Annual Results Announcement
Air China Ld
17 March 2008
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 753)
2007 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 2007 with comparative figures for the corresponding year of
2006 as follows:
A. Prepared under International Financial Reporting Standards
CONSOLIDATED INCOME STATEMENT
2007 2006
Notes RMB'000 RMB'000
TURNOVER
Air traffic revenue 3 47,717,546 41,606,130
Other operating revenue 4 3,612,995 3,330,476
51,330,541 44,936,606
OPERATING EXPENSES
Jet fuel costs (17,201,143) (15,716,174)
Take-off, landing and depot charges (5,537,907) (5,136,388)
Depreciation (5,554,443) ( 5,274,033)
Aircraft maintenance, repair and overhaul costs (2,076,119) (1,812,647)
Employee compensation costs 5 (5,209,766) (4,313,883)
Air catering charges (1,473,543) (1,320,123)
Aircraft and engine operating lease expenses (2,239,359) (2,069,639)
Other operating lease expenses (311,262) (323,752)
Other flight operation expenses (4,232,726) (3,658,986)
Selling and marketing expenses (2,708,770) (2,026,728)
General and administrative expenses (951,376) (766,549)
(47,496,414) (42,418,902)
PROFIT FROM OPERATIONS 6 3,834,127 2,517,704
Finance revenue 7 2,376,572 1,177,871
Finance costs 7 (1,969,326) (1,876,487)
Gain on disposal of an associate 8 - 1,592,633
Share of profits and losses of associates 1,364,740 517,500
PROFIT BEFORE TAX 5,606,113 3,929,221
Tax (1,484,613) (624,124)
PROFIT FOR THE YEAR 4,121,500 3,305,097
2007 2006
Notes RMB'000 RMB'000
Attributable to:
Equity holders of the Company 4,228,997 2,687,841
Minority interests (107,497) 617,256
4,121,500 3,305,097
Dividend:
Interim - -
Proposed final 837,987 602,767
837,987 602,767
Earnings per share attributable to equity
holders of the Company: 12
Basic 35.6 cents 26.2 cents
Diluted NA NA
CONSOLIDATED BALANCE SHEET
2007 2006
RMB'000 RMB'000
NON-CURRENT ASSETS
Property, plant and equipment 61,691,673 54,767,664
Lease prepayments 1,046,042 1,013,529
Intangible asset 75,194 -
Interests in associates 9,542,677 9,255,474
Advance payments for aircraft and related equipment 7,652,365 6,976,054
Deposits for aircraft under operating leases 257,505 259,681
Long term receivable from ultimate holding company 331,813 431,813
Available-for-sale investments 1,997 6,704
Deferred tax assets 626,645 1,064,157
81,225,911 73,775,076
CURRENT ASSETS
Aircraft held for sale 184,728 -
Inventories 1,142,050 1,015,266
Accounts receivable 2,794,280 2,835,227
Bills receivable 1,599 -
Prepayments, deposits and other receivables 1,318,062 1,077,036
Derivative financial instruments 6,493 99,935
Pledged deposits 118,624 211,504
Cash and cash equivalents 3,906,520 5,159,181
Due from ultimate holding company 335,129 289,933
Due from related companies 22,881 14,378
9,830,366 10,702,460
TOTAL ASSETS 91,056,277 84,477,536
CURRENT LIABILITIES
Air traffic liabilities (2,156,104) (1,530,484)
Accounts payable (5,930,800) (5,221,061)
Bills payable - (651,345)
Other payables and accruals (4,350,281) (4,192,887)
Derivative financial instruments (14,826) (242,108)
Tax payable (1,111,404) (534,273)
Obligations under finance leases (2,216,680) (2,354,905)
Bank and other loans (10,978,835) (11,139,021)
Provision for major overhauls (83,907) (47,318)
Due to related companies (45,142) (39,989)
(26,887,979) (25,953,391)
NET CURRENT LIABILITIES (17,057,613) (15,250,931)
TOTAL ASSETS LESS CURRENT LIABILITIES 64,168,298 58,524,145
NON-CURRENT LIABILITIES
Obligations under finance leases (13,328,193) (11,247,855)
Bank loans, other loans and corporate bonds (16,615,291) (12,701,977)
Provision for major overhauls (1,190,415) (921,929)
Provision for early retirement benefits obligations (164,837) (201,199)
Long term payables (190,005) (252,591)
Deferred income (872,023) ( 948,966)
Deferred tax liabilities (300,181) (513,935)
(32,660,945) (26,788,452)
NET ASSETS 31,507,353 31,735,693
2007 2006
RMB'000 RMB'000
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY
Issued share capital 12,251,362 12,251,362
Treasury shares (1,283,492) (1,246,955)
Reserves 19,551,280 18,117,084
Proposed final dividend 837,987 602,767
31,357,137 29,724,258
MINORITY INTERESTS 150,216 2,011,435
TOTAL EQUITY 31,507,353 31,735,693
Notes:
1 Basis of preparation
These 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. These financial statements are presented in Renminbi
('RMB') and all values are rounded to the nearest thousand (RMB'000) except when
otherwise indicated.
These financial statements have been prepared on a historical cost basis, except
for derivative financial instruments which have been measured at fair value and
aircraft held for sale which have been stated at the lower of their carrying
amounts and fair values less costs to sell.
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 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 these financial statements.
IFRS 7 Financial Instruments: Disclosures
IAS 1 Amendment Capital Disclosures
IFRIC-Int 8 Scope of IFRS 2
IFRIC-Int 9 Reassessment of Embedded Derivatives
IFRIC-Int 10 Interim Financial Reporting and Impairment
(a) IFRS 7 Financial Instruments: Disclosures
This 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. The new
disclosures are included throughout the financial statements. While there has
been no effect on the financial position or results of operations of the Group,
comparative information has been included where appropriate.
(b) Amendment to IAS 1 Presentation of Financial Statements - Capital
Disclosures
This amendment requires the Group to make disclosures that enable users of the
financial statements to evaluate the Group's objectives, policies and procedures
for managing capital.
(c) IAS 27 Consolidated and Separate Financial Statements
This interpretation requires IFRS2 to be applied to any arrangement in which the
Group cannot identify specifically some or all of the goods or services
received, for which equity instruments are granted or liabilities (based on a
value of the Company's equity instruments) are incurred by the Group for a
consideration, and which appears to be less than the fair value of the equity
instruments granted or liabilities incurred. As the Company has not issued any
equity instruments to its employees and only incurred liabilities to its
employees for identified services provided in accordance with its share
appreciation right arrangement, the interpretation has had no effect on these
financial statements.
(d) IFRIC-Int 9 Reassessment of Embedded Derivatives
This interpretation requires that the date to assess whether an embedded
derivative is required to be separated from the host contract and accounted for
as a derivative is the date that the Group first becomes a party to the
contract, with reassessment only if there is a change to the contract that
significantly modifies the cash flows. As the Group has no embedded derivative
requiring separation from the host contract, the interpretation has had no
impact on the financial position or results of operations of the Group.
(e) IFRIC-Int 10 Interim Financial Reporting and Impairment
The Group has adopted IFRIC Interpretation 10 as at 1 January 2007, which
requires that an impairment loss recognised in a previous interim period in
respect of goodwill or an investment in either an equity instrument classified
as available-for-sale or a financial asset carried at cost is not subsequently
reversed. As the Group had no impairment losses previously reversed in respect
of such assets, the interpretation has had no impact on the financial position
or results of operations of the Group
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 8 Operating Segments
IFRS 2 Share-based Payments - Vesting Conditions and Cancellations
IFRS 3 (Revised) Business Combinations
IAS 23 (Revised) Borrowing Costs
IAS 27 (Revised) Consolidated and Separate Financial Statements
IAS 1 (Revised) Presentation of Financial Statements
IAS 32 (Amendment) Puttable Financial Instruments
IAS 1 (Amendment) Puttable Financial Instruments
IFRIC-Int 11 IFRS 2: Group and Treasury Share Transactions
IFRIC-Int 12 Service Concession Arrangements
IFRIC-Int 13 Customer Loyalty Programmes
IFRIC-Int 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
(a) IFRS 8 Operating Segments
This standard will become effective for annual periods beginning on or after 1
January 2009. The standard specifies how an entity should report information
about its operating segments, based on information about the components of the
entity that is available to the chief operating decision maker for the purpose
of allocating resources to the segments and assessing their performance. The
standard also requires the disclosure of information about the products and
services provided by the segments, the geographical areas in which the Group
operates, and revenue from the Group's major customers. The Group expects to
adopt IFRS 8 from 1 January 2009.
(b) IFRS 2 Share-based Payments - Vesting Conditions and Cancellations
This amendment to IFRS 2 Share-based payments was published in January 2008 and
becomes effective for financial years beginning on or after 1 January 2009. The
standard restricts the definition of 'vesting condition' to a condition that
includes an explicit or implicit requirement to provide services. Any other
conditions are non-vesting conditions, which have to be taken into account to
determine the fair value of the equity instruments granted. In the case that
such award does not vest as the result of a failure to meet a non-vesting
condition that is within the control of either the entity or the counterparty,
this must be accounted for as a cancellation. The Group has not entered into
shared-based payment schemes with non-vesting conditions attached and,
therefore, does not expect significant implications on its accounting for
share-based payments.
(c) IFRS 3 Business Combinations
The revised standards were issued in January 2008 and become effective for
financial years beginning on or after 1 July 2009. IFRS 3 introduces a number of
changes in the accounting for business combinations that will impact the amount
of goodwill recognised., the reported results in the period that an acquisition
occurs, and future reported results. The changes introduced by IFRS 3 must be
applied prospectively and will affect future acquisitions and transactions with
minority interest.
(d) IAS 23 Borrowing Costs
The revised standard will become effective for annual periods beginning on or
after 1 January 2009 and requires capitalisation of borrowing costs when such
costs are directly attributable to the acquisition, construction or production
of a qualifying asset. As the Group's current policy for borrowing cost aligns
with the requirement of the revised standard, the revised standard is unlikely
to have any financial impact on the Group.
(e) IAS 27 Consolidated and Separate Financial Statements
IAS 27 requires that a change in the ownership interest of a subsidiary is
accounted for as an equity transaction. Therefore, such a change will have no
impact on goodwill, nor will it give raise to a gain or loss. Further more, the
amended standard changes the accounting for losses incurred by the subsidiary as
well as the loss of control of a subsidiary. The changes introduced by IAS 27
must be applied prospectively and will affect future acquisitions and
transactions with minority interest.
(f) IAS 1 Presentation of Financial Statements
The revised IFAS 1 Presentation of Financial Statements was issued in September
2007 and becomes effective for financial years beginning or after 1 January
2009. The Standard separates owners and non-owner changes in equity. The
statement of changes in equity will include only details of transactions with
owners, with all non-owner changes in equity presented as a single line. In
addition, the Standard introduces the statement of comprehensive income: it
presents all items of income and expense recognized in profit or loss, together
with all other items of recognized income and expenses, either in one single
statement, or in two linked statements. The Group is still evaluating whether it
will have one or two statements.
(g) IAS 32 Puttable Financial Instruments
Amendment to IAS 32 were issued in February 2008 and become effective for annual
periods beginning or after 1 January 2009. The amendment to IAS 32 requires
certain puttable financial instruments and obligations arising on liquidation to
be classified as equity if certain criteria are met. The Group does not expect
these amendments to impact the financial statements of the Group.
(h) IAS 1 Puttable Financial Instruments
Amendment to IAS 1 were issued in February 2008 and become effective for annual
periods beginning or after 1 January 2009. The amendment to IAS 1 requires
disclosure of certain information relating to puttable instruments classified as
equity. The Group does not expect these amendments to impact the financial
statements of the Group.
(i) IFRIC-Int 11: IFRS 2 Group and Treasury Share Transactions
This interpretation will become effective for annual periods beginning on or
after 1 March 2007. This interpretation requires arrangements whereby an
employee is granted rights to the Group's equity instruments, to be accounted
for as an equity-settled scheme, even if the Group acquires the instruments from
another party, or the shareholders provide the equity instruments needed. The
interpretation also addresses the accounting for share-based payment
transactions involving two or more entities within the Group. As the Group
currently has no such transactions, the interpretation is unlikely to have any
financial impact on the Group.
(j) IFRIC-Int 12 Service Concession Arrangements
This interpretation will become effective for annual periods beginning on or
after 1 January 2008. The interpretation requires an operator under
public-to-private service concession arrangements to recognise the consideration
received or receivables in exchange for the construction services as a financial
asset and/or an intangible asset, based on the terms of the contractual
arrangements. The interpretation also address how an operator shall apply
existing IFRSs to account for the obligations and the rights arising from
service concession arrangements by which a government or a public sector entity
grants a contract for the construction of infrastructure used to provide public
services and/or for the supply of public service. As the Group currently has no
such arrangements, the interpretation is unlikely to have any financial impact
on the Group.
(k) IFRIC-Int 13 Customer Loyalty Programmes
This interpretation will become effective for annual periods beginning on or
after 1 July 2008. This interpretation requires that the loyalty award credits
granted to customers as part of a sales transaction are accounted for as a
separate component of the sales transaction. The consideration received in the
sales transaction is allocated between the loyalty award credits and the other
components of the sale. The amount allocated to the loyalty award credits is
determined by reference to their fair value and is deferred until the awards are
redeemed or the liability is otherwise extinguished.
(l) IFRIC-Int 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
This interpretation will become effective for annual periods beginning on or
after 1 January 2008. This Interpretation provides guidance on how to assess the
limit under IAS 19 Employee Benefits, on the amount of a refund or a reduction
in future contributions in relation to a defined benefit scheme that can be
recognised as an asset, in particular, when a minimum funding requirement
exists.
The Group is in the process of making an assessment of the impact if applicable,
of these new and revised IFRSs upon initial application. So far, it has
concluded that while the adoption of IFRS8 may result in new or amended
disclosure and the adoption of IFRIC-Int 13 may result in a change in amounting
policy,these new and revised IFRSs are unlikely to have a significant impact on
the Group's results of operations and financial position.
2 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 2007 and 2006:
Year ended 31 December 2007
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 50,028,849 487,710 509,450 304,532 - 51,330,541
customers
Intersegment sales - 674,123 - 190,758 (864,881) -
Total revenue 50,028,849 1,161,833 509,450 495,290 (864,881) 51,330,541
PROFIT FROM OPERATIONS
Segment results 3,695,437 686,601 111,793 205,177 (864,881) 3,834,127
Finance revenue 2,328,035 21,791 - 26,746 - 2,376,572
Finance costs (1,954,476) (13,400) - (1,450) - (1,969,326)
Share of profits and 1,214,190 5,189 117,808 27,553 1,364,740
losses of associates
Profit before tax 5,283,186 700,181 229,601 258,026 (864,881) 5,606,113
Tax (1,484,613)
Minority interests 107,497
Profit attributable to
equity holders of
the Company 4,228,997
ASSETS
Segment assets 79,308,581 1,441,639 371,119 1,096,601 (1,330,985) 80,886,955
Interests in associates 9,013,689 153,911 119,317 255,760 - 9,542,677
Unallocated assets 626,645
Total assets 91,056,277
LIABILITIES
Segment liabilities (57,441,708) (827,806) (608,978) (890,013) 1,330,985 (58,437,520)
Unallocated liabilities (1,111,404)
Total liabilities (59,548,924)
OTHER SEGMENT
INFORMATION
Capital expenditure
(including additions
to property, plant
and equipment and
advance payments
for aircraft, and 20,591,633 215,990 134,954 3,852 - 20,946,429
related equipment)
Depreciation of
property, plant and
equipment 5,447,151 38,594 66,324 2,374 - 5,554,443
Amortisation of lease 22,478 - - - - 22,478
prepayments
Impairment loss on 142,800 - - - - 142,800
aircraft held for sale
Impairment loss on
available-for-sale
investments - - - 4,481 - 4,481
Decrease in fair value
of derivative
financial instruments 133,840 - - - - 133,840
Reversal of impairment (435) (884) - (92) - (1,411)
for doubtful debts
Recognition of deferred 76,943 - - - - 76,943
income
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 43,708,683 481,021 496,741 250,161 - 44,936,606
customers
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 1,592,633 - - - - 1,592,633
associate
Share of profits and 365,639 4,797 135,169 11,895 - 517,500
losses of associates
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 72,975,757 1,239,259 306,758 1,182,531 (1,546,400) 74,157,905
Interests in associates 8,663,367 112,336 170,115 309,656 - 9,255,474
Unallocated assets 1,064,157
Total assets 84,477,536
LIABILITIES
Segment liabilities (51,130,149) (639,936) (475,015) (994,935) 1,546,400 (51,693,635)
Unallocated liabilities (1,048,208)
Total liabilities (52,741,843)
OTHER SEGMENT
INFORMATION
Capital expenditure
(including additions
to property, plant
and equipment and
advance payments
for aircraft, and 16,440,786 89,754 27,521 28,191 - 16,586,252
related equipment)
Depreciation of
property, plant and
equipment 5,168,367 41,834 56,088 7,744 - 5,274,033
Amortisation of lease 21,495 - - - - 21,495
prepayments
Impairment loss on
available-for-sale
investments - - - 15,562 - 15,562
Decrease in fair value
of derivative
financial instruments 268,041 - - - - 268,041
Impairment/(reversal of
impairment)
for doubtful debts 3,536 (3,579) - (1,859) - (1,902)
Recognition of deferred 76,943 - - - - 76,943
income
Geographical segments
The following tables present the Group's consolidated revenue by geographical
segment for the years ended 31 December 2007 and 2006:
Year ended 31 December 2007
Asia
Mainland Hong Kong North Japan and Pacific
China and Macau Europe America Korea and Total
others
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Sales to external
customers
and total revenue 27,702,479 2,848,675 7,616,370 4,678,276 4,475,578 4,009,163 51,330,541
Year ended 31 December 2006
Mainland Hong Kong North Japan and Pacific
China and Macau Europe America Korea and Total
others
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
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
2007 2006
RMB'000 RMB'000
Passenger 43,632,090 37,564,903
Cargo and mail 4,085,456 4,041,227
47,717,546 41,606,130
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, Hong Kong and Macau
regional flights are exempted from business tax. Business tax incurred and set
off against air traffic revenue for the years ended 31 December 2007 amounted to
approximately RMB1,224 million (2006: RMB1,039 million).
4 OTHER OPERATING REVENUE
Group
2007 2006
RMB'000 RMB'000
Bellyhold income from a joint venture 1,579,185 1,518,925
Aircraft engineering income 487,710 481,021
Ground service income 509,450 496,741
Air catering income 162,886 136,581
Government grants:
Recognition of deferred income 76,943 76,943
Others 131,136 124,420
Service charges on return of unused flight tickets 152,107 110,825
Cargo handling service income 62,466 63,938
Sale of materials 12,648 15,055
Import and export service income 7,850 10,676
Training service income 20,837 17,839
Aircraft and related equipment lease income 12,688 1,323
Gain on disposal of property, plant and equipment, 165,311 17,353
net
Others 231,778 258,836
3,612,995 3,330,476
5 EMPLOYEE COMPENSATION COSTS
An analysis of the Group's employee compensation costs, including the emoluments
of Directors and Supervisors, is as follows:
Group
2007 2006
RMB'000 RMB'000
Wages, salaries and social security costs 4,817,539 4,037,553
Retirement benefit costs 368,241 276,330
Share-based benefits 23,986 -
5,209,766 4,313,883
6 PROFIT FROM OPERATIONS
The Group's profit from operations is arrived at after charging/(crediting):
Group
2007 2006
RMB'000 RMB'000
Auditors' remuneration 14,261 10,658
Depreciation 5,554,443 5,274,033
Gain on disposal of property, plant and (165,311) (17,353)
equipment, net
Loss on derecognition of property, plant and 37,138 70,206
equipment
Amortisation of lease prepayments 22,478 21,495
Minimum lease payments under operating leases:
Aircraft and engines 2,239,359 2,069,639
Land, buildings and others 311,262 323,752
Impairment loss on available-for-sale investments 4,481 15,562
Impairment loss on aircraft held for sale 142,800 -
Reversal of impairment for doubtful debts (1,411) (1,902)
7 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
2007 2006
RMB'000 RMB'000
Exchange gains, net 2,030,391 983,692
Interest income 110,013 80,689
Gains on fuel derivatives, net 235,944 113,225
Dividend income from available-for-sale 224 265
investments
2,376,572 1,177,871
Finance costs
Group
2007 2006
RMB'000 RMB'000
Interest on bank loans, other loans and corporate 1,572,793 1,380,781
bonds
Interest on finance leases 650,613 601,153
Total interest 2,223,406 1,981,934
Less: Interest capitalised (254,080) (105,447)
1,969,326 1,876,487
The interest capitalisation rates ranging from 4.5% to 5.9% (2006: 4.5% to 6.0%)
per annum represent the cost of related borrowings during the year.
8 GAIN ON DISPOSAL OF AN ASSOCIATE
The gain on disposal of an associate in 2006 relates to the sale of the Group's
equity interest in Dragonair to Cathay.
9 TAX
According to the PRC Enterprise Income Tax Law ('Old CIT 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% (2006: 12% to 33%) on
their taxable income.
Hong Kong profits tax has been provided at a rate of 17.5% (2006: 17.5%) on the
estimated assessable profits arising in Hong Kong during the year.
In accordance with the Old CIT 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.
During the 5th Session of the 10th National People's Congress, which was
concluded on 16 March 2007, the People's Republic of China Corporate Income Tax
Law (the 'New CIT Law') was approved and became effective on 1 January 2008. The
New CIT Law introduces a wide range of changes which include, but are not
limited to, the unification of the corporate income tax rate for both domestic
enterprises and foreign-invested enterprises as 25%. The New CIT Law also lays
down principles for transitional arrangements relating to tax incentive (reduced
tax and tax holidays) enjoyed by enterprises under the Old CIT Law. Therefore,
deferred income tax assets and liabilities of the Group are measured at the 25%
tax rate or other applicable tax rates that are expected to apply to the annual
periods beginning on or after 1 January 2008 when the deferred tax asset is
realised or the deferred tax liability is settled.
The determination of current and deferred income tax was based on enacted tax
rates. Major components of income tax charge are as follows:
Group
2007 2006
RMB'000 RMB'000
Current income tax - Mainland China 1,260,855 675,975
Deferred income tax - origination and reversal of
temporary differences 223,758 (51,851)
Income tax charge for the year 1,484,613 624,124
The share of tax attributable to associates amounting to RMB193,915,329 (2006:
RMB113,577,000) 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
2007 2006
RMB'000 % RMB'000 %
Profit before tax 5,606,113 3,929,221
At statutory income tax rate of 33% 1,850,017 33.0 1,296,643 33.0
Tax effect of share of profits and
losses of associates, net (450,364) (8.0) (170,775) (4.3)
Lower income tax rates of other
territories 54,074 0.9 (20,718) (0.5)
Income not subject to tax (27,716) (0.5) (614,323) (15.6)
Expenses not deductible for tax purposes (27,247) (0.5) 125,004 3.2
Tax losses not recognised 8,844 0.2 8,293 0.2
Effect on opening deferred income tax
due to a decrease in income tax rates 77,005 1.4 - -
At the Group's effective income tax rate 1,484,613 26.5 624,124 16.0
As at 31 December 2007, there was no significant unrecognised deferred tax
liability (2006: 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.
10 PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
The consolidated profit attributable to the equity holders of the Company for
the year ended 31 December 2007 includes a profit of approximately RMB3,097
million (2006: RMB1,226 million), which was arrived at after deducting dividend
income received from subsidiaries, joint ventures and associates aggregating
approximately RMB91 million (2006: RMB39 million) from the Company's profit of
approximately RMB3,188 million (2006: RMB1,265 million) that has been dealt with
in the financial statements of the Company.
11 APPROPRIATIONS
Group
2007 2006
RMB'000 RMB'000
Proposed final dividend - RMB0.684
(2006: RMB0.492) per 10 shares 837,987 602,767
(a) The proposed final dividend of RMB0.684 (2006: RMB0.492) 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.
(b) Under the PRC Company Law and the Company's articles of association, profit
after tax as reported in the PRC statutory financial statements can only be
distributed as dividends after allowance has been made for the following:
(i) Making up prior years' cumulative losses, if any;
(ii) Allocations to the statutory common reserve fund of at least 10% of
after-tax profit, until the fund aggregates 50% of the Company's registered
capital. For the purpose of calculating the transfer to reserves, the profit
after tax shall be the amount determined under China Accounting Standards
('CAS'). The transfer to this reserve must be made before any distribution of
dividends to shareholders.
The statutory common reserve fund can be used to offset previous years' losses,
if any, and part of the statutory common reserve fund can be capitalised as the
Company's share capital provided that the amount of such reserve remaining after
the capitalisation shall not be less than 25% of the share capital of the
Company;
(iii) Allocations to the discretionary common reserve if approved by the
shareholders.
The above reserves cannot be used for purposes other than those for which they
are created and are not distributable as cash dividends.
In accordance with the articles of association of the Company, the profit after
tax of the Company for the purpose of dividends payment is based on the lesser
of (i) the profit determined in accordance with CAS; and (ii) the profit
determined in accordance with IFRSs.
12 EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
The calculation of basic earnings per share for the year ended 31 December 2007
is based on the profit attributable to equity holders of the Company for the
year ended 31 December 2007 of approximately RMB4,229 million, and the weighted
average number of 11,878,992,909 ordinary shares in issue during the year, as
adjusted to reffect the weighted average number of treasure shares held by
Cathay Pacific Airways Limited ('Cathay') through reciprocal shareholding.
The calculation of basic earnings per share for the year ended 31 December 2006
was 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 10,256,259,792 ordinary shares in issue during the year, as
adjusted to reflect the weighted average number of treasury shares held by
Cathay through reciprocal shareholding.
Diluted earnings per share for the years ended 31 December 2007 and 2006 have
not been disclosed because no diluting events existed during these years.
B. Prepared in accordance with China Accounting Standards ('CAS')
2007 As 2006
(Restated)
Revenue from operations 49,738,921 43,410,605
Less: Costs of operations 40,307,624 36,727,352
Business taxes and surcharges 1,205,082 1,005,817
Selling expenses 3,290,959 2,540,147
General and administrative expenses 1,311,598 1,254,505
Finance costs (52,619) 876,888
Impairment losses in assets 52,821 19,457
Add: Gains/(loss)from changes
in fair value 133,840 (268,041)
Investment income 1,235,655 3,525,557
Including: Share of profits and losses of
associates
and joint ventures 1,131,024 590,908
Profit from operations 4,992,951 4,243,955
Add: Non-operating income 333,608 161,840
Less: Non-operating expenses 123,424 87,192
Including: Loss on disposal of non-current 45,212 29,129
assets
Profit before tax 5,203,135 4,318,603
Less: Tax 1,429,284 364,253
Net profit 3,773,851 3,954,350
Attributable to:
Equity holders of the Company 3,881,348 2,977,195
Minority interests (107,497) 977,155
Earnings per share (RMB):
(I) Basic 0.3267 0.2903
(II) Diluted N/A N/A
31 December, 31 December,
ASSETS 2007 2006
(Restated)
CURRENT ASSETS:
Cash and bank balances 3,787,152 4,982,844
Financial assets held for trading 6,493 99,935
Bills receivable 1,599 -
Accounts receivable 2,812,327 2,662,281
Other receivables 997,205 847,272
Prepayments 311,784 298,704
Inventories 755,340 704,367
Total current assets 8,671,900 9,595,403
NON-CURRENT ASSETS:
Long term receivables 255,340 293,160
Long term equity investments 11,404,643 11,387,551
Fixed assets 55,000,376 49,243,169
Construction-in-progress 10,967,888 9,309,266
Intangible assets 1,396,620 1,291,905
Goodwill 131,945 131,945
Deferred tax assets 385,843 578,625
Long-term deferred expenses 80,684 67,931
Total non-current assets 79,623,339 72,303,552
Total assets 88,295,239 81,898,955
31 December, 31 December,
2007 2006
(As restated)
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans 6,546,088 8,016,656
Financial liabilities held for trading 14,826 242,108
Bills payable - 610,545
Accounts payable 6,338,341 5,869,229
Domestic air traffic liabilities 437,473 383,851
International air traffic liabilities 1,702,490 1,147,204
Receipts in advance 53,778 14,770
Employee compensations 254,073 193,641
Taxes payable 1,906,067 1,700,858
Interest payable 273,824 177,946
Other payables 2,221,096 1,648,457
Non-current liabilities repayable within one year 6,344,212 5,205,258
Total current liabilities 26,092,268 25,210,523
NON-CURRENT LIABILITIES:
Long-term loans 12,938,092 9,130,330
Corporate bonds 3,000,000 3,000,000
Long-term payables 1,301,844 1,140,234
Obligations under finance leases 13,328,193 11,247,855
Provisions 191,533 149,021
Deferred tax liabilities 5,000 7,000
Total non-current liabilities 30,764,662 24,674,440
Total liabilities 56,856,930 49,884,963
SHAREHOLDERS' EQUITY
Share capital 12,251,362 12,251,362
Capital reserve 11,852,408 13,044,987
Reserve fund 1,299,214 716,612
Retained earnings 6,888,843 4,192,864
Including: Discretionary reserve fund proposed
by Board of Directors 264,700 317,902
Dividend proposed by Board of Directors 837,987 602,767
Foreign exchange translation reserve (1,003,732) (203,151)
Equity attributable to equity holders of the Company 31,288,095 30,002,674
Minority interests 150,214 2,011,318
Total shareholders' equity 31,438,309 32,013,992
Total liabilities and shareholders' equity 88,295,239 81,898,955
C. Effects of significant differences between IFRS and CAS
The consolidated income statement and consolidated balance sheet set out in
Section A were prepared in accordance with IFRS.
The significant differences between the consolidated financial statement
prepared under CAS and the consolidated financial statement prepared under IFRS
of the Group are as follows:
2007 2006
RMB'000 RMB'000
(Restated)
Net profit under CAS 3,881,348 2,977,195
Deferred taxes (40,916) (232,066)
Additional depreciation from restatement of
costs of fixed assets (149,060) (159,746)
Reversal of depreciation and amortisation
arising on revaluation 446,936 490,369
Government grant 16,900 (10,987)
Effect of component accounting 57,635 234,344
Gain on disposal of an associate - (627,761)
Others 16,154 16,493
Profit attributable to equity holders of the Company
under IFRS 4,228,997 2,687,841
2007 2006
RMB'000 RMB'000
Shareholders' equity under CAS 31,288,095 30,002,674
Deferred taxes (62,319) (21,403)
Restatement of costs of fixed assets 743,768 892,828
Reversal of revaluation surplus (972,848) (1,419,784)
Government grant (410,242) (427,142)
Effect of component accounting 603,038 545,403
Gain on disposal of an associate 139,919 139,919
Others 27,726 11,763
Equity interest attributable to equtiy holders of
the Company under IFRS 31,357,137 29,724,258
2007 REVIEW
In 2007, China's economy continued to maintain the trend of a rapid but steady
growth and the market demand for air transportation remained robust. The Company
has, while ensuring its flight safety, improved the service quality and realized
the steady growth through economies of scale and a stable increase of the
relevant profits as well.
In December 2007, the Company was formally admitted to the Star Alliance, the
largest alliance in the world, and thereafter the route network coverage of the
Star Alliance extended to 155 countries and regions and 895 destinations. By
taking the advantages of its admission to the alliance, the Company is able to
fully explore its geographical market.
In 2007, the Company was enlisted in the 'World's Top Five Hundred Brands' and
the '2007 Top 20 Most Competitive Chinese Companies in the World', and was
ranked No.27 in the 'Top 500 Most Valuable Chinese Brands'. The Company's brand
value was further enhanced.
1. Business review of passenger service operation
In 2007, the Company's passenger traffic reached 67,000 million RPKs,
representing an increase of 11.10% from 2006. Passenger traffic from
international routes, Mainland China routes and Hong Kong and Macau routes
increased by 12.10%, 10.80% and 2.70% respectively. The higher growth in
international routes compared with Mainland China and Hong Kong and Macau routes
reflected the robust growth potential of the international aviation markets. The
number of passengers carried was increased by 10.60% from 2006 to 34.841 million
with an average passenger load factor of 78.60%, representing an increase of 2.6
percentage points from 2006. The available seat kilometres of the Company was
increased by 7.30% from 2006 to 85,270 million kilometers. The revenue per RPK
was increased by 5.08% from 2006 to RMB0.62.
Air Macau Company Limited ('Air Macau'): For 2007, while the available seat
kilometres reached 3,964 million representing a decrease of 2.14% from 2006,
passenger traffic decreased by 0.43% from 2006 to 3,026 million RPKs, and the
number of passengers carried decreased by 2.10% from 2006 to 2.415 million.
Passenger load factor for 2007 was 76.35%, representing an increase of 1.3
percentage points from 2006.
2. Business review of cargo service operation
In 2007, the cargo and mail traffic of the Company's joint venture Air China
Cargo Co., Ltd ('Air China Cargo') and the bellyhold space of the Company's
passenger aircraft increased by 12.30% from 2006 to 3,690 million RFTKs. Cargo
and mail carried increased by 10.60% from 2006 to 934,000 tonnes while cargo and
mail load factor increased by 2.1 percentage points from 2006 to 55.80%. The
available freight tonne kilometres increased by 8.20% from 2006 to 6,620
million, and cargo yield per tonne kilometer decreased by 7.20% from 2006 to
RMB1.80.
Air Macau: For 2007, while the available fright tonne kilometres reached 249
million representing a decrease of 13.30% from 2006, turnover volume of cargo
and mail decreased by 3.75% from 2006 to 185 million RFTKs, and cargo and mail
carried decreased by 2.81% from 2006 to 169,800. Fright and mail load factor for
2007 was 74.31%, representing an increase of 7.4 percentage points from 2006.
3. Business review of the Company's investment in airlines
(1) Shandong Airlines Company Limited ('Shandong Airlines')
The Company holds 22.8% of the share capital of Shandong Airlines, and 49.4% of
the share capital of Shandong Aviation Group Corporation, which in turn holds
42% of the share capital of Shandong Airlines. During 2007, the total traffic
turnover of Shandong Airlines increased by 9.10% from 2006 to 600 million tonne
kilometres, while passengers carried increased by 6.40% from 2006 to 5.36
million.
(2) Shenzhen Airlines Company Limited ('Shenzhen Airlines')
The Company holds 25% of the share capital of Shenzhen Airlines. During 2007,
the total traffic turnover of Shenzhen Airlines increased by 34% from 2006 to
1.42 billion tonne kilometers, while passengers carried increased by 33.70% from
2006 to 9.52 million.
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 International Financial
Reporting Standards ('IFRS'), and are designed to assist the readers in
understanding the information provided in this report further so as to fully
comprehend the financial performance of the Group as a whole.
ANALYSIS OF THE PROFITABILITY
In 2007, the profit before tax realized by the Group was RMB5.606 billion,
representing an increase of RMB1.677 billion or 42.68%, in which the Group's
profit from operations was RMB3.834 billion, representing an increase of
RMB1.316 billion or 52.29% compared with 2006, and the net exchange gains was
RMB2.030 billion, representing an increase of RMB1.046 billion or 106.41%, and
the share of profits of associates was RMB 1.365 billion, representing an
increase of RMB847 million or 163.72% as compared with 2006. The profit
structure of the Group was further improved.
The pie chart below shows the profit before tax of the Group:
The bar charts below show the change in profit from operations, profit
attributable to equity holders of the parent company and earnings per share:
TURNOVER
In 2007, the Group's total turnover was RMB51.330 billion, representing a 14.23%
growth over 2006.
REVENUE CONTRIBUTION BY GEOGRAPHICAL SEGMENT
(in RMB'000)
2007 2006 Change
Amount percentage Amount percentage
Mainland China 27,702,479 53.97% 23,868,328 53.12% 16.06%
Hong Kong and Macau 2,848,675 5.55% 2,770,579 6.17% 2.82%
Europe 7,616,370 14.84% 6,203,536 13.81% 22.77%
North America 4,678,276 9.11% 3,806,678 8.47% 22.90%
Japan and Korea 4,475,578 8.72% 4,256,753 9.47% 5.14%
Other Asia Pacific 4,009,163 7.81% 4,030,732 8.97% -0.54%
regions
Total 51,330,541 100% 44,936,606 100% 14.23%
REVENUE CONTRIBUTION BY BUSINESS SEGMENT
(in RMB'000)
2007 2006 Change
Amount percentage Amount percentage
Air passenger 43,632,090 85.00% 37,564,903 83.60% 16.15%
Air cargo 4,085,456 7.96% 4,041,227 8.99% 1.09%
Engineering services 487,710 0.95% 481,021 1.07% 1.39%
Airport terminal services 509,450 0.99% 496,741 1.11% 2.56%
Others 2,615,835 5.10% 2,352,714 5.24% 11.18%
Total 51,330,541 100% 44,936,606 100% 14.23%
AIR PASSENGER REVENUE
In 2007, the Group's air passenger revenue was RMB43.632 billion, representing
an increase of RMB6.067 billion or 16.15% as compared with 2006, which was
mainly affected by factors in respect of the increase in traffic capacity,
passenger load factor and revenue per seat kilometer as follows:
2007 2006 Change
Available seat kilometres (million) 89,233.74 83,492.25 6.88%
Passenger load factor (%) 78.47 75.89 2.59%
Passenger yield per kilometre (RMB) 0.62 0.59 5.08%
As compared with those factors attributable to the revenue growth in 2006, the
increase in traffic capacity, passenger load factor and revenue level
contributed to an increase of revenue of RMB2.583 billion, RMB1.368 billion and
RMB2.116 billion in 2007 respectively.
Air Passenger revenue contributed by geographical segment
(in RMB'000)
2007 2006 Change
Amount percentage Amount percentage
Mainland China 23,486,436 53.83% 20,051,081 53.38% 17.13%
Hong Kong and Macau 2,288,552 5.25% 2,239,280 5.96% 2.20%
Europe 6,437,813 14.75% 5,145,804 13.70% 25.11%
North America 3,680,386 8.44% 2,785,877 7.42% 32.11%
Japan and Korea 4,173,935 9.57% 3,890,891 10.36% 7.27%
Other Asia Pacific 3,564,968 8.16% 3,451,970 9.18% 3.27%
regions
Total 43,632,090 100% 37,564,903 100% 16.15%
SIGNIFICANT REVENUE GROWTH CONTRIBUTED BY EUROPE AND US ROUTES
The Company increased its efforts in developing the air passenger markets in
Europe and the US in 2007. By targeting at the right markets and initiating the
appropriate marketing strategies together with deploying the proper aircraft
models, business from the overall Europe and US regions became profitable during
the year. At the same time, there was also an improvement in the operating
performance of the large-capacity aircraft serving long-haul routes.
AIR CARGO REVENUE
In 2007, the Group's air cargo and mail revenue was RMB4.085 billion,
representing an increase of RMB44 million or 1.09% compared with 2006.
2007 2006 Change
Available freight tonne kilometres (million) 6,868.1 6,404.4 7.24%
Load factor (%) 56.43 54.30 2.13%
Cargo yield per tonne kilometre (RMB) 1.98 2.16 -8.33%
Air cargo revenue contributed by geographical segment
(in RMB'000)
2007 2006 Change
Amount percentage Amount percentage
Mainland China 603,048 14.76% 486,771 12.05% 23.89%
Hong Kong and Macau 560,123 13.71% 531,299 13.15% 5.43%
Europe 1,178,557 28.85% 1,057,732 26.17% 11.42%
North America 997,890 24.43% 1,020,801 25.26% -2.24%
Japan and Korea 301,643 7.38% 365,862 9.05% -17.55%
Other Asia Pacific 444,195 10.87% 578,762 14.32% -23.25%
regions
Total 4,085,456 100% 4,041,227 100% 1.09%
OPERATING EXPENSES
In 2007, the Group recorded an aggregate operating expenses of RMB47.496
billion, representing an increase of 11.97% compared with RMB42.419 billion in
2006. The elements comprising the operating expenses as well as the ratio and
change of each of those elements are set out below:
Jet fuel costs
Jet fuel costs increased by 9.45% to RMB17.201 billion in 2007 from RMB15.716
billion in 2006 and accounted for 36.22% of operating expenses compared with
37.05% in 2006. Factors affecting the jet fuel costs include the jet fuel price
and the consumption level of jet fuel, and in which the rise in jet fuel price
and increase in the consumption of jet fuel caused an increase in operating cost
of RMB0.383 billion and RMB1.102 billion respectively.
• Take-off, landing and depot charges increased by 7.82% to RMB5.538 billion in
2007 from RMB5.136 billion in 2006, primarily due to the increase in the number
of flights operated. The percentage of the take-off, landing and depot charges
to the operating expenses decreased from 12.11% to 11.66%.
• Due to the business needs during the year, there was an increase in the number
of aircraft ranging from the self-owned aircraft to those under finance leases
and operation leases, which resulted in an increase in the aircraft maintenance,
repair and overhaul costs accordingly.
• Employee compensation costs were increased due to the increase in the number
of flight hours, number of employees and employees' basic income.
• The increase in the air catering charges was primarily due to an increase in
the number of passengers carried.
• The increase in the sale commission and the royalty from the sales of the
relevant IT systems was brought by the increase in business revenue. The
marketing expenses were increased to RMB2.709 billion in 2007 from RMB2.027
billion in 2006, representing an increase of 33.65%, and their percentage to the
profit from operations was up from 4.78% to 5.70%.
• General and administrative expenses were increased primarily due to business
growth and more frequently incurred donation expenses for Olympic Games in 2007.
• Other operating expenses mainly include the aircraft and engines operating
lease expenses, civil aviation infrastructure construction fund and the daily
expenses arising from core air traffic business not included in the aforesaid
items. The growth of business inevitably drove such expenses upwards.
PROFIT CONTRIBUTION BY BUSINESS SEGMENT
(RMB'000)
2007 2006 Change
Air businesses 3,695,437 2,281,754 61.96%
Engineering services 12,478 34,835 -64.18%
Airport terminal services 111,793 175,445 -36.28%
Others 14,419 25,670 -43.83%
Total 3,834,127 2,517,704 52.29%
ANALYSIS OF ASSETS STRUCTURE
As at 31 December 2007, the total assets of the Group amounted to RMB91.056
billion, representing an increase of 7.79% from 31 December 2006, of which the
current assets accounted for RMB9.830 billion, representing 10.80% of the total
assets, while non-current assets accounted for RMB81.226 billion, representing
89.20% of the total assets.
Among the current assets, cash and cash equivalents were RMB3.907 billion,
decreased by 24.28% compared with those recorded as at 31 December 2006, while
accounts receivable decreased by 1.44% to RMB2.794 billion compared with those
recorded as at 31 December 2006. Among the non-current assets, the net book
value of property, plant and equipment as at 31 December 2007 was RMB61.692
billion, representing an increase of 12.64% compared with those recorded as at
31 December 2006.
DEBT STRUCTURE ANALYSIS
(RMB'000)
Bank loans, other loans and Obligation
corporate bonds under finance lease
31 December 31 December 31 December 31 December
2007 2006 2007 2006
Within one year 10,978,835 11,139,021 2,216,680 2,354,905
In the second year 4,039,529 2,649,697 2,821,518 1,996,954
In the third to fifth years
(inclusive) 8,181,988 5,581,186 5,484,352 6,061,709
After five years 4,393,774 4,471,094 5,022,323 3,189,192
Total 27,594,126 23,840,998 15,544,873 13,602,760
ASSETS MORTGAGE
As at 31 December 2007, the Group mortgaged certain aircraft and premises with
an aggregate net book value of approximately RMB34.240 billion (compared with
RMB34.251 billion as at 31 December 2006) pursuant to certain bank loans and
finance lease agreements. In addition, certain bank deposits of the Group in the
sum of approximately RMB119 million (compared with approximately RMB212 million
as at 31 December 2006 ) were pledged against the obligations in respect of
certain bank loans, operating leases and financial derivatives of the Group. The
Group also pledged certain number of shares in an associated company with an
aggregate market value of approximately RMB7.609 billion as at 31 December 2007
(compared with approximately RMB7.695 billion as at 31 December 2006).
COMMITMENTS AND CONTINGENT LIABILITIES
As at 31 December 2007, capital commitments of the Group increased substantially
from RMB42.944 billion in 2006 to approximately RMB58.878 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 2007, the Group had contingent liabilities in respect of bank
loans and other guarantees and other matters arising in the ordinary course of
business. Details of contingent liabilities of the Group are set out in note 46
to the Group's 2007 annual consolidated financial statements.
CAPITAL EXPENDITURE
In 2007, the capital expenditure of the Company amounted to RMB15.293 billion in
total. Among the capital expenditure of the Company, the total investment in
aircraft and engines was RMB10.026 billion, including prepayments of RMB3.824
billion for the purchases of aircraft for 2007 and onwards.
Other capital expenditure amounted to RMB5.267 billion, which mainly involved
the improvement of first class and business class cabins of certain aircraft,
investment in the ancillary project in the Third Terminal of Beijing Capital
International Airport, preparation for the 11th Five Years Plan as well as
investment in certain long-term external investment projects.
CASH FLOW ANALYSIS
In 2007, the Group's net cash inflow from operating activities increased by
17.55% to RMB7.302 billion from RMB6.212 billion in 2006, primarily due to the
increase in business revenue. Net cash outflow from investment activities during
the year decreased by 15.94% to RMB10.212 billion from RMB12.148 billion in
2006, primarily due to the relatively substantial cash outflow arising out of
the acquisition of the Cathay Pacific's equity interests in 2006. The Group
recorded a net cash inflow from financing activities of RMB1.839 billion,
representing a decrease of RMB5.470 billion from RMB7.309 billion in 2006,
primarily due to the proceeds of approximately RMB8.570 billion raised by way of
the A shares initial public offering and the additional issue of H shares in
2006.
The Group experienced a higher increase in the net operating cash flow of the
Group for the current period, which secured the Group to enhance its cash
structure.
RISKS ANALYSIS
• Analysis of the long-term solvency
As at 31 December 2007, the Group's gearing ratio, which represents total
liabilities divided by total assets, was 65.40%, representing an increase of
2.97 percentage points from 62.43% as at 31 December 2006, primarily due to the
introduction of additional aircraft and the increase of debt financing
activities. Although the gearing ratio of the Group for the current period
slightly moved upwards, its solvency position in the long term was relatively
strong insofar as it continued to dominate a leading position in the industry
while the prevailing gearing ratios of other air carriers stood at a relatively
high level.
• Analysis of the short-term solvency and the long- and short-term debt
structure
As at 31 December 2007, the Group's current ratio, which represents current
assets divided by current liabilities, was 0.36, representing a decrease of 0.05
percentage point from 0.41 as at 31 December 2006, while its EBITDA interest
cover was 4.78 times, representing an increase of 18.12% from 4.16 times as at
31 December 2006, resulting that the Group maintained a relatively sufficient
operating cash flow position. The Company is in the process of optimizing both
its long-term and short-term debt structures step by step to align with the
changes in the financial market. The Group had already obtained bank facilities
with an aggregate amount of up to RMB80.172 billion from a number of banks in
the PRC and was therefore in a position to fully meet its own demand on current
capital.
• Foreign exchange and interest rate exposure
As at 31 December 2007, foreign currency denominated loans, mainly those
denominated in US dollars, Hong Kong dollars and Japanese Yen, constitute a
large proportion of the Group's loans. The Group basically maintained a balance
of its foreign currency denominated incomes and expenditures. The Group will
continue to effectively eliminate any foreign exchange risk by means of
financial derivative products based on the major trend of foreign exchange and
in accordance with its forecast on its overall incomes and expenditures.
For managing risks associated with interest rates, the Company will attempt to
make use of the swap transactions and other derivative products and to
rationalize the ratios between the fixed and floating interest rates relating to
the interest-bearing debts so as to eliminate any risks arising from interest
rate.
• Investment risk
As at 31 December 2007, regarding the air carriers that the Group had invested
in, except for Shandong Airlines and Shenzhen Airlines, neither Air Macau nor
Air China Cargo generated any profit from operations. Further efforts are needed
to promote the consolidation and optimization of the businesses of the companies
that the Group had made its investment in. There is also room for a substantial
improvement in their financial position and operating results.
• Risk associated with the fluctuation in the jet fuel price
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 in the PRC, the Group has been engaging in fuel
hedging transactions since March 2001. The hedging instruments used were mainly
derivatives of Singapore Kerosene together with Brent crude oil and New York
crude oil, which are closely linked to the price of jet fuel. In 2007, the net
gain on fuel derivatives achieved by the Group was RMB236 million, representing
an increase of 108.85% compared with RMB113 million in 2006.
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 2007 annual
consolidated financial statements.
OUTLOOK FOR 2008
Looking ahead in 2008, the Company believes that China's economy and the air
transport market will continue to grow. However, competition in the air
transportation market has become increasingly fierce, especially with the
implementation of the liberalization policy, the Chinese aviation industry will
face more severe challenges. In response to the changing market situation, the
Company has to adjust its corporate strategies from time to time. Therefore, the
Company has re-adjusted its future strategic objectives to 'build up a
world-class competitive strength, continuously improve its expansion capability,
offer unique experience for its customers by delivering the most excellent
services and realize a steady increase in the relevant revenues'.
SHARE CAPITAL
As at 31 December 2007, 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 capital structure of the
Company as at 31 December 2007:
Category of Shares Number of shares Percentage of the total share
capital
A Shares 7,845,678,909 64.04%
H shares 4,405,683,364 35.96%
Total 12,251,362,273 100%
PURCHASE, SALE OR REDEMPTION OF SHARES
During the year ended 31 December 2007, neither the Company nor any of its
subsidiaries had purchased, sold or redeemed any of the Company's listed
securities.
CORPORATE GOVERNANCE
1. 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 contained in Appendix 14 to the Rules Governing
the Listing of Securities on The Stock Exchange of Hong Kong Limited ('Listing
Rules') throughout the year of 2007.
2. Compliance with the Model Code for Securities Transactions by Directors of
Listed Issuers
The Company has adopted and established a code of conduct on no less exacting
terms than the Model Code for Securities Transactions by Directors of Listed
Issuers (the 'Model Code') as set out in Appendix 10 of the Listing Rules.
Having made specific enquiry by the Company, all Directors and Supervisors have
confirmed their compliance with the required standards of the Model Code
throughout the period of the first half of 2007. The code of the Company is also
applicable to Supervisors and relevant employees.
DIVIDENDS
The Board recommends the payment of a final dividend of RMB0.684 per 10 shares
for the year ended 31 December 2007, totalling approximately RMB837.987 million.
A resolution for the dividend payment will be submitted for consideration at the
annual general meeting. The dividend will be denominated and declared in
Renminbi. Dividends on domestic shares will be paid in Renminbi, whereas foreign
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
Each of the Directors was appointed by the Company on 30 October 2007 for a term
of three years.
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 2007 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 2007 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
Kong Dong
Acting Chairman of the Board
Beijing, PRC, 17 March 2008
As at the date of this announcement, the Directors of the Company are Kong Dong,
Wang Shixiang, Yao Weiting, Christopher Dale Pratt, Chen Nan Lok Philip, Ma
Xulun, Cai Jianjiang, Fan Cheng, Hu Hung Lick, Henry*, Wu Zhipan*, Zhang Ke* and
Jia Kang*.
* Independent non-executive Director of the Company
END
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 3rd January 2025
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