Avi8tor
28th Apr 2003, 20:51
I found this little gem in the Mail & Gaurdian
SAA set for R2bn loss
Mail & Guardian reporters
25 April 2003 14:41
An internal audit report forecasts a whopping R2-billion loss for South African Airways (SAA) in the 2002/03 financial year — despite the fact that it will notch up a healthy operating profit.
The heavy losses are linked to the sharp appreciation in the value of the rand, the report shows.
SAA and its parent company, Transnet, are due to report their results in June. However, an internal report prepared by Transnet Group Audit Services, coinciding with the financial year-end last month, gives a fascinating insight into expected results, risk factors and corporate governance issues.
..............A notable exception was SA Express, heading for a loss of under R5-million, against a budgeted loss of R36-million.
But SAA looked set to be the group’s worst performer by far. Budgeted to make a profit of R154-million, the estimated actual result was a loss of R2,09-billion.
For some time, Transnet and SAA have followed an accounting procedure designed to reflect the fair value of derivatives. If SAA, which does much of its trade in dollars, hedges against the depreciation of the rand, the value of those hedges is included in its balance sheet, even though the hedge gains or losses are unrealised.
In 2001/02 the Transnet group reported a R2,8-billion gain in derivative fair value — much of it presumably from SAA hedges. SAA’s results at the time reflected this: net profit after taxation was R2,14-billion, but headline profit excluding net derivative fair value gains was a more modest R553-million.
After the dramatic recovery of the rand, those “profits” had to
be reversed. Commenting that the projected loss was “of particular
concern”, the internal audit report said: “The losses posted by South African Airways are due to the reversal of some of the profits taken to book in the 2002 year from the unrealised gain on marking to market the forex hedging book … following the strengthening of the rand.”
Additional losses, it said, were due to the decrease in the rand value of SAA’s dollar-denominated offshore cash pile.
On the upside, the report said it was “pleasing to note that SAA has reported an operating profit”.
SAA is among six Transnet units that clearly worried Group Audit Services, which classed them as being in need of “urgent board-level intervention”. Particular concerns included not only SAA’s projected loss, but also strong competition from Kulula.com, “problematic” succession planning and weak contract control. Executive management was “too operationally committed to give due attention to improving internal controls”.
SAA set for R2bn loss
Mail & Guardian reporters
25 April 2003 14:41
An internal audit report forecasts a whopping R2-billion loss for South African Airways (SAA) in the 2002/03 financial year — despite the fact that it will notch up a healthy operating profit.
The heavy losses are linked to the sharp appreciation in the value of the rand, the report shows.
SAA and its parent company, Transnet, are due to report their results in June. However, an internal report prepared by Transnet Group Audit Services, coinciding with the financial year-end last month, gives a fascinating insight into expected results, risk factors and corporate governance issues.
..............A notable exception was SA Express, heading for a loss of under R5-million, against a budgeted loss of R36-million.
But SAA looked set to be the group’s worst performer by far. Budgeted to make a profit of R154-million, the estimated actual result was a loss of R2,09-billion.
For some time, Transnet and SAA have followed an accounting procedure designed to reflect the fair value of derivatives. If SAA, which does much of its trade in dollars, hedges against the depreciation of the rand, the value of those hedges is included in its balance sheet, even though the hedge gains or losses are unrealised.
In 2001/02 the Transnet group reported a R2,8-billion gain in derivative fair value — much of it presumably from SAA hedges. SAA’s results at the time reflected this: net profit after taxation was R2,14-billion, but headline profit excluding net derivative fair value gains was a more modest R553-million.
After the dramatic recovery of the rand, those “profits” had to
be reversed. Commenting that the projected loss was “of particular
concern”, the internal audit report said: “The losses posted by South African Airways are due to the reversal of some of the profits taken to book in the 2002 year from the unrealised gain on marking to market the forex hedging book … following the strengthening of the rand.”
Additional losses, it said, were due to the decrease in the rand value of SAA’s dollar-denominated offshore cash pile.
On the upside, the report said it was “pleasing to note that SAA has reported an operating profit”.
SAA is among six Transnet units that clearly worried Group Audit Services, which classed them as being in need of “urgent board-level intervention”. Particular concerns included not only SAA’s projected loss, but also strong competition from Kulula.com, “problematic” succession planning and weak contract control. Executive management was “too operationally committed to give due attention to improving internal controls”.