2006 ANNUAL RESULTS
Air China Ld
20 March 2007
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China with limited
liability)
(Stock Code: 753)
2006 ANNUAL RESULTS ANNOUNCEMENT
GROUP RESULTS
The board of directors (the 'Board') of Air China Limited (the 'Company') is pleased to announce
the audited consolidated financial results of the Company, its subsidiaries and joint ventures
(collectively, the 'Group') for the year ended 31 December 2006 with comparative figures for the
corresponding year of 2005 as follows:
A. Prepared in accordance with International Financial Reporting Standards
CONSOLIDATED INCOME STATEMENT
2006 2005
Notes RMB'000 RMB'000
TURNOVER
Air traffic revenue 3 41,606,130 35,300,826
Other operating revenue 4 3,330,476 2,990,140
---------- ----------
44,936,606 38,290,966
---------- ----------
OPERATING EXPENSES
Jet fuel costs (15,716,174) (11,777,129)
Take-off, landing and depot charges (5,136,388) (4,442,585)
Depreciation (5,274,033) (4,512,680)
Aircraft maintenance, repair and overhaul costs (1,812,647) (1,341,773)
Employee compensation costs (4,313,883) (3,406,825)
Air catering charges (1,320,123) (1,242,933)
Aircraft and engine operating lease expenses (2,069,639) (1,530,754)
Other operating lease expenses (323,752) (211,177)
Other flight operation expenses (3,658,986) (3,744,977)
Selling and marketing expenses (2,026,728) (1,775,026)
General and administrative expenses (766,549) (631,291)
---------- ----------
(42,418,902) (34,617,150)
---------- ----------
PROFIT FROM OPERATIONS 5 2,517,704 3,673,816
Finance revenue 6 1,177,871 1,248,607
Finance costs 6 (1,876,487) (1,773,099)
Gain on disposal of an associate 7 1,592,633 -
Share of profits and losses of associates 517,500 224,930
---------- ----------
PROFIT BEFORE TAX 3,929,221 3,374,254
Tax 8 (624,124) (903,874)
---------- ----------
PROFIT FOR THE YEAR 3,305,097 2,470,380
---------- ----------
---------- ----------
2006 2005
Notes RMB'000 RMB'000
Attributable to:
Equity holders of the Company 2,687,841 2,406,256
Minority interests 617,256 64,124
---------- ----------
3,305,097 2,470,380
---------- ----------
---------- ----------
Dividend: 9
Interim - -
Proposed final 602,767 224,793
---------- ----------
602,767 224,793
---------- ----------
---------- ----------
Earnings per share attributable to equity
holders of the Company: 10
Basic 26.2 cents 25.5 cents
---------- ----------
---------- ----------
Diluted NA NA
---------- ----------
---------- ----------
CONSOLIDATED BALANCE SHEET
2006 2005
RMB'000 RMB'000
NON-CURRENT ASSETS
Property, plant and equipment 54,767,664 47,190,728
Lease prepayments 1,013,529 1,072,066
Interests in associates 9,255,474 3,793,957
Advance payments for aircraft and related equipment 6,976,054 7,329,322
Deposits for aircraft under operating leases 259,681 222,945
Long term receivable from ultimate holding company 431,813 531,813
Available-for-sale investments 6,704 22,266
Deferred tax assets 550,222 498,371
---------- -----------
73,261,141 60,661,468
---------- -----------
CURRENT ASSETS
Inventories 1,015,266 851,315
Accounts receivable 2,835,227 2,764,475
Prepayments, deposits and other receivables 1,077,036 762,435
Financial assets 99,935 127,659
Pledged deposits 211,504 176,575
Non-pledged deposits with maturity of more than
three months when acquired 1,570,777 97,375
Cash and cash equivalents 3,588,404 2,248,386
Due from ultimate holding company 289,933 474,216
Due from related companies 14,378 38,039
---------- -----------
10,702,460 7,540,475
---------- -----------
TOTAL ASSETS 83,963,601 68,201,943
---------- -----------
CURRENT LIABILITIES
Air traffic liabilities (1,530,484) (1,476,619)
Accounts payable (5,221,061) (4,601,364)
Bills payable (651,345) (327,937)
Other payables and accruals (4,192,887) (4,168,435)
Financial liabilities (242,108) (1,791)
Tax payable (534,273) (421,077)
Obligations under finance leases (2,354,905) (1,954,873)
Bank and other loans (11,139,021) (10,401,170)
Provision for major overhauls (47,318) (18,721)
Due to related companies (39,989) (174,151)
---------- -----------
(25,953,391) (23,546,138)
---------- -----------
NET CURRENT LIABILITIES (15,250,931) (16,005,663)
---------- -----------
TOTAL ASSETS LESS CURRENT LIABILITIES 58,010,210 44,655,805
---------- -----------
NON-CURRENT LIABILITIES
Obligations under finance leases (11,247,855) (8,078,671)
Bank loans, other loans and corporate bonds (12,701,977) (12,822,879)
Provision for major overhauls (921,929) (635,718)
Provision for early retirement benefits obligations (201,199) (189,141)
Long term payables (252,591) (352,880)
Deferred income (948,966) (1,025,910)
---------- -----------
(26,274,517) (23,105,199)
---------- -----------
31,735,693 21,550,606
---------- -----------
---------- -----------
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY
Issued share capital 12,251,362 9,433,211
Treasury shares (1,246,955) -
Reserves 18,117,084 10,434,237
Proposed final dividend 602,767 224,793
---------- -----------
29,724,258 20,092,241
MINORITY INTERESTS 2,011,435 1,458,365
---------- -----------
31,735,693 21,550,606
---------- -----------
---------- -----------
Notes:
1. BASIS OF PREPARATION
The Group's consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRSs', which comprise standards and
interpretations approved by the International Accounting Standards Board, and International
Accounting Standards ('IAS') and Standing Interpretations Committee interpretations approved
by the International Accounting Standards Committee that remain in effect) and the disclosure
requirements of the Hong Kong Companies Ordinance.
The Group's consolidated financial statements have been prepared on a historical cost basis,
except for derivative financial instruments which have been measured at fair value in
accordance with IAS 39 'Financial Instruments: Recognition and Measurement'.
Impact of New and Revised IFRSs
The Group has adopted the following new and revised IFRSs for the first time for the current
year's consolidated financial statements. Except for in certain cases giving rise to new and
revised accounting policies and additional disclosures, the adoption of these new and revised
standards and interpretations has had no material effect on the Group's consolidated financial
statements.
IAS 39 and IFRS 4 Amendments Financial Guarantee Contracts
IAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup
Transactions
IAS 39 Amendment The Fair Value Option
IFRIC - Int 4 Determining whether an Arrangement contains a Lease
(a) IAS 39 and IFRS 4 Amendments have revised the scope of IAS 39 to require financial
guarantee contracts that are not considered as insurance contracts to be recognised
initially at fair value and to be measured at the higher of (i) the amount determined in
accordance with IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'; and
(ii) the amount initially recognised less, when appropriate, cumulative amortisation
recognised in accordance with IAS 18 'Revenue'. The adoption of this amendment has had no
material impact on the Group's consolidated financial statements.
(b) IAS 39 Amendment for cash flow hedges of forecast intragroup transactions permits the
foreign currency risk of a highly probable intragroup forecast transaction to qualify as
the hedged item in a cash flow hedge, provided that the transaction is denominated in a
currency other than the functional currency of the entity entering into that transaction
and that the foreign currency risk will affect the entity's financial statements. As the
Group currently has no such transactions, the amendment has had no effect on the Group's
consolidated financial statements.
(c) IAS 39 Amendment for the fair value option has changed the definition of a financial
instrument classified as fair value through profit and loss and has restricted the use of
the options to designate any financial asset or any financial liability to be measured at
fair value through the income statement. The Group had not previously used this option,
and hence the amendment has had no effect on the Group's consolidated financial
statements.
(d) IFRIC - Int 4 provides guidance for determining whether arrangements contain a lease to
which lease accounting must be applied. This interpretation has had no effect on the
Group's consolidated financial statements.
Impact of Issued but not yet Effective IFRSs
The Group has not applied the following new and revised IFRSs which have been issued but are
not yet effective in these financial statements:
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments
IAS 1 Amendment Capital Disclosures
IFRIC - Int 7 Restatement Approach under IAS 29 Financial Reporting in
Hyperinflationary Economies
IFRIC - Int 8 Scope of IFRS 2
IFRIC - Int 9 Applying the Reassessment of Embedded Derivatives
IFRIC - Int 10 Interim Financial Reporting and Impairment
IFRIC - Int 11 IFRS 2 - Group and Treasury Share Transactions
IFRIC - Int 12 Service Concession Arrangements
IFRS 7 shall be applied for annual periods beginning on or after 1 January 2007. The standard
requires disclosures that enable users of the financial statements to evaluate the significance
of the Group's financial instruments and the nature and extent of risks arising from those
financial instruments and also incorporates many of the disclosures requirements of IAS 32.
IFRS 8 shall be applied for annual periods beginning on or after 1 January 2009. The standard
requires disclosures that include general information about how an entity identifies its
operating segments, the types of products and services from which each operating segment
derives its revenues and the information to be disclosed in the identified segments.
The IAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007.
The revised standard will affect the disclosures about qualitative information about the
Group's objective, policies and procedures for managing capital; quantitative data about what
the Company regards as capital and compliance with any capital requirements and the
consequences of any non-compliance.
IFRIC-Int 7, IFRIC-Int 8, IFRIC-Int 9, IFRIC-Int 10, IFRIC-Int 11 and IFRIC-Int 12 shall be
applied for annual periods beginning on or after 1 March 2006, 1 May 2006, 1 June 2006, 1
November 2006, 1 March 2007 and 1 January 2008 respectively.
The Group is in the process of making an assessment of the impact of these new and revised
IFRSs upon initial application. So far, it has concluded that while the adoption of IAS 1
Amendment, IFRS 8 and IFRS 7 may result in new or amended disclosures, these new and revised
IFRSs are unlikely to have a significant impact on the Group's results of operations and
financial position.
2. SEGMENT INFORMATION
Business segments
The following tables present revenue, profit and certain asset, liability and expenditure
information for the Group's business segments for the years ended 31 December 2006 and 2005:
Year ended 31 December 2006
Airport
Airline Engineering terminal
operations services services Others Eliminations Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
REVENUE
Sales to external customers 43,708,683 481,021 496,741 250,161 - 44,936,606
Intersegment sales - 620,302 - 186,000 (806,302) -
----------------------------------------------------------------------
Total revenue 43,708,683 1,101,323 496,741 436,161 (806,302)44,936,606
----------------------------------------------------------------------
----------------------------------------------------------------------
PROFIT FROM OPERATIONS
Segment results 2,281,754 655,137 175,445 211,670 (806,302) 2,517,704
Finance revenue 1,161,287 9,456 - 7,128 - 1,177,871
Finance costs (1,863,002) (11,606) - (1,879) - (1,876,487)
Gain on disposal of an associate 1,592,633 - - - - 1,592,633
Share of profits and losses of
associates 365,639 4,797 135,169 11,895 - 517,500
----------------------------------------------------------------------
Profit before tax 3,538,311 657,784 310,614 228,814 (806,302) 3,929,221
Tax (624,124)
Minority interests (617,256)
---------
Profit attributable to equity holders
of the Company 2,687,841
---------
---------
ASSETS
Segment assets 73,567,864 1,126,923 136,643 872,875 (1,546,400)74,157,905
Interests in associates 8,663,367 112,336 170,115 309,656 - 9,255,474
Unallocated assets 550,222
---------
Total assets 83,963,601
---------
---------
LIABILITIES
Segment liabilities (51,130,149) (639,936) (475,015) (994,935) 1,546,400(51,693,635)
Unallocated liabilities (534,273)
---------
Total liabilities (52,227,908)
---------
---------
OTHER SEGMENT INFORMATION
Capital expenditure
(including additions
to property, plant and
equipment and advance
payments for aircraft,
and related
related equipment) 16,440,786 89,754 27,521 28,191 - 16,586,252
Depreciation of property,
plant and equipment 5,223,438 41,834 1,017 7,744 - 5,274,033
Amortisation of lease prepayments 21,495 - - - - 21,495
Impairment loss on
available-for-sale investments - - - 15,562 - 15,562
Decrease in fair value of
financial assets, net 268,041 - - - - 268,041
Provision/(write-back of provision)
for doubtful debts, net 3,536 (3,579) - (1,859) - (1,902)
Recognition of deferred income 76,943 - - - - 76,943
----------------------------------------------------------------------
Year ended 31 December 2005
Airport
Airline Engineering terminal
operations services services Others Eliminations Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
REVENUE
Sales to external customers 37,380,669 376,437 320,477 213,383 - 38,290,966
Intersegment sales - 619,098 - 108,873 (727,971) -
-----------------------------------------------------------------------
Total revenue 37,380,669 995,535 320,477 322,256 (727,971) 38,290,966
-----------------------------------------------------------------------
-----------------------------------------------------------------------
PROFIT FROM OPERATIONS
Segment results 3,367,949 772,877 123,679 137,282 (727,971) 3,673,816
Finance revenue 1,231,986 8,512 37 8,072 - 1,248,607
Finance costs (1,762,481) (7,504) (2,320) (794) - (1,773,099)
Share of profits and losses of
associates 81,645 (8,628) 148,096 3,817 - 224,930
-----------------------------------------------------------------------
Profit before tax 2,919,099 765,257 269,492 148,377 (727,971) 3,374,254
Tax (903,874)
Minority interests (64,124)
---------
Profit attributable to equity holders
of the Company 2,406,256
---------
---------
ASSETS
Segment assets 63,703,084 1,046,799 122,474 668,200 (1,630,942) 63,909,615
Interests in associates 3,312,608 18,700 192,084 270,565 - 3,793,957
Unallocated assets 498,371
---------
Total assets 68,201,943
---------
---------
LIABILITIES
Segment liabilities (46,191,851) (489,320) (404,229) (775,802) 1,630,942 (46,230,260)
Unallocated liabilities (421,077)
---------
Total liabilities (46,651,337)
---------
---------
OTHER SEGMENT INFORMATION
Capital expenditure
(including additions to
property, plant and
equipment and advance
payments for aircraft,
and related related
equipment) 13,222,058 37,219 855 30,836 - 13,290,968
Depreciation of property,
plant and equipment 4,409,021 38,381 61,303 3,975 - 4,512,680
Amortisation of lease prepayments 19,555 - - - - 19,555
Increase in fair value of
financial assets, net 125,868 - - - - 125,868
Provision/(write-back of provision)
for doubtful debts, net 14,836 118 - (231) - 14,723
Recognition of deferred income 76,943 - - - - 76,943
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Geographical segments
The following tables present the Group's consolidated revenue by geographical segment for the
years ended 31 December 2006 and 2005:
Year ended 31 December 2006
Asia
Hong Pacific
Mainland Kong and North Japan and and
China Macau Europe America Korea others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Sales to external customers
and total revenue 23,868,328 2,770,579 6,203,536 3,806,678 4,256,753 4,030,732 44,936,606
------------------------------------------------------------------------
------------------------------------------------------------------------
Year ended 31 December 2005
Asia
Hong Pacific
Mainland Kong and North Japan and and
China Macau Europe America Korea others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Sales to external customers
and total revenue 20,490,055 2,269,256 5,081,774 2,964,247 4,250,255 3,235,379 38,290,966
------------------------------------------------------------------------
3. AIR TRAFFIC REVENUE
Air traffic revenue comprises revenue from the airline operations business and is stated net
of business tax. An analysis of the Group's air traffic revenue during the year is as follows:
Group
2006 2005
RMB'000 RMB'000
Passenger 37,564,903 31,584,426
Cargo and mail 4,041,227 3,716,400
--------------------------
41,606,130 35,300,826
--------------------------
--------------------------
Pursuant to the relevant PRC business tax rules and regulations, air traffic revenue for all
domestic and outbound international flights is subject to business tax at a rate of 3%. All
inbound international and Hong Kong/Macau regional flights are exempted from business tax.
Business tax incurred and set off against air traffic revenue for the years ended 31 December
2006 and 2005 amounted to approximately RMB1,039 million and RMB846 million, respectively.
4. OTHER OPERATING REVENUE
Group
2006 2005
RMB'000 RMB'000
Bellyhold income from a joint venture 1,518,925 1,496,302
Aircraft engineering income 481,021 376,437
Ground service income 496,741 320,477
Air catering income 136,581 109,591
Government grants:
Recognition of deferred income 76,943 76,943
Others 124,420 41,250
Service charges on return of unused flight tickets 110,825 97,951
Cargo handling service income 63,938 67,822
Sale of materials 15,055 11,899
Import and export service income 10,676 12,311
Training service income 17,839 19,029
Aircraft and related equipment lease income 1,323 7,072
Gain on disposal of property, plant and equipment, net 17,353 74,474
Others 258,836 278,582
--------------------------
3,330,476 2,990,140
--------------------------
--------------------------
5. PROFIT FROM OPERATIONS
The Group's profit from operations is arrived at after charging/(crediting):
Group
2006 2005
RMB'000 RMB'000
Auditors' remuneration 13,511 11,029
Depreciation 5,274,033 4,512,680
Gain on disposal of property, plant and equipment, net (17,353) (74,474)
Loss on derecognition of property, plant and equipment 70,206 430,010
Amortisation of lease prepayments 21,495 19,555
Minimum lease payments under operating leases:
Aircraft and engines 2,069,639 1,530,754
Land and buildings 323,752 211,177
Repair and maintenance costs 2,556,487 2,078,382
Impairment loss on available-for-sale investments 15,562 -
Provision/(write-back of provision) for doubtful debts, net (1,902) 14,723
--------------------------
--------------------------
6. FINANCE REVENUE AND FINANCE COSTS
An analysis of the Group's finance revenue and finance costs during the year is as follows:
Finance revenue
Group
2006 2005
RMB'000 RMB'000
Exchange gains, net 983,692 918,297
Interest income 80,689 108,481
Gains on fuel derivatives, net 113,225 221,661
Dividend income from available-for-sale investments 265 168
--------------------------
1,177,871 1,248,607
--------------------------
--------------------------
Finance costs
Group
2006 2005
RMB'000 RMB'000
Interest on bank loans, other loans and corporate bonds 601,153 663,465
Interest on finance leases 1,380,781 1,128,943
--------------------------
Total interest 1,981,934 1,792,408
Less: Interest capitalised (105,447) (19,309)
--------------------------
1,876,487 1,773,099
--------------------------
--------------------------
The interest capitalisation rates ranging from 4.5% to 6.0% (2005: at 4.5%) per annum
represent the cost of related borrowings.
7. GAIN ON DISPOSAL OF AN ASSOCIATE
The gain on disposal of an associate relates to the sale of the Group's equity interest in
Hong Kong Dragon Airlines Limited ('Dragonair') to Cathay Pacific Airways Limited ('Cathay')
on 28 September 2006.
8. TAX
According to the PRC Enterprise Income Tax Law, the Company, its subsidiaries, joint ventures
and associates established in the PRC are subject to enterprise income tax at rates ranging
from 12% to 33% (2005: 15% to 33%) on their taxable income.
Hong Kong profits tax has been provided at a rate of 17.5% (2005: 17.5%) on the estimated
assessable profits arising in Hong Kong during the year.
In accordance with the PRC Enterprise Income Tax Law and an approval document issued by the
relevant tax bureau on 28 November 2005 (the 'Approval Document'), Air China Cargo Co., Ltd.
('Air China Cargo') was subject to a state enterprise income tax rate of 24% and was fully
exempted from state enterprise income tax for the year ended 31 December 2005, followed by a
3-year 50% reduction in state enterprise income tax during the period between 1 January 2006
and 31 December 2008. In addition, pursuant to the Approval Document, Air China Cargo has been
granted a 4-year local enterprise income tax exemption during the period between 1 January
2005 and 31 December 2008, followed by a 5-year 50% reduction in local enterprise income tax
during the period between 1 January 2009 and 31 December 2013.
The determination of current and deferred income tax was based on enacted tax rates. The major
components of the Group's income tax charge are as follows:
Group
2006 2005
RMB'000 RMB'000
Current income tax:
Current income tax charge - Mainland China 675,975 626,161
Deferred income tax:
Relating to origination and reversal of temporary differences (51,851) 277,713
--------------------------
Income tax charge for the year 624,124 903,874
--------------------------
--------------------------
The share of tax attributable to associates amounting to RMB113,577,000 (2005: RMB33,640,000)
is included in the 'Share of profit and losses of associates' on the face of the consolidated
income statement.
A reconciliation of income tax expense applicable to profit before tax at the statutory income
tax rates in Mainland China to income tax expense at the Group's effective income tax rate, and
a reconciliation of the applicable rate (i.e., the statutory tax rate) to the effective tax
rate are as follows:
Group
2006 2005
RMB'000 % RMB'000 %
Profit before income tax 3,929,221 3,374,254
---------- --------
---------- --------
At statutory income tax rate of 33% 1,296,643 33.0 1,113,504 33.0
Tax effect of share of profits and losses of
associates, net (170,775) (4.3) (74,227) (2.2)
Lower income tax rates of other territories (20,718) (0.5) (15,024) (0.4)
Tax exemption - - (49,558) (1.5)
Income not subject to tax (614,323) (15.6) (115,131) (3.4)
Expenses not deductible for tax purposes 125,004 3.2 26,941 0.8
Tax losses not recognised 8,293 0.2 12,537 0.4
Effect on opening deferred income tax assets due to
decrease in other territories' income tax rates - - 4,832 0.1
-------------------------------------------------
At the Group's effective income tax rate 624,124 16.0 903,874 26.8
-------------------------------------------------
-------------------------------------------------
As at 31 December 2006, there was no significant unrecognised deferred tax liability (2005:
Nil) for taxes that would be payable on the unremitted earnings of certain of the Group's
subsidiaries and joint ventures as the Directors of the Company have no intention to request
remittance of any significant amount of earnings to the Company in the foreseeable future.
There are no income tax consequences attaching to the payment of dividends by the Company to
its shareholders.
9. APPROPRIATIONS
Company
2006 2005
RMB'000 RMB'000
Proposed final dividend - RMB0.492
(2005: RMB0.2383) per 10 shares 602,767 224,793
--------------------
--------------------
The proposed final dividend of RMB0.492 (2005: RMB0.2383) per 10 shares for the year is subject
to the approval of the Company's shareholders at the forthcoming annual general meeting.
Cash dividends to shareholders in Hong Kong will be paid in Hong Kong dollars.
10. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
The calculation of basic earnings per share for the year ended 31 December 2006 is based on the
profit attributable to equity holders of the Company for the year ended 31 December 2006 of
approximately RMB2,688 million, and the weighted average number of 10,256,259,793 ordinary
shares in issue during the year, as adjusted to reflect the new issue of 1,639,000,000 A shares
and 1,179,151,364 H shares during the year and the effect of reciprocal shareholding with
Cathay.
The calculation of basic earnings per share for the year ended 31 December 2005 is based on the
profit attributable to equity holders of the Company for the year ended 31 December 2005 of
approximately RMB2,406 million and the weighted average number of 9,422,728,916 ordinary shares
in issue during the year, as adjusted to reflect the new issue of 382,592,727 H shares on the
exercise of the over-allotment options granted to international underwriters to subscribe for
the Company's H shares during that year.
Diluted earnings per share for the years ended 31 December 2006 and 2005 have not been
disclosed because no diluting events existed during these years.
B. Prepared in accordance with Accounting Standards for Business Enterprises and Accounting System
for Business Enterprises applicable in the People's Republic of China (collectively the 'PRC
GAAP')
CONSOLIDATED INCOME STATEMENT
2006 2005
RMB'000 RMB'000
Revenue from principal operations 47,005,820 40,081,238
Less: Costs of principal operations 38,969,321 32,014,851
Taxes and surcharges on principal operations 1,113,751 971,425
-----------------------
Profit from principal operations 6,922,748 7,094,962
Add: Profit from other operations 325,059 222,005
Less: Operating expenses 2,624,428 2,232,451
Administrative expenses 2,182,503 1,853,180
Finance costs 913,557 840,048
-----------------------
Profit from operations 1,527,319 2,391,288
Add: Investment income 3,229,836 69,540
Subsidy income 124,420 52,784
Non-operating income 74,215 146,122
Less: Non-operating expenses 90,382 101,162
-----------------------
Total profit 4,865,408 2,558,572
Less: Income tax 689,625 642,354
Minority interests 984,402 206,931
-----------------------
Net profit 3,191,381 1,709,287
-----------------------
-----------------------
CONSOLIDATED BALANCE SHEET
31 December 31 December
2006 2005
RMB'000 RMB'000
ASSETS
Current assets:
Cash and bank balances 5,517,757 2,744,162
Accounts receivable 3,233,146 3,063,390
Other receivables 984,679 869,164
Prepayments 119,970 36,284
Interest receivables - 1,016
Subsidy receivables 165,282 107,460
Inventories 1,253,973 1,090,691
Deferred expenses 183,615 114,730
-----------------------
Total current assets 11,458,422 8,026,897
-----------------------
Long-term investments:
Long-term equity investments 8,929,482 2,316,815
Equity investments differences 2,079,808 869,020
Long-term debt investments 47,318 48,994
-----------------------
Total long-term investments 11,056,608 3,234,829
Less: Provision for impairment in long-term investments 15,562 -
-----------------------
Net carrying amount of long-term investments 11,041,046 3,234,829
-----------------------
Fixed assets:
Fixed assets, at cost 65,171,682 54,173,359
Less: Accumulated depreciation 10,563,041 6,247,726
-----------------------
Net book value of fixed assets 54,608,641 47,925,633
Less: Provisions for impairment in fixed assets 132 60
-----------------------
Net book value of fixed assets after impairment 54,608,509 47,925,573
Construction-in-progress 9,457,000 9,368,638
-----------------------
Total fixed assets 64,065,509 57,294,211
-----------------------
Intangible assets 552,460 506,023
-----------------------
Total assets 87,117,437 69,061,960
-----------------------
-----------------------
31 December 31 December
2006 2005
RMB'000 RMB'000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term loans 8,509,375 7,477,498
Bills payable 690,545 327,938
Accounts payable 5,582,356 5,003,444
Domestic air traffic liabilities 378,624 353,822
International air traffic liabilities 1,151,311 1,123,702
Receipts in advance 55,197 68,317
Welfare payable 150,549 217,804
Taxes payable 1,220,888 861,806
Other creditors 2,051,649 2,371,333
Dividend payable 14,136 -
Other payables 398,552 365,419
Accrued expenses 919,896 810,299
CAAC Infrastructure Development Fund payable 122,086 120,595
Long-term liabilities repayable within one year 5,315,360 5,133,430
-----------------------
Total current liabilities 26,560,524 24,235,407
-----------------------
Long-term liabilities:
Long-term loans 10,251,206 10,182,992
Corporate bonds 3,000,000 3,000,000
Long-term payables 1,140,234 953,097
Obligations under finance leases 11,247,855 8,078,671
-----------------------
Total liabilities 52,199,819 46,450,167
-----------------------
Minority interests 3,677,639 2,771,771
-----------------------
Shareholders' equity:
Share capital 12,251,362 9,433,211
Capital reserve 14,291,942 8,505,379
Reserve funds 768,398 362,884
Including: Statutory public welfare fund - 101,371
Retained profits 4,131,428 1,582,711
Including: Discretionary reserve fund proposed
by Board of Directors 317,902 84,303
Dividend proposed by Board of Directors 602,767 224,793
Exchange differences arising on translation of
foreign currency denominated financial statements (203,151) (44,163)
-----------------------
Total shareholders' equity 31,239,979 19,840,022
-----------------------
Total liabilities and shareholders' equity 87,117,437 69,061,960
-----------------------
-----------------------
Effects of significant differences between IFRS and PRC GAAP
The consolidated income statement and consolidated balance sheet set out in Section A have
been prepared in accordance with IFRS.
Effects of significant differences between the net profit for the year under PRC GAAP and
profit attributable to the equity holders of the Company under IFRS are analysed as follows:
2006 2005
RMB'000 RMB'000
Net profit for the year under PRC GAAP 3,191,381 1,709,287
Additional depreciation from restatement of costs of fixed assets (159,746) (164,391)
Reversal of depreciation and amortisation arising on revaluation 490,369 535,663
Reversal of amortisation of equity investment differences 105,141 80,265
Unrealised gain/(loss) on fuel derivatives (268,041) 125,867
Effect of component accounting 234,344 311,058
Gain on disposal of an associate (964,366) -
Share of profits and losses of associates 24,495 53,409
Provision for early retirement benefit obligations (12,056) 6,046
Government grant (10,987) 6,417
Deferred tax 51,851 (277,713)
Others 5,456 20,348
-----------------------
Profit for the year attributable to equity holders
of the Company under IFRS 2,687,841 2,406,256
-----------------------
-----------------------
Effects of significant differences between the shareholders' equity under PRC GAAP and the
equity attributable to equity holders of the Company under IFRS are analysed as follows:
2006 2005
RMB'000 RMB'000
Shareholders' Equity under PRC GAAP 31,239,980 19,840,022
Restatement of costs of fixed assets 892,828 1,052,574
Reversal of revaluation surplus (1,419,784) (1,910,153)
Reversal of equity investment differences (11,327) 737,070
Recognition of financial assets/(liabilities), net (142,173) 125,868
Effect of component accounting 545,403 311,058
Unrealised gain on disposal of an associate (218,721) -
Share of net assets of associates 183,801 122,558
Provision for early retirement benefit obligations (201,198) (189,141)
Government grant (427,141) (416,155)
Elimination of reciprocal interest in Cathay (1,246,955) -
Deferred tax 550,222 498,371
Others (20,677) (79,831)
-----------------------
Equity attributable to equity holders of
the Company under IFRS 29,724,258 20,092,241
-----------------------
-----------------------
2006 REVIEW
During 2006, the Group continued to secure a leading position in the PRC aviation industry and to
maintain a proactive approach for improvement in all aspects such as flight safety, operating
performance, capital operation, brand construction and corporate restructuring. While proactively
coping with the rising jet fuel price and intense market competition, the Company completed the
restructuring of the shareholdings of the Company, Cathay, China National Aviation Company Limited
('CNAC'), CITIC Pacific Limited and Swire Pacific Limited in Cathay and Dragonair ('Project Star')
and the listing of its A shares, and made substantial progress in joining airline alliance. With
the change in our growth mode, our ability to resist potential risks has been further enhanced.
During 2006, the Company recorded 704,000 hours of safe flight, representing an increase of 17.9%
as compared to the corresponding period last year. In order to ensure flight safety, the Company
promoted the systematic safety management step by step, strengthened flight training, improved
operating organization and boosted the level of aircraft maintenance. During 2006, the Company,
together with Air China Cargo and Air Macau Company Limited ('Air Macau'), recorded a total
traffic turnover of 9.174 billion tonne kilometres and carried 33,971,200 passengers and handled
1,019,359 tonnes of cargos and mails, representing an increase of 16.8%, 14.2% and 15.2%
respectively as compared to the corresponding period last year. The Group's total revenue from
business operations amounted to RMB44.94 billion, representing an increase of 17.4% as compared to
RMB38.291 billion for the corresponding period last year. The operating profit was RMB2.518
billion, representing a decrease of 31.5% as compared to RMB3.674 billion for the corresponding
period last year. Net profit attributable to equity holders was RMB2.688 billion, representing an
increase of 11.7% from RMB2.406 billion in 2005. We continued to maintain a leading position among
fellow airlines in the Mainland China in terms of profitability.
In 2006, the Group (including Air China Cargo and Air Macau) experienced a net increase in the
number of aircraft by 29 during the year such that the total number of aircraft amounted to 225.
The Company focused on enhancing the flight capacity while constructing hubs and network. As
network operation capability was strengthened, the input to the available seat kilometres in
international routes increased by 12.7% as compared to last year. The establishment of the South
China base, the south-western marketing centre and the regional headquarters in Japan, Europe and
Western America marked new progress in constructing sales channels. The promotion of the
systematic management of budgeting workflow and the establishment and implementation of 14
management divisions at the Company level resulted in a noticeable increase in revenue and
reduction in cost and evidenced new achievements in cost control.
In 2006, the Company continuously strengthened its service and brand management. By adhering to
the notion of providing safe, convenient, comfortable and satisfactory services to passengers (the
'SCCS Services'), the Company continued to develope and improve new products in the first and
business classes, and offered a series of services and products in connection with the Olympic
Games for its passenger cabins. The Company developed its in-flight entertainment products,
implemented the plan of improving service details and promoted fine service by fine management.
The Company expanded its one-stop boarding services, carried out comprehensive service reform and
endeavoured to perfect operation quality. For the continuous improvement of our brand recognition,
the Company won 17 influential brand-name-related awards, among which the Company was awarded the
'Best Airliner of the Year' by the Asia Pacific Aviation Centre and won the 'Passengers
Satisfaction Award' for the third consecutive year in travelers' satisfaction survey. The Company
was also titled the 'Top 25 Model Brand Enterprises in China' in the joint press release of the
Overall Ranking List of China Brand Name and the China Summit Forum. The Company made positive
progress in corporate restructuring. The Company has set up a preliminary new model for business
management and control, under which a framework of vertical management of four major systems,
namely the business, flight, transportation control and information, was initially developed and
the efficiency achieved through the consolidation of strategic resources emerged. Upon the
announcement of the new organizational structure and system of the Company, the organization and
management systems that met the strategic requirements of the Company were generally established.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following discussion and analysis are based on the Group's consolidated financial statements
prepared in accordance with IFRS, and are designed to assist the readers in understanding the
information provided in this announcement so as to fully comprehend the financial performance of
the Group as a whole.
Profit from Operations and Profit Attributable to Equity Holders
In 2006, the Group's profit from operations was RMB2.518 billion, representing a decrease of 31.5%
compared with 2005. The decrease was mainly due to an increase in costs of operations. Net profit
attributable to equity holders amounted to RMB2.688 billion, representing an increase of 11.7%
compared with 2005. The increase in profit attributable to equity holders of the Group was mainly
due to the gain on disposal of Dragonair.
The consolidated financial statements under IFRS have included the full operating results of all
subsidiaries of the Group as well as the partial operating results of joint ventures through
proportionate consolidation. During the reporting period, share of profits from associates was
RMB518 million, representing an increase of 130.1% over the corresponding period last year,
primarily due to the share of profit of Cathay, which has been accounted for as an associate of
the Group after the aforesaid restructuring during 2006.
Profit Contribution by Business Segments
(RMB'000)
2006 2005 Change (%)
Airline operations 2,281,754 3,367,949 -32.3
Engineering services 34,835 153,779 -77.3
Airport terminal services 175,445 123,679 41.9
Others 25,670 28,409 -9.6
-----------------------------------------
Profit from operations 2,517,704 3,673,816 -31.5
-----------------------------------------
-----------------------------------------
Earnings Per Share
In 2006, the Group's earnings per share were RMB26.2 cents, representing an increase of 2.7%
compared with RMB25.5 cents for 2005. This was mainly due to a profit growth for 2006.
Revenue Contribution by Business Segment
(RMB'000)
2006 2005 Change (%)
Airline operations 43,708,683 37,380,669 16.9
Engineering services 481,021 376,437 27.8
Airport terminal services 496,741 320,477 55.0
Others 250,161 213,383 17.2
-----------------------------------------
Operating revenue 44,936,606 38,290,966 17.4
-----------------------------------------
-----------------------------------------
In 2006, the Group's operating revenue was RMB44.937 billion, representing an increase of 17.4%
compared with 2005. The increase in the Group's operating revenue was mainly attributable to the
rapid growth of the revenue from airline operation business, which increased by 16.9% in 2006. In
2006, the daily utilization of aircraft was 10.1 hours in average, which was approximately the
same as that of last year.
Operating Revenue
The Group's operating revenue principally included air traffic and other operating revenue. Most
of our operating revenue was from air traffic revenue, which represented 92.6% of the Group's
operating revenue in 2006, while the other operating revenue represented only 7.4% of the total
operating revenue. Among the air traffic revenues in 2006, 90.3% was generated from passenger
services and 9.7% was from cargo and mail transport.
The revenue generated from passenger traffic increased by 18.93% to RMB37.565 billion in 2006 from
RMB31.584 billion in 2005. It was mainly attributable to the increase in transport capacity,
passenger load factor and profitability level. The Group's passenger traffic capacity in terms of
available seat kilometres increased by 12.7% to 83.492 billion tonne kilometres in 2006 from
74.087 billion tonne kilometres in 2005. The Group's passenger load factor rose to 75.9% in 2006
compared with 74.0% in 2005. The Company's passenger yield increased by 1.7% to RMB0.59 in 2006
from RMB0.58 in 2005 (Air Macau inclusive).
Revenue from cargo service increased by 8.7% to RMB4.041 billion in 2006 from RMB3.716 billion in
2005. Such increase was primarily due to the improved the traffic capacity, cargo and mail load
factor and profitability level. Cargo transport capacity in terms of available freight
tonne-kilometres increased by 20.4% to 6.404 billion tonne kilometres in 2006 from 5.319 billion
tonne kilometres in 2005.
The overall load factor of cargo transport decreased to 54.3% in 2006 from 55.1% in 2005. The
overall cargo yield decreased by 6.8% to RMB2.06 per tonne kilometre in 2006 from RMB2.21 per
tonne kilometre in 2005.
Revenue Contribution by Geographical Segment
(RMB'000)
2006 2005 Change (%)
Mainland China 23,868,328 20,490,055 16.5
Hong Kong and Macau 2,770,579 2,269,256 22.1
Europe 6,203,536 5,081,774 22.1
North America 3,806,678 2,964,247 28.4
Japan and Korea 4,256,753 4,250,255 0.2
Asia Pacific and others 4,030,732 3,235,379 24.6
-----------------------------------------
Operating revenue 44,936,606 38,290,966 17.4
-----------------------------------------
-----------------------------------------
Operating Expenses
(RMB'000)
2006 2005 Change (%)
Jet fuel costs 15,716,174 11,777,129 33.4
Take-off, landing and depot charges 5,136,388 4,442,585 15.6
Depreciation 5,274,033 4,512,680 16.9
Aircraft maintenance, repair and overhaul costs 1,812,647 1,341,773 35.1
Employee compensation costs 4,313,883 3,406,825 26.6
Air catering charges 1,320,123 1,242,933 6.2
Others 8,845,654 7,893,225 12.1
-----------------------------------------
Total operating expenses 42,418,902 34,617,150 22.5
-----------------------------------------
-----------------------------------------
The operating expenses of the Group primarily comprise jet fuel costs, take-off, landing and depot
charges, depreciation, aircraft maintenance, repair and overhaul expenses, employee compensation
costs and air catering charges. In 2006, the Group recorded RMB42.419 billion in operating
expenses, representing an increase of 22.5% compared with RMB34.617 billion in 2005, primarily due
to the increase of jet fuel costs.
Jet fuel costs increased by 33.4% to RMB15.716 billion in 2006 from RMB11.777 billion in 2005 and
accounted for 37.0% of operating expenses compared with 34.0% in 2005. This increase was primarily
due to a rise in jet fuel price and an increase in consumption of jet fuel as a result of the
increased number of flights operated.
Take-off, landing and depot charges increased by 15.6% to RMB5.136 billion in 2006 from RMB4.443
billion in 2005, primarily due to the increased number of flights operated.
Depreciation expenses increased by 16.9% to RMB5.274 billion in 2006 from RMB4.513 billion in
2005, primarily due to the increased number of aircraft.
Aircraft maintenance, repair and overhaul costs increased by 35.1% to RMB1.813 billion in 2006
from RMB1.342 billion in 2005, primarily due to the substantial increase of provision for overhaul
expenses because of the increased number of aircraft under operating leases.
Employee compensation costs increased by 26.6% to RMB4.314 billion in 2006 from RMB3.407 billion
in 2005, primarily due to the increase in the number of flight hours, number of employees and
employees' income.
Air catering charges increased by 6.2% to RMB1.320 billion in 2006 from RMB1.243 billion in 2005,
primarily due to an increase in the number of passengers carried.
Other operating expenses, including the aircraft and engines operating lease expenses, other
flight operating expenses, the selling and marketing expenses and the general and administrative
expenses, increased by 12.1% to RMB8.846 billion in 2006 from RMB7.893 billion in 2005.
Expenses on operating leases of aircraft and engines increased from RMB1.531 billion in 2005 to
RMB2.070 billion in 2006, mainly due to the increase in the number of leased aircraft, in
particular the wet leases of aircraft from Dragonair and Shandong Airlines Company Limited.
Other flight operating expenses decreased to RMB3.659 billion in 2006 from RMB3.745 billion in
2005. By excluding the loss on derecognition of property, plant and equipment, other flight
operation actually increased to RMB3.589 billion in 2006 from RMB3.315 billion in 2005.
Selling and marketing expenses increased to RMB2.027 billion in 2006 from RMB1.775 billion in
2005, as a result of an increase in operating revenue.
Analysis of Assets
As at 31 December 2006, the total assets of the Group amounted to RMB83.964 billion, representing
an increase of 23.1% from 31 December 2005, of which the current assets accounted for RMB10.702
billion, representing 12.7% of the total assets, while the non-current assets accounted for
RMB73.262 billion, representing 87.3% of the total assets. Among the current assets, cash and cash
equivalents were RMB3.588 billion, increasing by 59.6% compared with those recorded as at 31
December 2005, while accounts receivable increased by 2.6% to RMB2.835 billion compared with those
recorded as at 31 December 2005. Among the non-current assets, the net book value of property,
plant and equipment as at 31 December 2006 was RMB54.768 billion, representing an increase of
16.1% compared with those recorded as at 31 December 2005.
Assets Mortgage
As at 31 December 2006, the Group mortgaged certain aircraft with an aggregate net book value of
approximately RMB34.214 billion (compared with RMB26.958 billion as at 31 December 2005) pursuant
to certain loan and finance lease agreements. In addition, certain bank deposits of the Group in
the sum of approximately RMB212 million (compared with approximately RMB177 million as at 31
December 2005) were pledged against the obligations in respect of part of the Group's loans and
certain operating leases and financial derivatives. The Group also pledged certain number of
shares in an associate with an aggregate market value of approximately RMB7.695 billion as at 31
December 2006 (no such pledge existed as at 31 December 2005).
Debt Structure of the Group
(Unit: in RMB'000)
Bank, other loans Obligations under
and corporate bonds finance leases
31 December 31 December 31 December 31 December
2006 2005 2006 2005
Within one year 11,139,021 10,401,170 2,354,905 1,954,873
In the second year 2,649,697 2,747,158 1,996,954 1,949,802
In the third to fifth years, inclusive 5,581,186 4,699,654 6,061,709 6,071,492
After five years 4,471,094 5,376,067 3,189,192 57,377
------------------------------------------------------
Total 23,840,998 23,224,049 13,602,760 10,033,544
------------------------------------------------------
------------------------------------------------------
A significant portion of the Group's debts will fall due within one year. The Group will ensure
its repayment of debts when due and payables with bank loans, its own capital and by other means.
The Group is not exposed to any insolvency risk for the reasons set out in the sections headed
'Liquidity and Capital Resources' and 'Objectives and Policy of Financial Risk Management'.
Gearing Ratio
As at 31 December 2006, the Group's gearing ratio, which represents total liabilities divided by
total assets, was 62.2%, dropped by 6.2 percentage points from 68.4% as at 31 December 2005.
Interest Expense
In 2006, interest expense of the Group increased from RMB1.79 billion in 2005 to RMB1.98 billion,
primarily due to the expanded scale of debts.
Interest Cover
In 2006, earnings before finance revenue and finance costs (including interest expense, interest
income, exchange gains/losses, net gains on fuel derivatives and dividend income from
available-for-sale investments), enterprise income tax, gain on disposal of an associate, share of
profits and losses of associates and depreciation ('EBITDA') as computed under IFRS, divided by
finance costs, were 4.15 times, compared with 4.62 times in 2005. The increase in interest cover
was attributable to the rise in EBITDA.
Commitments and Contingent Liabilities
As at 31 December 2006, capital commitments of the Group increased substantially from RMB38.51
billion in 2005 to approximately RMB42.94 billion, primarily used for the purchase of certain
aircraft and relevant flight equipment to be delivered in the coming years and the construction of
certain properties.
As at 31 December 2006, the Group had contingent liabilities in respect of bank and other
guarantees and other matters arising in the ordinary course of business. Details of contingent
liabilities of the Group will be set out in note 44 to the Group's 2006 annual consolidated
financial statements.
Liquidity and Capital Resources
The Group finances its operations through cash inflow from operating activities and bank loans.
Like many other airline groups in the PRC, the Group has been operating with a net current
liabilities position. As at 31 December 2006 and 31 December 2005, the net current liabilities of
the Group were RMB15.25 billion and RMB16.01 billion respectively. The decrease in net current
liabilities was primarily due to a better growth of current assets as compared with the previous
period.
In 2006, the Group's net cash inflow from operating activities increased by 2.7% to RMB6.212
billion from RMB6.048 billion in 2005. Net cash outflow from investing activities during the year
decreased by 2.8% to RMB12.15 billion from RMB12.5 billion in 2005. The Group recorded a net cash
inflow from financing activities of RMB7.31 billion, primarily due to the issuance of A shares and
the additional issue of H shares to Cathay. The major sources of finance of the Group are bank
loans and finance leases. As at 31 December 2006, the Group had obtained bank facilities of up to
RMB66.09 billion from a number of banks in the PRC.
On 29 August 2006, the Company successfully issued short-term commercial papers in the amount of
RMB2 billion.
Capital Expenditure
For 2006, the capital expenditure of the Company was totaled at RMB15.368 billion. Among the
capital expenditure of the Company, total investment in aircraft (including purchase of spare
engines) was RMB8.420 billion, including a prepayment of RMB2.831 billion for purchasing aircraft
from 2007 onwards.
Other investments in capital expenditure items were RMB6.948 billion, which mainly involved the
improvement of first class and business class cabins of certain aircraft, investment in the
ancillary project in No. 3 Terminal of Beijing International Airport, as well as in certain
long-term investment projects etc.
Objectives and Policy of Financial Risk Management
The Group is exposed to the fluctuations in jet fuel price in its daily operation. International
jet fuel prices have been historically, and will in the future continue to be, subject to price
volatility and fluctuation in supply and demand. The Group's strategy for managing its jet fuel
price risk aims to protect itself against sudden and significant price increases. To the extent as
permitted by the relevant laws of the PRC, the Group has been engaging in fuel hedging
transactions since March 2001. The subjects of hedging instruments were mainly the Singapore jet
fuel together with the Brent crude oil and New York crude oil derivatives that are closely linked
to jet fuel. In 2006, the Group applied hedging to 44% of the procured jet fuel, and the net gain
on jet fuel derivatives was RMB113 million, representing a decrease of 49.1% compared with RMB222
million in 2005.
Foreign currency denominated liabilities constitute a large proportion of the Group's liabilities.
As at 31 December 2006, loans denominated in US dollar and Hong Kong dollar were equivalent to
RMB13.522 billion and RMB1.224 billion respectively. Appreciation of the Renminbi will benefit the
Company with exchange gains. In 2006, the net exchange gains of the Group were RMB984 million
(while the net exchange gains of the Group in 2005 were RMB918 million). The Group basically
maintains balance of its foreign currency denominated incomes and expenditures. To achieve a
balance in receipts and payments denominated in foreign currency so as to minimize the risk of
exchange rate fluctuation, the Group will consider using exchange rate derivatives in future.
Information on financial risk management objectives and polices in other aspects of the Group's
operations are set out in note 47 to the Group's 2006 annual consolidated financial statements.
OUTLOOK FOR 2007
Looking into 2007, the Company will remain to focus on enhancing its profitability and to plan
various operating activities in a scientific manner; optimize and strengthen its principal
business and improve the harmonious development of its ancillary business along with its principal
business; promote hubs-building outside and inside China; implement the strategy of 'forming
airline partnerships for better development and effecting internal integration for improving
capability'; ardently provide the SCCS services to enhance its brand competence; proactively
increase incomes and reduce expenses by making market-oriented initiatives; implement the
teambuilding strategy for further development of the Company; and lay a solid foundation for
further development to guard against various risks. In addition, the Company will attempt to
complete the following eight goals by closely adhering to the eight strategies set forth above: to
complete the corporate restructuring in a satisfactory manner; to significantly enhance the
operating quality; to effect a fundamental reform on the European and American routes; to obtain
actual benefits via the 'Two Stars' co-operation (i.e. by joining the Star Alliance and the
consummation of Project Star); to break through the IT bottleneck; to accelerate the regional
integration and regional hub construction; to substantially increase the cargo transport capacity;
to promote the brand awareness of the Company by offering products relating to the Olympic Games.
The Company will also fully take advantage of the business opportunities arising from the 2008
Olympic Games to be held in Beijing, the entry to Star Alliance and the business cooperation with
Cathay. The Company will also proactively promote the five strategies, namely strategies in
relation to the hub network, cost advantage, balanced development of cargo and passenger services,
brand, alliance and cooperation strategies. The Company is committed to become the most valuable
and profitable airline in the PRC and the airline most recognized amongst mainstream passengers
with international competitive strength.
SHARE CAPITAL
1. Share Capital Structure Information
The Company issued 1,179,151,364 H shares in 2006, the total number of H shares in issue at
the end of this reporting period was 4,405,683,364 shares. As at 31 December 2006, the total
share capital of the Company was RMB12,251,362,273, divided into 12,251,362,273 shares with a
par value of RMB1.00 each. The following table sets out the share structure of the Company as
of 31 December 2006:
Percentage of the
Category of Shares Number of shares total share capital
Domestic shares 7,845,678,909 64.04%
H Shares 4,405,683,364 35.96%
------------------------------------------------------
------------------------------------------------------
2. Substantial Shareholders
As at 31 December 2006, to the knowledge of the directors (the 'Directors'), supervisors and
chief executive of the Company, the interests and short positions of the following persons
(other than a Director, supervisor or chief executive of the Company) who have an interest or
short position in the shares and underlying shares of the Company which would fall to be
disclosed to the Company pursuant to the Securities and Futures Ordinance (the 'SFO'), or who
are, directly or indirectly, interested in 10% or more of the nominal value of any class of
share capital carrying rights to vote in all circumstances at general meetings of any members
of the Group are as follows:
(a) Substantial interests in the Company
Percentage Percentage
of of the Percentage
Type and the total total issued of the
number of issued share domestic total issued
Type of shares of capital of shares of H shares of Short
Name interests the Company the Company the Company the Company Position
China National Beneficial 4,949,066,567 40.40% 63.08% - -
Aviation owner domestic
Holding shares
Company
('CNAHC')
CNAHC(1) Attributable 1,380,482,920 11.27% 17.60% - -
interests domestic
shares
China National Beneficial 1,380,482,920 11.27% 17.60% - -
Aviation owner domestic
Corporation shares
(Group)
Limited
('CNACG')
Cathay Beneficial 2,124,818,455 17.34% - 48.23% -
owner H Shares
Swire Pacific Attributable 2,124,818,455 17.34% 48.23% -
Limited(2) interests H Shares
John Swire & Sons Attributable 2,124,818,455 17.34% - 48.23% -
Limited(2) interests H Shares
John Swire & Sons Attributable 2,124,818,455 17.34% - 48.23% -
(H.K.) interests H Shares
Limited(2)
JP Morgan Chase Investment 391,255,100 3.19% - 8.88% -
& Co.(3) manager H Shares
128,628,100 1.05% - 2.92% -
H Shares
(Lending Pool)
Morgan Stanley(4) Investment 302,497,168 2.47% - 6.87% -
manager H Shares
54,121,293 0.44% - 1.23% -
H Shares
(Short position)
Notes:
Based on the information available to the Directors, chief executive and Supervisors of
the Company (including such information available on the website of the Stock Exchange)
and so far as the Directors, chief executive and Supervisors are aware, as at the Latest
Practicable Date:
1. By virtue of CNAHC's 100% interest in CNACG, CNAHC is deemed to be interested in the
1,380,482,920 domestic shares of the Company directly held by CNACG.
2. By virtue of John Swire & Sons Limited's 100% interest in John Swire & Sons (H.K.)
Limited and their approximately 33.28% equity interest and 54.35% voting rights in
Swire Pacific Limited, and Swire Pacific Limited's approximately 39.95% interest in
Cathay, John Swire & Sons Limited, John Swire & Sons (H.K.) Limited and Swire
Pacific Limited are deemed to be interested in the 2,124,818,455 H shares of the
Company directly held by Cathay.
3. JPMorgan Chase & Co, through its controlled entities, had an attributable interest
in 391,255,100 H shares of the Company and 128,628,100 H shares of the Company as
lending pool, out of which the interest in 128,628,100 H shares was held directly by
JPMorgan Chase Bank, N.A., 215,790,000 H shares was held directly by JF Asset
Management Limited, 13,746,000 H shares was held directly by JF International
Management Inc., 7,909,000 H shares was held directly by J.P. Morgan Whitefriars
Inc., 1,400,000 H shares was held directly by J.P. Morgan Securities Ltd.,
22,720,000 H shares was held directly by JPMorgan Asset Management (Japan) Limited
and 1,062,000 H shares was held directly by JF Asset Management (Singapore) Limited.
4. Morgan Stanley, through its controlled entities, had an attributable interest in
305,497,168 H shares of the Company and maintained a short position of 54,121,293 H
shares of the Company, out of which Morgan Stanley Investment Management Company
directly held 229,336,000 H shares, Morgan Stanley & Co International Limited
directly held 15,427,895 H shares and maintained a short position of 5,415,748 H
shares, Morgan Stanley Dean Witter Hong Kong Securities Limited directly held 31,657
H shares and maintained a short position of 100,000 H shares, Morgan Stanley Asset &
Investment Trust Management Co., Limited directly held 10,946,000 H shares, MSDW
Equity Finance Services (Cayman) Limited directly held 13,414,000 H shares and
maintained a short position of 13,414,000 H shares, Morgan Stanley Capital (Cayman
Islands) Limited maintained a short position of 4,326,000 H shares, Morgan Stanley
Capital Services Inc. directly held 449,634 H shares and maintained a short position
of 169,720 H shares, Morgan Stanley Capital (Luxembourg) S.A. directly held
5,086,200 H shares, and Morgan Stanley & Co. Inc. directly held 30,805,782 H shares
and maintained a short position of 30,695,825 H shares.
(b) Substantial interests in CNAC
As at 31 December 2006, the interests and short positions of the following persons in the
shares and underlying shares of CNAC, as recorded in the register of the Company required
to be kept under Section 336 of the SFO were as follows:
Number of Percentage of
relevant ordinary the total issued share
Name of shareholder Type of interests shares of CNAC capital of CNAC
CNAHC Attributable interest 2,264,628,000(1) 68.36%
Air China Limited Beneficial owner 2,264,628,000(2) 68.36%
Novel Credit Limited Attributable interest 322,856,000(3) 9.75%
Novel Enterprises (BVI) Limited Attributable interest 322,856,000(3) 9.75%
Novel Enterprises Limited Attributable interest 322,856,000(3) 9.75%
Novel Holdings (BVI) Limited Attributable interest 322,856,000(3) 9.75%
Novel Investment Holdings Limited Attributable interest 322,856,000(3) 9.75%
On Ling Investments Limited Attributable interest 322,856,000(3) 9.75%
Westleigh Limited Attributable interest 322,856,000(3) 9.75%
Best Strikes Limited Beneficial owner 187,656,000 5.66%
Notes:
(1) CNAHC owns approximately 51.66% of the total issued share capital of the Company and
the entire issued share capital of CNACG, a company incorporated in Hong Kong, which
in turn owns approximately 11.27% of the total issued share capital of the Company.
Accordingly, CNAHC's interests in CNAC duplicate those in the Company.
(2) CNACG, the former immediate controlling shareholder of CNAC, transferred
approximately 69% shareholding interest in CNAC to the Company in September 2004 by
way of capital contribution in exchange for the Company's foreign shares (excluding
H shares). As such, the Company became the immediate controlling shareholder of
CNAC. Accordingly, CNAHC's interests in CNAC duplicate those held by the Company.
(3) The respective 5.6% interest held by each of these companies in CNAC duplicates with
Best Strikes Limited's interest in CNAC. The interests of these companies in CNAC
also duplicate each other.
(c) Substantial interests in other members of the Group
Member of Approximate
the Group capital Name % of share
Air Macau CNAC 51%
Air Macau Sociedale de Turismo e Diversaes de Macau 14%
Air Macau Servico, Administracao e Participacoes, Lda. 20%
Ameco Deutsche Lufthansa AG 40%
Air China Cargo Capital Airport Holding Company 24%
Air China Cargo CITIC Pacific Limited 25%
Save as disclosed above, as at the Latest Practicable Date, to the knowledge of the Directors,
chief executive and Supervisors of the Company, no other person (other than a Director,
Supervisor or chief executive of the Company) had an interest or short position in the shares
and underlying shares of the Company which would fall to be disclosed to the Company pursuant
to the SFO, or otherwise was, directly or indirectly, interested in 10% or more of the nominal
value of any class of share capital carrying rights to vote in all circumstances at general
meetings of any members of the Group.
3. Disclosure of Interests of Directors and Supervisors
As at 31 December 2006, Mr. Zhang Xianlin, a Supervisor of the Company, had interests in
33,126,000 shares, which represents approximately 1% of the share capital of CNAC.
Save as disclosed above, as at 31 December 2006, none of the Directors, supervisors or chief
executive of the Company has interests or short positions in the shares, underlying shares
and/or debentures (as the case may be) of the Company or its associated corporations (within
the meaning of Part XV of the SFO) which were notified to the Company and the Stock Exchange
pursuant to SFO (including interests or short positions which he is taken or deemed to have
under such provisions of the SFO), or recorded in the register maintained by the Company
pursuant to Section 352 of the SFO, or which were notified to the Company and the Stock
Exchange pursuant to the Model Code for Securities Transactions by Directors of the Listed
Issuers. For this purpose the relevant provisions of the SFO will be interpreted as if they
applied to the Company's supervisors.
None of the Directors or Supervisors of the Company is materially interested in any contract
or arrangement subsisting as at 31 December 2006 and which is significant in relation to the
business of the Group.
Mr. Christopher Dale Pratt is a non-executive director of the Company and concurrently Mr.
Christopher Dale Pratt is chairman and executive director of Cathay, which is a substantial
shareholder of the Company and wholly owns Dragonair. Mr. Li Jiaxiang is the chairman and a
non-executive director of the Company and concurrently Mr. Li Jiaxiang is a non-executive
director of Cathay. Cathay and Dragonair compete or are likely to compete either directly or
indirectly with some aspects of the business of the Company as they operate airline services
to certain destinations, which are also served by the Company.
Save as above, none of the Directors or supervisors of the Company and their respective
associates (as defined in the Rules Governing the Listing of Securities on The Stock Exchange
of Hong Kong Limited (the 'Listing Rules')) has any competing interests which would be
required to be disclosed under Rule 8.10 of the Listing Rules if each of them were a
controlling shareholder of the Company.
PURCHASE, SALE OR REDEMPTION OF SHARES
During the year ended 31 December 2006, neither the Company nor any of it subsidiaries had
purchased, sold or redeemed any of the Company's listed securities.
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Company has complied with the code provisions set out in the Code on Corporate Governance
Practices (the 'Code') contained in Appendix 14 to the Listing Rules throughout the year of 2006,
except for the following deviations:
Relevant code provision Deviation and considered reasons and or subsequent
compliance
1. Code provision E.1.2 requires, among others, Our Chairman, Mr. Li Jiaxiang, who is a member of the
the chairman of the board should attend the annual Chinese government delegation, was required to attend
general meeting. the signing ceremony for the Framework Agreement with
Boeing and was therefore unable to attend the annual
general meeting of the Company on 12 June 2006.
2. Code provision A.1.3 requires, Meetings of the Board of the Company are convened by
among other things, notice of at least a 10-day notice served to all directors. The reason for the
14 days should be given of a regular Board's practice is that a 10-day notice served to the
board meeting. directors is deemed sufficient by the PRC laws. Article
98 of the articles of association of the Company
has been amended so that a notice of at least 14 days
must be serviced to all directors before a meeting of the
Board, except for extraordinary meeting. The amendment
to the articles of association of the Company has been
approved by the extraordinary general meeting held on 28
March 2006 and will become effective upon approval by
the relevant authorities.
COMPLIANCE WITH MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules to govern
securities transactions by Directors. Having made enquiry to all Directors of the Company, all
Directors have confirmed that they have complied with the Model Code throughout the period from 1
January 2006 to 31 December 2006.
DIVIDENDS
The Board recommends the payment of a final dividend of RMB0.492 per 10 shares for the year ended
31 December 2006, totalling approximately RMB603 million. A resolution for the dividend payment
will be submitted for consideration at the annual general meeting to be convened on 30 May 2007.
The dividend will be denominated and declared in Renminbi. Dividends on domestic shares will be
paid in Renminbi, whereas H shares will be paid in Hong Kong dollars. The relevant exchange rate
will be the mean of the average rate of Renminbi to Hong Kong dollars as announced by the People's
Bank of China for the week prior to the date of declaration of dividends.
PRE-EMPTIVE RIGHTS
Neither the Articles of Association of the Company nor the laws of the PRC provide for any
preemptive rights requiring the Company to offer new shares to existing shareholders in proportion
to their existing shareholdings.
SERVICE CONTRACTS OF THE DIRECTORS AND SUPERVISORS
Each of the Directors except Mr. Christopher Dale Pratt and Mr. Jia Kang has entered into a
service contract with the Company for a term of three years from 30 September 2004 other than Mr.
Fan Cheng, whose service contract has a term of three years from 18 October 2005 and the service
contract is thereafter subject to termination by either party giving written notice to the other
party. Mr. Christopher Dale Pratt and Mr. Jia Kang have entered into a service contract,
respectively, with the Company with a term that shall begin as of 12 June 2006 and 5 June 2006
respectively and end on the expiry of the term of the current session of the Board.
None of the Directors has any existing or proposed service contract with any member of the Group
which is not expiring or terminable by the Group within one year without payment of compensation
(other than statutory compensation).
ANNUAL REPORT
The Annual Report for the year ended 31 December 2006 containing all information required by
Appendix 16 of the Listing Rules will be despatched to shareholders and will be published on the
website of The Stock Exchange of Hong Kong Limited (www.hkex.com.hk) as well as the website of the
Company (www.airchina.com.cn) in due course.
FORWARD-LOOKING STATEMENT
We would like to caution readers of this announcement that the airline operations are
substantially influenced by global political and economical developments. Accidental and
unexpected incidents may have a material impact on our operations or the industry as a whole. This
2006 Annual Results Announcement of the Group contains, inter alia, certain forward-looking
statements, such as forward-looking statements on the global and Chinese economies and aviation
markets. Such forward-looking statements are subject to some uncertainties and risks.
AUDIT COMMITTEE
The annual results of the Company have been reviewed by the audit committee of the Board of
Directors of the Company.
By order of the Board
Air China Limited
Li Jiaxiang
Chairman of the Board
Beijing, PRC, 19 March 2007
As at the date of this announcement, the Directors of the Company are Messrs Li Jiaxiang, Kong
Dong, Wang Shixiang, Yao Weiting, Christopher Dale Pratt, Ma Xulun, Cai Jianjiang, Fan Cheng, Hu
Hung Lick, Henry*, Wu Zhipan*, Zhang Ke* and Jia Kang*.
* Independent non-executive Director of the Company
'Please also refer to the published version of this announcement in South China Morning Post'
This information is provided by RNS
The company news service from the London Stock Exchange
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