Major Transaction - Part 2
Air China Ld
30 May 2006
13. APPROPRIATIONS
Set out below are the details of distributions made by the Company for the two
years ended 31 December 2005:
Group
2005 2004
RMB'000 RMB'000
Declared during the year
Carved-out of net assets (note 13(c)) - 39,136
Dividend paid (note 13(c)) - 29,074
Distribution to CNAHC (note 13(a)) - 377,550
Distribution to CNAHC (note 13(b)) - 2,025,105
Distribution to CNACG (note 13(b)) - 118,680
Total - 2,589,545
Proposed for approval (not recognised as
a liability as at 31 December)
Final dividend for 2005: RMB0.2383 (2004:
Nil)
per 10 shares (note 13(d)) 224,793 -
(a) On 21 April 2004, Fly Top Limited, a wholly-owned subsidiary of CNAC,
entered into the following acquisition agreements which were supplemented on 26
April 2004:
(i) a share purchase agreement with Air China International Corporation in
relation to the acquisition of 60% of the equity interest in BACL (the 'BACL
Agreement') for a consideration of RMB294 million; and
(ii) a share purchase agreement with Air China International Corporation in
relation to the acquisition of 60% of the equity interest in SWACL (the 'SWACL
Agreement') for a consideration of RMB67 million.
On 12 November 2004, all the pre-completion undertakings of the BACL Agreement
and the SWACL Agreement were completed and these two acquisition agreements were
effective on that date accordingly.
On 20 April 2004, Air China International Corporation entered into a stock
transfer agreement with HKSACL (the 'HKSACL Agreement'), the minority
shareholder of SWACL, pursuant to which, Air China International Corporation
disposed of 15% of the equity interest in SWACL to HKSACL for a consideration of
approximately RMB17 million. On 12 November 2004, all the pre-completion
undertakings of the HKSACL Agreement were completed and this agreement was
effective on that date accordingly.
Immediately after the completion of the BACL Agreement, SWACL Agreement and
HKSACL Agreement, the Group's effective shareholding interests in BACL and SWACL
were diluted from 60% and 75%, respectively, to approximately 41%.
As a result of the completion of the BACL Agreement, SWACL Agreement and HKSACL
Agreement, the Group made a payment of approximately RMB378 million to CNAHC,
representing the total consideration payable by CNAC and HKSACL for the
acquisitions of the entire shareholding interests held by the Group in BACL and
SWACL pursuant to the Restructuring as set out in note 1 to these financial
statements. This payment has been made to CNAHC and accounted for as a special
distribution to CNAHC by the Company.
(b) In accordance with the ( ) 'Provisional Regulations Relating to Corporate
Reorganisation of Enterprises and Related Management of State-owned Capital and
Financial Treatment' notice issued by the Ministry of Finance, which became
effective from 27 August 2002, and pursuant to the Restructuring, after the
Company's incorporation, the Company is required to make a distribution to
CNAHC, which represents an amount equal to the net profit attributable to
shareholders, as determined based on the audited accounts prepared in accordance
with the accounting principles and the financial regulations applicable in the
PRC ('PRC GAAP'), generated during the period from 1 January 2004 to 30
September 2004 (the date of incorporation of the Company) by the businesses and
operations (excluding those of CNAC) contributed to the Group by CNAHC after
giving effect to relevant necessary adjustments. The net profit attributable to
shareholders mentioned above for the said period is calculated after deducting
the amount of income tax payable to CNAHC of approximately RMB191,721,000 which
in turn will settle the tax liability on profit arisen during that period with
the relevant tax bureau as detailed in note 12 to these financial statements.
In addition, in accordance with ( ) 'Provisional Regulations Relating to
Corporate Reorganisation of Enterprises and Related Management of State-owned
Capital and Financial Treatment' notice issued by the Ministry of Finance and
pursuant to the Restructuring, after the Company's incorporation, the Company is
required to make a distribution to CNACG, which represents an amount equal to
the net profit attributable to shareholders, as determined based on audited
accounts prepared in accordance with PRC GAAP, generated during the period from
1 January 2004 to 30 September 2004 (the date of incorporation of the Company)
by the businesses and operations (excluding those directly contributed by CNAHC)
contributed to the Group by the CNAC group, less the 2003 final dividend and
2004 interim dividend amounts already paid by CNAC to CNACG.
(c) The profit distributions made prior to the incorporation of the Company
represent the net assets which have been carved out and treated as deemed
distributions pursuant to the Restructuring set out in note 1 to these financial
statements and the dividends paid during that period.
The rates of dividend and the number of shares ranking for dividends for the
year ended 31 December 2004 are not presented in this footnote for those profit
distributions made prior to the incorporation of the Company as such information
is not considered meaningful.
(d) The proposed final dividend of RMB0.2383 per 10 shares for the year ended 31
December 2005 is subject to the approval of the Company's shareholders at the
forthcoming annual general meeting.
Cash dividends to shareholders in Hong Kong will be paid in Hong Kong dollars.
Following the incorporation of the Company, under the PRC Company Law and the
Company's articles of association, net profit after tax as reported in the PRC
statutory financial statements can only be distributed as dividends after
allowance has been made for the following:
(i) Making up prior years' cumulative losses, if any;
(ii) Allocations to the statutory common reserve fund of at least 10% of
after-tax profit, until the fund aggregates 50% of the Company's registered
capital. For the purpose of calculating the transfer to reserves, the profit
after tax shall be the amount determined under the PRC GAAP. The transfer to
this reserve must be made before any distribution of dividends to shareholders.
The statutory common reserve fund can be used to offset previous years' losses,
if any, and part of the statutory common reserve fund can be capitalised as the
Company's share capital provided that the amount of such reserve remaining after
the capitalisation shall not be less than 25% of the share capital of the
Company;
(iii) Allocations of 5% to 10% of after-tax profit, as determined under PRC
GAAP, to the Company's statutory public welfare fund, which will be established
for the purpose of providing for the Company's employees collective welfare
benefits such as the construction of dormitories, canteens and other staff
welfare facilities. The fund forms part of the shareholders' equity as only
individual employees can use these facilities, while the title of such
facilities is held by the Company. The transfer to this fund must be made before
any distribution of dividends to shareholders; and
(iv) Allocations to the discretionary common reserve if approved by the
shareholders.
The above reserves cannot be used for purposes other than those for which they
are created and are not distributable as cash dividends.
In accordance with the articles of association of the Company, the net profit
after tax of the Company for the purpose of dividends payment is based on the
lesser of (i) the net profit determined in accordance with PRC GAAP; and (ii)
the net profit determined in accordance with IFRSs.
Prior to the incorporation of the Company on 30 September 2004, no profit
appropriations to the aforesaid reserve funds were required.
14. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
The calculation of basic earnings per share for the year ended 31 December 2005
is based on the net profit attributable to equity holders of the parent for the
year ended 31 December 2005 of approximately RMB2,406,256,000, and the weighted
average number of approximately 9,422,728,916 ordinary shares in issue during
the year, as adjusted to reflect the new issue of 382,592,727 H shares on the
exercise of the over-allotment options granted to international underwriters to
subscribe for the Company's H shares during the year.
The calculation of basic earnings per share for the year ended 31 December 2004
is based on the net profit attributable to equity holders of the parent for the
year ended 31 December 2004 of approximately RMB2,385,964,000, and the weighted
average number of approximately 6,618,795,915 ordinary shares in issue during
the year on the assumption that the 6,500,000,000 shares issued as at 30
September 2004 had been in issue throughout the year ended 31 December 2004, and
as adjusted to reflect the new issue of 2,550,618,182 H shares by way of placing
and public offering in connection with the public listing of the Company's H
shares on 15 December 2004.
Diluted earnings per share for the year ended 31 December 2005 has not been
disclosed because no diluting events existed during 2005.
The calculation of diluted earnings per share for the year ended 31 December
2004 was based on the net profit attributable to equity holders of the parent
for the year ended 31 December 2004 of approximately RMB2,385,964,000. The
weighted average number of ordinary shares used in the calculation is the
weighted average number of 6,618,795,915 ordinary shares in issue during the
year, as used in the basic earnings per share calculation and the weighted
average of 556,132 ordinary shares assumed to have been issued at no
consideration on the deemed exercise of all over-allotment options granted to
international underwriters to subscribe for the Company's H shares during the
year.
15. PROPERTY, PLANT AND EQUIPMENT
Group
Aircraft
and flight Transportation Office Construction
equipment Buildings Machinery equipment equipment in progress Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
At 1 January
2004, net of
accumulated 37,789,877 2,715,540 1,051,602 293,144 90,268 483,489 42,423,920
depreciation
Establishment
of a joint
venture (note (267,119) (186,169) (86,932) (21,673) - (3,947) (565,840)
45 (a))
Additions 4,479,459 42,515 109,019 135,909 77,244 734,028 5,578,174
Disposals (424,064) (49,111) (28,705) (7,170) (22,315) - (531,365)
Transfer from 164,788 285,156 91,393 5,177 206 (546,720) -
CIP
Depreciation (3,024,078) (123,071) (172,910) (89,845) (53,348) - (3,463,252)
charge for the
year
At 31 December
2004
and 1 January
2005, net
of accumulated 38,718,863 2,684,860 963,467 315,542 92,055 666,850 43,441,637
depreciation
Additions 7,185,603 10,022 112,533 72,122 32,270 1,394,017 8,806,567
Disposals (469,378) (44,861) (4,542) (15,975) (273) - (535,029)
Transfer from 467,440 71,898 67,571 5,147 22,724 (634,780) -
CIP
Exchange (6,542) (1,826) - (1,399) - - (9,767)
adjustment
Depreciation (4,128,357) (147,542) (156,489) (56,501) (23,791) - (4,512,680)
charge for the
year
At 31 December
2005, net
of accumulated 41,767,629 2,572,551 982,540 318,936 122,985 1,426,087 47,190,728
depreciation
At 31 December
2004
and 1 January
2005
Cost 63,813,626 3,674,146 2,045,002 1,068,502 223,531 666,850 71,491,657
Accumulated (25,094,763) (989,286) (1,081,535) (752,960) (131,476) - (28,050,020)
depreciation
Net carrying 38,718,863 2,684,860 963,467 315,542 92,055 666,850 43,441,637
amount
At 31 December
2005
Cost 70,705,988 3,698,597 2,192,095 1,076,728 276,239 1,426,087 79,375,734
Accumulated (28,938,359) (1,126,046) (1,209,555) (757,792) (153,254) - (32,185,006)
depreciation
Net carrying 41,767,629 2,572,551 982,540 318,936 122,985 1,426,087 47,190,728
amount
Company
Aircraft
and flight Transportation Office Construction
equipment Buildings Machinery equipment equipment in progress Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Transferred to the
Company upon
its incorporation 38,595,577 1,858,577 784,743 182,711 76,724 583,635 42,081,967
(note 1)
Additions 372,799 - 25,547 42,916 27,182 308,493 776,937
Disposals (9,216) (32) (31,158) (1,650) (148) - (42,204)
Transfer from CIP - 219,934 17,770 176 - (237,880) -
Depreciation charge (804,864) (23,307) (29,053) (20,021) (31,027) - (908,272)
for the period
At 31 December 2004
and 1 January 2005,
net
of accumulated 38,154,296 2,055,172 767,849 204,132 72,731 654,248 41,908,428
depreciation
Additions 6,444,967 2,209 85,229 46,376 20,404 1,347,614 7,946,799
Disposals (460,726) (39,100) (1,898) (15,096) (197) - (517,017)
Transfer from CIP 467,440 63,320 57,033 5,147 22,706 (615,646) -
Depreciation charge (3,997,538) (130,020) (129,145) (36,615) (19,429) - (4,312,747)
for the year
At 31 December 2005,
net of
accumulated 40,608,439 1,951,581 779,068 203,944 96,215 1,386,216 45,025,463
depreciation
At 31 December 2004
and 1 January 2005
Cost 61,842,914 2,820,374 1,520,769 830,178 131,321 654,248 67,799,804
Accumulated (23,688,618) (765,202) (752,920) (626,046) (58,590) - (25,891,376)
depreciation
Net carrying amount 38,154,296 2,055,172 767,849 204,132 72,731 654,248 41,908,428
At 31 December 2005
Cost 68,020,677 2,839,822 1,649,825 823,159 172,910 1,386,216 74,892,609
Accumulated (27,412,238) (888,241) (870,757) (619,215) (76,695) - (29,867,146)
depreciation
Net carrying amount 40,608,439 1,951,581 779,068 203,944 96,215 1,386,216 45,025,463
Certain of the Group's and the Company's bank loans are secured by certain of
the Group's and the Company's aircraft which had an aggregate carrying amount of
approximately RMB16,471 million as at 31 December 2005 (2004: RMB16,586 million)
(note 33(a)).
The carrying amount of aircraft held under finance leases as at 31 December 2005
is approximately RMB10,487 million (2004: RMB11,999 million) (note 32(a)).
Leased assets are pledged as security for the related finance lease liabilities.
As at 31 December 2005, the Group is in the process of applying to obtain the
title certificates of certain of its buildings with an aggregate carrying amount
of approximately RMB270 million (2004: RMB2,178 million). The Directors of the
Company are of the view that the Group is entitled to lawfully and validly
occupy and use the above-mentioned buildings. The Directors of the Company are
of the opinion that the aforesaid matter will not have any significant impact on
the Group's financial position as at 31 December 2005.
16. LEASE PREPAYMENTS
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Cost
At 1 January 938,992 30,017 924,895 -
Transferred to the Company
upon its
incorporation (note 1) - - - 924,895
Additions 157,723 908,975 151,955 -
At 31 December 1,096,715 938,992 1,076,850 924,895
Accumulated amortisation
At 1 January 5,094 210 5,024 -
Transferred to the Company
upon its
incorporation (note 1) - - - 411
Amortisation for the year 19,555 4,884 19,333 4,613
At 31 December 24,649 5,094 24,357 5,024
Net book value
At 31 December 1,072,066 933,898 1,052,493 919,871
17. INTERESTS IN SUBSIDIARIES
Company
2005 2004
RMB'000 RMB'000
Listed shares in Hong Kong, 579,472 579,472
at cost
Unlisted investments, at 137,707 134,647
cost
Due from subsidiaries 11,519 22,513
Due to subsidiaries (588,623) (559,703)
140,075 176,929
Market value of listed 2,893,811 3,161,997
shares
The balances with the subsidiaries are unsecured, interest-free and have no
fixed terms of repayment.
As at 31 December 2005, the Group is in the process of applying to register the
already transferred equity interests in certain subsidiaries with an aggregate
cost of approximately RMB504,000 (2004: RMB134 million) from Air China
International Corporation into the Company's name. The Directors of the Company
are of the view that the Company owns the aforesaid equity interests and that
the aforesaid matter will not have any significant impact on the Group's
financial position as at 31 December 2005.
Particulars of the principal subsidiaries at 31 December 2005 are as follows:
Percentage of
equity
Place of Nominal interests
incorporation/ value attributable to
establishment of paid-up the Company Principal
Company name and Legal capital Direct Indirect activities
operations status (in
thousands)
Subsidiaries
CNAC Hong Kong Limited HK$331,268 69 - Investment
liability
( ) company holding
Air Macau Company Macau Limited MOP400,000 - 35 Airline operator
Limited liability
('Air Macau')* company
( )
Air China Group Import PRC/Mainland Limited RMB90,000 100 - Import and
and liability export
Export Trading Co. China company trading
('AIE')
( )
PRC/Mainland Limited RMB20,000 100 - Provision of
liability
(Zhejiang Air Services China company airline catering
Co.,
Ltd.) ** and shuttle bus
services
Beijing Aviation PRC/Mainland Limited RMB3,000 100 - Provision of
Passenger liability
Service China company passenger
Corporation
( ) transportation
services
Air China Shantou PRC/Mainland Limited RMB18,000 51 - Manufacture and
Industrial liability
Development China company retail of
Company aircraft
( ) supplies
China National PRC/Mainland Limited RMB6,980 100 - Provision of
Aviation Air liability travel
Passenger and China company agency and
Cargo
Services Agency freight
Company
( ) forwarding
services
Beijing Air China PRC/Mainland Limited RMB1,500 100 - Provision of
Engineering liability
Technology China company engineering
Development
Centre consultancy
( ) services
Beijing Civil Aviation PRC/Mainland Limited RMB5,533 100 - Provision of
Blue Sky liability travel
Air Travel Services China company agency services
Company
( )
Air China Hong Kong Limited HK$500 95 - Provision of
Development liability air
Corporation (Hong company ticketing
Kong)
Limited services
( )
Percentage of
equity
Place of Nominal interests
incorporation/ value attributable to
establishment of paid-up the Company Principal
Company name and Legal capital Direct Indirect activities
operations status (in
thousands)
PRC/Mainland Limited RMB2,000 100 - Provision of
liability
(Shanghai Air China China company ground
Base services,
Development Centre) air
** passenger,
cargo and
consultancy
services
* Air Macau is a 51%-owned subsidiary of CNAC.
** The English names are direct translations of the company's Chinese names.
The above table lists the subsidiaries of the Company which, in the opinion of
the Directors, principally affected the results for the year ended 31 December
2005 or formed a substantial portion of the net assets of the Group at 31
December 2005. To give details of other subsidiaries would, in the opinion of
the Directors, result in particulars of excessive length.
18. INTERESTS IN JOINT VENTURES
Company
2005 2004
RMB'000 RMB'000
Unlisted investments, at cost 1,398,595 1,392,388
Particulars of the joint ventures of the Group at 31 December 2005 are as
follows:
Percentage
of
equity
interests
Nominal attributable
Place of value to
incorporation/ of paid-up the
establishment of paid-up Group Principal
Company name and Legal capital Direct In- activities
operations status (in direct
thousands)
Joint ventures
Aircraft PRC/Mainland Limited US$112,533 60 - Provision of
Maintenance and liability
Engineering China company aircraft
Corporation, overhaul
Beijing and
maintenance
( ) services
Air China Cargo PRC/Mainland Limited RMB2,200,000 51 - Provision of
liability cargo
( ) China company carriage
services
BACL PRC/Mainland Limited US$8,000 - 41 Provision of
liability airline
( ) China company catering
services
SWACL PRC/Mainland Limited RMB70,000 - 41 Provision of
liability airline
( ) China company catering
services
As at the balance sheet date and for the two years ended 31 December 2005, the
Group's proportionate share of the assets, liabilities, and the Group's
proportionate share of the revenue and expenses of the joint ventures are as
follows:
Group
2005 2004
RMB'000 RMB'000
Current assets 1,654,865 1,606,903
Non-current assets 2,147,711 1,706,734
Total assets 3,802,576 3,313,637
Current liabilities (1,349,440) (1,578,665)
Non-current liabilities (444,475) (8,734)
Net assets attributable to the Group 2,008,661 1,726,238
Revenue 4,248,167 3,944,633
Operating expenses (3,929,313) (3,748,389)
Finance revenue 10,616 5,720
Finance costs (25,460) (21,857)
Share of profits less losses from - 1,006
associates
Profit before tax 304,010 181,113
Tax (35,767) (51,976)
Net profit attributable to the Group 268,243 129,137
19. INTEREST IN ASSOCIATES
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Listed shares in Mainland China, - - 163,477 168,949
at cost
Unlisted investments, at cost - - 673,879 676,692
Share of net assets 2,382,547 2,587,304 - -
Goodwill 1,444,367 1,404,966 - -
Due from associates 62,948 90,842 15,419 17,305
Due to associates (95,905) (81,591) (129,410) (82,109)
3,793,957 4,001,521 723,365 780,837
Market value of listed shares - - 124,032 288,192
The balances with the associates are unsecured, interest-free and have no fixed
terms of repayment.
As at 31 December 2005, the Group is in the process of applying to register the
already transferred equity interests in certain associates with an aggregate
cost of approximately RMB101 million (2004: RMB846 million) from Air China
International Corporation into the Company's name. The Directors of the Company
are of the view that the Company owns the aforesaid equity interests and that
the aforesaid matter will not have any significant impact on the Group's
financial position as at 31 December 2005.
Particulars of the associates at 31 December 2005 are as follows:
Percentage
of
equity
Place of interests
incorporation/ Registered/ attributable
establishment issued to Principal
Name and operations share capital the Group activities
Shenzhen Airlines PRC/Mainland RMB300,000,000 25 Airline operator
( ) China
Hong Kong Dragon Hong Kong HK$500,000,000 29.9 Airline operator
Airlines Limited
('Dragonair') #
( )
Shandong Aviation Group PRC/Mainland RMB580,000,000 48 Investment
Corporation ('Shandong China holding
Aviation')
( )
Shandong Airlines Co., PRC/Mainland RMB400,000,000 22.8 Airline
operator
Ltd. ('Shandong China
Airlines')
( )
Sichuan SNECMA PRC/Mainland US$21,000,0000 40.3 Provision of
Aeroengine Maintenance China maintenance
Co., Ltd. and repair
( ) services for
aircraft
engines
Chengdu Falcon Aircraft PRC/Mainland RMB16,474,293 35.6 Provision of
Engineering Service China maintenance
Co., Ltd. and repair
( ) services for
aircraft
engines
Yunnan Airport Aircraft PRC/Mainland RMB10,000,000 40 Provision of
Maintenance Services China maintenance
Co., Ltd. and repair
( ) services
Macau Aircraft Repair and Macau MOP100,000 17.3 Provision of
Conversion Company aircraft
repair
Limited # and conversion
( ) services
Jardine Airport Hong Kong HK$10,000 34.5 Provision of
Services
Limited # airport ground
( ) handling
services
Menzies Macau Airport Macau MOP10,000,000 23.2 Provision of
Services Limited # airport ground
( ) handling
services
Percentage
of
Place of equity
incorporation/ interests
establishment Registered/ attributable
Name and issued to Principal
operations share capital the Group activities
Guangzhou Baiyun PRC/Mainland RMB100,000,000 21 Provision of
International Airport China airport ground
Ground Handling Service handling
Company Limited services
(
)
PRC/Mainland RMB5,000,000 40 Provision of
(Sanya World Trade China airport ground
Development Company handling
Limited) * services
CAAC Data PRC/Mainland RMB10,800,000 23.2 Provision of
Communications China aviation data
Co., Ltd. communication
( services
)
CAAC Cares Chongqing PRC/Mainland RMB9,800,000 24.5 Provision of
Co., Ltd. China airline-related
( information
) system
services
PRC/Mainland RMB2,000,000 35 Provision of
China airline-related
(Chengdu CAAC information
Southwest Cares system
Co., Ltd.) services
*
Tradeport Hong Kong Hong Kong HK$400 17.3 Provision of
Limited # services for
( ) developing and
operating
logistics
centre
LSG Lufthansa Service Hong Kong HK$501 13.9 Provision of
Hong Kong Limited airline
catering
('LSGHK') # services
( )
China National PRC/Mainland RMB505,269,500 23.5 Provision of
Aviation
Finance Co., Ltd. China financial
('CNAF') services
( )**
# Shareholding interests of these associates are held indirectly through
subsidiaries of the Company.
* The English names are direct translations of the company's Chinese names.
** 19.3% of the Group's equity interests in CNAF is held directly by the
Company, while the remaining 4.2% is held indirectly through subsidiaries of the
Company.
Summarised financial information of the Group's
associates is as follows:
Group
2005 2004
RMB'000 RMB'000
Aggregate of associates' financial position:
Total assets 32,096,859 27,767,944
Total liabilities (25,497,576) (20,747,807)
Aggregate of associates' results:
Revenue 21,026,538 16,770,072
Net profit 745,230 1,330,066
Share of profits less losses after tax from
associates:
Dragonair 139,824 279,801
Others 85,106 184,243
224,930 464,044
Movements of goodwill are as follows:
Group
2005 2004
RMB'000 RMB'000
Goodwill at beginning of the year (note 19(a)) 1,404,966 1,205,390
Adjustment to opening goodwill (note 19(b)) 40,445 -
Additions (note 19(b)) - 199,576
Exchange adjustment (1,044) -
Goodwill at end of the year 1,444,367 1,404,966
Accumulated impairment - -
Notes:
(a) The goodwill brought forward from 2003 related to the acquisition of
shareholding interests of 35.86% and 7.43% in Dragonair by CNACG and its then
wholly-owned subsidiary, CNAC, in June 1996 and October 1997, respectively. The
aggregate goodwill arising from these two acquisitions was approximately
RMB2,130 million and subsequently reduced to approximately RMB1,205 million
through deemed disposal upon the initial public offering of CNAC and the
accumulated amortisation on the straight-line basis over a period of 20 years
until 1 January 2001 (the date of adoption of IFRS 3 by the Group).
(b) The goodwill arose in 2004 related to the acquisitions of effective
shareholding interests of 48.0% in Shandong Aviation, 22.8% in Shandong Airlines
and 13.9% in LSGHK by the Group, resulting in an aggregate goodwill amount of
approximately RMB200 million.
During the year, Shandong Aviation and Shandong Airlines restated their retained
earnings as at 31 December 2004 and as such the goodwill, being calculated as
the excess of the cost of the business combination over the Group's interest in
the net fair value of the identifiable assets, liabilities and contingent
liabilities of Shandong Aviation and Shandong Airlines arising on the
acquisitions of shareholding interests in these two companies, were adjusted
accordingly.
Impairment testing of goodwill attributable to Dragonair, Shandong Airlines and
Shandong Aviation
Goodwill acquired through the business combination in relation to the
acquisition of shareholding interests in Dragonair, Shandong Airlines and
Shandong Aviation has been allocated to the cash-generating unit, Dragonair,
Shandong Airlines and Shandong Aviation, within the airline operations segment.
The recoverable amount of Dragonair has been determined based on a value in use
calculation. To calculate this, cash flow projections are based on financial
budgets approved by management covering a one-year period. The discount rate
applied to the cash flow projections beyond the one-year period is 5.0% (2004:
5.0%). No growth has been projected beyond the one-year period.
Key assumptions used in the value in use calculation of Dragonair, Shandong
Airlines and Shandong Aviation
The following describes each key assumption on which management has based its
cash flow projections when undertaking the impairment testing of goodwill
attributable to Dragonair, Shandong Airlines and Shandong Aviation:
Passenger revenue - the bases used to determine the value assigned to the
budgeted passenger revenue are available seat kilometers, passenger traffic,
passenger load factor and passenger yield. Values assigned to the key
assumptions reflect past experience and are consistent with external information
sources.
Operating expenses - the bases used to determine the values assigned are staff
headcount, scheduled flight hours, passenger traffic and jet fuel consumption.
Values assigned to the key assumptions reflect past experience and are
consistent with external information sources.
20. LONG TERM RECEIVABLE FROM CNAHC
On 30 September 2004, the Company entered into an agreement with CNAHC whereby
CNAHC agreed to assume the obligation to settle an aggregate amount of
approximately RMB757 million, which was recorded by the Group as government
grant receivable as at 31 December 2003 of RMB842 million, consisting of long
term portion and short term portion of RMB764 million and RMB78 million,
respectively. This receivable from CNAHC is unsecured, interest-free and
repayable over eight years commencing from 31 December 2004 by 16 semi-annual
instalments to be made by 30 June and 31 December each year. Pursuant to the
relevant agreement, the first instalment amount of RMB25 million was settled by
31 December 2004 and the final instalment amount of approximately RMB32 million
shall be settled by 30 June 2012, with the remaining 14 semi-annual instalment
amounts of RMB50 million each to be settled by 30 June and 31 December each year
between 30 June 2005 and 31 December 2011.
21. AVAILABLE-FOR-SALE INVESTMENTS
Available-for-sale investments consist of unlisted equity investments.
22. DEFERRED TAX ASSETS
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Balance at beginning of year 776,084 590,153 658,000 -
Transferred to the Company upon
its incorporation (note 1) - - - 660,349
Charge for the year (note 12) (277,713) (607,824) (267,000) (2,349)
Credited to equity - 793,755 - -
Balance at end of year 498,371 776,084 391,000 658,000
The principal components of the Group's and the Company's deferred income tax
assets are as follows:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Deferred income tax liabilities:
Accelerated depreciation for
tax purposes (447,186) (441,441) (456,000) (426,000)
Other deferred income tax (72,000) (47,000) (72,000) (47,000)
liabilities
Gross deferred income tax (519,186) (488,441) (528,000) (473,000)
liabilities
Deferred income tax assets:
Additional tax deduction on
revaluation
surplus arising from the 528,000 714,000 434,000 606,000
Restructuring
Provisions and accruals 341,070 384,000 329,000 381,000
Losses available for offset
against future
taxable income 10,487 20,525 - -
Other deferred income tax assets 138,000 146,000 156,000 144,000
Gross deferred income tax assets 1,017,557 1,264,525 919,000 1,131,000
Net deferred income tax assets 498,371 776,084 391,000 658,000
There was no material unprovided deferred income tax during the year (2004:
Nil).
23. TRADE RECEIVABLES
The Group normally allows a credit period ranging from 30 days to 90 days to its
sales agents and other customers. An aged analysis of the trade receivables, net
of provision for doubtful debts, of the Group and the Company is analysed as
follows:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Within 30 days 1,770,628 1,838,756 1,511,371 2,067,875
31 to 60 days 458,454 280,382 503,590 102,938
61 to 90 days 177,587 152,548 245,168 14,949
Over 90 days 357,806 93,130 257,255 11,531
At end of year 2,764,475 2,364,816 2,517,384 2,197,293
Included in the Group's and the Company's trade receivables was the
following amount due from a joint venture:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Joint venture 451,965 412,539 922,378 841,916
24. INVENTORIES
Inventories
primarily consist
of materials and
supplies.
Set out below is the
breakdown of materials and
supplies:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Flight equipment 745,411 680,039 516,320 454,220
spare parts
Work in progress 72,664 38,061 3,586 1,621
Catering supplies 33,240 25,188 21,547 13,089
851,315 743,288 541,453 468,930
25. PREPAYMENTS, DEPOSITS AND
OTHER RECEIVABLES
Set out below is the breakdown of
prepayments, deposits and other
receivables:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Advances and 457,568 324,655 379,258 322,047
others
Manufacturers'
credits on
aircraft
acquisition 62,930 74,518 62,930 74,518
receivables
Prepaid aircraft
operating
lease rentals 110,472 95,681 91,608 79,260
Receivables from
the sale of
staff quarters 4,333 24,681 4,333 24,681
Miscellaneous 127,132 395,595 113,649 388,531
deposits
762,435 915,130 651,778 889,037
26. DEPOSITS AND CASH AND CASH
EQUIVALENTS
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Cash and bank balances 1,092,900 8,635,653 439,803 7,888,436
Cash placed with CNAF 67,567 261,904 37,570 219,655
1,160,467 8,897,557 477,373 8,108,091
Time deposits placed 958,573 648,667 141,677 94,287
with banks
Time deposits placed 403,296 305,081 377,796 300,000
with CNAF
1,361,869 953,748 519,473 394,287
Less: Pledged deposits
against:
Bank loans (note 33) 81,598 64,242 81,598 64,242
Finance leases (note 32) - 16,277 - 16,277
Others * 94,977 36,712 2,450 -
Pledged deposits 176,575 117,231 84,048 80,519
Less: Non-pledged
deposits with maturity
of more than three
months when
acquired 97,375 320,850 20,875 313,768
Cash and cash 2,248,386 9,413,224 891,923 8,108,091
equivalents
* Including deposits pledged against the Group's aircraft operating leases and
financial derivatives.
At the balance sheet date, the cash and cash equivalents balances of the Group
denominated in RMB amounted to RMB992,468,000 (2004: RMB8,549,508,000). The RMB
is not freely convertible into other currencies, however, under Mainland China's
Foreign Exchange Control Regulations and Administration of Settlement, Sale and
Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB
for other currencies through banks authorised to conduct foreign exchange
business.
Cash at banks earns interest at floating rates based on daily bank deposit
rates. Time deposits are made for terms of between three days and one year
depending on the immediate cash requirements of the Group and the Company, and
earn interest at the respective time deposit rates.
27. BALANCES WITH OTHER CNAHC GROUP COMPANIES
The balances with other CNAHC group companies are unsecured, interest-free and
have no fixed terms of repayment.
28. TRADE
PAYABLES
An aged
analysis
of the
trade
payables
is as
follows:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Within 3,247,501 3,108,028 2,549,447 2,740,974
30 days
31 to 60 603,010 805,858 468,948 673,690
days
61 to 90 293,407 304,943 253,482 243,448
days
Over 90 457,446 224,779 394,251 161,241
days
At end 4,601,364 4,443,608 3,666,128 3,819,353
of year
Included in the Group's and the Company's trade payables
was the following amount due to a joint venture:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Joint 115,435 179,934 288,588 449,835
venture
29. BILLS
PAYABLE
An aged
analysis
of the
bills
payable
is as
follows:
Group and Company
2005 2004
RMB'000 RMB'000
Over 90 327,937 362,033
days
At end 327,937 362,033
of year
Included in the Group's and the Company's bills payable amount due to
was the following CNAF:
Group and Company
2005 2004
RMB'000 RMB'000
CNAF 103,426 -
30. OTHER
PAYABLES AND
ACCRUALS
Set out below is a
breakdown of other
payables and accruals:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Provision for 135,381 469,617 112,372 448,694
staff housing
benefits
Accrued 894,052 692,510 732,240 562,493
salaries,
wages and
benefits
Interest 308,152 269,928 298,330 255,977
expense
payable
Accruals for - 208,644 - 208,644
share issue
expenses
Custom duties 982,819 742,201 900,544 665,986
and levies
payable
Current
portion of
long term
payables
(note 35) 100,218 101,802 100,218 101,802
Current
portion of
deferred
income
(note 36) 76,943 76,943 76,943 76,943
Advances from 259,965 294,798 163,608 224,321
customers
Accrued 1,038,995 716,548 909,260 611,257
operating
expenses
Others 371,910 347,296 275,381 231,753
4,168,435 3,920,287 3,568,896 3,387,870
31. PROVISION FOR
MAJOR
OVERHAULS
Set out below is the movement of provision for major overhauls in respect of aircraft and engines under
operating leases for each of the two years ended 31 December 2005 and 2004.
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
At beginning 498,828 404,939 401,372 -
of year
Transferred
to the
Company upon
its - - - 363,842
incorporation
(note 1)
Provision for 415,513 221,543 271,550 61,341
the year
Utilised (259,902) (127,654) (179,630) (23,811)
during the
year
At end of 654,439 498,828 493,292 401,372
year
Less: Portion
classified as
current
liabilities (18,721) (28,130) (18,721) (28,130)
Long term 635,718 470,698 474,571 373,242
portion
32. OBLIGATIONS UNDER FINANCE LEASES
The Group and the Company have obligations under finance lease agreements
expiring during the years from 2006 to 2011 (2004: 2005 to 2011) in respect of
aircraft and related equipment. As at the balance sheet date, future minimum
lease payments under these finance leases, together with the present value of
the net minimum lease payments, which are principally denominated in foreign
currencies, are as follows:
Company Company
Present Present
Group and value of Group and value of
Minimum Minimum Minimum Minimum
lease lease lease lease
payments payments payments payments
2005 2005 2004 2004
RMB'000 RMB'000 RMB'000 RMB'000
Amounts repayable:
Within one year 2,306,587 1,954,873 2,313,871 1,705,146
In the second year 2,330,192 1,949,802 2,408,481 1,943,630
In the third to fifth years, 6,850,768 6,071,492 7,784,209 6,722,448
inclusive
Over five years 79,157 57,377 2,049,406 1,910,163
Total minimum finance lease 11,566,704 10,033,544 14,555,967 12,281,387
payments
Less: Amounts representing
finance
charges (1,533,160) (2,274,580)
Present value of minimum lease 10,033,544 12,281,387
payments
Less: Portion classified as
current liabilities (1,954,873) (1,705,146)
Long term portion 8,078,671 10,576,241
Certain lease financing arrangements comprised finance leases between the
Company and certain of its subsidiaries, and the corresponding borrowings
between such subsidiaries and banks. The Company has guaranteed the
subsidiaries' obligations under the bank borrowings and, accordingly, the
aforesaid assets and obligations are recorded in the balance sheets to reflect
the substance of the transactions. The future payments under these leases have
therefore been presented by the Company and the Group in the amounts that
reflect the payments under the bank borrowings between the subsidiaries and the
banks.
At 31 December 2005, there were 21 (2004: 23) aircraft under finance lease
agreements. Under the terms of the leases, the Company has the option to
purchase, at the end of or during the lease terms, certain aircraft at fair
market value and others at either fair market value or at the price as
stipulated in the finance lease agreements. For the current year, the effective
borrowing rate ranged from 1.64% to 9.84% (2004: 1.64% to 9.13%).
The Group's and the Company's finance leases were secured by:
(a) mortgages over certain of the Group's and the Company's aircraft, which had
an aggregate carrying value of approximately RMB10,487 million as at 31 December
2005 (2004: RMB11,999 million) (note 15);
(b) the pledge of certain of the Group's and the Company's bank deposits
amounting to approximately RMB16 million as at 31 December 2004 (note 26); and
(c) guarantees by certain commercial banks in an aggregate amount of
approximately RMB12,044 million (2004: RMB14,785 million).
As at 31 December 2005, certain PRC state-owned banks have provided
counter-guarantees in an aggregate amount of RMB2,521 million (2004: RMB3,074
million) in respect of the commercial bank guarantee arrangements set out in
note 32 (c) above. At 31 December 2004, CNAHC and CNAF, in turn, provided
counter-guarantees to certain of these PRC state-owned banks in the amounts of
RMB921 million and RMB3,976 million (note 46), respectively. These
counter-guarantees provided by CNAHC and CNAF were released during the year.
33. BANK AND OTHER LOANS
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Bank loans:
Secured 11,667,241 13,685,002 11,258,268 13,643,002
Unsecured 8,336,734 7,519,047 8,126,735 7,144,917
20,003,975 21,204,049 19,385,003 20,787,919
Other loans:
Secured 50,560 66,667 50,560 66,667
Unsecured 169,514 431,957 140,351 297,731
220,074 498,624 190,911 364,398
Corporate bonds:
Unsecured 3,000,000 - 3,000,000 -
23,224,049 21,702,673 22,575,914 21,152,317
Bank loans repayable:
Within one year 10,217,210 8,359,280 9,973,050 7,943,149
In the second year 2,732,712 3,049,084 2,698,551 3,049,084
In the third to fifth 4,677,985 6,178,222 4,575,502 6,178,222
years, inclusive
Over five years 2,376,067 3,617,464 2,137,900 3,617,464
Other loans repayable:
Within one year 183,960 446,771 154,797 312,546
In the second year 14,446 14,815 14,446 14,815
In the third to fifth 21,669 37,037 21,668 37,037
years, inclusive
Corporate bonds:
Over five years 3,000,000 - 3,000,000 -
Total bank and other loans 23,224,049 21,702,673 22,575,914 21,152,317
Less: Portion classified as
current
liabilities (10,401,170) (8,806,051) (10,127,847) (8,255,695)
Long term portion 12,822,879 12,896,622 12,448,067 12,896,622
Further details of bank and other loans at the balance sheet
date are as follows:
Group Company
Nature Interest rate 2005 2004 2005 2004
and final
maturity
RMB'000 RMB'000 RMB'000 RMB'000
RMB
denominated
loans:
Loans for Floating 4,452,262 5,382,986 4,452,262 5,382,986
purchases interest
of aircraft rates ranging
from
and related 5.18% to
equipment 5.51% and
4.94% to
5.76% per
annum at 31
December
2005 and
2004,
respectively,
with
maturities
through 2014
Loans for Fixed 4,196,394 2,528,869 4,140,000 2,171,800
working interest
capital rates ranging
from
2.92% to
5.02% and
4.54% to
4.94% per
annum at 31
December
2005 and
2004,
respectively,
with
maturities
through 2007
United States dollars
denominated loans:
Loans for Fixed 5,837,073 7,155,311 5,837,073 7,155,311
purchases interest
of aircraft rates ranging
from
and related 5.40% to
equipment 8.33% and
5.40% to
10.17% per
annum at 31
December
2005 and
2004,
respectively,
with
maturities
through 2012
Loans for Floating 1,514,147 1,270,236 1,105,174 1,270,236
purchases interest rate
of aircraft at six months
and related LIBOR + 0.4%
equipment to 0.7% per
annum
at 31
December 2005
and 2004 with
maturities
through 2014
Loans for Floating 4,000,508 5,365,271 3,833,345 5,171,984
working interest
capital rates at six
months
LIBOR + 0.5%
to 0.7% and
six
months LIBOR
+ 0.6% to
0.8% per
annum at 31
December 2005
and
2004,
respectively,
with
maturities
through 2007
Hong Kong dollars
denominated loans:
Loans for Fixed 15,605 - - -
working interest rate
capital at 4.60% per
annum
at 31
December 2005
with
maturities
through 2006
Loans for Floating 208,060 - 208,060 -
working interest rate
capital at six months
LIBOR +1% per
annum at 31
December 2005
with
maturities
through 2006
Corporate
bonds
Corporate Fixed 3,000,000 - 3,000,000 -
bonds for interest rate
at 4.50% per
annum
purchases at 31
of aircraft December 2005
and related with maturity
equipment in September
2015
23,224,049 21,702,673 22,575,914 21,152,317
Less: Loans
due within
one year
classified
as current
liabilities (10,401,170) (8,806,051) (10,127,847) (8,255,695)
Loans due
after one
year
classified 12,822,879 12,896,622 12,448,067 12,896,622
as long
term
portion
The interest rates of RMB denominated loans are set and subject
to change by the People's Bank of China.
The Group's and the Company's bank and other loans of approximately RMB14,718
million as at 31 December 2005 (2004: RMB13,710 million) were secured by:
(a) mortgages over certain of the Group's and the Company's aircraft and related
equipment, which had an aggregate carrying value of approximately RMB16,471
million as at 31 December 2005 (2004: RMB16,586 million) (note 15);
(b) the pledge of certain of the Group's and the Company's bank deposits
amounting to RMB82 million as at 31 December 2005 (2004: RMB64 million) (note
26); and
(c) guarantees by certain commercial banks amounting to RMB9,780 million (2004:
RMB8,294 million).
As at 31 December 2005, certain PRC state-owned banks provided
counter-guarantees in an aggregate amount of RMB4,891 million (2004: RMB5,943
million) to one of these commercial banks as mentioned in note 33 (c) above. At
31 December 2004, CNAHC and CNAF, in turn, provided counter-guarantees to
certain of these PRC state-owned banks in the amounts of RMB1,455 million and
RMB761 million (note 46), respectively. These counter-guarantees provided by
CNAHC and CNAF were released during the year.
34. DUE FROM/(TO) SHAREHOLDERS
Set out below is the breakdown of the amounts due from/(to) shareholders:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Due from CNAHC 474,216 - 474,216 -
Due to CNAHC - (2,137,437) - (2,121,533)
Due to CNACG (133,680) (118,680) (118,680) (118,680)
(133,680) (2,256,117) (118,680) (2,240,213)
The amount due from CNAHC mainly arose from transactions as set out in notes 20
and 46(A) to the financial statements. The amount is unsecured, interest-free
and repayable within one year.
The amounts due to shareholders are unsecured, interest-free and repayable
within one year.
35. LONG-TERM PAYABLES
Long term payables mainly represent customs duties and value-added tax payable
after one year to the PRC government in respect of the acquisition of aircraft
and related equipment under finance leases. The customs duties and value-added
tax are payable upon repayment of the corresponding finance lease installments.
Set out below are details of the customs duties and value-added tax payable
further analysed into non-current and current portions:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Customs duties and value-added
tax payable 417,339 539,121 417,339 539,121
Others 35,759 8,992 258 258
453,098 548,113 417,597 539,379
Less: Portion classified as
current
liabilities (note 30) (100,218) (101,802) (100,218) (101,802)
Long term portion 352,880 446,311 317,379 437,577
36. DEFERRED INCOME
In 2000, the Group acquired an aircraft which was funded by the PRC government,
and a further aircraft was injected into the Group by the PRC government during
2004. In accordance with IAS 20 Accounting for Government Grants and Disclosure
of Government Assistance, the Group recorded these aircraft purchased in 2000
and received in 2004 as property, plant and equipment with the corresponding
amounts of government grant recorded as deferred income at the respective dates
of the delivery of the aircraft. As such, the government subsidies in relation
to the aforesaid aircraft purchased in 2000 and the aircraft received in 2004
are recorded in deferred income of the Group in 2000 and 2004, respectively. The
deferred income is recognised as income over the expected useful lives of the
relevant aircraft on the straight-line basis.
The movements of deferred income as stated under current and non-current
liabilities are as follows:
Group Company
2005 2004 2005 2004
RMB'000 RMB'000 RMB'000 RMB'000
Deferred income:
At beginning of the year 1,462,667 1,157,880 1,462,667 -
Transferred to the Company upon
its incorporation (note 1) - - - 1,462,667
Additions during the year - 304,787 - -
At end of year 1,462,667 1,462,667 1,462,667 1,462,667
Accumulated income recognised as
other
operating revenue:
At beginning of year 282,871 212,278 282,871 -
Transferred to the Company upon
its
incorporation (note 1) - - - 263,636
Credit during the year (note 5) 76,943 70,593 76,943 19,235
At end of the year 359,814 282,871 359,814 282,871
Net amount 1,102,853 1,179,796 1,102,853 1,179,796
Less: Portion classified as
current
liabilities (note 30) (76,943) (76,943) (76,943) (76,943)
Long term portion 1,025,910 1,102,853 1,025,910 1,102,853
37. SHARE CAPITAL
Number of Nominal Number of Nominal
shares value shares value
2005 2005 2004 2004
RMB'000 RMB'000
Company and Group
Registered, issued and fully
paid:
- State legal person shares
of RMB1.00 each 4,826,195,989 4,826,196 4,855,945,675 4,855,946
- Non-H foreign shares of
RMB1.00 each 1,380,482,920 1,380,483 1,388,992,507 1,388,992
- H shares of RMB1.00 each 3,226,532,000 3,226,532 2,805,680,000 2,805,680
9,433,210,909 9,433,211 9,050,618,182 9,050,618
A summary of the movements in the Company's issued share capital for the year
ended 31 December 2005 is as follows:
Number of Nominal
shares value
2005 2005
RMB'000
At beginning of year 9,050,618,182 9,050,618
State legal person shares converted into H (29,749,686) (29,750)
shares (note 37(a))
Non-H foreign shares converted into H shares (8,509,587) (8,509)
(note 37(a))
Share placement and public offer (note 37(b)) 420,852,000 420,852
9,433,210,909 9,433,211
A summary of the movements in the Company's issued share capital for the period
from 30 September 2004 (date of incorporation of the Company) to 31 December
2004 is as follows:
Number of Nominal
shares value
2004 2004
RMB'000
Restructuring (note 37(c)) 6,500,000,000 6,500,000
State legal person shares converted into H (198,331,240) (198,331)
shares (note 37(d))
Non-H foreign shares converted into H shares (56,730,578) (56,731)
(note 37(d))
Share placement and public offer (note 37(e)) 2,805,680,000 2,805,680
9,050,618,182 9,050,618
Notes:
(a) In January 2005, upon the exercise of the over-allotment options granted to
international underwriters, the Company issued 420,852,000 H shares, consisting
of 382,592,727 new shares, 29,749,686 H shares converted from state legal person
shares and 8,509,587 H shares converted from non-H foreign shares, with a par
value of RMB1.00 each at HK$2.98 (equivalent to RMB3.17072) per share. The
proceeds from the sale of the state legal person shares and non-H foreign shares
totalling approximately RMB117 million, after deducting share issue expenses of
approximately RMB4 million which were borne by the Social Security Fund in
connection with the sale of the state legal person shares and non-H foreign
shares, were remitted to the Social Security Fund.
(b) As referred to in note 37 (a) above, the Company issued 420,852,000 H shares
upon the exercise of the over-allotment options granted to international
underwriters. After deducting aggregate net proceeds of approximately RMB117
million from the sale of 29,749,686 H shares converted from state legal person
shares and 8,509,587 H shares converted from non-H foreign shares, which were
remitted to the Social Security Fund and share issue expenses of approximately
RMB45 million (before deducting share issue expenses of approximately RMB4
million borne by the Social Security Fund), the Company raised net proceeds of
approximately RMB1,172 million, of which paid-up share capital amounted to
approximately RMB383 million and capital reserve amounted to approximately
RMB789 million.
(c) Pursuant to the Restructuring, and the basis of presentation thereof, as
discussed in note 1 to these financial statements, the owners' equity of the
Company in the consolidated balance sheet as at 30 September 2004, the date of
incorporation of the Company, was converted into the Company's share capital of
RMB6,500 million of RMB1.00 each with the rest as capital reserve.
(d) The Company's H shares were listed on the Hong Kong Stock Exchange and the
London Stock Exchange on 15 December 2004 and 2,805,680,000 H shares, consisting
of 2,550,618,182 new shares, 198,331,240 shares converted from state legal
person shares and 56,730,578 shares converted from non-H foreign shares, with a
par value of RMB1.00 each were issued to the public by way of placement and
offer at HK$2.98 (equivalent to approximately RMB3.17072) each. The proceeds
from the sale of the 198,331,240 state legal person shares and 56,730,578 non-H
foreign shares totalling approximately RMB759 million, after deducting the
portion of share issuing expenses of approximately RMB50 million which were
borne by the Social Security Fund in connection with these sales of State legal
person shares and non-H foreign shares, were remitted to the Social Security
Fund.
(e) As referred to in note 37 (d) above, the Company issued 2,805,680,000 H
shares to the public by way of placement and offer. After deducting aggregate
net proceeds of approximately RMB759 million from the sale of 198,331,240 H
shares converted from state legal person shares and 56,730,578 H shares
converted from non-H foreign shares which were remitted to the Social Security
Fund as referred to in note 37 (d) above and share issue expenses of
approximately RMB536 million (before deducting share issue expenses of
approximately RMB50 million borne by the Social Security Fund as referred to in
note 37 (d) above), the Company raised net proceeds of approximately RMB7,601
million, of which paid-up share capital amounted to approximately RMB2,551
million and capital reserve amounted to approximately RMB5,050 million.
The H shares rank pari passu, in all material respects, with the state legal
person shares and non-H foreign shares of the Company.
38. RESERVES
Group
The amounts of the Group's reserves and the movements therein for each of the
two years ended 31 December 2005 are presented in the consolidated statement of
changes in equity on page 58 of these financial statements.
Company
Proposed
Capital Reserve Retained final
reserve funds earnings dividend Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Upon incorporation of
the
Company (note 38(a)) (627,464) - 34,813 - (592,651)
Profit for the period
from
1 October to 31
December 2004 - - 1,229,603 - 1,229,603
Distributions (note 38 - - (377,550) - (377,550)
(b))
Transfer to reserve
funds
(note 13) - 51,908 (51,908) - -
Issue of new shares
upon
listing (note 37(e)) 5,536,678 - - - 5,536,678
Share issue expenses
(note 37(e)) (486,457) - - - (486,457)
At 31 December 2004
and
I January 2005 4,422,757 51,908 834,958 - 5,309,623
Profit for the year - - 2,113,350 - 2,113,350
Transfer to statutory
reserve funds (note - 252,908 (252,908) - -
13)
Proposed final 2005
dividend (note 13(d)) - - (224,793) 224,793 -
Issue of new shares
upon
exercise of over-
allotment options
(note 37(b)) 830,414 - - - 830,414
Share issue expenses
(note 37(b)) (40,910) - - - (40,910)
At 31 December 2005 5,212,261 304,816 2,470,607 224,793 8,212,477
Notes:
(a) As described in note 1 to these financial statements, the financial
statements of the Group for the year ended 31 December 2004 have been prepared
as if the Group had been in existence throughout the year and as if the Relevant
Businesses and the interests in the Relevant Companies were transferred to the
Company prior to 1 January 2004. Upon incorporation of the Company on 30
September 2004, the historical net asset value of the Relevant Businesses and
the interests in the Relevant Companies transferred to the Company were
converted into the Company's registered capital as described in note
37 (c) to these financial statements with all the then existing reserves
eliminated and the resulting difference dealt with in the capital reserve and
retained earnings. Accordingly, the aggregate of the capital reserve and
retained earnings amounts, being the difference between the amount of share
capital issued and the historical net asset value of the Relevant Businesses and
the interests in the Relevant Companies transferred to the Company as at 30
September 2004, were presented in the reserves of both the Group and the
Company.
Retained earnings of the Company and the Group upon incorporation of the Company
represent the amounts set aside for distributions, details of which are set out
in note 13 to these financial statements. Therefore, these amounts were not
capitalised by the Company and the Group upon the Company's incorporation.
(b) Details of the distributions are set out in note 13 to these financial
statements.
39. LONG TERM COMPENSATION PLAN
The Company has adopted a long term compensation plan (the 'Plan') which was
approved by the shareholders on 18 October 2004 for the purpose of motivating
its employees. The Plan provides for the grant of share appreciation rights
('SARs') to eligible participants, including the Company's Directors (excluding
independent non-executive Directors), supervisors (excluding independent
supervisors), president, vice presidents, heads of key departments in the
Company's headquarters, general managers and general deputy managers of
principal branches and subsidiaries as well as selected senior professionals and
key specialists. In any event, SARs will be granted to no more than 200
individuals. The Plan will remain in force unless otherwise cancelled or
amended.
Under the Plan, the holders of SARs are entitled the rights to receive an amount
in respect of the appreciation in market value of the Company's H shares from
the date of grant of SARs and the date of exercise. No shares will be issued
under the Plan and therefore the Company's equity interests will not be diluted
as a result of the issuance of SARs. The maximum number of unexercised SARs
permitted to be granted under the Plan is, upon their exercise, limited to 2% of
the Company's H shares in issue at any time during each year. The maximum number
of SARs granted to eligible participants under the Plan within any 12-month
period is, upon their exercise, limited to 0.4% of the Company's H shares in
issue at any time during each year. The maximum number of SARs granted to any
eligible participant is limited to 10% of the total number of unexercised SARs
in issue at any time during each year. Any further grant of SARs in excess of
the above limits is subject to shareholders' approval in general meetings.
The exercise period of all SARs commences after a vesting period and ends on a
date which is not later than five years from the date of grant of the SARs. As
at each of the last day of the second, third and fourth anniversary of the date
of grant, the total number of SARs exercisable will not exceed 30%, 70% and
100%, respectively, of the total SARs granted to the respective eligible
participants.
The exercise price of SARs will be equal to the average closing price of the
Company's H shares on the Hong Kong Stock Exchange for the five consecutive
trading days immediately preceding the date of the grant.
As at 31 December 2005 and 31 December 2004, no SARs had been issued under the
Plan.
This information is provided by RNS
The company news service from the London Stock Exchange END
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