3rd Quarter Results
Air China Ld
31 October 2006
The Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of this announcement, makes no representation as to its accuracy or completeness
and expressly disclaims any liability whatsoever for any loss whatsoever arising
from or in reliance upon the whole or any part of the contents of this
announcement.
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 753)
(1) 2006 THIRD QUARTERLY REPORT (Overseas Regulatory Announcement)
(2) CORRECTION OF INTERIM REPORT FOR THE FIRST SIX MONTHS OF 2006
(Overseas Regulatory Announcement)
(3) PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION
(4) PROPOSED APPOINTMENT OF DIRECTOR
(5) PROPOSED FORMATION OF AVIATION SAFETY COMMITTEE
(6) PROPOSED SHARE APPRECIATION RIGHTS ADMINISTRATIVE HANDBOOK
The Board of the Company is pleased to announce the quarterly report of the
Company for the period from 1 July 2006 to 30 September 2006.
The Board of the Company proposes to amend the Articles of Asso ciation (the
'Proposed Amendment'), and to appoint Mr. Chen Nan Lok Philip as a
non-executive director of the Company (the 'Proposed Appointment').
The Board proposes to form an Aviation Safety Committee under the Board and
adopt Share Appreciation Rights Administrative Handbook.
The Proposed Amendment is subject to the Shareholders' approval by way of
special resolution at an extraordinary general meeting to be convened on a date
to be fixed (the 'EGM') and will become effective after it is approved by
relevant PRC authorities. The Proposed Appointment, the proposed formation of
the Aviation Safety Committee and the proposed Share Appreciation Rights
Administrative Handbook are subject to the Shareholders' approval by way of
ordinary resolution at the EGM.
2006 THIRD QUARTERLY REPORT (Overseas Regulatory Announcement)
1. IMPORTANT NOTICE
1.1 The Directors of the Company collectively and individually warrant that
the information set out in this report does not contain any misrepresentation,
misleading statement or material omission; and jointly and severally accepts
full responsibility as to the truthfulness, accuracy and completeness of the
content herein.
1.2 Director, Wang Shixiang, did not attend the meeting due to other
essential official duties and appointed the meeting chairman as proxy.
Director, Ma Xulun, did not attend the meeting due to other essential official
duties and appointed the meeting chairman as proxy.
1
Director, Christopher Dale Pratt, did not attend the meeting due to other
essential official duties and appointed the meeting chairman as proxy.
Independent director, Wu Zhipan, did not attend the meeting due to other
essential official duties and appointed Mr. Zhang Ke (Director) as proxy.
1.3 The financial statements of the Company for the third quarter were
unaudited.
1.4 Mr. Li Jiaxiang (Chairman), Mr. Fan Cheng (Person in charge of
accounting function), and Mr. Li Youqiang (Person in charge of accounting
department) of the Company, warrant that the Third Quarterly Report is true and
complete.
2. BASIC PARTICULARS OF THE COMPANY
2.1 Basic information of the Company
Stock abbreviations Air China
Stock code 601111 (The Shanghai Stock Exchange)
0753 (The Stock Exchange of Hong Kong Limited)
Stock abbreviations AIRC
Stock code AIRC (The London Stock Exchange Limited)
Secretary of the Board
Name Zheng Baoan
Correspondence address Beijing Capital International Airport South
Terminal
Telephone (010) 64585095
Fax (010) 64593853
E-mail address zhengbaoan@mail.airchina.com.cn
2.2 Financial information
2.2 1 Main accounting data and financial indicators
Increase/(decrease)
between end of reporting
At 30 September At 31 December period and end
2006 2005 of last financial year
(RMB) (RMB) (%)
Total assets 87,603,528,236 69,061,959,812 26.8
Shareholders' equity
(excluding minority
interests) 31,474,526,314 19,840,022,241 58.6
Net assets per share 2.57 2.10 22.4
Adjusted net assets per
share 2.55 2.08 22.6
For the period from For the period from
1 July 2006 to 1 January 2006 to
30 September 30 September
(RMB) (RMB)
Net cash flows from operating
activities Not applicable 5,835,662,609
Earnings per share 0.27 0.27
Return on net assets 10.48 10.63
Return on net assets after
exceptional gains and losses 4.12 4.17
2
For the period from
1 January 2006 to
30 September
Exceptional gains and losses
(RMB'000)
Gains and losses arising from the disposal of
long-term equity investment, fixed
assets, construction in progress,
intangible assets and other long-term assets 1,956,625.24
Various government subsidies 62,380.91
Other non-operating income and expenses after the
deduction of the Company's daily provision for
impairment in assets in accordance with Accounting
Standards of Business Enterprise 14,145.45
Total 2,033,151.59
2.2.2 Unaudited income statement
For the period from 1 July 2006
to 30 September 2006
Consolidated Company
(RMB) (RMB)
Revenue from principal operations 13,939,925,522 12,126,492,073
Less: Costs of principal operations 10,886,827,242 9,234,728,603
Taxes and surcharges on principal
operations 338,970,597 310,804,920
Profit from principal operations 2,714,127,683 2,580,958,550
Add: Profit from other operations 116,703,838 86,571,498
Less: Operating expenses 807,505,020 761,171,774
Administrative expenses 575,990,217 353,308,268
Finance costs 151,729,573 144,541,035
Profit from operations 1,295,606,711 1,408,508,971
Add: Investment income 3,005,207,215 2,075,207,473
Subsidy income 35,554,221 35,494,222
Non-operating income 53,011,015 3,051,060
Less: Non-operating expenses 27,359,763 24,709,974
Total profit 4,362,019,399 3,497,551,752
Less: Income tax 212,816,395 198,000,000
Less: Minority interests 849,651,252 -
Net profit 3,299,551,752 3,299,551,752
3
For the period from 1 January 2006
to 30 September 2006
Consolidated Company
(RMB) (RMB)
Revenue from principal operations 34,805,684,892 29,716,350,670
Less: Costs of principal operations 28,545,920,220 24,258,128,008
Taxes and surcharges on principal
operations 860,170,964 782,267,030
Profit from principal operations 5,399,593,708 4,675,955,632
Add: Profit from other operations 259,124,122 242,529,813
Less: Operating expenses 1,882,406,506 1,739,178,973
Administrative expenses 1,472,519,567 921,815,732
Finance costs 890,749,687 879,431,304
Profits from operations profit 1,413,042,070 1,378,059,436
Add: Investment income 2,978,994,683 2,112,441,421
Subsidy income 93,105,831 92,232,684
Non-operating income 78,035,697 18,588,344
Less: Non-operating expenses 62,957,269 58,666,419
Total profit 4,500,221,012 3,542,655,466
Less: Income tax 258,830,117 198,000,000
Less: Minority interests 896,735,429 -
Net profit 3,344,655,466 3,344,655,466
2.3 Total number of shareholders and top 10 holders of listed shares not
subject to trading moratorium as at 30 September 2006 (after completion of share
reform plan)
Total number of shareholders as at the end of 30 September 2006 56,643
Particulars of the top 10 holders of listed shares not subject to trading
moratorium
Number of listed shares
not subject to trading
moratorium held as at
the end of
Name of shareholders (full name) the Reporting Period Class of shares
HKSCC NOMINEES LIMITED 2,225,166,899 Overseas listed
foreign shares
CATHAY PACIFIC AIRWAYS 2,124,818,455 Overseas listed
foreign shares
Bank of China-Jiashi Selected
Mix Securities Investment Fund 50,648,000 RMB ordinary
shares
Industrial and Commercial Bank of
China-E FUND Selected Value
Stocks Equity Fund 22,282,974 RMB ordinary
shares
State Social Insurance Fund-106
Portfolio 22,167,000 RMB ordinary
shares
Guotai Junan Securities Company
Limited 21,732,598 RMB ordinary
shares
Bank of China 21,499,968 RMB ordinary
shares
Bank of Communications - 2016 15,937,439 RMB ordinary
shares
Industrial and Commercial Bank of China - 14,989,961 RMB ordinary
shares
Bank of Communications 13,799,854 RMB ordinary
shares
4
3. MANAGEMENT DISCUSSION AND ANALYSIS
3.1 Brief analysis of the Company's overall business activities during
the reporting period
From January to September 2006, Air China Limited (the Company) and Air China
Cargo Co., Ltd. (Air China Cargo) accomplished passengers carried of 23.59
million passengers, and cargos and mails carried of 607,268,000 tonnes,
representing an increase of 14.9% and 13.7% respectively, as compared with the
same period of the previous year. The passenger load factor was 76.2%,
representing an increase of 2 percentage points from the corresponding period
last year, while the cargo and mail load factor was 53.1%, representing a
decrease of 0.3 percentage point from the corresponding period last year.
From January to September 2006, the Group (the Company, its subsidiaries and
joint ventures) accomplished air traffic revenue of RMB34.106 billion, within
which RMB28.866 billion representing passenger revenue and RMB5.24 billion
representing cargo revenue. Benefiting from the completed shareholding
restructuring plan (Project Sky) between the Company and Cathay Pacific Airways
Limited (Cathay), China National Aviation Company Limited (CNAC Limited), CITIC
Pacific Limited (CITIC Pacific) and Swire Pacific Limited (SPAC), the Group made
an one-off earning of RMB1.967 billion during the reporting period. Generally
speaking, from January to September 2006, the Group recorded a net profit of
RMB3.345 billion, maintaining its leading position among the domestic airlines.
3.1.1 Principal operations or products that account for 10% or above of the
total revenue or profit from principal operations
For the period from
1 January 2006 to
30 September 2006
Revenue from Principal Gross profit
Industry principal operations operating costs margin
(RMB) (RMB) (%)
Air traffic 34,106,107,772 28,374,132,144 14.4
Including: Related party
transactions 616,911,443 581,991,927 6.0
Pricing policy of related party transactions:
The pricing of government charter flights is based on total flying-hour cost.
Other services are based on market prices.
3.1.2 Seasonal or periodical features of the Company's operations
Civil aviation industry carries a noticeable feature of seasonality, which is
reflected by a significant difference between the high and low seasons for air
transportation in a year. Most of the Group's revenue from passenger revenue
is recorded in the second half of the year. In general, January to March and
December are low seasons while July to October are high seasons, and April to
June and November are flat. As a result of the seasonality feature, the Group
recorded a significant increase in revenue for the peak period in the third
quarter as compared to the second quarter. Revenue from principal operations of
RMB13,940 million and operating profit of RMB2.714 billion were recorded for the
period from July to September.
5
3.1.3 Profit composition for the reporting period (explanation on causes of the
significant changes in the proportion of profit from principal operations,
profit from other operations, expenses incurred during the period, investment
income, subsidy income and net non-operating net income/expenses in the total
profit as compared to the previous reporting period)
For the period from For the period from
1 July 2006 to 1 January 2006 to
30 September 2006 30 June 2006
Share of Share of
(RMB) total profit (%) (RMB) total profit (%)
Profit from principal
operations 2,714,127,683 62.2 2,685,466,025 1943
Profit from other
operations 116,703,838 2.7 142,420,284 103
Expenses in the period 1,535,224,810 35.2 2,710,450,950 1961
Investment income 3,005,207,215 68.9 (26,212,532) (19)
Net Non-operating income 25,651,251 0.6 (10,572,824) (8)
Total profit 4,362,019,399 100 138,201,613 100
There are two main reasons for the significant change in the Group's profit
structure in the reporting period: (1) there is a significant change in the
Group's profit structure in the reporting period. Due to an one-off
investment income of RMB1.967 billion from Project Sky, there was a substantial
growth of total profit and a significant change in the investment income in the
profit and loss account; (2) due to the seasonal feature of the Group's
operations, the Group's profit from principal operations increased
substantially during the period from July to September, while expenses in the
period remained consistent with that in a normal season. The Group's total
profit therefore increased substantially. This further changed the structure in
the Company's profit and loss account.
3.1.4 Explanation on causes of the significant changes in the principal
operations and its composition as compared with the previous reporting period
Not applicable
3.1.5 Explanation on causes of the significant changes in the profitability
(gross margin) of the principal
operations as compared with the previous reporting period
Not applicable
3.2 Analysis and explanation on the significant events and their impact and
resolutions
3.2.1 Substantial fund-raise events
On 9 August 2006, the Company successfully issued 1,639 million A Shares in
China at a price of RMB2.8 per share. These A Shares were listed on Shanghai
Stock Exchange on 18 August 2006.
On 29 August 2006, the Company successfully issued short-term commercial papers
which amounted to RMB2,000 million.
On 27 September 2006, the Company issued 1,179 million additional H Shares to
Cathay at a price of HK$3.45 per share.
6
3.2.2 Progress of substantial assets acquisition and equity trading events
On 8 June 2006, the Company, Cathay, CNAC Limited, CITIC Pacific and SPAC
entered into an equity restructuring agreement. Pursuant to the agreement:
(1) SPAC and CITIC Pacific will sell approximately 40 million and approximately
359 million Cathay shares to the Company at a price of HK$13.50 per Cathay share
respectively; (2) Meanwhile, Cathay will subscribe for approximately 1,179
million additional H shares of the Company at a price of HK$3.45 per share; (3)
Cathay will acquire 82.21% of the shares of Hong Kong Dragon Airlines Limited
which are not held by Cathay at a total consideration of HK$8.221 billion,
including 43.29% from CNAC Limited, 28.50% from CITIC Pacific, 7.71% from SPAC
and 2.71% from other shareholders. Upon completion of the transactions, CNAC
Limited will receive 289 million additional Cathay shares and HK$433 million in
cash. Upon the completion of the aforesaid transactions, the Group will directly
hold 17.5% of Cathay's share capital, and will become one of the substantial
shareholders of Cathay.
On 21 June 2006, the Company and CNAC Limited jointly announced that, upon
completion of the above restructuring agreement (Project Sky), Air China will
commence the privatization of CNAC Limited at a price of HK$2.80 per share in
cash. Once the privatization has been approved and completed successfully, the
Company will pay a maximum cash consideration of HK$3,227 million and CNAC
Limited will be delisted in Hong Kong.
On 22 August 2006, the Company held the 2nd 2006 Extraordinary General Meeting
and 2nd overseas and domestic class meetings, Project Sky was reviewed and
approved, and the restructuring officially started. After obtaining the
fundamental agreement from the State Council, the Company gradually obtained the
special approvals in respect of Project Sky from the relevant ministries and
commissions. On 22 September 2006, the pre-condition satisfied and the agreement
came into effect.
On 25 September 2006, the parties of Project Sky issued an announcement to
implement Project Sky and announced that all pre-conditions of Project Sky had
been satisfied on 22 September 2006. The transaction (other than the additive
issuance of H Shares of Air China subscribed by Cathay will take place on 27
September 2006) is expected to be completed on 28 September 2006. On 28
September 2006, the announcement in respect of the completion of shareholding
restructuring and the satisfaction of precedent conditions of CNAC Limited's
privatization was issued.
On 3 October 2006, CNAC Limited obtained an aggregate of HK$57,720,000 interim
dividends of HK$0.20 each issued by Cathay while the Company will obtain interim
dividend compensation of HK$8,020,000 from the acquisition of shares in Cathay
from Swire Pacific. In addition, the Company and CNAC Limited will obtain an
aggregate of HK$220,000,000 special dividends of HK$0.32 each to be issued by
Cathay on 20 November 2006.
7
3.2.3 Major related party transactions in relation to daily operations
The following related party transactions are conducted according to the relevant
agreements disclosed in the prospectus for the Company's A Share issue.
(1) Material connected transactions in respect of commodity purchases and
labor acceptance
Settlement
Content of Pricing policy Amount of Percentage of terms for
Name of related party of related party related party the same type related party
related parties transactions transactions transactions of transactions
(RMB) (%)
Hong Kong Dragon Aircraft leases Negotiated by reference to 177,145,619.52 17.13 By month
Airlines Limited market price
Shandong Airlines Aircraft leases Negotiated by reference to 158,744,793.51 15.35 By month
Co., Ltd. market price
Beijing Air
Catering Catering expense Negotiated by reference to 72,376,910.84 11.78 By month
Co., Ltd. market price
Jardine Airport Airport ground Negotiated by reference to 71,578,163.29 8.06 By month
Services Limited services market price
Menzies Macau Airport ground Negotiated by reference to 86,689,685.65 9.76 By month
Airport Services services market price
Ltd.
Administration of Airport ground Negotiated by reference to 60,156,952.70 6.78 By month
Airports Ltd. services market price
Hong Kong Dragon Airlines Limited, Shandong Airlines Co., Ltd., Jardine Airport
Services Limited, Menzies Macau Airport Services Ltd. and Administration of
Airports Ltd. are related companies of the Company and Beijing Air Catering Co.,
Ltd. is a joint venture of the Company.
(2) Material transactions in respect of commodity sales and provision of
labour services
Settlement
Content of Pricing policy Amount of Percentage of terms for
Name of related party of related party related party the same type related party
related parties transactions transactions transactions of transactions
(RMB) (%)
ACT Cargo sales agent Negotiated at
market price 261,320,820.60 5.00 By month
China National
Aviation Government's Based on flight costs 300,443,100.00 100 By quarter
Holding Company chartered flights
ACT is a subsidiary of the Company's parent company, CNAHC.
8
3.3 Explanation on causes of accounting policies, accounting est imates and
changes in combination scope as well as significant accounting errors
The Company's 2006 interim report and its summary were disclosed in Shanghai
Securities News and on the website of The Shanghai Stock Exchange (SSE) on 31
August 2006. Owing to the differences in the interpretations of accounting
treatment and according to the Accounting Standard for Business Enterprises
No.24 !V Hedging (The Ministry of Finance Cai Kuai!i2006!jNo.3), the gains and
losses from hedging were recognized at fair value at the balance sheet date in
the interim report of the Company. However such treatment is not consistent with
the prevailing Accounting Standard for Business Enterprises. For consistency,
the Board of Directors has agreed to revise the accounting treatment for hedging
since 2006 as required before the adoption of the new accounting standard, and
resume the accounting treatment of charging only those executed hedging
contracts to profit and loss. The interim results for January to June of 2006
was affected by such restatement, and the net profit has been adjusted from
RMB147,000,000 to RMB45,000,000.
3.4 Relevant explanations given by the Board of Directors and Supervisory
Committee upon completion of auditing and issuance of !(S)non-standard opinion!
Not applicable
3.5 Warning in respect of forecast of possible net loss from the beginning
of the year to the end of the next reporting period or warning in respect of any
significant changes in net profit as compared with that of the corresponding
period of last year and the reasons therefor
As a result of the fast growth of the domestic aviation market and the Group'
s persistent effort on transportation capacity expansion, route network and
market development, as well as the substantial progress on the business
cooperation between Cathay and the Company, especially the one-off gain from the
Project Sky, it is expected that the Group will be able to secure a more than
50% increase in its net profit at the end of this year as compared with the
corresponding period last year.
3.6 Adjustment of rollout of the disclosed annual business plan or budget
Not applicable
3.7 Special undertakings provided by the Company and its subsequent
performance
Content
CNAHC and China National Aviation Corporation (Group) Limited (CNACG) undertook
in the reporting period, that they would not transfer or entrust any other
parties to manage the issuer's shares held by them, nor would they have the
shares acquired by the issuer within 26 days from the date of listing of A
Shares of Air China. CNAHC also made the following undertaking for shareholding
increase: upon the listing and trading of A Shares that were issued and
subscribed in cash at a fixed price online on Shanghai Stock Exchange and up to
31 December 2006, CNAHC will, in the case of the market price of A Shares
falling below the issue price, increase its shareholding by acquiring shares in
the secondary market at a price not lower than the then market price of A Shares
in accordance with relevant regulatory requirements so as to restore the price
of A Shares to the issue price and the accumulated increase in shareholding of
CNAHC will not exceed 600 million A Shares. The general offer arosed from the
aforesaid share acquisition program has obtained waiver from the China
Securities Regulatory Commission on 17 August 2006. As at the date of signing of
this Quarterly Report, CNAHC has increased its shareholding by 122,870,578 A
Shares in aggregate pursuant to its undertaking. CNAHC has also undertaken that
the aforesaid increased shares would not be transferred within the 12 months
after the completion of the share acquisition program Increase Plan.
9
3.8 Special under takings provided by the original holder of
non-circulating shares of the Company during the course of Share Segregation
Reform and its subsequent performance
Not applicable
3.9 Schedule of share reform for the unreformed companies as at the date of
this report
Not applicable
Explanations for the unreformed companies as at the date of this report
Not applicable
Air China Limited
Authorised representative: Li Jiaxiang
27 October 2006
4. APPENDIX
Unaudited Balance Sheet
At 30 September 2006
Current assets:
Consolidated Company
30 September 31 December 30 September 31 December
2006 2005 2006 2005
(RMB) (RMB) (RMB) (RMB)
Cash and bank balances 7,743,619,489 2,744,162,242 5,373,111,902 996,845,316
Dividend receivable 222,327,750 - 129,053,414 -
Interests receivables 726,226 1,015,860 - -
Accounts receivable 3,491,476,867 3,063,389,632 2,522,381,754 2,154,022,427
Other receivables 1,171,941,745 869,164,099 1,229,628,425 1,375,189,016
Prepayments 104,899,768 36,284,284 130,952,615 23,166,677
Subsidy receivables 198,904,926 107,459,765 193,264,492 107,459,765
Inventories 1,269,432,701 1,090,691,416 656,613,187 541,452,589
Deferred expenses 134,437,415 114,729,315 96,140,727 93,851,511
Total current assets 14,337,766,887 8,026,896,613 10,331,146,516 5,291,987,301
Long-term investments:
Long-term equity
investments 10,924,311,018 3,185,834,362 12,624,974,788 5,198,565,479
Long-term debt
investments 47,802,946 48,994,488 - -
Total long-term
investments 10,972,113,964 3,234,828,850 12,624,974,788 5,198,565,479
Including: Differences on
equity investment 2,354,652,268 869,019,386 1,392,616,389 513,986,076
Fixed assets:
Fixed assets, at cost 62,625,892,021 54,173,358,835 55,678,782,011 48,525,685,575
Less: Accumulated
depreciation 9,555,601,357 6,247,725,932 7,653,023,362 4,612,312,636
Net book value of
fixed assets 53,070,290,664 47,925,632,903 48,025,758,649 43,913,372,939
Less: Provisions for
impairment in fixed
assets 132,180 60,300 - -
Net book value of
fixed assets after
impairment 53,070,158,484 47,925,572,603 48,025,758,649 43,913,372,939
Construction-in-progress 8,732,472,531 9,368,638,281 8,616,471,514 8,623,511,652
Total fixed assets 61,802,631,015 57,294,210,884 56,642,230,163 52,536,884,591
Intangible assets and
other assets 491,016,370 506,023,465 466,539,426 482,619,010
Total assets 87,603,528,236 69,061,959,812 80,064,890,893 63,510,056,381
10
Current liabilities:
Short-term loans 8,259,549,650 7,477,497,937 7,828,711,900 7,116,491,000
Bills payable 691,951,236 327,936,726 611,951,236 327,936,726
Accounts payable 5,874,335,228 5,003,444,325 4,951,557,956 4,458,391,626
Domestic air traffic
liabilities 317,242,357 353,822,164 278,013,031 360,937,133
International air traffic
liabilities 1,607,351,932 1,123,701,661 1,505,096,632 977,010,459
Receipts in advance 67,950,842 68,317,464 7,551,015 7,300,112
Wages payable 418,580,853 498,838,136 334,235,603 385,842,978
Welfare payable 176,018,092 217,804,233 108,005,413 122,721,614
Dividend payable 56,811 - - -
Taxes payable 787,809,555 861,805,792 743,647,274 804,345,282
Other payables 563,533,561 365,419,180 448,626,329 365,379,436
Other creditors 1,522,027,766 1,872,494,477 1,368,013,847 1,615,318,726
Accrued expenses 931,281,634 810,299,092 701,335,796 623,738,650
CAAC Infrastructure
Development Fund payable 125,819,201 120,595,247 124,232,021 119,484,933
Long-term liabilities due
within one year 5,967,382,305 5,133,430,167 5,855,869,635 5,066,447,507
Total current
liabilities 27,310,891,023 24,235,406,601 24,866,847,688 22,351,346,182
Long-term liabilities:
Long-term loans 10,658,841,974 10,182,992,319 9,442,613,545 9,448,066,574
Corporate bonds 3,000,000,000 3,000,000,000 3,000,000,000 3,000,000,000
Long-term payables 1,124,048,830 953,097,294 899,226,127 791,950,265
Obligations under
finance leases 10,381,677,219 8,078,671,119 10,381,677,219 8,078,671,119
Total long-term
liabilities 25,164,568,023 22,214,760,732 23,723,516,891 21,318,687,958
Total liabilities 52,475,459,046 46,450,167,333 48,590,364,579 43,670,034,140
Minority interests 3,653,542,876 2,771,770,238 - -
Shareholders' equity:
Share capital 12,251,362,273 9,433,210,909 12,251,362,273 9,433,210,909
Capital reserve 14,277,986,694 8,505,378,735 14,277,986,694 8,505,378,735
Revenue reserve funds 362,884,343 362,884,343 304,816,260 304,816,259
Including: Statutory public
welfare fund 101,371,446 101,371,446 97,279,781 97,279,781
Retained profits 4,702,573,322 1,582,711,272 4,760,641,405 1,640,779,356
Including:
Discretionary reserve
fund proposed by Board
of Directors 84,302,863 84,302,863 84,302,863 84,302,863
Dividend proposed by
Board of Directors - 224,793,416 - 224,793,416
Exchanges differences
arising on retranslation
of foreign currency
denominated financial
statements (120,280,318) (44,163,018) (120,280,318) (44,163,018)
Total Shareholders'
equity 31,474,526,314 19,840,022,241 31,474,526,314 19,840,022,241
Total liabilities and
shareholders equity 87,603,528,236 69,061,959,812 80,064,890,893 63,510,056,381
Legal representative of the company: Li Jiaxiang
Person in charge of accounting function: Fan Cheng Person in charge of
accounting department: Li
Youqiang
11
Unaudited Cash Flow Statement
For the period from 1 January 2006 to 30 September 2006
Consolidated Company
(RMB) (RMB)
Cash flows from operating activities:
Cash received from sales of goods, services rendered 34,903,139,554 29,852,124,640
Refund of tax and levy 55,272,684 55,272,684
Other cash received relating to operating activities 490,783,067 426,041,225
Subtotal of cash inflows 35,449,195,305 30,333,438,549
Cash paid for goods purchased, services acquired (22,315,855,453) (19,496,262,843)
Cash paid to or on behalf of employees (2,671,176,859) (1,843,908,159)
Tax paid (1,735,595,534) (1,527,917,851)
Other cash paid in relation to operating activities (2,890,904,850) (2,133,608,245)
Subtotal of cash outflows (29,613,532,696) (25,001,697,098)
Net cash flows from operating activities 5,835,662,609 5,331,741,451
Cash flows from investing activities:
Cash received from sale of investments 450,767,336 -
Proceeds from investment income 137,835,677 25,728,794
Proceeds from disposal of fixed assets, intangible
assets and other long-term assets 167,504,456 156,603,422
Other cash received from investing activities 207,866,719 35,237,494
Subtotal of cash inflows 963,974,188 217,569,710
Cash paid to purchase of fixed assets, intangible assets
and other long-term assets (4,800,924,491) (3,935,652,678)
Cash paid to purchase of investments (5,466,117,592) (5,397,144,388)
Subtotal of cash outflows (10,267,042,083) (9,332,797,066)
Net cash flows from investing activities (9,303,067,895) (9,115,227,356)
Cash flows from financing activities:
Proceeds from absorbing investments 8,589,953,058 8,589,953,058
Cash received from borrowings 18,847,942,691 17,833,944,234
Other proceeds relating to financing activities
Subtotal of cash inflows 27,437,895,749 26,423,897,292
Repayments of amounts borrowed (15,309,379,422) (14,751,252,549)
Cash payments for distribution of dividends,
profits or interest expenses (1,231,067,397) (1,205,116,785)
Other cash payments relating to financing activities (1,957,008,469) (1,957,008,469)
Subtotal of cash outflows (18,497,455,288) (17,913,377,803)
Net cash flows from financing activities 8,940,440,461 8,510,519,489
Effect of exchange rate changes on cash (312,873,875) (328,333,748)
Net increase in cash and cash equivalents 5,160,161,300 4,398,699,836
12
Supplemental Information
Consolidated Company
Reconciliation of net profit to cash flows from operating
activities:
Net profit 3,344,655,466 3,344,655,466
Add: Minority interests 896,735,429 -
Add: Provision for impairment of assets 71,880 -
Depreciation of fixed assets 3,313,186,684 2,996,090,634
Amortization of intangible assets 21,025,412 20,734,740
Increase in prepayments (19,708,100) (2,289,216)
Increase in accrued expenses 120,982,542 77,597,146
Loss on disposal of fixed assets, intangible assets and
other long-term assets 14,985,929 15,148,950
Loss on depletion of fixed assets (5,664) (1,009,605)
Finance costs 824,859,496 813,541,113
Gain on investments (2,978,994,683) (2,112,441,421)
Increase in inventories (178,741,285) (115,160,598)
Increase in operating receivables (1,021,808,114) (321,635,585)
Increase in operating payables 1,338,441,219 936,261,333
Others 159,976,398 (319,751,506)
Net cash flows from operating activities 5,835,662,609 5,331,741,451
Net increase in cash and cash equivalents:
Cash and cash equivalents at the end of the period 7,556,872,951 5,290,621,964
Less: Cash equivalents at the beginning of the period 2,396,711,651 891,922,128
Net increase in cash and cash equivalents 5,160,161,300 4,398,699,836
Legal representative of the company: Li Jiaxiang
Person in charge of accounting function: Fan Cheng Person in charge of
accounting department: Li Youqiang
CORRECTION OF INTERIM REPORT FOR THE FIRST SIX MONTHS OF 2006 (Overseas
Regulatory Announcement)
The Company's 2006 interim report and its summary were disclosed in Shanghai
Securities News and on the website of The Shanghai Stock Exchange (SSE) on 31
August 2006. Owing to the differences in the interpretations of accounting
treatment and according to the Accounting Standard for Business Enterprises
No.24 !V Hedging (The Ministry of Finance Cai Kuai!i2006!jNo.3), the gains and
losses from hedging were recognized at fair value at the balance sheet date in
the interim report of the Company. However such treatment is not consistent with
the prevailing Accounting Standard for Business Enterprises. For consistency,
the Board of Directors has agreed to revise the accounting treatment for hedging
since 2006 as required before the adoption of the new accounting standard, and
resume the accounting treatment of charging only those executed hedging
contracts to profit and loss. The interim results for January to June of 2006
was affected by such restatement, and the net profit has been adjusted from
RMB147,000,000 to RMB45,000,000. The Company hereby apologizes to all investors,
and announces the financial information before and after the correction in
accordance with the requirements of Information Disclosure Regulations of Open
Issued Company No.19-Correction and Disclosure of Financial Information issued
by China Securities Regulatory Commission, as follows:
13
Financial indicators before and after Correction
June 2006
before Correction after Correction
Overall Amortised Profit Rate indicator
Operating profit rate 13.40% 12.87%
Net assets earning ratio 0.75% 0.23%
Operating profit per share 0.296 0.285
Net profit per share 0.016 0.005
Weighted average Profit Rate indicator
Operating profit rate 13.40% 12.87%
Net assets earning ratio 0.74% 0.23%
Operating profit per share 0.296 0.285
Net profit per share 0.016 0.005
Ratio of Liabilities
Gear Ratio (consolidation) 68.76% 68.86%
Gear Ratio (parent company) 70.02% 70.13%
Liquidity ratio 0.32 0.32
Asset turnover ratio
Receivables turnover days 25.28 25.28
Current asset turnover days 74.61 73.66
Total asset turnover days 622.57 621.62
Other
Net asset per share 2.09 2.08
Net asset per share after adjustment 2.07 2.06
14
Company's and consolidated balance sheets before and after the correction
Company Consolidated
Adjustment Adjusted Adjustment Adjusted
Original amount amount amount Original amount amount amount
Current Asset:
Cash and bank balances 941,136,035.00 941,136,035.00 2,818,506,676 2,818,506,676
Accounts receivable 2,204,651,229.00 2,204,651,229.00 2,930,808,163 2,930,808,163
Other receivables 1,352,659,600.00 (82,889,440.00) 1,269,770,160.00 1,283,496,626 (110,841,538) 1,172,655,088
Prepayments 61,218,948.00 61,218,948.00 84,480,085 84,480,085
Subsidy receivables 201,120,549.00 201,120,549.00 201,120,549 201,120,549
Inventories 656,777,096.00 656,777,096.00 1,230,633,149 1,230,633,149
Deferred expenses 79,882,113.00 79,882,113.00 100,311,584 100,311,584
Total current Assets 5,497,445,570.00 (82,889,440.00) 5,414,556,130.00 8,649,356,832 (110,841,538) 8,538,515,294
Long-term investments:
Long-term equity
investments 4,758,020,753.00 (19,286,948.00) 4,738,733,805.00 2,314,902,290 2,314,902,290
Differences on
equity investments 499,645,088.00 499,645,088.00 818,930,564 818,930,564
Long-term debt
investments 48,509,394 48,509,394
Total long-term
investments 5,257,665,841.00 (19,286,948.00) 5,238,378,893.00 3,182,342,248 3,182,342,248
Fixed assets:
Fixed assets,
at cost 51,612,359,461.00 51,612,359,461.00 58,518,430,052 58,518,430,052
Less:
Accumulated
depreciation 6,552,791,748.00 6,552,791,748.00 8,356,732,757 8,356,732,757
Net book value
of fixed assets 45,059,567,713.00 45,059,567,713.00 50,161,697,295 50,161,697,295
Less: Provisions
for impairment
in fixed assets 60,300 60,300
Net book value
of fixed assets 50,161,636,995 50,161,636,995
Construction-
in-progress 9,560,018,107.00 9,560,018,107.00 9,678,928,989 9,678,928,989
Total fixed
assets 54,619,585,820.00 54,619,585,820.00 59,840,565,984 59,840,565,984
Intangible assets:
Intangible assets 473,241,253.00 473,241,253.00 497,063,114 497,063,114
Total intangible
assets 473,241,253.00 473,241,253.00 497,063,114 497,063,114
Total assets 65,847,938,484.00 (102,176,388.00)65,745,762,096.00 72,169,328,178 (110,841,538) 72,058,486,640
Liabilities and
Shareholder's equity
Current liabilities:
Short-term loans 9,198,704,400 9,198,704,400 9,655,429,068 9,655,429,068
Bills payable 773,484,617 773,484,617 773,484,617 773,484,617
Account payable 4,632,194,180 4,632,194,180 5,321,737,701 5,321,737,701
Domestic air
traffic liabilities 383,618,674 383,618,674 381,395,562 381,395,562
International air
traffic liabilities 1,270,637,205 1,270,637,205 1,448,883,381 1,448,883,381
Receipts in advance 1,280,039 1,280,039 33,269,615 33,269,615
Wages payable 189,775,115 189,775,115 260,530,059 260,530,059
Welfare payable 112,452,438 112,452,438 202,087,871 202,087,871
Taxes payable 420,764,563 420,764,563 464,924,218 464,924,218
Other creditors 943,589,459 943,589,459 1,213,217,793 1,213,217,793
Dividend payable 147,905,158 147,905,158 147,905,158 147,905,158
Other payables 401,547,472 401,547,472 401,565,322 401,565,322
Accrued expenses 656,518,798 656,518,798 827,231,927 827,231,927
CAAC Infrastructure
Development Fund
payable 116,804,031 116,804,031 119,340,694 119,340,694
Long-term liabilities
due within one year 5,265,058,897 5,265,058,897 5,377,899,888 5,377,899,888
Total current
liabilities 24,514,335,046 24,514,335,046 26,628,902,874 26,628,902,874
15
Long-term
liabilities:
Long-term loans 9,284,023,539 9,284,023,539 10,488,188,564 10,488,188,564
Corporate bonds 3,000,000,000 3,000,000,000 3,000,000,000 3,000,000,000
Long term payables 864,220,074 864,220,074 1,058,261,433 1,058,261,433
Obligations under
finance leases 8,444,754,044 8,444,754,044 8,444,754,044 8,444,754,044
Total liabilities 46,107,332,703 46,107,332,703 49,620,106,915 49,620,106,915
Minority Interests 2,808,615,482 (8,665,150) 2,799,950,332
Shareholders' Equity:
Share capital 9,433,210,909 9,433,210,909 9,433,210,909 9,433,210,909
Revenue reserve funds 8,505,438,537 8,505,438,537 8,505,438,537 8,505,438,537
Balance surplus 304,816,259 304,816,259 362,884,343 362,884,343
Including: Statutory
public welfare fund 97,279,781 97,279,781 101,371,446 101,371,446
Retained profits 1,563,266,042 (102,176,388.00) 1,461,089,654 1,505,197,958 (102,176,388) 1,403,021,570
Including: Discretionary
reserve fund proposed by
Board of Directors 84,302,863 84,302,863 84,302,863 84,302,863
Exchanges differences
arising on
retranslation of
foreign currency
denominated financial
statements (66,125,966) (66,125,966) (66,125,966) (66,125,966)
Total Shareholders'
equity 19,740,605,781 (102,176,388.00) 19,638,429,393 19,740,605,781 (102,176,388) 19,638,429,393
Total liabilities
and Shareholders'
equity 65,847,938,484 (102,176,388.00) 65,745,762,096 72,169,328,178 (110,841,538) 72,058,486,640
Company's and consolidated profit and loss accounts and profit appropriation
statements before and after the correction
Company Consolidated
Adjustment Adjusted Adjustment Adjusted
Original amount amount amount Original amount amount amount
Revenue from
principal
operations 17,589,858,597 17,589,858,597 20,865,759,370 20,865,759,370
Less: Costs of
principal operations 14,940,509,965 82,889,440 15,023,399,405 17,548,251,440 110,841,538 17,659,092,978
Taxes and
surcharges on
principal
operations 471,462,110 471,462,110 521,200,367 521,200,367
Profit from
principal operations 2,177,886,522 (82,889,440) 2,094,997,082 2,796,307,563 (110,841,538) 2,685,466,025
Add: Profit from other
operations 155,958,315 155,958,315 142,420,284 142,420,284
Less: Operating expenses 978,007,199 978,007,199 1,074,901,486 1,074,901,486
Administrative expenses 568,507,464 568,507,464 896,529,350 896,529,350
Finance costs 734,890,269 734,890,269 739,020,114 739,020,114
Profit from operations 52,439,905 (82,889,440) (30,449,535) 228,276,897 (110,841,538) 117,435,359
Add: Non-operating income 15,537,284 15,537,284 25,024,682 25,024,682
Subsidy income 56,738,462 56,738,462 57,551,610 57,551,610
Investment income 56,520,896 (19,286,948) 37,233,948 (26,212,532) (26,212,532)
Less: Non-operating
expenses 33,956,445 33,956,445 35,597,506 35,597,506
Total profit 147,280,102 (102,176,388) 45,103,714 249,043,151 (110,841,538) 138,201,613
Less: Income tax - - 46,013,722 46,013,722
Minorities interests 55,749,327 (8,665,150) 47,084,177
Net profit 147,280,102 (102,176,388) 45,103,714 147,280,102 (102,176,388) 45,103,714
Add: Retained profit
at the beginning 1,640,779,356 1,640,779,356 1,582,711,272 1,582,711,272
Profit available for
Shareholders'
allocation 1,788,059,458 (102,176,388) 1,685,883,070 1,729,991,374 (102,176,388)1,627,814,986
Less: Balance surplus
charged - - - -
dividend of Ordinary
share payable 224,793,416 224,793,416 224,793,416 224,793,416
Retained profit at
the end 1,563,266,042 (102,176,388) 1,461,089,654 1,505,197,958 (102,176,388) 1,403,021,570
Air China Limited
October 28 2006
16
PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION
At the Board meeting held on 27 October 2006, the Board proposed to amend the
Articles of Association to increase the number of Directors and the amendment is
as follows:
Article 93 of the Articles of Association as set out below:
'The Company shall have a board of directors. The board of directors shall
consist of 12 directors. ......'
shall be replaced by the following provision:
'The Company shall have a board of directors. The board of directors shall
consist of 13 directors. ......' Besides, at the Board meeting held on 6 July
2006, the Board proposed the amendments to the amended Articles of Association
passed at the Company's extraordinary general meeting held on 28 March 2006
and the amendments were made in accordance with the Guidance on Articles of
Association of Public Companies (2006 Revised) issued by the China Securities
Regulatory Commission.
According to the Articles of Association and the relevant laws and regulations,
the Proposed Amendment is subject to the Shareholders' approval by way of
special resolution at the EGM. Further, the Proposed Amendment will become
effective after relevant PRC authorities approve it. Details regarding the
Proposed Amendment will be set out in the circular to be despatched to the
Shareholders.
PROPOSED APPOINTMENT OF DIRECTOR
At the Board meeting held on 27 October 2006, the Board resolved to propose that
Mr. Chen Nan Lok Philip be appointed as a non-executive Director. An ordinary
resolution to consider and approve the appointment of Mr. Chen will be proposed
at the EGM.
Mr. CHEN Nan Lok Philip, aged 51, has been a director of Cathay Pacific Airways
Limited since July 1998 and was appointed Chief Executive of that company in
January 2005. He is also a director of John Swire & Sons (H.K.) Limited and
Swire Pacific Limited and Chairman of Hong Kong Dragon Airlines Limited. He
joined the John Swire & Sons Limited group in 1977 and in addition to Hong Kong
has worked with the group in Mainland China and the Asia Pacific region. He has
an honours degree in Political Science and History.
Mr. Chen has not held any directorship in any other listed companies or taken up
a post in any affiliated companies of the Company in the past three years.
Further, Mr. Chen does not have any relationship with any other director, senior
management, substa ntial shareholder or controlling shareholder of the Company.
Mr. Chen does not have any equity interest in the Company within the meaning of
Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong
Kong). There is no information to be disclosed on items from (h) to (v) in Rule
13.51(2) of the Listing Rules. No other matter needs to be brought to the
attention of the Shareholders in respect of the Company and its Directors and
supervisors of the Company.
Mr. Chen will not receive any compensation for his service as a Director of the
Company. The term of his office shall commence upon the approval to the Proposed
Amendment in respect of the number of Directors by relevant PRC authorities and
shall end on the expiry of the term of the current session of the Board.
17
APPOINTMENT OF DEPUTY PRESIDENTS
As nominated by the Chief Executive of the Company, at the Board meeting held on
27 October 2006, the Board resolved that the Company will engage Mr. Song
Zhiyong, Mr. He Li, Mr. Fan Cheng and Ms. Zhang Lan to serve as the Deputy
Presidents of the Company. It is also resolved that both Mr. Cheng Yiru and Mr.
Ma Kuiliang will cease to serve as the Deputy Presidents of the Company.
The resumes of Mr. Song Zhiyong, Mr. He Li, Mr. Fan Cheng and Ms. Zhang Lan are
as follows:
Mr. Song Zhiyong, 41, graduated from Di Er Flying Academy of China Air Force
with major in Flying Studies. Mr. Song started his career in the China civil
aviation industry in 1987 and was previously the pilot of the Third Group of the
Chief Flight Team, the Deputy Captain of the Chief Flight Team and the director
of the Training Department of Air China International Corporation. Since
September 2004, Mr. Song has been serving as the Assistant to President and the
Chief Captain of the Chief Flight Team of the Company.
Mr. He Li, 55, graduated from China-Euro Management Institute with a Master
degree in Business Administration. Mr. He started his career in the China civil
aviation industry in 1973 and was previously an engineer of Beijing Civil
Aviation Administration as well as the Deputy Manager of the Components Overhaul
Department, the Deputy Chief of the Production Support and Sales Department, and
the General Manager of Aircraft Maintenance and Engineering Corporation,
Beijing. Since November 2005, Mr. He has been serving as the General Manager of
the Engineering Technology (Branch) Company of the Company.
Mr. Fan Cheng, 51, graduated from Nanjing Institute of Chemistry and Chemical
Engineering with major in Organic Synthesis Studies and was thereafter awarded
with a Master degree in Business Administration from Guanghua School of
Management of Peking University in 2000. Mr. Fan is a senior accountant, senior
engineer and certified public accountant and was the former Deputy General
Manager of China New Technology and Venture Industry Co., Ltd. in 1996. Mr. Fan
joined Air China International Corporation in 2001 and served as the General
Manager of the Enterprise Management Department and the Assets Management
Department of China National Aviation Holding Company, respectively, during the
period from October 2002 to October 2004. Since September 2004, Mr. Fan has been
serving as the Executive Director and the Chief Financial Officer of the
Company.
Ms. Zhang Lan, 51, graduated from Beijing Foreign Studies University. Ms. Zhang
started her career in the China civil aviation industry in 1977 and had been
seconded to work in various places including the United States and Switzerland.
Ms. Zhang joined Air China International Corporation in 1988 and served at
various positions, including the General Manager of the Sales and Marketing
Department. Since September 2004, Ms. Zhang has been serving as the Assistant to
the President and Chairman of the Commercial Committee of the Company.
PROPOSED FORMATION OF AVIATION SAFETY COMMITTEE
At the Board meeting held on 30 August 2006, the Board resolved to propose that
the Board form an Aviation Safety Committee, it comprise 3 members, and Mr. Wang
Shixiang serve as the chairman of this committee while Mr. Ma Xulun and Mr. Cai
Jianjiang be the committee members. It was also approved at the Board meeting
that all special board committees under the Board were allowed to engage both
internal and external experts to provide professional support for their
decision-making. The terms of such engagement shall expire upon the expiration
of the current Board session.
This proposal is subject to the Shareholders' approval at the EGM.
PROPOSED SHARE APPRECIATION RIGHTS ADMINISTRATIVE HANDBOOK
At the Board meeting held on 30 August 2006, the Board resolved to propose to
adopt the Administrative Measures for the Share Appreciation Rights, the
Proposal for Distribution of the Share Appreciation Rights, the Agreement in
respect of the Share Appreciation Rights and other procedural documents of the
Company (collectively !(S)Share Appreciation Rights Administrative Handbook!).
18
The Share Appreciation Rights Administrative Handbook was formulated in
accordance with the proposal in respect of the share appreciation rights
approved by the State-Owned Assets Supervision and Administration Commission of
the State Council.
This proposal is subject to the Shareholders' approval at the EGM. Details
regarding the proposed Share Appreciation Rights Administrative Handbook will be
set out in the circular to be despatched to the Shareholders.
DEFINITIONS
'Articles of Association' the articles of association of the
Company from time to time
'Board' the board of Directors of the Company
'Company' Air China Limited, a company incorporated
in the People's Republic of China and
whose H shares are listed on the Exchange
as its primary listing venue and on the
Official List of the UK Listing Authority
as its secondary listing venue
'Director(s)' the director(s) of the Company
'PRC' The People's Republic of China, excluding,
for the purpose of this announcement
only, Hong Kong, Macau and Taiwan
'RMB' Renminbi, the lawful currency of the PRC
'Shareholders' shareholders of the Company
By order of the Board
Air China Limited
Zheng Baoan Li Man Kit
Joint Company Secretaries
Beijing, 27 October 2006
As at the date of this announcement, the Directors of the Company are Messrs Li
Jiaxiang, Kong Dong, Wang Shixiang, Yao Weiting, Christopher Dale Pratt, Ma
Xulun, Cai Jianjiang, Fan Cheng, Hu Hung Lick, Henry*, Wu Zhipan*, Zhang Ke* and
Jia Kang*.
* Independent non-executive Director of the Company
'Please also refer to the published version of this announcement in South
China Morning Post'
19
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The company news service from the London Stock Exchange
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