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 May, 2004
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of registrant's name into English)
Baiyun International Airport
Guangzhou, 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 May 21, 2004
distributed its circular regarding a major transaction to the shareholders of
the Company. A copy of the English version of the circular 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.
(CHINA SOUTHERN AIRLINES COMPANY LIMITED LOGO)
(a joint stock limited company incorporated in the
People's Republic of China with limited liability)
(STOCK CODE: 1055)
MAJOR TRANSACTION
21 May, 2004
CONTENTS
Page
DEFINITIONS .............................................................. 1
LETTER FROM THE BOARD
1. Introduction................................................ 2
2. The Airbus Aircraft Acquisition Agreement................... 3
3. Prospects .................................................. 5
4. Additional Information...................................... 5
APPENDIX I - FINANCIAL INFORMATION OF THE GROUP ..................... 6
APPENDIX II - GENERAL INFORMATION .................................... 53
- i -
DEFINITIONS
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" 15 A320-200 aircraft and six A319-100
aircraft
"Airbus Aircraft Acquisition the aircraft acquisition agreement dated 8
Agreement" April, 2004 pursuant to which the Company
and China Aviation Supplies agreed to
acquire and Airbus agreed to sell the Airbus
Aircraft
"Board" the board of Directors
"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
"CSAHC" China Southern Air Holding Company
"Directors" directors of the Company
"Group" the Company and its subsidiaries
"Latest Practical Date" 14 May, 2004, 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)
"SFO" Securities and Futures Ordinance (Chapter
571 of the Laws of Hong Kong)
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Supervisors" supervisors of the Company
"Transaction" the acquisition of Airbus Aircraft under the
Airbus Aircraft Acquisition Agreement
- 1 -
LETTER FROM THE BOARD
(CHINA SOUTHERN AIRLINES COMPANY LIMITED LOGO)
(a joint stock limited company incorporated in the
People's Republic of China with limited liability)
DIRECTORS: REGISTERED ADDRESS:
Baiyun International Airport
EXECUTIVE DIRECTORS: Guangzhou 510405
Yan Zhi Qing (Chairman of the Board of Directors) PRC
Liu Ming Qi (Vice Chairman of the Board of
Directors)
Wang Chang Shun
(Vice Chairman of the Board of Directors,
President)
Peng An Fa (Director) PRINCIPAL PLACE OF BUSINESS
Wang Quan Hua (Director) IN HONG KONG:
Zhao Liu An (Director) Unit B1, 9th Floor
Zhou Yong Qian (Director) United Centre
Zhou Yong Jin (Director) 95 Queensway
Xu Jie Bo (Director, Chief Financial Officer) Hong Kong
Wu Rong Nan (Director)
INDEPENDENT NON-EXECUTIVE DIRECTORS:
Simon To
Peter Lok
Wei Ming Hai
Wang Zhi
Sui Guang Jun
SUPERVISORS:
Liang Hua Fu (Chairman of the Supervisory Committee)
Gan Yu Hua (Supervisor)
Li Qi Hong (Supervisor)
21 May, 2004
To the Shareholders
Dear Sir or Madam,
MAJOR TRANSACTION
1. INTRODUCTION
On 8 April, 2004, the Board announced that on the same date, the Company
and China Aviation Supplies entered into the Airbus Aircraft Acquisition
Agreement with Airbus for the purpose of acquiring 15 A320-200 aircraft and six
A319-100 aircraft from Airbus.
- 2 -
LETTER FROM THE BOARD
The Transaction constitutes a major transaction of the Company under the
Listing Rules.
The purpose of this circular is to set out further details of the
Transaction.
2. THE AIRBUS AIRCRAFT ACQUISITION AGREEMENT
(1) DATE: 8 April, 2004
(2) PARTIES
(a) the Company, as the purchaser;
(b) China Aviation Supplies as the import agent. The Company
confirms that, to the best of the Directors' knowledge,
information and belief, having made all reasonable enquiries,
each of China Aviation Supplies and its beneficial owner is an
independent third party and not a connected person (as defined
in the Listing Rules) of the Company; and
(c) Airbus SNC, a company incorporated in Toulouse, as the vendor.
The main business activity of Airbus is that of aircraft
manufacturing. The Company confirms that, to the best of the
Directors' knowledge, information and belief, having made all
reasonable enquiries, each of Airbus and its beneficial owner
is an independent third party and not a connected person (as
defined in the Listing Rules) of the Company.
(3) AIRCRAFT TO BE ACQUIRED
15 A320-200 aircraft and six A319-100 aircraft.
(4) CONSIDERATION
The relevant percentage ratio for the Transaction with regards to
the Consideration Test under Rule 14.07 of the Listing Rules is above 25%,
but less than 100%.
According to the information provided by Airbus, as contained in the
Airbus catalog provided to the Company by Airbus dated 31 March, 2004, the
market price of a A320-200 aircraft is in the range of US$57.6 to US$61.6
million and that of a A319-100 aircraft is in the range of US$50.6 to
US$61.2 million.
The aggregate consideration for the acquisition of Airbus Aircraft,
which is payable wholly in cash, is determined after arm's length
negotiation between the parties and is lower than the market price as
contained in the Airbus catalog dated 31 March, 2004.
- 3 -
LETTER FROM THE BOARD
(5) PAYMENT AND DELIVERY TERMS
The aggregate consideration for the acquisition of Airbus Aircraft
is payable in cash by installments. The Airbus Aircraft will be delivered
in stages to the Company through the years 2005 to 2006.
(6) FUNDING
The Transaction will be wholly funded through commercial loans by
commercial banks. Such commercial banks are not and will not be connected
persons (as defined in 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 Transaction.
(7) REASONS FOR THE TRANSACTION
The Company's principal business is that of civil aviation. As
stated in the announcement of the Company dated 30 January, 2004, the
Directors believe that the acquisition of the Airbus Aircraft will further
expand the flight service network and operating capacity of the Company,
thereby enhancing its ability to compete significantly in the industry.
The Directors also believe that the terms of the Airbus 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 the relevant percentage ratio for the Transaction with regards to
the Consideration Test under Rule 14.07 of the Listing Rules is above 25%,
but less than 100%, the Transaction constitutes a major transaction and is
therefore subject to approval by the Company's shareholders under the
Listing Rules.
Each of CSAHC and its associates (as defined in the Listing Rules)
does not have any interest in the Transaction other than as a shareholder
of the Company. Therefore, no shareholder of the Company will be required
to abstain from voting if the Company were to convene a general meeting
for the approval of the Transaction. CSAHC, as the 50.30% controlling
shareholder of the Company, has approved the Transaction by way of a
written approval pursuant to Rule 14.44 of the Listing Rules.
- 4 -
LETTER FROM THE BOARD
3. PROSPECTS
In view of the visible recovery in a new cycle of economic growth in the
global economy, and that China's air transportation industry has regained growth
on all fronts after the Severe Acute Respiratory Syndrome outbreak, it is
expected that the overall growth trend in the PRC air transportation will gain
further momentum from which the PRC and the Group will benefit. On the other
hand, recent political instability in the Middle East and other uncertainties
continue to hamper global economic growth. The continuing high jet fuel price is
also a factor unfavorable to the growth of the air transport industry.
As disclosed in the First Quarterly Report of 2004 of the Company dated 28
April 2004, during the period between 1 January, 2004 and 31 March, 2004, the
domestic aviation market continued to recover with strong demand for air
transportation, which was mainly stimulated by the continuous stable economic
development and the increase in domestic consumption level. For the first
quarter of 2004, the Company's aviation transportation business maintained a
good trend of growth. All production indices were higher as compared to the same
period of last year. Among which, the Company's total traffic volume was
1,041,600,000 tonne-kilometres, representing a growth of 5.6% over the same
period of last year; passengers carried were 6,413,000, representing an increase
of 17.1% from the same period last year; cargo and mail traffic amounted to
124,000 tonnes, representing an increase of 0.8% from the same period last year;
passenger load factor was 65.3%, representing a growth of 4.1% over the
corresponding period last year.
4. ADDITIONAL INFORMATION
Your attention is drawn to the financial and general information set out
in the Annual Report of the Company for the period from 1 January, 2003 to 31
December, 2003.
By Order of the Board
YAN ZHI QING
Chairman
- 5 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
I. SUMMARY OF FINANCIAL STATEMENTS
The following is a summary of the audited consolidated results of the
Group for each of the three years ended 31 December, 2003 and the audited
consolidated balance sheets of the Group as at 31 December, 2002 and 2003
together with the relevant notes ("Financial Statements"), as extracted from the
Company's 2003 Annual Report:
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002 2001
Notes RMB'000 RMB'000 RMB'000
Operating revenue:
Traffic revenue 16,964,800 17,481,892 16,461,532
Other revenue 505,323 536,728 418,126
------------ ------------ ------------
Total operating revenue 3 17,470,123 18,018,620 16,879,658
------------ ------------ ------------
Operating expenses:
Flight operations 7,070,031 6,732,543 6,905,628
Maintenance 2,588,613 2,333,419 2,014,579
Aircraft and traffic servicing 2,767,488 2,511,284 2,297,521
Promotion and sales 1,480,168 1,499,587 1,540,780
General and administrative 1,053,319 1,060,010 892,233
Depreciation and amortisation 2,037,971 1,839,871 1,814,974
Other 16,804 15,829 13,270
------------ ------------ ------------
Total operating expenses 4 17,014,394 15,992,543 15,478,985
------------ ------------ ------------
Operating profit 455,729 2,026,077 1,400,673
------------ ------------ ------------
Non-operating income/(expenses):
Share of associated companies'
results 47,798 36,988 53,077
Share of jointly controlled
entities' results 14 (39,495) (3,352) (4,034)
(Loss)/gain on sale of fixed assets 5 (22,217) 170,740 (55,889)
Interest income 13,061 52,618 49,878
Interest expense 4 (823,725) (959,193) (933,717)
Exchange loss, net (164,443) (175,451) 296,777
Other, net 21,682 (9,328) (11,509)
------------ ------------ ------------
Total net non-operating expenses (967,339) (886,978) (605,417)
------------ ------------ ------------
(Loss)/profit before taxation and
minority interests 4 (511,610) 1,139,099 795,256
Taxation credit/(expense) 7 324,277 (398,227) (320,519)
------------ ------------ ------------
(Loss)/profit before minority
interests (187,333) 740,872 474,737
Minority interests (170,934) (165,111) (134,512)
------------ ------------ ------------
(Loss)/profit attributable to
shareholders (358,267) 575,761 340,225
============ ============ ============
Basic (loss)/earnings per share 9 RMB(0.09) RMB0.17 RMB0.10
============ ============ ============
- 6 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED BALANCE SHEET
As at 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Notes RMB'000 RMB'000
NON-CURRENT ASSETS
Fixed assets 10 28,535,907 26,920,829
Construction in progress 11 1,629,689 661,352
Lease prepayments 348,652 201,854
Interest in associated companies 13 422,201 692,026
Interest in jointly controlled companies 14 731,323 461,962
Other investments 204,971 201,854
Lease and equipment deposits 2,932,591 2,147,038
Deferred expenditure 15 248,853 283,303
Long-term receivables 6,380 12,034
------------ ------------
35,060,567 31,582,252
------------ ------------
CURRENT ASSETS
Inventories 17 543,777 545,700
Trade receivables 18 833,604 671,776
Other receivables 296,047 372,586
Prepaid expenses and other assets 247,926 244,690
Cash and cash equivalents 20 2,080,174 3,771,043
------------ ------------
4,001,528 5,605,795
------------ ------------
CURRENT LIABILITIES
Bank and other loans 21 7,096,846 5,240,726
Obligations under finance leases 22 1,297,855 1,566,698
Amounts due to related companies 19 929,003 525,090
Other liabilities 1,019,811 646,989
Accounts payable 23 928,093 532,480
Bills payable 438,135 1,299,680
Sales in advance of carriage 466,087 390,531
Accrued expenses 2,527,794 2,341,454
Taxes payable 89,954 78,145
------------ ------------
14,793,578 12,621,793
------------ ------------
NET CURRENT LIABILITIES (10,792,050) (7,015,998)
------------ ------------
TOTAL ASSETS LESS CURRENT LIABILITIES 24,268,517 24,566,254
------------ ------------
- 7 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
2003 2002
Notes RMB'000 RMB'000
LONG TERM LIABILITIES AND DEFERRED ITEMS
Bank and other loans 21 4,521,735 5,835,434
Obligations under finance leases 22 5,543,084 6,631,751
Provision for major overhauls 24 189,464 141,887
Deferred credits 46,554 48,095
Deferred taxation 16 398,305 779,234
------------ ------------
10,699,142 13,436,401
------------ ------------
13,569,375 11,129,853
============ ============
REPRESENTING:
SHARE CAPITAL 25 4,374,178 3,374,178
RESERVES 26 7,521,529 6,239,029
------------ ------------
SHAREHOLDERS' EQUITY 11,895,707 9,613,207
MINORITY INTERESTS 1,673,668 1,516,646
------------ ------------
13,569,375 11,129,853
============ ============
- 8 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
BALANCE SHEET
As at 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Notes RMB'000 RMB'000
NON-CURRENT ASSETS
Fixed assets 10 22,610,251 19,530,908
Construction in progress 11 1,532,462 615,511
Lease prepayments 116,276 15,502
Interest in subsidiaries 12 1,445,831 1,406,010
Interest in associated companies 13 287,235 367,573
Interest in jointly controlled entities 14 563,736 474,042
Other investments 106,548 106,009
Lease and equipment deposits 2,228,754 2,065,192
Deferred expenditure 15 240,514 272,636
------------ ------------
29,131,607 24,853,383
------------ ------------
CURRENT ASSETS
Inventories 17 213,219 118,134
Trade receivables 18 683,206 464,930
Other receivables 222,438 239,601
Prepaid expenses and other assets 181,856 141,591
Cash and cash equivalents 20 1,404,874 2,960,337
------------ ------------
2,705,593 3,924,593
------------ ------------
CURRENT LIABILITIES
Bank and other loans 21 5,958,968 3,479,322
Obligations under finance leases 22 1,297,855 1,566,698
Amounts due to related companies 19 870,682 358,077
Other liabilities 854,057 411,218
Accounts payable 23 745,888 296,989
Bills payable 438,135 1,299,680
Sales in advance of carriage 405,851 340,457
Accrued expenses 1,628,072 1,049,806
Tax payable 48,142 48,143
------------ ------------
12,247,650 8,850,390
------------ ------------
NET CURRENT LIABILITIES (9,542,057) (4,925,797)
------------ ------------
TOTAL ASSETS LESS CURRENT LIABILITIES 19,589,550 19,927,586
------------ ------------
- 9 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
2003 2002
Notes RMB'000 RMB'000
NON-CURRENT LIABILITIES AND DEFERRED ITEMS
Bank and other loans 21 3,670,499 4,628,372
Obligations under finance leases 22 5,543,084 6,631,751
Provision for major overhauls 24 130,992 63,389
Deferred credits 6,317 7,855
Deferred taxation 16 89,708 507,077
------------ ------------
9,440,600 11,838,444
------------ ------------
NET ASSETS 10,148,950 8,089,142
============ ============
REPRESENTING:
SHARE CAPITAL 25 4,374,178 3,374,178
RESERVES 26 5,774,772 4,714,964
------------ ------------
SHAREHOLDERS' EQUITY 10,148,950 8,089,142
============ ============
- 10 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
SHARE SHARE OTHER RETAINED
CAPITAL PREMIUM RESERVES EARNINGS TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
At 1 January, 2002 3,374,178 3,813,659 687,174 1,346,652 9,221,663
Land use rights adjustment
(Note 26(f)) - (129,703) - 12,970 (116,733)
Adjustments from adoption
of new PRC accounting
regulations (Note 26(c)) - - (185,540) 185,540 -
Dividend paid (Note 8) - - - (67,484) (67,484)
Profit for the year - - - 575,761 575,761
Appropriations to reserves - - 83,738 (83,738) -
---------- ---------- -------- ---------- -----------
At 31 December, 2002 3,374,178 3,683,956 585,372 1,969,701 9,613,207
========== ========== ======== ========== ===========
At 1 January, 2003 3,374,178 3,683,956 585,372 1,969,701 9,613,207
Issue of A shares (Note 25) 1,000,000 1,640,767 - - 2,640,767
Loss for the year - - - (358,267) (358,267)
Appropriations to reserves - - 24,969 (24,969) -
---------- ---------- -------- ---------- -----------
At 31 December, 2003 4,374,178 5,324,723 610,341 1,586,465 11,895,707
========== ========== ======== ========== ===========
- 11 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Note RMB'000 RMB'000
Cash inflows from operations 33(a) 3,074,718 4,762,923
Interest received 13,061 52,618
Interest paid (923,901) (1,051,027)
Income tax paid (35,129) (66,970)
------------ ------------
Net cash inflows from operating activities 2,128,749 3,697,544
------------ ------------
Investing activities:
Proceeds from sale of fixed assets 57,077 825,197
Proceeds from sale of investments - 68
Dividends received from associated companies - 3,093
Decrease/(increase) in long term receivables 5,654 (943)
Payment of lease and equipment deposits (1,851,726) (1,999,233)
Refund of lease and equipment deposits 1,066,086 2,117,386
Capital expenditures (4,706,740) (6,351,030)
Purchase of investments in equity securities (1,065) (6,721)
Investment in associated company - (136,500)
Investments in jointly controlled entities (2,999) (295,670)
Governmental subsidy for safety related
capital expenditures - 40,240
Effect of acquisition of subsidiaries 33(c) - (90,491)
------------ ------------
Net cash used in investing activities (5,433,713) (5,894,604)
------------ ------------
Net cash outflows before financing activities (3,304,964) (2,197,060)
------------ ------------
Financing activities:
Proceeds from A share issue,
net of issuance costs 2,640,767 -
Proceeds from bank and other loans 8,913,992 6,996,780
Repayment of bank and other loans (8,371,362) (2,194,630)
Repayment of principal under finance
lease obligations (1,555,390) (1,546,185)
Capital contribution received from
minority shareholders 1,050 10,625
Dividends paid to shareholders - (67,484)
Dividends paid to minority shareholders (14,962) (48,866)
------------ ------------
Net cash inflows from financing activities 1,614,095 3,150,240
------------ ------------
(Decrease)/Increase in cash and cash equivalents (1,690,869) 953,180
Cash and cash equivalents at beginning of year 3,771,043 2,817,863
------------ ------------
Cash and cash equivalents at end of year 2,080,174 3,771,043
============ ============
- 12 -
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 subsidiary
companies (collectively 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 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 and American Depositary Shares ("ADS") (each ADS
representing 50 H Shares) are 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 which are listed on the Shanghai Stock
Exchange.
2 PRINCIPAL ACCOUNTING POLICIES
(A) STATEMENT OF COMPLIANCE
The financial statements of the Group and the Company have been
prepared in accordance with International Financial Reporting Standards
("IFRS") promulgated by the International Accounting Standards Board and
the disclosure requirements of the Hong Kong Companies Ordinance. IFRS
includes International Accounting Standards ("IAS") and related
interpretations.
(B) BASIS OF PREPARATION
The financial statements of the Group and the Company are prepared
on the historical cost basis as modified by the revaluation of certain
fixed assets. The accounting policies have been consistently applied by
the Group and the Company and are consistent with those used in the
previous year.
(C) BASIS OF CONSOLIDATION
The consolidated financial statements of the Group include the
financial statements of the Company and all of its subsidiaries made up to
31 December each year. Subsidiaries are those enterprises controlled by
the Group. Control exists when the Group has the power, directly or
indirectly, to govern the financial and operating policies of an
enterprise so as to obtain benefits from its activities. The financial
statements of subsidiaries are included in the consolidated financial
statements from the date that control effectively commences until the date
that control effectively ceases.
The results of subsidiaries are included in the consolidated profit
and loss account and the share attributable to minority shareholders is
deducted from or added to the consolidated profit after taxation. Losses
attributable to minority shareholders of partly owned subsidiaries are
accounted for based on the respective equity owned by the minority
shareholders up to the amount of the capital contribution and reserves
attributable to the minority shareholders. Thereafter, all further losses
are assumed by the Company.
All significant intercompany balances and transactions have been
eliminated on consolidation.
(D) INTEREST-BEARING BORROWINGS
Interest-bearing borrowings are recognised initially at cost, 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
profit and loss account over the period of the borrowings on an effective
interest basis.
- 13 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(E) INVESTMENTS
(i) Investments in subsidiaries
Investments in subsidiaries in the Company's balance sheet are
stated at cost less impairment losses (refer to accounting policy
n).
(ii) Investments in associated companies and jointly controlled
entities
An associated company is an entity in which the Group or the
Company has significant influence, but not control or joint control,
over its management, including participating in the financial and
operating policy decisions.
A jointly controlled entity is an entity which operates under
a contractual agreement between the Group or the Company and other
parties, where the contractual agreement establishes the Group or
the Company and one or more of the other parties share joint control
over the economic activity of the entity.
The consolidated profit and loss account includes the Group's
share of the results of its associated companies and jointly
controlled entities for the year. In the consolidated balance sheet,
the investments in associated companies and jointly controlled
entities are stated at the Group's attributable share of net assets.
When the Group's share of losses exceeds the carrying amount of the
associated company or jointly controlled entity, the carrying amount
is reduced to nil and recognition of further losses is discontinued
except to the extent that the Group has incurred obligations in
respect of the associated company or jointly controlled entity.
The results of associated companies and jointly controlled
entities are included in the Company's profit and loss account to
the extent of dividends received and receivable, providing such
dividends are in respect of a period ending on or before that of the
Company and the Company's right to receive the dividend is
established before 31 December each year. In the Company's balance
sheet, investments in associated companies and jointly controlled
entities are stated at cost, less impairment losses (refer to
accounting policy n).
(iii) Other investments
Other investments are stated at cost less impairment losses
(refer to accounting policy n). 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.
(F) FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost or revalued amount less accumulated
depreciation and impairment losses (refer to accounting policy n).
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.
Depreciation is provided to write off the cost, or revalued amount
where appropriate, of the fixed assets over their estimated useful lives
on a straight line basis, after taking into account their estimated
residual values, 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%
No depreciation is provided in respect of construction in progress.
- 14 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(G) LEASED ASSETS
Flight equipment under finance leases 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, and is amortised on a straight line basis over
the shorter of the lease term or estimated useful life of the asset to
residual value. In cases where title to the asset will be acquired by the
Group at the end of the lease, the asset is amortised on a straight line
basis over the estimated useful life of the asset to its residual value.
Amounts payable in respect of finance leases are apportioned between
interest charges and reductions of obligations based on the interest rates
implicit in the leases. Interest charges are included in the profit and
loss account to provide a constant periodic rate of charge over the lease
term.
Gains on aircraft sale and leaseback transactions which result in
finance leases are deferred and amortised over the terms of the related
leases. Gains on other aircraft sale and leaseback transactions are
recognised as income immediately if the transactions are established at
fair value. Any excess of the sales price over fair value is deferred and
amortised over the period the assets are expected to be used.
Operating lease payments are charged to the profit and loss account
on a straight line basis over the terms of the related leases.
(H) 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 fixed assets 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.
(I) 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 (Note 26).
(J) 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 is stated at the
lower of cost and net realisable value. Net realisable value represents
estimated resale price.
(K) TRADE AND OTHER RECEIVABLES
Trade and other receivables are stated at cost less impairment
losses. Impairment losses are established based on evaluation of the
recoverability of these accounts at the balance sheet date.
(L) 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.
- 15 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(M) 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.
(N) IMPAIRMENT LOSS
The carrying amounts of the Group's and the Company's assets, other
than inventories (refer to accounting policy j) and deferred tax assets
(refer to accounting policy u) 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 profit and loss account.
The Group and the Company assess 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.
(O) 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.
(P) REVENUE RECOGNITION
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 and
contributions to the CAAC Infrastructure Development Fund.
Interest income is recognised as it accrues unless collectability is
in doubt. Dividend income is recognised when the Group's right to receive
the dividend is established.
Operating lease income is recognised on a straight line basis over
the terms of the respective leases.
(Q) 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.
(R) 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 profit
and loss account 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 scheduled overhauls required to be performed on the
related aircraft prior to their return to the lessors.
- 16 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(S) TRANSLATION OF FOREIGN CURRENCIES
Foreign currency transactions during the year are translated into
Renminbi at the applicable rates of exchange prevailing on the transaction
dates.
Foreign currency monetary balances at the balance sheet date are
translated into Renminbi at the exchange rates quoted by the People's Bank
of China ruling at that date. Exchange differences are dealt with in the
profit and loss account.
(T) BORROWING COSTS
Borrowing costs are expensed in the profit and loss account 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.
(U) 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.
(V) RETIREMENT BENEFITS
Contributions to retirement schemes and additional retirement
benefits paid to retired employees are charged to the profit and loss
account 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.
(X) 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.
(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
entities.
- 17 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(Z) SEGMENTAL REPORTING
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.
(AA) USE OF ESTIMATES
The preparation of the financial statements of the Group and the
Company in accordance with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
- 18 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
3 TURNOVER
Turnover comprises revenues from airline and airline-related business and
is stated net of sales tax and contributions to the CAAC Infrastructure
Development Fund. An analysis of turnover is as follows:
2003 2002
RMB'000 RMB'000
Traffic revenue
Passenger 15,009,885 15,695,622
Cargo and mail 1,954,915 1,786,270
---------- ----------
16,964,800 17,481,892
---------- ----------
Other operating revenue
Commission income 140,180 137,928
General aviation income 40,309 68,225
Ground services income 99,130 78,616
Air catering income 30,756 38,077
Net income from lease arrangements (Note 10) 69,121 51,682
Rental income 40,307 -
Aircraft lease income - 46,640
Other 85,520 115,560
---------- ----------
505,323 536,728
---------- ----------
17,470,123 18,018,620
========== ==========
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% (2002: 3%) of traffic revenue, except
for the period from 1 May, 2003 to 31
December, 2003 during which passenger
revenue was exempted from sales tax. All
inbound international and Hong Kong
regional flights are exempted from sales
tax.
Other operating revenue 3% (2002: 3%) of commission income, general
aviation income and ground services income,
and 3% to 5% (2002: 3% to 5%) of other
operating revenue.
Sales tax incurred during the year ended 31 December, 2003, netted off
against revenue, amounted to RMB205,925,000 (2002: RMB557,784,000). In addition,
the Group is required to pay contributions to the CAAC Infrastructure
Development Fund which are calculated at the rates of 5% and 2%, respectively
(2002: 5% and 2%, respectively) of the domestic and international/Hong Kong
regional traffic revenue, except for the period from 1 May, 2003 to 31 December,
2003 during which the Group was exempted from paying the contributions.
Contributions to the CAAC Infrastructure Development Fund payable by the Group
for the year ended 31 December, 2003 totalled RMB250,802,000 (2002:
RMB798,386,000).
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, 2003,
the fuel surcharge revenue of the Group totalled approximately RMB740 million
(2002: RMB554 million).
- 19 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
4 (LOSS)/PROFIT BEFORE TAXATION AND MINORITY INTERESTS
2003 2002
RMB'000 RMB'000
(Loss)/profit before taxation and minority interests is arrived at
after charging:
Operating expenses
Jet fuel 3,866,932 3,519,005
Aircraft maintenance 2,376,635 2,134,705
Routes 4,363,277 4,297,767
Depreciation
- owned assets 1,502,013 1,301,601
- assets held under finance leases 495,869 537,692
Amortisation of deferred expenditure 40,089 578
Operating lease charges
- aircraft and other flight equipment 1,536,466 1,416,524
- buildings 135,528 129,982
Staff costs
- salaries, wages and welfare 1,496,191 1,538,617
- contributions to retirement schemes 150,447 131,622
Office and administration 470,565 452,432
Auditors' remuneration 8,200 8,200
Other 572,182 523,818
---------- ----------
17,014,394 15,992,543
---------- ----------
Interest expense
Interest on bank and other loans wholly
repayable within five years 288,293 335,953
Interest on other loans 176,026 142,679
Finance charges on obligations under finance leases 442,483 544,747
Less: Borrowing costs capitalised (Note) (83,077) (64,186)
---------- ----------
Net interest expense 823,725 959,193
---------- ----------
and after crediting:
Amortisation of gains on sale and leaseback transactions - 2,579
Dividend income from unlisted investments 17,220 7,116
========== ==========
Note: The borrowing costs have been capitalised at rates ranging 1.62% to
5.46% per annum (2002: 5.70%).
The (loss)/profit attributable to shareholders for the year ended 31
December, 2003 includes a loss of RMB580,959,000 (2002: profit of
RMB381,305,000) which has been dealt with in the financial statements of the
Company.
- 20 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
5 (LOSS)/GAIN ON SALE OF FIXED ASSETS
(Loss)/gain on sale of fixed assets represents:
2003 2002
RMB'000 RMB'000
Aircraft (Note) (20,405) 199,394
Staff quarters (Note 28) - (17,624)
Flight equipment and other fixed assets (1,812) (11,030)
------- -------
(22,217) 170,740
======= =======
Note: During 2003, the Group incurred a loss of RMB20,405,000 on early
retirement of two old Boeing 737-200 aircraft.
Pursuant to certain sale and leaseback arrangements, the Group sold
four Boeing 757-200 aircraft during 2002 to independent third
parties and then entered into operating leases with such parties to
lease back the aircraft for a period of eight to nine years. For the
year ended 31 December, 2002, the Group recognised a profit of
RMB199,394,000, being the excess of the sale proceeds which
approximated the aircraft's fair value on the date of disposal, over
the aircraft's net book value and related disposal costs.
6 EMOLUMENTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
(A) DIRECTORS' AND SUPERVISORS' EMOLUMENTS
2003 2002
RMB'000 RMB'000
Fees 203 103
Salaries, allowances and benefits in kind 1,244 970
Retirement benefits 98 67
Bonuses 943 264
----- -----
2,488 1,404
===== =====
Included in the above were fees of RMB203,000 (2002: RMB103,000)
paid to non-executive independent directors during the year.
An analysis of directors' and supervisors' emoluments by number of
individuals and emolument ranges is as follows:
2003 2002
Number Number
Nil to HK$1,000,000 (RMB1,066,000 equivalent) 18 14
===== =====
- 21 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(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:
2003 2002
RMB'000 RMB'000
Salaries, allowances and benefits in kind 1,701 1,496
Retirement benefits 25 24
----- -----
1,726 1,520
===== =====
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:
2003 2002
Number Number
Directors and supervisors - 1
Employees 5 4
----- -----
5 5
===== =====
Nil to HK$1,000,000 (RMB1,066,000 equivalent) 5 5
===== =====
7 TAXATION (CREDIT)/EXPENSE
Taxation (credit)/expense in the consolidated profit and loss account
comprises:
2003 2002
RMB'000 RMB'000
PRC income tax 46,938 71,651
Share of taxation of associated companies 3,342 9,424
Share of taxation of jointly controlled entities 6,372 -
-------- -------
56,652 81,075
Deferred taxation (Note 16)
- current year 11,208 317,152
- adjustment for change in income tax rate (392,137) -
-------- -------
Taxation (credit)/expense (324,277) 398,227
======== =======
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 to 15% from 33% beginning from
that date.
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
RMB507,077,000 was reduced by RMB392,137,000 and a net deferred tax credit of
RMB392,137,000 was recognised for such reduction in income tax rate in the
consolidated profit and loss account for the year ended 31 December, 2003.
- 22 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
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 PRC government, or has
sustained tax losses in these overseas jurisdictions. Accordingly, no provision
for overseas tax has been made for the year (2002: nil).
Actual taxation amount in the consolidated profit and loss account
differed from the amount computed by applying the PRC income tax rate of 15% to
consolidated (loss)/profit before taxation and minority interests as a result of
the following:
2003 2002
RMB'000 RMB'000
Consolidated (loss)/profit before taxation and minority interests (511,610) 1,139,099
======== =========
Expected PRC income tax (credit)/expense at 15% (2002: 33%) (76,742) 375,903
Adjustments:
Gains on sale and leaseback transactions and their amortisation - (851)
Effect of change in income tax rate (392,137) -
Rate differential on subsidiaries - (60,530)
Non-deductible expenses 79,907 61,454
Other, net 64,695 22,251
-------- ---------
(324,277) 398,227
======== =========
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.
For the year ended 31 December, 2003, the PRC withholding tax payable by
the Group in respect of the leases executed on or after 1 September, 1999 of
RMB7,706,000 (2002: RMB14,305,000) has been included as part of the operating
lease charges for the year.
8 DIVIDENDS
No interim dividend was paid during the year ended 31 December, 2003
(2002: Nil).
The board of directors of the Company does not recommend the payment of a
final dividend in respect of the year ended 31 December, 2003.
A final dividend of RMB0.02 per share totalling RMB67,484,000 in respect
of the year ended 31 December, 2001 was approved and paid during 2002.
9 BASIC (LOSS)/EARNINGS PER SHARE
The calculation of basic (loss)/earnings per share is based on the
consolidated loss attributable to shareholders of RMB358,267,000 (2002: profit
of RMB575,761,000) and the weighted average number of shares in issue during the
year of 3,831,712,000 (2002: 3,374,178,000).
The amount of diluted (loss)/earnings per share is not presented as there
were no dilutive potential ordinary shares in existence for both years.
- 23 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
10 FIXED ASSETS
OTHER FLIGHT
AIRCRAFT EQUIPMENT, MACHINERY,
HELD UNDER INCLUDING EQUIPMENT
FINANCE ROTABLE AND
BUILDINGS OWNED LEASES SPARES VEHICLES TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(A) THE GROUP
Cost or valuation:
At 1 January, 2003 3,160,073 13,510,717 11,459,978 6,283,470 1,782,400 36,196,638
Exchange adjustments 16,572 - - - 36,851 53,423
Reclassification on exercise
of purchase options - 997,403 (997,403) - - -
Additions 11,382 2,818,475 - 558,594 137,307 3,525,758
Transferred from
construction in progress 133,839 - - - 12,255 146,094
Disposals (34,273) (104,235) - - (38,540) (177,048)
--------- ---------- --------- --------- ------- ----------
At 31 December, 2003 3,287,593 17,222,360 10,462,575 6,842,064 1,930,273 39,744,865
--------- ---------- --------- --------- ------- ----------
Representing:
Cost 2,932,399 10,993,419 6,123,034 4,667,887 1,446,235 26,162,974
Valuation - 1996 355,194 6,228,941 4,339,541 2,174,177 484,038 13,581,891
--------- ---------- --------- --------- ------- ----------
3,287,593 17,222,360 10,462,575 6,842,064 1,930,273 39,744,865
--------- ---------- --------- --------- ------- ----------
Accumulated depreciation:
At 1 January, 2003 476,867 2,145,849 2,499,495 3,177,253 976,345 9,275,809
Exchange adjustments 2,892 - - - 30,129 33,021
Reclassification on exercise
of purchase options - 389,958 (389,958) - - -
Charge for the year 128,776 710,509 495,869 467,202 195,526 1,997,882
Written back on disposal (14,740) (54,555) - - (28,459) (97,754)
--------- ---------- --------- --------- ------- ----------
At 31 December, 2003 593,795 3,191,761 2,605,406 3,644,455 1,173,541 11,208,958
--------- ---------- --------- --------- ------- ----------
Net book value:
At 31 December, 2003 2,693,798 14,030,599 7,857,169 3,197,609 756,732 28,535,907
========= ========== ========= ========= ======= ==========
At 31 December, 2002 2,683,206 11,364,868 8,960,483 3,106,217 806,055 26,920,829
========= ========== ========= ========= ======= ==========
- 24 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
OTHER FLIGHT
AIRCRAFT EQUIPMENT, MACHINERY,
HELD UNDER INCLUDING EQUIPMENT
FINANCE ROTABLE AND
BUILDINGS OWNED LEASES SPARES VEHICLES TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(B) THE COMPANY
Cost or valuation:
At 1 January, 2003 1,036,612 9,053,359 11,459,978 3,941,880 895,562 26,387,391
Reclassification on exercise
of purchase options -- 997,403 (997,403) -- -- --
Additions 2,228 2,818,475 -- 455,763 87,555 3,364,021
Additions through transfer
of fixed assets upon
dissolution of subsidiary 514,197 -- -- 998,215 217,272 1,729,684
Transferred from construction
in progress 91,018 -- -- -- 8,228 99,246
Disposals (347) -- -- -- (20,178) (20,525)
----------- ----------- ----------- ----------- ----------- -----------
At 31 December, 2003 1,643,708 12,869,237 10,462,575 5,395,858 1,188,439 31,559,817
----------- ----------- ----------- ----------- ----------- -----------
Representing:
Cost 1,449,476 8,255,920 6,123,034 3,570,949 924,558 20,323,937
Valuation - 1996 194,232 4,613,317 4,339,541 1,824,909 263,881 11,235,880
----------- ----------- ----------- ----------- ----------- -----------
1,643,708 12,869,237 10,462,575 5,395,858 1,188,439 31,559,817
----------- ----------- ----------- ----------- ----------- -----------
Accumulated depreciation:
At 1 January, 2003 176,841 1,327,363 2,499,495 2,387,634 465,150 6,856,483
Reclassification on exercise
of purchase options -- 389,958 (389,958) -- -- --
Charge for the year 72,980 514,000 495,869 373,896 116,207 1,572,952
Additions through transfer
of fixed assets upon
dissolution of subsidiary 73,772 -- -- 311,097 153,358 538,227
Written back on disposal (23) -- -- -- (18,073) (18,096)
----------- ----------- ----------- ----------- ----------- -----------
At 31 December, 2003 323,570 2,231,321 2,605,406 3,072,627 716,642 8,949,566
----------- ----------- ----------- ----------- ----------- -----------
Net book value:
At 31 December, 2003 1,320,138 10,637,916 7,857,169 2,323,231 471,797 22,610,251
=========== =========== =========== =========== =========== ===========
At 31 December, 2002 859,771 7,725,996 8,960,483 1,554,246 430,412 19,530,908
=========== =========== =========== =========== =========== ===========
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 a period 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 Group gives appropriate notice of termination. In
this connection, rental payments totalling RMB15,224,000 (2002: RMB15,224,000)
were paid to CSAHC during 2003 in respect of these leases.
- 25 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
During the year, 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 RMB34,175,000 was
received by the Company during 2003 in respect of the leases. As at 31 December,
2003, the cost and accumulated depreciation of the relevant fixed assets
totalled RMB787,432,000 and RMB462,281,000 respectively. As at 31 December,
2003, the Company's rental receivable in respect of the leases due in 2004
amounted to RMB34,175,000.
In compliance with the PRC rules and regulations governing initial public
offering of shares by PRC joint stock limited companies, the fixed assets 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 fixed assets 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 fixed assets held by the Group as at 31 December, 2000,
the carrying amounts of fixed assets 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 RMB33,000,000 (2002:
RMB33,000,000). Had the fixed assets of the Group and the Company been stated at
cost, that is, the effect of the revaluation was excluded, the net book values
of fixed assets of the Group and the Company as at 31 December, 2003 would have
been approximately RMB28,522,787,000 and RMB22,793,781,000 respectively (2002:
RMB26,874,709,000 and RMB19,440,211,000 respectively), made up as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Buildings 3,109,988 2,982,468 1,610,075 1,002,979
Aircraft
- owned 18,344,930 14,694,256 13,657,746 9,841,868
- held under finance leases 10,942,131 11,939,534 10,942,131 11,939,534
Flight equipment and others 9,634,146 8,927,679 6,910,210 5,163,355
---------- ---------- ---------- ----------
42,031,195 38,543,937 33,120,162 27,947,736
Less: Accumulated depreciation 13,508,408 11,669,228 10,326,381 8,507,525
---------- ---------- ---------- ----------
28,522,787 26,874,709 22,793,781 19,440,211
========== ========== ========== ==========
As at 31 December, 2003, certain aircraft of the Group and the Company
with an aggregate carrying value of approximately RMB14,575,906,000 and
RMB12,795,867,000 respectively (2002: RMB14,782,559,000 and RMB12,893,592,000,
respectively) were mortgaged under certain loan and lease agreements (see Notes
21 and 22).
- 26 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
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. As agreed, 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. As long as 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
fixed assets. As at 31 December, 2003, the net present value of the lease
commitments and the corresponding defeased deposits and debt securities amounted
to RMB2,409,252,000 (2002: RMB1,322,843,000). As a result of the Arrangements,
the Company received net cash benefits of RMB51,682,000 and RMB69,121,000 in
2002 and 2003 respectively which have been recognised as income for the
respective years.
11 CONSTRUCTION IN PROGRESS
Construction in progress comprises expenditure incurred on the
construction of buildings and other operating facilities not yet substantially
completed at 31 December, 2003, details as follows:
2003 2002
RMB'000 RMB'000
THE COMPANY
Guangzhou new airport base 1,378,063 432,580
Hubei catering building 27,911 23,407
Zhengzhou ticket selling office 22,016 21,988
Material and engineering system 21,066 21,063
Henan office building 13,986 3,717
Guangzhou ticket selling office -- 45,988
Other 69,420 66,768
--------- ---------
1,532,462 615,511
--------- ---------
SUBSIDIARIES
Guangzhou new cargo centre 67,697 --
Fuzhou Chang Le airport facilities 14,244 14,839
Other 15,286 31,002
--------- ---------
97,227 45,841
--------- ---------
1,629,689 661,352
========= =========
- 27 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
12 INTEREST IN SUBSIDIARIES
THE COMPANY
2003 2002
RMB'000 RMB'000
Unlisted shares/capital contributions, at cost 977,540 1,086,793
Amounts due from subsidiaries 468,291 319,217
--------- ---------
1,445,831 1,406,010
========= =========
In March 2003, China Southern Airlines (Group) Shenzhen Co., a wholly
owned subsidiary of the Company, was dissolved in March 2003. Its operation and
respective assets and liabilities were transferred to the Company since then. No
material gains or losses were incurred by the Group on dissolution of the
subsidiary.
Details of the Company's subsidiaries are set out in Note 36.
13 INTEREST IN ASSOCIATED COMPANIES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Share of attributable net assets
other than goodwill 422,201 692,026 -- --
Unlisted capital contributions, at cost -- -- 348,502 428,840
Impairment loss for investment
in associated company -- -- (61,267) (61,267)
-------- -------- -------- --------
422,201 692,026 287,235 367,573
======== ======== ======== ========
Details of the Group's associated companies are set out in Note 37.
14 INTEREST IN JOINTLY CONTROLLED ENTITIES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Share of attributable net assets
other than goodwill 731,323 461,962 -- --
Unlisted capital contributions, at cost -- -- 563,736 474,042
------- ------- ------- -------
731,323 461,962 563,736 474,042
======= ======= ======= =======
Details of the Company's jointly controlled entities are set out in Note
37.
- 28 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
An analysis of the Group's attributable share of assets, liabilities,
revenues and expenses of the jointly controlled entities is set out below:
2003 2002
RMB'000 RMB'000
Non-current assets 606,185 290,088
Current assets 618,799 326,712
Non-current liabilities (235,718) --
Current liabilities (257,943) (154,838)
-------- --------
Net assets 731,323 461,962
======== ========
Income 486,049 --
Expenses (525,544) (3,352)
-------- --------
Net loss (39,495) (3,352)
======== ========
15 DEFERRED EXPENDITURE
Deferred expenditure mainly comprises custom duties and other direct costs
incurred in respect of the Group's operating leased aircraft upon the inception
of the respective leases, and lump sum housing benefits provided to eligible
employees of the Group:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Custom duties and other direct costs 60,135 257,509 36,551 168,265
Lump sum housing benefits (Note 28) 260,000 260,000 260,000 260,000
------- ------- ------- -------
320,135 517,509 296,551 428,265
Less: Accumulated amortisation 71,282 234,206 56,037 155,629
------- ------- ------- -------
248,853 283,303 240,514 272,636
======= ======= ======= =======
16 DEFERRED TAXATION
Movements in net deferred tax liabilities are as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Balance at 1 January, (779,234) (519,577) (507,077) (293,991)
Land use rights adjustment (Note 26(f)) -- 57,495 -- 57,495
Transferred from profit and loss account
(Note 7)
- current year (11,208) (317,152) 25,232 (270,581)
- adjustment for change in income
tax rate 392,137 -- 392,137 --
-------- -------- -------- --------
Balance at 31 December, (398,305) (779,234) (89,708) (507,077)
======== ======== ======== ========
- 29 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
The net deferred tax liabilities at 31 December, 2003 were made up of the
following taxation effects:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Deferred tax assets:
Tax losses 222,936 149,338 222,936 149,338
Repairs and maintenance accruals 87,608 63,896 93,097 69,385
Repair charges capitalised 261,312 319,697 199,292 259,147
Accrued expenses 18,883 311,893 18,883 311,893
Other 8,989 129,423 10,829 144,463
---------- ---------- ---------- ----------
Total deferred tax assets 599,728 974,247 545,037 934,226
---------- ---------- ---------- ----------
Deferred tax liabilities:
Undistributed profits of subsidiaries -- 254,210 -- 254,210
Repairs and maintenance accruals 80,545 78,083 -- --
Depreciation of fixed assets 847,781 1,403,278 590,543 1,187,093
Other 69,707 17,910 44,202 --
---------- ---------- ---------- ----------
Total deferred tax liabilities 998,033 1,753,481 634,745 1,441,303
---------- ---------- ---------- ----------
Net deferred tax liabilities (398,305) (779,234) (89,708) (507,077)
========== ========== ========== ==========
17 INVENTORIES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Expendable spare parts
and maintenance materials 486,290 489,554 182,742 106,376
Other supplies 57,487 56,146 30,477 11,758
------- ------- ------- -------
543,777 545,700 213,219 118,134
======= ======= ======= =======
No significant amount of inventories was carried at net realisable value
at 31 December, 2002 and 2003.
18 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 impairment losses, is set out below:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Within 1 month 589,080 576,789 445,980 394,744
More than 1 month but less than
3 months 235,828 88,133 228,530 62,536
More than 3 months but less than
12 months 8,696 6,854 8,696 7,650
------- ------- ------- -------
833,604 671,776 683,206 464,930
======= ======= ======= =======
- 30 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
As at 31 December, 2003, the Group and the Company had an amount due from
a fellow subsidiary of RMB54,161,000 (2002: RMB89,550,000) which was included in
trade receivables.
All of the trade receivables are expected to be recovered within one year.
19 AMOUNTS DUE TO RELATED COMPANIES
Amounts due to related companies, which represent balances with CSAHC and
its affiliates, and the Group's associated companies and jointly controlled
entities, are unsecured, interest free and repayable within one year. The
balance at 31 December, 2002 also included balances with the CAAC and its
affiliates.
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 associated company
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, 2003 were simultaneously placed with several designated
major PRC banks by SA Finance. As at 31 December, 2003, the Group's and the
Company's deposits with SA Finance amounted to RMB365,906,000 and RMB346,357,000
respectively (2002: RMB900,979,000 and RMB877,449,000 respectively).
21 BANK AND OTHER LOANS
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Bank loans due:
Within one year 7,096,846 5,240,726 5,958,968 3,479,322
In the second year 646,492 839,036 401,466 522,482
In the third to fifth year, inclusive 1,223,710 3,730,849 826,417 3,143,413
After the fifth year 2,648,533 1,262,549 2,442,616 962,477
----------- ----------- ----------- -----------
11,615,581 11,073,160 9,629,467 8,107,694
Other loans due:
In the second year 3,000 3,000 -- --
----------- ----------- ----------- -----------
11,618,581 11,076,160 9,629,467 8,107,694
Portion classified as current liabilities (7,096,846) (5,240,726) (5,958,968) (3,479,322)
----------- ----------- ----------- -----------
4,521,735 5,835,434 3,670,499 4,628,372
=========== =========== =========== ===========
As at 31 December, 2003, bank loans of the Group and the Company totalling
RMB4,902,118,000 and RMB3,822,826,000 respectively (2002: RMB4,117,778,000 and
RMB2,783,418,000 respectively) were secured by mortgages over certain of the
Group's and the Company's aircraft.
- 31 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
As at 31 December, 2003, certain bank loans were guaranteed by the
following parties:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Export-Import Bank of the United States 2,207,393 2,680,801 1,236,160 1,536,835
Bank of China 357,193 604,010 262,231 433,706
China Construction Bank -- 76,134 -- 76,134
CSAHC 359,300 3,340,118 228,800 2,280,118
Guangzhou Baiyun International
Airport Company Limited 63,000 -- -- --
Shenzhen Yingshun Investment
Development Company Limited 21,000 -- -- --
SA Finance 10,052 561,531 -- 550,000
--------- --------- --------- ---------
3,017,938 7,262,594 1,727,191 4,876,793
========= ========= ========= =========
Details of bank and other loans with original maturity over one year are
as follows:
THE GROUP THE COMPANY
INTEREST RATE AND FINAL MATURITY 2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
RMB denominated loans:
Loans for construction projects Floating interest rates ranging
from 4.94% to 5.25% per annum as
at 31 December, 2003, with
maturities through 2009 12,357 893,838 -- 850,000
Non-interest bearing loan from
a municipal government
authority, repayable in 2005 3,000 3,000 -- --
Loans for purchase of aircraft Floating interest rate of
5.49% per annum as at 31
December, 2003, with maturities
through 2004 63,500 2,310,268 -- 2,231,768
U.S. dollar denominated loans:
Loans for purchase of aircraft Fixed interest rates ranging
from 5.00% to 8.33% per annum
as at 31 December, 2003, with
maturities through 2011 2,612,687 3,426,038 1,546,492 2,111,768
Floating interest rates ranging
from 1.48% to 1.50% per annum as
at 31 December, 2003, with
maturities through 2013 2,505,134 -- 2,505,134 --
Loan for purchase Fixed interest rate of 8.35% per
of flight equipment annum as at 31 December, 2003,
with maturity in 2004 13,097 20,090 -- --
--------- --------- --------- ---------
5,209,775 6,653,234 4,051,626 5,193,536
Less: Loans due within one year classified as current liabilities (688,040) (817,800) (381,127) (565,164)
--------- --------- --------- ---------
4,521,735 5,835,434 3,670,499 4,628,372
========= ========= ========= =========
- 32 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
As at 31 December, 2003, bank and other loans of the Group and the Company
included short-term bank loans totalling RMB6,408,806,000 and RMB5,577,841,000
respectively (2002: RMB4,422,926,000 and RMB2,914,158,000 respectively). On such
date, the Group's and the Company's weighted average interest rate on short-term
borrowings were 1.76% and 1.65% respectively (2002: 3.11% and 2.66%
respectively).
As at 31 December, 2003, the Group had banking facilities with several PRC
commercial banks for providing loan finance up to an approximate amount of
RMB9,860 million (2002: RMB12,360 million). As at 31 December, 2003, an
approximate amount of RMB4,412 million (2002: RMB7,258 million) was utilised.
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 2004 to
2009. As at 31 December, 2003, future payments under these finance leases, which
were 74% and 26% respectively (2002: 78% and 22% respectively) denominated in
United States dollars and Japanese yen, are as follows:
2003 2002
PAYMENTS INTEREST OBLIGATIONS PAYMENTS INTEREST OBLIGATIONS
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
THE GROUP AND THE COMPANY
Balance due:
Within one year 1,648,141 350,286 1,297,855 2,006,392 439,694 1,566,698
In the second year 1,356,614 290,163 1,066,451 1,624,381 351,237 1,273,144
In the third to fifth year,
inclusive 4,348,235 439,418 3,908,817 4,153,235 647,988 3,505,247
After the fifth year 608,124 40,308 567,816 1,960,607 107,247 1,853,360
--------- --------- --------- --------- --------- ---------
7,961,114 1,120,175 6,840,939 9,744,615 1,546,166 8,198,449
--------- --------- --------- --------- --------- ---------
Less: Balance due within
one year classified as
current liabilities (1,297,855) (1,566,698)
---------- ----------
5,543,084 6,631,751
========= =========
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 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, 2003, certain of the Group's and the Company's aircraft
with carrying amount of RMB7,857,169,000 (2002: RMB8,960,483,000) were mortgaged
to secure facilities with financial institutions granted to lessors totalling
RMB6,840,939,000 (2002: RMB8,198,449,000).
- 33 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
23 ACCOUNTS PAYABLE
An ageing analysis of accounts payable is set out below:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Due within 1 month or on demand 279,165 164,442 206,620 88,645
Due after 1 month but within 3 months 278,113 157,731 231,115 89,290
Due after 3 months but within 6 months 370,815 210,307 308,153 119,054
------- ------- ------- -------
928,093 532,480 745,888 296,989
======= ======= ======= =======
As at 31 December, 2003, the Group and the Company had an amount due to a
fellow subsidiary of RMB693,345,000 (2002: RMB267,468,000) which was included in
accounts payable.
All of the accounts payable are expected to be settled within one year.
- 34 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
24 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
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Balance at 1 January, 193,887 187,125 63,389 48,154
Additional amount provided 68,620 49,051 67,603 33,460
Amount utilised (62,326) (42,289) - (18,225)
------- ------- ------- -------
Balance at 31 December, 200,181 193,887 130,992 63,389
Less: Current portion included in
accrued expenses 10,717 52,000 - -
------- ------- ------- -------
189,464 141,887 130,992 63,389
======= ======= ======= ======
25 SHARE CAPITAL
2003 2002
RMB'000 RMB'000
Registered capital:
2,200,000,000 domestic shares of RMB1.00 each 2,200,000 2,200,000
1,174,178,000 H shares of RMB1.00 each 1,174,178 1,174,178
1,000,000,000 A shares of RMB1.00 each 1,000,000 -
--------- ---------
4,374,178 3,374,178
========= =========
Issued and paid up capital:
2,200,000,000 domestic shares of RMB1.00 each 2,200,000 2,200,000
1,174,178,000 H shares of RMB1.00 each 1,174,178 1,174,178
1,000,000,000 A shares of RMB1.00 each 1,000,000 -
--------- ---------
4,374,178 3,374,178
========= =========
In July 2003, the Company issued 1,000,000,000 A shares with a par value
of RMB1.00 each at 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 RMB59,233,000, amounted to
RMB1,640,767,000 and was credited to share premium account.
All the domestic, H and A shares rank pari passu in all material respects.
- 35 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
26 RESERVES
Movements on reserves during the year comprise:
THE GROUP THE COMPANY
2003 2002 2003 2002
Notes RMB'000 RMB'000 RMB'000 RMB'000
Share premium
Balance at 1 January, 3,683,956 3,813,659 3,683,956 3,813,659
Land use rights adjustment (f) - (129,703) - (129,703)
Share premium from issuance of
shares, net of related
issuance costs 1,640,767 - 1,640,767 -
-------- --------- --------- ---------
Balance at 31 December, 5,324,723 3,683,956 5,324,723 3,683,956
-------- --------- --------- ---------
Statutory surplus reserve (a)
Balance at 1 January, 337,195 391,867 337,195 121,943
Adjustments from adoption of
new PRC accounting regulations (c) - (106,007) - 163,917
Transfer from profit and
loss account 23,856 51,335 1,449 51,335
-------- --------- --------- ---------
Balance at 31 December, 361,051 337,195 338,644 337,195
-------- --------- --------- ---------
Statutory public welfare fund (b)
Balance at 1 January, 171,574 225,440 171,574 114,558
Adjustments from adoption of
new PRC accounting regulations (c) - (79,533) - 31,349
Transfer from profit and
loss account 1,113 25,667 724 25,667
-------- --------- --------- ---------
Balance at 31 December, 172,687 171,574 172,298 171,574
-------- --------- --------- ---------
Discretionary surplus reserve (d)
Balance at 1 January, 76,603 69,867 76,603 -
Adjustments from adoption of
new PRC accounting regulations (c) - - - 69,867
Transfer from profit and
loss account - 6,736 - 6,736
-------- --------- --------- ---------
Balance at 31 December, 76,603 76,603 76,603 76,603
-------- --------- --------- ---------
Retained earnings/(Accumulated losses)
Balance at 1 January, 1,969,701 1,346,652 445,636 467,716
Adjustments from adoption of
new PRC accounting regulations (c) - 185,540 - (265,133)
Land use rights adjustment (f) - 12,970 - 12,970
(Loss)/profit for the year (358,267) 575,761 (580,959) 381,305
Appropriations to reserves (24,969) (83,738) (2,173) (83,738)
Dividends paid - (67,484) - (67,484)
-------- --------- --------- ---------
Balance at 31 December, 1,586,465 1,969,701 (137,496) 445,636
-------- --------- --------- ---------
Total 7,521,529 6,239,029 5,774,772 4,714,964
========= ========= ========= =========
- 36 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
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.
(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% to 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 reserve must be made before
distribution of a dividend to shareholders.
(c) During 2002, the Group and the Company adopted certain new PRC
accounting regulations which resulted in adjustments to the amounts
of the Group's and Company's profits determined under PRC accounting
regulations in respect of prior years and corresponding adjustments
to amounts appropriated to the statutory surplus reserve, statutory
public welfare fund and discretionary surplus reserve for the prior
years.
(d) The usage of this reserve is similar to that of statutory surplus
reserve.
(e) 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 principles and financial
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, 2003,
the Company did not have any distributable reserves (2002:
RMB445,636,000).
(f) The Group adopted IAS 40 "Investment Property" in 2002. According to
IAS 40, the land use rights which were previously included in fixed
assets at revaluation base are now presented as lease prepayments
and carried at historical cost base with effect from 1 January,
2002. Accordingly, the unamortised surplus on previous revaluations
of the land use rights, net of related deferred tax asset, are
reversed to the share premium and retained profits accounts. The IAS
40 was adopted prospectively in 2002 as the effect of this change
did not have a material impact on the Group's financial condition
and results of operations in the periods prior to the change.
- 37 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
27 RELATED PARTY TRANSACTIONS
The Group obtained various operational and financial services provided by
CSAHC and its affiliates, and the Group's associated companies and jointly
controlled entities during the normal course of its business. In the past, CSAHC
was under the direct control of the CAAC. However, such control has been shifted
to the State Assets Administration Committee since early 2003. Consequently,
transactions with the CAAC and its affiliates are no longer presented as related
party transactions of the Group.
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 associated companies and jointly controlled entities during the year:
2003 2002
Notes RMB'000 RMB'000
Expenses
Paid to CSAHC and other related parties
Handling charges (a) 27,051 36,306
Wet lease rentals (b) 35,751 26,164
Advertising expenses (c) - 3,275
Sundry aviation supplies (d) 42,849 101,350
Commission expense (e) 4,896 16,725
Air catering expense (f) 28,199 29,058
Repairing charges (g) 693,303 592,311
Housing benefits (h) 85,000 85,000
Lease charges for land and buildings (i) 15,224 15,224
Flight simulation service charges (j) 101,355 -
Paid to CAAC and its affiliates
Jet fuel supplies - 2,373,956
Aircraft insurance - 256,238
Guarantee fees - 1,025
Ticket reservation service charges - 107,234
Passenger departure and cargo handling charges - 62,111
Aircraft and traffic servicing charges - 1,667,706
Commission expense - 464,721
Income
Received from CSAHC and other related parties
Rental income (j) 34,175 -
Wet lease rentals (k) - 27,599
Interest income (l) 3,100 10,530
Received from CAAC and its affiliates
Ground services income - 39,735
Commission income - 81,931
Others
Short term advances from CSAHC (m) 165,995 -
Refund of medical benefit payments (n) 58,120 -
Acquisition of aircraft and related
spare parts and vehicles (o) - 946,866
Acquisition of subsidiaries (p) - 107,846
======= =========
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.
- 38 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(b) Wet lease rentals 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 October 2002. The wet
lease agreement was terminated in April 2003.
(c) Advertising expenses represent expense reimbursements to Southern
Airlines Advertising Company ("SAAC") for promotional services
rendered to the Group. SAAC was a subsidiary of CSAHC up to July
2002. In August 2002, the Company acquired 90% equity interest in
SAAC from CSAHC.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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 28).
(i) Charges were paid to CSAHC under certain lease agreements in respect
of certain land and buildings in the PRC (Note 10).
(j) Flight simulation service charges represent fees incurred by the
Group in connection with flight simulation services provided by
Zhuhai Xiang Yi, a jointly controlled entity of the Company.
In addition, the Company entered into operating lease agreements to
lease certain flight training facilities and buildings to Zhuhai
Xiang Yi. Rental income earned by the Company amounted to
RMB34,175,000 during 2003 (Note 10).
(k) During the period from August to October 2002, the Company received
wet lease rentals totalling RMB27,599,000 from wet leasing of an
Airbus 320-200 aircraft to Sichuan Airlines Corporation Limited, an
associated company of the Company.
(l) 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 People's Bank of
China (see Note 20).
(m) During the year, CSAHC made short term advances to the Group. These
advances are unsecured, interest free and repayable on demand. As at
31 December, 2003, the advances amounted to RMB165,995,000.
(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 arrangement.
- 39 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(o) During 2002, the Group acquired five Boeing 737-300/37K aircraft and
related spare parts and certain vehicles from Zhongyuan Airlines, a
subsidiary of CSAHC, at a consideration of approximately
RMB1,096,866,000. The consideration was satisfied by cash of
approximately RMB132,130,000 together with an assumption by the
Group of Zhongyuan Airlines' debts of approximately RMB964,736,000.
In addition, the Group received reimbursements of wet lease rentals
totalling RMB150,000,000.
(p) In August 2002, the Company acquired 90% equity interest in each of
Guangzhou Aviation Hotel, Southern Airlines Advertising Company and
South China International Aviation & Travel Services Company from
CSAHC at an aggregate cash consideration of approximately
RMB107,846,000. Such consideration is determined by reference to the
valuation reports prepared by Guangzhou Zhongtian Valuation Company
Limited, a firm of independent valuers registered in the PRC.
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.
28 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 19% (2002: 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 profit and loss account 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
RMB85,000,000 to CSAHC for a ten-year period effective 1 January, 1995.
During 2002, the Group provided additional quarters at its own expense to
certain employees who are not eligible for quarters pursuant to the Services
Agreement. These quarters were provided to the respective employees in
accordance with the relevant PRC housing reform policy. The excess of the cost
of these additional quarters over the considerations received by the Group from
the employees of RMB17,624,000 were charged to expenses in 2002.
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 remained. 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 profit and loss account. As at 31 December,
2003, the Group already made payments totalling RMB130,479,000 (2002:
RMB46,325,000) under the scheme and recorded its remaining contractual
liabilities totalling RMB129,521,000 (2002: RMB213,675,000) as accrued
liabilities on its balance sheet.
- 40 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
29 COMMITMENTS
(A) CAPITAL COMMITMENTS
As at 31 December, 2003, the Group and the Company had capital
commitments as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Commitments in respect of
aircraft and related
equipment (Note)
- authorised and contracted for 10,615,079 5,875,996 7,739,290 5,875,996
---------- --------- ---------- ---------
Commitments in respect of
investments in the
Guangzhou new airport
- authorised and contracted for 617,277 525,700 617,277 525,700
- authorised but not
contracted for 1,454,661 2,601,720 1,454,661 2,601,720
---------- --------- ---------- ---------
2,071,938 3,127,420 2,071,938 3,127,420
---------- --------- ---------- ---------
Other commitments
- authorised and contracted for 232,570 43,887 29,628 42,968
- authorised but not
contracted for 708,099 500,545 229,302 245,440
---------- --------- ---------- ---------
940,669 544,432 258,930 288,408
---------- --------- ---------- ---------
13,627,686 9,547,848 10,070,158 9,291,824
========== ========= ========== =========
Note: As at 31 December, 2003, the Group had on order 2 Boeing
757-200 aircraft, 13 Boeing 737-700 aircraft, 4 Airbus 330-200
aircraft, 6 Embraer ERJ-145 aircraft and certain flight
equipment, scheduled for deliveries in 2004 to 2005. Deposits
of RMB2,494,853,000 have been made towards the purchase of
these aircraft and related equipment. At 31 December, 2003,
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
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Year ending 31 December,
2003 - 2,801,451 - 2,801,451
2004 4,584,823 2,343,978 3,248,674 2,343,978
2005 6,030,256 730,567 4,490,616 730,567
---------- --------- --------- ---------
10,615,079 5,875,996 7,739,290 5,875,996
========== ========= ========== =========
The Group has taken steps towards the purchase of the airline
business of China Northern Airlines Company and Xinjiang Airlines
Company. No contractual obligations existed as at 31 December, 2003
and up to the date of approval of these financial statements. The
purchase price has not yet been determined.
- 41 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
As at 31 December, 2003, the Group's and the Company's
attributable share of the capital commitments of jointly controlled
entities was as follows:
THE GROUP AND THE COMPANY
2003 2002
RMB'000 RMB'000
Authorised and contracted for 24,137 63,723
Authorised but not contracted for 283,761 518,000
------- -------
307,898 581,723
======= =======
(B) OPERATING LEASE COMMITMENTS
As at 31 December, 2003, commitments under non-cancellable aircraft
and flight equipment operating leases were as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
Payments due
Within one year 1,482,888 1,280,060 1,193,892 1,044,720
In the second to fifth year,
inclusive 4,248,095 4,358,474 3,578,618 3,772,227
After the fifth year 2,388,874 2,898,104 2,278,463 2,893,237
--------- --------- --------- ---------
8,119,857 8,536,638 7,050,973 7,710,184
========= ========= ========= =========
(C) INVESTING COMMITMENTS
As at 31 December, 2003, the Company was committed to make a capital
contribution of approximately RMB446 million and RMB Nil respectively
(2002: RMB60 million and RMB201 million respectively) to its jointly
controlled entities and associated companies.
30 CONTINGENT LIABILITIES
(a) 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 its use 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.
- 42 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(c) The Company is currently 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") 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 has 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. The Company, as
one of the defendants to the Litigation, has been claimed for
unspecified damages for breach of the agreement. Given that the
Litigation is still at its preliminary stage, it is pre-matured to
predict the result of the court judgment. Based on the opinion given
by its instructing solicitors, the Company's directors consider that
the Company has a reasonable chance of success in its defence to the
claim. At present, the Company has filed an objection in respect of
the jurisdiction of the court, and has requested the court to
transfer the case of Mainland China for trial. Accordingly, the
Company's directors consider that a provision for such claim and/or
the associated legal costs is not required.
31 FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK
Financial assets of the Group include cash and cash equivalents,
investments, trade receivables and other receivables. Financial liabilities of
the Group include bank and other loans, amounts due to related companies, other
liabilities, accounts payable, bills payable, sales in advance of carriage,
accrual expenses and obligations under finance leases.
LIQUIDITY RISK
As at 31 December, 2003, the Group's net current liabilities
amounted to RMB10,792 million (2002: RMB7,016 million). For the year ended
31 December, 2003, the Group recorded a net cash inflow from operating
activities of RMB2,129 million (2002: RMB3,698 million), a net cash
outflow from investing activities and financing activities of RMB3,820
million (2002: RMB2,745 million) and a decrease in cash and cash
equivalents of RMB1,691 million (2002: increase of RMB953 million).
With regard to 2004 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. With regard to its short-term bank loans outstanding
at 31 December, 2003, the Group has obtained firm commitments from its
principal bankers to renew the relevant loans as they fall due during
2004. With regard 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 RMB8,450 million during 2004 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, 2004. 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.
- 43 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
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 the 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.
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, 2003, the balance due from
BSP agents amounted to RMB446,399,000 (2002: RMB353,246,000).
SELF INSURANCE RISK
The Group maintains a limited amount of property insurance in
respect of certain personal and real property.
- 44 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
FAIR VALUE
The carrying amounts and estimated fair values of significant
financial assets and liabilities at 31 December, 2002 and 2003 are set out
below:
2003 2002
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
RMB'000 RMB'000 RMB'000 RMB'000
THE GROUP
Cash and cash equivalents 2,080,174 2,080,174 3,771,043 3,771,043
Trade receivables 833,604 833,604 671,776 671,776
Other receivables 296,047 296,047 372,586 372,586
Bank and other loans,
current portion 7,096,846 7,164,216 5,240,726 5,326,511
Amounts due to
related companies 929,003 929,003 525,090 525,090
Other liabilities 1,019,811 1,019,811 646,989 646,989
Accounts payable 928,093 928,093 532,480 532,480
Bills payable 438,135 438,135 1,299,680 1,299,680
Sales in advance of carriage 466,087 466,087 390,531 390,531
Accrued expenses 2,527,794 2,527,794 2,341,454 2,341,454
Bank and other loans,
non-current portion 4,521,735 4,743,128 5,835,434 6,111,052
========= ========= ========= =========
2003 2002
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
RMB'000 RMB'000 RMB'000 RMB'000
THE COMPANY
Cash and cash equivalents 1,404,874 1,404,874 2,960,337 2,960,337
Trade receivables 683,206 683,206 464,930 464,930
Other receivables 222,438 222,438 239,601 239,601
Bank and other loans,
current portion 5,958,968 6,010,222 3,479,322 3,546,409
Amounts due to
related companies 870,682 870,682 358,077 358,077
Other liabilities 854,057 854,057 411,218 411,218
Accounts payable 745,888 745,888 296,989 296,989
Bills payable 438,135 438,135 1,299,680 1,299,680
Sales in advance of carriage 405,851 405,851 340,457 340,457
Accrued expenses 1,628,072 1,628,072 1,049,806 1,049,806
Bank and other loans,
non-current portion 3,670,499 3,827,220 4,628,372 4,811,961
========= ========= ========= =========
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, amounts due to related companies, other
liabilities, accounts payable, bills payable, sales in advance
of carriage and accrued expenses
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.
- 45 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
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.
32 SEGMENTAL INFORMATION
Geographic information about the Group's turnover and operating
profit/(loss) are as follows:
HONG KONG
DOMESTIC REGIONAL INTERNATIONAL* TOTAL
RMB'000 RMB'000 RMB'000 RMB'000
2003
Traffic revenue 13,086,939 807,677 3,070,184 16,964,800
Other revenue 436,122 - 69,201 505,323
---------- --------- --------- ----------
13,523,061 807,677 3,139,385 17,470,123
========== ========= ========= ==========
Operating profit/(loss) 440,158 (29,210)) 44,781 455,729
2002
Traffic revenue 13,197,589 1,118,695 3,165,608 17,481,892
Other revenue 485,046 - 51,682 536,728
---------- --------- --------- ----------
13,682,635 1,118,695 3,217,290 18,018,620
========== ========= ========= ==========
Operating profit 1,614,975 193,440 217,662 2,026,077
========== ========= ========= ==========
* Mainly routes between the PRC and Asian countries, the United States
of America, the Netherlands, Belgium and Australia.
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.
- 46 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
33 RECONCILIATION AND SUPPLEMENTARY STATEMENT OF CASH FLOW INFORMATION
(A) THE RECONCILIATION OF (LOSS)/PROFIT BEFORE TAXATION AND MINORITY
INTERESTS TO CASH INFLOWS FROM OPERATIONS IS AS FOLLOWS:
2003 2002
RMB'000 RMB'000
(Loss)/profit before taxation and minority interests (511,610) 1,139,099
Depreciation and amortisation of fixed assets 1,997,882 1,839,293
Other amortisation 40,089 9,816
Amortisation of deferred credits (1,541) (7,217)
Share of associated companies' results (47,798) (36,988)
Share of jointly controlled entities' results 39,495 3,352
Loss/(gain) on sale of fixed assets 22,217 (170,740)
Interest income (13,061) (52,618)
Interest expense 823,725 959,193
Unrealised exchange loss, net 177,356 174,978
Decrease/(increase) in inventories 1,923 (76,472)
Increase in trade receivables (161,828) (110,749)
Decrease/(increase) in other receivables 76,539 (166,004)
(Increase)/decrease in prepaid expenses and other assets (6,045) 123,924
Increase/(decrease) in amounts due to related companies 403,913 (193,175)
Increase/(decrease) in accounts payable 395,613 (61,843)
(Decrease)/increase in bills payable (861,545) 1,299,680
Increase in sales in advance of carriage 75,556 19,985
Increase in accrued expenses 203,439 86,215
Increase/(decrease) in other liabilities 372,822 (33,032)
Increase in provision for major overhauls 47,577 16,226
--------- ---------
Cash inflows from operations 3,074,718 4,762,923
========= =========
(B) DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During 2002, the Group assumed from Zhongyuan Airlines debts
totalling RMB964,736,000 in partial satisfaction of the consideration
payable for acquisition of five Boeing 737-300/37K aircraft and other
assets from Zhongyuan Airlines (Note 27(o)).
- 47 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
(C) EFFECT OF ACQUISITION OF SUBSIDIARIES
2003 2002
RMB'000 RMB'000
Net assets acquired:
Fixed assets - 96,636
Cash and cash equivalents - 17,355
Trade receivables and other current assets - 20,681
------- -------
- 134,672
------- -------
Accounts payable - 3,623
Accrued expenses and other liabilities - 11,220
------- -------
- 14,843
------- -------
Net assets value - 119,829
======= =======
Consideration paid - 107,846
Cash and cash equivalents acquired - 17,355
------- -------
Net cash outflow from acquisition of subsidiaries - 90,491
======= =======
34 ULTIMATE HOLDING COMPANY
The directors of the Company consider the ultimate holding company to be
CSAHC, a state-owned enterprise established in the PRC.
35 SUBSEQUENT EVENTS
In April 2004, the Company entered into a purchase agreement with Airbus
SNC for the acquisition of fifteen Airbus 320-200 aircraft and six Airbus
319-100 aircraft, scheduled for deliveries in 2005 and 2006.
36 SUBSIDIARIES
The particulars of the Company's principal subsidiaries at 31 December,
2003 are as follows:
PLACE AND
DATE OF ATTRIBUTABLE ISSUED/
ESTABLISHMENT/ EQUITY INTEREST REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
China Southern Airlines PRC 100 - 100,000,000 Helicopter
(Group) Zhuhai Helicopter 31 August, 1993 transportation
Company Limited (a)
Guangxi Airlines PRC 60 - 170,900,000 Airline
Company Limited (a) 28 April, 1994
Southern Airlines Group PRC 60 - 280,000,000 Airline
Shantou Airlines 20 July, 1993
Company Limited (a)
- 48 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
PLACE AND
DATE OF ATTRIBUTABLE ISSUED/
ESTABLISHMENT/ EQUITY INTEREST REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
Zhuhai Airlines PRC 60 - 250,000,000 Airline
Company Limited (a) 8 May, 1995
Xiamen Airlines PRC 60 - 588,434,000 Airline
Company Limited (a) 11 August, 1984
Guizhou Airlines PRC 60 - 80,000,000 Airline
Company Limited (a) 12 November, 1991
Guangzhou Nanland Air PRC 51 - 55,980,000 Air catering
Catering Company 21 November, 1989
Limited (b)
China Southern West Australia 65 - A$100,000 Pilot training
Australian Flying 26 January, 1971 services
College Pty Ltd
Guangzhou Baiyun PRC 61 - 20,000,000 Logistics
International Logistic 23 July, 2002 operations
Company Ltd
Guangzhou Aviation Hotel PRC 90 - 63,290,000 Hotel operation
8 January, 1997
Southern Airlines Advertising PRC 90 - 2,000,000 Aviation
Company Ltd 3 March, 1994 advertising
South China International PRC 90 - 2,100,000 Travel services
Aviation & Travel Services 11 May, 1992
Company
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
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
- 49 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
PLACE AND
DATE OF ATTRIBUTABLE ISSUED/
ESTABLISHMENT/ EQUITY INTEREST REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
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 PRC - 60 5,000,000 Property
Property Development 22 June, 1993 development
Company (a)
Xiamen Aviation PRC - 60 620,218 Aviation
Advertising Company 17 December, 1992 advertising
Limited (a)
Xiamen Aviation PRC - 60 8,560,000 Aviation supplies
Supplies Limited (a) 30 July, 1997
Xiamen Aviation PRC - 54 5,000,000 Hotel
Development 18 February, 1998 management
Company Limited (a)
Bai Lu Finance Limited Hong Kong - 54 HK$10,000,000 Investment
22 February, 1996 holding
Xiamen Air Holidays Hong Kong - 54 HK$3,000,000 Travel
Limited 28 April, 1994 servicing
Xiamen Macau Macau - 27.5 MOP 1,000,000 Travel
Holidays Limited 11 May, 1995 servicing
Shantou Hua Kang Air PRC - 42 10,000,000 Air catering
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.
- 50 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
37 ASSOCIATED COMPANIES AND JOINTLY CONTROLLED ENTITIES
The particulars of the Group's principal associated companies and jointly
controlled entities as at 31 December, 2003 are as follows:
PLACE AND
DATE OF ATTRIBUTABLE ISSUED/
ESTABLISHMENT/ EQUITY INTEREST REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
Guangzhou Aircraft PRC 50 - US$27,500,000 Provision of
Maintenance 28 October, 1989 aircraft repair
Engineering and
Company Limited* (Note) maintenance
services
Southern Airlines PRC 32 15.42 424,330,000 Provision of
Group Finance 28 June, 1995 financial
Company Limited services
Hainan Phoenix PRC 45 - US$16,360,000 Provision of
Information 12 March, 1994 ticket
System Limited reservation
system
services
Hong Kong Business Hong Kong 20 - HKD1,000,000 Provision of
Aviation Centre 7 January, 1998 private
Company Limited flight logistic
services
Sichuan Airlines PRC 39 - 350,000,000 Airline
Corporation Limited 28 August, 2002
MTU Maintenance PRC 50 - US$63,100,000 Provision of
Zhuhai Co. Ltd.* 6 April, 2001 engine
repair and
maintenance
services
China Postal Airlines PRC 49 - 306,000,000 Airline
Limited* 25 November, 1996
Zhuhai Xiang Yi PRC 51 - US$29,800,000 Provision of
Aviation Technology 10 July, 2002 flight
Company Limited* simulation
services
CSN-ETC e-commerce PRC 51 - 5,880,000 Provision of
Limited* 10 February, 2003 internet
services
# Expressed in RMB, unless otherwise stated.
* These are jointly controlled entities.
Note: Guangzhou Aircraft Maintenance Engineering Company Limited has been
reclassified from an associated company to a jointly controlled
entity since 2003 due to a change in the composition of its
shareholders in 2003.
- 51 -
APPENDIX I FINANCIAL INFORMATION OF THE GROUP
II. INDEBTEDNESS
As at the close of business on 31 March, 2004, being the latest
practicable date for the purpose of this indebtedness statement prior to the
printing of this Circular, the Group had bank and other loans of approximately
RMB13,079,690,000 and finance lease obligations of approximately
RMB6,560,937,000. As at 31 March, 2004, certain bank loans of the Group were
secured by certain aircraft with an aggregate carrying amount of
RMB4,363,123,000. Finance lease obligations were secured by the related leased
aircraft with an aggregate carrying amount of RMB7,730,572,000. In addition,
bank loans of RMB3,491,698,000 were also guaranteed by certain banks.
III. STATEMENT ON FINANCIAL LIABILITIES
Save as aforesaid or otherwise disclosed in Note 30 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 March, 2004,
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 March, 2003 and up
to the Latest Practicable Date.
IV. EFFECT
The Company's principal business is that of civil aviation. Following the
Transaction, the Company's passenger volume and operating cost per available
seat kilometre 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.
V. MATERIAL CHANGES
The Directors are not aware of any material adverse changes in the
financial or trading position of the Group since 31 December, 2003 (being the
date to which the latest published audited Financial Statements of the Company
were made up).
VI. WORKING CAPITAL
Taking into account the banking facilities of the Group, the Directors are
of the opinion that the Group has adequate working capital for its present
requirements.
- 52 -
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 enquiries, 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 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 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 Companies
in Schedule 10 of the Listing Rules are as follows:
% TO THE % TO THE
TOTAL TOTAL % TO THE
ISSUED ISSUED TOTAL
SHARE DOMESTIC ISSUED H
THE COMPANY/ CAPITAL OF SHARES OF SHARES OF
ASSOCIATED TYPES OF TYPE OF NUMBER OF THE THE THE SHORT
NAME CORPORATION INTEREST SHARE SHARES HELD COMPANY COMPANY COMPANY POSITION
Simon To the Company Interest of H shares 100,000 0.002% - 0.009% -
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 has 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 SFO (including
interests or short positions which he is 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 Companies.
- 53 -
APPENDIX II GENERAL INFORMATION
None of the Directors or Supervisors of the Company and their respective
associates (as defined in 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, to the knowledge of the Directors,
chief executive and Supervisors of the Company, the interests and short
positions of the following persons other than the Directors, chief executives or
Supervisors in the shares and underlying shares of the Company as recorded in
the register of the Company required to be kept under Section 336 of the SFO or
otherwise persons who are, 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 meetings of any members of the Group are as follows:
THE COMPANY
% OF THE
% OF THE % OF THE TOTAL ISSUED
TOTAL ISSUED TOTAL ISSUED DOMESTIC
H SHARES SHARE CAPITAL SHARES
NAME OF TYPE OF TYPE OF NUMBER OF OF THE OF THE OF THE SHORT
SHAREHOLDER SHAREHOLDING SHARE SHARES HELD COMPANY COMPANY COMPANY POSITION
CSAHC Direct State-owned 2,200,000,000 - 50.30% 68.75% -
holding shares
HKSCC Direct H shares 1,152,285,998 98.14% 26.34% - -
Nominees holding
Limited
Note:
Based on the information available to the Directors, chief executive
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 1,152,285,998 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 1,152,285,998 H Shares held by HKSCC Nominees Limited,
J.P. Morgan Chase & Co. had an interest in an aggregate of
115,714,000 H Shares of the Company (representing approximately
9.85% of its then total issued H Shares). Out of the 115,714,000 H
Shares, J.P. Morgan Chase & Co. had an interest in a lending pool
comprising 18,328,000 H Shares of the Company (representing
- 54 -
APPENDIX II GENERAL INFORMATION
approximately 1.56% 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) 18,328,000 H Shares in a lending pool, representing
approximately 1.56% of the Company's then total issued H
Shares, were held by JPMorgan Chase Bank, which was 100% held
by J.P. Morgan Chase & Co.;
(b) 1,000,000 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 Securities Ltd.,
which was approximately 90% held by J.P. Morgan Holdings (UK)
Limited, which was ultimately 100% held by J.P. Morgan Chase &
Co.;
(c) 96,386,000 H Shares, representing approximately 8.21% 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..
3. Among the 1,152,285,998 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 as at
the Latest Practicable Date in the manner as follows:
(a) 743,322 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 issued 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, as at the Latest Practicable Date, 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 1,152,285,998 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.
- 55 -
APPENDIX II GENERAL INFORMATION
5. Among the 1,152,285,998 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.
6. Among the 1,152,285,998 H Shares held by HKSCC Nominees Limited,
58,806,900 H Shares, representing approximately 5.01% of the
Company's then total issued H Shares, were held by The Capital
International, Inc as investment manager, which was ultimately 100%
held by The Capital Group Companies, Inc.
SUBSIDIARIES
% OF THE TOTAL
ISSUED SHARE
TYPE OF CAPITAL OF THE
NAME OF SHAREHOLDER SHAREHOLDING SUBSIDIARY SUBSIDIARY
(CHINESE CHARACTERS) Direct Holding Guangxi Airlines Company 40%
(Guangxi Si Zhuang Joint Limited
Stock Limited Company)
(CHINESE CHARACTERS) Direct Holding Southern Airlines Group 40%
(Shantou Airlines Investment Shantou Airlines Company
Joint Stock Limited Company) Limited
(CHINESE CHARACTERS) (Zhuhai Direct Holding Zhuhai Airlines Company Limited 40%
Ge Li Holding Company)
(CHINESE CHARACTERS) (Xiamen Direct Holding Xiamen Airlines Company Limited 40%
Jian Fa Holding Company)
(CHINESE CHARACTERS) Direct Holding Guizhou Airlines Company Limited 40%
(Guizhou Xiang Fei
Company Limited)
(CHINESE CHARACTERS) Direct Holding Guangzhou Nanland Air Catering 49%
(Hong Kong Rui Lian Company Limited
Investment Company
Limited)
CSAHC Direct Holding China Southern West Australian 35%
Flying College Pty Ltd
(CHINESE CHARACTERS) Direct Holding Guangzhou Baiyun International 30%
(Guangzhou Baiyun Logistic Company Ltd
International Airport Joint
Stock Limited Company)
CSAHC Direct Holding Guangzhou Aviation Hotel 10%
CSAHC Direct Holding Southern Airlines Advertising 10%
Company Ltd
CSAHC Direct Holding South China International Aviation 10%
& Travel Services Company
(CHINESE CHARACTERS) (Xiamen Indirect Holding CXA92A Limited 40%
Jian Fa Holding Company) (a)
- 56 -
APPENDIX II GENERAL INFORMATION
% OF THE TOTAL
ISSUED SHARE
TYPE OF CAPITAL OF THE
NAME OF SHAREHOLDER SHAREHOLDING SUBSIDIARY SUBSIDIARY
(CHINESE CHARACTERS) (Xiamen Indirect Holding CXA93A Limited 40%
Jian Fa Holding Company) (a)
(CHINESE CHARACTERS) (Xiamen Indirect Holding CXA95B Limited 40%
Jian Fa Holding Company) (a)
(CHINESE CHARACTERS) (Xiamen Indirect Holding CXA95C Limited 40%
Jian Fa Holding Company) (a)
(CHINESE CHARACTERS) (Xiamen Indirect Holding CXA98A Limited 40%
Jian Fa Holding Company) (a)
(CHINESE CHARACTERS) (Xiamen Indirect Holding Xiamen Aviation Property 40%
Jian Fa Holding Company) (a) Development Company
(CHINESE CHARACTERS) (Xiamen Indirect Holding Xiamen Aviation Advertising 40%
Jian Fa Holding Company) (a) Company Limited
(CHINESE CHARACTERS) (Xiamen Indirect Holding Xiamen Aviation Supplies Limited 40%
Jian Fa Holding Company) (a)
Li Yi Li Direct Holding Xiamen Air Holidays Limited 10%
(CHINESE CHARACTERS) Direct Holding Xiamen Macau Holidays Limited 51%
(Xiamen Airlines Holidays
Company Limited)
(CHINESE CHARACTERS) Direct Holding Xiamen Macau Holidays Limited 49%
(Xiamen Huan Yu Company
Limited)
(CHINESE CHARACTERS) (Shantou Direct Holding Shantou Hua Kang Air Catering 70%
Airlines Company Limited) Company Ltd
(CHINESE CHARACTERS) (Hong Direct Holding Shantou Hua Kang Air Catering 30%
Kong Air Catering Company Company Ltd
Limited)
(a) The indirect interest of (CHINESE CHARACTERS)(Xiamen
Jian Fa Holding Company) is held through Xiamen Airlines Company
Limited.
Save as disclosed above, as at the Latest Practicable Date, to the
knowledge of the Directors, chief executive and Supervisors of the
Company, no other person (other than the Directors, chief executives or
Supervisors) had an interest or short positions in the shares or
underlying shares of the Company as recorded in the register of the
Company required to be kept under section 336 of the SFO or otherwise had
an interest of 10% or more of the nominal value of any class of share
capital carrying rights to vote in all circumstances at general meetings
of any members of the Group.
- 57 -
APPENDIX II GENERAL INFORMATION
4. MATERIAL CONTRACTS
No material contract has been entered into by the Group within the two
years immediately preceding the date of this circular.
5. LITIGATION
As at the Latest Practical Date, there was 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, 2003, 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 expiring or terminable by the Group within
one year without payment of compensation (other than statutory compensation).
8. MISCELLANEOUS
(a) The secretary of the Company is Su Liang.
(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 has applied
to the Stock Exchange for a waiver of the said Rule 3.24 of the
Listing Rules.
(c) The registered address of the Company is at Baiyun International
Airport, Guangzhou 510405, 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, Rooms 1901-5, 19th Floor,
Hopewell Centre, 183 Queen's Road East, Hong Kong.
- 58 -
APPENDIX II GENERAL INFORMATION
9. 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 31 May, 2004:
(a) the articles of association of the Company; and
(b) the audited Financial Statements of the Group for the years ended 31
December, 2002 and 31 December, 2003.
- 59 -
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: May 21, 2004