1997 Annual Results
The Board of Directors of China Eastern Airlines Corporation Limited (the Company") is pleased to announce the audited consolidated results of the operations of the Company and its subsidiaries (the "Group") for the year ended 31 December 1997 with comparative figures for the corresponding period in 1996 as follows:
FINANCIAL STATEMENTS
A. Prepared in accordance with International Accounting Standards ("IAS")
The Company's and the Group's accounts prepared under IAS were audited by Coopers & Lybrand.
Consolidated Profit and Loss Account
For the year ended 31 December 1997
(Amounts in thousands except for per share data)
Notes:
1. Restructuring and Initial Public Offering
The Company was established in the PRC on 14 April 1995 as a joint stock company limited by shares as part of the restructuring of China Eastern Airlines (the "predecessor"), a state owned enterprise which is under the supervision and control of the Civil Aviation Administration of China. In contemplation of the initial public offering, the predecessor was restructured into two separate legal entities, the Company and Eastern Air Group Company ("EA Group"). The Company was established to hold the assets and liabilities of the core airline business units of the predecessor while EA Group was established to hold assets and liabilities of those non-core business units as well as the issued shares of the Company. On 30 June 1996, the Company assumed the assets and liabilities of the core airline business issued 3,000,000,000 ordinary domestic shares of RMB 1.00 each, all of which were allotted to EA Group.
In February 1997, the Company issued and listed its H shares and American Depository Shares ("ADS") (each representing 100 H shares) on The Stock Exchange of Hong Kong Limited ("The Hong Kong Stock Exchange") and the New York Stock Exchange, respectively. In connection with this combined public offering to investors outside PRC, 1,566,950,000 H shares (including 166,950,000 H shares issued to underwriters under an over-allotment option), with par value of RMB1.00 each, were issued at offering prices of HK$1.38 per H share (HK$1.39 per H share in respect of those issued under the over-allotment option) and US$18 per ADS.
In October 1997, the Company also issued and listed its A shares on the Shanghai Stock Exchange. In connection with this local public offering to investors within PRC, 300,000,000 A shares (including 30,000,000 A shares placed with the Company's employees), with par value of RMB1.00 each, were issued at an offering price of RMB2.45 per A share.
Proceeds of approximately RMB2,873,405,000 (net of issuance expenses of approximately RMB189,854,000) were received by the Company from the above public offerings.
2. Basis of Preparation
The audited consolidated profit and loss account of the Group for the year ended 31 December 1997 includes the results of the companies comprising the Group. All significant intercompany transactions and balances have been eliminated upon consolidation.
The consolidated profit and loss account has been prepared in conformity with IAS. This basis of accounting differs in certain material respects from that used in the preparation of the Group's statutory accounts in PRC. The statutory accounts of the Group were prepared in accordance with the accounting principles and the relevant regulations applicable to PRC joint stock limited companies ("PRC Accounting Regulations"). Differences between IAS and PRC Accounting Regulations and their corresponding impact on the consolidated profit attributable to shareholders for the year ended 31 December 1997 and the consolidated net assets as at 31 December 1997 are set out in Section C.
In addition, IAS differs in certain material respects from generally accepted accounting principles in the United States of America ("U.S. GAAP"). Differences between IAS and U.S. GAAP and their corresponding impact on the consolidated profit attributable to shareholders for the year ended 31 December 1997 and the consolidated net assets as at 31 December 1997 are set out in Section D.
3. Turnover
The Group is principally engaged in the provision of domestic, Hong Kong and international passenger, cargo and mail airline services. Turnover comprises revenues from airline and airline related services and is net of domestic aviation infrastructure levies and sales tax. The Group's turnover and operating profit by geographical region are analysed as follows:
*Includes Japan, U.S., Europe and other Asian countries.
4. Impairment of aircraft and flight equipment
Included in other expenses is a fleet disposition charge of RMB50 million in relation to the Group's 10 Fokker aircraft ("Fokkers"). During the third quarter of the year ended 31 December 1997, the Group made a decision to replace its Fokkers in order to upgrade and strengthen the fleet profile, which is in accordance with the Group's long term business strategy. On 26 January 1998, the Group entered into a sales agreement with an independent third party to dispose of the Fokkers which are to be delivered in 1998 and 1999. In view of the disposal of these aircraft, the Group provided a fleet disposition charge of RMB50 million which relates primarily to the write down of the impairment of the aircraft and flight equipment to its fair value less costs to sell. The Group classified the fleet disposition charge as an item of continuing operations under other expenses in the consolidated profit and loss account.
5. Post-retirement benefits
As part of the retirement scheme, the Group provides retirees with medical benefits, transportation subsidies, social function activities subsidies as well as other welfare. The Group elected for an early adoption of IAS 19 (revised), Employee Benefits, issued by the International Accounting Standards Committee on 1 February 1998. This new standard prescribes the accounting and disclosure for post-retirement benefits provided by an enterprise to its employees and requires the expected cost of post-retirement benefits to be recognised over the employees service period. Prior to the adoption, the cost of these benefits was accounted for on a pay-as-you-go basis and not an estimate of the future benefit payments accruing to its current employees and retirees.
As a result of the adoption of IAS 19 (revised), the Group elected to amortise the transition obligation over a period of 5 years and recognised a liability for post-retirement benefits of RMB120 million as at 31 December 1997 which was included in wages, salaries and benefits in the consolidated profit and loss account. The accumulated post-retirement benefit obligation was actuarially determined on the basis of a number of assumptions and estimates including the rate of inflation, discount rate, employees' turnover ratio and mortality rate.
6. Taxation
Taxation in the consolidated profit and loss account represents:
(a) PRC income tax is calculated at the rate of 33% (1996:33%) on the estimated assessable profits for the year determined in accordance with relevant income tax rules and regulations.
The Group operates international flights to certain overseas destinations. There was no material overseas taxation for the year as there exist double taxation relief between China and the corresponding jurisdictions. With respect to the Group's flights from Hong Kong, the related traffic revenue is subject to Hong Kong profits tax. No provision for Hong Kong profits tax has been made as the Group had no assessable profit for the year ended 31 December 1997.
(b) Deferred taxation is provided using the liability method in respect of the taxation effect of all significant temporary differences arising from the inclusion of items of income and expenditure in tax computations in the year different from those in which they are included in the financial statements. A valuation allowance is provided against deferred tax assets which are not expected to realise in the foreseeable future.
7. Dividend
As disclosed in the Company's prospectus dated 28 January 1997, the board of Directors of the Company does not recommend any payment of dividend for the year ended 31 December 1997 (1996:Nil).
8. Earnings per Share
The calculation of basic and fully diluted earnings per share is based on the profit attributable to shareholders of RMB635,134,000 (1996:RMB590,636,000) and the weighted average number of 4,465,266,575 (1996:3,000,000,000) shares in issue during the year.
9. Reserves
(a) Pursuant to PRC regulations and the Company's Articles of Association, the Company is required to transfer 10% of its profit attributable to shareholders, as determined under the PRC Accounting Regulations, to statutory common reserve fund until the fund aggregates to 50% of the Company's registered capital. The transfer to this reserve must be made before distribution of a dividend to shareholders.
Statutory common reserve fund can be used to make good previous years' losses, if any, and to issue new shares to shareholders in proportion to their existing shareholdings or to increase the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.
(b) Pursuant to PRC regulations and the Company's Articles of Association, the Company is required to transfer 5% to 10% of its profit attributable to shareholders, as determined under the PRC Accounting Regulations, to the statutory common welfare fund. This fund can only be used to provide staff welfare facilities and other collective benefits to the Group's employees. This fund is non-distributable other than in liquidation. The directors have resolved to transfer 10% of the profit attributable to shareholders for the year ended 31 December 1997 to the fund.
(c) The directors have resolved to transfer 5% of the profit attributable to shareholders for the year ended 31 December 1997 as determined under the PRC Accounting Regulations to the discretionary common reserve. The transfer is subject to the approval by shareholders at the general meeting.
(d) Share premium of RMB1,006,455,000 arose from premium over par value of RMB1,196,309,000 generated by proceeds received from the new shares issued during the year net of issuance expenses of approximately RMB189,854,000.
10. Convenience translation
The audited consolidated profit and loss account has been prepared in Renminbi ("RMB"), the national currency of the PRC. Translations of amounts from RMB into United States dollars ("US$") solely for the convenience of readers have been made at the rate of US$1.00 to RMB8.2798 being the average of the buying and selling rates as quoted by People's Bank of China at the close of business on 31 December 1997. No representation is made that RMB amounts could have been or could be converted into US$ at that rate or at any other rate on 31 December 1997 or any other date.
B. Prepared in accordance with PRC Accounting Regulations
(1) Consolidated Balance Sheet
As at 31 December
(2) Profit and Loss Accounts
For the year ended 31 December
(3) Statement of Change in Financial Position
For the year ended 31 December
Notes:-
1. Accounting Period
The Company adopts the Gregorian Calendar year as accounting period, i.e., from January 1 to December 31 as an accounting period.
2. Basis of Consolidation
The Company prepares its financial statements in compliance with the regulations stipulated in [Provisional Regulations for the Consolidation of Financial Statements] issued by the Ministry of Finance, its Ref. No. Cai Kuei Zi (1995) 11. Wherever, the equity investment made by the Company to the outside enterprise is over 50% of the invested enterprise's capital, upon offsetting and adjustment, consolidated financial statements should be prepared, (however, those investees have been established within a year, or have not commenced operations, or those have total assets, operating revenue and net profit under 10% of the group total are exempted from consolidation.)
The only subsidiary company consolidated is China Eastern Airlines Jiangsu Company, Limited, with a registered capital of USD47,000,000, 55% of which is held by the Company. This subsidiary is principally engaged in the provision of passengers, cargo and mail airline services.
3. Principle and Basis of Accounting
The Company adopts the accrual basis, double-entry system and historical cost as basis of accounting.
4. Foreign Currencies
The Group mantains its books and records in RMB.
Transactions in foreign currencies are translated into Renminbi at the market exchange rate prevailing at the transaction date. Monetary assets and liabilities in foreign currencies at the end of each quarter are translated into Renminbi at the market exchange rates prevailing at that date. Exchange differences arising are included in the Financial Expenses in the period.
5. Provision of Bad Debts Allowance
The bad debts on Accounts Receivable are made on a provision basis. Provision for bad debts is provided at 3% of the year-end balance of Accounts Receivable and is debited into General & Administrative Expenses. Bad debts occur, upon completion of necessary approval procedures, are offset with the provision made.
6. Pricing of Inventory
The inventory of the Company covers mainly aircraft consumables, rotables, common appliances, supplies on airplanes and low-price consumable. The inventory is recorded at standard price, with adjustment made at the end of each month into actual price. The amortisation of rotables is made over 4 succeeding years at 50%, 25%, 15% and 10% of its cost respectively. In case, upon the completion of its amortization, which can be still used after repair, rotables will be recorded at 40% of its replacement cost and will be amortised over next 4 succeeding years.
7. Accounting of Long-term Investment
The Company's long-term investment, according to its form and content, are classified into security investment and other investment (including the equity investment in other enterprises and leasing investment). Security investment and leasing investment are accounted for under equity method, while equity investment, where the investment is under 20% of the investee's capital, it is accounted for under the cost method; wherease those investment which is over 20% of the investee's capital, it is accounted for under the equity method.
8. Fixed Assets and Depreciation
Fixed asset refers to assets with a useful lives more than 1 year, value more than 2,000 and can be held physically to directly realise its benefits during the course of use. Fixed assets are accounted for at acquisition cost. After deducting 3% of the cost as residual value, depreciation are provided on a straight-line basis according to the useful lives as follows:
9. Construction-in-Progress
All facilities purchased and installed, self-made or subcontracted are accounted for in the account of Construction-in-Progress.
Construction-in-Progress is recorded at acquisition cost, including cost of facilities, installation expenses and interest capitalized during the course of construction for the purpose of financing the project.
Upon the completion of the project and ready for use, the cost of construction-in-progress is transferred to the a/c of Fixed Assets.
10. Intangible Assets
The intangible asset is evenly amortised over its beneficial period, among which, the land use right is amortized over 50 years, the use right of car-shelter on the airground over 10 years and the use right of buildings over 10 years.
11. Deferred Assets
The Company's deferred assets refer to customs duties, value-added-taxes, water-supply capacity increment expense, power-supply surcharges in connection with the operational leasing of aircraft. The customs duties, value-added-taxes in connection with the operational leasing of aircraft are evenly amortised over the lease term, while water-supply capacity increment expense and power-supply surcharges are evenly amortised over 10 years.
12. Income recognition
The Company's income from providing transportation service of passengers, freight and mails one recognised upon delivery of the service. Airtickets sold in advance but not executed are listed as Current Liabilities, which are accounted for in the accounts of Domestic sales in advance of carriage and International sales in advance of carriage and are to be cleared through China Civil Aviation Settlement Center. Transportation Income is recorded with the up lifted coupons as evidence.
Other business income refers to the income of ground service rendered by the Company and the commission income as agencies for other airline companies, for which, the income for ground service is recognised upon delivery of the service, while the commission income is recognised upon billing by other airline companies.
13. Taxation
1. Income Tax: The rate of income tax for the Company is 33%.
2. Circulation Tax:
A sales tax of 3% is imposed on the Company's transportation income, ground service income and commission income as agencies.
The maintenance and repairing service incomes are imposed business tax of 6% as small-scale taxpayer.
3. City Construction Tax: City construction tax and dike maintenance tax are levied at 7% and 3% respectively based on the circulation tax.
4. Premise Tax: Premise tax, stamp tax and vehicle and ship use tax are levied according to the regulations set forth by the tax authorities.
14. Distribution of Profit
The Corporation sets aside the statutory common reserve fund, statutory common welfare fund and Discretionary common reserve at 10%, 10% and 5% based on the profit after-tax for the account year in accordance with the regulation stipulated in the [Company law] and the [Articles of Association] as passed in the shareholders' meeting. The appropriation of profit is subject to the resolution made in the shareholders' meeting.
C. Significant Differences Between IAS and PRC Accounting Regulations
Differences between IAS and PRC Accounting Regulations which have significant effects on the consolidated profit attributable to shareholders and consolidated net assets of the Group are summarised below:-
Notes:
1. Under IAS, allowance for obsolescence is provided for expendable flight equipment spare parts at rates which depreciate costs, less an estimated residual value, over the estimated useful lives of the related aircraft. Such accounting treatment is not allowed under PRC Accounting Regulations.
2. Under IAS, other flight equipment are accounted for as fixed assets and depreciation charges are calculated over the expected useful lives of 20 years to residual value of 5% of cost or revalued amount. Under PRC Accounting Regulations, such flight equipment are classified as current assets and amortised over a period of 4 years with specific rate of cost in each year.
3. Under IAS, depreciation of aircraft is calculated to write off their cost or revalued amount on a straight line basis over their expected useful lives of 20 years to residual values of 5%. Under PRC Accounting Regulations, depreciation of aircraft is calculated to write off their cost or revalued amount on a straight line basis over their expected useful lives of 10 to 15 years to residual values of 3%.
4. Under IAS, the costs of major aircraft overhauls are estimated and charged to operating profit over the period between overhauls using the ratio of actual flying hours and estimated flying hours between overhauls while routine repairs and maintenance costs are charged to the operating profit as incurred. Under PRC Accounting Regulations, the overhauls and routine maintenance costs are provided at a specific rate of cost applicable to the related model of aircraft.
5. Under IAS, flight equipment spare parts are carried at weighted average cost and are expensed when consumed in operations. Under PRC Accounting Regulations, such flight equipment spare parts are carried at revalued amount and are expensed when consumed in operations.
6. Under IAS, interest income and expense, lease obligations and the related rental receivable in respect of sublease arrangements for aircraft are accounted for and reflected in the financial statements. Under PRC Accounting Regulations, such aircraft sublease arrangements are not reflected in Group's PRC statutory accounts.
7. This represents the fleet disposition charge as described under Section A note 4 after accounting for the effect of minority interests. Under IAS, provision for impairment to long-lived fixed assets is made whereby a decision has been made by management to dispose of such assets. Under PRC Accounting Regulations, loss on disposal is only recognised upon delivery of the assets.
8. This is a liability for post-retirement benefits provided for by the Group as described under Sections A note 5. As a result of the early adoption of IAS 19 (revised), post-retirement benefits for employees are required to be recognised over the employees' service period. Under PRC Accounting Regulations, such benefits are recognised on a pay-as-you-go basis.
9. Under IAS, tax adjustments are made in respect of the deferred tax effects for all items above and a valuation allowance has been provided for in respect of adjustments on the subsidiary company as the related deferred tax asset which is not expected to be realised in the foreseeable future.
10. In addition, there are other classification differences in balance sheet items due to different requirements under IAS and PRC Accounting Regulations.
D. Differences Between IAS and U.S. GAAP
Differences between IAS and U.S. GAAP which have significant effects on the consolidated profit attributable to shareholders and consolidated net assets of the Group are summarised below:-
Notes:
1. Under U.S. GAAP, the revaluation and the related additional depreciation on revalued fixed assets are reversed since fixed assets are required to be stated at cost.
2. Under U.S. GAAP, the valuation on land use rights and the related amortisation on land use rights are reversed since land use rights are required to be stated at historic cost which in this case would be zero.
3. The Group elected early adoption of IAS 19 (revised) which requires the expected cost of post-retirement benefits to be recognised over the employees service period. Under U.S. GAAP, the Group is required to amortise the transition obligation over the average remaining service period of active plan participants which approximate 20 years whereas under IAS the Group has elected to amortise the transition obligation over a period of 5 years (see Section A note 5). This resulted in a difference of RMB65,438,000.
4. These represent the corresponding deferred tax effect as a result of the adjustments stated in 1, 2 and 3 above.
SUMMARY OF AIRLINE OPERATING DATA
REVIEW OF OPERATIONS
The Group is one of the three largest air carriers in China based on 1997 tonne-kilometers and number of passengers carried, and is the primary air carrier serving Shanghai, China's eastern gateway. At the end of 1997, the Group, which provides passenger and cargo airline services, operated almost 1,336 flights per week from 70 airports within China and abroad. These flights covered 140 routes, 113 of which were domestic routes. At the end of 1997, the Group's domestic routes accounted for approximately 41.5% of its total passenger revenues. At the end of 1997, the Group also operated 190 flights per week on 12 routes originating from Shanghai and eleven other major cities in eastern China to and from Hong Kong. The Group's Hong Kong routes and five Japan routes have been the Group's highest yielding routes, accounting for approximately 24.6% and 15.8%, respectively, of traffic revenues for 1997. At the end of 1997 the Group also operated approximately 116 international flights per week, serving 15 cities in nine countries, primarily linking Shanghai to major cities in east and southeast Asian countries (Japan, Korea, Singapore and Thailand) and certain strategic locations in Europe and the United States. In addition to its core Shanghai - based operations, the Group has four provincial hubs in eastern China, each of which predominately serves, and is located in a principal commercial center of one of the provinces of Anhui, Jiangsu, Jianxi and Shandong.
In 1997, the Group's operations experienced steady growth. Traffic volume in 1997 increased by 18.34% over that of 1996, reaching 1.29Bn tonne-kms; total revenue increased by RMB 1.29Bn or 17.68% from 1996, to RMB 8.57Bn; and average aircraft utilization increased by 0.5 hours to 7.2 hours.
Overall, the Group's passenger revenue increased by 16.92% over that of 1996, rising to RMB 6.89Bn in 1997, accounting for 80.38% of the Group's total revenue; passenger traffic increased by 16.75% over that of last year, reaching 10.05Bn passenger-kilometers during the year. The Group's domestic passenger traffic increased by 9.12% over that of 1996, reaching 4.10Bn passenger-kilometers. During the same period, domestic passenger revenue increased by 12.79% over that of last year, reaching RMB 2.86Bn, which represented 41.47% of total passenger revenue. The increases in domestic passenger traffic and revenue were driven by higher capacity and yield. In 1997, the Group's domestic passenger capacity increased by 16.55% over last year, the Group's domestic passenger load factor has declined in 1997, mainly due to the fact that increase in the overall domestic passenger capacity has surpassed the rate of increase in overall passenger demands, reflecting the intense competition in the aviation market. However, increase in domestic air fares effective in the second half of 1996, the Company's active effort in market development and exploration in new passenger sources had helped with the domestic passenger yield this year, increasing it by 4.5% over last year. Consequently, the growth in revenue in 1997 surpassed the rate of growth in passenger traffic. The Group has further adjusted the structure of its domestic routes and added a number of middle and short distance aircraft suitable for domestic operations to help develop its domestic routes.
The Group's Hong Kong passenger traffic increased by 8.22% over that of 1996, reaching 1.52Bn passenger-kilometers in 1997. During the same period, the Hong Kong passenger revenue was RMB 1.86Bn, representing a 12.12% increase over that of last year, and accounted for 26.98% of total passenger revenue. The increases in Hong Kong passenger traffic and revenues were due to higher passenger capacity, passenger load factor, and yield. The Group's Hong Kong passenger capacity increased by 6.08% over that of last year, but the increase in passenger demand was even greater and passenger load factor increased by 1.3% over that of 1996. At the same time, higher Hong Kong air fares effective during the second half of 1996 combined with a lower discount rate also helped to produce a higher Hong Kong passenger yield. As a result, the revenue increased by a greater rate compared to the passenger traffic increase.
The Group's international passenger traffic increased from 3.44 Bn passenger-kilometers in 1996 to 4.42 Bn passenger-kilometers in 1997, representing a 28.56% increase. During the same period the international passenger revenue increased from RMB 1.70Bn of 1996 to RMB 2.17Bn this year, representing a 27.33% increase, and accounted for 31.55% of the total passenger revenues. The increase in international passenger traffic and revenue were attributable to higher passenger capacity. The Group's passenger capacity was 26.84% higher compared with that of 1996, due to the addition of two A340 aircraft, which were primarily used in the Group's international and Hong Kong routes. The Group's international passenger traffic increased, thereby increasing the international passenger load factor by 0.9%.
The Group's revenues from cargo and mail operations increased from RMB 1.11Bn in 1996 to RMB 1.33Bn in 1997, representing an increase of 20.08%, accounting for 15.54% of the Group's total revenue. Traffic in 1997 reached 401.9M tonne-kilometers, increased by 22.31% over that of 1996. The increases in cargo traffic and revenue were primarily the result of the Group's larger cargo transportation capacity, which was expanded by 23.87% over that of last year. The cargo traffic increase was less than the capacity increase, causing the cargo load factor to decrease in 1997.
Total operating expenses in 1997 was RMB 7.13Bn, 21.95% up from that of 1996, mainly due to the higher depreciation and major overhaul costs recorded being caused by the increase in capacity (additions of three A340 aircraft in May and July last year and further additions of two A340 and three Boeing MD-90 aircraft this year) and the asset appraisal dated June 30, 1996. The domestic oil price was adjusted on March 1, 1997, causing higher fuel cost. Cost was also increased due to the provision for post-retirement benefits.
The Group's foreign exchange gain for 1997 was RMB168M.
The Group's net profit was RMB 635M for the year ended 31 December, 1997, representing an increase of 7.53% from that of 1996.
NEW ISSUES, LISTINGS AND USAGE OF PROCEEDS
1. H share
As mentioned above, the Group completed the listing of H shares on the Stock Exchange of Hong Kong and the New York Stock Exchange in February 1997. The net proceeds from the initial public offering was approximately RMB2.1Bn. As disclosed in the Company's Initial Public offering ("IPO") prospectus dated January 28, 1997, the proceeds were substantially used to pay for the acquisition of new aircraft (approximately RMB930MM) and the repayment of aircraft loans (approximately RMB1.17Bn).
2. A share
As mentioned above, the Group issued 300,000,000 A shares of which 270,000,000 A shares were listed on the Shanghai Stock Exchange and 30,000,000 A shares were placed with the Company's employees which are not available for trading in October 1997. The net proceeds from this A share offering was approximately RMB720M. As disclosed in the Company's A share offering prospectus of October 22, 1997. RMB 505 million out of the proceeds was used as an advance payment for the purchase of new aircraft and the repayment of aircraft loans. The remaining RMB 215 million is currently held in cash and will be used for the construction of Group's base at the Pudong Airport.
CHANGE IN SHARE CAPITAL
Note to the change: The changes are results of the aforesaid IPO and the A Share offering in February 1997 and October 1997, respectively.
SHARE CAPITAL STRUCTURE
Substantial Shareholders
As at December 31, 1997, the following shareholders held more than 10% of the share capital of the Group:
Directors, Supervisors, and Senior Management Share Holding Statement
Reasons for change: The "A" shares held by each of the above directors, supervisors and senior managers were placed to such directors, supervisors, and senior managers during the A share issue in October 1997.
MATERIAL MATTERS
1. Dividends
As mentioned above, the Company does not intend to declare any dividend for the year ended December 31, 1997.
2. Influence of Recent Economic Development
The financial crisis of South East Asia in the second half of 1997, which led to the depreciation of certain Asia currencies, has had some impact on our Asia operation. Currency depreciation of other countries in the region caused a drop of RMB100 million in the revenue of the Asia operation in 1997. In addition, the passenger load factor of our Asian routes in the second half of 1997 declined compared to that of 1996. The Company believes the crisis will not cause any material impact on the operation and the financial status of the Company.
3. Purchase, Sale or Redemption of Shares
Apart from the IPO and the A share offering as mentioned above, neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Group's listed securities during the year ended December 31, 1997.
4. Merger and Acquisition
The Group's parent company, Eastern Air Group Company, has received approval from Civil Aviation Administration of China (CAAC) to acquire China General Aviation. Eastern Air Group Company plans to restructure China General Aviation, injecting its civil aviation business into the Company. Negotiations are currently in process.
5. Staff Quarters
In order to implement the state policy of providing employee housing, the Company increased expenditure on staff quarters in 1997 comparing to the previous year. As of December 31, 1997, the actual expenditure on staff quarters totalled to RMB93 million. To date, no such staff quarters have been sold to the Company's employees.
6. Material Litigation
The Group was not involved in any material litigation or arbitration during the year ended December 31, 1997.
7. Compliance with Code of Best Practices
The directors of the Company confirm that during the year ended 31 December, 1997, the Group was in compliance with the Code of Best Practices which incorporates items set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.
DOCUMENTATION AND ADDRESS FOR REVIEW
Documentation for Review: Annual report and financial reports for the year ended 31 December 1997 with the signature of the Chairman
Address for Review: Secretary Office of the Board of Directors, China Eastern Airlines Corporation Limited, 2550 Hongqiao Road, Shanghai, The People's Republic of China
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