1999 INTERIM RESULTS
Consolidated Profit and Loss Account - Unaudited
Notes:
Hong Kong profits tax is calculated at 16% (1998: 16%) on the estimated assessable profits for the period. Overseas taxation is calculated at rates of tax applicable in countries in which the Group is assessable for tax. Tax provisions are reviewed regularly to take into account changes in legislation, practice and status of negotiations.
2. Interim dividend
An interim dividend of HK3¢ (1998: HK3¢) per share has been declared and will be paid on 4th October 1999 to shareholders registered at the close of business on 17th September 1999. The share register will be closed from 13th September 1999 to 17th September 1999, both dates inclusive.
3. Reserves
Share capital
During the period under review, the Group did not purchase, sell or redeem any shares in the Company.
The Company adopted a share option scheme on 10th March 1999 whereby certain flight deck crew of the Group were granted options to subscribe for shares at a price not less than the higher of 80% of the closing prices of the Company's shares on the Stock Exchange on five trading days immediately preceding the date of grant. During the six months ended 30th June 1999, options to subscribe for a total of 67,837,097 shares were granted at the subscription price of HK$7.47 per share. Other than in limited circumstances, the options in relation to 50% of the shares will become exercisable on 15th March 2002, and the balance on 15th March 2004. The options will, except in limited circumstances, be exercisable until 14th March 2009. A resolution will be proposed at the next annual general meeting of the Company to formally ratify certain minor amendments made to the original share option scheme approved by shareholders at an extraordinary general meeting held on 10th March 1999.
Year 2000
The Year 2000 (Y2K) or millennium date change issue has arisen because many computer systems and electronic devices which store date information based on a two-digit year sequence are unable to accurately process dates for the Year 2000 and beyond. The problem affects IT and all other systems and equipment that rely on embedded electronic chip technology. It has the potential to impact on any business that does not take adequate steps to upgrade or replace non-compliant systems, guard against third-party risk from critical suppliers or customers, and manage its risk-exposure through the development of comprehensive contingency plans.
Cathay Pacific has been working to address the Year 2000 (Y2K) or millennium date change issue since 1996 and on 30th June 1999 it achieved Y2K compliance. By this it means, in relation to its own mission critical equipment and systems, the modification or replacement of all such equipment and systems that fail its Y2K compliance test and, in respect of suppliers of such equipment and systems, it means that all critical suppliers will have passed its Y2K compliance audit, or have been replaced where possible by those that have. Cathay Pacific believes that it has taken all reasonable steps necessary to ensure that its internal systems and equipment are Y2K compliant and to identify and mitigate the material adverse effects which might result from any third parties, on which Cathay Pacific relies, failing to be Y2K compliant.
In order to achieve compliance Cathay Pacific has:
Cathay Pacific recognises that despite all the steps which it has taken to mitigate the material adverse effects of the millennium date change on its operations, there remains a risk that the failure of the systems or equipment or services used by third parties and on which Cathay Pacific is dependant may adversely affect its operations.
In addition to its reliance upon its critical suppliers Cathay Pacific's operations, of course, rely to a significant extent on the smooth operation of the international airports, airport authorities and air traffic control systems. If they experience Y2K problems, it may have a material impact upon Cathay Pacific's business. Cathay Pacific is supporting the International Air Transport Association's (IATA) initiative to monitor and assist Y2K readiness among airports and other industry suppliers. The picture will become clearer in October as more information is received from IATA and the International Civil Aviation Organisation (ICAO).
Cathay Pacific will therefore continue to monitor potential Y2K related system disruptions which may impact on part or all of its operations, and will adjust its business continuity plans as appropriate to reduce the potential impact of any such disruptions. In the period between 30th June 1999 and the millennium date change, Cathay Pacific will continue testing the effectiveness of its business continuity plans and ensure that all relevant personnel are familiar with, and properly trained in the performance of, those plans. In addition, in the period leading up to the millennium date change, Cathay Pacific will continue to review and adapt its existing operational procedures to ensure that they take account of any Y2K specific issues which arise or are thought likely to arise on or before 1st January 2000.
Cathay Pacific's Y2K Programme Office has been formed as a separate department headed by a senior manager reporting directly to the Director Corporate Development, who is the executive sponsor of the programme. The Programme Office also has direct access to the Chief Executive Officer who is briefed fortnightly by the Programme Manager. The role of the Year 2000 Programme Office includes the formulation of policies on Year 2000 compliance, development of a standard approach for the assessment of critical suppliers, Business Continuity Planning development and the overall coordination as well as management of the project.
The aggregate cost of Cathay Pacific's Y2K programme, estimated to be not less than HK$480 million, has been authorised by the directors of the Company. As at 30th June 1999, Cathay Pacific has spent HK$444 million in replacing systems with upgraded versions which the vendors have represented as being Y2K compliant, and in other costs relating to the Y2K programme. HK$303 million of the amount spent has been capitalised as assets.
Corporate governance
None of the Directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not for any part of the accounting period covered by the interim report, in compliance with the Code of Best Practice as set out in the Listing Rules of The Stock Exchange of Hong Kong Limited.
In compliance with the additional requirement of The Stock Exchange of Hong Kong Limited to its Code of Best Practice, the Company has on 30th October 1998 established an Audit Committee with written terms of reference.
Interim report
The 1999 interim report will be sent to shareholders on 25th August 1999.
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