2005 Annual Results
Air China Ld
19 April 2006
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 753)
2005 ANNUAL RESULTS ANNOUNCEMENT
GROUP RESULTS
The board of directors (the 'Board') of Air China Limited (the 'Company') is
pleased to announce the audited consolidated financial results of the Company
and its subsidiaries (collectively, the 'Group') for the year ended 31
December 2005 with comparative figures for the corresponding year of 2004 as
follows:
CONSOLIDATED INCOME STATEMENT
2005 2004
Notes RMB'000 RMB'000
Air traffic revenue 4 35,300,826 30,834,822
Other operating revenue 5 2,990,140 2,685,935
Turnover 38,290,966 33,520,757
Operating expenses
Jet fuel (11,777,129) (8,353,752)
Take-off, landing and depot (4,442,585) (4,230,349)
charges
Depreciation (4,512,680) (3,463,252)
Aircraft maintenance, repair and (1,341,773) (2,835,648)
overhaul
Employee compensation costs (3,406,825) (2,921,322)
Air catering charges (1,242,933) (1,171,784)
Aircraft and engine operating (1,530,754) (1,071,256)
lease expenses
Other operating lease expenses (211,177) (187,471)
Other flight operation expenses (3,744,977) (2,698,234)
Selling and marketing expenses (1,775,026) (1,387,088)
General and administrative (631,291) (715,350)
expenses
Total operating expenses (34,617,150) (29,035,506)
Profit from operations 6 3,673,816 4,485,251
Finance revenue 7 1,248,607 79,361
Finance costs 7 (1,773,099) (1,879,234)
Dilution gains on investments 8 - 410,137
Share of profits less losses from 224,930 464,044
associates
Profit before tax 3,374,254 3,559,559
Tax 9 (903,874) (1,010,864)
Profit for the year 2,470,380 2,548,695
Attributable to
Equity holders of the parent 2,406,256 2,385,964
Minority interests 64,124 162,731
2,470,380 2,548,695
Dividend 10
Interim - -
Proposed final 224,793 -
224,793 -
Earnings per share attributable 11
to equity holders of the parent
Basic 25.5 cents 36.0 cents
Diluted NA 36.0 cents
CONSOLIDATED BALANCE SHEET
31 December 31 December
2005 2004
RMB'000 RMB'000
NON-CURRENT ASSETS
Property, plant and equipment 47,190,728 43,441,637
Lease prepayments 1,072,066 933,898
Interests in associates 3,793,957 4,001,521
Advance payments for aircraft 7,329,322 2,825,612
and related equipment
Due from CNAHC 531,813 631,813
Deposits for aircraft under 222,945 137,583
operating leases
Available-for-sale investments 22,266 21,666
Deferred tax assets 498,371 776,084
60,661,468 52,769,814
CURRENT ASSETS
Financial assets 127,659 -
Trade receivables 2,764,475 2,364,816
Inventories 851,315 743,288
Prepayments, deposits and other 762,435 915,130
receivables
Pledged deposits 176,575 117,231
Non-pledged deposits with 97,375 320,850
maturity of more than three
months when acquired
Cash and cash equivalents 2,248,386 9,413,224
Due from CNAHC 474,216 -
Due from other CNAHC group 38,039 44,916
companies
7,540,475 13,919,455
TOTAL ASSETS 68,201,943 66,689,269
CURRENT LIABILITIES
Financial liabilities (1,791) -
Trade payables (4,601,364) (4,443,608)
Bills payable (327,937) (362,033)
Other payables and accruals (4,168,435) (3,920,287)
Provision for major overhauls (18,721) (28,130)
Air traffic liabilities (1,476,619) (1,215,770)
Tax payable (421,077) (186,055)
Obligations under finance (1,954,873) (1,705,146)
leases
Bank and other loans (10,401,170) (8,806,051)
Due to CNAHC and CNACG (133,680) (2,256,117)
Due to other CNAHC group (40,471) (49,617)
companies
(23,546,138) (22,972,814)
NET CURRENT LIABILITIES (16,005,663) (9,053,359)
TOTAL ASSETS LESS CURRENT 44,655,805 43,716,455
LIABILITIES
NON-CURRENT LIABILITIES
Obligations under finance (8,078,671) (10,576,241)
leases
Bank and other loans (12,822,879) (12,896,622)
Long-term payables (352,880) (446,311)
Deferred income (1,025,910) (1,102,853)
Provision for major overhauls (635,718) (470,698)
Provision for early retirement (189,141) (195,188)
benefits obligations
(23,105,199) (25,687,913)
NET ASSETS 21,550,606 18,028,542
Represented by:
EQUITY ATTRIBUTABLE TO
EQUITY HOLDERS OF THE PARENT
Issued share capital 9,433,211 9,050,618
Reserves 10,659,030 7,497,637
20,092,241 16,548,255
MINORITY INTERESTS 1,458,365 1,480,287
TOTAL EQUITY 21,550,606 18,028,542
1 GROUP REORGANISATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION
OF FINANCIAL STATEMENTS
The Company was incorporated on 30 September 2004 in Beijing, the People's
Republic of China (the 'PRC' or 'Mainland China'), as a joint stock limited
company as part of the restructuring (the 'Restructuring') of China National
Aviation Holding Company ('CNAHC'), a PRC state-owned enterprise under the
supervision of the State Council, in preparation for the listing of the
Company's H shares on The Stock Exchange of Hong Kong Limited and the London
Stock Exchange as described below.
As disclosed in the Company's prospectus dated 3 December 2004, pursuant to the
Restructuring, CNAHC, and through its wholly-owned subsidiaries, effected the
transfer of the following to the Company upon its incorporation:
(a) the assets, liabilities and undertakings which principally relate to
airline operations (the 'Relevant Businesses'); and
(b) the shareholding interests in certain subsidiaries, joint ventures
and associates which principally engage in airline operations and the provision
of aircraft engineering services, air catering services, airport ground handling
services and other airline-related businesses (the 'Relevant Companies').
The principal activities of the Group, joint ventures and associates are airline
operations and the provision of airline-related services, including aircraft
engineering services, air catering services and airport ground handling services
conducted mainly in Mainland China, Hong Kong and Macau.
The registered office of the Company is located at 9th Floor, Blue Sky Mansion,
28 Tianzhu Road, Zone A, Tianzhu Airport Industrial Zone, Shunyi District,
Beijing 101312, the PRC.
In the opinion of the Directors, the Company's parent and ultimate holding
company is CNAHC.
As CNAHC controlled the Relevant Businesses and the Relevant Companies before
the Restructuring and continues to control the Company after the Restructuring,
the consolidated financial statements of the Group prior to the incorporation of
the Company on 30 September 2004 had been prepared as a reorganisation of
companies under common control in a manner similar to a pooling-of-interests.
The consolidated results for the year ended 31 December 2004 include the Group's
results of operations as if the Relevant Businesses and interests in the
Relevant Companies had been transferred to the Group at 1 January 2001, which is
the earliest date for the preparation of the financial information in relation
to the listing of the Company's H shares. The Company's Directors are of the
opinion that the consolidated income statement prepared on this basis presents
fairly the consolidated results of the Group as a whole.
2 BASIS OF PREPARATION
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards ('IFRS') which
comprise standards and interpretations approved by the International Accounting
Standards Board, and International Accounting Standards ('IAS') and Standing
Interpretations Committee interpretations approved by the International
Accounting Standards Committee that remain in effect.
The consolidated financial statements of the Group have been prepared on a
historical cost basis, except for the measurement at fair value of financial
instruments in accordance with IAS 39 (amended 2004) Financial Instruments:
Recognition and Measurement.
The principal accounting policies used in the preparation of the consolidated
financial statements of the Group are consistent with those used in the annual
audited financial statements of the Group for the year ended 31 December 2004,
except that the Group has adopted the following new/revised standards mandatory
for financial years beginning on or after 1 January 2005.
(a) IFRS 2 Share-based Payment requires the Group to recognise
share-based payment transactions in its financial statements, including
transactions with employees or other parties to be settled in cash, other
assets, or equity instruments of the Group. For equity-settled share-based
payment transactions, IFRS 2 requires an entity to measure the goods or services
received, and the corresponding increase in equity, directly, at the fair value
of the goods or services received, unless that fair value cannot be estimated
reliably. If the Group cannot estimate reliably the fair value of the goods or
services received, the Group is required to measure their value, and the
corresponding increase in equity, indirectly, by reference to the fair value of
the equity instruments granted. For cash-settled share-based payment
transactions, IFRS 2 requires an entity to measure the goods or services
acquired and the liability incurred at the fair value of the liability. Until
the liability is settled, the Group is required to re-measure the fair value of
the liability at each reporting date and at the date of settlement, with any
changes in value recognised in the income statement for the period. For
share-based payment transactions in which the terms of the arrangement provide
either the Group or the supplier of goods or services with a choice of whether
the Group settles the transaction in cash or by issuing equity instruments, the
Group is required to account for that transaction, or the components of that
transaction, as a cash-settled share-based payment transaction if, and to the
extent that, the Group has incurred a liability to settle in cash (or other
assets), or as an equity settled share-based payment transaction if, and to the
extent that, no such liability has been incurred. The provisions of IFRS 2 apply
to grants of shares, share options or other equity instruments that were granted
after 7 November 2002 and had not yet vested on or after 1 January 2005. The
adoption of IFRS 2 did not give rise to any adjustment to the opening balances
of retained earnings of the current and prior years or to any change in
comparatives.
(b) IAS 16 (amended 2004) Property, Plant and Equipment replaces IAS 16
(revised 1998), Property, Plant and Equipment. There are a number of differences
between the amended standard and the previous version. Firstly, the amended
standard requires an entity to evaluate under the general recognition principle
all property, plant and equipment costs at the time they are incurred. Those
costs include costs incurred initially to acquire or construct an item of
property, plant and equipment and costs incurred subsequently to add to, replace
part of, or service an item. The previous version of IAS 16 contained specific
recognition principles for the accounting of subsequent costs. Secondly, the
amended standard requires that the cost of an item of property, plant and
equipment includes the costs of its dismantlement, removal or restoration, and
the obligation for which an entity incurs as a consequence of installing the
item. Its cost also includes the costs of its dismantlement, removal or
restoration, and the obligation for which an entity incurs as a consequence of
using the item during a particular period for purposes other than to produce
inventories during that period. The previous version of the standard included
within its scope only the costs incurred as a consequence of installing the
item. Thirdly, under the amended standard an entity is required to determine the
depreciation charge separately for each significant part of an item of property,
plant and equipment, a requirement which was not clearly set out in the previous
version. In addition, under the amended standard, an entity is required to
measure the residual value of an item of property, plant and equipment as the
amount that it estimates it would currently receive for the asset if the asset
was already of the age and in the condition expected at the end of its useful
life. The previous version of IAS 16 did not specify whether the residual value
was to be this amount or the amount, inclusive of the effects of inflation, that
an entity expected to receive at the asset's actual retirement date.
Furthermore, the amended standard requires major inspection and overhaul costs
to be recognised in the carrying amount of an item of property, plant and
equipment when such actions are performed.
The adoption of the revised treatment of IAS 16 (amended 2004) has been
accounted for prospectively, which resulted in the following:
(i) In prior years, the aircraft were depreciated over their estimated
useful lives of 20 years. With effect from 1 January 2005, the estimated useful
lives of certain components within the aircraft which are subject to replacement
during major overhauls have been reduced to the life of the overhaul cycle. The
change in accounting estimate has increased the Group's depreciation charge for
the year ended 31 December 2005 by approximately RMB899 million. As a result,
the profit after tax of the Group for the year ended 31 December 2005 has
decreased by approximately RMB604 million.
(ii) Major overhaul costs incurred for the year ended 31 December 2005 of
approximately RMB1,639 million have been capitalised and depreciated over the
life of the overhaul cycle. Prior to 1 January 2005, such costs have been
charged to the income statement on an incurred basis. In this respect, the costs
of aircraft maintenance, repair and overhaul of the Group charged to the income
statement for the year ended 31 December 2005 decreased by RMB1,639 million. In
addition, the Group has derecognised and charged to the income statement for the
year ended 31 December 2005 the carrying amount of certain components of
approximately RMB430 million which have been replaced during the major overhaul.
As a result, the profit after tax of the Group for the year ended 31 December
2005 has increased by approximately RMB824 million.
(c) IAS 24 (revised 2003) Related Party Disclosures replaces IAS 24
Related Party Disclosures (reformatted in 1994). The main objective of such
revision was to provide additional guidance and clarity in the scope of IAS 24
for the definition and the disclosures for related parties. The wording of IAS
24's objective was amended to clarify that the Group's financial statements
should contain the disclosures necessary to draw attention to the possibility
that the financial position and the income statement may have been affected by
the existence of related parties and by transactions and outstanding balances
with them. Since IAS 24 is a standard for disclosure requirements only, there is
no material effect on the Group's results of operations and financial position
upon adoption.
IFRSs and International Financial Reporting Interpretation Committee
Interpretations ('IFRIC Interpretations') not yet effective
The Group has not applied the following new and revised IFRSs and IFRIC
interpretations that have been issued but are not yet effective in these
financial statements:
IAS 1 Amendment Capital Disclosures
IAS 19 Amendment Actuarial Gains and Losses, Group Plans and
Disclosures
IAS 39 Amendment Cash Flow Hedge Accounting of Forecast
Intragroup Transactions
IAS 39 Amendment The Fair Value Option
IAS 39 and IFRS 4 Financial Guarantee Contracts
Amendments
IFRS 1 and IFRS 6 First-time Adoption of International
Financial Reporting Standards
Amendments and Exploration for and Evaluation of
Mineral Resources
IFRS 6 Exploration for and Evaluation of Mineral
Resources
IFRS 7 Financial instruments: Disclosures
IFRIC - Int 4 Determining whether an Arrangement contains
a Lease
IFRIC - Int 5 Rights to Interests arising from
Decommissioning, Restoration
and Environmental Rehabilitation Funds
IFRIC - Int 6 Liabilities arising from Participating in a
Specific Market
- Waste Electrical and Electronic
Equipment
The above standards and interpretations are required to be applied for annual
periods beginning on or after 1 January 2006.
The IAS 1 Amendment shall be applied for annual periods beginning on or after 1
January 2007. The revised standard will affect the disclosures about qualitative
information about the Group's objective, policies and procedures for managing
capital; quantitative data about what the Company regards as capital and
compliance with any capital requirements and the consequences of any
non-compliance.
IFRS 7 will replace IAS 32 and has modified the disclosure requirements of IAS
32 relating to financial instruments. The IFRS shall be applied for annual
periods beginning on or after 1 January 2007.
In accordance with the amendments to IAS 39 and IFRS 4 regarding financial
guarantee contracts, financial guarantee contracts are initially recognised at
fair value and are subsequently measured at the higher of (i) the amount
determined in accordance with IAS 37 and (ii) the amount initially recognised
less cumulative amortisation, when appropriate, recognised in accordance with
IAS 18.
The IAS 19 Amendment, IAS 39 Amendments regarding cash flow hedge accounting of
forecast intragroup transactions and the fair value option, IFRSs 1 and 6
Amendments, IFRS 6, IFRIC-Int 4, IFRIC-Int 5 and IFRIC-Int 6 do not apply to the
activities of the Group. IFRIC-Int 6 shall be applied for annual periods
beginning on or after 1 December 2005.
Except as stated above, the Group expects that the adoption of the other
pronouncements listed above will not have any significant impact on the Group's
financial statements in the period of initial application.
3 SEGMENT INFORMATION
Business segments
The following tables present revenue, profit and certain asset, liability and
expenditure information for the Group's business segments for the years ended
31 December 2005 and 31 December 2004:
For the year ended 31 December 2005:
Airport
Airline Engineering terminal
operations services services Others Eliminations Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
REVENUE
Sales to 37,380,669 376,437 320,477 213,383 - 38,290,966
external
customers
Intersegment - 619,098 - 108,873 (727,971) -
sales
Total revenue 37,380,669 995,535 320,477 322,256 (727,971) 38,290,966
PROFIT FROM
OPERATIONS
Segment results 3,367,949 772,877 123,679 137,282 (727,971) 3,673,816
Finance revenue 1,231,986 8,512 37 8,072 - 1,248,607
Finance costs (1,762,481) (7,504) (2,320) (794) - (1,773,099)
Share of 81,645 (8,628) 148,096 3,817 - 224,930
profits less
losses
from
associates
Profit before 2,919,099 765,257 269,492 148,377 (727,971) 3,374,254
tax
Tax (903,874)
Minority (64,124)
interests
Net profit 2,406,256
attributable to
equity
holders of the
parent
ASSETS
Segment assets 63,703,084 1,046,799 122,474 668,200 (1,630,942) 63,909,615
Interests in 3,312,608 18,700 192,084 270,565 - 3,793,957
associates
Unallocated 498,371
assets
Total assets 68,201,943
LIABILITIES
Segment (46,191,851) (489,320) (404,229) (775,802) 1,630,942 (46,230,260)
liabilities
Unallocated (421,077)
liabilities
Total (46,651,337)
liabilities
OTHER
INFORMATION
Capital
expenditures
- property, 13,222,058 37,219 855 30,836 - 13,290,968
plant and
equipment
Depreciation of 4,409,021 38,381 61,303 3,975 - 4,512,680
property,
plant and
equipment
Amortisation of 19,555 - - - - 19,555
lease
prepayments
Increase in (125,868) - - - - (125,868)
fair value
of financial
assets, net
Provision/ 14,836 118 - (231) - 14,723
(write-back
of provision)
for doubtful
debts, net
For the year ended 31 December 2004:
Airport
Airline Engineering terminal
operations services services Others Eliminations Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
REVENUE
Sales to 32,766,164 296,775 287,905 169,913 - 33,520,757
external
customers
Intersegment - 731,589 - 131,299 (862,888) -
sales
Total revenue 32,766,164 1,028,364 287,905 301,212 (862,888) 33,520,757
PROFIT FROM
OPERATIONS
Segment results 4,146,402 824,858 203,133 173,746 (862,888) 4,485,251
Finance revenue 73,943 278 - 5,140 - 79,361
Finance costs (1,859,139) (14,819) (1,978) (3,298) - (1,879,234)
Dilution gains 330,222 - - 79,915 - 410,137
on investments
Share of 331,530 (5,083) 130,661 6,936 - 464,044
profits less
losses
from
associates
Profit before 3,022,958 805,234 331,816 262,439 (862,888) 3,559,559
tax
Tax (1,010,864)
Minority (162,731)
interests
Net profit 2,385,964
attributable to
equity
holders of the
parent
ASSETS
Segment assets 62,308,593 1,077,748 160,087 379,390 (2,014,154) 61,911,664
Interests in 3,589,574 25,539 186,056 200,352 - 4,001,521
associates
Unallocated 776,084
assets
Total assets 66,689,269
LIABILITIES
Segment (48,845,870) (652,749) (312,765) (677,442) 2,014,154 (48,474,672)
liabilities
Unallocated (186,055)
liabilities
Total (48,660,727)
liabilities
OTHER
INFORMATION
Capital
expenditures
- property, 6,046,355 32,697 25,912 33,641 - 6,138,605
plant and
equipment
Depreciation of 3,395,049 35,797 19,247 13,159 - 3,463,252
property,
plant and
equipment
Amortisation of 4,884 - - - - 4,884
lease
prepayments
Decrease in 28,000 - - - - 28,000
fair value of
financial
assets, net
Provision/ (4,483) 2,642 - 853 - (988)
(write-back of
provision)
for
doubtful
debts, net
Provision/ 12,492 (24,000) - - - (11,508)
(write-back of
provision)
against
inventories,
net
Geographical segments
The following tables present consolidated revenue information by geographical
segments for the years ended 31 December 2005 and 31 December 2004.
For the year ended 31 December 2005
Asia
North Japan/ Pacific,
Domestic HK/Macau Europe America Korea others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
REVENUE
Sales to 20,490,055 2,269,256 5,081,774 2,964,247 4,250,255 3,235,379 38,290,966
external
customers
and
total
revenue
For the year ended 31 December 2004
Asia
North Japan/ Pacific,
Domestic HK/Macau Europe America Korea others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
REVENUE
Sales to 18,482,949 1,744,590 4,232,489 2,477,214 3,846,973 2,736,542 33,520,757
external
customers
and total
revenue
4 AIR TRAFFIC REVENUE
Air traffic revenue comprises revenue from the airline operations business and
is stated net of business tax. An analysis of air traffic revenue is as follows:
Group
2005 2004
RMB'000 RMB'000
Passenger 31,584,426 27,665,018
Cargo and mail 3,716,400 3,169,804
35,300,826 30,834,822
Pursuant to various PRC business tax rules and regulations, the Group is
required to pay business tax to the local tax bureaus at the following rates:
Type of revenue Applicable business tax rate
Air traffic revenue 3% of air traffic revenue (all inbound
international and Hong Kong and Macau regional
flights are exempted from business tax)
Other operating revenue 3% to 5% of other operating revenue
PRC business tax incurred for the years ended 31 December 2005 and 2004, netted
against air traffic revenue, amounted to approximately RMB846 million and RMB711
million, respectively.
5 OTHER OPERATING REVENUES
Group
2005 2004
RMB'000 RMB'000
Bellyhold income from a joint venture 1,496,302 1,384,457
Aircraft engineering income 376,437 296,775
Ground services income 320,477 287,905
General aviation income 155,521 159,990
Air catering income 109,591 118,140
Government grants:
(i) Recognition of deferred income 76,943 70,593
(ii) Fixed cash subsidy - 37,500
(iii) Others 41,250 44,853
Service charges on return of unused flight 97,951 63,821
tickets
Cargo handling service income 67,822 49,850
Sale of materials 11,899 33,008
Import and export service income 12,311 29,767
Training service income 19,029 23,761
Aircraft and related equipment lease income 7,072 11,516
Gain on disposal of property, plant and 74,474 -
equipment, net
Others 123,061 73,999
2,990,140 2,685,935
6 PROFIT FROM OPERATIONS
The Group's profit from operations is arrived at after charging/(crediting):
Group
2005 2004
RMB'000 RMB'000
Repair and maintenance costs 2,078,382 3,608,348
Depreciation 4,512,680 3,463,252
Amortisation of lease prepayments 19,555 4,884
Employee compensation costs 3,406,825 2,921,322
Minimum lease payments under operating leases:
Aircraft and engines 1,530,754 1,071,256
Land and buildings 211,177 187,471
(Gain)/loss on disposal of property, plant and (74,474) 33,872
equipment, net
Loss on derecognition of property, plant and 430,010 -
equipment
Auditors' remuneration 11,029 7,206
Provision/(write-back of provision) for doubtful 14,723 (988)
debts, net
Write-back of provision against inventories, net - (11,508)
7 FINANCE REVENUE AND FINANCE COSTS
Finance revenue
Group
2005 2004
RMB'000 RMB'000
Exchange gains, net 918,297 -
Interest income 108,481 33,703
Gains on fuel derivatives, net 221,661 41,036
Dividend income from available-for-sale 168 4,622
investments
1,248,607 79,361
Finance costs
Group
2005 2004
RMB'000 RMB'000
Interest expense 1,792,408 1,827,002
Less: Interest capitalised (19,309) (2,610)
1,773,099 1,824,392
Exchange losses, net - 54,842
1,773,099 1,879,234
The interest capitalisation rate represents the cost of capital from raising the
related borrowings and is approximately 4.5% (2004: ranging from 5.6% to 5.8%)
per annum.
8 DILUTION GAINS ON INVESTMENTS
Group
2005 2004
RMB'000 RMB'000
Dilution gain on investment in Air Cargo - 330,222
Business
Dilution gains on investments in BACL and - 79,915
SWACL
- 410,137
Notes:
(a) Pursuant to the Restructuring, the air cargo business and relevant
air cargo assets and liabilities (the 'Air Cargo Business') were operated and
owned solely by the Group as if it had been directly held by the Group prior to
1 January 2004 in accordance with the basis of presentation as set out in note
1. In 2004, the entire Air Cargo Business was transferred to Air China Cargo
Co., Ltd. ('Air China Cargo'), a 51% owned joint venture of the Company, in
the form of the Company's capital contribution and advance to Air China Cargo.
Subsequent to the transfer of Air Cargo Business to Air China Cargo, the Group's
effective interest in the Air Cargo Business was diluted from 100% to 51% and,
accordingly, a gain on dilution of the investment in Air Cargo Business of
approximately RMB330 million arose.
(b) In accordance with the basis of presentation as set out in note 1, a
60% shareholding interest in Beijing Air Catering Co., Ltd. ('BACL') and a 75%
shareholding interest in Southwest Air Catering Company Limited ('SWACL') were
deemed to be held by the Group prior to being transferred out during 2004.
During 2004, the Group transferred its entire 60% shareholding
interest in BACL and a 60% shareholding interest in SWACL to Fly Top Limited, a
wholly-owned subsidiary of China National Aviation Company Limited ('CNAC'), a
subsidiary of the Company, for considerations of RMB294 million and RMB67
million, respectively.
In addition to the above, the Group transferred its remaining 15%
shareholding interest in SWACL to Hongkong Southwest Air Catering Limited, the
minority shareholder of SWACL, for a consideration of approximately RMB17
million.
Subsequent to the completion of the above transactions, the Group's
effective shareholding interests in BACL and SWACL were diluted from 60% and
75%, respectively, to 41% and accordingly gains on dilution of investments in
BACL and SWACL in aggregate of approximately RMB80 million arose.
9 TAX
According to the PRC Enterprise Income Tax Law, the Company, its subsidiaries,
joint ventures and associates established in the PRC are subject to enterprise
income tax at rates ranging from 15% to 33% (2004: 15% to 33%) on their taxable
income.
Hong Kong profits tax has been provided at the rate of 17.5% (2004: 17.5%) on
the estimated assessable profits arising in Hong Kong during the year.
The Group is subject to income tax on an entity basis on profits arising in or
derived from the jurisdictions in which members of the Group are domiciled and
operate. In accordance with an approval document issued by the relevant tax
authorities, the filing of tax returns of the Relevant Businesses and all
wholly-owned PRC-established subsidiaries of the Company prior to its
incorporation on 30 September 2004 was handled by CNAHC on a consolidated group
basis. The share of the income tax liability of the Relevant Businesses and all
wholly-owned PRC-established subsidiaries of the Company prior to its
incorporation was calculated at the applicable tax rates on their profits
determined in accordance with PRC accounting principles and after the relevant
adjustments made under the prevailing PRC Enterprise Income Tax Law as
applicable to domestic enterprises. Such tax was payable to CNAHC which in turn
would settle the tax liability with the relevant tax bureau. Similarly, the net
profit attributable to CNAHC for the period from 1 January 2004 to 30 September
2004 (the date of incorporation of the Company) was calculated after deducting
the amount of income tax payable to CNAHC, which in turn would settle any tax
liability on profit arising during that period with the relevant tax bureau.
Following the incorporation of the Company, the Company would settle its tax
liability by itself with the respective tax bureau.
In accordance with the PRC Enterprise Income Tax Law and an approval document
issued by the relevant tax bureau on 28 November 2005 (the 'Approval Document'),
Air China Cargo was approved to be subject to a corporate income tax rate
of 24% on its taxable income as reported in its statutory financial statements
for the year ended 31 December 2005 and was fully exempted from enterprise
income tax for the year ended 31 December 2005 and followed by a 3-year 50%
reduction in corporate income tax in the period between 1 January 2006 and 31
December 2008. In addition, pursuant to the Approval Document, Air China Cargo
has been granted a 4-year local income tax exemption in the period between 1
January 2005 and 31 December 2008 and followed by a 5-year 50% reduction in
local income tax in the period between 1 January 2009 and 31 December 2013.
The determination of current and deferred income tax was based on enacted tax
rates. Major components of income tax charge are as follows:
Group
2005 2004
RMB'000 RMB'000
Current income tax
Current income tax charge
- Mainland China 614,313 398,944
- Hong Kong 11,848 4,096
Deferred income tax
Relating to origination a-nd reversal
of temporary differences 277,713 607,824
Income tax charge for the year 903,874 1,010,864
Share of tax attributable to associates amounting to RMB33,640,000 (2004:
RMB96,974,000) is included in the 'Share of profit less losses from associates'
on the face of the consolidated income statement.
A reconciliation of income tax expense applicable to profit before income tax at
the statutory income tax rates in Mainland China to income tax expense at the
Group's effective income tax rate, and a reconciliation of the applicable rates
(i.e., the statutory tax rates) to the effective tax rates, are as follows:
Group
2005 2004
RMB'000 % RMB'000 %
Profit before income tax 3,374,254 3,559,559
At statutory income tax rate 1,113,504 33.0 1,174,654 33.0
of 33%
Profits and losses (74,227) (2.2) (153,135) (4.3)
attributable to associates
Lower income tax rates of (15,024) (0.5) (20,455) (0.6)
other territories
Tax exemption (49,558) (1.4) - -
Income not subject to tax (115,131) (3.4) (211,035) (5.9)
Expenses not deductible for 26,941 0.8 220,835 6.2
tax purposes
Tax losses expired 12,537 0.4 - -
Effect on opening deferred 4,832 0.1 - -
income tax assets due to decrease
in other territories' income tax
rates
Tax charge at Group's 903,874 26.8 1,010,864 28.4
effective income tax rate
At 31 December 2005, there was no significant unrecognised deferred tax
liability (2004: Nil) for taxes that would be payable on the unremitted earnings
of certain of the Group's subsidiaries and joint ventures as the Directors of
the Company do not have intention to remit any significant amount of earnings to
the Company in the foreseeable future.
There are no income tax consequences attaching to the payment of dividends by
the Company to its shareholders.
10. 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 (2004: nil).
11. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY 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, 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 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
The following discussion and analysis are designed to assist the reader in
understanding the information provided in this announcement so as to fully
comprehend the financial performance of the Group as a whole.
2005 Review
During 2005, along with the rapid growth in demand in the PRC's aviation
industry, the Group's operations maintained good momentum throughout the year
and the Group achieved continued, steady and well-balanced development. In 2005,
the Company and Air China Cargo recorded revenue tonne kilometres of 7.44
billion and carried 27.69 million passengers and cargos and mails of 733,000
tonnes, representing increases of 10.2%, 13.0% and 10.2% from 2004 respectively.
The Group's total revenue amounted to RMB38.3 billion in 2005, representing an
increase of 14.2% compared with last year. Operating profit was RMB3,674
million, representing a decrease of 18.1% from 2004, mainly due to the
significant increase in the cost of jet fuel arising from the soaring
international oil prices.
The continual increase in international oil prices presented severe challenges
to the aviation and transportation enterprises. In 2005, the cost of jet fuel as
a percentage of operating expenses of the Group rose from 28.8% in 2004 to
34.0%, representing an increase of RMB3.423 billion compared with 2004. The
Group implemented various measures to mitigate the impact of rising jet fuel
prices, such as the enhancement of operation control, promotion of computerised
planning system, flight route optimisation, redespatch, purchase of advanced
aircraft with lower fuel consumption, and jet fuel hedging transactions. As a
result of our measures to reduce costs and increase efficiency, the Group
substantially mitigated the impact of rising jet fuel price. In addition, the
collection of jet fuel surcharge also relieved pressure on operating costs to a
certain extent. The Group's net profit attributable to equity holders for 2005
was RMB2,406 million, representing an increase of 0.9% from last year, which was
principally attributable to factors such as the appreciation of Renminbi. The
Group continued to maintain its leading position among fellow PRC airlines in
terms of profitability.
In 2005, we introduced a new flight route between Hangzhou and Hong Kong and
resumed the Lhaza - Chengdu - Hong Kong route. The Group also introduced or
resumed 20 domestic routes, such as the Beijing - Ningbo route, bringing the
Company's total number of routes to 316 with destinations spanning across 22
countries (regions) and 106 cities. In 2005, 25 new aircrafts were added to the
Company's fleet, increasing the number of aircrafts to 176. During the year,
the Company also entered into purchase contracts for 35 aircrafts and lease
agreements for 17 aircrafts. The scale of the Company's fleet will be expanded
further to meet the needs for additional routes and increased flight frequency.
The expanded fleet capacity will directly contribute to its service capacity for
the 2008 Olympic Games.
As at 31 December 2005, the Company had 18,447 employees and its subsidiaries
and joint ventures had 12,145 employees. Employees of the Company receive cash
remuneration consisting of salary and other cash subsidies. In addition, in
order to provide incentives to the flight crew, the Board of the Company
approved the Proposal on the Reform of Remuneration and Benefits System for the
Flight Crew on 30 December 2005, which came into effect on 1 March 2006.
Earnings Per Share
In 2005, the Group's earnings per share was RMB25.5 cents, representing a
decrease of 29.2% compared with RMB36 cents for 2004. This was mainly due to the
initial public offering of 2,550,618,182 shares upon the Company's listing in
late 2004 and the issue of 382,592,727 shares pursuant to the over-allotment
option in the beginning of 2005, which increased the weighted average number of
shares compared with last year. Details of earnings per share are set out in
note 11 to the financial results in this announcement.
Operating Revenue
In 2005, the Group's operating revenue was RMB38,291 billion, representing an
increase of 14.2% compared with last year. Increase in the Group's operating
revenue was mainly attributable to the rapid growth of air traffic revenue,
which increased by 14.5% in 2005. In 2005, the daily utilization of aircraft
averaged at 10.4 hours, increased 0.2 hours as compared with 2004.
Revenue Contribution by Business 2005 2004 Change
Segments
( RMB'000) (%)
Airline operations 37,380,669 32,766,164 14.1
Engineering services 376,437 296,775 26.8
Airport terminal services 320,477 287,905 11.3
Others 213,383 169,913 25.6
Total operating revenue 38,290,966 33,520,757 14.2
The Group's operating revenues principally included air traffic and other
operating revenue. Most of our operating revenue was from air traffic revenue,
which represented 92.2% of the Group's total revenue in 2005, while the other
operating revenue represented only 7.8% of the total operating revenue. Among
air traffic revenues in 2005, 89.5% was generated from passenger services and
10.5% was from cargo and mail transport.
The passenger transport income increased by 14.2% to RMB31.58 billion in 2005
from RMB27,67 billion in 2004. It was mainly attributable to the increase in
transport capacity, passenger load factor and profitability level. The Company's
transport capacity in terms of available seat kilometres increased by 8.9% to
70.66 billion in 2005 from 64.89 billion million in 2004 . The Company's
passenger load factor rose to 74.2% in 2005 as compared with 71.9% in 2004. The
Company's passenger yield increased by 1.8% to RMB0.57 in 2005 from RMB0.56 in
2004.
Revenue from cargo and mail increased by 17.2% to RMB3,716 million in 2005 from
RMB3,170 million in 2004. Such increase was primarily as a result of the
improvements in the traffic capacity, cargo and mail load factor and
profitability level. Cargo transport capacity in terms of available freight
tonne-kilometres increased by 4.5% to 5,063 million in 2005 from 4,843 million
in 2004.
The load factor of cargo transport increased to 54.5% in 2005 from 53.3% in
2004. The overall cargo yield increased by 2% to RMB2.03 for each yield tonne
kilometre in 2005 from RMB1.99 for each yield tonne kilometre in 2004.
Operating Expenses
The operating expenses of the Group primarily comprise jet fuel costs, take-off,
landing and depot charges, depreciation, aircraft maintenance, repair and
overhaul expenses, employee compensation costs and air catering charges. In
2005, the Group recorded RMB34.617 billion in operating expenses, representing
an increase of 19.2% compared with RMB29.036 billion in 2004, primarily as a
result of the rising jet fuel costs.
Operating Expenses 2005 2004 Change
( RMB'000) (%)
Jet fuel 11,777,129 8,353,752 41.0
Take-off, landing and depot charges 4,442,585 4,230,349 5.0
Depreciation 4,512,680 3,463,252 30.3
Aircraft maintenance, repair and 1,341,773 2,835,648 (52.7)
overhaul
Employee compensation costs 3,406,825 2,921,322 16.6
Air catering expenses 1,242,973 1,171,784 6.1
Others 7,893,225 6,059,399 30.3
Total Operating Expenses 34,617,150 29,035,506 19.2
Jet fuel costs increased by 41.0% to RMB11.7 billion in 2005 from RMB8,354
million in 2004 and accounted for 34.0% of operating expenses as compared with
28.8% in 2004. This increase was primarily due to jet fuel price rise and the
increased consumption of jet fuel as a result of the increased number of flights
operated.
Take-off, landing and depot charges increased by 5% to RMB4,443 million in 2005
from RMB4,230 million in 2004, primarily due to the increased number of flights
operated.
Depreciation expenses increased by 30.3% to RMB4,513 million in 2005 from
RMB3,463 million in 2004, primarily due to the accounting changes and fleet
expansion. Details on the accounting changes are set out in note 2 to the
Group's financial results in this announcement.
Aircraft maintenance, repair and overhaul expenses decreased by 52.7% to
RMB1,342 million in 2005 from RMB2,836 million in 2004, primarily due to
accounting changes. Details on the accounting changes are set out in note 2 to
the group's financial results in this announcement.
Employee compensation costs increased by 16.7% to RMB3,407 million in 2005 from
RMB2,921 million in 2004, primarily due to the increased flight hours, growth of
the number of employee, and increased income of employee.
Air catering charges increased by 6.1% to RMB1,243 million in 2005 from RMB1,172
million in 2004, primarily due to an increase in the number of passengers
carried.
Other operating expenses, including aircraft and engines operating lease
expenses, other flight operation expenses, selling and marketing expenses and
general and administrative expenses, increased by 30.3% to RMB7,893 million in
2005 from RMB6,059 million in 2004.
Expenses on operating leases of aircrafts and engines increased from RMB1,071
million in 2004 to RMB1,531 million in 2005, mainly due to the increase in
operations with leased aircrafts as well as wet lease of aircrafts from Air
Macau Company Limited, Hong Kong Dragon Airlines Limited and Shandong Airlines
Company Limited.
Other flight operation expenses increased to RMB3,745 million in 2005 from
RMB2,698 million in 2004, primarily due to the adjustments in the accounting
policies and the increase in CAAC Infrastructure Development Fund as a result of
the increased number of routes.
Selling and marketing expenses increased to RMB1,775 million in 2005 from
RMB1,387 million in 2004, primarily due to higher related expenses as a result
of increased sales income.
Analysis of Assets
As at 31 December 2005, the Group had total assets of RMB68.2 billion,
representing an increase of 2.3% from 31 December 2004. Of the total assets,
RMB7,540 million of current assets accounted for 11.1%, while RMB60.66 billion
of non-current assets accounted for 88.9%. Among the current assets, cash and
cash equivalents were RMB2,248 million, decreasing by 76.1% as compared with 31
December 2004, while trade receivables increased by 16.9% as compared with 31
December 2004 to RMB2,764 million. Among the non-current assets, property, plant
and equipment were RMB47.191 billion, representing an increase of 8.6% as
compared with 31 December 2004.
Assets Mortgage
As at 31 December 2005, the Group mortgaged certain aircraft with an aggregate
carrying value of approximate RMB26.958 billion (compared with RMB28.585 billion
as at 31 December 2004) pursuant to certain loan and finance lease agreements.
In addition, certain bank deposits of the Group in the sum of approximately
RMB177 million (compared with approximately RMB117 million as at 31 December
2004) were pledged against the Group's certain loans and obligations in respect
of certain operating leases and financial derivatives.
Debt Structure of the Group
(In RMB'000)
Bank, other loans and Obligations under
corporate bonds finance leases
2005/12/31 2004/12/31 2005/12/31 2004/12/31
Within one year 10,401,170 8,806,051 1,954,873 1,705,146
In the second year 2,747,158 3,063,899 1,949,802 1,943,630
In the third to 4,699,654 6,215,259 6,071,492 6,722,448
fifth years, inclusive
After five years 5,376,067 3,617,464 57,377 1,910,163
Total 23,224,049 21,702,673 10,033,544 12,281,387
A significant portion of the Group's debts will fall due within one year. The
Group expects to meet its liabilities with bank loans, internal resources and
other resources as they fall due. The Group is not exposed to any insolvency
risk for the reasons set out in the sections titled 'Liquidity and Capital
Resources' and 'Objective and Policy of Financial Risk Management'.
Gearing Ratio
As at 31 December 2005, the Group's gearing ratio, which represents total
liabilities divided by total assets, was 68.4%, which dropped by 5 percentage
points from 73.0% as at 31 December 2004.
Interest Expense
In 2005, interest expense of the Group decreased from RMB1.824 billion in 2004
to RMB1.773 billion, primarily due to the repayment of certain bank loans and
decrease in obligations under finance leases.
Interest Cover
In 2005, earnings before finance revenue and finance costs (including interest
expense, interest income, exchange gains/losses, net gains on fuel derivatives
and dividend income from available-for-sale investments), enterprise income
taxes, share of profits less losses of associates, dilution gains on investments
and depreciation and amortisation ('EBITDA') as computed under IFRS, divided
by interest expense, were 4.62 times, compared with 4.36 times in 2004. The
increase in interest cover was attributable to the decrease in interest expense
and rise in EBITDA.
Capital Commitments and Contingent Liabilities
As at 31 December 2005, capital commitments of the Group increased substantially
from RMB11.832 billion as at 31 December 2004 to approximately RMB38.514
billion, primarily due to commitments in the purchase of certain aircraft and
relevant flight equipment to be delivered in the coming years, and for the
construction of certain properties.
As at 31 December 2005, the Group had contingent liabilities in respect of bank
and other guarantees and other matters arising in the ordinary course of
business. Details of contingent liabilities of the Group will be set out in the
Company's 2005 annual report.
Liquidity and Capital Resources
The Group finances its operations through cash inflow from operating activities
and bank loans. Like many other airline groups in the PRC, the Group has been
operating with a net current liabilities position. As at 31 December 2005 and 31
December 2004, net current liabilities of the Group were RMB16 billion and
RMB9.053 billion respectively. The increase in net current liabilities was
primarily due to a decrease in current assets, in particular, a RMB7.165 billion
decrease in cash and cash equivalents.
In 2005, the Group's net cash inflow from operating activities decreased by 2%
to RMB6.048 billion from RMB6.156 billion in 2004. Net cash outflow from
investing activities in the same period increased by 151% to RMB12.500 billion
from RMB4.979 billion in 2004, primarily due to an increase in prepayment for
purchase of aircraft. The Group recorded a net cash outflow in financing
activities of RMB0.766 billion, primarily due to the repayment of bank loans and
the distributions to shareholders pursuant to the Group's restructuring in
2004. The major sources of finance of the Group are bank loans. As at 31
December 2005, the Group had obtained bank facilities of up to RMB78.570 billion
from a number of banks in the PRC.
As at 16 September 2005, the Company successfully issued corporate bonds of RMB3
billion in aggregate. The bonds received overwhelming subscription from
investors upon issue and were completely taken up on the first date with more
than 10-time oversubscription. Prior to this, on 25 May 2005, the Company has
successfully issued short-term commercial papers in the amount of RMB2 billion.
Capital Expenditure
For 2005, the capital expenditure of the Company amounted to RMB10.547 billion.
Among the capital expenditure of the Company, total investment in aircraft was
RMB9.069 billion, including a prepayment of RMB6.183 billion for purchasing
aircraft from 2006 onwards.
Other investments in capital expenditure items were RMB1.478 billion, which
mainly involved the improvement of first class and business class cabins of
certain aircraft, ancillary projects in No. 3 Terminal of Beijing International
Airport, as well as certain long-term investment projects.
The Group intended to fund its capital expenditure with internal generated
source of funds, bank loans, corporate bonds and the proceeds from the proposed
issue of A shares.
Objective and Policy of Financial Risk Management
The Group is exposed to the fluctuations in jet fuel price during its ordinary
operations. International jet fuel prices have been historically, and will in
the future continue to be, subject to price volatility and fluctuations in
supply and demand. The Group's strategy for managing its jet fuel price risk
aims to provide itself with protection against sudden and significant price
increases. Subject to the applicable laws of the PRC, the Group started to
engage in fuel hedging transactions in March 2001. The subjects of hedging
instruments were mainly Singapore jet fuel and Brent crude oil derivatives that
are closely linked to jet fuel. In 2005, the Group applied hedging to 12.3% of
the procured jet fuel, and the net gain on jet fuel derivatives was RMB222
million, representing an increase of 440% compared with 2004.
Foreign liabilities constitute a large proportion of the Group's liabilities.
As at 31 December 2005, loans denominated in US dollar and Hong Kong dollar were
equivalent to RMB11.352 billion and RMB224 million respectively. Appreciation of
the Renminbi will benefit the Company with exchange gains. In 2005, the net
exchange gains of the Group was RMB918 million (2004: net exchange losses of
RMB55 million). The foreign exchange income and expenses of the Group are
generally the same. The Group adopted 'natural immunity' method to achieve a
matching structure of income and expenses by adjusting the proportion of its
liabilities in foreign currencies. The Company will continue to avoid exposure
to the risk of exchange rate fluctuation by adopting a strategy that matches the
income and payment in certain principal currencies.
Information on financial risk management objectives and polices in other aspects
of the Group's operations will be set out in the Company's 2005 annual report.
OUTLOOK FOR 2006
2006 will be a year full of opportunities and challenges. The Company will
continue to face the severe challenge of oil price hike in the international
market. Besides, with the rapid growth in the PRC's aviation industry, the
continued deregulation in civil aviation industry to allow investments by
different entities, and the shortage in resources such as air route rights, time
slots and key technicians, the Company is expected to face more intense market
competition. The Company will continue to overcome these unfavourable factors,
through taking full advantage of the golden opportunities arising from the 2008
Beijing Olympic Games, maintaining our strategy of building hubs and networks
through strategic alliance, optimising of resources allocation and actively
developing external cooperation such as code sharing arrangement and aviation
alliance. Moreover, the Company will continue to promote organisational
transformation, expand its service network and streamline its operation flow.
The Company plans to establish an objective appraisal and performance management
system to enhance its overall management standard; further improve corporate
governance, strengthen the function of special committees; continue to
strengthen decision-making function and improve enforceability of decisions, pay
attention to risk control and the construction of internal control system,
aiming to position itself as a highly recognised and most valuable and
profitable airline in the PRC with international competitive strength.
SHARE CAPITAL
1. Share Capital Structure Information
The Company issued 2,805,680,000 H shares in 2004 (including 255,061,818 H
shares sold by selling shareholders). 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. As at 31 December 2005, the total share capital of the
Company consisted of 9,433,210,909 shares with a par value of RMB1.00 each. The
following table sets out the share structure of the Company as of 31 December
2005:
Percentage of the
Category of Shares Number of shares total share
capital
State legal person 4,826,195,989 51.16%
Non-H Foreign Shares 1,380,482,920 14.64%
H Shares 3,226,532,000 34.20%
9,433,210,909 100.00%
2. Substantial Shareholders
As at 31 December 2005, to the knowledge of the directors (the 'Directors'),
supervisors and chief executive of the Company, the interests and short
positions of the following persons (other than a Director, supervisor or chief
executive of the Company) who have an interest or short position in the shares
and underlying shares of the Company which would fall to be disclosed to the
Company pursuant to the Securities and Futures Ordinance (the 'SFO'), or who
are, directly or indirectly, interested in 10% or more of the nominal value of
any class of share capital carrying rights to vote in all circumstances at
general meetings of any members of the Group are as follows:
(a) Substantial interests in the Company
Percentage Percentage
Type and Percentage of the of the Percentage
number of of the total total of the
shares of total issued issued total
the Company issued domestic non-H issued
concerned shares of shares of foreign H shares Short
Type of the the shares of of the position
Name interests Company Company the Company
Company
CNAHC Beneficial 4,826,195,989 51.16% 100% - - -
owner domestic
shares
CNAHC (1) Attributable 1,380,482,920 14.64% - 100% - -
interests non-H foreign
shares
China Beneficial 1,380,482,920 14.64% - 100% - -
National owner non-H foreign
Aviation shares
Corporation
(Group)
Limited
Cathay Beneficial 943,321,091 10.00% - - 29.24% -
Pacific owner H shares
Swire Pacific Attributable 943,321,091 10.00% - - 29.24% -
Limited (2) interests H shares
John Swire & Attributable 943,321,091 10.00% - - 29.24% -
Sons H shares
Limited (2) interests
John Swire & Attributable
Sons
(H.K.) interests 943,321,091 10.00% - - 29.24% -
Limited (2) H shares
Temasek Attributable 400,450,000 4.25% - - 12.41% -
Holdings interests H shares
(Private)
Limited (3)
Note:
Based on the information available to the Directors, chief executive and
Supervisors of the Company (including such information as was available on the
website of the Stock Exchange) and so far as the Directors, chief executive and
Supervisors are aware, as at 31 December 2005:
1. By virtue of CNAHC's 100% interest in China National Aviation
Corporation (Group) Limited, CNAHC is deemed to be interested in the
1,380,482,920 non-H foreign shares of the Company directly held by China
National Aviation Corporation (Group) Limited.
2. By virtue of John Swire & Sons Limited's 100% interest in John Swire
& Sons (H.K.) Limited and their approximately 30% equity interest and 53% voting
rights in Swire Pacific Limited, and Swire Pacific Limited's approximately 46%
interest in Cathay Pacific, John Swire & Sons Limited, John Swire & Sons (H.K.)
Limited and Swire Pacific Limited are deemed to be interested in the 943,321,091
H shares of the Company directly held by Cathay Pacific.
3. Temasek Holdings (Private) Limited, through its controlled entities,
had an attributable interest in 400,450,000 H shares of the Company, out of
which the interest in 292,500,000 H shares (representing approximately 9.07% of
the total issued H shares) was held directly by Aranda Investment (Mauritius)
Pte Ltd. and the interest in the remaining 107,950,000 H shares was held
directly by Dahlia Investments Ptd Ltd, FPL Alpha Investment Pte Ltd and
Fullerton (Private) Limited.
4. Pursuant to the notification filed by HSBC on 18 January 2006, HSBC
Halbis Partners (Hong Kong) Limited was interested in 163,840,000 H shares of
the Company, accounting for 5.08% of the total issued H shares of the Company.
3. Disclosure of Interests of Directors and Supervisors
As at 31 December 2005, Mr. Zhang Xianlin, a Supervisor of the Company, had
interests in 33,126,000 shares, which represents approximately 1% of the share
capital of CNAC.
Save as disclosed above, as at 31 December 2005, none of the Directors,
supervisors or chief executive of the Company has interests or short positions
in the shares, underlying shares and/or debentures (as the case may be) of the
Company or its associated corporations (within the meaning of Part XV of the
SFO) which were notified to the Company and the Stock Exchange pursuant to SFO
(including interests or short positions which he is taken or deemed to have
under such provisions of the SFO), or recorded in the register maintained by the
Company pursuant to Section 352 of the SFO, or which were notified to the
Company and the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors of the Listed Issuers. For this purpose the relevant
provisions of the SFO will be interpreted as if they applied to the Company's
supervisors.
None of the Directors or supervisors of the Company and their respective
associates (as defined in the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited (the 'Listing Rules')) has any competing
interests which would be required to be disclosed under Rule 8.10 of the Listing
Rules if each of them were a controlling shareholder of the Company.
PURCHASE, SALE OR REDEMPTION OF SHARES
During the year ended 31 December 2005, neither the Company nor any of it
subsidiaries had purchased, sold or redeemed any of the Company's listed
securities.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has complied with the code provisions set out in the Code on
Corporate Governance Practices (the 'Code') contained in Appendix 14 to the
Listing Rules throughout the year of 2005, except for the following deviations:
Deviation and considered reasons and or
Relevant code provision subsequent compliance
1. Code provision A.5.4 A code of conduct regarding directors,
requires, among others, the supervisors, and relevant employees'
board should establish securities transactions on terms no less
written guidelines on no exacting than the required standard set
less exacting terms than out in the Model Code was adopted by the
the Model Code for Company on 5 September 2005.
Securities Transactions by
Directors of Listed Issuers
(the 'Model Code') for
relevant employees in
respect of their dealings
in the securities of the
issuer.
2. Code provision E.1.2 Our Chairman, Mr. Li Jiaxiang, who is a
requires, among others, the member of the Chinese government
chairman of the board delegation, was required to attend the
should attend the annual annual meeting of the International Air
general meeting. Transport Association and was therefore
unable to attend the annual general
meeting of the Company on 30 May 2005.
3. Code provisions B.1.3 and The Company, as required by the relevant
C.3.3. require for, among Code provisions, adopted written terms of
others, specific written reference of the remuneration committee
terms of reference of the and audit committee, on 12 April 2005.
remuneration committee and
audit committee,
respectively.
4. Code provision A.1.3 Meetings of the Board of the Company are
requires, among other convened by a 10-day notice served to all
things, notice of at least directors. The reason behind the Board's
14 days should be given of practice is that a 10-day notice served
a regular board meeting. to the directors is deemed sufficient
pursuant to the laws of the PRC. Article
98 of the acticles of association of the
Company has been amended so that a notice
of at least 14 days must be serviced to
all directors before a meeting of the
Board, except for extraordinary meeting.
The amendment to the articles of
association of the Company has been
approved by the extraordinary general
meeting held on 28 March 2006 and will
become effective upon approval by the
relevant authorities.
COMPLIANCE WITH MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted the Model Code as set out in Appendix 10 of the Listing
Rules to govern securities transactions by directors. Having made enquiry to all
directors of the Company, all directors have confirmed that they have complied
with the Model Code throughout the period from 1 January 2005 to 31 December
2005.
DIVIDENDS
Pursuant to a resolution passed at the Directors' meeting on 18 April 2006, a
final dividend equivalent to RMB0.2383 per 10 shares totaling approximately
RMB225 million for the year ended 31 December 2005 was proposed for
shareholders' approval at the annual general meeting.
PRE-EMPTIVE RIGHTS
Neither the Articles of Association of the Company nor the laws of the PRC
provide for any preemptive rights requiring the Company to offer new shares to
existing shareholders in proportion to their existing shareholdings.
SERVICE CONTRACTS OF THE DIRECTORS AND SUPERVISORS
Each of the Directors has entered into a service contract with the Company for a
term of three years from 30 September 2004 other than Mr. Fan Cheng, whose
service contract has a term of three years from 18 October 2004, and the service
contract is thereafter subject to termination by either party giving written
notice to the other party.
None of the Directors has any existing or proposed service contract with any
member of the Group which is not expiring or terminable by the Group within one
year without payment of compensation (other than statutory compensation).
ANNUAL REPORT
The Annual Report for the year ended 31 December 2005 containing all information
required by Appendix 16 of the Listing Rules will be despatched to shareholders
and will be published on the website of The Stock Exchange of Hong Kong Limited
(www.hkex.com.hk) as well as the website of the Company (www.airchina.com.cn) in
due course.
FORWARD-LOOKING STATEMENT
We would like to caution readers of this announcement that the airline
operations are substantially influenced by global political and economical
developments. Accidental and unexpected incidents may have a material impact on
our operations or the industry as a whole. This 2005 Annual Results Announcement
of the Group contains, inter alia, certain forward-looking statements, such as
forward-looking statements on the global and Chinese economies and aviation
markets. Such forward-looking statements are subject to some uncertainties and
risks.
AUDIT COMMITTEE
The annual results of the Company have been reviewed by the audit committee of
the Board of Directors of the Company.
By order of the Board
Air China Limited
Li Jiaxiang
Chairman of the Board
Beijing, PRC, 18 April 2006
As at the date of this announcement, the Directors of the Company are Messrs Li
Jiaxiang, Kong Dong, Wang Shixiang, Yao Weiting, Ma Xulun, Cai Jianjiang, Fan
Cheng, Hu Hung Lick, Henry*, Wu Zhipan* and Zhang Ke*.
* Independent non-executive Director of the Company
This information is provided by RNS
The company news service from the London Stock Exchange
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