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 August, 2005
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of registrant's name into English)
Jichang Road
Guangzhou, Guangdong 510405
People's Republic of China
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.)
Form 20-F. [X] Form 40-F. [ ]
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes. [ ] No. [X]
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-________.)
China Southern Airlines Company Limited (the "Company") on August 29, 2005
published in local newspapers in Hong Kong an announcement in Chinese and
English, respectively, concerning the Company's interim results for the six
months ended June 30, 2005. A copy of the English announcement is included in
this Form 6-K of the Company.
[CHINA SOUTHERN AIRLINES COMPANY LIMITED 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)
2005 INTERIM RESULTS
The board of directors (the "Board") of China Southern Airlines Company Limited
(the "Company") hereby announces the unaudited consolidated interim results of
the Company and its subsidiaries (collectively, the "Group") for the six months
ended 30 June 2005, together with the comparative figures for the corresponding
period of 2004 as follows:
FINANCIAL RESULTS
A. PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
("IFRS")
CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2005 - unaudited
(Expressed in Renminbi)
FOR THE SIX MONTHS ENDED
30 JUNE
2005 2004
Note RMB MILLION RMB million
(Note 2)
Operating revenue
Traffic revenue 17,443 10,834
Other operating revenue 401 260
-------- -------
Total operating revenue 3 17,844 11,094
-------- -------
Operating expenses
Flight operations 9,084 4,722
Maintenance 2,320 1,410
Aircraft and traffic servicing 2,560 1,689
Promotion and sales 1,220 874
General and administrative 912 552
Depreciation and amortisation 2,094 1,083
Other 70 8
-------- -------
Total operating expenses 18,260 10,338
-------- -------
Operating (loss)/profit (416) 756
-------- -------
Non-operating income/(expenses)
Interest income 17 9
Interest expense 4 (750) (344)
Share of associates' results (28) 21
Share of jointly controlled entities' results 24 4
(Loss)/profit on sale of property, plant and equipment (35) 3
Exchange gain, net 197 15
Other, net (34) 5
-------- -------
Total net non-operating expenses (609) (287)
-------- -------
(Loss)/profit before taxation 4 (1,025) 469
Taxation credit/(expense) 5 61 (95)
-------- -------
(Loss)/profit for the period (964) 374
======== =======
Attributable to
Equity holders of the parent (907) 266
Minority interests 2 (57) 108
-------- -------
(Loss)/profit for the period (964) 374
======== =======
Basic (loss)/earnings per share 7 (RMB0.21) RMB0.06
======== =======
1
CONSOLIDATED BALANCE SHEET
As at 30 June 2005 - unaudited
(Expressed in Renminbi)
AS AT As at
30 JUNE 31 December
2005 2004
Note RMB MILLION RMB million
(Note 2)
NON-CURRENT ASSETS
Property, plant and equipment, net 50,478 46,841
Construction in progress 773 565
Lease prepayments 371 346
Interest in associates 402 429
Interest in jointly controlled entities 809 782
Other investments 290 272
Lease and equipment deposits 4,699 5,397
Deferred tax assets 68 -
Other assets 299 331
------- -------
58,189 54,963
------- -------
CURRENT ASSETS
Short term investments - 683
Inventories 1,505 1,302
Taxes recoverable 40 -
Trade receivables 8 1,271 1,203
Other receivables 976 616
Prepaid expenses and other current assets 418 378
Cash and cash equivalents 5,632 3,083
------- -------
9,842 7,265
------- -------
CURRENT LIABILITIES
Bank and other loans 13,282 11,518
Obligations under finance leases 2,397 2,144
Trade payables 9 2,334 1,554
Bills payable 2,760 136
Sales in advance of carriage 899 874
Taxes payable - 39
Amounts due to related companies 106 2,330
Accrued expenses 4,590 4,551
Other liabilities 3,246 2,974
------- -------
29,614 26,120
------- -------
NET CURRENT LIABILITIES (19,772) (18,855)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 38,417 36,108
------- -------
NON-CURRENT LIABILITIES AND DEFERRED ITEMS
Bank and other loans 12,782 11,935
Obligations under finance leases 11,712 9,599
Provision for major overhauls 275 284
Deferred credits 370 100
Deferred tax liabilities 336 287
------- -------
25,475 22,205
------- -------
NET ASSETS 12,942 13,903
======= =======
CAPITAL AND RESERVES
Share capital 4,374 4,374
Reserves 10 6,567 7,474
------- -------
TOTAL EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT 10,941 11,848
MINORITY INTERESTS 2 2,001 2,055
------- -------
TOTAL EQUITY 12,942 13,903
======= =======
2
NOTES:
1 BASIS OF PREPARATION
This interim financial report has been prepared in accordance with
the applicable disclosure provisions of the Rules Governing the
Listing of Securities on the Stock Exchange of Hong Kong Limited,
including compliance with International Accounting Standard 34
"Interim Financial Reporting" ("IAS 34") adopted by the
International Accounting Standards Board ("IASB").
The interim financial report has been prepared in accordance with
the same accounting policies adopted in the 2004 annual financial
statements, except for the change in presentation of financial
statements arising from the changes of International Financial
Reporting Standards ("IFRS") that is expected to be reflected in the
2005 annual financial statements. Details of the changes are set out
in note 2.
The preparation of an interim financial report in conformity with
IAS 34 requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses on a year to
date basis. Actual results may differ from these estimates.
The interim financial report is unaudited, but has been reviewed by
KPMG in accordance with Statement of Auditing Standards 700,
Engagements to review interim financial reports, issued by the Hong
Kong Institute of Certified Public Accountants.
2 NEW AND REVISED IFRS
The IASB has issued a number of new and revised IFRS that are
effective or available for early adoption for accounting periods
beginning on or after 1 January 2005. The Board of Directors has
determined the accounting policies to be adopted in the preparation
of the Group's annual financial statements prepared under IFRS for
the year ending 31 December 2005, on the basis of IFRS currently in
issue.
The IFRS that will be effective or are available for voluntary early
adoption in the annual financial statements prepared under IFRS for
the year ending 31 December 2005 may be affected by the issue of
additional interpretation(s) or other changes announced by the IASB
subsequent to the date of issuance of this interim report. Therefore
the policies that will be applied in the Group's financial
statements for that period cannot be determined with certainty at
the date of issuance of this interim financial report.
The adoption of revised IAS 1, Presentation of financial statements
and IAS 27, Consolidated and separate financial statements, has
resulted in a change in presentation of minority interests in the
financial statements:
In prior years, minority interests at the balance sheet date were
presented in the consolidated balance sheet separately from
liabilities and as deduction from net assets. Minority interests in
the results of the Group for the year were also separately presented
in the consolidated income statement as a deduction before arriving
at the profit attributable to shareholders.
With effect from 1 January 2005, in order to comply with IAS 1 and
IAS 27, minority interests at the balance sheet date are presented
in the consolidated balance sheet within equity, separately from the
equity attributable to the equity holders of the parent, and
minority interests in the results of the Group for the period are
presented on the face of the consolidated income statement as an
allocation of the total profit or loss for the period between the
minority interests and the equity holders of the parent.
The presentation of minority interests in the consolidated balance
sheet, income statement and statement of changes in equity for the
comparative period has been restated accordingly.
3 TURNOVER
The Group is principally engaged in the provision of domestic, Hong
Kong regional and international passenger, cargo and mail airline
services, with flights operating primarily from the Guangzhou Baiyun
International Airport in the People's Republic of China ("PRC"),
which is both the main hub of the Group's route network and the
location of its corporate headquarters.
Turnover comprises revenues from airline and airline-related
businesses and is stated net of sales tax.
3
Geographic information about the Group's turnover and operating
(loss)/profit are analysed as follows:
FOR THE SIX MONTHS ENDED 30 JUNE
HONG KONG
DOMESTIC REGIONAL INTERNATIONAL TOTAL
RMB MILLION RMB MILLION RMB MILLION RMB MILLION
2005
Traffic revenue 13,592 641 3,210 17,443
Other operating revenue 401 - - 401
----------- ----------- ------------- -----------
Turnover 13,993 641 3,210 17,844
=========== =========== ============= ===========
Operating (loss)/profit (228) 28 (216) (416)
=========== =========== ============= ===========
2004
Traffic revenue 8,341 569 1,924 10,834
Other operating revenue 260 - - 260
----------- ----------- ------------- -----------
Turnover 8,601 569 1,924 11,094
=========== =========== ============= ===========
Operating profit 605 39 112 756
=========== =========== ============= ===========
4 (LOSS)/PROFIT BEFORE TAXATION
FOR THE SIX MONTHS ENDED
30 JUNE
2005 2004
RMB MILLION RMB million
(Loss)/profit before taxation is arrived at after charging:
Depreciation
- owned assets 1,603 815
- assets acquired under finance leases 491 255
Amortisation of deferred expenditure 30 13
Operating lease charges
- aircraft and flight equipment 1,184 828
Staff costs 1,776 1,061
Interest expense
Interest on bank and other loans 493 175
Finance charges on obligations under finance leases 302 186
Less: borrowing costs capitalised (45) (17)
----------- -----------
Net interest expense 750 344
=========== ===========
and after crediting:
Net realised and unrealised gain on equity
securities held for trading 1 -
=========== ===========
4
5 TAXATION (CREDIT)/EXPENSE
FOR THE SIX MONTHS ENDED
30 JUNE
2005 2004
RMB MILLION RMB million
PRC income tax 5 28
Share of taxation of associates (1) 4
Share of taxation of jointly controlled entities (3) 5
----------- -----------
1 37
Deferred taxation (62) 58
----------- -----------
(61) 95
=========== ===========
The statutory income tax rate in the PRC is 33%. Pursuant to
approval documents issued by the relevant tax authorities, the
Company and certain airline subsidiaries of the Company are entitled
to enjoy a preferential tax rate of 15%.
In respect of the Group's overseas airline activities, the Group has
either obtained exemptions from overseas taxation pursuant to the
bilateral aviation agreements between the overseas governments and
the PRC government, or has sustained tax losses in these overseas
jurisdictions. Accordingly, no provision for overseas tax has been
made for the periods presented.
6 DIVIDENDS
The Board of Directors of the Company does not recommend the payment
of an interim dividend for the six months ended 30 June 2005 (six
months ended 30 June 2004: Nil).
7 BASIC (LOSS)/EARNINGS PER SHARE
The calculation of basic (loss)/earnings per share is based on the
consolidated loss attributable to equity holders of the parent of
RMB907 million (six months ended 30 June 2004: profit of RMB266
million) and the weighted average number of shares in issue during
the period of 4,374 million (six months ended 30 June 2004: 4,374
million).
The amount of diluted (loss)/earnings per share is not presented as
there were no dilutive potential ordinary shares in existence during
the six months ended 30 June 2004 and 2005.
8 TRADE RECEIVABLES
Credit terms granted by the Group to sales agents and other
customers generally range from one to three months. An ageing
analysis of trade receivables, net of provision for doubtful
accounts, is set out below:
AS AT As at
30 JUNE 31 December
2005 2004
RMB MILLION RMB million
Within 1 month 1,113 998
More than 1 month but less than 3 months 123 163
More than 3 months but less than 12 months 35 42
----------- -----------
1,271 1,203
=========== ===========
5
9 TRADE PAYABLES
An ageing analysis of trade payables is as follows:
AS AT As at
30 JUNE 31 December
2005 2004
RMB MILLION RMB million
Due within 1 month or on demand 917 599
Due after 1 month but within 3 months 582 430
Due after 3 months but within 6 months 835 525
----------- -----------
2,334 1,554
=========== ===========
10 RESERVES
No transfer to statutory surplus reserve, statutory public welfare
fund and discretionary surplus reserve has been made during the six
months ended 30 June 2005 (six months ended 30 June 2004: Nil).
B. PREPARED IN ACCORDANCE WITH PRC ACCOUNTING RULES AND REGULATIONS ("PRC
GAAP")
CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2005 - unaudited
(Expressed in Renminbi)
FOR THE SIX MONTHS ENDED
30 JUNE
2005 2004
RMB MILLION RMB million
REVENUE FROM PRINCIPAL OPERATIONS 18,053 11,167
Less: Cost of principal operations 15,924 8,776
Business taxes and surcharges 518 318
----------- -----------
PROFIT FROM PRINCIPAL OPERATIONS 1,611 2,073
Add: Profit from other operations 240 95
Less: Selling expenses 1,290 870
Administrative expenses 862 478
Financial expenses 583 331
----------- -----------
OPERATING (LOSS)/PROFIT (884) 489
Add: Investment (loss)/income (10) 29
Non-operating income 23 48
Less: Non-operating expenses 57 25
----------- -----------
(LOSS)/PROFIT BEFORE INCOME TAX (928) 541
Less: Income tax (credit)/expenses (57) 88
Minority interests (28) 120
----------- -----------
NET (LOSS)/PROFIT FOR THE PERIOD (843) 333
=========== ===========
6
CONSOLIDATED BALANCE SHEET
As at 30 June 2005 - unaudited
(Expressed in Renminbi)
AS AT As at
30 JUNE 31 December
2005 2004
RMB MILLION RMB million
ASSETS
CURRENT ASSETS:
Cash at bank and on hand 5,844 3,274
Short-term investments - 669
Trade receivables 1,431 1,592
Other receivables 1,045 731
Advance payments 146 147
Inventories 1,639 1,398
Prepaid expenses 364 346
----------- -----------
TOTAL CURRENT ASSETS 10,469 8,157
----------- -----------
LONG-TERM EQUITY INVESTMENTS 726 741
----------- -----------
FIXED ASSETS:
Fixed assets, at cost 66,909 61,326
Less: Accumulated depreciation 15,647 13,706
----------- -----------
Net book value of fixed assets 51,262 47,620
Construction in progress 784 626
----------- -----------
TOTAL FIXED ASSETS 52,046 48,246
----------- -----------
OTHER ASSETS:
Lease and equipment deposits 4,748 5,397
Long-term deferred expenditure 113 131
Intangible assets 540 467
Long-term receivables 15 16
----------- -----------
TOTAL OTHER ASSETS 5,416 6,011
----------- -----------
DEFERRED TAXATION:
Deferred tax assets 70 55
----------- -----------
TOTAL ASSETS 68,727 63,210
=========== ===========
7
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans 11,666 10,173
Bills payable 2,760 137
Trade payables 2,561 2,600
Receipts in advance - 5
Sales in advance of carriage 899 874
Wages payable 123 179
Staff welfare payable 63 79
Taxes payable 271 324
Other creditors 718 495
Other payables 2,419 4,328
Accrued expenses 4,249 3,729
Dividend payable 39 -
Long-term liabilities due within one year 4,140 3,691
------ ------
TOTAL CURRENT LIABILITIES 29,908 26,614
------ ------
LONG-TERM LIABILITIES:
Long-term loans 13,139 12,324
Obligations under finance leases 11,604 9,538
Provision for major overhauls 275 284
Deferred credits 494 240
------ ------
TOTAL LONG-TERM LIABILITIES 25,512 22,386
------ ------
DEFERRED TAXATION:
Deferred tax liabilities 327 337
------ ------
TOTAL LIABILITIES 55,747 49,337
------ ------
MINORITY INTERESTS 2,158 2,220
------ ------
SHAREHOLDERS' EQUITY
Share capital 4,374 4,374
Capital reserve 5,813 5,801
Surplus reserves 672 672
------ ------
Including: Statutory public welfare fund 193 193
------ ------
(Accumulated loss)/ retained profits (37) 806
------ ------
TOTAL SHAREHOLDERS' EQUITY 10,822 11,653
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 68,727 63,210
====== ======
Note: The significant accounting policies adopted by the Group in the
preparation of this unaudited consolidated income statement and
consolidated balance sheet are in conformity with the Accounting Standards
for Business Enterprises, "Accounting Regulations for Business
Enterprises" and other supplementary regulations.
8
C. DIFFERENCES BETWEEN UNAUDITED INTERIM FINANCIAL RESULTS PREPARED UNDER
IFRS AND PRC GAAP
FOR THE SIX MONTHS
ENDED 30 JUNE
2005 2004
RMB MILLION RMB million
Net (loss)/profit under PRC GAAP (843) 333
Adjustments:
Gains on aircraft sale and leaseback transactions (15) (15)
Losses on staff housing allocations (13) (56)
Adjustment for revaluation of land use rights 2 2
Adjustment for investment in associates (52) -
Donation 12 -
Effect of the above adjustments on taxation 2 2
----------- -----------
Net (loss)/profit attributable to equity holders
of parent under IFRS (907) 266
=========== ===========
AS AT As at
30 JUNE 31 December
2005 2004
RMB MILLION RMB million
Total shareholders' equity under PRC GAAP 10,822 11,653
Adjustments:
Gains on aircraft sales and leaseback transactions 165 180
Losses on staff housing allocations 184 197
Adjustment for revaluation of land use rights (160) (162)
Adjustment for investment in associates (78) (26)
Interest capitalisation 11 11
Effect of the above adjustments on taxation (3) (5)
----------- -----------
Total equity attributable to equity holders of
parent under IFRS 10,941 11,848
=========== ===========
9
OPERATING DATA SUMMARY
FOR THE SIX MONTHS 2005 VS 2004
ENDED 30 JUNE INCREASE/
2005 2004 (DECREASE) (%)
CAPACITY
Available seat kilometres
(ASKs) (million)
- Domestic 33,833 20,141 13,692 68.0
- Hong Kong regional 1,138 926 212 22.9
- International 6,782 4,861 1,921 39.5
------- ------- ----------
Total 41,753 25,928 15,825 61.0
======= ======= ==========
Available tonne kilometres
(ATKs) (million)
- Domestic 3,885 2,333 1,552 66.5
- Hong Kong regional 127 103 24 23.3
- International 1,402 1,139 263 23.1
------- ------- ----------
Total 5,414 3,575 1,839 51.4
======= ======= ==========
Kilometres flown (thousand) 254,547 156,041 98,506 63.1
======= ======= ==========
Hours flown (thousand) 400 242 158 65.3
======= ======= ==========
Number of flight sectors
- Domestic 184,974 117,919 67,055 56.9
- Hong Kong regional 8,364 7,549 815 10.8
- International 12,826 7,548 5,278 69.9
------- ------- ----------
Total 206,164 133,016 73,148 55.0
======= ======= ==========
TRAFFIC
Revenue passenger kilometres
(RPKs) (million)
- Domestic 23,479 13,644 9,835 72.1
- Hong Kong regional 695 573 122 21.3
- International 4,304 3,025 1,279 42.3
------- ------- ----------
Total 28,478 17,242 11,236 65.2
======= ======= ==========
Revenue tonne kilometres
(RTKs) (million)
- Domestic 2,524 1,518 1,006 66.3
- Hong Kong regional 69 57 12 21.1
- International 750 611 139 22.7
------- ------- ----------
Total 3,343 2,186 1,157 52.9
======= ======= ==========
10
Passenger tonne kilometres
(million)
- Domestic 2,094 1,219 875 71.8
- Hong Kong regional 62 51 11 21.6
- International 383 270 113 41.9
------ ------ -----
Total 2,539 1,540 999 64.9
====== ====== =====
Cargo and mail tonne kilometres
(million)
- Domestic 430 299 131 43.8
- Hong Kong regional 7 6 1 16.7
- International 367 341 26 7.6
------ ------ -----
Total 804 646 158 24.5
====== ====== =====
Passengers carried (thousand)
- Domestic 18,115 11,825 6,290 53.2
- Hong Kong regional 739 671 68 10.1
- International 1,405 819 586 71.6
------ ------ -----
Total 20,259 13,315 6,944 52.2
====== ====== =====
Cargo and mail carried
(thousand tonne)
- Domestic 285 218 67 30.7
- Hong Kong regional 8 7 1 14.3
- International 55 42 13 31.0
------ ------ -----
Total 348 267 81 30.3
====== ====== =====
LOAD FACTORS
Passenger load factor
(RPK/ASK) (%)
- Domestic 69.4 67.7 1.7 2.5
- Hong Kong regional 61.1 61.9 (0.8) (1.3)
- International 63.5 62.2 1.3 2.1
Total 68.2 66.5 1.7 2.6
====== ====== =====
Average load factor
(RTK/ATK) (%)
- Domestic 65.0 65.1 (0.1) (0.2)
- Hong Kong regional 54.3 55.3 (1.0) (1.8)
- International 53.5 53.6 (0.1) (0.2)
Total 61.7 61.1 0.6 1.0
====== ====== =====
Breakeven load factor (%) 64.6 58.3 6.3 10.8
====== ====== =====
11
YIELD
Yield per RPK (RMB)
- Domestic 0.55 0.58 (0.03) (5.2)
- Hong Kong regional 0.86 0.93 (0.07) (7.5)
- International 0.56 0.45 0.11 24.4
Total 0.56 0.57 (0.01) (1.8)
===== ==== =====
Yield per cargo and mail tonne kilometre (RMB) 1.84 1.64 0.20 12.2
===== ==== =====
Yield per RTK (RMB)
- Domestic 5.39 5.49 (0.10) (1.8)
- Hong Kong regional 9.29 9.98 (0.69) (6.9)
- International 4.28 3.15 1.13 35.9
Total 5.22 4.96 0.26 5.2
===== ==== =====
FLEET
Number of aircraft in service at
period end
- Boeing 136 113 23 20.4
- Airbus 56 24 32 133.3
- McDonnell Douglas 36 - 36 100.0
- Embraer 6 2 4 200.0
- Others 8 - 8 100.0
----- ---- -----
Total 242 139 103 74.1
===== ==== =====
Aircraft utilisation rate
(hours per day)
- Boeing 10.30 9.60 0.70 7.3
- Airbus 9.34 9.27 0.07 0.8
Total 9.87 9.40 0.47 5.0
===== ==== =====
FINANCIAL
Operating cost per ASK (RMB) 0.44 0.40 0.04 10.0
Operating cost per ATK (RMB) 3.37 2.89 0.48 16.6
===== ==== =====
12
BUSINESS OVERVIEW
BUSINESS REVIEW
With the continuous and steady growth of the PRC economy and the nation's "Go
West" and "Revitalising the Old Industrial Bases in the North-eastern Region"
strategies, coupled with the effects of joint restructuring of domestic
airlines, the Company is faced with new challenges under a market environment
which is full of opportunities. On 31 December 2004, the acquisition of the
airline operations and certain related assets of China Northern Airlines Company
("CNA") and Xinjiang Airlines Company ("XJA") ("CNA/XJA Acquisition") was
approved at an extraordinary general meeting of the Company, which completed the
restructuring exercise. The Group has benefited from this acquisition through
increased economies of scale and transportation capacity.
However, escalating oil prices continued to drive up the jet fuel prices, which
directly increased the operating costs of the Company significantly. In
addition, the competition in the domestic civil aviation market was very
intensive, leading to an unstable yield. Furthermore, after the restructuring of
the Group, it would take a period of time for the benefits of business
integration to materialise and for business synergy to take effect. As a result,
the Company recorded a net loss of RMB907 million during the first half of the
year.
During the first half year of 2005, the Group managed to maintain a consistently
high level of flight safety standard to further implement the integration of
management of the Group and to complete a stable transition. Notwithstanding
challenges like the period required for reorganisation of the management and
personnel of the Group after the CNA/XJA Acquisition, the enlarged scale of
management and difficulties associated therewith, and the increasingly intensive
competition in the aviation and air freight market, the Company has handled
these challenges with care and plan, and further implemented the development
strategies of the Company.
With the approval of the Board, the Company and Centergate Securities Co., Ltd
mutually agreed to the early termination of the assets management agreement. As
of 30 May 2005, the Company recovered the full investment principal sum of
RMB500,000,000 and the investment return of RMB12,904,110.
For the period under review, the Group's total traffic revenue was RMB17,443
million, an increase of RMB6,609 million or 61.0% from the same period last
year. Meanwhile, the Group's total traffic volume increased by 52.9% to 3,343
million RTKs. The aggregate utilisation rate of the Group's aircraft was 9.87
hours per day for the period under review, an increase of 0.47 hours or 5.0%
from the same period last year.
Passenger revenue for the period under review was RMB15,967 million, up 63.3%
from the same period last year, representing 91.5% of the Group's total traffic
revenue. Passenger traffic volume increased by 65.2% to 28,478 million RPKs.
Domestic passenger revenue was RMB12,956 million, up 64.4% from the same period
last year. Domestic passenger revenue accounted for 81.1% of overall passenger
revenue. Passenger capacity, in terms of ASKs, increased by 68.0% while
passenger traffic volume, in terms of RPKs, increased by 72.1% from the same
period last year, resulting in an increase in passenger load factor of 1.7
percentage points to 69.4%. The passenger yield per RPK decreased by 5.2% from
RMB0.58 to RMB0.55, resulting from intensive competition in the domestic market.
On Hong Kong regional routes, the Group recorded passenger revenue of RMB599
million, up 12.0% from the same period last year. Hong Kong regional passenger
revenue accounted for 3.8% of total passenger revenue. Passenger capacity, in
terms of ASKs, increased by 22.9% while passenger traffic volume, in terms of
RPKs increased by 21.3% from the same period last year, resulting in a decrease
in passenger load factor of 0.8 percentage points to 61.1%. The passenger yield
per RPK decreased by 7.5% to RMB0.86 as more chartered flights were rendered
during the period under review.
13
Passenger revenue for the Group's international routes amounted to RMB2,412
million, an increase of 77.5% from the same period last year. International
passenger revenue accounted for 15.1% of total passenger revenue. Passenger
capacity, in terms of ASKs, increased by 39.5% while passenger traffic volume,
in terms of RPKs, increased by 42.3% from the same period last year, resulting
in an increase in passenger load factor of 1.3 percentage points to 63.5%. The
passenger yield per RPK increased by 24.4% to RMB0.56 mainly due to upward fare
adjustment on certain routes during the period under review.
Cargo and mail revenue was RMB1,476 million, an increase of 39.5% from the same
period last year. Cargo and mail revenue accounted for 8.5% of total traffic
revenue. Cargo and mail volume grew by 24.5% to 804 million RTKs from the same
period last year, mainly due to the increase in traffic volume. The overall
yield per cargo and mail tonne kilometre increased by 12.2% to RMB1.84, mainly
due to an increase in fares during the period under review.
The Group's other revenue amounted to RMB401 million, an increase of 54.2% from
the same period last year, primarily due to increases in ground service income
of RMB72 million, as a result of the increase in traffic volume.
Total operating expenses increased by 76.6% to RMB18,260 million from the same
period last year, primarily due to the general increases in fuel cost, aircraft
repairs and maintenance expenses, landing and navigation fees and commission
expenses resulting from the increase in traffic volume during the period under
review.
Flight operations expenses increased by 92.4% to RMB9,084 million from the same
period last year. Of these expenses, fuel cost was RMB5,549 million, up 104.6%
from the same period last year, mainly as a result of increases in fuel
consumption and fuel prices. Aircraft insurance costs increased by 48.2% to
RMB126 million, primarily resulted from the fleet expansion subsequent to the
CNA/XJA Acquisition. Operating lease payments increased by 43.0% to RMB1,184
million, mainly attributable to additional rental payments for new aircraft
under operating leases. Air catering expenses increased by 72.4% to RMB538
million, primarily as a result of an increase in number of passengers carried
during the period under review. Labour costs for flight personnel increased by
65.8% to RMB814 million, largely due to an increase in flying hours.
Maintenance expenses increased by 64.5% to RMB2,320 million, due mainly to
increases in aircraft overhaul charges and routine maintenance costs resulting
from the increase in flying hours during the period under review.
Aircraft and traffic servicing expenses increased by 51.6% to RMB2,560 million
from the same period last year, reflecting primarily an increase in number of
landing and takeoffs.
Promotion and sales expenses increased by 39.6% to RMB1,220 million from the
same period last year, primarily as a result of an increase in traffic volume.
General and administrative expenses increased by 65.2% to RMB912 million from
the same period last year, due mainly to an increase in the scale of operations.
As compared with the same period last year, depreciation and amortisation
expenses increased by 93.4% to RMB2,094 million, reflecting primarily the effect
of the fleet expansion through the CNA/XJA Acquisition and scheduled aircraft
delivered during the second half of 2004 and the period under review.
Interest expense increased by 118.0% to RMB750 million in the period under
review, primarily reflecting an increase in the balance of loan borrowings and
the increase in LIBOR rate, while 46.5% of the Group total borrowings are
subject to LIBOR rate.
The Group recorded a net exchange gain of RMB197 million, predominantly relating
to its Japanese yen denominated borrowings as a result of the depreciation of
Japanese Yen during the period under review. The major part of such amount
represented unrealised translation gain.
As a result of the aforementioned factors, for the six months ended 30 June
2005, the Group recorded a net loss attributable to equity holders of the parent
of RMB907 million, as compared to a net profit attributable to equity holders of
the parent of RMB266 million for the same period last year.
14
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
As of 30 June 2005, the Group's borrowings totalled RMB42,933 million, an
increase of RMB7,601 million from RMB35,332 million as of 31 December 2004. The
majority of such borrowings were denominated in United States dollars and, to a
smaller extent, in Japanese yen and Hong Kong dollars, with a significant
portion being fixed interest rate borrowings. As of 30 June 2005, cash and cash
equivalents of the Group totalled RMB5,632 million, an increase of RMB2,549
million from RMB3,083 million as of 31 December 2004. Of such balance, 30.8% was
denominated in foreign currencies. Net debts (total borrowings net of cash and
cash equivalents) increased by 15.7% to RMB37,301 million from RMB32,249 million
as of 31 December 2004.
As of 30 June 2005, the equity attributable to equity holders of the parent
amounted to RMB10,941 million, a decrease of RMB907 million from RMB11,848
million as of 31 December 2004, reflecting the net loss recorded for the period
under review.
Net debt/equity ratio of the Group as of 30 June 2005 was 3.41 times, as
compared to 2.72 times as of 31 December 2004.
FINANCIAL RISK MANAGEMENT POLICY
In the normal course of business, the Group is exposed to fluctuations in
foreign currencies and jet fuel prices. The Group's exposure to foreign
currencies is mainly attributable to its debts denominated in foreign
currencies. Depreciation or appreciation of the Renminbi against foreign
currencies could affect the Group's results and financial position
significantly, as 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 authorised PRC banks.
On 21 July 2005, the People's Bank of China ("PBOC") announced that the PRC
government reformed the exchange rate regime by moving into a managed floating
exchange rate regime based on market supply and demand with reference to a
basket of foreign currencies. In particular, the exchange rate of US dollar
against Renminbi was adjusted upward to RMB8.11 per US dollar with effect from
the close of business on 21 July 2005. The Group considers that the above
appreciation of Renminbi would not have adverse financial impacts to its
operation.
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 the
Group for managing its exposure associated with the fluctuations in domestic jet
fuel prices.
CHARGES ON ASSETS
As of 30 June 2005, certain aircraft of the Group with an aggregate carrying
value of approximately RMB25,268 million (as of 31 December 2004: RMB23,562
million) were mortgaged under certain loan and lease agreements.
CAPITAL AND INVESTING COMMITMENTS
As of 30 June 2005, the Group had capital commitments of approximately RMB40,605
million. Of such amounts, RMB37,429 million was related to the acquisition of
aircraft and related flight equipment and RMB820 million was related to the
Group's facilities and equipment to be constructed and installed at the new
Guangzhou Baiyun International Airport. The remaining amount of RMB2,356 million
was related to the Group's other airports and office facilities and equipment,
overhaul and maintenance bases and training facilities.
As of 30 June 2005, the Group was committed to making a capital contribution of
approximately RMB61 million and RMB83 million to its subsidiaries and jointly
controlled entities respectively.
15
CONTINGENT LIABILITIES
There have been no material adverse changes in the contingent liabilities of the
Group since 31 December 2004.
RECENT ECONOMIC DEVELOPMENT
Upon approval from the Board, the Company will set up its Beijing branch in
Tianzhu Airport Industrial Zone, Beijing. The Company believes that with the
integration of the Group's core business, the Company's business development in
Beijing Capital International Airport will provide a better hub base for the
Group's existing Azure Big Delta (Guangzhou, Shenyang and Urumqi) network
services. Meanwhile, the Group can also take an active role in and share the
opportunities arising from the Beijing Olympics Games 2008.
Following the announcement by the PBOC on the changes in the Renminbi foreign
exchange rate system on 21 July 2005, the Company will benefit from the Renminbi
appreciation as it finances its aircraft acquisitions and conducts other
transactions in US dollar e.g. jet fuel, lease of aviation equipment,
acquisition and major repair, and it still has a substantial amount of debt in
US dollar. In addition, landing fees for international flights are denominated
in foreign currencies making the Company a beneficiary of the appreciation of
Renminbi. Reminbi appreciation will also bring a one-off exchange gain to the
Group and reduce its operating costs which are denominated in foreign
currencies. On the other hand, the Group faces greater challenge from
international routes.
According to "Notice of the National Development and Reform Commission (NDRC)
and the General Administration of Civil Aviation of China (CAAC) Concerning the
Relevant Questions on Collecting Fuel Surcharge to Domestic Routes", effective
from 1 August 2005 (flight time), airlines are allowed to impose fuel surcharge
on all domestic routes (other than routes between Mainland to Hong Kong and
Macau). The resumption of fuel surcharge collection will ease the Group's burden
due to the jet fuel cost.
PROSPECTS FOR THE SECOND HALF
Global airline industry has been badly hit by soaring jet fuel prices. As a
result of the three times increases in domestic jet fuel prices, the Group's jet
fuel cost has accounted for 30% of total costs. The Group intends to meet the
challenges by using its economies of scale operation and strict control over
operating costs increase, so as to reduce the impact brought by the persistently
high oil prices.
The enlarged scale of the Group due to its joint restructuring will provide more
opportunities for the development of the Company's business and operations. The
Group will adjust its flight network by increasing traffic capacity to fill in
any deficiencies in its routes, and will maintain or increase domestic and
regional market shares. The Group believes that its leading position in the
civil aviation industry can be assured by speeding up integration of flight
networks and capacity to realize the objectives of network operation, and also
through innovation, refinement and enhancement of incentive mechanism.
The Company will continue to implement strict costs control and raise its
overall synergy benefits.
DIVIDENDS
The Board of Directors does not propose to declare an interim dividend for the
year 2005.
16
STRUCTURE OF SHARE CAPITAL
As of 30 June 2005, the share capital of the Company comprised 4,374,178,000
shares, of which approximately 50.30% or 2,200,000,000 State-owned Shares were
held by China Southern Air Holding Company ("CSAHC"), approximately 22.86% or
1,000,000,000 A Shares were held by the PRC investors and approximately 26.84%
or 1,174,178,000 H Shares were held by Hong Kong and overseas investors.
NUMBER OF PERCENTAGE TO THE
CATEGORY OF SHARES SHARES HELD TOTAL SHARE CAPITAL
(%)
State-owned Shares (held by CSAHC) 2,200,000,000 50.30%
H Shares 1,174,178,000 26.84%
A Shares 1,000,000,000 22.86%
------------- -------------------
Total share capital 4,374,178,000 100.00%
============= ===================
SUBSTANTIAL SHAREHOLDERS
As of 30 June 2005, 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 Securities and Futures Ordinance
(the "SFO") or otherwise persons who have an interest of 10% or more in the
Company's shares are as follows:
% OF
% OF THE TOTAL
THE TOTAL ISSUED
ISSUED SHARE
H SHARES CAPITAL
NAME OF TYPE OF NUMBER OF OF THE OF THE SHORT
SHAREHOLDER SHAREHOLDING TYPE OF SHARE SHARES HELD COMPANY COMPANY POSITION
CSAHC Direct holding Domestic share 2,200,000,000 - 50.30% -
HKSCC Nominees Direct holding H share 1,150,918,998 98.0% 26.31% -
Limited
Details of the interests of the Company's shareholders as of 30 June 2005 will
be set forth in the Company's 2005 interim report.
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 first half of 2005.
17
INTERESTS OF THE DIRECTORS AND SUPERVISORS IN THE EQUITY OF THE COMPANY
As of 30 June 2005, the interests and short positions of the directors, chief
executive and supervisors 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 required to be notified to the Company
and The Stock Exchange of Hong Kong Limited (the "Stock Exchange") pursuant to
SFO (including interest 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 required to be 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 Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
(the "Listing Rules") are as follows:
% TO
% TO THE TOTAL
THE TOTAL ISSUED
THE COMPANY/ NUMBER ISSUED SHARE H SHARES
ASSOCIATED TYPES OF TYPE OF OF SHARES CAPITAL OF THE OF THE SHORT
NAME CORPORATION INTEREST SHARE HELD COMPANY COMPANY POSITION
Simon To The Company Interest of spouse H shares 100,000 0.002% 0.009% -
(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.
DESIGNATED DEPOSITS AND OVERDUE TIME DEPOSITS
As of 30 June 2005, 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.
THE MODEL CODE
Having made specific enquiries with all the directors of the Company, the
directors have for six months ended 30 June 2005 complied with the "Model Code
for Securities Transactions by Directors of Listed Issuers" as set out in
Appendix 10 of the Rules Governing the Listing of Securities on the Hong Kong
Stock Exchange (the "Listing Rules"). The Company has not adopted a code of
conduct less stringent than the "Model Code for Securities Transactions by
Directors of Listed Issuers" regarding securities transactions of the directors.
THE CODE OF CORPORATE GOVERNANCE PRACTICES
The Directors of the Company consider that, in the six months ended 30 June
2005, the Group was in compliance with the Code of Corporate Governance
Practices set out in Appendix 14 of the Listing Rules.
MATERIAL LITIGATION
The Company was involved in a civil litigation (Hong Kong High Court Action No.
515 of 2001) ("Litigation"). According to the writ of summons for the
Litigation, New Link Consultants Limited, the plaintiff, claimed against the
Group (as one of the defendants to the Litigation) on the basis of certain
evidence proving that United Aero-Supplies System of China, Limited ("UASSC")
entered into an agreement with the defendants for exclusive purchase of aviation
equipment consigned to UASSC for sale. As the defendants failed to perform the
agreement, UASSC should have the right to compensation. Since UASSC was in the
course of its winding up proceedings, all the rights and benefits of UASSC in
connection with the claim had been transferred to the plaintiff. The Company, as
one of the defendants to the Litigation was claimed for unspecified damages for
breach of the agreement. The Company filed an objection in respect of the
jurisdiction of the court, and 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.
18
In August 2005, the parties to the Litigation reached an out of court
settlement, pursuant to which the plaintiff will waive all its rights or
possible rights to commence proceedings, claims or appeals against the Company
in respect of the same matter.
By order of the Board of Directors
LIU SHAO YONG
Chairman of the Board of Directors
Guangzhou, the PRC
26 August 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,
Si Xian Min, Xu Jie Bo, Zhou Yong Jin and Wu Rong Nan as executive Directors;
and Simon To, Peter Lok, Wei Ming Hai, Wang Zhi and Sui Guang Jun as independent
non-executive Directors.
DOCUMENTS AVAILABLE FOR INSPECTION
Original copy of the Company's 2005 interim report signed by the Chairman of the
Board.
ADDRESS FOR INSPECTION
The Company Secretary Office of the China Southern Airlines Company Limited, No.
278, Ji Chang Lu, Guangzhou, the People's Republic of China.
A detailed interim results announcement containing all the information required
by paragraphs 46(1) to 46(6) of Appendix 16 to the Listing Rules will be
subsequently published on the Stock Exchange's website in due course.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHINA SOUTHERN AIRLINES COMPANY LIMITED
By /s/ Su Liang
------------------------------------
Name: Su Liang
Title: Company Secretary
Date: September 1, 2005