Cathay Pacific 2011 Annual Report Download - page 87

Notes to the Accounts SUPPLEMENTARY INFORMATION
32. Commitments and contingencies (continued)
On 9th November 2010, the European Commission announced that it had issued a decision in its airfreight
investigation finding that, amongst other things, the Company and a number of other international cargo carriers
agreed to cargo surcharge levels and that such agreements infringed European competition law. The European
Commission imposed a fine of Euros 57,120,000 (equivalent to HK$618 million at the exchange rate current as
of the date of the announcement) on the Company. The Company has filed an appeal with the General Court of
the European Union in January 2011.
The Company has been named as a defendant in a number of civil complaints, including class litigation and third
party contribution claims, in a number of countries including the United States, Canada, Korea, the United
Kingdom, the Netherlands and Australia alleging violations of applicable competition laws arising from the
Company’s conduct relating to its air cargo operations. In addition, civil class action claims have been filed in the
United States and Canada alleging violations of applicable competition laws arising from the Company’s conduct
relating to certain of its passenger operations. The Company is represented by legal counsel and is defending
those actions.
The investigations, proceedings and civil actions are ongoing and the outcomes are subject to uncertainties.
Cathay Pacific is not in a position to assess the full potential liabilities but makes provisions based on facts and
circumstances in line with accounting policy 19 set out on page 51.
33. Financial risk management
In the normal course of business, the Group is exposed to fluctuations in foreign exchange rates, interest rates and
jet fuel prices. These exposures are managed, sometimes with the use of derivative financial instruments, by the
Treasury Department of Cathay Pacific in accordance with the policies approved by the Finance Committee.
Derivative financial instruments are used solely for financial risk management purposes and the Group does not hold
or issue derivative financial instruments for proprietary trading purposes. Derivative financial instruments which
constitute a hedge do not expose the Group to market risk since any change in their market value will be offset by a
compensating change in the market value of the hedged items. Exposure to foreign exchange rates, interest rates
and jet fuel price movements are regularly reviewed and positions are amended in compliance with internal
guidelines and limits.
(a) Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The
Group normally grants a credit term of 30 days to customers or follows the local industry standard with the debt
in certain circumstances being partially protected by bank guarantees or other monetary collateral.
Trade debtors mainly represented passenger and freight sales due from agents and amounts due from airlines
for interline services provided. The majority of the agents are connected to the settlement systems operated by
the International Air Transport Association (“IATA”) who is responsible for checking the credit worthiness of
such agents and collecting bank guarantees or other monetary collateral according to local industry practice. In
most cases amounts due from airlines are settled on net basis via an IATA clearing house. The credit risk with
regard to individual agents and airlines is relatively low.
To manage credit risk, derivative financial transactions, deposits and funds are only carried out with financial
institutions which have high credit ratings and all counterparties are subject to prescribed trading limits which
are regularly reviewed. Risk exposures are monitored regularly by reference to market values.
At the reporting date there was no significant concentration of credit risk. The maximum exposure to credit risk
is represented by the carrying amount of each financial asset, including derivative financial instruments, in the
statement of financial position and the amount of guarantees granted as disclosed in note 32 to the accounts.
Collateral and guarantees received in respect of credit terms granted as at 31st December 2011 is HK$1,208
million (2010: HK$1,173 million).
The movement in the provision for bad debt in respect of trade debtors during the year is set out in note 21 to
the accounts.
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