Set out below is further information which will assist in the formation of a balanced assessment of the financial position and results for the year of the Swire Pacific Group.
Share placement by Cathay Pacific
Upon the share placement by Cathay Pacific to CITIC Pacific on 10th June 1996, the Group's interest in Cathay Pacific was diluted from 52.6% to 43.9% and therefore from that date Cathay Pacific and HAECO are no longer consolidated by Swire Pacific. This has important implications for the presentation of the Swire Pacific Group's financial statements. To assist in the assessment of the Swire Pacific Group's financial position and results, proforma figures, prepared on the basis that Cathay Pacific and HAECO are accounted for as associated companies throughout, using the actual shareholdings held by Swire Pacific for the relevant years covered, have been provided in the analysis of significant variances in consolidated profit and loss account and balance sheet items.
Review of Operating Results
The principal activities of the Swire Pacific Group together with the contribution of each activity to Group results are as follows:
The Company and its subsidiaries:
Associated companies:
The activities of the Swire Pacific Group are mainly based in Hong Kong and, in particular, Cathay Pacific's airline operations, which have been consolidated up to 9th June 1996, are carried out between rather than within geographic segments and all principal services are to and from Hong Kong. An analysis of Group turnover by principal markets is outlined below:
There are no businesses carried on outside Hong Kong which, in aggregate, contribute to 10% or more of the Group's consolidated operating profits.
An analysis of Group attributable profit by division is as follows:
Comments on major variances in the Consolidated Profit & Loss Account and Balance Sheet
The comments made below relate to the variances in the Group's proforma consolidated profit and loss account figures, i.e. accounting for Cathay Pacific and HAECO as associates throughout, using the actual shareholdings held by Swire Pacific for 1996 and 1995.
The comments made below relate to the 1996 consolidated balance sheet to proforma 1995 consolidated balance sheet:
Financial Risk Management Policy
Financing for Swire Pacific subsidiaries in Hong Kong is provided primarily by Swire Pacific, which raises funds both directly and through wholly-owned finance subsidiaries. Small working capital lines and overdraft facilities are arranged by individual subsidiaries. All areas of financial risk management activity are subject to policies, guidelines, exposure limits, and systematic authorisation and reporting. The Group's principal associated companies, Cathay Pacific and HAECO arrange their financial affairs on a stand-alone basis. Their financing activities are undertaken in a manner consistent with the overall financial policies of the Group.
Use of Derivatives
In the normal course of business, both Swire Pacific and Cathay Pacific use interest rate and currency swaps in connection with their borrowings. Such derivative transactions are entered into in order to manage exposure to fluctuations in foreign currency exchange rates and interest rates. In addition, Cathay Pacific is a party to forward contracts and options for the purchase of aviation fuel. It is the policy of the Swire Pacific Group not to enter into derivative transactions for speculative purposes. The implementation of hedging policy is only undertaken following approval from the Board.
Derivatives involve, to varying degrees, credit and market risk. With regard to credit risk, the Group would be exposed to loss in the event of non-performance by a counter-party. The Group controls credit risk through approved counter-party limits and monitoring procedures.
Market risk is the possibility that a movement in interest rates or currency rates will cause the value of a derivative to fluctuate or change the cost of settling the underlying obligations. Derivatives are used solely for management of an underlying risk and the Group is not exposed to market risk since gains and losses on the derivatives offset losses and gains on the assets, liabilities or transactions being hedged. The Group is not required by its counter-parties to provide collateral or any other form of security against any change in the market value of a derivative.
Management of Currency Exposure
Exposure to movements in exchange rates on individual transactions in the Swire Pacific Group is minimised using forward foreign exchange contracts where active markets for the relevant currencies exist. With the exception of the Perpetual Capital Securities, which have no scheduled maturity, all significant overseas borrowings are converted to Hong Kong dollars, using appropriate currency hedges.
Translation exposure arising on consolidation of the Group's overseas net assets is reduced where practical by broadly matching assets with borrowings in the same currency. Any remaining translation exposure is not actively managed. A substantial proportion of the revenues, costs, assets and liabilities of Swire Pacific and its subsidiary companies are denominated in Hong Kong dollars.
The long-term financial obligations of Cathay Pacific have been arranged primarily in currencies in which it has substantial positive operational cash flows, thus establishing a natural currency hedge. The policy adopted requires that anticipated surplus foreign currency earnings should be at least sufficient to meet the foreign currency interest and principal repayment commitments in any year.
Capital Resources & Liquidity
Swire Pacific's total shareholders' funds amounted to HK$100,788 million at the end of 1996, compared with HK$71,320 million at the end of 1995.
As at 31st December 1996 the Swire Pacific Group's net liquid funds totalled HK$916 million. These comprised short-term deposits and bank balances of HK$1,946 million less bank and other short-term borrowings of HK$1,030 million.
An analysis of Group's gross borrowings by currency at 31st December 1996, including the Perpetual Capital Securities issued in October 1996, is shown below:
Sources of Finance
At 31st December 1996, committed loan facilities and other financing in place amounted to HK$17,041 million of which 28% remained undrawn. In addition, there were uncommitted facilities undrawn at year-end amounting to HK$2,258 million. Sources of funds at the end of 1996 comprised:
Maturity Profile
It is Group policy to secure adequate funding so as to match cash flows associated with both current and planned investments. The maturity profile of the Group's borrowings at 31st December 1996 is set out below:
Interest Cover and Gearing
The following graphs illustrate interest cover and gearing ratios. Interest cover for the year ended 31st December 1996 was 20.7 times and the gearing ratio was 0.10/1 at the end of 1996.
 |
 |
 |
 |
The major outgoings during 1996 in the property division related to expenditure on Festival Walk, Lincoln House, Oxford House and the Cityplaza One redevelopment. Expenditure in the industries division was mainly on property, plant and equipment in Swire Beverages. Within the marine services division, capital expenditure related principally to instalment payments in respect of four new buildings to be delivered in 1997 and 1998. Capital expenditure incurred in the aviation division, for the period up to 9th June 1996, was mainly on payments for aircraft acquisition and construction of Cathay Pacific's new headquarters and a new catering facility at CLK.
| © Copyright 1996-2008 irasia.com Ltd. All rights reserved. Tel: (852) 2831-9792. |
|
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. |