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 August, 2003
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 August 29, 2003
published in local newspapers in Hong Kong an announcement in Chinese and
English, respectively, concerning the resolutions passed at the Company's board
meeting held on August 28, 2003. A copy of the English announcement is included
in this Form 6-K of the Company.
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(CHINESE CHARACTERS)
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
The Board of Directors of China Southern Airlines Company Limited (the
"Company") hereby announces the unaudited consolidated interim results of the
Company and its subsidiaries (collectively, the "Group") for the six months
ended 30 June, 2003, together with the comparative figures for the corresponding
period of 2002 as follows:
FINANCIAL RESULTS
A. PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
("IFRS")
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE, 2003 VS 2002
------------------------------------------------ INCREASE/
2003 2002 2003 2003 (DECREASE)
---------- --------- ---------- --------- ------------
Note RMB'000 RMB'000 HK$'000 US$'000 %
Operating revenue
Traffic revenue:
Passenger 5,615,796 7,618,775 5,294,924 678,450 (26.3)
Cargo and mail 921,883 725,684 869,209 111,373 27.0
6,537,679 8,344,459 6,164,133 789,823 (21.7)
Other revenue 195,193 213,958 184,040 23,582 (8.8)
Total operating revenue 2 6,732,872 8,558,417 6,348,173 813,405 (21.3)
Operating expenses:
Flight operations 3,516,885 3,422,641 3,315,939 424,878 2.8
Maintenance 1,218,488 1,015,131 1,148,867 147,207 20.0
Aircraft and traffic servicing 1,197,273 1,202,009 1,128,864 144,644 (0.4)
Promotion and sales 673,965 731,128 635,456 81,422 (7.8)
General and administrative 480,598 431,042 453,138 58,061 11.5
Depreciation and amortisation 1,016,530 926,274 958,448 122,808 9.7
Other 3,465 4,260 3,267 419 (18.7)
Total operating expenses 8,107,204 7,732,485 7,643,979 979,439 4.8
Operating (loss)/profit (1,374,332) 825,932 (1,295,806) (166,034) (266.4)
Non-operating income/(expenses):
Share of associated
companies' results 2,825 19,047 2,664 341 (85.2)
Share of jointly controlled
entities' results (21,654) - (20,417) (2,616) n/a
Loss on sale
of fixed assets (22,679) (7,102) (21,383) (2,740) 219.3
Interest income 5,842 26,196 5,508 706 (77.7)
Interest expense 3 (455,456) (414,273) (429,432) (55,024) 9.9
Exchange loss, net (4,774) (158,644) (4,501) (577) (97.0)
Other, net (287) 1,505 (272) (34) (119.1)
Total net non-operating
expenses (496,183) (533,271) (467,833) (59,944) (7.0)
(Loss)/profit before taxation
and minority interests 3 (1,870,515) 292,661 (1,763,639) (225,978) (739.1)
Taxation 4 544,992 (98,767) 513,853 65,841 (651.8)
(Loss)/profit before minority
interests (1,325,523) 193,894 (1,249,786) (160,137) (783.6)
Minority interests 93,910 (70,665) 88,544 11,345 (232.9)
(Loss)/profit attributable to
shareholders (1,231,613) 123,229 (1,161,242) (148,792) (1,099.5)
Basic (loss)/earnings per share 5 RMB(0.37) RMB0.04 HK$(0.34) US$(0.044) (1,099.5)
Notes:
1 BASIS OF PREPARATION
The unaudited interim financial report has been prepared in accordance with
the requirements of the Main Board Listing Rules of The Stock Exchange of
Hong Kong Limited. The accounting policies have been consistently applied
by the Group and are consistent with those adopted in the 2002 annual
financial statements which are prepared in accordance with IFRS.
2 TURNOVER
The Group is principally engaged in the provision of domestic, Hong Kong
regional and international passenger, cargo and mail airline services, with
flights operating primarily from the Guangzhou Baiyun International Airport
in the People's Republic of China ("PRC"), which is both the main hub of
the Group's route network and the location of its corporate headquarters.
Turnover comprises revenues from airline and airline-related businesses and
is stated net of sales tax and contributions to the Civil Aviation
Administration of China ("CAAC") Infrastructure Development Fund. The
contributions to the CAAC Infrastructure Development Fund for the period
are payable at 5% and 2%, respectively (2002: 5% and 2%, respectively) of
the Group's domestic and international/Hong Kong regional traffic revenue,
except for the period from 1 May, 2003 to 30 September, 2003 during which
the Group is exempted from contributions to the CAAC Infrastructure
Development Fund. The sales tax is payable at 3% (2002: 3%) of the Group's
traffic revenue in respect of domestic flights and international/Hong Kong
regional outbound flights, except for the period from 1 May, 2003 to 30
September, 2003 during which the Group's passenger revenue is exempted from
sales tax.
The Group's turnover and operating (loss)/profit by geographic region are
analysed as follows:
FOR THE SIX MONTHS ENDED 30 JUNE,
------------------------------------------------------
HONG KONG
DOMESTIC REGIONAL INTERNATIONAL TOTAL
--------- --------- ------------- ----------
RMB'000 RMB'000 RMB'000 RMB'000
2003
Traffic revenue 4,896,421 321,912 1,319,346 6,537,679
Other revenue 195,193 - - 195,193
Turnover 5,091,614 321,912 1,319,346 6,732,872
Operating (loss) (1,198,810) (80,384) (95,138) (1,374,332)
2002
Traffic revenue 6,446,767 561,897 1,335,795 8,344,459
Other revenue 213,958 - - 213,958
Turnover 6,660,725 561,897 1,335,795 8,558,417
Operating profit 685,085 70,276 70,571 825,932
3 (LOSS)/PROFIT BEFORE TAXATION AND MINORITY INTERESTS
FOR THE SIX MONTHS
ENDED 30 JUNE,
-------------------
2003 2002
------- -------
RMB'000 RMB'000
(Loss)/profit before taxation and minority interests
is arrived at after charging:
Depreciation
- owned assets 768,595 658,558
- assets held under finance leases 247,935 258,138
Staff costs 847,623 676,932
Operating lease charges in respect of aircraft 820,491 950,730
Amortisation of deferred expenditure 13,348 9,578
Interest on bank and other loans 273,841 180,162
Finance charges on obligations under finance leases 231,371 266,877
Less: borrowing costs capitalised (49,756) (32,766)
Net interest expense 455,456 414,273
and after crediting:
Amortisation of gains on sale and leaseback
transactions - 4,113
Operating lease income in respect of aircraft - 18,841
4 TAXATION
FOR THE SIX MONTHS
ENDED 30 JUNE,
--------------------
2003 2002
-------- -------
RMB'000 RMB'000
PRC income tax 2,859 18,393
Share of taxation of associated companies
and jointly controlled entities 3,791 5,134
6,650 23,527
Deferred taxation (551,642) 75,240
(544,992) 98,767
In respect of the Group's overseas airline activities, the Group has either
obtained exemptions from overseas taxation pursuant to the bilateral
aviation agreements between the overseas and PRC governments, or has
sustained tax losses in these overseas jurisdictions. Accordingly, no
provision for overseas tax has been made for the periods presented.
5 BASIC (LOSS)/EARNINGS PER SHARE
The calculation of basic (loss)/earnings per share is based on the
consolidated loss attributable to shareholders of RMB1,231,613,000 (2002:
profit of RMB123,229,000) and the weighted average number of shares in
issue during the period of 3,374,178,000 (2002: 3,374,178,000).
There were no dilutive potential shares in existence during the six months
ended 30 June, 2002 and 2003.
6 DIVIDENDS
Dividend attributable to the previous financial year, and approved during
the period:
FOR THE SIX MONTHS
ENDED 30 JUNE,
-------------------
2003 2002
------- -------
RMB'000 RMB'000
Final dividend in respect of the previous financial
year, approved during the period, of RMB Nil per share
(2002: RMB0.02 per share) - 67,484
The Board of Directors of the Company does not recommend the payment
of an interim dividend for the six months ended 30 June, 2003 (2002:
Nil).
7 PROFIT APPROPRIATIONS
No transfer to statutory surplus reserve, statutory public welfare
fund and discretionary surplus reserve has been made during the period
and the corresponding period. According to the Articles of Association
of the Company and certain of its subsidiaries and the PRC Company
Law, any such transfer shall be proposed by the respective board of
directors and approved by shareholders in the annual general meeting.
8 CONVENIENCE TRANSLATION
The unaudited consolidated profit and loss account has been prepared
in Renminbi ("RMB"), the national currency of the PRC. Translations of
amounts from RMB into Hong Kong dollars ("HK$") and United States
dollars ("US$") solely for the convenience of readers have been made
at the rates of HK$1.00 to RMB1.0606 and US$1.00 to RMB8.2774, being
the average of the buying and selling rates as quoted by the People's
Bank of China at the close of business on 30 June, 2003. No
representation is made that the RMB amounts could have been or could
be converted into HK$ or US$ at these rates or at any other certain
rates on 30 June, 2003 or on any other date.
B. PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING RULES AND REGULATIONS ("PRC
GAAP")
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS
ENDED 30 JUNE,
----------------------
2003 2002
---------- ---------
RMB'000 RMB'000
REVENUE FROM PRINCIPAL OPERATIONS 6,973,080 8,947,739
Less: Transfer to CAAC Infrastructure
Development Fund 250,788 379,781
NET REVENUE FROM PRINCIPAL OPERATIONS 6,722,292 8,567,958
Less: Costs of principal operations 6,780,358 6,309,425
Business taxes and surcharges 189,302 259,666
(LOSS)/PROFIT FROM PRINCIPAL OPERATIONS (247,368) 1,998,867
Add: Profit from other operations 87,943 109,804
Less: Selling expenses 645,175 775,402
General and administration expenses 500,164 441,496
Financial expenses 454,081 546,721
OPERATING (LOSS)/PROFIT (1,758,845) 345,052
Add: Investment (loss)/income (11,802) 2,797
Non-operating income 4,677 524
Less: Non-operating expenses 30,233 12,016
(LOSS)/PROFIT BEFORE INCOME TAX (1,796,203) 336,357
Less: Income tax (544,489) 111,332
(LOSS)/PROFIT AFTER INCOME TAX (1,251,714) 225,025
Less: Minority interests (86,957) 70,665
NET (LOSS)/PROFIT FOR THE PERIOD (1,164,757) 154,360
Note: The significant accounting policies adopted by the Group in the
preparation of this unaudited consolidated income statement are in
conformity with the "Accounting Standards for Business Enterprises",
"Accounting Regulations for Business Enterprises" and other supplementary
regulations. The Group also adopted the "Accounting Treatment for Civil
Aviation Industry" since 1 January, 2003.
C. DIFFERENCES BETWEEN UNAUDITED INTERIM FINANCIAL RESULTS PREPARED UNDER IFRS
AND PRC GAAP
FOR THE SIX MONTHS
ENDED 30 JUNE,
----------------------
2003 2002
---------- -------
RMB'000 RMB'000
Net (loss)/profit under PRC GAAP (1,164,757) 154,360
Adjustments:
Sale and leaseback accounting (16,423) (3,876)
Staff housing charges (55,500) (42,500)
Effect of the above adjustments on taxation 5,067 15,245
Net (loss)/profit under IFRS (1,231,613) 123,229
OPERATING DATA SUMMARY
FOR THE SIX MONTHS
ENDED 30 JUNE, 2003 VS 2002
------------------ INCREASE/
2003 2002 (DECREASE) (%)
------- ------- ------------ -----
CAPACITY
Available seat kilometres
(ASK) (million)
- Domestic 13,588 16,742 (3,154) (18.8)
- Hong Kong regional 581 861 (280) (32.5)
- International 3,369 4,094 (725) (17.7)
Total 17,538 21,697 (4,159) (19.2)
Available tonne kilometres
(ATK) (million)
- Domestic 1,567 1,951 (384) (19.7)
- Hong Kong regional 65 95 (30) (31.6)
- International 926 733 193 26.3
Total 2,558 2,779 (221) (8.0)
Kilometres flown (thousand) 106,641 125,745 (19,104) (15.2)
Hours flown (thousand) 165 197 (32) (16.2)
Number of flight sectors
- Domestic 80,538 96,415 (15,877) (16.5)
- Hong Kong regional 4,888 6,839 (1,951) (28.5)
- International 5,330 6,653 (1,323) (19.9)
Total 90,756 109,907 (19,151) (17.4)
TRAFFIC
Revenue passenger kilometres
(RPK) (million)
- Domestic 7,919 10,728 (2,809) (26.2)
- Hong Kong regional 293 524 (231) (44.1)
- International 1,886 2,733 (847) (31.0)
Total 10,098 13,985 (3,887) (27.8)
FOR THE SIX MONTHS
ENDED 30 JUNE, 2003 VS 2002
------------------ INCREASE/
2003 2002 (DECREASE) (%)
------ ------ ------------ -----
Revenue tonne kilometres
(RTK) (million)
- Domestic 927 1,220 (293) (24.0)
- Hong Kong regional 31 52 (21) (40.4)
- International 466 402 64 16.0
Total 1,424 1,674 (250) (14.9)
Passenger tonne kilometres
(million)
- Domestic 707 958 (251) (26.2)
- Hong Kong regional 26 47 (21) (44.7)
- International 168 244 (76) (31.1)
Total 901 1,249 (348) (27.9)
Cargo and mail tonne kilometres
(million)
- Domestic 220 262 (42) (16.0)
- Hong Kong regional 4 5 (1) (20.0)
- International 298 158 140 88.6
Total 522 425 97 22.8
Passengers carried (thousand)
- Domestic 6,839 8,977 (2,138) (23.8)
- Hong Kong regional 383 667 (284) (42.6)
- International 516 750 (234) (31.2)
Total 7,738 10,394 (2,656) (25.6)
Cargo and mail carried
(thousand tonne)
- Domestic 163 190 (27) (14.2)
- Hong Kong regional 6 7 (1) (14.3)
- International 32 19 13 68.4
Total 201 216 (15) (6.9)
LOAD FACTORS
Passenger load factor
(RPK/ASK)(%)
- Domestic 58.3 64.1 (5.8) (9.0)
- Hong Kong regional 50.4 60.9 (10.5) (17.2)
- International 56.0 66.8 (10.8) (16.2)
Total 57.6 64.5 (6.9) (10.7)
Average load factor
(RTK/ATK)(%)
- Domestic 59.2 62.5 (3.3) (5.3)
- Hong Kong regional 47.7 54.7 (7) (12.8)
- International 50.3 54.8 (4.5) (8.2)
Total 55.7 60.2 (4.5) (7.5)
FOR THE SIX MONTHS
ENDED 30 JUNE, 2003 VS 2002
------------------ INCREASE/
2003 2002 (DECREASE) (%)
------ ------- ------------ -----
Breakeven load factor(%) 70.4 55.8 14.6 26.2
YIELD
Yield per RPK (RMB)
- Domestic 0.57 0.56 0.01 1.8
- Hong Kong regional 1.00 1.01 (0.01) (1.0)
- International 0.43 0.40 0.03 7.5
Total 0.56 0.54 0.02 3.7
Yield per cargo and
mail tonne kilometre (RMB) 1.77 1.71 0.06 3.5
Yield per RTK (RMB)
- Domestic 5.28 5.28 - -
- Hong Kong regional 10.39 10.81 (0.42) (3.9)
- International 2.83 3.32 (0.49) (14.8)
Total 4.59 4.99 (0.40) (8.0)
FLEET
Number of aircraft in service at
period end
- Boeing 103 92 11 12.0
- Airbus 22 19 3 15.8
Total 125 111 14 12.6
FOR THE SIX MONTHS
ENDED 30 JUNE, 2003 VS 2002
------------------ INCREASE/
2003 2002 (DECREASE) (%)
------ ------- ------------ -----
Aircraft utilisation rate
(hours per day)
- Boeing 7.39 9.82 (2.43) (24.7)
- Airbus 7.02 9.20 (2.18) (23.7)
Total 7.33 9.71 (2.38) (24.5)
FINANCIAL
Operating cost per ASK (RMB) 0.46 0.36 0.10 27.8
Operating cost per ATK (RMB) 3.17 2.78 0.39 14.0
BUSINESS OVERVIEW
For the first half of 2003, the Group encountered unprecedented challenges and
difficulties. The outbreak of the Severe Acute Respiratory Syndrome ("SARS")
earlier this year severely hit our air passenger business. The Group made
warning announcements on 15 April, 2003, 12 May, 2003 and 1 August, 2003 in
respect of the impact of SARS on our business. As a result of the outbreak of
SARS, the Group recorded a loss of RMB1,232 million for the six months ended 30
June, 2003, as compared with a profit of RMB123 million for the same period last
year.
During the period, the PRC aviation industry encountered unprecedented setbacks
due to the outbreak of SARS in certain regions of the PRC. From April to June
2003, the Group's passenger volume and passenger load factor dropped
substantially, whereas in terms of RPKs, figures for April through June 2003
dropped 40%, 83.5% and 61.5%, respectively,
as compared to the same period last year. In order to minimise the negative
impact of SARS, the Group implemented various timely measures to adjust its
operating capacity, for example by reducing the number of flights and suspending
certain routes, in response to the curtailed air traffic demand caused by the
negative impact of SARS.
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, sale tax and related supplementary
taxes on passenger revenue payable by the airline companies during the period
from 1 May, 2003 to 30 September, 2003.
In June 2003, the SARS epidemic was effectively under control in the PRC. With
travel restrictions lifted by the World Health Organisation for all PRC regions,
the PRC aviation industry has started to recover.
Besides, the political tension in the Middle East, in particular the Iraq war in
March this year, led to a surge in oil prices which in turn caused an increase
in the Group's jet fuel cost.
China Southern Air Holding Company ("CSAHC"), the holding company of the
Company, and the Group is working together to prepare for the injections of the
air transportation business of China Northern Airlines and Xinjiang Airlines
into the Group and the preparation work for the reorganisation is progressing as
scheduled. From 1 January, 2003 onwards, the domestic flights of the three
airline companies have started to share the same flight code CZ. The Company
will make further disclosure on the latest development of the reorganisation to
its shareholders and investors in an appropriate time in accordance with the
relevant rules and regulations.
For the period under review, the Group's total traffic revenue was RMB6,538
million, a decrease of RMB1,806 million or 21.7% from the same period last year.
Meanwhile, the Group's total traffic volume decreased by 14.9% to 1,424 million
RTKs. The aggregate utilisation rate of the Group's Boeing and Airbus aircraft
was 7.33 hours for the period under review, a decrease of 2.38 hours or 24.5%
from the same period last year.
Passenger revenue for the period under review was RMB5,616 million, down 26.3%
from the same period last year, representing 85.9% of the Group's total traffic
revenue. Passenger traffic volume decreased by 27.8% to 10,098 million RPKs.
Domestic passenger revenue was RMB4,510 million, down 24.8% from the same period
last year. Domestic passenger revenue accounted for 80.3% of overall passenger
revenue. Passenger capacity, in terms of ASKs, decreased by 18.8% from the same
period last year, while passenger traffic volume decreased by 26.2% to 7,919
million RPKs from 10,728 million RPKs during the same period last year. As a
result, the passenger load factor decreased by 5.8 percentage points to 58.3%.
The passenger yield per RPK increased by 1.8% from RMB 0.56 to RMB 0.57, mainly
due to a reduction in fare discounts during the period under review.
On Hong Kong regional routes, the Group recorded passenger revenue of RMB293
million, down 44.8% from the same period last year. Hong Kong regional passenger
revenue accounted for 5.2% of total passenger revenue. Passenger capacity, in
terms of ASKs, decreased by 32.5% from the same period last year, while
passenger traffic volume decreased by 44.1% from 524 million RPKs to 293 million
RPKs during the same period. As a result, the passenger load factor decreased by
10.5 percentage points to 50.4%. The passenger yield per RPK decreased slightly
by 1.0% to RMB1.00.
Passenger revenue for the Group's international routes amounted to RMB813
million, a decrease of 25.5% from the same period last year. International
passenger revenue accounted for 14.5% of total passenger revenue. Passenger
capacity, in terms of ASKs, decreased by 17.7% from the same period last year,
while passenger traffic volume decreased by 31.0% to 1,886 million RPKs from
2,733 million RPKs during the same period last year. As a result, the passenger
load factor decreased by 10.8 percentage points to 56.0%. The passenger yield
per RPK increased by 7.5%, mainly due to a reduction in fare discounts during
the period under review.
Cargo and mail revenue was RMB922 million, an increase of 27.0% from the same
period last year. Cargo and mail revenue accounted for 14.1% of total traffic
revenue. Cargo and mail volume grew by 22.8% to 522 million RTKs from 425
million RTKs during the same period, mainly due to the launch of two
international cargo routes, Shenzhen - Los Angeles and Shenzhen - Leige
(Belgium) during the second half of 2002. The overall yield per cargo and mail
tonne kilometre increased by 3.5%, mainly due to an increase in fares resulting
from a reduction in supply during the period under review.
The Group's other revenue amounted to RMB195 million, a decrease of 8.8% from
the same period last year, primarily due to a fall in aircraft short term lease
income.
Total operating expenses increased by 4.8% to RMB8,107 million from the same
period last year, primarily due to the combined effect of increases in fuel
cost, aircraft repairs and maintenance and depreciation charges.
Flight operations expenses increased by 2.8% to RMB3,517 million from the same
period last year. Of these expenses, fuel cost was RMB1,861 million, up 13.6%
from the same period last year, mainly as a result of an average increase of
27.1% in fuel prices, despite a decrease in number of flights. Aircraft
insurance costs decreased by 3.9% to RMB124 million, primarily due to a decrease
in aircraft insurance premiums effective from October 2002. Operating lease
payments decreased
by 13.8% to RMB820 million, mainly as a result of the discontinuation of wet
leases of five Boeing 737-300/37K aircraft from Zhongyuan Airlines and wet
leases of two Boeing 747-400 freighters during the period under review. Air
catering expenses decreased by 30.2% to RMB215 million, primarily as a result of
a reduction in number of passengers carried during the period under review.
As compared with the first half of 2002, maintenance expenses increased by 20.0%
to RMB1,218 million, due mainly to increases in aircraft overhaul charges and
routine maintenance costs following the expansion of the Group's fleet in recent
years.
Aircraft and traffic servicing expenses decreased slightly by 0.4% to RMB1,197
million from the same period last year, reflecting primarily the net effect of a
decrease in flight number during the period and an increase in the charge rate
of domestic landing and take-off fees effective during the fourth quarter of
2002.
Promotion and sales expenses decreased by 7.8% to RMB674 million as compared
with the same period last year, primarily as a result of the reduction in
traffic revenue.
As compared with the same period last year, depreciation and amortisation
expenses increased by 9.7% to RMB1,017 million, reflecting primarily the effect
of aircraft delivered during the second half of 2002 and the period under
review.
Loss on sale of fixed assets amounted to RMB23 million, which was mainly
resulted from the disposal of a retired Boeing 737-200 aircraft during the
period under review.
Interest expense increased by 9.9% to RMB455 million in the period under review,
primarily reflecting an increase in the balance of loan borrowings.
The Group recorded a net exchange loss of RMB5 million, a decrease of RMB154
million or 97.0% from the same period last year. The loss recorded in the same
period last year was predominantly resulted from the Japanese yen denominated
borrowings of the Group following the appreciation of Japanese yen during that
period. The exchange rate of Japanese yen was more or less steady during the
period under review.
As a result of the aforementioned factors, the Group recorded a loss
attributable to shareholders of RMB1,232 million for the six months ended 30
June, 2003, as compared to a profit attributable to shareholders of RMB123
million for the same period last year.
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
As at 30 June, 2003, the Group's borrowings totalled RMB18,489 million, a
decrease of RMB786 million from RMB19,275 million as at 31 December, 2002. 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. As at 30 June, 2003, cash and cash
equivalents of the Group totalled RMB2,281 million, a decrease of RMB1,490
million from RMB3,771 million at 31 December, 2002. Of such balance, 12.9% was
denominated in foreign currencies (mainly in United States dollars). Net debts
(total borrowings net of cash and cash equivalents) increased by 4.5% to
RMB16,208 million from RMB15,504 million at 31 December, 2002.
As at 30 June, 2003, the Group's shareholders' equity amounted to RMB8,381
million, a decrease of RMB1,232 million from RMB9,613 million as at 31 December,
2002, reflecting the net loss recorded for the period under review.
Net debt/equity ratio of the Group as at 30 June, 2003 was 1.93 times, as
compared to 1.61 times as at 31 December, 2002.
FINANCIAL RISK MANAGEMENT POLICY
In the normal course of business, the Group is exposed to fluctuations in
foreign currencies and jet fuel prices. The Group's exposure to foreign
currencies is mainly attributable to its debts denominated in foreign
currencies. Depreciation or appreciation of the Renminbi against foreign
currencies could affect the Group's results and financial position significantly
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.
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 the Group for managing its exposure associated with the
fluctuations in domestic jet fuel prices.
CHARGES ON ASSETS
As at 30 June, 2003, certain aircraft of the Group with an aggregate carrying
value of approximately RMB14,376 million (as
at 31 December, 2002: RMB14,783 million) were pledged as collateral under
certain loan and lease agreements.
CAPITAL AND INVESTING COMMITMENTS
As at 30 June, 2003, the Group had capital commitments of approximately RMB7,125
million. Of such amounts, RMB4,034 million was related to the acquisition of
aircraft and related flight equipment and RMB2,608 million was related to the
Group's facilities and equipment to be constructed and installed at the
Guangzhou new airport. The remaining amount of RMB483 million was related to the
Group's other airport and office facilities and equipment, overhaul and
maintenance bases and training facilities. The Group's capital expenditures are
generally subject to receipt of various approvals of the Chinese Government and
may be subject to change depending on the timing of such approvals, prevailing
market conditions, the availability of financing and other relevant factors.
As at 30 June, 2003, the Group was committed to making a capital contribution of
approximately RMB201 million to an associated company.
CONTINGENT LIABILITIES
There have been no material adverse changes in the contingent liabilities of the
Group since 31 December, 2002.
RECENT ECONOMIC DEVELOPMENT
RECENT ECONOMIC DEVELOPMENT
With the continued growth in China's economy and the negative impact of the SARS
epidemic being subsided, China's aviation transportation market has started to
recover. "Blue Sky Rejuvenation Programme" initiated by the Civil Aviation
Administration of China for boosting the demand for the aviation market helps to
drive up the volume of passenger and cargo transportation. The Company has also
started a new promotion plan, the "Sunshine Action" under which a series of
promotional and marketing programmes have been launched aiming to turn around
the passenger transportation volume and cargo throughput.
With the approval of the China Securities Regulatory Commission ("CSRC"), the
Company completed the issuance of 1,000,000,000 A shares at an issuance price of
RMB2.70 each from 10 July, 2003 to 17 July, 2003 and successfully raised gross
share proceeds of RMB2.7 billion. These A shares are listed on the Shanghai
Stock Exchange since 25 July, 2003. With the approval at the shareholders'
meeting of the Company, the proceeds from the share issue will be used to
purchase Boeing 737-800 aircraft for replacing certain existing aircraft, the
operating leases of which will be expired.
The directors of the Company believe that the successful listing of the A shares
helps the Company in developing new financing channels, broadening the
shareholder base and enhancing the standard of corporate governance. Pursuant to
the mandate granted at the Shareholders' meeting of the Company, the directors
of the Company have handled and perfected matters relating to the A shares
issuance, including the making of corresponding amendments to the Articles of
Association of the Company and application to the State Administration for
Industry and Commerce for an amended business licence to reflect the changes in
shareholding structure and share capital after the issuance of A shares, in
accordance with the requirements of China's rules and regulations.
PROSPECTS FOR THE SECOND HALF OF THE YEAR
The continued development of China's economy and the subsiding effect of the
SARS epidemic in China will provide an improved market environment for the
development of the aviation transportation business during the second half of
the year. The business of the Group is expected to improve as a result.
The Closer Economic Partnership Arrangement between Mainland China and Hong Kong
will foster the growth of passenger and cargo transportation between China, Hong
Kong and the Pearl River delta. The Board believes that the Group will benefit
from this new development.
The reorganisation of the aviation transportation operations of CSAHC and the
Group will proceed in steady pace as planned.
The Group will continue to implement the marketing strategy based on its
"Sunshine Action" with an aim to increase passenger load factor and passenger
revenue.
The Group will continue to exercise strict cost-control measures in order to
enhance efficiency for the Group as a whole.
USE OF PROCEEDS
As stated in the 2002 annual report of the Group, as at 31 December, 2002, the
Group had RMB40 million remaining from the proceeds of the Company's initial
public offer.
Consistent with the disclosure in the Prospectus of the Company dated July 1997,
the Company intends to use the remaining proceeds of RMB40 million (held as at
30 June, 2003 as short-term deposits with Southern Airlines Group Finance
Company Limited, a PRC authorised financial institution and an associated
company of the Group) for various projects, including the development of the
computerised accounting system.
FLEET PLANNING
As at 30 June, 2003, details of aircraft to be delivered to the Company in the
future are as follows:
YEAR TO BE DELIVERED TYPE OF AIRCRAFT NUMBER OF AIRCRAFT
-------------------- ---------------- ------------------
Second half of 2003 Boeing 737-800 4
Airbus 319-100 2
2004 Boeing 737-700 6
Boeing 777-200 1
2005 Boeing 737-700 2
As at the date hereof, there are one Boeing 757-200 and three Boeing 737-300
aircraft which are subject to options exercisable by the Company during a period
of not less than 12 months from 30 June, 2003.
DIVIDENDS
The Board of Directors does not propose to declare an interim dividend for the
year 2003 (2002: Nil).
STRUCTURE OF SHARE CAPITAL
As at 30 June, 2003, the share capital of the Company comprised 3,374,178,000
shares, of which approximately 65.2% or 2,200,000,000 State-owned Shares were
held by CSAHC and approximately 34.8% or 1,174,178,000 H Shares were held by
Hong Kong and overseas investors.
On 25 July, 2003, 1,000,000,000 A shares of the Company were issued and
successfully listed on the Shanghai Stock Exchange. Hence, the total share
capital of the Company has become 4,374,178,000 shares and the shareholding
structure of the Company has been changed as follows:
CATEGORY OF NUMBER OF PERCENTAGE TO THE
SHARES SHARES HELD TOTAL SHARE CAPITAL(%)
----------- ------------- ----------------------
State shares (held by CSAHC) 2,200,000,000 50.3%
H shares 1,174,178,000 26.8%
A shares 1,000,000,000 22.9%
Total share capital 4,374,178,000 100%
SUBSTANTIAL SHAREHOLDERS
As at 30 June, 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 % OF
% OF THE TOTAL THE TOTAL
THE TOTAL ISSUED ISSUED
ISSUED SHARE DOMESTIC
H SHARES CAPITAL SHARES
NAME OF TYPE OF TYPE OF NUMBER OF OF THE OF THE OF THE SHORT
SHAREHOLDER SHAREHOLDING SHARE SHARE HELD COMPANY COMPANY COMPANY POSITION
----------- -------------- ------- ------------- --------- --------- --------- --------
CSAHC Direct holding Domestic
share 2,200,000,000 - 65.2% 100% -
HKSCC Nominees Direct holding H share 1,148,221,998 97.8% 34.0% - -
Limited
INTERESTS AND SHORT POSITIONS OF THE DIRECTORS, CHIEF EXECUTIVE AND SUPERVISORS
IN THE SECURITIES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS
As at 30 June, 2003, the interests and short positions of the directors, chief
executive and supervisors in the shares,
underlying shares and debentures (as the case may be) of the Company or its
associated corporations (within the meaning of the Part XV of the SFO) which
were notified to the Company and the Stock Exchange pursuant to SFO (including
interest or short positions which they are taken or deemed to have under such
provisions of the SFO), or recorded in the register maintained by the Company
pursuant to Section 352 of the SFO or which were notified to the Company and the
Stock Exchange pursuant to the "Model Code for Securities Transactions by
Directors of the Listed Companies" in Schedule 10 of the Listing Rules are as
follows:
% TO % TO
THE TOTAL THE TOTAL % TO
ISSUED ISSUED THE TOTAL
THE SHARE DOMESTIC ISSUED
COMPANY/ NUMBER CAPITAL SHARE H SHARE
ASSOCIATED TYPES OF TYPE OF OF SHARE OF THE OF THE OF THE SHORT
NAME CORPORATION INTEREST SHARE HELD COMPANY COMPANY COMPANY POSITION
----- ------------- ----------- -------- -------- --------- ---------- --------- --------
Simon Tothe Company Interest of H Shares 100,000 0.003% - 0.009% -
spouse
(note 1)
Note 1. The spouse as 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 30 June, 2003, none of the directors, chief
executive or supervisors of the Company has interest or short position in the
shares, underlying shares and/or debentures (as the case may be) of the Company
or its associated corporations (within the meaning of the Part XV of the SFO)
which were notified to the Company and the Stock Exchange pursuant to SFO
(including interest or short positions which they are taken or deemed to have
under such provisions of the SFO), or recorded in the register maintained by the
Company pursuant to Section 352 of the SFO or which were notified to the Company
and the Stock Exchange pursuant to the "Model Code for Securities Transactions
by Directors of the Listed Companies" in Schedule 10 of the Listing Rules.
PURCHASE, SALE OR REDEMPTION OF SHARES
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any
shares of the Company during the first half of 2003.
With the approval of the CSRC, the Company completed the issuance of
1,000,000,000 A shares at an issuance price of RMB2.70 each from 10 July, 2003
to 17 July, 2003 and raised gross share proceeds of RMB2.7 billion. These A
shares are listed on the Shanghai Stock Exchange since 25 July, 2003.
COMPREHENSIVE SERVICES AND EMPLOYEE BENEFITS
As at 30 June, 2003, the Group had approximately 17,031 employees, the majority
of whom were working in mainland China. The wages of the Group's employees
consist of basis salaries and bonuses.
In accordance with a comprehensive services agreement entered into between the
Company and CSAHC on 22 May, 1997 (the "Service Agreement"), CSAHC will receive
fees for providing or causing to be provided to the Group and its employees
certain housing services for a term from 22 May, 1997 to 31 December, 2006. The
Service Agreement provides that the CSAHC will sell or rent housing to eligible
employees at a price below market price. As the housing is sold or rented below
cost, and the construction costs of the leased housing were originally paid by
CSAHC, the Company shall pay an annual sum of RMB85 million to CSAHC by
quarterly installments in arrears for ten years from 1995 to 2004.
DESIGNATED DEPOSITS AND OVERDUE TIME DEPOSITS
As at 30 June, 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.
COMPLIANCE WITH THE CODE OF BEST PRACTICE
The Directors of the Company consider that, in the six months ended 30 June,
2003, the Group was in compliance with the Code of Best Practice set out in
Appendix 14 of the Listing Rules of the Stock Exchange of Hong Kong Limited.
MATERIAL LITIGATION
The Group was not involved in any material litigation or dispute in the six
months ended 30 June, 2003.
By order of the Board of Directors
YAN ZHI QING
Chairman of the Board of Directors
Guangzhou, the PRC
28 August, 2003
A detailed interim results of the Company for the six months ended 30 June, 2003
containing all the information required by paragraphs 46(1) to 46(6) inclusive
of Appendix 16 to the Listing Rules will be published on the website of the
Stock Exchange of Hong Kong Limited (http://www.hkex.com.hk) in due course.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHINA SOUTHERN AIRLINES COMPANY LIMITED
By /s/ Su Liang
------------------------------------
Name: Su Liang
Title: Company Secretary
Date: September 2, 2003