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 September, 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 or around
September 17, 2003 distributed its Interim Report, in English and Chinese to its
shareholders. A copy of the Interim Report (in English) is included in this Form
6-K of the Company.
All Shareholders:
The Board of Directors of China Southern Airlines Company Limited (the
"Company") hereby announces the unaudited operating results of the Company and
its subsidiaries (collectively, the "Group") for the six months ended 30 June,
2003.
INTRODUCTION
The Group is one of the largest airlines in the PRC in terms of volume of
passenger traffic, number of scheduled flights per week, number of hours flown,
route networks and size of aircraft fleet. The Group operates the most extensive
route network among all PRC airlines. As at 30 June, 2003, the Group operated a
total of 308 routes, of which 253 were domestic, 17 were Hong Kong regional and
38 were international. For the six months ended 30 June, 2003, the Group
operated an average of 2,080 scheduled flights per week, serving 89 cities. As
at 30 June 2003, the Group operated a fleet of 125 aircraft, of which 103 were
Boeing aircraft and 22 were Airbus aircraft. The average age of the fleet was
7.67 years as at 30 June, 2003.
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%
1
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
2
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
3
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
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
4
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
5
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:
Number of Percentage to the
Category of 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 2,200,000,000 - 65.2% 100% -
share
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 Part XV of the SFO) which
6
were notified to the Company and the Stock Exchange pursuant to SFO (including
interest 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
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 To the Company Interest of H Shares 100,000 0.003% - 0.009% -
spouse
(note1)
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 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 Part XV of the SFO) which
were notified to the Company and the Stock Exchange pursuant to SFO (including
interest 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
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.
7
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
Documents Available for Inspection and Address for Inspection:
Documents available for inspection: Original copy of this interim report signed by the Chairman.
Address for Inspection: The Secretarial Office of the Board of Directors of the China
Southern Airlines Company Limited, Baiyun Airport, Guangzhou,
the People's Republic of China.
Website: www.cs-air.com
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
-----------------------------------------------------------------------------------------------------------------------
8
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)
=======================================================================================================================
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)
=======================================================================================================================
For the six months
ended 30 June, 2003 vs 2002
------------------------ Increase/
2003 2002 (Decrease) (%)
-----------------------------------------------------------------------------------------------------------------------
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)
9
- 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 (7.0) (12.8)
- International 50.3 54.8 (4.5) (8.2)
Total 55.7 60.2 (4.5) (7.5)
=======================================================================================================================
Breakeven load factor (%) 70.4 55.8 14.6 26.2
=======================================================================================================================
For the six months
ended 30 June, 2003 vs 2002
------------------------ Increase/
2003 2002 (Decrease) (%)
-----------------------------------------------------------------------------------------------------------------------
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 - -
10
- 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
=======================================================================================================================
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
=======================================================================================================================
The Board of Directors of the Company hereby announces the unaudited
consolidated interim results of the Group for the six months ended 30 June,
2003, together with the comparative figures for the corresponding period of 2002
as follows:
A. Prepared in accordance with International Financial Reporting Standards
("IFRS")
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
2003 VS
For the six months ended 30 June, 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)
11
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)
=======================================================================================================================
The notes on pages 18 to 24 form part of this interim financial report.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
As at 30 June, 2003
(Expressed in Renminbi)
As at As at
30 June, 31 December,
2003 2002
Note RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------------------
Non-current assets
Fixed assets 27,460,996 26,920,829
Construction in progress 1,245,553 661,352
Lease prepayments 199,868 201,854
Interest in associated companies 691,060 692,026
Interest in jointly controlled entities 443,307 461,962
Other investments 200,685 201,854
Lease and equipment deposits 1,865,818 2,147,038
Deferred expenditure 269,955 283,303
Long term receivables 12,196 12,034
----------------------------------------------------------------------------------------------------------------------
32,389,438 31,582,252
----------------------------------------------------------------------------------------------------------------------
12
Current assets
Inventories 561,234 545,700
Trade receivables 7 689,832 671,776
Other receivables 327,760 372,586
Prepaid expenses and other assets 286,740 244,690
Cash and cash equivalents 2,281,347 3,771,043
----------------------------------------------------------------------------------------------------------------------
4,146,913 5,605,795
----------------------------------------------------------------------------------------------------------------------
Current liabilities
Bank and other loans 4,998,879 5,240,726
Obligations under finance leases 1,353,813 1,566,698
Amounts due to related companies 778,888 525,090
Other liabilities 863,247 646,989
Accounts payable 8 860,650 532,480
Bills payable 2,816,065 1,299,680
Sales in advance of carriage 314,368 390,531
Accrued expenses 2,148,098 2,341,454
Taxes payable 46,941 78,145
----------------------------------------------------------------------------------------------------------------------
14,180,949 12,621,793
----------------------------------------------------------------------------------------------------------------------
Net current liabilities (10,034,036) (7,015,998)
----------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 22,355,402 24,566,254
----------------------------------------------------------------------------------------------------------------------
Non-current liabilities and deferred items
Bank and other loans 6,020,856 5,835,434
Obligations under finance leases 6,115,720 6,631,751
Provision for major overhauls 149,811 141,887
Deferred credits 48,105 48,095
Deferred taxation 227,592 779,234
----------------------------------------------------------------------------------------------------------------------
12,562,084 13,436,401
----------------------------------------------------------------------------------------------------------------------
9,793,318 11,129,853
======================================================================================================================
CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
As at 30 June, 2003
(Expressed in Renminbi)
As at As at
30 June, 31 December,
2003 2002
Note RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------------------
Representing:
Share capital 3,374,178 3,374,178
Reserves 9 5,007,416 6,239,029
----------------------------------------------------------------------------------------------------------------------
13
Shareholders' equity 8,381,594 9,613,207
Minority interests 1,411,724 1,516,646
----------------------------------------------------------------------------------------------------------------------
9,793,318 11,129,853
======================================================================================================================
Approved and authorised for issue by the board of directors on 28 August, 2003.
YAN ZHI QING WANG CHANG SHUN XU JIE BO
Director Director Director
The notes on pages 18 to 24 form part of this interim financial report.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
For the six months ended 30 June, 2003
(Expressed in Renminbi)
Share Share Other Retained
capital premium reserves earnings Total
RMB RMB RMB RMB RMB
----------------------------------------------------------------------------------------------------------------------
At 1 January, 2002 3,374,178 3,813,659 687,174 1,346,652 9,221,663
Land use rights adjustment (Note 9) - (129,703) - 12,970 (116,733)
Dividends paid - - - (67,484) (67,484)
Profit for the period - - - 123,229 123,229
----------------------------------------------------------------------------------------------------------------------
At 30 June, 2002 3,374,178 3,683,956 687,174 1,415,367 9,160,675
======================================================================================================================
At 1 January, 2003 3,374,178 3,683,956 585,372 1,969,701 9,613,207
Loss for the period - - - (1,231,613) (1,231,613)
----------------------------------------------------------------------------------------------------------------------
At 30 June, 2003 3,374,178 3,683,956 585,372 738,088 8,381,594
======================================================================================================================
The notes on pages 18 to 24 form part of this interim financial report.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
For the six months ended 30 June, 2003
(Expressed in Renminbi)
For the six months
ended 30 June,
---------------------------
2003 2002
RMB'000 RMB'000
-----------------------------------------------------------------------------------------------------------
14
Net cash inflows from operating activities 1,199,731 1,048,230
Net cash used in investing activities (1,886,023) (2,679,185)
-----------------------------------------------------------------------------------------------------------
Net cash outflows before financing activities (686,292) (1,630,955)
Net cash (outflows)/inflows from financing activities (803,404) 1,660,809
-----------------------------------------------------------------------------------------------------------
(Decrease)/increase in cash and cash equivalents (1,489,696) 29,854
Cash and cash equivalents as at 1 January 3,771,043 2,817,863
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents as at 30 June 2,281,347 2,847,717
===========================================================================================================
The notes on pages 18 to 24 form part of this interim financial report.
Notes:
1 BASIS OF PREPARATION
This interim financial report of China Southern Airlines Company Limited (the
"Company") and its subsidiaries (the "Group") is unaudited, but has been
reviewed by KPMG in accordance with Statement of Auditing Standards 700
"Engagements to review interim financial reports", issued by the Hong Kong
Society of Accountants. KPMG's independent review report to the Board of
Directors is included on page 25.
The 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, including compliance with International Accounting Standard 34 "Interim
Financial Reporting" adopted by the International Accounting Standards Board.
The financial information relating to the financial year ended 31 December, 2002
included in the interim financial report does not constitute the Group's annual
financial statements prepared under International Financial Reporting Standards
for that financial year but is derived from those financial statements. The
Group's annual financial statements for the year ended 31 December, 2002 are
available at the Company's registered office. The auditors have expressed an
unqualified opinion on those financial statements in their report dated 14
March, 2003.
The accounting policies have been consistently applied by the Group and are
consistent with those adopted in the 2002 annual financial statements.
The notes on the unaudited interim financial report include an explanation of
events and transactions that are significant to an understanding of the changes
in financial position and performance of the Group since the 2002 annual
financial statements.
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.
15
Turnover comprises revenues from airline and airline-related businesses and is
stated net of sales tax and contributions to the 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
16
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
======================================================================================================================
Pursuant to the PRC income tax rules and regulations, the Group is subject to
PRC income tax at a rate of 33% (2002: 33%).
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
17
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 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
provisions for bad and doubtful accounts, is as follows:
As at As at
30 June, 31 December,
2003 2002
RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------------------
Within 1 month 568,704 576,789
More than 1 month but less than 3 months 113,024 88,133
More than 3 months but less than 12 months 8,104 6,854
----------------------------------------------------------------------------------------------------------------------
689,832 671,776
======================================================================================================================
8 ACCOUNTS PAYABLE
An ageing analysis of accounts payable is as follows:
As at As at
30 June, 31 December,
2003 2002
RMB'000 RMB'000
----------------------------------------------------------------------------------------------------------------------
Due within 1 month or on demand 234,311 164,442
Due after 1 month but within 3 months 268,431 157,731
Due after 3 months but within 6 months 357,908 210,307
----------------------------------------------------------------------------------------------------------------------
860,650 532,480
======================================================================================================================
18
9 RESERVES
In 2002, the Group adopted IAS 40 "Investment Property". 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.
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.
10 COMMITMENTS
(a) Capital commitments
As at 30 June, 2003, the Group had capital commitments as follows:
As at As at
30 June, 31 December,
2003 2002
RMB'000 RMB'000
-----------------------------------------------------------------------------------------------------------
Commitments in respect of aircraft and related equipment
- authorised and contracted for 4,033,796 5,875,996
-----------------------------------------------------------------------------------------------------------
Commitments in respect of investments in the Guangzhou new airport
- authorised and contracted for 440,314 525,700
- authorised but not contracted for 2,167,456 2,601,720
-----------------------------------------------------------------------------------------------------------
2,607,770 3,127,420
-----------------------------------------------------------------------------------------------------------
Other commitments
- authorised and contracted for 34,861 43,887
- authorised but not contracted for 448,285 500,545
-----------------------------------------------------------------------------------------------------------
483,146 544,432
-----------------------------------------------------------------------------------------------------------
7,124,712 9,547,848
===========================================================================================================
(b) Investing commitments
As at 30 June, 2003, the Company was committed to make a capital
contribution of approximately RMB201 million and RMB Nil respectively
(as at 31 December, 2002: approximately RMB201 million and RMB60
million respectively) to its associated company and jointly controlled
entity.
19
11 RELATED PARTY TRANSACTIONS
The Group obtained various supplementary operating and financial services
provided by China Southern Air Holding Company ("CSAHC"), the ultimate holding
company and its affiliates during the normal course of its business.
The following is a summary of significant recurring transactions carried out in
the normal course of business between the Group, CSAHC and its affiliates during
the period:
For the six months
ended 30 June,
------------------------
2003 2002
RMB'000 RMB'000
------------------------------------------------------------------------------------------------
Expenses
Paid to CSAHC and its affiliates
Handling charges 14,277 13,370
Wet lease rentals 27,800 150,000
Advertising expenses - 2,695
Sundry aviation supplies 25,982 45,187
Air catering expense 11,986 14,432
Repairing charges 277,579 242,738
Housing benefits 42,500 42,500
Lease charges for land and buildings 7,612 7,612
Paid to CAAC and its affiliates
Jet fuel supplies - 1,173,018
Aircraft insurance - 128,958
Guarantee fees - 647
Ticket reservation service charges - 54,643
Passenger departure and cargo handling charges - 29,429
Aircraft and traffic servicing charges - 819,807
Commission expense - 297,696
Income
Received from CSAHC and its affiliates
Interest income 1,178 9,810
Received from CAAC and its affiliates
Ground services income - 15,096
Commission income - 44,569
During the period, CSAHC made short term advances to the Group. Such advances
are unsecured, interest free and repayable on
20
demand. As at 30 June, 2003, the advances amounted to RMB700,000,000.
In the past, CSAHC was under the direct control of the Civil Aviation
Administration of China ("CAAC"). However, such control has been shifted to the
State Assets Administration Committee during late 2002. Consequently, the CAAC
and its affiliates are no longer presented as related parties for this interim
report.
The Directors of the Company are of the opinion that the above transactions were
conducted in the normal course of business and on normal commercial terms or in
accordance with the agreements governing such transactions.
12 CONTINGENT LIABILITIES
There have been no material adverse changes in contingent liabilities of the
Group subsequent to 31 December, 2002, details of which are disclosed in its
2002 annual financial statements.
13 SUBSEQUENT EVENTS
In July 2003, the Company issued a total of 1,000,000,000 A shares of par value
of RMB1.00 each at an issue price of RMB2.70 each with listing on the Shanghai
Stock Exchange.
14 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.
INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF
CHINA SOUTHERN AIRLINES COMPANY LIMITED
INTRODUCTION
We have been instructed by the Company to review the interim financial report as
set out on pages 13 to 24.
RESPECTIVE responsibilities OF DIRECTORS AND AUDITORS
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited require the preparation of an interim financial report to be in
compliance with the relevant provisions thereof and International Accounting
Standard 34 "Interim Financial Reporting" adopted by the International
Accounting Standards Board. The interim financial report is the responsibility
of, and has been approved by, the directors.
It is our responsibility to form an independent conclusion, based on our review,
on the interim financial report and to report our conclusion solely to you, as a
body, in accordance with our agreed terms of engagement, and for no other
purpose. We do not assume responsibility towards or accept liability to any
other person for the contents of this report.
21
REVIEW WORK PERFORMED
We conducted our review in accordance with Statement of Auditing Standards 700
"Engagements to review interim financial reports" issued by the Hong Kong
Society of Accountants. A review consists principally of making enquiries of
group management and applying analytical procedures to the interim financial
report and based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A review
excludes audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
and therefore provides a lower level of assurance than an audit. Accordingly we
do not express an audit opinion on the interim financial report.
REVIEW CONCLUSION
On the basis of our review which does not constitute an audit, we are not aware
of any material modifications that should be made to the interim financial
report for the six months ended 30 June, 2003.
KPMG
Certified Public Accountants
Hong Kong,
28 August, 2003
B. Prepared in accordance with the PRC Accounting Rules and Regulations
("PRC GAAP")
CONSOLIDATED BALANCE SHEET (UNAUDITED)
As at 30 June, 2003
(Expressed in Renminbi)
As at As at
30 June, 31 December,
2003 2002
RMB'000 RMB'000
--------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 2,553,331 4,145,300
Trade receivables 821,160 742,962
Other receivables 358,701 404,279
Advance payments 4,550 14,237
Inventories 695,394 653,011
Prepaid expenses 182,297 165,754
--------------------------------------------------------------------------------------------------------
Total current assets 4,615,433 6,125,543
--------------------------------------------------------------------------------------------------------
Long-term equity investments 545,109 559,981
--------------------------------------------------------------------------------------------------------
Fixed assets:
22
Fixed assets, at cost 38,712,787 37,080,309
Less: accumulated depreciation 10,488,578 9,514,246
--------------------------------------------------------------------------------------------------------
Net book value of fixed assets 28,224,209 27,566,063
Construction in progress 1,580,419 1,006,964
Construction materials 1,748 1,485
--------------------------------------------------------------------------------------------------------
Total fixed assets 29,806,376 28,574,512
--------------------------------------------------------------------------------------------------------
Intangible assets and other assets:
Lease and equipment deposits 1,865,818 2,147,038
Long-term deferred expenses 33,788 34,136
Long-term receivables 29,065 28,903
--------------------------------------------------------------------------------------------------------
Total intangible assets and other assets 1,928,671 2,210,077
--------------------------------------------------------------------------------------------------------
Total assets 36,895,589 37,470,113
========================================================================================================
CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
As at 30 June, 2003
(Expressed in Renminbi)
As at As at
30 June, 31 December,
2003 2002
RMB'000 RMB'000
--------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity Current liabilities:
Short-term loans 4,331,123 4,443,426
Bills payable 2,816,065 1,299,680
Trade accounts payable 1,218,092 900,926
Sales in advance of carriage 314,368 390,531
Wages payable 19,463 73,702
Staff welfare payable 180,878 179,984
Taxes payable 118,549 122,657
CAAC infrastructure development fund payable 404,572 280,706
Other payables 2,784 2,897
Other creditors 904,308 692,246
Accrued expenses 2,115,987 2,286,136
Long-term liabilities due within one year 2,042,070 2,384,498
--------------------------------------------------------------------------------------------------------
Total current liabilities 14,468,259 13,057,389
--------------------------------------------------------------------------------------------------------
Long-term liabilities:
Long-term borrowings 6,258,952 5,911,590
23
Obligations under finance leases 6,115,720 6,631,751
Provision for major overhauls 149,811 141,887
Deferred credits 234,066 249,411
Deferred taxation 496,728 1,043,303
--------------------------------------------------------------------------------------------------------
Total long-term liabilities 13,255,277 13,977,942
--------------------------------------------------------------------------------------------------------
Total liabilities 27,723,536 27,035,331
--------------------------------------------------------------------------------------------------------
Minority interests 1,442,216 1,540,188
--------------------------------------------------------------------------------------------------------
Shareholders' equity
Share capital 3,374,178 3,374,178
Capital reserves 4,160,578 4,160,578
Surplus reserves 585,372 585,372
--------------------------------------------------------------------------------------------------------
Including: Statutory public welfare fund 171,574 171,574
--------------------------------------------------------------------------------------------------------
(Accumulated losses)/Retained profits (390,291) 774,466
--------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,729,837 8,894,594
--------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 36,895,589 37,470,113
========================================================================================================
CONSOLIDATED INCOME STATEMENT AND INCOME APPROPRIATION STATEMENT (UNAUDITED)
For the six months ended 30 June, 2003
(Expressed in Renminbi)
For the six months
ended 30 June,
------------------------
2003 2002
RMB'000 RMB'000
--------------------------------------------------------------------------------------------------------
Revenue from principal operations
Less: Transfer to CAAC Infrastructure 6,973,080 8,947,739
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
24
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
Add: Retained profits at the beginning of the period 774,466 344,859
--------------------------------------------------------------------------------------------------------
(Accumulated losses)/profits available for distribution (390,291) 499,219
========================================================================================================
1 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Group in the preparation of
the financial statements are in conformity with the "Accounting Standards for
Business Enterprises" and "Accounting Regulations for Business Enterprises" and
other relevant regulations. Since 1 January, 2003, the Group also adopted the
"Accounting Treatment for Civil Aviation Industry". These accounting policies
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 Group prepared the consolidated financial statements according to
"Accounting Regulations for Business Enterprises" and Cai Kuai Zi
[1995] No.11 "Provisional regulations on consolidated financial
statements" issued by the Ministry of Finance.
The consolidated financial statements include the financial statements
of the Company and all of its principal subsidiaries. Subsidiaries are
those entities of which the Company directly or indirectly has more
than 50% equity interest or those entities of which the Company has
less than 50% equity interest but has effective control. 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 has less than 50% equity
interest but has effective control. The effect of minority interests on
equity and profit/loss attributable to minority interests are
separately shown in the consolidated financial statements.
Where the accounting policies adopted by the subsidiaries are different
from the policies adopted by the Company, the
25
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 subsidiaries whose assets
and results of operation are not significant and have no significant
effect on the Group's consolidated financial statements, the Company
does not consolidate these subsidiaries, but includes in the long-term
equity investments.
For those jointly controlled entities which the Company has joint
control with other investors under contractual arrangement, the Company
consolidates their assets, liabilities, revenues, costs and expenses
based on the proportionate consolidation method according to its
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.
(d) Reporting currency and translation of foreign currencies
The Group's financial statements are prepared in Renminbi. Foreign
currency transactions during the year are translated into Renminbi at
exchange rates quoted by the People's Bank of China ("PBOC rates")
prevailing on the transaction dates. Foreign currency monetary assets
and liabilities are translated into Renminbi at the PBOC rates at the
balance sheet date. Exchange differences, other than those arising from
foreign currency loans using to finance the construction of fixed
assets before they are ready for their intended use are capitalised,
are recognised as income or expenses in the income statement.
(e) Cash equivalents
Cash equivalents are short-term and highly liquid investments which are
readily convertible into known amounts of cash and are subject to an
insignificant risk of change in value, including time deposits with
financial institutions with an initial term of less than three months.
(f) Allowance for doubtful accounts
(i) Criteria of bad debt recognition
Receivables which are still not recoverable following realisation
of the assets or the inheritance from the debtors if they go
bankrupt or are deceased, or receivables which are overdue for
more than three years that are certainly unrecoverable.
(ii) Accounting treatment of bad debt losses
Receivables mentioned in (i) above which are certainly
unrecoverable is written off as bad debt after being approved to
be written off based on pre-approved authority.
(iii) Allowance for doubtful accounts
Doubtful accounts are accounted for based on allowance method
which are estimated periodically. Trade accounts
26
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 determined based on the
nature and corresponding collectibility. Specific approval from
management is required for allowances made in respect of
significant doubtful receivables.
(g) Inventories
Inventories, which consist primarily of expendable spare parts and
supplies, are stated at the lower of cost or net realisable value, and
are expensed when used in operations. Cost represents the average unit
cost. Net realisable value is determined based on the estimated selling
prices subsequent to the balance sheet date in the ordinary course of
business or the management's estimation based on the prevailing market
conditions. Inventories are recorded by perpetual method.
(h) Long-term equity investments
Long-term equity investments are valued at the lower of the carrying
amount and the recoverable amount. A provision for impairment of loss
is made when the recoverable amount of individual investment is lower
than the carrying amount.
The long-term equity investments and the investment income related to
the Group's investments in the associated companies and jointly
controlled entities and the Company's investments in subsidiaries,
associated companies and jointly controlled entities are accounted for
using the equity method. Equity investments difference is the
difference between initial investment cost and the share of
shareholders' equity of the investee companies, which is amortised on a
straight-line basis and recognised in the investment income. The
amortisation period is determined according to the investment period as
stipulated in the relevant agreement or 10 years if not specified.
An associated company is a company in which the Group holds, for
long-term purposes, not less than 20% but not more than 50% of its
equity interests and exercises significant influence in its management.
A jointly controlled entity is an entity over which the Group can
exercise joint control with other ventures.
Long-term investments in entities in which the Group does not hold more
than 20% of their equity interests or those in which the Group holds
more than 20% of their equity interests but does not exercise
significant influence in their management are stated at cost.
Investment income is recognized when the Group's right to receive the
dividend is established.
Disposals or transfers of long-term equity investments are recognised
in the income statement based on the difference between the disposal
proceeds and the carrying amount of the investments.
(i) Fixed assets and depreciation
Fixed assets represent the assets held by the Group for rendering
services and administrative purpose with useful life over 1 year and
comparatively high unit value. Fixed assets are stated in the balance
sheet at cost or revalued amount less accumulated depreciation and
impairment losses. Valuation is carried out in accordance with the
relevant rules and regulations in the PRC and fixed assets are adjusted
to the revalued amounts accordingly.
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
27
depreciation rates on fixed assets are as follows:
Depreciable life Residual value
------------------------------------------------------------------------------------------------------------
Owned and finance leased aircraft 8 to 15 years 28.75%
Other flight equipment:
Jet engines 8 to 15 years 3%
Others, including rotables 8 to 15 years 0%
Buildings 15 to 40 years 0%
Machinery and equipment 5 to 10 years 3%
Vehicles 6 years 3%
Land use rights are stated in the balance sheet at cost or revalued
amount less accumulated amortisation and impairment losses, and are
amortised on a straight line basis over the period of land use rights.
(j) Leased assets
Flight equipment under finance leases is stated at an amount equal to
the lower of its original carrying value and the present value of
minimum lease payments at inception of the lease. In cases where title
to the asset will be acquired by the Group at the end of the lease, the
asset is depreciated on a straight line basis over the estimated useful
life of the asset to its residual value. Otherwise, the asset is
depreciated on a straight line basis over the shorter of the lease term
or estimated useful life of the asset to residual value. The difference
between the carrying value and the minimum lease payments is recorded
as unrecognised finance charges. Amortisation of unrecognised finance
charges is provided on an effective interest method over the lease
term.
Gains on aircraft sale and leaseback transactions are deferred and
amortised over the terms of the related leases.
Operating lease payments are charged to the income statement on a
straight line basis over the terms of the related leases.
(k) Construction in progress
Construction in progress represents various infrastructure projects
under construction and equipment pending installation, and is stated at
cost less impairment losses. Cost comprises direct purchase price of
equipment, direct costs of construction as well as borrowing costs,
which include foreign exchange gains or losses on specific borrowings
for the construction of the fixed assets during the construction
period. No depreciation is provided in respect of construction in
progress. Construction in progress is transferred to fixed assets when
the asset is ready for its intended use.
(l) Long term deferred expenses
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.
(m) 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
28
for the estimated cost of scheduled overhauls required to be performed
on the related aircraft prior to their return to the lessors.
(n) 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.
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.
(o) 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.
(p) Income tax
Income tax is calculated using the tax effect accounting method. It
represents tax expenses relating to the income for the period and is
computed based on the income and expenses for the period.
Deferred tax is provided using the liability method, for timing
differences between accounting profit before tax and the taxable income
arising from the differences in the tax and accounting treatment of
income and expenses or loss.
The tax value of losses expected to be available for utilisation
against future taxable income is set off against the deferred tax
liability within the same legal tax unit and jurisdiction. A valuation
allowance is provided for the tax value of losses to reduce the
deferred tax asset to the amount that is more likely than not to be
realised through future taxable income.
(q) Borrowing costs
Borrowing costs represent interest expenses and foreign exchange
difference on loans. Borrowing costs are expensed in the income
statement in the period in which they are incurred, except to the
extent that they are capitalised as being attributable to the
construction of an asset which necessarily takes a period of time to
get ready for its intended use.
(r) Retirement benefits
Contributions to retirement schemes and additional retirement benefits
paid to retired employees are charged to the income statement as and
when incurred.
(s) 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
29
acquittal of the outstanding obligations.
Revenue from mileage sales under the frequent flyer award programmes is
recognised when the related transportation services are provided.
(t) Impairment loss
The carrying amounts of long-lived assets are reviewed by the Group
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
income statement.
The Group assesses 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. The provision for impairment loss is
reversed if there has been a change in the estimates used to determine
the recoverable amount by which the impairment loss is reduced. The
reversed amount is recognised as income in the period in the income
statement.
(u) 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.
2. SIGNIFICANT DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER
PRC GAAP AND IFRS
Differences between PRC GAAP and IFRS, which have significant effects on net
(loss)/profit are summarised as follows:
FOR THE SIX MONTHS
ENDED 30 JUNE,
------------------------------
2003 2002
Note RMB'000 RMB'000
---------------------------------------------------------------------------------------------------------
Net (loss)/profit as stated under PRC GAAP (1,164,757) 154,360
Adjustments:
Sale and leaseback accounting (a) (16,423) (3,876)
Staff housing charges (b) (55,500) (42,500)
Effect of the above adjustments on taxation 5,067 15,245
---------------------------------------------------------------------------------------------------------
Net (loss)/profit as stated under IFRS (1,231,613) 123,229
=========================================================================================================
Differences between PRC GAAP and IFRS, which have significant effects on
shareholders' equity are summarised as follows:
30
As at As at
30 June, 31 December,
2003 2002
Note RMB'000 RMB'000
---------------------------------------------------------------------------------------------------------
Shareholders' equity under PRC GAAP 7,729,837 8,894,594
Adjustments:
Sale and leaseback accounting (a) 228,133 244,556
Staff housing charges (b) 363,667 419,167
Revaluation of land use rights (c) (167,932) (169,292)
Effect of the above adjustments on taxation 227,889 224,182
---------------------------------------------------------------------------------------------------------
Shareholders' equity under IFRS 8,381,594 9,613,207
=========================================================================================================
Notes:
(a) In accordance with PRC GAAP, gains on aircraft sale and leaseback
transactions conducted prior to 1 January, 2001 are recorded in the
profit and loss account in the current period as and when incurred;
gains on aircraft sale and leaseback transactions conducted subsequent
to 1 January, 2001 are recorded as deferred credits and amortised over
the terms of the leases on a straight line basis. In accordance with
IFRS, gains on aircraft sale and leaseback transactions which result
in operating leases 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.
(b) In accordance with PRC GAAP, charge arising from staff housing
allocations coordinated by CSAHC on behalf of the Company is directly
charged against retained earnings in the period when the housing is
allocated. In addition, lump sum housing benefits payable is also
charged to retained profits at the beginning of 2001 in accordance
with relevant regulations. In accordance with IFRS, charges arising
from staff housing allocations and lump sum housing benefits are
charged to the relevant accounting periods on an as incurred basis.
(c) In accordance with PRC GAAP, land use rights are recorded at their
revalued amount. In accordance with IFRS, land use rights are carried
at historical cost base with effect from 1 January, 2002. Accordingly,
the unamortised surplus on previous revaluations of the land use
rights is adjusted against the shareholders' equity.
31
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 17, 2003