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ANNUAL REPORT 2002

Table of contents

  • Page 1
    A N N U A L R E P O RT 2 0 0 2

  • Page 2
    ... City Houston* Jakarta Johannesburg Karachi Kuala Lumpur Las Vegas* Lisbon* London Los Angeles Manchester* Manila Melbourne Miami* Milan†Mumbai Munich* Nagoya Newcastle* New York Orlando* Osaka Paris Penang Perth Philadelphia* Pittsburg* Prague* Riyadh Rome San Diego* San Francisco San...

  • Page 3
    Now You Are Really Flying

  • Page 4
    ...Company Balance Sheet 2002 in Review Consolidated Cash Flow Statement Review of Operations Consolidated Statement of Changes in Equity Financial Review Company Statement of Changes in Equity Directors and Officers Notes to the Accounts Directors' Report Principal Subsidiary and Associated...

  • Page 5
    ... Group Financial Statistics 2002 2001 Change Results Turnover Profit attributable to shareholders Earnings per share Dividend per share Profit margin Balance Sheet Shareholders' funds Net borrowings Shareholders' funds per share Net debt/equity ratio Operating Statistics - Cathay Pacific HK...

  • Page 6
    ... DHL services from Hong Kong International Airport. Its fleet should increase significantly over the years to come. Cathay Pacific Airways Limited Annual Report 2002 In November we became the first airline in Asia to take delivery of the new long range Airbus 340-600 passenger aircraft. Furthermore...

  • Page 7
    ... cargo operations with AHK. • A new agreement on Taiwan air services was reached with the Taipei Airlines Association. • The sixth daily flight between Hong Kong and Manila and the fifth weekly ser vice to Johannesburg commenced in January 2003. 4 Cathay Pacific Airways Limited Annual Report...

  • Page 8
    ...Internet and collect them upon arrival at Hong Kong International Airport. • Ultramain, which will track and predict maintenance requirements and costs of our aircraft and components, began roll out in Hong Kong. • COINS, a new revenue management system to control inventory and pricing strategy...

  • Page 9
    ... the job training at their home ports of Bangkok, Denpasar, Jakarta, Taipei and Tokyo. • By the end of 2002, the airline employed more than 14,600 staff in 30 countries, 10,700 of which are based in Hong Kong. • Cathay Pacific regularly reviews its human resource and remuneration policy in light...

  • Page 10
    ... and South Africa Overall 11,022 14,063 13,291 24,674 63,050 10,279 13,609 13,833 25,069 62,790 +7.2% +3.3% -3.9% -1.6% +0.4% 69.2 71.8 86.4 80.4 77.8 68.8 64.0 78.4 72.5 71.3 +0.4%pt +7.8%pt +8.0%pt +7.9%pt +6.5%pt -4.9% -4.6% +4.3% +2.6% -0.7% Cathay Pacific Airways Limited Annual Report...

  • Page 11
    ...on many flights and bookings were slow during the usual peak Christmas and New Year season. • An increasing number of long haul passengers now connect to our South East Asian network through our hub at Hong Kong International Airport. • The continued success of our service to Johannesburg led to...

  • Page 12
    ... Pacific Airways Limited • Cathay Pacific operates a fleet of five B747-400 and six B747-200 freighters to 23 destinations worldwide. Freight is also carried in the belly holds of our passenger aircraft. • During 2002, 851,000 tonnes of freight were carried, setting a new annual record. Cargo...

  • Page 13
    ... track and trace. • Cathay Pacific is the world's first airline certified under the Cargo 2000 quality assurance initiative. Review of affiliated businesses and associated companies Cathay Pacific Catering Services (H.K.) Limited • This wholly owned subsidiary is the principal flight kitchen...

  • Page 14
    Review of Operations Hong Kong Aircraft Engineering Company Limited ("HAECO") • HAECO, in which Cathay Pacific holds a 27% interest, provides aircraft maintenance, modification and overhaul services at Hong Kong International Airport. • The company achieved a consolidated profit after tax of HK...

  • Page 15
    ... '05 & beyond Total '03 Expiry of operating leases '04 '05 & beyond A320 A321 A330 B747-300F Total 1 3 4 2 6 4 8 4 9 3 2 1 1 1 2 3 5 2 1 3 3 1 3 4 4 1* 4 1 6 14 24 2 2 6 10 3 4 7 * Aircraft will be on operating lease. 12 Cathay Pacific Airways Limited Annual Report 2002

  • Page 16
    Financial Review The Cathay Pacific Group reported an attributable profit of HK$3,983 million against a profit of HK$657 million in 2001. The improved results reflect the recovery in demand for air transport since the last quarter of 2001. Turnover Group 2002 HK$M 2001 HK$M Cathay Pacific 2002 HK$M...

  • Page 17
    ...65 60 + 1 percentage point in passenger load factor + 1 percentage point in cargo and mail load factor + HK¢1 in passenger yield + HK¢1 in cargo and mail yield 286 123 490 49 55 50 98 99 00 01 02 Revenue load factor Breakeven load factor 14 Cathay Pacific Airways Limited Annual Report 2002

  • Page 18
    ...in the average fuel price. Cathay Pacific: fuel price and consumption US cents per American gallon American gallon in million Cathay Pacific: total operating expenses 3% Others 3% Net finance charges 2% Commissions 16% Depreciation and operating leases 12% Aircraft maintenance 26% Staff 100 900...

  • Page 19
    ... aircraft and the non recurrence of an impairment charge booked in 2001. • Net finance charges were higher as a result of a lower return on the Company's liquid funds. • Cathay Pacific's cost per ATK reduced from HK$2.36 to HK$2.13 due to lower fuel prices and cost saving initiatives. Group...

  • Page 20
    ... 0 Shareholders' funds Net borrowings Net debt/equity ratio Group maturity profile by currency: borrowings HK$ million Financial risk management policy • In the normal course of business, the Group is exposed to fluctuations in foreign currencies, interest rates and jet fuel prices. • These...

  • Page 21
    ... to market values. Cathay Pacific: fuel hedging US cents per American gallon American gallon in million 74 180 73 150 72 120 71 90 70 60 Management of currency and interest rate exposures • As an international airline, the Group's revenue streams are denominated in a number of foreign...

  • Page 22
    ... value added in 2001 and 2002. 2002 HK$M 2001 HK$M Total revenue Less: Purchases of goods and services Other costs Value added by the Group Add: Income from investments Surplus on sales of investments Share of profits of associated companies Total value added available for distribution 33,090 (16...

  • Page 23
    ... was previously Director Service Delivery. He is also a Director of John Swire & Sons (H.K.) Limited, Hong Kong Aircraft Engineering Company Limited and Hong Kong Dragon Airlines Limited and the Chairman of AHK Air Hong Kong Limited. He joined the Swire Group in 1977 and has worked in Australia, the...

  • Page 24
    ... Corporation (Group) Limited and Hong Kong Dragon Airlines Limited. INDEPENDENT NON-EXECUTIVE DIRECTORS Peter Lee*, aged 49, has been a Director of the Company since May 2002. He is Chairman and Managing Director of Hysan Development Company Limited and is also a Director of Hang Seng Bank Limited...

  • Page 25
    .... ACTIVITIES The Cathay Pacific Group (the "Group") is predominantly managed and controlled in Hong Kong. As well as operating scheduled airline services, the Group is engaged in other related areas including airline catering, aircraft handling and engineering. The airline operations are principally...

  • Page 26
    ... purpose of the Listing Rules (Main Board) (the "Listing Rules") of The Stock Exchange of Hong Kong Limited (the "Stock Exchange"). On 25th February 2002, Maplebeck Limited, a wholly owned subsidiary of the Company, acquired from Stabilo Limited, a subsidiary of Shun Tak Holdings Limited ("Shun Tak...

  • Page 27
    .... DIRECTORS' INTERESTS At 31st December 2002, the register maintained under Section 29 of the Securities (Disclosures of Interests) Ordinance ("SDI") showed that Directors held the following beneficial interests in the shares of the Company: 24 Cathay Pacific Airways Limited Annual Report 2002

  • Page 28
    ..., offer themselves for re-appointment. A resolution for the re-appointment of KPMG as Auditors to the Company is to be proposed at the forthcoming Annual General Meeting. By order of the Board James Hughes-Hallett Chairman Hong Kong, 5th March 2003 Cathay Pacific Airways Limited Annual Report 2002...

  • Page 29
    ... and financial performance of the Company. The Board meets six times a year. The average attendance rate of the Directors for the year was 89%. BOARD SAFETY REVIEW COMMITTEE The Board has established a Board Safety Review Committee to review and report to the Board on safety and environmental...

  • Page 30
    ...Kong Airport Services Limited and the aircraft maintenance company, Hong Kong Aircraft Engineering Company Limited. CODE OF BEST PRACTICE The Company has complied throughout the year with the Code of Best Practice as set out in the Listing Rules of the Stock Exchange. Cathay Pacific Airways Limited...

  • Page 31
    ... the Company as at 31st December 2002 and of the Group's profit and cash flows for the year then ended and have been properly prepared in accordance with the Hong Kong Companies Ordinance. KPMG Certified Public Accountants Hong Kong, 5th March 2003 28 Cathay Pacific Airways Limited Annual Report...

  • Page 32
    ... items are translated at the rates ruling at the balance sheet date: (i) foreign currency denominated monetary assets and liabilities (including currency derivatives). (ii) the balance sheets of foreign subsidiary and associated companies. Cathay Pacific Airways Limited Annual Report 2002 29

  • Page 33
    ... of aircraft cost and are depreciated over periods of up to 10 years. The Group's depreciation policy and the carrying amount of fixed assets are reviewed annually taking into consideration factors such as changes in fleet composition, current and forecast market prices and technical factors which...

  • Page 34
    ... of the employees participating in the plans. The Group retained profit brought forward from 2001 has been reduced by HK$573 million being the recognition of the net defined benefit retirement obligations. Comparative figures have not been restated. Cathay Pacific Airways Limited Annual Report 2002...

  • Page 35
    ... at weighted average cost less any applicable allowance for obsolescence. Stock held for disposal is stated at the lower of cost and net realisable value. Net realisable value represents estimated resale price. 13. FUNDS WITH INVESTMENT MANAGERS AND OTHER LIQUID INVESTMENTS Funds with investment...

  • Page 36
    ...services Cargo services Catering and other services Total turnover Expenses Staff Route Fuel Aircraft maintenance Depreciation and operating leases Commissions Others Operating expenses Operating profit Finance charges Finance income Net finance charges Profit on sale of investments Share of profits...

  • Page 37
    ... at HK$7 .8. 21 22 4,951 32,186 (71) 32,115 667 31,448 32,115 666 30,642 31,308 86 4,031 4,117 85 3,929 4,014 James Hughes-Hallett Director Hong Kong, 5th March 2003 The notes on pages 39 to 61 form part of these accounts. Henry Fan Director 34 Cathay Pacific Airways Limited Annual Report...

  • Page 38
    ... translated at HK$7 .8. 21 22 (5,427) 21,020 667 20,353 21,020 666 20,892 21,558 86 2,609 2,695 85 2,679 2,764 James Hughes-Hallett Director Hong Kong, 5th March 2003 Henry Fan Director The notes on pages 39 to 61 form part of these accounts. Cathay Pacific Airways Limited Annual Report 2002...

  • Page 39
    ... of loans from an associated company Net cash outflow from investing activities Financing activities New financing Security deposits placed Loan and finance lease repayments Net cash benefit from financing arrangements Shares repurchased and issued Dividends paid - to shareholders - to minority...

  • Page 40
    ... hedge reserve HK$M Other reserves HK$M Total HK$M At 1st January 2002 Prior year adjustment for retirement benefits - retirement benefit obligations - investments in associated companies As restated Exchange differences on cash flow hedges - recognised during the year - transferred to profit for...

  • Page 41
    Company Statement of Changes in Equity for the year ended 31st December 2002 Non-distributable Share capital HK$M Retained profit HK$M Share premium HK$M Capital redemption reserve HK$M Investment revaluation reserve HK$M Cash flow hedge reserve HK$M Total HK$M At 1st January 2002 Prior year ...

  • Page 42
    ... ACTIVITIES The Group is predominantly managed and controlled in Hong Kong. As well as operating scheduled airline services, the Group is engaged in other related areas including airline catering, aircraft handling and engineering. The airline operations are principally to and from Hong Kong, which...

  • Page 43
    ... the Company and AHK. Cathay Pacific catering services and other airline supporting services which supplement the Group's operating business are included in unallocated revenue. Analysis of net assets by business segment: The major revenue earning asset of the Group is the aircraft fleet which...

  • Page 44
    ... for the year. 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. Cathay Pacific Airways Limited Annual Report 2002...

  • Page 45
    ... number of ordinary shares used in calculating basic earnings per share Deemed issue of ordinary shares for no consideration Weighted average number of ordinary shares used in calculating diluted earnings per share 3,333 23 3,356 3,331 18 3,349 42 Cathay Pacific Airways Limited Annual Report...

  • Page 46
    Notes to the Accounts - Balance Sheet 10. FIXED ASSETS Aircraft and related equipment Owned HK$M Other equipment Owned HK$M Properties Total HK$M HK$M HK$M Leased HK$M Leased Group Cost At 1st January 2002 Exchange differences Additions Disposals Transfers At 31st December 2002 Accumulated ...

  • Page 47
    ... to the leasing companies or other parties that provide the underlying finance. (f) Properties held at 31st December 2002 include land held under medium-term leases in Hong Kong with a net book value of HK$1,622 million (2001: HK$1,658 million). 44 Cathay Pacific Airways Limited Annual Report 2002

  • Page 48
    ... HK$M Unlisted shares at cost Net amounts due (to)/from subsidiary companies - Loan accounts - Current accounts Other investments 214 (15,879) 4,181 27,623 16,139 214 (14,945) 4,201 24,493 13,963 Principal subsidiary companies are listed on page 60. Cathay Pacific Airways Limited Annual Report...

  • Page 49
    Notes to the Accounts - Balance Sheet 13. ASSOCIATED COMPANIES Group 2002 HK$M Company 2001 HK$M 2002 HK$M 2001 HK$M Hong Kong listed shares at cost (Market value: HK$1,050 million, 2001: HK$548 million) Unlisted shares at cost Share of net assets - listed in Hong Kong - unlisted 882 749 1,631...

  • Page 50
    ... the Accounts - Balance Sheet 15. LONG-TERM LIABILITIES 2002 Current Note HK$M 2001 Current HK$M Non-current HK$M Non-current HK$M Group Long-term loans Obligations under finance leases (a) (b) 963 3,318 4,281 3,090 15,439 18,529 628 1,382 2,010 3,268 18,746 22,014 Company Long-term loans...

  • Page 51
    ... 2017. The future payments under these finance leases are as follows: Group 2002 HK$M Company 2001 HK$M 2002 HK$M 2001 HK$M Within one year After one year but within two years After two years but within five years After five years Total future payments Interest charges relating to future periods...

  • Page 52
    ... benefit retirement schemes The Swire Group Retirement Benefit Scheme ("SGRBS") in Hong Kong, in which the Company and Cathay Pacific Catering Services (H.K.) Limited ("CPCS") are participating employers, provides resignation and retirement benefits to its members, which include the Company's cabin...

  • Page 53
    ... Accounts - Balance Sheet 16. RETIREMENT BENEFITS (continued) Net expenses recognised in the Group profit and loss account: Current service cost Interest on obligations Expected return on plan assets Total included in staff costs (2001: HK$380 million) Actual loss on plan assets 2002 HK$M 391 318...

  • Page 54
    ...2,336 116 66 2,518 2,145 67 55 2,267 2,024 65 31 2,120 The Company normally grants a credit term of 30 days to customers or follows the local industry standard with the debt partially protected by bank guarantee or other monetary collateral. Cathay Pacific Airways Limited Annual Report 2002 51

  • Page 55
    ... the Accounts - Balance Sheet 19. LIQUID FUNDS Group 2002 HK$M Company 2001 HK$M 2002 HK$M 2001 HK$M Short-term deposits and bank balances Short-term deposits maturing beyond three months when placed Funds with investment managers - debt securities listed outside Hong Kong - bank deposits Other...

  • Page 56
    ...flight deck crew of the Group who paid HK$1 each in acceptance of their share options and were granted options to subscribe for shares of the Company at a price not less than the higher of 80% of the average of the closing prices of the Company's shares on the Stock Exchange on the five trading days...

  • Page 57
    ... 108 67 31 48 (35) 8 86 26 315 19 116 (3) 559 The actual exchange differences ultimately recognised in operating profit will depend upon exchange rates ruling on the repayment dates of the relevant long-term liabilities and lease obligations. 54 Cathay Pacific Airways Limited Annual Report 2002

  • Page 58
    ...) (780) 157 488 45 677 553 (387) 9,300 832 3,884 111 48 (428) 60 222 (23) (964) (289) 1,160 4,613 24. ANALYSIS OF CASH AND CASH EQUIVALENTS 2002 HK$M 2001 HK$M Short-term deposits and bank balances Bank overdrafts 3,438 (16) 3,422 2,619 (18) 2,601 Cathay Pacific Airways Limited Annual Report...

  • Page 59
    ...25. DIRECTORS' REMUNERATION Directors' remuneration disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance is as follows: 2002 HK$M 2001 HK$M Fees Emoluments - Salaries, allowances and benefits in kind - Contributions to retirement schemes 35 3 38 34 2 36 Housing costs accounted...

  • Page 60
    ... facilities of HK$18 million (2001: HK$16 million) held by an associated company. (e) There were no material transactions with Directors except for those relating to remuneration (note 25 to the accounts) and shareholdings (Directors' Report). Cathay Pacific Airways Limited Annual Report 2002 57

  • Page 61
    ... Listing Rules, the Stock Exchange has granted to the Company a waiver from full compliance with the provisions of Chapter 14 of the Listing Rules, which relates to notifiable transactions, in relation to the acquisition or disposal of aircraft. As a result of the waiver, instead of the normal tests...

  • Page 62
    ... on behalf of subsidiary, associated, other related companies and staff relating to long-term loan facilities of up to HK$1,404 million (2001: HK$1,202 million). 30. CHANGES IN THE FINANCIAL STATEMENTS With the introduction of HK SSAP 34 "Employee benefits" , the Group's accounting policy on defined...

  • Page 63
    ... share capital Abacus Distribution Systems (Hong Kong) Limited Aircrew Services Limited Airline Property Limited Airline Stores Property Limited Airline Training Property Limited Cathay Holidays Limited Cathay Pacific Aircraft Services Limited Cathay Pacific Catering Services (H.K.) Limited Cathay...

  • Page 64
    ...owned Associated Engineers Limited Cathay Kansai Terminal Services Company Limited Cebu Pacific Catering Services Inc Hong Kong Aircraft Engineering Company Limited Hong Kong Airport Restaurant Caterers Company Limited Hong Kong Dragon Airlines Limited VN/CX Catering Services Limited * Shareholding...

  • Page 65
    ... and loss summary Passenger services Cargo services Catering and other services Total turnover Operating expenses Operating profit/(loss) Net finance charges Profit on sale of investments Share of profits of associated companies Profit/(loss) before taxation Taxation Profit/(loss) after taxation...

  • Page 66
    ....8 42.0 4.61 1.69 79.8 42.0 7.6 8.0 2.1 3.1 0.88 0.47 (2.1) (2.1) (1.6) (2.2) 1.04 0.57 5.5 6.3 1.7 6.1 0.85 0.32 12.1 17.8 2.1 9.8 0.99 0.22 10.0 19.6 2.2 6.3 1.31 0.47 9.0 17.6 2.0 5.6 1.61 0.52 9.8 17.9 1.9 9.2 1.60 0.51 Cathay Pacific Airways Limited Annual Report 2002 63

  • Page 67
    ... load factor Cargo carried Cargo and mail tonne kilometres Cargo and mail load factor Excess baggage carried Mail carried Length of scheduled routes network Destinations at year end Staff number at year end ATK per staff On-time performance Departure (within 15 minutes) Average aircraft utilisation...

  • Page 68
    ... 7 3 72 11 6 13 19 4 2 4 59 3 62 10 2 5 13 19 4 2 4 59 3 62 7 4 13 19 4 2 8 57 57 2 13 18 4 1 17 55 55 13 17 4 19 53 53 Cathay Pacific Airways Limited Annual Report 2002 65

  • Page 69
    ...HK$'000 staff cost Aircraft utilisation Share prices High Low Year-end Price ratios (Note) Price/Earnings Market capitalisation/ Shareholders' funds Price/Cash flow Note: Based on year end share price, where applicable. Times HK$ Unit Hours per day HK...66 Cathay Pacific Airways Limited Annual Report ...

  • Page 70
    ... kilometres/Cargo and mail tonne kilometres Interest cover = Operating profit/(loss) Net finance charges Gross debt/ equity ratio = Borrowings Shareholders' funds Cost per ATK = Total operating expenses of Cathay Pacific ATK of Cathay Pacific 67 Cathay Pacific Airways Limited Annual Report...

  • Page 71
    ....cathaypacific.com REGISTERED OFFICE 35th Floor, Two Pacific Place 88 Queensway Hong Kong DEPOSITARY The Bank of New York American Depositary Receipts 101 Barclay Street, 22nd Floor New York, NY 10286 U.S.A. Investor hotline (toll free): 1(888) BNY ADRS or 1(888) 269 2377 General line: 1(212) 815...

  • Page 72
    DESIGN: FORMAT LIMITED PRINTED IN HONG KONG THIS REPORT IS PRINTED ON RECYCLED PAPER www.format.com.hk

  • Page 73
    CATHAY PACIFIC AIRWAYS LIMITED ANNUAL REPORT 2002 www.cathaypacific.com