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 4-5
BOARD (MASB)

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

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1.0 INTRODUCTION

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.

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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.

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:

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 • 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;
• 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.

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

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(RM’000)
Profit After Taxation 1,038,846 1,269,214 874,483 742,178 613,049
(RM’000)
Shareholders’ Funds 6,400,395 6,127,143 5,728,957 5,229,233 4,560,490
(RM’000)
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 24,002,89 22,244,265 21,905,572 20,576,574
0
Net Assets per Share 1.20 1.20 1.16 1.08 1.02
(RM)

YTL’s Annual Balance Sheet

2007 2005
2009 2008 2006
In Millions of Ringgit 2007-06-30 2005-06-30
2009- 2008-06- 2006-06-
(except for per share items) Reclassified Reclassified
06-30 30 30
2008-06-30 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 17,283.3 15,089.8 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 -- --
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 34,715.1 27,826.9 24,002.9 22,244.3 21,905.6

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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 20,388.0 13,528.3 13,022.0 11,541.9 11,257.2
Capital Lease Obligations -- -- -- -- --
Total Long Term Debt 20,388.0 13,528.3 13,022.0 11,541.9 11,257.2
Total Debt 22,914.8 17,559.5 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 28,634.2 21,426.5 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 34,715.1 27,826.9 24,002.9 22,244.3 21,905.6

(Source: Reuters ;business and finance site.)

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%

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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.

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 Exposed to FOREX risks: its core earnings
purchase agreement) contract: YTLPG would be adversely affected by a firming of the
signed a power purchase agreement (PPA) ringgit against the sterling pound, Australian
with TENAGA on 31 Mar 1993 for a term of dollar or the greenback.

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21 years expiring on 30 Sep 2015. Under
However, this would be partially offset by
the PPA, TENAGA is obliged to “take or pay” forex translation gains on its foreign
a minimum of 7,450Gwh of electricity per denominated debt.
annum. This represents a capacity factor of
assets interest rate risk: a lower interest rate
around 70%.
environment may reduce its chances of
Fuel cost pass-through element in PPA: Gas acquiring new assets as the group will face
supply to YTL Power’s power plants is secured more competition from private equity funds.
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.

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

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 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 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

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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
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

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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 • Service resource is limited by lower costs
A320 is known for its fuel
• Limited human resources could not handle
efficiency, high reliability and low
irregular situation
operating costs. In December 2007,
AirAsia became the largest Airbus
• Government interference and regulation on
A320 customer in the world. Also
airport deals and passenger compensation
LCCT….)
• Fewer management level, effective, • Non-central location of secondary airports
focused and aggressive management
• Brand is vital for market position and
• Simple proven business model that
developing it is always a challenge
consistently delivers that lowest
fares
• Heavy reliance on outsourcing
• Penetrate and stimulate to potential
markets • New entrants to provide the price-sensitive
• Multi-skilled staffs means efficient services
and incentive workforce

• Single type fleet minimize

maintenance fee and easy for pilot
dispatch

4.4 FINANCIAL STATEMENT OF AIR ASIA

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View Income Statement In U.S. Dollar

Currency inAs of: Dec 31 Dec 31Dec 31Dec 314-Year

Millions of Malaysian Ringgits 2007 2008 2009 2010 Trend
Restated Restated MYR Press
MYR MYR Release
MYR
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

Other Operating Expenses -63.5 -9.2 27.3 180.9

OTHER OPERATING EXPENSES,

301.8 380.2 534.1 701.8
TOTAL

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 --

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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
INCLUDING EXTRA ITEMS

NET INCOME TO COMMON

851.4 -496.6 506.3 1,066.9
EXCLUDING EXTRA ITEMS

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

15
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
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 Revenue Expenditure Profit/(Loss) Shareholders EPS after

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 (RM (RM after Tax (RM Fund (RM tax
Ended)
'000) '000) '000) '000) (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

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.

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• 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) 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

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 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

5.4.FINANCIAL STATEMENT OF MALAYSIAN AIRLINE SYSTEM (MAS)

Currency inAs of: Dec 31 Dec 31Dec 31Dec 314-Year

Millions of Malaysian Ringgits 2007 2008 2009 2010 Trend
Restated Restated MYR Press
MYR MYR Release
MYR
Revenues 14,630.2 15,035.3 11,309.9 12,980.4

19
 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,

-288.2 -466.0 -264.6 -607.2
TOTAL

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

EBT, EXCLUDING UNUSUAL

526.6 262.3 462.0 282.0
ITEMS

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

EBT, INCLUDING UNUSUAL

840.9 264.7 462.0 282.0
ITEMS

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

41.4 0.1 -- --
OPERATIONS

NET INCOME 851.4 244.3 490.2 234.5

NET INCOME TO COMMON851.4 244.3 490.2 234.5

20
INCLUDING EXTRA ITEMS

NET INCOME TO COMMON

810.0 244.2 490.2 234.5
EXCLUDING EXTRA ITEMS

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)

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)

21
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.

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.

22
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.

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 Country of Group’s effective Principal activities

year, the Group Incorporation equity interest
acquired/incorporate
d the following
companies:- Name
AirAsia Philippines Philippines 39.9% To carry on the
Inc business of air
transportation

23
 Held by AA Malaysia 99.8% To provide
International Ltd:- consultancy services
to entities within
AA Capital Ltd
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
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

24
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

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

25
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.

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.

26
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
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).

27
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
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).

28
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.

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

29
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.

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

30
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

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

31
edn, Securities Commission, Malaysia.

32
33
References

Introduction and Literature Review

• http://cbdd.wsu.edu/kewlcontent/cdoutput/TOM505/page41.htm
• http://www.morevalue.com/i-reader/ftp/files.html
• http://en.wikipedia.org/wiki/Dividend#Forms_of_payment
• 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

34
• 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.
• 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

35
 • 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
• 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

• http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C4589V600

• http://en.wikipedia.org/wiki/AirAsia

• http://www.airasia.com/storage/bo/aaportal.model.ContentFileUpload/893fa280-
7f000010-6aa95b00-a2c338c0/name/AA_2Q08_Bursa%20Announcement.pdf

36
MAS

• http://en.wikipedia.org/wiki/Malaysia_Airlines
• http://www.eturbonews.com/1442/malaysian-airline-returns-profit-2007-exceeds

37