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(20-05-2020, 04:13 PM)edragon Wrote: [ -> ]The results speak for itself. Loss of S$700M speaks volume and nothing to be proud of whatever they now put forward as justification.
You buy?

Back in FY11/FY12, SIA spent an extra 2 billion because of rising fuel costs in the good old days for SCM/Keppel Corp.

https://www.valuebuddies.com/thread-261-...#pid157537

I am not trying to defend SIA Mgt, since I am not incentivised to do so NOR do I know any of them personally. I am also not a SIA shareholder.

But I am interested in learning to appreciate the entire process of decision making (hindsight is a b**ch) and how uncertain the future always is (alternate histories). I think learning about it would allow me to appreciate the world better - for example, not all rich people are rich due to their own hard work, and so not all poor people are poor due to their own laziness. Most importantly, i think it makes me a better investor.

Nonetheless, your "no excuse as i only look at the results" thinking isn't wrong too. Such a mentality is essential for climbing the corporate ladder for example.
(20-05-2020, 10:42 AM)edragon Wrote: [ -> ]
(20-05-2020, 10:27 AM)ACTIVIST SPEAKS Wrote: [ -> ]
(20-05-2020, 10:13 AM)edragon Wrote: [ -> ]
(20-05-2020, 08:42 AM)ACTIVIST SPEAKS Wrote: [ -> ]Hazarding a Guess...

As the fuel hedging ineffectiveness is recorded as non-cash item, it should be a revaluation exercise (mark to market) rather than a realized loss.  In extension, it is logical to assume that the hedge contracts (be it a swap, option or collar) should still be operative which exposed the company to either gain or further loss (as mgt expected) depending on the fuel prices.

Great stuff written here in the last couple days....

Put it simply ... a hedge is a bet in layman terms. If you loose a bet, you lost it. It does not matter if you continue to bet and hoping to win the next bet.
SIA have lost the hedge and it is a confirmed loss and no need to say in future we may win. 
That is for the future and no one knows it is a win or a loss.

The question is whether the bet is still on or there is no more bet....from the financial statements, it suggests the position is not closed.  SQ acknowledges they have lost and that is why there is a charge to the income statement as Fuel Hedging Ineffectiveness.

It is not surprising that they offset those deliveries with future contracts as they are still operating which they presume will be 'normal' times but who knows about this Covid-19 event. 
So, the immediate on-going contracts which they committed will most likely be a loss as well due to no deliveries (settlement) when due, reason being planes are grounded.

That begs the question. If the deliveries are only due this current financial year, why the presumed losses were recorded in the last FY?
What happens if SIA resumes operation earlier than scheduled? Already, Singapore is discussing with several countries on opening up the border for business travellers.
There are about 700 stocks in sg. I would simply put SIA in the 'too difficult' basket and move on.

That being said, if I were interested in this stock, the risk level seems lower now after the injection of liquidity and plunge in price. But is the potential reward worth it?

-not vested and not keen-
(20-05-2020, 09:29 PM)ZZF Wrote: [ -> ]There are about 700 stocks in sg. I would simply put SIA in the 'too difficult' basket and move on.

That being said, if I were interested in this stock, the risk level seems lower now after the injection of liquidity and plunge in price. But is the potential reward worth it?

-not vested and not keen-

I agree with your views; we are here to simplify the thought process by going through all the inputs of VB members.
It is good for knowledge to deliberate in the fine details of the business of SIA but ultimately as investors we decide whether to entrust our money or not.
Risks / reward ratio is what matters. The risks this Company is taking is also your risks if you are an investor.
In this case, we know well that they have taken risks and failed.
That is the reason I said, the results speaks volume.

Going forward as value investor, do you want to participate in this risks as one member already mentioned hedging have been committed to year 2023.

-not vested and not keen-
(21-05-2020, 09:28 AM)edragon Wrote: [ -> ]
(20-05-2020, 09:29 PM)ZZF Wrote: [ -> ]There are about 700 stocks in sg. I would simply put SIA in the 'too difficult' basket and move on.

That being said, if I were interested in this stock, the risk level seems lower now after the injection of liquidity and plunge in price. But is the potential reward worth it?

-not vested and not keen-

I agree with your views; we are here to simplify the thought process by going through all the inputs of VB members.
It is good for knowledge to deliberate in the fine details of the business of SIA but ultimately as investors we decide whether to entrust our money or not.
Risks / reward ratio is what matters. The risks this Company is taking is also your risks if you are an investor.
In this case, we know well that they have taken risks and failed.
That is the reason I said, the results speaks volume.

Going forward as value investor, do you want to participate in this risks as one member already mentioned hedging have been committed to year 2023.

-not vested and not keen-

From the discussion in this thread, I believe quite a number of small investors are still as confused as me about the accounting treatment of hedging losses. As the saying goes, the devil is in the details.  As a value investor, I try and get to the bottom of the numbers if I can. Understanding hedging and its accounting treatment will help analyse companies that are in the airline or commodity business. 

Hope to read from people in the know on this issue.

- not vested but keen to know more
(21-05-2020, 12:05 PM)Shiyi Wrote: [ -> ]
(21-05-2020, 09:28 AM)edragon Wrote: [ -> ]
(20-05-2020, 09:29 PM)ZZF Wrote: [ -> ]There are about 700 stocks in sg. I would simply put SIA in the 'too difficult' basket and move on.

That being said, if I were interested in this stock, the risk level seems lower now after the injection of liquidity and plunge in price. But is the potential reward worth it?

-not vested and not keen-

I agree with your views; we are here to simplify the thought process by going through all the inputs of VB members.
It is good for knowledge to deliberate in the fine details of the business of SIA but ultimately as investors we decide whether to entrust our money or not.
Risks / reward ratio is what matters. The risks this Company is taking is also your risks if you are an investor.
In this case, we know well that they have taken risks and failed.
That is the reason I said, the results speaks volume.

Going forward as value investor, do you want to participate in this risks as one member already mentioned hedging have been committed to year 2023.

-not vested and not keen-

From the discussion in this thread, I believe quite a number of small investors are still as confused as me about the accounting treatment of hedging losses. As the saying goes, the devil is in the details.  As a value investor, I try and get to the bottom of the numbers if I can. Understanding hedging and its accounting treatment will help analyse companies that are in the airline or commodity business. 

Hope to read from people in the know on this issue.

- not vested but keen to know more

Hedging is a complicated business so we should not be surprised that hedge accounting is difficult to apply or deconstruct from the financial statements. 

More specific to SIA, part of what makes it difficult is that we will need to understand how SIA purchases fuel. The hedges are denoted as cash flow hedges, so SIA is hedging future cash outflow when expected fuel purchases are made. In this case, the company is attempting to hedge the expected cash outflow around each delivery date by entering into derivative contracts which are expected to increase in value when jet fuel prices rise. I assume the company will attempt to minimize ineffectiveness by entering into contracts with expected quantities and exercise dates as close to expected deliveries as possible.

Applying hedge accounting enables the company to recognize any changes in fair value of the derivatives in statement of changes in equity, rather than income statements which would apply otherwise. These reserves are then released when each of the hedged purchases actually occur, either resulting in adjustments in fuel costs to reflect the effects of hedging. There is also the issue of ineffectiveness, which can arise due to many factors such as a change in expected cash flow (change in expected quantities of fuel purchases), benchmark selection (WTI vs Brent or crack spreads) or optionality in the hedging instrument. The fair value changes arising during a financial period due to these factors are to be recognized immediately in the income statements.

From the recent financial statements, we can see how all these effects play out. The company recognized fair value losses on hedges of $2.6 billion on effective hedges in the statement of other comprehensive income which, if all else holds constant, will increase future fuel costs by that amount. The company also recognized realized hedging losses on fuel delivered during the year of $130 million (resulting in higher net fuel costs) and ineffectiveness costs of $709 million representing the effects of ineffectiveness as described above.

Hope this rough summary helps your understanding.
(20-05-2020, 06:21 PM)weijian Wrote: [ -> ]
(20-05-2020, 04:13 PM)edragon Wrote: [ -> ]The results speak for itself. Loss of S$700M speaks volume and nothing to be proud of whatever they now put forward as justification.
You buy?

Back in FY11/FY12, SIA spent an extra 2 billion because of rising fuel costs in the good old days for SCM/Keppel Corp.

https://www.valuebuddies.com/thread-261-...#pid157537

I am not trying to defend SIA Mgt, since I am not incentivised to do so NOR do I know any of them personally. I am also not a SIA shareholder.

But I am interested in learning to appreciate the entire process of decision making (hindsight is a b**ch) and how uncertain the future always is (alternate histories). I think learning about it would allow me to appreciate the world better - for example, not all rich people are rich due to their own hard work, and so not all poor people are poor due to their own laziness. Most importantly, i think it makes me a better investor.

Nonetheless, your "no excuse as i only look at the results" thinking isn't wrong too. Such a mentality is essential for climbing the corporate ladder for example.
If there is no COVID-19 and if oil price goes much higher in the next few years. Everyone will start to say how brilliant is SIA management because their low fuel cost due to excellent cost management via fuel hedging.
(21-05-2020, 01:38 PM)Clement Wrote: [ -> ]
(21-05-2020, 12:05 PM)Shiyi Wrote: [ -> ]
(21-05-2020, 09:28 AM)edragon Wrote: [ -> ]
(20-05-2020, 09:29 PM)ZZF Wrote: [ -> ]There are about 700 stocks in sg. I would simply put SIA in the 'too difficult' basket and move on.

That being said, if I were interested in this stock, the risk level seems lower now after the injection of liquidity and plunge in price. But is the potential reward worth it?

-not vested and not keen-

I agree with your views; we are here to simplify the thought process by going through all the inputs of VB members.
It is good for knowledge to deliberate in the fine details of the business of SIA but ultimately as investors we decide whether to entrust our money or not.
Risks / reward ratio is what matters. The risks this Company is taking is also your risks if you are an investor.
In this case, we know well that they have taken risks and failed.
That is the reason I said, the results speaks volume.

Going forward as value investor, do you want to participate in this risks as one member already mentioned hedging have been committed to year 2023.

-not vested and not keen-

From the discussion in this thread, I believe quite a number of small investors are still as confused as me about the accounting treatment of hedging losses. As the saying goes, the devil is in the details.  As a value investor, I try and get to the bottom of the numbers if I can. Understanding hedging and its accounting treatment will help analyse companies that are in the airline or commodity business. 

Hope to read from people in the know on this issue.

- not vested but keen to know more

Hedging is a complicated business so we should not be surprised that hedge accounting is difficult to apply or deconstruct from the financial statements. 

More specific to SIA, part of what makes it difficult is that we will need to understand how SIA purchases fuel. The hedges are denoted as cash flow hedges, so SIA is hedging future cash outflow when expected fuel purchases are made. In this case, the company is attempting to hedge the expected cash outflow around each delivery date by entering into derivative contracts which are expected to increase in value when jet fuel prices rise. I assume the company will attempt to minimize ineffectiveness by entering into contracts with expected quantities and exercise dates as close to expected deliveries as possible.

Applying hedge accounting enables the company to recognize any changes in fair value of the derivatives in statement of changes in equity, rather than income statements which would apply otherwise. These reserves are then released when each of the hedged purchases actually occur, either resulting in adjustments in fuel costs to reflect the effects of hedging. There is also the issue of ineffectiveness, which can arise due to many factors such as a change in expected cash flow (change in expected quantities of fuel purchases), benchmark selection (WTI vs Brent or crack spreads) or optionality in the hedging instrument. The fair value changes arising during a financial period due to these factors are to be recognized immediately in the income statements.

From the recent financial statements, we can see how all these effects play out. The company recognized fair value losses on hedges of $2.6 billion on effective hedges in the statement of other comprehensive income which, if all else holds constant, will increase future fuel costs by that amount. The company also recognized realized hedging losses on fuel delivered during the year of $130 million (resulting in higher net fuel costs) and ineffectiveness costs of $709 million representing the effects of ineffectiveness as described above.

Hope this rough summary helps your understanding.

Thank you. Just got the chance to read the transcript of analyst briefings by SIA.
On page 3, it confirms my suspicion that the $710 million mark-to market losses of fuel hedging is an "unrealised" losses.
Which means that it is front-loaded.

The relevant paragraph is as follow:
"The fuel hedges that matured in Q4 have ended on which we suffered losses. Cashflow relating to those hedges has already been incurred.
The $710 million of mark-to-market losses as you likely picked up, is an unrealised loss. Those contracts will mature during the course of FY20/21.
So, the case flow impact will happen as the year progresses. Now, it is feasible to work with counter parties or others in the market to roll over some of those contracts and we have done so."
I am not sure what you mean by front loaded. Those losses reflect the change in the fair value of some of the derivative contracts between the date of inception or, in the case of longer term assets, prior financial period to 31st March 2020. They are unrealised in the sense that the derivatives are still open but they expire this financial year and will most likely not be offset by cheap fuel purchases, hence ineffective.
21 May 2020 SQ transcript for Analyst briefing FY19/20

Ms Ezien Hoo, OCBC: We saw the impact of the fuel hedges on the income statement as well as the balance sheet. Can you share some colour on the impact on cash flow?
Mr Stephen Barnes: One of the fuel hedges has a maturity, which is essentially laid out at the moment.  The fuel hedges that matured in Q4 have ended on which we suffered losses.  Cashflow relating to those hedges has already been incurred.  The $710 million of mark-to-market losses as you likely picked up, is an unrealised loss.  Those contracts will mature during the course of FY20/21. So, the cashflow impact will happen as the year progresses.  Now, it is feasible to work with counter parties or others in the market to roll over some of those contracts and we have done so.  But we need to be wary of the commitment to make practice theat we enter in, that we contract, and so on.  And so, we are step-by-step approaching the market when it seems to be opportune to do so.  But cash flow generally is going to be spread through the year, as those unrealised losses come to fruition.

Mr Ben Hartwright, Goldman Sachs: On the hedging losses, I was wondering if you could just give us a little bit more color on what your assumption was on FY20/21 consumption when you were calculating the $700 million hedging losses in the P&L?
Mr Stephen Barnes: We do assume that there will be some recovery of the network during the financial year.  We have a very tentative profile in which we have reviewed the hedges that are effective and ineffective.
(click for details Q&A)

Stay home and stay safe, everyone.