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, 2004
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of registrant's name into English)
Baiyun International Airport
Guangzhou, People's Republic of China
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.)
Form 20-F.[X] Form 40-F.[ ]
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes .[ ] No. [X]
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-________.)
China Southern Airlines Company Limited (the "Company") on August 27, 2004
published in local newspapers in Hong Kong an announcement in Chinese and
English, respectively, concerning the Company's interim results for the six
months ended June 30, 2004. A copy of the English announcement is included in
this Form 6-K of the Company.
[LOGO] [CHINESE CHARACTERS]
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(A joint stock limited company incorporated in the People's Republic of China
with limited liability)
(STOCK CODE: 1055)
2004 INTERIM RESULTS
The board of directors (the "Board") of China Southern Airlines Company Limited
(the "Company") is pleased to announce the unaudited consolidated interim
results of the Company and its subsidiaries (collectively, the "Group") for the
six months ended 30 June, 2004, together with the comparative figures for the
corresponding period of 2003.
FINANCIAL RESULTS
A. PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
("IFRS")
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
2004 VS 2003
FOR THE SIX MONTHS ENDED 30 JUNE, INCREASE/
2004 2003 2004 2004 (DECREASE)
Note RMB'000 RMB'000 HK$'000 US$'000 %
Operating revenue
Traffic revenue:
Passenger 9,776,002 5,615,796 9,214,819 1,181,162 74.1
Cargo and mail 1,058,276 921,883 997,527 127,864 14.8
---------- --------- ---------- ---------
10,834,278 6,537,679 10,212,346 1,309,026 65.7
Other revenue 259,659 195,193 244,754 31,372 33.0
---------- --------- ---------- ---------
Total operating revenue 2 11,093,937 6,732,872 10,457,100 1,340,398 64.8
---------- --------- ---------- ---------
Operating expenses:
Flight operations 4,722,442 3,516,885 4,451,355 570,578 34.3
Maintenance 1,409,841 1,218,488 1,328,910 170,341 15.7
Aircraft and traffic servicing 1,688,612 1,197,273 1,591,679 204,022 41.0
Promotion and sales 874,393 673,965 824,199 105,646 29.7
General and administrative 551,719 480,598 520,048 66,660 14.8
Depreciation and amortisation 1,083,346 1,016,530 1,021,158 130,893 6.6
Other 8,244 3,465 7,771 996 137.9
---------- --------- ---------- ---------
Total operating expenses 10,338,597 8,107,204 9,745,120 1,249,136 27.5
---------- --------- ---------- ---------
Operating profit/(loss) 755,340 (1,374,332) 711,980 91,262 155.0
---------- --------- ---------- ---------
1
Non-operating income/(expenses):
Share of associated
companies' results 21,156 2,825 19,942 2,556 648.9
Share of jointly controlled
entities' results 4,351 (21,654) 4,101 526 120.1
Profit/(loss) on sale
of fixed assets 2,999 (22,679) 2,827 362 113.2
Interest income 8,994 5,842 8,478 1,087 54.0
Interest expense 3 (343,620) (455,456) (323,895) (41,517) (24.6)
Exchange gain/(loss), net 15,397 (4,774) 14,513 1,860 422.5
Other, net 4,531 (287) 4,271 548 1,678.7
---------- --------- ---------- ---------
Total net non-operating
expenses (286,192) (496,183) (269,763) (34,578) (42.3)
---------- --------- ---------- ---------
Profit/(loss) before taxation
and minority interests 3 469,148 (1,870,515) 442,217 56,684 125.1
Taxation (expense)/credit 4 (94,790) 544,992 (89,349) (11,453) (117.4)
---------- --------- ---------- ---------
Profit/(loss) before minority
interests 374,358 (1,325,523) 352,868 45,231 128.2
Minority interests (108,174) 93,910 (101,964) (13,070) 215.2
---------- --------- ---------- ---------
Profit/(loss) attributable to
shareholders 266,184 (1,231,613) 250,904 32,161 121.6
========== ========= ========== =========
Basic earnings/(loss) per share 5 RMB0.06 RMB(0.37) HK$0.06 US$0.007 116.7
========== ========= ========== =========
Notes:
1 BASIS OF PREPARATION
The unaudited interim financial report has been prepared in accordance
with the requirements of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited ("the Listing Rules"). The
accounting policies have been consistently applied by the Group and are
consistent with those adopted in the 2003 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 air 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. The turnover for the six months ended 30
June, 2003, was stated net of sales tax and contributions to the CAAC
Infrastructure Development Fund.
Sales tax is payable at 3% (2003: 3%) of the Group's traffic revenue in
respect of domestic flights and international/Hong Kong regional outbound
flights. During the six months ended 30 June, 2003, the Group's passenger
revenue for May and June 2003 was exempted from sales tax.
2
Prior to 1 April, 2004, contributions to the CAAC Infrastructure
Development Fund were payable at 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 31 March, 2004 during which the Group was
exempted from contributions to the CAAC Infrastructure Development Fund.
Effective from 1 April, 2004, contributions to the CAAC Infrastructure
Development Fund are payable based on the Group's traffic capacity
deployed on its routes. The contributions now form part of the flight
operations expenses.
The Group's turnover and operating profit/(loss) 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
2004
Traffic revenue 8,341,352 568,609 1,924,317 10,834,278
Other revenue 259,659 - - 259,659
---------- ------- --------- ----------
Turnover 8,601,011 568,609 1,924,317 11,093,937
========== ======= ========= ==========
Operating profit 604,728 38,852 111,760 755,340
========== ======= ========= ==========
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)
========== ======= ========= ==========
3 PROFIT/(LOSS) BEFORE TAXATION AND MINORITY INTERESTS
FOR THE SIX MONTHS
ENDED 30 JUNE,
2004 2003
RMB'000 RMB'000
Profit/(loss) before taxation and minority interests is
arrived at after charging:
Depreciation
- owned assets 815,604 768,595
- assets held under finance leases 254,742 247,935
Staff costs 1,061,144 847,623
Operating lease charges in respect of aircraft 827,665 820,491
Amortisation of deferred expenditure 13,000 13,348
Interest on bank and other loans 174,232 273,841
Finance charges on obligations under finance leases 186,147 231,371
Less: borrowing costs capitalised (16,759) (49,756)
Net interest expense 343,620 455,456
========= =======
3
4 TAXATION EXPENSE/(CREDIT)
FOR THE SIX MONTHS
ENDED 30 JUNE,
2004 2003
RMB'000 RMB'000
PRC income tax 27,953 2,859
Share of taxation of associated companies 3,738 3,791
Share of taxation of jointly controlled entities 5,050 -
------ --------
36,741 6,650
Deferred taxation 58,049 (551,642)
------ --------
94,790 (544,992)
====== ========
On 17 October, 2003, the Company's registered address was moved to
Guangzhou Economic & Technology Development Zone. In accordance with the
Rules and Regulations for Implementation of Income Tax for Foreign
Investment Enterprises and Foreign Enterprises of the PRC and a taxation
approval document from Guangzhou Municipal State Tax Bureau, the Company
is entitled to enjoy the preferential tax policy implemented in the
Guangzhou Economic & Technology Development Zone effective 1 October,
2003. As a result, the Company's income tax rate has been changed from 33%
to 15% beginning from that date.
In respect of the Group's overseas airline activities, the Group has
either obtained exemptions from overseas taxation pursuant to the
bilateral aviation agreements between the overseas 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 EARNINGS/(LOSS) PER SHARE
The calculation of basic earnings/(loss) per share is based on the
consolidated profit attributable to shareholders of RMB266,184,000 (2003:
loss of RMB1,231,613,000) and the weighted average number of shares in
issue during the period of 4,374,178,000 (2003: 3,374,178,000).
There were no dilutive potential shares in existence during the six months
ended 30 June, 2003 and 2004.
6 DIVIDENDS
The Board of Directors of the Company does not recommend the payment of an
interim dividend for the six months ended 30 June, 2004 (2003: 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 of 2003. 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 RMB1.0609 and US$1.00 to RMB8.2766, being the average of the
buying and selling rates as quoted by the People's Bank of China at the
close of business on 30 June, 2004. No representation is made that the RMB
amounts could have been or could be converted into HK$ or US$ at these
rates or at any other certain rates on 30 June, 2004 or on any other date.
4
B. PREPARED IN ACCORDANCE WITH PRC ACCOUNTING RULES AND REGULATIONS ("PRC
GAAP")
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS
ENDED 30 JUNE,
2004 2003
RMB'000 RMB'000
REVENUE FROM PRINCIPAL OPERATIONS 11,166,992 7,057,009
Less: Transfer to CAAC infrastructure
development fund - 250,788
---------- ----------
NET REVENUE FROM PRINCIPAL OPERATIONS 11,166,992 6,806,221
Less: Costs of principal operations 8,775,648 6,817,521
Business taxes and surcharges 318,252 189,302
---------- ----------
PROFIT/(LOSS) FROM PRINCIPAL OPERATIONS 2,073,092 (200,602)
Add: Profit from other operations 94,503 41,177
Less: Selling expenses 869,667 645,175
Administrative expenses 477,827 500,164
Financial expenses 331,437 454,081
---------- ----------
OPERATING PROFIT/(LOSS) 488,664 (1,758,845)
Add: Investment income/(loss) 28,819 (11,802)
Non-operating income 48,349 4,677
Less: Non-operating expenses 25,011 30,233
---------- ----------
PROFIT/(LOSS) BEFORE INCOME TAX 540,821 (1,796,203)
Less: Income tax 88,026 (544,489)
Minority interests 119,716 (86,957)
---------- ----------
NET PROFIT/(LOSS) FOR THE PERIOD 333,079 (1,164,757)
========== ==========
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.
C. DIFFERENCES BETWEEN UNAUDITED INTERIM FINANCIAL RESULTS PREPARED UNDER
IFRS AND PRC GAAP
FOR THE SIX MONTHS
ENDED 30 JUNE,
2004 2003
RMB'000 RMB'000
Net profit/(loss) under PRC GAAP 333,079 (1,164,757)
Adjustments:
Gains on aircraft sale and leaseback transactions (15,355) (16,423)
Losses on staff housing allocation (55,500) (55,500)
Adjustment for revaluation of land use rights 1,936 -
Effect of the above adjustments on taxation 2,024 5,067
------- ----------
Net profit/(loss) under IFRS 266,184 (1,231,613)
======= ==========
5
OPERATING DATA SUMMARY
FOR THE SIX MONTHS 2004 VS 2003
ENDED 30 JUNE, INCREASE/
2004 2003 (DECREASE) (%)
CAPACITY
Available seat kilometres
(ASKs) (million)
-Domestic 20,141 13,588 6,553 48.2
-Hong Kong regional 926 581 345 59.4
-International 4,861 3,369 1,492 44.3
------- ------- ------
Total 25,928 17,538 8,390 47.8
======= ======= ======
Available tonne kilometres
(ATKs) (million)
-Domestic 2,333 1,567 766 48.9
-Hong Kong regional 103 65 38 58.5
-International 1,139 926 213 23.0
------- ------- ------
Total 3,575 2,558 1,017 39.8
======= ======= ======
Kilometres flown (thousand) 156,041 106,641 49,400 46.3
======= ======= ======
Hours flown (thousand) 242 165 77 46.7
======= ======= ======
Number of flight sectors
-Domestic 117,919 80,538 37,381 46.4
-Hong Kong regional 7,549 4,888 2,661 54.4
-International 7,548 5,330 2,218 41.6
------- ------- ------
Total 133,016 90,756 42,260 46.6
======= ======= ======
TRAFFIC
Revenue passenger kilometres
(RPKs) (million)
-Domestic 13,644 7,919 5,725 72.3
-Hong Kong regional 573 293 280 95.6
-International 3,025 1,886 1,139 60.4
------- ------- ------
Total 17,242 10,098 7,144 70.7
======= ======= ======
Revenue tonne kilometres
(RTKs) (million)
-Domestic 1,518 927 591 63.8
-Hong Kong regional 57 31 26 83.9
-International 611 466 145 31.1
------- ------- ------
Total 2,186 1,424 762 53.5
======= ======= ======
6
Passenger tonne kilometres
(million)
- Domestic 1,219 707 512 72.4
- Hong Kong regional 51 27 24 88.9
- International 270 168 102 60.7
------ ----- -----
Total 1,540 902 638 70.7
====== ===== =====
Cargo and mail tonne kilometres
(million)
- Domestic 299 220 79 35.9
- Hong Kong regional 6 4 2 50.0
- International 341 298 43 14.4
------ ----- -----
Total 646 522 124 23.8
====== ===== =====
Passengers carried (thousand)
- Domestic 11,825 6,839 4,986 72.9
- Hong Kong regional 671 383 288 75.2
- International 819 516 303 58.7
------ ----- -----
Total 13,315 7,738 5,577 72.1
====== ===== =====
Cargo and mail carried
(thousand tonne)
- Domestic 218 163 55 33.7
- Hong Kong regional 7 6 1 16.7
- International 42 32 10 31.3
------ ----- -----
Total 267 201 66 32.8
====== ===== =====
LOAD FACTORS
Passenger load factor
(RPK/ASK) (%)
- Domestic 67.7 58.3 9.4 16.1
- Hong Kong regional 61.9 50.4 11.5 22.8
- International 62.2 56.0 6.2 11.1
Total 66.5 57.6 8.9 15.5
====== ===== =====
Average load factor
(RTK/ATK) (%)
- Domestic 65.1 59.2 5.9 10.0
- Hong Kong regional 55.3 47.7 7.6 15.9
- International 53.6 50.3 3.3 6.6
Total 61.1 55.7 5.4 9.7
====== ===== =====
Breakeven load factor (%) 58.3 70.4 (12.1) (17.2)
====== ===== =====
7
YIELD
Yield per RPK (RMB)
- Domestic 0.58 0.57 0.01 1.8
- Hong Kong regional 0.93 1.00 (0.07) (7.0)
- International 0.45 0.43 0.02 4.7
Total 0.57 0.56 0.01 1.8
====== ===== =====
Yield per cargo and
mail tonne kilometre (RMB) 1.64 1.77 (0.13) (7.3)
====== ===== =====
Yield per RTK (RMB)
- Domestic 5.49 5.28 0.21 4.0
- Hong Kong regional 9.98 10.39 (0.41) (3.9)
- International 3.15 2.83 0.32 11.3
Total 4.96 4.59 0.37 8.1
====== ===== =====
FLEET
Number of aircraft in service at
period end
- Boeing 113 103 10 9.7
- Airbus 24 22 2 9.1
- Others 2 - 2 N/A
------ ----- -----
Total 139 125 14 11.2
====== ===== =====
Aircraft utilisation rate
(hours per day)
- Boeing 9.60 7.39 2.21 29.9
- Airbus 9.27 7.02 2.25 32.1
Total 9.40 7.33 2.07 28.2
====== ===== =====
FINANCIAL
Operating cost per ASK (RMB) 0.40 0.46 (0.06) (13.0)
Operating cost per ATK (RMB) 2.89 3.17 (0.28) (8.8)
====== ===== =====
BUSINESS OVERVIEW
In the first half of 2004, with the economy of the PRC entering into a new
growth cycle, the demand for air transportation has continued to increase
following the growth trend in the aviation transportation market which extended
from the second half of last year. The Group's business benefited from such
growth, with the result that the Group recorded different levels of increases in
its passenger volume and passenger load factor, and a net profit of RMB266
million in the first half of this year.
Since last year, the political tension in the Middle East has continued which
led to a surge in oil price and in turn caused an increase in the Group's fuel
cost. On the premise of ensuring flight safety, the Group has adopted various
technical measures to reduce fuel consumption. These measures include making
accurate flight plan and minimizing turnaround time. Meanwhile, the Group has
taken a series of fuel-saving measures such as refueling in areas where the fuel
price is relatively low, so as to minimize the rise in costs.
8
With the approval of the State Council, the Proposal on Price Reform for
Domestic Operation of Civil Airlines (CHINESE CHARACTERS) was implemented on 20
April, 2004, pursuant to which, indicative air ticket prices set by the PRC
government apply to domestic airline operations. The PRC government pricing
authority shifted its function from direct determination of air ticket prices to
indirect supervision through setting of basic prices and their floating ranges.
Chinese airlines can, within the ranges stipulated by the government pricing
authority, determine their air ticket prices autonomously according to market
situations, so that flexible sales strategies may be adopted for the purpose of
maximizing profits. Chinese airlines therefore have greater autonomy in their
operations. Taking advantage of the proposal above, the Group's overall
passenger revenue increased as a result of adjustment of the air ticket pricing
system. The Group is confident to develop its business operations through fair
and healthy competition in a market that is becoming further structured.
For the period under review, the Group's total traffic revenue was RMB10,834
million, an increase of RMB4,296 million or 65.7% from the same period last
year. Meanwhile, the Group's total traffic volume increased by 53.5% to 2,186
million RTKs. The aggregate utilisation rate of the Group's Boeing and Airbus
aircraft was 9.40 hours per day for the period under review, an increase of 2.07
hours or 28.2% from the same period last year.
Passenger revenue for the period under review was RMB9,776 million, up 74.1%
from the same period last year, representing 90.2% of the Group's total traffic
revenue. Passenger traffic volume increased by 70.7% to 17,242 million RPKs.
Domestic passenger revenue was RMB7,882 million, up 74.7% from the same period
last year. Domestic passenger revenue accounted for 80.6% of overall passenger
revenue. Passenger capacity, in terms of ASKs, increased by 48.2% while
passenger traffic volume, in terms of RPKs, increased by 72.3% from the same
period last year, resulting in an increase in passenger load factor of 9.4
percentage points to 67.7%. The passenger yield per RPK increased by 1.8% from
RMB0.57 to RMB0.58, mainly as a result of recording the contributions to the
CAAC infrastructure development fund as an operating expense instead of being
netted off with traffic revenue during the period under review.
On Hong Kong regional routes, the Group recorded passenger revenue of RMB535
million, up 82.6% from the same period last year. Hong Kong regional passenger
revenue accounted for 5.5% of total passenger revenue. Passenger capacity, in
terms of ASKs, increased by 59.4% while passenger traffic volume, in terms of
RPKs increased by 95.6% from the same period last year, resulting in an increase
in passenger load factor of 11.5 percentage points to 61.9%. The passenger yield
per RPK decreased by 7.0% to RMB0.93 mainly due to intensified competition.
Passenger revenue for the Group's international routes amounted to RMB1,359
million, an increase of 67.2% from the same period last year. International
passenger revenue accounted for 13.9% of total passenger revenue. Passenger
capacity, in terms of ASKs, increased by 44.3% while passenger traffic volume,
in terms of RPKs, increased by 60.4% from the same period last year, resulting
in an increase in passenger load factor of 6.2 percentage points to 62.2%. The
passenger yield per RPK increased by 4.7% to RMB0.45 mainly as a result of
recording the contributions to the CAAC infrastructure development fund as an
operating expense instead of being netted off with traffic revenue during the
period under review.
Cargo and mail revenue was RMB1,058 million, an increase of 14.8% from the same
period last year. Cargo and mail revenue accounted for 9.8% of total traffic
revenue. Cargo and mail volume grew by 23.8% to 646 million RTKs from the same
period last year, mainly due to the increase in traffic volume. The overall
yield per cargo and mail tonne kilometre decreased by 7.3% to RMB1.64, mainly
due to the decrease in fares resulting from intensified competition from other
modes of transportation.
The Group's other revenue amounted to RMB260 million, an increase of 33.0% from
the same period last year, primarily due to increases in commission income of
RMB22 million and ground service income of RMB24 million, as a result of the
increase in traffic volume.
9
Total operating expenses increased by 27.5% to RMB10,339 million from the same
period last year, primarily due to increases in aircraft repairs and maintenance
expenses, fuel cost, landing and navigation fees and commission expenses
resulting from the increase in traffic volume during the period under review.
Flight operations expenses increased by 34.3% to RMB4,722 million from the same
period last year. Of these expenses, fuel cost was RMB2,712 million, up 45.8%
from the same period last year, mainly as a result of increases in fuel
consumption and fuel prices. Aircraft insurance costs decreased by 31.5% to
RMB85 million, primarily due to a decrease in aircraft insurance premiums
prescribed by the PRC insurance company. Operating lease payments increased by
0.9% to RMB828 million, mainly due to the net effect of additional rental
payments for new aircraft under operating leases and rental savings resulting
from the cessation of wet leases of Boeing 747 cargo freighters. Air catering
expenses increased by 45.1% to RMB312 million, primarily as a result of an
increase in number of passengers carried during the period under review. Labour
costs for flight personnel increased by 28.5% to RMB491 million, largely due to
an increase in flying hours.
Maintenance expenses increased by 15.7% to RMB1,410 million, due mainly to
increases in aircraft overhaul charges and routine maintenance costs resulting
from the increase in flying hours during the period under review.
Aircraft and traffic servicing expenses increased by 41.0% to RMB1,689 million
from the same period last year, reflecting primarily an increase in number of
landing and takeoffs during the period under review.
Promotion and sales expenses increased by 29.7% to RMB874 million from the same
period last year, primarily as a result of an increase in traffic revenue.
General and administrative expenses increased by 14.8% to RMB552 million from
the same period last year, due mainly to an increase in the scale of operations
during the period under review.
Depreciation and amortisation expenses increased by 6.6% to RMB1,083 million
from the same period last year, reflecting primarily the effect of aircraft
delivered during the second half of 2003 and the period under review.
Interest expense decreased by 24.6% to RMB344 million from the same period last
year, primarily reflecting the combined effect of scheduled debt repayments and
the replacement of certain RMB denominated bank loans of higher interest rates
with US$ denominated bank loans of lower interest rates.
Minority interests increased by 215.2% to RMB108 million from the same period
last year, primarily reflecting the net profits earned by certain subsidiaries
of the Group for the period under review.
As a result of the aforementioned reasons, the Group earned a profit
attributable to shareholders of RMB266 million for the six months ended 30 June,
2004, as compared to a loss attributable to shareholders of RMB1,232 million for
the same period last year.
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
As of 30 June, 2004, the Group's borrowings totalled RMB22,139 million, an
increase of RMB3,679 million from RMB18,460 million as of 31 December, 2003. The
majority of such borrowings were denominated in United States dollars and, to a
smaller extent, in Japanese yen and Hong Kong dollars, with a significant
portion being fixed interest rate borrowings. As of 30 June, 2004, cash and cash
equivalents of the Group totalled RMB2,932 million, an increase of RMB852
million from RMB2,080 million as of 31 December, 2003. Of such balance, 15.2%
was denominated in foreign currencies. Net debts (total borrowings net of cash
and cash equivalents) increased by 17.3% to RMB19,207 million from RMB16,380
million as of 31 December, 2003.
10
As of 30 June, 2004, the shareholders' equity of the Group amounted to RMB12,162
million, an increase of RMB266 million from RMB11,896 million as of 31 December,
2003, reflecting the net profit earned for the period under review.
Net debt/equity ratio of the Group as of 30 June, 2004 was 1.58 times, as
compared to 1.38 times as of 31 December, 2003.
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, as the Group's foreign currency payments generally exceed its
foreign currency receipts. The Group is not able to hedge its foreign currency
exposure effectively other than by retaining its foreign currency denominated
earnings and receipts to the extent permitted by the State Administration of
Foreign Exchange, or subject to certain restrictive conditions, by entering into
forward foreign exchange contracts with authorised PRC banks.
The Group is required to procure a majority of its jet fuel 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 of 30 June, 2004, certain aircraft of the Group with an aggregate carrying
value of approximately RMB13,913 million (as of 31 December, 2003: RMB14,576
million) were mortgaged under certain loan and lease agreements.
CAPITAL AND INVESTING COMMITMENTS
As of 30 June, 2004, the Group had capital commitments of approximately
RMB16,587 million. Of such amounts, RMB14,156 million was related to the
acquisition of aircraft and related flight equipment and RMB1,640 million was
related to the Group's facilities and equipment to be constructed and installed
at the new Guangzhou Baiyun International Airport. The remaining amount of
RMB791 million was related to the Group's other airport and office facilities
and equipment, overhaul and maintenance bases and training facilities.
As of 30 June, 2004, the Group was committed to making a capital contribution of
approximately RMB382 million to its jointly controlled entities.
CONTINGENT LIABILITIES
There have been no material adverse changes in the contingent liabilities of the
Group since 31 December, 2003.
11
RECENT ECONOMIC DEVELOPMENT
Benefited from the strong growth of the China aviation market, the Group's
business has been developing continuously and healthily. On 5 August, 2004, the
opening of the new Guangzhou Baiyun International Airport which is one of our
major operating bases, provides further opportunities for the expansion of the
Company's operations. As one of the management's major goals, the Group will
strive to maintain and promote the Group's market share in the expanding
Guangzhou market. The Group believes that it can improve its ability to adapt to
the civil aviation market and consolidate its leading position amongst the
Chinese airlines by continually implementing innovations, improvements and
upgradings to its various schemes designed to boost sales volume, such as route
manager system and the dismissal of underperformed personnel policy. At the same
time the Group also accelerates the process of integrating its route networks
and transportation capacity, in order to achieve an operation of a traffic
network hub.
As disclosed in an announcement of the Company dated 26 July, 2004, in order to
enhance the Company's capital utilization rate of its capital and hence its
investment return and profit, the Company entered into an asset management
agreement with Zhong Zheng Wei Ye Investment Co., Ltd ("Zhong Zheng") (CHINESE
CHARACTERS) and Centergate Securities Co., Ltd ("Centergate") (CHINESE
CHARACTERS) on 22 July, 2004, pursuant to which the Company and Zhong Zheng
jointly appointed Centergate to manage and invest capital investment of the
Company and Zhong Zheng in the sum of RMB500 million and RMB75 million
respectively. The appointment is effective from 27 July, 2004 to 26 July, 2005.
If the annual rate of return from investment is 6% or below, Centergate will not
charge any assets management fee. If the annual rate of return from investment
exceeds 6%, Centergate will charge an assets management fee equivalent to a sum
which is less than 60% of the excess of 6% annual return from investment of the
Company's capital. The Board has approved the asset management agreement by way
of a written approval in accordance with the articles of association of the
Company and the laws of PRC.
OUTLOOK FOR THE SECOND HALF OF THE YEAR
The country's economy is entering a new cycle of rapid growth, with such growth
being driven by factors including the acceleration of urbanization and upgrading
in consumers' spending. Consumers' spending will provide a new boost for
economic growth. With the patterns of the consumers' spending in automobile,
housing, communication and travelling becoming the main themes of the upgraded
spending pattern, the demand for air transportation will increase. The
commencement of operation of the new Guangzhou Baiyun International Airport and
the opening of the Company's new terminal in Beijing Capital International
Airport also provide ample opportunities for the Group's further development. In
order to match the increase in its capacity for growth, the Group will adjust
its network allocation, utilize the new airport's enlarged transportation
capacity by increasing its transportation volume, with a view to maintaining and
increasing its market share as well as revenues from business operations.
The Company will continue to practise strict cost control to improve the overall
benefits.
USE OF PROCEEDS FROM H SHARE AND A SHARES OFFERINGS
As stated in the 2003 Annual Report of the Company, as of 31 December, 2003, the
Company has applied all the proceeds from H shares offering. The proceeds from A
shares offering has been applied to purchase Boeing aircraft as disclosed in the
A share prospectus of the Company. The uses of proceeds were unchanged.
DIVIDENDS
The Board of Directors does not propose to declare an interim dividend for the
year 2004.
12
STRUCTURE OF SHARE CAPITAL
As of 30 June, 2004, the share capital of the Company comprised 4,374,178,000
shares, of which approximately 50.3% or 2,200,000,000 State-owned Shares were
held by China Southern Air Holding Company ("CSAHC"), approximately 22.86% or
1,000,000,000 A Shares were held by the PRC investors and approximately 26.84%
or 1,174,178,000 H Shares were held by Hong Kong and overseas investors.
NUMBER OF PERCENTAGE TO THE
CATEGORY OF SHARES SHARES HELD TOTAL SHARE CAPITAL (%)
State-owned Shares (held by CSAHC) 2,200,000,000 50.30%
H Shares 1,174,178,000 26.84%
A Shares 1,000,000,000 22.86%
------------- ------
Total share capital 4,374,178,000 100.00%
============= ======
SUBSTANTIAL SHAREHOLDERS
As of 30 June, 2004, 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 DOMESTIC SHARE
H SHARES SHARES CAPITAL
NAME OF TYPE OF TYPE OF NUMBER OF OF THE OF THE OF THE SHORT
SHAREHOLDER SHAREHOLDING SHARE SHARES HELD COMPANY COMPANY COMPANY POSITION
CSAHC Direct holding Domestic 2,200,000,000 - 100% 50.3% -
share
HKSCC Nominees Direct holding H share 1,152,155,998 98.1% - 26.34% -
Limited
Details of the interests of the Company's shareholders as of 30 June, 2004 will
be set forth in the Company's 2004 interim report.
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 2004.
13
COMPREHENSIVE SERVICES AND EMPLOYEE BENEFITS
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.
INTERESTS OF THE DIRECTORS AND SUPERVISORS IN THE EQUITY OF THE COMPANY
As of 30 June, 2004, the interests and short positions of the directors, chief
executive and supervisors 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 of Hong Kong Limited (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 Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing
Rules") are as follows:
% TO % TO
THE TOTAL THE TOTAL % TO
ISSUED ISSUED THE TOTAL
THE SHARE DOMESTIC ISSUED
COMPANY/ NUMBER CAPITAL SHARES H SHARES
ASSOCIATED TYPES OF TYPE OF OF SHARES OF THE OF THE OF THE SHORT
NAME CORPORATION INTEREST SHARE HELD COMPANY COMPANY COMPANY POSITION
Simon To the Company Interest of H Shares 100,000 0.002% - 0.009% -
spouse
(note 1)
Note 1. The spouse of Mr. Simon To is the owner of these 100,000 H Shares of
the Company and accordingly, Mr. Simon To, is taken to be interested in
these 100,000 H Shares by virtue of the SFO.
Save as disclosed above, as of 30 June, 2004, 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.
DESIGNATED DEPOSITS AND OVERDUE TIME DEPOSITS
As of 30 June, 2004, 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.
14
COMPLIANCE WITH THE CODE OF BEST PRACTICE
The Board is not aware of any matter that does not comply with the Code of Best
Practice as set out in Appendix 14 of the Listing Rules.
MATERIAL LITIGATION
The Group was not involved in any material litigation or dispute in the six
months ended 30 June, 2004.
By order of the Board of Directors
YAN ZHI QING
Chairman of the Board of Directors
Guangzhou, the PRC
26 August, 2004
As of the date of this announcement, the Directors of the Company include Yan
Zhi Qing, Liu Ming Qi, Wang Chang Shun, Peng An Fa, Wang Quan Hua, Zhao Liu An,
Zhou Yong Qian, Zhou Yong Jin, Xu Jie Bo and Wu Rong Nan as executive Directors;
and Simon To, Peter Lok, Wei Ming Hai, Wang Zhi and Sui Guang Jun as independent
non-executive Directors.
DOCUMENTS AVAILABLE FOR INSPECTION
Original copy of the Company's 2004 interim report signed by the Chairman of the
Board.
ADDRESS FOR INSPECTION
The Company Secretary Office of the China Southern Airlines Company Limited, No.
278, Ji Chang Lu, Guangzhou, the People's Republic of China.
A detailed interim results announcement containing all the information required
by paragraphs 46(1) to 46(6) of Appendix 16 to the Listing Rules will be
subsequently published on the Stock Exchange's website in due course.
"Please also refer to the published version of this announcement in China Daily"
15
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: August 28, 2004