MALAYSIAN AIRLINE SYSTEM BERHAD Annual Report 2005 contents
Notice of Annual General Meeting 2-3 Chairman’s Statement 5-10 Managing Director’s Statement 11-15 Board of Directors 16-23 Board Audit Committee Report 28-33 Statement of Internal Control 34-36 Statement of Corporate Governance 37-47 Group Structure 48 Senior Management 49 Financial Report 50-124 Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN THAT the Thirty Fifth Annual General Meeting of Malaysian Airline System Berhad will be held at the Auditorium, 1st Floor, South Wing, MAS Academy, No. 2 Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan on Monday, 26 June 2006 at 10.00 a.m. for the following purposes:-
AGENDA
As Ordinary Business
1. To receive and adopt the Report of the Directors and the Audited Financial Statements Resolution 1 for the financial period ended 31 December 2005 together with the Report of the Auditors thereon.
2. To approve the Directors’ fees for the financial period ended 31 December 2005. Resolution 2
3. To re-elect the following Directors retiring under Article 139 of the Company’s Articles of Association, and who, being eligible, offer themselves for re-election:-
(i) Dato’ Dr. Mohd Munir bin Abdul Majid Resolution 3 (ii) Datuk Amar Haji Abdul Aziz bin Haji Husain Resolution 4 (iii) Keong Choon Keat Resolution 5 (iv) Martin Gilbert Barrow Resolution 6
4. To re-elect the following Directors retiring under Article 137 of the Company’s Articles 2 of Association, and who, being eligible, offer themselves for re-election:-
(i) Iris Jala @ Idris Jala Resolution 7 (ii) Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim Resolution 8
5. To re-appoint Messrs. Ernst & Young as Auditors and to authorise the Directors to fix Resolution 9 their remuneration.
As Special Business
6. To consider and if thought fit to pass the following Ordinary Resolution:- Resolution 10
Authority to Allot and Issue Shares
“THAT subject to the Companies Act, 1965 (the Act), the Articles of Association of the Company, approval from the Bursa Malaysia Securities Berhad and other government or regulatory bodies, where such approval is necessary, full authority be and is hereby given to the Board of Directors pursuant to Section 132D of the Act, to issue shares in the capital of the Company at any time upon such terms and conditions and for such purposes as the Directors may in their discretion deem fit, provided always that the aggregate number of shares to be issued shall not exceed 10% of the issued share capital of the Company and that such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company.”
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notice of Annual General Meeting
7. To transact any other ordinary business for which due notice has been given. Resolution 11
By Order of the Board
Rizani bin Hassan (LS 05125) Company Secretary
2 June 2006 Kuala Lumpur
Explanatory Notes on Item 6 of the Agenda
Resolution pursuant to Section 132D, Companies Act, 1965.
The Ordinary Resolution proposed under item 6 of the Agenda, if passed, will empower the Directors to issue shares in the Company up to an amount not exceeding in total 10% of the issued share capital of the Company, 3 subject to compliance with the relevant regulatory requirements. The approval is sought to avoid any delay and cost in convening a general meeting for such issuance of shares. This authority, unless revoked or varied by the Company at a general meeting, will expire at the next Annual General Meeting.
Notes:
1 A member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy/proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.
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 authorised in that behalf.
3. A holder may appoint more than two proxies to attend the Meeting. Where a member appoints two or more proxies, he shall specify the proportion of his shareholding to be represented by each proxy.
4. The right of foreigners to vote in respect of their deposited securities is subject to Section 41(1)(e) and Section 41(2) of the Securities Industry (Central Depositories) Act, 1991 and the Securities Industry (Central Depositories) (Foreign Ownership) Regulations, 1996. The position of such Depositors in this regard will be determined based on the General Meeting Record of Depositors. Such Depositors whose shares exceed the Company’s foreign shareholding limit of 45% as at the date of the General Meeting Record of Depositors may attend the above Meeting but are not entitled to vote. Consequently, a proxy appointed by such Depositor who is not entitled to vote will also not be entitled to vote at the above Meeting.
5. The instrument appointing a proxy must be deposited at Symphony Share Registrars Sdn. Bhd., Level 26 Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than 48 hours before the time for holding the Meeting or at any adjournment thereof.
6. Shareholders’ attention is hereby drawn to the Listing Requirements of Bursa Malaysia Securities Berhad, which allows a member of the Company who is an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, to appoint at least one (1) proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement Accompanying the Notice of Annual General Meeting
Directors standing for re-election at the 35th Annual General Meeting of the Company to be held at the Auditorium, 1st Floor, South Wing, MAS Academy, No. 2, Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan on Monday, 26 June 2006 at 10.00 a.m. are as follows:-
NAME OF DIRECTOR DETAILS OF DETAILS OF INDIVIDUAL DIRECTORS ATTENDANCE OF AND OTHER DISCLOSURE BOARD MEETINGS REQUIREMENTS
Dato’ Dr. Mohd Munir bin Abdul Majid (Article 139 of the Company’s Articles of Association) 8/8 Refer to page 17 of Annual Report
Datuk Amar Haji Abdul Aziz bin Haji Husain (Article 139 of the Company’s Articles of Association) 4/8 Refer to page 20 of Annual Report
Keong Choon Keat (Article 139 of the Company’s 4 Articles of Association) 7/8 Refer to page 19 of Annual Report
Martin Gilbert Barrow (Article 139 of the Company’s Articles of Association) 7/8 Refer to page 19 of Annual Report
Iris Jala @ Idris Jala (Article 137 of the Company’s Articles of Association) 1/1 Refer to page 18 of Annual Report
Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim (Article 137 of the Company’s Articles of Association) Not applicable* Refer to page 22 of Annual Report
*Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim was appointed after the financial period ended 31 December 2005.
List of General Meeting held during the financial year ended 31 March 2005
34th ANNUAL GENERAL MEETING
Date : 19 September 2005 Time : 10.00 a.m. Venue : Nirwana Ballroom 1, Lower Lobby Crown Plaza Mutiara, Kuala Lumpur Jalan Sultan Ismail 50250 Kuala Lumpur
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Chairman’s Statement Chairman’s Statement
ALTHOUGH there is still a long, long way to go in the recovery process, there are encouraging and hopeful little signs the company, in the first few months of the 2006 financial year, with new leadership in its management, may have arrested the steep decline in its performance that marked an extremely difficult 2005.
The financial year under review was no doubt a tumultuous one for the global airline industry as a whole. The higher input cost largely brought about by external factors and operating pressures coming from the increased competition of no frills, budget airlines, 6 especially in our part of the world, contributed toward making 2005 the extremely challenging year that it was for full service airlines. Malaysia Airlines was certainly not spared and, additionally, had its particular set of problems that had to be addressed.
The Widespread Asset Unbundling (WAU) exercise that was completed on 5 November 2002 was not followed through with the full operational transformation of the company, as envisaged, and the subsequent better financial results, largely the outcome of balance sheet transformation and of significant contribution from non-operating income, lulled the company into a false sense of security and achievement. Thus, when the sources of non- operating income dried up, with no compensating strong income from operations, which were further undermined by the sharp rise in the price of jet fuel, the true nature of the company’s situation became all too painfully evident. There was shock and disbelief. The general perception was that the company had turned the corner and recovered. The reality of still unsatisfactory operating performance and of poor quality of income was obscured by the stronger balance sheet and non-operating contribution. This perception was as true of internal as of external stakeholders. The shock and disbelief turned into a search to apportion blame, which further obstructed understanding of the true situation.
The board, however, took necessary steps to ensure the company’s survival, based on a full and calm analysis of the situation. With the announcement in August of the financial result for the period ending 30 June, 2005, the true condition of the airline’s operating performance was exposed, and immediate measures were taken to check the slide, including cost control, a fuel efficiency programme and a revenue enhancement plan. These were the critical initial steps that were taken that have been expanded, deepened and made more comprehensive with new management leadership, style and methodology. The board is determined to ensure that shareholder value is restored and towards this end, many drastic measures have been approved and taken in order to radically change the way Malaysia Airlines does business.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Chairman’s Statement
Financial Review
We realigned our financial year-end to 31 December from 31 March previously. As a result of this, the shortened financial year under review is for the period from 1 April to 31 December 2005. For the 9 months to December 2005, Malaysia Airlines recorded a net loss of RM1.26 billion. The losses were attributed to increases in input cost, predominantly from higher jet fuel cost and staff cost which increased by 40% and 21% respectively over the corresponding period in the previous year. Included in the net loss for the financial year under review is also RM294 million in one-off write down of provisions. We believe 2006 would represent a watershed year, and as such we have undertaken a close review of our operations and taken prudent steps to recognize impairments in several of the provisions we have made earlier.
While company incurred losses in 2005, we take some heart in the fact that the number of passengers carried by the airline in the period increased by 10.3% to 7.1 million passengers, even if much of it came from new routes and increased frequency. This in turn has resulted in passenger revenue increasing by 14% to RM6.3 billion over the corresponding period in the previous financial year. Other operating numbers have also shown strong increases, with 7 load factors up 4 percentage points to 71.3% and yields, represented by sen/ revenue passenger per kilometer (RPK), increasing by 3sen to 19.8sen/RPK. The increases in load and yields at Malaysia Airlines are occurring in an environment where many of the major global full service airlines are facing declining figures, but they still lag other major full service airlines in the world by a long chalk. As such, we must strive for sharp improvements in these areas.
In spite of rising costs, Malaysia Airlines remains cost competitive and at USD 4.1 cent available seats per kilometer (ASK), it is one of the most cost efficient airlines in the region – although, as always, cost must be watched closely, particularly with the jet fuel price being such a menace.
Business turnaround plan
On 27 February 2006, in conjunction with the announcement of the 2005 results, we introduced a business turnaround plan to return the company to profitability. The management, with the board’s approval, has initiated a 3-year plan to achieve this goal. A Turnaround Management Office (TMO) was also set up specifically to oversee the turnaround of the company. The plan outlines the steps that will be taken to reduce losses in 2006 to RM620 million from a projected RM1.7 billion loss, for the company to make profits of RM50 million in 2007 and thereafter to achieve record profits of RM500 million by 2008. This was developed using the Government Linked Company (GLC) Transformation Manual, issued by the Putrajaya Committee for GLC High Performance.
Broadly, the plan outlines the turnaround of Malaysia Airlines in 3 phases, each lasting a year. The first 12 months will be spent addressing the company’s cash position and reducing the losses. Toward this end, the actions that we have initiated over the 3 months since the end of the 2005 financial year have succeeded in averting an expected cash crunch by April
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Chairman’s Statement
2006 had nothing been done. The company has seen marked improvement in revenue over this short period as a result of several initiatives, which includes the MAS travel fair, pricing reviews and other incentives to increase revenue collection.
In 2007, the company will focus on reducing controllable cost and on building capabilities. Thereafter, our target would be to seek new opportunities for Malaysia Airlines to explore. We view the turnaround as not just a series of quick actions, which will bring instant success, but a multi-year program designed to create an organization that can respond to changing market conditions. The journey towards a lasting turnaround will take years of concerted action stretching past the 3 years that we have outlined. We are at the dawn of years of hard work that the board believes will transform the airline into a more resilient company for the future.
Brand recognition
Malaysia Airlines’ brand equity continues to gain recognition. In 2005, SkyTrax, the pre- eminent airline quality monitor, awarded our national airline a “five star” status, one of only 8 four airlines in the world to be given this accolade. This is a testament to the strong brand equity we have built over the years, a result of our dedication towards providing the highest quality service possible. This recognition follows four consecutive years of Malaysia Airlines winning the “best cabin crew” award also from SkyTrax. Besides this, Malaysia Airlines was designated the “Best Airline to Asia” by TTG (2005) and the UK based travel periodical, Travel Weekly (2006). The recognition of Malaysia Airlines as the pre-eminent airline to Asia coupled with our strong base of loyal customers should combine to form the cornerstone on which the new management team can quickly return the company to profitability.
State of the airline industry
As highlighted earlier, the aviation industry is facing severe challenges. Since 2001 the global airline industry has lost over USD36 billion and this trend is likely to continue with IATA forecasting further losses of USD4.3 billion in 2006. Asian airlines, which in the past were able to enjoy several years of excellent returns, due to relatively light competition, are now faced with deepening competition and worsening market conditions. Competition arises mainly from the mushrooming of no frills budget carriers, which employ the strategy of offering heavily discounted seats in core markets to stimulate demand. While the growth of these new airlines appears phenomenal, they remain relatively insignificant to the industry as a whole. The high growth rate is a reflection of a small firm effect and a result of the fact that these no frills airlines are still building new markets – and hence are able to enjoy start-up growth rates. Nevertheless the challenge they pose is not to be under- estimated.
Domestic route rationalization
Malaysia Airlines, as the national flag carrier, has a social responsibility to the people of
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Chairman’s Statement
Malaysia, which it has discharged over many decades. We provide service to all the major airports and secondary airstrips in Malaysia. Some of these locations with the secondary airstrips would not have been accessible by any other means of travel if not serviced by the national airline. As such, our domestic operations have not been operated with an exclusive commercial profit-making mentality. There was an important emphasis on our social responsibility to the people of Malaysia. Unfortunately, the running of the domestic business is a “zero sum game”. In order for the people of Malaysia to benefit to the extent they were served, Malaysia Airlines had to lose because of uneconomic routes and as a result of the subsidy to those who travel with it. To keep the fares affordable, the government has maintained the ticket price on some of these routes for the last 13 years without the airline having recourse to adjust prices in line with inflation and rising costs. These are the main reasons why, of the 118 domestic routes flown in 2005, only 4 were profitable.
In the past couple of years or so, our running of the domestic routes has been questioned and scrutinized, especially in comparison to our commercially minded no frills domestic competitor. This has to be accepted and must be expected in conditions of greater and more open competition when market efficiency becomes the measure of performance without government subsidy. In the commentary, however, it should also be recognized Malaysia 9 Airlines has been operating at a huge disadvantage when competing against a no frills budget airline, which was allowed to operate its domestic routes without restriction to its fares, frequency, aircraft type, seat configuration and flight dependability. Be that as it may, on 27 March 2006, the Government announced the domestic restructuring plans which saw a division of the domestic network, between Malaysia Airlines and Air Asia, based on a definition of trunk and non trunk routes. Malaysia Airlines was permitted to cover 19 domestic trunk routes which comprised 7 routes in Peninsular Malaysia, 6 routes between Peninsular Malaysia and Sabah/Sarawak and 6 routes within Sabah and Sarawak. We view these 19 routes as core feeder routes which encompass 95% of the airline’s international feeder network. With the rationalization of the domestic routes, we have taken back profit and loss responsibility of the routes we operate from our immediate parent, Penerbangan Malaysia Berhad (PMB). Malaysia Airlines has now been given the free hand to operate the domestic sector in a more commercially viable manner. Nevertheless, our commitment to the people remains. We are committed to providing the best possible service at the most affordable price permitted under the rationalized domestic route structure. We are confident that we would be able to turn the 19 routes allocated to us into profitable ones in the near future.
Right-sizing the staff force
As a direct result of the domestic route rationalization, we will be right-sizing the staff force in the coming months. While this is not an immediate desire of the management, the reduction in domestic routes serviced from 118 to 19 has naturally resulted in the need to close certain stations and cut back on operations. A Mutual Separation Scheme (MSS) has been announced and, depending on take-up and acceptance, it has been estimated by the management as many as 5,000 members of staff may leave the company. The cost of the
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Chairman’s Statement
MSS will be funded by the compensation from Penerbangan Malaysia Berhad (PMB) for early termination of the Agreement for Domestic Business Unbundling.
Even if the terms of the MSS are attractive and the approach to termination of service humane, such separation is never easy, how to start a new life after, what will be in many instances, many years of being in the Malaysia Airlines family. We will help those who decide to leave as far as we can and, on behalf of the board, I would like to express the company’s gratitude and best wishes to them.
Changes in the boardroom
I am delighted to welcome En. Idris Jala, who joined Malaysia Airlines on 1 December 2005, to replace Dato’ Ahmad Fuaad bin Mohd Dahalan, as Managing Director. Idris joins Malaysia Airlines at a critical point in the company’s fortune and possesses a proven track record for turning around companies. The board wishes to thank Dato’ Ahmad Fuaad for his 32 years of loyal service, of which in the last over one year he served in the 10 capacity of Managing Director.
Acknowledgements
There are so many people to whom we are indebted for the faith they have shown in the airline and for the assistance they have given us. We believe with their continued support, our mission of turning Malaysia Airlines into a profitable entity can be achieved.
We express our sincerest gratitude to our loyal and valued customers. We are committed to repay their faith in us by relentlessly improving ourselves to not only meet their expectations but to exceed them. We thank the Government, for its support of the company and for providing the guidance and assistance needed to see the national airline through this difficult period. I would also like to thank fellow directors for their support and commitment in the discharge of their duties and responsibilities.
Last but by no means least, we thank the members of staff for the support, dedication and commitment displayed during the year. We have been encouraged by the enthusiasm our employees have shown towards the Business Turnaround Plan and its implementation. We recognize that only with their continued support can the turnaround of Malaysia Airlines be achieved. As one, we will face the challenges of transforming the national airline for the better.
Dato’ Dr Mohd Munir bin Abdul Majid Chairman
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Managing Director’s Statement Managing Director’s Statement
An Overview
The global airline industry is in a state of turmoil and it is increasingly clear that the survivors—and most certainly the winners—will have to make radical changes to adapt to the new 12 environment.
The 2005 financial year for Malaysia Airlines saw a loss of RM1.26 billion despite revenue increase by 9%. These losses were due to increasing input costs resulting in operating cost escalating by 32%, of which 15%, or RM1 billion, can be attributed to increases in fuel price. Even with a fuel surcharge imposed, Malaysia Airlines still had to bear approximately 66% of the increased fuel price. The higher operating costs places additional pressure on our already thin margins. The new environment will continue to hit Malaysia Airlines hard. The projections for Malaysia Airlines for 2006 look dismal. In fact, on its current business assumptions, course and speed, Malaysia Airlines will likely fail, and likely incur a RM1.7 billion loss for 2006.
I took on the responsibility as Managing Director on 1 December 2005, fully aware of the challenges in turning Malaysia Airlines around. I believe that we have the right foundation on which to return the airline to profitability.
On 27 February 2006, we unveiled our Business Turnaround Plan in a document which we made available in the public domain (for a copy, please visit www.malaysiaairlines.com). I am fully aware that our stakeholders particularly in Malaysia are very interested in the affairs of Malaysia Airlines. Whilst this document is aimed primarily at communicating the Business Turnaround Plan to our staff, we felt that it should be made available to selected external stakeholders. My team and I have decided to be as transparent as possible about our problems and how we intend to address them, without disclosing confidential and competitive information. What we are definitely NOT disclosing is how precisely we are going to implement the plan. The key to success is indeed in the execution of this plan and that is our secret.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Managing Director’s Statement
The Business Turnaround Plan
Our Business Turnaround Plan has been developed using the Government Linked Company (GLC) Transformation Manual as a guide. It takes into account the recommendations in the manual and adapts these for implementation in Malaysia Airlines in the context of the business turnaround. The Business Turnaround Plan, outlined in the document, has five central thrusts, each symbolised by a tail of the venerable Malaysia Airlines symbol.
The MAS Way
VISION: Flying to Win Customers Going Beyond Expectations 1. COMMERCIAL 13 MISSION: 2. OPERATIONS Mastering Operational To be a profitable airline Excellence
3. FINANCE Financing and Aligning the Business on P&L
Unleashing Talents and 4. PEOPLE Capabilities
STRATEGY: 5. STAKEHOLDERS Winning Coalitions BUSINESS TURNAROUND To achieve sustained profitability by going beyond expectations on 5 thrusts
The MAS Way provides the framework for our Business Turnaround Plan:
1. Flying to win customers - we will reconfigure our network and our product portfolio to ensure that we have the tools and capabilities to be a top-tier player in each of the markets we serve, or we will leave.
2. Mastering operational excellence - we will build a unique operating capability in line with “best in class”. This capability will be reflected not only in improved operational reliability, but also in higher productivity and greater precision in everything that we do.
3. Financing and aligning our business on P&L - we will relentlessly increase profits with the support of a world-class Finance function that ensures true financial accountability, transparency and performance orientation in our business.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Managing Director’s Statement
4. Unleashing talents and capabilities - we are committed to our people. We strongly believe that the Malaysia Airlines employees and managers have both the passion and talent to achieve whatever goals we set for ourselves. We will work together with our employees to ensure that they have a working environment in which their talents can thrive.
5. Winning coalitions - we know that we cannot achieve our goals alone. Malaysia Airlines needs the resolute support of the government, its employees, managers, customers, suppliers, agents and investors. It is only with the support of these stakeholders that Malaysia Airlines can have the mandate it needs to make the changes that will ensure our long-term success.
This Business Turnaround Plan has been carefully sequenced over the next 3 years to deliver cash, profitability and growth—in that order of intensity and focus. At the same time, we will continue to foster an environment that allows the talents of our people to 14 be unleashed and to flourish.
In 2006, we are already undertaking a series of measures to raise RM4 billion in cash through internal and external sources to tide us through our current cash crisis. We are also tackling the biggest immediate profitability challenge for Malaysia Airlines: low yield. Malaysia Airlines has award-winning products and services, a competitive cost base, and a load factor that is only slightly below average, but we are still losing money because our yields are lower than those of our competitors. We are launching multiple initiatives to increase our yields, as well as fundamentally reconfiguring our network - cutting unprofitable routes and focusing on our profitable core network. At the same time, we are rightsizing our manpower to match the new network.
In 2007, our plan will focus on improving efficiency and capabilities. In 2008, we will focus on new growth opportunities.
Impact of the Business Turnaround Plan
The Business Turnaround Plan is expected to turnaround Malaysia Airlines in 3 years. The turnaround of Malaysia Airlines is based on a series of specific cost and revenue actions, forecast to result in a profit of RM500 million in 2008—an all-time high profit for Malaysia Airlines —and position Malaysia Airlines to improve its net income even further
Starting from a base forecast loss of RM1.7 billion, the forecast result for 2006 will be a loss of RM620 million—an improvement of RM1.1 billion. For 2007, the plan forecasts a further improvement of about RM670 million, resulting in a RM50 million profit.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Managing Director’s Statement
Profit Turnaround – Forecast RM1.1 Billion Improvement in 2006
2006 MYR millions 2008 NIAT
2006 2006 NIAT w/ 2007 baseline revenue 2006 NIAT NIAT improvements NIAT
Revenue Cost 50 500 Improvements Improvements MAS kargo Cut Routes -620 Catering & others 60 Maint- Network enance 70 Sales optimi- Handling 90 Stimula- sation Fuel Enforce- tion 90 Pricing, ment -990 20 40 inv sys & 40 mgmt 120 50 Fuel surcharge, Admin 230 Charge 15
270
-1,700
Conclusion
We are dedicated to the creation of a company that will be a source of pride and admiration for its employees and indeed all its stakeholders. The Malaysia Airlines of tomorrow will maintain its five-star product, have the lowest cost structure in the region, be renowned as being one of the best places to work in Malaysia, have closed much of the revenue performance gap to our peers and will return to profitability in 2008. I am convinced that with decisive action, Malaysia Airlines can be a success and emerge as a winner.
Idris Jala Managing Director/CEO
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board of Directors
1 Dato’ Dr. Mohd Munir bin Abdul Majid 2 Dato’ N. Sadasivan a/l N. N. Pillay 3 Iris Jala @ Idris Jala 89 4 Dato’ Sri Izzuddin bin Dali 7 10 5 Dato’ Zaharaah binti Shaari 6 11 6 Dato’ Mohd. Annuar bin Zaini 1 4 7 Dato’ Mohamed Azman bin Yahya 2 3 5 8 Tengku Azmil Zahruddin bin Raja Abdul Aziz 9 Martin Gilbert Barrow 10 Abdul Rahman bin Abdul Ghani (Alternate Director to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim) 11 Keong Choon Keat
Not in picture Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim Datuk Amar Haji Abdul Aziz bin Haji Husain Datu Haji Salleh bin Haji Sulaiman (Alternate Director to Datuk Amar Haji Abdul Aziz bin Haji Husain) Board of Directors
Dato’ Dr Mohd Munir bin Abdul Majid Dato’ N. Sadasivan a/l N. N. Pillay Non-Independent and Non-Executive Chairman Independent and Non-Executive Deputy Chairman
Date of birth : 16 February, 1948 Nationality : Malaysian Date of birth : 29 February, 1940 Nationality : Malaysian
Qualification : Ph.D (International Relations) and B.Sc Qualification : Bachelor of Arts (Hons) Economics, University (Econ) from London School of Economics and Political of Malaya Science, United Kingdom Working Experience : 1 March 1963 - 31 December 1967 Working Experience : 1972 – 1975 Part-time lecturer, Economist/Chief Industrial Facilities Division, Economic Department of International Relations, LSE London Development Board, Singapore 1 January 1968 - 31 May 1975 – 1978 Research Analyst, Daiwa Europe London 1972 Director of Division, Malaysian Industrial Development January 1979 – September 1980 Leader Writer, The New Authority (MIDA) 1 June 1972 - 31 December 1975 Straits Times Press (NST) September 1980 – May 1981 Director, Overseas Promotion Office in Dusseldorf, Germany, Assistant Editor, NST May 1981 – January 1982 Assistant MIDA 1 January 1976 - 31 January 1984 Deputy Director- Group Editor, NST January 1982 – November 1982 Deputy General, MIDA 1 February 1984 - 28 February 1995 Group Editor, NST 1982 – 1986 Group Editor (English), NST Director-General, MIDA 1 April 1995 - present Executive 1986 - 1993 Chief Executive Officer, Commerce Chairman, SKA Management Consultants Sdn. Bhd. International Merchant Bankers Berhad (CIMB) [formerly known as Pertanian Baring Sanwa] Executive Chairman, Occupation : Management Consultant CIMB 1993 – February 1999 Executive Chairman, Securities Commission 2000 – 2004 Senior Independent Non- Date first appointed to the Board : 1 December 2001 Executive Director, Telekom Malaysia Berhad 2002 – 2004 17 Chairman /Director, Celcom (Malaysia) Berhad Board Committee Board Tender Committee (Chairman) Board Audit Committee, Nomination Committee and Occupation : Chairman Remuneration Committee
Date first appointed to the Board : 1 June 2004 Other directorship of public companies : Chemical Company of Malaysia Berhad, Petronas Gas Board Committee : Nomination Committee (Chairman) Berhad, Leader Universal Holdings Berhad, APM Automotive Holdings Berhad, Pengurusan Danaharta Nasional Berhad, Other directorship of public companies : Bank Negara Malaysia, Malaysian Industrial Development Saujana Resorts Malaysia Berhad and PECD Berhad Finance Berhad and Yeo Hiap Seng (Malaysia) Berhad
Family relationship with any director and/or major Family relationship with any director and/or shareholder of the listed issuer : Nil major shareholder of the listed issuer : Nil
Any conflict of interest with the listed issuer : Nil Any conflict of interest with the listed issuer : Nil
Convictions of offences within the past 10 years other Convictions of offences within the past 10 years other than traffic offences (if any) : Nil than traffic offences (if any) : Nil
No. of Board meetings attended in the financial year : No. of Board meetings attended in the financial year : 8 out of 8 7 out of 8
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board of Directors
Iris Jala @ Idris Jala Tengku Azmil Zahruddin bin Raja Abdul Aziz Managing Director/Chief Executive Officer Non-Independent and Executive Director
Date of birth : 21 August, 1958 Nationality : Malaysian Date of birth : 28 August, 1970 Nationality : Malaysian
Qualification : B. Soc Sc (Hons) Development Studies/ Qualification : Chartered Accountant, - Associate of Management, University Sains Malaysia Masters Degree, Malaysian Institute of Accountants and Associate of Industrial Relations, University of Warwick,UK Institute of Chartered Accountants in England and Wales, Associate of Association of Corporate Treasurers, United Working Experience : 1982 Industrial Relations Officer, Kingdom and Double First Class Degree in Economics from Sarawak Shell Berhad 1985 Shell Sabbatical (Masters University of Cambridge, United Kingdom Degree), Warwick University, UK 1987 Head Staff Development, Sarawak Shell Berhad 1989 Human Resource Working Experience : Audit and Business Advisory Services Advisor, Shell International, Holland 1993 Head HR Division, PricewaterhouseCoopers in London and Hong Planning, Sarawak Shell Berhad 1995 Business Kong October, 2002 - 15 August 2004 – Executive Reengineering Manager, Shell Malaysia Ltd 1996 Retail Area Director/Chief Financial Officer, Penerbangan Malaysia Manager, Shell Malaysia Ltd 1997 Senior Manager, National Berhad 16 August 2004 – 22 August 2005 – Managing Retail Sales, Shell Malaysia Ltd 1998 Chairman Director/Chief Executive Officer, Penerbangan Malaysia /Managing Director (LPG),Shell Sri Lanka 2000 Berhad 23 August 2005 Executive Director, Malaysian Vice President Business Development Consultancy, Shell Int. Airline System Berhad Pet. Co., UK (London) 2001 Vice President Retail Marketing, SRI, Shell Int. Pet. Co., UK (London) 2003 Managing Occupation : Executive Director and Chief Financial Officer, 18 Director, Shell MDS (Malaysia) Sdn Bhd Executive Director, Malaysian Airline System Berhad Shell Malaysia Ltd, Gas & Power 2005 Managing Director/ Chief Executive Officer, Malaysian Airline System Berhad. Date first appointed to the Board : 23 August 2004
Occupation : Managing Director/Chief Executive Officer Board Committee : Board Tender Committee and Board Safety and Security Committee Date first appointed to the Board : 1 December, 2005 Other directorship of public companies : Nil Board Committee: Board Safety & Security Committee Family relationship with any director and/or Other directorship of public companies : Nil major shareholder of the listed issuer : Nil
Family relationship with any director and/or major Any conflict of interest with the listed issuer : Nil shareholder of the listed issuer : Nil Convictions of offences within the past 10 years other Any conflict of interest with the listed issuer : Nil than traffic offences (if any) : Nil
Convictions of offences within the past 10 years other No. of Board meetings attended in the financial year : than traffic offences (if any) : Nil 8 out of 8
No. of Board meetings attended in the financial year: 1 out of 1 (during his tenure as Director for financial period ended 2005)
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board of Directors
Keong Choon Keat Martin Gilbert Barrow Independent and Non-Executive Director Independent and Non-Executive Director
Date of birth : 22 July 1944 Nationality : Malaysian Date of birth : 10 March 1944 Nationality : British
Qualification : Associate of the Institute of Chartered Qualification : Gained Oxford and Cambridge Board Accountants in England & Wales, Member of the Examination “A” Levels in Science and Mathematics Malaysian Institute of Accountants, Member of the Attended courses in Finance and Marketing Malaysian Association of Certified Public Accountants and Fellow of the Institute of Chartered Accountants in Working Experience : 1962 – 1964 Traveled extensively in England and Wales Asia, working in Australia and Malaysia 1964 Joined Matheson & Co., London 1965 Jardine Matheson, Hong Working Experience : January 1968 - July 1968 Audit Kong, 1965 – 1975 Management role in the Group’s Assistant, Harrison Willis & Company Ltd., England operation in Hong Kong, Japan and Thailand, July 1968 - March 1969 Accountant, Bristol Myers & 1975 – 1980 Managing Director of the Group’s operations Company Ltd. Middlesex, England 1969 - 1974 Internal in Japan 1980 – 1983 President, Olayan Saudi Holding Audit Manager, Malaysian Tobacco Company Berhad Company, the Group’s affiliate in Saudi Arabia 1983 – 1974 - September 1975 Finance Controller, Pemasang 1988 Regional Managing Director, Jardines operations in Motor-Motor Pahang Sdn. Bhd. October, 1975 - January Hong Kong and China 1989 – 2001 Director, Jardine 1977 General Manager, UMW Engineering Sdn. Bhd. Matheson Ltd – Group Head Office February 1977 - October 1981 Group Chief Accountant, Key Experience in Public Service: 1979 Elected Chairman UMW Holdings Group November 1981 - 1987 Director, of British Chamber of Commerce in Japan Group Accounts, UMW Holdings Group 1988 - July 1999 1984 – 1994 Member of the Aviation Advisory Board 19 Executive Director, UMW Holdings Group August 1999 - 1984 – 2001 Chairman of the Sailors Home and Mission present Accredited Consultant, DBM (Malaysia) Sdn. Bhd. to Seafarers 1987 – 1990 Member of Steering Group, New Airport 1988 – 1995 Appointed by the Governor of Occupation : Consultant Hong Kong as a member of the Legislative Council 1988 – 1996 Chairman of the Hong Kong Tourist Date first appointed to the Board : 16 April 2001 Association 1989 Chairman of the Community Chest of Hong Kong 1990 – 2001 Chairman of the Hong Kong Board Committee : Board Audit Committee (Chairman), Arts Festival Society 1996 – 2001 Chairman, Committee Remuneration Committee and Nomination Committee on Deregulation, Business Advisory Group
Other directorship of public companies : JT International Occupation : Director Berhad, Pacificmas Berhad, Chin Teck Plantations Berhad, Negri Sembilan Oil Palms Berhad and Crest Builder Date first appointed to the Board : 29 August 2001 Holdings Berhad Board Committee : Board Safety and Security Committee Family relationship with any director and/or major (Chairman) shareholder of the listed issuer : Nil Other directorship of public companies : Nil Any conflict of interest with the listed issuer : Nil Family relationship with any director and/or major Convictions of offences within the past 10 years other shareholder of the listed issuer : Nil than traffic offences (if any) : Nil Any conflict of interest with the listed issuer : Nil No. of Board meetings attended in the financial year : 7 out of 8 Convictions of offences within the past 10 years other than traffic offences (if any) : Nil
No. of Board meetings attended in the financial year : 7 out of 8
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board of Directors
Dato’ Mohamed Azman bin Yahya Datuk Amar Haji Abdul Aziz bin Haji Husain Non-Independent and Non-Executive Director Independent and Non-Executive Director
Date of birth : 8 January 1964 Nationality : Malaysian Date of birth : 18 July 1950 Nationality : Malaysian
Qualification : B. Sc. Economics (First Class Honours), Qualification : B. EC (Bus. Adm.), University of Malaya London School of Economics and Political Science MBA (Finance), Syracuse University, Syracuse, New York (University of London), Member of the Institute of Chartered Accountants in England and Wales, Member of Working Experience : 23 July 1973 Assistant Secretary, the Malaysian Institute of Accountants (Public Accountant) State Planning Unit, 1 August 1979 Principal Assistant and Fellow of the Institute of Banks in Malaysia Secretary, State Financial Secretary’s Office 1 September 1981 Deputy Chairman, Sarawak Economic Development Working Experience : September, 1985 - December, 1988 Corporation 19 January 1987 Deputy State Financial Chartered Accountant, KPMG, London England April 1989 - Secretary, State Financial Secretary’s Office 2 May 1990 July 1990 Corporate Finance Manager / Assistant General Permanent Secretary, Ministry of Infrastructure Development Manager (Finance), Island & Peninsular Berhad August, 30 September 1993 Senior Administrative Officer (Special 1990 - December 1994 Manager in Corporate Finance Functions), State Secretary’s Office 29 January 1994 Deputy Department / Senior Manager / General Manager in State Secretary (Human Resources), Chief Minister’s Corporate Finance Department, Bumiputra Merchant Department 25 August 2000 State Secretary, Chief Bankers Berhad December 1994 - May 1998 Chief Minister’s Department Executive / Executive Director, Amanah Merchant Bank Berhad January 1998 - May 1998 Group Executive Director, Occupation : State Secretary of Sarawak 20 Amanah Capital Malaysia Berhad 21 May 1998 - July 2003 Managing Director / Chairman, Pengurusan Danaharta Date first appointed to the Board : 1 January 2004 Nasional Berhad 1 August 2001 - 31 July 2002 Chairman, Corporate Debt Restructuring Committee Board Committee : Nomination Committee and Board Safety & Security Committee Occupation : Group Chief Executive, Symphony House Berhad Other directorship of public companies : Borneo Housing Mortgage Finance Berhad and Sarawak Date first appointed to the Board : 1 December 2001 Enterprise Corporation Berhad
Board Committee : Remuneration Committee (Chairman) Family relationship with any director and/or major and Nomination Committee shareholder of the listed issuer : Nil
Other directorship of public companies : Pharmaniaga Any conflict of interest with the listed issuer : Nil Berhad, Khazanah Nasional Berhad, PLUS Expressways Berhad, Symphony House Berhad, Scomi Group Berhad Convictions of offences within the past 10 years other and Bolton Berhad than traffic offences (if any) : Nil
Family relationship with any director and /or No. of Board meetings attended in the financial year : major shareholder of the listed issuer : Nil 4 out of 8
Any conflict of interest with the listed issuer : Nil
Convictions of offences within the past 10 years other than traffic offences (if any) : Nil
No. of Board meetings attended in the financial year : 8 out of 8
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board of Directors
Dato’ Sri Izzuddin bin Dali Dato’ Mohd. Annuar bin Zaini Non-Independent and Non-Executive Director Independent and Non-Executive Director
Date of birth : 28 February 1949 Nationality : Malaysian Date of birth : 16 October 1951 Nationality : Malaysian
Qualification : Bachelor of Economics, University of Malaya Qualification : BA (Hons) Economics, University Kebangsaan and M.A (Economics), Western Michigan University, USA Malaysia Master of Arts in Law & Diplomacy and The Fletcher School of Laws & Diplomacy Tufts University Working Experience : 1972 – 2003 Treasury, Ministry of Finance 1993-1999 KL International Airport Berhad Working Experience : 1977 - 1980 Assistant Director 2003 – 2004 Ministry of Works 2004 – present Ministry of (Research & Training), Ministry of Culture, Youth & Sports Finance 1980 – 1981 Assistant Director (Psychological Operations & Warfare activities), National Security Council, Prime Occupation : Secretary General, Ministry of Finance Minister’s Department 1981 – 1986 Senior Private Secretary to the Minister, Ministry of Home Affairs 1986 Date first appointed to the Board : 13 September 2004 Principal Assistant Secretary (Documentation), Ministry of Energy, Telecom & Post 1986 – 1987 Principal Assistant Board Committee : Board Audit Committee and Board Secretary (Armed Forces Council), Ministry of Defence 1987 Tender Committee - 1989 Principal Assistant Secretary (Personnel), Ministry of Health 1991Senior Program Coordinator, National Institute Other directorship of public companies : Petroliam Nasional of Public Administration 1991 – 1993 Principal Assistant Berhad and Kuala Lumpur International Airport Berhad Director, Economic Planning Unit Perak 1993 – 1999 General Manager, Yayasan Perak 1999-2000 Fellow, 21 Family relationship with any director and/or major Institute of Strategic & International Studies (ISIS) Malaysia shareholder of the listed issuer : Nil 2000 – 2001 Planner – Social Development, President’s Office, MRCB 2001 - 2004 Executive Director, Berjaya Any conflict of interest with the listed issuer : Nil Group Berhad 2004 to present Chairman, Malaysian National News Agency (BERNAMA) Convictions of offences within the past 10 years other than traffic offences (if any) : Nil Occupation : Chairman, Malaysian National News Agency (BERNAMA) No. of Board meetings attended in the financial year : 7 out of 8 Date first appointed to the Board : 2 February 2005
Board Committee : Board Tender Committee
Other directorship of public companies : AWC Facility Solutions Berhad and Berjaya Corporation Berhad
Family relationship with any director and/or major shareholder of the listed issuer : Nil
Any conflict of interest with the listed issuer : Nil
Convictions of offences within the past 10 years other than traffic offences (if any) : Nil
No. of Board meetings attended in the financial year : 7 out of 8
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board of Directors
Dato’ Zaharaah binti Shaari Datuk Haji Yusoff @ Hunter bin Datuk Haji Non-Independent and Non-Executive Director Mohamed Kasim Independent and Non-Executive Director
Date of birth : 2 July 1949 Nationality : Malaysian Date of birth : 18 April 1950 Nationality : Malaysian
Qualification : BA (Hons), University of Malaya and M. Sc. Qualification : Bachelor in Economics, University of Transport Planning and Management Polytechnic of Central Adelaide, Australia London, United Kingdom Working Experience : 1979 – 1982 Assistant Director Working Experience : 1971 – 1973 Assistant Secretary (Civil Economic Planning Unit Chief Minister’s Department 1982 – Aviation Planning Development, Air Transportation and 1984 District Officer, Beaufort, Sabah 1984 – 1988 Principal International Affairs), Ministry of Transport 1974 – 1975 Assistant Director (Scholarship Division) Chief Minister’s Director of Air Transportation and International Affairs, Department 1988 – 1989 Principal Assistant Director Department of Civil Aviation, Malaysia 1976 – 1982 Establishment Division Chief Minister’s Department 1989 – Principal Assistant Secretary (Aviation Division), Ministry of 1994 Deputy Permanent Secretary, Ministry of Industrial Transport 1983 – 1989 Undersecretary, Aviation Division, Development, Sabah April 1994 – June 1994 Deputy Ministry of Transport 1989 – 1995 Deputy Director of Director Establishment Office (Jabatan Perkhidmatan Awam Budget, Ministry of Finance 1995 – August 1996 Director, Negeri), Chief Minister’s Department 1994 – April 2000 Organisational Development, Public Services Department, Under Secretary (Budget) Ministry of Finance, Sabah May Prime Minister Department August 1996 – June 1999 2000 – May 2001 Deputy Permanent Secretary (1)/Under Director of Budget, Ministry of Finance June, 1999 – 1 July Secretary (Budget) Ministry of Finance, Sabah May 2001 – 2005 Secretary General , Ministry of Transport 30 December 2005 Deputy Permanent Secretary (1), 22 Ministry of Finance, Sabah 3 January 2006 to date Occupation : Special Transport Advisor, Ministry of Transport Permanent Secretary, Ministry of Finance, Sabah
Date first appointed to the Board : 1 October 1999 and Occupation : Permanent Secretary, Ministry of resigned on 2 November 2004. Re-appointed on Finance,Sabah 18 July 2005 Date first appointed to the Board : 23 January, 2006 Board Committee : Board Audit Committee Board Committee : Board Audit Committee Other directorship of public companies : Malaysia Airports Holdings Berhad Other directorship of public companies : Nil
Family relationship with any director and/or major Family relationship with any director and/or shareholder of the listed issuer : Nil major shareholder of the listed issuer : Nil
Any conflict of interest with the listed issuer : Nil Any conflict of interest with the listed issuer : Nil
Convictions of offences within the past 10 years other Convictions of offences within the past 10 years other than traffic offences (if any) : Nil than traffic offences (if any) : Nil
No. of Board meetings attended in the financial year : No. of Board meetings attended in the financial year : 6 out of 7 (during her tenure as Director for financial year Nil 2005)
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board of Directors
Datu Haji Salleh bin Haji Sulaiman Abdul Rahman bin Abdul Ghani Alternate Director to Datuk Amar Haji Abdul Aziz Alternate Director to Datuk Haji Yusoff @ Hunter bin Haji Hussain bin Datuk Haji Mohamed Kasim
Date of birth : 7 May 1950 Nationality : Malaysian Date of birth : 2 October 1950 Nationality : Malaysian
Qualification : Bachelor of Science, University of Malaya, Qualification : BA, University of Queensland, Australia Diploma Education, University of Malaya, Advanced Diploma Science Education, London University, United Working Experience : 1977 - 2000 Served in the State Civil Kingdom, Master of Education, University of London, Service including statutory bodies and agencies for over 24 United Kingdom, Certificate in Financial Management, years. Last served as Government Printer, Sabah University of California, Berkeley, USA and Fellow of the Government Printing Department and retired a civil servant Kennedy School of Government, Harvard University, on 2 October 2001 Cambridge, USA. Occupation : Chief Executive Officer, Warisan Harta Working Experience : 1975 Education Officer/Teacher 1977 Sabah Sdn. Bhd. to 1978 Vice Principal 1978 – 1980 Principal 1980 - 1982 Development Officer, Department of Education 1982 – Date first appointed to the Board : Ceased as Alternate 1983 Senior Project Officer, Sarawak Economic Director to Datuk Haji S Abdillah bin Hassan @ S Hassan on Development Corporation (SEDC) 1983 – 1987 Director, 19 January 2006. Appointed as Alternate Director to Datuk SEDC 1987 – 1992 General Manager, Borneo Development Haji Yusoff on 23 January 2006 Corporation Sdn. Bhd. (BDC) 1992 – 1993 General Manager, Bintulu Development Authority (BDA) 1993 – Board Committee : Nil 1997 Senior Assistant Director, Sarawak Foundation 1994 – 23 1997 Managing Director, Centre Modern Management Other directorship of public companies : Borneo Housing 1997 – 1999 Deputy Director, Sarawak Foundation 1999 – Mortgage Finance Berhad 2001 Permanent Secretary of Ministry of Infrastructure Development and Communication Family relationship with any director and/or major 2001 – present Deputy State Secretary of Sarawak shareholder of the listed issuer : Nil
Occupation : Deputy State Secretary of Sarawak Any conflict of interest with the listed issuer : Nil
Date first appointed to the Board : Appointed as Alternate Convictions of offences within the past 10 years other Director to Datuk Amar Haji Abdul Aziz on 1 January 2004 than traffic offences (if any) : Nil
Board Committee : Nil No. of Board meetings attended in the financial year : 3 out of 8 as Alternate Director to Datuk Haji S Abdillah bin Other directorship of public companies : Nil Hassan @ S Hassan
Family relationship with any director and/or major shareholder of the listed issuer : Nil
Any conflict of interest with the listed issuer : Nil
Convictions of offences within the past 10 years other than traffic offences (if any) : Nil
No. of Board meetings attended in the financial year : Nil
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Ten Years Statistical Review of The Group
31 Dec 2004 2003 2002 2001 2000 1999 1998 1997 1996 2005 2005 2004 2003 2002 2001 2000 1999 1998 1997
FINANCIAL*
Total Revenue (RM'000) 9,081,907 11,364,309 8,780,820 8,864,385 8,695,150 9,712,097 8,288,273 7,536,510 7,154,024 6,563,799 Total Expenditure (RM'000) 10,335,203 11,046,764 8,591,157 8,872,391 9,569,435 10,336,829 9,566,041 8,647,874 7,991,746 6,258,561 Taxation (RM'000) (20,011) (35,707) (117,543) (5,017) (14,898) 26,683 18,813 26,961 31,277 15,434 Profit/(Loss) after Tax And Exceptional Item (RM'000) (1,264,787) 326,079 461,143 336,531 (835,562) (417,428) (258,574) (700,051) (259,851) 333,018 Shareholders' Funds (RM'000) 2,022,614 3,318,732 3,023,984 2,562,841 1,215,290 1,252,148 3,222,276 3,496,250 4,211,701 4,486,952 Profit/(Loss) as a % of Revenue (%) (13.9) 2.9 5.3 3.8 (9.6) (4.3) (3.1) (9.3) (3.6) 5.1 Return on Shareholders' Funds (%) (62.5) 9.8 15.2 13.1 (68.8) (33.3) (8.0) (20.0) (6.2) 7.4 Earnings/(Loss) Per Share (sen) (100.90) 26.0 36.8 38.7 (108.5) (54.2) (33.6) (90.9) (33.7) 43.8
PRODUCTION
Network Size (KM) 505,376 504,051 445,263 439,547 453,720 488,243 366,578 361,203 362,997 352,703 Time Flown (Hours) 314,087 411,134 352,540 357,328 340,741 349,352 330,205 306,949 303,569 291,418 Distance Flown (000 KM) 207,117 265,050 227,865 228,762 201,189 191,668 200,223 189,754 174,659 166,777 Available Capacity (000 TKM) 7,716,059 10,299,867 8,413,110 7,977,845 7,823,943 8,054,870 7,531,473 6,649,146 5,528,737 5,246,353 Available Passenger Capacity (000 Seat KM) 49,785,977 64,115,190 55,692,377 54,265,627 52,594,942 51,237,536 48,905,537 45,442,288 42,293,932 40,096,883 24 TRAFFIC
Passenger Carried (000) 13,852 17,536 15,375 16,325 15,734 16,745 15,371 13,709 15,117 15,371 Passenger Carried (000 Pax KM) 35,604,763 44,226,090 37,658,910 37,652,955 34,708,514 38,312,570 34,930,136 30,592,900 28,698,112 27,903,706 Passenger Load Factor (%) 71.5 69.0 67.6 69.4 66.0 74.8 71.4 67.3 67.9 69.6 Cargo Carried (000 TKM) 1,948,761 2,686,783 2,184,226 2,071,271 1,759,209 1,837,426 1,664,600 1,477,403 1,005,465 925,227 Mail Carried (000 TKM) 2,131 3,004 2,840 2,054 2,014 1,830 2,828 2,006 2,726 3,832 Overall Load Carried (000 TKM) 5,205,283 6,728,547 5,628,573 5,496,735 5,149,942 5,379,101 4,853,377 4,246,894 3,361,408 3,212,436 Overall Load Factor (%) 67.5 65.3 66.9 68.9 65.8 66.8 64.5 63.9 60.8 61.2
STAFF
Employee Strength (At 31Dec/31March) 22,835 22,513 20,789 21,916 21,438 21,518 21,587 23,076 23,436 22,546 Revenue Per Employee (RM'000) 398 505 422 429 406 451 384 327 305 291 Available Capacity Per Employee (TKM) 337,907 457,508 404,690 364,019 364,957 374,332 348,889 288,141 235,908 232,696 Load Carried Per Employee (TKM) 227,953 298,874 270,748 250,809 240,225 249,981 224,829 184,039 143,429 142,484
*As per Audited Financial Statements for the financial year under review
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Ten Years Statistical Review of The Group
2001 2000 1999 1998 1997 1996 2002 2001 2000 1999 1998 1997
8,695,150 9,712,097 8,288,273 7,536,510 7,154,024 6,563,799 9,569,435 10,336,829 9,566,041 8,647,874 7,991,746 6,258,561 (14,898) 26,683 18,813 26,961 31,277 15,434
(835,562) (417,428) (258,574) (700,051) (259,851) 333,018 1,215,290 1,252,148 3,222,276 3,496,250 4,211,701 4,486,952 (9.6) (4.3) (3.1) (9.3) (3.6) 5.1 (68.8) (33.3) (8.0) (20.0) (6.2) 7.4 (108.5) (54.2) (33.6) (90.9) (33.7) 43.8
453,720 488,243 366,578 361,203 362,997 352,703 340,741 349,352 330,205 306,949 303,569 291,418 201,189 191,668 200,223 189,754 174,659 166,777 7,823,943 8,054,870 7,531,473 6,649,146 5,528,737 5,246,353 52,594,942 51,237,536 48,905,537 45,442,288 42,293,932 40,096,883 25
15,734 16,745 15,371 13,709 15,117 15,371 34,708,514 38,312,570 34,930,136 30,592,900 28,698,112 27,903,706 66.0 74.8 71.4 67.3 67.9 69.6 1,759,209 1,837,426 1,664,600 1,477,403 1,005,465 925,227 2,014 1,830 2,828 2,006 2,726 3,832 5,149,942 5,379,101 4,853,377 4,246,894 3,361,408 3,212,436 65.8 66.8 64.5 63.9 60.8 61.2
21,438 21,518 21,587 23,076 23,436 22,546 406 451 384 327 305 291 364,957 374,332 348,889 288,141 235,908 232,696 240,225 249,981 224,829 184,039 143,429 142,484
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Corporate Information
Company Secretary Solicitors Rizani bin Hassan (LS 05125) Messrs. Lee Hishammuddin and Allen & Gledhill Advocates & Solicitors Registered Office Level 16, Menara Asia Life 3rd Floor, Administration Building 1, No. 189 Jalan Tun Razak MAS Complex A, Sultan Abdul Aziz Shah Airport, 50400 Kuala Lumpur, Malaysia 47200 Subang, Selangor Darul Ehsan, Malaysia Tel: 603 2161 2330 Tel: 603 7840 3702 Fax: 603 2161 3933 Fax: 603 7840 3932 www.malaysiaairlines.com Messrs. Zaid Ibrahim & Co. Advocates & Solicitors Auditors Level 19, Menara Milenium Messrs. Ernst & Young Jalan Damanlela Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara Pusat Bandar Damansara, Damansara Heights, 50490 Kuala Lumpur, Malaysia 50490 Kuala Lumpur, Malaysia Tel: 603 2087 9999 Tel: 603 2087 7000 Fax: 603 2094 4888 Fax: 603 2095 9076 main 603 2095 9078 audit
Share Registration Office Bankers 26 Symphony Share Registrars Sdn. Bhd. Malayan Banking Berhad Level 26, Menara Multi Purpose, Capital Square, Menara Maybank Jalan Munshi Abdullah, 100, Jalan Tun Perak 50100 Kuala Lumpur, Malaysia 50050 Kuala Lumpur, Malaysia
Tel: 603 2721 2222 Tel: 603 2074 7037 Fax: 603 2721 2530 Fax: 603 2078 9761
Listing Bumiputra-Commerce Bank Berhad Bursa Malaysia Securities Berhad 6, Jalan Tun Perak 50050 Kuala Lumpur, Malaysia
Tel: 603 2693 1722 Fax: 603 2698 6628
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Details of Board of Directors Meeting
Date Time Nature Venue of Meeting of Meeting of Meeting
30 May 2005 1.15 p.m. Board of Directors’ Meeting The Conference Room [No. 01-05] 34th Floor, Bangunan MAS Jalan Sultan Ismail 50250 Kuala Lumpur
18 July 2005 9.00 a.m. Board of Directors’ Meeting The Conference Room [No. 02-05] 34th Floor, Bangunan MAS Jalan Sultan Ismail 50250 Kuala Lumpur
22 August 2005 9.00 a.m. Board of Directors’ Meeting The Conference Room [No. 03-05] 34th Floor, Bangunan MAS Jalan Sultan Ismail 50250 Kuala Lumpur
8 September 2005 1.15 p.m. Special Board of Directors’ The Conference Room Meeting 34th Floor, Bangunan MAS [No. 04-05] Jalan Sultan Ismail 27 50250 Kuala Lumpur
19 September 2005 2.30 p.m. Board of Directors’ Meeting The Conference Room [No. 05-05] 34th Floor, Bangunan MAS Jalan Sultan Ismail 50250 Kuala Lumpur
24 October 2005 9.00 a.m. Special Board of Directors’ The Conference Room Meeting 34th Floor, Bangunan MAS [No. 06-05] Jalan Sultan Ismail 50250 Kuala Lumpur
30 November 2005 9.00 a.m. Board of Directors’ Meeting The Conference Room [No. 07-05] 3rd Floor, Administration Building 1, MAS Complex A Sultan Abdul Aziz Shah Airport 47200 Subang Selangor Darul Ehsan
1 December 2005 8.00 a.m. Special Board of Directors’ The Conference Room Meeting 34th Floor, Bangunan MAS [No. 08-05] Jalan Sultan Ismail 50250 Kuala Lumpur
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board Audit Committee Report
The Board Audit Committee (BAC) of Malaysian Airline System Berhad is pleased to present the Audit Committee Report for the financial period 2005.
A. Establishment and Composition of Board Audit Committee
The Board Audit Committee was established in 1992, with the terms of reference approved by the Board of Directors.
The terms of reference provide for the Board to elect the Board Audit Committee members from amongst themselves, to comprise no fewer than three Directors, the majority of whom shall be Independent Directors. Appointment to the Committee is referred to the Nomination Committee, prior to approval by the Board of Directors. The Board shall then ensure that the composition of the Committee meets the independence and experience requirements set out by Bursa Malaysia Securities Berhad (BMSB).
The term of office of a Member of the Committee shall be three years, after which he or she may be re-nominated and appointed by the Board of Directors. The Board of Directors shall review the performance of the Committee and its members at least once every three years.
During the financial period, Dato’ Zaharaah Shaari was appointed as a member of the Committee.
28 At as the end of the financial period, the BAC comprised the following:
Name of Directors Classification
Keong Choon Keat (Chairman) Independent Non-Executive Director
Dato’ Sri Izzuddin bin Dali Non-Independent Non-Executive Director
Datuk Haji S. Abdillah @ Abdullah bin Hassan @ S Hassan Independent Non-Executive Director
Dato’ N. Sadasivan a/l N.N. Pillay Independent Non-Executive Director
Dato’ Zaharaah binti Shaari Non-Independent Non-Executive Director
The Chairman of the Committee is a member of the Malaysian Institute of Accountants. The profiles of the Chairman and Committee Members are set out on pages 17 to 23 of this Annual Report.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board Audit Committee Report
B. Objectives
The Committee’s principal objective is to assist the Board of Directors in discharging the Board’s statutory duties and responsibilities relating to the accounting and reporting practices of the Holding Company and each of its subsidiaries. In addition, the Board Audit Committee shall:
G Evaluate the quality of the audits performed by the internal and external auditors;
G Provide assurance that the financial information presented by management is relevant, reliable and timely;
G Oversee compliance with relevant laws and regulations and observance of a proper code of conduct; and
G Determine the quality, adequacy and effectiveness of the Group's internal control environment.
C. Authority
29 The Board Audit Committee shall, in accordance with procedures determined by the Board of Directors and at the expense of the Company:
G Investigate any activity within its terms of reference,with the cooperation of all employees as directed by the Board and the Committee;
G Have full and unrestricted access to all information, documents and resources required to perform its duties, as well as to the internal and external auditors and senior management of the Company and Group;
G Obtain independent professional advice and to secure the attendance of external parties with relevant experience and expertise, if necessary;
G Convene meetings with the internal or external auditors, without the attendance of the Executive Directors, whenever deemed necessary; and
G Make reports when necessary to the relevant authorities if a breach of the Listing Requirements has occurred.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board Audit Committee Report
D. Duties and Responsibilities
The duties and responsibilities of the Board Audit Committee are to undertake the following and report accordingly to the Board of Directors:
G Review the audit plan and audit reports, including the evaluation of the internal control system with the external auditors;
G Review the quality of the external auditors and to make recommendations on their appointment, termination and remuneration;
G Review the liaison between the external auditors, Management and Board of Directors, and the assistance given by Management to the external auditors;
G Assess the adequacy of the scope, functions and resources of the internal audit function and ensure that internal auditors have the necessary authority to do their work;
G Review the internal audit programme, processes and results of the audit, and assess whether appropriate actions have been taken on the recommendations of the internal auditors;
G Review the quarterly reporting to BMSB and year-end annual financial statements before submission to 30 the Board of Directors, focusing on major accounting policy changes, significant audit issues in relation to the estimates and judgmental areas, significant and unusual events, and compliance with accounting standards and other legal requirements;
G Monitor any related party transactions that may arise within the Group and to report, if any, transactions between the Group and any related party outside the Group that are not based on arms-length terms and are disadvantageous to the Group; and
G Review any related party transaction and conflict of interest situation that may arise within the Group including any transaction, procedure or cause of conduct that may raise questions of management integrity.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board Audit Committee Report
E. Meetings of the Committee
The BAC shall meet at least four times annually, or more frequently as circumstances dictate. The Committee held 7 meetings during the financial period, and the attendance record of each Member is as follows:
Name of Directors No. of Meetings Held* Attended
Keong Choon Keat 7 7 Dato’ Sri Izzuddin bin Dali 7 5 Datuk Haji S. Abdillah @ Abdullah bin Hassan @ S Hassan 7 6 Dato’ N. Sadasivan a/l N.N. Pillay 7 7 Dato’ Zaharaah binti Shaari 5 3
31 * Number of meetings held are applicable meetings for each director and varied based on their dates of appointment
Representatives of Senior Management, Head of Internal Audit and External Auditors representatives attend the meetings as and when appropriate. Minutes of each meeting are kept and distributed to each Member of the BAC as well as to the other members of the Board of Directors. The Chairman of the Committee makes a report on each meeting to the Board.
F. Activities in the Financial Year
The activities of the Committee during the financial period 2005 were as follows:
Risks and Controls
G Reviewed the progress of the risk management functions and its ongoing activities for identifying, evaluating, monitoring and managing risks; and G Reviewed the adequacy and effectiveness of internal controls through the evaluation of results of work performed by internal and external auditors as well as through discussions with Management.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board Audit Committee Report
Internal Audit
G Approved the audit plan, scope and budget for the financial period ; G Reviewed the results of internal auditors’ work and monitor the implementation of management action plans in addressing and resolving issues; G Reviewed the adequacy of resources and the competencies of staff within the Internal Audit Department to execute the plan; and G Reviewed the performance of the Internal Audit Department and recommended improvements.
External Audit
G Agreed to the external auditors’ terms of engagement, audit plan and scope for the financial period ;
G Reviewed the results and issues arising from their audit of the financial period and the resolution of issues highlighted in their report to the Committee; and
G Made recommendations to the Board of Directors on the appointment and remuneration of 32 the external auditors.
Financial Reporting
G Reviewed and deliberated on the Quarterly Financial Announcements and Annual Financial Statements to BMSB and recommended them for approval by the Board of Directors
Related Party Transactions
G Reviewed related party transactions for compliance with the Listing Requirements of BMSB and the procedure and the adequacies relating to the capture and recording of such transaction .
G. Internal Audit Function
The internal audit function is performed through the Internal Audit Department (IAD) of Malaysia Airlines Group that reports to the BAC. The function is governed by an approved Charter that provides for its independence in the review of the internal control system of the Group. The IAD also assists Senior Management in ascertaining the level of adequacy, integrity and effectiveness of the internal controls and enhancing the internal control system within the Group.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Board Audit Committee Report
The IAD adopts established auditing standards and performs an annual self-assessment against applicable guidelines to maintain its proficiency and ensure due professional care. The Head of the IAD is a Chartered Accountant and also a member of the Executive Committee of the International Association of the Airlines Internal Auditors (IAAIA). Malaysia Airlines is a Corporate Member of the Institute of Internal Auditors .
The objective of the IAD is to provide independent and objective assurance as well as other consultative activities designed to add value and improve the Group’s operations. IAD carries out its functions in a manner that should meet or exceed requirements by the Standard for Professional Practice of International Auditors.
The risk based audit plan approved by the BAC has been developed to cover key operational and financial activities that are significant to the overall performance of the Group on a cyclical basis. The IAD continuously identifies and prioritises risk and control areas to ascertain the scope of its audit activities. The audit activities are categorised within the assigned audit universes to support the following objectives:-
G Revenue Enhancement and Protection
G Operational effectiveness and efficiency, including cost containment
G Asset and services management, including effectiveness of management assurance functions
G Human resources management
G Financial reporting integrity; and 33 G Information system management
Internal audit activities covering all the above objectives are undertaken for both Passenger and Cargo Businesses at Corporate Headquarters, Station Systemwide and MAS Subsidiaries. The IAD also conducts special audits on an ad-hoc basis based on specific requests either from the Board, Board Audit Committee or the Senior Management. In addition, the IAD works closely with the external auditors to resolve any internal control issues and assists in ensuring that appropriate management actions are taken. The IAD continuously monitors the execution of the audit recommendations through periodic follow up review. During the financial period, Audit Activity Report has been introduced to update the members of BAC on the status of audit assignments on a periodic basis. The BAC also receives regular reports from the Head of Internal Audit on the results of audit performed.
During the financial period, the IAD undertook 66 audit assignments and 11 project advisory and consultancy services rendered within the financial period. The BAC reviews and approves the IAD’s annual budget to ensure that the function is adequately resourced with competent and proficient internal auditors. As at 31 December 2005, the IAD has 42 internal auditors of various mix of expertise and experiences with approximately 49,800 available man hours throughout the financial period.
On 22 September 2005, the IAD unveiled its dictum, “Beyond Conformance, Towards Performance” in setting forth the department’s direction to achieve the value for auditing which is considered critical to be effective in providing value added advisory and consultancy services to the organisation. On 26-28 September 2005, the IAD, on behalf on Malaysia Airlines, hosted the 14th International Association of Airlines Internal Auditors (IAAIA) Conference in Kuala Lumpur participated by about 100 auditors from 45 airlines worldwide.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Internal Control
INTRODUCTION
It is a requirement of the Malaysian Code of Corporate Governance (“the Code”) that the Board of Directors should maintain a sound system of internal controls to safeguard shareholders’ investments and the Group’s assets. In compliance with Bursa Malaysia Listing Requirements under para 15.27(b) and Statement on Internal Control: Guidance for Directors of Public Listed Companies, the Board of Directors are pleased to present the Statement on Internal Control during the period under review.
RESPONSIBILITIY
The overall responsibility for the Malaysian Airline System Berhad’s (MAS) system of internal control group-wide, including the review of its effectiveness, resides with the Board of Directors. The Board of Directors is committed to ensure there is in place a sound system of internal control and risk management within the Group. Recognising the importance of maintaining a sound system of internal control to safeguard shareholders’ investments and the Group’s assets, the Board has instituted an internal control system, the details of which are set out below.
The risk management framework has also been formalised, adopted and continuously reviewed to reaffirm key significant risks, identify new risks, evaluate current controls and determine appropriate management action plans to manage the said risks.
The Management is responsible for implementing the Board’s policies on risks and controls. All employees have 34 a responsibility for internal control as part of their accountability for achieving the Group’s overall objectives.
INTERNAL CONTROL PROCESSES
Both the Board and Management of MAS continue to strive in enhancing and implementing the internal control system to manage those risks that could affect the Group’s continued growth and financial viability. Accordingly, actions are continually taken to improve the policies, processes and structure relating to internal control, and ensure that the people tasked with the responsibilities are qualified and trained. This continual improvement enhances the management of existing risks and, by taking into consideration the changes in the risk profile of the industry and the Group, helps to anticipate and manage potential risks.
The key elements in MAS’ internal control system, including the processes in place to review its adequacy, are as follows:
G An organisation structure, which is aligned to business and operations requirements and led by Division Heads with defined responsibility, accountability and delegation of authority, is in place. G Integrated business planning and budgeting processes are driven by commercial objectives. Actions were taken to enhance these processes by assigning a single driver that focuses on revenue targets. Operational budgets work towards achieving these targets. The Board reviews and approves the Company’s Business Plan and Budget on an annual basis. G In August 2005, the Executive Committee was set up as an interim management structure following the retirement of the Managing Director then. It comprised members of Senior Management which is responsible for, amongst others:
G Development and monitor the implementation of the change programme G Review of financial and operating performance G Review of progress of short term improvement programme G Discussion on long term operations delivery improvement plans G Management of strategic airline issues.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Internal Control
G The Corporate Approving Authority Manual (CAAM) that has been approved by the Board defines the authority and accountability for key decision making areas. The Company’s financial approving authority and the subsidiaries’ approving authority manuals are currently being reviewed to align to the revised CAAM. G Procedures with embedded internal controls are documented in a series of Standard Operating Manuals. There is a structure for organisation-wide control and the Organisation & Methods Department has been identified to hold the custodianship of all the manuals. The manuals are regularly reviewed to ensure the alignment, standardisation and comprehensiveness of the procedures. Greater communication is ensured on key internal control procedures, including those relating to authorisation, accountability, monitoring and reconciliation processes. Organisation & Methods Department also assists Management to establish and review corporate policies, as deemed necessary for the continuous improvement of the Company’s corporate governance profile. G Key manuals at corporate level are in place as source of reference and subject to adherence by the staff systemwide. Corporate level manuals are subject to periodic review. G Performance Measurement System has been established and implemented for the Senior Management during the financial period. G Regular training, workshop and awareness programmes for the employees are conducted to emphasize on the importance of governance, risk management and internal control. G The Internal Audit Committee (IAD) reports to the Board Audit Committee (BAC), performs systematic reviews of key processes relating to high-risk areas and assesses the effectiveness of internal controls, including compliance. Recommendations for improvement are highlighted to Senior Management and the Committee, with periodic follow-up reviews of actions taken. G The BAC regularly reviews, on behalf of the Board, with Senior Management those internal control 35 issues identified in reports by the internal and external auditors and the actions taken. The internal auditors assist the Committee in periodically reviewing the measures taken to address their concerns on internal control. The scope of this review includes any significant internal control aspects of issues identified in the financial statements as disclosed in this Annual Report. G The Board of Directors reviews the operational and financial performance of the Group. The scope of this review also covers any significant internal control aspects of issues identified in the monthly performance reports and any areas disclosed in this Annual Report.
RISK MANAGEMENT
The Group has in place an ongoing process for identifying, evaluating, monitoring and managing principal risks that may impact on the achievement of business objectives and evaluating the adequacy and effectiveness of controls in place to mitigate these risks.
During the year under review, the Group completed Risk Profiling exercises at the divisional level to reaffirm existing risks and identify emerging risks which may impact the key business processes; evaluate current controls and determine appropriate management action plans to manage the said risks. Risk Management Unit (RMU) had also provided updates on Risk Management to the BAC and the Board Safety and Security Committee (BSSC). Quarterly reviews were also conducted by RMU as planned and reports distributed to the respective risk owners. Regional Risk Profiling sessions have been rescheduled to better align this exercise with the Business Turnaround Plan implementation timelines.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Internal Control
Risk Management Oversight
The Risk Management oversight structure was revised to reflect changes in the Management Structure where the Executive Committee held the responsibility for monitoring the effectiveness of the processes in the organisation, and reporting to the Board on actions taken in managing current and emerging risks. Management are responsible for managing their risk profiles including ensuring implementation and monitoring of action plans, with the support of the respective Divisional and Departmental Risk Managers (DRMs). The RMU will facilitate the implementation of a consistent methodology and approach organisation-wide, and assist the Board and Management in the development and recommendation of suitable policies and strategies to manage risks.
Going forward, as part of embedding risk management into the work culture, RMU will continue to coordinate programmes to enhance understanding and awareness of risks such as risk management training and risk awareness sessions, as well as disseminate risk management information via the company internal communications media such as newsletters and intranet. An increased role is planned for DRMs in the coordination of risk profiling sessions and consolidation of reports, with a view to them taking the lead in these activities in the next financial period. It is envisaged that the above initiatives will provide the platform for the organisation to embrace risk management in their daily operations.
DESIGN OF INTERNAL CONTROL SYSTEM
36 The Board of Directors and Senior Management constantly endeavour to maintain an adequate system of internal control designed to manage rather than eliminate risk throughout the organisation. It is recognised, however, that such a system will only provide reasonable assurance, and not absolute assurance, against the occurrence of any material loss.
MAS’ internal control system does not apply to its associated companies, which fall within the control of their majority shareholders. Nonetheless, the interests of MAS are served through its representation on the Board of the respective associated companies and through the review of management accounts received. These provide the MAS Board of Directors with performance-related information to enable timely decisions in regard to the Group’s investments in such companies.
The Board confirms that the system of internal control, with the key elements highlighted above, is in place during the financial period, except where otherwise stated. The system is subject to regular reviews by the Board.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
In line with one of Malaysian Airline System Berhad’s (MAS) objectives to exceed best practices in the industry, the Board of Directors continues to place high emphasis on corporate governance in all of the Group’s activities. The Board is fully committed to ensuring that the principles of the Malaysian Code on Corporate Governance (the Code) are complied with throughout the Group, both locally and worldwide. The Board has given due consideration to the Best Practices In Corporate Governance and efforts have been made to ensure that the Best Practices are appropriately adopted. In this Statement on Corporate Governance, the Board is pleased to report on the extent that the Code has been successfully implemented within MAS.
The Board of Directors is committed to adopting the highest standards of corporate governance practices in all of the Group’s activities around the world. To this end and in line with the Group’s objective of exceeding best practices in the industry, every effort has been made to evaluate and apply the relevant Best Practices of the Code for the Group.
THE BOARD OF DIRECTORS
Responsibilities of the Board
The principal focus of the Board is on establishing the overall strategic direction, development and control of the MAS Group. The Board is responsible for approving key matters involving business plans and budgets, major capital expenditure, acquisition and disposal of assets, interim and annual results, human resource policies including Performance Management System, Safety and Security Enhancement measures as well as succession planning for Senior Management. The Board’s authority is defined in the Corporate Approving Authority Manual. 37
In each of its regularly scheduled meetings, Board Members review the Group’s monthly operational and financial performance. Based on quantitative and qualitative information received, the Board identifies the principal risks and provides direction on the appropriate policies, procedures and systems to address such risks. The Board also reviews the adequacy and integrity of the Group’s internal control system, including the management information system, and compliance with relevant legislation and guidelines.
Structure for an Effective Board
The structure of the Board of Directors is an important element in ensuring that it is able to execute its responsibilities effectively. As at the end of the financial period , the Board of MAS comprised twelve members with the following composition:
Category Number
Non-Independent and Non-Executive Chairman 1 Executive Directors 2 Non-Independent and Non-Executive Directors 3 Independent and Non-Executive Directors 6
The Directors’ profiles are set out on pages 17 to 23 of this Annual Report.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
`There is a clear division of responsibilities between the Chairman of the Board and the Managing Director. The Independent Directors, who constitute more than one-third of the Board, represent the interests of public shareholders. The Non-Executive Directors provide a mix of related industry-specific knowledge as well as broad government, business and commercial experience. All Non-Executive Directors are independent of Management and free from any relationship that could interfere with their independent judgement. In situations where it would be inappropriate for concerns to be dealt with by the Chairman or the Managing Director, such concerns would be conveyed to Dato’ N Sadasivan a/l N. N. Pillay, who is the Deputy Chairman and the Senior Independent Non-Executive Director.
The Board believes that its current structure and size satisfactorily reflect the investments of its shareholders and that it is able to provide clear and effective leadership to the Group.
Disclosures
Each Director is required to make written disclosures, where such disclosures are tabled at the board meeting, to the effect that he is an officer or member of a specified corporation and is to be regarded as interested in any transaction which may, after the date of the disclosure, be made with that corporation.
Board Meetings and Attendance
The Board met 8 times during the financial year. Prior to a meeting, each Director received an agenda and a full set of Board Papers for each item on the agenda. The Directors are supplied with adequate information that 38 goes beyond assessing the quantitative performance, in a timely fashion prior to a meeting to enable them to make informed decisions.
The Board meeting attendance record for each Director for the financial period ended 31 December 2005 is as follows:
Name of Director Attendance
Dato’ Dr. Mohd Munir bin Abdul Majid 8/8 Chairman Dato’ N. Sadasivan a/l N. N. Pillay 7/8 Deputy Chairman Dato’ Ahmad Fuaad bin Mohd. Dahalan 2/2 Managing Director (resigned on 20.08.05) Iris Jala @ Idris Jala 1/1 Managing Director (appointed on 01.12.05) Dato’ Zaharaah binti Shaari 6/7 (appointed on 18.07.05) Keong Choon Keat 7/8 Martin Gilbert Barrow 7/8 Dato’ Mohamed Azman bin Yahya 8/8 Datuk Haji S Abdillah @ Abdullah bin Hassan @ S Hassan 4/8 Datuk Amar Haji Abdul Aziz bin Haji Husain 4/8 Tengku Azmil Zahruddin bin Raja Abdul Aziz 8/8 Dato’ Sri Izzuddin bin Dali 7/8 Dato’ Mohd. Annuar bin Zaini 7/8
Note: The first figure above denotes the number of meetings attended while the second figure denotes the number held. The number of meetings held refers to the applicable meetings for each Director and varies based on their dates of appointment.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
Each Director has full access to all information within the Group, individually or collectively, and has direct access to the advice and services of the Group’s Company Secretary. The Directors are free, at the Company’s expense, to seek independent professional advice should they consider it necessary, in furtherance of their duties. The Board has established an agreed procedure for Directors to take independent professional advice.
Directors’ Training
As at the date of this Annual Report, all Directors have successfully completed the Mandatory Accreditation Programme and have participated in the Continuous Education Programme (CEP) mandated by Bursa Malaysia Securities Berhad (BMSB). The CEP requirements have been repealed with effect from 1 January, 2005. During the financial period, the Directors attended Industry related as well as Management Conference and Seminars which assisted them in the discharge of their duties.
Board Committees
To assist the Board in executing its responsibilities, a number of board sub-committees with specified terms of reference and responsibilities have been established. These committees are the:
1. Board Audit Committee 2. Nomination Committee 3. Remuneration Committee 4. Board Safety and Security Committee 5. Board Tender Committee 39 6. Board Strategy Committee
Board Audit Committee
The Board Audit Committee (BAC) Report, stating its membership, role and activities during the financial year, is set out on pages 28 to 33 of this Annual Report.
The Chairman of BAC reports the outcome of its meetings to the Board and such reports are incorporated as part of the agendas of the Board meetings.
Nomination Committee
The Company has in place formal and transparent procedures for the appointment of new Directors. These procedures ensure that all nominees to the Board are first considered by the Nomination Committee (NC) taking into account the required mix of skills, experience and other qualities before making a recommendation to the Board. The scope of the NC has been further expanded in September 2004 when the Board approved the revised Corporate Approving Authority Manual wherein the NC will also deliberate on the appointment of any person to the position of General Manager and above within the Senior Management group.
The composition of the NC as at the end of the financial year was as follows:
Chairman: Dato’ Dr. Mohd Munir bin Abdul Majid Members: Dato’ N. Sadasivan a/l N. N. Pillay Dato’ Mohamed Azman bin Yahya Datuk Amar Haji Abdul Aziz bin Haji Husain Keong Choon Keat
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
The NC comprises exclusively Non-Executive Directors, the majority of whom are independent. The Committee is authorised to:
1. annually review the required mix of skills, experience and other qualities, including core competencies, which all Directors should have; 2. assess, on an annual basis, the effectiveness of the Board as a whole and the Committees of the Board, as well as evaluate the contribution of each individual Director; and 3. recommend to the Board candidates for directorships and nominees for the Board Committees.
During the financial period, the NC met twice to deliberate and recommend to the Board of Directors on the nomination of Directors and their alternates. The Committee also reviewed the composition of the Board to ensure a good balance of skills and experience amongst its members.
The Company’s Articles of Association require that all Directors, who are appointed by the Board, are subject to election by shareholders at the first opportunity after their appointment and to re-election at least once every three years.
Remuneration Committee
Members of the Remuneration Committee (RC) as the end of the financial period were: Chairman: Dato’ Mohamed Azman bin Yahya Members: Keong Choon Keat 40 Dato’ N. Sadasivan a/l N. N. Pillay
Membership of the RC comprises mainly Non-Executive Directors. The Committee is authorised to review, assess and recommend to the Board of Directors, with independent professional advice if necessary, the remuneration packages of the Directors in all forms.
The remuneration of the Executive Director consists of basic salary and other emoluments. Other benefits customary to the Group are made available as appropriate. Any salary review takes into account market rates and the performance of the individual and the Group. The Non-Executive Directors’ remuneration comprises fees and allowances that reflect their expected roles and responsibilities, including any additional work and contributions required.
Details of the total remuneration during the financial period disclosed by category are as follows:
Basic Salary & Benefits Total Other Emoluments (RM) (RM) (RM)
Executive Directors 2,958,000 1,000 2,959,000 Non-Executive Directors 389,000 - 389,000 Total 3,347,000 1,000 3,348,000
The Board has chosen not to disclose the remuneration of Directors on an individual basis, as suggested by the Code, as the Board believes that such information will not add significantly to the understanding and evaluation of the Group’s standards of corporate governance.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
Board Safety and Security Committee
The Board of Directors is always mindful that the safety and security of the Company’s operations, are critical to the success of the Group’s business as well as its reputation. The Board Safety and Security Committee (“BSSC”) addresses and resolves issues that may affect the safety and security of the Group’s operations.
The Directors who served on the BSSC as at the end of the financial period were:
Chairman: Martin Gilbert Barrow Members: Iris Jala @ Idris Jala Datuk Amar Haji Abdul Aziz bin Haji Husain Tengku Azmil Zahruddin bin Raja Abdul Aziz
Other Members of the Committee included relevant Senior Management.
The Committee has the following functions:
1. To review the overall safety and security performance of the Group and outline strategies and specific actions to achieve the Group’s corporate safety objectives and targets; 2. To review occurrence reports as well as trend analyses and ensure that corrective actions are taken in a timely manner; 3. To monitor safety management processes in flight operations, engineering, security, cargo and ground operations, and ensure that these are in line with the Group’s quality standards; 41 4. To encourage good communication between the various departments with regard to the above processes so that any problem areas are quickly highlighted and corrective actions taken; and 5. To ensure that contingency planning and crisis management procedures are in place.
The Chairman of BSSC and the General Manager Corporate Safety & Security report the outcome of its meetings to the Board and such reports are incorporated as part of the agendas of the Board meetings and the minutes of each BSSC meeting will be distributed to all Board members.
Board Tender Committee
As at the end of the financial period , the Board Tender Committee (BTC) comprised the following Members:
Chairman: Dato’ N. Sadasivan a/l N. N. Pillay Member: Tengku Azmil Zahruddin bin Raja Abdul Aziz Dato’ Mohd. Annuar bin Zaini
Other Members of the Committee included relevant Senior Management.
The principal duties and responsibilities of the BTC are to ensure that the procurement process complies with the relevant policies and requirements and to consider, evaluate and approve or recommend for approvals awards that are beneficial to the Group. In this regard, the Committee takes into consideration various factors such as price, usage of products and services, as well as their quantity. The BTC deliberates and approves any purchase with a value from RM5 million to RM30 million. For purchases above RM30 million, the BTC will evaluate and make a recommendation to the Board.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
Board Strategy Committee
At the end of 2004, the BSC was set up to identify, advise and assist the Board of Directors and Management in determining the strategic direction for the Company in the dynamic airline industry business environment.
As at August 2005, the Board Strategy Committee (BSC) comprised the following Members:
Chairman: Dato’ Dr. Mohd Munir bin Abdul Majid Member: Dato’ Ahmad Fuaad bin Mohd Dahalan Dato’ Mohamed Azman bin Yahya Tengku Azmil Zahruddin bin Raja Abdul Aziz
This Committee was dissolved at the end of August, 2005.
COMMUNICATION WITH SHAREHOLDERS
As part of good corporate governance, the Board maintains an ongoing communication programme to ensure that shareholders are kept appropriately informed of developments within the Group.
Investor Relations
42 Immediately after the Group’s quarterly financial results are publicly announced, it is customary for briefings with analysts and the media to be held. The Managing Director and Senior Management are present at these briefings to clarify issues raised by the analysts and members of the media. It is also the Group’s practice to hold special briefings with analysts and the media with regard to any special development relating to the Group, after the necessary approvals have been obtained and, where applicable, the prescribed announcements to BMSB have been made.
In addition, the Managing Director holds briefings for institutional investors as and when required.
To develop a long-term relationship with shareholders and institutional investors, Investor Relations Department that resides in the Corporate Communication Division and reports directly to the Managing Director, enables the maintenance of an open channel of communication between MAS and its shareholders and institutional investors. Towards this end, a dedicated e-mail address ([email protected]) has been set up, to which shareholders can direct their queries.
Annual General Meeting (AGM)
The AGM is the principal forum for dialogue with shareholders. Notice of the AGM and the Annual Report are sent out to shareholders at least 21 days before the date of the meeting. The Annual Report provides detailed and comprehensive information on the Group’s business and activities to help shareholders make informed decisions on their investment in MAS. Shareholders may also access the Group’s website (www.malaysiaairlines.com) for more information.
During the AGM, the Board takes the opportunity to report on the progress and performance of the Group and respond to questions raised by shareholders pertaining to the Group’s activities. To enable shareholders to gain full understanding and evaluate the issues involved, explanatory statements are provided to them on items of special business that may be included in the Notice of Meeting.
At the AGM, shareholders have direct access to Board members who are at hand to answer their questions, either on a specific resolution or on the Company generally.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
ACCOUNTABILITY AND AUDIT
Financial Reporting
The Board ensures that the Group’s quarterly reports to Bursa Malaysia Securities Berhad and the Annual Report to shareholders present a fair assessment of the Group’s performance and prospects. The BAC assists the Board to scrutinise information to ensure adequate disclosures are made in such reports and the overall quality of the Group financial reporting is maintained.
Statement of Directors’ Responsibility in Relation to the Financial Statements
In the preparation of the Financial Statements as set out on pages 51 to 124 of this Annual Report, the Directors are of the view that:
G The Group has used appropriate accounting policies that were consistently applied; G Reasonable and prudent judgements and estimates were made; and G All applicable MASB approved accounting standards in Malaysia have been followed.
The Directors are responsible for ensuring that the Company maintains accounting records, which disclose with reasonable accuracy the financial position of the Company and the Group, and that the Financial Statements comply with the Companies Act 1965.
The Statement of Directors pursuant to Section 169 of the Companies Act 1965 is set out on page 64 of this 43 Annual Report.
Internal Control
The Board acknowledges its overall responsibility for maintaining a sound system of internal control to safeguard shareholders’ investment and the Group’s assets. In compliance with Listing Requirement of Bursa Malaysia under para 15.27(b) and guided by the Statement of Internal Control: Guidance for Directors of Public Listed Companies, the report on the Group’s internal control is presented in the Statement on Internal Control on pages 34 to 36 of this Annual Report.
Relationship with Auditor
The Board maintains an appropriate relationship with the Group’s auditors through the BAC. The authority, role and responsibilities of the Committee are presented in the Audit Committee Report set out on pages 28 to 33 of this Annual Report.
The Group has always maintained a close and transparent relationship with its auditors in seeking professional advice and ensuring compliance with the relevant accounting standards.
This Statement is made in accordance with the resolution of the Board of Directors dated 20 April 2006.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
Additional Compliance Statement
In compliance with the Listing Requirements of Bursa Malaysia Securities Berhad under para 9.25, the Board is also pleased to provide disclosure on the following information:-
1. Imposition of Sanctions/Penalties:-
There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or Management by the relevant regulatory bodies during the financial period.
2. Material Contracts:-
Save as disclosed below, there are no other material contracts entered into or subsisting by the Company or its subsidiaries, involving directors and major shareholders interests during the financial period:-
(i) Supplemental Agreement dated 28 May 2002 between the Company and Aircraft Business Malaysia Sdn. Bhd. (ABM), a wholly-owned subsidiary of the Minister of Finance, Incorporated, to amend certain clauses stated in the Master Aircraft Purchase Agreement dated 5 February 2002 between the aforesaid parties.
(ii) Eight (8) Operating Lease Agreements, one (1) of which is dated 6 June 2002 and seven (7) of which are dated 28 May 2002, between the Company and Aircraft Business Malaysia Sdn. Bhd. 44 (ABM), a wholly-owned subsidiary of the Minister of Finance, Incorporated, in relation to the lease of the eight (8) aircraft for a lease period not exceeding 12 years.
(iii) Eight (8) Supplemental Agreements dated 30 July 2002 between the Company and Aircraft Business Malaysia Sdn. Bhd. (ABM), a wholly-owned subsidiary of the Minister of Finance, Incorporated, to amend the terms of rental rate/formula stated in the Operating Lease Agreements between the aforesaid parties referred to in paragraph (ii) above.
(iv) Several Agreements dated 30 July 2002 between the Company and Penerbangan Malaysia Berhad (PMB) such as:
(a) Widespread Asset Unbundling (WAU) Agreement which describes the general structure of the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Common Terms Agreement, the Governance Agreement and the Aircraft and Engines Purchase Agreement.
(b) Agreement for Aircraft and Finance Agreements Unbundling which sets out the terms and arrangements under which PMB and Malaysia Airlines must make payments to each other, in relation to the aircraft assets which are subject to finance leases, loan agreements or operating leases entered into by Malaysia Airlines (Encumbered Aircraft Assets) and certain payments which Malaysia Airlines receives in respect of its aircraft assets, and in relation to specifically identified liabilities of Malaysia Airlines which are unbundled. This agreement provides PMB with an option to purchase the Encumbered Aircraft Assets becoming unencumbered to Malaysia Airlines, upon which such aircraft will be leased back to Malaysia Airlines on the same terms as the leaseback agreements for Unencumbered Aircraft Assets referred to under paragraph 2 (iv)(d).
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
(c) Agreement for Domestic Business Unbundling which set out the terms and arrangements under which Malaysia Airlines agrees to pay PMB the revenue generated from the Domestic Business and PMB agrees to pay Malaysia Airlines expenditure incurred by Malaysia Airlines in respect of the Domestic Business. Included in this agreement are the details of the cost allocation of both variable and fixed costs/overheads of Malaysia Airlines to the Domestics Business, including costs of operating and managing the Domestic Business. This agreement also sets out the terms and arrangements under which Malaysia Airlines will operate the Domestic Business.
(d) Aircraft and Engines Purchase Agreement which sets out the terms and arrangements under which Malaysia Airlines agrees to sell and transfer title to twenty four (24) aircraft and eight (8) spare engines owned by Malaysia Airlines (Unencumbered Aircraft Assets), to PMB, in consideration of PMB’s obligation to pay Malaysia Airlines certain payments under the Agreement For Aircraft and Finance Agreements Unbundling. The signing of the leaseback agreements for the Unencumbered Aircraft Assets is a condition precedent to the Proposed WAU.
(e) Common Terms Agreement which sets out the common terms, conditions and provisions that are incorporated by reference into each of the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Governance Agreement and the WAU Agreement. Included in this agreement is a description of events of default which apply to the said agreements.
(f) Governance Agreement which constitutes an agreement between Malaysia Airlines, as the 45 Asset Operator and PMB, Aircraft Business Malaysia Sdn Bhd. and Assets Global Network Sdn. Bhd. (Asset Owners) to comply with the corporate and contractual governance code in relation to the conduct between Malaysia Airlines and the Assets Owners on matter referred to in the Agreement for Aircraft and Finance Agreements Unbundling, the Agreement for Domestic Business Unbundling, the Governance Agreement, the Aircraft and Engines Purchase Agreement and the WAU Agreement.
(v) Supplemental Agreement dated 11 October 2002 between Malaysia Airlines and PMB, to amend certain provisions of the Agreement for Aircraft and Finance Agreements Unbundling and the Agreement for Domestic Business Unbundling.
(vi) Supplemental Agreement dated 11 October 2002 between Malaysia Airlines and PMB, to amend certain provisions of the Aircraft and Engines Purchase Agreement.
(vii) The Lease Agreement dated 6 November 2002 between Malaysia Airlines and PMB in relation to the lease of twenty four (24) aircraft sold by Malaysia Airlines to PMB under the Aircraft and Engines Purchase Agreement, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(viii) The Lease Agreement dated 6 November 2002 between Malaysia Airlines and PMB in relation to the lease of eight (8) spare engines sold by Malaysia Airlines to PMB under the Aircraft and Engines Purchase Agreement, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
(ix) The lease Agreement dated 12 November 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2 (iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(x) The Lease Agreement dated 20 November 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2 (iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(xi) The Lease Agreement dated 3 December 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2 (iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(xii) The Lease Agreement dated 13 December 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2 (iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(xiii) The Lease Agreement dated 20 December 2002 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and 46 Finance Agreements Unbundling referred to in paragraph 2 (iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(xiv) The Lease Agreement dated 8 January 2003 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2 (iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(xv) Lease Agreement dated 24 January 2003 between Malaysia Airlines and PMB in relation to the lease of one (1) aircraft sold by Malaysia Airlines to PMB pursuant to the Agreement for Aircraft and Finance Agreements Unbundling referred to in paragraph 2 (iv)(b) above, for a period which expires on 30 September 2005 or such other later date agreed by the parties.
(xvi) Sub-Lease Agreement (In Respect of KLIA Buildings) dated 26 March 2003 between Malaysia Airlines and Assets Global Network Sdn. Bhd. (“AGN”), a wholly-owned subsidiary of the Minister of Finance, Incorporated in relation to the sub-lease of the land and the buildings and infrastructure as therein defined for fifty seven (57) years at a yearly rent payable by Malaysia Airlines to AGN inaccordance with the Rent Schedule appended to the Sub-Lease Agreement.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement of Corporate Governance
4. Utilisation of Proceeds from Corporate Proposal
There were no proceeds raised from any corporate proposal during the financial period .
5. Non-audit fees
The amount of non-audit fees paid and payable to the external auditors by the Group for the financial period ended 31 December 2005 is RM410,000.
6. Revaluation Policy on Landed Properties
Revaluation of landed properties will only be undertaken by the Company upon the approval of the Board of Directors of the Company or should there be an intended sale or the market values were materially changed.
7. Profit Guarantee
The Company did not give any profit guarantee during the financial period.
8. Share Buyback
There was no share buyback scheme undertaken by the Company. 47 9. Options, Warrants or Convertible Securities
There were no options, warrants or convertible securities during the financial period.
10. American Depository Receipt (“ADR”) or Global Depository receipt (“GDR”) Programme (as at 31 December 2005)
The Company did not sponsor any ADR or GDR programme during the financial period .
11. Variation in Results
There was no variance of 10% or more in the results in the unaudited quarterly result and the audited financial statement.
The Company did not release any profit estimate, forecast or projection during the financial period.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Group structure as at 28 April 2006
MALAYSIAN AIRLINE SYSTEM BERHAD
80% Abacus Distribution Systems (Malaysia) Sdn. Bhd.
51% Aerokleen Services Sdn. Bhd. 100% Aircraft Engine Repair and Overhaul (Malaysia) Sdn. Bhd. 100% Kelas Services Sdn. Bhd. 56.7% Macnet CCN (M) Sdn. Bhd. 100% Malaysia Airlines Capital (L) Limited 100% Malaysia Airlines Cargo Sdn. Bhd. 100% MAS Academy Sdn. Bhd. 100% MAS Aerotechnologies Sdn. Bhd. 60% MAS Catering (Sarawak) Sdn. Bhd. 100% MAS Golden Boutiques Sdn. Bhd. 100% MAS Golden Holidays Sdn. Bhd. 48 100% MAS Hotels & Boutiques Sdn. Bhd. 100% MAS Properties Sdn. Bhd. 100% MAS Wings of Gold Sdn. Bhd. 100% MASkargo Logistics Sdn. Bhd. [formerly known as Pengangkutan Kargo Udara MAS Sdn. Bhd.] 100% MIR Technologies Sdn. Bhd. 100% Syarikat Pengangkutan Senai Sdn. Bhd.
INVESTMENT IN ASSOCIATES
49% Aerofine Meat Sdn. Bhd. 30% GE Engine Services Malaysia Sdn. Bhd. 49% Hamilton Sundstrand Customer Support Centre (M) Sdn. Bhd. 30% Honeywell Aerospace Services (M) Sdn. Bhd.
30% LSG Sky Chefs-Brahim’s Sdn. Bhd. 23.5% Pan Asia Pacific Aviation Services Limited 20% Taj Madras Flight Kitchen Limited
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Senior Management
1 Iris Jala @ Idris Jala, Managing Director 9 10 2 Tengku Azmil Zahruddin bin Raja Abdul Aziz, Executive Director & Chief Financial Officer 11 7 8 3 Indira Nair, Senior General Manager Communications 6 5 2 4 4 Dato’ Rashid Khan bin Abdul Rahim Khan, Commercial Director 1 3 5 Marzida binti Mohd Noor, Chief Information Officer 6 Raja Azura binti Raja Mahayuddin, Assistant General Manager Internal Audit 7 Effendi bin Abdul Rahman, Senior General Manager Human Resources 8 Mohd Izani bin Ashari, Senior General Manager Turnaround Management Office 9 Peter Read, Operations Director 10 Dato’ Ong Jyh Jong, Senior General Manager MASkargo 11 Rizani bin Hassan, Company Secretary financial report
Performance Highlights 51 Expenditure 52 Analysis of Airline Operations 53 Revenue Composition 54 Group Financial Highlights 55-56 Corporate Charts 57-59 Directors’ Report 60-63 Statement by Directors 64 Statutory Declaration 65 Report of the Auditors 66 Income Statements 67 Balance Sheets 68 Statements of Changes in Equity 69 Cash Flow Statements 70-71 Notes to the Financial Statements 72-116 Statistics on Shareholdings 117-119 List of Company Properties 120-124
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Performance Highlights
31 Dec 2004 CHANGE 2005 2005 %
GROUP
Financial
Total Revenue RM Million 9,081.9 11,364.3 (20.1) Total Expenditure RM Million 10,335.2 11,046.8 (6.4) (Loss)/Profit after Tax RM Million (1,264.8) 326.1 (487.9) Shareholders' Funds RM Million 2,022.6 3,318.7 (39.1) (Loss)/Earnings Per Share Sen (100.9) 26.0 (488.1) Dividend Per Share Sen - 2.5 - Cash Flow Per Share RM (0.44) 0.47 (193.6)
Operating Statistics
Available Tonne Kilometres Million 7,716.1 10,299.9 (25.1) Load Tonne Kilometres Million 5,205.3 6,728.5 (22.6) Overall Load Factor % 67.5 65.3 3.4 Available Seat Kilometres Million 49,786.0 64,115.2 (22.3) Passenger Kilometres Flown Million 35,604.8 44,226.1 (19.5) Passenger Load Factor % 71.5 69.0 3.6 51
Staff and Productivity
Employee Strength 22,835 22,513 1.4 Available Tonne Kilometres Per Employee 337,907 457,509 (26.1) Load Tonne Kilometres Per Employee 227,953 298,872 (23.7)
COMPANY
Operating Statistics
Available Tonne Kilometres Million 6,326.7 8,127.9 (22.2) Load Tonne Kilometres Million 4,422.4 5,442.0 (18.7) Overall Load Factor % 69.9 67.0 4.3 Available Seat Kilometres Million 49,786.0 64,115.2 (22.3) Passenger Kilometres Flown Million 35,604.8 44,226.1 (19.5) Passenger Load Factor % 71.5 69.0 3.6 Aircraft Utilisation (Average) Hours Per Day 10.7 10.6 0.9
Staff and Productivity
Employee Strength 20,324 20,087 1.2 Available Tonne Kilometres Per Employee 311,292 404,635 (23.1) Load Tonne Kilometres Per Employee 217,595 270,921 (19.7)
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Expenditure
31 Dec 2004 Change 2005 2005 RM MIL RM MIL %
Group
Staff Costs 1,554.3 1,904.8 (18.4) Depreciation 240.2 245.3 (2.1) Fuel and Oil 3,937.1 3,779.2 4.2 Handling and landing costs 1,738.7 2,113.1 (17.7) Hire of aircraft and equipment 1,655.1 1,856.2 (10.8) Finance charges 5.8 0.1 5,700.0 Commission and incentives 542.4 658.4 (17.6) Others 2,202.3 2,201.1 0.1 11,875.9 12,758.2 (6.9) Less: Allocation of costs of domestic operations to PMB (1,546.5) (1,711.4) (9.6) 10,329.4 11,046.8 (6.5)
Company
Staff Costs 1,462.5 1,784.3 (18.0) 52 Depreciation 209.1 210.1 (0.5) Fuel and Oil 3,464.2 3,253.7 6.5 Handling and landing costs 1,539.5 1,781.0 (13.6) Hire of aircraft and equipment 1,341.5 1,478.6 (9.3) Finance charges 5.8 0.1 5,700.0 Commission and incentives 463.1 556.3 (16.8) Others 2,050.7 1,950.8 5.1 10,536.4 11,014.9 (4.3) Less: Allocation of costs of domestic operations to PMB (1,546.5) (1,711.4) (9.6) 8,989.9 9,303.5 (3.4) 2
EXPENDITURE 9 . . 3 2 3 3 % GROUP COMPANY
40
35
30 5 . 5 9 25 . 1 8 1 20 6 6 . . 9 9 . . 4 4 1 7 . 3 3 1 1 . 3 1 15 1 2 1 1 10
5 6 4 . .
0 4 4 0 0 . Staff Costs . Depreciation Fuel & Oil Handling & Hire of aircraft Finance Commission Others 2 2 Landing costs & equipment charges & incentives 0 1 . . 0 0 Malaysian Airline System Berhad Annual Report 2005 (10601-W) Analysis of Airline Operations (Including Freighter) by Georaphical Route Region
31 Dec 2004 2005 2005 CHANGE RM MIL RM MIL %
Route Revenue
Asia 1,405.0 1,656.4 (15.2) Europe and Middle East 3,025.9 3,899.1 (22.4) Australia and New Zealand 1,383.5 1,740.1 (20.5) Africa and South America 217.8 275.8 (21.0) Orient and North America 2,318.2 2,628.8 (11.8)
8,350.4 10,200.2 (18.1)
Passenger Load Factor (%)
Asia 65.3 63.8 2.4 Europe and Middle East 71.8 71.9 (0.1) Australia and New Zealand 76.8 67.5 13.8 Africa and South America 74.6 77.8 (4.1) Orient and North America 69.6 66.2 5.1
71.5 69.0 3.6 53
Overall Load Factor (%)
Asia 65.0 63.5 2.4 Europe and Middle East 68.7 67.8 1.3 Australia and New Zealand 67.3 59.4 13.3 Africa and South America 68.0 71.2 (4.5) Orient and North America 66.3 65.4 1.4
67.5 65.3 3.4
ROUTE REVENUE
31 DEC 2004 % 2005 2005 2
45 . 8 8 2 . . 40 3 7 6 8 . 2 3
35 5 2 30
25 1 6 . 8 . 2 . . 7
20 6 6 6 1 1 1 15 1
10
5
0
Asia Europe & Australia & 7 Africa & Orient & 6 . . South America Middle East New Zealand 2 North America 2
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Revenue Composition by Category
31 Dec 2004 CHANGE 2005 2005 RM MIL RM MIL %
Group Passenger and Excess Baggage 6,973.2 9,097.7 (23.4) Cargo ROUTE and REVENUE Mail 1,517.0 2,061.3 (26.4) Airport Services 133.6 147.4 (9.4) 31 DEC 2004 Charters% 56.62005 2005 138.6 (59.2) Others 1,607.4 1,349.5 19.1
45 2 . 8 2 . 3
40 8 6 . 10,287.8 12,794.5 (19.6) 3 7 8 . 35 2 Less: Traffic revenue of domestic operations to PMB5 (1,205.9) (1,430.2) (15.7) 2 30 9,081.9 11,364.3 (20.1) 25 1 6 . 8 . 2 . . Company20 7 6 6 6 1 1 1 Passenger and1 Excess Baggage 6,973.2 8,994.8 (22.5) 15 Cargo and Mail 763.7 813.3 (6.1) 10 Airport Services 133.6 147.4 (9.4) Char5 ters 41.2 115.4 (64.3) Others0 997.8 899.2 11.0 7 6 . .
Asia Europe & Australia & 2 Africa & Orient & 2 54 Middle East New Zealand South America North America 8,909.5 10,970.1 (18.8) Less: Traffic revenue of domestic operations to PMB (1,205.9) (1,430.2) (15.7) 7,703.6 9,539.9 (19.2)
REVENUE COMPOSITION BY CATEGORY
% GROUP COMPANY 3 90 . 8 7 80 8 . 7
70 6
60
50
40
30
20
10
0 5 7 Passenger & Cargo & Mail Airport Services. Charters Others . 5 4
Excess Baggage 1 1 . 1 1 6 1 . 8 6 4 . 6 5 . . . 1 1 0 Malaysian Airline System Berhad Annual Report 2005 0 (10601-W) Group Financial Highlights
CASHCASH FLOW PER SHARE (RM)
RM 2 GROUP RM . GROUP 2 2 . 2.5 2
2.0 5 5 5 5 . . . . 1 1 1 1.5 1 3 . 3 . 1 1 1 .
1.0 1 1
1.0 . 1 9 . 0 9 .
0.5 0 6 . 0 5 . 6 . 0 0 0.0 5
0.0 . 0 ) ) 0 4 4 -0.5 . . -0.5 . 0 0 0 ( ( 0 1996 1997 1998. 1999 2000 2001 2002 2003 2004 31 Dec 19971997 19981998 199919990 20002000 20012001 20022002 20032003 20042004 20052005 20052005
55 0 . 6
EARNINGS/(LOSS) PER8 SHARE (SEN)
EARNINGS/(LOSS) PER SHARE (SEN) 2 . 7 8 . 3 . 0 . 8 4 6 8 . 6 3 7 3 8 . 3 2 SEN . GROUP 8 4 6 3 3
50
0 ) ) ) ) 6 6 . 7 . 7 . .
-50 3 -50 3 3 3 3 3 3 ( 3 ( ( ( ) ) 9 ) 9 -100 . -100 ) . 5 5 ) 0 . 0 . 9 ) 0 0 8 8 . 1 9 1 0 0 0 ( . ( 1 9 1 ( 0 ( -150 ( 9 (
-200
1996 1997 1998 1999 ) 2000 2001 2002 2003 2004 31 Dec 1996 1997 1998 1999 2 2000 2001 2002 2003 2004 31 Dec .
1997 1998 1999 2000 3 2001 2002 2003 2004 2005 2005 ) 7 1 2 . ( 3 7 1 (
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Group Financial Highlights
NET TANGIBLE ASSETS PER SHARE (RM) NET TANGIBLE ASSETS PER SHARE (RM)
RM GROUP RM GROUP 8 8 6 7 6 . 7
7 6 .
7 6 6 6 5 5 4 4 3 3 2 2 1 5 8 .
1 6 1 . 2 4
1 1 2 . 4 5 8 8 2 . 0 9 0 4 6 8 . 1 . . 2 7 0 6
0 2 4 1 . . 2 . 1996 1997 1998 1999 2000 2001 6 2002 2003 2004 31 Dec 4 1 . 1 8
1996 1997 1998 1999 2 2000 2001 2002 2003 2004 31 Dec 1 1997 1998 1999 20000 2001 2002 2003 2004 2005 2005 9 4 8 . . 9 7 1997 1998 1999 2000 2001 20020 2003 2004 2005 2005 6 2 8 1 . . . 6 1 . 1 0 1 9 8 . 0
56
DIVIDENDS PER SHARE (SEN) DIVIDENDS PER SHARE (SEN)
SEN GROUP SEN GROUP 0 . 0 0 . 1 10 0 10 1
8 8
6 6
4 4
2 2
0 0
1996 1997 1998 1999 2000 20015 2002 2003 2004 31 Dec 1996 1997 1998 1999 2000 2001. 2002 2003 2004 31 Dec
1997 1998 1999 2000 2001 20022 2003 2004 2005 2005 0 0 0 . . 1997 1998 . 1999 2000 2001 2002 2003 2004 2005 2005 2 2 2 5 . 2 0 0 0 . . . 2 2 2
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Corporate Charts
OVERALL CAPACITY AND DEMAND
MILLION REVENUE TONNE KILOMETRES AVAILABLE TONNE KILOMETRES 0
12000 0 3 , 0 3 1 1 5 8 4 10000 4 5 6 7 , 2 1 0 1 9 8 , , 8 3 7 , 8 , 7 5 7 , 9 8000 7 9 7 2 1 4 7 9 1 6 , , 4 4 6 , 6 9
6000 1 7 , 9 6 2 5 9 0 6 7 6 0 4 , 3 5 3 , , 2 5 5 1 , 5
4000 , 5 8 5 , 5 0 8 4 3 7 8 0 0 8 2000 , , 7 4 , 3 3 0 31 Dec 2004 2003 2002 2001 2000 1999 1998 1997 1996 2005 2005 2004 2003 2002 2001 2000 1999 1998 1997
57
PASSENGER CAPACITY AND DEMAND 5 1
MILLION 1 , REVENUE PASSENGER KILOMETRES AVAILABLE SEATS KILOMETRES 4 2 6
80000 6 9 5 6 6 8 9 , 2 6 , 3 6 5 70000 5 8 , 4 2 0 5 , 7 2 5 2 9 , 1 6 , 5 4
60000 9 5 2 4 8 4 4 , 2 9 7 4 , 5 2 9 3 3 4 , 50000 9 4 0 1 5 4 2 5 5 , 0 9 3 6 4 6 0 0 , 3 , 0 40000 , 6 4 8 9 7 7 7 , 3 , , 3 3 8 3 5 9 4 4 4 9 3 5
30000 3 3 0 , 6 9 , 0 , 8 3
20000 7 2 2 10000
0 31 Dec 2004 2003 2002 2001 2000 1999 1998 1997 1996 2005 2005 2004 2003 2002 2001 2000 1999 1998 1997
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Corporate Charts 3 4 4 , 7 3 4 8 4
PASSENGER REVENUE, FOR INTERNATIONAL AND NATIONAL ROUTES (excluding charters) 9 9 7 4 0 PASSENGER REVENUE FOR0 INTERNATIONAL AND NATIONAL ROUTES (excluding charters) , 1 6 9 , 6 8 7 , 5 8 RM MILLION 5
5 NATIONAL REVENUE INTERNATIONAL REVENUE 5 , 9 9 7 4 2 5 0 0
RM MILLION 2 NATIONAL REVENUE INTERNATIONAL REVENUE , 1 6 1 9 , 0 , 6 8 7 , , 4 5 5 5 5 5 5 8000 , 3 7 2 5 0 4 2 1
8000 , , 0 8 , 4 4 5
7000 2 0 5 , 3 1 0 4 7000 4 7 , 8 ,
6000 4 2 0 3 , 6000 1 4 7
5000 , 5000 3 4000 4000 3000 2 0 2 3
3000 4 1 3 7 0 6 9 4 7 4 2 3 0 3
2000 2 3 2 7 2 5 3 2 , , , , 4 1 3 1 7 0 6 9 4 0 7 0 0 , 0 1 1 5 4 1 3 , 1 2000 3 , , , 2 7 2 5 3 2 , , 1 , , 1 9 1 1 1 0 1 0 0 , 0 1000 1 1 5 1 , 1 , , , 8 1 9 1 1 1 1000 1 0 8 0 31 Dec 2004 2003 2002 2001 2000 1999 1998 1997 1996 312005 Dec 20042005 20032004 20022003 20012002 20002001 19992000 19981999 19971998 19961997 2005 2005 2004 2003 2002 2001 2000 1999 1998 1997
58
PASSENGER CARRIED FOR INTERNATIONAL AND NATIONAL ROUTES PASSENGER CARRIED FOR INTERNATIONAL AND NATIONAL ROUTES
'000 INTERNATIONAL PASSENGERS NATIONAL PASSENGERS '000 INTERNATIONAL PASSENGERS NATIONAL PASSENGERS 0 4 7 6 8 4 5 5 1 7 9 4 8 0 4
10000 8 4 1 , 8 , 7 6 6 6 8 4 6 5 5 6 5 , , , 8 1 4 , 8 3 7
10000 9 4 8 4 8 1 1 , 3 , 8 8 8 , 8 8 9 6 6 , 6 6 5 8 9 8 , , , 8 4 , 8 3 9 8 1 , 3 4 8 8 4 8 8 , 8 8 9 , , 8 9
8000 8 5 6 9 7 7 8 4 4 9 4 8 , , 8 7 4 4 ,
8000 3 5 9 6 8 , 7 7 7 , 4 8 2 9 2 , 7 4 4 6 0 3 0 7 9 7 8 , 5 0 7 , , 3 8 2 , 2 3 , 6 0 0 7 7 7 5 5 0 7 7 , 3 7 , 6 3 , 7 6000 , , 7 , 5 7 7 5 7 6 , 7 6 , 6 , 5 6
6000 2 6 6 , 6 2 , 6 4000 6 4000
2000 2000
0 0 31 Dec 2004 2003 2002 2001 2000 1999 1998 1997 1996 312005 Dec 20042005 20032004 20022003 20012002 20002001 19992000 19981999 19971998 19961997 2005 2005 2004 2003 2002 2001 2000 1999 1998 1997
Malaysian Airline System Berhad Annual Report 2005 (10601-W) 5 . 5 9 .
2 1 8 1 6 20 6 . . 9 9 . . 4 4 1 7 . 3 3 1 1 . 3 1 15 1 2 1 1 10 5 Corporate Charts 6 4 .
0 . 4 4 Staff Costs Depreciation Fuel & Oil Handling & Hire of aircraft Commission Others 0 0 Finance . . Landing costs & equipment charges & incentives 2 2 0 1 . . 0 0
CARGO CARRIED MILLION (TONNE KILOMETRES) 0
MILLION 9 TONNE KILOMETRES 6 , 2 3000 7 8
2500 1 1 , 7 9 2 0 , 4 7 2 9 ,
2000 3 9 1 8 5 5 , 7 6 1 , 2 6 1500 1 , 7 3 0 1 7 5 , 2 4 , 1 4 , 1000 1 1
500
0 31 Dec 2004 2003 2002 2001 2000 1999 1998 1997 1996 2005 2005 2004 2003 2002 2001 2000 1999 1998 1997
59
NUMBER OF AIRCRAFT IN OPERATION AS AT 31 DECEMBER/MARCH 2005
No. of Aircraft No. of Aircraft in Malaysia Airlines in Malaysia Airlines Operation Operation as at 31 December 2005 as at 31 March 2005
B747-400P 17 17 B747-200F 5 7 B777-200 17 17 A330-300 11 11 A330-200 5 5 B737-400/800 41 39 F50 10 10 DHC6 5 5 Total 111 111
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Directors’ Report
MALAYSIAN AIRLINE SYSTEM BERHAD (Incorporated in Malaysia)
DIRECTORS’ REPORT
The directors present their report together with the audited financial statements of the Group and of the Company for the financial period from 1 April 2005 to 31 December 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 29 to the financial statements.
There were no significant changes in the nature of these activities during the financial period.
CHANGE OF FINANCIAL YEAR END
The Group and the Company changed their financial year end from 31 March to 31 December so as to be coterminous with the year-end of that of their ultimate holding company. Accordingly, the current financial period covers a 9-month period from 1 April 2005 to 31 December 2005.
60 RESULTS Group Company RM'000 RM'000
Loss after taxation (1,261,188) (1,297,574) Minority interests (3,599) - Net loss for the period (1,264,787) (1,297,574)
There were no material transfers to or from reserves or provision during the financial period other than as disclosed in the statements of changes in equity.
In the opinion of the directors, the results of the operations of the Group and of the Company during the financial period 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 Company paid the following dividend since 31 March 2005: RM'000 A final tax exempt dividend of 2.5% paid on (18 October 2005) in respect of the financial year ended (31 March 2005) as shown in the Directors' report of that financial year. 31,331
The directors do not recommend any payment of final dividend in respect of the current financial period.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Directors’ Report
Directors
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 Dato' N. Sadasivan a/l N.N. Pillay Dato' Sri Izzuddin bin Dali Dato' Mohd. Annuar bin Zaini Dato' Mohamed Azman bin Yahya Dato' Zaharaah binti Shaari (appointed on 18 July 2005) Datuk Amar Haji Abdul Aziz bin Haji Husain Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim (appointed on 23 January 2006) Iris Jala @ Idris Jala (appointed on 1 December 2005) Keong Choon Keat Martin Gilbert Barrow Tengku Azmil Zahruddin bin Raja Abdul Aziz Dato' Ahmad Fuaad bin Mohd Dahalan (resigned on 22 August 2005) Datuk Haji S Abdillah @ Abdullah bin Hassan @ S Hassan (resigned on 19 January 2006) Datu Haji Salleh bin Haji Sulaiman (alternate to Datuk Amar Haji Abdul Aziz bin Haji Husain) Abdul Rahman bin Abdul Ghani (resigned on 19 January 2006 as alternate to Datuk Haji S Abdillah @ Abdullah bin 61 Hassan @ S Hassan and reappointed on 23 January 2006 as alternate to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim)
In accordance with Article 137 of the Company's Articles of Association, Iris Jala @ Idris Jala and Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim, who were appointed during the period, 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' Dr. Mohd Munir bin Abdul Majid, Keong Choon Keat, Datuk Amar Haji Abdul Aziz bin Haji Husain and Tengku Azmil Zahruddin bin Raja Abdul Aziz retire by rotation at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election.
DIRECTORS' BENEFITS
Neither at the end of the financial period, nor at any time during that period, did there subsist any arrangement 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 the director is a member, or with a company in which the director has a substantial financial interest.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Directors’ Report
DIRECTORS' INTERESTS
According to the register of directors' shareholdings, none of the directors in office at the end of the financial period had any interest in shares in the Company or its related corporations during the financial period.
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 all known bad debts had been written off 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) the amount written off for bad debts or the amount of the provision for doubtful debts inadequate to any substantial extent in respect of these financial statements; and 62 (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 period 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 period.
(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 period 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 period 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 period in which this report is made.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Director’s Report
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
63
Iris Jala @ Idris Jala
Kuala Lumpur, Malaysia 27 February 2006
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statement by Directors
PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965
We, Dato' Dr. Mohd. Munir bin Abdul Majid and Idris Jala, 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 67 to 116 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 December 2005 and of the results and the cash flows of the Group and of the Company for the period then ended.
Signed on behalf of the Board in accordance with a resolution of the directors
64
Dato' Dr. Mohd. Munir bin Abdul Majid Iris Jala @ Idris Jala
Kuala Lumpur, Malaysia 27 February 2006
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statutory Declaration
PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965
I, Tengku Azmil Zahruddin bin Raja Abdul Aziz, being the director 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 67 to 116 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 Tengku Azmil Zahruddin bin Raja Abdul Aziz at Kuala Lumpur in the Federal Territory on 27 February 2006 Tengku Azmil Zahruddin bin Raja Abdul Aziz
65
Before me, Dato Ng Mann Cheong Commissioner for Oaths (No. W023)
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Report of the Auditors
TO THE MEMBERS OF MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W) (Incorporated in Malaysia)
We have audited the financial statements set out on pages 67 to 116. These financial statements are the responsibility 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 December 2005 and of the results and 66 the cash flows of the Group and of the Company for the period 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 See Huey Beng AF: 0039 No. 1495/03/07(J) Chartered Accountants Partner
Kuala Lumpur, Malaysia 27 February 2006
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Income Statements for the period ended 31 December 2005
Group Company
1.4.2005 1.4.2004 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 Note RM'000 RM'000 RM'000 RM'000
Revenue 3 8,850,810 10,950,882 7,490,246 9,149,779 Expenditure 4 (10,329,390) (11,046,627) (8,989,904) (9,303,399) Other operating income 7 231,097 413,427 213,330 390,140 Operating (loss)/profit (1,247,483) 317,682 (1,286,328) 236,520 Interest expense - (137) - (93) Other finance costs (5,813) - (5,771) - (1,253,296) 317,545 (1,292,099) 236,427 Gain on sale of aircraft 8 - 25,752 - 25,752 Share of results of associated companies 12,119 21,156 -- (Loss)/profit before taxation (1,241,177) 364,453 (1,292,099) 262,179 Taxation: -Company and subsidiaries (18,657) (33,705) (5,475) (8,076) -Associated companies (1,354) (2,002) -- 9 (20,011) (35,707) (5,475) (8,076) (Loss)/profit after taxation 67 before minority interests (1,261,188) 328,746 (1,297,574) 254,103 Minority interests (3,599) (2,667) - - Net (loss)/profit for the period/year (1,264,787) 326,079 (1,297,574) 254,103
Basic (loss)/earnings per share (sen) 10 (100.9) 26.0
The accompanying notes form an integral part of the financial statements.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Balance Sheets as at 31 December 2005
Group Company
31.12.2005 31.3.2005 31.12.2005 31.3.2005 Note RM'000 RM'000 RM'000 RM'000
NON-CURRENT ASSETS
Aircraft modifications/retrofits, property and equipment 12 2,223,558 2,054,455 1,728,045 1,556,479 Investments 13 172,701 194,676 243,389 271,670 Due from subsidiaries 14 - - 273,640 264,946 Due from a fellow subsidiary 16(b) 351,815 395,819 351,815 395,819 Intangible assets 2(y) 25,314 - 25,314 - Deferred tax assets 22 92,503 103,219 - - 2,865,891 2,748,169 2,622,203 2,488,914
CURRENT ASSETS
Inventories 15 454,720 446,038 445,358 439,659 Receivables 16 1,829,508 1,887,505 1,780,061 1,841,779 Cash and bank balances 17 1,179,409 2,194,578 1,145,318 2,164,609 3,463,637 4,528,121 3,370,737 4,446,047 68 CURRENT LIABILITIES
Sales in advance of carriage 2(b)(i) 1,455,794 1,400,604 1,455,794 1,400,604 Due to subsidiaries 18 - - 30,504 91,053 Payables 19 2,815,108 2,522,250 2,542,664 2,149,419 Taxation 22,033 23,042 21,573 22,575 4,292,935 3,945,896 4,050,535 3,663,651
NET CURRENT (LIABILITIES)/ASSETS (829,298) 582,225 (679,798) 782,396 2,036,593 3,330,394 1,942,405 3,271,310
FINANCED BY:
Share capital 20 1,253,244 1,253,244 1,253,244 1,253,244 Reserves 769,370 2,065,488 689,161 2,018,066 Shareholder's equity 2,022,614 3,318,732 1,942,405 3,271,310 Minority interests 13,152 10,706 - - 2,035,766 3,329,438 1,942,405 3,271,310
NON-CURRENT LIABILITY
Deferred tax liabilities 22 827 956 - - 2,036,593 3,330,394 1,942,405 3,271,310
The accompanying notes form an integral part of the financial statements.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statements of Changes in Equity for the period ended 31 December 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 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
At 1 April 2005 1,253,244 3,301,164 501,530 (1,737,206) 2,065,488 3,318,732 Net loss for the period - - - (1,264,787) (1,264,787) (1,264,787) Dividends paid (Note 11) - - - (31,331) (31,331) (31,331) At 31 December 2005 1,253,244 3,301,164 501,530 (3,033,324) 769,370 2,022,614
Company 69 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
At 1 April 2005 1,253,244 3,301,164 500,000 (1,783,098) 2,018,066 3,271,310 Net loss for the period - - - (1,297,574) (1,297,574) (1,297,574) Dividends paid (Note 11) - - - (31,331) (31,331) (31,331) At 31 December 2005 1,253,244 3,301,164 500,000 (3,112,003) 689,161 1,942,405
The accompanying notes form an integral part of the financial statements.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Cash Flow Statements for the period ended 31 December 2005
Group Company
1.4.2005 1.4.2004 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before taxation (1,241,177) 364,453 (1,292,099) 262,179 Adjustment for: Share of results of associated companies (12,119) (21,156) - - Depreciation of property and equipment 240,234 245,273 209,058 210,078 Gain on sale of aircraft, property and equipment (10,915) (29,930) (10,751) (29,212) Gain on disposal of other investment, net (3,246) (18) (3,246) - Provision for doubtful debts, net of reversals -subsidiaries - - (4,294) (5,546) -others 46,014 (17,680) 46,236 (33,549) Unrealised foreign exchange (gain) / losses (2,398) 41 (2,398) 41 Aircraft spares, property and equipment written off 46,844 11,548 22,535 11,539 70 Unavailed credits (86,484) 247,492) (86,484) (247,492) Provision for impairment losses net of reversals - subsidiaries - - 4,018 - - others - (45,481) - (47,652) - aircraft spares, property and equipment 33,244 - 33,244 - Interest income (10,148) (70,445) (9,739) (69,953) Dividend income (15,845) (1,450) (22,499) (11,863) Interest expense - 137 - 93
Operating (loss)/profit before working capital changes (1,015,996) 187,800 (1,116,419) 38,663 Increase in receivables (388,588) (95,836) (389,489) (59,257) Decrease/(increase) in due from holding company 526,958 (151,694) 526,958 (151,694) Increase in inventories (8,682) (76,619) (5,699) (74,013) Increase in payables 199,015 148,150 238,853 102,504 Increase in sales in advance of carriage 141,674 581,521 141,674 581,521
Cash (used in)/generated from operating activities (545,619) 593,322 (604,122) 437,724 Interest paid - (111) - (67) Taxes paid (9,079) (12,630) (6,477) (10,165)
Net cash (used in)/generated from operating activities (554,698) 580,581 (610,599) 427,492
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Cash Flow Statements for the period ended 31 December 2005
Group Company
1.4.2005 1.4.2004 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
CASH FLOWS FROM INVESTING ACTIVITIES.
Proceeds from sale of other investments 32,913 29,891 28,913 29,785 Proceeds from disposal of associated company - 79 - - Payment for intangible assets (10,548) - (10,548) - Purchase of aircraft, property and equipment (497,135) (678,788) (443,206) (537,944) Purchase of other investments (1,404) (4,000) (1,404) - Proceeds from sale of aircraft, property and equipment 18,625 33,664 17,554 32,944 Interest received 9,240 67,565 8,831 67,073 Dividend received 20,322 7,082 22,499 11,863
Net cash used in investing activities (427,987) (544,507) (377,361) (396,279)
71 CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid to shareholders of the Company (31,331) (31,331) (31,331) (31,331) Dividend paid to minority shareholders in a subsidiary (1,153) (1,058) - - Net cash used in financing activities (32,484) (32,389) (31,331) (31,331)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (1,015,169) 3,685 (1,019,291) (118) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD/YEAR 2,194,578 2,190,893 2,164,609 2,164,727 CASH AND CASH EQUIVALENTS AT END OF PERIOD/YEAR 1,179,409 2,194,578 1,145,318 2,164,609
CASH AND CASH EQUIVALENTS COMPRISE:
Cash and bank balances 173,846 236,999 167,775 230,880 Short term deposits 1,005,563 1,957,579 977,543 1,933,729 Cash and cash equivalents 1,179,409 2,194,578 1,145,318 2,164,609
The accompanying notes form an integral part of the financial statements.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 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 29. There were no significant changes in the nature of these activities during the financial period.
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 immediate and ultimate holding companies are Penerbangan Malaysia Berhad (''PMB'') and Khazanah Nasional Berhad (“KNB”) 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 period were 22,835 (31.3.2005: 22,513) and 20,324 (31.3.2005: 20,087) respectively.
The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 27 February 2006.
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 72 the provisions of Companies Act, 1965 and 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 airway bill sales is recognised in the income statement when the transportation services are rendered.
(ii) Engineering, Catering, Charter and Other Revenue Engineering, catering, charter 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 the accrual basis. Revenue from sale of food and beverage are recognised based on their invoiced value of goods sold.
(iv) Interest, Rental and Dividend Income Interest and rental income are recognised on accrual basis whilst dividend income is recognised when the share holders' right to receive payment is established.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
2. 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 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 73 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 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.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
2. 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, associated company 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 associated companies and jointly controlled entities is included 74 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, associated company 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.
(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.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
(g) Foreign Currencies (Contd.)
(ii) Foreign Entities
The principal exchange rates used for every unit of foreign currency ruling at balance sheet date are as follows: 31.12.2005 31.3.2005 RM RM United States Dollar 3.7795 3.8000 Euro 4.4781 4.9261 Great Britain Pound 6.5110 7.1840 Japanese Yen 0.0321 0.0355 Singapore Dollar 2.2729 2.2678 Australian Dollar 2.7759 2.9372
(h) Aircraft Modifications/retrofits, Spare Engines, Property and Equipment
Property and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. 75 Depreciation of aircraft modifications/retrofits, spare engines, property and equipments provided on a straight line basis to write off the cost of each asset up to its residual value over the estimated useful life 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 7 to 15 years,having regard to their planned withdrawal from services.
(iii) Repairable and rotable aircraft spares are depreciated over 7 to 15 years or over the remaining lease period of the aircraft to which they relate, whichever is lesser.
(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 a their 1985 valuation less accumulated depreciation and accumulated impairment losses.
(v) Hotel Properties
Hotel properties comprise of land and the hotel buildings, including the integral plant and machinery. Hotel properties are stated at cost less impairment losses. Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
(h) Aircraft Modifications/retrofits, Spare Engines, Property and Equipment (Contd.)
(v) Hotel Properties (Contd.)
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 maintenanc eexpenditures 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
76 Depreciation is provided to their 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 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.
Cost of inventories comprises cost of purchase.
(j) Income Tax
Income tax on the profit or loss for the period/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.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
(j) Income Tax (Contd.)
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.
Deferred tax is measured at the tax rates that are expected to apply in the period when the assets 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. 77 (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 scheme 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.
(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.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
(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 on 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 78 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. For aircraft and engine maintenance and overhaul expenses incurred to meet contractual return conditions, expenses are accrued on the basis of hours flown in accordance with the contractual terms.
(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.
(t) Interest-Bearing Borrowings
Interest-bearing bank loans and overdrafts are recorded at the amount of proceeds received.
Interest 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.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
2. SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
(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 assets/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 79 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 payment 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.
(y) Intangible Assets
Intangible assets relates to purchase of aircraft landing slots at airports. Intangible assets are stated at cost less impairment losses.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
3 REVENUE
Group Company 1.4.2005 1.4.2004 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Traffic revenue: Scheduled services - passenger and baggage 6,911,347 8,739,114 6,911,347 8,739,115 - cargo and mail 1,512,959 2,061,320 759,620 813,342 8,424,306 10,800,434 7,670,967 9,552,457 Non-scheduled services 65,899 80,299 65,899 80,299 8,490,205 10,880,733 7,736,866 9,632,756 Other revenue: Lease of aircraft and engines - - 2,985 28,127 Airport handling services 133,561 147,363 133,561 147,363 Insurance surcharge 110,050 175,433 110,050 175,433 Security surcharge 84,685 102,817 - - Unavailed credits 86,484 247,492 86,484 247,492 Catering and cleaning services 10,475 11,014 10,475 10,950 80 Charter services 56,578 138,587 41,234 115,400 Fuel surcharge 793,574 377,643 491,344 146,422 Others* 291,106 300,014 83,155 76,050 10,056,718 12,381,096 8,696,154 10,579,993 Less: Traffic revenue related to domestic operations to PMB (1,205,908) (1,430,214) (1,205,908) (1,430,214) 8,850,810 10,950,882 7,490,246 9,149,779
* Included herein 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 2005 (10601-W) Notes to the Financial Statements 31 December 2005
4. EXPENDITURE
Group Company 1.4.2005 1.4.2004 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Fuel and oil 3,937,084 3,779,209 3,464,166 3,253,678 Staff costs (Note 5) 1,554,334 1,904,782 1,462,548 1,784,274 Handling, enroute charges, catering and other related costs 1,420,352 1,711,558 1,246,456 1,427,788 Hire of aircraft, operating plant and equipment 1,655,133 1,856,154 1,341,525 1,478,646 Aircraft maintenance and overhaul 816,787 905,289 799,091 805,863 Depreciation 240,234 245,273 209,058 210,078 Operating inventories used 192,196 356,885 171,457 330,547 Landing, parking and other related costs 318,356 401,514 293,087 353,190 Sales commission and incentives 542,417 658,351 463,126 556,320 Foreign exchange (gain)/losses: - realised (15,476) (15,731) (15,510) (15,717) - unrealised (2,398) 41 (2,398) 41 Advertising and promotions 144,594 240,605 139,024 231,717 81 Computerised reservation system booking fees 132,367 173,929 132,367 173,929 Rent of land and buildings 115,019 134,244 113,676 132,353 Provision for doubtful debts, net - subsidiaries - - (4,294) - - others 46,014 - 46,236 - Provision for impairment losses on - investment in subsidiaries - - 4,018 - - aircraft spares, property and equipment 33,244 - 33,244 - Provision for inventories obsolescence 68,861 6,617 68,861 6,617 Aircraft spares, property and equipment written off 46,844 11,548 22,535 11,539 Other engineering expenses 29,104 13,317 29,104 13,317 Hull and legal liability insurance 93,809 101,952 93,809 101,952 Provision for forward sales 79,538 - 79,538 - Directors' remuneration (Note 6) 3,348 1,177 3,345 1,174 Auditors’ remuneration - audit fees 671 661 460 460 - other professional fees 410 937 350 455 Others 423,010 269,685 341,487 156,548 11,875,852 12,757,997 10,536,366 11,014,769 Less: Allocation of operational costs related to domestic operations to PMB 1,546,462) (1,711,370) (1,546,462) (1,711,370) 10,329,390 11,046,627 8,989,904 9,303,399
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
5. STAFF COSTS
Group Company 1.4.2005 1.4.2004 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Salaries and wages 944,701 1,130,352 878,621 1,037,039 Employees Provident Fund 110,443 142,158 102,752 132,077 Social security costs 7,050 7,287 6,409 6,606 Short term accumulating compensated absences 36,225 49,636 36,135 49,458 Other staff related expenses 455,915 575,349 438,631 559,094 1,554,334 1,904,782 1,462,548 1,784,274
6. DIRECTORS’ REMUNERATION
Group Company
1.4.2005 1.4.2004 1.4.2005 1.4.2004 82 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Directors of the Company
Executive: Salaries and other emoluments 2,958 639 2,958 639 Benefits-in-kind 1 1 1 1 2,959 640 2,959 640
Non-executive: Fees and other allowances 389 537 386 534
Total 3,348 1,177 3,345 1,174
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
6. DIRECTORS’ REMUNERATION (CONTD.)
The number of directors of the Company whose total remuneration during the period fall within the following bands is as follows: Number of Directors
1.4.2005 1.4.2004 to to 31.12.2005 31.3.2005
Executive directors: RM50,001 to RM100,000 1 - RM150,001 to RM200,000 1 - RM600,001 to RM650,000 - 1 RM1,650,000 to RM1,700,000 1-
Non-executive directors: Below RM50,000 11 14 RM100,001 to RM150,000 - 1 RM150,001 to RM200,000 - 1 RM200,001 to RM250,000 1 -
83
7. OTHER OPERATING INCOME
Group Company 1.4.2005 1.4.2004 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Interest income - third parties 10,148 70,445 9,739 69,953 Gain on disposal of other investments, net 3,246 18 3,246 - Rental income 63,146 84,041 39,836 53,721 Dividend income - subsidiaries - - 2,177 3,619 - associated companies - - 4,477 6,794 - unquoted shares 15,845 1,450 15,845 1,450 Gain on sale of aircraft modifications/ retrofits, property and equipment 10,915 4,178 10,751 3,460 Writeback of impairment losses recognised on other investments, net - 45,481 - 47,652 Writeback of provision for doubtful debts - subsidiaries - - - 5,546 - others - 17,680 - 33,549 Lease rental - 28,045 - 28,045 Others 127,797 162,089 127,259 136,351 231,097 413,427 213,330 390,140
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
8. GAIN ON SALE OF AIRCRAFT
Group and Company 1.4.2005 1.4.2004 to to 31.12.2005 31.3.2005
Share of gain on disposal of aircraft by holding company, PMB - 25,752
In accordance with the Agreement for Aircraft and Finance Agreements Unbundling entered into with PMB, the Company is entitled to 80% share of the gain on disposal of certain aircraft unbundled to PMB as disclosed in Note 27.
9. TAXATION 84 Group Company 1.4.2005 1.4.2004 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Current year’s provision: Malaysian 2,617 2,922 - - Foreign 5,639 9,045 5,639 9,045 8,256 11,967 5,639 9,045 Overprovision in prior years (186) (969) (164) (969) 8,070 10,998 5,475 8,076
Deferred taxation 10,226 22,341 - - Underprovision in prior years 361 366 - - 10,587 22,707 - -
Share of taxation of associated companies 1,354 2,002 - - 20,011 35,707 5,475 8,076
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
9. TAXATION (CONTD.)
There is no provision for Malaysian taxation for the Company in the current financial period as the Company was 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 extention was valid for a period of five years from year of assessment 2001 up to year of assessment 2005. The Company is in the midst of applying for a further extension of its tax exemption status.
As at 31 December 2005, the Company has tax exempt income account of approximately RM9,374,796,000 (31.3.2005: RM9,339,501,000) 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% (31.3.2005: 28%) of the estimated assessable profit for the period/year. Taxation for other jurisdiction is calculated at the rates prevailing in the respective jurisdiction.
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 preferential tax rate of 20% on the first RM500,000 of the estimated assessable profit.
A reconciliation of income tax expense applicable to (loss)/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: 85
1.4.2005 1.4.2004 to to 31.12.2005 31.3.2005 Group RM’000 RM’000
(Loss)/profit before taxation (1,241,177) 364,453
Taxation at Malaysian statutory rate of 28% (2004: 28%) (347,530) 102,047 Tax incentive obtained from preferential tax rate of 20% (80) (80) Foreign income tax 5,639 9,045 Effect of tax exemption status (11,726) (114,455) Income not subject to tax (1,042) (5,206) Expenses not deductible for tax purposes 48,090 62,369 Deferred tax assets not recognised on: - unutilised capital allowances 3,080 387 - other deductible temporary differences 88,480 24 - tax losses 236,600 835 Utilisation of previously unrecognised: - tax losses - (541) - unabsorbed capital allowances (1,675) - - other temporary differences - (18,331) Underprovision of deferred tax in prior years 361 366 Over provision of tax expense in prior years (186) (753) Tax expense for the period/year 20,011 35,707
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
9. TAXATION (CONTD.)
1.4.2005 1.4.2004 to to 31.12.2005 31.3.2005 Company RM’000 RM’000
(Loss)/profit before taxation (1,292,099) 262,179
Taxation at Malaysian statutory rate of 28% (31.3.2005: 28%) (361,788) 73,410 Foreign income tax 5,639 9,045 Effect of tax exemption status (11,725) (114,455) Income not subject to tax (426) (666) Expenses not deductible for tax purposes 47,459 60,042 Deferred tax assets not recognised on: - unutilised capital allowances 1,680 - - other deductible temporary differences 88,480 - - tax losses 236,320 - Utilisation of previously unrecognised deductible temporary differences - (18,331) Over provision of tax in prior years (164) (969) Tax expense for the period/year 5,475 8,076
86 10. BASIC EARNINGS PER SHARE
The basic (loss)/earnings per share is calculated by dividing the net (loss)/profit for the period/year attributable to shareholders by the weighted average number of ordinary shares in issue during the financial period.
Group 1.4.2005 1.4.2004 to to 31.12.2005 31.3.2005
Net (loss)/profit for the period/year attributable to shareholders (RM'000) (1,264,787) 326,079 Weighted average number of ordinary shares in issue ('000) 1,253,244 1,253,244 Basic (loss)/earnings per share (sen) (100.9) 26.0
11. DIVIDENDS
Net dividends per Amount ordinary share 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Final 2.5% tax exempt on 1,253,243,865 ordinary shares, in respect of the financial year ended 31 March 2005,declared on 19 September 2005 (31.3.2004:24 May 2004) and paid on 18 October 2005 (31.3.2004: 12 October 2004) 31,331 31,331 2.5 2.5
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
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 Group RM'000 RM'000 RM'000 RM'000 RM'000
Cost/Valuation At 1 April 2005 1,440,016 1,296,397 1,577,089 151,460 4,464,962 Additions 4,203 202,303 208,137 82,492 497,135 Disposals (8,152) (16,327) (54,449) - (78,928) Transfers 41,377 (113,482) 107,443 (35,338) - Write offs (24,443) (36,556) (12,922) - (73,921) At 31 December 2005 1,453,001 1,332,335 1,825,298 198,614 4,809,248 Representing: At cost 1,269,567 1,332,335 1,825,298 198,614 4,625,814 At valuation 183,434 - - - 183,434 1,453,001 1,332,335 1,825,298 198,614 4,809,248
Accumulated Depreciation and Impairment Losses 87 At 1 April 2005 482,643 686,621 1,241,243 - 2,410,507 Charge for the period 21,737 127,432 91,065 - 240,234 Impairment losses - 33,244 - - 33,244 Disposals (2,876) (15,153) (53,189) - (71,218) Write offs (99) (25,164) (1,814) - (27,077) At 31 December 2005 501,405 806,980 1,277,305 - 2,585,690 Representing: At cost 409,690 806,980 1,277,305 - 2,493,975 At valuation 91,715 - - - 91,715 501,405 806,980 1,277,305 - 2,585,690
Analysed as: Accumulated depreciation 501,405 773,736 1,277,305 - 2,552,446 Accumulated impairment losses - 33,244 - - 33,244 501,405 806,980 1,277,305 - 2,585,690
Net Book Value At 31 December 2005 At cost 859,877 525,355 547,993 198,614 2,131,839 At valuation 91,719 - - - 91,719 951,596 525,355 547,993 198,614 2,223,558 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 Depreciation charge for 31 March 2005 27,858 135,482 81,933 - 245,273
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
12. 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 Company RM'000 RM'000 RM'000 RM'000 RM'000
Cost/Valuation At 1 April 2005 1,116,649 1,296,397 1,139,982 119,015 3,672,043 Additions 4,203 202,303 186,982 49,718 443,206 Disposals (8,152) (16,327) (52,022) - (76,501) Transfers 5,051 (113,482) 107,443 988 - Write offs (134) (36,556) (12,922) - (49,612) At 31 December 2005 1,117,617 1,332,335 1,369,463 169,721 3,989,136 Representing: At cost 934,183 1,332,335 1,369,463 169,721 3,805,702 At valuation 183,434 - - - 183,434 1,117,617 1,332,335 1,369,463 169,721 3,989,136
Accumulated Depreciation 88 and Impairment Losses At 1 April 2005 478,627 686,621 950,316 - 2,115,564 Charge for the period 21,722 127,432 59,904 - 209,058 Impairment losses - 33,244 - - 33,244 Disposals (2,876) (15,153) (51,669) - (69,698) Write offs (99) (25,164) (1,814) - (27,077) At 31 December 2005 497,374 806,980 956,737 - 2,261,091 Representing: At cost 405,659 806,980 956,737 - 2,169,376 At valuation 91,715 - - - 91,715 497,374 806,980 956,737 - 2,261,091
Analysed as: Accumulated depreciation 497,374 773,736 956,737 - 2,227,847 Accumulated impairment losses - 33,244 - - 33,244 497,374 806,980 956,737 - 2,261,091
Net Book Value At 31 December 2005 At cost 528,524 525,355 412,726 169,721 1,636,326 At valuation 91,719 - - - 91,719 620,243 525,355 412,726 169,721 1,728,045 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
Depreciation charge for 31 March 2005 27,837 135,482 46,759 - 210,078
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
12. AIRCRAFT MODIFICATIONS/RETROFITS, PROPERTY AND EQUIPMENT (CONTD.)
(a) Land and Buildings Freehold Leasehold land land Buildings Total Group RM'000 RM'000 RM'000 RM'000
Cost/Valuation At 1 April 2005 8,320 145,440 1,286,256 1,440,016 Additions 3,067 - 1,136 4,203 Disposal - - (8,152) (8,152) Transfers - 1,234 40,143 41,377 Write offs - - (24,443) (24,443) At 31 December 2005 11,387 146,674 1,294,940 1,453,001 Representing: At cost 11,387 92,094 1,166,086 1,269,567 At valuation - 54,580 128,854 183,434 11,387 146,674 1,294,940 1,453,001
Accumulated Depreciation At 1 April 2005 - 12,003 470,640 482,643 Charge for the period - 592 21,145 21,737 Disposal - - (2,876) (2,876) 89 Write offs - - (99) (99) At 31 December 2005 - 12,595 488,810 501,405 Representing: At cost - 291 409,399 409,690 At valuation - 12,304 79,411 91,715 - 12,595 488,810 501,405
Net Book Value At 31 December 2005 At cost 11,387 91,803 756,687 859,877 At valuation - 42,276 49,443 91,719 11,387 134,079 806,130 951,596
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
Depreciation charge for 31 March 2005 - 756 27,102 27,858
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
12. AIRCRAFT MODIFICATIONS/RETROFITS, PROPERTY AND EQUIPMENT (CONTD.)
(a) Land and Buildings (Contd.) Freehold Leasehold land land Buildings Total Company RM'000 RM'000 RM'000 RM'000
Cost/Valuation At 1 April 2005 6,721 71,009 1,038,919 1,116,649 Additions 3,067 - 1,136 4,203 Disposals - - (8,152) (8,152) Transfers - - 5,051 5,051 Write offs - - (134) (134) At 31 December 2005 9,788 71,009 1,036,820 1,117,617 Representing: At cost 9,788 16,429 907,966 934,183 At valuation - 54,580 128,854 183,434 9,788 71,009 1,036,820 1,117,617
Accumulated Depreciation At 1 April 2005 - 12,003 466,624 478,627 Charge for the period - 577 21,145 21,722 90 Disposals - - (2,876) (2,876) Write offs - - (99) (99) At 31 December 2005 - 12,580 484,794 497,374 Representing: At cost - 276 405,383 405,659 At valuation - 12,304 79,411 91,715 - 12,580 484,794 497,374
Net Book Value At 31 December 2005 At cost 9,788 16,153 502,583 528,524 At valuation - 42,276 49,443 91,719 9,788 58,429 552,026 620,243 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
Depreciation charge for 31 March 2005 - 756 27,081 27,837
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
12. AIRCRAFT MODIFICATIONS/RETROFITS, PROPERTY AND EQUIPMENT (CONTD.)
(a) Land and Buildings (Contd.)
Certain buildings of the Group and of the Company have been constructed on Federal and State Government and for which the lease arrangements are being formalised.
Included in the leasehold land and building is a parcel of land costing approximately RM22,126,000 (31.3.2005: RM44,031,000) whereby the transfer of land title is pending the approval of the relevant authorities.
Leasehold land include a parcel of land with unexpired period of less than 50 years with a net book value of RM668,000 (31.3.2005 : RM682,000).
(b) Aircraft Modifications/retrofits, Engines and Spares
Aircraft modifications Aircraft and Spare retrofits engines and spares Total Group and Company RM'000 RM'000 RM'000
Cost At 1 April 2005 408,210 888,187 1,296,397 91 Additions 65,284 137,019 202,303 Disposal (16,327) - (16,327) Transfers 5,045 (118,527) (113,482) Write offs - (36,556) (36,556) At 31 December 2005 462,212 870,123 1,332,335
Accumulated Depreciation and Impairment Losses At 1 April 2005 138,213 548,408 686,621 Charge for the period 93,248 34,184 127,432 Disposal (15,153) - (15,153) Write offs - (25,164) (25,164) Impairment losses - 33,244 33,244 At 31 December 2005 216,308 590,672 806,980
Analysed as: Accumulated depreciation 216,308 557,428 773,736 Accumulated impairment losses - 33,244 33,244 216,308 590,672 806,980
Net Book Value At 31 December 2005 245,904 279,451 525,355
At 31 March 2005 269,997 339,779 609,776
Depreciation charge for 31 March 2005 84,709 50,773 135,482
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
12. 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 2005 1,073,568 434,355 69,166 1,577,089 Additions 188,097 18,529 1,511 208,137 Disposals (48,970) (1,007) (4,472) (54,449) Transfers 103,911 2,684 848 107,443 Write offs (12,217) (705) - (12,922) At 31 December 2005 1,304,389 453,856 67,053 1,825,298
Accumulated Depreciation At 1 April 2005 808,391 369,451 63,401 1,241,243 Charge for the period 61,158 27,379 2,528 91,065 Disposals (48,002) (1,003) (4,184) (53,189) 92 Write offs (1,247) (567) - (1,814) At 31 December 2005 820,300 395,260 61,745 1,277,305
Net Book Value At 31 December 2005 484,089 58,596 5,308 547,993
At 31 March 2005 265,177 64,904 5,765 335,846
Depreciation charge for 31 March 2005 53,103 24,455 4,375 81,933
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
12. 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 2005 734,646 344,072 61,264 1,139,982 Additions 172,835 13,359 788 186,982 Disposals (48,038) (62) (3,922) (52,022) Transfers 103,911 2,684 848 107,443 Write offs (12,217) (705) - (12,922) At 31 December 2005 951,137 359,348 58,978 1,369,463
Accumulated Depreciation At 1 April 2005 602,816 289,877 57,623 950,316 Charge for the period 37,381 20,709 1,814 59,904 Disposals (47,838) (59) (3,772) (51,669) 93 Write offs (1,247) (567) - (1,814) At 31 December 2005 591,112 309,960 55,665 956,737
Net Book Value At 31 December 2005 360,025 49,388 3,313 412,726
At 31 March 2005 131,830 54,195 3,641 189,666
Depreciation charge for 31 March 2005 22,282 20,852 3,625 46,759
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
12. AIRCRAFT MODIFICATIONS/RETROFITS, PROPERTY AND EQUIPMENT (CONTD.)
(d) Progress Payments
Aircraft equipment Properties and under simulators construction Total Group RM'000 RM'000 RM'000
Cost At 1 April 2005 90,149 61,311 151,460 Additions 37,031 45,461 82,492 Transfers 10,413 (45,751) (35,338) At 31 December 2005 137,593 61,021 198,614
Company
Cost At 1 April 2005 113,554 5,461 119,015 Additions 37,031 12,687 49,718 Transfers 10,413 (9,425) 988 94 At 31 December 2005 160,998 8,723 169,721
(e) Had the revalued land and buildings been carried at historical cost less accumulated depreciation, the net book value of those land and buildings would have been as follows:
Group and Company 31.12.2005 31.3.2005 RM'000 RM'000
Leasehold land 2,006 2,038 Buildings 35,626 36,314
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
13 INVESTMENTS
The investments of the Group and of the Company are as follows:
Group Company 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Investment in subsidiaries (Note a) - - 42,547 46,565 Investment in associated companies (Note b) 53,133 46,845 81,274 81,274 Other investments (Note c) 119,568 147,831 119,568 143,831 172,701 194,676 243,389 271,670
(a) Investment in subsidiaries
Unquoted shares, at cost - - 180,698 180,698 Less: Accumulated impairment losses - - (138,151) (134,133) - - 42,547 46,565
The list of subsidiaries is disclosed in Note 29. 95
(b) Investment in associated companies
Unquoted shares, at cost 124,919 124,919 124,919 124,919 Less: Accumulated impairment losses - - (43,645) (43,645) 124,919 124,919 81,274 81,274 Group's share of post acquisition reserves and retained profits less losses (71,786) (78,074) -- 53,133 46,845 81,274 81,274
Represented by: Share of net assets 25,846 19,558 Share of intangible assets 26,232 26,232 52,078 45,790 Goodwill on acquisition 1,055 1,055 53,133 46,845
The list of associated companies is disclosed in Note 30.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
13 INVESTMENTS (CONTD.)
The investments of the Group and of the Company are as follows:
Group Company 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
(c) Other investments
Quoted shares, at cost: - outside Malaysia 1,377 1,377 1,377 1,377
US Government Treasury Strips - 15,682 - 15,682
Unquoted shares, at cost: - in Malaysia 74,851 88,803 74,851 84,803 - outside Malaysia 43,191 41,786 43,191 41,786 118,042 130,589 118,042 126,589 Other Government and Municipal Bonds 79 113 79 113 96 Others 70 70 70 70 118,191 130,772 118,191 126,772
Total 119,568 147,831 119,568 143,831
Market value of quoted shares: - outside Malaysia 25,562 30,946 25,562 30,946
In prior year, the US Government Treasury Strips were pledged as substituted collateral for certain contingent liabilities as disclosed in Note 26.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
14 DUE FROM SUBSIDIARIES
Company 31.12.2005 31.3.2005 RM'000 RM'000
Due from subsidiaries 516,702 512,302 Less: Provision for doubtful debts (243,062) (247,356) 273,640 264,946
The amounts due from subsidiaries are unsecured, interest free and have no fixed terms of repayment.
15 INVENTORIES
Group Company 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000 At cost: Catering and general stores 12,480 9,116 3,118 2,737 Consumable aircraft spares 9,154 9,331 9,154 9,331 21,634 18,447 12,272 12,068 At net realisable value: 97
Catering and general stores 81,256 74,788 81,256 74,788 Consumable aircraft spares 351,830 352,803 351,830 352,803 433,086 427,591 433,086 427,591
454,720 446,038 445,358 439,659
16 RECEIVABLES
Group Company 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Trade receivables 1,699,189 1,504,776 1,658,039 1,466,505 Less: Provision for doubtful debts (465,904) (491,424) (432,792) (458,088) 1,233,285 1,013,352 1,225,247 1,008,417
Due from holding company (Note a) - 445,483 - 445,483 Due from fellow subsidiary (Note b) 51,611 43,168 51,611 43,168 Due from associated companies 19,145 2,644 19,145 2,644 Security deposits 94,557 87,975 93,880 87,317 Prepayments 151,085 71,290 150,507 70,598 Tax recoverable 69,717 61,014 41,453 32,075 Sundry receivables 211,738 164,209 198,218 152,077 Less: Provision for doubtful debts (1,630) (1,630) - - 596,223 874,153 554,814 833,362
1,829,508 1,887,505 1,780,061 1,841,779
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
16 RECEIVABLES (CONTD.)
(a) The amount due from holding company was unsecured and had no fixed term of repayment.
Included in the amount due from holding company of the Group and the Company in prior year were the following :
(i) an amount of RM353,290,000 in respect of payment made on behalf of the holding company for the purchase of aircraft; and
(ii) an amount of RM92,193,000 which bore interest as at the balance sheet date at 3.55% per annum
(b) Due from a fellow subsidiary
Group and Company
31.12.2005 31.3.2005 RM'000 RM'000
Due within one year 51,611 43,168 Due after one year 351,815 395,819 403,426 438,987
98 The amount due from a fellow subsidiary represents prepaid lease rentals.
(c) The Group's normal trade credit term ranges from 14 to 60 (31.3.05 : 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 Company
31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
United States Dollar 468,090 778,132 467,795 778,132 Euro 106,087 60,365 106,087 60,365 Great Britain Pound 155,070 71,743 155,070 71,743 Japanese Yen 59,616 48,474 59,616 48,474 Singapore Dollar 9,455 5,479 9,455 5,479 Australian Dollar 55,520 65,367 55,520 65,367
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
17. CASH AND BANK BALANCES Group Company
31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Cash and bank balance 173,846 236,999 167,775 230,880 Term deposits with: - Licensed banks 461,020 931,325 433,000 909,000 - Licensed finance companies - 82,525 - 81,000 - Other financial institutions 544,543 943,729 544,543 943,729 1,179,409 2,194,578 1,145,318 2,164,609
The average effective interest rates of the deposits at the balance sheet date were as follows:
Group Company
31.12.2005 31.3.2005 31.12.2005 31.3.2005 %% %%
Licensed banks 1.48 - 3.70 1.75 - 6.50 2.78 - 3.70 1.75 - 6.50 Licensed finance companies - 2.75 - 3.00 - 2.75 - 3.00 Other financial institutions 2.75 - 3.10 2.62 - 3.10 2.75 - 3.10 2.62 - 3.10 99
The average maturities of the deposits as at the end of the financial period were as follows:
Group Company
31.12.2005 31.3.2005 31.12.2005 31.3.2005 Days Days Days Days
Licensed banks 3 - 365 1 - 365 3 - 82 1 - 365 Licensed finance companies - 89 - 365 - 89 - 94 Other financial institutions 3 - 62 1 - 365 3 - 62 1 - 365
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
31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
United States Dollar 175,866 69,632 175,206 69,632 Euro 34,358 84,228 34,358 84,228 Great Britain Pound 28,219 106,809 28,219 106,809 Japanese Yen 14,993 15,013 14,993 15,013 Singapore Dollar 1,320 1,744 1,301 1,732 Australian Dollar 5,499 68,656 5,499 68,656
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
18. DUE TO SUBSIDIARIES
The amounts are unsecured, interest free and have no fixed terms of repayment.
19. PAYABLES Group Company
31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Trade payables 1,871,281 1,857,106 1,663,593 1,551,773 Due to holding company 81,475 - 81,475 - Due to associated companies 44,982 31,096 44,982 31,096 Other payables 479,817 206,866 422,105 150,763 Accruals 337,553 427,182 330,509 415,787 2,815,108 2,522,250 2,542,664 2,149,419
The normal trade credit term granted to the Group ranges from 30 to 60 (31.3.05 : 30 to 60) days.
The amount due to holding company is unsecured, has no fixed term of repayment and is interest free. 100 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
31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
United States Dollar 277,266 165,497 276,468 164,461 Euro 75,222 20,794 75,113 20,720 Great Britain Pound 1,158 10,605 1,128 10,605 Singapore Dollar 2,814 5,091 2,811 5,067 Australian Dollar 3,982 20,737 3,965 20,729
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
20. SHARE CAPITAL
Group Company
31.12.2005 31.3.2005 31.12.2005 31.3.2005 Group and Company RM'000 RM'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 101 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.
(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.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
20. SHARE CAPITAL (CONTD.)
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 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 report, 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 102 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.
21. GENERAL RESERVES - DISTRIBUTABLE
The general reserve relates to transfer made from retained profits in prior years.
22. DEFERRED TAXATION
Group
31.12.2005 31.3.2005 RM'000 RM'000
At 1 April 2005/2004 (102,263) (124,970) Recognised in the income statement (Note 9) 10,587 22,707 At 31 December/31 March 2005 (91,676) (102,263)
Presented after appropriate offsetting as follows: Deferred tax assets (92,503) (103,219) Deferred tax liabilities 827 956 (91,676) (102,263)
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
22. DEFERRED TAXATION (CONTD.)
The components and movements of deferred tax liabilities and assets during the financial period prior to offsetting are as follows: Deferred tax liabilities of the Group
Accelerated Capital Allowance Others Total RM'000 RM'000 RM'000
At 1 April 2005 30,251 - 30,251 Recognised in the income statement (5,454) - (5,454) At 31 December 2005 24,797 - 24,797
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
Deferred tax assets of the Group:
Tax Losses and Unabsorbed Capital 103 Allowances Provisions Others Total RM'000 RM'000 RM'000 RM'000
At 1 April 2005 (131,466) (711) (337) (132,514) Recognised in the income statement 15,932 299 (190) 16,041 At 31 December 2005 (115,534) (412) (527) (116,473)
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)
Deferred tax assets have not been recognised in respect of the following items:
Group Company
31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Unused tax losses 856,000 11,000 844,000 - Unabsorbed capital allowances 991,000 980,000 941,000 935,000 Other deductible temporary differences 658,000 342,000 658,000 342,000 2,505,000 1,333,000 2,443,000 1,277,000
The unutilised tax losses and unabsorbed capital allowances are available indefinitely for offset against future taxable profits of the companies 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 2005 (10601-W) Notes to the Financial Statements 31 December 2005
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 passenger (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.
Airline Cargo 31 December 2005 operations Services Others Elimination Consolidated RM'000 RM'000 RM'000 RM'000 RM'000
REVENUE AND EXPENSES 104 Revenue External sales 6,723,584 2,040,416 86,810 - 8,850,810 Inter-segment sales 766,662 - 21,972 (788,634) - Total revenue 7,490,246 2,040,416 108,782 (788,634) 8,850,810
Result Segment results (1,292,099) 31,106 14,628 (6,931) (1,253,296) Share of results of associated companies 12,119 Loss before taxation (1,241,177) Taxation (5,475) (9,211) (5,325) - (20,011) Loss after taxation (1,261,188) Minority interests (3,599) Net loss for the period (1,264,787)
ASSETS AND LIABILITIES Segment assets 5,939,807 222,902 387,326 (273,640) 6,276,395 Investment in associated companies - - 53,133 - 53,133 Consolidated total assets 6,329,528
Segment and consolidated liabilities 4,050,535 341,249 46,860 (144,882) 4,293,762
OTHER INFORMATION Capital expenditure 443,20 10,675 43,254 - 497,135 Depreciation 209,058 23,629 7,547 - 240,234
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
23. SEGMENTAL INFORMATION (CONTD.)
(a) Business Segments (Contd.) Airline Cargo 31 March 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 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 326,079 105 ASSETS AND LIABILITIES Segment assets 6,888,116 244,310 361,965 (264,946) 7,229,445 Investment in associated companies 46,845 - 46,845 Consolidated total assets 7,276,290
Segment and consolidated liabilities 3,663,651 384,552 47,199 (148,550) 3,946,852
OTHER INFORMATION Capital expenditure 537,944 13,026 127,818 - 678,788 Depreciation 210,078 30,415 4,780 - 245,273
(b) Geographical segments
31.12.2005 31.3.2005 RM'000 RM'000 Revenue Orient and North America 2,318,233 2,628,821 Europe and Middle East 3,025,850 3,899,108 Australia and New Zealand 1,383,487 1,740,107 Asia 1,405,038 1,656,410 Africa and South America 217,817 275,729 8,350,425 10,200,175 Other revenue 500,385 750,707 8,850,810 10,950,882
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 2005 (10601-W) Notes to the Financial Statements 31 December 2005
24. SIGNIFICANT RELATED PARTY TRANSACTIONS Group Company
1.4.2005 1.4.2005 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Expenses
Expenses charged by subsidiaries: - Handling and cleaning services - - 2,950 2,776 - Inflight meals - - 11,536 14,928 - Other inflight services - - 7,488 8,563 - Trucking, clearance and warehousing services - - 4,230 7,389 Engine maintenance services rendered by an associated company,GE Engine Services Malaysia Sdn. Bhd. ("GEESM") 433,374 399,236 433,374 399,236 Purchase of aircraft spares and equipment from GEESM 55,102 93,224 55,102 93,224 Catering services paid to an associated company, 106 Taj Madras Flight Kitchen Limited 1,546 2,196 1,546 2,196 Transit and cabin services paid to an associated company, Pan Asia Pacific Aviation Services Limited 4,571 5,545 4,571 5,545 Purchase of meals and beverages from an associated company, LSG Sky Chefs-Brahim's Sdn. Bhd. ("LSG") 168,402 265,719 167,780 264,852 Catering services paid to Evergreen Sky Catering Corporation, a company in which the Company has substantial shareholding 7,350 9,048 7,350 9,048 Catering services paid to Miascor Catering Services, a company in which the Company has substantial shareholding 908 1,207 908 1,207 Computer reservation system access fee paid to Abacus International Holding Limited, a company in which the Company has substantial shareholding 38,144 58,491 38,144 58,491 Aircraft maintenance services paid to an associated company, Honeywell Aerospace Services (M) Sdn.Bhd. ("Honeywell") 4,347 6,856 4,347 6,856 Aircraft maintenance services paid to an associated company, Hamilton Sunstrand Customer Support Centre (M) Sdn. Bhd. ("Hamilton") 5,952 13,816 5,952 13,816
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
24. SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTD.)
Group Company
1.4.2005 1.4.2005 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
Income
Dividend received from: - subsidiaries - - 2,177 3,619 - associated companies - - 5,659 6,794 Income received from subsidiaries: - hire of belly space - - 763,677 819,329 - hire of aircrafts - - 2,985 28,127 - handling and cleaning services - - 2,681 2,888 - commission - - 1,390 2,678 Disposal of aircraft, property and equipment - Honeywell 60 -60- - Hamilton 1,083 - 1,083 - Staff charges from GEESM 4,537 - 4,537 - Rental income received from an 107 associated company, GEESM 11,318 15,092 11,318 15,092 Laundry and cleaning services to LSG 872 1,064 - - Shared services billed to LSG 15,843 47,791 15,843 47,791
Transactions with holding company and its fellow subsidiaries
Expenses
Hire of aircraft paid to PMB 351,978 362,557 351,978 362,557 Lease rental paid to Aircraft Business Malaysia Sdn. Bhd. 194,916 238,178 194,916 238,178 Rental paid to Asset Global Network Sdn. Bhd. 53,556 71,410 53,556 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 2005 (10601-W) Notes to the Financial Statements 31 December 2005
25. COMMITMENTS
Group Company
1.4.2005 1.4.2005 1.4.2005 1.4.2004 to to to to 31.12.2005 31.3.2005 31.12.2005 31.3.2005 RM'000 RM'000 RM'000 RM'000
(a) Capital commitments: Due within one year - approved and contracted for 693,216 592,300 687,362 519,600 - approved but not contracted for 2,327 347,700 2,145 332,700 695,543 940,000 689,507 852,300
Due within two to five years - approved and contracted for 189,014 507,100 189,014 437,100 - approved but not contracted for 129,188 249,600 34,188 154,600 318,202 756,700 223,202 591,700
Total capital commitments - approved and contracted for 882,230 1,099,400 876,376 956,700 - approved but not contracted for 131,515 597,300 36,333 487,300 108 1,013,745 1,696,700 912,709 1,444,000
(b) Forward contracts: Fuel contracts Due within one year 3,258,337 4,320,629 3,258,337 4,320,629 Due between one and two years 552,665 1,331,008 552,665 1,331,008 3,811,002 5,651,637 3,811,002 5,651,637
Foreign currency contracts - Due within 1 year 312,931 6,114 312,931 6,114 4,123,933 5,657,751 4,123,933 5,657,751
(c) Operating lease commitments: Due within one year 1,335,943 1,259,577 1,008,558 1,053,252 Due between one and two years 1,184,220 996,971 927,720 996,496 Due between two and five years 2,463,701 1,734,706 2,463,701 1,734,706 Due after five years 1,514,271 3,057,540 1,514,271 3,057,540 6,498,135 7,048,794 5,914,250 6,841,994
The outstanding capital commitments relate to aircraft interior reconfiguration, upgrade of inflight entertainment system and other capital expenditure projects.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
26. CONTINGENT LIABILITIES
Group and Company 1.4.2005 1.4.2004 to to 31.12.2005 31.3.2005 RM'000 RM'000
Guarantees (Unsecured) Corporate guarantees given to third parties in respect of credit facilities provided to an associated company 5,534 5,503 Bank guarantee given to third parties in respect of services provided to the Group and Company 120,946 123,419 Performance bonds given to third parties in respect of training of technical crew 518 640 126,998 129,562
Liabilities assumed by the holding company Loans - secured 597,478 798,799 - unsecured 121,642 141,419 Lease payables (secured) 1,495,128 1,888,994 2,214,248 2,829,212 109 2,341,246 2,958,774
In connection with the Widespread Asset Unbundling ("WAU") exercise undertaken by the Company in 2002, 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 194,047 412,306 606,353 Between one and two years 165,967 287,323 453,290 Between two and five years 306,625 579,560 886,185 After five years 52,481 215,939 268,420 719,120 1,495,128 2,214,248
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
26. CONTINGENT LIABILITIES (CONTD.)
As at 31 December 2005, the Company has lease obligations amounting to RM1,190,548,000 (31.3.2005: RM1,514,872,000) which are covered by interest bearing funds amounting to RM905,999,000 (31.3.2005: RM1,213,459,000) 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 (31.3.2005: 111) aircraft and 36 (31.3.2005: 36) engines under operating leases. Of these, 17 (31.3.2005: 27) aircraft relate to the borrowings assumed by the holding company which are included the Group's and the Company's contingent liabilities.
The directors are of the opinion that the holding company, being a wholly owned subsidiary of KNB, 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 RM55,000,000) against the Company for alleged wrongful termination of General Sales Agency Agreement in Dakar, 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 RM11,900,000) for breach of agency. Similarly, in 2001 Shahjalal Aviation Systems Ltd. ("Shahjalal") filed a claim for TK2,670,000,000 (approximately RM178,000,000) against the Company for alledged wrongful termination of General Sales Agency Agreement in Dakar, Bangladesh. The Company has filed a 110 defence to Shahjalal's claims, and at the same time filed a counter claim amounting to TK87,835,000 (approximately RM6,000,000) for breach of agency agreement. Hearing for these two cases continues in Dhaka. 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, as well as RM225,599,000 as special damages, was served on the Company on 2 July 2004 as the fourth defendant in the High Court by the plaintiff, Advent Group Management Sdn. Bhd.. The directors are of the opinion that the suit filed against the Company is without merit. The Company is taking steps to strike out the claim.
On 16 September 2004, the Company received a notice that Advanced Cargo Logistic GmBH had initiated proceeding against the Company at the ICC (International Chamber of Commerce) International Court of Arbitration in Paris, France seeking a claim of Euro 62.6 million (approximately RM300.0 million) for breach of cargo handling services agreement. The Company is contesting the claim and a Witnesses Hearing is scheduled in June 2006.
In June 2005 a claim was served on the Company and its wholly-owned subsidiary, MASKargo, by Securiforce Sdn.Bhd. and Securiforce Hi-Tech Cargo Sdn. Bhd. seeking among others RM4,944,358 as special damages and RM250,000,000 as general damages. The Company and MASKargo are contesting the claim.
27. CONTINGENT ASSETS
As mentioned in the previous year 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 as at 31 December 2005 is RM759,831,000 (31.3.2005: RM747,536,000).
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
28. 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 mitigate 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 the 12 months and up to 50% of the volume for the tenure of such contract 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 short term deposits and interest bearing financial assets and liabilities and 111 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 2005 (10601-W) Notes to the Financial Statements 31 December 2005
28. 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 December 2005, the Group owned quoted investments amounting to RM1,377,000 (31.3.2005: RM1,377,000), and the estimated market value of these quoted investments was RM25,562,000 (31.3.2005: RM30,946,000).
The market risk associated with quoted investments is the potential loss resulting from a decrease in 112 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 Note amount Value amount Value RM'000 RM'000 RM'000 RM'000
Financial Assets
- 31 December 2005 13(c) 1,377 25,562 1,377 25,562 - 31 March 2005 13(c) 1,377 30,946 1,377 30,946
The carrying amounts of all other financial assets and liabilities as at 31 December 2005 are not materially different from their fair values due to the relatively short term maturity of these financial instruments.
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
28. FINANCIAL INSTRUMENTS (CONTD.)
(h) Fair Values (Contd.)
The nominal/notional amount and net fair value of financial instruments not recognised in the balance sheet as at 31 December 2005 and 31 March 2005 are:
Group and Company
Carrying Fair Note amount Value RM'000 RM'000
Contingent asset
- 31 December 2005 27 - 759,831 - 31 March 2005 27 - 747,536
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. 113
As at 31 December 2005, the Group and the Company have entered into various fuel hedging transactions from 1 January 2006 to 31 December 2007 in several lots totalling 13,635,000 (31.3.2005: 5,445,000) barrels. The cumulative estimated proceeds from hedging of marked to market value on the existing fuel hedging position (from 1 January 2006 to 31 December 2007) stands at RM350,707,890 (31.3.2005: RM240,471,000).
As at 31 December 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
1.4.2005 1.4.2004 to to 31.12.2005 31.3.2005 RM'000 RM'000
More than 1 year and less than 5 years 5,016,790 190,000 5 years or more 188,975 114,000 5,205,765 304,000
The fixed interest rates relating to interest rate forward contract at the balance sheet date vary from 4.0% to 5.0% (31.3.2005: 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 2005 (10601-W) Notes to the Financial Statements 31 December 2005
29. SUBSIDIARIES
The subsidiaries, all of which are incorporated in Malaysia, are:
Effective Interest
Name of Company 31.12.2005 31.3.2005 Principal Activities %%
Abacus Distribution Systems 80 80 Promotion, development, operation and (Malaysia) Sdn. Bhd. marketing of computerised reservations systems and related services
Aerokleen Services Sdn. Bhd. 51 51 Provision of laundry and cleaning services
Malaysia Airlines Cargo Sdn. Bhd. 100 100 Air cargo operations, charter freighter and all warehousing activities relating to air cargo operations
MAS Catering (Sarawak) Sdn. Bhd. 60 60 Provision of catering and cabin handling services
MAS Golden Boutiques Sdn. Bhd. 100 100 Retailing of inflight goods and boutique operations
MAS Golden Holidays Sdn. Bhd. 100 100 Tour and travel related operations 114 MAS Hotel & Boutiques Sdn. Bhd. 100 100 Provision of hotel and boutique facilities
MasKargo Logistics Sdn. Bhd. 100 100 Provision of trucking, clearance and (formerly known as Pengangkutan warehousing services Kargo Udara MAS Sdn. Bhd.)
Syarikat Pengangkutan Senai Sdn. Bhd 100 100 Provision of coach transportation services
Malaysia Airlines Capital (L) Limited 100 100 Investment holding
Tiara Malaysia Airlines Sdn. Bhd. 100 100 Struck off from the register of the Companies Commission of Malaysia on 5 January 2006
MAS Aerotechnologies Sdn. Bhd. 100 100 Ceased operations
Macnet CCN (M) Sdn. Bhd. 56.7 56.7 Ceased operations
Aircraft Engine Repair and 100 100 Dormant 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 Struck off from the register of the Companies Commission of Malaysia on 5 January 2006
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
30 ASSOCIATED COMPANIES
The details of the associated companies are:
Effective Interest
Name of Companies Country of 31.12.2005 31.3.2005 Principal Activities (Financial year end) Incorporation % %
Hamilton Sunstrand Customer Malaysia 49 49 Repair and overhaul of selected Support Centre (M) Sdn. Bhd. aircraft environmental control [31 December] systems, aircraft pneumatic components and propeller system
LSG Sky Chefs-Brahim's Sdn. Bhd. Malaysia 30 30 Catering related services, cabin [31 December] handling and cleaning services
Pan Asia Pacific Aviation Services Hong Kong 23.5 23.5 Provision of aircraft Limited maintenance services [31 March]
115 GE Engine Services Malaysia 30 30 Repair and overhaul of aircraft Malaysia Sdn. Bhd. engine [31 December]
Aerofine Meat Sdn. Bhd. Malaysia 49 49 Ceased operations [31 March]
Asian Frequent Flyer Pte. Ltd. Singapore 33.3 33.3 Ceased operations and under [31 December] members’ voluntary liquidation
Honeywell Aerospace Services Malaysia 30 30 Repairing, servicing, overhauling (M) Sdn. Bhd. and testing of aircraft auxiliary [31December] power units
Taj Madras Flight Kitchen India 20 20 Inflight catering of food Limited and beverages [31 March]
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Notes to the Financial Statements 31 December 2005
31. CURRENCY
All amounts are stated in Ringgit Malaysia, unless otherwise stated.
32. COMPARATIVES
The Group and the Company changed their financial year end from 31 March to 31 December so as to be coterminous with the year-end of that of their ultimate holding company. Accordingly, the current financial period covers a 9-month period from 1 April 2005 to 31 December 2005 with comparatives covering a 12-month period from 1 April 2004 to 31 March 2005. The comparatives amounts for the income statements, statements of changes in equity, cash flow statements and the related notes are not in respect of comparable periods.
The following balance sheet comparative figures have been reclassified to conform with current year's presentation:
As As previously reclassified reported RM’000 RM’000
116 Group
Receivables 1,887,505 2,005,977 Sales in advance of carriage 1,400,604 1,487,752 Payables 2,522,250 2,553,574
Company
Receivables 1,841,779 1,960,251 Sales in advance of carriage 1,400,604 1,487,752 Payables 2,149,419 2,180,743
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statistics on Shareholdings
STATEMENT OF SHAREHOLDINGS AS AT 28 APRIL, 2006
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 1 (one) 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 100 115 1.02 1,851 0.00 100 to 1,000 5,193 46.12 5,049,556 0.40 1,001 to 10,000 5,267 46.77 18,831,599 1.50 10,001 to 100,000 554 4.92 15,481,437 1.24 100,001 to less than 5% of issued shares 128 1.14 135,254,565 10.79 5% and above of issued shares 3 0.03 1,078,624,857 86.07
TOTAL 11,260 100.00 1,253,243,865 100.00 117
B. List of Thirty Largest Shareholders
No. Name No of shares %
1 Penerbangan Malaysia Berhad 868,957,232 69.34 2 Employees Provident Fund Board 138,369,325 11.04 3 Amanah Raya Nominees (Tempatan) Sdn Bhd 71,298,300 5.69 < Skim Amanah Saham Bumiputera> 4 State Financial Secretary Sarawak 34,000,000 2.71 5 Warisan Harta Sabah Sdn Bhd 30,042,000 2.40 6 Cartaban Nominees (Tempatan) Sdn Bhd 5,983,700 0.48
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statistics on Shareholdings
B. List of Thirty Largest Shareholders
No. Name No of shares %
15 Bank Simpanan Nasional 1,597,000 0.13 16 Bank Simpanan Nasional 1,597,000 0.13 17 Bank Simpanan Nasional 1,597,000 0.13 18 AllianceGroup Nominees (Tempatan) Sdn Bhd 1,504,100 0.12
C. List of Substantial Shareholders (5% and Above) (as shown in the register of substantial shareholders)
No. Name No of shares % Direct Indirect
1 Penerbangan Malaysia Berhad 868,957,232 - 69.34 2 Employees Provident Fund Board 150,319,525 - 12.00 Employees Provident Fund Board 138,369,325 - 1.04 Cartaban Nominees (Tempatan) Sdn Bhd 5,983,700 - 0.48 Cimsec Nominees (Tempatan) Sdn Bhd 744,500 - 0.06 Alliancegroup Nominees (Tempatan) Sdn Bhd 1,504,100 - 0.12 HSBC Nominees (Tempatan) Sdn Bhd 1,195,400 - 0.10 RHB Nominees (Tempatan) Sdn Bhd - pledged account for KWSP 2,522,500 - 0.20 3 Amanah Raya Nominees (Tempatan) Sdn Bhd 71,298,300 - 5.69
Malaysian Airline System Berhad Annual Report 2005 (10601-W) Statistics on Shareholdings
D. List of Directors’ Shareholdings (as shown in the register of directors’ shareholding)
No. Name No of shares % Direct Indirect
1 Dato’ Dr. Mohd Munir bin Abdul Majid - - 0.00 2 Dato’ N. Sadasivan a/l N.N. Pillay - - 0.00 3 Iris Jala @ Idris Jala - - 0.00 4 Dato’ Sri Izzuddin bin Dali - - 0.00 5 Keong Choon Keat - - 0.00 6 Dato’ Mohamed Azman bin Yahya - - 0.00 7 Martin Gilbert Barrow - - 0.00 8 Dato’ Mohd. Annuar bin Zaini - - 0.00 9 Dato’ Zaharaah binti Shaari - - 0.00 10 Tengku Azmil Zahruddin bin Raja Abdul Aziz - - 0.00 11 Datuk Amar Haji Abdul Aziz bin Haji Husain - - 0.00 12 Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim - - 0.00 13 Datu Haji Salleh bin Haji Sulaiman - - 0.00 (Alternate Director to Datuk Amar Haji Abdul Aziz bin Haji Husain) 119 14 Abdul Rahman bin Abdul Ghani - - 0.00 (Alternate Director to Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim)
Malaysian Airline System Berhad Annual Report 2005 (10601-W) List of Company Properties as at 31 December 2005
Location Description Tenure Approx.area Approx.age Net book Net book value in sq feet (years) value as at as 31.12.2005 31.12.2005 (RM) (RM'000) 1 Federal 35 storey office building MAS, Leasehold Land - 75,036 21 41,215 41,215,497 Territory of Lot 1194, Section 57, Jalan 99 years Built-up - 679,994 39,942 39,942,362 Kuala Lumpur Sultan Ismail, 50250 expiring Kuala Lumpur 07 Feb 2081
2 Federal Residential building Leasehold Land - 3,440 21 131 131,534 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 35 office and workshop buildings Occupation Land - 4,617,360 7-34 297,314 297,314,477 Selangor forming MAS office complex of federal Built up - 2,284,309 at Sultan Abdul Aziz Shah land pending Airport, 47200 Subang formalisation and 1 Pedestrian Bridge of a lease
Industrial land at PT Leasehold 99 Land - 10.972 acres 2 16,152 16,152,162 44562 Mkm Sg Buloh years 47200 Subang, expiring Selangor 29 Jan 2102
Computer center, hostel and Freehold Land - 358,869 12 99,210 99,210,014 training school at No 2 Jalan Built up - 732,010 120 SS7/13,Kelana Jaya, 47301 Petaling Jaya
4 State of 13 shoplots Units Leasehold 99 Built up - 8,690 29 1,276 1,275,968 Penang A1.04-A1.07 & A1.11-A1.14; years level 1 A4.05-A4.08 & B114.03 expiring 2075 level 4, Kompleks KOMTAR, Penang Road, George Town, 10000 Penang
Residential building Freehold Land - 6,234 25 124 123,716 No 3 Changkat Minden Built up - 3,085 Lorong 8, 11700 Penang
8 buildings at Penang Yearly Built up - 331,154 26 31,092 31,092,477 International Airport, tenancy 11900 Bayan Lepas, Penang
5 State of 4 shoplots Freehold Built up - 4,102 25 451 451,206 Perak Lot G-01 and 1-06,1-07 & 1-08, Bangunan Sri Kinta, Jalan Sultan Idris Shah, 30000 Ipoh
6 State of Vacant land Leasehold Land - 52,816 25 43 43,119 Pahang Lot 51, Taman Bukit 60 years Kayangan, 49000, expiring Bukit Fraser, Pahang 04 Dec 2041
2 units condominium Leasehold 99 Built up - 5,226 20 145 144,722 K67 & B16 Pine Resort, years 154 154,079 49000 Bukit Fraser, expiring Pahang 23 May 2082
Residential building Freehold Land - 4,400 21 89 89,427 No 4, Lorong 49, Taman Tas Built up - 2,286 Makhota, Bukit Sekilau, 25200 Kuantan Malaysian Airline System Berhad Annual Report 2005 (10601-W) List of Company Properties as at 31 December 2005
Location Description Tenure Approx.area Approx.age Net book Net book value in sq feet (years) value as at as 31.12.2005 31.12.2005 (RM) (RM'000) 7 State of 1 engineering workshop at Yearly Built up - 4,500 21 - - Terengganu Sultan Mahmud Airport, tenancy 21300 Kuala Terengganu
8 State of 1 engineering building at Yearly Land - 2,065 14 129 129,323 Kedah Sultan Abdul Halim Airport, tenancy Built up - 5,950 06200 Alor Setar
Residential building Freehold Land - 2,519 18 69 68,996 No 45 Taman Sri Negeri Built up - 2,324 Jalan Penarak, 07000 Kuah, Langkawi
1 cargo shed at Langkawi Yearly Built up - 1,632 11 - - International Airport, 07100 tenancy Padang Matsirat, Langkawi
Office lot Leasehold 99 Built up - 3,210 16 379 378,521 No 74, Kompleks Alor Setar, years Jalan Lebuhraya Darul Aman, expiring 2088 05100 Alor Setar
Residential building Freehold Land - 6,663 13 229 228,550 No 2630, Jalan Syed Sheh Built up - 3,791 121 Shahbuddin, Taman Lumba Kuda, 05250 Alor Setar
9 State of Residential building Freehold Land - 4,241 25 81 81,047 Johor No 34 Jalan Sutera 5, Taman Built up - 2,064 Sentosa, 80150 Johor Bahru
1 engineering workshop at 3 yearly Land - 16,000 14 456 456,148 Sultan Ismail Airport, Senai, tenancy Built up - 6,314 81250 Johor Bahru expiring 2007 (renewable)
1 cargo building at Sultan 3 yearly Built up - 10,911 13 5 4,703 Ismail Airport Senai, tenancy 81250 Johor Bahru expiring 2007 (renewable)
10 State of 5 units condominiums Leasehold 99 Built up - 5,657 18 582 582,035 Negeri A-6-10, 1-7-5, 1-5-3, A-5-5, years expiring Sembilan A-4-2 Tanjung Tuan Resort, 5th 2086 mile Jln Pantai, 71050, Port Dickson, Negeri Sembilan
11 State of Residential building Leasehold 99 Land - 8,383 18 108 108,257 Kelantan Lot 1791 Taman Sari off years Built up - 2,595 Jalan Hospital, 14800, expiring Kota Bharu 06 Mar 2088
Office lots Ground Floor Wisma Leasehold Built up - 4,350 16 674 673,750 Yakin, Jalan Gajah Mati, 15050 99 years Kota Bharu expiring 2088
12 State of Residential building Leasehold Land - 7,220 23 190 190,147 Sabah No 44 Taman Luyang Phase 8, 999 years Built up - 3,316 88300, Kota Kinabalu expiring 19 Mar 2922 Malaysian Airline System Berhad Annual Report 2005 (10601-W) List of Company Properties as at 31 December 2005
Location Description Tenure Approx.area Approx.age Net book Net book value in sq feet (years) value as at as 31.12.2005 31.12.2005 (RM) (RM'000)
2 office lots Leasehold Built up - 3,614 21 956 955,835 G030 & G038 Grd floor 999 years Kompleks Karamunsing, expiring 2983 Jalan Tuaran/ Selatan, 88400, Kota Kinabalu
1 office lot Leasehold Built up - 2,472 21 333 332,749 CF02 10th Floor Block C 999 years Kompleks Karamunsing expiring 2983 Jalan Tuaran/ Selatan, 88400 Kota Kinabalu
Hangar & Cargo and Leasehold 60 Hangar/Cargo 16&25 8,258 8,257,509 Administration buildings at Kota and 20 years Building Kinabalu International Airport, expiring 2044 Land - 152,460 88740 Kota Kinabalu and 2006 Built up - 118,207 respectively Admin Building Land - 16,000 Built up - 31,104
Residential building on Lot Leasehold Land - 82,204 14 393 393,187 CL105241807 km 2.5 Jalan 999 years Built up - 3,587 155 155,401 122 Datuk Abu Bakar Titingan, expiring 91000, Tawau 06 Mar 2904
1 Hangar/Cargo building at Yearly Built up - 16,625 4 2,622 2,622,017 Tawau Airport 91000, Tawau tenancy
1 Engineering building Yearly Built up - 1,675 27 - - at Lahad Datu Airport, 91100, tenancy Lahad Datu
Residential building Leasehold Land - 4,450 15 163 163,326 No. 144 Taman Fajar 999 years Built up - 1,800 91100, Lahad Datu expiring 2894
13 State of 5 storey office building Leasehold Land - 5,397 20 625 624,603 Sarawak Lot 215, Jalan Song Thian 60 years Built up - 38,478 2,580 2,579,917 Cheok, 93100 Kuching expiring 19 Feb 2041
Residential building Leasehold Land - 5,758 23 112 111,825 No 339, Fortune Garden, 60 years Built up - 3,270 Lorong Stampin Timur 5, expiring 93350, Kuching 19 Sep 2042
Catering and workshop building 3 yearly Land - 67,662 16-24 754 753,915 at Kuching International Airport, tenancy Built up - 25,171 93250, Kuching (renewable)
1 Cargo warehouse / engineering 3 yearly Land- 40,864 20 878 877,880 building at Miri Airport, 98000, tenancy Built up - 19,588 Miri (renewable)
4 storey office building Leasehold Land - 1,800 26 282 2282,179 Lot 239, Beautiful Jade Centre, 60 years Built up - 5,340 98000 Miri expiring 27 Jun 2039
Malaysian Airline System Berhad Annual Report 2005 (10601-W) List of Company Properties as at 31 December 2005
Location Description Tenure Approx.area Approx.age Net book Net book value in sq feet (years) value as at as 31.12.2005 31.12.2005 (RM) (RM'000)
Residential building Leasehold Land - 5,478 22 128 127,713 No 126, Lorong Hilltop 60 years Built up - 3,252 Utama 10, Hilltop Garden, expiring 98000 Miri. 07 Sep 2043
Residential building Leasehold Land - 4,049 21 91 90,609 830A Countrywood Estate 60 years Built up - 1,700 off Jalan Hussein Onn, expiring 97000 Bintulu 20 Dec 2044
4 storey office building Freehold Land - 1,377 20 408 408,020 No 129, Taman Sri Dagang, Built up - 5,533 Jalan Mesjid, 97000 Bintulu
Cargo/Engineering Building 3 yearly Land - 52,474 2 2,424 2,424,208 Bintulu Airport, Jalan Bintulu, tenancy 97000, Bintulu (renewable)
4 storey office building Leasehold Land - 1,199 22 296 295,708 No 61, Jalan Tuanku Osman, 60 years Built up - 5,200 96000 Sibu expiring 26 Oct 2043 123
Residential building Leasehold Land - 4,583 23 61 60,831 No 16B, Jalan Kang Kong, 60 years Built up - 2,242 96000, Sibu expiring 24 Sep 2042
1 Cargo / Engineering Yearly Land - 41,592 12 1,049 1,049,340 building at Sibu Airport, tenancy Built up - 10,926 23km Sibu/ Durin Road 96000 Sibu
14 Singapore Office lots at 190, Leasehold Built up - 15,241 26 4,593 4,593,031 Clemenceau Avenue 99 years No.0209-11, Singapore expiring Shoping Center, Singapore 30 Apr 2047 239924
1 unit apartment Freehold Built up - 2,238 22 433 433,075 Unit 5-01 Block 3, Hawaii Tower, No 77 Meyer Road, Singapore, 437903
15 Thailand 1 Condominium unit at Freehold Built up - 2,713 25 133 133,351 No 3 Block B, Tai Ping Tower , Ekamai Road, 10110, Bangkok
16 The 1 unit apartment Freehold Built up - 2,260 32 75 75,482 Philippines Unit 11-D The Makati Tuscany Condo, Ayala Avenue, Makati City, 1226, Manila
1 office lot Freehold Built up - 3,240 28 126 125,796 unit F, ground floor, Legaspi Tower 300, Vito Cruz Street, Malate, 1004, Metro Manila
Malaysian Airline System Berhad Annual Report 2005 (10601-W) List of Company Properties as at 31 December 2005
Location Description Tenure Approx.area Approx.age Net book Net book value in sq feet (years) value as at as 31.12.2005 31.12.2005 (RM) (RM'000)
17 Hong Kong 1 unit apartment Leasehold Built up - 1,874 27 - - No 58-60 Sakura Court Flat A, 75 years 5th floor, Kennedy Road, expiring Hong Kong 20 Jun 2070
18 Australia Residential building, Freehold Land - 8,086 28 152 152,164 40, Edgewater Road, Built up - 4,333 Manning, Perth WA 6152
10 storey office building Freehold Built up - 35,000 13 13,448 13,447,989 16 Spring Street Sydney, N.S.W 2000
19 England 7 storey office building Freehold Land 29,977 10 30,540 30,539,828 No 247-249, Cromwell Road, Built up - 24,169 London SW5 9GA
Residential apartment Freehold Built up - 3,300 9 5,239 5,239,109 No 12 St Mary's Place, Kensington Green, Marloes Road, London W8
124 20 The Office building Freehold Land - 8,116 15 5,621 5,620,678 Netherlands Westeringchans 24A 1017-SG Built up - 5,602 Amsterdam
21 China 1 unit apartment Leasehold 70 Built up - 1,669 9 519 518,676 Unit C703A, Roman Gardens, years expiring No.18, Huixin West Street, 27 Aug 2063 Chaoyang District Beijing, Postcode 100029
1 unit apartment Leasehold 70 Built up - 1,669 9 519 518,676 Unit C1403A, Roman Gardens, years expiring No.18, Huixin West Street, 27 Aug 2063 Chaoyang District Beijing, Postcode 100029
614,206 614,206,876
Malaysian Airline System Berhad Annual Report 2005 (10601-W) FORM OF PROXY MALAYSIAN AIRLINE SYSTEM BERHAD (Company No. 10601-W) (Incorporated in Malaysia)
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 Fifth Annual General Meeting of the Company to be held at the Auditorium, 1st Floor, South Wing, MAS Academy, No. 2, Jalan SS7/13, Kelana Jaya, 47301 Petaling Jaya, Selangor Darul Ehsan on Monday, 26 June, 2006 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 No. 1 Adoption of Audited Financial Statements for the financial period ended 31 December 2005 and the Reports of the Directors and Auditors. Resolution No. 2 Approval of Directors’ fees. Resolution No. 3 Re-election of Dato’ Dr. Mohd Munir bin Abdul Majid as Director Resolution No. 4 Re-election of Datuk Amar Haji Abdul Aziz bin Haji Husain as Director Resolution No. 5 Re-election of Keong Choon Keat as Director Resolution No. 6 Re-election of Martin Gilbert Barrow as Director Resolution No. 7 Re-election of Iris Jala @ Idris Jala as Director Resolution No. 8 Re-election of Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kasim as Director Resolution No. 9 Re-appointment of Messrs Ernst & Young as Auditors and to authorise the Directors to fix the Auditors’ remuneration Resolution No.10 Authority under Section 132D of the Companies Act, 1965 for Directors to issue shares.
As witness my/our hands this day of , 2006
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 entitled to appoint Depositors. Such Depositors whose shares exceed the Company’s foreign shareholding limit of a proxy to attend and vote in his stead. A proxy may but need not be a member of the 45% as at the date of the General Meeting Record of Depositors may attend the above Company and a member may appoint any person to be his proxy/proxies and the provisions Meeting but are not entitled to vote. Consequently, a proxy appointed by such Depositor who of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 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 5. The instrument appointing a proxy must be deposited at Symphony Share Registrars Sdn. Common Seal or under the hand of its officers or attorney, duly authorised in that behalf. Bhd., Level 26 Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than 48 hours before the time for holding the Meeting or at 3. A holder may appoint more than two proxies to attend the Meeting. Where a member any adjournment thereof. appoints two or more proxies, he shall specify the proportions of his shareholding 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 who is an authorised nominee as 4. The right of Foreigners to vote in respect of their deposited securities is subject to Section 41 defined under the Securities Industry (Central Depositories) Act, 1991, to appoint at least one (1) (e) and Section 41 (2) of the Securities Industry (Central Depositories) Act, 1991 and the (1) proxy in respect of each securities account it holds with ordinary shares of the Company Securities Industry (Central Depositories) (Foreign Ownership) Regulations, 1996. The position standing to the credit of the said securities account. of such Depositors in this regard will be determined based on the General Meeting Record of Fold here
Affix stamp here
The Share Registrar Symphony Share Registrars Sdn. Bhd., Level 26, Menara Multi Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur, Malaysia.
Fold here REQUEST FORM
To: Malaysian Airline System Berhad Date/Tarikh:
Please send me/us a copy of the 2005 Annual Report in English/Bahasa Malaysia. Sila hantar kepada saya/kami senaskah Laporan Tahunan 2005 dalam Bahasa Inggeris/Bahasa Malaysia.
Name/Nama:
Address/Alamat:
Signature of Shareholder/Tandatangan Pemegang Saham: Fold here
Affix stamp here
MALAYSIAN AIRLINE SYSTEM BERHAD (10601-W) 3rd Floor, Administration Building 1, MAS Complex A, Sultan Abdul Aziz Shah Airport, 47200 Subang, Selangor Darul Ehsan,Malaysia
Fold here Malaysian Airline System Berhad Annual Report 2005
(10601-W)
47200 Subang, Selangor Darul Ehsan, Malaysia Sultan Abdul Aziz Shah Airport, MAS Complex A, 3rd Floor, Administration Building 1, Floor, 3rd MALAYSIAN AIRLINE SYSTEM BERHAD MALAYSIAN