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 April, 2005
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 April 26, 2005
published in two local newspapers in Hong Kong an announcement in Chinese and
English, respectively, concerning the annual results 2004 of the Company. A copy
of the English announcement is included in this Form 6-K of the Company.
[LOGO] [CHINESE CHARACTERS]
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(A joint stock limited company incorporated in the People's
Republic of China with limited liability)
(STOCK CODE: 1055)
2004 ANNUAL RESULTS
The board (the "Board") of directors (the "Directors") of China Southern
Airlines Company Limited (the "Company") hereby announces the audited
consolidated results of the Company and its subsidiaries (the "Group") for the
year ended 31 December, 2004 together with the comparative figures for the
corresponding year of 2003 as follows:
FINANCIAL RESULTS
A. PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
("IFRS")
CONSOLIDATED INCOME STATEMENT
2004
VS 2003
FOR THE YEAR ENDED 31 DECEMBER, INCREASE/
2004 2003 2004 2004 (DECREASE)
Note RMB MILLION RMB Million HK$ MILLION US$ MILLION %
---- ----------- ----------- ----------- ----------- ----------
Traffic revenue:
Passenger 21,100 15,010 19,889 2,550 40.6
Cargo and mail 2,244 1,955 2,115 271 14.8
------ ------ ------ -----
23,344 16,965 22,004 2,821 37.6
Other operating revenue 630 505 594 76 24.8
------ ------ ------ -----
Total operating revenue 3 23,974 17,470 22,598 2,897 37.2
------ ------ ------ -----
Operating expenses:
Flight operations 10,418 7,070 9,820 1,259 47.4
Maintenance 3,459 2,589 3,261 418 33.6
Aircraft and traffic servicing 3,503 2,767 3,302 423 26.6
Promotion and sales 1,940 1,480 1,829 234 31.1
General and administrative 1,323 1,053 1,247 160 25.6
Depreciation and amortisation 2,413 2,038 2,274 292 18.4
Other 9 17 8 1 (47.1)
------ ------ ------ -----
Total operating expenses 4 23,065 17,014 21,741 2,787 35.6
------ ------ ------ -----
Operating profit 909 456 857 110 99.3
------ ------ ------ -----
1
Non-operating
income/(expenses):
Interest income 22 13 21 3 69.2
Interest expense 4 (691) (824) (651) (84) (16.1)
Share of associates' results 12 48 11 1 (75.0)
Share of jointly controlled
entities' results (5) (39) (5) (1) (87.2)
Loss on disposal of property,
plant and equipment 5 (1) (22) (1) - (95.5)
Exchange loss, net (59) (164) (56) (7) (64.0)
Other, net 46 21 44 6 119.0
-------- -------- -------- ---------
Total net non-operating
expenses (676) (967) (637) (82) (30.1)
-------- -------- -------- ---------
Profit/(loss) before taxation
and minority interests 4 233 (511) 220 28 (145.6)
Income tax (expense)/credit 6 (78) 324 (74) (9) (124.1)
-------- -------- -------- ---------
Profit/(loss) before minority
interests 155 (187) 146 19 (182.9)
Minority interests (203) (171) (191) (25) 18.7
-------- -------- -------- ---------
Loss attributable to
shareholders (48) (358) (45) (6) (86.6)
======== ======== ======== =========
Basic loss per share 7 RMB(0.01) RMB(0.09) HK$(0.01) US$(0.001) (88.9)
======== ======== ======== =========
Notes:
1 COMPANY BACKGROUND
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 of the Company's holding company, China
Southern Air Holding Company ("CSAHC"). CSAHC is a state-owned enterprise
under the supervision of the PRC central government.
The Company's H shares ("H Shares") and American Depositary Shares ("ADS")
(each ADS representing 50 H Shares) have been listed on The Stock Exchange
of Hong Kong Limited (the "Hong Kong Stock Exchange") and the New York
Stock Exchange, respectively since July 1997. In July 2003, the Company
issued 1,000,000,000 A shares ("A Shares") which are listed on the
Shanghai Stock Exchange.
Pursuant to a sale and purchase agreement dated 12 November, 2004 between
the Company, CSAHC, China Northern Airlines Company ("CNA") and Xinjiang
Airlines Company ("XJA") which was approved by the Company's shareholders
in an extraordinary general meeting held on 31 December, 2004, the Company
acquired the airline operations and certain related assets of CNA and XJA
with effect from 31 December, 2004 (the "CNA/XJA Acquisitions"). The
consideration payable for the CNA/XJA Acquisitions amounting to RMB15,398
million was determined based on the fair value of the acquired assets.
Such consideration was partly satisfied by assumption of debts and
liabilities of CNA and XJA totalling RMB13,439 million outstanding as at
31 December, 2004 and the remaining balance of RMB1,959 million will be
satisfied in cash.
As the above acquisitions were completed on 31 December, 2004, they have
no impact on the Group's consolidated income statement for the year ended
31 December, 2004.
2
2 BASIS OF PREPARATION
The audited consolidated income statement of the Group for the years
presented include the results of the companies comprising the Group. All
significant intercompany transactions and balances have been eliminated on
consolidation.
The principal accounting policies adopted in the preparation of the
Group's consolidated results for the 2004 financial year are consistent
with those adopted in preparing the Group's consolidated results for the
2003 financial year.
The audited consolidated income statement has been prepared in accordance
with IFRS. IFRS differs in certain material aspects from the PRC
Accounting Rules and Regulations ("PRC GAAP"). Differences which have a
significant effect on the consolidated loss attributable to shareholders
for the year ended 31 December, 2004 are set out in Section C below.
3 TURNOVER
The Group is principally engaged in the provision of domestic, Hong Kong
regional and international passenger, cargo and mail airline services with
flights operating primarily from the new Guangzhou Baiyun International
Airport, which is both the main hub of the Group's route network and the
location of its corporate headquarters.
Turnover comprises revenues from airline and airline-related business and
is stated net of sales tax. In addition, turnover for the four-month
period ended 30 April, 2003 was stated net of contributions to the CAAC
Infrastructure Development Fund. Prior to 1 May, 2003, contributions to
CAAC Infrastructure Development Fund were payable at 5% and 2%
respectively of the domestic and international/Hong Kong regional traffic
revenue. For the period from 1 May, 2003 to 31 March, 2004, the Group was
exempted from paying any contributions. Effective 1 April, 2004,
contributions to the CAAC Infrastructure Development Fund are payable
based on the traffic capacity deployed by the Group on its routes. The
contributions now form part of the flight operations expenses and amounted
to RMB466 million for the year ended 31 December, 2004. The contributions
for the year ended 31 December, 2003 amounted to RMB251 million and were
netted off against traffic revenue.
The sales tax is payable at 3% (2003: 3%) of the Group's traffic revenue
in respect of domestic flights and outbound international/Hong Kong
regional flights, except for the period from 1 May, 2003 to 31 December,
2003 when passenger revenue was exempted from sales tax.
Geographic information about the Group's turnover and operating
profit/(loss) is as follows:
HONG KONG
DOMESTIC REGIONAL INTERNATIONAL* TOTAL
RMB Million RMB Million RMB Million RMB Million
----------- ----------- -------------- -----------
2004
Traffic revenue 17,742 1,180 4,422 23,344
Other operating revenue 630 - - 630
------ ----- ----- ------
Turnover 18,372 1,180 4,422 23,974
====== ===== ===== ======
Operating profit 650 67 192 909
====== ===== ===== ======
2003
Traffic revenue 13,087 808 3,070 16,965
Other operating revenue 436 - 69 505
------ ----- ----- ------
Turnover 13,523 808 3,139 17,470
====== ===== ===== ======
Operating profit/(loss) 440 (29) 45 456
====== ===== ===== ======
3
* Mainly routes between the PRC and Asian countries, the United States of
America, the Netherlands, Belgium, Australia and France.
4 PROFIT/(LOSS) BEFORE TAXATION AND MINORITY INTERESTS
2004 2003
RMB MILLION RMB Million
----------- -----------
Profit /(loss) before taxation and minority
interests is arrived at after charging:
Operating expenses
Jet fuel 6,050 3,867
Aircraft maintenance 3,132 2,377
Routes 5,626 4,363
Depreciation
- owned assets 1,891 1,502
- assets held under finance leases 472 496
Amortisation of deferred expenditure 50 40
Operating lease charges
- aircraft and flight equipment 1,665 1,536
- land and buildings 109 136
Staff costs
- salaries, wages and welfare 2,260 1,496
- contributions to retirement schemes 168 150
Office and administration 718 471
Auditors' remuneration 11 8
Other 913 572
------ ------
23,065 17,014
Interest expense
Interest on bank and other loans wholly
repayable within five years 221 288
Interest on other loans 156 176
Finance charges on obligations under
finance leases 348 443
Less: borrowing costs capitalised (34) (83)
------ ------
Net interest expense 691 824
and after crediting:
Net realised and unrealised gain
on equity securities held for trading 15 -
Dividend income from unlisted investments 14 17
====== ======
5 LOSS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
Loss on disposal of property, plant and equipment represents:
2004 2003
RMB MILLION RMB million
----------- -----------
Aircraft - 20
Flight equipment and other 1 2
-- --
1 22
== ==
During 2003, the Group incurred a loss of RMB20 million on early retirement
of two old Boeing 737-200 aircraft.
4
6 INCOME TAX EXPENSE/(CREDIT)
Income tax expense/(credit) in the consolidated income statement
represents:
2004 2003
RMB MILLION RMB million
PRC income tax 176 47
Share of associates' taxation 2 3
Share of jointly controlled entities' taxation 11 7
189 57
---- ----
Deferred tax
- current year (111) 11
- adjustment for change in enacted tax rate - (392)
---- ----
Income tax expense/(credit) 78 (324)
==== ====
On 17 October, 2003 the Company's registered address was moved to
Guangzhou Economic & Technology Development Zone. In accordance with the
Rules and Regulations for Implementation of Income Tax for Foreign
Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document "Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que
020043", the Company is entitled to enjoy the preferential tax policy
implemented in the Guangzhou Economic & Technology Development Zone
effective 1 October, 2003. As a result, the Company's income tax rate has
been changed from 33% to 15% beginning from that date.
As a result of the reduction in income tax rate, the Company's net
deferred taxation liability balance brought forward from 1 January, 2003
of RMB507 million was reduced by RMB392 million. Accordingly, a net
deferred tax credit of RMB392 million was recognised in the income
statement for the year ended 31 December, 2003.
In respect of the Group's overseas airline activities, the Group has
either obtained exemptions from overseas taxation pursuant to the
bilateral aviation agreements between the overseas governments and the PRC
government or has sustained tax losses in these overseas jurisdictions.
Accordingly, no provision for overseas tax has been made for both the
current and prior years.
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.
7 BASIC LOSS PER SHARE
The calculation of basic loss per share is based on the consolidated loss
attributable to shareholders of RMB48 million (2003: RMB358 million) and
the weighted average number of shares in issue during the year of 4,374
million (2003: 3,832 million).
The amount of diluted loss per share is not presented as there were no
dilutive potential ordinary shares in existence for both years.
8 DIVIDENDS
The Board of Directors of the Company does not recommend the payment of a
final dividend in respect of the year ended 31 December, 2004 (2003: Nil).
5
9 RESERVES
STATUTORY
STATUTORY PUBLIC DISCRETIONARY
SURPLUS RESERVE WELFARE FUND SURPLUS RESERVE
(a) (b) (c)
RMB million RMB million RMB million
Balance at 1 January, 2004 361 173 77
Transferred from consolidated income statement 41 20 -
--- --- --
Balance at 31 December, 2004 402 193 77
=== === ==
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 fund must be made before
distribution of a dividend to shareholders.
(c) The usage of this reserve is similar to that of statutory surplus
reserve.
10 CONVENIENT TRANSLATION
The audited consolidated income statement has been prepared in Renminbi
(RMB), the national currency of the PRC. Translations of amounts from RMB
into Hong Kong dollars (HK$) and United States dollars (US$) solely for
the convenience of readers have been made at the rates of HK$1.00 to
RMB1.0609 and US$1.00 to RMB8.2765 respectively, being the average of the
buying and selling rates as quoted by the People's Bank of China at the
close of business on 31 December, 2004. No representation is made that the
RMB amounts could have been or could be converted into HK$ or US$ at these
rates or at any other certain rates on 31 December, 2004 or on any other
date.
6
B. PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING RULES AND REGULATIONS ("PRC
GAAP")
CONSOLIDATED INCOME STATEMENT
2004 2003
RMB MILLION RMB million
REVENUE FROM PRINCIPAL OPERATIONS 24,194 17,351
Less: Transfer to CAAC Infrastructure
Development Fund - 251
------ -------
NET REVENUE FROM PRINCIPAL OPERATIONS 24,194 17,100
Less: Costs of principal operations 19,296 14,222
Business taxes and surcharges 692 191
------ -------
PROFIT FROM PRINCIPAL OPERATIONS 4,206 2,687
Add: Profit from other operations 135 326
Less: Selling expenses 2,058 1,519
Administrative expenses 1,226 893
Financial expenses 727 996
------ -------
OPERATING PROFIT/(LOSS) 330 (395)
Add: Investment income 63 62
Non-operating income 126 43
Less: Non-operating expenses 127 71
------ -------
PROFIT/(LOSS) BEFORE INCOME TAX 392 (361)
Less: Income tax 87 (605)
Minority interests 202 229
------ -------
NET PROFIT FOR THE YEAR 103 15
====== =======
Note: The significant accounting policies adopted by the Group in the
preparation of this audited consolidated income statement conform to the
Accounting Standards for Business Enterprises and the Accounting
Regulations for Business Enterprises, Accounting Method for Civil Aviation
Enterprises, and other relevant regulations issued by the Ministry of
Finance of the PRC.
C. DIFFERENCE BETWEEN FINANCIAL RESULTS PREPARED UNDER IFRS AND PRC GAAP
2004 2003
RMB MILLION RMB million
Net profit under PRC GAAP 103 15
Adjustments:
Gains on aircraft sale and leaseback transactions (31) (31)
Losses on staff housing allocation (111) (111)
Adjustment for revaluation of land use rights 4 4
Adjustment for interest in associates (26) -
Capitalised interest 11 -
Effects of the above adjustments on taxation 2 4
Effects of change in income tax rate on deferred taxation - (122)
Adjustment for unrealised deferred tax assets - (117)
---- ----
Net loss under IFRS (48) (358)
==== ====
7
OPERATING DATA SUMMARY
The following table sets forth geographic information of certain financial
information and operating data for the years ended 31 December, 2003 and 2004:
FOR THE YEAR ENDED 2004 VS 2003
31 DECEMBER, % INCREASE/
2004 2003 (DECREASE)
TRAFFIC
Revenue passenger kilometres (RPK) (million)
- Domestic 29,121 21,294 36.8
- Hong Kong regional 1,203 778 54.6
- International 6,872 4,315 59.3
------ ------
Total 37,196 26,387 41.0
====== ======
Revenue tonne kilometres (RTK) (million)
- Domestic 3,206 2,424 32.3
- Hong Kong regional 120 78 53.8
- International 1,337 1,059 26.3
------ ------
Total 4,663 3,561 30.9
====== ======
Passengers carried (thousand)
- Domestic 25,002 18,259 36.9
- Hong Kong regional 1,394 1,019 36.8
- International 1,811 1,192 51.9
------ ------
Total 28,207 20,470 37.8
====== ======
Cargo and mail carried (thousand tonnes)
- Domestic 442 379 16.6
- Hong Kong regional 15 12 25.0
- International 88 73 20.5
------ ------
Total 545 464 17.5
====== ======
8
CAPACITY
Available seat kilometres (ASK) (million)
- Domestic 41,330 32,590 26.8
- Hong Kong regional 1,896 1,347 40.8
------ ------
- International 10,543 6,930 52.1
Total 53,769 40,867 31.6
====== ======
Available tonne kilometres (ATK) (million)
- Domestic 4,773 3,772 26.5
- Hong Kong regional 211 150 40.7
- International 2,462 1,999 23.2
------ ------
Total 7,446 5,921 25.8
====== ======
LOAD FACTORS
Passenger load factor (RPK/ASK) (%)
- Domestic 70.5 65.3 8.0
- Hong Kong regional 63.4 57.8 9.7
- International 65.2 62.3 4.7
Overall 69.2 64.6 7.1
====== ======
Overall load factor (RTK/ATK) (%)
- Domestic 67.2 64.2 4.7
- Hong Kong regional 56.9 52.2 9.0
- International 54.3 53.0 2.5
Overall 62.6 60.1 4.2
====== ======
YIELD
Yield per RPK (RMB)
- Domestic 0.58 0.57 1.8
- Hong Kong regional 0.92 0.96 (4.2)
- International 0.46 0.47 (2.1)
Overall 0.57 0.57 -
====== ======
9
Yield per RTK (RMB)
- Domestic 5.53 5.40 2.4
- Hong Kong regional 9.83 10.35 (5.0)
- International 3.31 2.90 14.1
Overall 5.01 4.76 5.3
====== ======
FLEET
Total number of aircraft in service at year end
(Note)
- Boeing 137 108 26.9
- Airbus 46 24 91.7
- McDonnell Douglas 35 - N/A
- Others 13 - N/A
------ ------
Total 231 132 75.0
====== ======
Overall utilisation rate (hours per day)
- Boeing 10.0 8.6 16.3
- Airbus 9.2 7.9 16.5
- Others 8.4 - N/A
Overall 9.9 8.5 16.5
====== ======
Cost
- Operating cost per ASK (RMB) 0.43 0.42 2.4
====== ======
- Operating cost per ATK (RMB) 3.10 2.87 8.0
====== ======
Note: As approved by the Company's shareholders in an extraordinary general
meeting on 31 December, 2004, the Company acquired the airline operations
and certain related assets of CNA and XJA. Accordingly, a total of 78
aircraft were added at 31 December, 2004.
BUSINESS OVERVIEW
In 2004, the demand in the PRC civil aviation market sustained the growth trend
from the second half of 2003. As a result, the Group recorded a year-on-year
growth of more than 37% in total operating revenue, marking a breakthrough
achievement in the Group's history. However, due to the persistent high price of
aviation fuel and relatively more major overhauls of aircraft having been
performed, which increased maintenance costs, the Group still recorded a net
loss of RMB48 million for 2004.
10
Instabilities in the world economy and in global politics continued to drive up
the prices of aviation fuel in the international market. As a result, fuel costs
rose substantially, accounting for more than 30% of the operating costs of the
Group. The Group, without compromising flight safety, adopted various technical
measures, including the preparation of precise flight plans and minimisation of
turnaround time, so as to reduce fuel consumption. However, as an airline in the
PRC, the options available to the Group were limited in this respect. As such,
the high aviation fuel price exerted immense pressure on the operating expenses
of the Group.
The Group has revamped its marketing management by designating an accountability
system to each of its sales managers. These measures have encouraged the
operating and marketing team of the Group to be more pro-active and vigilant of
the difficulties faced by the Group, thereby maximising the total revenue of the
Group to the greatest possible extent. In addition, the commencement of
operation of the new Guangzhou Baiyun International Airport, the main hub of the
Group, provides a wider platform of development for the operations of the
Company. Moreover, the Group has successfully secured the exclusive right to use
Terminal No. 1 of the Beijing Capital International Airport, marking a
substantial step in carrying out the strategy of the Group to improve its flight
routes network.
The Group recorded a net loss of RMB48 million for 2004, as compared to a net
loss of RMB358 million for 2003. The Group's operating revenue increased by
RMB6,504 million or 37.2% from RMB17,470 million in 2003 to RMB23,974 million in
2004. Passenger load factor increased by 4.6 percentage point from 64.6% in 2003
to 69.2% in 2004. Passenger yield (in passenger revenue per RPK) remain steady
and at RMB 0.57 in both years. Average yield (in traffic revenue per RTK)
increased by 5.3% from RMB4.76 in 2003 to RMB5.01 in 2004. Operating expenses
increased by RMB6,051 million or 35.6% from RMB17,014 million in 2003 to
RMB23,065 million in 2004. As operating revenue increased more than operating
expenses, operating profit increased by 99.3% from RMB456 million in 2003 to
RMB909 million in 2004. The Group's net non-operating expenses decreased by
30.1%, from RMB967 million in 2003 to RMB676 million in 2004, mainly
attributable to a decrease in unfavourable movement in foreign exchange
differences of RMB105 million and a decrease in interest expense of RMB133
million. Overall, the Group recorded a net loss of RMB48 million in 2004, as
compared to a net loss of RMB358 million in 2003.
OPERATING REVENUE
Substantially all of the Group's operating revenue is attributable to airline
and airline related operations. Traffic revenue in 2004 and 2003 accounted for
97.4% and 97.1% respectively of total operating revenue. Passenger revenue and,
cargo and mail revenue accounted for 90.4% and 9.6% respectively of total
traffic revenue in 2004. The balance of the Group's operating revenue is derived
from commission income, income from general aviation operations, fees charged
for ground services rendered to other Chinese airlines and air catering
services.
Operating revenue increased by 37.2% from RMB17,470 million in 2003 to RMB23,974
million in 2004. This increase was primarily due to a 40.6% rise in passenger
revenue from RMB15,010 million in 2003 to RMB21,100 million in 2004 resulting
from increased traffic volume. The total number of passengers carried increased
by 37.8% to 28.2 million passengers in 2004. RPKs increased by 41.0% from 26,387
million in 2003 to RMB37,196 million in 2004, primarily as a result of an
increase in passengers carried. Passenger yield remained constant at RMB0.57.
Domestic passenger revenue, which accounted for 79.9% of the total passenger
revenue in 2004, increased by 37.8% from RMB12,242 million in 2003 to RMB16,869
million in 2004. Domestic passenger traffic in RPKs increased by 36.8%, mainly
due to an increase in passengers carried. Passenger yield remained steady in
2004 and at RMB0.58.
11
Hong Kong passenger revenue, which accounted for 5.3% of total passenger
revenue, increased by 47.2% from RMB750 million in 2003 to RMB1,104 million in
2004. For Hong Kong regional flights, passenger traffic in RPKs increased by
54.6%, while passenger capacity in ASKs increased by 40.8%, resulting in a 5.6
percentage point increase in passenger load factor from 2003. Passenger yield
decreased from RMB0.96 in 2003 to RMB0.92 in 2004 mainly due to intensified
competition among airlines.
International passenger revenue, which accounted for 14.8% of total passenger
revenue, increased by 55.0% from RMB2,018 million in 2003 to RMB3,127 million in
2004. For international flights, passenger traffic in RPKs increased by 59.3%,
while passenger capacity in ASKs increased by 52.1%, resulting in a 2.9
percentage point rise in passenger load factor from 2003. Passenger yield
decreased by 2.1% from RMB0.47 in 2003 to RMB0.46 in 2004 mainly resulted from
the increases in traffic derived from long haul routes which generally had a
lower yield than short haul routes.
Cargo and mail revenue, which accounted for 9.6% of the Group's total traffic
revenue and 9.4% of total operating revenue, increased by 14.8% from RMB1,955
million in 2003 to RMB2,244 million in 2004. The increase was attributable to
the increasing traffic demand.
Other operating revenue increased by 24.8% from RMB505 million in 2003 to RMB630
million in 2004. The increase was primarily due to the general growth in income
from various auxiliary operations.
OPERATING EXPENSES
Total operating expenses in 2004 amounted to RMB23,065 million, representing an
increase of 35.6% or RMB6,051 million over 2003, primarily due to the combined
effect of increases in jet fuel costs, maintenance expenses and aircraft and
traffic servicing expenses. Total operating expenses as a percentage of total
operating revenue decreased from 97.4% in 2003 to 96.2% in 2004.
Flight operations expenses, which accounted for 45.2% of total operating
expenses, increased by 47.4% from RMB7,070 million in 2003 to RMB10,418 million
in 2004, primarily as a result of increases in jet fuel costs, operating lease
payments, catering expenses, labour costs for flight personnel and inclusion of
CAAC Infrastructure Development Fund of RMB466 million in operating expenses
which is an usuage charge since 2004 but was a turnover-based levy and deducted
against the traffic revenue in 2003. Jet fuel costs, which accounted for 58.1%
of flight operations expenses, increased by 56.5% from RMB3,867 million in 2003
to RMB6,050 million in 2004 mainly as a result of increased fuel prices and fuel
consumption. Operating lease payments increased by 8.4% from RMB1,536 million in
2003 to RMB1,665 million in 2004, primarily due to the additional rental
payments for new aircraft under operating leases. Catering expenses increased by
38.2% from RMB510 million in 2003 to RMB705 million in 2004, primarily due to
increased passenger carried. Aircraft insurance costs decreased by 5.6% from
RMB196 million in 2003 to RMB185 million in 2004, primarily because of a
decrease in insurance premiums prescribed by the PRC insurance company. Labour
costs for flight personnel increased by 40.9% from RMB728 million in 2003 to
RMB1,026 million in 2004, largely due to the increase in flying hours.
Maintenance expenses which accounted for 15.0% of total operating expenses,
increased by 33.6% from RMB2,589 million in 2003 to RMB3,459 million in 2004.
The increase was primarily attributable to an 32.9% increase in aircraft
overhaul charges from RMB2,377 million in 2003 to RMB3,158 million in 2004, as
resulted from fleet expansion in recent years.
Aircraft and traffic servicing expenses, which accounted for 15.2% of total
operating expenses, increased by 26.6% from RMB2,767 million in 2003 to RMB3,503
million in 2004. The increase primarily resulted from an 25.7% rise in landing
and navigation fees from RMB2,563 million in 2003 to RMB3,222 million in 2004,
due to an increase in number of landing and takeoffs.
12
Promotional and marketing expenses, which accounted for 8.4% of total operating
expenses, increased by 31.1% from RMB1,480 million in 2003 to RMB1,940 million
in 2004. The increase was due to 44.4% increase in labour costs from RMB225
million in 2003 to RMB325 million in 2004, as more payments of performance bonus
were made because of the increased traffic volume.
General and administrative expenses, which accounted for 5.7% of the total
operating expenses, increased by 25.6% from RMB1,053 million in 2003 to RMB1,323
million in 2004. This was mainly attributable to increased scale of operations.
Depreciation and amortisation, which accounted for 10.5% of total operating
expenses, increased by 18.4% from RMB2,038 million in 2003 to RMB2,413 million
in 2004. This increase was primarily as a result of the additions of aircraft
during 2004.
OPERATING PROFIT
Operating profit increased by 99.3% from RMB456 million in 2003 to RMB909
million in 2004. This was mainly because operating revenue increased by RMB6,504
million or 37.2% from 2003 and operating expenses increased by RMB6,051 million
or 35.6% over the same period.
NON-OPERATING INCOME/(EXPENSES)
Interest expense decreased by 16.1% from RMB824 million in 2003 to RMB691
million in 2004, mainly reflecting the combined effect of scheduled debt
repayments and the replacement of certain RMB denominated bank loans of higher
interest rates with US$ denominated bank loans of lower interest rates.
Interest income increased by 69.2% from RMB13 million in 2003 to RMB22 million
in 2004. This was mainly attributable to an increase in average cash balances.
During 2004, the Group recorded a net exchange loss of RMB59 million (2003:
RMB164 million) mainly from its Japanese yen denominated borrowings as a result
of the Japanese yen appreciation. Such amount comprised mostly unrealised
translational exchange loss.
TAXATION
On 17 October, 2003, the Company's registered address was moved to Guangzhou
Economic & Technology Development Zone, Guangzhou, China. In accordance with the
Rules and Regulations for Implementation of Income Tax for Foreign Investment
Enterprises and Foreign Enterprises of the PRC and a taxation approval document
"Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que 020043", the Company is
entitled to enjoy the preferential tax policy implemented in the Guangzhou
Economic & Technology Development Zone effective from 1 October, 2003. As a
result, the Company's income tax rate has been changed from 33% to 15% beginning
from that date.
In 2003, the Group recorded an income tax credit of RMB324 million resulting
from reduction in net deferred taxation liability balance of RMB392 million. In
2004, income tax expense of RMB78 million was recorded.
MINORITY INTERESTS
Minority interests increased by 18.7% from RMB171 million in 2003 to RMB203
million in 2004, primarily reflecting the increased net profits earned by
certain of the Group's airline subsidiaries for the year.
13
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
As at 31 December, 2004, the Group's borrowings totalled RMB35,072 million,
representing an increase of RMB16,612 million from RMB18,460 million last year.
Such borrowings were denominated, to a larger extent, in United States dollars
and, to a smaller extent, in Japanese yen, Hong Kong dollars and Renminbi, with
a significant portion being fixed interest rate borrowings. Of such borrowings,
RMB13,599 million, RMB4,455 million, RMB6,699 million, RMB3,595 million and
RMB6,724 million will be repayable in 2005, 2006, 2007, 2008, 2009 and
thereafter respectively. As at 31 December, 2004, cash and cash equivalents of
the Group totalling RMB3,083 million, of which 24.2% were denominated in foreign
currencies, increased by 48.2% from RMB2,080 million last year.
Net debts (total borrowings net of cash and cash equivalents) increased by 95.3%
to RMB31,989 million.
As at 31 December, 2004, the Group's shareholders' equity amounted to RMB11,848
million, representing a decrease of RMB48 million from RMB11,896 million last
year.
Net debt/equity ratio of the Group at 31 December, 2004 was 2.70 times, as
compared to 1.38 times last year.
FINANCIAL RISK MANAGEMENT POLICY
In the normal course of business, the Group is exposed to fluctuations in
foreign currencies and jet fuel prices. The Group's exposure to fluctuations in
foreign currencies is a result of its debts which are denominated in foreign
currencies. Depreciation or appreciation of the RMB against foreign currencies
affects the Group's results significantly because the Group's foreign currency
payments generally exceed its foreign currency receipts. The Group is not able
to hedge its foreign currency exposure effectively other than by retaining its
foreign currency denominated earnings and receipts to the extent permitted by
the State Administration of Foreign Exchange, or subject to certain restrictive
conditions, by entering into forward foreign exchange contracts with certain
authorised PRC banks. The Group is required to procure a majority of its jet
fuel domestically at PRC spot market prices. There are currently no effective
means available to manage the Group's exposure to the fluctuations in domestic
jet fuel prices.
CHARGES ON ASSETS
As at 31 December, 2004, certain aircraft of the Group with an aggregate
carrying value of approximately RMB23,438 million (2003: RMB14,576 million) were
mortgaged under certain loan and lease agreements.
COMMITMENTS AND CONTINGENCIES
As at December 31, 2004, the Group had capital commitments of approximately
RMB26,871 million. Of such amounts, RMB25,347 million related to the acquisition
of aircraft and related flight equipment and RMB824 million related to the
Group's facilities and equipment to be constructed and installed at the new
Guangzhou Baiyun International Airport. The remaining amount of RMB700 million
was related to the Group's other airports and office facilities and equipment,
overhaul and maintenance bases and training facilities.
As at 31 December, 2004, the Group was committed to make capital contributions
of approximately RMB181 million and RMB83 million to its subsidiaries and to its
jointly controlled entities respectively.
Details of the material litigation of the Company are set out in the section
headed "Material Litigation" in this announcement.
14
There have been no material changes in the contingent liabilities of the Group
subsequent to 31 December, 2004.
DIVIDENDS
The Board of Directors does not recommend the declaration of any dividend for
the year ended 31 December, 2004.
SHARE CAPITAL STRUCTURE
CHANGE IN SHARE CAPITAL
There was no change in the share capital of the Company for the year ended 31
December, 2004.
SHARE CAPITAL STRUCTURE
APPROXIMATE
PERCENTAGE OF
TOTAL SHARE
TYPE OF SHARES NUMBER OF SHARES CAPITAL (%)
1. Unlisted shares
State-owned shares 2,200,000,000 shares 50.30
2. Listed shares
1. Overseas listed foreign
2. Listed shares
1. Overseas listed foreign 1,174,178,000 shares 26.84
shares (H Shares)
2. Domestic listed ordinary
shares (A Shares) 1,000,000,000 shares 22.86
Total share capital 4,374,178,000 shares 100.00
PARTICULARS OF SHAREHOLDERS
The total number of shareholders of the Company as at 31 December, 2004 was
115,847, of which 113,618 were shareholders of A Shares and 2,229 were
shareholders of H Shares.
15
Particulars of shareholdings of the Company's ten largest shareholders as at the
end of the reporting period are as follows:
SHAREHOLDINGS OF TEN LARGEST SHAREHOLDERS
MOVEMENT
DURING THE YEAR SHAREHOLDINGS PLEDGED OR
NAME OF INCREASE/ AT THE END OF TYPE OF FROZEN NATURE OF
NO. SHAREHOLDERS (DECREASE) THE YEAR PERCENTAGE SHARES SHARES SHARES HELD
(share) (share) %
1. CSAHC - 2,200,000,000 50.30 Unlisted Unknown State-owned shares
2. HKSCC NOMINEES 1,998,000 1,151,953,998 26.34 Listed Unknown H Shares
LIMITED
3. Bank of China - Huaxia (21,126,482) 35,739,259 0.82 Listed Unknown A Shares
Return Securities
Investment Fund
4. Huaxia Growth Securities (28,447,027) 30,552,973 0.70 Listed Unknown A Shares
Investment Fund
5. China Merchant Bank 30,530,870 30,530,879 0.70 Listed Unknown A Shares
Co.,Ltd. - Zhong Xin
Jing Dian Pei Zhi Securities
Investment Fund
6. The Industrial and 24,291,931 24,291,931 0.56 Listed Unknown A Shares
Commercial Bank of
China - Galaxy Yin
Tai Li Cai Fen Hong
Securities
Investment Fund
7. Bank of China - Jiashi Service 23,861,475 23,861,475 0.55 Listed Unknown A Shares
Value-added Industry
Securities Investment Fund
8. Yinfeng Securities (2,386,412) 23,310,956 0.53 Listed Unknown A Shares
Investment Fund
9. Bank of Communications 22,024,754 22,024,754 0.50 Listed Unknown A Shares
- Yi Fang Da 50 Index
Securities Investment Fund
10. Xinghua Securities (10,284,269) 19,875,921 0.45 Listed Unknown A Shares
Investment Fund
16
SUBSTANTIAL SHAREHOLDERS
As at 31 December, 2004 so far as was known to the Directors or supervisors (the
"Supervisors") of the Company, the interests and short positions of the
following persons other than the Directors or Supervisors of the Company in the
shares and underlying shares of the Company which would fall to be disclosed to
the Company under the provisions of Divisions 2 and 3 of Part XV of the
Securities and Futures Ordinance (the "SFO") or who were, directly or
indirectly, interested in 10% or more of the nominal value of any class of share
capital carrying rights to vote in all circumstances at general meeting of any
other members of the Group, or had any option in respect of such capital are set
out below:
% OF THE % OF THE % OF THE TOTAL
TOTAL ISSUED H TOTAL ISSUED ISSUED SHARE
NAME OF TYPE OF TYPE OF NUMBER OF SHARES OF THE DOMESTIC SHARES CAPITAL OF
SHAREHOLDER SHAREHOLDING SHARES SHARES HELD COMPANY OF THE COMPANY THE COMPANY SHORT POSITION
CSAHC Direct holding State-owned 2,200,000,000 - 68.75% 50.30% -
shares (A Shares)
HKSCC Nominees Direct holding H Shares 1,151,953,998 98.11% - 26.34% -
Limited
Details of the interests of the Company's shareholders as at 31 December, 2004
will be set forth in the 2004 annual report of the Company.
PURCHASE, SALE OR REDEMPTION OF SHARES
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any
shares of the Company during the year ended 31 December, 2004.
PRE-EMPTIVE RIGHTS
Neither the Articles of Association of the Company nor the laws of the PRC
provide for any pre-emptive rights requiring the Company to offer new shares to
existing shareholders in proportion to their existing shareholdings.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
The Group has complied with the requirements under the Code of Best Practice set
out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the "Hong Kong Listing Rules") issued by the Hong
Kong Stock Exchange throughout the year ended 31 December, 2004.
THE MODEL CODE
Having made specific enquiries with all the Directors of the Company, the
Directors have for the year ended 31 December, 2004 complied with the Model Code
for Securities Transactions by Directors of Listed Issuers as set out in
Appendix 10 of the Listing Rules issued by the Hong Kong Stock Exchange. The
Company has not adopted a code of conduct less strigent than the Model Code for
Securities Transactions by Directors of Listed Issuers regarding securities
transactions of the Directors.
AUDIT COMMITTEE
The audit committee of the Company has reviewed and confirmed this 2004 annual
results announcement and the 2004 annual report of the Company for the year
ended 31 December, 2004.
17
DIRECTORS, SUPERVISORS AND SENIOR ADMINISTRATIVE OFFICERS
Directors, Supervisors and senior administrative officers of the Company in 2004
were as follows:
NAME POSITION GENDER AGE
Liu Shao Yong Chairman of the Board of Directors Male 46
Liu Ming Qi Vice Chairman of the Board of Directors Male 61
Peng An Fa Director Male 57
Wang Quan Hua Director Male 51
Zhao Liu An Director Male 57
Zhou Yong Qian Director Male 60
Si Xian Min Director, President Male 47
Zhou Yong Jin Director Male 62
Xu Jie Bo Director, Chief Financial Officer, Male 40
Vice President
Wu Rong Nan Director Male 63
Simon To Independent Non-executive Director Male 54
Peter Lok Independent Non-executive Director Male 69
Wei Ming Hai Independent Non-executive Director Male 41
Wang Zhi Independent Non-executive Director Male 63
Sui Guang Jun Independent Non-executive Director Male 44
Sun Xiao Yi Chairman of the Supervisory Committee Male 51
Yang Guang Hua Supervisor Male 52
Yang Yi Hua Supervisor Female 45
Li Kun Vice President Male 45
Yuan Xin An Vice President, Chief Engineer Male 48
Zheng En Ren Vice President Male 60
Hao Jian Hua Vice President Male 55
Ren Ji Dong Vice President Male 40
He Zong Kai Vice President Male 53
Liu Qian Chief Pilot Male 40
Su Liang Company Secretary Male 43
Chen Wei Hua General Counsel Male 38
On 16 June, 2004, the appointment of Sun Xiao Yi, Yang Guang Hua and Yang Yi Hua
as Supervisors, and the resignation of Liang Hua Fu, Gan Yu Hua and Li Qi Hong
as Supervisors were approved at the annual general meeting of the shareholders
of the Company. On the same date, the Supervisory Committee of the Company
elected Sun Xiao Yi as the chairman of the Supervisory Committee of the Company.
On 8 October, 2004, the resignation of Yan Zhi Qing as the chairman of the Board
of Directors of the Company was approved by the Board of Directors.
On 28 October, 2004, the appointment of Si Xian Min as the president of the
Company, and the resignation of Wang Chang Shun as the president of the Company
were approved by the Board of Directors.
On 29 November, 2004, the appointment of Liu Shao Yong as a Director, and the
resignation of Yan Zhi Qing as a Director for age reason were approved at the
first extraordinary general meeting of the shareholders of the Company. On the
same date, the Board of Directors of the Company elected Liu Shao Yong as the
chairman of the Board of Directors of the Company.
On 31 December, 2004, the appointment of Si Xian Min as a Director, and the
resignation of Wang Chang Shun as a Director were approved at the second
extraordinary general meeting of the shareholders of the Company.
18
On 29 March, 2005, the appointment of Ren Ji Dong and He Zong Kai as the vice
presidents of the Company, and the removal of Jiang Ping as a vice president of
the Company were approved by the Board of Directors.
INTERESTS AND SHORT POSITION OF DIRECTORS AND SUPERVISORS IN THE COMPANY AND
ASSOCIATED CORPORATIONS
As at 31 December, 2004, the interests and short positions of the Directors and
Supervisors of the Company and their respective associates in the shares,
underlying shares and debentures (as the case may be) of the Company or its
associated corporations (within the meaning of Part XV of the SFO) which were
notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7
and 8 of Part XV of SFO (including interests or short positions which are taken
or deemed to have under such provisions of the SFO), or recorded in the register
maintained by the Company pursuant to Section 352 of the SFO or which were
notified to the Company and the Hong Kong Stock Exchange pursuant to the Model
Code for Securities Transactions by Directors of the Listed Issuers in Appendix
10 of the Listing Rules are as follows:
% TO THE % TO THE
% TO THE TOTAL TOTAL
TOTAL ISSUED ISSUED
THE ISSUED DOMESTIC SHARE
COMPANY/ NUMBER H SHARES SHARES CAPITAL
ASSOCIATED TYPES OF TYPE OF OF SHARES OF THE OF THE OF THE SHORT
NAME CORPORATION INTEREST SHARES HELD COMPANY COMPANY COMPANY POSITION
Simon To the Company Interest of H Shares 100,000 0.009% - 0.002% -
spouse
(note 1)
Note 1: The spouse of Mr. Simon To is the owner of these 100,000 H Shares of
the Company and accordingly, Mr. Simon To, is taken to be interested in
these 100,000 H Shares by virtue of the SFO.
Save as disclosed above, as at 31 December, 2004, none of the Directors or
Supervisors of the Company and their respective associates had interests or
short positions in the shares, underlying shares and/or debentures (as the case
may be) of the Company or its associated corporations (within the meaning of
Part XV of the SFO) which were notified to the Company and the Hong Kong Stock
Exchange pursuant to Divisions 7 and 8 of Part XV of SFO (including interests or
short positions which he was taken or deemed to have under such provisions of
the SFO), or recorded in the register maintained by the Company pursuant to
Section 352 of the SFO or which were notified to the Company and the Hong Kong
Stock Exchange pursuant to the Model Code for Securities Transactions by
Directors of the Listed Issuers in Appendix 10 of the Listing Rules.
SERVICE CONTRACTS OF THE DIRECTORS AND SUPERVISORS
All Directors and Supervisors of the Company have entered into service contracts
with the Company for a term of three years commencing from 16 June, 2004 (except
that the service contract of Mr. Liu Shao Yong and Mr. Si Xian Min which
commenced from 29 November, 2004 and 31 December, 2004 respectively will expire
at the end of the term for the current session of the Board). Except for such
service contracts, none of the Directors or Supervisors of the Company has
entered or proposed to enter into any service contracts with the Company or its
subsidiaries. None of the Directors or Supervisors has entered into any service
contracts with the Company which is not determinable by the Company within one
year without payment of compensation, other than statutory compensation.
INTERESTS OF DIRECTORS AND SUPERVISORS IN CONTRACTS
In the year ended 31 December, 2004, none of the Directors or Supervisors of the
Company had a material interest in any contract of significance to which the
Company or any of its subsidiaries was a party.
19
DESIGNATED DEPOSITS AND OVERDUE TIME DEPOSITS
As at 31 December, 2004, the Group's deposits placed with financial institutions
or other parties did not include any designated deposits or overdue time
deposits against which the Group failed to receive repayments.
MATERIAL LITIGATION
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. As the defendants failed to perform the
agreement, UASSC should have the right to compensation. Since UASSC is in the
course of its winding up proceedings, all the rights and benefits of UASSC in
connection with the claim have been transferred to the plaintiff. The Company,
as one of the defendants to the Litigation, is being claimed for unspecified
damages for breach of the agreement. The Company has filed an objection in
respect of the jurisdiction of the court, and has requested the court to
transfer the case to the PRC for trial. On 3 May, 2004, the court made an award
in favour of the Company for the transfer to the PRC, against which the
plaintiff has filed an appeal.
By Order of the Board of Directors
LIU SHAO YONG
Chairman of the Board of Directors
Guangzhou, the PRC
25 April, 2005.
As at the date of this announcement, the Directors of the Company include Liu
Shao Yong, Liu Ming Qi, Peng An Fa, Wang Quan Hua, Zhao Liu An, Zhou Yong Qian,
Zhou Yong Jin, Xu Jie Bo, Wu Rong Nan and Si Xian Min as executive Directors;
and Simon To, Peter Lok, Wei Ming Hai, Wang Zhi and Sui Guang Jun as independent
non-executive Directors.
The annual report of the Group for the year ended 31 December, 2004 will be
published on the website of the Hong Kong Stock Exchange
(http://www.hkex.com.hk) in due course.
20
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: April 29, 2005