FAKULTI OF BUSINESS AND MANAGEMENT

SEMESTER 3 / TAHUN 4

BBAW 2103 PERAKAUNAN KEWANGAN

NO. MATRIKULASI : 710624025377001

NO. KAD PENGNEALAN : 710624025377

NO. TELEFON : 019-4146812

E-MEL : sobri5377@gmail.com

PUSAT PEMBELAJARAN : PPW KEDAH

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NO CONTENT PAGES

1.0 INTRODUCTION 3-4

2.0 MALAYSIAN ACCOUNTING STANDARS

BOARD (MASB)

4-5

3.0 YTL Power International Berhad. 5-12

4.0 AIR ASIA BERHAD 12-15

5.0 MALAYSIA AIRLINE (MAS) 16-21

6.0 USEFUNESS OF FINANCIAL STATEMENTS 21-29

7.0 CONCLUSION 29

8.0 REFERENCES 30-32

1.0 INTRODUCTION

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To a person who does not have little – or any – experience in financial reports by companies or

other relevant financial institutions, such documents may look very strange, confusing and full of

numbers and technical terms. This may lead such person to become bewildered about

understanding the direction of the company as well as assessing its performance which will

further leads to harder and more complex decision making process in case of investment, or even

working for the company as an employee.

Financial reports are normally formal documents which reflect the financial activities of a

business, person or any other entity, using financial language; it provides an overview of such

entity’s financial condition in both short and long term. Four major and important financial

documents are considered as Balance Sheet, Income Statement, Statement of retained Earnings,

and Statement of Cash Flows. In general, while balance sheet provides information regarding

assets, liabilities, and owners’ equity, the income statement provide information about income,

expenses and profit of the company over a particular period of time. Statement of retained

earnings reflects the information regarding the changes in retained earnings of a particular entity.

And last one but not least, which is one of the most important among mentioned documents is

cash flow statement which reports about the cash inflow and outflow of firm’s operational,

financial and investing activities.

In this work, three selected companies – two of major Malaysian airborne companies and a

conglomerate one – and their last five years’ financial reports have been analyzed in detail from

several dimensions – explained shortly – in order to assess their strengths, weaknesses, and

overall performance. As the conclusion, their overall performance is compared with each other

and necessary points for improving their level of performance are recommended. The reason

behind this selection is that two of these companies are important players in the Malaysian

airborne industry, their existence in the same industry results in a fair comparison among them

and a useful report for airborne industry in Malaysia. Selection of the third company – YTL – is

because of its importance to Malaysia as one of the most successful global businesses in the

world. These companies are Air Asia, Malaysian Airlines, and YTL Corporation.

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1. AirAsia which is the pioneer in low-cost airline business in the world, with more than 65

domestic and international destinations. It was established in 1993 and its growth in case of

revenue at the end of 2008 was over 32% and passed 830,000 Malaysian Ringgit.

2. Malaysian Airlines is the government-owned airline which started in 1987 after a name

change; and despite the financial reconstruction in the recent years, still has a strong presence in

Asia-Pacific area.

3. YTL Power International Berhad is the global utilities arm of YTL Corporation (as a

parent CO). The company was established in Oct 96 to house the group’s power-related

investments. In May 97, it made history as the first company to be listed under the infrastructure

project company (IPC) category on the Main Board of Bursa Malaysia.

2.0 MALAYSIAN ACCOUNTING STANDARS BOARD (MASB)

The MASB, together with the Financial Reporting Foundation (FRF), make up the new

framework for financial reporting in Malaysia. This new framework comprises an independent

standard-setting structure with representation from all relevant parties in the standard-setting

process, including preparers, users, regulators and the accountancy profession.

The functions and powers of the MASB as provided under the Act are to:

issue new accounting standards as approved accounting standards and to review, revise or

adopt existing accounting standards as approved accounting standards;

issue statements of principles for financial reporting;

sponsor or undertake development of possible accounting standards;

conduct public consultation as necessary;

develop a conceptual framework for the purpose of evaluating proposed accounting

standards;

make such changes to proposed accounting standards as considered necessary;

seek the view of the FRF in relation to new and existing standards, statement of

principles, and changes to proposed standards;

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determine scope and application of accounting standards; and

to perform such other function as the Minister of Finance may prescribe.

3.0. YTL Power International Berhad.

YTL Corp is one of Bursa Malaysia's largest companies and together with its five listed

subsidiaries has a combined Market Capitalization of about RM30.65 billion (US 8.64 billion ).

The company has also been listed on the Tokyo Stock Exchange since 1996, being the first Asian

non-Japanese company to be listed there. Amongst the group's key businesses are utilities high

speed rail, cement, manufacturing construction , contracting , property development, hotels

&resorts and technology incubation and it serves more than 10 million customers in over three

continents.

3.1. Background

Utilities arm of YTL Group. YTL Power International (YTL Power) is the global utilities arm

of YTL Corporation (YTL MK, RM7.35, and Not Rated). The company was established in Oct

96 to house the group’s power-related investments. In May 97, it made history as the first

company to be listed under the infrastructure project company (IPC) category on the Main Board

of Bursa Malaysia.

Started off as a local power play. YTL Power’s roots can be traced back to 1993 when its

subsidiary, YTL Power Generation Sdn Bhd, became Malaysia’s first IPP following a

nationwide power blackout in 1992 and the government’s drive to privatize the electricity

industry. Back then, the group had two power generation plants under its belt.

Evolving into a global utilities group. Nevertheless, since 2000, YTL Power has been on an

aggressive acquisition trail, snapping up utility assets from near and afar. It has successfully

transformed itself from just a local power generator to a global utilities group. It currently owns

power assets in Malaysia (100% YTL Power Generation), Indonesia (35% in Jawa Power) and

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Australia (33.5% stake in Electra net). It is also exposed to water concession assets in the UK

through its 100% stake in Wessex Water.

Wessex is the largest EBIT contributor. In FY07, Wessex Water accounted for 68% of group

EBIT including associates. The power division made up another 27% while investment holding

contributed the remaining 5% in the form of dividend and interest income. Over the years,

Wessex Water has become an increasingly dominant contributor, reinforcing the shift in the

group’s earnings profile from a pure local power base to a more diversified global utilities base.

Interestingly, YTL Power derived approximately 79% of its EBIT (including associates’

contribution) from overseas assets, a clear indication of its success overseas.

Spare capacity offers growth opportunity. YTL Power’s spare capacity will come in handy

when there is a power shortage in Peninsular Malaysia as TENAGA may require it to supply

additional electricity in such circumstances. In 2001, it entered into a supplemental agreement

with TENAGA for three years ending 31 Dec 03 to supply an additional 1,400GWh p.a. to

TENAGA at 10.9 sen per kwh. This boosted the plant’s capacity factor to 83% during the period.

However, this is unlikely to happen over the next few years as the country’s reserve margin is

expected to stay high at 35%.

3.2. YTL’s Financial Highlights

2008 2007 2006 2005 2004

Revenue (RM’000) 4,242,518 4,068,008 3,758,125 3,671,315 3,386,920

Profit Before Taxation

(RM’000)

1,385,701 1,296,757 1,112,400 976,444 836,433

Profit After Taxation

(RM’000)

1,038,846 1,269,214 874,483 742,178 613,049

Shareholders’ Funds

(RM’000)

6,400,395 6,127,143 5,728,957 5,229,233 4,560,490

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Earnings per Share (Sen) 20.00 25.40 17.89 15.84 13.63

Dividend per Share (Sen) 12.50 17.50 10.00 10.00 10.00

Total Assets (RM’000) 27,826,876 24,002,890 22,244,265 21,905,572 20,576,574

Net Assets per Share

(RM)

1.20 1.20 1.16 1.08 1.02

YTL’s Annual Balance Sheet

In Millions of Ringgit

(except for per share items)

2009

2009-

06-30

2008

2008-06-

30

2007

2007-06-30

Reclassified

2008-06-30

2006

2006-06-

30

2005

2005-06-30

Reclassified

2006-06-30

Cash -- -- -- -- --

Cash & Equivalents 307.9 63.5 19.5 7.7 21.8

Short Term Investments 5,704.5 9,406.1 6,054.9 4,775.5 4,529.5

Cash and Short Term Investments 6,012.4 9,469.6 6,074.3 4,783.3 4,551.2

Accounts Receivable - Trade, Net 2,353.2 491.7 434.6 576.4 566.5

Notes Receivable - Short Term -- -- -- -- --

Receivables - Other -- 124.2 117.9 180.2 247.6

Total Receivables, Net 2,353.2 615.9 552.4 756.6 814.1

Total Inventory 858.9 152.7 160.9 153.3 138.2

Prepaid Expenses -- 87.4 106.1 108.4 110.6

Other Current Assets, Total -- 325.5 250.6 206.4 187.7

Total Current Assets 9,224.5 10,651.1 7,144.4 6,008.1 5,801.9

Property/Plant/Equipment, Total - Gross -- 18,855.6 18,251.1 16,964.4 16,658.6

Accumulated Depreciation, Total -- (3,765.8)(3,368.9) (2,840.9)(2,362.8)

Property/Plant/Equipment, Total - Net 17,283.315,089.8 14,882.3 14,123.4 14,295.8

Goodwill, Net -- 441.3 441.3 441.3 441.3

Intangibles, Net 6,456.8 3.2 3.5 -- --

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Long Term Investments 1,692.2 1,641.5 1,531.4 1,670.8 1,365.8

Note Receivable - Long Term -- -- -- -- --

Other Long Term Assets, Total 58.3 0.0 0.0 0.6 0.9

Other Assets, Total -- -- -- -- --

Total Assets 34,715.127,826.9 24,002.9 22,244.3 21,905.6

Accounts Payable -- 183.6 150.1 128.3 109.5

Payable/Accrued 2,300.5 -- -- -- --

Accrued Expenses -- 620.9 566.0 477.0 467.3

Notes Payable/Short Term Debt -- 0.0 0.0 0.0 0.0

Current Port. of LT Debt/Capital Leases 2,526.8 4,031.2 1,033.0 1,064.8 1,510.6

Other Current liabilities, Total 174.7 403.2 347.8 406.0 380.4

Total Current Liabilities 5,002.0 5,238.9 2,096.9 2,076.0 2,467.8

Long Term Debt 20,388.013,528.3 13,022.0 11,541.9 11,257.2

Capital Lease Obligations -- -- -- -- --

Total Long Term Debt 20,388.013,528.3 13,022.0 11,541.9 11,257.2

Total Debt 22,914.817,559.5 14,055.0 12,606.6 12,767.8

Deferred Income Tax 2,783.4 2,199.4 2,308.4 2,327.5 2,362.4

Minority Interest 0.1 0.0 -- -- --

Other Liabilities, Total 460.7 459.9 542.5 570.0 589.0

Total Liabilities 28,634.221,426.5 17,969.8 16,515.3 16,676.3

Redeemable Preferred Stock, Total -- -- -- -- --

Preferred Stock - Non Redeemable, Net -- -- -- -- --

Common Stock, Total 2,955.1 2,721.3 2,648.2 2,581.5 2,498.4

Additional Paid-In Capital 1,774.8 1,699.2 1,944.1 2,211.4 2,072.1

Retained Earnings (Accumulated Deficit) 1,470.7 2,340.0 1,843.6 1,405.6 960.2

Treasury Stock - Common (119.8) (360.1) (402.8) (469.6) (301.5)

Total Equity 6,080.9 6,400.4 6,033.1 5,729.0 5,229.2

Total Liabilities & Shareholders' Equity 34,715.127,826.9 24,002.9 22,244.3 21,905.6

(Source: Reuters ;business and finance site.)

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3.3 Financial performance

FY07 results review. During FY07, the group reported a large 45% growth in net profit, driven

mainly by some RM185m deferred tax and higher investment income. EBIT contributions from

the local power segment fell 30% ,dragged down by some RM156m provisions for receivables.

Wessex Water, on the other hand, reported an encouraging 37% increase in profit contributions

as higher tariffs, along with cost control measures, widened profit margins.

Moderate earnings prospects. At the pre tax level, we expect YTL Power to record moderate

growth of 9-13% p.a. over the next three years, fuelled mainly by higher efficiency of its power

plants in Indonesia and above-average price hikes for Wessex Water. Although earnings from its

local power plant should return to normal after FY07’s one-off provisions, we still project a 15%

dip in FY08 net profit as the effective tax rate normalizes after FY07’s deferred tax savings.

Subsequently, FY09-10 net profit growth should mirror the growth at the pre-tax level.

Exchange rate risks. YTL Power derives around 79% of its EBIT (including associates’

contribution) from its overseas assets in Australia, the UK and Indonesia (Figure 22). This means

that its core earnings would be adversely affected by a firming of the ringgit against the sterling

pound, Australian dollar or the greenback. However, this would be partially offset by Forex

translation gains on its foreign denominated debt.

Looking into the group’s debt mix, a sizeable 66% is denominated in sterling, 19% is in ringgit

and the remaining 15% in US dollars. Our rough calculation shows that every 1% appreciation in

our assumption for the pound would have a 0.5% positive impact on YTL Power’s core net profit

due to higher translated earnings from Wessex Water. But reported net profit could be squeezed

by 6.0% due to the recognition of one-off translation losses resulting from the larger pound-

denominated debt.

In US dollars term, the core bottom-line positive impact from a 1% appreciation is somewhat

smaller at 0.1% owing to its relatively smaller contribution to group earnings. However, this

would be more than offset by the 1.5% negative impact resulting from the recognition of debt-

related translation losses at the reported net profit level.

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3.4. YTL’s Strengths and Weaknesses

Although YTL is a very powerful and doing well in global markets,our work has identified some of

the reasons of its good performance as well as some of the weaknesses that might be eliminated in

order to help the company to perform better than before. The table below shows the YTL’s Strengths

and Weaknesses:

Strengths Weakness

Profitable( take or pay) PPA(power

purchase agreement) contract: YTLPG

signed a power purchase agreement (PPA) with

TENAGA on 31 Mar 1993 for a term of 21

years expiring on 30 Sep 2015. Under

the PPA, TENAGA is obliged to “take or pay”

a minimum of 7,450Gwh of electricity per

annum. This represents a capacity factor of

around 70%.

Fuel cost pass-through element in PPA: Gas

supply to YTL Power’s power plants is secured

via a 21-year gas supply agreement (GSA)

with PETRONAS which also expires on 30

Sept 2015(low risk).

Good overseas track record: YTL Power

derived approximately 79% of its EBIT

(including associates’ contribution) from

overseas assets, a clear indication of its success

overseas.

Exposed to FOREX risks: its core earnings

would be adversely affected by a firming of the

ringgit against the sterling pound, Australian

dollar or the greenback.

However, this would be partially offset by

forex translation gains on its foreign

denominated debt.

assets interest rate risk: a lower interest rate

environment may reduce its chances of

acquiring new assets as the group will face

more competition from private equity funds.

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Strong management

WESSEX water ranks no1 in United

Kingdom Office of Water Services ranking:

In FY07, Wessex Water accounted for 68% of

group EBIT including associates.

3.5. Recommendations

leveraging its cash hoard to seize profitable M&A opportunities

Since its acquisition of Jawa Power back in 2004, YTL Power has been silent on the M&A front

despite sitting on a RM7bn cash hoard. Although the group has been scouting around, we believe

its conservative screening has weeded out many potential targets which have become overpriced

in the global M&A boom. Notwithstanding the lack of M&A activities, the group has steadily

proven its ability to extract value from its existing assets.

Bidding for Singapore’s power assets and Given YTL Power’s experience in foreign

field and efficiently run operations, Singapore’s merchant market should bode well for the

company. Although it is too early to gauge the return, assuming a conservative 10% return

versus YTL Power’s 6% cost of funds, the asset could rake in an additional return of 4% to such

an investment.

Utilising its Wessex: In particular, existing water operators are expected to migrate to a

licensing regime within a 2-year timeframe following the enactment of the two new Water Acts

by Jan 08. This creates opportunities for YTL Power to form JVs with state governments or bid

for licences given its proven track record in nurturing Wessex Water into the top ranking water

and Sewerage Company.

Liquidity crunch a blessing in disguise: The recent market turmoil has undeniably

sparked fears of an impending liquidity crunch. Although this could lead to a dent in global

economic growth, we believe this puts YTL Power in a better position to scoop up deals given its

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strong cash position. With its international utility expertise and ready funds, asset acquisitions

should be earnings enhancing for the group.

Opportunities in the local water industry and ; We also see opportunities for YTL Power

in the local water industry, following the industry-wide restructuring efforts undertaken by the

government in an effort to formulate a more holistic approach in the management of water

services.

4.0. AirAsia Berhad

4.1. Company Background

The use of financial statements and considering them plays an important role in the strategic and

operation and financial management of airlines, and loss/gain at the successful airlines in the

future. In this chapter of our work, we look at the AirAsia’s financial reports and statements and

will identifying that have this famous low-cost company been success since founded or not?!

AirAsia, analyzes the current financial environment, cost of capital and the policies which

AirAsia has obeyed to issuing divined.

In 2001, Dato’ Sri Tony Fernandes along with Dato’Pahamin Ab. Rajab (Former Chairman,

AirAsia), Dato’ Kamarudin bin Meranun (Deputy Group Chief Executive Officer, AirAsia) and

Dato’ Abdul Aziz bin Abu Bakar (Current Chairman, AirAsia) formed a partnership to set up

Tune Air Sdn Bhd and bought Air Asia for a token sum of RM1.00. With the help of Conor Mc

Carthy(Director, Air Asia; former Director of Tune Air Sdn Bhd and former Director of Group

Operations, Ryanair),AirAsia was remodeled into a low cost carrier and by January 2002, their

vision to make air travel more affordable for Malaysians took flight.

AirAsia is one of the award winning and largest low fare airlines in the Asia expanding rapidly

since 2001. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international

destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia,

Thailand, and Indonesia. Today, AirAsia has flown over 55 million guests across the region and

continues to create more extensive route network through its associate companies. AirAsia

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believes in the no-frills, hassle-free, low fare business concept and feels that keeping costs low

requires high efficiency in every part of the business. Through the corporate philosophy of “Now

Everyone Can Fly”, AirAsia has sparked a revolution in air travel with more and more people

around the region choosing AirAsia as their preferred choice of transport.

4.2. AirAsia’s Vision & Mission

Air Asia’s Vision is to be the largest low cost airline in Asia and serving the 3 billion people

who are currently underserved with poor connectivity and high fares.

On the other hand, AirAsia has developed its mission to be the best company to work for

whereby employees are treated as part of a big family, create a globally recognized ASEAN

brand, attain the lowest cost so that everyone can fl y with AirAsia, and last but not least, to

maintain the highest quality product, embracing technology to reduce cost and enhance service

level.

4.3. AirAsia’s Strengths and Weaknesses

Strengths Weaknesses

• Low cost operations(The Airbus

A320 is known for its fuel efficiency, high

reliability and low operating costs. In

December 2007, AirAsia became the largest

Airbus A320 customer in the world. Also

LCCT….)

• Fewer management level, effective,

focused and aggressive management

• Simple proven business model that

consistently delivers that lowest fares

• Penetrate and stimulate to potential

markets

• Service resource is limited by lower costs

• Limited human resources could not handle

irregular situation

• Government interference and regulation on

airport deals and passenger compensation

• Non-central location of secondary airports

• Brand is vital for market position and

developing it is always a challenge

• Heavy reliance on outsourcing

• New entrants to provide the price-sensitive

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• Multi-skilled staffs means efficient

and incentive workforce

• Single type fleet minimize

maintenance fee and easy for pilot dispatch

services

4.4 FINANCIAL STATEMENT OF AIR ASIA

View Income Statement In U.S. Dollar      

Currency in

Millions of Malaysian Ringgits

As of: Dec 31

2007

Restated

MYR

Dec 31

2008

Restated

MYR

Dec 31

2009

MYR

Dec 31

2010

Press

Release

MYR

4-Year

Trend

Revenues 2,188.8 2,855.0 3,132.9 3,992.7

TOTAL REVENUES 2,188.8 2,855.0 3,132.9 3,992.7

Cost of Goods Sold 1,408.3 2,026.5 1,751.6 2,142.2

GROSS PROFIT 780.4 828.5 1,381.3 1,850.5

Selling General & Admin Expenses, Total 105.8 42.4 59.2 --

Depreciation & Amortization, Total 259.5 347.0 447.6 520.9

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Other Operating Expenses -63.5 -9.2 27.3 180.9

OTHER OPERATING EXPENSES,

TOTAL301.8 380.2 534.1 701.8

OPERATING INCOME 478.6 448.3 847.1 1,148.7

Interest Expense -176.6 -297.5 -371.2 -374.4

Interest and Investment Income 27.6 21.0 6.3 65.4

NET INTEREST EXPENSE -148.9 -276.5 -364.9 -309.0

Currency Exchange Gains (Loss) 229.5 -216.1 91.1 556.2

Other Non-Operating Income (Expenses) -4.7 -836.2 18.6 -296.6

EBT, EXCLUDING UNUSUAL ITEMS554.4 -880.5 592.0 1,099.3

Gain (Loss) on Sale of Investments 0.0 -4.2 0.0 --

Gain (Loss) on Sale of Assets 0.0 15.6 30.7 --

Other Unusual Items, Total -1.0 0.0 -0.4 --

EBT, INCLUDING UNUSUAL ITEMS 553.4 -869.2 622.3 1,099.3

Income Tax Expense -298.0 -372.6 116.0 32.4

Earnings from Continuing Operations 851.4 -496.6 506.3 1,066.9

NET INCOME 851.4 -496.6 506.3 1,066.9

NET INCOME TO COMMON 851.4 -496.6 506.3 1,066.9

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INCLUDING EXTRA ITEMS

NET INCOME TO COMMON

EXCLUDING EXTRA ITEMS851.4 -496.6 506.3 1,066.9

5.0. Malaysia Airlines (MAS)

5.1. Company Background

Malaysia Airlines started its operation on 1987 after the airline changed its name from Malaysian

Airline System. It is founded in 1947 by Malayan Airways. Then, it transformed to Malaysian

Airways due to Malaysia gaining its independence. After that, it changes its name once more

to Malaysia-Singapore Airlines and thereafter ceased its operation. It was then divided into

Malaysia Airlines and Singapore Airlines. Malaysia Airlines is listed on the stock exchange

of Bursa Malaysia under the name Malaysian Airline System Berhad. The airline suffered high

losses over the years due to poor management and fuel price increases. As a result of financial

restructuring (Widespread Asset Unbundling) in 2002, Malaysia Berhad became its parent

company, incorporated in 2002, in exchange for assuming the airline's long-term liabilities.

Under the leadership of the new CEO appointed in December 2005, Malaysia Airlines unveiled

its Business Turnaround Plan (BTP) in February, 2006, which highlighted low yield, an

inefficient network and low productivity (overstaffing).

Following the Widespread Asset Unbundling (WAU) restructuring of Malaysia

Airlines, Malaysian Government investment arm and holding company, Khazanah Nasional's

subsidiary, Penerbangan Malaysia Berhad is the majority shareholder with a 52.0% stake. After

Penerbangan Malaysia Berhad, the second-largest shareholder is Khazanah Nasional, which

holds 17.33% of the shares. Minority shareholders include Employees Provident Fund Board

(10.72%), Amanah Raya Nominees (Tempatan) Sdn Bhd (5.69%), State Financial Secretary

Sarawak (2.71%), foreign shareholders (5.13%) and Warisan Harta Sabah (2.4%). It has 19,546

employees (as of March, 2007). Malaysia Government has been reporting that the government's

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holding company, Khazanah Nasional is keen on selling shares of Malaysia Airlines to remain

globally competitive in an industry which is fast-consolidating.

Malaysia Airlines has diversified in to related industries and sectors, including aircraft ground

handling, aircraft leasing, aviation engineering, air catering, and tour operator operations. It has

also restructured itself by spinning-off operational units as fully-owned subsidiaries, to maintain

its core business as a passenger airline. Malaysia Airlines has over 20 subsidiaries, with 13 of

them fully owned by Malaysia Airlines.

5.2. Malaysia Airlines’ Financial Highlights

Malaysia Airlines experienced its worst loss in FY2005, with RM1.25 billion losses. Since then, the Business Turnaround Plan was introduced to revive the airline, in

the year 2006. At the end of the airline's turnaround program, in financial year 2007, Malaysia Airlines gained RM851 million net profit: a swing of RM987 million

compared to RM134 million in losses in FY2006, marking the national carrier’s highest-ever profit in its 60-year history. The achievement was recognised as the

world’s best airline-turnaround story in 2007, with Malaysia Airlines being awarded the Phoenix award by Penton Media's  Air Transport World: the leading monthly

magazine covering the global airline industry.

Year ended/(Quarter

Ended)  

Revenue

(RM

'000)  

Expenditure

(RM

'000)  

Profit/(Loss)

after Tax (RM

'000)  

Shareholders

Fund (RM

'000)  

EPS after

tax

(cents)  

31 December 2002 8,864,385 8,872,391 ▲336,531 2,562,841 ▲38.7

31 December 2003 8,780,820 8,591,157 ▲461,143 3,023,984 ▼36.8

31 December 2004 11,364,309 11,046,764 ▼326,07 3,318,732 ▼26.0

31 December 2005 9,181,338 10,434,634 ▼(1,251,603) 2,009,857 ▼(100.20)

31 December 2006 13,489,549 13,841,607 ▼(133,737) 1,873,452 ▼(10.90)

31 December 2007 15,288,640 14,460,299 ▲852,743 3,934,893 ▲58.05

31 December 2008 15,503,714 15,259,027 ▼245,697 4,186,000 ▼14.62

30 June 2009 6,093,480 5,912,027 ▼181,453 432,421 ▼10.781

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Malaysia Airlines financial highlights

5.3. Strengths and Weaknesses

SWOT ANALYSIS

LNC is a holding company which operates insurance and investment management

businesses through subsidiary companies. The company is focused at creating a

strong brand name but faces the threat of a continued low interest regime.

Strengths

o Market leading positions. LNC is a leader in both individual and employer-sponsored

annuity markets. The company ranks 5th in assets and 11th in variable annuity sales (as of 2003)

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in the US. Based on assets, it is the 44th largest US corporation and the 8th largest US

stockholder-owned company based on revenues. LNC is among the 10 largest life insurers in the

US and is a leading provider of life insurance products designed specifically for the high net-

worth and affluent markets.

o Focus on branding Branding is a key element of LNC’s strategy. LNC’s branding

efforts are focused on. Two primary target audiences -financial intermediaries and very affluent

consumers.(top 11% of the population). On the consumer side, LNC’s total company awareness

has increased from 22% in 1998 to 39% in 2003. On the trade side, company awareness is very

strong at 96% In 2002.

Weaknesses

o Weakness of the annuity business. For the year 2003, the company’s fixed annuity sales

were $861 million, a decrease of about 30% over the previous year. This segment is expected to

remain weak not only due to market sensitivity but also due to excess capacity and aggressive

competition for variable annuities.

o Sensitivity to equity markets. About one-third of LNC’s earnings are derived from free-

based equity market products. This is an above average exposure to the equity markets. Though

LNC’s annuities, life insurance, money management and financial planning businesses a

benefited from the improving financial markets experienced during 2003, its high exposure

makes it more vulnerable to the volatilities of the markets.

o Weak operating performance. LNC has disposed of or is running off the businesses that

have caused significant charges, such as reinsurance and its UK operations. The company’s

earning history has been consistently below average. LNC has had restructuring or other large

onetime charges in each of the last five years. Revenues have been consistently declining over

the period 1999-2003 at a CAGR of 6.1%, excluding 2003 where the company recorded a

growth over previous year

19

5.4.FINANCIAL STATEMENT OF MALAYSIAN AIRLINE SYSTEM (MAS)

     

Currency in

Millions of Malaysian Ringgits

As of: Dec 31

2007

Restated

MYR

Dec 31

2008

Restated

MYR

Dec 31

2009

MYR

Dec 31

2010

Press

Release

MYR

4-Year

Trend

Revenues 14,630.2 15,035.3 11,309.9 12,980.4

TOTAL REVENUES 14,630.2 15,035.3 11,309.9 12,980.4

Cost of Goods Sold 14,357.5 15,198.3 12,202.7 13,323.7

GROSS PROFIT 272.7 -163.0 -892.9 -343.3

Other Operating Expenses -288.2 -466.0 -264.6 -607.2

OTHER OPERATING EXPENSES,

TOTAL-288.2 -466.0 -264.6 -607.2

OPERATING INCOME 561.0 303.0 -628.3 263.9

Interest Expense -46.8 -58.6 -83.4 -138.4

NET INTEREST EXPENSE -46.8 -58.6 -83.4 -138.4

Income (Loss) on Equity Investments 12.6 20.0 11.6 17.6

Currency Exchange Gains (Loss) -- -- 0.6 -25.6

Other Non-Operating Income (Expenses) 0.0 -2.2 1,161.4 164.6

20

EBT, EXCLUDING UNUSUAL

ITEMS526.6 262.3 462.0 282.0

Gain (Loss) on Sale of Assets 314.3 2.4 -- --

EBT, INCLUDING UNUSUAL

ITEMS840.9 264.7 462.0 282.0

Income Tax Expense 29.6 19.1 -31.1 44.7

Minority Interest in Earnings -1.3 -1.4 -2.9 -2.9

Earnings from Continuing Operations 811.3 245.6 493.1 237.3

EARNINGS FROM DISCOUNTINUED

OPERATIONS41.4 0.1 -- --

NET INCOME 851.4 244.3 490.2 234.5

NET INCOME TO COMMON

INCLUDING EXTRA ITEMS851.4 244.3 490.2 234.5

NET INCOME TO COMMON

EXCLUDING EXTRA ITEMS810.0 244.2 490.2 234.5

6.0 USEFUNESS OF FINANCIAL STATEMENTS

(A statement that the same accounting policies and methods of computation are followed in

the interim financial statements as compared with the most recent annual financial statements

or, if those policies or methods have been changed, a description of the nature and effect of the

change)

21

The interim financial report has been prepared in accordance with the requirements of Financial

Reporting Standards (“FRS”) No. 134 – Interim Financial Reporting and Appendix 9B of the

Listing Requirements of the Bursa Malaysia Securities Berhad (Bursa Malaysia). The financial

statements should be read in conjunction with the Group's most recent audited financial

statements for the year ended 30 June 2005.

The accounting policies and methods of computation used in the Group’s annual financial

statements for the financial year ended 30 June 2005 have been used in the preparation of the

interim financial statements, except for FRS 112 2004 as disclosed in Note 17.

2. (Where the audit report of the enterprise’s preceding annual financial statements was

qualified, disclosure of the qualification and the current status of the matter(s) giving rise to the

qualification)

The audit report of the Group’s annual financial statements for the financial year ended 30 June

2005 was not subject to any qualification.

3. (Explanatory comments about the seasonality or cyclicality of interim operations)

AirAsia is basically involved in the provision of air transportation services and thus, is subject to

the seasonal demand for air travel. The cost of air travel has increased in tandem with recent

hikes in global fuel prices and has invariably affected overall demand in the short-term.

The passenger load factor has increased from 80% in the previous quarter as compared to 83% in

the current quarter under review. The increase was achieved on the back of ongoing promotions.

4. (The nature and amount of items affecting assets, liabilities, equity, net income, or cash flows

that is unusual because of their nature, size, or incidence)

There were no unusual items affecting assets, liabilities, equity, net income or cash flows for the

quarter.

22

5. (The nature and amount of changes in estimates of amounts reported in prior interim periods

of the current financial year or changes in estimates of amounts reported in prior financial

years, if those changes have a material effect in the current interim period)

There have been no changes in the basis of estimates provided in respect of the financial period

under review.

6. (Issuance, cancellations, repurchases, resale and repayments of debt and equity securities)

During the financial period ended 30 June 2006, the issued and paid-up capital of the Company

increased from 2,335,031,080 to 2,346,488,080 ordinary shares by the issuance of 11,457,000

ordinary shares pursuant to the exercise of ESOS at the option price of RM1.08. Other than the

above, there were no issuance and repayment of debt and equity securities, share buy-backs,

share cancellation or shares held as treasury shares and resale of treasury shares in the period

under review.

7. (Dividends paid (aggregate or per share) separately for ordinary shares and other shares)

There were no dividends paid during the quarter under review.

8. (Segment revenue and segment result for business segments or geographical segments,

whichever is the enterprise’s primary basis of segment reporting [disclosure of segment data is

required in an enterprise’s interim financial report only if MASB 22, Segment Reporting,

requires that enterprise to disclose segment data in its annual financial statements])

Segmental information is not presented as there are no significant business segments other than

the provision of air transportation services. The financial results for the quarter under review

include our share of results from our operations in Thailand via our jointly controlled entity, Thai

AirAsia Co. Ltd. The financial results from the operations in Thailand are not significant

compared to the 9. (Where valuations of property, plant and equipment have been brought

forward, without amendment from the previous annual financial statements, a statement to that

effect should be given)

There was no revaluation of property, plant and equipment during the quarter under review.

23

10. (Material events subsequent to the end of the interim period that have not been reflected in

the financial statements for the interim period)

There were no material events subsequent to the end of the quarter that have not been reflected in

the financial statements for the quarter.

11. (The effect of changes in the composition of the enterprise during the interim period,

including business combinations, acquisition or disposal of subsidiaries and long-term

investments, restructuring, and discontinuing operations)

During the financial

year, the Group

acquired/incorporate

d the following

companies:- Name

Country of

Incorporation

Group’s effective

equity interest

Principal activities

AirAsia Philippines

Inc

Philippines 39.9% To carry on the

business of air

transportation

Held by AA

International Ltd:-

AA Capital Ltd

Malaysia 99.8% To provide

consultancy services

to entities within

and outside the

AirAsia Group

12. (Changes in contingent liabilities or contingent assets since the last annual balance sheet

date)

The Company is currently disputing certain expenses charged by a service provider as at 30 June

2006 amounting to approximately RM10 million. The Directors are confident that resolution of

the dispute above would be favorable to the Company.

As disclosed in Note 31 of the financial statements for the year ended 30 June 2005, the

Company had made an application to the government for the waiver of withholding tax payable

24

on the lease payments for the aircraft of the Group and the Company amounting to

RM10,390,276. The Company has now made the withholding tax and an application to the

government for the waiver of penalty on the late payment of withholding tax on past lease

payments for the aircraft of the Group and the Company. The Directors are of the opinion that

the Company’s application on the waiver for the penalty will receive due consideration from the

government and that a favorable response will be granted.

Other than the above, there have been no material changes in contingent liabilities since the last

audited balance sheet date as at 30 June 2005.

13. Commitments

(a) Capital commitments for property, plant and equipment:

Group and Company

30.06.06 30.06.05

RM’000 RM’000

Approved and contracted for 7,100,028 8,108,067

Approved and not contracted for 109,000 94,000

-------------- --------------

7,209,028 8,202,067

========= =========

14. (A review of the performance of the company and its principal subsidiaries, setting out

material factors affecting the earnings and/or revenue of the company and the group for the

current quarter and financial year-to-date)

AUDIT

25

The Group recorded revenue of RM241.7 million and profit before tax of RM26.2 million

respectively for the quarter. For the financial year-to-date under review, the Group recorded a

revenue of RM855.6 million and profit before tax of RM115.5 million respectively.

The higher revenue was achieved on the back of an increase in average fare of 5.7%, from

RM123 in the previous quarter to RM130 for the current quarter and a passenger load factor of

83% as compared to 80% in the immediate preceding quarter.

15. (An explanatory comment on any material change in the profit before taxation for the quarter

reported on as compared with the immediate preceding quarter)

The Group achieved a profit before tax of RM26.2 million for the quarter under review. This was

an increase of RM2.7 million compared to that of the immediately preceding quarter ended 31

March 2006. The Group however incurred higher finance costs and depreciation and

amortisation charges for the period under review as AirAsia has taken delivery of 2 new A320-

200. Up to 30 June 2006, the AirAsia Group has already taken delivery of 7 new A320-200.

Included in the Group’s result for the current quarter was a loss of RM1.0 million, being the 49%

share of losses of Thai AirAsia, a jointly-controlled entity. This is a decrease of RM3.0 million

compared to the preceding quarter ended 31 March 2006 and was mainly due to higher staff and

maintenance costs and unrealized losses in foreign exchange. Losses in the Group’s associated

company, PT Indonesia AirAsia, which are funded by the Group and are not included in the

Group’s results under the existing accounting policy, increased to RM8.9 million in the current

quarter compared to RM8.8 million in the preceding quarter and amounted to

Financial statements are important in providing an overview of the company’s financial

condition both in short and long term. Financial statements should be understandable, relevant,

reliable, and comparable and are used by owners, managers, investors to help them make

important business decisions. The audience, purpose, and nature of financial statements and

managerial reports will be examined. In addition, the use of financial accounting information in

making informed and ethical business decisions will be discussed.

26

What are financial statements? Financial statements are part of a process of financial reporting

which provide information about the financial strength, performance, and changes in financial

position of a company that is useful in making economic decisions. Financial statements include

an income statement, a balance sheet and a cash flow statement and owners and managers

require financial statements to assist them in making business decisions that affect the

performance of the company (Block & Hirt, 2005). Management of the company is primarily

responsible for preparing and presenting financial statements of the firm and all reports included

the date prepared, the period covered, and descriptive labels and titles are comprehensible to the

general reader. The reports are produced annually and often generated quarterly or monthly and

frequent reports are more useful as management tools because they are based on current data and

provide more opportunities to react to changes in financial markets.

Financial statements are also used by employees and their representatives to determine

company’s ability to provide retirement benefits and employment opportunities, and the

company’s stability and profitability. Moreover, government and their agencies rely on financial

statements to regulate the company’s activities, determine taxation policies, and as the basis of

national income and similar statistics.

Financial statements contain important information for investors, providers of risk capital to the

company and their advisers are concerned with the risk inherent in, and return provided by their

investments. Investors rely on financial statements to assess management’s accountability and

determine whether to hold or sell their investment, reappoint or replace management.

Shareholders are interested in information to assess the ability of the company to pay dividends.

“An income statement is a major device for measuring the profitability of a firm over a period of

time” (Block & Hirt, 2005, p. 3) and also shows the costs and expenses associated with

generated revenues and net earnings or losses. Income statements also report earnings per share

or a calculation that shows how much money shareholders would receive if the company decided

to distribute all of the net earnings for the period. “Price- earnings ratio is a multiplier applied to

earnings per share to determine current value of the common stock and is influenced by the

earnings and sales growth of the firm, the risk or volatility in performance, the debt-equity

structure of the firm, dividend payment policy, the quality of management and a number of other

27

factors. Since companies have various levels of earnings per share, price earnings ratios allow for

comparison of the relative market value of many companies based on $1 of earnings per share”

(Block & Hirt, 2005, p. 9).

A balance sheet provides detailed information of the company’s assets, liabilities, and

shareholder’s equity and shows all transactions accumulated since the inception of the company

and balance sheet items are based on original cost rather than current market value. Assets are

what the company owns that have value and can be converted to cash within a year or normal

operating cycle of the company and include plants, trucks, equipment, inventory, trademarks,

patents, investments and cash.

Liabilities are financial obligations of the company due in one year or longer term and can

include money borrowed from the bank, rent for use of the building, money owed to suppliers for

materials, payroll for employees, environmental cleanup costs and taxes owed to government,

providing goods and services to customers in the future and bonds. Shareholder’s equity is

referred to as capital or net worth or the money that would be left if the company sold all of its

assets and paid off all of its liabilities and the leftover money belongs to the shareholders or

owners of the company (Block & Hirt, 2005).

Both the income statement and balance sheet are based on an accrual method of accounting, in

which revenues and expenses are recognized as they occur regardless of when the actual

payment is received and even if the supplies has not been paid. However, a cash flow statement

shows a company's sources and uses of cash or actual cash flow position of the firm including

how changes in the balance sheet and income statement affected cash and cash equivalents and

breaks down analysis according to operating, investing and financing activities. Cash flow

statement excludes transactions that do not directly affect cash receipts and payments such as

depreciation and write-offs on bad debts and provides information on the company's liquidity

and solvency and its ability to change cash flows in future circumstances.

The financial manager must understand the institutional structure of the Federal Reserve System,

the commercial banking system and economic variables such as gross domestic product,

industrial production, disposable income, unemployment, inflation, interest rates, and taxes to

28

assist in the financial decision making process. In addition, the financial manager is responsible

for interpreting and using financial statements in allocating the company’s financial resources to

maximize profits and the wealth of the company’s shareholders (Block & Hirt, 2005).

“The goal of shareholder wealth maximization must also be consistent with a concern for social

responsibility for the company by adopting policies that maximize values in the market; the

company can attract capital, provide employment, and offer benefits to the company” (Block &

Hirt, 2005, p. 27). The company may also use financial information to make informed and

ethical business decisions, for example declining stocks due to immense competition in the

telecommunications industry and the shareholders are bemoaning on the returns. The company is

under pressure to develop an aggressive approach to cut costs and realize growth by outsourcing

some of their jobs and create partnerships with other providers to offer new services. The

company must communicate with their loyal employees and shareholders and involve them in

the decision making process because of social responsibility and ethical values. Furthermore,

financial statements have significant value, but non- financial indications such as employee

commitment, customer satisfaction, quality of corporate governance, and operational

performance are really the key to the company’s success (Chasan, 2007).

7.0 CONCLUSION

Financial statements including income statement, balance sheet, and cash flow statements

provide important information for managers, employees, investors to assist in making informed

business decisions. Financial managers must have thorough understanding of accounting

principles to allocate the company’s financial resources to generate the highest returns for the

company. In addition, the use of financial accounting may be used to make ethical decisions

impacting the company’s performance and other stakeholders.

29

8.0 REFERENCES

Air Asia Bhd. (2006).Company Profile.

Miller, Merton H. and Franco Modigliani 1961, Dividend Policy, Growth,

and the valuation of shares, the Journal of Business, 34, 411-433.

Miller, Merton H. , 1977, Debt and Taxes, the Journal of Finance, 32, 261-

275.

Masulis, Ronald W.and Brett Trueman, 1988, Corporate Investment

and Dividend Decisions Under Differential Personal Taxation, Journal of

Financial and Quantitative Analysis, 23, 369,386

Farrar, Donald E. and Lee L. Selwyn, 1967, Taxes, Corporate Financial

Policy and Return to investors, National Tax Journal, 20, 444-462.

Brennan, Michael J., 1970, Taxes, Market Valuation, and Corporation

Financial Policy, National Tax Journal, 23, 417-427.

Akerlof, George, 1970, the market for “Lemons”: Quality Uncertainty and

30

the market mechanism, the quarterly Journal of economics, 84, 488-500.

Spence, Michael, 1973, Job Market Signaling, The quarterly Journal of

Economics, 87, 355-374

Spence, Michael, 1974, Competitive and Optimal Responses to Signals: An

analysis of efficiency and distribution, Journal of Economic theory, 7, 296-

332.

Smith, Adam, 1937, the wealth of Nations, New York: Random house, Inc.

Fama, Eugene F. and Michael C. Jensen, 1983a, Separation of Ownership

and Control, Journal of Law and Economics, 26, 301-325.

Fama, Eugene F. and Michael C. Jensen, 1983b, Separation of Ownership

and Control, Journal of Law and Economics, 26, 301-325.

Jensen, Michael C., 1986, Agency Cost of Free Cash flow, Corporate

Finance, and Takeovers, The American Economic Review, 76, 323-329

31

Retrieved January 27, 2006, from KLSE Web

site:http://www.klse-ris.com.my/html-dir/intro1.htmlAirAsia website  www.airasia.com.my

Low-cost carrier.(n.d.). Retrieved January 20, 2006 fromhttp://www.answers.com/topic/low-

cost-carrier   Piercy, N. (2000). Reinventing the airline business.

Businesscases.org,Case Nos. 00068.Retrieved January 20, 2006

from  http://www.businesscases.org/newInterface/sample.pdf   Stakeholders support AirAsia

expansion plan. (2005, November 26).

The New Straits Times,BIZWEEK p.B6.The sky’s the limit. (2006, April 1).

The New Straits Times,BIZWEEK p. BW13

The thrills of no-frills: discount carriers are taking off in Asia.(2003, December 19). Retrieved

January 20,2006 fromhttp://www.asiapacificbusiness.ca/apbn/pdfs/bulletin139.pdf   Warner, B.A.

(2002, March). Fast, cheap and out of control.

Finance Committee on Corporate Governance (1999), Report on Corporate Governance, 1st

edn, Securities Commission, Malaysia.

32

33

34

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http://www.morevalue.com/i-reader/ftp/files.html

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http://dividendmoney.com/the-dividend-payout-ratio-explained/

Miller, Merton H. and Franco Modigliani 1961, Dividend Policy, Growth, and the

valuation of shares, the Journal of Business, 34, 411-433.

Miller, Merton H. , 1977, Debt and Taxes, the Journal of Finance, 32, 261-275.

Masulis, Ronald W. and Brett Trueman, 1988, Corporate Investment and Dividend

Decisions Under Differential Personal Taxation, Journal of Financial and Quantitative Analysis,

23, 369,386

Farrar, Donald E. and Lee L. Selwyn, 1967, Taxes, Corporate Financial Policy and

Return to investors, National Tax Journal, 20, 444-462.

Brennan, Michael J., 1970, Taxes, Market Valuation, and Corporation Financial Policy,

National Tax Journal, 23, 417-427.

Akerlof, George, 1970, the market for “Lemons”: Quality Uncertainty and the market

mechanism, the quarterly Journal of economics, 84, 488-500.

Spence, Michael, 1973, Job Market Signaling, The quarterly Journal of Economics, 87,

355-374

Spence, Michael, 1974, Competitive and Optimal Responses to Signals: An analysis of

efficiency and distribution, Journal of Economic theory, 7, 296-332.

35

Smith, Adam, 1937, the wealth of Nations, New York: Random house, Inc.

Fama, Eugene F. and Michael C. Jensen, 1983a, Separation of Ownership and Control,

Journal of Law and Economics, 26, 301-325.

Fama, Eugene F. and Michael C. Jensen, 1983b, Separation of Ownership and Control,

Journal of Law and Economics, 26, 301-325.

Jensen, Michael C., 1986, Agency Cost of Free Cash flow, Corporate Finance, and

Takeovers, The American Economic Review, 76, 323-329.

Schiller, Robert J., 1984, Stock Prices and Social Dynamics, Brokkings Papers on

Economic Activity, 457-510.

Michel, Allen J., 1979, Industry Influence on Dividend Policy, Financial Management,

8, Fall, 22-26.

Ho, Kwok and Chris Robinson, 1992, Dividend Policy is relevant in perfect Markets,

Unpublished working paper.

Frankfurter, George M. and William R. Lane, 1992, The Rationality of Dividends,

International Review of Financial Analysis, 1, 115-129.

Myers, Stewart C., 1984, The capital Structure Puzzle, The Journal of Finance, 39, 575-

592.

http://en.wikipedia.org/wiki/Cost_of_capital#cite_note-0

http://www.answers.com/topic/cost-of-debt-1

http://en.wikipedia.org/wiki/Cost_of_equity

http://en.wikipedia.org/wiki/Risk_premium

YTL Corporation

http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?symbol=MYR

http://www.ytl.com.my/listedinfo.asp?n=ytl power

36

http://www.reuters.com/finance/stocks/incomeStatement?

stmtType=BAL&perType=INT&symbol=YTLPs.KL

AirAsia

http://www.midf.com.my/project/midf/media/2009/07/23/111246-387.pdf

http://www.airasia.com/site/en/pageWithMenu.jsp?name=FAQs&id=2efe4435-

c0a8c85d-177e6b40-8371b4bc&rootId=50ae1200-c0a8c85d-1410a850-

baad6a43&parentId=2efe4435-c0a8c85d-177e6b40-8371b4bc

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7f000010-6aa95b00-a2c338c0/name/AA_2Q08_Bursa%20Announcement.pdf

MAS

http://en.wikipedia.org/wiki/Malaysia_Airlines

http://www.eturbonews.com/1442/malaysian-airline-returns-profit-2007-exceeds

37