FINANCIAL STATEMENT

ANALYSIS
TRANSMILE GROUP BERHAD
(373741 W)

PREPARED FOR:

PROF MADYA DR. ROSHAYANI ARSHAD

PREPARED BY:

WAN ZAIRI AFTAR BIN ISHAK

1

NAZRI BIN MOHAMED

RAFIDAH BINTI NORHANIPAH
SITI ZAITON BINTI BUYONG
SHAMSUL ANUAR BIN ABD RAHIM
CONTENT

Introduction
I. Company Background
II.
Issues encounter
III.
Analysis of Methodology

Financial Ratio Analysis

Liquidity Ratio
- Transmile before restatement
- Transmile after restatement
- Comparison between Transmile
II.
Profitability Ratio
- Transmile before restatement
- Transmile after restatement
- Comparison between Transmile
III.
Gearing Ratio
- Transmile before restatement
- Transmile after restatement
- Comparison between Transmile
IV.
Activity Ratio
- Transmile before restatement
- Transmile after restatement
- Comparison between Transmile
V.
Altman Z-Score
- Comparison between Transmile
I.

Conclusion

Appendix

References

and Nationwide

and Nationwide

and Nationwide

and Nationwide
and Nationwide

INTRODUCTION
I.

COMPANY BACKGROUND

Transmile is a Malaysian scheduled all cargo airline which obtained its Air
Service License in 1993 and commenced business in 1994 as a smallish
overnight air express transport service provider with one Boeing 3-200F and one
Cessna Grand Caravan plying East Malaysian routes, became a listed company
on the Malaysian Stock Exchange in June 1997.
At one point, it became a favourite stock to hold among both local and foreign
investors, given the groups exposure to the growing air cargo industry overseas
as well as its impressive list of important shareholders, including global fund
Capital Group International Inc. and the successful multinational conglomerate
Kuok Group, which is owned by business tycoon Tan Sri Robert Kuok.
Transmile is principally engaged in the provision of scheduled all-cargo services
both domestic and international, charter services; wet and dry leases. Its primary
focus is on air express transportation of time-sensitive freight on a regional basis
such as express mail, oil and gas equipment, perishables, electronic items,
newspaper, live animal and dangerous goods. Its network consists of East and
West Malaysia, Hong Kong and Singapore and is capable of expanding its
network throughout Southeast Asia for express air cargo services.

Transmile has a fully integrated operation at Subang Airport (SZB) in Kuala

Lumpur and is equipped with self-handling services, warehousing, maintenance
services (daily check to heavy check with hanger), and flight simulator, spare
parts and logistics support and customs clearance services.
Transmile also provides to third parties aircraft maintenance, cargo warehousing,
spares provisions, ground and ramp handling services in Malaysia.
Transmile was voted among Asias 200 small and medium sized companies by
Forbes Asia in 2006.

II.

ISSUES

Its counter rallied over the years to trade above RM10 per share level between
mid-2005 and mid-2007 before taking a drastic dive after the Company was
found to be entangled in one of the most shocking scandals that rocked
Corporate Malaysia.
The stock maket darling fell from grace in just a week over alleged accounting
shenanigans (The Edge Malaysia, 2007). Air cargo firm Transmile Group Berhad
was hit worse than expected by an accounting scandal which has resulted in its
market value being slashed by half, from RM13 to RM8.35 (as at May 11,2007)
and further to RM6.60 (as at June 14, 2007) causing losses of hundreds of
millions in market capitalisation.
Transmile failed to submit their audited accounts before the 30 April deadline
and the external auditors had refused to sign the declaration stating that the
accounts showed a true and fair view of the state of affairs of the company. The
refusal should have sent up a wave of RED FLAGS. It simply couldnt have been
merely because of a book keeping error, which could have been easily rectified.
A special audit of Transmile Group carried out by Moores Rowland Risk
Management Sdn. Bhd. has discovered that its revenue for 2005 and 2006 may
have been overstated by over RM500 million ringgit and its pre-tax profit for
2006 of RM20 million may have inflated by RM333 million which means that its
real bottom line should have been a pre-tax loss of RM126 million.
Revenues generated for invoices purportedly issued to some questionable
customers were recorded as receivables. Subsequently the trade receivables

were reduced primarily with payments for allegedly purchase of plant, property
and equipment and allegedly cash receipts.
No documents to support payments of some RM341 million made for the
purchase of plant, property and equipment.
The auditor proposed an investigation on CEN Worlwide Sdn. Bhd., a major
customer and 37.5% associate firm of Transmile Group Berhad (TGB). CEN
Worldwide has been making loss and a negative shareholders fund since
December 31, 2004. Among the executive directors of CEN Worldwide are
Khiudin Mohd (also the Executive Director and Audit Committee member of
Transmile), Mohd Affendi and Gan Eu Jin, who is the nephew of Gan Boon Aun
(founder and CEO of Transmile).
A large scale accounting fraud discovered in 2007 when Transmile was under a
different management team has resulted in the groups poor credit ratings
persisting to this day. With a poor credit, it is difficult for Transmile to secure
financing without having to pay high costs (interest rates) for it.

III.

ANALYSIS OF METHODOLOGY

In this paper, we do comparison on the financial ratio analysis of Transmile Group

Berhad with the competitor in the same nature of business, which is Nationwide
Express Courier Services Berhad (Nationwide).
Nationwide was one of the first few locally established companies in Malaysia. It
was founded in 1985 and the principal activities of the Group consist of providing
express

courier

services,

trucking

services,

freight

forwarding

services,

customized logistics services, mailroom management services and warehousing.

In 1994, it was listed on KLSE second board known as Nationwide Express
Courier Services Berhad and subsequently in 2005, the company moved to
the main board of Bursa Malaysia.
Nationwide main hub is located at its head office in Shah Alam, Selangor and till
to date, it has a total of 180 networks, comprising of agents and branches all
over Malaysia, Singapore, Brunei, Thailand and Saudi Arabia. Its wholly owned
subsidiaries are Nationwide Express Courier Ltd. (Singapore), Nationwide Express
Freight Forwarders Sdn Bhd and Nationwide Express Metro Sdn Bhd. Throughout
the years in operations, the Company had received various recognitions and

achievements portraying the companys position as one of the preferred brand

name in Malaysian logistic scene.

FINANCIAL RATIO ANALYSIS

The ratio analysis help to measure the companys ability in financing its
operation through it profit, assets and debt financing. It also helps to give an
opinion as to whether the organisation deserves further investigation. Therefore,
to analyse Transmiles

performance, the following ratios are calculated using

four years financial data before and after restatement and finally compare
against same industry.
I.

LIQUIDITY RATIOS
Liquidity ratio widely use for identifying a companys ability to satisfy its current
liabilities with its current assets. Its reflect the company ability to covert its short
term asset into cash to meet or cover the short term financial obligations when it
is necessary. The higher the liquidity ratio indicates the larger margin of safety
the company posses to cover its short term obligation
Liquidity ratios mainly consists of Current ratio (Current assets / Current
liabilities) and Quick ratio ((Current assets Inventory) / Current Liabilities). The
liquidity ratios for Transmile are shown in Table 1 below.

Table 1: Transmile before restatement

Liquidity Ratio

Yr 04

Yr 05

Yr 06

Yr 07

Current Ratio

3.66

3.03

3.72

0.56

Quick Ratio

3.62

2.94

3.57

0.56

Quick Ratio (Receivable)

1.30

1.78

1.83

0.31

Yr 04, Yr 05 & Yr 07 = Audited Financial Reports

Yr 06 = Referred to Quarter 4 Unaudited Financial Reports

Before Restatement Refer Graph 1

In Table 1 above, both the Current Ratio and Quick Ratio shows an increasing
trend from Yr 04 to Yr 06. This is mainly due to the manipulation of the trade
receivables amount in Yr 06. This is to increase Transmiles ability to manage its
liquidity in short term.
The increasing trend in liquidity ratio indicates Transmile has sufficient cash to
satisfy its current liabilities. In Yr 06, Transmile has huge cash equivalents in
fixed deposits amounting to RM 418 million to support its short term obligations.
Quick Ratio shows that Transmile did not hold significant amount of inventories
except in Yr 05 and Yr 06. This indicates Transmile able to convert its most
liquidity assets into cash to meet its short term debts when it is necessary.
The Quick Ratio (less receivable amount) indicates that more than 50% of the
Transmile cash in Yr 04 to Yr 06 are receivables value (refer to A and B in Graph
1) amounting to RM 966 million out of RM 1.9 million Total Current Assets.

Table 2: Transmile after restatement

Liquidity Ratio

Yr 04 Yr 05 Yr 06 Yr 07

Current Ratio

3.66

2.73

2.48

0.56

Quick Ratio

3.62

2.73

2.48

0.56

Quick Ratio (Receivable)

1.30

1.70

1.61

0.31

All from Audited Financial Reports

Yr 05 & Yr06 = Restated in Audited Financial Reports
Financial Restatement

After Restatement refer Graph 2

After the Transmiles financial statement restatement, both the Current and
Quick Ratio shows a significant decrease from Yr 06 to Yr 07. This is mainly due
to the reversal trade receivable amount relating to the purported services
rendered amounting to RM 234 million and write off trade receivable amount of
RM 92 million and other receivable of RM 24 million in Yr 06 and Yr 07.
The liquidity ratio after restatement shows a decreasing trend due to reduction in
Transmiles current assets amount to RM 1.9 million compare to RM 2.2 million

Graph 3

before restatement. In Yr 07, the Current and Quick Ratio show 0.56 (refer Table
2) which indicates Transmile did not have sufficient cash to satisfy its current
liabilities. These also reflect the going concern status of the company whether
Transmiles can survive in future is questionable.
The Quick Ratio indicates Transmile did not hold any inventories in Yr 05 to Yr 07.
Hence, there are no significant changes and the ratio shows the same trend as
Current Ratio.

Liquidity ratio comparison between Transmile and Nationwide refer

Graph 3 & 4
Table 3: Nationwide
Liquidity Ratio

Yr 04

Yr 05

Yr 06

Yr 07

Current Ratio

5.23

5.94

7.34

7.71

Quick Ratio

5.23

5.94

7.34

7.71

Quick Ratio (- Receivable)

2.77

2.54

3.72

4.00

Referring to Table 3, Transmiles liquidity ratio show below the normal market
trend as Nationwide. This indicates Transmile have insufficient cash to cover its
short term obligations. In Nationwide, all the liquidity ratio show relatively
similar trend. But in Transmile, the trend in current and quick ratio is vary quick
ratio receivable. This is mainly due to more than 50% of the Transmile cash in
Yr 04 to Yr 06 are receivables value amounting to RM 966 million out of RM 1.9
million Total Current Assets.

LIQUIDITY RATIO
TRANSMILE GROUP MALAYSIA BERHAD
Before Restatement

After Restatement

A
B

Graph 1

Graph 2

LIQUIDITY RATIO
Comparison between Transmile (before restatement) and Nationwide
TRANSMILE

Graph 3

NATIONWIDE

Graph 4
(T) = Transmile (NW) = Nationwide

II.

PROFITABLITY RATIO
The Profitability ratio indicates how much of every dollar sales is left after cost of
goods sold or operating expenses or total expenses. This ratio measures the
capacity of the business and the ability of the company to survive depends on
the profit generated from the business. The higher the ratio shows a good trend
which may due to increase in actual sales, increase in selling price or cost saving
where reduction in expenses.
Table 4: Transmile before restatement

Profitability Ratio

Yr 04

Yr 05

Yr 06

Yr 07

Gross profit margin

32.7%

29.8%

24.9%

-9.2%

Operating Profit
Margin

25.7%

21.7%

20.9%

-45.2%

Net Profit Margin

13.1%

15.3%

15.9%

-46.4%

Yr 04, Yr 05 &
Yr 07 = Audited
Financial
Reports
Yr 06 =
Referred to

Quarter 4 Unaudited Financial Reports

Before restatement refer Graph 5
As per Table 4, all the ptofitability ratio such as Gross Profit Margin, Operating
Profit Margin and Net Profit Margin shows slight drop or reduction in the profit
trend for Transmile from Yr 04 to Yr 06. However the business is still showing a
profitable outcome. Transmile maintain its Gross Profit Margin position from Yr 04
to Yr 06 with acceptable level of expenses margin incurred.
Transmiles profitability ration shows a consistent trend through Yr 04 to Yr 06.
This indicates that Transmile has the ability to survive its the business as the
company generating profit from it operations.

Table 5: Transmile after restatement

Profitability Ratio

Yr 04

Yr 05 Yr 06

Yr 07

Gross profit margin

32.7%

-7.5%

5.3%

-9.2%

Operating Profit
Margin

25.7%

-117.1%

-8.4%

-45.2%

Net Profit Margin

13.1%

-103.7%

-8.7%

-46.4%

All from Audited Financial Reports

Yr 05 & Yr06 = Restated in Audited Financial Reports
Financial Restatement
After restatement refer Graph 6
The profitabilty ratio shows a sharp dropped for Yr 05 which lands Transmile into
a loss position as indicated in Table 5 above. This is mainly due to reversal of
revenue recognised in respect of purported services rendered of RM 194 million,
reversal of excess depreciation charges in respect of the overstated property,
plant and equipment that have been restated amounting to RM 9 million and
impairment loss property, plant and equipment of RM 345 million.
The reduction in Gross Profit Margin is mainly due to the reversal of the fictitious
revenue in Yr 05 and Yr 06 of RM 194 million and RM 333 million respectively.
In addition, the Operating and Net Profit Margin reduce drastically when a huge
amount of Property, Plant and Equipment is being expense off (refer C in graph 6
). The impairment losses for Property, Plant and Equipment was charge to
expense amounting to RM 345 million in Yr 05.

Profitability ratio comparison between Transmile and Nationwide refer

Graph 7 & 8
Table 6: Nationwide

Profitability Ratio

Yr 04

Yr 05

Yr 06

Yr 07

Gross profit margin

-*

-*

34.1%

34.1%

Operating Profit Margin

16.7%

12.3%

8.8%

10.2%

Net Profit Margin

12.1%

9.4%

5.5%

7.2%

*Figures not available

Both Nationwides Operating Profin Margin (OPM) as per Table 6 and Transmiles
OPM as per Table 5 were in a decreasing trend from Yr 04 to Yr 06. Even though
Nationwides Net Profit Margin (NPM) has correlate with the decreasing trend of it
OPM (refer to graph 8), Transmiles NPM did not relect the decresing trend.
Transmiles NPM increase by 2.2% in Yr 05 from Yr 04. Again the Transmile NPM
increased by 0.6% in Yr 06. Whereas the Transmiles OPM is in the opposite trend
(refer to graph 7). This is quite unusual if compare with Nationwide, it should be
also resulted in a decrease trend. This RED FLAG should spark further detail
investigation.

PROFITABILITY RATIO
TRANSMILE GROUP MALAYSIA BERHAD
Before Restatement

After Restatement

Graph 5

Graph 6

PROFITABILITY RATIO
Comparison between Transmile (before restatement) and Nationwide
TRANSMILE

Graph 7

NATIONWIDE

Graph 8

Note: Disregard Gross profit margin (GPM) Nationwide for year 04 and 05 prior change of accounting policy adopting FRS. Hence GPM
excluded.

III.

GEARING RATIO
Gearing ratio indicates the degree of the companys activity is funded by internal
or external funds. Its show whether the company depends on financial assistant
(debt / loan) to operates its normal activities other than using its capital. Its also
measure the companys ability to cover it debts. This ratio is useful to assess
how much financial risk the company has taken on. The higher the ratio indicates
the company is depending on its external funding to operate its business which
may be risky.
Table 7: Transmile before restatement

Gearing Ratio

Yr 04

Yr 05

Yr 06

Yr 07

Total debt to asset ratio

32.3%

53.5%

44.0%

64.2%

Long term debt to asset

ratio

20.3%

46.0%

34.0%

6.3%

Total debt to equity ratio

56.0%

115.2%

78.6%

179.6%

Yr 04, Yr 05 & Yr 07 = Audited Financial Reports

Yr 06 = Referred to Quarter 4 Unaudited Financial Reports
Before restatement Graph 9
In Yr 05, as per Table 7 above, the Debt to asset ratio shows more than 50% of
Transmiles total liabilities used to acquire all the operating assets. It is a
worrying indicator as Transmile depends on external funding to finance it
operations.

It is also reflect that most of the operation was financed by long

term debt as the long term debt ratio shows 46% from total debt ratio of 53%.
Furthermore, in Yr 05 the total debt to equity ratio shoot up to more than 115%
of the total quity which indicates the company depends on outside funds to
finance its operations.
Transmile depending on to much debt from external source to run its operations
which is very risky. This is a RED FLAG indication.

Table 8: Transmile after restatement

Gearing Ratio

Yr 04

Yr 05 Yr 06

Yr 07

Total debt to asset ratio

32.3%

70.3%

58.2%

64.2%

Long term debt to asset

ratio

20.3%

59.5%

42.2%

6.3%

Total debt to equity ratio

56.0%

237.0%

139.5%

179.6%

All from Audited Financial Reports

Yr 05 & Yr06 = Restated in Audited Financial Reports
Financial Restatement
After restatement refer Graph 10
After restatement, shown in Table 8 as in Yr 05, it was noted that Transmile
facing cash problem. This is clearly shown where 59% out of 70% total debts is
long term debt financing use in running its operating assets.
In Yr 05, total debts is 237% more than its total equity can cover. (refer D in
graph 10) This is mainly due to the Transmiles borrowings and covertible bonds
amounting to RM 833 million.
In Yr 07, the long term debt to asset ratio reduce significantly to 6.3%. This is
due to reclassification of current liabilities as long term liabilities. This is to reflect
the risk of long term debt being call off by the Financier as Transmiles has
breached all the financial covenants of the long term debt. Facility as at 31
December 2007.

Gearing Ratio Comparison between Transmile and Nationwide

refer Graph 11 & Graph 12

Table 9: Nationwide
Gearing Ratio

Yr 04

Yr 05

Yr 06

Yr 07

Total debt to asset ratio

12.6%

14.9%

7.9%

7.4%

1.3%

11.9%

0.0%

0.0%

14.4%

17.5%

9.0%

7.9%

Long term debt to asset

ratio
Total debt to equity
ratio

Referring to Table 9, gearing ratio comparison between Transmile and Natiowide

is uncompareable. This is due to Nationwide did not hold significant borrowing to
funds it operating assets. This is contradicting in Transmile, where it depends
more than 50% of total debt to acquires all its operating assets. The majority of
the operations is financed by long term debt, which is reflect in the relatively
similar trend in both total debt and long term debt ratio. In Yr 07, significant
changes in the long term and total debt ratio due to reclassification of current
liabilities as long term liabilities. This is to reflect the risk of long term debt being
call off by the Financier as Transmiles has breached all the financial covenants of
the long term debt.
Transmiles total debt to equity ratio shows an inconsistent trend. This indicates
the company its depending on the external funding which is risky. This is a RED
FLAG indication.

GEARING RATIO
TRANSMILE GROUP MALAYSIA BERHAD
Before Restatement

After Restatement

Graph 9

Graph 10

GEARING RATIO
Comparison between Transmile (before restatement) and Nationwide

TRANSMILE

Graph 11

NATIONWIDE

Graph 12

IV.

ACTIVITY RATIO
Activity ratio indicates how well assets of the company is used in the business
operations. This ratio help to gauge the effective of the company is at putting its
investment to work. The greater the turnover, the more effectively the company
at producing benefit form its investment in assets. This ratio indicates the
munber of dollar of sales produced by each dollar invested in assets.
Table 10: Transmile before restatement

Activity Ratio

Yr 04

Yr 05

Yr 06

Yr 07

AR Turnover

3.27
0.32

4.95
0.27

2.59
0.40

4.92
0.52

Total Assets Turnover

Non Current Asset
0.57
0.35
0.63
Turnover
PPE to Turnover ratio
0.58
0.35
0.64
Yr 04, Yr 05 & Yr 07 = Audited Financial Reports
Yr 06 = Referred to Quarter 4 Unaudited Financial Reports

0.77
0.77

Before restatement refer Graph 13

Refer to Table 10, the Account Receivable turnover shows an decreasing trend in
Yr 05 to Yr 06 compare to Yr 04. This indicates Transmiles the revenue is more
towards the credit sales.
The Property, Plant and equipment turnover

shows increasing trend which

indicate Transmile using its asset effectively in generating the revenue. This is
mainly due to significant increase in fictitiuos revenue in Yr 05 and Yr 06
amounting to RM 194 million and RM 333 million.
Signifinicant changes (refer E in graph 13) in the Account Receivable turnover
trend from Yr 04 to Yr 06 compare to Total Asset turnover which is relatively
same trends through out Yr 04 to Yr 06. This is mainly due to transfer of trade
receivable to property, plant and equipment for purported purchase in Yr 04 to Yr
06 amounting to RM 66 million, RM 214 million and RM 61 million respectively.
Normally the trend for both ratios relatively similar. This is a RED FLAG
indication.

Table 11: Transmile after restatement

Activity Ratio

Yr 04

Yr 05 Yr 06

Yr 07

AR Turnover

3.27

3.21

3.59

4.92

Total Assets Turnover

0.32

0.25

0.45

0.52

Turnover

0.57

0.36

0.75

0.77

PPE to Turnover ratio

0.58

0.36

0.75

0.77

Non Current Asset

All from Audited Financial Reports

Yr 05 & Yr06 = Restated in Audited Financial Reports
After restatement refer Graph 14
The Account Receivable turnover, as shown in Table 11, show an increasing trend
after the restatement in Yr 05 and Yr 06 is due to reversal fictitous sales
amounting to RM 527 million and write off the trade receivable as bad debt
allowance of RM 91 million.
There is no significant changes in Property, Plant and equipment turnover before
and after restatement due to reversal of fictitious sales and reversal of huge
addition of property, plant and equipment amounting to RM 312 million and the
reversal of excess depreciation charges amounting to RM 20 million. Both
property, plant and equipment and revenue amount is effected hence no
significant changes reflected in the ratio.
After restatement, the trend in both Account Receivable and Property, Plant and
equipment turnover ratio show relatively similar trend. This is due to significant
adjustment made in account receivable and property, plant and equipment and
reversal of the purported sales.

Activity ratio comparison between Transmile and Nationwide refer

Graph 15 & 16

Table 12: Nationwide

Activity ratio

Yr 04

Yr 05

Yr 06

Yr 07

AR Turnover
Total Assets Turnover
Non Current Asset
Turnover
PPE to Turnover ratio

3.61
0.95

3.36
1.00

3.29
1.07

3.61
1.01

0.37

0.48

0.45

0.44

0.35

0.46

0.44

0.43

Transmiles Account Receivable turnover show inconsistent in the trend compare

to Nationwide. Nationwide shows a relative similar trend from Yr 04 to Yr 07.
Transmiles account receivable ratio show a bumpy trend. Transmiles account
receivable is inconsistent with the Total Asset turnover compare to Nationwide,
both account receivable and total asset turnover show relatively similar trend.
Transmiles ratio shows inconsistent trend mainly due to fictitious revenue and
transfer of trade receivable to property, plant and equipment for purported
purchase.
Transmiles Property, plant and equipment turnover shows a inconsistent trend
compare to Nationwide. This indicates RED FLAG indication. The inconsistent
trend in Transmiles is mainly due to transfer of trade receivable to property,
plant and equipment for purported purchase in Yr 04 to Yr 06 amounting to RM
66 million, RM 214 million and RM 61 million respectively. The increase in assets
is relativey higher than increase in the revenue which reflect the drastic drop in
Yr 05.

ACTIVITY RATIO
TRANSMILE GROUP MALAYSIA BERHAD
Before Restatement

After Restatement

Graph 13

Graph 14

ACTIVITY RATIO
Comparison between Transmile (before restatement) and Nationwide

Graph 15

Graph 16

V.

Altman Z-Score
Subramanyam and Wild in their book Financial Statement Analysis suggested
that use of a financial statement analysis is common in identifying areas thats
needs futher investigation. One of this applications is predicting financial distress
also referred as bankruptcy prediction models. It examine the trend and
behaviour of selected ratios. Models presume the application will provide
evidence of financial distress using the ratios and early detection will give ample
time for the management to take actions to either avoid risk of loss or to
capitalise on the information.
Subramanyam and Wild also suggest that probably the most well-known model
of financial distress id Altmans Z-Szore. Altman Z Score, a statistical technique,
is used for this Bankruptcy Prediction model. It consist of multiple ratios to
generate a predictor of distress. This technique produces a predictor that is
linear function of several explanatory varibles. This predictor classifies or
predicts the likehood of bankruptcy or non bankruptcy.
Z Score used 5 financial ratios as it virables. X 1=Working Capital/Total Assets
(Liquidity), X2= Retained Earnings/Total Assets (Age of Firms and cumulative
profitability) , X3 =Earning before Interests and Taxes/Total Assets (Profitability),
X4 = Shareholders Equity/Total Liabilities (Financial Structure) and X 5 =
Sales/Total Sales (Capital turnover rate). The Z Score is equation as follows:Z = X1 + X2 + X3 + X4 + X5
A Z-Score results will presume that less than 1.20 suggests a high probability of
bankruptcy while Z-Scores above 2.90 presume a low probability of bankruptcy.
On the other hand, Z-Score between 1.20 to 2.90 are in the gray or ambigious
area.
Z-Score is used to analyse both Transmile financial data from the Yr 04 to Yr 07
before financial restatement and after Yr 05 and Yr 06 financial restatement. The
Yr 07 and Yr 04 data for both analysis is the same data for completion purposes.
The ratios for the Z-Score are as follows:Table 13: Transmile before restatement
Ratio / Years
Working Capital / Total
Assets
Retained Earnings / Total
Assets
Operating Profit / Total
Assets
Shareholders Equity / Total
Assets
Revenue / Total Assets
Total = Z Score

Yr 04

Yr 05

Yr 06

Yr 07

0.32

0.15

0.27

-0.26

0.12

0.08

0.11

-0.63

0.08

0.06

0.08

-0.23

0.32

0.25

0.19

0.64

0.32

0.27

0.40

0.52

1.16

0.80

1.05

0.04

Table 14: Transmile after restatement

Ratio / Years
Working Capital / Total
Assets
Retained Earnings / Total
Assets
Operating Profit / Total
Assets
Shareholders Equity / Total
Assets
Revenue / Total Assets
Total = Z Score

Yr 04

Yr 05

Yr 06

Yr 07

0.32

0.19

0.24

-0.26

0.12

-0.28

-0.28

-0.63

0.08

-0.30

-0.04

-0.23

0.32

0.56

0.39

0.64

0.32

0.25

0.45

0.52

1.16

0.42

0.76

0.04

The tables 13 and 14 above indicates in Yr 04 the Z-Score is 1.16 below the 1.20
high probabilty of bankruptcy mark. In 2005, before restatement, Transmile
condition further deteriorate as the Z-Score result show 0.80. Even though
Transmile Z-Score increased to 1.05 in 2006, the result is still within the high
probability of bankrupt. However it also indicates that Transmile had made same
efforts to bring up the companys performance where the Z-Score has increase
by 0.25. After Yr 05 and Yr 06 financial restatement Transmile Z-Score worsen to
0.42 and 0.76 in Yr 05 and Yr 06 receptively. Most of the ratios in Yr 05 and Yr 06
after restatement compare to before restatement decreases. The most reduction
is the Retained earnings / Total Assets ratio and Operating Profits / Total Assets
ratio for both years. Transmile Yr 07 Z-Score shows the lowest from all the years
analysed, 0.04. In conclusion, the Transmile from Yr 04 was already has a going
concern problem and worsen toward Yr 06 despite all the illegal adjustments or
improper transactions made by Transmile to conceal their actual situation. After
financial restatement, it clearly indicates Transmile not just having a going
concern problem but it is already bankruptcy to happen. The Z-Score for both
above tables are reflected in the graph 17 and 18 below.
Comparison with Nationwide is further analysed to understand the market
situation. The Nationwide Z-Score is as table 15 below.

Table 15: Nationwide

Ratio / Years
Working Capital / Total
Assets
Retained Earnings / Total
Assets
Operating Profit / Total
Assets
Shareholders Equity / Total
Assets
Revenue / Total Assets
Total = Z Score

Yr 04

Yr 05

Yr 06

Yr 07

0.50

0.43

0.50

0.49

0.21

0.11

0.10

0.12

0.17

0.12

0.09

0.10

0.76

0.87

0.88

0.87

1.05

1.00

0.94

0.99

2.68

2.53

2.50

2.57

Reference
Financial Statement Analysis, John J Wild, KR Subramaniam p540
The table 15 result is shown as per graph 19. From Yr 04 the Nationwide Z-Score
result is 2.64 fall under Ambiguous area which is between 1.20 to 2.90. Also in
Yr 05 is slightly decease to 2.53 and 2.50 in Yr 06. However in Yr 07 it a narrow
increase to 2.57. This could be due to the retaiined earning in Yr 04 act as a
cushion for the Yr 5 to Yr 6 as the revenue / total asset ratio is in decreasing
trend from Yr 04 to Yr 06. However a slight increase in Yr 07 where per asset
generates 0.99 revenue.

Z-Score comparison between Transmile and Nationwide

Both companies have similar activities and operations. However, referring to the
Graph 17 and Graph 19, even though Nationwide is quite small compare with
Transmile in term of Total Asset base, Nationwide shows that its ratios are
favourable and going concern is not much a matter, as all the Z-Score result
above the probability of bankrupt, compare to Transmile which all below 1.20
most probability of bankruptcy mark.
This is indication that Transmile is having financial problem as such percoution
should be inplaced while analysing Transmile Financial Report.

Z SCORE GRAPH

Graph 18

Graph 17

Graph 19
< 1.20 High probability of
Low probability of bankruptcy

bankruptcy

1.20<X < 2.90 Ambiguous area

>2.90

CONCLUSION
Liquidity ratios
Significant decreases in the liquidity ratio after the restatement indicates
Transmiles have insufficient cash to meet its short term financial obligations.
This is mainly due to the reversal of trade receivable arise from the purported
service of RM 234 million, write off trade recievable amount of RM 92 million and
other receivable of RM24 million.

Profitability ratios
Significant drop in the profitability ratio after the restatement indicates
Transmiles have insufficient profit or income generated from its operation that
shaken its ability and capacity of the company to move on. This is mainly due to
reversal of revenue for the fictitious value amounting to RM 527 million, reversal
of the excess depreciation due to overstated property, plant and equipment
amounting to RM 20 million and impairment loss property, plant and equipment
of RM 345 million.

Gearing ratios
There is no major change in the gearing ratio for both before and after
restatement. It has been the trend that Transmile depending more than 50% of
total liabilities to acquire all the operating assets. This also indicates the
company have insufficient internal fund to support its operations. Transmiles
long term debts reclassified as current liabilities. This is to reflect the risk of long
term debt being call off by the Financier as Transmiles has breached all the
financial covenants of the long term debt. Facility as at 31 December 2007. This
is a RED FLAG indication.

Z Score
Z-Score method of analysing 5 main ratios is very effective in identifying
company with going concern problem. It really shows that Transmile is already
having the going concern problem from Yr 04. Engaging with illegal accouting
process and reporting manage to conceal their problem but theproblem being
detected via Z-Score as it still shows Transmile had below 1.20 mark for Yr 05 to
Yr 07 which indicates high probability of bankruptcy.

Conviction

Bursa Malaysia Securities Berhad publicly reprimands Transmile Group Berhad for
breaches of paragraph 9.16(1) (a), 9.22(1) and 9.23 of the Listing Requirements
of Bursa Securities.

Directors name

Penalty

Gan Boon Aun

Chief Executive Officer
(Resigned on 2 August 2007)

Public Reprimand and Fine

of RM781,500

Khiudin bin Mohd @ Bidin

Executive Director
(primarily responsible for the financial
management of TSB)
Audit Committee member (Resigned on 12
June 2007)

Public Reprimand and Fine

of RM781,500

Chin Keem Feung

Public Reprimand and Fine
Independent Non Executive Director
of RM162,600
Audit Committee Chairman (Resigned on 12
June 2007)
Shukri bin Sheikh Abdul Tawab Independent Public Reprimand and Fine
Non Executive Director
of RM162,600
Audit Committee member (Resigned on 12
June 2007)

APPENDIX Transmile s adjustment details

Sources: Transmile Annual Financial Report 2006 Note to accounts

APPENDIX Financial Statement Transmile Group Berhad

RESTATEME
NT

BALANCE SHEET
AT 31 DECEMBER

2004

2005

Q4 2006

2007

2004

2005

2006

2007

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

595,0
72
13,
528

1,565,8
07
13,
263

1,548,1
70
14,
477

799,7
02
4,
468

595,
072
13,
528

978,7
13
13,
263

969,9
98
1,
507

799,7
02
4,
468

ASSETS
Property, plant and equipment
Investment in associates
Other investments
Goodwill on consolidation
Total Non-Current Assets
Inventories
Trade receivables
Other receivables, deposits and prepayments
Fixed deposit with license bank
Cash and bank balances
Total Current Assets
Total Assets

11
1,
015
609,
626
5,
313
105,7
71
202,9
59
160,1
75
5,
065
479,
283
1,088,
909

20

25

966
1,580,
056
12,
568
111,1
13
79,
770
228,5
61
32,
674
464,
686
2,044,
742

966
1,563,
638
36,
247
381,2
47
85,
203

2004

2005

56

417,7
06
920,
403
2,484,
041

125,3
09
45,
198
191,0
89
21,
531
383,
127
1,187,
353

11
1,
015
609
,626
5,
313
105,
771
202,
959
160,
175
5,
065
479
,283
1,088,
909

Q4 2006

2007

2004

804,
226

20

25

56

966
992,
962

971,
530

804,
226

111,1
13
46,
896
228,5
61
32,
674
419,
244
1,412,
206

203,7
64
19,
983
410,6
26
2,
795
637,
168
1,608,
698

125,3
09
45,
198
191,0
89
21,
531
383,
127
1,187,
353

2005

2006

2007

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

201,0
72
297,8
90
130,1
05
629,
067
107,8
07

233,5
37
554,0
56
162,5
19
950,
112

264,1
07
858,7
81
267,9
69
1,390,
857

270,1
18
897,7
10
(743,1
68)
424,
660

233,5
37
586,7
11
(401,2
37)
419,
011

264,1
07
864,8
73
(457,2
55)
671,
725

270,1
18
897,7
10
(743,1
68)
424,
660

201,
072
297,
890
130,
105
629
,067
107,
807

153,7
78

75,
258

153,
778

67,
445
221,
223
24,
302
61,
119
44,
316

492,7
79
340,6
95
107,5
80
941,
054
58,
463
64,
613
27,
939

1,
075
130,
812
352,
035
1,088,
909

2,
561
153,
576
1,094,
630
2,044,
742

810
247,3
91
1,093,
184
2,484,
041

144,6
38
520,5
75
15,
682
6,
408
687,
303
762,
693
1,187,
353

67,
445
221
,223
24,
302
61,
119
44,
316

492,7
79
340,6
95
6,
145
839,
619
58,
463
64,
613
27,
939

1,
075
130
,812
352
,035
1,088
,909

2004

2005

Q4 2006

2007

2004

EQUITY
Share capital
Reserves
Accumulated losses / Unappropriated profit
Total Equity
Minority Interest

411,6
57
267,1
90

75,
258

132
75,
390

2,
561
153,
576
993,
195
1,412,
206

717
679,
564
62,
752
35,
410
139,6
61
18,
501
1,
085
257,
409
936,
973
1,608,
698

144,6
38
520,5
75
15,
682
6,
408
687,
303
762,
693
1,187,
353

2005

2006

2007

LIABILITIES
Loans and borrowings
Convertible bonds
Deferred tax liabilities
Total Non-Current Liabilities
Trade payables
Other payables and accruals
Loans and borrowings
Equity conversion option
Tax liabilities
Total Current Liabilities
Total Liabilities
Total Equity and Liabilities

678,7
91
19,
140
147,8
62
845,
793
26,
607
80,
927
139,0
47

132
75
,390

INCOME STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER

Revenue
Cost of services
Gross (loss) / profit

RM'000
346,
180
(232,
896)
113,
284

RM'000
550,
078
(386,
261)
163,
817

RM'000
989,
191
(742,
465)
246,
726

RM'000
616,
227
(672,
888)
(56,
661)

RM'000
346
,180
(232
,896)
113
,284

RM'000
356,
379
(383,
109)
(26,
730)

RM'000
731,
289
(692,
330)
38
,959

RM'000
616,
227
(672,
888)
(56,
661)

Investment in :
Associated companies

Property, plant and equipment

Goodwill on consolidation

11
,274
(15,
867)
(18,
276)
140,
948
(21,
510)

15
,261

89
,099

119,
438

206,
734

22
,441
(63,
459)
(147,
987)
(245,
666)
(43,
608)
10
,563
(278,
711)

1
,187
(9,
565)
(7,
264)
97
,642
(8,
543)

Other operating income

Administration expenses
Other operating expenses
Result from Operating Activities
Finance costs
Interest income
Operating loss

261,
987
(55,
253)

(344,
507)

1,187
(9
,565)
(7
,264)
97
,642
(8
,543)

11
,274
(15,
867)
(20,
036)
(395,
866)
(21,
510)

89
,099

(417,
376)

63
,728
(61,
321)
(55,
273)
(13,
907)
(55,
250)
7
,990
(61,
167)

22,
441
(63,
459)
(147,
987)
(245,
666)
(43,
608)
10,
563
(278,
711)

380

(
952)

(2,
078)

(416,
996)

(62,
119)

(280,
789)

Share of net profit less loss

of associated company
Loss on other investment
Profit / (Loss) before tax

(
960)
(1,
519)
86
,620

491

(2,
078)

119,
929

206,
734

(280,
789)

(960)
(1
,519)
86
,620

2004

2005

Q4 2006

2007

2004

2005

2006

2007

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

RM'000

Tax expense
Profit after tax
Minority interest
Net profit / (loss) for the year

(24,2
27)
62
,393
(16,
930)
45
,463

(35,
543)
84
,386

(49,
196)
157,
538

(5,
124)
(285,
913)

84
,386

157,
538

(285,
913)

2
6.60
2
6.50

3
8.50
3
5.70

6
5.52
6
3.68

(106
.09)
-

(24
,227)
62
,393
(16
,930)
45
,463

47
,433
(369,
563)

(1,
649)
(63,
768)

(5,
124)
(285,
913)

(369,
563)

(63,
768)

(285,
913)

26.60

(168
.70)

(2
6.52)

(106
.09)

26.50

Earnings per ordinary shares

Basic (sen)
Diluted (sen)

Series of Significant Events at Transmile Berhad

DATE

EVENT

April 9, 2007

Announcement of the appointment of Mr Robert John Hyslop as

Group Chief Operating Officer of Transmile and its Group of
Companies with effect from May 2007.

April 30, 2007

Announcement that Transmile has failed to submit its Audited

Financial Statements within the stipulated prescribed period as
required under Bursa Malaysias Listing Requirements. This is
because the audit process of the aforesaid Financial Statements
is still on-going by its external auditors, Messrs Deloitte &
Touche.

May 7, 2007

Based on the pre-tax profit of RM206.7 million for the year

ended Dec 31, 2006, the companys auditors have not been
able to obtain relevant supporting documentation from the
management on certain transactions relating to trade
receivables and related sales and additions to property, plant
and equipment so as to enable them to satisfy themselves on
the fairness or validity of those transactions.
Moores Rowlands Risk Management Sdn Bhd was appointed to
conduct a special audit on issues relating to the said
transactions.
Announcement of the Companys shares to be suspended with
immediate effect.

June 12, 2007

Khiudin Mohd, an Executive Director, resigned, Shukri bin

Sheikh Abdul Tawab, Independent Non-Executive Director,
resigned, Chin Keem Feung, Independent Non-Executive
Director, resigned.

June 19, 2007

Moores Rowland Risk Management Sdn. Bhd. revealed the audit

report on the financial statements of Transmile.

July 12, 2007

The Securities Commission charged three former executives of

Transmile Berhad for giving misleading financial statements.
They are :
Chief Financial Officer Lo Chok Ping
Executive Director Khiudin Mohd
Founder and CEO Gan Boon Aun
The Securities Commission also offered compounds of
RM500,000 each to Chin Keem Feung (Independent NonExecutive Director) and Shukri bin Sheikh Abdul Tawab
(Independent Non-Executive Director) for knowingly auhorising
the furnishing of misleading statement.

August 2, 2007

The founder and CEO, Gan Boon Aun, resigned.

September 3,
2007

Tun Dr. Ling Liong Sik, Chairman and Independent NonExecutive Director, resigned.

September 4,
2007

Tan Sri A. Razak bin Ramli, who was a Non-Independent NonExecutive Director since May 2005 was appointed as Chairman
and Non-Independent Non-Executive Director.

November 14,
2007

The Securities Commission charged two Transmile directors,

Chin Keem Feung and Shukri bin Sheikh Abdul Tawab for failure
to pay compound within the permitted time.

November 15,
2007

Lee Chin Guan, Non-Independent Non-Executive Director,

resigned.

REFERENCES
1. Audited Annual Report 2004 TRANSMILE GROUP BERHAD
2. Audited Annual Report 2005 TRANSMILE GROUP BERHAD
3. Audited Annual Report 2006 TRANSMILE GROUP BERHAD
4. Audited Annual Report 2007 TRANSMILE GROUP BERHAD
5. Audited Annual Report 2004 NATIONWIDE BERHAD
6. Audited Annual Report 2005 NATIONWIDE BERHAD
7. Audited Annual Report 2006 NATIONWIDE BERHAD
8. Audited Annual Report 2007 NATIONWIDE BERHAD
9. Financial Statement Analysis, John J Wild, KR Subramaniam p540
10.Corporate Governance in Malaysia (Theory, Law and Context), Rashidah Abdul
Rahman, Mohammad Rizal Salim p98-101
11.www.malaysiakini.com/news
12.http://biz.thestar.com.my/news
13.http://anilnetto.com/governance/accountability/transmiles
14.http://dapmalaysia.org/english/2007
15.http://www.flightglobal.com/news/articles/scandal-hit-freight-firm-transmilegroup-announces
16.http://blog.limkitsiang.com/2007/06/02/rm530-million-transmile-accountingfraud-how-liong-sik-is-to-assume-responsibility-as-chairman
17.http://www.transmile.com/index.asp?id=165&im=news_d