Professional Documents
Culture Documents
(10601-W)
Malaysian Airline System Berhad Annual Report 04/05 147
(10601-W)
financial report
Performance Highlights - 148
Expenditure - 149
Analysis of Airline Operations - 150
Revenue Composition - 151
Group Financial Highlights - 152
Corporate Charts - 154
Directors Report - 158
Statement by Directors - 162
Statutory Declaration - 163
Report of the Auditors - 164
Income Statements - 165
Balance Sheet - 166
Statements of Changes in Equity - 167
Cash Flow Statements - 168
Notes to the Financial Statements - 170
Statistics on Shareholdings - 219
List of Company Properties - 222
Glossary - 228
Form of Proxy
Request Form
148 Malaysian Airline System Berhad Annual Report 04/05
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performance highlights
Financial
Operating Statistics
COMPANY
Operating Statistics
expenditure
COMPANY
Expenditure
%
29.6 29.5
17.3 17.7
16.2 16.6 16.2
14.9 14.5
13.4
5.2 5.1
1.9 1.9
0.0 0.0
Staff Costs Depreciation Fuel & Oil Handling & Hire of Aircraft Finance Commission & Others
Landing Costs & Equipment Charges Incentives
GROUP
COMPANY
150 Malaysian Airline System Berhad Annual Report 04/05
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ROUTE REVENUE
Malaysia - - 0.0
Asia 1,656.4 1,356.2 22.1
Europe and Middle East 3,899.1 2,919.6 33.5
Australia and New Zealand 1,740.1 1,402.6 24.1
Africa and South America 275.8 223.6 23.3
Orient and North America 2,628.8 1,845.6 42.4
Malaysia - - 0.0
Asia 63.8 66.1 (3.5)
Europe and Middle East 71.9 68.4 5.1
Australia and New Zealand 67.5 70.9 (4.8)
Africa and South America 77.8 66.8 16.5
Orient and North America 66.2 62.4 6.1
Malaysia - - 0.0
Asia 63.5 69.1 (8.1)
Europe and Middle East 67.8 67.5 0.4
Australia and New Zealand 59.4 65.3 (9.0)
Africa and South America 71.2 64.3 10.7
Orient and North America 65.4 66.4 (1.5)
route revenue
%
38.2 37.7
25.8
23.8
17.5
16.2 17.1 18.1
2.7 2.9
0.0 0.0
Malaysia Asia Europe and Australia and Africa and Orient and
Middle East New Zealand South America North America
2004/2005
2003/2004
Malaysian Airline System Berhad Annual Report 04/05 151
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revenue composition
by category
2004 2003 CHANGE
2005 2004
RM MIL RM MIL %
GROUP
COMPANY
82.0
71.1
16.1
10.5
7.4 8.2
1.2 1.3 1.1 1.1
GROUP
COMPANY
152 Malaysian Airline System Berhad Annual Report 04/05
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95/96 2.2
96/97 1.5
97/98 2.2
98/99 1.3
99/00 0.6
00/01 0.0
RM
01/02 1.5
02/03 1.1
03/04 0.9
04/05 0.5
04/05
03/04
02/03
01/02
00/01
99/00
98/99
97/98
96/97
95/96
95/96 6.23
96/97 6.76
97/98 2.81
98/99 1.68
99/00 1.74
00/01 0.89
RM 01/02 1.98
02/03 2.04
03/04 2.41
04/05 2.65
04/05
03/04
02/03
01/02
00/01
99/00
98/99
97/98
96/97
95/96
95/96 7.5
96/97 10.0
97/98 2.0
98/99 2.0
sen 99/00 2.0
00/01 -
01/02 -
02/03 -
03/04 -
04/05 2.5
04/05
03/04
02/03
01/02
00/01
99/00
98/99
97/98
96/97
95/96
154 Malaysian Airline System Berhad Annual Report 04/05
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corporate charts
Million
12000
10000
8000
6000
4000
2000
0
95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
Revenue Tonne Kilometres Available Tonne Kilometres
04/05
03/04
02/03
01/02
00/01
99/00
98/99
97/98
96/97
95/96
Malaysian Airline System Berhad Annual Report 04/05 155
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CORPORATE CHARTS
Million
80000
70000
60000
50000
40000
30000
20000
10000
0
95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
04/05
03/04
02/03
01/02
00/01
99/00
98/99
97/98
96/97
95/96
156 Malaysian Airline System Berhad Annual Report 04/05
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CORPORATE CHARTS
RM Million
80000
70000
60000
50000
40000
30000
20000
10000
0
95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
CORPORATE CHARTS
000
10000
8000
6000
4000
2000
0
95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
National Passengers International Passengers
Cargo Carried
1995/96 1,328
1996/97 1,420
1997/98 1,532
1998/99 1,477
1999/00 1,665
Million 2000/01 1,837
2001/02 1,759
2002/03 2,071
2003/04 2,187
2004/05 2,690
04/05
03/04
02/03
01/02
00/01
99/00
98/99
97/98
96/97
95/96
158 Malaysian Airline System Berhad Annual Report 04/05
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directors report
Malaysian Airline System Berhad (10601-W) (Incorporated in Malaysia)
The directors have pleasure in presenting their report together with the audited financial statements of the
Group and of the Company for the financial year ended 31 March 2005.
PRINCIPAL ACTIVITIES
The Company is principally engaged in the business of air transportation and the provision of related services.
The principal activities of the subsidiaries are described in Note 30 to the financial statements.
There have been no significant changes in the nature of these activities during the financial year.
RESULTS
GROUP COMPANY
RM000 RM000
There were no material transfers to or from reserves or provision during the financial year other than as
disclosed in the statements of changes in equity.
In the opinion of the directors, the results of the Group and of the Company during the financial year were
not substantially affected by any item, transaction or event of a material or unusual nature, other than as
disclosed in the financial statements.
DIVIDENDS
The dividends paid by the Company since 31 March 2004 were as follows:
In respect of the financial year ended 31 March 2004, as shown in the Directors report of that financial year:
RM000
A final tax exempt dividend of 2.5% paid on 12 October 2004 31,331
At the forthcoming Annual General Meeting, a final tax exempt dividend in respect of the financial year
ended 31 March 2005, of 2.5 sen net per share on 1,253,243,865 ordinary shares, amounting to a total
dividend payable of RM31,331,097 ( 2.5 sen net per share) will be proposed for shareholders approval. The
financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if
approved by the shareholders, will be accounted for in shareholders equity as an appropriation of retained
profits in the financial period ending 31 December 2005.
Malaysian Airline System Berhad Annual Report 04/05 159
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DIRECTORS REPORT
DIRECTORS
The names of the directors of the Company in office since the date of the last report and at the date of this
report are:
Dato Dr. Mohd Munir bin Abdul Majid (appointed on 1 June 2004)
Dato N. Sadasivan a/l N.N. Pillay
Dato Ahmad Fuaad bin Mohd Dahalan
Dato Izzuddin bin Dali (appointed on 13 September 2004)
Dato Mohd Annuar bin Zaini (appointed on 2 February 2005)
Dato Mohamed Azman bin Yahya
Datuk Amar Haji Abdul Aziz bin Haji Husain
Datuk Abdillah @ Abdullah bin Hassan @ S Hassan
Keong Choon Keat
Martin Gilbert Barrow
Tengku Azmil Zahruddin bin Raja Abdul Aziz (appointed on 23 August 2004
and ceased as alternate director to
Dato Gumuri bin Haji Hussain on
16 August 2004)
Datu Haji Salleh bin Haji Sulaiman (alternate to Datuk Amar Haji
Abdul Aziz bin Haji Husain)
Abdul Rahman bin Abdul Ghani (alternate to Datuk Haji S Abdillah
@ Abdullah bin Hassan @ S Hassan)
Tan Sri Dato Seri Azizan bin Zainul Abidin (passed away on 14 July 2004)
Tan Sri Dato Dr. Samsudin bin Hitam (resigned on 1 August 2004)
Dato Zaharaah binti Shaari (resigned on 2 November 2004)
Dato Gumuri bin Haji Hussain (resigned on 16 August 2004)
Jusof bin Ismail (alternate to Tan Sri Dato
Dr. Samsudin bin Hitam)
(resigned on 1 August 2004)
In accordance with Article 137 of the Companys Articles of Association, Dato Izzuddin bin Dali and Dato
Mohd Annuar bin Zaini, who were appointed during the year, retire at the forthcoming Annual General
Meeting and being eligible, offer themselves for election.
In accordance with Article 139 of the Companys Articles of Association, Dato Mohamed Azman bin Yahya,
Dato N. Sadasivan a/l N.N. Pillay and Datuk Abdillah @ Abdullah bin Hassan @ S Hassan retire by rotation at
the forthcoming Annual General Meeting and being eligible, offer themselves for re-election.
160 Malaysian Airline System Berhad Annual Report 04/05
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DIRECTORS REPORT
DIRECTORS BENEFITS
Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangements
to which the Company was a party, whereby the directors might acquire benefits by means of the acquisition
of shares in or debentures of the Company or any other body corporate.
Since the end of the previous financial year, no director has received or become entitled to receive a benefit
(other than a benefit included in the aggregate amount of emoluments received or due and receivable by
the directors as disclosed in Note 6 to the financial statements) by reason of a contract made by the Company
or a related corporation with any director or with a firm of which he is a member, or with a company in
which he has a substantial financial interest.
DIRECTORS INTERESTS
According to the register of directors shareholdings, none of the directors in office at the end of the financial
year had any interests in shares in the Company and its related corporations during the financial year.
(a) Before the income statements and balance sheets of the Group and of the Company were made out,
the directors took reasonable steps:
(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the
making of provision for doubtful debts and satisfied themselves that there were no known bad
debts and that adequate provision had been made for doubtful debts; and
(ii) to ensure that any current assets which were unlikely to realise their values as shown in the
accounting records in the ordinary course of business had been written down to an amount which
they might be expected so to realise.
(b) At the date of this report, the directors are not aware of any circumstances which would render:
(i) it necessary to write off any bad debts or the amount of the provision for doubtful debts inadequate
to any substantial extent; and
(ii) the values attributed to the current assets in the financial statements of the Group and of the
Company misleading.
(c) At the date of this report, the directors are not aware of any circumstances which have arisen which
would render adherence to the existing method of valuation of assets or liabilities of the Group and of
the Company misleading or inappropriate.
(d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in
this report or financial statements of the Group and of the Company which would render any amount
stated in the financial statements misleading.
(i) any charge on the assets of the Group or of the Company which has arisen since the end of the
financial year which secures the liabilities of any other person; or
(ii) any contingent liability of the Group or of the Company which has arisen since the end of the
financial year.
Malaysian Airline System Berhad Annual Report 04/05 161
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DIRECTORS REPORT
(i) no contingent or other liability has become enforceable or is likely to become enforceable within
the period of twelve months after the end of the financial year which will or may affect the ability
of the Group or of the Company to meet their obligations when they fall due; and
(ii) no item, transaction or event of a material and unusual nature has arisen in the interval between
the end of the financial year and the date of this report which is likely to affect substantially the
results of the operations of the Group or of the Company for the financial year in which this report
is made.
SIGNIFICANT EVENT
AUDITORS
The auditors, Ernst & Young, have expressed their willingness to continue in office.
statement by directors
pursuant to section 169 (15) of the companies act, 1965
We, Dato Dr. Mohd Munir bin Abdul Majid and Dato Ahmad Fuaad bin Mohd Dahalan, being two of the
directors of Malaysian Airline System Berhad, do hereby state that, in the opinion of the directors, the
accompanying financial statements set out on pages 165 to 218 are drawn up in accordance with applicable
MASB Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965 so as to
give a true and fair view of the financial position of the Group and of the Company as at 31 March 2005 and
of the results and the cash flows of the Group and of the Company for the year then ended.
statutory declaration
pursuant to section 169 (16) of the companies act, 1965
I, Low Chee Teng, being the officer primarily responsible for the financial management of Malaysian Airline
System Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on
pages 165 to 218 are in my opinion correct, and I make this solemn declaration conscientiously believing the
same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.
Before me,
It is our responsibility to form an independent opinion, based on our audit, on the financial statements and
to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for
no other purpose. We do not assume responsibility to any other person for the content of this report.
We conducted our audit in accordance with applicable Approved Standards on Auditing in Malaysia. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the directors, as well as evaluating the overall
presentation of the financial statements. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion:
(a) the financial statements have been properly drawn up in accordance with the provisions of the
Companies Act, 1965 and applicable MASB Approved Accounting Standards in Malaysia so as to
give a true and fair view of:
(i) the financial position of the Group and of the Company as at 31 March 2005 and of the results
and the cash flows of the Group and of the Company for the year then ended; and
(ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial
statements; and
(b) the accounting and other records and the registers required by the Act to be kept by the Company
and by its subsidiaries have been properly kept in accordance with the provisions of the Act.
We are satisfied that the financial statements of the subsidiaries that have been consolidated with the
Companys 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.
INCOME STATEMENTS
for the year ended 31 March 2005
GROUP COMPANY
2005 2004 2005 2004
Note RM000 RM000 RM000 RM000
BALANCE SHEETS
as at 31 March 2005
GROUP COMPANY
2005 2004 2005 2004
Note RM000 RM000 RM000 RM000
NON-CURRENT ASSETS
Aircraft modifications/retrofits,
property and equipment 12 2,054,455 1,661,974 1,556,479 1,269,636
Investments 13 194,676 161,625 271,670 253,803
Due from subsidiaries 14 - - 264,946 259,693
Due from fellow subsidiary 16(b) 395,819 441,888 395,819 441,888
Deferred tax assets 22 103,219 126,232 - -
CURRENT ASSETS
CURRENT LIABILITIES
FINANCED BY:
NON -
DISTRIBUTABLE DISTRIBUTABLE
SHARE SHARE GENERAL ACCUMULATED TOTAL
CAPITAL PREMIUM RESERVES LOSSES RESERVES TOTAL
RM000 RM000 RM000 RM000 RM000 RM000
GROUP
COMPANY
GROUP COMPANY
2005 2004 2005 2004
RM000 RM000 RM000 RM000
GROUP COMPANY
2005 2004 2005 2004
RM000 RM000 RM000 RM000
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS 3,685 1,258,707 (118) 1,257,746
1. CORPORATE INFORMATION
The Company is principally engaged in the business of air transportation and the provision of related services.
The principal activities of the subsidiaries are described in Note 30. There have been no significant changes
in the nature of these activities during the financial year.
The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on
the Main Board of Bursa Malaysia Securities Berhad. The registered office of the Company is located at 33rd
Floor, Bangunan MAS, Jalan Sultan Ismail, 50250 Kuala Lumpur.
The holding and ultimate holding companies of the Company are Penerbangan Malaysia Berhad (PMB)
and Khazanah Nasional Berhad, respectively, both of which are incorporated in Malaysia.
The number of employees in the Group and in the Company at the end of the financial year were 22,513
(2004 : 20,789) and 20,087 (2004 : 18,712) respectively.
The financial statements were authorised for issue by the Board of Directors in accordance with a resolution
of the directors on 30 May 2005.
The financial statements of the Group and of the Company have been prepared under the historical
cost convention unless otherwise indicated in the accounting policies below and comply with applicable
MASB Approved Accounting Standards in Malaysia.
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.
Passenger ticket and cargo airwaybill sales are recognised as revenue, net of discount, in the income
statement when the transportation services are rendered. The value of unutilised tickets and
airwaybills is included in current liabilities as sales in advance of carriage. Tickets and airwaybills
that remain unutilised after 18 months subsequent to their respective date of issue are recognised
in the income statement as unavailed credits on sales in advance of carriage.
The commission on passenger ticket and airwaybill sales is recognised in the income statement
when the transportation services are rendered.
Engineering, catering and other revenue is recognised, net of discount, upon completion of services
rendered.
Revenue from room rental and other hotel services are recognised on accrual basis. Revenue from
sale of food and beverage are recognised based on their invoiced value of goods sold.
Interest income is recognised on accrual basis whilst dividend income is recognised when the
shareholders' right to receive payment is established.
Malaysian Airline System Berhad Annual Report 04/05 171
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The consolidated financial statements include the financial statements of the Company and all its
subsidiaries. Subsidiaries are those companies in which the Group has a long term equity interest and
where it has power to exercise control over the financial and operating policies so as to obtain benefits
therefrom.
Subsidiaries are consolidated using the acquisition method of accounting. Under the acquisition method
of accounting, the results of subsidiaries acquired or disposed of during the period are included in the
consolidated income statement from the effective date of acquisition or up to the effective date of
disposal, as appropriate. The assets and liabilities of a subsidiary are measured at their fair values at the
date of acquisition and these values are reflected in the consolidated balance sheet. The difference
between the cost of an acquisition and the fair value of the Group's share of the net assets of the
acquired subsidiary at the date of acquisition is included in the consolidated balance sheet as goodwill
or negative goodwill arising on consolidation.
Intragroup transactions, balances and resulting unrealised gains are eliminated on consolidation and
the consolidated financial statements reflect external transactions only. Unrealised losses are eliminated
on consolidation unless costs cannot be recovered.
The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the
Group's share of its net assets together with any unamortised balance of goodwill and exchange
differences.
Minority interests in the consolidated balance sheet consist of the minorities' share of the fair value of
the identifiable assets and liabilities of the acquiree as at the acquisition date and the minorities' share
of movements in the acquiree's equity since then.
The Group treats as associated companies those companies in which the Group has a long term equity
interest and is in a position to exercise significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the associated companies but not control
over those policies.
Investments in associated companies are accounted for in the consolidated financial statements by the
equity method of accounting based on the audited or management financial statements of the associated
companies.
Under the equity method of accounting, the Group's share of post acquisition profits less losses of
associated companies is included in the consolidated income statements. The Group's interest in
associated companies is carried in the consolidated balance sheet at cost plus the Group's share of post-
acquisition retained profits or accumulated losses and other reserves as well as goodwill on acquisition.
Unrealised gains on transactions between the Group and the associated companies are eliminated to
the extent of the Group's interest in the associated companies. Unrealised losses are eliminated unless
cost cannot be recovered.
The difference between the purchase consideration and the fair value of net assets acquired is reflected
as goodwill or reserve on acquisition and is not amortised. The carrying value of the goodwill is reviewed
annually and is written down for impairment where it is considered necessary.
172 Malaysian Airline System Berhad Annual Report 04/05
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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 Groups interest in the fair value of
the identifiable assets and liabilities of a subsidiary, associates or jointly controlled entity at the date of
acquisition.
Goodwill is stated at cost less impairment losses. Goodwill is reviewed at each balance sheet date and
will be written down for impairment losses when it arises.
Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet while
goodwill arising on the acquisition of associates and jointly controlled entities is included within the
respective carrying amounts of these investments.
Negative goodwill represents the excess of the Groups interest in the fair value of the identifiable
assets and liabilities of a subsidiary, associates or jointly controlled entity at the date of acquisition over
the cost of acquisition.
To the extent that negative goodwill relates to expectation of future losses and expenses that are
identified in the plan of acquisition and can be measured reliably, but which are not identifiable liabilities
at the date of acquisition, that portion of negative goodwill is recognised in the income statement
when the future losses and expenses are recognised.
Transactions in foreign currencies are initially recorded in Ringgit Malaysia at rates of exchange
ruling at the transaction dates. At each balance sheet date, foreign currency monetary items are
translated into Ringgit Malaysia at exchange rates ruling at that date unless hedged by forward
foreign exchange contracts, in which case the rates specified in such forward contracts are used.
Non-monetary items initially denominated in foreign currencies, which are carried at historical cost
are translated using the historical rate as of the date of acquisition and non-monetary items which
are carried at fair value are translated using the exchange rate that existed when the values were
determined. All exchange differences are taken to the income statement.
Malaysian Airline System Berhad Annual Report 04/05 173
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Financial statements of foreign associated companies are translated at year-end exchange rates
with respect to the assets and liabilities, and at exchange rates at the dates of the transactions with
respect to the income statement. All resulting translation differences are taken to equity.
The principal exchange rates used for every unit of foreign currency ruling at balance sheet date
are as follows:
2005 2004
RM RM
United States Dollar 3.8000 3.8000
Euro 4.9261 4.6440
Great Britain Pound 7.1840 6.9810
Japanese Yen 0.0355 0.0367
Singapore Dollar 2.2678 2.2703
Australian Dollar 2.9372 2.8967
Property and equipment are stated at cost or valuation less accumulated depreciation and impairment
losses.
(i) Aircraft modifications/retrofits are depreciated over 7 years or the remaining life of the lease,
whichever is lesser.
(ii) Spare engines are depreciated over their estimated useful commercial lives, which ranges from 7 to
15 years, having regard to their planned withdrawal from services.
(iii) Repairable and rotable aircraft spares are depreciated over the remaining lease period of the aircraft
to which they relate.
Freehold land is not depreciated. Leasehold land is depreciated over the lease period, ranging from
60 to 99 years.
Certain leasehold land and buildings of the Company were revalued by the directors in 1985 based
upon a valuation report dated 15 November 1984 prepared by the Government Valuers using the
"Open Market Value" basis. The directors have not adopted a policy of regular revaluations of
these assets. As permitted under the transitional provisions of International Accounting Standard
No. 16 (Revised): Property, Plant and Equipment adopted by the Malaysian Accounting Standards
Board, these assets continue to be stated at their 1985 valuation less accumulated depreciation and
accumulated impairment losses.
174 Malaysian Airline System Berhad Annual Report 04/05
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Hotel properties comprise land and the hotel buildings, including the integral plant and machinery.
No depreciation is provided on hotel properties. The directors are of the opinion that it is more
appropriate not to depreciate hotel properties since it is the Company's practice to maintain all its
hotel properties to a high standard and condition in order to maintain residual values at least
equal to their respective book values such that depreciation would be insignificant. The related
maintenance expenditures are dealt with in the income statement.
In order to establish whether hotel properties have maintained residual value at least equal to
their respective book values, all hotel properties are appraised by independent professional valuers
at least once in every three (3) years.
Surpluses arising from revaluation are dealt with in the Asset Revaluation Reserve. Any deficit
arising is offset against the Asset Revaluation Reserve to the extent of a previous increase for the
same property. In all other cases, a decrease in carrying amount is charged to the income statement.
Upon the disposal of an item of hotel properties, the difference between the net disposal proceeds
and the carrying amount is recognised in the income statement.
Depreciation is provided to the residual values of all operating equipment, office equipment and
motor vehicles on a straight line basis over their estimated useful lives, which range from 2 to 10
years.
Progress payments on aircraft, simulators and properties under construction are stated at cost and
are not depreciated until the respective assets are ready for their intended use.
Where an indication of impairment of a category of asset exists, the carrying amount of the category of
assets is revisited, and if found to be in excess of recoverable amount, it is written down immediately to
its recoverable amount.
Upon the disposal of an item of aircraft modifications/retrofits, spare engines, property or equipment,
the difference between the net disposal proceeds and the carrying amount is recognised in the income
statement.
(i) Inventories
Inventories comprising consumable aircraft spares, catering and other stores are stated at the lower of
cost (determined on a weighted average basis) and net realisable value.
Malaysian Airline System Berhad Annual Report 04/05 175
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Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the
expected amount of income taxes payable in respect of the taxable profit for the year and is measured
using the tax rates that have been enacted at the balance sheet date.
Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet
date between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred
tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax
credits to the extent that it is probable that taxable profit will be available against which these can be
utilised. Deferred tax is not recognised if the temporary difference arises from goodwill or negative
goodwill or from the initial recognition of an asset or liability in a transaction which is not a business
combination and at the time of the transaction, affects neither accounting profit nor taxable profit.
Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is
realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at
the balance sheet date. Deferred tax is recognised in the income statement, except when it arises from
a transaction which is recognised directly in equity, in which case the deferred tax is also charged or
credited directly in equity, or when it arises from a business combination that is an acquisition, in which
case the deferred tax is included in the resulting goodwill or negative goodwill.
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.
As required by law, companies incorporated in Malaysia contribute to the state pension scheme,
the Employees Provident Fund. Retirement plans for employees of overseas stations are accrued
for in accordance with the provisions of those foreign countries retirement schemes and are charged
to income statements in the period to which they relate.
(l) Leases
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 Groups other assets as set out in (h) above. Outstanding
obligations due under the lease agreements after deducting finance expenses are included as
liabilities in the financial statements. The finance expenses are recognised in the income statement
over the period of the respective agreements so as to produce a constant periodic rate of charge on
the remaining balance of the obligations for each accounting period.
176 Malaysian Airline System Berhad Annual Report 04/05
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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.
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.
For the purpose of the cash flow statements, cash and cash equivalents include cash in hand and at
bank and deposits at call and short term highly liquid investments which have an insignificant risk of
changes in value.
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.
Provisions for liabilities are recognised when the Group and the Company have a present obligation as
a result of a past event and it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions
are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
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.
Development and training costs are recognised in the income statement in the year in which they are
incurred.
The Company operates its own frequent flyer programme named "Enrich" which awards members
based on accumulated mileage. The Company accrues for the liability under the programme and
recognises in the income statement the amount equal to the mileage earned multiplied by the applicable
rates. Upon redemption by members or expiration of the mileage awards, the accrual is reduced
accordingly.
Malaysian Airline System Berhad Annual Report 04/05 177
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Interest-bearing bank loans and overdrafts are recorded as the amount of proceeds received.
Interests on term loans obtained to finance progress payments for aircraft purchases and properties
under construction are capitalised as progress payments in those assets until the aircraft and buildings
are ready for their intended use. Interest costs incurred thereafter are recognised in the income statement.
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.
Financial instruments are recognised in the balance sheet when the Group has become a party to the
contractual provisions of the instrument. Financial instruments are classified as liabilities or equity in
accordance with the substance of the contractual arrangement. The particular recognition method
adopted for financial instruments recognised in the balance sheet is disclosed in the individual accounting
policies associated with each item.
The Group's policy on the use of derivative financial instruments is not for speculative purposes but to
use these instruments as hedges against specific exposures.
The Group enters into forward foreign exchange contracts to cover a portion of future capital, revenue
and operating payments in a variety of currencies in order to manage its foreign currency risk. The
Group also enters into forward fuel contracts to manage its fuel price risk and forward interest rate
contracts to manage its operating lease rental payments for aircraft.
Gains or losses arising from forward contracts on foreign currencies, fuel and interest rates are recognised
upon maturity in the income statement as realised exchange differences, component of fuel costs and
lease rental payments respectively.
At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether
there is any indication of impairment. If any such indication exists, impairment is measured by comparing
the carrying values of the assets with their recoverable amounts. Recoverable amount is the higher of
net selling price and value in use, which is measured by reference to discounted future cash flows.
An impairment loss is recognised as an expense in the income statement immediately, unless the asset
is carried at a revalued amount. Any impairment loss of a revalued asset is treated as a revaluation
decrease to the extent of any unutilised previously recognised revaluation surplus for the same asset.
178 Malaysian Airline System Berhad Annual Report 04/05
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3. REVENUE
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
Traffic revenue:
Scheduled services
- passenger and baggage 9,017,364 7,346,072 8,914,548 7,346,072
- cargo and mail 2,061,320 1,672,156 813,342 748,651
Other revenue:
Lease of aircraft and engines - 3,530 28,127 41,133
Airport handling services 147,363 89,465 147,363 89,465
Unavailed credits on sales in
advance of carriage 247,492 236,746 247,492 236,746
Catering and cleaning services 11,014 38,627 10,950 5,986
Charter services 138,587 84,009 115,400 62,582
Fuel surcharge 377,643 83,611 146,422 -
Others* 300,014 304,209 76,050 46,440
* Included in 'Others' for the Group are revenues from the provision of computerised reservation services,
coach transportation, trucking and warehousing services, retailing of goods, terminal charges, hotel
operations, tour and travel related activities.
Malaysian Airline System Berhad Annual Report 04/05 179
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4. EXPENDITURE
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
5. STAFF COSTS
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
6. DIRECTORS REMUNERATION
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
Executive:
Salaries and other emoluments 639 897 639 897
Benefits-in-kind 1 1 1 1
Non-executive:
Fees and other allowances
- current 537 435 534 429
- underprovision in prior years - 130 - 130
The number of directors of the Company whose total remuneration during the year fall within the following
bands is as follows:
Number of Directors
2005 2004
Executive directors:
RM600,001 to RM650,000 1 -
RM850,001 to RM900,000 - 1
Non-executive directors:
Below RM50,000 14 15
RM100,001 to RM150,000 1 -
RM150,001 to RM200,000 1 2
Malaysian Airline System Berhad Annual Report 04/05 181
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7. OTHER INCOME
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
(a) In accordance with the Agreement for Aircraft and Finance Agreements Unbundling entered into with
PMB, the Company is entitled to a 80% share of the gain on disposal of certain aircraft unbundled to
PMB.
182 Malaysian Airline System Berhad Annual Report 04/05
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9. TAXATION
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
22,707 (127,311) - -
There is no provision for Malaysian taxation for the Company in the current financial year as the Company
has been granted an extension of the tax exemption status by the Ministry of Finance on its chargeable
income in respect of all sources of income vide the Income Tax (Exemption) (No. 25) Order 2001. The extension
is valid for a period of five years from year of assessment 2001 up to year of assessment 2005.
As at 31 March 2005, the Company has tax exempt income account of approximately RM9,499,482,000
(2004 : RM9,106,255,000) available to pay tax exempt dividends up to two levels of shareholders, subject to
agreement with the Inland Revenue Board.
Domestic income tax is calculated at the Malaysian statutory tax rate of 28% (2004 : 28%) of the estimated
assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
Certain subsidiaries of the Group qualify for tax incentive under small-medium enterprise by virtue of having
an issued and paid up share capital which is below RM2,500,000. Under this incentive, the subsidiaries enjoy
a tax rate of 20% for the first RM500,000 of the estimated assessable profit and 28% for assessable profit
exceeding RM500,000.
Malaysian Airline System Berhad Annual Report 04/05 183
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A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate
to income tax expense at the effective income tax rate of the Group and of the Company is as follows:
GROUP
2005 2004
RM'000 RM'000
COMPANY
2005 2004
RM'000 RM'000
Basic earnings per share is calculated by dividing the net profit for the year attributable to shareholders by
the weighted average number of ordinary shares in issue during the financial year.
GROUP
2005 2004
Net profit for the year attributable to shareholders (RM'000) 326,079 461,143
Weighted average number of ordinary shares in issue ('000) 1,253,244 1,253,244
Basic earnings per share (sen) 26.0 36.8
11.DIVIDEND
Final
Aircraft Operating
modifications/ equipment,
retrofits, office
engines equipment
Land and and and motor Progress
buildings spares vehicles payments Total
RM'000 RM'000 RM'000 RM'000 RM'000
GROUP
Cost/Valuation
Representing:
At cost 1,256,582 1,296,397 1,577,089 151,460 4,281,528
At valuation 183,434 - - - 183,434
Accumulated Depreciation
Representing:
At cost 393,423 686,621 1,241,243 - 2,321,287
At valuation 89,220 - - - 89,220
At 31 March 2005
At cost 863,159 609,776 335,846 151,460 1,960,241
At valuation 94,214 - - - 94,214
At 31 March 2004
At cost 550,089 421,912 288,566 303,729 1,564,296
At valuation 97,678 - - - 97,678
Depreciation charge
for 31 March 2004 28,413 79,069 106,776 - 214,258
186 Malaysian Airline System Berhad Annual Report 04/05
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Aircraft Operating
modifications/ equipment,
retrofits, office
engines equipment
Land and and and motor Progress
buildings spares vehicles payments Total
RM'000 RM'000 RM'000 RM'000 RM'000
COMPANY
Cost/Valuation
Representing:
At cost 933,215 1,296,397 1,139,982 119,015 3,488,609
At valuation 183,434 - - - 183,434
Accumulated Depreciation
Representing:
At cost 389,407 686,621 950,316 - 2,026,344
At valuation 89,220 - - - 89,220
At 31 March 2005
At cost 543,808 609,776 189,666 119,015 1,462,265
At valuation 94,214 - - - 94,214
At 31 March 2004
At cost 548,238 421,912 146,974 54,834 1,171,958
At valuation 97,678 - - - 97,678
Depreciation charge
for 31 March 2004 28,011 79,069 53,523 - 160,603
Malaysian Airline System Berhad Annual Report 04/05 187
(10601-W)
Freehold Leasehold
land land Buildings Total
RM'000 RM'000 RM'000 RM'000
GROUP
Cost/Valuation
Representing:
At cost 8,320 90,860 1,157,402 1,256,582
At valuation - 54,580 128,854 183,434
Accumulated Depreciation
Representing:
At cost - 152 393,271 393,423
At valuation - 11,851 77,369 89,220
At 31 March 2005
At cost 8,320 90,708 764,131 863,159
At valuation - 42,729 51,485 94,214
At 31 March 2004
At cost 6,721 - 543,368 550,089
At valuation - 43,333 54,345 97,678
Freehold Leasehold
land land Buildings Total
RM'000 RM'000 RM'000 RM'000
COMPANY
Cost/Valuation
Representing:
At cost 6,721 16,429 910,065 933,215
At valuation - 54,580 128,854 183,434
Accumulated Depreciation
Representing:
At cost - 152 389,255 389,407
At valuation - 11,851 77,369 89,220
At 31 March 2005
At cost 6,721 16,277 520,810 543,808
At valuation - 42,729 51,485 94,214
At 31 March 2004
At cost 6,721 - 541,517 548,238
At valuation - 43,333 54,345 97,678
Certain buildings of the Group and the Company have been constructed on Federal and State
Government land in which the lease arrangements are being formalised.
Included in the leasehold land and building is a piece of land costing approximately RM44,031,000
(2004: RM44,031,000 included in progress payment) whereby the transfer of land title is pending the
approval of the relevant authorities.
Included in leasehold land is leasehold land with unexpired period of less than 50 years with net book
value of RM682,000 (2004 : RM702,000).
Spare Aircraft
engines spares Total
GROUP AND COMPANY RM'000 RM'000 RM'000
Cost
Accumulated Depreciation
Office
Operating furniture
plant and and Motor
equipment equipment vehicles Total
GROUP RM'000 RM'000 RM'000 RM'000
Cost
Accumulated Depreciation
Office
Operating furniture
plant and and Motor
equipment equipment vehicles Total
COMPANY RM'000 RM'000 RM'000 RM'000
Cost
Accumulated Depreciation
Aircraft
equipment Properties
and under
simulators construction Total
RM'000 RM'000 RM'000
GROUP
Cost
COMPANY
Cost
(e) Had the revalued land and buildings been carried at historical cost less accumulated depreciation, the
net book values of the land and buildings that would have been included in the financial statements
are as follows:
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
13.INVESTMENTS
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
Investment in subsidiaries
(Note a) - - 46,565 46,565
Investment in associated
companies (Note b) 46,845 35,629 81,274 81,274
Other investments (Note c) 147,831 125,996 143,831 125,964
- - 46,565 46,565
Represented by:
Share of net assets 19,558 7,987
Share of intangible assets 26,232 26,587
45,790 34,574
46,845 35,629
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
US Government Treasury
Strips 15,682 33,517 15,682 33,517
The US Government Treasury Strips have been pledged as substituted collateral for certain contingent
liabilities as disclosed in Note 26.
Malaysian Airline System Berhad Annual Report 04/05 195
(10601-W)
As previously reported, the Company completed its partial disposal of 70% equity interest in MAS
Catering Sdn. Bhd. (currently known as LSG Sky Chefs-Brahim's Sdn. Bhd. ("LSG")) to Gubahan Saujana
Sdn. Bhd., LSG Asia GmbH and Fahim Capital Sdn. Bhd. on 1 December 2003 for a total cash consideration
of RM175 million, thus changing it from a wholly-owned subsidiary to an associated company.
The revenue, results and cash flows of LSG up to the date of disposal were as follows:
Financial Financial
period year
ended ended
1.12.03 31.03.03
RM'000 RM'000
70,816 (141,086)
140,662
196 Malaysian Airline System Berhad Annual Report 04/05
(10601-W)
COMPANY
2005 2004
RM'000 RM'000
264,946 259,693
The amount due from subsidiaries is unsecured, interest free and has no fixed terms of repayment.
15.INVENTORIES
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
At cost:
16. RECEIVABLES
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
(a) The amount due from holding company is unsecured and has no fixed term of repayment.
Included in the amount due from holding company of the Group and the Company are the following :
(i) an amount of RM353,290,000 (2004 : RMNil) in respect of payment made on behalf of the
holding company for the purchase of aircraft.
(ii) interest bearing amount amounting to RM92,193,000 (2004: RM268,037,000) which bears
interest as at the balance sheet date at 3.55% (2004: 3.75%) per annum.
438,987 479,973
The amount due from a fellow subsidiary represents prepaid lease rentals.
198 Malaysian Airline System Berhad Annual Report 04/05
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(c) The Group's normal trade credit term ranges from 30 to 60 days. Other credit terms are assessed and
approved on a case-by-case basis.
(d) The Group has no significant concentration of credit risk that may arise from exposures to a single
debtor or to groups of debtors.
(e) Included in receivables of the Group and of the Company at the balance sheet date are balances
denominated in the following major foreign currencies:
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
The average effective interest rates of deposits at the balance sheet date were as follows:
GROUP COMPANY
2005 2004 2005 2004
% % % %
Licensed banks 1.75 - 6.50 1.65 - 5.00 1.75 - 6.50 1.65 - 5.00
Licensed finance companies 2.75 - 3.00 2.90 2.75 - 3.00 -
Other financial institutions 2.62 - 3.10 2.66 - 2.91 2.62 - 3.10 2.66 - 2.91
The average maturities of deposits as at the end of the financial year were as follows:
GROUP COMPANY
2005 2004 2005 2004
Days Days Days Days
Other financial institutions are merchant banks in Malaysia and other foreign banks.
Included in cash and bank balances of the Group and of the Company at the balance sheet date are balances
denominated in the following major foreign currencies:
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
18.DUE TO SUBSIDIARIES
The amount is unsecured, interest free and has no fixed term of repayment.
19. PAYABLES
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
The normal trade credit term granted to the Group ranges from 30 to 60 days.
Included in payables of the Group and of the Company at balance sheet date are balances denominated in
the following major foreign currencies:
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
20.SHARE CAPITAL
Authorised
Redeemable Convertible
Preference Shares of RM0.01 (Note b) 100,000,000 100,000,000 1,000,000 1,000,000
(a) The Special Rights Redeemable Preference Share ("Special Share") would enable the Government
through the Minister of Finance Incorporated ("MoF") to ensure that certain major decisions affecting
the operations of the Company are consistent with the Government's policy. The Special Share, which
may only be held by the MoF or its successors or any Minister, representative, or any person acting on
behalf of the Government of Malaysia, carries certain special rights as provided by Article 5 of the
Company's Articles of Association (as amended at the Extraordinary General Meeting held on 19 April
1995). These special rights include:
(i) the right to appoint not more than three persons at any time as directors of the Company.
(ii) the right to repayment of the capital paid up on the Special Share in priority to any other
member in the event of a winding-up of the Company.
(iii) the right to require the Company to redeem the Special Share at par at any time.
Certain matters, in particular the alterations of specified Articles of Association of the Company, require
the prior approval of the holder of the Special Share. The Special Share does not carry any right to vote
at General Meetings but the holder is entitled to attend and speak at such meetings.
202 Malaysian Airline System Berhad Annual Report 04/05
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(b) On 11 September 2001, the Company issued RM800 million Zero Dividend Redeemable Convertible
Preference Shares (''RCPS'') of RM0.01 each at an issue price of RM1.00 each to Intelek Perkasa Berhad.
The RCPS is redeemable by the Company within thirty days of its fifth anniversary (11 September 2006)
failing which it will be automatically converted into ordinary shares at a conversion price of RM3.45 per
RCPS share. The RCPS was constituted by the Subscription Agreement dated 29 August 2001.
The RCPS Investors will have the benefits of a put/call option arrangement granted by MoF as follows:
(i) the MoF will be entitled to exercise the call option to purchase all the RCPS from the RCPS Investors
seven days prior to the fifth anniversary from the date of the issue of the RCPS (''Call Option'') at an
exercise price as set out below; and
(ii) conversely, the RCPS Investors will be entitled to exercise the put option to dispose of all the RCPS
at a selling price as set out below at the end of the five years from the date of issuance of the RCPS
(''Put Date'') if and only if the Call Option is not exercised (''Put Option'').
Under the put/call arrangement, the exercise price for the RCPS payable by the MoF will be at a premium
on the issue price of the RCPS to be calculated to give the RCPS Investors an equivalent return similar to
5-year zero-coupon fixed income papers issued or guaranteed by the Government that are issued or
trading at around the time when the RCPS are issued (''Put Price'').
Subsequently, the Company can redeem the RCPS at its discretion within thirty (30) days immediately
after the Put Date at a price equivalent to the Put Price plus interest accrued from the Put Date to the
actual date of redemption by the Company calculated using one month Treasury Bills.
As mentioned in prior years reports, the Company entered into an agreement with PMB whereby the
Company agreed to redeem the RCPS upon maturity, thereby changing the nature of the RCPS from an
equity instrument to a debt instrument as defined by Malaysian Accounting Standard Board ("MASB")
24: Financial Instruments - Disclosure and Presentation. PMB then agreed to pay the redemption sum
upon maturity, resulting in the RCPS ceasing to be an obligation of the Company.
The Company has also obtained an undertaking from the MoF that in the event the MoF were to
become the holder of the RCPS through the put and call mechanism described above, the RCPS will be
allowed to lapse without any further consideration payable by the Company. Accordingly, the RCPS,
comprising share capital of RM8 million and share premium of RM792 million was derecognised in the
financial statements of the Company.
Malaysian Airline System Berhad Annual Report 04/05 203
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The general reserve relates to transfer made from retained profits in prior years.
22.DEFERRED TAXATION
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
(102,263) (124,970) - -
The components and movements of deferred tax liabilities and assets during the financial year prior to
offsetting are as follows:
Accelerated
Capital
Allowances Others Total
RM'000 RM'000 RM'000
Deferred tax assets have not been recognised in respect of the following items:
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
The unused tax losses and unabsorbed capital allowances are available indefinitely for offset against future
taxable profits of the subsidiaries in which those items arose. Deferred tax assets have not been recognised
in respect of these items as they may not be used to offset taxable profits of the other subsidiaries in the
Group and they have arisen in subsidiaries that have a recent history of losses.
The Company is in the midst of applying for an extension of its tax exemption status. As such, deferred tax
assets have not been recognised in respect of the unabsorbed capital allowances and other deductible
temporary differences.
Malaysian Airline System Berhad Annual Report 04/05 205
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23.SEGMENTAL INFORMATION
The Group operates predominantly in two business segments, being airline operations and cargo services.
Other business segments include hotel operations, catering, engineering, computerised reservation services,
coach transportation, trucking and warehousing services, retailing of goods, terminal charges and tour and
travel related activities, none of which are of a sufficient size to be reported separately.
The directors are of the opinion that all inter-segment transactions have been entered into in the normal
course of business. Belly space charges from Airline to Cargo are based on internal pricing policy. All other
inter-segment transactions have been established on terms and conditions that are not materially different
from those obtainable in transactions with unrelated parties.
206 Malaysian Airline System Berhad Annual Report 04/05
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Airline Cargo
2005 Operations Services Others Elimination Consolidated
RM'000 RM'000 RM'000 RM'000 RM'000
Revenue
External sales 8,302,323 2,580,213 68,346 - 10,950,882
Inter-segment sales 847,456 - 26,267 (873,723) -
Result
Segment results 256,726 95,827 1,821 (10,940) 343,434
Interest expense (93) (1) (43) - (137)
Share of results of
associated companies - - 21,156 - 21,156
OTHER INFORMATION
Airline Cargo
2004 Operations Services Others Elimination Consolidated
RM'000 RM'000 RM'000 RM'000 RM'000
Revenue
External sales 6,501,528 1,999,756 86,542 - 8,587,826
Inter-segment sales 804,948 - 95,161 (900,109) -
Result
Segment results 279,104 96,509 (24,140) (7,667) 343,806
Interest expense (5,916) - - - (5,916)
Share of results of
associated companies - - 7,275 - 7,275
OTHER INFORMATION
2005 2004
RM'000 RM'000
Revenue
10,200,175 7,747,629
Other revenue 750,707 840,197
10,950,882 8,587,826
Assets, which consist principally of flight and ground equipment that support the entire worldwide
transportation system, are mainly located in Malaysia. An analysis of assets and capital expenditure of the
Group by geographical distribution has therefore not been included.
Malaysian Airline System Berhad Annual Report 04/05 209
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GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
Expenses
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
Income
Expenses
The directors are of the opinion that all the transactions above have been entered into in the normal course
of business and have been established on terms and conditions that are not materially different from those
obtainable in transactions with unrelated parties.
Malaysian Airline System Berhad Annual Report 04/05 211
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25.COMMITMENTS
GROUP COMPANY
2005 2004 2005 2004
RM'000 RM'000 RM'000 RM'000
The outstanding capital commitments relate to aircraft interior reconfiguration, upgrade of inflight
entertainment system and other capital expenditure projects.
212 Malaysian Airline System Berhad Annual Report 04/05
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26.CONTINGENT LIABILITIES
Guarantees (Unsecured)
129,562 152,596
Loans
- secured 798,799 1,048,282
- unsecured 141,419 147,665
Lease payables (secured) 1,888,994 2,669,355
2,829,212 3,865,302
2,958,774 4,017,898
In connection with the Widespread Asset Unbundling ("WAU") exercise mentioned in the last report, the
Company continues to be the named borrower of finance leases and term loans which have been taken over
by the holding company and is still contractually bound to meet these borrowings in the event the holding
company defaults on the payments. As such, the outstanding balance of the borrowings assumed by the
holding company is included within the Group's and Company's contingent liabilities.
As at 31 March 2005, the Company has lease obligations amounting to RM1,514,872,000 (2004 :
RM1,722,992,000) which are covered by interest bearing funds amounting to RM1,213,459,000 (2004 :
RM1,066,974,000) placed with and payments made to financial institutions at the inception dates of the
respective lease agreements under defeasance arrangements. The defeased lease obligations, together with
the related fund placements and payments, are therefore not included in these financial statements.
The Group has in operation 111 (2004 : 109) aircraft and 36 (2004 : 36) engines under operating leases. Of
these, 27 (2004 : 31) aircraft relate to the borrowings assumed by the holding company which is included in
the Group's and the Company's contingent liabilities.
Malaysian Airline System Berhad Annual Report 04/05 213
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The directors are of the opinion that the holding company, being a subsidiary of the MoF, will be able to
meet all payments to the Company in respect of the above liabilities as and when they fall due.
In 2000, Vantage Aviation Services Ltd. ("Vantage") filed a claim for TK832,161,000 (approximately
RM48,598,000) against the Company for alleged wrongful termination of a General Sales Agency Agreement
in Dhaka, Bangladesh. The Company has filed a defence to Vantage's claims, and at the same time filed a
counter claim amounting to TK179,620,000 (approximately RM10,490,000) for breach of the agency
agreement. Similarly, in 2001 Shahjalal Aviation Systems Ltd. ("Shahjalal") filed a claim for TK2,670,000,000
(approximately RM155,928,000) against the Company for alleged wrongful termination of a General Sales
Agency Agreement in Dhaka, Bangladesh. The Company has filed a defence to Shahjalal's claims, and at the
same time filed a counter claim amounting to TK87,835,000 (approximately RM5,130,000) for breach of the
agency agreement. These two cases are still pending. The directors are of the view that the cases are without
merit.
A writ of summons and statement of claim among others, seeking the divestment of 70% stake in LSG to
Gubahan Saujana Sdn. Bhd., LSG Asia GmbH and Fahim Capital Sdn. Bhd. to be declared void, was served on
the Company on 2 July 2004 as the fourth defendant in the High Court suit brought by the plaintiff, Advent
Group Management Sdn. Bhd. The directors are of the opinion that the suit filed against the Company is
without merit.
On 16 September 2004, the Company received a notice that Advanced Cargo Logistic GmBH had initiated
proceedings against the Company at the ICC International Court of Arbitration in Paris, France seeking a
claim of Euro 62.6 million (approximately RM308.4 million) for breach of contract under a cargo handling
services agreement. The Company is contesting the claim.
27.CONTINGENT ASSETS
As mentioned in the last report, the Company is entitled to a 80% share of the profit on disposal of certain
aircraft unbundled to PMB under the Agreement for Aircraft and Finance Agreements Unbundling. The
profit will be computed based on the excess of the value realised over the decayed cost of the aircraft. The
decayed cost for each aircraft at future dates is stipulated by the WAU agreement. Based on published
industry price data, the Company's share of the profit on disposal if the applicable aircraft were to be
disposed of as at 31 March 2005 is RM747,536,000 (2004 : RM855,456,000).
28.SIGNIFICANT EVENT
On 4 October 2004, the Company entered into a termination agreement with Asset Global Network Sdn.
Bhd. ("AGN") to terminate the conditional Reimbursement Agreement ("RA") dated 26 March 2003 for the
reimbursement of Subang Complex A buildings. The deposit of RM1.0 million was refunded by the Company
and AGN was also reimbursed RM580,000 for the cost incurred, for the reimbursement of the Subang Complex
A buildings.
As a result, the Company and AGN will not proceed with the subsequent sub-lease of Subang Complex A
buildings, which was intended to take effect upon the completion of the RA.
214 Malaysian Airline System Berhad Annual Report 04/05
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The Group operates globally and generates revenue in various currencies. The Group's airline operations
carry certain financial and commodity risk, including the effects of changes in fuel prices, foreign currency
exchange rates, interest rates and the market value of its investments. The Group's overall risk
management approach is to minimise the effects of such volatility on its financial performance and
reflect an inclination towards risk averse policies.
The Group's policy is not to trade in derivatives but to use these instruments to hedge against anticipated
exposures.
The Group's earnings are affected by changes in the price of jet fuel. The Group manages this risk by
using instruments such as forward contracts, options, collars, caps and swaps. The Group's risk
management policy is to hedge up to 80% of the annual budget volume for 12 months and up to 50%
of the volume for the tenure of such contracts up to 48 months.
The Group's earnings are affected by changes in interest rates where they have an impact on interest
income and expense from cash, short term deposits and interest bearing financial assets and liabilities
and operating lease payments.
The Group's policy on managing its interest rate risk is by maintaining a prudent mix of fixed and
floating rate investments and borrowings.
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).
The Group manages its liquidity risk by maintaining sufficient levels of cash or cash convertible
investments and available credit facilities to meet its working capital requirements.
Surplus funds are invested in high quality short term liquid instruments, usually bank deposits.
Malaysian Airline System Berhad Annual Report 04/05 215
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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.
As at 31 March 2005, the Group owned quoted investments amounting to RM1,377,000 (2004 :
RM1,409,000), and the estimated market value of these quoted investments was RM30,946,000 (2004 :
RM26,402,000).
The market risk associated with quoted investments is the potential loss resulting from a decrease in
market prices.
The aggregate net fair values of financial assets and financial liabilities which are not carried at fair
value on the balance sheet of the Group and of the Company are represented as follows:
GROUP COMPANY
Carrying Fair Carrying Fair
Amount Value Amount Value
Note RM'000 RM'000 RM'000 RM'000
Financial Assets
The carrying amounts of all other financial assets and liabilities as at 31 March 2005 are not materially
different from their fair values due to the relatively short term maturity of these financial instruments.
The nominal/notional amount and net fair value of financial instruments not recognised in the balance
sheet as at 31 March 2005 and 31 March 2004 are:
Contingent asset
The method and assumption used to estimate the fair value of the contingent asset is determined by
reference to the published industry price data of the aircraft.
As at 31 March 2005, the Group and the Company have entered into various fuel hedging transactions
from 1 April 2005 to 30 September 2007 in several lots totalling 5,445,000 (2004 : 2,715,000) barrels.
The cumulative estimated proceeds from hedging of marked to market value on the existing fuel hedging
position (from 1 April 2005 to 30 September 2007) stand at RM240,471,000 (2004 : RM37,546,000).
As at 31 March 2005, the Group and the Company have entered into interest rate forward contracts
with the following notional amounts and maturities pertaining to USD obligations:
Notional Amount
2005 2004
RM'000 RM'000
1,539,000 -
The fixed interest rates relating to interest rate forward contracts at the balance sheet date vary from
4.5% to 5.0% per annum.
The nominal/notional amount and net fair value of contingent liabilities (as disclosed in Note 26) are
not disclosed as it is not practicable to estimate the fair value of contingent liabilities reliably due to
the uncertainties of timing, costs and eventual outcome.
Malaysian Airline System Berhad Annual Report 04/05 217
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30.SUBSIDIARIES
Effective Interest
Name of Company 2005 2004 Principal Activities
% %
Malaysia Airlines Cargo 100 100 Air cargo operations, charter freighter
Sdn. Bhd. and all warehousing activities relating to
air cargo operations
MAS Golden Holidays Sdn. Bhd. 100 100 Tour and travel related operations
31.ASSOCIATED COMPANIES
Name of
Companies
[Financial Country of Effective Interest
year end] Incorporation 2005 2004 Principal Activities
% %
32.CURRENCY
statistics on shareholdings
as at 18 July 2005
STATEMENT OF SHAREHOLDINGS
Share Capital
ANALYSIS OF SHAREHOLDINGS
A. Distribution of Shareholdings
STATISTICS ON SHAREHOLDINGS
Notes:
A The following are the registered holders of the 147,008,900 ordinary shares:
D. Directors Shareholding
(as shown in the register of directors shareholding)
1 Federal 35 storey office building MAS, Leasehold 99 Land - 75,036 20 41,649 41,649,326
Territory of Lot 1194, Section 57, years Built-up - 679,994 41,502 41,501,889
Kuala Lumpur Jalan Sultan Ismail, expiring
50250 Kuala Lumpur 07 Feb 2081
3 State of 36 office and workshop Occupation of Land - 4,617,360 6-33 304,490 304,490,133
Selangor buildings forming MAS federal land Built up - 2,284,309
office complex at Sultan pending
Abdul Aziz Shah Airport, formalisation
47200 Subang of a lease
and 1 Pedestrian Bridge
631,722,306
228 Malaysian Airline System Berhad Annual Report 04/05
(10601-W)
glossary
FORM OF PROXY
Shareholding represented by proxy
of ______________________________________________________________________________________________________
[ADDRESS]
being a member(s) of MALAYSIAN AIRLINE SYSTEM BERHAD (the Company), hereby appoint
of ______________________________________________________________________________________________________
[FULL ADDRESS]
of ______________________________________________________________________________________________________
[FULL ADDRESS]
or failing him/her, the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at the
Thirty Fourth Annual General Meeting of the Company to be held at Nirwana Ballroom 1, Lower Lobby, Crowne
Plaza Mutiara Kuala Lumpur, Jalan Sultan Ismail, 50250 Kuala Lumpur on Monday, 19 September, 2005 at 10.00
a.m. and at any adjournment thereof in the manner indicated below:-
Please indicate with an X in the space below how you wish your votes to be cast. If no specific direction as to
voting is given, the proxy will vote or abstain at his/her discretion.
1. A member of the Company entitled to attend and vote at the Meeting is this regard will be determined based on the General Meeting Record of
entitled to appoint a proxy to attend and vote in his stead. A proxy may but Depositors. Such Depositors whose shares exceed the Companys foreign
need not be a member of the Company and a member may appoint any person shareholding limit of 45% as at the date of the General Meeting Record of
to be his proxy/proxies and the provisions of Section 149(1)(b) of the Companies Depositors may attend the above Meeting but are not entitled to vote.
Act, 1965 shall not apply to the Company. Consequently, a proxy appointed by such Depositor who is not entitled to
vote will also not be entitled to vote at the above Meeting.
2. In the case of a corporate member, the instrument appointing a proxy shall be
under its Common Seal or under the hand of its officers or attorney, duly 5. The instrument appointing a proxy must be deposited at Symphony Share
authorised in that behalf. Registrars Sdn. Bhd., Level 26 Menara Multi Purpose, Capital Square,
No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, not less than 48 hours
3. A holder may appoint more than two proxies to attend the Meeting. Where a before the time for holding the Meeting or at any adjournment thereof.
member appoints two or more proxies, he shall specify the proportions of his
share-holding to be represented by each proxy. 6. Shareholders attention is hereby drawn to the Listing Requirements of the
Bursa Malaysia Securities Berhad, which allows a member of the Company
4. The right of Foreigners to vote in respect of their deposited securities is subject who is an authorised nominee as defined under the Securities Industry (Central
to Section 41 (1) (e) and Section 41 (2) of the Securities Industry (Central Depositories) Act, 1991, to appoint at least one (1) proxy in respect of each
Depositories) Act, 1991 and the Securities Industry (Central Depositories) securities account it holds with ordinary shares of the Company standing to
(Foreign Ownership) Regulations, 1996. The position of such Depositors in the credit of the said securities account.
230 Malaysian Airline System Berhad Annual Report 04/05
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Malaysian Airline System Berhad Annual Report 04/05 231
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REQUEST FORM
Please send me/us a copy of the 2004/2005 Anual Report in Bahasa Malaysia
Name :
__________________________________________________________________________________________
Address :
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
Signature of Shareholder:
Date :
232 Malaysian Airline System Berhad Annual Report 04/05
(10601-W)
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here
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