident Fund Board Amanah Raya Nominees (Tempatan) Sdn Bhd Skim Amanah Saham Bumiputera Bank Negara Malaysia TOTAL * Shares Held Direct Indirect 1,243,057,173 335,006,950 297,588,200 251,680,000 2,127,332,323 36,657,100* 36,657,100 Percentage (%) Direct Indirect 36.14 9.74 8.65 7.32 61.85 0.11 0.11

Employees Provident Fund Board (EPF) is deemed to have indirect interest by virtue of TM Shares managed by other portfolio managers on behalf of EPF under Section 6A of the CA 1965.

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Other Information

Authorised and

Issued Share Capital

1. AUTHORISED SHARE CAPITAL The authorised share capital as at 20 February 2008 is RM5,000,003,021 divided into 5,000,000,000 ordinary shares of RM1.00 each; One (1) Special Rights Redeemable Preference Share of RM1.00; 1,000 Class A Redeemable Preference Shares (RPS) of RM0.01 each, 1,000 Class B RPS of RM0.01 each, 2,000 Class C Non-Convertible Redeemable Preference Shares (NCRPS) of RM1.00 each and 1,000 Class D NCRPS of RM1.00 each. The changes in the authorised share capital are as follows: Date 12/10/1984 06/08/1984 11/09/1990 31/03/2003 31/03/2003 08/05/2007 08/05/2007 Increase in Authorised Share Capital (RM) 1,000,000.00 4,999,000,000.00 1.00 10.00 10.00 2,000.00 1,000.00 Type of Share Ordinary shares Ordinary shares Special Share Class A RPS Class B RPS Class C NCRPS Class D NCRPS Total Authorised Share Capital (RM) 1,000,000.00 5,000,000,000.00 5,000,000,001.00 5,000,000,011.00 5,000,000,021.00 5,000,000,021.00 5,000,003,021.00

2.

ISSUED AND PAID-UP SHARE CAPITAL The issued and paid-up capital as at 20 February 2008 is RM3,439,812,606.00 comprising 3,439,809,680 ordinary shares of RM1.00 each; One (1) Special Rights Redeemable Preference Share of RM1.00; 2,000 Class C NCRPS of RM1.00 each and 925 Class D NCRPS of RM1.00 each. The changes in the issued and paid-up share capital are as follows on annual basis:Date 31/12/1984 31/12/1986 31/12/1987 11/09/1990 11/09/1990 29/10/1990 31/12/1990 31/12/1992 No. of Shares Allotted 2 9,999,998 490,000,000 1,000,000,000 1 470,500,000 9,249,000 Description Cash Cash Bonus issue on the basis of 49 ordinary shares for every 1 existing ordinary share held Bonus issue on the basis of 2 ordinary shares for every 1 existing ordinary shares held Special Rights Redeemable Preference Share Issued pursuant to the exercise of options under the Employees Share Option Scheme (ESOS) Cash Total (RM) 2 10,000,000 500,000,000 1,500,000,000 1,500,000,001 1,970,500,001 1,979,749,001

416

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Authorised and Issued Share Capital

Date 31/12/1993 31/12/1994 31/12/1995 31/12/1996 06/06/1997 20/06/1997 31/12/1998 31/12/1999 31/12/2000 31/12/2001 31/12/2002 01/01/2003 11/12/2003 12/12/2003 12/12/2003 15/12/2003 31/12/2003 31/12/2004 31/12/2005 31/12/2006 04/01/2007 17/07/2007 20/07/2007 20/07/2007 20/07/2007 20/07/2007 23/07/2007 31/12/2007

No. of Shares Allotted 6,067,000 3,555,000 2,832,000 6,877,000 10,920 999,545,460 398,500 22,408,000 65,876,500 13,996,000 65,692,000 71,503,000 1,000 1,000 12,222,000 131,708,000 9,077,000 6,139,500 37,605,000 (1,000) (1,000) 2,000 925 4,547,800 3,439,812,606

Description Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Eurobond Conversion of 4% Convertible Bonds Due 2004 Bonus issue on the basis of one (1) ordinary shares for every two (2) existing ordinary shares held Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Class A RPS of RM0.01 each Class B RPS of RM0.01 each Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Issued pursuant to the exercise of options under the ESOS Redemption of Class A RPS of RM0.01 each Redemption of Class B RPS of RM0.01 each Class C NCRPS of RM1.00 each Class D NCRPS of RM1.00 each Issued pursuant to the exercise of options under the ESOS

Total (RM) 1,985,816,001 1,989,371,001 1,992,203,001 1,999,080,001 1,999,090,921 2,998,636,381 2,999,034,881 3,021,442,881 3,087,319,381 3,101,315,381 3,167,007,381 3,238,510,381 3,238,510,391 3,238,510,401 3,250,732,401 3,382,440,401 3,391,517,401 3,397,656,901 3,435,261,901 3,435,261,891 3,435,261,881 3,435,263,881 3,435,264,806 3,439,812,606

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Other Information

Net Book Value of

Land & Buildings

AS AT 31 DECEMBER 2007
Net Book Net Book Value Value of of Land Buildings RM (million) RM (million)

Location 1. Federal Territory a. Kuala Lumpur b. Labuan Selangor Perlis Perak Pulau Pinang Kedah Johor Melaka Negeri Sembilan Terengganu Kelantan Pahang Sabah Sarawak Sri Lanka Bangladesh Cambodia Indonesia TOTAL

Freehold No. of Area Lots (000 sq ft)

Leasehold No. of Area Lots (000 sq ft)

Other Land* No. of Area Lots (000 sq ft)

Excepted Land** No. of Area Lots (000 sq ft)

28 13 5 8 8 11 9 10 4 7 15 204 322

1,410 10,280 61 18 438 148 1,086 47,523 80 522 509 1,254 63,329

6 2 22 4 17 19 15 27 22 9 21 11 45 19 29 9,052 9,320

409 443 25,040 52 679 1,049 1,404 1,325 62,293 321 1,585 463 2,095 786 858 25,045 123,847

8 4 5 5 16 2 6 3 4 16 5 9 83

667 427 324 297 538 152 317 121 173 664 219 342 4,241

78 11 109 32 37 103 24 55 40 34 72 68 90 753

15,473 595 7,938 7,366 2,432 11,145 4,047 3,305 4,976 2,058 4,412 26,514 9,388 99,649

109.6 195.4 0.5 5.9 7.9 8.8 9.7 16.4 2.9 1.4 1.0 8.2 7.4 25.8 11.8 5.0 297.0 714.7

1,451.7 554.3 3.6 76.3 62.3 83.1 106.8 144.6 34.7 47.1 24.9 89.2 103.0 89.8 43.4 23.5 1.3 12.0 2,951.6

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

No revaluation has been made on any of the land and buildings * ** The title deeds pertaining to other land have not yet been registered in the name of the Company. Pending finalisation with the relevant authorities, the land have not been classified according to their tenure and land areas are based on estimation. Excepted land are lands situated outside the Federal Territory which are either alienated land, reserved land owned by the Federal Government or land occupied, used, controlled and managed by the Federal Government for federal purposes (in Melaka, Pulau Pinang, Sabah and Sarawak) as set out in Section 3(2) of the Telecommunication Services (Successor Company) Act, 1985. The Government has agreed to lease these land to Telekom Malaysia Berhad for a term of 60 years with an option to renew, under article 85 and 86 of the Federal Constitution.

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Other Information

Usage of
AS AT 31 DECEMBER 2007
Satellite/ Submarine Stores/ Cable Residential Warehouses Stations Kedai TM/ Primatel/ Business Resort Centre

Properties
Telecommunication/ Tourism University Tower

Location 1. Federal Territory a. Kuala Lumpur b. Labuan Selangor Perlis Perak Pulau Pinang Kedah Johor Melaka Negeri Sembilan Terengganu Kelantan Pahang Sabah Sarawak Sri Lanka Bangladesh Cambodia Indonesia

Exchanges

Transmission Office Stations Buildings

28 3 85 10 68 29 48 90 19 31 33 23 45 45 72 1

6 2 11 22 11 17 2 15 17 6 34 33 43 12 203

24 1 20 32 19 5 6 5 4 5 7 15 21 23 6 11

39 4 2 81 33 26 51 23 16 15 18 49 22 47

19 12 43 1 44 26 11 22 6 6 13 19 22 25 1

1 2 2 1 2 1 2 3 2 1

1 1 4 4 1

3 1 2 3 2 6 1 1 1 1 3 1

1 1

1 1

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

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Other Information

Group

Directory

HEAD OFFICE Level 51, North Wing, Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur, Malaysia Tel : 03-2240 9494 : 101 Operator Assisted Calls (Domestic and International) : 103 Directory Enquiry Services : 100 For Everything else TM Fax : 03-2283 2415 Website : www.tm.com.my

MALAYSIA BUSINESS
Head Office Level 5 (South Wing), Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur Tel : 03-2240 9494 Fax : 03-2283 2415/03-7958 5533 Customer Care Level 3, Menara TM Annex 1 Jalan Pantai Baharu 50672 Kuala Lumpur Tel : 100 Fax : 03-7960 6020 Service Assurance Centre Ground Floor, Bangunan IDC Kompleks TM Cyberjaya 3300 Lingkaran Usahawan 1 Timur 63000 Cyberjaya, Selangor Tel : 1-800-88-9947

TM Regional Office (TMRO)

UNITED KINGDOM Telekom Malaysia (UK) Limited St.Martins House 16 St. Martins Le Grand London EC1A 4EN Tel : +44 (0) 207 397 8579 Fax : +44 (0) 207 397 8400 USA Telekom Malaysia (USA) INC 8320 Old Courthhouse Road Suite 420, Vienna VA 22182 Tel : +1 703 467 5962 Fax : +1 703 467 5962 HONG KONG Telekom Malaysia (Hong Kong) Limited Room 1612, 16/Floor Tower 1 Silvercord 30 Canton Road, Tsimshatsui Kowloon, Hong Kong Tel : +852 2992 0190 Fax : +852 2992 0570

SINGAPORE Telekom Malaysia (S) Pte Ltd 1754 Bencoolen Street #07-05/06 Burlington Square Singapore 189650 Tel : +65 6532 6369 Fax : +65 6532 3742

MB Subsidiaries:
GITN Sdn Bhd Head Office Level 31, Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur Tel : 03-2245 0000 Fax : 03-2240 0709 Network Operation Centre 2nd Floor, TM IT Complex 3300 Lingkaran Usahawan 1 Timur 63000 Cyberjaya, Selangor Tel : 1-300-88-2888 Fax : 03-8319 4775

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Group Directory

TM Applied Business Sdn Bhd Head Office Level 16, Menara 2, Faber Tower Jalan Desa Bahagia, Taman Desa Off Jalan Klang Lama 58100 Kuala Lumpur Tel : 03-7984 4989 Fax : 03-7980 1605 Cyberjaya Office 2nd Floor, TM IT Complex 3300 Lingkaran Usahawan 1 Timur 63000 Cyberjaya, Selangor Tel : 03-8318 1706 Fax : 03-8318 1721 TM Research & Development Sdn Bhd Head Office Idea Tower, UPM-MTDC Technology Incubation Centre Lebuh Silikon 43400 Serdang, Selangor Tel : 03-8944 1820 Fax : 03-8945 1591 Customer Service Centre Marketing & Business Development Division TM Research & Development Idea Tower, UPM MTDC Technology Incubation Centre Lebuh Silikon 43400 Serdang, Selangor Tel : 03-8944 1820 Fax : 03-8944 1246 TM Sales & Services Sdn Bhd Head Office Level 18, Menara Mutiara Bangsar Jalan Liku off Jalan Riong, Bangsar 59100 Kuala Lumpur Tel : 03-2297 1200 Fax : 03-2282 7799

TMpoint
KUALA LUMPUR Muzium Bangunan Muzium TM Jalan Raja Chulan 50200 Kuala Lumpur Jalan TAR No. 374, Ground Floor Wisma CS Holiday Jalan Tuanku Abdul Rahman 50100 Kuala Lumpur Pandan Indah L1/O2, Ground Floor Menara Maxisegar Jalan Pandan Indah 4/2 Pandan Indah, 55100 Kuala Lumpur Menara TM Ground Floor, Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur Bangsar No. 8 & 10, Ground Floor Jalan Telawi 5 Bangsar Baru 59100 Kuala Lumpur Setapak Ibusawat TM Setapak 44, Persiaran Kuantan 53200 Kuala Lumpur Kepong No. 67, Jalan Metro Perdana Barat 1 Taman Usahawan Kepong Utara 52100 Kepong, Kuala Lumpur Taman Desa Ground Floor, Wisma TM Taman Desa Jalan Desa Utama 58100 Kuala Lumpur

SELANGOR Shah Alam Bangunan TM Shah Alam Persiaran Damai, Seksyen 11 40000 Shah Alam, Selangor Ampang 42, Jalan Mamanda 7 Ampang Point 68000 Ampang, Selangor Rawang Lot 21, Jalan Maxwell 48000 Rawang, Selangor Kuala Kubu Bahru Bangunan TM Jalan Dato Balai 44000 Kuala Kubu Bahru, Selangor Bukit Raja Jalan Meru 41050 Kelang, Selangor Banting No. 1-1-1A, Jalan Suasa 1 42700 Banting, Selangor Kuala Selangor Bangunan TM, Jalan Klinik 45000 Kuala Selangor, Selangor Sabak Bernam 27, Jalan Raja Chulan 45200 Sabak Bernam, Selangor Port Klang No. 57 & 59, Jalan Cungah 42000 Port Klang, Selangor Damansara Utama No. 91-93, Jalan SS 21/1A Damansara Utama 47400 Petaling Jaya, Selangor

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Other

Information

Group Directory

Petaling Jaya No. 22 & 24, Jalan Yong Shook Lin 46050 Petaling Jaya, Selangor Kajang No. 37 & 38, Jalan Tun Abdul Aziz 43000 Kajang, Selangor Cyberjaya Ground Floor, TM IT Complex 3300 Lingkaran Usahawan 1 Timur 60000 Cyberjaya, Selangor Serdang No. 36, Jalan Dagang SB 4/2 Taman Sungai Besi Indah 43300 Seri Kembangan, Selangor Kelana Jaya Unit 109B Ground Floor Kelana Park View Tower No. 1 Jalan SS 6/2 47301 Kelana Jaya, Selangor Taipan No. 27 & 29, Jalan USJ 10/1A 47620 Subang Jaya, Selangor JOHOR Johor Bahru Jalan Abdullah Ibrahim 80672 Johor Bahru, Johor Plaza Pelangi Unit 1.19A, Ground Floor (Main Entrance) Plaza Pelangi Jalan Kuning 80400 Johor Bahru, Johor Skudai Ground Floor, Ibusawat TM Batu 912, Jalan Skudai 81300 Skudai, Johor Pontian 1st Floor, Ibusawat TM Jalan Alsagoff 82000 Pontian, Johor

Kluang No. 1 & 2, Jalan Dato Teoh Siew Khor 56000 Kluang, Johor Segamat No. 22, Jalan Sultan 85000 Segamat, Johor Batu Pahat 39, Jalan Rahmat 83000 Batu Pahat, Johor Muar No. 5-5 & 5-6, Ground Floor Jalan Ibrahim 84000 Muar, Johor Kota Tinggi No. 2 & 4, Jalan Indah Taman Medan Indah 81900 Kota Tinggi, Johor Kulai Lot 435, Jalan Kenanga 29/11 Taman Indah Putra 81100 Kulai, Johor Pelangi Wisma TM Pelangi Jalan Sutera 3, Taman Sentosa 80150 Johor Bahru, Johor Mersing Lot 384, Jalan Ismail 86800 Mersing, Johor Yong Peng No. 18, Ground Floor Jalan Bayan, Taman Semberong 83700 Yong Peng, Johor Pasir Gudang No. 23A, Ground Floor Jalan Bandar Pusat Perdagangan 81700 Pasir Gudang, Johor

NEGERI SEMBILAN Seremban No. 176 & 177, Ground Floor Jalan Dato Bandar Tunggal 70000 Seremban, Negeri Sembilan Port Dickson No. 25, Jalan Mahajaya PD Center Point 71000 Port Dickson, Negeri Sembilan Kuala Pilah Jalan Bahau 72000 Kuala Pilah, Negeri Sembilan Tampin Jalan Besar 73000 Tampin, Negeri Sembilan MELAKA Melaka 527 & 529A, Plaza Melaka Jalan Gajah Berang 75200 Melaka Alor Gajah Batu 141 2, Jalan Melaka Kendong 78000 Alor Gajah, Melaka Menara Pertam Ground Floor, Menara Pertam Jalan Batu Berendam BBP 2 Taman Batu Berendam Putra 75350 Melaka KEDAH/PERLIS Kangar Jalan Bukit Lagi Pekan Kangar 01000 Kangar, Perlis Alor Star Kompleks Kristal Jalan Kolam Air 05672 Alor Star, Kedah

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Group Directory

Jitra 19A, Jalan PJ 1 Pekan Jitra 2 06000 Jitra, Kedah Langkawi Jalan Pandak Mayah 6 07000 Pekan Kuah Langkawi, Kedah Sungai Petani Bangunan TM, Jalan Petani 08000 Sungai Petani, Kedah Kulim No. 4 & 5, Jalan Tunku Asaad 09000 Kulim, Kedah PULAU PINANG Bayan Baru No. 68, Jalan Mahsuri 11950 Bayan Baru, Pulau Pinang Jalan Burmah Jalan Burmah 10150 Georgetown, Pulau Pinang Butterworth Wisma TM Butterworth Ground Floor, Jalan Bagan Luar 12000 Butterworth, Pulau Pinang Bukit Mertajam Jalan Arumugam Pillai 14000 Bukit Mertajam, Pulau Pinang Sungai Bakap 1282, Jalan Besar 14200 Sungai Bakap, Pulau Pinang

PERAK Ipoh Wisma Wisma TM Jalan Sultan Idris Shah 30672 Ipoh, Perak Batu Gajah Bangunan TM Jalan Dewangsa 31000 Batu Gajah, Perak Ipoh Tasek Jalan Sultan Azlan Shah Utara 31400 Ipoh, Perak Kampar Bangunan TM Jalan Baru 31900 Kampar, Perak Taiping Bangunan TM Jalan Berek 34672 Taiping, Perak Teluk Intan Bangunan TM Jalan Jawa 36672 Teluk Intan, Perak Parit Buntar 36, Persiaran Perwira Pusat Bandar 34200 Parit Buntar, Perak Kuala Kangsar Bangunan TM Jalan Raja Chulan 33000 Kuala Kangsar, Perak Gerik Wisma Kosek, Jalan Takong Datoh 33300 Gerik, Perak

Sungai Siput No. 188, Jalan Besar 31100 Sungai Siput, Perak Sitiawan 179 & 180, Taman Sitiawan Maju 32000 Sitiawan, Perak Tapah Bangunan TM Jalan Stesyen 35672 Tapah, Perak Tanjung Malim No. 27, Jalan Cahaya Taman Anggerik Desa 35900 Tanjung Malim, Perak KELANTAN Kota Bharu Jalan Doktor 15000 Kota Bharu, Kelantan Pasir Mas 606, Jalan Masjid Lama 17000 Pasir Mas, Kelantan Tanah Merah 4088, Jalan Ismail Petra 17500 Tanah Merah, Kelantan Kuala Krai Lot 1522 Jalan Tengku Zainal Abidin 18000 Kuala Krai, Kelantan Pasir Puteh 258B, Jalan Sekolah Laki-laki 16800 Pasir Puteh, Kelantan

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Other

Information

Group Directory

TERENGGANU Kuala Terengganu 1st Floor, Bangunan TM Jalan Sultan Ismail 20200 Kuala Terengganu, Terengganu Kemaman Jalan Masjid, Chukai 24000 Kemaman, Terengganu Dungun Jalan Nibong 23000 Dungun, Terengganu Jerteh Ground Floor, Lot 174 Jalan Tuan Hitam 22000 Jerteh, Terengganu PAHANG Kuantan G08 & G09, Ground Floor Bangunan Mahkota Square Jalan Mahkota 25000 Kuantan, Pahang Pekan No. 87, Jalan Sultan Abdullah 26600 Pekan, Pahang Mentakab Jalan Tun Razak 28400 Mentakab, Pahang Bentong 111, Bangunan Persatuan Bola Sepak Jalan Ah Peng 28700 Bentong, Pahang Kuala Lipis 10, Jalan Bukit Bius 27200 Kuala Lipis, Pahang Raub Jalan Kuala Lipis 27600 Raub, Pahang

SARAWAK Batu Lintang Jalan Batu Lintang 93200 Kuching, Sarawak Padang Merdeka Ground Floor Bangunan Yayasan Sarawak Lot 2, Section 24 Jalan Barrack/Masjid 93000 Kuching, Sarawak Pending Jalan Gedong 93450 Pending, Sarawak Sri Aman Jalan Club 95000 Sri Aman, Sarawak Miri Jalan Post 98000 Miri, Sarawak Limbang Jalan Kubu 98700 Limbang, Sarawak Lawas Jalan Punang 98850 Lawas, Sarawak Bintulu Jalan Law Gek Soon 97000 Bintulu, Sarawak Sibu Persiaran Brooke 96000 Sibu, Sarawak Sarikei Jalan Berek 96100 Sarikei, Sarawak Kapit Jalan Kapit By Pass 96800 Kapit, Sarawak

SABAH Sadong Jaya Ground Floor, Lot 68 & 69, Block J Sadong Jaya, Karamunsing 88100 Kota Kinabalu, Sabah Tanjung Aru Lot B3, B3A & B5, Ground Floor Plaza Tanjung Aru Jalan Mat Salleh, Tanjung Aru 88100 Kota Kinabalu, Sabah Tawau TB 307, Block 35 Fajar Complex Jalan Perbandaran 91000 Tawau, Sabah Lahad Datu Ground Floor, MDLD 3307 Fajar Complex Jalan Segama 91100 Lahad Datu, Sabah Sandakan 6th Floor, Wisma Khoo Siak Chiew Jalan Buli Sim Sim 90000 Sandakan, Sabah Mailing address:Locked Bag 44 90009 Sandakan, Sabah Keningau Commercial Centre Jalan Arusap, Off Jln Masak Blok B7, Lot 13 & 14 89007 Keningau, Sabah Beaufort Choong Street P.O. Box 269 89807 Beaufort, Sabah Kudat Jalan Wan Siak P.O. Box 340 89058 Kudat, Sabah

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Group Directory

CELCOM (MALAYSIA) BERHAD

HEAD OFFICE Menara Celcom 82, Jalan Raja Muda Abdul Aziz 50300 Kuala Lumpur Tel : 03-2687 3838 Fax : 03-2681 0421 Kajang Branch Lot No 1, Taman Sri Saga Jalan Sungai Chua 43000 Kajang Selangor Bandar Baru Klang Branch No. 1 Lorong Tiara 1A Bandar Baru Klang 41150 Klang Selangor Shah Alam Branch No 1 Jalan Tengku Ampuan Zabedah B, 9/B, Section 9 40000 Shah Alam Selangor Port Klang Service Centre Lot 1-3, Tingkat 1 Hentian Pelabuhan Klang 42000 Klang Selangor KLIA Service Centre Lot MTBAP NA 1 Arrival Hall (Level 3) Main Terminal Buiding KL International Airport 64000 Sepang Selangor NEGERI SEMBILAN Seremban Branch Lot 1520 & 1521, Ground Floor Jalan Tun Dr Ismail 70200 Seremban Negeri Sembilan PENANG Penang Branch Ground & 1st Floor, Wisma Celcom No. 245, Jalan Burmah 10350 Penang Seberang Jaya Branch No. 31, Jalan Todak 4 Bandar Seberang Jaya 13700 Seberang Perai Penang Bayan Baru Branch No. 29, Persiaran Mahsuri 1/3 Sunway Tunas, Bayan Lepas 11900, Penang Bukit Mertajam Branch No. 22, Tingkat Ciku 1, Taman Ciku 14000 Bukit Mertajam Penang KEDAH Alor Star Branch Level 2 & 3 Menara Bina Darul Aman Berhad Lebuhraya Darul Aman 05100 Alor Star, Kedah Sungai Petani Branch No 23-D, Jalan Kampung Baru 08000 Sungai Petani Kedah Langkawi Branch No. 53, Langkawi Mall, Jalan Kelibang 07000 Kuah, Langkawi Kedah PERAK Ipoh Branch No. 2, Persiaran Greentown 3 Greentown Business Centre 30450 Ipoh, Perak Teluk Intan Service Centre Lot 12, Medan Sri Intan Jalan Sekolah, 36000 Teluk Intan Perak

CENTRAL REGIONAL OFFICE

Menara Naluri, 161B, Jalan Ampang 50450 Kuala Lumpur Tel : 03-2848 1201 Fax : 03-2848 1202 WILAYAH PERSEKUTUAN Cheras Branch (Taman Segar) 62, Jalan Manis 3 Taman Segar, Cheras 56100 Kuala Lumpur Selayang Branch No. 101, Jalan 2/3A Pusat Bandar Utara, Selayang 68100 Kuala Lumpur Jalan Ampang Branch Level 1 & 2, Podium Block 161B, Menara Naluri Jalan Ampang 50450 Kuala Lumpur Pekeliling Branch Pekeliling Business Centre Ground Floor, Pharmacare Building Lot 14 (129), Jalan Pahang Barat Off Jalan Pahang 53000 Kuala Lumpur Taman Tun Dr Ismail Branch No AB 40, Jalan Tun Mohd Fuad Taman Tun Dr Ismail 60000 Kuala Lumpur SELANGOR Petaling Jaya Branch Ground Floor, Menara PKNS PJ No. 17 Jalan Yong Shook Lin 46050 Petaling Jaya Selangor

NORTHERN REGION
Northern Regional Office 8th Floor Bangunan KWSP Jalan Sultan Ahmad Shah 10000 Penang Tel : 04-2421 902 / 010-4016 011 Fax : 04-2288 903

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Other

Information

Group Directory

Taiping Service Centre No. 430, Ground & 1st Floor Jalan Kemunting, Taman Saujana 34600 Kemunting, Taiping Perak PERLIS Kangar Service Centre Lot 1, Ground & 1st Floor Taman Simpang Tiga Persiaran Jubli Emas 01000 Kangar Perlis

EASTERN REGION
Eastern Regional Office No. 7, Persiaran Sultan Abu Bakar Kawasan Perindustrian Ringan IM3 Bandar Indera Mahkota 25200 Kuantan Pahang Tel : 09-5723 330 Fax : 09-5732 019 PAHANG Kuantan Branch A93 & A95 Sri Dagangan Business Centre Jalan Tun Ismail 25000 Kuantan Pahang Temerloh Branch No. 62, Jalan Ahmad Shah 1 28000 Temerloh Pahang KELANTAN Kota Bharu Branch Lot 825 & 826, Seksyen 27 Jalan Seri Cemerlang 15300, Kota Bharu Kelantan Tanah Merah Branch Bangunan Merdeka Jaya Jalan Taman Hiburan 17500 Tanah Merah Kelantan TERENGGANU Kuala Terengganu Branch 6C & 6D, Jalan Air Jernih 20300 Kuala Terengganu Terengganu Kemaman Branch K 9709 & 9710 Taman Chukai Utama Jalan Kubang Kurus 24000 Kemaman Terengganu

SABAH REGION
Sabah Regional Office Lot 2-7-1/2 Level 7, Plaza Wawasan 88000 Kota Kinabalu, Sabah Tel : 088-291 701 Fax : 088-317 261 Kota Kinabalu Branch Wawasan Plaza Level 1 & 2 88000 Kota Kinabalu, Sabah Damai Branch Wisma CTF, Lot 4 Block B, Damai Plaza Phase 3 P. O. Box 20005 88757 Damai Plaza Luyang Kota Kinabalu, Sabah Sandakan Branch Lot 9 &10, Ground & Mezzanine Floor Block B, Phase 2, Taman Grand View 90000 Sandakan, Sabah Labuan Branch Ground to 2nd Floor Lot 6, Jalan Anggerik 87007 Wilayah Persekutuan Labuan Tawau Branch TB 309, Ground to 3rd Floor Block 36, Jalan St Patrick Fajar Complex 91000 Tawau, Sabah SARAWAK REGION Sarawak Regional Office Level 2, Wisma NAIM Lot 2679, Block 10 KCLD, Jalan Rock 93200 Kuching, Sarawak Tel : 082-211 190/082-211 112 Fax : 082-418 292/082-211 122 Central Park Branch Ground Floor, No. 322, Lot 2734 Central Park Commercial Centre 3rd Mile, Jln Tun Ahmad Zaidi Adruce 93150 Kuching, Sarawak

SOUTHERN REGION
Southern Regional Office Lot G1, 1st Floor, Bangunan Ang No. 1, Jalan Jeram, Taman Tasek 80200 Johor Bahru, Johor Tel : 07-2346 200 Fax : 07-2373 631 JOHOR Johor Bahru Branch Lot G-1, Ground Floor, Bangunan Ang No. 1, Jalan Jeram, Taman Tasek 80200 Johor Bahru Johor Taman Molek Branch 1-3 Jalan Molek 1/9 Taman Molek 81100 Johor Bahru Johor Taman Pelangi Service Centre No. 1, Jalan Kuning 2 Taman Pelangi 80400 Johor Bahru Johor Batu Pahat Branch No. 22, Jalan Maju, Taman Maju 83000 Batu Pahat Johor MELAKA Melaka Branch No. 233, Taman Melaka Raya 75000 Melaka

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TELEKOM MALAYSIA BERHAD ANNUAL REPORT 2007

Group Directory

Kuching Branch Wisma Lim Kim Soon Lot 609, Block 195, Jalan Satok 93400 Kuching, Sarawak Jln DAAR Branch Ground Floor, Lot 445 Sub Lot 6, Seksyen 64, KTLD Jln Dato Abang Abdul Rahim 93450 Kuching, Sarawak

Miri Branch Ground Floor & 3rd Floor, Lot 935 Block 9, MCLD Jalan Asmara 98000 Miri, Sarawak Bintulu Branch Ground 3rd Floor, Lot 22 Park City Commercial Square Phase 3, Jln Tun Ahmad Zaidi 97000 Bintulu, Sarawak

Sibu Branch No. 44, Lot 1557, Jalan Keranji Off Jalan Tuanku Osman 96000 Sibu, Sarawak

INTERNATIONAL SUBSIDIARIES & AFFILIATES

DIALOG TELEKOM PLC (DIALOG) No. 475, Union Place Colombo 2 Sri Lanka Tel : +94-11-267 8700 Fax : +94-11-267 8703 TM INTERNATIONAL (BANGLADESH) LIMITED (TMIB) Brac Centre, 9th Floor 75 Mohakhali Commercial Area Dhaka 1212 Bangladesh Tel : +880-2-988 7149/50/51/52 Fax : +880-2-988 5463 SAMART CORPORATION PUBLIC COMPANY LIMITED (SAMART) 99/1 Moo 4 Software Park 35th Floor, Chaengwattana Road Klong Gluar, Pak-kred Nonthaburi 11120 Thailand Tel : +66-2-502 6000 Fax : +66-2-502 6043 TELEKOM MALAYSIA INTERNATIONAL (CAMBODIA) COMPANY LIMITED (TMIC) #56-58, Preah Norodom Blvd Sangkat Chey Chumneah Khan Doun Penh Phnom Penh Kingdom of Cambodia Tel : +855-16-810 001/2/3 Fax : +855-16-810 004, +855-23-219 090 SOCIETE DES TELECOMMUNICATIONS DE GUINEE (SOTELGUI s.a.) B.P. 2066, Conakry Republic of Guinea Tel : +224-450 200 Fax : +224-411 535 PT EXCELCOMINDO PRATAMA TBK (XL) GRHAXL, Jl. Mega Kuningan, Lot E4-7 No. 1, Kawasan Mega Kuningan Jakarta 12950 Indonesia Tel : +62-21-576 1881 Fax : +62-21-575 61880 MULTINET PAKISTAN (PRIVATE) LIMITED (MULTINET) 239, Staff Lines, Fatima Jinnah Road Karachi 75530 Pakistan Tel : +92-21-111-021 021 Fax : +92-21-565 6480 SPICE COMMUNICATIONS LIMITED (SPICE) D-1, Sector-3, Noida-201 301 Uttarpradesh India Tel : +91-120-4363 600 Fax : +91-120-5320 467 MOBILEONE LTD (M1) 10 International Business Park 609928 Singapore Tel : (65) 6895 1111 Fax : (65) 6899 3200 MOBILE TELECOMMUNICATIONS COMPANY OF ESFAHAN (MTCE) P.O. Box 81655-1446 Esfahan Iran Tel : +98-311 324 040 Fax : +98-311 324 0032 SAMART I-MOBILE PUBLIC COMPANY LIMITED (SIM) 99/3 Moo 4 Software Park 33rd Floor, Chaengwattana Road Klong Gluar, Pak-kred Nonthaburi 11120 Thailand Tel : +66-2-502 6000 Fax : +66-2-502 6900

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Other

Information

Group Directory

TM VENTURES SUBSIDIARIES & ITS ASSOCIATE/AFFILIATE COMPANY

TM VENTURES Level 11, South Wing, Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur Tel : 03-2240 1355 Fax : 03-7960 3359 TM FACILITIES SDN BHD 6th Floor, Wisma TM Taman Desa Jalan Desa Utama 58100 Kuala Lumpur Tel : 03-7987 5400 Fax : 03-7987 4303 TMF SERVICES SDN BHD Lot 1, Persiaran Jubli Perak Section 17, 40000 Shah Alam Tel : 03-5548 9400 Fax : 03-5541 2141 TMF AUTOLEASE SDN BHD Lot 1, Persiaran Jubli Perak Section 17, 40000 Shah Alam Tel : 03-5548 9412 Fax : 03-5510 0286 PROPERTY DEVELOPMENT 11th Floor, Wisma TM Taman Desa Jalan Desa Utama 58100 Kuala Lumpur Tel : 03-7987 5040 Fax : 03-7983 6390 MENARA KUALA LUMPUR SDN BHD No. 2 Jalan Punchak Off Jalan P. Ramlee 50250 Kuala Lumpur Tel : 03-2020 5421 Fax : 03-2072 8409 TM INFO-MEDIA SDN BHD 10th Floor, Menara D Persiaran MPAJ Jalan Pandan Utama, Pandan Indah 55100 Kuala Lumpur Tel : 03-4292 1111/03-4289 1222 Fax : 03-4291 9191 UNIVERSITI TELEKOM SDN BHD Jalan Multimedia 63000 Cyberjaya Selangor Tel : 03-8312 5018/5000 Fax : 03-8312 5022 FIBERAIL SDN BHD 7th Floor, Wisma TM Jalan Desa Utama Pusat Bandar Taman Desa 58100 Kuala Lumpur Tel : 03-7980 9696 Fax : 03-7980 9900 VADS BERHAD 15th Floor, Plaza VADS No. 1, Jalan Tun Mohd Fuad Taman Tun Dr Ismail 60000 Kuala Lumpur Tel : 03-7712 8888 Fax : 03-7728 2584 TELEKOM SMART SCHOOL SDN BHD 45-8, Level 3, Block C Plaza Damansara Jalan Medan Setia 1 Bukit Damansara 50490 Kuala Lumpur Tel : 03-2092 5252 Fax : 03-2093 4993 FIBRECOMM NETWORK (M) SDN BHD Level 37, Menara TM Jalan Pantai Baharu 50672 Kuala Lumpur Tel : 03-2240 1843 Fax : 03-2240 5001 ASSOCIATE/AFFILIATE COMPANY MUTIARA.COM SDN BHD 114-F, Bangunan JKPSB Jalan Sungai Pinang 10150 Pulau Pinang Tel : 04-281 1600/2600 Fax : 04-281 8600 MEASAT GLOBAL BERHAD Level 39, Menara Maxis 50088 Kuala Lumpur Tel : 03-8213 2188 Fax : 03-8213 2233

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Other Information

Glossary
3G Third Generation Mobile System. The generic term for the next generation of wireless mobile communications networks ADSL Asymmetric Digital Subscriber Line, which is designed to deliver more bandwidth from the central office to the customer site APCN Asia Pacific Cable Network ARPU Average Revenue Per User. The average revenue generated per customer unit per month ARPM Average Revenue Per Minute ATM Asynchronous Transfer Mode. A protocol for integrated transmission over a Broadband Integrated Services Digital Network Bandwidth The width of a communications channel. In digital communications, bandwidth is typically measured in bits per second Broadband Any circuit significantly faster than a dial-up phone line BTS Base Transceiver Station CAGR Compounded Annual Growth Rate CDMA Code Division Multiple Access is a digital, spread spectrum, packet-based access technique generally used in radio frequency systems CJ China Japan CMC Chikura-Miyazaki Cable CRM Customer Relationship Management CUCN China-US Cable Network DMCS Dumai-Malacca Cable System DSL Digital Subscriber Line EBITDA Earning Before Interest, Taxes, Depreciation and Amortisation ESOS Employee Share Option Scheme FLAG Fibre Link Around the Globe FLAG-ATLANTIC Fibre Link Around the Globe Atlantic GLC Government-Linked Companies GPRS General Packet Radio Service. It is the always-on packet data service for GSM, which is the cell phone standard that is used by most countries in the world. GPRS will be most useful for data applications such as mobile internet, browsing and e-mail Group Telekom Malaysia Berhad and its Local & International Subsidiaries/ Associated Companies/Affiliates GSM Global System for Mobile communications. It is the standard digital cellular phone service that is commonly used in Europe, Japan, Australia and elsewhere a total of 85 countries HSDPA High Speed Downlink Packet Access HSUPA High Speed Uplink Packet Access IBSS Industrial Business Solution Seminar ICT Information and Communication Technology IDD International Direct Dialing. The capability to directly dial an overseas phone number from ones own home or office telephone IP Internet Protocol. A software that keeps track of the internets addresses for different nodes, routes outgoing messages and recognises incoming messages IPLC International Private Leased Circuit IPVPN Internet Protocol Virtual Private Network. It is a private network for a corporation or an institution connecting any number of end points using a combination of private and public circuits ISDN Integrated Services Digital Network. ISDN is a set of international standards set by the ITU-T (International Telecommunications Services Sector for a circuit-switched digital network that supports access to any type of service (e.g. voice, data and video) over a single, integrated local loop from the customer premises to the network edge ISP Internet Service Provider. A vendor who provides access for customers (companies and private individuals) to the internet and the World Wide Web JUCN Japan-US Cable Network LAN Local Area Network. A communication network connecting personal computer workstations, printer, file servers and other devices inside a building

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Other

Information

Glossary

MB Malaysia Business. A Strategic Business Unit that consolidates all TMs domestic fixed services under a single leadership team Mbps Million bits per second, the speed of a telecommunications, networking or local area networking transmission facility MCMC Malaysian Communications and Multimedia Commission MDSCS Malaysia Domestic Submarine Cable System MMS Multimedia Messaging Service, a service that allows cell phone users to send pictures, movie clips, cartoons and other graphic materials from one cell phone to another MNP Mobile Number Portability MoU Minutes of Use MPLS Multi Protocol Label Switching MVNO Mobile Virtual Network Operator NIOSH National Institute of Occupational Safety and Health NPC North Pacific Cable Opco Operating Company OSH Occupational Safety and Health OSHA Occupational Safety and Health Association PATAMI Profit after tax and minority interest PIP Performance Improvement Programme R-J-K Russia-Japan-Korea ROCE Return on Capital Employed SAT3-WASC-SAFE South Atlantic 3-Western Africa Submarine Cable-South Asia Far East SBU Strategic Business Unit SEA-ME-WE South East Asia-Middle East-Western Europe Submarine Cable System SME Small and Medium Enterprise

SMIDEC Small and Medium Industries Development Corporation SMS Short Message Service. A means to send or receive short messages to or from mobile telephones SOHO Small Office and Home Office TAT Trans Atlantic TM Telekom Malaysia Berhad (Company No. 128740-P) TMR TM Retail TMW TM Wholesale TPC Trans Pacific Cable TVH Thailand, Vietnam, Hong Kong USF Unified Sales Force VoIP Voice Over Internet Protocol. The technology used to transmit voice conversations over a data network using the internet protocol VPN Virtual Private Network. With VPN an individual can lock into a distant corporate local area network, server or corporate intranet over the internet VSAT Very Small Aperture Terminal. A relatively small satellite antenna, typically 1.5 to 3.0 metres in diameter used for satellite-based point-to-multipoint data communications applications VSS Voluntary Separation Scheme WAN Wide Area Network. A public voice or data network that extends beyond the metropolitan area WCDMA Wideband CDMA. A high speed 3G mobile wireless technology that works by transmitting the input signals in a coded, spread spectrum mode over a range of frequencies Wi-Fi Wireless Fidelity. Wi-Fi runs in the 2.4GHz wireless range at speeds of up to 11 Mbps WiMAX Worldwide Interoperability For Microwave Access WLL Wireless Local Loop

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TELEKOM MALAYSIA BERHAD (Company No. 128740-P) (Incorporated in Malaysia)

Proxy

Form
(OLD NRIC NO.)

I/We
(NAME AS PER NRIC/PASSPORT/CERTIFICATE OF INCORPORATION IN CAPITAL LETTERS)

with (NEW NRIC NO.)

(PASSPORT NO.)

(COMPANY NO.)

of
(FULL ADDRESS)

being a Member/Members of TELEKOM MALAYSIA BERHAD hereby appoint

(NAME AS PER NRIC/PASSPORT IN CAPITAL LETTERS)

with of

(NEW NRIC NO.)

(OLD NRIC NO.)

(PASSPORT NO.)

(FULL ADDRESS)

or failing him/her of
(NAME AS PER NRIC/PASSPORT IN CAPITAL LETTERS)

with of

(NEW NRIC NO.)

(OLD NRIC NO.)

(PASSPORT NO.)

(FULL ADDRESS)

or failing him/her, the Chairman of the Meeting, as my/our proxy/proxies to vote for me/us on my/our behalf at the Twenty-Third Annual General Meeting of Telekom Malaysia Berhad (128740-P) [Company] to be held at Multi Purpose Hall, Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur, Malaysia on Thursday, 17 April 2008 at 10:00 a.m. or at any adjournment thereof. My/Our proxy/proxies is/are to vote as indicated below:
(Please indicate with an X in the appropriate box against each resolution how you wish your proxy to vote. If no instruction is given, this form will be taken to authorise the proxy to vote at his/her discretion)

Resolutions 1. 2. 3. 4. 5. 6. 7. 8. 9. To receive the Audited Financial Statements and Reports for the financial year ended 31 December 2007 Declaration of a final gross dividend of 22 sen per share (less 26% Malaysian Income Tax) Re-election of Datuk Zalekha Hassan pursuant to Article 98(2) Re-election of Dato Ir Dr Abdul Rahim Daud pursuant to Article 103 Re-election of YB Datuk Nur Jazlan Tan Sri Mohamed pursuant to Article 103 Re-election of Dato Azman Mokhtar pursuant to Article 103 Approval of payment of Directors fees Ordinary Resolution 1 Ordinary Resolution 2 Ordinary Resolution 3 Ordinary Resolution 4 Ordinary Resolution 5 Ordinary Resolution 6 Ordinary Resolution 7

For

Against

Re-appointment of Messrs. PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fix their remuneration Ordinary Resolution 8 Special Business: (i) Authority under Section 132D of the Companies Act, 1965 for the Directors to issue shares Ordinary Resolution 9 (ii) Proposed Shareholders Mandate (iii) Proposed Amendments to the Articles of Association Ordinary Resolution 10 Special Resolution
CDS* Account No. of Authorised Nominee

Signed this ____________________ day of ________________2008

No. of shares held

* Applicable to shares held through a nominee account

_____________________________________________ Signature(s)/Common Seal of Member(s)

Notes: 1. A Member entitled to attend and vote at the above Meeting is entitled to appoint a proxy to attend and vote in his/her stead. A proxy need not be a Member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 2. A Member shall not be entitled to appoint more than two (2) proxies to attend and vote at the Meeting provided that where a Member of the Company is an authorised nominee as defined in accordance with the provisions of the Securities Industry (Central Depositories) Act, 1991, it may appoint at least one (1) proxy but not more than two (2) proxies in respect of each securities account it holds with ordinary shares in the Company standing to the credit of the said securities account. Where a Member appoints two (2) proxies, the appointments shall be invalid unless the proportion of the holding to be represented by each proxy is specified. This instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly appointed under a power of attorney or if such appointer is a corporation, either under its common seal or under the hand of an officer or attorney duly appointed under a power of attorney. If this Proxy Form is signed under the hand of an officer duly authorised, it should be accompanied by a statement reading signed as authorised officer under an Authorisation Document which is still in force, no notice of revocation have been received. If this Proxy Form is signed under the attorney duly appointed under a power of attorney, it should be accompanied by a statement reading signed under a Power of Attorney which is still in force, no notice of revocation have been received. A copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the laws of the jurisdiction in which it was created and is exercised, should be enclosed with this Proxy Form. A corporation which is a Member, may by resolution of its Directors or other governing body authorise such person as it thinks fit to act as its representative at the Meeting, in accordance with Article 92 of the Companys Articles of Association. This instrument appointing the proxy together with the duly registered power of attorney referred to in Note 4 above, if any, must be deposited at the office of the Share Registrars, Tenaga Koperat Sdn Bhd, G-01 Ground Floor, Plaza Permata, Jalan Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof, or, in the case of a poll, not less than 24 hours before the time appointed for the taking of the poll.

3. 4.

5. 6.

1. Fold here

2. Fold here

AFFIX STAMP THE SHARE REGISTRARS TENAGA KOPERAT SDN BHD G-01 Ground Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak 50400 Kuala Lumpur Malaysia

3. Fold here