SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September, 2005
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of registrant's name into English)
Jichang Road
Guangzhou, Guangdong 510405
People's Republic of China
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.)
Form 20-F. [X] Form 40-F. [ ]
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes. [ ] No. [X]
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-________.)
China Southern Airlines Company Limited (the "Company") on September 21,
2005 distributed its Circular on very substantial acquisitions, together with
the Form of Proxy for Extraordinary General Meeting and Reply Slip, in English
and Chinese to its shareholders. A copy of the English version of each of the
documents is included in this Form 6-K of the Company.
THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
IF YOU ARE IN ANY DOUBT as to any aspect of this circular, you should consult a
stockbroker or other registered dealer in securities, bank manager, solicitor,
professional accountant or other professional adviser.
IF YOU HAVE SOLD OR TRANSFERRED all your shares of China Southern Airlines
Company Limited, you should at once hand this circular to the purchaser or
transferee or to the bank, stockbroker or other agent through whom the sale was
effected for transmission to the purchaser or the transferee.
The Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of this circular, makes no representation as to its accuracy or completeness and
expressly disclaims any liability whatsoever for any loss however arising from
or in reliance upon the whole or any part of the contents of this circular.
[CHINESE CHARACTERS]
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED
(a joint stock limited company incorporated in the People's Republic
of China with limited liability)
(STOCK CODE: 1055)
VERY SUBSTANTIAL ACQUISITIONS - XIAMEN BOEING
AIRCRAFT ACQUISITION, CSA BOEING AIRCRAFT ACQUISITION
AND AIRBUS AIRCRAFT ACQUISITION
A notice convening an extraordinary general meeting of China Southern Airlines
Company Limited (the "Company") to be held at the headquarters of the Company at
No. 278, Ji Chang Road, Guangzhou, Guangdong Province, the People's Republic of
China on 16 December, 2005 at 9:00 a.m. is set out on pages 103 to 105 of this
circular. If you are not able to attend and/or vote at the extraordinary general
meeting, you are strongly urged to complete the accompanying form of proxy in
accordance with the instructions printed thereon and return it to the Company's
branch share registrar in Hong Kong, Hong Kong Registrars Limited, at 46th
Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong as soon as possible and
in any event not later than 48 hours before the time appointed for the holding
of the extraordinary general meeting or any adjournment thereof. Completion and
return of the form of proxy will not preclude you from attending and voting at
the meeting or any adjourned meeting should you so wish.
21 September, 2005
CONTENTS
Page
DEFINITIONS ......................................................... 1
LETTER FROM THE BOARD ............................................... 4
1. INTRODUCTION 4
2. THE XIAMEN BOEING AIRCRAFT ACQUISITION AGREEMENT ............ 6
3. THE BOEING AIRCRAFT ACQUISITION AGREEMENT ................... 8
4. THE AIRBUS AIRCRAFT ACQUISITION AGREEMENT ................... 9
5. PROSPECTS ................................................... 11
6. RECOMMENDATIONS ............................................. 12
7. EGM ......................................................... 12
8. ADDITIONAL INFORMATION ...................................... 12
APPENDIX I- FINANCIAL INFORMATION OF THE GROUP ...................... 13
APPENDIX II- GENERAL INFORMATION .................................... 94
NOTICE OF THE EGM ................................................... 103
-i-
DEFINITION
In this circular, the following expressions have the following meanings, unless
the context requires otherwise:
"Airbus" Airbus SNC, a company incorporated in
Toulouse
"Airbus Aircraft" ten Airbus A330 aircraft
"Airbus Aircraft Acquisition" the acquisition of Airbus Aircraft under the
Airbus Aircraft Acquisition Agreement
"Airbus Aircraft Acquisition the aircraft acquisition agreement dated 6
Agreement" September, 2005 pursuant to which the Company
agreed to acquire and Airbus agreed to sell
the Airbus Aircraft
"Board" the board of Directors
"Boeing" The Boeing Company, a company incorporated in
the State of Delaware of the United States of
America
"Boeing Aircraft" ten Boeing B787 aircraft
"Boeing Aircraft Acquisition the aircraft acquisition agreement dated 30
Agreement" August, 2005 pursuant to which the Company
agreed to acquire and Boeing agreed to sell
the Boeing Aircraft
"China Aviation Supplies" China Aviation Supplies Import and Export
Group Corporation
"Company" China Southern Airlines Company Limited, a
joint stock company incorporated in the PRC
with limited liability and the H shares of
which are listed on the Stock Exchange
"CSA Boeing Aircraft the acquisition of Boeing Aircraft under the
Acquisition" Boeing Aircraft Acquisition Agreement
"CSAHC" China Southern Air Holding Company
"Director(s)" director(s) of the Company
-1-
DEFINITION
"EGM" the extraordinary general meeting of the Company
to be held on 16 December, 2005 to approve, among
other things, the Boeing Aircraft Acquisition
Agreement, the Xiamen Boeing Aircraft Acquisition
Agreement, the Airbus Aircraft Acquisition
Agreement and the Transactions
"General Purchase Agreement" the general purchase agreement on the import
of Airbus A380 aircraft and Boeing B7E7
aircraft dated 28 January, 2005 between China Aviation
Supplies, Airbus S.A.S., Boeing and others
"Group" the Company and its subsidiaries
"Hong Kong" the Hong Kong Special Administrative Region of the
PRC
"Latest Practicable Date" 14 September, 2005, being the latest practicable date
prior to the printing of this circular for ascertaining
certain information contained herein
"Listing Rules" the Rules Governing the Listing of Securities on the
Stock Exchange
"PRC" the People's Republic of China (other than, for the
purpose of this circular only, Hong Kong, Macau and
Taiwan)
"Previous Airbus Aircraft the acquisition of five Airbus A380 aircraft by the
Acquisition" Company from Airbus under the Previous Airbus Aircraft
Acquisition Agreement
"Previous Airbus Aircraft the aircraft acquisition agreement dated 21 April, 2005
Acquisition Agreement" pursuant to which the Company and SAIETC agreed to
acquire and Airbus agreed to sell five Airbus A380
aircraft
"Previous Boeing Aircraft the acquisition of 12 B737-700 aircraft and 18 B737-800
Acquisition" aircraft by the Company and 15 B737-800 aircraft by
Xiamen Airlines from Boeing under the Previous Boeing
Aircraft Acquisition Agreement
-2-
DEFINITION
"Previous Boeing Aircraft the aircraft acquisition agreement dated 29
Acquisition Agreement" April, 2005, between the Company and Xiamen
Airlines as purchasers and Boeing as the
vendor in respect of the Previous Boeing
Aircraft Acquisition
"SAIETC" Southern Airlines (Group) Import and Export
Trading Company
"SFO" Securities and Futures Ordinance (Chapter 571
of the Laws of Hong Kong)
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Supervisor(s)" supervisor(s) of the Company
"Transactions" the Xiamen Boeing Aircraft Acquisition, the
CSA Boeing Aircraft Acquisition and the
Airbus Aircraft Acquisition
"Xiamen Airlines" Xiamen Airlines Company Limited, a limited
liability company incorporated in the PRC and
a subsidiary (as defined under the Listing
Rules) of the Company
"Xiamen Boeing Aircraft" three Boeing B787 aircraft
"Xiamen Boeing Aircraft the acquisition of Xiamen Boeing Aircraft
Acquisition" under the Xiamen Boeing Aircraft Acquisition
Agreement
"Xiamen Boeing Aircraft the aircraft acquisition agreement dated 8
Acquisition Agreement" August, 2005 pursuant to which Xiamen
Airlines agreed to acquire and Boeing agreed
to sell Xiamen Boeing Aircraft
-3-
LETTER FROM THE BOARD
[CHINESE CHARACTER]
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED
(a joint stock limited company incorporated in the People's Republic
of China with limited liability)
(STOCK CODE: 1055)
DIRECTORS: REGISTERED ADDRESS:
Guangzhou Economic and
EXECUTIVE DIRECTORS Technology Development Zone
Guangdong Province
Liu Shao Yong (Chairman of the Board of Directors) PRC
Liu Ming Qi (Vice Chairman of the Board
of Directors)
Peng An Fa (Director)*
Wang Quan Hua (Director) PRINCIPAL PLACE OF
Zhao Liu An (Director) BUSINESS IN HONG KONG:
Zhou Yong Qian (Director) Unit B1, 9th Floor
Si Xian Min (Director, President) United Centre
Zhou Yong Jin (Director) 95 Queensway
Xu Jie Bo (Director, Chief Financial Officer, Hong Kong
Vice President)
Wu Rong Nan (Director)
INDEPENDENT NON-EXECUTIVE DIRECTORS
Simon To
Peter Lok
Wei Ming Hai
Wang Zhi
Sui Guang Jun
SUPERVISORS:
Sun Xiao Yi (Chairman of the Supervisory Committee)
Yang Guang Hua (Supervisor)
Yang Yi Hua (Supervisor)
21 September, 2005
To the Shareholders
Dear Sir or Madam,
VERY SUBSTANTIAL ACQUISITIONS - XIAMEN BOEING
AIRCRAFT ACQUISITION, CSA BOEING AIRCRAFT ACQUISITION
AND AIRBUS AIRCRAFT ACQUISITION
1. INTRODUCTION
On 28 January, 2005, China Aviation Supplies, as the sole import agent for
aircraft companies registered in China, signed, on behalf of several airlines in
China, the General
Note:
* As disclosed in the announcement of the Company dated 12 August, 2005, the
removal of Mr. Peng An Fa as a Director has been approved by the Board and
it will be submitted for approval by the shareholders of the Company at
the next general meeting of the shareholders of the Company. Mr. Peng has
now ceased to participate in the management of the Company.
-4-
LETTER FROM THE BOARD
Purchase Agreement on the import of Airbus A380 aircraft and Boeing B7E7**
aircraft with Airbus S.A.S. and Boeing in Paris, France and Washington D.C., the
United States respectively. The Company, being one of the actual users of the
aircraft, was one of the signing parties in respect of the General Purchase
Agreement for five Airbus A380 aircraft and 13 Boeing B787 aircraft (including
three Boeing B787 aircraft for which Xiamen Airlines was one of the signing
parties).
On 8 August, 2005, the Board announced that pursuant to article 134 of the
articles of association of the Company, the Board had approved by written
confirmation the Xiamen Boeing Aircraft Acquisition Agreement, pursuant to which
Xiamen Airlines entered into the Xiamen Boeing Aircraft Acquisition Agreement
with Boeing for the purpose of acquiring three Boeing B787 aircraft from Boeing
on 8 August, 2005, as contemplated by the General Purchase Agreement.
On 30 August, 2005, the Board announced that pursuant to article 134 of
the articles of association of the Company, the Board had approved by written
confirmation the Boeing Aircraft Acquisition Agreement, pursuant to which the
Company entered into the Boeing Aircraft Acquisition Agreement with Boeing for
the purpose of acquiring ten Boeing B787 aircraft from Boeing on 30 August,
2005, as contemplated by the General Purchase Agreement.
Prior to the signing of the Xiamen Boeing Aircraft Acquisition Agreement
and the Boeing Aircraft Acquisition Agreement, on 21 April, 2005, the Company
entered into the Previous Airbus Aircraft Acquisition Agreement with Airbus and
SAIETC in respect of five Airbus A380 aircraft as contemplated under the General
Purchase Agreement. For further details in respect of the Previous Airbus
Aircraft Acquisition Agreement, please refer to the circular of the Company
dated 27 May, 2005.
To the best of the Directors' knowledge, information and belief, having
made all reasonable enquiry, each of China Aviation Supplies and its respective
ultimate beneficial owners is a third party independent of the Company and its
connected persons (as defined under the Listing Rules), and is not a connected
person of the Company.
With the signing of the Boeing Aircraft Acquisition Agreement, the Xiamen
Boeing Aircraft Acquisition Agreement and the Previous Airbus Aircraft
Acquisition Agreement, the Company and Xiamen Airlines have entered into
aircraft purchase agreements in respect of all five Airbus A380 aircraft and 13
Boeing B787 aircraft (three of which are for Xiamen Airlines) which the Company
and Xiamen Airlines contemplated to purchase under the General Purchase
Agreement.
Note:
** In the announcement of the Company dated 29 January, 2005, references were
made to Boeing B7E7 aircraft. Subsequently, Boeing renamed Boeing B7E7
aircraft as Boeing B787 aircraft. Both Boeing B7E7 and Boeing 787 refer to
the same model of aircraft.
-5-
LETTER FROM THE BOARD
On 6 September, 2005, the Board announced that pursuant to article 134 of
the articles of association of the Company, the Board had approved by written
confirmation the Airbus Aircraft Acquisition Agreement, pursuant to which the
Company entered into the Airbus Aircraft Acquisition Agreement with Airbus for
the purpose of acquiring ten Airbus A330 aircraft from Airbus on 6 September,
2005.
Each of the Xiamen Boeing Aircraft Acquisition, CSA Boeing Aircraft
Acquisition and Airbus Aircraft Acquisition constitutes a very substantial
acquisition of the Company under the Listing Rules.
Except Director Mr. Peng An Fa who did not participate in considering the
written resolutions for each of the Transactions, all 14 other Directors
participated in considering and approving the above written resolutions. As
disclosed in the announcement of the Company dated 12 August, 2005, the removal
of Mr. Peng An Fa as a Director has been approved by the Board and it will be
submitted for approval by the shareholders of the Company at the next general
meeting of the shareholders of the Company. Mr. Peng has now ceased to
participate in the management of the Company. The format and procedure for
passing the resolutions were in accordance with the Company Law of the People's
Republic of China and the Company's articles of association.
The purpose of this circular is to set out further details of the
Transactions.
2. THE XIAMEN BOEING AIRCRAFT ACQUISITION AGREEMENT
(1) DATE
8 August, 2005
(2) PARTIES
(a) Xiamen Airlines Company Limited, as the purchaser. The
principal business activity of Xiamen Airlines is that of
civil aviation. Under the Listing Rules, Xiamen Airlines is a
subsidiary of the Company.
(b) The Boeing Company, a company incorporated in the State of
Delaware of the United States of America, as the vendor. The
principal business activity of Boeing is that of aircraft
manufacturing. To the best of the Directors' knowledge,
information and belief, having made all reasonable enquiry,
each of Boeing and its ultimate beneficial owners is a third
party independent of the Company and its connected persons (as
defined under the Listing Rules), and is not a connected
person of the Company.
(3) AIRCRAFT TO BE ACQUIRED
Three Boeing B787 aircraft
-6-
LETTER FROM THE BOARD
(4) CONSIDERATION
According to the information provided by Boeing, the catalogue price
of a Boeing B787 aircraft is approximately US$123.2 million. The aggregate
consideration for the Xiamen Boeing Aircraft, which is payable wholly in
cash and determined after arm's length negotiation between the parties, is
lower than the catalogue price as provided by Boeing.
(5) PAYMENT AND DELIVERY TERMS
The aggregate consideration for the acquisition of the Xiamen Boeing
Aircraft is payable by cash in instalments. The Xiamen Boeing Aircraft will
be delivered in stages to Xiamen Airlines during the period commencing from
July 2008 to July 2010.
(6) FUNDING
The Xiamen Boeing Aircraft Acquisition will be funded partly with
Xiamen Airlines' own capital and partly through commercial loans by
commercial banks. Such commercial banks are not and will not be connected
persons (as defined under the Listing Rules) of the Company. As of the date
hereof, Xiamen Airlines has not entered into any agreement with any of
these commercial banks for financing the Xiamen Boeing Aircraft
Acquisition.
(7) REASONS FOR THE XIAMEN BOEING AIRCRAFT ACQUISITION
The Company's principal business is that of civil aviation. As stated
in the announcement of the Company dated 8 August, 2005, the Directors
believe that the acquisition of the Xiamen Boeing Aircraft will further
improve the operating capacity of the Company and its subsidiaries, enhance
the Group's abilities to provide premium services to its customers, and
raise the Group's ability to compete significantly in the industry.
Therefore, the Directors believe that the terms of the Xiamen Boeing
Aircraft Acquisition Agreement are fair and reasonable and in the interests
of the shareholders of the Company as a whole.
(8) IMPLICATIONS UNDER THE LISTING RULES
On 29 April, 2005, the Company and Xiamen Airlines, as purchasers,
entered into the Previous Boeing Aircraft Acquisition Agreement with
Boeing, as the vendor, pursuant to which the Company purchased 12 B737-700
aircraft and 18 B737-800 aircraft, and Xiamen Airlines acquired 15 B737-800
aircraft from Boeing. The relevant percentage ratio for the Previous Boeing
Aircraft Acquisition with regards to the Consideration Test under Rule
14.07 of the Listing Rules is above 100%. For further details in respect of
the Previous Boeing Aircraft Acquisition Agreement, please refer to the
circular of the Company dated 27 May, 2005.
-7-
LETTER FROM THE BOARD
As requested by the Stock Exchange pursuant to Rule 14.22 of the
Listing Rules, the Xiamen Boeing Aircraft Acquisition is aggregated with
the Previous Boeing Aircraft Acquisition and the two transactions are
treated as if they were one transaction. The relevant percentage ratio for
the Xiamen Boeing Aircraft Acquisition aggregated with the Previous Boeing
Aircraft Acquisition, with regards to the Consideration Test under Rule
14.07 of the Listing Rules is above 100%. The Xiamen Boeing Aircraft
Acquisition therefore constitutes a very substantial acquisition under the
Listing Rules and is therefore subject to approval by the Company's
shareholders under Rule 14.49 of the Listing Rules.
None of the shareholders of the Company is required to abstain from
voting in respect of the proposed resolution to approve the Xiamen Boeing
Aircraft Acquisition.
3. THE BOEING AIRCRAFT ACQUISITION AGREEMENT
(1) DATE
30 August, 2005
(2) PARTIES
(a) The Company, as the purchaser. The principal business activity
of the Company is that of civil aviation.
(b) The Boeing Company, a company incorporated in the State of
Delaware of the United States of America, as the vendor. The
principal business activity of Boeing is that of aircraft
manufacturing. To the best of the Directors' knowledge,
information and belief having made all reasonable enquiry,
each of Boeing and its ultimate beneficial owners is a third
party independent of the Company and its connected persons (as
defined under the Listing Rules), and is not a connected
person of the Company.
(3) AIRCRAFT TO BE ACQUIRED
Ten Boeing B787 aircraft
(4) CONSIDERATION
According to the official website of Boeing, the catalogue price of
a Boeing B787 aircraft is approximately between US$125 million to US$135
million. The aggregate consideration for the Boeing Aircraft, which is
payable wholly in cash and determined after arm's length negotiation
between the parties, is lower than the catalogue price as provided by
Boeing.
(5) PAYMENT AND DELIVERY TERMS
The aggregate consideration for the acquisition of the Boeing
Aircraft is payable by cash in instalments. The Boeing Aircraft will be
delivered in stages to the Company during the period commencing from July
2008 to August 2010.
- 8 -
LETTER FROM THE BOARD
(6) FUNDING
The CSA Boeing Aircraft Acquisition will be wholly funded through
commercial loans by commercial banks. Such commercial banks are not and
will not be connected persons (as defined under the Listing Rules) of the
Company. As of the date hereof, the Company has not entered into any
agreement with any of these commercial banks for financing the CSA Boeing
Aircraft Acquisition.
(7) REASONS FOR THE CSA BOEING AIRCRAFT ACQUISITION
The Company's principal business is that of civil aviation. As
stated in the announcement of the Company dated 30 August, 2005, the
Directors believe that the acquisition of the Boeing Aircraft will further
improve the operating capacity of the Company, enhance its abilities to
provide premium services to its customers, and raise its ability to
compete significantly in the industry. Therefore, the Directors believe
that the terms of the Boeing Aircraft Acquisition Agreement are fair and
reasonable and in the interests of the shareholders of the Company as a
whole.
(8) IMPLICATIONS UNDER THE LISTING RULES
As requested by the Stock Exchange pursuant to Rule 14.22 of the
Listing Rules, the CSA Boeing Aircraft Acquisition is aggregated with the
Previous Boeing Aircraft Acquisition and Xiamen Boeing Aircraft
Acquisition and the three transactions are treated as if they were one
transaction. The relevant percentage ratio for the CSA Boeing Aircraft
Acquisition aggregated with the Previous Boeing Aircraft Acquisition and
Xiamen Boeing Aircraft Acquisition, with regards to the Consideration Test
under Rule 14.07 of the Listing Rules is above 100%. The CSA Boeing
Aircraft Acquisition therefore constitutes a very substantial acquisition
under the Listing Rules and is therefore subject to approval by the
Company's shareholders under Rule 14.49 of the Listing Rules.
None of the shareholders of the Company is required to abstain from
voting in respect of the proposed resolution to approve the CSA Boeing
Aircraft Acquisition.
4. THE AIRBUS AIRCRAFT ACQUISITION AGREEMENT
(1) DATE
6 September, 2005
(2) PARTIES
(a) The Company, as the purchaser. The principal business activity
of the Company is that of civil aviation.
- 9 -
LETTER FROM THE BOARD
(b) Airbus SNC, a company incorporated in Toulouse, as the vendor.
The principal business activity of Airbus is that of aircraft
manufacturing. To the best of the Directors' knowledge,
information and belief having made all reasonable enquiry,
each of Airbus and its respective ultimate beneficial owners
is a third party independent of the Company and its connected
persons (as defined under the Listing Rules), and is not a
connected person of the Company.
(3) AIRCRAFT TO BE ACQUIRED
Ten Airbus A330 aircraft
(4) CONSIDERATION
According to Airbus, the market catalogue price of a Airbus A330
aircraft is approximately between US$152.7 million and US$180 million. The
aggregate consideration for the Airbus Aircraft, which is payable wholly
in cash and determined after arm's length negotiation between the parties,
is lower than the market catalogue price as provided by Airbus.
(5) PAYMENT AND DELIVERY TERMS
The aggregate consideration for the acquisition of the Airbus
Aircraft is payable by cash in instalments. The Airbus Aircraft will be
delivered in stages to the Company during the period commencing from
September 2007 to November 2008.
(6) FUNDING
The Airbus Aircraft Acquisition will be wholly funded through
commercial loans by commercial banks. Such commercial banks are not and
will not be connected persons (as defined under the Listing Rules) of the
Company. As of the date hereof, the Company has not entered into any
agreement with any of these commercial banks for financing the Airbus
Aircraft Acquisition.
(7) REASONS FOR THE AIRBUS AIRCRAFT ACQUISITION
The Directors believe that the acquisition of the Airbus Aircraft
will further improve the operating capacity of the Company, enhance its
abilities to provide premium services to its customers, and raise its
ability to compete significantly in the industry. Therefore, the Directors
believe that the terms of the Airbus Aircraft Acquisition Agreement are
fair and reasonable and in the interests of the shareholders of the
Company as a whole.
- 10 -
LETTER FROM THE BOARD
(8) IMPLICATIONS UNDER THE LISTING RULES
On 21 April, 2005, the Company, as purchaser, entered into the
Previous Airbus Aircraft Acquisition Agreement with Airbus, as the vendor,
and SAIETC, as the import agent, pursuant to which the Company purchased
five Airbus A380 aircraft from Airbus. The relevant percentage ratio for
the Previous Airbus Aircraft Acquisition with regards to the Consideration
Test under Rule 14.07 of the Listing Rules was above 25%, but less than
100%, and it constituted a major transaction of the Company under the
Listing Rules. The Previous Airbus Aircraft Acquisition was approved by
the shareholders of the Company in the 2005 annual general meeting held on
15 June, 2005. For further details in respect of the Previous Airbus
Aircraft Acquisition Agreement, please refer to the circular of the
Company dated 27 May, 2005.
As requested by the Stock Exchange pursuant to Rule 14.22 of the
Listing Rules, the Airbus Aircraft Acquisition is aggregated with the
Previous Airbus Aircraft Acquisition and the two transactions are treated
as if they were one transaction. The relevant percentage ratio for the
Airbus Aircraft Acquisition aggregated with the Previous Airbus Aircraft
Acquisition with regards to the Consideration Test under Rule 14.07 of the
Listing Rules is above 100%. The Airbus Aircraft Acquisition therefore
constitutes a very substantial acquisition under the Listing Rules and is
therefore subject to approval by the Company's shareholders under Rule
14.49 of the Listing Rules.
None of the shareholders of the Company is required to abstain from
voting in respect of the proposed resolution to approve the Airbus
Aircraft Acquisition.
5. PROSPECTS
Global airline industry has been badly hit by soaring jet fuel prices. As
a result of the three times increases in domestic jet fuel prices, the Group's
jet fuel cost has accounted for 30% of total costs. The Group intends to meet
the challenges by using its economies of scale operation and strict control over
operating costs increase, so as to reduce the impact brought by the persistently
high oil prices.
The enlarged scale of the Group due to its joint restructuring will
provide more opportunities for the development of the Company's business and
operations. The Group will adjust its flight network by increasing traffic
capacity to fill in any deficiencies in its routes, and will maintain or
increase domestic and regional market shares. The Group believes that its
leading position in the civil aviation industry can be assured by speeding up
integration of flight networks and capacity to realize the objectives of network
operation, and also through innovation, refinement and enhancement of incentive
mechanism.
The Company will continue to implement strict costs control and raise its
overall synergy benefits.
- 11 -
LETTER FROM THE BOARD
6. RECOMMENDATIONS
The Board recommends the shareholders of the Company to vote in favour of
the ordinary resolutions to be proposed at the EGM of the Company in respect of
the Xiamen Boeing Aircraft Acquisition Agreement, the Boeing Aircraft
Acquisition Agreement, the Airbus Aircraft Acquisition Agreement and the
Transactions contemplated under those agreements.
7. EGM
Set out on pages 103 to 105 is a notice convening the EGM to be held at
the headquarters of the Company at No. 278, Ji Chang Road, Guangzhou, Guangdong
Province, the PRC on 16 December, 2005 at 9:00 a.m. If you are not able to
attend and/or vote at the EGM, you are strongly urged to complete the
accompanying form of proxy in accordance with the instructions printed thereon
and return it to the Company's branch share registrar in Hong Kong, Hong Kong
Registrars Limited, at 46th Floor, Hopewell Centre, 183 Queen's Road East, Hong
Kong as soon as possible and in any event not later than 48 hours before the
time appointed for the holding of the EGM or any adjournment thereof. Completion
and return of the form of proxy will not preclude you from attending and voting
at the meeting or any adjourned meeting should you so wish.
8. ADDITIONAL INFORMATION
Your attention is drawn to the financial and general information set out
in (a) the Annual Report of the Company for the period from 1 January, 2004 to
31 December, 2004, (b) the Interim Report of the Company for the period from 1
January, 2005 to 30 June, 2005 and (c) the appendices to this circular.
By Order of the Board
LIU SHAO YONG
Chairman
- 12 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
I SUMMARY OF FINANCIAL STATEMENTS
The following consolidated income statements of the Company for each of
the three years ended 31 December, 2004 and the consolidated balance sheets of
the Company as at 31 December, 2004, 2003 and 2002 are derived from the audited
financial statements of the Company prepared under International Financial
Reporting Standards ("IFRS"). All such financial information should be read in
conjunction with the audited consolidated financial statements and accompanying
notes, which are included in the Company's annual reports. The audited financial
statements of the Company for the year ended 31 December, 2004, as extracted
from the Company's 2004 annual report, are set out in part II of this Appendix
I.
In addition, the following consolidated income statement for the six-month
period ended 30 June 2005 and consolidated balance sheet of the Company as at 30
June 2005 are derived from the unaudited interim financial report of the Company
prepared under IFRS. All such financial information should be read in
conjunction with the unaudited interim financial report and accompanying notes,
which are included in the Company's interim report. The unaudited interim
financial report of the Company for the six-month period ended 30 June 2005 as
extracted from the Company's 2005 interim report, are set out in part III of
this Appendix I.
- 13 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED INCOME STATEMENTS
For each of the three years ended 31 December, 2004 and the six-month period
ended 30 June, 2005
SIX-MONTH
YEARS ENDED 31 DECEMBER, PERIOD ENDED
------------------------------------- 30 JUNE,
2002 2003 2004 2005
RMB million RMB million RMB million RMB million
(audited) (audited) (audited) (unaudited)
Operating revenue
Traffic revenue 17,482 16,965 23,344 17,443
Other operating revenue 537 505 630 401
------- -------- -------- --------
Total operating revenue 18,019 17,470 23,974 17,844
------- -------- -------- --------
Operating expenses
Flight operations 6,733 7,070 10,418 9,084
Maintenance 2,333 2,589 3,459 2,320
Aircraft and traffic servicing 2,511 2,767 3,503 2,560
Promotion and sales 1,500 1,480 1,940 1,220
General and administrative 1,060 1,053 1,323 912
Depreciation and amortisation 1,840 2,038 2,413 2,094
Other 16 17 9 70
------- -------- -------- --------
Total operating expenses 15,993 17,014 23,065 18,260
------- -------- -------- --------
Operating profit/(loss) 2,026 456 909 (416)
------- -------- -------- --------
Non-operating income/(expenses)
Interest income 52 13 22 17
Interest expense (959) (824) (691) (750)
Share of associates' results 37 48 12 (28)
Share of jointly controlled entities' results (3) (39) (5) 24
Gain/(loss) on sale of property, plant and
equipment 171 (22) (1) (35)
Exchange (loss)/gain, net (176) (164) (59) 197
Other, net (9) 21 46 (34)
------- -------- -------- --------
Total net non-operating expenses (887) (967) (676) (609)
------- -------- -------- --------
Profit/(loss) before taxation 1,139 (511) 233 (1,025)
Taxation (expense)/credit (398) 324 (78) 61
------- -------- -------- --------
Profit/(loss) for the year/period 741 (187) 155 (964)
------- -------- -------- --------
Attributable to
Equity holders of the parent 576 (358) (48) (907)
Minority interests 165 171 203 (57)
------- -------- -------- --------
Profit/(loss) for the year/period 741 (187) 155 (964)
======= ======== ======== ========
Basic earnings/(loss) per share RMB0.17 RMB(0.09) RMB(0.01) RMB(0.21)
======= ======== ======== ========
- 14 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED BALANCE SHEETS
As at 31 December, 2002, 2003 and 2004 and 30 June, 2005
31 DECEMBER,
------------------------------------- 30 JUNE,
2002 2003 2004 2005
RMB million RMB million RMB million RMB million
(audited) (audited) (audited) (unaudited)
NON-CURRENT ASSETS
Property, plant and equipment, net 26,921 28,536 46,841 50,478
Construction in progress 661 1,630 565 773
Lease prepayments 202 349 346 371
Interest in associates 692 422 429 402
Interest in jointly controlled entities 462 731 782 809
Other investments 202 204 272 290
Lease and equipment deposits 2,147 2,933 5,397 4,699
Deferred tax assets - - - 68
Other assets 295 255 331 299
------ ------- ------- -------
31,582 35,060 54,963 58,189
------ ------- ------- -------
CURRENT ASSETS
Short-term investments - - 683 -
Inventories 546 544 1,302 1,505
Taxes recoverable - - - 40
Trade receivables 672 834 1,203 1,271
Other receivables 372 296 616 976
Prepaid expenses and other current assets 245 248 378 418
Cash and cash equivalents 3,771 2,080 3,083 5,632
------ ------- ------- -------
5,606 4,002 7,265 9,842
------ ------- ------- -------
CURRENT LIABILITIES
Bank and other loans 5,241 7,097 11,518 13,282
Obligations under finance leases 1,567 1,298 2,144 2,397
Trade payables 532 928 1,554 2,334
Bills payable 1,300 438 136 2,760
Sales in advance of carriage 391 466 874 899
Taxes payable 78 90 39 -
Amounts due to related companies 525 929 2,330 106
Accrued expenses 2,341 2,528 4,551 4,590
Other liabilities 647 1,020 2,974 3,246
------ ------- ------- -------
12,622 14,794 26,120 29,614
------ ------- ------- -------
NET CURRENT LIABILITIES (7,016) (10,792) (18,855) (19,772)
------ ------- ------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 24,566 24,268 36,108 38,417
------ ------- ------- -------
- 15 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
31 DECEMBER,
------------------------------------- 30 JUNE,
2002 2003 2004 2005
RMB million RMB million RMB million RMB million
(audited) (audited) (audited) (unaudited)
NON-CURRENT LIABILITIES AND DEFERRED ITEMS
Bank and other loans 5,835 4,522 11,935 12,782
Obligations under finance leases 6,632 5,543 9,599 11,712
Provision for major overhauls 142 189 284 275
Deferred credits 48 47 100 370
Deferred tax liabilities 779 398 287 336
------ ------ ------ ------
13,436 10,699 22,205 25,475
------ ------ ------ ------
Net assets 11,130 13,569 13,903 12,942
====== ====== ====== ======
CAPITAL AND RESERVES
SHARE CAPITAL 3,374 4,374 4,374 4,374
RESERVES 6,239 7,522 7,474 6,567
------ ------ ------ ------
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT 9,613 11,896 11,848 10,941
MINORITY INTERESTS 1,517 1,673 2,055 2,001
------ ------ ------ ------
TOTAL EQUITY 11,130 13,569 13,903 12,942
====== ====== ====== ======
- 16 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
II FINANCIAL STATEMENTS OF THE COMPANY FOR THE YEAR ENDED
31 DECEMBER, 2004
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December, 2004
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2004 2003
Note RMB million RMB million
Operating revenue:
Traffic revenue 23,344 16,965
Other operating revenue 630 505
-------- --------
Total operating revenue 3 23,974 17,470
-------- --------
Operating expenses:
Flight operations 10,418 7,070
Maintenance 3,459 2,589
Aircraft and traffic servicing 3,503 2,767
Promotion and sales 1,940 1,480
General and administrative 1,323 1,053
Depreciation and amortisation 2,413 2,038
Other 9 17
-------- --------
Total operating expenses 4 23,065 17,014
-------- --------
Operating profit 909 456
-------- --------
Non-operating income/(expenses):
Interest income 22 13
Interest expense 4 (691) (824)
Share of associates' results 12 48
Share of jointly controlled entities' results 14 (5) (39)
Loss on disposal of property, plant and
equipment 5 (1) (22)
Exchange loss, net (59) (164)
Other, net 46 21
-------- --------
Total net non-operating expenses (676) (967)
-------- --------
Profit/(loss) before taxation and minority interests 4 233 (511)
Income tax (expense)/credit 7 (78) 324
-------- --------
Profit/(loss) before minority interests 155 (187)
Minority interests (203) (171)
-------- --------
Loss attributable to shareholders (48) (358)
======== ========
Basic loss per share 9 RMB(0.01) RMB(0.09)
======== ========
The notes on pages 24 to 65 form part of these financial statements.
- 17 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED BALANCE SHEET
As at 31 December, 2004
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2004 2003
Note RMB million RMB million
NON-CURRENT ASSETS
Property, plant and equipment 10 46,841 28,536
Construction in progress 11 565 1,630
Lease prepayments 346 349
Interest in associates 13 429 422
Interest in jointly controlled entities 14 782 731
Other investments 15 272 204
Lease and equipment deposits 5,397 2,933
Deferred expenditure 16 316 249
Long-term receivables 15 6
------- -------
54,963 35,060
------- -------
CURRENT ASSETS
Short-term investments 15 683 -
Inventories 18 1,302 544
Trade receivables 19 1,203 834
Other receivables 616 296
Prepaid expenses and other assets 378 248
Cash and cash equivalents 20 3,083 2,080
------- -------
7,265 4,002
------- -------
CURRENT LIABILITIES
Bank and other loans 21 11,518 7,097
Obligations under finance leases 22 2,144 1,298
Amounts due to related companies 23 2,330 929
Trade payables 24 1,554 928
Bills payable 136 438
Sales in advance of carriage 874 466
Accrued expenses 4,551 2,528
Other liabilities 2,974 1,020
Taxes payable 39 90
------- -------
26,120 14,794
------- -------
NET CURRENT LIABILITIES (18,855) (10,792)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 36,108 24,268
------- -------
The notes on pages 24 to 65 form part of these financial statements.
- 18 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED BALANCE SHEET (CONT'D)
As at 31 December, 2004
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2004 2003
Note RMB million RMB million
LONG TERM LIABILITIES AND DEFERRED ITEMS
Bank and other loans 21 11,935 4,522
Obligations under finance leases 22 9,599 5,543
Provision for major overhauls 25 284 189
Deferred credits 100 47
Deferred tax liabilities 17 287 398
------ ------
22,205 10,699
------ ------
13,903 13,569
====== ======
REPRESENTING:
SHARE CAPITAL 26 4,374 4,374
RESERVES 27 7,474 7,522
------ ------
SHAREHOLDERS' EQUITY 11,848 11,896
MINORITY INTERESTS 2,055 1,673
------ ------
13,903 13,569
====== ======
Approved and authorised for issue by the board of directors on 25 April, 2005.
LIU SHAO YONG SI XIAN MIN XU JIE BO
Director Director Director
The notes on pages 24 to 65 form part of these financial statements.
- 19 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
BALANCE SHEET
As at 31 December, 2004
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2004 2003
Note RMB million RMB million
NON-CURRENT ASSETS
Property, plant and equipment 10 39,254 22,610
Construction in progress 11 232 1,532
Lease prepayments 128 116
Interest in subsidiaries 12 2,149 1,446
Interest in associates 13 296 287
Interest in jointly controlled entities 14 636 564
Other investments 15 167 107
Lease and equipment deposits 4,674 2,229
Deferred expenditure 16 305 241
Deferred tax assets 17 51 -
------- ------
47,892 29,132
------- ------
CURRENT ASSETS
Short-term investments 15 502 -
Inventories 18 999 213
Trade receivables 19 1,035 683
Other receivables 391 222
Prepaid expenses and other assets 289 183
Cash and cash equivalents 20 2,302 1,405
------- ------
5,518 2,706
------- ------
CURRENT LIABILITIES
Bank and other loans 21 10,161 5,959
Obligations under finance leases 22 2,144 1,298
Amounts due to related companies 23 2,278 871
Trade payables 24 1,320 746
Bills payable 136 438
Sales in advance of carriage 806 406
Accrued expenses 3,733 1,628
Other liabilities 2,467 854
Taxes payable - 48
------- ------
23,045 12,248
------- ------
NET CURRENT LIABILITIES (17,527) (9,542)
------- ------
TOTAL ASSETS LESS CURRENT LIABILITIES 30,365 19,590
------- ------
The notes on pages 24 to 65 form part of these financial statements.
- 20 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
BALANCE SHEET (CONT'D)
As at 31 December, 2004
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2004 2003
Note RMB million RMB million
NON-CURRENT LIABILITIES AND DEFERRED ITEMS
Bank and other loans 21 10,540 3,670
Obligations under finance leases 22 9,599 5,543
Provision for major overhauls 25 186 131
Deferred credits 60 7
Deferred tax liabilities 17 - 90
------ ------
20,385 9,441
------ ------
9,980 10,149
====== ======
REPRESENTING:
SHARE CAPITAL 26 4,374 4,374
RESERVES 27 5,606 5,775
------ ------
SHAREHOLDERS' EQUITY 9,980 10,149
====== ======
Approved and authorised for issue by the board of directors on 25 April, 2005.
LIU SHAO YONG SI XIAN MIN XU JIE BO
Director Director Director
The notes on pages 24 to 65 form part of these financial statements.
- 21 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December, 2004
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
SHARE SHARE OTHER RETAINED
CAPITAL PREMIUM RESERVES EARNINGS TOTAL
RMB million RMB million RMB million RMB million RMB million
At 1 January, 2003 3,374 3,684 586 1,969 9,613
Issue of A Shares (Note 26) 1,000 1,641 - - 2,641
Loss for the year - - - (358) (358)
Appropriations to reserves - - 25 (25) -
----- ----- --- ----- ------
At 31 December, 2003 4,374 5,325 611 1,586 11,896
===== ===== === ===== ======
At 1 January, 2004 4,374 5,325 611 1,586 11,896
Loss for the year - - - (48) (48)
Appropriations to reserves - - 61 (61) -
----- ----- --- ----- ------
At 31 December, 2004 4,374 5,325 672 1,477 11,848
===== ===== === ===== ======
The notes on pages 24 to 65 form part of these financial statements.
- 22 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December, 2004
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2004 2003
Note RMB million RMB million
Cash inflows from operations 34(a) 4,555 3,075
Interest received 22 13
Interest paid (754) (924)
Income tax paid (227) (35)
------ ------
Net cash inflows from operating activities 3,596 2,129
------ ------
Investing activities:
Proceeds from disposal of property,
plant and equipment 47 57
Dividends received from associates 12 -
Dividends received from jointly
controlled entities 5 -
Dividends received from equity securities
held for trading 13 -
(Increase)/decrease in long term receivables (9) 6
Payment of lease and equipment deposits (3,151) (1,852)
Refund of lease and equipment deposits 1,253 1,066
Capital expenditures (6,631) (4,707)
Purchase of other investments (680) (1)
Investment in an associate (9) -
Investments in jointly controlled entities (72) (3)
Effect of the CNA/XJA Acquisitions 34(b) 398 -
------ ------
Net cash used in investing activities (8,824) (5,434)
------ ------
Net cash outflows before financing activities (5,228) (3,305)
------ ------
Financing activities:
Proceeds from A Shares issue,
net of issuance costs - 2,641
Proceeds from bank and other loans 14,555 8,914
Repayment of bank and other loans (7,108) (8,371)
Repayment of principal under
finance lease obligations (1,272) (1,555)
Capital contribution received from
minority shareholders 71 1
Dividends paid to minority shareholders (15) (15)
------ ------
Net cash inflows from financing activities 6,231 1,615
------ ------
Increase/(decrease) in cash and cash equivalents 1,003 (1,690)
Cash and cash equivalents at beginning of year 2,080 3,770
------ ------
Cash and cash equivalents at end of year 3,083 2,080
====== ======
The notes on pages 24 to 65 form part of these financial statements.
- 23 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
NOTES TO THE FINANCIAL STATEMENTS
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
1 BACKGROUND OF THE COMPANY
China Southern Airlines Company Limited (the "Company") and its
subsidiaries (the "Group") are principally engaged in the provision of domestic,
Hong Kong regional and international passenger, cargo and mail airline services,
with flights operating primarily from the new Guangzhou Baiyun International
Airport, which is both the main hub of the Group's route network and the
location of its corporate headquarters.
The Company was established in the People's Republic of China (the "PRC",
"China" or the "State") on 25 March, 1995 as a joint stock limited company as
part of the reorganisation (the "Reorganisation") of the Company's holding
company, China Southern Air Holding Company ("CSAHC"). CSAHC is a state-owned
enterprise under the supervision of the PRC central government.
The Company's H shares ("H Shares") and American Depositary Shares ("ADS")
(each ADS representing 50 H Shares) have been listed on The Stock Exchange of
Hong Kong Limited and the New York Stock Exchange, respectively since July 1997.
In July 2003, the Company issued 1,000,000,000 A shares ("A Shares") which are
listed on the Shanghai Stock Exchange.
Pursuant to a sale and purchase agreement dated 12 November, 2004 between
the Company, CSAHC, China Northern Airlines Company ("CNA") and Xinjiang
Airlines Company ("XJA") which was approved by the Company's shareholders in an
extraordinary general meeting held on 31 December, 2004, the Company acquired
the airline operations and certain related assets of CNA and XJA with effect
from 31 December, 2004 (the "CNA/XJA Acquisitions"). The consideration payable
for the CNA/XJA Acquisitions amounting to RMB15,522 million was determined based
on the fair value of the acquired assets. Such consideration was partly
satisfied by assumption of debts and liabilities of CNA and XJA totalling
RMB13,563 million outstanding as at 31 December, 2004 and the remaining balance
of RMB1,959 million will be satisfied in cash.
As the above acquisitions were completed on 31 December, 2004, they have
no impact on the Company's consolidated income statement for the year ended 31
December, 2004.
Further details of the CNA/XJA Acquisitions are set out in Note 34(b) to
the financial statements.
2 PRINCIPAL ACCOUNTING POLICIES
(a) STATEMENT OF COMPLIANCE
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") promulgated by the
International Accounting Standards Board. IFRS includes International
Accounting Standards ("IAS") and related interpretations. These financial
statements also comply with the disclosure requirements of the Hong Kong
Companies Ordinance and the applicable disclosure provisions of the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited.
(b) BASIS OF PREPARATION
The financial statements are prepared on the historical cost basis
as modified by the revaluation of certain property, plant and equipment.
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions
are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which
form the basis of making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period, or
in the period of the revision and future periods if the revision affects
both current and future periods.
- 24 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The accounting policies set out below have been applied consistently
by the Group and are consistent with those used in the previous year.
(c) BASIS OF CONSOLIDATION
(i) Subsidiaries
A subsidiary is an entity controlled by the Company. Control
exists when the Company has the power, directly or indirectly, to
govern the financial and operating policies of an entity so as to
obtain benefits from its activities. In assessing control, potential
voting rights that presently are exercisable or convertible are
taken into account. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that
control commences until the date that control ceases.
Intra-group balances and transactions, and any unrealised
profits arising from intra-group transactions, are eliminated in
full in preparing the consolidated financial statements. Unrealised
losses resulting from intra-group transactions are eliminated in the
same way as unrealised profits, but only to the extent that there is
no evidence of impairment.
In the Company's balance sheet, an investment in a subsidiary
is stated at cost less any impairment losses (see Note 2(l)).
(ii) Associates and jointly controlled entities
An associate is an entity in which the Group has significant
influence, but not control, over the financial and operating
policies. The consolidated financial statements include the Group's
share of the total recognised gains and losses of associates on an
equity accounted basis, from the date that significant influence
commences until the date that significant influence ceases. When the
Group's share of losses exceeds its interest in an associate, the
Group's carrying amount is reduced to nil and recognition of further
losses is discontinued except to the extent that the Group has
incurred legal or constructive obligations or made payments on
behalf of an associate.
A jointly controlled entity is an entity over whose activities
the Group has joint control, established by contractual agreement.
The consolidated financial statements include the Group's share of
the total recognised gains and losses of jointly controlled entities
on an equity accounted basis, from the date that joint control
commences until the date that joint control ceases. When the Group's
share of losses exceeds its interest in a jointly controlled entity,
the Group's carrying amount is reduced to nil and recognition of
further losses is discontinued except to the extent that the Group
has incurred legal or constructive obligations or made payments on
behalf of a jointly controlled entity.
Unrealised profits arising from transactions with associates
and jointly controlled entities are eliminated to the extent of the
Group's interest in the entity. Unrealised losses are eliminated in
the same way as unrealised profits, but only to the extent that
there is no evidence of impairment.
In the Company's balance sheet, its investments in associates
and jointly controlled entities are stated at cost less any
impairment losses (see Note 2(l)).
(d) PROPERTY, PLANT AND EQUIPMENT
(i) Owned assets
An item of property, plant and equipment is initially recorded
at cost less accumulated depreciation (see (iv) below) and
impairment losses (see Note 2(l)). The cost of an asset comprises
its purchase price and any directly attributable costs of bringing
the asset to working condition and location for its intended use.
Subsequent to the revaluation (see Note 10), which was based on
depreciated replacement costs, property, plant and equipment are
carried at revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and
impairment losses. Revaluations are performed periodically to ensure
that the carrying amount does not differ materially from that which
would be determined using fair value at the balance sheet date.
- 25 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Gains or losses arising from the retirement or disposal of an
item of property, plant and equipment are determined as the
difference between the estimated net disposal proceeds and the
carrying amount of the asset and are recognised in the income
statement on the date of retirement or disposal. Any related
revaluation surplus is transferred from the revaluation reserve to
retained profits.
(ii) Leased assets
Leases in terms of which the Group assumes substantially all
the risks and rewards of ownership are classified as finance leases.
Flight equipment acquired by way of finance lease is stated at
an amount equal to lower of its fair value and the present value of
minimum lease payments at inception of the lease, less accumulated
depreciation (see (iv) below) and impairment losses (see Note 2(l))
and the corresponding liabilities, net of finance charges, are
recorded as obligations under finance leases. Subsequent to the
revaluation (see Note 10), which was based on depreciated
replacement costs, leased assets are carried at revalued amount,
being the fair value at the date of the revaluation less any
subsequent accumulated depreciation and impairment losses.
Revaluations are performed periodically to ensure that the carrying
amount does not differ materially from that which would be
determined using fair value at the balance sheet date.
The finance charge is allocated to each period during the
lease term so as to produce a constant periodic rate of interest on
the remaining balance of the liability. Contingent rentals are
written off as an expense of the period in which they are incurred.
Gains or losses on aircraft sale and leaseback transactions
which result in finance leases are deferred and amortised over the
terms of the related leases. Gains or losses on other aircraft sale
and leaseback transactions are recognised immediately if the
transactions are established at fair value. Any difference between
the sales price and the fair value is deferred and amortised over
the period the assets are expected to be used.
Payments made under operating leases are recognised in the
income statement on a straight-line basis over the term of the
lease. Lease incentives received are recognised in the income
statement as an integral part of the total lease expense.
(iii) Subsequent costs
The Group recognises in the carrying amount of an item of
property, plant and equipment the cost of replacing part of such an
item when that cost is incurred if it is probable that the future
economic benefits embodied with the item will flow to the Group and
the cost of the item can be measured reliably. All other costs are
recognised in the income statement as an expense as incurred.
(iv) Depreciation
Depreciation is calculated to write off the cost or revalued
amount of items of property, plant and equipment over their
estimated useful lives on a straight-line basis, after taking into
account its estimated residual value, as follows:
DEPRECIABLE LIFE RESIDUAL VALUE
Buildings 15 to 40 years Nil
Owned and leased aircraft 8 to 15 years 28.75%
Other flight equipment
- Jet engines 8 to 15 years 3%
- Others, including rotable spares 8 to 15 years Nil
Machinery and equipment 5 to 10 years 3%
Vehicles 6 years 3%
Depreciation for leased assets is provided at rates which
write off the cost of the assets in equal annual amounts over the
term of the relevant lease or, where it is likely the Group will
obtain ownership of the asset, the life of the asset, as set out
above.
- 26 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(e) CONSTRUCTION IN PROGRESS
Construction in progress represents office buildings, various
infrastructure projects under construction and equipment pending
installation, and is stated at cost. Cost comprises direct costs of
construction as well as interest charges during the periods of
construction and installation. Capitalisation of these costs ceases and
the construction in progress is transferred to property, plant and
equipment when the asset is substantially ready for its intended use,
notwithstanding any delays in the issue of the relevant commissioning
certificates by the relevant PRC authorities.
(f) LEASE PREPAYMENTS
Lease prepayments represent the purchase costs of land use rights
and are amortised on a straight line basis over the period of land use
rights.
(g) DEFERRED EXPENDITURE
Custom duties and other direct costs in relation to modifying,
introducing and certifying certain operating leased aircraft are deferred
and amortised over the terms of the related leases.
Lump sum housing benefits payable to employees of the Group are
deferred and amortised on a straight line basis over a period of 10 years,
which represents the benefit vesting period of the employees.
(h) OTHER INVESTMENTS
Financial instruments held for trading are classified as current
assets and are stated at fair value, with any resultant gain or loss
recognised in the income statement.
Where the Group has the positive intent and ability to hold bonds to
maturity, they are stated at amortised cost less impairment losses (see
Note 2(l)).
Other financial instruments are stated at cost less impairment
losses (see Note 2(l)). Other financial instruments represent unquoted
available-for-sale equity securities of companies established in the PRC.
There is no quoted market price for such equity securities and accordingly
a reasonable estimate of the fair value could not be made without
incurring excessive costs.
(i) INVENTORIES
Inventories, which consist primarily of expendable spare parts and
supplies, are stated at cost less any applicable provision for
obsolescence, and are expensed when used in operations. Cost represents
the average unit cost. Inventories held for disposal are stated at the
lower of cost and net realisable value. Net realisable value represents
estimated resale price.
(j) TRADE AND OTHER RECEIVABLES
Trade and other receivables are stated at cost less provision for
doubtful accounts. Provision for doubtful accounts is established based on
evaluation of the recoverability of these accounts at the balance sheet
date.
(k) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and balances with
banks and other financial institutions with an original maturity within
three months. For the purpose of the consolidated cash flow statement,
cash and cash equivalents are presented net of bank overdrafts, if any.
- 27 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(l) IMPAIRMENT LOSS
The carrying amounts of the Group's assets, other than inventories
(see Note 2(i)), trade and other receivables (see Note 2(j)) and deferred
tax assets (see Note 2(q)) are reviewed periodically in order to assess
whether the recoverable amounts have declined below the carrying amounts.
These assets are tested for impairment whenever events or changes in
circumstances indicate that their recorded carrying amounts may not be
recoverable. When such a decline has occurred, the carrying amount is
reduced to the recoverable amount. The recoverable amount is the greater
of the net selling price and the value in use. In determining the value in
use, expected future cash flows generated by the asset are discounted to
their present value. The amount of the reduction is recognised as an
expense in the income statement.
The Group assesses at each balance sheet date whether there is any
indication that an impairment loss recognised for an asset in prior years
may no longer exist. An impairment loss is reversed if there has been a
favourable change in the estimates used to determine the recoverable
amount. A subsequent increase in the recoverable amount of an asset, when
the circumstances and events that led to the write-down or write-off cease
to exist, is recognised as income. The reversal is reduced by the amount
that would have been recognised as depreciation had the write-down or
write-off not occurred.
(m) INTEREST-BEARING BORROWINGS
Interest-bearing borrowings are recognised initially at fair value,
less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in the
income statement over the period of the borrowings on an effective
interest basis.
(n) PROVISIONS
A provision is recognised in the balance sheet when the Group has a
legal or constructive obligation as a result of a past event, and it is
probable that an outflow of economic benefits will be required to settle
the obligations. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
(o) DEFEASANCE OF LONG-TERM LIABILITIES
Where long-term liabilities have been defeased by the placement of
security deposits, those liabilities and deposits (and income and charge
arising therefrom) are netted off in order to reflect the overall
commercial effect of the arrangements. Such netting off has been effected
where a right is held by the Group to insist on net settlement of the
liability and deposit including in all situations of default and where
that right is assured beyond doubt.
(p) DEFERRED CREDITS
In connection with the acquisition or operating lease of certain
aircraft and engines, the Group receives various credits. Such credits are
deferred until the aircraft and engines are delivered, at which time they
are either applied as a reduction of the cost of acquiring the aircraft
and engines, resulting in a reduction of future depreciation, or amortised
as a reduction of rental expense for aircraft and engines under operating
leases.
(q) DEFERRED TAXATION
Deferred tax is provided using the balance sheet liability method on
all temporary differences between the carrying amounts for financial
reporting purposes and the amounts used for taxation purposes, except
differences relating to the initial recognition of assets or liabilities
which affect neither accounting nor taxable profit/loss.
The tax value of losses expected to be available for utilisation
against future taxable income is recognised as a deferred tax asset and
offset against the deferred tax liability attributable to the same legal
tax unit and jurisdiction. Net deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be
realised.
- 28 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(r) REVENUE RECOGNITION
(i) Passenger, cargo and mail revenues are recognised when the
transportation is provided. Ticket sales for transportation
not yet provided are included in current liabilities as sales
in advance of carriage. Revenues from airline-related business
are recognised when services are rendered. Revenue is stated
net of sales tax. In addition, prior to 1 May, 2003, revenue
was stated net of the contributions to the Civil Aviation
Administration of China ("CAAC") Infrastructure Development
Fund.
(ii) Interest income is recognised on a time proportion basis
according to the outstanding principal and the applicable
interest rate.
(iii) Dividend income is recognised when the Group's right to
receive the dividend is established.
(iv) Operating lease income is recognised on a straight line basis
over the terms of the respective leases.
(s) TRAFFIC COMMISSIONS
Traffic commissions are expensed when the transportation is provided
and the related revenue is recognised. Traffic commissions for
transportation not yet provided are recorded on the balance sheet as a
prepaid expense.
(t) MAINTENANCE AND OVERHAUL COSTS
Routine maintenance and repairs and overhauls in respect of owned
aircraft and aircraft held under finance leases are expensed in the income
statement as and when incurred. In respect of aircraft held under
operating leases, a provision is made over the lease term for the
estimated cost of overhauls required to be performed on the related
aircraft prior to their return to the lessors.
(u) BORROWING COSTS
Borrowing costs are expensed in the income statement as and when
incurred, except to the extent that they are capitalised as being directly
attributable to the acquisition or construction of an asset which
necessarily takes a substantial period of time to get ready for its
intended use.
The capitalisation of borrowing costs as part of the cost of a
qualifying asset commences when expenditures for the asset are being
incurred, borrowing costs are being incurred and activities that are
necessary to prepare the asset for its intended use are in progress.
Capitalisation of borrowing costs ceases when substantially all the
activities necessary to prepare the qualifying asset for its intended use
are complete.
(v) RETIREMENT BENEFITS
Contributions to retirement schemes and additional retirement
benefits paid to retired employees are charged to the income statement as
and when incurred.
(w) FREQUENT FLYER AWARD PROGRAMMES
The Group maintains two frequent flyer award programmes, namely, the
China Southern Airlines Sky Pearl Club and the Egret Mileage Plus, which
provide travel awards to members based on accumulated mileage. The
estimated incremental cost to provide free travel is recognised as an
expense and accrued as a current liability as members accumulate mileage.
As members redeem awards or their entitlements expire, the incremental
cost liability is reduced accordingly to reflect the acquittal of the
outstanding obligations.
Revenue from mileage sales to third parties under the frequent flyer
award programmes is recognised when the related transportation services
are provided.
- 29 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(x) TRANSLATION OF FOREIGN CURRENCIES
Transactions in foreign currencies are translated into Renminbi at
the applicable rates of exchange quoted by the People's Bank of China
("PBOC rates") prevailing on the transaction dates. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date
are translated into Renminbi at the PBOC rates at the balance sheet date.
Non-monetary assets and liabilities that are measured in terms of
historical cost in a foreign currency are translated into Renminbi at the
PBOC rates prevailing on the transaction dates.
(y) RELATED PARTIES
For the purposes of these financial statements, parties are
considered to be related to the Group if the Group has the ability,
directly or indirectly, to control the party or exercise significant
influence over the party in making financial and operating decisions, or
vice versa, or where the Group and the party are subject to common control
or common significant influence. Related parties may be individuals or
other entities.
(z) SEGMENTAL REPORTING
A segment is a distinguishable component of the Group that is
engaged either in providing products or services (business segment), or in
providing products or services within a particular economic environment
(geographical segment), which is subject to risks and rewards that are
different from those of other segments.
3 TURNOVER
Turnover comprises revenues from airline and airline-related business and
is stated net of sales tax. In addition, turnover for the four-month period
ended 30 April, 2003 was stated net of contributions to the CAAC Infrastructure
Development Fund. An analysis of turnover is as follows:
2004 2003
RMB million RMB million
Traffic revenue
Passenger 21,100 15,010
Cargo and mail 2,244 1,955
------ ------
23,344 16,965
------ ------
Other operating revenue
Commission income 203 140
General aviation income 55 40
Ground services income 146 99
Air catering income 53 31
Net income from lease arrangements (Note) - 69
Rental income 45 40
Aircraft lease income 11 -
Other 117 86
------ ------
630 505
------ ------
23,974 17,470
====== ======
Note: As result of a lease arrangement in 2003, the Company received net cash
benefits of RMB69 million which were recognised as income in 2003. Further
details of the arrangement are set out in note 10(g) to the financial
statements.
- 30 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Pursuant to various sales tax rules and regulations, the Group is required
to pay sales tax to national and local tax authorities at the following rates:
TYPES OF REVENUE APPLICABLE SALES TAX RATES
Traffic revenue 3% (2003: 3%) of traffic revenue in respect of domestic flights
and outbound international/Hong Kong regional flights, except
for the period from 1 May, 2003 to 31 December, 2003 when
passenger revenue was exempted from sales tax.
Other operating revenue 3% (2003: 3%) of commission income, general aviation income
and ground services income, and 3% to 5% (2003: 3% to 5%) of
other operating revenue.
Sales tax incurred during the year ended 31 December, 2004, netted off
against revenue, amounted to RMB716 million (2003: RMB206 million).
In addition, the Group is required to pay contributions to the CAAC
Infrastructure Development Fund. Prior to 1 May, 2003, contributions to CAAC
Infrastructure Development Fund were payable at 5% and 2% respectively of the
domestic and international/Hong Kong regional traffic revenue. For the period
from 1 May, 2003 to 31 March, 2004, the Group was exempted from paying any
contributions. Effective from 1 April, 2004, contributions to the CAAC
Infrastructure Development Fund are payable based on the traffic capacity
deployed by the Group on its routes. The contributions now form part of the
flight operations expenses and amounted to RMB466 million for the year ended 31
December, 2004. The contributions for the year ended 31 December, 2003 amounted
to RMB251 million and were netted off against traffic revenue.
Pursuant to approval documents issued by the CAAC, the Group imposes a
fuel surcharge on passengers carried by its domestic and Hong Kong regional
flights at certain prescribed rates on ticket fares. The fuel surcharge forms
part of the traffic revenue of the Group. For the year ended 31 December, 2004,
the fuel surcharge revenue of the Group totalled approximately RMB348 million
(2003: RMB740 million).
- 31 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
4 PROFIT/(LOSS) BEFORE TAXATION AND MINORITY INTERESTS
Profit/(loss) before taxation and minority interests is arrived at after
charging:
2004 2003
RMB million RMB million
Operating expenses
Jet fuel 6,050 3,867
Aircraft maintenance 3,132 2,377
Routes 5,626 4,363
Depreciation
- owned assets 1,891 1,502
- assets held under finance leases 472 496
Amortisation of deferred expenditure 50 40
Operating lease charges
- aircraft and flight equipment 1,665 1,536
- land and buildings 109 136
Staff costs
- salaries, wages and welfare 2,260 1,496
- contributions to retirement schemes 168 150
Office and administration 718 471
Auditors' remuneration 11 8
Other 913 572
------ ------
23,065 17,014
------ ------
Interest expense
Interest on bank and other loans wholly repayable
within five years 221 288
Interest on other loans 156 176
Finance charges on obligations under finance leases 348 443
Less: borrowing costs capitalised (Note) (34) (83)
------ ------
Net interest expense 691 824
------ ------
and after crediting:
Net realised and unrealised gain on equity
securities held for trading 15 -
Dividend income from unlisted investments 14 17
====== ======
Note: The borrowing costs have been capitalised at rates ranging from 1.51% to
3.48% per annum (2003: 1.62% to 5.46% per annum).
The loss attributable to shareholders for the year ended 31 December, 2004
includes a loss of RMB169 million (2003: RMB581 million) which has been dealt
with in the financial statements of the Company.
- 32 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
5 LOSS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
Loss on disposal of property, plant and equipment represents:
2004 2003
RMB million RMB million
Aircraft (Note) - 20
Flight equipment and other 1 2
-- --
1 22
== ==
Note: During 2003, the Group incurred a loss of RMB20 million on early
retirement of two old Boeing 737-200 aircraft.
6 EMOLUMENTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
(a) DIRECTORS' AND SUPERVISORS' EMOLUMENTS
2004 2003
RMB'000 RMB'000
Fees 255 203
Salaries, allowances and benefits in kind 3,498 1,244
Retirement benefits 116 98
Bonuses 868 943
----- -----
4,737 2,488
===== =====
Included in the above were fees of RMB255,000 (2003: RMB203,000)
paid to independent non- executive directors during the year.
An analysis of directors' and supervisors' emoluments by number of
individuals and emolument ranges is as follows:
2004 2003
Number Number
Nil to HK$1,000,000 (RMB1,066,000 equivalent) 18 18
== ==
(b) SENIOR MANAGEMENT'S EMOLUMENTS
Details of emoluments paid to the five highest paid individuals
(including directors and supervisors) of the Group during the year are as
follows:
2004 2003
RMB'000 RMB'000
Salaries, allowances and benefits in kind 2,045 1,701
Retirement benefits 29 25
----- -----
2,074 1,726
===== =====
- 33 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
An analysis of emoluments paid to the five highest paid individuals
(including directors and supervisors) by number of individuals and
emolument ranges is as follows:
2004 2003
Number Number
Directors and supervisors - -
Employees 5 5
-- --
5 5
== ==
Nil to HK$1,000,000 (RMB1,066,000 equivalent) 5 5
== ==
7 INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT
(a) INCOME TAX IN THE CONSOLIDATED INCOME STATEMENT REPRESENTS:
2004 2003
RMB million RMB million
PRC income tax 176 47
Share of associates' taxation 2 3
Share of jointly controlled entities' taxation 11 7
---- ----
189 57
Deferred tax (Note 17)
- current year (111) 11
- adjustment for change in enacted tax rate - (392)
---- ----
Income tax expense/(credit) 78 (324)
==== ====
On 17 October, 2003, the Company's registered address was moved to
Guangzhou Economic & Technology Development Zone. In accordance with the
Rules and Regulations for Implementation of Income Tax for Foreign
Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document "Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que
020043", the Company is entitled to enjoy the preferential tax policy
implemented in the Guangzhou Economic & Technology Development Zone
effective 1 October, 2003. As a result, the Company's income tax rate has
been changed from 33% to 15% beginning from that date.
As a result of the reduction in income tax rate, the Company's net
deferred tax liability balance at 1 January, 2003 of RMB507 million was
reduced by RMB392 million. Accordingly, a net deferred tax credit of
RMB392 million was recognised in the income statement for the year ended
31 December, 2003.
In respect of the Group's overseas airline activities, the Group has
either obtained exemptions from overseas taxation pursuant to the
bilateral aviation agreements between the overseas governments and the PRC
government, or has sustained tax losses in these overseas jurisdictions.
Accordingly, no provision for overseas tax has been made for both the
current and prior years.
- 34 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(b) RECONCILIATION BETWEEN TAX EXPENSE AND ACCOUNTING PROFIT AT
APPLICABLE TAX RATES:
2004 2003
RMB million RMB million
Profit/(loss) before taxation and minority interests 233 (511)
=== ====
Expected PRC income tax expense/(credit) at 15% (2003: 15%) 35 (77)
Adjustments:
Effect of change in income tax rate - (392)
Non-deductible expenses 40 80
Other, net 3 65
--- ----
Income tax expense/(credit) 78 (324)
=== ====
In accordance with relevant PRC tax regulations, a PRC lessee is
liable to pay PRC withholding tax in respect of any lease payments
regularly made to an overseas lessor. Depending on the circumstances, this
tax is generally imposed at a fixed rate ranging from 10% to 20% of the
lease payments, or in certain cases, the interest components of such
payments. Pursuant to an approval document from the State Tax Bureau,
lease arrangements executed prior to 1 September, 1999 are exempted from
PRC withholding tax.
The PRC withholding tax payable by the Group for the year ended 31
December, 2004 of RMB23 million (2003: RMB8 million) in respect of the
leases executed on or after 1 September, 1999 has been included as part of
the operating lease charges for the year.
8 DIVIDENDS
No interim dividend was paid during both the current and prior years.
The board of directors of the Company does not recommend the payment of a
final dividend in respect of the year ended 31 December, 2004. No final dividend
was paid in respect of the year ended 31 December, 2003.
9 BASIC LOSS PER SHARE
The calculation of basic loss per share is based on the consolidated loss
attributable to shareholders of RMB48 million (2003: RMB358 million) and the
weighted average number of shares in issue during the year of 4,374 million
(2003: 3,832 million).
The amount of diluted loss per share is not presented as there were no
dilutive potential ordinary shares in existence for both the current and prior
years.
- 35 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
10 PROPERTY, PLANT AND EQUIPMENT
(a) THE GROUP
AIRCRAFT OTHER FLIGHT
------------------------ EQUIPMENT, MACHINERY,
HELD UNDER INCLUDING EQUIPMENT
FINANCE ROTABLE AND
BUILDINGS OWNED LEASES SPARES VEHICLES TOTAL
RMB million RMB million RMB million RMB million RMB million RMB million
Cost or valuation:
At 1 January, 2004 3,288 17,222 10,463 6,842 1,930 39,745
Exchange adjustments 5 - - - 12 17
Reclassification on
exercise of
purchase options - 550 (550) - - -
Additions 336 4,156 - 525 5 5,022
Transferred from
construction in
progress 2,472 - - - 235 2,707
Through the CNA/XJA
Acquisitions 915 5,206 4,616 1,753 490 12,980
Disposals (28) - - (76) (73) (177)
----- ------ ------ ----- ----- ------
At 31 December, 2004 6,988 27,134 14,529 9,044 2,599 60,294
----- ------ ------ ----- ----- ------
Representing:
Cost 6,633 20,905 10,189 6,870 2,115 46,712
Valuation - 1996 355 6,229 4,340 2,174 484 13,582
----- ------ ------ ----- ----- ------
6,988 27,134 14,529 9,044 2,599 60,294
----- ------ ------ ----- ----- ------
Accumulated
depreciation:
At 1 January, 2004 594 3,192 2,605 3,644 1,174 11,209
Exchange adjustments 1 - - - 9 10
Reclassification on
exercise of purchase
options - 183 (183) - - -
Charge for the year 179 956 472 544 212 2,363
Written back on
disposal (17) - - (51) (61) (129)
----- ------ ------ ----- ----- ------
At 31 December, 2004 757 4,331 2,894 4,137 1,334 13,453
----- ------ ------ ----- ----- ------
Net book value:
At 31 December, 2004 6,231 22,803 11,635 4,907 1,265 46,841
===== ====== ====== ===== ===== ======
At 31 December, 2003 2,694 14,030 7,858 3,198 756 28,536
===== ====== ====== ===== ===== ======
- 36 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(b) THE COMPANY
AIRCRAFT OTHER FLIGHT
------------------------ EQUIPMENT, MACHINERY,
HELD UNDER INCLUDING EQUIPMENT
FINANCE ROTABLE AND
BUILDINGS OWNED LEASES SPARES VEHICLES TOTAL
RMB million RMB million RMB million RMB million RMB million RMB million
Cost or valuation:
At 1 January, 2004 1,644 12,868 10,463 5,396 1,189 31,560
Reclassification on
exercise of purchase
options - 550 (550) - - -
Additions through
transfer of property,
plant and equipment
upon dissolution of
a subsidiary 3 - - 134 13 150
Additions 12 3,509 - 192 38 3,751
Transferred from
construction in
progress 1,663 - - - 235 1,898
Through the CNA/XJA
Acquisitions 727 5,206 4,616 1,745 441 12,735
Disposals (23) - - - (40) (63)
----- ------ ------ ----- ----- ------
At 31 December, 2004 4,026 22,133 14,529 7,467 1,876 50,031
----- ------ ------ ----- ----- ------
Representing:
Cost 3,832 17,520 10,189 5,642 1,612 38,795
Valuation - 1996 194 4,613 4,340 1,825 264 11,236
----- ------ ------ ----- ----- ------
4,026 22,133 14,529 7,467 1,876 50,031
----- ------ ------ ----- ----- ------
Accumulated
depreciation:
At 1 January, 2004 324 2,231 2,605 3,073 717 8,950
Reclassification on
exercise of purchase
options - 183 (183) - - -
Additions through
transfer of property,
plant and equipment
upon dissolution of
a subsidiary 1 - - 72 10 83
Charge for the year 110 744 472 346 117 1,789
Written back on
disposal (10) - - - (35) (45)
----- ------ ------ ----- ----- ------
At 31 December, 2004 425 3,158 2,894 3,491 809 10,777
----- ------ ------ ----- ----- ------
Net book value:
At 31 December, 2004 3,601 18,975 11,635 3,976 1,067 39,254
===== ====== ====== ===== ===== ======
At 31 December, 2003 1,320 10,637 7,858 2,323 472 22,610
===== ====== ====== ===== ===== ======
- 37 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(c) Substantially all of the Group's buildings are located in the PRC.
The Group was formally granted the rights to use the twenty one
parcels of land in Guangzhou, Shenzhen, Zhuhai, Beihai, Changsha,
Shantou, Haikou, Zhengzhou, Guiyang and Wuhan by the relevant PRC
authorities for periods of 30 to 70 years, which expire between 2020
and 2068. For other land in the PRC on which the Group's buildings
are erected, the Group was formally granted the rights to use such
land for periods of one to five years commencing in the second
quarter of 1997 pursuant to various lease agreements between the
Company and CSAHC. The leases with initial one-year term are
automatically renewable for another one-year period unless the
Company gives appropriate notice of termination. In this connection,
rental payments totalling RMB18 million (2003: RMB15 million) were
paid to CSAHC during 2004 in respect of these leases.
(d) In compliance with the PRC rules and regulations governing initial
public offering of shares by PRC joint stock limited companies, the
property, plant and equipment of the Group as at 31 December, 1996
were revalued. This revaluation was conducted by Guangzhou Assets
Appraisal Corp. ("GAAC"), a firm of independent valuers registered
in the PRC, on a depreciated replacement cost basis, and approved by
the China State-owned Assets Administration Bureau.
In accordance with IAS 16 "Property, plant and equipment",
subsequent to the 1996 revaluation, which was based on replacement
costs, the property, plant and equipment of the Group are carried at
revalued amount, being the fair value at the date of the revaluation
less any subsequent accumulated depreciation and impairment losses.
Revaluation is performed periodically to ensure that the carrying
amount does not differ materially from that which would be
determined using fair value at the balance sheet date. In accordance
with the revaluation performed by the directors in respect of
property, plant and equipment held by the Group as at 31 December,
2000, the carrying amounts of property, plant and equipment did not
differ materially from their respective fair value.
The effect of the above revaluation was to increase future annual
depreciation charges of the Group by approximately RMB33 million
(2003: RMB33 million). Had the property, plant and equipment of the
Group and the Company been stated at cost (i.e. the effect of the
revaluation was excluded), the net book value of property, plant and
equipment of the Group and the Company as at 31 December, 2004 would
have been approximately RMB46,838 million and RMB39,684 million
respectively (2003: RMB28,523 million and RMB22,794 million
respectively), made up as follows:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Buildings 6,797 3,110 4,178 1,610
Aircraft
- owned 28,257 18,345 22,923 13,658
- held under finance leases 15,008 10,942 15,008 10,942
Flight equipment and others 12,516 9,634 9,726 6,910
----------- ----------- ----------- -----------
62,578 42,031 51,835 33,120
Less: Accumulated
depreciation 15,740 13,508 12,151 10,326
----------- ----------- ----------- -----------
46,838 28,523 39,684 22,794
=========== =========== =========== ===========
(e) As at 31 December, 2004, certain aircraft of the Group and the
Company with an aggregate carrying value of approximately RMB23,562
million and RMB21,814 million respectively (2003: RMB14,576 million
and RMB12,796 million respectively) were mortgaged under certain
loan and lease agreements (see Notes 21 and 22).
- 38 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(f) In 2003, the Company entered into operating lease arrangements to
lease certain flight training facilities and buildings to Zhuhai
Xiang Yi Aviation Technology Company Limited ("Zhuhai Xiang Yi"), a
jointly controlled entity of the Company. The leases with initial
one-year term are automatically renewable for another one year
unless either party gives appropriate notice of termination. In this
connection, rental income totalling RMB34 million (2003: RMB34
million) was received by the Company during the year in respect of
the leases. As at 31 December, 2004, the cost and accumulated
depreciation of the relevant property, plant and equipment totalled
RMB787 million and RMB514 million respectively (2003: RMB787 million
and RMB462 million respectively). Depreciation of the relevant
property, plant and equipment recognised during the year totalled
RMB55 million (2003: RMB55 million). As at 31 December 2004, the
Company's rental receivable in respect of the leases due in 2005
amounted to RMB34 million (2003: RMB34 million).
(g) The Company entered into two separate arrangements (the
"Arrangements") with certain independent third parties during each
of 2002 and 2003. Under each of the Arrangements, the Company sold
an aircraft and then immediately leased back the aircraft for an
agreed period. The lease payment obligations, with pre-determined
net present value, are to be satisfied solely out of the sale
proceeds and such amount has been placed irrevocably by the Company
in form of deposits and debt securities in favour of the lessors.
The Company has an option to purchase the aircraft at a
pre-determined date and an agreed purchase price to be satisfied by
the balances of the deposits and debt securities outstanding at that
date. In the event that the lease agreement is early terminated by
the Company, the Company is liable to pay a pre-determined penalty
to the lessor. Provided that the Company complies with the lease
agreements, the Company is entitled to the continued possession and
operation of the aircraft. Since the Company retains substantially
all risks and rewards incident to ownership of the aircraft and
enjoys substantially the same rights to their use as before the
Arrangements, no adjustment has been made to the property, plant and
equipment. As at 31 December, 2004, the net present value of the
lease commitments and the corresponding defeased deposits and debt
securities amounted to RMB2,462 million (2003: RMB2,409 million). As
a result of the Arrangements, the Company received net cash benefits
which were recognised as income (Note 3).
(h) As at 31 December, 2004 and up to the date of approval of these
financial statements, the Group is in the process of applying for
the land use right certificates and property title certificates in
respect of the properties located in the Guangzhou new airport,
Guangzhou Baiyun International Airport, in which the Group has
interests and for which such certificates have not been granted. As
at 31 December, 2004, carrying value of such properties of the Group
and the Company amounted to RMB2,477 million and RMB1,417 million
respectively.
The directors of the Company are of the opinion that the use of and
the conduct of operating activities at the properties referred to
above are not affected by the fact that the Group has not yet
obtained the relevant land use right certificates and property title
certificates.
- 39 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
11 CONSTRUCTION IN PROGRESS
2004 2003
RMB million RMB million
THE COMPANY
Shenzhen cargo centre 22 -
Guangzhou new airport support area 65 -
Boeing 777 aircraft engines upgrade 18 12
Guangzhou new airport base - 1,378
Hubei catering building - 28
Zhengzhou ticket selling office - 22
Material and engineering system 22 21
Henan office building - 14
Other 105 57
----------- -----------
232 1,532
----------- -----------
SUBSIDIARIES
Guangzhou new cargo centre 254 68
Fuzhou Chang Le airport facilities 20 14
Other 59 16
----------- -----------
333 98
----------- -----------
565 1,630
=========== ===========
12 INTEREST IN SUBSIDIARIES
THE COMPANY
2004 2003
RMB million RMB million
Unlisted shares/capital contributions, at cost 1,232 978
Amounts due from subsidiaries 917 468
----------- -----------
2,149 1,446
=========== ===========
In 2004, China Southern Airlines (Group) Zhuhai Helicopter Company
Limited, a wholly owned subsidiary of the Company, was dissolved. Its operations
and assets and liabilities were transferred to the Company. No material gains or
losses were incurred by the Company on dissolution of the subsidiary.
A new subsidiary, Guangzhou Air Cargo Company Limited, was established in
2004.
Details of the Company's principal subsidiaries are set out in Note 37.
- 40 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
13 INTEREST IN ASSOCIATES
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Share of attributable net assets other
than goodwill 429 422 - -
Unlisted capital contributions, at cost - - 357 348
Impairment loss for investment in an
associate - - (61) (61)
----------- ----------- ----------- -----------
429 422 296 287
=========== =========== =========== ===========
Details of the Group's principal associates are set out in Note 38.
14 INTEREST IN JOINTLY CONTROLLED ENTITIES
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Share of attributable net assets other
than goodwill 782 731 - -
Unlisted capital contributions, at cost - - 636 564
----------- ----------- ----------- -----------
782 731 636 564
=========== =========== =========== ===========
Details of the Company's principal jointly controlled entities are set out
in Note 38.
An analysis of the Group's attributable share of assets, liabilities,
revenues and expenses of the jointly controlled entities is set out below:
2004 2003
RMB million RMB million
Non-current assets 845 606
Current assets 794 619
Non-current liabilities (389) (236)
Current liabilities (468) (258)
----------- -----------
Net assets 782 731
=========== ===========
Income 762 486
Expenses (767) (525)
----------- -----------
Net loss (5) (39)
=========== ===========
- 41 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
15 OTHER INVESTMENTS
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
NON-CURRENT INVESTMENTS
Equity securities available for sale 272 204 167 107
=========== =========== =========== ===========
CURRENT INVESTMENTS
Equity securities held for trading 523 - 502 -
Debt securities held-to-maturity 160 - - -
----------- ----------- ----------- -----------
683 - 502 -
=========== =========== =========== ===========
16 DEFERRED EXPENDITURE
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Custom duties and other direct costs 19 26 8 18
Lump sum housing benefits (Note 29) 197 223 197 223
Deferred loss on aircraft sale and
leaseback arrangements 100 - 100 -
----------- ----------- ----------- -----------
316 249 305 241
=========== =========== =========== ===========
17 DEFERRED TAX
Movements in net deferred tax (liabilities)/assets are as follows:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Balance at 1 January, (398) (779) (90) (507)
Credited/(charged) to income statement
(Note 7)
- current year 111 (11) 141 25
- adjustment for change in income tax rate - 392 - 392
----------- ----------- ----------- -----------
Balance at 31 December, (287) (398) 51 (90)
=========== =========== =========== ===========
- 42 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The net deferred tax (liabilities)/assets at 31 December, 2004 were made
up of the following tax effects:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Deferred tax assets:
Tax losses 39 223 39 223
Repairs and maintenance accruals 129 88 125 93
Repair charges capitalised 254 261 195 199
Accrued expenses 146 19 146 19
Other 21 9 20 11
----------- ----------- ----------- -----------
Total deferred tax assets 589 600 525 545
----------- ----------- ----------- -----------
Deferred tax liabilities:
Repairs and maintenance accruals 75 81 - -
Depreciation of property, plant and
equipment 752 848 459 591
Other 49 69 15 44
----------- ----------- ----------- -----------
Total deferred tax liabilities 876 998 474 635
----------- ----------- ----------- -----------
Net deferred tax (liabilities)/assets (287) (398) 51 (90)
=========== =========== =========== ===========
18 INVENTORIES
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Expendable spare parts and maintenance
materials 1,175 486 904 183
Other supplies 127 58 95 30
----------- ----------- ----------- -----------
1,302 544 999 213
=========== =========== =========== ===========
No significant amount of inventories was carried at net realisable value
at 31 December, 2003 and 2004.
- 43 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
19 TRADE RECEIVABLES
Credit terms granted by the Group to sales agents and other customers
generally range from one to three months. An ageing analysis of trade
receivables, net of provision for doubtful accounts, is set out below:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Within 1 month 998 589 863 446
More than 1 month but less than 3 months 163 236 133 228
More than 3 months but less than 12 months 42 9 39 9
----------- ----------- ----------- -----------
1,203 834 1,035 683
=========== =========== =========== ===========
As at 31 December, 2004, the Group and the Company had an amount due from
a fellow subsidiary of RMB52 million (2003: RMB54 million) which was included in
trade receivables.
All of the trade receivables are expected to be recovered within one year.
20 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and in hand and deposits
with Southern Airlines Group Finance Company Limited ("SA Finance"), a PRC
authorised financial institution controlled by CSAHC and an associate of the
Group. In accordance with the financial agreement dated 22 May, 1997 between the
Company and SA Finance, all the Group's deposits accepted by SA Finance at 31
December, 2004 were simultaneously placed with several designated major PRC
banks by SA Finance. As at 31 December, 2004, the Group's and the Company's
deposits with SA Finance amounted to RMB406 million and RMB362 million
respectively (2003: RMB366 million and RMB346 million respectively).
- 44 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
21 BANK AND OTHER LOANS
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
BANK LOANS DUE:
Within one year 11,518 7,097 10,161 5,959
In the second year 1,626 646 1,476 401
In the third to fifth year, inclusive 6,422 1,224 5,283 826
After the fifth year 3,887 2,649 3,781 2,443
----------- ----------- ----------- -----------
23,453 11,616 20,701 9,629
OTHER LOANS DUE:
In the second year - 3 - -
----------- ----------- ----------- -----------
23,453 11,619 20,701 9,629
Portion classified as current liabilities (11,518) (7,097) (10,161) (5,959)
----------- ----------- ----------- -----------
11,935 4,522 10,540 3,670
=========== =========== =========== ===========
As at 31 December, 2004, bank loans of the Group and the Company totalling
RMB8,620 million and RMB7,783 million respectively (2003: RMB4,902 million and
RMB3,823 million respectively) were secured by mortgages over certain of the
Group's and the Company's aircraft with carrying amount of RMB11,927 million and
RMB10,179 million respectively (2003: RMB6,718 million and RMB4,938 million
respectively).
As at 31 December, 2004, loans to the Group and the Company from SA
Finance amounted to RMB256 million and RMB76 million respectively (2003: RMB120
million and RMB 120 million respectively).
As at 31 December, 2004, certain bank loans were guaranteed by the
following parties:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Industrial Commercial Bank of China 149 - 149 -
Export-Import Bank of the United States 1,732 2,208 969 1,236
Bank of China 291 357 53 262
CSAHC 2,452 359 1,812 229
Guangzhou Baiyun International Airport
Company Limited - 63 - -
Shenzhen Yingshun Investment Development
Company Limited - 21 - -
SA Finance 9 10 - -
----------- ----------- ----------- -----------
4,633 3,018 2,983 1,727
=========== =========== =========== ===========
- 45 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Details of bank and other loans with original maturity over one year are
as follows:
INTEREST RATES AND FINAL MATURITY
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
(i) RENMINBI DENOMINATED LOANS
Fixed interest rates ranging from
4.80% to 6.03% per annum as at 31
December, 2004, with maturities
through 2009. 1,628 - 135 -
Non-interest bearing loan from a
municipal government authority,
repayable in 2005. 3 3 - -
Floating interest rates ranging from
4.94% to 5.76% per annum as at 31
December, 2004, with maturities
through 2014. 1,217 76 1,217 -
(ii) US DOLLARS DENOMINATED LOANS
Floating interest rates ranging from
3 months LIBOR+0.65% to 0.9% per
annum as at 31 December, 2004, with
maturities through 2011. 1,426 - 1,426 -
Floating interest rates ranging from
6 months LIBOR+0.3% to 1.2% per
annum as at 31 December, 2004, with
maturities through 2014. 6,578 2,505 6,578 2,505
Fixed interest rates ranging from
2.18% to 8.35% per annum as at 31
December, 2004, with maturities
through 2011. 2,676 2,626 2,326 1,546
----------- ----------- ----------- -----------
13,528 5,210 11,682 4,051
Less: Loans due within one year
classified as current
liabilities (1,593) (688) (1,142) (381)
----------- ----------- ----------- -----------
11,935 4,522 10,540 3,670
=========== =========== =========== ===========
As at 31 December, 2004, bank and other loans of the Group and the Company
included short-term bank loans totalling RMB9,925 million and RMB9,019 million
respectively (2003: RMB6,409 million and RMB5,578 million respectively). On such
date, the Group's and the Company's weighted average interest rate on short-term
borrowings were 1.60% and 1.56% per annum respectively (2003: 1.76% and 1.65%
per annum respectively).
As at 31 December, 2004, the Group had banking facilities with several PRC
commercial banks for providing loan finance up to an approximate amount of
RMB35,750 million (2003: RMB9,860 million). As at 31 December, 2004, an
approximate amount of RMB11,525 million (2003: RMB4,412 million) was utilised.
- 46 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
22 OBLIGATIONS UNDER FINANCE LEASES
The Group and the Company have commitments under finance lease agreements
in respect of aircraft and related equipment expiring during the years 2005 to
2013. As at 31 December, 2004, future payments under these finance leases, which
were 67% and 33% respectively (2003: 74% and 26% respectively) denominated in
United States dollars and Japanese yen, are as follows:
THE GROUP AND THE COMPANY
-------------------------------------------------------------------------------
2004 2003
OBLIGATIONS PAYMENTS INTEREST OBLIGATIONS PAYMENTS INTEREST
RMB million RMB million RMB million RMB million RMB million RMB million
Balance due:
Within one year 2,144 2,580 436 1,298 1,648 350
In the second year 2,863 3,213 350 1,066 1,357 291
In the third to fifth
year, inclusive 6,044 6,540 496 3,909 4,348 439
After the fifth year 692 722 30 568 608 40
----------- ----------- ----------- ----------- ----------- -----------
11,743 13,055 1,312 6,841 7,961 1,120
----------- ----------- ----------- ----------- ----------- -----------
Less: Balance due within
one year classified
as current
liabilities (2,144) (1,298)
----------- -----------
9,599 5,543
=========== ===========
Certain lease financing arrangements comprised finance leases between the
Company and certain of its subsidiaries, and corresponding borrowings between
such subsidiaries and banks. The Company has guaranteed the subsidiaries'
obligations under the bank borrowings and accordingly, the relevant leased
assets and obligations are recorded in the Company's balance sheet to reflect
the substance of the transactions. The future payments under these leases have
therefore been presented by the Company and the Group in amounts that reflect
the payments under the bank borrowings between the subsidiaries and banks.
Under the terms of the leases, the Group has an option to purchase, at or
near the end of the lease term, certain aircraft at fair market value and others
at either fair market value or a percentage of the respective lessor's defined
cost of the aircraft.
Security, including charges over the assets concerned and relevant
insurance policies, is provided to the lessors.
As at 31 December, 2004, certain of the Group's and the Company's aircraft
with carrying amount of RMB11,635 million (2003: RMB7,858 million) were
mortgaged to secure facilities with financial institutions granted to lessors
totalling RMB11,743 million (2003: RMB6,841 million).
23 AMOUNTS DUE TO RELATED COMPANIES
Amounts due to related companies, which represent balances with CSAHC and
its affiliates, and the Group's associates and jointly controlled entities, are
unsecured, interest free and repayable within one year (Note 28).
- 47 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
24 TRADE PAYABLES
An ageing analysis of trade payables is set out below:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Due within 1 month or on demand 599 279 505 207
Due after 1 month but within 3 months 430 278 370 231
Due after 3 months but within 6 months 525 371 445 308
----------- ----------- ----------- -----------
1,554 928 1,320 746
=========== =========== =========== ===========
As at 31 December, 2004, the Group and the Company had an amount due to a
fellow subsidiary of RMB838 million (2003: RMB693 million) which was included in
trade payables.
All of the trade payables are expected to be settled within one year.
25 PROVISION FOR MAJOR OVERHAULS
Details of provision for major overhauls in respect of aircraft held under
operating leases are as follows:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Balance at 1 January, 200 194 131 63
Provision for the year 89 68 47 68
Through the CNA/XJA Acquisitions 70 - 70 -
Amount utilised - (62) - -
----------- ----------- ----------- -----------
Balance at 31 December, 359 200 248 131
Less: Current portion included in accrued
expenses (75) (11) (62) -
----------- ----------- ----------- -----------
284 189 186 131
=========== =========== =========== ===========
- 48 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
26 SHARE CAPITAL
2004 2003
RMB million RMB million
Registered capital:
2,200,000,000 domestic shares of RMB1.00 each 2,200 2,200
1,174,178,000 H shares of RMB1.00 each 1,174 1,174
1,000,000,000 A shares of RMB1.00 each 1,000 1,000
----------- -----------
4,374 4,374
=========== ===========
Issued and paid up capital:
2,200,000,000 domestic shares of RMB1.00 each 2,200 2,200
1,174,178,000 H shares of RMB1.00 each 1,174 1,174
1,000,000,000 A shares of RMB1.00 each 1,000 1,000
----------- -----------
4,374 4,374
=========== ===========
In July 2003, the Company issued 1,000,000,000 A shares with a par value
of RMB1.00 each at an issue price of RMB2.70 by way of a public offering to
natural persons and institutional investors in the PRC. The share premium
received by the Company, net of the issuance costs of RMB59 million, amounted to
RMB1,641 million and was credited to share premium account.
All the domestic, H and A shares rank pari passu in all material respects.
- 49 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
27 RESERVES
THE GROUP THE COMPANY
2004 2003 2004 2003
Note RMB million RMB million RMB million RMB million
SHARE PREMIUM
Balance at 1 January 5,325 3,684 5,325 3,684
Share premium from issuance of
shares, net of related issuance
costs - 1,641 - 1,641
----------- ----------- ----------- -----------
Balance at 31 December 5,325 5,325 5,325 5,325
----------- ----------- ----------- -----------
STATUTORY SURPLUS RESERVE (a)
Balance at 1 January 361 337 339 338
Transfer from income statement 41 24 10 1
----------- ----------- ----------- -----------
Balance at 31 December 402 361 349 339
----------- ----------- ----------- -----------
STATUTORY PUBLIC WELFARE FUND (b)
Balance at 1 January 173 172 172 171
Transfer from income statement 20 1 5 1
----------- ----------- ----------- -----------
Balance at 31 December 193 173 177 172
----------- ----------- ----------- -----------
DISCRETIONARY SURPLUS RESERVE (c)
Balance at 1 January and 31
December 77 77 77 77
----------- ----------- ----------- -----------
RETAINED EARNINGS
Balance at 1 January 1,586 1,969 (138) 446
Loss for the year (48) (358) (169) (581)
Appropriations to reserves (61) (25) (15) (3)
----------- ----------- ----------- -----------
Balance at 31 December 1,477 1,586 (322) (138)
----------- ----------- ----------- -----------
TOTAL 7,474 7,522 5,606 5,775
=========== =========== =========== ===========
Notes:
(a) According to the PRC Company Law and the Articles of Association of
the Company and certain of its subsidiaries, the Company and the
relevant subsidiaries are required to transfer 10% of their annual
net profits after taxation, as determined under relevant PRC
accounting regulations, to a statutory surplus reserve until the
reserve balance reaches 50% of the registered capital. The transfer
to this reserve must be made before distribution of a dividend to
shareholders.
Statutory surplus reserve can be used to offset prior years' losses,
if any, and may be converted into share capital by the issue of new
shares to shareholders in proportion to their existing shareholding
or by increasing 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.
- 50 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(b) According to the PRC Company Law and the Articles of Association of
the Company and certain of its subsidiaries, the Company and the
relevant subsidiaries are required to transfer between 5% and 10% of
their annual net profits after taxation, as determined under PRC
accounting regulations, to the statutory public welfare fund. This
fund can only be utilised on capital items for the collective
benefits of the Company's and the relevant subsidiaries' employees
such as the construction of dormitories, canteen and other staff
welfare facilities. This fund is non-distributable other than in
liquidation. The transfer to this fund must be made before
distribution of a dividend to shareholders.
(c) The usage of this reserve is similar to that of statutory surplus
reserve.
(d) Under PRC Company Law and the Company's Articles of Association, the
net profit after taxation as reported in the PRC statutory financial
statements of the Company can only be distributed as dividends after
allowances have been made for:
(i) making up cumulative prior years' losses, if any;
(ii) allocations to the statutory surplus reserve of at least 10%
of after-tax profit, until the fund aggregates to 50% of the
Company's registered capital;
(iii) allocations of 5% to 10% of after-tax profit to the Company's
statutory public welfare fund; and
(iv) allocations to the discretionary surplus reserve, if approved
by the shareholders.
Pursuant to the Articles of Association of the Company, the net
profit of the Company for the purpose of profit distribution is
deemed to be the lesser of (i) the net profit determined in
accordance with the PRC accounting regulations and (ii) the net
profit determined in accordance with IFRS; or if the financial
statements of the Company are not prepared in accordance with IFRS,
the accounting standards of one of the countries in which its shares
are listed. As at 31 December, 2004 the Company did not have any
distributable reserves (2003: Nil).
- 51 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
28 RELATED PARTY TRANSACTIONS
The Group obtained various operational and financial services provided by
CSAHC and its affiliates, and the Group's associates and jointly controlled
entities during the normal course of its business.
The following is a summary of significant transactions carried out in the
normal course of business between the Group, CSAHC and its affiliates, and the
Group's associates and jointly controlled entities during the year:
2004 2003
Note RMB million RMB million
EXPENSES
PAID TO CSAHC AND ITS AFFILIATES
Handling charges (a) 33 27
Wet lease rentals (b) - 36
Sundry aviation supplies (c) 66 43
Commission expense (d) 2 5
Air catering expense (e) 50 28
Housing benefits (f) 85 85
Lease charges for land and buildings (g) 18 15
PAID TO ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
Repairing charges (h) 1,159 693
Flight simulation service charges (i) 100 101
Interest expense (j) 3 -
INCOME
RECEIVED FROM ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
Interest income (k) 4 3
Rental income (l) 34 34
OTHERS
Short term advances from CSAHC (m) - 166
Refund of medical benefit payments (n) - 58
CNA/XJA Acquisitions (o) 15,522 -
=========== ===========
Notes:
(a) Handling charges represent fees payable to Southern Airlines (Group)
Import and Export Trading Company, a wholly owned subsidiary of
CSAHC, in connection with the procurement of aircraft and flight
equipment on the Group's behalf. Handling charges are calculated
based on a fixed percentage of the purchase value and other charges.
(b) Wet lease rentals in 2003 represented rentals payable to Xinjiang
Airlines Company, a subsidiary of CSAHC, pursuant to a wet lease
agreement in respect of a Boeing 757-200 aircraft effective from
October 2002. The wet lease agreement was terminated in April 2003.
(c) Sundry aviation supplies represent purchases of aviation supplies
from Southern Airlines (Group) Economic Development Company, a
subsidiary of CSAHC. Prices charged by this supplier to the Group
are similar to those charged to other PRC airlines.
(d) Commission expense represents commissions payable to certain
subsidiaries of CSAHC in connection with services provided in
exchange for air tickets sold by them. These commissions are
calculated based on a fixed rate ranging from 1.5% to 12% on the
ticket value.
(e) Air catering expense represents purchases of inflight meals and
related services from Shenzhen Air Catering Company Limited, a
cooperative joint venture established in the PRC, in respect of
which CSAHC is entitled to 33% of its profits after tax.
(f) Housing benefits represent a fixed annual fee payable to CSAHC in
respect of the provision of quarters to the eligible employees of
the Group (Note 29).
- 52 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(g) Charges were paid to CSAHC under certain lease agreements in respect
of certain land and buildings in the PRC (Note 10(c)).
(h) Repairing charges represent fees incurred by the Group in connection
with aircraft repair and maintenance services rendered by Guangzhou
Aircraft Maintenance Engineering Company Limited ("GAMECO") and MTU
Maintenance Zhuhai Co., Ltd. ("MTU Zhuhai"). GAMECO and MTU Zhuhai
are jointly controlled entities of the Company.
(i) Flight simulation service charges represent fees incurred by the
Group in connection with flight simulation services provided by
Zhuhai Xiang Yi Aviation Technology Company Limited ("Zhuhai Xiang
Yi"), a jointly controlled entity of the Company.
(j) Interest expense represents interest paid to loans from SA Finance.
The applicable interest rate in determined in accordance with
borrowing rate published by the PRC (Note 21).
(k) Interest income represents interest received from deposits placed
with SA Finance. The applicable interest rate is determined in
accordance with the deposit rate published by the PRC (Note 20).
(l) Rental income represents rental received under certain operating
lease agreements where the Company leases certain flight training
facilities and buildings to Zhuhai Xiang Yi (Note 10(f)).
(m) During 2003, CSAHC made short term advances to the Group. These
advances were unsecured, interest free and fully repaid in 2004.
(n) Prior to 1 January, 2002, the Group paid a fixed annual fee to CSAHC
in return for CSAHC providing medical benefit, transportation
subsidies and other welfare facilities to the retirees of the Group.
Such arrangement was terminated on 1 January, 2002. During 2003,
CSAHC refunded to the Group the difference between the aggregate
fixed annual fees received from the Group and the aggregate cost of
services incurred by CSAHC under the above agreement.
(o) As disclosed in Note 1 to the financial statements, on 31 December,
2004 the Company acquired the airline operations and certain related
assets of CNA and XJA at a total consideration of RMB15,522 million,
which was partly satisfied by assumption of debts and liabilities of
CNA and XJA totalling RMB13,563 million outstanding as at that date.
The remaining consideration payable of RMB1,959 million will be
satisfied in cash.
In addition to the above, certain business undertakings of CSAHC also
provided hotel and other services to the Group during the year. The total amount
involved is not material to the results of the Group for the year.
The directors of the Company are of the opinion that the above
transactions with related parties were entered into in the normal course of
business and on normal commercial terms or in accordance with the agreements
governing such transactions.
29 RETIREMENT AND HOUSING BENEFITS
Employees of the Group participate in several defined contribution
retirement schemes organised separately by PRC municipal governments in regions
where the major operations of the Group are located. The Group is required to
contribute to these schemes at the rates ranging from 14% to 20% (2003: 14% to
19%) of salary costs including certain allowances. A member of the retirement
schemes is entitled to pension benefits equal to a fixed proportion of the
salary at the retirement date. The retirement benefit obligations of all
existing and future retired staff of the Group are assumed by these schemes.
In addition, the Group was selected as one of the pilot enterprises to
establish a supplementary defined contribution retirement scheme for the benefit
of employees. In this connection, employees of the Group participate in a
supplementary defined contribution retirement scheme whereby the Group is
required to make defined contributions at a rate of 4.5% of total salaries. The
Group has no obligation for the payment of pension benefits beyond the
contributions described above. Contributions to the retirement schemes are
charged to the income statement as and when incurred.
Furthermore, pursuant to the comprehensive services agreement (the
"Services Agreement") dated 22 May, 1997 between the Company and CSAHC, CSAHC
agrees to provide adequate quarters to eligible employees of the Group as and
when required. In return, the Group agrees to pay a fixed annual fee of RMB85
million to CSAHC for a ten-year period effective 1 January, 1995.
- 53 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Pursuant to an additional staff housing benefit scheme effective September
2002, the Group agreed to pay lump sum housing allowances to certain employees
who have not received quarters from CSAHC or the Group according to the relevant
PRC housing reform policy, for subsidising their purchases of housing. Such
expenditure has been deferred and amortised on a straight line basis over a
period of 10 years, which represents the vesting benefit period of the
employees. An employee who quits prior to the end of the vesting benefit period
is required to pay back a portion of the lump sum housing benefits determined on
a pro-rata basis of the vesting benefit period. The Group has the right to
effect a charge on the employee's house and to enforce repayment through selling
the house in the event of default in repayment. Any shortfall in repayment would
be charged against income statement. As at 31 December, 2004, the Group already
made payments totalling RMB191 million (2003: RMB130 million) under the scheme
and recorded its remaining contractual liabilities totalling RMB69 million
(2003: RMB130 million) as accrued expenses on its balance sheet. Housing
allowances are payable when applications are received from eligible employees.
30 COMMITMENTS
(a) CAPITAL COMMITMENTS
As at 31 December, 2004, the Group and the Company had capital
commitments as follows:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Commitments in respect of aircraft and
related equipment (Note)
- authorised and contracted for 11,776 10,615 10,121 7,739
- authorised but not contracted for 13,571 - 13,571 -
----------- ----------- ----------- -----------
25,347 10,615 23,692 7,739
----------- ----------- ----------- -----------
Commitments in respect of investments
in the Guangzhou new airport
- authorised and contracted for 110 617 110 617
- authorised but not contracted for 714 1,455 714 1,455
----------- ----------- ----------- -----------
824 2,072 824 2,072
----------- ----------- ----------- -----------
Other commitments
- authorised and contracted for 132 233 117 30
- authorised but not contracted for 568 708 200 229
----------- ----------- ----------- -----------
700 941 317 259
----------- ----------- ----------- -----------
26,871 13,628 24,833 10,070
=========== =========== =========== ===========
- 54 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Note: As at 31 December, 2004, the Group had on order five Boeing 737-700
aircraft, six Airbus 319-100 aircraft, fifteen Airbus 320-200
aircraft, two Airbus 321-200 aircraft, four Airbus 330-200 aircraft,
one Embraer ERJ-145 aircraft and certain flight equipment, scheduled
for deliveries in 2005 to 2007. Deposits of RMB4,640 million have
been made towards the purchase of these aircraft and related
equipment. As at 31 December, 2004, the approximate total future
payments, including estimated amounts for price escalation through
anticipated delivery dates for these aircraft and related equipment
are as follows:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Year ended/ending 31 December
2004 - 4,585 - 3,249
2005 8,748 6,030 7,093 4,490
2006 2,996 - 2,996 -
2007 32 - 32 -
----------- ----------- ----------- -----------
11,776 10,615 10,121 7,739
=========== =========== =========== ===========
As at 31 December, 2004, the Group's and the Company's attributable share
of the capital commitments of jointly controlled entities was as follows:
2004 2003
RMB million RMB million
Authorised and contracted for - 24
Authorised but not contracted for 156 284
----------- -----------
156 308
=========== ===========
(b) OPERATING LEASE COMMITMENTS
As at 31 December, 2004, commitments under non-cancellable aircraft and
flight equipment operating leases were as follows:
THE GROUP THE COMPANY
2004 2003 2004 2003
RMB million RMB million RMB million RMB million
Payments due
Within one year 1,761 1,483 1,488 1,194
In the second to fifth year, inclusive 9,207 4,248 8,602 3,579
After the fifth year 1,782 2,389 1,761 2,278
----------- ----------- ----------- -----------
12,750 8,120 11,851 7,051
=========== =========== =========== ===========
- 55 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(c) INVESTING COMMITMENTS
At 31 December, 2004, the Group and the Company committed to make capital
contributions in respect of:
2004 2003
RMB million RMB million
Subsidiaries 181 -
Jointly controlled entities 83 446
----------- -----------
264 446
=========== ===========
31 CONTINGENT LIABILITIES
(a) Pursuant to the Reorganisation of CSAHC effected in 1995 (Note 1),
the Company assumed the airline and airline-related businesses
together with the relevant assets and liabilities from CSAHC. The
Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the
businesses assumed by the Company in the Reorganisation, no other
liabilities were assumed by the Company, and the Company is not
jointly and severally liable for other debts and obligations
incurred by CSAHC prior to the Reorganisation. There are not,
however, any definitive PRC regulations or other pronouncements
confirming such conclusion.
(b) The Group leases from CSAHC certain land in Guangzhou and certain
land and buildings in Wuhan, Haikou and Zhengzhou. The Group has a
significant investment in buildings and other leasehold improvements
located on such land. However, such land in Guangzhou and such land
and buildings in Wuhan, Haikou and Zhengzhou lack adequate
documentation evidencing CSAHC's rights thereto.
With respect to the facilities in Guangzhou, CSAHC has received
written assurance from the CAAC to the effect that CSAHC is entitled
to continued use and occupancy of the land in Guangzhou. The Company
understands that the CAAC is basing its conclusion on an agreement
among certain government authorities relating to such land. Such
assurance does not constitute formal evidence of CSAHC's right to
transfer, mortgage or lease such real property interests. The Group
cannot predict the magnitude of the effect on its financial
condition or results of operations to the extent that their uses of
one or more of these parcels of land or the related facilities were
successfully challenged. CSAHC has agreed to indemnify the Group
against any loss or damage caused by any challenge or interference
with the Group's use of any of its land and buildings.
(c) The Company is involved in a civil litigation (Hong Kong High Court
Action No. 515 of 2001) ("Litigation") which commenced in 2003.
According to the writ of summons for the Litigation, New Link
Consultants Limited, the plaintiff claimed unspecified damages
against the Group (as one of the defendants to the Litigation) for
breach of the agreement on the basis of certain evidence proving
that United Aero-Supplies System of China, Limited ("UASSC") entered
into an agreement with the defendants for exclusive purchase of
aviation equipment consigned to UASSC for sale and, that as the
defendants failed to perform the agreement, UASSC should have the
right to compensation. Since UASSC is in the course of its winding
up proceedings, all the rights and benefits of UASSC in connection
with the claim have been transferred to the plaintiff. Based on the
opinion given by the Company's legal advisors, the directors of the
Company consider that the Company has a valid defence against the
claim and that a provision for such claim and/or the associated
legal costs is not required.
- 56 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
32 FINANCIAL INSTRUMENTS
Financial assets of the Group include cash and cash equivalents, trade
receivables, other receivables and short-term investments. Financial liabilities
of the Group include bank and other loans, amounts due to related companies,
trade payables, bills payable, other liabilities and taxes payable.
LIQUIDITY RISK
As at 31 December, 2004, the Group's net current liabilities
amounted to RMB18,855 million (2003: RMB10,792 million). For the year
ended 31 December, 2004, the Group recorded a net cash inflow from
operating activities of RMB3,596 million (2003: RMB2,129 million), a net
cash outflow from investing activities and financing activities of
RMB2,593 million (2003: RMB3,819 million) and an increase in cash and cash
equivalents of RMB1,003 million (2003: decrease of RMB1,690 million).
In 2005 and thereafter, the liquidity of the Group is primarily
dependent on its ability to maintain adequate cash inflow from operations
to meet its debt obligations as they fall due, and on its ability to
obtain adequate external finance to meet its committed future capital
expenditures. The Group has obtained firm commitments from its principal
bankers to renew its short-term bank loans outstanding at 31 December,
2004 when they fall due during 2005. In relation to its future capital
commitments and other financing requirements, the Group has already
entered into loan financing agreements with several PRC banks to provide
loan finance up to an approximate amount of RMB24,225 million during 2005
and thereafter. The directors of the Company believe that such financing
will be available to the Group.
The directors of the Company have carried out a detailed review of
the cash flow forecast of the Group for the twelve months ending 31
December, 2005. Based on such forecast, the directors have determined that
adequate liquidity exists to finance the working capital and capital
expenditure requirements of the Group during that period. In preparing the
cash flow forecast, the directors have considered historical cash
requirements of the Group as well as other key factors, including the
availability of the above-mentioned loan finance which may impact the
operations of the Group during the next twelve-month period. The directors
are of the opinion that the assumptions and sensitivities which are
included in the cash flow forecast are reasonable. However, as with all
assumptions in regard to future events, these are subject to inherent
limitations and uncertainties and some or all of these assumptions may not
be realised.
BUSINESS RISK
The Group conducts its principal operations in the PRC and
accordingly is subject to special considerations and significant risks not
typically associated with investments in equity securities of the United
States of America and Western European companies. These include risks
associated with, among others, the political, economic and legal
environment, influence of the CAAC over many aspects of its operations,
and competition, in the passenger, cargo and mail airlines services
industry.
INTEREST RATE RISK
The interest rates and maturity information of the Group's bank and
other loans, and maturity information of the Group's finance lease
obligations are disclosed in Notes 21 and 22 respectively.
FOREIGN CURRENCY RISK
The Group has significant exposure to foreign currency as
substantially all of the Group's lease obligations and bank loans are
denominated in foreign currencies, principally US dollars, and to a lesser
extent, Japanese Yen. Depreciation or appreciation of the Renminbi against
foreign currencies affects the Group's results significantly because the
Group's foreign currency payments generally exceed its foreign currency
receipts. The Group is not able to hedge its foreign currency exposure
effectively other than by retaining its foreign currency denominated
earnings and receipts to the extent permitted by the State Administration
of Foreign Exchange, or subject to certain restrictive conditions,
entering into forward foreign exchange contracts with authorised PRC
banks.
- 57 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CREDIT RISKS
Substantially all of the Group's cash and cash equivalents are
deposited with PRC financial institutions.
A significant portion of the Group's air tickets are sold by agents
participating in the Billing and Settlement Plan ("BSP"), a clearing
scheme between airlines and sales agents organised by International Air
Transportation Association. As of 31 December, 2004, the balance due from
BSP agents amounted to RMB411 million (2003: RMB446 million).
SELF INSURANCE RISK
The Group maintains a limited amount of property insurance in
respect of certain personal and real property.
FAIR VALUE
The carrying amounts and estimated fair values of significant
financial assets and liabilities at 31 December, 2003 and 2004 are set out
below:
2004 2003
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
RMB million RMB million RMB million RMB million
THE GROUP
Cash and cash equivalents 3,083 3,083 2,080 2,080
Trade receivables 1,203 1,203 834 834
Other receivables 616 616 296 296
Short-term investments 683 683 - -
Bank and other loans 23,453 23,665 11,619 11,907
Amounts due to related companies 2,330 2,330 929 929
Trade payables 1,554 1,554 928 928
Bills payable 136 136 438 438
Other liabilities 2,974 2,974 1,020 1,020
Taxes payable 39 39 90 90
=========== =========== =========== ===========
2004 2003
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
RMB million RMB million RMB million RMB million
THE COMPANY
Cash and cash equivalents 2,302 2,302 1,405 1,405
Trade receivables 1,035 1,035 683 683
Other receivables 391 391 222 222
Short-term investments 502 502 - -
Bank and other loans 20,701 20,862 9,629 9,837
Amounts due to related companies 2,278 2,278 871 871
Trade payables 1,320 1,320 746 746
Bills payable 136 136 438 438
Other liabilities 2,467 2,467 854 854
Taxes payable - - 48 48
=========== =========== =========== ===========
- 58 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The following methods and assumptions were used to estimate the fair
value for each class of financial instrument:
(i) Cash and cash equivalents, trade receivables, other
receivables, short-term investments, amounts due to related
companies, trade payables, bills payable, other liabilities
and taxes payable
The carrying values approximate fair value because of the
short maturities of these instruments.
(ii) Bank and other loans
The fair value has been estimated by applying a discounted
cash flow approach using interest rates available to the Group for
similar indebtedness.
The economic characteristics of the Group's leases vary from
lease to lease. It is impractical to compare such leases with those
prevailing in the market within the constraints of timeliness and
cost for the purpose of estimating the fair value of such leases.
Other investments represent unquoted available-for-sale equity
securities of companies established in the PRC. There is no quoted
market price for such equity securities and accordingly a reasonable
estimate of the fair value could not be made without incurring
excessive costs.
Fair value estimates are made at a specific point in time and
are based on relevant market information about the financial
instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
- 59 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
33 SEGMENTAL INFORMATION
The Group operates principally as a single business segment for the
provision of air transportation services. The analysis of turnover and operating
profit by geographical segment is based on the following criteria:
(i) Traffic revenue from domestic services within the PRC (excluding
Hong Kong) is attributed to the domestic operation. Traffic revenue
from inbound/outbound services between the PRC and Hong Kong, and
the PRC and overseas destinations is attributed to the Hong Kong
regional operation and international operation respectively.
(ii) Other revenue from ticket selling, general aviation and ground
services, air catering and other miscellaneous services is
attributed on the basis of where the services are performed.
Geographic information about the Group's turnover and operating
profit/(loss) is as follows:
HONG KONG
DOMESTIC REGIONAL *INTERNATIONAL TOTAL
RMB million RMB million RMB million RMB million
2004
Traffic revenue 17,742 1,180 4,422 23,344
Other operating revenue 630 - - 630
----------- ----------- -------------- -----------
Turnover 18,372 1,180 4,422 23,974
=========== =========== ============== ===========
Operating profit 650 67 192 909
=========== =========== ============== ===========
2003
Traffic revenue 13,087 808 3,070 16,965
Other operating revenue 436 - 69 505
----------- ----------- -------------- -----------
Turnover 13,523 808 3,139 17,470
=========== =========== ============== ===========
Operating profit/(loss) 440 (29) 45 456
=========== =========== ============== ===========
* Mainly routes between the PRC and Asian countries, the United States of
America, the Netherlands, Belgium, Australia and France.
The major revenue-earning assets of the Group are its aircraft fleet, most
of which are registered in the PRC. Since the Group's aircraft fleet is employed
flexibly across its route network, there is no suitable basis of allocating such
assets to geographic segments. Substantially all of the Group's non-aircraft
identifiable assets are located in the PRC.
- 60 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
34 RECONCILIATION AND SUPPLEMENTARY STATEMENT OF CASH FLOW INFORMATION
(a) THE RECONCILIATION OF PROFIT/(LOSS) BEFORE TAXATION AND MINORITY
INTERESTS TO CASH INFLOWS FROM OPERATIONS IS AS FOLLOWS:
2004 2003
RMB million RMB million
Profit/(loss) before taxation and minority interests 233 (511)
Depreciation and amortisation of property,
plant and equipment 2,363 1,998
Other amortisation 50 40
Amortisation of deferred credits (4) (2)
Share of associates' results (12) (48)
Share of jointly controlled entities' results 5 39
Loss on disposal of property, plant and equipment 1 22
Interest income (22) (13)
Interest expense 725 824
Net realised and unrealised gain on equity securities held for
trading (15) -
Unrealised exchange loss, net 42 177
(Increase)/decrease in inventories (29) 2
Increase in trade receivables (218) (162)
(Increase)/decrease in other receivables (166) 77
Increase in prepaid expenses and other assets (31) (6)
Increase in deferred expenditure (2) -
(Decrease)/increase in amounts due to
related companies (586) 404
Increase in trade payables 344 396
Decrease in bills payable (374) (862)
Increase in sales in advance of carriage 408 76
Increase in accrued expenses 507 203
Increase in other liabilities 1,223 373
Increase in provision for major overhauls 113 48
----- -----
Cash inflows from operations 4,555 3,075
===== =====
- 61 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(b) EFFECT OF THE CNA/XJA ACQUISITIONS
2004
RMB million
Assets acquired:
Property, plant and equipment 12,980
Cash and cash equivalents 398
Trade receivables 314
Inventories 729
Other 1,101
------
15,522
======
Liabilities assumed:
Bank and other loans 4,587
Obligations under finance leases 6,125
Trade payables 343
Accrued expenses 1,475
Other 1,033
------
13,563
------
Net identifiable assets and liabilities 1,959
======
Cash consideration payable and not yet settled 1,959
======
Net cash inflow from acquisitions - cash and cash equivalents acquired 398
======
35 ULTIMATE HOLDING COMPANY
The directors of the Company consider the ultimate holding company to be
CSAHC, a state-owned enterprise established in the PRC.
36 SUBSEQUENT EVENTS
In January 2005, the Company, as a lessee, entered into an agreement with
an independent lessor for operating leases of nine Boeing 737-800 aircraft for a
term of seven years with total future lease payments totalling approximately
RMB1,721 million, scheduled for deliveries in 2005 and 2006.
In January 2005, China Aviation Supplies Import and Export Corporation, as
a sole importing agent, entered into, on behalf of several PRC airlines
including the Group, a general purchase agreement with the Boeing Company for
the import of Boeing B7E7 aircraft. The Company, being one of the ultimate users
for thirteen of the Boeing B7E7 aircraft, endorsed the general purchase
agreement. The Company is currently in negotiation with the Boeing Company
regarding the purchase agreements on such aircraft.
In March 2005, the Company, as a lessee, entered into another agreement
with an independent lessor for operating leases of a total of twenty-five
aircraft comprising five Boeing 737-700 aircraft, five Boeing 737-800 aircraft,
five Airbus 320-200 aircraft and ten Airbus 321-200 aircraft with scheduled
deliveries in 2006 and 2007. The term of the lease ranges from ten to twelve
years with total future lease payments totalling approximately RMB8,243 million.
In April 2005, the Company entered into a purchase agreement with Airbus
SNC for the purchase of five Airbus A380 aircraft, scheduled for deliveries in
2007 to 2010.
- 62 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
37 SUBSIDIARIES
The particulars of the Company's principal subsidiaries at 31 December,
2004 are as follows:
ATTRIBUTABLE
EQUITY INTEREST
PLACE AND DATE OF ----------------- ISSUED/
ESTABLISHMENT/ DIRECT INDIRECT REGISTERED
NAME OF COMPANY OPERATION % % CAPITAL # PRINCIPAL ACTIVITIES
Guangxi Airlines Company Limited (a) PRC 60 - 170,900,000 Airline
28 April, 1994
Southern Airlines (Group) Shantou PRC 60 - 280,000,000 Airline
Airlines Company Limited (a) 20 July, 1993
Zhuhai Airlines Company Limited (a) PRC 60 - 250,000,000 Airline
8 May, 1995
Xiamen Airlines Company Limited (a) PRC 60 - 700,000,000 Airline
11 August, 1984
Guizhou Airlines Company Limited (a) PRC 60 - 80,000,000 Airline
12 November, 1991
Guangzhou Air Cargo Company Limited (a) PRC 70 - 238,000,000 Cargo services
31 March, 2004
Guangzhou Baiyun International PRC 61 - 20,000,000 Logistics operations
Logistic Company Ltd (a) 23 July, 2002
Guangzhou Nanland Air Catering PRC 51 - 55,980,000 Air catering
Company Limited (b) 21 November, 1989
China Northern Airlines Aircraft PRC 75 - US$ 3,800,000 Aircraft repair and
Maintenance Co., Ltd (a) 8 November, 1997 maintenance services
Xinjiang Aviation Ground Service PRC 60 - 15,000,000 Airport ground services
Company Ltd (a) 27 May, 2002
China Southern West Australian Flying Australia 65 - A $ 100,000 Pilot training services
College Pty Limited 26 January, 1971
Xinjiang Civil Aviation Property PRC 51.8 - 251,332,832 Utility service
Management Limited (a) 12 December, 2002
Guangzhou Aviation Hotel (a) PRC 90 - 63,290,000 Hotel operation
8 January, 1997
South China International Aviation & PRC 90 - 2,100,000 Travel services
Travel Services Company (a) 11 May, 1992
CZ Flamingo Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
8 December, 1993
CZ Skylark Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
17 November, 1993
CZ Kapok Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
26 October, 1993
- 63 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
ATTRIBUTABLE
EQUITY INTEREST
PLACE AND DATE OF ----------------- ISSUED/
ESTABLISHMENT/ DIRECT INDIRECT REGISTERED
NAME OF COMPANY OPERATION % % CAPITAL # PRINCIPAL ACTIVITIES
CSA-I Limited Cayman Islands 100 - US $ 1,000 Aircraft leasing
1 September, 1993
CZ93B Limited Cayman Islands 100 - US $ 1,000 Aircraft leasing
11 May, 1993
CZ97A Limited Cayman Islands 100 - US $ 1,000 Aircraft leasing
2 January, 1997
Zhong Yuan 99A Limited Cayman Islands 100 - US $ 1,000 Aircraft leasing
15 February, 1999
CXA92A Limited Cayman Islands - 60 US $ 1,000 Aircraft leasing
3 August, 1992
CXA93A Limited Cayman Islands - 60 US $ 1,000 Aircraft leasing
1 July, 1993
CXA95B Limited Cayman Islands - 60 US $ 1,000 Aircraft leasing
7 July, 1995
CXA95C Limited Cayman Islands - 60 US $ 1,000 Aircraft leasing
16 October, 1995
CXA98A Limited Cayman Islands - 60 US $ 1,000 Aircraft leasing
20 March, 1998
Xiamen Aviation Property PRC - 60 5,000,000 Property development
Development Company (a) 22 June, 1993
Xiamen Aviation Supplies Limited (a) PRC - 60 8,560,000 Aviation supplies
30 July, 1997
Xiamen Aviation Development PRC - 54 5,000,000 Hotel management
Company Limited (a) 18 February, 1998
Xiamen Air Holidays Limited Hong Kong - 54 HK $ 3,000,000 Travel servicing
28 April, 1994
Xiamen Macau Holidays Limited Macau - 27.5 MOP 1,000,000 Travel servicing
11 May, 1995
Shantou Hua Kang Air Catering PRC - 42 10,000,000 Air catering
Company Ltd (a) 22 June, 1994
# Expressed in RMB, unless otherwise stated
(a) These subsidiaries are PRC limited companies.
(b) These subsidiaries are Sino-foreign equity joint venture companies.
- 64 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
38 ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
The particulars of the Group's principal associates and jointly controlled
entities as at 31 December, 2004 are as follows:
ATTRIBUTABLE
EQUITY INTEREST
PLACE AND DATE OF ----------------- ISSUED/
ESTABLISHMENT/ DIRECT INDIRECT REGISTERED
NAME OF COMPANY OPERATION % % CAPITAL # PRINCIPAL ACTIVITIES
Guangzhou Aircraft Maintenance PRC 50 - US$ 27,500,000 Provision of aircraft
Engineering Company Limited* 28 October, 1989 repair and
maintenance services
Southern Airlines Group Finance PRC 32 15.42 424,330,000 Provision of financial
Company Limited 28 June, 1995 services
Hainan Phoenix Information PRC 45 - US$ 16,360,000 Provision of ticket
System Limited 12 March, 1994 reservation system
services
Hong Kong Business Aviation Centre Hong Kong 20 - HK$ 1,000,000 Provision of private
Company Limited 7 January, 1998 flight logistic services
Sichuan Airlines Corporation Limited PRC 39 - 350,000,000 Airline
28 August, 2002
MTU Maintenance Zhuhai Co. Ltd.* PRC 50 - US$ 63,100,000 Provision of engine
6 April, 2001 repair and
maintenance services
China Postal Airlines Limited* PRC 49 - 306,000,000 Airline
25 November, 1996
Zhuhai Xiang Yi Aviation Technology PRC 51 - US$ 29,800,000 Provision of flight
Company Limited* 10 July, 2002 simulation training
services
CSN-ETC e-commerce Limited* PRC 51 - 5,880,000 Provision of internet
7 October, 2002 services
Beijing Ground Service Company Limited* PRC 50 - 18,000,000 Airport ground service
1 April, 2004 support
Southern Airlines Advertising PRC 45 - 5,000,000 Aviation advertising
Company Limited 3 March, 1994
# Expressed in RMB, unless otherwise stated
* These are jointly controlled entities
- 65 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
III UNAUDITED INTERIM FINANCIAL REPORT OF THE COMPANY FOR THE SIX-MONTH PERIOD
ENDED 30 JUNE, 2005
CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2005 - unaudited
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
FOR THE SIX MONTHS
ENDED 30 JUNE
2005 2004
Note RMB million RMB million
(Note 2)
Operating revenue
Traffic revenue 17,443 10,834
Other operating revenue 401 260
----------- ----------
Total operating revenue 3 17,844 11,094
----------- ----------
Operating expenses
Flight operations 9,084 4,722
Maintenance 2,320 1,410
Aircraft and traffic servicing 2,560 1,689
Promotion and sales 1,220 874
General and administrative 912 552
Depreciation and amortisation 2,094 1,083
Other 70 8
----------- ----------
Total operating expenses 18,260 10,338
----------- ----------
Operating (loss)/profit (416) 756
----------- ----------
Non-operating income/(expenses)
Interest income 17 9
Interest expense 4 (750) (344)
Share of associates' results (28) 21
Share of jointly controlled entities' results 24 4
(Loss)/profit on sale of property, plant and
equipment (35) 3
Exchange gain, net 197 15
Other, net (34) 5
----------- ----------
Total net non-operating expenses (609) (287)
----------- ----------
(Loss)/profit before taxation 4 (1,025) 469
Taxation credit/(expense) 5 61 (95)
----------- ----------
(Loss)/profit for the period (964) 374
=========== ==========
Attributable to
Equity holders of the parent (907) 266
Minority interests 2 (57) 108
----------- ----------
(Loss)/profit for the period (964) 374
=========== ==========
Basic (loss)/earnings per share 7 (RMB 0.21) RMB 0.06
=========== ==========
The notes on pages 71 to 78 form part of this interim financial report.
- 66 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED BALANCE SHEET
As at 30 June 2005 - unaudited
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
AS AT AS AT
30 JUNE 31 DECEMBER
2005 2004
Note RMB million RMB million
(Note 2)
NON-CURRENT ASSETS
Property, plant and equipment, net 8 50,478 46,841
Construction in progress 773 565
Lease prepayments 371 346
Interest in associates 402 429
Interest in jointly controlled entities 809 782
Other investments 290 272
Lease and equipment deposits 4,699 5,397
Deferred tax assets 68 -
Other assets 299 331
------- -------
58,189 54,963
------- -------
CURRENT ASSETS
Short term investments - 683
Inventories 1,505 1,302
Taxes recoverable 40 -
Trade receivables 9 1,271 1,203
Other receivables 976 616
Prepaid expenses and other current assets 418 378
Cash and cash equivalents 5,632 3,083
------- -------
9,842 7,265
------- -------
CURRENT LIABILITIES
Bank and other loans 13,282 11,518
Obligations under finance leases 2,397 2,144
Trade payables 10 2,334 1,554
Bills payable 2,760 136
Sales in advance of carriage 899 874
Taxes payable - 39
Amounts due to related companies 106 2,330
Accrued expenses 4,590 4,551
Other liabilities 3,246 2,974
------- -------
29,614 26,120
------- -------
NET CURRENT LIABILITIES (19,772) (18,855)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 38,417 36,108
------- -------
The notes on pages 71 to 78 form part of this interim financial report.
- 67 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
AS AT AS AT
30 JUNE 31 DECEMBER
2005 2004
Note RMB million RMB million
(Note 2)
NON-CURRENT LIABILITIES AND DEFERRED ITEMS
Bank and other loans 12,782 11,935
Obligations under finance leases 11,712 9,599
Provision for major overhauls 275 284
Deferred credits 370 100
Deferred tax liabilities 336 287
------ ------
25,475 22,205
====== ======
Net assets 12,942 13,903
====== ======
CAPITAL AND RESERVES
Share capital 4,374 4,374
Reserves 11 6,567 7,474
------ ------
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT 10,941 11,848
MINORITY INTERESTS 2 2,001 2,055
------ ------
TOTAL EQUITY 12,942 13,903
====== ======
Approved and authorised for issue by the Board of Directors on 26 August 2005.
LIU SHAO YONG SI XIAN MIN XU JIE BO
Director Director Director
The notes on pages 71 to 78 form part of this interim financial report.
- 68 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2005 - unaudited
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
SHARE SHARE OTHER RETAINED MINORITY TOTAL
CAPITAL PREMIUM RESERVES EARNINGS TOTAL INTERESTS EQUITY
RMB RMB RMB RMB RMB RMB RMB
Note million million million million million million million
At 1 January 2004 2 4,374 5,325 611 1,586 11,896 1,673 13,569
Profit for the period - - - 266 266 108 374
Dividends - - - - - (60) (60)
Issue of share capital - - - - - 45 45
----- ----- --- ----- ------ ----- ------
At 30 June 2004 2 4,374 5,325 611 1,852 12,162 1,766 13,928
===== ===== === ===== ====== ===== ======
At 1 January 2005 2 4,374 5,325 672 1,477 11,848 2,055 13,903
Loss for the period - - - (907) (907) (57) (964)
Dividends - - - - - (9) (9)
Issue of share capital - - - - - 12 12
----- ----- --- ----- ------ ----- ------
At 30 June 2005 4,374 5,325 672 570 10,941 2,001 12,942
===== ===== === === ====== ===== ======
The notes on pages 71 to 78 form part of this interim financial report.
- 69 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2005 - unaudited
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
FOR THE SIX MONTHS
ENDED 30 JUNE
2005 2004
RMB RMB
million million
Net cash inflows from operating activities 1,662 1,218
Net cash used in investing activities (692) (4,050)
----- -----
Net cash inflow/(outflow) before financing activities 970 (2,832)
Net cash inflows from financing activities 1,579 3,684
----- -----
Increase in cash and cash equivalents 2,549 852
Cash and cash equivalents as at 1 January 3,083 2,080
----- -----
Cash and cash equivalents as at 30 June 5,632 2,932
===== =====
The notes on pages 71 to 78 form part of this interim financial report.
- 70 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Notes:
1 BASIS OF PREPARATION
This interim financial report of China Southern Airlines Company Limited
(the "Company") and its subsidiaries (the "Group") has been prepared in
accordance with the applicable disclosure provisions of the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited, including
compliance with International Accounting Standard 34 "Interim Financial
Reporting" ("IAS 34") adopted by the International Accounting Standards Board
("IASB"). It was authorised for issuance on 26 August 2005.
The interim financial report has been prepared in accordance with the same
accounting policies adopted in the 2004 annual financial statements, except for
the change in presentation of financial statements arising from the changes of
International Financial Reporting Standards ("IFRS") that is expected to be
reflected in the 2005 annual financial statements. Details of the changes are
set out in note 2.
The preparation of an interim financial report in conformity with IAS 34
requires management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities,
income and expenses on a year to date basis. Actual results may differ from
these estimates.
The interim financial report contains condensed consolidated financial
statements and selected explanatory notes. The notes include an explanation of
events and transactions that are significant to an understanding of the changes
in financial position and performance of the Group since the 2004 annual
financial statements. The condensed consolidated interim financial statements
and notes thereon do not include all of the information required for full set of
financial statements prepared in accordance with IFRS. IFRS includes IAS and
interpretations.
The interim financial report is unaudited, but has been reviewed by KPMG
in accordance with Statement of Auditing Standards 700, Engagements to review
interim financial reports, issued by the Hong Kong Institute of Certified Public
Accountants. KPMG's independent review report to the Board of Directors is
included on page 28.
The financial information relating to the financial year ended 31 December
2004 that is included in the interim financial report as being previously
reported information does not constitute the Group's annual financial statements
prepared under IFRS for that financial year but is derived from those financial
statements. The Group's annual financial statements for the year ended 31
December 2004 are available at the Company's registered office. The auditors
have expressed an unqualified opinion on those financial statements in their
report dated 25 April 2005.
2 NEW AND REVISED IFRS
The IASB has issued a number of new and revised IFRS that are effective or
available for early adoption for accounting periods beginning on or after 1
January 2005. The Board of Directors has determined the accounting policies to
be adopted in the preparation of the Group's annual financial statements
prepared under IFRS for the year ending 31 December 2005, on the basis of IFRS
currently in issue.
The IFRS that will be effective or are available for voluntary early
adoption in the annual financial statements prepared under IFRS for the year
ending 31 December 2005 may be affected by the issue of additional
interpretation(s) or other changes announced by the IASB subsequent to the date
of issuance of this interim report. Therefore the policies that will be applied
in the Group's financial statements for that period cannot be determined with
certainty at the date of issuance of this interim financial report.
The adoption of revised IAS 1, Presentation of financial statements and
IAS 27, Consolidated and separate financial statements, has resulted in a change
in presentation of minority interests in the financial statements:
In prior years, minority interests at the balance sheet date were
presented in the consolidated balance sheet separately from liabilities and as
deduction from net assets. Minority interests in the results of the Group for
the year were also separately presented in the consolidated income statement as
a deduction before arriving at the profit attributable to shareholders.
With effect from 1 January 2005, in order to comply with IAS 1 and IAS 27,
minority interests at the balance sheet date are presented in the consolidated
balance sheet within equity, separately from the equity attributable to the
equity holders of the parent, and minority interests in the results of the Group
for the period are presented on the face of the consolidated income statement as
an allocation of the total profit or loss for the period between the minority
interests and the equity holders of the parent.
- 71 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The presentation of minority interests in the consolidated balance sheet,
income statement and statement of changes in equity for the comparative period
has been restated accordingly.
3 TURNOVER
The Group is principally engaged in the provision of domestic, Hong Kong
regional and international passenger, cargo and mail airline services, with
flights operating primarily from the Guangzhou Baiyun International Airport in
the People's Republic of China ("PRC"), which is both the main hub of the
Group's route network and the location of its corporate headquarters.
Turnover comprises revenues from airline and airline-related businesses
and is stated net of sales tax.
Geographic information about the Group's turnover and operating
(loss)/profit are analysed as follows:
FOR THE SIX MONTHS ENDED 30 JUNE
HONG KONG
DOMESTIC REGIONAL INTERNATIONAL TOTAL
RMB million RMB million RMB million RMB million
2005
Traffic revenue 13,592 641 3,210 17,443
Other operating revenue 401 - - 401
------ --- ----- ------
Turnover 13,993 641 3,210 17,844
====== === ===== ======
Operating (loss)/profit (228) 28 (216) (416)
====== === ===== ======
2004
Traffic revenue 8,341 569 1,924 10,834
Other operating revenue 260 - - 260
------ --- ----- ------
Turnover 8,601 569 1,924 11,094
====== === ===== ======
Operating profit 605 39 112 756
====== === ===== ======
- 72 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
4 (LOSS)/PROFIT BEFORE TAXATION
FOR THE SIX MONTHS
ENDED 30 JUNE
2005 2004
RMB million RMB million
(Loss)/profit before taxation is arrived at after charging:
Depreciation
- owned assets 1,603 815
- assets acquired under finance leases 491 255
Amortisation of deferred expenditure 30 13
Operating lease charges
- aircraft and flight equipment 1,184 828
Staff costs 1,776 1,061
Interest expense
Interest on bank and other loans 493 175
Finance charges on obligations under finance leases 302 186
Less: borrowing costs capitalised (45) (17)
----- -----
Net interest expense 750 344
===== =====
and after crediting:
Net realised and unrealised gain on equity securities
held for trading 1 -
===== =====
5 TAXATION (CREDIT)/EXPENSE
FOR THE SIX MONTHS
ENDED 30 JUNE
2005 2004
RMB million RMB million
PRC income tax 5 28
Share of taxation of associates (1) 4
Share of taxation of jointly controlled entities (3) 5
--- --
1 37
Deferred taxation (62) 58
--- --
(61) 95
=== ==
The statutory income tax rate in the PRC is 33%. Pursuant to approval
documents issued by the relevant tax authorities, the Company and certain
airline subsidiaries of the Company are entitled to enjoy a preferential tax
rate of 15%.
In respect of the Group's overseas airline activities, the Group has
either obtained exemptions from overseas taxation pursuant to the bilateral
aviation agreements between the overseas governments and the PRC government, or
has sustained tax losses in these overseas jurisdictions. Accordingly, no
provision for overseas tax has been made for the periods presented.
6 DIVIDENDS
The Board of Directors of the Company does not recommend the payment of an
interim dividend for the six months ended 30 June 2005 (six months ended 30 June
2004: Nil).
- 73 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
7 BASIC (LOSS)/EARNINGS PER SHARE
The calculation of basic (loss)/earnings per share is based on the
consolidated loss attributable to equity holders of the parent of RMB907 million
(six months ended 30 June 2004: profit of RMB266 million) and the weighted
average number of shares in issue during the period of 4,374 million (six months
ended 30 June 2004: 4,374 million).
The amount of diluted (loss)/earnings per share is not presented as there
were no dilutive potential ordinary shares in existence during the six months
ended 30 June 2004 and 2005.
8 PROPERTY, PLANT AND EQUIPMENT, NET
During the six months ended 30 June 2005, the Group acquired aircraft with
an aggregate cost of RMB5,168 million (six months ended 30 June 2004: RMB1,382
million).
9 TRADE RECEIVABLES
Credit terms granted by the Group to sales agents and other customers
generally range from one to three months. An ageing analysis of trade
receivables, net of provision for doubtful accounts, is set out below:
AS AT AS AT
30 JUNE 31 DECEMBER
2005 2004
RMB million RMB million
Within 1 month 1,113 998
More than 1 month but less than 3 months 123 163
More than 3 months but less than 12 months 35 42
----- -----
1,271 1,203
===== =====
10 TRADE PAYABLES
An ageing analysis of trade payables is as follows:
AS AT AS AT
30 JUNE 31 DECEMBER
2005 2004
RMB million RMB million
Due within 1 month or on demand 917 599
Due after 1 month but within 3 months 582 430
Due after 3 months but within 6 months 835 525
----- -----
2,334 1,554
===== =====
11 RESERVES
No transfer to statutory surplus reserve, statutory public welfare fund
and discretionary surplus reserve has been made during the six months ended 30
June 2005 (six months ended 30 June 2004: Nil).
- 74 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
12 COMMITMENTS
(a) Capital commitments
As at 30 June 2005, the Group had capital commitments as follows:
AS AT AS AT
30 JUNE 31 DECEMBER
2005 2004
RMB million RMB million
Commitments in respect of aircraft and related equipment
- authorised and contracted for 37,429 11,776
- authorised but not contracted for - 13,571
------ ------
37,429 25,347
------ ------
Commitments in respect of investments in the Guangzhou
new airport
- authorised and contracted for 79 110
- authorised but not contracted for 741 714
------ ------
820 824
------ ------
Other commitments
- authorised and contracted for 57 132
- authorised but not contracted for 2,299 568
------ ------
2,356 700
------ ------
40,605 26,871
====== ======
(b) Investing commitments
As at 30 June 2005, the Group committed to make capital
contributions in respect of:
AS AT AS AT
30 JUNE 31 DECEMBER
2005 2004
RMB million RMB million
Subsidiaries 61 181
Jointly controlled entities 83 83
--- ---
144 264
=== ===
- 75 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
13 RELATED PARTY TRANSACTIONS
The Group obtained various operational and financial services provided by
China Southern Air Holding Company ("CSAHC"), the ultimate holding company, and
its subsidiaries, and the Group's associates and jointly controlled entities
during the normal course of its business.
(a) Significant transactions with related companies
The following is a summary of significant transactions carried out
in the normal course of business between the Group, CSAHC and its
subsidiaries, and the Group's associates and jointly controlled entities:
FOR THE SIX MONTHS
ENDED 30 JUNE
2005 2004
RMB million RMB million
EXPENSES
Paid to CSAHC and its subsidiaries
Handling charges 23 19
Sundry aviation supplies 35 26
Commission expenses 18 -
Housing benefits - 43
Lease charges for land and buildings 28 8
Lease charges for aircraft 5 -
Paid to associates and jointly controlled entities
Repairing charges 506 431
Flight simulation service charges 59 46
Interest expense 29 4
INCOME
Received from associates and jointly controlled entities
Interest income 3 1
Rental income 15 15
=== ===
In addition to the above, certain subsidiaries of CSAHC also
provided hotel and other services to the Group during the periods
presented. The total amounts involved are not material to the results of
the Group for the periods.
(b) Amounts due to related companies
AS AT AS AT
30 JUNE 31 DECEMBER
2005 2004
RMB million RMB million
Jointly controlled entities (i) 13 340
CSAHC (ii) 93 1,990
== =====
(i) Amounts due to jointly controlled entities
Amounts due to jointly controlled entities mainly represent
amounts payable for repairing charges and other services. The
payable balances are unsecured, interest free and have no fixed
terms of repayment.
- 76 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(ii) Amount due to CSAHC
The balance mainly represents remaining consideration payable
to CSAHC in respect of the Group's acquisition of the airline
operations and certain related assets of China Northern Airlines
Company and Xinjiang Airlines Company.
Amount due to CSAHC is unsecured, interest free and is
repayable within 6 months.
(c) Loans from Southern Airlines Group Finance Company Limited
Loans to the Group from Southern Airlines Group Finance Company
Limited, a PRC authorised financial institution controlled by CSAHC and an
associate of the Group, are unsecured and have the following terms:
AS AT AS AT
30 JUNE 31 DECEMBER
INTEREST RATE 2005 2004 GUARANTEE
RMB million RMB million
Floating interest rates at 90% of interest - 76 No guarantee
rates as published by the People's Bank
of China ("PBOC"), repayable within
1 year
Floating interest rates at 90% of interest 300 180 Guaranteed by
rates as published by the PBOC, CSAHC
repayable within 1 year
--- ---
300 256
=== ===
(d) Credit facilities provided by Southern Airlines Group Finance
Company Limited
As at 30 June 2005, bills payable arranged by Southern Airlines
Group Finance Company Limited amounted to RMB854 million (as at 31
December 2004: Nil).
(e) Bank balances and deposits placed with Southern Airlines Group
Finance Company Limited
As at 30 June 2005, the Group had bank balances and deposits placed
with Southern Airlines Group Finance Company Limited amounted to RMB591
million (as at 31 December 2004: RMB406 million). The applicable interest
rates were determined in accordance with the rates published by the PBOC.
(f) Key management personnel compensations
The key management personnel compensations are as follows:
FOR THE SIX MONTHS
ENDED 30 JUNE
2005 2004
RMB million RMB million
Short-term employee benefits 2.3 1.8
Post-employment benefits 0.5 0.4
--- ---
2.8 2.2
=== ===
Directors and supervisors 1.6 1.6
Senior management 1.2 0.6
--- ---
2.8 2.2
=== ===
- 77 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(g) Transactions with other state-owned enterprises
The Company is part of a larger group of companies under CSAHC,
which itself is owned by the PRC government. Other than the transactions
with CSAHC and its subsidiaries, the Group also conducts business with
other enterprises directly or indirectly owned or controlled by the PRC
government ("State-owned enterprises"). The Group considers that the
transactions with these State-owned enterprises are conducted in the
ordinary course of business and under normal commercial terms and as such
the Group has not disclosed such activities as related party transactions.
14 CONTINGENT LIABILITIES
There have been no material adverse changes in contingent liabilities of
the Group subsequent to 31 December 2004, details of which are disclosed in its
2004 annual financial statements.
15 POST BALANCE SHEET EVENTS
(a) Aircraft transactions
On 8 August 2005, the Group's subsidiary, Xiamen Airlines Company
Limited, entered into a purchase agreement with Boeing Company for the
purchase of 3 Boeing 787 aircraft, scheduled for deliveries in 2008 to
2010.
(b) Appreciation of Renminbi
On 21 July 2005, the PBOC announced that the PRC government reformed
the exchange rate regime by moving into a managed floating exchange rate
regime based on market supply and demand with reference to a basket of
foreign currencies. In particular, the exchange rate of US dollar against
Renminbi was adjusted upward to RMB8.11 per US dollar with effect from the
close of business on 21 July 2005. The directors are of the opinion that
the above appreciation of Renminbi would not have adverse financial
impacts to the Group for the year ending 31 December 2005.
- 78 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
IV INDEBTEDNESS
As at the close of business on 31 July, 2005 for the purpose of this
indebtedness statement prior to the printing of this circular, the Group had
bank and other loans of approximately RMB27,425,089,000 and finance lease
obligations of approximately RMB13,443,469,000. As on 31 July, 2005, certain
bank loans of the Group were secured by certain aircraft with an aggregate
carrying value amount of RMB13,377,439,000. Finance lease obligations were
secured by the related leased aircraft with an aggregate carrying amount of
RMB14,968,217,000. In addition, bank loans of RMB1,732,479,000 were also
guaranteed by certain banks.
V STATEMENT ON FINANCIAL LIABILITIES
Save as aforesaid or otherwise disclosed in Note 31 to the Financial
Statements of the Company as set out in paragraph (I) of this Appendix I and
apart from intra-group liabilities, neither the Company nor any of its
subsidiaries had outstanding, as at the close of business on 31 July, 2005,
mortgages, charges, liabilities or any term loans or other borrowings or
indebtedness in the nature of borrowings, including bank overdrafts and loans,
debt securities or similar indebtedness, or any hire-purchase or finance lease
commitments, or any guarantees or other material contingent liabilities.
The Directors have confirmed that there has been no material change in the
indebtedness and contingent liabilities of the Group since 31 December, 2004 and
up to 31 July, 2005.
VI EFFECT
The Group's principal business is that of civil aviation. Following the
Transactions, the Group's passenger volume and operating cost per available seat
kilometres are expected to improve. As a result, the Group's earnings are
expected to be better off. The Group therefore considered that the Transaction
is in the best interest of the Group. In addition, there will be no material
change to the Group's net assets as the Transaction will be wholly financed
through commercial loans by commercial banks.
VII MATERIAL CHANGES
Since 31 December, 2004 (being the date to which the latest published
audited financial statements of the Company were made up), the Company made an
announcement dated 13 July, 2005 in compliance solely with the requirements of
Shanghai Stock Exchange to announce that, based on the preliminary calculations
prepared in accordance with the PRC Accounting Standards, the Group was expected
to record a loss for the six months ended 30 June, 2005 as compared with the net
profit of the Group prepared under the PRC Accounting Standards for the same
period of year 2004. Based on the unaudited consolidated interim results of the
Group for the six months ended 30 June, 2005, announced by the Company on 26
August, 2005, the Group recorded a loss for the six months ended 30 June, 2005
as compared with a profit for the six months ended 30 June, 2004. Please refer
to the section IX of this Appendix I headed
- 79 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
"Management discussion and analysis - interim period for the six-month period
ended 30 June, 2005 compared to interim period for the six-month period ended 30
June, 2004" for a discussion of the performance and results of the Group for the
six months ended 30 June, 2005.
VIII WORKING CAPITAL
Taking into account the present internal resources and the available
banking facilities of the Group, the Directors are of the opinion that the Group
has adequate working capital for its present requirements.
IX MANAGEMENT DISCUSSION AND ANALYSIS
INTERIM PERIOD FOR THE SIX-MONTH PERIOD ENDED 30 JUNE, 2005 COMPARED TO INTERIM
PERIOD FOR THE SIX-MONTH PERIOD ENDED 30 JUNE, 2004
With the continuous and steady growth of the PRC economy and the nation's
"Go West" and "Revitalising the Old Industrial Bases in the North-eastern
Region" strategies, coupled with the effects of joint restructuring of domestic
airlines, the Company is faced with new challenges under a market environment
which is full of opportunities. On 31 December 2004, the acquisition of the
airline operations and certain related assets of China Northern Airlines Company
("CNA") and Xinjiang Airlines Company ("XJA") ("CNA/XJA Acquisition") was
approved at an extraordinary general meeting of the Company, which completed the
restructuring exercise. The Group has benefited from this acquisition through
increased economies of scale and transportation capacity.
However, escalating oil prices continued to drive up the jet fuel prices,
which directly increased the operating costs of the Company significantly. In
addition, the competition in the domestic civil aviation market was very
intensive, leading to an unstable yield. Furthermore, after the restructuring of
the Group, it would take a period of time for the benefits of business
integration to materialise and for business synergy to take effect. As a result,
the Company recorded a net loss of RMB907 million during the first half of the
year.
During the first half year of 2005, the Group managed to maintain a
consistently high level of flight safety standard to further implement the
integration of management of the Group and to complete a stable transition.
Notwithstanding challenges like the period required for reorganisation of the
management and personnel of the Group after the CNA/XJA Acquisition, the
enlarged scale of management and difficulties associated therewith, and the
increasingly intensive competition in the aviation and air freight market, the
Company has handled these challenges with care and plan, and further implemented
the development strategies of the Company.
With the approval of the Board, the Company and Centergate Securities Co.,
Ltd mutually agreed to the early termination of the assets management agreement.
As of 30 May 2005, the Company recovered the full investment principal sum of
RMB500,000,000 and the investment return of RMB12,904,110.
- 80 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
For the period under review, the Group's total traffic revenue was
RMB17,443 million, an increase of RMB6,609 million or 61.0% from the same period
last year. Meanwhile, the Group's total traffic volume increased by 52.9% to
3,343 million RTKs. The aggregate utilisation rate of the Group's Boeing and
Airbus aircraft was 9.87 hours per day for the period under review, an increase
of 0.47 hours or 5.0% from the same period last year.
Passenger revenue for the period under review was RMB15,967 million, up
63.3% from the same period last year, representing 91.5% of the Group's total
traffic revenue. Passenger traffic volume increased by 65.2% to 28,478 million
RPKs.
Domestic passenger revenue was RMB12,956 million, up 64.4% from the same
period last year. Domestic passenger revenue accounted for 81.1% of overall
passenger revenue. Passenger capacity, in terms of ASKs, increased by 68.0%
while passenger traffic volume, in terms of RPKs, increased by 72.1% from the
same period last year, resulting in an increase in passenger load factor of 1.7
percentage points to 69.4%. The passenger yield per RPK decreased by 5.2% from
RMB0.58 to RMB0.55, resulting from intensive competition in the domestic market.
On Hong Kong regional routes, the Group recorded passenger revenue of
RMB599 million, up 12.0% from the same period last year. Hong Kong regional
passenger revenue accounted for 3.8% of total passenger revenue. Passenger
capacity, in terms of ASKs, increased by 22.9% while passenger traffic volume,
in terms of RPKs increased by 21.3% from the same period last year, resulting in
a decrease in passenger load factor of 0.8 percentage points to 61.1%. The
passenger yield per RPK decreased by 7.5% to RMB0.86 as more chartered flights
were rendered during the period under review.
Passenger revenue for the Group's international routes amounted to
RMB2,412 million, an increase of 77.5% from the same period last year.
International passenger revenue accounted for 15.1% of total passenger revenue.
Passenger capacity, in terms of ASKs, increased by 39.5% while passenger traffic
volume, in terms of RPKs, increased by 42.3% from the same period last year,
resulting in an increase in passenger load factor of 1.3 percentage points to
63.5%. The passenger yield per RPK increased by 24.4% to RMB0.56 mainly due to
upward fare adjustment on certain routes during the period under review.
Cargo and mail revenue was RMB1,476 million, an increase of 39.5% from the
same period last year. Cargo and mail revenue accounted for 8.5% of total
traffic revenue. Cargo and mail volume grew by 24.5% to 804 million RTKs from
the same period last year, mainly due to the increase in traffic volume. The
overall yield per cargo and mail tonne kilometre increased by 12.2% to RMB1.84,
mainly due to an increase in fares during the period under review.
The Group's other revenue amounted to RMB401 million, an increase of 54.2%
from the same period last year, primarily due to increases in ground service
income of RMB72 million, as a result of the increase in traffic volume.
- 81 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Total operating expenses increased by 76.6% to RMB18,260 million from the
same period last year, primarily due to the general increases in fuel cost,
aircraft repairs and maintenance expenses, landing and navigation fees and
commission expenses resulting from the increase in traffic volume during the
period under review.
Flight operations expenses increased by 92.4% to RMB9,084 million from the
same period last year. Of these expenses, fuel cost was RMB5,549 million, up
104.6% from the same period last year, mainly as a result of increases in fuel
consumption and fuel prices. Aircraft insurance costs increased by 48.2% to
RMB126 million, primarily resulted from the fleet expansion subsequent to the
CNA/XJA Acquisition. Operating lease payments increased by 43.0% to RMB1,184
million, mainly attributable to additional rental payments for new aircraft
under operating leases. Air catering expenses increased by 72.4% to RMB538
million, primarily as a result of an increase in number of passengers carried
during the period under review. Labour costs for flight personnel increased by
65.8% to RMB814 million, largely due to an increase in flying hours.
Maintenance expenses increased by 64.5% to RMB2,320 million, due mainly to
increases in aircraft overhaul charges and routine maintenance costs resulting
from the increase in flying hours during the period under review.
Aircraft and traffic servicing expenses increased by 51.6% to RMB2,560
million from the same period last year, reflecting primarily an increase in
number of landing and takeoffs.
Promotion and sales expenses increased by 39.6% to RMB1,220 million from
the same period last year, primarily as a result of an increase in traffic
volume.
General and administrative expenses increased by 65.2% to RMB912 million
from the same period last year, due mainly to an increase in the scale of
operations.
As compared with the same period last year, depreciation and amortisation
expenses increased by 93.4% to RMB2,094 million, reflecting primarily the effect
of the fleet expansion through the CNA/XJA Acquisition and scheduled aircraft
delivered during the second half of 2004 and the period under review.
Interest expense increased by 118.0% to RMB750 million in the period under
review, primarily reflecting an increase in the balance of loan borrowings and
the increase in LIBOR rate, while 46.5% of the Group total borrowings are
subject to LIBOR rate.
The Group recorded a net exchange gain of RMB197 million, predominantly
relating to its Japanese yen denominated borrowings as a result of the
depreciation of Japanese Yen during the period under review. The major part of
such amount represented unrealised translation gain.
As a result of the aforementioned factors, for the six months ended 30
June 2005, the Group recorded a net loss attributable to equity holders of the
parent of RMB907 million, as compared to a net profit attributable to equity
holders of the parent of RMB266 million for the same period last year.
- 82 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
YEAR ENDED 31 DECEMBER, 2004 COMPARED TO YEAR ENDED 31 DECEMBER, 2003
The Group recorded a net loss of RMB48 million for 2004, as compared to a
net loss of RMB358 million for 2003. The Group's operating revenue increased by
RMB6,504 million or 37.2% from RMB17,470 million in 2003 to RMB23,974 million in
2004. Passenger load factor increased by 4.6 percentage point from 64.6% in 2003
to 69.2% in 2004. Passenger yield (in passenger revenue per RPK) remain steady
and at RMB 0.57 in both years. Average yield (in traffic revenue per RTK)
increased by 5.3% from RMB4.76 in 2003 to RMB5.01 in 2004. Operating expenses
increased by RMB6,051 million or 35.6% from RMB17,014 million in 2003 to
RMB23,065 million in 2004. As operating revenue increased more than operating
expenses, operating profit increased by 99.3% from RMB456 million in 2003 to
RMB909 million in 2004. The Group's net non-operating expenses decreased by
30.1%, from RMB967 million in 2003 to RMB676 million in 2004, mainly
attributable to a decrease in unfavourable movement in foreign exchange
differences of RMB105 million and a decrease in interest expense of RMB133
million. Overall, the Group recorded a net loss of RMB48 million in 2004, as
compared to a net loss of RMB358 million in 2003.
Operating revenue
Substantially all of the Group's operating revenue is attributable to
airline and airline related operations. Traffic revenue in 2004 and 2003
accounted for 97.4% and 97.1% respectively of total operating revenue. Passenger
revenue and, cargo and mail revenue accounted for 90.4% and 9.6% respectively of
total traffic revenue in 2004. The balance of the Group's operating revenue is
derived from commission income, income from general aviation operations, fees
charged for ground services rendered to other Chinese airlines and air catering
services.
Operating revenue increased by 37.2% from RMB17,470 million in 2003 to
RMB23,974 million in 2004. This increase was primarily due to a 40.6% rise in
passenger revenue from RMB15,010 million in 2003 to RMB21,100 million in 2004
resulting from increased traffic volume. The total number of passengers carried
increased by 37.8% to 28.2 million passengers in 2004. RPKs increased by 41.0%
from 26,387 million in 2003 to RMB37,196 million in 2004, primarily as a result
of an increase in passengers carried. Passenger yield remained constant at
RMB0.57.
Domestic passenger revenue, which accounted for 79.9% of the total
passenger revenue in 2004, increased by 37.8% from RMB12,242 million in 2003 to
RMB16,869 million in 2004. Domestic passenger traffic in RPKs increased by
36.8%, mainly due to an increase in passengers carried. Passenger yield remained
steady in 2004 and at RMB0.58.
Hong Kong passenger revenue, which accounted for 5.3% of total passenger
revenue, increased by 47.2% from RMB750 million in 2003 to RMB1,104 million in
2004. For Hong Kong regional flights, passenger traffic in RPKs increased by
54.6%, while passenger capacity in ASKs increased by 40.8%, resulting in a 5.6
percentage point increase in passenger load factor from 2003. Passenger yield
decreased from RMB0.96 in 2003 to RMB0.92 in 2004 mainly due to intensified
competition among airlines.
- 83 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
International passenger revenue, which accounted for 14.8% of total
passenger revenue, increased by 55.0% from RMB2,018 million in 2003 to RMB3,127
million in 2004. For international flights, passenger traffic in RPKs increased
by 59.3%, while passenger capacity in ASKs increased by 52.1%, resulting in a
2.9 percentage point rise in passenger load factor from 2003. Passenger yield
decreased by 2.1% from RMB0.47 in 2003 to RMB0.46 in 2004 mainly resulted from
the increases in traffic derived from long haul routes which generally had a
lower yield than short haul routes.
Cargo and mail revenue, which accounted for 9.6% of the Group's total
traffic revenue and 9.4% of total operating revenue, increased by 14.8% from
RMB1,955 million in 2003 to RMB2,244 million in 2004. The increase was
attributable to the increasing traffic demand.
Other operating revenue increased by 24.8% from RMB505 million in 2003 to
RMB630 million in 2004. The increase was primarily due to the general growth in
income from various auxiliary operations.
Operating expenses
Substantially all of the Group's operating expenses result from its
airline operations. The vast majority of such expenses relate directly to flight
operations, aircraft and traffic servicing, aircraft repair and maintenance and
to depreciation and amortisation in respect of aircraft and flight equipment.
Expenses associated directly with the Group's flight operations (collectively,
"flight operations expenses") include fuel costs, operating lease payments,
catering expenses, aircraft insurance, flight personnel payroll and welfare and
training expenses. Expenses associated directly with repairs and maintenance in
respect of the Group's aircraft (collectively, "repairs and maintenance
expenses") include repairs and maintenance and overhaul charges, the costs of
consumables and other maintenance materials and labour costs for maintenance
personnel. Expenses associated directly with the Group's aircraft and traffic
servicing operations (collectively "aircraft and traffic servicing expenses")
include landing and navigation fees, rental payments and charges in respect of
terminal and other ground facilities and labour costs for ground personnel. The
balance of the Group's operating expenses result from promotional and marketing
activities (collectively, "promotional and marketing expenses") such as sales
commissions, fees for use of the CAAC's reservation system, ticket-printing and
sales office expenses, advertising and promotional expenses, and from general
and administrative expenses, such as administrative salaries and welfare and
other personnel benefits and office expenses.
Total operating expenses in 2004 amounted to RMB23,065 million,
representing an increase of 35.6% or RMB6,051 million over 2003, primarily due
to the combined effect of increases in jet fuel costs, maintenance expenses and
aircraft and traffic servicing expenses. Total operating expenses as a
percentage of total operating revenue decreased from 97.4% in 2003 to 96.2% in
2004.
Flight operations expenses, which accounted for 45.2% of total operating
expenses, increased by 47.4% from RMB7,070 million in 2003 to RMB10,418 million
in 2004, primarily as a result of increases in jet fuel costs, operating lease
payments, catering expenses, labour
- 84 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
costs for flight personnel and inclusion of CAAC Infrastructure Development Fund
of RMB466 million in operating expenses which is an usage charge since 2004 but
was a turnover-based levy and deducted against the traffic revenue in 2003. Jet
fuel costs, which accounted for 58.1% of flight operations expenses, increased
by 56.5% from RMB3,867 million in 2003 to RMB6,050 million in 2004 mainly as a
result of increased fuel prices and fuel consumption. Operating lease payments
increased by 8.4% from RMB1,536 million in 2003 to RMB1,665 million in 2004,
primarily due to the additional rental payments for new aircraft under operating
leases. Catering expenses increased by 38.2% from RMB510 million in 2003 to
RMB705 million in 2004, primarily due to increased passenger carried. Aircraft
insurance costs decreased by 5.6% from RMB196 million in 2003 to RMB185 million
in 2004, primarily because of a decrease in insurance premiums prescribed by the
PRC insurance company. Labour costs for flight personnel increased by 40.9% from
RMB728 million in 2003 to RMB1,026 million in 2004, largely due to the increase
in flying hours.
Maintenance expenses which accounted for 15.0% of total operating
expenses, increased by 33.6% from RMB2,589 million in 2003 to RMB3,459 million
in 2004. The increase was primarily attributable to an 32.9% increase in
aircraft overhaul charges from RMB2,377 million in 2003 to RMB3,158 million in
2004, as resulted from fleet expansion in recent years.
Aircraft and traffic servicing expenses, which accounted for 15.2% of
total operating expenses, increased by 26.6% from RMB2,767 million in 2003 to
RMB3,503 million in 2004. The increase primarily resulted from an 25.7% rise in
landing and navigation fees from RMB2,563 million in 2003 to RMB3,222 million in
2004, due to an increase in number of landing and takeoffs.
Promotional and marketing expenses, which accounted for 8.4% of total
operating expenses, increased by 31.1% from RMB1,480 million in 2003 to RMB1,940
million in 2004. The increase was due to 44.4% increase in labour costs from
RMB225 million in 2003 to RMB325 million in 2004, as more payments of
performance bonus were made because of the increased traffic volume.
General and administrative expenses, which accounted for 5.7% of the total
operating expenses, increased by 25.6% from RMB1,053 million in 2003 to RMB1,323
million in 2004. This was mainly attributable to increased scale of operations.
Depreciation and amortisation, which accounted for 10.5% of total
operating expenses, increased by 18.4% from RMB2,038 million in 2003 to RMB2,413
million in 2004. This increase was primarily as a result of the additions of
aircraft during 2004.
Operating profit
Operating profit increased by 99.3% from RMB456 million in 2003 to RMB909
million in 2004. This was mainly because operating revenue increased by RMB6,504
million or 37.2% from 2003 and operating expenses increased by RMB6,051 million
or 35.6% over the same period.
- 85 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Non-operating income/(expenses)
Interest expense decreased by 16.1% from RMB824 million in 2003 to RMB691
million in 2004, mainly reflecting the combined effect of scheduled debt
repayments and the replacement of certain RMB denominated bank loans of higher
interest rates with US$ denominated bank loans of lower interest rates.
Interest income increased by 69.2% from RMB13 million in 2003 to RMB22
million in 2004. This was mainly attributable to an increase in average cash
balances.
During 2004, the Group recorded a net exchange loss of RMB59 million
(2003: RMB164 million) mainly from its Japanese yen denominated borrowings as a
result of the Japanese yen appreciation. Such amount comprised mostly unrealised
translational exchange loss.
Taxation
On 17 October, 2003, the Company's registered address was moved to
Guangzhou Economic & Technology Development Zone, Guangzhou, China. In
accordance with the Rules and Regulations for Implementation of Income Tax for
Foreign Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document "Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que
020043", the Company is entitled to enjoy the preferential tax policy
implemented in the Guangzhou Economic & Technology Development Zone effective
from 1 October, 2003. As a result, the Company's income tax rate has been
changed from 33% to 15% beginning from that date.
In 2003, the Group recorded an income tax credit of RMB324 million
resulting from reduction in net deferred taxation liability balance of RMB392
million. In 2004, income tax expense of RMB78 million was recorded.
Minority interests
Minority interests increased by 18.7% from RMB171 million in 2003 to
RMB203 million in 2004, primarily reflecting the increased net profits earned by
certain of the Group's airline subsidiaries for the year.
Liquidity, financial resources and capital structure
As at 31 December, 2004, the Group's borrowings totalled RMB35,196
million, representing an increase of RMB16,736 million from RMB18,460 million
last year. Such borrowings were denominated, to a larger extent, in United
States dollars and, to a smaller extent, in Japanese yen, Hong Kong dollars and
Renminbi, with a significant portion being fixed interest rate borrowings. Of
such borrowings, RMB13,662 million, RMB4,489 million, RMB6,705 million, RMB3,608
million and RMB6,732 million will be repayable in 2005, 2006, 2007, 2008, 2009
and thereafter respectively. As at 31 December, 2004, cash and cash equivalents
of the Group totalling RMB3,083 million, of which 24.2% were denominated in
foreign currencies, increased by 48.2% from RMB2,080 million last year.
- 86 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Net debts (total borrowings net of cash and cash equivalents) increased by
96.1% to RMB32,113 million.
As at 31 December, 2004, the Group's shareholders' equity amounted to
RMB11,848 million, representing a decrease of RMB48 million from RMB11,896
million last year.
Net debt/equity ratio of the Group at 31 December, 2004 was 2.71 times, as
compared to 1.38 times last year.
Financial risk management policy
In the normal course of business, the Group is exposed to fluctuations in
foreign currencies and jet fuel prices. The Group's exposure to fluctuations in
foreign currencies is a result of its debts which are denominated in foreign
currencies. Depreciation or appreciation of the RMB against foreign currencies
affects the Group's results significantly because the Group's foreign currency
payments generally exceed its foreign currency receipts. The Group is not able
to hedge its foreign currency exposure effectively other than by retaining its
foreign currency denominated earnings and receipts to the extent permitted by
the State Administration of Foreign Exchange, or subject to certain restrictive
conditions, by entering into forward foreign exchange contracts with certain
authorised PRC banks. The Group is required to procure a majority of its jet
fuel domestically at PRC spot market prices. There are currently no effective
means available to manage the Group's exposure to the fluctuations in domestic
jet fuel prices.
Charges on assets
As at 31 December, 2004, certain aircraft of the Group with an aggregate
carrying value of approximately RMB23,562 million (2003: RMB14,576 million) were
mortgaged under certain loan and lease agreements.
Commitments
At 31 December, 2004, the Group had capital commitments of approximately
RMB26,871 million. Of such amounts, RMB25,347 million related to the acquisition
of aircraft and related flight equipment and RMB824 million related to the
Group's facilities and equipment to be constructed and installed at the new
Guangzhou Baiyun International Airport. The remaining amount of RMB700 million
was related to the Group's other airports and office facilities and equipment,
overhaul and maintenance bases and training facilities.
As at 31 December, 2004, the Group committed to make a capital
contribution of approximately RMB181 million and RMB83 million to its
subsidiaries and to its jointly controlled entities respectively.
- 87 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
YEAR ENDED 31 DECEMBER, 2003 COMPARED TO YEAR ENDED 31 DECEMBER, 2002
The Group recorded a net loss of RMB358 million for 2003, as compared to a
net profit of RMB576 million for 2002. The Group's operating revenue decreased
by RMB549 million or 3.0% from RMB18,019 million in 2002 to RMB17,470 million in
2003. Passenger load factor decreased by 0.8 percentage point from 65.4% in 2002
to 64.6% in 2003. Passenger yield (in passenger revenue per RPK) increased by
5.6% from RMB0.54 in 2002 to RMB 0.57 in 2003. Average yield (in traffic revenue
per RTK) decreased by 1.7% from RMB4.84 in 2002 to RMB4.76 in 2003. Operating
expenses increased by RMB1,021 million or 6.4% from RMB15,993 million in 2002 to
RMB17,014 million in 2003. As operating revenue decreased while operating
expenses increased, operating profit decreased by 77.5% from RMB2,026 million in
2002 to RMB456 million in 2003. The Group's net non-operating expenses increased
by 9.1%, from RMB887 million in 2002 to RMB967 million in 2003, mainly due to a
decrease in gain on disposal of fixed assets of RMB193 million, partly offset by
a decrease in interest expense of RMB135 million. Overall, the Group recorded a
net loss of RMB358 million in 2003, as compared to a net profit of RMB576
million in 2002.
Operating revenue
Substantially all of the Group's operating revenue is attributable to
airline operations. Traffic revenue in 2003 and 2002 accounted for 97.1% and
97.0% respectively of total operating revenue. Passenger revenue and, cargo and
mail revenue accounted for 88.5% and 11.5% respectively of total traffic revenue
in 2003. The balance of the Group's operating revenue is derived from commission
income, income from general aviation operations, fees charged for ground
services and for air catering services and net income from lease arrangements.
Operating revenue decreased by 3.0% from RMB18,019 million in 2002 to
RMB17,470 million in 2003. This decrease was primarily due to a 4.4% fall in
passenger revenue from RMB15,696 million in 2002 to RMB15,010 million in 2003
resulting from lower traffic volume caused by SARS. The total number of
passengers carried decreased by 4.8% to 20.5 million passengers in 2003. RPKs
decreased by 8.8% from 28,940 million in 2002 to 26,387 million in 2003,
primarily as a result of a decrease in passengers carried. However, passenger
yield increased by 5.6% from RMB0.54 in 2002 to RMB0.57 in 2003, mainly as the
result of the exemption of CAAC Infrastructure Development Fund and sales tax
during the period from 1 May, 2003 to 31 December, 2003.
Domestic passenger revenue, which accounted for 81.6% of the total
passenger revenue in 2003, increased slightly by 0.1% from RMB12,234 million in
2002 to RMB12,242 million in 2003. Domestic passenger traffic in RPKs decreased
by 3.6%, mainly due to a decrease in passengers carried. Passenger yield,
however, increased from RMB0.55 in 2002 to RMB0.57 in 2003, mainly as the result
of the aforesaid exemption of CAAC Infrastructure Development Fund and sales
tax.
- 88 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Hong Kong passenger revenue, which accounted for 5.0% of total passenger
revenue, decreased by 28.9% from RMB1,055 million in 2002 to RMB750 million in
2003. For Hong Kong flights, passenger traffic in RPKs decreased by 28.0%, while
passenger capacity in ASKs decreased by 22.9%, resulting in a 4.1 percentage
point decrease in passenger load factor from 2002. Passenger yield decreased
from RMB0.98 in 2002 to RMB0.96 in 2003 mainly due to slack in traffic volume.
International passenger revenue, which accounted for 13.4% of total
passenger revenue, decreased by 16.2% from RMB2,407 million in 2002 to RMB2,018
million in 2003. For international flights, passenger traffic in RPKs decreased
by 25.2%, while passenger capacity in ASKs decreased by 20.8%, resulting in a
3.6 percentage point fall in passenger load factor from 2002. Passenger yield
increased by 11.9% from RMB0.42 in 2002 to RMB0.47 in 2003 mainly as the result
of the aforesaid exemption of CAAC Infrastructure Development Fund and sales
tax.
Cargo and mail revenue, which accounted for 11.5% of the Group's total
traffic revenue and 11.1% of total operating revenue, increased by 9.5% from
RMB1,786 million in 2002 to RMB1,955 million in 2003. The increase was primarily
due to the full year effect of the opening of two international cargo routes to
Los Angeles of the United States of America and Leige of Belgium in late 2002.
Other operating revenue decreased by 6.0% from RMB537 million in 2002 to
RMB505 million in 2003. The decrease was primarily due to a decrease in aircraft
short-term lease income of RMB46 million.
Operating expenses
Substantially all of the Group's operating expenses result from its
airline operations. The vast majority of such expenses relate directly to flight
operations, aircraft and traffic servicing, aircraft repair and maintenance and
to depreciation and amortisation in respect of aircraft and flight equipment.
Expenses associated directly with the Group's flight operations (collectively,
"flight operations expenses") include fuel costs, operating lease payments,
catering expenses, aircraft insurance, flight personnel payroll and welfare and
training expenses. Expenses associated directly with repairs and maintenance in
respect of the Group's aircraft (collectively, "repairs and maintenance
expenses") include repairs and maintenance and overhaul charges, the costs of
consumables and other maintenance materials and labour costs for maintenance
personnel. Expenses associated directly with the Group's aircraft and traffic
servicing operations (collectively "aircraft and traffic servicing expenses")
include landing and navigation fees, rental payments and charges in respect of
terminal and other ground facilities and labour costs for ground personnel. The
balance of the Group's operating expenses result from promotional and marketing
activities (collectively, "promotional and marketing expenses") such as sales
commissions, fees for use of the CAAC's reservation system, ticket-printing and
sales office expenses, advertising and promotional expenses, and from general
and administrative expenses, such as administrative salaries and welfare and
other personnel benefits and office expenses.
- 89 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Total operating expenses in 2003 amounted to RMB17,014 million,
representing an increase of 6.4% or RMB1,021 million over 2002, primarily due to
the combined effect of increases in jet fuel costs, maintenance expenses and
aircraft and traffic servicing expenses. Total operating expenses as a
percentage of total operating revenue increased from 88.8% in 2002 to 97.4% in
2003.
Flight operations expenses, which accounted for 41.6% of total operating
expenses, increased by 5.0% from RMB6,733 million in 2002 to RMB7,070 million in
2003, primarily as a result of increases in jet fuel costs and operating lease
payments, partly offset by a decrease in catering expenses. Jet fuel costs,
which accounted for 54.7% of flight operations expenses, increased by 9.9% from
RMB3,519 million in 2002 to RMB3,867 million in 2003 mainly as a result of
increased jet fuel prices. Operating lease payments increased by 8.4% from
RMB1,417 million in 2002 to RMB1,536 million in 2003, primarily due to the full
year effect of the addition of new operating leases in respect four Boeing
757-200 aircraft in late 2002 and four Airbus 319-100 aircraft and three Boeing
737-700 aircraft during 2003. Catering expenses decreased by 18.4% from RMB625
million in 2002 to RMB510 million in 2003, primarily reflecting a tighter cost
controls exercised by the Group. Aircraft insurance costs decreased by 23.4%
from RMB256 million in 2002 to RMB196 million in 2003, primarily because of a
reduction in the rate of aircraft insurance premiums prescribed by the PRC
insurance company. Labour costs for flight personnel decreased by 6.8% from
RMB781 million in 2002 to RMB728 million in 2003, largely due to a decrease in
flight hours.
Maintenance expenses which accounted for 15.2% of total operating
expenses, increased by 11.0% from RMB2,333 million in 2002 to RMB2,589 million
in 2003. The increase was primarily attributable to an 11.3% increase in
aircraft maintenance and repair charges from RMB2,135 million in 2002 to
RMB2,377 million in 2003, mainly as the result of the effect of fleet expansion
in recent years.
Aircraft and traffic servicing expenses, which accounted for 16.3% of
total operating expenses, increased by 10.2% from RMB2,511 million in 2002 to
RMB2,767 million in 2003. The increase primarily resulted from an 8.9% rise in
landing and navigation fees from RMB2,354 million in 2002 to RMB2,563 million in
2003, due to an increase in the charge rate for domestic landing and navigation
fees effective September 2002.
Promotional and marketing expenses, which accounted for 8.7% of total
operating expenses, decreased by 1.3% from RMB1,500 million in 2002 to RMB1,480
million in 2003. The decrease was due to 9.3% decrease in labour costs from
RMB248 million in 2002 to RMB225 million in 2003, as fewer bonuses were given
because of reduced sales volume in 2003.
General and administrative expenses, which accounted for 6.2% of the total
operating expenses, decreased slightly by 0.7% from RMB1,060 million in 2002 to
RMB1,053 million in 2003. This was mainly due to a decrease in scale of
operations during SARS period.
Depreciation and amortisation, which accounted for 12.0% of total
operating expenses, increased by 10.8% from RMB1,840 million in 2002 to RMB2,038
million in 2003. This increase was primarily as a result of the additions of
aircraft during 2003.
- 90 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Operating profit
Operating profit decreased by 77.5% from RMB2,026 million in 2002 to
RMB456 million in 2003. This was mainly because operating revenue decreased by
RMB549 million or 3.0% from 2002 while operating expenses increased by RMB1,021
million or 6.4% over the same period.
Non-operating income/(expenses)
Interest expense decreased by 14.1% from RMB959 million in 2002 to RMB824
million in 2003, mainly reflecting the combined effect of scheduled debt
repayments and the replacement of certain RMB denominated bank loans with US$
denominated bank loans with lower interest rates.
Interest income decreased by 75.2% from RMB53 million in 2002 to RMB13
million 2003. This was mainly attributable to a decrease in average cash
balances.
The Group recorded a net loss on sale of fixed assets of RMB22 million in
2003, mainly resulting from retirement of two old Boeing 737-200 aircraft.
During 2003, the Group recorded a net exchange loss of RMB164 million
predominantly due to its Japanese yen denominated borrowings as a result of the
Japanese yen appreciation. Such amount comprised mostly unrealised translation
loss.
Taxation
On 17 October, 2003, the Company's registered address was moved to
Guangzhou Economic & Technology Development Zone. In accordance with the Rules
and Regulations for Implementation of Income Tax for Foreign Investment
Enterprises and Foreign Enterprises of the PRC and a taxation approval document
"Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043", the Company is
entitled to enjoy the preferential tax policy implemented in the Guangzhou
Economic & Technology Development Zone effective from 1 October, 2003. As a
result, the Company's income tax rate has been changed to 15% from 33% beginning
from that date.
The Group recorded an income tax credit of RMB324 million for 2003
compared to an income tax expense of RMB398 million for 2002. As a result of the
reduction in income tax rate, the Company's net deferred taxation liability
balance brought forward from 31 December, 2002 of RMB507 million was reduced by
RMB392 million and a net deferred tax credit of RMB392 million was recognised in
2003 for such reduction in income tax rate accordingly.
Minority interests
Minority interests increased by 3.6% from RMB165 million in 2002 to RMB171
million in 2003, primarily reflecting the net profits earned by certain of the
Group's airline subsidiaries for the year.
- 91 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Liquidity, financial resources and capital structure
As at 31 December, 2003, the Group's borrowings totalled RMB18,460
million, representing a decrease of RMB815 million from RMB19,275 million last
year. Such borrowings were denominated, to a larger extent, in United States
dollars and, to a smaller extent, in Japanese yen and Renminbi, with a
significant portion being fixed interest rate borrowings. Of such borrowings,
RMB8,395 million, RMB1,716 million, RMB1,601 million, RMB1,660 million and
RMB5,088 million will be repayable in 2004, 2005, 2006, 2007, 2008 and
thereafter respectively. As at 31 December, 2003, cash and cash equivalents of
the Group totalling RMB2,080 million, of which 22.2% were denominated in foreign
currencies, decreased by 44.8% from RMB3,771 million last year. Net debts (total
borrowings net of cash and cash equivalents) increased by 5.7% to RMB16,380
million.
As at 31 December, 2003, the Group's shareholders' equity amounted to
RMB11,896 million, representing an increase of RMB2,283 million from RMB9,613
million last year. The increase was mainly due to the issuance of 1,000,000,000
A shares with an issue price of RMB2.70 per share by way of public offering in
July 2003 in the PRC.
Net debt/equity ratio of the Group at 31 December, 2003 was 1.38 times, as
compared to 1.61 times last year.
Financial risk management policy
In the normal course of business, the Group is exposed to fluctuations in
foreign currencies and jet fuel prices. The Group's exposure to foreign
currencies was as a result of its debt which are denominated in foreign
currencies. Depreciation or appreciation of the RMB against foreign currencies
affects the Group's results significantly because the Group's foreign currency
payments generally exceed its foreign currency receipts. The Group is not able
to hedge its foreign currency exposure effectively other than by retaining its
foreign currency denominated earnings and receipts to the extent permitted by
the State Administration of Foreign Exchange, or subject to certain restrictive
conditions, by entering into forward foreign exchange contracts with certain
authorised PRC banks.
The Group is required to procure a majority of its jet fuel consumption
domestically at PRC spot market prices. There are currently no effective means
available to manage the Group's exposure to the fluctuations in domestic jet
fuel prices.
Charges on assets
As at 31 December, 2003, certain aircraft of the Group with an aggregate
carrying value of approximately RMB14,576 million (2002: RMB14,783 million) were
mortgaged under certain loan and lease agreements.
- 92 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
Commitments
At December 31, 2003, the Group had capital commitments of approximately
RMB13,628 million. Of such amounts, RMB10,615 million related to the acquisition
of aircraft and related flight equipment and RMB2,072 million related to the
Group's facilities and equipment to be constructed and installed at the
Guangzhou new airport. The remaining amount of RMB941 million related to the
Group's other airports and office facilities and equipment, overhaul and
maintenance bases and training facilities.
As at 31 December, 2003, the Group was committed to make a capital
contribution of approximately RMB446 million to its jointly controlled entities.
- 93 -
APPENDIX II GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing
Rules for the purpose of giving information with regard to the Group. The
Directors collectively and individually accept full responsibility for the
accuracy of the information contained in this circular and confirm, having made
all reasonable inquiries, that to the best of their knowledge and belief there
are no other facts the omission of which would make any statement herein
misleading.
2. DISCLOSURE OF INTERESTS OF DIRECTORS AND SUPERVISORS
As at the Latest Practicable Date, the interests and short positions of
the Directors and Supervisors of the Company and their respective associates in
the shares, underlying shares and debentures (as the case may be) of the Company
or its associated corporations (within the meaning of Part XV of the SFO) which
were notified to the Company and the Stock Exchange pursuant to Divisions 7 and
8 of Part XV of SFO (including interests or short positions which are taken or
deemed to have under such provisions of the SFO), or recorded in the register
maintained by the Company pursuant to Section 352 of the SFO or which were
notified to the Company and the Stock Exchange pursuant to the Model Code for
Securities Transactions by Directors of the Listed Issuers in Appendix 10 of the
Listing Rules are as follows:
% OF THE
% OF THE TOTAL ISSUED
THE TOTAL ISSUED SHARE
COMPANY/ H SHARES OF CAPITAL OF
ASSOCIATED TYPES OF TYPE OF NUMBER OF THE THE SHORT
NAME CORPORATION INTEREST SHARE SHARE HELD COMPANY COMPANY POSITION
Simon To the Company Interest of H shares 100,000 0.009% 0.002% -
spouse
(note 1)
Note 1: The spouse of Mr. Simon To is the owner of these 100,000 H Shares of
the Company and accordingly, Mr. Simon To, is taken to be interested in
these 100,000 H Shares by virtue of the SFO.
Save as disclosed above, as at the Latest Practicable Date, none of the
Directors or Supervisors of the Company and their respective associates had
interests or short positions in the shares, underlying shares and/or debentures
(as the case may be) of the Company or its associated corporations (within the
meaning of Part XV of the SFO) which were notified to the Company and the Stock
Exchange pursuant to Divisions 7 and 8 of Part XV of SFO (including interests or
short positions which he was taken or deemed to have under such provisions of
the SFO), or recorded in the register maintained by the Company pursuant to
Section 352 of the SFO or which were notified to the Company and the Stock
Exchange pursuant to the Model Code for Securities Transactions by Directors of
Listed Issuers in Appendix 10 of the Listing Rules.
- 94 -
APPENDIX II GENERAL INFORMATION
None of the Directors or Supervisors of the Company and their respective
associates (as defined under the Listing Rules) has any competing interests
which would be required to be disclosed under Rule 8.10 of the Listing Rules if
each of them were a controlling shareholder.
3. SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, so far as was known to the Directors
and Supervisors of the Company, the interests and short positions of the
following persons other than the Directors or Supervisors of the Company in the
shares and underlying shares of the Company which would fall to be disclosed to
the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or
who were, directly or indirectly, interested in 10% or more of the nominal value
of any class of share capital carrying rights to vote in all circumstances at
general meeting of any other members of the Group, or had any option in respect
of such capital are set out below:
% OF THE
% OF THE TOTAL
TOTAL ISSUED
ISSUED H SHARE
SHARES OF CAPITAL OF
NAME OF TYPE OF TYPE OF NUMBER OF THE THE SHORT
SHAREHOLDER SHAREHOLDING SHARE SHARE HELD COMPANY COMPANY POSITION
CSAHC Direct State-owned 2,200,000,000 - 50.30% -
holding share
HKSCC Nominees Direct H share 1,151,148,998 98.04% 26.32% -
Limited holding
Note:
Based on the information available to the Directors and Supervisors of the
Company (including such information as was available on the website of the Stock
Exchange) and so far as the Directors, chief executive and Supervisors are
aware, as at the Latest Practicable Date:
1. Among the 1,151,148,998 H Shares held by HKSCC Nominees Limited, Li
Ka-Shing Unity Trustcorp Limited had an interest in an aggregate of
193,877,000 H Shares of the Company (representing approximately
16.51% of its then total issued H Shares) in the capacity as
beneficiary of a trust.
2. Among the 1,151,148,998 H Shares held by HKSCC Nominees Limited,
J.P. Morgan Chase & Co. had an interest in an aggregate of
164,098,800 H Shares of the Company (representing approximately
13.98% of its then total issued H Shares). Out of the 164,098,800 H
Shares, J.P. Morgan Chase & Co. had an interest in a lending pool
comprising 76,962,000 H Shares of the Company (representing
approximately 6.55% of its then total issued H Shares). According to
the information as disclosed in the website of the Stock Exchange
and so far as the directors, chief executive and supervisors are
aware, J.P. Morgan Chase & Co. held its interest in the Company in
the following manners:
(a) 76,962,000 H Shares in a lending pool, representing
approximately 6.55% of the Company's then total issued H
Shares, were held by J.P. Morgan Chase Bank N.A., which was
100% held by J.P. Morgan Chase & Co.;
(b) 1,064,800 H Shares, representing approximately 0.09% of the
Company's then total issued H Shares, were held in the
capacity as beneficial owner by J.P. Morgan Whitefriars Inc.,
which was ultimately 100% held by J.P. Morgan Chase & Co.;
- 95 -
APPENDIX II GENERAL INFORMATION
(c) 83,512,000 H Shares, representing approximately 7.11% of the
Company's then total issued H Shares, were held in the
capacity as investment manager by JF Asset Management Limited,
which was approximately 99.99% held by J.P. Morgan Fleming
Asset Management (Asia) Inc., which was ultimately 100% held
by J.P. Morgan Chase & Co.; and
(d) 2,560,000 H Shares, representing approximately 0.22% of the
Company's then total issued H Shares, were held in the
capacity as beneficial owner by JF International Management
Inc., which was ultimately 100% held by J.P. Morgan Chase &
Co..
3. Among the 1,151,148,998 H Shares held by HKSCC Nominees Limited,
Morgan Stanley International Incorporated had an interest in an
aggregate of 111,121,932 H Shares of the Company (representing
approximately 9.46% of its then total issued H Shares). According to
the information as disclosed on the website of the Stock Exchange
and so far as the directors, chief executive and supervisors are
aware, Morgan Stanley International Incorporated which was (or its
directors were) accustomed to act in accordance with the directors
of Morgan Stanley, held its indirect interest in the Company in the
manner as follows:
(a) 743,332 H Shares, representing approximately 0.06% of the
Company's then total issued H Shares, were held by Morgan
Stanley Dean Witter Hong Kong Securities Limited, which was
ultimately 100% held by Morgan Stanley Asia Pacific (Holdings)
Limited, which, in turn, was 90% held by Morgan Stanley
International Incorporated;
(b) 108,670,000 H Shares, representing approximately 9.25% of the
Company's then total issued H Shares, were held by Morgan
Stanley Investment Management Company, which was ultimately
100% held by Morgan Stanley Asia Pacific (Holdings) Limited,
which, in turn, was 90% held by Morgan Stanley International
Incorporated;
(c) 292,600 H Shares, representing approximately 0.02% of the
Company's then total issued H Shares, were held by Morgan
Stanley Asset & Investment Trust Management Co. Limited, which
was 100% held by Morgan Stanley International Incorporated;
(d) 714,000 H Shares, representing approximately 0.06% of the
Company's then total issue H Shares, were held by Morgan
Stanley & Co International Limited, which was ultimately 100%
held by Morgan Stanley Group (Europe), which, in turn, was
approximately 98.30% held by Morgan Stanley International
Limited, in which Morgan Stanley International Incorporated
held 100% control; and
(e) 702,000 H Shares, representing approximately 0.06% of the
Company's then total issued H Shares, were held by Morgan
Stanley Capital (Luxembourg) S.A., which was approximately
93.75% held by Morgan Stanley International Incorporated.
According to the information as disclosed on the website of the
Stock Exchange and so far as the directors, chief executive and
supervisors are aware, Morgan Stanley Dean Witter Hong Kong
Securities Limited also had a short position in 616,000 H Shares of
the Company (representing approximately 0.05% of its then total
issued H Shares).
4. Among the 1,151,148,998 H Shares held by HKSCC Nominees Limited,
96,938,500 H Shares, representing approximately 8.26% of the
Company's then total issued H Shares, were held by Space Dragon
Limited as beneficial owner, which was 100% held by Cheung Kong
Investment Company Limited.
5. Among the 1,151,148,998 H Shares held by HKSCC Nominees Limited,
96,938,500 H Shares, representing approximately 8.26% of the
Company's then total issued H Shares, were held by Choicewell
Limited as beneficial owner, which was ultimately 100% held by
Hutchison Whampoa Limited.
- 96 -
APPENDIX II GENERAL INFORMATION
Save as disclosed above, as at the Latest Practicable Date, so far as was
known to the Directors and Supervisors of the Company, no other person (other
than the Directors or Supervisors) had an interest or short position in the
shares or underlying shares of the Company under the provisions of Divisions 2
and 3 of Party XV of the SFO or who were, directly or indirectly, interested in
10% or more of the nominal value of any class of share capital carrying rights
to vote in all circumstances at general meeting of any other members of the
Group.
4. MATERIAL CONTRACTS
The following contracts have been entered into by the Group (not being
contract entered into in the ordinary course of business) within the two years
immediately preceding the date of this circular:
(a) A sale and purchase agreement (the "VSA Sale and Purchase
Agreement") dated 12 November, 2004 between the Company, CSAHC,
China Northern Airlines Company ("Northern Airlines"), a wholly
owned subsidiary of CSAHC, and Xinjiang Airlines Company ("Xinjiang
Airlines") , a wholly owned subsidiary of CSAHC, pursuant to which
the Company agreed to acquire, and CSAHC, Northern Airlines and
Xinjiang Airlines agreed to sell certain airlines and
airlines-related operations, assets and properties of Northern
Airlines, Xinjiang Airlines and their respective subsidiaries, which
included aircraft, engines, spare parts, aviation equipment and
facilities, properties, office facilities, and other fixed, current
and intangible assets. In addition, the Company will also assume all
indebtedness in the aggregate sum of RMB13,438,191,000 owed by
Xinjiang Airlines, Northern Airlines and their respective
subsidiaries in connection with their civil aviation business. The
total consideration, including the assumption of the debts under the
VSA Sale and Purchase Agreement was RMB15,397,524,000. It became
effective upon approval by the shareholders of the Company on 31
December, 2004.
(b) A lease agreement (the "Lease Agreement 1") dated 12 November, 2004
between the Company, CSAHC and Northern Airlines, pursuant to which
CSAHC and Northern Airlines lease to the Company certain buildings,
facilities and other infrastructure related to the civil aviation
business of Northern Airlines situated at various locations in
Shenyang, Dalian, Jilin, Harbin, Chaoyang and Russia for a period of
three years. The consideration for Lease Agreement 1 is
RMB41,993,318.44 per year. It became effective upon approval by the
shareholders of the Company on 31 December, 2004.
(c) A lease agreement (the "Lease Agreement 2") dated 12 November, 2004
between the Company, CSAHC and Xinjiang Airlines, pursuant to which
CSAHC and Xinjiang Airlines lease to the Company certain buildings,
facilities and other infrastructure related to the civil aviation
business of Xinjiang Airlines situated at Xinjiang and Russia for a
period of three years. The consideration for Lease Agreement 2 is
RMB5,797,908.61 per year. It became effective upon approval by the
shareholders of the Company on 31 December, 2004.
- 97 -
APPENDIX II GENERAL INFORMATION
(d) A lease agreement (the "Lease Agreement 3") dated 12 November, 2004
between the Company and CSAHC, pursuant to which CSAHC leases to the
Company certain lands situated in Urumqi, Shenyang, Dalian and
Harbin, by leasing the land use rights of such lands to the Company
for a period of three years. The consideration for Lease Agreement 3
is RMB22,298,033 per year. It became effective upon approval by the
shareholders of the Company on 31 December, 2004.
(e) A catering agreement (the "Catering Agreement") dated 12 November,
2004 between the Company and China Southern Airlines Group Air
Catering Company Limited (the "Catering Company"), a wholly owned
subsidiary of CSAHC, pursuant to which the Catering Company supplies
in-flight meal and catering services to the flights of the Company
originating or stopping at the domestic airports, mainly in Northern
China and Xinjiang regions where the Catering Company provides
catering services for a period of three years. The consideration for
the catering agreement is based on the price of each type of
in-flight meals and the service price for each type of aircraft, and
is capped at RMB220 million per year. It became effective upon
approval by the shareholders of the Company on 31 December, 2004.
(f) A financial agreement (the "Financial Agreement") dated 12 November,
2004, between the Company and Southern Airlines Group Finance
Company Limited ("SA Finance"), a connected person of the Company
which is 42% owned by CSAHC, 32% owned by the Company and 26% owned
in aggregate by five subsidiaries of the Company. The Financial
Agreement commenced from 12 November, 2004 for a period of three
years, and is renewable, subject to compliance with the requirements
of the relevant Listing Rules by the Company, by an application in
writing by the Company not less than 30 days before the end of the
fixed term. Under the Financial Agreement, SA Finance provides
deposit of money service and, subject to the execution of further
agreements with the Company, other financial services like loan
facilities, credit facilities, financial guarantees and credit
references to the Company. The Company is not subject to any extra
charges for depositing money with SA Finance. For the other
financial services provided by SA Finance under the financial
agreement, the Company is liable to pay SA Finance the standard
charging rates set by the People's Bank of China. The PRC commercial
banks also charge similar charging rates set by the People's Bank of
China. The Company will make payment for such interest, fees and
commissions in accordance with the payment terms of the separate
agreements for the provision of loans or other financial services as
might be entered into between the Company and SA Finance. It became
effective upon approval by the shareholders of the Company on 31
December, 2004.
- 98 -
APPENDIX II GENERAL INFORMATION
(g) The operating lease (the "Operating Lease") of 5 Boeing B737-700
aircraft, 5 Boeing B737-800 aircraft, 5 Airbus A320-000 aircraft and
10 Airbus A321-200 aircraft dated 21 March, 2005 between the Company
and ILFC Ireland Limited. It became effective upon approval by the
shareholders of the Company on 15 June, 2005.
(h) The Previous Airbus Aircraft Acquisition Agreement.
The Previous Airbus Aircraft Acquisition Agreement dated 21 April,
2005 between the Company, SAIETC, a wholly subsidiary of CSAHC, and
Airbus, pursuant to which the Company and SAIETC agreed to acquire
and Airbus agreed to sell five new A380 aircraft. The aggregate
consideration for the Previous Airbus Aircraft Acquisition
Agreement, which is payable wholly in cash by the Company to Airbus
and determined after arm's length negotiation between the parties,
is lower than the market price as provided by Airbus. According to
the information provided by Airbus, the market price of an A380
aircraft is approximately US$272.6 million. It became effective upon
approval by the shareholders of the Company on 15 June, 2005.
(i) The Previous Boeing Aircraft Acquisition Agreement.
The Previous Boeing Aircraft Acquisition Agreement dated 29 April,
2005 between the Company and Xiamen Airlines and Boeing, pursuant to
which the Company and Xiamen Airlines agreed to acquire and Boeing
agreed to sell 12 B737-700 aircraft and 33 B737-800 aircraft (15 of
which were acquired by Xiamen Airlines). The aggregate consideration
for the Previous Boeing Aircraft Acquisition Agreement, which is
payable wholly in cash by the Company and Xiamen Airlines to Boeing
and determined after arm's length negotiation between the parties,
is lower than the market price as provided by Boeing. According to
the information provided by Boeing, the market price of a B737-700
is in the range of US$50.5 million to US$59 million, and the market
price of a B737-800 aircraft is in the range of US$61.5 million to
US$69.5 million. It became effective upon approval by the
shareholders of the Company on 15 June, 2005.
(j) The Xiamen Boeing Aircraft Acquisition Agreement.
(k) The Boeing Aircraft Acquisition Agreement.
(l) The Airbus Aircraft Acquisition Agreement.
- 99 -
APPENDIX II GENERAL INFORMATION
5. MATERIAL LITIGATION
The Company was involved in a civil litigation (Hong Kong High Court
Action No. 515 of 2001) ("Litigation"). According to the writ of summons for the
Litigation, New Link Consultants Limited, the plaintiff, claimed against the
Group (as one of the defendants to the Litigation) on the basis of certain
evidence proving that United Aero-Supplies System of China, Limited ("UASSC")
had entered into an agreement with the defendants for exclusive purchase of
aviation equipment consigned to UASSC for sale. As the defendants failed to
perform the agreement, UASSC should have the right to compensation. Since UASSC
was in the course of its winding up proceedings, all the rights and benefits of
UASSC in connection with the claim had been transferred to the plaintiff. The
Company, as one of the defendants to the Litigation was claimed for unspecified
damages for breach of the agreement. The Company filed an objection in respect
of the jurisdiction of the court, and requested the court to transfer the case
to the PRC for trial. On 3 May, 2004, the court made an award in favour of the
Company for the transfer to the PRC, against which the plaintiff has filed an
appeal.
In August 2005, the parties to the Litigation reached an out of court
settlement, pursuant to which the plaintiff would waive all its rights or
possible rights to commence proceedings, claims or appeals against the Company
in respect of the same matter.
As of the date of this circular, save as otherwise disclosed above, there
is no litigation or claims of material importance pending or threatened against
any member of the Group.
6. DIRECTORS' AND SUPERVISORS' INTERESTS
(a) None of the Directors or Supervisors of the Company has any direct
or indirect interest in any assets which have been, since 31
December, 2004, the date to which the latest published audited
financial statements of the Group were made up, acquired or disposed
of by or leased to, or which are proposed to be acquired or disposed
of by, or leased to, to any member of the Group.
(b) None of the Directors or Supervisors of the Company is materially
interested in any contract or arrangement subsisting at the date of
this circular and which is significant in relation to the business
of the Group.
7. SERVICE CONTRACTS
None of the Directors has any existing or proposed service contract with
any member of the Group which is not determinable by the Group within one year
without payment of compensation (other than statutory compensation).
8. REMUNERATION POLICIES
The remuneration committee of the Company is chaired by independent
non-executive Director Sui Guang Jun with independent non-executive Director Wei
Ming Hai and executive Director Wang Quan Hua as members. The responsibilities
of the remuneration committee are
- 100 -
APPENDIX II GENERAL INFORMATION
to approve the remuneration packages of Directors and senior management of the
Group, and the Company's preliminary proposals on annual emoluments of the
Directors and senior management of the Group. The Group is required to comply
with the remuneration regulations imposed by the central government of the PRC
which govern the remuneration payable to the Directors, senior management and
other significant employees of the Company.
9. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS
Pursuant to Article 77 of the Articles of Association of the Company, at
any general meeting of shareholders of the Company, a resolution shall be
decided on a show of hands unless a poll is (before or after any vote by show of
hands) demanded:
i. by the chairman of the meeting;
ii. by at least two shareholders entitled to vote present in person or
by proxy; or
iii. by one or more shareholders present in person or by proxy and
representing 10 per cent or more of all shares carrying the right to
vote at the meeting.
The demand for a poll may be withdrawn by the person who makes such
demand.
10. MISCELLANEOUS
(a) The secretary of the Company is Su Liang. He was a graduate of the
Cranfield College of Aeronautics, University of Cranfield, United
Kingdom, specializing in Air Transport Management Engineering. Mr.
Su is a holder of master degree. During the period from 1998 to
1999, Mr. Su held the position as Deputy Manager of the Flight
Operations Department, China Southern Airlines Shenzhen Co. and from
1999 to 2000, he was the Manager of the Planning and Administration
Department of China Southern Airlines Shenzhen Co.. Mr. Su was in
charge of the international cargo project of the Company,
responsible for the planning and development of the Company's North
American cargo business. Mr. Su has been the secretary of the
Company since 2000.
(b) The Company has not currently appointed an individual who will
satisfy all the requirements of a qualified accountant for the
purposes of Rule 3.24 of the Listing Rules. The Company will
continue its efforts to identify and recruit a suitable and
qualified candidate to assume the office of qualified accountant.
(c) The registered address of the Company is at Guangzhou Economic &
Technology Development Zone, Guangdong Province, PRC and the
principal place of business of the Company in Hong Kong is at Unit
B1, 9th Floor, United Centre, 95 Queensway, Hong Kong.
(d) The Hong Kong branch share registrar and transfer office of the
Company is Hong Kong Registrars Limited, 46th Floor, Hopewell
Centre, 183 Queen's Road East, Hong Kong.
- 101 -
APPENDIX II GENERAL INFORMATION
11. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents are available for inspection during
normal business hours at the principal place of business of the Company in Hong
Kong at Unit B1, 9th Floor, United Centre, 95 Queensway, Hong Kong up to and
including 14 October, 2005:
(a) the articles of association of the Company;
(b) the VSA Sale and Purchase Agreement;
(c) the Lease Agreement 1;
(d) the Lease Agreement 2;
(e) the Lease Agreement 3;
(f) the Catering Agreement;
(g) the Financial Agreement;
(h) the audited financial statements of the Group for the years ended 31
December, 2003 and 31 December, 2004;
(i) the circular of the Company dated 27 May, 2005 in respect of the
Previous Airbus Aircraft Acquisition and the Previous Boeing
Aircraft Acquisition; and
(j) the unaudited interim financial report of the Group for the six
month period ended 30 June, 2005.
- 102 -
NOTICE OF THE EGM
[CHINESE CHARACTERS]
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(STOCK CODE: 1055)
NOTICE OF THE FIRST EXTRAORDINARY GENERAL MEETING IN 2005
NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the "EGM")
of China Southern Airlines Company Limited (the "Company") will be held at No.
278, Ji Chang Road, Guangzhou, Guangdong Province, the PRC on 16 December, 2005
at 9:00 a.m. for the purpose of considering and passing the following
resolutions as ordinary resolutions:
ORDINARY RESOLUTION
1. "THAT the entering into of the aircraft acquisition agreement dated
8 August, 2005, a copy of which has been produced to this meeting
marked "A" and initialed by the Chairman of this meeting for the
purpose of identification, between The Boeing Company, a company
incorporated in the State of Delaware of the United States of
America as vendor and Xiamen Airlines Company Limited as purchaser
and the acquisition of three Boeing B787 aircraft, upon the terms
and subject to the conditions therein contained, be and are hereby
unconditionally approved."
2. "THAT the entering into of the aircraft acquisition agreement dated
30 August, 2005, a copy of which has been produced to this meeting
marked "B" and initialed by the Chairman of this meeting for the
purpose of identification, between The Boeing Company, a company
incorporated in the State of Delaware of the United States of
America as vendor and the Company as purchaser and the acquisition
of ten Boeing B787 aircraft, upon the terms and subject to the
conditions therein contained, be and are hereby unconditionally
approved."
3. "THAT the entering into of the aircraft acquisition agreement dated
6 September, 2005, a copy of which has been produced to this meeting
marked "C" and initialed by the Chairman of this meeting for the
purpose of identification, between Airbus SNC, a company
incorporated in the Toulouse as vendor and the Company as purchaser
and the acquisition of ten Airbus A330 aircraft, upon the terms and
subject to the conditions therein contained, be and are hereby
unconditionally approved."
4. "THAT the removal of Peng An Fa as a Director of the Company, be and
is hereby unconditionally approved."
5. "THAT the retirement of Zhou Yong Jin as a Director of the Company,
be and is hereby unconditionally approved."
By Order of the Board of
SU LIANG
Company Secretary
Guangzhou, the People's Republic of China
21 September, 2005
- 103 -
NOTICE OF THE EGM
As at the date of this notice, the Directors of the Company include Liu
Shao Yong, Liu Ming Qi, Peng An Fa, Wang Quan Hua, Zhao Liu An, Zhou Yong Qian,
Zhou Yong Jin, Xu Jie Bo, Wu Rong Nan and Si Xian Min as executive Directors;
and Simon To, Peter Lok, Wei Ming Hai, Wang Zhi and Sui Guang Jun as independent
non-executive Directors.
Notes:
1. PERSONS WHO ARE ENTITLED TO ATTEND THE EGM
a. Holders of H shares of the Company who are registered with Hong Kong
Registrars Limited, the registrar of H shares of the Company, at the
close of trading in the afternoon of 16 November, 2005 ("Eligible
Shareholders") or their representatives are entitled to attend the
EGM after completion of the required registration procedures in
accordance with Note 2 "Registration procedures for attending the
EGM". Holders of A shares of the Company shall receive a notice
separately.
b. The directors, supervisors and senior management of the Company.
c. Representatives of the professional advisers hired by the Company
and special guests invited by the board of directors of the Company.
2. REGISTRATION PROCEDURES FOR ATTENDING THE EGM
a. Eligible Shareholders who intend to attend the EGM either in person
or by proxy must deliver to the Company on or before 26 November,
2005, in person or by post at the registration address of the
Company, or by fax at (+86) 20-8665 9040, the reply slip, which is
attached to the notice of the EGM as Attachment A.
b. When attending the EGM, individual Eligible Shareholder or his/her
proxy shall bring along his/her identity card. The legal
representative of a corporate Eligible Shareholder attending the EGM
shall bring along his/her identity card, together with a notarized
copy of the resolution or power of attorney issued by the board of
directors or other governing body of the corporate Eligible
Shareholder to appoint such legal representative to attend the
meeting.
c. Holders of H shares of the Company who intend to attend the EGM must
deliver their instruments of transfer together with the relevant
share certificates to Hong Kong Registrars Limited, the registrar of
H Shares of the Company, at Shops 1712-1716, 17th Floor, Hopewell
Centre, 183 Queen's Road East, Hong Kong, at or before 4:00 p.m. on
16 November, 2005.
d. The register of H shares of the Company will be closed from 17
November, 2005 to 15 December, 2005 (both days inclusive), during
which period no transfer of H shares will be registered.
3. PROXIES
a. An Eligible Shareholder has the right to appoint one or more proxies
to attend the EGM and vote on his/her behalf. A proxy does not need
to be a shareholder of the Company.
b. A proxy must be appointed by an Eligible Shareholder or his/her
attorney by way of a form of proxy for extraordinary general
meeting, which is attached to the notice of EGM as Attachment B. If
the proxy is appointed by the attorney of an Eligible Shareholder,
the power of attorney or other authorization document(s) authorizing
such attorney to appoint the proxy must be notarized.
c. To be valid, the notarized power of attorney or other authorization
document(s), together with the completed form of proxy for the EGM,
must be lodged with Hong Kong Registrars Limited at 46th Floor,
Hopewell Centre, 183 Queen's Road East, Hong Kong, not less than 48
hours before the time designated for the holding of the EGM.
- 104 -
NOTICE OF THE EGM
4. MISCELLANEOUS
a. The EGM is expected to last for not more than one day. Eligible
Shareholders who attend shall bear their own traveling and
accommodation expenses.
b. The address of the headquarters of the Company is:
1st Floor, No. 278 Ji Chang Road
Guangzhou 510405, Guangdong Province
People's Republic of China
Telephone No.: (+86) 20-8612 4737
Facsimile No.: (+86) 20-8665 9040
Website: www.cs-air.com
Contact persons: Su Liang and Lei Bin
c. Pursuant to the Article 77 of the Articles of Association of the
Company, at any general meeting of shareholders of the Company, a
resolution shall be decided on a show of hands unless a poll is
(before or after any vote by show of hands) demanded:
i. by the chairman of the meeting;
ii. by at least two shareholders entitled to vote present in
person or by proxy; or
iii. by one or more shareholders present in person or by proxy and
representing 10 per cent or more of all shares carrying the
right to vote at the meeting.
The demand for a poll may be withdrawn by the person who makes such
demand.
- 105 -
[CHINESE CHARACTERS]
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(STOCK CODE: 1055)
ATTACHMENT A
REPLY SLIP
TO: CHINA SOUTHERN AIRLINES COMPANY LIMITED
I/we intend to attend (in person/by proxy)(1) the extraordinary general meeting
of the Company to be held on 16 December, 2005.
Name(2)
Number of ordinary shares
registered in my name(3)
Identity card/passport number(1,4)
Share account number
Mailing address
Telephone number
Signature(5): __________________________ Date: ___________________ 2005
Notes:
1. Please delete the option which is not applicable.
2. Please insert your full name in both English and Chinese in block capital
letters.
3. Please attach a photocopy of proof of ownership of your shares.
4. Please attach a photocopy of your identity card/passport.
5. This reply slip must be signed by the registered shareholder. If the
registered shareholder is a company or an organization, then this reply
slip must be sealed with the common seal of such company or organization
or under hand by any directors or agents duly appointed by such company or
organization.
\
[CHINESE CHARACTERS]
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(STOCK CODE: 1055)
ATTACHMENT B
The number of H Shares to which this
proxy form relates(1)
FORM OF PROXY FOR EXTRAORDINARY GENERAL MEETING ("EGM")
I/We(2), _____________________, holder of share account number_________________,
residing at____________________________________________________________________,
being the registered holder of(3) _______________________ ordinary shares of the
Company, HEREBY
APPOINT(4) ___________________________________, residing at_____________________
_______________________________________________________________________________,
as my/our proxy/proxies to attend on my/our behalf the EGM of China Southern
Airlines Company Limited (the "Company") to be held at the headquarters of the
Company, No. 278 Ji Chang Road, Guangzhou, Guangdong Province, the PRC at 9:00
a.m., on 16 December, 2005 and to act and vote on my/our behalf at the EGM in
respect of the resolutions listed below, in accordance with my/our instructions
below(5).
ORDINARY RESOLUTIONS FOR(5) AGAINST(5)
1. To approve the Xiamen Boeing Aircraft Acquisition
Agreement and the transactions contemplated thereunder.
2. To approve the Boeing Aircraft Acquisition Agreement and
the transactions contemplated thereunder.
3. To approve the Airbus Aircraft Acquisition Agreement and
the transactions contemplated thereunder.
4. To approve the removal of Peng An Fa as a Director of
the Company.
5. To approve the retirement of Zhou Yong Jin as a Director
of the Company.
Signature(6): __________________________ Date: _________________ 2005
Notes:
1. Please insert the number of shares in the Company registered in your
name(s) and to which this proxy form relates. If no such number is
inserted, this form of proxy will be deemed to relate to all the shares in
the Company registered in your name(s).
2. Please insert the name(s) and address(es) (as shown in the register of
members) in block capital(s).
3. Please insert the number of all the shares in the Company registered in
your name(s).
4. If no person is appointed as proxy, the Chairman of the EGM will be deemed
to have been appointed by you as your proxy.
5. If you wish to vote for any of the resolutions, please insert a "X" in the
box marked "FOR" or if you wish to vote against any of the resolutions,
please insert a "X" in the box marked "AGAINST" if no indication is given,
then your proxy/proxies may vote in such manner as he/she/they think(s)
fit.
6. This form of proxy must be signed by you or your attorney duly authorised
in writing or, in the case of a company or an organization, either under
the common seal or under the hand of any director or attorney duly
authorised in writing. In any event, the execution shall be made in
accordance with the articles of association of such company or
organization.
7. Unless the context requires otherwise, words and expressions defined in
the circular of the Company setting out details in respect of the above
ordinary resolutions and not otherwise defined herein shall have the same
meanings when used herein.
8. To be valid, this proxy form and, if such proxy form is signed by a person
under a power of attorney or authority on behalf of the appointer, a
notarised copy of that power of attorney or other authority, must be
delivered to Hong Kong Registrars Limited at 46th Floor, Hopewell Centre,
183 Queen's Road East, Hong Kong in not less than 48 hours before the time
appointed for the holding of the AGM.
9. A proxy, on behalf of the shareholder, attending EGM shall bring along the
proxy form duly completed and signed as well as the proof of
identification of the proxy, in the case of a company or an organization,
the proxy shall also bring along a notarised copy of the resolution of the
board of directors or other governing body of the appointer or a letter of
authorization.
10. This proxy form shall be completed in form of a set of two copies, one of
which shall be lodged to the Company pursuant to Note 8; and the other
copy shall be produced upon the EGM by the proxy of the shareholder
pursuant to Note 9.
11. Completion and return of the form of proxy will not preclude you from
attending and voting in person at the EGM or any adjourned EGM should you
so wish.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHINA SOUTHERN AIRLINES COMPANY LIMITED
By /s/ Su Liang
------------------------------------
Name: Su Liang
Title: Company Secretary
Date: September 23, 2005