Singapore Airlines 2002 Annual Report Download - page 40

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Financial Review
SIA Annual Report 01/02
40
Finance Charges
The Company’s finance charges increased by only 5.6% (+$2.5 million) despite higher borrowings from the Bond issue ($900 million) in
December 2001. This was because a drop in interest rate (from 6.7% to 4.1% per annum) for lease liabilities pertaining to two freighters
resulted in a savings of $11 million.
Surplus/Loss On Disposal Of Aircraft, Spares And Spare Engines
The Company’s surplus on disposal of aircraft, spares and spare engines in the year under review was $169 million (+102.2%) higher
than the year before. Nine B744 freighters and six spare engines were transferred to Singapore Airlines Cargo on 1 July, yielding a
surplus of $272 million. There were also three sale and leasebacks of passenger aircraft (2 B747-400 and one B777-200) against two
(2 B747-400) last year.
Gross Dividends From Subsidiaries And Associated Companies
Gross dividends from subsidiaries and associated companies rose $79 million (+131.8%) because SATS and SIAEC did not pay a final
dividend for financial year 1999-00. They paid special dividends totalling $371 million (SATS : $143 million and SIAEC : $228 million) in
March 2000 as a result of capital restructuring prior to their IPOs.
Exceptional Items
At Company level, a provision of $381 million was made because of a permanent impairment in value of investment in Air NZ. This arose
from Air NZ’s release of its results for the financial year ended 30 June 2001 and a further loss from the closure of its wholly owned
subsidiary, Ansett Australia. With this provision, the carrying value of SIA’s cost of investment in Air NZ is reduced to $22 million as at 31
March 2002. At Group level, provision for diminution in value of investment in Air NZ was lower because goodwill had already been
charged against Group reserves in the year of acquisition.
On 18 January 2002, Air NZ announced the completion of its recapitalisation package, whereby 2,166,666,667 new ordinary shares and
1,279,866,438 new convertible preference shares were issued to the Government of New Zealand at NZ$0.27 per share and NZ$0.24
per share respectively. With the issuance of the new ordinary and preference shares to the Government of New Zealand, SIA’s equity
interest in Air NZ was diluted to 6.47%. If the new convertible preference shares are subsequently converted into ordinary shares, SIA’s
equity interest in Air NZ will be further diluted to 4.50%. Following the dilution, the Group no longer equity accounts for Air NZ’s financial
results. The net carrying value of the investment in Air NZ was reclassified as long-term investment from January 2002.
Disposal of the remaining shareholding in Equant N.V. and the entire holding in Cargo Community Network to Singapore Airlines Cargo
yielded a profit of $30 million. Auspice and Star Kingdom were liquidated, yielding a surplus of $191 million and a loss of $9 million
respectively.
Taxation
Taxation charge of the Company, at $174 million, was 4.3% more (+$7 million) despite a drop in profit. This was mainly because of a prior
year adjustment made to reduce last year’s taxation charge by $83 million in accordance with the revised Singapore Accounting Standard
(SAS) 12 (2001) Income taxes.
Overseas tax was provided at $6 million, down 47.9% (–$6 million).
Under the revised SAS 12 (2001) Income Taxes, a deferred tax liability is now recognized for all taxable temporary differences.
Deferred tax was previously provided for all taxable temporary differences only to the extent that a tax liability was expected to materialize
in the foreseeable future. With the adoption of the revised SAS 12, the Company made prior-year adjustments to its deferred taxation
account. Accordingly, the total amount appropriated from reserves for deferred taxation liability was $1,861 million at 31 March 2000.
On 1 April 2001, $1,778 million was transferred to deferred taxation account. The balance of $83 million was credited back to reduce the
taxation charge in the profit and loss account for 2000-01. At Group level, the amount transferred was $1,800 million, and is adequate to
meet deferred tax liabilities that were not provided for in previous financial years. The Group’s taxation charge for 2000-01 was also
restated to $242 million.
As at 31 March 2002, the Company’s deferred taxation account stood at $2,206 million after deducting $310 million transferred to
Singapore Airlines Cargo on 1 July 2001 for potential tax liability that may result from the disposal of nine B744 freighters.
Corporate tax rate, as announced on 3 May 2002, is reduced to 22.0% with effect from Year of Assessment 2003. In accordance with
SAS 12 (2001) Income Taxes, and SAS 10 (2000) Events After The Balance Sheet Date, this is a non-adjusting subsequent event and
the financial effect of the reduced tax rate will be reflected in the 31 March 2003 financial year.