Interim Financial Statements
The Board of Directors ("Directors") of China Eastern Airlines Corporation Limited (the "Company") is pleased to announce the unaudited consolidated financial results of the Company and its subsidiaries (the "Group") for the six months ended 30 June 1999 with comparative figures for the corresponding period in 1998 as follows:-
FINANCIAL STATEMENTS
A. Prepared in accordance with International Accounting Standards ("IAS")
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 30 June 1999
(Amounts in thousands unless otherwise stated)
1999 vs
# 1998
(Unaudited) (Unaudited) (Unaudited) Increase/
Note 1999 1998 1999 (Decrease)
RMB RMB US$ %
Traffic revenues
Passenger 3,757,195 3,045,088 453,844 23.39
Cargo and mail 753,838 582,884 91,059 29.33
Other operating
revenues 204,415 180,924 24,692 12.98
--------- ---------- ---------
Turnover 2 4,715,448 3,808,896 569,595 23.80
--------- ---------- ---------
Operating expenses
Wages, salaries
and benefits 340,433 243,732 41,122 39.68
Take-off and
landing charges 757,009 538,015 91,442 40.70
Aircraft fuel 798,798 723,913 96,489 10.34
Food and beverages 211,670 201,956 25,568 4.81
Aircraft depreciation
and operating
leases 988,231 797,531 119,372 23.91
Other depreciation and
operating leases 94,591 106,955 11,426 (11.56)
Aircraft maintenance 363,570 346,761 43,917 4.85
Commissions 259,796 216,896 31,382 19.78
Office and
administration 325,872 241,987 39,363 34.67
Other 192,899 188,545 23,301 2.31
--------- ---------- ---------
Total operating expenses 4,332,869 3,606,291 523,382 20.15
--------- ---------- ---------
Operating profit 382,579 202,605 46,213 88.83
Interest expense, net (464,413) (420,736) (56,098) (10.38)
Gain on disposal
of aircraft 4 63,521 - 7,673 N/A
Other income 109,481 156,227 13,224 (29.92)
--------- ---------- ---------
Profit/ (loss)
before taxation 91,168 (61,904) 11,012 247.72
Taxation 3 (29,192) 16,098 (3,526) (281.34)
--------- ---------- ---------
Profit/ (loss)
after taxation 61,976 (45,806) 7,486 235.30
Minority interests 2,304 12,570 278 (81.67)
--------- ---------- ---------
Profit/ (loss)
attributable
to shareholders 64,280 (33,236) 7,764 293.40
========= ========== =========
Earnings/ (loss)
per share 6 RMB0.013 RMB(0.007) US$0.002
========= ========== =========
# - In the second half of the financial year 1998, the State Development Planning Committee and the Ministry of Finance of PRC promulgated a reduction of the civil aviation infrastructure levies rates on traffic revenues from 10% to 8% and from 6% to 2% for domestic and international routes respectively with retrospective effect from 1 January 1998. Had such reduction of levies been reflected in the comparative unaudited consolidated profit and loss account, the Group's turnover would have increased by approximately Rmb130,000,000 and the Group's results would have been a profit after tax of approximately Rmb53,000,000 for the six months ended 30 June 1998. (The levy rate for domestic routes was further reduced to 5% commencing 1 January 1999.)
CONDENSED CONSOLIDATED BALANCE SHEET
As at 30 June 1999
(Amounts in thousands unless otherwise stated)
(Unaudited) (Audited) (Unaudited)
30 June 31 December 30 June
Note 1999 1998 1999
RMB RMB US$
Fixed assets and
Construction in progress 8 19,567,700 19,665,912 2,363,648
Other non-current assets 3,822,423 4,429,063 461,723
Current assets
Flight equipment spare parts
less allowance
for obsolescence 449,301 429,292 54,273
Receivables and prepayments 2,592,939 1,625,237 313,210
Deposits with a related company 308,440 544,870 37,258
Cash and bank balances 786,739 1,296,373 95,033
4,137,419 3,895,772 499,774
Current liabilities
Payables and accruals 2,292,817 2,152,723 276,957
Current portion of obligations
under finance leases 1,004,136 863,509 121,293
Current portion of
long-term loans 549,118 540,725 66,330
Short-term bank loans 1,371,317 964,864 165,646
5,217,388 4,521,821 630,226
---------- ---------- ---------
Net current liabilities (1,079,969) (626,049) (130,452)
---------- ---------- ---------
22,310,154 23,468,926 2,694,919
========== ========== =========
Capital and reserves 6,489,650 6,425,370 783,907
Obligations under finance leases 9,686,847 10,837,156 1,170,107
Long-term loans 4,152,461 4,416,442 501,590
Other long term liabilities 1,981,196 1,789,958 239,315
---------- ---------- ---------
22,310,154 23,468,926 2,694,919
========== ========== =========
CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 1999
(Amounts in thousands unless otherwise stated)
Share Retained
Capital Reserves profits Total
(Unaudited) RMB RMB RMB RMB
At 1 January 1999 4,866,950 1,198,177 360,243 6,425,370
Consolidated profit
attributable to
shareholders - - 64,280 64,280
--------- --------- --------- ---------
At 30 June 1999 4,866,950 1,198,177 424,523 6,489,650
========= ========= ========= =========
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 1999
(Amounts in thousands unless otherwise stated)
(Unaudited) (Unaudited)
1999 1999
RMB US$
Net cash inflow from operating activities 583,637 70,499
Net cash outflow from investing activities (679,528) (82,082)
Net cash outflow from financing activities (612,843) (74,027)
--------- ----------
Net cash outflows (708,734) (85,610)
Cash and cash equivalents at 31 December 1998 1,792,824 216,561
Exchange adjustment (13,287) (1,605)
--------- ----------
Cash and cash equivalents at 30 June 1999 1,070,803 129,346
========= ==========
Analysis of the balances of cash and cash equivalents
30 June 31 December
1999 1998
RMB'000 RMB'000
Short-term deposits and bank balances 786,739 1,296,373
Deposits with a related company 308,440 544,870
Less: short-term deposits with
original maturity over three months (24,376) (48,419)
--------- ----------
1,070,803 1,792,824
========= ==========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation and accounting policies
The accompanying unaudited consolidated interim financial statements comprise the consolidated financial statements of the Company and all of its subsidiaries as at 30 June 1999 and of the results for the six months ended 30 June 1999. All significant transactions and intercompany balances between and among the Company and its subsidiaries are eliminated on consolidation.
The consolidated interim financial statements have been prepared in conformity with International Accounting Standards ("IAS"). This basis of accounting differs in certain material respects from that used in the preparation of the Group's statutory accounts in the People's Republic of China ("PRC"). The statutory accounts of the Group have been prepared in accordance with the accounting principles and the relevant regulations applicable to PRC joint stock limited companies ("PRC Accounting Regulations"). Differences between PRC Accounting Regulations and IAS on unaudited consolidated profit attributable to shareholders for the six months ended 30 June 1999 and on the unaudited consolidated net assets as at 30 June 1999 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 on unaudited consolidated profit attributable to shareholders for the six months ended 30 June 1999 and on the unaudited consolidated net assets as at 30 June 1999 are set out in Section D.
The accounting policies used in the preparation of these unaudited consolidated interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 1998.
2. 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 net of sales tax and civil aviation infrastructure levies. The turnover and operating profits by geographical segments are analysed as follows:-
For the six months ended 30 June (Unaudited)
Other
Domestic Hong Kong Japan countries* Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
1999
Traffic revenues 2,003,516 939,003 528,823 1,039,691 4,511,033
Other operating
revenues 204,415 - - - 204,415
--------- --------- ------- --------- ---------
Turnover 2,207,931 939,003 528,823 1,039,691 4,715,448
========= ========= ======= ========= =========
Operating profit/
(loss) 154,858 257,648 64,441 (94,368) 382,579
========= ========= ======= ========= =========
1998
Traffic revenues 1,557,797 797,402 499,126 773,647 3,627,972
Other operating
revenues 180,924 - - - 180,924
--------- --------- ------- --------- ---------
Turnover 1,738,721 797,402 499,126 773,647 3,808,896
========= ========= ======= ========= =========
Operating profit/
(loss) 13,828 242,817 67,684 (121,724) 202,605
========= ========= ======= ========= =========
* Include United States of America, Europe and other Asian countries
3. Taxation
(a) Taxation in the consolidated profit and loss account represents:-
(Unaudited)
For the six months ended 30 June
1999 1998
RMB'000 RMB'000
Provision for PRC income tax - -
Deferred taxation 29,192 (16,098)
------------- ------------
29,192 (16,098)
============= ============
The charge for PRC income tax is calculated at the rate of 33% (1998: 33%) on the estimated assessable profits of the period determined in accordance with the relevant PRC income tax rules and regulations. No provision for PRC income tax for the period has been made to the financial statements as the Group has accumulated tax losses carried forward as at 31 December 1998.
(b) The Group operates international flights to certain overseas destinations. There was no material overseas taxation for the six months ended 30 June 1999 as there exist double tax reliefs between PRC and the corresponding jurisdictions (including Hong Kong).
(c) Deferred taxation is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income tax. Deferred tax assets are recognised only to the extent that the deductible temporary differences or the benefit in respect of tax loss carryforwards are expected to be realised in the foreseeable future.
4. Gain on disposal of aircraft
On 2 April 1999, the Company entered into a sales agreement with an independent third party to dispose of all its thirteen MD-82 aircraft. Five such aircraft have been delivered during the six months ended 30 June 1999 and the Company recognised a total gain of RMB63,521,000 arising from the disposal which represents the difference between the sales proceeds and the net book value of these aircraft at the date of disposal.
5. Interim dividend
The Board of Directors of the Company does not recommend any payment of interim dividends for the six months ended 30 June 1999 (1998: Nil).
6. Earnings/ (loss) per share
The calculation of earnings/ (loss) per share is based on the unaudited consolidated profit attributable to shareholders of RMB64,280,000 (1998: loss of RMB33,236,000) and the weighted average number of 4,866,950,000 shares (1998: 4,866,950,000 shares) in issue during the period.
7. Profit appropriation
No appropriations from retained earnings were made to the statutory reserves during the six months ended 30 June 1999. Such appropriations will be made at the year end in accordance with the PRC regulations and the Company's Articles of Association.
8. Fixed assets
Other
Aircraft fixed Construction
and flight Land use assets and in
(Unaudited) equipment rights equipment progress Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Cost
At 1 January 1999 20,260,698 499,011 1,288,329 1,063,856 23,111,894
Additions 997,777 - 53,156 263,286 1,314,219
Disposals (798,080) - (14,284) - (812,364)
---------- ------- --------- --------- ----------
At 30 June 1999 20,460,395 499,011 1,327,201 1,327,142 23,613,749
---------- ------- --------- --------- ----------
Accumulated
depreciation
/Provision
At 30 June 1999 2,807,676 23,533 334,773 280,000 3,445,982
Charge/provision
for the period 679,794 5,141 66,551 30,000 781,486
Disposals (168,653) - (12,766) - (181,419)
---------- ------- --------- --------- ----------
At 30 June 1999 3,318,817 28,674 388,558 310,000 4,046,049
---------- ------- --------- --------- ----------
Net book value
at 30 June 1999 17,141,578 470,337 938,643 1,017,142 19,567,700
========== ======= ========= ========= ==========
Net book value at 31
December 1998 17,453,022 475,478 953,556 783,856 19,665,912
========== ======= ========= ========= ==========
During the six months ended 30 June 1999, the Group acquired two MD-90 aircraft and disposed of three MD-82 and two Fokker 100 aircraft in accordance with the delivery schedule as stipulated in the relevant acquisitions/disposal agreements. As at 30 June 1999, the Group had a fleet of 73 aircraft, of which 25 aircraft were under finance leases, 15 under operating leases and the remaining 33 were directly owned by the Group.
9. Commitments
(a) Capital commitments
As at 30 June 1999, the Group had capital commitments as follows:-
(Unaudited) (Audited)
30 June 1999 31 December 1998
RMB'000 RMB'000
Authorised and contracted for:
- Aircraft and related equipment 3,698,315 4,582,045
- Other 426,323 36,400
---------- ----------
4,124,638 4,618,445
---------- ----------
Authorised but not contracted for:
- Aircraft and related equipment 139,810 213,310
- Other 1,682,342 1,699,476
---------- ----------
1,822,152 1,912,786
---------- ----------
5,946,790 6,531,231
---------- ----------
The above commitments include primarily amounts for the acquisition of the ten Airbus A-320 aircraft for delivery between 1999 and 2001.
(b) Operating lease commitments
As as 30 June 1999, the Group had commitments under operating leases to make future minimum rentals as follows:-
(Unaudited) (Audited)
30 June 1999 31 December 1998
Aircraft and Aircraft and
flight Land and flight Land and
equipment buildings equipment buildings
RMB'000 RMB'000 RMB'000 RMB'000
Within one year 664,969 20,122 452,480 36,718
In the second year 760,655 12,483 525,877 19,217
In the third to
fifth year inclusive 2,715,557 15,373 1,577,630 18,625
After the fifth year 4,636,778 26,272 2,752,093 30,964
---------- ------- --------- -------
8,777,959 74,250 5,308,080 105,524
---------- ------- --------- -------
10. Convenience translation
The unaudited consolidated profit and loss account and net assets have 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 the reader have been made at the rate of US$1.00 to RMB8.2786 being the average of the buying and selling rates as quoted by People's Bank of China at the close of business on 30 June 1999. No representation is made that RMB amounts could have been or could be converted into US$ at that rate or at any other rate on 30 June 1999 or any other date.
B. Prepared in accordance with the People's Republic of China (the "PRC") Accounting Regulations
Consolidated Balance Sheet
(Amounts in thousands unless otherwise stated)
(Unaudited) (Audited)
Assets 30 June 1999 31 Dec 98
RMB RMB
Total Current Assets 7,500,144 7,031,246
Net Long-term Investments 794,156 1,233,967
Total Fixed Assets 17,408,982 18,012,962
Total Intangible Assets & Other Assets 774,955 754,643
----------- -----------
Total Assets 26,478,237 27,032,818
=========== ===========
Liabilities & Shareholders' Equity
Total Current Liabilities 5,910,954 5,431,370
Total Long-term Liabilities 13,734,220 14,974,915
----------- -----------
Total Liabilities 19,645,174 20,406,285
Minority Interests 246,748 95,497
Total Shareholders' Equity 6,586,315 6,531,036
----------- -----------
Total Liabilities & Shareholders' Equity 26,478,237 27,032,818
=========== ===========
Consolidated Profit and Loss Account
(Amounts in thousands unless otherwise stated)
(Unaudited)
For the six months ended 30 June
Items 1999 1998
RMB RMB
I. Revenue from Main Operations: 4,852,437 4,206,171
Less: Revenue from Civil Air
Infrastructure Construction
Fund 153,549 311,510
----------- -----------
Revenue from Main Operations, net 4,698,888 3,894,661
Less: Operating Cost 3,915,100 3,333,950
Business Taxes and Surtaxes 119,463 103,401
----------- -----------
II. Profit from Main Operations 664,325 457,310
Add: Income from Other Operations 133,997 125,631
Less: Allowance for Reduction
of Inventory to Market 20,369 17,328
Operating Expenses 428,934 489,761
General & Administrative Expenses 178,712 132,384
Financial Expenses 415,557 372,064
----------- -----------
III. Profit from Operations (245,250) (428,596)
Add: Income from Investments 27,754 42,476
Subsidy Income 7,600 -
Non-operating Income 288,358 23,160
Less: Non-operating Expenses 24,142 20,479
----------- -----------
IV. Total Profit 54,320 (383,439)
Less: Income Tax - -
Minority Interest
(for consolidated statements) 1,251 (23,074)
----------- -----------
V. Net Profit 53,069 (360,365)
=========== ===========
Notes:
1. Accounting Policies Applied
The company and its subsidiaries follow the <Accounting Regulations for Joint Stock Limited Companies>.
2 . Accounting Period
The company adopts the Gregorian Calendar year as its accounting period, i.e., from January 1 to December 31.
3. Bookkeeping Currency
The Company and its subsidiaries adopt RMB as the bookkeeping currency.
4. Principle and Basis of Accounting
The Company adopts the accrual basis, double-entry system and historical cost as basis of accounting.
5. Translation of Foreign Currencies
The Company maintains its books and records in RMB.
Transactions in foreign currencies are translated into RMB at the market medium exchange rate prevailing at the transaction date. Monetary assets and liabilities in foreign currencies at the end of each quarter are translated into RMB at the market medium exchange rates prevailing at that date. Exchange differences arising are included in the <Financial Expenses- Exchange Gains and Losses> in the current period.
6. Basis of Consolidated Statements
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 that have been established within a year, or have not commenced operations, or those have total assets, operating revenue and net profit under 10% of Company's total are exempted from consolidation.).
The subsidiary companies consolidated in this period are as follows:
Name of Registered
the company capital Sharesholding Scope of business
China Eastern USD 47,000,000 55% Air transportation of
Airlines passengers and cargo
Jiangsu over domestic and
Co. Ltd. approved overseas
routes
China Cargo RMB 500,000,000 70% Air transportation of
Airlines Ltd. cargo
7. Definition of Cash Equivalents
Cash equivalents refer to those assets which have the features of short term, high liquidity, low risks of fluctuation in value and easily convertible into a given amount of cash.
8. Provision of Bad Debts against Accounts Receivable
The bad debts on <Accounts Receivable> are treated on provision basis. Provision for bad debts is provided at 3 of the period-ending balance of <Accounts Receivable> and is debited in the account of <General & Administrative Expenses>. When bad debts actually occur, upon completion of necessary approval procedures, they are offset with the provision previously made.
9. Accounting of Inventory
a. Classification of Inventory
The Company's inventory comprises mainly aircraft consumables, rotables, common appliances, supplies on aircraft and low-price consumables.
b. Valuation of Inventory
The inventory is recorded at standard price, adjusted to its actual cost through the account of <Material Cost Variance> at the end of each month. The amortization of rotables is made over 5 years starting from the next month after acquisition. In case, upon the completion of its amortization, which can still be used after repair, rotables will be recorded at 40% of its market price and will be re-amortized over the next 5 years.
c. Allowance for Write Down of Inventory to Market Value
Commencing the year of 1998, the Company has provided allowance against aircraft consumables on the basis of the average useful period of the corresponding aircraft types and the average discount rate in previous disposal.
10. Accounting of Long-term Investment
a. Long-term Equity Investment
The Company's long-term equity investment includes securities investment and other equity investments. The long-term equity investment is accounted for at the acquisition price actually paid or at the appraised or negotiated price. Whenever the Company's investments is 20% or more of the voting capital of the invested entities, or the investment is less than 20% but the Company has significant influence on the investees, the equity method is applied. If the Company's investment is less than 20% of the invested entities, or the investment is 20% or more while the Company does not have significant influence on the investees, the cost method is applied to account for the long-term investment.
b. Long-term debenture Investment
Long-term debenture Investment refers to bond investment and lease investment. Long-term bond investment is recorded as acquisition cost and accounted for under the equity method.
11. Fixed Assets and Depreciation
Fixed assets refer to those assets whose useful lives are more than 1 year, value more than RMB 2,000 and can be held physically to directly realize 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 is provided on a straight-line basis according to the useful lives as follows:
Aircraft 10 - 15 years Engines 10 - 15 years Buildings and Premise 15 - 35 years Motor Vehicles and Electronic Device 5 - 6 years Other Equipment 5 - 20 years
12. 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 the interest capitalized during the course of construction for the purpose of financing the project.
Upon the completion and readiness for use of the project, the cost of construction-in-progress is to be transferred to the account of <Fixed Assets>.
13. Pricing and Amortization of Intangible Assets
Intangible assets are recorded at the actual acquisition cost and are amortized over its expected beneficial period under straight-line method.
14. Amortization of Organization Expenses and Long-term Prepaid & Deferred Expenses
a. Organization Expenses are amortized over 5 years.
b. Long-term Prepaid & Deferred Expenses are amortized over the estimated beneficial years under straight-line method.
15. Overhaul of Aircraft and Engines
Pursuant to the related regulations stipulated by the Finance Department of Civil Aviation Authority of China ("CAAC"), while arranging overhaul of aircraft and engines, the Company should provide the expense at 2%~4% of the original value, in consideration of the overhaul period and expected cost of various types of aircraft.
16. Income Recognition
The Company's income from providing transportation service of passengers, cargo and mails is recognized upon delivery of the service. Air-tickets sold in advance but not executed are listed as <Current Liabilities>, which are accounted for in the account of <Domestic Sales in Advance of Carriage> and <International Sales in Advance of Carriage>. Those tickets sold by or executed by other than the Company are to be cleared through China Civil Aviation Settlement Center. <Transportation Income> is recorded with the uplifted coupons as evidence.
Commission income is to be recognized upon billing by other airline companies.
Ground service income is recognized when rendering services.
17. Accounting Method of Income Tax
The accounting of income tax is under payable method.
C Significant Differences between IAS and PRC Accounting Regulations
Differences between IAS and PRC Accounting Regulations, which have significant effects on the unaudited consolidated profit/ (loss) attributable to shareholders and the unaudited consolidated net assets, are summarised below:-
Consolidated profit/ (loss) attributable to shareholders
(All amounts in thousands unless otherwise stated)
For the six months ended 30 June
1999 1998
RMB RMB
As stated in accordance with
PRC statutory accounts 53,069 (360,365)
Impact of IAS and other adjustments:
Allowance for obsolescence of flight
equipment spare parts (8,617) 5,412
Difference in depreciation charges of other
flight equipment due to different useful lives 39,556 127,569
Difference in gain/ loss on disposal and
depreciation charges of aircraft
due to different useful lives 78,010 276,520
Provision for overhaul expenses (20,137) (140,894)
Reversal of additional charges of flight
equipment spare parts arising from the
revaluation surplus of such assets 11,804 13,410
Accrual of net interest income on subleases 12,973 14,691
Provision for post-retirement benefits (50,434) (41,000)
Provision for staff quarters (30,000) -
Other 8,399 55,323
Tax adjustments (30,343) 16,098
--------- ---------
As stated in accordance with IAS 64,280 (33,236)
========= =========
Consolidated net assets
(All amounts in thousands unless otherwise stated)
30 June 31 December
1999 1998
RMB RMB
As stated in accordance with
PRC statutory accounts 6,586,315 6,531,036
Impact of IAS and other adjustments:
Allowance for obsolescence of
flight equipment spare parts (48,268) (39,651)
Difference in depreciation charges of other
flight equipment due to different useful lives 387,985 348,429
Difference in gain/ loss on disposal and
depreciation charges of aircraft
due to different useful lives 1,139,602 1,061,592
Provision for overhaul expenses (1,143,673) (1,123,536)
Reversal of additional charges of flight
equipment spare parts arising from the
revaluation surplus of such assets (97,097) (108,901)
Accrual of net interest income on subleases (11,665) (24,638)
Provision for post-retirement benefits (256,333) (205,899)
Disposition charge of Fokkers (38,750) (38,750)
Provision against staff quarters (283,000) (253,000)
Other 75,145 68,956
Tax adjustments 179,389 209,732
--------- ---------
As stated in accordance with IAS 6,489,650 6,425,370
========= =========
D Significant Differences between IAS and U.S. GAAP
Differences between IAS and U.S. GAAP, which have significant effects on the unaudited consolidated profit/ (loss) attributable to shareholders and the consolidated net assets are summarised below:-
Consolidated profit/ (loss) attributable to shareholders
(All amounts in thousands unless otherwise stated)
For the six months ended 30 June
1999 1998 1999
RMB RMB US$
As stated under IAS 64,280 (33,236) 7,765
U.S. GAAP adjustments:
Reversal of additional depreciation
charges arising from the revaluation
surplus of fixed assets 81,320 80,053 9,823
Reversal of amortisation charge on
land use rights 4,210 4,210 509
Gain/(loss) on disposal of aircraft and
related assets and accelerated
depreciation 33,649 (134,317) 4,065
Post-retirement benefits 17,560 18,941 2,121
Deferred tax effect on
U.S. GAAP adjustments (45,124) 10,267 (5,451)
------- -------- ---------
Consolidated profit/ (loss) attributable
to shareholders under U.S. GAAP 155,895 (54,082) 18,832
======= ======== =========
Earnings/ (loss) per share
under U.S. GAAP RMB0.03 RMB(0.01) US$0.004
======= ======== =========
Earnings/ (loss) per American Depository
Share ("ADS") under U.S. GAAP RMB3.20 RMB(1.11) US$0.3865
======= ======== =========
Consolidated net assets
(All amounts in thousands unless otherwise stated)
30 June
30 June 31 December 1999
RMB RMB US$
As stated under IAS 6,489,650 6,425,370 783,907
U.S. GAAP adjustments:
Reversal of the revaluation surplus
of fixed assets (977,240) (977,240) (118,044)
Reversal of land use rights at
valuation (420,999) (420,999) (50,854)
Reversal of difference in depreciation
charges and accelerated depreciation
and gain/(loss) on disposal of fixed
assets arising from the revaluation
surplus of fixed assets 279,084 164,115 33,711
Reversal of amortisation charge on
land use rights 25,260 21,050 3,051
Post-retirement benefits 118,029 100,469 14,257
Deferred tax effect on
U.S. GAAP adjustments 322,035 367,159 38,900
--------- --------- -------
Consolidated net assets under U.S. GAAP 5,835,819 5,679,924 704,928
========= ========= =======
Selected Airline Operating Data
For the six months
ended 30 June
1999 1998
Capacity
ATK (available tonne-kilometers) (millions) 11,051.90 8,904.00
ASK (available seat-kilometers) (millions) 1,599.90 1,363.80
Traffic
Total tonne-kilometers (millions) 811.20 670.50
Passenger tonne-kilometers (millions) 534.20 444.20
Cargo tonne-kilometers (millions) 277.00 226.30
Passenger-kilometer (millions) 6,111.00 5,057.70
Hours flown (thousands) 85.16 67.64
Number of passengers carried (thousands) 4,039.40 3,611.70
Weight of cargo carried (kg) (millions) 108.60 76.70
Load Factor (%)
Overall load factor 50.70 49.20
Passenger load factor 55.30 56.80
Break-even load factor (based on ATK) 48.70 49.40
Yield and Costs (RMB)
Passenger yield
(passenger revenues/passenger-kilometers) 0.61 0.60
Cargo yield
(cargo revenues/cargo tonne-kilometers) 2.72 2.58
Average yield
(passenger and cargo revenues/tonne- kilometers) 5.56 5.41
Unit cost (operating expenses/ASK) 0.39 0.41
Unit cost (operating expenses/ATK) 2.71 2.66
Review of Operations
During the first half of 1999, the Asian economy began to stabilize while adverse factors such as over-capacity, low demand and fierce competition in the Chinese domestic aviation market have not changed significantly. In response, the Group forwardly adopted a series of measures, including reducing capacity and the number of low-yield flights as well as expanding the scope of code sharing and route cooperation with other airlines. In response to the changing market, the Group added a route linking Shanghai with Fukushima, Japan and allocated more capacity on the routes to Korea and Southeast Asia. The Group also opened new cargo routes from Shanghai to Paris and from Shanghai to Xiamen by the way of wet-lease of DC10 and IL76 freighters, and initiated cargo chartered flights from Shanghai to Seoul and Tokyo. As of 30 June 1999, the Group operated a total of 132 routes, including 109 domestic routes (including 12 routes between mainland China and Hong Kong and one domestic cargo route) and 23 international routes (including 3 cargo routes). As of 30 June 1999, the Group operated over 1700 scheduled flights per week serving 68 domestic and international cities. During the first half of 1999, the Group sold five MD82 aircraft, replaced two Fokker100 aircraft by two A320 aircraft under operating leases, purchased two MD90 aircraft and incorporated three B737 aircraft and two YK42 aircraft as a result of the Company having assumed control over the aviation business of China General Aviation Company (see Material Matters). As of 30 June 1999, the Group operated a fleet of 73 aircraft, including 55 passenger jet aircraft with a capacity of over 100 seats each and one jet freighter.
As of 30 June 1999, traffic volume of the Group totalled 811 million tonne-kilometers, an increase of 20.86% over the same period last year. Total revenues amounted to RMB4.715 billion, an increase of 23.80% over the same period last year. The average aircraft daily utilization remained at the same level as the same period last year at 7.4 hours. The volume of passenger traffic grew 20.82% to 6.111 billion passenger-kilometers while passenger revenues were RMB3,757 billion, an increase of 23.39% over the same period last year. The increase of passenger traffic volume was mainly due to the Group's entry into and development of the North China market.
Domestic passenger traffic volume reached 2.607 billion passenger-kilometers, an increase of 10.37% from the same period last year. Revenues generated by domestic passenger traffic were RMB1.870 billion, an increase of 28.15% compared with the same period last year, representing 49.78% of total passenger revenues.
The Group's passenger traffic volume on Hong Kong routes was 877 million passenger-kilometers, an increase of 34.51% compared with the same period last year. Hong Kong passenger revenues were RMB845 million, up 15.28% from the same period last year, accounting for 22.49% of total passenger revenues.
International passenger traffic volume amounted to 2.627 billion passenger- kilometers, an increase of 28.52% compared with the same period last year. International passenger revenues increased by 22.16% over the same period last year to RMB 1.042 billion, representing 27.73% of total passenger revenues.
The Group's cargo traffic volume was 277 million tonne-kilometers, up 22.57% over the same period last year. Cargo revenues amounted to RMB754 million, an increase of 29.33% compared with the same period last year. The increase of cargo traffic was primarily due to the opening of new cargo routes and the increase of traffic capacity.
During the first half of 1999, the Group's operating costs reached RMB4.333 billion, an increase of 20.15% compared with the same period last year. Such increase was primarily due to increases in depreciation charges and overhaul expenses resulting from an expansion of the Group's fleet in the second half of 1998 and the first half of 1999.
The Group's foreign currency exchange gain was approximately RMB64.58 million in the first half of 1999, which was attributable primarily to the depreciation of Japanese Yen.
As a result of the above, the Group's net profit under IAS was approximately RMB64.28 million in the first half of 1999.
Outlook for the second half of 1999
The Company believes that, in the second half of 1999, the adverse impact of the Asian financial crisis will decrease as the economies in this region gradually improve. However, the demand in the Chinese domestic aviation market will remain weak. The CAAC has stated that it will continue to strengthen and improve its macro-control, including containing the expansion of traffic capacity and standardizing the air fares and sales agents.
The Company believes that its operating environment will improve as the CAAC's macro-control and other measures adopted by the central government are expected to stimulate domestic traffic demand. In addition, the upcoming international economic and trade events to be held in Shanghai and other activities such as the celebration of the 50th anniversary of foundation of the People's Republic of China and the return of Macau in the second half of 1999 will also contribute to the improvement of the Company's operating environment.
In light of the Company's current operating environment, the management of the Company intends to adopt the following measures in the second half of 1999:
1) Rationalize the capacity allocation and optimize the route network. The Company will continue to control the expansion of its traffic capacity and will gradually dispose of its MD82 aircraft. The Company will restructure its routes and capacity according to the market condition through reallocating aircraft from the low-yield routes to high-yield routes.
2) Adopt flexible marketing approach to increase sales. The Company plans to increase its market share by strengthening promotion and improving its service quality. The Company plans to cooperate with other air carriers on the jointly operated routes to increase the load factor and yield. The Company plans to increase its own marketing ability by raising the marketing awareness of its employees. The Company plans to use the ARC neutral reservation system in the United States to boost and improve the Company's sales and service network.
3) Develop and improve its frequent flyer program ("FFP"). The FFP was introduced in July 1998, which covers all of the Company's routes. The Company will continue to allocate more resources in software and hardware of its FFP and further simplify various procedures to facilitate the FFP membership candidates.
4) Actively explore the air cargo market. The Company intends to gradually convert its MD11 passenger aircraft into cargo freighter, aiming at increasing its cargo traffic capacity and volume as well as profit from cargo operation.
5) Control operating costs and increase efficiency. The Company plans to speed up the inventory of its spare parts stock, increase the utilization efficiency of its working capital and improve the quantity management of its fuel, spare parts and inflight supplies. The Company will further enhance its maintenance ability on the basis of completing the maiden overhaul of its A300-600R aircraft and reduce the operating costs.
The Company wishes to caution readers that this interim report contains certain forward-looking statements that are, by their nature, subject to significant risks and uncertainties. Actual events or results may differ materially from the information contained in the forward-looking statements. Such forward-looking statements include, without limitation, statements relating to Year 2000 issue, the Asian economy, the aviation market in Asia and the measures to be adopted by the Company in the second half of 1999.
Share Capital
1. Change in Share Capital
There was no change in the Company's share capital during the six months ended 30 June 1999.
2. Share capital Structure
Shareholders Number of Shares Percentage (%)
A shares
Unlisted State-owned
Legal Person Shares 3,000,000,000 61.64
Listed Shares 300,000,000 6.16
H shares 1,566,950,000 32.20
Total number of Shares 4,866,950,000 100.00
3. Substantial Shareholders
As of 30 June 1999, the following shareholders held more than 10% of the issued share capital of the Company:
Percentage of
Name Number of shares held shareholding (%)
Eastern Air Group Company 3,000,000,000 61.64
HKSCC (Nominees) Limited 1,426,621,499 29.31
4. Directors, Supervisors and Senior Management Share Holding Statement
Number of
A Shares held
Name Position on 30 June 1999
Fu Yunbi Chairman of the Board of Directors,
Chief Executive Officer 2,800
Li Zhongming Vice Chairman of the Board of Directors,
President 2,800
Zhu Tonghai Director 2,800
Xu Minzhu Director, Vice President 2,800
Yan Banghong Director, Vice President 2,800
Zhong Xiong Director, Vice President 2,800
Chen Quanxin Director 2,800
Wu Baiwang Director 0
Gong Haocheng Independent Non-executive Director 0
Hu Honggao Independent Non-executive Director 0
Peter Lok Independent Non-executive Director 0
Xiao Liyuan Chairman of the Supervisory Committee 2,800
Ba Shengji Supervisor 2,800
Qin Yaping Supervisor 2,800
Da Shiwen Supervisor 2,800
Feng Lei Supervisor 2,800
Cao Jianxiong Vice President, Chief Financial Officer 2,800
Ji Rensheng Chief Pilot 2,800
Luo Zhuping Company Secretary 2,800
Except as disclosed above, none of the Directors, Supervisors and any member of senior management of the Company had a beneficial interest in the issued share capital of the Company as at 30 June 1999.
Material Matters
1. Dividends
The Board of Directors does not recommend any payment of interim dividends for the six months ended 30 June 1999.
2. Influence of Recent Economic Development
In the second half of 1999, the impact of the Asian financial crisis is expected to diminish. With the recovery of the economies in Asia, the demand for air traffic is expected to increase. However, the demand in the Chinese domestic aviation market will continue to remain sluggish and will not improve in the near future.
3. Staff Quarters
Employees who are married and have served the Group for four years or more can apply to acquire staff quarters. According to a notice issued by the State Council of the PRC, distribution of quarters to employees at discounted prices has been withdrawn commencing 1 July 1998 and all quarters cannot be sold at below cost. The specific timetable and procedures for implementation of such policy are to be determined by individual provincial or municipal government based on the particular situation of the region. As of the date of this interim report, the Shanghai Municipal Government has yet to issue the specific implementation timetable and procedures of the above policy. The Directors understand that the announcement of the specific implementation procedures has been postponed until the end of 1999. According to an announcement made by the Land Bureau of the Shanghai Municipal Government, however, disposal of staff quarters during the transitional period from 1 July 1999 to 31 December 1999 has to follow the original policy on housing reform of the PRC and the "Implementation Rules on Sales of Staff Quarters" (the "existing rules") issued by the Shanghai Municipal Government, and the selling price of staff quarters shall not be less than 10% of its original cost.
At present, the Group's staff quarters are in its completion stage and the Group intents to provide eligible staff the opportunity to acquire such quarters. According to the aforementioned Land Bureau's announcement, the Directors anticipate that such quarters upon completion will be sold to the staff at a substantial discount based on the existing rules. As at 30 June 1999, the Group made an accumulated provision of RMB310 million (RMB283 million after deducting minority interests) which is calculated based upon the budgeted/actual construction cost of the staff quarters upon completion and an estimated discount rate of 80%. Due to an additional construction costs incurred to complete the quarters, a further provision of approximately RMB30 million classified under other operating expenses in the consolidated profit and loss account was made during the six months ended 30 June 1999. The Directors are of the opinion that no further provision will be required.
4. The Year 2000 ("Y2K") Issue
The operation of the Group depends heavily on its computer systems, including its information management, flight scheduling, reservation service and financial settlement. The Group fully understands the significance of Y2K issue and has established a special working group to plan and solve its Y2K issue.
To date, the Group has completed the assessment of its Y2K issue and has modified or upgraded all its computer systems and facilities. At present, the Group is in the process of testing its computer systems and facilities. The Group is also considering various contingency plans. The Group expects to resolve the Y2K issue by October 1999.
The Group estimates that Y2K issue will cost the Group approximately RMB6.2 million. The expenses incurred to 30 June 1999 by the Group amounts to RMB4.9 million. The remaining balance of RMB1.3 million has been authorized but not contracted for.
5. Purchase of aviation business of China General Aviation Company ("CGAC")
In order to complete the acquisition of the business and assets of the transportation service of the former CGAC and to avoid competition between the Company and its parent, Eastern Air Group Company ("Eastern Air"), the Company has established two new branches to assume the said business, the operation of the related routes as well as the management of related assets commencing 1 January 1999. The results of the said business have been incorporated as part of the Group's interim results as, pending completion of legal formalities, the aviation business and the related assets are already under the Company's control and management. As of the date of this report, the legal procedures in relation to the acquisition of the assets are in process, particularly the approval of the valuation of the assets by the relevant state authority. The valuation, which will be the basis for formulating the final purchase consideration for the assets, has no material impact to the Group's consolidated net assets as at 30 June 1999 nor to the Group's consolidated profit and loss account for the six month period ended 30 June 1999. The Board believes that the acquisition of the assets will be completed no later than the end of the financial year 1999 and the Company will make a further announcement when this transaction is completed.
6. Purchase, Sale or Redemption of Shares
There was no purchase, sale or redemption by the Company, or any of its subsidiaries, of the Company's shares during the first half of 1999.
7. Compliance with Code of Best Practice
The Company has complied with "The Code of Best Practice" set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited during the first half of 1999.
The Company is considering the establishment of an Audit Committee pursuant to "The Code of Best Practice ". However, the Company's organizational structure has, in lieu, a Supervisory Committee which carries out functions similar to that of the Audit Committee, the difference being that the Company's Supervisory Committee comprises five representatives (two of which shall be an employees of the Company) who are elected and removed in the general meeting of shareholders, and which reports to the general meeting of shareholders instead of the Board of Directors, whereas an Audit Committee is appointed amongst the non-executive directors of the Company. The details will be disclosed in the next annual report.
8. Material Litigation
The Group was not involved in any material litigation or arbitration in the first half of 1999.
9. Others
1) The Group has no designated deposits as of 30 June 1999 nor has it experienced any failures to collect fixed deposits upon maturity.
2) The Group has at all times paid the full amount of income tax in accordance with the relevant tax regulations of the PRC and has never enjoyed any preferential treatment of the 18% income tax refund from the government. Therefore, neither the unification of the income tax nor the cancellation of the preferential tax refund from the Chinese government has any significant impact on the Group.
Fu Yunbi
Chairman of the Board
China Eastern Airlines Corporation Limited
Shanghai, 25 August 1999
DOCUMENTATION AND ADDRESS FOR REVIEW
Documentation for review: Original copy of the interim report for the six months ended 30 June 1999 and financial report 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.
| © Copyright 1996-2008 irasia.com Ltd. All rights reserved. |
|
DISCLAIMER: irasia.com Ltd makes no guarantee as to the accuracy or completeness of any
information provided on this website. Under no circumstances shall irasia.com Ltd be liable
for damages resulting from the use of the information provided on this website.
TRADEMARK & COPYRIGHT: All intellectual property rights subsisting in the contents of this website belong to irasia.com Ltd or have been lawfully licensed to irasia.com Ltd for use on this website. All rights under applicable laws are hereby reserved. Reproduction of this website in whole or in part without the express written permission of irasia.com Ltd is strictly prohibited. TERMS OF USE: Please read the Terms of Use governing the use of our website. |