SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of April, 2004
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of registrant's name into English)
Baiyun International Airport
Guangzhou, People's Republic of China
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.)
Form 20-F. X Form 40-F.
------- --------
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes. No. X
------- --------
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- .)
------------
China Southern Airlines Company Limited (the "Company") on or around
April 30, 2004 distributed its Annual Report, together with the Notice of Annual
General Meeting, Form of Proxy for Annual General Meeting, and Reply Slip, in
English and Chinese to its shareholders. A copy of each of the documents is
included in this Form 6-K of the Company.
02 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
COMPANY PROFILE
China Southern Airlines Company Limited (the "Company") together with its
subsidiaries (collectively, the "Group") is one of the largest airlines in the
People's Republic of China ("China" or "the PRC"). In 2003, the Group continued
to rank first among all Chinese airlines in terms of volume of passenger
traffic, number of scheduled flights per week, number of hours flown, number of
routes and size of aircraft fleet.
As of the year end of 2003, the Group operated 334 routes, of which 274 were
domestic, 42 were international and 18 were Hong Kong regional. The Group
operates the most extensive domestic route network among all Chinese airlines.
In 2003, the Group operated an average of 4,118 landings and take-offs per week
serving 94 destinations. Most of these cities served by the Group are located in
commercial centres or rapidly developing economic regions in China. The Group's
headquarters is located in Guangzhou, one of the gateway cities of China.
Located in the rapidly developing Pearl River Delta region, Guangzhou is the
transportation hub of Southern China.
In addition to its main route base in Guangzhou, the Group maintains 12 regional
route bases in Zhengzhou, Wuhan, Changsha, Shenzhen, Haikou, Zhuhai, Xiamen,
Fuzhou, Guilin, Shantou, Guiyang and Beihai. Most of its regional route bases
are located in provincial capitals or major commercial centres in the PRC.
The Group operates a portion of its air transportation business through its
subsidiaries, namely Xiamen Airlines Company Limited ("Xiamen Airlines"),
Southern Airlines Group Shantou Airlines Company Limited, Guangxi Airlines
Company Limited, Zhuhai Airlines Company Limited and Guizhou Airlines Company
Limited (collectively, the "Airline Subsidiaries"). Each of the Airline
Subsidiaries is 60%-owned by the Company.
As of 31 December, 2003, the Group operated a fleet of 132 aircraft, consisting
primarily of Boeing 737-300, 737-500, 737-700, 737-800, 747-400, 757-200, 777-
200, Airbus 320-200 and 319-100 aircraft. The average age of the Group's fleet
was 7.82 years as of the year end of 2003.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 03
CORPORATE INFORMATION
DIRECTORS
EXECUTIVE DIRECTORS
Yan Zhi Qing
(Chairman of the Board of Directors)
Liu Ming Qi (Vice Chairman of the Board of Directors)
Wang Chang Shun
(Vice Chairman of the Board of Directors, President)
Peng An Fa (Director)
Wang Quan Hua (Director)
Zhao Liu An (Director)
Zhou Yong Qian (Director)
Zhou Yong Jin (Director)
Xu Jie Bo (Director, Chief Financial Officer, Vice President)
Wu Rong Nan (Director)
INDEPENDENT NON-EXECUTIVE DIRECTORS
Simon To
Peter Lok
Wei Ming Hai
Wang Zhi
Sui Guang Jun
SUPERVISORS
Liang Hua Fu
(Chairman of the Supervisory Committee)
Gan Yu Hua (Supervisor)
Li Qi Hong (Supervisor)
COMPANY SECRETARY
Su Liang
AUTHORISED REPRESENTATIVES
Xu Jie Bo
Su Liang
PRINCIPAL BANKERS
The Industrial & Commercial Bank of China
Bank of China
China Construction Bank
Agricultural Bank of China
LEGAL ADVISERS TO THE COMPANY
O'Melveny & Myers LLP
Z&T Law Firm
SHARE REGISTRAR
Hong Kong Registrars Limited
Rooms 1901-5, 19th Floor
Hopewell Centre
183 Queen's Road East
Hong Kong
The Bank of New York
Investor Relations
P.O. Box 11258
Church Street Station
New York, NY 10286-1258, U.S.A.
China Securities Depository and Clearing Corporation
Limited Shanghai Branch
727 Pu Jian Road, Shanghai
PRC
CORPORATE HEADQUARTERS
Baiyun International Airport
Guangzhou
PRC
Website: www.cs-air.com
PLACE OF BUSINESS IN HONG KONG
Unit B1, 9th Floor
United Centre
95 Queensway
Hong Kong
INTERNATIONAL AUDITORS
KPMG
Certified Public Accountants
8th Floor, Prince's Building
10 Chater Road
Hong Kong
PRC AUDITORS
KPMG Huazhen
8/F, Office Tower E2
Oriental Plaza
No. 1 East Chang An Avenue
Beijing
PRC
Postcode 100738
04 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
FINANCIAL HIGHLIGHTS
The Board of Directors of the Company hereby presents below the consolidated
results of the Group for the year ended 31 December, 2003, prepared in
accordance with International Financial Reporting Standards ("IFRS"), together
with the comparative figures for the corresponding period in 2002. The following
consolidated results should be read in conjunction with the financial statements
and the Report of the International Auditors contained in this annual report
(the "Annual Report").
Total Revenue
2003
RMB' million
[PIE CHART]
HK regional passenger revenue 750 (4.3%)
International passenger revenue 2,018 (11.6%)
Cargo & mail 1,955 (11.1%)
Other revenue 505 (2.9%)
Domestic passenger revenue 12,242 (70.1%)
Passenger Traffic Capacity (Available Seat Kilometres ("ASK")
2003
ASK million
[PIE CHART]
HK regional 1,347 (3.3%)
International 6,930 (17.0%)
Domestic 32,590 (79.7%)
Passenger Traffic (Revenue Passenger Kilometres ("RPK")
2003
RPK million
[PIE CHART]
HK regional 778 (2.9%)
International 4,315 (16.4%)
Domestic 21,294 (80.7%)
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER, 2003 vs 2002
Increase/
2003 2002 2003 2003 (decrease)
RMB'000 RMB'000 HK$'000 US'000 %
--------------------------------------------------------------------------------------------------------------------
Operating revenue:
Passenger 15,009,885 15,695,622 14,084,531 1,813,511 (4.4)
Cargo and mail 1,954,915 1,786,270 1,834,395 236,195 9.4
-----------------------------------------------------------------------------------------------------------------
16,964,800 17,481,892 15,918,926 2,049,706 (3.0)
Other operating revenue 505,323 536,728 474,170 61,053 (5.9)
-----------------------------------------------------------------------------------------------------------------
Total operating revenue 17,470,123 18,018,620 16,393,096 2,110,759 (3.0)
-----------------------------------------------------------------------------------------------------------------
Operating expenses:
Flight operations 7,070,031 6,732,543 6,634,166 854,209 5.0
Maintenance 2,588,613 2,333,419 2,429,026 312,759 10.9
Aircraft and traffic servicing 2,767,488 2,511,284 2,596,874 334,371 10.2
Promotion and sales 1,480,168 1,499,587 1,388,916 178,836 (1.3)
General and administrative 1,053,319 1,060,010 988,383 127,263 (0.6)
Depreciation and amortisation 2,037,971 1,839,871 1,912,331 246,230 10.8
Other 16,804 15,829 15,767 2,029 6.2
-----------------------------------------------------------------------------------------------------------------
Total operating expenses 17,014,394 15,992,543 15,965,463 2,055,697 6.4
-----------------------------------------------------------------------------------------------------------------
Operating profit 455,729 2,026,077 427,633 55,062 (77.5)
=================================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 05
FINANCIAL HIGHLIGHTS (Cont'd)
Passenger Traffic (RPK)
million
[BAR CHART]
2002 28,940
2003 26,387
Passenger Capacity (ASK)
million
[BAR CHART]
2002 44,245
2003 40,867
Cost (Operating Cost Per ASK)
RMB
[BAR CHART]
2002 0.36
2003 0.42
FOR THE YEAR ENDED 31 DECEMBER, 2003 vs 2002
Increase/
2003 2002 2003 2003 (decrease)
RMB'000 RMB'000 HK$'000 US'000 %
---------------------------------------------------------------------------------------------------------------
Non-operating
income/(expenses):
Share of associated
companies' results 47,798 36,988 44,851 5,775 29.2
Share of jointly controlled
entities' results (39,495) (3,352) (37,060) (4,772) 1,078.3
(Loss)/gain on sale
of fixed assets (22,217) 170,740 (20,848) (2,684) (113.0)
Interest income 13,061 52,618 12,256 1,578 (75.2)
Interest expense (823,725) (959,193) (772,943) (99,523) (14.1)
Exchange loss, net (164,443) (175,451) (154,304) (19,868) (6.3)
Other, net 21,682 (9,328) 20,345 2,619 (332.4)
-------------------------------------------------------------------------------------------------------------
Total net non-operating expenses (967,339) (886,978) (907,703) (116,875) 9.1
-------------------------------------------------------------------------------------------------------------
(Loss)/profit before taxation
and minority interests (511,610) 1,139,099 (480,070) (61,813) (144.9)
Taxation credit/(expense) 324,277 (398,227) 304,286 39,179 (181.4)
-------------------------------------------------------------------------------------------------------------
(Loss)/profit before minority
interests (187,333) 740,872 (175,784) (22,634) (125.3)
Minority interests (170,934) (165,111) (160,396) (20,652) 3.5
-------------------------------------------------------------------------------------------------------------
(Loss)/profit attributable to
shareholders (358,267) 575,761 (336,180) (43,286) (162.2)
-------------------------------------------------------------------------------------------------------------
Basic (loss)/earnings per share RMB(0.09) RMB0.17 HK$(0.09) US$(0.011) (162.2)
=============================================================================================================
Note: The above consolidated profit and loss account has been prepared in
Renminbi ("RMB"), the national currency of the PRC. Translations of
amounts from RMB into Hong Kong dollars ("HK$") and United States
dollars ("US$") solely for the convenience of readers have been made at
the rates of HK$1.00 to RMB1.0657 and US$1.00 to RMB8.2767, being the
average of the buying and selling rates as quoted by the People's Bank
of China at the close of business on 31 December, 2003. No
representation is made that the RMB amounts could have been or could be
converted into HK$ or US$ at these rates or at any other certain rates
on 31 December, 2003 or on any other date.
06 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CHAIRMAN'S STATEMENT
[PHOTO OF YAN ZHI QING]
Chairman
Dear Shareholders,
2003 was a year filled with difficult challenges for us. The outbreak of Severe
Acute Respiratory Syndrome ("SARS") during 2003 in China and other parts of Asia
caused an unprecedented adverse impact to our business. Nevertheless, the Group
and our staff did not succumb to these difficult circumstances. With the
recovery of the economy after the SARS epidemic was brought under control,
together with the support of the government through implementation of a series
of related policies, we once again were given the opportunities for development
and achieved satisfactory performance in terms of safety and services quality.
During the first half of 2003, the Group encountered the most severe challenge
due to the outbreak of SARS. The Group's air passenger business was severely
Chairman affected as a result and recorded a significant drop in the number of
passengers carried and passenger load factor for the period from April to June
2003, as compared to the corresponding period of the previous year. In terms of
revenue tonne kilometres, there was a decrease of 40%, 83.5% and 61.5%
respectively in April, May and June comparing to the corresponding period of the
previous year. To minimise the negative impact of SARS, the Group took various
timely measures to adjust its operating capacity, including reduction in the
number of flights and suspension of certain routes to cope with the sharp
decrease in demand for air transport caused by SARS. In addition, we also
minimised controllable expenses through strictly controlling expenses to offset
part of the negative impact.
In order to alleviate the operational pressure on the PRC's civil aviation
industry caused by the SARS epidemic, the PRC government waived the levies of
China Aviation Administration of China ("CAAC") Infrastructure Development Fund,
sales tax and related supplementary charges for passenger transportation
business for the period from 1 May to 31 December, 2003. These measures have
significantly boosted the recovery of the Group's business.
While the Group was dealing with the challenges brought by the SARS epidemic, we
continued to enhance the standards of our safety and services. As a result, we
once again received the Golden Roc Cup, the highest award for flight safety in
the civil aviation industry, and won the Five-star Diamond Award for flight
services. These awards demonstrated the excellent performance of our colleagues
in their effort to improve the standards of our safety and services.
In July 2003, the Group successfully issued 1,000,000,000 A Shares in the
domestic market for listing and raised an aggregate proceeds of
RMB2,700,000,000. Such proceeds have been applied to acquire the new model of
Boeing 737 series and related flight equipment. The successful offering of A
Shares was crucial to the realisation of our business goal, as it marked the
entry of the Company into the PRC capital market. The successful fund raising
exercise provides the Group with additional capital resources for future
development, improves the Group's assets quality and strengthens its operating
capacity, which in turn provides a solid foundation for the Group to compete
efficiently in the ever increasingly competitive civil aviation market.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 07
CHAIRMAN'S STATEMENT (Cont'd)
[PHOTO]
The injection of the airline transportation businesses of China Northern
Airlines Company and Xinjiang Airlines Company into the Group by China Southern
Air Holding Company ("CSAHC"), the controlling shareholder of the Company, is
progressing as scheduled. Since 1 January, 2003, the three airlines have
implemented a code sharing arrangement, whereby the flight code of CZ is used
for the flights of the three airlines. The preparatory work for business
integration and assets restructuring is making good progress. The proposed
restructuring will provide the Group with opportunities for expanding its flight
networks and enlarging its market share in the civil aviation industry.
[PHOTO]
In view of global and domestic economic development, we believe that there will
be robust growth in the airlines market in the coming year. The global economy
has shown a visible recovery in a new cycle of economic growth, which will
stimulate rapid development of the global air transport business. China's macro
economic development in 2004 will also help to maintain the growth momentum of
China in its economic cycle. The direction and guidelines of the Government in
economic development represent the principles of scientific development,
pursuant to which China's economy will see integral, harmonious and sustainable
growth whilst maintaining a stable and rapid pace of development. The stably
increasing consumption will gradually replace the previously substantial
investments as a stimulant to economic growth. China's air transportation
industry has regained growth on all fronts after the SARS outbreak and the
overall growth trend will gain further momentum in the coming year. The Group,
as a major player in the PRC airlines market, will make its contributions to the
growth of the domestic economy. Meanwhile, the implementation of the Closer
Economic Partnership Arrangement between mainland China, Hong Kong and Macau,
and the State policies on the overall development of the Western region and the
revitalisation of the old industrial base of Northeast China will provide a
perfect opportunity for the business growth of the Group.
[PHOTO]
With the approval of the State Council, the "Pricing Reform Plan for the
Domestic Civil Aviation Industry" was adopted on 20 April, 2004. Pursuant to
this Pricing Reform Plan, the pricing guidelines formulated by the government
will be applied to the domestic air transport industry. Direct control by
governmental pricing authorities over airfares for different flight routes will
be changed to indirect control through the setting of basic rates and price
ranges for air transport by such governmental pricing authorities. China's
airlines will be able to determine their own airfares within the price ranges
set by the governmental pricing authorities based on the changes in supply and
demand of the market, and will adopt more flexible sales policies with an
objective of maximising economic benefits. It is expected that as the reform in
China's civil aviation industry continues to intensify, airline operators will
gain a greater level of autonomy in managing their own business operations, and
the Group will be able to achieve further business growth through fair and
positive competition in a gradually regulated and orderly market.
08 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CHAIRMAN'S STATEMENT (Cont'd)
On the other hand, recent political instability in the Middle East and other
uncertainties continue to hamper global economic growth. The continuing high jet
fuel price is also a factor unfavorable to the growth of the air transport
industry.
Challenges come with opportunities. In this year, the Group will continue to
ensure a high standard of safety in our service and expedite its progress in the
restructuring of the airline-related businesses with CSAHC. The Group will
further strengthen its market competitiveness and strive to maintain and
increase its market share. The Group will strive to achieve the above objectives
through the following measures:
1. In the middle of the year, the Group will be able to enhance its
operating capacity, route coverage and flight networks after the
official opening of the Guangzhou New Airport and the commencement of
operation of terminal No. 1 in the Beijing Capital International
Airport leased by the Group.
2. Consistent with the business policies that emphasise development in the
domestic market and expansion into overseas market for further growth,
the Group will build domestic transportation hubs, optimise its flight
networks in China and at the same time, actively explore overseas and
regional markets. We will increase our overseas market share by opening
new routes including flights from Guangzhou to Paris and adjusting our
international cargo flights during the year.
3. We will further promote the "China Southern" brand name and enhance
brand value in terms of "Reliability, Punctuality and Convenience".
4. The Group's cargo operation will be advanced to a higher standard upon
the commencement of operation of the Guangzhou New Airport and its new
cargo transportation centre.
5. We will continue to strengthen our financial management and tighten
cost controls.
Looking back on 2003, we and our counterparts in the air transport industry had
been striving for growth and meeting challenges amid difficult market
conditions. On behalf of the board, I would like to express our gratitude to our
management and staff. If not for their team spirit and dedication, China
Southern Airlines would not have managed to overcome these unprecedented
difficulties. We are particularly grateful to our front line staff who have
shown their professional attitude and devotion by bravely and diligently
performing their duties in the dangerous situation during the SARS outbreak.
Finally, I would like to express our sincere gratitude to our shareholders for
their continuous trust and support.
YAN ZHI QING
Chairman
Guangzhou, the PRC
23 April, 2004
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 09
MANAGEMENT DISCUSSION AND ANALYSIS
[PHOTO OF WANG CHANG SHUN]
Vice President of the Board
of Directors, President
The following discussion and analysis should be read in conjunction with the
financial statements of the Group prepared under IFRS as set out in pages 39 to
98. The Group also prepares financial statements in accordance with PRC
Accounting Rules and Regulations as set out in pages 99 to 182. IFRS differs in
certain material respects from accounting principles generally accepted in the
United States of America ("U.S. GAAP") and PRC Accounting Rules and Regulations.
For a discussion of the material differences between IFRS, U.S. GAAP and PRC
Accounting Rules and Regulations relating to the Group, see supplementary
information on pages 183 to 188 of this Annual Report.
OVERVIEW
In 2003, the Group encountered the most unprecedented challenges and
difficulties. The outbreak of the SARS earlier this year severely hit the PRC
aviation industry. From April to June 2003, the Group's passenger volume and
passenger load factor dropped which caused the revenue passenger kilometres
("RPK") for April, May and June of 2003 to fall by 40%, 83.5% and 61.5%
respectively, as compared to the same period in 2002. In order to minimise the
negative impact of SARS, the Group implemented various measures to adjust its
operating capacity, for example by reducing the number of flights and suspending
certain routes, in response to the reduced air traffic demand caused by the
negative impact of SARS. The SARS was effectively under control in the PRC in
July 2003 and the domestic market started to recover in the third quarter of
2003. The Group gradually resumed all its suspended flights since July 2003.
In order to alleviate the financial pressure suffered by the PRC civil aviation
industry as a result of the SARS epidemic, the PRC government waived the levies
of the CAAC Infrastructure Development Fund, sales tax and related supplementary
taxes on passenger revenue payable by the PRC airlines, during the period from 1
May, 2003 to 31 December, 2003.
Besides, the political tension in the Middle East, in particular the Iraq war in
March 2003, led to a surge in oil prices which in turn caused an increase in the
Group's jet fuel cost.
The Group conducts a portion of its airline operations through the Airline
Subsidiaries. Operating results for the Airline Subsidiaries are included in
each of the years presented in the consolidated financial statements. The
Airline Subsidiaries, which derive substantially all of their operating revenue
from passenger traffic, accounted for 26.8% and 28.8% of the Group's total
operating revenue, and 34.5% and 38.7% of the Group's total passengers carried,
in 2002 and 2003, respectively. Xiamen Airlines is the largest member of the
Airline Subsidiaries, with operating revenue of RMB3,278 million and RMB3,460
million in 2002 and 2003, respectively, or 18.2% and 19.8% of the Group's total
operating revenue.
10 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
[PHOTO]
The Group's operating revenue is substantially dependent on the passenger and
cargo traffic volume carried, which is subject to seasonal and other changes in
traffic patterns, the availability of appropriate time slots for the Group's
flights and alternative routes, the degree of competition from other airlines
and alternate means of transportation, as well as other factors that may
influence passenger travel demand and cargo and mail volume. In particular, the
Group's airline revenue is generally higher in the second and third quarters
than in the first and fourth quarters.
[PHOTO]
Like most airlines, the Group is subject to a high degree of financial and
operating leverage. A significant percentage of the Group's operating expenses
is fixed costs that do not vary proportionally based on the Group's yields or
the load factors. These fixed costs include depreciation expense, jet fuel
costs, landing and navigation fees, financing costs, operating lease payments,
aircraft maintenance costs and labour for flight crew, cabin crew and ground
personnel. Thus, a minor change in the Group's yields or load factors would have
a material effect on the Group's results of operations. In addition, certain of
these expenses, primarily financing costs and operating lease payments, labour
costs and depreciation do not vary based on the number of flights flown. Thus,
the Group's operating results can also be substantially affected by minor
changes in aircraft utilisation rates. The Group is and will continue to be
highly leveraged with substantial obligations denominated in foreign currencies
and, accordingly, the results of its operations are significantly affected by
fluctuations in foreign exchange rates, particularly for the U.S. dollar and the
Japanese yen. The Group recognised a net exchange loss of RMB175 million and
RMB164 million in 2002 and 2003, respectively. These amounts represented mainly
unrealised exchange differences resulting from the retranslation of the foreign
currency borrowings as of the years ended 2002 and 2003.
A number of other external variables, including political and economic
conditions in China, tend to have a major impact on the Group's performance. The
Group's financial performance is also significantly affected by factors arising
from operating in a regulated industry. As substantially all aspects of the
Group's airline operations are regulated by the PRC government, the Group's
operating revenues and expenses are directly affected by the PRC government's
policies with respect to domestic airfares, jet fuel prices and landing and
navigation fees, among others. The nature and extent of airline competition and
the ability of Chinese airlines to expand are also affected by CAAC's control
over route allocations. Any changes in the PRC government's regulatory policies,
or any implementation of such policies could have a significant impact on the
Group's future operations and its ability to implement its operating strategy.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 11
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
CERTAIN FINANCIAL INFORMATION AND OPERATING DATA BY GEOGRAPHIC REGION
The following table sets forth certain financial information and operating data
by geographic region for the years ended 31 December, 2002 and 2003:
FOR THE YEAR END 2003 vs 2002
DECEMBER 31, % Increase/
2003 2002 (Decrease)
--------------------------------------------------------------------------------------------
TRAFFIC
Revenue passenger kilometres (RPK) (million)
- Domestic 21,294 22,092 (3.6)
- Hong Kong regional 778 1,081 (28.0)
- International 4,315 5,767 (25.2)
------------------------------------------------------------------------
Total 26,387 28,940 (8.8)
========================================================================
Revenue tonne kilometres (RTK) (million)
- Domestic 2,424 2,532 (4.3)
- Hong Kong regional 78 108 (27.8)
- International 1,059 974 8.7
------------------------------------------------------------------------
Total 3,561 3,614 (1.5)
========================================================================
Passengers carried (thousand)
- Domestic 18,259 18,535 (1.5)
- Hong Kong regional 1,019 1,369 (25.6)
- International 1,192 1,589 (25.0)
------------------------------------------------------------------------
Total 20,470 21,493 (4.8)
========================================================================
Cargo and mail carried (thousand tonne)
- Domestic 379 404 (6.2)
- Hong Kong regional 12 14 (14.3)
- International 73 52 40.4
------------------------------------------------------------------------
Total 464 470 (1.3)
========================================================================
12 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
CERTAIN FINANCIAL INFORMATION AND OPERATING DATA BY GEOGRAPHIC REGION (cont'd)
FOR THE YEAR END 2003 vs 2002
DECEMBER 31, % Increase/
2003 2002 (Decrease)
--------------------------------------------------------------------------------------------
CAPACITY
Available seat kilometres (ASK) (million)
- Domestic 32,590 33,753 (3.4)
- Hong Kong regional 1,347 1,746 (22.9)
- International 6,930 8,746 (20.8)
------------------------------------------------------------------------
Total 40,867 44,245 (7.6)
========================================================================
Available tonne kilometres (ATK) (million)
- Domestic 3,772 3,924 (3.9)
- Hong Kong regional 150 193 (22.3)
- International 1,999 1,798 11.2
------------------------------------------------------------------------
Total 5,921 5,915 0.1
========================================================================
LOAD FACTORS
Passenger load factor (RPK/ASK) (%)
- Domestic 65.3 65.5 (0.3)
- Hong Kong regional 57.8 61.9 (6.6)
- International 62.3 65.9 (5.5)
Overall 64.6 65.4 (1.2)
========================================================================
Overall load factor (RTK/ATK) (%)
- Domestic 64.2 64.5 (0.5)
- Hong Kong regional 52.2 55.8 (6.5)
- International 53.0 54.2 (2.2)
Overall 60.1 61.1 (1.6)
========================================================================
YIELD
Yield per RPK (RMB)
- Domestic 0.57 0.55 3.6
- Hong Kong regional 0.96 0.98 (2.0)
- International 0.47 0.42 11.9
Overall 0.57 0.54 5.6
========================================================================
Yield per RTK (RMB)
- Domestic 5.40 5.21 3.6
- Hong Kong regional 10.35 10.36 (0.1)
- International 2.90 3.25 (10.8)
Overall 4.76 4.84 (1.7)
========================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 13
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
CERTAIN FINANCIAL INFORMATION AND OPERATING DATA BY GEOGRAPHIC REGION (cont'd)
FOR THE YEAR END 2003 vs 2002
DECEMBER 31, % Increase/
2003 2002 (Decrease)
--------------------------------------------------------------------------------------------
FLEET
Total number of aircraft in service at year end
- Boeing 108 102 5.9
- Airbus 24 20 20.0
------------------------------------------------------------------------
Total 132 122 8.2
========================================================================
OVERALL UTILISATION RATE (HOURS PER DAY)
- Boeing 8.6 9.9 (13.2)
- Airbus 7.9 9.3 (15.6)
Overall 8.5 9.8 (13.8)
========================================================================
COST
- Operating cost per ASK (RMB) 0.42 0.36 16.7
- Operating cost per ATK (RMB) 2.87 2.70 6.3
========================================================================
2003 COMPARED WITH 2002
The Group recorded a net loss of RMB358 million for 2003, as compared to a net
profit of RMB576 million for 2002. The Group's operating revenue decreased by
RMB549 million or 3.0% from RMB18,019 million in 2002 to RMB17,470 million in
2003. Passenger load factor decreased by 0.8 percentage point from 65.4% in 2002
to 64.6% in 2003. Passenger yield (in passenger revenue per RPK) increased by
5.6% from RMB0.54 in 2002 to RMB 0.57 in 2003. Average yield (in traffic revenue
per RTK) decreased by 1.7% from RMB4.84 in 2002 to RMB4.76 in 2003. Operating
expenses increased by RMB1,021 million or 6.4% from RMB15,993 million in 2002 to
RMB17,014 million in 2003. As operating revenue decreased while operating
expenses increased, operating profit decreased by 77.5% from RMB2,026 million in
2002 to RMB456 million in 2003. The Group's net non-operating expenses increased
by 9.1%, from RMB887 million in 2002 to RMB967 million in 2003, mainly due to a
decrease in gain on disposal of fixed assets of RMB193 million, partly offset by
a decrease in interest expense of RMB135 million. Overall, the Group recorded a
net loss of RMB358 million in 2003, as compared to a net profit of RMB576
million in 2002.
OPERATING REVENUE
Substantially all of the Group's operating revenue is attributable to airline
operations. Traffic revenue in 2003 and 2002 accounted for 97.1% and 97.0%
respectively of total operating revenue. Passenger revenue and, cargo and mail
revenue accounted for 88.5% and 11.5% respectively of total traffic revenue in
2003. The balance of the Group's operating revenue is derived from commission
income, income from general aviation operations, fees charged for ground
services and for air catering services and net income from lease arrangements.
14 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
Operating revenue decreased by 3.0% from RMB18,019 million in 2002 to RMB17,470
million in 2003. This decrease was primarily due to a 4.4% fall in passenger
revenue from RMB15,696 million in 2002 to RMB15,010 million in 2003 resulting
from lower traffic volume caused by SARS. The total number of passengers carried
decreased by 4.8% to 20.5 million passengers in 2003. RPKs decreased by 8.8%
from 28,940 million in 2002 to 26,387 million in 2003, primarily as a result of
a decrease in passengers carried. However, passenger yield increased by 5.6%
from RMB0.54 in 2002 to RMB0.57 in 2003, mainly as the result of the exemption
of CAAC Infrastructure Development Fund and sales tax during the period from 1
May, 2003 to 31 December, 2003.
Domestic passenger revenue, which accounted for 81.6% of the total passenger
revenue in 2003, increased slightly by 0.1% from RMB12,234 million in 2002 to
RMB12,242 million in 2003. Domestic passenger traffic in RPKs decreased by 3.6%,
mainly due to a decrease in passengers carried. Passenger yield, however,
increased from RMB0.55 in 2002 to RMB0.57 in 2003, mainly as the result of the
aforesaid exemption of CAAC Infrastructure Development Fund and sales tax.
Hong Kong passenger revenue, which accounted for 5.0% of total passenger
revenue, decreased by 28.9% from RMB1,055 million in 2002 to RMB750 million in
2003. For Hong Kong flights, passenger traffic in RPKs decreased by 28.0%, while
passenger capacity in ASKs decreased by 22.9%, resulting in a 4.1 percentage
point decrease in passenger load factor from 2002. Passenger yield decreased
from RMB0.98 in 2002 to RMB0.96 in 2003 mainly due to slack in traffic volume.
International passenger revenue, which accounted for 13.4% of total passenger
revenue, decreased by 16.2% from RMB2,407 million in 2002 to RMB2,018 million in
2003. For international flights, passenger traffic in RPKs decreased by 25.2%,
while passenger capacity in ASKs decreased by 20.8%, resulting in a 3.6
percentage point fall in passenger load factor from 2002. Passenger yield
increased by 11.9% from RMB0.42 in 2002 to RMB0.47 in 2003 mainly as the result
of the aforesaid exemption of CAAC Infrastructure Development Fund and sales
tax.
Cargo and mail revenue, which accounted for 11.5% of the Group's total traffic
revenue and 11.1% of total operating revenue, increased by 9.5% from RMB1,786
million in 2002 to RMB1,955 million in 2003. The increase was primarily due to
the full year effect of the opening of two international cargo routes to Los
Angeles of the United States of America and Leige of Belgium in late 2002.
Other operating revenue decreased by 6.0% from RMB537 million in 2002 to RMB505
million in 2003. The decrease was primarily due to a decrease in aircraft
short-term lease income of RMB46 million.
OPERATING EXPENSES
Substantially all of the Group's operating expenses result from its airline
operations. The vast majority of such expenses relate directly to flight
operations, aircraft and traffic servicing, aircraft repair and maintenance and
to depreciation and amortisation in respect of aircraft and flight equipment.
Expenses associated directly with the Group's flight operations (collectively,
"flight operations expenses") include fuel costs, operating lease payments,
catering expenses, aircraft insurance, flight personnel payroll and welfare and
training expenses. Expenses associated directly with repairs and maintenance in
respect of the Group's aircraft (collectively, "repairs and maintenance
expenses") include repairs and maintenance and overhaul charges, the costs of
consumables and other maintenance materials and labour costs for maintenance
personnel. Expenses associated directly with the Group's aircraft and traffic
servicing operations (collectively "aircraft and traffic servicing expenses")
include landing and navigation fees, rental payments and charges in respect of
terminal and other ground facilities and labour costs for ground personnel. The
balance of the Group's operating expenses result from promotional and marketing
activities
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 15
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
(collectively, "promotional and marketing expenses") such as sales commissions,
fees for use of the CAAC's reservation system, ticket-printing and sales office
expenses, advertising and promotional expenses, and from general and
administrative expenses, such as administrative salaries and welfare and other
personnel benefits and office expenses.
Total operating expenses in 2003 amounted to RMB17,014 million, representing an
increase of 6.4% or RMB1,021 million over 2002, primarily due to the combined
effect of increases in jet fuel costs, maintenance expenses and aircraft and
traffic servicing expenses. Total operating expenses as a percentage of total
operating revenue increased from 88.8% in 2002 to 97.4% in 2003.
Flight operations expenses, which accounted for 41.6% of total operating
expenses, increased by 5.0% from RMB6,733 million in 2002 to RMB7,070 million in
2003, primarily as a result of increases in jet fuel costs and operating lease
payments, partly offset by a decrease in catering expenses. Jet fuel costs,
which accounted for 54.7% of flight operations expenses, increased by 9.9% from
RMB3,519 million in 2002 to RMB3,867 million in 2003 mainly as a result of
increased jet fuel prices. Operating lease payments increased by 8.4% from
RMB1,417 million in 2002 to RMB1,536 million in 2003, primarily due to the full
year effect of the addition of new operating leases in respect four Boeing
757-200 aircraft in late 2002 and four Airbus 319-100 aircraft and three Boeing
737-700 aircraft during 2003. Catering expenses decreased by 18.4% from RMB625
million in 2002 to RMB510 million in 2003, primarily reflecting a tighter cost
controls exercised by the Group. Aircraft insurance costs decreased by 23.4%
from RMB256 million in 2002 to RMB196 million in 2003, primarily because of a
reduction in the rate of aircraft insurance premiums prescribed by the PRC
insurance company. Labour costs for flight personnel decreased by 6.8% from
RMB781 million in 2002 to RMB728 million in 2003, largely due to a decrease in
flight hours.
Maintenance expenses which accounted for 15.2% of total operating expenses,
increased by 11.0% from RMB2,333 million in 2002 to RMB2,589 million in 2003.
The increase was primarily attributable to an 11.3% increase in aircraft
maintenance and repair charges from RMB2,135 million in 2002 to RMB2,377 million
in 2003, mainly as the result of the effect of fleet expansion in recent years.
Aircraft and traffic servicing expenses, which accounted for 16.3% of total
operating expenses, increased by 10.2% from RMB2,511 million in 2002 to RMB2,767
million in 2003. The increase primarily resulted from an 8.9% rise in landing
and navigation fees from RMB2,354 million in 2002 to RMB2,563 million in 2003,
due to an increase in the charge rate for domestic landing and navigation fees
effective September 2002.
Promotional and marketing expenses, which accounted for 8.7% of total operating
expenses, decreased by 1.3% from RMB1,500 million in 2002 to RMB1,480 million in
2003. The decrease was due to 9.3% decrease in labour costs from RMB248 million
in 2002 to RMB225 million in 2003, as fewer bonuses were given because of
reduced sales volume in 2003.
General and administrative expenses, which accounted for 6.2% of the total
operating expenses, decreased slightly by 0.7% from RMB1,060 million in 2002 to
RMB1,053 million in 2003. This was mainly due to a decrease in scale of
operations during SARS period.
Depreciation and amortisation, which accounted for 12.0% of total operating
expenses, increased by 10.8% from RMB1,840 million in 2002 to RMB2,038 million
in 2003. This increase was primarily as a result of the additions of aircraft
during 2003.
16 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
OPERATING PROFIT
Operating profit decreased by 77.5% from RMB2,026 million in 2002 to RMB456
million in 2003. This was mainly because operating revenue decreased by RMB549
million or 3.0% from 2002 while operating expenses increased by RMB1,021 million
or 6.4% over the same period.
NON-OPERATING INCOME/(EXPENSES)
Interest expense decreased by 14.1% from RMB959 million in 2002 to RMB824
million in 2003, mainly reflecting the combined effect of scheduled debt
repayments and the replacement of certain RMB denominated bank loans with US$
denominated bank loans with lower interest rates.
Interest income decreased by 75.2% from RMB53 million in 2002 to RMB13 million
in 2003. This was mainly attributable to a decrease in average cash balances.
The Group recorded a net loss on sale of fixed assets of RMB22 million in 2003,
mainly resulting from retirement of two old Boeing 737-200 aircraft.
During 2003, the Group recorded a net exchange loss of RMB164 million
predominantly due to its Japanese yen denominated borrowings as a result of the
Japanese yen appreciation. Such amount comprised mostly unrealised translation
loss.
TAXATION
On 17 October, 2003, the Company's registered address was moved to Guangzhou
Economic & Technology Development Zone. In accordance with the Rules and
Regulations for Implementation of Income Tax for Foreign Investment Enterprises
and Foreign Enterprises of the PRC and a taxation approval document "Guangzhou
Municipal State Tax Bureau Suo De Shui Zi Que 020043", the Company is entitled
to enjoy the preferential tax policy implemented in the Guangzhou Economic &
Technology Development Zone effective from 1 October, 2003. As a result, the
Company's income tax rate has been changed to 15% from 33% beginning from that
date.
The Group recorded an income tax credit of RMB324 million for 2003 compared to
an income tax expense of RMB398 million for 2002. As a result of the reduction
in income tax rate, the Company's net deferred taxation liability balance
brought forward from 31 December, 2002 of RMB507 million was reduced by RMB392
million and a net deferred tax credit of RMB392 million was recognised in 2003
for such reduction in income tax rate accordingly.
MINORITY INTERESTS
Minority interests increased by 3.6% from RMB165 million in 2002 to RMB171
million in 2003, primarily reflecting the net profits earned by certain of the
Group's airline subsidiaries for the year.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 17
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
As at 31 December, 2003, the Group's borrowings totalled RMB18,460 million,
representing a decrease of RMB815 million from RMB19,275 million last year. Such
borrowings were denominated, to a larger extent, in United States dollars and,
to a smaller extent, in Japanese yen and Renminbi, with a significant portion
being fixed interest rate borrowings. Of such borrowings, RMB8,395 million,
RMB1,716 million, RMB1,601 million, RMB1,660 million and RMB5,088 million will
be repayable in 2004, 2005, 2006, 2007, 2008 and thereafter respectively. As at
31 December, 2003, cash and cash equivalents of the Group totalling RMB2,080
million, of which 22.2% were denominated in foreign currencies, decreased by
44.8% from RMB3,771 million last year. Net debts (total borrowings net of cash
and cash equivalents) increased by 5.7% to RMB16,380 million.
As at 31 December, 2003, the Group's shareholders' equity amounted to RMB11,896
million, representing an increase of RMB2,283 million from RMB9,613 million last
year. The increase was mainly due to the issuance of 1,000,000,000 A shares with
an issue price of RMB2.70 per share by way of public offering in July 2003 in
the PRC.
Net debt/equity ratio of the Group at 31 December, 2003 was 1.38 times, as
compared to 1.61 times last year.
FINANCIAL RISK MANAGEMENT POLICY
In the normal course of business, the Group is exposed to fluctuations in
foreign currencies and jet fuel prices. The Group's exposure to foreign
currencies was as a result of its debt which are denominated in foreign
currencies. Depreciation or appreciation of the RMB against foreign currencies
affects the Group's results significantly because the Group's foreign currency
payments generally exceed its foreign currency receipts. The Group is not able
to hedge its foreign currency exposure effectively other than by retaining its
foreign currency denominated earnings and receipts to the extent permitted by
the State Administration of Foreign Exchange, or subject to certain restrictive
conditions, by entering into forward foreign exchange contracts with certain
authorised PRC banks.
The Group is required to procure a majority of its jet fuel consumption
domestically at PRC spot market prices. There are currently no effective means
available to manage the Group's exposure to the fluctuations in domestic jet
fuel prices.
CHARGES ON ASSETS
As at 31 December, 2003, certain aircraft of the Group with an aggregate
carrying value of approximately RMB14,576 million (2002: RMB14,783 million) were
mortgaged under certain loan and lease agreements. Details of charges are set
out in notes 10, 21 and 22 to the consolidated financial statements.
COMMITMENTS AND CONTINGENCIES
At December 31, 2003, the Group had capital commitments of approximately
RMB13,628 million. Of such amounts, RMB10,615 million related to the acquisition
of aircraft and related flight equipment and RMB2,072 million related to the
Group's facilities and equipment to be constructed and installed at the
Guangzhou new airport. The remaining amount of RMB941 million related to the
Group's other airports and office facilities and equipment, overhaul and
maintenance bases and training facilities.
18 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
MANAGEMENT DISCUSSION AND ANALYSIS (Cont'd)
As at 31 December, 2003, the Group was committed to make a capital contribution
of approximately RMB446 million to its jointly controlled entities.
Details of the capital and investing commitments are set out in note 29 to the
consolidated financial statements.
Major contingent liabilities of the Group at 31 December, 2003 are set out in
note 30 to the consolidated financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 19
REPORT OF THE DIRECTORS
The Board of Directors of the Company hereby presents this report and the
audited consolidated financial statements of the Group for the year ended 31
December, 2003.
PRINCIPAL ACTIVITIES, OPERATING RESULTS AND FINANCIAL POSITION
The Group is principally engaged in airline operations. The Group also operates
certain airline related businesses, including aircraft maintenance and air
catering operations. The Group is one of the largest airlines in China. In 2003,
the Group ranked first among all Chinese airlines in terms of passenger traffic
volume, number of scheduled flights per week, number of hours flown, number of
routes and size of aircraft fleet. The Group has prepared the results of
operations for the year ended 31 December, 2003, and the financial position of
the Company and the Group as of that date in accordance with IFRS and PRC
Accounting Rules and Regulations. See pages 39 to 182 of this Annual Report.
FIVE-YEAR SUMMARY
A summary of the results and the assets and liabilities of the Group prepared
under IFRS for the five-year period ended 31 December, 2003 are set out on pages
189 and 190 of this Annual Report.
DIVIDENDS
No interim dividend was paid during the year ended 31 December, 2003 (2002:
Nil).
The Board of Directors of the Company does not recommend the payment of a final
dividend in respect of the year ended 31 December, 2003 (2002: Nil).
BANK LOANS AND OTHER BORROWINGS
Details of the bank loans and other borrowings of the Company and the Group are
set out in notes 21 and 22 to the consolidated financial statements prepared
under IFRS.
INTEREST CAPITALIZATION
For the year ended 31 December, 2003, RMB83,077,000 interest (2002:
RMB64,186,000) was capitalised as the cost of construction in progress and fixed
assets.
FIXED ASSETS
Fixed assets of the Company and the Group and movements of fixed assets during
the year ended 31 December, 2003 are set out in note 10 to the consolidated
financial statements prepared under IFRS.
20 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
MAJOR CUSTOMERS AND SUPPLIERS
The percentage of turnover attributable to the Group's five largest customers in
aggregate was less than 30% of the Group's total operating revenue (i.e.
turnover) for the year ended 31 December, 2003.
The percentage of purchases attributable to the largest supplier and the five
largest suppliers in aggregate represented approximately 60% and 72%,
respectively, of the Group's total purchases (not including purchases of items
which are of a capital nature) for the year ended 31 December, 2003.
At no time during the year ended 31 December, 2003 have any Directors,
associates of Directors or shareholders of the Company owning, to the knowledge
of the Directors, more than 5% of the Company's share capital and any interest
in the Group's five largest customers or suppliers.
TAXATION
Details of taxation of the Company and the Group are set out in note 7 to the
consolidated financial statements prepared under IFRS.
RESERVES
Movements in the reserves of the Company and the Group during the year are set
out in note 26 to the consolidated financial statements prepared under IFRS.
EMPLOYEES AND EMPLOYEES' PENSION SCHEME
As at 31 December, 2003, the Group had an aggregate of 17,569 employees (2002:
17,031). Details of the employees' pension schemes and other welfare are set out
in note 28 to the consolidated financial statements prepared under IFRS.
SUBSIDIARIES
Details of the principal subsidiaries of the Company are set out in note 36 to
the consolidated financial statements prepared under IFRS.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 21
REPORT OF THE DIRECTORS (Cont'd)
SHARE CAPITAL STRUCTURE
With the approval of the China Securities Regulatory Commission, the Company
issued 1,000,000,000 A Shares of RMB1 each to public at an issue price of RMB2.7
each from 10 July to 17 July, 2003 and successfully raised gross share proceeds
of RMB2.7 billion. The A Shares issued are listed on the Shanghai Stock Exchange
since 25 July, 2003 (Abbreviation: Southern Airlines; stock code: 600029).
Owing to the issuance of A Shares, the Company's total share capital has
increased from 3,374,178,000 shares to 4,374,178,000 shares. The share capital
of the Company is set out below:
BEFORE ISSUANCE OF AFTER ISSUANCE OF
A SHARES A SHARES
APPROXIMATE APPROXIMATE
PERCENTAGE OF PERCENTAGE OF
TOTAL SHARE TOTAL SHARE
CAPITAL CAPITAL
TYPE OF SHARES NUMBER OF SHARES (%) NUMBER OF SHARES (%)
----------------------------------------------------------------------------------------------------------------
1. Unlisted shares State-owned shares 2,200,000,000 65.2 2,200,000,000 50.30
----------------------------------------------------------------------------------------------------------------
2. Listed shares
1. Overseas listed foreign shares 1,174,178,000 34.8 1,174,178,000 26.84
(H Shares)
2. Domestic listed ordinary shares
(A Shares) - - 1,000,000,000 22,86
----------------------------------------------------------------------------------------------------------------
Total share capital 3,374,178,000 100 3,374,178,000 100
----------------------------------------------------------------------------------------------------------------
22 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
SUBSTANTIAL SHAREHOLDERS
As at 31 December, 2003, to the knowledge of the Directors, chief executive and
Supervisors of the Company, the interests and short positions of the following
persons other than the Directors, chief executives or Supervisors in the shares
and underlying shares of the Company as recorded in the register of the Company
required to be kept under section 336 of the Securities and Futures Ordinance
(the "SFO") or otherwise persons who have an interest of 10% or more in the
Company's shares are as follows:
% OF THE % OF THE TOTAL % OF THE
TOTAL ISSUED H ISSUED SHARE TOTAL ISSUED
NAME OF TYPE OF TYPE OF NUMBER OF SHARES OF THE CAPITAL OF DOMESTIC SHARES
SHAREHOLDER SHAREHOLDING SHARE SHARE HELD COMPANY THE COMPANY OF THE COMPANY SHORT POSITION
-----------------------------------------------------------------------------------------------------------------------------------
CSAHC Direct holding State-owned Shares 2,200,000,000 - 50.30% 68.75% -
HKSCC Nominees Direct holding H Shares 1,149,955,998 97,94% 26.29% - -
Limited
-----------------------------------------------------------------------------------------------------------------------------------
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 Hong Kong Stock Exchange) and so far as the Directors, chief
executive and Supervisors are aware, as at 31 December, 2003:
1. Among the 1,149,955,998 H Shares held by HKSCC Nominees Limited, Li
Ka-Shing Unity Trustcorp Limited had an interest in an aggregate of
193,877,000 H Shares of the Company (representing approximately 16.51 %
of its then total issued H Shares) in the capacity as beneficiary of a
trust.
2. Among the 1,149,955,998 H Shares held by HKSCC Nominees Limited, J.P.
Morgan Chase & Co. had an interest in an aggregate of 139,239,800 H
Shares of the Company (representing approximately 11.86% of its then
total issued H Shares). Out of the 139,239,800 H Shares, J.P. Morgan
Chase & Co. had an interest in a lending pool comprising 19,849,000 H
Shares of the Company (representing approximately 1.69% of its then
total issued H Shares). According to the information as disclosed in
the website of the Hong Kong Stock Exchange and so far as the
Directors, chief executive and Supervisors are aware, J.P. Morgan
Chase & Co, held its interest in the Company in the following manners:
(a) 19,849,000 H Shares in a lending pool, representing
approximately 1.69% of the Company's then total issued H
Shares, were held by J.P. Morgan Chase Bank, which was 100%
held by J.P, Morgan Chase & Co.;
(b) 3,856,800 H Shares, representing approximately 0.33% of the
Company's then total issued H Shares, were held in the
capacity as beneficial owner by J.P. Morgan Whitefriars Inc.,
which was ultimately 100% held by J.P. Morgan Chase & Co,;
(c) 115,138,000 H Shares, representing approximately 9.81% of the
Company's then total issued H Shares, were held in the
capacity as investment manager by JF Asset Management Limited,
which was approximately 99.99% held by J.P. Morgan Fleming
Asset Management (Asia) Inc., which was ultimately 100% held
by J.P. Morgan Chase & Co.; and
(d) 396,000 H Shares, representing approximately 0.03% of the
Company's then total issued H Shares, were held in the
capacity as beneficial owner by J.P. Morgan Securities Ltd.,
which was approximately 90% held by J.P. Morgan Holdings (UK)
Limited, which was ultimately 100% held by J.P. Morgan Chase &
Co..
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 23
REPORT OF THE DIRECTORS (Cont'd)
3. Among the 1,149,955,998 H Shares held by HKSCC Nominees Limited, Morgan
Stanley International Incorporated had an interest in an aggregate of
111,121,932 H Shares of the Company (representing approximately 9.46%
of its then total issued H Shares). According to the information as
disclosed on the website of the Hong Kong Stock Exchange and so far as
the Directors, chief executive and Supervisors are aware, Morgan
Stanley International Incorporated which was (or its directors were)
accustomed to act in accordance with the directors of Morgan Stanley,
held its indirect interest in the Company as at 31 December, 2003 in
the manner as follows:
(a) 743,322 H Shares, representing approximately 0.06% of the
Company's then total issued H Shares, were held by Morgan
Stanley Dean Witter Hong Kong Securities Limited, which was
ultimately 100% held by Morgan Stanley Asia Pacific (Holdings)
limited, which, in turn, was 90% held by Morgan Stanley
International Incorporated;
(b) 108,670,000 H Shares, representing approximately 9.25% of the
Company's then total issued H Shares, were held by Morgan
Stanley Investment Management Company, which was ultimately
100% held by Morgan Stanley Asia Pacific (Holdings) Limited,
which, in turn, was 90% held by Morgan Stanley International
incorporated;
(c) 292,600 H Shares, representing approximately 0.02% of the
Company's then total issued H Shares, were held by Morgan
Stanley Asset & Investment Trust Management Co, Limited, which
was 100% held by Morgan Stanley International Incorporated;
(d) 714,000 H Shares, representing approximately 0.06% of the
Company's then total issue H Shares, were held by Morgan
Stanley & Co International Limited, which was ultimately 100%
held by Morgan Stanley Group (Europe), which, in turn, was
approximately 98.30% held by Morgan Stanley International
Limited, in which Morgan Stanley International Incorporated
held 100% control; and
(e) 702,000 H Shares, representing approximately 0.06% of the
Company's then total issued H Shares, were held by Morgan
Stanley Capital (Luxembourg) S.A., which was approximately
93.75% held by Morgan Stanley International Incorporated.
According to the information as disclosed on the website of the Hong
Kong Stock Exchange and so far as the Directors, chief executive and
Supervisors are aware, as at 31 December, 2003, Morgan Stanley Dean
Witter Hong Kong Securities Limited also had a short position in
616,000 H Shares of the Company (representing approximately 0.05% of
its then total issued H Shares).
4. Among the 1,149,955,998 H Shares held by HKSCC Nominees Limited,
96,938,500 H Shares, representing approximately 8.26% of the Company's
then total issued H Shares, were held by Space Dragon Limited as
beneficial owner, which was 100% held by Cheung Kong Investment Company
Limited.
5. Among the 1,149,955,998 H Shares held by HKSCC Nominees Limited,
96,938,500 H Shares, representing approximately 8.26% of the Company's
then total issued H Shares, were held by Choicewell Limited as
beneficial owner, which was ultimately 100% held by Hutchison Whampoa
Limited.
Save as disclosed above, as at 31 December 2003, to the knowledge of the
Directors, chief executive and Supervisors of the Company, no other person
(other than the Directors, chief executives or Supervisors) had an interest or
short positions in the shares or underlying shares of the Company as recorded in
the register of the Company required to be kept under section 336 of the SFO or
otherwise had an interest of 10% or more in the Company's shares.
24 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
PARTICULARS OF SHAREHOLDERS
The total number of shareholders of the Company as at 31 December, 2003 was
152,747, of which 150,147 were shareholders of A Shares and 2,600 were
shareholders of H Shares.
Particulars of shareholdings of the Company's ten largest shareholders as at the
end of the reporting period are as follows:
SHAREHOLDINGS OF TEN LARGEST SHAREHOLDERS:
SHAREHOLDINGS NUMBER OF
NAME OF INCREASE/DECREASE AT THE END OF PERCENTAGE TYPE OF PLEDGED OR NATURE OF
NO. SHAREHOLDERS DURING THE YEAR THE YEAR (%) SHARES FROZEN SHARES SHARES HELD
---------------------------------------------------------------------------------------------------------------------
1. CSAHC - 2,200,000,000 50.30 Unlisted - State-owned shares
2. HKSCC NOMINEES LIMITED 314,000 1,149,955,998 26.29 listed Unknown H Shares
3. Huaxia Growth 59,000,000 59,000,000 1.35 Listed Unknown A Snares
4. Huaxia Return 56,865,741 56,865,741 1.30 Listed Unknown A Shares
5. Xinghua Fund 30,160,190 30,160,190 0.69 Listed Unknown A Shares
6. Yinfeng Fund 25,697,368 25,697,368 0.59 Listed Unknown A Shares
7. Xinghe Fund 24,536,588 24,536,588 0.56 Listed Unknown A Shares
8. Anxin Fund 21,001,852 21,001,852 0.48 Listed Unknown A Shares
9. Fenghe Value 20,940,086 20,940,086 0.48 listed Unknown A Shares
10. Yuyuan Fund 15,007,147 15,007,147 0.34 Listed Unknown A Shares
---------------------------------------------------------------------------------------------------------------------
PURCHASE, SALE OR REDEMPTION OF SHARES
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any
shares of the Company during 2003.
USE OF PROCEEDS FROM H SHARE OFFERING AND A SHARE OFFERING
As stated in the 2002 Annual Report of the Company, as of 31 December, 2002, the
Company had RMB40 million remaining from the proceeds of the initial public
offering of the H Shares of the Company. As at 31 December, 2003, the RMB40
million has been used for the development of the Company's computerised
accounting system and flights controlling system in accordance with the
disclosure in the Prospectus of the Company dated July 1997.
The proceeds from the issue of A Shares have been used for the purchases of
Boeing 737-800 aircraft in accordance with the disclosure in the Prospectus for
Offering of the A Shares. There has been no change in the use of proceeds.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 25
REPORT OF THE DIRECTORS (Cont'd)
PRE-EMPTIVE RIGHTS
Neither the Articles of Association of the Company nor the laws of the PRC
provide for any pre-emptive rights requiring the Company to offer new shares to
existing shareholders in proportion to their existing shareholdings.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
In the opinion of the Directors of the Company, the Group has complied with the
Code of Best Practice set out in Appendix 14 of the Listing Rules issued by The
Stock Exchange of Hong Kong Limited ("the Hong Kong Stock Exchange") throughout
the year ended 31 December, 2003.
DIRECTORS, SUPERVISORS AND SENIOR ADMINISTRATIVE OFFICERS,
Directors, Supervisors and Senior Administrative Officers of the Company in 2003
were as follows:
CAPACITY
NUMBER OF IN WHICH
SHARES OF THE THE SHARES
NAME AGE POSITION COMPANY HELD WERE HELD
----------------------------------------------------------------------------------------------------------------------
Yan Zhi Qing 62 Chairman of the Board of Directors 0 -
Liu Ming Qi 60 Vice Chairman of the Board of Directors 0 -
Wang Chang Shun 47 Vice Chairman of the Board of Directors, President 0 -
Peng An Fa 56 Director 0 -
Wang Quan Hua 50 Director 0 -
Zhao Liu An 56 Director 0 -
Zhou Yong Qian 59 Director 0 -
Zhou Yong Jin 61 Director 0 -
Xu Jie Bo 39 Director, Chief Financial Officer, Vice President 0 -
Wu Rong Nan 62 Director 0 -
Simon To 53 Independent Non-Executive Director 100,000 H Shares Interest of spouse
Peter Lok 68 Independent Non-Executive Director 0 -
Wei Ming Hai 40 Independent Non-Executive Director 0 -
Wang Zhi 62 Independent Non-executive Director 0 -
Sui Guang Jun 43 Independent Non-executive Director 0 -
Liang Hua Fu 62 Chairman of the Supervisory Committee 0 -
Gan Yu Hua 76 Supervisor 0 -
Li Qi Hong 56 Supervisor 0 -
Jiang Ping 54 Vice President 0 -
Li Kun 44 Vice President 0 -
Yuan Xin An 47 Vice President 1,000 A Shares Beneficial owner
Zheng En Ren 59 Vice President 0 -
Hao Jian Hua 54 Vice President 0 -
Su Liang 42 Company Secretary 0 -
----------------------------------------------------------------------------------------------------------------------
26 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
On 13 May, 2003, Mr. Liu Ming Qi, Mr. Peng An Fa, Mr. Wang Quan Hua, Mr. Zhao
Liu An, Mr. Zhou Yong Qian, Mr, Wang Zhi and Mr. Sui Guang Jun respectively were
appointed as Directors of the Company at the Shareholders' meeting of the
Company.
On 13 May, 2003, Mr. Wang Shao Xi and Mr. Zhang Rui Ai tendered their
resignations to the Company as Directors of the Company due to retirement. Their
resignations were approved at the Shareholders' meeting of the Company.
On 30 July, 2003, the Board of Directors resolved to appoint Mr. Hao Jian Hua
and Mr. Xu Jie Bo as Vice Presidents of the Company. On the same day, Mr. Yang
Guang Hua resigned as Vice President of the Company due to work arrangement.
Biographical details of the Board of Directors, Senior Administrative Officers
and members of the Supervisory Committee are set out on pages 191 to 195 of this
Annual Report.
INTERESTS AND SHORT POSITIONS OF DIRECTORS AND SUPERVISORS IN THE COMPANY AND
ASSOCIATED CORPORATIONS
As at 31 December, 2003, the interests and short positions of the Directors and
Supervisors of the Company in the shares, underlying shares and 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 Hong
Kong Stock Exchange pursuant to SFO (including interests or short positions
which are taken or deemed to have under such provisions of the SFO), or recorded
in the register maintained by the Company pursuant to section 352 of the SFO or
which were notified to the Company and the Hong Kong Stock Exchange pursuant to
the "Model Code for Securities Transactions by Directors of the Listed
Companies" in schedule 10 of the Listing Rules are as follows:
% TO THE % TO THE
TOTAL TOTAL % TO THE
ISSUED ISSUED TOTAL
THE SHARE DOMESTIC ISSUED
COMPANY/ NUMBER CAPITAL SHARES H SHARES
ASSOCIATED TYPES OF TYPE OF OF SHARES OF THE OF THE OF THE SHORT
NAME CORPORATION INTEREST SHARES HELD COMPANY COMPANY COMPANY POSITION
-----------------------------------------------------------------------------------------------------------------
Simon To the Company Interest of H Shares 100,000 0.002% - 0.009% -
spouse
(Note 1)
-----------------------------------------------------------------------------------------------------------------
Note 1: The spouse of Mr. Simon To is the owner of these 100,000 H Shares of
the Company and accordingly, Mr. Simon To, is taken to be interested in
these 100,000 H Shares by virtue of the SFO.
Save as disclosed above, as at 31 December, 2003, none of the Directors or
Supervisors 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 Hong Kong Stock Exchange pursuant to SFO
(including interests or short positions which are taken or deemed to have under
such provisions of the SFO), or recorded in the register maintained by the
Company pursuant to section 352 of the SFO or which were notified to the Company
and the Hong Kong Stock Exchange pursuant to the "Model Code for Securities
Transactions by Directors of the Listed Companies" in schedule 10 of the Listing
Rules.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 27
REPORT OF THE DIRECTORS (Cont'd)
SERVICE CONTRACTS OF THE DIRECTORS AND SUPERVISORS
All Directors and Supervisors of the Company have entered into service contracts
with the Company for a term of three years commencing on 16 April, 2001. The
service contracts of Liu Ming Qi, Peng An Fa, Wang Quan Hua, Zhao Liu An, Zhou
Yong Qian, Wang Zhi and Sui Guang Jun entered into on 13 May, 2003 will expire
at the end of the term of the current session of the Board. Except for such
service contracts, none of the Directors or Supervisors of the Company has
entered or proposed to enter into any other service contracts with the Company
or its subsidiaries. None of the Directors or Supervisors has entered into any
service contracts with the Company which is not determinate by the Company
within one year without payment of compensation, other than statutory
compensation.
INTERESTS OF DIRECTORS AND SUPERVISORS IN CONTRACTS
In 2003, none of the Directors and Supervisors of the Company had a material
interest in any contract of significance to which the Company or any of its
subsidiaries was a party.
CONNECTED TRANSACTIONS
The Company enters from time to time into certain connected transactions with
CSAHC and other connected persons. Such transactions fall within the definition
of connected transactions as set out in Chapter 14 of the Listing Rules issued
by the Stock Exchange of Hong Kong Limited ("the Hong Kong Stock Exchange"). The
Hong Kong Stock Exchange has granted waivers to the Company in respect of
compliance with certain provisions of Chapter 14 of the Listing Rules. Details
of such transactions conducted during the year and/or the related agreements
entered into between the Company and such parties for which waivers have been
obtained are disclosed as follows:
(A) DE-MERGER AGREEMENT
The De-merger Agreement dated 25 March, 1995 (such Agreement was
amended by Amendment No.1 dated 22 May, 1997) was entered into between
the CSAHC and the Company for the purpose of defining and allocating
the assets and liabilities between CSAHC and the Company. Under the
De-merger Agreement, CSAHC and the Company have agreed to indemnify the
other party against claims, liabilities and expenses incurred by such
other party but relating to the businesses, assets and liabilities held
or assumed by CSAHC or the Company (as the case may be) pursuant to the
De-merger Agreement.
Neither the Company nor CSAHC has made any payments in respect of such
indemnification obligations from the date of the De-merger Agreement up
to the date of this report.
28 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
(B) CONNECTED BUSINESS TRANSACTIONS
The Company and CSAHC and their respective subsidiaries were a single
group prior to the restructuring of CSAHC in 1995 in anticipation of
the Company's global offering ("Restructuring"). As a result, certain
arrangements between them have continued after the Restructuring and
the listing of the Company's shares on the Hong Kong Stock Exchange and
New York Stock Exchange. At present, the Company and CSAHC (or their
respective subsidiaries) have entered into the following agreements:
(a) Southern Airlines (Group) Import and Export Trading Company
("SAIETC"), a wholly-owned subsidiary of CSAHC
The Company and Southern Airlines have entered into an
agreement dated 22 May, 1997 for the import and export of
aircraft, flight equipment, special vehicles for airline use,
communication and navigation facilities, and training
facilities for a term from 22 May, 1997 to 22 May, 2000 which
was subsequently extended to 2006 by mutual agreement between
the parties. The parties have mutually agreed that the
agreement can be extended automatically.
For the year ended 31 December, 2003, the amount incurred by
the Group for the import and export of the above equipment was
RMB1, 154,553,000 inclusive of agency commission of 1.5% above
the contract prices paid to SAIETC,
(b) Southern Airlines Advertising Company, which is 90% owned by
the Company and 10% owned by CSAHC ("CSAHC")
On 26 August, 2002, the Company had entered into a takeover
agreement with CSAHC. As a result, the Company owns 90% and
CSAHC owns 10% of Southern Airlines Advertising Company.
The Company and Southern Airlines Advertising Company have
entered into an agreement dated 22 May, 1997 for the provision
of advertising services for a term extending from 22 May, 1997
to 22 May, 2000. After extension of three years, the parties
have mutually agreed to extend the agreement for another three
years to 22 May, 2006.
For the year ended 31 December, 2003, the amount incurred by
the Group to Southern Airlines Advertising Company for
advertising services was RMB1,320,000.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 29
REPORT OF THE DIRECTORS (Cont'd)
(c) Southern Airlines Group Finance Company Limited ("SA Finance")
which is 42% owned by CSAHC, 32% owned by the Company, 26%
owned in aggregate by five subsidiaries of the Company
The company has entered into a financial agreement 22 May,
1997 with SA Finance for the provision of financial services
such as deposit and loan facilities, credit facilities,
financial guarantees and credit references for a term
commencing from 22 May, 1997 to 22 May, 2000, As agreed by the
parties, the agreement has been extended for six years to 22
May, 2006.
Under such agreement, (a) all funds that the Company deposits
with SA Finance will be deposited by SA Finance with the
Industrial and Commercial Bank of China, Bank of
Communications, Bank of Agriculture, China Construction Bank,
or other banks of similar creditworthiness; and (b) SA
Finance will not at any time have outstanding loans in excess
of the amount representing the aggregate of (i) deposits
received from entities other than the Company, (ii) SA
Finance's shareholders' equity and (iii) capital reserves.
The Group had short-term deposits placed with SA Finance at 31
December, 2003 amounting to RMB365,906,000 which earned
interest at the rate of 1.98%-3.00% per annum.
(d) Shenzhen Air Catering Company Limited, which is 33% owned by
CSAHC, and 67% owned by two independent third parties.
The Company and Shenzhen Air Catering Company Limited have
entered into an agreement dated 23 May, 1997 for the sale and
purchase of in-flight meals for flights originating or
stopping at the airport in Shenzhen. Pursuant to such
agreement, Shenzhen Air Catering Company Limited will supply
in-flight meals to the Group from time to time during the term
from 23 May, 1997 to 23 May, 1998. The parties have mutually
agreed that the agreement can be extended automatically.
For the year ended 31 December, 2003, the amount incurred by
the Group to Shenzhen Air Catering Company Limited for the
provision of in-flight meals was approximately RMB28,199,000.
(e) Guangzhou Aircraft Maintenance Engineering Company Limited
("GAMECO"), which is 50% owned by the Company and 50% owned by
an independent third party
The Company and GAMECO have entered into an Aircraft
Maintenance and Engineering Agreement for the provision of
aircraft repair and maintenance services. On 17 May, 1996, the
Company and GAMECO entered into an agreement regarding the fee
arrangement for the provision of such repair and maintenance
services (the "Fee Agreement"). Pursuant to the Fee Agreement
and subsequent agreements, GAMECO charged the Company for
expendables at cost plus 15%, and labor costs at US$30.0 per
hour during 2003.
For the year ended 31 December, 2003, the amount incurred by
the Group for such repair and maintenance services was
RMB587,252,000.
30 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
(f) China Southern West Australian Flying College Pty Ltd (the
"Australian Pilot College"), which is 65% owned by the Company
and 35% owned by CSAHC
CSAHC and the Australian Pilot College entered into an
agreement dated 7 October, 1993 for the provision of pilot
training in Australia to the cadet pilots of CSAHC (the
"Training Agreement"). The Training Agreement will remain in
force unless terminated by either party upon 90 days' prior
written notice to the other party. Pursuant to the De-merger
Agreement, the Company has assumed all the interests, rights
and obligations of CSAHC under the Training Agreement.
For the year ended 31 December, 2003, the amount paid by the
Group to the Australian Pilot College for training services
was RMB82,386,000.
(g) Southern Airlines (Group) Economic Development Company, which
is 61% owned by CSAHC and 39% owned by an independent third
party
The Company and Southern Airlines (Group) Economic development
Company have entered into an agreement dated 22 May, 1997 for
the provision of drinks, snacks, liquor, souvenirs and other
products for a term extending from 22 May, 1997 to 22 May,
2007.
For the year ended 31 December, 2003, the amount paid by the
Group to Southern Airlines (Group) Economic Development
Company for the provision of drinks, snacks, liquor, souvenirs
and other products was RMB42,849,000.
(h) Guangzhou Nanland Air Catering Company Limited ("Nanland"),
which is 51% owned by the Company and 49% owned by an
independent third party
The Company and Nanland have entered into a catering agreement
dated 22 May, 1999 for the sale and purchase of in-flight
meals for flights originating or stopping at the airport in
Guangzhou. Pursuant to such agreement, Nanland will supply
in-flight meals to the Company from time to time during the
term from 22 May, 1999 to 22 May, 2000. The agreement will
then be automatically extended annually.
For the year ended 31 December, 2003, the amount paid by the
Group to Nanland for the provision of in-flight meals was
RMB70,194,000.
(i) Ticket sales arrangements
The Group has entered into ticket agency agreements for the
sale of the Group's air tickets with several subsidiaries of
CSAHC (the "Agents"). The Agents charge commission on the
basis of the rates stipulated by the CAAC and international
Air Transport Association ("IATA"). The Agents charge a
commission in the amount of 3% of the ticket price for
domestic tickets and 5% to 12% of the ticket price for Hong
Kong regional/ international tickets. The Group has other air
ticket sales agents in China who also charge commission at the
same rates. The Agents also act as air ticket sales agents for
other Chinese airlines and charge the same rates of commission
to such other airlines as those charged to the Group.
For the year ended 31 December, 2003, the aggregate amount of
ticket sales of the Group conducted through the Agents was
RMB143,016,000.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 31
REPORT OF THE DIRECTORS (Cont'd)
(C) TRADEMARK LICENCE AGREEMENT
The Company and CSAHC have entered into a 10 year Trademark Licence
Agreement dated 22 May, 1997 pursuant to which CSAHC acknowledges that the
Company has the right to use the name "China Southern" and "China Southern
Airlines" in both Chinese and English, and grants to the Company a
renewable royalty free licence to use the kapok logo on a worldwide basis
in connection with the Company's airline and airline-related businesses.
Unless CSAHC gives written notice of termination three months before the
expiration of the agreement, the agreement will be automatically extended
for another 10-year term.
(D) LEASES
CSAHC
The Company as lessee and CSAHC as lessor have entered into the following
lease agreements:
(a) The Company and CSAHC have entered into a land lease agreement dated
22 May, 1997, in respect of the land used by the Company within
Guangzhou Baiyun International Airport. The rental payment is
RMB2,650,700 per year. The term of the lease is five years commencing
1 April, 1997 and is renewable by the parties thereafter (subject to
mutual agreement with respect to rental terms).
(b) The Company and CSAHC have separately entered into four lease
agreements dated 22 May, 1997, in respect of office premises located
at the east wing of the Guangzhou Railway Station on Guangzhou Huanshi
Dong Road, office premises at Haikou Airport, office premises in
Haikou City, and office premises at Tianhe Airport in Wuhan, Hubei
Province. The aggregate rental payment under the four leases is
RMB12,573,000 per year. The term of each lease is one year and is
renewable by the parties thereafter (subject to mutual agreement with
respect to rental terms).
(c) The Company and CSAHC have entered into an indemnification agreement
dated 22 May, 1997 in which CSAHC has agreed to indemnify the Company
against any loss or damage caused by or arising from any challenge of,
or interference with, the Company's right to use certain land and
buildings.
Xinjiang Airlines Company ("Xinjiang Airlines"), a wholly owned subsidiary
of CSAHC
The Company and Xinjiang Airlines have entered into an aircraft lease
agreement dated 8 April, 2002, whereby Xinjiang Airlines wet leased a
Boeing 757-200 aircraft, together with aircrew and other parts and
equipment for the operation of the aircraft, including engine and such
spare parts necessary for its maintenance during the term of the lease. The
rental payment payable by the Company under the lease for year 2003 was
RMB35,751,000.
32 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
(E) COMPREHENSIVE SERVICES AND EMPLOYEE BENEFITS
The Company and CSAHC have entered into a comprehensive services agreement
(the "Services Agreement") dated 22 May, 1997.
The Services Agreement provides that CSAHC shall sell or rent housing to
eligible employees of the Group at lower than market price. As the housing
is sold or rented below cost and the construction costs of the leased
housing were originally paid by CSAHC, the Company shall pay CSAHC RMB85
million per year, payable quarterly in arrears, for a term of ten years
from 1995 to 2004.
(F) ONGOING CONNECTED TRANSACTIONS WITH CHINA NORTHERN AIRLINES COMPANY AND
XINJIANG AIRLINES
China Northern Airlines Company ("Northern Airlines"), a wholly owned
subsidiary of CSAHC
Northern Airlines is principally engaged in commercial airline services in
the PRC with its headquarters based in Shenyang, East Northern part of the
PRC. Following the consolidation and restructuring among CSAHC, Northern
Airlines and Xinjiang Airlines in 2002 (the "Consolidation and
Restructuring"), Northern Airlines becomes a wholly owned subsidiary of
CSAHC and therefore constitutes a connected person of the Company under the
Listing Rules.
Xinjiang Airlines
Xinjiang Airlines is principally engaged in commercial airline services in
the PRC with its headquarters based in Urumqi, Xinjiang. Following the
Consolidation and Restructuring, Xinjiang Airlines becomes a wholly owned
subsidiary of CSAHC and therefore constitutes a connected person of the
Company under the Listing Rules.
(a) In-flight Meals Arrangement with Northern Airlines
Nanland has been providing and will provide in-flight meals to
Northern Airlines. Pursuant to an agreement dated 23 June, 2000,
Nanland has been providing in-flight meals to Northern Airlines from
time to time for a period of one year. The agreement will then be
automatically extended annually. For the year ended 31 December, 2003,
the amount paid by Northern Airlines to Nanland for the provision of
in-flight meals was approximately RMB4,657,000.
Pursuant to an agreement dated 30 October, 2001, Northern Airlines has
been providing and will provide in-flight meals to the Group from time
to time for a period of one year. The agreement will then be
automatically extended annually.
For the year ended 31 December, 2003, the amount paid by the Group to
Northern Airlines for the provision of in-flight meals was
approximately RMB2,321,000.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 33
REPORT OF THE DIRECTORS (Cont'd)
(b) In-flight Meals Arrangement with Xinjiang Airlines
Pursuant to an agreement dated 24 March, 2001, Nanland has been
providing and will provide inflight meals to Xinjiang Airlines from
time to time for a period of one year. The agreement will then be
automatically extended annually. For the year ended 31 December, 2003,
the amount paid by Xinjiang Airlines to Nanland for the provision of
in-flight meals was approximately RMB1,806,000.
Pursuant to an agreement dated 20 September, 1999, Xinjiang Airlines
has been providing and will provide in-flight meals to the Group for a
period of one year. The agreement will then be automatically extended
annually. The amount paid by the Group to Xinjiang Airlines for the
provision of in-flight meals for the year ended 31 December, 2003 was
approximately RMB2,888,000.
(c) Ticket Sales Arrangement with Northern Airlines
In accordance with the relevant requirement and industry practice, the
Group has entered into ticket agency arrangement with Northern
Airlines for the sale of the Group's air tickets by Northern Airlines
and for the sale of Northern Airlines air tickets by the Group. The
selling party charges a commission in the amount of 3% of the ticket
price for domestic tickets and 5% to 12% of the ticket price for Hong
Kong regional and international tickets. These commission rates are
based on the rates stipulated by the CAAC and IATA. The amount of
commission paid by Northern Airlines to the Group for the year ended
31 December, 2003 was approximately RMB3,083,000. The amount of
commission paid by the Group to Northern Airlines for the year ended
31 December, 2003 was approximately RMB404,000.
The amounts payable under the above aforesaid transactions are based
on the rates stipulated by the CAAC and IATA.
(d) Ticket Sales Arrangement with Xinjiang Airlines
The Group has entered into ticket agency arrangement with Xinjiang
Airlines for the sale of the Group's air tickets by Xinjiang Airlines
and for the sale of Xinjiang Airlines air tickets by the Group. The
selling party charges a commission in the amount of 3% of the ticket
price for domestic tickets and 5% to 12% of the ticket price for Hong
Kong regional and international tickets. These commission sales are
based on the rates stipulated by the CAAC and IATA. The amount of
commission paid by Xinjiang Airlines to the Group for the year ended
31 December, 2003 was approximately RMB1,290,000. The amount of
commission paid by the Group to Xinjiang Airlines for the year ended
31 December, 2003 was approximately RMB392,000.
The amounts payable under the above aforesaid transactions are based
on the rates stipulated by the CAAC and IATA.
34 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
The Independent Non-Executive Directors of the Company have confirmed to the
Board of Directors of the Company that they have reviewed the connected
transactions described in (B) through (F) above and have concluded that:
(a) The transactions have been entered into by the Group in the ordinary and
usual course of its business;
(b) The transactions have been entered into either (i) on normal commercial
terms (by reference to transactions of a similar nature made by similar
entities within the PRC) or (ii) (where there is no available comparison)
on terms that are fair and reasonable so far as the shareholders of the
Company are concerned;
(c) The transactions have been performed either (i) in accordance with the
terms of the agreement governing each such transaction or (ii) (where there
is no such agreement) on terms no less favourable than terms available from
third parties; and
(d) The aggregate annual amount payable by the Group to CSAHC, and the
aggregate annual amount payable by CSAHC to the Group, under the Ongoing
Connected Transactions for In-Flight Meals and Ticket Sales for the year
ended 31 December, 2003 have not exceeded the higher of HK$10 million and
3% of the consolidated net tangible assets of the Group as disclosed in its
latest published audited accounts.
WAIVER FOR ACQUISITIONS AND DISPOSALS OF AIRCRAFT
In March 2002, the Hong Kong Stock Exchange granted a waiver to allow the
Company to use a new size test based on available tonne kilometres ("ATKs") to
replace the normal net asset test and consideration test under Chapter 14 of the
Listing Rules in respect of acquisitions and disposals of aircraft.
The Hong Kong Stock Exchange has granted the waiver on and subject to the
following conditions:
1. Instead of the normal tests under Chapter 14 of the Listing Rules, the
tests may be calculated by reference to the ATKs for aircraft being
acquired or disposed of as compared to the Company's aggregate fleet ATKs.
2. The proposed method of calculation for the four tests will replace the net
asset test and the consideration test only while the other two tests,
namely, net profit and equity capital issued tests will continue to apply
as set out in Chapter 14 of the Listing Rules.
3. The calculation of ATKs will be as follows: (i) fleet ATKs will be the
aggregate actual ATKs for all aircraft in the Company's fleet for the last
financial year as disclosed in the Company's annual report, (ii) ATKs for
aircraft being disposed of will be based on actual ATKs of the aircraft for
the previous two financial years; and (iii) ATKs for aircraft being
acquired will be based on the historical operating data for the same type
of aircraft. Where the aircraft to be acquired is a new type, the ATKs will
be estimated based on other aircraft of similar size operated by the
Company or the average for the Chinese civil aviation industry.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 35
REPORT OF THE DIRECTORS (Cont'd)
4. The Company's ATKs figure will be disclosed in the Company's annual report
and be reviewed by the Company's auditors which will report on an annual
basis that the Company's ATKs are calculated correctly and consistently.
5. For the purposes of making the test as stated in paragraph 1 above, all
acquisitions and disposals for the last 12 months will be aggregated,
unless the acquisition or disposal has previously been reported as a
notifiable transaction under these rules.
6. The thresholds for classifying a transaction as a discloseable, major or
very substantial acquisition will be 30%, 50% and 100% (assuming that there
are no circumstances which would make it a connected transaction or a share
transaction).
7. Where the transaction is a discloseable transaction, disclosure will take
the form of a press announcement complying with rule 14.14 of the Listing
Rules and details of the transaction will be set out in the Company's next
annual report and accounts. Where the transaction is a major transaction or
a very substantial acquisition, the provisions of Chapter 14 of the Listing
Rules will apply.
8. An option to acquire aircraft will not be treated as acquisition while the
exercise of such an option will be treated as acquisition of aircraft.
9. The waiver will only apply to acquisition/ disposal of aircraft, and
acquisition or disposal of other types of assets by the Company will be
subject to provisions under Chapter 14 of the Listing Rules.
10. The Company will disclose in its annual reports and interim reports the
following information:
(a) Regarding future deliveries of aircraft, details of aircraft on order
including the number and type; and the years in which such aircraft
are scheduled to be delivered;
(b) The number and type of aircraft which are subject to options
exercisable during a period of not less than 12 months from the end of
the financial year or period to which the annual report relates; and
(c) Details of the waiver granted pursuant to the application.
11. The Company remains a subsidiary of the CSAHC. Should there be any change
in control of the Company, the Hong Kong Stock Exchange will need to
reconsider whether the waiver continues to be appropriate.
Regarding future deliveries of aircraft, details of aircraft on order and the
years in which such aircraft are scheduled to be delivered, please refer to note
29 to the financial statements prepared under IFRS. One Boeing 757-200 aircraft
and one Boeing 737-300 aircraft are subject to options exercisable in 2004.
36 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE DIRECTORS (Cont'd)
DONATIONS
During the year, the Group made donations for charitable purposes amounting to
RMB2,106,000.
DESIGNATED DEPOSITS AND OVERDUE TIME DEPOSITS
As at 31 December, 2003, the Group's deposits placed with financial institutions
or other parties did not include any designated deposits, or overdue time
deposits against which the Group failed to receive repayments.
MATERIAL LITIGATION
The Group was not involved in any material litigation or dispute in 2003.
AUDITORS
A resolution is to be proposed at the forthcoming Annual General Meeting of the
Company for the reappointment of KPMG as the international auditors of the
Company and of KPMG Huazhen as the PRC auditors of the Company.
By Order of the Board of Directors
YAN ZHI QING
Chairman of the Board of Directors
Guangzhou, the PRC
23 April, 2004
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 37
REPORT OF THE SUPERVISORY COMMITTEE
Dear Shareholders,
In 2003, the members of the Supervisory Committee of the Company (the
"Supervisory Committee") faithfully carried out their duties, participated in
all the board meetings of the Directors, monitored the financial position of the
Company and the Directors and senior administrative officers of the Company in
discharge of their duties and protected the legitimate rights and interests of
the Company and all the Shareholders, based on the powers bestowed upon them by
the Company Law and the Company's Articles of Association and in accordance with
the Working Procedures for the Supervisory Committee of China Southern Airlines
Company Limited and their sense of responsibility toward all the Shareholders.
I. PARTICULARS OF THE WORK OF THE SUPERVISORY COMMITTEE
The Supervisory Committee held a meeting on 14 March, 2003 during which it
reviewed and approved the 2002 Report of the Supervisory Committee and
concluded that the 2002 financial statements of the Company truly reflected
the financial position and operating results of the Company, and that the
audit opinions prepared by KPMG and KPMG Huazhen were both objective and
fair.
II. THE SUPERVISORY COMMITTEE'S INDEPENDENT OPINION:
1. The Company's policy making process and its operation were in
compliance with the laws and the Company established a relatively
comprehensive internal control system. The Supervisory Committee was
not aware of any actions of the Directors or senior administrative
officers of the Company who, in carrying out their duties, violated
laws, regulations, the Articles of Association of the Company or were
prejudicial to the interests of the Company.
2. The Company's financial report for 2003 gave a true and fair view of
its financial positions and operating results. The unqualified opinion
expressed in the auditors' reports issued by KPMG and KPMG Huazhen
gave an objective and fair view.
3. The Supervisory Committee was not aware of any insider dealings or
acts which impaired the Shareholders' interests or caused loss of
assets of the Company in the course of acquisition or disposal of
assets.
4. The Supervisory Committee was of the opinion that the use of proceeds
from the offering was in accordance with the disclosure in the
prospectus and such use of proceeds had not been changed.
5. The Supervisory Committee was of the opinion that the connected
transactions between the Company and its connected persons were
conducted at fair market value without prejudice to the interests of
the Company and its medium and minority Shareholders.
38 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
REPORT OF THE SUPERVISORY COMMITTEE (Cont'd)
The Supervisory Committee is satisfied with the annual report for 2003
presented by the Board of Directors of the Company, and appreciates the
satisfactory results in terms of enhancement of safety and service
standards achieved by the management of the Company in the face of
challenges and difficulties during the SARS outbreak. The Supervisory
Committee will continue to closely monitor the reorganization of CSAHC in
2004, and consider that an integration of corporate culture after the
reorganization is crucial to the future development. The Supervisory
Committee has every confidence in the Group's prospects.
By Order of the Supervisory Committee
LIANG HUA FU
Chairman of the Supervisory Committee
Guangzhou, the PRC
23 April, 2003
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 39
REPORT OF THE INTERNATIONAL AUDITORS
[KPMG LOGO]
TO THE SHAREHOLDERS OF CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Established in the People's Republic of China with limited liability)
We have audited the financial statements on pages 40 to 98 which have been
prepared in accordance with International Financial Reporting Standards
promulgated by the International Accounting Standards Board.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's directors are responsible for the preparation of financial
statements which give a true and fair view. In preparing financial statements
which give a true and fair view it is fundamental that appropriate accounting
policies are selected and applied consistently, that judgements and estimates
are made which are prudent and reasonable and that the reasons for any
significant departure from applicable accounting standards are stated.
It is our responsibility to form an independent opinion, based on our audit, on
those financial statements and to report our opinion solely to you, as a body,
and for no other purpose. We do not assume responsibility towards or accept
liability to any other person for the contents of this report.
BASIS OF OPINION
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Society of Accountants. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
financial statements, and of whether the accounting policies are appropriate to
the Company's and the Group's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December, 2003 and of the
Group's loss and cash flows for the year then ended and have been properly
prepared in accordance with International Financial Reporting Standards
promulgated by the International Accounting Standards Board and the disclosure
requirements of the Hong Kong Companies Ordinance.
KPMG
Certified Public Accountants
Hong Kong, 23 April, 2004
40 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Note RMB'000 RMB'000
----------------------------------------------------------------------------------------------------
Operating revenue:
Traffic revenue 16,964,800 17,481,892
Other revenue 505,323 536,728
----------------------------------------------------------------------------------------------------
Total operating revenue 3 17,470,123 18,018,620
----------------------------------------------------------------------------------------------------
Operating expenses:
Flight operations 7,070,031 6,732,543
Maintenance 2,588,613 2,333,419
Aircraft and traffic servicing 2,767,488 2,511,284
Promotion and sales 1,480,168 1,499,587
General and administrative 1,053,319 1,060,010
Depreciation and amortisation 2,037,971 1,839,871
Other 16,804 15,829
----------------------------------------------------------------------------------------------------
Total operating expenses 4 17,014,394 15,992,543
----------------------------------------------------------------------------------------------------
Operating profit 455,729 2,026,077
----------------------------------------------------------------------------------------------------
Non-operating income/(expenses):
Share of associated companies' results 47,798 36,988
Share of jointly controlled entities' results 14 (39,495) (3,352)
(Loss)/gain on sale of fixed assets 5 (22,217) 170,740
Interest income 13,061 52,618
Interest expense 4 (823,725) (959,193)
Exchange loss, net (164,443) (175,451)
Other, net 21,682 (9,328)
----------------------------------------------------------------------------------------------------
Total net non-operating expenses (967,339) (886,978)
----------------------------------------------------------------------------------------------------
(Loss)/profit before taxation and minority interests 4 (511,610) 1,139,099
Taxation credit/(expense) 7 324,277 (398,227)
----------------------------------------------------------------------------------------------------
(Loss)/profit before minority interests (187,333) 740,872
Minority interests (170,934) (165,111)
----------------------------------------------------------------------------------------------------
(Loss)/profit attributable to shareholders (358,267) 575,761
====================================================================================================
Basic (loss)/earnings per share 9 RMB(0.09) RMB0.17
====================================================================================================
The notes on pages 47 to 98 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 41
CONSOLIDATED BALANCE SHEET
As at 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Note RMB'000 RMB'000
------------------------------------------------------------------------------------------
NON-CURRENT ASSETS
Fixed assets 10 28,535,907 26,920,829
Construction in progress 11 1,629,689 661,352
Lease prepayments 348,652 201,854
Interest in associated companies 13 422,201 692,026
Interest in jointly controlled companies 14 731,323 461,962
Other investments 204,971 201,854
Lease and equipment deposits 2,932,591 2,147,038
Deferred expenditure 15 248,853 283,303
Long-term receivables 6,380 12,034
------------------------------------------------------------------------------------------
35,060,567 31,582,252
------------------------------------------------------------------------------------------
CURRENT ASSETS
Inventories 17 543,777 545,700
Trade receivables 18 833,604 671,776
Other receivables 296,047 372,586
Prepaid expenses and other assets 247,926 244,690
Cash and cash equivalents 20 2,080,174 3,771,043
------------------------------------------------------------------------------------------
4,001,528 5,605,795
------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Bank and other loans 21 7,096,846 5,240,726
Obligations under finance leases 22 1,297,855 1,566,698
Amounts due to related companies 19 929,003 525,090
Other liabilities 1,019,811 646,989
Accounts payable 23 928,093 532,480
Bills payable 438,135 1,299,680
Sales in advance of carriage 466,087 390,531
Accrued expenses 2,527,794 2,341,454
Taxes payable 89,954 78,145
------------------------------------------------------------------------------------------
14,793,578 12,621,793
------------------------------------------------------------------------------------------
NET CURRENT LIABILITIES (10,792,050) (7,015,998)
------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 24,268,517 24,566,254
------------------------------------------------------------------------------------------
The notes on pages 47 to 98 form part of these financial statements.
42 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CONSOLIDATED BALANCE SHEET (Cont'd)
As at 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Note RMB'000 RMB'000
------------------------------------------------------------------------------------------
LONG TERM LIABILITIES AND DEFERRED ITEMS
Bank and other loans 21 4,521,735 5,835,434
Obligations under finance leases 22 5,543,084 6,631,751
Provision for major overhauls 24 189,464 141,887
Deferred credits 46,554 48,095
Deferred taxation 16 398,305 779,234
------------------------------------------------------------------------------------------
10,699,142 13,436,401
------------------------------------------------------------------------------------------
13,569,375 11,129,853
==========================================================================================
REPRESENTING:
SHARE CAPITAL 25 4,374,178 3,374,178
RESERVES 26 7,521,529 6,239,029
------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 11,895,707 9,613,207
MINORITY INTERESTS 1,673,668 1,516,646
------------------------------------------------------------------------------------------
13,569,375 11,129,853
==========================================================================================
Approved and authorised for issue by the board of directors on 23 April, 2004
YAN ZHI QING WANG CHANG SHUN XU JIE BO
Director Director Director
The notes on pages 47 to 98 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 43
BALANCE SHEET
As at 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Note RMB'000 RMB'000
------------------------------------------------------------------------------------------
NON-CURRENT ASSETS
Fixed assets 10 22,610,251 19,530,908
Construction in progress 11 1,532,462 615,511
Lease prepayments 116,276 15,502
Interest in subsidiaries 12 1,445,831 1,406,010
Interest in associated companies 13 287,235 367,573
Interest in jointly controlled entities 14 563,736 474,042
Other investments 106,548 106,009
Lease and equipment deposits 2,228,754 2,065,192
Deferred expenditure 15 240,514 272,636
------------------------------------------------------------------------------------------
29,131,607 24,853,383
------------------------------------------------------------------------------------------
CURRENT ASSETS
Inventories 17 213,219 118,134
Trade receivables 18 683,206 464,930
Other receivables 222,438 239,601
Prepaid expenses and other assets 181,856 141,591
Cash and cash equivalents 20 1,404,874 2,960,337
------------------------------------------------------------------------------------------
2,705,593 3,924,593
------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Bank and other loans 21 5,958,968 3,479,322
Obligations under finance leases 22 1,297,855 1,566,698
Amounts due to related companies 19 870,682 358,077
Other liabilities 854,057 411,218
Accounts payable 23 745,888 296,989
Bills payable 438,135 1,299,680
Sales in advance of carriage 405,851 340,457
Accrued expenses 1,628,072 1,049,806
Tax payable 48,142 48,143
------------------------------------------------------------------------------------------
12,247,650 8,850,390
------------------------------------------------------------------------------------------
NET CURRENT LIABILITIES (9,542,057) (4,925,797)
------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 19,589,550 19,927,586
------------------------------------------------------------------------------------------
The notes on pages 47 to 98 form part of these financial statements.
44 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
BALANCE SHEET (Cont'd)
As at 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Note RMB'000 RMB'000
------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES AND DEFERRED ITEMS
Bank and other loans 21 3,670,499 4,628,372
Obligations under finance leases 22 5,543,084 6,631,751
Provision for major overhauls 24 130,992 63,389
Deferred credits 6,317 7,855
Deferred taxation 16 89,708 507,077
------------------------------------------------------------------------------------------
9,440,600 11,838,444
------------------------------------------------------------------------------------------
NET ASSETS 10,148,950 8,089,142
==========================================================================================
REPRESENTING:
SHARE CAPITAL 25 4,374,178 3,374,178
RESERVES 26 5,774,772 4,714,964
------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 10,148,950 8,089,142
==========================================================================================
Approved and authorised for issue by the board of directors on 23 April, 2004
YAN ZHI QING WANG CHANG SHUN XU JIE BO
Director Director Director
The notes on pages 47 to 98 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 45
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
SHARE SHARE OTHER RETAINED
CAPITAL PREMIUM RESERVES EARNINGS TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------------------------------
At 1 January, 2002 3,374,178 3,813,659 687,174 1,346,652 9,221,663
Land use rights adjustment
(Note 26 (f)) - (129,703) - 12,970 (116,733)
Adjustments from adoption
of new PRC accounting
regulations (Note 26 (c)) - - (185,540) 185,540 -
Dividend paid (Note 8) (67,484) (67,484)
Profit for the year - - - 575,761 575,761
Appropriations to reserves - - 83,738 (83,738) -
----------------------------------------------------------------------------------------------------------------------------------
At 31 December, 2002 3,374,178 3,683,956 585,372 1,969,701 9,613,207
==================================================================================================================================
At 1 January, 2003 3,374,178 3,683,956 585,372 1,969,701 9,613,207
Issue of A shares (Note 25) 1,000,000 1,640,767 - - 2,640,767
Loss for the year - - - (358,267) (358,267)
Appropriations to reserves - - 24,969 (24,969) -
----------------------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 4,374,178 5,324,723 610,341 1,586,465 11,895,707
==================================================================================================================================
The notes on pages 47 to 98 form part of these financial statements.
46 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December, 2003
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2003 2002
Note RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------------------
Cash inflows from operations 33 (a) 3,074,718 4,762,923
Interest received 13,061 52,618
Interest paid (923,901) (1,051,027)
Income tax paid (35,129) (66,970)
-------------------------------------------------------------------------------------------------------------------
Net cash inflows from operating activities 2,128,749 3,697,544
-------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from sale of fixed assets 57,077 825,197
Proceeds from sale of investments -- 68
Dividends received from associated companies -- 3,093
Decrease/(increase) in long term receivables 5,654 (943)
Payment of lease and equipment deposits (1,851,726) (1,999,233)
Refund of lease and equipment deposits 1,066,086 2,117,386
Capital expenditures (4,706,740) (6,351,030)
Purchase of investments in equity securities (1,065) (6,721)
Investment in associated company -- (136,500)
Investments in jointly controlled entities (2,999) (295,670)
Governmental subsidy for safety related
capital expenditures -- 40,240
Effect of acquisition of subsidiaries 33 (c) -- (90,491)
-------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,433,713) (5,894,604)
-------------------------------------------------------------------------------------------------------------------
Net cash outflows before financing activities (3,304,964) (2,197,060)
-------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from A share issue, net of issuance costs 2,640,767 --
Proceeds from bank and other loans 8,913,992 6,996,780
Repayment of bank and other loans (8,371,362) (2,194,630)
Repayment of principal under finance lease obligations (1,555,390) (1,546,185)
Capital contribution received from minority shareholders 1,050 10,625
Dividends paid to shareholders -- (67,484)
Dividends paid to minority shareholders (14,962) (48,866)
-------------------------------------------------------------------------------------------------------------------
Net cash inflows from financing activities 1,614,095 3,150,240
-------------------------------------------------------------------------------------------------------------------
(Decrease)/Increase in cash and cash equivalents (1,690,869) 953,180
Cash and cash equivalents at beginning of year 3,771,043 2,817,863
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 2,080,174 3,771,043
===================================================================================================================
The notes on pages 47 to 98 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 47
NOTES TO THE FINANCIAL STATEMENTS
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
1 BACKGROUND OF THE COMPANY
China Southern Airlines Company Limited (the "Company") and its subsidiary
companies (collectively the "Group") are principally engaged in the
provision of domestic, Hong Kong regional and international passenger,
cargo and mail airline services, with flights operating primarily from the
Guangzhou Baiyun International Airport, which is both the main hub of the
Group's route network and the location of its corporate headquarters.
The Company was established in the People's Republic of China (the "PRC",
"China" or the "State") on 25 March, 1995 as a joint stock limited company
as part of the reorganisation (the "Reorganisation") of the Company's
holding company, China Southern Air Holding Company ("CSAHC"). CSAHC is a
state-owned enterprise under the supervision of the PRC central
government.
The Company's H Shares and American Depositary Shares ("ADS") (each ADS
representing 50 H Shares) are listed on the Stock Exchange of Hong Kong
Limited and the New York Stock Exchange, respectively since July 1997. In
July 2003, the Company issued 1,000,000,000 A shares which are listed on
the Shanghai Stock Exchange.
2 PRINCIPAL ACCOUNTING POLICIES
(a) STATEMENT OF COMPLIANCE
The financial statements of the Group and the Company have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") promulgated by the International Accounting
Standards Board and the disclosure requirements of the Hong Kong
Companies Ordinance. IFRS includes International Accounting
Standards ("IAS") and related interpretations.
(b) BASIS OF PREPARATION
The financial statements of the Group and the Company are prepared
on the historical cost basis as modified by the revaluation of
certain fixed assets. The accounting policies have been consistently
applied by the Group and the Company and are consistent with those
used in the previous year.
(c) BASIS OF CONSOLIDATION
The consolidated financial statements of the Group include the
financial statements of the Company and all of its subsidiaries made
up to 31 December each year. Subsidiaries are those enterprises
controlled by the Group. Control exists when the Group has the
power, directly or indirectly, to govern the financial and operating
policies of an enterprise so as to obtain benefits from its
activities. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control
effectively commences until the date that control effectively
ceases.
48 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2 PRINCIPAL ACCOUNTING POLICIES (cont'd)
(c) BASIS OF CONSOLIDATION (cont'd)
The results of subsidiaries are included in the consolidated profit
and loss account and the share attributable to minority shareholders
is deducted from or added to the consolidated profit after taxation.
Losses attributable to minority shareholders of partly owned
subsidiaries are accounted for based on the respective equity owned
by the minority shareholders up to the amount of the capital
contribution and reserves attributable to the minority shareholders.
Thereafter, all further losses are assumed by the Company.
All significant intercompany balances and transactions have been
eliminated on consolidation.
(d) INTEREST-BEARING BORROWINGS
Interest-bearing borrowings are recognised initially at cost, less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in the
profit and loss account over the period of the borrowings on an
effective interest basis.
(e) INVESTMENTS
(i) Investments in subsidiaries
Investments in subsidiaries in the Company's balance sheet are
stated at cost less impairment losses (refer to accounting
policy n).
(ii) Investments in associated companies and jointly controlled
entities
An associated company is an entity in which the Group or the
Company has significant influence, but not control or joint
control, over its management, including participating in the
financial and operating policy decisions.
A jointly controlled entity is an entity which operates under
a contractual agreement between the Group or the Company and
other parties, where the contractual agreement establishes the
Group or the Company and one or more of the other parties
share joint control over the economic activity of the entity.
The consolidated profit and loss account includes the Group's
share of the results of its associated companies and jointly
controlled entities for the year. In the consolidated balance
sheet, the investments in associated companies and jointly
controlled entities are stated at the Group's attributable
share of net assets. When the Group's share of losses exceeds
the carrying amount of the associated company or jointly
controlled entity, the carrying amount is reduced to nil and
recognition of further losses is discontinued except to the
extent that the Group has incurred obligations in respect of
the associated company or jointly controlled entity.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 49
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2 PRINCIPAL ACCOUNTING POLICIES (cont'd)
(e) INVESTMENTS (cont'd)
The results of associated companies and jointly controlled
entities are included in the Company's profit and loss account
to the extent of dividends received and receivable, providing
such dividends are in respect of a period ending on or before
that of the Company and the Company's right to receive the
dividend is established before 31 December each year. In the
Company's balance sheet, investments in associated companies
and jointly controlled entities are stated at cost, less
impairment losses (refer to accounting policy n).
(iii) Other investments
Other investments are stated at cost less impairment losses
(refer to accounting policy n). Other investments represent
unquoted available-for-sale equity securities of companies
established in the PRC. There is no quoted market price for
such equity securities and accordingly a reasonable estimate
of the fair value could not be made without incurring
excessive costs.
(f) FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost or revalued amount less accumulated
depreciation and impairment losses (refer to accounting policy n).
Revaluations are performed periodically to ensure that the carrying
amount does not differ materially from that which would be
determined using fair value at the balance sheet date.
Depreciation is provided to write off the cost, or revalued amount
where appropriate, of the fixed assets over their estimated useful
lives on a straight line basis, after taking into account their
estimated residual values, as follows:
DEPRECIABLE LIFE RESIDUAL VALUE
Buildings 15 to 40 years Nil
Owned & leased aircraft 8 to 15 years 28.75%
Other flight equipment
- Jet engines 8 to 15 years 3%
- Others, including rotable spares 8 to 15 years Nil
Machinery and equipment 5 to 10 years 3%
Vehicles 6 years 3%
No depreciation is provided in respect of construction in progress.
50 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2 PRINCIPAL ACCOUNTING POLICIES (cont'd)
(g) LEASED ASSETS
Flight equipment under finance leases is stated at an amount equal
to lower of its fair value and the present value of minimum lease
payments at inception of the lease, and is amortised on a straight
line basis over the shorter of the lease term or estimated useful
life of the asset to residual value. In cases where title to the
asset will be acquired by the Group at the end of the lease, the
asset is amortised on a straight line basis over the estimated
useful life of the asset to its residual value.
Amounts payable in respect of finance leases are apportioned between
interest charges and reductions of obligations based on the interest
rates implicit in the leases. Interest charges are included in the
profit and loss account to provide a constant periodic rate of
charge over the lease term.
Gains on aircraft sale and leaseback transactions which result in
finance leases are deferred and amortised over the terms of the
related leases. Gains on other aircraft sale and leaseback
transactions are recognised as income immediately if the
transactions are established at fair value. Any excess of the sales
price over fair value is deferred and amortised over the period the
assets are expected to be used.
Operating lease payments are charged to the profit and loss account
on a straight line basis over the terms of the related leases.
(h) CONSTRUCTION IN PROGRESS
Construction in progress represents office buildings, various
infrastructure projects under construction and equipment pending
installation, and is stated at cost. Cost comprises direct costs of
construction as well as interest charges during the periods of
construction and installation. Capitalisation of these costs ceases
and the construction in progress is transferred to fixed assets when
the asset is substantially ready for its intended use,
notwithstanding any delays in the issue of the relevant
commissioning certificates by the relevant PRC authorities.
(i) LEASE PREPAYMENTS
Lease prepayments represent the purchase costs of land use rights
and are amortised on a straight line basis over the period of land
use rights (Note 26).
(j) INVENTORIES
Inventories, which consist primarily of expendable spare parts and
supplies, are stated at cost less any applicable provision for
obsolescence, and are expensed when used in operations. Cost
represents the average unit cost. Inventories held for disposal is
stated at the lower of cost and net realisable value. Net realisable
value represents estimated resale price.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 51
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2 PRINCIPAL ACCOUNTING POLICIES (cont'd)
(k) TRADE AND OTHER RECEIVABLES
Trade and other receivables are stated at cost less impairment
losses. Impairment losses are established based on evaluation of the
recoverability of these accounts at the balance sheet date.
(l) DEFERRED EXPENDITURE
Custom duties and other direct costs in relation to modifying,
introducing and certifying certain operating leased aircraft are
deferred and amortised over the terms of the related leases.
Lump sum housing benefits payable to employees of the Group are
deferred and amortised on a straight line basis over a period of 10
years, which represents the benefit vesting period of the employees.
(m) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and balances with
banks and other financial institutions with an original maturity
within three months. For the purpose of the consolidated cash flow
statement, cash and cash equivalents are presented net of bank
overdrafts, if any.
(n) IMPAIRMENT LOSS
The carrying amounts of the Group's and the Company's assets, other
than inventories (refer to accounting policy j) and deferred tax
assets (refer to accounting policy u) are reviewed periodically in
order to assess whether the recoverable amounts have declined below
the carrying amounts. These assets are tested for impairment
whenever events or changes in circumstances indicate that their
recorded carrying amounts may not be recoverable. When such a
decline has occurred, the carrying amount is reduced to the
recoverable amount. The recoverable amount is the greater of the net
selling price and the value in use. In determining the value in use,
expected future cash flows generated by the asset are discounted to
their present value. The amount of the reduction is recognised as an
expense in the profit and loss account.
The Group and the Company assess at each balance sheet date whether
there is any indication that an impairment loss recognised for an
asset in prior years may no longer exist. An impairment loss is
reversed if there has been a favourable change in the estimates used
to determine the recoverable amount. A subsequent increase in the
recoverable amount of an asset, when the circumstances and events
that led to the write-down or write-off cease to exist, is
recognised as income. The reversal is reduced by the amount that
would have been recognised as depreciation had the write-down or
write-off not occurred.
52 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2 PRINCIPAL ACCOUNTING POLICIES (cont'd)
(o) DEFERRED CREDITS
In connection with the acquisition or operating lease of certain
aircraft and engines, the Group receives various credits. Such
credits are deferred until the aircraft and engines are delivered,
at which time they are either applied as a reduction of the cost of
acquiring the aircraft and engines, resulting in a reduction of
future depreciation, or amortised as a reduction of rental expense
for aircraft and engines under operating leases.
(p) REVENUE RECOGNITION
Passenger, cargo and mail revenues are recognised when the
transportation is provided. Ticket sales for transportation not yet
provided are included in current liabilities as sales in advance of
carriage. Revenues from airline-related business are recognised when
services are rendered. Revenue is stated net of sales tax and
contributions to the CAAC Infrastructure Development Fund.
Interest income is recognised as it accrues unless collectability is
in doubt. Dividend income is recognised when the Group's right to
receive the dividend is established.
Operating lease income is recognised on a straight line basis over
the terms of the respective leases.
(q) TRAFFIC COMMISSIONS
Traffic commissions are expensed when the transportation is provided
and the related revenue is recognised. Traffic commissions for
transportation not yet provided are recorded on the balance sheet as
a prepaid expense.
(r) MAINTENANCE AND OVERHAUL COSTS
Routine maintenance and repairs and overhauls in respect of owned
aircraft and aircraft held under finance leases are expensed in the
profit and loss account as and when incurred. In respect of aircraft
held under operating leases, a provision is made over the lease term
for the estimated cost of scheduled overhauls required to be
performed on the related aircraft prior to their return to the
lessors.
(s) TRANSLATION OF FOREIGN CURRENCIES
Foreign currency transactions during the year are translated into
Renminbi at the applicable rates of exchange prevailing on the
transaction dates.
Foreign currency monetary balances at the balance sheet date are
translated into Renminbi at the exchange rates quoted by the
People's Bank of China ruling at that date. Exchange differences are
dealt with in the profit and loss account.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 53
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2 PRINCIPAL ACCOUNTING POLICIES (cont'd)
(t) BORROWING COSTS
Borrowing costs are expensed in the profit and loss account as and
when incurred, except to the extent that they are capitalised as
being directly attributable to the acquisition or construction of an
asset which necessarily takes a substantial period of time to get
ready for its intended use.
(u) DEFERRED TAXATION
Deferred tax is provided using the balance sheet liability method on
all temporary differences between the carrying amounts for financial
reporting purposes and the amounts used for taxation purposes,
except differences relating to the initial recognition of assets or
liabilities which affect neither accounting nor taxable profit/loss.
The tax value of losses expected to be available for utilisation
against future taxable income is recognised as a deferred tax asset
and offset against the deferred tax liability attributable to the
same legal tax unit and jurisdiction. Net deferred tax assets are
reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
(v) RETIREMENT BENEFITS
Contributions to retirement schemes and additional retirement
benefits paid to retired employees are charged to the profit and
loss account as and when incurred.
(w) FREQUENT FLYER AWARD PROGRAMMES
The Group maintains two frequent flyer award programmes, namely, the
China Southern Airlines Sky Pearl Club and the Egret Mileage Plus,
which provide travel awards to members based on accumulated mileage.
The estimated incremental cost to provide free travel is recognised
as an expense and accrued as a current liability as members
accumulate mileage. As members redeem awards or their entitlements
expire, the incremental cost liability is reduced accordingly to
reflect the acquittal of the outstanding obligations.
Revenue from mileage sales to third parties under the frequent flyer
award programmes is recognised when the related transportation
services are provided.
(x) PROVISIONS
A provision is recognised in the balance sheet when the Group has a
legal or constructive obligation as a result of a past event, and it
is probable that an outflow of economic benefits will be required to
settle the obligations. If the effect is material, provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability.
54 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
2 PRINCIPAL ACCOUNTING POLICIES (cont'd)
(y) RELATED PARTIES
For the purposes of these financial statements, parties are
considered to be related to the Group if the Group has the ability,
directly or indirectly, to control the party or exercise significant
influence over the party in making financial and operating
decisions, or vice versa, or where the Group and the party are
subject to common control or common significant influence. Related
parties may be individuals or entities.
(z) SEGMENTAL REPORTING
The Group operates principally as a single business segment for the
provision of air transportation services. The analysis of turnover
and operating profit by geographical segment is based on the
following criteria:
(i) Traffic revenue from domestic services within the PRC
(excluding Hong Kong) is attributed to the domestic operation.
Traffic revenue from inbound / outbound services between the
PRC and Hong Kong, and the PRC and overseas destinations is
attributed to the Hong Kong regional operation and
international operation respectively.
(ii) Other revenue from ticket selling, general aviation and ground
services, air catering and other miscellaneous services is
attributed on the basis of where the services are performed.
(aa) USE OF ESTIMATES
The preparation of the financial statements of the Group and the
Company in accordance with IFRS requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 55
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
3 TURNOVER
Turnover comprises revenues from airline and airline-related business
and is stated net of sales tax and contributions to the CAAC
Infrastructure Development Fund. An analysis of turnover is as follows:
2003 2002
RMB' 000 RMB' 000
----------------------------------------------------------------------------------
Traffic revenue
Passenger 15,009,885 15,695,622
Cargo and mail 1,954,915 1,786,270
----------------------------------------------------------------------------------
16,964,800 17,481,892
----------------------------------------------------------------------------------
Other operating revenue
Commission income 140,180 137,928
General aviation income 40,309 68,225
Ground services income 99,130 78,616
Air catering income 30,756 38,077
Net income from lease arrangements (Note 10) 69,121 51,682
Rental income 40,307 -
Aircraft lease income - 46,640
Other 85,520 115,560
----------------------------------------------------------------------------------
505,323 536,728
----------------------------------------------------------------------------------
17,470,123 18,018,620
==================================================================================
Pursuant to various sales tax rules and regulations, the Group is
required to pay sales tax to national and local tax authorities at the
following rates:
TYPES OF REVENUE APPLICABLE SALES TAX RATES
Traffic revenue 3% (2002: 3%) of traffic revenue, except for
the period from 1 May, 2003 to 31 December, 2003
during which passenger revenue was exempted from
sales tax. All inbound international and Hong Kong
regional flights are exempted from sales tax.
Other operating revenue 3% (2002: 3%) of commission income, general aviation
income and ground services income, and 3% to 5%
(2002: 3% to 5%) of other operating revenue.
56 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
3 TURNOVER (cont'd)
Sales tax incurred during the year ended 31 December, 2003, netted off
against revenue, amounted to RMB205,925,000 (2002: RMB557,784,000). In
addition, the Group is required to pay contributions to the CAAC
Infrastructure Development Fund which are calculated at the rates of 5%
and 2%, respectively (2002: 5% and 2%, respectively) of the domestic
and international/Hong Kong regional traffic revenue, except for the
period from 1 May, 2003 to 31 December, 2003 during which the Group was
exempted from paying the contributions. Contributions to the CAAC
Infrastructure Development Fund payable by the Group for the year ended
31 December, 2003 totalled RMB250,802,000 (2002: RMB798,386,000).
Pursuant to approval documents issued by the CAAC, the Group imposes a
fuel surcharge on passengers carried by its domestic and Hong Kong
regional flights at certain prescribed rates on ticket fares. The fuel
surcharge forms part of the traffic revenue of the Group. For the year
ended 31 December, 2003, the fuel surcharge revenue of the Group
totalled approximately RMB740 million (2002: RMB554 million).
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 57
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
4 (LOSS)/PROFIT BEFORE TAXATION AND MINORITY INTERESTS
2003 2002
RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------
(Loss)/profit before taxation and minority interests is
arrived at after charging:
Operating expenses
Jet fuel 3,866,932 3,519,005
Aircraft maintenance 2,376,635 2,134,705
Routes 4,363,277 4,297,767
Depreciation
- owned assets 1,502,013 1,301,601
- assets held under finance leases 495,869 537,692
Amortisation of deferred expenditure 40,089 578
Operating lease charges
- aircraft and other flight equipment 1,536,466 1,416,524
- buildings 135,528 129,982
Staff costs
- salaries, wages and welfare 1,496,191 1,538,617
- contributions to retirement schemes 150,447 131,622
Office and administration 470,565 452,432
Auditors' remuneration 8,200 8,200
Other 572,182 523,818
------------------------------------------------------------------------------------------
17,014,394 15,992,543
------------------------------------------------------------------------------------------
Interest expense
Interest on bank and other loans wholly
repayable within five years 288,293 335,953
Interest on other loans 176,026 142,679
Finance charges on obligations under finance leases 442,483 544,747
Less: borrowing costs capitalised (Note) (83,077) (64,186)
------------------------------------------------------------------------------------------
Net interest expense 823,725 959,193
------------------------------------------------------------------------------------------
and after crediting:
Amortisation of gains on sale and leaseback
transactions - 2,579
Dividend income from unlisted investments 17,220 7,116
==========================================================================================
Note: The borrowing costs have been capitalised at rates ranging 1.62%
to 5.46% per annum (2002: 5.70%).
58 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
4 (LOSS)/PROFIT BEFORE TAXATION AND MINORITY INTERESTS (cont'd)
The (loss)/profit attributable to shareholders for the year ended 31
December, 2003 includes a loss of RMB580,959,000 (2002: profit of RMB
381,305,000) which has been dealt with in the financial statements of
the Company.
5 (LOSS)/GAIN ON SALE OF FIXED ASSETS
(Loss)/gain on sale of fixed assets represents:
2003 2002
RMB' 000 RMB' 000
-----------------------------------------------------------------------------------
Aircraft (Note) (20,405) 199,394
Staff quarters (Note 28) - (17,624)
Flight equipment and other fixed assets (1,812) (11,030)
-----------------------------------------------------------------------------------
(22,217) 170,740
===================================================================================
Note:
During 2003, the Group incurred a loss of RMB20,405,000 on early
retirement of two old Boeing 737-200 aircraft.
Pursuant to certain sale and leaseback arrangements, the Group sold
four Boeing 757-200 aircraft during 2002 to independent third parties
and then entered into operating leases with such parties to lease back
the aircraft for a period of eight to nine years. For the year ended 31
December, 2002, the Group recognised a profit of RMB199,394,000, being
the excess of the sale proceeds which approximated the aircraft's fair
value on the date of disposal, over the aircraft's net book value and
related disposal costs.
6 EMOLUMENTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
(a) DIRECTORS' AND SUPERVISORS' EMOLUMENTS
2003 2002
RMB' 000 RMB' 000
------------------------------------------------------------------------------------
Fees 203 103
Salaries, allowances and benefits in kind 1,244 970
Retirement benefits 98 67
Bonuses 943 264
-----------------------------------------------------------------------------------
2,488 1,404
===================================================================================
Included in the above were fees of RMB203,000 (2002: RMB103,000) paid
to non-executive independent directors during the year.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 59
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
6 EMOLUMENTS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT (cont'd)
(a) DIRECTORS' AND SUPERVISORS' EMOLUMENTS (cont'd)
An analysis of directors' and supervisors' emoluments by
number of individuals and emolument ranges is as follows:
2003 2002
Number Number
------------------------------------------------------------------------------------
Nil to HK$1,000,000 (RMB1,066,000 equivalent) 18 14
------------------------------------------------------------------------------------
(b) SENIOR MANAGEMENT'S EMOLUMENTS
Details of emoluments paid to the five highest paid
individuals (including directors and supervisors) of the Group
during the year are as follows:
2003 2002
RMB' 000 RMB' 000
------------------------------------------------------------------------------------
Salaries, allowances and benefits in kind 1,701 1,496
Retirement benefits 25 24
-----------------------------------------------------------------------------------
1,726 1,520
===================================================================================
An analysis of emoluments paid to the five highest paid
individuals (including directors and supervisors) by number of
individuals and emolument ranges is as follows:
2003 2002
Number Number
------------------------------------------------------------------------------------
Directors and supervisors - 1
Employees 5 4
------------------------------------------------------------------------------------
5 5
====================================================================================
Nil to HK$1,000,000 (RMB1,066,000 equivalent) 5 5
====================================================================================
60 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
7 TAXATION (CREDIT)/EXPENSE
Taxation (credit)/expense in the consolidated profit and loss account
comprises:
2003 2002
RMB'000 RMB'000
--------------------------------------------------------------------------------
PRC income tax 46,938 71,651
Share of taxation of associated companies 3,342 9,424
Share of taxation of jointly controlled entities 6,372 -
--------------------------------------------------------------------------------
56,652 81,075
Deferred taxation (Note 16)
- current year 11,208 317,152
- adjustment for change in income tax rate (392,137) -
--------------------------------------------------------------------------------
Taxation (credit)/expense (324,277) 398,227
================================================================================
On 17 October, 2003, the Company's registered address was moved to
Guangzhou Economic & Technology Development Zone. In accordance with the
Rules and Regulations for Implementation of Income Tax for Foreign
Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document "Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que
020043", the Company is entitled to enjoy the preferential tax policy
implemented in the Guangzhou Economic & Technology Development Zone
effective 1 October, 2003. As a result, the Company's income tax rate has
been changed to 15% from 33% beginning from that date.
As a result of the reduction in income tax rate, the Company's net
deferred taxation liability balance brought forward from 31 December, 2002
of RMB507,077,000 was reduced by RMB392,137,000 and a net deferred tax
credit of RMB392,137,000 was recognised for such reduction in income tax
rate in the consolidated profit and loss account for the year ended 31
December, 2003.
In respect of the Group's overseas airline activities, the Group has
either obtained exemptions from overseas taxation pursuant to the
bilateral aviation agreements between the overseas governments and PRC
government, or has sustained tax losses in these overseas jurisdictions.
Accordingly, no provision for overseas tax has been made for the year
(2002: nil).
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 61
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
7 TAXATION (CREDIT)/EXPENSE (cont'd)
Actual taxation amount in the consolidated profit and loss account
differed from the amount computed by applying the PRC income tax rate of
15% to consolidated (loss)/profit before taxation and minority interests
as a result of the following:
2003 2002
RMB'000 RMB'000
---------------------------------------------------------------------------------------------
Consolidated (loss)/profit before taxation and minority interests (511,610) 1,139,099
=============================================================================================
Expected PRC income tax (credit)/expense
at 15% (2002: 33%) (76,742) 375,903
Adjustments:
Gains on sale and leaseback transactions and their amortisation - (851)
Effect of change in income tax rate (392,137) -
Rate differential on subsidiaries - (60,530)
Non-deductible expenses 79,907 61,454
Other, net 64,695 22,251
---------------------------------------------------------------------------------------------
(324,277) 398,227
=============================================================================================
In accordance with relevant PRC tax regulations, a PRC lessee is liable to
pay PRC withholding tax in respect of any lease payments regularly made to
an overseas lessor. Depending on the circumstances, this tax is generally
imposed at a fixed rate ranging from 10% to 20% of the lease payments, or
in certain cases, the interest components of such payments. Pursuant to an
approval document from the State Tax Bureau, lease arrangements executed
prior to 1 September, 1999 are exempted from PRC withholding tax.
For the year ended 31 December, 2003, the PRC withholding tax payable by
the Group in respect of the leases executed on or after 1 September, 1999
of RMB7,706,000 (2002: RMB14,305,000) has been included as part of the
operating lease charges for the year.
8 DIVIDENDS
No interim dividend was paid during the year ended 31 December, 2003
(2002: Nil).
The board of directors of the Company does not recommend the payment of a
final dividend in respect of the year ended 31 December, 2003.
A final dividend of RMB0.02 per share totalling RMB67,484,000 in respect
of the year ended 31 December, 2001 was approved and paid during 2002.
9 BASIC (LOSS)/EARNINGS PER SHARE
The calculation of basic (loss)/earnings per share is based on the
consolidated loss attributable to shareholders of RMB358,267,000 (2002:
profit of RMB575,761,000) and the weighted average number of shares in
issue during the year of 3,831,712,000 (2002: 3,374,178,000).
The amount of diluted (loss)/earnings per share is not presented as there
were no dilutive potential ordinary shares in existence for both years.
62 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
10 FIXED ASSETS
AIRCRAFT OTHER FLIGHT
-------------------------- EQUIPMENT, MACHINERY,
HELD UNDER INCLUDING EQUIPMENT
FINANCE ROTABLE AND
BUILDINGS OWNED LEASES SPARES VEHICLES TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------------------------
(a) THE GROUP
Cost or valuation:
At 1 January, 2003 3,160,073 13,510,717 11,459,978 6,283,470 1,782,400 36,196,638
Exchange adjustments 16,572 - - - 36,851 53,423
Reclassification on exercise
of purchase options - 997,403 (997,403) - - -
Additions 11,382 2,818,475 - 558,594 137,307 3,525,758
Transferred from construction
in progress 133,839 - - - 12,255 146,094
Disposals (34,273) (104,235) - - (38,540) (177,048)
---------------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 3,287,593 17,222,360 10,462,575 6,842,064 1,930,273 39,744,865
---------------------------------------------------------------------------------------------------------------------------
Representing:
Cost 2,932,399 10,993,419 6,123,034 4,667,887 1,446,235 26,162,974
Valuation - 1996 355,194 6,228,941 4,339,541 2,174,177 484,038 13,581,891
---------------------------------------------------------------------------------------------------------------------------
3,287,593 17,222,360 10,462,575 6,842,064 1,930,273 39,744,865
---------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
At 1 January, 2003 476,867 2,145,849 2,499,495 3,177,253 976,345 9,275,809
Exchange adjustments 2,892 - - - 30,129 33,021
Reclassification on exercise
of purchase options - 389,958 (389,958) - - -
Charge for the year 128,776 710,509 495,869 467,202 195,526 1,997,882
Written back on disposal (14,740) (54,555) - - (28,459) (97,754)
---------------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 593,795 3,191,761 2,605,406 3,644,455 1,173,541 11,208,958
---------------------------------------------------------------------------------------------------------------------------
Net book value:
At 31 December, 2003 2,693,798 14,030,599 7,857,169 3,197,609 756,732 28,535,907
===========================================================================================================================
At 31 December, 2002 2,683,206 11,364,868 8,960,483 3,106,217 806,055 26,920,829
===========================================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 63
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
10 FIXED ASSETS (cont'd)
AIRCRAFT OTHER FLIGHT
-------------------------- EQUIPMENT, MACHINERY,
HELD UNDER INCLUDING EQUIPMENT
FINANCE ROTABLE AND
BUILDINGS OWNED LEASES SPARES VEHICLES TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------------------------------------------------------------------
(b) THE COMPANY
Cost or valuation:
At 1 January, 2003 1,036,612 9,053,359 11,459,978 3,941,880 895,562 26,387,391
Reclassification on exercise
of purchase options - 997,403 (997,403) - - -
Additions 2,228 2,818,475 - 455,763 87,555 3,364,021
Additions through transfer
of fixed assets upon
dissolution of subsidiary 514,197 - - 998,215 217,272 1,729,684
Transferred from construction
in progress 91,018 - - - 8,228 99,246
Disposals (347) - - - (20,178) (20,525)
---------------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 1,643,708 12,869,237 10,462,575 5,395,858 1,188,439 31,559,817
---------------------------------------------------------------------------------------------------------------------------
Representing:
Cost 1,449,476 8,255,920 6,123,034 3,570,949 924,558 20,323,937
Valuation - 1996 194,232 4,613,317 4,339,541 1,824,909 263,881 11,235,880
---------------------------------------------------------------------------------------------------------------------------
1,643,708 12,869,237 10,462,575 5,395,858 1,188,439 31,559,817
---------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
At 1 January, 2003 176,841 1,327,363 2,499,495 2,387,634 465,150 6,856,483
Reclassification on exercise
of purchase options - 389,958 (389,958) - - -
Charge for the year 72,980 514,000 495,869 373,896 116,207 1,572,952
Additions through transfer
of fixed assets upon
dissolution of subsidiary 73,772 - - 311,097 153,358 538,227
Written back on disposal (23) - - - (18,073) (18,096)
---------------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 323,570 2,231,321 2,605,406 3,072,627 716,642 8,949,566
---------------------------------------------------------------------------------------------------------------------------
Net book value:
At 31 December, 2003 1,320,138 10,637,916 7,857,169 2,323,231 471,797 22,610,251
===========================================================================================================================
At 31 December, 2002 859,771 7,725,996 8,960,483 1,554,246 430,412 19,530,908
===========================================================================================================================
64 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
10 FIXED ASSETS (cont'd)
Substantially all of the Group's buildings are located in the PRC. The
Group was formally granted the rights to use the twenty one parcels of
land in Guangzhou, Shenzhen, Zhuhai, Beihai, Changsha, Shantou, Haikou,
Zhengzhou, Guiyang and Wuhan by the relevant PRC authorities for a period
of 30 to 70 years, which expire between 2020 and 2068. For other land in
the PRC on which the Group's buildings are erected, the Group was formally
granted the rights to use such land for periods of one to five years
commencing in the second quarter of 1997 pursuant to various lease
agreements between the Company and CSAHC. The leases with initial one-year
term are automatically renewable for another one-year period unless the
Group gives appropriate notice of termination. In this connection, rental
payments totalling RMB15,224,000 (2002: RMB15,224,000) were paid to CSAHC
during 2003 in respect of these leases.
During the year, the Company entered into operating lease arrangements to
lease certain flight training facilities and buildings to Zhuhai Xiang Yi
Aviation Technology Company Limited ("Zhuhai Xiang Yi"), a jointly
controlled entity of the Company. The leases with initial one-year term
are automatically renewable for another one year unless either party gives
appropriate notice of termination. In this connection, rental income
totalling RMB34,175,000 was received by the Company during 2003 in respect
of the leases. As at 31 December, 2003, the cost and accumulated
depreciation of the relevant fixed assets totalled RMB787,432,000 and
RMB462,281,000 respectively. As at 31 December, 2003, the Company's rental
receivable in respect of the leases due in 2004 amounted to RMB34,175,000.
In compliance with the PRC rules and regulations governing initial public
offering of shares by PRC joint stock limited companies, the fixed assets
of the Group as at 31 December, 1996 were revalued. This revaluation was
conducted by Guangzhou Assets Appraisal Corp. ("GAAC"), a firm of
independent valuers registered in the PRC, on a depreciated replacement
cost basis, and approved by the China State-owned Assets Administration
Bureau.
In accordance with IAS 16 "Property, plant and equipment", subsequent to
the 1996 revaluation, which was based on replacement costs, the fixed
assets of the Group are carried at revalued amount, being the fair value
at the date of the revaluation less any subsequent accumulated
depreciation and impairment losses. Revaluation is performed periodically
to ensure that the carrying amount does not differ materially from that
which would be determined using fair value at the balance sheet date. In
accordance with the revaluation performed by the directors in respect of
fixed assets held by the Group as at 31 December, 2000, the carrying
amounts of fixed assets did not differ materially from their respective
fair value.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 65
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
10 FIXED ASSETS (cont'd)
The effect of the above revaluation was to increase future annual
depreciation charges of the Group by approximately RMB33,000,000 (2002:
RMB33,000,000). Had the fixed assets of the Group and the Company been
stated at cost, that is, the effect of the revaluation was excluded, the
net book values of fixed assets of the Group and the Company as at 31
December, 2003 would have been approximately RMB28,522,787,000 and
RMB22,793,781,000 respectively (2002: RMB26,874,709,000 and
RMB19,440,211,000 respectively), made up as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------
Buildings 3,109,988 2,982,468 1,610,075 1,002,979
Aircraft
- owned 18,344,930 14,694,256 13,657,746 9,841,868
- held under finance leases 10,942,131 11,939,534 10,942,131 11,939,534
Flight equipment and others 9,634,146 8,927,679 6,910,210 5,163,355
----------------------------------------------------------------------------------
42,031,195 38,543,937 33,120,162 27,947,736
Less: Accumulated depreciation 13,508,408 11,669,228 10,326,381 8,507,525
----------------------------------------------------------------------------------
28,522,787 26,874,709 22,793,781 19,440,211
==================================================================================
As at 31 December, 2003, certain aircraft of the Group and the Company
with an aggregate carrying value of approximately RMB14,575,906,000 and
RMB12,795,867,000 respectively (2002: RMB14,782,559,000 and
RMB12,893,592,000, respectively) were mortgaged under certain loan and
lease agreements (see Notes 21 and 22).
The Company entered into two separate arrangements (the "Arrangements")
with certain independent third parties during each of 2002 and 2003. Under
each of the Arrangements, the Company sold an aircraft and then
immediately leased back the aircraft for an agreed period. As agreed, the
lease payment obligations, with pre-determined net present value, are to
be satisfied solely out of the sale proceeds and such amount has been
placed irrevocably by the Company in form of deposits and debt securities
in favour of the lessors. The Company has an option to purchase the
aircraft at a pre-determined date and an agreed purchase price to be
satisfied by the balances of the deposits and debt securities outstanding
at that date. In the event that the lease agreement is early terminated by
the Company, the Company is liable to pay a pre-determined penalty to the
lessor. As long as the Company complies with the lease agreements, the
Company is entitled to the continued possession and operation of the
aircraft. Since the Company retains substantially all risks and rewards
incident to ownership of the aircraft and enjoys substantially the same
rights to their use as before the Arrangements, no adjustment has been
made to the fixed assets. As at 31 December, 2003, the net present value
of the lease commitments and the corresponding defeased deposits and debt
securities amounted to RMB2,409,252,000 (2002: RMB1,322,843,000). As a
result of the Arrangements, the Company received net cash benefits of
RMB51,682,000 and RMB69,121,000 in 2002 and 2003 respectively which have
been recognised as income for the respective years.
66 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
11 CONSTRUCTION IN PROGRESS
Construction in progress comprises expenditure incurred on the
construction of buildings and other operating facilities not yet
substantially completed at 31 December, 2003, details as follows:
2003 2002
RMB'000 RMB'000
----------------------------------------------------------------------
THE COMPANY
Guangzhou new airport base 1,378,063 432,580
Hubei catering building 27,911 23,407
Zhengzhou ticket selling office 22,016 21,988
Material and engineering system 21,066 21,063
Henan office building 13,986 3,717
Guangzhou ticket selling office - 45,988
Other 69,420 66,768
----------------------------------------------------------------------
1,532,462 615,511
----------------------------------------------------------------------
SUBSIDIARIES
Guangzhou new cargo centre 67,697 -
Fuzhou Chang Le airport facilities 14,244 14,839
Other 15,286 31,002
----------------------------------------------------------------------
97,227 45,841
----------------------------------------------------------------------
1,629,689 661,352
======================================================================
12 INTEREST IN SUBSIDIARIES
THE COMPANY
2003 2002
RMB'000 RMB'000
----------------------------------------------------------------------
Unlisted shares/capital contributions, at cost 977,540 1,086,793
Amounts due from subsidiaries 468,291 319,217
----------------------------------------------------------------------
1,445,831 1,406,010
======================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 67
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
12 INTEREST IN SUBSIDIARIES (cont'd)
In March 2003, China Southern Airlines (Group) Shenzhen Co., a wholly
owned subsidiary of the Company was dissolved in March 2003. Its operation
and respective assets and liabilities were transferred to the Company
since then. No material gains or losses were incurred by the Group on
dissolution of the subsidiary.
Details of the Company's subsidiaries are set out in Note 36.
13 INTEREST IN ASSOCIATED COMPANIES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------------------
Share of attributable net assets
other than goodwill 422,201 692,026 - -
Unlisted capital contributions, at cost - - 348,502 428,840
Impairment loss for investment
in associated company - - (61,267) (61,267)
------------------------------------------------------------------------------------
422,201 692,026 287,235 367,573
====================================================================================
Details of the Group's associated companies are set out in Note 37.
14 INTEREST IN JOINTLY CONTROLLED ENTITIES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------------------
Share of attributable net assets
other than goodwill 731,323 461,962 - -
Unlisted capital contributions, at cost - - 563,736 474,042
-----------------------------------------------------------------------------------
731,323 461,962 563,736 474,042
===================================================================================
Details of the Company's jointly controlled entities are set out in Note
37.
68 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
14 INTEREST IN JOINTLY CONTROLLED ENTITIES (cont'd)
An analysis of the Group's attributable share of assets, liabilities,
revenues and expenses of the jointly controlled entities is set out below:
2003 2002
RMB'000 RMB'000
----------------------------------------------
Non-current assets 606,185 290,088
Current assets 618,799 326,712
Non-current liabilities (235,718) -
Current liabilities (257,943) (154,838)
----------------------------------------------
Net assets 731,323 461,962
==============================================
Income 486,049 -
Expenses (525,544) (3,352)
----------------------------------------------
Net loss (39,495) (3,352)
==============================================
15 DEFERRED EXPENDITURE
Deferred expenditure mainly comprises custom duties and other direct costs
incurred in respect of the Group's operating leased aircraft upon the
inception of the respective leases, and lump sum housing benefits provided
to eligible employees of the Group:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------------
Custom duties and other direct costs 60,135 257,509 36,551 168,265
Lump sum housing benefits (Note 28) 260,000 260,000 260,000 260,000
-----------------------------------------------------------------------------
320,135 517,509 296,551 428,265
Less: Accumulated amortisation 71,282 234,206 56,037 155,629
-----------------------------------------------------------------------------
248,853 283,303 240,514 272,636
=============================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 69
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
16 DEFERRED TAXATION
Movements in net deferred tax liabilities are as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------
Balance at 1 January, (779,234) (519,577) (507,077) (293,991)
Land use rights adjustment (Note 26 (f)) - 57,495 - 57,495
Transferred from profit and
loss account (Note 7)
- current year (11,208) (317,152) 25,232 (270,581)
- adjustment for change in
income tax rate 392,137 - 392,137 -
---------------------------------------------------------------------------------------
Balance at 31 December, (398,305) (779,234) (89,708) (507,077)
=======================================================================================
The net deferred tax liabilities at 31 December, 2003 were made up of the
following taxation effects:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------------
Deferred tax assets:
Tax losses 222,936 149,338 222,936 149,338
Repairs and maintenance accruals 87,608 63,896 93,097 69,385
Repair charges capitalised 261,312 319,697 199,292 259,147
Accrued expenses 18,883 311,893 18,883 311,893
Other 8,989 129,423 10,829 144,463
-----------------------------------------------------------------------------------------------
Total deferred tax assets 599,728 974,247 545,037 934,226
-----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Undistributed profits of subsidiaries - 254,210 - 254,210
Repairs and maintenance accruals 80,545 78,083 - -
Depreciation of fixed assets 847,781 1,403,278 590,543 1,187,093
Other 69,707 17,910 44,202 -
-----------------------------------------------------------------------------------------------
Total deferred tax liabilities 998,033 1,753,481 634,745 1,441,303
-----------------------------------------------------------------------------------------------
Net deferred tax liabilities (398,305) (779,234) (89,708) (507,077)
===============================================================================================
70 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
17 INVENTORIES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------------------------------------------
Expendable spare parts
and maintenance materials 486,290 489,554 182,742 106,376
Other supplies 57,487 56,146 30,477 11,758
---------------------------------------------------------------------------------------------------
543,777 545,700 213,219 118,134
===================================================================================================
No significant amount of inventories was carried at net realisable value
at 31 December, 2002 and 2003.
18 TRADE RECEIVABLES
Credit terms granted by the Group to sales agents and other customers
generally range from one to three months. An ageing analysis of trade
receivables, net of impairment losses, is set out below:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------------------
Within 1 month 589,080 576,789 445,980 394,744
More than 1 month but less than
3 months 235,828 88,133 228,530 62,536
More than 3 months but less than
12 months 8,696 6,854 8,696 7,650
--------------------------------------------------------------------------------------------
833,604 671,776 683,206 464,930
============================================================================================
As at 31 December, 2003, the Group and the Company had an amount due from
a fellow subsidiary of RMB54,161,000 (2002: RMB89,550,000) which was
included in trade receivables.
All of the trade receivables are expected to be recovered within one year.
19 AMOUNTS DUE TO RELATED COMPANIES
Amounts due to related companies, which represent balances with CSAHC and
its affiliates, and the Group's associated companies and jointly
controlled entities, are unsecured, interest free and repayable within one
year. The balance at 31 December, 2002 also included balances with the
CAAC and its affiliates.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 71
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
20 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and in hand and deposits
with Southern Airlines Group Finance Company Limited ("SA Finance"), a PRC
authorised financial institution controlled by CSAHC and an associated
company of the Group. In accordance with the financial agreement dated 22
May, 1997 between the Company and SA Finance, all the Group's deposits
accepted by SA Finance at 31 December, 2003 were simultaneously placed
with several designated major PRC banks by SA Finance. As at 31 December,
2003, the Group's and the Company's deposits with SA Finance amounted to
RMB365,906,000 and RMB346,357,000 respectively (2002: RMB 900,979,000 and
RMB877,449,000 respectively).
21 BANK AND OTHER LOANS
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------------------------
Bank loans due:
Within one year 7,096,846 5,240,726 5,958,968 3,479,322
In the second year 646,492 839,036 401,466 522,482
In the third to fifth year, inclusive 1,223,710 3,730,849 826,417 3,143,413
After the fifth year 2,648,533 1,262,549 2,442,616 962,477
-------------------------------------------------------------------------------------------------------------------------
11,615,581 11,073,160 9,629,467 8,107,694
Other loans due:
In the second year 3,000 3,000 - -
-------------------------------------------------------------------------------------------------------------------------
11,618,581 11,076,160 9,629,467 8,107,694
Portion classified as current liabilities (7,096,846) (5,240,726) (5,958,968) (3,479,322)
-------------------------------------------------------------------------------------------------------------------------
4,521,735 5,835,434 3,670,499 4,628,372
=========================================================================================================================
As at 31 December, 2003, bank loans of the Group and the Company totalling
RMB4,902,118,000 and RMB3,822,826,000 respectively (2002: RMB
4,117,778,000 and RMB2,783,418,000 respectively) were secured by mortgages
over certain of the Group's and the Company's aircraft.
72 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
21 BANK AND OTHER LOANS (cont'd)
As at 31 December, 2003, certain bank loans were guaranteed by the
following parties:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------------------------------------------
Export-Import Bank of the United States 2,207,393 2,680,801 1,236,160 1,536,835
Bank of China 357,193 604,010 262,231 433,706
China Construction Bank - 76,134 - 76,134
CSAHC 359,300 3,340,118 228,800 2,280,118
Guangzhou Baiyun International
Airport Company Limited 63,000 - - -
Shenzhen Yingshun Investment
Development Company Limited 21,000 - - -
SA Finance 10,052 561,531 - 550,000
-----------------------------------------------------------------------------------------------------------
3,017,938 7,262,594 1,727,191 4,876,793
===========================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 73
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
21 BANK AND OTHER LOANS (cont'd)
Details of bank and other loans with original maturity over one year are
as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
Interest rate and final maturity RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------------------------------
RMB denominated loans:
Loans for construction
projects Floating interest rates ranging
from 4.94% to 5.25% per annum as
at 31 December, 2003, with
maturities through 2009 12,357 893,838 - 850,000
Non-interest bearing loan from
a municipal government
authority, repayable in 2005 3,000 3,000 - -
Loans for purchase of aircraft Floating interest rate of
5.49% per annum as at
31 December, 2003, with
maturities through 2004 63,500 2,310,268 - 2,231,768
U.S. dollar denominated loans:
Loans for purchase of aircraft Fixed interest rates ranging from
5.00% to 8.33% per annum as at 31
December, 2003, with
maturities through 2011 2,612,687 3,426,038 1,546,492 2,111,768
Floating interest rates ranging from
1.48% to 1.50% per annum as at 31
December, 2003, with
maturities through 2013 2,505,134 - 2,505,134 -
Loan for purchase Fixed interest rate of 8.35% per
of flight equipment annum as at 31 December, 2003,
with maturity in 2004 13,097 20,090 - -
----------------------------------------------------------------------------------------------------------------------------------
5,209,775 6,653,234 4,051,626 5,193,536
Less: Loans due within one year classified as current liabilities (688,040) (817,800) (381,127) (565,164)
----------------------------------------------------------------------------------------------------------------------------------
4,521,735 5,835,434 3,670,499 4,628,372
==================================================================================================================================
74 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
21 BANK AND OTHER LOANS (cont'd)
As at 31 December, 2003, bank and other loans of the Group and the Company
included short-term bank loans totalling RMB6,408,806,000 and
RMB5,577,841,000 respectively (2002: RMB4,422,926,000 and RMB
2,914,158,000 respectively). On such date, the Group's and the Company's
weighted average interest rate on short-term borrowings were 1.76% and
1.65% respectively (2002: 3.11% and 2.66% respectively).
As at 31 December, 2003, the Group had banking facilities with several PRC
commercial banks for providing loan finance up to an approximate amount of
RMB9,860 million (2002: RMB12,360 million). As at 31 December, 2003, an
approximate amount of RMB4,412 million (2002: RMB7,258 million) was
utilised.
22 OBLIGATIONS UNDER FINANCE LEASES
The Group and the Company have commitments under finance lease agreements
in respect of aircraft and related equipment expiring during the years
2004 to 2009. As at 31 December, 2003, future payments under these finance
leases, which were 74% and 26% respectively (2002: 78% and 22%
respectively) denominated in United States dollars and Japanese yen, are
as follows:
2003 2002
PAYMENTS INTEREST OBLIGATIONS Payments Interest Obligations
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------------------------------
THE GROUP AND THE COMPANY
Balance due:
Within one year 1,648,141 350,286 1,297,855 2,006,392 439,694 1,566,698
In the second year 1,356,614 290,163 1,066,451 1,624,381 351,237 1,273,144
In the third to fifth year, inclusive 4,348,235 439,418 3,908,817 4,153,235 647,988 3,505,247
After the fifth year 608,124 40,308 567,816 1,960,607 107,247 1,853,360
-------------------------------------------------------------------------------------------------------------------------------
7,961,114 1,120,175 6,840,939 9,744,615 1,546,166 8,198,449
-------------------------------------------------------------------------------------------------------------------------------
Less: Balance due within
one year classified as
current liabilities (1,297,855) (1,566,698)
-------------------------------------------------------------------------------------------------------------------------------
5,543,084 6,631,751
===============================================================================================================================
Certain lease financing arrangements comprised finance leases between the
Company and certain of its subsidiaries, and corresponding borrowings
between such subsidiaries and banks. The Company has guaranteed the
subsidiaries' obligations under the bank borrowings and accordingly, the
relevant leased assets and obligations are recorded in the balance sheet
to reflect the substance of the transactions. The future payments under
these leases have therefore been presented by the Company and the Group in
amounts that reflect the payments under the bank borrowings between the
subsidiaries and banks.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 75
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
22 OBLIGATIONS UNDER FINANCE LEASES (cont'd)
Under the terms of the leases, the Group has an option to purchase, at or
near the end of the lease term, certain aircraft at fair market value and
others at either fair market value or a percentage of the respective
lessor's defined cost of the aircraft.
Security, including charges over the assets concerned and relevant
insurance policies, is provided to the lessors.
As at 31 December, 2003, certain of the Group's and the Company's aircraft
with carrying amount of RMB7,857,169,000 (2002: RMB8,960,483,000) were
mortgaged to secure facilities with financial institutions granted to
lessors totalling RMB6,840,939,000 (2002: RMB8,198,449,000).
23 ACCOUNTS PAYABLE
An ageing analysis of accounts payable is set out below:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------------------------
Due within 1 month or on demand 279,165 164,442 206,620 88,645
Due after 1 month but within 3 months 278,113 157,731 231,115 89,290
Due after 3 months but within 6 months 370,815 210,307 308,153 119,054
--------------------------------------------------------------------------------------------------
928,093 532,480 745,888 296,989
==================================================================================================
As at 31 December, 2003, the Group and the Company had an amount due to a
fellow subsidiary of RMB693,345,000 (2002: RMB267,468,000) which was
included in accounts payable.
All of the accounts payable are expected to be settled within one year.
76 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
24 PROVISION FOR MAJOR OVERHAULS
Details of provision for major overhauls in respect of aircraft held under
operating leases are as follows:
The Group The Company
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------------------
Balance at 1 January, 193,887 187,125 63,389 48,154
Additional amount provided 68,620 49,051 67,603 33,460
Amount utilised (62,326) (42,289) - (18,225)
----------------------------------------------------------------------------------------------------
Balance at 31 December, 200,181 193,887 130,992 63,389
Less: Current portion included in
accrued expenses 10,717 52,000 -
----------------------------------------------------------------------------------------------------
189,464 141,887 130,992 63,389
====================================================================================================
25 SHARE CAPITAL
2003 2002
RMB'000 RMB'000
-------------------------------------------------------------------------------------
Registered capital:
2,200,000,000 domestic shares of RMB 1.00 each 2,200,000 2,200,000
1,174,178,000 H shares of RMB 1.00 each 1,174,178 1,174,178
1,000,000,000 A shares of RMB 1.00 each 1,000,000 -
-------------------------------------------------------------------------------------
4,374,178 3,374,178
=====================================================================================
Issued and paid up capital:
2,200,000,000 domestic shares of RMB 1.00 each 2,200,000 2,200,000
1,174,178,000 H shares of RMB 1.00 each 1,174,178 1,174,178
1,000,000,000 A shares of RMB 1.00 each 1,000,000 -
-------------------------------------------------------------------------------------
4,374,178 3,374,178
=====================================================================================
In July 2003, the Company issued 1,000,000,000 A shares with a par value
of RMB1.00 each at issue price of RMB2.70 by way of a public offering to
natural persons and institutional investors in the PRC. The share premium
received by the Company, net of the issuance costs of RMB59,233,000,
amounted to RMB1,640,767,000 and was credited to share premium account.
All the domestic, H and A shares rank pari passu in all material respects.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 77
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
26 RESERVES
Movements on reserves during the year comprise:
THE GROUP THE COMPANY
2003 2002 2003 2002
Notes RMB' 000 RMB' 000 RMB'000 RMB' 000
-----------------------------------------------------------------------------------------------------------------------------
Share premium
Balance at 1 January, 3,683,956 3,813,659 3,683,956 3,813,659
Land use rights adjustment (f) - (129,703) - (129,703)
Share premium from issuance of shares,
net of related issuance costs 1,640,767 - 1,640,767 -
-----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December, 5,324,723 3,683,956 5,324,723 3,683,956
-----------------------------------------------------------------------------------------------------------------------------
Statutory surplus reserve (a)
Balance at 1 January, 337,195 391,867 337,195 121,943
Adjustments from adoption of new PRC
accounting regulations (c) - (106,007) - 163,917
Transfer from profit and loss account 23,856 51,335 1,449 51,335
-----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December, 361,051 337,195 338,644 337,195
Statutory public welfare fund (b)
Balance at 1 January, 171,574 225,440 171,574 114,558
Adjustments from adoption of new PRC
accounting regulations (c) - (79,533) - 31,349
Transfer from profit and loss account 1,113 25,667 724 25,667
-----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December, 172,687 171,574 172,298 171,574
-----------------------------------------------------------------------------------------------------------------------------
Discretionary surplus reserve (d)
Balance at 1 January, 76,603 69,867 76,603 -
Adjustments from adoption of new PRC
accounting regulations (c) - - - 69,867
Transfer from profit and loss account - 6,736 - 6,736
-----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December, 76,603 76,603 76,603 76,603
-----------------------------------------------------------------------------------------------------------------------------
Retained earnings/(Accumulated losses)
Balance at 1 January, 1,969,701 1,346,652 445,636 467,716
Adjustments from adoption of new PRC
accounting regulations (c) - 185,540 - (265,133)
Land use rights adjustment (f) - 12,970 - 12,970
(Loss)/profit for the year (358,267) 575,761 (580,959) 381,305
Appropriations to reserves (24,969) (83,738) (2,173) (83,738)
Dividends paid - (67,484) - (67,484)
-----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December, 1,586,465 1,969,701 (137,496) 445,636
-----------------------------------------------------------------------------------------------------------------------------
Total 7,521,529 6,239,029 5,774,772 4,714,964
=============================================================================================================================
78 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
26 RESERVES (cont'd)
Notes:
(a) According to the PRC Company Law and the Articles of Association of
the Company and certain of its subsidiaries, the Company and the
relevant subsidiaries are required to transfer 10% of their annual
net profits after taxation, as determined under relevant PRC
accounting regulations, to a statutory surplus reserve until the
reserve balance reaches 50% of the registered capital. The transfer
to this reserve must be made before distribution of a dividend to
shareholders.
Statutory surplus reserve can be used to offset prior years' losses,
if any, and may be converted into share capital by the issue of new
shares to shareholders in proportion to their existing shareholding
or by increasing the par value of the shares currently held by them,
provided that the balance after such issue is not less than 25% of
the registered capital.
(b) According to the PRC Company Law and the Articles of Association of
the Company and certain of its subsidiaries, the Company and the
relevant subsidiaries are required to transfer between 5% to 10% of
their annual net profits after taxation, as determined under PRC
accounting regulations, to the statutory public welfare fund. This
fund can only be utilised on capital items for the collective
benefits of the Company's and the relevant subsidiaries' employees
such as the construction of dormitories, canteen and other staff
welfare facilities. This fund is non- distributable other than in
liquidation. The transfer to this reserve must be made before
distribution of a dividend to shareholders.
(c) During 2002, the Group and the Company adopted certain new PRC
accounting regulations which resulted in adjustments to the amounts
of the Group's and Company's profits determined under PRC accounting
regulations in respect of prior years and corresponding adjustments
to amounts appropriated to the statutory surplus reserve, statutory
public welfare fund and discretionary surplus reserve for the prior
years.
(d) The usage of this reserve is similar to that of statutory surplus
reserve.
(e) Under PRC Company Law and the Company's Articles of Association, the
net profit after taxation as reported in the PRC statutory financial
statements of the Company can only be distributed as dividends after
allowances have been made for:
(i) making up cumulative prior years' losses, if any;
(ii) allocations to the statutory surplus reserve of at least 10%
of after-tax profit, until the fund aggregates to 50% of the
Company's registered capital;
(iii) allocations of 5% to 10% of after-tax profit to the Company's
statutory public welfare fund; and
(iv) allocations to the discretionary surplus reserve, if approved
by the shareholders.
Pursuant to the Articles of Association of the Company, the net
profit of the Company for the purpose of profit distribution is
deemed to be the lesser of (i) the net profit determined in
accordance with the PRC accounting principles and financial
regulations and (ii) the net profit determined in accordance with
IFRS; or if the financial statements of the Company are not prepared
in accordance with IFRS, the accounting standards of one of the
countries in which its shares are listed. As at 31 December, 2003,
the Company did not have any distributable reserves (2002:
RMB445,636,000).
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 79
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
26 RESERVES (cont'd)
Notes: (cont'd)
(f) The Group adopted IAS 40 "Investment Property" in 2002. According to
IAS 40, the land use rights which were previously included in fixed
assets at revaluation base are now presented as lease prepayments
and carried at historical cost base with effect from 1 January,
2002. Accordingly, the unamortised surplus on previous revaluations
of the land use rights, net of related deferred tax asset, are
reversed to the share premium and retained profits accounts. The IAS
40 was adopted prospectively in 2002 as the effect of this change
did not have a material impact on the Group's financial condition
and results of operations in the periods prior to the change.
27 RELATED PARTY TRANSACTIONS
The Group obtained various operational and financial services provided by
CSAHC and its affiliates, and the Group's associated companies and jointly
controlled entities during the normal course of its business. In the past,
CSAHC was under the direct control of the CAAC. However, such control has
been shifted to the State Assets Administration Committee since early
2003. Consequently, transactions with the CAAC and its affiliates are no
longer presented as related party transactions of the Group.
80 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
27 RELATED PARTY TRANSACTIONS (cont'd)
The following is a summary of significant transactions carried out in the
normal course of business between the Group, CSAHC and its affiliates, and
the Group's associated companies and jointly controlled entities during
the year:
2003 2002
Notes RMB'000 RMB'000
---------------------------------------------------------------------------------------------------------------------
EXPENSES
PAID TO CSAHC AND OTHER RELATED PARTIES
Handling charges (a) 27,051 36,306
Wet lease rentals (b) 35,751 26,164
Advertising expenses (c) - 3,275
Sundry aviation supplies (d) 42,849 101,350
Commission expense (e) 4,896 16,725
Air catering expense (f) 28,199 29,058
Repairing charges (g) 693,303 592,311
Housing benefits (h) 85,000 85,000
Lease charges for land and buildings (i) 15,224 15,224
Flight simulation service charges (j) 101,355 -
PAID TO CAAC AND ITS AFFILIATES
Jet fuel supplies - 2,373,956
Aircraft insurance - 256,238
Guarantee fees - 1,025
Ticket reservation service charges - 107,234
Passenger departure and cargo handling charges - 62,111
Aircraft and traffic servicing charges - 1,667,706
Commission expense - 464,721
INCOME
RECEIVED FROM CSAHC AND OTHER RELATED PARTIES
Rental income (j) 34,175 -
Wet lease rentals (k) - 27,599
Interest income (l) 3,100 10,530
RECEIVED FROM CAAC AND ITS AFFILIATES
Ground services income - 39,735
Commission income - 81,931
OTHERS
Short term advances from CSAHC (m) 165,995 -
Refund of medical benefit payments (n) 58,120 -
Acquisition of aircraft and related
spare parts and vehicles (o) - 946,866
Acquisition of subsidiaries (p) - 107,846
=====================================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 81
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
27 RELATED PARTY TRANSACTIONS (cont'd)
Notes:
(a) Handling charges represent fees payable to Southern Airlines (Group)
Import and Export Trading Company, a wholly owned subsidiary of
CSAHC, in connection with the procurement of aircraft and flight
equipment on the Group's behalf. Handling charges are calculated
based on a fixed percentage of the purchase value and other charges.
(b) Wet lease rentals represented rentals payable to Xinjiang Airlines
Company, a subsidiary of CSAHC, pursuant to a wet lease agreement in
respect of a Boeing 757-200 aircraft effective October 2002. The wet
lease agreement was terminated in April 2003.
(c) Advertising expenses represent expense reimbursements to Southern
Airlines Advertising Company ("SAAC") for promotional services
rendered to the Group. SAAC was a subsidiary of CSAHC up to July
2002. In August 2002, the Company acquired 90% equity interest in
SAAC from CSAHC.
(d) Sundry aviation supplies represent purchases of aviation supplies
from Southern Airlines (Group) Economic Development Company, a
subsidiary of CSAHC. Prices charged by this supplier to the Group
are similar to those charged to other PRC airlines.
(e) Commission expense represents commissions payable to certain
subsidiaries of CSAHC in connection with services provided in
exchange for air tickets sold by them. These commissions are
calculated based on a fixed rate ranging from 1.5% to 12% on the
ticket value.
(f) Air catering expense represents purchases of inflight meals and
related services from Shenzhen Air Catering Company Limited, a
cooperative joint venture established in the PRC, in respect of
which CSAHC is entitled to 33% of its profits after tax.
(g) Repairing charges represent fees incurred by the Group in connection
with aircraft repair and maintenance services rendered by Guangzhou
Aircraft Maintenance Engineering Company Limited ("GAMECO") and MTU
Maintenance Zhuhai Co., Ltd. ("MTU Zhuhai"). GAMECO and MTU Zhuhai
are jointly controlled entities of the Company.
(h) Housing benefits represent a fixed annual fee payable to CSAHC in
respect of the provision of quarters to the eligible employees of
the Group. (Note 28).
(i) Charges were paid to CSAHC under certain lease agreements in respect
of certain land and buildings in the PRC (Note 10).
(j) Flight simulation service charges represent fees incurred by the
Group in connection with flight simulation services provided by
Zhuhai Xiang Yi, a jointly controlled entity of the Company.
In addition, the Company entered into operating lease agreements to
lease certain flight training facilities and buildings to Zhuhai
Xiang Yi. Rental income earned by the Company amounted to
RMB34,175,000 during 2003 (Note 10).
(k) During the period from August to October 2002, the Company received
wet lease rentals totalling RMB27,599,000 from wet leasing of an
Airbus 320-200 aircraft to Sichuan Airlines Corporation Limited, an
associated company of the Company.
(l) Interest income represents interest received from deposits placed
with SA Finance. The applicable interest rate is determined in
accordance with the deposit rate published by the People's Bank of
China (see Note 20).
82 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
27 RELATED PARTY TRANSACTIONS (cont'd)
Notes: (cont'd)
(m) During the year, CSAHC made short term advances to the Group. These
advances are unsecured, interest free and repayable on demand. As at
31 December, 2003, the advances amounted to RMB165,995,000.
(n) Prior to 1 January, 2002, the Group paid a fixed annual fee to CSAHC
in return for CSAHC providing medical benefit, transportation
subsidies and other welfare facilities to the retirees of the Group.
Such arrangement was terminated on 1 January, 2002. During 2003,
CSAHC refunded to the Group the difference between the aggregate
fixed annual fees received from the Group and the aggregate cost of
services incurred by CSAHC under the above arrangement.
(o) During 2002, the Group acquired five Boeing 737-300/37K aircraft and
related spare parts and certain vehicles from Zhongyuan Airlines, a
subsidiary of CSAHC, at a consideration of approximately
RMB1,096,866,000. The consideration was satisfied by cash of
approximately RMB132,130,000 together with an assumption by the
Group of Zhongyuan Airlines' debts of approximately RMB964,736,000.
In addition, the Group received reimbursements of wet lease rentals
totalling RMB150,000,000.
(p) In August 2002, the Company acquired 90% equity interest in each of
Guangzhou Aviation Hotel, Southern Airlines Advertising Company and
South China International Aviation & Travel Services Company from
CSAHC at an aggregate cash consideration of approximately
RMB107,846,000. Such consideration is determined by reference to the
valuation reports prepared by Guangzhou Zhongtian Valuation Company
Limited, a firm of independent valuers registered in the PRC.
In addition to the above, certain business undertakings of CSAHC also
provided hotel and other services to the Group during the year. The total
amount involved is not material to the results of the Group for the year.
The directors of the Company are of the opinion that the above
transactions with related parties were entered into in the normal course
of business and on normal commercial terms or in accordance with the
agreements governing such transactions.
28 RETIREMENT AND HOUSING BENEFITS
Employees of the Group participate in several defined contribution
retirement schemes organised separately by PRC municipal governments in
regions where the major operations of the Group are located. The Group is
required to contribute to these schemes at the rates ranging from 14% to
19% (2002: 14% to 19%) of salary costs including certain allowances. A
member of the retirement schemes is entitled to pension benefits equal to
a fixed proportion of the salary at the retirement date. The retirement
benefit obligations of all existing and future retired staff of the Group
are assumed by these schemes.
In addition, the Group was selected as one of the pilot enterprises to
establish a supplementary defined contribution retirement scheme for the
benefit of employees. In this connection, employees of the Group
participate in a supplementary defined contribution retirement scheme
whereby the Group is required to make defined contributions at a rate of
4.5% of total salaries. The Group has no obligation for the payment of
pension benefits beyond the contributions described above. Contributions
to the retirement schemes are charged to the profit and loss account as
and when incurred.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 83
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
28 RETIREMENT AND HOUSING BENEFITS (cont'd)
Furthermore, pursuant to the comprehensive services agreement (the
"Services Agreement") dated 22 May, 1997 between the Company and CSAHC,
CSAHC agrees to provide adequate quarters to eligible employees of the
Group as and when required. In return, the Group agrees to pay a fixed
annual fee of RMB85,000,000 to CSAHC for a ten-year period effective 1
January, 1995.
During 2002, the Group provided additional quarters at its own expense to
certain employees who are not eligible for quarters pursuant to the
Services Agreement. These quarters were provided to the respective
employees in accordance with the relevant PRC housing reform policy. The
excess of the cost of these additional quarters over the considerations
received by the Group from the employees of RMB17,624,000 were charged to
expenses in 2002.
Pursuant to an additional staff housing benefit scheme effective September
2002, the Group agreed to pay lump sum housing allowances to certain
employees who have not received quarters from CSAHC or the Group according
to the relevant PRC housing reform policy, for subsidising their purchases
of housing. Such expenditure has been deferred and amortised on a straight
line basis over a period of 10 years, which represents the vesting benefit
period of the employees. An employee who quits prior to the end of the
vesting benefit period is required to pay back a portion of the lump sum
housing benefits determined on a pro-rata basis of the vesting benefit
period remained. The Group has the right to effect a charge on the
employee's house and to enforce repayment through selling the house in the
event of default in repayment. Any shortfall in repayment would be charged
against profit and loss account. As at 31 December, 2003, the Group
already made payments totalling RMB130,479,000 (2002: RMB46,325,000) under
the scheme and recorded its remaining contractual liabilities totalling
RMB129,521,000 (2002: RMB213,675,000) as accrued liabilities on its
balance sheet.
84 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
29 COMMITMENTS
(a) CAPITAL COMMITMENTS
As at 31 December, 2003, the Group and the Company had capital
commitments as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------------------------------
Commitments in respect of
aircraft and related equipment
(Note)
- authorised and contracted for 10,615,079 5,875,996 7,739,290 5,875,996
--------------------------------------------------------------------------------------------------------
Commitments in respect of
investments in the
Guangzhou new airport
- authorised and contracted for 617,277 525,700 617,277 525,700
- authorised but not
contracted for 1,454,661 2,601,720 1,454,661 2,601,720
--------------------------------------------------------------------------------------------------------
2,071,938 3,127,420 2,071,938 3,127,420
--------------------------------------------------------------------------------------------------------
Other commitments
- authorised and contracted for 232,570 43,887 29,628 42,968
- authorised but not
contracted for 708,099 500,545 229,302 245,440
--------------------------------------------------------------------------------------------------------
940,669 544,432 258,930 288,408
--------------------------------------------------------------------------------------------------------
13,627,686 9,547,848 10,070,158 9,291,824
========================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 85
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
29 COMMITMENTS (cont'd)
(a) CAPITAL COMMITMENTS (CONT'D)
Note: As at 31 December, 2003, the Group had on order 2 Boeing
757-200 aircraft, 13 Boeing 737- 700 aircraft, 4 Airbus
330-200 aircraft, 6 Embraer ERJ-145 aircraft and certain
flight equipment, scheduled for deliveries in 2004 to 2005.
Deposits of RMB2,494,853,000 have been made towards the
purchase of these aircraft and related equipment. At 31
December, 2003, the approximate total future payments,
including estimated amounts for price escalation through
anticipated delivery dates for these aircraft and related
equipment are as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------------------------------------
Year ending 31 December,
2003 - 2,801,451 - 2,801,451
2004 4,584,823 2,343,978 3,248,674 2,343,978
2005 6,030,256 730,567 4,490,616 730,567
---------------------------------------------------------------------------------------------
10,615,079 5,875,996 7,739,290 5,875,996
=============================================================================================
The Group has taken steps towards the purchase of the airline
business of China Northern Airlines Company and Xinjiang
Airlines Company. No contractual obligations existed as at 31
December, 2003 and up to the date of approval of these
financial statements. The purchase price has not yet been
determined.
As at 31 December, 2003, the Group's and the Company's
attributable share of the capital commitments of jointly
controlled entities was as follows:
THE GROUP AND THE COMPANY
2003 2002
RMB'000 RMB'000
--------------------------------------------------------------------------------------------
Authorised and contracted for 24,137 63,723
Authorised but not contracted for 283,761 518,000
--------------------------------------------------------------------------------------------
307,898 581,723
============================================================================================
86 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
29 COMMITMENTS (cont'd)
(b) OPERATING LEASE COMMITMENTS
As at 31 December, 2003, commitments under non-cancellable aircraft
and flight equipment operating leases were as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------
Payments due
Within one year 1,482,888 1,280,060 1,193,892 1,044,720
In the second to fifth year,
inclusive 4,248,095 4,358,474 3,578,618 3,772,227
After the fifth year 2,388,874 2,898,104 2,278,463 2,893,237
-------------------------------------------------------------------------------------------------------
8,119,857 8,536,638 7,050,973 7,710,184
=======================================================================================================
(c) INVESTING COMMITMENTS
As at 31 December, 2003, the Company was committed to make a capital
contribution of approximately RMB446 million and RMB Nil
respectively (2002: RMB60 million and RMB201 million respectively)
to its jointly controlled entities and associated companies.
30 CONTINGENT LIABILITIES
(a) The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the
businesses assumed by the Company in the Reorganisation, no other
liabilities were assumed by the Company, and the Company is not
jointly and severally liable for other debts and obligations
incurred by CSAHC prior to the Reorganisation. There are not,
however, any definitive PRC regulations or other pronouncements
confirming such conclusion.
(b) The Group leases from CSAHC certain land in Guangzhou and certain
land and buildings in Wuhan, Haikou and Zhengzhou. The Group has a
significant investment in buildings and other leasehold improvements
located on such land. However, such land in Guangzhou and such land
and buildings in Wuhan, Haikou and Zhengzhou lack adequate
documentation evidencing CSAHC's rights thereto.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 87
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
30 CONTINGENT LIABILITIES (cont'd)
With respect to the facilities in Guangzhou, CSAHC has received
written assurance from the CAAC to the effect that CSAHC is entitled
to continued use and occupancy of the land in Guangzhou. The Company
understands that the CAAC is basing its conclusion on an agreement
among certain government authorities relating to such land. Such
assurance does not constitute formal evidence of CSAHC's right to
transfer, mortgage or lease such real property interests. The Group
cannot predict the magnitude of the effect on its financial
condition or results of operations to the extent that its use of one
or more of these parcels of land or the related facilities were
successfully challenged. CSAHC has agreed to indemnify the Group
against any loss or damage caused by any challenge or interference
with the Group's use of any of its land and buildings.
(c) The Company is currently involved in a civil litigation (Hong Kong
High Court Action No. 515 of 2001) ("Litigation"). According to the
writ of summons for the Litigation, New Link Consultants Limited,
the plaintiff, claimed against the Group (as one of the defendants
to the Litigation) on the basis of certain evidence proving that
United Aero-Supplies System of China, Limited ("UASSC") entered into
an agreement with the defendants for exclusive purchase of aviation
equipment consigned to UASSC for sale and, that as the defendants
failed to perform the agreement, UASSC has the right to
compensation. Since UASSC is in the course of its winding up
proceedings, all the rights and benefits of UASSC in connection with
the claim have been transferred to the plaintiff. The Company, as
one of the defendants to the Litigation, has been claimed for
unspecified damages for breach of the agreement. Given that the
Litigation is still at its preliminary stage, it is pre-matured to
predict the result of the court judgment. Based on the opinion given
by its instructing solicitors, the Company's directors consider that
the Company has a reasonable chance of success in its defence to the
claim. At present, the Company has filed an objection in respect of
the jurisdiction of the court, and has requested the court to
transfer the case of Mainland China for trial. Accordingly, the
Company's directors consider that a provision for such claim and/or
the associated legal costs is not required.
31 FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK
Financial assets of the Group include cash and cash equivalents,
investments, trade receivables and other receivables. Financial
liabilities of the Group include bank and other loans, amounts due to
related companies, other liabilities, accounts payable, bills payable,
sales in advance of carriage, accrual expenses and obligations under
finance leases.
LIQUIDITY RISK
As at 31 December, 2003, the Group's net current liabilities amounted to
RMB10,792 million (2002: RMB7,016 million). For the year ended 31
December, 2003, the Group recorded a net cash inflow from operating
activities of RMB2,129 million (2002: RMB3,698 million), a net cash
outflow from investing activities and financing activities of RMB3,820
million (2002: RMB2,745 million) and a decrease in cash and cash
equivalents of RMB1,691 million (2002: increase of RMB953 million).
With regard to 2004 and thereafter, the liquidity of the Group is
primarily dependent on its ability to maintain adequate cash inflow from
operations to meet its debt obligations as they fall due, and on its
ability to obtain adequate external finance to meet its committed future
capital expenditures. With regard to its short-term bank loans outstanding
at 31 December, 2003, the Group has obtained firm commitments from its
principal bankers to renew the relevant loans as they fall due during
2004. With regard to its future capital commitments and other financing
requirements, the Group has already entered into loan financing agreements
with several PRC banks to provide loan finance up to an approximate amount
of RMB8,450 million during 2004 and thereafter. The directors of the
Company believe that such financing will be available to the Group.
88 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
31 FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK (cont'd)
LIQUIDITY RISK (cont'd)
The directors of the Company have carried out a detailed review of the
cash flow forecast of the Group for the twelve months ending 31 December,
2004. Based on such forecast, the directors have determined that adequate
liquidity exists to finance the working capital and capital expenditure
requirements of the Group during that period. In preparing the cash flow
forecast, the directors have considered historical cash requirements of
the Group as well as other key factors, including the availability of the
above-mentioned loan finance which may impact the operations of the Group
during the next twelve-month period. The directors are of the opinion that
the assumptions and sensitivities which are included in the cash flow
forecast are reasonable. However, as with all assumptions in regard to
future events, these are subject to inherent limitations and uncertainties
and some or all of these assumptions may not be realised.
BUSINESS RISK
The Group conducts its principal operations in the PRC and accordingly is
subject to special considerations and significant risks not typically
associated with investments in equity securities of the United States of
America and Western European companies. These include risks associated
with, among others, the political, economic and legal environment,
influence of the CAAC over many aspects of its operations, and
competition, in the passenger, cargo and mail airlines services industry.
INTEREST RATE RISK
The interest rates and maturity information of the Group's bank and other
loans, and the maturity information of the Group's finance lease
obligations are disclosed in Notes 21 and 22 respectively.
FOREIGN CURRENCY RISK
The Group has significant exposure to foreign currency as substantially
all of the Group's lease obligations and bank loans are denominated in
foreign currencies, principally US dollars, and to a lesser extent,
Japanese Yen. Depreciation or appreciation of the Renminbi against foreign
currencies affects the Group's results significantly because the Group's
foreign currency payments generally exceed its foreign currency receipts.
The Group is not able to hedge its foreign currency exposure effectively
other than by retaining its foreign currency denominated earnings and
receipts to the extent permitted by the State Administration of Foreign
Exchange, or subject to certain restrictive conditions, entering into
forward foreign exchange contracts with authorised PRC banks.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 89
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
31 FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK (cont'd)
CREDIT RISKS
Substantially all of the Group's cash and cash equivalents are deposited
with PRC financial institutions.
A significant portion of the Group's air tickets are sold by agents
participating in the Billing and Settlement Plan ("BSP"), a clearing
scheme between airlines and sales agents organised by International Air
Transportation Association. As of 31 December, 2003, the balance due from
BSP agents amounted to RMB446,399,000 (2002: RMB353,246,000).
SELF INSURANCE RISK
The Group maintains a limited amount of property insurance in respect of
certain personal and real property.
FAIR VALUE
The carrying amounts and estimated fair values of significant financial
assets and liabilities at 31 December, 2002 and 2003 are set out below:
2003 2002
CARRYING FAIR Carrying Fair
AMOUNT VALUE amount value
RMB'000 RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------------------------------------------
THE GROUP
Cash and cash equivalents 2,080,174 2,080,174 3,771,043 3,771,043
Trade receivables 833,604 833,604 671,776 671,776
Other receivables 296,047 296,047 372,586 372,586
Bank and other loans, current portion 7,096,846 7,164,216 5,240,726 5,326,511
Amounts due to related companies 929,003 929,003 525,090 525,090
Other liabilities 1,019,811 1,019,811 646,989 646,989
Accounts payable 928,093 928,093 532,480 532,480
Bills payable 438,135 438,135 1,299,680 1,299,680
Sales in advance of carriage 466,087 466,087 390,531 390,531
Accrued expenses 2,527,794 2,527,794 2,341,454 2,341,454
Bank and other loans, non-current portion 4,521,735 4,743,128 5,835,434 6,111,052
------------------------------------------------------------------------------------------------------------------
90 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
31 FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK (cont'd)
FAIR VALUE (cont'd)
2003 2002
CARRYING FAIR Carrying Fair
AMOUNT VALUE amount value
RMB'000 RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------------------------------------------
THE COMPANY
Cash and cash equivalents 1,404,874 1,404,874 2,960,337 2,960,337
Trade receivables 683,206 683,206 464,930 464,930
Other receivables 222,438 222,438 239,601 239,601
Bank and other loans, current portion 5,958,968 6,010,222 3,479,322 3,546,409
Amounts due to related companies 870,682 870,682 358,077 358,077
Other liabilities 854,057 854,057 411,218 411,218
Accounts payable 745,888 745,888 296,989 296,989
Bills payable 438,135 438,135 1,299,680 1,299,680
Sales in advance of carriage 405,851 405,851 340,457 340,457
Accrued expenses 1,628,072 1,628,072 1,049,806 1,049,806
Bank and other loans, non-current portion 3,670,499 3,827,220 4,628,372 4,811,961
------------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
for each class of financial instrument:
(i) Cash and cash equivalents, trade receivables, other receivables,
amounts due to related companies, other liabilities, accounts
ayable, bills payable, sales in advance of carriage and accrued
expenses
The carrying values approximate fair value because of the short
maturities of these instruments.
(ii) Bank and other loans
The fair value has been estimated by applying a discounted cash flow
approach using interest rates available to the Group for similar
indebtedness.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 91
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
31 FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK (cont'd)
The economic characteristics of the Group's leases vary from lease to
lease. It is impractical to compare such leases with those prevailing in
the market within the constraints of timeliness and cost for the purpose
of estimating the fair value of such leases. Other investments represent
unquoted available-for-sale equity securities of companies established in
the PRC. There is no quoted market price for such equity securities and
accordingly a reasonable estimate of the fair value could not be made
without incurring excessive costs.
Fair value estimates are made at a specific point in time and are based on
relevant market information about the financial instruments. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
32 SEGMENTAL INFORMATION
Geographic information about the Group's turnover and operating
profit/(loss) are as follows:
HONG KONG
DOMESTIC REGIONAL *INTERNATIONAL TOTAL
RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------------------------------------------------
2003
Traffic revenue 13,086,939 807,677 3,070,184 16,964,800
Other revenue 436,122 - 69,201 505,323
-----------------------------------------------------------------------------------------------------------------
13,523,061 807,677 3,139,385 17,470,123
=================================================================================================================
Operating profit/(loss) 440,158 (29,210) 44,781 455,729
=================================================================================================================
2002
Traffic revenue 13,197,589 1,118,695 3,165,608 17,481,892
Other revenue 485,046 - 51,682 536,728
-----------------------------------------------------------------------------------------------------------------
13,682,635 1,118,695 3,217,290 18,018,620
=================================================================================================================
Operating profit 1,614,975 193,440 217,662 2,026,077
=================================================================================================================
* Mainly routes between the PRC and Asian countries, the United States
of America, the Netherlands, Belgium and Australia.
The major revenue-earning assets of the Group are its aircraft fleet, most
of which are registered in the PRC. Since the Group's aircraft fleet is
employed flexibly across its route network, there is no suitable basis of
allocating such assets to geographic segments. Substantially all of the
Group's non-aircraft identifiable assets are located in the PRC.
92 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
33 RECONCILIATION AND SUPPLEMENTARY STATEMENT OF CASH FLOW INFORMATION
(a) THE RECONCILIATION OF (LOSS)/PROFIT BEFORE TAXATION AND MINORITY
INTERESTS TO CASH INFLOWS FROM OPERATIONS IS AS FOLLOWS:
2003 2002
RMB'000 RMB'000
------------------------------------------------------------------------------------------------------
(Loss)/profit before taxation and minority interests (511,610) 1,139,099
Depreciation and amortisation of fixed assets 1,997,882 1,839,293
Other amortisation 40,089 9,816
Amortisation of deferred credits (1,541) (7,217)
Share of associated companies' results (47,798) (36,988)
Share of jointly controlled entities' results 39,495 3,352
Loss/(gain) on sale of fixed assets 22,217 (170,740)
Interest income (13,061) (52,618)
Interest expense 823,725 959,193
Unrealised exchange loss, net 177,356 174,978
Decrease/(increase) in inventories 1,923 (76,472)
Increase in trade receivables (161,828) (110,749)
Decrease/(increase) in other receivables 76,539 (166,004)
(Increase)/decrease in prepaid expenses and other assets (6,045) 123,924
Increase/(decrease) in amounts due to related companies 403,913 (193,175)
Increase/(decrease) in accounts payable 395,613 (61,843)
(Decrease)/increase in bills payable (861,545) 1,299,680
Increase in sales in advance of carriage 75,556 19,985
Increase in accrued expenses 203,439 86,215
Increase/(decrease) in other liabilities 372,822 (33,032)
Increase in provision for major overhauls 47,577 16,226
------------------------------------------------------------------------------------------------------
Cash inflows from operations 3,074,718 4,762,923
======================================================================================================
(b) DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During 2002, the Group assumed from Zhongyuan Airlines debts
totalling RMB964,736,000 in partial satisfaction of the
consideration payable for acquisition of five Boeing 737-300/37K
aircraft and other assets from Zhongyuan Airlines (Note 27(o)).
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 93
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
33 RECONCILIATION AND SUPPLEMENTARY STATEMENT OF CASH FLOW INFORMATION
(cont'd)
(c) EFFECT OF ACQUISITION OF SUBSIDIARIES
2003 2002
RMB' 000 RMB' 000
----------------------------------------------------------------------------------
Net assets acquired:
Fixed assets - 96,636
Cash and cash equivalents - 17,355
Trade receivables and other current assets - 20,681
----------------------------------------------------------------------------------
- 134,672
----------------------------------------------------------------------------------
Accounts payable - 3,623
Accrued expenses and other liabilities - 11,220
----------------------------------------------------------------------------------
- 14,843
----------------------------------------------------------------------------------
Net assets value - 119,829
==================================================================================
Consideration paid - 107,846
Cash and cash equivalents acquired - 17,355
----------------------------------------------------------------------------------
Net cash outflow from acquisition of subsidiaries - 90,491
==================================================================================
34 ULTIMATE HOLDING COMPANY
The directors of the Company consider the ultimate holding company to
be CSAHC, a state-owned enterprise established in the PRC.
35 SUBSEQUENT EVENTS
In April 2004, the Company entered into a purchase agreement with
Airbus SNC for the acquisition of fifteen Airbus 320-200 aircraft and
six Airbus 319-100 aircraft, scheduled for deliveries in 2005 and 2006.
94 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
36 SUBSIDIARIES
The particulars of the Company's principal subsidiaries at 31 December,
2003 are as follows:
PLACE AND ATTRIBUTABLE
DATE OF EQUITY INTEREST ISSUED/
ESTABLISHMENT/ ----------------- REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
China Southern Airlines PRC 100 - 100,000,000 Helicopter
(Group) Zhuhai Helicopter 31 August, 1993 transportation
Company Limited (a)
Guangxi Airlines PRC 60 - 170,900,000 Airline
Company Limited (a) 28 April, 1994
Southern Airlines Group PRC 60 - 280,000,000 Airline
Shantou Airlines 20 July, 1993
Company Limited (a)
Zhuhai Airlines PRC 60 - 250,000,000 Airline
Company Limited (a) 8 May, 1995
Xiamen Airlines PRC 60 - 588,434,000 Airline
Company Limited (a) 11 August, 1984
Guizhou Airlines PRC 60 - 80,000,000 Airline
Company Limited (a) 12 November, 1991
Guangzhou Nanland Air PRC 51 - 55,980,000 Air catering
Catering Company 21 November, 1989
Limited (b)
China Southern West Australia 65 - A$ 100,000 Pilot training
Australian Flying 26 January, 1971 services
College Pty Ltd
Guangzhou Baiyun International PRC 61 - 20,000,000 Logistics
Logistic Company Ltd 23 July, 2002 operations
Guangzhou Aviation Hotel PRC 90 - 63,290,000 Hotel operation
8 January, 1997
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 95
NOTES TO THE FINANCIAL STATEMENTS (Cont' d)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
36 SUBSIDIARIES (cont' d)
PLACE AND ATTRIBUTABLE
DATE OF EQUITY INTEREST ISSUED/
ESTABLISHMENT/ ----------------- REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
Southern Airlines Advertising PRC 90 - 2,000,000 Aviation
Company Ltd 3 March, 1994 advertising
South China International PRC 90 - 2,100,000 Travel services
Aviation & Travel Services 11 May, 1992
Company
CZ Flamingo Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
8 December, 1993
CZ Skylark Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
17 November, 1993
CZ Kapok Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
26 October, 1993
CSA-I Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
1 September, 1993
CZ93B Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
11 May, 1993
CZ97A Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
2 January, 1997
Zhong Yuan 99A Limited Cayman Islands 100 - US$ 1,000 Aircraft leasing
15 February, 1999
CXA92A Limited Cayman Islands - 60 US$ 1,000 Aircraft leasing
3 August, 1992
CXA93A Limited Cayman Islands - 60 US$ 1,000 Aircraft leasing
1 July, 1993
CXA95B Limited Cayman Islands - 60 US$ 1,000 Aircraft leasing
7 July, 1995
96 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont' d)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
36 SUBSIDIARIES (cont' d)
PLACE AND ATTRIBUTABLE
DATE OF EQUITY INTEREST ISSUED/
ESTABLISHMENT/ ----------------- REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
CXA95C Limited Cayman Islands - 60 US$ 1,000 Aircraft leasing
16 October, 1995
CXA98A Limited Cayman Islands - 60 US$ 1,000 Aircraft leasing
20 March, 1998
Xiamen Aviation PRC - 60 5,000,000 Property
Property Development 22 June, 1993 development
Company (a)
Xiamen Aviation PRC - 60 620,218 Aviation
Advertising Company 17 December, 1992 advertising
Limited (a)
Xiamen Aviation PRC - 60 8,560,000 Aviation supplies
Supplies Limited (a) 30 July, 1997
Xiamen Aviation PRC - 54 5,000,000 Hotel
Development 18 February, 1998 management
Company Limited (a)
Bai Lu Finance Limited Hong Kong - 54 HK$10,000,000 Investment
22 February, 1996 holding
Xiamen Air Holidays Hong Kong - 54 HK$ 3,000,000 Travel
Limited 28 April, 1994 servicing
Xiamen Macau Macau - 27.5 MOP 1,000,000 Travel
Holidays Limited 11 May, 1995 servicing
Shantou Hua Kang Air PRC - 42 10,000,000 Air catering
Catering Company Ltd (a) 22 June, 1994
# Expressed in RMB, unless otherwise stated
(a) These subsidiaries are PRC limited companies.
(b) These subsidiaries are Sino-foreign equity joint venture companies
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 97
NOTES TO THE FINANCIAL STATEMENTS (Cont' d)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
37 ASSOCIATED COMPANIES AND JOINTLY CONTROLLED ENTITIES
The particulars of the Group's principal associated companies and
jointly controlled entities as at 31 December, 2003 are as follows:
PLACE AND ATTRIBUTABLE
DATE OF EQUITY INTEREST ISSUED/
ESTABLISHMENT/ ----------------- REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
Guangzhou Aircraft PRC 50 - US$ 27,500,000 Provision of
Maintenance 28 October, 1989 aircraft
Engineering repair and
Company Limited* (Note) maintenance
services
Southern Airlines PRC 32 15.42 424,330,000 Provision of
Group Finance 28 June, 1995 financial
Company Limited services
Hainan Phoenix PRC 45 - US$ 16,360,000 Provision of
Information 12 March, 1994 ticket
System Limited reservation
system
services
Hong Kong Business Hong Kong 20 - HKD 1,000,000 Provision of
Aviation Centre 7 January, 1998 private
Company Limited flight
logistic
services
Sichuan Airlines PRC 39 - 350,000,000 Airline
Corporation Limited 28 August, 2002
MTU Maintenance PRC 50 - US$ 63,100,000 Provision of
Zhuhai Co. Ltd.* 6 April, 2001 engine
repair and
maintenance
services
China Postal Airlines PRC 49 - 306,000,000 Airline
Limited* 25 November, 1996
98 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont' d)
(Prepared under International Financial Reporting Standards)
(Expressed in Renminbi)
37 ASSOCIATED COMPANIES AND JOINTLY CONTROLLED ENTITIES (cont' d)
PLACE AND ATTRIBUTABLE
DATE OF EQUITY INTEREST ISSUED/
ESTABLISHMENT/ ----------------- REGISTERED PRINCIPAL
NAME OF COMPANY OPERATION DIRECT INDIRECT CAPITAL# ACTIVITIES
% %
Zhuhai Xiang Yi PRC 51 - US$29,800,000 Provision of
Aviation Technology 10 July, 2002 flight
Company Limited* simulation
services
CSN-ETC e-commerce PRC 51 - 5,880,000 Provision of
Limited* 10 February, 2003 internet
services
# Expressed in RMB, unless otherwise stated
* These are jointly controlled entities
Note: Guangzhou Aircraft Maintenance Engineering Company Limited has been
reclassified from an associated company to a jointly controlled entity
since 2003 due to a change in the composition of its shareholders in
2003.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 99
REPORT OF THE AUDITORS
[KPMG HUAZHEN LOGO]
KPMG - AH (2004) AR No. 0022
TO THE SHAREHOLDERS OF CHINA SOUTHERN AIRLINES COMPANY LIMITED:
We have audited the accompanying Company' s consolidated balance sheet and
balance sheet at 31 December, 2003, and the consolidated income and profit
appropriation statement, income and profit appropriation statement, consolidated
cash flow statement and cash flow statement for the year then ended. The
preparation of these financial statements is the responsibility of the Company'
s management. Our responsibility is to express an audit opinion on these
financial statements based on our audit.
We conducted our audit in accordance with China' s Independent Auditing
Standards of the Certified Public Accountants. Those standards require that we
plan and perform the audit to obtain reasonable assurance as to whether the
financial statements are free from material misstatement. An audit includes
examination, on a test basis, of evidence supporting the amounts and disclosures
in the financial statements, an assessment of the accounting policies used and
significant estimates made by the Company' s management in the preparation of
the financial statements, as well as evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the above-mentioned financial statements comply with the
requirements of the Accounting Standards for Business Enterprises and the
Accounting Regulations for Business Enterprises issued by the Ministry of
Finance of the People' s Republic of China and present fairly, in all material
respects, the Company' s consolidated financial position and financial position
at 31 December, 2003, and the consolidated results of operations, results of
operations, and consolidated cash flows and cash flows for the year then ended.
KPMG HUAZHEN Certified Public Accountants
Registered in the People's Republic
of China
8/F, Office Tower E2
Oriental Plaza JIN NAI WEN
No.1, East Chang An Avenue CHEN YU HONG
Beijing, The People' s Republic of China
Post Code: 100738 23 April, 2004
100 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CONSOLIDATED BALANCE SHEET
As at 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB' 000 RMB' 000
--------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 6 2,321,483 4,145,300
Trade receivables 7 891,827 742,962
Other receivables 8 316,665 404,279
Advance payments 9 84,832 14,237
Inventories 10 631,669 653,011
Prepaid expenses 11 203,370 165,754
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,449,846 6,125,543
--------------------------------------------------------------------------------
LONG-TERM EQUITY INVESTMENTS 12 622,372 576,850
--------------------------------------------------------------------------------
Fixed assets:
Cost 40,898,104 37,080,309
Less: accumulated depreciation 11,502,684 9,514,246
--------------------------------------------------------------------------------
Net book value of fixed assets 13 29,395,420 27,566,063
Construction materials 14 1,730 1,485
Construction in progress 15 1,937,390 1,006,964
--------------------------------------------------------------------------------
TOTAL FIXED ASSETS 31,334,540 28,574,512
--------------------------------------------------------------------------------
OTHER ASSETS:
Lease and equipment deposits 16 2,932,591 2,147,038
Deferred expenditure 17 26,473 34,136
Long-term receivables 18 6,382 12,034
--------------------------------------------------------------------------------
TOTAL OTHER ASSETS 2,965,446 2,193,208
--------------------------------------------------------------------------------
TOTAL ASSETS 39,372,204 37,470,113
================================================================================
The notes on pages 116 to 182 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 101
CONSOLIDATED BALANCE SHEET (Cont' d)
As at 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans 19 6,429,306 4,443,426
Bills payable 20 447,778 1,299,680
Trade accounts payable 21 1,667,383 900,926
Sales in advance of carriage 22 466,087 390,531
Wages payable 74,956 73,702
Staff welfare payable 131,284 179,984
Taxes payable 4 102,134 122,657
CAAC infrastructure development fund payable 23 353,592 280,706
Other creditors 24 5,756 2,897
Other payables 25 892,299 692,246
Accrued expenses 26 2,386,987 2,286,136
Long-term liabilities due within one year 27 1,985,895 2,384,498
-----------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 14,943,457 13,057,389
-----------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term borrowings 28 4,779,678 5,911,590
Obligations under finance leases 29 5,543,084 6,631,751
Provision for major overhauls 30 189,464 141,887
Deferred credits 31 217,162 249,411
-----------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 10,729,388 12,934,639
-----------------------------------------------------------------------------------------
DEFERRED TAXATION:
Deferred tax liabilities 32 391,638 1,043,303
-----------------------------------------------------------------------------------------
TOTAL LIABILITIES 26,064,483 27,035,331
-----------------------------------------------------------------------------------------
MINORITY INTERESTS 1,757,872 1,540,188
-----------------------------------------------------------------------------------------
The notes on pages 116 to 182 form part of these financial statements.
102 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CONSOLIDATED BALANCE SHEET (Cont'd)
As at 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB' 000 RMB' 000
------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 33 4,374,178 3,374,178
Capital reserves 34 5,801,345 4,160,578
Surplus reserves 35 610,341 585,372
-----------------------
Including: Statutory public welfare fund 172,687 171,574
-----------------------
Retained profits 763,985 774,466
------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 11,549,849 8,894,594
------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 39,372,204 37,470,113
====================================================================================
These financial statements have been approved by the Board of Directors on 23
April, 2004
YAN ZHI QING WANG CHANG SHUN XU JIE BO XIAO LI XIN
Chairman of Vice Chairman of Director and General Manager of
Board of Directors Board of Directors and Chief Financial Officer Finance Department
President
The notes on pages 116 to 182 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 103
BALANCE SHEET
As at 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB' 000 RMB' 000
-----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 6 1,404,874 2,960,337
Trade receivables 7 683,206 476,532
Other receivables 8 754,381 244,635
Advance payments 9 67,537 9,439
Inventories 10 211,489 116,649
Prepaid expenses 11 114,317 109,893
-----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,235,804 3,917,485
-----------------------------------------------------------------------------
LONG-TERM EQUITY INVESTMENTS 12 3,657,618 4,290,122
-----------------------------------------------------------------------------
Fixed assets:
Cost 31,795,443 26,416,967
Less: accumulated depreciation 8,972,242 6,856,976
-----------------------------------------------------------------------------
Net book value of fixed assets 13 22,823,201 19,559,991
Construction materials 14 1,730 1,485
Construction in progress 15 1,543,420 637,770
-----------------------------------------------------------------------------
TOTAL FIXED ASSETS 24,368,351 20,199,246
-----------------------------------------------------------------------------
OTHER ASSETS:
Lease and equipment deposits 16 2,228,754 2,065,192
Deferred expenditure 17 17,349 23,469
-----------------------------------------------------------------------------
TOTAL AND OTHER ASSETS 2,246,103 2,088,661
-----------------------------------------------------------------------------
TOTAL ASSETS 33,507,876 30,495,514
=============================================================================
The notes on pages 116 to 182 form part of these financial statements.
104 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
BALANCE SHEET (Cont'd)
As at 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
---------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans 19 5,577,841 2,914,158
Bills payable 20 438,135 1,299,680
Trade accounts payable 21 1,447,804 451,497
Sales in advance of carriage 22 405,851 340,457
Wages payable 30,391 36,001
Staff welfare payable - 24,387
Taxes payable 4 11,101 39,751
CAAC infrastructure development fund payable 23 293,223 201,476
Other creditors 24 689 979
Other payables 25 766,741 693,726
Accrued expenses 26 1,682,680 1,159,416
Long-term liabilities due within one year 27 1,678,982 2,131,862
---------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 12,333,438 9,293,390
---------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term borrowings 28 3,670,499 4,628,372
Obligations under finance leases 29 5,543,084 6,631,751
Provision for major overhauls 30 130,992 63,389
Deferred credits 31 217,162 249,411
---------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 9,561,737 11,572,923
---------------------------------------------------------------------------------------
DEFERRED TAXATION:
Deferred tax liabilities 32 62,852 734,607
---------------------------------------------------------------------------------------
TOTAL LIABILITIES 21,958,027 21,600,920
---------------------------------------------------------------------------------------
The notes on pages 116 to 182 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 105
BALANCE SHEET (Cont'd)
As at 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
---------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 33 4,374,178 3,374,178
Capital reserves 34 5,801,345 4,160,578
Surplus reserves 35 587,545 585,372
------------------------
Including: Statutory public welfare fund 172,298 171,574
------------------------
Retained profits 786,781 774,466
TOTAL SHAREHOLDERS' EQUITY 11,549,849 8,894,594
---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 33,507,876 30,495,514
=======================================================================================
These financial statements have been approved by the Board of Directors on 23
April, 2004
YAN ZHI QING WANG CHANG SHUN XU JIE BO XIAO LI XIN
Chairman of Vice Chairman of Director and General Manager of
Board of Directors Board of Directors and Chief Financial Officer Finance Department
President
The notes on pages 116 to 182 form part of these financial statements.
106 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CONSOLIDATED INCOME AND PROFIT APPROPRIATION STATEMENT
For the year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------------------
REVENUE FROM PRINCIPAL OPERATIONS 37 17,351,006 18,805,510
Less: Transfer to CAAC infrastructure development fund 250,802 798,386
-------------------------------------------------------------------------------------------------------------------
NET REVENUE FROM PRINCIPAL OPERATIONS 17,100,204 18,007,124
Less: Costs of principal operations 14,221,965 13,118,104
Business taxes and surcharges 38 190,682 525,250
-------------------------------------------------------------------------------------------------------------------
PROFIT FROM PRINCIPAL OPERATIONS 2,687,557 4,363,770
Add: Profit from other operations 39 325,949 325,327
Less: Selling expenses 1,519,416 1,527,255
Administrative expenses 893,343 1,013,506
Financial expenses 40 995,550 1,095,219
-------------------------------------------------------------------------------------------------------------------
OPERATING (LOSS)/ PROFIT (394,803) 1,053,117
Add: Investment income 41 61,676 10,473
Non-operating income 42 43,083 8,627
Less: Non-operating expenses 43 71,480 40,531
-------------------------------------------------------------------------------------------------------------------
(LOSS)/PROFIT BEFORE INCOME TAX (361,524) 1,031,686
Less: Income tax 44 (604,727) 353,230
Minority interests 228,715 165,111
-------------------------------------------------------------------------------------------------------------------
NET PROFIT FOR THE YEAR 14,488 513,345
===================================================================================================================
The notes on pages 116 to 182 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 107
CONSOLIDATED INCOME AND PROFIT APPROPRIATION STATEMENT (Cont'd)
For the year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
-------------------------------------------------------------------------------------
NET PROFIT FOR THE YEAR 14,488 513,345
Add: Retained profits at the beginning of the year 774,466 412,343
-------------------------------------------------------------------------------------
PROFITS AVAILABLE FOR DISTRIBUTION 788,954 925,688
Less: Transfer to statutory surplus reserve 36 23,856 51,335
Transfer to statutory public welfare fund 36 1,113 25,667
-------------------------------------------------------------------------------------
PROFITS AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS 763,985 848,686
Less: Transfer to discretionary surplus reserve 36 - 6,736
Dividends distributed to shareholders 36 - 67,484
-------------------------------------------------------------------------------------
RETAINED PROFITS AT THE END OF THE YEAR 763,985 774,466
=====================================================================================
The notes on pages 116 to 182 form part of these financial statements.
108 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
INCOME AND PROFIT APPROPRIATION STATEMENT
For the year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
---------------------------------------------------------------------------------------------------
REVENUE FROM PRINCIPAL OPERATIONS 37 11,917,893 9,496,806
Less: Transfer to CAAC Infrastructure development fund 167,942 375,734
---------------------------------------------------------------------------------------------------
NET REVENUE FROM PRINCIPAL OPERATIONS 11,749,951 9,121,072
Less: Costs of principal operations 10,242,766 6,324,601
Business taxes and surcharges 38 132,488 255,924
---------------------------------------------------------------------------------------------------
PROFIT FROM PRINCIPAL OPERATIONS 1,374,697 2,540,547
Add: Profit from other operations 39 253,060 264,363
Less: Selling expenses 1,110,849 917,162
Administrative expenses 547,390 412,563
Financial expenses 40 887,644 988,893
---------------------------------------------------------------------------------------------------
OPERATING (LOSS)/ PROFIT (918,126) 486,292
Add: Investment income 41 266,925 268,556
Non-operating income 42 17,896 2,834
Less: Non-operating expenses 43 23,962 9,329
---------------------------------------------------------------------------------------------------
(LOSS)/PROFIT BEFORE INCOME TAX (657,267) 748,353
Less: Income tax 44 (671,755) 235,008
---------------------------------------------------------------------------------------------------
NET PROFIT FOR THE YEAR 14,488 513,345
===================================================================================================
The notes on pages 116 to 182 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 109
INCOME AND PROFIT APPROPRIATION STATEMENT (Cont'd)
For the year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
--------------------------------------------------------------------------------------
NET PROFIT FOR THE YEAR 14,488 513,345
Add: Retained profits at the beginning of the year 774,466 412,343
--------------------------------------------------------------------------------------
PROFITS AVAILABLE FOR DISTRIBUTION 788,954 925,688
Less: Transfer to statutory surplus reserve 36 1,449 51,335
Transfer to statutory public welfare fund 36 724 25,667
--------------------------------------------------------------------------------------
PROFITS AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS 786,781 848,686
Less: Transfer to discretionary surplus reserve 36 - 6,736
Dividends distributed to shareholders 36 - 67,484
--------------------------------------------------------------------------------------
RETAINED PROFITS AT THE END OF THE YEAR 786,781 774,466
======================================================================================
The notes on pages 116 to 182 form part of these financial statements.
110 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CONSOLIDATED CASH FLOW STATEMENT
For year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sale of goods and rendering of services 17,542,503 19,074,268
Other cash received relating to operating activities 181,567 133,298
---------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 17,724,070 19,207,566
---------------------------------------------------------------------------------------------------
Cash paid for goods and services 12,271,446 10,151,516
Cash paid to and on behalf of employees 1,633,970 1,613,409
Cash paid for all types of taxes 463,614 1,839,596
Other cash paid relating to operating activities 512,887 828,267
---------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS 14,881,917 14,432,788
---------------------------------------------------------------------------------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES (i) 2,842,153 4,774,778
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from return on investments 17,140 3,093
Net cash received from disposal of fixed assets
and other long-term assets 64,757 825,667
Refund of deposits for fixed asset purchases 1,066,086 2,247,384
Other cash received relating to investing activities 13,061 52,618
---------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 1,161,044 3,128,762
---------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and
other long-term assets 6,697,501 8,845,673
Cash paid for acquisition of investments 4,209 138,353
---------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS 6,701,710 8,984,026
---------------------------------------------------------------------------------------------------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (5,540,666) (5,855,264)
---------------------------------------------------------------------------------------------------
The notes on pages 116 to 182 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 111
CONSOLIDATED CASH FLOW STATEMENT (Cont'd)
For year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from investors 3,931 83,037
Cash received from borrowings 9,116,113 7,093,436
Proceeds from A share issue 2,640,767 -
-------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 11,760,811 7,176,473
-------------------------------------------------------------------------------------------------
Cash paid for repayment of borrowings 9,947,252 3,741,471
Cash paid for dividends or interest 938,863 1,167,377
-------------------------------------------------------------------------------------------------
Sub-total of cash outflows 10,886,115 4,908,848
-------------------------------------------------------------------------------------------------
NET CASH INFLOW FROM FINANCING ACTIVITIES 874,696 2,267,625
-------------------------------------------------------------------------------------------------
NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (iii) (1,823,817) 1,187,139
=================================================================================================
The notes on pages 116 to 182 form part of these financial statements.
112 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CONSOLIDATED CASH FLOW STATEMENT (Cont'd)
For year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------------------------
(i) RECONCILIATION OF NET PROFIT TO CASH FLOWS FROM OPERATING ACTIVITIES
Net profit 14,488 513,345
Add: Depreciation of fixed assets 2,093,928 1,854,576
Amortisation of deferred expenditure 14,089 18,120
Amortisation of deferred credits (32,249) (17,725)
Loss on sale of fixed assets 19,014 28,654
Financial expenses 975,107 1,082,026
Minority interests 228,715 165,111
Investment income (61,676) (10,473)
Increase in operating receivables (104,791) (342,706)
Decrease/ (increase) in inventories 21,342 (79,165)
Increase in prepaid expenses (37,616) (26,235)
Increase in operating payables 140,048 1,347,664
Increase in sales in advance of carriage 75,556 19,985
Increase in accrued expenses 117,950 26,069
Decrease in taxes payable (20,523) (99,910)
Increase/ (decrease) in other creditors 2,859 (2,363)
(Decrease)/ increase in deferred taxation (651,665) 281,579
Increase in provision for major overhauls 47,577 16,226
-------------------------------------------------------------------------------------------------------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 2,842,153 4,774,778
=========================================================================================================================
(ii) INVESTING AND FINANCING ACTIVITIES NOT REQUIRING THE USE OF CASH
AND CASH EQUIVALENTS:
Purchase of fixed assets by assumption of debts - 964,736
=========================================================================================================================
(iii) NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the end of the year 2,321,483 4,145,300
Less: Cash and cash equivalents at the beginning of the year 4,145,300 2,958,161
-------------------------------------------------------------------------------------------------------------------------
NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (1,823,817) 1,187,139
=========================================================================================================================
The notes on pages 116 to 182 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 113
CASH FLOW STATEMENT
For year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sale of goods and rendering of services 11,991,375 9,725,792
Other cash received relating to operating activities 87,718 60,746
----------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 12,079,093 9,786,538
----------------------------------------------------------------------------------------------------------
Cash paid for goods and services 9,317,477 4,270,252
Cash paid to and on behalf of employees 1,255,342 881,419
Cash paid for all types of taxes 192,743 840,734
Other cash paid relating to operating activities 230,534 368,326
----------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS 10,996,096 6,360,731
----------------------------------------------------------------------------------------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES (i) 1,082,997 3,425,807
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from return on investments 2,693 71,028
Net cash received from disposal of fixed assets
and other long-term assets 7,081 779,298
Refund of deposits for fixed asset purchases 1,066,086 1,996,274
Other cash received relating to investing activities 7,666 42,446
----------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 1,083,526 2,889,046
----------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and
other long-term assets 5,512,354 7,329,777
Cash paid for acquisition of investments 12,026 570,317
----------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS 5,524,380 7,900,094
----------------------------------------------------------------------------------------------------------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (4,440,854) (5,011,048)
----------------------------------------------------------------------------------------------------------
The notes on pages 116 to 182 form part of these financial statements.
114 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
CASH FLOW STATEMENT (Cont'd)
For year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
Note RMB'000 RMB'000
--------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from borrowings 8,083,007 6,374,224
Proceeds from A share issue 2,640,767 -
--------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 10,723,774 6,374,224
--------------------------------------------------------------------------------------------
Cash paid for repayment of borrowings 8,116,528 2,972,465
Cash paid for dividends or interest 804,852 993,763
--------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS 8,921,380 3,966,228
--------------------------------------------------------------------------------------------
NET CASH INFLOW FROM FINANCING ACTIVITIES 1,802,394 2,407,996
--------------------------------------------------------------------------------------------
NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (iii) (1,555,463) 822,755
============================================================================================
The notes on pages 116 to 182 form part of these financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 115
CASH FLOW STATEMENT (Cont'd)
For year ended 31 December, 2003
(Prepared under PRC Accounting Rules and Regulations)
2003 2002
NOTES TO THE CASH FLOW STATEMENTS RMB'000 RMB'000
---------------------------------------------------------------------------------------------------------------
(i) RECONCILIATION OF NET PROFIT TO CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit 14,488 513,345
Add: Depreciation of fixed assets 1,574,366 1,342,887
Amortisation of deferred expenditure 7,421 8,461
Amortisation of deferred credits (32,249) (17,725)
(Gain)/loss on sale of fixed assets (2,521) 6,980
Financial expenses 871,066 976,935
Investment income (266,925) (268,556)
(Increase)/decrease in operating receivables (664,172) 4,255
(Increase)/decrease in inventories (23,230) 30,451
Decrease/(increase) in prepaid expenses 277 (7,486)
Increase in operating payables 93,667 647,051
Increase in sales in advance of carriage 65,394 27,890
Increase/(decrease) in accrued expenses 78,662 (65,616)
Decrease in taxes payable (28,650) (22,569)
Decrease in other creditors (445) (739)
(Decrease)/increase in deferred taxation (671,755) 235,008
Increase in provision for major overhauls 67,603 15,235
---------------------------------------------------------------------------------------------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,082,997 3,425,807
===============================================================================================================
(ii) INVESTING AND FINANCING ACTIVITIES NOT REQUIRING THE USE OF CASH AND
CASH EQUIVALENTS:
Purchase of fixed assets by assumption of debts - 964,736
===============================================================================================================
(iii) NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS:
Cash and cash equivalents at the end of the year 1,404,874 2,960,337
Less: Cash and cash equivalents at the beginning of the year 2,960,337 2,137,582
---------------------------------------------------------------------------------------------------------------
NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (1,555,463) 822,755
===============================================================================================================
The notes on pages 116 to 182 form part of these financial statements.
116 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS
(Prepared under PRC Accounting Rules and Regulations)
1 BACKGROUND OF THE COMPANY
China Southern Airlines Company Limited (the "Company") and its
subsidiary companies (collectively the "Group") are principally engaged
in the provision of domestic, Hong Kong regional and international
passenger, cargo and mail airline services, with flights operating
primarily from the Guangzhou Baiyun International Airport, which is
both the main hub of the Group's route network and the location of its
corporate headquarters.
The Company is a joint stock limited company established by China
Southern Air Holding Company ("CSAHC") pursuant to approval document Ti
Gai Sheng [1994] No. 139 from the State Commission for Economic
Restructuring of the Peoples' Republic of China ("PRC"). CSAHC injected
airline-related assets and liabilities as at 1 January, 1994 into the
Company in exchange for 2,200,000,000 domestic shares with a par value
of RMB1.00 each. The Company was established on 25 March, 1995, and
took over the control of the airline business from CSAHC since that
date.
Pursuant to an approval document Zheng Wei Fa [1997] No. 33 from the
China Securities Regulatory Commission, the Company listed its
1,174,178,000 H Shares on both the Stock Exchange of Hong Kong Limited
and the New York Stock Exchange in July 1997.
Pursuant to an extraordinary general meeting of shareholders held on 21
May, 2002, a resolution was passed authorising the Company to issue not
more than 1,000,000,000 A shares of par value of RMB1.00 each. Pursuant
to an approval document (2003) No. 70 from the China Securities
Regulatory Commission, the Company issued and listed its 1,000,000,000
A shares with a par value of RMB1.00 each on the Stock Exchange of
Shanghai in July 2003.
On 13 March, 2003, the Company obtained an approval certificate Wai
Jing Mao Zi Yi [2003] No. 273 from the Ministry of Commerce to change
to a permanent limited company with foreign investments and obtained
the business licence (Qi Gu Guo Fu Zi No. 000995) on 17 October, 2003
issued by the State Administration of Industry and Commerce of the
People's Republic of China.
2 CHANGE IN ACCOUNTING POLICY
The Company changed its accounting policy in order to conform with the
revised "Accounting standard for business enterprises - Events
occurring after the balance sheet date" ("Revised Standard"). According
to the original standard, the appropriation of profit for the current
year approved by the board of directors after the balance sheet date
was an adjusting event. Pursuant to the revised "Accounting standard
for business enterprises - Events occurring after the balance sheet
date" (Cai Kuai [2003] No. 12) issued by the Ministry of Finance
("MOF") on 14 April, 2003, cash dividends for the current period
declared and approved by the board of directors after the balance sheet
date, but before the financial statements are authorised for issue,
should be presented separately under shareholders' funds on the balance
sheet. The Company has adopted the Revised Standard by adjusting
retrospectively for the dividend for 2001 which was paid in 2002.
This change in accounting policy has no impact on the retained profits
as at 1 January, 2003. The effect of the change in accounting policy
for prior years is set out below:
BEFORE AFTER
ADJUSTMENT ADJUSTMENT ADJUSTMENT
RMB' 000 RMB' 000 RMB' 000
------------------------------------------------------------------------------------------------------------------
Retained profits at 1 January, 2002 344,859 67,484 412,343
=================================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 117
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
3 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Group in the
preparation of the financial statements conform to the Accounting
Standards for Business Enterprises and the "Accounting Regulations for
Business Enterprises" and other relevant regulations issued by the MOF.
Pursuant to a notice Cai Kuai (2003) No.18 from the MOF, the Group
adopts the "Accounting Method for Civil Aviation Industry" since 1
January, 2003. The significant accounting policies adopted in the
preparation of these financial statements are set out below:
(a) ACCOUNTING YEAR
The accounting year of the Group is from 1 January to 31
December.
(b) BASIS OF CONSOLIDATION
The consolidated financial statements have been prepared in
accordance with "Accounting Regulations for Business
Enterprises" and Cai Kuai Zi [1995] No.11 "Provisional
regulations on consolidated financial statements" issued by
the MOF.
The consolidated financial statements include the financial
statements of the Company and all of its principal
subsidiaries. Subsidiaries are those entities in which the
Company has more than 50% equity interest or those entities
controlled by the Company. The consolidated income statement
of the Company only includes the results of the subsidiaries
during the period when the Company has more than 50% equity
interest, or when the Company does not have more than 50%
equity interest, but has control over those entities. The
effect of minority interests on equity and profit/loss
attributable to minority interests are separately shown in the
consolidated financial statements. For those subsidiaries
whose assets and results of operations are not significant and
have no significant effect on the Group's consolidated
financial statements, the Company does not consolidate these
subsidiaries.
Where the accounting policies adopted by subsidiaries are
different from the policies adopted by the Company, the
financial statements of the subsidiaries have been adjusted in
accordance with the accounting policies adopted by the Company
on consolidation. All significant intercompany balances and
transactions, and any unrealised gains arising from
inter-company transactions, have been eliminated on
consolidation.
For those jointly controlled entities which the Company has
joint control with other investors under contractual
arrangements, the Company consolidates their assets,
liabilities, revenues, costs and expenses based on the
proportionate consolidation method according to the percentage
of holding of equity interest in those entities in the
consolidated financial statements.
(c) BASIS OF PREPARATION
The financial statements of the Group have been prepared on an
accrual basis under the historical costs convention, unless
otherwise stated.
118 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
3 SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(d) REPORTING CURRENCY
The financial statements are prepared in Renminbi.
(e) TRANSLATION OF FOREIGN CURRENCIES
Foreign currency transactions during the year are translated
into Renminbi at the exchange rates quoted by the People's
Bank of China at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies are translated
into Renminbi at the exchange rates quoted by the People's
Bank of China at the balance sheet date. Exchange gains and
losses on foreign currency translation, except for the gains
and losses relating to the transactions referred to below, are
dealt with in the income statement.
Exchange differences directly relating to the purchase or
construction of fixed assets (including exchange differences
on funds borrowed specifically for the purchase or
construction of fixed assets) before they are ready for use
are capitalised as part of the cost of fixed assets.
(f) CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments
which are readily convertible into known amounts of cash, and
which are subject to an insignificant risk of change in value.
(g) ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable showing signs of uncollectibility
are identified individually and allowance is then made based
on the probability of being uncollectible. In respect of trade
accounts receivable showing no sign of uncollectibility,
allowance is made with reference to the ageing analysis and
management's estimation based on past experience.
Allowances for other receivables are made based on the nature
of the receivables and estimation of the corresponding
collectibility risk.
(h) INVENTORIES
Inventories, which consist primarily of expendable spare parts
and supplies, are carried at the lower of cost and net
realisable value. Inventories are measured at their actual
cost upon acquisition. The cost of inventories is calculated
using the weighted average method. Any excess of the cost over
the net realisable value of each class of inventories is
recognised as a provision for diminution in value of
inventories. Net realisable value is determined based on
amount recoverable in the normal course of business after the
balance sheet date or estimates made by management based on
market conditions. Inventories are recorded using the
perpetual stocking method.
Inventories are amortised in full when issue for use.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 119
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
3 SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(i) LONG-TERM EQUITY INVESTMENTS
Long-term investments are stated at the lower of cost and the
recoverable amount. A provision for impairment is determined
on an individual basis on difference between the cost and the
recoverable amount, if the latter is lower.
A long-term equity investment in an investee enterprise that
the Company has the power to control, jointly control or
exercise significant influence over is accounted for under the
equity method of accounting whereby the investment is
initially recorded at cost and adjusted thereafter for any
post acquisition change in the Company's share of the net
assets of the enterprise. Equity investment difference, which
is the difference between the initial investment cost and the
Company's share of the equity of the investee enterprise, is
accounted for as follows:
- Any excess of the initial investment cost over the
Company's share of the equity is amortised on a
straight-line basis. The amortisation period is
determined according to the investment period as
stipulated in the relevant agreement, or 10 years if
the investment period is not specified in the
agreement.
- Any shortfall of the initial investment cost over the
Group's share of investors' equity is amortised on a
straight-line basis over 10 years if the investment
was acquired before the issuance of the "Questions
and answers on implementing Accounting Regulations
for Business Enterprises and related accounting
standards (II)" (Cai Kuai [2003] No. 10) on 7 April,
2003. Otherwise, the shortfalls are recognised in
"Capital surplus - reserve for equity investment".
A long-term equity investment in an investee enterprise that
the Group does not control, jointly control or exercise
significant influence over is accounted for under the cost
method. Investment income is recognised when an investee
enterprise declares a cash dividend or distributes profits.
Upon disposal or transfer of long-term equity investments, the
difference between the proceeds received and the carrying
value of the investments is recognised in the income
statement.
120 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
3 SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(j) FIXED ASSETS AND CONSTRUCTION IN PROGRESS
Fixed assets represent the assets held by the Group for
rendering services and administrative purposes with useful
lives over 1 year and comparatively high unit values.
Fixed assets are stated in the balance sheet at cost or
revalued amount less accumulated depreciation and impairment
losses. Construction in progress are stated in the balance
sheet at cost less impairment losses. Valuation is carried out
in accordance with the relevant rules and regulations in the
PRC and fixed assets and construction in progress are adjusted
to the revalued amounts accordingly.
All direct and indirect costs related to the acquisition or
construction of fixed assets, incurred before the assets are
ready for their intended uses, are capitalised as construction
in progress. Those costs include borrowing costs, which
include foreign exchange differences, on specific borrowings
for the construction of the fixed assets during the
construction period.
Construction in progress is transferred to fixed assets when
the asset is ready for its intended use.
Pursuant to an approval document Cai Kuai Han [2004] No. 39
from the MOF, the Group accounts for rotables as fixed assets.
Depreciation is provided to write off the cost of fixed assets
over their estimated useful lives on a straight-line basis,
after taking into account their estimated residual values. The
respective estimated useful lives, residual values and annual
depreciation rates for fixed assets are as follows:
DEPRECIABLE LIFE RESIDUAL VALUE
Owned and leased aircraft 8 to 15 years 28.75%
Other flight equipment:
- Jet engines 8 to 15 years 3%
- Others, including high value rotables 8 to 15 years Nil
Buildings 15 to 40 years Nil
Machinery and equipment 5 to 10 years 3%
Motor vehicles 6 years 3%
Land use rights are stated in the balance sheet at cost or
revalued amount less accumulated depreciation and impairment
losses, and are amortised on a straight line basis over the
period for land use rights.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 121
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
3 SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(k) LEASED ASSETS
(i) FINANCE LEASE
A finance lease is a lease that transfers
substantially all the risks and benefits of ownership
of an asset to the lessee, whether or not the legal
title to the asset is eventually transferred. Flight
equipment acquired by way of finance leases are
stated at an amount equal to the lower of their
original carrying value in the books of the legal
owner (the lessor) and the present value of the
minimum lease payments at inception of the lease.
Depreciation of leased assets is calculated using the
straight-line method. If there is no reasonable
certainty that the lessee will obtain ownership of
the leased assets at the end of the lease term, the
leased assets are depreciated over the shorter of the
lease term or their estimated useful lives. If there
is reasonable certainty that the lessee will obtain
ownership of the leased assets at the end of the
lease term, the leased assets are depreciated over
their estimated useful lives. At the inception of the
lease, the minimum lease payments are recorded as
obligations under finance leases. The difference
between the value of the leased assets and the
minimum lease payments is recognised as unrecognised
finance charges under finance leases.
Unrecognised finance charges are amortised on an
effective interest method over the lease term.
(ii) OPERATING LEASE
An operating lease is a lease other than a finance
lease. Operating lease payments are charged to the
income statement on a straight line basis over the
terms of the related leases. Contingent rental is
recognised as expenses of the current period when
actually occurs.
(l) DEFERRED EXPENDITURE
Custom duties and other direct costs in relation to modifying,
introducing and certifying certain operating leased aircraft
are deferred and amortised on a straight line basis over the
terms of the related leases.
122 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
3 SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(m) IMPAIRMENT OF LONG-TERM INVESTMENTS, FIXED ASSETS,
CONSTRUCTION IN PROGRESS AND OTHER ASSETS
The carrying amounts of individual assets are reviewed
regularly to determine whether the recoverable amounts have
declined below the carrying value. These assets are tested for
impairment whenever events or changes in circumstances
indicate that their recorded carrying amounts may not be
recoverable. When such a decline has occurred, the carrying
amount is reduced to the recoverable amount. The recoverable
amount is the greater of the estimated net selling price and
the estimated value in use. In determining the value in use,
estimated future cash flows to be generated by the asset are
discounted to their present value. The provision for
impairment loss is determined on an item-by-item basis and
recognised as an expense in the income statement.
If there is an indication that an impairment loss recognised
for an asset in prior years may no longer exist, or if there
has been a change in the estimates used to determine the
recoverable amount, which reduces the impairment loss, the
provision for impairment loss is reversed. The reversed amount
is credited to the income statement in the period in which the
reversal is recognised.
(n) INCOME TAX
Income tax is recognised using the tax effect accounting
method. Income tax for the year comprises current and deferred
tax.
Current tax is calculated at the applicable tax rate on
taxable profit.
Deferred tax is provided under the liability method, for
timing differences between the accounting profit before tax
and the taxable profit arising from the differences in the
accounting and tax treatment of income and expenses or losses.
When the tax rates change or new types of tax are levied,
adjustments are made to the amounts originally recognised for
the timing differences. The current tax rates are used in
arriving at the reversal amounts when the timing differences
are reversed.
Deferred tax assets arising from the tax value of losses,
which are expected to be utilised against future taxable
income, are set off against the deferred tax liabilities of
the same tax payer and within the same jurisdiction. Deferred
tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
(o) MAINTENANCE AND OVERHAUL COSTS
Routine maintenance and repairs and overhauls in respect of
owned aircraft and aircraft held under finance leases are
expensed as and when incurred. In respect of aircraft held
under operating leases, a provision is made over the lease
term for the estimated cost of scheduled overhauls that are
required to be performed on the related aircraft prior to
their return to the lessors.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 123
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
3 SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(p) REVENUE RECOGNITION
Provided it is probable that the economic benefits will flow
to the Group and the revenue and costs can be measured
reliably, revenue is recognised in the income statement as
follows:.
(i) Passenger, cargo and mail revenues are recognised
when the transportation is provided. Ticket sales for
transportation not yet provided are included in
current liabilities as sales in advance of carriage;
(ii) Revenues from airline-related businesses are
recognised when the relevant services are rendered;
(iii) Interest income is recognised on a time-apportioned
basis on the principal outstanding and at the
applicable rate; and
(iv) Dividend income is recognised when the Group's right
to receive the dividend is established.
(q) TRAFFIC COMMISSIONS
Traffic commissions are expensed when the transportation is
provided and the related revenue is recognised. Traffic
commissions for transportation not yet provided are recorded
on the balance sheet as a prepaid expense.
(r) BORROWING COSTS
Borrowing costs incurred on specific borrowings for the
construction of fixed assets are capitalised into the cost of
the fixed assets during the construction period in which the
assets are brought to their intended uses.
Except for the above borrowing costs, other borrowing costs
are recognised as financial expenses in the income statement
when incurred.
(s) DIVIDENDS
Cash dividends to shareholders are recognised in the income
and profit appropriation statement when approved. Dividends
proposed or approved after the balance sheet date but before
the date on which the financial statements are authorised for
issue are separately disclosed under shareholders' equity in
the balance sheet.
(t) RETIREMENT BENEFITS
Contributions to retirement schemes and additional retirement
benefits paid to retired employees are charged to the income
statement as and when incurred.
124 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
3 SIGNIFICANT ACCOUNTING POLICIES (cont'd)
(u) FREQUENT FLYER AWARD PROGRAMMES
The Group maintains two frequent flyer award programmes,
namely, the China Southern Airlines Sky Pearl Club and Egret
Mileage Plus, which provide travel awards to members based on
accumulated mileage. The estimated incremental cost of
providing free travel is recognised as an expense and accrued
as a current liability as members accumulate mileage. As
members redeem awards or their entitlements expire, the
incremental cost liability is reduced accordingly, to reflect
the acquittal of the outstanding obligations.
Revenue from mileage sales to third parties under the frequent
flyer award programmes is recognised when the related
transportation services are provided.
(v) RELATED PARTY
Parties are considered to be related to the Group if the Group
has the ability, directly or indirectly, to control the party
or exercise significant influence over the party in making
financial and operating decisions, or vice versa, or where the
Group and the party are subject to common control or common
significant influence. Related parties may be individuals or
entities.
4 TAXATION
(a) TAXES APPLICABLE TO RENDERING OF SERVICES BY THE GROUP ARE AS
FOLLOWS:
CATEGORIES OF TAXES TAX RATES BASIS OF TAX
Business tax 3% or 5% Traffic revenue, ground services income and
commission income. All inbound international
and Hong Kong regional flights are exempted
from business tax.
City construction tax 7% Business tax
Education surcharge 3% Business tax
Pursuant to approval documents Cai Shui [2003] No. 113 and Cai
Shui [2003] No. 227 jointly issued by the MOF and State Tax
Bureau, passenger revenue from airline operations are exempted
from business tax, city construction tax and education
surcharge during the period from 1 May, 2003 to 31 December,
2003.
As mentioned in Note 1 to the financial statements, the
Company's status has changed to foreign investment enterprise.
Accordingly, pursuant to the relevant regulations, the Company
is exempted from city construction tax and education surcharge
since 1 October, 2003.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 125
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
4 TAXATION (cont'd)
(b) INCOME TAX
The tax rate applicable to the Company for the period from 1
January, 2003 to 30 September, 2003 and for the period from 1
October, 2003 to 31 December, 2003 is 33% and 15%
respectively.
On 17 October, 2003, the Company's registered address was
moved to Guangzhou Economic & Technology Development Zone. In
accordance with the Rules and Regulations for Implementation
of Income Tax for Foreign Investment Enterprises and Foreign
Enterprises of the PRC and a taxation approval document
"Guangzhou Municipal State Tax Bureau Suo De Shui Zi Que
020043", the Company is entitled to enjoy the preferential tax
policy implemented in the Guangzhou Economic & Technology
Development Zone effective 1 October, 2003. As a result, the
Company's income tax rate has been changed to 15% beginning
from that date.
In respect of the Group's overseas airline activities, the
Group has either obtained exemptions from overseas taxation
pursuant to the bilateral aviation agreements between the
overseas governments and PRC government, or has sustained tax
losses in these overseas jurisdictions. Accordingly, no
provision for overseas tax has been made for the period.
Certain subsidiaries and jointly controlled entities of the
Company have been granted with tax concessions which are set
out below:
APPLICABLE
NAME OF SUBSIDIARIES TAX RATE REASONS FOR GRANTING CONCESSION
Zhuhai Airlines Company Limited 15% Operated in a special economic zone and
accordingly enjoyed a reduced income tax rate
pursuant to documents Cai Shui Zi (86) No. 122
and Cai Shui Zi (87) No. 115.
Southern Airlines Group
Shantou Airlines Company Limited 15% Ditto
Xiamen Airlines Company Limited 15% Ditto
Guangzhou Nanland Air Catering 27% Pursuant to Rules and Regulations for
Company Limited Implementation of Income Tax for Foreign
Investment Enterprises and Foreign Enterprises
of the PRC, the applicable state income tax
rate is 24% and local income tax rate is 3%
Zhuhai Xiang Yi Aviation Technology - Pursuant to Zhu Guo Shui Hang [2003] 94
Company Limited issued by Zhuhai Municipal State Tax Bureau, the entity was
exempted from income tax.
126 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
4 TAXATION (cont'd)
(b) INCOME TAX (cont' d)
NAME OF JOINTLY APPLICABLE
CONTROLLED ENTITY TAX RATE REASONS FOR GRANTING CONCESSION
Guangzhou Aircraft Maintenance 15% Pursuant to Sui Guo Shui Zhi Fa [2001] No. 77
Engineering Company Limited issued by Guangzhou Municipal State Tax Bureau, the
applicable income tax rate is 15% since 2000.
(c) TAX PAYABLE
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------------------
Enterprise income tax 46,052 33,734 - -
Business tax 25,224 75,256 2,732 35,998
City construction tax 1,663 5,463 956 3,032
Value added tax 12,829 6,694 177 250
Other 16,366 1,510 7,236 471
------------------------------------------------------------------------------------------
Total 102,134 122,657 11,101 39,751
==========================================================================================
5 CAAC INFRASTRUCTURE DEVELOPMENT FUND
The CAAC infrastructure development fund is levied at a certain
percentage on traffic revenue and payable to the CAAC. Pursuant to the
regulation, Cai Zhong Zi [1999] No. 11 jointly issued by the MOF and
the State Development Commission, the CAAC infrastructure development
Fund is levied at 5% and 2% on domestic traffic revenue and
international/Hong Kong regional traffic revenue respectively.
Pursuant to the approval documents Cai Zong Ming Dian No. 1 and Ming
Hang Ji No. 2026, the Group was exempted from paying the CAAC
infrastructure development fund during the period from 1 May, 2003 to
31 December, 2003.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 127
NOTES TO THE FINANCIAL STATEMENTS (Cont' d)
(Prepared under PRC Accounting Rules and Regulations)
6. CASH AND CASH EQUIVALENTS
THE GROUP THE COMPANY
2003 2002 2003 2002
Original Original Original Original
currency RMB currency RMB currency RMB currency RMB
'000 '000 '000 '000 '000 '000 '000 '000
-----------------------------------------------------------------------------------------------------------------------------
Cash in hand
Renminbi - 1,544 - 1,817 - 716 - 1,171
US Dollars 334 2,766 581 4,806 321 2,660 559 4,628
Other currencies - 1,081 - 1,311 - 682 - 1,128
-----------------------------------------------------------------------------------------------------------------------------
5,391 7,934 4,058 6,927
-----------------------------------------------------------------------------------------------------------------------------
Cash at bank
Renminbi - 1,382,773 - 2,613,406 - 623,670 - 1,584,559
US Dollars 31,562 261,227 26,642 220,522 17,890 148,069 13,694 113,354
HK Dollars 10,136 10,802 43,443 46,096 3,570 3,805 27,198 28,860
Japanese Yen 536,855 41,479 1,243,503 85,846 536,855 41,479 1,243,503 85,846
Singapore Dollars 2,399 11,657 6,128 29,237 2,399 11,657 6,128 29,237
Thai Bahts 55,520 11,587 72,633 13,901 52,496 10,956 66,690 12,764
Malayshian Kroners 20,489 44,503 51,127 111,303 18,522 40,229 51,127 111,303
Euro 1,921 19,860 6,305 54,451 1,764 18,235 5,862 50,623
Korean Won 13,440,253 95,359 2,087,009 14,380 13,472,347 93,296 1,813,465 12,495
Vietnam Dong 41,530,902 21,974 12,182,156 6,554 41,530,902 21,974 12,182,156 6,554
Australian Dollars 5,653 35,056 8,251 38,603 5,201 32,252 8,251 38,603
Other currencies - 8,837 - 2,088 - 8,837 - 1,763
-----------------------------------------------------------------------------------------------------------------------------
1,945,114 3,236,387 1,054,459 2,075,961
-----------------------------------------------------------------------------------------------------------------------------
Deposits in financial
institution
Renminbi - 370,978 - 540,503 - 346,357 - 516,973
US Dollars - - 43,550 360,476 - - 43,550 360,476
-----------------------------------------------------------------------------------------------------------------------------
370,978 900,979 346,357 877,449
-----------------------------------------------------------------------------------------------------------------------------
Total 2,321,483 4,145,300 1,404,874 2,960,337
=============================================================================================================================
Deposits in financial institution represent deposits with Southern
Airlines Group Finance Company Limited ("SA Finance"), a PRC authorised
financial institution controlled by CSAHC and an associated company of
the Group (Note 45).
128 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
6 CASH AND CASH EQUIVALENTS (cont'd)
The Group does not have any collateralised or frozen bank deposits as
at 31 December, 2003. As at 31 December, 2003, the Group's overseas
bank deposits amounted to RMB342,555,000 (2002: RMB441,078,000). These
overseas bank deposits are not subject to any significant risk of
uncollectibility.
The above cash, bank deposits and deposits with financial institution
denominated in foreign currencies are translated into Renminbi at the
following exchange rates:
2003 2002
----------------------------------------------------
US Dollar 8.2767 8.2773
HK Dollar 1.0657 1.0611
Japanese Yen 0.077263 0.069035
Singapore Dollar 4.85865 4.77050
Thai Baht 0.2087 0.1914
Malaysian Ringgit 2.172 2.1770
Euro 10.3383 8.6360
Korean Won 0.006925 0.006890
Vietnam Dong 0.0005291 0.0005380
Australian Dollar 6.2013 4.6787
====================================================
Note: Balances dominated in foreign currencies in these financial
statements are translated into Renminbi at the above rates,
unless otherwise stated.
7 TRADE RECEIVABLES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------
Gross trade receivables 961,824 803,080 739,958 505,172
Less: Provision for
bad and doubtful debts 69,997 60,118 56,752 28,640
----------------------------------------------------------------------------------
891,827 742,962 683,206 476,532
==================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 129
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
7 TRADE RECEIVABLES (cont'd)
The ageing analysis of trade receivables is as follows:
THE GROUP
2003 2002
% OF % OF % of % of
TOTAL TRADE BAD DEBT BAD DEBT total trade Bad debt bad debt
AMOUNT RECEIVABLES PROVISION PROVISION Amount receivables provision provision
RMB'000 % RMB'000 % RMB'000 % RMB'000 %
----------------------------------------------------------------------------------------------------------------------------------
Within 1 year 896,722 93.2% 4,895 0.5% 771,411 96.1% 28,449 3.7%
After 1 year but
within 2 years 42,408 4.4% 42,408 100.0% 18,176 2.3% 18,176 100.0%
After 2 years but
within 3 years 14,383 1.5% 14,383 100.0% 5,150 0.6% 5,150 100.0%
After 3 years 8,311 0.9% 8,311 100.0% 8,343 1.0% 8,343 100.0%
----------------------------------------------------------------------------------------------------------------------------------
Total 961,824 100.0% 69,997 7.3% 803,080 100.0% 60,118 7.5%
==================================================================================================================================
THE COMPANY
2003 2002
% OF % OF % of % of
TOTAL TRADE BAD DEBT BAD DEBT total trade Bad debt bad debt
AMOUNT RECEIVABLES PROVISION PROVISION Amount receivables provision provision
RMB'000 % RMB'000 % RMB'000 % RMB'000 %
---------------------------------------------------------------------------------------------------------------------------------
Within 1 year 684,656 92.5% 1,450 0.2% 491,032 97.2% 14,500 3.0%
After 1 year but
within 2 years 42,106 5.7% 42,106 100.0% 7,499 1.5% 7,499 100.0%
After 2 years but
within 3 years 8,267 1.1% 8,267 100.0% 2,228 0.4% 2,228 100.0%
After 3 years 4,929 0.7% 4,929 100.0% 4,413 0.9% 4,413 100.0%
---------------------------------------------------------------------------------------------------------------------------------
Total 739,958 100.0% 56,752 7.7% 505,172 100.0% 28,640 5.7%
---------------------------------------------------------------------------------------------------------------------------------
130 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
7 TRADE RECEIVABLES (cont'd)
Provision for bad and doubtful debts
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------------------------
Balance as at 1 January, 60,118 59,019 28,640 28,108
Add: Charge for the year 12,031 1,162 9,072 595
Transfer in arising
from dissolution of subsidiary - - 19,040 -
Less: Write-off during the year 2,152 63 - 63
------------------------------------------------------------------------------------------------
Balance as at 31 December, 69,997 60,118 56,752 28,640
================================================================================================
There were no receivables from shareholders who hold 5% or more of the
voting rights of the Company in the balance of trade receivables.
During the year, the Group and the Company had no individually
significant recovery of doubtful debts that had been fully or
substantially provided for in prior years.
At 31 December, 2003, the Group and the Company did not have any
individually significant trade receivables aged over three years.
At 31 December, 2003, the total amounts of the Group's and the
Company's largest 5 trade receivables were as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
---------------------------------------------------------------------------------------
Amounts (RMB'000) 543,365 497,388 459,410 402,238
% of total trade receivables 56% 62% 62% 80%
=======================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 131
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
8 OTHER RECEIVABLES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------------
Subsidiaries - - 527,143 -
Related companies 17,280 12,376 17,280 12,376
Others 329,289 421,807 239,862 262,163
346,569 434,183 784,285 274,539
Less: Provision for
bad and doubtful debts 29,904 29,904 29,904 29,904
------------------------------------------------------------------------------------
316,665 404,279 754,381 244,635
====================================================================================
Provision for bad and doubtful debts
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------------
Balance at 1 January and
31 December, 29,904 29,904 29,904 29,904
====================================================================================
132 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
8 OTHER RECEIVABLES (cont'd)
The ageing analysis of other receivables is as follows:
THE GROUP
2003 2002
% OF % OF % of % of
TOTAL OTHER BAD DEBT BAD DEBT total other Bad debt bad debt
AMOUNT RECEIVABLES PROVISION PROVISION Amount receivables provision provision
RMB'000 % RMB'000 % RMB'000 % RMB'000 %
----------------------------------------------------------------------------------------------------------------------------------
Within 1 year 285,290 82.3% - 0.0% 382,663 88.1% - -
After 1 year but
within 2 years 20,568 5.9% - 0.0% 15,679 3.6% - -
After 2 years but
within 3 years 7,330 2.1% - 0.0% 7,336 1.7% 4,702 64.1%
After 3 years 33,381 9.7% 29,904 89.6% 28,505 6.6% 25,202 88.4%
--------------------------------------------------------------------------------------------------------------------------------
Total 346,569 100.0% 29,904 8.6% 434,183 100.0% 29,904 6.9%
================================================================================================================================
THE COMPANY
2003 2002
% OF % OF % of % of
TOTAL OTHER BAD DEBT BAD DEBT total other Bad debt bad debt
AMOUNT RECEIVABLES PROVISION PROVISION Amount receivables provision provision
RMB'000 % RMB'000 % RMB'000 % RMB'000 %
----------------------------------------------------------------------------------------------------------------------------------
Within 1 year 740,164 94.3% - 0.0% 233,540 85.1% - 0.0%
After 1 year but
within 2 years 7,709 1.0% - 0.0% 9,878 3.6% - 0.0%
After 2 years but
within 3 years 5,358 0.7% - 0.0% 4,702 1.7% 4,702 100.0%
After 3 years 31,054 4.0% 29,904 96.3% 26,419 9.6% 25,202 95.4%
---------------------------------------------------------------------------------------------------------------------------------
Total 784,285 100.0% 29,904 3.8% 274,539 100.0% 29,904 10.9%
=================================================================================================================================
There were no receivables from shareholders who hold 5% or more of the
voting rights of the Company in the balance of other receivables.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 133
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
8 OTHER RECEIVABLES (cont'd)
During the year, the Group and the Company had no individually
significant recovery of doubtful debts that had been fully or
substantially provided for in prior years.
At 31 December, 2003, the Group and the Company did not have any
individually significant other receivables aged over three years.
At 31 December, 2003, the total amounts of the Group's and the
Company's largest 5 other receivables were as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
-----------------------------------------------------------------------
Amounts (RMB'000) 110,757 191,323 458,800 188,854
% of total trade receivables 32% 44% 58% 69%
=======================================================================
9 ADVANCE PAYMENTS
All advance payments are due within one year. There was no amount due
from shareholders who hold 5% or more of the voting rights of the
Company in the balance of advance payments.
10 INVENTORIES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------
At cost:
Expendable spare parts 572,649 598,223 182,742 96,614
Consumables 35,388 23,567 16,485 8,375
Aviation supplies 20,372 18,740 10,562 9,762
Others 3,260 12,481 1,700 1,898
--------------------------------------------------------------------------------
Total 631,669 653,011 211,489 116,649
================================================================================
At 31 December, 2003, no provision for impairment in value was
necessary for the inventories of the Group and the Company.
All of the above inventorieswere obtained by way of purchase.
134 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
10 INVENTORIES (cont'd)
The Group's and the Company's cost of inventories charged to costs and
expenses in the income statement were as follows:
2003 2002
RMB'000 RMB'000
------------------------------------------------------
The Group 501,125 521,038
The Company 293,454 201,064
======================================================
11 PREPAID EXPENSES
THE GROUP THE COMPANY
2003 2002 2003 2002
Notes RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------
Operating lease rentals (a) 127,099 118,233 75,091 72,897
Ticket sales commission (b) 20,900 20,900 18,500 18,500
Catering and consumables (c) 33,313 15,687 - 13,317
Insurance premium 11,098 2,454 11,004 2,454
Others 10,960 8,480 9,722 2,725
--------------------------------------------------------------------------------
Total 203,370 165,754 114,317 109,893
================================================================================
Notes:
(a) Pursuant to aircraft operating lease agreements, the Group is
required to prepay one to six months' rentals to lessors. The
prepaid rentals are then amortised over the relevant lease
period. The balance at the period end represents the
unamortised balance of the prepaid rentals.
(b) The Group pays sales commission to sales agents for tickets
sales. The sales commission is initially recorded as a prepaid
expense and charged to the income statement upon the provision
of the related transportation service.
(c) A jointly controlled entity of the Group is principally
engaged in the provision of engine repair and maintenance
services. Consumables consumed prior to the completion of the
related engine repairs and maintenance are recorded as prepaid
expenses and charged to income statement upon the completion
of the related engine repairs and maintenance.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 135
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
12 LONG-TERM EQUITY INVESTMENTS
THE GROUP
INVESTMENTS OTHER
IN ASSOCIATED SHARE EQUITY
COMPANIES INVESTMENTS INVESTMENTS TOTAL
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------------------
Balance as at 1 January, 2003 379,796 57,438 139,616 576,850
Add: Additions - - 4,209 4,209
Adjustment under equity
accounting method 44,536 - - 44,536
Less: Disposals 2,131 - 1,092 3,223
--------------------------------------------------------------------------------------------
Balance as at 31 December, 2003 422,201 57,438 142,733 622,372
============================================================================================
THE COMPANY
INVESTMENTS
INVESTMENTS INVESTMENTS IN JOINTLY OTHER
IN IN ASSOCIATED CONTROLLED SHARE EQUITY
SUBSIDIARIES COMPANIES ENTITIES INVESTMENTS INVESTMENTS TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------------------------------------------
Balance as at 1 January, 2003 3,201,545 271,275 716,094 1,208 100,000 4,290,122
Add: Additions 2,999 8,487 - - 540 12,026
Adjustment under equity
accounting method 303,901 33,362 (72,413) - - 264,850
Amortisation of equity
investment differences 2,050 - - - - 2,050
Less: Disposals 906,631 2,131 - - - 908,762
Dividends received 2,668 - - - - 2,668
--------------------------------------------------------------------------------------------------------------------
Balance as at 31 December, 2003 2,601,196 310,993 643,681 1,208 100,540 3,657,618
====================================================================================================================
At 31 December, 2003, no provision for impairment of the long-term
equity investments of the Group and the Company was necessary.
136 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
12 LONG-TERM EQUITY INVESTMENTS (cont'd)
In connection with the Group's overseas listing, the assets of the
Group as at 31 December, 1996 were revalued. As a result of this
revaluation, the Company's subsidiaries had a net revaluation deficit
amounting to RMB30,284,000. The Company made corresponding adjustments
amounting to RMB20,498,000 to investments in these subsidiaries. These
adjustments were recorded as equity investment differences and
amortised on a straight-line basis over 10 years, which represented the
estimated remaining useful lives of the revalued assets of the
subsidiaries. The equity investment differences are analysed as
follows:
EQUITY
INVESTMENT
DIFFERENCES
RMB'000
----------------------------------------
ORIGINAL AMOUNT 20,498
========================================
ACCUMULATED AMORTISATION:
At 1 January, 2003 12,300
Amortisation for the year 2,050
----------------------------------------
At 31 December, 2003 14,350
========================================
UNAMORTISED BALANCE:
At 31 December, 2003 6,148
========================================
At 31 December, 2002 8,198
========================================
Details of the Group's associated companies and jointly controlled
entities and the Company's subsidiaries are set out in Notes 49.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 137
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
12 LONG-TERM EQUITY INVESTMENTS (cont'd)
Details of the Group's and the Company's equity investments accounted
for under the equity method are analysed as follows:
THE GROUP
Investments in associated companies
HONG KONG
BUSINESS HAINAN CIVIL
AVIATION SICHUAN PHOENIX AVIATION
CENTRE AIRLINES INFORMATION CARES
SA COMPANY CORPORATION SYSTEM OF XIAMEN
FINANCE LIMITED LIMITED LIMITED LIMITED TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------------------------------------------------
Attributable equity interest
Direct 32% 20% 39% 45% -
Indirect 15.42% - - 17.1%
Period of operations - - - 40 years -
Initial investment costs
(as at 1 January, 2003) 246,476 17,081 136,500 61,266 570 461,893
=================================================================================================================
Balance as at 1 January, 2003 224,912 15,154 139,160 - 570 379,796
Add: Adjustment under the
equity accounting
method 19,533 (496) 24,645 - 854 44,536
Less: Disposals - 2,131 - - - 2,131
-----------------------------------------------------------------------------------------------------------------
Balance as at 31 December, 2003 244,445 12,527 163,805 - 1,424 422,201
=================================================================================================================
138 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
12 LONG-TERM EQUITY INVESTMENTS (cont'd)
THE COMPANY
Investments in subsidiaries
SOUTHERN
CHINA AIRLINES
SOUTHERN GROUP
AIRLINES XIAMEN SHANTOU GUANGXI ZHUHAI GUIZHOU
(GROUP) AIRLINES AIRLINES AIRLINES AIRLINES AIRLINES
SHENZHEN COMPANY COMPANY COMPANY COMPANY COMPANY OTHER
CO. (NOTE) LIMITED LIMITED LIMITED LIMITED LIMITED SUBSIDIARIES TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------------------------------------------------------
Attributable equity interest:
Direct 100% 60% 60% 60% 60% 60% -
Period of operations 10 years - 16 years - 20 years - -
Initial investment costs
(as at 1 January, 2003) 808,980 353,061 168,000 102,540 150,000 48,000 269,276 1,899,857
==============================================================================================================================
Balance as at 1 January, 2003 896,821 1,595,231 138,816 103,975 92,890 35,196 338,616 3,201,545
Add: Additions - - - - - - 2,999 2,999
Adjustment under the
equity accounting
method - 222,175 27,836 37,942 (10,711) 8,986 17,673 303,901
Amortisation of equity
investment differences - 4,053 (162) (1,528) 3,154 - (3,467) 2,050
Less: Disposals 896,821 - - - - - 9,810 906,631
Dividends received - - - - - - 2,668 2,668
------------------------------------------------------------------------------------------------------------------------------
Balance as at 31 December, 2003 - 1,821,459 166,490 140,389 85,333 44,182 343,343 2,601,196
==============================================================================================================================
Note: China Southern Airlines (Group) Shenzhen Co., which was
established in the PRC on 14 October 1993, was a wholly owned
subsidiary of the Company. It was principally engaged in the
provision of airline services. It had a registered capital of
RMB808,980,000. Its operations and respective assets and
liabilities were transferred to the Company upon its
dissolution in March 2003.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 139
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
12 LONG-TERM EQUITY INVESTMENTS (cont'd)
THE COMPANY (cont'd)
Investments in associated companies
HONG KONG
BUSINESS HAINAN
AVIATION SICHUAN PHOENIX
CENTRE AIRLINES INFORMATION
SA COMPANY CORPORATION SYSTEM
FINANCE LIMITED LIMITED LIMITED TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------------------------------------------
Attributable equity interest:
Direct 32% 20% 39% 45%
Initial investment costs
(as at 1 January, 2003) 127,299 17,081 136,500 61,266 342,146
=======================================================================================================
Balance as at 1 January, 2003 116,961 15,154 139,160 - 271,275
Add: Additions 8,487 - - - 8,487
Adjustment under the equity
accounting method 9,213 (496) 24,645 - 33,362
Less: Disposals - 2,131 - - 2,131
-------------------------------------------------------------------------------------------------------
Balance as at 31 December, 2003 134,661 12,527 163,805 - 310,993
=======================================================================================================
140 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
12 LONG-TERM EQUITY INVESTMENTS (cont'd)
THE COMPANY (cont'd)
Investments in jointly controlled entities
GUANGZHOU
AIRCRAFT
CHINA MAINTENANCE MTU
POSTAL ENGINEERING MAINTENANCE
AIRLINES COMPANY ZHUHAI
LIMITED LIMITED CO., LTD. TOTAL
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------------
Attributable equity interest
Direct 49% 50%
Period of operations 15 years 40 years 30 years
Initial investment costs
(as at 1 January, 2003) 150,000 86,694 261,146 497,840
======================================================================================
Balance as at 1 January, 2003 146,648 312,334 257,112 716,094
Add: Adjustment under the equity
accounting method (17,387) 20,510 (75,536) (72,413)
--------------------------------------------------------------------------------------
Balance as at 31 December, 2003 129,261 332,844 181,576 643,681
======================================================================================
The Group's and the Company's investments in the above companies are
not subject to any restrictions on realisation of the investments and
remittance of the investment returns.
The Group's and the Company's share investments are analysed as
follows:
PERCENTAGE INITIAL
OF EQUITY INVESTMENT
NAME OF TYPE OF NUMBER OF INTEREST COST 2003 2002
INVESTED COMPANY INVESTMENT SHARES HELD HELD RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------
THE COMPANY
Hainan Meilan International
Airport Company Limited Ordinary 925,000 0.37% 1,208 1,208 1,208
SUBSIDIARIES:
Travelsky Technology Limited Legal person 21,924,500 2.5% 33,730 33,730 33,730
China Pacific Insurance Co.
Ltd. Ordinary 10,000,000 0.5% 12,480 12,480 12,480
Bank of Communications Ordinary 6,600,000 0.008% 10,020 10,020 10,020
----------------------------------------------------------------------------------------------------------
57,438 57,438
==========================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 141
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
12 LONG-TERM EQUITY INVESTMENTS (cont'd)
The Group's and the Company's other equity investments are analysed as
follows:
INITIAL PERCENTAGE
INVESTMENT INVESTMENT OF EQUITY
PERIOD COST INTEREST 2003 2002
NAME OF INVESTED COMPANY (Years) RMB'000 HELD RMB'000 RMB'000
--------------------------------------------------------------------------------------------------
THE COMPANY:
Haikou Meilan International Airport
Company Limited - 100,000 7.4% 100,000 100,000
Hunan Southern Airlines Travel Service
Co. Ltd. 10 540 54% 540 -
--------------------------------------------------------------------------------------------------
COMPANY'S TOTAL 100,540 100,000
--------------------------------------------------------------------------------------------------
THE SUBSIDIARIES:
Xiamen Aviation Industry Co. Ltd. - 20,000 10% 20,000 20,000
CAAC Express Ltd - 7,603 5% 7,603 7,603
Xiamen Football Club - 3,000 5.2% 3,000 3,000
China Aircraft Services Ltd. - 1,547 1% 1,547 1,547
CAAC Data Communication Co. Ltd. - 500 4% 500 500
Zhuhai Airlines Holiday Travel Services
Co. Ltd. (Note) 10 1,092 91% - 1,092
Zhuhai Advertising Co. Ltd. (Note) 10 300 60% 300 300
Hunan Southern Airlines Travel Service
Co. Ltd. (Note) 10 540 51% - 540
Zhuhai Air-Express Co. Ltd. (Note) - 900 30% 900 900
Guilin Guangsheng Development Co. Ltd.
(Note) 10 630 30% 630 630
Guangzhou Baiyun International Express
Customs Supervision Co. Ltd. (Note) - 2,750 55% 2,750 -
Other 4,963 3,504
--------------------------------------------------------------------------------------------------
42,193 39,616
--------------------------------------------------------------------------------------------------
TOTAL 142,733 139,616
==================================================================================================
Note: The impact of these companies on the Group's results is not
material. Accordingly, they are accounted for under cost
method (Note 49). For those companies of which the Group has
more than 50% equity interest, the Company did not consolidate
these companies because their aggregate assets, liabilities
and results of operation had no significant effect to the
Group.
At 31 December, 2003, the proportion of the total amount of
the Group's and the Company's investments to the net assets
was 5% and 32% respectively (2002: 6% and 48% respectively).
142 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
13 FIXED ASSETS
THE GROUP
AIRCRAFT OTHER FLIGHT
------------------------- EQUIPMENT, MACHINERY,
LAND USE HELD UNDER INCLUDING EQUIPMENT
RIGHTS AND FINANCE ROTABLE AND MOTOR
BUILDINGS OWNED LEASES SPARES VEHICLES TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------------------------------------------------------
Cost or valuation:
At 1 January, 2003 3,673,349 13,510,717 11,459,978 6,458,704 1,977,561 37,080,309
Reclassification on exercise
of purchase options - 997,403 (997,403) - - -
Additions 34,680 2,818,475 - 558,594 216,654 3,628,403
Transferred from construction
in progress 253,833 - - - 121,594 375,427
Disposals (42,138) (104,235) - - (39,662) (186,035)
----------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 3,919,724 17,222,360 10,462,575 7,017,298 2,276,147 40,898,104
----------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
At 1 January, 2003 551,912 2,145,849 2,499,495 3,214,401 1,102,589 9,514,246
Reclassification on exercise
of purchase options - 389,958 (389,958) - - -
Charge for the year 166,823 710,509 495,869 477,002 243,725 2,093,928
Written back on disposal (22,155) (54,555) - - (28,780) (105,490)
----------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 696,580 3,191,761 2,605,406 3,691,403 1,317,534 11,502,684
----------------------------------------------------------------------------------------------------------------------
Net book value:
At 31 December, 2003 3,223,144 14,030,599 7,857,169 3,325,895 958,613 29,395,420
======================================================================================================================
At 31 December, 2002 3,121,437 11,364,868 8,960,483 3,244,303 874,972 27,566,063
======================================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 143
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
13 FIXED ASSETS (cont'd)
THE COMPANY
AIRCRAFT OTHER FLIGHT
------------------------- EQUIPMENT, MACHINERY,
LAND USE HELD UNDER INCLUDING EQUIPMENT
RIGHTS AND FINANCE ROTABLE AND MOTOR
BUILDINGS OWNED LEASES SPARES VEHICLES TOTAL
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------------------
Cost or valuation:
At 1 January, 2003 1,066,188 9,053,359 11,459,978 3,941,880 895,562 26,416,967
Reclassification on exercise
of purchase options - 997,403 (997,403) - - -
Additions through acquisition
of subsidiary 720,247 - - 998,215 217,272 1,935,734
Additions 2,228 2,818,475 - 455,763 87,555 3,364,021
Transferred from construction
in progress 91,018 - - - 8,228 99,246
Disposals (347) - - - (20,178) (20,525)
----------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 1,879,334 12,869,237 10,462,575 5,395,858 1,188,439 31,795,443
----------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
At 1 January, 2003 177,334 1,327,363 2,499,495 2,387,634 465,150 6,856,976
Reclassification on exercise
of purchase options - 389,958 (389,958) - - -
Additions through acquisition
of subsidiary 94,541 - - 311,097 153,358 558,996
Charge for the year 74,394 514,000 495,869 373,896 116,207 1,574,366
Written back on disposal (23) - - - (18,073) (18,096)
----------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 346,246 2,231,321 2,605,406 3,072,627 716,642 8,972,242
----------------------------------------------------------------------------------------------------------------------
Net book value:
At 31 December, 2003 1,533,088 10,637,916 7,857,169 2,323,231 471,797 22,823,201
======================================================================================================================
At 31 December, 2002 888,854 7,725,996 8,960,483 1,554,246 430,412 19,559,991
======================================================================================================================
At 31 December, 2003, no provision for impairment of the fixed assets
of the Group and the Company was necessary.
144 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
13 FIXED ASSETS (cont'd)
At 31 December, 2003, certain aircraft and other flight equipment of the
Group and the Company were mortgaged under certain bank loans and finance
lease agreements (see Notes 28 and 29). The net book value of these fixed
assets is analysed as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
------------------------------------------------------------------------------------
Aircraft
Mortgaged under bank loans 6,718,737 5,822,076 4,938,698 3,933,109
Mortgaged under finance leases 7,857,169 8,960,483 7,857,169 8,960,483
------------------------------------------------------------------------------------
Sub-total 14,575,906 14,782,559 12,795,867 12,893,592
Other flight equipment
Mortgaged under bank loans 26,621 22,184 - -
------------------------------------------------------------------------------------
Total 14,602,527 14,804,743 12,795,867 12,893,592
====================================================================================
At 31 December, 2003, the net book value of the Group's and the Company's
fixed assets leased out under operating leases are analysed as follows:
THE GROUP AND THE COMPANY
2003 2002
RMB'000 RMB'000
---------------------------------------------------------
Land and buildings 147,098 -
Other flight equipment 178,053 -
---------------------------------------------------------
325,151 -
=========================================================
The useful lives for land use rights range from 30 to 70 years. At 31
December, 2003, the remaining unamortised periods range from 17 to 65
years.
At 31 December 2003, the net book values of the fully depreciated fixed
assets of the Group and the Company in use were RMB60,345,000 and
RMB42,800,000 repectively (2002: RMB18,704,000 and RMB9,465,000
repectively).
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 145
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
13 FIXED ASSETS (cont'd)
The Company entered into two separate arrangements (the "Arrangements")
with certain independent third parties during each of 2002 and 2003. Under
each of the Arrangements, the Company sold an aircraft and then
immediately leased back the aircraft for an agreed period. As agreed, the
lease payment obligations, with pre-determined net present values, were to
be satisfied solely out of the sale proceeds and such amounts have been
placed irrevocably by the Company in form of deposits and debt securities
in favour of the lessors. The Company has an option to purchase the
aircraft at a pre-determined date and the agreed purchase price is to be
satisfied by the balance of the deposits and debt securities outstanding
at that date. In the event that the lease agreement is early terminated by
the Company, the Company is liable to pay a pre-determined penalty to the
lessor. As long as the Company complies with the lease agreement, the
Company is entitled to the continued possession and operation of the
aircraft. Since the Company retains substantially all the risks and
rewards incident to ownership of the aircraft and enjoys substantially the
same rights to its use as before the Arrangements no adjustment has been
made to the fixed assets. As at 31 December 2003, the net present value of
the lease commitments and the corresponding defeased deposits and debt
securities amounted to RMB2,409,252,000 (2002: RMB1,322,843,000). As a
result of the Arrangements, the Company received a net cash benefit of
RMB51,682,000 and RMB69,121,000 in 2002 and 2003 respectively, which has
been recognised as income for the respective years.
14 CONSTRUCTION MATERIALS
The Group's and the Company's construction materials represented materials
to be used for construction projects.
146 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
15 CONSTRUCTION IN PROGRESS
BALANCE BALANCE
AT 1 ADDITIONS TRANSFERRED AT 31
BUDGETED JANUARY, DURING TO FIXED DECEMBER, PERCENTAGE
AMOUNT 2003 THE YEAR ASSETS 2003 OF SOURCE OF
PROJECT NAME RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 PROGRESS FUNDING
--------------------------------------------------------------------------------------------------------------------------
THE COMPANY
Guangzhou new airport base 3,560,000 432,580 945,483 - 1,378,063 39% 70% bank loans
Hubei catering building 30,000 23,407 4,504 - 27,911 93% Self-financing
Zhengzhou ticket
selling office 48,500 21,988 28 - 22,016 45% Self-financing
Material and
engineering system 50,000 21,063 3 - 21,066 42% Self-financing
Henan office building 18,880 3,717 10,269 - 13,986 74% Self-financing
Guangzhou ticket
selling office 80,000 45,988 34,012 (80,000) - 100% Self-financing
Computerised maintenance
information system 24,000 5,923 - (5,923) - 25% Self-financing
Others 118,919 83,104 10,597 (13,323) 80,378 Self-financing
--------------------------------------------------------------------------------------------------------------------------
COMPANY TOTAL 3,930,299 637,770 1,004,896 (99,246) 1,543,420
--------------------------------------------------------------------------------------------------------------------------
SUBSIDIARIES
Guangzhou new cargo centre 598,200 - 181,750 - 181,750 30% 35% bank loans
Fuzhou Chang Le
airport facilities 74,600 14,839 109 (704) 14,244 19% Self-financing
Others 198,122 86,046 - (46,143) 39,903 Self-financing
--------------------------------------------------------------------------------------------------------------------------
SUBSIDIARIES TOTAL 870,922 100,885 181,859 (46,847) 235,897
--------------------------------------------------------------------------------------------------------------------------
JOINTLY CONTROLLED ENTITIES
Guangzhou new airport base 434,563 53,821 98,467 (1,747) 150,541 35% Self-financing
Zhuhai engine repair workshop 783,380 201,657 20,631 (222,288) - 28% 70% bank loans
Others 7,220 12,831 - (5,299) 7,532 Self-financing
--------------------------------------------------------------------------------------------------------------------------
JOINTLY CONTROLLED ENTITIES
TOTAL 1,225,163 268,309 119,098 (229,334) 158,073
--------------------------------------------------------------------------------------------------------------------------
GROUP TOTAL 6,026,384 1,006,964 1,305,853 (375,427) 1,937,390
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2003, no provision for impairment of the construction in
progress of the Group and the Company was necessary.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 147
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
15 CONSTRUCTION IN PROGRESS (cont'd)
The Group's borrowing costs capitalised in the construction in progress
for the year are as follows:
2003 2002
RMB'000 RMB'000
--------------------------------------------------------------------
Borrowing cost capitalised 83,077 64,186
====================================================================
The interest rates at which the Group's and the Company's borrowing costs
were capitalised during the year ranged from 1.62% to 5.46% (2002: 5.70%).
16 LEASE AND EQUIPMENT DEPOSITS
THE GROUP THE COMPANY
2003 2002 2003 2002
ORIGINAL Original ORIGINAL Original
CURRENCY currency CURRENCY currency
'000 RMB'000 '000 RMB'000 '000 RMB'000 '000 RMB'000
----------------------------------------------------------------------------------------------------------------------------
Advanced payments for
purchase of aircraft (US$) 303,940 2,515,617 210,650 1,743,610 229,487 1,899,391 210,650 1,743,610
Rental deposits for aircraft
under operating leases (US$) 50,379 416,974 48,739 403,428 39,794 329,363 38,851 321,582
----------------------------------------------------------------------------------------------------------------------------
2,932,591 2,147,038 2,228,754 2,065,192
============================================================================================================================
Pursuant to aircraft purchase agreements, the Group is generally required
to pay a deposit equal to approximately 30% of the purchase price of the
aircraft to aircraft manufacturers six months prior to delivery.
Pursuant to aircraft operating lease agreements, the Group is generally
required to pay lessors rental deposits equal to approximately three
months' rentals.
148 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
17 DEFERRED EXPENDITURE
THE GROUP THE COMPANY
RMB'000 RMB'000
------------------------------------------------------
Original cost:
At 1 January, 2003 261,582 168,265
Additions for the year 6,426 1,301
Write off for the year (203,013) (133,013)
----------------------------------------------------
At 31 December, 2003 64,995 36,553
----------------------------------------------------
Accumulated amortisation:
At 1 January, 2003 227,446 144,796
Amortisation for the year 14,089 7,421
Written back on write off (203,013) (133,013)
----------------------------------------------------
At 31 December, 2003 38,522 19,204
----------------------------------------------------
Net book value:
At 31 December, 2003 26,473 17,349
====================================================
At 31 December, 2002 34,136 23,469
====================================================
Deferred expenditure mainly comprises custom duties and other direct costs
incurred in respect of the Group's and the Company's operating leased
aircraft upon the inception of their respective leases. The deferred
expenditure is amortised on a straight-line basis over the lease period of
the aircraft.
At 31 December, 2003, the remaining unamortised period ranged from 2 to 3
years.
18 LONG-TERM RECEIVABLES
Long-term receivables represent insurance premium deposited with a PRC
insurance company. Pursuant to the relevant insurance agreement, the
insurance premium will be fully returned to the Group upon the expiry of
the agreement in 2007.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 149
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
19 SHORT-TERM LOANS
The Group's and the Company's short term loans are analysed as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
ORIGINAL Original ORIGINAL Original
CURRENCY currency CURRENCY currency
'000 RMB'000 '000 RMB'000 '000 RMB'000 '000 RMB'000
----------------------------------------------------------------------------------------------------------------------------
Unsecured loans
US Dollars 708,879 5,867,182 318,780 2,638,639 659,422 5,457,841 272,330 2,254,158
Hong Kong Dollars 194,355 207,124 - - - - - -
Renminbi - 120,000 - 334,287 - 120,000 - 240,000
----------------------------------------------------------------------------------------------------------------------------
Sub-total 6,194,306 2,972,926 5,577,841 2,494,158
----------------------------------------------------------------------------------------------------------------------------
Guaranteed loans
Renminbi 235,000 - 1,470,500 - - 420,000
----------------------------------------------------------------------------------------------------------------------------
Sub-total 235,000 1,470,500 - 420,000
----------------------------------------------------------------------------------------------------------------------------
Total 6,429,306 4,443,426 5,577,841 2,914,158
============================================================================================================================
The guaranteed loans were guaranteed by the following parties:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------------------
CSAHC 151,000 1,470,500 - 420,000
Guangzhou Baiyun International
Airport Company Limited 63,000 - - -
Shenzhen Yingshun Investment
Development Company Limited 21,000 - - -
---------------------------------------------------------------------------
235,000 1,470,500 - 420,000
===========================================================================
At 31 December, 2003, the Group's and the Company's weighted average
interest rates on short-term borrowings were 1.76% and 1.65% respectively
(2002: 3.11% and 2.66% respectively).
At 31 December 2003, the Group and the Company had no overdue loans (2002:
Nil).
There were no short-term loans payable to shareholders who hold 5% or more
of the voting rights of the Company.
150 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
20 BILLS PAYABLE
THE GROUP
2003 2002
RMB'000 % RMB'000 %
----------------------------------------------------------------
Bank accepted bills 1,949 0.4% 24,601 1.9%
Commercial bills 445,829 99.6% 1,275,079 98.1%
----------------------------------------------------------------
Total 447,778 100.0% 1,299,680 100.0%
================================================================
THE COMPANY
2003 2002
RMB'000 % RMB'000 %
----------------------------------------------------------------
Bank accepted bills 1,949 0.4% 24,601 1.9%
Commercial bills 436,135 99.6% 1,275,079 98.1%
----------------------------------------------------------------
Total 438,135 100.0% 1,299,680 100.0%
================================================================
All bills payable were due within one year.
There were no bills payable to shareholders who hold 5% or more of the
voting rights of the Company.
21 TRADE ACCOUNTS PAYABLE
The ageing analysis of trade accounts payable is as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
---------------------------------------------------------------------------
Within 3 months 1,018,454 330,904 908,536 140,148
Over 3 but within 6 months 278,114 244,295 231,115 140,793
Over 6 months 370,815 325,727 308,153 170,556
---------------------------------------------------------------------------
1,667,383 900,926 1,447,804 451,497
===========================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 151
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
21 TRADE ACCOUNTS PAYABLE (cont'd)
At 31 December, 2003, the Group and the Company had no individually
significant trade accounts payable aged over three years.
There was no amount payable to shareholders who hold 5% or more voting
rights of the Company included in trade accounts payable.
22 SALES IN ADVANCE OF CARRIAGE
Sales in advance of carriage represent the proceeds from sales of the
Group's and the Company's air tickets in advance of carriage. The sales in
advance of carriage were aged within one year.
There was no amount payable to shareholders who hold 5% or more voting
rights of the Company included in the balance of sales in advance of
carriage.
23 CAAC INFRASTRUCTURE DEVELOPMENT FUND PAYABLE
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------------
At 1 January, 2003 280,706 525,607 201,476 418,730
Add: Amount for the year 250,802 798,386 167,942 375,734
Less: Payment during the year 177,916 1,043,287 76,195 592,988
--------------------------------------------------------------------------------
At 31 December, 2003 353,592 280,706 293,223 201,476
================================================================================
24 OTHER CREDITORS
Other creditors represent payables for education surcharge.
25 OTHER PAYABLES
Included in other payables was a RMB165,995,000 payable to CSAHC, a
shareholder who hold 5% or more voting rights of the Company.
At 31 December, 2003, the Group and the Company had no individually
significant other payables aged over three years.
152 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
26 ACCRUED EXPENSES
THE GROUP THE COMPANY
2003 2002 2003 2002
Notes RMB'000 RMB'000 RMB'000 RMB'000 REASON FOR ACCRUAL
-------------------------------------------------------------------------------------------------------
Custom duties
and value-added tax (a) 336,839 360,827 103,223 56,887 Accrued but not paid
Landing and takeoff fees (b) 825,811 497,372 584,605 169,109 Accrued but not paid
Aircraft and engine
repair charges (b) 242,397 203,624 252,557 132,432 Accrued but not paid
Staff housing benefit
and lump sum
housing allowances (c) 214,521 383,675 214,521 383,675 Accrued but not paid
Interest expense (d) 157,527 174,626 137,761 150,609 Accrued but not paid
Jet fuel expenses (b) 254,801 297,626 117,756 109,640 Accrued but not paid
Sales commissions
and bonuses 62,212 39,808 62,212 9,562 Accrued but not paid
Air catering expenses (b) 114,296 110,134 133,777 76,907 Accrued but not paid
Provision for major overhauls
- current portion (Note 30) 10,717 52,000 - - Accrued but not paid
Seat reservation charges 54,852 21,601 42,133 6,179 Accrued but not paid
Aircraft insurance premium - 31,137 - 18,240 Accrued but not paid
Operating lease rentals 18,144 41,396 14,813 - Accrued but not paid
Other expenses 94,870 72,310 19,322 46,176 Accrued but not paid
-------------------------------------------------------------------------------------------------------
Total 2,386,987 2,286,136 1,682,680 1,159,416
=======================================================================================================
Notes:
(a) CUSTOMS DUTIES AND VALUE-ADDED TAX
Customs duties and value-added tax mainly represent custom
duties and value-added tax payable by the Group in connection
with purchase of aircraft. These custom duties and value-added
tax payable were capitalised as part of the aircraft's costs.
The Group is required to pay the customs duties and
value-added tax by instalments.
(b) LANDING AND TAKEOFF FEES, AIRCRAFT AND ENGINE REPAIR CHARGES, JET
FUEL EXPENSES AND AIR CATERING EXPENSES
The transaction volumes and amounts involved for the landing
and takeoff fees, aircraft and engine repair costs, jet fuel
expenses and air catering expenses were significant. Their
settlement generally took two to three months. Therefore, such
expenses were accrued in the year to which they related in
order to match with the revenue.
(c) STAFF HOUSING WELFARE AND LUMP SUM HOUSING ALLOWANCES
Pursuant to Cai Kuai Zi (2001) No. 5 issued by the MOF, lump
sum housing allowances payable to employees who joined the
Company before 1998 but having not yet allocated with staff
housing were recorded as accrued expense.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 153
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
26 ACCRUED EXPENSES (cont'd)
NOTE: (cont'd)
(d) INTEREST EXPENSE
Interest expense accrual was mainly from finance lease obligations and
loans in connection with purchase of aircraft. The Group was generally
required to repay the principal and interest once every three or six
months. Therefore, the interest expense was accrued in the year to
which they related.
27 LONG-TERM LIABILITIES DUE WITHIN ONE YEAR
THE GROUP THE COMPANY
2003 2002 2003 2002
ORIGINAL Original ORIGINAL Original
CURRENCY currency CURRENCY currency
'000 RMB'000 '000 RMB'000 '000 RMB'000 '000 RMB'000
----------------------------------------------------------------------------------------------------------------------
Long term borrowings due
within one year (Note 28)
Guaranteed (RMB) - 1,580 - - - - - -
Unsecured (RMB) - 63,810 - - - - - -
Mortgaged and guaranteed
(US$) 73,647 609,553 96,225 796,485 46,048 381,127 66,255 548,415
Mortgaged (US$) 1,582 13,097 2,576 21,315 2,024 16,749
----------------------------------------------------------------------------------------------------------------------
Sub-total 688,040 817,800 381,127 565,164
----------------------------------------------------------------------------------------------------------------------
Obligations under finance
leases due within one year
(Note 29)
Mortgaged and guaranteed
- US Dollars 135,357 1,120,312 154,214 1,276,473 135,357 1,120,312 154,214 1,276,473
- Japanese Yen 2,297,904 177,543 4,204,027 290,225 2,297,904 177,543 4,204,027 290,225
----------------------------------------------------------------------------------------------------------------------
Sub-total 1,297,855 1,566,698 1,297,855 1,566,698
----------------------------------------------------------------------------------------------------------------------
Total 1,985,895 2,384,498 1,678,982 2,131,862
======================================================================================================================
154 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
28 LONG-TERM BORROWINGS
THE GROUP
2003 2002
ORIGINAL Original
INTEREST CURRENCY Interest Currency
RATE '000 RMB'000 Rate '000 RMB'000
-----------------------------------------------------------------------------------------------
Renminbi loans:
Loans for construction
projects 4.94% to - 89,144 4.94% to - 969,994
5.25% 6.21%
Non-interest - 3,000 Non-interest - 3,000
bearing bearing
Loans for purchase
of aircraft 5.49% - 63,500 5.02% to - 2,310,268
5.43%
US dollar loans:
Loans for purchase
of aircraft 1.48% to 618,341 5,117,821 5.00% to 413,908 3,426,038
8.33% 8.33%
Loans for purchase
of flight equipment 8.35% 1,582 13,097 8.35% 2,427 20,090
Loans for construction
projects 1.91% to 21,887 181,156 - -
1.94%
-----------------------------------------------------------------------------------------------
5,467,718 6,729,390
Less: Current portion of
long-term borrowings
(Note 27) 688,040 817,800
-----------------------------------------------------------------------------------------------
4,779,678 5,911,590
===============================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 155
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
28 LONG-TERM BORROWINGS (cont'd)
THE COMPANY
2003 2002
ORIGINAL Original
INTEREST CURRENCY Interest currency
RATE '000 RMB'000 rate '000 RMB'000
----------------------------------------------------------------------------------------
Renminbi loans:
Loans for construction
projects - - - 5.22% to - 850,000
6.21%
Loans for purchase
of aircraft - - - 5.02% to - 2,231,768
5.43%
US dollar loans:
Loans for purchase
of aircraft 1.48% to 5.00% to
8.33% 489,522 4,051,626 8.33% 255,128 2,111,768
----------------------------------------------------------------------------------------
4,051,626 5,193,536
Less: Current portion of
long-term borrowings
(Note 27) 381,127 565,164
----------------------------------------------------------------------------------------
3,670,499 4,628,372
========================================================================================
156 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
28 LONG-TERM BORROWINGS (cont'd)
The long-term borrowings by borrowing terms are analysed as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
--------------------------------------------------------------------------
Unsecured loans 85,149 110,307 - -
Guaranteed loans 430,451 2,501,305 228,800 2,410,118
Mortgaged loans 2,387,532 756,833 2,324,435 736,743
Mortgaged and guaranteed loans 2,564,586 3,360,945 1,498,391 2,046,675
--------------------------------------------------------------------------
5,467,718 6,729,390 4,051,626 5,193,536
==========================================================================
The guaranteed loans were guaranteed by the following parties:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------
CSAHC 420,399 1,939,774 228,800 1,860,118
SA Finance 10,052 561,531 - 550,000
-----------------------------------------------------------
430,451 2,501,305 228,800 2,410,118
===========================================================
The mortgaged and guaranteed loans were secured by mortgages over certain
of the Group's and the Company's aircraft (Note 13), and were guaranteed
by the following parties:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-----------------------------------------------------------------------
Export-Import Bank
of the United States 2,207,393 2,680,801 1,236,160 1,536,835
Bank of China 357,193 604,010 262,231 433,706
China Construction Bank - 76,134 - 76,134
-----------------------------------------------------------------------
2,564,586 3,360,945 1,498,391 2,046,675
=======================================================================
The mortgaged loans were secured by mortgages over certain of the Group's
and the Company's aircraft and other flight equipment (Note 13).
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 157
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
28 LONG-TERM BORROWINGS (CONT'D)
The maturity analysis of the long-term borrowings is as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB'000 RMB'000 RMB'000 RMB'000
-------------------------------------------------------------------
Balance due:
Within one year 688,040 817,800 381,127 565,164
In the second year 682,492 842,036 401,466 522,482
In the third year 488,225 1,078,074 257,299 760,740
After the third year 3,608,961 3,991,480 3,011,734 3,345,150
-------------------------------------------------------------------
5,467,718 6,729,390 4,051,626 5,193,536
===================================================================
There was no amount due to shareholders who hold 5% or more of the voting
rights of the Company included in the balance of long-term borrowings.
29 OBLIGATIONS UNDER FINANCE LEASES
THE GROUP AND THE COMPANY
2003 2002
RMB'000 RMB'000
--------------------------------------------------------------------------------------------
At 1 January, 8,198,449 9,143,563
Add: Additions for the year - 426,192
Effect due to fluctuations of foreign exchange rates 197,880 174,911
Less: Payments during the year 1,555,390 1,546,217
--------------------------------------------------------------------------------------------
At 31 December, 6,840,939 8,198,449
Less: Balance due within one year (Note 27) 1,297,855 1,566,698
--------------------------------------------------------------------------------------------
5,543,084 6,631,751
============================================================================================
158 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
29 OBLIGATIONS UNDER FINANCE LEASES (cont'd)
Obligations under finance leases represent the Group's commitments under
finance lease agreements in respect of aircraft and related equipment
expiring during 2004 to 2009. At 31 December, 2003, the weighted average
interest rate for obligations under finance leases was 5.88%. Future
payments of the Group's and the Company's obligations under finance leases
are as follows:
2003 2002
RMB'000 RMB'000
---------------------------------------------
Balance due:
Within one year 1,297,855 1,566,698
In the second year 1,066,451 1,273,144
In the third year 1,196,858 1,066,263
After the third year 3,279,775 4,292,344
---------------------------------------------
6,840,939 8,198,449
=============================================
Under the terms of the leases, the Group has an option to purchase, at or
near the end of the lease term, certain aircraft at fair market value and
others at either fair market value or a percentage of the respective
lessor's defined cost of the aircraft.
Certain of the Group's and the Company's aircraft were pledged to secure
facilities with financial institutions granted to lessors. The carrying
amounts of these aircraft at 31 December, 2003 are disclosed in Note 13.
The Group's and the Company's obligations under finance leases were
guaranteed by the following parties:
2003 2002
RMB'000 RMB'000
--------------------------------------------------------------------
Bank of China 2,577,034 3,608,705
The Industrial and Commercial Bank of China 4,263,905 4,589,744
--------------------------------------------------------------------
Total 6,840,939 8,198,449
====================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 159
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
29 OBLIGATIONS UNDER FINANCE LEASES (cont'd)
At 31 December, 2003, the Group's and the Company's obligations under
finance leases analysed by original currencies were as follows:
2003 2002
ORIGINAL Original
CURRENCY Currency 2002
'000 RMB'000 '000 RMB'000
----------------------------------------------------------------
US Dollars 478,058 3,956,739 613,415 5,077,419
Japanese Yen 20,531,761 1,586,345 22,515,137 1,554,332
----------------------------------------------------------------
5,543,084 6,631,751
================================================================
Balance due within one year is disclosed in Note 27 to the financial
statements.
There was no amount due to shareholders who hold 5% or more of the voting
rights of the Company included in the balance of obligations under finance
leases.
30 PROVISION FOR MAJOR OVERHAULS
THE GROUP THE COMPANY
RMB'000 RMB'000
-------------------------------------------------------------
Balance at 1 January, 2003 193,887 63,389
Including current portion 52,000 -
Add: Provision for the year 68,620 67,603
Less: Utilisation during the year 62,326 -
-------------------------------------------------------------
Balance at 31 December, 2003 200,181 130,992
Less: Current portion included in
accrued expenses (Note 26) 10,717 -
-------------------------------------------------------------
189,464 130,992
=============================================================
160 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
31 DEFERRED CREDITS
THE GROUP AND THE COMPANY
GAIN ON REBATES ON
SALE AND LEASE AIRCRAFT
BACK TRANSACTION OPERATING LEASE TOTAL
RMB' 000 RMB' 000 RMB' 000
--------------------------------------------------------------------------------------------------------------------
COST:
At 1 January, 2003 and 31 December, 2003 258,899 24,385 283,284
====================================================================================================================
ACCUMULATED AMORTISATION:
At 1 January, 2003 18,465 15,408 33,873
Amortisation for the year 29,588 2,661 32,249
--------------------------------------------------------------------------------------------------------------------
At 31 December, 2003 48,053 18,069 66,122
--------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE:
At 31 December, 2003 210,846 6,316 217,162
====================================================================================================================
At 31 December, 2002 240,434 8,977 249,411
====================================================================================================================
Pursuant to certain sale and leaseback arrangements, the Company sold
certain aircraft to independent third parties and then entered into
operating leases with such parties to lease back the aircraft for a
period of eight to nine years. The gains on sale and leaseback
arrangements, being the excess of the sale proceeds, which approximated
the aircraft's fair value on the date of disposal, over the aircraft's
net book value and related disposal costs, were deferred and amortised
over the period the aircraft were expected to be used.
Pursuant to certain operating lease arrangements for aircraft entered
into in 1998, the Group received cash rebates totalling RMB24,385,000
from a lessor. Such rebates have been deferred and amortised over the
terms of the respective leases.
32 DEFERRED TAXATION
The movements of net deferred tax liabilities are as follows:
THE GROUP THE COMPANY
RMB' 000 RMB' 000
---------------------------------------------------------------------------------------------
Balance at 1 January, 2003 1,043,303 734,607
Less: Addition for the year (Note 44) 135,420 155,510
Effect of change in income
tax rate (Note 4b & 44) 516,245 516,245
---------------------------------------------------------------------------------------------
Sub-total 651,665 671,755
---------------------------------------------------------------------------------------------
Balance at 31 December, 2003 391,638 62,852
=============================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 161
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
32 DEFERRED TAXATION (cont'd)
The net deferred tax liabilities were made up of the taxation effects
of:
THE GROUP THE COMPANY
2003 2002 2003 2002
Notes RMB' 000 RMB' 000 RMB' 000 RMB' 000
-------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Tax losses (a) 222,936 149,338 222,936 149,338
Repairs and maintenance
accruals (b) 87,608 63,896 93,097 69,385
Rotable repair charges
capitalised (c) 261,312 319,697 199,292 259,147
Accrued expenses (d) 18,883 115,543 18,883 115,543
Gains on sale and leaseback
transactions (e) 31,627 80,703 31,627 80,703
Other 8,989 32,580 10,829 32,580
-------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 631,355 761,757 576,664 706,696
-------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Undistributed profits of
subsidiaries (f) - 254,210 - 254,210
Repairs and maintenance
accruals (b) 80,545 78,083 - -
Depreciation of fixed assets (g) 872,741 1,403,278 615,503 1,187,093
Other 69,707 69,489 24,013 -
-------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 1,022,993 1,805,060 639,516 1,441,303
-------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities (391,638) (1,043,303) (62,852) (734,607)
===================================================================================================================
Notes:
(a) TAX LOSSES
Pursuant to relevant tax regulations, taxable losses can be
carried forward over a maximum period of five years to be
offset against future taxable profits. The deferred tax is
recognised based on the unutilised taxable losses and
estimated future taxable profits.
(b) REPAIRS AND MAINTENANCE ACCRUALS
Certain of the Group's and the Company's overhaul expenses
were deductible on a cash payment basis for taxation purposes.
According to the accounting policies adopted in these
financial statements, overhaul expenses are expensed as and
when incurred. The Group and the Company recognised deferred
tax for these timing differences.
162 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
32 DEFERRED TAXATION (cont'd)
Note: (cont'd)
(c) ROTABLE REPAIR CHARGES CAPITALISED
Pursuant to relevant tax regulations, repair charges for
rotables are initially capitalised and amortised over five
years for taxation purposes. According to the accounting
policies adopted in these financial statements, repair charges
for rotables are expensed as and when incurred. The Group and
the Company recognised deferred tax for these timing
differences.
(d) ACCRUED EXPENSES
Certain of the Group's and the Company's expenses are
deductible on a cash payment basis for taxation purposes. In
the preparation of these financial statements, these expenses
are accounted for on an accrual basis. The Group and the
Company recognised a deferred tax for these timing
differences.
(e) GAINS ON SALE AND LEASEBACK TRANSACTIONS
Pursuant to relevant tax regulations, gains on sale and
leaseback transactions are taxable in the period they arise.
According to the accounting policies adopted in these
financial statements, these gains are recorded as deferred
credits and amortised over the terms of the leases. The Group
and the Company recognised deferred tax on these timing
differences.
(f) UNDISTRIBUTED PROFITS OF SUBSIDIARIES
In 2002, the Company was required to pay additional tax on the
dividends or profits received from certain subsidiaries that
enjoyed preferential tax rates at a rate representing the
difference between the Company's applicable rate of 33% and
the subsidiaries' applicable tax rates. As stated in Note 1 to
the financial statements, the Company's status has changed to
a foreign investment enterprise in 2003. Accordingly, this
deferred tax liability has been written back in 2003.
(g) DEPRECIATION OF FIXED ASSETS
This deferred tax was recognised for the timing difference
arising from the difference between the aircraft depreciation
rates for accounting purposes and the rates used for taxation
purposes.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 163
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
33 SHARED CAPITAL
2003 2002
RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------------------------------------
Registered capital:
2,200,000,000 domestic shares of RMB1.00 each 2,200,000 2,200,000
1,174,178,000 H shares of RMB1.00 each 1,174,178 1,174,178
1,000,000,000 A shares of RMB1.00 each 1,000,000 -
-----------------------------------------------------------------------------------------------------------------------
4,374,178 3,374,178
=======================================================================================================================
Issued and paid up capital:
2,200,000,000 domestic shares of RMB1.00 each 2,200,000 2,200,000
1,174,178,000 H shares of RMB1.00 each 1,174,178 1,174,178
1,000,000,000 A shares of RMB1.00 each 1,000,000 -
-----------------------------------------------------------------------------------------------------------------------
4,374,178 3,374,178
=======================================================================================================================
Pursuant to an extraordinary general meeting of shareholders held on 21
May, 2002, a resolution was passed authorising the Company to issue not
more than 1,000,000,000 A shares of par value of RMB1.00 each. Pursuant
to an approval document[2003] No. 70 from the China Securities
Regulatory Commission, the Company issued and listed its 1,000,000,000
A shares with a par value of RMB1.00 each on the Shanghai Stock
Exchange in July 2003.
The receipts of above paid-in capital were verified by KPMG Huazhen
which issued capital verification reports on 31 December, 1994, 10
September, 1997 and 17 July, 2003 respectively.
164 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
34 CAPITAL RESERVES
THE GROUP AND THE COMPANY
2003 2002
RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------------------------------------
Balance at 1 January, 4,160,578 4,160,578
Share premium from A shares issue,
net of issuance costs 1,640,767 -
-----------------------------------------------------------------------------------------------------------------------
Balance at 31 December, 5,801,345 4,160,578
=======================================================================================================================
35 SURPLUS RESERVES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------------------------------
Statutory surplus reserve
Balance at 1 January, 337,195 285,860 337,195 285,860
Add: Profit appropriations 23,856 51,335 1,449 51,335
-----------------------------------------------------------------------------------------------------------------
Balance at 31 December, 361,051 337,195 338,644 337,195
-----------------------------------------------------------------------------------------------------------------
Statutory public welfare fund
Balance at 1 January, 171,574 145,907 171,574 145,907
Add: Profit appropriations 1,113 25,667 724 25,667
-----------------------------------------------------------------------------------------------------------------
Balance at 31 December, 172,687 171,574 172,298 171,574
-----------------------------------------------------------------------------------------------------------------
Discretionary surplus reserve
Balance at 1 January, 76,603 69,867 76,603 69,867
Add: Profit appropriations - 6,736 - 6,736
-----------------------------------------------------------------------------------------------------------------
Balance at 31 December, 76,603 76,603 76,603 76,603
-----------------------------------------------------------------------------------------------------------------
Total 610,341 585,372 587,545 585,372
=================================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 165
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
36 PROFIT APPROPRIATION
(a) Appropriations to various reserves
Pursuant to the Board of Directors' resolution on 23 April,
2004, the Company made appropriations to the following funds
for year 2003:
(i) Statutory surplus reserve 10%
(ii) Statutory public welfare fund 5%
(b) On 23 April, 2004, the Board of Directors did not recommend
the payment of a final dividend to ordinary shareholders.
37 REVENUE FROM PRINCIPAL OPERATIONS
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
------------------------------------------------------------------------------------------------------------------
Passenger 15,342,458 16,899,811 10,183,596 8,563,545
Cargo and mail 2,008,548 1,905,699 1,734,297 933,261
------------------------------------------------------------------------------------------------------------------
17,351,006 18,805,510 11,917,893 9,496,806
==================================================================================================================
Revenue from principal operations represent revenues from airline
businesses. The Group's geographical information is set out in Note 46.
The total revenue from the Group's and the Company's top five customers
and their percentage of the total revenue are analysed as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
------------------------------------------------------------------------------------------------------------------
Amounts (RMB' 000) 259,668 293,548 223,260 238,212
% of total revenue 1.5% 1.6% 1.9% 2.5%
================================================================================================================
166 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
38 BUSINESS TAXES AND SURCHARGES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------------------------------
Business tax 175,598 482,200 121,044 234,597
City construction tax 10,134 28,318 8,031 15,690
Education surcharge 4,950 14,732 3,413 5,637
-----------------------------------------------------------------------------------------------------------------
190,682 525,250 132,488 255,924
=================================================================================================================
39 PROFIT FROM OTHER OPERATIONS
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------------------------------
Sales commission income 145,810 137,928 125,535 115,906
General aviation income 3,006 (11,394) 860 13,754
Ground services income 78,683 38,156 78,833 34,605
Aircraft lease income - 38,712 - 38,712
Air catering income 15,812 8,618 - -
Others 82,638 113,307 47,832 61,386
-----------------------------------------------------------------------------------------------------------------
Total 325,949 325,327 253,060 264,363
=================================================================================================================
40 FINANCIAL EXPENSES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
--------------------------------------------------------------------------------------------------------------
Interest expense incurred 906,802 1,023,379 792,004 903,620
Less: Capitalised interest expense 83,077 64,186 83,077 64,186
--------------------------------------------------------------------------------------------------------------
Net interest expense 823,725 959,193 708,927 839,434
Interest income (13,061) (52,618) (7,666) (42,446)
Net foreign exchange loss 164,443 175,451 169,805 179,947
Bank charges 20,443 13,193 16,578 11,958
--------------------------------------------------------------------------------------------------------------
995,550 1,095,219 887,644 988,893
==============================================================================================================
Net foreign exchange loss arose mainly from the Group's and the
Company's Japanese Yen denominated finance lease obligations due to
fluctuations in the exchange rate of Japanese Yen.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 167
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
41 INVESTMENT INCOME
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME ACCOUNTED FOR
Under cost method 17,140 3,765 25 -
Under equity method 44,536 6,708 264,850 266,506
Amortisation of equity investment
differences - - 2,050 2,050
----------------------------------------------------------------------------------------------------------------
61,676 10,473 266,925 268,556
================================================================================================================
There are no major restrictions on the remittance of the Group's and
the Company's investment returns.
42 NON-OPERATING INCOME
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
----------------------------------------------------------------------------------------------------------------
Gain on sale of fixed assets 21,560 1,995 2,655 52
Others 21,523 6,632 15,241 2,782
----------------------------------------------------------------------------------------------------------------
43,083 8,627 17,896 2,834
================================================================================================================
43 NON-OPERATING EXPENSES
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
----------------------------------------------------------------------------------------------------------------
Loss on sale of fixed assets 40,574 30,649 134 7,032
Fines and compensations 338 474 338 413
Donations 2,106 1,447 287 838
Others 28,462 7,961 23,203 1,046
----------------------------------------------------------------------------------------------------------------
71,480 40,531 23,962 9,329
================================================================================================================
168 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
44 INCOME TAX
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
----------------------------------------------------------------------------------------------------------------
Provision for income tax 46,938 71,651 - -
Deferred taxation (Note 32) (651,665) 281,579 (671,755) 235,008
----------------------------------------------------------------------------------------------------------------
(604,727) 353,230 (671,755) 235,008
================================================================================================================
45 RELATED PARTIES AND RELATED PARTY TRANSACTIONS
(a) RELATED PARTY WITH CONTROLLING RELATIONSHIP
Name of company: China Southern Air Holding Company
Registered address: Guangzhou Baiyun International Airport, Guangdong Province
Principal business: Management of the companies' operations within the group and
the sale of products
Relationship with the Company: The ultimate holding company
Nature of ownership: State-owned
Legal representative: Yan Zhi Qing
Registered capital: RMB2,198,980,000
At 31 December, 2003 and 2002, CSAHC held 2,200,000,000 Legal
Person Shares of the Company totalling RMB2,200,000,000.
(b) RELATIONSHIP BETWEEN THE COMPANY AND RELATED PARTIES WITHOUT
CONTROLLING RELATIONSHIP
(i) Companies that are under the control of CSAHC, i.e.
subsidiaries of CSAHC:
- Southern Airlines (Group) Import and Export
Trading Company
- Zhongyuan Airlines Company
- Southern Airlines (Group) Economic
Development Company
- Nanlung Travel & Express (H.K.) Ltd.
- Golden Royal International Travel Ltd.
- Shenzhen Baiyun Air Service Co. Ltd.
- SA Finance
- Xinjiang Airlines Company
- China Northern Airlines Company
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 169
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
45 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (cont'd)
(b) RELATIONSHIP BETWEEN THE COMPANY AND RELATED PARTIES WITHOUT
CONTROLLING RELATIONSHIP (CONT'D)
(ii) Companies that are under the significant influence of
CSAHC
- Shenzhen Air Catering Company Limited
(iii) Jointly controlled entities of the Group:
- Guangzhou Aircraft Maintenance Engineering
Company Limited
- MTU Maintenance Zhuhai Co. Ltd.
- China Postal Airlines Limited
(iv) Associated companies of the Group:
- Hong Kong Business Aviation Centre Company
Limited
- Sichuan Airlines Corporation Limited
170 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
45 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (cont'd)
(c) THE PRINCIPAL RELATED PARTY TRANSACTIONS CARRIED OUT DURING
THE YEAR WERE AS FOLLOWS:
2003 2002
Note RMB' 000 RMB' 000
----------------------------------------------------------------------------------------------------------------
EXPENSES
Handling charges (1) 27,051 36,306
Wet lease rentals (2) 35,751 26,164
Sundry aviation supplies (3) 42,849 101,350
Advertising expenses (4) - 3,275
Commission expenses (5) 4,896 16,725
Air catering expenses (6) 28,199 29,058
Repairing charges (7) 346,652 296,156
Housing benefits (8) 85,000 85,000
Lease charges for land and buildings (9) 15,224 15,224
Trademark (10) - -
INCOME
Interest income (11) 3,100 10,530
Wet lease rentals (12) - 27,599
OTHERS
Short-term loans (13) 165,995 -
Refund of medical benefit payments (14) 58,120 -
Acquisition of interest in subsidiaries (15) - 107,846
Acquisition of fixed assets (16) - 946,866
----------------------------------------------------------------------------------------------------------------
Notes:
(1) Handling charges represent fees payable to Southern Airlines
(Group) Import and Export Trading Company in connection with
the procurement of aircraft and flight equipment on the
Group's behalf. The purchase amount was RMB1,154,553,000 for
the year. Handling charges are calculated based on a fixed
percentage of the procurement value by reference to market
rates. The fees are generally paid by the end of the following
month.
(2) Pursuant to a wet lease agreement effective October 2002, the
Group paid rentals to Xinjiang Airlines Company in respect of
one Boeing 757-200 aircraft. The wet lease rentals are
calculated by reference to market rates. The rentals payable
were settled on the 14th day of the following month. The wet
lease agreement was terminated in April 2003.
(3) Sundry aviation supplies represent purchases of sundry
aviation supplies from Southern Airlines (Group) Economic
Development Company. Prices are determined by reference to
market prices. The payable is generally settled by the end of
the following month.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 171
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
45 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (cont'd)
(c) THE PRINCIPAL RELATED PARTY TRANSACTIONS CARRIED OUT DURING
THE YEAR WERE AS FOLLOWS: (cont'd)
Notes: (cont'd)
(4) Advertising expenses represent advertising fees
payable to Southern Airlines Advertising Company
("SAAC") for advertising and promotional services
rendered to the Group. The fees are determined by
reference to market rates. Annual budgeted
advertising expenses are paid in a lump sum at the
beginning of every year. Other advertising expenses
are generally paid by the end of the following month.
SAAC became a subsidiary of the Company in August
2002 and has been consolidated into the Group's
consolidated financial statements since then.
(5) Commission expenses represent commission payable to
Nanlung Travel & Express (H.K.) Ltd., South China
International and Aviation and Travel Services
Company, Golden Royal International Travel Ltd. and
Shenzhen Baiyun Air Service Co. Ltd. in connection
with air tickets sold by them on the Group's behalf.
The Group's aggregate amount of ticket sales
conducted through these agents was RMB143,016,000 for
the year ended 31 December, 2003. The commission
rates are based on the rates stipulated by the CAAC.
The commission expense payable is offset directly
against the sales proceeds receivable from them.
South China International and Aviation and Travel
Services Company became a subsidiary of the Company
in August 2002 and has been consolidated in the
Group's consolidated financial statements since then.
(6) Air catering expenses represent fees payable to
Shenzhen Air Catering Company Limited for providing
inflight meals to the Group. CSAHC holds a 33% equity
interest in the company. Prices are determined by
reference to market prices. The payable is generally
settled by the end of the following month.
(7) Repair charges represent fees payable to Guangzhou
Aircraft Maintenance Engineering Company Limited and
MTU Maintenance Zhuhai Co. Ltd. in connection with
comprehensive aircraft maintenance services rendered
to the Group. Fees are charged based on market
prices. Fees amounting to RMB346,652,000 were
eliminated upon the proportional consolidation of
these companies.
(8) Housing benefits payable to CSAHC represent the
difference between the carrying amounts of the
quarters sold to the employees of the Group and the
proceeds from sales of these quarters by CSAHC. The
payment is determined based on number of quarter
allocated and the construction cost of the housing
sold over the sales prices, and is payable in
accordance with the related agreement.
(9) Lease charges for land and buildings represent
rentals payable to CSAHC by the Group under certain
lease agreements in respect of certain land and
buildings of CSAHC. The rentals are determined based
on market rents. The rental payments are due in June
and December of each year.
(10) The Company and CSAHC have entered into a 10-year
Trademark Licence Agreement dated 22 May 1997,
pursuant to which CSAHC acknowledged that the Company
has the right to use the name "China Southern" and
"China Southern Airlines" in both Chinese and
English, and granted to the Company a renewable
royalty-free licence to use the kapok logo on a
world-wide basis in connection with the Company's
airline and airline-related businesses. Unless CSAHC
gives written notice of termination three months
before the expiration of the agreement, the agreement
will be automatically extended for another 10-year
term.
172 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
45 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (cont'd)
(c) THE PRINCIPAL RELATED PARTY TRANSACTIONS CARRIED OUT DURING
THE YEAR WERE AS FOLLOWS:(cont'd)
Notes: (cont'd)
(11) Interest income represents the interest received from
deposits placed with SA Finance by the Group (Note
6). The applicable interest rate is determined in
accordance with the deposit rate published by the
People's Bank of China. Interest income is received
quarterly. Please refer to Note 45(d) for the balance
of deposits at the end of each year.
(12) Pursuant to a wet lease agreement, the Company
received wet lease rentals from wet leasing an Airbus
320-200 aircraft to Sichuan Airlines Corporation
Limited. The rentals were determined by reference to
market rentals. The rentals payable were settled on
the 10th day of the following month.
(13) During the year, CSAHC made short term cash advances
to the Group. These advances were unsecured, interest
free and repayable on demand. As at 31 December,
2003, the advances amounted to RMB165,995,000.
(14) The Group provides retirees with medical benefits,
transportation subsidies and other welfare
facilities. Previously, the Group paid a fixed annual
fee to CSAHC in return for CSAHC providing such
benefits to the retired employees of the Group. With
effect from 1 January, 2002, such arrangement was
terminated. During 2003, CSAHC refunded to the Group
the difference between the aggregate fixed annual
fees received from the Group and the aggregate cost
of services incurred by CSAHC.
(15) In August 2002, the Company acquired a 90% equity
interest in each of Guangzhou Aviation Hotel,
Southern Airlines Advertising Company and South China
International Aviation & Travel Services Company from
CSAHC at an aggregate cash consideration of
approximately RMB107,846,000. The consideration was
determined by reference to the valuation reports
dated 18 March, 2002, prepared by Guangzhou Asset
Appraisal Corp.. The consideration was settled in
2002.
(16) During 2002, the Group acquired five Boeing
737-300/37K aircraft and related spare parts and
certain vehicles from Zhongyuan Airlines, a
subsidiary of CSAHC, at a consideration of
approximately RMB1,096,866,000. The consideration was
satisfied by cash of approximately RMB132,130,000
together with an assumption by the Group of Zhongyuan
Airlines' debts of approximately RMB964,736,000. This
consideration was determined by reference to the
valuation reports prepared by Zhongfeng Valuation
Company Limited.
In addition to the above, certain business undertakings of
CSAHC provided transportation, hotel and other services to the
Group during the year. The total amount involved was not
material to the results of the Group for the year.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 173
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
45 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (cont'd)
(d) THE BALANCES WITH RELATED PARTIES ARE SET OUT BELOW:
2003 2002
RELATIONSHIP RMB' 000 RMB' 000
----------------------------------------------------------------------------------------------------------------
Cash at bank and in hand
SA Finance Other related party 370,978 909,979
Trade receivables
Nanlung Tranve & Express
(H.K.) Ltd. Other related party 54,161 89,550
Golden Royal International Travel Ltd. Other related party 7,545 7,545
Shenzhen Baiyun Air Service Co. Ltd. Other related party 338 4,000
Other receivables
Southern Airlines (Group) Import
and Export Trading Company Other related party 17,280 12,376
Long-term receivable
Hong Kong Business Aviation
Centre Company Limited Associated company - 16,869
Trade accounts payable
Southern Airlines (Group) Import
and Export Trading Company Other related party 693,345 267,468
Guangzhou Aircraft Maintenance
Engineering Company Limited Joinly controlled entity 155,716 106,063
Xinjiang Airlines Company Other related party 80,891 8,500
China Northern Airlines Company Other related party 336,783 -
Other payables
CSAHC Ultimate holding company 165,995 -
Accrued expenses
MTU Maintenance Zhuhai Co. Ltd Joinly controlled entity 46,990 -
----------------------------------------------------------------------------------------------------------------
(e) GUARANTEES PROVIDED BY RELATED PARTIES AND OTHER CONTINGENT
LIABILITIES:
(i) Other than the guarantees provided by CSAHC and SA
Finance to banks in respect of certain loans of the
Group (Note 19 and Note 28), there were no guarantees
provided by related parties.
174 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
45 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (cont'd)
(e) GUARANTEES PROVIDED BY RELATED PARTIES AND OTHER CONTINGENT
LIABILITIES: (cont'd)
(ii) The Demerger Agreement dated 25 March, 1995 (such
Agreement was amended by Amendment No. 1 dated 22
May, 1997) was entered into between the CSAHC and the
Company for the purpose of defining and allocating
the assets and liabilities between CSAHC and the
Company.Under the Demerger Agreement, CSAHC and the
Company have agreed to indemnify the other party
against, among other things, claims, liabilities and
expenses incurred by the other party but relating to
the businesses, assets and liabilities held or
assumed by CSAHC or the Company pursuant to the
Demerger Agreement. From the date of the Demerger
Agreement to the date on which these financial
statements are authorised for issue, there have been
no incidences of compensation in respect of claims,
assets or liabilities held or assumed by CSAHC or the
Company.
(iii) The Company leases from CSAHC certain land in
Guangzhou and certain land and buildings in Wuhan and
Haikou. The Group has significant investments in
buildings and other leasehold improvements located on
such land. However, such land in Guangzhou and such
land and buildings in Wuhan and Haikou lack adequate
documentation evidencing the SA Group's ownership
thereto.
Pursuant to Compensation Agreement dated 22 May,
1997, CSAHC agrees to indemnify the Group against any
loss or damage caused by any challenge or
interference with the Group's use of any of above
land and buildings.
The directors of the Company are of the opinion that the above
transactions with related parties were entered into in the
normal course of business and on normal commercial terms or in
accordance with the agreements governing such transactions.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 175
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
46 GEOGRAPHICAL INFORMATION
The Group engages in a single operation, i.e. the provision of airline
services. Geographic information about the Group's profit from
principal operation are as follows:
(NOTE)
DOMESTIC HONG KONG INTERNATIONAL TOTAL
RMB' 000 RMB' 000 RMB' 000 RMB' 000
----------------------------------------------------------------------------------------------------------------------
2003
Net revenue from principal
operations 13,242,875 793,047 3,064,282 17,100,204
Less:Cost of principal operations 10,935,717 699,536 2,586,712 14,221,965
Business taxes and surcharges 155,935 4,789 29,958 190,682
-----------------------------------------------------------------------------------------------------------------------
Profit from principal operations 2,151,223 88,722 447,612 2,687,557
=======================================================================================================================
2002
Net revenue from principal
operations 13,647,250 1,137,928 3,221,946 18,007,124
Less:Cost of principal operations 9,796,521 618,917 2,702,666 13,118,104
Business taxes and surcharges 449,679 19,233 56,338 525,250
-----------------------------------------------------------------------------------------------------------------------
Profit from principal operations 3,401,050 499,778 462,942 4,363,770
=======================================================================================================================
Note: Mainly routes between the PRC and Asian countries, the United
States of America, the Netherlands, Belgium and Australia.
The major revenue-earning assets of the Group is its aircraft fleet,
most of which is registered in the PRC. Since the Group's aircraft
fleet is employed flexibly across its route network, there is no
suitable basis for allocating its assets to geographic segments.
Substantially all of the Group's non-aircraft identifiable assets are
located in the PRC.
47 CONTINGENT LIABILITIES
New Link Consultants Limited filed a lawsuit with the High Court in
Hong Kong against the Company alleging violation of certain agreements
in respect of the procurement of aviation inventories, and lodged a
claim. The Company has conducted a detailed assessment of the claim and
concluded that the Company will be successful in defending itself, and
as the lawsuit is still at a preliminary stage, no provision for
contingent liabilities is required in these financial statements.
176 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
48 COMMITMENTS
(i) CAPITAL COMMITMENTS
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
-----------------------------------------------------------------------------------------------------
Commitments in respect of aircraft
and related equipment
- authorised and contracted for 10,615,079 5,875,996 7,739,290 5,875,996
-----------------------------------------------------------------------------------------------------
Commitments in respect of
investments in the Guangzhou
new airport
- authorised and contracted for 617,277 525,700 617,277 525,700
- authorised but not
contracted for 1,454,661 2,601,720 1,454,661 2,601,720
-----------------------------------------------------------------------------------------------------
2,071,938 3,127,420 2,071,938 3,127,420
-----------------------------------------------------------------------------------------------------
Other commitments
- authorised and contracted for 256,707 107,610 29,628 42,968
- authorised but not
contracted for 991,860 1,121,545 229,302 245,440
-----------------------------------------------------------------------------------------------------
1,248,567 1,229,155 258,930 288,408
-----------------------------------------------------------------------------------------------------
13,935,584 10,232,571 10,070,158 9,291,824
=====================================================================================================
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 177
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
48 COMMITMENTS (cont'd)
(i) CAPITAL COMMITMENTS (cont'd)
At 31 December, 2003, the Group had on order 2 Boeing 757-200
aircraft, 13 Boeing 737-700 aircraft, 4 Airbus 330-200
aircraft, 6 Embraer ERJ-145 aircraft and certain flight
equipment, scheduled for deliveries in 2004 and 2005. Deposits
of RMB2,494,853,000 have been made towards the purchase of
these aircraft and related equipment. At 31 December, 2003,
the approximate total future payments, including estimated
amounts for price escalation through anticipated delivery
dates for these aircraft and related equipment are as follows:
THE GROUP THE COMPANY
RMB' 000 RMB' 000
----------------------------------------------------------------------------------------------
Payments due
In 2004 4,584,823 3,248,674
In 2005 6,030,256 4,490,616
----------------------------------------------------------------------------------------------
10,615,079 7,739,290
==============================================================================================
(ii) OPERATING LEASE COMMITMENTS
The Group's and the Company's commitments under
non-cancellable aircraft and flight equipment operating leases
were as follows:
THE GROUP THE COMPANY
2003 2002 2003 2002
RMB' 000 RMB' 000 RMB' 000 RMB' 000
----------------------------------------------------------------------------------------------------------------
Payments due:
Within one year 1,482,888 1,280,060 1,193,892 1,044,720
In the second year 1,411,520 1,327,631 1,169,104 1,107,150
In the third year 1,143,745 1,245,150 969,189 1,071,252
After the third year 4,081,704 4,683,797 3,718,788 4,487,062
----------------------------------------------------------------------------------------------------------------
8,119,857 8,536,638 7,050,973 7,710,184
================================================================================================================
(iii) INVESTING COMMITMENTS
As at 31 December, 2003, the Company was committed to making a
capital contribution of approximately RMB446,000,000 (2002:
RMB201,000,000) to its jointly controlled entities.
178 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
49 PRINCIPAL SUBSIDIARIES, ASSOCIATED COMPANIES, AND JOINTLY CONTROLLED
ENTITIES
The particulars of the Company's principal subsidiaries, and the
Group's associated companies and jointly controlled entities as at 31
December, 2003 are as follows:
(i) PRINCIPAL SUBSIDIARIES
ATTRIBUTABLE/ ISSUED/
PLACE AND DATE OF EQUITY INTEREST REGISTERED
ESTABLISHMENT/ DIRECT INDIRECT CAPITAL PRINCIPAL
NAME OF COMPANY OPERATION % % (NOTE a) ACTIVITIES
China Southern Airlines PRC 100 - 100,000,000 Helicopter
(Group) Zhuhai Helicopter 31 August, 1983 Transportation
Company Limited
Guangxi Airlines Company PRC 60 - 170,900,000 Airline
Limited 28 April, 1994
China Southern Airlines PRC 60 - 280,000,000 Airline
(Group) Shantou Airlines 20 July, 1993
Company Limited
Zhuhai Airlines Company PRC 60 - 250,000,000 Airline
Limited 8 May, 1995
Xiamen Airlines Company PRC 60 - 588,434,000 Airline
Limited 11 August, 1984
Guizhou Airlines Company PRC 60 - 80,000,000 Airline
Limited 12 November, 1991
Guangzhou Nanland Air PRC 51 - 55,980,000 Air catering
Catering Company 21 November, 1989
Limited (Note b)
Hunan Southern China PRC 54 - 1,000,000 Travel services
Aviation & Travel Services 6 August, 1998
Company (Note d)
Guangzhou Aviation Hotel PRC 90 - 63,290,000 Hotel operation
8 January, 1997
Southern Airlines Advertising PRC 90 - 2,000,000 Aviation advertising
Company 3 March, 1994
Southern China International PRC 90 - 2,100,000 Travel services
Aviation & Travel Services 11 May, 1992
Company
Guangzhou Baiyun PRC 61 - 20,000,000 Logistic operations
International Logistic 23 July, 2002
Company Ltd.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 179
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
49 PRINCIPAL SUBSIDIARIES, ASSOCIATED COMPANIES, AND JOINTLY CONTROLLED
ENTITIES (cont'd)
(i) PRINCIPAL SUBSIDIARIES (cont'd)
ATTRIBUTABLE/ ISSUED/
PLACE AND DATE OF EQUITY INTEREST REGISTERED
ESTABLISHMENT/ DIRECT INDIRECT CAPITAL PRINCIPAL
NAME OF COMPANY OPERATION % % (NOTE A) ACTIVITIES
Zhuhai Xiang Yi Aviation PRC 51 - USD 29,800,000 Provision of flight
Technology Company 10 July, 2002 simulation service
Limited
CSN-ETC e-commerce PRC 51 - 5,880,000 Provision of
(Note d) 10 October, 2002 e-commerce service
China Southern West Australia 65 - AUD 100,000 Pilot training services
Australian Flying College 26 January, 1971
Pty Limited
CZ Flamingo Limited Cayman Islands 100 - USD 1,000 Aircraft leasing
8 December, 1993
CZ Skylark Limited Cayman Islands 100 - USD 1,000 Aircraft leasing
17 November, 1993
CZ Kapok Limited Cayman Islands 100 - USD 1,000 Aircraft leasing
26 October, 1993
CSA-I Limited Cayman Islands 100 - USD 1,000 Aircraft leasing
1 September, 1993
CZ93B Limited Cayman Islands 100 - USD 1,000 Aircraft leasing
11 May, 1993
CZ97A Limited Cayman Islands 100 - USD 1,000 Aircraft leasing
2 January, 1997
Zhong Yuan 99A Limited Cayman Islands 100 - USD 1,000 Aircraft leasing
15 February, 1999
CXA92A Limited Cayman Islands - 60 USD 1,000 Aircraft leasing
3 August, 1992
CXA93A Limited Cayman Islands - 60 USD 1,000 Aircraft leasing
1 July, 1993
CXA95B Limited Cayman Islands - 60 USD 1,000 Aircraft leasing
7 July, 1995
CXA95C Limited Cayman Islands - 60 USD 1,000 Aircraft leasing
16 October, 1995
CXA98A Limited Cayman Islands - 60 USD 1,000 Aircraft leasing
20 March, 1998
Xiamen Aviation Property PRC - 60 5,000,000 Property development
Development Company 22 June, 1993
180 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
49 PRINCIPAL SUBSIDIARIES, ASSOCIATED COMPANIES, AND JOINTLY CONTROLLED
ENTITIES (cont'd)
(i) PRINCIPAL SUBSIDIARIES (cont'd)
ATTRIBUTABLE/ ISSUED/
PLACE AND DATE OF EQUITY INTEREST REGISTERED
ESTABLISHMENT/ DIRECT INDIRECT CAPITAL PRINCIPAL
NAME OF COMPANY OPERATION % % (NOTE A) ACTIVITIES
Xiamen Aviation Advertising PRC - 60 620,218 Aviation advertising
Company Limited 17 December, 1992
Xiamen Aviation Supplies PRC - 60 8,560,000 Aviation suppliers
Limited 30 July, 1997
Xiamen Aviation Development PRC - 54 5,000,000 Hotel operation
Company Limited 18 February, 1998
Bai Lu Finance Limited Hong Kong - 54 HKD10,000,000 Investment holding
22 February, 1996
Xiamen Air Holidays Limited Hong Kong - 54 HKD3,000,000 Travel services
28 April, 1994
Xiamen Macau Holidays Macau - 27.5 MOP1,000,000 Travel services
Limited (Note c) 11 May, 1995
Shantou Hua Kang Air PRC - 42 10,000,000 Air catering
Catering Company Ltd 22 June, 1994
(Note c)
Zhuhai Air Holidays Limited PRC - 54.6 1,200,000 Travel services
19 September, 2001
Zhuhai Aviation Advertising PRC - 36 1,500,000 Advertising services
Company Limited (Note d) 3 August, 1995
Guangzhou Baiyun International PRC - 55 5,000,000 Logistic operations
Express Customs 28 July, 2003
Supervision Co. Ltd.
(Note d)
Notes:
(a) Expressed in RMB, unless otherwise stated.
(b) These subsidiaries are Sino-foreign equity joint venture
companies
(c) The Company holds over 51% equity interests in these companies
through its non-wholly owned subsidiaries. The Company has a
controlling interest in these companies through these
non-wholly owned subsidiaries. These companies are therefore
consolidated in the Group's consolidated financial statements.
(d) Notwithstanding that the Group holds over 50% of the
registered capital of these companies, the Company does not
consolidate these companies into its consolidated financial
statements because their assets and results of operation are
not significant and have no significant effect on the Group's
consolidated financial statements. Accordingly, the Group
accounts for the investments in these companies under the cost
method.
Other than those stated in Note (d) above, the Group has consolidated
all of the above subsidiaries into its consolidated financial
statements during the year ended 31 December, 2003.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 181
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
49 PRINCIPAL SUBSIDIARIES, ASSOCIATED COMPANIES, AND JOINTLY CONTROLLED
ENTITIES (cont'd)
(ii) PRINCIPAL ASSOCIATED COMPANIES AND JOINTLY CONTROLLED ENTITIES
ATTRIBUTABLE/ ISSUED/
PLACE AND DATE OF EQUITY INTEREST REGISTERED
ESTABLISHMENT/ DIRECT INDIRECT CAPITAL PRINCIPAL
NAME OF COMPANY OPERATION % % (NOTE A) ACTIVITIES
Guangzhou Aircraft PRC 50 - USD27,500,000 Provision of aircraft
Maintenance Engineering 28 October, 1989 repair and
Company Limited (Note b) maintenance
services
Southern Airlines Group PRC 32 15.42 300,000,000 Provision of financial
Finance Company Limited 28 June, 1995 and services
USD15,000,000
Hainan Phoenix Information PRC 45 - USD16,360,000 Provision of ticket
System Limited 12 March, 1994 reservation system
services
Hong Kong Business Aviation Hong Kong 20 - HKD1,000,000 Provision of private
Centre Company Limited 7 January, 1998 flight support
services
MTU Maintenance Zhuhai PRC 50 - USD63,100,000 Provision of engine
Co. Ltd (Note b) 6 April, 2001 repair and
maintenance
services
Zhuhai Air Express Co. PRC - 18 3,000,000 Air express service
Ltd (Note c) 26 February, 1997
Guilin Guangsheng PRC - 18 2,100,000 Wholesales and
Development Co. Ltd. 18 January, 2000 retailing
(Note c)
Civil Aviation Cares of PRC - 17.1 2,000,000 Computer applications
Xiamen Ltd. (Note c) 14 September, 2001 and hardware
services
China Postal Airlines Limited PRC 49 - 306,000,000 Airline
(Note b) 25 November, 1996
Sichuan Airlines Corporation PRC 39 - 350,000,000 Airline
Limited 28 August, 2002
Notes:
(a) Expressed in RMB, unless otherwise stated.
(b) These are jointly controlled entities. They have been
proportionately consolidated in the Group's consolidated
financial statements.
182 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
NOTES TO THE FINANCIAL STATEMENTS (Cont'd)
(Prepared under PRC Accounting Rules and Regulations)
49 PRINCIPAL SUBSIDIARIES, ASSOCIATED COMPANIES, AND JOINTLY CONTROLLED
ENTITIES (cont'd)
Notes: (cont'd)
(c) The results of the operations of these companies were
not significant and had no significant effect on the
Group's consolidated financial statements.
Accordingly, the Group accounted for the investments
in these companies under the cost method.
Other than those stated in Note (c) above, the associated companies
were accounted for under the equity method in the Group's consolidated
financial statements for the year ended 31 December, 2003.
50 EXTRAORDINARY GAIN AND LOSS
In accordance with the requirements of "Questions and answers on the
preparation of information disclosures of companies issuing public
shares No. 1 - Extraordinary gain and loss" (revised 2004), the
extraordinary gain and loss of the Group are set out below:
2003
RMB' 000
-------------------------------------------------------------------------------------------
Effect of change in income tax rate (Note 32) 516,245
Refund of medical benefit payments (Note 45(c)) 58,120
Loss on sale of fixed assets (19,014)
Various subsidies 3,880
Others, net (13,263)
-------------------------------------------------------------------------------------------
Total 545,968
===========================================================================================
51 POST BALANCE SHEET EVENTS
In April 2004, the Company entered into a purchase agreement with
Airbus SNC for the acquisition of fifteen Airbus 320-200 aircraft and
six Airbus 319-100 aircraft, scheduled for deliveries in 2005 and 2006.
52 COMPARATIVE FIGURES
Certain comparative figures have been reclassified to confirm with
current year's presentation.
Certain comparative figures have been adjusted as a result of the
change in accounting policy for profits appropriation, details of which
are set out in note 2 to the financial statements.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 183
SUPPLEMENTARY INFORMATION FOR PRC SHAREHOLDERS
(Expressed in Renminbi)
Effects of significant differences between PRC Accounting Rules and Regulations
and IFRS on net (loss)/profit are analysed as follows:
2003 2002
Note RMB' 000 RMB' 000
---------------------------------------------------------------------------------------------------------------------
Net profit under PRC Accounting Rules and Regulations 14,488 513,345
Adjustments:
Gains on aircraft sale and leaseback transactions (a) (30,710) 188,886
Losses on staff housing allocation (b) (111,000) (95,833)
Adjustment for revaluation of land use rights (c) 3,872 3,645
Effect of the above adjustments on taxation 4,026 (34,282)
Effect of change in income tax rate on deferred taxation (122,281) -
Adjustment for unrealised deferred tax assets (d) (116,662) -
--------------------------------------------------------------------------------------------------------------------
Net (loss)/profit under IFRS (358,267) 575,761
====================================================================================================================
Effects of significant differences between PRC Accounting Rules and Regulations
and IFRS on shareholders' equity are analysed as follows:
2003 2002
Note RMB' 000 RMB' 000
-------------------------------------------------------------------------------------------------------------
Shareholders' equity under PRC Accounting Rules
and Regulations 11,549,849 8,894,594
Adjustments:
Gains on aircraft sale and leaseback transactions (a) 213,846 244,556
Losses on staff housing allocation (b) 308,167 419,167
Adjustment for revaluation of land use rights (c) (165,420) (169,292)
Effect of the above adjustments on taxation (10,735) 224,182
-------------------------------------------------------------------------------------------------------------
Shareholders' equity under IFRS 11,895,707 9,613,207
=============================================================================================================
184 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
SUPPLEMENTARY INFORMATION FOR PRC SHAREHOLDERS (Cont'd)
(Expressed in Renminbi)
Notes:
(a) In accordance with PRC accounting rules and regulations, gains on
aircraft sale and leaseback transactions are recorded as deferred
credits and amortised over the lease terms on a straight line basis.
Under IFRS, gains on sale and leaseback transactions where the
subsequent lease is an operating lease are recognised as income
immediately, if the transactions are established at fair value.
Differences between the sale price and fair value are deferred and
amortised over the lease term.
(b) In accordance with PRC accounting rules and regulations, losses on
staff housing allocation executed by CSAHC on the Company's behalf are
charged to retained profits as and when incurred. In addition, lump sum
housing benefits are charged to retained profits as of 1 January, 2001
pursuant to the relevant regulations. Under IFRS, losses on staff
housing allocations and lump sum housing benefits are charged to the
income statement in the obligatory periods stipulated by the relevant
contracts.
(c) In accordance with PRC accounting rules and regulations, land use
rights are carried at revalued amounts. Under IFRS, land use rights are
carried at cost with effect from 1 January, 2002. Accordingly, the
unamortised surplus on revaluation of the land use rights was reversed
against the shareholders equity.
(d) In the financial statements prepared under IFRS, an adjustment has been
made to reverse certain unrealied deferred tax assets upon the annual
assessment performed by the Group for the year. Such items were
adjusted for in the financial statements of the Group prepared under
PRC accounting rules and regulations in respect of the prior years.
(e) The Group's consolidated financial statements prepared under IFRS for
the two years ended 31 December, 2002 and 2003 were audited by KPMG, a
firm of certified public accountants in Hong Kong.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 185
SUPPLEMENTARY INFORMATION FOR NORTH AMERICAN SHAREHOLDERS
(Expressed in Renminbi)
Effects on the consolidated (loss)/profit attributable to shareholders and
shareholders' equity of significant differences between IFRS and accounting
principles generally accepted in the United States of America ("U.S. GAAP") are
summarised below.
2003 2002
Notes RMB' 000 RMB' 000
------------------------------------------------------------------------------------------------------------------------------
Consolidated (loss)/profit attributable to shareholders
under IFRS (358,267) 575,761
U.S. GAAP adjustments:
Sale and leaseback accounting (a) 114,635 (100,664)
Lease arrangements (b) (64,140) (49,960)
Capitalised interest (c) (32,961) (31,473)
Reversal of additional depreciation arising from
the revaluation of fixed assets (d) 33,000 33,000
Investments in associated company
and jointly controlled entity (e) 7,044 (541)
Deferred tax effects (58,948) 47,849
-----------------------------------------------------------------------------------------------------------------------------
Consolidated (loss)/profit attributable to shareholders
under U.S. GAAP (359,637) 473,972
=============================================================================================================================
Basic (loss)/earnings per share under U.S. GAAP RMB(0.09) RMB0.14
=============================================================================================================================
Basic (loss)/earnings per ADS under U.S. GAAP* RMB(4.69) RMB7.02
=============================================================================================================================
* Basic (loss)/earnings per American Depositary Share ("ADS") is
calculated on the basis that one ADS is equivalent to 50 H shares.
2003 2002
Notes RMB' 000 RMB' 000
------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity under IFRS 11,895,707 9,613,207
U.S. GAAP adjustments:
Sale and leaseback accounting (a) (472,354) (586,989)
Lease arrangements (b) (114,100) (49,960)
Lease obligations (b) (2,409,252) (1,322,843)
Lease deposits (b) 2,409,252 1,322,843
Capitalised interest (c) 348,060 381,021
Revaluation of fixed assets, net of depreciation (d) (13,120) (46,120)
Investments in associated company and jointly
controlled entity (e) (110,959) (118,003)
Deferred tax effects 35,227 94,175
-----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity under U.S. GAAP 11,568,461 9,287,331
=============================================================================================================================
186 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
SUPPLEMENTARY INFORMATION FOR NORTH AMERICAN SHAREHOLDERS (Cont'd)
(Expressed in Renminbi)
NOTES:
(a) SALE AND LEASEBACK ACCOUNTING
Under IFRS, gains on sale and leaseback transactions where the
subsequent lease is an operating lease are recognised as income
immediately, if the transactions are established at fair value.
Differences between the sale price and fair value are deferred and
amortised over the period for which the assets are expected to be used.
Under U.S. GAAP, such gains are deferred and amortised over the term of
the lease.
(b) LEASE ARRANGEMENTS
As disclosed in Note 10 to the consolidated financial statements,
during 2002 and 2003, the Group entered into two separate arrangements
with certain independent third parties under which the Group sold
aircraft and then immediately leased back the aircraft for a
pre-determined period. As a result of the arrangements, the Group
received a net cash benefit of RMB51,682,000 and RMB69,121,000 in 2002
and 2003 respectively which has been recognised as income under IFRS.
Under U.S. GAAP, such benefits are deferred and amortised over the
minimum lease period.
In addition, under the lease arrangements, the commitments by the Group
to make long-term lease payments have been defeased by the placement of
security deposits. As such, under IFRS, such commitments and deposits
are not recognised on the consolidated balance sheet. Under U.S. GAAP,
such commitments and deposits would be recognised on the consolidated
balance sheet, as such commitments are not deemed as extinguished by
the placement of security deposits.
(c) CAPITALISED INTEREST
Under IFRS, the Group capitalises interest costs to the extent the
related borrowings are directly attributable to the acquisition or
construction of an asset.
Under U.S. GAAP, interest costs capitalised are determined based on
specific borrowings related to the acquisition or construction of an
asset, if an entity's financing plans associate a specific new
borrowing with a qualifying asset. If average accumulated expenditures
for the asset exceed the amounts of specific new borrowings associated
with the asset, additional interest costs capitalised are based on the
weighted average interest rate applicable to other borrowings of the
entity.
(d) REVALUATION OF FIXED ASSETS
In connection with the Reorganisation in 1996, the fixed assets of the
Group were revalued as of 31 December, 1996. Such fixed asset
revaluation resulted in an increase in shareholders' equity with
respect to the increase in carrying amount of certain fixed assets
above their historical cost bases, while an exceptional charge to
profit and loss account was recorded with respect to the reduction in
carrying amount of certain fixed assets below their historical cost
bases. In addition, the revalued fixed asset amounts serve as the tax
bases of fixed assets for years beginning in 1997. Accordingly, the
fixed asset revaluation eliminated certain of the temporary differences
which gave rise to a deferred tax asset as at 31 December, 1996. Such
deferred tax asset was offset against the revaluation surplus.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 187
SUPPLEMENTARY INFORMATION FOR NORTH AMERICAN SHAREHOLDERS (Cont'd)
(Expressed in Renminbi)
NOTES: (cont'd)
(d) REVALUATION OF FIXED ASSETS (cont'd)
Under U.S. GAAP, fixed assets are stated at their historical cost
unless an impairment loss has been recorded. An impairment loss on
fixed assets is recorded under U.S. GAAP if the carrying amount of such
asset exceeds its future undiscounted cash flows, excluding finance
costs. The future undiscounted cash flows, excluding finance costs, of
the Group's fixed assets whose carrying amount was reduced in
connection with the Reorganisation, exceed their historical cost
carrying amount and, therefore, impairment of such assets is not
appropriate under U.S. GAAP. Accordingly, the revaluation reserve
recorded directly to shareholders' equity and the exceptional charge
recorded under IFRS in 1996 and the additional depreciation charges
recorded in the seven years ended 31 December, 2003, as a result of the
Reorganisation are reversed for U.S. GAAP purposes. However, as a
result of the tax deductibility of the net revaluation reserve, a
deferred tax asset related to the reversal of the net revaluation
reserve is created under U.S. GAAP with a corresponding increase in
shareholders' equity as at 31 December, 1996. Such deferred tax asset
will be reversed upon depreciation of the net revaluation surplus
included in the fixed assets beginning 1997.
(e) INVESTMENTS IN ASSOCIATED COMPANY AND JOINTLY CONTROLLED ENTITY
During 2002, the Company invested in an affiliated company and a
jointly controlled entity, which were PRC state-owned enterprises.
Under IFRS, such investments are initially recorded on a fair value
basis at the cost of purchases borne by the Company. In the
consolidated profit and loss account, the equity share of results of
the investees are measured based on the fair value of underlying net
assets determined on the date of acquisitions.
Under U.S. GAAP, such transactions would be considered to be
"combinations of businesses under common control". Under U.S. GAAP,
such investments are initially recorded at the Company's equity share
of net assets of the investees determined on a historical cost basis.
The differences between such amounts and the cost of purchases are
reflected as movements in the shareholders' equity. In the consolidated
profit and loss account, the equity share of results of the investees
are measured based on the historical cost basis.
(f) FINANCIAL STATEMENTS PRESENTATION AND DISCLOSURES
In the consolidated profit and loss account presented under IFRS,
(loss)/gain on sale of fixed assets is classified under "Non-operating
income/(expenses)". Under U.S. GAAP, such (loss)/gain would be
classified under "Operating income/ (expenses) - General and
administrative".
As disclosed in note 16 to the consolidated financial statements,
deferred tax assets are presented on a net basis under IFRS. Under U.S.
GAAP, the gross amount of such deferred tax assets and any applicable
valuation allowance would be separately disclosed.
188 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
SUPPLEMENTARY INFORMATION FOR NORTH AMERICAN SHAREHOLDERS (Cont'd)
(Expressed in Renminbi)
NOTES: (cont'd)
(g) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FIN 46R
In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003) "Consolidation of Variable Interest Entities" which
addresses how a business enterprise should evaluate whether it has a
controlling financial interest in an entity through means other than
voting rights and accordingly should consolidate the entity. FIN 46R
replaces FASB Interpretation No. 46 "Consolidation of Variable Interest
Entities" which was issued in January 2003. The Company will be
required to apply FIN 46R to variable interests in VIEs created after
31 December, 2003. For variable interests in VIEs created before 1
January, 2004, the Interpretation will be applied beginning on 1
January, 2005. For any VIEs that must be consolidated under FIN 46R
that were created before 1 January, 2004, the assets, liabilities and
noncontrolling interests of the VIE initially would be measured at
their carrying amounts with any difference between the net amount added
to the balance sheet and any previously recognised interest being
recognised as the cumulative effect of an accounting change. If
determining the carrying amounts is not practicable, fair value at the
date FIN 46R first applies may be used to measure the assets,
liabilities and noncontrolling interest of the VIE. The Company is
evaluating the impact of applying FIN 46R to existing VIEs in which it
has variable interests and has not yet completed this evaluation.
FASB No. 150
FASB Statement No. 150 "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" was issued in May
2003. This Statement establishes standards for the classification and
measurement of certain financial instruments with characteristics of
both liabilities and equity. The Statement also includes required
disclosures for financial instruments within its scope. For the
Company, the Statement was effective for instruments entered into or
modified after 31 May, 2003 and otherwise will be effective as of 1
January, 2004, except for mandatorily redeemable financial instruments.
For certain mandatorily redeemable financial instruments, the Statement
will be effective for the Company on 1 January, 2005. The effective
date has been deferred indefinitely for certain other types of
mandatorily redeemable financial instruments. The Company currently
does not have any financial instruments that are within the scope of
this Statement.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 189
FIVE YEAR SUMMARY
The following consolidated financial information is extracted from the
consolidated financial statements of the Group, prepared under IFRS.
CONSOLIDATED PROFIT AND LOSS ACCOUNT DATA
(in million, except per share data)
YEAR ENDED 31 DECEMBER,
2003 2002 2001 2000 1999
RMB RMB RMB RMB RMB
-----------------------------------------------------------------------------------------------------------------------------
Operating revenue 17,470 18,019 16,880 15,178 13,300
Operating expenses (17,014) (15,993) (15,479) (13,996) (11,450)
Operating profit 456 2,026 1,401 1,182 1,850
Share of associated
companies' results 48 37 53 46 36
Share of jointly controlled
entities results (39) (3) (4) - -
Gain on sale of long term
investments - - - - 17
(Loss)/gain on sale of fixed
assets (22) 171 (56) 373 (19)
Interest income 13 53 50 90 107
Interest expense (824) (959) (934) (1,074) (1,192)
Exchange (loss)/gain, net (164) (176) 297 319 (427)
Other, net 21 (10) (11) (5) (4)
(Loss)/profit before taxation
and minority interests (511) 1,139 796 931 368
Taxation credit/(expense) 324 (398) (321) (339) (128)
Minority interests (171) (165) (135) (90) (158)
(Loss)/profit attributable to
shareholders (Note 1) (358) 576 340 502 82
Basic (loss)/earnings per
share (Note 2) (0.09) 0.17 0.10 0.15 0.02
------------------------------------------------------------------------------------------------------------------------------
Notes:
1. During 1999, the Group changed its IFRS accounting policy in respect of
the recognition of aircraft overhaul expense. Such change was reflected
in the consolidated financial statements on a retrospective basis with
restatement of the relevant balances for the relevant prior periods.
The restatement resulted in a decrease in an increase in profit
attributable to shareholders for 1999 of RMB22 million.
2. Basic (loss)/earnings per share for year 2003 and for years 1999 to
2002 are computed by dividing (loss)/profit attributable to
shareholders for the respective years by the weighted average number of
shares in issue of 3,831,712,000 for year 2003 and 3,374,178,000 for
years 1999 to 2002 respectively.
190 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
FIVE YEAR SUMMARY (Cont'd)
CONSOLIDATED BALANCE SHEET DATA
(in million)
AS AT 31 DECEMBER,
2003 2002 2001 2000 1999
RMB RMB RMB RMB RMB
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 2,080 3,771 2,818 4,197 4,588
Other current assets 1,921 1,835 1,560 1,692 1,715
Fixed assets 28,536 26,921 22,352 23,282 24,211
Total assets 39,062 37,188 30,653 30,924 32,558
Bank and other loans, current
portion 7,097 5,241 2,178 783 613
Obligations under finance
leases, current portion 1,298 1,567 1,452 1,776 2,000
Bank and other loans,
non-current portion 4,522 5,835 3,628 3,789 4,424
Obligations under finance
leases, non-current portion 5,543 6,632 7,692 9,416 11,491
Shareholders' equity 11,896 9,613 9,222 8,881 8,380
-----------------------------------------------------------------------------------------------------------------------------
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 191
THE BOARD OF DIRECTORS, SUPERVISORY COMMITTEE
AND SENIOR ADMINISTRATIVE OFFICERS
BOARD OF DIRECTORS
MR. YAN ZHI QING is the Chairman of the Board of Directors. He became an
employee of the Company in February 1996. Administrative positions which Mr. Yan
has held include Director of Flight Operations of the Hunan Provincial Civil
Aviation Administration, Director of the Guangxi Provincial Civil Aviation
Administration, Director of the Central and Southern China Civil Aviation
Administration, Director of the Political Department of the CAAC and Party
Secretary and Managing Vice President of the CSAHC Group. Mr. Yan is currently
the President and Vice Party Secretary of the CSAHC. Mr. Yan graduated from the
School of Aviation Administration and Flight Control in 1962. Save as disclosed
above, Mr. Yan is not connected with any directors, senior management,
substantial shareholders or controlling shareholders of the Company.
MR. LIU MING QI is the Vice Chairman of the Board of Directors of the Company
and joined the Company since May 2003. Mr. Liu graduated from South China Normal
University and obtained a master's degree in economics from Fudan University.
Mr. Liu is currently the Party Secretary and the Vice President of CSAHC. Mr.
Liu began his career in 1968, and has successively served as the Municipal
Secretary and Mayor of Sanya city of Hainan province, the Vice Governor of
Hainan province, the Vice Director of Hong Kong and Macao Affairs office of the
State Council and the Vice Director of Macao Liaison Office of the Central
Government. Save as disclosed above, Mr. Liu is not connected with any
directors, senior management, substantial shareholders or controlling
shareholders of the Company.
MR. WANG CHANG SHUN is the Vice Chairman of the Board of Directors and the
President of the Company and joined the Company in April 2001. He began his
career in civil aviation in February 1976, mainly involved in air traffic
control. He has held positions as Director of the Flight Operations Office of
the Urumqi Civil Aviation Administration, Director of the Flight Meteorology and
Flight Safety Monitoring Division, Deputy General Manager of Xinjiang Airlines
and Deputy Director of Urumqi Civil Aviation Administration, Party Secretary and
Deputy General Manager of Xinjiang Airlines and Party Secretary of Urumqi Civil
Aviation Administration. Mr. Wang is also the Vice President of the CSAHC. Mr.
Wang graduated from the School of the Chinese Academy of Social Sciences as a
post graduate in Business Management and is qualified as a Senior Expert of
Political Science. Save as disclosed above, Mr. Wang is not connected with any
directors, senior management, substantial shareholders or controlling
shareholders of the Company.
MR. PENG AN FA is currently a Director of the Company and the Vice President of
CSAHC and became the employee of the Company since March, 1995 after the
establishment of the Company. Mr. Peng graduated from the pilot department of
China Civil Aviation Flying College and the department of Chinese language and
literature of South China Normal University. Mr. Peng began his career in civil
aviation in 1969, and successively served as the Pilot Director, Vice Party
Secretary and Party Secretary of the Sixth Squadron of the Civil Aviation
Administration. In July 1994, Mr. Peng held office as the Party Secretary of the
Flight Operation Department of China Southern Airlines. In March 1998, Mr. Peng
served as the President and Vice Secretary of China Southern Airlines Shenzhen
Co. From August 2001 to October 2002, Mr. Peng served as the Vice President of
CSAHC. Mr. Peng is concurrently the Vice Chairman of Shenzhen Air Catering Co.,
Ltd and CATIC (Hong Kong). Save as disclosed above, Mr. Peng is not connected
with any directors, senior management, substantial shareholders or controlling
shareholders of the Company.
192 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
THE BOARD OF DIRECTORS, SUPERVISORY COMMITTEE
AND SENIOR ADMINISTRATIVE OFFICERS (Cont'd)
BOARD OF DIRECTORS (cont'd)
MR. WANG QUAN HUA is currently a Director of the Company and Vice President of
CSAHC and became the employee of the Company since March 1995 after the
establishment of the Company. Mr. Wang graduated from the Economic Management
Department of Central Communist Party College. Mr. Wang began his career in
civil aviation in 1972, and successively served as the Director of Planning
Department of Guangzhou Civil Aviation Administration, the Office Director of
China Southern Airlines Shenzhen Co., the Director of the Planning and Operation
Division of CSAHC, the President of Strategy and Development Department of China
Southern Airlines Company Limited and the Vice President of CSAHC. Save as
disclosed above, Mr. Wang is not connected with any directors, senior management
or substantial shareholders or controlling shareholders of the Company.
MR. ZHAO LIU AN is a Director of the Company, the Vice President of CSAHC and
the President of Xinjiang Airlines and joined the Company since May 2003. Mr.
Zhao began his career in civil aviation in 1966, and successively served as the
Director of Flight Meteorology and Flight Safety Monitoring Division, Director
of Science Education Division, the Director of Flying Model Division of Urumqi
Civil Aviation Administration, Captain of the Ninth Squadron of the Civil
Aviation Administration, the Vice President of Urumqi Civil Aviation
Administration and Xinjiang Airlines. Mr. Zhao is currently a President. Save as
disclosed above, Mr. Zhao is not connected with any directors, senior management
or substantial shareholders or controlling shareholders of the Company.
ZHOU YONG QIAN is currently a Director of the Company and the Vice President of
CSAHC and the President of China Northern Airlines. Mr. Zhou joined the Company
since May 2003. Mr. Zhou graduated from Nanjing Institute of Meteorology. Mr.
Zhou began his career in civil aviation in 1990, and successively served as
Minister of the Organization Division of the Northeastern Civil Aviation
Administration, Vice Secretary of Shenyang Taoxian International Airport, Vice
Secretary of the Northeastern Civil Aviation Administration and the President of
China Northern Airlines. Save as disclosed above, Mr. Zhou is not connected with
any directors, senior management or substantial shareholders or controlling
shareholders of the Company.
ZHOU YONG JIN is a Director of the Company. He joined the CSAHC in January 1991
and became an employee of the Company upon its establishment in March 1995, and
has successively served as a Director of the Propaganda Department of the CSAHC,
Party Secretary of the Transportation Department (Guangzhou) of the Company, and
Party Secretary of the Company's Shenzhen branch. He is currently Chairman of
the Labour Union of the Company. Mr. Zhou is not connected with any directors,
senior management or substantial shareholders or controlling shareholders of the
Company.
MR. XU JIE BO is a Director and the Chief Financial Officer of the Company. He
joined the Company in July 1998. Mr. Xu graduated from the Management Department
of Tianjin University and then served the Financial Department of Guangzhou
Civil Aviation Administration. He was a supervisor of the Financial Management
Office for Infrastructure Projects and from December 1992, he was a Deputy
Director and Director of the Financial Department of Central and Southern China
Civil Aviation Administration. In July 1998 he became General Manager of the
Financial Department of the Company. He is a Director and the Chief Financial
Officer of the Company. In addition, he is also a Director of Southern Airlines
Group Shantou Airlines Company Limited and Guangxi Airlines Company Limited. Mr.
Xu is not connected with any directors, senior management or substantial
shareholders or controlling shareholders of the Company.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 193
THE BOARD OF DIRECTORS, SUPERVISORY COMMITTEE
AND SENIOR ADMINISTRATIVE OFFICERS (Cont'd)
BOARD OF DIRECTORS (cont'd)
MR. WU RONG NAN is a Director of the Company. He joined the CSAHC in January
1991 and became an employee of the Company upon its establishment in March 1995.
Mr. Wu is an air traffic control engineer. He was once employed as the Director
of Flight Operations of the Guangzhou Civil Aviation Administration and has been
President of Xiamen Airlines since 1986. Mr. Wu is not connected with any
directors, senior management or substantial shareholders or controlling
shareholders of the Company.
MR. SIMON TO has been an Independent Non-Executive Director of the Company since
June 1999. Mr. To is currently a Managing Director of Hutchison Whampoa (China)
Limited, and also serves as director of several companies in Hong Kong and
Foreign-invested companies in China. Mr. To has managed investment projects in
China since early 1980's and is familiar with the laws and regulations of Hong
Kong and China. Mr. To graduated from the Stanford University with a Master
degree in Business Administration. Mr. To is not connected with any directors,
senior management or substantial shareholders or controlling shareholders of the
Company.
MR. PETER LOK has been an Independent Non-Executive Director of the Company
since June 2001. He is also a veteran in the civil aviation industry. Mr. Lok
joined the Civil Aviation Department of Hong Kong in 1956 and became its
Assistant Director in 1982, Deputy Director in 1988, and Director from 1990 to
1996. From 1997 to 2000, Mr. Lok was an advisor and president of Hong Kong
Commercial Airlines Center. Mr. Lok has sat on various Committees such as the
Evaluation Committees for the Design of Shanghai's Pudong Airport, Committee for
China's Zhuhai Aviation and Spaceflight Fair, Evaluation Committees for the IATA
Eagle Award. He is also independent director of several listed airline
companies. Mr. Lok is not connected with any directors, senior management or
substantial shareholders or controlling shareholders of the Company.
MR. WEI MING HAI has been an Independent Non-Executive Director of the Company
since June 2001. He is a Professor and Dean of the School of Management of
Zhongshan University. Professor Wei has worked in Jiangxi Provincial Accounting
Association, and he started working in Zhongshan University from 1991. In 1993
he became the chairman of the Accounting Department in the School of Management
of Zhongshan University. In 1996 he became the Deputy Dean of the School of
Management in Zhongshan University. In January 2000, he became Dean of the
School of Management in Zhongshan University. Since 1998, Professor Wei has been
a doctorate advisor for Accounting Information and Investment Analysis.
Professor Wei is also on the board of directors of China Accountants
Association, Vice Chairman of Accountants Association of Guangdong Province,
Vice Chairman of Auditors Association of Guangzhou , Executive Member of the
Research Institute of Financial Costs for Young and Middle-aged Accountants,
member of American Accounting Association. Professor Wei holds a Ph.D degree in
economics and has an MBA degree from Tulane University in the United States of
America. He has published over ten academic books or textbooks, and over 60
academic papers. Mr. Wei is not connected with any directors, senior management
or substantial shareholders or controlling shareholders of the Company.
MR. WANG ZHI has been an Independent Non-Executive Director of the Company since
May 2003. Mr. Wang graduated from the Aircraft Design Department of Harbin
Institute of Technology. Mr. Wang began his career in 1965, and has successively
served as the Director and Senior Engineer of Aeronautics Research Institute of
China, the Vice Director and Vice secretary of the First Research Institute of
Civil Aviation, the Vice Director and Director of the Planning Bureau of CAAC
and the Director of the Planning Technology System Reform Department and the
Planning Technology Department of CAAC. Mr. Wang is also professor in several
universities. Mr. Wang is not connected with any directors, senior management or
substantial shareholders or controlling shareholders of the Company.
194 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT [LOGO]
THE BOARD OF DIRECTORS, SUPERVISORY COMMITTEE
AND SENIOR ADMINISTRATIVE OFFICERS (Cont'd)
BOARD OF DIRECTORS (cont'd)
MR. SUI GUANG JUN has been an Independent Non-Executive Director of the Company
since May 2003. Mr. Sui graduated from the Economic Department of Jinan
University and obtained a master degree. Mr. Sui obtained a doctor degree in the
Management of Organizations of Jinan University. He has successively served as
the Vice Director of the Research Institute of Hong Kong and Macao Economies and
the Dean of corporate administration department of Jinan University. Mr. Sui is
currently the Chief of the Post-doc Committee of Applied Economics and the Dean
of Manage College in Jinan University. Mr. Sui is not connected with any
directors, senior management or substantial shareholders or controlling
shareholders of the Company.
SUPERVISORY COMMITTEE
As required by the Company Law and the Articles of Association, the Company has
a supervisory committee (the "Supervisory Committee") which is primarily
responsible for the supervision of senior management of the Company, including
the Board of Directors, executive officers and other senior management
personnel, to ensure that they act in the interests of the Company, its
shareholders and employees, as well as in compliance with applicable law. The
Supervisory Committee consists of three Supervisors. Two of the Supervisors are
shareholder representatives appointed by shareholders, and one Supervisor is a
representative of the Company's employees. The Supervisors serve terms of three
years and may serve consecutive terms.
LIANG HUA FU is the Chairman of the Supervisory Committee of the Company. He
become an employee of the Company since its establishment in March, 1995. Mr.
Liang held numerous positions in the Guangzhou Civil Aviation Administration,
including Chief of the Navigation Division, Party Secretary of the
Transportation Department, Secretary of the Disciplinary Department and Director
of Administration and Supervision. Mr. Liang attended Tianjin Aviation School
and Guangzhou Political Science College. Mr. Liang is not connected with any
directors, senior management or substantial shareholders or controlling
shareholders of the Company.
GAN YU HUA is a Supervisor of the Company. He became an employee of the Company
since its establishment in March, 1995. Mr. Gan held various positions in the
Chinese commercial aviation industry, including Deputy Director of the Finance
Department, Deputy Chief Accountant and Director of the Audit Department of the
Guangzhou Civil Aviation Administration. He holds a Senior Account Certificate
and is a member of the International Auditors Association. Mr. Gan graduated
from Shanghai Li Xin Accounting College in 1948. Mr. Gan is not connected with
any directors, senior management or substantial shareholders or controlling
shareholders of the Company.
LI QI HONG is a Supervisor of the Company and the Representative of the Labour
Union of the Company. He became an employee of the Company since its
establishment in March, 1995. Mr. Li graduated from the CAAC Aviation College in
1968, and held various administrative positions in the commercial aviation
industry in China. Mr. Li is not connected with any directors, senior management
or substantial shareholders or controlling shareholders of the Company.
[LOGO] CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT 195
THE BOARD OF DIRECTORS, SUPERVISORY COMMITTEE
AND SENIOR ADMINISTRATIVE OFFICERS (Cont'd)
SENIOR ADMINISTRATIVE OFFICERS
JIANG PING is a Vice President of the Company. He graduated from the CAAC
Aviation Collage. During the period from 1988 to 1991, Mr Jiang was the Director
of Flying Safety and Technology Department of Air China. During the period from
1995 to 2000, he was the Director of the Flight Brigade of the Flight Technology
Training Department of Air China. Mr Jiang has been holding the position as a
Vice President of the Company since 2000.
LI KUN is a Vice President of the Company. He graduated from the CAAC Management
Institute specializing in Air Transport Management. Mr Li was the General
Manager of the Thailand Office, China Southern Airlines from 1993 to 1995. He
became the General Manager of Transportation Department of the Company from 1998
to 2000. Mr Li has been holding the position as a Vice President of the Company
since 2000.
YUAN XIN AN is a Vice President of the Company. He graduated from the Air
Engineering College. Mr. Yuan has over 25 years of experience in the Chinese
aviation industry. He has been the Manager of Quality Assurance and Deputy
Controller of Quality Control of Guangzhou Aircraft Maintenance Engineering
Company Limited, Deputy General Manager of the Aircraft Engineering Department
of the Company, and Vice President of Guangzhou Aircraft Maintenance Engineering
Company Limited. Mr. Yuan has become the Chief Engineer of the Company since
2000, and he has been appointed as a Vice President of the Company from April
2002.
ZHENG EN REN is a Vice President of the Company. He graduated from the CAAC
Advanced Flying College and possesses the qualification as a First Class Pilot.
Mr. Zheng has over 40 years of experience in the Chinese aviation industry. He
served as the Captain of the Sixth Squadron of the Civil Aviation
Administration, Chairman of the Labour Union and Deputy Chief Captain. During
the period from 1996 to 1999, he held the position as President of Southern
Airlines (Group) Shantou Airlines Company Limited. Mr. Zheng was an Assistant to
the President of the Company from 1999 to April 2002. He has been appointed as a
Vice President of the Company from April, 2002.
YANG GUANG HUA is currently a Vice President of the Company. Mr. Yang has almost
30 years of experience in the Chinese aviation industry. From 1990 to 1992, Mr.
Yang was the Director of Safety of the Hunan Civil Aviation Administration. From
1992 to 1998, he held the position as Vice President of China Southern Airlines
(Group) Hunan Co.. Mr. Yang was the President of the Southern Airlines (Group)
Zhuhai Helicopters Company Limited from 1998 to 1999. He then served as the
President of Southern Airlines Henan branch from 1999 to April 2002. Mr. Yang
has been appointed as a Vice President of the Company from April 2002 to July
2003.
HAO JIAN HUA is currently the Vice President and Chief Pilot of the Company. He
completed his piloting at the CAAC Advanced Flying College. Mr. Hao has held
positions as Captain, then Deputy Chief Captain, and subsequently Chief Captain
of the Sixth Squadron of the Civil Aviation Administration during the period
from 1989 to 1994. He then became a Deputy General Manager, from 1994 to 1998,
and the General Manager, from 1998 to 1999, of the Flying Aviation Department of
the Company. He has been the Chief Pilot of the Company from 1999, and the Vice
President of the Company since 31 July, 2003.
SU LIANG is currently holding the position as Company Secretary. He was a
graduate of the Cranfield College of Aeronautics, University of Cranfield,
United Kingdom, specializing in Air Transport Management Engineering. Mr. Su is
a holder of master degree. During the period from 1998 to 1999, Mr. Su held the
position as Deputy Manager of the Flight Operations Department, China Southern
Airlines Shenzhen Co. and from 1999 to 2000, he was the Manager of the Planning
and Administration Department of China Southern Airlines Shenzhen Co.. Mr. Su
was in charge of the international cargo project of the Company, responsible for
the planning and development of the Company's North American cargo business.
From 2000 to date, Mr. Su is the Company Secretary.
196 CHINA SOUTHERN AIRLINES COMPANY LIMITED 2003 ANNUAL REPORT
GLOSSARY
In this Annual Report, unless the context otherwise requires, the
following terms shall have the meanings indicated:
CAPACITY MEASUREMENTS
"available seat kilometres" the number of seats made available for sale multiplied
or "ASKs" by the kilometres flown
"available tonne kilometres" the tonnes of capacity available for the transportation
or "ATKs" of revenue load (passengers and cargo) multiplied by the
kilometres flown
TRAFFIC MEASUREMENTS
"revenue passenger the number of passengers carried multiplied by the
kilometres" or "RPKs" kilometres flown
"cargo tonne kilometres" the load in tonnes multiplied by the kilometres flown
"revenue tonne kilometres" the load (passengers and cargo) in tonnes multiplied by
or "RTKs" the kilometres flown
YIELD MEASUREMENTS
"passenger yield" revenue from passenger operations divided by RPKs
"cargo yield" revenue from cargo operations divided by cargo tonne
kilometres
"average yield" revenue from airline operations (passenger and cargo)
divided by RTKs
"tonne" a metric ton, equivalent to 2,204.6 pounds
LOAD FACTORS
"passenger load factor" RPKs expressed as a percentage of ASKs
"overall load factor" RTKs expressed as a percentage of ATKs
UTILISATION
"utilisation rates" the actual number of flight and taxi hours per aircraft per
operating day
(a joint stock limited company incorporated in the Peoples
Republic of China with limited liability)
(STOCK CODE: 1055)
NOTICE OF 2003 ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that pursuant to the resolutions passed by the Board
of Directors of China Southern Airlines Company Limited (the Company ) at the
Board Meeting held on Friday, 23 April 2004, the 2003 Annual General Meeting of
the Company will be held at the headquarters of China Southern Airlines Company
Limited, No. 278 Ji Chang Road, Guangzhou, Guangdong Province, the PRC at 9:00
a.m., on 16 June, 2004 for the following purposes:
I. TO EXAMINE AND APPROVE THE FOLLOWING RESOLUTIONS AS ORDINARY
RESOLUTIONS:
1. Report of the Directors of the Company for the year 2003;
2. Report of the Supervisory Committee of the Company for the year
2003;
3. Audited consolidated financial statements of the Company for the
year 2003;
4. Profit distribution budget of the Company for the year 2003;
5. Appoint KPMG as the international auditors of the Company for the
year 2004 and KPMG Huazhen as the PRC auditors of the Company for
the year 2004 and authorize the Board to determine their
remuneration;
6. To elect members of the fourth Board of Directors, with Yan Zhi
Qing, Liu Ming Qi, Wang Chang Shun, Peng An Fa, Wang Quan Hua,
Zhao Liu An, Zhou Yong Qian, Zhou Yong Jin, Xu Jie Bo and Wu Rong
Nan as executive Directors, and Simon To, Peter Lok, Wei Ming
Hai, Wang Zhi and Sui Guang Jun as independent non-executive
Directors and authorize the Board of Directors to determine their
remuneration thereof (the details of the relevant candidates are
disclosed in the 2003 Annual Report of the Company);
7. To elect members of the fourth Supervisory Committee with Sun
Xiao Yi, Yang Guang Hua and Yang Yi Hua as Supervisors and
authorize the Supervisory Committee to determine their
remuneration, and consider and approve the resignation of Liang
Hua Fu, Gan Yu Hua and Li Qi Hong as members of the Supervisory
Committee (the details of the relevant candidates are disclosed
in Note V to this Notice);
8. Proposal of the Board of Directors for amendments to the Rules of
Procedures for Shareholders General Meetings as stated below:
a. Article 2 of the Rules of Procedures for Shareholders
General Meetings shall be replaced by the following
provision:
ARTICLE 2 The shareholders general meeting is the organ of
authority of the Company and shall exercise the following
functions and powers in accordance with law:
(1) to decide on the Companys operational policies and
investment plans;
(2) to elect and replace directors and decide on matters
relating to the remuneration of directors;
(3) to elect and replace independent directors and decide
the standard of allowance of independent directors;
(4) to elect and replace the supervisors who are
representatives of shareholders and decide on matters
relating to the remuneration of supervisors;
(5) to examine and approve reports of the board of
directors;
(6) to examine and approve reports of the supervisory
committee;
(7) to examine and approve the Companys proposed annual
preliminary and final financial budgets;
(8) to examine and approve the Companys profit
distribution plans and plans for making up losses;
(9) to decide on increases or reductions in the Company
registered capital;
(10) to decide on the issue of debentures by the Company;
(11) TO DECIDE ON MATTERS RELATING TO EXTERNAL SECURITY
(INCLUDING PLEDGE) ACCORDING TO THE
RELEVANT PROVISIONS OF THE ARTICLES OF ASSOCIATION;
(12) to decide on matters such as merger, division,
dissolution and liquidation of the Company;
(13) to amend the articles of association;
(14) TO DECIDE ON THE APPOINTMENT AND DISMISSAL OF THE
ACCOUNTANTS OF COMPANY;
(15) to consider motions raised by shareholders who
represent five percent or more of the total shares of
the Company carrying the right to vote;
(16) to decide on other matters which require resolutions of
the shareholders general meeting according to relevant
laws, administrative regulations and provisions of the
articles of association.;
b. Article 47 of the Rules of Procedures for Shareholders
General Meeting shall be replaced by the following
provision:
ARTICLE 47 Resolutions of shareholders general meetings
shall be divided into ordinary resolutions and special
resolutions.
To adopt an ordinary resolution, votes representing one half
or more of the voting rights represented by the shareholders
(including proxies) present at the meeting must be exercised
in favor of the resolution in order for it to be passed.
To adopt a special resolution, votes representing two thirds
or more of the voting rights represented by the shareholders
(including proxies) present at the meeting must be exercised
in favor of the resolution in order for it to be passed.
SHAREHOLDERS PRESENT AT THE MEETING (INCLUDING PROXIES)
SHALL EXPRESSLY STATE THEIR AGREEMENT WITH OR OBJECTION TO
EVERY MATTER TO BE DETERMINED BY VOTING. ANY VOTES MADE BY
ANY SHAREHOLDERS GIVING UP OR ABSTAINING FROM VOTING SHALL
NOT BE COUNTED AS VOTES HAVING VOTING RIGHTS.
WHEN ANY SHAREHOLDERS PROXY SHALL ABSTAIN FROM VOTING OR BE
LIMITED TO VOTE IN FAVOR OF OR AGAINST ANY DESIGNATED
RESOLUTION, ANY VOTES MADE BY SUCH PROXY IN CONTRAVENTION OF
THE AFORESAID REGULATION OR LIMITATION SHOULD NOT BE COUNTED
AS VOTES HAVING VOTING RIGHTS.;
c. Article 51 of the Rules of Procedures for Shareholders
General Meeting shall be replaced by the following
provision:
ARTICLE 51 Method of voting:
(1) disclosed ballot;
(2) SHOW OF HANDS FOR MATTERS NOT CURRENTLY REQUIRED TO BE
VOTED BY BALLOT;
(3) unconditional ballot, that is, no additional conditions
are attached to voting;
(4) a resolution shall be made after voting.
THE FOLLOWING MATTERS SHALL BE APPROVED BY VOTING UNDER THE
SCRUTINEERS SUPERVISION AT SHAREHOLDERS GENERAL MEETING:
(1) CONNECTED TRANSACTIONS;
(2) TRANSACTIONS THAT SHALL BE APPROVED BY INDEPENDENT
SHAREHOLDERS;
(3) OPTIONS GRANTED TO MAJOR SHAREHOLDERS OR INDEPENDENT
DIRECTORS OR ANY OTHER RELATED PARTIES;
(4) ANY OTHER TRANSACTIONS IN WHICH SHAREHOLDERS ARE
MATERIALLY INTERESTED AND ACCORDINGLY ARE REQUIRED TO
REFRAIN FROM VOTING AT SHAREHOLDERS GENERAL MEETING.
SAVE AS STATED ABOVE WHICH SHALL BE VOTED BY BALLOT, AT ANY
SHAREHOLDERS GENERAL MEETING A RESOLUTION SHALL BE DECIDED
ON A SHOW OF HANDS, UNLESS A BALLOT IS (BEFORE OR AFTER ANY
VOTE BY SHOW OF HANDS) DEMANDED:
(1) BY THE CHAIRMAN OF THE MEETING;
(2) BY AT LEAST TWO VOTING SHAREHOLDERS PRESENT IN PERSON
OR BY PROXIES;
(3) BY ONE OR MORE SHAREHOLDERS PRESENT IN PERSON OR BY
PROXY AND REPRESENTING (ALONE OR IN AGGREGATE) 10 PER
CENT OR MORE (INCLUDING THE 10 PER CENT) OF ALL SHARES
CARRYING THE RIGHT TO
VOTE AT THE MEETING.;
THE DEMAND FOR A BALLOT MAY BE WITHDRAWN BY THE PERSON WHO
MAKES SUCH DEMAND.;
9. Proposal of the Board of Directors for amendments to the Rules of
Procedures for Board of Directors as stated below;
a. The Companys Article 21 of Rules of Procedures for Board of
Directors shall be replaced by the following provision:
ARTICLE 21 Apart from the powers granted by the Company Law,
the articles of association of the Company and other
relevant laws and regulations to the directors, the
independent directors shall have the following special
powers:
(1) CONNECTED TRANSACTIONS OF WHICH THE AGGREGATE
CONSIDERATION IS IN COMPLIANCE WITH THE RELEVANT
PROVISIONS OF EXISTING LISTING RULES AND OTHER
SUPERVISORY REGULATIONS IN PLACES WHERE THE COMPANY IS
LISTED, SHALL FIRST BE APPROVED BY THE INDEPENDENT
DIRECTORS BEFORE SUBMISSION TO THE BOARD OF DIRECTORS
FOR DISCUSSION.
Before making the decision with respect to such
transactions, the independent directors may engage a
professional institution to prepare independent
financial advisor s reports as a basis of their
decision;
(2) propose to the board of directors with respect to
engaging or disengaging accounting firms;
(3) propose to the board of directors with respect to the
convening of extraordinary shareholders general
meetings;
(4) propose the convening of board meetings;
(5) engage external auditing firms or consultancy firms;
(6) publicly solicit proxies from shareholders before
shareholders general meetings.
The Independent Director shall obtain the consent of over
half of the independent directors in exercising any of the
above powers.;
b. Article 22 of the Rules of Procedures for Board of Directors
shall be replaced by the following provision:
ARTICLE 22 In addition to the above obligations, the
independent directors shall provide their independent
opinions to the board of directors or the shareholders
general meeting on the following matters:
(1) nomination, appointment and removal of Directors;
(2) appointment and dismissal of senior administrative
officers;
(3) remuneration of directors and senior administrative
officers;
(4) NEWLY OCCURED CONNECTED TRANSACTION, LOAN AND OTHER
FORMS OF FUND TRANSFER BETWEEN THE COMPANY AND ITS
SHAREHOLDERS, ACTUAL CONTROLLERS OR THEIR AFFILIATES
FOR WHICH THE AGGREGATE CONSIDERATION IS IN COMPLIANCE
WITH THE RELEVANT PROVISIONS OF THE EXISTING LISTING
RULES AND OTHER SUPERVISORY REGULATIONS IN PLACES WHERE
THE COMPANY IS LISTED, AND WHETHER THE COMPANY HAS
TAKEN EFFECTIVE MEASURES TO COLLECT THE AMOUNTS DUE;
(5) matters which may harm the interests of the minority
shareholders;
(6) other matters provided for in the articles of
association of the Company.
The independent director shall choose to provide any of the
following opinions with respect to the above matters: agree,
reserve opinion and the reasons therefor, dissent and the
reasons therefor, or unable to comment and the reasons
therefor.
If the matters concerned fall under those which require
disclosure, the Company shall publicly disclose the opinions
of the independent directors. When the independent directors
cannot reach a consensus, the Company shall publicly
disclose the opinions of each of the independent directors.;
c. Article 33 of the Rules of Procedures for Board of Directors
shall be replaced by the following provision:
ARTICLE 33 The board of directors shall exercise the
following powers:
(1) Be responsible for the convening of the shareholders
general meeting and to report on its work
to the shareholders general meeting;
(2) Implement the resolutions of the shareholders general
meetings;
(3) DECIDE ON THE COMPANYS BUSINESS PLANS AND ANY
INVESTMENT PROJECT WHICH IS BELOW 50% OF THE COMPANYS
RECENTLY AUDITED NET ASSETS, INCLUDING ENTERING INTO
MAJOR CONTRACTS OF LOANS, TRUST, COMMISSION, DONATION,
CONTRACTING AND LEASE AGREEMENTS, AND INVESTMENT, ETC.;
(4) Decide on the following purchases or sales of assets:
(i) The aggregate amount or value of the consideration
for the proposed disposition, and the amount or
value of the consideration for any such
disposition of any fixed assets of the Company
that has been completed in the period of four (4)
months immediately preceding the proposed
disposition, exceed 33% of the value of the
Companys fixed assets as shown in the Companys
most recent audited account;
(ii) The total amount of the assets to be purchased or
sold according to the most recently audited
financial report, evaluation report or
verification report (including the debts and
expenses) is below 50% of the Companys most
recently audited net assets;
(iii) The absolute value of the net profit or loss of
the asset to be purchased (according to the
audited financial report of the pervious year) is
below 50% of the absolute value of the Companys
audited net profit or loss in the preceding year;
(iv) The absolute value of the net profit or loss of
the asset to be sold or the absolute value of the
profit or loss of the transaction is below 50% of
the absolute value of the listed Companys audited
net profit or loss in the preceding year;
(5) Undertake risk investments, the amount of which shall
be less than 10% of the Companys most recent audited
net assets (as shown in the Companys most recent
audited account). Investment in such undertaking show
follow stringent procedures of examination and decision
making. Major investment projects which exceed the
aforesaid amount shall be examined by relevant
specialists and then submitted to the shareholders
general meeting for approval.
The above risky investments are those which involve
areas the Company has never ventured into in the past,
and are outside the Companys scope of normal business,
or those which the board of directors considers as
highly risky and uncertain, including but not limited
to investment on shares, futures or foreign exchanges
transactions, etc.;
(6) Cancel less than 10% of the Companys most recently
audited net assets (as shown in the Companys most
recent audited account). When the assets to be
cancelled are more than 10% of the Companys net
assets, the board of directors should submit the
proposal to the shareholders general meetings for
approval;
(7) Formulate the Companys annual preliminary and
financial budgets;
(8) Formulate the Companys profit distribution plan and
plan for making up losses;
(9) DETERMINE MATTERS RELATING TO EXTERNAL SECURITY
(INCLUDING PLEDGING OF ASSETS) REPRESENTING LESS THAN
50% OF THE AUDITED NET ASSETS ACCORDING TO THE AUDITED
FINANCIAL REPORT OF THE PREVIOUS YEAR;
(10) Formulate proposals for increases or reductions in the
Companys registered capital and for issue of
debentures or other instruments of the Company;
(11) PREPARE PLANS FOR MAJOR ACQUISITION, REPURCHASE OF THE
COMPANYS SHARES OR MERGERS, DIVISION AND DISSOLUTION
OF THE COMPANY;
(12) Decide on the establishment of the Companys internal
management structure;
(13) Pursuant to the Chairmans nomination to appoint or
dismiss the Companys president, the secretary of the
board of directors and decide the remunerations
thereof, and pursuant to the president s nominations to
appoint or dismiss the vice-presidents, the financial
controller, the general economic officer, chief
engineer and the chief flying officer of the Company;
(14) Establish the Companys following basic management
system:
(i) asset management system and the supervision
system;
(ii) labor employment system, wages and compensation
system, welfare system, reward system and the
supplementary social security system;
(iii) financial accounting system;
(iv) other important systems that should he established
by the board of directors;
(15) Prepare proposals for any amendment to the Companys
articles of association;
(16) Manage the release of the Companys information;
(17) Propose to the shareholders general meeting the
engagement or replacement of the Companys accounting
firm;
(18) Hear the reports of the Companys president, and
examine the work of the president (if the president is
also a director, the president-director shall abstain
from exercising his rights as director when the board
examines his work as president);
(19) Formulate proposals on the remuneration and subsidies
of the directors;
(20) Formulate proposals on the rate of subsidies for the
independent directors;
(21) Exercise any other powers granted by laws, regulations
or the Companys articles of association or conferred
by the shareholders general meetings.
The board shall exercise its powers by holding board
meetings and passing resolutions for implementation.;
d. Article 35 of the Rules of Procedures for Board of Directors
shall be replaced by the following provision:
ARTICLE 35 THE BOARD OF DIRECTORS MAY SET UP STRATEGY,
NOMINATION, REMUNERATION AND EVALUATION, AND INDEPENDENT
BOARD COMMITTEES ACCORDING TO THE COMPANYS ACTUAL NEEDS.
MEMBERS OF THESE SPECIAL COMMITTEES SHALL ALL BE DIRECTORS,
AND IN THE AUDITING COMMITTEE, THE NOMINATION COMMITTEE, THE
REMUNERATION AND EVALUATION COMMITTEE, THE INDEPENDENT
DIRECTORS SHALL FORM THE MAJORITY AND SHALL BE RESPONSIBLE
FOR CONVENING THE COMMITTEE MEETINGS. IN THE AUDITING
COMMITTEE AT LEAST ONE INDEPENDENT DIRECTOR SHALL BE AN
ACCOUNTING PROFESSIONAL.
(1) The strategy committee shall primarily be responsible
for research and proposal with regard to the Companys
long term development and major investment decisions.
(2) The auditing committee shall primarily he responsible
for (i) proposing the engagement and replacement of the
external auditor; (ii) supervising the Companys
internal auditing system and implementation thereof:
(iii) liaison between internal and external auditors:
(iv) verifying and disclosing the Companys financial
information; (v) checking the internal control system
of the Company.
(3) The nomination committee shall primarily be responsible
for (i) formulating the standards and procedure for
selecting directors, managers, and making proposals in
connection therewith, (ii) search for competent
candidates of directors and managers; (iii) evaluating
the candidates of directors and managers and making
proposals in connection therewith.
(4) The remuneration and evaluation committee shall
primarily be responsible for (i) formulating the
standard for evaluation of directors and managers,
evaluating directors and managers and making proposals
in connection therewith; (ii) deliberating on and
reviewing the directors and senior administrative
officers remuneration policy and plan.
(5) THE INDEPENDENT BOARD COMMITTEE SHALL PRIMARILY BE
RESPONSIBLE FOR (i) EXAMINING CONNECTED TRANSACTIONS OF
THE COMPANY; (ii) EXAMINING THE COMPANYS CAPITAL USED
BY SHAREHOLDERS AND CAPITAL RECOVERY STATUS; (iii)
EXAMINING MATTERS ON PROVISION OF EXTERNAL SECURITY BY
THE COMPANY; (iv) EXAMINING WHETHER THE COMPANY HAS
IMPAIRED THE INTERESTS OF ITS MINORITY SHAREHOLDERS.;
e. Article 54 of the Rules of Procedures for Board of Directors
shall be replaced by the following provision:
ARTICLE 54 MEETINGS OF THE BOARD OF DIRECTORS SHALL BE HELD
FOUR TIMES EVERY YEAR, AND THESE MEETINGS SHALL BE HELD
WITHIN TWO DAYS BEFORE THE RELEASE OF THE COMPANYS ANNUAL
REPORT FOR THE PREVIOUS YEAR, THE RELEASE OF THE COMPANYS
INTERIM REPORT AND THE RELEASE OF THE COMPANYS QUARTERLY
REPORTS RESPECTIVELY TO DISCUSS AND EXAMINE THE RELEVANT
REPORTS.;
f. Article 62 of the Rules of Procedures for Board of
Directors shall be replaced by the following provision:
ARTICLE 62 The boards motions shall be submitted according
to the following procedures:
(1) Proposing the motions: According to the powers of the
board, a motion shall be put forward by the Chairman,
the supervisory committee, or the president. They may
also be put forward by a director or jointly by several
directors.
(2) Preparing the motions: The motions proposed by the
Chairman, the supervisory committee or by the president
may be prepared by themselves or be handed over by the
secretary to relevant department. The motion proposed
by one director or by several directors may be prepared
by the director or directors proposing such motions, or
be handed over by the secretary upon approval by the
Chairman to relevant department.
(3) Submission of motions: After the motions are prepared,
the secretary of the board of directors shall collect
comments and opinions among relevant persons. After
elaboration, evaluation, modification by relevant
parties and persons, a sufficiently sophisticated
resolution will be submitted to the board for
deliberation.
(4) CONNECTED TRANSACTIONS THE TOTAL CONSIDERATION OF WHICH
EXCEEDS THE RELEVANT PROVISIONS OF THE EXISTING LISTING
RULES AND OTHER SUPERVISORY REGULATIONS IN PLACES WHERE
THE COMPANY IS LISTED SHALL BE APPROVED AND SIGNED BY
THE INDEPENDENT DIRECTORS BEFORE SUBMISSION TO THE
BOARD OF DIRECTORS FOR DELIBERATION AS A PROPOSED
MOTION.;
g. Article 65 of the Rules of Procedures for Board of Directors
shall be replaced by the following provision:
ARTICLE 65 Directors participating in a board meeting vote
for or against the board resolutions by casting a written
and open ballot. Each of the resolutions shall be voted for
or against and each director shall have one vote. The
directors may either vote for or against a resolution and
usually they are not allowed to abstain. If a director
chooses to abstain, he must give reasons for such abstention
and such reasons shall be kept in record.
RESOLUTION TO BE MADE BY THE BOARD OF DIRECTORS SHALL BE
PASSED BY ONE HALF OR MORE OF ALL DIRECTORS PRESENT AT THE
MEETING EXCEPT THAT PROVISION 9 IN ARTICLE 33 SHALL BE
SUBJECT TO WRITTEN CONSENT BY TWO THIRDS OR MORE OF ALL
DIRECTORS PRESENT AT THE MEETING.;
h. Article 87 of the Rules of Procedures for Board of Directors
shall be replaced by the following provision:
ARTICLE 87 CONNECTED TRANSACTIONS THE TOTAL CONSIDERATION OF
WHICH EXCEEDS THE RELEVANT PROVISIONS OF THE EXISTING
LISTING RULES AND OTHER SUPERVISORY REGULATIONS IN PLACES
WHERE THE COMPANY IS LISTED SHALL BE DEALT WITH AS FOLLOWS:
(1) Proposal by the president;
(2) The president shall cause relevant departments to
collect materials for and prepare a draft plan;
(3) The president shall examine the plans to be submitted
to the board;
(4) The secretary of the board of directors shall make
arrangements for a meeting at which relevant
departments of the Company shall report to the
independent non-executive directors about the
transaction;
(5) The secretary of the hoard of directors shall collect
materials and make arrangements for a hoard meeting;
(6) Board discussion;
(7) BOARD RESOLUTION. THE SECRETARY OF THE BOARD OF
DIRECTORS SHALL MAKE A PUBLIC ANNOUNCEMENT REGARDING
THE RESOLUTION IN ACCORDANCE WITH THE RELEVANT
PROVISIONS OF EXISTING LISTING RULES AND OTHER
SUPERVISORY REGULATIONS IN PLACES WHERE THE COMPANY IS
LISTED;
(8) The secretary of the board of directors shall notify
relevant authorities,
i. Article 90 of the Rules of Procedures for Board of Directors
shall be followed with this new Article:
ARTICLE 91 MATTERS ON EXTERNAL SECURITY:
(1) TO BE PROPOSED BY LEGAL AUTHORIZED PERSON;
(2) THE SECRETARY OF THE BOARD OF DIRECTORS AND RELEVANT
DEPARTMENT OF THE COMPANY SHALL PREPARE MATERIALS;
(3) THE CHAIRMAN AND GENERAL MANAGER SHALL EXAMINE THE
MATERIALS;
(4) THE SECRETARY OF THE BOARD OF DIRECTORS SHALL COLLECT
MATERIALS AND MAKE ARRANGEMENTS FOR A BOARD MEETING;
(5) BOARD DISCUSSION;
(6) TO BE PASSED AS RESOLUTION OF THE BOARD OF DIRECTORS.
THE SECRETARY OF THE BOARD OF DIRECTORS SHALL MAKE A
DISCLOSURE TO THE PUBLIC IN ACCORDANCE WITH SUCH
RESOLUTION OR THE BOARD OF DIRECTORS SHALL PROPOSE SUCH
RESOLUTION TO THE SHAREHOLDERS GENERAL MEETING FOR
EXAMINATION IN ACCORDANCE WITH THE RELEVANT PROVISIONS
OF THE EXISTING LISTING RULES AND OTHER SUPERVISORY
REGULATIONS.;
j. The item numbers of articles of the Rules of Procedures for
Board of Directors are deferred subsequent to the original
Article 91. The original Article 99 shall be replaced by the
following provision:
ARTICLE 100 When persons, who are seconded by the Company to
act as directors of affiliated companies are called upon to
vote at a board meeting or a shareholders general meeting of
the affiliated Company on matters involving the above
provisions, especially Articles 84-88 and 90-95 hereunder.
The seconded director shall seek authorization from the
Companys board of director for the said matters:
(1) Report to the president by the director who is seconded
by the Company on the matter to he voted on;
(2) The president shall cause relevant departments of the
Company to prepare materials;
(3) The president shall examine the materials;
(4) The secretary of the board of directors shall collect
materials and make arrangements for a board meeting;
(5) Board discussion;
(6) Board resolution;
(7) The office of the secretary of the board of directors
shall notify the seconded director and the relevant
departments.;
k. No amendment is made subsequent to the Companys original
Article 100 of Procedures of Board Meeting except that the
item numbers of articles are deferred.
II. TO CONSIDER AND APPROVE THE FOLLOWING RESOLUTIONS AS SPECIAL
RESOLUTION
1. Proposals of the Board of Directors for amending the Articles of
Association of the Company as stated below be and is hereby
approved, and the Board of Directors is authorized to amend
appropriately the wordings of the following amendment proposals
and to deal with any other matters as required by any PRC
relevant auditing authorities and the listing rules of any stock
exchange in which the securities of the Company are listed:
a. Article 3 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 3 The Companys address: GUANGZHOU ECONOMIC AND
TECHNOLOGY DEVELOPMENT ZONE, GUANGZHOU, CHINA
Telephone: (020) 86123303
Facsimile: (020) 86644623;
b. Article 6 of the Articles & Association shall be replaced by
the following provision:
ARTICLE 6: THE COMPANY AMENDS THE COMPANYS ARTICLES OF
ASSOCIATION IN ACCORDANCE WITH THE COMPANY LAW, THE SPECIAL
REGULATIONS, MANDATORY PROVISIONS FOR THE ARTICLES OF
ASSOCIATION OF COMPANIES TO BE LISTED OUTSIDE CHINA (THE
MANDATORY PROVISIONS), MANDATORY PROVISIONS FOR THE ARTICLES
OF ASSOCIATION OF LISTED COMPANIES AND OTHER RELEVANT LAWS
AND ADMINISTRATIVE REGULATIONS.;
c. Article 12 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 12: FOR THE PURPOSE OF THESE ARTICLES OF
ASSOCIATION, OTHER SENIOR ADMINISTRATIVE OFFICERS OF THE
COMPANY REFER TO VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
BOARD SECRETARY, GENERAL ECONOMIST, CHIEF ENGINEER, CHIEF
PILOT, AND GENERAL LEGAL COUNSEL.;
d. Article 59 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 59 The shareholders general meeting shall exercise
the following functions and powers:
(1) to decide on the Companys operational policies and
investment plans;
(2) to elect and replace directors and decide on matters
relating to the remuneration of directors;
(3) to elect and replace the supervisors who are
representatives of shareholders and decide on matters
relating to the remuneration of supervisors;
(4) to examine and approve reports of the board of
directors;
(5) to examine and approve reports of the supervisory
committee;
(6) to examine and approve the Companys proposed annual
preliminary and final financial budgets;
(7) to examine and approve the Companys profit
distribution plans and plans for making up losses;
(8) to decide on increases or reductions in the Company
registered capital;
(9) to decide on matters such as merger, division,
dissolution and liquidation of the Company;
(10) to decide on the issue of debentures by the Company;
(11) TO DECIDE ON MATTERS RELATING TO EXTERNAL SECURITY
ACCORDING TO THE RELEVANT PROVISIONS OF THE ARTICLES OF
ASSOCIATION OF THE COMPANY;
(12) to decide on the appointment, dismissal and
disengagement of the accountants of the Company;
(13) to amend these articles of association;
(14) to consider motions raised by shareholders who
represent 5 percent or more of the total shares of the
Company carrying the right to vote;
(15) to decide on other matters which require resolutions of
the shareholders in general meeting according to
relevant laws, administrative regulations and
provisions of the these articles of association;
(16) to decide on matters which the board of directors may
be delegated or authorized to deal with by the
shareholders in general meeting.
When the shareholders general meeting decide on matters
which the board of directors may be delegated or authorized
to deal with, the shareholders general meeting shall
maintain the legitimate rights and interests of the Company
according to law and abide by laws and regulations strictly
in order to ensure the Companys principle of efficient
operation and scientific decision making. Matters delegated
or authorized to the board of directors to deal with include
(without limitation):
(1) to modify the language of these articles of association
after the shareholders general meeting passed the
resolution on the amendment of these articles of
association in principle;
(2) to distribute the interim profit;
(3) to decide on matters in connection with the issue of
new shares and equity convertible bonds;
(4) TO DEAL WITH, MORTGAGE AND SECURE THE FIXED ASSETS
UNDER THE CURRENT OPERATION POLICY AND INVESTMENT PLAN
PASSED BY THE SHAREHOLDERS GENERAL MEETING, EXCLUDING
DIRECT OR INDIRECT PROVISION OF SECURITY FOR THE
SECURED PARTY WITH A GEARING RATIO EXCEEDING 70%;
(5) other matters delegated or authorized by the
shareholders general meeting to the board of directors
to deal with at times in accordance with laws,
regulations and these articles of association.;
e. Article 75 of the Articles of Association will be replaced
by the following provision:
ARTICLE 75 Resolutions of shareholders general meetings
shall be divided into ordinary resolutions and special
resolutions.
To adopt an ordinary resolution, votes representing more
than one half of the voting rights represented by the
shareholders (including proxies) present at the meeting must
be exercised in favor of the resolution in order for it to
be passed.
To adopt a special resolution, votes representing more than
two thirds of the voting rights represented by the
shareholders (including proxies) present at the meeting must
be exercised in favor of the resolution in order for it to
be passed.
The shareholders (including proxies) present at the meeting
shall expressly state their agreement with or objection to
every matter to be determined by voting. If a shareholder
abstains from voting or casts an abstention vote, the
Company shall disregard such vote as a voting share when
counting the result of voting.
WHEN ANY SHAREHOLDERSS PROXY SHALL ABSTAIN FROM VOTING OR
BE LIMITED TO VOTE IN FAVOR OF OR AGAINST ANY DESIGNATED
RESOLUTION, ANY VOTES MADE BY SUCH PROXY IN CONTRAVENTION OF
THE AFORESAID REGULATION
OR LIMITATION SHOULD NOT BE COUNTED AS VOTES HAVING VOTING
RIGHTS.;
f. Article 77 of the Articles of Association will be replaced
by the following provision:
ARTICLE 77: THE FOLLOWING ISSUES SHALL BE APPROVED BY VOTE
ON A POLL UNDER THE SUPERVISOR S SUPERVISION AT SHAREHOLDERS
GENERAL MEETING:
(1) CONNECTED TRANSACTIONS;
(2) TRANSACTIONS THAT SHALL BE APPROVED BY INDEPENDENT
SHAREHOLDERS;
(3) OPTIONS GRANTED TO MAJOR SHAREHOLDERS OR INDEPENDENT
DIRECTORS OR ANY OTHER RELATED PARTIES;
(4) ANY OTHER TRANSACTIONS IN WHICH SHAREHOLDERS ARE
MATERIALLY INTERESTED AND ACCORDINGLY ARE REQUIRED TO
REFRAIN FROM VOTING AT SHAREHOLDERS GENERAL MEETING.
NOTWITHSTANDING THE ABOVE REGULATIONS, at any general
meeting of shareholders, a resolution shall be decided on a
show of hands unless a poll is (before or after any vote by
show of hands) demanded:
(1) by the chairman of the meeting;
(2) by at lease two shareholders entitled to vote present
in person or by proxy;
(3) by one or more shareholders present in person or by
proxy and representing 10 per cent or more of all
shares carry the rights to vote at the meeting.
Unless a poll be so demanded, a declaration by the chairman
that a resolution has on a show of hands been carried
unanimously, or carried by a particular majority, or lost,
and an entry to that effect in the minutes of the meeting
shall be conclusive evidence of the fact without proof of
the number or proportion of the votes recorded in favor of
or against such resolution.
The demand for a poll may be withdrawn by the person who
makes such demand.;
g. Article 81 of the Articles of Association will be replaced
by the following provision;
ARTICLE 81: The following matters shall be resolved by an
ordinary resolution at a shareholders general meeting:
(1) work reports of the board of directors and the
supervisory committee;
(2) plans formulated by the board of directors for
distribution of profits and for making up losses;
(3) removal of the members of the board of directors and
members of the supervisory committee, their
remuneration and method of payment;
(4) annual preliminary and final budgets, balance sheets
and profit and loss accounts and other financial
statements of the Company;
(5) ANNUAL REPORT OF THE COMPANY;
(6) matters other than those required by the laws and
administrative regulations or by these articles of
association to be adopted by special resolutions.;
h. Article 101 of the Articles of Association of will be
replaced by the following provision:
ARTICLE 101 DIRECTORS SHALL BE ELECTED AND REPLACED BY THE
SHAREHOLDERS GENERAL MEETING. THE TERM OF OFFICE OF THE
DIRECTORS IS THREE (3) YEARS, RENEWABLE BY RE-ELECTION UPON
EXPIRY.
DIRECTORS SHALL BE ELECTED BY THE SHAREHOLDERS GENERAL
MEETING FROM THE BOARD OF DIRECTORS OR CANDIDATES NOMINATED
BY SHAREHOLDERS REPRESENTING 5% (INCLUDING THE 5%) OR MORE
OF THE ISSUED SHARES. AT LEAST 7 DAYS NOTICE OF NOMINATION
OF A CANDIDATE FOR ELECTION AS A DIRECTOR AND PARTICULARS OF
SUCH CANDIDATE SHALL BE GIVEN TO THE COMPANY, AND SUCH 7
DAYS PERIOD SHALL START NO SOONER THAN THE FIRST DAY AFTER
THE DATE OF GIVING THE NOTICE AND END NO LATER THAN 7 DAYS
PRIOR TO THE DATE OF THE SUCH SHAREHOLDERS GENERAL MEETING.
THE CANDIDATES FOR ELECTION AS DIRECTORS SHALL GIVE AT LEAST
7 DAYS PRIOR WRITTEN CONFIRMATION TO THE COMPANY, AND SUCH 7
DAYS PERIOD SHALL START NO SOONER THAN THE DAY AFTER THE
DATE OF GIVING THE NOTICE AND END NO LATER THAN 7 DAYS PRIOR
TO THE DATE OF SUCH SHAREHOLDERS GENERAL MEETING. THE
WRITTEN CONFIRMATION SHALL INDICATE THE WILLINGNESS OF THE
CANDIDATE TO BE NOMINATED, AND CONFIRM THAT INFORMATION OF
THE CANDIDATE PUBLICLY DISCLOSED ARE TRUE AND COMPLETE, THAT
THE CANDIDATE WILL FAITHFULLY DISCHARGE ITS DUTIES AS A
DIRECTOR IF HE IS ELECTED.
WHERE SHAREHOLDERS SEVERALLY OR JOINTLY HOLDING 5% OR MORE
OF THE VOTING RIGHTS OR THE SUPERVISORY COMMITTEE OF THE
COMPANY PROPOSE ANY SPECIAL RESOLUTIONS FOR ELECTION OF
NON-INDEPENDENT DIRECTORS AT THE COMPANYS ANNUAL GENERAL
MEETING, WRITTEN NOTICE OF THE INTENTION TO PROPOSE A
CANDIDATE FOR ELECTION AS A DIRECTOR, NOTICE BY SUCH
CANDIDATE OF HIS WILLINGNESS TO BE ELECTED AND DETAILS AND
CONFIRMATION OF THE CANDIDATE SHALL BE GIVEN TO THE COMPANY
NOT MORE THAN 7 DAYS PRIOR TO THE DATE OF THE MEETING
APPOINTED FOR SUCH ELECTION. THE 7 DAYS PERIOD SHALL START
NO SOONER THAN THE FIRST DAY AFTER THE DATE OF GIVING THE
NOTICE AND END NO LATER THAN 7 DAYS PRIOR TO THE DATE OF
SUCH SHAREHOLDERS GENERAL MEETING.
The Chairman and the Vice-chairman shall be elected and
removed by more than one half of all the members of the
board of directors. The term of office of each of the
Chairman and the Vice-chairman is three (3) years, renewable
upon re-election.
The shareholders general meeting may be ordinary resolution
remove any director before the expiration of his term of
office (but without prejudice to such directors right to
claim damages based on any contract) on the condition that
all the relevant laws and administrative regulations are
fully complied with.
The Directors shall not be required to hold shares of the
Company.;
i. Article 102 of the Articles of Association will be replaced
by the following provision;
ARTICLE 102: The board of directors is responsible to the
shareholders general meeting and exercises the following
powers:
(1) to be responsible for the convening of the shareholders
general meeting and to report on its work to the
shareholders general meeting;
(2) to implement the resolutions of the shareholders
general meetings;
(3) to decide on the Companys business plans and
investment plans;
(4) to formulate the Companys annual preliminary and
financial budgets;
(5) to formulate the Companys profit distribution plan and
plan for making up losses;
(6) to formulate proposals for increases or reductions in
the Companys registered capital and the issue of
debentures of the Company;
(7) to draw up plans for the merger, division or
dissolution of the Company;
(8) TO DECIDE ON MATTERS RELATING TO THE COMPANYS EXTERNAL
SECURITY (INCLUDING ASSETS PLEDGE) ACCORDING TO
AUTHORIZATION OF SHAREHOLDERS GENERAL MEETINGS;
(9) TO DECIDE ON THE COMPANYS ACQUISITION AND SALES OF
ASSETS AND RISK INVESTMENTS;
(10) to decide on the establishment of the Companys
internal management structure;
(11) to appoint of dismiss the Companys president, and
pursuant to the presidents nominations to appoint or
dismiss the vice president, the financial controller
and other senior administrative officers of the Company
and decide on their remuneration;
(12) to establish the Companys basic management system;
(13) to formulate proposals for any amendments of the
Companys articles of association;
(14) to exercise any other powers conferred by these
articles of association or the shareholders general
meetings.
Except the board of directors resolutions in respect of the
matters specified in sub-paragraphs (6), (7), (8) and (13)
of this Article which shall be passed by more than
two-thirds of all the directors, the board of directors
resolutions in respect of all other matters may be passed by
more than one half of all the directors.;
j. Article 106 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 106: MEETINGS OF THE BOARD OF DIRECTORS SHALL BE
HELD AT LEAST TWICE EVERY YEAR AND BE CONVENED BY THE
CHAIRMAN OF THE BOARD OF DIRECTORS BY SERVING NOTICE OF EACH
BOARD MEETING ON ALL OF THE DIRECTORS BY TELEX, TELEGRAM,
FACSIMILE, EXPRESS DELIVERY, REGISTERED MAIL OR PERSONAL
DELIVERY TEN DAYS BEFORE THE DATE OF THE PROPOSED MEETING.
AN EXTRAORDINARY MEETING OF THE BOARD OF DIRECTORS MAY BE
HELD UPON REQUISITION BY EITHER THE CHAIRMAN, ONE THIRD OR
MORE OF THE DIRECTORS (INCLUDING THE ONE THIRD), THE
SUPERVISORY COMMITTEE OR THE PRESIDENT OF THE COMPANY.
The board meetings shall be held in principle at the place
where the Company is located. It may be held at
other places both at home and abroad upon resolution by the
board of directors.;
k. Article 108 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 108: Meeting of the board of directors shall be held
only if more than half of the directors are present.
Each director shall have one vote. A resolution of the board
of directors must be passed by more than half of all the
directors.
Where the number of votes cast for and against a resolution
is equal, the Chairman of the board of the directors shall
have a casting vote.
Where a directors (or its associate) is interested in any
resolution proposed at a board meeting, such director shall
not be present and shall not have a right to vote. Such
director shall not be counted in the quorum of the relevant
meeting.;
l. Article 121 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 121 Rights and Obligations of Independent Directors:
(1) To facilitate the independent directors in performing
their function more efficiently, the independent
directors shall have the following special powers, in
addition to having those powers granted by the Company
Law and other relevant laws and regulations to
directors:
(i) APPROVE CONNECTED TRANSACTIONS THE AGGREGATE
CONSIDERATION OF WHICH IS IN COMPLIANCE WITH THE
RELEVANT PROVISIONS OF THE EXISTING LISTING RULES
AND OTHER SUPERVISORY REGULATION IN PLACES WHERE
THE COMPANY IS LISTED;
(ii) propose to the board of directors with respect to
engaging or disengaging accounting firms;
(iii) propose to the board of directors with respect to
the convening of extraordinary shareholders
meetings;
(iv) propose the convening of board meetings;
(v) engage external auditing firms or consultancy
firms;
(vi) publicly solicit and collect proxies before the
convening of the shareholders general meetings.
(2) The independent director shall obtain the consent of
over half of the independent directors in exercising
any of the above powers.
(3) If any of the above proposal has not been adopted or if
any the above powers cannot be exercised, the Company
shall disclose the relevant information.
(4) Apart from the powers of an ordinary director and the
special powers of an independent director, an
independent director shall comply with all the
obligations of a director set forth in these articles
of association.;
m. Article 122 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 122 The independent directors shall provide their
opinions on all the important matters of the Company.
(1) In addition to the above obligation, the independent
directors shall provide their independent opinions to
the board of directors or the shareholders general
meeting on the following matters:
(i) nomination, appointment and removal of directors;
(ii) appointment and dismissal of senior administrative
officers;
(iii) remuneration of directors and senior
administrative officers;
(iv) NEWLY OCCURRED TRANSACTIONS, LOANS AND OTHER FORMS
OF FUND TRANSFER BETWEEN THE COMPANY AND ITS
SHAREHOLDERS, ACTUAL CONTROLLERS OR THEIR
AFFILIATES, THE AGGREGATE AMOUNT OF WHICH IS IN
COMPLIANCE WITH THE RELEVANT PROVISIONS OF THE
EXISTING LISTING RULES AND OTHER SUPERVISORY
REGULATIONS IN PLACES WHERE THE COMPANY IS LISTED,
AND WHETHER THE COMPANY HAS TAKEN EFFECTIVE
MEASURES TO COLLECT THE AMOUNTS DUE;
(v) matters which may harm the interests of the
minority shareholders;
(VI) MATTERS RELATING TO SECURITY PROVIDED TO EXTERNAL
PARTIES BY THE COMPANY;
(vii) other matters provided for in these articles of
association.
(2) The independent directors shall choose to provide any
of the following opinions in respect of the above
matters:
(i) agree;
(ii) reserve opinion and the reasons therefor;
(iii) dissent and the reasons therefor;
(iv) unable to comment and the reasons therefor.
(3) If the matters concerned fall under those which require
disclosure, the company shall publicly disclose the
opinions of the independent directors. If the
independent directors cannot reach a consensus, the
Company shall publicly disclose the opinions of each of
the independent directors.;
n. Article 124 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 124 The Company may set up several special
committees according to the resolutions of shareholders
general meeting (INCLUDING STRATEGY, AUDIT, NOMINATION,
REMUNERATION AND EVALUATION, AND INDEPENDENT BOARD
COMMITTEES). Members of these special committees shall all
be directors, and in the audit committee, the remuneration
committee and the evaluation committee, the independent
directors shall form the majority and shall be responsible
for convening the committee meetings. In the auditing
committee at least one independent director shall be an
accounting professional.;
o. Article 171 of the Articles of Association shall be replaced
by the following provision:
ARTICLE 171 THE COMPANY SHALL PUBLISH ITS QUARTERLY
FINANCIAL REPORT, INTERIM FINANCIAL REPORT AND ANNUAL
FINANCIAL REPORT EVERY FISCAL YEAR. THE QUARTERLY REPORTS
SHALL BE PREPARED WITHIN THIRTY (30) DAYS AFTER THE FIRST
QUARTER AND THE THIRD QUARTER, RESPECTIVELY. THE INTERIM
REPORT SHALL BE PUBLISHED WITHIN SIXTY (60) DAYS AFTER THE
FIRST SIX MONTHS OF THE FISCAL YEAR AND THE ANNUAL REPORT
SHALL BE PUBLISHED WITHIN ONE HUNDRED AND TWENTY (120) DAYS
AFTER THE EXPIRATION OF THE FISCAL YEAR;
p. Chapter 18 of the Articles of Association shall be replaced
by the following provision (new addition):
CHAPTER 18 CAPITAL FLOW BETWEEN THE COMPANY AND ITS RELATED
PARTY AND EXTERNAL SECURITY PROVIDED BY THE COMPANY
ARTICLE 190 FUND TRANSACTIONS BETWEEN THE COMPANY AND
CONTROLLING SHAREHOLDERS AND OTHER CONNECTED PARTIES SHALL
BE SUBJECT TO THE FOLLOWING REGULATIONS:
(1) USE OF FUNDS OF THE COMPANY SHALL BE STRICTLY LIMITED
DURING TRANSACTION OF OPERATING FUNDS BETWEEN THE
COMPANY AND CONTROLLING SHAREHOLDERS AND OTHER
CONNECTED PARTIES. CONTROLLING SHAREHOLDERS AND OTHER
CONNECTED PARTIES SHALL NOT REQUEST THE COMPANY TO PAY
FOR THEIR SALARIES, BENEFITS, INSURANCE AND
ADVERTISEMENT DURING THE PERIOD, NOR SHALL THE PARTIES
UNDERTAKE ANY COST OR OTHER OUTGOINGS FOR EACH OTHER.
(2) THE COMPANY SHALL NOT DIRECTLY OR INDIRECTLY PROVIDE
FUNDS FOR USE BY CONTROLLING SHAREHOLDERS OR OTHER
CONNECTED PARTIES BY:
(i) LENDING THE COMPANYS FUNDS WITH OR WITHOUT
CONSIDERATION FOR USE BY CONTROLLING SHAREHOLDERS
OR OTHER CONNECTED PARTIES;
(ii) ASSIGNMENT OF LOANS FOR CONNECTED PARTIES THROUGH
BANKS OR NON-BANKING FINANCIAL BODIES;
(iii) ENTRUSTING CONTROLLING SHAREHOLDERS OR OTHER
CONNECTED PARTIES TO CARRY OUT INVESTMENTS;
(iv) ISSUANCE OF COMMERCIAL ACCEPTANCE NOTES WITHOUT
REAL TRANSACTIONS BACKGROUND FOR CONTROLLING
SHAREHOLDERS OR OTHER CONNECTED PARTIES;
(v) REPAYING DEBTS FOR CONTROLLING SHAREHOLDERS OR
OTHER CONNECTED PARTIES;
(vi) OTHER MEANS AS REQUIRED BY CSRC.
(3) DURING AUDITING WORK FOR THE COMPANY S ANNUAL FINANCIAL
REPORTS, THE CERTIFIED PUBLIC
ACCOUNTANTS SHALL, BASED ON THE AFORESAID REGULATIONS,
PRESENT THEIR SPECIFIC EXPLANATION ON PARTICULARS OF
THE USAGE OF FUND OF THE COMPANY BY CONTROLLING
SHAREHOLDERS OR OTHER CONNECTED PARTIES, WHILE THE
COMPANY SHALL ACCORDINGLY PUBLISH THE SPECIFIC
EXPLANATION.
ARTICLE 191 ALL DIRECTORS OF THE COMPANY SHALL PERFORM DUE
DILIGENCE ON AND STRICTLY CONTROL LIABILITY RISKS INCURRED
AS A RESULT OF EXTERNAL SECURITY, AND SHALL BY LAW ACCEPT
RELATED LIABILITY FOR LOSS ARISING FROM CONTRAVENING OR
IMPROPER EXTERNAL SECURITY.
ARTICLE 192 THE COMPANY SHALL PROVIDE EXTERNAL SECURITY
(INCLUDING ASSETS PLEDGE) BASED ON THE PRINCIPLES OF
FAIRNESS, WILLINGNESS, FIDUCIARY AND MUTUAL BENEFITS, AND
SHALL OBSERVE THE FOLLOWING REGULATIONS:
(1) THE COMPANY SHALL NOT, WITH ITS OWN ASSETS, PROVIDE
SECURITY TO ITS SHAREHOLDERS, PRINCIPAL SUBSIDIARIES
AND SUBSIDIARIES OF SHAREHOLDERS, AND OTHER CONNECTED
PARTIES, ANY NON-LEGAL ENTITIES OR INDIVIDUALS IN WHICH
THE COMPANY HOLDS LESS THAN 50% SHARES;
(2) TOTAL AMOUNT OF THE COMPANYS EXTERNAL SECURITY SHALL
NOT EXCEED 50% OF NET ASSETS AS SHOWN IN ITS LATEST
CONSOLIDATED FINANCIAL STATEMENT;
(3) PROCEDURES FOR APPROVAL OF EXTERNAL SECURITY:
(i) AS REQUIRED BY THE PRC LAWS AND REGULATIONS AND
THE LISTING RULES OF STOCK EXCHANGE IN THE PLACE
WHERE THE COMPANYS SHARES LISTED, THE COMPANY
EXTERNAL SECURITY SHALL BE SUBJECT TO WRITTEN
CONSENT BY TWO THIRDS OF ALL MEMBERS OF THE BOARD
OF DIRECTORS OR APPROVAL FROM SHAREHOLDERS GENERAL
MEETINGS. SCOPE OF AUTHORITY OF THE BOARD OF
DIRECTORS IS PROVIDED IN THE COMPANY S RULES OF
PROCEDURES FOR BOARD OF DIRECTORS;
(ii) PRIOR TO DECISION ON PROVISION OF SECURITY TO
EXTERNAL PARITIES, THE BOARD OF DIRECTORS OF THE
COMPANY SHALL BE WELL INFORMED OF PARTICULARS OF
THE DEBTORS, AND COMPLETELY ANALYSE AND FULLY
DISCLOSE IN RELEVANT ANNOUNCEMENTS THE BENEFITS
AND RISKS FROM SUCH SECURITY;
(iii) WHEN A RESOLUTION IN RELATION TO EXTERNAL SECURITY
IS TO BE PASSED AT THE SHAREHOLDERS GENERAL
MEETING OR BY THE BOARD OF DIRECTORS, ANY
SHAREHOLDERS OR DIRECTORS THAT HAVE A CONFLICT OF
INTERESTS WITH SUCH SECURITY SHALL ABSTAIN FROM
VOTING.
(4) THE COMPANY SHALL NOT DIRECTLY OR INDIRECTLY PROVIDE
LOAN SECURITY FOR SECURED SUBJECTS WITH A GEARING RATIO
EXCEEDING 70%;
(5) WHERE THE COMPANY PROVIDES SECURITY TO ANY EXTERNAL
PARTIES, ANTI-SECURITY SHALL BE SOUGHT FROM THE SECURED
PARTY WHO IN TURN SHALL BE ABLE TO UNDERTAKE THE
ANTI-SECURITY;
(6) THE COMPANY SHALL DULY PERFORM ITS DUTY TO STRICTLY
DISCLOSE INFORMATION ON EXTERNAL SECURITY ACCORDING TO
THE RELEVANT PROVISIONS OF LISTING RULES AND ARTICLES
OF ASSOCIATION, AND SHALL TRUTHFULLY PROVIDE ALL
INFORMATION RELATING TO EXTERNAL SECURITY OF THE
COMPANY TO THE CERTIFIED PUBLIC ACCOUNTANTS;
(7) THE COMPANYS INDEPENDENT DIRECTORS SHALL IN THE ANNUAL
REPORT PRESENT SPECIFIC EXPLANATION AND INDEPENDENT
OPINIONS ON THE COMPANYS ACCUMULATED AND CURRENT
EXTERNAL SECURITY AND IMPLEMENTATION OF REGULATIONS AS
REFERRED ABOVE;
q. Wordings in sections subsequent to Chapter 18 D Insurance
(inclusive of Chapter 18) of the original Articles of
Association are kept the same except that item numbers of
articles are deferred.
By order of the Board
SU LIANG
Company Secretary
Guangzhou, the PRC. April 23, 2004
As at the date of this Notice, the Directors of the Company include Yan Zhi
Qing, Liu Ming Qi, Wang Chang Shun, Peng An Fa, Wang Quan Hua, Zhao Liu An, Zhou
Yong Qian, Zhou Yong Jin, Xu Jie Bo and Wu Rong Nan as executive Directors; and
Simon To, Peter Lok, Wei Ming Hai, Wang Zhi and Sui Guang Jun as independent
non-executive Directors.
Note:
I. Shareholders eligible for attending the general meeting:
1. Holders of H shares of the Company who are registered with Hong Kong
Registrars Limited, the registrar of H shares of the Company, at or
before the close of business on Monday, 17 May 2004 are entitled to
attend the Annual General Meeting (AGM) after duly completion of the
required registration procedures in
accordance with Section 4 of Registration Procedures for Attending
General Meeting . Holders of A shares of the Company shall receive a
notice separately.
II. Registration procedures for attending a general meeting:
1. Registered shareholders who intend to attend the AGM either in person
or by proxy must deliver to the Company, on or before 27 May 2004,
either in person, by post or by fax, the reply slip for attending the
AGM.
2. Registered shareholders of H shares of the Company who intend to
attend the Annual General Meeting and who are entitled to the final
dividend must deliver their instruments of transfer together with the
relevant share certificates to Hong Kong Registrars Limited, the
registrar of H shares of the Company, before 4:00 p.m. on 17 May 2004.
3. The register of H shares of the Company will be closed from 18 May
2004 to 16 May 2004 (both days inclusive), during which period no
transfer of H shares will be registered.
4. When attending the AGM, a shareholder or his proxy shall produce proof
of identity. If a corporate shareholder appoints its legal
representative to attend the meeting, such legal representative shall
produce proof of his own identity, together with a notarized copy of
the resolution or power of attorney issued by the Board of Directors
or other governing body to appoint such legal representative to attend
the meeting.
III. Proxies:
1. A registered shareholder has the right to appoint one or more proxies
to attend the AGM and vote on his behalf by completing a form of
proxy. A proxy need not be a shareholder of the Company.
2. A proxy must be appointed by a shareholder or his attorney by way of a
form of proxy. If the proxy is appointed by the shareholder s
attorney, the power of attorney or other authorization document
authorizing such attorney to appoint the proxy must be notarized.
3. To be valid, the duly completed proxy form(s), together with the
notarized power of attorney or other authorization document (if any),
must be lodged with Hong Kong Registrars Limited 24 hours before the
time designated for the holding of the AGM.
IV. Miscellaneous:
1. The AGM is expected to last not more than one day. Shareholders who
attend shall bear their own traveling and accommodation expenses.
2. The address of Hong Kong Registrars Limited is:
Room 1901-5, 19th Floor
Hopewell Centre
183 Queens Road East
Hong Kong
3. The registered address of the Company is:
Baiyun International Airport
Guangzhou 510405
PRC
Telephone No.: (+86) 20-8612 4737
Facsimile No.: (+86) 20-8665 9040
Website: www.cs-air.com
Contact persons: Su Liang and Lei Bin
V. Brief biography of nominated supervisors:
MR. SUN XIAO YI is a member of Party Committee and head of Discipline
Supervision Team of China Southern Air Holding Company. He became an
employee of the Company in March 1995 since the establishment of the
Company. Born in 1954, Mr. Sun is a senior expert of Political Science and
Economics with an associate degree. Mr. Sun has successively served as Vice
Party Secretary of the Hubei branch of the Company, Party Secretary of the
Flight Operations Department of the Company, and Vice Party Secretary of
China Southern Air Holding Company.
MR. YANG GUANG HUA is the Vice Party Secretary and Discipline Supervision
Secretary of the Company. He became an employee of the Company in March
1995 since the establishment of the Company. Born in 1953, Mr. Yang is an
engineer with university qualification. Mr. Yang has successively served as
deputy general manager of the Hunan branch of the Company, general manager
of Southern Airlines (Group) Zhuhai Helicopters Company Limited, general
manager of the Hunan branch of the Company, and deputy general manager of
the Company.
MS. YANG YI HUA is the general manager of the Audit Department of the
Company. She became an employee of the Company in March 1995 since the
establishment of the Company. Born in 1960, Ms. Yang is an accountant. She
has successively served as deputy manager of the Clearance and Settlement
Office of the Financial Division of the Guangzhou Civil Aviation
Administration, manager of the Financial Office of the Companys Financial
Division, and deputy general manager of the Companys Audit Department.
None of the three candidates above has any interests or short positions in
the shares, underlying shares or debentures of the Company or its
associated corporations (within the meaning of Part XV of the Securities
and Futures Ordinance) which is notifiable to the Company and the Hong Kong
Stock Exchange pursuant to the Securities and Futures Ordinance (including
interests or short positions which are taken or deemed to have under such
provisions of the Securities and Futures Ordinance) or required to be
recorded in the register maintained by the Company pursuant to Section 352
of the Securities and Futures Ordinance or which is notifiable to the
Company and the Hong Kong Stock Exchange pursuant to the Model Code for
Securities Transactions by Directors of the Listed Companies in Schedule 10
of the Listing Rules. Further, save as disclosed, none of the three
candidates above is connected with any directors, senior management,
substantial shareholders or controlling shareholders of the Company.
(a joint stock limited company incorporated in the Peoples Republic of China
with limited liability)
(STOCK CODE: 1055)
--------------------------------------------------------------------------------
ATTACHMENT A
REPLY SLIP
TO: CHINA SOUTHERN AIRLINES COMPANY LIMITED
I/we intend to attend (in person/by proxy)(1) the AGM of the Company to be held
on 16 June, 2004.
Name(2)
--------------------------------------------------------------------------------
Number of ordinary shares
registered in my name(3)
--------------------------------------------------------------------------------
Identity card/passport number(1,4)
--------------------------------------------------------------------------------
Share account number
--------------------------------------------------------------------------------
Mailing address
--------------------------------------------------------------------------------
Telephone number
Signature(5): Date: 2004
Notes:
1. Please delete the option which is not applicable.
2. Please insert your full name in both English and Chinese in block capital
letters.
3. Please attach a photocopy of proof of ownership of your shares.
4. Please attach a photocopy of your identity card/passport.
5. This reply slip must be signed by the registered shareholder. If the
registered shareholder is a company or an organization, then this reply
slip must be sealed with the common seal of such company or organization or
under hand by any directors or agents duly appointed by such company or
organization.
(a joint stock limited company incorporated in the Peoples Republic of China
with limited liability)
(STOCK CODE: 1055)
--------------------------------------------------------------------------------
ATTACHMENT B
The number of H Shares to which this
proxy form relates(1)
FORM OF PROXY FOR ANNUAL GENERAL MEETING
I/We(2),, holder of share account number,
residing at,
being the registered holder of(3) ordinary shares of the Company, HEREBY
APPOINT(4) , residing at
,
as my/our proxy/proxies to attend on my/our behalf the AGM of the Company to be
held at the headquarters of China Southern Airlines Company Limited, No. 278 Ji
Chang Road, Guangzhou, Guangdong Province, the PRC at 9:00 a.m., on 16 June,
2004 and to act and vote on my/our behalf at the AGM in respect of the
resolutions listed below, in accordance with my/our instructions below(5).
I. ORDINARY RESOLUTIONS FOR AGAINST
--------------------------------------------------------------------------------
1. To approve the Report of the Directors of the Company
for the year 2003;
--------------------------------------------------------------------------------
2. To approve the Report of the Supervisory Committee of
the Company for the year 2003;
--------------------------------------------------------------------------------
3. To approve the audited consolidated financial
statements of the Company for the year 2003;
--------------------------------------------------------------------------------
4. To approve the profit distribution budget of the
Company for the year 2003;
--------------------------------------------------------------------------------
5. To approve the appointment of KPMG as the international
auditors for the year 2004 and KPMG Huazhen as the PRC
auditors of the Company for the year 2004 and authorize
the Board to determine their remuneration;
--------------------------------------------------------------------------------
6. To elect members of the fourth Board of Directors, with
Yan Zhi Qing, Liu Ming Qi, Wang Chang Shun, Peng An Fa,
Wang Quan Hua, Zhao Liu An, Zhou Yong Qian, Zhou Yong
Jin, Xu Jie Bo and Wu Rong Nan as executive Directors
and Simon To, Peter Lok, Wei Ming Hai, Wang Zhi and Sui
Guang Jun as independent non-executive Directors, and
authorize the Board of Directors to determine their
remuneration (the details of the relevant candidates
are disclosed in the 2003 Annual Report of the
Company);
--------------------------------------------------------------------------------
7. To elect members of the fourth Supervisory Committee
with Sun Xiao Yi, Yang Guang Hua and Yang Yi Hua as
Supervisors and authorize the Supervisory Committee to
determine their remuneration, and consider and approve
the resignation of Liang Hua Fu, Gan Yu Hua and Li Qi
Hong as members of the Supervisory Committee (the
details of the relevant candidates are disclosed in the
Notice of 2003 Annual General Meeting of the Company);
--------------------------------------------------------------------------------
8. To approve the resolution on the proposed amendments to
the Rules of Procedures for Shareholders General
Meetings of the Company as set out in section I, no.8
(a) to (c) of the Notice of 2003 Annual General Meeting
of the Company;
--------------------------------------------------------------------------------
9. To approve the resolution on the proposed amendments to
the Rules of Procedures for Board of Directors of the
Company as set out in section I, no.9 (a) to (k) of the
Notice of 2003 Annual General Meeting of the Company;
--------------------------------------------------------------------------------
II. SPECIAL RESOLUTIONS
--------------------------------------------------------------------------------
1. To approve the resolution on the proposed amendments to
the Articles of Association of the Company as set out
in section II, no.1 (a) to (q) of the Notice of 2003
Annual General Meeting of the Company.
Signature(5): Date: 2004
Notes:
1. Please insert the number of shares in the Company registered in your name(s)
and to which this proxy form relates. If no such number is inserted, this
form of proxy will be deemed to relate to all the shares in the Company
registered in your name(s).
2. Please insert the name(s) and address(es) (as shown in the register of
members) in block capital(s).
3. Please insert the number of all the Shares in the Company registered in your
name(s).
4. If no person is appointed as proxy, the Chairman of the AGM will be deemed
to have been appointed by you as your proxy.
5. If you wish to vote for any of the resolutions, please insert a [X] in the
box marked FOR or if you wish to vote against any of the resolutions,
please insert a [X] in the box marked AGAINST if no indication is given,
then your proxy/proxies may vote in such manner as he/she/they think(s)
fit.
6. This form of proxy must be signed by you or your attorney duly authorised in
writing or, in the case of a company or an organization, either under the
common seal or under the hand of any director or attorney duly authorised in
writing. In any event, the execution shall be made in accordance with the
articles of association of such company or organization.
7. To be valid, this proxy form and, if such proxy form is signed by a person
under a power of attorney or authority on behalf of the appointer, a
notarised copy of that power of attorney or other authority, must be
delivered to Hong Kong Registrars Limited at Room 1901-5, 19th Floor,
Hopewell Centre, 183 Queens Road East, Hong Kong in not less than 24 hours
before the time appointed for the holding of the AGM.
8. A proxy, on behalf of the Shareholder, attending AGM shall bring along the
proxy form duly completed and signed as well as the proof of identification
of the proxy, in the case of a company or an organization, the proxy shall
also bring along a notarised copy of the resolution of the board of
directors or other governing body of the appointer or a letter of
authorization.
9. This proxy form shall be completed in form of a set of two copies, one of
which shall be lodged to the Company pursuant to Note 7; and the other copy
shall be produced upon the AGM by the proxy of the Shareholder pursuant to
Note 8.
10. Completion and return of the form of proxy will not preclude you from
attending and voting in person at the AGM or any adjourned AGM should you so
wish.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHINA SOUTHERN AIRLINES COMPANY LIMITED
By /s/ Su Liang
------------------------------------
Name: Su Liang
Title: Company Secretary
Date: April 30, 2004