SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September, 2004
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of registrant's name into English)
Baiyun International Airport
Guangzhou, People's Republic of China
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.)
Form 20-F. X Form 40-F.
------------ ------------
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes . No. X
------------- -------------
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-________.)
China Southern Airlines Company Limited (the "Company") on or around
September 8, 2004 distributed its Interim Report for the six months ended June
30, 2004, in English and Chinese to its shareholders. A copy of the Interim
Report (in English) is included in this Form 6-K of the Company.
1
All Shareholders:
The Board of Directors of China Southern Airlines Company Limited (the
"Company") is pleased to announce the unaudited operating results of the Company
and its subsidiaries (collectively, the "Group") for the six months ended 30
June, 2004.
INTRODUCTION
The Group is one of the largest airlines in the People's Republic of China
("PRC") in terms of volume of passenger traffic, number of scheduled flights per
week, number of hours flown, route networks and size of aircraft fleet. The
Group operates the most extensive route network among all PRC airlines. As of 30
June, 2004, the Group operated a total of 311 routes, of which 248 were
domestic, 18 were Hong Kong regional and 45 were international. For the six
months ended 30 June, 2004, the Group operated an average of 5,116 scheduled
flights per week, serving 95 cities. As of 30 June, 2004, the Group operated a
fleet of 139 aircraft, of which 113 were Boeing aircraft and 24 were Airbus
aircraft. The average age of the fleet was 8.02 years as of 30 June, 2004.
BUSINESS OVERVIEW
In the first half of 2004, with the economy of the PRC entering into a new
growth cycle, the demand for air transportation has continued to increase
following the growth trend in the aviation transportation market which extended
from the second half of last year. The Group's business benefited from such
growth, with the result that the Group recorded different levels of increases in
its passenger volume and passenger load factor, and a net profit of RMB266
million in the first half of this year.
Since last year, the political tension in the Middle East has continued which
led to a surge in oil price and in turn caused an increase in the Group's fuel
cost. On the premise of ensuring flight safety, the Group has adopted various
technical measures to reduce fuel consumption. These measures include making
accurate flight plan and minimizing turnaround time. Meanwhile, the Group has
taken a series of fuel-saving measures such as refueling in areas where the fuel
price is relatively low, so as to minimize the rise in costs.
With the approval of the State Council, the Proposal on Price Reform for
Domestic Operation of Civil Airlines [CHINESE CHARACTERS] was implemented on 20
April, 2004, pursuant to which, indicative air ticket prices set by the PRC
government apply to domestic airline operations. The PRC government pricing
authority shifted its function from direct determination of air ticket prices to
indirect supervision through setting of basic prices and their floating ranges.
Chinese airlines can, within the ranges stipulated by the government pricing
authority, determine their air ticket prices autonomously according to market
situations, so that flexible sales strategies may be adopted for the purpose of
maximizing profits. Chinese airlines therefore have greater autonomy in their
operations. Taking advantage of the proposal above, the Group's overall
passenger revenue increased as a result of adjustment of the air ticket pricing
system. The Group is confident to develop its business operations through fair
and healthy competition in a market that is becoming further structured.
For the period under review, the Group's total traffic revenue was RMB10,834
million, an increase of RMB4,296 million or 65.7% from the same period last
year. Meanwhile, the Group's total traffic volume increased by 53.5% to 2,186
million RTKs. The aggregate utilisation rate of the Group's Boeing and Airbus
aircraft was 9.40 hours per day for the period under review, an increase of 2.07
hours or 28.2% from the same period last year.
Passenger revenue for the period under review was RMB9,776 million, up 74.1%
from the same period last year, representing 90.2% of the Group's total traffic
revenue. Passenger traffic volume increased by 70.7% to 17,242 million RPKs.
2
Domestic passenger revenue was RMB7,882 million, up 74.7% from the same period
last year. Domestic passenger revenue accounted for 80.6% of overall passenger
revenue. Passenger capacity, in terms of ASKs, increased by 48.2% while
passenger traffic volume, in terms of RPKs, increased by 72.3% from the same
period last year, resulting in an increase in passenger load factor of 9.4
percentage points to 67.7%. The passenger yield per RPK increased by 1.8% from
RMB0.57 to RMB0.58, mainly as a result of recording the contributions to the
CAAC infrastructure development fund as an operating expense instead of being
netted off with traffic revenue during the period under review.
On Hong Kong regional routes, the Group recorded passenger revenue of RMB535
million, up 82.6% from the same period last year. Hong Kong regional passenger
revenue accounted for 5.5% of total passenger revenue. Passenger capacity, in
terms of ASKs, increased by 59.4% while passenger traffic volume, in terms of
RPKs increased by 95.6% from the same period last year, resulting in an increase
in passenger load factor of 11.5 percentage points to 61.9%. The passenger yield
per RPK decreased by 7.0% to RMB0.93 mainly due to intensified competition.
Passenger revenue for the Group's international routes amounted to RMB1,359
million, an increase of 67.2% from the same period last year. International
passenger revenue accounted for 13.9% of total passenger revenue. Passenger
capacity, in terms of ASKs, increased by 44.3% while passenger traffic volume,
in terms of RPKs, increased by 60.4% from the same period last year, resulting
in an increase in passenger load factor of 6.2 percentage points to 62.2%. The
passenger yield per RPK increased by 4.7% to RMB0.45 mainly as a result of
recording the contributions to the CAAC infrastructure development fund as an
operating expense instead of being netted off with traffic revenue during the
period under review.
Cargo and mail revenue was RMB1,058 million, an increase of 14.8% from the same
period last year. Cargo and mail revenue accounted for 9.8% of total traffic
revenue. Cargo and mail volume grew by 23.8% to 646 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 decreased by 7.3% to RMB1.64, mainly
due to the decrease in fares resulting from intensified competition from other
modes of transportation.
The Group's other revenue amounted to RMB260 million, an increase of 33.0% from
the same period last year, primarily due to increases in commission income of
RMB22 million and ground service income of RMB24 million, as a result of the
increase in traffic volume.
Total operating expenses increased by 27.5% to RMB10,339 million from the same
period last year, primarily due to increases in aircraft repairs and maintenance
expenses, fuel cost, landing and navigation fees and commission expenses
resulting from the increase in traffic volume during the period under review.
Flight operations expenses increased by 34.3% to RMB4,722 million from the same
period last year. Of these expenses, fuel cost was RMB2,712 million, up 45.8%
from the same period last year, mainly as a result of increases in fuel
consumption and fuel prices. Aircraft insurance costs decreased by 31.5% to
RMB85 million, primarily due to a decrease in aircraft insurance premiums
prescribed by the PRC insurance company. Operating lease payments increased by
0.9% to RMB828 million, mainly due to the net effect of additional rental
payments for new aircraft under operating leases and rental savings resulting
from the cessation of wet leases of Boeing 747 cargo freighters. Air catering
expenses increased by 45.1% to RMB312 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 28.5% to RMB491 million, largely due to
an increase in flying hours.
3
Maintenance expenses increased by 15.7% to RMB1,410 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 41.0% to RMB1,689 million
from the same period last year, reflecting primarily an increase in number of
landing and takeoffs during the period under review.
Promotion and sales expenses increased by 29.7% to RMB874 million from the same
period last year, primarily as a result of an increase in traffic revenue.
General and administrative expenses increased by 14.8% to RMB552 million from
the same period last year, due mainly to an increase in the scale of operations
during the period under review.
Depreciation and amortisation expenses increased by 6.6% to RMB1,083 million
from the same period last year, reflecting primarily the effect of aircraft
delivered during the second half of 2003 and the period under review.
Interest expense decreased by 24.6% to RMB344 million from the same period last
year, primarily 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.
Minority interests increased by 215.2% to RMB108 million from the same period
last year, primarily reflecting the net profits earned by certain subsidiaries
of the Group for the period under review.
As a result of the aforementioned reasons, the Group earned a profit
attributable to shareholders of RMB266 million for the six months ended 30 June,
2004, as compared to a loss attributable to shareholders of RMB1,232 million for
the same period last year.
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
As of 30 June, 2004, the Group's borrowings totalled RMB22,139 million, an
increase of RMB3,679 million from RMB18,460 million as of 31 December, 2003. 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, 2004, cash and cash
equivalents of the Group totalled RMB2,932 million, an increase of RMB852
million from RMB2,080 million as of 31 December, 2003. Of such balance, 15.2%
was denominated in foreign currencies. Net debts (total borrowings net of cash
and cash equivalents) increased by 17.3% to RMB19,207 million from RMB16,380
million as of 31 December, 2003.
As of 30 June, 2004, the shareholders' equity of the Group amounted to RMB12,162
million, an increase of RMB266 million from RMB11,896 million as of 31 December,
2003, reflecting the net profit earned for the period under review.
Net debt/equity ratio of the Group as of 30 June, 2004 was 1.58 times, as
compared to 1.38 times as of 31 December, 2003.
4
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.
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, 2004, certain aircraft of the Group with an aggregate carrying
value of approximately RMB13,913 million (as of 31 December, 2003: RMB14,576
million) were mortgaged under certain loan and lease agreements.
CAPITAL AND INVESTING COMMITMENTS
As of 30 June, 2004, the Group had capital commitments of approximately
RMB16,587 million. Of such amounts, RMB14,156 million was related to the
acquisition of aircraft and related flight equipment and RMB1,640 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
RMB791 million was related to the Group's other airport and office facilities
and equipment, overhaul and maintenance bases and training facilities.
As of 30 June, 2004, the Group was committed to making a capital contribution of
approximately RMB382 million to its jointly controlled entities.
CONTINGENT LIABILITIES
There have been no material adverse changes in the contingent liabilities of the
Group since 31 December, 2003.
RECENT ECONOMIC DEVELOPMENT
Benefited from the strong growth of the China aviation market, the Group's
business has been developing continuously and healthily. On 5 August, 2004, the
opening of the new Guangzhou Baiyun International Airport which is one of our
major operating bases, provides further opportunities for the expansion of the
Company's operations. As one of the management's major goals, the Group will
strive to maintain and promote the Group's market share in the expanding
Guangzhou market. The Group believes that it can improve its ability to adapt to
the civil aviation market and consolidate its leading position amongst the
Chinese airlines by continually implementing innovations, improvements and
upgradings to its various schemes designed to boost sales volume, such as route
manager system and the dismissal of underperformed personnel policy. At the same
time the Group also accelerates the process of integrating its route networks
and transportation capacity, in order to achieve an operation of a traffic
network hub.
5
As disclosed in an announcement of the Company dated 26 July, 2004, in order to
enhance the Company's capital utilization rate of its capital and hence its
investment return and profit, the Company entered into an asset management
agreement with Zhong Zheng Wei Ye Investment Co., Ltd ("Zhong Zheng") [CHINESE
CHARACTERS] and Centergate Securities Co., Ltd ("Centergate") [CHINESE
CHARACTERS] on 22 July, 2004, pursuant to which the Company and Zhong Zheng
jointly appointed Centergate to manage and invest capital investment of the
Company and Zhong Zheng in the sum of RMB500 million and RMB75 million
respectively. The appointment is effective from 27 July, 2004 to 26 July, 2005.
If the annual rate of return from investment is 6% or below, Centergate will not
charge any assets management fee. If the annual rate of return from investment
exceeds 6%, Centergate will charge an assets management fee equivalent to a sum
which is less than 60% of the excess of 6% annual return from investment of the
Company's capital. The Board has approved the asset management agreement by way
of a written approval in accordance with the articles of association of the
Company and the laws of PRC.
OUTLOOK FOR THE SECOND HALF OF THE YEAR
The country's economy is entering a new cycle of rapid growth, with such growth
being driven by factors including the acceleration of urbanization and upgrading
in consumers' spending. Consumers' spending will provide a new boost for
economic growth. With the patterns of the consumers' spending in automobile,
housing, communication and travelling becoming the main themes of the upgraded
spending pattern, the demand for air transportation will increase. The
commencement of operation of the new Guangzhou Baiyun International Airport and
the opening of the Company's new terminal in Beijing Capital International
Airport also provide ample opportunities for the Group's further development. In
order to match the increase in its capacity for growth, the Group will adjust
its network allocation, utilize the new airport's enlarged transportation
capacity by increasing its transportation volume, with a view to maintaining and
increasing its market share as well as revenues from business operations.
The Company will continue to practise strict cost control to improve the overall
benefits.
USE OF PROCEEDS FROM H SHARE AND A SHARES OFFERING
As stated in the 2003 Annual Report of the Company, as of 31 December, 2003, the
Company has applied all the proceeds from H shares offering. The proceeds from A
shares offering has been applied to purchase Boeing aircraft as disclosed in the
A share prospectus of the Company. The uses of proceeds were unchanged.
DIVIDENDS
The Board of Directors does not propose to declare an interim dividend for the
year 2004.
6
STRUCTURE OF SHARE CAPITAL
As of 30 June, 2004, the share capital of the Company comprised 4,374,178,000
shares, of which approximately 50.3% 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, 2004, 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 executive 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
% OF THE TOTAL THE TOTAL
THE TOTAL ISSUED ISSUED
ISSUED DOMESTIC SHARE
H SHARES SHARES CAPITAL
NAME OF TYPE OF TYPE OF NUMBER OF OF THE OF THE OF THE SHORT
SHAREHOLDER SHAREHOLDING SHARE SHARES HELD COMPANY COMPANY COMPANY POSITION
----------- -------------- -------- ------------- --------- --------- -------- --------
CSAHC Direct holding Domestic share 2,200,000,000 -- 100% 50.3% --
HKSCC Nominees
Limited Direct holding H share 1,152,155,998 98.1% -- 26.34% --
-------------
Notes:
Based on the information available to the directors, chief executive and
supervisors of the Company (including such information as was available on
the website of the Stock Exchange) and so far as the directors, chief
executive and supervisors are aware, as at 30 June, 2004:
1. Among the 1,152,155,998 H Shares held by HKSCC Nominees Limited, Li
Ka-Shing Unity Trustcorp Limited had an interest in an aggregate of
193,877,000 H Shares of the Company (representing approximately 16.51% of
its then total issued H Shares) in the capacity as beneficiary of a trust.
7
2. Among the 1,152,155,998 H Shares held by HKSCC Nominees Limited, J.P.
Morgan Chase & Co. had an interest in an aggregate of 119,852,800 H Shares
of the Company (representing approximately 10.21% of its then total issued
H Shares). Out of the 119,852,800 H Shares, J.P. Morgan Chase & Co. had an
interest in a lending pool comprising 18,690,000 H Shares of the Company
(representing approximately 1.59% of its then total issued H Shares).
According to the information as disclosed in the website of the Stock
Exchange and so far as the directors, chief executive and supervisors are
aware, J.P. Morgan Chase & Co. held its interest in the Company in the
following manners:
(a) 18,690,000 H Shares in a lending pool, representing approximately
1.59% of the Company's then total issued H Shares, were held by J.P.
Morgan Chase Bank, which was 100% held by J.P. Morgan Chase & Co.;
(b) 102,800 H Shares, representing approximately 0.01% of the Company's
then total issued H Shares, were held in the capacity as beneficial
owner by J.P. Morgan Whitefriars Inc., which was ultimately 100% held
by J.P. Morgan Chase & Co.;
(c) 100,060,000 H Shares, representing approximately 8.52% of the
Company's then total issued H Shares, were held in the capacity as
investment manager by JF Asset Management Limited, which was
approximately 99.99% held by J.P. Morgan Fleming Asset Management
(Asia) Inc., which was ultimately 100% held by J.P. Morgan Chase &
Co.; and
(d) 1,000,000 H Shares, representing approximately 0.09% of the Company's
then total issued H Shares, were held in the capacity as beneficial
owner by J.P. Morgan Securities Ltd., which was approximately 90% held
by J.P. Morgan Holdings (UK) Limited, which was ultimately 100% held
by J.P. Morgan Chase & Co..
3. Among the 1,152,155,998 H Shares held by HKSCC Nominees Limited, Morgan
Stanley International Incorporated had an interest in an aggregate of
111,121,932 H Shares of the Company (representing approximately 9.46% of
its then total issued H Shares). According to the information as disclosed
on the website of the Stock Exchange and so far as the directors, chief
executive and supervisors are aware, Morgan Stanley International
Incorporated which was (or its directors were) accustomed to act in
accordance with the directors of Morgan Stanley, held its indirect interest
in the Company as at 30 June, 2004 in the manner as follows:
(a) 743,332 H Shares, representing approximately 0.06% of the Company's
then total issued H Shares, were held by Morgan Stanley Dean Witter
Hong Kong Securities Limited, which was ultimately 100% held by Morgan
Stanley Asia Pacific (Holdings) Limited, which, in turn, was 90% held
by Morgan Stanley International Incorporated;
(b) 108,670,000 H Shares, representing approximately 9.25% of the
Company's then total issued H Shares, were held by Morgan Stanley
Investment Management Company, which was ultimately 100% held by
Morgan Stanley Asia Pacific (Holdings) Limited, which, in turn, was
90% held by Morgan Stanley International Incorporated;
(c) 292,600 H Shares, representing approximately 0.02% of the Company's
then total issued H Shares, were held by Morgan Stanley Asset &
Investment Trust Management Co. Limited, which was 100% held by Morgan
Stanley International Incorporated;
(d) 714,000 H Shares, representing approximately 0.06% of the Company's
then total issue H Shares, were held by Morgan Stanley & Co
International Limited, which was ultimately 100% held by Morgan
Stanley Group (Europe), which, in turn, was approximately 98.30% held
by Morgan Stanley International Limited, in which Morgan Stanley
International Incorporated held 100% control; and
(e) 702,000 H Shares, representing approximately 0.06% of the Company's
then total issued H Shares, were held by Morgan Stanley Capital
(Luxembourg) S.A., which was approximately 93.75% held by Morgan
Stanley International Incorporated.
According to the information as disclosed on the website of the Stock
Exchange and so far as the directors, chief executive and supervisors are
aware, as at 30 June 2004, Morgan Stanley Dean Witter Hong Kong Securities
Limited also had a short position in 616,000 H Shares of the Company
(representing approximately 0.05% of its then total issued H Shares).
4. Among the 1,152,155,998 H Shares held by HKSCC Nominees Limited, 96,938,500
H Shares, representing approximately 8.26% of the Company's then total
issued H Shares, were held by Space Dragon Limited as beneficial owner,
which was 100% held by Cheung Kong Investment Company Limited.
5. Among the 1,152,155,998 H Shares held by HKSCC Nominees Limited, 96,938,500
H Shares, representing approximately 8.26% of the Company's then total
issued H Shares, were held by Choicewell Limited as beneficial owner, which
was ultimately 100% held by Hutchison Whampoa Limited.
Save as disclosed above, as at 30 June, 2004, to the knowledge of the directors,
chief executive and supervisors of the Company, no other person (other than the
directors, chief executives or supervisors) had an interest or short positions
in the shares or underlying shares of the Company as recorded in the register of
the Company required to be kept under section 336 of the SFO or otherwise had an
interest of 10% or more in the Company's shares.
8
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 2004.
COMPREHENSIVE SERVICES AND EMPLOYEE BENEFITS
In accordance with a comprehensive services agreement entered into between the
Company and CSAHC on 22 May, 1997 (the "Service Agreement"), CSAHC will receive
fees for providing or causing to be provided to the Group and its employees
certain housing services for a term from 22 May, 1997 to 31 December, 2006. The
Service Agreement provides that the CSAHC will sell or rent housing to eligible
employees at a price below market price. As the housing is sold or rented below
cost, and the construction costs of the leased housing were originally paid by
CSAHC, the Company shall pay an annual sum of RMB85 million to CSAHC by
quarterly installments in arrears for ten years from 1995 to 2004.
INTERESTS OF THE DIRECTORS AND SUPERVISORS IN THE EQUITY OF THE COMPANY
As of 30 June, 2004, 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 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 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 % TO
ISSUED ISSUED THE TOTAL
THE SHARE DOMESTIC ISSUED
COMPANY/ NUMBER CAPITAL SHARES H SHARES
ASSOCIATED TYPES OF TYPE OF OF SHARES OF THE OF THE OF THE SHORT
NAME CORPORATION INTEREST SHARE HELD COMPANY COMPANY COMPANY POSITION
-------- ----------- ----------- -------- ---------- --------- --------- --------- --------
Simon To the Company Interest of H Shares 100,000 0.002% -- 0.009% --
spouse
(note 1)
------------
Note 1: The spouse of Mr. Simon To is the owner of these 100,000 H Shares of
the Company and accordingly, Mr. Simon To, is taken to be interested in
these 100,000 H Shares by virtue of the SFO.
Save as disclosed above, as of 30 June, 2004, none of the directors, chief
executive or supervisors of the Company has interest or short position in the
shares, underlying shares and/or debentures (as the case may be) of the Company
or its associated corporations (within the meaning of the Part XV of the SFO)
which were notified to the Company and the Stock Exchange pursuant to SFO
(including interest or short positions which they are taken or deemed to have
under such provisions of the SFO), or recorded in the register maintained by the
Company pursuant to Section 352 of the SFO or which were notified to the Company
and the Stock Exchange pursuant to the "Model Code for Securities Transactions
by Directors of the Listed Companies" in Schedule 10 of the Listing Rules.
9
DESIGNATED DEPOSITS AND OVERDUE TIME DEPOSITS
As of 30 June, 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.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
The Board is not aware of any matter that does not comply with the Code of Best
Practice as set out in Appendix 14 of the Listing Rules.
MATERIAL LITIGATION
The Group was not involved in any material litigation or dispute in the six
months ended 30 June, 2004.
By order of the Board of Directors
YAN ZHI QING
Chairman of the Board of Directors
Guangzhou, the PRC
26 August, 2004
10
DOCUMENTS AVAILABLE FOR INSPECTION AND ADDRESS FOR INSPECTION
DOCUMENT available for inspection: Original copy of the Company's 2004 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.
WEBSITE: www.cs-air.com
OPERATING DATA SUMMARY
FOR THE SIX MONTHS
ENDED 30 JUNE, 2004 VS 2003
----------------------- --------------------------
INCREASE/
2004 2003 (DECREASE) (%)
------- ------ ---------- ----
CAPACITY
Available seat kilometres (ASKs) (million)
-- Domestic 20,141 13,588 6,553 48.2
-- Hong Kong regional 926 581 345 59.4
-- International 4,861 3,369 1,492 44.3
------- ------- -------
Total 25,928 17,538 8,390 47.8
======= ======= =======
Available tonne kilometres (ATKs) (million)
-- Domestic 2,333 1,567 766 48.9
-- Hong Kong regional 103 65 38 58.5
-- International 1,139 926 213 23.0
------- ------- -------
Total 3,575 2,558 1,017 39.8
======= ======= =======
Kilometres flown (thousand) 156,041 106,641 49,400 46.3
======= ======= =======
Hours flown (thousand) 242 165 77 46.7
======= ======= =======
Number of flight sectors
-- Domestic 117,919 80,538 37,381 46.4
-- Hong Kong regional 7,549 4,888 2,661 54.4
-- International 7,548 5,330 2,218 41.6
------- ------- -------
Total 133,016 90,756 42,260 46.6
======= ======= =======
TRAFFIC
Revenue passenger kilometres (RPKs) (million)
-- Domestic 13,644 7,919 5,725 72.3
-- Hong Kong regional 573 293 280 95.6
-- International 3,025 1,886 1,139 60.4
------- ------- -------
Total 17,242 10,098 7,144 70.7
======= ======= =======
Revenue tonne kilometres (RTKs) (million)
-- Domestic 1,518 927 591 63.8
-- Hong Kong regional 57 31 26 83.9
-- International 611 466 145 31.1
------- ------- -------
Total 2,186 1,424 762 53.5
======= ======= =======
11
OPERATING DATA SUMMARY (Continued)
FOR THE SIX MONTHS
ENDED 30 JUNE, 2004 VS 2003
----------------------- --------------------------
INCREASE/
2004 2003 (DECREASE) (%)
------ ------ ---------- ----
Passenger tonne kilometres (million)
-- Domestic 1,219 707 512 72.4
-- Hong Kong regional 51 27 24 88.9
-- International 270 168 102 60.7
------ ------ ------
Total 1,540 902 638 70.7
====== ====== ======
Cargo and mail tonne kilometres (million)
-- Domestic 299 220 79 35.9
-- Hong Kong regional 6 4 2 50.0
-- International 341 298 43 14.4
------ ------ ------
Total 646 522 124 23.8
====== ====== ======
Passengers carried (thousand)
-- Domestic 11,825 6,839 4,986 72.9
-- Hong Kong regional 671 383 288 75.2
-- International 819 516 303 58.7
------ ------ ------
Total 13,315 7,738 5,577 72.1
====== ====== ======
Cargo and mail carried (thousand tonne)
-- Domestic 218 163 55 33.7
-- Hong Kong regional 7 6 1 16.7
-- International 42 32 10 31.3
------ ------ ------
Total 267 201 66 32.8
====== ====== ======
LOAD FACTORS
Passenger load factor (RPK/ASK) (%)
-- Domestic 67.7 58.3 9.4 16.1
-- Hong Kong regional 61.9 50.4 11.5 22.8
-- International 62.2 56.0 6.2 11.1
Total 66.5 57.6 8.9 15.5
====== ====== ======
Average load factor (RTK/ATK) (%)
-- Domestic 65.1 59.2 5.9 10.0
-- Hong Kong regional 55.3 47.7 7.6 15.9
-- International 53.6 50.3 3.3 6.6
Total 61.1 55.7 5.4 9.7
====== ====== ======
Breakeven load factor (%) 58.3 70.4 (12.1) (17.2)
====== ====== ======
12
OPERATING DATA SUMMARY (Continued)
FOR THE SIX MONTHS
ENDED 30 JUNE, 2004 VS 2003
----------------------- --------------------------
INCREASE/
2004 2003 (DECREASE) (%)
------ ------ ---------- ----
YIELD
Yield per RPK (RMB)
-- Domestic 0.58 0.57 0.01 1.8
-- Hong Kong regional 0.93 1.00 (0.07) (7.0)
-- International 0.45 0.43 0.02 4.7
Total 0.57 0.56 0.01 1.8
====== ====== ======
Yield per cargo and mail tonne kilometre (RMB) 1.64 1.77 (0.13) (7.3)
====== ====== ======
Yield per RTK (RMB)
-- Domestic 5.49 5.28 0.21 4.0
-- Hong Kong regional 9.98 10.39 (0.41) (3.9)
-- International 3.15 2.83 0.32 11.3
Total 4.96 4.59 0.37 8.1
====== ====== ======
FLEET
Number of aircraft in service at period end
-- Boeing 113 103 10 9.7
-- Airbus 24 22 2 9.1
-- Others 2 -- 2 N/A
------ ------ ------
Total 139 125 14 11.2
====== ====== ======
Aircraft utilisation rate (hours per day)
-- Boeing 9.60 7.39 2.21 29.9
-- Airbus 9.27 7.02 2.25 32.1
Total 9.40 7.33 2.07 28.2
====== ====== ======
FINANCIAL
Operating cost per ASK (RMB) 0.40 0.46 (0.06) (13.0)
====== ====== ======
Operating cost per ATK (RMB) 2.89 3.17 (0.28) (8.8)
====== ====== ======
13
The Board of Directors of the Company is pleased to announce the unaudited
consolidated interim results of the Group for the six months ended 30 June,
2004, together with the comparative figures for the corresponding period of 2003
as follows:
A. PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
("IFRS")
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
2004 VS
FOR THE SIX MONTHS ENDED 30 JUNE, 2003
-------------------------------------------------- INCREASE/
2004 2003 2004 2004 (DECREASE)
NOTE RMB'000 RMB'000 HK$'000 US$'000 (%)
---- ---------- ---------- ---------- --------- ---------
Operating revenue
Traffic revenue:
Passenger 9,776,002 5,615,796 9,214,819 1,181,162 74.1
Cargo and mail 1,058,276 921,883 997,527 127,864 14.8
---------- ---------- ---------- ---------
10,834,278 6,537,679 10,212,346 1,309,026 65.7
Other revenue 259,659 195,193 244,754 31,372 33.0
---------- ---------- ---------- ---------
Total operating revenue 2 11,093,937 6,732,872 10,457,100 1,340,398 64.8
---------- ---------- ---------- ---------
Operating expenses:
Flight operations 4,722,442 3,516,885 4,451,355 570,578 34.3
Maintenance 1,409,841 1,218,488 1,328,910 170,341 15.7
Aircraft and traffic servicing 1,688,612 1,197,273 1,591,679 204,022 41.0
Promotion and sales 874,393 673,965 824,199 105,646 29.7
General and administrative 551,719 480,598 520,048 66,660 14.8
Depreciation and amortisation 1,083,346 1,016,530 1,021,158 130,893 6.6
Other 8,244 3,465 7,771 996 137.9
---------- ---------- ---------- ---------
Total operating expenses 10,338,597 8,107,204 9,745,120 1,249,136 27.5
---------- ---------- ---------- ---------
Operating profit/(loss) 755,340 (1,374,332) 711,980 91,262 155.0
---------- ---------- ---------- ---------
Non-operating income/(expenses):
Share of associated companies'
results 21,156 2,825 19,942 2,556 648.9
Share of jointly controlled entities'
results 4,351 (21,654) 4,101 526 120.1
Profit/(loss) on sale of fixed assets 2,999 (22,679) 2,827 362 113.2
Interest income 8,994 5,842 8,478 1,087 54.0
Interest expense 3 (343,620) (455,456) (323,895) (41,517) (24.6)
Exchange gain/(loss), net 15,397 (4,774) 14,513 1,860 422.5
Other, net 4,531 (287) 4,271 548 1,678.7
---------- ---------- ---------- ---------
Total net non-operating expenses (286,192) (496,183) (269,763) (34,578) (42.3)
---------- ---------- ---------- ---------
Profit/(loss) before taxation
and minority interests 3 469,148 (1,870,515) 442,217 56,684 125.1
Taxation (expense)/credit 4 (94,790) 544,992 (89,349) (11,453) (117.4)
---------- ---------- ---------- ---------
Profit/(loss) before minority interests 374,358 (1,325,523) 352,868 45,231 128.2
Minority interests (108,174) 93,910 (101,964) (13,070) 215.2
---------- ---------- ---------- ---------
Profit/(loss) attributable to
shareholders 266,184 (1,231,613) 250,904 32,161 121.6
========== ========== ========== =========
Basic earnings/(loss) per share 5 RMB0.06 RMB(0.37) HK$0.06 US$0.007 116.7
========== ========== ========== =========
The notes on pages 18 to 24 form part of this interim financial report.
14
CONSOLIDATED BALANCE SHEET (UNAUDITED)
As at 30 June, 2004
(Expressed in Renminbi)
AS AT AS AT
30 JUNE, 31 DECEMBER,
2004 2003
NOTE RMB'000 RMB'000
---- ----------- -------------
NON-CURRENT ASSETS
Fixed assets 29,128,791 28,535,907
Construction in progress 2,189,052 1,629,689
Lease prepayments 344,755 348,652
Interest in associated companies 443,780 422,201
Interest in jointly controlled entities 787,874 731,323
Other investments 199,007 204,971
Lease and equipment deposits 4,717,553 2,932,591
Deferred expenditure 233,726 248,853
Long-term receivables 6,648 6,380
---------- ----------
38,051,186 35,060,567
---------- ----------
CURRENT ASSETS
Inventories 572,457 543,777
Trade receivables 7 1,210,680 833,604
Other receivables 310,365 296,047
Prepaid expenses and other assets 323,947 247,926
Cash and cash equivalents 2,931,786 2,080,174
---------- ----------
5,349,235 4,001,528
---------- ----------
CURRENT LIABILITIES
Bank and other loans 9,931,236 7,096,846
Obligations under finance leases 1,138,495 1,297,855
Amounts due to related companies 906,353 929,003
Other liabilities 1,176,852 1,019,811
Accounts payable 8 841,409 928,093
Bills payable -- 438,135
Sales in advance of carriage 386,255 466,087
Accrued expenses 3,217,955 2,527,794
Taxes payable 72,954 89,954
---------- ----------
17,671,509 14,793,578
---------- ----------
NET CURRENT LIABILITIES (12,322,274) (10,792,050)
---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 25,728,912 24,268,517
---------- ----------
LONG-TERM LIABILITIES AND DEFERRED ITEMS
Bank and other loans 6,062,819 4,521,735
Obligations under finance leases 5,006,135 5,543,084
Provision for major overhauls 230,525 189,464
Deferred credits 44,983 46,554
Deferred taxation 456,354 398,305
---------- ----------
11,800,816 10,699,142
---------- ----------
13,928,096 13,569,375
========== ==========
The notes on pages 18 to 24 form part of this interim financial report.
15
CONSOLIDATED BALANCE SHEET (UNAUDITED) (Continued)
As at 30 June, 2004
(Expressed in Renminbi)
AS AT AS AT
30 JUNE, 31 DECEMBER,
2004 2003
NOTE RMB'000 RMB'000
---- ---------- -------------
REPRESENTING:
SHARE CAPITAL 4,374,178 4,374,178
RESERVES 9 7,787,713 7,521,529
---------- ----------
SHAREHOLDERS' EQUITY 12,161,891 11,895,707
MINORITY INTERESTS 1,766,205 1,673,668
---------- ----------
13,928,096 13,569,375
========== ==========
Approved and authorised for issue by the board of directors on 26 August, 2004.
YAN ZHI QING WANG CHANG SHUN XU JIE BO
Director Director Director
The notes on pages 18 to 24 form part of this interim financial report.
16
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
For the six months ended 30 June, 2004
(Expressed in Renminbi)
SHARE SHARE OTHER RETAINED
CAPITAL PREMIUM RESERVES EARNINGS TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
--------- --------- -------- ---------- -----------
At 1 January, 2003 3,374,178 3,683,956 585,372 1,969,701 9,613,207
Loss for the period -- -- -- (1,231,613) (1,231,613)
--------- --------- ------- ---------- ---------
At 30 June, 2003 3,374,178 3,683,956 585,372 738,088 8,381,594
========= ========= ======= ========== ==========
At 1 January, 2004 4,374,178 5,324,723 610,341 1,586,465 11,895,707
Profit for the period -- -- -- 266,184 266,184
--------- --------- ------- ---------- ---------
AT 30 JUNE, 2004 4,374,178 5,324,723 610,341 1,852,649 12,161,891
========= ========= ======= ========== ==========
The notes on pages 18 to 24 form part of this interim financial report.
17
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
For the six months ended 30 June, 2004
(Expressed in Renminbi)
FOR THE SIX MONTHS
ENDED 30 JUNE,
---------------------------
2004 2003
RMB'000 RMB'000
---------- ----------
Net cash inflows from operating activities 1,217,840 1,199,731
Net cash used in investing activities (4,050,525) (1,886,023)
---------- ----------
Net cash outflows before financing activities (2,832,685) (686,292)
Net cash inflows/(outflows) from financing activities 3,684,297 (803,404)
---------- ----------
Increase/(decrease) in cash and cash equivalents 851,612 (1,489,696)
Cash and cash equivalents as at 1 January, 2,080,174 3,771,043
---------- ----------
Cash and cash equivalents as at 30 June, 2,931,786 2,281,347
========== ==========
The notes on pages 18 to 24 form part of this interim financial report.
18
NOTES:
1 BASIS OF PREPARATION
This interim financial report of China Southern Airlines Company Limited
(the "Company") and its subsidiaries (the "Group") 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 Society of Accountants. KPMG's independent review report to the Board
of Directors is included on page 25.
The interim financial report has been prepared in accordance with the
requirements of the Main Board Listing Rules of The Stock Exchange of Hong
Kong Limited, including compliance with International Accounting Standard
34 "Interim Financial Reporting" adopted by the International Accounting
Standards Board.
The financial information relating to the financial year ended 31 December,
2003 included in the interim financial report does not constitute the
Group's annual financial statements prepared under International Financial
Reporting Standards for that financial year but is derived from those
financial statements. The Group's annual financial statements for the year
ended 31 December, 2003 are available at the Company's registered office.
The auditors have expressed an unqualified opinion on those financial
statements in their report dated 23 April, 2004.
The accounting policies have been consistently applied by the Group and are
consistent with those adopted in the 2003 annual financial statements.
The notes on the unaudited interim financial report include an explanation
of events and transactions that are significant to an understanding of the
changes in financial position and performance of the Group since the 2003
annual financial statements.
2 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. The turnover for the six months ended 30 June,
2003, was stated net of sales tax and contributions to the CAAC
Infrastructure Development Fund.
Sales tax is payable at 3% (2003: 3%) of the Group's traffic revenue in
respect of domestic flights and international/Hong Kong regional outbound
flights. During the six months ended 30 June, 2003, the Group's passenger
revenue for May and June 2003 was exempted from sales tax.
Prior to 1 April, 2004, contributions to the CAAC Infrastructure
Development Fund were payable at 5% and 2%, respectively of the Group's
domestic and international/Hong Kong regional traffic revenue, except for
the period from 1 May, 2003 to 31 March, 2004 during which the Group was
exempted from contributions to the CAAC Infrastructure Development Fund.
Effective from 1 April, 2004, contributions to the CAAC Infrastructure
Development Fund are payable based on the Group's traffic capacity deployed
on its routes. The contributions now form part of the flight operations
expenses.
19
2 TURNOVER (Continued)
The Group's turnover and operating profit/(loss) by geographic region are
analysed as follows:
FOR THE SIX MONTHS ENDED 30 JUNE,
-------------------------------------------------------------
HONG KONG
DOMESTIC REGIONAL INTERNATIONAL TOTAL
RMB'000 RMB'000 RMB'000 RMB'000
---------- ---------- ------------- ----------
2004
Traffic revenue 8,341,352 568,609 1,924,317 10,834,278
Other revenue 259,659 -- -- 259,659
---------- ------- --------- ----------
Turnover 8,601,011 568,609 1,924,317 11,093,937
========== ======= ========= ==========
Operating profit 604,728 38,852 111,760 755,340
========== ======= ========= ==========
2003
Traffic revenue 4,896,421 321,912 1,319,346 6,537,679
Other revenue 195,193 -- -- 195,193
---------- ------- --------- ----------
Turnover 5,091,614 321,912 1,319,346 6,732,872
========== ======= ========= ==========
Operating (loss) (1,198,810) (80,384) (95,138) (1,374,332)
========== ======= ========= ==========
3 PROFIT/(LOSS) BEFORE TAXATION AND MINORITY INTERESTS
FOR THE SIX MONTHS
ENDED 30 JUNE,
--------------------------
2004 2003
RMB'000 RMB'000
--------- -------
Profit/(loss) before taxation and minority interests
is arrived at after charging:
Depreciation
-- owned assets 815,604 768,595
-- assets held under finance leases 254,742 247,935
Staff costs 1,061,144 847,623
Operating lease charges in respect of aircraft 827,665 820,491
Amortisation of deferred expenditure 13,000 13,348
Interest on bank and other loans 174,232 273,841
Finance charges on obligations under finance leases 186,147 231,371
Less: borrowing costs capitalised (16,759) (49,756)
Net interest expense 343,620 455,456
========= =======
20
4 TAXATION EXPENSE/(CREDIT)
FOR THE SIX MONTHS
ENDED 30 JUNE,
-------------------------
2004 2003
RMB'000 RMB'000
------- --------
PRC income tax 27,953 2,859
Share of taxation of associated companies 3,738 3,791
Share of taxation of jointly controlled entities 5,050 --
------- ---------
36,741 6,650
Deferred taxation 58,049 (551,642)
------- ---------
94,790 (544,992)
======= =========
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 from Guangzhou Municipal State Tax Bureau, the Company is
entitled to enjoy the preferential tax policy implemented in the Guangzhou
Economic & Technology Development Zone effective 1 October, 2003. As a
result, the Company's income tax rate has been changed to 15% from 33%
beginning from that date.
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 and PRC governments, or has
sustained tax losses in these overseas jurisdictions. Accordingly, no
provision for overseas tax has been made for the periods presented.
5 BASIC EARNINGS/(LOSS) PER SHARE
The calculation of basic earnings/(loss) per share is based on the
consolidated profit attributable to shareholders of RMB266,184,000 (2003:
loss of RMB1,231,613,000) and the weighted average number of shares in
issue during the period of 4,374,178,000 (2003: 3,374,178,000).
There were no dilutive potential shares in existence during the six months
ended 30 June, 2003 and 2004.
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, 2004 (2003: Nil).
21
7 TRADE RECEIVABLES
Credit terms granted by the Group to sales agents and other customers
generally range from one to three months. An ageing analysis of trade
receivables, net of impairment losses, is set out below:
AS AT AS AT
30 JUNE, 31 DECEMBER,
2004 2003
RMB'000 RMB'000
--------- -------------
Within 1 month 919,687 589,080
More than 1 month but less than 3 months 288,093 235,828
More than 3 months but less than 12 months 2,900 8,696
--------- -------
1,210,680 833,604
========= =======
8 ACCOUNTS PAYABLE
An ageing analysis of accounts payable is as follows:
AS AT AS AT
30 JUNE, 31 DECEMBER,
2004 2003
RMB'000 RMB'000
------- ------------
Due within 1 month or on demand 275,060 279,165
Due after 1 month but within 3 months 242,721 278,113
Due after 3 months but within 6 months 323,628 370,815
------- -------
841,409 928,093
======= =======
9 RESERVES
No transfer to statutory surplus reserve, statutory public welfare fund and
discretionary surplus reserve has been made during the period and the
corresponding period of 2003. According to the Articles of Association of
the Company and certain of its subsidiaries and the PRC Company Law, any
such transfer shall be proposed by the respective board of directors and
approved by shareholders in the annual general meeting.
22
10 COMMITMENTS
(A) CAPITAL COMMITMENTS
As at 30 June, 2004, the Group had capital commitments as follows:
AS AT AS AT
30 JUNE, 31 DECEMBER,
2004 2003
RMB'000 RMB'000
----------- ------------
Commitments in respect of aircraft and related equipment
-- authorised and contracted for 14,155,601 10,615,079
---------- ----------
Commitments in respect of investments in the Guangzhou new airport
-- authorised and contracted for 387,185 617,277
-- authorised but not contracted for 1,252,906 1,454,661
---------- ----------
1,640,091 2,071,938
---------- ----------
Other commitments
-- authorised and contracted for 134,201 232,570
-- authorised but not contracted for 656,971 708,099
---------- ----------
791,172 940,669
---------- ----------
16,586,864 13,627,686
========== ==========
The Group has taken steps towards the purchase of the airline business of
China Northern Airlines Company and Xinjiang Airlines Company. No
contractual obligations existed as at 30 June, 2004 and up to the date of
approval of this interim financial report. The purchase price has not yet
been determined.
(B) INVESTING COMMITMENTS
As at 30 June, 2004, the Company was committed to make a capital
contribution of approximately RMB382 million (as at 31 December, 2003:
approximately RMB446 million) to its jointly controlled entities.
23
11 RELATED PARTY TRANSACTIONS
The Group obtained various operating and financial services provided by
China Southern Air Holding Company ("CSAHC"), the ultimate holding company
and its affiliates, and the Group's associated companies and jointly
controlled entities during the normal course of its business.
The following is a summary of significant transactions carried out in the
normal course of business between the Group, CSAHC and its affiliates, and
the Group's associated companies and jointly controlled entities during the
period:
FOR THE SIX MONTHS
ENDED 30 JUNE,
------------------------
2004 2003
RMB'000 RMB'000
------- -------
EXPENSES
Paid to CSAHC and its affiliates
Handling charges 18,552 14,277
Wet lease rentals -- 27,800
Sundry aviation supplies 25,596 25,982
Air catering expenses 18,865 11,986
Housing benefits 42,500 42,500
Lease charges for land and buildings 7,612 7,612
Paid to associated companies and jointly controlled entities
Repairing charges 431,340 277,579
Flight simulation service charges 46,426 50,151
INCOME
Received from associated companies and jointly controlled entities
Rental income 15,288 15,288
Interest income 1,025 1,178
In addition to the above, certain business undertakings of CSAHC also provided
hotel and other services to the Group during the period. The total amount
involved is not material to the results of the Group for the period.
As at 30 June, 2004, the Group had cash and cash equivalents placed with
Southern Airlines Group Finance Company Limited, a PRC authorised financial
institution controlled by CSAHC and an associated company of the Group amounting
to RMB677,835,000 (as at 31 December, 2003: RMB365,906,000). The applicable
interest rates are determined in accordance with the rates published by the
People's Bank of China.
24
11 RELATED PARTY TRANSACTIONS (Continued)
As at 31 December, 2003, the Group had advances from CSAHC amounting to
RMB165,995,000, which was interest free and repayable on demand. The
advances were repaid by the Group during the period.
The Directors of the Company are of the opinion that the above transactions
were conducted in the normal course of business and on normal commercial
terms or in accordance with the agreements governing such transactions.
12 CONTINGENT LIABILITIES
There have been no material adverse changes in contingent liabilities of
the Group subsequent to 31 December, 2003, details of which are disclosed
in its 2003 annual financial statements.
13 CONVENIENCE TRANSLATION
The unaudited consolidated profit and loss account 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$1.00 to RMB8.2766, being the average of the
buying and selling rates as quoted by the People's Bank of China at the
close of business on 30 June, 2004. No representation is made that the RMB
amounts could have been or could be converted into HK$ or US$ at these
rates or at any other certain rates on 30 June, 2004 or on any other date.
25
INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF
CHINA SOUTHERN AIRLINES COMPANY LIMITED
INTRODUCTION
We have been instructed by the Company to review the interim financial report as
set out on pages 13 to 24.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited require the preparation of an interim financial report to be in
compliance with the relevant provisions thereof and International Accounting
Standard 34 "Interim Financial Reporting" adopted by the International
Accounting Standards Board. The interim financial report is the responsibility
of, and has been approved by, the directors.
It is our responsibility to form an independent conclusion, based on our review,
on the interim financial report and to report our conclusion solely to you, as a
body, in accordance with our agreed terms of engagement, and for no other
purpose. We do not assume responsibility towards or accept liability to any
other person for the contents of this report.
REVIEW WORK PERFORMED
We conducted our review in accordance with Statement of Auditing Standards 700
"Engagements to review interim financial reports" issued by the Hong Kong
Society of Accountants. A review consists principally of making enquiries of
group management and applying analytical procedures to the interim financial
report and based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A review
excludes audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
and therefore provides a lower level of assurance than an audit. Accordingly we
do not express an audit opinion on the interim financial report.
REVIEW CONCLUSION
On the basis of our review which does not constitute an audit, we are not aware
of any material modifications that should be made to the interim financial
report for the six months ended 30 June, 2004.
KPMG
Certified Public Accountants
Hong Kong,
26 August, 2004
26
B. PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING RULES AND REGULATIONS
("PRC GAAP")
CONSOLIDATED BALANCE SHEET (UNAUDITED)
As at 30 June, 2004
AS AT AS AT
30 JUNE, 31 DECEMBER,
2004 2003
RMB'000 RMB'000
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents 3,094,663 2,321,483
Trade receivables 1,298,305 891,827
Other receivables 339,945 316,665
Advance payments 152,950 84,832
Inventories 672,274 631,669
Prepaid expenses 233,190 203,370
---------- ----------
TOTAL CURRENT ASSETS 5,791,327 4,449,846
---------- ----------
Long-term equity investments 642,791 622,372
---------- ----------
Fixed assets:
Cost 42,552,129 40,898,104
Less: accumulated depreciation 12,586,660 11,502,684
---------- ----------
Net book value of fixed assets 29,965,469 29,395,420
Construction materials 2,230 1,730
Construction in progress 2,551,738 1,937,390
---------- ----------
TOTAL FIXED ASSETS 32,519,437 31,334,540
---------- ----------
Other assets:
Lease and equipment deposits 4,822,208 2,932,591
Deferred expenditure 23,560 26,473
Long-term receivables 8,356 6,382
---------- ----------
TOTAL OTHER ASSETS 4,854,124 2,965,446
---------- ----------
TOTAL ASSETS 43,807,679 39,372,204
========== ==========
27
CONSOLIDATED BALANCE SHEET (UNAUDITED) (Continued)
As at 30 June, 2004
AS AT AS AT
30 JUNE, 31 DECEMBER,
2004 2003
RMB'000 RMB'000
---------- ------------
LIABILITIES AND SHAREHOLDERS' FUNDS
Current liabilities:
Short-term loans 9,257,983 6,429,306
Bills payable -- 447,778
Trade accounts payable 1,721,631 1,667,383
Sales in advance of carriage 386,255 466,087
Wages payable 75,551 74,956
Staff welfare payable 129,586 131,284
Taxes payable 170,539 102,134
CAAC infrastructure development fund payable 187,320 353,592
Other creditors 8,916 5,756
Other payables 945,504 892,299
Accrued expenses 3,035,210 2,386,987
Long-term liabilities due within one year 1,832,247 1,985,895
---------- ----------
TOTAL CURRENT LIABILITIES 17,750,742 14,943,457
---------- ----------
Long-term liabilities:
Long-term borrowings 6,377,098 4,779,678
Obligations under finance leases 5,006,135 5,543,084
Provision for major overhauls 230,525 189,464
Deferred credits 200,234 217,162
---------- ----------
TOTAL LONG-TERM LIABILITIES 11,813,992 10,729,388
---------- ----------
Deferred taxation
Deferred tax liabilities 451,711 391,638
---------- ----------
TOTAL LIABILITIES 30,016,445 26,064,483
---------- ----------
MINORITY INTERESTS 1,908,306 1,757,872
---------- ----------
SHAREHOLDERS' EQUITY
Share capital 4,374,178 4,374,178
Capital reserves 5,801,345 5,801,345
Surplus reserves 610,341 610,341
Including: Statutory public welfare fund 172,687 172,687
Retained profits 1,097,064 763,985
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 11,882,928 11,549,849
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 43,807,679 39,372,204
========== ==========
28
CONSOLIDATED INCOME AND PROFIT APPROPRIATION STATEMENT (UNAUDITED)
For the six months ended 30 June, 2004
FOR THE SIX MONTHS
ENDED 30 JUNE,
---------------------------
2004 2003
RMB'000 RMB'000
---------- -----------
REVENUE FROM PRINCIPAL OPERATIONS 11,166,992 7,057,009
Less: Transfer to CAAC infrastructure
development fund -- 250,788
---------- ----------
NET REVENUE FROM PRINCIPAL OPERATIONS 11,166,992 6,806,221
Less: Costs of principal operations 8,775,648 6,817,521
Business taxes and surcharges 318,252 189,302
---------- ----------
PROFIT/(LOSS) FROM PRINCIPAL OPERATIONS 2,073,092 (200,602)
Add: Profit from other operations 94,503 41,177
Less: Selling expenses 869,667 645,175
Administrative expenses 477,827 500,164
Financial expenses 331,437 454,081
---------- ----------
OPERATING PROFIT/(LOSS) 488,664 (1,758,845)
Add: Investment income/(loss) 28,819 (11,802)
Non-operating income 48,349 4,677
Less: Non-operating expenses 25,011 30,233
---------- ----------
PROFIT/(LOSS) BEFORE INCOME TAX 540,821 (1,796,203)
Less: Income tax 88,026 (544,489)
Minority interests 119,716 (86,957)
---------- ----------
NET PROFIT/(LOSS) FOR THE PERIOD 333,079 (1,164,757)
========== ==========
29
NOTES:
1 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Group in the preparation
of the financial statements conform to the Accounting Standards for
Business Enterprises and "Accounting Regulations for Business Enterprises"
and other relevant regulations issued by the Ministry of Finance ("MOF").
The significant accounting policies adopted in the preparation of these
financial statements are set out below:
(A) ACCOUNTING YEAR
The accounting year of the Group is from 1 January to 31 December.
(B) BASIS OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance
with "Accounting Regulations for Business Enterprises" and Cai Kuai Zi
(1995) No.11 "Provisional regulations on consolidated financial
statements" issued by the MOF.
The consolidated financial statements include the financial statements
of the China Southern Airlines Company Limited ("the Company") and all
of its principal subsidiaries. Subsidiaries are those entities in
which the Company has more than 50% equity interest or those entities
controlled by the Company. The consolidated income statement of the
Company only includes the results of the subsidiaries during the
period when the Company has more than 50% equity interest, or when the
Company does not have more than 50% equity interest, but has control
over those entities. The effect of minority interests on equity and
profit/loss attributable to minority interests are separately shown in
the consolidated financial statements. For those subsidiaries whose
assets and results of operations are not significant and have no
significant effect on the Group's consolidated financial statements,
the Company does not consolidate these subsidiaries.
Where the accounting policies adopted by subsidiaries are different
from the policies adopted by the Company, the financial statements of
the subsidiaries have been adjusted in accordance with the accounting
policies adopted by the Company on consolidation. All significant
intercompany balances and transactions, and any unrealised gains
arising from inter-company transactions, have been eliminated on
consolidation.
For those jointly controlled entities which the Company has joint
control with other investors under contractual arrangements, the
Company consolidates their assets, liabilities, revenues, costs and
expenses based on the proportionate consolidation method according to
the percentage of holding of equity interest in those entities in the
consolidated financial statements.
(C) BASIS OF PREPARATION
The financial statements of the Group have been prepared on an accrual
basis under the historical costs convention, unless otherwise stated.
(D) REPORTING CURRENCY AND TRANSLATION OF FOREIGN CURRENCIES
The financial statements are prepared in Renminbi.
30
1 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(E) TRANSLATION OF FOREIGN CURRENCIES
Foreign currency transactions during the period are translated into
Renminbi at the exchange rates quoted by the People's Bank of China at
the transaction dates. Monetary assets and liabilities denominated in
foreign currencies are translated into Renminbi at the exchange rates
quoted by the People's Bank of China at the balance sheet date.
Exchange gains and losses on foreign currency translation, except for
the gains and losses relating to the transaction referred to below,
are dealt with in the income statement.
Exchange differences directly relating to the purchase or construction
of fixed assets (including exchange differences on funds borrowed
specifically for the purchase or construction of fixed assets) before
they are ready for use are capitalised as part of the cost of fixed
assets.
(F) CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments which are
readily convertible into known amounts of cash and are subject to an
insignificant risk of change in value.
(G) ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable showing signs of uncollectibility are
identified individually and allowance is then made based on the
probability of being uncollectible. In respect of trade accounts
receivable showing no sign of uncollectibility, allowance is made with
reference to the ageing analysis and management's estimation based on
past experience.
Allowances for other receivables are made based on the nature of the
receivables and estimation of the corresponding collectibility risk.
(H) INVENTORIES
Inventories, which consist primarily of expendable spare parts and
supplies, are carried at the lower of cost and net realisable value.
Inventories are measured at their actual cost upon acquisition. The
cost of inventories is calculated using the weighted average method.
Any excess of the cost over the net realisable value of each class of
inventories is recognised as a provision for diminution in value of
inventories. Net realisable value is determined based on amount
recoverable in the normal course of business after the balance sheet
date or estimates made by the management based on the market
conditions. Inventories are recorded using the perpetual stocking
method.
Inventories are amortised in full when issue for use.
31
1 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(I) LONG-TERM EQUITY INVESTMENTS
Long-term investments are stated at the lower of cost and the
recoverable amount. A provision for impairment is determined on an
individual basis on difference between the cost and the recoverable
amount, if the latter is lower.
A long-term equity investment in an investee enterprise that the
Company has the power to control, jointly control or exercise
significant influence over is accounted for under the equity method of
accounting whereby the investment is initially recorded at cost and
adjusted thereafter for any post acquisition change in the Company's
share of the net assets of the enterprise. Equity investment
difference, which is the difference between the initial investment
cost and the Company's share of the equity of the investee enterprise,
is accounted for as follows:
-- Any excess of the initial investment cost over the Company's share
of the equity is amortised on a straight-line basis. The
amortisation period is determined according to the investment
period as stipulated in the relevant agreement, or 10 years if the
investment period is not specified in the agreement.
-- Any shortfall of the initial investment cost over the Group's
share of investors' equity is amortised on a straight-line basis
over 10 years if the investment was acquired before the issuance
of the "Questions and answers on implementing Accounting
Regulations for Business Enterprises and related accounting
standards (II)" (Cai Kuai (2003) No. 10) on 7 April, 2003.
Otherwise, the shortfalls are recognised in "Capital surplus --
reserve for equity investment".
A long-term equity investment in an investee enterprise that the Group
does not control, jointly control or exercise significant influence
over is accounted for under the cost method. Investment income is
recognised when an investee enterprise declares a cash dividend or
distributes profits.
Upon disposal or transfer of long-term equity investments, the
difference between the proceeds received and the carrying value of the
investments is recognised in the income statement.
(J) FIXED ASSETS AND CONSTRUCTION IN PROGRESS
Fixed assets represent the assets held by the Group for rendering
services and administrative purposes with useful lives over 1 year and
comparatively high unit value.
Fixed assets are stated in the balance sheet at cost or revalued
amount less accumulated depreciation and impairment losses.
Construction in progress are stated in the balance sheet at cost less
impairment losses. Valuation is carried out in accordance with the
relevant rules and regulations in the PRC and fixed assets are
adjusted to the revalued amounts accordingly.
All direct and indirect costs related to the acquisition or
construction of fixed assets, incurred before the assets are ready for
their intended uses, are capitalised as construction in progress.
Those costs include borrowing costs, which include foreign exchange
differences, on specific borrowings for the construction of the fixed
assets during the construction period.
32
1 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(J) FIXED ASSETS AND CONSTRUCTION IN PROGRESS (Continued)
Construction in progress is transferred to fixed assets when the asset
is ready for its intended use.
Pursuant to an approval document Cai Kuai Han (2004) No. 39 from the
MOF, the Group accounts for rotables as fixed assets.
Depreciation is provided to write off the cost of fixed assets over
their estimated useful lives on a straight-line basis, after taking
into account their estimated residual values. The respective estimated
useful lives, residual values and annual depreciation rates on fixed
assets are as follows:
DEPRECIABLE LIFE RESIDUAL VALUE
---------------- --------------
Owned & leased aircraft 8 to 15 years 28.75%
Other flight equipment:
-- Jet engines 8 to 15 years 3%
-- Others, including high-value rotables 8 to 15 years Nil
Buildings 15 to 40 years Nil
Machinery and equipment 5 to 10 years 3%
Motor vehicles 6 years 3%
Land use rights are stated in the balance sheet at cost or revalued
amount less accumulated depreciation and impairment losses, and are
amortised on a straight line basis over the period of land use rights.
(K) LEASED ASSETS
(i) Finance Lease
A finance lease is a lease that transfers substantially all the
risks and benefits of ownership of an asset to the lessee,
whether or not the legal title to the asset is eventually
transferred. Flight equipment acquired by way of finance leases
are stated at an amount equal to the lower of their original
carrying value in the books of the legal owner (the lessor) and
the present value of the minimum lease payments at inception of
the lease. Depreciation of leased assets is calculated using the
straight-line method. If there is no reasonable certainty that
the lessee will obtain ownership of the leased assets at the end
of the lease term, the leased assets are depreciated over the
shorter of the lease term or their estimated useful lives. If
there is reasonable certainty that the lessee will obtain
ownership of the leased assets at the end of the lease term, the
leased assets are depreciated over their estimated useful lives.
At the inception of the lease, the minimum lease payments are
recorded as obligations under finance leases. The difference
between the value of the leased assets and the minimum lease
payments is recognised as unrecognised finance charges under
finance leases.
Unrecognised finance charges are amortised on an effective
interest method over the lease term.
(ii) Operating Lease
An operating lease is a lease other than a finance lease.
Operating lease payments are charged to the income statement on a
straight line basis over the terms of the related leases.
Contingent rental is recognised as expenses of the current period
when actually occurs.
33
1 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(L) DEFERRED EXPENDITURE
Custom duties and other direct costs in relation to modifying,
introducing and certifying certain operating leased aircraft are
deferred and amortised on a straight line basis over the terms of the
related leases.
(M) IMPAIRMENT OF LONG-TERM INVESTMENTS, FIXED ASSETS, CONSTRUCTION IN
PROGRESS AND OTHER ASSETS
The carrying amounts of individual assets are reviewed regularly to
determine whether the recoverable amounts have declined below the
carrying value. These assets are tested for impairment whenever events
or changes in circumstances indicate that their recorded carrying
amounts may not be recoverable. When such a decline has occurred, the
carrying amount is reduced to the recoverable amount. The recoverable
amount is the greater of the estimated net selling price and the
estimated value in use. In determining the value in use, estimated
future cash flows to be generated by the asset are discounted to their
present value. The provision for impairment loss is determined on an
item-by-item basis and recognised as an expense in the income
statement.
If there is an indication that an impairment loss recognised for an
asset in prior years may no longer exist, or if there has been a
change in the estimates used to determine the recoverable amount,
which reduces the impairment loss, the provision for impairment loss
is reversed. The reversed amount is credited to the income statement
in the period in which the reversal is recognised.
(N) INCOME TAX
Income tax is recognised using the tax effect accounting method.
Income tax for the year comprises current and deferred tax.
Current tax is calculated at the applicable tax rate on taxable
profit.
Deferred tax is provided under the liability method, for timing
differences between the accounting profit before tax and the taxable
profit arising from the differences in the accounting and tax
treatment of income and expenses or losses. When the tax rates change
or new types of tax are levied, adjustments are made to the amounts
originally recognised for the timing differences. The current tax
rates are used in arriving at the reversal amounts when the timing
differences are reversed.
Deferred tax assets arising from the tax value of losses, which are
expected to be utilised against future taxable income, are set off
against the deferred tax liabilities of the same tax payer and within
the same jurisdiction. Deferred tax assets are reduced to the extent
that it is no longer probable that the related tax benefit will be
realised.
(O) MAINTENANCE AND OVERHAUL COSTS
Routine maintenance and repairs and overhauls in respect of owned
aircrafts and aircrafts held under finance leases are expensed as and
when incurred. In respect of aircraft held under operating leases, a
provision is made over the lease term for the estimated cost of
scheduled overhauls that are required to be performed on the related
aircrafts prior to their return to the lessors.
34
1 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(P) REVENUE RECOGNITION
Provided it is probable that the economic benefits will flow to the
Group and the revenue and costs can be measured reliably, revenue is
recognised in the income statement as follows:
(i) Passenger, cargo and mail revenues are recognised when the
transportation is provided. Ticket sales for transportation not
yet provided are included in current liabilities as sales in
advance of carriage;
(ii) Revenues from airline-related businesses are recognised when the
relevant services are rendered;
(iii) Interest income is recognised on a time-apportioned basis on the
principal outstanding and at the applicable rate; and
(iv) Dividend income is recognised when the Group's right to receive
the dividend is established.
(Q) TRAFFIC COMMISSIONS
Traffic commissions are expensed when the transportation is provided
and the related revenue is recognised. Traffic commissions for
transportation not yet provided are recorded on the balance sheet as a
prepaid expense.
(R) BORROWING COSTS
Borrowing costs incurred on specific borrowings for the construction
of fixed assets are capitalised into the cost of the fixed assets
during the construction period in which the assets are brought to
their intended uses.
Except for the above borrowing costs, other borrowing costs are
recognised as financial expenses in the income statement when
incurred.
(S) DIVIDENDS
Cash dividends to shareholders are recognised in the income and profit
appropriation statement when approved. Dividends proposed or approved
after the balance sheet date but before the date on which the
financial statements are authorised for issue are separately disclosed
under shareholders' equity in the balance sheet.
(T) RETIREMENT BENEFITS
Contributions to retirement schemes and additional retirement benefits
paid to retired employees are charged to the income statement as and
when incurred.
35
1 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(U) FREQUENT FLYER AWARD PROGRAMMES
The Group maintains two frequent flyer award programmes, namely, the
China Southern Airlines Sky Pearl Club and the Egret Mileage Plus,
which provide travel awards to members based on accumulated mileage.
The estimated incremental cost of providing free travel is recognised
as an expense and accrued as a current liability as members accumulate
mileage. As members redeem awards or their entitlements expire, the
incremental cost liability is reduced accordingly, to reflect the
acquittal of the outstanding obligations.
Revenue from mileage sales to third parties under the frequent flyer
award programmes is recognised when the related transportation
services are provided.
(V) RELATED PARTY
Parties are considered to be related to the Group if the Group has the
ability, directly or indirectly, to control the party or exercise
significant influence over the party in making financial and operating
decisions, or vice versa, or where the Group and the party are subject
to common control or common significant influence. Related parties may
be individuals or entities.
2 SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND IFRS
Effect of significant differences between PRC GAAP and IFRS on net
profit/(loss) are analysed as follows:
FOR THE SIX MONTHS
ENDED 30 JUNE,
-------------------------
2004 2003
NOTE RMB'000 RMB'000
---- -------- ----------
Net profit/(loss) under PRC GAAP 333,079 (1,164,757)
Adjustments:
Gains on aircraft sale and leaseback transactions (a) (15,355) (16,423)
Losses on staff housing allocation (b) (55,500) (55,500)
Adjustment for revaluation of land use rights (c) 1,936 --
Effect of the above adjustments on taxation 2,024 5,067
------- ----------
Net profit/(loss) under IFRS 266,184 (1,231,613)
======= ==========
36
2 SIGNIFICANT DIFFERENCES BETWEEN PRC GAAP AND IFRS (Continued)
Effect of significant differences between PRC GAAP and IFRS on
shareholders' equity are analysed as follows:
AS AT AS AT
30 JUNE, 31 DECEMBER,
2004 2003
NOTE RMB'000 RMB'000
---- ---------- -------------
Shareholders' equity under PRC GAAP 11,882,928 11,549,849
Adjustments:
Gains on aircraft sale and leaseback transactions (a) 198,491 213,846
Losses on staff housing allocation (b) 252,667 308,167
Adjustment for revaluation of land use rights (c) (163,484) (165,420)
Effect of the above adjustments on taxation (8,711) (10,735)
---------- ----------
Shareholders' equity under IFRS 12,161,891 11,895,707
========== ==========
-----------------
Notes:
(a) In accordance with PRC Accounting Rules and Regulations, gains on
aircraft sale and leaseback transactions are recorded as deferred
credits and amortised over the lease terms on a straight line basis.
Under IFRS, gains on sale and leaseback transactions where the
subsequent lease is an operating lease are recognised as income
immediately, if the transactions are established at fair value.
Differences between the sale price and fair value are deferred and
amortised over the lease term.
(b) In accordance with PRC Accounting Rules and Regulations, losses on
staff housing allocation executed by CSAHC on the Company's behalf are
charged to retained profits as and when incurred. In addition, lump
sum housing benefits are charged to retained profits as of 1 January,
2001 pursuant to the relevant regulations. Under IFRS, losses on staff
housing allocations and lump sum housing benefits are charged to the
income statement in the obligatory periods stipulated by the relevant
contracts.
(c) In accordance with PRC Accounting Rules and Regulations, land use
rights are carried at revalued amounts. Under IFRS, land use rights
are carried at cost with effect from 1 January, 2002. Accordingly, the
unamortised surplus on revaluation of the land use rights was reversed
against the shareholders' equity.
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 10, 2004