FAKULTI OF BUSINESS AND MANAGEMENT

SEMESTER 3 / TAHUN 4

BBAW 2103 PERAKAUNAN KEWANGAN

NO. MATRIKULASI NO. KAD PENGNEALAN NO. TELEFON E-MEL

710624025377001 : 710624025377

: :

019-4146812 sobri5377@gmail.com

PUSAT PEMBELAJARAN

PPW KEDAH

NO 1.0 2.0

CONTENT INTRODUCTION MALAYSIAN ACCOUNTING BOARD (MASB)

PAGES 3-4 STANDARS 4-5

3.0

YTL Power International Berhad.

5-12

4.0 5.0 6.0

AIR ASIA BERHAD MALAYSIA AIRLINE (MAS) USEFUNESS OF FINANCIAL STATEMENTS

12-15 16-21 21-29

7.0 8.0

CONCLUSION REFERENCES

29 30-32

1.0

INTRODUCTION

To a person who does not have little or any experience in financial reports by companies or other relevant financial institutions, such documents may look very strange, confusing and full of numbers and technical terms. This may lead such person to become bewildered about understanding the direction of the company as well as assessing its performance which will further leads to harder and more complex decision making process in case of investment, or even working for the company as an employee. Financial reports are normally formal documents which reflect the financial activities of a business, person or any other entity, using financial language; it provides an overview of such entitys financial condition in both short and long term. Four major and important financial documents are considered as Balance Sheet, Income Statement, Statement of retained Earnings, and Statement of Cash Flows. In general, while balance sheet provides information regarding assets, liabilities, and owners equity, the income statement provide information about income, expenses and profit of the company over a particular period of time. Statement of retained earnings reflects the information regarding the changes in retained earnings of a particular entity. And last one but not least, which is one of the most important among mentioned documents is cash flow statement which reports about the cash inflow and outflow of firms operational, financial and investing activities.

In this work, three selected companies two of major Malaysian airborne companies and a conglomerate one and their last five years financial reports have been analyzed in detail from several dimensions explained shortly in order to assess their strengths, weaknesses, and overall performance. As the conclusion, their overall performance is compared with each other and necessary points for improving their level of performance are recommended. The reason behind this selection is that two of these companies are important players in the Malaysian airborne industry, their existence in the same industry results in a fair comparison among them and a useful report for airborne industry in Malaysia. Selection of the third company YTL is because of its importance to Malaysia as one of the most successful global businesses in the world. These companies are Air Asia, Malaysian Airlines, and YTL Corporation.
1.

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

domestic and international destinations. It was established in 1993 and its growth in case of revenue at the end of 2008 was over 32% and passed 830,000 Malaysian Ringgit.
2.

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

change; and despite the financial reconstruction in the recent years, still has a strong presence in Asia-Pacific area. 3. YTL Power International Berhad is the global utilities arm of YTL Corporation (as a

parent CO). The company was established in Oct 96 to house the groups power-related investments. In May 97, it made history as the first company to be listed under the infrastructure project company (IPC) category on the Main Board of Bursa Malaysia. 2.0 MALAYSIAN ACCOUNTING STANDARS BOARD (MASB)

The MASB, together with the Financial Reporting Foundation (FRF), make up the new framework for financial reporting in Malaysia. This new framework comprises an independent standard-setting structure with representation from all relevant parties in the standard-setting process, including preparers, users, regulators and the accountancy profession. The functions and powers of the MASB as provided under the Act are to:

issue new accounting standards as approved accounting standards and to review, revise or adopt existing accounting standards as approved accounting standards; issue statements of principles for financial reporting; sponsor or undertake development of possible accounting standards; conduct public consultation as necessary; develop a conceptual framework for the purpose of evaluating proposed accounting standards; make such changes to proposed accounting standards as considered necessary; seek the view of the FRF in relation to new and existing standards, statement of principles, and changes to proposed standards; determine scope and application of accounting standards; and to perform such other function as the Minister of Finance may prescribe.

3.0.

YTL Power International Berhad.

YTL Corp is one of Bursa Malaysia's largest companies and together with its five listed subsidiaries has a combined Market Capitalization of about RM30.65 billion (US 8.64 billion ). The company has also been listed on the Tokyo Stock Exchange since 1996, being the first Asian non-Japanese company to be listed there. Amongst the group's key businesses are utilities high speed rail, cement, manufacturing construction , contracting , property development, hotels &resorts and technology incubation and it serves more than 10 million customers in over three continents.

3.1. Background Utilities arm of YTL Group. YTL Power International (YTL Power) is the global utilities arm of YTL Corporation (YTL MK, RM7.35, and Not Rated). The company was established in Oct 96 to house the groups power-related investments. In May 97, it made history as the first company to be listed under the infrastructure project company (IPC) category on the Main Board of Bursa Malaysia.
5

Started off as a local power play. YTL Powers roots can be traced back to 1993 when its subsidiary, YTL Power Generation Sdn Bhd, became Malaysias first IPP following a nationwide power blackout in 1992 and the governments drive to privatize the electricity industry. Back then, the group had two power generation plants under its belt. Evolving into a global utilities group. Nevertheless, since 2000, YTL Power has been on an aggressive acquisition trail, snapping up utility assets from near and afar. It has successfully transformed itself from just a local power generator to a global utilities group. It currently owns power assets in Malaysia (100% YTL Power Generation), Indonesia (35% in Jawa Power) and Australia (33.5% stake in Electra net). It is also exposed to water concession assets in the UK through its 100% stake in Wessex Water. Wessex is the largest EBIT contributor. In FY07, Wessex Water accounted for 68% of group EBIT including associates. The power division made up another 27% while investment holding contributed the remaining 5% in the form of dividend and interest income. Over the years, Wessex Water has become an increasingly dominant contributor, reinforcing the shift in the groups earnings profile from a pure local power base to a more diversified global utilities base. Interestingly, YTL Power derived approximately 79% of its EBIT (including associates contribution) from overseas assets, a clear indication of its success overseas. Spare capacity offers growth opportunity. YTL Powers spare capacity will come in handy when there is a power shortage in Peninsular Malaysia as TENAGA may require it to supply additional electricity in such circumstances. In 2001, it entered into a supplemental agreement with TENAGA for three years ending 31 Dec 03 to supply an additional 1,400GWh p.a. to TENAGA at 10.9 sen per kwh. This boosted the plants capacity factor to 83% during the period. However, this is unlikely to happen over the next few years as the countrys reserve margin is expected to stay high at 35%. 3.2. YTLs Financial Highlights 2008 Revenue (RM000) 4,242,518 Profit Before Taxation 1,385,701 2007 4,068,008 1,296,757
6

2006 3,758,125 1,112,400

2005 3,671,315 976,444

2004 3,386,920 836,433

(RM000) Profit After (RM000) Shareholders

Taxation 1,038,846 Funds 6,400,395

1,269,214 6,127,143

874,483 5,728,957

742,178 5,229,233

613,049 4,560,490 13.63 10.00 20,576,574 1.02

(RM000) Earnings per Share (Sen) Dividend per Share (Sen) Total Assets (RM000)

20.00 25.40 12.50 17.50 27,826,876 24,002,89 0 1.20

17.89 15.84 10.00 10.00 22,244,265 21,905,572 1.16 1.08

Net Assets per Share 1.20 (RM) YTLs Annual Balance Sheet

In

Millions

of

Ringgit

2009 200906-30

2008 2008-0630

2007 2007-06-30 Reclassified

2006 2006-0630

2005 2005-06-30 Reclassified

(except for per share items) Cash Cash & Equivalents Short Term Investments Cash and Short Term Investments Accounts Receivable - Trade, Net Notes Receivable - Short Term Receivables - Other Total Receivables, Net Total Inventory Prepaid Expenses Other Current Assets, Total Total Current Assets Property/Plant/Equipment, Total - Gross Accumulated Depreciation, Total Property/Plant/Equipment, Total - Net Goodwill, Net Intangibles, Net Long Term Investments Note Receivable - Long Term Other Long Term Assets, Total Other Assets, Total Total Assets

2008-06-30 ---307.9 63.5 19.5 5,704.5 9,406.1 6,054.9 6,012.4 9,469.6 6,074.3 2,353.2 491.7 434.6 ----124.2 117.9 2,353.2 615.9 552.4 858.9 152.7 160.9 -87.4 106.1 -325.5 250.6 9,224.5 10,651.1 7,144.4 -18,855.6 18,251.1 -(3,765.8)(3,368.9) 17,283.3 15,089.8 14,882.3 -441.3 441.3 6,456.8 3.2 3.5 1,692.2 1,641.5 1,531.4 ---58.3 0.0 0.0 ---34,715.1 27,826.9 24,002.9
7

2006-06-30 --7.7 21.8 4,775.5 4,529.5 4,783.3 4,551.2 576.4 566.5 --180.2 247.6 756.6 814.1 153.3 138.2 108.4 110.6 206.4 187.7 6,008.1 5,801.9 16,964.4 16,658.6 (2,840.9)(2,362.8) 14,123.4 14,295.8 441.3 441.3 --1,670.8 1,365.8 --0.6 0.9 --22,244.3 21,905.6

Accounts Payable Payable/Accrued Accrued Expenses Notes Payable/Short Term Debt Current Port. of LT Debt/Capital Leases Other Current liabilities, Total Total Current Liabilities Long Term Debt Capital Lease Obligations Total Long Term Debt Total Debt Deferred Income Tax Minority Interest Other Liabilities, Total Total Liabilities Redeemable Preferred Stock, Total Preferred Stock - Non Redeemable, Net Common Stock, Total Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Treasury Stock - Common Total Equity Total Liabilities & Shareholders' Equity

-183.6 150.1 2,300.5 ---620.9 566.0 -0.0 0.0 2,526.8 4,031.2 1,033.0 174.7 403.2 347.8 5,002.0 5,238.9 2,096.9 20,388.0 13,528.3 13,022.0 ---20,388.0 13,528.3 13,022.0 22,914.8 17,559.5 14,055.0 2,783.4 2,199.4 2,308.4 0.1 0.0 -460.7 459.9 542.5 28,634.2 21,426.5 17,969.8 ------2,955.1 2,721.3 2,648.2 1,774.8 1,699.2 1,944.1 1,470.7 2,340.0 1,843.6 (119.8) (360.1) (402.8) 6,080.9 6,400.4 6,033.1 34,715.1 27,826.9 24,002.9

128.3 109.5 --477.0 467.3 0.0 0.0 1,064.8 1,510.6 406.0 380.4 2,076.0 2,467.8 11,541.9 11,257.2 --11,541.9 11,257.2 12,606.6 12,767.8 2,327.5 2,362.4 --570.0 589.0 16,515.3 16,676.3 ----2,581.5 2,498.4 2,211.4 2,072.1 1,405.6 960.2 (469.6) (301.5) 5,729.0 5,229.2 22,244.3 21,905.6

(Source: Reuters ;business and finance site.)

3.3

Financial performance

FY07 results review. During FY07, the group reported a large 45% growth in net profit, driven mainly by some RM185m deferred tax and higher investment income. EBIT contributions from the local power segment fell 30% ,dragged down by some RM156m provisions for receivables. Wessex Water, on the other hand, reported an encouraging 37% increase in profit contributions as higher tariffs, along with cost control measures, widened profit margins. Moderate earnings prospects. At the pre tax level, we expect YTL Power to record moderate growth of 9-13% p.a. over the next three years, fuelled mainly by higher efficiency of its power plants in Indonesia and above-average price hikes for Wessex Water. Although earnings from its local power plant should return to normal after FY07s one-off provisions, we still project a 15%
8

dip in FY08 net profit as the effective tax rate normalizes after FY07s deferred tax savings. Subsequently, FY09-10 net profit growth should mirror the growth at the pre-tax level. Exchange rate risks. YTL Power derives around 79% of its EBIT (including associates contribution) from its overseas assets in Australia, the UK and Indonesia (Figure 22). This means that its core earnings would be adversely affected by a firming of the ringgit against the sterling pound, Australian dollar or the greenback. However, this would be partially offset by Forex translation gains on its foreign denominated debt. Looking into the groups debt mix, a sizeable 66% is denominated in sterling, 19% is in ringgit and the remaining 15% in US dollars. Our rough calculation shows that every 1% appreciation in our assumption for the pound would have a 0.5% positive impact on YTL Powers core net profit due to higher translated earnings from Wessex Water. But reported net profit could be squeezed by 6.0% due to the recognition of one-off translation losses resulting from the larger pounddenominated debt. In US dollars term, the core bottom-line positive impact from a 1% appreciation is somewhat smaller at 0.1% owing to its relatively smaller contribution to group earnings. However, this would be more than offset by the 1.5% negative impact resulting from the recognition of debtrelated translation losses at the reported net profit level. 3.4. YTLs Strengths and Weaknesses Although YTL is a very powerful and doing well in global markets,our work has identified some of the reasons of its good performance as well as some of the weaknesses that might be eliminated in order to help the company to perform better than before. The table below shows the YTLs Strengths and Weaknesses: Strengths Profitable( purchase Weakness PPA(power Exposed to FOREX risks: its core earnings YTLPG would be adversely affected by a firming of the

take

or

pay)

agreement)

contract:

signed a power purchase agreement (PPA) ringgit against the sterling pound, Australian with TENAGA on 31 Mar 1993 for a term of dollar or the greenback.
9

21 years expiring on 30 Sep 2015. Under However, this would be partially offset by the PPA, TENAGA is obliged to take or pay forex annum. This represents a capacity factor of around 70%. assets interest rate risk: a lower interest rate environment may reduce its chances of Fuel cost pass-through element in PPA: Gas acquiring new assets as the group will face supply to YTL Powers power plants is secured more competition from private equity funds. via a 21-year gas supply agreement (GSA) with PETRONAS which also expires on 30 Sept 2015(low risk). Good overseas track record: YTL Power derived approximately 79% of its EBIT (including overseas. associates contribution) from overseas assets, a clear indication of its success translation gains on its foreign a minimum of 7,450Gwh of electricity per denominated debt.

Strong management WESSEX water ranks no1 in United Kingdom Office of Water Services ranking: In FY07, Wessex Water accounted for 68% of group EBIT including associates.

3.5. Recommendations

leveraging

its

cash

hoard

to

seize

profitable

M&A

opportunities

Since its acquisition of Jawa Power back in 2004, YTL Power has been silent on the
10

M&A front despite sitting on a RM7bn cash hoard. Although the group has been scouting around, we believe its conservative screening has weeded out many potential targets which have become overpriced in the global M&A boom. Notwithstanding the lack of M&A activities, the group has steadily proven its ability to extract value from its existing assets.

Bidding for Singapores power assets and Given YTL Powers experience in foreign field and efficiently run operations, Singapores merchant market should bode well for the company. Although it is too early to gauge the return, assuming a conservative 10% return versus YTL Powers 6% cost of funds, the asset could rake in an additional return of 4% to such an investment.

Utilising its Wessex: In particular, existing water operators are expected to migrate to a licensing regime within a 2-year timeframe following the enactment of the two new Water Acts by Jan 08. This creates opportunities for YTL Power to form JVs with state governments or bid for licences given its proven track record in nurturing Wessex Water into the top ranking water and Sewerage Company.

Liquidity crunch a blessing in disguise: The recent market turmoil has undeniably sparked fears of an impending liquidity crunch. Although this could lead to a dent in global economic growth, we believe this puts YTL Power in a better position to scoop up deals given its strong cash position. With its international utility expertise and ready funds, asset acquisitions should be earnings enhancing for the group.

Opportunities in the local water industry and ; We also see opportunities for YTL Power in the local water industry, following the industry-wide restructuring efforts undertaken by the government in an effort to formulate a more holistic approach in the management of water services.

4.0.

AirAsia Berhad

4.1. Company Background

11

The use of financial statements and considering them plays an important role in the strategic and operation and financial management of airlines, and loss/gain at the successful airlines in the future. In this chapter of our work, we look at the AirAsias financial reports and statements and will identifying that have this famous low-cost company been success since founded or not?! AirAsia, analyzes the current financial environment, cost of capital and the policies which AirAsia has obeyed to issuing divined. In 2001, Dato Sri Tony Fernandes along with DatoPahamin Ab. Rajab (Former Chairman, AirAsia), Dato Kamarudin bin Meranun (Deputy Group Chief Executive Officer, AirAsia) and Dato Abdul Aziz bin Abu Bakar (Current Chairman, AirAsia) formed a partnership to set up Tune Air Sdn Bhd and bought Air Asia for a token sum of RM1.00. With the help of Conor Mc Carthy(Director, Air Asia; former Director of Tune Air Sdn Bhd and former Director of Group Operations, Ryanair),AirAsia was remodeled into a low cost carrier and by January 2002, their vision to make air travel more affordable for Malaysians took flight. AirAsia is one of the award winning and largest low fare airlines in the Asia expanding rapidly since 2001. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand, and Indonesia. Today, AirAsia has flown over 55 million guests across the region and continues to create more extensive route network through its associate companies. AirAsia believes in the no-frills, hassle-free, low fare business concept and feels that keeping costs low requires high efficiency in every part of the business. Through the corporate philosophy of Now Everyone Can Fly, AirAsia has sparked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport. 4.2. AirAsias Vision & Mission Air Asias Vision is to be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares. On the other hand, AirAsia has developed its mission to be the best company to work for whereby employees are treated as part of a big family, create a globally recognized ASEAN brand, attain the lowest cost so that everyone can fl y with AirAsia, and last but not least, to
12

maintain the highest quality product, embracing technology to reduce cost and enhance service level. 4.3. AirAsias Strengths and Weaknesses Strengths Weaknesses Low cost operations(The Airbus Service resource is limited by lower costs A320 is known for its fuel Limited human resources could not handle irregular situation Government interference and regulation on airport deals and passenger compensation efficiency, high reliability and low operating costs. In December 2007, AirAsia became the largest Airbus A320 customer in the world. Also LCCT.) Fewer management level, effective, Non-central location of secondary airports focused and aggressive management Simple proven business model that consistently delivers that lowest fares Penetrate and stimulate to potential markets and incentive workforce Brand is vital for market position and developing it is always a challenge Heavy reliance on outsourcing New entrants to provide the price-sensitive

Multi-skilled staffs means efficient services

Single dispatch

type

fleet

minimize

maintenance fee and easy for pilot

4.4 FINANCIAL STATEMENT OF AIR ASIA

13

View

Income Statement

In

U.S.

Dollar

Currency Millions of Malaysian Ringgits

inAs of:

Dec 2007 MYR

31 Dec 2008 MYR 2,855.0 2,855.0 2,026.5 828.5 42.4 347.0 -9.2 380.2 448.3 -297.5 21.0 -276.5 -216.1 -836.2 -880.5 -4.2

31Dec 31Dec 2009 2010 Press

314-Year Trend

Restated Restated MYR

Release MYR 3,132.9 3,992.7 3,132.9 3,992.7 1,751.6 2,142.2 1,381.3 1,850.5 59.2 447.6 27.3 534.1 847.1 -520.9 180.9 701.8 1,148.7

Revenues TOTAL REVENUES Cost of Goods Sold GROSS PROFIT Selling General & Admin Expenses, Total Depreciation & Amortization, Total Other Operating Expenses OTHER TOTAL OPERATING INCOME Interest Expense Interest and Investment Income NET INTEREST EXPENSE Currency Exchange Gains (Loss) Other Non-Operating Income (Expenses) OPERATING

2,188.8 2,188.8 1,408.3 780.4 105.8 259.5 -63.5 EXPENSES, 301.8 478.6 -176.6 27.6 -148.9 229.5 -4.7

-371.2 -374.4 6.3 65.4

-364.9 -309.0 91.1 18.6 592.0 0.0 556.2 -296.6 1,099.3 --

EBT, EXCLUDING UNUSUAL ITEMS554.4 Gain (Loss) on Sale of Investments 0.0

14

Gain (Loss) on Sale of Assets Other Unusual Items, Total

0.0 -1.0

15.6 0.0 -869.2 -372.6 -496.6 -496.6 -496.6

30.7 -0.4 622.3 116.0 506.3 506.3 506.3

--1,099.3 32.4 1,066.9 1,066.9 1,066.9

EBT, INCLUDING UNUSUAL ITEMS 553.4 Income Tax Expense Earnings from Continuing Operations NET INCOME NET INCOME TO COMMON -298.0 851.4 851.4 851.4

INCLUDING EXTRA ITEMS NET INCOME TO COMMON

EXCLUDING EXTRA ITEMS

851.4

-496.6

506.3

1,066.9

5.0.

Malaysia Airlines (MAS)

5.1. Company Background Malaysia Airlines started its operation on 1987 after the airline changed its name from Malaysian Airline System. It is founded in 1947 by Malayan Airways. Then, it transformed to Malaysian Airways due to Malaysia gaining its independence. After that, it changes its name once more to Malaysia-Singapore Airlines and thereafter ceased its operation. It was then divided into Malaysia Airlines and Singapore Airlines. Malaysia Airlines is listed on the stock exchange of Bursa Malaysia under the name Malaysian Airline System Berhad. The airline suffered high losses over the years due to poor management and fuel price increases. As a result of financial restructuring (Widespread Asset Unbundling) in 2002, Malaysia Berhad became its parent company, incorporated in 2002, in exchange for assuming the airline's long-term liabilities. Under the leadership of the new CEO appointed in December 2005, Malaysia Airlines

15

unveiled its Business Turnaround Plan (BTP) in February, 2006, which highlighted low yield, an inefficient network and low productivity (overstaffing). Following the Widespread Asset Unbundling (WAU) restructuring of Malaysia

Airlines, Malaysian Government investment arm and holding company, Khazanah Nasional's subsidiary, Penerbangan Malaysia Berhad is the majority shareholder with a 52.0% stake. After Penerbangan Malaysia Berhad, the second-largest shareholder is Khazanah Nasional, which holds 17.33% of the shares. Minority shareholders include Employees Provident Fund Board (10.72%), Amanah Raya Nominees (Tempatan) Sdn Bhd (5.69%), State Financial Secretary Sarawak (2.71%), foreign shareholders (5.13%) and Warisan Harta Sabah (2.4%). It has 19,546 employees (as of March, 2007). Malaysia Government has been reporting that the government's holding company, Khazanah Nasional is keen on selling shares of Malaysia Airlines to remain globally competitive in an industry which is fast-consolidating. Malaysia Airlines has diversified in to related industries and sectors, including aircraft ground handling, aircraft leasing, aviation engineering, air catering, and tour operator operations. It has also restructured itself by spinning-off operational units as fully-owned subsidiaries, to maintain its core business as a passenger airline. Malaysia Airlines has over 20 subsidiaries, with 13 of them fully owned by Malaysia Airlines. 5.2. Malaysia Airlines Financial Highlights Malaysia Airlines experienced its worst loss in FY2005, with RM1.25 billion losses. Since then, the Business Turnaround Plan was introduced to revive the airline, in the year 2006. At the end of the airline's turnaround program, in financial year 2007, Malaysia Airlines gained RM851 million net profit: a swing of RM987 million compared to RM134 million in losses in FY2006, marking the national carriers highest-ever profit in its 60-year history. The achievement was recognised as the worlds best airline-turnaround story in 2007, with Malaysia Airlines being awarded the Phoenix award by Penton Media's Air Transport World: the leading monthly magazine covering the global airline industry. Year ended/(Quarter Revenue Expenditure Profit/(Loss) Shareholders EPS after

16

Ended) 31 December 2002 31 December 2003 31 December 2004 31 December 2005 31 December 2006 31 December 2007 31 December 2008 30 June 2009

(RM '000) 8,864,385 8,780,820

(RM '000) 8,872,391 8,591,157

after Tax (RM Fund '000) 336,531 461,143 326,07 (1,251,603) (133,737) 852,743 245,697 181,453 '000) 2,562,841 3,023,984 3,318,732 2,009,857 1,873,452 3,934,893 4,186,000 432,421

(RM tax (cents) 38.7 36.8 26.0 (100.20) (10.90) 58.05 14.62 10.781

11,364,309 11,046,764 9,181,338 10,434,634

13,489,549 13,841,607 15,288,640 14,460,299 15,503,714 15,259,027 6,093,480 5,912,027

Malaysia Airlines financial highlights

5.3. Strengths and Weaknesses SWOT ANALYSIS LNC is a holding company which operates insurance and investment management businesses through subsidiary companies. The company is focused at creating a strong brand name but faces the threat of a continued low interest regime.

17

Strengths
o

Market leading positions. LNC is a leader in both individual and employersponsored annuity markets. The company ranks 5th in assets and 11th in variable annuity sales (as of 2003) in the US. Based on assets, it is the 44th largest US corporation and the 8th largest US stockholder-owned company based on revenues. LNC is among the 10 largest life insurers in the US and is a leading provider of life insurance products designed specifically for the high net-worth and affluent markets.

Focus on branding Branding is a key element of LNCs strategy. LNCs branding efforts are focused on. Two primary target audiences -financial intermediaries and very affluent consumers.(top 11% of the population). On the consumer side, LNCs total company awareness has increased from 22% in 1998 to 39% in 2003. On the trade side, company awareness is very strong at 96% In 2002.

Weaknesses

18

Weakness of the annuity business. For the year 2003, the companys fixed annuity sales were $861 million, a decrease of about 30% over the previous year. This segment is expected to remain weak not only due to market sensitivity but also due to excess capacity and aggressive competition for variable annuities.

Sensitivity to equity markets. About one-third of LNCs earnings are derived from free-based equity market products. This is an above average exposure to the equity markets. Though LNCs annuities, life insurance, money management and financial planning businesses a benefited from the improving financial markets experienced during 2003, its high exposure makes it more vulnerable to the volatilities of the markets.

Weak operating performance. LNC has disposed of or is running off the businesses that have caused significant charges, such as reinsurance and its UK operations. The companys earning history has been consistently below average. LNC has had restructuring or other large onetime charges in each of the last five years. Revenues have been consistently declining over the period 1999-2003 at a CAGR of 6.1%, excluding 2003 where the company recorded a growth over previous year

5.4.FINANCIAL STATEMENT OF MALAYSIAN AIRLINE SYSTEM (MAS)

Currency Millions of Malaysian Ringgits

inAs of:

Dec 2007 MYR

31 Dec 2008 MYR

31Dec 2009

31Dec 2010 Press

314-Year Trend

Restated Restated MYR

Release MYR

Revenues

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

19

TOTAL REVENUES Cost of Goods Sold GROSS PROFIT Other Operating Expenses

14,630.2 15,035.3 11,309.9 12,980.4 14,357.5 15,198.3 12,202.7 13,323.7 272.7 -288.2 -163.0 -466.0 -466.0 303.0 -58.6 -58.6 20.0 --2.2 262.3 2.4 264.7 19.1 -1.4 245.6 0.1 244.3 244.3 -892.9 -264.6 -264.6 -628.3 -83.4 -83.4 11.6 0.6 1,161.4 462.0 -462.0 -31.1 -2.9 493.1 -490.2 490.2 -343.3 -607.2 -607.2 263.9 -138.4 -138.4 17.6 -25.6 164.6 282.0 -282.0 44.7 -2.9 237.3 -234.5 234.5

OTHER OPERATING EXPENSES, -288.2 TOTAL OPERATING INCOME Interest Expense NET INTEREST EXPENSE Income (Loss) on Equity Investments Currency Exchange Gains (Loss) 561.0 -46.8 -46.8 12.6 --

Other Non-Operating Income (Expenses) 0.0 EBT, ITEMS Gain (Loss) on Sale of Assets EBT, ITEMS Income Tax Expense Minority Interest in Earnings Earnings from Continuing Operations EARNINGS FROM DISCOUNTINUED OPERATIONS NET INCOME NET INCOME TO INCLUDING UNUSUAL EXCLUDING UNUSUAL 526.6 314.3 840.9 29.6 -1.3 811.3 41.4 851.4 COMMON851.4
20

INCLUDING EXTRA ITEMS NET INCOME TO COMMON 810.0 244.2 490.2 234.5

EXCLUDING EXTRA ITEMS 6.0

USEFUNESS OF FINANCIAL STATEMENTS

(A statement that the same accounting policies and methods of computation are followed in the interim financial statements as compared with the most recent annual financial statements or, if those policies or methods have been changed, a description of the nature and effect of the change) The interim financial report has been prepared in accordance with the requirements of Financial Reporting Standards (FRS) No. 134 Interim Financial Reporting and Appendix 9B of the Listing Requirements of the Bursa Malaysia Securities Berhad (Bursa Malaysia). The financial statements should be read in conjunction with the Group's most recent audited financial statements for the year ended 30 June 2005. The accounting policies and methods of computation used in the Groups annual financial statements for the financial year ended 30 June 2005 have been used in the preparation of the interim financial statements, except for FRS 112 2004 as disclosed in Note 17. 2. (Where the audit report of the enterprises preceding annual financial statements was qualified, disclosure of the qualification and the current status of the matter(s) giving rise to the qualification) The audit report of the Groups annual financial statements for the financial year ended 30 June 2005 was not subject to any qualification. 3. (Explanatory comments about the seasonality or cyclicality of interim operations)

21

AirAsia is basically involved in the provision of air transportation services and thus, is subject to the seasonal demand for air travel. The cost of air travel has increased in tandem with recent hikes in global fuel prices and has invariably affected overall demand in the short-term. The passenger load factor has increased from 80% in the previous quarter as compared to 83% in the current quarter under review. The increase was achieved on the back of ongoing promotions.

4. (The nature and amount of items affecting assets, liabilities, equity, net income, or cash flows that is unusual because of their nature, size, or incidence) There were no unusual items affecting assets, liabilities, equity, net income or cash flows for the quarter. 5. (The nature and amount of changes in estimates of amounts reported in prior interim periods of the current financial year or changes in estimates of amounts reported in prior financial years, if those changes have a material effect in the current interim period) There have been no changes in the basis of estimates provided in respect of the financial period under review. 6. (Issuance, cancellations, repurchases, resale and repayments of debt and equity securities) During the financial period ended 30 June 2006, the issued and paid-up capital of the Company increased from 2,335,031,080 to 2,346,488,080 ordinary shares by the issuance of 11,457,000 ordinary shares pursuant to the exercise of ESOS at the option price of RM1.08. Other than the above, there were no issuance and repayment of debt and equity securities, share buy-backs, share cancellation or shares held as treasury shares and resale of treasury shares in the period under review. 7. (Dividends paid (aggregate or per share) separately for ordinary shares and other shares) There were no dividends paid during the quarter under review.
22

8. (Segment revenue and segment result for business segments or geographical segments, whichever is the enterprises primary basis of segment reporting [disclosure of segment data is required in an enterprises interim financial report only if MASB 22, Segment Reporting, requires that enterprise to disclose segment data in its annual financial statements]) Segmental information is not presented as there are no significant business segments other than the provision of air transportation services. The financial results for the quarter under review include our share of results from our operations in Thailand via our jointly controlled entity, Thai AirAsia Co. Ltd. The financial results from the operations in Thailand are not significant compared to the 9. (Where valuations of property, plant and equipment have been brought forward, without amendment from the previous annual financial statements, a statement to that effect should be given) There was no revaluation of property, plant and equipment during the quarter under review. 10. (Material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period) There were no material events subsequent to the end of the quarter that have not been reflected in the financial statements for the quarter. 11. (The effect of changes in the composition of the enterprise during the interim period, including business combinations, acquisition or disposal of subsidiaries and long-term investments, restructuring, and discontinuing operations) During the financial Country year, d the the Group Incorporation acquired/incorporate following 39.9% To carry on of the air companies:- Name AirAsia Philippines Philippines Inc of Groups effective Principal activities

equity interest

business

transportation
23

Held

by

AA Malaysia

99.8%

To to entities

provide within the

International Ltd:AA Capital Ltd

consultancy services and outside

AirAsia Group 12. (Changes in contingent liabilities or contingent assets since the last annual balance sheet date) The Company is currently disputing certain expenses charged by a service provider as at 30 June 2006 amounting to approximately RM10 million. The Directors are confident that resolution of the dispute above would be favorable to the Company. As disclosed in Note 31 of the financial statements for the year ended 30 June 2005, the Company had made an application to the government for the waiver of withholding tax payable on the lease payments for the aircraft of the Group and the Company amounting to RM10,390,276. The Company has now made the withholding tax and an application to the government for the waiver of penalty on the late payment of withholding tax on past lease payments for the aircraft of the Group and the Company. The Directors are of the opinion that the Companys application on the waiver for the penalty will receive due consideration from the government and that a favorable response will be granted. Other than the above, there have been no material changes in contingent liabilities since the last audited balance sheet date as at 30 June 2005. 13. Commitments (a) Capital commitments for property, plant and equipment: Group and Company 30.06.06 30.06.05 RM000 RM000
24

Approved and contracted for 7,100,028 8,108,067 Approved and not contracted for 109,000 94,000 -------------- -------------7,209,028 8,202,067 ========= ========= 14. (A review of the performance of the company and its principal subsidiaries, setting out material factors affecting the earnings and/or revenue of the company and the group for the current quarter and financial year-to-date) AUDIT The Group recorded revenue of RM241.7 million and profit before tax of RM26.2 million respectively for the quarter. For the financial year-to-date under review, the Group recorded a revenue of RM855.6 million and profit before tax of RM115.5 million respectively. The higher revenue was achieved on the back of an increase in average fare of 5.7%, from RM123 in the previous quarter to RM130 for the current quarter and a passenger load factor of 83% as compared to 80% in the immediate preceding quarter. 15. (An explanatory comment on any material change in the profit before taxation for the quarter reported on as compared with the immediate preceding quarter) The Group achieved a profit before tax of RM26.2 million for the quarter under review. This was an increase of RM2.7 million compared to that of the immediately preceding quarter ended 31 March 2006. The Group however incurred higher finance costs and depreciation and amortisation charges for the period under review as AirAsia has taken delivery of 2 new A320200. Up to 30 June 2006, the AirAsia Group has already taken delivery of 7 new A320-200. Included in the Groups result for the current quarter was a loss of RM1.0 million, being the 49% share of losses of Thai AirAsia, a jointly-controlled entity. This is a decrease of RM3.0 million
25

compared to the preceding quarter ended 31 March 2006 and was mainly due to higher staff and maintenance costs and unrealized losses in foreign exchange. Losses in the Groups associated company, PT Indonesia AirAsia, which are funded by the Group and are not included in the Groups results under the existing accounting policy, increased to RM8.9 million in the current quarter compared to RM8.8 million in the preceding quarter and amounted to Financial statements are important in providing an overview of the companys financial condition both in short and long term. Financial statements should be understandable, relevant, reliable, and comparable and are used by owners, managers, investors to help them make important business decisions. The audience, purpose, and nature of financial statements and managerial reports will be examined. In addition, the use of financial accounting information in making informed and ethical business decisions will be discussed. What are financial statements? Financial statements are part of a process of financial reporting which provide information about the financial strength, performance, and changes in financial position of a company that is useful in making economic decisions. Financial statements include an income statement, a balance sheet and a cash flow statement and owners and managers require financial statements to assist them in making business decisions that affect the performance of the company (Block & Hirt, 2005). Management of the company is primarily responsible for preparing and presenting financial statements of the firm and all reports included the date prepared, the period covered, and descriptive labels and titles are comprehensible to the general reader. The reports are produced annually and often generated quarterly or monthly and frequent reports are more useful as management tools because they are based on current data and provide more opportunities to react to changes in financial markets. Financial statements are also used by employees and their representatives to determine companys ability to provide retirement benefits and employment opportunities, and the companys stability and profitability. Moreover, government and their agencies rely on financial statements to regulate the companys activities, determine taxation policies, and as the basis of national income and similar statistics.

26

Financial statements contain important information for investors, providers of risk capital to the company and their advisers are concerned with the risk inherent in, and return provided by their investments. Investors rely on financial statements to assess managements accountability and determine whether to hold or sell their investment, reappoint or replace management. Shareholders are interested in information to assess the ability of the company to pay dividends. An income statement is a major device for measuring the profitability of a firm over a period of time (Block & Hirt, 2005, p. 3) and also shows the costs and expenses associated with generated revenues and net earnings or losses. Income statements also report earnings per share or a calculation that shows how much money shareholders would receive if the company decided to distribute all of the net earnings for the period. Price- earnings ratio is a multiplier applied to earnings per share to determine current value of the common stock and is influenced by the earnings and sales growth of the firm, the risk or volatility in performance, the debt-equity structure of the firm, dividend payment policy, the quality of management and a number of other factors. Since companies have various levels of earnings per share, price earnings ratios allow for comparison of the relative market value of many companies based on $1 of earnings per share (Block & Hirt, 2005, p. 9). A balance sheet provides detailed information of the companys assets, liabilities, and shareholders equity and shows all transactions accumulated since the inception of the company and balance sheet items are based on original cost rather than current market value. Assets are what the company owns that have value and can be converted to cash within a year or normal operating cycle of the company and include plants, trucks, equipment, inventory, trademarks, patents, investments and cash. Liabilities are financial obligations of the company due in one year or longer term and can include money borrowed from the bank, rent for use of the building, money owed to suppliers for materials, payroll for employees, environmental cleanup costs and taxes owed to government, providing goods and services to customers in the future and bonds. Shareholders equity is referred to as capital or net worth or the money that would be left if the company sold all of its assets and paid off all of its liabilities and the leftover money belongs to the shareholders or owners of the company (Block & Hirt, 2005).
27

Both the income statement and balance sheet are based on an accrual method of accounting, in which revenues and expenses are recognized as they occur regardless of when the actual payment is received and even if the supplies has not been paid. However, a cash flow statement shows a company's sources and uses of cash or actual cash flow position of the firm including how changes in the balance sheet and income statement affected cash and cash equivalents and breaks down analysis according to operating, investing and financing activities. Cash flow statement excludes transactions that do not directly affect cash receipts and payments such as depreciation and write-offs on bad debts and provides information on the company's liquidity and solvency and its ability to change cash flows in future circumstances. The financial manager must understand the institutional structure of the Federal Reserve System, the commercial banking system and economic variables such as gross domestic product, industrial production, disposable income, unemployment, inflation, interest rates, and taxes to assist in the financial decision making process. In addition, the financial manager is responsible for interpreting and using financial statements in allocating the companys financial resources to maximize profits and the wealth of the companys shareholders (Block & Hirt, 2005). The goal of shareholder wealth maximization must also be consistent with a concern for social responsibility for the company by adopting policies that maximize values in the market; the company can attract capital, provide employment, and offer benefits to the company (Block & Hirt, 2005, p. 27). The company may also use financial information to make informed and ethical business decisions, for example declining stocks due to immense competition in the telecommunications industry and the shareholders are bemoaning on the returns. The company is under pressure to develop an aggressive approach to cut costs and realize growth by outsourcing some of their jobs and create partnerships with other providers to offer new services. The company must communicate with their loyal employees and shareholders and involve them in the decision making process because of social responsibility and ethical values. Furthermore, financial statements have significant value, but non- financial indications such as employee commitment, customer satisfaction, quality of corporate governance, and operational performance are really the key to the companys success (Chasan, 2007).

28

7.0

CONCLUSION

Financial statements including income statement, balance sheet, and cash flow statements provide important information for managers, employees, investors to assist in making informed business decisions. Financial managers must have thorough understanding of accounting principles to allocate the companys financial resources to generate the highest returns for the company. In addition, the use of financial accounting may be used to make ethical decisions impacting the companys performance and other stakeholders.

8.0

REFERENCES

Air Asia Bhd. (2006).Company Profile. Miller, Merton H. and Franco Modigliani 1961, Dividend Policy, Growth, and the valuation of shares, the Journal of Business, 34, 411-433.

Miller, Merton H. , 1977, Debt and Taxes, the Journal of Finance, 32, 261275.

Masulis, Ronald W.and Brett Trueman, 1988, Corporate Investment and Dividend Decisions Under Differential Personal Taxation, Journal of Financial and Quantitative Analysis, 23, 369,386

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Farrar, Donald E. and Lee L. Selwyn, 1967, Taxes, Corporate Financial Policy and Return to investors, National Tax Journal, 20, 444-462.

Brennan, Michael J., 1970, Taxes, Market Valuation, and Corporation Financial Policy, National Tax Journal, 23, 417-427.

Akerlof, George, 1970, the market for Lemons: Quality Uncertainty and the market mechanism, the quarterly Journal of economics, 84, 488-500.

Spence, Michael, 1973, Job Market Signaling, The quarterly Journal of Economics, 87, 355-374

Spence, Michael, 1974, Competitive and Optimal Responses to Signals: An analysis of efficiency and distribution, Journal of Economic theory, 7, 296332.

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

30

Fama, Eugene F. and Michael C. Jensen, 1983a, Separation of Ownership and Control, Journal of Law and Economics, 26, 301-325.

Fama, Eugene F. and Michael C. Jensen, 1983b, Separation of Ownership and Control, Journal of Law and Economics, 26, 301-325.

Jensen, Michael C., 1986, Agency Cost of Free Cash flow, Corporate Finance, and Takeovers, The American Economic Review, 76, 323-329 Retrieved January 27, 2006, from KLSE Web site:http://www.klse-ris.com.my/htmldir/intro1.htmlAirAsia website www.airasia.com.my Low-cost carrier.(n.d.). Retrieved January 20, 2006 fromhttp://www.answers.com/topic/lowcost-carrier Piercy, N. (2000). Reinventing the airline business. Businesscases.org,Case Nos. 00068.Retrieved January 20, support 2006 AirAsia

from http://www.businesscases.org/newInterface/sample.pdf Stakeholders expansion plan. (2005, November 26). The New Straits Times,BIZWEEK p.B6.The skys the limit. (2006, April 1). The New Straits Times,BIZWEEK p. BW13

The thrills of no-frills: discount carriers are taking off in Asia.(2003, December 19). Retrieved January 20,2006 fromhttp://www.asiapacificbusiness.ca/apbn/pdfs/bulletin139.pdf Warner, B.A. (2002, March). Fast, cheap and out of control. Finance Committee on Corporate Governance (1999), Report on Corporate Governance, 1st

31

edn, Securities Commission, Malaysia.

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33

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Farrar, Donald E. and Lee L. Selwyn, 1967, Taxes, Corporate Financial Policy and Return to investors, National Tax Journal, 20, 444-462. Brennan, Michael J., 1970, Taxes, Market Valuation, and Corporation Financial Policy, National Tax Journal, 23, 417-427. Akerlof, George, 1970, the market for Lemons: Quality Uncertainty and the market mechanism, the quarterly Journal of economics, 84, 488-500. Spence, Michael, 1973, Job Market Signaling, The quarterly Journal of Economics, 87, 355-374 Spence, Michael, 1974, Competitive and Optimal Responses to Signals: An analysis of efficiency and distribution, Journal of Economic theory, 7, 296-332. Smith, Adam, 1937, the wealth of Nations, New York: Random house, Inc. Fama, Eugene F. and Michael C. Jensen, 1983a, Separation of Ownership and Control, Journal of Law and Economics, 26, 301-325. Fama, Eugene F. and Michael C. Jensen, 1983b, Separation of Ownership and Control, Journal of Law and Economics, 26, 301-325. Jensen, Michael C., 1986, Agency Cost of Free Cash flow, Corporate Finance, and Takeovers, The American Economic Review, 76, 323-329. Schiller, Robert J., 1984, Stock Prices and Social Dynamics, Brokkings Papers on Economic Activity, 457-510. Michel, Allen J., 1979, Industry Influence on Dividend Policy, Financial Management, 8, Fall, 22-26. Ho, Kwok and Chris Robinson, 1992, Dividend Policy is relevant in perfect Markets, Unpublished working paper. Frankfurter, George M. and William R. Lane, 1992, The Rationality of Dividends, International Review of Financial Analysis, 1, 115-129. Myers, Stewart C., 1984, The capital Structure Puzzle, The Journal of Finance, 39, 575592. http://en.wikipedia.org/wiki/Cost_of_capital#cite_note-0 http://www.answers.com/topic/cost-of-debt-1 http://en.wikipedia.org/wiki/Cost_of_equity
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http://en.wikipedia.org/wiki/Risk_premium

YTL Corporation http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?symbol=MYR http://www.ytl.com.my/listedinfo.asp?n=ytl power http://www.reuters.com/finance/stocks/incomeStatement?

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

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

http://www.airasia.com/site/en/pageWithMenu.jsp?name=FAQs&id=2efe4435c0a8c85d-177e6b40-8371b4bc&rootId=50ae1200-c0a8c85d-1410a850baad6a43&parentId=2efe4435-c0a8c85d-177e6b40-8371b4bc

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

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

http://www.airasia.com/storage/bo/aaportal.model.ContentFileUpload/893fa2807f000010-6aa95b00-a2c338c0/name/AA_2Q08_Bursa%20Announcement.pdf

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

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