Wednesday, 21 May 2014

AirAsia profit up 33%? And why does it need derivatives?

Many news sites reported about the good numbers of AirAsia, for instance Business Times / New Straits Times:

AirAsia profit up 33.3pc

BRIGHT SKY: Carrier earns RM139.7m in first quarter on flat revenue of RM1.3b

LOW-cost carrier AirAsia Bhd’s net profit for the first quarter ended March 31 2014 rose 33.3 per cent to RM139.71 million from RM104.79 million registered in the corresponding quarter last year.

“(I am) very pleased with what we have achieved despite (the) turmoil in (the) industry. Well done all stars. The future is bright,” AirAsia group chief executive officer Tan Sri Tony Fernandes posted in his tweet yesterday afternoon before the company’s results announcement.

That sounds all very optimistic.

But if we analyse the bare numbers, then a very different picture appears:

1st quarter results      2014     2013

Revenue                 1302M    1300M
Operating Profit         224M     251M

Net finance              -97M     -86M
Net Operating Profit     127M     165M

Foreign Exchange gain      7M     -33M
PBT                      134M     132M

Taxation                  -3M      -4M
Deferred Taxation          9M     -23M
PAT                      140M     105M

From the above we can easily see that operationally the result in 2014 was much worse than in 2013: minus 23%.

Only because of a foreign exchange loss in 2013 and the difference in Deferred taxation does the PAT suddenly grow by 33%.

Frequent readers of this blog will know that I don't like the aggressive accounting of AirAsia by using deferred taxation (I like it even less in the case of AirAsia X). Good companies should account in a conservative way, in my opinion.

But there is something else in the accounts that worries me much more:

AirAsia has burned their fingers in the paste with derivatives in oil, why do they need such large contracts regarding interest rates and foreign currencies, almost RM 7 Billion in Notional Value?

This is from their 2008 results, losses of more than RM 1 Billion on derivatives:

Warren Buffett wrote in the 2002 annual letter to the shareholders of Berkshire Hathaway:


  1. 3 comments on the P&L
    a) More pertinent is the 23% drop in NOP, which can be blamed on the severe airline industry conditions.(thus they chose not to highlight the NOP but the PAT
    b)Forex gain vs. forex losses: luck and some credit taken against the earlier losses ('reserves')
    c) DTax: doesn't look right because DEFERRED tax is supposed to smoothen the total tax charge but instead total tax charge goes from -27m to +6m credit!

    That they lost 1.07 Billion in 2008 was lost among the carnage suffered by the banks and airlines during the GFC. Still it was huge considering they were a mid-sized airline then

  2. Thanks for your comments. Re DTax, they might have bought an airplane and booked a positive DTax, but then sold it later in which case they have to deduct the DTax, hence the negative amount.