146 Malaysian Airline System Berhad Annual Report 04/05 (10601-W) Malaysian Airline System Berhad Annual Report 04/05 147 (10601-W) financial report
Performance Highlights - 148 Expenditure - 149 Analysis of Airline Operations - 150 Revenue Composition - 151 Group Financial Highlights - 152 Corporate Charts - 154 Directors’ Report - 158 Statement by Directors - 162 Statutory Declaration - 163 Report of the Auditors - 164 Income Statements - 165 Balance Sheet - 166 Statements of Changes in Equity - 167 Cash Flow Statements - 168 Notes to the Financial Statements - 170 Statistics on Shareholdings - 219 List of Company Properties - 222 Glossary - 228 Form of Proxy Request Form 148 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
performance highlights
2004 2003 CHANGE GROUP 2005 2004 %
Financial
Total Revenue RM Million 11,364.3 8,780.8 29.4 Total Expenditure RM Million 11,046.8 8,591.2 28.6 Profit after Tax RM Million 326.1 461.1 (29.3) Shareholders’ Funds RM Million 3,318.7 3,024.0 9.7 Earnings Per Share Sen 26.0 36.8 (29.3) Dividend Per Share Sen 2.5 - - Cash Flow Per Share RM 0.47 0.94 (50.0)
Operating Statistics
Available Tonne Kilometres Million 10,299.9 8,413.1 22.4 Load Tonne Kilometres Million 6,728.5 5,628.6 19.5 Overall Load Factor % 65.3 66.9 (2.4) points Available Seat Kilometres Million 64,115.2 55,692.4 15.1 Passenger Kilometres Flown Million 44,226.1 37,659.0 17.4 Passenger Load Factor % 69.0 67.6 2.1 points
Staff and Productivity
Employee Strength 22,513 20,789 8.3 Available Tonne Kilometres Per Employee 457,509 404,690 13.1 Load Tonne Kilometres Per Employee 298,872 270,748 10.4
COMPANY
Operating Statistics
Available Tonne Kilometres Million 8,127.9 6,986.2 16.3 Load Tonne Kilometres Million 5,442.0 4,705.4 15.7 Overall Load Factor % 67.0 67.6 (0.9) points Available Seat Kilometres Million 64,115.2 55,692.4 15.1 Passenger Kilometres Flown Million 44,226.1 37,659.0 17.4 Passenger Load Factor % 69.0 67.6 2.1 points Aircraft Utilisation (Average) Hours Per Day 10.6 9.6 10.4
Staff and Productivity
Employee Strength 20,087 18,712 7.3 Available Tonne Kilometres Per Employee 404,635 373,354 8.4 Load Tonne Kilometres Per Employee 270,921 251,464 7.7 Malaysian Airline System Berhad Annual Report 04/05 149 (10601-W)
expenditure
2004 2003 CHANGE 2005 2004
GROUP RM MIL RM MIL %
Staff costs 1,904.8 1,607.0 18.5 Depreciation 245.3 214.3 14.5 Fuel and oil 3,779.2 2,299.8 64.3 Handling and landing costs 2,113.1 1,875.0 12.7 Hire of aircraft and equipment 1,856.2 1,544.0 20.2 Finance charges 0.1 5.9 (98.3) Commission and incentives 658.4 591.1 11.4 Others 2,201.1 1,942.9 13.3
12,758.2 10,080.0 26.6 Less : Allocation of costs of domestic operations to PMB (1,711.4) (1,488.8) 15.0
11,046.8 8,591.2 28.6
COMPANY
Staff costs 1,784.3 1,503.1 18.7 Depreciation 210.1 160.6 30.8 Fuel and oil 3,253.7 2,035.4 59.9 Handling and landing costs 1,781.0 1,566.5 13.7 Hire of aircraft and equipment 1,478.6 1,312.3 12.7 Finance charges 0.1 5.9 (98.3) Commission and incentives 556.3 517.8 7.4 Others 1,950.8 1,738.3 12.2
11,014.9 8,839.9 24.6 Less : Allocation of costs of domestic operations to PMB (1,711.4) (1,488.8) 15.0
9,303.5 7,351.1 26.6
Expenditure
% 29.6 29.5
17.3 17.7 16.2 16.6 16.2 14.9 14.5 13.4
5.2 5.1
1.9 1.9 0.0 0.0 Staff Costs Depreciation Fuel & Oil Handling & Hire of Aircraft Finance Commission & Others Landing Costs & Equipment Charges Incentives
GROUP COMPANY 150 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
analysis of airline operations (incl. freighters)
by geographical route region 2004 2003 CHANGE 2005 2004 RM MIL RM MIL %
ROUTE REVENUE
Malaysia - - 0.0 Asia 1,656.4 1,356.2 22.1 Europe and Middle East 3,899.1 2,919.6 33.5 Australia and New Zealand 1,740.1 1,402.6 24.1 Africa and South America 275.8 223.6 23.3 Orient and North America 2,628.8 1,845.6 42.4
10,200.2 7,747.6 31.7
PASSENGER LOAD FACTOR POINTS
Malaysia - - 0.0 Asia 63.8 66.1 (3.5) Europe and Middle East 71.9 68.4 5.1 Australia and New Zealand 67.5 70.9 (4.8) Africa and South America 77.8 66.8 16.5 Orient and North America 66.2 62.4 6.1
69.0 67.6 2.1
OVERALL LOAD FACTOR POINTS
Malaysia - - 0.0 Asia 63.5 69.1 (8.1) Europe and Middle East 67.8 67.5 0.4 Australia and New Zealand 59.4 65.3 (9.0) Africa and South America 71.2 64.3 10.7 Orient and North America 65.4 66.4 (1.5)
65.3 66.9 (2.4)
route revenue
%
38.2 37.7
25.8 23.8
17.5 18.1 16.2 17.1
2.7 2.9 0.0 0.0 Malaysia Asia Europe and Australia and Africa and Orient and Middle East New Zealand South America North America
2004/2005 2003/2004 Malaysian Airline System Berhad Annual Report 04/05 151 (10601-W)
revenue composition
by category 2004 2003 CHANGE 2005 2004 RM MIL RM MIL %
GROUP
Passenger and Excess Baggage 9,097.7 7,407.6 22.8 Cargo and Mail 2,061.3 1,672.2 23.3 Airport Services 147.4 89.5 64.7 Charters 138.6 84.0 65.0 Others 1,349.5 859.6 57.0
12,794.5 10,112.9 26.5 Less: Traffic revenue of domestic operations to PMB (1,430.2) (1,332.1) 7.4
11,364.3 8,780.8 29.4
COMPANY
Passenger and Excess Baggage 8,994.8 7,407.6 21.4 Cargo and Mail 813.3 748.7 8.6 Airport Services 147.4 89.5 64.7 Charters 115.4 62.6 84.3 Others 893.7 499.8 78.8
10,964.6 8,808.2 24.5 Less: Traffic revenue of domestic operations to PMB (1,430.2) (1,332.1) 7.4
9,534.4 7,476.1 27.5
revenue composition by category
%
82.0
71.1
16.1 10.5 7.4 8.2 1.2 1.3 1.1 1.1
Passenger & Cargo & Mail Airport Services Charters Others Excess Beggage
GROUP COMPANY 152 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
group financial highlights
Cash Flow per Share (RM)
95/96 2.2 96/97 1.5 97/98 2.2 98/99 1.3 99/00 0.6 00/01 0.0 RM 01/02 1.5 02/03 1.1 03/04 0.9 04/05 0.5
04/05 03/04 02/03 01/02 00/01 99/00 98/99 97/98 96/97 95/96
Earnings/(Loss) per Share(sen) 04/05 03/04 02/03 01/02 95/96 33.3 00/01 99/00 96/97 43.8 98/99 97/98 (33.7) sen 97/98 98/99 (90.9) 96/97 95/96 99/00 (33.6) 00/01 (173.2) 01/02 (108.5) 02/03 38.7 03/04 36.8 04/05 26.0 Malaysian Airline System Berhad Annual Report 04/05 153 (10601-W)
GROUP FINANCIAL HIGHLIGHTS
Net Tangible Assets per Share (RM)
95/96 6.23 96/97 6.76 97/98 2.81 98/99 1.68 99/00 1.74 00/01 0.89 RM 01/02 1.98 02/03 2.04 03/04 2.41 04/05 2.65
04/05 03/04 02/03 01/02 00/01 99/00 98/99 97/98 96/97 95/96
Dividends per Share (sen)
95/96 7.5 96/97 10.0 97/98 2.0 98/99 2.0 sen 99/00 2.0 00/01 - 01/02 - 02/03 - 03/04 - 04/05 2.5
04/05 03/04 02/03 01/02 00/01 99/00 98/99 97/98 96/97 95/96 154 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
corporate charts
Overall Capacity and Demand
Million
12000
10000
8000
6000
4000
2000
0 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
Revenue Tonne Kilometres Available Tonne Kilometres
Revenue Tonne Kilometres Available Tonne Kilometres Overall Load Factor Million Million %
1995/96 3,355 5,382 62.3 1996/97 3,707 6,149 60.3 1997/98 3,888 6,411 60.6 1998/99 4,030 6,649 60.6 1999/00 4,853 7,531 64.4 2000/01 5,379 8,055 66.8 2001/02 5,150 7,824 65.8 2002/03 5,497 7,978 68.9 2003/04 5,629 8,413 66.9 2004/05 6,729 10,300 65.3
Overall Load Factor
%
04/05 03/04 02/03 01/02 00/01 99/00 98/99 97/98 96/97 95/96 Malaysian Airline System Berhad Annual Report 04/05 155 (10601-W)
CORPORATE CHARTS
Passenger Capacity and Demand
Million
80000
70000
60000
50000
40000
30000
20000
10000
0 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
Revenue Passenger Kilometres Available Seat Kilometres
Revenue Passenger Kilometres Available Seat Kilometres Passenger Load Factor Million Million %
1995/96 24,566 35,161 69.9 1996/97 27,904 40,097 69.6 1997/98 28,698 42,294 67.9 1998/99 30,593 45,442 67.3 1999/00 34,930 48,906 71.4 2000/01 38,313 51,238 74.8 2001/02 34,709 52,595 66.0 2002/03 37,653 54,266 69.4 2003/04 37,659 55,692 67.6 2004/05 44,226 64,115 69.0
Passenger Load Factor
%
04/05 03/04 02/03 01/02 00/01 99/00 98/99 97/98 96/97 95/96 156 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
CORPORATE CHARTS
Passenger Revenue for National and International Route (excluding charters)
RM Million 80000
70000
60000
50000
40000
30000
20000
10000
0 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
National Revenue International Revenue
National Revenue International Revenue RM Million RM Million
1995/96 979 3,322 1996/97 1,070 3,712 1997/98 1,059 4,080 1998/99 895 4,434 1999/00 1,027 5,027 2001/02 1,263 5,125 2002/03 1,312 5,814 2003/04 1,272 6,098 2004/05 1,330 7,443 Malaysian Airline System Berhad Annual Report 04/05 157 (10601-W)
CORPORATE CHARTS
Passengers Carried for National and International Routes
‘000
10000
8000
6000
4000
2000
0 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
National Passengers International Passengers
National Passengers International Passengers ‘000 ‘000
1995/96 7,986 6,325 1996/97 8,648 6,732 1997/98 8,481 6,636 1998/99 7,454 6,255 1999/00 7,993 7,378 2000/01 8,854 7,891 2001/02 8,645 7,089 2002/03 8,677 7,648 2003/04 8,351 7,024 2004/05 8,840 8,696
Cargo Carried
1995/96 1,328 1996/97 1,420 1997/98 1,532 1998/99 1,477 1999/00 1,665 Million 2000/01 1,837 2001/02 1,759 2002/03 2,071 2003/04 2,187 2004/05 2,690
04/05 03/04 02/03 01/02 00/01 99/00 98/99 97/98 96/97 95/96 158 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
directors’ report
Malaysian Airline System Berhad (10601-W) (Incorporated in Malaysia)
The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 March 2005.
PRINCIPAL ACTIVITIES
The Company is principally engaged in the business of air transportation and the provision of related services.
The principal activities of the subsidiaries are described in Note 30 to the financial statements.
There have been no significant changes in the nature of these activities during the financial year.
RESULTS GROUP COMPANY RM’000 RM’000
Profit after taxation 328,746 254,103 Minority interests (2,667) -
Net profit for the year 326,079 254,103
There were no material transfers to or from reserves or provision during the financial year other than as disclosed in the statements of changes in equity.
In the opinion of the directors, the results of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material or unusual nature, other than as disclosed in the financial statements.
DIVIDENDS
The dividends paid by the Company since 31 March 2004 were as follows:
In respect of the financial year ended 31 March 2004, as shown in the Directors’ report of that financial year:
RM’000 A final tax exempt dividend of 2.5% paid on 12 October 2004 31,331
At the forthcoming Annual General Meeting, a final tax exempt dividend in respect of the financial year ended 31 March 2005, of 2.5 sen net per share on 1,253,243,865 ordinary shares, amounting to a total dividend payable of RM31,331,097 ( 2.5 sen net per share) will be proposed for shareholders’ approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the shareholders, will be accounted for in shareholders’ equity as an appropriation of retained profits in the financial period ending 31 December 2005. Malaysian Airline System Berhad Annual Report 04/05 159 (10601-W)
DIRECTORS’ REPORT
DIRECTORS
The names of the directors of the Company in office since the date of the last report and at the date of this report are:
Dato’ Dr. Mohd Munir bin Abdul Majid (appointed on 1 June 2004) Dato’ N. Sadasivan a/l N.N. Pillay Dato’ Ahmad Fuaad bin Mohd Dahalan Dato’ Izzuddin bin Dali (appointed on 13 September 2004) Dato’ Mohd Annuar bin Zaini (appointed on 2 February 2005) Dato’ Mohamed Azman bin Yahya Datuk Amar Haji Abdul Aziz bin Haji Husain Datuk Abdillah @ Abdullah bin Hassan @ S Hassan Keong Choon Keat Martin Gilbert Barrow Tengku Azmil Zahruddin bin Raja Abdul Aziz (appointed on 23 August 2004 and ceased as alternate director to Dato’ Gumuri bin Haji Hussain on 16 August 2004) Datu Haji Salleh bin Haji Sulaiman (alternate to Datuk Amar Haji Abdul Aziz bin Haji Husain) Abdul Rahman bin Abdul Ghani (alternate to Datuk Haji S Abdillah @ Abdullah bin Hassan @ S Hassan) Tan Sri Dato’ Seri Azizan bin Zainul Abidin (passed away on 14 July 2004) Tan Sri Dato’ Dr. Samsudin bin Hitam (resigned on 1 August 2004) Dato’ Zaharaah binti Shaari (resigned on 2 November 2004) Dato’ Gumuri bin Haji Hussain (resigned on 16 August 2004) Jusof bin Ismail (alternate to Tan Sri Dato’ Dr. Samsudin bin Hitam) (resigned on 1 August 2004)
In accordance with Article 137 of the Company’s Articles of Association, Dato’ Izzuddin bin Dali and Dato’ Mohd Annuar bin Zaini, who were appointed during the year, retire at the forthcoming Annual General Meeting and being eligible, offer themselves for election.
In accordance with Article 139 of the Company’s Articles of Association, Dato’ Mohamed Azman bin Yahya, Dato’ N. Sadasivan a/l N.N. Pillay and Datuk Abdillah @ Abdullah bin Hassan @ S Hassan retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election. 160 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
DIRECTORS’ REPORT
DIRECTORS’ BENEFITS
Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangements to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.
Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by the directors as disclosed in Note 6 to the financial statements) by reason of a contract made by the Company or a related corporation with any director or with a firm of which he is a member, or with a company in which he has a substantial financial interest.
DIRECTORS’ INTERESTS
According to the register of directors’ shareholdings, none of the directors in office at the end of the financial year had any interests in shares in the Company and its related corporations during the financial year.
OTHER STATUTORY INFORMATION
(a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps:
(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that there were no known bad debts and that adequate provision had been made for doubtful debts; and
(ii) to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.
(b) At the date of this report, the directors are not aware of any circumstances which would render:
(i) it necessary to write off any bad debts or the amount of the provision for doubtful debts inadequate to any substantial extent; and
(ii) the values attributed to the current assets in the financial statements of the Group and of the Company misleading.
(c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.
(d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading.
(e) As at the date of this report, there does not exist:
(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or
(ii) any contingent liability of the Group or of the Company which has arisen since the end of the financial year. Malaysian Airline System Berhad Annual Report 04/05 161 (10601-W)
DIRECTORS’ REPORT
(f) In the opinion of the directors:
(i) no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and
(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made.
SIGNIFICANT EVENT
The significant event is disclosed in Note 28 to the financial statements.
AUDITORS
The auditors, Ernst & Young, have expressed their willingness to continue in office.
Signed on behalf of the Board in accordance with a resolution of the directors
Dato’ Dr. Mohd Munir bin Abdul Majid
Dato’ Ahmad Fuaad bin Mohd Dahalan
Kuala Lumpur, Malaysia 30 May 2005 162 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
statement by directors
pursuant to section 169 (15) of the companies act, 1965
We, Dato’ Dr. Mohd Munir bin Abdul Majid and Dato’ Ahmad Fuaad bin Mohd Dahalan, being two of the directors of Malaysian Airline System Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 165 to 218 are drawn up in accordance with applicable MASB Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair view of the financial position of the Group and of the Company as at 31 March 2005 and of the results and the cash flows of the Group and of the Company for the year then ended.
Signed on behalf of the Board in accordance with a resolution of the directors
Dato’ Dr. Mohd Munir bin Abdul Majid
Dato’ Ahmad Fuaad bin Mohd Dahalan
Kuala Lumpur, Malaysia 30 May 2005 Malaysian Airline System Berhad Annual Report 04/05 163 (10601-W)
statutory declaration
pursuant to section 169 (16) of the companies act, 1965
I, Low Chee Teng, being the officer primarily responsible for the financial management of Malaysian Airline System Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 165 to 218 are in my opinion correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.
Subscribed and solemnly declared by the abovenamed Low Chee Teng at Kuala Lumpur in the Federal Territory on 30 May 2005
Low Chee Teng
Before me,
Dato’ Ng Mann Cheong Commissioner for Oaths (No. W023) 164 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
report of the auditors
to the members of Malaysian Airline System Berhad (Incorporated in Malaysia)
We have audited the financial statements set out on pages 165 to 218. These financial statements are the r5esponsibility of the Company’s directors.
It is our responsibility to form an independent opinion, based on our audit, on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report.
We conducted our audit in accordance with applicable Approved Standards on Auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion:
(a) the financial statements have been properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable MASB Approved Accounting Standards in Malaysia so as to give a true and fair view of:
(i) the financial position of the Group and of the Company as at 31 March 2005 and of the results and the cash flows of the Group and of the Company for the year then ended; and
(ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and
(b) the accounting and other records and the registers required by the Act to be kept by the Company and by its subsidiaries have been properly kept in accordance with the provisions of the Act.
We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.
The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification material to the consolidated financial statements and did not include any comment required to be made under Section 174 (3) of the Act.
Ernst & Young Habibah bte Abdul AF: 0039 No. 1210/05/06(J) Chartered Accountants Partner
Kuala Lumpur, Malaysia 30 May 2005 Malaysian Airline System Berhad Annual Report 04/05 165 (10601-W)
INCOME STATEMENTS for the year ended 31 March 2005
GROUP COMPANY 2005 2004 2005 2004 Note RM’000 RM’000 RM’000 RM’000
Revenue 3 10,950,882 8,587,826 9,149,779 7,306,476 Expenditure 4 (11,046,627) (8,585,241) (9,303,399) (7,345,172) Other income 7 413,427 192,994 384,594 169,573
Operating profit 317,682 195,579 230,974 130,877 Interest expense (137) (5,916) (93) (5,916)
317,545 189,663 230,881 124,961
Gain on sale of aircraft and spare engines 8 25,752 56,751 25,752 56,751 Gain on partial disposal of a subsidiary (Note 13 (d)) - 91,476 - 125,598 Net writeback of provision for doubtful debts on debts due from subsidiaries - - 5,546 280,000 Share of results of associated companies 21,156 7,275 - -
Profit before taxation 364,453 345,165 262,179 587,310 Taxation: - Company and subsidiaries (33,705) 118,915 (8,076) (8,107) - Associated companies (2,002) (1,372) - -
9 (35,707) 117,543 (8,076) (8,107)
Profit after taxation before minority interests 328,746 462,708 254,103 579,203 Minority interests (2,667) (1,565) - -
Net profit for the year 326,079 461,143 254,103 579,203
Basic earnings per share (sen) 10 26.0 36.8
The accompanying notes form an integral part of the financial statements. 166 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
BALANCE SHEETS as at 31 March 2005
GROUP COMPANY 2005 2004 2005 2004 Note RM’000 RM’000 RM’000 RM’000
NON-CURRENT ASSETS
Aircraft modifications/retrofits, property and equipment 12 2,054,455 1,661,974 1,556,479 1,269,636 Investments 13 194,676 161,625 271,670 253,803 Due from subsidiaries 14 - - 264,946 259,693 Due from fellow subsidiary 16(b) 395,819 441,888 395,819 441,888 Deferred tax assets 22 103,219 126,232 - -
2,748,169 2,391,719 2,488,914 2,225,020
CURRENT ASSETS
Inventories 15 446,038 369,419 439,659 365,646 Receivables 16 2,005,977 1,663,645 1,960,251 1,646,035 Cash and bank balances 17 2,194,578 2,190,893 2,164,609 2,164,727
4,646,593 4,223,957 4,564,519 4,176,408
CURRENT LIABILITIES
Sales in advance of carriage 2(b)(i) 1,487,752 1,153,723 1,487,752 1,153,723 Due to subsidiaries 18 - - 91,053 25,232 Taxation 23,042 24,674 22,575 24,664 Payables 19 2,553,574 2,399,935 2,180,743 2,149,271
4,064,368 3,578,332 3,782,123 3,352,890
NET CURRENT ASSETS 582,225 645,625 782,396 823,518
3,330,394 3,037,344 3,271,310 3,048,538
FINANCED BY:
Share capital 20 1,253,244 1,253,244 1,253,244 1,253,244 Reserves 2,065,488 1,770,740 2,018,066 1,795,294
Shareholder's equity 3,318,732 3,023,984 3,271,310 3,048,538 Minority interests 10,706 12,098 - -
3,329,438 3,036,082 3,271,310 3,048,538
Deferred tax liabilities 22 956 1,262 - -
3,330,394 3,037,344 3,271,310 3,048,538
The accompanying notes form an integral part of the financial statements. Malaysian Airline System Berhad Annual Report 04/05 167 (10601-W)
STATEMENTS OF CHANGES IN EQUITY for the year ended 31 March 2005
NON - DISTRIBUTABLE DISTRIBUTABLE SHARE SHARE GENERAL ACCUMULATED TOTAL CAPITAL PREMIUM RESERVES LOSSES RESERVES TOTAL RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
GROUP
At 1 April 2003 1,253,244 3,301,164 501,530 (2,493,097) 1,309,597 2,562,841 Net profit for the year - - - 461,143 461,143 461,143
At 31 March 2004 1,253,244 3,301,164 501,530 (2,031,954) 1,770,740 3,023,984
At 1 April 2004 1,253,244 3,301,164 501,530 (2,031,954) 1,770,740 3,023,984 Net profit for the year - - - 326,079 326,079 326,079 Dividends paid (Note 11) - - - (31,331) (31,331) (31,331)
At 31 March 2005 1,253,244 3,301,164 501,530 (1,737,206) 2,065,488 3,318,732
COMPANY
At 1 April 2003 1,253,244 3,301,164 500,000 (2,585,073) 1,216,091 2,469,335 Net profit for the year - - - 579,203 579,203 579,203
At 31 March 2004 1,253,244 3,301,164 500,000 (2,005,870) 1,795,294 3,048,538
At 1 April 2004 1,253,244 3,301,164 500,000 (2,005,870) 1,795,294 3,048,538 Net profit for the year - - - 254,103 254,103 254,103 Dividends paid (Note 11) - - - (31,331) (31,331) (31,331)
At 31 March 2005 1,253,244 3,301,164 500,000 (1,783,098) 2,018,066 3,271,310
The accompanying notes form an integral part of the financial statements. 168 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
CASH FLOW STATEMENTS for the year ended 31 March 2005
GROUP COMPANY 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 364,453 345,165 262,179 587,310 Adjustment for: Share of results of associated companies (21,156) (7,275) - - Depreciation of property and equipment 245,273 214,258 210,078 160,603 Gain on sale of aircraft, property and equipment (29,930) (58,472) (29,212) (58,041) (Gain)/loss on disposal of other investment, net (18) 684 - 684 Gain from liquidation of investments - (25,358) - (25,358) Gain on partial disposal of subsidiary - (91,476) - (125,598) Provision for doubtful debts, net of reversals - subsidiaries - - (5,546) (280,000) - others (17,680) 1,564 (33,549) 992 Unrealised foreign exchange losses 41 1,153 41 1,153 Aircraft spares, property and equipment written off 11,548 36,938 11,539 36,938 Writeback of unavailed credits on sales in advance of carriage (247,492) (236,746) (247,492) (236,746) Writeback of impairment losses recognised on other investments, net (45,481) (3,200) (47,652) (4,445) Interest income (70,445) (58,874) (69,953) (58,489) Dividend income (1,450) (424) (11,863) (12,274) Interest expense 137 5,916 93 5,916
Operating profit/(loss) before working capital changes 187,800 123,853 38,663 (7,355) (Increase)/decrease in receivables (95,836) 28,536 (59,257) 84,300 (Increase)/decrease in due from holding company (151,694) 327,898 (151,694) 327,898 Increase in inventories (76,619) (9,743) (74,013) (8,593) Increase in payables 148,150 323,178 102,504 336,078 Increase in sales in advance of carriage 581,521 379,667 581,521 379,667
Cash generated from operating activities 593,322 1,173,389 437,724 1,111,995 Interest paid (111) (3,078) (67) (3,078) Taxes paid (12,630) (18,856) (10,165) (9,062)
Net cash generated from operating activities 580,581 1,151,455 427,492 1,099,855 Malaysian Airline System Berhad Annual Report 04/05 169 (10601-W)
CASH FLOW STATEMENTS for the year ended 31 March 2005 (Contd.)
GROUP COMPANY 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from liquidation of other investments - 25,358 - 25,358 Proceeds from sale of other investments 29,891 20,303 29,785 20,303 Proceeds from partial disposal of subsidiary (Note 13(d)) - 140,662 - 140,662 Proceeds from disposal of associated company 79 - - - Purchase of aircraft, property and equipment (678,788) (283,090) (537,944) (236,792) Purchase of other investments (4,000) - - - Proceeds on sale of aircraft, property and equipment 33,664 145,348 32,944 144,916 Interest received 67,565 55,008 67,073 54,606 Dividend received 7,082 4,213 11,863 8,838
Net cash (used in)/generated from investing activities (544,507) 107,802 (396,279) 157,891
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid to shareholders of the Company (31,331) - (31,331) - Dividend paid to minority shareholders in a subsidiary (1,058) (550) - -
Net cash used in financing activities (32,389) (550) (31,331) -
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 3,685 1,258,707 (118) 1,257,746
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,190,893 932,186 2,164,727 906,981
CASH AND CASH EQUIVALENTS AT END OF YEAR 2,194,578 2,190,893 2,164,609 2,164,727
CASH AND CASH EQUIVALENTS COMPRISE: Cash and bank balances 236,999 151,697 230,880 140,464 Short term deposits 1,957,579 2,039,196 1,933,729 2,024,263
Cash and cash equivalents 2,194,578 2,190,893 2,164,609 2,164,727
The accompanying notes form an integral part of the financial statements. 170 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS 31 March 2005
1. CORPORATE INFORMATION
The Company is principally engaged in the business of air transportation and the provision of related services. The principal activities of the subsidiaries are described in Note 30. There have been no significant changes in the nature of these activities during the financial year.
The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Board of Bursa Malaysia Securities Berhad. The registered office of the Company is located at 33rd Floor, Bangunan MAS, Jalan Sultan Ismail, 50250 Kuala Lumpur.
The holding and ultimate holding companies of the Company are Penerbangan Malaysia Berhad (“PMB”) and Khazanah Nasional Berhad, respectively, both of which are incorporated in Malaysia.
The number of employees in the Group and in the Company at the end of the financial year were 22,513 (2004 : 20,789) and 20,087 (2004 : 18,712) respectively.
The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 30 May 2005.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Preparation
The financial statements of the Group and of the Company have been prepared under the historical cost convention unless otherwise indicated in the accounting policies below and comply with applicable MASB Approved Accounting Standards in Malaysia.
(b) Revenue Recognition
Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably.
(i) Revenue from Services
Passenger ticket and cargo airwaybill sales are recognised as revenue, net of discount, in the income statement when the transportation services are rendered. The value of unutilised tickets and airwaybills is included in current liabilities as sales in advance of carriage. Tickets and airwaybills that remain unutilised after 18 months subsequent to their respective date of issue are recognised in the income statement as unavailed credits on sales in advance of carriage.
The commission on passenger ticket and airwaybill sales is recognised in the income statement when the transportation services are rendered.
(ii) Engineering, Catering and Other Revenue
Engineering, catering and other revenue is recognised, net of discount, upon completion of services rendered.
(iii) Revenue from Hotel Operations
Revenue from room rental and other hotel services are recognised on accrual basis. Revenue from sale of food and beverage are recognised based on their invoiced value of goods sold.
(iv) Interest and Dividend Income
Interest income is recognised on accrual basis whilst dividend income is recognised when the shareholders' right to receive payment is established. Malaysian Airline System Berhad Annual Report 04/05 171 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Accounting Policies (Contd.)
(c) Basis of Consolidation
The consolidated financial statements include the financial statements of the Company and all its subsidiaries. Subsidiaries are those companies in which the Group has a long term equity interest and where it has power to exercise control over the financial and operating policies so as to obtain benefits therefrom.
Subsidiaries are consolidated using the acquisition method of accounting. Under the acquisition method of accounting, the results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. The assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition and these values are reflected in the consolidated balance sheet. The difference between the cost of an acquisition and the fair value of the Group's share of the net assets of the acquired subsidiary at the date of acquisition is included in the consolidated balance sheet as goodwill or negative goodwill arising on consolidation.
Intragroup transactions, balances and resulting unrealised gains are eliminated on consolidation and the consolidated financial statements reflect external transactions only. Unrealised losses are eliminated on consolidation unless costs cannot be recovered.
The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group's share of its net assets together with any unamortised balance of goodwill and exchange differences.
Minority interests in the consolidated balance sheet consist of the minorities' share of the fair value of the identifiable assets and liabilities of the acquiree as at the acquisition date and the minorities' share of movements in the acquiree's equity since then.
(d) Associated Companies
The Group treats as associated companies those companies in which the Group has a long term equity interest and is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the associated companies but not control over those policies.
Investments in associated companies are accounted for in the consolidated financial statements by the equity method of accounting based on the audited or management financial statements of the associated companies.
Under the equity method of accounting, the Group's share of post acquisition profits less losses of associated companies is included in the consolidated income statements. The Group's interest in associated companies is carried in the consolidated balance sheet at cost plus the Group's share of post- acquisition retained profits or accumulated losses and other reserves as well as goodwill on acquisition.
Unrealised gains on transactions between the Group and the associated companies are eliminated to the extent of the Group's interest in the associated companies. Unrealised losses are eliminated unless cost cannot be recovered.
The difference between the purchase consideration and the fair value of net assets acquired is reflected as goodwill or reserve on acquisition and is not amortised. The carrying value of the goodwill is reviewed annually and is written down for impairment where it is considered necessary. 172 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Accounting Policies (Contd.)
(e) Investments in Subsidiaries, Associated Companies and Other Non-Current Investments
The investments in subsidiaries, associated companies and other non-current investments are stated at cost less impairment losses. Where an indication of impairment exists, the carrying value of the investment is reviewed, and if found to be in excess of recoverable amount, is written down immediately to its recoverable amount.
On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is recognised in the income statement.
(f) Goodwill
Goodwill represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associates or jointly controlled entity at the date of acquisition.
Goodwill is stated at cost less impairment losses. Goodwill is reviewed at each balance sheet date and will be written down for impairment losses when it arises.
Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet while goodwill arising on the acquisition of associates and jointly controlled entities is included within the respective carrying amounts of these investments.
Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associates or jointly controlled entity at the date of acquisition over the cost of acquisition.
To the extent that negative goodwill relates to expectation of future losses and expenses that are identified in the plan of acquisition and can be measured reliably, but which are not identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the income statement when the future losses and expenses are recognised.
(g) Foreign Currencies
(i) Foreign Currency Transactions
Transactions in foreign currencies are initially recorded in Ringgit Malaysia at rates of exchange ruling at the transaction dates. At each balance sheet date, foreign currency monetary items are translated into Ringgit Malaysia at exchange rates ruling at that date unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Non-monetary items initially denominated in foreign currencies, which are carried at historical cost are translated using the historical rate as of the date of acquisition and non-monetary items which are carried at fair value are translated using the exchange rate that existed when the values were determined. All exchange differences are taken to the income statement. Malaysian Airline System Berhad Annual Report 04/05 173 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Accounting Policies (Contd.)
(g) Foreign Currencies (Contd.)
(ii) Foreign Entities
Financial statements of foreign associated companies are translated at year-end exchange rates with respect to the assets and liabilities, and at exchange rates at the dates of the transactions with respect to the income statement. All resulting translation differences are taken to equity.
The principal exchange rates used for every unit of foreign currency ruling at balance sheet date are as follows:
2005 2004 RM RM United States Dollar 3.8000 3.8000 Euro 4.9261 4.6440 Great Britain Pound 7.1840 6.9810 Japanese Yen 0.0355 0.0367 Singapore Dollar 2.2678 2.2703 Australian Dollar 2.9372 2.8967
(h) Aircraft Modifications/retrofits, Spare Engines, Property and Equipment
Property and equipment are stated at cost or valuation less accumulated depreciation and impairment losses.
Depreciation of aircraft modifications/retrofits, spare engines, property and equipment is provided on a straight line basis to write off the cost of each asset up to its residual value over the estimated useful life at the following annual rates:
(i) Aircraft modifications/retrofits are depreciated over 7 years or the remaining life of the lease, whichever is lesser.
(ii) Spare engines are depreciated over their estimated useful commercial lives, which ranges from 7 to 15 years, having regard to their planned withdrawal from services.
(iii) Repairable and rotable aircraft spares are depreciated over the remaining lease period of the aircraft to which they relate.
(iv) Land and Buildings
Freehold land is not depreciated. Leasehold land is depreciated over the lease period, ranging from 60 to 99 years.
Buildings are depreciated over periods ranging from 5 to 40 years.
Certain leasehold land and buildings of the Company were revalued by the directors in 1985 based upon a valuation report dated 15 November 1984 prepared by the Government Valuers using the "Open Market Value" basis. The directors have not adopted a policy of regular revaluations of these assets. As permitted under the transitional provisions of International Accounting Standard No. 16 (Revised): Property, Plant and Equipment adopted by the Malaysian Accounting Standards Board, these assets continue to be stated at their 1985 valuation less accumulated depreciation and accumulated impairment losses. 174 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Accounting Policies (Contd.)
(h) Aircraft Modifications/retrofits, Spare Engines, Property and Equipment (Contd.)
(v) Hotel Properties
Hotel properties comprise land and the hotel buildings, including the integral plant and machinery.
No depreciation is provided on hotel properties. The directors are of the opinion that it is more appropriate not to depreciate hotel properties since it is the Company's practice to maintain all its hotel properties to a high standard and condition in order to maintain residual values at least equal to their respective book values such that depreciation would be insignificant. The related maintenance expenditures are dealt with in the income statement.
In order to establish whether hotel properties have maintained residual value at least equal to their respective book values, all hotel properties are appraised by independent professional valuers at least once in every three (3) years.
Surpluses arising from revaluation are dealt with in the Asset Revaluation Reserve. Any deficit arising is offset against the Asset Revaluation Reserve to the extent of a previous increase for the same property. In all other cases, a decrease in carrying amount is charged to the income statement.
Upon the disposal of an item of hotel properties, the difference between the net disposal proceeds and the carrying amount is recognised in the income statement.
(vi) Operating Equipment, Office Equipment and Motor Vehicles
Depreciation is provided to the residual values of all operating equipment, office equipment and motor vehicles on a straight line basis over their estimated useful lives, which range from 2 to 10 years.
(vii) Progress Payments on Aircraft, Simulators and Properties Under Construction
Progress payments on aircraft, simulators and properties under construction are stated at cost and are not depreciated until the respective assets are ready for their intended use.
Where an indication of impairment of a category of asset exists, the carrying amount of the category of assets is revisited, and if found to be in excess of recoverable amount, it is written down immediately to its recoverable amount.
Upon the disposal of an item of aircraft modifications/retrofits, spare engines, property or equipment, the difference between the net disposal proceeds and the carrying amount is recognised in the income statement.
(i) Inventories
Inventories comprising consumable aircraft spares, catering and other stores are stated at the lower of cost (determined on a weighted average basis) and net realisable value. Malaysian Airline System Berhad Annual Report 04/05 175 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Accounting Policies (Contd.)
(j) Income Tax
Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the balance sheet date.
Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which these can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit.
(j) Income Tax (Contd.)
Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in the income statement, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill or negative goodwill.
(k) Employee Benefits
(i) Short Term Benefits
Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences.
(ii) Defined Contribution Plans
As required by law, companies incorporated in Malaysia contribute to the state pension scheme, the Employees Provident Fund. Retirement plans for employees of overseas stations are accrued for in accordance with the provisions of those foreign countries retirement schemes and are charged to income statements in the period to which they relate.
(l) Leases
(i) Finance Lease
Lease of assets under which the Group assumes substantially all the benefits and risks of ownership are classified as finance leases.
The cost of assets acquired under finance lease agreements is capitalised. The depreciation policy on these assets is similar to that of the Group’s other assets as set out in (h) above. Outstanding obligations due under the lease agreements after deducting finance expenses are included as liabilities in the financial statements. The finance expenses are recognised in the income statement over the period of the respective agreements so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. 176 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Accounting Policies (Contd.)
(ii) Operating Lease
Lease of assets under which all the risks and benefits of ownership are retained by the lessor are classified as operating leases.
Lease rental payments on operating leases are recognised in the income statement in the year in which they are incurred.
(m) Trade and Other Receivables
Trade and other receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on review of all outstanding amounts as at the balance sheet date.
(n) Cash and Cash Equivalents
For the purpose of the cash flow statements, cash and cash equivalents include cash in hand and at bank and deposits at call and short term highly liquid investments which have an insignificant risk of changes in value.
(o) Trade and Other Payables
Trade and other payables are stated at cost which is the fair value of the consideration to be paid in the future for goods and services rendered.
(p) Provisions for Liabilities
Provisions for liabilities are recognised when the Group and the Company have a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
(q) Aircraft Maintenance and Overhaul Costs
The costs of maintenance and overhaul conducted using the Group's own resources and conducted outside the Group are recognised in the income statement as and when the costs are incurred. These include the costs of labour and replacement parts.
(r) Development and Training Costs
Development and training costs are recognised in the income statement in the year in which they are incurred.
(s) Frequent Flyer Programmes
The Company operates its own frequent flyer programme named "Enrich" which awards members based on accumulated mileage. The Company accrues for the liability under the programme and recognises in the income statement the amount equal to the mileage earned multiplied by the applicable rates. Upon redemption by members or expiration of the mileage awards, the accrual is reduced accordingly. Malaysian Airline System Berhad Annual Report 04/05 177 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Accounting Policies (Contd.)
(t) Interest-Bearing Borrowings
Interest-bearing bank loans and overdrafts are recorded as the amount of proceeds received.
Interests on term loans obtained to finance progress payments for aircraft purchases and properties under construction are capitalised as progress payments in those assets until the aircraft and buildings are ready for their intended use. Interest costs incurred thereafter are recognised in the income statement.
(u) Share Capital
Ordinary shares are classified as equity. Other shares are classified as equity and/or liability according to the economic substance of the particular instrument.
The transaction costs of an equity transaction, other than that in the context of a business combination, are accounted for as a deduction from equity. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided. Cost of issuing equity securities in connection with a business combination are included in the cost of acquisition.
Dividends on ordinary shares are recognised in equity in the period in which they are declared.
(v) Financial Instruments
Financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instrument. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. The particular recognition method adopted for financial instruments recognised in the balance sheet is disclosed in the individual accounting policies associated with each item.
(w) Derivative Financial Instruments
The Group's policy on the use of derivative financial instruments is not for speculative purposes but to use these instruments as hedges against specific exposures.
The Group enters into forward foreign exchange contracts to cover a portion of future capital, revenue and operating payments in a variety of currencies in order to manage its foreign currency risk. The Group also enters into forward fuel contracts to manage its fuel price risk and forward interest rate contracts to manage its operating lease rental payments for aircraft.
Gains or losses arising from forward contracts on foreign currencies, fuel and interest rates are recognised upon maturity in the income statement as realised exchange differences, component of fuel costs and lease rental payments respectively.
(x) Impairment of Assets
At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication of impairment. If any such indication exists, impairment is measured by comparing the carrying values of the assets with their recoverable amounts. Recoverable amount is the higher of net selling price and value in use, which is measured by reference to discounted future cash flows.
An impairment loss is recognised as an expense in the income statement immediately, unless the asset is carried at a revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of any unutilised previously recognised revaluation surplus for the same asset. 178 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Revenue
3. REVENUE
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Traffic revenue: Scheduled services - passenger and baggage 9,017,364 7,346,072 8,914,548 7,346,072 - cargo and mail 2,061,320 1,672,156 813,342 748,651
11,078,684 9,018,228 9,727,890 8,094,723 Non-scheduled services 80,299 61,479 80,299 61,479
11,158,983 9,079,707 9,808,189 8,156,202
Other revenue: Lease of aircraft and engines - 3,530 28,127 41,133 Airport handling services 147,363 89,465 147,363 89,465 Unavailed credits on sales in advance of carriage 247,492 236,746 247,492 236,746 Catering and cleaning services 11,014 38,627 10,950 5,986 Charter services 138,587 84,009 115,400 62,582 Fuel surcharge 377,643 83,611 146,422 - Others* 300,014 304,209 76,050 46,440
12,381,096 9,919,904 10,579,993 8,638,554 Less: Traffic revenue related to domestic operations to PMB (1,430,214) (1,332,078) (1,430,214) (1,332,078)
10,950,882 8,587,826 9,149,779 7,306,476
* Included in 'Others' for the Group are revenues from the provision of computerised reservation services, coach transportation, trucking and warehousing services, retailing of goods, terminal charges, hotel operations, tour and travel related activities. Malaysian Airline System Berhad Annual Report 04/05 179 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Expenditure
4. EXPENDITURE
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Fuel and oil 3,779,209 2,299,833 3,253,678 2,035,365 Staff costs (Note 5) 1,904,782 1,607,011 1,784,274 1,503,113 Handling, enroute charges, catering and other related costs 1,711,558 1,527,659 1,427,788 1,249,269 Hire of aircraft, operating plant and equipment 1,856,154 1,544,029 1,478,646 1,312,268 Aircraft maintenance and overhaul 905,289 892,959 805,863 777,667 Depreciation 245,273 214,258 210,078 160,603 Operating inventories used 356,885 273,761 330,547 254,873 Landing, parking and other related costs 401,514 347,297 353,190 317,195 Sales commission and incentives 658,351 591,054 556,320 517,750 Foreign exchange (gain)/losses: Realised (15,731) 26,432 (15,717) 26,353 Unrealised 41 1,153 41 1,153 Advertising and promotions 240,605 226,540 231,717 220,700 Computerised reservation system booking fees 173,929 149,132 173,929 149,132 Rental of land and buildings 134,244 140,324 132,353 138,124 Provision for doubtful debts, net - 1,564 - 992 Aircraft spares, property and equipment written off 11,548 36,938 11,539 36,938 Loss on disposal of investment - 684 - 684 Directors' remuneration (Note 6) 1,177 1,463 1,174 1,457 Auditors’ remuneration - audit fees 661 636 460 460 - other professional fees 937 753 455 657 Others 391,571 190,583 278,434 129,241
12,757,997 10,074,063 11,014,769 8,833,994
Allocation of operational costs related to domestic operations to PMB (1,711,370) (1,488,822) (1,711,370) (1,488,822)
11,046,627 8,585,241 9,303,399 7,345,172 180 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Staff Cost, Directors’ Remuneration
5. STAFF COSTS
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Salaries and wages 1,130,352 982,580 1,037,039 902,896 Employees Provident Fund 142,158 119,053 132,077 111,047 Social security costs 7,287 6,846 6,606 6,244 Short term accumulating compensated absences 49,636 7,108 49,458 6,945 Other staff related expenses 575,349 491,424 559,094 475,981
1,904,782 1,607,011 1,784,274 1,503,113
6. DIRECTORS’ REMUNERATION
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Directors of the Company
Executive: Salaries and other emoluments 639 897 639 897 Benefits-in-kind 1 1 1 1
640 898 640 898
Non-executive: Fees and other allowances - current 537 435 534 429 - underprovision in prior years - 130 - 130
537 565 534 559
Total 1,177 1,463 1,174 1,457
The number of directors of the Company whose total remuneration during the year fall within the following bands is as follows:
Number of Directors 2005 2004
Executive directors: RM600,001 to RM650,000 1 - RM850,001 to RM900,000 - 1
Non-executive directors: Below RM50,000 14 15 RM100,001 to RM150,000 1 - RM150,001 to RM200,000 1 2 Malaysian Airline System Berhad Annual Report 04/05 181 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Other Income, Gain On Sale Of Aircraft And Spare Engines
7. OTHER INCOME GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Interest income - third parties 70,445 58,874 69,953 58,489 Gain from liquidation of other investments - 25,358 - 25,358 Gain on disposal of investments, net 18 - - - Rental income 84,041 68,561 53,721 38,764 Dividend income - subsidiaries - - 3,619 6,422 - associated companies - - 6,794 5,428 - unquoted shares 1,450 424 1,450 424 Gain on sale of aircraft spares and equipment 4,178 1,721 3,460 1,290 Writeback of impairment losses recognised on other investments, net 45,481 3,200 47,652 4,445 Net writeback of provision for doubtful debts 17,680 - 33,549 - Lease rental 28,045 - 28,045 - Others 162,089 34,856 136,351 28,953
413,427 192,994 384,594 169,573
8. GAIN ON SALE OF AIRCRAFT AND SPARE ENGINES
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Gain on sale of aircraft - 56,751 - 56,751 Share of gain on disposal of aircraft by holding company, PMB (Note a) 25,752 - 25,752 -
25,752 56,751 25,752 56,751
(a) In accordance with the Agreement for Aircraft and Finance Agreements Unbundling entered into with PMB, the Company is entitled to a 80% share of the gain on disposal of certain aircraft unbundled to PMB. 182 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Taxation
9. TAXATION
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Current year’s provision: Malaysian 2,922 800 - - Foreign 9,045 7,171 9,045 7,171
11,967 7,971 9,045 7,171 (Over)/under provision in prior years (969) 425 (969) 936
10,998 8,396 8,076 8,107
Deferred taxation 22,341 (127,525) - - Underprovision in prior years 366 214 - -
22,707 (127,311) - -
Share of taxation of associated companies 2,002 1,372 - -
35,707 (117,543) 8,076 8,107
There is no provision for Malaysian taxation for the Company in the current financial year as the Company has been granted an extension of the tax exemption status by the Ministry of Finance on its chargeable income in respect of all sources of income vide the Income Tax (Exemption) (No. 25) Order 2001. The extension is valid for a period of five years from year of assessment 2001 up to year of assessment 2005.
As at 31 March 2005, the Company has tax exempt income account of approximately RM9,499,482,000 (2004 : RM9,106,255,000) available to pay tax exempt dividends up to two levels of shareholders, subject to agreement with the Inland Revenue Board.
Domestic income tax is calculated at the Malaysian statutory tax rate of 28% (2004 : 28%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
Certain subsidiaries of the Group qualify for tax incentive under small-medium enterprise by virtue of having an issued and paid up share capital which is below RM2,500,000. Under this incentive, the subsidiaries enjoy a tax rate of 20% for the first RM500,000 of the estimated assessable profit and 28% for assessable profit exceeding RM500,000. Malaysian Airline System Berhad Annual Report 04/05 183 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Taxation (Contd.)
A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows:
GROUP
2005 2004 RM'000 RM'000
Profit before taxation 364,453 345,165
Taxation at Malaysian statutory rate of 28% (2004: 28%) 102,047 96,646 Tax incentive obtained from differential tax rate of 20% (80) (82) Absence of tax relief for losses suffered by subsidiaries - 1 Foreign income tax 9,045 7,171 Effect of tax exemption status (114,455) (89,082) Income not subject to tax (5,206) (35,167) Expenses not deductible for tax purposes 62,369 35,615 Deferred tax asset recognised on previously unrecognised: - tax losses - (153,268) - other deductible temporary differences - (273) Deferred tax assets not recognised on: - unutilised capital allowances 387 - - other deductible temporary differences 24 20,907 - tax losses 835 - Utilisation of previously unrecognised: - tax losses (541) (558) - unabsorbed capital allowances - (92) - other temporary differences (18,331) - Underprovision of deferred tax in prior years 366 214 (Over)/under provision of tax expense in prior years (753) 425
Tax expense for the year 35,707 (117,543)
COMPANY
2005 2004 RM'000 RM'000
Profit before taxation 262,179 587,310
Taxation at Malaysian statutory rate of 28% (2004: 28%) 73,410 164,447 Foreign income tax 9,045 7,171 Effect of tax exemption status (114,455) (89,082) Income not subject to tax (666) (35,167) Expenses not deductible for tax purposes 60,042 6,864 Utilisation of previously unrecognised deductible temporary differences (18,331) (67,935) Deferred tax assets not recognised on other deductible temporary differences - 20,873 (Over)/under provision of tax in prior years (969) 936
Tax expense for the year 8,076 8,107 184 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Basic Earnings Per Share, Dividend
10. BASIC EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit for the year attributable to shareholders by the weighted average number of ordinary shares in issue during the financial year.
GROUP 2005 2004
Net profit for the year attributable to shareholders (RM'000) 326,079 461,143 Weighted average number of ordinary shares in issue ('000) 1,253,244 1,253,244 Basic earnings per share (sen) 26.0 36.8
11.DIVIDEND
Net dividends per Amount ordinary share 2005 2004 2005 2004 RM'000 RM'000 Sen Sen
Final
2.5% tax exempt on 1,253,243,865 ordinary shares, in respect of the financial year ended 31 March 2004, declared on 24 May 2004 and paid on 12 October 2004 31,331 - 2.5 - Malaysian Airline System Berhad Annual Report 04/05 185 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Aircraft Modifications/Retrofits, Property And Equipment
12.AIRCRAFT MODIFICATIONS/RETROFITS, PROPERTY AND EQUIPMENT
Aircraft Operating modifications/ equipment, retrofits, office engines equipment Land and and and motor Progress buildings spares vehicles payments Total RM'000 RM'000 RM'000 RM'000 RM'000
GROUP
Cost/Valuation
At 1 April 2004 1,103,669 990,803 1,455,779 303,729 3,853,980 Additions 18,008 366,403 68,330 226,047 678,788 Disposals (1,251) (29,531) (3,074) - (33,856) Transfers 319,590 (2,389) 61,115 (378,316) - Write offs - (28,889) (5,061) - (33,950)
At 31 March 2005 1,440,016 1,296,397 1,577,089 151,460 4,464,962
Representing: At cost 1,256,582 1,296,397 1,577,089 151,460 4,281,528 At valuation 183,434 - - - 183,434
1,440,016 1,296,397 1,577,089 151,460 4,464,962
Accumulated Depreciation
At 1 April 2004 455,902 568,891 1,167,213 - 2,192,006 Charge for the year 27,858 135,482 81,933 - 245,273 Disposals (1,117) (298) (2,955) - (4,370) Write offs - (17,454) (4,948) - (22,402)
At 31 March 2005 482,643 686,621 1,241,243 - 2,410,507
Representing: At cost 393,423 686,621 1,241,243 - 2,321,287 At valuation 89,220 - - - 89,220
482,643 686,621 1,241,243 - 2,410,507
Net Book Value
At 31 March 2005 At cost 863,159 609,776 335,846 151,460 1,960,241 At valuation 94,214 - - - 94,214
957,373 609,776 335,846 151,460 2,054,455
At 31 March 2004 At cost 550,089 421,912 288,566 303,729 1,564,296 At valuation 97,678 - - - 97,678
647,767 421,912 288,566 303,729 1,661,974
Depreciation charge for 31 March 2004 28,413 79,069 106,776 - 214,258 186 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Aircraft Modifications/Retrofits, Property And Equipment (Contd.)
Aircraft Operating modifications/ equipment, retrofits, office engines equipment Land and and and motor Progress buildings spares vehicles payments Total RM'000 RM'000 RM'000 RM'000 RM'000
COMPANY
Cost/Valuation
At 1 April 2004 1,097,823 990,803 1,057,573 54,834 3,201,033 Additions 18,008 366,403 51,980 101,553 537,944 Disposals (1,251) (29,531) (2,262) - (33,044) Transfers 2,069 (2,389) 37,692 (37,372) - Write offs - (28,889) (5,001) - (33,890)
At 31 March 2005 1,116,649 1,296,397 1,139,982 119,015 3,672,043
Representing: At cost 933,215 1,296,397 1,139,982 119,015 3,488,609 At valuation 183,434 - - - 183,434
1,116,649 1,296,397 1,139,982 119,015 3,672,043
Accumulated Depreciation
At 1 April 2004 451,907 568,891 910,599 - 1,931,397 Charge for the year 27,837 135,482 46,759 - 210,078 Disposals (1,117) (298) (2,145) - (3,560) Write offs - (17,454) (4,897) - (22,351)
At 31 March 2005 478,627 686,621 950,316 - 2,115,564
Representing: At cost 389,407 686,621 950,316 - 2,026,344 At valuation 89,220 - - - 89,220
478,627 686,621 950,316 - 2,115,564
Net Book Value
At 31 March 2005 At cost 543,808 609,776 189,666 119,015 1,462,265 At valuation 94,214 - - - 94,214
638,022 609,776 189,666 119,015 1,556,479
At 31 March 2004 At cost 548,238 421,912 146,974 54,834 1,171,958 At valuation 97,678 - - - 97,678
645,916 421,912 146,974 54,834 1,269,636
Depreciation charge for 31 March 2004 28,011 79,069 53,523 - 160,603 Malaysian Airline System Berhad Annual Report 04/05 187 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Aircraft Modifications/Retrofits, Property And Equipment (Contd.)
(a) Land and Buildings
Freehold Leasehold land land Buildings Total RM'000 RM'000 RM'000 RM'000
GROUP
Cost/Valuation
At 1 April 2004 6,721 54,580 1,042,368 1,103,669 Additions - 16,429 1,579 18,008 Disposals - - (1,251) (1,251) Transfers 1,599 74,431 243,560 319,590
At 31 March 2005 8,320 145,440 1,286,256 1,440,016
Representing: At cost 8,320 90,860 1,157,402 1,256,582 At valuation - 54,580 128,854 183,434
8,320 145,440 1,286,256 1,440,016
Accumulated Depreciation
At 1 April 2004 - 11,247 444,655 455,902 Charge for the year - 756 27,102 27,858 Disposals - - (1,117) (1,117)
At 31 March 2005 - 12,003 470,640 482,643
Representing: At cost - 152 393,271 393,423 At valuation - 11,851 77,369 89,220
- 12,003 470,640 482,643
Net Book Value
At 31 March 2005 At cost 8,320 90,708 764,131 863,159 At valuation - 42,729 51,485 94,214
8,320 133,437 815,616 957,373
At 31 March 2004 At cost 6,721 - 543,368 550,089 At valuation - 43,333 54,345 97,678
6,721 43,333 597,713 647,767
Depreciation charge for 31 March 2004 - 603 27,810 28,413 188 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Aircraft Modifications/Retrofits, Property And Equipment(Contd.)
(a) Land and Buildings (Contd.)
Freehold Leasehold land land Buildings Total RM'000 RM'000 RM'000 RM'000
COMPANY
Cost/Valuation
At 1 April 2004 6,721 54,580 1,036,522 1,097,823 Additions - 16,429 1,579 18,008 Disposals - - (1,251) (1,251) Transfers - - 2,069 2,069
At 31 March 2005 6,721 71,009 1,038,919 1,116,649
Representing: At cost 6,721 16,429 910,065 933,215 At valuation - 54,580 128,854 183,434
6,721 71,009 1,038,919 1,116,649
Accumulated Depreciation
At 1 April 2004 - 11,247 440,660 451,907 Charge for the year - 756 27,081 27,837 Disposals - - (1,117) (1,117)
At 31 March 2005 - 12,003 466,624 478,627
Representing: At cost - 152 389,255 389,407 At valuation - 11,851 77,369 89,220
- 12,003 466,624 478,627
Net Book Value
At 31 March 2005 At cost 6,721 16,277 520,810 543,808 At valuation - 42,729 51,485 94,214
6,721 59,006 572,295 638,022
At 31 March 2004 At cost 6,721 - 541,517 548,238 At valuation - 43,333 54,345 97,678
6,721 43,333 595,862 645,916
Depreciation charge for 31 March 2004 - 603 27,408 28,011 Malaysian Airline System Berhad Annual Report 04/05 189 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Aircraft Modifications/Retrofits, Property And Equipment (Contd.)
(a) Land and Buildings (Contd.)
Certain buildings of the Group and the Company have been constructed on Federal and State Government land in which the lease arrangements are being formalised.
Included in the leasehold land and building is a piece of land costing approximately RM44,031,000 (2004: RM44,031,000 included in progress payment) whereby the transfer of land title is pending the approval of the relevant authorities.
Included in leasehold land is leasehold land with unexpired period of less than 50 years with net book value of RM682,000 (2004 : RM702,000).
(b) Aircraft Modifications/Retrofits, Engines and Spares
Spare Aircraft engines spares Total GROUP AND COMPANY RM'000 RM'000 RM'000
Cost
At 1 April 2004 185,818 804,985 990,803 Additions 231,813 134,590 366,403 Disposals (29,531) - (29,531) Transfers 22,118 (24,507) (2,389) Write offs (2,008) (26,881) (28,889)
At 31 March 2005 408,210 888,187 1,296,397
Accumulated Depreciation
At 1 April 2004 55,768 513,123 568,891 Charge for the year 84,709 50,773 135,482 Disposals (298) - (298) Write offs (1,966) (15,488) (17,454)
At 31 March 2005 138,213 548,408 686,621
Net Book Value
At 31 March 2005 269,997 339,779 609,776
At 31 March 2004 130,050 291,862 421,912
Depreciation charge for 31 March 2004 24,225 54,844 79,069 190 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Aircraft Modifications/Retrofits, Property And Equipment (Contd.)
(c) Operating Equipment, Office Equipment and Motor Vehicles
Office Operating furniture plant and and Motor equipment equipment vehicles Total GROUP RM'000 RM'000 RM'000 RM'000
Cost
At 1 April 2004 994,110 393,796 67,873 1,455,779 Additions 49,488 17,116 1,726 68,330 Disposals (116) (424) (2,534) (3,074) Transfers 34,491 24,432 2,192 61,115 Write offs (4,405) (565) (91) (5,061)
At 31 March 2005 1,073,568 434,355 69,166 1,577,089
Accumulated Depreciation
At 1 April 2004 759,736 345,939 61,538 1,167,213 Charge for the year 53,103 24,455 4,375 81,933 Disposals (113) (421) (2,421) (2,955) Write offs (4,335) (522) (91) (4,948)
At 31 March 2005 808,391 369,451 63,401 1,241,243
Net Book Value
At 31 March 2005 265,177 64,904 5,765 335,846
At 31 March 2004 234,374 47,857 6,335 288,566
Depreciation charge for 31 March 2004 76,144 23,985 6,647 106,776 Malaysian Airline System Berhad Annual Report 04/05 191 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Aircraft Modifications/Retrofits, Property And Equipment(Contd.)
(c) Operating Equipment, Office Equipment and Motor Vehicles (Contd.)
Office Operating furniture plant and and Motor equipment equipment vehicles Total COMPANY RM'000 RM'000 RM'000 RM'000
Cost
At 1 April 2004 668,643 328,403 60,527 1,057,573 Additions 36,028 14,846 1,106 51,980 Disposals (111) (38) (2,113) (2,262) Transfers 34,491 1,366 1,835 37,692 Write offs (4,405) (505) (91) (5,001)
At 31 March 2005 734,646 344,072 61,264 1,139,982
Accumulated Depreciation
At 1 April 2004 584,979 269,530 56,090 910,599 Charge for the year 22,282 20,852 3,625 46,759 Disposals (110) (34) (2,001) (2,145) Write offs (4,335) (471) (91) (4,897)
At 31 March 2005 602,816 289,877 57,623 950,316
Net Book Value
At 31 March 2005 131,830 54,195 3,641 189,666
At 31 March 2004 83,664 58,873 4,437 146,974
Depreciation charge for 31 March 2004 33,162 14,853 5,508 53,523 192 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Aircraft Modifications/Retrofits, Property And Equipment (Contd.)
(d) Progress Payments
Aircraft equipment Properties and under simulators construction Total RM'000 RM'000 RM'000
GROUP
Cost
At 1 April 2004 41,535 262,194 303,729 Additions 84,670 141,377 226,047 Transfers (36,056) (342,260) (378,316)
At 31 March 2005 90,149 61,311 151,460
COMPANY
Cost
At 1 April 2004 41,535 13,299 54,834 Additions 84,670 16,883 101,553 Transfers (12,651) (24,721) (37,372)
At 31 March 2005 113,554 5,461 119,015
(e) Had the revalued land and buildings been carried at historical cost less accumulated depreciation, the net book values of the land and buildings that would have been included in the financial statements are as follows:
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Leasehold land 2,038 2,070 2,038 2,070 Buildings 36,314 39,040 36,314 39,040 Malaysian Airline System Berhad Annual Report 04/05 193 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Investments
13.INVESTMENTS
The investments of the Group and of the Company are as follows:
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Investment in subsidiaries (Note a) - - 46,565 46,565 Investment in associated companies (Note b) 46,845 35,629 81,274 81,274 Other investments (Note c) 147,831 125,996 143,831 125,964
194,676 161,625 271,670 253,803
(a) Investment in subsidiaries
Unquoted shares, at cost - - 180,698 180,698 Less: Accumulated impairment losses - - (134,133) (134,133)
- - 46,565 46,565
The list of subsidiaries is disclosed in Note 30.
(b) Investment in associated companies
Unquoted shares, at cost 124,919 125,198 124,919 124,919 Less: Accumulated impairment losses - - (43,645) (43,645)
124,919 125,198 81,274 81,274
Group's share of post acquisition reserves and retained profits less losses (78,074) (89,569) - -
46,845 35,629 81,274 81,274
Represented by: Share of net assets 19,558 7,987 Share of intangible assets 26,232 26,587
45,790 34,574
Goodwill on acquisition 1,055 1,055
46,845 35,629
The list of associated companies is disclosed in Note 31. 194 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Investments (Contd.)
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
(c) Other investments
Quoted shares, at cost: - in Malaysia - 32 - - - outside Malaysia 1,377 1,377 1,377 1,377
1,377 1,409 1,377 1,377
US Government Treasury Strips 15,682 33,517 15,682 33,517
Unquoted shares, at cost: - in Malaysia 88,803 96,186 84,803 96,186 - outside Malaysia 41,786 42,340 41,786 42,340
130,589 138,526 126,589 138,526
Less: Accumulated impairment losses - (47,652) - (47,652) Other Government and Municipal Bonds 113 126 113 126 Others 70 70 70 70
130,772 91,070 126,772 91,070
Total 147,831 125,996 143,831 125,964
Market value of quoted shares: - in Malaysia - 108 - - - outside Malaysia 30,946 26,294 30,946 26,294
The US Government Treasury Strips have been pledged as substituted collateral for certain contingent liabilities as disclosed in Note 26. Malaysian Airline System Berhad Annual Report 04/05 195 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Investments (Contd.)
(d) Disposal of a subsidiary
As previously reported, the Company completed its partial disposal of 70% equity interest in MAS Catering Sdn. Bhd. (currently known as LSG Sky Chefs-Brahim's Sdn. Bhd. ("LSG")) to Gubahan Saujana Sdn. Bhd., LSG Asia GmbH and Fahim Capital Sdn. Bhd. on 1 December 2003 for a total cash consideration of RM175 million, thus changing it from a wholly-owned subsidiary to an associated company.
The revenue, results and cash flows of LSG up to the date of disposal were as follows:
Financial Financial period year ended ended 1.12.03 31.03.03 RM'000 RM'000
Revenue 100,953 163,938 Other income 298 404 Expenditure (129,672) (213,912)
Loss attributable to shareholders (28,421) (49,570)
Cash flows from operating activities (1,603) 1,518 Cash flows from investing activities (915) 286
Total cash flows (2,518) 1,804
The net assets/(liabilities) of LSG were as follows: 1.12.03 31.03.03 RM'000 RM'000
Net assets/(liabilities) disposed of: Property, plant and equipment 102,247 115,967 Investments - 10,186 Inventories 2,666 2,364 Trade and other receivables 4,566 6,525 Cash and bank balances 385 2,903 Trade and other payables (39,048) (279,031)
70,816 (141,086)
Less: Share of Group's net assets (21,245) Cost to be borne by the Group 33,953 Gain on disposal to the Group 91,476
Total consideration 175,000
Net cash inflow arising on disposal: Cash consideration 175,000 Cost to be borne by the Group (33,953) Cash and cash equivalents of subsidiary disposed of (385)
140,662 196 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Due From Subsidiaries, Inventories
14.DUE FROM SUBSIDIARIES
COMPANY 2005 2004 RM'000 RM'000
Due from subsidiaries 512,302 512,595 Less: Provision for doubtful debts (247,356) (252,902)
264,946 259,693
The amount due from subsidiaries is unsecured, interest free and has no fixed terms of repayment.
15.INVENTORIES
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
At cost:
Catering and general stores 9,116 6,264 2,737 2,491 Consumable aircraft spares 9,331 17,019 9,331 17,019
18,447 23,283 12,068 19,510
At net realisable value:
Catering and general stores 74,788 64,736 74,788 64,736 Consumable aircraft spares 352,803 281,400 352,803 281,400
427,591 346,136 427,591 346,136
446,038 369,419 439,659 365,646 Malaysian Airline System Berhad Annual Report 04/05 197 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Receivables
16. RECEIVABLES
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Trade receivables 1,616,976 1,503,480 1,578,702 1,482,043 Less: Provision for doubtful debts (485,152) (503,653) (451,813) (485,415)
1,131,824 999,827 1,126,889 996,628
Due from holding company (Note a) 445,483 268,037 445,483 268,037 Due from fellow subsidiary (Note b) 43,168 38,085 43,168 38,085 Due from associated companies 2,644 - 2,644 - Security deposits 87,975 96,065 87,317 95,138 Prepayments 71,290 80,022 70,598 79,783 Tax recoverable 61,014 59,396 32,075 53,554 Sundry receivables 164,209 123,062 152,077 114,810 Less: Provision for doubtful debts (1,630) (849) - -
874,153 663,818 833,362 649,407
2,005,977 1,663,645 1,960,251 1,646,035
(a) The amount due from holding company is unsecured and has no fixed term of repayment.
Included in the amount due from holding company of the Group and the Company are the following :
(i) an amount of RM353,290,000 (2004 : RMNil) in respect of payment made on behalf of the holding company for the purchase of aircraft.
(ii) interest bearing amount amounting to RM92,193,000 (2004: RM268,037,000) which bears interest as at the balance sheet date at 3.55% (2004: 3.75%) per annum.
(b) Due from fellow subsidiary
GROUP AND COMPANY 2005 2004 RM'000 RM'000
Due within one year 43,168 38,085 Due after one year 395,819 441,888
438,987 479,973
The amount due from a fellow subsidiary represents prepaid lease rentals. 198 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Receivables (Contd.)
(c) The Group's normal trade credit term ranges from 30 to 60 days. Other credit terms are assessed and approved on a case-by-case basis.
(d) The Group has no significant concentration of credit risk that may arise from exposures to a single debtor or to groups of debtors.
(e) Included in receivables of the Group and of the Company at the balance sheet date are balances denominated in the following major foreign currencies:
GROUP AND COMPANY 2005 2004 RM'000 RM'000
United States Dollar 778,132 571,321 Euro 60,365 69,268 Great Britain Pound 71,743 152,991 Japanese Yen 48,474 48,129 Singapore Dollar 5,479 2,935 Australian Dollar 65,367 27,771 Malaysian Airline System Berhad Annual Report 04/05 199 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Cash And Bank Balances
17.CASH AND BANK BALANCES
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Cash and bank balance 236,999 151,697 230,880 140,464 Term deposits with: Licensed banks 931,325 945,746 909,000 940,100 Licensed finance companies 82,525 9,287 81,000 - Other financial institutions 943,729 1,084,163 943,729 1,084,163
2,194,578 2,190,893 2,164,609 2,164,727
The average effective interest rates of deposits at the balance sheet date were as follows:
GROUP COMPANY 2005 2004 2005 2004 %%%%
Licensed banks 1.75 - 6.50 1.65 - 5.00 1.75 - 6.50 1.65 - 5.00 Licensed finance companies 2.75 - 3.00 2.90 2.75 - 3.00 - Other financial institutions 2.62 - 3.10 2.66 - 2.91 2.62 - 3.10 2.66 - 2.91
The average maturities of deposits as at the end of the financial year were as follows:
GROUP COMPANY 2005 2004 2005 2004 Days Days Days Days
Licensed banks 1 - 365 11 - 90 1 - 365 15 Licensed finance companies 89 - 365 11 - 90 89 - 94 - Other financial institutions 1 - 365 11 - 90 1 - 365 15
Other financial institutions are merchant banks in Malaysia and other foreign banks.
Included in cash and bank balances of the Group and of the Company at the balance sheet date are balances denominated in the following major foreign currencies:
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
United States Dollar 69,632 12,083 69,632 12,083 Euro 84,228 43,515 84,228 43,515 Great Britain Pound 106,809 5,453 106,809 5,453 Japanese Yen 15,013 3,114 15,013 3,114 Singapore Dollar 1,744 1,130 1,732 1,118 Australian Dollar 68,656 6,312 68,656 6,312 200 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Due To Subsidiaries, Payables
18.DUE TO SUBSIDIARIES
The amount is unsecured, interest free and has no fixed term of repayment.
19. PAYABLES
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Trade payables 1,968,436 1,404,423 1,663,103 1,187,253 Due to associated companies 31,096 76,697 31,096 76,411 Other payables 192,949 580,384 131,898 543,828 Accruals 361,093 338,431 354,646 341,779
2,553,574 2,399,935 2,180,743 2,149,271
The normal trade credit term granted to the Group ranges from 30 to 60 days.
Included in payables of the Group and of the Company at balance sheet date are balances denominated in the following major foreign currencies:
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
United States Dollar 165,497 75,585 164,461 75,432 Euro 20,794 4,892 20,720 4,737 Great Britain Pound 10,605 7,607 10,605 7,584 Singapore Dollar 5,091 5,660 5,067 5,658 Australian Dollar 20,737 7,598 20,729 7,598 Malaysian Airline System Berhad Annual Report 04/05 201 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Share Capital
20.SHARE CAPITAL
Number of Shares Amount 2005 2004 2005 2004 GROUP AND COMPANY '000 '000 RM'000 RM'000
Authorised
Ordinary Shares of RM1.00 each 9,000,000 9,000,000 9,000,000 9,000,000
One Special Rights Redeemable Preference Share of RM1.00 (Note a) 1 share 1 share RM1 RM1
Redeemable Convertible Preference Shares of RM0.01 (Note b) 100,000,000 100,000,000 1,000,000 1,000,000
109,000,000 109,000,000 10,000,000 10,000,000
Issued and fully paid
Ordinary Shares of RM1.00 each 1,253,244 1,253,244 1,253,244 1,253,244 One Special Rights Redeemable Preference Share of RM1.00 (Note a) 1 share 1 share RM1 RM1
1,253,244 1,253,244 1,253,244 1,253,244
(a) The Special Rights Redeemable Preference Share ("Special Share") would enable the Government through the Minister of Finance Incorporated ("MoF") to ensure that certain major decisions affecting the operations of the Company are consistent with the Government's policy. The Special Share, which may only be held by the MoF or its successors or any Minister, representative, or any person acting on behalf of the Government of Malaysia, carries certain special rights as provided by Article 5 of the Company's Articles of Association (as amended at the Extraordinary General Meeting held on 19 April 1995). These special rights include:
(i) the right to appoint not more than three persons at any time as directors of the Company.
(ii) the right to repayment of the capital paid up on the Special Share in priority to any other member in the event of a winding-up of the Company.
(iii) the right to require the Company to redeem the Special Share at par at any time.
Certain matters, in particular the alterations of specified Articles of Association of the Company, require the prior approval of the holder of the Special Share. The Special Share does not carry any right to vote at General Meetings but the holder is entitled to attend and speak at such meetings. 202 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Share Capital (Contd.)
(b) On 11 September 2001, the Company issued RM800 million Zero Dividend Redeemable Convertible Preference Shares (''RCPS'') of RM0.01 each at an issue price of RM1.00 each to Intelek Perkasa Berhad. The RCPS is redeemable by the Company within thirty days of its fifth anniversary (11 September 2006) failing which it will be automatically converted into ordinary shares at a conversion price of RM3.45 per RCPS share. The RCPS was constituted by the Subscription Agreement dated 29 August 2001.
The RCPS Investors will have the benefits of a put/call option arrangement granted by MoF as follows:
(i) the MoF will be entitled to exercise the call option to purchase all the RCPS from the RCPS Investors seven days prior to the fifth anniversary from the date of the issue of the RCPS (''Call Option'') at an exercise price as set out below; and
(ii) conversely, the RCPS Investors will be entitled to exercise the put option to dispose of all the RCPS at a selling price as set out below at the end of the five years from the date of issuance of the RCPS (''Put Date'') if and only if the Call Option is not exercised (''Put Option'').
Under the put/call arrangement, the exercise price for the RCPS payable by the MoF will be at a premium on the issue price of the RCPS to be calculated to give the RCPS Investors an equivalent return similar to 5-year zero-coupon fixed income papers issued or guaranteed by the Government that are issued or trading at around the time when the RCPS are issued (''Put Price'').
Subsequently, the Company can redeem the RCPS at its discretion within thirty (30) days immediately after the Put Date at a price equivalent to the Put Price plus interest accrued from the Put Date to the actual date of redemption by the Company calculated using one month Treasury Bills.
As mentioned in prior years’ reports, the Company entered into an agreement with PMB whereby the Company agreed to redeem the RCPS upon maturity, thereby changing the nature of the RCPS from an equity instrument to a debt instrument as defined by Malaysian Accounting Standard Board ("MASB") 24: Financial Instruments - Disclosure and Presentation. PMB then agreed to pay the redemption sum upon maturity, resulting in the RCPS ceasing to be an obligation of the Company.
The Company has also obtained an undertaking from the MoF that in the event the MoF were to become the holder of the RCPS through the put and call mechanism described above, the RCPS will be allowed to lapse without any further consideration payable by the Company. Accordingly, the RCPS, comprising share capital of RM8 million and share premium of RM792 million was derecognised in the financial statements of the Company. Malaysian Airline System Berhad Annual Report 04/05 203 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS General Reserves-Distributable, Deferred Taxation
21.GENERAL RESERVES - DISTRIBUTABLE
The general reserve relates to transfer made from retained profits in prior years.
22.DEFERRED TAXATION
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
At 1 April 2004 (124,970) 2,341 - - Recognised in the income statement (Note 9) 22,707 (127,311) - -
At 31 March 2005 (102,263) (124,970) - -
Presented after appropriate offsetting as follows: Deferred tax assets (103,219) (126,232) - - Deferred tax liabilities 956 1,262 - -
(102,263) (124,970) - -
The components and movements of deferred tax liabilities and assets during the financial year prior to offsetting are as follows:
Deferred tax liabilities of the Group:
Accelerated Capital Allowances Others Total RM'000 RM'000 RM'000
At 1 April 2004 30,550 1,017 31,567 Recognised in the income statement (299) (1,017) (1,316)
At 31 March 2005 30,251 - 30,251
At 1 April 2003 2,708 - 2,708 Recognised in the income statement 27,842 1,017 28,859
At 31 March 2004 30,550 1,017 31,567 204 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Deferred Taxation (Contd.)
Deferred tax assets of the Group:
Tax Losses and Unabsorbed Capital Allowances Provisions Others Total RM'000 RM'000 RM'000 RM'000
At 1 April 2004 (155,276) (875) (386) (156,537) Recognised in the income statement 23,810 164 49 24,023
At 31 March 2005 (131,466) (711) (337) (132,514)
At 1 April 2003 - (43) (324) (367) Recognised in the income statement (155,276) (832) (62) (156,170)
At 31 March 2004 (155,276) (875) (386) (156,537)
Deferred tax assets have not been recognised in respect of the following items:
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Unused tax losses 9,249 9,561 - - Unabsorbed capital allowances 935,146 786,302 935,074 786,182 Other deductible temporary differences 342,208 129,529 342,279 132,094
1,286,603 925,392 1,277,353 918,276
The unused tax losses and unabsorbed capital allowances are available indefinitely for offset against future taxable profits of the subsidiaries in which those items arose. Deferred tax assets have not been recognised in respect of these items as they may not be used to offset taxable profits of the other subsidiaries in the Group and they have arisen in subsidiaries that have a recent history of losses.
The Company is in the midst of applying for an extension of its tax exemption status. As such, deferred tax assets have not been recognised in respect of the unabsorbed capital allowances and other deductible temporary differences. Malaysian Airline System Berhad Annual Report 04/05 205 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Segmental Information
23.SEGMENTAL INFORMATION
(a) Business Segments
The Group operates predominantly in two business segments, being airline operations and cargo services.
(i) Airline operations - operation of aircraft for passengers (ii) Cargo services - operation of aircraft for cargo and mail services
Other business segments include hotel operations, catering, engineering, computerised reservation services, coach transportation, trucking and warehousing services, retailing of goods, terminal charges and tour and travel related activities, none of which are of a sufficient size to be reported separately.
The directors are of the opinion that all inter-segment transactions have been entered into in the normal course of business. Belly space charges from Airline to Cargo are based on internal pricing policy. All other inter-segment transactions have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties. 206 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Segmental Information (Contd.)
(a) Business Segments (Contd.)
Airline Cargo 2005 Operations Services Others Elimination Consolidated RM'000 RM'000 RM'000 RM'000 RM'000
REVENUE AND EXPENSES
Revenue External sales 8,302,323 2,580,213 68,346 - 10,950,882 Inter-segment sales 847,456 - 26,267 (873,723) -
Total revenue 9,149,779 2,580,213 94,613 (873,723) 10,950,882
Result Segment results 256,726 95,827 1,821 (10,940) 343,434 Interest expense (93) (1) (43) - (137) Share of results of associated companies - - 21,156 - 21,156
Profit before taxation 364,453 Taxation (8,076) (22,931) (4,700) (35,707)
Profit after taxation 328,746 Minority interests (2,667)
Net profit for the year 326,079
ASSETS AND LIABILITIES
Segment assets 6,667,184 244,310 436,423 - 7,347,917 Investment in associated companies - - 46,845 - 46,845
Consolidated total assets 7,394,762
Segment and consolidated liabilities 3,691,071 327,055 47,198 - 4,065,324
OTHER INFORMATION
Capital expenditure 537,944 13,026 127,818 - 678,788
Depreciation 210,078 30,415 4,780 - 245,273 Malaysian Airline System Berhad Annual Report 04/05 207 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Segmental Information (Contd.)
(a) Business Segments (Contd.)
Airline Cargo 2004 Operations Services Others Elimination Consolidated RM'000 RM'000 RM'000 RM'000 RM'000
REVENUE AND EXPENSES
Revenue External sales 6,501,528 1,999,756 86,542 - 8,587,826 Inter-segment sales 804,948 - 95,161 (900,109) -
Total revenue 7,306,476 1,999,756 181,703 (900,109) 8,587,826
Result Segment results 279,104 96,509 (24,140) (7,667) 343,806 Interest expense (5,916) - - - (5,916) Share of results of associated companies - - 7,275 - 7,275
Profit before taxation 345,165 Taxation (8,107) 122,617 3,033 - 117,543
Profit after taxation 462,708 Minority interests (1,565)
Net profit for the year 461,143
ASSETS AND LIABILITIES
Segment assets 6,013,896 256,157 309,994 - 6,580,047 Investment in associated companies - - 35,629 - 35,629
Consolidated total assets 6,615,676
Segment and consolidated liabilities 3,327,658 231,488 20,448 - 3,579,594
OTHER INFORMATION
Capital expenditure 236,792 3,161 43,137 - 283,090
Depreciation 160,603 29,209 24,446 - 214,258 208 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Segmental Information (Contd.)
(b) Geographical Segments
2005 2004 RM'000 RM'000
Revenue
Orient and North America 2,628,821 1,845,558 Europe and Middle East 3,899,108 2,919,633 Australia and New Zealand 1,740,107 1,402,610 Asia 1,656,410 1,356,250 Africa and South America 275,729 223,578
10,200,175 7,747,629 Other revenue 750,707 840,197
10,950,882 8,587,826
Assets, which consist principally of flight and ground equipment that support the entire worldwide transportation system, are mainly located in Malaysia. An analysis of assets and capital expenditure of the Group by geographical distribution has therefore not been included. Malaysian Airline System Berhad Annual Report 04/05 209 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Related Party Transactions
24. SIGNIFICANT RELATED PARTY TRANSACTIONS
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Expenses
Expenses charged by subsidiaries: - Handling and cleaning services - - 2,776 2,581 - Inflight meals - - 14,928 11,953 - Other inflight services - - 8,563 6,617 Engine maintenance services rendered by an associated company, GE Engine Services Malaysia Sdn. Bhd. ("GEESM") 399,236 442,235 399,236 442,235 Purchase of aircraft spares and equipment from GEESM 93,224 82,801 93,224 82,801 Catering services paid to an associated company, Taj Madras Flight Kitchen Limited 2,196 1,985 2,196 1,985 Transit and cabin services paid to an associated company, Pan Asia Pacific Aviation Services Limited 5,545 2,950 5,545 2,950 Purchase of meals and beverages from an associated company, LSG Sky Chefs-Brahim's Sdn. Bhd. ("LSG") 264,852 79,088 264,852 79,088 Catering services paid to Evergreen Sky Catering Corporation, a company in which the Company has substantial shareholding 9,048 7,465 9,048 7,465 Catering services paid to Miascor Catering Services, a company in which the Company has substantial shareholding 1,207 1,251 1,207 1,251 Computer reservation system access fee paid to Abacus International Holding Limited, a company in which the Company has substantial shareholding 58,491 38,199 - - Aircraft maintenance services paid to an associated company, Honeywell Aerospace Services (M) Sdn. Bhd. 6,856 7,086 6,856 7,086 Aircraft maintenance services paid to an associated company, Hamilton Sunstrand Customer Support Centre (M) Sdn. Bhd. 13,816 10,765 13,816 10,765 210 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Significant Related Party Transactions (Contd.)
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
Income
Dividend received from: - Subsidiaries - - 3,619 6,422 - Associated companies - - 6,794 5,428 Income received from subsidiaries: - Hire of belly space - - 819,329 750,035 - Hire of aircrafts - - 28,127 37,164 - Handling and cleaning services - - 2,888 2,188 Rental income received from an associated company, GEESM 15,092 15,412 15,092 15,412 Shared services billed to LSG 47,791 8,989 47,791 8,989
Transactions with holding company and its fellow subsidiaries
Expenses
Hire of aircraft paid to PMB 362,557 315,210 362,557 315,210 Lease rental paid to Aircraft Business Malaysia Sdn. Bhd. 238,178 227,569 238,178 227,569 Rental paid to Asset Global Network Sdn. Bhd. 71,410 71,410 71,410 71,410
The directors are of the opinion that all the transactions above have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties. Malaysian Airline System Berhad Annual Report 04/05 211 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Commitments
25.COMMITMENTS
GROUP COMPANY 2005 2004 2005 2004 RM'000 RM'000 RM'000 RM'000
(a) Capital commitments: Due within one year - approved and contracted for 592,300 850,673 527,300 775,900 - approved but not contracted for 347,700 581,482 332,700 515,300
940,000 1,432,155 860,000 1,291,200
Due within two to five years - approved and contracted for 507,100 127,600 437,100 127,600 - approved but not contracted for 154,600 735,000 154,600 709,000
661,700 862,600 591,700 836,600
Total capital commitments - approved and contracted for 1,099,400 978,273 964,400 903,500 - approved but not contracted for 502,300 1,316,482 487,300 1,224,300
1,601,700 2,294,755 1,451,700 2,127,800
(b) Forward contracts: Fuel contracts - Due within 1 year 157,663 28,084 157,663 28,084 Foreign currency contracts - Due within 1 year 6,114 9,462 6,114 9,462
163,777 37,546 163,777 37,546
(c) Operating lease commitments: Due within one year 1,053,252 1,020,701 1,053,252 1,020,701 Due between one and two years 996,496 1,010,160 996,496 1,010,160 Due between two and five years 1,734,706 2,667,665 1,734,706 2,667,665 Due after five years 3,057,540 3,057,540 3,057,540 3,057,540
6,841,994 7,756,066 6,841,994 7,756,066
The outstanding capital commitments relate to aircraft interior reconfiguration, upgrade of inflight entertainment system and other capital expenditure projects. 212 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Contigent Liabilities
26.CONTINGENT LIABILITIES
GROUP AND COMPANY 2005 2004 RM'000 RM'000
Guarantees (Unsecured)
Corporate guarantees given to third parties in respect of credit facilities provided to an associated company 5,503 5,509 Bank guarantee given to third parties in respect of services provided to the Group and Company 123,419 146,447 Performance bonds given to third parties in respect of training of technical crew 640 640
129,562 152,596
Liabilities taken over by the holding company
Loans - secured 798,799 1,048,282 - unsecured 141,419 147,665 Lease payables (secured) 1,888,994 2,669,355
2,829,212 3,865,302
2,958,774 4,017,898
In connection with the Widespread Asset Unbundling ("WAU") exercise mentioned in the last report, the Company continues to be the named borrower of finance leases and term loans which have been taken over by the holding company and is still contractually bound to meet these borrowings in the event the holding company defaults on the payments. As such, the outstanding balance of the borrowings assumed by the holding company is included within the Group's and Company's contingent liabilities.
The above lease and loans mature as follows:
Loans Leases Total RM'000 RM'000 RM'000
Within one year 253,312 537,000 790,312 Between one and two years 200,363 393,381 593,744 Between two and five years 421,203 732,393 1,153,596 After five years 65,340 226,220 291,560
940,218 1,888,994 2,829,212
As at 31 March 2005, the Company has lease obligations amounting to RM1,514,872,000 (2004 : RM1,722,992,000) which are covered by interest bearing funds amounting to RM1,213,459,000 (2004 : RM1,066,974,000) placed with and payments made to financial institutions at the inception dates of the respective lease agreements under defeasance arrangements. The defeased lease obligations, together with the related fund placements and payments, are therefore not included in these financial statements.
The Group has in operation 111 (2004 : 109) aircraft and 36 (2004 : 36) engines under operating leases. Of these, 27 (2004 : 31) aircraft relate to the borrowings assumed by the holding company which is included in the Group's and the Company's contingent liabilities. Malaysian Airline System Berhad Annual Report 04/05 213 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Contigent Liabilities (Contd.)
The directors are of the opinion that the holding company, being a subsidiary of the MoF, will be able to meet all payments to the Company in respect of the above liabilities as and when they fall due.
In 2000, Vantage Aviation Services Ltd. ("Vantage") filed a claim for TK832,161,000 (approximately RM48,598,000) against the Company for alleged wrongful termination of a General Sales Agency Agreement in Dhaka, Bangladesh. The Company has filed a defence to Vantage's claims, and at the same time filed a counter claim amounting to TK179,620,000 (approximately RM10,490,000) for breach of the agency agreement. Similarly, in 2001 Shahjalal Aviation Systems Ltd. ("Shahjalal") filed a claim for TK2,670,000,000 (approximately RM155,928,000) against the Company for alleged wrongful termination of a General Sales Agency Agreement in Dhaka, Bangladesh. The Company has filed a defence to Shahjalal's claims, and at the same time filed a counter claim amounting to TK87,835,000 (approximately RM5,130,000) for breach of the agency agreement. These two cases are still pending. The directors are of the view that the cases are without merit.
A writ of summons and statement of claim among others, seeking the divestment of 70% stake in LSG to Gubahan Saujana Sdn. Bhd., LSG Asia GmbH and Fahim Capital Sdn. Bhd. to be declared void, was served on the Company on 2 July 2004 as the fourth defendant in the High Court suit brought by the plaintiff, Advent Group Management Sdn. Bhd. The directors are of the opinion that the suit filed against the Company is without merit.
On 16 September 2004, the Company received a notice that Advanced Cargo Logistic GmBH had initiated proceedings against the Company at the ICC International Court of Arbitration in Paris, France seeking a claim of Euro 62.6 million (approximately RM308.4 million) for breach of contract under a cargo handling services agreement. The Company is contesting the claim.
27.CONTINGENT ASSETS
As mentioned in the last report, the Company is entitled to a 80% share of the profit on disposal of certain aircraft unbundled to PMB under the Agreement for Aircraft and Finance Agreements Unbundling. The profit will be computed based on the excess of the value realised over the decayed cost of the aircraft. The decayed cost for each aircraft at future dates is stipulated by the WAU agreement. Based on published industry price data, the Company's share of the profit on disposal if the applicable aircraft were to be disposed of as at 31 March 2005 is RM747,536,000 (2004 : RM855,456,000).
28.SIGNIFICANT EVENT
On 4 October 2004, the Company entered into a termination agreement with Asset Global Network Sdn. Bhd. ("AGN") to terminate the conditional Reimbursement Agreement ("RA") dated 26 March 2003 for the reimbursement of Subang Complex A buildings. The deposit of RM1.0 million was refunded by the Company and AGN was also reimbursed RM580,000 for the cost incurred, for the reimbursement of the Subang Complex A buildings.
As a result, the Company and AGN will not proceed with the subsequent sub-lease of Subang Complex A buildings, which was intended to take effect upon the completion of the RA. 214 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Financial Instruments
29. FINANCIAL INSTRUMENTS
(a) Financial Risk Management Objectives and Policies
The Group operates globally and generates revenue in various currencies. The Group's airline operations carry certain financial and commodity risk, including the effects of changes in fuel prices, foreign currency exchange rates, interest rates and the market value of its investments. The Group's overall risk management approach is to minimise the effects of such volatility on its financial performance and reflect an inclination towards risk averse policies.
The Group's policy is not to trade in derivatives but to use these instruments to hedge against anticipated exposures.
(b) Fuel Price Risk
The Group's earnings are affected by changes in the price of jet fuel. The Group manages this risk by using instruments such as forward contracts, options, collars, caps and swaps. The Group's risk management policy is to hedge up to 80% of the annual budget volume for 12 months and up to 50% of the volume for the tenure of such contracts up to 48 months.
(c) Interest Rate Risk
The Group's earnings are affected by changes in interest rates where they have an impact on interest income and expense from cash, short term deposits and interest bearing financial assets and liabilities and operating lease payments.
The Group's policy on managing its interest rate risk is by maintaining a prudent mix of fixed and floating rate investments and borrowings.
(d) Foreign Exchange Risk
The Group is exposed to the effects of foreign exchange rate fluctuations because of its foreign currency denominated operating revenues and expenses. The Group's largest exposures are from United States Dollar, Euro, Great Britain Pound, Japanese Yen, Singapore Dollar and Australian Dollar.
The Group seeks to reduce its foreign exchange exposure arising from transactions in various currencies through a policy of matching, as far as possible, receipts and payments in each individual currency. Surpluses of convertible currencies are sold, either spot or forward, for Malaysian Ringgit and United States Dollar.
The Group's forward transactions in foreign currency are detailed in Note 25 (b).
(e) Liquidity Risk
The Group manages its liquidity risk by maintaining sufficient levels of cash or cash convertible investments and available credit facilities to meet its working capital requirements.
Surplus funds are invested in high quality short term liquid instruments, usually bank deposits. Malaysian Airline System Berhad Annual Report 04/05 215 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Financial Instruments (Contd.)
(f) Credit Risk
Credit risk is the potential loss from a transaction in the event of default by the counterparty during the term of the transaction or on settlement of the transaction. Credit exposure is measured as the cost to replace existing transactions should a counterparty default. The Group has credit risk associated with travel agents, industry settlement organisations and credit provided to direct customers. The Group minimises this credit risk through the application of stringent credit policies and accreditation of travel agents through industry programs.
Other than the amount due from related companies, the Group does not have any significant exposure to any individual customer or counterparty nor does it have any major concentration of credit risk related to any financial instruments.
(g) Market Price Risk
As at 31 March 2005, the Group owned quoted investments amounting to RM1,377,000 (2004 : RM1,409,000), and the estimated market value of these quoted investments was RM30,946,000 (2004 : RM26,402,000).
The market risk associated with quoted investments is the potential loss resulting from a decrease in market prices.
(h) Fair Values
The aggregate net fair values of financial assets and financial liabilities which are not carried at fair value on the balance sheet of the Group and of the Company are represented as follows:
GROUP COMPANY Carrying Fair Carrying Fair Amount Value Amount Value Note RM'000 RM'000 RM'000 RM'000
Financial Assets
- 31 March 2005 13(c) 1,377 30,946 1,377 30,946 - 31 March 2004 13(c) 1,409 26,402 1,377 26,294 216 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Financial Instruments (Contd.)
(h) Fair Values (Contd.)
The carrying amounts of all other financial assets and liabilities as at 31 March 2005 are not materially different from their fair values due to the relatively short term maturity of these financial instruments.
The nominal/notional amount and net fair value of financial instruments not recognised in the balance sheet as at 31 March 2005 and 31 March 2004 are:
GROUP AND COMPANY Carrying Fair Amount Value Note RM'000 RM'000
Contingent asset
- 31 March 2005 27 747,536 747,536 - 31 March 2004 27 855,456 855,456
The method and assumption used to estimate the fair value of the contingent asset is determined by reference to the published industry price data of the aircraft.
As at 31 March 2005, the Group and the Company have entered into various fuel hedging transactions from 1 April 2005 to 30 September 2007 in several lots totalling 5,445,000 (2004 : 2,715,000) barrels. The cumulative estimated proceeds from hedging of marked to market value on the existing fuel hedging position (from 1 April 2005 to 30 September 2007) stand at RM240,471,000 (2004 : RM37,546,000).
As at 31 March 2005, the Group and the Company have entered into interest rate forward contracts with the following notional amounts and maturities pertaining to USD obligations:
Notional Amount 2005 2004 RM'000 RM'000
Within 1 year 259,667 - More than 1 year and less than 5 years 614,333 - 5 years or more 665,000 -
1,539,000 -
The fixed interest rates relating to interest rate forward contracts at the balance sheet date vary from 4.5% to 5.0% per annum.
The nominal/notional amount and net fair value of contingent liabilities (as disclosed in Note 26) are not disclosed as it is not practicable to estimate the fair value of contingent liabilities reliably due to the uncertainties of timing, costs and eventual outcome. Malaysian Airline System Berhad Annual Report 04/05 217 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Subsidiaries
30.SUBSIDIARIES
The subsidiaries, all of which are incorporated in Malaysia, are:
Effective Interest Name of Company 2005 2004 Principal Activities %%
Abacus Distribution Systems 80 80 Promotion, development, operation (Malaysia) Sdn. Bhd. and marketing of computerised reservations systems and related services
Aerokleen Services Sdn. Bhd. 51 51 Provision of laundry and cleaning services
Malaysia Airlines Cargo 100 100 Air cargo operations, charter freighter Sdn. Bhd. and all warehousing activities relating to air cargo operations
MAS Catering (Sarawak) 60 60 Provision of catering and Sdn. Bhd. cabin handling services
MAS Golden Boutiques 100 100 Retailing of inflight goods Sdn. Bhd. and boutique operations
MAS Golden Holidays Sdn. Bhd. 100 100 Tour and travel related operations
MAS Hotel & Boutiques 100 100 Provision of hotel and Sdn. Bhd. boutique facilities
Pengangkutan Kargo Udara 100 100 Provision of trucking, clearance MAS Sdn. Bhd. and warehousing services
Syarikat Pengangkutan Senai 100 100 Provision of coach Sdn. Bhd. transportation services
Malaysia Airlines Capital (L) 100 100 Investment holding Limited
Tiara Malaysia Airlines 100 100 Investment holding and Sdn. Bhd. inactive
MAS Aerotechnologies 100 100 Ceased operations Sdn. Bhd.
Macnet CCN (M) Sdn. Bhd. 56.7 56.7 Ceased operations
Aircraft Engine Repair 100 100 Dormant and Overhaul (Malaysia) Sdn. Bhd.
Kelas Services Sdn. Bhd. 100 100 Dormant
MAS Academy Sdn. Bhd. 100 100 Dormant
MAS Properties Sdn. Bhd. 100 100 Dormant
MAS Wings of Gold Sdn. Bhd. 100 100 Dormant
MIR Technologies Sdn. Bhd. 100 100 Dormant
Sepang Berhad 100 100 Dormant 218 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
NOTES TO THE FINANCIAL STATEMENTS Associated Companies
31.ASSOCIATED COMPANIES
The details of the associated companies are:
Name of Companies [Financial Country of Effective Interest year end] Incorporation 2005 2004 Principal Activities %%
Hamilton Malaysia 49 49 Repair and overhaul of Sunstrand selected aircraft Customer environmental control Support systems, aircraft Centre (M) pneumatic components Sdn. Bhd. and propeller system [31 December]
LSG Sky Malaysia 30 30 Catering related Chefs-Brahim's services, cabin handling Sdn. Bhd. and cleaning services [31 December]
Pan Asia Hong Kong 23.5 23.5 Provision of aircraft Pacific Aviation maintenance services Services Limited [31 March]
GE Engine Services Malaysia 30 30 Repair and overhaul of Malaysia aircraft engine Sdn. Bhd. [31 December]
Aerofine Meat Malaysia 49 49 Ceased operations Sdn. Bhd. [31 March]
Asian Frequent Singapore 33.3 33.3 Ceased operations and Flyer under members’ voluntary Pte. Ltd. liquidation [31 December]
Honeywell Aerospace Malaysia 30 30 Repairing, servicing, Services (M) overhauling and testing of Sdn. Bhd. aircraft auxiliary power units [31 December]
Taj Madras India 20 20 Inflight catering of food Flight Kitchen and beverages Limited [31 March]
Signforce Sdn. Bhd. Malaysia - 25 Hotel planning assistance [31 December] and management services
32.CURRENCY
All amounts are stated in Ringgit Malaysia, unless otherwise stated. Malaysian Airline System Berhad Annual Report 04/05 219 (10601-W)
statistics on shareholdings
as at 18 July 2005
STATEMENT OF SHAREHOLDINGS
Share Capital
Authorised Share Capital : 109,000,000,001 Issued and Fully Paid-up Capital : 1,253,243,866 Class of Shares : 1,253,243,865 ordinary shares of RM1.00 each; and one (1) special rights redeemable preference share of RM1.00. Voting Rights : One vote per ordinary share. The Special Share has no voting right other than those referred to in note 20(a) of the financial statements.
ANALYSIS OF SHAREHOLDINGS
A. Distribution of Shareholdings
Category Shareholders % Shareholdings %
Less than 100 117 1.07 1,884 0.00 100 to 1,000 5,062 46.47 4,962,409 0.40 1,001 to 10,000 5,019 46.08 17,634,711 1.41 10,001 to 100,000 540 4.96 16,216,960 1.29 100,001 to less than 5% of issued shares 151 1.39 139,851,769 11.16 5% and above of issued shares 3 0.03 1,074,576,132 85.74
Total 10,892 100 1,253,243,865 100.00
B. List of Thirty (30) Largest Shareholders
No. Name No. of shares %
1. Penerbangan Malaysia Berhad 868,957,232 69.34 2. Employees Provident Fund Board 134,320,600 10.72 3. Amanah Raya Nominees (Tempatan) Sdn. Bhd.
STATISTICS ON SHAREHOLDINGS
No. Name No. of shares %
13. Bank Simpanan Nasional 1,597,000 0.13 14. Bank Simpanan Nasional 1,597,000 0.13 15. Bank Simpanan Nasional 1,597,000 0.13 16. Bank Simpanan Nasional 1,597,000 0.13 17. Citicorp Nominees (Asing) Sdn. Bhd.
TOTAL 1,180,298,800 94.18
C. Substantial Shareholders (as shown in the register of substantial shareholders)
Name of Substantial Shareholders No. of sharesheld % Notes Direct In direct
1. Penerbangan Malaysia Berhad 868,957,232 - 69.34 2. Employees Provident Fund Board 147,008,900 - 11.73 A
Notes: A The following are the registered holders of the 147,008,900 ordinary shares:
Name of registered holder No. of shares held %
Employees Provident Fund Board 135,393,200 10.80 Nomura Asset Management 1,044,200 0.08 Amanah SSCM Asset Management Bhd. 5,983,700 0.48 Commerce Asset Fund Managers Sdn. Bhd. 1,754,000 0.14 Rashid Hussain Asset Management Sdn. Bhd. 2,833,800 0.23 Malaysian Airline System Berhad Annual Report 04/05 221 (10601-W)
STATISTICS ON SHAREHOLDINGS/SHARE PRICES AND TRADING VOLUME
D. Directors’ Shareholding (as shown in the register of directors’ shareholding)
Name of Directors No. of shares held % Direct Indirect
1. Dato’ Dr. Mohd Munir bin Abdul Majid - - - 2. Dato’ N. Sadasivan a/l N.N. Pillay - - - 3. Dato’ Ahmad Fuaad bin Mohd. Dahalan - - - 4. Dato’ Izzuddin bin Dali - - - 5. Dato’ Zaharaah binti Shaari - - - 6. Keong Choon Keat - - - 7. Martin Gilbert Barrow - - - 8. Dato’ Mohamed Azman bin Yahya - - - 9. Dato’ Mohd Annuar bin Zaini - - - 10. Datuk Abdillah @ Abdullah bin Hassan @ S. Hassan - - - 11. Datuk Amar Haji Abdul Aziz bin Haji Husain - - - 12. Tengku Azmil Zahruddin bin Raja Abdul Aziz - - - 13. Datu Haji Salleh bin Haji Sulaiman - - - (Alternate Director to Datuk Amar Haji Abdul Aziz bin Haji Hussain) 14. Encik Abdul Rahman Bin Abdul Ghani - - - (Alternate Director to Datuk Abdillah @ Abdullah bin Hassan @ S Hassan)
Share Prices and Trading Volumes between 1 April 2004 and 31 March 2005
Month Share Price Share Price Volume Highest Lowest (‘000) (RM) (RM)
Apr 04 5.40 4.94 6,919,400 May 04 4.80 4.52 11,439,500 June 04 4.76 4.60 12,653,700 July 04 4.80 4.74 10,310,400 Aug 04 4.72 4.08 7,738,800 Sept 04 4.38 3.96 3,348,500 Oct 04 4.00 3.68 3,358,500 Nov 04 4.50 3.76 6,707,100 Dec 04 4.70 4.42 3,533,200 Jan 05 4.56 4.26 3,567,300 Feb 05 4.48 3.80 4,310,800 Mar 05 3.92 3.76 2,659,000
HIGHEST (RM) LOWEST (RM) VOLUME (‘000) 222 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
list of company properties
as at 31 March 2005
Location Description Tenure Approx. Approx. Net book Net book area age value value as at in sq feet (years) as at 31.3.2005 31.3.2005 (RM) (RM’000)
1 Federal 35 storey office building MAS, Leasehold 99 Land - 75,036 20 41,649 41,649,326 Territory of Lot 1194, Section 57, years Built-up - 679,994 41,502 41,501,889 Kuala Lumpur Jalan Sultan Ismail, expiring 50250 Kuala Lumpur 07 Feb 2081
2 Federal Residential building Leasehold Land - 3,440 20 137 136,939 Territory of Lot 24, Taman Jasa, 999 years Built up - 2,062 Labuan off Jalan Tun Mustapha, expiring 87000 W.P. Labuan 31 Dec 2867
3 State of 36 office and workshop Occupation of Land - 4,617,360 6-33 304,490 304,490,133 Selangor buildings forming MAS federal land Built up - 2,284,309 office complex at Sultan pending Abdul Aziz Shah Airport, formalisation 47200 Subang of a lease and 1 Pedestrian Bridge
Industrial land at PT 44562 Leasehold Land - 10.972 acres 1 16,277 16,276,622 Mkm Sg Buloh, 99 years 47200 Subang, expiring Selangor 29 Jan 2102
Computer centre, Freehold Land - 358,869 11 98,496 98,495,977 hostel and training Built up - 732,010 school at No 2, Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya
4 State of Penang 13 shoplots Units Leasehold 99 Built up - 8,690 28 1,352 1,352,427 A1.04-A1.07 & years A1.11-A1.14 level 1; expiring 2075 A4.05-A4.08 & B114.03 level 4, Kompleks KOMTAR, Penang Road, George Town, 10000 Penang
Residential building Freehold Land - 6,234 24 130 130,227 No 3, Built up - 3,085 Changkat Minden Lorong 8, 11700 Penang
8 buildings at Yearly Built up - 331,154 25 31,933 31,932,677 Penang International tenancy Airport, 11900 Bayan Lepas, Penang
5 State of Perak 4 shoplots Freehold Built up - 4,102 24 473 473,397 Lot G-01and 1-06, 1-07 & 1-08, Bangunan Sri Kinta, Jalan Sultan Idris Shah, 30000 Ipoh Malaysian Airline System Berhad Annual Report 04/05 223 (10601-W)
LIST OF COMPANY PROPERTIES
Location Description Tenure Approx. Approx. Net book Net book area age value value as at in sq feet (years) as at 31.3.2005 31.3.2005 (RM) (RM’000)
6 State of Pahang Vacant land Leasehold Land - 52,816 24 44 44,091 Lot 51, Taman Bukit Kayangan, 60 years 49000 Bukit Fraser, expiring Pahang 04 Dec 2041
2 units condominium Leasehold 99 Built up - 5,226 19 150 150,361 K67 & B16 Pine Resort, years 160 160,082 49000 Bukit Fraser, expiring Pahang 23 May 2082
Residential building Freehold Land - 4,400 20 93 92,911 No 4, Lorong 49, Built up - 2,286 Taman Tas Makhota, Bukit Sekilau, 25200 Kuantan
7 State of 1 engineering workshop Yearly Built up - 4,500 20 0 0 Terengganu at Sultan Mahmud Airport, tenancy 21300 Kuala Terengganu
8 State of Kedah 1 engineering building at Yearly Land - 2,065 13 133 133,053 Sultan Abdul Halim Airport, tenancy Built up - 5,950 06200 Alor Setar
Residential building Freehold Land - 2,519 17 71 71,238 No 45, Taman Sri Negeri Built up - 2,324 Jalan Penarak, 07000 Kuah, Langkawi
1 cargo shed at Langkawi Yearly Built up - 1,632 10 5 4,999 International Airport, tenancy 07100 Padang Matsirat, Langkawi
Office lot Leasehold 99 Built up - 3,210 15 390 390,350 No 74, Kompleks Alor Setar, years Jalan Lebuhraya Darul Aman, expiring 2088 05100 Alor Setar
Residential building Freehold Land - 6,663 12 235 234,782 No 2630, Built up - 3,791 Jalan Syed Sheh Shahbuddin, Taman Lumba Kuda, 05250 Alor Setar
9 State of Johor Residential building Freehold Land - 4,241 24 85 85,313 No 34, Jalan Sutera 5, Built up - 2,064 Taman Sentosa, 80150 Johor Bahru
1 engineering workshop at 3 yearly Land - 16,000 13 469 469,008 Sultan Ismail Airport, tenancy Built up - 6,314 81250 Senai, Johor Bahru expiring 2007 (renewable) 224 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
LIST OF COMPANY PROPERTIES
Location Description Tenure Approx. Approx. Net book Net book area age value value as at in sq feet (years) as at 31.3.2005 31.3.2005 (RM) (RM’000)
1 cargo building at 3 yearly Built up - 10,911 12 9 8,700 Sultan Ismail Airport, tenancy 81250 Senai, Johor Bahru expiring 2007 (renewable)
10 State of Negeri 5 units condominiums Leasehold 99 Built up - 5,657 17 604 603,593 Sembilan A-6-10, 1-7-5, 1-5-3, years A-5-5, A-4-2 expiring 2086 Tanjung Tuan Resort, 5th mile Jln Pantai, 71050, Port Dickson, Negeri Sembilan
11 State of Residential building Leasehold 99 Land - 8,383 17 112 112,078 Kelantan Lot 1791, years Built up - 2,595 Taman Sari off Jalan Hospital, expiring 14800 Kota Bharu 06 Mar 2088
Office lots , Leasehold Built up - 4,350 15 694 694,375 Ground Floor Wisma Yakin, 99 years Jalan Gajah Mati, expiring 2088 15050 Kota Bharu
12 State of Sabah Residential building Leasehold Land - 7,220 22 198 198,414 No 44, Taman Luyang Phase 8, 999 years Built up - 3,316 88300 Kota Kinabalu expiring 19 Mar 2922
2 office lots Leasehold Built up - 3,614 20 993 993,075 G030 & G038 999 years Grd floor expiring 2983 Kompleks Karamunsing, Jalan Tuaran/ Selatan, 88400 Kota Kinabalu
1 office lot Leasehold Built up - 2,472 20 336 335,765 CF02, 10th Floor Block C 999 years Kompleks Karamunsing expiring 2983 Jalan Tuaran/ Selatan, 88400 Kota Kinabalu
Hangar & Cargo and Leasehold 60 Hangar/Cargo 15&24 8,576 8,576,320 Administration buildings and 20 years Building at Kota Kinabalu expiring 2044 Land - 152,460 International Airport, and 2006 Built up - 118,207 88740 Kota Kinabalu respectively Admin Building Land - 16,000 Built up - 31,104
Residential building on Lot Leasehold Land - 82,204 13 397 397,269 CL105241807 km 2.5 999 years Built up - 3,587 161 160,620 Jalan Datuk Abu Bakar, expiring 91000 Titingan, Tawau 06 Mar 2904
1 Hangar/Cargo building at Yearly Built up - 16,625 3 161 160,620 Tawau Airport tenancy 91000 Tawau Malaysian Airline System Berhad Annual Report 04/05 225 (10601-W)
LIST OF COMPANY PROPERTIES
Location Description Tenure Approx. Approx. Net book Net book area age value value as at in sq feet (years) as at 31.3.2005 31.3.2005 (RM) (RM’000)
1 Engineering / Cargo Yearly Built up - 1,675 25 2,688 2,688,424 building at tenancy Lahad Datu Airport, 91100 Lahad Datu
Residential building Leasehold Land - 4,450 14 168 167,922 No. 144, Taman Fajar 999 years Built up - 1,800 91100 Lahad Datu expiring 2894
13 State of 5 storey office building Leasehold 60 Land - 5,397 19 638 638,280 Sarawak Lot 215, years Built up - 38,478 2,675 2,675,397 Jalan Song Thian Cheok, expiring 93100 Kuching 19 Feb 2041
Residential building Leasehold 60 Land - 5,758 22 117 117,324 No 339, Fortune Garden, years Built up - 3,270 Lorong Stampin Timur 5, expiring 93350 Kuching 19 Sep 2042
Catering and workshop 3 yearly Land - 67,662 15-23 783 783,288 building at tenancy Built up - 25,171 Kuching International Airport, (renewable) 93250 Kuching
1 cargo warehouse / 3 yearly Land- 40,864 19 910 910,394 engineering building tenancy Built up - 19,588 at Miri Airport, (renewable) 98000 Miri
4 storey offce building Leasehold 60 Land - 1,800 25 297 297,031 Lot 239, Beautiful Jade Centre, years Built up - 5,340 98000 Miri expiring 27 Jun 2039
Residential building Leasehold 60 Land - 5,478 21 130 130,285 No 126, years Built up - 3,252 Lorong Hilltop Utama 10, expiring Hilltop Garden, 07 Sep 2043 98000 Miri
Residential building Leasehold 60 Land - 4,049 20 95 95,378 830A, Countrywood Estate years Built up - 1,700 off Jalan Hussein Onn, expiring 97000 Bintulu 20 Dec 2044
4 storey office building Freehold Land - 1,377 19 423 423,131 No 129, Taman Sri Dagang, Built up - 5,533 Jalan Mesjid, 97000 Bintulu
Cargo/Engineering Building 3 yearly Land - 52,474 1 2,472 2,472,265 Bintulu Airport, tenancy Jalan Bintulu, (renewable) 97000 Bintulu 226 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
LIST OF COMPANY PROPERTIES
Location Description Tenure Approx. Approx. Net book Net book area age value value as at in sq feet (years) as at 31.3.2005 31.3.2005 (RM) (RM’000)
4 storey office building Leasehold 60 Land - 1,199 21 308 307,860 No 61, Jalan Tuanku Osman, years Built up - 5,200 96000 Sibu expiring 26 Oct 2043
Residential building Leasehold 60 Land - 4,583 22 64 64,032 No 16B, Jalan Kang Kong, years Built up - 2,242 96000 Sibu expiring 24 Sep 2042
1 Cargo / Engineering Yearly Land - 41,592 11 1,077 1,077,116 building at Sibu Airport, tenancy Built up - 10,926 23km Sibu/Durin Road 96000 Sibu
14 Singapore Office lots at Leasehold 99 Built up - 15,241 25 4,835 4,834,769 190, Clemenceau Avenue years No.0209-11, expiring Singapore Shopping Center, 30 Apr 2047 Singapore 239924
1 unit apartment Freehold Built up - 2,238 21 451 450,873 Unit 5-01 Block 3, Hawaii Tower, No 77 Meyer Road, Singapore 437903
15 Thailand 1 condominium unit at Freehold Built up - 2,713 24 140 140,370 No 3 Block B, Tai Ping Tower , Ekamai Road, 10110 Bangkok
16 The Phillipines 1 unit apartment Freehold Built up - 2,260 31 79 79,455 Unit 11-D, The Makati Tuscany Condo, Ayala Avenue, Makati City, 1226, Manila
1 office lot Freehold Built up - 3,240 27 133 133,498 unit F, ground floor, Legaspi Tower 300, Vito Cruz Street, Malate, 1004, Metro Manila
17 Hong Kong 1 unit apartment Leasehold 75 Built up - 1,874 26 0 0 No 58-60, years Sakura Court Flat A, expiring 5th floor, Kennedy Road, 20 Jun 2070 Hong Kong Malaysian Airline System Berhad Annual Report 04/05 227 (10601-W)
LIST OF COMPANY PROPERTIES
Location Description Tenure Approx. Approx. Net book Net book area age value value as at in sq feet (years) as at 31.3.2005 31.3.2005 (RM) (RM’000)
18 Australia Residential building, Freehold Land - 8,086 27 160 159,647 40, Edgewater Road, Built up - 4,333 Manning, Perth WA 6152
5 storey office building Freehold Land - 2,422 14 5,380 5,380,388 56, William Street, Built up - 16,824 Perth WA 6000
10 storey office building Freehold Built up - 35,000 12 13,816 13,815,867 16 Spring Street Sydney, N.S.W. 2000
19 England 7 storey office building Freehold Land 29,977 9 31,305 31,305,450 No 247-249, Built up - 24,169 Cromwell Road, London SW5 9GA
Residential apartment Freehold Built up - 3,300 8 5,366 5,365,862 No 12 St Mary’s Place, Kensington Green, Marloes Road, London W8
21 The Netherlands Office building Freehold Land - 8,116 14 5,787 5,787,097 Westeringchans 24A 1017-SG Built up - 5,602 Amsterdam
22 China 1 unit apartment Leasehold 70 Built up - 1,669 8 532 532,446 Unit C703A, Roman Gardens, years No.18, Huixin West Street, expiring Chaoyang District 27 Aug 2063 Beijing, Postcode 100029
1 unit apartment Leasehold 70 Built up - 1,669 8 532 532,446 Unit C1403A, Roman Garden, years No.18, Huixin West Street, expiring Chaoyang District 27 Aug 2063 Beijing, Postcode 100029
631,722,306 228 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
glossary
Capacity tonne-km (ctkm) International service Capacity production (in tonnes) Defined as a service with the departure x distance flown (in km) or arrival in any country other than Malaysia. If a domestic sector forms Load tonne-km (ltkm) an integral part of an international Load carried (in tonnes) service, this is considered as international x distance flown (in km) eg Kuala Lumpur-Kuching-Perth
Overall factor National service Load tonne-km expressed as Defined as a service originating and percentage of capacity tonne-km terminating within Malaysia
Available seat-km (skm) Geographical Route Region Number of available seats Defined as services within a particular x distance flown (in km) route region with services originating from one point in Malaysia to its last Revenue passenger-km (pkm) destination point Number of passengers carried eg Kuala Lumpur-Taipei-Los Angeles x distance flown (in km)
Passenger load factor Revenue passenger-km expressed as a percentage of available seat-km
Cargo capacity tonne-km Cargo capacity production (in tonnes) x distance flown (in km)
Cargo load tonne-km Cargo load carried (in tonnes) x distance flown (in km)
Cargo load factor Cargo load tonne-km expressed as a percentage of cargo capacity tonne-km Malaysian Airline System Berhad Annual Report 04/05 229 (10601-W)
MALAYSIAN AIRLINE SYSTEM BERHAD (Company No. 10601-W) (Incorporated in Malaysia) FORM OF PROXY
Shareholding represented by proxy
Shareholder’s CDS Account No.
I/We, ______NRIC No./Co. No ______[FULL NAME IN CAPITAL LETTERS] of ______[ADDRESS] being a member(s) of MALAYSIAN AIRLINE SYSTEM BERHAD (“the Company”), hereby appoint
______NRIC No. ______[FULL NAME] of ______[FULL ADDRESS] or failing him/her, ______NRIC No. ______[FULL NAME] of ______[FULL ADDRESS] or failing him/her, the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at the Thirty Fourth Annual General Meeting of the Company to be held at Nirwana Ballroom 1, Lower Lobby, Crowne Plaza Mutiara Kuala Lumpur, Jalan Sultan Ismail, 50250 Kuala Lumpur on Monday, 19 September, 2005 at 10.00 a.m. and at any adjournment thereof in the manner indicated below:-
Please indicate with an “X” in the space below how you wish your votes to be cast. If no specific direction as to voting is given, the proxy will vote or abstain at his/her discretion.
Resolutions For Against
Resolution 1 Adoption of Audited Accounts for the financial year ended 31 March, 2005 and the Reports of the Directors and Auditors. Resolution 2 Declaration of a final tax exempt dividend of 2.5 sen per share Resolution 3 Approval of Directors’ fees. Resolution 4 Re-election of Dato’ Mohamed Azman bin Yahya as Director. Resolution 5 Re-election of Dato’ N. Sadasivan a/l N.N. Pillay as Director. Resolution 6 Re-election of Datuk Abdillah @ Abdullah bin Hassan @ S Hassan as Director. Resolution 7 Re-election of Dato’ Izzuddin bin Dali as Director. Resolution 8 Re-election of Dato’ Mohd Annuar bin Zaini as Director. Resolution 9 Re-election of Dato’ Zaharaah binti Shaari as Director. Resolution 10 Re-appointment of Messrs Ernst & Young as Auditors and to authorise the Directors to fix the Auditors’ remuneration. Resolution 11 Authority under Section 132D of the Companies Act, 1965 for Directors to issue shares.
As witness my/our hands this ______day of______, 2005 No. of ordinary shares held ______Signature of Member/Common Seal Notes: 1. A member of the Company entitled to attend and vote at the Meeting is this regard will be determined based on the General Meeting Record of entitled to appoint a proxy to attend and vote in his stead. A proxy may but Depositors. Such Depositors whose shares exceed the Company’s foreign need not be a member of the Company and a member may appoint any person shareholding limit of 45% as at the date of the General Meeting Record of to be his proxy/proxies and the provisions of Section 149(1)(b) of the Companies Depositors may attend the above Meeting but are not entitled to vote. Act, 1965 shall not apply to the Company. Consequently, a proxy appointed by such Depositor who is not entitled to vote will also not be entitled to vote at the above Meeting. 2. In the case of a corporate member, the instrument appointing a proxy shall be under its Common Seal or under the hand of its officers or attorney, duly 5. The instrument appointing a proxy must be deposited at Symphony Share authorised in that behalf. Registrars Sdn. Bhd., Level 26 Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than 48 hours 3. A holder may appoint more than two proxies to attend the Meeting. Where a before the time for holding the Meeting or at any adjournment thereof. member appoints two or more proxies, he shall specify the proportions of his share-holding to be represented by each proxy. 6. Shareholders’ attention is hereby drawn to the Listing Requirements of the Bursa Malaysia Securities Berhad, which allows a member of the Company 4. The right of Foreigners to vote in respect of their deposited securities is subject who is an authorised nominee as defined under the Securities Industry (Central to Section 41 (1) (e) and Section 41 (2) of the Securities Industry (Central Depositories) Act, 1991, to appoint at least one (1) proxy in respect of each Depositories) Act, 1991 and the Securities Industry (Central Depositories) securities account it holds with ordinary shares of the Company standing to (Foreign Ownership) Regulations, 1996. The position of such Depositors in the credit of the said securities account. 230 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
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The Share Registrar Symphony Share Registrars Sdn. Bhd., Level 26 Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, Malaysia.
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REQUEST FORM
To : Malaysian Airline System Berhad
Please send me/us a copy of the 2004/2005 Anual Report in Bahasa Malaysia
Name : ______
Address : ______
Signature of Shareholder:
Date : 232 Malaysian Airline System Berhad Annual Report 04/05 (10601-W)
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MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W) Tingkat 33, Bangunan MAS Jalan Sultan Ismail 50250 Kuala Lumpur Malaysia
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